Financial Strength Analysis of Rangpur Foundry Ltd

Executive Summary

This project will cover the complete knowledge about the main working of Rangpur FoundryLtd. The Rangpur Foundry Ltd. is the largest domestic Cast Iron & Plastic goods-producing unit in Bangladesh. Its excellent quality-control standards have helped the Company acquire the ISO-9001:2000 certification. The Company was started commercial production in January 1983.

This project will discuss about the financial strength & weakness and also discuss the Current Financial situations of RFL. Now a day Manufacture company play an important role in economic development the main function of Manufacture is to promote tile movement of Region. The code of conduct approved by the board of director, expresses fundamental principles that guide all the employees and shape the organization business activities. It’s started journey as a privet Ltd company 1981 & converted as public Ltd Company in 1996.

It also describes the various financial ratios and try to find out its past, present and future financial position. This report we find out the liquidity, Asset management, Debit Management, Market Value, Profitability Ratio. We analysis the fixed assets turnover, total assets turnover, profit margin, ROA & ROE. And lastly analysis the DuPont.

RAGPUR FOUNDRY LTD.

1.1 IntroductionIntroduction

Finance is the blood of any business organization. Any public or private limited company needs to conduct a financial statement every year to know its current performance, strengths as well as weaknesses.

Ratio Analysis enables the business owner/manager to spot trends in a business and to compare its performance and condition with the average performance of similar businesses in the same industry. To do this compare the ratios with the average of businesses similar to the company and compare own ratios for several successive years, watching especially for any unfavorable trends that may be starting. Ratio analysis may provide the all-important early warning indications that allow you to solve your business problems before your business is destroyed by them.

The Rangpur Foundry Ltd. is the largest domestic Cast Iron & Plastics production unit in Bangladesh. In this report we are going to analyze its financial strength by analyzing it various financial ratios.

1.2 Objectives1.2 Objectives

1.2.1 Primary Objective

The primary objective of this report is to determine the Financial Strength and Weakness of Rangpur Foundry Ltd. by analyzing the last six years Financial Statement starting 2003 to 2008.

1.2.2 Secondary Objectives

To fulfill the primary objective the secondary objectives of this report includes the following key aspects of Rangpur Foundry Ltd:

Determine the Liquidity position Find out the profile of the assets management Verify the level of Debt management practices Know the Profitability And finally, figure out the Market Value

1.3 Origin of the Report

This report has been prepared for as a partial requirement of BBA program. I hope this report will give my instructor a clear idea about the histories, activities and operations, structure, management of asset, liability, liquidity, function and overall financial performance of RFL.

1.4 Background:

I am the student of Business Administrative as a fulfillment BBA degree I have to a complete an internship report. My honorable supervisor Mr. Siddique Hayat khan assigned me to prepare this report on “Performance of the RFL.” This had the formal approval of my supervisor of Business Faculty. This report is prepared based on the qualitative research.

1.5 Rationale of the Report:

Internship program is the practical aspect of our theoretical learning. It makes a bridge between the gap of classroom learning and practical learning. In this view, Internship plays a pivotal role for each professional degree like BBA. The study will help formulate suitable policies taking into consideration different ideas. Further more, it may note that RFL executives who are really executing the policies undertaken by the top management will have a chance to communicate their interaction and provide necessary feedback.

1.6 Scope of the study:

This report has been prepared through extensive discussion with finance employees and with the marketing employee and covers all the trade related products handled by the “RFL.” such as finance department, costing department, etc. While preparing this report, I had a great opportunity to have an in-depth knowledge of all the finance activities perspective of a leading company RFL in Bangladesh.

This report gives “Financial performance analysis of the RFL”. The scope of the report is limited to the overall financing description of the company, its service and its position in the industry and its financing strategies. The scope of the study is limited to organizational setup, functions, and financial performance.

1.7 Methodology of the Study

1.7.1 Type of the report

The ultimate objective of this report is to determine the Financial Strength and Weakness of Rangpur Foundry Ltd. by analyzing the data of last six years Financial Statement. For this reason this report has been prepared by incorporating the characteristics of the exploratory research, through which Rangpur Foundry Ltd.’s financial market positioning has been pointed

1.7.2 Data Collection Method:

To make the Report more meaningful and presentable, two sources of data and information have been used widely.

