financial statements analysis on renata limited
TRANSCRIPT
REPORT ONFINANCIAL STATEMENTS ANALYSIS ON
RENATA LIMITED
PATUAKHALI SCIENCE AND TECHNOLOGY UNIVERSITY
Financial Statements Analysis on Renata Limited
Prepared For:M. Takibur Rahman
LecturerDepartment of Accounting & Information System
Faculty of Business Administration and Management
Prepared byGroup: 01(Warrior)
Level- lI, Semester- IIFaculty of Business Administration and Management
Sl. No. Name of the students Position Roll No. Reg. No.
01 Md. Kamruzzaman Group Leader 01 00660
02 Shuvradeb Barai Asst. Group leader 09 00668
03 Abu Zafour Member 21 00680
04 Sahana Parveen Member 07 00666
05 Nazmul Alam Siddiqui Member 25 00565
Financial Management-IICourse Code: FBK 221
Date of submission: 23 August 2007
PATUAKHALI SCIENCE AND TECHNOLOGY UNIVERSITY
Date: 23 August 2007
To M. Takibur RahmanLecturerDepartment of Accounting and Information SystemFaculty of Business Administration and Management
Subject: Letter of Transmittal
Dear Sir,
Here is the report on “Financial Statements Analysis on Renata Limited” you asked us to prepare this report as a course requirement of Financial Management-II.
This report focuses on the Financial Management-II. We are proud of making this report. We have tried our level best to make the report informative and fruitful. For any classification we will be available and looking for such term paper in coming days. We will be happy to get such type of report further.
Sincerely Yours
Md. Kamruzzaman(Group Leader)Group: 01(Warrior)Level-II, Semester-IIFaculty of Business Administration and Management
I
Acknowledgment
At first we desire to express our deepest sense of gratitude of almighty Allah.
With profound regard we gratefully acknowledge our respected course teacher
M. Takibur Rahman Lecturer, Department of Accounting & Information
System, Faculty of Business Administration and Management for his generous
help and day to day suggestion during the survey.
We like to give thanks especially to our friends & many individuals, for their
enthusiastic encouragements and helps during the preparation of this report and
for their assistance in typing and proofreading this manuscript.
III
Executive Summary
This report is an assigned job as a partial fulfillment of course requirement
by honorable Course teacher M. Takibur Rahman Lecturer, Department
of Accounting & Information System, Faculty of Business Administration
and Management. Patuakhali Science and Technology University. It is the
optimum aggregated outcome of 5 pupils’ about “Financial Statements
Analysis on Renata Limited”. The view of this report is to find out the
financial position of Renata Limited. Now its make a great position in the
market of Bangladesh. Accounting procedure is highly important for
knowing the condition of a particular company’s asset, liabilities, net
incomes, and retained earnings etc. According to our survey we found that
Renata Limited’s financial position is comparably standard.
IV
Contents
1. Introduction………………………………………………………………………..….01
►1.1OriginoftheReport……………………………………………………….…02►1.2 Purpose of the Report…………………………………………….….…….03►1.3 Limitation and Scope of the report. ……………………………….....……04
►1.4 Methodology ………………………………………………………..….....05
2. Description
►2.01 Company Chronology…..…………………………………...……….…..06 ►2.02 Analysis of Financial Statements…………………………..….………...07
►2.03 Balance Sheet…………………….………...……………………….……08►2.04 Income Statement………...……………………………………..….…….10
►2.05 Statement of Changes Equity…………………….………………….….. 12►2.06 Cash Flow Statement……………………………….……………….…...13►2.07 Ratio Analysis of Financial Statements………………… ………….…...15
3.01 Analysis of Renata Limited’s financial statements at a glance…………..….….…..253.02 Graphical Presentation of the Financial Statement Analysis………….……………263.03 Overall Comment about Renata Limited ……………………………………...…...29
4.01. Findings. ………………………………………………………..…………….……30
4.02. Recommendations………………………………………………………………….33
5. Conclusion………………………………………………………………….…..….…..35.7. Bibliography ………………………………………………………….…..……..….....36
8.Appendix………………………….…………………………………...….37
Section – 2
Section–1 e
Section – 3
Section – 4
Section – 5
introduction
With the ever increasing size and complex items of modern business it has
become necessary for every business man to base decisions of facts expressed in
quantities form. Many new of ways of using qualitative data in making business
decisions have been developed in recent year from elementary statistical
technique. Financial statement that expresses the relationship between selected
financial statement data to compute ratio and describe their purpose and use in
analyzing a firm’s liquidity, profitability and solvency. Through it we will
understand the concept of earning power and indicate how the materials items
not typically of regular operations are presented. It provides us potential
information for decision making over a company in the current year with the
same item or relationship in one or more prior years.
V
01
Origin of the report
We are lucky to say that our honorable course teacher M. Takibur
Rahman Lecturer, Department of Accounting and Information System, of
Faculty of Business Administration and Management. Assigned us a
report on “Financial Statements Analysis on Renata Limited” This
report is prepared on the basis of surveying the Renata Limited.
