Sample Report

Assignment
On
Financial Management
(F206)
Focusing
On
Performance Analysis
Advanced Chemical Industries Limited

Date of Submission: May 13, 2006
FINANCIAL PERFORMANCE AND CHARACTERISTICS OF

PHARMACEUTICAL AND CHEMICAL INDUSTRY IN BANGLADESH:
MULTINATIONAL VERSUS DOMESTIC CORPORATIONS
by
Shoeb Ahmed
ID # 0330056
has been approved

May 2008
_________________
Dr. Osman Goni
Assistant Professor
School of Business
May 18, 2008

Dr. Osman Goni
Assistant Professor
School of Business,
Independent University, Bangladesh.
Dear Sir:
I, hereby, submit you the report on Financial Performance and Characteristics of
Pharmaceutical and Chemical Industry in Bangladesh: Multinational versus Domestic
Corporations, which has been prepared as a partial fulfillment of the degree Bachelors of
Business Administration.
This is the first time a study was performed comprehensively on my part and I have tried my
level best to complete the study in a proper way despite having limitations. It is hoped that proper
assessment will be done on my report considering the limitations of this study. Your benign and
authoritative advice will encourage me to conduct further flawless research in future.
Yours sincerely
____________
Shoeb Ahmed.
ID # 0330056
ACKNOWLEDGEMENT
In preparing the long and rigorous internship report, I acknowledge the encouragement and
assistance given by a number of people and institution. I am most grateful to the management of
GlaxoSmithKline Bangladesh Limited for gave me the opportunity to complete my internship in
their organization.
I would like to express my gratitude to my supervisor Dr. Osman Goni for providing me
detailed feedback and technical advice on this report. He always gave me his suggestions in
making this study as flawless as possible.
I would also like to render my sincere thanks to Mr. Sarwar Azam Khan (Finance Director),
Mr. Anisuzzaman (Finance Operation Manager) of GlaxoSmithKline Bangladesh Limited
providing me guidance, inspiration and above all flexibility of work.
Finally, I would like to thank Mr. A.N.M Giasuddin (Deputy Inspector), Law department,
Bangladesh Bank who had given me appointment from his precious time to collect data for my
report also helped me to understand many related matters.
Table of Content
Page
List of Tables
III
List of Figures
III
Executive Summary
IV
1.0 Introduction
1.1 Purpose of the Study
1.2 Problem Statement
1.3 Methodology
1.3.1 Research Approach
1.3.2 Sampling Procedure
1.3.3 Instrument
1.3.4 Data Collection
1.3.5 Data Analysis
1.4 Limitations
1.5 Significance of the Study
1.6 Research Timeline
2.0 Literature Review
2.1 Capital Asset Pricing Model
2.2 The Sharpe Measure
10
2.3 Standard Deviation
10
2.4 The Treynor Measure
11
2.5 Beta Coefficient
12
2.6 The Jensen Measure
13
2.7 Systematic Risk
15
2.8 Geometric Mean
16
2.9 Calculation of Geometric Mean
17
2.10 Portfolio
17
2.11 The Risk Free Rate
18
2.12 Capitalization Ratio
18
3.0 Analysis of Performance
19
3.1 Financial Performance
19
3.1.1 Sharpe Measure
19
3.1.2 Treynor Measure
19
3.1.3 Jensen Measure
20
3.2 Financial Characteristic
21
3.2.1 Debt Equity Ratio
21
3.2.2 Average Standard Deviation of Equity
22
3.2.3 Frequency Distribution of Beta
23
3.2.4 Average Total Assets
24
4.0 Summary and Discussion
26
5.0 Conclusion
28
References
29
Bibliography
30
Appendix
32
II
List of tables
1. Sharpe Measure of MNC and DMC
19
2. Treynor Measure of MNC and DMC
19
3. Jensen Measure of MNC and DMC
20
4. Debt equity ratio of MNC and DMC
21
5. Average Standard Deviation of Equity of MNC and DMC
22
6. Frequency Distribution of Beta of MNC and DMC
23
7. Average Total Assets of MNC and DMC
24
8. Correlational Matrix of MNC and DMC
25
9. Financial Performance Comparison of MNC and DMC
26
10. Systematic Risk () Comparison of MNC and DMC
26
11. T-bill Rate Comparison of Bangladesh and U.S Government
27
List of Figure
1. Graph of Markowitz Portfolio Selection
2. Graph of Capital Market Line
3. Diagram of Debt equity ratio of MNC and DMC
22
III
Executive Summary
The pharmaceutical and chemical industry is known as the fastest growing industry in
Bangladesh. At the side of multinational, domestic corporations have been improved range and
quality of their product. Multinational corporations (MNC) have established domineering
presence with advanced technological, financial and administrative base over domestic
corporations (DMC) in pharmaceutical and chemical industry. On the other hand, domestic
corporations have production cost advantage over multinationals operating in developed
countries. This research intends to evaluate systematically the differences of financial
characteristics and performance between multinational and domestic corporations utilizing
risk-adjusted performance measuring tools on the pharmaceutical and chemical industry in
Bangladesh. The risk-adjusted performance measuring tools are Sharpe, Treynor, Jensen
measure and debt equity ratio, average standard deviation of equity, frequency distribution of beta
and average total assets are used to define financial characteristic. The origin of the sample list is
the Dhaka Stock exchanges industry wise company list. Secondary data like: DSE general index,
risk free rate, stock price etc. have been used for the research. The researcher employed t-test to
find out the significant difference of financial characteristics and performance of two groups. The
researcher also employed correlation and regression analyses to explore any existing relationship
between the size and financial performance tools in context of Bangladesh. The result shows
MNCs are more risk-adjusted with lower returns and DMCs are less risk-adjusted with higher
returns. The report will help investors for better understanding the nature of MNCs and DMCs for
investment in pharmaceutical and chemical industry in Bangladesh. Few unusual findings are
observed and those would be issues for future research.
IV
1.0 Introduction
Pharmaceutical and chemical Industry has grown in Bangladesh in the last two decades at a
significant rate. The national companies account for more than 65% of the pharmaceutical and
chemical business in Bangladesh (www.pharmabiz.com). Following the Drug (Control)
Ordinance of 1982, some of the local pharmaceutical companies improved range and quality of
their products considerably. Square, Beximco, Acme, Incepta, Opsonin, ACI, General Pharma,
Ibn Sina are quite strong and enjoying good market share. Square currently is the number one
company in the industry and enjoys over 12% market share. (www.pharmabiz.com). However,
among the top 20 companies of Bangladesh six are multinationals including GlaxoSmithKline,
Sanofi-aventis, Reckitt Benckiser and Novartis. Almost all the life saving imported products and
new innovative molecules are channeled-into and marketed in Bangladesh through these
multinational companies. According to major economic indicator (2007), the export of
pharmaceutical and chemicals rose to US$ 123.47 million in 2005-06 financial years while it was
US$106.31 million in 2004-05 financial years. The country can expand its economic growth by
investing in their fast growing pharmaceutical and chemical industry which has an annual average
growth rate of 16% and a market size of BDT 30 billion in 2005 according to International
Management System (IMS). In Bangladesh, the production cost of drugs is much lower than that
of large MNCs operating in developed countries. This will give the local products a price
advantage in developed markets as well. On the other hand the multinationals are taking the
advantages of insufficient infrastructures, technological, financial and administrative base over
domestic corporations of pharmaceutical and chemical industry. Bangladeshs rapid expansion in
pharmaceuticals and chemicals was accompanied by huge investments mainly locally (Firdousi,
2005). Limited foreign investments flowed in through the setup of various multinational
Financial Performance & Characteristics of Pharmaceutical & Chemical Industry in Bangladesh: MNC vs. DMC
pharmaceutical and chemical companies (MNCs) that have established a domineering presence in
the local market today. At present, the multinationals have a market share of 15% (Hossain,
2003). This is a favorable trend for Bangladesh since the multinationals have not capitalized on
the local market but have just enough influence to transfer their technology and hire national
employees creating jobs. The establishment of the multinationals is prospective for Bangladesh. It
gives the local companies the opportunity to create partnerships and mergers with the MNCs.
Since the local companies can produce drugs at a cheaper rate due to low production costs, the
MNCs can outsource their export drug production to the local companies. This is an option that
Bangladesh should consider in order to maximize its growth potential. Therefore, the
multinational and domestic or national pharmaceuticals and chemical companies performances
are playing different role for the economy of Bangladesh. As a result, it is important how
multinational corporations (MNCs) and domestic or national corporations (DMCs) are
performing and differs from each other.
1.2 Purpose of the study
The main purpose of this study is to evaluate systematically the differences of financial
characteristics and performance between multinational and domestic corporations utilizing
risk-adjusted performance measuring tools on the pharmaceutical and chemical industry in
Bangladesh.
1.2 Problem Statement
According to Michel and Shaked (1986), if markets are not perfectly integrated, the
multinational corporations are performing a valuable function for investors. It has been frequently
argued that imperfections in the market for products translate into opportunities for MNCs. For
example, Hirsch (1979) suggested a cost saving that permits an increase in the export of
intermediate products as well as entry to markets of new products sharing production economies,
this incremental value of being able to arbitrage tax regimes (Agmon & Lessard, 1977). But the
most frequently cited disadvantage of MNCs is that they operate in a more complex environment
than their counterparts, DMCs. MNCs are always exposed to the criticism that they siphon funds
out of countries in which they do business. So, governments are liable to limit the companys
freedom to repatriate any of its profits. The performances of MNCs and DMCs were compared
by Gughes, Louge and Sweeney (1975) through various risk measures, such as systematic () risk
and unsystematic risk to find out whether MNC provides substantial diversification benefits.
Previous research conducted by Michel and Shaked (1986) compared standard MNCs and
DMCs performances through performance measures such as Sharpe, Treynor and Jensen
measures.
Therefore, the researcher intends to investigate the differences of financial characteristics and
performance between multinational corporations (MNCs) and domestic corporations (DMCs) in
context of pharmaceutical and chemical industry in Bangladesh.
1.3 Methodology
1.3.1 Research approach
Here in this study two portfolios group were formed. One was for MNCs and another was for
DMCs. After that portfolios performances were compared.
1.3.2 Sampling Procedure
As the previous research conducted by Michel and Shaked (1986) included only publicly held
company, so the researcher followed the procedure for the sampling. It facilitates of accounting
data accesses which is most reasonable and standardized information. The genesis of the sample
was the Dhaka Stock Exchange (DSE) industry-wise company list. There were total 25
pharmaceutical and chemical companies listed. There were other large MNCs operating in
Bangladesh, but they were not enlisted in DSE. Those companies are registered and operating in
more than one country is selected as sample for multinational companies. As only two
multinational companies (GlaxoSmithKline, Reckitt Benckiser) were there, so they were selected.
According to market share position of year 2006 top three DMCs were selected. They are Square
(15.01%), Beximco (10.28%) and ACI (3.31%).
1.3.3 Instrument
In this study the researcher tries to measure financial performance of MNC and DMC
portfolios through Sharp, Treynor and Jensen performance measurement tools and differentiate
their characteristics through capitalization ratio (debt equity ratio), standard deviation of equity
and frequency distribution beta. The measure tools are as follows:
Sharpe Measure,
Si =
RiG - RfG
Where,
RiG = Geometric average return on stock i
Rf G = Geometric average return on risk free Security
i = Standard deviation of yearly rates of return
Treynor Measure,
RiG - RfG
Ti =
Where,
RfG = Geometric average return on risk free security
i = Securitys beta
Jensen Measure,
= RiG - [ RfG + i ( RmG - RfG )]
Where,

