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Origin of the Report It is based on the analysis of the annual reports of two pharmaceuticals Companies in Bangladesh. The analysis was carried out of financial statements of two years of two pharmaceuticals Companies. 1.1 Objective The objectives of this report are:

To attain an overview of the ACI BANGLADESAH LIMITED through

different types of financial statement analysis and comparing with other.

To use ratio analysis to make intra company analysis over two years and

interpret the respective changes

To use the information in financial statements to make deductions this will aid

shareholders in assessing a company in the Pharmaceuticals industry.

1.2 Scope This report will focus primarily on the creditors and shareholders perspective while analyzing financial data. When investors and creditors make their decisions, they evaluate the financial position of the company they are interested in and compare it with the others.

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1.3 Methodology
The information in this report is based on primary sources such as the annual reports of different companies in pharmaceuticals industry, and literary texts and other information is taken from the company officials. The analysis of the financial statements was done for the past two years.

Here two pharmaceuticals organizations are selected including ACI Bangladesh Limited. Other is Beximco pharma. The analysis was carried out using the methods of Ratio analysis. 1.4 Limitations Some of the shortcomings faced while collecting the information and compiling the relevant data for the report are: Some discrepancies were there in the data provided in the annual report. As ACI and Beximco pharma both are Pharmaceuticals Company and they are It has been difficult to compare between the two companies. Some of the methods and terminology used in the annual reports were adopted

doing business almost neck to neck, it is difficult to choose one company as leader.

by the company on its own and as a result did not conform to accounting books and common accounting principles.

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1.5 Objectives of Financial Statements Analysis Financial statement analysis consists of applying analytical tools and techniques to financial statements and other relevant data to obtain useful information. This information shows the consequences of prior management decisions. In addition, it is used to make predictions that may have a direct effect on decisions made by users of financial statements. Present investors and potential investors are both interested in the future ability of a company to earn profits- its profitability. The companys past earnings record is the starting point in predicting future earnings. Sometimes, outside parties are also interested in predicting a companys solvency rather than its profitability. Short-term creditors are interested in the short-term solvency, which is affected by the liquidity position of the company. On the other hand, long-term creditors are interested in the long-term solvency, which is usually determined by the relationship of a companys assets to its liabilities.

1.7 Overview of ACI Bangladesh Ltd. ACI has been operating in this region (now in Bangladesh) since 1905, when the first Singer sewing machines went on sale at Chittagong and Dhaka shops. Today, ACI Bangladesh Ltd. is a large, diversified company with unmatched presence throughout Bangladesh. It remains a member of the worldwide ACI family. Beginning with the sewing machine, ACIs product portfolio has diversified to encompass a highly successful multi-brand strategy combining products of top world marques with the companys own products across a range of household, industrial and financial categories.

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ACI Bangladesh Limited was listed with the Dhaka Stock Exchange in 1983 and Chittagong Stock Exchange in 2001.

RATIO ANALYSIS
Financial ratios are designed to help evaluate a companys financial statements. These ratios are the taka amounts, set up in a ratio form, of the related accounts or items in the financial statements. These ratios can be broadly classified into the following four categories: Liquidity ratios Profitability ratios Long term solvency ratios 2.1 Liquidity Ratios

A liquid asset is one that trades in an active market and hence can be quickly converted to cash at the going market price, and a firms liquidity ratios deal with whether the firm would be able to pay off its debts as they come due over the next

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year or so. In other words, liquidity ratios are used to indicate a firms short-term debt paying ability. Thus these ratios are designed to show interested parties the companys capacity to meet maturing current liabilities. The common liquidity ratios are as follows, Current ratio Quick ratio Accounts Receivable ratio Inventory turnover ratio I. Current Ratio A companys current assets and current liabilities reflect the state of its working capital. They are thus a representation of the foundations underlying the companys day-to-day operations. The current ratio, which is current assets divided by current liabilities, is the most common ratio that focuses on current assets and current liability data. In general, a higher current ratio indicates a stronger financial position. A higher current ratio suggests that the business has sufficient liquid assets to maintain normal business operations. As a result, lenders, stockholders and managers closely monitor changes in a companys current ratio. Current Ratio = Current Assets/ Current liabilities Creditors prefer a high current ratio since it indicates assets to be more liquid and thus proves the company to be more capable of paying current liabilities from current assets. On the other hand, shareholders prefer a lower current ratio since a very high current ratio suggests that there is too much idle cash lying around and that customers may be slow in paying receivables. Decreased net income can result when too much capital that could be used profitably elsewhere is tied up in current assets.

