View with images and charts Ethical And Unethical Business Practices Of Wal-Mart & Grameen Phone Ltd. Introduction Outright Fashion Limited, a private limited company, incorporated in 1991 with having its business in 100% export oriented RMG (both Knit and Woven) situated in 965, Shawrapara , Mirpur, Dhaka in its own six storied building within the industrial park of the groups own. Since its inception in 1991, it gradually expanded to present status having more than 2200 sewing machine with more than 55 production line. Annual Turnover of the company is more than 142 crore taka in 2007. COMPARATIVE STATEMENT ON EXPORT OF RMG AND TOTAL EXPORT TOTAL EXPORT OF EXPORT OF RMG % OF RMG'S TO BANGLADESH (IN MILLION US$) TOTAL EXPORT (IN MILLION US$) 1983-84 31.57 811.00 3.89 1984-85 116.2 934.43 12.44 2003-2004 4912.09 6548.44 75.01 2004-2005 5686.09 7602.99 74.79 2005-2006 6417.67 8654.52 74.15 2006-2007 7900.80 10526.16 75.06 2007-2008(Dec) 4730.36 6220.61 76.04 YEAR
From the above table we can assume the importance of RMG sector in our total export earning. RMG sector become the most important sector in Bangladesh even in Quota free world Market. Competitive Wages, Quality products and Compliances make Bangladeshi Garment Industries viable though there are number of difficulties. Bank finance plays an important role to expand this sector to its present condition. However, there are still many miles to go and this industry needs more and more investment from Financial Institutions as well as from own sources of the sponsors. This is why we have chosen a firm in RMG sector to be analyzed with concentration on Common Size analysis, Ratio & Trend Analysis for healthiness of the firm to meet its financial obligations with its assets. Financial analysis is a process which involves reclassification and summarization of information through the establishment of ratios and trends. Analysis of financial statement refers to the examination of the statements for the purpose of acquiring additional information regarding the activities of the business. For our purpose we have used the following financial statements of Outright Fashion Limited. These financial statements are audited ones. Income Statement of OFL:
INCOME STATEMENT FYE Income Statement Amount Gross sales Less:VAT Net Sales Total Sales Revenue Less :Cost of Goods Sold GROSS PROFIT/REVENUE Less: Selling. Gen. & Admin. Expenses TOTAL OPERATING PROFIT (EBITD) Less: Depreciation Less: Interest Expense PROFIT BEFORE TAXES & EXTR ITEM Add: Other Income Income Taxes NET PROFIT
31.12.2005 Actual in (000) Taka 1,317,271 0 1,317,271 1,317,271 1,184,724 132,547
31.12.200 6 Actual in (000) Taka 1,392,230 0 1,392,230 1,392,230 1,291,664 100,566
31.12.2007 Actual in (000) Taka 1,424,119 0 1,424,119 1,424,119 1,283,879 140,240
30,151
29,810
42,392
102,396 30,388 25,656
70,756 31,285 24,642
97,848 43,525 47,489
46,352 353 1,144 45,561
14,829 0 2,448 12,381
6,834 0 3,560 3,274
Balance Sheet of OFL:
FYE B/S Amount CURRENT ASSETS Cash/Bank Balances Acc. Receivables-Trade Accounts Receivable - Others Advance deposit & prepayments Inventory TOTAL CURRENT ASSETS FIXED ASSETS Gross Fixed Assets Less: Depreciation NET FIXED ASSETS NON-CURRENT ASSETS Machinery under installation Building under construction Long term security deposits
31.12.200 5 Actual in (000) Taka
31.12.2006 Actual in (000) Taka
31.12.2007 Actual in (000) Taka
1,025 229,052 353 6,078 174,660 411,168
-89 271,629 0 10,422 181,669 463,631
2,353 202,230 0 28,995 225,977 459,555
522,446 165,145 357,301
672,444 196,430 476,014
847,233 239,932 607,301
1,416 0 3,083
99,066 52,751 4,757
29,784 15,290 7,732
others TOTAL NON-CURRENT ASSETS TOTAL ASSETS Short Term Bank Borrowings Current Funded Portion of Term Debt (CMLTD) Accounts Payable Other Payables Proposed Dividend Others TOTAL CURRENT LIABILITIES LONG TERM LIABILITIES Term Loan Defered L/C Liability TOTAL LIABILITIES NET WORTH Paid up Capital Directors Loan(subordinated) Retained Earnings Tax Holiday Reserve NET WORTH TOTAL LIABILITIES & NET WORTH
