Project on

Determinants of Dividend Policy: A Pharmaceutical & Chemical Industry Presented toJannatunnesa Senior Lecturer (finance)East West University

Department Of Business Administration

Presented byMousumi Akter Mitu ID: 2010-2-13-002

DeclarationI, Mousumi Akter Mitu era student of Business Administration Department (BBA program) major in Finance of East West University do hereby declare that the Project Report on Determinants of dividend policy based on pharmaceutical & chemical industry of Bangladesh is my original work and has not been submitted by me before for any degree, diploma, title or recognition. It is persuade under the supervision of Jannatunnesa, Senior Lecturer, Department of Business Administration, East West University. Certification of Supervisor

This is to certify that Mousumi Akter Mitu, student of Business Administration Department (BBA) ID# 2010-2-13-002 under Faculty of Bachelor of Business Administration, East West University has completed the Project Report on Determinants of dividend policy based on pharmaceutical & chemical industry of Bangladesh as a part of requirement for obtaining BBA degree. I have gone through the report and found in to be a well written report. I am completed the report by myself under my supervision.I wish her every success in her future endeavor.Signature of the project supervisor

Letter of Transmittal20thFebruary, 2015

JannatunnesaSenior Lecturer

Department of Business AdministrationEast West UniversitySubject: Submission of Project report on Determinants of dividend policy based on pharmaceutical & chemical industry of Bangladesh.

Madam,Here is the report on Determinants of dividend policy based on pharmaceutical & chemical industry of Bangladesh which I have prepared as the requirement of completion of the BBA degree and the course BUS 498, Project Work. While making the report I studied about the profitability of Pharmaceutical & Chemicals Industry of Bangladesh. I have come to know a lot of things about the practical scenario of the Profitability in Pharmaceuticals & Chemicals sector. The whole experience of this report writing enabled me to bridge the gap between classroom learning in my academic study in the university and real life situations to a great extent. I thank you and the University for providing me such an opportunity. The opportunity of preparing this report has increased my knowledge about Pharmaceutical & chemical Industry and their profitability. In this regard, I am really grateful to you.

Sincerely yours,Thank you MadamYours SincerelyMousumi Akter MituID: 2010-2-13-002 Acknowledgement First and foremost, I would like to express my gratitude to, Jannatunnesa, Senior Lecturer (finance) of the Department of Business Administration, East West University for providing me such an opportunity to construct project on Determinants of dividend policy based on pharmaceutical & chemical industry of Bangladesh ". Without her helpful guidance, the completion of this report was unthinkable. Her constant guidance and advice played the vital role in making this report successful. She always gave me her suggestions that were crucial in making this report as flawless as possible. I would like to express my gratitude to all of the respected teachers of the Department of Business Administration, East West University for their continuous support and advice during my study period.I want to thank the librarians of Dhaka Stock Exchange for giving their support and help us to find information about DSE from 2004 to 2013. In addition, I want to acknowledge the time and support extended by the other people by providing me the information to prepare the report. I must not forget to express my gratitude to my well wishers and friends for their moral support and encouragement.

Finally, I thank the Almighty for always being on my side and giving me proper direction and also for granting me my beloved parents. It is their encouragement and support from the very beginning of my life that make possible for me to come to this stage Executive Summary

The term paper is to highlights on different financial activities of the company such as financial performance analysis & security of analysis of pharmaceutical industries. The report helps to know the overall financial activities & performance of Beximco pharmaceutical. In course of study of the firms financial statement analysis & its security position in both local & foreign stock provides opportunity to have extensive knowledge about details of pharmaceutical industries financial operation. It also enhance our understanding ability regarding key financial &operation data, marketing strategies of different production, quality control &industry analysis. With world class range & superior quality of pharmaceutical industry will be the leading medicine manufacturing brand in BangladeshTable of contents

IntroductionThis research paper is based upon the performance evaluation of Pharmaceutical & Chemical industry. A scenario of determinants of dividend policy condition has been shown in this paper. Origin of the Report

This project paper is prepared to give an idea about the performance of Pharmaceutical & Chemical industry from 2001 to 2013. A scenario of determinants of dividend policy condition has been shown in this paper. To prepare this report I choose the annual report of DSE of 2001- 2013. The preparation and submission of this term paper is mandatory requirement of the BUS 498 course.Objectives of the Study

There are some objectives behind every study and our work is not an exception. So I have also some objectives. The relevant objectives are listed below. Primary: It is actually a broad objective and our primary objective is to determine the position of Pharmaceuticals & chemical industry by analyzing their profitability.Secondary: The secondary objectives of this study are: To present an overview of pharmaceutics & chemical industry. To appraise the industrys Dividend Policy. To discuss about performance of Pharmaceuticals & chemical industry from 2004 to 2013 To identify and analyze pharma policy measure that influences the flow of profit.

