Valuation

Table of Contents
Chapter-1: Introduction .......................................................................................................... 5
1.1 Origin of the Report ......................................................................................................... 5
1.2 Objective of the Report .............................................................................................. 6
1.3 Scope of the Report .......................................................................................................... 6
1.4 Limitation of the report .................................................................................................... 6
1.5 Sources and Methodology................................................................................................ 7
Chapter-2: Overview of the Beximco Pharmaceuticals Limited ......................................... 9
2.1 Corporate profile of the BEXIMCO Pharmaceuticals Limited ....................................... 9
2.2 Mission of the BEXIMCO Pharmaceuticals Limited ...................................................... 9
2.3 Vision of the BEXIMCO Pharmaceuticals Limited ........................................................ 9
2.4 Corporate goal of the BEXIMCO Pharmaceuticals Limited ......................................... 10
2.5 Justification of corporate goal of the BEXIMCO Pharmaceuticals Limited ................. 10
2.6 Corporate Social Responsibility of the BEXIMCO Pharmaceuticals Limited .............. 10
Chapter-3: Economy Analysis .............................................................................................. 13
3.1 Bangladesh Economy Overview: ................................................................................... 13
3.2 Gross Domestic Product (GDP): .................................................................................... 13
3.3 Inflation Expectation:..................................................................................................... 14
3.4 Export Growth: .............................................................................................................. 14
Chapter-4: Industry Analysis ............................................................................................... 16
4.1 Pharmaceuticals Industry Overview: ............................................................................. 16
4.2 Porters Five Forces Analysis: ........................................................................................ 17
Chapter-5: MV and BV of Debt and Equity ....................................................................... 20
5.1: Book Value of Debt and Equity of Beximco Pharmaceuticals Limited ....................... 20
5.2 Comparison of the BV of debt, BV of equity and BV of the firm:................................ 23
5.3 Market Value of Debt and Equity of Beximco Pharmaceuticals Limited ..................... 25
5.4 Comparison of the BV of debt, BV of equity and BV of the firm:................................ 28
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Chapter-6: Optimal capital structure of the Beximco Pharmaceuticals Limited ............ 31
6.1 Methods for evaluating optimal capital structure for Beximco pharmaceutical limited:
.............................................................................................................................................. 31
6.2 Peer company analysis: .................................................................................................. 32
6.3 Quantitative approach: ................................................................................................... 33
6.4 Optimal Capital structure for Beximco pharmaceuticals limited: ................................. 37
Chapter-7: Cost of Debt, Cost of Equity and WACC and Valuation using FCF Model 39
7.1 Cost of Debt: .................................................................................................................. 39
7.2 Calculation of cost of debt: ............................................................................................ 40
7.3 Cost of Equity: ............................................................................................................... 41
7.3 Weighted Average Cost of Capital (WACC): ............................................................... 43
7.4 Valuation using FCF Mode:........................................................................................... 44
Chapter-8: Relative Valuation: Using P/E and EV/ EBITDA Multiple ........................... 47
8.1 P/E and EV/EBITDA multiple: ..................................................................................... 47
8.2 Calculation methodology: .............................................................................................. 47
8.3 calculation of P/E: .......................................................................................................... 48
8.4 Calculation of EV/EBITDA:.......................................................................................... 49
8.5 Final price based on relative valuation: ......................................................................... 50
Chapter-9: Ratio Analysis of the Beximco Pharmaceuticals Limited............................... 52
9.1 Ratio Analysis of Beximco Pharmaceuticals Limited: .................................................. 52
9.2 Activity Ratio: ................................................................................................................ 52
9.3 Liquidity Ratio ............................................................................................................... 59
9.4 Profitability Ratio........................................................................................................... 60
9.5 Solvency Ratio ............................................................................................................... 63
9.6 Market Value Ratio ........................................................................................................ 65
Chapter-10: Du Pond Analysis and Analysis of ROE Sensitivity ..................................... 68
10.1 DuPont Analysis of Beximco Pharmaceuticals Limited:............................................. 68
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10.2 ROE Sensitivity Analysis of Beximco Pharmaceuticals Limited: ............................... 70
10.3 Ways to Improve ROE of Beximco Pharmaceuticals Limited: ................................... 72
Chapter-11: Profitability Analysis ....................................................................................... 75
11.1 Reformulation of Financial Statements: ...................................................................... 75
Reformulated Income Statement: .................................................................................... 75
Reformulated Balance Sheet: ........................................................................................... 76
11.2 Comparative Analysis of Profitability ......................................................................... 77
First Level Breakdown:.................................................................................................... 77
Second Level Breakdown: ............................................................................................... 78
Third Level Breakdown: .................................................................................................. 78
Chapter 12: Analysis of Dividend Policy of Beximco Pharmaceuticals Limited ............ 80
12.1 Dividend payment pattern of Beximco pharmaceuticals limited:................................ 80
12.2 Pattern for 2016............................................................................................................ 80
12.3 Pattern for 2015: ......................................................................................................... 82
12.4 Pattern for 2014............................................................................................................ 83
13.4 Pattern for 2013............................................................................................................ 83
12.5 Pattern for 2012: .......................................................................................................... 84
12.6 Analysis of the dividend pattern and identifying dividend policy though key parameters
.............................................................................................................................................. 85
12.7 Analysis of the dividend policy decision of the Management of Beximco

pharmaceuticals limited: ...................................................................................................... 92
Chapter-13: Conclusion ........................................................................................................ 94
References ............................................................................................................................... 96
Appendix ................................................................................................................................. 98
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Introduction
Chapter-1
Page 4 of 109
Chapter-1: Introduction
1.1 Origin of the Report

To have an overview of the Corporate Finance in practical life we’ve a study on “Analysis of
Financial Condition and Dividend Pattern of Beximco Pharmaceuticals Limited”, a
pharmaceuticals, and health care company and one of the largest companies in our country.
Now a day’s education is not just limited to books and classrooms. In today’s world, education
is the tool to understand the real world and apply knowledge for the betterment of the society
as well as business. From education the theoretical knowledge is obtained from courses of
study, which is only the half way of the subject matter. Practical knowledge has no alternative.
The perfect coordination between theory and practice is of paramount importance in the context
of the modern business world in order to resolve the dichotomy between these two areas.
Therefore, for the B.B.A. program we are assigned to prepare a report on “Analysis of
Financial Condition and Dividend Pattern of Beximco Pharmaceuticals Limited” Corporate
Finance (F-406) course by our honorable course teacher Shabbir Ahmad.
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1.2 Objective of the Report
Our objectives are…
 To increase our experience in data collection & analysis.

 To know about the actual picture of Beximco Pharmaceuticals Limited.
 To have practical knowledge of Corporate Finance.
 To know the implications of Corporate Finance.
 To have better analytical abilities regarding Corporate Finance in real world.
 To know Beximco Pharmaceuticals limited from a closer view.
1.3 Scope of the Report

While completing the report we’ve had a lot of scopes of gathering knowledge of real
business world and the wide horizon of business, although the report is only concerned
about the Beximco Pharmaceuticals Limited. We have collected their information from the
internet and its head office. We got almost all the information we needed because the
website of the company is very much updated and resourceful. We knew about their
mission, vision, products, area of operation, accounting system, managerial and
organizational structure etc. We are really grateful to our course teachers for assigning us
such an interesting and knowledgeable topic.
1.4 Limitation of the report

While preparing this report, we have faced some problems. The main problem was to co-
ordination all the group members. Moreover, during data collection we faced several
problems.
 Due to limited access of the data, this study may not be perfect to the scent percent.
 Lack of enough experience in analyzing of data.
Due to inadequate information, in-depth analysis could not be done in the report
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1.5 Sources and Methodology
This report’s research is based on application of the Corporate Finance in Beximco

Pharmaceuticals Limited. The data types are secondary that were collected from the internet.
The company’s updated information is given on its website and we mainly collected
information from there.
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Overview of the Beximco
Chapter-2 Pharmaceuticals Limited
Page 8 of 109
Chapter-2: Overview of the Beximco Pharmaceuticals
Limited
2.1 Corporate profile of the BEXIMCO Pharmaceuticals Limited

Name of the Company BEXIMCO Pharmaceuticals Limited
Status Public Limited Company
Industry Pharmaceuticals
Year of Establishment 1976
Year of Commercial Production 1980
Registered office Tongi, Gazipur, Bangladesh
Authorized Capital 2,000 million
Paid Up Capital 1,145.07 million
Numbers of the shareholders Around 54,000
Numbers of the employees 2,384
Web Page http://www.beximco-pharma.com
Chairman A S F Rahman
2.2 Mission of the BEXIMCO Pharmaceuticals Limited

The mission of the Beximco Pharmaceuticals Limited is stated below:
“We are committed to enhancing human health and well-being by providing contemporary
and affordable medicines, manufactured in full compliance with global quality standards.
We continually strive to improve our core capabilities to address the unmet medical needs of
the patients and to deliver outstanding results for our shareholders.”
2.3 Vision of the BEXIMCO Pharmaceuticals Limited

The Vision of the Beximco Pharmaceuticals Limited is stated below:
We will be one of the most trusted, admired and successful pharmaceutical companies in the
region with a focus on strengthening research and development capabilities, creating
partnerships and building presence across the globe.
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2.4 Corporate goal of the BEXIMCO Pharmaceuticals Limited
As per the managing director’s statement in the annual report of Beximco Pharmaceuticals
Limited, the corporate goal of Beximco Pharmaceuticals Limited is – “Creating value for all
our customers and shareholders”.
They are always focused on their strategic and aspirational targets, enabling then to maintain
their strong sales growth and achieve milestone events like approval from US Food and Drug
Administration (US FDA).
2.5 Justification of corporate goal of the BEXIMCO Pharmaceuticals

Limited
The above-mentioned corporate goal Beximco Pharmaceuticals Limited is broadly defined.
The value creation for customers is possible for developing and providing high quality drugs
to their customers. So, the major focus of this company remains on Research & Development
to provide high quality differentiated product to market. Their R & D team has been
continuously working on diverse delivery system, as well as regulatory filings in different
market. The maximisation of the shareholders’ value will work side by side. So, management
team is focused to drive sustainable long-term growth and shareholders.
2.6 Corporate Social Responsibility of the BEXIMCO Pharmaceuticals

Limited
BEXIMCO Pharmaceuticals Ltd. is one of the signatory of UN Global Compact in Bangladesh.

BEXIMCO supports global business community to uphold social issues in business operations
and being convinced of the benefits which will accrue out of voluntary adherence to universally
recognized social values in transaction of businesses.
BEXIMCO consider the interests of customers, employees, shareholders, communities,

and ecological considerations in all aspects of their operations. This obligation is seen to extend
beyond their statutory obligation to comply with legislation.
BEXIMCO activity goes well beyond the sphere of business. As socially conscious and
responsible corporate body. BEXIMCO is committed to the improvement of the society as a
whole. BEXIMCO helps many NGO's in their effort to make available healthcare to the
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disadvantage population of the Country. It sponsors programs to build awareness on the
healthcare need. BEXIMCO is also a major sponsor of sporting events in the country.
Some CSR activities of the BEXIMCO are mentioned below:
Education Social Events Medical

community
Research Project of a Supporting the victims of the Rana Free medical campaign
professor of the Plaza
University of Dhaka
Provided free Working together with non-profit Medical Awareness
technical support to organizations who work to improve Campaign
world renowned people's lives
research institutes
School/ university bus Supporting to Mobile Alliance for Ensuring safe &
Maternal Action (MAMA) in healthy workplace
Bangladesh
Plays an important part in promoting
Maternal and Newborn Health in
partnership
Support the JAAGO Foundation
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Chapter-3 Economy Analysis
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Chapter-3: Economy Analysis
3.1 Bangladesh Economy Overview:

Bangladesh economy has been experiencing stable growth, fueled by export growth, expanding
domestic market and stabilizing political condition.
3.2 Gross Domestic Product (GDP):

The Gross Domestic Product (GDP) in Bangladesh expanded 7.11 percent in 2016 from the
previous year. But it is expected to be 7.20 percent by the end of this quarter, according to
Trading Economics global macro models and analysts’ expectations. In the long-term, the
Bangladesh GDP Growth Rate is projected to trend around 6.80 percent in 2020, according to
the econometric models.
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3.3 Inflation Expectation:
In 2016 the inflation rate in Bangladesh was 5.52%. Looking forward, we estimate Inflation
Rate in Bangladesh to stand at 5.60 in 12 months’ time. In the long-term, the Bangladesh
Inflation Rate is projected to trend around 4.80 percent in 2020, according to the econometric
models.
Inflation Rate
7.54%
8.00% 7.00%
6.19%
5.52%
6.00%
3.85%
4.00%
2.00%
0.00%
2012 2013 2014 2015 2016
Inflation 3.85% 7.54% 7.00% 6.19% 5.52%
Years
From the above graph we can see that the inflation expectation is decreasing which may
encourage the investment in the country.
3.4 Export Growth:

Export Promotion Bureau (EPB) reported that Bangladesh's exports in the first 11 months of
the current fiscal year stood at $31.79 billion, 4.68 percent lower than the target of $37 billion.
From the above graph we can see that export is decreasing which is negative sign for any
economy.
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Chapter-4 Industry Analysis
Page 15 of 109
Chapter-4: Industry Analysis
4.1 Pharmaceuticals Industry Overview:

The pharmaceutical industry provides investors a vast array of value investing opportunities,
from companies that focus on research and development activities to drug manufacturing and
sales. A metric commonly used to evaluate whether a specific company or industry is a viable
investment is the price-to-earnings ratio, also referred to as the P/E ratio. As of June 2016, the
drugs sector has an average P/E ratio of 20.10.
Pharmaceutical Industry
Company Name P/E Market Capitalization
(Billion)
Square Pharma 16.46 194.0
BEXIMCO Pharma 14.64 45.3
ACI Limited 6.33 22.7
Central Pharma 27.88 3.0
Ibn Sina Pharma 21.5 6.4
Central Pharma 27.88 3.0
Orion Pharma 8.78 11.6
Salvo Chemical 23.4 1.4
Glaxo SmithKline 27.36 17.6
Renata Limited 18.14 69.2
Marico Bangladesh 22.47 32.4
P/E ratio of different companies in pharmaceutical industry is shown on the above table. As of
2016, Beximco Pharmaceuticals Limited's P/E ratio is 14.64 and it is close to the industry
average P/E ratio of 20.10
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P/E
16.46
14.64
27.88
27.88
27.36
18.14
22.47
6.33
21.5
8.78
23.4
SmithKline
BEXIMCO
Ibn Sina
Chemical
Bangladesh
ACI Limited
Limited
Pharma
Pharma
Pharma
Pharma
Central
Central
Pharma
Renata
Square
Orion
Pharma
Salvo
Marico
Glaxo
The price to earnings ratio of various companies within the industry is shown in the above
chart.
4.2 Porters Five Forces Analysis:
In Bangladesh, Pharmaceutical is one of the fastest growing sectors. Bangladesh

