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BRAC UNIVERSITY

Financial management (Fin 501)


Report :

Financial Analysis on

APEX TANNERY LIMITED.

Report: Financial Analysis on APEX TANNERY LIMITED

Prepared for: Anup Chowdhury


Course Instructor
Fin-501
Prepared by: Niladri Khsatagir
Sheik Lemon Ali
Mahmudul Hasan
Qazi Mahmudul Hasan
Mushfeka Ahmed
Swapan Bairagi

06364016
06364043
06364023
06264017
05264008
05364004

Department: MBA, Brac Business School.

Table of Contents
Executive Summary
Introduction.-------------------------------------------------------------- 06
Objective of the study.-------------------------------------------------- 06
Limitations of the study.------------------------------------------------ 06
APEX TANNERY LIMITED fact file. ------------------------------- 07
Tannery industry and Apex--------------------------------------------- 08
Financial Equilibrium --------------------------------------------------- 09
Ratio Analysis Dimensions -------------------------------------------- 10
Liquidity Ratio ------------------------------------------------------ 11
Current Ratio------------------------------------------------------------------- 10
Quick Ratio--------------------------------------------------------------------- 11
Efficiency / Activity Ratio ---------------------------------------------- 12
Accounts Receivable Turnover----------------------------------------------12
Average Collection Period --------------------------------------------------13
Inventory Turnover Ratio ---------------------------------------------------14
Inventory Collection Period -------------------------------------------------15
Total Assets Turnover --------------------------------------------------------16
Accounts Payable Turnover -------------------------------------------------17
Operating Cycle ----------------------------------------------------------------18
Profitability Ratio ------------------------------------------------------

19
19

Gross Profit Margin ------------------------------------------------------------Operating Profit Margin Ratio --------------------------------------------------- 20


Net profit margin ratio ------------------------------------------------------------- 21
Return on Assets (ROA) --------------------------------------------------------22
Return on Equity (ROE) --------------------------------------------------------- 23

Leverage or Solvency Ratio --------------------------------------------

24
Debt Ratio --------------------------------------------------------------------------- 24
LTD to Total Capitalization Ratio ------------------------------------------------ 25
Interest Earned Ratio ---------------------------------------------------------------- 26

Debt to Equity Ratio --------------------------------------------------

27

Market Based Ratio ---------------------------------------------------Dividend per Share----------------------------------------------------------------Earning Per Share ----------------------------------------------------------------Price-Earning Ratio ---------------------------------------------------------------

28
28
29
30

Dividend yield -----------------------------------------------------------

31

DU- Pont Analysis -----------------------------------------------------

32

Common-size statements ----------------------------------------------

35

Introduction
Financial analysis of any Financial Statements provides us the information about
companys status or present condition in the industry in which it belongs. Any financial
statement should be users friendly that would be easily understood by the users.
Financial statements contain information about overall financial information and
condition of the company. It is so important to investors, creditors and other stakeholders
to take economic decisions about a company.
Through financial analysis the entire decision maker can take a prudent decision.
We are doing a financial analysis on the company Apex Tannery Limited to find out
their status in the tannery industry.

Objective of the study.


Our main objective of the study is to critically examine the performance of the company
in the tannery industry in Bangladesh. To acquire the main objective the following study
covers the following specific objectives:
i)
To examine the liquidity condition of the company.
ii)
To examine the profitability condition of the company.
iii)
To examine the adequate cash balance through financial equilibrium.
iv)
To examine the efficiency and solvency position of the company
v)
To examine the proportion of asset and liability in relation to total asset.

Limitations of the study


Financial analysis requires vast source of information, but due to some factor we didnt
do as per desire. Due to time constraint we couldnt interview the personnel of company
and we had to remain confine with in the information provided by the annual report.
From the report we got only two years data which is not proper way to get proper
scenario of a company.