2,352
2,352
2,352
364,152 775,320 74,643
634,940 1,098,571 139,052
662,459 1,122,014 170,115
25,478 244,856 30,648 28,268 10,216
16,954 263,519 69,134 0 9,709
41,746 247,644 50,311 0 12,993
414,109
498,368
522,809
13,809 0 427,918
142,188 45,622 686,178
105,323 28,996 657,128
282,680 0 20,949 43,773 347,402
282,680 49,782 36,158 43,773 412,393
282,680 110,729 27,704 43,773 464,886
775,320
1,098,571
1,122,014
Ratio Analysis A tool used by individuals to conduct a quantitative analysis of information in a company's financial statements. Ratios are calculated from current year numbers and are then compared to previous years, other companies, the industry, or even the economy to judge the performance of the company. Ratio analysis is predominately used by proponents of fundamental analysis. Financial ratio analysis is a fascinating topic to study because it can teach us so much about accounts and businesses. When we use ratio analysis we can work out how profitable a business is, we can tell if it has enough money to pay its bills and we can even tell whether its shareholders should be happy! Ratio analysis can also help us to check whether a business is doing better this year than it was last year; and it can tell us if our business is doing better or worse than other businesses doing and selling the same things. In addition to ratio analysis being part of an accounting and business studies syllabus, it is a very useful thing to know anyway!
One of the ways in which financial statements can be put to work is through ratio analysis. Ratios are simply one number divided by another; as such they may or not be meaningful. In finance, ratios are usually two financial statement items that may be related to one another and may provide the prudent user a good deal of information. Of the myriad of ratios that could be generated, some will be more meaningful than others. Generally ratios are divided into the following gross categories: 1. Growth Ratios: Gross Sales/Revenues Growth, Net Sales/Revenue Growth, Net Income Growth, Net Asset Growth, Net Liability Growth, Net Worth Growth etc. 2. Profitability Ratios: includes various profit margin, expenditure percentage regarding to sales, ROA, ROE etc. Profitability indicates the efficiency with which manages resources. 3. Coverage Ratios: Interest Coverage Ratio, Debt-Service Coverage Ratio. These ratios indicates the firms ability to pay interest/financial costs 4. Activity Ratios: Receivables, Payables, Inventory & Asset Turnover Ratios along with in days. These Ratios indicate how effectively the firm manages resources at its disposal to generate sales. 5. Liquidity Ratios: Current and Quick Ratio. Liquidity ratios indicate the firm's ability to meet it maturing short-term obligations. 6. Leverage Ratios: Debt to equity, Debt to Total Asset, Total Capitalization etc. This indicates the extent to which the firm is financed by debt. Remember, ratios are just one number divided by another and as such really don't mean much. The trick is in the way ratios are analyzed and used by the decision maker. A good strategy is to compare the ratios to some sort of benchmark, such as industry averages or to what a company has done in the past, or both. Analysis of Ratios: Once ratios are calculated, an analyst needs some benchmarks to find out where the company stands at that particular point. Useful benchmarks are industry comparisons and company trends. It may be useful to compare a company to certain industry averages to get a feel for how the company is performing. In that case it is necessary to obtain industry performance measures. There are a number of sources for industry figures. •
Commercial Sources – A number of companies publish information on industry comparisons. Among these sources are private credit reporting agencies such as Dun & Bradstreet and Robert Morris & Associates. Rating agencies such as Moody's and Standard & Poor's also provide industry information.
