Performance Evaluation of BSRM & GPH ISPAT in Bangladesh: A

Comparative Analysis

FIN-501: Financial Management

Section: 1

Prepared For:

Prof. Dr. Sujit R. Saha

Adjunct Faculty

MBA Program

East West University

Prepared By:

A. M. Mehedi Mostafiz (2020-1-91-004)

Nasir Fakir (2020-1-91-005)
Ashima Chowdhury (2019-3-91-022)
Sudip Roy (2020-1-91-024)

Date of Submission: 21 November 2020

 Letter of Transmittal

Date: 21 November 2020

Prof. Dr. Sujit R. Saha

Adjunct Faculty
East West University
Dhaka, Bangladesh

Subject: Submission of the Performance Evaluation Report.

Dear Sir,

We are submitting our Financial Analysis Report, which is a part of Financial Management
(FIN-501) course curriculum. It is great achievement to work under your active supervision.
This report is based on Performance Evaluation of BSRM & GPH ISPAT: A Comparative
Analysis.

This project gave us a sense of both academic & practical exposures for the analysis of a
business and financial positions in the industry. First of all, we learned about the techniques
of ratio analysis. Secondly, the project gave us the opportunity to know details about the
financial trends and forecasting the businesses. Last but not the least, we were able to give
reasoning and do ‘why’ analysis of a business’ strengths and weaknesses.
We should be highly obliged if you are kind enough to receive this report & provide your
valuable judgment. It would be our immense pleasure if you find this report useful and
informative to have an apparent perspective on the issue.

Sincerely Yours,

Nasir Fakir 2020-1-91-005 ……………………….

A.M Mehedi Mostafiz 2020-1-91-004 ……………………….

Sudip Roy 2020-1-91-024 ……………………….

Ashima Chowdhury 2019-3-91-022 ……………………….

[II]
 Executive Summary

The report is based on the financial ratio analysis of BSRM steels and GPH
Ispat. By going through all the financial statements it is known that overall
BSRM is working well compared to GPH Ispat. But by going through the
financial ratio analysis the facts were that GPH is much more competitive than
BSRM.

As GPH steels is not in the market as long as BSRM is. This is analyzed
through financial analysis that GPH is working so efficiently and effectively
and is coming up with new features and advanced technology that others are not
using.

In the report history of the companies, financial statements, financial ratios,

financial ratio analysis and finally the report is concluded and recommendations
are given at the end

[III]
 Table of Contents
Topic Page no.

Introduction 5

Profile of two company 5

Interpretation: 12

Liquidity Ratios: 12

 Current Ratio 13
 Acid Test Ratio 7
Asset Management Ratios, Trend and cross section analysis plus 20
comments
 Inventory Turnover 8
 Fixed Asset Turnover 9
 Total Asset Turnover 10
 Average Collection Period 11
 Average Payment Period 12
Profitability Ratios 19
 Gross Profit Margin 19
 Operating Profit Margin 20
 Net profit Margin 21
 Basic Earning Power 22
 Return on Assets 23
 Return on Equity 24
 Earnings per Share 25

Debt Management Ratio 26

 Debt Ratio 26
 Times Interest Earned 27
Ratios at a glance 28
Financial forecasting: future behave 29
Cash Conversion Cycle 29
Projection of one year: IS and BS 30

Conclusion 31

[IV]
INTRODUCTION

1.1 Origin of the Report

To find out the better financial position of the two leading companies in the same industry,
we have developed our ratio and financial position analysis of BSRM and GPH Ltd.Both the
companies are of steel industry and are dealing in steel business for many years. The
companies are well reputed in the market and deal in a very wide range of steel products.
This analysis was a part of our Financial Management Course Curriculum.

1.2 Scope of the Report

The report will mainly focus on the current financial scenario of BSRM Ltd. & GPH
Pharmaceuticals Ltd., based on their 2-years financial data. Later, we’ll contrast these data to
find out the Liquidity, Asset Management, Debt Management and Profitability Ratio for two
years. After finding out these ratios, we’ll prepare the projected income statement and
balance sheet for the year 2015 which will be based on the data of the year 2014. Moreover,
there will be reasoning explanation of the graphical explanation of the 2-year trend analysis
for these companies. After all these analysis, we’ll demonstrate reasons of which company
has performed better and where the strengths and weaknesses lie for the companies.

