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Performance evaluation and financial forecasting

of Fu-Wang Foods Ltd. and Golden Harvest
Agro Industries Ltd.

Course Title: Financial Management

Course Code: Fin 501
Section: 01

Prepared for:
Dr. Sujit R. Saha
East West University

Prepared By:

NAME ID NO:

MOUMITA AKTER 2018-2-95-035

MASHRUR SAYHAM 2018-1-95-058

MAHABUB HOSSAIN 2018-1-95-057

SAYED IMRAN ALI 2018-1-95-108

Date of submission: 29th June, 2019

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Letter of transmittal
29th June, 2019

Dr. Sujit R. Saha

Lecturer

Department of MBA

East West University

Dear Sir,

It is a great pleasure for us to submit the term paper on “Performance evaluation and financial
forecasting of Fu-Wang Foods Ltd. and Golden Harvest Agro Industries Ltd.”, which is
prepared for the requirement of course named “Financial Management” of MBA program under
department of MBA, East West University.

This study has given us the opportunity to learn how to evaluate the financial statement and
calculate their Ratio and how to compare their result among the different years through analysis
and forecast them. The experiences that we have gathered through this study will help us in our
future career. We would like to convey our special thanks and gratitude to you for encouraging
us and giving us proper guidance and valuable advice. We have tried our best to cover all the
relevant fields.

Sincerely yours,

NAME ID NO:

MOUMITA AKTER 2018-2-95-035

MASHRUR SAYHAM 2018-1-95-058

MAHABUB HOSSAIN 2018-1-95-057

SAYED IMRAN ALI 2018-1-95-108

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Contents
PART A:
1. Industry Overview………………………………………………………………….…………5
2. BACKGROUND OF THE COMPANIES………………………………...…………..…..…6
2.1 Company Profile of Fu-wang Foods Ltd.…………………………………..………………....6
2.2 Company Profile of Golden Harvest Agro Industries Ltd…..………..…………….................7
3. Objectives, Methodology & Limitations ………………………………..…………………...8

PART B:
1. Liquidity Analysis……………………….…………………………………………………….9
1.1 Current Ratio…………………………….…………………………………………………….9
1.2 Quick Ratio……………………………....……………………………………………..........10
1.3 Segment………………………………...…………………………………………………….11
2. Asset Management Analysis………..………………………………………………………..12
2.1 Inventory turnover Ratio…………………………………………………………………......12
2.2 Days Sales Outstanding ....…………………………………………………………………..13
2.3 Fixed Asset turnover Ratio………………………………………………………………......14
2.4 Total Asset Turnover Ratio….……………………………………………………………….15
2.5 Segment………………………………………………………………………………………17
3. Debt Analysis………………………………………………………………………………....17
3.1 Debt ratio…………………………………………………………………………………….17
3.2 Times interest earned………………………………………………………………………...19
3.3 Segment……………………………………………………………………………………...20
4. Profitability Analysis...............................................................................................................20
4.1 Net Profit Margin Ratio……………………………………………………………………..21
4.2 ROA…………………………………………………………………………………………22
4.3 ROE………………………………………………………………………………………….23
4.4 Segment ……………………………………………………………………………………..24
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5.
Summary………………………………………………………………………………………
…………………………..24

PART C
1. Forecasting…………………………………………………………………………………...26
1.1 Fu-Wang foods LTD Forecasting……...……………………………………………..….......26
1.2 Golden Harvest Agro Industries Ltd Forecasting…………………………………………....30
2. Analysis……………………………………………………………………………………….34

PART D:
Conclusion……………………………………………………………………………………….45
References……………………………………………………………………………………….45
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Part A
1.Industry Overview
Food industry is a rapidly growing sector in Bangladesh, employing a significant portion of the
labor force in the country. Between 2004 and 2010, the food processing industry in Bangladesh
grew at an average 7.7 percent per annum. Bangladesh Bureau of Statistics, in its 25006
Economic Census, reported that there were approximately 246 medium-sized food processing
industries employing 19 percent of the industrial manufacturing workforce in Bangladesh or 8
percent of the total manufacturing labor force. The food industry employs 2.45 percent of the
country’s total labor force and its share in the GDP was 2.01 percent in 2010. There are also
numerous small scale factories and domestic units engaged in food processing throughout the
country. According to some industry analysts, the food processing sector in Bangladesh is a 4.5
billion US Dollar industry. In 2010, Bangladesh exported over $700 million worth of processed
food and beverages, over 60 percent of them were shrimp and fish products.

Food processing in Bangladesh has traditionally been small scale, with domestic or family
business using common processing knowledge for the conservation and handling of raw
agricultural commodities to make them usable as food and feed. Although commercial scale food
processing using modern technology especially for wheat and rice milling, mustard seed
crushing and very limited bread and cookie manufacturing appeared during the 1960s, the
growth of this sector did not gain momentum in terms of operational scale and quality until the
1980s. Recently the defining characteristics of the industry has been the processing of
increasingly diverse products to meet the changing demands of the Bangladesh population. The
major food processing sub-sectors in Bangladesh include dairy, edible oil, sugar, rice, wheat,
fruit and vegetable, tea, poultry/beaf, pulses and spices and fish processing industries. Induced
by the vigorous growth of the diverse middle class population of Bangladesh and the growing
demands for additional consumption, the food processing sector is set to witness further hefty
expansion in the coming years. (Wikipedia, 5th January,2017)
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2.Back ground of the companies

2.1: Company Profile of Fu-wang Foods Ltd:

Fu-Wang Foods Ltd is a public ltd companies, incorporated with joint stock companies and Firm
Bangladesh also publicly listed with Dhaka Stock Exchange Ltd And Chittagong Stock
Exchange Ltd.

Fu Wang Foods Limited commenced its commercial production in August 1997 and achieved
ISO-9002 certification on 04th November 1998.

Since inception Fu Wang Foods Limited introduces different pack food items like Bread, Biscuit,
Cake, Toast, Wafer bar, Chocolate, Instant Noodles, Drinking water, Carbonated Drinks, Energy
Drinks etc. and were appreciated throughout the globe.

Fu-Wang Foods company profile at a glance: Company Name: Fu-Wang Foods Limited, Date
of Incorporation: 17 February 1997, Listed in Dhaka Stock Exchange: July 2000, Listed in
Chittagong Stock Exchange: July 2000, Commercial Production: August 1997, ISO
Certification: ISO-9002 Certified on 04 November 1998, Business line: Food Processing
Industry, Authorized Capital: Tk. 1,500 Million, Paid-up Capital: Tk. 1007.63 Million, Number
of Employees: 1659 Persons. (Fu-Wang foods limited website)
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2.2. Company Profile of Golden Harvest Agro Industries Ltd:

Golden Harvest is Bangladesh’s one of the leading business groups with diversified interests in
Food, Dairy, Commodity, Information Technology, Logistics, Real Estate, Aviation,
Infrastructure Development and Insurance. Golden Harvest has been a pioneering force in the
frozen food sector in Bangladesh and is the country’s first company to develop its own Cold
Chain network in collaboration with USAID.

Golden Harvest started its journey as a Commodity Brokerage company and later on expanded
its business and is now a leading force behind various business sectors and employing over 5000
People. Golden Harvest is also the Joint Venture partner of Nippon Express, Asia’s largest
logistics company with network in over 480 locations worldwide.

Golden Harvest strongly believes in giving back to the society and runs a CSR program that
includes Bangladesh Human Rights Foundation, TAC Charitable Hospital, Alvina Samdani Trust
and Samdani Art Foundation that organizes Dhaka Art Summit, the largest non-commercial
South Asian art dedicated event.

