Report on Performance of Financial Accounts

Origin

As a part of our academic requirement we have been assigned  to prepare a term paper for the course named “Financial Accounting” our course teacher Sadd M. Faisal. Lecturer of Financial Accounting Department of Business Administration.

Scope

Our course teacher gave us the discretion to choose our topic of the term paper regarding. Pharmaceutical Company. We have decided to work on financial analysis on Pharmaceutical Company named-PERFUME CHEMICAL INDUSTRIES LTD. We have also concentrated on the off-Balance Sheet and profit and loss account.

Objective

The objective of our report is to expose the real life experience of the Financial Accounting. We have concentrated particularly on a pharmaceutical Company named PCIL. Our motive is to know that how a pharmaceutical Company run their business in the world.

Methodology

We have prepared the report using the secondary data published in the Annual Report of PCIL. For performance Evaluation we have gone through Ratio Analysis regarding Internal Liquidity, Operating Efficiency, profitability and Cash Conversion Cycle. We have also concentrated on the Dupont and Extended Dupont Analysis of Return on Equity (ROE). To Analyze the financial behavior of PCIL we have shown the Financial position of the Company. our concentration period is 2000-2004.

Executive Summery

Perfume chemical Industries Limited chemical company of our country. In this term paper awe have applied different ratios for performance evaluation of PCIL.we have calculated various ration under 5 major categories, they are

  • Internal Liquidity Ratio
  • Operating Efficiency Ratio
  • Profitability Ratio
  • Cash Conversion  cycle
  • Return On Equity

Internal Liquidity Ratio includes current, cash & Quick Ratio and cash conversion cycle. Current and quick Ratio Shows an increasing trend but cash ratio has a declining trend. Cash conversion cycle shows an increasing trend  and becoming positive. Which shows the company is declining its accounts payable.

Total asset and Net fixed asset turnover and equity turnover comprise Operating Efficiency Ratio. All the ratios have increasing trend.

Profitability Ratio concentrates on Operating Profit, Net Profit and Gross Profit Margin. Net Profit and Operating Profit Margin have increasing trend after 2001 and Gross Profit Margin decrease after 2002.

Return on Equity Ratio includes Net Profit Margin, Total Assets Turnover and Financial Leverage. Their DU-PONT has increase 2002 and 2003. But other years position is low.

PCIL at  a Glance

Perfume Chemical Industries Ltd. The Pioneer of Chemical industry in Bangladesh The Company started its journey form 1972 by creating partnership and the partnership was converted into a private Limited Company in 1974. Later on, it was converted into a Public Limited Company in 1991 and offered it’s share to the public with the approval of the Securities And Exchange Commission in the month of January 1997. The shares of the company are listed both in the Dhaka Stock Exchange Limited and Chittagong Stock Exchange Limited. The Principal activities of the company throughout the year were manufacturing, processing, packing, stocking and deal in fine chemicals and manufacturing and marketing of quality cosmetics and toilet requisites.  The Financial statements have been prepared following consistently generally accepted accounting principles under the historical cost convention except for certain operating fixed assets which were revalued in 1994. Comparative information has been disclosed in respect of the year 1998 for all numerical information in the financial statements also the narrative and descriptive information when it is relevant to an understanding of the current years financial statements. Figures of the year 1998 have been reclassified whenever considered necessary to ensure comparability with the current period. The Financial statements have been prepared in compliance with the requirements of the Companies Act ‘1994, securities and Exchange Rules ‘1987 and other relevant local laws as applicable. The figures in the financial statements represent Bangladesh Taka. which have been rounded off to the nearest Taka except where indicated otherwise. Sales are recognized as and when delivery is made. Operating Fixed Assets are stated at cost or valuable less depreciation.

COMPANY PROFILE

Perfume Chemical Industries Limited is one of the Chemical Industry in our country. The Company started  from 1972.

THE BOARD OF DIRECTORS

Syed Ziad Rahman               Managing Director

Harun Al Rashid Chowdhury         Director Finance

Perwaizudin                          Director

Mahtabuddin                                    Director

Mrs. Shahina Ziad                            Director

Mrs. Shad Perwai                             Director

COMPANY  SECURITY

                                                 Salek Mohammad Nasir

REGISTERED OFFICE

                                                Corporate Head Office

                                                7 Agrabad, C/A, Chittagong-4100

                                                Share Liason Office

                                                60/D, Purana Paltan, Dhaka-1000

FACTORY

                                                BSCIC Industrial Estate

                                                Kulurghat, Chittagong

PRINCIPAL BANKERS

                                                United Commercial Bank Ltd.

