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:
 Based as it is on accrual accounting data and historical costs, the current period’s figures may not be closely related to cash flows.
 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.
 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.
 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.
 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 longterm to improve the liquidity ratios at the end repaying the loan shortly thereafter.
QUASEM DRYCELLS LTD.
CORPORATE PROFILE
Board of Directors……… Chairman — Seleena Begum
Managing Director……….. Tasvir ul Islam
Director… Khadiza Shamim, Dr. Reyan Anis Islam, Nafisa Quasem
Company Secretary…… Anwarul Islam
Auditors ………. Aziz Halim Anwar & Co.
Chartered Accountants
726/A, Satmosjid Road, Dhanmondi, Dhaka1209
Bankers…… Agrani Bank
Principal Branch; Motijheel C/A, Dhaka1000
CITI Bank
ChamberBuilding; 122124, Motijheel C/A, Dhaka1000
Legal Advisor…… Nurul Haq Majumder
Factory…… Unit1&2; Gorai, Tangail
Unit3; Baimail, Gazipur
Registered Office …….. A1/6Mohammadpur, Asad Avenue, Dhaka1207
Head Office……… 107, Motijheel C/A, Dhaka 1000
Other concerns
 Quasem lamps Ltd.
 Quasem Zinc Ltd.
 Quasem Textile Mills ltd.
 Quasem Silk Mills Ltd.
 Quasem Cotton Mills Ltd.
 Quasem Rotor Spinning Mills Ltd.
* Proposed Dividends: 10 % Stock Dividends (Bonus Share)
Board of Directors  Chairman — Seleena Begum 
Managing Director  Tasvir ul Islam 
Director  Khadiza Shamim, Dr. Reyan Anis Islam,Nafisa Quasem 
Company Secretary  Anwarul Islam 
Auditors  Aziz Halim Anwar & Co.Chartered Accountants 726/A, Satmosjid Road, Dhanmondi, Dhaka1209 
Bankers  Agrani BankPrincipal Branch; Motijheel C/A, Dhaka1000 CITI Bank ChamberBuilding; 122124, Motijheel C/A, Dhaka1000 
Legal Advisor  Nurul Haq Majumder 
Factory  Unit1&2; Gorai, TangailUnit3; Baimail, Gazipur 
Registered Office  A1/6Mohammadpur, Asad Avenue,Dhaka1207 
Head Office  107, Motijheel C/A, Dhaka 1000 
Particular  2003  2002  2001 
Results of Operations 



Turnover*  2,892,292  2991581  2703693 
Gross profit*  426953  758553  763923 
Operating profit*  330887  671140  675971 
Net profit/(loss)*  (217937)  180750  252911 
Basic earnings per share**  (24.77)  20.54  28.74 
Cash dividend per share  —  5  10 
Stock dividend per share  10  —  — 
Cash inflow from/(used in)operation activities  (69883)  313536  (277192) 
Financial Position 



Total assets*  5584190  5896408  5600706 
Tangible fixed assets (gross)*  3323210  3249247  3233403 
Financial assets*  2052957  1931154  1522056 
Gross working capital*  3207737  3429910  2975175 
Net working capital*  (94140)  365735  381980 
Authorized capital*  3000000  3000000  3000000 
Paid up capital*  880000  880000  880000 
Shareholders equity*  1442946  1704883  1524133 
Key Financial Ratios, Figures & Market Data 



Return on paid up capital  (24.77%)  20.54%  28.74% 
Return on investment  (3.96%)  3.10%  4.54% 
Net asset value per share(Based on shareholders equity)**  163.97  193.74  173.20 
Market Value of Share 



Dhaka**  78.00  103.60  129.61 
Chittagong**  74.84  104.00  130.75 
Price earning ratio(Based on DSE price)  (3.15)  5.04  4.51 
Price earning ratio(Based on DSE price)  (3.02)  5.06  4.55 
Other Data 



