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Prepared For:
M. Takibur Rahman
Lecturer
Department of Accounting & Information System
Faculty of Business Administration and Management
Prepared by
Group: 01(Warrior)
Level- lI, Semester- II
Faculty of Business Administration and Management
Sl. No. Name of the students Position Roll No. Reg. No.
Financial Management-II
Course Code: FBK 221
Date of submission: 23 August 2007
To
M. Takibur Rahman
Lecturer
Department of Accounting and Information System
Faculty of Business Administration and Management
Dear Sir,
Sincerely Yours
Md. Kamruzzaman
(Group Leader)
Group: 01(Warrior)
Level-II, Semester-II
Faculty of Business Administration and Management
A cknowledgment
III
E xecutive Summary
IV
Contents
Section1
e
1. Introduction...01
1.1OriginoftheReport.02
1.2 Purpose of the Report...03
1.3 Limitation and Scope of the report. .....04
1.4 Methodology .......05
Section 2
2. Description
2.01 Company Chronology........06
2.02 Analysis of Financial Statements......07
2.03 Balance Sheet.....08
2.04 Income Statement.......10
2.05 Statement of Changes Equity.... 12
2.06 Cash Flow Statement.....13
2.07 Ratio Analysis of Financial Statements ....15
Section 3
Section 4
4.02. Recommendations.33
Section 5
5. Conclusion......35
.
7. Bibliography ..........36
8.Appendix.....37
i ntroduction
With the ever increasing size and complex items of modern business it has
become necessary for every business man to base decisions of facts expressed in
quantities form. Many new of ways of using qualitative data in making business
decisions have been developed in recent year from elementary statistical
technique. Financial statement that expresses the relationship between selected
financial statement data to compute ratio and describe their purpose and use in
analyzing a firms liquidity, profitability and solvency. Through it we will
understand the concept of earning power and indicate how the materials items
not typically of regular operations are presented. It provides us potential
information for decision making over a company in the current year with the
same item or relationship in one or more prior years.
01
03
04
This report is based on both primary and secondary data. Initially, the work is
started with data those were available at Companys Annual Report and
companys news letter. Moreover, it becomes helpful to gather some more
information from the website of the company.
Later on, the work progressed through some depth interviews of good range
professionals trying to heat some expected area of the study. After that, an
effective questionnaire is designed to collect likely data from the target group of
people.
Then we analyze those data from many angles, in different aspect and present
the information in different segment according to their category, in compact
way. We highlight different important things, which we found during our
survey. After doing all of those we submit the report to the proper authority.
05
Company Chronology
A sound system of internal and financial control has been established by Renata
Limited, which involves periodical reporting, continuous audit of different
segments of the business and budgetary control to ensure optimum utilization of
the companys resources. Renata Limited is a highly professionally managed
organization. A team of skilled professionals has been dedicating their efforts in
order to achieve the corporate objectives.
06
Analysis of Financial Statements
Financial Statement analysis is the art of transforming the data from financial
statements into information that is useful for informed decision making. The
analysis is used to determine the firms financial position so as to identify its
current strength and weakness. To take the rational decisions in keeping with the
objective of the firm, the financial statement is too much significant for the
managements. Financial statement analysis is not only important for the firms
managements, but also for the firms investors and creditors internally, financial
managers use the information provides by financial analysis to help make
financing and investing decisions to maximize the firms value. Externally,
stockholders and creditors use financial statement analysis to evaluate the
attractiveness of the firm as an investment by examining its ability to meet its
current and expected future financial obligations. Financial analysis involves the
use of various financial statements. These statements do the several things
which are as follows-
Balance Sheet
Income Statement
07
Cash flow statement
The statement of cash flows reports the cash receipts, cash payments, and net
change in cash resulting from operating, investing, and financing activities
during the year. For determining the total cash inflow and outflow of a financial
year, Renata Limited prepares the cash flow statement.
Stockholders Equity
This statement represents the companys total common stock plus additional
paid-in capital and retained earnings. It also shows the changes in equity during
the period. To identify these things Renata Limited prepares the Stockholders
Equity.
Balance Sheet
Property& Assets
The Company has the following Property & Assets: Property, plant and
equipment, capital work-in-progress, investment in subsidiaries, other
investment, trade and other receivables, advances, deposits and prepayments,
cash and cash equivalents, and other assets.
Total Assets
31 December 2005, 31 December 2006
Through this table, we see that the Total Assets TK 501,955,759 (39.38%) in
2006 is grater than then the previous year (2005).
