Financial Strength Analysis of Rangpur Foundry Ltd Executive Summary This project will cover the complete knowledge about the main working of Rangpur Foundry Ltd. The Rangpur Foundry Ltd. is the largest domestic Cast Iron & Plastic goods-producing unit in Bangladesh. Its excellent quality-control standards have helped the Company acquire the ISO-9001:2000 certification. The Company was started commercial production in January 1983. This project will discuss about the financial strength & weakness and also discuss the Current Financial situations of RFL. Now a day Manufacture company play an important role in economic development the main function of Manufacture is to promote tile movement of Region. The code of conduct approved by the board of director, expresses fundamental principles that guide all the employees and shape the organization business activities. It’s started journey as a privet Ltd company 1981 & converted as public Ltd Company in 1996. It also describes the various financial ratios and try to find out its past, present and future financial position. This report we find out the liquidity, Asset management, Debit Management, Market Value, Profitability Ratio. We analysis the fixed assets turnover, total assets turnover, profit margin, ROA & ROE. And lastly analysis the DuPont. RAGPUR FOUNDRY LTD. 1.1 Introduction Finance is the blood of any business organization. Any public or private limited company needs to conduct a financial statement every year to know its current performance, strengths as well as weaknesses. Ratio Analysis enables the business owner/manager to spot trends in a business and to compare its performance and condition with the average performance of similar businesses in the same industry. To do this compare the ratios with the average of businesses similar to the company and compare own ratios for several successive years, watching especially for any unfavorable trends that may be starting. Ratio analysis may provide the all-important early warning indications that allow you to solve your business problems before your business is destroyed by them. The Rangpur Foundry Ltd. is the largest domestic Cast Iron & Plastics production unit in Bangladesh. In this report we are going to analyze its financial strength by analyzing it various financial ratios. 1.2 Objectives 1.2.1 Primary Objective The primary objective of this report is to determine the Financial Strength and Weakness of Rangpur Foundry Ltd. by analyzing the last six years Financial Statement starting 2003 to 2008.
1.2.2 Secondary Objectives To fulfill the primary objective the secondary objectives of this report includes the following key aspects of Rangpur Foundry Ltd: • • • • •
Determine the Liquidity position Find out the profile of the assets management Verify the level of Debt management practices Know the Profitability And finally, figure out the Market Value
1.3 Origin of the Report This report has been prepared for as a partial requirement of BBA program. I hope this report will give my instructor a clear idea about the histories, activities and operations, structure, management of asset, liability, liquidity, function and overall financial performance of RFL. 1.4 Background: I am the student of Business Administrative as a fulfillment BBA degree I have to a complete an internship report. My honorable supervisor Mr. Siddique Hayat khan assigned me to prepare this report on “Performance of the RFL.” This had the formal approval of my supervisor of Business Faculty. This report is prepared based on the qualitative research. 1.5 Rationale of the Report: Internship program is the practical aspect of our theoretical learning. It makes a bridge between the gap of classroom learning and practical learning. In this view, Internship plays a pivotal role for each professional degree like BBA. The study will help formulate suitable policies taking into consideration different ideas. Further more, it may note that RFL executives who are really executing the policies undertaken by the top management will have a chance to communicate their interaction and provide necessary feedback. 1.6 Scope of the study: This report has been prepared through extensive discussion with finance employees and with the marketing employee and covers all the trade related products handled by the “RFL.” such as finance department, costing department, etc. While preparing this report, I had a great opportunity to have an in-depth knowledge of all the finance activities perspective of a leading company RFL in Bangladesh. This report gives “Financial performance analysis of the RFL”. The scope of the report is limited to the overall financing description of the company, its service and its position in the industry and its financing strategies. The scope of the study is limited to organizational setup, functions, and financial performance. 1.7 Methodology of the Study 1.7.1 Type of the report
The ultimate objective of this report is to determine the Financial Strength and Weakness of Rangpur Foundry Ltd. by analyzing the data of last six years Financial Statement. For this reason this report has been prepared by incorporating the characteristics of the exploratory research, through which Rangpur Foundry Ltd.’s financial market positioning has been pointed 1.7.2 Data Collection Method: To make the Report more meaningful and presentable, two sources of data and information have been used widely. Source of Data
PRIMARY DATA
SECONDARY DATA
Primary sources • • •
Practical desk work Face to face conversation with the officer Financial paper observations.
