Shanto-Mariam

University
o
f
Creative
Technology
Subject: Financial
Analysis

Assignmen
t on:
Financial Analysis on RAK Ceramic of
Bangladesh
Assignmen
t by:
Name: Nawreen
Nahar Tuli
ID: 101-401081
Program:
BBA Batch:
th
14
Semester:
6th

Assignmen
t to:
Umma
Salma
DATE: NOVEMBER 19,
2012

What is manufacturing?
Definition

The process of converting raw materials, components, or parts into finished goods
that meet a customer's expectations or specifications. Manufacturing commonly
employs a man-machine setup with division of labor in a large scale production.
Manufacturing is the production of goods for use or sale using labor and machines,
tools, chemical and biological processing, or formulation. The term may refer to a
range of human activity, from handicraft to high tech, but is most commonly applied
to industrial production, in which raw materials are transformed into finished goods
on a large scale. Such finished goods may be used for manufacturing other, more
complex products, such as aircraft, household appliances or automobiles, or sold to
wholesalers, who in turn sell them to retailers, who then sell them to end users the
"consumers".
Manufacturing takes turns under all types of economic systems. In a free market
economy, manufacturing is usually directed toward the mass production of products
for sale to consumers at a profit. In a collectivist economy, manufacturing is more
frequently directed by the state to supply a centrally planned economy. In mixed
market economies, manufacturing occurs under some degree of government
regulation.
Modern manufacturing includes all intermediate processes required for the
production and integration of a product's components. Some industries, such as
semiconductor and steel manufacturers use the term fabrication instead.

Manufacturing and Production

Without manufacturing and production, there'd be no products to market or sell.
Accountants wouldn't have anything to account for. The retail trade would collapse.
Programmers would be without computers to program on. In short, there'd by very
little need for any other career.
In this career profile, Wet Feet focuses on outlining the technical jobs in
manufacturing and production, with an emphasis on high-tech industries. See our
career profile on operations management for information about operational
responsibilities outside of manufacturing and production.

RAK CERAMICS
Company Profile
RAK Ceramics (Bangladesh) Limited, a UAE-Bangladesh joint venture company,
was incorporated in Bangladesh on 26 November, 1998 as a private company
limited by shares under the Companies Act 1994. The name of the Company was
thereafter changed to its name from RAK Ceramics (Bangladesh) Private Limited to
RAK Ceramics (Bangladesh) Limited as per resolution passed in extraordinary
general meeting on 10 June 2008, certificate issued by the Registrar of Joint Stock
Companies dated 11 February, 2009. It is engaged in manufacturing and marketing
of ceramics tiles, bathroom sets and all types of sanitary ware. The companys
headquartered in Dhaka with manufacturing facilities at Gazipur. RAK Ceramics is
Bangladeshs largest ceramic tiles and sanitary ware manufacturer. It has started its
commercial production on 12 November, 2000. The commercial production of new
sanitary ware plant was started on 10 January, 2004. Further expansion of the
existing facilities of ceramics tiles plant took place in year 2004, and for tiles and
sanitary plant were in year 2007.

RAK Ceramics (Bangladesh) Limited, 90% held by RAK Ceramics PSC and its
nominees, a company incorporated under the laws of UAE and remaining 10%
owned by local investor Mr. S.A.K. Ekramuzzaman. RAK Ceramics PSC, UAE is
presented by Dr. Khater Massaad as Chairman. With an annual turnover of over
BDT 3248 million, within the short span of 11 years RAK has firmly established itself
as one of the leading manufacturer of high quality ceramic wall, floor tiles, porcelain
tiles and sanitary wares products in Bangladesh.

Nature of business

The core business of RAK Ceramics (Bangladesh) Limited is to manufacture and

sell of tiles and sanitary wares. The company has over 1000 models active in the
ceramic and porcelain tile business and regularly adds several new designs to the
product portfolio. The company manufactures tiles in a very wide range of tiles in
the sizes from 20 cm X 30 cm up to 60cm X 60cm in Bangladesh location. The
company has over 40 models an exclusive range of sanitary ware to offer with a
very wide choice. In sanitary ware various models are produced in wash basins
(mounted as well as pedestal), water closets, accessories and marble sets. The
plant standard capacity is 22,000 square meter tiles and 3,400 pieces of sanitary
ware per day. Most of production is consumed in local market and balance gets
exported to UAE. RAK Ceramics (Bangladesh) Limited is an ISO 9001:2008
certified organization.

