UNDERSTANDING AND

EVALUATING FINANCIAL
MANAGEMENT AT BEACON
PHARMACEUTICALS LIMITED
BASED ON STUDY OF COMPANY REPORTS AND INTERVIEWS

Submitted to
Dr. Jawadur Rahman Zahid
Professor
Institute of Business Administration
University of Dhaka

Submitted by
Group-14
Farhan Uddin Ahmed (ZR-10)
Rafsaan Muhab Shams (ZR-14)
Ibrahim Kamrul Shafin (ZR-38)
Afi Noor (ZR-90)
BBA-26
Institute of Business Administration
University of Dhaka

Date of Submission: October 31, 2019

 Institute of Business Administration
University of Dhaka
Dhaka – 1000

October 31, 2019

Dr. Jawadur Rahman Zahid

Professor
Institute of Business Administration
University of Dhaka

Dear Sir:

Subject: Submission of report titled “UNDERSTANDING AND EVALUATING

FINANCIAL MANAGEMENT AT BEACON PHARMACEUTICALS LIMITED ”
Here is the report titled “UNDERSTANDING AND EVALUATING FINANCIAL
MANAGEMENT AT BEACON PHARMACEUTICALS LIMITED” as instructed by you for the
partial fulfillment of credit for the course “F302: Financial Management II”.

We would like to thank you, our esteemed faculty, in giving us the privilege and scope of writing
this report. This has been a great learning experience for us, which will help us in the corporate
world. We sincerely hope that we were able to fulfill the course requirements effectively through
the submission of this report. We hope that you will accept our report and that it will reach your
level of expectations.

Please note that this report has been prepared under your supervision. Under no
circumstances will this report be shared or republished without your authorization.

Sincerely,

Farhan Uddin Ahmed (ZR-10) Ibrahim Kamrul Shafin (ZR-38)

Rafsaan Muhab Shams (ZR-14) Afi Noor (ZR-90)

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Table of Contents
Table of Contents ............................................................................................................................ ii
Executive Summary ....................................................................................................................... iv
Introduction ..................................................................................................................................... 1
Objective ..................................................................................................................................... 1
Methodology ............................................................................................................................... 2
Literature Review............................................................................................................................ 2
Working Capital Management .................................................................................................... 2
Capital Budgeting ....................................................................................................................... 3
Dividend Policy .......................................................................................................................... 3
Evaluation of financial performance ........................................................................................... 3
Findings........................................................................................................................................... 4
Pharmaceutical Industry of Bangladesh...................................................................................... 4
Beacon Pharmaceuticals Ltd. ...................................................................................................... 4
Financial Management at Beacon Pharmaceuticals Ltd. ............................................................ 5
Working Capital Management .................................................................................................... 5
Cash and receivables management ......................................................................................... 5
Inventory Management ........................................................................................................... 6
Short term financing management .......................................................................................... 6
Monitoring of Working Capital .............................................................................................. 6
Capital Budgeting Process .......................................................................................................... 7
Use of Capital Budgeting Techniques .................................................................................... 7
Calculation of the discount rate and risk................................................................................. 7
Dividend Policy .......................................................................................................................... 7
Analysis........................................................................................................................................... 8
Comparative Analysis of Beacon Pharmaceuticals with selected companies ............................ 8
Margin ..................................................................................................................................... 9
Liquidity Position........................................................................................................................ 9
Leverage Position...................................................................................................................... 10
Efficiency Position .................................................................................................................... 11
Profitability Position ................................................................................................................. 12
Growth ...................................................................................................................................... 13

ii
Conclusion .................................................................................................................................... 13
Limitations ................................................................................................................................ 14
References ..................................................................................................................................... 15
Appendix ....................................................................................................................................... 16
Appendix-A: Details of the interviewee ................................................................................... 16
Appendix-B: Interview Questionnaire ...................................................................................... 16
Appendix-C: Questionnaire Form............................................................................................. 16

List of Figures
Figure 1: Comparative financial performance of Beacon Pharmaceuticals with selected peers
using selected balances (in BDT million) ....................................................................................... 8
Figure 2: Margins of Beacon Pharmaceuticals with selected peers (in BDT million). .................. 9
Figure 3: Liquidity Ratios of Beacon Pharmaceuticals with Industry Average. ............................ 9
Figure 4: Leverage Ratios of Beacon Pharmaceuticals with Industry Average. ......................... 10
Figure 5: Operating Efficiency Ratios of Beacon Pharmaceuticals with Industry Average......... 11
Figure 6: Profitability Ratios of Beacon Pharmaceuticals with Industry Average. ..................... 12
Figure 7: Percentage growth on selected balances of Beacon Pharmaceuticals with Industry
peers. ............................................................................................................................................ 13

iii
Executive Summary
This report endeavors to showcase an overview of the Pharmaceutical Industry of Bangladesh by
looking closely into the financial management procedure of Beacon Pharmaceuticals Limited. It
then tries to compare the company’s financial performance with that of the overall industry and
finds out the practices that translate into better profits and sustainability.

Most literature on financial management at companies tend to focus on one particular area of
financial management. However, this report attempts to take a comprehensive view of the
financial management at Beacon Pharmaceuticals Limited. This has been done through a collection
of research articles, company’s annual reports, interview and study from the textbook.