Secondary sources • • •
Annual report of RFL Files & Folders Websites
To complete the report according to the plan designed the required data has been collected from mainly from the Secondary sources. And all the secondary data has been collected from the Annual Reports of Rangpur Foundry Ltd. available in the Dhaka stock exchange. 1.7.3 RESEARCH DESIGN: After the data collection, all the necessary data has been analyzed thoroughly according to the specified formula provided in the textbook of Managerial Finance. To analyze the data the following computer packages were used: Microsoft Word: MS Word was used for word processing and to write report. Microsoft Excel: MS Excel was used for analyzing the data, creating charts, and computation purpose. 1.7.4 Type of analysis In this report, we are basically analyze the trend of various financial ratios and try to find out its past, present and future financial position.
In trend analysis, ratios are compared over time, typically years. Year-to-year comparisons can highlight trends and point up the need for action. Trend analysis works best with three to five years of ratios. 1.8 Conceptual Framework Financial ratios quantify many aspects of a business and are an integral part of financial statement analysis. Financial ratios are categorized according to the financial aspect of the business which the ratio measures. In this report following ratios are used to analyze the company’s financial strength and weakness. 1.8.1 Liquidity Ratios: Liquidity ratios help to analyze a company's ability to meet short-term financial obligations. Example Ratios Current Ratio
Formula Current Asset Current Liabilities Quick ratio/Acid-test Current assets - Inventory ratio Current liabilities
Measures Ability to pay current debts Ability to convert current assets to cash for the purpose of meeting current liabilities. Called the acid-test -- is a crucial test of the firm's liquidity
1.8.2 Asset management (efficiency) Ratios: Asset Management ratios help to analyze how quickly a company's resources can be converted to cash or sales. Example Ratios Inventory turnover Fixed asset turnover Total asset turnover Average collection period (DSO)
Formula Sales Inventory Sales Fixed assets Sales Total assets Accounts receivable Average daily credit sales
Measures The speed with which inventory moves through the company and is turned into sales. Extent to which company is utilizing existing property, plant, and equipment to generate sales. How effectively company uses its total resources to generate sales. Serves as a basis for determining how rapidly a company's credit accounts are being collected.
1.8.3 Debt Management (leverage) Ratios: Debt Management ratios help to analyze the degree and effect of a company's use of borrowed funds (debt) to finance its operations. Example Ratios Debt ratio
Formula Total debt Total assets Times interest earned EBIT (TIE) Interest charges
Measures The extent to which the total assets of the firm have been financed using borrowed funds. The ability to the companies to meet is interest obligations should profits decline.
1.8.4 Market Value Ratios: Market value ratios help to analyze the degree of investor’s responseness to owning a company's stock. Example Ratios Price/Earning ratio Market/book ratio
Formula Market price per share Earning per share value Market price per share Book value per share
Measures The extent investors are willing to pay per taka of reported profit. The extent investors are regards the company.
1.8.5 Profitability: Profitability ratios help to analyze management's ability to control expenses and earn profits through the use of company's resources. Example Ratios Profit margin Return (ROE) Return (ROI)
Formula Net profit Sales of equity Earnings Shareholders equity on investment Net profits Total assets
Measures Measures percentage of each sales taka remaining after all expenses Rate of return that owners receive on their investment. Overall effectiveness to generate profits from total investment in assets.
1.9 Limitations To review the financial standing of any company it requires several types of data, different types of analysis. In this report to full fill the course requirement we have just covered the analysis of the financial statement of Rangpur Foundry Ltd. While analyzing of the financial statement of Rangpur Foundry Ltd only the technique of Ratio analysis has been incorporated. A reference point is needed. To be meaningful, most ratios must be compared to historical values of the same firm, the firm's forecasts, or ratios of similar firms. But unfortunately we haven’t collect ant reference. Some ratios may not highly meaningful. They should be viewed as indicators, with several of them combined to paint a picture of the firm's situation. Year-end values may not be representative. Certain account balances that are used to calculate ratios may increase or decrease at the end of the accounting period because of seasonal factors. Such changes may distort the value of the ratio. Average values should be used when they are available. Ratios are subject to the limitations of accounting methods. Different accounting choices may result in significantly different ratio values.