MISSION: Consistently deliver international standard innovative products & services for
improved lifestyle. VISION: To be the most trusted and preferred brand to every household in
Bangladesh.

3.Objectives, Methodology & Limitations

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Objectives:

 To gain deep knowledge about financial situation of these two companies.

 To evaluate the financial report of these two company.
 To analyze the ratio of these two company and compare them.
 To forecast financial statement of these two company and analyze them.

Methodology:

 We have used different kind of secondary data in this term paper.

 We have used annual reports published by these companies.
 We have also collected data from these company’s websites.
 We have used ratio analysis to take decisions.
 For ratio analysis, we have used different kinds of variables like: Total asset, Earning
asset, Net income, ROA etc.

Limitations:

 The time was limited so we could not make our work perfect.
 We used secondary data but we know that primary data is more accurate then secondary
data.
 We have done this kind of report for the first time so we did not have enough knowledge
of how to do this which effects our work too.
 Forecasting a company’s financial situation cannot be accurate because it doesn’t
happened yet.
 We couldn’t find any industry average of the ratios to compare.
 We only used two company of food sector to compare their situation.

Part B
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Ratio Analysis, Segment Analysis & Summary

1: Liquidity analysis:
Liquidity Analysis measures the ability to meet the near-term obligations and ability to convert
into cash. Short-term lenders and creditors must assess the ability of a firm to meet its current
obligations. The ability depends on the cash resources available as of the balance sheet date and
the cash to be generated through the operating cycle of the firm.

1.1: Current Ratio:

The current ratio is a liquidity ratio that measures a company’s ability to pay short-term
obligations or those due within one year. It tells investors and analysts how a company can
maximize the current assets on its balance sheet to satisfy its current debt and other payables.
The current ratio is calculated as follows:

Current Assets
Current ratio =
Current Liabilities

Company 2014 2015 2016

Fu-Wang foods Ltd. 2.47x 2.40x 2.26x
GHAIL 1.9x 1.3x 0.9x

Fu-Wang Foods Ltd: We can see that Fu-Wang foods 2014’s current ratio was 2.47 times. It
reduced to 2.40 times in 2015 and further reduced to 2.26 times in 2016. It happened because the
current assets of the company was significantly increasing every year but on the other hand the
current liabilities was also increasing at a significant rate. They need to reduce their current
liability otherwise the current ratio will be decrease more in the next year.
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GHAIL: We can see that Golden Harvest Agro Food Industry’s 2014 current ratio was 1.9
times. It reduced to 1.3 times in 2015 and further reduced to 0.9 times in 2016. It happened
because the current assets of the company was decreased from 2014 to 2015 but it increased in
2016 more than 2014 but on the other hand the current liabilities was increasing at a significant
rate Specially in 2016 it just high jumped. They need to reduce their current liability otherwise
the current ratio will be decrease more in the next year.

Comparison: According to the data the current ratios of Fu-Wang foods ltd are in better position
than the Golden Harvest. Fu-Wang foods current ratios of 2014, 2015, 2016 all are above 2 times
on the other hand Golden Harvest’s ratios are below 2 times (one of them is below 1 times). And
the main reason for this situation is their high current liabilities.

1.2: Quick Ratio:

The quick ratio or acid test ratio is a liquidity ratio that measures the ability of a company to pay
its current liabilities when they come due with only quick assets. Quick assets are current assets
that can be converted to cash within 90 days or in the short-term. The quick ratio is calculated as
follows:

Current Assets−Inventories
Quick Ratio =
Current Liabilities

Company 2014 2015 2016

Fu-Wang foods Ltd. 1.92x 1.86x 1.77x
GHAIL 1.64x 1.04x 0.67x

Fu-Wang Foods Ltd: We can see that Fu-Wang foods 2014 quick ratio was 1.92 times. It
reduced to 1.86 times in 2015 and further reduced to 1.77 times in 2016. It happened because the
current assets of the company was significantly increasing every year as well as the inventories
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but on the other hand the current liabilities was also increasing at a significant rate. They need to
reduce their current liability and inventories otherwise the current ratio will be decrease more in
the next year.

GHAIL: We can see that Golden Harvest Agro Food Industry’s 2014 Quick ratio was 1.64
times. It reduced to 1.04 times in 2015 and further reduced to 0.67 times in 2016. It happened
because the current assets of the company was decreased from 2014 to 2015 but it increased in
2016 more than 2014 and its inventories are also increasing every year but on the other hand the
current liabilities was increasing at a significant rate too Specially in 2016 it just high jumped.
They need to reduce their current liability and inventories otherwise the current ratio will be
decrease more in the upcoming year.

Comparison: According to the data from 2014, 2015 & 2016 we can clearly see that the quick
ratio of Fu-Wang foods is better than the quick ratio of Golden Harvest. That’s because Fu-Wang
foods inventories are low and Golden Harvest has huge current liabilities. To recover from this
situation Golden Harvest needs to control its current liabilities.

1.3: Segment Analysis of Liquidity:

Fu-Wang foods Ltd: Though we don’t have any industry average to compare but it seems like
Fu-Wang foods liquidity position is quite good. That means they have the ability to meet the
near-term obligations and ability to convert into cash. They are using their resources efficiently.
Their working capital management is good. But we can see that their liquidity position is
decreasing year by year. Which is not good for the company.

GHAIL: It seems like Golden Harvest’s liquidity is decreasing rapidly year by year. The main
cause behind this is the high current liabilities. Their current asset is growing year after year but
it’s not growing fast enough if we compare it to the current liabilities. And their inventory is high
too.
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Comparison: If we compare the liquidity position of Fu-Wang foods and Golden Harvest we
can clearly say that the liquidity position of Fu-Wang foods is stronger than Golden Harvest.
Though Golden Harvest is a big company Fu-Wang foods managing their liquidity more
efficiently. But both of theirs Liquidity is decreasing year by year. They have to give more
attention on their current liabilities.

2: Asset Management Analysis:

Asset management (turnover) ratios compare the assets of a company to its sales revenue. Asset
management ratios indicate how successfully a company is utilizing its assets to generate
revenues. Analysis of asset management ratios tells how efficiently and effectively a company is
using its assets in the generation of revenues. They indicate the ability of a company to translate
its assets into the sales.

2.1: Inventory Turnover Ratio:

The inventory turnover ratio is an efficiency ratio that shows how effectively inventory is
managed by comparing cost of goods sold with average inventory for a period. In other words, it
measures how many times a company sold its total average inventory dollar amount during the
year. The Inventory turnover ratio is calculated as follows:

COGS
Inventory Turnover Ratio =
INVENTORIES

Company 2014 2015 2016

Fu-Wang Foods Ltd 4.2x 3.3x 2.97x
GHAIL 2.22x 1.63x 2.41
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Fu-Wang foods Ltd: Inventory turnover ratio of Fu-Wang foods Ltd is 4.2 times in the year of
2014 then it decreases to 3.3 times at the year of 2015 than it again decreases to 2.97 times at the
year of 2016. The ratio suggest that from the year of 2014 to 2016 the cost of goods sold were
decreasing year by year but on the other hand they are stocking excess amount of inventory. To
improve this situation needs to concentrate on their inventory management.

GHAIL: Inventory Turnover Ratio of Golden Harvest was 2.22 times in 2014, 1.63 times in
2015 and 2.41 times in 2016. If we see the income statement and balance sheet we will notice
that in 2014 and 2015 the COGS was increasing in normal rate but in 2015 they stocked excess
amount of inventories. But in 2016 the COGS increased almost by 2 times from 2015. But the
increase rate of inventories were normal. So we can say they can improve their situation by
improving their inventory management.