Pharmaceutical industry is now heading towards self-sufficiency in meeting the local demand.
Competitive forces analysis using porters five forces model is given below:
1. Barriers to Entry:
Barriers to entry in pharmaceuticals industry in Bangladesh is high because of the following

reason:
 80% of raw materials have to be imported

 Oligopolistic nature of the industry
 Insufficient “Bioequivalence” test facility
 Trust issues due to lack of latest drug testing lab
 Strict rules and regulation
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2. Threat of Substitutes:
At present in Bangladesh there is 269 allopathic, 205 Ayurvedic, 266 unani, 27 herbal and 79
homeopathic drug manufacturing companies running in the nation. So the customers have the
luxury to switch to substitutes at an ease. Considering this situation, we can say that threat of
substitutes are high for pharmaceuticals industry.
3. Bargaining Power of Suppliers:
Drug manufacturing companies in Bangladesh have to depend on the suppliers from China,
India, Germany, UK, France, Italy, Denmark, Switzerland, Austria etc. for raw materials
purpose. So, the bargaining power of supplier is high. But the establishment of API park is
supposed to lower the bargaining power of suppliers in future.
4. Bargaining Power of Buyer:
Bargaining Power of Buyer in pharmaceuticals industry in Bangladesh is low because of the

following reason:
 Medication is a fundamental need

 Level price is fixed for essential drugs by the Drug Control Committee
 Homogenous pricing of the competitors
5. Rivalry among Existing Competitors:
Rivalry among Existing Competitors are high for the pharmaceuticals industry in Bangladesh.
Roughly 258 companies are operating in the market of Bangladesh. More than 450 generic
drugs are produced for 5300 registered brands, which have 8300 different forms of dosages
and strengths. So, the existing companies compete for each other market share.
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Chapter-5 BV and MV of debt and
Equity
Page 19 of 109
Chapter-5: MV and BV of Debt and Equity
5.1: Book Value of Debt and Equity of Beximco Pharmaceuticals Limited

Book Value of Debt:
The book value of debt of Beximco Pharmaceuticals Limited for latest five financial year is shown in the following table. The audited financial
statements of this company includes financial lease as part of long term borrowing. However, the book value of debt includes only short term and
long-term debt. So, we have excluded the obligations related to financial lease from long term borrowings.
Table 1: BV of Debt of Beximco Pharmaceuticals Limited
Particular 2012 ( Dec) 2013 (Dec) 2014 (Dec) 2015 (Dec) 2016 (June)
Short Term Borrowings (Secured) 1,526,449,918 2,776,266,125 3,153,121,293 3,163,551,475 1,109,644,270
Long Term Borrowings-Current Maturity (Secured) 572,381,042 652,689,720 536,347,056 566,057,233 763,008,456
Project Loan - Local Banks 568,588,942 652,689,720 536,347,056 530,674,236 444,621,118
Project Loan - BHF Bank, Germany 35,382,997 41,054,236
AB Bank 277,333,102
Interest and PAD Block 3,792,100
Long Term Borrowings-Net off Current Maturity 1,336,416,545 1,001,325,040 608,901,223 477,848,224 1,953,756,203
(Secured)
Project Loan - Local Banks 1,336,416,545 1,001,325,040 608,901,223 156,856,364
Page 20 of 109
AB Bank 1,484,347,781
Total BV of Debt 3,435,247,505 4,430,280,885 4,298,369,572 4,207,456,932 3,826,408,929
Explanation: The short-term borrowings of Beximco Pharmaceuticals Limited includes the arrangement of short term loan from AB Bank. The
project loan from local banks was sanctioned under the consortium arrangement of Janata Bank Ltd., Sonali Bank Ltd., Agrani Bank Ltd., Rupali
Bank Ltd. and United Commercial Bank Ltd. for the US FDA standard oral solid dosage facility of the company. This Loan, carrying interest at
13.00% to 15.50% per annum, is repayable in quarterly instalments ending by 2017. Another term loan agreement arranged in 2015 was project
Loan from BHF Bank, Germany.This represents part of the foreign currency loan of US $ 51.559 million sanctioned by BHF-Bank
Aktiengesellshaft, Frankfurt, Germany to partially finance the machinery and equipment to be procured for expansion and diversification project
being implemented by the company. The loan carries interest @ 6 month’s USD LIBOR plus 2.25% per annum. The lender will receive
commitment fee @ 0.50% on the undisbursed portion of the loan. Moreover, Beximco Pharma has arranged another term loan agreement with AB
bank.
Book Value of Equity:
The book value of equity of Beximco Pharmaceuticals Limited for latest five financial year is shown in the following table. The issued capital of
Bexico pharmaceuticals Bangladesh shows continuous growth because of providing stock dividend in the continuous basis.
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Table 2: BV of Equity of Beximco Pharmaceuticals Limited
Particulars 2012 ( Dec) 2013 (Dec) 2014 (Dec) 2015 (Dec) 2016 (June)
issued share capital 2517678100 3046390500 3503349070 3678516520 3862442340
share premium 5269474690 5269474690 5269474690 5269474690 5269474690
excess of issue price over face value 1689636958 1689636958 1689636958 1689636958 1689636958
capital reserve on merger 294950950 294950950 294950950 294950950 294950950
revaluation surplus 1466602600 1406527880 1349578805 1299220315 1225100042
fair value gain on investment 0 0 1341619 2308651 1295558
retained earnings 5889784879 6701180881 7667220373 8686077241 10716511871
Total BV of equity 17128128177 18408161859 19775552465 20920185325 23059412409
Book Value of Firm:
Book value debt and equity have been shown separately in the previous sections. In this section book value of the whole firm has been determined.
We will get book value of firm by adding book value of debt with book value of equity. The following tables shows the determination of book
value of firm.
BDT’mn
Page 22 of 109
Table 3: Book value of Firm
Total BV of Debt
3,435.25 4,430.28 4,298.37 4,207.46 3,826.41
Total BV of Equity
17,128.13 18,408.16 19,775.55 20,920.19 23,059.41
Total Book Value of Firm
20,563 22,838 24,074 25,128 26,886
5.2 Comparison of the BV of debt, BV of equity and BV of the firm:

The following chart shows the changes in BV of debt, BV of equity and BV of firm from 2012 to 2016. Care should be taken while using the data
of 2016, because information of 2016 is up to June
Page 23 of 109
BV of Debt, Equity and Firm of Beximco Pharmaceuticals Limited
26,886
2016 (June) 23,059.41
3,826.41
25,128
2015 (Dec) 20,920.19
4,207.46
24,074
Year
2014 (Dec) 19,775.55

4,298.37
22,838
2013 (Dec) 18,408.16
4,430.28
20,563
2012 ( Dec) 17,128.13
3,435.25
- 5,000.00 10,000.00 15,000.00 20,000.00 25,000.00 30,000.00

BDT'mn
Total Book Value of Firm Total BV of Equity Total BV of Debt
The book value of debt shows an increase in 2013 which is caused by doubled amount of short term loan taken from AB Bank. . This figure
decreased slightly at the end of 2014, because a significant portion of the project loan from local bank had been paid during that accounting period.
From the period of 2015 to 2016, a decreasing trend is visible to us. Book value of equity shows an gradual increase, which is magnified by trend
of declaring a stable rate of bonus share and accumulation of retained earnings to use for internal purpose.
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5.3 Market Value of Debt and Equity of Beximco Pharmaceuticals Limited
Market Value of Debt:
The debt instruments used in Beximco Pharmaceuticals Limited are not marketable. The project Loan from BHF Bank, Germany, or term loan
form AB Bank are not marketable. So, there is no available market value of these debt instruments. However, the book value of debt is used as
proxy of market value of debt in this case. The following table shows the market value or book value of debt of Beximco Pharmaceuticals Limited.
Table 4: MV or BV of Debt of Beximco Pharmaceuticals Limited
Short Term Borrowings (Secured) 1,526,449,918 2,776,266,125 3,153,121,293 3,163,551,475 1,109,644,270
Long Term Borrowings-Current Maturity 572,381,042 652,689,720 536,347,056 566,057,233 763,008,456
(Secured)
Project Loan - Local Banks 568,588,942 652,689,720 536,347,056 530,674,236 444,621,118
AB Bank 277,333,102
Interest and PAD Block 3,792,100
Long Term Borrowings-Net off Current 1,336,416,545 1,001,325,040 608,901,223 477,848,224 1,953,756,203
Maturity (Secured)
Project Loan - Local Banks 1,336,416,545 1,001,325,040 608,901,223 156,856,364
AB Bank 1,484,347,781
Total BV Or MV of Debt 3,435,247,505 4,430,280,885 4,298,369,572 4,207,456,932 3,826,408,929
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Market Value of Equity:
The market value of equity is totally determined by the market price of the stock of Beximco Pharmaceuticals Limited. The following table shows
the market value of equity of Beximco Pharmaceuticals at different point of time from 2012 to 2016.
Market Price Per Share 55.90 47.2 58.7 84.1 83.5
Number of shares outstanding 304,639,050 350,334,907 367,851,652 386,244,234 386,244,234
Market Value of Equity
17,029,322,895 16,535,807,610 21,592,891,972 32,483,140,079 32,251,393,539
The closing price of the stock of Beximco Pharmaceuticals Limited for the last trading day of each year has been used here. But, the closing price
of last trading day of June,2016 is used in the last column. The number of outstanding shares has been increased gradually due to declaration of
bonus share.
Market Value of Firm:
Market value or book value of debt and market value of equity have been shown separately in the previous sections. In this section, market value
of the whole firm has been determined. We will get market value of firm by adding book value or market value of debt with market value of equity.
The following tables shows the determination of market value of firm.
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Amounts in BDT
Total BV Or MV of Debt 3435247505 4430280885 4298369572 4207456932 3826408929

Market Value of Equity 17029322895 16535807610 21592891972 32483140079 32251393539
Total MV of Firm 20464570400 20966088495 25891261544 36690597011 36077802468
Page 27 of 109
5.4 Comparison of the BV of debt, BV of equity and BV of the firm:
The following chart shows the comparison of the market value of debt, market value of equity and that of the whole firm from 2012 to 2016.
Table 5: MV of Debt, MV of Equity, and MV of the Firm
MV of Debt, Equity and Firm of Beximco Pharmaceuticals Limited

36,077.80
2016 (June) 32,251.39
3,826.41
36,690.60
2015 (Dec) 32,483.14
4,207.46
Year
25,891.26
2014 (Dec) 21,592.89
4,298.37
20,966.09
2013 (Dec) 16,535.81
4,430.28
20,464.57
2012 ( Dec) 17,029.32
3,435.25
- 5,000.00 10,000.00 15,000.00 20,000.00 25,000.00 30,000.00 35,000.00 40,000.00

BDT'mn
Total MV of Firm Market Value of Equity Total BV Or MV of Debt
The book value or market value of debt shows an increase in 2013 which is caused by doubled amount of short term loan taken from AB Bank. .
This figure decreased slightly at the end of 2014, because a significant portion of the project loan from local bank had been paid during that
accounting period. From the period of 2015 to 2016, a decreasing trend is visible to us. The decline in the market value of the equity at the end of
2013 was caused by the fall in price which was associated with bad performance of the overall stock market. DSEX, the broad index of Dhaka
Stock Exchange, was below 4000 on an average during that year. The huge increase in market capitalization in 2015 and 2016 was associated with
Page 28 of 109
outstanding performance of the price of the stock of Beximco Pharmaceuticals Limited. These increases were also associated with good
performance of the overall market, because Beximco Pharmaceutical has a beta of 1.15. It shows that movement of market value of equity of
Beximco Pharmaceuticals Limited is highly associated with overall market performance.
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Chapter-6 Optimal capital structure of
the Beximco
Pharmaceuticals Limited
Page 30 of 109
Chapter-6: Optimal capital structure of the Beximco
6.1 Methods for evaluating optimal capital structure for Beximco

pharmaceutical limited:
Optimal capital structure for a company refers to the ix of debt and equity of the company at which
the value of the firm is maximized. For determining the optimal capital structure of Beximco
pharmaceuticals limited we have followed two approaches-
1. Peer company analysis.

2. Quantitative approach.
Before we proceed to the analysis here we show the current capital structure of Beximco
pharmaceuticals limited-
Current capital structure of Beximco Pharmaceuticals

limited
14.23%
85.77%
Debt Equity
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6.2 Peer company analysis:
In this approach we have calculated debt to equity ratio and debt to capital ratio of peer companies
of Beximco pharmaceuticals limited. Here by peer companies we mean companies making similar
products, operating in the same industry and having identical business and financial risk and
business models. Here we present the peer company analysis-
Particulars Book value of Book value of D/E D/C

debt equity
Beximco 3,826,408,929 23,056,412,40 0.1660 14.234%
9
Central 210,384,974 1,631,717,942 0.1289 11.4209%
GSK 9,600,000 2,585,803,000 0.0037 0.3699%
Orion 5,759,216,467 17,216,126,01 0.3345 25.0669%
8
Pharma aid 12,860,664 132,445,394 0.0971 8.8507%
Renata 3,005,218,454 10,543,077,11 0.2850 22.1815%
4
Square 2,693,932 40,557,494,69 0.0001 0.0066%
8
Median 0.1289 11.4209%
From this analysis we can see that the optimal capital structure for Beximco pharmaceuticals
should be 11% debt and 89% equity.
Page 32 of 109
6.3 Quantitative approach:
In this approach we have calculated cost of equity and cost of debt for different debt to equity ratio
and have calculated WACC for each combination of debt to equity ratio for Beximco
pharmaceuticals limited.
Estimating marginal cost of equity:
For estimating the cost of equity for different capital structures at first, we have unlevered the beta
of the current cost of equity from the CAPM model then we levered the beta with desired debt to
equity ratio to determine the cost of equity for different capital structure.
Estimating marginal cost of debt:
To determine the marginal cost of debt we have followed the debt rating approach. For doing the
debt rating we have prepared a set of assumption and these are-
Assumptions
Interest Estimated Grade Explanation Spread over ratings
Coverage ratio bond
rating
>8.50 AAA Investment Extremely strong 0.05%
6.50 - 8.50 AA Investment Very strong 0.10%
5.50 - 6.50 A+ Investment Strong 0.15%
4.25 - 5.50 A Investment `0.50%
3.00 - 4.25 A- Investment 0.55%
2.50 - 3.00 BBB Investment Adequate 0.60%
2.00 - 2.50 BB Speculative Faces major future 0.65%
1.75 - 2.00 B+ Speculative uncertainties 0.70%
1.50 - 1.75 B Speculative Faces major 2.50%
1.25 - 1.50 B- Speculative uncertainties 3.00%
0.80 - 1.25 CCC Speculative Currently vulnerable 4.00%
0.65 - 0.80 CC Speculative Currently highly 5.00%
vulnurable
Page 33 of 109
0.20 - 0.65 C Speculative Has failed 6.50%
bankruptcy petition
< 0.20 D Default In default 8.00%
Then we have calculated the interest coverage ratio for each capital structure for an arbitrary rating
assigned to them on the basis of average ratings provided to Beximco pharmaceutical limited and
companies like it to arrive at the marginal cost of debt for each capital structure.
And this is the calculation of marginal cost of debt-
Page 34 of 109
Marginal cost of debt:
Determination of marginal cost of debt