Organizational Profile 2.1 Introduction of the RFL
The Rangpur Foundry Ltd. is the largest domestic Cast Iron & Plastic goods-producing unit in Bangladesh. Its excellent quality-control standards have helped the Company acquire the ISO-9001:2000 certification. The product of the company is being marketed under the trademark of 'RFL'. This brand now has a steady market share. The company was set up in 1981 on 5 acres of land and went into commercial production in January 1983. The Rangpur Foundry Limited (RFL) was the first undertaking of PRAN-RFL Group. This enterprise produces world-class Plastic goods and, as a testimony to this, stands the fact that the concern has been awarded the ISO-9001:2000 certification for sustained quality control effort. The factory of this Company is located in the Northern part of Bangladesh at BSCIC Industrial Estate, Kellabond, Rangpur, under the Rajshahi Division. Northern part of Bangladesh is poor & labour intensive area. The product of this company is also labour intensive. So, they are enjoying the facility labour availability & also lower labour cost. Board of Director Managing Director Mr. Ahsan Khan Chowdhury Directors Maj Gen Amjad Khan Chowdhury Mrs. Sabiha Amjad Lt Col Mahtabuddin Ahmed Mr. Shiban Kumar Na 2.2 RFL Information at a Glance: Name of the Company Date of Company Journey Date of Commercially Production
Rangpur Foundry Ltd. 1981. January, 1983
Logo
Organizational Structure Head Office
Tall 12, R.K. Mission Road, Dhaka-1203 Bangladesh.
Principal Factory Chairman Managing Director Net Profit After Tax (2008) Board of Directors Number of Production Units Operating Profit (2007)
BSCIC Industrial Estate, Kellabond, Rangpur Lt Col Mahtabuddin Ahmed (Retd) Mr. Ahsan Khan Chowdhury 17493000 4 3 3,257 million
Raw Materials Used
Cast Iron Products from Ship Scrap, Plastics Products from PP Resin and marketing thereof.
Initial Public Offering
Number of Shareholder
Share percentage
Sponsor/ Director-50, Govt.-0, Foreign-0, Public- 49.05
2.3 Products of RFL CI (Cast Iron) 1. Tube well 2. Tube well spares 3. Centrifugal pump 4. Centrifugal pump spares 5. Water pump ( imported from China) 6. Gas stove (S/C & imported from China) 7. Belcha/ shovel (S/C) 8. Kodal/ Hoe head (imported from China) 9. Bearing ( imported from China) 10. Teflon Tape , Electric Motor, Capacitor etc( imported from China) PVC (Polyvinyl Chloride) 1. 2. 3. 4. 5. 6. 7. 8.
PVC Pipe (1/2” ~ 20”) PVC Filter (1.5”~ 14”) PVC Fitting (Molded & Fabricated) HDPE Pipe (1/2”~ 8”) Threaded Pipe ( ½”~ 8”) Braided Hose Corrugated Hose Garden Hose
Plastics product group containing the following two types 1. Furniture group 2. Household group Furniture group contains the following product 1. 2. 3. 4. 5. 6.
Chair Table Baby chair Tool Rack Basket
Household group contains the following product
Institute- 0.95,
1. Kitchen wares 2. Sanitary wares 3. Table top wares Building materials group contains the following product 1. 2. 3. 4. 5. 6. 7. 8. 9.
PVC door PVC sheet Garments Accessories group contains the following product Hangers Gum tape Mitsubishi products are containing the following Poly shopping bag Wind break net Cutleries
How to sell Sales are performed by three ways Market sales- performed through 26 zones under 10 regions & divided the products group as below: 1. 2. 3. 4. 5. 6.