Firstly, the report tries to understand the financial management of the company. Specifically, it
tries to analyze its working capital management policy of the company and explain the capital
budgeting tools and techniques used by the company. The practices of risk management and
dividend policies of the company are analyzed as well.

Then, several accounting and financial ratios are used as the tools to assess the financial
management practices and their correlation with better conversions and profitability. It was found
that Beacon Pharma maintained certain ratio in Liquidity Position which is on par with the industry
average. This tells us that it has the capability to meet all its current liabilities. In the contrary,
profitability is the weakest aspect of Beacon Pharma and their operating profit is less than half of
the industry standards.

Finally, remarks on the condition of the financial management of Beacon Pharmaceuticals Ltd are
provided with recommendations on how they could potentially improve their performance tackling
the upcoming challenges. Through this analysis, the report tries to find out the ways companies
can harness financial management tools to thrive in the industry and contribute to the overall
market.

iv
Introduction
Finance is the business organization's lifeblood. It must meet the business concern's requirement.
Each business concern should ensure adequate funding for the smooth running of the business
concern and also carefully manage the company to achieve the business concern's target. The
business goal can be achieved only with the help of effective management of finance (Kileo, 2016).
Thus, for every business, the importance of financial management is immense.

The pharmaceuticals industry of Bangladesh is one of the most important thrust sectors of
Bangladesh, expected to bring billions of dollar’s worth investments and exports as the country
grows (Rashid, 2019). According to IMS Health Report 2017, the market size stood at BDT 93,904
million in 2012, which increased to BDT 187,556 million in 2017. Bangladesh is the only Least
Developed Country (LDC) in the world to have a strong pharmaceutical industry.

Various studies have been done on the financial management of pharmaceutical companies in
Bangladesh. However, the studies have been concentrated on only one certain aspect of financial
management (i.e. working capital management, capital budgeting, financial performance analysis
or dividend policy). In this report, we have taken an attempt to take a comprehensive study of the
financial management of a pharmaceutical company in Bangladesh- Beacon Pharmaceuticals
Limited.

In this report, we first take a look at the various studies done previously on the pharmaceutical
industry of Bangladesh. Then we examine the financial management of one pharmaceutical
company. After that, we analyze the financial management practices of that company using various
ratio analysis. And finally, we give our remarks and recommendations based on the analysis.

Objective
The aim of this report is to describe and evaluate the financial management of Beacon
Pharmaceuticals Limited. Keeping the aim in mind, we have developed the following objectives
for this report:

● Understand the financial management of Beacon Pharmaceuticals Limited

● Describe the working capital management policy of the company
● Explain the capital budgeting tools and techniques used by the company
● Know the risk management and dividend policy of the company
● Assess the financial management practices through the use of various accounting and
financial ratios
● Remark on the condition of the financial management of Beacon Pharmaceuticals Limited
● Give recommendations on how financial management at Beacon can improve

1
Methodology
In this report, we take a quantitative approach to studying the financial management practices of
Beacon Pharmaceuticals Limited. After being assigned with the topic and industry by our course
instructor, we chose Beacon Pharmaceuticals Limited. One member of our team has contacts with
one of the company’s financial management personnel. We then set up an interview with him. The
details of the interviewee is given in Appendix-A.

The interview consisted of open ended questions. The questions were related to how Beacon
Pharmaceuticals Limited dealt with financial management. The questionnaire for the interview is
presented in Appendix-B.

At the end of the interview, we gave the interviewee a questionnaire form. This consisted of some
close ended question on the capital budgeting decision of the company. The questionnaire form is
reproduced in Appendix-C of this report.

In addition to the interview, we used information and data from the Annual Reports of the company
found in the company’s website, financial information present in Lankabangla Finance Portal and
our prescribed textbook.

We analyzed the financial information through the use of financial ratios. These were computed
through Excel. The results are presented in the Analysis section of the report.

Literature Review
The following literature review takes a look at the various studies done on financial management
at pharmaceutical companies in Bangladesh.

Working Capital Management

Chowdhury & Amin (2007) examined the Working Capital Management of eight pharmaceutical
companies listed in the Dhaka Stock Exchange. The study examined the policy and practices of
cash management, evaluated the principles, procedures and techniques of inventory management,
receivable and payable management. The authors then carried out econometric modelling and two
group discriminant analysis to assess the efficiency of the firms’ working capital management
policy. The mathematical modelling found that a positive correlation has been found in the
mathematical model, between current asset management and financial performance of the
pharmaceutical firms. In addition, the findings from the study indicated that the sample firms in
the industry have been efficient in managing Cash, Account Receivables and Payables. For this
industry, maintaining large volume of Inventory doesn’t reflect inefficient management.

Sharif & Islam (2018) attempted to show the relationship between working capital and the
profitability function of the pharmaceutical industry. The authors took 10 pharmaceutical
companies listed in the Dhaka and Chittagong Stock Exchange. They used multiple regression and
correlation to find the relationship between working capital management and profitability of the
firm. The authors’ study considered the working capital indicators such as (Account Receivable
Turnover in days, Account payable Turnover in days, Inventory Turnover in days and Cash
conversion cycle) as independent variable and Profitability indicator (Return on Assets) as
dependent variable. It found there is a significant relationship between the variables studied. There

2
was a positive relationship between accounts receivables and profitability while negative
relationships existed for inventory management and cash conversion cycle with profitability. The
authors recommend managers can create profits for their companies by handling correctly the cash
conversion cycle and keeping each different component (accounts receivables, accounts payables,
inventory) to an optimum level.