•
Government Sources – There are a number of government sources of helpful industry information, such as the U.S. Industrial Outlook and Quarterly Financial Reports.
•
Trade Associations – Many industries have trade associations or industry groups that regularly publish information for and about members.
The industry averages is difficult to collect in Bangladesh. However we have used another company’s (in the same line of business) ratios as industry average. Financial Ratios of OFL:
FINANCIAL RATIOS GROWTH RATIOS: Sales Growth, Sales% Net Sales Growth, Composite % Net Income Growth, % Total Assets Growth, % Total Liabilities Growth, % Net Worth Growth, % PROFITABILITY RATIOS: Gross Margin, Composite % SG & A, % Cushion (Gross Margin - SG&A), % Depreciation, Amortization, % Operating Profit Margin, % Interest Expense, % Operating Margin, % Net Margin, % Return on Assets, % Return on Equity, % COVERAGE RATIOS: Interest Coverage (EBIT/Total Interest) Debt Ser. Coverage(EBITDA/Total Interest +CMLTD) ACTIVITY RATIOS: Receivables in Days Payables in Days Inventory in Days Sales/Total Assets (X) LIQUIDITY RATIOS: Working Capital Quick Ratio (X) Current Ratio (X) Sales/ Net Working Capital (X) LEVERAGE RATIOS: Total Liabilities/ Net Worth (X) Affiliate Exposure/Net Worth (%) Total Liabilities/(Net WorthAffiliates) (X)
31.12.2005 %
31.12.200 6 %
31.12.2007 %
N/A N/A N/A N/A N/A N/A
5.69 5.69 -72.83 41.69 60.35 18.71
2.29 2.29 -73.56 2.13 -4.23 12.73
10.06 2.29 7.77 2.31 7.77 1.95 3.52 3.46 5.88 13.11
7.22 2.14 5.08 2.25 5.08 1.77 1.07 0.89 1.13 3.00
9.85 2.14 6.87 3.06 6.87 3.33 0.48 0.23 0.29 0.70
2.81
1.6
1.14
1.49
1.7
1.1
63 75 54 1.7
71 74 51 1.3
52 70 64 1.3
-2,941 0.56 0.99 -447.9
-34,737 0.54 0.93 -40.08
-63,254 0.39 0.88 -22.51
1.23 0.4
1.66 24
1.41 6.4
1.24
2.19
1.51
Trend Analysis The Term Trend Analysis can be deifined as a comparative analysis of a company's financial ratios over time. The term "trend analysis" refers to the concept of collecting information and attempting to spot a pattern, or trend, in the information. In some fields of study, the term "trend analysis" has more formally-defined meanings.
Although trend analysis is often used to predict future events, it could be used to estimate uncertain events in the past. Specifically this ananlysis is done to take future investment decisions , to take a overveiew on the firms financial strength. Practically Trend Analysis and Ratio Analysis is closely related and often analyzed together. For Trend analysis, Ratio analysis is a prerequisite. Liquidity Ratios: Trend Analysis 2005 0.99 0.56
Current Ratio Quick Ratio
2006 0.93 0.54
2007 0.88 0.39
Liquidity Ratios: Trend Analysis
Trend Analysis: Liquidity 1.5 1
1.2
Current Ratio
1
Ratio
Quick Ratio
0.5
0.8
Current Ratio
0.6
Quick Ratio
0.4
0 2005
2006
0.2
2007
0
Year
2005
2006
2007
Year
Comparison with industry average: Current Ratio 2005 0.99 1.70
OFL Industry Average
2006 0.93 1.75
2007 0.88 1.80
Comparison with Industry: Current Ratio 2 1.8 1.6 1.4 1.2
OFL
1
Industry Average
0.8
Current Ratio 0.6 0.4 0.2 0 2005
2006 Year
2007
Comparison with industry average: Quick Ratio 2005 0.56 0.85
OFL Industry
2006 0.54 0.90
2007 0.39 0.90
Comparison with industry: Quick Ratio 1 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0
OFL Industry
