Contents

Executive Summary ...................................................................................................................................... 7

1.0 Introduction ............................................................................................................................................. 9
1.1 Origin of the Report .............................................................................................................................. 9
1.2 Objective of the Report ....................................................................................................................... 10
1.3 Scope of the report .............................................................................................................................. 10
1.4 Limitations of the report ...................................................................................................................... 10
1.5 Methodology ....................................................................................................................................... 10
2.0 Company Profile ................................................................................................................................... 10
2.1 Background of the Renata limited ....................................................................................................... 10
2.2 Principal Activities .............................................................................................................................. 11
2.3 Subsidiary Companies ......................................................................................................................... 11
2.3.1 Renata Agro Industries Limited.................................................................................................. 11
2.3.2 Purnava Limited ......................................................................................................................... 11
2.3.3 Renata Oncology Limited ........................................................................................................... 12
3.0 content ................................................................................................................................................... 12
3.1 Statements Included in the report: ....................................................................................................... 12
3.1.1 Balance Sheet: ............................................................................................................................ 12
3.1.2 Income Statement ....................................................................................................................... 15
3.1.3 The Statement of Changes in Equity of Renata Limited............................................................ 17
3.1.4 The Statement of Cash flow of Advanced Chemical Industries Limited: .................................. 18
3.2 Financial Highlights of Renata Limited given in the Annual statement ............................................. 21
3.3 Accounting issues ................................................................................................................................ 23
3.3.1 Basis of accounting .................................................................................................................... 23
3.3.2 Depreciation............................................................................................................................... 23
3.3.3 Disposal of Property, Plant and Equipment ............................................................................... 24
3.3.4 Impairment ................................................................................................................................ 24
3.3.5 Revaluation of assets ................................................................................................................. 24
3.3.6 Inventories ................................................................................................................................. 24
3.3.7 Statement of Cash Flows............................................................................................................ 25
4.0 Financial analysis .................................................................................................................................. 25
4.1 Horizontal analysis .............................................................................................................................. 25
4.1.1 Horizontal analysis of income statement .................................................................................. 25
3

4.1.2 Horizontal analysis of balance sheet .......................................................................................... 27

4.2 Vertical Analysis ................................................................................................................................. 28
4.2.1 Vertical analysis of income statement ....................................................................................... 29
4.2.2 Vertical analysis of balance sheet .............................................................................................. 30
4.3 FINANCIAL TRENDS OVER THE YEARS .................................................................................... 31
4.4 Ratio Analysis ..................................................................................................................................... 35
4.4.1 Definition Of 'Ratio Analysis' ...................................................................................................... 35
4.4.2 Profitability Ratio....................................................................................................................... 36
4.4.3 Liquidity Ratio ........................................................................................................................... 37
4.4.4 Efficiency (Activity) Ratio......................................................................................................... 39
4.4.5 Solvency Ratio ........................................................................................................................... 41
4.4.6. Others ........................................................................................................................................ 42
5.0 Conclusions ........................................................................................................................................... 43
5.1 Horizontal Analysis: ............................................................................................................................ 43
5.1.1 Income Statement ....................................................................................................................... 43
5.1.2 Balance Sheet ............................................................................................................................. 43
5.2 Vertical Analysis ................................................................................................................................. 43
5.2.1 Income Statement...................................................................................................................... 43
5.2.2 Balance Sheet ............................................................................................................................. 43
5.3 Financial Trend Analysis..................................................................................................................... 44
5.4 Profitability Ratio ................................................................................................................................ 44
5.5 Liquidity Ratio .................................................................................................................................... 45
5.6 Efficiency Ratio................................................................................................................................... 45
5.7 Solvency Ratio .................................................................................................................................... 45

List of Tables
Table 1 CONSOLIDATED BALANCE SHEET FROM 2011-2013 ......................................................... 14
Table 2 CONSOLIDATED INCOME STATEMENT FROM 2011-2013 ................................................. 16
Table 3: Statement of Changes of Equity ................................................................................................... 17
Table 4 STATEMENT OF CASH FLOW FROM 2011-2013 ................................................................... 20
Table 5 RENATA LIMITED FINANCIAL HIGHLIGHTS ...................................................................... 21
Table 6: Calculation of Depreciation .......................................................................................................... 23
Table 7: Condensed Consolidated Statement of Comprehensive Income .................................................. 25
Table 8: Horizontal Analysis of Condensed Income Statement ................................................................. 26
Table 9: HORIZONTAL ANALYSIS OF BALANCE SHEET FROM 2010-2013 .................................. 27
Table 10: Condensed Consolidated Statement of Comprehensive Income ................................................ 29
Table 11: Condensed Consolidated Statement of Comprehensive Balance Sheet ...................................... 30
Table 13: Liquidity Ration Analysis ........................................................................................................... 38
Table 14: Efficiency (Activity) Ratios ........................................................................................................ 39
Table 15: Solvency Ration Analysis for the years 2009-2013 .................................................................... 42
Table 16: Other Ratios Analysis for the years 2009-2013 .......................................................................... 42

List of Figures
Figure 1: Horizontal Analysis of Income Statements with 2009 as base year ............................................ 27
Figure 2: Horizontal Analysis of Condensed Balance Sheet .................................................................. 28
Figure 3: Vertical Analysis of Income Statement ....................................................................................... 30
Figure 4: Vertical Analysis of Condensed Balance Sheet .......................................................................... 31
Figure 5: Trend of Net Turnover................................................................................................................. 32
Figure 6: Trend of Net income .................................................................................................................... 32
Figure 7: Trend of Gross profit ................................................................................................................... 33
Figure 8: Trend of Dividends ...................................................................................................................... 33
Figure 9: Comparing EPS and DPS ............................................................................................................ 34
Figure 10: Comparing Turnover, Income and Dividends ........................................................................... 34
Figure 11: Comparing Income, Current Assets and Liabilities................................................................... 35
Figure 12: Profitability Ratio Analysis ....................................................................................................... 37
Figure 13: Comparing the Liquidity Ratios ................................................................................................ 38
Figure 14: Activity Ratios ........................................................................................................................... 40
Figure 15: Comparing A/R Collection and Inventory Holding Period ....................................................... 40

EXECUTIVE SUMMARY
The report was commissioned to examine analyze the financial data provided in the annual
reports of Renata Limited and conclude on the overall financial health of the organization. The
financial analysis of Renata ltd is done to measure the overall efficiency and performance. It also
used to analysis the pharmaceutical company past financial performance and to establish the
future trend of financial position
Horizontal analysis is done evaluating a series of financial statement data over a period of last
four years 2010-2013 .Vertical analysis is done evaluating the financial statement for the last
four years 2010-2013 taking each year amount as the base and Ratio analysis is used for the
measurement of profitability, liquidity position, solvency and debt coverage situations.
The company is reasonably profitable with a consistence in performance. It is seen that the
Turnover, Gross profit, Operating profit and Total comprehensive income for the year increases
from 2010 to 2013. While analyzing the Balance Sheet, company asset is increasing along with
the owners equity. The total current liability decreased from 2012 to 2013.
The Cost of Sales has remained almost constant. Gross Profit has reduced slightly over the years.
Operating expenses has reduced noticeably. While Operating Profit has increased steadily over
the years, the Net Income has abridged slightly.
Having total Assets and Total Liabilities and Owners Equity as the base, it is seen that Current
Assets increased regularly between years 2009 and 2010. Current Assets show a gradual
decrease with only 2012 showing a minor increase. Equity saw a sharp decrease between 2009
and 2013. Total Liabilities was the only portion showing gradual increase during 2009-2013.
Turnover from 2010 to 2013 has gradually increased and so did the dividend, while EPS has
increased dramatically over the, DPS remained constant. Current Liabilities seems to have a
fluctuating record. Profitability Ratios of Renata Limited is seen to have a slow but steady
decline from 2009 to 2013. The trend of Net Profit Margin however is unstable. EPS however
has increased over the years.
Liquidity Ratio shows a gradual decrease of both Current Ratio and Quick (Acid Test) Ratio.
Total Asset Turnover shows a major fall from 2009 to 2013. Accounts Receivable turnover

reduced over the years which are shown by the Average Receivables Collection Period mounting
from 32days to 41 days.