Source of Data

Primary sources

Practical desk work Face to face conversation with the officer Financial paper observations.

Secondary sources

Annual report of RFL Files & Folders Websites

To complete the report according to the plan designed the required data has been collected from mainly from the Secondary sources. And all the secondary data has been collected from the Annual Reports of Rangpur Foundry Ltd. available in the Dhaka stock exchange.

1.7.3 R1.7.3 RESEARCHESEARCH D DESIGNESIGN: :

After the data collection, all the necessary data has been analyzed thoroughly according to the specified formula provided in the textbook of Managerial Finance. To analyze the data the following computer packages were used:

Microsoft Word: MS Word was used for word processing and to write report.

Microsoft Excel: MS Excel was used for analyzing the data, creating charts, and computation purpose.

1.7.4 Type of analysis

In this report, we are basically analyze the trend of various financial ratios and try to find out its past, present and future financial position.

PRIMARY DATA

SECONDARY DATA

In trend analysis, ratios are compared over time, typically years. Year-to-year comparisons can highlight trends and point up the need for action. Trend analysis works best with three to five years of ratios.

1.8 Conceptual Framework

Financial ratios quantify many aspects of a business and are an integral part of financial statement analysis. Financial ratios are categorized according to the financial aspect of the business which the ratio measures. In this report following ratios are used to analyze the company’s financial strength and weakness.

1.8.1 Liquidity Ratios:

Liquidity ratios help to analyze a company's ability to meet short-term financial obligations.

Example Ratios Formula MeasuresCurrent Ratio Current Asset

Current LiabilitiesAbility to pay current debts

Quick ratio/Acid-test ratio

Current assets - InventoryCurrent liabilities

Ability to convert current assets to cash for the purpose of meeting current liabilities. Called the acid-test -- is a crucial test of the firm's liquidity

1.8.2 Asset management (efficiency) Ratios:

Asset Management ratios help to analyze how quickly a company's resources can be converted to cash or sales.

Example Ratios Formula MeasuresInventory turnover

SalesInventory

The speed with which inventory moves through the company and is turned into sales.

Fixed asset turnover

SalesFixed assets

Extent to which company is utilizing existing property, plant, and equipment to generate sales.

Total asset turnover

SalesTotal assets

How effectively company uses its total resources to generate sales.

Average collection period (DSO)

Accounts receivableAverage daily credit sales

Serves as a basis for determining how rapidly a company's credit accounts are being collected.

1.8.3 Debt Management (leverage) Ratios:

Debt Management ratios help to analyze the degree and effect of a company's use of borrowed funds (debt) to finance its operations.

Example Ratios Formula MeasuresDebt ratio Total debt

Total assetsThe extent to which the total assets of the firm have been financed using borrowed funds.

Times interest EBIT The ability to the companies to meet is

earned (TIE) Interest charges interest obligations should profits decline.1.8.4 Market Value Ratios:

Market value ratios help to analyze the degree of investor’s responseness to owning a company's stock.

Example Ratios Formula MeasuresPrice/Earning ratio Market price per share

Earning per shareThe extent investors are willing to pay per taka of reported profit.

Market/book value ratio

Market price per shareBook value per share

The extent investors are regards the company.

1.8.5 Profitability:

Profitability ratios help to analyze management's ability to control expenses and earn profits through the use of company's resources.

Example Ratios Formula MeasuresProfit margin Net profit

SalesMeasures percentage of each sales taka remaining after all expenses

Return of equity (ROE)

EarningsShareholders equity

Rate of return that owners receive on their investment.

Return on investment (ROI)

Net profitsTotal assets

Overall effectiveness to generate profits from total investment in assets.

1.9 Limitations1.9 Limitations

To review the financial standing of any company it requires several types of data, different types of analysis. In this report to full fill the course requirement we have just covered the analysis of the financial statement of Rangpur Foundry Ltd. While analyzing of the financial statement of Rangpur Foundry Ltd only the technique of Ratio analysis has been incorporated.

A reference point is needed. To be meaningful, most ratios must be compared to historical values of the same firm, the firm's forecasts, or ratios of similar firms. But unfortunately we haven’t collect ant reference.

Some ratios may not highly meaningful. They should be viewed as indicators, with several of them combined to paint a picture of the firm's situation.