D/(D+E) 0% 10.0% 14.2% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0%
D/E 0.0% 11.1% 16.6% 25.0% 42.9% 66.7% 100.0% 150.0% 233.3% 400.0% 900.0%
Debt 0 2688582134 3826835939 5377164268 8065746401 1075432853 1344291066 1613149280 1882007493 21508657070 24197239204
5 9 3 7
EBITDA 4,010,279,9 4,010,279,9 4,010,279,9 4,010,279,9 4,010,279,94 4,010,279,94 4,010,279,94 4,010,279,94 4,010,279,94 4,010,279,943 4,010,279,943
43 43 43 43 3 3 3 3 3
Depriciation 763,005,126 763,005,126 763,005,126 763,005,126 763,005,126 763,005,126 763,005,126 763,005,126 763,005,126 763,005,126 763,005,126
EBIT 4870912226 4870912226 4870912226 4870912226 4870912226 4870912226 4870912226 4870912226 4870912226 4870912226 4870912226
Interest expense 0 553621445 1055884363 1061090283 1631964157 1805287738 1773114719 2732668642 4035016788 5901967182 8454506020
Taxable income 4870912226 4317290781 3815027863 3809821943 3238948069 3065624488 3097797507 2138243584 835895437.7 -1031054956 -3583593794
Tax 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25
Net income 3653184170 3237968086 2948053854 2857366457 2429211052 2299218366 2323348131 1603682688 626921578.3 -773291217.2 -2687695346
Pre-tax interest 0 8.79827230 4.61311143 4.59047859 2.984693142 2.698136216 2.747093674 1.78247452 1.207160337 0.82530317 0.57613209
coverage ratio 3 2
Likely rating AA A+ A A- BBB BB B+ B B- CCC CC
Cost of debt 0.00% 5.88% 7.88% 7.89% 8.09% 8.39% 8.79% 11.29% 14.29% 18.29% 23.29%
(Rd)
Page 35 of 109
According to the quantitative approach the optimal capital structure for Beximco pharmaceutical
limited is-
Wd We D/E Unlever Levered Average Cost of Cost of WACC

ed beta beta tax rate equity( debt(Rd
(βu) (βL) (T) Re) )
0.00 1.00 0.00 1.11 1.11 0.25 0.09 0.00 0.0852
0.10 0.90 0.11 1.11 1.21 0.25 0.09 0.06 0.0843
0.14 0.86 0.17 1.11 1.25 0.25 0.09 0.08 0.0860
0.20 0.80 0.25 1.11 1.32 0.25 0.09 0.08 0.0864
0.30 0.70 0.43 1.11 1.47 0.25 0.10 0.08 0.0874
0.40 0.60 0.67 1.11 1.67 0.25 0.11 0.08 0.0891
0.50 0.50 1.00 1.11 1.95 0.25 0.12 0.09 0.0915
0.60 0.40 1.50 1.11 2.37 0.25 0.13 0.11 0.1040
0.70 0.30 2.33 1.11 3.06 0.25 0.16 0.14 0.1229
0.80 0.20 4.00 1.11 4.45 0.25 0.21 0.18 0.1523
0.90 0.10 9.00 1.11 8.63 0.25 0.37 0.23 0.1944
Page 36 of 109
6.4 Optimal Capital structure for Beximco pharmaceuticals limited:
From the analysis of the above two approaches we take average of the two results and conclude that the optimal capital structure at
which the WACC of Beximco pharmaceuticals limited is 10.5% debt and 89.5% equity.
Current capital structure of Optimal capital structure for Beximco

Beximco Pharmaceuticals limited pharmaceuticals limited
14.23% 10.50%
85.77% 89.50%
Debt Equity Debt Equity
The reasoning for going to a lower debt mix of capital structure is the cost of equity is relatively low for Beximco pharmaceuticals
limited and the even though the cost of debt is lower but there is very low difference between them. As a result the equity financing is
actually cheaper for Beximco pharmaceuticals limited and Due to high lending rates prevailing in the economy it is difficult to get loans
at much lower rates but the equity premium is low in the capital market for being a defensive company and both the methods used
confirm our results as the peer companies are highly unlevered too.
Page 37 of 109
Chapter-7 Cost of Debt, Cost of Equity and
WACC and Valuation using FCF
Model
Page 38 of 109
Chapter-7: Cost of Debt, Cost of Equity and WACC and
Valuation using FCF Model
7.1 Cost of Debt:

Cost of debt is very crucial factor in determining the overall cost of capital of a company. Beximco
Pharmaceuticals Limited uses debt form local banks and foreign banks. The rate of interest differs
significantly between local lenders and foreign lenders. So, we have to calculated weighted
average of costs of debt of Beximco Pharmaceuticals Limited. The following sections describes
about the costs of these term loans.
Project Loan-from Local banks:
The project loan from local banks was sanctioned under the consortium arrangement of Janata
Bank Ltd., Sonali Bank Ltd., Agrani Bank Ltd., Rupali Bank Ltd. and United Commercial Bank
Ltd. for the US FDA standard oral solid dosage facility of the company. This Loan is repayable in
quarterly instalments ending by 2017. The carrying interest rate of this loan for different years is
shown in the below table:
Particular 2012 2013 2014 2015 2016 June
Interest rate on 13% - 13% -15.5% 13% -15.5% 13%-14.5% 11.5%- 13%
Project loan -local 15.5%
banks
Project Loan from BHF Bank, Germany:
Another term loan agreement arranged in 2015 was project Loan from BHF Bank, Germany.This
represents part of the foreign currency loan of US $ 51.559 million sanctioned by BHF-Bank
Aktiengesellshaft, Frankfurt, Germany to partially finance the machinery and equipment to be
procured for expansion and diversification project being implemented by the company. The loan
Page 39 of 109
carries interest @ 6 month’s USD LIBOR plus 2.25% per annum. The lender will receive
commitment fee @ 0.50% on the undisbursed portion of the loan.
Loan arrangement from AB Bank:
Beximco Pharmaceutical arranged another term loan from AB Bank in the period between January
2016 to June 2016. The rate of this term loan is not mentioned in the financial statements of
Bexmico Pharmaceuticals Limited.
7.2 Calculation of cost of debt:

Here, the interest rate for project loan form local banks and the interest rate for project loan form
BHF bank, Germany are known. We have used the 6 month USD LIBOR rate on 2nd November,
2017 and it is 1.57979% and added 2.25% and get the rate 3.83% for project loan form BHF bank,
Germany. But the rate of current borrowings and long term borrowings from AB bank is not
mentioned. Therefore we have used the upper bound of the AB banks’ lending rate as mentioned
by Bangladesh bank. The rates are shown in following table:
AB Bank's Lending rate Oct-17

Term Loan to large & medium scale industry (average) 13%
Working Capital to Large & Medium Scale Industry 13%
Now we have all the rates of different term loans and current loans of Bexmico Pharmaceuticals
Limited. We have used the loan figures as per the balances sheet on 30 June 2016 of Beximco
Pharmaceuticals Limited to find out the weight of each type debt arrangement. Then we have
multiplied each type of loans rate with their respective weight. By adding all these weighted rate
we have determined the cost of debt of Beximco Pharmaceuticals Limited as 7.88%
Page 40 of 109
Particular 2016 (June) Weight Lending
Rate
Short Term Borrowings (Secured) 1,109,644,270 0.29
Long Term Borrowings-Current Maturity 763008456 0.20
(Secured)
Project Loan - Local Banks 444,621,118 0.12 12.25%
Project Loan - BHF Bank, Germany 41,054,236 0.01 3.83%
AB Bank 277,333,102 0.07 13%
Long Term Borrowings-Net off Current 1,953,756,203 0.51
Maturity (Secured)
Project Loan - BHF Bank, Germany 469,408,422 0.12 3.83%
AB Bank 1,484,347,781 0.39 13%
Total BV of Debt 3,826,408,929
Cost of Debt, 𝑲𝒅 7.88%
7.3 Cost of Equity:

The capital asset pricing model has been used here to determine the cost of equity of Beximco
Pharmaceuticals Limited. The formula to calculate cost of equity using CAPM model is-
𝐶𝑜𝑠𝑡 𝑜𝑓 𝑒𝑞𝑢𝑖𝑡𝑦 = 𝑅𝑓 + 𝛽(𝑅𝑚 − 𝑅𝑓 )
Here, 𝑅𝑓 = means risk free rate.
𝑅𝑚 = market return.
𝛽 = Beta which indicates the sensitivity of a stock return with market return.
Risk Free Rate: We have used the cut of yield of 364 days treasury bill of Bangladesh Bank issued
on 18/09/2017.
Page 41 of 109
Calculation of Beta: The basic formula to determine beta of any stock is to dividing the
covariance between market return and any specific stock return by the variance of market return.
The formula is as follows:
𝐶𝑜𝑣 (𝑅𝑚 , 𝑅𝑖 )
𝛽𝑖 =
𝑉𝑎𝑟(𝑅𝑚 )
We have used the monthly closing data of DSEX and the stock of Beximco Pharmaceuticals
Limited from 2012 to October 2017. We have calculated the stock return and index return from
these data. However, we have adjusted the closing prices for stock of Beximco Pharmaceuticals
Limited for Stock dividend and cash dividends while determining stock return. The formula to find
out the stock return and index return is as follows:
𝑰𝒏𝒅𝒆𝒙 𝒓𝒆𝒕𝒖𝒓𝒏
= (𝑪𝒍𝒐𝒔𝒊𝒏𝒈 𝒊𝒏𝒅𝒆𝒙 𝒐𝒇 𝒕𝒉𝒆 𝒍𝒂𝒔𝒕 𝒅𝒂𝒚 𝒐𝒇 𝒕𝒉𝒊𝒔 𝒎𝒐𝒏𝒕𝒉⁄𝑪𝒍𝒐𝒔𝒊𝒏𝒈 𝒊𝒏𝒅𝒆𝒙 𝒐𝒇 𝒕𝒉𝒆 𝒍𝒂𝒔𝒕 𝒅𝒂𝒚 𝒐𝒇 𝒑𝒓𝒆𝒗𝒊𝒐𝒖𝒔 𝒎𝒐𝒏𝒕𝒉) − 𝟏
Stock return =
[Cash dividend +{ ( Current month’s closing price – Previous month’s closing price) / Stock
dividend }] / Closing Price of previous month
In the above formula the cash dividend is used in per share basis. However, stock dividend is
showed as percentage basis by adding 1 with the respective percentage. The data used for
calculation is shown in the appendix. Now we have calculated the covariance between the DSEX
return and return of the stock of Beximco Pharmaceuticals Limited and the variance of the return
of DSEX index. The results are as follows-
Covariance( Rm,Ri) 0.003487313

Variance of Market Return 0.002788213
Beta 1.250734338
So we have found the Beta of the stock of Beximco Pharmaceuticals Limited as 1.25. It is the raw
beta. So, we have to conduct Blumes adjustment on this beta. The adjusted beta will be as follows:
Adjusted beta = (1.250734338*2/3) + 1*(1/3) = 1.167156226
Page 42 of 109
The market return is calculated by taking average of the monthly return of DSEX index. We have
to multiply monthly average index return with 12 to find out yearly market return which will be
used to determine cost of equity. The following table show the market return.
Market Return 0.67%

Market Return - Yearly 8.09%
So, the cost of equity of this company will be calculated as follows-
𝑪𝒐𝒔𝒕 𝒐𝒇 𝒆𝒒𝒖𝒊𝒕𝒚, 𝐾𝑒 = 𝟒. 𝟐𝟖% + 𝟏. 𝟏𝟔𝟕𝟏𝟓𝟔𝟐𝟐𝟔(𝟖. 𝟎𝟗% − 𝟒. 𝟐𝟖%) = 𝟖. 𝟕𝟑%
7.3 Weighted Average Cost of Capital (WACC):

The determine the WACC of Beximco Pharmaceutical Limited. We have to determine the weight
of debt and equity first. The additional information indeed is tax rate. The required information to
calculate WACC is shown in the below table-
Tax rate, 𝑇 (Statutory rate) 25%

Market price BDT 100.2
Number of shares 405,566,445
Market value of equity BDT 40637757789
Book or market value of debt 4,039,552,765
Weight – equity, 𝑊𝑒 0.91
Weight –debt, 𝑊𝑑 0.09
The formula to calculate WACC is as follows-
𝐶𝑜𝑠𝑡 𝑜𝑓 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝐾𝑤𝑎𝑐𝑐 = (𝐾𝑒 × 𝑊𝑒 ) + (𝐾𝑑 × 𝑊𝑑 )(1 − 𝑇)
= (8.73% × 0.91) + (7.88% × 0.09)(1 − 0.25)
= 8.47%
The weighted average cost of capital of Beximco Pharmaceuticals Limited is 8.47%.
Page 43 of 109
7.4 Valuation using FCF Mode:
We have determined the intrinsic value of the share of Beximco Pharmaceuticals Limited using
free cash flow valuation model. Here, we have to forecast the pro-forma income statement and
pro-forma balance sheet first based on our assumptions on different variables. The forecasting
horizon is five years here. So, we have formulate pro-forma income statement and balance sheet
for 2017 to 2021.
We have to take some assumptions to formulate pro-forma statements. In case of revenue

estimation we have considered the moving average of the latest five years revenue. Cost of sales,
net operating expenses, contribution to WWPF are considered as a percentage of revenue. Recent
five years average is also used in this case. The assumption sheet used to formulate pro-forma
financial statements for valuation purpose is shown in the Appendix 2.
Based on the assumption sheet the pro-forma income statement and pro-forma balance sheet for
Beximco Pharmaceuticals has been forecasted to determine the value of the firm. The pro-forma
income statement and pro-forma balance sheet are shown in Appendix 3 and Appendix 4
respectively. Using pro-forma income statement, we can easily calculate the EBIT. Using the FCF
model the intrinsic value per share of Beximco Pharmaceutical Limited in the below graph:
Page 44 of 109
Particulars 2016 A 2017 E 2018 E 2019 E 2020 E 2021 E
EBIT 4,228,735,313 4,492,323,206 4,764,639,572 5,041,537,639 5,319,097,229
Tax rate 25.43% 25.43% 25.43% 25.43% 25.43%
EBIT (1-tc) 3,153,310,664 3,349,864,587 3,552,927,214 3,759,406,353 3,966,378,781
Plus: Depreciation 945,578,143 1,048,771,156 1,118,324,354 1,229,132,294 1,384,821,743
Less: Capital investment 2,001,230,352 2,290,408,138 2,632,194,292 3,038,042,460 3,522,292,946
Less: Change in WC 844,273,653 814,893,969 863,848,269 1,339,344,979 1,716,509,128
FCF 1,253,384,802 1,293,333,636 1,175,209,006 611,151,208 112,398,449
Cost of capital 8.47% 8.47% 8.47% 8.47% 8.47%
Year 1 2 3 4 5
PV of discount factor 0.9219 0.8499 0.7835 0.7223 0.6659
PV of FCF 1155489621 1099192664 920788706 441443546 74845973
Summation of PV of FCF 3,691,760,510
Terminal growth rate 1.8%
Terminal value 1141953306.68
PV of terminal value 760,425,142
Enterprise value 4,452,185,652
Less: Interest bearing debt 4,396,039,400
Equity value 56,146,252