Quick Ratio 2005
2006
2007
Year
Comment on the trend analysis of Liquidity Ratios: The Current ratio of Outright Fashion Limited has been reduced slightly over the years whereas the industry average shows a upward trend. At the same time the Quick Ratio/Acid Test Ratio of OFL decreased sharply whereas that of industry average shows a stable condition. Hence we can conclude that inventory management is a significant problem for OFL. Profitability Ratios: Trend Analysis 2005
14 12
Gross Margin, Composite % 10.06 Operating Profit Margin, % 7.77 Trend Analysis: Profitability Ratios Net Margin, % 3.46 Return on Assets, % 5.88 Return on Equity, % 13.11
2006
2007
7.22 5.08 0.89 1.13 3.00
9.85 6.87 0.23 0.29 0.70
Gross Margin, Composite %
10
Operating Profit Margin, %
8
Net Margin, %
6
Return on Assets, %
4
Return on Equity, %
2 0 2005
2006 Year
2007
Ratio
Trend Analysis: Profitability Ratios 14 12
Gross Margin, Composite %
10 8
Operating Profit Margin, %
6
Net Margin, %
Ratio
4
Return on Assets, %
2 0 2005
2006
Return on Equity, %
2007
Year
Comparison with industry average: Operating Profit Margin OFL Industry
2005 7.77 15.00
2006 5.08 12.00
2007 6.87 11.00
Comparison with industry average: Net Margin OFL Industry
2005 3.46 12.00
2006 0.89 9.00
2007 0.23 8.00
Comment on Profitability Analysis: The profitability ratios for OFL have all been falling since 2005. Each of the ratios is bellow the industry average for the past three years. This indicates that COGS, Administrative costs and financial cost may be too high and potential problem for OFL. Hence we can conclude that to increase profitability the management should taken special care of COGS and other costs. Trend Analysis: Coverage Ratio 200 5
2006
2007
Interest Coverage (EBIT/Total Interest) 2.81 Debt Ser.Coverage(EBITDA/Total 1.49
1.60 1.70
1.14 1.10
Interest+CMLTD) Trend Analysis: Coverage Ratio 3
Interest Coverage (EBIT/Total Interest)
2 Ratio 1
Debt Ser.Coverage(EBI TDA/Total Interest+CMLTD)
0 2005
2006
2007
Year
Trend Analysis: Coverage Ratio 3 Interest Coverage (EBIT/Total Interest)
2.5 2 Ratio
1.5
Debt Ser.Coverage(EBITDA/T otal Interest+CMLTD)
1 0.5 0 2005
2006
2007
Year
Comparison with Industry: Interest Coverage Ratio 2005 2.81 5.40
OFL Industry
2006 1.60 4.50
2007 1.14 3.75
Comparison with industry: Interest Coverage Ratio 6 5 4
OFL
3 2
Industry
Ratio Value 1 0 2005
2006
2007
Year
Comparison with Industry: Debt Service Coverage Ratio OFL Industry
2005 1.49 3.20
2006 1.70 2.80
2007 1.10 2.70
Comparison with industry: Debt Service Coverage Ratio 3.5 3 2.5 2
OFL
1.5
Industry
Ratio Value 1
0.5 0 2005
2006
2007
Year
Comment on Coverage Ratio Analysis: The interest coverage ratio and debt service coverage ratio both for OFL has been falling since 2005. It has been below industry average for the past three years. This indicates too low earnings may be a potential problem for OFL. Hence we can conclude that further investment in OFL in way of Bank financing needs special care. Trend Analysis: Leverage Ratios 2005 Total Liabilities/ Net Worth (X) 1.23 Affiliate Exposure/Net Worth (%) 0.40 Total Liabilities/(Net WorthAffiliates) (X) 1.24
2006
2007
1.66
1.41
24.00
6.40
2.19
1.51
Leverage Ratios 30 25
Total Liabilities/ Net Worth (X)
20
Affiliate Exposure/Net Worth (%)
15 Value of Ratios 10
