1. Group G
• Group Member ID
• Kazi Tanvirul Islam B040006
• S.M. Zayed Siraj B040016
• Jannatul Ferdows B040017
• Md. Tajmilur Rahman B040036
• Umma Kulsum B020050
3. Capital structure
In finance, capital structure refers to the way a corporation
finances its assets through some combination of
equity, debt, or hybrid securities. A firm's capital structure is
then the composition or 'structure' of its liabilities. For
example, a firm that sells tk20 billion in equity and tk80
billion in debts is said to be 20% equity-financed and 80%
debt-financed. The firm's ratio of debt to total
financing, 80% in this example is referred to as the firm's
leverage. In reality, capital structure may be highly complex
and include dozens of sources. Gearing Ratio is the
proportion of the capital employed of the firm which come
from outside of the business finance, e.g. by taking a short
term loan etc.
4. Capital structure
Equity Capital: This refers to money put up
and owned by the shareholders (owners).
Typically, equity capital consists of two types:
1.) Contributed capital
2.) Retained earnings.
Debt Capital: The debt capital in a company's
capital structure refers to borrowed money that
is at work in the business.
5. The Forms of Fund Mobilization for Capital
• Owner’s funds:
Equity Capital
Retain Earning
• Borrowed funds:
Conventional sources
Financial instate
Bank
Cash credit
Debenture
Fixed Deposits
• Nonconventional sources
Supplier’s credit
Short term
Bank Borrowings
Hire Purchase
6. Determinations of Capital Structure
Decisions
Determinants
Financial Leverage Operating Leverage
EBIT/EPS Analysis Cost of Capital
Growth & Stability of Nature & Size of a Firm
Sales
Flexibility Cash Flow Analysis
Control Marketability
Floatation Cost Legal Constraints
Capital Market Asset Structure
Conditions
Purpose of financing Period of Finance
7. Company Profile of
Square Pharmaceuticals Limited
Bangladesh
Square Pharmaceuticals Limited Bangladesh is
the largest pharmaceutical company in
Bangladesh and it has been continuously in the 1st
position among all national and multinational
companies since 1985. It was established in 1958
and converted into a public limited company in
1991. The sales turnover of SPL was more than
Taka 11.46 Billion (US$ 163.71 million) with
about 16.43% market share (April 2009– March
2010) having a growth rate of about 16.72%
8. Capital Structure of Square
Pharmaceuticals Limited Bangladesh
Fiscal Year Weight of Weight of Cost of Cost of WACC
Debt Equity Debt Equity
2006 17.12% 82.88% 7.21% 13.21% 11.90%
2007 15.75% 84.25% 7.21% 13.21% 12.00%
2008 14.02% 85.98% 7.21% 13.21% 12.12%
2009 4.39% 35.61% 7.21% 13.21% 12.87%
2010 4.80% 95.20% 7.21% 13.21% 12.84%
100% Equity - 100% - 13.21% 13.21%
Financed
50% Debt and 50% 50% 7.21% 13.21% 9.31%
50% Equity
Financed
9. Total Debt Ratio
• During the fiscal years 2006-2010, on average Square Pharmaceuticals
Limited Bangladesh had a debt ratio of 0.29 and total debt was worth
of 3,422,741,464BDT. The Total Debt Ratio expresses the fraction of
its total debt relative to its total assets. In addition, the total debt of the
firm had increased by19.96%between fiscal 2006 and 2010.This was
caused by significant increased in short term bank loans, loan term
secured loans and trade credits. Besides throughout the FY 2006-2010,
total assets of the firm had yearly changed at 12.91% on average but
total debt of the firm had changed yearly at22.69%on average. In
contrary, the company had more debt in FY 2008, 47.95%more than
FY 2006. And in 2008FY the short-term bank loans was 54.84%more
than 2006 FY. But the debt had decreased by22.96% and18.92%in FY
2009 and FY 2010 respectively comparing to FY 2008. The firm’s
debt ratio had decreased in past 5 (five) fiscal year and in near future it
is expected to have a sound financial performance based on the current
situation of its debt ratio. The company had worst debt ratio in 2008
FY though it gradually recovers itself and established a strong
financial foundation to overcome its debt
10. Debt Equity Ratio
• Debt equity ratio refers to a firm’s investment dependency on its
debt and equity. If a firm’s debt equity ratio is 1 then it shows that
the firm relies more on debt for investment rather than its own
equity. Square Pharmaceuticals Limited Bangladesh had a strong
financial backbone since its debt equity ratio is far below1and we
can say that they do not rely a lot on debt for their investment. The
company’s equity had increased by staggering80.48%between FY
2006 and 2010 though the total debt of the firm had increased
by19.96%at the same time. Debt equity ratio also shows that a
firm’s riskiness. In case of Square Pharmaceuticals, it is quite
unlikely to be risky since it had debt equity ratio of 0.40on average
during the FY 2006-2010. Investors would be happy to invest in
such firm having a good debt equity ratio. Though this firm
experienced worst debt equity condition in FY 2008, it progressively
had reduced the ratio in its following FY. As we have observed
before in 2008 FY, the short term bank loans was at peak in last 5
(five) FY. It caused the ratio to increase from 2007 FY.