To identify different types of independent variables that help to analyze the profit of Pharmaceutical & chemical industry.

To identify different factors that effect profit earnings of pharmaceuticals & chemical industry. To analyze the present value of pharmaceutical & chemical industry. The objectives of this report is to make readers know about Pharmaceuticals & chemical industry and to provide information about their Dividend Policy & profitability. To provide some suggestions about the improvement of performance of Pharmaceuticals & chemical industry.Research Methodology:

Methodology of my study includes the whole process that I have conducted our assignment. While doing our assignment I have used multiple techniques, two types of data and they are listed below.

Primary data: I will collect some important data about Pharmaceuticals & chemical industry from Dhaka Stock Exchange from some employees of DSE.

Secondary data: The study uses a secondary data collection method to appraise the dividend policy of Pharmaceuticals & chemical industry. The Project was primarily prepared by making some analytical approach. The main source of data for this report is Annual reports. For the fulfillment of my projects purpose, I had selected ten year (2004-2013) annual reports. I also collected data from different websites, Different books, newspapaer, journals and different articles. The existing guidelines, documents and other supporting papers relevant to this assignment were also consulted and examined.Statistical method of multiple regression analysis has been applied in this study. Time frame of this research is 10 years slot (2004 to 2013). Every company has been analyzed with same parameter over these periods. Literal review Many studies have been conducted on dividend policies earlier which explicate the determinants of dividend policy. These studies help new researchers explore the dividend policy in a new way. Researchers have indicated that growth of a firm can influence its dividend policy. Weidenfeld & Nicholson (1970) concerned profit as a reward to owner ofcapital but with the return to capital as an objective of a firms activities. Weston (1978) mentioned that profits are the test of efficiency and a measure ofcontrol, to the owners, a measure of the worth of their investment, to the creditors the margin of safety, to the employees a source of fringe benefits, to the Government a measure of taxable capacity and the basis of legislative action; to the country profits are an index of economic progress, national income generated and rise in the standard of living. According to Pandy (1979) recent experience in countries with totally planned economies indicates that economists are probably right in emphasizing the importance of overall profitability as a criterion for the efficient operation of an enterprise. On the other hand, Walstedt (1980) in his book entitled State Manufacturing Enterprises in a Mixed Economy: Turkish case stated that profitability of an enterprise can be ascertained, if profit is analyzed in terms ofsales and investment. The return on sales, return on investment, and return on equity are the main measure of profitability. Schmalensee (1987) stated that to determine whether systematic changes in intra-industry profitability occurred over time so as to distinguish between an efficiency story and a collusion story about why concentrated industries had higher profit rates than other industries. Further, he found that large firms in general were more profitable than small firms within the same industry. Velnampy & Nimalathasan (2007) indicated that sales are positively associated with profitability ratios except return on investment, and numbers ofdepositors are negatively correlated to the profitability ratios except return on equity, Likewise, number of advances is also negatively correlated to the return on investment, and return on average assets in Bank of Ceylon. Further they(2008) pointed out there is a positive relationship between Firm size and Profitability in Commercial Bank of Ceylon Ltd, but there is no relationship between firm size and profitability in Bank of Ceylon. Sexton & Kasarda.(2000) found that firm profitability was correlated with sustainable growth, while Chandler and Jensen (1992) found that sales growth and profitability werenot correlated. Based on the above literatures, we can say that various studies have beendone on this area, but a detailed and comprehensive study has not yet been conducted in Bangladesh context, especially in pharmaceutical companies. Hence, the present study is initiated Profitability of Listed pharmaceuticals Companies with three (10) years accounting period from 2004-2013.