Year-end values may not be representative. Certain account balances that are used to calculate ratios may increase or decrease at the end of the accounting period because of seasonal factors. Such changes may distort the value of the ratio. Average values should be used when they are available. Ratios are subject to the limitations of accounting methods. Different accounting choices may result in significantly different ratio values.

Organizational Profile

2.1 Introduction of the RFL

The Rangpur Foundry Ltd. is the largest domestic Cast Iron & Plastic goods-producing unit in Bangladesh. Its excellent quality-control standards have helped the Company acquire the ISO-9001:2000 certification. The product of the company is being marketed under the trademark of 'RFL'. This brand now has a steady market share. The company was set up in 1981 on 5 acres of land and went into commercial production in January 1983.

The Rangpur Foundry Limited (RFL) was the first undertaking of PRAN-RFL Group. This enterprise produces world-class Plastic goods and, as a testimony to this, stands the fact that the concern has been awarded the ISO-9001:2000 certification for sustained quality control effort.

The factory of this Company is located in the Northern part of Bangladesh at BSCIC Industrial Estate, Kellabond, Rangpur, under the Rajshahi Division. Northern part of Bangladesh is poor & labour intensive area. The product of this company is also labour intensive. So, they are enjoying the facility labour availability & also lower labour cost.

Board of Director

Managing DirectorMr. Ahsan Khan Chowdhury

DirectorsMaj Gen Amjad Khan ChowdhuryMrs. Sabiha AmjadLt Col Mahtabuddin AhmedMr. Shiban Kumar Na

2.2 RFL Information at a Glance:

Name of the Company Rangpur Foundry Ltd.Date of Company Journey 1981.Date of Commercially Production January, 1983

Logo

Organizational Structure TallHead Office 12, R.K. Mission Road, Dhaka-1203

Bangladesh.

Principal Factory BSCIC Industrial Estate, Kellabond, RangpurChairman Lt Col Mahtabuddin Ahmed (Retd) Managing Director Mr. Ahsan Khan Chowdhury Net Profit After Tax (2008) 17493000 Board of Directors 4Number of Production Units 3

Operating Profit (2007) 3,257 million

Raw Materials Used Cast Iron Products from Ship Scrap, Plastics Products from PP Resin and marketing thereof.

Initial Public Offering Number of Shareholder

Share percentage Sponsor/ Director-50, Govt.-0, Institute- 0.95, Foreign-0, Public- 49.05

2.3 Products of RFL

CI (Cast Iron)

1. Tube well2. Tube well spares3. Centrifugal pump4. Centrifugal pump spares5. Water pump ( imported from China)6. Gas stove (S/C & imported from China)7. Belcha/ shovel (S/C)8. Kodal/ Hoe head (imported from China)9. Bearing ( imported from China)10. Teflon Tape , Electric Motor, Capacitor etc( imported from China)

PVC (Polyvinyl Chloride)

1. PVC Pipe (1/2” ~ 20”)2. PVC Filter (1.5”~ 14”)3. PVC Fitting (Molded & Fabricated)4. HDPE Pipe (1/2”~ 8”)5. Threaded Pipe ( ½”~ 8”)6. Braided Hose7. Corrugated Hose8. Garden Hose

Plastics product group containing the following two types

1. Furniture group2. Household group

Furniture group contains the following product

1. Chair2. Table3. Baby chair4. Tool5. Rack6. Basket

Household group contains the following product

1. Kitchen wares2. Sanitary wares3. Table top wares

Building materials group contains the following product

1. PVC door 2. PVC sheet3. Garments Accessories group contains the following product4. Hangers5. Gum tape6. Mitsubishi products are containing the following7. Poly shopping bag8. Wind break net9. Cutleries

How to sell

Sales are performed by three ways

Market sales- performed through 26 zones under 10 regions & divided the products group as below:

1. CL & PVC group2. HW & M group3. Doors & Sheets group4. Furniture group5. Household-1 group6. Household-2 group

Field sales forces are containing 92 numbers of zonal & regional managers and 760 numbers of sales representatives. RFL has integrated distribution channel through out the country. In this respect it has fifteen distributor depots and around 5000 distributors all over the country.

Institutional sales: - performed through tender participation and personal persuasion of different government and non government institutional, real estates companies etc.