02
Purpose of the Report
As a business expectative of future, we should have to gather experience beside our survey. We should not concern our lesion only in classroom but to implement it in practical life that will help us in our future life .A clear objective help in preparation of well decorated report in which other take the right type of decision .So, we identifying objectives is very much important. Our purpose of preparing the report is:
To identifying how the company maintaining the accounting procedure
To know about the company’s financial statements
To find out the company’s decision making process through ratio analysis.
03
Limitation & Scope of the Report
As a student of faculty of Business Administration and Management, 4 th
semester, this is our first initiative for making a report on “Financial
Statements Analysis on Renata Limited” by meeting a survey. Beside this we
have faced the following hindrances in preparing this report:
► Lack of knowledge and experience
► Short of time
► Lack of computer facilities
► Lack of sufficient privileges
► Lack of communication facilities
The survey report focuses on Financial Statements Analysis on Renata
Limited. The survey may not be more comparable or more valid. Moreover, the
report is emphasized on the primary data such as interview of the manager of
Renata Limited. Here we consider only the information that we collect from our
survey.
04
Methodology of the Study
This report is based on both primary and secondary data. Initially, the work is
started with data those were available at Company’s Annual Report and
company’s news letter. Moreover, it becomes helpful to gather some more
information from the website of the company.
Later on, the work progressed through some depth interviews of good range
professionals trying to heat some expected area of the study. After that, an
effective questionnaire is designed to collect likely data from the target group of
people.
Then we analyze those data from many angles, in different aspect and present
the information in different segment according to their category, in compact
way. We highlight different important things, which we found during our
survey. After doing all of those we submit the report to the proper authority.
05
Company Chronology
Renata Limited has created a new vista in manufacturing Pharmaceutical,
Animal Health Medicine, Nutritional and Vaccines. Its year of Incorporation is
19972: as Pfizer laboratories (Bangladesh) Limited, subsidiary of Pfizer
corporations, USA. In 1993 it renamed as “Renata Limited” after divestment of
shareholders by Pfizer corporations, USA. Renata’s 10 products have been
licensed to M/s Deurali-Janta pharmaceutical Ptv. Ltd., Nepal for manufacture,
marketing and distribution in Nepal. Renata Limited is giving technical
assistances for upgrading their manufacturing plant to WHO GMP standards.
Renata Limited is dedicated to serving its valued customers with products of
excellent quality through continuous improvement in process and technology;
complain with the guidelines of good manufacturing process (GMP) and the
requirements of ISO 9110:1999 quality management system. Its top
management is committed to ensure that quality policy is adopted and practice
in all phases of company activities and urge all concerned to perform their
duties by following the principles.
A sound system of internal and financial control has been established by Renata
Limited, which involves periodical reporting, continuous audit of different
segments of the business and budgetary control to ensure optimum utilization of
the company’s resources. Renata Limited is a highly professionally managed
organization. A team of skilled professionals has been dedicating their efforts in
order to achieve the corporate objectives.
Analysis of Financial Statements 06
Financial Statement Analysis
Financial Statement analysis is the art of transforming the data from financial statements into information that is useful for informed decision making. The analysis is used to determine the firm’s financial position so as to identify its current strength and weakness. To take the rational decisions in keeping with the objective of the firm, the financial statement is too much significant for the managements. Financial statement analysis is not only important for the firm’s managements, but also for the firm’s investors and creditors internally, financial managers use the information provides by financial analysis to help make financing and investing decisions to maximize the firm’s value. Externally, stockholders and creditors use financial statement analysis to evaluate the attractiveness of the firm as an investment by examining its ability to meet its current and expected future financial obligations. Financial analysis involves the use of various financial statements. These statements do the several things which are as follows-
Balance Sheet
Balance sheet is that statement which represents the summary of a firm’s financial position on a given data that shows the total assets, liabilities and owners’ equity or stockholders’ equity of a financial year.
Income Statement
Income Statement is that statement which represents the summary of a firm’s revenues and expenses over a specified period for the purpose of determining the net income or loss for the period. For determining the net income or loss Renata Limited represents revenues and expenses to their income statement for the period.
Cash flow statement 07
The statement of cash flows reports the cash receipts, cash payments, and net change in cash resulting from operating, investing, and financing activities during the year. For determining the total cash inflow and outflow of a financial year, Renata Limited prepares the cash flow statement.
Stockholders’ Equity
This statement represents the company’s total common stock plus additional paid-in capital and retained earnings. It also shows the changes in equity during the period. To identify these things Renata Limited prepares the Stockholders’ Equity.
Balance Sheet
Property& AssetsThe Company has the following Property & Assets: Property, plant and equipment, capital work-in-progress, investment in subsidiaries, other investment, trade and other receivables, advances, deposits and prepayments, cash and cash equivalents, and other assets.
Total Assets31 December 2005, 31 December 2006
Particulars 2005(TK) 2006(TK)
Total Assets 1,274,556,982 1,776,512,741
Through this table, we see that the Total Assets TK 501,955,759 (39.38%) in 2006 is grater than then the previous year (2005).