Limitations

To make a project various aspects and experience are needed. But I faced some barriers for making a complete and perfect report. These barriers or limitations, which hinder our work, are as follows: The insufficiency of information is main constraint of the study. I got the information after a little bit late than I expected. In many cases, up to date information was not published. The study limits only on the available published data and certain degree ofavailability in internet. Availability of the reference book in another limitation Technical problems. Lack of statistical knowledge Lack of computer skill. Lack of proper information To complete the research only depend on annual reports

Overview of Pharmaceuticals industries in BangladeshThe pharmaceutical industry of Bangladesh is one of the most significant and Technology advanced sectors in the country. Before 1980, this industry was at a very primitive and underdeveloped stage, with little private investments and very little government support and resource allocation. However, as Habib and Alam (2011) profess, after the promulgation of the Drug Control Ordinance in 1982, the sector began accelerating at a break neck speed. In time, the pharmaceutical industry became one of the thrust sectors of the country's economy, and is now the third largest industry of the country in terms of contribution to the government's revenue. There has been substantial growth in the pharmaceutical market itself in the last few years. For example, as the report by Saad (2012) outlines, pharmaceutical sale in 2007 worth BDT 4,000 core, and it almost doubled by 2010 while in 2011 it was over BDT 9,000 core. At present, there are over 250 different licensed pharmaceutical firms in Bangladesh, but only around 173 are in operation, as the rest have either closed voluntarily or been suspended due to non-compliance of relevant laws and regulations. But Saad (2012) indicates that one of the salient features of the pharmaceutical sector is that it is highly dominated by a group of 20 top companies, who share about 85%of the total revenue of the market. Some of these firms are Squar Pharmaceuticals Ltd, Incepta Pharmaceuticals Ltd, Beximco Pharma Ltd., Renata Ltd , ACI limited, Ambee pharmaceuticals, Beximco synthetics, Glaxo smithkline, IBN SINA pharmaceuticals, Imam Button Industry, Keya cosmetics, Kohinur chemicals, Libra influsions, Orion influsions, Pharma Aids limited, Reckitt Benckiser, Water chemmicals and so on. Compared to the size of the Bangladeshi population, the pharmaceutical market of the country is quite small. Much of this is owed to the lack of spending capacity of the general people. In fact, pharmaceutical spending in this country is one of the lowest in the world. While globally, healthcare expense relative to GDP is around 10.03% as of 2009, according to Saad (2012), in Bangladesh the figure is just 3.35%. The pharmaceutical industry is one of the most developed industrial sectors of Bangladesh. There are approximately 250 companies active in the market at the moment. This rapidly growing industry contributes almost 1% of the GDP and is currently the third largest tax paying sector in the country. USA-based research firm IMS had stated in 2009 that the retail pharmaceutical market value in Bangladesh is around BDT 55 billion. The annual average growth rate of pharmaceuticals has hit double digit since 2009.

The pharmaceutical sector of Bangladesh has achieved a great reputation worldwide for its quality products. This can be seen by the increasing number of export orders the companies are getting from foreign buyers. Back in the 1980s, only a couple of companies exported pharmaceutical products to only Myanmar, Sri Lanka and Nepal. Now this sector is exporting products in 52 different countries. These products include high tech medicines such as inhalers, suppositories, and infusions and inject able. A massive opportunity opened up for Bangladesh after WTO/TRIPs Patent Law was implied which has made it possible for Bangladeshi pharmaceutical companies to export patented drugs until January 2016.

Local companies achieved a great deal of success in the local market as well. Their quality products have become highly popular among the locals which eliminated the need to buy foreign products. Because of the local companies, people can buy medicines for a cheaper price. The price would have been much higher if the medicines had to be imported. A large number of local companies have won accreditation in the past from foreign regulatory authorities such as EMEA (Austria) and TGA (Australia). This proves that the local companies are using strict protocol in manufacturing and competing with global brands.

The future growth of this promising sector largely depends on the availability of API (Active Pharmaceutical Ingredient). Some of the companies recently took initiative to manufacture these ingredients but still the production it is not even close to the demand. To make this industry flourish, more API industries need to be set up. The government should offer more incentives to those who invest in the API industries. If this is ensured, a growth rate of 80% can be expected in the coming years.

The biggest name in the pharmaceutical sector of Bangladesh is Square Pharmaceuticals. It has a market share of 19.3%. Incepta Pharmaceutical and Beximco Pharmaceuticals respectively have 8.5% and 7.6% market share. The domination of local companies can be seen by the fact that even though a good number of multinational companies are active in the pharmaceuticals sector, none of them are in the top 10 list when it comes to market share.

As mentioned earlier, the pharmaceutical products are in a huge demand in the local market and local and international regulatory authorities are extremely pleased with the standard. If the companies can capitalize on these strong points along with the fact that health expenditure is rapidly increasing, a significant improvement can be noticed very quickly in the sector.Bangladesh is the eighth largest densely populated country of the world which is 2.3 per cent of the total size around the globe. With this population, Bangladesh has an emerging economy in the world. During the last 10 years, the GDP growth rate is consistently >6.5 per cent and industrial or manufacturing growth rate is 11.2 per cent which is remarkable.