Comparison: If we compare the inventory turnover ratio of Fu-Wang foods and Golden Harvest
we can clearly notice that Fu-Wang food is way more efficient than Golden Harvest. Golden
Harvest need to work on their inventory management. Though Fu-Wang foods is in a better
position than Golden Harvest they also needs to concentrate on their inventory management as
their inventory turnover ratio is decreasing year by year.

2.2. Days Sales Outstanding:

Day sales outstanding (DSO) is a measure of the average number of days that it takes a company
to collect payment after a sale has been made. It helps us to understand how good a company’s
credit policy is and their efficiency of collecting account receivables. We can calculate a
company’s DSO using this calculation:

Account Receivables
DSO =
Avarage Daily Sales

Company 2014 2015 2016

Fu-Wang Foods Ltd 75 days 105 days 135.7 days
GHAIL 189.6 days 106.7 days 194.9 days
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Fu-Wang foods Ltd: We can see that in the year of 2014 the company’s DSO was 75days. It
increased in 2015 to 105 days and in 2016 it farther increased to 135days. It indicates that the
company is losing its efficiency to collect its receivables timely which is creating money
problem in the company.

GHAIL: Golden Harvest’s DSO in the year of 2014 was 189 days. It decreased to 106 days in
2015 which indicates that it was collecting its receivables timely. But again it goes way more up
to 194 days in 2016. I think they need to rethink about their credit sales policy.

Comparison: Both of the company’s receivable collecting policy and credit sales policy is
almost same. But they have to improve their policy. Specially Golden Harvest needs immediate
attention on their credit sales policy because their DSO way more up then Fu-Wang foods.
Golden harvest and Fu-Wang foods DSO was only good in 2015.

2.3 Fixed Asset Turnover Ratio:

Fixed-asset turnover is the ratio of sales (on the profit and loss account) to the value of fixed
assets (on the balance sheet). It indicates how well the business is using its fixed assets to
generate sales. Generally speaking, the higher the ratio, the better, because a high ratio indicates
the business has less money tied up in fixed assets for each unit of currency of sales revenue. A
declining ratio may indicate that the business is over-invested in plant, equipment, or other fixed
assets. The calculation of finding the fixed asset turnover ratio is:

Sales
Fixed asset turnover ratio = Assets ¿
Net ¿

Company 2014 2015 2016

Fu-Wang Foods Ltd 1.7x 1.6x 1.4x
GHAIL 0.3x 0.3x 0.4x
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Fu-Wang foods Ltd: Fixed asset turnover of Fu-Wang foods in the year of 2014 was 1.7 times,
it was 1.6 times in 2015 and 1.4 times in 2016. Their Fixed asset turnover ratio is declining year
by year. To avoid this problem and improve this situation they needs to be more careful about
their investment on fixed asset and they needs to increase their sales.

GHAIL: Golden Harvest’s ratio of fixed asset turnover in the year of 2014 was 0.3 times. It
remains same in the year of 2015 and it increase to 0.4 times in the year of 2016. It seems like
their fixed asset turnover is improving year by year but altogether there situation is very horrible.
They needs to increase their sales and invest in good fixed assets.

Comparison: If we compare the fixed asset turnover ratios of Fu-Wang foods and Golden
Harvest we can see that Fu-Wang foods position is much better than Golden Harvest. But Fu-
Wang foods fixed asset turnover is decreasing year by year but on the other hand Golden
Harvest’s fixed asset turnover is increasing. But both of them needs to prevent buying more fixed
asset and concentrate on using existing fixed assets and use them to increase sales.

2.4. Total assets turnover ratio:

The asset turnover ratio is an efficiency ratio that measures a company’s ability to generate sales
from its assets by comparing net sales with average total assets. In other words, this ratio shows
how efficiently a company can use its assets to generate sales. It measures the value of a
company’s sales or revenues relative to the value of its assets. The asset turnover ratio can be
used as an indicator of the efficiency with which a company is using its assets to generate
revenue. The higher the asset turnover ratio, the more efficient a company. Conversely, if a
company has a low asset turnover ratio, it indicates it is not efficiently using its assets to generate
sales. We can find total asset turnover by using this ratio:

Sales
Total Assets Turnover =
Total Assets
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Company 2014 2015 2016

Fu-Wang foods Ltd. 0.7x 0.6x 0.5x
GHAIL 0.2x 0.2x 0.3x

Fu-Wang Foods Ltd: The total assets turnover ratio of Fu-Wang foods Ltd was 0.7 times in the
year of 2014, it decreases to 0.6 times in 2015 and it further decreases to 0.5 times in 2016. It
clearly indicates that they could not utilized their assets properly to raise their sales. They needs
to reduce their inventories and receivables.

GHAIL: Golden Harvest’s Total asset turnover ratio was 0.2 times in the year of 2014. It
remains same in the year of 2015 and it increases to 0.3 times in the year of 2016. We can see
from the data that their total asset turnover ratio is very much poor. But in the year of 2016 it
increases a little bit. They needs to take action to ensure the proper use of their assets and
increase their sales.

Comparison: The total asset turnover ratios of the both company is very poor. But Fu-Wang
foods situation is better than Golden Harvest. Golden Harvest’s total asset turnover ratio
increases a bit in 2016 but on the other hand Fu-Wang foods ratio is decreasing year by year.
Both of the company needs to improve their situation by utilizing their assets properly and
reduce their receivables and inventories and increase their sales.

2.5. Segment Analysis of Asset Management:

Fu-Wang Foods Ltd: The liquidity position of Fu-Wang foods Ltd was a little down in the year
of 2015 and 2016. In this situation they needs to increase their inventory turnover, they needs to
market new products and needs to improve their credit sales policy and collecting receivables
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policy. Then they can go back to their good former position like 2014. They also have to utilize
their total assets properly and increase their sales revenue.

GHAIL: The asset management situation of Golden Harvest is very poor. The main reason
behind this is they couldn’t increase their sales. Maybe high price of their product is the reason
behind this. Their marketing is not going so well that’s why their inventory turnover ratio is not
increasing. They also needs to concentrate on their credit sales policy.

Comparison: Both Fu-Wang foods and Golden Harvest needs to improve their Market policy
and credit sales policy. They couldn’t timely collecting money and for that they are borrowing
money which is not good for their company. But Fu-Wang foods asset management situation is
way better than Golden Harvest.

3: Debt Management Analysis:

Debt ratios measure the firm’s ability to repay long-term debt. It is a financial ratio that indicates
the percentage of a company’s assets that are provided via debt. Debt coverage ratios allow in
turn to check, whether the company is able to seamlessly cover the liabilities resulting from the
available capital. In particular, the analysis is related to the ability of principal repayment and
interest coverage.

3.1: Debt Ratio:

The debt ratio is a financial ratio that measures the extent of a company’s leverage. The debt
ratio is defined as the ratio of total debt to total assets, expressed as a decimal or percentage. It
can be interpreted as the proportion of a company’s assets that are financed by debt. In other
words, this shows how many assets the company must sell in order to pay off all of its liabilities.
The Debt ratio is calculated by:
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Total Liabilities
Debt Ratio =
Total Assets

Company 2014 2015 2016

Fu-Wang Foods Ltd 28.9% 29.1% 29.91%
GHAIL 86.9% 53.1% 31.7%

Fu-Wang Foods Ltd: Fu-Wang foods ratio was 28.9% in the year of 2014. It increased to
29.1% in the year of 2015 and further increased to 29.91% in the year of 2015. That means 29 to
30 percent of their total investment comes from the loan. And another 70% comes from the share
they have sold which is good. But their Debt is increasing a little bit year by year. They have to
control it for their own good.