APEX TANNERY LIMITED


Corporate HeadquaterRegistration No:

127 Hazaribagh T/A, Dhaka- 1209,


Bangladesh.
4859

Date of Registration;

26/07/76

Factory: Unit-1
Unit -2

127 Hazaribagh T/A, Dhaka- 1209, Bangladesh.


Safipur, Kaliakoir, Gazipur.

Authorized capital-

Tk. - 500,000 (in thousands)

Paid up capital-

Tk. - 152,400 (in thousands)

Bankers

Agrani Bank
Amin Court Branch
Motijheel C/A, Dhaka-1000.

Employment
Workers
Staff
Management

Year 2007
712
155
28

Year 2006
640
142
28

Tannery
Tannery transforms raw hides and skins into leather for manufacturing articles like shoeupper, bag, suitcase, belt, wallet and jacket. In the past, leather processing was done
manually using certain indigenous chemicals.
Bangladesh produces approximately 100-150 million sq feet of raw hides and skins,
about 85% of which is exported in crust and finished form. The rest is used for producing
leather goods to cater to the domestic market.
Leather is a traditional export item of Bangladesh. Therefore, the only way of increasing
earnings from this sector is the production and export of higher value leather products for
which international demand is growing. International market for leather is highly
fluctuating, hence the earnings from its export. Until 2001, annual export receipts from
this sector remained below taka one billion. Some projections suggest that if properly
organized, this figure could be raised to Tk 5 billion.

Apex Tannery is the largest tannery in Bangladesh and also one of the largest in the
South Asia. It is 100% export oriented company. The company is using latest machines.
Apex Tannery Limited was incorporated as a private limited company on the 6 th day of
july 1976 under companies act 1913.It was converted into a public limited company in
1986. the shares of the company are publicly traded on the floors of Dhaka Stok
Exchange Limited and Chittagong Stock Exchange Limited.
Apex tannery produces world-class quality leather by transfer of technology from Italy.
Its annual capacity is about 245.5 million sft. of finished goat and cow leather. Apex
exports to EU, Brazil, and China.

Financial Equilibrium
Financial equilibrium concept is used to find out firms need of sufficient cash to pay
debts maturing in the future, to pay interest and other expenses and to pay dividends to
share holders. Any firm running with financial equilibrium can meet up its liabilities.
A firm is in financial equilibrium when at any time the beginning balance of liquidity
added to the changes is greater than zero. I.e.,
Beginning balance of liquidates + > 0
Or Ending balance of liquidates > 0

YEAR
FINANCIAL
EQUILIBRIUM

June 30,2007
11,101

Tk in Thousands
June 30, 2006
30,785

From the above table, we find that the equilibrium has decrease in 2007. But it is true that
the Apex tannery ltd was capable of meeting up its all expenses and liabilities for the both
years.

Ratio Analysis Dimensions


Ratio analysis is a powerful tool of financial analysis. A ratio is used as a benchmark
for evaluating the financial position and performance of a firm. Ratios help to
summarize large quantities of financial data and to make qualitative judgment about
the firms financial performance.

We have used the following ratios to evaluate the firms strength, weakness opportunity
and threats. These are as follows;
Liquidity Ratio
Current Ratio
The ability to meet up the current obligations is measured by Liquidity ratio. The
creditors use this ratio to evaluate the credit worthiness of the firm.
Year
CR: CA/CL

June 30,2007
1.6604

June 30, 2007


1.7788

Current Ratio

Tim es

1.8
1.7
1.6
2007

2006
Year

By following the above trends we can sum up that in 2007repay the short-term obligation
has decreased. This is because current liabilities have increased (16.57%) and along with
current assets have been increased (8.80%) which is not increased at same proportion.
And that caused fall in the current ratio.