Mission of RAK Ceramics:

RAK Ceramics responsible and knowledge-driven mission statement includes:
C Close to our clients by listening to their needs and adapting to market
requirements.
E Excellence in producing high quality products that offers best value-formoney.

R Redefining the product innovation and design processes.

A Accountable to its clients, trade partners, stakeholders and employees.

M Motivate employees to develop them into future entrepreneurs.

I Integrity of the management towards the organizational goals.

C Committed to the society by contributing towards a healthy environment.

S Sustainability in every sphere of business.

In a challenge 2011, even as a number of manufacturers slowed their

investments, RAK raised its outlay through the following investments:

A squaring machine in the value-added tile facilities to enhance product

quality.
A robot spaying machine in the sanitary ware nit to enhance production
efficiency and product quality.
RAK retained its choice as a preferred brand among private construction and
real estate development companies as well as the government organizations
namely PWD, MES, CMMU, Civil Aviation, RAJUK, among others.
RAK tiles were used in some of the most visible and respected property
brands in Bangladesh.
RAK Ceramics benchmarked best Grade A output of tiles and sanitary ware
resulted in an average realization and EBITDA margin higher than the market
average.

In 2011, we reinforced this accessibility through the following initiatives:

Added dealers (permanent and provisional) proximate to customers.

Provided incentives to dealers to graduate to run exclusive RAK display

centers.
Assisted distributors to showcase our products through display cabinets (wall
and floor) and tile stands.
Strengthened recall across fitters and plumbers, who influence customer
choice.
Enhanced visibility through advertisements in the print (billboards in high
traffic areas) and electronic media (TV commercials.

Economic Challenges
Unlike a number of countries, Bangladesh grew in 2010-11. The country reported
GDP growth of 6.70 percent in 2010-11(July to June) against 5.83 percent in 200910.

RAK Ceramics performance

Given this challenges background, RAK Ceramics performance was heartening. The
Company continued to do what it had always done- invested in product portfolio,
innovation and quality. The result translated visibly into stronger financials:

The Company grew its revenues by 14.24 percent on a large base.

The Company strengthened its EBIDTA by 8.10 percent to BDT 1,391.12mn.

Profit after tax increased by 24.80 percent.

RAK Ceramics strategy

RAK Ceramics, strategic blueprint encompasses volume-driven and value-led growth
through the following initiatives:
Capacity expansion: RAK expanded its tile capacity three-fold over the last
decade and sanitary ware capacity three-fold in six years. Going ahead, as
continuous efforts, the company expects to enhance its existing capacity or
commission a Greenfield unit for tiles and sanitary ware subject to natural gas
availability.
Value-addition: RAK introduced new products across both its product
verticals and increased its branding budget in line with new launches.

Managing Business Uncertainties:

Industry risk: Increased competition could affect growth, market share, profitability
and shareholder value.

Government regulation risk: Unfavorable policies could impact Bangladeshs

real estate sector, affecting tile/sanitaryware demand.

Competition risk: Competition increased following the entry of new players.

Technology risk: Technology

obsolescence could
development, cost competitiveness or product quality.

restrict

new

product

Quality risk: A compromise in product quality could result in customer and brand
attrition.

Input sourcing risk: The Company is largely dependent on imported raw material,
a risk in the event of a global crisis.

Cost inflation risk: An increase in raw material, power, fuel, freight and manpower
costs can affect margins.

Interest rate risk: An interest rate hike could impact profitability and the ability to
raise low-cost funds to meet planned capital expenditure.

Customer attrition risk: Dependence on a handful of customers could be

detrimental; the attrition of a single client could create an inventory pile-up.

Exchange rate risk: Unfavorable volatility or currency fluctuation can affect

profitability as the Company has a significant exposure to foreign currency
transactions.

Management risk: Attrition of key managerial personnel, executives and officers

may have an adverse impact on the business.