Total Liabilities/(Net WorthAffiliates) (X)
5 0 2005
2006
2007
Year
Leverage Ratios 30 25
Total Liabilities/ Net Worth (X)
20
Affiliate Exposure/Net Worth (%)
15
Ratio value 10
Total Liabilities/(Net Worth-Affiliates) (X)
5 0 2005
2006
2007
Year
Comparison with industry: Debt to equity Ratio
OFL Industry
2005 1.23 0.98
2006 1.66 1.01
2007 1.41 1.25
Comparison with industry: Debt to equity Ratio 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0
OFL Industry
Ratio value 2005
2006
2007
Year
Comment on Leverage Analysis: The leverage ratios indicates that though liability increases in 2006 than 2005, again it decreases in 2007. Debt is decreasing to match almost in the line with the industry. Hence we can conclude that leverage or debt status of OFL is in the line with industry average. Trend Analysis: Activity Ratios Receivables T/O in Days Payables T/O in Days Inventory T/O in Days Asset T/O (X)
2005 63 75 54 1.7
2006 71 74 51 1.3
Trend Analysis: Activity Ratio 80 Receivables T/O in Days
60 40
Payables T/O in Days
20
Inventory T/O in Days
Ratio
0 2005
2006 Year
2007
Asset T/O (X)
2007 52 70 64 1.3
Trend Analysis: Activity Ratio 80 60
Receivables T/O in Days
40
Payables T/O in Days
20
Inventory T/O in Days
Ratio
0 2005
2006
Asset T/O (X)
2007
Year
Comparison with Industry: Receivables T/O in days 2005 63 70
OFL Industry
2006 71 68
2007 52 65
Comparison with industry: Receivables T/O in days 80 70 60 50
OFL
40 30 20
Industry
Ratio Value 10 0 2005
2006
2007
Year
Comparison with Industry: Payables T/O in days OFL Industry
2005 75 70
2006 74 71
2007 70 70
Comparison with industry: Payables T/O in days 76 75 74 73 72
OFL
71
Industry
Ratio Value 70 69 68 67 2005
2006
2007
Year
Comparison with Industry: Inventory T/O in days 2005 54 55
OFL Industry
2006 51 52
2007 64 51
Comparison with industry: Inventory T/O in days 70 60 50 40
OFL
30
Industry
Ratio Value 20 10 0 2005
2006
2007
Year
Comparison with industry: Asset T/O Ratio OFL Industry
2005 1.70 2.50
2006 1.30 2.60
2007 1.30 2.70
Comparison with industry: Asset T/O Ratio 3.00 2.50 2.00 OFL
1.50
Ratio value
Industry
1.00 0.50 0.00 2005
2006
2007
Year
Comment on Activity Ratio Analysis: Activity ratios shows that OFL’s inventory T/O ratio is too high than the industry and still it is paying it’s creditors almost as in the industry. At the same time it is recovering its receivables earlier than the industry, paying the trade creditors as in the industry. Asset T/O ratio is too low. From Activity ratios, it is clear that OFL is yet to be reaching its 100% capacity utilization level. Common Size Analysis A financial statement displaying all items as a percentage of a common base figure, i,e the items of income statement in the percentage of revenue and that of Balance sheet is in the percentage of total assets. Such a statement may be useful for noting changes in the relative size of the various elements. Presentation showing Balance Sheet and Profit and Loss Statement as percentages of total Assets and sales, respectively, rather than (or in addition to) currency. Common size analysis, which is also called vertical analysis, facilitates the comparison of one period to another and helps identify trends. Also called one hundred percent statement. Illustration-1: Common Size Income statement of Outright Fashion Ltd. INCOME STATEMENT FYE