Export sales- perform through local L/C for domestic & overseas.

2.4 Objective of the RFL:

To achieve the desired goal, it has the intention to pursuit of excellence at all stages with a climate of continuous improvement. Eventually the Company emphasizes on the following objectives

To contribute for economic development of the country To provide the low cost product with high quality for the mess population of the

country

To help farmers by supplying agriculture equipment To provide the best after sales service to the customers To reach the products to every possible customers destination To expend the business through overseas market

2.5 Vision:

To be one of the best Privet manufacturing companies in Bangladesh in terms of efficiency of the employee, well use working capital management. Proper inventory & low cost product with high quality.

2.6 Mission:

RFL has been successful in trading business & established RFL Brand as a reliable quality product and service provider, the company well keep on increasing volume in trading business and secure greater market share.

2.7 Corporate Governance Guidelines and Code of Ethics

Rangpur Foundry Ltd. is an industrial concern engaged in production and marketing of Cast Iron & Plastics under rigid ethical standard. Our code of conduct approved by the board of directors, expresses fundamental principles that guide all the employees and shape the organizations business activities. It is corporate guiding principles, upholding the law, honoring trust, fairness objectivity, confidentiality, integrity and corporate and individual responsibility

2.8 Human Resource Management

Rangpur Foundry Ltd continued to implement appropriate human resource management policies and practical to motivate and develop its employees and also to ensure there optimum contribution towards the achievement of corporate goals. The company continues its policy of hiring the best people and implementing programs to develop and retain high quality human resources.

As a part of company human resources development program, a good number of employees were sent to different training programs both inside and outside the country which included both managerial development and technical modules.

2.9 Domicile, legal form and country of incorporation

Rangpur Foundry Ltd was incorporated in Bangladesh on third of March, 1981. As a private limited company Ltd by shares under the companies act, 1913. It is converted as public limited company in 1996 and it shares are listed in the Dhaka and Chittagong stock exchanges.

2.10 Principal activities and nature of operations

The nature and principal business activities of the company are manufacturing of Cast Iron Products from Ship Scrap, Plastics Products from PP Resin and marketing thereof.

2.11 UnitsThe company operates three units. The second & third unit has been operating commercially since 2007 & 2008.

2.12 Depreciation

Depreciation is charged on fixed assets on the straight line method at varying rates considering the useful lives of the assets. No depreciation is charged on land & land development. No depreciation has been charged on additions and disposals of the fixed assets during the year under review.

The rates of depreciation on each class are as follows:

Particulars of assets Annual rate of depreciationBuilding and other construction 10%Plant & Machinery 20%Furniture & Fixtures 10%Office Equipment 25%Telephone Installation 20%Motor Vehicle 20%Sundry Assets 33%

2.13 Inventories

Inventories comprise of raw materials, packing materials finished goods and store & spares. They are stated at the lower of cost and realizable value in accordance with BAS- 2 “Inventories” after making due allowances for any obsolete or slow moving items. The costs of inventories are assigned by using weighted average cost formula. Net realizable value is determined after deducting the estimated cost of completion and/or cost to be incurred for effecting the sale from sales price.

2.14 Taxation

The company enjoyed Tax holiday for 7 (seven) years with effect from first July, 2001. The company is a “Publicly Traded Company” as per Income Tax Ordinance and the company provided tax holiday reserve as per section 46A(2)(C) of the Income Tax Ordinance 1984 for Unit-11.

2.15 Financial Results and Appropriations2.15 Financial Results and Appropriations (Taka in `000)YearYear 31.12.200831.12.2008 31.12.200731.12.2007Net profit After TaxNet profit After Tax 20,71020,710 20,53720,537Tax Holiday ReserveTax Holiday Reserve 3,2163,216 6,9906,990Net Profit After TaxNet Profit After Tax Holiday ReserveHoliday Reserve

17,49317,493 14,06414,064

Prior Year AdjustmentPrior Year Adjustment -- 517517Profit Available ForProfit Available For Appropriation Appropriation

17,49317,493 13,54713,547

Proposed DividendProposed Dividend 18,00018,000 16,00016,0002.16 Address of registered office and principles place of businessThe registered office is at Property Heights, 12, R.K. Mission Road, Dhaka-1203. The factory is situated at BSCIC Industrial Estate, Kellabond, Rangpur