Liability and capitalLiabilities: The liabilities of Renata limited are as follows-Deferred liability-staff gratuity, deferred tax liability, bank overdraft, creditors for goods, accrued expenses, other payables, unclaimed dividend, and provision for taxation, and other liabilities.
08
Total Liabilities 31 December 2005, 31 December 2006
Particulars 2005(TK) 2006(TK)
Total Liabilities 500,439,779 794,199,946
Through this table, we see that the total liabilities TK 293,760,167 (58.70%) in 2006 is less than then the previous year (2005).
Shareholders equity The sources of shareholders equity are as follows:Share capital, revaluation surplus, tax holiday reserve, proposed stock dividend, proposed cash dividend, and retained earnings.
Shareholders equity 31 December 2005, 31 December 2006
Particulars 2005(TK) 2006(TK) Shareholders equity (capital) 774,117,203 982,312,795
Through this table we see that total shareholders equity is TK 208,195,592 (26.89%) in 2006 is greater than the previous year (2005).
Liabilities & Shareholders equity 31 December 2005, 31 December 2006
Particulars 2005(TK) 2006(TK)
Liabilities & Shareholders equity 1,274,556,982 1,776,512,741 Through the above table we see that the total liabilities and shareholders equity is TK 501,955,759 (39.38%) in 2006 is greater than the previous year (2005).
09
Income Statement
Interest Income
Renata Limited is a manufacturing company. The company produces different type of products and sales the products. Their revenue comes from the following different sources. The sources are divided into mainly two parts:
1. Non-tax holiday (unit 1, 2, 3)2. Tax holiday (unit 4).
In non-tax holiday unit they produce and sale the different products which are- Pharmaceutical products, Animal health products, Animal nutritional products and ORS. In tax holiday unit they produce the potent product facility.
Net income31 December 2005, 31 December 2006
Particulars 2005(TK) 2006(TK) Total revenue 1,625,773,193 1,962,528,378 Total expenses (1,433,204,932) (1,720,396,741) Net income 192,568,261 242,131,637
Through this table, we see that the net interest income TK 49,563,376 (25.78 %) in 2006 is grater than then the previous year (2005).
Operating expense Renata Limited has done expenses in different sources. The sources are as follows:
Cost of goods sold, administrative, selling and distribution expenses, Salary and allowances, managing director’s salary & allowances, rent, rates and taxes, insurances, electricity, legal expenses, postage, stamp, telecommunication, audit fees, printing , stationery & advertisement , repairs, maintenances & depreciations, and other expenses.
10
Expense for tax purposeThe sources of taxes are provision for tax, current tax & deferred tax:
Profit after tax 31 December 2005, 31 December 2006
Particulars 2005(TK) 2006(TK)
Profit before tax 279,387,690 347,221,767 Tax (86,819,429) (105,090,130) Profit after tax 192,568,261 242,131,637
Appropriations
The sources of Appropriation are- tax holiday reserve, proposed stock dividend, proposed cash dividend and retain earnings. Through this table, we see that the Profit before tax TK 49,563,376 (25.78%) in 2006 is grater than then the previous year (2005).
Particulars 2005(TK) 2006(TK)
Earning per share (TK.) 239.71 (’05) 301.41(’06)
Through this table, we see that the earning per share TK 61.7 (25.74%) in 2006 is greater than then the previous year (2005).
11
Statement of Changes in Equity
Owner’s equity summarizes the changes in owner’s equity for a specific
period of time. It discloses the sources of the changes in the various
permanent shareholders’ equity accounts that occurred during the period.
The statement of shareholders’ equity only shows the net effects on
retained earnings.
In following table shows the changes of owner’s equity of Orion Infusion
Ltd. for the year ended 31 December 2005 and 31 December 2006.
31 December 2005 31 December 2006.
Total stockholder equity Total stockholder equity
774,117,203 982,312,795
In 2006 the shareholders’ equity is increased by TK 208,195,592
(26.89%) than the previous year.
So we understood that the change in equity is increased TK 1.2689 in
2006 instead of TK 1 in 2005.
12
Cash flow Statement
Cash flows from operating activities
Operating activities includes the cash effects of transactions that create
revenues and expenses. They thus enter into the determination of the net
income. The sources of cash inflows from the operating activities are-
Collection from customers and other sources of income. The sources of
cash outflows from the operating activities are - Financial cost, payment
of tax, payment of value added tax (VAT), payment to suppliers and
employees and others.
Net Cash from Operating ActivitiesFor the year ended 31 December 2005 and 31 December 2006.
2005 2006
Cash inflow Cash outflow Cash inflow Cash outflow
1,836,005,683 1,624,549,823 2,185,812,587 2,116,621,297
Net Cash from operating activities = 211,455,860
Net Cash from operating activities = 69,191,290
Cash flows from Investing Activities
The company has been done the following investing activities-
Purchase of property, plant and equipment, investment in share, sale
procedure of property, plant and equipment.
Net Cash from Investing ActivitiesFor the year ended 31 December 2005 and 31 December 2006.