1.3 Objectives of the Study

The main objective of the study is to find out the reasons of which company has performed
better and where the strengths and weaknesses lie for the companies and to demonstrate the
success factors for the companies that can be helpful for the other companies’ fruitful
financial managementand also make comparison amongthem. To attain the main objective,
the specific objectives of the study are as follows:

 To evaluate the performance of the companies based on Liquidity Ratios

 To evaluate the performance of the companies based on Asset Management Ratios
 To evaluate the performance of the companies based on Debt Management Ratios
 To evaluate the performance of the companies based on Profitability Ratios

1.4 Limitations of the study

 Comparison not possible if different companies adopt different accounting policies

 Ratio may be misleading in the absence of absolute data.
 Lack of proper standards.
 False accounting data gives false ratio.
 Ratio analysis becomes less effective due to the rate of interest level changes.
 Ratios alone are not adequate for proper conclusions.

[V]
2. Literature Review:

Financial ratios are the simplest tools for evaluating the financial performance of the firm.
Onecan employ financial ratios to determine a firm’s liquidity, profitability, solvency, and
capitalstructure and assets turnover.

Salmi and Martikainen (1994), they state that financial ratios are widely used for
modelingpurposes both by practitioners and researchers. The firm involves many interested
parties, likethe owners, management, personnel, customers, suppliers, competitors, regulatory
agencies, andacademics, each having their views in applying financial statement analysis in
their evaluations.Practitioners use financial ratios, for instance, to forecast the future success
of companies, whilethe researchers' main interest has been to develop models exploiting these
ratios.

Hannan and Shaheed (1979) used financial ratios to show the financial position and
performanceanalysis of Bangladesh Shilpa Bank (Present name Bangladesh Development
Bank Limited). They showed that techniques of financial analysis can beused in the
evaluation of financial position and performance of financial institution as well asnon-
financial institutions even Development Financial Institutions (DFI).

Sina and Arshed Ali (1998) used financial ratios to test the financial strengths and
weaknesses ofKhulna Newsprint Mills Ltd. They found that due to lack of planning and
control of workingcapital, operational inefficiency, obsolete store, ineffective credit policy,
increased cost of rawmaterials, labor and overhead, the position of the company was not
good.

3. Methodology:
The study mainly based on secondary data which were collected from the annual
financialreports of BSRM and GPH Company from 2013 to 2014.Measuring ratio analysis
for research, one must be used annual financial report. In this research, we are using two
main financial statements for ratio analysis of pharmaceutical company such as
BalanceSheets&Income Statement.

[VI]
Profile
BSRM:

As BSRM, a very well-known brand started its business life in the year of 1952. Two intrepid
business men Taher Ali Africawala and Akber Ali Africawala ventured to put up the first
rolling mill of the country in Nasirabad, Chittagong. In 2006, BSRM introduced micro-
reinforcement wires for low cost rural construction. In 2008, introduced Grade 500 steel bars,
the current international standard for modern construction- BSRM Xtreme 500 W. In
everyway the company’s fortunes mirrored the history of this nation as it struggled to find its
rightful place in the world. The company has strong marketing strategies to come up with in a
competitive market.

GPH ISPAT

GPH is also a very well-reputed company which produces a wide range of strong steel
products. Established in 1987, the owner of the company Mr. Md. Jahangir Alam, along with
his brothers and nephews, has been reputed as the man of commitment. In steel
manufacturing, they have gained experience and expertise by running a hand-rolling mill,
indo steel Re-Rolling industries limited from the year 2000. The factory is situated at Kumira,
Sitakunda, and Chittagong. It launched its production from the first half of 2008. It is now
producing deformed bars as per various national and international standards. The company
has not been in this business for as long as BSRM is, but the way it has grown up is
appreciable. It has come up with innovative features in its product.

[VII]
Financial Statement Analysis:
1. LIQUIDITY RATIOS
Current Ratio:

2013 2014
BSRM 0.944:1 0.991:1

GPH 1.131:1 1.104:1

Time Series:

BSRM

Current ratio of BSRM for both the years reflect poorly on the firm. It holds more liabilities
than assets. Working capital of the business has decreased in 2014 in comparison to 2013. As
current assets have decreased more than current liabilities, current ratio has worsened in the
latter year.

GPH

GPH has a reasonably good current ratio in both years. Its current assets exceed current
liabilities by a narrow margin. Although the overall working capital has fallen in 2014,
current ratio has improved because of the significant decrease in short term borrowings.

Cross section:

2013

GPH has a better ratio than BSRM. GPH’s ratio [1.103] is acceptable, although it can improve.
BSRM’s ratio is poor. The firm may face working capital shortages in the future.

