1.0 ORGANIZATION OVERVIEW 1.1 Introduction: Incepta Pharmaceuticals Ltd. is a leading pharmaceutical company in Bangladesh established in the year 1999. The company has a very big manufacturing facility located at Savar, 35 kilometer away from the center of the capital city Dhaka. The company produces various types of dosage forms which include tablets, capsules, oral liquids, ampoules, dry powder vials; powder for suspension, nasal sprays etc. Since its inception, Incepta has been launching new and innovative products in order to fulfill unmet demand of the medical community. The focus was to bring more new technologically advanced molecules to this country. The company specializes in value added high technology dosage form like sustained release tablets, quick mouth dissolving tablets, barrier coated delayed release tablets etc. It has established a modern research and development laboratory for the development of new advanced dosage forms for various drugs and devices like poorly soluble drugs, dry powder inhalers, coated pellets, modified release products, taste masked preparation etc. Incepta quickly developed a very competent sales team, which promotes the specialties throughout the country. The company virtually covers every single corner of the rural as well as urban area of Bangladesh. It has its own large distribution network having 13 depots all over the country. The company has 1 | Page
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1.0 ORGANIZATION OVERVIEW
1.1 Introduction:
Incepta Pharmaceuticals Ltd. is a leading pharmaceutical company in Bangladesh established
in the year 1999. The company has a very big manufacturing facility located at Savar, 35
kilometer away from the center of the capital city Dhaka. The company produces various
types of dosage forms which include tablets, capsules, oral liquids, ampoules, dry powder
vials; powder for suspension, nasal sprays etc. Since its inception, Incepta has been launching
new and innovative products in order to fulfill unmet demand of the medical community. The
focus was to bring more new technologically advanced molecules to this country. The
company specializes in value added high technology dosage form like sustained release
tablets, quick mouth dissolving tablets, barrier coated delayed release tablets etc. It has
established a modern research and development laboratory for the development of new
advanced dosage forms for various drugs and devices like poorly soluble drugs, dry powder
inhalers, coated pellets, modified release products, taste masked preparation etc.
Incepta quickly developed a very competent sales team, which promotes the specialties
throughout the country. The company virtually covers every single corner of the rural as well
as urban area of Bangladesh. It has its own large distribution network having 13 depots all
over the country. The company has a clear vision to become a leading research based dosage
form manufacturing company with global presence within a short period of time.
The Research and Development department for various dosage forms has been very well
developed. Incepta intends to bring newer products of advanced technology through research
hitherto unknown in this country.
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Figure 01: Growth Rate of Incepta Pharmaceuticals Compared to the industry
Beginning in 2000, Incepta Pharmaceuticals Ltd. has been launching new and innovative
products at a faster pace than its competitors. Up to June 2011 it has already launched more
than 317 generics with a total of 624 presentations. The company produces a wide variety of
dosage forms covering nearly all the major therapeutic classes.
During the last 11 years of operation it launched as many as 118 new generics for the first
time ever in Bangladesh. High focus on quality and timely introduction of much needed
essential medications previously unavailable in the country has enabled the organization to
become the second largest pharmaceutical company of the country.
1.2 Vision:
To become a research based global pharmaceutical company in addition to being a highly
efficient generic manufacturer. To discover and develop innovative, value-added products
that improves the quality of life of people around the world and significantly contributes
towards the growth of Bangladesh.
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1.3 Mission:
Provide people globally with high quality health care products at affordable prices in order to
improve access to medicine and to improve employees an enabling environment that facilities
realization of their full potential.
1.4 Ownership Pattern:
Incepta Pharmaceuticals Limited is the sister concern of the renowned Impress Group and the
business is running as fully private limited company. Directors of Incepta Pharmaceuticals
Limited own the majority shares. Incepta is not DSE listed in capital market yet, so it is
controlled by the internal board of director’s .So any kind of significant decision is taken by
the management.
1.5 Market Position of IPL:
Table 01. Top ten pharmaceuticals companies in Bangladesh in 2012
According to IMS health survey which is a US-based and the world's number one market
research organization and has been providing pharmaceuticals market intelligence to more
than 100 countries over the past 50 years, the market position of the top ten pharmaceuticals
companies in Bangladesh in 2012.
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Serial No.
Companies Market Position Of the Companies(Total 100%)
1. Square 17. 132. Incepta 9.78
3. Beximco 8.494. Opsonin Pharma 5.47
5. Reneta 5. 146. Eskayef 4.71
7. ACI 4.22
8. Acme Laboratories 4.079. Aristopharma 4.07
10. Drug International 3.97
Others 55.22%
Director
General Manager
Deputy General Manager
Assistant General Manager
Senior Manager
Manager
Deputy Manager
Assistant Manager
Executive Officer
Officer
Senior Officer
Managing Director
Assistant Officer
1.6 ORGANOGRAM OF IPL:
Figure 02: Organogram
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1.7 Exporting Countries:
Afghanistan, Belize, Bhutan, Congo, Costa Rica, Cambodia, Dominican Republic, El
Salvador, Ethiopia, Guyana, Georgia, Hong Kong, Honduras, Kenya, Myanmar, Mongolia,
Mauritania, Sri Lanka, Somalia, Togo, Tajikistan, Turkey, Ukraine, Vietnam, Nigeria.