Financial Strength AnalysisFinancial Strength Analysis

3.1 Financial DataBalance Sheet

Year 2003 2004 2005 2006 2007 2008

Fixed Asset 1,371,325,646 1,387,753,844 1,497,115,518 1,427,560,032 1,397,087,008 1,378,737,392

Receivables 155,373,067 226,096,928 148,920,859 214,205,438 272,848,466 255,117,098Inventory 730,762,998 863,547,351 750,976,338 578,848,917 727,569,478 554,073,661Current Asset 1,018,622,921 1,253,123,650 1,003,252,653 952,008,134 1,180,027,914 1,064,749,181

Total Asset 2,389,948,567 2,640,877,494 2,500,368,171 2,379,568,166 2,577,114,922 2,443,486,573

Current Liabilities 990,863,219 1,229,932,887 952,991,742 943,392,659 1,188,086,536 1,128,318,964

Long Term Debts 839,901,875 821,657,681 932,123,746 812,529,812 718,168,213 594,207,439

Total Debt 1,830,765,094 2,051,590,568 1,885,115,488 1,755,922,471 1,906,254,749 1,722,526,403

Total Equity 559,183,473 589,286,926 615,252,683 623,645,695 670,860,173 720,960,170

Total E & L 2,389,948,567 2,640,877,494 2,500,368,171 2,379,568,166 2,577,114,922 2,443,486,573

Table 1- Simplified balance sheet of Rangpur Foundry Ltd.

Income Statements

Year 2003 2004 2005 2006 2007 2008

Sales 2,816,088,319 2,528,410,255 2,080,001,886 1,939,520,713 2,954,896,139 3,367,396,868

COGS 2,392,133,075 2,195,101,873 1,847,194,360 1,724,674,491 2,705,960,316 3,075,067,567Interest Expence 129,894,936 149,780,053 162,297,008 133,986,008 118,067,797 120,127,996Leage Payment - - 277,860 277,860 436,260 994,725Other 104,427,027 96,963,008 44,488,719 46,548,452 55,761,151 65,837,676Total Expenses 2,626,455,038 2,441,844,934 2,053,980,087 1,905,208,951 2,879,789,264 3,261,033,239

EBIT 189,633,281 86,565,321 26,021,799 34,311,762 75,106,875 106,363,629Tax - - - - - 1,266,922 Net Profit 189,633,281 86,565,321 26,021,799 34,311,762 75,106,875 105,096,707

Table 2- Simplified Income Statement of Rangpur Foundry Ltd.

Year 2003 2004 2005 2006 2007 2008

Fixed Asset 57.38% 52.55% 59.88% 59.99% 54.21% 56.43%

Receivables 6.50% 8.56% 5.96% 9.00% 10.59% 10.44%Inventory 30.58% 32.70% 30.03% 24.33% 28.23% 22.68%Current Asset 42.62% 47.45% 40.12% 40.01% 45.79% 43.57%

Total Asset 100% 100% 100% 100% 100% 100%

Current Liabilities

41.46% 46.57% 38.11% 39.65% 46.10% 46.18%

Long Term Debts

35.14% 31.11% 37.28% 34.15% 27.87% 24.32%

Total Debt 76.60% 77.69% 75.39% 73.79% 73.97% 70.49%

Total Equity 23.40% 22.31% 24.61% 26.21% 26.03% 29.51%

Total E & L 100% 100% 100% 100% 100% 100%

Table 3- Common Size Balance Sheet of Rangpur Foundry Ltd.

Year 2003 2004 2005 2006 2007 2008

Sales 100% 100% 100% 100% 100% 100%

COGS 84.95% 86.82% 88.81% 88.92% 91.58% 91.32%Interest Expenses 4.61% 5.92% 7.80% 6.91% 4.00% 3.57%Lesage Payment 0.00% 0.00% 0.01% 0.01% 0.01% 0.03%Other 3.71% 3.83% 2.14% 2.40% 1.89% 1.96%Total Expenses 93.27% 96.58% 98.75% 98.23% 97.46% 96.84%

EBIT 6.73% 3.42% 1.25% 1.77% 2.54% 3.16%Tax 0.00% 0.00% 0.00% 0.00% 0.00% 0.04%Net Profit 6.73% 3.42% 1.25% 1.77% 2.54% 3.12%

Table 4- Common Size Income Statement of Rangpur Foundry Ltd.

