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“RATIO ANALYSIS OF Industrial Promotional and
Development Company of Bangladesh (IPDC)”.
A Study To Compare Performance Through Financial Data
Course: Business FinanceCourse Code: FIN 201Section: 2
Submitted to:
Farzana HudaSenior LecturerDepartment of Business Administration East West University
Submitted by:
Md. Foysal Kabir Id: 2009-2-10-074
Nahid Hossain Id: 2010-2-10-233
Md. Nasir Uddin Id: 2010-2-10-068
Abu Bakar Siddique Id: 2011-2-13-039
Date of submission: December 15, 2013
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LETTER OF TRANSMITTAL
15 December 2013
Farzana Huda
Senior Lecturer
Department of Business Administration
East West University
Subject: Submission of assignment on ratio analysis of financial company.
Dear Madam:
We are honored to submit this Assignment on ratio analysis of financial company (IPDC) as you have authorized us to in this semester. We are very pleased to prepare this assignment under your guidance since it gave us the opportunity to know the process how we can do Financial ratio analysis. The congenial atmosphere, the information assistance, feedback on the topic and to improve this assignment, we are so grateful to you.
We tried our level best to accumulate the information for you as comprehensive as possible. We will be obliged to provide further clarification on this report whenever necessary.
Sincerely Yours,
Name ID. Signature
Md. Foysal Kabir 2009-2-10-074
Nahid Hossain 2010-2-10-233
Md. Nasir Uddin 2010-2-10-068
Abu Bakar Siddique 2011-2-13-039
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ACKNOWLEDGEMENT
First and foremost we would like to express our gratitude and indebtedness to our honorable
faculty Farzana Huda, Department of Business administration, East West University. We would
like to thank our madam for providing full assistance and detailed outline about how to proceed
with data collection and writing procedure. With her inexhaustible guidance, valuable advice,
continuous inspiration, constructive criticism and generosity she helped us to carry out this report
successfully
We also would like to some senior student for their outstanding support to prepare this
assignment. We would further like to thank all the people who are giving us full support all the
time. At this stage, we must show our gratitude to our senior student of our university, who
significantly assisted us.
Finally, we would like to thank to all group members that directly or indirectly helped us to
provide and accumulate all the necessary information for the accomplishment of this assignment.
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TABLE OF CONTENTS
Sequence Number Topic Name
Page Number
Executive Summary 05
Chapter 1.0 : INTRODUCTION
1.1 Origin of The study
1.2 Objective of The Study
1.3 Methodology
1.4 Limitations
06
06
06
06
07
Chapter 2.0 : Company Overview 08
2.1 Shareholding Structure
2.2 Vision
2.3 Mission
2.4 Objectives
2.5 Core values
09
09
10
10
11
3. Chapter 3.0 : Presentation of Ratio Analysis
4. Chapter 4.0: Findings and Conclusion
5. Chapter 5.0: References
13-20
21
22
5
EXECUTIVE SUMMARY
Our assignment topic has been choosing a financial company which is Industrial Promotional
and Development Company of Bangladesh. Here we are going to do ratio analysis of this
company.
Industrial Promotional and Development (IPDC) established in 28 November 1981. Ratio
analysis is the most popular trend to evaluate a financial company’s performance over years with
another year. In our report we had to study these company’s financial statements for the last five
years then had to analyze and give significant comments regarding the changes in the financial
position. Analysis and interpretation of these financial statements through ratio analysis has now
become an important technique for performance appraisal because the investors, financial
experts, management executives and the bankers are always rely on these ratios to make
important decisions. The management team of any bank, investor and the government agencies
always concern about liquidity ratios and adequacy ratios of a financial company which
interprets the efficiency of a company.
.
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CHAPTER 1.0: INTRODUCTION
1.1 Origin of the Study:
Assignment is a practical part of academic studies. This is a reflection of academic knowledge and practical work experience. Thus this assignment aims to reflect the professional view of a real world work environment.
Business Administration Department of East West University offers four years BBA program majoring in different related fields. This four years academic program is the building up of the theoretical knowledge. Knowledge in measuring ratio analysis of a financial company or any other company is must for any BBA student, especially who doing or going to do major in finance. This is a field of study that define various tools and techniques of ratio analysis to understand the present and past financial condition of a company.
Our esteem faculty given us the company name and complete a study that covers an assessment of indicators about the financial condition of that company..
1.2 Objective of the study:
This program was designed to accomplish two objectives. The objectives were identified closer interaction and exchange of views with the financial ratio analysis of the company.
Followings were the objectives of the study:
To know briefly about financial analysis of the company
To find out the financial level of the company
To identify the financial comparative analysis of different years.