1.8 Abstract:
Companies can use working capital management as an approach to influence their
profitability. This paper studies the impact of working capital management and its
components upon the profitability of Bangladeshi pharmaceuticals companies. Cash
Conversion Cycle, Average days of collection period, Inventory turnover period, Deferred
payables Period are used as a comprehensive measure for working capital management and
Gross Operating Profitability used as a measure for profitability.
The purpose of this study is to analyze the impact of working capital management on
companies’ profitability from Bangladesh County. The relation between the components of
the working capital management and profitability is examined using Pearson correlation
analyses and using a sample of 14 annual financial statements of companies covering period
2009-2010. The conclusion to our study is that there are positive relationship between
deferred payables period and corporate profitability. There is also positive relationship
between inventory turnover period and profitability. On the other hand, there are negative
relationship between average days of collection periods and corporate profitability. The
results also show negative relationship between cash conversion cycle and corporate
profitability.
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2.0 PROBLEM STATEMENT
2.1 Prologue:
In Bangladesh the pharmaceutical sector is one of the most developed hi-tech sectors within
the country's economy. After the promulgation of Drug Control Ordinance - 1982, the
development of this sector was accelerated. The professional knowledge, thoughts and
innovative ideas of the pharmaceutical professionals are the key factors for these
developments. Due to recent development of this sector it is exporting medicines to global
market including European market. This sector is also providing 97% 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 high tech-equipment and professionals which will enhance the strength of
this sector.
In every organization, corporate finance deals with three decisions: capital structure
decisions, capital budgeting decisions, and working capital management decisions. Among
these three decisions, working capital management is recognized as an important concern of
the financial manager due to many reasons. For one thing, a typical manufacturing firm’s
current assets account for over half of its total assets. Working capital is also an important
issue during financial decision making since its being a part of investment in asset that
requires appropriate financing investment. However, working capital always being disregard
in financial decision making since it involve investment and financing in short term period.
Working capital management is the functional area of finance that covers all the current
accounts of the firm. Working capital management involves the relationship between a firm's
short-term assets and its short-term liabilities. The goal of working capital management is to
ensure that a firm is able to continue its operations and that it has sufficient ability to satisfy
both maturing short-term debt and upcoming operational expenses. The management of
working capital involves managing inventories, accounts receivable and accounts payable
and cash.
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In the present day context of rising capital cost and scarce funds, the importance of working
capital needs special emphasis. It has been widely accepted that the profitability of a business
concern likely depends upon the manner in which its working capital is managed. The
inefficient management of working capital not only reduces profitability but ultimately may
also lead a concern to financial crisis. On the other hand, proper management of working
capital leads to a material savings and ensures financial returns at the optimum level even on
the minimum level of capital employed.
Both excessive and inadequate working capital is harmful for a firm. Excessive working
capital leads to un-remunerative use of scarce funds. On the other hand inadequate working
capital usually interrupts the normal operations of a business and impairs profitability. There
are many instances of business failure for inadequate working capital. Further, working
capital has to play a vital role to keep pace with the scientific and technological developments
that are taking place in the concerned area of pharmaceutical industry. If new ideas, methods
and techniques are not injected or brought into practice for want of working capital, the
concern will certainly not be able to face competition and survive. In this context, working
capital management has a special relevance and a thorough investigation regarding working
capital practice in the pharmaceutical industry is of utmost importance.
2.2 Problem of the Study:
Every organization irrespective of size and nature of business requires necessary amount of
working capital. Working capital is the most crucial factor for maintaining liquidity, survival,
solvency and profitability of business. The impact of working capital policies on profitability
is highly important because firms required a balance between risk and efficiency to achieve
an optimal level of working capital. Efficient working capital management involves planning
and controlling current assets and current liabilities in a manner that eliminates the risk of
inability to meet due short term obligations on one hand and avoids excessive investment in
these assets on the other hand.
Working capital management efficiency directly affects the profitability and liquidity of
firms. Therefore, efficient management of working capital is a fundamental part of the overall
corporate strategy to create shareholder value. In general, companies try to keep an optimal
level of working capital that maximizes their value. Some firms try to increase their profits at
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the cost of liquidity which can bring serious problems to the firm. Therefore, there must be a
trade-off between these two objectives of the firms. If we do not care about profit, we cannot
survive for a longer period. On the other hand, if we do not care about liquidity, we may face
the problem of insolvency or bankruptcy. For these reasons working capital management
should be given proper consideration and will ultimately affect the profitability of the firm.
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3.0 PURPOSE OF THE STUDY
The purpose of this research is to determine whether there is any relationship between the
working capital management and firm’s profitability or not in the pharmaceuticals industry in
Bangladesh.