i = Securitys beta
RmG = Geometric average market return
1.3.4 Data collection
For completing the study, secondary data were utilized. For secondary data collection:
companies annual reports, daily trading price of stock and DSE general index, Dhaka stock
exchanges library was used. The risk free rate (Rf), estimated by the monthly T-bill returns was
obtained from Bangladesh Banks website and online published report, like: Major Economic
indicator. Dhaka stock exchanges web site was also used to collect companies yearly
performance data.
1.3.5 Data analysis
For data analysis, the researcher adopted t-test to find out the significant differences of
risk-adjusted performances and financial characteristics of the two groups, MNCs and DMCs.
Financial characteristics of MNC and DMC portfolios were evaluated by some selected variables
like capitalization ratio (debt equity ratio), standard deviation of equity and frequency distribution
of beta. To find out whether average performance measures are influenced only because of their
size or not, regression analysis was performed. For regression analysis, performance measure
used as the dependent variable, size as independent variable. Other calculations like: standard
deviation, stock returns etc. Microsoft Excel was used. SPSS version 12 was used for statistical
analysis
1.4 Limitations
Pharmaceutical and chemical industry is so oversaturated and the number of market players is
so intense that it limits the opportunity to work extensively on the proposed research subject
during the internship period.
The limitations confronted while conducting the research were:
Availability of data was limited for which data of only six years has been incorporated.
There are good numbers of multinational and domestic pharmaceutical and chemical
companies are not listed under DSE but those are also key players in the market. Exclusion of
those companies for the study can be attributed not to reflect the real differences between them.
The proposed model of Michel and Shaked (1986) was measured on basis of monthly
return, but unavailability data of dividend and DSE general index on monthly or quarterly this
research study moved to the yearly return.
Only three DMCs are included for DMCs portfolio and equal weight method was used for
portfolio of both groups, which could be a limitation.
1.5 Significance of the study
The present research is remarkable in various aspects. First of all, it will help investors to
identify the nature of MNCs and DMCs and will also help to take decision regarding investment.
Secondly, future researcher would be able to extent the research by including other indicator.
Further more, for government or authorized department like Drug administration, Board of
Investment etc. it facilitate better understanding of the potentiality of the pharmaceutical and
chemical industry to contribute in development of an economy of a country like Bangladesh.
1.6 Research Timeline

2008 March
Writing Research Proposal
2008 April
Developing Literature Review
2008 April
Developing financial model
2008 April
Collecting pertinent data
2008 April
Analyzing data and interpret findings
2008 May
Preparing draft and finalize research paper
2.0 Literature Review

Any discussion of the theory of stock price behavior has to start with Markowitz (1952,
1959). The Markowitz model is a single-period model, where an investor forms a portfolio at the
beginning of the period. The investor's objective is to maximize the portfolio's expected return,
subject to an acceptable level of risk (or minimize risk, subject to an acceptable expected return).
The assumption of a single time period, coupled with assumptions about the investor's attitude
toward risk, allows risk to be measured by the variance (or standard deviation) of the portfolio's
return. Thus, as indicated by the arrow in Figure 1, the investor is trying to go as far northwest as
possible.
Figure 1: Markowitz Portfolio Selection
As securities are added to a portfolio, the expected return and standard deviation change in
very specific ways, based on the way in which the added securities co-vary with the other
securities in the portfolio. The best that an investor can do (i.e., the furthest northwest a portfolio
can be) is bounded by a curve that is the upper half of a hyperbola, as shown in Figure 1. This
curve is known as the efficient frontier. According to the Markowitz model, investors select
portfolios along this curve, according to their tolerance for risk. An investor who can live with a
lot of risk might choose portfolio A, while a more risk-averse investor would be more likely to
choose portfolio B. One of the major insights of the Markowitz model is that it is a security's
expected return, coupled with how it co-varies with other securities, that determines how it is
added to investor portfolios (http://www.dfaus.com/library/articles/explaining_stock_returns).
2.1 Capital Asset Pricing Model
Building on the Markowitz framework, Sharpe (1964), Lintner (1965) and Mossin (1966)
independently developed what has come to be known as the Capital Asset Pricing Model
(CAPM). This model assumes that investors use the logic of Markowitz in forming portfolios. It
further assumes that there is an asset (the risk-free asset) that has a certain return. With a risk-free
asset, the efficient frontier in Figure 1 is no longer the best that investors can do. The straight line
in Figure 2, which has the risk-free rate as its intercept and is tangent to the efficient frontier, is
now the northwest boundary of the investment opportunity set. Investors choose portfolios along
this line (the capital market line), which shows combinations of the risk-free asset and the risky
portfolio M. In order for markets to be in equilibrium (quantity supplied = quantity demanded),
the portfolio M must be the market portfolio of all risky assets. So, all investors combine the
market portfolio and the risk-free asset, and the only risk that investors are paid for bearing is the
risk associated with the market portfolio. This leads to the CAPM equation:
CAPM equation:
E(Rj) = Rf + j [E(Rm) - Rf]
E(Rj) and E(Rm) are the expected returns to asset j and the market portfolio, respectively, Rf is
the risk free rate, and j is the beta coefficient for asset j. j measures the tendency of asset j to covary with the market portfolio. It represents the part of the asset's risk that cannot be diversified
away, and this is the risk that investors are compensated for bearing. The CAPM equation says
that the expected return of any risky asset is a linear function of its tendency to co-vary with the
market portfolio. So, if the CAPM is an accurate description of the way assets are priced, this
positive linear relation should be observed when average portfolio returns are compared to
portfolio betas. Further, when beta is included as an explanatory variable, no other variable
should be able to explain cross-sectional differences in average returns. Beta should be all that
matters in a CAPM world.
Figure 2: Capital Market Line