CL & PVC group HW & M group Doors & Sheets group Furniture group Household-1 group Household-2 group
Field sales forces are containing 92 numbers of zonal & regional managers and 760 numbers of sales representatives. RFL has integrated distribution channel through out the country. In this respect it has fifteen distributor depots and around 5000 distributors all over the country. Institutional sales: - performed through tender participation and personal persuasion of different government and non government institutional, real estates companies etc. Export sales- perform through local L/C for domestic & overseas. 2.4 Objective of the RFL: To achieve the desired goal, it has the intention to pursuit of excellence at all stages with a climate of continuous improvement. Eventually the Company emphasizes on the following objectives • • • •
To contribute for economic development of the country To provide the low cost product with high quality for the mess population of the country To help farmers by supplying agriculture equipment To provide the best after sales service to the customers
• •
To reach the products to every possible customers destination To expend the business through overseas market
2.5 Vision: To be one of the best Privet manufacturing companies in Bangladesh in terms of efficiency of the employee, well use working capital management. Proper inventory & low cost product with high quality. 2.6 Mission: RFL has been successful in trading business & established RFL Brand as a reliable quality product and service provider, the company well keep on increasing volume in trading business and secure greater market share. 2.7 Corporate Governance Guidelines and Code of Ethics Rangpur Foundry Ltd. is an industrial concern engaged in production and marketing of Cast Iron & Plastics under rigid ethical standard. Our code of conduct approved by the board of directors, expresses fundamental principles that guide all the employees and shape the organizations business activities. It is corporate guiding principles, upholding the law, honoring trust, fairness objectivity, confidentiality, integrity and corporate and individual responsibility 2.8 Human Resource Management Rangpur Foundry Ltd continued to implement appropriate human resource management policies and practical to motivate and develop its employees and also to ensure there optimum contribution towards the achievement of corporate goals. The company continues its policy of hiring the best people and implementing programs to develop and retain high quality human resources. As a part of company human resources development program, a good number of employees were sent to different training programs both inside and outside the country which included both managerial development and technical modules. 2.9 Domicile, legal form and country of incorporation Rangpur Foundry Ltd was incorporated in Bangladesh on third of March, 1981. As a private limited company Ltd by shares under the companies act, 1913. It is converted as public limited company in 1996 and it shares are listed in the Dhaka and Chittagong stock exchanges. 2.10 Principal activities and nature of operations The nature and principal business activities of the company are manufacturing of Cast Iron Products from Ship Scrap, Plastics Products from PP Resin and marketing thereof. 2.11 Units
The company operates three units. The second & third unit has been operating commercially since 2007 & 2008. 2.12 Depreciation Depreciation is charged on fixed assets on the straight line method at varying rates considering the useful lives of the assets. No depreciation is charged on land & land development. No depreciation has been charged on additions and disposals of the fixed assets during the year under review. The rates of depreciation on each class are as follows: Particulars of assets
Annual rate of depreciation
Building and other construction Plant & Machinery Furniture & Fixtures Office Equipment Telephone Installation Motor Vehicle Sundry Assets
10% 20% 10% 25% 20% 20% 33%
2.13 Inventories Inventories comprise of raw materials, packing materials finished goods and store & spares. They are stated at the lower of cost and realizable value in accordance with BAS- 2 “Inventories” after making due allowances for any obsolete or slow moving items. The costs of inventories are assigned by using weighted average cost formula. Net realizable value is determined after deducting the estimated cost of completion and/or cost to be incurred for effecting the sale from sales price. 2.14 Taxation The company enjoyed Tax holiday for 7 (seven) years with effect from first July, 2001. The company is a “Publicly Traded Company” as per Income Tax Ordinance and the company provided tax holiday reserve as per section 46A(2)(C) of the Income Tax Ordinance 1984 for Unit-11. 2.15 Financial Results and Appropriations (Taka in `000) Year 31.12.2008 Net profit After Tax 20,710 Tax Holiday Reserve 3,216 Net Profit After Tax 17,493 Holiday Reserve Prior Year Adjustment Profit Available For 17,493 Appropriation Proposed Dividend 18,000
