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\title{DuPont Analysis of Return on Common Stockholder's Equity in Pharmaceutical Industry of Bangladesh}
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             \author[1]{Md. Nurul Kabir  Biplob}

             \author[2]{Md. Monzur  Hossain}

             \author[3]{Shah  Alam}

             \affil[1]{  Begum Rokeya University, Rangpur, Bangladesh}

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\date{\small \em Received: 7 December 2017 Accepted: 31 December 2017 Published: 15 January 2018}

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\begin{abstract}
        


The paper is based on performance evaluation of pharmaceutical companies in Bangladesh through measuring Return on Common Stockholder?s Equity (ROCE) by using Du Pont analysis. It means to evaluate how well a company performs. The main purpose is achieved by using five ways Du Pont decomposition. The main data is collected from the annual financial reports of Beximco, Square, Renata, GlaxoSmithKline, Far chemicals, Beacon, ACI, IBNSINA, ACI Formulations, Orion pharmaceutical companies from 2011 to 2015.Different financial ratios are evaluated such as Asset turnover ratio, EBIT margin, tax burden, interest burden, Equity multiplier/Financial leverage etc. and by comparing those results finally measure the best performance among those companies. The mathematical calculation was developed for Du Pont analysis among selected pharmaceutical companies from 2011-2015.It is most important method for measuring ROCE of companies. Du Pont analysis evaluates how well a company is operating and how profit is earned relative to sales, total assets etc. Overall analyses measure and declare the best one among selected pharmaceutical companies.

\end{abstract}


\keywords{pharmaceutical companies, asset turnover ratio, DuPont Analysis, equity multiplier, EBIT}

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\let\tabcellsep& 	 	 		 
\section[{Introduction}]{Introduction}\par
erformance evaluation of a company is usually related to how well a company can use its assets and how well a company can generate profit by utilizing its assets. Du Pont analysis is one of the important tools for performance evaluation of any company. For determining the financial position of a company and to know how well the company performs its activities as well as the profitability and asset utilizing capacity of the company Du Pont analysis plays an important role.\par
Du Pont analysis easily measures return of equity related to the company for performance evaluation. It analyzes the company's profitability and asset utilization. It measures overall performance and efficiency of a company. This method used to analyze companies past financial performance and it also predict future trend of financial position.\par
Ten pharmaceutical companies in Bangladesh are selected for this purpose. The historical backgrounds of these companies are given below. a) Background 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. From the inception in 1958, it has today burgeoned into one of the top line conglomerates in Bangladesh. SQUARE Pharmaceuticals Limited 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, converted into a public limited company in 1991 and listed with stock exchanges in 1995. The turnover of Square Pharma was Taka 30.28 Billion (US\$ 385.22 million) with about 18.64\% market share having a growth rate of about 25.36\% (April 2014-March 2015). (As cited at http://www.squarepharma. com.bd/about-us.php) Beximco Pharmaceuticals Ltd (Beximco Pharma) is a leading manufacturer and exporter of medicines in Bangladesh. Incorporated in the late 70s, Beximco Pharma began as a distributor, importing products from global MNCs like Bayer, Germany and Upjohn, USA and selling them in the local market, which were later manufactured and distributed under licensing arrangement. Since then, the journey continued, and today, Beximco Pharma is one of the largest exporters of medicines in Bangladesh, winning National Export Trophy (Gold) a record five times. The company continues to adhere to the global standards and its manufacturing facilities have been already certified by the regulatory authorities of USA, Europe, Australia, Canada, Latin America and South Africa. Over the last three decades Beximco Pharma has grown from strength to strength but the simple principle on which it was founded remains the same: producing high quality generics and making them affordable. Ensuring access to quality medicines