Financial Statement

Analysis
Trend Analysis of PRAN AMCL

Submitted by
Tabassum Akhter 13304131
Fariha Zafor Rima 13304132
Maeesha Tasnem-13104041

Section: 01
Semester: Fall 2014
Course: Financial Management (FIN301)

Submitted to
Sohana Wadud Ahmed
Lecturer
BRAC Business School (BBS)

Date of Submission: 11th December 2014

Letter of Transmittal
Date: 11th December, 2014
To
Sohana Wadud Ahmad
Faculty of BRAC Business School
BRAC University
Subject: Submission of report on Analysis of Financial Statements

Dear Madam,
This is our great pleasure to have the opportunity to submit the report on Analysis of
Financial Statements as a part of our course studies.
The report is prepared based on our reference text book Managerial Finance, 14th edition,
websites of PRAN Agricultural Marketing Co. Ltd and their consecutive 5 years annual report
that we collected from Dhaka Exchange office. Through our best sincerity we tried to calculate
and evaluate the ratios and their analysis within several limitations. We sincerely hope and
believe that these findings will be able to meet the requirements of the course.
Therefore, we would like to place this report for your kind judgment and valuable suggestion.

Thank You
Sincerely Yours
Group: 3

Acknowledgement
With the great opportunity given to us for writing this report, it has brought a sense of pleasure to
be able to submit it. We would like to thank all the contributors of this piece of writing.
Unfortunately, the list of expressive thankyous- no matter how extensive- is always incomplete
and inadequate. However, to start with, we would like to thank our Almighty God for bestowing
us with patience and courage to finish this huge task with the given deadline.

In addition, we sincerely acknowledge our debt to Sohana Wadud Ahmad, honorable faculty of
BRAC business school, BRAC University, for her valuable counseling for improvements needed
on the report. Without her encouragement and appropriate guidelines, this work would have been
extremely difficult to be accomplished.

Table of Contents
1. INTRODUCTION............................................................................................................1-2

2. THE ORANIZATION & INDUSTRY..................................................................................3

3. THEORY...........................................................................................................................4-7
4. TREND ANALYSIS FROM 2009-2013
Liquidity Ratios
Asset Management Ratios
Debt Ratio
Profitability Ratios
Market Value Ratios
................................................................................................................................................5-20
5. RECOMMENDATION...................................................................................................21-22
6. CONCLUSION...................................................................................................................23

1.0

INTRODUCTION

1.1 What is Financial Analysis?

All businesses, projects, budgets and other finance related units need to go through a process of
evaluation to determine their suitability for investment. This process is known as financial
analysis. Typically, financial analysis is used to analyze whether a business is stable, solvent,
liquid, or profitable enough to be invested in. These factors can be determined by weighing
various ratios of the company. A financial analyst usually focuses on the income statement,

balance sheet, and cash flow statement when calculating a specific companys .One of the most
common ways of analyzing financial data is to calculate ratios from the data to compare against
those of other companies or against the company's own historical performance.
1.2 Objectives
The objective of this report is to give a detailed insight into PRAN Agricultural Marketing Co.
Ltd.s financial records and position in the market. Along with that, the report is also intended to
provide an analysis of the financial performance of the company by calculating and then study
the following ratios:

Liquidity Ratios
Asset Management Ratios
Profitability Ratios
Debt-Management Ratios, &
Market-Value Ratios

1.3 Methodology
This report is mostly based on secondary sources of data. Annual reports of the years 2009, 2010,
2011, 2012 and of 2013 utilized in this report were collected from the Dhaka Exchange office as
well as from PRANs official website.
1.4 Limitations
The annual report had inter-changeable terms, which were difficult to understand owing to our
elementary level. Furthermore, pin pointing of exactly why the ratios where fluctuating is
difficult with the limited amount of explanations provided in the report.