Total Liabilities 08
31 December 2005, 31 December 2006
Through this table, we see that the total liabilities TK 293,760,167 (58.70%) in
2006 is less than then the previous year (2005).
Shareholders equity
The sources of shareholders equity are as follows:
Share capital, revaluation surplus, tax holiday reserve, proposed stock
dividend, proposed cash dividend, and retained earnings.
Shareholders equity
31 December 2005, 31 December 2006
Particulars 2005(TK) 2006(TK)
Through the above table we see that the total liabilities and shareholders equity
is TK 501,955,759 (39.38%) in 2006 is greater than the previous year (2005).
09
Income Statement
Interest Income
Renata Limited is a manufacturing company. The company produces different
type of products and sales the products. Their revenue comes from the
following different sources. The sources are divided into mainly two parts:
In non-tax holiday unit they produce and sale the different products which are-
Pharmaceutical products, Animal health products, Animal nutritional products
and ORS. In tax holiday unit they produce the potent product facility.
Net income
31 December 2005, 31 December 2006
Particulars 2005(TK) 2006(TK)
Through this table, we see that the net interest income TK 49,563,376 (25.78
%) in 2006 is grater than then the previous year (2005).
Operating expense
Renata Limited has done expenses in different sources. The sources are as
follows:
10
Expense for tax purpose
The sources of taxes are provision for tax, current tax & deferred tax:
Appropriations
The sources of Appropriation are- tax holiday reserve, proposed stock dividend,
proposed cash dividend and retain earnings.
Through this table, we see that the Profit before tax TK 49,563,376 (25.78%) in
2006 is grater than then the previous year (2005).
Through this table, we see that the earning per share TK 61.7 (25.74%) in 2006
is greater than then the previous year (2005).
11
12
Cash flow Statement
2005 2006
Net Cash from operating activities = Net Cash from operating activities =
211,455,860 69,191,290
2005 2006
Cash inflow Cash outflow Cash inflow Cash outflow
13
Cash Flows from Financing Activities:
The company has been done the following financing activities-
Medium term loan repaid, and dividend paid.
2005 2006
Cash inflow Cash outflow Cash inflow Cash outflow
- 27,398,386 - 33,160,404
Net Cash from financing activities = Net Cash from financing activities =
27,398,386 33,160,404
2005 2006
Total Cash Total Cash
Total Cash inflow Total Cash inflow
outflow outflow
1,836,265,683 1,803,934,573 2,187,740,787 2,374,581,211
Net Cash outflow = 32,331,110 Net Cash outflow = (186,840,424)
2005 2006
Opening Cash and Opening Cash
Net Cash outflows Net Cash
cash equivalents and cash
outflows
equivalents
32,331,110 (135,303,998) (186,840,424) (102,972,888)
14
Ratio Analysis of Financial Statements
Working Capital
Working capital is the excess of current assets over the current liabilities.
It is calculated by deducting current liabilities from current assets.
Working capital = Current assets - Current liabilities
2005 2006
Current assets Current liabilities Current assets Current liabilities
672,355,277 384,140,329 979,254,859 658,881,691
Working capital =288,214,948 Working capital = 320,373,168
Current ratio
The current ratio is a widely used measure for evaluating companys
liquidities & short-term debt- paying ability:
Current ratio = Current assets Current liabilities
2005 2006
Current assets Current liabilities Current assets Current liabilities
672,355,277 384,140,329 979,254,859 658,881,691
Current ratio =1.75 Current ratio = 1.49
Comment
The ideal current ratio of an organization is 1.2 times. The current ratio of
Renata Ltd. in 2005 is 1.75 times and in 2006 is 1.49 times, which is
lower than the previous year 2005. So liquidity and short-term debt paying
ability is worse than the previous year. But the Renata Ltd. has liquidity
ability 1.49 to pay the short term debt for 1 which is higher from the
probable ideal ratio.
Acid-Test Ratio
15
The acid-test ratio is a measure of a companys immediate short-term
liquidity.
Acid test ratio = (Current assets Inventories) Current liabilities
2005 2006
Current assets - Current Current assets - Current
Inventories liabilities Inventories liabilities
672,355,277 384,140,329 979,254,859 658,881,691
388.384.007 638,784,952
Acid test ratio = 0.74 Acid test ratio = 0.52
Comment
The ideal of Acid-Test Ratio an organization is 0.8 times. The Acid-Test
Ratio of Renata Ltd. in 2005 is 0.74 times and in 2006 is 0.52 times,
which is less than the previous year. Our evaluations of the liquidity ratios
suggest that Renatas liquidity position currently is poor.