Capital Budgeting
Yasmin (2015) conducted a study on the capital budgeting process of 56 publicly listed companies
in the Dhaka Stock Exchange (DSE). 15 of the companies the study was conducted on belonged
to the pharmaceutical sector. Her study found that an increasing number of financial management
at these companies are using sophisticated capital budgeting techniques such as NPV, IRR and
Payback Period. However, other sophisticated tools such as sensitivity analysis, decision tree
analysis, probabilistic approach are absent in use in such companies. The author also conducted a
study on how the companies determined their discount rates. It was found that most of the
companies used a single discount rate for the entire company, followed by a risk-adjusted discount
rate. When taking considerations for risks, most of the companies accounted for unexpected
inflation, foreign exchange risk and unexpected change in general interest rates into account.

Islam & Shelly (2016) also conducted a study on the capital budgeting process of public companies
listed in the Dhaka Stock Exchange. 16 percent of the companies belonged to the pharmaceutical
sector. Their study corroborated the evidence found by Yasmin (2015). The authors found
management employed a mix of qualitative and quantitative approach when it comes to capital
budgeting for their companies. They found companies used a variety of capital budgeting
techniques such as NPV, IRR, Payback Period and Profitability Index. They also found most of
these companies emphasized on NPV when different techniques gave different results. When it
comes to determining the discount rate, most companies prefer to use the Working Average Cost
of Capital (WACC).

Dividend Policy
Chowdhury & Jannatunessa (2017) attempted to examine the dividend policy determinants of
pharmaceuticals and chemical companies in Bangladesh. The authors took 15 sample public
companies from the pharmaceuticals and chemical sector of the Dhaka Stock Exchange. They then
carried out multivariate regression analysis to find out factors affecting the dividend policy of such
firms. The author’s analysis found that firm size has a significant and negative effect on the
dividend policy of the pharmaceuticals and chemicals industries. In addition, last year's divided is
confirmed to have a significant positive impact on the dividend payout of the firms. However, the
study found no significant relationship of dividend payment with firm growth, liquidity,
profitability and P/E ratio.

Evaluation of financial performance

Majumder & Rahman (2011) analyzed the financial performance of various pharmaceutical
companies in Bangladesh through the use of accounting ratios. The authors then used Multivariate
Discriminate Analysis (MDA) developed by Professor Altman to measure the financial soundness
of the selected companies. It was found that all companies except one had lower levels of
bankruptcy. However, six of these companies (including the exception) deviated significantly from
the industrial average levels. The authors came to the conclusion that the performance of the

3
pharmaceutical companies were not satisfactory and recommended initiatives such as
improvements in financial management with regards to sales, increasing operational efficiency,
training and development of management and relaxation of government policies.

Rahman (2014) studied the financial performance of Square Pharmaceuticals Limited from the
year 2006 to 2014. He used various financial ratios in order to measure the solvency, profitability,
activity or turnover and return on assets and equity of the company. After conducting various
analyses, Rahman came to the conclusion that Square Pharmaceuticals had been able to maintain
stability and in running the business and able to improve its profitability. He also showed that the
accounts receivable turnover ratio, earning power and return on equity of the company is
satisfactory. However, the liquidity position and inventory turnover ratio is not so much
satisfactory.

The aforementioned studies focused on one particular aspect of financial management of

pharmaceutical companies. This report will take a holistic view and look at the overall financial
management aspect of one pharmaceutical company- Beacon Pharmaceuticals Limited.

Findings
Pharmaceutical Industry of Bangladesh
Pharmaceutical Industry of Bangladesh is one of the fastest growing industries in the country.
According to Bangladesh Association of Pharmaceutical Industries (BAPI), there are over 150
Pharmaceutical Manufacturers actively operating in the country with the capability to cater to 97%
demand of domestic market. Productions include hormones, insulin, and cancer drugs. Large
corporations in this industry are looking forward to expanding in order to export drugs to meet
global demands. The strict regulations on importing drugs help the local market thrive without the
need to face fierce international competition. The growing number of population, growth of
average income, increase in purchase power, higher life expectancy, massive awareness among
people are helping the industry to thrive and get bigger.

The Pharmaceutical industry is mainly regulated by two regulatory boards, namely Directorate
General of Drug Administration (DGDA) and Pharmacy Council of Bangladesh(PCB). The
industry primarily produces 5 types of medicines: Allopathic Drug, Ayurvedic Drug, Unani Drug
Manufacturers, Herbal Drug Manufacturers, and Homoeopathic & Biochemical Drug
Manufacturers. According to the Bangladesh Bureau of Statistics, the industry has contributed
1.87% to the GDP in 2016-2017.

Beacon Pharmaceuticals Ltd.

Since its inception in 2006, Beacon Pharmaceuticals Ltd. has been endeavoring to be a global
company trying to serve the international needs of health care needs. It is a public limited company
listed both in DSE and CSE. It has over two thousand employees with a sales turnover over 45
million dollars. It produces 1.5 Billion doses of medicine each year and has a product portfolio of
215+ products.