GHAIL: Golden Harvest’s Debt ratio was 86.9% in the year of 2014. It decreased to 53.1% in
the year of 2015 and further decreased to 31.7% in the year of 2016. We can see that in 2014 the
company’s almost 87% of the investment came from loan but they sell their shares and
successfully reduced it to 53% within one year. And they further reduced it to 31.7% in 2016
which is a good debt position.

Comparison: Golden Harvest’s 2016 debt position was good but it was worst in 2014 and 2015.
They were on the brink of bankruptcy but they overcame from the situation successfully. On the
other hand Fu-Wang debt position was good in 2014, 2015 and 2016. But it is increasing a little
bit every year. Overall Fu-Wang foods Debt ratio is far better than Golden Harvest.

3.2: Times Interest Earned Ratio:

Times interest earned (TIE) is a metric used to measure a company’s ability to meet its debt
obligations. TIE indicates how many times a company can cover its interest charges on a pretax
 P a g e | 19

earnings basis. Failing to meet these obligations could force a company into bankruptcy. TIE is
also referred to as the interest coverage ratio. The formula of times interest earned ratio is:

Earnings Before Interest∧Tax

TIE =
Interest Charges

Company 2014 2015 2016

Fu-Wang Foods Ltd 8.54x 10.73x 9.78x
GHAIL 2.8x 1.8x 2.1x

Fu-Wang Foods Ltd: Fu-Wang foods TIE in 2014 was 8.54 times, it increased to 10.73 times in
2015 but decreased to 9.78 times in 2016. Altogether their TIE ratio is very good. It indicates
that the earnings of the company is very good.

GHAIL: Golden Harvest’s TIE ratio in the year of 2014 was 2.8 times. It decreased to 1.8 times
in the year of 2015 and then again increased to 2.1 times. So we can see their TIE was good only
in the year of 2014. After that their earnings were going downwards and they are facing
difficulties to pay their interest on debt.

Comparison: If we compare the TIE ratio of Fu-Wang foods and Golden Harvest we can
confidently say that Fu-Wang foods is in way better position than Golden Harvest. Golden
Harvest’s position is not so good. They have to increase their income by increase their selling. Or
they will be face difficulties to pay their interest in near future.

3.3: Segment analysis of Debt Management:

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Fu-Wang Foods Ltd: After analyzing the data we found we can say that Fu-Wang foods Debt
Management is very good. Their Debt is low against their assets. Their income is high. They are
controlling their COGS very efficiently. If they can continue their present situation they will not
face any financial crisis.

GHAIL: After analyzing the data we found we can say that Golden Harvest’s Debt Management
is very poor. They have to reduce their debt more and increase their sales. We can see the
company could not making enough profit that’s why they are borrowing money from the outside.
If this situation goes on there is possibility of bankruptcy of the company. But in 2016 they
showed some improvement and they have to continue this improvement.

Comparison: Fu-Wang foods position is better than Golden Harvest from every angle. Their
Debt is low against their assets. Their income is high, they are controlling their COGS very
efficiently in compare to Golden Harvest. And Golden Harvest needs to concentrate in this
sectors.

4: Profitability Analysis:
Every firm is most concerned with its profitability. One of the most frequently used tools of
financial ratio analysis is profitability ratios, which are used to determine the company’s bottom
line and its return to its investors. Profitability measures are important to company managers and
owners alike. If a small business has outside investors who have put their own money into the
company, the primary owner certainly has to show profitability to those equity investors.
Profitability ratios show a company’s overall efficiency and performance. There are so many
financial ratios, liquidity ratios, debt or financial leverage ratios, efficiency or asset management
ratios, and profitability ratios, that it is often hard to see the big picture. The business owners can
use to summarize all of the ratios is to use the Dupont Model.

4.1: Net Profit Margin:

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The net profit margin is equal to how much net income or profit is generated as a percentage of
revenue. Net profit margin is the ratio of net profits to revenues for a company or business
segment. Net profit margin is typically expressed as a percentage but can also be represented in
decimal form. The net profit margin illustrates how much of each dollar in revenue collected by
a company translates into profit. The formula of Net profit margin is:

Net Profit
Net Profit Margin =
Assets

Company 2014 2015 2016

FU-Wang Foods Ltd 7.5% 13.4% 11.23%
GHAIL 14.8% 11.06% 12.30%

Fu-Wang Foods Ltd: Fu-Wang foods net profit margin was 7.5% in 2014. It increased to 13.4%
in the year of 2015 but again it decreased to 11.23% in 2016. Which means its sales and net
profit was low in 2014 but it increased its sales and profit in 2015 but in 2017 they purchased
some assets which decreased their net profit margin in 2016.

GHAIL: Golden Harvest’s Net Profit Margin was 14.8% in the year of 2014, then it decreased
to 11.06% in the year of 2015 and little bit increased to 12.30% in 2016. Which means its sales
and net profit was high in 2014 but they decreased in 2015 and little bit increased in 2016.

Comparison: Both of the company’s net profit is good. But Golden Harvest’s Net profit is better
than Fu-Wang Foods. But Golden Harvest company’s debt is high that’s why their other costs
are also high. Fu-Wang foods net profit ratio is not so bad but there is some scope for
improvement.

4.2: Return on Assets:

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Return on assets is a profitability ratio that provides how much profit a company is able to
generate from its assets. In other words, return on assets (ROA) measures how efficient a
company’s management is in generating earnings from their economic resources or assets on
their balance sheet. ROA is shown as a percentage, and the higher the number, the more efficient
a company’s management is at managing its balance sheet to generate profits. ROA can be
calculated by using this equation:

Net Income
ROA =
Total Assets

Company 2014 2015 2016

Fu-Wang Foods Ltd 5.1% 8.2% 5.81%
GHAIL 2.82% 2.14% 3.48%

Fu-Wang foods Ltd: Fu-Wang foods ROA of 2014 was 5.1%. It increased to 8.2% in the year
of 2015. But it reduced to 5.81% in the year of 2016. It’s indicates that used their assets properly
in 2015 but they couldn’t use it properly in 2014 and 2016. They need to concentrate on their
asset management and increase profit by this.

GHAIL: Golden Harvest’s ROA of 2014 was 2.82%, in 2015 it was 2.14% and in 2016 it was
3.48%. Which indicates that they are buying many assets but they are not using those assets
properly to maximize their profit. They needs to focus on their asset management.

Comparison: Between Fu-Wang foods and Golden Harvest Fu-Wang foods using their assets
properly to maximize their net income. That’s why they are in better position than Golden
Harvest Agro Industries Ltd.

4.3 Return on Equity:

 P a g e | 23

The return on equity ratio or ROE is a profitability ratio that measures the ability of a firm to
generate profits from its shareholders investments in the company. In other words, the return on
equity ratio shows how much profit each dollar of common stockholders’ equity generates. ROE
is also an indicator of how effective management is at using equity financing to fund operations
and grow the company.

Net Income
ROE =
Total Equity

Company 2014 2015 2016

Fu-Wang Foods Ltd 7.1% 11.6% 8.29%
GHAIL 5.28% 4.60% 8.58%

Fu-Wang Foods Ltd: Fu-Wang foods ROE in the year of 2014 was 7.1%. It increased in 2015
by 11.6% and decreased to 8.29% in the year of 2016. It indicates that they earned highest profit
in 2015. They earned 11.6% against each dollar of the shareholders. But it decreased in 2016.