Inventory Turnover
The total inventory turnover ratio measures the liquidity of inventories of
a firm. It is calculated by dividing cost of goods sold by inventories.
Inventory turnover = Cost of goods sold Average inventories
2005 2006
Cost of goods sold Average Cost of goods sold Average
inventories inventories
829,197,436 388,384,007 978,390,209 (638,784,952 +
388,384,007)
2
Inventory turnover = 2.14 Inventory turnover = 1.91
2005 2006 16
Days in the year Inventory Days in the year Inventory
turnover turnover
360 2.14 360 1.91
Inventory turnover in days = 168 Inventory turnover in days = 188
Comment
Inventory turnover ratio of Renata Ltd. in 2005 is 2.14 times and in 2006
is 1.91 times, which is lower than the previous year 2005. The average
selling time of inventories in 2005 is 168 days and in 2006 is 188 days.
The ideal industry average of inventory selling time is 92 days. Our
evaluations of the inventory turnover suggest that Renatas average days
to sale the inventories in days currently are lower than the industry
average.
2005 2006
Net credit sales Average net Net credit Average net receivables
receivables sales
1,608,555,839 162,224,078 1,927,731,88 (198,626,085+162,224,0
5 78) 2
Account receivable turnover = 9.91 Account receivable turnover = 10.68
2005 2006
Days in the year Account receivable Days in the Account receivable
turnover year turnover
360 9.91 360 10.68
Account receivable turnover in days = 36 Account receivable turnover in days =
34
Comment 17
Return on Assets
Return on Assets indicates the overall measure of profitability is return on
assets.
Return on Assets = Net income Average total assets
2005 2006
Net income Average total Net income Average total assets
assets
Comment
Return on Assets ratio of Renata Ltd. in 2005 is 15.11% and in 2006 is
15.87%, which is grater than the previous year 2005. But the ideal
industry average of return on assets is 10.9%. Our evaluations of the
return on assets suggest that Renatas profitability on assets currently is
higher than the industry average. So we think the return on assets of this
company is maintaining a good standard.
2005 2006 18
Average total
Sales assets Sales Average total assets
Comment
Total assets turnover ratio of Renata Ltd. in 2005 is 1.26 times and in 2006
is 1.26 times, which is similar with the previous year 2005. But the ideal
industry average of total assets turnover ratio is 0.6 times. Our evaluations
of the total assets turnover ratio suggest that Renatas plant and equipment
to help generate sales is higher than the industry average. So we think the
total assets turnover of this company is maintaining a good standard.
Debt to Total Assets Ratio
Debt to total assets ratio measures the percentage of total assets provided
by the creditors.
Debt to total assets ratio = Total debt Average total assets.
2005 2006
Total Debt Average total Total Debt Average total assets
assets
500,439,779 1,274,556,982 794,199,946 (1,776,512,741+1,274,556,98
2) 2
Inventory turnover = 39.26% Inventory turnover = 52.06%
Comment
Debt to total assets ratio of Renata Ltd. in 2005 is 39.26% and in 2006 is
52.06%, which is grater than the previous year 2005. But the ideal
industry average of debt to total assets is 62%. Our evaluations of the debt
to total assets suggest that Renatas debt to total assets currently is lower
than the industry average. So they have the opportunity to expand their
business by increasing their debt.
2005 2006
Total Debt Total stockholder Total Debt Total stockholder
equity equity
500,439,779 774,117,203 794,199,946 982,312,795
Debt to total equity = 64.64% Debt to total equity = 80.85%
Comment
Debt to total equity ratio of Renata Ltd. in 2005 is 64.64% and in 2006 is
80.85%, which is grater than the previous year 2005. Our evaluations of
the debt to total equity ratio suggest that Renatas debt to total equity
currently is higher than the previous year.
2005 2006
Net income- Average common Net income Average common
Preferred dividend equity -Preferred equity
dividend
192,568,261 774,117,203 242,131,637 982,312,795
Comment
Return on common shareholders equity of Renata Ltd. in 2005 is 24.88%
and in 2006 is 24.65%, which is less than the previous year 2005. But the
ideal industry average of return on common shareholders equity is 14.6%.
Our evaluations of the return on common shareholders equity suggest that
Renatas net income were earned for each taka invested by the owners is
higher than the industry average. So we think the return on common
shareholders equity of this company is maintaining a good standard.
