Synopsis

The preparation of term paper and report submission is a part of our academic activities after the
completion of the course of B.B.A. (Honor’s), Finance. The program intends to provide practical knowledge
in handling of jobs as well as to integrate the knowledge of theories, frameworks and models. It is an
effective tool to improve the student's comprehensive and analytical ability with respect to practical
problems, for this reason I have collected data related “Impact of Capital Structure Determinants on
Pharmaceutical Companies”. Studying with this data I improved my theoretical knowledge about the
capital structure, its determinants along with theirs impact on capital structure of a firm. I think this
practical aspect of business area will express my evaluating capacity and will obviously help me in future.

Capital structure of a firm is very much affected by certain statistically significant determinants or factors.
The main focus of my report is to evaluate how the determinants affect the pattern of capital structure of
pharmaceutical companies whether significantly or insignificantly and determine the appropriate capital
structure for the company to maximize the value of the firm. The other reason is that it is very important
to know how an organization is financed because if the finance mix is wrong, then the performance and
survival of the business firm may be seriously affected. Therefore, the purpose of the paper to examine
the relationship between leverage and firm specific determinants of capital structure decisions.

In a bounded time limit it is not possible to complete study concerning all the aspects of capital structure.
Yet I tried my best to make the report effective and revealing.

Impact of Capital Structure Determinants on Pharmaceutical Companies Page. 1

 List of contents

Chapter S.N TOPICS PAGE NO.

1.1 Background of the study 05

1.2 Literature Review 06-09
Introduction 1.3 Objective of the study 09
1.4 Methodology of the study 10
1.5 Limitation of the study 10-11

2.1 Meaning of capital structure 13

Capital 2.2 Components of capital Structure 13-14
structure 2.3 Hypothesis of the study 14-15
overview 2.4 Model specification 15-16
2.5 Determinants of capital structure 16-18
2.6 Capital structure theory 18-21

Company 3.1 Bangladesh’s pharmaceutical industry 23

Overview 3.2 Brief discussion about sample 24-32

Analysis 4.1 Pattern of capital structure 34-35

& 4.2 Statistical evidence 35-40
Findings 4.3 Conclusion 40-41

References
Appendix

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 List of Table & Graph (Figure)

Serial No. Table Content Page No.

1 Debt Equity Ratio of Pharmaceutical Companies 34

2 Descriptive Statistics 35-37
3 Correlation Matrix of Capital Structure 37-38
4 Regression Analysis of Capital Structure 38-40

Serial No. Graph Content Page No.

1 Trade off theory of capital structure 20

2 Debt equity ratio 34
3 Correlation among variables 37
4 Regression 39

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 Chapter-1
Introduction

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 Background of the Study

Of all aspects of capital investment decision, the capital structure decision is the vital one since the
potential profitability and solvency of an enterprise is directly affected by such decision. Although, it is
not possible to determine the exact mix of capital structure. Hence, proper care and attention need to be
given while determining the capital structure decision because it is one of the fundamental policy
decisions and financial framework of any corporate entity.

Capital structure refers to the way a corporation finances itself through some combination of equity sales,
equity options, bonds and loans. A company should plan an optimum capital structure in such a way that
the market value of its shares is maximum. Optimal capital structure refers to the particular combination
that minimizes the cost of capital while maximizing the stock prices or maximizes the stock return.

Capital structure is a term that describes the proportion of a company's capital, or operating money, that
is obtained through debt versus the proportion obtained through equity. Debt includes loans and other
types of credit that must be repaid in the future, usually with interest. The amount of debt that a firm
uses to finance its assets is called leverage. A firm with a lot of debt in its capital structure is said to be
highly levered. A firm with no debt is said to be unlevered. Equity involves selling a partial interest in the
company to investors, usually in the form of stock. In contrast to debt financing, equity financing does not
involve a direct obligation to repay the funds. Instead, equity investors become part-owners and partners
in the business, and thus earn a return on their investment as well as exercising some degree of control
over how the business is run. So, capital structure varies greatly from one company to another. For
example, some companies are financed mainly by shareholders funds whereas others make much greater
use of borrowings.

Capital structure in pharmaceutical industry had under gone various changes due to the growth in the
local and global demand. This made industry to grow at a wide range by reducing debt. The higher demand
both in global & domestic market have higher opportunity for expansion and therefore ensure overall
firms value maximization along with profit maximization. The objective of study is to analyze the changing
pattern of the factors like profitability, liquidity, tangibility, size, growth, operating leverage and evaluate
the impact that might affect the leverage of pharmaceutical companies.

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 Literature Review

Ross (1977) came up with a model that explained the choice of debt to equity ratio by willingness of a firm
to send signals about its quality. The core idea of Ross (1977) is that it is too costly for a low quality firm
to abuse the market and signal about its high quality by issuing more debt. As a result, low quality firms
have low amount of debt, and the leverage increases with the value of a firm.

Jensen, Meckling (1976) and Myers (1977) explained the relationship between capital structure and firm
performance through the agency costs theory.

Grossman and Hart (1982) postulated that firms which are mostly equity financed have very low risk of
bankruptcy. Managers of such firms are not penalized in case of low profits and have no incentives to be
more effective. Besides, bankruptcy implies some personal costs for managers, such as loss of
reputation etc. Thus, the addition of debt disciplines managers, as the incentive effect arises from the
desire to avoid bankruptcy. To sum up, an increase of leverage is followed by better corporate
performance according to this type of agency problem.

Harris and Raviv (1988) explained higher leverage as an antitakeover instrument firms with a large amount
of debt will be less likely to become a target for acquisition. That is why managers, who are afraid to lose
their job after takeover, may be willing to accumulate higher than necessary amount of debt.

Chevalier (1995) and Kovenock and Phillips (1995) surveyed the effect of various industries on capital
structure decisions and concluded that the type of industry can affect the use of debts and firms
performance.

Pushner (1995) found negative effect of leverage on firm performance measured as the total factor
productivity (TFP) in Japan.

Booth et al, (2001) in their 11 study of 10 developing countries found negative relation between leverage
and firm performance.

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Chiang & et al, (2002) tested connection among capital structure and financial performance of firm in
construction and property sector in Hong Kong and reported a negative relationship with profit margin.

Abor, (2005) examined the relationship between capital structure and financial performance of firms
listed in Ghana reporting that total liabilities to total asset and current liabilities to total asset affects the
firm profitability accounting measure ROE positively and long term liabilities to total asset are negatively
reported.

Andersen (2005) reviewed the relationship between capital structure and firms performance for 1323
companies from various industries and concluded that there is a significant relationship between capital
structure and ROA.

Berger and Bonaccorsi di Patti (2006) examined the dualistic relationship between leverage and firm
performance for the U.S. banking industry using a parametric measure of profit efficiency as an indicator
to measure agency costs. They confirmed the agency cost theory: higher leverage is associated with better
firm performance.

Fosberg and Ghosh (2006) in the research conducted on the 1022 companies in the New York Stock
Exchange (NYSE) and 244 companies in the America Stock Exchange (AMEX) concluded that the
relationship between capital structure and ROA is negative.

Houang and Song (2006) in the research conducted on the 1200 Chinese companies during 1994 to 2003
concluded that financial leverages has negative relationship with return on assets and growth
opportunities.

Margaritis and Psillaki (2007) considered a similar relationship for a sample of New Zealand small and
medium sized enterprises using distance functions as a measure of firm performance, and also found
support for the agency cost theory.

Zeitun and Tian (2007) in their study surveyed the impact of capital structure on the firm performance for
167 Jordanian companies during 1989 to 2003. The results suggest that capital structure has significantly
negative impact on accounting measures of firm performance evaluation. Also they indicate that short

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term debt to total assets ratio (SDTA) has significantly negative impact on market measure o Jordanian
company’s performance evaluation.

Margaritis and Psillaki (2007) considered a similar relationship for a sample of New Zealand small and
medium sized enterprises using distance functions as a measure of firm performance, and also found
support for the agency cost theory.