is the powerful aspiration that motivates more than 3,000 employees of the company, and each of them is guided by the same moral and GlaxoSmithKline -one of the world's leading research-based pharmaceutical and healthcare companies of Bangladesh-is committed to improving the quality of human life by enabling people to do more, feel better and live longer. GlaxoSmithKline plc (GSK), incorporated on December 6, 1999, is a healthcare company. The Company is engaged in the creation and discovery, development, manufacture and marketing of pharmaceutical products, including vaccines, over-thecounter (OTC) medicines and health-related consumer products. GSK's principal pharmaceutical products include medicines in various therapeutic areas, such as respiratory, anti-virals, central nervous system, cardiovascular and urogenital, metabolic, antibacterials, dermatology, rare diseases, immunoinflammation, vaccines and human immunodeficiency virus (HIV). The Company's segments include Pharmaceuticals, Pharmaceuticals R\&D, Vaccines and Consumer Healthcare. (As cited at http://www.gsk. com/en-gb/contact-us/worldwide/bangladesh/)\par
The IBN SINA Pharmaceutical Industry Ltd. (IPI) is leading pharmaceutical company in Bangladesh. The company was founded in the year 1983. The manufacturing facilities 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 form of several therapeutic classes. (As cited at http://bd.kompass.com/c/ibn-sinapharmaceutical-industry-ltd/bd00199/) ACI formulation Limited (ACI FL) is a subsidiary of ACI limited, located at Gazipur in the out skirt of Dhaka. ACI FL manufactures majority of the products of ACI Strategic Business Limited except for the Pharmaceutical Division. The factory is equipped with the state of the art facilities for product formulations and process innovation. These include modern computerized equipment like HPLC and GLC. The product range manufactured at ACI FL include Crop Protection Chemicals like Insecticides, herbicides and fungicides in granular, powder and liquid, mosquito pesticides in the forms of aerosols, vaporizers and coils house hold chemicals like toilet cleaners and hand wash.\par
(As cited at https://www.aci-bd.com/ subsidiaries.php) Since 1983 FAR Chemical's headquarters, development labs and production facility have been located in Palm Bay, Florida. FAR Chemical produces pharmaceutical reagents and intermediates. A variety of organic catalysts are synthesized for polymer manufacturers. Cyanate ester pre-polymers are supplied to the structural composite industry. FAR Chemical furnishes the electronics market with materials used as strippers, etchants, polishing compounds and additives for high density data transmission wires. (As cited as https://www.linkedin.com/company/far-research-inc.dba-far-chemical-inc.)\par
Orion Pharma a member of Orion Group was founded as a pharmaceutical manufacturing company in 1965. With the mission to serve the ailing humanity around the globe orion pharma started its operation nearly four decades ago, and after a great run of success the company today has proliferated out into one of the leading pharmaceutical companies in Bangladesh.  {\ref It}  The purpose of this study is a performance evaluation of ten pharmaceutical companies in Bangladesh through measuring ROCE by Du Pont analysis. The study analyzes the financial conditions of selected ten pharmaceutical companies in Bangladesh. 
\section[{c) Research Questions}]{c) Research Questions}\par
? What is the condition of the company related to tax burden? ? What is the condition of the company related to interest burden? ? What is the condition of the company related to EBIT margin? ? What is the condition of the company related to asset turnover? ? What is the condition of the company related to equity multiplier/financial leverage? ? Which company has the best performance among the selected pharmaceutical companies? 
\section[{d) Limitations of Study}]{d) Limitations of Study}\par
There are some limitations of the Study. Du Pont analysis is used for performance evaluation of pharmaceutical companies. When conducting the There are some drawbacks of Du Pont decomposition also. Such as-1. The DuPont identity is an accounting identity. The model relies on accounting data, which can be altered by companies to hide short-term weaknesses (even though this is unethical). 2. DuPont decomposition does not include the cost of capital. 3. How much increase of debt will determine the negative or positive return to shareholders is not recognized by this disaggregation.\par
II. 