                                                Standard Chartered Gindlays Bank

                                                National Bank  Ltd.

BUSINESS HOURS

9.00a.m. to 5:30p.m. (Saturday to Wednesday)

9.00a.m. to 2:00 p.m. (Thursday)

SHAREHOLDERS GROUP

Sponsor

General Public

Financial Institutions

Investment corporation of Bangladesh

IFIC Investor’s Account

NON-Resident Shareholder

CAPITAL

AUTHORIZED:

30,00,000 Ordinary Shares of Taka 100.00 each

ISSUED, SUBSCRIBED & PAID-UP :

9,20,000 Ordinary Shares of Taka 100.00 each

THE PRODUCT OF THE COMPANY

Manola Love 21 Talc

Manola Vanishing  Cream

Manola Fresh ness Cream

Manola Pricklyneche Talc

Liz Arden (Shampoo)

PERFORMANCE OF THE COMPANY

General conditions of business during the year under report did not improve up to the expectations of the management, business environment become more inhospitable to manufacturing industries. The year was a critical year for the company. Political unrest and other factors beyond the control of the company caused tremendous disruption in operation. The production hampered enormously due to frequent power shortage. Conditions on the market continued to be difficult particularly in view of intense competition with manufacturers selling inferior quality products, low quality spurious foreign products. The net sales of the company in the year is 82,704,291 as against 89,022,486 during the preceding year i.e. sales decreased by 7%. As the result, the company suffered a loss. With a view to overcome the unexpected situation, the Directors will endeavor to ensure steady growth in sales subject of course to favorable political, economic and other factors.

Performance Evaluation : Ratio Analysis-PCIL

2000-2004

Internal liquidity

Internal liquidity ratios indicate the ability of PCIL Company’s short term debt-paying ability. We have calculated different ratios to show the liquidity position of the company. They are:-

  • Current Ratio.
  • Quick Ratio.
  • Cash Ratio.
Internal Liquidity Ratio     
      
 

2000

2001

2002

2003

2004

Current Ratio

1.513145

1.563092

1.945669

3.49496

4.607833

Cash ratio

0.607764

0.591152

0.44231

0.087592

0.132078

Quick Ratio

0.900319

0.89801

0.907398

1.166268

1.566845

We can Realize from upper chart that  current Ratio increased quickly. Cash Ratio decrease from 2000 yet 2003.But next year increased. But Quick Ratio increase serially.

PCIL has an increasing

PCIL has an increasing trend in current ratio which shows that the over all liquidity position is quite good through out the observation period specially in 2002 and 2004. During the period Ratio is greater than past which  indicates that company has a  positive working capital. Cash Ratio is declining due to reducing cash an Receivables. Yet 2002 Quick Ratio constant but after 2002 it increased which indicates company’s cash and Receivables increased or liability decreased.

Internal Liquidity

(Cash Conversion Cycle)

Cash Conversion Cycle indicates the ability of PCIL to meet average collection period and average payment period. They are showing in chart-

      
Account Receivable Period

84.27428

108.0979

111.5516

120.7924

130.9369

Inventory Processing Period

162.8607

219.0123

231.7048

227.6465

240.0277

Account Payable Period

73.9936

101.7426

97.881

94.08

104.5784

      
      
 

2000

2001

2002

2003

2004

      
CCC

173.1414

225.3676

245.3754

254.3589

266.3862

By realizing the Cash Conversion Cycle chart. We can consider that it has increasing gradually.

This ratio includes average collection period and average payment period of PCIL. Average collection period of the company is increasing which indicates the slow receipt of account receivables. Graph shows that PCIL is declining its accounts payable. As a result the Cash Conversion Cycle is becoming positive.

Operating Efficiency Ratios

Operating Efficiency Ratios examine how the management uses its assets and capitals measured in terms of sales generated by various assets and capital categories. With a view to a having a measurement of operating efficiency of PCIL, we have used the following ratios.

  • Total Assets Turnover
  • Net Fixed Assets Turnover
  • Equity Turnover
OPERATING EFFICIENCY RATIOS     
 

2000

2001

2002

2003

2004

      
Total Asset Turnover

0.4595525

0.38058

0.436487

0.515631

0.523191

Net Fixed Asset Turnover

1.0360004

0.910726

1.005314

1.173397

1.34542

Equity Turnover

0.7044784

0.599911

0.620704

0.611891

0.589057

Total Assets Turnover decreased at 2001. But after 2001 it increases with running. Net Fixed Asset Turnover increase through out the observation period Specially in 2002 and 2003. Equity Turnover firstly decrease but after 2001 it increased and it comes batch 2001 position at 2004.

