1.

INTRODUCTION

1.1 Origin of the Report:

University of Dhaka is an institute that promotes actual learning and especially theoretically
we learn a lot. Each and every semester we have to prepare a report. This report was assigned to
us by our course instructor, Prof. Md. Abdul Hakim, as a part of Financial Management (5303)
course objective.
1.2 Objectives of the Report:
The report is aimed at the following objectives:
To fulfill the course requirement
To understand the issues on corporate finance
To build realistic business situation with the academic knowledge
1.3 Scope of the Report:
The report covers the following area:

A brief introduction to the corporate finance

A brief introduction to the different real life functional role of finance manager
The present dividend policy practice in a corporate firm like Square Pharmaceuticals Ltd.
A brief introduction to organization financial position

1.4 Limitations of the Report:

This report is not free from limitations. If those problems were not created then my term paper
would be more impressive and highlighted. The limitations of our study are given below:
Due to the large size of the organization it was not possible to cover all the aspect related
to corporate finance

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 Efforts have been made for an in depth analysis of the dividend policy. Still it was not
possible to collect all the data on the relevant topics as Square Pharmaceuticals was a
large organization

1.5 Methodology of the Report:

This report was prepared based on the annual report 2014-2015 of Square Pharmaceuticals Ltd.
The data is secondary and we took help from reference group in some extends. After all I explore
the finding in this paper. I have collected information from secondary source. Secondary
information was collected from different websites. Microsoft Excel was used to analyze the
collected data and this data has been presented in the graphical format.

2.COMPANY OVERVIEW

Square pharmaceutical limited is one of the leading pharmaceutical companies in Bangladesh. Its
business lines are manufacturing and marketing of pharmaceutical finished products, basic
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chemicals and agro-vet products. Over the years it has earned the reputation to produce the top
quality health care products. The products are produced at the least cost to reach the lowest rungs
of the economic class of the people in the country. The main plant of the company is situated in
Pabna. In 2002 its another plant at Kaliakoir, Dhaka started operation. There are 2,120 people
(including executives, staff and workers) are working in SPL.
CORPORATE HISTORY
Year of establishment (initially as a partnership)
Incorporated as a private limited company
Technical collaboration agreement with Janssen pharmaceuticals of Belgium
a subsidiary of Johnson & Johnson international ltd.
Technical collaboration agreement with F. Hoffman-La Roche & co. ltd.
Converted into public limited company
Stock exchange listings (Dhaka & Chittagong)
Agreement with M/S. Bovis Tanvec ltd. Of UK for Implementation of Dhaka
plant
Awarded ISO-9001 certificate
Authorized capital
Paid-up capital
Number of employees
Subsidiary Company

1958
1964
1975
1984
1991
1995
1996
1998
tk. 1,000 million
tk. 300 million
2,120
Square Formulations Ltd
Square Textiles Ltd.

Associate Company

Square Fashions Ltd.

Square Hospitals Ltd.

3.DIVIDEND POLICY

3.1 Dividend:
A dividend is a distribution of a portion of a company's earnings to a class of its
shareholders. Dividends can be issued as cash payments, as shares of stock, or other
property.

Smaller

companies typically

distribute

dividends

at

the

end

of

an accounting year, whereas larger, publicly held companies usually distribute it every
quarter. The amount and timing of the dividend is decided by the board of directors, who

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also determine whether it is paid out of current earnings or the past earnings kept
as reserve. Holders of preferred stock receive dividend at a fix rate and are paid first.
3.2 Types of Dividend Policy:
The companys dividend policy must be formulated with basic objectives in mind:
providing for sufficient financing and maximizing the wealth of the companys owners.
Different companies follow different types of dividend policies depending on their
respective liquidity and growth position. Commonly followed dividend policies are:

Constant Dividend Per Share

Constant Payout Ratio

Dividend Policy

Small Constant Dividend Per Share Plus

Extra Dividend
Residual Dividend Policy

a) Constant Dividend Per Share:

Under this policy reserve fund is created to pay fixed amount of dividend in the year when the
earning of the company is not enough. It is suitable for the firms having stable earning.
b) Constant Payout Ratio:
It means the payment of fixed percentage of earning as dividend every year.
c) Small Constant Dividend Per Share Plus Extra Dividend:
It is a mixed policy. The total amount of dividend per share is considered in two parts:

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Total Dividend per share = Small constant amount + Extra amount for higher level of net
income.
d) Residual Dividend Policy
A residual dividend policy is one where a company uses residual or leftover equity to
fund dividend payments. Typically, this method of dividend payment creates volatility in the
dividend payments that may be undesirable for some investors.
3.3 Types of Dividend Payment:
The purpose of dividends is to return wealth back to the shareholders of a company.
There are two main types of dividends: Cash and Stock.
a) Cash Dividend:
A cash dividend is a payment made by a company out of its earnings to investors
in the form of cash (check or electronic transfer). This transfers economic value from the
company to the shareholders instead of the company using the money for operations.
b) Stock Dividend:
A stock dividend is an increase in the amount of shares of a company with the
new shares being given to shareholders.