Also, Inventory Holding Period showed an ongoing decrease in the first 2 years which was
roofed by the last 2 year and remained almost same. Debt to Equity Ratio shows a regular
increase, while the Interest Coverage Ratio shows a major dip between 2009 and 2013.
Meanwhile, the Debt to Asset Ratio showed a sharp increase.

1.0 INTRODUCTION
Performance evaluation of a company is used to show how well a company can utilized it assets,
shareholder equity and liability, revenue and expenses and earn profit. Financial ratio analysis is
one of the best tools of performance evaluation of any company, determining the financial
position of company.
The financial statement analysis is important for different reasons:

Holding of Share

Decisions and Plans

Extension of Credit

Shareholders are
the owners of the
company.

The management
takes decisions,
formulating plans
and policies for the
future.

The loan capitals

are provided by
the creditors to the
company

Shareholders
would be able to
take decisions such
as holdings the
company's share or
sell them out by
analysis of financial
statement .

The analysis of
financial statement
would allow them
to evaluate the
companys
performance and
effectiveness.

The financial
statement analysis
provides important
information such
as the liquidity
states for their
purpose.

Investment
Decision
The investors
would invest in the
company for
profitable
opportunities.
From the financial
statement analysis
they can obtain
useful information
for their
investment
decision making
purpose.

1.1 ORIGIN OF THE REPORT

The report FINANCIAL PERFORMANCE ANALYSIS OF RENATA LIMITED was
commissioned by Dr. Md. Mohiuddin, Associate Professor, Institute of Business Administration,
University of Dhaka as a term paper for the course Financial Accounting (A-501). This report
was written by, Amreen Akhtar (ID-24), Md. Mushfiq Alam Arko (ID-34), Nisa Nur Majumder
(ID-36), Tapas Debnath (ID-40) and Syeda Nawrin Huq (ID-41) of the MBA batch of 52D of
Institute of Business Administration, University of Dhaka.
The writers were appointed to the task on 19th November, 2014 and are being submitted to Dr.
Md. Mohiuddin on 13th December, 2014.

1.2 OBJECTIVE OF THE REPORT

The purpose of this report is to analyze the financial data provided in the annual reports of
Renata Limited and conclude on the overall financial health of the organization.
Horizontal analysis is done evaluating a series of financial statement data over a period of last
four years 2010-2013 to determine the increase or decrease that has taken place, expressed as
either amount or percentage, taking 2010 as the base year
Vertical analysis is done evaluating the financial statement for the last four years 2010-2013
taking each year amount as the base
Ratio analysis is used for the measurement of profitability, liquidity position, solvency and debt
coverage situations.
The financial analysis of Renata ltd is done to measure the overall efficiency and performance. It
also used to analysis the pharmaceutical company past financial performance and to establish the
future trend of financial position.
1.3 SCOPE OF THE REPORT
The report is based on the financial reports and their notes available in the annual reports of
Renata Limited for the year 2013, 2012, 2011 and 2010.
1.4 LIMITATIONS OF THE REPORT
The accuracy of this report is based upon the accuracy and transparency of the annual reports of
Renata Limited.
1.5 METHODOLOGY
All the data used in this report were collected from publicly available secondary sources; Renata
Limited hosts all the available Annual Reports in their website. However, all the analysis and
interpretations are done by the team.
2.0COMPANY PROFILE
2.1 BACKGROUND OF THE RENATA LIMITED
Pharmaceutical industry is the economic pulse of Bangladesh. Its birth and prosperity reflects the
financial conditions of the country. This industry is one of the key to earning foreign currency
and it plays an important role on the export of the country.
10

Renata Limited (the Company) is a Public Limited Company incorporated in Bangladesh in

1972 as Pfizer Laboratories (Bangladesh) Limited under the Companies Act 1913. The Company
was listed with Dhaka Stock Exchange Limited on 12 May 1979. Subsequently, the Company
was renamed as Renata Limited in 1993. The registered office of the company is situated at Plot
# 1, Milk Vita Road, Section-7, Mirpur, Dhaka 1216
Renata Pharmaceuticals began its journey as Pfizer (Bangladesh) Limited in 1972. Although by
the late 1990s Pfizer focuses on the establishment of research centers in many countries,
including Bangladesh. In 1993 Pfizer transferred the ownership of its Bangladesh operations to
local shareholders, and Renata Limited was born.
Currently Renata ltd manufactures about 300 generic pharmaceutical products including
hormones, contraceptives, anti-cancer drugs, oral preparations, as well as other conventional
drugs that include about 95 animal therapeutics and nutrition products.
2.2 PRINCIPAL ACTIVITIES
The principal activities of the Company are carrying on business of manufacturing, marketing
and distribution of pharmaceutical and animal health products.
2.3 SUBSIDIARY COMPANIES
2.3.1 RENATA Agro INDUSTRIES LIMITED
Renata Agro Industries Limited, a subsidiary company of Renata Limited, was incorporated on 7
September 1997 as a private limited company under the Companies Act 1994 with authorized
share capital of Taka 150,000,000 divided into 1,500,000 ordinary shares of Taka 100 each. The
company commenced its commercial operation from October 1998. The principal activities of
the company comprise of poultry breeding and hatching and selling of various agro based
products.
2.3.2 PURNAVA LIMITED
Purnava Limited, a subsidiary company of Renata Limited, was incorporated on 17 August 2004
as a private limited company under the Companies Act 1994 with authorized share capital of
Taka 200,000,000 divided into 2,000,000 ordinary shares of Taka 100 each. The company
commenced its commercial operation in 2009. The principal activities of the company are to
carry on business of manufacturing, marketing and distribution of all kinds of consumer goods,
consumer durables, food items, edible oils etc. and to engage in the business as traders,

11

importers, exporters, commission agents of all kinds of goods and services including
pharmaceutical products.
2.3.3 RENATA ONCOLOGY LIMITED
Renata Oncology Limited, a subsidiary company of Renata Limited, was incorporated on 12
August 2012 as a private limited company under the Companies Act 1994 with authorized share
capital of Taka 1,000,000,000 divided into 100,000,000 ordinary shares of Taka 10 each. The
company not yet commenced its commercial operation. The principal activities of the company
are to carry on business of manufacturing, marketing and distribution of drugs and medicines,
allopathic and indigenous and particularly produce and prepare biological and non-biological
drugs, injectable of all kinds of tablets of all sorts, serum, vaccines syrup both medicated and
non-medicated.
3.0 CONTENT
3.1 STATEMENTS INCLUDED IN THE REPORT:

Balance Sheet

Income Statement

Statement of Changes in equity

Cash Flow Statement[[

Contents Included in the statements:

3.1.1 BALANCE SHEET:
A balance sheet shows the businesss assets, liabilities and shareholder equity of a specific time
period. It consists of three main segments Assets, liabilities and shareholders' equity. The three
sides of balance sheet must balance out, thus allowing a company has to pay for all the things it
has by either borrowing money or getting it from shareholders.
Contents Included in the Balance Sheet of Advanced Chemical Industries Limited:
Assets: these items are owned by the business, whether fully paid for or not. Assets are
categorized into the following classifications: current assets and fixed assets.
Current assets

Can be converted to cash within accounting period

12

The contents here were, Inventories, Book debts, Advances, Deposits and prepayments, other receivables, cash and cash equivalents

Fixed assets

Fixed assets can be tangible assets and intangible assets

Tangible assets contain Property, Plant and Equipment, Capital work in progress
and investments, which remain in business for a long period of time

Intangibles assets like the value of trademarks, copyrights, and a difficult category
known as "good will.

Equity and Liabilities:

Shareholders Equity: this is the amount that the shareholders can claim against the assets of the
company on a particular point of time. This section included, Share Capital, Share Premium,
Reserves, Capital and Revaluation Surplus, Revenue Reserve.
Liabilities
Liabilities are the business's obligations to other entities as a result of past transactions. Such as
employees working for the salaries to investors, so the company is liable to employee before
paying the salary. Similarly Investors is liable to banks for taking loans. Liabilities are typically
divided into two categories: short-term or current liabilities and long-term liabilities.
Current Liabilities

Due to be paid within a year

Includes, Balance from creditors and accruals, short term loans, Current portion of
long term loans and provision for taxation.

