Performance Evaluation of Qasem Drycells Limited
Subject: Management | Topics:

The analysis can be used to analyze the determinants of a firm’s reported earnings’ thereby replying to identify the potential strengths and weaknesses of the firm’s performance. The entire job helps us to have practical exposure with theoretical knowledge. In this paper’ the performance of Qasem Drycells Limited is thoroughly evaluated based on the information given in the annual reports of the firm.

EXECUTIVE SUMMARY

The object of financial analysis is an evaluation of the firm’s performance. Financial analysis can be used to analyze the determinants of a firm’s reported earnings’ thereby replying to identify the potential strengths and weaknesses of the firm’s performance. The entire job helps us to have practical exposure with theoretical knowledge.

In this paper’ the performance of ‘QASEM DRYCELLS LIMITED’ is thoroughly evaluated based on the information given in the annual reports of the firm.

As given in the first part of the report’ it has the ‘Corporate Review’ including the mission statement’ management apparatus’ the general information about the firm.

In the second part of the paper is presented the ‘Ratio Analysis’ that uses the financial statement in a unique manner to provide a different perspective about the firm.

The third part contains the summary of the financial report along with some recommendations.

A consolidated balance sheet and profit loss account of the three years’ 2000.2001.2002. is provided in the conclusive part.

Limitations of Financial Statement analysis

Financial analysis, particularly ratio analysis, is widely used by the firm’s managers, its creditors, and potential investors in it’s stock .it is  an important technique, and anyone wishing to have a complete understanding of managerial finance must be familiar with it .

Nevertheless, financial analysis has limitations and potential problems, including the following:

  1. Based as it is on accrual accounting data and historical costs, the current period’s figures may not be closely related to cash flows.
  1. Because of alternative accounting treatments, comparisons among firms may be difficult. Furthermore, one firm’s accounting procedures may change over time, making trend analysis less reliable.
  1. Many large corporations have multiple divisions operating in multiple industries, making difficult the compilation of the industry averages that will be used for a benchmark.
  1. Inflationary periods can significantly distort a firm’s recorded values relative to the actual market values. Both inventory costs and depreciation charges are well known in this regard, and both affect the calculation of profits. Inflation can distort the comparison of ratios for several firms, or one firm’s ratios over time.
  1. Financial analysis may be distorted by what is termed window dressing whereby a firm attempts to make the financial statements look better for at least a short period of time. An example of window dressing would be borrowing long-term to improve the liquidity ratios at the end repaying the loan shortly thereafter.

SUMMARY OF THE ANALYSIS 

(Findings)

We may summarize the ratios & attempts to draw some rough conclusion. All the information needed for a conclusive judgment about the company is not available in the financial statements. Such conclusions may require information that only management has.

Here, as evidence by current & quick ratio, the firm’s liquidity seems to be relatively low. This may be because the company is purposefully aggressive in its working capital management. However, creditors & even the stockholders may not like a relatively low liquidity position.

The firm’s collection period is quite longer indicating a very loose credit policy. The firm is unable to show efficiency in managing its assets.

Quasem Drycells Ltd. is extremely dependent on debt finance that has resulted in decreasing profit & even loss recently. Finally, the company fails to prove any outstanding performance in all spheres of activities.

Recommendations

  1. The company should increase their current asset.
  2. The company should try to manage its stock with efficiency.
  3. The receivable policy should be revised.
  4. Company’s management should make attempts to increase its fixed asset turnover as well as total asset turnover.
  5. The firm should lessen aggressive use of debt.
  6. The firm should emphasize on its performance from the four groups of financial ratios.

QUASEM DRYCELLS LTD.

Balance Sheet for 2003, 2002, 2001

      Particulars    2003    2002  2001
     Assets
Non-current assets2,376,453,3232,446,497,9692,625,531,100
Property plant & equipment-carrying value

2359978194

2451265131

2610225674

Long term security deposits

16475129

15232838

15305426

  Current assets3,207,736,8443,429,909,7982,957,175,284
Inventories

119491404

1463658446

1449089396

Trade receivables

2034774542

1897476400

1505335016

Advances, deposits &

Prepayments

51763872

50330420

19335370

Cash & cash equivalents

1707026

18444532

1415502

Total Assets5,584,190,1675,896,407,7675,600,706,384
    
Equity & Liabilities   
Shareholders equity1,422,946,0561,704,883,0391,524,133,144
Issued share capital