2005 2006Cash inflow Cash outflow Cash inflow Cash outflow
260,000 151,986,364 1,928,200 224,799,510
Net Cash from investing activities = (151,726,364)
Net Cash from investing activities = (224,871,310)
13
Cash Flows from Financing Activities:
The company has been done the following financing activities-
Medium term loan repaid, and dividend paid.
Net Cash from Financing ActivitiesFor the year ended 31 December 2005 and 31 December 2006.
2005 2006Cash inflow Cash outflow Cash inflow Cash outflow
- 27,398,386 - 33,160,404
Net Cash from financing activities = 27,398,386
Net Cash from financing activities = 33,160,404
Net Cash Outflows For the year ended 31 December 2005 and 31 December 2006.
2005 2006
Total Cash inflowTotal Cash
outflow Total Cash inflow Total Cash
outflow
1,836,265,683 1,803,934,573 2,187,740,787 2,374,581,211
Net Cash outflow = 32,331,110 Net Cash outflow = (186,840,424)
Closing cash and cash- equivalentsFor the year ended 31 December 2005 and 31 December 2006.
2005 2006
Net Cash outflowsOpening Cash and cash equivalents Net Cash
outflows
Opening Cash and cash
equivalents 32,331,110 (135,303,998) (186,840,424) (102,972,888)
Closing cash and cash equivalents = (102,972,888)
Closing Cash outflow equivalents = (289,813,312)
14
Working Capital
Working capital is the excess of current assets over the current liabilities.
It is calculated by deducting current liabilities from current assets.
Working capital = Current assets - Current liabilities
2005 2006
Current assets Current liabilities Current assets Current liabilities
672,355,277 384,140,329 979,254,859 658,881,691
Working capital =288,214,948 Working capital = 320,373,168
Current ratioThe current ratio is a widely used measure for evaluating company’s
liquidities & short-term debt- paying ability:
Current ratio = Current assets Current liabilities
2005 2006
Current assets Current liabilities Current assets Current liabilities
672,355,277 384,140,329 979,254,859 658,881,691
Current ratio =1.75 Current ratio = 1.49
Comment The ideal current ratio of an organization is 1.2 times. The current ratio of Renata Ltd. in 2005 is 1.75 times and in 2006 is 1.49 times, which is lower than the previous year 2005. So liquidity and short-term debt paying ability is worse than the previous year. But the Renata Ltd. has liquidity ability 1.49 to pay the short term debt for 1 which is higher from the probable ideal ratio.
Ratio Analysis of Financial Statements
15
Acid-Test RatioThe acid-test ratio is a measure of a company’s immediate short-term liquidity.
Acid test ratio = (Current assets – Inventories) Current liabilities
2005 2006Current assets -
Inventories
Current liabilities
Current assets - Inventories
Current liabilities
672,355,277 – 388.384.007
384,140,329 979,254,859 – 638,784,952
658,881,691
Acid test ratio = 0.74 Acid test ratio = 0.52
Comment
The ideal of Acid-Test Ratio an organization is 0.8 times. The Acid-Test
Ratio of Renata Ltd. in 2005 is 0.74 times and in 2006 is 0.52 times,
which is less than the previous year. Our evaluations of the liquidity ratios
suggest that Renata’s liquidity position currently is poor.
Inventory Turnover
The total inventory turnover ratio measures the liquidity of inventories of
a firm. It is calculated by dividing cost of goods sold by inventories.
Inventory turnover = Cost of goods sold Average inventories
2005 2006Cost of goods sold Average
inventoriesCost of goods sold Average
inventories
829,197,436 388,384,007 978,390,209 (638,784,952 + 388,384,007) 2
Inventory turnover = 2.14 Inventory turnover = 1.91
Inventory Turnover in Days
Inventory turnover in day’s measure the average days to sale the
inventories.
Inventory Turnover in Days = Days in the year Inventory turnover
16
2005 2006Days in the year Inventory
turnoverDays in the year Inventory
turnover360 2.14 360 1.91
Inventory turnover in days = 168 Inventory turnover in days = 188
Comment
Inventory turnover ratio of Renata Ltd. in 2005 is 2.14 times and in 2006
is 1.91 times, which is lower than the previous year 2005. The average
selling time of inventories in 2005 is 168 days and in 2006 is 188 days.
The ideal industry average of inventory selling time is 92 days. Our
evaluations of the inventory turnover suggest that Renata’s average days
to sale the inventories in days currently are lower than the industry
average.
Account Receivable Turnover
Account receivable turnover measures the liquidity of receivables.
Account receivable turnover = Net credit sales Average net receivables.
