padma oil jamuna oil ratio analysis

Application of Transmittal

December20, 2010Mr. Oli Ahad ThakurAssistant ProfessorSchool of Business,Eastern University,Dhanmondi, Dhaka.

Subject: Letter of transmittal.

Dear Sir,Please find enclosed with this letter the report of “Padma Oil Ltd” and “Jamuna Oil Ltd” that you wanted as partial requirement for the course of “Corporate Finance, FIN- 465”. The name of my project is “Ratio Analysis."

I collected all the relevant information from the annual report 2005-2009, I go through from “Padma Oil Ltd” and “Jamuna Oil Ltd”.” I thing that is the report contains the information that you need to get an idea about the “Ratio Analysis”. If you need any clarification or any further information I would be happy to provide it to you.

Yours sincerely,Md. Mamunur Rashid.

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Acknowledgements

At first our thanks go to Mr. Oli Ahad Thakur, Course Instructor School of Business, Eastern University, Bangladesh For handing us this report which we found to be a rather interesting topic to work on. I am going to get help to many people in the context of preparing this report and some of the persons have been very helpful and cooperative with information and suggestions. In this regard I would like to thank Bangladesh Bank for providing information and I have worked hard to prepare this report. So by this way I could finish the report properly and on time.

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1.1 Origin of the Report

Corporate Finance is one of the courses that we are doing in this semester. Mr. Oli Ahad Thakur our course teacher has assigned us to do a report. The topic of the report was decided by our teacher.

1.2 Objective of the Report

The main objective of this report is to Ratio analysis and trend analysis. Beside that, this report would also give us a power to watch the over all organization by see their annual report.

1.3 Scope of the report

Bangladeshis Business man is more conscious about their business. So it is the most practical. After that I learn about financial situation of Jamuna oil ltd and Padma Oil ltd.

1.4 Limitation of the report

This study depends on the information, records, some materials and questionnaire of the Annual report. By this given information we analyze ratio. There were other limitations as well:

Time constraints Confidential topics could not be collected We are depending only annual report.

1.5 Sources of data

Information could be collected by the following ways:

1.5.1 Primary Sources

Primary data is collected by writing or solving the questions. And the data is collected from annual report of Padma oil ltd and Jamuna oil ltd.

1.5.2 Secondary Sources

Secondary information is collected from the internet site of Stock Exchange and profile.

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Company Profile of Padma Oil Company

CORPORATE HEADQUATERS:PADMA BHABAN, STRAND ROAD CHITTGONG – 4000,BANGLADESH

RESIDENT OFFICE: 6 PARIBAGH, DHAKA, BANGLADESH

MAIN INSTALLATION:GUPTAKHAL, PATENGA, CHITTAGONG, BANGLADESH

YEAR OF INCORPORATION:

27 APRIL 1965

BUSINESS LINE:PROCURING, STORAGE AND MARKETING OF PETROLEUM PRODUCTS,LUBRICANTS & GREASES,BITUMEN

LISTING STATUS: PUBLIC LIMITED COMPANY

STOCK EXCHANGE:DHAKA STOCK EXCHANGE, CHITTAGONG STOCK EXCHANGE

AUTHORIZED CAPITAL: 100 MILLION TAKA

PAID UP CAPITAL: 294 MILLION TAKA

NUMBER OF SHARES: 2,94,00,000

NUMBER OF SHAREHOLDERS:

5,577

NUMBER OF EMPLOYEES: 949

Company Profile of Jamuna Oil Company

Jamuna Oil Company Limited (JOCL) is a petroleum marketing company serving the nation for the last four decades. Originally the name of company was Pakistan National Oils Limited which was formed in the year 1964.

After our long cherished independence the company was renamed to Bangladesh National Oils Limited by an Ordinance of 1972. In the year of 1973 Bangladesh National Oils Limited was renamed to Jamuna Oil Company Limited and registered as a Private Limited Company on 12th May, 1975 under the companies act, 1913 (amended 1994).

It has been functioning as a subsidiary of Bangladesh Petroleum Corporation (BPC) since 1977. As per decision taken by Government & BPC, the company was converted into a Public Limited Company on 25th June, 2007.