Number of shares outstanding 405,566,445
Value per share 138.44
Here, the terminal growth is assumed to be 1.8%. We have used the population growth rate as the
proxy of real economic growth. Based on the cost of capital of 8.47%, the value per share of the
stock of Beximco Pharmaceuticals limited is BDT 138.44.
Recommendation: Now the current market price is BDT 100.2. So, the share of Beximco
Pharmaceuticals Limited is undervalued in DSE. So, our recommendation is to BUY the stock of
Beximco Pharmaceuticals.
Page 45 of 109
Chapter-8 Relative Valuation: Using
P/E and EV/ EBITDA
Multiple
Page 46 of 109
Chapter-8: Relative Valuation: Using P/E and EV/ EBITDA
Multiple
8.1 P/E and EV/EBITDA multiple:

Relative valuation is a cheap fundamental method used to value a company according to some
fundamental variable relative to its peer companies. The major underlying behind this method is,
it is assumed that the peer companies are fairly valued on the basis of the particular fundamental
variable in consideration.
The multiples that we used in our valuation are –
 P/E: It is described as the price – earnings ratio and describes the amount of price investors
are willing to pay for each dollar of earnings.
 EV/EBITDA: it is depicted as Enterprise value-earnings before interest, tax, depreciation
and amortization. It describes the value of the firm for each dollar unit of EBITDA
generated.
8.2 Calculation methodology:

For valuation of Beximco pharmaceuticals limited we selected 10 peer companies of Beximco
pharmaceuticals limited operating in Bangladesh and in the same industry and listed in the DSE.
For the calculation of value based on P/E multiple we have calculated the median P/E of the peer
companies and then have multiplied the recent year earnings of Beximco pharmaceuticals limited
to derive the price per share.
For the calculation of price based on EV/EBITDA multiple we have calculated the median
EV/EBITDA ratio of the peer companies and then multiplied the recent year EBITDA of Beximco
pharmaceuticals limited to arrive at enterprise value and then deducted the book value of debt and
added cash and divided it by number of shares outstanding to arrive at price per share.
Page 47 of 109
8.3 calculation of P/E:
Particulars Beximco Acme Ambee Central GSK Orion Pharma aid Renata Square IBN SINA
Number of 405,556,445 211,601,700 2,400,000 103,723,675 12,046,449 234,000,000 3,120,000 60,896,541 685,945,200 25,821,180
shares
outstanding
Market 40,880,089,65 23,487,788,70 1,004,400,000 2,447,878,730 17,876,930,31 11,536,200,00 979,368,000 73,222,000,89 203,382,751,8 6,137,694,486
Capitalization 6 0 6 0 8 00
Book/Market 3,826,408,929 10,042,311,47 198,367,656 210,384,974 9,600,000 5,759,216,467 12,860,664 3,005,218,454 2,693,932 322,969,864
value of debt 6
Minority 0 0 0 0 0 0 0 0 593,836 0
interest
Preferred equity 0 0 0 0 0 500,000,000 0 0 0 0
Cash and Cash 221,121,229 1,148,110,610 12,661,792 9,929,674 2,844,505,000 235,438,024 8,004,819 450,611,442 8,522,555,131 169,305,904
equivalents
Enterprise value 93,804,676,74 32,381,989,56 1,190,105,864 2,648,334,030 15,042,025,31 17,559,978,44 984,223,845 75,776,607,91 194,863,484,4 6,291,358,446
6 6 6 3 0 37
EBIT 3,247,274,817 17,252,621,42 25,088,396 95,680,719 524,538,667 1,103,705,229 24,475,850 3,490,347,549 9,129,856,570 258,321,321
5
Depreciation 763,005,126 75,831,265 1,038,427 2,032,338 81,886,000 26,438,563 63,405 61,545,931 1,653,635,731 10,642,973
and
amortization
EBITDA 4,010,279,943 17,328,452,69 26,126,823 97,713,057 606,424,667 1,130,143,792 24,539,255 3,551,893,480 10,783,492,30 268,964,293
0 1
EV/EBITDA 23.39 1.87 45.55 27.10 24.80 15.54 40.11 21.33 18.07 23.39
Audited EPS 5.09 4.37 2.27 0.69 35.67 3.77 5.01 39.65 11.45 7.63
Current market 100.80 111.00 418.50 23.60 1484.00 49.30 313.9 1202.4 296.5 237.7
price
P/E (TTM) 19.82 25.42 184.09 34.04 41.60 13.09 62.61 30.32 25.89 31.17
Page 48 of 109
Company P/E (TTM)
Price based on P/E (TTM)
Acme 25.42
Ambee 184.09 P/E (TTM) 31.17
Central 34.04 EPS of Beximco 5.086666667
GSK 41.60
Orion 13.09 Price 158.54
Pharma aid 62.61
Renata 30.32
Square 25.89
IBN SINA 31.17
Median 31.17
8.4 Calculation of EV/EBITDA:

Company EV/EBITDA
Price based on EV/EBITDA(TTM)
(TTM)
EV/EBITDA 23.39
Acme 1.868717891
EBITDA of Beximco 4,010,279,943
Ambee 45.55111347
EV 93,804,676,746
Central 27.10317454
Equity value 90,199,389,046
GSK 24.80444174
Shares outstanding 405,556,445
Orion 15.53782675
Price 222.41
Pharma aid 40.10813932
Renata 21.33414426
Square 18.07053587
IBN SINA 23.39105451
Median 23.39105451
Page 49 of 109
8.5 Final price based on relative valuation:
Target price based on relative valuation
Method Price Weight
EV/EBITDA 222.41 0.3
P/E (TTM) 158.54 0.7
Target price 177.70
Page 50 of 109
Chapter-9 Ratio Analysis of the
Beximco Pharmaceuticals
Limited
Page 51 of 109
Chapter-9: Ratio Analysis of the Beximco
9.1 Ratio Analysis of Beximco Pharmaceuticals Limited:

Ratio analysis is an important tool to measure the various aspects of a company’s financial
condition such as its activity efficiency, liquidity, profitability and solvency. The trend of these
ratios over time is studied to check whether they are improving or deteriorating. We have
calculated the following ratios for Beximco Pharmaceuticals Ltd.
1. Activity Ratio
2. Liquidity Ratio
3. Profitability Ratio
4. Solvency Ratio
5. Market Ratio
The computation and trends of these ratio is given below:
9.2 Activity Ratio:

Activity ratios are financial analysis tools used to gauge the ability of a business to convert
various asset, liability and capital accounts into cash or sales. The faster a business is able to
convert its assets into cash or sales, the more efficient it runs.
Ratio Analysis
Activity Ratio
Particulars 2012 2013 2014 2015 2016
Inventory Turnover Cost of Goods Sold/ Average Inventory 2.14 2.32 2.53 2.79 3.90
Days of Inventory on Hand (DOH) Number of Days in Period/ Inventory Turnover 168 155 142 129 92
Receivable Turnover Revenue/ Average Receivables 9.50 9.02 8.97 9.28 11.92
Days of sales outstanding (DSO) Number of Days in Period/ Receivable Turnover 38 40 40 39 30
Payables Turnover Purchases/ Average Trade Payables 9.35 12.02 15.93 19.47 23.80
Number of days of payables Number of Days in Period/ Payables Turnover 38 30 23 18 15
Working Capital Turnover Revenue/ Average Working Capital 2.06 2.04 2.48 3.54 3.61
Fixed Asset Turnover Revenue/ Average Net Fixed Assets 0.58 0.64 0.60 0.63 0.89
Total Asset Turnover Revenue/ Average Total Assets 0.40 0.43 0.41 0.45 0.64
We will discuss each of the above-mentioned ratio with appropriate explanation
Page 52 of 109
1. Inventory Turnover:
It indicates the resources tied up in inventory and can, therefore, be used to indicate inventory
management effectiveness. The higher the inventory turnover ratio, the shorter the period that
inventory is held and so the lower DOH.
Inventory Turnover
4.50
3.90
4.00
3.50
2.79
3.00 2.53
Turnover
2.32
2.50 2.14
2.00
1.50
1.00
0.50
0.00
2012 2013 2014 2015 2016
Years
The inventory turnover ratio of Beximco pharma is shown on the above chart. Here, we can
see that the company’s inventory turnover ratio is increasing from year 2012 to 2016. This
increasing ratio is accompanied with higher revenue growth from year 2012 to 2016. Higher
revenue growth supports the interpretation that the higher turnover reflects greater inventory
management efficiency of Beximco.
2. Days of Inventory on Hand (DOH):
Days' inventory on hand is an accounting ratio which measures the number of days a company
takes to sell its average balance of inventory. It is also an estimate of the number of days for
which the average balance of inventory will be sufficient.
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Days of Inventory on Hand (DOH)
200
168
155
142
Days 150 129
92
100
50
0
2012 2013 2014 2015 2016
Years
As the inventory turnover ratio is increasing less resources are tied up in inventory in year 2012
to 2016. Beximco requires 92 days in 2016 to sell its average balance of inventory. This
decreasing number of days indicates greater efficiency in inventory management.
3. Receivable Turnover:
Accounts receivable turnover is an efficiency ratio or activity ratio that measures how many
times a business can turn its accounts receivable into cash during a period.
Receivable Turnover
14.00 11.92
12.00
9.50 9.02 8.97 9.28
10.00
Turnover
8.00
6.00
4.00
2.00
0.00
2012 2013 2014 2015 2016
Years
The receivable turnover of Beximco is increasing year by year. The accounts receivable
turnover for National Tubes limited is average 9 times. But in 2016 the receivable turnover
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increases to 11.92 times. This indicates that the company’s credit and collection policies are
too stringent. Apart from that we can say that Beximco is using moderate credit policy.
4. Days of Sales Outstanding (DSO):
The number of DSO represents the elapsed time between a sale and cash collection reflecting
how fast the company collects cash from customers it offers credit.
Days of sales outstanding (DSO)

50
38 40 40 39
40
30
30
Days
20
10
0
2012 2013 2014 2015 2016
Years
Beximco Pharmaceuticals Limited is collecting cash from customer quicker than the industry
norms. It is following stable policy in terms of sales but the quicker collection period suggests
the possibility of sales being lost to competitors offering more lenient terms.
5. Payables Turnover:
The accounts payable turnover ratio is how many times a company can pay off its average
accounts payable balance during the course of a year.
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Payables Turnover
23.80
25.00
19.47
20.00
15.93
15.00 12.02
Times
9.35
10.00
5.00
0.00
2012 2013 2014 2015 2016
Years
The increasing payables turnover from year 2012 to 2016 indicates that the company is not
making full use of available credit facility. In other words, we can say that the company has
enough liquidity that they can fulfill their payables obligation. Beximco Pharma’s liquidity
ratio also shows this insight.
6. Number of Days Payables:
The number of days of payables reflects the average number of days the company takes to pay
its suppliers.
Number of days of payables

50
38
40
30
30
Days
23
18
20 15
10
0
2012 2013 2014 2015 2016
Years
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Number of days of payables of Beximco Pharma Ltd shows a decreasing trend. The company
is taking less time to pay to its payables year by year. There might be two reason behind this
either the company has excess liquidity or the company is not taking the advantage of credit
terms.
7. Working Capital Turnover:
The working capital turnover ratio is also referred to as net sales to working capital. It indicates
a company's effectiveness in using its working capital.
Working Capital Turnover

4.00 3.61
3.54
3.50
3.00
2.48
2.50 2.06 2.04
Times
2.00
1.50
1.00
0.50
0.00
2012 2013 2014 2015 2016
Years
Beximco Pharma’s working capital turnover is increasing from year 2012 to 2016 indicating
greater efficiency in working capital management. In 2015 and 2016 the higher ratio indicates
efficiency and excess fund availability as the revenue in this year is higher than the previous
years. Liquidity ratios also supports similar interpretation.
8. Fixed Asset Turnover
This ratio measures how efficiently the company generates revenues from its investments in
fixed assets. Generally, a higher fixed asset turnover ratio indicates more efficient use of fixed
assets in generating revenue.
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Fixed Asset Turnover
1.00
0.89
0.80
0.64 0.60 0.63
0.58
0.60
Times
0.40
0.20
0.00
2012 2013 2014 2015 2016
Years
The increasing number of fixed asset turnover ratio from year 2012 to 2015 indicates efficiency
in managing fixed asset. The company is operating at full capacity and newer assets are adding
in the financial statements at a fair carrying value.
9. Total Asset Turnover:
The total asset turnover ratio measures the company’s overall ability to generate revenues with
a given level of assets. A higher ratio indicates greater efficiency.
Total Asset Turnover

0.70 0.64
0.60
0.50 0.43 0.45
0.40 0.41
Times
0.40
0.30
0.20
0.10
0.00
2012 2013 2014 2015 2016
Years
Total asset turnover of Beximco is quite stable from year 2012 to 2015. The sudden increase
in 2016 indicates efficiency in managing total asset. As this ratio includes fixed and current
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assets, working capital, it increases followed by increase in both working capital turnover and
fixed asset turnover.
9.3 Liquidity Ratio
Liquidity ratios measure a company's ability to pay debt obligations and its margin of safety
through the calculation of metrics including the current ratio, quick ratio and operating cash
flow ratio.
Liquidity Ratio
Particulars 2012 2013 2014 2015 2016
Current Ratio Current Assets/ Current Liabilities 2.70 2.67 2.03 1.78 2.86
(Cash+ Short Term Marketable Investment+
Quick Ratio
Receivables)/ Current Liabilities 1.71 1.75 1.38 1.13 1.72
Cash Conversion Cycle DOH+DSO-Number of Days of Payables 168 165 160 149 107
1. Current & Quick Ratio:
Current ratio and quick ratio is the most popular measure of company’s liquidity. The current
ratio is a liquidity ratio that measures a company's ability to pay short-term and long-term
obligations. The quick ratio provides a more rigorous assessment of a company's ability to pay
its current liabilities. It does this by eliminating all but the most liquid of current assets from
consideration.
Current & Quick Ratio

3.50
2.70 2.86
3.00 2.67
2.50 2.03
1.75 1.78
Times
2.00 1.71 1.72

1.38
1.50 1.13
1.00
0.50
0.00
2012 2013 2014 2015 2016
Years
Current Ratio Quick Ratio
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The current ratio of Beximco Pharma indicates that for every taka of its current liabilities, the
firm has on an average tk. 2.50 of very liquid assets to cover those immediate obligations. And
the company is adding more liquid asset in recent years in order to improve the liquidity
position of the company. From year 2014 and 2015 the ratio decreased because of less available
fund but it is still higher than the industry norms. The quick ratio of the company is also stable
and it is above the industry average. So we can say that Beximco manages its liquidity position
efficiently.
2. Cash Conversion Cycle:
It measures how fast a company can convert cash on hand into inventory and accounts payable,
through sales and accounts receivable, and then back into cash.
Cash Conversion Cycle