In the health sector, Bangladesh has emerged rapidly during the last 10 years. The infrastructure has developed during this period. Bangladesh has achieved tremendous success in pharmaceutical sector as well. Pharmaceutical industry is using state-of-the-art manufacturing technology and highly skilled human resources. This industry is the fastest growing sector in Bangladesh. The domestic market size is US$1.136 billion with a growth rate of 23.59 per cent in 2011. During the last several years, this sector is having significant growth. Within next 4-5 years, the expected market size of Bangladesh would be around US$ 2.5 billion per year.

The pharmaceutical industry of Bangladesh is a wonder and one does not require a degree in finance or economics to be able to see the truth in this statement. In a country characterized by political instability and omnipresent corruption, while almost every other form of industries is facing impeding obstacles, the relative calm and stability conspicuous in the pharmaceutical industry are astonishing.

There are 260 registered pharmaceutical companies, among which 191 are in operation. The manufactured products of these companies are meeting 97per cent of the domestic requirement. Some vaccines, anticancer products, hematological products, biotech products are being imported. These 191 companies are marketing more than 1350 molecules with 23500 brands in the country. Bangladesh pharmaceutical industry is dominated by the local pharma companies, i.e. 90 per cent of the market share is owned by the local companies. Top 20 companies are enjoying 82 per cent market share.

Bangladeshi pharmaceutical companies plan to strengthen their global foot-print as they target to take their products to 30 new destinations within 2013-14. Country's pharmaceutical industry has made big strides since the enforcement of the National Drug Policy back in 1982. The sector has gone through a sea change over the last three decades. The multinational pharmaceutical companies that once used to dominate the sector now have an insignificant presence. At present, Bangladesh exports pharma products to 87 countries, including the US and a few European nations, after meeting 97 per cent of the local demand by the domestic companies, some of which are fitted with most modern and state- of-the-art manufacturing facilities. The pharmaceutical sector has also been making its mark in the field of export. Last year, the country fetched over Tk.4.0 billion through export of medicines. The export potential is, however, far larger.

Pharmaceutical export is contributing substantially to the GDP of the country, and every year, this contribution is increasing at a greater pace. In terms of foreign currency, pharma sector has been ranked as the second largest potential sector in Bangladesh.

While Bangladeshs earnings from remittance and RMG exports are facing threats due to global economic and political reasons and domestic problems the impressive prospect of pharmaceutical export is reassuring.

According to the IMS, the size of Bangladesh's domestic drug market was $977 million in calendar year, 2010, $797 million in 2009, and $686 million in 2008, on the basis of moving annual total (MAT).

The IMS, a US-based organization, has been providing pharma market intelligence to more than 100 countries over the past 50 years. Its factual data are based on the country's retail sales only. Institutional sales and import of drug has remained outside the purview of the study. The market size has doubled over the last

five years, mainly due to increased penetration by the local drug manufacturers.

Accounting for just 0.2 per cent of non-OECD pharmaceutical exports in 2009, Bangladesh has a tiny share of the global market 0.01 per cent in 2009. Even so, it has by far the largest pharmaceutical sector, and the largest pharmaceutical exports, of all Least Developed Countries.

Exports of pharmaceuticals from Bangladesh are still small in scale at just around US$ 67.45m in 2012, worth approximately five per cent of the value of sales in the domestic market. However, they are increasing rapidly at a compound annual growth rate of 26.1 per cent between 2002 and 2012. Most of the growth is coming from exports to middle income countries and to nearby low income countries (Myanmar, Afghanistan, Nepal). While exports to the EU reached almost US$15 million in 2007, they have fallen off since. Most exports are to markets where pharmaceuticals are unregulated to medium regulated. Even relatively lightly regulated markets can be challenging to access, with significant delays to obtaining approval.

The Bangladesh Pharmaceutical Industry Association has set out a vision of growth for the future, called Pharma Vision 2015.

Bangladesh is taking the advantage of TRIPS agreement as being a LDC is exempted from patent protection until 2016. Bangladesh is a market of cheap labour. Thats why MNCs are interested for contract manufacturing and strategic alliance. Moreover, skilled personnel are produced in the country. Presently, Bangladesh is getting the leverage from TRIPS agreement being one of the LDCs, so that we can manufacture even varieties of patented molecules and export them, mainly to other members of LDCs because they are not as well-equipped as Bangladesh. Bangladeshi pharmaceutical companies have already developed their manufacturing facilities with skilled and trained personnel since its independence. The pharma companies earned the potential to easily penetrate into all the LDCs, some Asian and African moderately regulated countries. In addition, pharma industries of Bangladesh are now on the verge of entering into highly regulated overseas markets like Australia, USA and Europe. So it is just a matter of time for Bangladeshi companies to become a major generic player in the globe.