2014

For GPH the ratio has improved, owing to the reduction in short term loan. However for BSRM the
ratio has worsened. The firm’s Other Liabilities has more than doubled. Therefore considering the
current ratio only, GPH is in a better position than BSRM.

1.15
1.1
1.05
1
0.95 BSRM
0.9 GPH
0.85
2013 2014

[VIII]
Acid Test Ratio:

2013 2014
BSRM 0.466:1 0.310:1

GPH 0.352:1 0.350:1

Time Series:

BSRM

Acid test ratio for 2013 is quite low. Although it is likely to be low since steel manufacturing
companies have to hold large amounts of inventory, not only ass finished good but also as
work in progress. In 2014 stock has doubled, which lead to an even lower ratio.

GPH
GPH’s ratio is very low in both years. But the ratio has deteriorated in 2014, due to increase
in stocks held.

Cross Section

2013

Both the firms have low acid test ratio. BSRM’s ratio is a little better than GPH’s.

2014

Although ratio for both the firms has decreased in 2014, BSRM experienced a much steeper
fall. This may be the result of high level of inventory being held and the reduction in debtors.
For GPH the ratio has stayed stable, owing to its constant level of inventory and other current
assets.

0.5
0.4
0.3
0.2 BSRM
0.1 GPH
0
2013 2014

[IX]
2. ASSET MANAGEMENET RATIOS

Inventory Turnover:

2013 2014
BSRM 4.118 2.574

GPH 2.349 1.535

Time Series:

BSRM

In 2014, inventory turnover has fallen to half of what it was in 2013. This is because too
much stock is being held, but not enough sales have been achieved.

GPH

GPH has experienced falling sales in 2014, compared to 2013. Not being able to sell enough
products may have caused inventory to pile up, which eventually lead to a lower inventory
turnover.

Cross Section:

2013

BSRM has higher sales than GPH. Consequently BSRM’s ratio is much better than GPH’s.
Nevertheless both firms have very low inventory turnover, which indicates sales need to be
boosted.

2014

Fall in times products has been sold is identified in 2014, in both firms. Changes in the
market and demand for the product may be a reason for the decline in sales

4.5
4
3.5
3
2.5 BSRM
2
1.5 GPH
1
0.5
0
2013 2014

[X]
Fixed Asset Turnover:

2013 2014
BSRM 3.419 3.667

GPH 3.175 2.559

Time Series:

BSRM

Investments in fixed asset and overall sales have not fluctuated much during the two years.
Return on fixed assets has therefore remained consistent through 2013 and 2014.

GPH

GPH has invested in fixed assets in 2014, but has failed to increase sales. Sales in fact have
declined. Thus a lowering asset turnover ratio resulted, which implies GPH has not been able
to utilise its assets efficiently.

Cross Section:

2013

BSRM and GPH have earned a fair return on fixed asset investments. BSRM’s return is
higher than GPH’s, which means BSRM is doing a better job at putting assets to their proper
use.

2014

GPH’s return on asset has declined while BSRM’s has improved. This means GPH has been
investing in non profitable assets. On the other hand reducing investment in capital work in
progress has caused the ratio to improve for BSRM.

4
3.5
3
2.5
2 BSRM
1.5 GPH
1
0.5
0
2013 2014

[XI]
Total Asset Turnover:

2013 2014
BSRM 1.265 1.191

GPH 1.107 0.802

Time Series:

BSRM

BSRM has earned good amount of return on total assets invested in both the years. However
the ratio has fallen in 2014. This may have resulted from the firm’s decision of increasing the
inventory level.

GPH

GPH also has earned a fair amount of revenue over the two years. The increased investment
however, had no positive effect on sales. Revenue in fact fell, which reflects poorly on the
firm;s performance.

Cross Section:

2013

Both firms have earned somewhat similar level of return on assets used. BSRM’s position is
better than GPH. BSRM has managed assets more efficiently than GPH.

2014

In 2014, falling sales has been experienced by both BSRM and GPH alike. However GPH
experienced a sharper fall. Along with that, increased asset investment has resulted in the
ratio worsening for GPH. For BSRM, the ratio was stable in both years, with a slight decrease
in 2014.