A. Broad Objective
The broad objective of this research is to analyze “The impact of working capital
management on firm’s profitability in Pharmaceuticals industry in Bangladesh”.
B. Specific Objectives
The specific objectives are given below:
1. To find the current market situation of pharmaceuticals industry in Bangladesh
2. To have an overview on the organization “Incepta Pharmaceuticals Ltd.”
3. To find out the internal factors like strengths and weaknesses of Incepta
Pharmaceuticals Ltd.
4. To find out the external factors like opportunities and threats of Incepta
Pharmaceuticals Ltd.
5. To find the effect of inventory conversion period on the profitability of
pharmaceuticals industry in Bangladesh
6. To find the effect of receivables collection period on the profitability of
pharmaceuticals industry in Bangladesh
7. To find the effect of payable deferral period on the profitability of
pharmaceuticals industry in Bangladesh
8. To find the effect of cash conversion cycle on the profitability of pharmaceuticals
industry in Bangladesh
9. To find out the relationship of collection policy between Incepta Pharmaceuticals
Ltd. and the pharmaceuticals industry in Bangladesh.
10. To find out the relationship of receivables inventory policy between Incepta
Pharmaceuticals Ltd. and the pharmaceuticals industry in Bangladesh.
11. To find out the relationship of payment policy between Incepta Pharmaceuticals
Ltd. and the pharmaceuticals industry in Bangladesh.
12. To find out the relationship of cash conversion cycle between Incepta
Pharmaceuticals Ltd. and the pharmaceuticals industry in Bangladesh.
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4.0 LIMITATIONS OF THE REPORT
The duration is for making such report is not enough to learn about such a big sector
as well as organization like Incepta Pharmaceuticals Limited.
For non-availability of secondary data, it was not be possible to work on the basis of
board data.
It was be difficult to collect the information from various personnel for the job
constraint.
Lack of experiences acted as constraints in the way of meticulous exploration on the
topic.
5.0 LITERATURE REVIEW
While searching for previous research works, many research reports were found in the
internet and other publications. But no research has been made on the issue of impact of
working capital management on profitability in context of pharmaceuticals industry in
Bangladesh. Many researchers have studied working capital from different views and in
different environments. The following are very useful for this research:
Shin and Soenen researched the relationship between working capital management and value
creation for shareholders. The standard measure for working capital management is the cash
conversion cycle (CCC). Cash conversion period reflects the time span between disbursement
and collection of cash. It is measured by estimating the inventory conversion period and the
receivable conversion period, less the payables conversion period. In their study, Shin and
Soenen used net-trade cycle (NTC) as a measure of working capital management. NTC is
basically equal to the cash conversion cycle (CCC) where all three components are expressed
as a percentage of sales. NTC may be a proxy for additional working capital needs as a
function of the projected sales growth. They examined this relationship by using correlation
and regression analysis, by industry, and working capital intensity. Using a sample of 58,985
firm years covering the period 1975-1994, they found a strong negative relationship between
the length of the firm's net-trade cycle and its profitability. Based on the findings, they
suggest that one possible way to create shareholder value is to reduce firm’s NTC.
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Singh and Pandey (2008) had an attempt to study the working capital components and the
impact of working capital management on profitability of Hindalco Industries Limited for
period from 1990 to 2007. Results of the study showed that current ratio, liquid ratio,
receivables turnover ratio and working capital to total assets ratio had statistically significant
impact on the profitability of Hindalco Industries Limited.
In 1983 N. Hill, W. Sartoris and D. Ferguson conducted a survey of the accounts payable
managers of 1,479 firms of various sizes in various industries: 180 responses were received.
A major thrust of this survey was obtaining information on firm’s decision regarding two
methods of obtaining finance from accounts payable; skipping the discount and stretching
accounts payable. The survey revealed that the vast majority of firms generally take the
discount. In deciding whether to take the discount, the primary criterion of most firms is the
amount of the discount. This makes good financial sense, since the amount of discount (along
with the delay period from the discount date to the due date) determines the cost of skipping
as a source of financing.
Inventory plays an important role to determine the activities in producing, marketing, and
purchasing. Since inventory determines the level of activities in a company, managing it
strategically contributes to profitability (Hill & Sartoris, 1992). Supplier selection process
and inventory management are reciprocal to enable companies to deal with uncertainties of
consumer demand. Furthermore, a company’s ability to respond to demand is largely
dependent on how efficient the company manages inventories and how committed its
suppliers are to support a company’s production lines.
Accounts payable are one of the major sources of unsecured short-term financing (Gitman,
2009; Hill & Sartoris, 1992). Utilizing the value of relationship with payee is a sound
objective that should be highlighted as important as having the optimal level of inventories
(Hill & Sartoris, 1992). As a consequence, strong alliance between company and it suppliers
will strategically improve production lines and strengthen credit record for future
expansion.Profit may only be called real profit after the receivables are turn into cash. The
management of accounts receivable is largely influence by the credit policy and collection
procedure. A credit policy specifies requirements to value the worthiness of customers and a
collection procedure provides guidelines to collect unpaid invoices that will reduce delays in