Rao and Syed (2007) found negative link between financial leverage and performance.

Elsayed Ebaid (2009) studied the effect of capital structure on the performance of 64 Egyptian companies
during 1997 to 2005. The results suggest that there is a significant negative relationship between ROA and
total debt to total assets ratio. But there is no significant relationship between ROE and total debt to total
assets ratio.

lso Mramor and Crnigoj (2009) concluded that there is a significant negative relationship between
financial leverage (total debt to total assets ratio) and return on assets ratio (ROA).

Onaolapo and Kajola (2010) investigated the effect of capital structure on financial & operational
performance of companies listed on Nigeria Stock Exchange. This study was performed on 30 nonfinancial
companies in 15 industry sectors in a 7 year period from 2001 to 2007. The results showed that the capital
structure (debt ratio) has a significant negative effect on financial measures (ROA and ROE) of these
companies.

Onaolapo and Kajola (2010) found a significant negative impact of leverage on financial measures of firm
performance in Nigeria.

San and Heng (2011) in their research studied the relationship between capital Structure and Corporate
Performance of Malaysian Construction Sector during 2005 to 2008. In this study, 49 companies were
selected as samples. Results showed that there is a significant relationship between capital structure and
corporate performance.

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The findings by Saeedi and Mahmoodi (2011) indicate that financial leverage may affect different
measures of performance in different ways.

Aburub (2012) in his research investigated the impact of capital structure on the firm performance of
companies listed in Palestine Stock Exchange during 2006 to 2010 which 28 companies were selected as
samples. In this study, five measures of Return On Equity (ROE), return on assets (ROA) earnings per share
(EPS), market value to book value of equity ratio (MVBR) and Tobin Q ratio as the measures of accounting
and market of firm performance evaluation and also as dependent variables., and four measures of short
term debt to total assets ratio (SDTA), long term debt to total assets ratio (LDTA), total debt to total assets
ratio (TDTA) and total debt to total equity ratio (TDTQ)as the measures of capital structure and also as the
independent variables were selected. Results indicate that the capital structure has a positive effect on
firm performance evaluation measures.

M Siddik, S Kabiraj, S Joghee (2017) emphasized that there is a relationship between a firm’s capital
structure and its performance.

With these mixed and conflicting results, the question for examining the relationship between capital
structure and firm performance has remained a puzzle and empirical study continues.

Objective of the Study

The following main and foremost objectives of this study have been taken into consideration:
a) To assess the pattern & position of the capital structure of the industry during the last 5 years (in
ratio)
b) To identify the quantitative and qualitative determinants of capital structure.
c) To assess how the pattern of capital structure is affected by the determinants of capital structure.
d) To evaluate the degree of relationship among capital structure and its determinants.
e) To examine the strength of relationship between capital structure and its determinants.

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 Methodology of the Study

The methodology of the study is collection of information through company’s respective website, annual
report and analysis of data. The collected data and information have been tabulated, processed and
analyzed carefully. It has been prepared in present form to make the study more informative and useful.

Collection of data:
For the purpose of the study I have used only secondary sources of data on the basis of the stated specific
objective of 5 (five) pharmaceuticals over the period of 2011-2015. The necessary secondary data has
been collected from the annual report, account statements and official records and from the relevant
publications, literature, articles, journal, and data from internet, paper and different text books are also
used when necessary.

Analysis of data
The collection of data and information are processed & tabulated manually, statistical tools namely
descriptive statistics, correlation, regression analysis are also done by taking the help of Microsoft Excel
2013 version. Therefore, ratios are also used among the companies for showing comparative debt equity
position with the help of data stated in financial statements. The data were analyzed and stated very
carefully in order to make the study informative.

Limitation of the Study

I tried my best to collect the maximum information about pharmaceutical industry but this report is not
free from short fault. There are some kind of limitation of all research and work. For the same, I had some
limitation of the study too. While I prepared this report I faced some problems. These are as follows;
 The annual reports of the respective pharmaceutical companies were not provided in the same
time interval or duration.
 There was lack of proper communication to collect data.

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  I have collected the data & information about the pharmaceutical companies from secondary
sources not primary sources.
 There was a time limitation.
 Most of the pharmaceutical company’s secrecy posed a major problem since disclosure of
information was restricted.
 The related information was very much scattered and was unstructured.

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 Chapter-2
CAPITAL STRUCTURE

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 Meaning of capital Structure

Capital structure is the way a corporation finances its assets through some combination of equity, debt or
hybrid securities. Capital structure is a framework of different types of financial employed by a firm to
acquire resources necessary for its operations and growth. Commonly, it comprises of stockholders
investments (equity capital) and long-term loans (loan capital). The main components of capital structure
are:

Components of capital Structure

1. Equity capital: This refers to money put up and owned by the shareholders. Equity capital consists of
two types: (a) contributed capital, which is the money that was originally invested in the business in
exchange for shares of stock or ownership &, (b) retained earnings, which represents profits from past
years that have been kept by the company and used to strengthen the balance sheet or fund growth.
Many consider equity capital to be the most expensive type of capital a company can utilize because its
cost is the return the firm must earn to attract investment. Equity consists of the following:
Equity share capital + Preference share capital + Share premium + Free reserves + Surplus profits +
Discretionary provisions for contingency + Development rebate reserve

2. Preference Share Capital: Preference shareholders enjoy preferential rights as compared to equity
shareholders both in respect of dividends and repayment of capital either during the life time or on
winding up of the corporate firm. On certain attributes of this source such as fixed dividend rate and
absence of any tax benefits, it is considered to be a relatively weak corporate security.

3. Retained earnings: A corporate firm can finance its developmental activities from internal surpluses.
That means instead of allocating the entire profits for distribution as dividends, portion of the profits is
kept in the firm for financing the future plans for growth. Being a part of profit earned by the firm, retained
earnings belong to the owners of the firm. Therefore, this source forms a part of equity fund. The
percentage of profits to be retained in the firm depends on a variety of factors such as the nature of

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industry, magnitude of profitability, tax burden, expectation of shareholders and attitude of the
management towards allocation of profits, etc.

4. Debt capital: The debt capital in a company’s capital structure refers to borrowed money that is at work
in the business. The safest type is generally considered long-term bonds because the company has years,
if not decades, to come up with the principal, while paying interest only in the meantime.

Other types of debt capital can include short-term commercial paper utilized by giants. The cost of debt
capital in the capital structure depends on the health of the company’s balance sheet.

All borrowing from Government, Semi Government, statutory financial corporation and other agencies +
Term Loans from Banks, Financial institutions etc. + Debentures + All deferred Payment Liabilities.

Capital structure policy involves a trade-off between risk and return:

Using more rises the risk borne by stockholders.
However, using more debt generally leads to a higher expected rate of return on equity.

Generally these forms of capital structures are seen in a corporate firm;

Equity share capital only

Equity share capital + preference share capital
Equity share capital + retained earnings
Equity share capital + preference share capital
Equity share capital + long term debentures/debt
Equity share capital + preference share capital+ long term debentures/debt

Hypothesis of the Study

Null hypothesis- There is no positive relationship between leverage ratios and profitability.
Alternative hypothesis- There is a positive relationship between leverage ratios and profitability.

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Null hypothesis- There is no relationship between leverage ratios and tangibility.
Alternative hypothesis- There is a relationship between leverage ratios and tangibility.

Null hypothesis- There is no relationship between leverage ratios and growth.

Alternative hypothesis- There is a relationship between leverage ratios and growth.

Null hypothesis- There is no relationship between leverage ratios and operating leverage.
Alternative hypothesis- There is a relationship between leverage ratios and operating Leverage.

Null hypothesis- There is no relationship between leverage ratios and size.

Alternative hypothesis- There is a relationship between leverage ratios and size.

Null hypothesis- There is no relationship between leverage ratios and liquidity.