1.3 Methodology:
This report is prepared mainly on the extensive use of secondary data available in annual reports. Based
on the data from the annual reports the overall assignment is prepared. The overall conceptual and
theoretical framework has been explained as well as the how the data are analyzed is explained below:
Data Sources
7
The “Primary sources”are absent in this case, as because Ratio Analysis is conducted on
the basis of the analysis of data of the Financial company concentrating the period of
2008-2012. Thus I rely on the annual reports of the company, which is the Secondary
source of Data Collection.
The “secondary Sources”of data and the information are as follows:
1. Annual Report of Industrial Promotional and Development Company from 2008 to 2012.
2. Google
1.4 Limitations of the study:
The time constraint confined this study mostly on the data collected in Dhaka zone. Moreover, it
was not possible to get all required internal information of the company as these are treated as
confidential to the company.
So, they have very little time to talk with us. We have few limitations. But we were quite
successful to collect our main information. So the result was hopefully satisfactory.
8
CHAPTER 2.0 COMPANY OVERVIEW
Industrial Promotional and Development Company of Bangladesh IPDC was established by a
distinguished multilateral team of shareholders in 1981 as the first private sector financial
institution (Bank or non-Bank) in Bangladesh. The founding shareholders were:
The Government of the Peoples Republic of Bangladesh (GOB)
The Aga Khan Fund for Economic Development (AKFED),Switzerland
International Finance Corporation (IFC) an affiliate of the World Bank
German Investment and Development Company (DEG), Germany
Commonwealth Development Corporation (CDC) United Kingdom
In early 2004, AKFED, as part of its strategy to strengthen its presence in the financial sector of this region, acquired 70% stake in IPDC by purchasing the shares from IFC, CDC and DEG.
In 2006, the shareholding structure was again changed by issuance of public shares. However, AKFED maintains the management control of the company holding 51% of the shares . IPDC Board of Directors has eleven members, GOB 2, AKFED 6, Independent 2, Managing Director (Ex-officio) 1.
2.1 Shareholding Structure
9
Share Capital Structure as of July 02, 2012 Authorized Tk. 4,000 millionIssued, Subscribed & Paid Up Tk. 1,043 million
Shareholder No. of shares Paid up Capital Percentage
Government of the Peoples Republic of Bangladesh (GOB) 22,828,971 228,289,710 21.88%
Aga Khan Fund for Economic Development (AKFED) 53,267,467 532,674,670 51.05%
Public 28,242,060 282,240,600 27.07%Directors & Independent Director 737 7,370 0.00%
Total 104,339,235 1,043,392,350 100%
Aga Khan Fund for Economic Development (AKFED) In early 2004, AKFED as part of its strategy to strengthen its presence in the financial sector of
this region acquired 70% stake in IPDC by purchasing the shares from IFC, CDC and DEG.
After being public, AKFED maintains management control of the company by holding 51%
shares.
The Aga Khan Fund for Economic Development S.A. (AKFED), incorporated in Switzerland, is
an international development agency which promotes entrepreneurship in private sector in
specific regions of the developing world. AKFED promotes private sector initiative and
entrepreneurship through equity investment in partnerships with multilateral agencies,
international investors, local development institutions and individuals. AKFED operates in five
broad sectors: industry and infrastructure, tourism development, financial services, media and
aviation.
2.2 Vision
To be the most respected and innovative financial institution of the country.
10
2.3 Mission To be the brand of quality and integrity for delivering innovative and tailored financial solutions to a diverse client base.
2.4 Objectives To ensure maximum return on investment
Profitability is the key to achieving superior returns, building our capital, and motivating and
retaining our best people.
To ensure steady sustainable growth in business
Our increasing corporate profits since inception has been manifestation of our steady growth.
Amidst a competitive environment, our goal is to take the organization forward with excellence
in all our operations. We shall harness and use our distinctive competencies to ensure a long term
competitive advantage.
To improve the quality of services
Our strength is not in the volume but in the quality of services that we provide. Our clients'
interests always come first. We relentlessly strive to anticipate the changing needs of our clients
and to develop better solutions to those needs. Our experience tells that if we serve our clients to
the best of our ability, our own success follows.
To create innovative product and services
Creativeness and imagination is encouraged in everything we undertake. We pride ourselves on
having pioneered many products and services that have become standard in the industry.
To maintain highest level of ethical standard
We are dedicated to full compliance to the spirit of laws, rules and ethical principles that govern
us. Our continued success depends upon unwavering adherence to this standard.
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2.5 Core Values We address to client needs promptly, impartially and with utmost importance.
We take great pride in our dedicated teams of staff members and will continue to develop their
potential and skills at all levels within our organization by rewarding outstanding performance
and promoting from within to develop a climate of high expectation and achievement.
We remain quality-minded and devoted to uphold our corporate culture.
We will retain our position of leadership in this field through our commitment to quality,
compliances, services and values.
We will continue personal and corporate involvement in activities benefiting the society and
nation.