200
168 165 160
149
150
107
Days
100
50
0
2012 2013 2014 2015 2016
Years
The cash conversion cycle of Beximco pharma is shown on the above chart. Though the
decreasing cash conversion cycle of Beximco from year 2012 to 2016 indicates higher
efficiency It indicates less funds are tied up. The company requires less time to go from cash
invested in its operation to cash received as a result of its operation. This increases the chance
to invest in profitable project.
9.4 Profitability Ratio
Profitability ratios are a class of financial metrics that are used to assess a business's ability to
generate earnings compared to its expenses and other relevant costs incurred during a specific
period of time.
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Profitability Ratio
Particulars 2012 2013 2014 2015 2016
Return on Sales
Gross Profit Margin Gross Profit/ Revenue 47.25% 46.12% 45.55% 46.28% 46.09%
Operating Profit Margin Operating Profit/ Revenue 23.77% 22.16% 21.58% 21.99% 22.25%
Net Profit Margin Net Income/ Revenue 14.20% 13.39% 13.64% 15.07% 14.71%
Return on Investment
Operating Return on Asset Operating Profit/ Average Total Assets 9.59% 9.45% 8.80% 9.83% 14.31%
Return on Asset Net Income/ Average Total Assets 5.73% 5.71% 5.56% 6.74% 9.46%
Return on Total Capital EBIT/ Short and Long term Debt and Equity 10.74% 10.18% 10.04% 11.35% 16.58%
Return on Equity Net Income/ Average Total Equity 7.70% 7.63% 7.73% 9.34% 12.78%
1. Return on Sales Ratio:
Profitability Ratio (Return on Sales)

50.00% 47.25% 46.12% 45.55% 46.28% 46.09%
45.00%
40.00%
35.00%
30.00%
25.00% 23.77% 22.16% 21.58% 21.99% 22.25%
20.00% 14.20% 15.07% 14.71%
13.39% 13.64%
15.00%
10.00%
5.00%
0.00%
2012 2013 2014 2015 2016
Gross Profit Margin Operating Profit Margin Net Profit Margin
 Gross Profit Margin:
Beximco follows highly structured gross profit margin of around 46%. The reason behind this
might be that the pharmaceutical industry is highly regulated industry. One cannot just increase
the price or decrease the cost of goods sold to increase the gross profit margin.
 Operating Profit Margin:
Operating profit margin is also stable over the last 5 years. It indicates that the company follow
a structured pricing strategy. The company has efficiency in controlling operating cost such as
administrative overhead in these years.
 Net Profit Margin:
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Net profit margin of Beximco fluctuated over the five years’ period but it is still above the
industry average. So, we can say that Beximco Pharmaceuticals Ltd maintains a good
profitability in respect to return on sales
2. Return on Investment:
Profitability Ratio (Return on Investment)
16.58%
14.31%
18.00%
12.78%
11.35%
16.00%
10.74%
10.18%
10.04%
14.00%
9.83%
9.59%
9.46%
9.45%
9.34%
8.80%
12.00%
7.73%
7.70%
7.63%
6.74%
10.00%
5.71%
5.56%
5.73%
8.00%
6.00%
4.00%
2.00%
0.00%
2012 2013 2014 2015 2016
Operating Return on Asset Return on Asset Return on Total Capital Return on Equity
 Operating Return on Asset:
The operating return on asset is stable over the last five years indicating higher profitability of
operating assets. The company is using its operating asset more efficiently. Beximco generates
on an average 9% operating income per dollar invested in total assets.
 Return on Asset:
Return on asset of Beximco is increasing slightly over the last 5 years. The increasing ROA
may result from the ability in utilizing the assets of Beximco. The company generates on an
average 5.50% return per dollar invested in total assets.
 Return on Total Capital:
Return on total capital is a profitability ratio that measures profit earned by a company using
both its debt and equity capital. The increasing trend of return on total capital indicates higher
return on total capital employed.
 Return on Equity:
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Return on equity (ROE) is the amount of net income returned as a percentage of shareholder’s
equity. The increasing trend of return on equity indicates higher return on total capital
employed.
9.5 Solvency Ratio

A key metric used to measure an enterprise’s ability to meet its debt and other obligations. The
Solvency ratio indicates whether a company’s cash flow is sufficient to meet its short-term and
Long-term liabilities. The lower a company's solvency ratio, the greater the probability that it
will
Default on its debt obligations.
Solvency Ratio
Particulars 2012 2013 2014 2015 2016
Debt Ratios
Debt to Asset Ratio Total Debt/ Total Asset 14.91% 18.02% 15.65% 14.51% 12.28%
Debt to Capital Ratio Total Debt/ (Total Debt+Total Shareholders Equity) 16.71% 19.40% 17.85% 16.74% 14.23%
Debt to Equity Ratio Total Debt/ Total Shareholders Equity 20.06% 24.07% 21.74% 20.11% 16.59%
Financial Leverage Ratio Average Total Assets/ Average Total Equity 1.345 1.336 1.389 1.386 1.351
Coverage Ratio
Interest Coverage EBIT/ Interest Payments 3.42 3.65 3.34 4.02 4.33
1. Debt Ratio:
Solvency Ratio (Debt Ratios)

24.07%
21.74%
30.00%
20.11%
20.06%
19.40%
18.02%
17.85%
16.74%
16.59%
16.71%
25.00%
15.65%
14.91%
14.51%
14.23%
12.28%
20.00%
15.00%
10.00%
5.00%
0.00%
2012 2013 2014 2015 2016
Debt to Asset Ratio Debt to Capital Ratio Debt to Equity Ratio
Debt to Asset Ratio:

The debt to total assets ratio is an indicator of financial leverage. It indicates the percentage of
total assets that were financed by creditors, liabilities, debt. The company uses higher amount
of debt to finance its total asset in earlier years like. In recent years the company is relying less
on debt financing to finance its total asset. This decreasing debt to total asset ratio may results
in lower financial risk and thus stronger solvency.
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Debt to Capital Ratio:
The debt-to-capital ratio is calculated by taking the company's debt, including both short- and
long-term liabilities and dividing it by the total capital. In recent years the company is relying
less on debt financing to finance its total capital.
Debt to Equity Ratio:
Debt to Equity Ratio is a debt ratio used to measure a company's financial leverage. Debt to
equity ratio is decreasing because the company is reducing its debt financing and relying more
on equity capital.
2. Coverage Ratio
The interest coverage ratio is used to determine how easily a company can pay their interest
expenses on outstanding debt.
Interest Coverage
4.73
4.80
4.60 4.45 4.46
4.40
Times
4.20 4.11
4.06
4.00
3.80
3.60
2012 2013 2014 2015 2016
Years
Interest coverage ratio of Beximco is increasing gradually. After that the ratio starts rising
indicating higher probability that the company can cover its interest payments out of EBIT.
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9.6 Market Value Ratio
Market value ratios evaluate the economic status of your publicly-traded company in the wider
marketplace. In other words, whether the company's stock is overvalued, undervalued or priced
fairly.
 Book Value to Market Value Ratio:
The book-to-market ratio is a ratio used to find the value of a company by comparing the book
value of a firm to its market value.
Book Value to Market Value Ratio

1.20 1.09
1.00
1.00 0.93
0.75
0.80 0.68
Times
0.60
0.40
0.20
0.00
2012 2013 2014 2015 2016
Years
Book value to market value ratio greater than 1 indicates that the company is undervalued in
the market. From the above graph we can see that from the year 2012 to 2013, the company is
undervalued in the market where from 2014 to 2016 the company is overvalued as the ratio is
less than 1.
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 TOBIN’s Q Ratio:
The Tobin's Q ratio is a measure of firm assets in relation to a firm's market value.
TOBIN's Q Ratio
1.40 1.27
1.16
1.20
0.89 0.94
1.00 0.85
Times
0.80
0.60
0.40
0.20
0.00
2012 2013 2014 2015 2016
Years
As the Tobin’s Q ratio is between 0 and 1 from year 2012 to 2014 it indicates that it costs more
for the company to replace its assets than the company is worth. In the year 2015 and 2016 it
is greater than 1 means that it costs less for the company to replace its assets than the company
is worth. The ratio greater than 1 indicates that the company is overvalued
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Chapter-10 Du Pond Analysis and
Analysis of ROE Sensitivity
Page 67 of 109
Chapter-10: Du Pond Analysis and Analysis of ROE
Sensitivity
10.1 DuPont Analysis of Beximco Pharmaceuticals Limited:
The Du Pont identity breaks down Return on Equity into three distinct elements. This analysis
enables the analyst to understand the source of superior or inferior return by comparison with
companies in similar industries or between industries. DuPont analysis of Beximco
Pharmaceuticals Ltd is shown below:
 2 Factor Decomposition:
ROE is a function of ROA and its use of financial leverage.
2 Factor Decomposition
Particulars 2012 2013 2014 2015 2016
ROA Net Income/ Average Total Assets 5.73% 5.71% 5.56% 6.74% 9.46%
Leverage Average Total Assets/ Average Shareholders Equity 1.34 1.34 1.39 1.39 1.35
ROE Net Income/ Average Shareholders Equity 7.70% 7.63% 7.73% 9.34% 12.78%
Over the last five years’ period, Beximco pharma’s leverage factor was relatively stable. The
primary reason for the fluctuation in ROE is measured by ROA.
This decomposition illustrates that a company’s ROE is a function of its net profit margin, its
efficiency and its leverage.
Particulars 2012 2013 2014 2015 2016
Net Profit Margin Net Income/ Revenue 14.20% 13.39% 13.64% 15.07% 14.71%
Asset Turnover Revenue/ Average Total Assets 0.40 0.43 0.41 0.45 0.64
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This further decomposition confirms that fluctuation in net profit margin are an important
contributor to the increase in ROE over the five years’ period. However, Beximco pharma’s
asset turnover has also fluctuated steadily.
This decomposition expresses a company’s ROE as a function of its tax rate, interest burden,
operating profitability, efficiency and leverage.
Particulars 2012 2013 2014 2015 2016
Tax Burden Net Income/ EBT 1.03 0.73 0.73 0.75 0.75
Interest Burden EBT/ EBIT 1.55 0.34 0.90 0.84 0.16
EBIT Margin EBIT/ Revenue -11% 9% 19% 13% 6%
ROE Net Income/ Average Shareholders Equity -0.81% 0.22% 1.57% 0.78% 0.05%
Over the five years’ period, NTL’s leverage factor, tax burden, asset turnover was relatively
stable. The primary reason for the fluctuation in ROE is measured by Interest burden and EBIT
margin.
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10.2 ROE Sensitivity Analysis of Beximco Pharmaceuticals Limited:
The calculation of ROE sensitivity of Beximco Pharmaceuticals Limited is shown below:
Base Case
Particulars 2012 2013 2014 2015 2016
EBIT Margin EBIT/ Revenue 23.77% 22.16% 21.58% 21.99% 22.25%
Sensitivity of Tax Burden of ROE

Particulars 2012 2013 2014 2015 2016
Change in ROE 0.15% -0.33% 0.01% 3.26%
Mean 0.77%
Standard Deviation 0.02
C.V. 2.16
In the above table we have calculated the sensitivity of tax burden to return on equity. The
coefficient of variation is 2.16
Sensitivity of Interest Burden of ROE

Particulars 2012 2013 2014 2015 2016
Change in ROE -0.37% -0.04% 2.16% 5.78%
Mean 1.88%
C.V. 1.51
In the above table we have calculated the sensitivity of interest burden to return on equity. The
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Sensitivity of EBIT Margin to ROE
Particulars 2012 2013 2014 2015 2016
Change in ROE 0.48% 0.81% 2.39% 5.95%
Mean 2.41%
C.V. 1.04
In the above table we have calculated the sensitivity of EBIT Margin to return on equity. The
Sensitivity of Asset Turnover to ROE

Particulars 2012 2013 2014 2015 2016
Change in ROE -0.49% -0.06% 0.72% 0.31%
Mean 0.12%
C.V. 4.28
In the above table we have calculated the sensitivity of asset turnover to return on equity. The
coefficient of variation is 4.28. Asset turnover sensitivity has largest coefficient of variation.
Sensitivity of Leverage to ROE

Particulars 2012 2013 2014 2015 2016
Change in ROE -0.02% -0.22% 1.36% 5.02%
Mean 1.54%
C.V. 1.58
In the above table we have calculated the sensitivity of leverage factor to return on equity. The
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10.3 Ways to Improve ROE of Beximco Pharmaceuticals Limited:
Beximco Pharmaceutical Ltd. can improve its return on equity in a number of ways. Since it is
one of the major drivers for creating shareholder value, it helps to break up and analyze the
different factors that can help a company increase its ROE.
Sensitivity Factor Coefficient of Variation

Asset Turnover 4.28
Tax Burden 2.16
Leverage 1.58
Interest Burden 1.51
EBIT Margin 1.04
By analyzing the sensitivity of various factor to return on equity we have categorized each
factor with coefficient of variation in the above table.
1. Improve Asset Turnover
Asset turnover is a measure of a company's efficiency. Beximco Pharmaceuticals has highest

sensitivity with respect to asset turnover. When Beximco frequently turns over its assets in a
given year, it's considered a sign of operating efficiency. When asset turnover is added to net
margin, the result is referred to as return on assets, a revealing indicator of operational
profitability. In this way it will help the company to increase its return to shareholder.
2. Reduce Tax Burden:
Tax burden sensitivity has the second highest coefficient of variation. Paying high taxes can
have a negative impact on return on equity. Any way Beximco can find to lower its taxes will
increase that return. In order to improve the shareholder’s return Beximco should take
advantage of any government policies, subsidies or incentives that favor its business.
3. Increase Leverage Factor:
Financial leverage refers to the amount of debt a company holds. When Beximco increases its
debt, its return on equity is improved. When debts are added, assets will increase. Because
equity is calculated by subtracting debts from assets, the company can decrease its equity by
using this leverage. As financial leverage rises, so does the return on equity. However,
increasing debt can have other adverse effects on the business, such as fixed interest and
repayment obligations, so this must be done with caution.
4. Reducing Interest Burden:
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Beximco pharma can increase its return on equity by reducing interest burden. The more
expensive cost of borrowing, the lesser it contributes to improving a company's ROE. So, the
company should try to find the cheaper source of capital in order to increase its return on equity.
5. Increasing EBIT Margin:
EBIT margin has lowest coefficient of variation among these five factors. Actually
pharmaceutical industry is highly regulated industry one company cannot increase their profit
margin so easily. Beximco Pharma can increase their return on equity by improving and
widening their margins by increasing their return on sales. That means company need to
increase their return on sales at a rate faster than the rise in their operating costs
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Chapter-11 Profitability Analysis
Page 74 of 109
Chapter-11: Profitability Analysis
11.1 Reformulation of Financial Statements:

For the purpose of profitability analysis, we have to reformulate the income statement and
balance sheet of Beximco Pharmaceuticals Ltd. The Reformulated income statement and
Balance sheet is given below:
Reformulated Income Statement:

The reformulated income statement distinguishes the income and expenses generated from the
operating activities from that generated by the financial activities. Moreover, it incorporates
any hidden dirty surplus account and dirty surplus accounts to arrive at a figure for the
comprehensive income. The reformulated income statement of Beximco pharma is as follows:
Beximco Pharmaceuticals Ltd