3.2 Liquidity Ratios

Year 2003 2004 2005 2006 2007 2008

Current Asset 1018622921 1253123650 1003252653 952008134 1180027914 1064749181

Current Liabilities

990863219 1229932887 952991742 943392659 1188086536 1128318964

Inventory 730762998 863547351 750976338 578848917 727569478 554073661Current Ratio 1.03 1.02 1.05 1.01 0.99 0.94

Quick Ratio 0.29 0.32 0.26 0.40 0.38 0.45

From the above chart we can see that current ratio is slightly decreasing over the last six years but quick ratio shows opposite trend. That indicates that company is gaining more control over the inventory management, but in both cases company’s current assets does not meet current obligations.

3.3 Asset Management Ratios

Year 2003 2004 2005 2006 2007 2008Sales 2816088319 2528410255 2080001886 1939520713 2954896139 336739686

8Inventory 730762998 863547351 750976338 578848917 727569478 554073661Inventory Turnover

3.85 2.93 2.77 3.35 4.06 6.08

Up to the year 2005 inventory turnover is decreasing but after word sharp increasing trend is observed in above chart. Now its inventory turnover is much better that start of the observed period because of increasing sales as well as the decreasing inventory.

3.4 DSO Analysis

Year 2003 2004 2005 2006 2007 2008Sales 2816088319 2528410255 2080001886 1939520713 2954896139 3367396868Receivables 155373067 226096928 148920859 214205438 272848466 255117098DSO 19.86 32.19 25.77 39.76 33.24 27.27

There is an ups and downs trend is observed in average collection period. So we can see that when ever there is an increase in DSO, company gave more concentration to improve credit or collection policies. Presently collection period decreasing, but it is even now above the earlier year 2003.

3.5 Fixed & Total Assets Turnover

Year 2003 2004 2005 2006 2007 2008

Sales 2816088319 2528410255 2080001886 1939520713 2954896139 3367396868

Fixed Asset 1371325646 1387753844 1497115518 1427560032 1397087008 1378737392

Total Asset 2389948567 2640877494 2500368171 2379568166 2577114922 2443486573

Fixed Asset Turnover

2.05 1.82 1.39 1.36 2.12 2.44

Total Asset Turnover

1.18 0.96 0.83 0.82 1.15 1.38

Up to year 2003-2006, company’s sales are decreasing but in 2007 there is dramatic change in sales figure and it is continuing to increasing. As a result, both fixed asset and total asset turnover is decreasing up to 2006 and afterward it is increasing sharply. Now both are, in the height position among the observation years.

3.6 Debt Management Ratios

Year 2003 2004 2005 2006 2007 2008Total Debt 1830765094 2051590568 1885115488 1755922471 1906254749 1722526403Total Asset 2389948567 2640877494 2500368171 2379568166 2577114922 2443486573Debt Ratio 76.60% 77.69% 75.39% 73.79% 73.97% 70.49%

We observed a slightly decreasing trend in the debt ratio, but it is even above 70 percent now. Long term debt is decreasing over the time but non-long term debt is increasing as sales increasing. So, we can say company needs more working capital by its own in order to reduce debt dependency

3.7 Times interest earned

Fixed and Total Asset Turnover

0.00

0.50

1.00

1.50

2.00

2.50

3.00

2003 2004 2005 2006 2007 2008

Year

x Ti

mes

.

Fixed Asset Turnover

Total Asset Turnover

Year 2003 2004 2005 2006 2007 2008EBIT 189633281 86565321 26021799 34311762 75106875 106363629Interest Expenses 129894936 149780053 162297008 133986008 118067797 120127996TIE 1.46 0.58 0.16 0.26 0.64 0.89

Up to year 2003-2005 the interest amounts are increasing on the other hand EBIT decreasing. In year 2005 the TIE was worst. Afterworld the position is getting improved but it is less than earlier year 2003.