880000000

880000000

880000000

Tax holiday reserve

364001557

364001557

309776588

Accumulated profit

198944499

460881482

334356556

Non-current liabilities839,367,5341,127,350,1061,483,377,636
14% Debentures-net of :current maturity (Secured)

107933495

162188243

136896000

Long term borrowings-net of: current maturity

(Secured)

731434039

965161863

1346481636

Current liabilities & Provision:3,301,876,5773,064,174,6222,593,195,604
Short term borrowings

(Secured)

1374184276

1249133432

1205849841

14% Debenture-current maturity (Secured)

106959411

58298903

94530599

Long term borrowings-

Current maturity (Secured)

929972326

571076303

357724697

Trade creditors

625065647

1017510899

617051852

Other payables

265694917

168155085

230038615

Total Liabilities & Shareholders Equity5,584,190,1675,896,407,7675,600,706,384

QUASEM DRYCELLS LTD.

Profit & Loss Account of 2003, 2002, 2001

Particulars

2003

2002

2001

Revenue

2,892,292,131

2,991,581,342

2,703,693,437

Cost of revenue

( 2,465,339,414)

(2,233,028,315)

1,939,770,057

Gross profit

426,952,717

758,553,027

763,923,380

Administrative expenses and distribution

( 96,066,008)

( 87,412,653)

87,952,209

Profit from operations

330,886,709

671,140,374

675,971,171

Finance cost

( 548,823,692)

(481,352,985)

410,414,235

Contribution to workers participation / welfare fund
Net profit / (loss) for the year
Tax holiday reserve
Surplus / (deficit) for the year

Surplus brought forward

Appropriation of dividend declared for 2001

Available surplus carried forward

Basic earnings per share (par value Taka 100/-)

Number of shares used to compute EPS

 

MISSION STATEMENT

 Mission

Each of our activities must benefit and add value of the common wealth of our society. We firmly believe that, in the final analysis we are accountable to each of the constituents with whom we interact; namely: our employees, our customers, our business associates, our fellow citizens and our shareholders.

 

Different types of Ratios

Financial analysis typically is associated with ratio analysis, defined as the analysis of relationship among various financial statement items both at a point in time and over time .It uses the financial statements in a unique manner to provide a different perspective about the firm.

To carry out a ratio analysis, the financial statements are used to compute a set of ratios. Each ratio emphasizes a particular aspect of the balance sheet and or income statement.

Traditionally, four groups of financial ratios have been used to assets a firm’s performance:

  1. Liquidity Ratio
  2. Activity Ratio
  3. Leverage Ratio
  4. Profitability Ratio

Liquidity Ratio:

Liquidity ratio measures the extent to which the firm can service its immediate obligations, in effect assessing the firm’s ability to meet short run financial contingencies. The two commonly used liquidity ratios are:

  1. Current Ratio.
  2. Quick Ratio.

Activity Ratio:

Activity ratios are supposedly indicates how well the firm manages its assets by relating important asset accounts to operating results. These ratios are called turnover ratios because they show rapidly assets are being converted into sales. Activity ratios involve accounts receivables, inventory, fixed assets & total assets. Activity ratio includes-

1. Inventory Turnover

2. Average collection period

3. Fixed assets turnover

4. Total assets turnover

Leverage Ratio:

Leverage ratios indicate to what extent the firm has financed its investments by borrowing. These ratios focus on the firm’s financial structure.

Leverage ratio includes-

  1. Debt equity ratio.
  2. Debt ratio.
  3. Time interest earned.

Profitability Ratio:

Profitability ratios measure the profits of the firm relative to sales, assets, or equity. It’s important to emphasize that profitability ratios describe the firm’s past profitability, especially because it is tempting to over emphasize these ratios when making an evaluation.

Profitability ratio includes-

  1. Profit margin.
  2. Return on assets (ROA).
  3. Return on equity (ROE).

EQUATIONS TO CALCULATE RATIOS

(USED IN THIS PROJECT)

1. Current ratio:

Current Ratio = Current assets/Current Liabilities

2. Quick Ratio:

Quick Ratio = Current assets – Inventories./Current liabilities

3. Inventory Turnover:

Inventory turnover =       Sales/Inventory

 

Profit Margin

Profit margin =    Net income After Tax

                                                Sales

 

Return on assets ( ROA)

ROA=          Net Income

                             Total Assets

 

Return on Equity (ROE)

ROE =        Net income after tax

 Common equity

 

 

QUASEM DRYCELLS

A PERFORMANCE EVALUATION

Current ratio:

This ratio indicates the ratio of current assets to current liabilities.