1.4
1.2
1
0.8 Average Collection Period:
0.6 BSRM
0.4 GPH 2013 2014
0.2
0
2013 2014 [XII]
 BSRM 48.9 27.7

GPH 52 79

Time Series:

BSRM

Average collection period for BSRM is quite good. Debtors have taken a month and a half to
pay outstanding debts. In 2014 the ratio has further improved, which means debtors have
been paying up faster. This may have occurred because receivableshave reduced
considerably.

GPH

GPH’s collection period was less than two months in 2013. This is acceptable for a steel
manufacturer. However in 2014 debtors have not been paying up fast enough. They have
taken almost three months to settle their debts. This has resulted from trade debtors
increasing and annual sales falling.

Cross Section:

2013

BSRM and GPH have similar average collection period in 2013. Ratio for both companies is
commendable, although BSRM’s ratio is marginally better. BSRM’s debtors have taken less
time to pay their debts.

2014

In 2014 BSRM’s collection period has improved while GPH’s has worsened. This means
GPH is not being able to manage its debtors efficiently. This reflects poorly on the company
because it implies that the credit period offered by the company is too long, or that GPH’s
products do not have enough demand and will not sell if credit terms are not lenient.

100
80
60
40 BSRM
20 GPH
0
2013 2014

Average Payment Period:

2013 2014
BSRM 0 0.5
[XIII]
GPH 3.3 34.6
Time Series:

BSRM

The company did not have any creditor in 2013. Credit purchases in the year 2014 were
minimal. Avoiding credit purchase can prove to be beneficial for the company as it will have
lower liabilities and will not run the risk of having t pay interest for late payments. However
BSRM is losing out, because the cash used for purchasing inventory could be put to better
use.

GPH

In 2013 GPH has a very low payment period since it did not have a large amount of debts to
trade creditors. In 2014, however creditors increased by a large margin and so did the
payment period. It is wise for the company to take advantage of credit terms, especially
because its collection period is quite long in 2014. Its collection period is twice as long as its
payment period. Thus GPH should try to increase the payment period as much as possible, so
as to avoid liquidity crisis in the future.

Cross Section:

2013

Both firms have very low payment periods in 2013. Neither firms engaged in credit purchase
extensively. Alternatively the firms may have too strict credit terms with suppliers.

2014

BSRM’s payment period has remained stable in 2014. GPH’s has increased considerably.
Both firms may face liquidity problems since their collection periods are longer than payment
periods.

40
30
20 BSRM
10 GPH

0
2013 2014

3. PROFITABILITY RATIOS:

[XIV]
 Gross Profit Ratio:

2013 2014
BSRM 10.55 9.04

GPH 16.27 18.51

Time Series:

BSRM

In 2013 BSRM has earned a good amount of gross profit. But cost of sales is quite high.
Profitability has fallen in 2014, due to declining sales alongside increasing cost of production.
BSRM should try to reduce cost of production in order to achieve higher returns.

GPH

GPH’s gross profit margin is commendable. Although over the course of the two years the
firm has experienced lagging sales, it has been able to keep manufacturing costs low, which
is why its gross profit margin has improved in 2014.

Cross Section:

2013

Despite sales level for GPH being much lower than that of BSRM, it has a higher gross profit
margin. This has occurred because GPH has successfully kept its production cost low. BSRM
has very high production cost, which is why it is less efficient in turning sales to profit.

2014

BSRM’s gross profit percentage is only half of that of GPH in 2014. Clearly BSRM is not apt
at controlling costs. It has failed to turn the boost in sales into extra profit. GPH on the other
hand has achieved higher profit even after experiencing a fall in sales level.

20
15
10
BSRM
5 GPH
0
2013 2014

Operating Profit Margin:

[XV]
 2013 2014
BSRM 7.88 6.61

GPH 13.34 15.18

Time Series

BSRM

BSRM’s operating profit margin is quite good in both the years. But it has fallen in 2014 in
comparison to 2013, because the gross profit itself had fallen.

GPH

GPH’s operating profit margin shows that the business is doing well in terms of earning
profits. Because of its efficient management of both production and operating costs, GPH has
improved its operating profit margin in 2014.

Cross Section

2013

BSRM’s profit margin is very low in comparison to GPH. Although BSRM has much higher
sales, due to its improper cost management the firm has failed to earn high percentage of
return.

2014

Profitability for GPH has increased but for BSRM has worsened. BSRM’s operating costs
have heightened which has resulted in a lower profit margin. BSRM’s profitability is very
poor in comparison to GPH

20
15
10
BSRM
5 GPH
0
2013 2014

Net Profit Margin:

[XVI]
 2013 2014
BSRM 5.25 3.23

GPH 3.85 5.75

Time Series:

BSRM

BSRM had a fair amount of profit in 2013. However due to loss incurred by associate, the
overall net profit has fallen in 2014.

