1.1.

Ratio Analysis:

Ratio analysis is based on line items in financial statements like the balance sheet, income
statement and cash flow statement; the ratios of one item – or a combination of items - to another
item or combination are then calculated. Ratio analysis is used to evaluate various aspects of a
company’s operating and financial performance such as its efficiency, liquidity, profitability and
solvency. The trend of these ratios over time is studied to check whether they are improving or
deteriorating. Ratios are also compared across different companies in the same sector to see how
they stack up, and to get an idea of comparative valuations. Ratio analysis is a cornerstone of
fundamental analysis.

In this report ratio analysis (two ratios for each category) is performed to explore the liquidity,
profitability, efficiency, solvency and other ratios of Silva Pharmaceuticals Limited, a listed
company of BSEC.

1.1.1. Liquidity Ratio:

Liquidity ratio measures the short term ability of the enterprise to pay its maturing obligations
and to meet unexpected need for cash flow. Liquidity of the Silva Pharmaceuticals Limited will
be analyzed here for two years (2014 and 2015) by Current Ratio and Quick Ratio.

1.1.1.1.Current Ratio

Current Ratio =Current Assets (CA) / Current Liabilities (CL)

(Amount in Taka)

Year Current Assets Current Liabilities Net Worth Current Ratio

2018 91,35,20,356 19,99,76,267 71,35,44,089 4.57
2019 106,05,20,369 8,97,59,718 97,07,60,651 11.82
 Current Ratio
11.82

4.57

2018 2019

The current ratio helps investors and creditors to understand the liquidity of a company and the
ability of the company to pay off its current liabilities. This ratio expresses a firm's current debt
in terms of its current assets. A higher current ratio is always more favorable than a lower current
ratio because it shows that the company can more easily pay off its current debt.

1.1.1.2.Quick Ratio

Quick Ratio = {Current Assets (CA) - (Inventory + Prepaid Expense)} / Current Liabilities (CL)

(Amount in Taka)

Year Current Current Inventory Prepaid Expenses Quick Ratio

Assets Liabilities
2018 91,35,20,356 19,99,76,267 38,97,74,512 13,79,03,081 1.93
2019 106,05,20,369 8,97,59,718 39,74,62,763 10,88,51,246 6.17

Quick Ratio 11.82

4.57

2018 2019
It measures the liquidity of a company by showing its ability to pay off its current liabilities with
quick assets. If a firm has enough quick assets to cover its total current liabilities, the firm will be
able to pay off its obligations without having to sell off any long-term or capital assets. Higher
quick ratios are more favorable for companies because it shows there are more quick assets than
current liabilities.

1.1.2. Efficiency Ratio:

The efficiency ratio is typically used to analyze how well a company uses its assets and liabilities
internally. An efficiency ratio can calculate the turnover of receivables, the repayment of liabilities,
the quantity and usage of equity, and the general use of inventory and machinery.

1.1.2.1.Total Asset Turnover Ratio (TATO)

Total Asset Turnover Ratio (TATO) = Net Sales / Average Total Assets

Year Net Sales Total Assets Avg. Total Assets TATO Ratio
2017 194,11,63,581
2018 68,52,33,408 200,17,57,063 197,14,60,322 0.35
2019 73,24,50,190 230,17,22,707 215,17,39,885 0.34

Total Asset Turnover Ratio

0.35

0.34

2018 2019
It measures how efficiently a firm uses its assets to generate sales, so a higher ratio is always
more favorable. Higher turnover ratio means the company is using its assets more efficiently.
Lower ratios mean that the company isn't using its assets efficiently and most likely have
management or production problems.

1.1.2.2. Inventory Turnover Ratio

Inventory Turnover Ratio (ITO)= Cost of Goods Sold (COGS) / Average Inventory

Year COGS Inventory Avg. Inventory ITO Ratio

2017 36,95,48,334
2018 41,22,39,594 38,97,74,512 37,96,61,423 1.09
2019 44,05,01,039 39,74,62,763 39,36,18,638 1.12

Inventory Turnover Ratio 1.12

1.09

2018 2019

Inventory turnover is a measure of how efficiently a company can control its inventory. So, it is
important to have a high turn. This shows the company does not overspend by producing too
much inventory and wastes resources by storing non-saleable inventory. It also shows that the
company can effectively sell the inventory it produces. Investors look for this measurement in
order to know how liquid a company's inventory is. It shows how easily a company can turn its
inventory into cash. Creditors are particularly interested in this because inventory is often put up
as collateral for loans. Banks want to know that this inventory will be easy to sell.
1.1.3. Solvency Ratio:

Solvency ratio measures the ability of a company to meet its long term debts. Moreover, the
solvency ratio quantifies the size of a company’s after tax income, not counting non-cash
depreciation expenses, as contrasted to the total debt obligations of the firm. Also, it provides an
assessment of the likelihood of a company to continue congregating its debt obligations.

