Performance Evaluation of Quasem Drycells Ltd - Assignment Point
Performance Evaluation of Quasem Drycells Ltd
Subject: Organizational Behavior | Topics:

 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.

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, Dhaka-1209

Bankers……         Agrani Bank

                                    Principal Branch; Motijheel C/A, Dhaka-1000

                                    CITI Bank

                                   ChamberBuilding; 122-124, Motijheel C/A, Dhaka-1000

 Legal Advisor……     Nurul Haq Majumder

Factory……     Unit-1&2; Gorai, Tangail

                                                   Unit-3; Baimail, Gazipur

Registered Office ……..     A-1/6-Mohammadpur, Asad Avenue, Dhaka-1207

Head Office………   107, Motijheel C/A, Dhaka -1000

Other concerns

  1. Quasem lamps Ltd.
  1. Quasem Zinc Ltd.
  1. Quasem Textile Mills ltd.
  1. Quasem Silk Mills Ltd.
  1. Quasem Cotton Mills Ltd.
  1. Quasem Rotor Spinning Mills Ltd.

* Proposed Dividends: 10 % Stock Dividends (Bonus Share)

Board of  DirectorsChairman — Seleena Begum
Managing DirectorTasvir ul Islam
                  DirectorKhadiza Shamim, Dr. Reyan Anis Islam,Nafisa Quasem
Company SecretaryAnwarul Islam
                    AuditorsAziz Halim Anwar & Co.Chartered Accountants

726/A, Satmosjid Road, Dhanmondi,

Dhaka-1209

                 BankersAgrani BankPrincipal Branch; Motijheel C/A, Dhaka-1000

CITI Bank

ChamberBuilding; 122-124, Motijheel C/A,

Dhaka-1000

         Legal AdvisorNurul Haq Majumder
                    FactoryUnit-1&2; Gorai, TangailUnit-3; Baimail, Gazipur
    Registered OfficeA-1/6-Mohammadpur, Asad Avenue,Dhaka-1207
             Head Office107, 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
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 &

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
  1.         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:

  1. Current Ratio.
  2. 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-

  1. Debt equity ratio.
  2. Debt ratio.
  3. 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-

  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

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

(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

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

  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

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