RAK Ceramics Bangladesh Ltd

Financial Statements for RAK Ceramics Bangladesh Ltd (RAKC).
Year over year, RAK Ceramics (Bangladesh) Limited has been able to grow
revenues from $4.0B to $4.6B. Most impressively, the company has been able to
reduce the percentage of sales devoted to cost of goods sold from 62.49% to
58.81%. This was a driver that led to a bottom line growth from $606.5M to
$757.0M.

Annual Income Statement:

Currency in Millions of Bangladesh Takas

Dec 31, 2010

Dec 31, 2011

BDT

BDT

Change %

Revenues

4,009.0

4,580.0

Up 14.2

TOTAL REVENUES

4,009.0

4,580.0

Up 14.2

Cost Of Goods Sold

2,505.1

2,693.5

Up 7.5

GROSS PROFIT

1,504.0

1,886.5

Up 25.4

Selling General & Admin Expenses, Total

750.8

960.9

Up 28.0

OTHER
OPERATING
EXPENSES, TOTAL

750.8

960.9

Up 28.0

OPERATING INCOME

753.2

925.6

Up 22.9

Interest Expense

-90.7

-21.1

Interest And Investment Income

140.7

147.5

NET INTEREST EXPENSE

50.0

126.3

Income (Loss) On Equity Investments

--

-56.6

Currency Exchange Gains (Loss)

7.7

-38.9

Other Non-Operating Income (Expenses)

-6.9

4.3

EBT, EXCLUDING UNUSUAL ITEMS

804.1

960.7

Gain (Loss) On Sale Of Assets

--

0.0

EBT, INCLUDING UNUSUAL ITEMS

804.1

960.7

Up 19.5

Income Tax Expense

294.2

319.0

Up 8.4

Minority Interest In Earnings

96.7

115.2

Earnings From Continuing Operations

509.9

641.7

Up 25.9

NET INCOME

606.5

757.0

Up 24.7

NET INCOME TO COMMON

INCLUDING EXTRA ITEMS

606.5

757.0

Up 24.7

NET INCOME TO COMMON

EXCLUDING EXTRA ITEMS

606.5

757.0

Up 24.7

Up 19.5

Here,
Year 2010
Revenue
(M):
Net Income (M):
Profit Margin (%):

Year 2011
4,009.0215
606.5211
15.1289

Revenue
(M):
Net Income (M):
Profit Margin (%):

4,580.0082
756.9526
16.5273

In here, RAK ceramics profit margin ratio is grow up from 15.1289% at 2010 to
16.5273% at 2011.

Profit Margin (%)

2010
15.1289

2011
16.5273

Changes %
Up 9.243

RAK Ceramics Bangladesh Ltd

Financial Statements for RAK Ceramics Bangladesh Ltd (RAKC).
RAK Ceramics (Bangladesh) Limited uses little or no debt in its capital structure and
may have less financial risk than the industry aggregate. Accounts Receivable is
among the industry's worst with 30.56 days worth of sales outstanding. This implies
that revenues are not being collected in an efficient manner. Last, RAK Ceramics
(Bangladesh)
Limited is among the most efficient in its industry at managing
inventories, with only 213.14 days of its Cost of Goods Sold tied up in inventory.

Annual Balance Sheet:

Currency in Millions of Bangladesh
Takas

Dec 31, 2010

Dec 31, 2011

BDT

BDT

Assets
Cash And Equivalents

1,487.7

1,442.0

TOTAL CASH AND SHORT

TERM INVESTMENTS

1,487.7

1,442.0

Accounts Receivable

274.0

493.0

Other Receivables

16.1

33.1

TOTAL RECEIVABLES

290.1

526.1

Inventory

1,487.7

1,658.1

Prepaid Expenses

28.1

15.7

Other Current Assets

668.3

1,079.0

TOTAL CURRENT ASSETS

3,961.8

4,720.9

4,731.3

4,953.0

-1,832.0

-2,190.9

2,899.3

2,762.2

Long-Term Investments

30.6

86.1

Deferred Charges, Long Term

15.7

10.9

Other Intangibles

105.1

113.9

Other Long-Term Assets

28.5

32.3

TOTAL ASSETS

7,041.1

7,726.3

Gross
Property
Equipment

Plant

And

Accumulated Depreciation
NET PROPERTY
EQUIPMENT

PLANT

AND

Change %

LIABILITIES & EQUITY

Accounts Payable

466.6

503.0

Accrued Expenses

398.2

280.6

Short-Term Borrowings

106.3

135.8

2.5

12.8

Current Income Taxes Payable

762.0

1,085.5

Other Current Liabilities, Total

47.9

44.5

TOTAL CURRENT LIABILITIES

1,922.7

2,196.9

Long-Term Debt

10.7

32.9

Minority Interest

196.9

173.9

Current Portion Of
Debt/Capital Lease

Long-Term

Pension & Other Post-Retirement -Benefits

--

TOTAL LIABILITIES

1,933.4

2,229.8

Common Stock

2,300.7

2,530.8

Additional Paid In Capital

1,473.6

1,473.6

Retained Earnings

1,136.4

1,318.2

TOTAL COMMON EQUITY

4,910.8

5,322.6

TOTAL EQUITY

5,107.7

5,496.5

TOTAL LIABILITIES AND EQUITY

7,041.1

7,726.3

RAK Ceramics Bangladesh Ltd

Financial Statements for RAK Ceramics Bangladesh Ltd (RAKC)

Annual Cash Flow:

Currency in Millions of Bangladesh Dec 31, 2010
Takas
BDT

Dec 31, 2011

BDT

NET INCOME

606.5

757.0

Depreciation & Amortization

373.2

359.1

12.0

9.8

DEPRECIATION &
AMORTIZATION, TOTAL

385.2

369.0

CASH FROM OPERATIONS

765.4

373.3

-273.1

-231.8

And

2.9

0.4

Sale (Purchase) Of Intangible Assets

-15.9

-18.6

Investments In Marketable & Equity

Securities

-22.0

-112.2

-128.8

-259.2

Amortization
Of
Intangible Assets

Goodwill

And

Capital Expenditure
Sale Of Property,
Equipment

Plant,

CASH FROM INVESTING

Short-Term Debt Issued

39.8

Long-Term Debt Issued

22.3

TOTAL DEBT ISSUED

62.1

Short Term Debt Repaid

-592.5

Long Term Debt Repaid

-672.6

TOTAL DEBT REPAID

-1,265.1

Issuance Of Common Stock

2,056.5

Common Dividends Paid

-334.0

TOTAL DIVIDEND PAID

-334.0

Other Financing Activities

-370.2

112.3

CASH FROM FINANCING

421.2

-159.7

Miscellaneous
Adjustments

Cash

NET CHANGE IN CASH

Flow

0.0
1,057.8

-45.6

Change %

Growing trust is a time-tested business strategy enjoying attractive returns.

Ratio Analysis:
1.

Current Assets

Current Ratio=

Current Liabilities

2010
2.06

Current Ratio

2011
2.15

Changes %
Up 4.3

By this ratio we can see that, this companys current ratio is 2.06 in the year of 2010
& 2.15 in the year of 2011 which is higher than 2010. So companys current ratios
change is improve 4.3%.
2.

Current Assets Inventory

Quick Ratio =

Current Liabilities

Quick Ratio

2010
1.29

2011
1.39

Changes %
Up 7.7

In this quick ratio, we can see that in the year of 2011 this companys quick ratio is
improved than the year of 2010 & its percentage change is grow up to 7.7%.that is
better for this company.
3.

Cash

Cash Ratio = Current Liabilities

Cash Ratio

2010
0.77

2011
0.66

Changes %
Down 14.29

In this ratio, we can see that this companys ratio is decrease in 2011 than 2010. For
this company it not good to decrease of cash ratio, because in this position company
cannot cover the total asset by their liabilities & they have a high risk.

4.
Total Debt Ratio

Total Assets Total Equity

Total Assets
2010
0.27

Total Debt Ratio

2011
0.29

Changes %
Up 7.4

Here, we find that, in year 2011 percentage of total debt ratio grows up from 0.27 to
0.29 than the year of 2010. For this increasing of the total debt ratio this company is
now in a bad position.

5.
Debt Equity Ratio

Total Debt
Total Equity

Debt Equity Ratio

2010
0.02

2011
0.03

Changes %
Up 50

By this ratio we can analyses that, this companys debt equity ratio is grow up in
2011 than 2010. So, it is not favorable for this company.