2005 2006Net credit sales Average net
receivablesNet credit
salesAverage net receivables
1,608,555,839 162,224,078 1,927,731,885
(198,626,085+162,224,078) 2
Account receivable turnover = 9.91 Account receivable turnover = 10.68
Account Receivable Turnover in Days (DSO)Account receivables turnover in days (DSO) is used to evaluate the firm’s ability to collect its credit sale in a timely manner. DSO = Days in the year Account receivable turnover
2005 2006Days in the year Account receivable
turnoverDays in the
yearAccount receivable
turnover360 9.91 360 10.68
Account receivable turnover in days = 36 Account receivable turnover in days = 34
17
CommentAccounts receivables turnover ratio of Renata Ltd. in 2005 is 9.91 times and in 2006 is 10.68 times, which is grater than the previous year 2005. The firm’s ability to collect its credit sales is occurred in 36 days in 2005 and in 2006 is 34 days which is lower than the previous year 2005.The ideal industry average of account receivable turnover in days (DSO) is 116.1 days. Our evaluations of the account receivables turnover suggest that Renata’s average days to collect its credit sale currently are lower but it is better for the company.
Return on AssetsReturn on Assets indicates the overall measure of profitability is return on assets.
Return on Assets = Net income Average total assets
2005 2006Net income Average total
assets Net income Average total assets
192,568,261 1,274,556,982 242,131,637 (1,776,512,741+1,274,556,982) 2
Inventory turnover = 15.11% Inventory turnover = 15.87%
CommentReturn on Assets ratio of Renata Ltd. in 2005 is 15.11% and in 2006 is
15.87%, which is grater than the previous year 2005. But the ideal
industry average of return on assets is 10.9%. Our evaluations of the
return on assets suggest that Renata’s profitability on assets currently is
higher than the industry average. So we think the return on assets of this
company is maintaining a good standard.
Total Assets Turnover Ratio
Total assets turnover ratio measures how effectively the firm uses its plant
and equipment to help generate sales.
Total assets turnover ratio = Sales Average total assets
18
2005 2006
SalesAverage total
assets Sales Average total assets
1,608,555,839 1,274,556,982
1,927,731,885
(1,776,512,741+1,274,556,982) 2
Total assets turnover = 1.26 Total assets turnover = 1.26
Comment
Total assets turnover ratio of Renata Ltd. in 2005 is 1.26 times and in
2006 is 1.26 times, which is similar with the previous year 2005. But the
ideal industry average of total assets turnover ratio is 0.6 times. Our
evaluations of the total assets turnover ratio suggest that Renata’s plant
and equipment to help generate sales is higher than the industry average.
So we think the total assets turnover of this company is maintaining a
good standard.
Debt to Total Assets RatioDebt to total assets ratio measures the percentage of total assets provided by the creditors.Debt to total assets ratio = Total debt Average total assets.
2005 2006Total Debt Average total
assets Total Debt Average total assets
500,439,779 1,274,556,982 794,199,946 (1,776,512,741+1,274,556,982) 2
Inventory turnover = 39.26% Inventory turnover = 52.06%
Comment
Debt to total assets ratio of Renata Ltd. in 2005 is 39.26% and in 2006 is
52.06%, which is grater than the previous year 2005. But the ideal
industry average of debt to total assets is 62%. Our evaluations of the debt
to total assets suggest that Renata’s debt to total assets currently is lower
than the industry average. So they have the opportunity to expand their
business by increasing their debt.
19
Debt to Total Equity RatioDebt to total equity ratio measures the percentage of total equity provided
by the creditors.
Debt to total equity ratio = Total debt Total stockholder equity.
2005 2006Total Debt Total stockholder
equityTotal Debt Total stockholder
equity500,439,779 774,117,203 794,199,946 982,312,795
Debt to total equity = 64.64% Debt to total equity = 80.85%
CommentDebt to total equity ratio of Renata Ltd. in 2005 is 64.64% and in 2006 is 80.85%, which is grater than the previous year 2005. Our evaluations of the debt to total equity ratio suggest that Renata’s debt to total equity currently is higher than the previous year.
Return on Common Shareholders’ EquityThis ratio shows how many taka of net income were earned for each taka invested by the owners.Return on common shareholders’ equity = (Net income – Preferred dividend) Average common equity
2005 2006Net income-Preferred dividend
Average common equity
Net income -Preferred dividend
Average common equity
192,568,261 774,117,203 242,131,637 982,312,795
Debt to total equity = 24.88% Debt to total equity = 24.65%
CommentReturn on common shareholders’ equity of Renata Ltd. in 2005 is 24.88% and in 2006 is 24.65%, which is less than the previous year 2005. But the ideal industry average of return on common shareholders’ equity is 14.6%. Our evaluations of the return on common shareholders’ equity suggest that Renata’s net income were earned for each taka invested by the owners is higher than the industry average. So we think the return on common shareholders’ equity of this company is maintaining a good standard.
20
Net Profit MarginNet profit margin measures the income per taka of sales.Net profit margin = Net income Net sales
2005 2006Net income Net sales Net income Net sales
192,568,261 1,608,555,839 242,131,637 1,927,731,885
Net profit margin = 11.97% Net profit margin = 12.56%
Comment
Net profit margin of Renata Ltd. in 2005 is 11.97% and in 2006 is
12.56%, which is grater than the previous year 2005. But the ideal
industry average of net profit margin is 15.4%. Our evaluations of the net
profit margin suggest that Renata’s net income were earned for each taka
of sales is lower than the industry average. So they should decrease their
expense to increase the profit.