Alternative hypothesis- There is a relationship between leverage ratios and liquidity.

Model Specification

In fact, this relationship between leverage and determinants of capital structure is presented through this
model.
LEV i, t = β0+ β1PRi,t + β2TAi,t + β3GRi,t + β4OLi,t + β5SZi,t + β6LQi,t + εit
Where,

PR = Profitability
TA = Tangibility
GR = Growth
OL = Operating leverage
SZ = Size
LQ = Liquidity

Variables Indicator

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 Dependent
Leverage Total debt/total asset
Variable

Profitability Ratio of EBIT to total asset

Tangibility Fixed Assets / Total Asset

Independent
Variables Growth Annual change in total asset

Operating Leverage EBIT/Operating

Revenue

Size Natural Logarithm of Total Asset

Liquidity Liquid assets/ Total Current liability

Determinants of Capital Structure

There are a large number of potential factors that may have an impact on leverage ratio. These factors
include size of the firm, tangibility, profitability, growth, liquidity and operating leverage.

Profitability

There are different views regarding the relationship between leverage and profitability according to
capital structure theories. Trade of theory predicts that profitable firms would employ more debt because
of the tax shield that comes from increased leverage (Myers, 1984).

Bankruptcy costs and agency costs may also encourage profitable funds to take more debt. Highly
profitable firms have increased ability to meet the fixed obligation for debt repayment. Therefore, they

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will have more debt to take advantage of increased tax benefit at more attractive costs of debt. Thus trade
off theory suggests a positive relationship between leverage and profitability. However, the pecking order
theory of Myers and Majluf (1984) predicts the opposite. It predicts a negative relationship between
leverage and profitability. Highly profitable firms are able to generate more internal funds through
retained earnings which leads to less debt.

Growth

According to pecking order theory firms with high growth will tend to look to external funds to finance
the growth. Myers (1977) confirms this and concludes that firms with a higher proportion of their market
value accounted for by growth opportunity will have debt capacity. Therefore, it is expected that there is
a positive relationship between growth and leverage ratio.

Tangibility
Tangibility is an important determinant of the capital structure of a firm. The trade-off theory predicts a
positive relation between tangibility and debt levels. Tangible assets work as a collateral of borrowed
fund. High tangibility therefore leads to increased borrowing ability. According to pecking order theory, a
firm with more tangible assets will have less information asymmetry problem. Less information
asymmetry problems imply a lower dependence on debt and a preference to equity. Thus it suggests a
negative relationship between leverage and tangibility (Harris & Raviv, 1991). The ratio of tangible assets
to total assets is selected as a proxy for tangibility of assets.

Size
According to trade-off theory, firm size could be an inverse proxy for the probability of the bankruptcy
costs. Larger firms are found to be more diversified and fail less often. They can lower costs (relative to
firm value) in the case of bankruptcy. Larger firms are more likely to have higher debt capacity and are
expected to borrow more to maximize the tax benefit from debt because of diversification (Titman &
Wessels, 1988). Therefore, size has a positive effect on leverage. Size can be regarded as a proxy for
information asymmetry between managers and outside investors. They should be more capable of issuing
equity which is more sensitive to information asymmetry and have lower debt (Rajan & Zingales, 1995).

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This suggests that pecking order theory predicts a negative association between leverage and the size of
firm.

Liquidity

There are two different opinions on the association between liquidity and capital structure: First view
implies a positive significant relation that is consistent with trade off theory. Companies with more
liquidity (more current assets) tend to use more external borrowing, because of their ability in paying off
their liabilities. Second view points to a negative significant relation that is consistent with the pecking
order theory, arguing that companies with more liquidity will decrease external financing, relying on their
internal funds. Thus, liquidity ratios may have a mixed effect on the capital structure decisions. Most of
the previous studies, confirm the negative relation, (Ahmed et al., 2010; Najjar &Petrov,2011). Hence,
liquidity is expected to have negative impact on leverage ratio.

Operating Leverage

Operating leverage is measured by the use of fixed costs in the operation of the firms. The operating
leverage has been calculated by dividing the EBIT by Operating Revenue. Higher operating leverage leads
to greater risk. So a firm with high operating leverage takes lower amount of debt to reduce further risk.
Therefore we expect a negative relationship between operating leverage and debt ratio.

Capital Structure Theory

Modigliani & Miller Theory

Modern capital structure theory began in 1958; when professors Franco Modigliani and Merton Miller
(hereafter MM) published what has been called the most influential finance article ever written. MM
proved, under a very restrictive set of assumptions, that a firm’s value is unaffected by its capital structure.

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MM’s results suggest that it does not matter how a firm finances in operations, hence capital structure is
irrelevant. MM’s study was based on some unrealistic assumptions, including the following:
There are no brokerage costs.
There are no taxes.
There are no bankruptcy costs.
Investors can borrow at the same rate as corporations.
All investors have the same information as management about the firm’s future investment
opportunities.
EBIT is not affected by the use of debt.

Pecking Order Theory

Pecking order theory (or Pecking order model) postulates that the cost of financing increases with
asymmetric information. Pecking order theory was first suggested by Donaldson in 1961 and it was
modified by Stewart C. Myers and Nicolas Majluf in 1984. It states that companies prioritize their sources
of financing (from internal financing to equity) according to the cost of financing, preferring to raise equity
as a financing means of last resort. Hence, internal funds are used first, and when that is depleted, debt
is issued, and when it is not sensible to issue any more debt, equity is issued.

Pecking order theory starts with asymmetric information as managers know more about their companies’
prospects, risks and value than outside investors. Asymmetric information affects the choice between
internal and external financing and between the issue of debt or equity. Therefore, there exists a pecking
order for the financing of new projects.

Agency Cost Theory

The agency theory is based on the notion that managers will not always act in the best interest of the
shareholders. Jensen and Meckling (1976) further elaborate on this concept by identifying two main
conflicts between parties to a company, firstly, between the managers and shareholders, and secondly,
between the shareholders and the creditors. In the first instance, managers are tempted to pursue the
profits of the firms they manage to their own personal gain at the expense of the shareholders. In the
latter instance, debt provides shareholders with the incentive to invest sub-optimally. Harris and Raviv
(1991) argue that if an investment yields returns higher than the face value of the debt, the benefits accrue
to the shareholders. Conversely, if the investment fails, the shareholders enjoy limited liability by

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exercising their right to walk away. This leaves the debt holders with a firm whose market value is less
than the face value of the outstanding debt.

Trade-Off Theory

The Trade-off theory of capital structure refers to the idea that a company chooses how much debt finance
and how much equity finance to use by balancing the costs and benefits. The theory describes that the
companies or firms are generally financed by both equities and debts. It states that there is an advantage
to financing with debt, the tax benefits of debt and there is a cost of financing with debt, the costs of
financial distress including bankruptcy costs of debt and non-bankruptcy costs. The marginal benefit of
further increases in debt declines as debt increases, while the marginal cost increases, so that a firm that
is optimizing its overall value will focus on this trade-off when choosing how much debt and equity to use
for financing.

Modigliani and Miller in 1963 introduced the tax benefit of debt. According to Modigliani and Miller, the
attractiveness of debt decreases with the personal tax on the interest income. A firm experiences financial
distress when the firm is unable to cope with the debt holders’ obligations. If the firm continues to fail in
making payments to the debt holders, the firm can even be insolvent.

Figure: 1 Trade off theory of capital structure

As the debt equity ratio (i.e. leverage) increases,

there is a trade-off between the interest tax shield
and bankruptcy, causing an optimum capital
structure, D/E. The curve shows the tax shield
gains of debt financing, while the bottom curve
includes that minus the costs of bankruptcy.