\section[{Literature Review}]{Literature Review}\par
Gopinathan \hyperref[b19]{Thachappilly (2009)}, he states in this article about different types of financial ratios for measuring performance. It helps the investor to decide whether he should invest in the company or not. The article is used to evaluate performance of a company through different types of ratios such as performance ratio, liquidity ratio, profitability ratio etc.\par
Penman (2001), he states that increasing leverage can increase ROE of a company but if the discount rate is increased there will occur no change in the value of the equity.  {\ref Liesz (1999)}, he states that determining the reason of failure of small firms is troublesome. Du Pont analysis can be used in this regard to evaluate the performance of the company and also dictating the reason of failure. In this case asset turnover, profit margin, financial leverage etc. are considered. These factors show that poor planning and controlling are the reasons of failure.  {\ref Soliman (2007)}, he states that increase in asset turnover ratio indicates that the firm is generating revenue increasingly by utilizing its assets and this indicates the efficiency of the company.\par
Collins (2010), this article states the Du Pont model to calculate optimal debt of the company which helps to choose between equity or leverage structure of the company.\par
James , this article states about evaluating profit performance of a company through profitability ratio analysis. The income statement and balance sheet are used to evaluate performance through ratio analysis. Income statement and balance sheet shows profitability and net financial condition of the company. This article shows how the profit is generating within the company and how the assets are research some problems have been faced. For evaluating performance have to choose a method that is appropriate. However data should be correct, otherwise calculation may be baffling. Sometimes the items to analyze could not find appropriately as a result there may have some lacking in comparing among those companies. 
\section[{Global Journal of Management and Business Research}]{Global Journal of Management and Business Research}\par
Volume XVIII Issue I Version I Year ( )C pharmaceutical companies of Bangladesh.\par
utilized to generate revenue. He states that Income statement shows the profitability of the company and balance sheet shows the net value of the assets and liabilities.\par
Maria \hyperref[b22]{Zain (2008)}, this article states that the return on asset is an important indicator to dictate how well the assets are used to generate revenue. The higher return on asset indicates the company is utilizing its assets appropriately whereas the lower percentage indicates asset utilization of the company is not good enough to generate revenue. Return on asset is calculated by dividing the net profit by total assets. He also states that profit margin ratio which is derived by dividing the net profit by net sales. Profit margin ratio also called operating performance ratio.\par
Jo \hyperref[b13]{Nelgadde (2010)}, he states about asset management ratio. The accounts receivable and working capital figures are used to determine company's performance.\par
Lucia Jenkins (2009), he states that the fixed cost and variable cost are the important financial item to know the financial performance of the company. Fixed costs are those costs which are remain unchanged and are always same regardless of how much items are sold. On the other hand, variable costs are subject to change in terms of sales and other related factors. Examples of fixed costs include salary, rent, advertisement, depreciation, insurance etc. and examples of variable costs include direct labor, direct material, commission, shipping costs etc.\par
Herciuetal(2011), he states that it can be often found that the most profitable companies may not always be the most attractive company in the eye of an investor. The components of Du Pont model such as profit margin, asset turnover, equity multiplier etc. are used to realize the fact.  {\ref Boyd et al.(2007)},this article tells that there is no significance between size of the asset and profitability of the company for dropping return of equity and the profitability, liquidity and solvency of a company can be managed.\par
Vintila, Gheoghe, Pocan and Anghel \hyperref[b12]{(12)}, this article states about the key items that directly or indirectly affect the performance and profitability of a company. Du Pont analysis is an important method to recognize profitability of a company.\par
CameliaBurja(2) states, profitability is the form of operating efficiency that includes economic and financial aspects of a company that helps to make appropriate decisions.\par
Kalluci (2011), he dictates that the volatility of profit margin and financial leverage can be the reason of changing ROE of a company. The increase of those components can make the ROE higher as well as the decrease of those components can be the reason of lower ROE of a company. 
\section[{III.}]{III.} 
\section[{Methodology}]{Methodology}\par
The methodology chapter represents how the data should be collected, analyzed and used for the purpose of the thesis. It also describes about the Du Pont decomposition and the formula for measuring ROCE. Quantitative approach is used for the thesis as majority of data is collected from the quantitative approach. 