31.12.200 5
31.12.200 6
31.12.200 7
Income Statement
Actual
Actual
Actual
in (000) Taka 1,317,271 0 1,317,271 1,184,724
in (000) Taka 1,392,230 0 1,392,230 1,291,664
132,547 30,151 102,396
Amount Gross sales Less:VAT Net Sales Less :Cost of Goods Sold GROSS PROFIT/REVENUE Less: Selling. Gen. & Admin. Expenses TOTAL OPERATING
31.12.200 5 Common Size
31.12.200 6 Common Size
31.12.2007 Common Size
in (000) Taka 1,424,119 0 1,424,119 1,283,879
% 100.00 0.00 100.00 89.94
% 100.00 0.00 100.00 92.78
% 100.00 0.00 100.00 90.15
100,566
140,240
10.06
7.22
9.85
29,810 70,756
42,392 97,848
2.29 7.77
2.14 5.08
2.98 6.87
PROFIT (EBITD) Less: Depreciation Less: Interest Expense PROFIT BEFORE TAXES & EXTR ITEM Add: Other Income Income Taxes NET PROFIT
30,388 25,656
31,285 24,642
43,525 47,489
2.31 1.95
2.25 1.77
3.06 3.33
46,352 353 1,144 45,561
14,829 0 2,448 12,381
6,834 0 3,560 3,274
3.52 0.03 0.09 3.46
1.07 0.00 0.18 0.89
0.48 0.00 0.25 0.23
31.12.200 6 Common Size
31.12.2007 Common Size
Illustration-2: Common Size Balance Sheet of Outright Fashion Ltd. FYE
31.12.200 5
31.12.200 6
31.12.200 7
B/S
Actual
Actual
Actual
Amount
in (000) in (000) in (000) Taka Taka Taka %
%
%
1,025 229,052 353
-89 271,629 0
2,353 202,230 0
0.13 29.54 0.05
-0.01 24.73 0.00
0.21 18.02 0.00
6,078 174,660
10,422 181,669
28,995 225,977
0.78 22.53
0.95 16.54
2.58 20.14
411,168
463,631
459,555
522,446 165,145 357,301
672,444 196,430 476,014
847,233 239,932 607,301
1,416 0 3,083 2,352
99,066 52,751 4,757 2,352
29,784 15,290 7,732 2,352
53.03 0.00 67.38 21.30 46.08 0.00 0.18 0.00 0.40 0.30
42.20 0.00 61.21 17.88 43.33 0.00 9.02 4.80 0.43 0.21
40.96 0.00 75.51 21.38 54.13 0.00 2.65 1.36 0.69 0.21
364,152 775,320 74,643
634,940 1,098,571 139,052
662,459 1,122,014 170,115
46.97 100.00 9.63
57.80 100.00 12.66
59.04 100.00 15.16
25,478 244,856 30,648 28,268 10,216
16,954 263,519 69,134 0 9,709
41,746 247,644 50,311 0 12,993
3.29 31.58 3.95 3.65 1.32
1.54 23.99 6.29 0.00 0.88
3.72 22.07 4.48 0.00 1.16
414,109
498,368
522,809
53.41
45.37
46.60
0.00
0.00
0.00
CURRENT ASSETS Cash/Bank Balances Acc. Receivables-Trade Accounts Receivable - Others Advance deposit & prepayments Inventory TOTAL CURRENT ASSETS FIXED ASSETS Gross Fixed Assets Less: Depreciation NET FIXED ASSETS NON-CURRENT ASSETS Machinery under installation Building under construction Long term security deposits others TOTAL NON-CURRENT ASSETS TOTAL ASSETS Short Term Bank Borrowings Current Funded Portion of Term Debt (CMLTD) Accounts Payable Other Payables Proposed Dividend Others TOTAL CURRENT LIABILITIES LONG TERM LIABILITIES
31.12.200 5 Common Size
Term Loan Deferred L/C Liability TOTAL LIABILITIES NET WORTH Paid up Capital Directors Loan(subordinated) Retained Earnings Tax Holiday Reserve NET WORTH TOTAL LIABILITIES & NET WORTH
13,809 0 427,918
142,188 45,622 686,178
105,323 28,996 657,128 282,680 110,729 27,704 43,773 464,886
1.78 0.00 55.19 0.00 36.46 0.00 2.70 5.65 44.81
12.94 4.15 62.46 0.00 25.73 4.53 3.29 3.98 37.54
9.39 2.58 58.57 0.00 25.19 9.87 2.47 3.90 41.43
282,680 0 20,949 43,773 347,402
282,680 49,782 36,158 43,773 412,393
775,320
1,098,571
1,122,014
100.00
100.00
100.00