Signaling Theory

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The signaling theory was first coined by Ross (1977) who posits that if managers have inside information,
their choice of capital structure will signal information to the market. Leverage may well be influenced by
the theoretical premise that increases in debt are a positive sign that managers are confident about future
earnings. The signaling theory emanates from information asymmetries between firm management and
shareholders. If managers believe that their firms are undervalued, they will issue debt first and then issue
equity as a last resort. Conversely, if management believes that their firm is overvalued, they will issue
equity first. Debt contracts are a commitment by managers to make future interest payments. Failure to
repay debt could lead to bankruptcy. This signals confidence to the market that the firm will have sufficient
cash flows to service debt.

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 Chapter-3
COMPANY OVERVIEW:

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 Bangladesh’s Pharmaceutical Industry

In Bangladesh Pharmaceutical sector is one of the most developed hi tech sector which is contributing in
the country's economy. After the promulgation of Drug Control Ordinance - 1982, the development of
this sector was accelerated. Following the Drug (Control) Ordinance of 1982, some of the local
pharmaceutical companies improved range and quality of their products considerably. The national
companies account for more than 65% of the pharmaceutical business in Bangladesh. The country can
continue to produce patented products until 2016 as per trade related intellectual property rights (TRIPS).
The industry is legally permitted to reverse engineer, manufacture and sell generic versions of on-patent
pharmaceutical products for domestic consumption as well as for export to other LDCs. It created a big
opportunity to make Bangladesh a new chemical entity. Bangladesh can share its long years of experience
in pharmaceutical formulation and marketing with the Least Developed Countries (LDCs) and developing
ones, who need it. Among the 49 LDCs, Bangladesh has the strongest base to manufacture pharmaceutical
products. There are now 231 small, medium, large and multinational companies in the country meeting
around 97 percent of the total demand. In case of manufacturing and exporting pharmaceutical products,
Bangladesh being a least developed country (LDC) now enjoys a patent waiver under a deal of World Trade
Organization (WTO). However, among the top 20 companies of Bangladesh 6 are multinationals. The
professional knowledge, thoughts and innovative ideas of the pharmacists working in this sector are the
key factors for these developments. Due to recent development of this sector we are exporting medicines
to global market including European market. This sector is also providing 95% of the total medicine
requirement of the local market. Leading Pharmaceutical Companies are expanding their business with
the aim to expand export market. Recently few new industries have been established with hi tech
equipment and professionals which will enhance the strength of this sector.
The pharmaceutical industry in Bangladesh is growing at the rate 10% annually and the market share
stood at $500 million. The local companies are meeting 96% of the domestic demand and exporting to
over 60 different countries. The report also says that more sophisticated factories are being installed to
produce raw materials for the industry.
Bangladesh is going to set up a pharmaceutical park at a cost of Tk.4.5 billion for the industries to produce
raw materials for local drug plants. This will cut the dependence on imports of raw materials and boost
export. It can be mentioned that Bangladesh has a pharmaceutical sector worth of Tk.50 billion.

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 Brief Discussion About Sample

There are now more than 230 small, medium, large and multinational companies in the country meeting
around 97 percent of the total demand. Top two Manufacturers in pharmaceutical industry are as follows:

BEXIMCO Pharmaceutical Limited

SQUARE Pharmaceutical Limited
IBN SINA Pharmaceutical Limited
RENATA Pharmaceutical Limited
BEACON Pharmaceutical Limited

Beximco Pharmaceuticals Ltd

Beximco Pharmaceuticals Ltd (BPL) is a leading manufacturer of pharmaceutical formulations and Active
Pharmaceutical Ingredients (APIs) in Bangladesh. The company is the largest exporter of pharmaceuticals
in the country. The company is consistently building upon its portfolio and currently producing more than
400 products in different dosage forms covering broader therapeutic categories. The company was
incorporated in 1976 and commenced operations in 1980. It is the largest producer of Metered Dose
Inhalers (MDIs) in the country, and the first to produce CFC free inhalers. BPL is also the first company to
produce anti-retroviral drugs (ARVs) local. The company was listed in DSE on 3 July, 1985 and CSE on 11
June, 1995.

Key Company Information

Year of Establishment :: 1976

Country of Incorporation :: Bangladesh

Commercial Production :: 1980

Status :: Public Limited Company

Business Lines :: Manufacturing and marketing of pharmaceutical

Finished Formulation Products, Large Volume

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 Parenterals and Active Pharmaceutical Ingredients
(APIs)

Main Country of operation :: Bangladesh

Overseas Offices & Associates :: Australia, Bhutan, Cambodia, Chile, Ghana, Hong
Kong, Indonesia, Jordan, Kenya, Kuwait, Malaysia,
Myanmar, Nepal, Pakistan, Philippines, Saudi Arabia,
Singapore, Sri Lanka, Vietnam and Yemen

Authorized Capital (Taka) :: 9,100 million

Paid-up Capital (Taka) :: 4, 055.6 million

Number of Shareholders :: Around 68,000

:: Dhaka and Chittagong Stock Exchanges of

Stock Exchange Listings
Bangladesh and AIM of London Stock Exchange

Number of Employees :: 3500

TIDM: (Tradable Instrument :: BXP

Display Mnemonic)

Date shares were admitted to

trading :: AIM ( Alternative
: 21October,2005
Investment Market)

ISIN :: US0885792061

Total no. of Securities :: 192416260

Board and management:

Board of Directors
A S F Rahman Chairman
Salman F Rahman Vice Chairman
Nazmul Hassan Managing Director

Impact of Capital Structure Determinants on Pharmaceutical Companies Page. 25

 Iqbal Ahmed Director
Mohammad Abul Qasem Director
Osman Kaiser Chowdhury Director
Abu Bakar Siddiqur Rahman Director
Dr. Farida Huq Director
Barrister Faheemul Huq Director
Advocate Ahsanul Karim Director
Dr. Abdul Alim Khan Independent Director
Company Secretary
Md. Asad Ullah FCS

Executive Committee
Osman Kaiser Chowdhury Member of the Board of Directors
Nazmul Hassan Managing Director
Ali Nawaz Chief Financial Officer
Afsar Uddin Ahmed Director, Commercial
Management Committee
Nazmul Hassan Managing Director
Osman Kaiser Chowdhury Member of the Board of Directors
Ali Nawaz Chief Financial Officer
Afsar Uddin Ahmed Director, Commercial
Rabbur Reza Director, Marketing
Lutfur Rahman Director, Works
Md. Zakaria S Chowdhury Director, Sales
Mohd. Tahir Siddique Executive Director, Quality

Square Pharmaceuticals Ltd

Impact of Capital Structure Determinants on Pharmaceutical Companies Page. 26

Square Pharmaceuticals Limited is the largest pharmaceuticals company in Bangladesh and it has been
continuously in the 1st position among all national and multinational companies since 1985. It initially
started as a Partnership in 1958; it has today burgeoned into one of the top line conglomerates in BD.
Square Pharmaceuticals Ltd., the flagship company, is holding the strong leadership position in the
pharmaceutical industry of Bangladesh since 1985 and is now on its way to becoming a high performance
global player. It was incorporated as a Private Ltd. Company in 1964 and converted into Public Limited
Company in 1991. Its initial public offering started in Dhaka and Chittagong stock exchange simultaneously
in 1995. Their mission is to produce & provide quality & innovative healthcare relief for people, maintain
stringently ethical standard in business operation also ensuring benefit to the shareholders, stakeholders
and the society at large.

Key Company Information

Year of Establishment (Initially as a Partnership) : 1958

Incorporated as a Private Limited Company : 1964
Technical Collaboration Agreement with : 1975
Janssen Pharmaceuticals of Belgium (A subsidiary

Impact of Capital Structure Determinants on Pharmaceutical Companies Page. 27

 of Johnson & Johnson International Ltd.)
Technical Collaboration Agreement with F.Hoffman- : 1984
La Roche & Co. Ltd.
Converted into Public Limited Company : 1991
Initially Public Offering (IPO) : 1994
Stock Exchange Listing (Dhaka & Chittagong) : 1995
Agreement with M/s. Bovis Tanvec Ltd. of UK : 1996
for implementation of Dhaka Plant
Awarded ISO-9001 Certificate : 1998
Awarded UK-MHRA Certificate : 2007

Business Lines : Manufacturing and

Marketing of
Pharmaceutical
Finished
Products, Basic
Chemicals, Agro Vet
Products and Pesticide
Products
Authorized Capital : US$ 73.5 Million
(Tk. 5,000 Million)
Paid-up Capital : (Tk. 1207.22 Million)
Number of Employees : 3,564
Subsidiary Company : Square Cephalosporin
Ltd.
Square Biotech Ltd.
Square Multifabrics
Ltd.
Associate Company : Square Textiles Ltd.
Square Knit Fabrics Ltd.