Based on the capital market theory and recognizing the necessity to incorporate return and
risk into the analysis, three researchers William Sharpe, Jack Treynor, and Michael Jensen
developed measures of portfolio performance in the 1960s. These measures are often referred as
10
the composite (risk-adjusted) measures of portfolio performance, meaning they incorporate both
realized return and risk into the evaluation (Jones, 2004).
2.2 The Sharpe Measure
William Sharpe, introduce a risk-adjusted measure of portfolio performance called the rewardto-variability ratio (RVAR) based on his work in capital market theory, dealing specially with the
capital market line (CML). The Sharpe portfolio performance measure (designated by S) is stated
as follows:
Sharpe Measure,
Si =
Ri - Rf
Where,
Ri = Average return on stock i

Rf = Average return on risk free Security
i = Standard deviation of monthly/yearly rates of return
Shapes measure divides average portfolio excess return (or the return above the risk free rate)
over the sample provided by the standard deviation of returns over that period (Shapre, 1966). In
other words it seeks to measure the total risk of portfolio by including the standard deviation of
returns.
The Sharpe ratio is used to measure how well the return if an asset compensates the investor
for the risk taken. When comparing tow assets each with the average return against the same
benchmark with return Rf , the asset with higher Sharpe ratio gives more return for the same risk.
2.3 Standard Deviation
Standard deviation () is the statistical measure of the degree to which an individual value in a
probability distribution tends to vary from the mean of the distribution.
In finance, standard deviation is a representation of the risk associated with a given security
(stock, bonds, property, etc.) or the risk of a portfolio of securities. Risk is an important factor in
11
determining how to efficiently manage a portfolio if investments because it determines the

variations in returns on the assets and/or portfolio and gives investors a mathematical basis for
investment decisions. The overall concept of risk is that as it increases, the expected return on the
asset will increase as a result of the risk premium earned - in other words, investors should expect
a higher return on an investment when said investment carries a higher level of risk. As this study
is on historical data of stocks so, historical returns has been calculated and then standard
deviation or the returns has been calculated.
2.4 The Treynor Measure
At approximately the same time as Sharpes measure was developed (the mid 1960s), Jack
Treynor presented a similar measure called the reward-to-volatility ratio (RVOL). Like Sharpe,
Treynor sought to relate the return on a portfolio to its risk. Treynor, however, distinguished
between total risk and systematic risk. He used as a benchmark the ex-post security line.
Treynors measure relates the average excess return on the portfolio during some period to its
systematic risk as measured by the portfolios beta. The Treynor portfolio performance measure
(designated T) is stated as follows:
Ri - Rf
Treynor Measure,
Ti =
Where,

Rf = Average return on risk free security
i = Securitys beta
In measuring portfolio performance Treynor introduce the concept of the characteristic line,
which uses to partition a securitys return into its systematic and no systematic components. The
12
slope of the characteristic line measures the relative volatility of the funds returns. As we know,
the slope of this line is the beat coefficient, which is a measure of the volatility of the portfolios
returns in the relation to those of the market index (Treynor, 1965). A larger T value indicates a
larger slope and a better portfolio for all investors, regardless of their risk preferences. Because
the numerator of this ratio ( Ri - Rf ) is the risk premium and the denominator is a measure of
risk, the total express indicates the portfolios risk premium return per unit of the risk. All riskaverse investors would prefer to maximize this value.
2.5 Beta Coefficient
The beta coefficient () measures an investment's relative volatility or impact of a per-unit
change in the independent variable (market) on the dependable variable (portfolio) holding all
else constant.
The Beta coefficient, in terms of finance and investing, is a measure of volatility of a stock or
portfolio in relation to the rest of the financial market
(http://en.wikipedia.org/wiki/Beta_%finince%29). An asset with a beta of 0 means that its price is
not at all correlated with the market; that asset is independent. A positive beta means that the
asset generally follows the market. A negative beta shows that the asset inversely follows the
market; the asset generally decreases in value if the market goes up. By definition, the market
itself has an underlying beta of 1.0, and individual stocks are ranked according to how much they
deviate from the macro market (for simplicity purposes, the DSE general index is usually used as
a proxy for the market as a whole). A stock that swings more than the market (i.e. more volatile)
over time has a beta above 1.0. If a stock moves less than the market, the stock's beta is less than
1.0. More specifically, a stock that has a beta of 2 follows the market in an overall decline or
growth, but does so by a factor of 2; meaning when the market has an overall decline of 3% a
stock with a beta of 2 will fall 6%. (Betas can also be negative, meaning the stock moves in the
13
opposite direction of the market: a stock with a beta of -3 would decline 9% when the market
goes up 3% and conversely would climb 9% if the market fell by 3 %.)
The beta coefficient is a key parameter in the capital asset pricing model (CAPM). It
measures the part of the asset's statistical variance that cannot be mitigated by the diversification
provided by the portfolio of many risky assets, because it is correlated with the return of the other
assets that are in the portfolio. Higher-beta stocks mean greater volatility and are therefore
considered to be riskier, but are in turn supposed to provide a potential for higher returns; lowbeta stocks pose less risk but also lower returns. In the same way a stock's beta shows its relation
to market shifts, it also is used as an indicator for required returns on investment (ROI).
The beta movement should be distinguished from the actual returns of the stocks. For
example a sector may be performing well and may have good prospects, but the fact that its
movement does not correlate well with the broader market index may decrease its beta. However,
it should not be taken as a reflection on the overall attractiveness or the loss of it for the sector, or
stock as the case may be. Beta is a measure of risk and not to be confused with the attractiveness
of the investment.
2.6 The Jensen Measure
The measure was first used in the evaluation of mutual fund managers by Michael Jensen in
the 1970s. In finance, Jensens alpha or Jensens measure is used to determine the excess return
of a stock, other security, or portfolio over the securitys required rate of return as determined by
the Capital Asset Pricing Model. This model is used to adjust for the level of beta risk, so that
riskier securities are expected to have higher returns. (http://en.wikipedia.org/wiki/Jensen_ratio).
Jensen Measure,
Ri
14
= Rf + i [ Rm - Rf ]
Where,