We uphold the values of the communities we are privileged to serve by honoring their traditions
and preserving the environment.
We pledge to remain alert to economic changes which affect our businesses, and to respond to
ever-changing market demands.
We will continue to confront all challenges through planning, balanced diversification and
orderly growth.
We take our responsibility towards our shareholders very seriously and are committed to be a
model for others to follow.
Role of IPDC in Financing
IPDC specializes in project financing and provides innovative investment solutions. This
includes investing in projects that add value and contribute to the country's overall economic
development. It invests through equity participation, term lending and lease financing. IPDC has
played pivotal role in almost all the industrial sectors. It has also special focus in infrastructure
and social sector projects.
IPDC has also been providing innovative investment solutions and project advisory services to
its clients in industrial and social sectors like education and health care.IPDC makes investments
in order to achieve a number of objectives:
Employment and income generation
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Revenue generation for the government
Production capacity addition
Earned or saved foreign exchange
Linkage and business development
Skills and technology transfer
Offering environmental risk assessment and its management
The positive image IPDC has created has been established through more than two decades of
consistent commitment towards excellence in providing financial services. With a conscious
effort to anticipate influences in the domestic and foreign investment, IPDC has the ability to
adapt to the changing needs of time.
IPDC envisages continuing and expanding its role as catalyst in inspiring, strengthening and
enhancing the financial sector development of the country. IPDC has pioneered the concept of
lease financing in Bangladesh. It was one of the sponsor shareholders of Industrial Development
Leasing Company of Bangladesh Limited (IDLC). Another IPDC initiative has been developing
the concept of house mortgage financing in the country. IPDC was also promoter shareholder of
National Housing and Finance Company Ltd (NHFL). IPDC has been credited with pioneering
subscription of Cumulative Redeemable Preference Shares and issuance of Zero Coupon Bond
through asset backed securitization as an alternate means of finance.
13
CHAPTER 3.0 PRESENTATION OF RATIO ANALYSIS
. Step # 01: Ratio Title and Formula.
Liquidity Ratios
Liquidity ratios measure the bank ability to meet its short-term obligations. Banks face liquidity
problem due to excess withdrawal from current and saving account. There are several measures
of liquidity. Liquidity position of banks is measured by using four following ratios.
Current Asset Ratio (CAR) = Current asset /Total asset
Quick/ Acid Test Ratio = Current Assets-Inventory/ Current Liabilities
Asset management ratio:A set of ratios that measures how effectively a firm is managing its asset. There are several
measures of assets. Asset position of a financial company is measured by using four following
ratios.
Inventory turnover ratio = Cost of Goods Sold/Inventory
Days Sales Outstanding = Receivables/ Sales/360
Fixed Asset Turnover Ratio = Sales/ Net Fixed Asset
Presentation of Ratio Analysis
Step # 01 Ratio Title and Formula
Step # 02 Calculation (with numerator and denominator)
and Interpretations
14
Total Asset Turnover Ratio = Sales/ Total Asset
Debt Ratio
The ratio of total debt to total asset. It is a measure of the percentage of funds provided by
creditors. There are several measures of debt. Debt position of a financial company is
measured by using two following ratios.
Debt ratio = Total debt/ Total asset
Time interest earned ratio = EBIT/ Interest charged
Profitability Ratios
Profitability ratios measure the managerial efficiency. These ratios use margin analysis and show
the return on assets, deposits, investments, and equity. The higher profitability ratios are
indicator of better performance. The ratios are-
Net profit margin =Net income/ Sales
Return on Assets (ROA) = Net Income / Total Assets
Return on Equity Capital (ROE) = Net Income / Total Equity Capital
Earnings Per Share (EPS) = Net Income / Common Equity Shares Outstanding
Price earnings ratio = Market price per share/ Earnings per share
15
Step # 02: Calculation and Interpretation.
Ratio Analysis:Liquidity Ratio
Current Asset Ratio-
2008
(in times)
2009
(in times)
2010
(in times)
2011
(in times)
2012
(in times)
6.539 7.268 47.542 31.363 62.511
Table # 01: Liquidity Ratio.
This ratio shows the relationship of IPDC cash and other short term assets to its current liabilities. Here this ratio is continuously increasing year to year for IPDC. So, it is a good indication in liquidity ratio. This means IPDC has more liquid asset in hand.
Acid Test Ratio-
Here acid test ratio will remain same as current asset ratio because in this there is no invento in this company.
Asset Management Ratio
Current Asset Ratio (CAR) = Current asset /Total asset
Quick/ Acid Test Ratio = Current Assets-Inventory/ Current
Liabilities
16
Inventory turnover ratio –
There is no inventory specifically given in the financial report of IPDC. So, we cannot calculate this ratio.
Days Sales Outstanding-
There are no A/C receivables specifically given in the financial report of IPDC. So, we cannot calculate this ratio.