10

Quick Ratio
The quick ratio indicates how many times the quick assets are over the current
liabilities.
Year
QR: CA-IN/CL

June 30, 2007


0.38

June 30,2007
0.50

Quick Ratio

Times

0.6
0.4

Series1

0.2
0
2007

2006
YEAR

The quick ratio of 2007 indicates that the firm has only Tk. 0.38 of quick assets to meet
Tk. 1 of current liabilities, which was lower than the year 20066. This implies that the
Apex Tannery had not enough quick assets compared to the 2006, to meet its obligations.
If we compare with the figure of 2006, we can see it has declined due to decline in
current ratio. But this ratio has declined more because it includes inventory which is
major component of current assets has increased in 2007. The inventory has increased by
17.25%.
Major Findings regarding liquidity dimension
From the above traditional liquidity measure we find that in 2007, Apex Tannery Ltd has
been less liquid than that of 2006 and the firms liability has increased not at same
proportion of current assets. So the firm may face liquidity crisis in future. It is to be
noted here that due to less liquid condition and to maintain future liquidity position firm
has tighten its credit policy, which may help the firm to pay out its current obligation in
time.

11

Efficiency / Activity Ratio


Activity ratios/ Turnover ratios are employed to evaluate the efficiency with which the
firm manages and utilizes its assets. They indicate the speed with which assets are being
covered or turned over into sales; activity ratios thus involve a relationship between
assets.
Accounts Receivable Turnover
Accounts Receivable Turnover indicates the number of times debtors turnover each year.
Year
ART:Sales/Acc.Receicvable

June 30,2007
11.64

June 30, 2006


11.59

Times

Accounts Receivable
11.66
11.64
11.62
11.6
11.58
11.56
2007

2006
Year

From above we can figure out that this increasing value of turnover indicates that Apexs
credit managements are efficient. A/C receivable turn over has increased due to decline in
sundry debtors although sales have increased. Low a/c receivable decrease opportunity
cost of having cash tied up in receivables.

12

Average Collection Period


The average collection period are used to measure the quality of debtors since it
indicates the speed of their collection.
Year
ACP: Acc.Rec/Sales*360

June 30, 2007


30.92

June 30,2007
31.05

Times

Avgerage Collection Period


31.1
31
30.9
30.8
2007

2006
Year

The facts that clear to us that excessively long collection period indicating a very liberal
and inefficient credit and collection performance. The above table shows a decrease in
average collection period inn the year 2007. Which gives an indication that the firm cash
balance is tied up in receivables for a shorter period. This may be a reason to increase the
cash balance. These make the firm less dependent on its sales to maintain liquidity.

13

Inventory Turnover Ratio


The Inventory Turnover shows how rapidly the inventory is turning into receivable
through sales.
Year
ITR

2007
2.33

2006
2.35

Times

Inventory Turnover Ratio


2.36
2.35
2.34
2.33
2.32

Series1

2007

2006
Year

Analyzing the above we can say that in 2007 Inventory Turnover is slightly low than the
year 2006 which implying excessive inventory levels than warranted by production and
sales activity, or a slow-moving or obsolete inventory. Therefore we can say Apexs
inventory management has lost its efficiency than the previous year. Lower inventory turn
over period indicates that the firm can afford to keep lower inventory and still able to
maintain high level of sales.

14

Inventory Collection Period


Inventory Collection Period measures- How many months or days company has to hold
its inventory.
Year
June 30, 2007
June 30, 2007
ICP: 360/IT
154.30
153.19

Inventory Coll. Period

Times

154.5
154
153.5
153
152.5
2007

2006

Year
From the above fact and figure we can summarize that higher period implying
inefficiency in inventory collection management. So, Apex needs to keep it lower.
Inventory collection period in days has increased in 2007 as compared to 2006 due to
lower inventory turn over.

15

Total Assets Turnover


Total Asset Turnover shows the firms ability in generating sales from all financial
resources committed to total sales.

16

Year
TAT: Sales/TA

June 30 , 2007
1.74

June 30, 2006


1.64

Times

Total Asset Turnover


1.8
1.7
1.6
1.5
2007

2006
Year

Apexs high assets turnover showing efficient use of assets. That means the firm is using
its assets quite effectively. And assets management of that firm is good enough in 2007
than in 2006.