2.0 THE ORANIZATION & INDUSTRY

2.1 About Organization
PRAN (Programme for Rural Advancement Nationally) Agricultural Manufacturing Company
Ltd. is the largest manufacturing operating company in the food and beverage sector of
Bangladesh for about 3 decades. It has been playing a major role in country's food processing
business. The company produces different types of juice and drinks, mineral water, soft drinks,
and others as its main source of revenue. Despite constraint of power resources and political
turmoil in recent years, the company's achievement in respect of revenue collection, cost control
and contribution to the national exchequer has been remarkable. It also has the distinction of
achieving prestigious certificate like ISO 9001:2000, and being the largest exporter of processed
agro products with compliance of HALAL & HACCP to more than 70 countries from
Bangladesh. The closest competitor of PRAN AMCL is Akij Food and Beverages, Square Food
and Beverages and ACI Food and Beverages.
2.2 About Industry
PRAN AMCL belongs to the food and beverage industry of Bangladesh. The foodprocessing sector in Bangladesh is a $2.2 billion industry that grew on
average 7.7 percent per annum between fiscal years 2004/05 and 2010/11, responding to
growth of the Bangladeshi middle class over the same period. The beverage industry more than
doubled during the same period to $29 million, showing an average growth rate exceeding 8
percent per annum. Though small in relation to population, the food-processing sector is thus
growing rapidly.

3.0 THEORY
3.1 Ratio Analysis
Ratio Analysis is the first step in a financial analysis. It is a form of Financial Statement Analysis
that is used to obtain a quick indication of a firm's financial performance in several key areas.
The ratios are designed to show relationships among financial statement accounts within firms
and between firms.
3.2 Types of Ratios:
There are five types of Ratios. They are explained below:
1. Liquidity Ratio: A liquidity ratio is the one that can be easily converted to cash without
significant loss of it original value. The different types of liquidity ratio are discussed
below:
a) Current Ratio: The current ratio is a financial ratio that shows the proportion of
current assets to current liabilities. The current ratio is used as an indicator of a
company's liquidity. The formula of Current Ratio is:
Current Ratio= Current Assets/Current Liabilities
b) Quick (Acid Test) Ratio: The quick ratio is a financial ratio used to measure a
company's liquidity. The quick ratio is also called acid test ratio. The formula of
Quick/Acid Test Ratio is:
Quick (Acid Test) Ratio= (Current Assets-Inventory)/Current Liabilities
2. Asset Management Ratio: The asset management ratio measures how effectively the
firm is managing its assets. It answers the question: Does the total amount of each type of
asset as reported on the balance sheet seem reasonable, too high, or too low in view of
current and projected sales level. The different types of asset management ratio are
discussed below:
a) Days Sales Outstanding Ratio (DSO): The days sales outstanding ratio is a
measure of the average number of days that a company takes to collect revenue

after a sale has been made. DSO is also called Average Collection Period (ACP).
The formula of DSO is:
Days Sales Outstanding (DSO) =Accounts Receivable/(Net Sales/360)
b) Inventory Turnover Ratio (ITO): The inventory turnover ratio shows how
effectively an inventory is managed by comparing cost of goods sold with average
inventory for a period. The formula of ITO is:
Inventory Turnover Ratio (ITO) = Cost of Goods Sold/Inventory
c) Fixed Assets Turnover Ratio (FAT): The fixed turnover ratio measures how
effectively the firm uses its plant and equipment to help generate sales. The
formula of FAT is:
Fixed Assets Turnover Ratio (FAT) = Sales/Net Fixed Assets
d) Total Asset Turnover Ratio (TAT): The total assets turnover ratio measures the
turnover of all of the firms assets. The formula of TAT is:
Total Asset turnover Ratio (TAT) = Sales/Total Assets
3. Debt Management Ratio: The debt management ratio measures the firms use of
financial leverage and ability to avoid financial distress in the long run. The different
types of debt management ratios are discussed below:
a) Debt to Asset Ratio (D/A): The debt ratio measures the percentage of the firms
assets financed by creditors (borrowing). The formula of D/A is:
Debt Ratio (D/A) = Total Debt/Total Assets
b) Times Interest Ratio (TIE): The times interest ratio measures the extent to
which a firms earnings before interest and taxes (EBIT), also called net operating
income (NOI), can decline before these earnings are unable to cover annual
interest costs. Failure to meet the obligation can bring legal action by the firms
creditors, possibly resulting in bankruptcy. The formula of TIE is:
Times Interest Earned (TIE) ratio= EBIT/Interest Expenses
*EBIT = Earnings before Interest and Tax