4
It introduces itself as the leading oncology company who has state-of-the-art infrastructure and
systems developed with the help of European engineers and consultants to deliver world-class
facilities. It has started exporting to 15 countries in Africa, Europe, Asia and Latin America.

Financial Management at Beacon Pharmaceuticals Ltd.

Beacon Pharmaceuticals Ltd. has a total of 14 Strategic Business Units (SBUs). These SBUs
include BEACON Development Ltd., BEACON Point Ltd. etc. Out of these 14 SBUs, 5 have
operations departments.The financial management aspect of these 14 SBUs are handled by one
single finance department known as the Finance & Accounts Department.

The company is headed by a 5-member board of directors. Headed by the Chairman, the board of
directors also consists of the Managing Director (MD), Director and two Independent Directors.
The Finance & Accounts Department is headed by an Executive Vice President (EVP). The
Executive Vice President is also a member of the company’s Management Strategy Committee.

Working Capital Management

Like any other company, working capital is an important aspect for Beacon Pharmaceuticals
Limited. The financial management at Beacon Pharmaceuticals try to adopt a low-risk approach
when it comes to managing working capital. The following sections take a look at the various
aspects of the working capital strategy of Beacon Pharmaceuticals Limited.

Cash and receivables management

Beacon Pharmaceuticals, as like any other company, tries to “play the float” i.e. speed up cash
receipts and slow down cash payments. What is different for Beacon, however, is that the company
focuses more on speeding up cash receipts and focuses less or none on slowing down cash
payments.

With regards to speeding up cash receipts, the company tries to speed up collection of accounts
receivables. The company has a group of Medical Representatives (MR). This group of officers
try to collect receivables from pharmacists and try to speed up the collection from them. In order
to encourage speedy collection, the medical representatives give discount terms for 15/30/90 days
depending on the size of the pharmacy.

As mentioned before, the company does not try to slow down cash payments to a much extent.
The management tries to pay cheques as quickly as possible. This is because cheques usually take
1 to 2 months to pass in banks. Thus, naturally the cash payment process is slowed down. The
company does not take much a step to further slow it down.

In addition to the above strategies, the company also makes some forecasts to play the float. The
management analyses past year’s sales records, accounts receivable and payable transactions to
forecast current year’s amounts. For example, few of their products see surge in the month of
January, so during that time liquidity of their inventory increases. They review this forecast every
month and bring changes needed. Using this forecast, they predict future cash-in-flow from sales,
investment in shares, stocks and bonds, import payment, local procurement, salary, vat payments.

5
Inventory Management
As a manufacturing company, inventory management is an important component of working
capital for Beacon Pharmaceuticals Limited. As a result, the financial management tries to
maintain an efficient inventory management.

The company conducts an annual physical count of its inventory levels. Known as “Stock
Reporting,” it is held on 30th June each year. This is done in order to ensure that the inventory
levels match with those of the book. Moreover, the company does random “Stock reporting”
throughout the year in order to make sure the inventory levels are at an optimum.

As previously mentioned, the company keeps a track of its sales forecasts. In this way, they are
able to understand the seasonal sales demands. As a result, the company can determine the amount
of raw materials it needs to purchase and the number of finished goods it needs to produce. This
reduces the carrying costs for the company.

The company tries to adopt a “lean” inventory management method. If there are surpluses of raw
materials in the company’s inventory stock, the financial management sells them to other
pharmaceutical companies. In this way, the company keeps holding costs as low as possible.

Short term financing management

The main financial instruments used by Beacon Pharmaceuticals Limited are Letter of credit (L/C)
and factoring. The company also mortgages assets in order to meet is financial deficits.

Beacon mainly issues L/Cs when it comes to buying raw materials. The company mainly imports
its raw materials from China and South Korea. The suppliers there provide the materials to the
company in grams. After negotiation, Beacon arranges a L/C with a bank. The bank then freezes
the account of Beacon. This continues until the raw materials reach to Beacon. After that, the
account is unfreeze. Beacon do not issue L/Cs when it comes to selling as buyers are not much
interested in that type of financing.

Beacon Pharmaceuticals also uses factoring receivables as a way of financing. Another important
strategy used by Beacon for short term financing is that it applies for loans every year. This is
because it takes time for banks to issue money (usually 1-2 years). In order to prevent such delay,
the management applies for loans every year. As a result, they are able to meet their cash deficits.

Monitoring of Working Capital

The financial management continuously monitor the working capital needs of the company. They
have an accounts payable and receivable team who foresees the transactions and ensures the
payments’ dates are met timely. Through this they make sure there is not a shortage or surplus of
cash. If there is shortage, most of the times they take loans and in case of surplus, they invest the
idle in bonds and shares.

The management keep track of all these data through their in-house accounting software. From
this software they present the data in excel file, since excel is accessible to all employees.

6
Capital Budgeting Process
Beacon Pharmaceuticals Limited mainly takes a quantitative approach when it comes to capital
budgeting decisions. As an example of a quantitative approach, the interviewee told us of an Asset
Addition proposal- they had to decide how many days the asset will provide benefits to the
company. Moreover, when making capital budgeting decisions, the company takes into factor the
Return on Equity (ROE), Return on Investment (ROI) and the Net Profit Margin.