TABLE 1: DIVIDEND PER SHARE PRICE AND NET INCOME

Year
2014-15
2013-14
2012-13
2011-12
2010-11

DPS(Tk.)
3.00
3.00
2.5
2.5
30

Dividend (%)
30
30
25
25
30

Stock Price in DSE (Tk.)

258.70
267.00
178.60
237.30
3272.00

Net Income
5,743,623,832
4,031,811,268
3,419,785,256
2,897,710,641
2,532,054,550

The above table shows the data of 5 years. In fiscal year 2010-11, dividend was tk.30 per share.
However, due to stock split from the next year dividend per share had become tk.2.5 stayed for 2
years and then become tk.3 per share from year 2013 to year 2014.

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TABLE 2: GROWTH OF EARNING PER SHARE & NET INCOME

Year
2014-15
2013-14
2012-13
2011-12
2010-11
2009-10

EPS (Tk.)
10.36
8.36
9.01
10.94
129.07
138.36

Growth (%)
23.92
(7.21)
(17.64)
(91.52)
(6.71)

Net Income(Tk.)
5,743,623,832
4,031,811,268
3,419,785,256
2,897,710,641
2,532,054,550
2,087,871,791

Growth (%)
42.46
17.90
18.02
14.44
21.27

During the year 2015 Earning per share has increased compare to the previous years, which
indicates growth in Earning after tax. During 2015 earning after tax has increased by 42.46%
compare to previous year, which is a good sign for a company.

TABLE 3: RETENTION RATIO

A

C = 1- B

Year
2014-15
2013-14
2012-13
2011-12
2010-11

Dividend Payout Ratio

30%
30%
25%
25%
30%

Retention Ratio
70%
70%
75%
75%
70%

The Dividend Payout Ratio and the Retention Ratio states that the company retains and pays a
fixed amount. From the above table it can be said that Square Pharmaceuticals Ltd. Follows
constant payout ratio.

TABLE 4: STOCK DIVIDEND

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Year
2014-15
2013-12
2012-13
2011-12
2010-11

Stock Dividend (%)

12.50
15
30
40
35

4.FINDINGS
Market value of the stock is not influenced by the dividend rather sometimes depends on
earning power. So it is showing that Square Pharmaceuticals Ltd. (SPL) follows theory of
irrelevance of dividend policy.
SPL is paying stock dividend to increase its internal financing by retaining net income.
But gradually from FY 2010-2011 to 2014-2015 the amount of stock dividend is
decreasing and cash dividend increasing. That means now SPL has started paying more
cash dividend.
During FY 2010-2011 cash dividend was 30% with a face value Tk.100.Then in FY
2011-2012, the company choose stock split by which the number of equity shares have
increased to attract the new investors with a face value Tk.10.During this period dividend
was 25% for two years and again came back to 30% during FY 2013-14.Now in FY
2014-15 SPL is following the same percentage of cash dividend. In 2011 and 2012 the
company has followed the residual dividend policy and again come back to stable
dividend policy.

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 As the company holds a higher retention ratio compare to payout ratio which indicates
that the company reinvests in new profitable projects as already invested in Square
Hospital and Square textile.

5.RECOMMENDATION
Square Pharmaceuticals Ltd. should follow dividend relevance theory for more growth in
future where dividend will show the higher net income of the company and higher market
value of the stock.
As dividend per share is lower compare to retained earnings so SPL should increase the
DPS to attract more shareholders.

6.CONCLUSION

Square Pharmaceuticals Ltd. certainly piles on a very strong financial condition. They are a very
lucrative company. Though Market value of the stock is not affected by the dividend, the
company reinvests in new profitable developments. In addition, SPL has started paying more
cash dividend. The company has followed the residual dividend policy for few years and again
come back to stable dividend policy. SPL should follow relevance theory for more growth in
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future. SPL should increase the DPS to attract more shareholders. Overall Square
Pharmaceuticals certainly have a very strong financial position and it is looking good for the
future as well.

7. REFERENCE

http://www.squarepharma.com.bd/
http://www.squarepharma.com.bd/financial-reports.php
https://www.google.com.bd/
http://www.businessdictionary.com/definition/dividend.html
www.investopedia.com/
http://www.investopedia.com/ask/answers/05/stockcashdividend.asp
en.wikipedia.org/wiki/dividend
http://www.accountingtools.com/financial-statement-analysis
http://www.studyfinance.com/lessons/dividends/

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