GHAIL: Golden Harvest’s ROE in 2014 was 5.28%. It decreased to 4.60% in 2015 and letter
increased to 8.58% in the year of 2016. We can notice that their ROE almost doubled from 2014
to 2016 that’s because of their Debt ratio reduced almost double from 2014 to 2016.

Comparison: Among Fu-Wang foods and Golden Harvest Fu-Wang foods is better position in
return on equity. Because they are returning more percentage to their owner against their
invested money. But they should more efficient on their use of assets because their percentage is
declining. And Golden Harvest needs better asset management and reduce their debt percentage
or they will face major financial problem.

4.4: Segment Analysis of Profitability:

 P a g e | 24

Fu-Wang foods Ltd: Fu-Wang foods net profit is good but their Return on asset is not
satisfying. They needs to concentrate on their asset management. But their Return on equity is
fair. But they have scope to increase this. They needs to utilize their asset more efficiently or
decrease their assets on hand.

GHAIL: Golden Harvest’s net profit is good but their Return on asset is not satisfying. They
needs to concentrate on their asset management. But their Return on equity is not good. That
means the shareholders are not getting enough money against their investment. It will destroy the
company’s goodwill. They have to increase this. They needs to utilize their asset more efficiently
or decrease their assets on hand.

Comparison: Golden Harvest’s Net profit margin is in good position than Fu-Wang Foods but
Fu-Wang foods position is more good then Golden Harvest in return on assets and return on
equity. So all over we can say that Fu-Wang foods profitability is better than golden harvest.

5: Summary:
Through calculating the ratios of both companies we’ve found that the overall performance of
Fu-Wang Foods LTD and Golden Harvest Agro Industries Ltd.

Evaluation of the liquidity ratios suggest that Fu-Wang foods is in stronger than Golden Harvest.
Though Golden Harvest is a big company Fu-Wang foods managing their liquidity more
efficiently. But both of theirs Liquidity is decreasing year by year. They have to give more
attention on their current liabilities.

Evaluation of the asset management ratios suggests that Both Fu-Wang foods and Golden
Harvest needs to improve their Market policy and credit sales policy. They couldn’t timely
 P a g e | 25

collecting money and for that they are borrowing money which is not good for their company.
But Fu-Wang foods asset management situation is way better than Golden Harvest.

Evaluation of the Debt management ratios suggests that Fu-Wang foods position is better than
Golden Harvest from every angle. Their Debt is low against their assets. Their income is high,
they are controlling their COGS very efficiently in compare to Golden Harvest. And Golden
Harvest needs to concentrate in this sectors.

Evaluation of the profitability ratios suggests that Golden Harvest’s Net profit margin is in good
position than Fu-Wang Foods but Fu-Wang foods position is more good then Golden Harvest in
return on assets and return on equity. So all over we can say that Fu-Wang foods profitability is
better than golden harvest.

After analyzing all the ratios segments of Fu-Wang Foods Ltd and Golden Harvest Agro
Industries Ltd. We can clearly see that Fu-Wang foods position is much better than Golden
harvest in every sector. But Fu-Wang Foods is much smaller company than Golden Harvest.
Golden Harvest needs to improve or give attention on their Current liabilities, Marketing Policy,
Credit sales Policy, Cost of goods sold, Debt management, sales and inventories. But if we see
Fu-Wang foods yearly ratios we can see that most of the ratios are going downwards year after
year. Though they are in a good position in compare to the Golden Harvest they also needs to
give attention on these things for their problem free future.

Part C
 P a g e | 26

Financial Forecasting & Analysis

1: Financial Forecasting:
1.1: Fu-Wang foods LTD Forecasting:

FU-WANG FOODS LTD

FORECAST INCOME STATEMENT

2016 2017 forecast basis initial forecast

results
Turnover 767109 *1.003 769947
cost of goods sold -563649 *1.003 -565734
gross profit 203460 204213
operating expense:
administrative expenses -44069 *1.003 -44232
selling and distribution expenses -25025 *1.003 -25118
operating profit before financial 134364 134852
expenses
financial expense -13741 -13741
profit from operation 120623 121110
provision for WPPF and welfare -5743 -5743
fund
net profit before tax 114879 115366
income tax expense:
current tax -24262 -24262
deferred tax -4457 -4457
profit after tax 86159 86646
earnings per share (EPS)(Adjusted) 1.03 1.38
 P a g e | 27

FU-WANG FOODS LTD

FORECAST BALANCE SHEET

2016 result 2017 forecast initial forecast

basis
Assets:
Non-current assets:
Property, plant and equipment (net of 519885 *1.003 521808
depreciation)
Capital work-in-progress 38668 *1.003 388113
Investment 50000 50000
current assets:
inventories 189444 *1.003 190145
trade and other receivable 289124 289124
advance, deposits and prepayments 387066 *1.003 387066
cash and cash equivalents 8014 *1.003 8044
total assets 1482203 1486070
equity &liabilities:
shareholder’s equity
share capital 832751 832751
tax holiday reserve 18245 18245
revaluation reserve 55526 55526
retain earnings 132387 +86646 55526
Non-current liabilities:
deferred tax liabilities 36963 36963
loan from IDLC 19727 19727
current liabilities:
short term bank loans and others 100344 100344
trade and other payables 36860 1.003 36996
liabilities for expenses 7926 1.003 7955
provision for income tax 241470 241470
total equity and liabilities 1482203 1433218
AFN(Additional funds 52852
needed)

FU-WANG FOODS LTD

 P a g e | 28

ADJUSTED INCOME STATEMENT

initial forecast adjuste financial

d adjustment
forecast
Turnover 769947 769947

cost of goods sold - -565734

565734
gross profit 204213 204213

operating expense:

administrative -44232 -44232

expenses
selling and distribution -25118 -25118
expenses
operating profit before 134852 134852
financial expenses
financial expense -13741 -14524 -783

profit from operation 121110 120327

provision for WPPF and -5743 -5743 -783

welfare fund
net profit before tax 115366 115266

income tax expense: -28719 -27619 25957

profit after tax 86646 85177 -1471

FU-WANG FOODS LTD ADJUSTED BALANCE SHEET

initial forecast Adjusted Financial

forecast adjustment
Assets:
 P a g e | 29

Non-current assets:
Property, plant and equipment (net 521808 521808
of depreciation)
Capital work-in-progress 388113 388113
Investment 50000 50000

current assets:
Inventories 190145 190145

trade and other receivable 289124 289124

advance, deposits and prepayments 387066 387066

cash and cash equivalents 8044 8044

total assets 1486070 1486070

equity &liabilities:
shareholder’s equity
share capital 832751 867106 34354

tax holiday reserve 18245 18245

revaluation reserve 55526 55526

retain earnings 219034 218886 -14718

Non-current liabilities:
deferred tax liabilities 36963 36963
loan from IDLC 19727 23673 39455

current liabilities:
short term bank loans and others 100344 105894 55494

trade and other payables 36996 36996

liabilities for expenses 7955 7955

provision for income tax 241470 241470

total equity and liabilities 1433218 1486070

52852 0 52852

1.2: Golden Harvest Agro Industries LTD. Forecasting:

 P a g e | 30

Golden Harvest Agro Industries Ltd

Forecast Income Statement

Revenue 1427568 *1.3 1855838

cost of goods sold -773012 *1.3 -1004915
gross profit 654555 850923
fixed cost -62374 *1.3 -81086
selling cost -172717 *1.3 -224532
fair value adjustments of biological cost 1903 1903
other operating income 60656 60656
profit from operations 482023 607864
finance income 2859 2859
finance expense -247796 -247796
net profit from operation 237086 362927
provision for workers profit participation fund -11972 -11972
income before share of non - consolidated companies 225114 434847
and income tax
share of profit/loss from associates -300 -300
net profit before tax 224814 785502
income tax expense -49273 -49273
net profit after tax 175541 742229
non - controlling interest 3226 3226
net profit after tax attributable to ordinary 178767 745455
shareholders
other comprehensive income N/A N/A
total comprehensive income 178767 745455
number of share used to calculate EPS 90090 90090
Earnings per share 1.98 8.27
Dividend per share 1.00 1.00
 P a g e | 31

GOLDEN HARVEST AGRO INDUSTRIES LIMITED

FORECAST BALANCE SHEET

2016 2017 forecast basis initial forecast

Asset:
non-current assets:
property, plant and equipment 2646078 *1.3 3439901
leased assets 57567 *1.3 74837
intangible asset 57896 *1.3 75265
biological assets 74887 *1.3 97353
capital work in progress 737137 *1.3 958278
current asset:
Inventories 320478 *1.3 416621
advances, deposits and 493053 *1.3 640969
prepayments
trade & other receivables 622758 *1.3 809585
cash and cash equivalents 34531 *1.3 44890
total assets 5044387 6557699
equity & liabilities:
shareholder equity:
share capital 900900 900900
Share premium 326866 326866
revaluation surplus 298356 298356
retained earnings 520290 +566688 1086978
Non- controlling interest 9213 9213
total equity
non-current liabilities:
long terms loans 1122438 1122438
deferred tax liabilities 126711 126711
lease obligations 34605 34605
current liabilities:
accounts and other payables 182443 *1.3 237176
accruals and provisions 223704 *1.3 290815
short term loans 1064755 *1.3 1384182
current portion of long term loans 224861 *1.3 292319
current portion of lease obligations 9243 *1.3 12016
total equity and liabilities 50544388 6122575
AFN(Additional funds 435124
needed)
 P a g e | 32

GOLDEN HARVEST AGO INDUSTIES LIMITED

ADJUSTED INCOME STATEMENT

initial forecast adjusted financing

forecast adjustment
Revenue 1855838 1855838
cost of goods sold -1004915 -1004915
gross profit 850923 850923
fixed cost -81086 -81086
selling cost -224532 -224532
fair value adjustments of biological cost 1903 1903
other operating income 60656 60656
profit from operations 607864 607864
finance income 2859 2859
finance expense -247796 -262591 -14795
net profit from operation 362927 348132 14785
provision for workers profit participation fund -11972 -11972
income before share of non- consolidated 434847 336160 98687
companies and income tax
share of profit/loss from associates -300 -300
net profit before tax 785502 335860 449642
income tax expense -49273 -21159 -28114
net profit after tax 742229 314701 427529
Non- controlling interest 3226 3226
net profit after tax attributable to ordinary 745455 317927
shareholders
other comprehensive income N/A
total comprehensive income 745455 317927 427528
number of share used to calculate EPS 90090 148649
Earnings per share 8.27 2.14
Dividend per share 1 1
 P a g e | 33

GOLDEN HARVEST AGRO INDUSTIES LIMITED

ADJUSTED BALANCE SHEET

initial Adjusted Financing

forecas forecast Adjustment
t
Asset:
non-current assets:
property, plant and equipment 343990 3439901
1
leased assets 74837 74837
intangible asset 75265 75265
biological assets 97353 97353
capital work in progress 958278 958278
current asset:
inventories 416621 416621
Advances ,deposits and prepayments 640969 640969
trade & other receivables 809585 809585
cash and cash equivalents 44890 44890
total assets 655769 6557699
9
equity & liabilities:
shareholder equity:
share capital 900900 1031437 130537
share premium 326866 479159 152293
revaluation surplus 298356 298356
retained earnings 520290 49853 -21756
non -controlling interest 9213 9213
total equity
non-current liabilities:
long terms loans 112243 1209463 87025
8
deferred tax liabilities 126711 126711
lease obligations 34605 34605
current liabilities:
accounts and other payables 237176 324201 87025
accruals and provisions 290815 290851
short term loans 138418 1384182
2
current portion of long term loans 292319 292319
current portion of lease obligations 12016 12016
total equity and liabilities 612257 6557699
5
 P a g e | 34

AFN(Additional funds 435124 0 435124

needed)
2: Analysis:
Current ratio: The current ratio is a liquidity ratio that measures a company's ability to pay
short-term obligations or those due within one year. It tells investors and analysts how a
company can maximize the current assets on its balance sheet to satisfy its current debt and other
payables. The current ratio is calculated as follows:

Current Assets
Current ratio =
Current Liabilities

2015-2016 Initial forecast

FU-WANG FOOD 2.26X 2.23x

LIMITED
GOLDEN HAVEST AGRO 0.9X 1.9x
INDUSTIES LIMITED

Fu-Wang Foods Ltd: We can see that Fu-Wang foods 2016’s current ratio was 2.26 times. It
decreased to 2.23 times in initial forecast. It happened because the current assets of the company
was significantly decreasing every year but on the other hand the current liabilities was also
increasing at a significant rate. They need to reduce their current liability otherwise the current
ratio will be decrease more in the next year.

GHAIL: We can see that Golden Harvest Agro Food Industry’s 2016 current ratio was 0.9
times. It increased to 1.9 times in initial forecast. It happened because the current assets of the
company was decreased from 2016 but it increased in initial forecast more than 2016 but on the
other hand the current liabilities was increasing at a significant rate Specially in initial forecast it
just high jumped. They need to reduce their current liability otherwise the current ratio will be
decrease more in the next year.
 P a g e | 35

Comparison: According to the data the current ratios of Fu-Wang foods ltd are in better position
than the Golden Harvest. Fu-Wang foods current ratios of 2016 & initial forecast all are above 2
times on the other hand Golden Harvest’s ratios are below 2 times. And the main reason for this
situation is their high current liabilities.

Quick Ratio: The quick ratio or acid test ratio is a liquidity ratio that measures the ability of a
company to pay its current liabilities when they come due with only quick assets. Quick assets
are current assets that can be converted to cash within 90 days or in the short-term. The quick
ratio is calculated as follows:

Current Assets−Inventories
Quick Ratio =
Current Liabilities

2015-2016 Initial forecast

FU-WANG FOODS 1.77X 1.74x

LIMITED
GOLDEN HAVEST AGRO O.67X 1.49x
INDUSTIES LIMITED

Fu-Wang Foods Ltd: We can see that Fu-Wang foods 2016 quick ratio was 1.77 times. It
decrease to 1.74 times in initial forecast. It happened because the current assets of the company
was significantly decreasing every year as well as the inventories but on the other hand the
current liabilities was also decreasing at a significant rate.

GHAIL: We can see that Golden Harvest Agro Food Industry’s 2016 Quick ratio was 0.67
times. It increased to 1.49 times in initial forecast. It happened because the current assets of the
company was decreased from 2016 in initial forecast more than 2016 and its inventories are also
increasing every year but on the other hand the current liabilities was increasing at a significant
rate too Specially in 201 initial forecast it just high jumped. They need to reduce their current
liability and inventories otherwise the current ratio will be decrease more in the upcoming year.
 P a g e | 36

Comparison: According to the data from 2014, 2015 & 2016 we can clearly see that the quick
ratio of Fu-Wang foods is better than the quick ratio of Golden Harvest. That’s because Fu-Wang
foods inventories are low and Golden Harvest has huge current liabilities. To recover from this
situation Golden Harvest needs to control its current liabilities.