Beacon also uses qualitative approach but that is often quite less often. Since the company is
established, it only takes 1 to 2 major capital projects each year. The presence of other projects
impact the company’s decision to invest in new capital projects.

In the finance section of the company’s Finance and Accounts Department, capital investment
projects are evaluated and decided using Microsoft Excel. However, the accounts section uses
Enterprise Resource Planning (ERP) software for inputs and calculations.

Use of Capital Budgeting Techniques

Beacon Pharmaceuticals has developed a model which they use in their capital budgeting process.
So usually, the company does not use more than one capital budgeting technique during the capital
budgeting process. Employees use the model and carry out the required steps for the process.

The most used techniques by the company are Net Present Value (NPV), Internal Rate of Return
(IRR), Payback Period (PP) and Profitability Index (PI). It sometimes used Discounted Payback
Period (DPP), Sensitivity Analysis and Scenario Analysis. The management rarely use the Real
Option Approach and never the Decision Tree Approach.

If the management uses multiple capital budgeting techniques, it gives preference to Net Present
Value if different techniques give conflicting results. This is because it is easier to calculate and
easier to understand.

Calculation of the discount rate and risk

Due to the current banking situation of the country, Beacon Pharmaceuticals do not use rates
offered by different banks of the country as a basis for the calculation of discount rate. For
calculating the discount rate for projects, it sometimes uses a single discount rate for the entire
company. It rarely takes a risk-adjusted discount rate (considering country and industry risk) and
also rarely takes a different discount rate for each component cash flow that has different risks.

For calculating risks, the following factors are taken into account- risk of unexpected inflation,
unexpected change in general interest rate and risk of financial distress. According to the
interviewee, unexpected change in general interest rate is very important for Beacon
Pharmaceuticals. So, they always take that into account for risk calculation.

Dividend Policy
Beacon Pharmaceuticals Limited has been listed in both the Dhaka Stock Exchange and
Chittagong Stock Exchange since 2011. It has an authorized capital of BDT 3,000 million and
paid-up capital of BDT 2,310 million.

7
The company has 231,000,000 number of outstanding shares. As of September 2019, the directors
have a 30.00% shareholding position, institutes have a 19.66% shareholding position and public
have the remaining 50.34% position.

Beacon Pharmaceuticals have been issuing dividend warrants since 2011. It issued a stock
dividend of 5% in 2011. From 2016, the company has been giving cash dividends. Cash dividends
of 5%,6% and 7% have been given in the year 2016, 2017 and 2018 respectively. Dividends are
declared at the company’s Annual General Meeting (AGM).

Analysis
A company's prosperity and development depends primarily on that company's financial
performance. The financial performance of a business depends on managerial efficiency,
operational efficiency, business profit, credit worthiness, return on investment, return on assets,
etc. Thus, financial performance analysis is a vital tool to find out the efficiency of management
in different aspects of a company (Rahman, 2014).

In this section, we evaluate the financial management practices of Beacon Pharmaceuticals

Limited through the use of various financial performance analysis tools (i.e. financial ratios).

Comparative Analysis of Beacon Pharmaceuticals with selected companies

First of all, we take a look at the financial performance of the pharmaceutical companies on a
standalone basis.

Key Financial Revenue Net Profit Total Asset Total Equity

Performance (BDT million) (BDT million) (BDT million) (BDT million)

BEACONPHAR 3761 126 4908 3001

SQURPHARMA 30005 8220 53329 46663

RENATA 18604 3197 20812 15127

IBNSINA 4657 452 2442 1227

BXPHARMA 17381 2559 42165 27104

ACI 9203 1,317 35,687 14,300

Figure 1: Comparative financial performance of Beacon Pharmaceuticals with selected peers using selected balances (in BDT
million). Data taken from LankaBangla Finance Portal

8
From the table we can see that Beacon Pharma has a small player in the overall market. They
have significantly lower revenue(Due to low market share) and net profit compared to the
competitors. The low net profit may be a cause of concern for Beacon Pharma.

Margin
But the raw numbers don’t tell us much about the reason why net profit is so low. If we look at
margins of Beacon Pharma compared to rival companies we can get a better idea.

Margin GP Margin Operating PAT Margin Operating

(BDT million) Margin (BDT million) Expense/Revenue
(BDT million) (BDT million)

BEACONPHAR 48.75% 7.17% 3.35% 42.00%

SQURPHARMA 48.01% 25.74% 27.39% 22.00%

RENATA 50.24% 25.57% 17.18% 25.00%

IBNSINA 40.64% 8.71% 9.71% 32.00%

BXPHARMA 46.75% 22.91% 14.72% 24.00%

ACI* 43.21% 7.84% 6.16% 36.00%

Figure 2: Margins of Beacon Pharmaceuticals with selected peers (in BDT million). Data taken from LankaBangla Finance
Portal

From the margin analysis, we can see that Beacon Pharma has extremely low Operating Margin
and Profit After Tax Margin compared to other companies in the industry. Almost 42% of their
revenue is spent on operating expenses compared to the industry standard 28%. This is the core
reason behind their low net profit.