Impact of Capital Structure Determinants on Pharmaceutical Companies Page. 28

 Square Fashions Ltd.
Square Hospitals Ltd.

Listing Year 1995

Total no.
15090300
of Securities
Market Category A
Electronic Share Y

Sponsor/Director Govt. Institute Foreign Public

Share Percentage:
54.16 0 0 6.3 39.54

IBN SINA Pharmaceutical

Ibn Sina pharmaceutical industry is one of the leading pharmaceuticals in Bangladesh. The company was
founded in 1983. The manufacturing located at Gazipur, 56 kilometer away from the center of the capital
city Dhaka, in a campus of about 15 acres of land. The manufacturing plant has been established with
modern state of the art technology and equipped with high standard machineries for the production and
quality checking of various dosage forms of several therapeutic classes.

Besides contemporary medicines, the company is also encouraging traditional herbal/unani medicines.
Hence, its manufacturing plant is broadly divided into two principal units, i.e pharmaceutical
manufacturing plant and natural medicine manufacturing plant (herbal/unani). Both units are maintaining
CGMP compliance and highest ethical practice.

The commercial production was started on May, 1986. The company converted into a public limited
company in 1989. The company was listed in Dhaka Stock Exchange (DSE) on July 17, 1990. It was listed in
Chittagong Stock Exchange On December 24, 1996. It started production and marketing of ophthalmic
products with Cloram Eye Drop/Ointment and the product line has been enriched by the no of 12 till now.

Status Public Limited Company

Impact of Capital Structure Determinants on Pharmaceutical Companies Page. 29

 Year of Establishment 1983
Corporate Headquarter Tanin Center
3 Asad Avenue, Mirpur Road, Mohammadpur
Dhaka 1209
Bangladesh
Core Business activities Manufacturing & marketing of prescription drugs
Listed In Dhaka Stock exchange
Chittagong Stock Exchange
Sales Depots 16
No of Employees 3227
No of Products (natural products) 93
No of products (pharma) 345
ISO 9001:2000 certified on August 18, 2004
Company Secretary Md. Shahid Farooqui

Board of Directors

Chairman Shah Abdul Hannan

Managing Director Dr. A.K.M. Sadrul Islam

Abu Nasser Muhammad Abduz Zaher

Dr. Choudhury Mahmud Hasan

Director Dr. Shah Md Bulbul Islam

Sk. Md. Bahar Hussain

Md. Rafiqul Islam Khan

RENATA Pharmaceutical Limited

Impact of Capital Structure Determinants on Pharmaceutical Companies Page. 30

Renata Limited (formerly Pfizer Limited) is one of the leading and fastest growing pharmaceutical and
animal health product companies in Bangladesh. The company started its operations in 1972 as Pfizer
(Bangladesh) Limited. In 1993, Pfizer transferred the ownership of its Bangladesh operations to local
shareholders and the name of the company was changed to Renata Limited. The core businesses of Renata
Limited are human pharmaceuticals and animal health products. In Bangladesh it is the 4th largest
pharmaceutical company and the market leader in animal health products. In addition, Renata products
are exported to Afghanistan, Belize, Cambodia, Ethiopia, Guyana, Honduras, Hong Kong, Kenya, Malaysia,
Myanmar, Nepal, Philippines, Sri Lanka, Thailand, United Kingdom, and Vietnam. The Company is listed
on the Dhaka Stock Exchange with market capitalization of approximately Taka 50 billion. The founder of
the company is Syed Humayun Kabir.

The Company has eight manufacturing facilities spread over three manufacturing sites. In addition Renata
Oncology Limited has two manufacturing facilities. Distribution of products is carried out by 19 depots
across the country. Plot No. 1, Milk Vita Road, Section-7,
Mirpur, Dhaka-1216, Bangladesh.

Board Members

Chairman Dr. Sarwar Ali

CEO &Managing Director Syed S Kaiser Kabir

Company Secretary Md. Jubayer Alam

Sajeda Farisa Kabir

A. Hasanat Khan

Members Manzoor Hasan

Md. Iftikhar-uz-Zaman

Zahida Fizza Kabir

Tanya Tazeen Karim

Impact of Capital Structure Determinants on Pharmaceutical Companies Page. 31

 BEACON Pharmaceutical

Beacon Pharmaceuticals Limited established in 2001 but has started its business operation in 2006 with a
vision to become a global company that will meet world’s greatest health needs. From its inception,
Beacon is developing & delivering innovative & lifesaving medicines to fight against cancer, hepatitis,
cardio vascular disease & other life threatening diseases. At present, Beacon is the number one oncology
company and one of the leading and fastest growing pharmaceutical companies of Bangladesh and its
sales turnover is 45 million dollars. Beacon has the finest infrastructure & facilities developed and
engineered by European consultants. Beacon manufactures more than 200 generic drugs and 65 oncology
products. In each year, Beacon is introducing more than 15-20 Hi-Tech new products. Beacon is public
limited company listed in Dhaka & Chittagong stock exchange. About 2000 people are working in this
company. The headquarter is located at 9/A, Toyenbee Circular Road, Motijheel, Dhaka-1223, Bangladesh.

Board of Directors
Chairman Nurun Nahar Karim

Managing Director Md. Ebadul Karim

Director Md. Niazul Karim

Prof. Dr. Syed Modasser Ali

A. Q. Siddiqui

Impact of Capital Structure Determinants on Pharmaceutical Companies Page. 32

 Chapter-4
The Capital Structure of
Pharmaceuticals Ltd
(Analysis & Findings)

Impact of Capital Structure Determinants on Pharmaceutical Companies Page. 33

 Pattern of Capital Structure

The pattern of capital structure of these five pharmaceuticals is shown through debt equity mix i.e.
through debt equity ratio:-

Debt to Equity Ratio = Total Debt / Total Equity

Table 1: Debt Equity Ratio of Pharmaceutical Companies

2011 2012 2013 2014 2015

Beximco 0.316338665 0.241585339 0.191763666 0.118518226 0.140593136
Square 0.344766941 0.335810212 0.389126895 0.386246131 0.371771941
Ibnsina 0.372853631 0.369320061 0.58169918 0.759312398 0.939910048
Renata 1.311468899 0.923502007 1.030529068 0.869965848 0.715715054
Beacon 0.611989332 0.632133528 0.533077479 0.600702413 0.630589375

Figure 2

Impact of Capital Structure Determinants on Pharmaceutical Companies Page. 34

Here, from the graph it is evident that RENATA pharma has more of leverage use comparatively than
others. Though SQUARE is the largest pharma comparatively in size, it is less dependent on leverage
chronologically from 2011 to 2015 rather it would be said that it is more equity based financing company.

Optimal Debt-Equity Relationship

In financial terms, debt is a good example of the proverbial two-edged sword. Astute use of leverage
(debt) increases the amount of financial resources available to a company for growth and expansion. The
assumption is that management can earn more on borrowed funds than it pays in interest expense and
fees on these funds. However, as successful as this formula may seem, it does require that a company
maintain a solid record of complying with its various borrowing commitments.

A company considered too highly leveraged (too much debt versus equity) may find its freedom of action
restricted by its creditors and/or may have its profitability hurt as a result of paying high interest costs. Of
course, the worst-case scenario would be having trouble meeting operating and debt liabilities during
periods of adverse economic conditions. Lastly, a company in a highly competitive business, if hobbled by
high debt, may find its competitors taking advantage of its problems to grab more market share.