GPH

GPH’s profitability position was not very well in 2013. But it recovered itself in 2014.
Reduction in finance expenses and the increase in no operating profit have contributed to the
firm’s improved profit level.

Cross Section:

2013

In spite of having a lower rate of operating profit, BSRM earned a higher rate of net profit.
This is because GPH had proportionately higher non operating costs than BSRM.

2014

GPH has managed to pull itself up in 2014 by achieving higher non operating income and
reducing costs. BSRM however incurred loss and experienced elevated expenses. Thus GPH
had a better rate of return than BSRM

7
6
5
4
3 BSRM
2 GPH
1
0
2013 2014

Basic Earning Power:

[XVII]
 2013 2014
BSRM 0.10 0.079

GPH 0.148 0.122

Time Series:

BSRM

BEP ratio is used to analyse the amount of profit earned for all the assets used in operations.
BSRM has earned a return of one tenth of total assets. The rate is quiet good but it can still
improve. In 2014 the ratio has deteriorated. This has happened because BSRM has failed to
attain higher profits even after employing more assets in the business.

GPH

GPH’s ratio is consistent in both years. However the ratio has deteriorated somewhat in 2014
even after earning higher profit. This implies that GPH is being losing its efficiency at
making the most use of assets employed.

Cross Section:

2013

Both firms have similar level of BEP ratio. BSRM’s investment in assets is a lot higher than
GPH’s, thus it is expected of BSRM to have a higher ratio. However GPH’s ratio is better
than BSRM, which means GPH, is better at asset management.

2014

The ratio has fallen for both firms in 2014. GPH’s ratio should have improved since it had
higher profit in 2014 than 2013, but it did not. BSRM on the other hand had a much lower
ratio than GPH because of both lagging profit and increased asset investment. This is an area
where improvement is required for BSRM and GPH alike.

0.2
0.15
0.1
BSRM
0.05 GPH
0
2013 2014

Return on Asset:
[XVIII]
 2013 2014
BSRM 6.62 3.85

GPH 4.26 4.61

Time Series:

BSRM

Return on asset ratio measures the amount of after tax profit earned as a proportion of assets
employed. BSRM’s declining ROA ratio is consistent with its declining BEP ratio. Tax
expense has remained stable in both years.

GPH

GPH’s ROA ratio has improved in 2014, reciprocating the reduction in tax holiday reserve.
Its ROA is much lower than its BEP which indicates that its tax expenses are quite high.

Cross Section:

2013

BSRM has a better ROA than GPH despite having a lower BEP. This indicates that GPH has
higher tax expenses, which reduced its overall profit.

2014

In 2014 BSRM’s ratio worsened while GPH’s improved slightly. Although GPH’s pays
higher proportion in taxes, its overall profitability position is better than BSRM’s.

7
6
5
4
3 BSRM
2
GPH
1
0
2013 2014

[XIX]
Return on Equity:

2013 2014
BSRM 23.66 14.23

GPH 11.42 13.96

Time Series:

BSRM

BSRM had good amount of return in 2013. However the rate fell drastically in 2014. This has
happened because net profit had declined in 2014, despite the extra investment in the
business.

GPH

GPH’s ratio is not very good. But it has improved in 2014, reflecting the improvement in net
profits.

Cross Section:

2013

BSRM’s performance was much better than GPH’s in 2013. This means BSRM has been
more successful at turning investments into net profits. GPH has higher non operating costs
which have resulted in lower net profits.

2014

Although GPH’s profitability improved and BSRM’s declined, GPH’s rate of return is still
below BSRM’s. All costs considered BSRM is in a better position than GPH.

25
20
15
10 BSRM
5 GPH
0
2013 2014

Earnings per share:

[XX]
 2013 2014
BSRM 5.536 3.626

GPH 1.919 2.270

Time Series:

BSRM

BSRM’s EPS shows that the investors are getting good amount of return for their investments
in shares. The ratio for 2013 is commendable. However due to declining profits the rate has
fallen considerably in 2014. BSRM should see to it that it can at least maintain, if not
improvethis rate, in order to keep shareholders pleased.