Liquidity Position
From the analysis we can see that Beacon Pharma is financially solvent and can meet its current
liabilities successfully.

Liquidity Ratios: BEACON INDUSTRY

Current Ratio 1.801 1.7

Quick Ratio 1.034 1.2

Figure 3: Liquidity Ratios of Beacon Pharmaceuticals with Industry Average. Data taken from LankaBangla Finance Portal

9
Current ratio evaluates the ability of a company to pay short-term obligations using current assets.
We can see that Beacon pharma maintains a current ratio of 1.8 which is over 1 and similar to
industry standards. Thus, we can say that Beacon Pharma can meet it’s current liabilities.
The quick ratio is a more stringent test of liquidity than the current ratio. It looks at how well the
company can meet its short-term debt obligations without having to sell any of its inventory to do
so.
Inventory is the least liquid of all current assets because you have to find a buyer for your
inventory. Finding a buyer, especially in a slow economy, is not always possible. Therefore, firms
want to be able to meet their short-term debt obligations without having to rely on selling
inventory.
We can see that Beacon Pharma has a quick ratio of 1. A result of 1 is considered to be the normal
quick ratio, as it indicates that the company is fully equipped with exactly enough assets to be
instantly liquidated to pay off its current liabilities. A company that has a quick ratio of less than
1 may not be able to fully pay off its current liabilities in the short term, while a company having
a quick ratio higher than 1 can instantly get rid of its current liabilities.

Leverage Position
Beacon Pharma’s capital structure shows that they rely on equity financing rather than debt
financing to finance their investing decisions. They use far less debts than the industry average
and their assets are not heavily leveraged. Overall, Beacon Pharma has a favorable leverage
position.

Leverage Ratios BEACON INDUSTRY

Total Debt to Equity 0.1920 0.3050

Debt to Total Assets 0.1120 0.18

Figure 4: Leverage Ratios of Beacon Pharmaceuticals with Industry Average. Data taken from LankaBangla Finance Portal

Leverage results from using borrowed capital as a funding source when investing to expand the
firm's asset base and generate returns on risk capital. Leverage is an investment strategy of using
borrowed money—specifically, the use of various financial instruments or borrowed capital—to
increase the potential return of an investment. Leverage can also refer to the amount of debt a firm
uses to finance assets.

Debt to Equity Ratio (D/E) evaluates the capital structure of a company. A D/E ratio of more than
1 implies that the company is a leveraged firm; less than 1 implies that it is a conservative one.
We can see that Beacon Pharma has a D/E ratio of 0.19 compared to industry average of 0.3050.
It means that Beacon Pharma finances most of its ventures through equity financing.
A low debt to equity ratio implies lower risk as the funds of the company are less leveraged.

10
But, it could also imply a lack of investing in growth opportunities on the part of Beacon Pharma.
We have to look at the investment decisions of their business to determine if their company is
missing growth opportunities.

Total-debt-to-total-assets is a leverage ratio that defines the total amount of debt relative to assets.
The higher the ratio, the higher the degree of leverage (DoL) and, consequently, financial risk.
Total-debt-to-total-assets is a measure of the company's assets that are financed by debt, rather
than equity.

Beacon Pharma maintains a Debt to Asset Ratio of 0.1120 which is below the industry average of
0.18. This shows us that Beacon Pharma relies more on equity compared to peers to finance their
assets and thus has less liabilities.

Efficiency Position
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

An efficiency ratio measures a company's ability to use its assets to generate income.These ratios
can be compared with peers in the same industry and can identify businesses that are better
managed relative to the others.

Operating Efficiency Ratios BEACON INDUSTRY

Inventory Turnover Ratio 1.887 5.4

Receivable Turnover Ratio 8.609 9.5

Average Collection Period (Days) 42.397 54.4

Inventory Conversion (Days) 193.46 72.9

A/C Payable Turnover Ratio 37.639 20.4

Payables Payment Period (Days) 9.697 19.3

Cash Conversion Cycle (Days) 245.554 108

Total Asset Turnover 0.766 0.622

Fixed Asset Turnover 1.697 1.392

Figure 5: Operating Efficiency Ratios of Beacon Pharmaceuticals with Industry Average. Data taken from LankaBangla Finance
Portal

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Comparing the operating ratios of Beacon Pharma, we can see that Beacon pharma has a far lower
inventory turnover ratio compared to the industry average. This is bad because it signifies lower
demand and a lot of stagnant inventory which has its own cost.

This theory is further supported by their absurdly long cash conversion cycle. The cash conversion
cycle (CCC) is a metric that expresses the time (measured in days) it takes for a company to convert
its investments in inventory and other resources into cash flows from sales.

Their other operating ratios are pretty close to the industry average and maintain a healthy ratio.
However, Beacon Pharma have to work on their operating efficiency and resolve this problem.

In the end, we can say that Beacon Pharma has a problem with its inventory management. This
could be a result of faulty forecasting or lower demand than expected. This results in a far lower
inventory turnover ratio and a very long cash conversion cycle compared to the other companies
in the industry.

Profitability Position
Profitability is closely related to profit – but with one key difference. While profit is an absolute
amount, profitability is a relative one. It is the metric used to determine the scope of a company's
profit in relation to the size of the business. Profitability is a measurement of efficiency – and
ultimately its success or failure. A further definition of profitability is a business's ability to
produce a return on an investment based on its resources in comparison with an alternative
investment.