Reformulated Income Statement
Particulars 2012 2013 2014 2015 2016
Revenue 9,289,115,284 10,490,699,094 11,206,885,677 12,965,506,873 20,034,502,592
Less :Cost of goods sold 4,899,713,857 5,651,898,878 6,102,694,323 6,965,167,704 10,800,317,358
Gross Profit 4,389,401,427 4,838,800,216 5,104,191,354 6,000,339,169 9,234,185,234
Less: Operating Expense 2,181,521,867 2,514,527,446 2,686,014,518 3,149,060,695 4,775,931,931
Core Operating Profit 2,207,879,560 2,324,272,770 2,418,176,836 2,851,278,474 4,458,253,303
Plus: Other income 442,847,713 510,588,200 521,171,647 311,678,326 412,658,923
Less: Contribution to WPPF 95,491,462 104,679,709 105,477,787 116,856,503 182,891,896
Operating profit 2,555,235,811 2,730,181,261 2,833,870,696 3,046,100,297 4,688,020,330
Reported Tax 590,439,908 688,831,391 581,258,160 382,845,547 709,784,075
Tax on interest expense 161,351,644 159,146,773 181,078,741 177,242,559 257,545,600
Tax on operating profit 751,791,552 847,978,164 762,336,901 560,088,106 967,329,675
After tax operating profit 1,803,444,259 1,882,203,098 2,071,533,795 2,486,012,192 3,720,690,655
Net Financing Expense 645,406,575 636,587,090 724,314,963 708,970,234 1,030,182,401

Less: Tax 161,351,644 159,146,773 181,078,741 177,242,559 257,545,600
Net Financing Expense after tax 484,054,931 477,440,318 543,236,222 531,727,676 772,636,801
Comprehensive Income 1,319,389,328 1,404,762,780 1,528,297,573 1,954,284,516 2,948,053,854
Page 75 of 109
Reformulated Balance Sheet:
The reformulated balance sheet reclassifies the assets and liabilities of a company into
operating and financial items so as to provide key insights into the value generating proces of
a firm. The following table shows the reformulation of balance sheet of beximco pharma
Limited.
Beximco Pharmaceuticals Ltd

Reformulated Balance Sheet
Particulars 2012 2013 2014 2015 2016
Operating Assets
Cash&Cash Equvalents 518,768,296 552,975,676 595,732,966 222,239,239 221,121,229
Inventories 2,291,844,631 2,433,987,981 2,411,881,986 2,493,657,338 2,770,331,675
Accounts Receivables 978,224,317 1,162,404,807 1,249,434,697 1,397,498,648 1,680,606,796
Loans and Advances 840,320,705 965,276,373 1,186,637,111 1,223,673,153 1,802,304,185
Intanigible Assets 135,933,879 187,079,147 198,223,509 235,208,190 380,260,529
Spares and Supplies 325,881,244 396,175,790 433,352,407 554,183,898 614,606,112
PPE 15,745,492,625 16,201,858,216 18,364,313,070 20,393,278,737 22,235,892,802
Total Operating Assets 20,836,465,697 21,899,757,990 24,439,575,746 26,519,739,203 29,705,123,328
Operating Liability
Creditors and Other Payables 523,798,136 470,097,685 383,170,553 357,710,839 453,828,612
Accrued expenses 101,559,917 128,598,961 141,582,304 164,283,115 151,086,775
Deferred Tax 963,376,922 1,147,459,569 1,550,589,207 1,729,361,361 1,756,723,000
Income Tax Payables 15,482,294 274,064,529 325,685,371 368,339,391 347,233,813
Short Term loan 1,642,216,008 1,526,449,918 2,776,266,125 3,153,121,293 1,109,644,270
liability for gratuity and WPPF 403,598,795 499,622,784 610,628,150 741,522,518 984,198,459
Total Operating Liability 3,650,032,072 4,046,293,446 5,787,921,710 6,514,338,517 4,802,714,929
Net Operating Assets(NOA) 17,186,433,625 17,853,464,544 18,651,654,036 20,005,400,686 24,902,408,399
Financial Obligations
Long term loan current maturity 363,744,181 664,712,728 754,903,558 663,838,072 920,388,531
Long term loan 1,890,074,651 1,469,621,611 1,151,400,702 901,709,327 2,366,006,599
Total Financial Obligations 2,253,818,832 2,134,334,339 1,906,304,260 1,565,547,399 3,286,395,130
Financial Assets
Short Term Investment 2,193,423,560 2,686,598,326 3,026,383,161 2,475,026,831 1,439,037,813
Investment in Shares 3,451,276 3,451,276 4,792,895 5,759,927 4,746,834
Total Fiancial Assets 2,196,874,836 2,690,049,602 3,031,176,056 2,480,786,758 1,443,784,647
Net Financial Obligations(NFO) 56,943,996 (555,715,263) (1,124,871,796) (915,239,359) 1,842,610,483
Common Stockholder's Equity 17,129,489,629 18,409,179,807 19,776,525,832 20,920,640,045 23,059,797,916
Page 76 of 109
11.2 Comparative Analysis of Profitability
Analysis of profitability involves the identification of the profit drivers of a company. This is
important since the drivers help an analyst predict future performance of the firm and in
assessing the quality of its earnings.
For the purpose of analysis of profitability, we have used three stage breakdown of return on
common stockholders’ equity. Those three stages are:
1. First Level Breakdown: Distinguishing Financing and Operating Activities

2. Second Level Breakdown: Drivers of Operating Profitability
3. Third Level Breakdown: Drivers of Profit Margin
First Level Breakdown:

The first level breakdown of profitability identifies the key profit drivers of Beximco
Pharmaceuticals Limited.
First-Level Breakdown
Particulars 2012 2013 2014 2015 2016 Trend
ANALYSIS OF FINANCIAL LEVERAGE
ROCE Comprehensive Income/CSE 7.70% 7.63% 7.73% 9.34% 12.78%
RNOA OI AFTER TAX/NOA 0.1049 0.1054 0.1111 0.1243 0.1494
FLEV NFO/CSE 0.0033 -0.0302 -0.0569 -0.0437 0.0799
NBC NFE/NFO 8.5005 -0.8591 -0.4829 -0.5810 0.4193
SPREAD RNOA-NBC -8.3956 0.9646 0.5940 0.7052 -0.2699
FLEV*SPREAD -0.0279 -0.0291 -0.0338 -0.0309 -0.0216
ROCE RNOA+FLEV(RNOA-NBC) 7.70% 7.63% 7.73% 9.34% 12.78%
TRUE TRUE TRUE TRUE TRUE
From the first level breakdown we can see the effect of financial leverage and operating liability
leverage. Here RNOA represents the effect of operating liability leverage. We can also find the
ROCE and Net Borrowing Cost. From the table we see the changes in ROCE and changes in
effect of operating leverage on ROCE over the years. Here we see that the effect that is the
financial leverage and net borrowing cost is fluctuating over the five years’ period.
Page 77 of 109
Second Level Breakdown:
The second Level breakdown of Beximco Pharmaceuticals Limited is given below:
Second-Level Breakdown
ANALYSIS OF OPERATING LEVERAGE
RNOA OI AFTER TAX/NOA 10.49% 10.54% 11.11% 12.43% 14.94%
ROOA OI+II on OL/OA 0.0953 0.0952 0.0966 0.1060 0.1333
OLLEV OL/NOA 0.2124 0.2266 0.3103 0.3256 0.1929
OLSPREAD ROOA-STBR 0.0453 0.0452 0.0466 0.0560 0.0833
OLLEV*OLSPREAD 0.0096 0.0102 0.0145 0.0182 0.0161
RNOA ROOA+OLLEV(ROOA-STBR) 10.49% 10.54% 11.11% 12.43% 14.94%
The second level breakdown of profitability shows the effect of operating leverage. In addition
to the propelling effects of financial leverage, Beximco benefitted from the use of operating
leverage. Spontaneous financing, in the form of operating liability has leveraged RNOA over
and above their ROOA.
Third Level Breakdown:

To know about the drivers of operating profitability, we have to go through the third level
breakdown. Profit margin and Asset turnover ratios are shown in the breakdown. The profit
margins and asset turnover ratios of different years are shown in the table.
Third-Level Breakdown
Profit Margin OI/SALES 19.41% 17.94% 18.48% 19.17% 18.57%

Asset Turnover SALES/NOA 0.540491 0.5876 0.6008521 0.6481 0.804521
RNOA PM*ATO 10.49% 10.54% 11.11% 12.43% 14.94%
From the graph we can see that Profit margin was increasing at a slight rate from the initial
year to 2014 due to low operating income over the years. The asset turnover ratio was
fluctuating highly over the years where it has been constant in 2012 and 2014. Then Finally
The RNOA we derived from the product of asset turnover and profit margin shows increase in
2016 due to the increase in both profit margin and asset turnover.
Page 78 of 109
Chapter-12 Analysis of Dividend Policy
of Beximco Pharmaceuticals
Limited
Page 79 of 109
Chapter 12: Analysis of Dividend Policy of Beximco Pharmaceuticals Limited
12.1 Dividend payment pattern of Beximco pharmaceuticals limited:

Beximco pharmaceuticals limited has a reputation for paying regular dividends both in form of stock dividends and cash dividend.
Whether stock dividends are better or cash dividends it generally depends on an individual’s Current tax bracket and financial needs.
Below we have visualized the dividend payment timeline of Beximco pharmaceuticals limited including major dates such as Declaration
sate, ex-dividend date, record date and payment date of dividends for each year from 2012 to 2016 and analyzed this data to determine
any identifiable pattern in dividend payment and find their implications.
12.2 Pattern for 2016
Declaration date Ex -dividend date Record date Payment date Declaration date Ex -dividend date Record date Payment date
April 21, 2016 May 10, 2016 May 12, 2016 July 1, 2016 October 10, October 30, November 1, December
2016 2016 2016 12,16 2016
Cash dividend Cash dividend Cash dividend Cash dividend
10% 10% 10% 10% Cash dividend Cash dividend Cash dividend Stock
5% 5% 5% dividend 5%
Stock dividend
5% Cash dividend
5%
From this pattern we will describe the major implications of the dates highlighted in the timeline chart below-
Page 80 of 109
1. Declaration date: Though Beximco pharmaceuticals pays annual dividends but in the year
2016, there are two dividend declaration dates for Beximco pharmaceuticals limited. One
in April 21 and another in October 10. This is a unique case and the reason for this as per
the instructions of BSEC all the listed companies in DSE were ordered to have same
financial year timeline. So the dividend declared in April 21 is for the year 2005 ended in
December 31st and the Dividend declared in October 10 is for the financial year 2015-16
ended in June 2016.
So, the for financial year ending in December 31st, 2015 the board of Beximco
pharmaceuticals limited declared 10% cash dividend and 5% stock dividend for the 12-
month period and also declared 5% cash dividend for the additional 6-month period.
2. Ex-dividend date: Ex-dividend date is the date where the effects of dividend are adjusted
into the stock price of that particular company. As there are 2 Record dates in the year
2016, there are 2 Ex-dividend dates. One in May 10 and another in October 30.
As Beximco pharmaceuticals has been paying dividends more than 10% of its earnings it
has been categorized by DSE as an A category share and the clearing and settlement of
these are T+2. So the Ex-dividend dates are 2 business days prior to record date.
3. Record date: Record date is the date at which the holders of the stock become eligible to
receive dividends from the company. At this date the trading of the particular stock is
suspended on the stock market.
The record date for Beximco pharmaceuticals are May 12 and November 1.
4. Payment date: The dividends declared in declaration dates are paid to the stockholders in
the payment date. The !0% cash dividend declared was paid in July 1, the 5% stock
dividend was paid in December 12 and the 5% cash dividend was paid in December 16.
Page 81 of 109
12.3 Pattern for 2015:
Declaration date Ex -dividend date Record date Payment date Payment date
April 29, 2015 May 19, 2015 May 21, 2015 June 26, 2015 July 13, 2015
Cash dividend Cash dividend Cash dividend Stock dividend Cash dividend
10% 10% 10% 5% 10%
Stock dividend Stock dividend Stock dividend
5% 5% 5%
1. Declaration date: The board of directors of Beximco pharmaceuticals limited declared 10%
cash dividend and 5% stock dividend on April 29 for the financial year ending in December
31st 2015.
2. Ex-dividend date: Due to the Clearing Mechanism of the DSE for being T+2 days the ex-
dividend date is 2 business days prior to the record date. At this date the stock proce is
adjusted for the effects of dividend. The ex-dividend date for Beximco pharmaceuticals
was May 19, 2015
3. Record date: the record date for Beximco pharmaceuticals limited was May 21st 2015. At
this date the stockholders become eligible to receive dividends.
4. Payment date: there are two payment dates for dividend of Beximco pharmaceuticals
limited. The 5% stock dividend was paid in June 21, 2015 and the 10% cash divivdend was
paid in July 13, 2015.
Page 82 of 109
Declaration date Ex -dividend date Record date Payment date Payment date
April 29, 2014 May 16, 2014 May 18, 2014 July 1, 2014 July 17, 2014
Cash dividend Cash dividend Cash dividend Stock dividend Cash dividend
10% 10% 10% 5% 10%
5% 5% 5%
1. Declaration date: The board of directors of Beximco pharmaceuticals limited declared 10%
cash dividend and 5% stock dividend for the year 2014 in April 29, 2014.
2. Ex-dividend date: The Ex-dividend date for the dividends declared in April 29 was May
16 which was 2 business days prior to record date due to T+2 settlement mechanisms.
3. Record date: The holder of record date for the divivdends of Beximco pharmaceuticals
limited was May 18, 2014 and at this date trading of this stock was suspended.
4. Payment date: The 5% stock dividend declared was paid in July 1, 2014 and the 10% cash
dividend declared was paid in July 17, 2014
Declaration date Ex -dividend date Record date Payment date
April 30, 2013 May 18, 2013 May 20, 2013 July 17, 2013
Stock dividend Stock dividend Stock dividend Stock dividend
15% 15% 15% 15%
Page 83 of 109
1. Declaration date: At April 30, 2013 the board of directors of Beximco pharmaceuticals
limited announced 15% stock dividend for the financial year ending in December 31st 2013.
2. Ex-dividend date: The ex-dividend date for the dividend declared in April 30 was
determined at May 18 which was 2 business days prior to record date.
3. Record date: The record date for the stock of Beximco pharmaceuticals limited in 2013
was May 20.
4. Payment date: The 15% stock dividends were paid to stockholders on July 17, 2013.
Declaration date Ex -dividend date Record date Payment date
April 29, 2012 May 5, 2012 May 21, 2012 February 18,
2013
21% 21% 21% Stock dividend
21%
1. Declaration date: The board of directors of Beximco pharmaceuticals limited announced a

21% stock dividend for the year ending in 31st December 2012.
2. Ex-dividend date: The Ex-dividend date for Beximco pharmaceuticals stock was
determined to be at May 5, 2012
3. Record date: The record date for the stock of Beximco pharmaceuticals limited was on
May 21st 2012. At this date the trading of the stock was closed and after this date
stockholders were entitled to receive dividends.
4. Payment date: The Dividend declared on April 29, 2012 were paid to the stockholders on
February 18, 2013.
Page 84 of 109
12.6 Analysis of the dividend pattern and identifying dividend policy
though key parameters:
Here we will try to identify the dividend policy of Beximco pharmaceuticals limited with the help
of few key ratios and parameters. Here is the summary of the key ratios calculated-
1. DPS 2012 2013 2014 2015 2016