Number of Shares  8800000  8800000  8800000 
Number of Shareholders  8710  8770  8726 
Production(in thousand LM)  23490  25555  26060 
Capacity Utilization  84%  91%  93% 
*Value in thousand taka ** Value in Taka
Current Ratio:
This ratio indicates the ratio of current assets to current liabilities.
Current Ratio = Current assets
Current Liabilities
The current ratio of different years shows that the firms ability to meet short run financial contingencies have reduced over the years.
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  Quick ratio 
2001  .5885 
2002  .6417 
2003  .6324 
The quick ratio or acid test ratio of the company reflects that the was not able to pay obligations as they come due. There fore the short term lenders may have refused to advance new credits .
Inventory Turnover:
It means the ratio of sales to inventories.
Inventory turnover = Sales
Inventory
Inventory turnover of different years:
Years
 Inventory turnover ratio 
2001  1.8658 times 
2002  2.0493 times 
2003  2.5836 times 
The ratio reflects that the firms stock is not managed efficiently. The company replaces the inventory level not even three times per year for the above years. The firm may have excessive stock level, presence of obsolete inventory or unexpectedly low sales levels.
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 
Average Collection Period Ratio 2001203. 2210 days2002231. 5093 days2003256. 7834 days
The above ratio shows extremely longer collection period which indicates that the firms receivable policy is not effective rather going worse. The firm’s customers are not prompt payers.
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
 Fixed asset turnover ratio 
2001  1.0298 times 
2002  1.2129 times 
2003  1.2171 times 
Total Asset Turnover:
It indicates the ratio of total asset.
Total asset turnover = Sales
Total assets
Total assets turnover of different tears:
Total asset
turnover 2001 .4827 times2002 .5074 times2003 .5179 times
Debt Equity Ratio:
It is the ratio of total debt to stockholders equity.
Debt equity ratio = Debt
Equity
Debt equity of different years:
Years  Debt equity ratio 
2001  2.6747 : 1 
2002  2.4585 : 1 
2003  2.8699 : 1 
Debt Ratio:
It is the ratio total debt to total assets.
Debt ratio = Total debt
Total assets
Debt ratio of different years:
Years  Debt ratio 
2001  .741 : 1 
2002  .7109 : 1 
2003  .7279 : 1 
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  Time Interest Earned Ratio 
2001  1.6470 times 
2002  1.3943 times 
2003  .0629 times 
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  Profit margin ratio 
2001  9.3543 % 
2002  6.0412 % 
2003  (7.5351) % 
Return on assets ( ROA)
It’s the ratio of net income to total assets
ROA= Net Income
Total Assets
ROA for Different years
Years  Return on assets ratio 
2001  4.5157 % 
2002  3.0654 % 
2003  (3.9028) % 
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  Return on equity ratio 
2001  16.5938 % 
2002  10.6019 % 
2003  (15.1036) % 
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.
QUASEM DRYCELLS LTD.
Balance Sheet for 2003, 2002, 2001
Particulars  2003  2002  2001 
Assets  
Noncurrent assets  2,376,453,323  2,446,497,969  2,625,531,100 
Property plant & equipmentcarrying value  2359978194  2451265131  2610225674 
Long term security deposits  16475129  15232838  15305426 
Current assets  3,207,736,844  3,429,909,798  2,957,175,284 
Inventories  119491404  1463658446  1449089396 
Trade receivables  2034774542  1897476400  1505335016 
Advances, deposits & 
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:
 Liquidity Ratio
 Activity Ratio
 Leverage Ratio
 Profitability Ratio
 I. 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:
 Current Ratio.
 Quick Ratio.
II. 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
IV. 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
 Debt equity ratio.
 Debt ratio.
 Time interest earned.
V .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
 Profit margin.
 Return on assets (ROA).
 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
4. Average Collection Period:
Average collection period = Receivables
Sales per day
Here, Sales per day = Sales
5. Fixed Asset Turnover
Fixed assets turnover = Sales
Fixed assets
6.Total Asset Turnover:
Total asset turnover = Sales
Total assets
7.Debt Equity Ratio:
Debt equity ratio = Debt
Equity
8. Debt Ratio:
Debt ratio = Total debt
Total assets
9. Times Interest Earned:
Time interest earned = Net operating Income
Interest expenses
10. Profit Margin
Profit margin = Net income After Tax
Sales
11. Return on assets ( ROA)
ROA= Net Income
Total Assets
12. 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
Liabilities (3)Current ratio (2 / 3)
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 (23 / 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
Average collection period of different 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:
(1) Sales
(2)Total assets
(3)Total asset turnover = (2 / 3)2001 2002 2003
Recommendations
 The company should increase their current asset.
 The company should try to manage its stock with efficiency.
 The receivable policy should be revised.
 Company’s management should make attempts to increase its fixed asset turnover as well as total asset turnover.
 The firm should lessen aggressive use of debt.
 The firm should emphasize on its performance from the four groups of financial ratios.
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