2005 2006
Net income Net sales Net income Net sales
Comment
Net profit margin of Renata Ltd. in 2005 is 11.97% and in 2006 is
12.56%, which is grater than the previous year 2005. But the ideal
industry average of net profit margin is 15.4%. Our evaluations of the net
profit margin suggest that Renatas net income were earned for each taka
of sales is lower than the industry average. So they should decrease their
expense to increase the profit.
2005 2006
Net income- No. of common Net income No. of common
Preferred dividend share outstanding -Preferred share outstanding
dividend
192,568,261 803324 242,131,637 803324
Comment
The Earning per Share of Renata Ltd. in 2005 is 239.71 and in 2006 is
301.41 which is grater than the previous year.
Price-Earnings Ratio 21
Price-earnings ratio measures the market price of each share of common
stock to the earnings per share.
Price-earnings ratio = Market price per share Earning per share
2005 2006
Market price per Earning per Market price per Earning per
share share share share
3000 = 239.71 3099.25 301.41
Price-earnings ratio = 12.52 Price-earnings ratio = 10.28
Comment
Price-earnings ratio of Renata Ltd. in 2005 is 12.52 times and in 2006 is
10.28 times, which is less than the previous year 2005. But the ideal
industry average of price-earnings ratio is 13 times. Our evaluations of the
price earning ratio suggest that Renatas price of each share of common
stock to earning per share is lower than the industry average.
2005 2006
Dividend per Market price per Dividend per Market price per
Share share Share share
58.33 3000 70.00 3099.25
Dividend Yield Ratio = 1.94% Dividend Yield Ratio = 2.26%
Comment
Dividend yield ratio of Renata Ltd. in 2005 is 1.94% and in 2006 is 2.26%,
which is greater than the previous year 2005. Our evaluations of dividend
yield ratio suggest that Renatas dividend yield ratio is higher than
previous year.
2005 2006
Net operating profit Interest expense Net operating profit Interest
expense
316,958,675 23,002,949 404,424,412 39,765,118
Time interest earned ratio = 13.77 Time interest earned ratio = 10.17
Comment
Time interest earned ratio of Renata Ltd. in 2005 is 13.77 times and in 2006 is
10.17 times, which is less than the previous year 2005. But the ideal industry
average of time interest earned ratio is 4.9 times. Our evaluations of the time
interest earned ratio suggest that Renatas annual interest payment is higher
than the industry average. So we think the time interest earned ratio of this
company is maintaining a goods standard.
2005 2006
Common divided Number of Common divided Number of
shares shares
46,860,550 803320 56,232,700 803320
Dividend per Share = 58.33 Dividend per Share = 70.00
Comment
Dividend per share of Renata Ltd. in 2005 is 58.33 and in 2006 is 70,
which is greater than the previous year 2005. Our evaluations of dividend
per share suggest that Renatas try to increase its dividend per share.
2005 2006
Cash dividend Net income Cash dividend Net income
Comment
Dividend payout ratio of Renata Ltd. in 2005 is 24.33% and in 2006 is
23.22%, which is less than the previous year 2005. But the ideal industry
average of dividend payout ratio is 16%. Our evaluations of the dividend
payout ratio suggest that Renatas earnings distributed in the form of cash
dividends is higher than the industry average. So we think the time dividend
payout ratio of this company is maintaining a goods standard.
Ratios
Particulars Industry
2006 2005 High Low O.K.
average
Current ratio 1.49 1.75 1.2
Acid test ratio 0.52 0.74 0.8
Inventory turnover 1.91 2.14 3.9
Inventory turnover 188 168 92 days
in days
Receivable
10.68 9.91 3.1
turnover
DSO 34 days 36 days 116.1 days
Return on assets 15.87% 15.11% 10.9%
Total assets 0.6
1.26 1.26
turnover
Debt to assets ratio 52.06% 39.26% 62.0%.
Debt to equity ratio 80.85% 64.64%
Return on equity 24.65% 24.88% 14.6%
Net profit margin
12.56% 11.97% 15.4%
ratio
Time interest
10.17 13.77 4.9
earned ratio
Earning per 239.71
301.41
share
Price earning ratio 10.28 12.52
13
Dividend per
70.00 58.33
share
Dividend yield
ratio
2.26% 1.94%
Dividend pay
23.22% 24.33% 16%
out ratio
25
Graphical Presentation of the Financial Statement Analysis
26
27
28
Overall Comment about Renata Limited
For analysis the financial conditions of Renata Limited we can segregate the
financial statements (ratios) of Renata Limited into four different parts -
liquidity ratios, asset management ratios, debt management ratios, and
profitability ratios. These ratios can be used to evaluate the overall condition of
any company. Here we providing the overall comments about Renata Limited
based on the liquidity ratios, asset management ratios, debt management ratios,
and profitability ratios.