31.12.2007 20,537 6,990 14,064 517 13,547 16,000
2.16 Address of registered office and principles place of business The registered office is at Property Heights, 12, R.K. Mission Road, Dhaka-1203. The factory is situated at BSCIC Industrial Estate, Kellabond, Rangpur
Financial Strength Analysis 3.1 Financial Data Balance Sheet Year
2003
2004
2005
2006
2007
2008
Fixed Asset
1,371,325,646
1,387,753,844
1,497,115,518
1,427,560,032
1,397,087,008
1,378,737,392
Receivables Inventory Current Asset
155,373,067 730,762,998 1,018,622,921
226,096,928 863,547,351 1,253,123,650
148,920,859 750,976,338 1,003,252,653
214,205,438 578,848,917 952,008,134
272,848,466 727,569,478 1,180,027,914
255,117,098 554,073,661 1,064,749,181
Total Asset
2,389,948,567
2,640,877,494
2,500,368,171
2,379,568,166
2,577,114,922
2,443,486,573
Current Liabilities
990,863,219
1,229,932,887
952,991,742
943,392,659
1,188,086,536
1,128,318,964
Long Term Debts
839,901,875
821,657,681
932,123,746
812,529,812
718,168,213
594,207,439
Total Debt
1,830,765,094
2,051,590,568
1,885,115,488
1,755,922,471
1,906,254,749
1,722,526,403
Total Equity
559,183,473
589,286,926
615,252,683
623,645,695
670,860,173
720,960,170
Total E & L
2,389,948,567
2,640,877,494
2,500,368,171
2,379,568,166
2,577,114,922
2,443,486,573
Table 1- Simplified balance sheet of Rangpur Foundry Ltd. Income Statements Year
2003
2004
2005
2006
2007
2008
Sales
2,816,088,319
2,528,410,255
2,080,001,886
1,939,520,71 3
2,954,896,139
3,367,396,868
COGS
2,392,133,075
2,195,101,873
1,847,194,360
2,705,960,316
3,075,067,567
Interest Expence Leage Payment Other Total Expenses
129,894,936 104,427,027 2,626,455,038
149,780,053 96,963,008 2,441,844,934
162,297,008 277,860 44,488,719 2,053,980,087
1,724,674,49 1 133,986,008 277,860 46,548,452 1,905,208,95 1
118,067,797 436,260 55,761,151 2,879,789,264
120,127,996 994,725 65,837,676 3,261,033,239
EBIT Tax
189,633,281
86,565,321
26,021,799
34,311,762
75,106,875
106,363,629 1,266,922
Net Profit
189,633,281
86,565,321
26,021,799
34,311,762
75,106,875
105,096,707
Table 2- Simplified Income Statement of Rangpur Foundry Ltd. Year
2003
2004
2005
2006
2007
2008
Fixed Asset
57.38%
52.55%
59.88%
59.99%
54.21%
56.43%
Receivables
6.50%
8.56%
5.96%
9.00%
10.59%
10.44%
Inventory
30.58%
32.70%
30.03%
24.33%
28.23%
22.68%
Current Asset
42.62%
47.45%
40.12%
40.01%
45.79%
43.57%
Total Asset
100%
100%
100%
100%
100%
100%
Current Liabilities
41.46%
46.57%
38.11%
39.65%
46.10%
46.18%
35.14%
31.11%
37.28%
34.15%
27.87%
24.32%
Total Debt
76.60%
77.69%
75.39%
73.79%
73.97%
70.49%
Total Equity
23.40%
22.31%
24.61%
26.21%
26.03%
29.51%
Total E & L
100%
100%
100%
100%
100%
100%
Long Debts
Term
Table 3- Common Size Balance Sheet of Rangpur Foundry Ltd. Year
2003
2004
2005
2006
2007
2008
Sales
100%
100%
100%
100%
100%
100%
COGS Interest Expenses Lesage Payment Other Total Expenses
84.95% 4.61% 0.00% 3.71% 93.27%
86.82% 5.92% 0.00% 3.83% 96.58%
88.81% 7.80% 0.01% 2.14% 98.75%
88.92% 6.91% 0.01% 2.40% 98.23%
91.58% 4.00% 0.01% 1.89% 97.46%
91.32% 3.57% 0.03% 1.96% 96.84%
EBIT Tax Net Profit
6.73% 0.00% 6.73%
3.42% 0.00% 3.42%
1.25% 0.00% 1.25%
1.77% 0.00% 1.77%
2.54% 0.00% 2.54%
3.16% 0.04% 3.12%
Table 4- Common Size Income Statement of Rangpur Foundry Ltd. 3.2 Liquidity Ratios Year
2003
2004
2005
2006
2007
2008
Current Asset
1018622921
1253123650
1003252653
952008134
1180027914
1064749181
Current Liabilities Inventory
990863219
1229932887
952991742
943392659
1188086536
1128318964
730762998
863547351
750976338
578848917
727569478
554073661
Current Ratio
1.03
1.02
1.05
1.01
0.99
0.94
Quick Ratio
0.29
0.32
0.26
0.40
0.38
0.45
From the above chart we can see that current ratio is slightly decreasing over the last six years but quick ratio shows opposite trend. That indicates that company is gaining more control over the inventory management, but in both cases company’s current assets does not meet current obligations. 3.3 Asset Management Ratios Year
2003
2004
2005
2006
2007
2008
Sales
2816088319
2528410255
2080001886
1939520713
2954896139
3367396868
Inventory
730762998
863547351
750976338
578848917
727569478
554073661
Inventory Turnover
3.85
2.93
2.77
3.35
4.06
6.08
Up to the year 2005 inventory turnover is decreasing but after word sharp increasing trend is observed in above chart. Now its inventory turnover is much better that start of the observed period because of increasing sales as well as the decreasing inventory.