Unfortunately, there is no magic proportion of debt that a company can take on. The debt-equity
relationship varies according to industries involved, a company's line of business and its stage of
development. However, because investors are better off putting their money into companies with strong
balance sheets, common sense tells us that these companies should have, generally speaking, lower debt
and higher equity levels.

Statistical Evidence

Table 2: Descriptive Statistics

The study examined the determinants of capital structure for five Pharmaceuticals firms over the time
period from (2011-15). The descriptive statistics of the dependent and explanatory variables for the
sample Pharmaceuticals were summarized in Table 2.The total observation for the each dependent and
explanatory variable was 25. Moreover, the figure also shows the mean, standard deviation, range,
minimum and maximum values for the dependent and independent variables.

Impact of Capital Structure Determinants on Pharmaceutical Companies Page. 35

 Debt Ratio Profitability Tangibility Growth Operating Leverage Size Liquidity
Mean 0.350259477 0.123144999 0.672531985 0.152705427 0.814328449 22.8549795 0.818328698
Standard Error 0.02715282 0.014874191 0.018052537 0.027927851 0.062960606 0.25241127 0.109908795
Median 0.369320061 0.142183658 0.675894479 0.103339476 0.872374469 23.2713361 0.701469441
Mode #N/A #N/A #N/A #N/A 0.983927346 #N/A #N/A
Standard Deviation 0.135764099 0.074370957 0.090262687 0.139639257 0.314803032 1.26205637 0.549543975
Sample Variance 0.018431891 0.005531039 0.008147353 0.019499122 0.099100949 1.59278628 0.30199858
Kurtosis 0.051595505 -1.035528107 6.408702228 1.661745329 0.777439912 -0.8942678 6.784028557
Skewness 0.175248381 -0.091318493 1.134839223 1.394457477 -1.287569982 -0.6475537 2.503521057
Range 0.569008771 0.24691502 0.524621221 0.569093053 1.127616928 4.01283274 2.490825442
Minimum 0.105960031 0.003436268 0.461496586 -0.057588214 0.070444895 20.3575941 0.259617349
Maximum 0.674968802 0.250351289 0.986117807 0.511504839 1.198061824 24.3704269 2.750442791
Sum 8.756486932 3.078624979 16.81329962 3.817635675 20.35821121 571.374486 20.45821745
Observations 25 25 25 25 25 25 25
Largest(1) 0.674968802 0.250351289 0.986117807 0.511504839 1.198061824 24.3704269 2.750442791
Smallest(1) 0.105960031 0.003436268 0.461496586 -0.057588214 0.070444895 20.3575941 0.259617349
Confidence Level(95.0%) 0.056040666 0.030698822 0.037258606 0.057640252 0.129944305 0.52095127 0.226840604

Pharmaceuticals firm’s mean leverage ratio was 35.03% with the standard deviation of 13.58%. This
explains that firms use more than 35 percent debt and almost 65% assets of the Pharmaceutical firms are
equity financed on an average. Range of using debt as part of capital structure varied from 10.6 percent
to 6.5 percent.

The first explanatory variable profitability ranges from 0.034% to 25.03% with a mean value of 12.31%
and standard deviation of 7.44%.

Tangibility is calculated by fixed assets by total assets. Table shows that the mean tangibility is 67.25
percent. That means the entire firm’s fixed asset consists almost 68 percent of total assets on average.
The fixed assets to total asset for the sample were ranged from 46.15 percent to 98.61 percent with
standard deviation of 9.03 percent.

Growth was measured as the annual percentage change in total asset. Table shows that the mean growth
rate is 15.27 percent and standard deviation is 13.96 percent. It means that the total assets of the firms
during the last five years increased at an average rate of 15.27 percent. During this period, growth rate
ranged from -5 percent to 51 percent.

Here, firm’s size is determined by the natural logarithms of total assets. From the table it can be seen
that firm’s mean size is represented by 22.85 with standard deviation of 1.26. It means natural
logarithms of average total asset of the sample firms during the five year is 22.85. Natural logarithms of
total assets for the sample ranged from 20.35 to 24.37.

Impact of Capital Structure Determinants on Pharmaceutical Companies Page. 36

Besides, for the study sample, liquidity ranged from 25.96 percent to 275 percent with a mean of 81.83
percent of the current liability. Firms’ operating leverage which was presented by the ratio of operating
profit to operating revenue had a mean of 0.8183 with a standard deviation of 0.3148.

Table 3: Correlation matrix of capital structure

Debt Ratio(y) Profitability Tangibility Growth Operating Leverage Size Liquidity

Debt Ratio(y) 1
Profitability -0.129873209 1
Tangibility 0.001851671 0.370639088 1
Growth 0.407030931 0.442219394 0.159059863 1
Operating Leverage -0.227897426 0.811723337 0.610318506 0.377234758 1
Size -0.585165371 0.256172164 -0.107020794 -0.176054659 0.205883464 1
Liquidity -0.693071436 0.332347487 0.042227565 -0.080678098 0.157125564 0.312361508 1

Figure 3

Correlation
1.5

0.5

0
1 2 3 4 5 6 7

-0.5

-1

Findings:

The correlation matrix shows the relationship among the variables. The table shows that leverage
(dependent variable) is negatively correlated to profitability, operating leverage, size and liquidity. It
indicates that the firm with higher profitability, operating leverage, size and liquidity are less interested

Impact of Capital Structure Determinants on Pharmaceutical Companies Page. 37

to use more debt as part of their capital structure. However, tangibility and growth are positively
correlated to dependent variable debt ratio.

Table 4: Multiple regression analysis of capital structure

Summary Output

Regression Statistics

Multiple R R Square Adjusted R Square Standard Error Observations

0.924406632 0.854527621 0.806036828 0.059792206 25

ANOVA

DF SS MS F Significance F
Regression 6 0.3780134 0.063002238 17.62247159 1.21228E-06
Residual 18 0.0643519 0.003575108
Total 24 0.4423654

Coefficient & Standard Error

Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%
Intercept 1.08578469 0.297744627 3.646697843 0.001845147 0.46024644 1.711322939 0.46024644 1.711322939
Profitability 1.074849547 0.329376185 3.263288586 0.004317121 0.382855859 1.766843234 0.382855859 1.766843234
Tangibility 0.318429569 0.186485316 1.707531594 0.104913043 -0.073361542 0.710220679 -0.073361542 0.710220679
Growth 0.296728653 0.106311527 2.791123998 0.012063925 0.073376424 0.520080883 0.073376424 0.520080883
Operating Leverage -0.339244559 0.084278102 -4.025299001 0.000793822 -0.516306281 -0.162182838 -0.516306281 -0.162182838
Size -0.031416368 0.011344876 -2.769212198 0.012642875 -0.055251067 -0.007581669 -0.055251067 -0.007581669
Liquidity -0.162620195 0.02547341 -6.383919384 5.18368E-06 -0.216137843 -0.109102547 -0.216137843 -0.109102547

Now the regression equation is

LEV(y) =1.08578469+1.074849547PR+0.318429569TA+0.296728653GR-0.339244559OL-
0.031416368SZ-0.162620195LQ

Impact of Capital Structure Determinants on Pharmaceutical Companies Page. 38

 Figure 4

Regression
1.2
1
0.8
0.6
0.4
0.2
0
R Square Intercept Profitability Tangibility Growth Operating Size Liquidity
-0.2
Leverage
-0.4
-0.6

The results from the test indicates that profitability, growth, operating leverage, size are statistically
significant at 5% level of significance that is we can reject the null hypothesis and accept the alternative
hypothesis. On the other hand, tangibility and liquidity are statistically insignificant at 5% level of
significance.