Rf = Average return on risk free security
i = Securitys beta
Rm = Average market return
This equation indicate that the realized rate of return on a security or portfolio should be a
linear function of the risk free rate of return, plus a risk premium that depends on the systematic
risk of the security. By subtracting risk free return from both sides we get following equation:
Ri - Rf
= i [ Rm - Rf ]
Where,
Ri - Rf
= The risk premium on the stock i
In this form, it would not be expected any interception for the regression if all assets and
portfolio were in equilibrium. Alternatively, certain superior portfolio managers who could
forecast market turns or consistently select under valued securities would earn higher risk
premiums than those implied by this model. To detect and measure this superior and/ or inferior
performance Jensen agreed to add an intercept (a non-zero constant) term (alpha) that measures
any positive and/or negative differences from the model. Consistent positive difference would
case a positive intercept, whereas consistent negative differences cause a negative intercept. So
with an intercept the earlier equation becomes:
Ri - Rf
= i + i [ Rm - Rf ]
Superior performances will evident by significantly positive alpha and inferior performances
will evident by significantly negative alpha. If alpha is insignificantly different from zero, this
15
evidence that the portfolio manager matched the market on a risk-adjusted basis. Now to better
demonstrate what i (alpha) is, the above equation can be rearrange like bellow:
i = (Ri - Rf ) {i [ Rm - Rf ]}
So finally the equation becomes as bellow:
= Ri - [ Rf + i ( Rm - Rf )]
A computable advantage of the Jensen measure is that it permits the performance measure to
be estimated simultaneously with the beta for a portfolio. That is by estimating a characteristic
line in risk premium form, estimates of both alpha and beta are obtained at same time (Jones,
2004). A positive alpha of 1.0 means the fund has outperformed its benchmark index by 1%.
Correspondingly, a similar negative alpha would indicate an underperformance of 1%. However,
unlike the Sharpe and Treynor measures, each periods returns must be used in estimating process
rather than an average return for the entire period. Thus, if performance is being measured on an
annual return on Rf, Rm and Ri must be obtained.
2.7 Systematic risk
Systematic risk is a risk that cannot be diversified away, as opposed to "idiosyncratic risk,
which is specific to individual stocks (http://en.wikipedia.org/wiki/Systemic_risk). It also called
market risk or undiversified risk. It refers to the movements of the whole economy. Even if we
have a perfectly diversified portfolio there is some risk that we cannot avoid and this is the
systematic risk. However, the systematic risk is not the same for all securities or portfolios.
Different companies respond differently to a recession or a booming economy. For an example
think of the automobile industry compared to the food industry in case of a recession. Both of
them will be affected negatively but food industry not as much as automobile industry.
16
2.8 Geometric Mean

Measuring the investment return generally arithmetic average is used but the pervious study
used geometric average. Though, the geometric average always gives lower value than arithmetic
average. The geometric average is used because the effect of the negative returns of a stock is
fully offsets by its calculation, which is not true for the arithmetic average. In general, the bad
returns have the grater influences on the averaging process in the geometric technique. So
geometric average will be appropriate for this study and finally the measure tools will be as
follows:
Si =
Sharpe Measure,
Where,
RiG - RfG

Rf G = Geometric average return on risk free Security
i = Standard deviation of monthly/yearly rates of return
Treynor Measure,
Ti =
Where,
RiG - RfG
i

i = Securitys beta
Jensen Measure,
Where,

= RiG - [ RfG + i ( RmG - RfG )]
17
i = Securitys beta
RmG = Geometric average market return
2.9 Calculation of geometric mean
The geometric mean, in mathematics, is a type of mean or average, which indicates the central
tendency or typical value of a set of numbers. It is similar to the arithmetic mean, which is what
most people think of with the word "average," except that instead of adding the set of numbers
and then dividing the sum by the count of numbers in the set, n, the numbers are multiplied and
then the nth root of the resulting product is taken (http://en.wikipedia.org/wiki/Geometric_mean).
But it is very obvious that returns of stock can be negative or zero. So to calculate the geometric
mean along with the negative return, it requires that the negative values be converted or
transformed to a meaningful positive equivalent value. For example, to calculate the geometric
mean of the values +12%, -8%, and +2%, instead calculate the geometric mean of their decimal
multiplier equivalents of 1.12, 0.92, and 1.02, to compute a geometric mean of 1.0167.
Subtracting 1 from this value gives the geometric mean of +1.67% as a net rate of population
growth (or financial return).
2.10 Portfolio
Portfolio means a combination of different securities with different returns and standard
deviations, which actually minimize the risk and maximize the return. Holding a portfolio is a
part of an investment and risk-limiting strategy called diversification (Investmentpedia.com). The
assets in the portfolio could include stocks, bonds, options, warrants, gold certificates, future
contracts or any other that is expected to retain its value.
18
2.11 The risk-free rate

The risk-free rate is the current interest rate on a default-free bond in the absence of inflation.
The risk-free interest rate is the interest rate that it is assumed can be obtained by investing in
financial instruments with no default risk. However, the financial instrument can carry other types
of risk, e.g. market risk (the risk of changes in market interest rates), liquidity risk (the risk of
being unable to sell the instrument for cash at short notice without significant costs) etc. Though a
truly risk-free asset exists only in theory, in practice most professionals and academics use shortdated government bonds of the currency in question. Usually government Treasury bills are used
for investment. The risk-free interest rate is thus of significant importance to modern portfolio
theory in general, and is an important assumption for rational pricing. It is also a required input in
financial calculations, such as the Sharpe, Treynor, and Jensen formula for measuring volatility of
portfolio. Note that some finance and economic theory assumes that market participants can
borrow at the risk free rate; in practice, of course, very few borrowers have access to finance at
the risk free rate.
2.12 Capitalization
Capitalization is a measure of a corporation's reliance on long-term debt. These ratios compare
debt to shareholders' equity and thus reflect the extent to which a corporation is trading on its
equity. This ratio is calculated by dividing debt by shareholders' equity. It also called debt to
equity ratio (www.investmentpedia.com/finance/cap_ratio).
19
3.0 Analysis of Performance

3.1 Financial Performance
The measures of financial performance are exhibited by three tables for the both MNC and
DMC portfolios. Several observations are promptly noticeable.
3.1.1 Sharpe Measure
Table 1
Sharpe Measure of MNC and DMC
Sharpe Measure
2000-2002
2001-2003
2002-2004
2003-2005
2004-2006
MNCs
3.92
3.20
4.93
4.11
1.81
DMCs
10.64
3.33
2.45
32.79
9.14
The table 1 is presenting Sharpe measure of MNC and DMC portfolio, where DMC portfolio
is higher than MNC portfolio almost each of the five time periods. Therefore DMC portfolio is
obtaining higher return than MNC portfolio. In other word, DMC portfolio is compensating in a
good way of the risk taken by the investors.
3.1.2 Treynor Measure
Table 2
Treynor Measure of MNC and DMC
Treynor Measure
2000-2002
2001-2003
2002-2004
2003-2005
2004-2006
MNCs
0.76
0.89
2.74
2.5
4.38
DMCs
-2.76
-1.02
-2.16
12.10
17.21
Treynor measure is demonstrated by Table 2. All the risk-averse investors would prefer to
maximize the Treynor value. But the denominator () of the Treynor equation measures the
volatility of the portfolio in relation to the rest of the market. The T value of the DMC portfolio is
greater than the MNC portfolio almost over each of the five time periods. Though, the T values of
20
the DMC portfolio are greater than the MNC, the DMC portfolio is inversely correlated to the rest
of the market. The beta of the DMC portfolio is negative over 2000 to 2004 time periods.
Therefore, the DMC portfolio is much more volatile than the MNC portfolio, hence they are
considered more risky than the MNC portfolio. Some of that high return can be explained by their
higher volatility.
3.1.3 Jensen Measure
In table 3 Jensen measure of MNC and DMC portfolio is displayed. Here in Jensen measure
the value of DMC portfolio is superior to MNC portfolio almost over the each time periods. As
the Jensen model adjust the level of risk for the level of beta and thats why the riskier portfolios
are expected to have higher excess returns. Therefore, DMC portfolio is riskier as well as giving
higher excess returns.
Table 3
Jensen Measure of MNC and DMC
Jensen Measure
2000-2002
2001-2003
2002-2004
2003-2005
2004-2006
MNCs
2.94
2.71
2.55
2.50
3.54
DMCs
6.04
5.26
4.81
3.35
3.55
The previous researchers Michel and Shaked (1986) conclude that domestic corporations
(DMC) performances have a superior risk-adjusted performance. While Hughes, Logue and
Sweeney (1975) showed that multinational corporations (MNC) performances are more riskadjusted with higher return than domestic corporations (DMC). Interestingly, this study reveals
that domestic corporations (DMC) are less risk-adjusted with higher returns whereas
multinational corporations (MNC) are more risk-adjusted with lower returns. T-test is performed
separately for each performance measure. The result does not show any significant differences
21
between the groups for both Sharpe and Jensen measure. The result of t-test of Treynor
measurement of the two samples significantly differs at a level of p < 0.001.
3.2 Financial Characteristic
The Financial characteristic of two groups is presented by four tables. The selected variables
for the financial characteristic are debt equity ratio as a capitalization ratio, average standard
deviation of equity, frequency distribution of beta and average total asset.
3.2.1 Debt equity ratio
Table 4
Debt equity ratio of MNC and DMC
2006
2005
2004
2003
2002
2001
2000
MNCs
0.115
0.085
0.095
0.115
0.115
0.120
0.095
DMCs
0.221
0.303
0.323
0.254
0.095
0.125
0.135
The table 4 is demonstrating debt equity ratio of MNC and DMC portfolios. The previous
study demonstrates that MNCs are highly leveraged than DMCs. But the present study finds out
that DMCs are more leveraged rather than MNCs. The higher debt equity ratio of DMCs reflects
the higher borrowed fund in the capital structure. This might be an explanation of the higher
volatility of DMCs portfolio than MNCs. Further more, MNC can reduce the total risk:
operational and financial risk, by diversifying internationally at the corporate level. The range of
the debt equity ratio of MNC is 0.085 to 0.12, whereas the range of DMC is 0.095 to 0.303.
Result of the t-test indicates that the debt equity ratio of the two samples significantly differs at a
level of p < 0.001.
22
Figure 3: Debt equity ratio