Analysis: Income Statement An examination of OFL’s vertical common-size income statement, presented in illustration-1, shows that while the company was profitable the entire time net profit margin declined sharply from 3.46% in 2005 to 0.89%in 2006 and just 0.23% in 2007. Investors will want to know if this trend is more likely to continue or to reverse. To do this we analyze the components of the income statement. From the components of income statement we find that the interest expense of the company goes much more higher in 2007 which resulted the decrease in net profit margin. Balance Sheet Both current asset and current liability of the company decreases over 2006 and 2007 which resulted from huge expansion of the project. Index Analysis Index analysis refers to an analysis of percentage financial statements where all balance sheet or income statement figures for a base year equal to 100.00 percent and the items of financial statements of subsequent years are expressed as percentages of their values in the base year. This technique is also known as comparative analysis/horizontal analysis. It is conducted by setting consecutive balance sheet, income statement or statement of cash flow side-by-side and reviewing changes in individual categories on a year-to-year or multiyear basis. The most important item revealed by comparative financial statement analysis is trend. A comparison of statements over several years reveals direction, speed and extent of a trend(s). The horizontal financial statements analysis is done by restating amount of each item or group of items as a percentage. Such percentages are calculated by selecting a base year and assign a weight of 100 to the amount of each item in the base year statement. Thereafter, the amounts of similar items or groups of items in prior or subsequent financial statements are expressed as a percentage of the base year amount. The resulting figures are called index numbers or trend ratios. OFL's Indexed Balance Sheet
FYE B/S Amount CURRENT ASSETS Cash/Bank Balances Acc. Receivables-Trade Accounts Receivable - Others Advance deposit & prepayments Inventory TOTAL CURRENT ASSETS FIXED ASSETS Gross Fixed Assets Less: Depreciation NET FIXED ASSETS NON-CURRENT ASSETS Machinery under installation Building under construction Long term security deposits others TOTAL NON-CURRENT ASSETS TOTAL ASSETS Short Term Bank Borrowings Current Funded Portion of Term Debt (CMLTD) Accounts Payable Other Payables Proposed Dividend Others TOTAL CURRENT LIABILITIES LONG TERM LIABILITIES Term Loan Deferred L/C Liability TOTAL LIABILITIES NET WORTH Paid up Capital Directors Loan(subordinated) Retained Earnings Tax Holiday Reserve NET WORTH TOTAL LIABILITIES & NET WORTH OFL's Indexed Income Statement
31.12.200 5 Actual in (000) Taka
31.12.200 6
31.12.200 7
1,025 229,052 353 6,078 174,660 411,168
-89 271,629 0 10,422 181,669 463,631
2,353 202,230 0 28,995 225,977 459,555
522,446 165,145 357,301
672,444 196,430 476,014
847,233 239,932 607,301
1,416 0 3,083 2,352
99,066 52,751 4,757 2,352
364,152 775,320 74,643
31.12.200 5 Indexed
31.12.200 6
31.12.2007
in (000) in (000) % of base year 2004 Taka Taka
29,784 15,290 7,732 2,352
100.00 100.00 100.00 100.00 100.00 100.00 0.00 100.00 100.00 100.00 0.00 100.00 0.00 100.00 100.00
-8.68 118.59 0.00 171.47 104.01 112.76 0.00 128.71 118.94 133.22 0.00 6996.19 0.00 154.30 100.00
229.56 88.29 0.00 477.05 129.38 111.77 0.00 162.17 145.29 169.97 0.00 2103.39 0.00 250.79 100.00