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Current Ratio of Beximco pharma 2006 2007 Current assets 3357393266 2923775458 Current liability 2527420798 1627972936 Current ratio 1.33 1.80

Current Ratio for ACI Bangladesh Ltd. Current assets 1755046647 3120888791 Current liability 1741038501 3133547474 Current ratio 1.00 1.00

2006 2007

Comparative Discussion Beximco pharma 2006 2007 1.33 1.80 ACI 1.00 1.00

ACI holds comparatively very low current rati But ACI must strive achieve a considerable level of sufficiency in current asset.

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Short-term creditors are particularly interested in the current ratio since the conversion of inventories and accounts receivable into cash is the primary source from which the company obtains the cash to pay short-term creditors. Long term creditors are also interested in the current ratio because a company that is unable to pay short-term debts may be forced into bankruptcy for this reason, many bond indentures, or contracts, contain a provision requiring that the borrower maintain at least a certain minimum current ratio. ACI can increase its current ratio by issuing long-term debt or capital stock or by selling non-current assets.

ii. Quick Ratio The current ratio is not the only measure of a companys short-term debt-paying ability. The acid-test (quick) ratio is the ratio of quick (cash, marketable securities, and net receivables) to current liabilities. Inventories and prepaid expenses are excluded from current assets to compute quick assets because they might not be readily convertible into cash. The formula for the quick ratio is: Quick ratio= Quick Assets/Current Liabilities Short-term creditors are particularly interested in this ratio, which relates the pool of cash and immediate cash inflows to immediate cash outflows.

Quick Ratio for Bximco pharma 2006 Quick Assets 1271295167 Current liability 2527420798 Quick ratio 0.50

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2007

1602952978

1627972936

0.98

Quick Ratio for ACI Bangladesh Ltd. Quick Assets 336270428 608611850 Current Liabilities 1741038501 3133547474 Ratio 0.193 0.194

2006 2007

Comparative Discussion Beximco 2006 2007 pharma 0.50 0.98 ACI 0.193 0.194

Comparative analysis reports that Beximco pharma has better quick ratio than ACI. ACI should search for long term financing to satisfy short-term need. It will result in good liquidity position.

iii. Accounts Receivables Turnover

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Accounts receivable turnover is the relationship between the amount of an asset and some measure of its use. Accounts receivable turnover is the number of times per year that the average amount of accounts receivables is collected. The turnover ratio provides an indication of how quickly the receivables are collected. Accounts receivable turnover = Net Sales / Accounts receivable turnover The accounts receivable turn over ratio provides an indication of how quickly the company collects receivables.

Accounts Receivable Turnover forBeximco pharma Net Credit Sales Accounts receivable Receivable ratio 3702317159 430240095 8.60 3597024812 464960444 7.74

2006 2007

Accounts Receivable Turnover for ACI Bangladesh Ltd. Net Credit Sales 3515862372 4917304331 Accounts Receivable 422317497 422317497 Receivable Ratio 8.325 11.643

2006 2007

Compar ative Discussion Beximco pharma CI A

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2006 2007

8.60 7.74

8.325 11.643

Here ACI has better result than Beximco pharma but the result is not satisfactory. On an average ACI collected its outstanding money11times during the year. ACI should strive to sell its product more rapidly. It can raise its marketing efforts to sale product rapidly. iii. Accounts Receivables Turnover Accounts receivable turnover is the relationship between the amount of an asset and some measure of its use. Accounts receivable turnover is the number of times per year that the average amount of accounts receivables is collected. The turnover ratio provides an indication of how quickly the receivables are collected. Accounts receivable turnover = Net Sales / Accounts receivable turnover The accounts receivable turn over ratio provides an indication of how quickly the company collects receivables. Inventory Turnover for Beximco pharma CGS 1971231333 1967509975 Inventory 1754440288 1703460289 Ratio 1.12 1.16

2006 2007

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Inventory Turnover for ACI Bangladesh Ltd. CGS 2339975616 3250711677 Inventory 914036897 914036897 Ratio 2.56 3.55

2006 2007

Comparative Analysis Beximco pharma 2006 2007 1.12 1.16 ACI 2.56 3.55

ACI was showing a better performance. In attempting to earn satisfactory income ACI must balance the cost of inventory storage and obsolescence and the cost of tying up funds in inventory against possible losses of sales and other costs associated with keeping to little inventory on hand. 2.2 Profitability Ratios Profitability is an important measure of a companys operating success. Profitability is the net result of a number of policies and decisions. The ratios examined thus provide useful clues as to the effectiveness of a firms operations, but the profitability ratios go on to show the combined effects of liquidity, asset management, and debt operating results. When judging the profitability of a company, two areas are given most attention.