3.4 DSO Analysis
Year Sales Receivables DSO
2003 2816088319 155373067 19.86
2004 2528410255 226096928 32.19
2005 2080001886 148920859 25.77
2006 1939520713 214205438 39.76
2007 2954896139 272848466 33.24
2008 3367396868 255117098 27.27
There is an ups and downs trend is observed in average collection period. So we can see that when ever there is an increase in DSO, company gave more concentration to improve credit or collection policies. Presently collection period decreasing, but it is even now above the earlier year 2003. 3.5 Fixed & Total Assets Turnover Year
2003
2004
2005
2006
2007
2008
Sales
2816088319
2528410255
2080001886
1939520713
2954896139
3367396868
Fixed Asset
1371325646
1387753844
1497115518
1427560032
1397087008
1378737392
Total Asset
2389948567
2640877494
2500368171
2379568166
2577114922
2443486573
Fixed Asset Turnover Total Asset Turnover
2.05
1.82
1.39
1.36
2.12
2.44
1.18
0.96
0.83
0.82
1.15
1.38
Fixed and Total Asset Turnover
x Times .
3.00 2.50 2.00 Fixed Asset Turnover
1.50
Total Asset Turnover
1.00 0.50 0.00 2003
2004
2005
2006
2007
2008
Year
Up to year 2003-2006, company’s sales are decreasing but in 2007 there is dramatic change in sales figure and it is continuing to increasing. As a result, both fixed asset and total asset turnover is decreasing up to 2006 and afterward it is increasing sharply. Now both are, in the height position among the observation years. 3.6 Debt Management Ratios Year Total Debt Total Asset Debt Ratio
2003 1830765094 2389948567 76.60%
2004 2051590568 2640877494 77.69%
2005 1885115488 2500368171 75.39%
2006 1755922471 2379568166 73.79%
2007 1906254749 2577114922 73.97%
2008 1722526403 2443486573 70.49%
We observed a slightly decreasing trend in the debt ratio, but it is even above 70 percent now. Long term debt is decreasing over the time but non-long term debt is increasing as sales increasing. So, we can say company needs more working capital by its own in order to reduce debt dependency 3.7 Times interest earned
Year EBIT Interest Expenses TIE
2003 189633281 129894936 1.46
2004 86565321 149780053 0.58
2005 26021799 162297008 0.16
2006 34311762 133986008 0.26
2007 75106875 118067797 0.64
2008 106363629 120127996 0.89
Up to year 2003-2005 the interest amounts are increasing on the other hand EBIT decreasing. In year 2005 the TIE was worst. Afterworld the position is getting improved but it is less than earlier year 2003. 3.8 Market Value Ratios Year
2003
2004
2005
2006
2007
2008
EPS
84
38
12
15.25
33.38
46.72
VBS
100
100
100
100
100
100
MPS
310
279.25
347.75
246
276.75
Price Earning Ratio
8.16
23.27
22.80
7.37
5.92
Market/book
3.10
2.79
3.48
2.46
2.77
There is a dramatic decrease in EPS 2003 from 2005 afterward it increasing steadily. On other hand market prices over the years are. So, we see high P/E ratio in year 2005 and 2006. On the other hand, M/B ratio shows very little fluctuation. 3.9 Profitability Ratios Year