Operating Profitability Ratios BEACON INDUSTRY

Gross Profit Margin (GPM) 48.80% 45.90%

Operating Profit Margin 7.20% 24.10%

(OPM)

Net Profit Margin (NPM) 3.40% 16.50%

Return on Total Assets (ROA) 2.60% 10.00%

Return on Equity (ROE) 4.20% 14.20%

Figure 6: Profitability Ratios of Beacon Pharmaceuticals with Industry Average. Data taken from LankaBangla Finance Portal

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In the case of Beacon Pharma, Profitability is their weakest aspect. They have a moderate gross
profit margin which is higher than the industry standard. But, their operating profit margin is 7.2%
compared to industry standard 24.1%. This shows that Beacon pharma has high amount of
operating expense and this expense is not an industry related problem. Their , Operating procedure
and operating cost management is inefficient. Furthermore, They have extremely low ROA and
ROE compared to industry which also makes Beacon Pharma an investment with extremely low
profit compared to the risks.

Growth
If we take a look at the nominal growth of Beacon Pharma in the industry , we can see that Beacon
Pharma has experienced large growth in revenue and gross profit margin compared to peers. But,
they also have the lowest market share thus the highest potential for growth. On the other hand
their operating profit has not grown proportionately further cementing the problems in their
operating cost management.

Growth Revenue GP OP growth PAT Growth ROE ROA

Growth Growth

BEACONPHAR 28.00% 25.25% 0.87% 21.56% 4.20% 2.57%

SQURPHARMA 4.00% 2.45% -5.48% 5.48% 17.61% 15.41%

RENATA 16.00% 15.35% 16.72% 22.39% 21.13% 15.36%

IBNSINA 16.00% 16.58% 21.64% 93.43% 36.86% 18.52%

BXPHARMA 12.00% 13.09% 15.47% 14.92% 9.44% 6.07%

ACI* 17.00% 12.77% 5.37% 5.94% 9.21% 3.69%

Figure 7: Percentage growth on selected balances of Beacon Pharmaceuticals with Industry peers. Data taken from
LankaBangla Finance Portal

Conclusion
Beacon Pharmaceuticals Limited has an extensive financial management process that tries to
ensure overall success of the company and create value for shareholder. Using several financial
and accounting tools we tried to analyze the overall performance of Beacon Pharmaceuticals Ltd
with respect to the other companies in the industry. It was found that Beacon Pharma holds quite
a small market share in the industry, although its performance is getting better in certain aspects.
We also saw some numbers to put the words into perspective like it was found that Beacon Pharma
maintained certain ratio in Liquidity Position which is on par with the industry average. This tells
us that it has the capability to meet all its current liabilities. In the contrary, profitability is the

13
weakest aspect of Beacon Pharma and their operating profit is less than half of the industry
standards. This particularly refers to an inefficient operating cost management in the company.
However, in spite of the some shortcomings in the financial management of Beacon Pharma, it is
one of the fastest growing companies in the Pharmaceutical Industry of Bangladesh in a number
of parameters. If the company seriously considers looking into the loopholes and flaws in their
financial management, it may aim for better profitability and sustainability in the coming days.
Through the lens of the Beacon Pharma, this report tries to find out best working capital
management practices, capital budgeting tools, risk management processes that may help the
companies in this industry to aim for an enhanced performance.

Limitations
The report only takes a look at the overall financial management of only pharmaceutical company
in Bangladesh. Future studies can study the financial management practices of other
pharmaceutical companies and make comparisons. Even further studies can study on cross industry
platforms.

Although the report aims to uncover the whole financial management aspect of one particular
company, certain aspects such as risk management, capital structuring and intermediate & long-
term financing management has been ignored. Future studies can study on these areas as well and
make an even more comprehensive reports on the financial management of the given company.

14
References
Chowdhury, A., & Amin, M. (2007). Working Capital Management practiced in pharmaceutical
companies listed in Dhaka Stock Exchange. BRAC University Journal, IV(2), 75-86. Retrieved
from
http://dspace.bracu.ac.bd/xmlui/bitstream/handle/10361/403/Working%20capital%20manageme
nt%20practiced%20in%20pharmaceutical%20companied.pdf?sequence=1&isAllowed=y

Chowdhury, T., & Jannatunessa, J. (2017). Stock Market Investors’ Guide to Corporate Dividend
Policy: Evidence from Pharmaceuticals and Chemicals Industries in Bangladesh. Asian Journal
Of Finance & Accounting, 9(1), 166-191. doi: 10.5296/ajfa.v9i1.10871

Islam, M., & Shelly, A. (2016). An Overview of the Capital Budgeting Techniques Practiced by
the Companies of Dhaka Stock Exchange Limited. Journal Of Business Studies, XXXVII(1),
187-198. Retrieved from https://www.fbs-
du.com/news_event/149934024111.%20Mohammad%20Rezaul%20Islam%20&%20Asma%20
Akter%20Shelly.pdf