\section[{a) Data Collection}]{a) Data Collection}\par
The data of this paper is mainly collected from the annual financial reports of Beximco, Square, Renata, GlaxoSmithKline, Orion, Far chemicals, ACI, Beacon, ACI Formulations, IBNSINA pharmaceutical company from 2011 to 2015. When measuring the ratio analysis for any company, annual financial reports must be used. Two main financial statements of annual reports have been used for Du Pont analysis of pharmaceutical company such as; balance sheet and income statement. 
\section[{b) Data Analysis}]{b) Data Analysis}\par
Du Pont analysis model is used in this regard for performance evaluation of pharmaceutical company. It indicates the different steps such as Identifying balance sheet and income statement and by using Du Pont analysis comparison among companies and declaring the best one among those companies.\par
First step, make a choice of annual financial report. The annual financial report presents a company's financial position, operating performance, capital structure, and cash flow for an accounting period. Annual reports of selected pharmaceutical companies from 2011 to 2015 are used for measuring ROE of a company.\par
Second step, balance sheet and income statement are identified from the annual financial report. Some data are used from balance sheet and income statement for analysis of different types of ratios such as asset turnover ratios, Equity margin, EBIT margin etc. Analysis of profitability includes income statement of those companies.\par
Third step, identification of suitable ratio for performance evaluation and the ratios include asset turnover ratio, profitability ratio, financial leverage ratio etc. These ratios are very important to know how well a company generates its assets, revenue, expenses and profit or loss etc.\par
Forth step, some figures are used from income statement and balance sheet of those companies for performing Du Pont analysis. Scientific calculator is used for determining the result.\par
Fifth step, Using the result of Du Pont analysis such as EBIT margin, asset turnover and profitability compare among selected pharmaceutical companies and identify why one company is better than other 
\section[{Global Journal of Management and Business Research}]{Global Journal of Management and Business Research}\par
Volume XVIII Issue I Version I Year ( ) C companies and also discuss why some companies are not in good position comparing with others.\par
Finally declaration of the best one among those pharmaceutical companies by using different kinds of ratios under Du Pont analysis and by knowing the result can easily compare of those companies.\par
c) The DuPont Ratio Decomposition Du Pont analysis is a model that is used to assess the factors that affects a company's financial performance. Donaldson Brown is the first who thought about Du Pont analysis around the period of 1920s. First time it is applied for general motors.\par
Du Pont analysis is very important as it calculates ROE which is an important key ratio which indicates the rate at which owner's wealth is increasing.\par
There are two way of Du Pont decomposition that includes three way decomposition and five way decomposition. Three way decomposition covers the areas of net profit margin, asset turnover and financial leverage. The meaning of each of these components is described below. 
\section[{d) Three-Step DuPont Model}]{d) Three-Step DuPont Model}\par
The three-step DuPont model is calculated as follows: ROE = Net profit margin × asset turnover × equity multiplier Where:\par
Net profit margin = net income/sales; Asset turnover = sales/average total assets; and Equity multiplier or financial leverage = average total assets/average common stock equity.\par
The three-step Du Pont model captures management's effectiveness at generating profits (net profit margin), managing assets (asset turnover) and identifying an optimal amount of leverage (equity multiplier). 
\section[{e) Five step Du Pont model}]{e) Five step Du Pont model}\par
The three-step DuPont Model has some drawbacks. It provides us with insights that drives a company's return on equity. In three step Du Pont model a company can boost its ROE by improving its profitability, by using assets more efficiently, or by taking additional leverage. However, companies that boost ROE by taking additional leverage may eventually reach a point where the cost of debt will diminish profit margin and decrease asset turnover.\par
This "shortcoming" with the three-step model led to the development of an expanded, five-step model of Du Pont analysis, the extended model considers company's interest burden and also tax burden.\par
The extended five-step Du Pont decomposition breaks return on equity down into five components:\par
? Tax burden = net income/earnings before tax (EBT); ? Interest burden=Earnings before tax (EBT)/Earnings before interest and tax (EBIT); ? EBIT margin=Earnings before interest and tax (EBIT)/sales; ? Asset turnover=EBIT margin/average total assets; and ? Financial leverage ratio (equity multiplier) = average total assets/average common stock equity. Multiplying all five ratios together gives return on equity.\par
IV. 