Fixed Liabilities

Long-term liabilities are debts to lenders, mortgage holders, and other creditors
payable over a longer span of time.

13

Table 1 CONSOLIDATED BALANCE SHEET FROM 2011-2013

RENATA LIMITED AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2010-2014
Balance sheet

2013

2012

2011

2010

ASSETS
Non-current assets
Property, plant and equipment

6,762,838,079

4,618,057,755

4,135,692,220 2,787,867,721

Capital work-in-progress

2,178,970,232

2,095,046,123

1,373,322,236 363,998,451

Investment in shares and others

75,166,811

37,166,268

49,018,164

Other Investment

18,881,156

49,473,309

Total non-current assets

9,035,856,278

6,799,743,455

163,549,385

5,558,032,620 3,315,415,557

Current assets
Inventories

2,763,455,400

2,119,780,626

1,671,591,749 1,357,858,812

Trade and other receivables

875,057,900

761,068,799

614,736,271

475,929,184

prepayments

174,165,543

153,839,131

105,582,664

117,244,930

Cash and cash equivalents

253,481,805

338,591,526

161,377,082

210,014,008

Total current assets

4,066,160,648

3,373,280,082

2,553,287,766 2,161,046,934

Total assets

13,102,016,926 10,173,023,537 8,111,320,386 5,476,462,491

Advance, deposits and

EQUITY AND LIABILITIES

Share capital

353,023,430

282,418,750

225,935,000

180,748,000

Revaluation surplus

157,477,415

157,955,917

158,434,421

154,118,455

Tax holiday reserve

286,084,982

242,592,280

167,426,501

160,148,728

Retained earnings

5,741,278,054

4,623,411,688

3,695,533,913 2,789,155,479

holders of Renata Limited

6,537,863,881

5,306,378,635

4,247,329,835 3,284,170,662

Non-controlling interest

37,733

35,966

42,392

Total equity

6,537,901,614

5,306,414,601

4,247,372,227 3,284,216,062

Equity attributable to equity

45,400

Non-current liabilities
Long term loans - net of current

477,306,667

281,670,201

61,803,855

14

portion
Non-convertible bond - net of
current portion

1,000,000,000

149,138,826

138,540,457

Deferred liability-staff gratuity

214,316,148

175,366,283

198,004,754

152,716,016

Deferred tax liability

473,840,609

272,041,423

Total non-current liabilities

1,165,463,424

1,729,077,907

408,947,435

291,256,473

Current liabilities
Short term loan and overdraft

3,057,538,347

1,896,082,318

2,440,284,549 1,129,414,884

Long term loans - current portion

229,743,333

133,333,333

57,327,673

33,354,814

portion

1,000,000,000

347,582,022

230,081,535

Trade and other payables

452,003,962

342,827,054

347,035,714

317,662,207

Provisions and other liabilities

278,214,611

354,765,257

Unclaimed dividend

9,915,748

7,907,075

6,551,459

5,164,759

Provision for taxation

371,235,887

402,615,993

256,219,307

185,311,757

Total current liabilities

5,398,651,888

3,137,531,030

3,455,000,724 1,900,989,956

Total liabilities

6,564,115,312

4,866,608,937

3,863,948,159 2,192,246,429

Total equity and liabilities

13,102,016,926 10,173,023,537 8,111,320,386 5,476,462,491

Non-convertible bond - current

3.1.2 INCOME STATEMENT

The income statement shows investors and management if the firm made money during the
period reported. It consists of revenues and expenses along with the resulting net income or loss
over a period of time due to earning activities. The Income statement of Renata Limited consists
of:
Gross Profit:

This is difference between Cost of Goods Sold from Net Turnover.

Operating Profit:

This is difference between selling and administrative expenses and

distribution expenses from gross profit the company.

Profit before tax:

This is calculated by adding operating profit with other income,

profit from sale of shares and deducting finance cost and provision
for contribution to WPPF the company.

15

Net profit after tax:

The Profit before tax is deducted from income tax.

Comprehensive
Income for the year:

This is calculated by adding or deducting marketable securities

with the Net profit after tax

Table 2 CONSOLIDATED INCOME STATEMENT FROM 2011-2013

RENATA LIMITED AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED 31 DECEMBER 2010-2013
2013

2012

2011

2010

Turnover

9,130,607,862

7,858,515,209

6,734,085,041

5,424,443,357

Cost of sales

-4,649,847,166 -3,809,096,979 -3,293,235,239 -2,575,118,146

Gross profit

4,480,760,696

4,049,418,230

3,440,849,802

2,849,325,211

Operating expenses:
Administrative, selling and
distribution expenses

-2,075,286,686 -1,934,228,052 -1,747,814,491 -1,410,798,264

Operating profit

2,405,474,010

2,115,190,178

1,693,035,311

1,438,526,947

Other income

32,579,378

26,984,270

27,907,198

11,113,587

property, plant and equipment

398,849

-218,312

-3,518,170

593,908

Finance costs

-451,030,569

-386,837,269

-220,683,462

-117,736,847

-9,234,832

-8,195,771

Gain/(loss) on disposal of

Other expense
Contribution to WPPF

-94,570,671

-85,618,793

-71,941,847

-62,996,798

Profit before tax

1,892,850,997

1,669,500,074

1,415,564,198

1,261,305,026

Current tax

-293,878,752

-400,607,201

-301,585,404

-235,561,756

Deferred tax

-201,956,568

-74,194,051

-50,240,589

-42,694,263

Net profit after tax for the year

1,397,015,677

1,194,698,822

1,063,738,205

983,049,007

Tax expenses:

Other comprehensive income

-1,158,365

Gain/(loss) on quoted shares

(unrealized)

3,764,204

-252,830

-6,474

16

Exchange differences arising on

2,921,383

translation
Total comprehensive income for
the year

1,400,779,881

1,194,445,992

1,066,653,114

981,890,642

Total comprehensive income attributable to:

Equity

holders

of

Renata

Limited

1,400,779,114

1,194,452,418

Non-controlling interest

767

-6,426

the year

1,400,779,881

1,194,445,992

1,066,653,114

981,890,642

Basic EPS

39.57

33.84

47.08

43.51

Total comprehensive income for

3.1.3 THE STATEMENT OF CHANGES IN EQUITY OF RENATA LIMITED

Statement of Changes in Equity details the change in owners' equity over an accounting period
by presenting the movement in reserves comprising the shareholders' equity.
In Renata Ltd financial report the Statement of Changes in Equity comprises the following
elements:
In opening balances:

Stock and cash dividend, share premium revaluation surplus, net

income, tax holiday are brought from the closing balance of
previous year. And finally by summing up, the company identifies
it change in the statement of changes in equity in the accounting
period.

Table 3: Statement of Changes of Equity

RENATA LIMITED
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEARS ENDED 31 DECEMBER 2010-2013

Balance as at 1 January 2013

Stock dividend issued
Cash dividend paid
Deferred tax on revaluation surplus

2010

2011

2012

2013

2,389,562,964

3,284,216,062

-86,759,041

-108,448,800

-135,561,000

-169,451,250

157,382

4,951,851

157,382

157,382

4,247,372,227 5,306,414,601

17

Depreciation adjustment of revalued

-635,885

981,890,642

1,066,653,114

Transferred to tax holiday reserve

Tax Holiday Reserve Reversed

Minority share in Renata Oncology

1,000

3,284,216,062

4,247,372,227

assets
Total comprehensive income for the

1,194,445,992 1,400,779,881

year

Ltd.
Balance at 31 December 2013

5,306,414,601 6,537,901,614

3.1.4 THE STATEMENT OF CASH FLOW OF ADVANCED CHEMICAL INDUSTRIES LIMITED:

The Statement of Cash flow is done in Direct Method which presents cash flows from activities
through a summary of cash outflows and inflows.
Cash Flow from Operations: this consists of money coming in to the company from ongoing,
regular business activities, such as collection form customers, paying to suppliers etc. Cash flow
from operating activities does not include long-term capital or investment costs.
Examples of cash flows from operating activities are:
a) Cash receipts from the sale of goods and the rendering of services;
b) Cash receipts from royalties, fees, commissions and other revenue;
c) Cash payments to suppliers for goods and services;
d) Cash payments to and on behalf of employees;
e) Cash receipts and cash payments of an insurance enterprise for premiums and claims,
annuities and other policy benefits;
f) Cash payments or refunds of income taxes unless they can be specifically identified with
financing and investing activities; and
g) Cash receipts and payments relating to futures contracts, forward contracts, option
contracts and swap contracts when the contracts are held for dealing or trading purposes.
Cash flow from financing activities: financing activities shows investors the companys financial
strength of the company. This is important because it is useful in predicting claims on future cash
flows by providers of funds (both capital and borrowings) to the enterprise. Examples of cash
flows arising from financing activities are:
18