3.2.2 Average Standard Deviation of Equity
Table 5
Average Standard Deviation of Equity of MNC and DMC
2000-2002
2001-2003
2002-2004
2003-2005
2004-2006
MNCs
0.005
0.010
0.070
0.070
0.02
DMCs
0.986
0.290
0.531
1.214
1.625
The above table provides the average standard deviation of equity for the two groups. As
indicated by the results, the average standard deviation of equity of the DMCs is consistently
higher than MNCs. A t-test was performed which indicate the average standard deviation of the
two samples are significantly differs at a level of p < 0.05. The lower equity-variability reported
for the MNC portfolio is consistent with the theoretical hypothesis on total risk reduction. The
result of the standard deviation of equity of the present study similar with the empirical findings
reported by Hughes et al. (1975) as well as with the previous research reported by Michel and
Shaked (1986).
23
3.2.3 Frequency Distribution of Beta

Table 6
Frequency Distribution of Beta of MNC and DMC
Range
MNC
DMC
-4 -
-3
0.20
-2 -
-1
0.40
0.20
0.40
-1
0.40
0.40
2.05
-1.69
Mean beta
The table 6 is presenting the frequency distribution of beta. After frequency distribution of
betas of the two portfolios, it reveals that 60 percent of DMC portfolios beta is under negative
range and 80 percent of MNC portfolios beta is under positive range. Furthermore the mean of
betas of MNC and DMC portfolios are respectively 2.05 and -1.69. The results are clearly
suggestive. As most of the values of beta of MNC portfolio falls under positive range and close to
markets beta, they should have lower systematic risk. On the other hand most of the value of
beta of DMC portfolio falls under negative range; they should have higher systematic risk.
This might be one of the explanations of low returns for MNCs and high returns for DMCs.
The result of lower systematic risk of MNC is also supported by Hughes et al (1975), Rugman
(1977) and Agmon and Lessard (1977).
24
3.2.4 Average Total Assets

Table 7
Average Total Assets of MNC and DMC
2000-2002
2001-2003
2002-2004
2003-2005
2004-2006
MNCs
6131.33
6562.16
6871.00
7448.87
7853.94
DMCs
4661.64
4254.13
4828.00
5807.56
6827.74
*million in TK
By using asset as a variable the size of the portfolios is measured. The above table indicates
the average size of multinational corporations (MNC) is higher compared to the domestic
corporations (DMC). As a consequence it is necessary to test whether average performance
measures of the two groups differ because of the size effect. Miller and Pras (1979) reported
through regression result that size is a significant explanatory variable for performances. The
pervious study conducted by Michel and Shaked (1986) reported that size is not a significant
variable in any case as well as for observed differences in the two groups performance.
Similarly, the present study reveals the size can not explain observed differences in the two
groups performance.
A correlation analysis has been conducted on all the performance tools and size as variables
to explore the relationship among variables. For interpreting the strength of relationships among
variables, the guideline suggested by Rowntree (1981) has been followed; and the classification
of the correlation coefficient (r) is as follows:
25
0.0
to
0.2
Very weak, negligible
0.2
to
0.4
Weak, low
0.4
to
0.7
Moderate
0.7
to
0.9
Strong, high marked
0.9
to
1.0
Very strong, very high
The bi-variate correlation procedure was a subject to a two tailed test of statistical significance
at two different levels highly significant (p<. 001) and significant (p<. 01) or (p<.05). The results
of the correlational analysis are shown in Table 8. The result shows that size has a moderate
correlation but not significantly.
Table 8
Correlational Matrix for Sharpe, Treynor, Jensen Measure and Size of MNC and DMC
Correlations
Sharpe
Sharpe
-.220
.537
Sig. (2-tailed)
.110
.541
.110
10
10
10
10
Pearson Correlation
.536
.046
.437
Sig. (2-tailed)
.110
.899
.207
10
10
10
10
-.220
.046
-.306
.541
.899
.390
Pearson Correlation
Sig. (2-tailed)
N
size
size
.536
N
Jensen
Jensen
N
Treynor
Treynor
Pearson Correlation
10
10
10
10
Pearson Correlation
.537
.437
-.306
Sig. (2-tailed)
.110
.207
.390
10
10
10
10
4.0 Summary and Discussion