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Relationships on the income statement that indicate a companys ability to recover costs and expenses Relationships of income to various balance sheet measures that indicate the companys relative ability to earn income on assets employed. Each of the following ratios makes use of one of the relationships. v. Profit Margin Profit margin is an indication of the return that the firm will be able to provide its shareholders with. It is the operating income over sales. An investor will always look Forward to investing money in a company with high profit margin ratio as that indicates a fair amount of return for their investment. Profit margin is affected by three main factors namely cost of goods/services, cost of raw materials/supplies and the demand for good and services. Profit margin = Net income / Sales Shareholders are especially interested in this ratio because it indicates that the company is generating a good proportion of net income from its net sales. Therefore, there is a fat chance of shareholders getting a handsome amount of dividend each year. Even if dividends are not declared or paid, the company can keep the income in a reserve, which would again prove to be beneficial. However, if the proportion is lower, then it can be assumed that though the company is generating a considerable amount of net income, majority of it are being used up to pay off the operating expenses. The net income includes all non-operating items that may occur only in a particular period; therefore, net income includes the effects of such things as extraordinary items, changes in accountings principle, effects of discontinued operations, and

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interest charges. Thus, a period that contains the effects of an extraordinary item is not comparable to a period that contains no extraordinary items. Profit Margin for Beximco pharma Net Income 470659 353068 Sales 3702317 3597025 Profit margin 12.71% 9.82%

2006 2007

Profit Margin for ACI Bangladesh Ltd. Net Income 153825615 313035231 Sales 2339975616 4917304331 Ratio 0.065% 0.063%

2006 2007

Comparative Discussion Beximco pharma 2006 2007 12.71% 9.82% ACI 0.065% 0.063%

Inventors would be very happy with Beximco pharma profit margin. They have stayed well above the other three. The profit margin of ACI infusion does not show a welcoming picture.

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v. Profit Margin Profit margin is an indication of the return that the firm will be able to provide its shareholders with. It is the operating income over sales. An investor will always look Forward to investing money in a company with high profit margin ratio as that indicates a fair amount of return for their investment. Profit margin is affected by three main factors namely cost of goods/services, cost of raw materials/supplies and the demand for good and services. Profit margin = Net income / Sales Shareholders are especially interested in this ratio because it indicates that the company is generating a good proportion of net income from its net sales. Therefore, there is a fat chance of shareholders getting a handsome amount of dividend each year. Even if dividends are not declared or paid, the company can keep the income in a reserve, which would again prove to be beneficial. However, if the proportion is lower, then it can be assumed that though the company is generating a considerable amount of net income, majority of it are being used up to pay off the operating expenses. The net income includes all non-operating items that may occur only in a particular period; therefore, net income includes the effects of such things as extraordinary items, changes in accountings principle, effects of discontinued operations, and interest charges. Thus, a period that contains the effects of an extraordinary item is not comparable to a period that contains no extraordinary items.

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Asset Turnover for Beximco pharma Sales 2006 2007 3702317 3597025 Total asset 9885840 10516030 Asset turnover 37.45% 34.20%

Asset Turnover for ACI Bangladesh Ltd. Sales 3515862372 4917304331 Total asset 3823001007 3823001007 Asset turnover 0.919% 1.286%

2006 2007

Comparative Discussion

2006 2007

Beximco pharma 37.45% 34.20%

ACI 0.919% 1.286%

ACI has a low ratio but for the last two years it increasing. Shareholders are likely to feel happy when they find that ratio is rising. ACI should strive to utilize its assets more efficiently.

vii. Return on equity This ratio indicates the ability of the firms management to earn adequate net income on the capitals invested by the owners of the company. The return on equity ratio is found by dividing the net income of a company by the total equity.

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Return on equity = Net income / Total equity Though stockholders are interested in the ratio of operating income to operating assets as a measure of managements efficient the of assets, they are even more interested in the return the company earns on each dollar of stockholders equity. Return on equity for Beximco pharma

2006 2007

Net income 470659 353068

Total equity 7949920 8100430

Return on equity 5.92% 4.36%

Return on equity for ACI Bangladesh Ltd. Net income 153825615 313035231 Total equity 1133111110 1419947285 Return on equity 13.58% 22.04%

2006 2007

Comparative Discussion

Beximco pharma 2006 2007 5.92% 4.36%

ACI 13.58% 22.04%

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From the Comparative Discussion we that Return on equity Aci has good performance.

viii. Earning per share (EPS) The most widely used measure to appraise a companys profitability is earnings per share (EPS) of common stock. The amount of earnings available to stockholders is equal to net income minus the current years preferred dividend.