6.
Long-Term Debt. Ratio =

Long-Term debt.
Long-Term Debt +Total Equity

Long-Term Debt. Ratio

2010
0.002

2011
0.006

Changes %
Up 200

By this ratio we can say that this companys long term debt ratio is increase in the
year of 2011 than the year of 2010. For this increase of ratio there percentage
change is up to 200%.

7.

Total Assets

Equity Multiplier ratio

Equity Multiplier

= Total Equity
2010
1.38

2011
1.41

Changes %
Up 23.9

By this ratio it can be say that this company is increase their equity multiplier in 2011
& this is good position for this company.

8.
Net Income
Return on Assets (ROA) = Total Assets
Return on Assets (ROA)
%

2010
8.61

2011
9.79

Changes %
Up 13.7

By this ratio we can see that this companys return on asset is increase in the year of
2011 than 2010 & its % change is growing up to 13.7%.
9.
Net Income
Return on Equity (ROE) =

Total Equity

Return on Equity (ROE) %

2010
12.35

2011
14.21

Changes %
Up 15.1

This companys return on equity is also growing up in 2011 than 2010.

ash conversion cycle

Inventory Turnover

COGS
Inventory
2010
1.68

Inventory Turnover

Receivable Turnover

2011
1.62

Changes %
Down 3.57

2011
9.29

Changes %
Down 36.50

2011
39.29

Changes %
Up 57.47

Sales

Account Receivable
2010
14.63

Receivable Turnover

365 days

Days Sales in Receivable =

Receivable Turnover
2010
24.95

Days Sales in Receivable

Formula
360
Collection period

2010

2011

24.61

38.75

214.29

222.22

276.30

293.63

Receivable turnover
360
Inventory conversion
Inventory turnover
Total Current liability
Payment deferral period
Cost of Good sold

Cash conversion cycle

= (Collection period + Inventory conversion period) - Payment deferral period
Cash conversion cycle
So, it is efficient for this company.

2010
-37.4

2011
-32.66

Changes %
Down -12.67

Major Common Size Ratios:

- Total current assets to Total Assets up from 56.3% to 61.1%
- Total non-current assets to Total Assets down from 43.7% to 38.9%
- Fixed Assets to Total Assets down from 40.5% to 35.3%
- Current Inventory to Total Assets up from 21.1% to 21.5%
- Cash to Total Assets down from 21.1% to 18.7%
- Cost of Goods Sold to Sales down from 60.3% to 57.6%
- EBIT to Sales up from 19.4% to 21.9%
- Profit before tax to Sales up from 19.4% to 20.5%
- Profit after tax to Sales up from 14.6% to 16.2%
- Sales and marketing expenses to Sales up from 12.3% to 13.7%

Favorable Changes:
- Total revenue up 12.6% to BDT4.7b ($US57.1m)
- Net profit growth 24.7% to BDT756.4m ($US9.2m)
- EPS growth 57.4% to BDT2.99 (US3.65c)
- EBIT Margin up 10.9% to 22.3%
- A track record of profits in 3 of the last 3 years
- Current ratio up 4.4% to 2.2%
- Net tangible assets per share up 2.2% to BDT20.58 (US25.1c)
- Working capital to total assets up 12.8% to 32.7%
- Retained earnings to total assets up 5.7% to 17.1%
- EBIT to total assets up 15.8% to 13.2%
- Total revenue to total assets up 2.6% to 0.6%

Unfavorable Changes:
- Interest cover down 99.8% to 16.6%
- Total debt to net tangible assets up from 2.5% to 3.5%
- Debt to Equity up 50.0% to 0.03%
- Total liabilities to Total assets up 7.4% to 0.3%.