1.1.3.1.Debt-Equity Ratio

Debt-Equity Ratio= Total Debt (liabilities) / Total shareholders’ Equity

Year Total Liabilities Total Shareholder’s Debt-Equity Ratio

Equity
2018 291196059 1710561004 0.17
2019 168279761 2133442946 0.08

Debt-Equity Ratio
0.17

0.08

2018 2019

Different debt-equity ratio benchmark is used by different kinds of industries as some industries
tend to use more debt financing than others.
1.1.3.2.Debts-Total Assets Ratio

Debts-Total Assets Ratio = Total Debts (liabilities) / Total Assets

Year Total Liabilities Total Assets Debt-Total Asset Ratio

2014 29,11,96,059 200,17,57,063 0.15
2015 16,82,79,761 230,17,22,707 0.07

Debts-Total Assets Ratio

0.15

0.07

2018 2019

This measurement is used by the analysts, investors and creditors to evaluate the overall risk of a
company. Companies with a higher figure are considered more risky to invest in and lend to
because they are more leveraged. If debt to assets equals 1, it means the company has the same
amount of long term debts as compared to assets. It is found in the given example that both the
year the company has less dependency on external long term debts and the ratio is strong (almost
same) position in terms of paying its obligation through selling its assets.

1.1.4. Profitability Ratio:

Profitability ratios 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.
1.1.4.1.Gross Profit Ratio

Gross Profit Ratio= (Gross Profit / Net Sales) * 100

Year Gross Profit Net Sales Profit Margin (%)

2018 27,29,93,814 68,52,33,408 39.84%

2019 29,19,49,151 73,24,50,190 39.86%

Gross Profit Ratio

0.4

0.4

2018 2019

1.1.4.2.Earnings per Share (EPS)

Earnings per Share (EPS) = Net Profit after tax (NPAT)/ Number of Shares

Year Net Profit after tax No. of Shares Earnings Per share (EPS)
(NPAT)
2018 9,29,93,941 10,00,00,000 0.93
2019 14,33,23,416 12,50,68,493 1.15
 Earnings Per Share (EPS)
1.03 1.15
0.93

2017 2018 2019

1.1.5. Other Ratios:

1.1.5.1.Time Interest Earned Ratio

Time Interest Earned Ratio =Earnings Before Interest and Tax (EBIT) / Interest Expenses

Year Earnings Before Interest & Interest Time Interest

Tax(EBIT) Expenses Earned Ratio
2018 14,38,76,215 54,45,000 26.42
2019 15,73,18,884 36,13,899 43.53
 Time Interest Earned Ratio

43.53
26.42

2018
2019

Time Interest Earned Ratio measures the firm’s ability to pay its interest expense out of its
earnings.

1.1.5.2.Price Earnings Ratio (P/E)

Price Earnings Ratio (P/E) =Market Value Per Share / Earning Per Share (EPS)

This is to mention that, trading of the particular company started from October 10, 2018.
Besides, this organization prepared financial statements on financial year. So the information
regarding market price of year end 2018 is not available.

Year Market Value as on EPS Price Earnings Ratio (P/E)

30/06/2019
2019 23.00 1.15 20.00

P/E ratio is the times measure of current share price compared to its EPS. It measures the time
length within which an investor can get back his/her invested money as return. Companies with a
high P/E ratio are typically growth stocks whose earnings are expected to grow at an above-
average rate relative to the market.
Pay Out Ratio
1.1.5.3.Pay Out Ratio

(Cash Dividend Per

Share/EPS)*100
(Cash dividend per share/ Earnings per share)*100

Year Cash Dividend per EPS Payout Ratio

share as on
30/06/2019
2019 6% 1.15 5.22%