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Table of Contents
Page
1.0 Introduction
10
23
5.0 Recommendation
24
25
7.0 Bibliography
26
Appendix
27
List of Figures:
Pages
Fig.1 Types of Financial Ratios
3
Fig.2 Current Ratio Comparison
10
Fig.3 Quick ratio Comparison
12
16
19
3
21
1.0
Introduction
significant
market
shares
in
respective
categories.
MBL
was
incorporated in the year 1999 and holds a leadership position in the fast
moving consumer goods (FMCG) space in Bangladesh. MBL recorded a
turnover of Tk. 5,358 Million (USD 73.4 Million) in 12 months ended on 30th
September, 2010 and Tk. 2,846 Million (USD 39 Million) in 6 months ended
on 31st March, 2011 (Maricobd.com, 2012).
1
2.0
Literature Review
performance,
standards.
and
Financially
compare
stable
current
organizations
performance
are
with
desirable,
industry
because
n
q
ua
n
d
i
i
ay
R
R a
t a
t o
o
Fi
s
s
i
i
necessary to ensure that the firm has sufficient liquid resource to meet its
short term needs if sales should suddenly drop or expenses increases.
Quick Ratio:
The quick ratio is calculated by taking the total amount of current assets and
deducting the inventory and dividing it by the total amount of current
liabilities. This ratio indicates the firms liquidity position as well. It actually
refers to the extent to which current liabilities are covered by those assets
except inventories. The formula used to calculate this ratio is:
Quick Ratio = (Current Assets Inventory) Current Liabilities
Quick ratio provides a better indication of the firms relative liquidity by
eliminating inventory, the least liquid of all current Assets (Baker and Powell,
2009).
2.1.2 Asset Management Ratio:
Measures how effectively the firm is managing its assets. These ratios are
designed to answer the following question whether the total amount of each
type of asset as reported on the balance sheet seem reasonable, too high, or
too low on view of current and projected sales level (Lasher, 2010).
Below are discussed four types of asset management ratio:
Gross Profit Margin on sales gives us the gross profit that the business is
earning per dollar of sales. The formula used to calculate this ratio is:
Gross Profit Margin = Gross Profit Sales
Mayo (2007) stated that these ratios relate the firms stock price to its
earnings and book value per share. They give management an indication of
what investors think of the companys future prospects based on its past
performance.
Price/ Earnings (P/E):
Price earnings ratio shows how much the investors are willing to pay per
dollar of reported profits. To compute the P/E ratio, we need to know the
firms earnings per share (EPS) (Baker and Powel, 2009)
The formula used to calculate this ratio is:
Price/Earning ratio = Market price per share Earnings per share
3.0
Data Analysis
3.1Financial
Statement
(Ratio)
Analysis
of
Marico
Bangladesh
Limited1:
3.1.1 Liquidity Ratios
Current Ratio:
1
10
11
12
than 2011. They also have a surplus of financial assets over financial
liabilities (Exhibit 1.1C)
Quick Ratio:
(Exhibit 1.2) and in contrast to the current ratio, there is an overall reduction
in the quick ratio. So it indicates that if the quick ratio is lower that means
the industrys profit margin was not so high that they can make some
investments paying off the liabilities that could result in an increase in assets
and decrease in liabilities to make the liquidity position far better.
14
From the analysis, it has clearly shows that Marico has relatively lower
inventory turnover ratio than industry. It indicates that the inventory level is
higher that may point to overstocking or deficiencies in the product line or
marketing effort. High inventory levels are unhealthy because they represent
an investment with a zero rate of return in addition to the increased cost
associated with maintaining those inventories. It also opens the company up
to trouble should prices begin to fall. The comparison with the past years
projects a significant reduction in this ratio. However further analysis shows
that they have increased levels of inventory (Exhibit 1.2) with increased cost
of sales (Exhibit 1.3) which in turn decreases the overall ratio. An assumption
can be suggested, that increase prices in the commodities of Bangladesh
especially raw materials may be the cause of this increase.
Day Sales Outstanding:
The Financial Performance Analysis and valuation indicate that Marico
Bangladesh Limited have no debtors for which this ratio does not apply to
them.
Fixed Asset Turnover:
The fixed asset turnover ratio indicates how efficiently the fixed assets are
used to generate sales. In contrast to the performance of the previous year it
can be seen that the fixed asset turnover ratio of Marico Bangladesh Limited
has reduced.
16
The total asset turnover ratio shows how efficiently the total assets of a
company are used to generate sales. The data above shows that the total
asset turnover of Marico Bangladesh is above the industry average. However
a further insight at the financial reports and the other ratios clearly indicates
that the increase of the new fixed assets (Exhibit 1.4) has increased this
ratio, which shows that their total assets have not been efficient enough to
generate enough sales.