4. Profitability Ratio: The profitability ratio shows the combined effects of liquidity
management, asset management and debt management on operating results. The different
types of profitability ratio are discussed below:
a) Net Profit Margin (NPM): The net profit margin gives the profit per dollar of
sales. The formula of NPM is:
Net Profit Margin (NPM) = EAT/Sales
*EAT= Earnings After Tax
b) Return on Assets (ROA): The return on assets gives an idea as to how efficient
management is at using its assets to generate earnings. The formula of ROA is:
Return on Assets (ROA) = Net Income/Total Assets
c) Return on Equity (ROE): The return on equity is the rate of return on
stockholders investment. The formula of ROE is:
Return on Equity (ROE) = EAT/Total Equity
*EAT= Earnings After Tax
5. Market Value Ratio: The market value ratio relates the firms stock price to its earnings
and book value per share. The different types of market value ratio are discussed below:
a) Earnings Per Share (EPS): The earnings per share are the portion of a
companys profit that is allocated to each outstanding share of common stock. The
formula of EPS is:
Earnings Per Share (EPS)
= Earning to Common Stockholders/Number of common shares outstanding
b) Price Earnings Ratio (P/E): The price/earnings ratio shows how much an
investor is willing to pay per dollar of reported profits. The formula of P/E is:
Price Earnings Ratio (P/E) = Market Price of Common Stock/ EPS

4.0 TREND ANALYSIS

FROM
2009-Analy
2013
Chapter
4: Trend
4.1 Liquidity Ratio:
Current Ratio:

Current Ratio for the Last 5 years

The proportion of current assets in 2008-2009 was high, but later the proportion decreased
rapidly in the years 2009-2010 and 2010-2011. This was because of the increase in current
liability especially in short-term loan, deferred tax liability etc. and also current asset has been
reduced in stock and advanced deposits & prepayment. After they faced this rapid decrease they
were again able to make their proportions high in the years 2011-2012 and 2012-2013 through
much effort. We know the proportion of current ratio is always required to be high than the 2:1
ratio. PRAN has been not able to uphold a high ratio from the beginning but they are still being
able to operate their business smoothly.

Quick Ratios:

Quick Ratio for the Last 5 years

The quick ratio needs to be at least in the 1:1 ratio. PRAN here also was not able to reach this
ratio. In the years 2008-2009 and 2009-2010 it had a constant ratio of 0.39. Still in the years
2010-2011, 2011-2012 and 2012-2013 the ratio started to increase, and increased by almost
11.36%. This improvement in the Quick Ratio could be due to the faster Average Collection
Period (ACP) as demonstrated in the next graph. This also reflects the falling inventory over the
years from 2010 to 2013, resulting in slightly improved quick ratio. But the increase in their ratio
was not yet enough to be at the ideal ratio of 1:1. As a result, their amount of liability was more
after their inventories were deducted.

4.2 Asset Management Ratio:

Days Sales Outstanding Ratio:

Days Sales Outstanding Ratio for the Last 5 years

The days-sales outstanding ratio of any organization always needs to be low. As we can see from
the graph, the days sales outstanding ratio was 19.36 days on 2009. It decreased by a significant
36.4% (almost 7days) in the financial year ended 2010. This signifies an evident change in the
companies credit policy, where it placed higher importance in collecting debts faster. However,
the average collection period increased by 3 days in FY2011, but it again slowly fell to 13.46
days (or almost 2 weeks) in 2013. This improvement in debt collection created a positive impact
in the companys quick ratio. Even though we do not know the industry average, we can still
comment that an average collection period of 2 weeks can be considered to be healthy for
PRAN.

Inventory Turnover Ratio:

Inventory Turnover Ratio for the Last 5 years

From the inventory turnover ratio of PRAN we can say, they are doing a good work of not
stacking up their products. The inventory turnover ratio has increased by almost 18.72% over the
last 5 years. This signifies that PRAN is being able to sell its products at a quicker pace, maybe
due to decreased prices of their goods. The initiatives of exporting of PRAN products might also
have contributed towards an improved inventory turnover ratio, as the market for PRAN
products expanded so did their sales.

Fixed Assets Turnover Ratio:

Fixed Assets Turnover Ratio for the Last 5 years

The fixed assets turnover ratio of PRAN has improved in the last 5 years. In 2009 the ratio was
3.36. Though the ratio went down to 2.85 in 2010, but from 2011 the ratio again started to
increase. Their fixed assets turnover ratio in 2013 is 4.64, which is almost double the ratio of
2010. This impressive increase in the fixed asset turnover ratio may reflect the efficient asset
management of PRAN, where it is generating 4.64 times of revenue in relation to the net fixed
assets of the company. However, this might not even be the case, since the rapid inflation of
Bangladesh might have caused the value of many assets that were previously purchased to be
seriously understated, resulting in a misleading improvement of the fixed asset turnover ratio.