Earning Per Share
Earning per share measures of the net income earned on share of common
stock.
Earning per share = (Net income – Preferred dividend) Number of
common share outstanding.
2005 2006Net income-Preferred dividend
No. of common share outstanding
Net income -Preferred dividend
No. of common share outstanding
192,568,261 803324 242,131,637 803324
Earning per share = 239.71 Earning per share = 301.41
Comment
The Earning per Share of Renata Ltd. in 2005 is 239.71 and in 2006 is
301.41 which is grater than the previous year.
21
Price-Earnings RatioPrice-earnings ratio measures the market price of each share of common stock to the earnings per share.Price-earnings ratio = Market price per share Earning per share
2005 2006Market price per
shareEarning per
shareMarket price per
shareEarning per
share3000 = 239.71 3099.25 301.41
Price-earnings ratio = 12.52 Price-earnings ratio = 10.28
CommentPrice-earnings ratio of Renata Ltd. in 2005 is 12.52 times and in 2006 is 10.28 times, which is less than the previous year 2005. But the ideal industry average of price-earnings ratio is 13 times. Our evaluations of the price earning ratio suggest that Renata’s price of each share of common stock to earning per share is lower than the industry average.
Dividend Yield Ratio
It is measured by dividing dividend per share by market price per share.
Dividend Yield Ratio = Dividend per Share Market price per share
2005 2006Dividend per
ShareMarket price per
shareDividend per
ShareMarket price per
share 58.33 3000 70.00 3099.25
Dividend Yield Ratio = 1.94% Dividend Yield Ratio = 2.26%
Comment
Dividend yield ratio of Renata Ltd. in 2005 is 1.94% and in 2006 is 2.26%,
which is greater than the previous year 2005. Our evaluations of dividend
yield ratio suggest that Renata’s dividend yield ratio is higher than
previous year.
22
Time Interest Earned Ratio Time interest earned ratio measures the ability of the firms to meet its annual
interest payment. Time interest earned ratio = Net operating profit Interest expense
2005 2006Net operating profit Interest expense Net operating profit Interest
expense316,958,675 23,002,949 404,424,412 39,765,118
Time interest earned ratio = 13.77 Time interest earned ratio = 10.17
Comment Time interest earned ratio of Renata Ltd. in 2005 is 13.77 times and in 2006 is
10.17 times, which is less than the previous year 2005. But the ideal industry average of time interest earned ratio is 4.9 times. Our evaluations of the time interest earned ratio suggest that Renata’s annual interest payment is higher than the industry average. So we think the time interest earned ratio of this company is maintaining a goods standard.
Dividend per ShareIt measures the company’s dividend on each share. It is calculated b y dividing common divided by number of shares outstanding.Dividend per Share = Common divided Number of shares
2005 2006Common divided Number of
sharesCommon divided Number of
shares46,860,550 803320 56,232,700 803320
Dividend per Share = 58.33 Dividend per Share = 70.00
CommentDividend per share of Renata Ltd. in 2005 is 58.33 and in 2006 is 70, which is greater than the previous year 2005. Our evaluations of dividend per share suggest that Renata’s try to increase its dividend per share.
23
Dividend Payout Ratio
Dividend payout ratio measures the percentages of earnings distributed in the
form of cash dividends.
Dividend Payout Ratio = Cash dividend Net income
2005 2006
Cash dividend Net income Cash dividend Net income
46,860,550 192,568,261 56,232,700 242,131,637
Dividend Payout Ratio = 24.33% Dividend Payout Ratio = 23.22%
Comment
Dividend payout ratio of Renata Ltd. in 2005 is 24.33% and in 2006 is
23.22%, which is less than the previous year 2005. But the ideal industry
average of dividend payout ratio is 16%. Our evaluations of the dividend
payout ratio suggest that Renata’s earnings distributed in the form of cash
dividends is higher than the industry average. So we think the time dividend
payout ratio of this company is maintaining a goods standard.
** These financial statements data is considered as Bangladeshi taka. All financial information presented in taka has been rounded off to the nearest taka.
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Analysis of Renata Limited’s financial statements at a glance
Particulars
Ratios
2006 2005Industry average
High Low O.K.
Current ratio 1.49 1.75 1.2 √ √
Acid test ratio 0.52 0.74 0.8 √
Inventory turnover 1.91 2.14 3.9 √
Inventory turnover in days
188 168 92 days √
Receivable turnover
10.68 9.91 3.1 √
DSO 34 days 36 days 116.1 days √ √
Return on assets 15.87% 15.11% 10.9% √ √Total assets turnover
1.26 1.26 0.6 √
Debt to assets ratio 52.06% 39.26% 62.0%. √
Debt to equity ratio 80.85% 64.64% √
Return on equity 24.65% 24.88% 14.6% √ √Net profit margin ratio 12.56% 11.97% 15.4% √ √
Time interest earned ratio
10.17 13.77 4.9 √
Earning per share
301.41 239.71 √ √
Price earning ratio 10.28 12.52 13√
Dividend per share
70.00 58.33 √ √
Dividend yield ratio 2.26% 1.94% √
Dividend pay out ratio 23.22% 24.33% 16% √
** This comment based on the year 2006 with industry average.
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Graphical Presentation of the Financial Statement Analysis
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Overall Comment about Renata Limited
For analysis the financial conditions of Renata Limited we can segregate the financial statements (ratios) of Renata Limited into four different parts - liquidity ratios, asset management ratios, debt management ratios, and profitability ratios. These ratios can be used to evaluate the overall condition of
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any company. Here we providing the overall comments about Renata Limited based on the liquidity ratios, asset management ratios, debt management ratios, and profitability ratios.