17

Accounts Payable Turnover


This ratio actually measures the number of days the firm needs to pay its trade liabilities.

A/C Payable Turnover

Times

100
50
0
2007

2006
Year

Year
APT:
Sales/
Payable

June 30, 2007


Accounts 22.79

June 30, 2006


74.28

Accounts payable turnover has decreased in the year 2007. It indicates the firm increases
its promptness in paying the trade liabilities. Accounts payable turn over has decreased
which denotes increase in accounts payable.. As accounts payable is a spontaneous source
of fund and cost free, firm can use it for operating purpose which reduces the need for
borrowing from interest bearing sources.

18

Operating Cycle
Operating cycle is a length of time between the receipts of inventory till receives of cash
from sales. That means it is the time taken to make investment in operation and collect
cash from sales made.
Operating Cycle = Inventory Turnover in Days + Average Collection Period
Year
OPC

June 30, 2007


185.42

June 30,2006
184.24

Operating Cycle
186
185.5
185
184.5
184
183.5
2007

2006
Y ear

Higher the cycle higher the period firm takes to collect and it implies inefficiency in
inventory and lenders management. The figures reveal that the firms ability in converting
the inventories into cash has declined in 2007. In 2007 the firm needs more days to
convert their inventory into cash than that of in 2006.
Major findings regarding efficiency Dimension
Analyzing the turn over ratios, we can see that Apex has been efficient in managing
current asset. The firm has made progress in utilizing its inventory and receivables. The
firm has also made progress in a/c payable turn over. But still its operating cycle and cash

19

cycle indicates that firm money is being tied up for a long time. It has significantly
affected the firms liquidity position.

20

Profitability Ratio
Profitability ratio implies profitability in relation to sales or to investment and their
impact on the firms operating income. This ratio measures the operating efficiency of the
company. Management of the company creditors and owners are interested in the
profitability of the firm.
Gross Profit Margin:
The gross profit margin reflects the efficiency with which management produces each
unit of product. This ratio indicates the average speed between the costs of good sold of
the sales revenue.
Year
June30, 2007
June 30, 2007
GPM:
.05
.07

Percentage

Gross Profit Margin


0.1
0.05

Series1

0
2007

2006
Year

In the year 2007 low gross profit margin ratio is a sign of inefficient management. Incase
of Apex, gross profit margin has decreased than 2006. This decrease is primarily to
increase in cost of good and increase in sale in absolute terms. In fact over the year 2007
sales has increased at a higher rate (14.58%).

21

Operating Profit Margin Ratio


This ratio shows operating cost efficiency. This ratio also shows how effectively a firm
can manage overheads and gain profit.
Year
OPM

June 30, 2007


0.064

June 30, 2006


0.080

Percentage

Operating Profit Margin


0.1
0.05

Series1

0
2007

2006
Year

So from the above fact and figure it is clear that lower constant ratio indicating high
operating expenses to make the sales. Analysis shows that operating profit margin
remains stable over the time period. Although there is an increase in gross profit margin,
firms operating profit margin remain stable which indicates firm has increased its sales
and reduced cost of goods sold but could not efficiently manage its over heads to gain
operation profit. So the firm has not been efficient in managing its operating costs.

22

Net profit margin ratio


Net profit margin ratio reveals a relationship between net profit and sales and indicates
managements efficiency in manufacturing, administrating and selling the products. This
ratio is used to measure a firms ability to turn each taka sales in net profit.
Year
June30,2007
June30, 2007
NPM.
.25
.22

Percentage

Net Profit Margin


0.26
0.25
0.24
0.23
0.22
0.21
0.2

Series1

2007

2006
Year

This higher ratio indicating better performance and high cost bearing ability of company.
If the net profit margin is adequate, the firm will achieve satisfactory return on
shareholders fund. In this case, we can see, net profit margin has increased in 2007 as
compared to 2006

23

Return On Assets
The return of assets implies that how many sales a firm can generate from its investment
or total assets.
Year
ROA

June 30, 2007


.01

June 30, 2007


.03

Retune on Assets

0.04
0.03
0.02
0.01
0
2007

2006
Y ear

Declining trend implies worst performance of the company. Incase of Apex, we see that
ROA has decreased in 2007 compared to 2006.