GPH

GPH’s EPS has an upward trend over the two years. The improvement in 2014 has resulted
from the increase in profits. Yet the rate is low in both years. GPH should therefore try to
improve its return to investors in the future

Cross Section:

2013

The firms’ EPS varies by a big margin in 2013. Proportionally BSRM has been successful in
earning more profits and thus is capable of giving a higher return to its shareholders.

2014

BSRM’s higher rate of return prevails in 2014 as well. However the difference between the
two companies EPS has reduced. BSRM has a declining trend whereas GPH has a rising
trend. Investors may therefore be more attracted to invest in GPH since its performance has
been improving.

6
5
4
3
2 BSRM
1 GPH
0
2013 2014

4. DEBT MANAGEMENT RATIOS:

[XXI]
Debt Ratio:
2013 2014
BSRM 0.720 0.729

GPH 0.627 0.670

Time Series:

BSRM

BSRM has very high debt ratio in both the years. BSRM holds 70 cents of liabilities for every
1 dollar of asset. The rate has further increased in 2014. The company should be careful and
try to keep liabilities low in the future, especially in current times when revenue is falling.

GPH

GPH operates mostly on debts. Debts for the company have further increased in 2014. The
firm should try to reduce liabilities if it wants to keep interest expenses low.

Cross Section:

2013

Between the two companies BSRM is more highly geared. It holds more liabilities than GPH
and therefore incurs higher interest expense. Investing in BSRM is more risky.

2014

Debt ratio has increased in both companies. GPH’s ratio is still lower than BSRM’s. The
higher level of debt means BSRM has higher finance costs, and consequently had a lower net
profit margin. Although holding such large amounts of debts can be risky, it the investment
may be vital in earning returns.

0.75
0.7
0.65
BSRM
0.6 GPH
0.55
2013 2014

Time Interest Earned:

[XXII]
 2013 2014
BSRM 3.386 2.917
GPH 1.866 2.163

Time Series:

BSRM

Time Interest Earned evaluates the firm’s ability to pay its interest expenses from the profit
earned. Profit earned by BSRM in 2013 was over times of finance cost. The firm is in a safe
position, since it had additional profits even after interest expenses have been met. In 2014
however, the ratio has fallen. This has occurred due to increasing liabilities alongside
lowering profits.

GPH

GPH’s ratio in 2013 was acceptable. Additional profit after interest expenses have been
deducted had been low for GPH. However in 2014 the firm’s ratio improved despite
liabilities increasing. This has happened because the firm has earned higher profits.
Nevertheless there is room for improvement in this area for GPH.

Cross Section:

2013

BSRM’s ratio is almost twice as much as GPH’s. BSRM had higher profits and lower
proportion of liabilities. This means risk involved with BSRM is higher than GPH and
shareholders can expect higher returns from BSRM.

2014

In 2014 BSRM’s debts increased by a greater margin than GPH’s. Profits had improved for
GPH but it failed to rise for BSRM. Thus GPH’s ratio improved and BSRM’s declined. GPH
is more efficient at utilising its investments and earning profit. Nevertheless GPH’s ratio is
still lower than that of BSRM’s; therefore GPH is more at risk.

4
3
2 BSRM
1 GPH
0
2013 2014

RATIOS AT A GLANCE:

[XXIII]
 BSRM GPH
2013 2014 2013 2014
Current Ratio 0.944:1 0.991:1 1.131:1 1.104:1

Acid Test Ratio 0.466:1 0.310:1 0.352:1 0.350:1

Inventory Turnover 4.118 2.574 2.349 1.535

Fixed Asset Turnover 3.419 3.667 3.175 2.559

Total Asset Turnover 1.265 1.191 1.107 0.802

Average Collection 48.9 27.7 52 79

Period
Average Payment 0 0.5 3.3 34.6
Period
Gross Profit Margin 10.55 9.04 16.27 18.51

Operating Profit 7.88 6.61 13.34 15.18

Margin
Net Profit Margin 5.25 3.23 3.85 5.75

Basic Earning Power 0.10 0.079 0.148 0.122

Return on Assets 6.62 3.85 4.26 4.61

Return on Equity 23.66 14.23 11.42 13.96

Earnings per Share 5.536 3.626 1.919 2.270

Debt Ratio 0.720 0.729 0.627 0.670

Time Interest Earned 3.386 2.917 1.866 2.163

Financial forecasting: future behave

After analyzing the financial statements of the two companies, it can be identified that:

[XXIV]
  GPH has a better liquidity position.
 BSRM’s debtors pay faster than GPH’s, but it also pays its creditors faster than GPH.
 GPH has higher operating profit while BSRM has a higher percentage of net profits.
 BSRM earns higher return on equity and assets.
 BSR provides higher return to its shareholders.
 BSRM is more highly geared, but it more capable of paying the interest costs.