Current Ratio =            Current assets

                                             Current Liabilities

Current Ratio of different years:

Years

(1)

Current assets

(2)

     Current

    Liabilities (3)

Current ratio (2 / 3)

2001

242,742,437

187,517,027

2002

282,231,937

210,797,148

2003

268,837,528

237,180,970

 Quick Ratio:

It indicates the current assets less inventories divided by current liabilities.

Quick Ratio =      Current assets – Inventories.

Current liabilities

Quick Ratio of different years:

Years

(1)

Current assets

(2)

Inventories

(3)

Current

liabilities (4)

Quick ratio

(2-3 / 4)

2001

242,742,437

117,448,644

187,517,027

 

2002

282,231,937

140,686,956

210,797,148

 

2003

268,837,528

160,680,880

237,180,970

 

 Inventory Turnover:

It means the ratio of sales to inventories.

Inventory turnover =       Sales

                  Inventory

Inventory turnover of different years:

Years

(1)

Sales

(2)

Inventory

(3)

Inventory turnover ratio (2 / 3)

2001

788,118,240

117,448,644

2002

804,764,587

140,686,956

2003

695,186,498

 

160,680,880

 Average Collection Period:

It indicates the average time period between sales & receipts of payment for those sales.

Average collection period =   Receivables

         Sales per day

Here, Sales per day =      Sales

                                         365

Average collection period of different years:

Years

 (1)

Receivables

    (2)

   Sales

     (3)

Sales per day =

  Sales / 365    (4)

Average Collection Period         Ratio (2 / 4)
2001    
2002    
2003    

 Fixed Asset Turnover

 

It indicates the ratio of sales to net fixed assets.

Fixed assets turnover =      Sales

                                        Fixed assets

Fixed asset turnover of different year

Year

(1)

Sales

(2)

Fixed asset

(3)

Fixed asset turnover ratio = (2 / 3)

2001

 

 

 

2002

 

 

 

2003

 

 

 

 

 

 

 

 

 

 

 

 

Total Asset Turnover:

It indicates the ratio of total asset.

Total asset turnover =        Sales

Total assets

Total assets turnover of different tears:

Years

  (1)

   Sales

    (2)

Total assets

      (3)

Total asset turnover = (2 / 3)
2001   
2002   
2003   

Debt Equity Ratio:

It is the ratio of total debt to stockholders equity.

Debt equity ratio = Debt/Equity

Debt equity of different years:

Years

(1)

Debt

(2)

    Equity

(3)

Debt equity ratio (2 / 3)

2001

 

 

2002

 

 

2003

 

 

 

Debt Ratio:

It is the ratio total debt to total assets.

Debt ratio =  Total debt /Total assets

Debt ratio of different years:

Years

(1)

Debt

(2)

    Equity

(3)

Debt equity ratio (2 / 3)

2001

 

 

2002

 

 

2003

 

 

 

Times Interest Earned:

It indicates the ratio of earnings before interest & taxes to interest changes.

Time interest earned = Net operating Income /Interest expenses

Time Interest Earned For Different Years

Years

(1)

Net operating income

(2)

    Interest Expenses

(3)

Time Interest Earned Ratio (2 / 3)

2001

 

 

2002

 

 

2003

 

 

 

Profit Margin

It’s the Ratio of Net Profit after Taxes to Sales

Profit margin =    Net income After Tax/Sales

Profit Margin for different years

Years

(1)

Net income after tax

(2)

Sales

(3)

Profit margin ratio (2 / 3)

2001

 

 

2002

 

 

2003

 

 

 

Return on assets ( ROA)

It’s the ratio of net income to total assets

ROA=          Net Income /Total Assets

ROA for Different years

Years

(1)

Net income

(2)

    Total assets

(3)

Return on assets ratio (2 / 3)

2001

 

 

2002

 

 

2003

 

 

 

Return on Equity ( ROE)

It indicates the rate of return earned on the Book value of the owners equity

ROE =        Net income after tax

 Common equity

ROE for different Years:

Years

(1)

Net income after tax

(2)

 Common   equity

(3)

Return on equity ratio (2 / 3)

2001

 

 

2002

 

 

2003

 

 

 

QUASEM DRYCELLS LTD

 

BALANCE SHEET FOR THREE YEARS:

Sl

no

Subject matter

Year

2003

Year

2002

Year

2001

1

Sources of Fund

 

    I. Shareholders’ Fund

 

      a) Share Capital

192000000

192000000

192000000

 

      b) Share Premium Account

198000000

198000000

198000000

 

      c) Reserves & Surplus

68837379

65777576

63710164

 

     d) Revaluation Surplus

73069546

76049528

79174629

 

531906925

531827104

532884793

 

   

2

Application of  Fund   

 

   I. Fixed Assets   

 

      a) Gross Block

768567380

690162538

670249632

 

      b) Less: Depreciation                                                              

279438130

241353112

204533333

 

      c) Net Block

489129250

448809426

465716299

 

   

 

2.Investment

1145425

732205

120186

 

   3. Current Assets, Loans

&

Advances

   

 

   a) Inventories

160,680,880

140,686,956

117,448,644

 

   b) Sundry Debtors-Unsecured

17862084

25528125

36138200

 

  c) Advance, Deposits &

                      Prepayments

59909857

76624204

56609046

 

  d) Advance Income Tax

21277441

32901123

28220702

 

  e) Cash & Bank Balances

9107297

6491529

4325846

 

 

268837528

 

282231937

 

242742437

BALANCE SHEET OF THREE YEARS

(contd):

Sl

No

Subject matter

Year

2003

Year

2002

Year

2001

4.Less:Current Liabilities

&

Provisions

         a) Bank loan, Cash Credit

&

Overdrafts-Secured

195548190

149545335

119428004

       b) For Goods Supplied-

Unsecured

3692836

7228902

12144977

        c) For Expenses-Unsecured

9078130

9132070

13955316

       d) For Other Finance –

Unsecured

13925585

18155521

18580594

e) Liabilities & Provision For  Income Tax

14936229

26735320

23408136

237180970

210797148

187517027

5.Net Current Assets (3- 4)

31656559

71434789

55225410

6.Miscellaneous

 

 

 

a)Expenditure to the extent

not  written off or adjusted

9975691

10850684

11822898

 

531906925

 

531827104

 

5328847

 

Particulars

Year

2003

Year

2002

Year

2001

      Turnover / Sales

Less: Vat

695,186,498

  90,793,178

              

804,764,587

105,059,447

788,118,240

102,863,452

     Net Turnover/Sales

Less: Cost of Goods

Sold

604,393,320

485,665,663

699705141

579810132

685254788

566171075

     Gross Profit

 

Less: Operating Expenses:

Administrative Expenses

Selling & Dist.Expenses

Financial Expenses

 

118,727,658

               

  42,167,424

  32,510,719

  19,747,421

 

  94,425,564

119895009             

 

42166747

31899134

19884148

 

93,950,129

119083713

 

38731472

29648323

17184795

 

85564590

    Operating Profit

Add: Non operating

Income

  24,302,093

     

7,02,052

25944880

 

716342

33519123

 

3863581

    Net Profit Before WPPF

Less: Contribution to

WPPF

  25,004,146

  

 1,190,674

26661221

 

1269583

37382704

 

1780129

    Net Profit Before Tax

Less: Provision for tax

  23,813,472

    4,418,158

25391638

3327184

35602575

5105321

    Net Profit after Tax

Less: Tax Holiday

Reserve

  19,395,314

     

—-

22066454

 

5720410

30497254

 

6304783

    Net Profit After tax Holiday Reserve

Less: prior year

adjustment

 

19,395,314

    

 1,15,493

 

16344044

    

 82143

 

24192471

   

    —-

 

 

 

    Net Profit after prior year’s Adjustments

Add:

       Transfer from Revaluation Reserve

  Inappropriate Surplus brought forward

 

 

 

 

19,279,821

 

 

    29,79,982

 

 18,53,797

 

 

 

 

16261901

 

 

3125101

 

2666795

 

 

 

 

24192471

 

 

3277574

 

1236750

   

Surplus Available for Appropriate

Less: Appropriation:

Proposed dividend

General reserve

Income tax reserve

Dividend equalization fund

 

 

24,113,600

 

192,000,00

  19,200,00

    1,000,000

    1,000,000

           

23120000                  

 

 

22053797

 

19200000

1,000,000

—-

 

20200000

 

 

28706795

 

2304000

1000000

1000000

1000000

 

2604000

Inappropriate surplus carried  forward                                      

 

 

993600

 

1853797

 

2666795

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