2003
2004
2005
2006
2007
2008
Net Profit
189633281
86565321
26021799
34311762
75106875
105096707
Sales
2816088319
2528410255
2080001886
1939520713
2954896139
3367396868
Profit Margin
6.73%
3.42%
1.25%
1.77%
2.54%
3.12%
The profit margin is sharply decreasing up to year 2005 then it starts increasing steadily. The sales are decreasing up to 2005, on the other hand relative cost of good sold in creasing over the year. 3.10 ROA & ROE Year
2003
2004
2005
2006
2007
2008
Total Asset
2389948567
2500368171
2379568166
2577114922
2443486573
Total Equity Net Profit
559183473
264087749 4 589286926
615252683
623645695
670860173
720960170
189633281
86565321
26021799
34311762
75106875
105096707
ROA
7.93%
3.28%
1.04%
1.44%
2.91%
4.30%
ROE
33.91%
14.69%
4.23%
5.50%
11.20%
14.58%
Total asset is not varied widely over the years. The equity is increasing steadily but profit varied widely, it is decreasing up to year 2005 then it starts increasing. As a result we see both ROA & ROE decreasing up to year 2005, afterward it starts increasing but both are bellow earlier year 2003. 3.11 DuPont Analysis Year 2003
Profit Margin 6.73%
TATO 1.18
EM 4.27
ROE 33.91%
2004
3.42%
0.96
4.48
14.69%
2005
1.25%
0.83
4.06
4.23%
2006
1.77%
0.82
3.82
5.50%
2007
2.54%
1.15
3.84
11.20%
2008
3.12%
1.38
3.39
14.58%
From the chart we see that the company has had the best performance record for utilization of its assets. What’s worrisome is the fact that the company has seen a significant decline in its profit margins up to years 2005. Thus, it has gone from being a company with the highest ROE to one that has the lowest ROE. If we see the percentage income statement, cost of gods sold is increasing over the years. Other expenses are some how in controlled. However, the company still has got plenty of potential for improving its performance by laying an emphasis on increasing profits and generating more cash flows to fund its assets internally. Fortunately, the profit margin already starts increasing steadily from year 2007. The company shows nearly steady performance in debt management. But still it is not in so good position. However, it tries to reduce its financial leverage by reducing the reliance on debt to fund its assets. 4.1 Findings Based on the different findings and the ratio analysis, the summary of the strengths and weaknesses, possible reasons and associate improvement suggestions are given below incorporating the following key areas: 4.2 Liquidity position Current Liquidity position of RFL. is not so good. It can not even meet its current obligations. So, company may fall in financial difficulties if proper action is not taken. However, its position is increasing gradually. As short-term creditors prefer a high current ratio since it reduces their risk. So we suggest for improving more and company may be able to raise its liquidity position by: •
Paying some debts.