\section[{Results and Analysis}]{Results and Analysis}\par
The average of five years results of five ways Du Pont analysis of ten selected pharmaceutical companies is summarized below: \begin{figure}[htbp]
\noindent\textbf{} \par 
\begin{longtable}{P{0.04684210526315789\textwidth}P{0.7763157894736842\textwidth}P{0.0036842105263157894\textwidth}P{0.012105263157894737\textwidth}P{0.0010526315789473684\textwidth}P{0.01\textwidth}}
\tabcellsep \multicolumn{4}{l}{and health care services through 50 brands and 51}\\
\tabcellsep \multicolumn{4}{l}{presentations of various formulations. With the mission}\\
\tabcellsep \multicolumn{4}{l}{to serve the ailing humanity around the globe, Orion}\\
\tabcellsep \multicolumn{4}{l}{Pharma has proliferated into one of the leading}\\
\tabcellsep \multicolumn{2}{l}{pharmaceutical}\tabcellsep companies\tabcellsep in\tabcellsep Bangladesh\\
\tabcellsep \multicolumn{4}{l}{manufacturing and marketing general drugs. Orion}\\
\tabcellsep \multicolumn{4}{l}{Pharma manufactures and markets a wide array of}\\
\tabcellsep \multicolumn{4}{l}{dosage forms including tablet, capsule, syrup,}\\
\tabcellsep \multicolumn{4}{l}{suspension, injection, dry powder for syrup/suspension,}\\
\tabcellsep \multicolumn{4}{l}{cream/ointments in different therapeutic groups like}\\
\tabcellsep \multicolumn{4}{l}{anticancer, antibiotics, anti-diabetics, anxiolytics,}\\
\tabcellsep \multicolumn{4}{l}{diuretics, cardiovascular drugs etc. (As cited at}\\
\tabcellsep \multicolumn{4}{l}{http://www.orion-group.net/concern/19/40/orion-}\\
Year\tabcellsep \multicolumn{4}{l}{pharma-ltd) Beacon Pharmaceuticals Limited is the number one oncology company and one of the leading and}\\
\tabcellsep fastest\tabcellsep growing\tabcellsep \multicolumn{2}{l}{pharmaceutical}\tabcellsep companies\\
\tabcellsep \multicolumn{4}{l}{of Bangladesh. The Company started its operation in}\\
Volume XVIII Issue I Version I\tabcellsep \multicolumn{4}{l}{2006. Now Beacon is one of the top oncology Manufacturing plant of Beacon has the finest infrastructure \& facilities developed and engineered by European consultants to conform world class standards like US FDA, UK MHRA, TGA Australia and WHO GMP. Beacon has dedicated facilities to manufacture lifesaving oncology, Biotech and Hi-Tech \& conventional general products. The company manufactures more than 200 world class generic drugs and even successfully introduced a global first generic drug. After}\\
( ) C\tabcellsep \multicolumn{4}{l}{meeting the local demand, Beacon exports its medicines to many countries of Asia, Africa, Europe and}\\
Global Journal of Management and Business Research\tabcellsep \multicolumn{4}{l}{Latin America. (As cited at https://www.beaconpharma. com.bd/) b) Purpose and Research Questions}\end{longtable} \par
 
\caption{\label{tab_1}}\end{figure}
 \begin{figure}[htbp]
\noindent\textbf{} \par 
\begin{longtable}{P{0.17\textwidth}P{0.08869565217391304\textwidth}P{0.09608695652173913\textwidth}P{0.09017391304347826\textwidth}P{0.09460869565217392\textwidth}P{0.18182608695652175\textwidth}P{0.12860869565217392\textwidth}}
\tabcellsep \tabcellsep \tabcellsep \tabcellsep \tabcellsep \tabcellsep Year\\
\tabcellsep \tabcellsep \tabcellsep \tabcellsep \tabcellsep \tabcellsep Volume XVIII Issue I Version I\\