In case of liquidity ratios, their current ratio is decreased than the previous year
but it is higher than the industry average. Side by side their quick ratio is
decreased than the previous year and the industry average. So we can say that
for current ratio their have some little idle money. But in case of quick ratio at
the present rate it is not possible for the company to pay its bills as they come
due. In case of asset management their inventory turnover in days is higher than
the previous year and industry average. This suggests that inventory stocks of
Renata Limited are higher than they need to be. Side by side DSO is in better
position in comparison with previous year.
In case of debt management, Renata Limiteds debt to asset ratio is higher than
the previous year but lower than the industry average. So they have the
opportunity to increase their debt up to 10% to expand their business. Their
debt to equity ratio is higher than the previous year and they have to maintain
the standard. In case of profitability position of this company return on assets
is increased than the previous year and industry average. Return on equity is
decrease than the previous year but both are higher than the industry average.
Net profit margin is increase than the previous year and industry average. So
we can say that, overall the companys profitability position is good in spite of
their net profit margin slightly lower than the industry average.
At last we conclude that, their financial condition is not bad and need to keep
the wheel of prosperity for future.
F INDINGS
29
From the analysis of the financial statement of Renata Ltd. we have found
the followings:
Renata Ltd. prepared consolidated financial statement in accordance to the
Bangladesh Accounting Standards 27.
Financial statement has been prepared under the historical cost convention
as modified to include revaluations of certain property, plant and
equipment.
The cost of the day-to-day servicing of property, plant and equipment are
recognized in the profit and loss account as incurred.
The company has applied for tax holiday on unit-4 (potent product
facility) for a period of 4 years from September 2006 to August 2010; the
approval is yet to be received.
The current ratio of Renata Ltd. in 2005 is 1.75 times and in 2006 is 1.49
times, which is lower than the previous year 2005
The Acid-Test Ratio of Renata Ltd. in 2005 is 0.74 times and in 2006 is
0.52 times, which is less than the previous year.
The average selling time of inventories in 2005 is 168 days and in 2006 is
188 days.
The firms ability to collect its credit sales is occurred in 36 days in 2005
and in 2006 is 34 days which is lower than the previous year 2005.
Total assets turnover ratio of Renata Ltd. in 2005 is 1.26 times and in 2006
is 1.26 times, which is similar with the previous year 2005.
31
Debt to total equity ratio of Renata Ltd. in 2005 is 64.64% and in 2006 is
80.85%, which is grater than the previous year 2005
Net profit margin of Renata Ltd. in 2005 is 11.97% and in 2006 is 12.56%,
which is grater than the previous year 2005.
The Earning per Share of Renata Ltd. in 2005 is 239.71 and in 2006 is
301.41 which is grater than the previous year
Dividend yield ratio of Renata Ltd. in 2005 is 1.94% and in 2006 is 2.26%,
which is greater than the previous year 2005.
Time interest earned ratio of Renata Ltd. in 2005 is 13.77 times and in
2006 is 10.17 times, which is less than the previous year 2005.
R ECOMMENDATIONS
32
Our valuation of the debt to total assets suggests that Renatas debt to
total assets currently is lower than the industry average. So they have the
opportunity to expand their business by increasing their debt.
Our evaluations of the debt to total equity ratio suggest that Renatas
debt to total equity currently is higher than the previous year. So they 33
should maintain this permanence.
Our evaluations of the net profit margin suggest that Renatas net
income were earned for each taka of sales is lower than the industry
average. So they should increase their net profit volume.
The Earning per Share of Renata Ltd. in 2005 is 239.71 and in 2006 is
301.41 which is grater than the previous year which is good for the
company and they should keep the steadiness of the increasing level of the
earning per share.
Our consideration of the net price earning ratio that Renatas price of
each share of common stock to earning per share is lower than the
industry average. So the company needs to increase its price earning ratio
with the industry average.
34
C onclusion
35
Bibliography
01. Besley Scott and Brigham Eugene f. Essentials of Managerial finance,
International student edition, Thirteen Edition, Thomson South-Western,
6April 2006, p. Al.
Appendix 36
Dividend Yield Ratio = Dividend per Share Market price per share
37