Performance evaluation of a company is usually related to how well a company can use its assets, share holder equity and liability, revenue and expenses. Financial ratio analysis is one of the best tools of performance evaluation of any company. In order to determine the financial position of the Square Pharmaceutical Limited and to make a judgment of how well is the efficiency of Square Pharmaceutical Limited, its operation and management and how well the company has been able to utilize its assets and earn profit. We use ratio analysis for easily measurement of efficiency, liquidity position, asset management circumstance, investment condition, profitability, market value and debt coverage situation of the Square Pharmaceutical Limited for performance evaluation. It analyzes that how the company uses of its assets and control of its expenses. It determines the greater the coverage of liquid assets to short-term liabilities and it also compute ability to pay. It measures overall efficiency and performance of Square Pharmaceutical Limited. It determines of share market condition of Square Pharmaceutical Limited. Square Pharmaceutical Limited is the most famous company in Bangladesh. It was established in 1958 but their converted into public limited company in 1991. It is the first among all national, multinational, private and public of pharmaceutical company of Bangladesh. Their mission is to produce and provide quality healthcare relief of people, maintain strongly ethical standard in business operation also ensuring benefit to the shareholder, stakeholder, and society. Their vision is social wellbeing of the investors, employee and society at large, wealth financial and moral gains as a part of the process of the human civilization. Their objectives are to conduct transparent business operation based on market mechanism within the legal and social frame work.
Financial ratios are useful indicators of a firm's performance and financial situation. Financial ratios can be used to analyze trends and to compare the firm's financials to those of other firms. Ratio analysis is the most widely used tool since it compares risk and return relationships of firms from various aspects. Ratio analysis is the method or process by which the relationship of items or group of items in the financial statements are computed, determined and presented. It is an attempt to derive quantitative measures or guides concerning the financial health and profitability of a business enterprise. It can be used both in trend and static analysis. There are several ratios at the disposal of an analyst but the group of ratios he would prefer depends on the purpose and objectives of analysis. The definitions of different ratios are given below:
1. Profit Margin. A ratio of profitability calculated as net income divided by revenues, or net profits divided by sales. Profit margin is also known as ‘Net Profit Ratio’. It measures how much out of every taka of sales a company actually keeps in earnings. A higher profit margin indicates a more profitable company that has better control over its costs compared to its competitors. Profit margin is displayed as a percentage. The equation is: Profit Margin = Net Income ÷ Sales
2. Gross Profit Margin. A financial metric used to assess a firm's financial health by revealing the proportion of money left over from revenues after accounting for the cost of goods sold. Gross profit margin serves as the source for paying additional expenses and future savings. This measure can be used to compare a company with its competitors. More efficient companies will usually see higher profit margins. Gross Profit Margin = Gross Profit ÷ Sales
3. Return on Assets (ROA). ROA is an indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings. Calculated by dividing a company's annual earnings...
References: 1. Block, Stanley B and Hirt, Geoffrey A. Foundation of Financial Management 12th edition.
Financial Statement of Square Pharmaceutical Limited (2011-10)
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