Inventory Turnover Ratio: The inventory turnover ratio is an efficiency ratio that shows how
effectively inventory is managed by comparing cost of goods sold with average inventory for a
period. In other words, it measures how many times a company sold its total average inventory
dollar amount during the year. The Inventory turnover ratio is calculated as follows:

COGS
Inventory Turnover Ratio =
INVENTORIES

2015-2016 Initial forecast

FU-WANG FOODS LIMITED 2.97X 2.97x

GOLDEN HAVEST AGRO 2.41X 2.41x

INDUSTIES LIMITED

Fu-Wang foods Ltd: Inventory turnover ratio of Fu-Wang foods Ltd is 2.97 times in the year of
2016 then it same to 2.97 times at the year of initial forecast. The ratio suggest that from the year
of 2016 the cost of goods sold were decreasing year by year but on the other hand they are
stocking excess amount of inventory. To improve this situation needs to concentrate on their
inventory management.

GHAIL: Inventory Turnover Ratio of Golden Harvest was 2.41 times in 2016, 2.41 times in
initial forecast. If we see the income statement and balance sheet we will notice that in 2016 and
initial forecast the COGS was increasing in normal rate or most same rate. So we can say they
can improve their situation by improving their inventory management.

Comparison: If we compare the inventory turnover ratio of Fu-Wang foods and Golden Harvest
we can clearly notice that Fu-Wang food is way more efficient than Golden Harvest. Golden
Harvest need to work on their inventory management. Though Fu-Wang foods is in a better
position than Golden Harvest they also needs to concentrate on their inventory management as
their inventory turnover ratio is decreasing year by year.
 P a g e | 37

Day sales outstanding: Day sales outstanding (DSO) is a measure of the average number of days
that it takes a company to collect payment after a sale has been made. It helps us to understand
how good a company’s credit policy is and their efficiency of collecting account receivables. We
can calculate a company’s DSO using this calculation:

Account Receivables
DSO =
Avarage Daily Sales
2015-2016 Initial forecast

FU-WANG FOODS LIMITED 135.7 days 135days

GOLDEN HAVEST AGRO 194.9 days 157days

INDUSTIES LIMITED

Fu-Wang foods Ltd: We can see that in the year of 2016 the company’s DSO was 135,7days. It
same in Initial forecast to 135 days. It indicates that the company is efficiency to collect its
receivables timely which is good in the company.

GHAIL: Golden Harvest’s DSO in the year of 2016 was 194.9 days. It decreased to 157 days in
Initial forecast which indicates that it was collecting its receivables timely.

Comparison: Both of the company’s receivable collecting policy and credit sales policy is
almost same. But they have to improve their policy. Specially Fu-Wang needs immediate
attention on their credit sales policy because their DSO way more up then GHAIL.

Fixed asset turnover: Fixed-asset turnover is the ratio of sales (on the profit and loss account) to
the value of fixed assets (on the balance sheet). It indicates how well the business is using its
fixed assets to generate sales. Generally speaking, the higher the ratio, the better, because a high
ratio indicates the business has less money tied up in fixed assets for each unit of currency of
sales revenue. A declining ratio may indicate that the business is over-invested in plant,
equipment, or other fixed assets. The calculation of finding the fixed asset turnover ratio is:
 P a g e | 38

Sales
Fixed asset turnover ratio = Assets ¿
Net ¿

2015-2016 Initial forecast

FU-WANG FOODS LIMITED 1.4x 0.85x

GOLDEN HAVEST AGRO 0.4x 0.4x

INDUSTIES LIMITED

Fu-Wang foods Ltd: Fixed asset turnover of Fu-Wang foods in the year of 2016 was 1.4 times,
it was .85times in Initial forecast. Their Fixed asset turnover ratio is declining year by year. To
avoid this problem and improve this situation they needs to be more careful about their
investment on fixed asset and they needs to increase their sales.

GHAIL: Golden Harvest’s ratio of fixed asset turnover in the year of 2016 was 0.4 times. It
remains same in the year of Initial forecast. It seems like their fixed asset turnover will be remain
the same year by year but altogether there situation is very horrible. They needs to increase their
sales and invest in good fixed assets.

Comparison: If we compare the fixed asset turnover ratios of Fu-Wang foods and Golden
Harvest we can see that Fu-Wang foods position is much better than Golden Harvest. But Fu-
Wang foods fixed asset turnover is decreasing year by year but on the other hand Golden
Harvest’s fixed asset turnover is increasing. But both of them needs to prevent buying more fixed
asset and concentrate on using existing fixed assets and use them to increase sales.
 P a g e | 39

Total Asset Turnover: The asset turnover ratio is an efficiency ratio that measures a company’s
ability to generate sales from its assets by comparing net sales with average total assets. In other
words, this ratio shows how efficiently a company can use its assets to generate sales. It
measures the value of a company's sales or revenues relative to the value of its assets. The asset
turnover ratio can be used as an indicator of the efficiency with which a company is using its
assets to generate revenue. The higher the asset turnover ratio, the more efficient a company.
Conversely, if a company has a low asset turnover ratio, it indicates it is not efficiently using its
assets to generate sales. We can find total asset turnover by using this ratio:

Sales
Total Assets Turnover =
Total Assets

2015-2016 Initial forecast

FU-WANG FOODS LIMITED 0.5x 0.5x

GOLDEN HAVEST AGRO 0.3x 0.3x

INDUSTIES LIMITED

Fu-Wang Foods Ltd: The total assets turnover ratio of Fu-Wang foods Ltd was 0.5 times in the
year of 2016, it is same to 0.5 times in Initial forecast. It clearly indicates that they could not
utilized their assets properly to raise their sales. They needs to reduce their inventories and
receivables.

GHAIL: Golden Harvest’s Total asset turnover ratio was 0.3 times in the year of 2016. It
remains same in the year of Initial forecast. It clearly indicates that they could not utilized their
assets properly to raise their sales. They needs to reduce their inventories and receivables.

Comparison: The total asset turnover ratios of the both company is very poor. But Fu-Wang
foods situation is better than Golden Harvest. Golden Harvest’s total asset turnover ratio
increases a bit in 2016 but on the other hand Fu-Wang foods ratio is decreasing year by year.
 P a g e | 40

Both of the company needs to improve their situation by utilizing their assets properly and
reduce their receivables and inventories and increase their sales.

Debt Ratio: The debt ratio is a financial ratio that measures the extent of a company’s leverage.
The debt ratio is defined as the ratio of total debt to total assets, expressed as a decimal or
percentage. It can be interpreted as the proportion of a company’s assets that are financed by
debt. In other words, this shows how many assets the company must sell in order to pay off all of
its liabilities. The Debt ratio is calculated by:

Total Liabilities
Debt Ratio =
Total Assets

2015-2016 Initial forecast

FU-WANG FOODS LIMITED 29.91% 30.48%

GOLDEN HAVEST AGRO 31.7% 28.3%

INDUSTIES LIMITED

Fu-Wang Foods Ltd: Fu-Wang foods ratio was 29.91% in the year of 2016. It increased to
30.48% in the year of Initial forecas. That means 29 to 30 percent of their total investment comes
from the loan. And another 70% comes from the share they have sold which is good. But their
Debt is increasing a little bit year by year. They have to control it for their own good.

