Managerial Finance

Prepared For Muhammad Enamul Haque

Assistant Professor

United International University

Prepared By Group: 2

Syeda Shotorupa Zafar ID: 111101192

Mahar Afrose Khan ID: 111101182

Taslima Akter Piu ID: 111101203

Shahmin Jahan Shoma ID: 111101221

Mashrora Rahman ID: 111093045

Tazin Mahmud ID:

Date of Submission: August 14, 2012

United International University

Letter of transmittal

August 14, 2012

Muhammad Enamul Haque

Course Instructor

United International University

Subject: Request to accept our report on “Ratio Analysis of Square Textile Limited (2007-2011)

Dear Sir,

With respect and honor submission, we want to inform you that, we are submitting a report on

“Financial Analysis of Square Textile Limited (2007-2011)” All the works presented here is

done with utmost sincerely and honesty. We have tried our best to make this report

comprehensive and informative.

For our report a irst we collect financial Statement from Square Textile Limited. From the

Statement we get some data, by which we do ratio analysis & our graphs & present the whole

financial condition of Square Textile Limited from 2007-2011.

Sincerely,

Mahar Afrose Khan

Acknowledgment letter

No work is possible to be completed by one individual. In every step of this study, Invaluable

help and suggestions from many individuals and institutional experts supported us to do this

report.

The whole report was based on the “Financial Analysis of Square Textile Limited from 2007 to

2011”. .First of all, we like to thank our honorable course Instructor Muhammad Enamul Haque

for guiding us to prepare the report from starting point to finishing end. We would like to convey

our special thanks to the officials of Square Textile Limited.

At last we would like to remember the almighty Allah for blessing us with the strength, ability

and patience to do this task.

1.1 Introduction………………… Page: 1-5

1.2 Origin of the Report…………………………………..Page: 3

1.3 .Objective of the Report………………………………Page: 3

1.4 .Scope……………………………………………………………Page: 4

1.5 .Limitation…………………………………………………….Page: 4

1.6 Methodology………………………………………………..Page: 3

1.7 Profile of Sqaure Textile Limited in Bangladesh………………..Page: 4

2. Theories of Ratio Analysis……………….Page: 7-9

3. Ratio Analysis in Details…………………Page: 10-27

4. Comparison of Ratio Analysis………..Page: 28-31

3. Conclusion……………….Page: 32-33

Table of Contents

1

Executive Summary

According to the requirements of the BBA program, we chose to prepare financial report on

“Square Textile Limited in Bangladesh.” The report is based on the financial Statement of

Square Textile Limited. Anyone can easily understand the financial condition of Square Textile

Limited from 2007 to 2011 from here. At first, we are doing the ratio analysis for both 2007 to

2011 where we find out the liquidity ratio (Square’s ability to meet short-term obligations),

leverage ratio (the amount of equity in comparison to debt or the amount of earnings in

comparison to debt), coverage ratio (the ability to meet its interest payments and thus avoid

bankruptcy), activity ratio (effectively the firm is using its assets) & profitability ratio (the profit

was earned which is relative to sales, total assets and net worth). From the ratio analysis we can

find out the financial situation of Square textile Limited of 2007 to 2011 & we compare among

these five years to find out which one is the best year & which one is the worst year.

2

CHAPTER 1

Introduction

3

1.1 Origin of Report:

This term paper has been prepared as a part of the Financial Management course of Unitred

International University. The report titled, “Ratio Analysis of Square Textile Limited” is being

assigned by our course instructor. We have collected all the required information from the annual

report of Square for the year 2007, 2008, 2009 2010 & 2011. We have tried our best to combine

and relate the information with the concept of the report, but due to time limitation and restricted

access to information there still remains some limitations.

1.2 Main Objectives:

Our main objective is to learn about the financial condition of the company Square Textile

Limited

1.3 Specific objectives:

Our specific objectives are-

To learn about the financial ratios of Square Textile Limited.

To know about the financial condition of this industry

1.4 Methodology:

We have used mainly secondary data sources for this report. The data has been collected from

the annual report of Square Textile Limited which are available in the company website. Thus,

the following sources of information have been used:

The company’ websites

The company’ circulars

4

1.5 Scope:

We have been assigned to make a report on Ratio Analysis Square Textile Limited, but as Square

Textile is very large & is continuing its work for a long time, it is impossible to work on the

whole financial condition. We have chosen only 2007 to 20101 financial reports for making our

report.

1.6 Limitation:

Our report covers the overall Ratio Analysis of Square Textile Limited from the year 2007 to

2011. However, we faced some limitations in preparing this report. They are-

Inadequacy of information as all information is not present in the online.