Total Asset Turnover Ratio:

Total Asset Turnover Ratio for the Last 5 years

In the last 5 years the total assets turnover ratio of PRAN has increased. There was a somewhat
insignificant decrease in times from 1.11 (2009) to 1.09 (2010). Later the amount kept on
increasing from 1.12 (2011) to 1.29 (2012) to 1.37 (2013). Since the ratio is increasing it can be
said that, PRAN is generating a sufficient volume of business given their investment in total
assets of the company. Again, we can comment that inflation of Bangladesh is not taken into
account when calculating these figures; so the slight increases in the total asset turnover ratio
could be due to inflation and not because of PRANs efficient management.

4.3 Debt Management Ratios:

Debt Ratio (D/A) -

Debt Ratio

After an initial increase in the debt ratio debt to asset ratio (D/A) from 61.689% on 2009 to
63.522% in 2010, the debt ratio continuously dropped each year from 63.331% (2011) to
60.917% (2012) to 57.460% (2013). PRANs debt ratio was almost 58% in the last year which
indicates that its creditors have supplied more than half of firms total financing. PRAN should
consider lowering its debt ratios, because the lower the ratio, the greater they can cushion against
creditors losses in the event of liquidation. With more than 50% debt ratio, it would be
practically difficult for PRAN to raise additional funds without enough present equity to solvent
them. Too much debt often leads to financial difficulty, which eventually might cause
bankruptcy.

Time-Interest-Earned Ratio (TIE)

Time-Interest-Earned Ratio

Here it is evident, TIE for PRAN has been fluctuating over the 5 years. Overall, it has decreased
from 0.486 in 2009 to 0.457 in 2013 which means PRANs ability to pay its interest expense has
gone down. This finding can be attributed to the fact that its EBIT has failed to increase at a
higher rate compared to its interest expense.
Overall, the debt management ratios have revealed that AMCL PRAN has poor debt ratio and
TIE ratio. This may affect the cost of debt in future. The firm has raised debt capital to pay
dividend and increase fixed assets to as far as possible.

4.4 Profitability Ratios:

Net Profit Margin (NPM) -

Net Profit Margin

Analysis of PRANs net profit reveals that initially the net profit margin insignificantly increased
from 3.612% to 3.617% between the years 2009 to 2010. Following this the net profit margin
experienced a sudden fall between the years 2010 to 2011 from 3.617% to 3.456%. The decrease
in NPM was initiated due to a significant fall of Tk. 714740 in other incomes and therefore, the
earnings after tax (EAT) increased with a smaller margin compared to the sales the company
made. However, in the following years, the NPM gradually increased from 3.456% in year 2011
to 3.523% in year 2012 to 3.527% in the year 2013. PRAN experienced this increase due to a
more significant increase in the EAT as their other income again raised as well as their sales of
those years compared to year 2011. PRANs high cost of goods sold and less other incomes
keeps its net income low.

Return on Asset Ratio (ROA)-

Return On Asset

Here, in can be deduced that the return on asset (ROA) of PRAN AMCL is declining throughout
the years 2009 to 2011 from 4.006% to 3.907% to 3.879%. However, it suddenly soared in 2012
and 2013 with a ROA of 4.463% and 4.838% respectively. AMCL PRANs lack of concentration
on their fixed assets, debt and inventories led to lower net income. That is low return result from
the companies higher than average use of debts and decreasing fixed assets.

Return on Equity Ratio (ROE)-

Return on Equity

Between 2009 and 2010, the return on equity (ROE) increased slightly by 0.0366% units from
11.104% to 11.469%. Later, from year 2011 to 2013, PRAN plummeted in ROE from the value
of 11.469% to 11.335% in 2011 to 12.202% in 2012 to 11.995% in 2013. Here, the growth of
equity was 26.98% (Change over 5 years equity/ Initial years equity* 100) and the growth of
EAT was 37.17% (Change over 5 years EAT/ Initial years EAT* 100). As the growth of earnings
after tax was greater than the growth of total equity, the ROE of the company has overall
increased.