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Ratio analysis:

Ratio analysis is the starting point in developing the information desired by the analyst. Ratio analysis provides only a single snapshot, the analysis being for one given point or period in time. In the ratio analysis it is possible to defined the company ratio with a standard one. Ratio analysis can be classified as follows:

A) Liquidity ratio

B) Asset management turnover ratio

C)Debt Management Ratio

D) Profitability ratio

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A)Liquidity ratio

Liquidity ratio measures the ability of the firm to meet its obligations. These ratios establish relation between cash and other current asset and current liabilities.

1. Current Ratio indicates the ability of a company to achieve its short-term obligations, where short-term obligations indicate those obligations that are due within a year or within the operating cycle. Current ratios are extent to which the assets that are expected to cash cover the claims of short-term creditors.

Current Ratio = Current Assets / Current Liabilities

2005 2006 2007 2008 2009 industryJamuna Oil 1.052286463 1.061239499 1.081484593 1.131180762 1.137304074 1.10

Padma oil 1.035946 1.029819 1.024618 1.036946 1.052626

0.96

0.98

1

1.02

1.04

1.06

1.08

1.1

1.12

1.14

1.16

2005 2006 2007 2008 2009 industry

Jamuna Oil

Padma oil

Based on this 2 company the graph shows that Jamuna oil is increasing its current ratio every year and in 2008 and 2009 it increase largely cause current asset is increase then its current liability. Here there current asset is increasing mainly their stock trade increase largely and Jamuna oil reduces their current liability then previous year by reducing their income tax and credit loan. On the other hand Padma oil current ratio is decreasing from 2005 to 2007, but it increase in 2008 and 2009. In 2007 the ratio is lowest then other year cause current liability is comparatively higher then current asset.

Comparatively the Padma oil and Jamuna oil’s current ratio shows that the position of Jamuna oil is better then Padma oil. Jamuna oil is more able to meet its short term obligation. Here industry average is 1.1, but Padma oil above in 2008and 2009. It shows that Jamuna oil has unused liquidate current asset that they don’t manage.

Recommendation: Here Padma oil is in danger position. If they stay in this situation they may loss their supplier and creditors. On the other hand Jamuna oil should manage their unused resources.

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2. Quick ratio is most important measure of liquidity than the current ratio. Because inventories which are the least liquid of the current assets from the ratio. It is essential for a company to realize its ability to pay the short-term obligation, without knowing on the sales of inventory because they are the assets on which losses are mostly in the event of liquidation.

Quick ratio = (Current assets - Inventory) / Current Liabilities

2005 2006 2007 2008 2009 IndustryJamuna Oil 0.32 0.64 0.49 0.70 0.60 .84Padma oil 0.792497 0.875784 0.829059 0.89995 0.846587

0

0.1

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0.6

0.7

0.8

0.9

1

2005 2006 2007 2008 2009 Industry

Jamuna Oil

Padma oil

Inventory are typically the lest liquide of a firms current asset. But here shown that in padma oil is better in their position. From 2005 to 2009 their quick ratio is around industry average. So their ability to payoff short term obligations without relaying on inventory is important. But Jamuna oil is below industry average. Inventory the major part of their current asset which less liquide. So their ability to pay short term obligation is in very bad situation. It may be sell inventory to meet short term debt.

Recommendation: Here Padma oil will manage their current asset and current liability and inventory like previous year, but Jamuna oil should manage their current asset, they also increase their other current asset rather than inventory.

B) Asset management turnover ratio

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Asset management ratios measure how effectively the firm is managing its assets. If the company have too many assets, their interest expenses will be too high and profit will be reduce. On the other hand if the asset is too low profitable sales may be lost. So having the proper level of each type of asset is important.

1. Inventory turnover ratioThe liquidity of the company’s register can be considered by this ratio. Its ratio indicates how many periods it is needed to twist inventory of sales on a standard.

Inventory turnover = Cost of goods sold / inventory average

2005 2006 2007 2008 2009 Industry

Jamuna oil 0.095142645 0.201320621 0.129294211 0.21740391 0.11533144

2.82Padma Oil 0.150333 0.234145 0.129162 0.231406 0.18641

0

0.5

1

1.5

2

2.5

3

2005 2006 2007 2008 2009 Industry

Jamuna oil

Padma Oil

Comparing this two company Padma oil is in better position than jamuna oil. Padma oil Ltd utilizes their inventory properly. It may be they use JIT( just in time) method for managing their inventory. In 2006 and 2008 padma oil properly manages their inventory then other year. But both of this company’s inventory turnover ratios are below industry average. This suggests that till now they holding too much inventory. Excess inventory is may be unproductive, and it represents low or zero rate of return.