Fixed Asset Turnover Ratio-
2008
(in times)
2009
(in times)
2010
(in times)
2011
(in times)
2012
(in times)
0.114 0.1066 0.099 0.119 0.134
Table # 02: Fixed Asset Turnover Ratio.
Fixed asset turnover measure how effectively the firm use its plant and equipment to help
generate sales. Although it is less than 1 but increasing year to year which is a good indication
far IPDC.
Total Asset Turnover Ratio-
Inventory turnover ratio = Cost of Goods Sold/Inventory
Days Sales Outstanding = Receivables/ Sales/360
Fixed Asset Turnover Ratio = Sales/ Net Fixed Asse
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2008
(in times)
2009
(in times)
2010
(in times)
2011
(in times)
2012
(in times)
0.097 0.086 0.072 0.082 0.111
Table # 03: Total Asset Turnover Ratio.
It measures the turnover of all of the firm’s assets. In case of IPDC it is more volatile. Because some years it increases and some years it decreases slightly.
Debt Management Ratio
Debt ratio-
2008
(%)
2009
(%)
2010
(%)
2011
(%)
2012
(%)
73.288 70.546 69.187 71.916 71.504
Table # 04: Debt Ratio.
It measures the percentage of the firm’s assets, financed by creditors. This condition of IPDC is not good. Because it is too high.
Time interest earned ratio = EBIT/ Interest charged-
Total Asset Turnover Ratio = Sales/ Total Asset
Debt ratio = Total debt/ Total asset
Time interest earned ratio = EBIT/ Interest charged
18
2008
(in times)
2009
(in times)
2010
(in times)
2011
(in times)
2012
(in times)
1.582 2.913 9.559 -17.61 2.822
Table # 05: Time Interest Earned Ratio.
It measures the extent to which earnings before interest and tax also called operating income can decline before the firm is unable to meet its annual interest cost. Increasing indication is god. But for IPDC it is not good, because it is too low for IPDC and sometime it’s negative.
Profitability Ratio
Net profit margin-
2008
(%)
2009
(%)
2010
(%)
2011
(%)
2012
(%)
16.44 20.30 28.56 20.14 16.25
Table # 06: Net Profit Margin.
It is the net result of a number policies and decision. The ratio examined thus far provides some
information about the way the firm is operating. It is good for IPDC.
Return on Assets (ROA)-
Net profit margin =Net income/ Sales
19
2008
(%)
2009
(%)
2010
(%)
2011
(%)
2012
(%)
1.599 1.766 2.069 1.651 1.807
Table # 07: Return on Asset.
It measures the ratio of net income to total asset, it provides an idea of the overall return on investment earn by the firm. For IPDC it is very low.
Return on Equity Capital (ROE)-
2008
(%)
2009
(%)
2010
(%)
2011
(%)
2012
(%)
5.982 5.998 6.715 5.881 6.343
Table # 08: Return on Equity Capital.
It measures the rate of return on common stockholder’s investment. This condition is moderate
for IPDC, and need to increase day by day.
Earnings Per Share (EPS)-
Return on Assets (ROA) = Net Income / Total Assets
Return on Equity Capital (ROE) = Net Income / Total Equity Capital
Earnings Per Share (EPS) = Net Income / Common Equity Shares Outstanding
20
2008
(Taka)
2009
(Taka)
2010
(Taka)
2011
(Taka)
2012
(Taka)
13.25 14.13 15.41 1.18 1.23
Table # 09: Earnings Per Share.
It is good for IPDC and increasing year to year. In 2011 and 2012 it is less than previous years because they split their in 2011 from 1 to 10.
Price earnings ratio-
2008
(in times)
2009
(in times)
2010
(in times)
2011
(in times)
2012
(in times)
18.37 16.66 18.82 16.95 15.79
Table # 10: Price Earning Ratio.
It shows how much investors are willing to pay per taka of reported profits. For IPDC it is not so bad, but less is good for a firm.
CHAPTER 4. FINDINGS AND CONCLUSION
Price earnings ratio = Market price per share/ Earnings per share
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The ratio analysis is done of IPDC. This is a big financial company although it faces many
difficulties to run its business. Because competition among the financial institutions is very high
in today’s world. From the ratio analysis we can say that IPDC’s fixed asset turnover and total
asset turnover are very low, debt ratio is very high which represent bad indication of the
company to its investors. In 2011 time interest earned ratio negative which pay a very bad impact
to the investors. Return on asset is very low. If IPDC wants to attract themselves to the investors
than they need to improve their performance in those sectors describe above. If they can improve
their performance on those ratios then we think the company will make more profit in future and
attract more investors to invest money in their company.
CHAPTER 5. REFERENCES
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1. http://www.ipdcbd.com
2. Google.com
3. Dhaka Stock Exchange
4. Essentials of Managerial Finance by Besley & F. Brigham