These three ratios indicate the effectiveness of  PCIL utilization of total and fixed  assets and equity. All ratios fall at 2001.After 2001 they have increasing trend. Although Equity Ratio position few bad 2004.Above all the company’s sells well over the assets.

Profitability Ratios 

Profitability Ratios indicate the ability of PCIL company’s ability to obtain debt and equity; financing. It also indicate the company’s liquidity position and the company’s ability to grow we have calculated different Ratios to show the management operating effectiveness of the company they are-

  • Net Profit Margin .
  • Operating Profit Margin.
  • Gross Profit Margin.

PROFITABILITY RATIOS

     
      
 

2000

2001

2002

2003

2004

Net Profit Margin

0.033004

0.001289

0.011499

0.011897

0.014145

Operating Profit Margin

0.030803

-0.01749

0.012028

0.015291

0.018109

Gross Profit Margin

0.229356

0.254217

0.251772

0.211287

0.209733

   We can realize profit margin position from the chart. Which fall 2001 and same case for operating profit margin. But both is developed after 2001. But gross profit margin increased yet 2002. After 2002 it decreased.

Untitled

PCIL has a decreasing trend in operating profit margin which become negative, its net profit margin is also decreasing. But gross profit margin is increasing at the same time after 2001 operating and net profit margin is increasing other hand gross profit margin constant yet 2003. So this year company’s sales increase after 2003 it decrease but operating and net profit margin has also constant. So, company’s sale decrease.

Return on equity (ROE)

Return on equity is an important indicator of performance evaluation. DU-PONT system refers to break down ROE into three components to get a better in sight. The components are-

  • Profit Margin
  • Total Assets Turnover
  • Financial Leverage
RETURN ON EQUITY (ROE)     
      
 

2000

2001

2002

2003

2004

Net Profit Margin

0.033004

0.001289

0.011499

0.011897

0.014145

Total Assets Turnover

0.459553

0.38058

0.436487

0.515631

0.523191

Financial Leverage

1.553297

9.179075

14.22045

11.86683

1.125893

DU-PONT

0.023559

0.0045

0.071375

0.072797

0.008332

      
      
 

2000

2001

2002

2003

2004

      
DU-PONT

0.023559

0.0045

0.071375

0.072797

0.008332

Through Dupont Analysis it is possible to know which factor is responsible for increase or decrease of ROF.

We can realize that Net Profit Margin and Total Asset Turnover decrease at 2001. But after 2001 its increase and financial leverage increase yet 2003 but 2004 it decreased from upper chart.

Net Profit Margin

From the graph we see that 2001 company Fall their Dupont, which reason is Net Profit Margin and Total Assets Turnover decreased. After 2001 It has declining which reason all the ratio is increased. But 2004 Dupont Fall for decreased of financial leverage. An decrease in Financial Leverage indicates that the company uses less debt than before which makes the institution build up.

Profit and Loss Account

 

2000

2001

2002

2003

2004

      

Sales-Net

93482570

78906900

81106264

79685726

76415390

Less-cost of Goods Sold

71987795

58847438

60685963

62849148

60388546

Gross profit

21440775

20059462

20420301

16836578

16026844

Less-charges

12021948

16427038

15960992

15380526

14610600

Administrative

5210894

6951127

6221187

6161717

5905278

Selling & Distribution

6811054

9475911

9739805

9218809

8705322

Trading profit

9418827

3632424

4459309

1456052

1416244

Less-Finical charges

6539287

5012349

3483733

237573

32409

Operating Profit

Before other income

2879540

-1379925

975576

1218479

1383835

Add-Other income

1867026

1536359

356734

298392

345562

Net profit before taxation

4746566

156434

1332310

1516871

1729397

Less Provision for taxation

1661298

54752

399693

568827

648524

      
Net Profit After Taxation

3085268

101682

932617

948044

1080873

Inappropriate

Profit Brought Forward

5628329

3193597

3295279

1467896

2415940

Profit available for appropriation

8713597

3295279

4227896

2415940

3496813

Appropriation     
Dividend

5520000

 

2760000

 

2760000

Dividend Distribution Tax    

276000

Inappropriate

Profit carried forward

3193597

3295279

1467896

2415940

460813

      

Ending Summary

PCIL is a Re-known pharmaceutical Company in the country. The Company face profit and loss account from 2000-2002 after 2002 they acquire capital work-in-progress. They also faced  cyclone at 2000.

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