Recommendation: Both of this two company should manage their inventory. But here industry average is high cause in fuel and power sector mainly include Desco, power grid etc. which are produce and supply electricity and there inventory is too low.

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2. Fixed assets turn over ratioFixed asset turn over ratio measures how effectively the firm uses its plant and equipment.

Fixed assets turn over ratio= sales/ Net fixed asset

2005 2006 2007 2008 2009 Industry

Jamuna oil 0.89 1.32 1.61 1.96 1.19

3Padma Oil 1.478415 1.618835 1.661825 2.492187 2.280758

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0.5

1

1.5

2

2.5

3

3.5

2005 2006 2007 2008 2009 Industry

Jamuna oil

Padma Oil

Here Padma oil and Jamuna oil manage their plant and equipment properly Till 2008. But in 2009 their Fixed asset turnover ratio reduce then previous year. In 2009 Jamuna oil’s ratio reduce cause their sales decrease largely. Cause in this year they don’t import and sale any LDO (Light diesel oil) and they sell less FO( Fuel Oil). But both of this two company stay below industry average. There is a problem exists that is all asset except cash and accounts receivable reflect the historical cost of the asset and inflation. If we compare with and old firm and a new firm so their ratio must be vary from company to company.

Recommendation: Here Padma oil is comparatively better position then Jamuna oil. So Jamuna Oil Company should proper use their fixed asset. If Jamuna oil don’t sell Previous fuel they should invest their unused fixed asset in other sector.

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3. Total asset turn over ratio: Total asset turn over ratio measures the turnover or utilization of all the firms’ assets.

Total asset turn over ratio= Sales/ Total asset

2005 2006 2007 2008 2009 IndustryJamuna Oil

6.14 7.59

6.80 7.98 5.20

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Padma oil 60.29242 69.22754 63.43646 59.25766 53.80873

Here comparatively Padma oil is used their Total asset then Jamuna oil. This graph shows that Jamuna oil mainly uses their fixed asset and their current asset is lower than Padma oil. Here Padma oil Use their asset properly. Padma oil has higher current asset then their fixed asset.

Recommendation: Here Jamuna oil should increase their current asset and utilize their Total asset properly.

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C) Debt Management Ratio

A firm uses debt financing or financial leverage, has important implication such as- raising funds through debt, creditors look to the equity, firm earn more on investment and pay interest and it is in favorable leverage.

Debt ratio: Debt ratio measures the percentage of total funds provided by creditors. It include both current liability and longterm debt.

Debt ratio= total liability/total assets

2005 2006 2007 2008 2009 IndustryJamuna Oil 0.115595922 0.11194456 0.114513279 0.152010247 0.1590312 .45Padma oil 0.942772 0.95048 0.961707 0.952684 0.935046

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0.4

0.6

0.8

1

1.2

2005 2006 2007 2008 2009 Industry

Jamuna Oil

Padma oil

Here Jamuna oil debt ratio is around 11% in 2005-2007. but in 2008and 2009 they increase their general reserve which increase their debt ratio from 11% to 15%. On the other hand Padma oil debt ratio is too high means they use more debt for their operational activity. It is risky for the organization. In this situation Padma oil fall in difficulty to borrow additional funds without raising more equity capita.Comparing with industry average Jamuna oil is lower than industry average and Padma oil is lower than industry average. It says that Investing in Padma oil is risk and investing in Jamuna oil is less profitable.

Recommendation: Here Padma oil should reduce this higher debt for reducing risky position. Jamuna oil should increase more financial leverage by increasing debt.

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D) Profitability Ratio

Profitability ratios go on to show the combined effect of liquidity, asset management and debt on operating results.