Kileo, H. (2016). IMPORTANCE OF FINANCIAL MANAGEMENT [Blog]. Retrieved from

https://www.linkedin.com/pulse/importance-financial-management-hamza-kileo/

Majumder, M., & Rahman, M. (2011). Financial Analysis of Selected Pharmaceutical

Companies in Bangladesh. European Journal Of Business And Management. Retrieved from
https://www.researchgate.net/publication/288828313_Financial_Analysis_of_Selected_Pharmac
eutical_Companies_in_Bangladesh

Rahman, D. (2014). Financial Performance of Pharmaceutical Industry in Bangladesh with

Special Reference to Square Pharmaceuticals Ltd. IOSR Journal Of Business And Management,
16(10), 45-53. doi: 10.9790/487x-161024553

Rashid, M. (2019). The Pharmaceutical Industry: The Next Stage of Development. Retrieved 26
October 2019, from https://databd.co/stories/the-pharmaceutical-industry-the-next-stage-of-
development-3425

Sharif, M., & Islam, M. (2018). Working Capital Management a Measurement Tool for
Profitability: A Study on Pharmaceutical Industry in Bangladesh. Journal Of Finance And
Accounting, 6(1), 1-10. doi: 10.11648/j.jfa.20180601.11

Yasmin, S. (2015). Capital Budgeting in Practice: An Explorative Study on Bangladeshi

Companies. International Journal Of Engineering, Business And Enterprise Applications
(IJEBEA), 15(178), 158-163. Retrieved from
https://pdfs.semanticscholar.org/8d38/1d8cb96c017e65b5c4dc8e032fd59bd702e2.pdf

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Appendix
Appendix-A: Details of the interviewee
Name of the interviewee: Sultan Reaz Mahmud
Designation: Officer, Finance & Accounts
Mobile: +8801713156052
Email: reaz-acc@beaconpharma.com.bd

Appendix-B: Interview Questionnaire

1. Describe the structure of Beacon’s finance department.
2. Tell us a bit about the working capital management strategy at Beacon.
3. In finance, we learnt that firms try to speed up cash receipts and slow down cash
payments. Describe to us some strategies Beacon use in this regard.
4. What are the uses of cash equivalents/marketable securities for Beacon?
5. Explain to us the process of receiving orders from foreign buyers and the process of
ordering raw materials that needs to be imported from abroad (with an emphasis on the
financial aspect of these two processes)?
6. Describe the credit policy of Beacon.
7. How do you manage and control inventory?
8. How do you finance long term and short term assets?
9. Describe to us the instruments you use to finance short term assets?
10. Explain to us the whole process when Beacon decide to invest in a project (e.g. Beacon’s
2015 plan to set up three new units) or develop a new product.
11. Approximately what proportion of equity funding and what proportion of debt funding
Beacon uses in most of its capital investments?
12. Describe the process and policy Beacon adopts when it comes to giving out dividends to
shareholders.
13. How does Beacon evaluates its financial policies?

Appendix-C: Questionnaire Form

1. What is the approach your company takes during the capital budget process?
A. Only Quantitative Approach
B. Only Qualitative Approach
C. Both Qualitative and Quantitative Approach

2. How many projects have your company implemented in the last year?
A. Mark only one oval.
B. Less than 3
C. 3 to 5
D. 6 to 8
E. More than 8

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3. Does the presence of other projects impact the company's decision to invest in new
projects?
A. Yes
B. No

4. How frequent do you use the following capital budgeting techniques in your company?
A. Net Present Value (NPV)
B. Internal Rate of Return (IRR)
C. Payback Period (PP)
D. Profitability Index (PI)
E. Discounted Payback Period (DPP)
F. Sensitivity Analysis
G. Scenario Analysis
H. Real Option Approach
I. Decision Tree Approach

5. What are the reasons for using more than one capital budgeting techniques in your
company?
A. Different methods are needed for different situations
B. Some methods give information that others don't
C. Different management executives want different methods
D. Don't have full confidence in one method

6. Which capital budgeting technique is given more emphasis when different techniques
give conflicting results?
A. Payback Period
B. Discounted Payback Period
C. Net Present Value
D. Internal Rate of Return
E. Profitability Index
F. Qualitative Judgement

7. How frequent do you use the following discount rates in the capital budgeting process?
A. Discount rate for the entire company
B. Country specific discount rate for overseas project
C. Divisional discount rate in case project is under a particular division or SBU
D. Risk-adjusted discount rate (considering country and industry risk)
E. Different discount rate for each component cash flow that has different risk

8. Which risk factors are taken into account?

A. Check all that apply.
B. Risk of unexpected inflation
C. Foreign Exchange Rate

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 D. Unexpected change in general interest rate
E. Term structure risk (change in long term vs short term risk)

9. What are the reasons for taking decisions in contradiction to recommendation derived
by capital budgeting?
A. Inadequate fund for investment
B. Policy or regulatory reasons
C. Strategic Alignment
D. Top Management's lack of confidence in the capital budget technique used
E. Top Management's lack of confidence on the forecasted cash flows
F. Other:

10. What are the other factors you take into account when making capital investment
decisions? Check all that apply.
A. Return on Equity (ROE)
B. Return on Investment (ROI)
C. Net Profit Margin
D. Average Debt Service Coverage Ratio
E. Other:

11. Do you use any special software when evaluating an investment project?
A. Yes
B. No

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