GHAIL: Golden Harvest’s Debt ratio was 31.7% in the year of 2016. It decreased to 28.3% in
the year of Initial forecast. We can see that in 2016 the company’s almost 31% of the investment
came from loan but they sell their shares and successfully reduced it to 28% within one year
which is a good debt position.

Comparison: Golden Harvest’s Initial forecast debt position was good but it was bad in 2016.
They were on the brink of bankruptcy but they overcame from the situation successfully. On the
 P a g e | 41

other hand Fu-Wang debt position was good in 2016. But it is increasing a little bit every year.
Overall Fu-Wang foods Debt ratio is far better than Golden Harvest.

Times interest Earnings (TIE): Times interest earned (TIE) is a metric used to measure a company's
ability to meet its debt obligations. TIE indicates how many times a company can cover its
interest charges on a pretax earnings basis. Failing to meet these obligations could force a
company into bankruptcy. TIE is also referred to as the interest coverage ratio. The formula of
times interest earned ratio is:

Earnings Before Interest∧Tax

TIE =
Interest Charges

2015-2016 Initial forecast

FU-WANG FOODS LIMITED 9.78x 9.28x

GOLDEN HAVEST AGRO 2.1x 2.3x

INDUSTIES LIMITED

Fu-Wang Foods Ltd: Fu-Wang foods TIE in 2016 was 9.78 times, it little decreased to 9.28
times in Initial forecast. Altogether their TIE ratio is very good. It indicates that the earnings of
the company is very good.

GHAIL: Golden Harvest’s TIE ratio in the year of 2016 was 2.1 times. It increased to 2.3 times
in the year of Initial forecast. So we can see their TIE is good only in Initial forecast. After that
their earnings were going downwards and they are facing difficulties to pay their interest on debt.

Comparison: If we compare the TIE ratio of Fu-Wang foods and Golden Harvest we can
confidently say that Fu-Wang foods is in way better position than Golden Harvest. Golden
 P a g e | 42

Harvest’s position is not so good. They have to increase their income by increase their selling. Or
they will be face difficulties to pay their interest in near future.

Net Profit Margin: The net profit margin is equal to how much net income or profit is generated as
a percentage of revenue. Net profit margin is the ratio of net profits to revenues for a company or
business segment. Net profit margin is typically expressed as a percentage but can also be
represented in decimal form. The net profit margin illustrates how much of each dollar in
revenue collected by a company translates into profit. The formula of Net profit margin is:

Net Profit
Net Profit Margin =
Assets

2015-2016 Initial forecast

FU-WANG FOODS LIMITED 11.23% 11.06%

GOLDEN HAVEST AGRO 12.30% 16.96%

INDUSTIES LIMITED

Fu-Wang Foods Ltd: Fu-Wang foods net profit margin was 11.23% in 2016. It little decreased
to 11.06% in the Initial forecast. Which means its sales and net profit was good in 2016 but it
increased its sales and profit in 2016.

GHAIL: Golden Harvest’s Net Profit Margin was 12.30% in the year of 2016, then it increased
to 16.96% in the Initial forecast. Which means its sales and net profit was low in 2016.

Comparison: Both of the company’s net profit is good. But Golden Harvest’s Net profit is better
than Fu-Wang Foods. But Golden Harvest company’s debt is high that’s why their other costs
are also high. Fu-Wang foods net profit ratio is not so bad but there is some scope for
improvement.
 P a g e | 43

Return on assets: Return on assets is a profitability ratio that provides how much profit a
company is able to generate from its assets. In other words, return on assets (ROA) measures
how efficient a company's management is in generating earnings from their economic resources
or assets on their balance sheet. ROA is shown as a percentage, and the higher the number, the
more efficient a company's management is at managing its balance sheet to generate profits.
ROA can be calculated by using this equation:

Net Income
ROA =
Total Assets

2015-2016 Initial forecast

FU-WANG FOODS LIMITED 5.81% 5.73%

GOLDEN HAVEST AGRO 3.48% 4.80%

INDUSTIES LIMITED

Fu-Wang foods Ltd: Fu-Wang foods ROA of 2016 was 5.81%. It little bit decreased to 5.73%
in the Initial forecast. But it increse to 5.81% in the year of 2016. It’s indicates that used their
assets properly in 2015 but they couldn’t use it properly in 2016. They need to concentrate on
their asset management and increase profit by this.

GHAIL: Golden Harvest’s ROA of 2016 was 3.48%, in Initial forecast it was 4.80% and in 2016.
Which indicates that they are buying many assets but they are not using those assets properly to
maximize their profit. They needs to focus on their asset management.

Comparison: Between Fu-Wang foods and Golden Harvest Fu-Wang foods using their assets
properly to maximize their net income. That’s why they are in better position than Golden
Harvest Agro Industries Ltd.
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Return on Equity: The return on equity ratio or ROE is a profitability ratio that measures the
ability of a firm to generate profits from its shareholders investments in the company. In other
words, the return on equity ratio shows how much profit each dollar of common stockholders’
equity generates. ROE is also an indicator of how effective management is at using equity
financing to fund operations and grow the company.

Net Income
ROE =
Total Equity

2015-2016 Initial forecast

FU-WANG FOODS LIMITED 8.29% 7.34%

GOLDEN HAVEST AGRO 8.58% 16.45%

INDUSTIES LIMITED

Fu-Wang Foods Ltd: Fu-Wang foods ROE in the year of 2016 was 8.29%. It decreased in Initial
forecast. It indicates that they earned highest profit in 2015. They earned 11.6% against each
dollar of the shareholders. But it decreased in Initial forecast.

GHAIL: Golden Harvest’s ROE in 2014 was 8.58%. It increased to 16.45% in Initial forecast.
We can notice that their ROE almost doubled from 2016 that’s because of their Debt ratio
reduced from 2016.

Comparison: Among Fu-Wang foods and Golden Harvest Fu-Wang foods is better position in
return on equity. Because they are returning more percentage to their owner against their
invested money. But they should more efficient on their use of assets because their percentage is
declining. And Golden Harvest needs better asset management and reduce their debt percentage
or they will face major financial problem.
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Part D
Conclusion & References

Conclusion:
Fu-Wang foods Ltd & Golden Harvest Agro Industries Ltd both are renowned in food industry.
From this annual report we are to calculate the above ratio for findings their liquidities,
profitability, risk, business efficiency & market performance. From our analysis we try to find
out the overall financial position of both companies. Both companies are practicing moderate
financial position in food industries. Mostly, both are increasing trend or fluctuating but
somewhere Fu-Wang Foods Ltd is better position rather than Golden Harvest Agro Industries
Ltd. If Golden Harvest Agro Industries Ltd focus to keep its stable position then it will be better
for their future market performance.

References:
1. Wikipedia (2017), “Food industry in Bangladesh” [Online] Available:
https://en.wikipedia.org/wiki/Food_industry_in_Bangladesh [28th June, 2019]

2. Fu-Wang Foods Limited website [Online] Available:

http://fuwangfoodsltd.com/about/ [28th June, 2019]
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3. Golden Harvest Agro Industries Limited Website [Online] Available:

http://www.goldenharvestbd.com/about/ [28th June, 2019]

4. Annual report of Fu-Wang foods Ltd. 2014-2015

5. Annual report of Fu-Wang foods Ltd. 2015-2016

6. Annual report of Golden Harvest Agro Industries Ltd. 2014-2015.

7. Annual report of Golden Harvest Agro Industries Ltd. 2015-2016.