634,940 1,098,571 139,052
662,459 1,122,014 170,115
100.00 100.00 100.00
174.36 141.69 186.29
181.92 144.72 227.90
25,478 244,856 30,648 28,268 10,216
16,954 263,519 69,134 0 9,709
41,746 247,644 50,311 0 12,993
100.00 100.00 100.00 100.00 100.00
66.54 107.62 225.57 0.00 95.04
163.85 101.14 164.16 0.00 127.18
414,109
498,368
522,809
13,809 0 427,918
142,188 45,622 686,178
105,323 28,996 657,128
282,680 0 20,949 43,773 347,402
282,680 49,782 36,158 43,773 412,393
282,680 110,729 27,704 43,773 464,886
100.00 0.00 100.00 0.00 100.00 0.00 100.00 0.00 100.00 100.00 100.00
120.35 0.00 1029.68 0.00 160.35 0.00 100.00 0.00 172.60 100.00 118.71
126.25 0.00 762.71 0.00 153.56 0.00 100.00 0.00 132.24 100.00 133.82
775,320
1,098,571
1,122,014
100.00
141.69
144.72
INCOME STATEMENT FYE Amount Gross sales Less:VAT Net Sales Total Sales Revenue Less :Cost of Goods Sold GROSS PROFIT/REVENUE Less: Selling. Gen. & Admin. Expenses TOTAL OPERATING PROFIT (EBITD) Less: Depreciation Less: Interest Expense PROFIT BEFORE TAXES & EXTR ITEM Add: Other Income Income Taxes NET PROFIT
Regular 31.12.200 5 in (000) Taka 1,317,271 0 1,317,271 1,317,271 1,184,724 132,547
31.12.200 6 in (000) Taka 1,392,230 0 1,392,230 1,392,230 1,291,664 100,566
31.12.200 7 in (000) Taka 1,424,119 0 1,424,119 1,424,119 1,283,879 140,240
Indexed (%) 31.12.200 31.12.200 5 6
31.12.2007
% of base year 2004 100.00 105.69 0.00 0.00 100.00 105.69 100.00 105.69 100.00 109.03 100.00 75.87
108.11 0.00 108.11 108.11 108.37 105.80
30,151
29,810
42,392
100.00
98.87
140.60
102,396 30,388 25,656
70,756 31,285 24,642
97,848 43,525 47,489
100.00 100.00 100.00
69.10 102.95 96.05
95.56 143.23 185.10
46,352 353 1,144 45,561
14,829 0 2,448 12,381
6,834 0 3,560 3,274
100.00 100.00 100.00 100.00
31.99 0.00 213.99 27.17
14.74 0.00 311.19 7.19
As basis of Analysis, the analyst may seek variables which seem to improve or deteriorate and bring a challenge to the stakeholders in their various decisions. Example from the previous tables one can ask the following questions? •
Why is there an increase in the inventory of the company? Has the company changed its inventory policy?
•
Why is there an sharp increase in Advance Deposit and prepayments?
•
Why did taxation increase so tremendously? Were there any changes in taxation? Is it reflected by the increase in sales? Profit?
•
And many more question which can be elaborated by the management or which can be used as the basis for discussions.
Conclusion •
Growth in the sales volume is not much significant with the increase of fixed assets that is capital machinery.
•
OFL has marked decreased quick ratio trend than the industry which indicates significant problem in inventory management which further revealed from poor inventory T/O ratio.
•
To improve OFL’s low profitability status in comparison to the industry, the management should take special care to reduce COGS and other cost items.
•
Further financing in OFL by Banks or financial institution needs special consideration.
•
Leverage or debt is almost in the line with that of the industry.
•
OFL paying its creditors earlier than industry, recieves payment from debtors at the same time as the industry but it still to reach its 100% capacity utilization as asset T/O ratio is too low.