Companys Operating and Financial Leverage:

By leveraging this companys competitive advantages across product development,

product quality and customer service (reach and redressed). This will enable for this
company to redefine the industry space through unique products, impeccable quality
and superior service, leading to a stronger brand. RAK ceramic expect to introduce
an interior-decor solution that transforms placid spaces into pride-attractive interiors
and changes them from products to services.
After the leverage this companys degree of combined leverage is:

Degree of Operational Leverage (DOL) =

% in EBIT
% in sales

10.65 %
14.24%

= 0.747
% in EPS
Degree of Financial Leverage (DFL)

% in EBIT
17.7 %
10.65 %

= 1.662

Degree of Combined Leverage (DCL)

= DOL x DFL
= 0.747 x 1.662
= 1.242

SWOT Analysis
1. Strength
1. Market leader: RAK Ceramic is the market leader in the Ceramic Market of
Bangladesh. They occupy 12 % of the total ceramic market.
2. Innovativeness: The strength of RAK lies in the speed with which it has innovated
itself to meet market expectations. It invests regularly to produce products that would
stand out in the market.
3. Strong Marketing lineup: RAK has developed sound and effective marketing policy
to share knowledge about their products with design engineers, thus creating more
awareness in the minds of the customers
4. Reliability: Be the preferred business partner of the customer and suppliers by
offering quality products; providing best and timely service before and after the
business transaction.
5. Great competitive skills: It has been working consistently in steel production
sector. So it has achieved great competitive skills. It has the ability to face strong
competition.
6. Strong products distribution lineup: RAK has appointed more than 98 dealers
including tiles and sanitary ware products all over the country to sell the products of
the Company to the ultimate customers.
7. Modern equipment technology: The Company is working continuously with their
modern technological expertise with research and development to improve the
product quality in accordance with customer choice, fashion and design.

2. Weakness:

1. Low advertising.
2. Low per capital consumption as compared to developed nations.

3. Increase of account receivable.

4. Bad position of the cash ratio.

3. Opportunity
1. The construction and housing boom to provide bolstering demand for ceramic
tiles.
2. The untapped rural market supported by a strong growth witnessed by agriculture
provides tremendous potential for the domestic ceramic manufacturers.
3. As RAK is internationally renowned company so its have a strong possibility to
export steels product in near future.
4. To discourage import of tiles and sanitary ware items supplementary duty on
imports increased to 45% in place of existing 20%.

4. Threats
1. Sometimes raw material becomes unavailable.
2. Environmental Compliance threat.

Competitive Condition of the company

RAK Ceramics (Bangladesh) Limited enjoys the reputation of being a market leader
in the localities and sanitary ware market, as one of the establishments producing
high quality tiles and sanitary ware products. The quality along with the competitive
pricing of the products has enabled RAK Ceramics (Bangladesh) Limited to gain a
substantial market share in the ceramic sector. The Companys currently enjoying
more than one fourth share of the tiles market and greater than two third share of the
sanitary ware market. The strengths of RAK Ceramics (Bangladesh) Limited is its
professional expertise, unrelenting pursuit of excellence, and a deep and profound
knowledge of the business environment that has enabled the company to tap the
market share in the tiles and sanitary ware field. RAK has always painstakingly
positioned the company to respond to emerging mark top port unities and have
made major investments. RAK intends to leverage the leadership by pursuing
strategic opportunities through the investments that have been made. It will continue
to invest in innovative breakthrough technologies in the ceramic field because we
know that in this era of global competitiveness and borderless economies, only
productive organizations delivering quality goods send services can prevail, prosper
and grow.

Overall Observation about the Organization

R.A.K. Ceramics (BD) Pvt. Ltd. is located at Sreepur, Gazipur in 1999 and started its
commercial production in November 2000. The company is equipped with most
modern machineries from Italy and successfully started producing Wall, Floor and
Porcelain tiles. R.A.K. Ceramics (BD) Pvt. Ltd. never compromises with its quality.
Their goal is to satisfy their valued customer by providing High Quality Product at
affordable price. Quality made them market innovator. After SWOT Analysis we get
that this company is at profitable position, having a good market reputation, having
satisfied customers, in a low risk position, having good market share. This company
has good strength, low weakness, good number of opportunity & as well as threats.
This company has a lot of success factors, well qualified, skilled & trained
employees, well distribution channels etc.

Recommendations

1. R.A.K Ceramics should introduce more advertisement.

2. It should reduce risks.
3. It should expand its market more.
4. It may reduce its pricing.
5. It should be more careful regarding selecting raw materials.
6. It should introduce more designs.
7. It should use better & up to date technology.
8. It should produce different type of products for different income level persons.
9. Need to improve cash ratio.

---The
end---