4.5 Market Value Ratios:

Earnings Per Share

Earnings Per Share of the Last 5 years

Assessing the above graph, we can deduce that there has a drastic drop in the EPS of Pran AMCL
between the financial year 2009 to 2010. This has been mainly due to the change in the Face
Value from Tk 100 to Tk 10 in the financial year 2010. Adjusting the figures of year 2008, 2009,
and 2010 along with the change in Face Value (that is, 4.996, 5.449 and 5.686 respectively), we
can calculate that the EPS has increased by 37.8% over the last 5 years. Despite the increase, the
EPS is still quite low compared to the potential growth of the food and beverage industry in
Bangladesh. This indicates that the firm has low growth prospects and has higher risks associated
with its stocks. However, EPS does not give us the full picture about what the market thinks
about Pran AMCLs stocks; there is no indication given as to whether it is a good stock or not.

Price Earnings Ratio (P/E) -

Price Earning Ratio (times) for the Last 5 years

The P/E ratio for PRAN AMCL increased significantly by 11.5% from the FY 2008 to 2009.
However, after that rise the P/E ratio has been downward sloping, falling approximately by
38.33% over the last three financial years. This falling P/E ratio may indicate a vote of no
confidence by the market, where they are less willing to pay for companys earnings. The P/E
ratio also points that the market believes the company to have poor long-term prospects over its
current position. Hence, they are less willing to pay for the companys earning, and may view the
companys stock to be overpriced.

5.0 RECOMMENDATION
We can make the following recommendations for AMCL PRAN after analyzing their liquidity,
asset management, profitability and market value ratios:
Liquidity performance of AMCL PRAN has been poor for years 2009-2013, as it has been below
the benchmark. The liquidity ratios have been low despite an impressive days-sales collection
period of 2 weeks. Furthermore, it was revealed by the financial analysis that AMCL PRAN
heavily relies on borrowing. This increases the interest charges to pay and ties up companys
cash and cash equivalent. This could lead to serious financial problem even bankruptcy. This
means that AMCL PRAN should attempt to reduce its creditors and short-term loans, and should
strive to get rid of its inventory at a faster rate in order to bring more cash in the company.
Secondly, the profitability ratios show AMCL PRAN needs to increase its profitability ratio, both
ROA and ROE. The company is financially leveraged company as conformed through earlier
observation that AMCL PRAN has excess inventory and debt. AMCL PRAN should aim to
finance more its projects using the Equity source of fund (such as issuing common and preferred
stocks, as well as retained earnings). This would help AMCL PRAN to decrease its percentage of
leverage, which in return will help them to improve the percentage ratios.
Thirdly, the asset management ratios indicate an improved Days-Sales Collection period of 2
weeks, representing the companys strong credit policy. The company should hold the similar
policy in the future as well to keep a steady collection from debtors. However, even though there
have been slight improvements in the inventory turnover ratio, fixed asset turnover ratio and total
asset turnover ratio, it had not been reflected equally in the liquidity and profitability ratios. This
might be due to excess assets, and the company should dispose some unutilized assets in order to
improve its asset management ratios. AMCL PRAN also needs to boost its sales even further
more in order to achiever a better asset management ratios.
Lastly, the study of market value ratios have indicated that investors have lost their trust in the
shares of AMCL PRAN, as been reflected in falling price/earning ratios. Investors are not getting

enough return on their investment and such financial condition may lead to investors
withdrawing their investments and may affect the goodwill of the company negatively. In order
to regain the trust of investors, PRAN AMCL first needs to improve the previous three ratios.
Mostly, they need to decrease their dependency on debt so that the company doesnt face
financial difficulties and can avoid any case of bankruptcy. Also, net income should be increased
to increase the profitability margin, which in return will help to gain investors faith on the
company.

6.0 Conclusion
To conclude, we can say, the financial condition of AMCL PRAN Company can be said to be
performing moderately well. The company has undergone some major expansions over new
industries in the recent years, as reflected by its increase in short-term and long-term loans.
However, it is high time for the company to undertake significant changes in its structure of the
source of funds, as well as to strive to boost the sales of the companys products. Even though
our analysis has been constrained due to the unavailability of industry average statistics, we can
still conclude that AMCL PRAN appears to be financially performing below the ideal benchmark
of the Bangladeshi food and beverage industry. However, there is lot of scope and opportunities
yet to be harvested by AMCL PRAN, and with the proper balance of investments and return, the
company should be doing well in the upcoming years.

Bibliography
1. Leishman and Hussain, (2013). Food Processing Industries in Bangladesh, USDA
Foreign Agricultire Service, pp 1 - 2.
2. Retrieved from - http://www.myaccountingcourse.com/financial-ratios/inventoryturnover-ratio
3. Retrieved from - http://www.investopedia.com/terms/e/eps.asp