3.8 Market Value Ratios Year 2003 2004 2005 2006 2007 2008

EPS 84 38 12 15.25 33.38 46.72

VBS 100 100 100 100 100 100

MPS 310 279.25 347.75 246 276.75

Price Earning Ratio 8.16 23.27 22.80 7.37 5.92

Market/book 3.10 2.79 3.48 2.46 2.77

There is a dramatic decrease in EPS 2003 from 2005 afterward it increasing steadily. On other hand market prices over the years are. So, we see high P/E ratio in year 2005 and 2006. On the other hand, M/B ratio shows very little fluctuation.

3.9 Profitability Ratios

Year 2003 2004 2005 2006 2007 2008

Net Profit 189633281 86565321 26021799 34311762 75106875 105096707

Sales 2816088319 2528410255 2080001886 1939520713 2954896139 3367396868

Profit Margin 6.73% 3.42% 1.25% 1.77% 2.54% 3.12%

The profit margin is sharply decreasing up to year 2005 then it starts increasing steadily. The sales are decreasing up to 2005, on the other hand relative cost of good sold in creasing over the year.

3.10 ROA & ROE

Year 2003 2004 2005 2006 2007 2008

Total Asset 2389948567 2640877494 2500368171 2379568166 2577114922 2443486573

Total Equity

559183473 589286926 615252683 623645695 670860173 720960170

Net Profit 189633281 86565321 26021799 34311762 75106875 105096707

ROA 7.93% 3.28% 1.04% 1.44% 2.91% 4.30%

ROE 33.91% 14.69% 4.23% 5.50% 11.20% 14.58%

Total asset is not varied widely over the years. The equity is increasing steadily but profit varied widely, it is decreasing up to year 2005 then it starts increasing. As a result we see both ROA & ROE decreasing up to year 2005, afterward it starts increasing but both are bellow earlier year 2003.

3.11 DuPont Analysis

Year Profit Margin TATO EM ROE2003 6.73% 1.18 4.27 33.91%

2004 3.42% 0.96 4.48 14.69%

2005 1.25% 0.83 4.06 4.23%

2006 1.77% 0.82 3.82 5.50%

2007 2.54% 1.15 3.84 11.20%

2008 3.12% 1.38 3.39 14.58%

From the chart we see that the company has had the best performance record for utilization of its assets.

What’s worrisome is the fact that the company has seen a significant decline in its profit margins up to years 2005. Thus, it has gone from being a company with the highest ROE to one that has the lowest ROE. If we see the percentage income statement, cost of gods sold is increasing over the years. Other expenses are some how in controlled. However, the company still has got plenty of potential for improving its performance by laying an emphasis on increasing profits and generating more cash flows to fund its assets internally. Fortunately, the profit margin already starts increasing steadily from year 2007.

The company shows nearly steady performance in debt management. But still it is not in so good position. However, it tries to reduce its financial leverage by reducing the reliance on debt to fund its assets.

4.1 Findings4.1 Findings

Based on the different findings and the ratio analysis, the summary of the strengths and weaknesses, possible reasons and associate improvement suggestions are given below incorporating the following key areas:

4.2 Liquidity position

Current Liquidity position of RFL. is not so good. It can not even meet its current obligations. So, company may fall in financial difficulties if proper action is not taken. However, its position is increasing gradually.

As short-term creditors prefer a high current ratio since it reduces their risk. So we suggest for improving more and company may be able to raise its liquidity position by:

Paying some debts.

Increasing current assets from loans or other borrowings with a maturity of more than one year.

Converting non-current assets into current assets. Increasing current assets from new equity contributions. Putting profits back into the business

4.3 Assets management profile

From the analysis of asset turnover ratio it has been found that company’s Fixed Asset Turnover ratio and Total Asset Turnover ratio is raising during the last three years. This assumes that company is using their assets in proper manner and also ensuring the ability to meet the supply of market demand with their existing assets.

On the other hand we see, the credit policy is not holding its performance over the yeas. However, currently the position is getting much better. The company should more concentrate on it. 4.4 Debt management practices

Presently (2008) RFL. Depends on 70% of debt. It was about 76% in 2003. From common size income statement we can see that long term debt is decreasing over the time but non-long term debt is increasing as sales increasing. So we can say the company is at high risk. Higher debt makes interest expense high as a result profit margin become lower. So we have seen that the company’s EBIT even doesn’t meet it interest expenses for last few year.

So, company need to reduce its debt ratio. It must concentrate on short term debt management.

