Financial Analysis of Selected Pharmaceutical Companies in Bangladesh

Topics: Financial ratios, Financial ratio, Generally Accepted Accounting Principles Pages: 33 (13288 words) Published: January 19, 2013
European Journal of Business and Management ISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)

Financial Analysis of Selected Pharmaceutical Companies in Bangladesh Md. Tofael Hossain Majumder (Corresponding Author) Lecturer, Department of Accounting and Information Systems Comilla University, Comilla, Bangladesh. Phone: +8801816436176, Email: Mohammed Mizanur Rahman Lecturer, School of Business and Economics Atish Dipankar University of Science and Technology, Dhaka, Bangladesh. Phone: +8801814319485, Email:

Abstract With the rapid growth of trade, commerce and industries, the numbers of publicly traded companies are considerably increasing in Bangladesh. Pharmaceutical is an important adjunct of industrialization in the country. But the net profit of this industry has decreased for the last few years. This paper attempted to review the financial performance of this industry, to test its strengths and weaknesses. This study is based on both primary and secondary data. The collected data have been tabulated, analyzed and interpreted with the help of different financial ratios, Multivariate Discriminate Analysis (MDA) as developed by Prof. Altman and statistical tools like mean, standard deviation (SD), coefficient of variance (CV) and T-test, etc. It was observed from the study of the financial statement of the Pharmaceutical industry that the profit earning capacity, liquidity position, financial position and the performance of the most of the Pharmaceuticals are not in sound position and it was also observed that the most of the Pharmaceuticals has a lower level position of bankruptcy. The reasons behind this position of the industry are inefficiency of financial management, absence of realistic goals, strict government regulation and increased cost of raw-materials, labor and overhead. The financial performance should be improved immediately. Therefore, the appropriate authority should take measures for the removal of the above problems. Keywords: Financial Performance, Ratio Analysis, Pharmaceuticals Industry, Multivariate Discriminate Analysis (MDA), T-test. 1. Introduction Financial analysis is the process of identifying the financial strengths and weaknesses of the firm by properly establishing relationship between the items of the balance sheet and the profit and loss account Pandey (1979). Financial Statements (income statement, cash flow statement, owners’ equity statement and balance sheet) contain a wealth of information which, if properly analyzed and interpreted, can provide valuable insights into a firm’s performance and position. Performance measurement of public enterprises has been the subject matter of discussion for planners, administrators, managers, economists and academics since long. But some lack of clarity about performance and the existence of defensive attitude on the part of those who have to take responsibility for inefficient operations have the effect of inhibiting both frame discussion and decisive action in this regard Bunnett (1987). Analysis of financial statements is of interest to lenders, security analysts, managers and others Prasanna (1995). Trade creditors are interested in the firm’s ability to meet their claims. Their analysis will therefore, confine to the evaluation of the firm’s liquidity position. The suppliers are concerned with the firm’s solvency and survival. They analyze the firm’s profitability over time. Long term creditors place more emphasis on the firm’s solvency and

European Journal of Business and Management ISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)

profitability. The investors are most concerned about the firm’s earnings. So, they concentrate on the analysis of the firm’s present and future profitability as well as earning ability and risk Abu Sina and Arshed Ali (1998). Publicly traded companies are the economic pulse of a nation. Their birth, prosperity and demise generally...
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