Debt Ratio:
17
Debt Ratio
0.5
0.45
0.4
0.35
0.3
0.25
0.2
0.15
0.1
0.05
0
Debt Ratio
The debt ratio of Marico Bangladesh is 0.38, which suggests that 38 percent
of their total assets are their total liabilities. In contrast to their previous
years ratio of 0.46, this is a very positive sign for the company. Their ratio is
also better than the industry average which is also good for the overall
image of the company as this attribute increases the shareholders
confidence.
19
20
21
was not a part of Marico Bangladesh during the previous year (Exhibit 1.6A
and 1.6B).
In general return on equity is the rate of return on the share holder equity.
Higher return on Equity is better than lower and vice versa. From the
analysis, it shows that Maricos has higher return on equity than industry.
However in contrast to the previous year the ROE has drastically decreased
and the possible cause of this occurrence is the lower net income of 2012.
In general return on asset shows the overall investment earned by the firm.
Higher return on asset is better for the company than lower.
From the analysis, we can assume that Marico is in a good position because
it is significantly higher than industry. It indicates that the companys assets
are being utilized at a fair efficiency. Higher return on asset shows that
company lower than average use of debt and lower return on asset shows
results from the companys higher-than-average use of debt. In contrast to
the previous years the ratio is relatively lower which is caused by the
increase in assets which increases the non-current assets in turn decreasing
the overall ratio with the decreased net income acting as a catalyst.
Price/Earning Ratio:
The Price/Earning ratio generally denotes the amount investors are willing to
pay per dollar of reported profits. The P/E ratio of Marico Bangladesh is BDT
22.6, which is good. Although the earnings per share have decreased in
contrast to the previous year (Exhibit 1.7), based on the other ratios it can be
assumed that the ratios will improve over the next years.
4.0
:Conclusion
24
Users
Perception
Basis of Judgment
Investors
Good
Credit Analysts
Good
Current
Ratio,
Debt
Ratio
Managers
Improvement Required
Profitability Ratios
An analysis from different view points shows that from the view of an
investor the performance is good based on the Earnings per share (EPS),
from the view point of the credit analysts, the performance is also reasonable
based on their current ratio, but from the view point of a manager, there are
some areas for improvement. Although this company has won praises and
received awards and recorded high turnovers, it can be said that only high
25
turnover does not signify that a company is performing well. There is always
scope for improvement.
5.0
Recommendation
Marico Bangladesh Limited must control costs and increase their efficiency.
The distribution expenses must be decreased and some of their product lines
must be scrutinized for improvement. They should spend more efficiently in
their marketing in order to increase their customer base. They should focus
more on the products which have a declining market. Their products
compete in a highly competitive market and hence a slight loss of market
share can cause massive damages to their Financial Performance Analysis
and valuation. In order to cope up in the FMCG segment of the market Marico
must spend more on their marketing and promotion activities.
26
Websites:
27
(2012) 28 top brands win accolades, The Daily Star, 15 July 2012, [URL:
http://www.bangladeshnews24.com/thedailystar/2012/07/15/28-topbrands-win-accolades-7186.htm] (accessed: 20 November 2012)
Books:
Websites:
28
(2012) 28 top brands win accolades, The Daily Star, 15 July 2012, [URL:
http://www.bangladeshnews24.com/thedailystar/2012/07/15/28-topbrands-win-accolades-7186.htm] (accessed: 20 November 2012)
Appendix
Appendix -A
29
30
31
Appendix B
32
Appendix - C
Calculations:
3,772,368,319
1,580,629,566
Current Ratio =
=
Quick Ratio
2.39 Times
3,772,368,3191,777,938,918
1,580,629,566
=
=
1.26 Times
4,357,734,462
1,777,938,918
Inventory Turnover =
=
3.07 Times
6,036,260,121
430,263,163
14
6,124,079,239
278,328,750
= 22
6,036,260,121
4,202,631,482
33
= 1.44
Total Asset Turnover2011 =
6,124,079,239
4,613,066,124
= 1.3
Debt Ratio2012 =
1,599,437,266
4,202,631,482
= 0.38
Debt Ratio2011 =
2,150,468,795
4,613,066,124
= 0.46
1,498,505,659
6,036,260,121
= 0.2483 or 24.83%
Net Margin Ratio =
535,619,787
6,036,260,121
= 0.087 or 8.87%
Return on Asset =
535,619,787
4,202,631,482
= 0.1215 or 12.15%
Return on Equity2012 =
535,619,787
2,603,194,216
= 0.2057 or 20.6%
Return on Equity2011 =
770,628,693
2,462,597,329
= 0.312 or 31.2%
34
Price/Earning Ratio =
384.30
17
= 22.6
35