EPS of Common Stock = Net Income/Average no. of Common Stock Outstanding

EPS for Beximco pharma Net income 470659 353068 No. of shares outstanding 104097312 114507043 EPS 0.005 0.003

2006 2007

EPS for ACI Bangladesh Ltd. Net income 153825615 313035231 No. of shares outstanding 50000000 50000000 EPS 3.07 6.26

2006 2007

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Comparative Discussion Beximco pharma 0.005 0.003 ACI 3.07 6.26

2006 2007

As we can see, from the graph. ACI`s EPS is far better than Beximco pharma.

ix. Price earning ratio It is found by dividing the price per share by the earning per share. It helps a probable investor to conclude if its under valued or over valued stock. Price earning ratio = Price per share / Earning per share Because the PE ratio measures how much inventors are willing to pay per Tk. of current earnings, higher PEs are often taken to mean the firm has significant prospect for future growth. Of course, if a firm had no or almost no earnings, its PE will

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probably be quite large; so, as always, care is needed in interpreting this ratios. Price per Share: ACI-Tk450, Beximco pharma-tk115. Price Earning Ratio for. Beximco pharma Price per share 2006 2007 115 0.005 0.003 EPS Price earning ratio

Price Earning Ratio for ACI Bangladesh Ltd. Price per share 2006 2007 450 EPS 70.18 61.25 Price earning ratio 7.35

Comparative Discussion Beximco pharma 2006 2007 4.89 ACI 7.35

price earnings ratio for ACI is very high which is a good sign of the organization. Of course if a firm had no or almost no earnings its PER would probably be quite large; so as always, care is needed in interpreting this ratio.

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x. Payout Ratio: Payout Ratio measures the percentage of earning distributed in the form of cash dividends. We compute it by: Payout Ratio= Cash dividends\Net Income

Dividend Payout Ratio for Beximco pharma . Dividend/Share 156146 171761 NET INCOME 470659 353068 Dividend payout 33.17% 48.64%

2006 2007

Dividend Payout Ratio for ACI Bangladesh Ltd. Dividend/Share 72765000 97020000 NET INCOME 153825615 313035231 Dividend payout 47.30% 30.99%

2006 2007

Comparative Discussion Beximco pharma 33.17% 48.64% ACI 47.30% 30.99%

2006 2007

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Earning distributed in the form of cash dividends in 2006 ACI is better but in 2007 ACI`s performers is not better.

2.3 Solvency Ratio Solvency ratios measure the ability of the enterprise to survive over a long period of time. Long-term creditors and stockholders are interested in a company's long run solvency, particularly its ability to pay interest as it comes due and to repay the face value of the debt at maturity. Debt to total assets, debt to equity and times interest earned are 3 ratios that provide information about debt paying ability.

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xiv. Debt-asset ratio

This ratio indicates how much of the firms assets are financed by debt. If the firm has excessive debt it would be difficult to find new debt. Then the firm would have to borrow at higher interest rates. Debt-asset ratio = Total debt / Total asset

Debt Asset Ratio for Beximco pharma

2006 2007

Total debt 3962592 3702478

Total asset 9885840 10516030

Debt-asset ratio 0.40 0.35

Debt Asset Ratio for ACI Bangladesh Ltd. 2006 2007 Total debt 2503929007 4117494518 Total asset 3716306002 5912361279 Debt-asset ratio 0.67 0.70

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Comparative Discussion Beximco pharma 0.40 0.35 ACI 0.67 0.70

2006 2007

Long period of time ACI is better than Beximco pharma.

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RECOMMENDATION I have the following recommendations to develop ACI's performance: 1. ACI has a very low high current and quick ratio in comparison with other organization. So, ACI should issue long-term debt or capital stock to remove the liquidity problem ACI should go for long term financing instead of short term financing to remove the liquidity problem. 2. Incase of the maintenance of inventory ACI must balance the cost of inventory storage and obsolescence and the cost of tying up funds in inventory against possible losses of sales and other costs associated with keeping too little inventory on hand. 3. All the profitability measures show or dictate very vulnerable position for ACI. To get itself profitable ACI can search for alternative cheap sources of supplies, efficient management system and cheap sources of financing. 5. ACI price earning ratio is high for the last two years. Here the likely reason is ACI EPS is low in terms of price. ACI should consider this matter. 6. ACI is substantially bad in terms of long term solvency as we find that debt equity ratio and debt to total assets ratios are remarkably higher than the other organization. Which implies that ACI is highly risky organization? So, ACI should finance equity capital and should reduce the debt capital. 7. Dividend payment is a controversial issue. However steady payment of dividend gives a clear message about organizations strong financial performance ACI should pay dividend in the absence of profitable investment opportunity. 8. Overall, ACI should follow Beximco pharma strategy and in some cases ACI's strategy to improve its overall position of the organization.

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1.Book: ACCOUNTING PRINCIPLES -- Weygant-Kieso-Kimmel 2.Annual report of ACI Company (2007). 3.Annual report of Beximco pharma (2007). 4.Newspaper: -Daily Star

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