(a) Cash proceeds from issuing shares or other similar instruments;

(b) Cash proceeds from issuing debentures, loans, notes, bonds, and other short or long-term
borrowings; and
(c) Cash repayments of amounts borrowed. This is the category of the companys cash flow
statement that accounts for external activities that allow the firm to raise capital and repay
investors, such as issuing cash dividends, adding or changing loans or issuing more stock.
Cash from investing activities: This section includes the cash flows; representing the extent to
which expenditures have been made for resources intended to generate future income and cash
flows. Examples of cash flows arising from investing activities are
(a) Cash payments to acquire fixed assets (including intangibles).
(b) Cash receipts from disposal of fixed assets(including intangibles);
(c) Cash payments to acquire shares, warrants or debt instruments of other enterprises and
interests in joint ventures
(d) Cash receipts from disposal of shares, warrants or debt instruments of other enterprises
and interests in joint ventures
(e) Cash advances and loans made to third parties (other than advances and loans made by a
financial enterprise);
(f) Cash receipts from the repayment of advances and loans made to third parties (other than
advances and loans of a financial enterprise);
(g) Cash payments for futures contracts, forward contracts, option contracts and swap
contracts except when the contracts are held for dealing or trading purposes, or the
payments are classified as financing activities; and
(h) Cash receipts from futures contracts, forward contracts, option contracts and swap
contracts except when the contracts are held for dealing or trading purposes, or the
receipts are classified as financing activities.
Closing cash and cash equivalence: This indicates the net cash on hand of the company in that
particular period by adding up all the cash from each activity and the opening cash.

19

Table 4 STATEMENT OF CASH FLOW FROM 2011-2013

RENATA LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED 31 DECEMBER 2013-2010
2013

2012

2011

2010

A. Cash flows from operating activities:

Collection from customers
and other income

10,636,606,875

9,102,101,506

7,689,629,544

6,199,970,463

Payment of VAT

-1,277,054,798

-1,109,233,351

-912,693,792

-726,458,705

-7,688,399,823

-6,277,122,775

-5,461,659,005

-4,196,254,195

operation

1,671,152,254

1,715,745,380

1,315,276,747

1,277,257,563

Financing cost

-451,030,569

-386,837,269

-220,683,462

-117,736,847

Payment of tax

-325,393,752

-253,773,099

-231,384,361

-224,694,139

894,727,933

1,075,135,012

863,208,924

934,826,577

Payment to suppliers and

employees
Cash

generated

from

Net cash from operating

activities

B. Cash flows from investing activities:

Purchase

of

property,

plant and equipment

-2,588,066,531

-1,572,755,766

-2,611,030,943

-1,020,151,745

Investment in shares

-38,000,542

2,970,739

66,497,216

-137,652,352

1,551,705

200,000

767,812

1,325,050

-2,624,515,368

-1,569,585,027

-2,543,765,915

-1,156,479,047

1,812,120,291

-194,130,157

1,717,292,405

346,959,038

1,000,000,000

Sale proceeds of
property, plant and
equipment
Net cash used in investing
activities

C. Cash flows from financing activities:

Bank loan
(repaid)/received (net)
Non-convertible bond
issue

20

Dividend

paid

to

shareholders

-167,442,577

-134,205,384

-85,372,340

-85,555,885

1,644,677,714

671,664,459

1,631,920,065

261,403,153

-85,109,721

177,214,444

-48,636,926

39,750,683

338,591,526

161,377,082

210,014,008

170,263,325

253,481,805

338,591,526

161,377,082

210,014,008

Net cash generated from

financing activities
D. Net cash inflows for
the year (A+B+C)
E. Opening cash and
cash equivalents
F. Closing cash and cash
equivalents (D+E)

3.2 FINANCIAL HIGHLIGHTS OF RENATA LIMITED GIVEN IN THE ANNUAL STATEMENT

Table 5 RENATA LIMITED FINANCIAL HIGHLIGHTS
RENATA LIMITED FINANCIAL HIGHLIGHTS
Figures in Taka Thousands
SUMMARY BALANCE SHEET
Shareholder's Equity
Particulars

2010

2011

2012

2013

Share Capita

180,748

225,935

282,419

353,023

Proposed stock dividend

45,187

56,484

70,605

88,256

Proposed cash dividend

108,449

135,561

169,451

264,767

Revaluation surplus

154,118

158,434

157,956

157,477

Tax holiday reserve

124,166

131,444

206,609

249,497

Unappropriated Profit

2,358,802

3,250,750

4,183,440

5,182,094

Shareholder's Fund

2,971,470

3,958,608

5,070,480

6,295,114

Long term & deferred liabilities

291,256

347,143

1,805,741

1,153,678

Total

3,262,726

4,305,751

6,876,221

7,448,792

Property, plant and equipment - WDV

2,928,571

5,153,072

6,330,831

8,374,267

Investment & Non-current assets

122,035

74,404

112,026

199,433

Current Assets

2,063,325

2,464,125

3,310,221

4,208,713

Current Liabilities

1,851,205

3,385,850

2,876,857

5,333,621

Application of Funds

21

Total

3,262,726

4,305,751

6,876,221

7,448,792

FINANCIAL RESULTS
Turnover (Gross)

5,816,777

7,432,233

8,780,774

10,034,450

Turnover (Net)

5,090,318

6,519,639

7,671,572

8,757,406

Gross Profit

2,684,956

3,420,283

4,051,959

4,440,631

EBITDA

1,404,686

1,886,177

2,379,956

3,146,433

Profit before taxation

1,129,603

1,438,837

1,721,978

1,885,359

Profit after taxation

852,587

1,087,719

1,247,528

1,390,164

Total comprehensive income

851,428

1,090,634

1,247,275

1,393,928

Dividend

153,636

192,045

240,056

353,023

FINANCIAL PERFORMANCE
Number of shares

8,074,800

2,593,500

28,241,875

35,302,343

Earnings per share (Taka)

24.15

30.81

35.34

39.38

Dividend per share (Taka)

8.5

8.5

8.5

10

Dividend payout %

18.04

17.66

24.05

25.39

Effective Dividend Rate %

0.66

0.71

1.15

1.39

Price Earnings ratio - PER

27.48

25.03

20.93

18.33

31 December

1,294.27

1,205.00

739.5

722

Price/Equity Ratio (Times)

129.43

120.5

73.95

72.2

Fund %

28.69

27.48

24.6

22.08

Current Ratio - (Times)

1.11

0.73

1.15

0.79

34.79

39.84

38.5

25.96

(Taka)

131.52

175.21

179.54

178.32

Number of employees

3,115

3,393

3,902

4,334

Market price per share on

Return on Shareholder's

Net operating cash flow per

share (Taka)
Net asset value per share

22

3.3 ACCOUNTING ISSUES

3.3.1 BASIS OF ACCOUNTING
The financial statements have been prepared following Generally Accepted Accounting
Principles (GAAP) under historical cost convention and after due compliance with the
Bangladesh Financial Reporting Standards (BFRS) and Bangladesh Accounting Standards
(BAS), the Companies Act 1994, the Securities and Exchange Rules 1987 and other applicable
laws and regulations. More specifically, the consolidated financial statements of the company
have been prepared in accordance with the provisions of Bangladesh Accounting Standard 27
"Consolidated and Separate Financial Statements".
3.3.2 DEPRECIATION
Full year depreciation is charged for the assets acquired within 1st quarter of the year. For the
assets acquired in 2nd quarter, 3rd quarter and 4th quarter of the year, depreciation is charged for
9 months, 6 months and 3 months respectively.
Table 6: Calculation of Depreciation
Asset types

2010

2011

2012

2013

Building

33.03

20-33.03

1.54-5

1.54-5

Plant and

5-20

5-20

5-20

5-20

Automobiles

25

25

Office equipment

8-10

8- 10

10-12-5

10-12-5

Furniture & fixture

10

10

10

10

machinery

The rate of depreciation remains same for the Plant and machinery have been depreciated on
straight line basis. Depreciation is charged at the rates varying from 5%-20% depending on the
estimated useful lives of assets, similarly the rate of depreciation of furniture remain same for the
last 4 years.