In case of liquidity ratios, their current ratio is decreased than the previous year but it is higher than the industry average. Side by side their quick ratio is decreased than the previous year and the industry average. So we can say that for current ratio their have some little idle money. But in case of quick ratio at the present rate it is not possible for the company to pay its bills as they come due. In case of asset management their inventory turnover in days is higher than the previous year and industry average. This suggests that inventory stocks of Renata Limited are higher than they need to be. Side by side DSO is in better position in comparison with previous year.
In case of debt management, Renata Limited’s debt to asset ratio is higher than the previous year but lower than the industry average. So they have the opportunity to increase their debt up to 10% to expand their business. Their debt to equity ratio is higher than the previous year and they have to maintain the standard. In case of profitability position of this company – return on assets is increased than the previous year and industry average. Return on equity is decrease than the previous year but both are higher than the industry average. Net profit margin is increase than the previous year and industry average. So we can say that, overall the company’s profitability position is good in spite of their net profit margin slightly lower than the industry average.
At last we conclude that, their financial condition is not bad and need to keep the wheel of prosperity for future.
FINDINGS
From the analysis of the financial statement of Renata Ltd. we have found the followings:
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Renata Ltd. prepared consolidated financial statement in accordance to the Bangladesh Accounting Standards 27.
The company manufactures and sales various pharmaceutical, animal healths, animal nutritional, oral saline, hormone products and other medical product in the local and foreign market.
Their Financial statement has been prepared in accordance with applicable International Accounting Standards as adopted by the ICAB and where relevant with presentational requirements of the law.
Financial statement has been prepared under the historical cost convention as modified to include revaluations of certain property, plant and equipment.
The company has adequate resource to continue in operations for faceable future. For this reason they continue to adopt going concern basis in preparing the accounts.
Non–derivative financial instrument comprised accounts and other receivables, cash and cash equivalents, loans and borrowings, and other payables are shown at transactions cost.
The cost of the day-to-day servicing of property, plant and equipment are recognized in the profit and loss account as incurred.
Gains and losses on disposal or retirement of assets are credited or charged to the results operations.
The company has applied for tax holiday on unit-4 (potent product facility) for a period of 4 years from September 2006 to August 2010; the approval is yet to be received.
Provisions are made where an obligation exists for future liabilities in respect of the past event and where the amount of the obligations can be reliably measure.
Revenue from sell of goods is measured at fair value of the considerations received or receivable, net of return and allowances tread accounts and volume rebates
All fixed assets are recorded at cost less accumulated depreciation.
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Renata Ltd. has followed the straight-line method in terms of charging depreciation on all fixed assets.
Renata Limited net profits in 2006 are decreased by TK58880748 from the previous year 2005.
In 2006 The Total Assets of Renata Ltd. is increased by TK 501,955,759 (39.38%) against the base year.
In 2006 The Total liability of Renata Ltd. is increased by TK 293,760,167 (58.70%) against the base year.
The change in equity is increased by TK 208,195,592 (26.89%) against the base year. The current ratio of Renata Ltd. in 2005 is 1.75 times and in 2006 is 1.49 times, which is lower than the previous year 2005
The Acid-Test Ratio of Renata Ltd. in 2005 is 0.74 times and in 2006 is 0.52 times, which is less than the previous year.
The average selling time of inventories in 2005 is 168 days and in 2006 is 188 days.
The firm’s ability to collect its credit sales is occurred in 36 days in 2005 and in 2006 is 34 days which is lower than the previous year 2005.
Return on Assets ratio of Renata Ltd. in 2005 is 15.11% and in 2006 is 15.87%, which is grater than the previous year 2005.
Total assets turnover ratio of Renata Ltd. in 2005 is 1.26 times and in 2006 is 1.26 times, which is similar with the previous year 2005.
Debt to total equity ratio of Renata Ltd. in 2005 is 64.64% and in 2006 is 80.85%, which is grater than the previous year 2005
Return on common shareholders’ equity of Renata Ltd. in 2005 is 24.88% and in 2006 is 24.65%, which is less than the previous year 2005.
Net profit margin of Renata Ltd. in 2005 is 11.97% and in 2006 is 12.56%, which is grater than the previous year 2005.
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The Earning per Share of Renata Ltd. in 2005 is 239.71 and in 2006 is 301.41 which is grater than the previous year
Price-earnings ratio of Renata Ltd. in 2005 is 12.52 times and in 2006 is 10.28 times, which is less than the previous year 2005.