Discussion of Results

Profitability: Results from the regression model (positive coefficient) indicates that profitability has the
positive relationship to leverage and it is statistically significant to at 5% level of significance. It implies
that every one percent change in Pharmaceuticals firm’s profitability keeping the other thing constant has
a resultant change of 1.07 percent on the leverage in same direction.

Tangibility: The positive coefficient of tangibility from the regression analysis indicates that there is a
positive relationship between leverage and tangibility while statistically insignificant at 5% level of
significance. Positive relationship explains that Bangladeshi pharmaceutical firms which have more fixed
assets as a percentage of total asset want to go for more debt.

Growth: Here, positive coefficient with statistically significant values indicates that that Pharmaceuticals
firms in Bangladesh want to go for extra interest burden during their growing period. It can be said that

Impact of Capital Structure Determinants on Pharmaceutical Companies Page. 39

firms with high growth will tend to look to external funds to finance the growth and firms with a higher
proportion of their market value accounted for by growth opportunity will have debt capacity.

Operating Leverage: The results of regression model in table indicated that operating leverage had
negative relationship with the leverage of firms, and it is statistically significant (p-value = 0.000793822)
at 5% level of significance. This implies that every one percent change (increase or decrease) in the firms
operating leverage keeping the other thing constant had a resultant change of 3.39 percent on the
leverage in the opposite direction. It means that for pharmaceuticals industry in Bangladesh, firms with
higher degree of operating leverage take less amount of debt because high operating leverage already
increased the risk level of the firm.

Size: The results of regression model indicate that size has negative relationship to the leverage. However
this variable is but statistically significant (p-value is 0.012642835) at 5 percent level of significance. This
implies that every one percent change (increase or decrease) in the firm’s size keeping the other thing
constant had a resultant change of 3.1 percent on the leverage in the opposite direction. The results
suggest that the bigger firms need more external funds to use. They should be more capable of issuing
equity which is more sensitive to information asymmetry and have lower debt.

Liquidity: From the results it is seen that there is a negative relation between leverage and liquidity with
statistically insignificant p values which suggest that companies with more liquidity will decrease external
financing, relying on their internal funds.

Conclusion

The findings contribute towards a better understanding of financing behavior of 5 pharmaceutical

companies during the period of 2011-2015. The main objective of this study is just not only understanding
the financing behavior but also to examine the firm specific factors that affect the capital structure of
pharmaceuticals along with the relationship among independent factors and dependent factors. In the
present study, 5 pharmaceutical companies over the time period of 2011-2015 are considered as sample
to analyze the determinants of capital structure by applying regression analysis.

Impact of Capital Structure Determinants on Pharmaceutical Companies Page. 40

The multiple regression model suggests that 85.45% of the variation in leverage ratio can be explained by
the variation in 6 firm specific independent variables. That means only 14.55% variation in dependent
variables was unexplained by the model. The overall model was statistically significant.

A discussion of the result indicates that profitability, growth, operating leverage, size were statistically
significant factors (at 5% level) that determine the capital structure of pharmaceutical firms in Bangladesh.
However, discussions of the result indicate that tangibility and liquidity are not an important explanatory
variable of leverage in Bangladeshi pharmaceutical industry.

Ultimately, the study will provide a better view of understanding of capital structure and also specify an
important policy implications for financial managers in choosing appropriate capital structure for the
company to maximize value of the firm.

Impact of Capital Structure Determinants on Pharmaceutical Companies Page. 41

 Reference

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 Annual report of BEXIMCO pharmaceutical ltd (2010-2015)
 Annual report of IBNSINA pharmaceutical ltd (2010-2015)
 Annual report of RENATA pharmaceutical ltd (2010-2015)
 Annual report of SQUARE pharmaceutical ltd (2010-2015)
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  The pharmaceuticals industry of Bangladesh, Maeen Md. KhairulAkter, Lecturer, NITER,
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Appendix

Raw Data:

Total Debt Total Asset

2011 2012 2013 2014 2015 2011 2012 2013 2014 2015
Square 5,186,900,507 4,602,899,322 4,272,018,250 3322290137 4729064906 Square 21,453,784,762 23,447,645,506 26,549,534,878 31,354,182,244 38,365,592,493
Beximco 5905212356 6181648733 7,695,199,337 8,080,340,636 8,356,923,001 Beximco 23,033,340,533 24,589,810,592 27,470,751,802 29,000,525,961 30,835,550,584
Ibn Sina 364,987,324 387,260,530 391,826,627 515,834,856 782,894,003 Ibn Sina 693,730,510 1,048,577,023 1,096,432,108 1,195,179,560 1,615,839,671
Renata 5,191,591,323 4,682,598,223 6,487,298,593 6,742,855,666 6,731,915,307 Renata 7,691,601,900 9,753,077,971 12,782,413,204 14,493,568,729 16,137,774,904
Beacon 1,645,557,370 1,747,297,518 1,478,361,558 1,722,443,291 1,832,571,953 Beacon 4,332,423,471 4,511,424,780 4,251,619,886 4,589,825,300 4,738,697,597

Fixed Asset Liquid Asset

2011 2012 2013 2014 2015 2011 2012 2013 2014 2015
Square 14,708,277,754 17,450,947,962 18,781,466,580 21,614,399,749 26,734,845,271 Square 1,972,388,426 2,383,763,152 3374692842 5458862067 10371597325
Beximco 15,884,877,780 16,392,388,639 18,567,329,474 20,634,246,854 22,443,457,489 Beximco 2337313318 2680659856 3031804774 2843411040 3478502661
Ibn Sina 684100009 724073627 718695370 782494963 1181180040 Ibn Sina 211404349 219479128 241086271 262637259 253879993
Renata 5,227,476,247 6,442,857,255 8,577,464,610 9,197,198,644 9,654,591,592 Renata 879025474 1323475833 1550933544 2385604615 3008909060
Beacon 2692714922 2717742901 2725159063 2432467559 2186892763 Beacon 518483257 561030407 605963348 819643532 1038872416

Impact of Capital Structure Determinants on Pharmaceutical Companies Page. 43

 EBIT Operating Revenue
2011 2012 2013 2014 2015 2011 2012 2013 2014 2015
Square 3,978,939,088 4,481,047,443 5,504,459,836 7,595,901,234 9,604,875,517 Square 3,321,146,713 3,852,810,574 5,008,816,403 7,304,768,902 8,700,335,458
Beximco 1,677,849,252 1,909,829,236 2,093,594,171 2,109,555,733 2,337,130,063 Beximco 1,988,479,698 2,207,879,560 2,324,272,770 2,418,176,836 2,851,278,474
Ibn Sina 87,293,175 115,791,883 169,935,002 169,935,002 231,511,764 Ibn Sina 87,584,869 115,319,496 172,710,925 172,710,925 231,309,036
Renata 1,654,152,354 1,721,977,645 1,885,359,052 2,330,922,942 2,731,512,333 Renata 1,717,370,007 2,171,327,556 2,409,288,453 2,910,940,303 3,149,942,716
Beacon 137968721 120,417,857 14,609,706 37,274,136 51,407,588 Beacon 266515399 339,787,826 207,391,975 242,567,611 285,033,785

Total Current Liability Annual Change in Total Asset

2011 2012 2013 2014 2015 2011 2012 2013 2014 2015
Square 4,252,934,845 3,792,438,255 2,394,537,126 2,549,018,066 3,770,882,768 Square 2,009,375,108 1,993,860,744 3,101,889,372 4,804,647,366 7,011,410,249
Beximco 2,648,161,988 3,064,944,769 4,382,581,278 4,707,747,430 4,862,007,984 Beximco 1,660,941,024 1,556,470,059 2,880,941,210 1,529,774,159 1,835,024,623
Ibn Sina 285818423 281239972 318184809 400948605 534721516 Ibn Sina 68,116,983 354,846,513 47,855,085 98,747,452 420,660,111
Renata 3,385,850,284 3,010,190,517 5,333,621,075 5,214,178,551 5,647,212,505 Renata 2,559,317,662 2,061,476,071 3,029,335,233 1,711,155,525 1,644,206,175
Beacon 739138766 897220836 702348389 1062083274 1097159693 Beacon 680,265,188 179,001,309 -259,804,894 338,205,414 148,872,297