Considering the aforementioned points it can be said that, each firm has their strengths and
weaknesses at different areas.

BSRM has higher level of sales, but it is not capable of controlling production and operating
costs efficiently. GPH on the other hand has lower proportion of both manufacturing costs
and operating costs. BSRM must therefore concentrate on reducing cost of production.

BSRM seems to have better credit terms with its customers. They settle debts much faster
than GPH’s customers. Therefore GPH should look into the credit terms offered to debtors
and try to implement terms that encourage quicker payment. Alternatively BSRM does not
seem to engage in any credit purchase. This can prove to be risky, since BSRM is paying its
suppliers before getting payment from customers. Liquidity problems may arise as a result of
this. However, despite having negligible trade creditors, BSRM still holds more in current
liabilities than current assets. Also it lacks liquid assets. Therefore BSRM must focus on the
liquidity issue and look for ways to reduce the short term debts.

GPH should also try to have more flexible terms with its suppliers, because it is paying its
suppliers much faster than its customers are paying up. However their payment period has
increased in 2014 which minimizes some of the risk of facing insolvency. Other than that its
liquidity position is good.

BSRM earns higher return on asset investment and thus has been able to provide higher
return to its investors. GPH must therefore try to utilize its assets more efficiently, so as to
earn higher profits to be distributed among shareholders. Otherwise it will lose its
competitiveness. However earnings per share, return on equity and return on assets have an
upward trend, which reflects positively on the business.

Taking long term liabilities into account, BSRM seems to be involving in risk more than
GPH. It has huge amounts of debts and thus pays more in finance costs. It should try to
reduce its loans so that expenses can be reduced and the overall risk can be reduced. However
the firm makes enough profit to cover its interest expenses.

Although lower than BSRM’s, GPH’s gearing ratio is quite high. Time interest earned ratio
shows that the firm does not have much profit left after paying interests, therefore this firm
should also try to reduce its long term liabilities and consequently its finance costs.

[XXV]
GPH makes a higher proportionate gross profit and operating profit. However it makes a
lower net profit. BSRM’s high finance costs get cancelled out by its finance income. GPH
does not have finance income and thus is losing to BSRM in terms of overall profitability.
GPH should look for ways to increase its sales.

Overall, BSRM’s performance is better than GPH’s. However GPH seems to be improving
while BSRM’s performance seems to be worsening. Therefore BSRM should be more careful
about its entire operations. Faults and lags must be identified and eradicated so that the
company’s goodwill can be upheld.

Cash Conversion Cycle:

The cash conversion cycle (CCC) is a metric that expresses the time (measured in days) it
takes for a company to convert its investments in inventory and other resources into cash
flows from sales. Also called the Net Operating Cycle or simply Cash Cycle, CCC attempts
to measure how long each net input dollar is tied up in the production and sales process
before it gets converted into cash received.

This metric takes into account how much time the company needs to sell its inventory, how
much time it takes to collect receivables, and how much time it has to pay its bills without
incurring penalties.

CCC=DIO+DSO−DPO
Where,

DIO=Days of inventory outstanding

DSO=Days sales outstanding

DPO=Days payables outstanding

Avg . Inventory
DIO= COGS ×365 Day

Where

1
Avg. Accounts Inventory= ×(BI+EI)
2

BI=Beginning Inventory

EI=Ending Inventory

3941678019
Hence,BSRM 2013 DIO = 32466554850 × 365=45.26

[XXVI]
 1762300904
Hence,BSRM 2014 DIO = 7862344633 × 365=81.80

1244172270
Hence,GPH 2013 DIO = 3819621077 × 365=118.88

960135342
Hence,GPH 2014 DIO = 4510928504 × 365=77.68

Avg . Accounts Receivable

DSO= Revenue per day

Where

1
Avg. Accounts receivable= × (BAR+EAR)
2

BAR=Beginning AP

EAR=Ending AP

2426985815
Hence,BSRM 2013 DSO = 23895597 =101.57

214685633
Hence,BSRM 2014 DSO = 22360796 =9.60
389429393
Hence,GPH 2013 DSO = 14965078 =26.02
514524506
Hence,GPH 2014 DSO = 13020045 =39.52