23

The rate of depreciation of automobiles has increased from 2012 from 4% to 25%, similarly the
rate of depreciation of Office Equipment increased form 8-10% to 10-12.5% from the annual
year 2011 to 2012.
No depreciation is charged for land and capital work-in-progress. The company is following this
policy consistently for past years.
3.3.3 DISPOSAL OF PROPERTY, PLANT AND EQUIPMENT
An item of property, plant and equipment is removed from the statement when it is disposed of
or when no future economic benefits are expected from its use or disposal. The gain or loss on
the disposal of an item of property, plant and equipment is included in the statement of income of
the period in which the assets are disposed of.
3.3.4 IMPAIRMENT
The carrying amounts of its assets are reviewed at each balance sheet date to determine whether
there is any indication of impairment loss. If any such indication exists, recoverable amount is
estimated in order to determine the extent of the impairment loss, if any. Impairment loss is
recorded on judgmental basis, for which provision may differ in the future years based on the
actual experience.
3.3.5 REVALUATION OF ASSETS
The assets were initially recognized at cost. Subsequently some assets were revalued by a
professional value which resulted in increase of carrying amount as well as creation of
revaluation reserve. The revaluation reserve released to retain earnings by the difference between
the depreciation charged on the revalued amount and that based on cost transferred from the
revaluation reserve to retained earnings.
3.3.6 INVENTORIES
Stocks are valued at lower of cost and net realizable value except for goods in transit which are
valued at cost.
Cost of active materials, raw materials and packing materials are valued by using FIFO formula.
Cost of work-in-progress and finished stocks are arrived at by using FIFO cost formula including
allocation of manufacturing overheads related to bringing the inventories to their present
The inventories for the last 4 years were calculated by FIFO method.
24

3.3.7 STATEMENT OF CASH FLOWS

The Statement of Cash Flows has been prepared in accordance with the requirements of BAS-7:
Statement of Cash Flows. The cash generating from operating activities has been reported using
the Direct Method as prescribed by the Securities and Exchange Rules, 1987 and as the
benchmark treatment of BAS-7 whereby major classes of gross cash receipts and gross cash
payments from operating activities are disclosed.
4.0 FINANCIAL ANALYSIS
4.1 HORIZONTAL ANALYSIS
Horizontal analysis: is a financial statement analysis technique that shows changes in the
amounts of corresponding financial statement items over a period of time. It is a useful tool to
evaluate the trend situations. The statements for two or more periods are used in horizontal
analysis. The earliest period is usually used as the base period and the items on the statements for
all later periods are compared with items on the statements of the base period. The changes are
generally shown both in dollars and percentage.
Horizontal analysis does not fully disclose the weaknesses or strengths of a company. The
following are the main purposes of horizontal analysis:
(a) To see the trend of various income statement and balance sheet figures of a company.
(b) To evaluate whether the management is achieving its objectives or not.
(c) To investigate unexpected increases or decreases in financial statement items.
(d) To evaluate overall performance of the company.
4.1.1 HORIZONTAL ANALYSIS OF INCOME STATEMENT
Table 7: Condensed Consolidated Statement of Comprehensive Income
RENATA LIMITED
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2013-2010
Particulars

2009

2010

2011

2012

2013

Turnover

4,102,594,775

5,424,443,357

6,734,085,041

7,858,515,209

9,130,607,862

Cost of sales

1,946,151,429

2,575,118,146

3,293,235,239

3,809,096,979

4,649,847,166

Gross Profit

2,156,443,346

2,849,325,211

3,440,849,802

4,049,418,230

4,480,760,696

Operating Expenses

1,136,524,399

1,410,798,264

1,747,814,491

1,934,228,052

2,075,286,686
25

Operating Profit

1,019,918,947

1,438,526,947

1,693,035,311

2,115,190,178

2,405,474,010

100,442,649

117,736,847

220,683,462

386,837,269

451,030,569

43,968,311

62,996,798

71,941,847

85,618,793

94,570,671

1,261,305,026 1,415,564,198

1,669,500,074

1,892,850,997

Finance cost
Contribution to
WPFF
Profit before tax

879,776,266

Tax Expenses

219,659,778

278,256,019

351,825,993

474,801,252

495,835,320

Net Income

660,116,488

981,890,642

1,066,653,114

1,194,445,992

1,400,779,881

Table 8: Horizontal Analysis of Condensed Income Statement

HORIZONTAL ANALYSIS
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2013-2010
Particulars

2009

2010

2011

2012

2013

Turnover

100.00%

132.22%

164.14%

191.55%

222.56%

Cost of sales

100.00%

132.32%

169.22%

195.72%

238.93%

Gross Profit

100.00%

132.13%

159.56%

187.78%

207.78%

Operating Expenses

100.00%

124.13%

153.79%

170.19%

182.60%

Operating Profit

100.00%

141.04%

166.00%

207.39%

235.85%

Finance cost

100.00%

117.22%

219.71%

385.13%

449.04%

Contribution to WPFF

100.00%

143.28%

163.62%

194.73%

215.09%

Profit before tax

100.00%

143.37%

160.90%

189.76%

215.15%

Tax Expenses

100.00%

126.68%

160.17%

216.15%

225.73%

Net Income

100.00%

148.75%

161.59%

180.94%

212.20%

26

Figure 1: Horizontal Analysis of Income Statements with 2009 as base year

Horizontal Analysis of Income Statements with 2009 as

base year
300.00%

Percentage

250.00%
200.00%
150.00%
100.00%
50.00%
0.00%

2009

2010

2011

2012

2013

100.00%

132.22%

164.14%

191.55%

222.56%

Cost of Sales

100%

132.32%

169.22%

195.72%

238.93%

Gross Profit

100%

132.13%

159.56%

187.78%

207.78%

Operating Expenses

100%

124.13%

153.79%

170.19%

182.60%

Operating Profit

100%

141.04%

166%

207.39%

235.85%

Net Income

100%

148.75%

161.59%

180.94%

212.20%

Turnover

4.1.2 HORIZONTAL ANALYSIS OF BALANCE SHEET

Table 9: HORIZONTAL ANALYSIS OF BALANCE SHEET FROM 2010-2013
RENATA LIMITED
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE BALANCE SHEET
FOR THE YEAR ENDED 31 DECEMBER 2013-2010
Item

2009

2010

2011

2012

2,208,262,855

3,050,606,199

5,227,476,247

6,442,857,255

8,573,700,405

Current Assets

1,643,106,431

2,081,678,039

2,464,125,653

3,310,220,716

4,208,712,799

Total Assets

3,851,369,286

5,132,284,238

7,691,601,900

9,753,077,971 12,782,413,204

Equity

2,207,279,956

2,971,470,944 3,958,608,036

5,070,479,748

6,295,114,611

234,362,730

291,256,473

347,143,580

1,672,407,706

1,153,677,518

1,409,726,600

1,869,556,821

3,385,850,284

3,010,190,517

5,333,621,075

1,644,089,330

2,160,813,294

3,732,993,864

4,682,598,223

6,487,298,593

Non-current
Assets

Non-Current
Liabilities
Current
Liabilities
Total Liabilities

2013

27

Total Liabilities
and Equity

3,851,369,286

5,132,284,238

7,691,601,900

9,753,077,971

12,782,413,204

Figure 2: Horizontal Analysis of Condensed Balance Sheet

Horizontal Analysis of Condensed Balance Sheet

800%

700%

600%

Percentage

500%

400%

300%

200%

100%

0%

2009

2010

2011

2012

2013

Non Current Assets

100%

138.15%

236.72%

291.76%

388.26%

Current Assets

100%

126.69%

149.97%

201.46%

256.14%

Total Assets

100%

133.26%

199.71%

253.24%

331.89%

Equity

100%

134.62%

179.34%

229.72%

285.20%

Non Current Liabilities

100%

124.28%

148.12%

713.60%

492.26%

Current Liabilities

100%

132.62%

240.18%

213.53%

378.34%

Total Liabilities

100%

131.43%

227.06%

284.81%

394.58%

Total Liabilities and Equity

100%

133.26%

199.71%

253.24%

331.89%

4.2 VERTICAL ANALYSIS

Vertical analysis is a popular method of financial statement analysis that shows each item on a
statement as a percentage of a base figure within the statement.