Determinations of Dividends Policy

The dividend policy of a firm determines what proportion of earnings is paid to shareholders by way of dividends and what proportion is ploughed back in the firm for reinvestment purpose. If a firmscapital budgeting decision is independent of its dividend policy, a higher dividend payment will call for a greater dependence on external financing .Thus,the dividend policy has a bearing on the choice of financing . On the other hand, firmss capital budgeting decision is independent on its dividend dicision; a higher dividend payment will cause shrinkage of its capital budget and vice versa. In such case, the dividend policy has a bearing on the capital budgeting decision.When a company earns profits from operations, management can do one of two things with those profits. It can choose to retain them - essentially reinvesting them into the company with the hope of creating more profits and thus further stock appreciation. The alternative is to distribute a portion of the profits to shareholders in the form of dividends. Management can also repurchase some of its own shares - a move that would also benefit shareholders.

A company must keep growing at an above-average pace to justify reinvesting in itself rather than paying a dividend. When a company's growth slows, its stock won't climb as much, and dividends will be necessary to keep shareholders around. This growth slowdown happens to virtually all companies after they attain a large market capitalization. A company will simply reach a size at which it no longer has the potential to grow at annual rates of 30-40% like a small cap, regardless of how much money is plowed back into it. At a certain point, the law of large numbers makes a mega-cap company and growth rates that outperform the market an impossible combination. In this section, we'll take a deeper look at the different types of dividends and the mechanics of dividend payments; how companies establish dividend policy and the different types of dividend policies; the reasons why companies and investors might prefer higher, lower or no dividend payments; and share repurchases, stock splits and stock dividends as an alternative to cash dividends.

Dividend:

The term dividend refers to that portion of profit which is distributed among the owner/shereholders of the firm. A dividend policy is a company's approach to distributing profits back to its owners or stockholders. If a company is in a growth mode, it may decide that it will not pay dividends, but rather re-invest its profits (retained earnings) in the business. If a company does decide to pay dividends, it must then decide how often to do so, and at what rate. Large, well-established companies often pay dividends on a fixed schedule, but sometimes they also declare "special dividends." The payment of dividends impacts the perception of a company in financial markets, and it may also have a direct impact on its stock price.Types if dividends:

There are three main approaches to dividends: residual, stability or a hybrid of the two.

Residual Dividend PolicyA policy in which the dividend paid is set equal to the actual earnings minus the amount of retained earnings necessary to finance the firms optimal capital budget.Companies using the residual dividend policy choose to rely on internally generated equity to finance any new projects. As a result, dividend payments can come out of the residual or leftover equity only after all project capital requirements are met. These companies usually attempt to maintain balance in their debt/equity ratios before making any dividend distributions, deciding on dividends only if there is enough money left over after all operating and expansion expenses are met.

For example, let's suppose that a company named CBC has recently earned $1,000 and has a strict policy to maintain a debt/equity ratio of 0.5 (one part debt to every two parts of equity). Now, suppose this company has a project with a capital requirement of $900. In order to maintain the debt/equity ratio of 0.5, CBC would have to pay for one-third of this project by using debt ($300) and two-thirds ($600) by using equity. In other words, the company would have to borrow $300 and use $600 of its equity to maintain the 0.5 ratio, leaving a residual amount of $400 ($1,000 - $600) for dividends. On the other hand, if the project had a capital requirement of $1,500, the debt requirement would be $500 and the equity requirement would be $1,000, leaving zero ($1,000 - $1,000) for dividends. If any project required an equity portion that was greater than the company's available levels, the company would issue new stock.

Dividend Stability PolicyPayment of a specific dollar dividend each year, or periodically increasing the dividend at a constant rate- the annual dollar dividend is relatively predictable by investors.The fluctuation of dividends created by the residual policy significantly contrasts with the certainty of the dividend stability policy. With the stability policy, quarterly dividends are set at a fraction of yearly earnings. This policy reduces uncertainty for investors and provides them with income.