1. Profit Margin: This ratio measures income per Taka of sales.

Profit Margin = Net Income/ Sales

2005 2006 2007 2008 2009 IndustryJamuna Oil 0.909689561 26.30470301 46.00653256 61.9995226 77.6635858 55Padma oil 16.38013 20.62093 24.1767 28.52961 46.16931

0

10

20

30

40

50

60

70

80

90

2005 2006 2007 2008 2009 Industry

Jamuna Oil

Padma oil

In Jamuna Oil Company Ltd. And Padma oil Ltd Profit Margin has increased every year. It says that both of those company done better than previous year. But comparatively Profit earning ratio of Jamuna oil is better than Padma oil. Here Jamuna oil use more debt then Padma oil, but their ratio is comparatively high. Here it may happened that Jamuna oil reduce their operating cost. Here Jamuna oil also take higher return by using financial leverage. As an investor point of view Jamuna oil is in batter position than Padma oil. Here Comparing with industry average Jamuna oil is in better position. Padma oil can not reduce their costing as much they want.

Recommendation: Jamuna oil is perfect in their situation but they should reduce their Loan and debt. It occurs high interest cost. On the other hand Padma oil will manage their operational and other production cost.

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2. Basic Earning power ratio: This ratio shows the raw earning power of the firms assets, before the influence of taxes and leverage.

Basic Earning power ratio= EBIT/ Total Asset2005 2006 2007 2008 2009 Industry

Jamuna Oil 0.77 34.47344494 44.84557384 43.838937 33.6163531 45Padma oil 13.96993 19.41107 21.90966 24.94412 34.20349

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2005 2006 2007 2008 2009 Industry

Jamuna Oil

Padma oil

Here Jamuna oil BEP is too low in 2005 because they pay 59251279tk Interest to BPC. In 2006 and 2007 their earning power is good. In 2008 they keep more Participation & Welfare Funds so their Earning power is reduce slightly. In 2008 Jamuna oil kept 10524000 taka for dividend income but in 2009 they don’t have any dividend income.Padma oil’s earning power is increasing slightly every year. It shows that their earning power of their asset is utilize properly.Comparing with industry Jamuna oil is in good position in 2007 and 2008 but in 2009 they fall down cause of dividend income. Padma oil’s Earning power of their asset is poor than industry.

Recommendation : Jamuna oil should reduce dividend income and Padma oil should increase their use of financial leverage.

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3. Return on total asset: This ratio measures the return on total assets after interest and taxes.Return on total asset= Net Income/ Total asset


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2005 2006 2007 2008 2009 Industry

Jamuna Oil

Padma oil

Here Jamuna oil paid high interest to BPC in 2005 so their Net income was reduced and return on total asset was too low. In 2006, 2007, 2008 they manage their costing and increase their net income. In 2009 they pay high tax paid and there is no dividend income so it reduce the ratio than previous year.In Padma oil their performance is average from 2005to 2009 excluding 2007. In 2007 they pay high tax. If it is compared between Jamuna oil and Padma oil its is shown that Padma oil utilization of total assets is too low, average use of debt which cause its interest payment to be high and low profit margin on sales.Comparing with Industry Jamuna oil is in good position but Padma oil should utilize their asset management.

Recommendation: Although Jamuna oil get financial leverage facility from loan but they should look at the interest payment. Here Padma oil should not utilize their total asset properly and there is low profit margin on sales. So they reduce cost to increase profit.

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4. Price Earning: It shows that how many times earnings investors are willing to pay for the stock. Generally P/E ratios are higher for firms with high growth prospects but P/E are lower for riskier firms.

Price Earning= Market price per share/Earning per share.


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2005 2006 2007 2008 2009 Industry

Jamuna Oil

Padma oil

Here in Jamuna oil P/E ratio 87.71 shows that investors are paying 87.71 for taka 1 of Jamuna oils earning. It occurs that this year their EPS is too low. In 2006, 2007 it is too low because Their EPS is around their market price per share. In 2008 and 2009 their P/E ratio is better than previous year because their share price is relatively high.On the other hand Padma oils EPS is increasing every year but their market price is not increase in that way. So it goes in danger situation.But comparing with industry both of this company consist lower P/E ratio which said that both of this are in riskier situation.

Recommendation: Jamuna oil doesn’t pay any dividend till now. So both organizations can increase their market price per share by giving dividend. Otherwise they loose investors.

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Conclusion: Based of all ratio it is said that Jamuna oil is in profitable situation. But Jamuna oil should manage their unused resources. Most of the ratio is favorable in Jamuna oil. But this organization is in risky for using more debt. On the other hand Padma oil uses less debt in their organization. It is less risky but invest in Padma oil is less profitable. Padma oil should increase their current ratio other wise they loose their suppliers.

Mobile:01673996262Eastern University

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padma oil jamuna oil ratio analysis

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