11. Equity Multiplier
On average the equity multiplier of Square
Pharmaceuticals Limited Bangladesh was
1.40duringFY 2006-2010. Since we have
portrayed before that the company’s equity had
increased by staggering 80.48% and total Asset
had increased by61.63%between the FY 2006
and 2010, the company do not rely on debt for
its investment.
12. Long Term Debt
Long term debt ratio is concerned with firm’s
long term debt. Long term debt do not changes
frequently alike short term debt. Square
Pharmaceuticals Limited Bangladesh had an
average long term debt worth of 635,978,867
BDT. In addition, Company’s equity had
increased at a rate of 15.92% annually at the
same time. for FY 2006-2010.
13. • Value of Unlevered Firm: Square
pharmaceuticals value of unlevered
was19, 169,008,059BDT.
• Value of Levered Firm
The firm’s value as a levered firm
was19, 723,453,100 BDT in FY 2010.
• Present Value of Tax Shield
Value of Tax Shield was554, 445,041BDT
14. Profitability
• Every firm is most concerned with its profitability. One of the
most frequently used tools of financial ratio analysis is
profitability ratios which are used to determine the company's
bottom line. Profitability measures are important to company
managers and owners alike. If a small business has outside
investors who have put their own money into the company, the
primary owner certainly has to show profitability to those
equity investors.
15. Gross Profit Margin
• The gross profit margin looks at cost of goods sold as a
percentage of sales. This ratio looks at how well a company
controls the cost of its inventory and the manufacturing of its
products and subsequently pass on the costs to its customers.
The larger the gross profit margin, the better for the company.
The calculation is:
Gross Profit Margin= Gross Profit/Net Sales = ____%.
=4,901,289,925 / 11,462,578,410
=42.75%
16. Operating Profit Margin
Operating profit is also known as EBIT and is found on the
company's income statement. EBIT is earnings before
interest and taxes. The operating profit margin looks at
EBIT as a percentage of sales. The operating profit margin
ratio is a measure of overall operating efficiency,
incorporating all of the expenses of ordinary, daily business
activity. The calculation is:
Operating Profit Margin = EBIT/Net Sales = _____%.
=3,275,183,812 /11,462,578,410
=28.57 %
17. Net Profit Margin
• When doing a simple profitability ratio analysis, net profit
margin is the most often margin ratio used. The net profit
margin shows how much of each sales dollar shows up as net
income after all expenses are paid. For example, if the net
profit margin is 5%, that means that 5 cents of every dollar is
profit. The calculation is :
Net Profit Margin = Net Income/Net Sales = _____%.
=2,087,871,791 / 11,462,578,410
=18.21%
18. Profitability ratios
• In case of Square Pharmaceuticals, it’s profit margin had been stable
during FY 2006-2010.Theaverage profit margin was 0.18; In FY
2006, it was highest among last 5 (five) FY. Moreover, in following
2 (two) fiscal years the ratio had slightly fall. In FY 2007 and 2008
the net profit had increased by 11.78% and6.03%respectively,
compared to their earlier year. Though, net profit of FY 2009 had
increased by 36.78%but in subsequent year its growth had dropped
to10.47%.However, net sales during FY 2007 and 2008 had
increased by 23.17% and10.09% respectively, compared to their
preceding year and net sales of FY 2009 had increased by18.93%
but in subsequent year its growth had dropped to16.72%.So as we
can observe that growth of net sales and net profit of FY 2008, 2009
and 2010 were less than their respective preceding year, causing the
profit margin ratio to fall.
19. Return on Equity
• Return on equity ratio or ROE represents firm’s net profits against
its total equity. The difference between ROA and ROE is that ROE
shows the difference between net profit and total equity of a firm.
For Square Pharmaceuticals Limited Bangladesh, the return on
equity ratio on average was 0.18during FY 2006-2010. A like
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. However, in FY 2008, the ROE was lowest among last
5 (five) FY. It was caused by a low growth (6.03%) of net profit
compared to its preceding year. At the same time, total equity
increased by14.78%. So the gap of growth between total asset and
net profit caused ROE in 2008 to fall. Nevertheless, the
company bounces back and had better ROE in FY 2009 than FY
2008. Since the growth of net profit (36.78%) was twice than the
growth of total equity (18.21%) in FY 2009. Because growth of net
profit (10.47%) and total equity were (16.13%) less than its
preceding year, in FY 2010 the ratio was a bit low than FY 2009