Time limitations

Lack of reliable sources

Restricted access

1.7 Square Textile Limited (Company Overview) :

Square Textiles Ltd. started its journey by establishing the first unit in 1997. One year later the

second unit was established. Square Textile is a subsidiary company of Square Group .The

Company was incorporated as a public limited company in the year of 1994. The operation was

started in 1997.It was enlisted in Dhaka Stock Exchange & Chittagong Stock Exchange in 2002.

Within a very short time of span the company achieved some significance success. Square

Textile receives Oeko-Tex standard100 and ISO-9002 certificates in the year 2000. Authorized

capital of the company is tk. 1000 million. It’s paid- up capital is tk. 251.90 million. 1,223

employees are working in this organization. The business lines of Square Textiles Limited are

manufacturing and marketing of yarn. The factory is located in Saradaganj, Kashimpur,

Gazipur, Bangladesh. Its office is located at Uttara in Dhaka

5

Mission Statement:

The mission statement of Square Textiles Limited is “Our mission is realization of vision through

maximum production of goods and services strictly on ethical and moral standards at minimum

costs to the society ensuring optimum benefits to the shareholders and other stakeholders.”

This mission is envisioned by the concept of business which ensures well being of the investors,

stakeholders, employees and members of the society which will create new wealth in the form

of goods and services.

Strategic goals & Objectives:

The company sets the following objectives for it to achieve:

• To strive hard to optimize profit through conduction of transparent business operations within

the legal and social framework with malice to none and justice for all

• To create more jobs with minimum investments

• To be competitive in the internal as well as external markets

• To maximize export earning with minimum imported in-puts

• To reduce the income gap between top and bottom categories of employees

6

7

CHAPTER 2

Theories of Ratio

Analysis

8

Ratio Analysis

Liquidity Ratios

Liquidity ratios are used to measure a firm’s ability to meet short-term obligations. They

compare short-term obligations with short-term (or current) resources available to meet these

obligations. From these ratios, much insight can be obtained into the present cash solvency of the

firm and the firm’s ability to remain solvent in the event of adversity.

Current ratio:

Total current asset / total current liability

Acid test:

(Current asset – inventory) / Current liability

Leverage ratio

This describes the amount of equity in comparison to debt or the amount of earnings in

comparison to debt. The degree to which an investor or business is utilizing borrowed money.

Companies that are highly leveraged may be at risk of bankruptcy if they are unable to make

payments on their debt; they may also be unable to find new lenders in the future. Leverage is

not always bad, however; it can increase the shareholders' return on investment and often there is

tax advantages associated with borrowing. also called financial leverage.

Debt to equity:

Total liability or debt / total equity

Debt to total asset:

Total liability or debt / total assets

Debt to total capitalization:

Total debt or liability / (long debt or liability + shareholder equity)

9

Coverage ratio

This ratio serves as one measure of the firm’s ability to meet its interest payments and thus avoid

bankruptcy. In general, the higher the ratio, the greater the likelihood that the company could

cover its interest payments without difficulty. It also sheds some light on the firm’s capacity to

take on new debt.

Interest Coverage Ratio :

Earnings before interest and taxes / interest expense

Activity ratio

Activity ratios, also known as efficiency or turnover ratios, measure how effectively the firm is

using its assets. We will focus our attention primarily on how effectively the firm is managing

two specific asset groups – receivables and inventories – and its total assets in general.

Receivable turnover

Net credit sales / account receivables

Receivable turnover in days

360days / receivable turnover

Payable turnover

Credit purchase / account payable

Payable turnover in days

360 days / account payables

Inventory turnover

Cost of goods sold / inventory

Inventory turnover in day

360days / inventory turnover

10

Assent turnover

Net sales / average total asset

Profitability ratio

Profitability ratios measure how well a company is performing by analyzing how profit was

earned relative to sales, total assets and net worth Profitability ratios are of two types – those

showing profitability in relation to sales and those showing profitability in relation to investment.

Together, these ratios indicate the firm’s overall effectiveness of operation.

Gross profit margin

(Net sales – cost of goods sold) / net sales or gross profit / net sales)

Net profit margin

Net income / net sales

Return assets

Net income / average total asset

Return on equity

Net income/ average shareholder equity

11

CHAPTER 3

Ratio Analysis of Square

Textile Limited

(2007-2011)

12

3.2 BALANCE SFEET OF SQUARE PHARMACEUTICAL LIMITED ( 2007 to 2011)

2007 2008 2009 2010 2011

Net Assets:

Assets at Cost

Less Depreciation

1078559049 1475847250 1378552606 1286399483 1402876722

Investment-Long

Term(At Cost)

95000000 95000000 105000000 160783760 160783760

Share Money

Deposit

400000000 800000000 800000000 875619239 857619239

Fixed Assets 1573559049 2370847250 2283552606 2304802482 2421279721

Current Assets:

Stocks 577163363 1267785890 942568134 1623278528 1236014474

Trade Debtor 819360445 1689670282 1683329048 1666731087 2008696513

Short Term Loan 561880590 224332805 431848649 656447428 695694698

Advance,Deposits

and Prepayments

95085340 210569262 120651506 289172239 542235494

Cash & Bank

Balances

32326157 44691475 46332373 65503243 321816224

Current Assets 2085815895 3437049714 3224729710 4301132525 4804457403

Less:current

liabilities:

Short Term Bank

Loan

537743415 777528585 573802358 998924770 486705024

Short Term Loan 176143717 301562429 552993073 787887594 569592985

Sundry Creditors 624970405 1322409529 870756515 733985411 1385606603

Other Current

Liabilities

106212860 149339005 170321074 192438380 291387314

Provision for

Income Tax

113862118 171393544 108728783 210154935 319598085

Less:current

liabilities

1558932515 2722233092 2276601803 2923391090 3052890011

Net Current

Assets

526883380 714816622 948127907 1377741435 1751567392

Less:Deferred Tax

Liabilities

79959968 121017768 112276486 111305232 111305232

2020482461 2964646104 3119404027 `3571238685 4061541881

Financed By:

Shares Holders

Equity:

2020482461 2964646104 3119404027 3571238685 4061541881

Share Capital 394333700 588200440 705804530 811716610 974059932

General Reserve

and Surplus

1626148761 2376445664 2413563497 2759522075 3087481949

2020482461 2964646104 3119404027 3571238685 4061541881

13

3.3 INCOME STATEMENT OF SQUARE PHARMACEUTICALS (2007 to 2011)

2007 2008 2009 2010 2011

Sales 2541542767 3052235640 3882244010 4445402112 5247748947

Cost of goods

sold

(1958696404) (2589019736) (3348870289) (3558642850) (4176991364)

Gross Profit 582846363 463215904 533373721 886759262 1070757583

Operating

expenses

(61767371) (85777018) (109832354) (113189908) (157385096)

Finance cost (106026180) (109701045) (121730159) (94609920 (162981165)

Operating

Income

415052812 267737841 301811208 678959434 750391322

Other Income 16626533 23722979 25554510 31023629 15710732

Net Income

Before

W.P.P& W.F

431679345 291460820 327365718 709983063 766102054

Allocation for

W.P.P & W.F

(20556159) (13879087) (15588844) (33808717) (36481050)

Net Income

Before Tax

411123186 277581733 311776874 676174346 729621004

Provision For

Income Tax

(58676050) (41051825) (51142872) (111405203) (109443150)

Net Income

For The

Year

352447136 236529908 260634002 564769143 620177854

Earning per

share

7.45 3.35 3.69 5.80 6.37

14

3.4 Ratio Analysis of Financial Statements

Square Textile

Liquidity Ratios

Current ratio:

current assent current liability current ratio

2007 2085815895 1558932515 1.337977029

2008 3437049714 2722233092 1.262584649

2009 3224729710 2276601803 1.41646629

2010 4301132525 2923391090 1.471281944

2011 4804457403 3052890011 1.573740746

Description:

15

Acid test:

current assent inventory current liability acid test

2007 2085815895 577163363 1558932515 0.967747172

2008 3437049714 1267785890 2722233092 0.796869243

2009 3224729710 942568134 2276601803 1.002442137

2010 4301132525 1623278528 2923391090 0.916009495

2011 4804457403 1236014474 3052890011 1.168873728

Description:

16

Leverage ratio

Debt to equity:

total debt total equity Debt to equity

2007 1558932515 2020482461 0.771564488

2008 2722233092 2964646104 0.918232058

2009 2276601803 3119404027 0.729819473

2010 2923391090 3571238685 0.818593028

2011 3052890011 4061541881 0.751657893

Description:

17

Debt to total asset:

total debt total assets Debt to total asset

2007 1558932515 3659374944 0.4260106

2008 2722233092 5807896964 0.46871236

2009 2276601803 5508282316 0.413305214

2010 1607691112 6605935007 0.243370713

2011 1571079577 7225737124 0.217428278

Description:

18

Coverage ratio

Interest Coverage Ratio :

Description:

EBIT interest expense Interest Coverage Ratio

2007 411123186 106026180 3.877562938

2008 277581733 109701045 2.530347209

2009 311776874 121730159 2.561213068

2010 676174346 94609920 7.14697091

2011 729621004 162981165 4.476719773

19

Activity ratio

Receivable turnover

20

Receivable turnover in days

21

Payable turnover

22

Payable turnover in days

23

Inventory turnover

Description:

Cost of goods sold inventory Inventory turnover

2007 1958696404 577163363 3.393660321

2008 2589019736 1267785890 2.042158504

2009 3348870289 942568134 3.552921182

2010 3558642850 1623278528 2.192256467

2011 4176991364 1236014474 3.379403277

24

Inventory turnover in day

360days Inventory turnover Inventory turnover in day

2007 360 3.393660321 106.0801512

2008 360 2.042158504 176.2840638

2009 360 3.55291182 101.3253405

2010 360 2.192256467 164.2143633

2011 360 3.379403277 106.5276827

25

Profitability ratio

Gross profit margin

Net sales cost of goods sold net sales

Gross profit

margin

2007 2541542767 1958696404 2541542767 0.229327781

2008 3052235640 2589019736 3052235640 0.151762825

2009 3882244010 3348870289 3882244010 0.137387995

2010 1438410562 1214595646 1438410562 0.155598771

2011 4063481565 3705847220 4063481565 0.088011804

Description:

26

Net profit margin

Net income net sales Net profit margin

2007 352447136 2541542767 0.138674486

2008 236529908 3052235640 0.077493987

2009 260634002 3882244010 0.067134884

2010 564769143 1438410562 0.392634174

2011 620177854 4063481565 0.152622288

Description:

27

Return of assets

28

Return on equity

29

CHAPTER 4

Findings

(2007 to2011)

30

We do ratio analysis of Square Textile Limited in Bangladesh of 2007 to 2011. After the analysis

we find out the situation of Liquidity Ratio, Leverage Ratio, Coverage Ratio, and Activity Ratio

& Profitability Ratio. The highest & lowest conditions of the ratio are given below:

Name of the Ratio

Highest Amount

Year Lowest Amount Year

Liquidity Ratios

Current ratio:

1.573740746 2011 1.262584649 2008

Acid test:

1.168873728 2011 0.796869243 2008

Leverage ratio

Debt to equity:

0.918232058 2008 0.729819473 2009

Debt to total asset:

0.413305214 2009 0.4260106 2007

Coverage ratio

Interest

CoverageRatio 4.476719773 2011 7.14697091 2010

Activity ratio:

Receivable turnover

Receivable turnover

in days

Payable turnover

31

From the chart we can find out that Square had the highest capacity to meet short-term

obligations in 2011 & the lowest capacity to meet short-term obligations in 2008.

From the leverage ratio we can find out the degree to which an investor or business is utilizing

borrowed money. Here we can see, the debt to equity is highest in 2008 & lowest in 2009 & debt

to asset is highest in 2009 & lowest in 2007. That means Square borrowed lots of money in 2008

& borrowed lots of assets in 2009.So both 2009 & 2010 were the risky year. Because, company

may unable to make payments on their debt; they may also be unable to find new lenders in the

future.

Next coverage ratio serves as one measure of the firm’s ability to meet its interest payments and

thus avoid bankruptcy. The highest coverage ratio was in 2011 & lowest was 2010. That means

2011 is a great year to meet its interest payments.

Payable turnover in

days

Inventory turnover

3.552921182 2009 2.042158504 2008

Inventory turnover in

days

176.2840638 2008 101.3253405 2009

Profitability ratio

Gross profit margin

229327781 2007 088011804 2008

Net profit margin

0.152622288 2011 0.067134884 2009

Return of assets

Return on equity

32

Next come activity ratios. It is also known as efficiency or turnover ratios, measure how

effectively the firm is using its assets. We find out that the uppermost Receivable turnover

occurred in……& lowest is…….. That means……..Besides the uppermost Payable turnover

occurred in…… & lowest……..That means………………. Moreover, the highest Inventory

turnover occurred in 2009 & lowest in 2008

Next we can see the Profitability ratio. Square earn maximum gross profit in 2007 & minimum

in 2008. Besides, highest net profit earned in 2011 & lowest net profit eared in 2009. & Square

return their asset greatest in……………& smallest in…………..Moreover, Square return their

equity utmost in……………& least in…………..

After doing the Ratio Analysis we can say that among 2007 to 2011 ……………… is the best

year. Because …………………………. .& ……………………… is the worst year

because………………………………. &……., ……… & ………………. is considered as

average year because they are neither so best financial year nor so worse. So, the stay in the

middle state.

33

CHAPTER 5

Conclusion

34

Squar Textile is a growing industry now and its companies are involved with broad financial

activities. By comparing each year of the company with its past records may not give the correct

image of the organization, the comparison should also be made with the industrial average. In the

Square Tetile Limited, the financial data of Square are being analyzed both with the help of past

records and by comparing the data with industrial average. Here the financial condition of

Square Tetile Limited is in the most favorable in 20000000000000…. (year) because it shows

positive result than other years. In 200 the financial analysis condition of Square Textile with

the past records are quite favorable but after the comparison with the industry average it seems

there are a number of scopes for improvement. But that’s not all. Square Textile is very popular

in Bangladesh & still it covers a very strong position in the market.