Avg . Accounts Payable

DPO= COGS per day

Where

[XXVII]
 1
Avg. Accounts Payable= × (BAP+EAP)
2

BAP=Beginning AP

EAP=Ending AP

COGS=Cost of Goods Sold

0
Hence,BSRM 2013 DPO = 23895597 =0
0
Hence,BSRM 2014 DPO = 21839846 =0
20678156
Hence,GPH 2013 DPO = 12550356 =1.64
183687306
Hence,GPH 2014 DPO = 10610058 =17.31

So,

BSRM 2013 CCC =45.26+101.57-0 = 146.83

BSRM 2014 CCC =81.80+9.60-0 = 91.4

GPH 2013 CCC = 118.88+26.02-1.64 = 143.26

GPH 2014 CCC = 77.68+39.52-17.31 = 99.89

Here BSRM needed 146 days to convert its inventory to cash in 2013 and 91 days in 2014.
In other hand GPH Ispat needed 143 days to convert its inventory to cash in 2013 and 99 days
in 2014.
Both companies can make their inventory into cash much quicker in 2014 rather than 2013.

Projected Financial Statement:

Projected Income Statement of BSRM 2015:

2013 2014 2015(Projected)

 
Taka
Revenue 8602415008 8,049,886,582 7566893387
Cost of goods sold -8102322738 -7,862,344,633 -7626474294

[XXVIII]
Gross Profit 500092270 187,541,949 71265940.62
Administrative expenses -80668737 -89,871,005 -99756815.55
Selling and distribution expenses -141087182 -165382310 -193497302.7
  278336351 -67,711,367 -153704803.1
Other income 6652224 8,479,824 10769376.48
Operating profit 284988575 -59,231,543 -130901710
Finance Cost -264396406 -504,379,198 -963364268.2
Finance income -23390549 9,364,829 22475589.6
Profit before WPPF and Welfare Fund -420482733 -554,245,912 -731604603.8
Contribution to WPPF and welfare fund -2199136
Non-operating income 169063732 183,667,911 200198023
Share of profit of associates (Net of tax) 1089244645 383,612,872 134264505.2
  1258308377 567,280,783 255276352.4
Profit before tax 1300091959 13,034,871 130348.71
Income tax expenses/benefits:
Net profit after tax for the year 943816621 116,033,236 13923988.32
Other comprehensive income - -
Available for sale financial assets- net change
1756824 -
in fair value
Other comprehensive income, net of tax 1756824 91,591,408 4762753216
Total comprehensive income 945575445 207,624,644 45677421.68
Earnings per share
Basic earnings per share 6.06 0.74 0.0888
Diluted earnings per share 6.06 0.73 0.08

 By analyzing 2013, 2014 annual report we can see that revenue decreased to 6% so if we go
like this projected revenue will also be decreased to 7566893387 taka
 Cost of goods sold to will be decreased 3%
 Gross profit will be decreased 62%
 Earnings per share will be decreased to 88%

Projected Income Statement of GPH Ispat 2015:

[XXIX]
Projected Balance Sheet of BSRM 2015:

[XXX]
Projected Balance Sheet of GPH Ispat 2015:

[XXXI]
CONCLUSION:
BSRM and GPH are both considered to be well reputed, successful and profitable companies
in their industry. After carrying out the analysis, BSRM seems to be the more successful
business of the two. However ratio analysis is not the sole determinant of business success.
There are many other qualitative factors that must be taken into account.

BSRM and GPH’s sales vary by a big margin. But BSRM’s higher slaes may be result of its
extensive investment. Alternatively BSRM may incur more in production cost because it uses
superior raw materials, or has advanced manufacturing processes which cost more.
Maintaining higher quality may have caused sales to be high and debtors to be more eager.

GPH may provide lower returns to investors, but it also has lower risk in terms of debts.
Many investors may prefer the lower risk over higher return.

BSRM has been operating in the industry for a great many years. GPH on the other hand is
relatively new. Therefore BSRM’s revenue and profits and overall market demand is likely to
be higher. Nevertheless GPH despite being less experienced is performing quite well. In fact
its performance has been improving. But BSRM’s performance has been falling. Both firms
alike have faced falling sales in 2014, which is negative indicator for market conditions. A
business flourishing in adverse market conditions reflects positively on the business.

[XXXII]
Ultimately, declaring either company better than the other is extremely difficult. Each
company has done well and badly in distinct sectors. Which company has excelled over the
other, depends on his/her preference for risk and its associated return.

[XXXIII]