Suppose our imaginary company, CBC, earned $1,000 for the year (with quarterly earnings of $300, $200, $100 and $400). If CBC decided on a stable policy of 10% of yearly earnings ($1,000 x 10%), it would pay $25 ($100/4) to shareholders every quarter. Alternatively, if CBC decided on a cyclical policy, the dividend payments would adjust every quarter to be $30, $20, $10 and $40, respectively. In either instance, companies following this policy are always attempting to share earnings with shareholders rather than searching for projects in which to invest excess cash.Constant payout ratio Payout of a constant percentage of earnings as dividends each year. A dividend policy based on the payment of a certain percentage of earnings to owners in each dividend period. The percentage of earnings paid to shareholders in dividends. It would possible for a industry to pay out a constant percentage of earnings, but because earnings surely will fluctuate, this policy would mean that the dollar amount of dividends would vary. For example, if Eastman Kodak had followed the policy of playing a constant percentage of earnings per share, say 40 percent, the dividends per share paid since 1978 would have fluctuated exactly the same as earnings per share. Low regular dividend plus extrasA policy of paying a low regular dividend plus a year end extra in good years is a compromise between a stable dividend and a constant payout rate. Such a policy gives the firm flexibility, yet investors can count on receiving at least a minimum dividend. Therefore, if a firms earnings and cash flows are quite volatileHybrid Dividend PolicyThe final approach is a combination between the residual and stable dividend policy. Using this approach, companies tend to view the debt/equity ratio as a long-term rather than a short-term goal. In today's markets, this approach is commonly used by companies that pay dividends. As these companies will generally experience business cycle fluctuations, they will generally have one set dividend, which is set as a relatively small portion of yearly income and can be easily maintained. On top of this set dividend, these companies will offer another extra dividend paid only when income exceeds general levels.Why do companies pay dividends?If investors have to pay higher taxes on dividends than in capital gains, then firms that pay dividends should have a higher cost of equity than firms that do not pay dividends.

Thus, why do firms pay dividends?

One argument to justify the payment of dividends is that dividends are cash in hand, while capital gains are cash in the bush. Capital gains to be received in the future should be riskier than the dividends received today.

Think about investor YES who invested in a firm that pays dividends and investor NO who holds shares of a firm that does not pay dividends. Is investor YES better off than investor NO? Investor YES receives the cash now, but what is she going to do with this cash? She might want to spend it, but investor NO could also sell her shares and spend the proceeds. If investor YES wants to invest the money she will face the appropriate level of risk.

It is important to remember that the value of the firm is equal to future cash flows discounted at the appropriate discount rate. There is no reason to think that the future cash flows will change with the dividend policy, and under the M&M assumptions, there is no reason to believe that the payment of dividends will change the discount rate.

How Companies Pay Dividends:Dividend payouts follow a set procedure. To understand it, first we'll define the following terms:1. Declaration DateThe declaration date is the day the company's board of directors announces approval of the dividend payment.2. Ex-Dividend DateThe ex-dividend date is the date on which investors are cut off from receiving a dividend. If, for example, an investor purchases a stock on the ex-dividend date, that investor will not receive the dividend. This date is two business days before the holder-of-record date.The ex-dividend date is important because from this date forward, new stockholders will not receive the dividend, and the stock price reflects this fact. For example, on and after the ex-dividend date, a stock usually trades at a lower price as the stock price adjusts for the dividend that the new holder will not receive.3. Holder-of-Record DateThe holder-of-record (owner-of-record) date is the date on which the stockholders who are eligible to receive the dividend are recognized.4. Payment Datelast is the payment date, the date on which the actual dividend is paid out to the stockholders of record.How to Optimize the Dividend Payout Ratio?Dividend-payout ratio optimized:Dividend policy like all business decisions can be optimized only in terms of the objectives that the financial management of the company is trying to achieve. The objective of financial management is to maximise the firms net present worth.

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This objective is a valid guide to financial decisions for all transactions not involving the transfer of assets between the corporate entity and the shareholders. For these external transactions the maximisation of the firms net present worth naturally results in the maximisation of the shareholders wealth.

However, in the case of dividend policy, since cash is transferred from the corporate entity to its shareholders, the wealth of the shareholders is measured not only by the value of their shares, but also by the amount of cash dividends that they receive. Therefore, maximisation of the firms net present worth may not result in the maximisation of the shareholders wealth.

For example, it is possible that a company can maximise its net worth and share prices by not paying any dividends at all. But such a dividend policy could actually reduce the wealth of the shareholders if the return on the retained earnings is lower than the rate at which investors capitalise the earnings of the company.