4.5 Profitability

During the years 2004-2005, Bangladesh economic was in a convalescent phase from global and internal shocks. While the outcome and impact of Iraq war left the world economic including Bangladesh in a state of uncertainty.

Beside, many foreign and local company invested in manufacturing sectors as they seen a profitable performance of existing company. As a result manufacturing market was oversupplied and price had fallen due to stiff competition. On the other hand, the price of row material was increasing sharply. Many manufacturing company did not even survive this situation

They clearly observed the effect of above situations on profit margin. Fortunately, the company overcomes the shock very nicely and now it is doing very good.As manufacturing industry is in highly competitive market, it is not possible to gain profit from increasing price. The company must achieve efficiency in other areas like debt management, credit policy, marketing and promotions, and production process.

4.6 Market Value

P/E ratios are higher for firms with high growth prospective, but they lower for riskier firms. Early high EPS cause the share price high in following year but poorer business year’s

performance makes EPS tremendously low. As a result we see some abnormal value in 2003 and 2004.

The company is regarded as being somewhat riskier. From our analysis its debt management ratios, we know RFL. has risk associated with leverage. The stock market position is not so good and improvement is very less. The company must concentrate on future growth and reduce its risk

4.7 SWOT Analysis

4.7.1 Strength:

It has well reputation in the manufacturing market. Not engaged in unfair business practice. Concentrated market. Well serve the market demand Officers are highly educated. All the employee are so expert Executives are highly qualified and experienced. Company has many attractive high quality products. Well-furnished and Air-conditioned all the corporate office. Company all production house are highly structure. Efficient management practice in the Company. Well communication Top to Bottom. Quality based manufacturing company.

4.7.2 Weakness:

Company Current Liquidity position not good. Company Growth not so first. Company Production house to corporate house management communication gap.

4.7.3 Opportunities:

To increase their sales company creates a theme. Dhaka, Chittagong, and Rajshahi they will set up three workshops. They will create new idea in plastic product.

4.7.4 Threat:

There are many competitors in the market. Competitors have more first.Govt. imposes tax and VAT on profit

5.1 Conclusion5.1 Conclusion

In the year 2004, a lots of foreign and local company invested in manufacturing sectors as they seen a profitable performance of existing company. As a result manufacturing market was oversupplied and price had fallen due to stiff competition. Situation was more critical in the following year. On the other hand, Bangladesh economic was in a convalescent phase from global and internal shocks. And, constantly increment of the price of row material made the situation worst. So, we have seen bad performances in those years.

In spite of above-mentioned adverse situations, RFL had successfully overcome the challenges. By analyzing of financial statement it has been found that the company’s present performance is pretty good. Its financial strength is showing positive response for the investors as its PM, ROE, TATO, debt ratio etc are improving. But it needs to concentrate debt management especially on current debt.

5.2 Recommendation

After a complete analysis and implementation of the RFL performance appraisal some facts and recommendations can be taken into account for a relatively meaning full and precise application of the RFL performance development

There should development their own software for RFL. For this purpose the management should develop own department of IT at a level.

Human resource development techniques should implement consistency. For such purpose the number of workshops and seminars should held in a year.

RFL needs to increase the efficiency of Consumer Contact in a more planned way. In the weak belts in respect of less volume share RFL can increase the Market Share by improving the Consumer Contact with the help of Competent Workforce.

RFL needs more improvement in Merchandising Maintenance System. As a big Production house, RFL is well used in the Rural Areas in Bangladesh, which

should be thanked full. Salesmen are the earning hand of any Organization. But the %age of the

commissions of Salesmen is less.

5.3 Bibliography

Books

Jeffrey Jaffe -----Corporate Finance 8th edition Frederick C.Scherr--- Modern Working Capital Management , Text & Case 9th edition

Matz Usry ---- Cost Accounting Planning and Control, 18th edition Jeff Madura--- Financial Markets and Institution 8th edition Glyn Holton--- Financial Risk Management 15th Edition

Report:

Rangpur Foundry Ltd.: Annual Report-2003, 2004, 2005, 2006, 2007, 2008.

Websites:

RFL Official Website. Retrived on 20-03-10, www.rflbd.com Search engine: Retrived on 20-11-08, www.gogle.com, www.orbit.com,

www.msn.com