Total Equity
2011 2012 2013 2014 2015
Square 16,396,669,416 19,052,891,818 22,277,516,628 28,031,892,107 33,636,527,587
Beximco 17,128,128,177 18,408,161,859 19,775,552,465 20,920,185,325 22,478,627,583
Ibn Sina 978,902,427 1,048,577,023 673,589,787 679,344,704 832,945,668
Renata 3,958,608,036 5,070,479,748 6,295,114,611 7,750,713,063 9,405,859,597
Beacon 2,688,866,101 2,764,127,262 2,773,258,328 2,867,382,009 2,906,125,644

Ratios:

Debt Ratio (Total Debt/Total Asset) Profitability Ratio (EBIT/Total Asset)

2011 2012 2013 2014 2015 2011 2012 2013 2014 2015
Square 0.241770884 0.196305395 0.160907461 0.105960031 0.123263179 Square 0.185465601 0.191108631 0.20732792 0.242261181 0.250351289
Beximco 0.256376723 0.251390661 0.280123361 0.278627382 0.271015852 Beximco 0.072844373 0.077667505 0.076211754 0.072741982 0.075793362
Ibn Sina 0.526122635 0.369320061 0.357365152 0.431596116 0.484512181 Ibn Sina 0.125831535 0.110427637 0.154989078 0.142183658 0.143276445
Renata 0.674968802 0.480114917 0.507517516 0.465230875 0.417152634 Renata 0.215059538 0.176557355 0.147496331 0.160824638 0.169262017
Beacon 0.379823759 0.387305032 0.347717246 0.37527426 0.386724815 Beacon 0.031845622 0.026691758 0.003436268 0.008121036 0.010848464

Tangibility ( Fixed Asset/Total Asset) Growth ( Annual Change in Total Asset)

2011 2012 2013 2014 2015 2011 2012 2013 2014 2015
Square 0.685579627 0.744251612 0.707412264 0.689362573 0.696844322 Square 0.103339476 0.092937482 0.132290015 0.180969173 0.223619618
Beximco 0.689647155 0.666633384 0.675894479 0.711512849 0.727843579 Beximco 0.077714298 0.067574656 0.117159959 0.055687379 0.063275564
Ibn Sina 0.986117807 0.690529748 0.65548552 0.654709124 0.731000768 Ibn Sina 0.108880291 0.511504839 0.045638121 0.090062532 0.351963943
Renata 0.679634271 0.660597329 0.671036405 0.634571017 0.598260395 Renata 0.498670289 0.268016481 0.310602995 0.133867956 0.101885556
Beacon 0.621526252 0.602413436 0.640969592 0.52996953 0.461496586 Beacon 0.186263884 0.04131667 -0.057588214 0.079547425 0.032435286

Impact of Capital Structure Determinants on Pharmaceutical Companies Page. 44

 Operating Leverage ( EBIT/Operating Revenue) Size ( Natural Log of Total Asset)
2011 2012 2013 2014 2015 2011 2012 2013 2014 2015
Square 1.198061824 1.163059371 1.098954203 1.039855105 1.103966113 Square 23.78916691 23.87803592 24.00227807 24.1686135 24.37042687
Beximco 0.843784955 0.865006077 0.900752355 0.872374469 0.819677939 Beximco 23.86020859 23.92559799 24.0363877 24.0905798 24.1519341
Ibn Sina 0.996669585 1.004096333 0.983927346 0.983927346 1.000876438 Ibn Sina 20.35759413 20.77069987 20.81532721 20.90156227 21.20312058
Renata 0.963189265 0.793052914 0.782537703 0.800745704 0.867162542 Renata 22.76339491 23.00084876 23.27133609 23.39697085 23.50442863
Beacon 0.517676358 0.354391322 0.070444895 0.153664934 0.180356122 Beacon 22.18939292 22.22987886 22.1705659 22.2471078 22.27902817

Liquidity Ratio (Liquid Asset/Current Liability) Debt-Equity Ratio (Total Debt/Total Equity)
2011 2012 2013 2014 2015 2011 2012 2013 2014 2015
Square 0.463771136 0.628556879 1.409329931 2.141554876 2.750442791 Square 0.316338665 0.241585339 0.191763666 0.118518226 0.140593136
Beximco 0.8826172 0.874619302 0.691785179 0.603985469 0.715445691 Beximco 0.344766941 0.335810212 0.389126895 0.386246131 0.371771941
Ibn Sina 0.739645635 0.780398058 0.757692587 0.655039713 0.474789185 Ibn Sina 0.372853631 0.369320061 0.58169918 0.759312398 0.939910048
Renata 0.259617349 0.439665139 0.290784351 0.457522617 0.532813146 Renata 1.311468899 0.923502007 1.030529068 0.869965848 0.715715054
Beacon 0.701469441 0.625298014 0.862767478 0.77173189 0.946874391 Beacon 0.611989332 0.632133528 0.533077479 0.600702413 0.630589375

Final Output:

Debt Ratio(y) Profitability Tangibility Growth Operating Leverage Size Liquidity

0.241770884 0.185465601 0.685579627 0.103339476 1.198061824 23.7891669 0.46377114
0.196305395 0.191108631 0.744251612 0.092937482 1.163059371 23.8780359 0.62855688
0.160907461 0.20732792 0.707412264 0.132290015 1.098954203 24.0022781 1.40932993
0.105960031 0.242261181 0.689362573 0.180969173 1.039855105 24.1686135 2.14155488
0.123263179 0.250351289 0.696844322 0.223619618 1.103966113 24.3704269 2.75044279
0.256376723 0.072844373 0.689647155 0.077714298 0.843784955 23.8602086 0.8826172
0.251390661 0.077667505 0.666633384 0.067574656 0.865006077 23.925598 0.8746193
0.280123361 0.076211754 0.675894479 0.117159959 0.900752355 24.0363877 0.69178518
0.278627382 0.072741982 0.711512849 0.055687379 0.872374469 24.0905798 0.60398547
0.271015852 0.075793362 0.727843579 0.063275564 0.819677939 24.1519341 0.71544569
0.526122635 0.125831535 0.986117807 0.108880291 0.996669585 20.3575941 0.73964564
0.369320061 0.110427637 0.690529748 0.511504839 1.004096333 20.7706999 0.78039806
0.357365152 0.154989078 0.65548552 0.045638121 0.983927346 20.8153272 0.75769259
0.431596116 0.142183658 0.654709124 0.090062532 0.983927346 20.9015623 0.65503971
0.484512181 0.143276445 0.731000768 0.351963943 1.000876438 21.2031206 0.47478919
0.674968802 0.215059538 0.679634271 0.498670289 0.963189265 22.7633949 0.25961735
0.480114917 0.176557355 0.660597329 0.268016481 0.793052914 23.0008488 0.43966514
0.507517516 0.147496331 0.671036405 0.310602995 0.782537703 23.2713361 0.29078435
0.465230875 0.160824638 0.634571017 0.133867956 0.800745704 23.3969709 0.45752262
0.417152634 0.169262017 0.598260395 0.101885556 0.867162542 23.5044286 0.53281315
0.379823759 0.031845622 0.621526252 0.186263884 0.517676358 22.1893929 0.70146944
0.387305032 0.026691758 0.602413436 0.04131667 0.354391322 22.2298789 0.62529801
0.347717246 0.003436268 0.640969592 -0.057588214 0.070444895 22.1705659 0.86276748
0.37527426 0.008121036 0.52996953 0.079547425 0.153664934 22.2471078 0.77173189
0.386724815 0.010848464 0.461496586 0.032435286 0.180356122 22.2790282 0.94687439

Impact of Capital Structure Determinants on Pharmaceutical Companies Page. 45