For better understanding of MNC and DMC portfolios performances the researcher have to
compare the return of measures. The comparison is given bellow:
Table 9
Financial Performance Comparison of MNC and DMC
Measurement Tool
Sharpe Measure
MNC
(GOOD)
-
DMC
(GOOD)
Treynor Measure
Jensen Measure
The above table shows that returns of all measure of DMC portfolio are better than MNC
portfolio. Therefore DMC portfolio could be considered as attractive option if we disregard of
risk factor.
The following table illustrates the riskiness of the portfolios. As the result of frequency
distribution of beta shows that the DMC portfolio is more risky than MNC portfolio.
Table 10
Systematic Risk () Comparison of MNC and DMC
Less Risky
More Risky
MNC
DMC
It is obvious that the results and findings of the study could be momentary and even an
incident. According to Hassan, Islam and Basher (2000), the Dhaka Stock exchange is an
inefficient capital market. The present study collected the trade prices of stocks from DSE.
26
27
Therefore it would not be sensible to recommend which portfolio would be attractive or risky
between MNC and DMC portfolios. Moreover, the study observed a few negative betas of DMC
portfolio, which is unusual for the pharmaceutical and chemical industry. May be over short
periods luck can over shadowed all else, but luck can not be expected to continue.
Table 11
T-bill Rate Comparison of Bangladesh and U.S Government
Month
Bangladesh T-bill Rate
U.S T-bill Rate
November 07
7.30
4.48
December 07
7.33
3.98
January 08
7.29
3.74
February 08
7.35
2.70
March 08
7.33
2.23
Source: http://www.federalreserve.gov/releases/H15/data/Business_day/H15_NFCP_M1.txt
http://www.bangladesh-bank.org/selectedecooind/magecoind.pdf
T-bill rates of Bangladesh are much higher than any other country. It is almost double than
U.S. Hence is Bangladesh government discouraging investment? Or is there no strong
coordination between policy-makers and other related department? Most of the multinational
corporations as well as better performed domestic corporations are not listed under Dhaka Stock
Exchange. But those companies are also key players in the market. Therefore are MNCs making
profit here and drain it outside of the country? Is Bangladesh government thoughtless about the
unlisted companies on encouraging and imposing rules to be listed under DSE? How much DSE
is inefficient and trustworthy of DSE data? Will the investment decision be reliable and
profitable based on DSE data?
28
5.0 Conclusion
A serious study is necessary on the issue of higher interest payment for T-bill by Bangladesh
government. It is also necessary to check, whether any substantial diminish in investment for the
higher T-bill rate. Bangladesh Bank, Board of Investment, Security Exchange Commission (SEC)
and other related department should have strong coordination for both policy-making and
imposing. Without proper coordination among the departments it is not possible to come up with
the best solution. Bangladesh government should be caring for the growing domestic
pharmaceutical and chemical companies. In addition, government is liable to limit the
multinational companies freedom to repatriate of its profits. Furthermore, government should
encourage and facilitate those unlisted companies to be listed under DSE. SEC should take bold
steps to make an efficient capital market in Bangladesh as soon as possible. However, Rome was
not built in a day.
References
Annual report (2000-2006): Advance Chemical Industry.
Annual report (2000-2006): Beximco Pharmaceutical Ltd.
Annual report (2000-2006): GlaxoSmithKline Bd. Ltd.
Annual report (2000-2006): Reckitt Benckiser Bd. Ltd.
Annual report (2000-2006): Square Pharmaceutical Ltd.
Alexander, G.J., Bailey, J.V. & Sharpe, W.F. (2003). Investment (6th ed.). Prentice Hall India:
India.
Beta coefficient
Retrieved from http://en.wikipedia.org/wiki/Beta_%finince%29
Bodie, Z., Kane,A. & Marcus, A.J. (2003). Investments (5th ed.). McGraw-Hill: New Delhi.
Dhaka stock exchanges industry wise company list.
Retrieved from: http://www.dsebd.org/industrylisting.php
Jensens Alpha
Retrieved from http://en.wikipedia.org/wiki/Jensen_ratio
Jones, C.P. (2004). Investment analysis and management. (9th ed.) John Wiley & Sons Inc.
Major Economic Indicator (March, 2008).
Retrieved from: http://www.bangladesh-bank.org/selectedecooind/magecoind.pdf
Rahman, H. The Growth of the Pharmaceutical Sector.
Retrieved from: http://www.ais-dhaka.net/School_Library/Senior%20Projects/
06_rahman_pharmaceuticals.pdf
Sharp ratio
Retrieved from http://en.wikipedia.org/wiki/Sharpe_ratio
Standard deviation
Retrieved from http://en.wikipedia.org/wiki/Standard_deviation
Systemic risk
Retrieved from http://en.wikipedia.org/wiki/Systemic_risk
Treynor ratio
Retrieved from http://en.wikipedia.org/wiki/Treynor_ratio
29
30
Bibliography
Ahmed, M. (2004). Effects of regulation on Pharmaceutical Market in Bangladesh.
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Bangla Pharma Waiting in the wings. (Thursday, January 27, 2005).
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articleid=25947%sectionoid=50.
Davis, J. L. (2001). Explaining Stock Returns: A Literature Survey. Retrieve from:
http://www.dfaus.com/library/articles/explaining_stock_returns/
Grinblatt, M., & Titman, S. (1994). A Study of Monthly Mutual Fund Returns and Performance
Evaluation Techniques. The Journal of Financial and Quantitative Analysis, 29 (3), 419444.
Hassan, M.K., Islam, M.A. and Basher, S.A., (2000). Market efficiency, time-varying volatility
and equity returns in Bangladesh stock market. Retrieve from:
http://129.3.20.41/eps/fin/papers/0310/0310015.pdf
Horowitz, I. (1966). The "Reward-to-Variability" Ratio and Mutual Fund Performance. The
Journal of Business, 39 (4), 485-488.
Hughes, J. S., D. E. Logue, & R. J. Sweeney. (1975). Corporate International Diversification and
Market Assigned Measures of Risk and Diversification. Journal of Financial and
Quantitative Analysis. 32 (1), 39 46
IMS Global Insights- An Eye on The World of Pharma. (2005).
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Jensen, G. M. (1968). The performance of Mutual Funds in the Period 1945 -1964. Journal of
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Litzenberger, R. H. (1991). William F. Sharpe's Contributions to Financial Economics. The
Scandinavian Journal of Economics, 93 (1), 37-46.
Miller, J. & Pras, R. (1979). The Effecls of Multinational and Lxport Diversification on the Profit
Stability of U.S. Corporations. Southern Economic Review. 46 (1), 49-75.
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http://www.pharmabiz.com/article/detnews.asp?articleid=25948&sectionoid=50
Reeb, D. M., Kwok, C. C. Y., & Baek, H. Y. (1998). Systematic Risk of the Multinational
Corporation. Journal of International Business Studies, 29 (2), 263-279.
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management. 43, 63-75.
Appendix
32
Table 12
Excess Market Return
Market Return
Year
(General Index Return)
T-bill return
Excess Return (Rm Rf )
2000
0.184248835
0.037398374
0.146850461
2001
0.272468414
0.064220183
0.20824823
2002
0.005563776
0.170087977
-0.164524201
2003
0.176982757
0.017925736
0.15905702
2004
1.03672976
0.0125
1.02422976
2005
-0.149119114
0.722772277
-0.871891391
2006
-0.040444749
0.047142857
-0.087587606
Table 13
Excess Return of DMC Portfolio
Year
DMC Portfolio Return
T-bill return
Excess Return(Rp Rf )
2000
6.089387971
0.037398374
6.051989597
2001
5.434761136
0.064220183
5.370540953
2002
6.540355521
0.170087977
6.370267545
2003
3.595000944
0.017925736
3.577075208
2004
3.469296702
0.0125
3.456796702
2005
3.672785864
0.722772277
2.950013587
2006
4.219940493
0.047142857
4.172797636
33
Table 14
Excess Return of MNC Portfolio
Year
MNC Portfolio Return
T-bill return
Excess Return(Rp Rf )
2000
3.358652766
0.037398374
3.321254392
2001
4.149126249
0.064220183
4.084906065
2002
2.524016865
0.170087977
2.353928889
2003
2.677421892
0.017925736
2.659496155
2004
3.585044134
0.0125
3.572544134
2005
2.359289362
0.722772277
1.636517085
2006
6.155215181
0.047142857
6.108072324
34
Table 15
Geometric Mean calculation and Standard deviation of T-bill, Market return, MNC and DMC
Portfolios return
Portfolio return Of
Portfolio return of
Market
Year
MNC
DMC
T-bill Return
Return
2000-2002
Geometric Mean
3.276458486
6.004153972 1.089093561
1.148593971
Standard Deviation
0.812654695
0.555914707 0.089093561
0.148593971
2001-2003
Geometric Mean
3.038005605
5.036864589 1.082236144
1.146240045
Standard Deviation
0.897257611
1.487849124 0.082236144
0.146240045
2002-2004
Geometric Mean
2.893573531
4.336911928 1.064412292
1.34082174
Standard Deviation
0.573453006
1.737925843 0.064412292
0.34082174
2003-2005
Geometric Mean
2.829203426
3.578041335 1.210913164
1.268208791
Standard Deviation
0.636063572
0.102680645 0.210913164
0.268208791
2004-2006
Geometric Mean
3.73398858
3.774398864 1.222389508
1.184742736
Standard Deviation
1.937236296
0.388212169 0.222389508
0.184742736
35
Table 16
Beta of MNC Portfolio
Year
Excess Return of MNC

(Rp - Rf)
Excess Return of Market

(Rm - Rf)
2000
3.321254392
0.146850461
2001
4.084906065
0.20824823
2002
2.353928889
-0.164524201
2001
4.084906065
0.20824823
2002
2.353928889
-0.164524201
2003
2.659496155
0.15905702
2002
2.353928889
-0.164524201
2003
2.659496155
0.15905702
2004
3.572544134
1.02422976
2003
2.659496155
0.15905702
2004
3.572544134
1.02422976
2005
1.636517085
-0.871891391
2004
3.572544134
1.02422976
2005
1.636517085
-0.871891391
2006
6.108072324
-0.087587606
Beta Of MNC
(Slope)
4.144420355
3.308847697
1.031367015
1.020136446
0.800315558
36
Table 17
Betas of DMC Portfolio
Year
Excess Return of DMC