Dividend yield ratio of Renata Ltd. in 2005 is 1.94% and in 2006 is 2.26%, which is greater than the previous year 2005.
Time interest earned ratio of Renata Ltd. in 2005 is 13.77 times and in 2006 is 10.17 times, which is less than the previous year 2005.
Dividend payout ratio of Renata Ltd. in 2005 is 24.33% and in 2006 is 23.22%, which is less than the previous year 2005.
RECOMMENDATIONS
Financial statements are most significant part of a company because financial statement analysis involves a comparison of a firm’s performance with that of other firms in the same line of business, which usually identified by the firm’s industry classification. The analysis is used to determine the firm’s financial position so as to identify its current strength and weakness and to suggest actions the firm might pursue to take advantage of the strengths and correct any weakness. Here is our recommendations about this company are as follows:
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Renata Ltd. has liquidity ability 1.49 times to pay the short term debt for 1, which is higher than the probable ideal ratio 1.2 times. They have a little amounted of idle money which they opportunity to invest.
Our evaluations of the acid test ratio suggest that Renata’s liquidity position currently is poor. Renata’s acid test ratio seems inadequate. The average selling time of inventories in 2005 is 168 days and in 2006 is 188 days. So their turn over rate is very high in the company, which is harmful for the country. So they should need to maintain the standard.
Our evaluations of the account receivables turnover suggest that Renata’s average days to collect its credit sale currently is lower than the industry average which is determines that companies account receivables turnover is good. Our examination of the return on assets suggests that Renata’s profitability on assets currently is higher than the industry average. We think the return on assets of this company is maintaining a good standard. So they should try to keep the stability.
Our assessment of the total assets turnover ratio suggests that Renata’s plant and equipment to help generate sales is higher than the industry average. We think the total assets turnover of this company is satisfactory.
Our valuation of the debt to total assets suggests that Renata’s debt to total assets currently is lower than the industry average. So they have the opportunity to expand their business by increasing their debt.
Our evaluations of the debt to total equity ratio suggest that Renata’s debt to total equity currently is higher than the previous year. So they should maintain this permanence. Our opinion of the return on common shareholders’ equity suggests that Renata’s net income were earned for each taka invested by the owners is higher than the industry average. We think the return on common shareholders’ equity of this company is maintaining a good standard. So they should maintain this immovability Our evaluations of the net profit margin suggest that Renata’s net income were earned for each taka of sales is lower than the industry average. So they should increase their net profit volume.
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The Earning per Share of Renata Ltd. in 2005 is 239.71 and in 2006 is 301.41 which is grater than the previous year which is good for the company and they should keep the steadiness of the increasing level of the earning per share.
Our consideration of the net price earning ratio that Renata’s price of each share of common stock to earning per share is lower than the industry average. So the company needs to increase its price earning ratio with the industry average.
Our evaluations of dividend yield ratio suggest that Renata’s dividend yield ratio is higher than previous year. So they should maintain this permanence.
Our assessment of the time interest earned ratio suggests that Renata’s annual interest payment is higher than the industry average. So we think the time interest earned ratio of this company is maintaining a goods standard and they should keep it on.
Our judgment of dividend per share suggests that Renata’s try to increase its dividend per share.
Our evaluations of the dividend payout ratio suggest that Renata’s earnings distributed in the form of cash dividends is higher than the industry average. So we think the time dividend payout ratio of this company is maintaining a goods standard.
Conclusion
The study of the financial statement is fascinating one for analyzing a firms liquidity, profitability and solvency. It provided us essential
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information to company’s relative performances with in the industry as well as determining the company’s competitive competence position. Financial statement analysis helps us to take appropriate financial decision in the business field at the right time.
Bibliography
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01. Besley Scott and Brigham Eugene f. “ Essentials of Managerial finance,” International student edition, Thirteen Edition, Thomson South-Western, 6April 2006, p. Al.
02. “Annual Report,” Renata Limited., Financial year 2005-2006, p. Al.
Appendix
Working capital = Current assets - Current liabilities
Acid test ratio = (Current assets – Inventories) Current liabilities
Inventory turnover = Cost of goods sold Average inventories
Inventory Turnover in Days = Days in the year Inventory turnover
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Account receivable turnover = Net credit sales Average net receivables.
DSO = Days in the year Account receivable turnover
Return on Assets = Net income Average total assets
Total assets turnover ratio = Sales Average total assets
Debt to total assets ratio = Total debt Average total assets.
Debt to total equity ratio = Total debt Total stockholder equity.
Return on common shareholders’ equity = (Net income – Preferred dividend) Average common equity
Net profit margin = Net income Net sales
Earning per share = (Net income – Preferred dividend) Number of common share outstanding.
Price-earnings ratio = Market price per share Earning per share
Dividend Yield Ratio = Dividend per Share Market price per share
Time interest earned ratio = Net operating profit Interest expense
Dividend per Share = Common divided Number of shares
Dividend Payout Ratio = Cash dividend Net income
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