28

To conduct a vertical analysis of balance sheet, the total of assets and the total of liabilities and
stockholders equity are generally used as base figures. All individual assets (or groups of assets
if condensed form balance sheet is used) are shown as a percentage of total assets. The current
liabilities, long term debts and equities are shown as a percentage of the total liabilities and
stockholders equity.
To conduct a vertical analysis of income statement, sales figure is generally used as the base and
all other components of income statement like cost of sales, gross profit, operating expenses,
income tax, and net income etc. are shown as a percentage of sales.
The main advantages of vertical analysis are that the balance sheets of businesses of all sizes can
easily be compared. It also makes it easy to see relative annual changes within one business.
4.2.1 VERTICAL ANALYSIS OF INCOME STATEMENT
Table 10: Condensed Consolidated Statement of Comprehensive Income
RENATA LIMITED
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2013-2010
Item

2009

2010

2011

2012

2013

Net Turnover

3,900,732,314 5,090,318,113 6,519,639,234 7,671,572,303 8,757,405,748

Cost of sales

1,820,496,777 2,405,361,976 3,099,355,955 3,619,613,644 4,316,775,028

Gross Profit

2,080,235,537 2,684,956,137 3,420,283,279 4,051,958,659 4,440,630,720

Operating Expenses

1,118,768,795 1,378,630,620 1,702,913,272 1,880,631,103 2,031,342,267

Operating Profit

969,517,257

Finance cost

99,513,638

117,473,675

215,315,416

381,110,055

429,297,480

41,151,504

56,480,177

71,941,847

85,618,793

94,267,953

Contribution to
WPFF

1,312,317,634 1,717,370,007 2,171,327,556 2,409,288,453

Profit before tax

823,030,095

1,129,603,554 1,438,836,938 1,721,977,645 1,885,359,052

Tax Expenses

219,505,643

278,175,022

Net profit after Tax

603,524,452

851,428,532

1,087,719,131 1,247,528,160 1,390,164,527

1,090,634,041 1,247,275,330 1,393,928,731

351,117,807

474,449,485

495,194,525

Total
comprehensive
income

29

Figure 3: Vertical Analysis of Income Statement

Vertical Analysis of Income Statement

120.00%

Percentage

100.00%
80.00%
60.00%
40.00%
20.00%
0.00%

2009

2010

2011

2012

2013

100.00%

100.00%

100.00%

100.00%

100.00%

Cost of Sales

47%

47.25%

47.54%

47.18%

49.29%

Gross Profit

53%

52.75%

52.46%

52.82%

50.71%

Operating Expenses

29%

27.08%

26.12%

24.51%

23.20%

Operating Profit

25%

25.78%

26%

28.30%

27.51%

Net Income

0%

19.29%

16.73%

16.26%

15.92%

Turnover

4.2.2 VERTICAL ANALYSIS OF BALANCE SHEET

Table 11: Condensed Consolidated Statement of Comprehensive Balance Sheet
RENATA LIMITED
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE BALANCE
SHEET
FOR THE YEAR ENDED 31 DECEMBER 2013-2010
Item

2009

2010

2011

2012

2013

Non-Current
Assets

2,208,262,855 3,050,606,199 5,227,476,247 6,442,857,255

8,573,700,405

Current

1,643,106,431 2,081,678,039 2,464,125,653 3,310,220,716

4,208,712,799

Assets
Total Assets

3,851,369,286 5,132,284,238 7,691,601,900 9,753,077,971 12,782,413,204

Equity

2,207,279,956 2,971,470,944 3,958,608,036 5,070,479,748 6,295,114,611

Non-Current
Liabilities

234,362,730

291,256,473

347,143,580 1,672,407,706

1,153,677,518

Current

30

Liabilities

1,409,726,600 1,869,556,821 3,385,850,284 3,010,190,517

5,333,621,075

Total

1,644,089,330 2,160,813,294 3,732,993,864 4,682,598,223

6,487,298,593

Liabilities
Total
Liabilities and

3,851,369,286 5,132,284,238 7,691,601,900 9,753,077,971 12,782,413,204

Equity

Figure 4: Vertical Analysis of Condensed Balance Sheet

Vertical Analysis of Condensed Balance Sheet

120%

100%

Percentage

80%

60%

40%

20%

0%

2009

2010

2011

2012

2013

Non Current Assets

57%

59.44%

67.96%

66.06%

67.07%

Current Assets

43%

40.56%

32.04%

33.94%

32.93%

Total Assets

100%

100%

100%

100%

100%

Equity
Total Liabilities
Total Liabilities and Owner's Equity

57%

57.90%

51.47%

51.99%

49.25%

42.69%

42.10%

48.53%

48.01%

50.75%

100%

100%

100%

100%

100%

4.3 FINANCIAL TRENDS OVER THE YEARS

The figures below shows the financial trends highlighted in the annual report. The trends show
that the net profit, gross profit, net turnover and dividend are all increasing from 2010 to 2013.

31

Every segment shows strong and consistent growth. Chapter-4 would give the full financial
analysis of the Renata limited.
Figure 5: Trend of Net Turnover

Turnover (Net)
2013
2012
2011
2010
0
Turnover (Net)

2,000,000 4,000,000 6,000,000 8,000,000 10,000,000

2010
5,090,318

2011
6,519,639

2012
7,671,572

2013
8,757,406

Figure 6: Trend of Net income

Total comprehensive income

2013
2012
2011
2010
0
Total comprehensive
income

500,000

1,000,000

1,500,000

2010

2011

2012

2013

851,428

1,090,634

1,247,275

1,393,928

32

Figure 7: Trend of Gross profit

Gross Profit
2013
2012
2011
2010
0
Gross Profit

1,000,000 2,000,000 3,000,000 4,000,000 5,000,000

2010
2,684,956

2011
3,420,283

2012
4,051,959

2013
4,440,631

Figure 8: Trend of Dividends

Dividend
2013
2012
2011
2010
0
Dividend

100,000
2010
153,636

200,000
2011
192,045

300,000
2012
240,056

400,000
2013
353,023

33

Figure 9: Comparing EPS and DPS

Comparing EPS and DPS

45
40
35
30

Taka

25
20
15
10
5
0

2010

2011

2012

2013

Earning per share (Taka)

24.15

30.81

35.34

39.38

Dividend per share (Taka)

8.5

8.5

8.5

2.8

Figure 10: Comparing Turnover, Income and Dividends

Comparing Turnover, Income and Dividends

10,000,000
9,000,000
8,000,000
7,000,000

Taka

6,000,000
5,000,000
4,000,000
3,000,000
2,000,000
1,000,000
0

2010

2011

2012

2013

5,090,318

6,519,639

7,671,572

8,757,406

Total comprehensive income

851,428

1,090,634

1,247,275

1,393,928

Dividend

153,636

192,045

240,056

353,023

Turnover (Net)