Share-price-maximisation is a necessary but not a sufficient condition for shareholders wealth maximisation. The reason for going beyond the share-price-maximisation goal is that dividend payments can at times reduce the market share price, and yet increase the shareholders wealth.

Shareholders wealth maximisation is a more fundamental goal since dividend payments are not meant to enlarge the supply of funds to the owners, but to increase their wealth.

Profitability of the Pharmaceutical Industry:The pharmaceutical market of Bangladesh very much dynamic and competitive and is comparable to those of developed countries. It is a matter of great pleasure that this sector successfully fulfils major portion of local demand of pharmaceutical products and at the same time it is moving forward to explore the international market for chemicals and pharmaceuticals products. The contribution of pharmaceuticals companies in Bangladesh to the national economy is encouraging. The investment in this sector is increasing which speaks about the potentiality in this sector. This sector satisfies the demand of the local market and also goes for export to explore the international market. Presently these industries exporting medicines to more than 50 countries of the world. Hence, the present study is initiated Profitability of Listed pharmaceuticals Companies: ACI Ltd, Ambee, Beximco, Beximco synthetics, Glaxo Smithkline Ibn Sina, Imam button, Keya cosmetics, Kohinoor chemicals, Libra Infusion, Orion infusion, Pharma Aids, Reckitt Benckiser,Reneta ltd And Squre pharmaceuticals& chemicals industry in Bangladesh with ten (10) years accounting period from 2004-2013. The study reveals that Pharmaceuticals Ltd should be considered as satisfactory its indicators of profitability. It can be concluded that the profitability of pharmaceutical companies is very much satisfactory as both of the companies according to the standard norms of profitability in terms of investment.

Conceptual Framework A descriptive statistical analysis has been carried out to find the mean values of these ratios for the pharmaceuticals companies, which is help to understand of finance and business structure of the firm, and the extent of their profitability. The standard deviation to be obtained from the descriptive statistics has also enabled the understanding of the variations of these values from the mean across different firms. It has revealed the extent of concentration of profitability otherwise amongst the firms under study.In the second phase of the analysis, Gross Profit Margin (GPM) has been considered as the dependent variable while SGA/SALES, INV/COGS, AR/SALES, AP/COGS AND DEP/SALES variables have been considered as the independent variables. This study has chosen Gross Profit Margin as the dependent variable because it is a direct measure ofProfitability; Gross Profit Margin reflects the financial health of a company. This accounting ratio expresses the proportion of funds left over from a firm's revenues after subtracting the Cost of Goods sold. To test whether ratios such as SGA/SALES, INV/COGS, AR/SALES, AP/COGS AND DEP/SALES are significant determinants of profitability or not, it

is necessary to examine their relationships against a ratio which is already a measure of profitability for the firms. For such reasons, Gross Profit Margin has been adopted as the measure of profitability of choice, and hence the dependent variable against which the independent variables will be tested. Gross Profit Margin is also an indicator of the core function of business for the pharmaceutical firms, and therefore would be a better measure of

Profitability for these studies than similar other ratios like Operating Margin. On the other hand, SGA/SALES, INV/COGS, AR/SALES, AP/COGS AND DEP/SALES were chosen as the independent variables because these ratios concern the Costs of Goods Sold and Sales aspects of the business of the pharmaceutical firm. Since Gross Profit Margin is related with

Cost of Goods sold; it makes sense to choose those financial ratios as independent variables which have some tangible relationship with these forces. The chosen independent variables of this study fulfill that goal.In another parts of this study, the Coefficient model has been applied to determine the degree of correlation between the dependent variable and the independent variables. It has been done to ensure that a certain level of linear relationship exists between the dependent variable and each of the independent variables. This is necessary because test these ratios as determinants for profitability of the pharmaceutical industry, a multiple regression analysis have to be carry out. This regression cannot give proper results if linear relationships do not exist between the dependent variable and each of the independent variable. Coefficient means these relationships are positive or negative .A positive relationship means increase or decrease in value of the independent variable will effect a corresponding change in the dependent variable On the other hand, a negative relationship denotes increase or decrease in value of the independent variable will effect an opposite change in the dependent variable. A regression model has been developed taking into account the assumed relationship between the dependent variable GPM and the independent variables which are SGA/SALES, INV/COGS, AR/SALES, AP/COGS AND DEP/SALES. Finally, a multiple regression analysis has been carried out upon the dependent variable and the independent variables to know the effects of the latter over the former. Specifically, this analysis has helped understand the significance of the assumed determinants over profitability of the pharmaceutical firms, and whether or not they are valid as determinants. The significance and validity of the model as a whole has also been revealed through this analysis. In the process, the study also tested the validity of a set of predetermined hypotheses, formed on the basis of null hypothesis concept. These hypotheses have established a greater understanding on the overall relationships between the dependent variable and each of the independent.The descriptive statistics analysis, the Pearson Coefficient model and the multiple regression analysis have all been carried out collecting necessary data from annual reports of the pharmaceutical firms under question, and by using IBM SPSS 20.0 software.No.Financial RatioMethod of Calculation