\tabcellsep \tabcellsep \tabcellsep \tabcellsep \tabcellsep \tabcellsep ( )\\
Name of the Companies Square Renata GlaxoSmithKline ACI IBNSINA ORION ACI Formulations Far chemicals Beacon Beximco\tabcellsep Tax Burden 0.75 0.73 0.77 0.76 0.76 0.83 0.74 1.00 0.69 0.73\tabcellsep Interest Burden 1.07 0.82 0.94 0.83 0.98 1.05 0.74 1.03 0.25 0.86\tabcellsep EBIT Margin 0.21 0.26 0.29 0.12 0.05 0.27 0.11 0.25 0.23 0.23\tabcellsep Asset Turnover 0.89 0.78 0.59 0.75 1.98 1.00 0.77 0.70 0.30 0.38\tabcellsep Financial Leverage ROCE 1.26 0.19 1.90 0.23 7.65 0.92 0.31 0.27 1.70 0.13 2.38 0.56 1.74 0.08 1.07 0.20 1.6 0.019 1.37 0.07\tabcellsep Global Journal of Management and Business Research\end{longtable} \par
  {\small\itshape [Note: Cquestions.]} 
\caption{\label{tab_2}}\end{figure}
 			\footnote{© 2018 Global Journals} 			\footnote{© 2018 Global Journals 1} 		 		\backmatter  			 \par
DuPont Analysis of Return on Common Stockholder's Equity in Pharmaceutical Industry of Bangladesh GlaxoSmithKline has tax burden of 0.77 and interest burden of 0.94.Whereas it has EBIT margin of 0.29.The asset turnover ratio of this company is 0.59 and it has financial leverage of 7.65.The average ROCE of this company is 0.92.\par
ACI has tax burden of 0.76 and interest burden of 0.83.Whereas it has EBIT margin of 0.12.The asset turnover ratio of this company is 0.75 and it has financial leverage of 2.31.The average ROCE of this company is 0.27.\par
IBNSINA has tax burden of 0.76 and interest burden of 0.98.Whereas it has EBIT margin of 0.05.The asset turnover ratio of this company is 1.98 and it has financial leverage of 1.70.The average ROCE of this company is 0.13.\par
ORION has tax burden of 0.83 and interest burden of 1.05.Whereas it has EBIT margin of 0.27.The asset turnover ratio of this company is 1.00 and it has financial leverage of 2.38.The average ROCE of this company is 0.56.\par
ACI Formulations has tax burden of 0.74 and interest burden of 0.74.Whereas it has EBIT margin of 0.11.The asset turnover ratio of this company is 0.77 and it has financial leverage of 1.74.The average ROCE of this company is 0.08.\par
Far chemicals has tax burden of 1.00 and interest burden of 1.03.Whereas it has EBIT margin of 0.25.The asset turnover ratio of this company is 0.70 and it has financial leverage of 1.07.The average ROCE of this company is 0.20.\par
Beacon has tax burden of 0.69 and interest burden of 0.25.Whereas it has EBIT margin of 0.23.The asset turnover ratio of this company is 0.30 and it has financial leverage of 1.6.The average ROCE of this company is 0.019.\par
Beximco has tax burden of 0.73 and interest burden of 0.86.Whereas it has EBIT margin of 0.23.The asset turnover ratio of this company is 0.38 and it has financial leverage of 1.37.The average ROCE of this company is 0.07.\par
As ROCE, EBIT margin, Financial leverage of GlaxoSmithKline pharmaceutical company is good enough comparing with other pharmaceutical companies and its tax burden, interest burden and asset turnover are also comparatively good than other pharmaceutical companies then it can be evolved that GlaxoSmithKline pharmaceutical company has the best performance than the other pharmaceutical companies.\par
V. 
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