• • • •
Increasing current assets from loans or other borrowings with a maturity of more than one year. Converting non-current assets into current assets. Increasing current assets from new equity contributions. Putting profits back into the business
4.3 Assets management profile From the analysis of asset turnover ratio it has been found that company’s Fixed Asset Turnover ratio and Total Asset Turnover ratio is raising during the last three years. This assumes that company is using their assets in proper manner and also ensuring the ability to meet the supply of market demand with their existing assets. On the other hand we see, the credit policy is not holding its performance over the yeas. However, currently the position is getting much better. The company should more concentrate on it. 4.4 Debt management practices Presently (2008) RFL. Depends on 70% of debt. It was about 76% in 2003. From common size income statement we can see that long term debt is decreasing over the time but non-long term debt is increasing as sales increasing. So we can say the company is at high risk. Higher debt makes interest expense high as a result profit margin become lower. So we have seen that the company’s EBIT even doesn’t meet it interest expenses for last few year. So, company need to reduce its debt ratio. It must concentrate on short term debt management. 4.5 Profitability During the years 2004-2005, Bangladesh economic was in a convalescent phase from global and internal shocks. While the outcome and impact of Iraq war left the world economic including Bangladesh in a state of uncertainty. Beside, many foreign and local company invested in manufacturing sectors as they seen a profitable performance of existing company. As a result manufacturing market was oversupplied and price had fallen due to stiff competition. On the other hand, the price of row material was increasing sharply. Many manufacturing company did not even survive this situation They clearly observed the effect of above situations on profit margin. Fortunately, the company overcomes the shock very nicely and now it is doing very good. As manufacturing industry is in highly competitive market, it is not possible to gain profit from increasing price. The company must achieve efficiency in other areas like debt management, credit policy, marketing and promotions, and production process. 4.6 Market Value P/E ratios are higher for firms with high growth prospective, but they lower for riskier firms. Early high EPS cause the share price high in following year but poorer business year’s
performance makes EPS tremendously low. As a result we see some abnormal value in 2003 and 2004. The company is regarded as being somewhat riskier. From our analysis its debt management ratios, we know RFL. has risk associated with leverage. The stock market position is not so good and improvement is very less. The company must concentrate on future growth and reduce its risk 4.7 SWOT Analysis
4.7.1 Strength: • • • • • • • • • • • • •
It has well reputation in the manufacturing market. Not engaged in unfair business practice. Concentrated market. Well serve the market demand Officers are highly educated. All the employee are so expert Executives are highly qualified and experienced. Company has many attractive high quality products. Well-furnished and Air-conditioned all the corporate office. Company all production house are highly structure. Efficient management practice in the Company. Well communication Top to Bottom. Quality based manufacturing company.
4.7.2 Weakness: • • •
Company Current Liquidity position not good. Company Growth not so first. Company Production house to corporate house management communication gap.
4.7.3 Opportunities: • • •
To increase their sales company creates a theme. Dhaka, Chittagong, and Rajshahi they will set up three workshops. They will create new idea in plastic product.
4.7.4 Threat: There are many competitors in the market. Competitors have more first. Govt. imposes tax and VAT on profit 5.1 Conclusion In the year 2004, a lots of foreign and local company invested in manufacturing sectors as they seen a profitable performance of existing company. As a result manufacturing market was oversupplied and price had fallen due to stiff competition. Situation was more critical in the following year. On the other hand, Bangladesh economic was in a convalescent phase from global and internal shocks. And, constantly increment of the price of row material made the situation worst. So, we have seen bad performances in those years. In spite of above-mentioned adverse situations, RFL had successfully overcome the challenges. By analyzing of financial statement it has been found that the company’s present performance is pretty good. Its financial strength is showing positive response for the investors as its PM, ROE, TATO, debt ratio etc are improving. But it needs to concentrate debt management especially on current debt. 5.2 Recommendation • • • • • • •
After a complete analysis and implementation of the RFL performance appraisal some facts and recommendations can be taken into account for a relatively meaning full and precise application of the RFL performance development There should development their own software for RFL. For this purpose the management should develop own department of IT at a level. Human resource development techniques should implement consistency. For such purpose the number of workshops and seminars should held in a year. RFL needs to increase the efficiency of Consumer Contact in a more planned way. In the weak belts in respect of less volume share RFL can increase the Market Share by improving the Consumer Contact with the help of Competent Workforce. RFL needs more improvement in Merchandising Maintenance System. As a big Production house, RFL is well used in the Rural Areas in Bangladesh, which should be thanked full. Salesmen are the earning hand of any Organization. But the %age of the commissions of Salesmen is less.
5.3 Bibliography Books
• • • • •
Jeffrey Jaffe -----Corporate Finance 8th edition Frederick C.Scherr--- Modern Working Capital Management , Text & Case 9th edition Matz Usry ---- Cost Accounting Planning and Control, 18th edition Jeff Madura--- Financial Markets and Institution 8th edition Glyn Holton--- Financial Risk Management 15th Edition
Report: •
Rangpur Foundry Ltd.: Annual Report-2003, 2004, 2005, 2006, 2007, 2008.
Websites: • •
RFL Official Website. Retrived on 20-03-10, www.rflbd.com Search engine: Retrived on 20-11-08, www.gogle.com, www.orbit.com, www.msn.com