1Gross Profit MarginGross Profit/Sales

2SGA/SALESSelling & General Administrative Expenses/Net Sales

3INV/COGSAverage Inventory/Cost of Goods Sold

4AR/SALESAverage Accounts receivable/Net Sales

5AP/COGSAverage Accounts Payable/Cost of Goods Sold

6DEP/SALESDepreciation/Net Sales

Development of hypothesisIn the process of testing financial ratios to ascertain whether they are significant determinants of profitability for the pharmaceutical & Chemicals industry of Bangladesh, this study has designed a certain number of hypotheses, whose validity is to be verified in the course of analyzing the validity of the determinants. This study has developed the following hypotheses, and through regression analysis they will either be confirmed or rejected:

H1: SGA/SALES ratio has no significant relationship with Gross Profit Margin of the selected pharmaceutical companies.

H2: INV/COGS have no significant relationship with Gross Profit Margin of the selected pharmaceutical companies.

H3: No significant relationship exists between the ratio AR/SALES and Gross Profit Margin of the selected pharmaceutical companies.

H4: There is no significant relationship between AP/COGS and Gross Profit Margin of the selected pharmaceutical companies.

H5: DEP/SALES ratio has no significant relationship with Gross Profit Margin of the selected pharmaceutical companies.Development of profitability determinant model -regression model:

The study has taken Gross Profit Margin as the measure of profitability, or the dependent variable, while the rest has been considered as independent variables. To perform the regression analysis, taking into account all relevant factors, the following regression model has been developed:GPM = b0+ b1SGA/SALES + b2INV/COGS + b3AR/SALES + b4AP/COGS+b5DEP/SALES + eWhere,

GPM = Gross Profit MarginSGA/SALES = Selling and General Administrative Expenses/ Net Sales

INV/COGS = Average Inventory/Cost of Goods Sold

AR/SALES=Average Accounts Receivable/Net Sales

AP/COGS=Average Accounts Payable/Cost of Goods Sold.

DEP/SALES =Depreciation/Net Sales

Sample SelectionThe purpose of data analysis the annuals reports of these companies for the period of 2004 to 2013 were procured. The ten chosen companies are mentioned hereunder:

1. ACI Limited2. Ambee Pharmaceuticals3. Beximco4. Beximco Synthetics5. Glaxo Smithkline6. IBN SINA7. Imam Button Industry

8. Keya cosmetics9. Kohinoor Chemicals

10. Libra Infusion

11. Orion Infusion

12. Pharma Aids Ltd

13. Reckitt Benckiser

14. Reneta Ltd

15. Squre Pharmaceuticals

16. Water ChemicProfitability analysis:

Profitability analysis is a tool which is used as a way of analyzing the profitability of the company. There are many different ways for you to analyze profitability. We'll focus our attention on profitability ratios, which are a way to measure of the business' ability to generate revenue compared to the amount of expenses it incurs. Let's look at a few of the primary analytical approaches.

Profitability ratio:A profitability ratio is a measure of profitability, which is a way to measure a company's performance. Profitability is simply the capacity to make a profit, and a profit is what is left over from income earned after you have deducted all costs and expenses related to earning the income

Types of Profitability Ratios:Common profitability ratios used in analyzing a company's performance include gross profit margin (GPM), operating margin (OM), return on assets (ROA), return on equity (ROE), return on sales (ROS) and return on investment (ROI). Gross Margin:Gross margin talks about the profitability of companys goods and services. It says how it costs company produce the product .It is calculated by dividing companies gross profit by companies net sales and multiplying the quotient by 100,.

Profitability Ratio:Net Profit marginNet Profit margin = Net profit after tax/salesNet Profit margin ratio

Gross Profit margin ratio= Gross profit/sales

Return on Total Assets

Return on Total Assets = Net profits after taxes / total assetsReturn on common stock equity

Return on common stock equity = Net income / Common stockholders equit

Operating Profit Margin

Operating Profit Margin = Operating profits / Sales

Net profit margin