(Rp - Rf)
Excess Return of Market

(Rm - Rf)
2000
6.051989597
0.146850461
2001
5.370540953
0.20824823
2002
6.370267545
-0.164524201
2001
5.370540953
0.20824823
2002
6.370267545
-0.164524201
2003
3.577075208
0.15905702
2002
6.370267545
-0.164524201
2003
3.577075208
0.15905702
2004
3.456796702
1.02422976
2003
3.577075208
0.15905702
2004
3.456796702
1.02422976
2005
2.950013587
-0.871891391
2004
3.456796702
1.02422976
2005
2.950013587
-0.871891391
2006
4.172797636
-0.087587606
Beta Of DMC
(Slope)
-2.142885823
-4.828729178
-1.972889166
0.278051583
0.206349883
37
38
Table 18
Result of the Measurement of MNC Portfolio
Measurement Tool
Sharpe Measure
2000-2002
2001-2003
2002-2004
2003-2005
2004-2006
3.92216392 3.294226121 4.933553766 4.116397131 1.812684946
Treynor Measure
0.769073755
Jensen Measure
2.940770216
0.89329269
2.74311782 2.566607902 4.387768096
2.7439903 2.544081651 2.559840905 3.541728369
Table 19
Result of the Measurement of DMC Portfolio
Measurement Tool
2000-2002
Sharpe measure
10.6402301
3.33006107
2.458390071 32.79223821
9.149660006
Treynor Measure
-2.7603246
-1.02607296
-2.165605504 12.10972486
17.21352734
6.042563
5.263685949
4.817824843 3.351197032
3.559777763
Jensen measure
2001-2003
2002-2004
2003-2005
Table 20
Debt equity ratio Of MNC and DMC portfolios
Year
DMC
MNC
2006
0.221
0.115
2005
0.303
0.085
2004
0.323
0.095
2003
0.254
0.115
2002
0.095
0.115
2001
0.125
0.120
2000
0.135
0.095
2004-2006
Table 21
Total assets of Companies
2006
2005
2004
2003
2002
2001
2000
2915
2674
1978
1675
1334
1028
9913
11913
10945
8560
8013
6763
6360
5411
Square
9299
7908
5877
5164
4526
3811
3234
DMC Portfolio
7962
7104
5417
4901
4166
3696
6124
11096
11728
11038
11119
8955
8460
7987
Reckitt Benckiser
5587
3787
3887
3134
3093
4612
3681
MNC Portfolio
8342
7758
7463
7127
6024
6536
5834
ACI
Beximco
GSK
Table 22
Average Total Assets of MNC and DMC Portfolios
Year
MNC
DMC
2000-2002
6131.333333
4661.644705
2001-2003
6562.166667
4254.139508
2002-2004
6871.000
4828.002874
2003-2005
7448.876667
5807.560938
2004-2006
7853.943333
6827.747111
39
40
T-Test
Group Statistics
Type
Sharpe
Treynor
Jensen
Mean
Std. Deviation
Std. Error Mean
MNC
3.5960
1.17496
.52546
DMC
11.6700
12.32964
5.51398
MNC
2.2640
1.49463
.66842
DMC
4.6560
9.29188
4.15545
MNC
72.9480
157.11293
70.26304
DMC
4.6020
1.14218
.51080
Independent Samples Test
Levene's Test
for Equality of
Variances
F
Sig.
t-test for Equality of Means

t
Sig.
(2tailed)
df
Mean
Differen
ce
Std. Error
Difference
95% Confidence
Interval of the
Difference
Lower
Sharpe
Treynor
Jensen
Equal
variances
assumed
Equal
variances
not
assumed
Equal
variances
assumed
Equal
variances
not
assumed
Equal
variances
assumed
Equal
variances
not
assumed
4.537
30.326
6.995
.066
.001
.029
Upper
1.458
.183
8.0740
0
5.53896
20.846
87
4.6988
7
1.458
4.073
.217
8.0740
0
5.53896
23.345
05
7.1970
5
-.568
.585
2.3920
0
4.20887
12.097
67
7.3136
7
-.568
4.207
.599
2.3920
0
4.20887
13.854
54
9.0705
4
.973
.359
68.346
00
70.26489
93.685
13
230.37
713
.973
4.000
.386
68.346
00
70.26489
126.73
249
263.42
449
41
Group Statistics
Debt to
Equity
Ratio
type
MNC
Mean
Std. Deviation
Std. Error
Mean
.1058
.01510
.00571
DMC
.2081
.09070
.03428
Levene's
Test for
Equality of
Variances
Debt
Equity
Ratio
Equal
variances
assumed
Equal
variances
not
assumed
Sig.
20.
482
.001
df

Mean
Sig. (2Differen Std. Error
95% Confidence Interval of
tailed)
ce
Difference the Difference
-2.944
12
.012
-.10231
-2.944
6.333
.024
-.10231
Group Statistics
STDEV
type
MNC
DMC
Mean
Std. Deviation
Std. Error
Mean
.0350
.03240
.01449
.9292
.53283
.23829
.03476
.03476
Lower
Upper
-.17804
-.02659
-.18629
-.01834
42

Levene's Test for
Equality of
Variances
F
STDEV
Equal
variance
s
assumed
Equal
variance
s not
assumed
Sig.
10.893
.011
Sig. (2tailed)
df
Model
Entered
Removed
size(a)
-.89420
.23873
1.4447
1
-.34369
-3.746
4.030
.020
-.89420
.23873
1.5551
0
-.23330
Enter
a All requested variables entered.

b Dependent Variable: Sharpe
Model Summary
Model
.537(a)
R Square
a Predictors: (Constant), size
.288
Upper
.006
Method
.
Lower
Variables Entered/Removed(b)
Variables
Std.
Error
Differen
ce
-3.746
Regression
Variables
Mean
Differen
ce
95% Confidence
Interval of the
Difference
Adjusted R
Std. Error of
Square
the Estimate
.199
8.31421
ANOVA(b)
Sum of
Model
1
Squares
df
Mean Square
Regression
223.567
223.567
Residual
553.009
69.126
Total
776.576
Sig.
3.234

b Dependent Variable: Sharpe
Coefficients(a)
Unstandardized
Coefficients
Model
Std. Error
(Constant)
1.916
4.126
size
.002
.001
Standardized
Coefficients
.537
Regression
Model
1
Variables
Entered
Removed
size(a)

b Dependent Variable: Treynor
Method
.
Sig.
.464
.655
1.798
.110
Beta
a Dependent Variable: Sharpe
Variables
Enter
.110(a)
43
Model Summary
Model
1
R Square
.437(a)
Adjusted R
Square
.191
.090
Std. Error of
the Estimate
6.10538
ANOVA(b)
Model
1
Sum of
Squares
df
Mean Square
Sig.
Regression
70.390
70.390
1.888
.207(a)
Residual
298.206
37.276
Total
368.596

b Dependent Variable: Treynor
Coefficients(a)
Unstandardized
Coefficients
Model
1
Std. Error
(Constant)
.252
3.030
size
.001
.001
a Dependent Variable: Treynor
Standardized
Coefficients
Beta
.437
Sig.
.083
.936
1.374
.207
44
Regression
Variables
Variables
Entered
Removed
Model
1
size(a)
Method
Enter

b Dependent Variable: Jensen
Model Summary
Model
1
R Square
.306(a)
.094
Adjusted R
Std. Error of the
Square
Estimate
-.020
111.85465
ANOVA(b)
Model
1
Regression
Sum of
Squares
10329.349
df
1
Mean Square
10329.349
Residual
100091.694
12511.462
Total
110421.043

b Dependent Variable: Jensen
F
.826
Sig.
.390(a)
45
46
Coefficients(a)
Model
1
Unstandardized
Coefficients
Standardized
Coefficients
Beta
Std. Error
(Constant)
77.638
55.502
size
-.013
.015
-.306
Sig.
1.399
.199
-.909
.390
a Dependent Variable: Jensen
Correlations
Correlations
Sharpe
Sharpe
.536
-.220
.537
Sig. (2-tailed)
.110
.541
.110
10
10
10
10
Pearson Correlation
.536
.046
.437
Sig. (2-tailed)
.110
.899
.207
10
10
10
10
-.220
.046
-.306
.541
.899
.390
10
10
10
10
Pearson Correlation
.537
.437
-.306
Sig. (2-tailed)
.110
.207
.390
10
10
10
10
Pearson Correlation
Sig. (2-tailed)
N
size
Size
N
Jensen
Jensen
Pearson Correlation
N
Treynor
Treynor
47
Company Introduction
GlaxoSmithKline Bangladesh Limited is a subsidiary of GlaxoSmithKline plc, one of the
worlds leading research based pharmaceutical companies with a powerful combination of skills
and resources that provides a platform for delivering strong growth in todays rapidly changing
healthcare environment. The Company was incorporated on 25 February 1974 as a Public
Limited Company and is listed with Dhaka Stock Exchange Limited. The principal activities of
the Company through out the year continued to be manufacturing and marketing of
pharmaceuticals, vaccines and healthcare products. Name of the Company has been changed
from Glaxo Wellcome Bangladesh Limited to GlaxoSmithKline Bangladesh Limited,
effective from 4th September 2002. This change of name took place following global merger of
Glaxo Wellcome and SmithKline Beecham in December 2000.
SmithKli
Glaxo
SmithKline Beecham (1989)
GlaxoWellcome (1995)
Beecham PLC
Wellcome
GlaxoSmithKline (2000)
Figure1: History of GSK. Source: GSK website
As multinational company, GSK has an excellent internal work environment, outstanding

corporate culture, well organized and well-structured work-process, highly effective workforce
who works with a common corporate vision and mission. The registered office and factory of the
company are situated in Chittagong while its corporate office is located in Dhaka. Currently
GlaxoSmithKline owns 82.58% of the share, Investment Corporation of Bangladesh has 15.50%,
general public has got 0.98% and the rest 94% has gone to others.
Company Profile
Corporate Headquarter:
GlaxoSmithKline Bangladesh Limited