Cash dividend per share 0 0 1 1 1.5
Stock dividend per share 2.1 1.5 0.5 0.5 0.5
DPS 2.1 1.5 1.5 1.5 2
2. EPS 2012 2013 2014 2015 2016

Profit after tax 1,319,389,328 1,404,762,78 1,528,297,57 1,954,284,51 2,948,053,85
for the year 0 3 6 4
Number of 304,639,050 350,334,907 367,851,652 386,244,234 405,556,445
shares
outstanding
EPS 4.33 4.01 4.15 5.06 7.27
3. DPR 2012 2013 2014 2015 2016

DPS 2.1 1.5 1.5 1.5 2
EPS 4.33 4.01 4.15 5.06 7.27
DPR 48.49% 37.41% 36.10% 29.65% 27.51%
4. OCF per 2012 2013 2014 2015 2016

share
EBIT 2,650,727,27 2,834,860,97 2,939,348,483 3,162,956,80 4,870,912,2
3 0 0 26
Effective tax 31% 33% 28% 16% 19%
rate
Page 85 of 109
EBIT(1-T) 1,831,232,45 1,902,139,02 2,129,452,701 2,644,832,47 3,925,737,5
2 6 9 09
Depriciation 589,638,196 589,865,703 765,109,696 756,946,528 763,005,12
6
OCF 2,420,870,64 2,492,004,72 2,894,562,397 3,401,779,00 4,688,742,6
8 9 7 35
Number of 304,639,050 350,334,907 367,851,652 386,244,234 405,556,44
shares 5
outstanding
OCF per share 7.95 7.11 7.87 8.81 11.56
5. P/E ratio 2012 2013 2014 2015 2016

Current market price 55.90 42.7 58.7 84.1 80.8
EPS 4.33 4.01 4.15 5.06 7.27
P/E ratio 12.91 10.65 14.13 16.62 11.12
6. BV per share 2012 2013 2014 2015 2016

BV of equity 171281281 184081618 197755524 209201853 230594124
77 59 65 25 09
Number of shares 304,639,05 350,334,90 367,851,65 386,244,23 405,556,44
outstanding 0 7 2 4 5
BV per share 56.224335 52.544469 53.759585 54.163100 56.858700
58 57 85 66 42
7. MV per share 2012 2013 2014 2015 2016

MV of equity 17,029,322, 16,535,807, 21,592,891, 32,483,140, 32,251,393,
895 610 972 079 539
Number of shares 304,639,05 350,334,90 367,851,65 386,244,23 405,556,44
Page 86 of 109
MV per share 55.90 47.20 58.70 84.10 79.52
8. Reserve per share 2012 2013 2014 2015 2016

capital reserve on 294,950,95 294,950,95 294,950,95 294,950,95 294,950,95
merger 0 0 0 0 0
revaluation surplus 1,466,602, 1,406,527, 1,349,578, 1,299,220, 1,225,100,
600 880 805 315 042
Total reserve 1,761,553, 1,701,478, 1,644,529, 1,594,171, 1,520,050,
550 830 755 265 992
Number of shares 304,639,05 350,334,90 367,851,65 386,244,23 405,556,44
Reserve per share 5.78 4.86 4.47 4.13 3.75
9. Retained earnings per 2012 2013 2014 2015 2016

share
Retained earnings 5,889,784, 6,701,180, 7,667,220, 8,686,077, 10,716,511,
879 881 373 241 871
Number of shares 304,639,05 350,334,90 367,851,65 386,244,23 405,556,44
RE per share 19.33 19.13 20.84 22.49 26.42
10. FCFE per share 2012 2013 2014 2015 2016

Net income 1,319,389, 1,404,762, 1,528,297, 1,954,284, 2,948,053,
328 780 573 516 854
Depriciation 589,638,19 589,865,70 765,109,69 756,946,52 763,005,12
6 3 6 8 6
CAPEX 456,365,59 2,162,454, 2,028,965, 1,774,905, 67,708,205
1 854 667 860
Page 87 of 109
NWC 4,084,062, 4,429,894, 4,778,224, 5,731,333, 5,915,314,
828 606 972 931 061
Change in NWC 289,993,73 345,831,77 348,330,36 953,108,95 183,980,13
0 8 6 9 0
Net debt - 1,011,286, 36,098,307 86,414,010 -
235,250,58 128 322,629,29
3 2
FCFE 927,417,62 497,627,97 - 69,630,235 3,136,741,
0 9 47,790,457 353
Number of shares 304,639,05 350,334,90 367,851,65 386,244,23 405,556,44
FCFE per share 3.04 1.42 -0.13 0.18 7.73
Summary of Important parameters

2012 2013 2014 2015 2016
DPS 2.10 1.50 1.50 1.50 2.00
EPS 4.33 4.01 4.15 5.06 7.27
DPR 0.48 0.37 0.36 0.30 0.28
OCF per share 7.95 7.11 7.87 8.81 11.56
P/E ratio 12.91 10.65 14.13 16.62 11.12
BV per share 56.22 52.54 53.76 54.16 56.86
MV per share 55.90 47.20 58.70 84.10 79.52
Reserve per share 5.78 4.86 4.47 4.13 3.75
RE per share 19.33 19.13 20.84 22.49 26.42
FCFE per share 3.04 1.42 -0.13 0.18 7.73
Page 88 of 109
Dividend per share and Earnings per share
and dividend payout ratio
10 60.00%
Amount in taka
8 48.49% 50.00%
37.41% 40.00%
6 36.10% 7.27
4 4.33 5.06
29.65% 27.51%30.00%
4.01 4.15 20.00%
2 10.00%
2.1 1.5 1.5 1.5 2
0 0.00%
2012 2013 2014 2015 2016
year
DPS EPS DPR
Interpretation: Here we can see that the dividend per share of Beximco pharmaceuticals limited is
stable even though the earnings per share has varied over the years and as the Earnings per share
is increasing in the recent years Beximco pharmaceuticals limited is decreasing its dividend payout
ratio to keep a stable dividend payout. From this data we can say that Beximco pharmaceuticals
limited is pursuing a “Stable dividend” policy.
OCF per share

14.00
11.56
12.00
Amounts in taka
10.00 8.81
7.95 7.87
8.00 7.11
6.00
4.00
2.00
0.00
2012 2013 2014 2015 2016
Year
Interpretation: OCF per share measures the cash flow generated per share of Beximco
pharmaceuticals limited. This is a measure of operational efficiency and earnings quality. As we
can see the OCF per share is increasing this indicates an improvement of earnings quality and
dividend paying capability.
Page 89 of 109
Reserve and retained earnings per share
30.00 26.42
25.00 22.49
20.84
19.33 19.13
20.00
Year
15.00
10.00
5.78 4.86 4.47 4.13 3.75
5.00
0.00
2012 2013 2014 2015 2016
Reserve per share RE per share
Interpretation: Because Beximco Pharmaceuticals limited is a manufacture and export oriented

company is has no statutory reserve requirement imposed by any governing body so reserve is
expected to be low for Beximco pharmaceuticals limited. On the other hand Beximco
pharmaceuticals has adequate retained earnings per share which just implies a strong capital base
and ability to absorb shocks and paying dividend.
FCFE and dividend per share
2016 2.00
7.73
2015 1.50
0.18
Year
2014 1.50
-0.13
2013 1.50
1.42
2012 2.10
3.04
-2.00 0.00 2.00 4.00 6.00 8.00 10.00

Amounts in taka
DPS FCFE per share
Interpretation: FCFE per share implies the dividend paying ability of a company or the amount of
dividend that a company could have afforded to pay to its shareholders. ON the other hand
dividend per share shows the amount of earnings that actually have been distributed to its
Page 90 of 109
shareholders. As here we can see even if when Beximco pharmaceuticals didn’t have enough cash
to pay dividends it borrowed to pay dividends to its shareholders and keep a stable dividend payout
pattern.
This is the summary of the dividend payment pattern and amount of Beximco pharmaceuticals
limited for the last 5 years-
Dividend payment pattern

25%
21%
20%
15% 15%
15%
10% 10%
10%
5% 5% 5%
5%
0% 0%
0%
2016(18 months) 2015 2014 2013 2012
Cash dividend Stock dividend
From the analysis of the dividend payment schedule and dividend payment pattern and amount we
can say with confidence that Beximco pharmaceuticals follows a “Stable dividend policy”. For
the last 4 years the cumulative stock and cash dividend paid to shareholders were equal to 15%.
Although the total amount of the dividends paid is stable in recent years, however Beximco
pharmaceuticals was prone to issuing stock dividends than cash dividends in the years prior to year
2013.
Page 91 of 109
12.7 Analysis of the dividend policy decision of the Management of
Beximco pharmaceuticals limited:
We analyze the dividend policy decision of Beximco pharmaceuticals limited through this simple
framework-
The amount Beximco could have The amount Beximco actually paid-
afforded to pay-
Average Dividend per share – Tk 1.72
Average FCFE per share – Tk 2.45
Firm pay out too little as-

FCFE > Dividend
How managers are doing with the excess cash?

Average ROE = 9.04% Average return on capital = 11.78%
Cost of equity=8.73% WACC = 8.32%
ROE>Cost of equity ROC > WACC
Managers have good history of project choice and likely in the future.
So managers should be given the flexibility to keep cash and set
dividends
Page 92 of 109
Chapter-13 Conclusion
Page 93 of 109
Chapter-13: Conclusion
For Beximco Pharmaceuticals Limited Bangladesh, the return on equity ratio on average was
0.0903 during FY2012-2016. Alike ROA, the ratio did not fluctuate a lot during this period. So
we can approach to a conclusion that the firm did not feature any serious financial issue to maintain
the balance among its net income and total equity. Managers of the Beximco Pharmaceuticals
Limited have good history of project choice and likely in the future. So managers should be given
the flexibility to keep cash and set dividends.
Page 94 of 109
References
Page 95 of 109
References
Beximco-pharma.com. (2017). Cite a Website - Cite This For Me. [online] Available
at: http://www.beximco-pharma.com/ [Accessed 7 Nov. 2017].
Brealey, R., Myers, S. and Allen, F. (2017). Principles of corporate finance. New
York, NY: McGraw-Hill Education.
Brigham, E. and Ehrhardt, M. (2017). Financial management. Boston (MA): Cengage
Learning.
Gitman, L. and Zutter, C. (2015). Principles of managerial finance. Boston [etc.]:
Pearson.
Ross, S., Westerfield, R., Jaffe, J. and Jordan, B. (2018). Corporate finance. New
York, NY: McGraw-Hill Education.
Page 96 of 109
Appendix
Page 97 of 109
Appendix
Appendix 1: Cost of Capital Determination
Time Index Monthly Cash Bonus Stock Return Index Return

Closing Dividend share
Price
31-10-2017 6019.59 97.4 0 1 -0.088014981 -0.012022308
28-09-2017 6092.84 106.8 0 1 -0.014760148 0.014386249
31-08-2017 6006.43 108.4 0 1 -0.02954342 0.024874374
31-07-2017 5860.65 111.7 0 1 -0.011504425 0.036173655
6/29/2017 5,656.05 113 0 1 0.044362292 0.046811842
5/31/2017 5,403.12 108.2 0 1 -0.025225225 -0.013227895
4/30/2017 5,475.55 111 0 1 0.005434783 -0.042670742
3/30/2017 5,719.61 110.4 0 1 0.196099675 0.019048484
28.02.2017 5,612.70 92.3 0 1 0.058486239 0.026398588
31.01.2017 5,468.34 87.2 0 1 0.079207921 0.085839112
29.12.2016 5,036 80.8 0 1 -0.019417476 0.048905331
30.11.2016 4,801 82.4 0.5 1.05 0.070626696 0.045526678
31.10.2016 4,592 77.2 0 1 -0.070998797 -0.021939881
29.09.2016 4,695 83.1 0 1 0.003623188 0.037248917
31.08.2016 4,527 82.8 0 1 -0.044982699 0.000271606
31.07.2016 4,525 86.7 0 1 0.038323353 0.003942086
30.06.2016 4,508 83.5 0 1 0.010895884 0.01995482
31.05.2016 4,419 82.6 1 1 0.032098765 0.05331503
28.04.2016 4,196 81 0 1 -0.03686088 -0.037140135
31.03.2016 4,358 84.1 0 1 -0.036655212 -0.034226313
29.02.2016 4,512 87.3 0 1 0.010416667 -0.006370263
Page 98 of 109
31.01.2016 4,541 86.4 0 1 0.027348395 -0.019170014
31.12.2015 4,630 84.1 0 1 0.092207792 0.010618786
30.11.2015 4,581 77 0 1 0.079943899 0.003617472
29.10.2015 4,564 71.3 0 1 -0.002797203 -0.05927276
30.09.2015 4,852 71.5 0 1 0.08662614 0.017492471
31.08.2015 4,769 65.8 0 1 -0.055954089 -0.00493281
30.07.2015 4,792 69.7 0 1 0.109872611 0.045645137
30.06.2015 4,583 62.80 0 1 0.092173913 -0.000837415
31.05.2015 4,587 57.5 1 1.05 0.292304422 0.133339963
30.04.2015 4,047 44.8 0 1 -0.204262877 -0.106654017
31.03.2015 4,530 56.30 0 1 -0.019163763 -0.048861337
26.02.2015 4,763 57.4 0 1 0.019538188 0.008291156
29.01.2015 4,724 56.3 0 1 -0.04088586 -0.028964405
30.12.2014 4,865 58.7 0 1 -0.039279869 0.02003009
30.11.2014 4,769 61.10 0 1 -0.065749235 -0.078056454
30.10.2014 5,173 65.4 0 1 -0.064377682 0.019495249
30.09.2014 5,074 69.90 0 1 0.254937163 0.115350236
31.08.2014 4,550 55.7 0 1 0.298368298 0.02763942
24.07.2014 4,427 42.9 0 1 0.03125 -0.011910774
30.06.2014 4,481 41.6 0 1 0.063938619 0.011295394
29.05.2014 4,430 39.1 1 1.05 -0.081353726 -0.029863478
30.04.2014 4,567 43.9 0 1 -0.125498008 0.0166688
31.03.2014 4,492 50.2 0 1 0.016194332 -0.054293073
27.02.2014 4,750 49.4 0 1 -0.088560886 -0.000694553
30.01.2014 4,753 54.2 0 1 0.148305085 0.114054649
30.12.2013 4,267 47.2 0 1 -0.012552301 0.008467515
28.11.2013 4,231 47.8 0 1 0.098850575 0.066284169
31.10.2013 3,968 43.5 0 1 -0.024663677 0.00763035
30.09.2013 3,938 44.6 0 1 -0.070833333 -0.045984637
29.08.2013 4,127 48 0 1 0.041214751 0.047370141
Page 99 of 109
31.07.2013 3,941 46.10 0 1 -0.116858238 -0.03991542
30.06.2013 4,105 52.20 0 1 0.058424864
-
30.05.2013 3,878 52.20 0 1.15 -0.057556195 0.127707423
30.04.2013 3,439 55.90 0 1 -0.086601307 -0.042102272
31.03.2013 3,590 61.20 0 1 -0.006493506 -0.096453235
28.02.2013 3,973 61.60 0 1 0.035294118 -0.039412841
31.01.2013 4,136 59.5 0 1 0.064400716 -0.019673332
30.12.2012 4,219 55.90 0 1 0.079150579 0.002073982
29.11.2012 4,211 51.80 0 1 -0.089630931 -0.063049402
31.10.2012 4,494 56.90 0 1 -0.015570934 -0.011109477
30.09.2012 4,544 57.80 0 1 0.024822695 0.021933666
30.08.2012 4,447 56.40 0 1 0.086705202 0.069173319
30.07.2012 4,159 51.90 0 1 -0.135 -0.090470686
28.06.2012 4,573 60.00 0 1 -0.059561129 -0.034102961
31/05/2012 4,734 63.80 0 1.21 -0.286760787 -0.071499855
30/04/2012 5,099 97.70 0 1 0.158956109 0.021757963
29/03/2012 4,990 84.30 0 1 0.033088235 0.062809487
29/02/2012 4,695 81.60 0 1 0.223388306 0.130344024
31/01/2012 4,154 66.7 0 1
Page 100 of 109