34

Figure 11: Comparing Income, Current Assets and Liabilities

Comparing Income, Current Assets and Liabilities

6,000,000
5,000,000

Axis Title

4,000,000
3,000,000
2,000,000
1,000,000
0

2010

2011

2012

2013

Current Assets

2,063,325

2,464,125

3,310,221

4,208,713

Current Liabilities

1,851,205

3,385,850

2,876,857

5,333,621

851,428

1,090,634

1,247,275

1,393,928

Total comprehensive income

4.4 RATIO ANALYSIS

4.4.1 DEFINITION OF 'RATIO ANALYSIS'
Quantitative analysis of information contained in a companys financial statements. Ratio
analysis is based on line items in financial statements like the balance sheet, income statement
and cash flow statement; the ratios of one item or a combination of items - to another item or
combination are then calculated. Ratio analysis is used to evaluate various aspects of a
companys operating and financial performance such as its efficiency, liquidity, profitability and
solvency. The trend of these ratios over time is studied to check whether they are improving or
deteriorating. Ratios are also compared across different companies in the same sector to see how
they stack up, and to get an idea of comparative valuations. Ratio analysis is a cornerstone of
fundamental analysis.
While there are numerous financial ratios, most investors are familiar with a few key ratios,
particularly the ones that are relatively easy to calculate. Some of these ratios include the current
ratio, return on equity, the debt-equity ratio, the dividend payout ratio and the price/earnings
(P/E) ratio. For a specific ratio, most companies have values that fall within a certain range. A

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company whose ratio falls outside the range may be regarded as grossly undervalued or
overvalued, depending on the ratio.
For example, if the average P/E ratio of all companies in the S&P 500 index is 20, with the
majority of companies having a P/E between 15 and 25, a stock with a single-digit P/E would be
considered undervalued, while one with a P/E of 50 would be considered overvalued. Of course,
this ratio would typically only be considered as a starting point, with further analysis required to
identify if these stocks are really as undervalued or overvalued as the P/E ratios suggest.
As well, ratios are usually only comparable across companies in the same sector, since an
acceptable ratio in one industry may be regarded as too high in another. For example, companies
in sectors such as utilities typically have a high debt-equity ratio, but a similar ratio for a
technology company may be regarded as unsustainably high.
Ratio analysis can provide an early warning of a potential improvement or deterioration in a
companys financial situation or performance. Analysts engage in extensive number-crunching
of the financial data in a companys quarterly financial reports for any such hints.
Successful companies generally have solid ratios in all areas, and any hints of weakness in one
area may spark a significant sell-off in the stock. Certain ratios are closely scrutinized because of
their relevance to a certain sector, as for instance inventory turnover for the retail sector and days
sales outstanding (DSOs) for technology companies.
4.4.2 PROFITABILITY RATIO
A class of financial metrics that are used to assess a business's ability to generate earnings as
compared to its expenses and other relevant costs incurred during a specific period of time. For
most of these ratios, having a higher value relative to a competitor's ratio or the same ratio from a
previous period is indicative that the company is doing well.
Some examples of profitability ratios are profit margin, return on assets and return on equity. It is
important to note that a little bit of background knowledge is necessary in order to make relevant
comparisons when analyzing these ratios.
For instance, some industries experience seasonality in their operations. The retail industry, for
example, typically experiences higher revenues and earnings for the Christmas season.

36

Therefore, it would not be too useful to compare a retailer's fourth-quarter profit margin with its
first-quarter profit margin. On the other hand, comparing a retailer's fourth-quarter profit margin
with the profit margin from the same period a year before would be far more informative.
Profitability Ratio Analysis for the years 2009 to 2013 are given below:
Figure 12: Profitability Ratio Analysis

Profitability Ratio Analysis

60.00%

Percentage

50.00%
40.00%
30.00%
20.00%
10.00%
0.00%

2009

2010

2011

2012

2013

Gross Profit Margin

53.33%

52.75%

52.46%

52.82%

50.71%

Net Profit Margin

15.47%

16.73%

16.68%

16.26%

15.87%

ROE

27.34%

32.88%

31.39%

27.63%

24.46%

ROA

15.68%

18.96%

16.96%

14.30%

12.34%

ROI

24.72%

26.10%

25.26%

18.50%

18.66%

4.4.3 LIQUIDITY RATIO

This is a measurement of a companys capacity to pay for its liabilities with its assets. The
overall liquidity ratio is calculated by dividing total assets by the difference between total
liabilities and conditional reserves. This ratio is used in insurance company analysis, as well as in
the analysis of financial institutions.
Regulators use financial metrics, like the overall liquidity ratio, to determine whether an insurer,
bank, or other financial company is healthy enough to cover its liabilities. Other similar metrics
include the quick liquidity and current liquidity ratios. Quick liquidity compares liabilities to
assets that are readily available for use, including cash, short-term investments, government
bonds, and unaffiliated investments.
Financial and insurance companies use the cash that their activities generate to obtain a return. A
bank, for example, may primarily use deposits to provide mortgages and other loans. The
balance of deposits that it has left over may be kept as cash, or may be invested in liquid assets.
Insurance companies are liable for the benefits that they guarantee by underwriting policies.
37

Depending on the duration of the policy, the liability can last anywhere from a few months to a
few years. Liabilities that end after one year are considered current liabilities.
The amount of money that the financial institution or insurer has to keep readily available to
cover assets is determined by regulators. Regulators examine liquidity ratios to determine
whether the company is complying with its legal requirements. A low overall liquidity ratio
could indicate that the financial or insurance company is in financial trouble, whether from poor
operational management, risk management, or investment management. A high overall liquidity
ratio isnt necessarily good either, especially if current assets represent a high percentage of total
assets. A large proportion of current assets mean that the company may not be earning a high
enough return on assets as it may be focusing too much on liquidity.
Liquidity Ratio Analysis for the years from 2009-2013 are given below:
Table 12: Liquidity Ration Analysis
Item

2009

Current Ratio

2010

2011

2012

2013

116.55%

111.35%

72.78%

109.97%

78.91%

40.28%

42.03%

25.96%

43.97%

29.08%

Quick (Acid Test) Ratio

Figure 13: Comparing the Liquidity Ratios

Comparing the Liquidity Ratios

140.00%
120.00%
100.00%
80.00%
60.00%
40.00%
20.00%
0.00%
2009

2010
Current Ratio

2011

2012

2013

Quick (Acid Test) Ratio

38

4.4.4 EFFICIENCY (ACTIVITY) RATIO

It refers to ratios that are typically used to analyze how well a company uses its assets and
liabilities internally. Efficiency Ratios can calculate the turnover of receivables, the repayment of
liabilities, the quantity and usage of equity and the general use of inventory and machinery.
Some common ratios are accounts receivable turnover, fixed asset turnover, sales to inventory,
sales to net working capital, accounts payable to sales and stock turnover ratio. These ratios are
meaningful when compared to peers in the same industry and can identify businesses that are
better managed relative to the others. Also, efficiency ratios are important because an
improvement in the ratios usually translate to improved profitability.
The Activity Ratio Analysis for the years 2009-2013 are provided below:
Table 13: Efficiency (Activity) Ratios
Item