House No 2A, Road no 138, Gulshan-1
Dhaka 1212, Bangladesh.
Registered Office:
Fouzderhat Industrial Area

Dhaka Trunk Road
P. O. North Kattali
Chittagong - 4217, Bangladesh
Manufacturing Site:
Fouzderhat Industrial Area

Dhaka Trunk Road
P. O. North Kattali
Chittagong- 4217, Bangladesh
Status:
Public Limited Company.
General Information
Company Secretary
Mr. Sarwar Azam Khan, FCA, FCS
Bankers
HSBC, Standard Chartered Bank

Citibank NA, Agrani Bank, Sonali Bank
Auditors
A Qasem & Co.

Chartered Accountants
Legal Advisors
Barrister Abdullah Al Mamun

Advocate S C Lala
48
49
The Board of Directors

Chairman:
S Kalyanasundaram
Managing Director:
M. Azizul Haque
Finance Director & Company Secretary:
Sarwar Azam Khan FCA, FCS
Commercial Director:
Shamim Rabbani
Non-Executive Director:
Ziaul H Khondker
Non-Executive Director:
Mehernosh Kapadia
Company Executive Committee

Managing Director:
M. Azizul Haque
Finance Director & Company Secretary:
Sarwar Azam Khan FCA, FCS
Commercial Director:
Shamim Rabbani
Site Director:
Fariduddin Ahmed, FCMA
Human Resources Director:
A.K.M Firoz Alam
GSK Mission Statement

The mission statement explains why GSK in business- Our global quest to improve the
quality of human life by enabling people to do more, feel better and live longer. Our mission
gives us purpose. Our size gives us opportunity. Our spirit gives us the qualities as individuals
and as an organization that will enable us to turn our opportunities into achievements. Our spirit
will guide us, keep us focused and differentiate us from the competition.
(http://mygsk.com/mission)
50
GSK Spirit
The Company spirit describes how the company needs to behave if they are to achieve
their goal- We undertake our quest with the enthusiasm of entrepreneurs, excited by the constant
search for innovation. We value performance achieved with integrity. We will attain success as a
world class global leader with each and every one of our people contributing with passion and an
unmatched sense of urgency. (http://mygsk.com/sprit)
GSK Vision for the future

GlaxoSmithKlines vision is exciting and will give us the opportunity to make a
difference in the health of billions of people. Our value system and operating principles will
provide the necessary guide on how we work at GSK. The key to our success will be our desire
and passion to pursue GSKs priorities expressed by the business drivers.
We want to become the Indisputable leader in our industry. The work we do bring good
benefit to the society. Becoming the indisputable leader in our industry isnt up to someone else
in another department or another country. Its up to all of us working together, to build a better
world for ourselves, our families, and the patients who depend on us. We are now one company,
one team, with resources enough to turn opportunity into the delivery of better healthcare to the
world. By delivering on our mission, our business success will follow. And the best measure of
that success will be an improved quality of life for people around the world who will be able to
do more, feel better and live longer.
GSK Quality Statement
Quality is at the heart of everything we do-from the discovery of the molecule, through
product development, manufacture, supply and sale- and is visual to all the service that supports
our business performance.
51
GSK in Time
Every second, more than 35 doses of vaccines are distributed by GlaxoSmithKline.
Every minute, More than 1100 prescription are written for GlaxoSmithKline products.
Every hour, GlaxoSmithKline spends more than US$ 450,000 to find new medicines.
Every day, more than 200 million people around the world use a GlaxoSmithKline brand
tooth brush or tooth paste.
Every year, GlaxoSmithKline donates more than US$ 148 million in cash and products
to communities around the world.
Recognition & Achievement
The Institute of Chartered Accountants of Bangladesh (ICAB) conducts an evaluation of

the published annual reports and accounts of the listed companies based on stringent
criteria set by the South Asian Federation of Accountants (SAFA). Among the
competition of non-financial listed companies GSK secured the first position for the year
2002.
GSK secured second position for the publishing of annual repot 2004 at ICAB award in
non-financial sector.
Key Products of GSK

GSK Bangladesh covers nearly all drugs like Respiratory, Anti-depressive, Vitamins,
Gastro- intestinal, Cough and Cold preps, Oral steroid, Eye/Ear drops, Anti-bacterial, Anti-viral,
and Non-Pharmaceutical. The top pharmaceutical products of GSK in Bangladesh (as per
December 2006) are:
Table1: Product index of GSK

Product
Vaccines
Non Pharmaceutical
Zantac
Priorix
Dextrose
Piriton
Varilrix
Horlicks
Zinnat
Typherix
Crystapen V
Havrix
Parapyrol
Engerix B
Betnovates
Tritanrix HB
Ventolin
Mencevax - ACWY
Ceporex
Hiberix
Grisovin FP
Amoxil
Peflon
Glaxipro
Dermovate
Neobacrin
Seretide
Ventolin
Betnelan
Betnesol
Lanoxin
Actifed
Source: GKS Marketing Department
52

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Assignment

Advanced Chemical Industries Limited

FINANCIAL PERFORMANCE AND CHARACTERISTICS OF

has been approved

May 18, 2008

1.1 Purpose of the Study

1.2 Problem Statement

1.3.1 Research Approach

1.3.2 Sampling Procedure

1.3.4 Data Collection

1.3.5 Data Analysis

1.5 Significance of the Study

1.6 Research Timeline

2.0 Literature Review

2.1 Capital Asset Pricing Model

2.2 The Sharpe Measure

2.3 Standard Deviation

2.4 The Treynor Measure

2.5 Beta Coefficient

2.6 The Jensen Measure

2.7 Systematic Risk

2.8 Geometric Mean

2.9 Calculation of Geometric Mean

2.11 The Risk Free Rate

2.12 Capitalization Ratio

3.0 Analysis of Performance

3.1 Financial Performance

3.1.1 Sharpe Measure

3.1.2 Treynor Measure

3.1.3 Jensen Measure

3.2 Financial Characteristic

3.2.1 Debt Equity Ratio

3.2.2 Average Standard Deviation of Equity

3.2.3 Frequency Distribution of Beta

3.2.4 Average Total Assets

4.0 Summary and Discussion

2. Treynor Measure of MNC and DMC

3. Jensen Measure of MNC and DMC

4. Debt equity ratio of MNC and DMC

5. Average Standard Deviation of Equity of MNC and DMC

6. Frequency Distribution of Beta of MNC and DMC

7. Average Total Assets of MNC and DMC

8. Correlational Matrix of MNC and DMC

9. Financial Performance Comparison of MNC and DMC

10. Systematic Risk () Comparison of MNC and DMC

11. T-bill Rate Comparison of Bangladesh and U.S Government

2. Graph of Capital Market Line

3. Diagram of Debt equity ratio of MNC and DMC

= RiG - [ RfG + i ( RmG - RfG )]

RiG = Geometric average return on stock i

1.6 Research Timeline

Writing Research Proposal

Developing Literature Review

Developing financial model

Collecting pertinent data

Analyzing data and interpret findings

Preparing draft and finalize research paper

2.0 Literature Review

Figure 1: Markowitz Portfolio Selection

Figure 2: Capital Market Line

Ri = Average return on stock i

determining how to efficiently manage a portfolio if investments because it determines the

Ri = Average return on stock i

Ri = Average return on stock i