Appendix 2: Assumption Sheet
Historical Projected
Particulars 2012 2013 2014 2015 2016 2017 E 2018 E 2019 E 2020 E 2021 E
Revenue Growth rate 12.9% 6.8% 15.7% 33.7% 8.0% 8.4% 8.8% 9.3% 9.7%
Cost of sales/ Revenue 52.7% 53.9% 54.5% 53.7% 53.9% 51.0% 50.0% 49.0% 48.0% 47.0%
Net operating expense /revenue 23.5% 24.0% 24.0% 24.3% 23.8% 28.5% 29.9% 31.4% 33.0% 34.6%
WPPF / Revenue 1.03% 1.00% 0.94% 0.90% 0.91% 0.96% 0.94% 0.93% 0.93% 0.93%
Tax rate 30.9% 32.9% 27.6% 16.4% 19.4% 25.4% 25.4% 25.4% 25.4% 25.4%
DPR 0.03% 0.00% 16.80% 17.96% 25.59% 25.6% 25.6% 25.6% 25.6% 25.6%
Growth in PPE 2.9% 13.3% 11.0% 18.9% 9.0% 9.5% 9.9% 10.4% 10.9%
Growth in Intangible Assets 37.625% 5.957% 18.658% 61.670% 30.977% 29.316% 35.155% 39.280% 33.682%
Growth in Investment in Shares 0.00% 38.87% 20.18% -17.59% 10.37% 12.96% 6.48% 3.05% 8.21%
Inventories / revenue 24.67% 23.20% 21.52% 19.23% 13.83% 22.23% 23.34% 24.51% 25.73% 27.02%
Spares and Supplies / revenue 3.5% 3.8% 3.9% 4.3% 3.1% 5.0% 5.3% 5.5% 5.8% 6.1%
Accounts receivables / revenue 11% 11% 11% 11% 8% 15.00% 15.75% 16.54% 17.36% 18.23%
loans and advances / revenue 9.05% 9.20% 10.59% 9.44% 9.00% 9.45% 9.54% 9.60% 9.41% 9.40%
Growth of short term 22.5% 12.6% -18.2% -41.9% -6.2% -6.2% -12.0% -16.9% -16.6%
investment
Growth Long Term Borrowings-Net off -22% -22% -22% 162% 24% 36% 50% 68% 45%
Current Maturity (Secured)
Page 101 of 109

Growth in the liability for 23.8% 22.2% 21.4% 32.7% 25.0% 25.4% 26.1% 27.3% 26.0%
gratuity and WPPF
Growth in deferred tax liability 19.1% 35.1% 11.5% 1.6% 16.8% 16.3% 11.6% 11.6% 14.1%
Short Term Borrowings 17.7% 14.6% 24.8% 24.3% 5.5% 17.4% 17.3% 17.9% 16.5% 14.9%
(Secured)/ revenue
Growth in Long Term 82.7% 13.6% -12.1% 38.6% 30.7% 17.7% 18.8% 26.5% 23.4%
Borrowings-Current Maturity
(Secured)
creditors and others payables / 5.6% 4.5% 3.4% 2.8% 2.3% 3.7% 3.3% 3.1% 3.0% 3.1%
revenue
accrued exp. / revenue 1.1% 1.2% 1.3% 1.3% 0.8% 1.1% 1.1% 1.1% 1.1% 1.0%
dividend payable/ revenue 0.015% 0.010% 0.009% 0.004% 0.002% 0.008% 0.006% 0.006% 0.005% 0.005%
Income tax payable/ revenue 0% 3% 3% 3% 2% 2% 2% 2% 2% 2%
Appendix 3: Pro-form Income Statement

Page 102 of 109
Based on this assumption sheet ,we have forecasted the pro-forma income statement for Beximco Pharmaceuticals Limited for next five
years. The pro-forma income statement is as follows-
Particular 2016 A 2017 E 2018 E 2019 E 2020 E 2021 E

Net Sales Revenue 20,034,502,59 21,637,262,79 23,454,792,875 25,523,505,60 27,887,237,460 30,599,006,374
2 9 6
COGS 10,800,317,35 11,035,004,02 11,722,705,479 12,501,515,14 13,386,094,848 14,394,010,096
8 8 0
Gross Profit 9,234,185,234 10,602,258,77 11,732,087,396 13,021,990,46 14,501,142,612 16,204,996,279
2 6
Net operating expenses 4,775,931,931 6,166,619,898 7,018,846,768 8,019,804,505 9,200,644,530 10,600,085,795
Profit From Operation 4,458,253,303 4,435,638,874 4,713,240,628 5,002,185,961 5,300,498,082 5,604,910,483
Other income 412,658,923
Finance cost 1,030,182,401 622,830,216 746,358,062 964,518,599 1,324,504,974 1,715,416,341
Profit before 3,840,729,825 3,812,808,658 3,966,882,567 4,037,667,362 3,975,993,108 3,889,494,143
Contribution to WPP
and Welfare Funds
Contribution to WPPF 182,891,896 206,903,560 220,917,422 237,546,389 258,960,443 285,813,255
and welfare funds
Income before tax 3,657,837,929 3,605,905,098 3,745,965,145 3,800,120,973 3,717,032,664 3,603,680,888
Income tax expenses 709,784,075 917,030,492 952,649,658 966,422,219 945,291,737 916,464,845
Page 103 of 109

Profit after tax for the 2,948,053,854 2,688,874,606 2,793,315,486 2,833,698,754 2,771,740,928 2,687,216,043
year
Dividend Paid (754,165,099) (688,098,858) (714,825,895) (725,160,212) (709,304,839) (687,674,422)

Transfer to the reserve 2,193,888,755 2,000,775,748 2,078,489,591 2,108,538,543 2,062,436,089 1,999,541,620
Appendix 4: Pro-forma Balance Sheet:
Based on this assumption sheet ,we have forecasted the pro-forma balance sheet for Beximco Pharmaceuticals Limited for next five
years. The pro-forma income statement is as follows-
Particulars 2016 A 2017 E 2018 E 2019 E 2020 E 2021 E

Assets
non-current assets 22,620,900,165 24,740,417,717 27,177,512,596 30,036,512,260 33,416,669,680 37,347,858,791
PPE 22,235,892,802 24,237,123,154 26,527,531,292 29,159,725,585 32,197,768,044 35,720,060,991
intangible assets 380,260,529 498,055,709 644,063,678 870,485,743 1,212,408,360 1,620,771,236
investment in share 4,746,834 5,238,853 5,917,626 6,300,932 6,493,276 7,026,563
current assets 8,528,007,810 13,119,598,857 15,058,018,223 17,806,632,606 21,985,785,476 26,227,025,730
Inventories 2,770,331,675 4,809,963,520 5,474,700,479 6,255,447,514 7,176,502,734 8,268,066,920
spares and supplies 614,606,112 1,081,863,140 1,231,376,626 1,406,983,247 1,614,148,163 1,859,664,175
accounts receivables 1,680,606,796 3,245,589,420 3,694,129,878 4,220,949,740 4,842,444,490 5,578,992,524
loans and advances 1,802,304,185 2,045,583,857 2,236,537,564 2,450,863,452 2,622,839,452 2,875,881,335
short term investment 1,439,037,813 1,349,298,095 1,265,154,628 1,113,587,086 925,327,713 771,324,122
Page 104 of 109

cash and cash 587300824.9 1156119049 2358801568 4804522924 6873096654
equivalent
total assets 31,148,907,975 37,860,016,574 42,235,530,820 47,843,144,866 55,402,455,156 63,574,884,520
shareholders’ 23,059,412,409 25,184,758,831 27,222,997,996 29,315,219,547 31,368,272,472 33,376,334,121

equity
issued share capital 3,862,442,340 3,862,442,340 3,862,442,340 3,862,442,340 3,862,442,340 3,862,442,340
share premium 5,269,474,690 5,269,474,690 5,269,474,690 5,269,474,690 5,269,474,690 5,269,474,690
excess of issue price 1,689,636,958 1,689,636,958 1,689,636,958 1,689,636,958 1,689,636,958 1,689,636,958
over face value
capital reserve on 294,950,950 294,950,950 294,950,950 294,950,950 294,950,950 294,950,950
merger
revaluation surplus 1,225,100,042 1,349,405,928 1,309,155,502 1,292,926,772 1,283,484,767 1,292,014,602
fair value gain on 1,295,558 1,560,347 1,560,347 1,472,084 1,530,926 1,521,119
investment
retained earnings 10,716,511,871 12,717,287,619 14,795,777,210 16,904,315,752 18,966,751,842 20,966,293,462
non-current 5,106,928,058 6,221,812,718 7,920,237,159 10,601,978,518 15,525,889,975 21,080,096,702
liabilities
Long Term 2,366,006,599 2,938,620,574 3,991,042,328 5,993,752,987 10,078,294,616 14,571,751,531
Borrowings-Net off
Current Maturity
(Secured
Page 105 of 109

liability for gratuity 984,198,459 1,230,672,529 1,542,720,913 1,945,995,033 2,477,573,779 3,120,851,332
and WPPF
deferred tax liability 1,756,723,000 2,052,519,615 2,386,473,918 2,662,230,499 2,970,021,580 3,387,493,840
current liabilities 2,982,567,508 6,453,445,024 7,092,295,665 7,925,946,801 8,508,292,709 9,118,453,697
and provisions
Short Term 1,109,644,270 3,758,836,885 4,060,183,828 4,559,190,550 4,596,007,353 4,563,217,287
Borrowings
(Secured)
Long Term 920,388,531 1,203,163,082 1,416,348,928 1,682,004,711 2,127,084,574 2,625,140,493
Borrowings-Current
Maturity (Secured)
creditors and others 453,828,612 803,312,329 780,433,137 790,374,548 845,588,882 944,535,462
payables
accrued exp. 151,086,775 242,498,400 264,154,649 282,368,348 299,759,437 317,147,164
dividend payable 385,507 1,666,293 1,479,987 1,435,840 1,398,150 1,626,297
income tax payable 347,233,813 443968035.4 569695136.4 610572805.7 638454314 666786993.8
total equity and 31,148,907,975 37,860,016,574 42,235,530,820 47,843,144,866 55,402,455,156 63,574,884,520
liabilities
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What is the scope and limitation of the report?

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What are the mission, vision and goals of Beximco Pharmaceuticals Limited?

What are the mission, vision and goals of Beximco Pharmaceuticals Limited?

Table of Contents

Chapter-1: Introduction .......................................................................................................... 5

1.1 Origin of the Report ......................................................................................................... 5

1.2 Objective of the Report .............................................................................................. 6

1.3 Scope of the Report .......................................................................................................... 6

1.4 Limitation of the report .................................................................................................... 6

1.5 Sources and Methodology................................................................................................ 7

Chapter-2: Overview of the Beximco Pharmaceuticals Limited ......................................... 9

2.1 Corporate profile of the BEXIMCO Pharmaceuticals Limited ....................................... 9

2.2 Mission of the BEXIMCO Pharmaceuticals Limited ...................................................... 9

2.3 Vision of the BEXIMCO Pharmaceuticals Limited ........................................................ 9

2.4 Corporate goal of the BEXIMCO Pharmaceuticals Limited ......................................... 10

2.5 Justification of corporate goal of the BEXIMCO Pharmaceuticals Limited ................. 10

2.6 Corporate Social Responsibility of the BEXIMCO Pharmaceuticals Limited .............. 10

Chapter-3: Economy Analysis .............................................................................................. 13

3.1 Bangladesh Economy Overview: ................................................................................... 13

3.2 Gross Domestic Product (GDP): .................................................................................... 13

3.3 Inflation Expectation:..................................................................................................... 14

3.4 Export Growth: .............................................................................................................. 14

Chapter-4: Industry Analysis ............................................................................................... 16

4.1 Pharmaceuticals Industry Overview: ............................................................................. 16

4.2 Porters Five Forces Analysis: ........................................................................................ 17

Chapter-5: MV and BV of Debt and Equity ....................................................................... 20

5.2 Comparison of the BV of debt, BV of equity and BV of the firm:................................ 23

5.4 Comparison of the BV of debt, BV of equity and BV of the firm:................................ 28

6.2 Peer company analysis: .................................................................................................. 32

6.3 Quantitative approach: ................................................................................................... 33

6.4 Optimal Capital structure for Beximco pharmaceuticals limited: ................................. 37

7.1 Cost of Debt: .................................................................................................................. 39

7.2 Calculation of cost of debt: ............................................................................................ 40

7.3 Cost of Equity: ............................................................................................................... 41

7.3 Weighted Average Cost of Capital (WACC): ............................................................... 43

7.4 Valuation using FCF Mode:........................................................................................... 44

8.1 P/E and EV/EBITDA multiple: ..................................................................................... 47

8.2 Calculation methodology: .............................................................................................. 47

8.3 calculation of P/E: .......................................................................................................... 48

8.4 Calculation of EV/EBITDA:.......................................................................................... 49

8.5 Final price based on relative valuation: ......................................................................... 50

Chapter-9: Ratio Analysis of the Beximco Pharmaceuticals Limited............................... 52

9.1 Ratio Analysis of Beximco Pharmaceuticals Limited: .................................................. 52

9.2 Activity Ratio: ................................................................................................................ 52

9.3 Liquidity Ratio ............................................................................................................... 59

9.4 Profitability Ratio........................................................................................................... 60

9.5 Solvency Ratio ............................................................................................................... 63

9.6 Market Value Ratio ........................................................................................................ 65

Chapter-10: Du Pond Analysis and Analysis of ROE Sensitivity ..................................... 68

10.1 DuPont Analysis of Beximco Pharmaceuticals Limited:............................................. 68

10.3 Ways to Improve ROE of Beximco Pharmaceuticals Limited: ................................... 72

Chapter-11: Profitability Analysis ....................................................................................... 75

11.1 Reformulation of Financial Statements: ...................................................................... 75

Reformulated Income Statement: .................................................................................... 75

Reformulated Balance Sheet: ........................................................................................... 76

11.2 Comparative Analysis of Profitability ......................................................................... 77

First Level Breakdown:.................................................................................................... 77

Second Level Breakdown: ............................................................................................... 78