2009

2010

2011

2012

2013

Total Asset Turnover

1.01

1.13

1.02

0.88

0.78

Account Receivable Turnover

11.34

12.38

11.66

10.34

8.82

Average Receivables Collection Period

32

29

31

35

41

Inventory Turnover

1.79

2.03

2.15

2.03

1.86

Average Inventory Holding Period

201

177

167

178

194

39

Figure 14: Activity Ratios

Acitivity Ratios
13
12
11
10
9
8

Ratio

7
6
5
4
3
2
1
0

2009

2010

2011

2012

2013

1.02

0.88

0.78

11.66

10.34

8.82

2.03

1.86

Total Asset Turnover

1.01

1.12

Accounts Reveiveable Turnover

11.34

12.38

Inventory Turnover

1.79

2.03

2.15

Figure 15: Comparing A/R Collection and Inventory Holding Period

Comparing A/R Collection Period and Inventory Holding

Period
225
200
175

Days

150
125
100
75
50
25
0

2009

2010

2011

2012

2013

A/R Collection Period

32

29

31

35

41

Inventory Holding Period

201

177

167

178

194

40

4.4.5 SOLVENCY RATIO

A key metric used to measure an enterprises ability to meet its debt and other obligations. The
solvency ratio indicates whether a companys cash flow is sufficient to meet its short-term and
long-term liabilities. The lower a company's solvency ratio, the greater the probability is that it
will default on its debt obligations.
Solvency ratio, with regard to an insurance company, means the size of its capital relative to the
premiums written, and measures the risk an insurer faces of claims it cannot cover. The solvency
ratio is only one of the metrics used to determine whether a company can stay solvent. Other
solvency ratios include debt to equity, total debt to total assets, and interest coverage ratios.
However, the solvency ratio is a comprehensive measure of solvency, as it measures cash flow
rather than net income by including depreciation to assess a companys capacity to stay afloat.
It measures this cash flow capacity in relation to all liabilities, rather than only debt. Apart from
debt and borrowings, other liabilities include short-term ones such as accounts payable and longterm ones such as capital lease and pension plan obligations.
Measuring cash flow rather than net income is a better determinant of solvency, especially for
companies that incur large amounts of depreciation for their assets but have low levels of actual
profitability. Similarly, assessing a companys ability to meet all its obligations rather than debt
alone provides a more accurate picture of solvency. A company may have a low debt amount,
but if its cash management practices are poor and accounts payable is surging as a result, its
solvency position may not be as solid as would be indicated by measures that include only debt.
A companys solvency ratio should also be compared with its competitors in the same industry
rather than viewed in isolation. For example, companies in debt-heavy industries like utilities
and pipelines may have lower solvency ratios than those in sectors such as technology. To make
an apples-to-apples comparison, the solvency ratio should be compared for all utility companies,
for example, to get a true picture of relative solvency.
Solvency Ratio Analysis for the years 2009-2013 are given below:

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Table 14: Solvency Ration Analysis for the years 2009-2013

Item
Debt to Total Equity Ratio
Interest Coverage Ratio

2009

2010

2011

74.48%

72.72%

94.30%

9.74

Debt to Total Asset Ratio

11.17

42.69%

7.98

42.10%

48.53%

2012

2013

92.35% 103.05%
5.70
48.01%

5.61
50.75%

4.4.6. OTHERS
There are some other ratios available that can assess the financial position of a company.
Some are listed below with analysis from 2009-2013:
Table 15: Other Ratios Analysis for the years 2009-2013
Item

2009

2010

2011

2012

2013

Dividend Per Share

8.50

8.50

8.50

8.50

10.00

20.37%

18.04%

17.66%

24.05%

25.39%

28.87

27.48

25.03

20.93

18.33

Dividend Payout Ratio

Price Earnings Ratio
(P/E)

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5.0 CONCLUSIONS
By analyzing all the data including Horizontal Analysis, Vertical Analysis and Ratio
Analysis, it can be concluded that:
5.1 HORIZONTAL ANALYSIS:
5.1.1 INCOME STATEMENT
From Table 7 and Figure 2, the horizontal analysis of condensed income statement from 2010 to
2013, taking 2010 as the base year and comparing the values of 2011, 2012 and 2013 with 2010.
It is seen that the Turnover, Gross profit, Operating profit and Total comprehensive income for
the year increases from 2010 to 2013. Therefore the company is fairly profitable with a
consistence in performance.
5.1.2 BALANCE SHEET
The table-9 shows the horizontal analysis of balance sheet it is seen that the Total asset has
increased by around 139% from 2010, thus showing that the company asset is increasing. The
owners equity increased showing the investing of the in the business, or to increase in profits.
The total current liability decreased from 2012 to 2013 thus showing that the creditors were paid,
but the liability increased showing the company is not efficient enough to have revenue increased
when liability is increased.
5.2 VERTICAL ANALYSIS
5.2.1 INCOME STATEMENT
From Table 11 and Figure 4 showing the Vertical Analysis of the Condensed Income Statement
of Renata Limited from 2009 to 2013, the trend shows that the Cost of Sales has remained almost
constant with a slight jump in the last year. Gross Profit, as such has reduced slightly over the
years. Operating expenses has reduced dramatically, considering the overall COGS being stable.
While Operating Profit has increased gradually over the years, the Net Income has reduced
slightly. Net Income was at its highest in 2010 with 19.2% of Total Turnover and the lowest of
15.92% in 2013.
5.2.2 BALANCE SHEET
Figure 5 and Table 13 shows the Vertical Analysis of Condensed Balance Sheet of Renata
Limited between the years 2009-2013, keeping Total Assets and Total Liabilities and Owners
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Equity as the base, it is seen that On Current Assets increased gradually between years 2009 and
2010 followed by a slight drop from 68% to about 66% in 2012 which it recovered to some
extent in 2013. Current Assets on the other hand shows a gradual decrease with only 2012
showing a slight increase from 32% to 34%. Overall, Current Assets decreased from 43% to 33%
between 2009 and 2013. Equity saw a major decrease between 2009 and 2013, falling from 57%
to 50% over the years with only a slight increase in 2010 from 57% to 58%. Total Liabilities was
the only portion that showed a gradual increase from 2009s 43% to 51% in 2013.
5.3 FINANCIAL TREND ANALYSIS
Figure 6 shows the gradual increase of Turnover from 2010 to 2013. Between the years, it
increased from BDT 5 million to BDT 8.75 million. Figure 7 shows Total Comprehensive
Income also showed strong growth increasing from BDT 0.85 million to almost BDT 1.4 million
between 2010 and 2013. Figure 8 shows Dividend increased gradually over the years from BDT
0.15 million in 2010 to BDT 0.35 million in 2013, with a major increase in 2013 from BDT 0.24
million. Figure 10 shows that while EPS has increased dramatically over the years from just
BDT 24.15 in 2010 to 39.38 in 2013, DPS remained constant between 2010 and 2012 at 8.5 with
a sudden decrease to 2.8 in 2013.
Figure 12 compares the Current Asset, Liabilities and Total Comprehensive Income. It is seen
that Current Liabilities seems to have an unstable record with a sudden increase in 2011 followed
by a major dip in 2012 and a much strong comeback in 2013. This shows that the company takes
a number of short term loans which, however, does not seem to show much positive effect on the
profitability of the company.
5.4 PROFITABILITY RATIO
Profitability Ratios of Renata Limited, as shown in Table 14 and Figure 13, is seen to have a
slow but steady decline with 53.33% in 2009 to 50.71% in 2013. The trend of Net Profit Margin
however is unstable, with ups and downs between the years. ROE showed strong increase in
2010 with a strong jump from 27.34% to 32.88% which was shadowed by ROA increasing from
15.67% to 18.96%. Both then continued to a gradual drop with ROE ending up at 24.46% and
ROA at 12.34% in 2013. EPS however has increased over the years from BDT 17.1 in 2009 to
BDT 39.38 in 2013.

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5.5 LIQUIDITY RATIO

Liquidity Ratio shown in Table 16 and Figure 14, shows a gradual decrease of both Current
Ratio and Quick (Acid Test) Ratio. It decreased from 116.55% in 2009 to 78.91% in 2013 with
2012 showing a sudden jump from 72.78% to 109.97%. Quick Ratio followed the same trend as
seen in Figure 14, where they shadow the line of Current Ratio.
5.6 EFFICIENCY RATIO
The efficiency ratios are shown in Table 17 and Figure 15. Total Asset Turnover shows a major
dip from 1.01 in 2009 to 0.78 in 2013. This shows a poor level of profit per assets, mainly
because of the sudden increase in the Current Assets of the company. Accounts Receivable
turnover reduced over the years which are shown by the Average Receivables Collection Period
increasing from 32 days in 2009 to 41 days in 2013. Meanwhile, the Inventory Holding Period
showed a gradual decrease in the first 2 years this was covered by the last 2 year and remained
almost same.
5.7 SOLVENCY RATIO
The Solvency Ratios and are shown in Table 18, where Debt to Equity Ratio shows a gradual
increase from 74.48% in 2009 to 103.05% in 2013, while the Interest Coverage Ratio shows a
major dip between 2009 and 2013, falling from 9.74 times to 5.61 times. Meanwhile, the Debt to
Asset Ratio showed a major increase from 42.69% to 50.75% between 2009 and 2013.

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46