24

Return On Equity (ROE):


The return on equity implies the return that a firm generates against its common equity.
As we know high return on equity increase net worth of the firm, value of the share,
reputation of the firm, less risky for investment.
Year
ROE

June 30, 2007


.04

June 30, 2007


.06

Percentage

Return on Equity
0.08
0.06
0.04
0.02
0

Series1

2007

2006
Year

A firms always try to increase its return on equity. Apex had a ROE of 0.04 in 2007.
It means that firms equity holders are earning a return of Tk. 0.04 for Tk 100 of the
investment, which was lower than year 2006. This gives us an indication that Apex has
not gained significant efficiency in production process to earn more.
Major Findings regarding Profitability dimension
Apex has achieved a growth in profitability in the year2007 as compared to 2006. It has
gained significant progress in managing cost of goods sold to increase gross profit margin
but could not achieved efficiency in managing operating cost and the discretionary cost
which results in same operating profit margin although with an increase in sales, an
proportionate decrease in COGS. Firms net income has also been affected due to
financial expenses.

25

Leverage or Solvency Ratio


To judge the long-term financial position of a firm, financial leverage or capital structure,
ratios are calculated. This ratio is related to the extent to which a firm relies on debt
financing rather than equity financing.

Debt Ratio
Debt Ratio indicates how borrowings have financed much of the firms assets.
Year
DR

June 30, 2007


.55

June 30,2006
.53

Percentage

Debt Ratio
0.56
0.55
0.54
0.53
0.52
2007

2006
Year

In compare to 2006 Apexs debt ratio was higher indicating more contribution of
creditors over the assets than shareholders in 2007. But in 2006 it was lower which
indicates more contribution of shareholder. So, shareholders might fall in risk if the
company did not earn as much as they expected in 2006.

26

LTD to Total Capitalization Ratio

Through this ratio we could the scenario of long-term debt participation in total
capitalization.
Year
June 30 20007
June 30, 2007
LTD to TC
4.9%
8.6%

Percentage

LTD TO Capitalization Ratio


10
9
8
7
6
5
4
3
2
1
0

Series1

2007

2006
Year

From the above fact and figure we can say that in 2006 this ratio was higher which
implied higher contribution of long-term debt in total capital.
Apex didnt introduce any long-term debt in its capital. This ratio has decreased due to
paying out some portion of long-term loan in 2007, which makes the firm dependable
more on equity than loan. It has decreased the risk of the firm.

27

Interest Earned Ratio


This ratio indicates the firms ability to meet its interest payment out of its annual
operating earnings. So, higher ratio is always desirable.
year
IER

2007
3.07

2006
3.69

Percentage

Interest Earned Ratio


4
2

Series1

0
2007

2006
Year

But in case of Apex it is decreasing because excessive use of short-term debt and
inefficient operation. Analysis shows a soft decline in time interest earned ratio. This
gives an indication that the firm is likely to bear higher financial expenses in 2006.

Major findings regarding Solvency Dimension


We can conclude that firm has become less leveraged over the years as the firm is paying
out its all long-term debt. The firm is becoming less risky and equity-based company.. In
Apex assets are financed by equity and long-term debt. The firm is maintaining a
satisfactory trend in meeting its debt obligations over the time.

28

Debt to Equity Ratio


Year
D/E R

June 30, 2007


.05

June 30, 2007


.09

Percentage

Debt To Equity
0.1
0.05
0
2007

2006
Year

Apexs debt to equity ratio was higher in 2006 , due to higher use of long-term debt. But
in recent past it was came down. This implies that during the previous year they have
financed from their internal fund as well as introduced sufficient amount of short-term
debt. The firm has paid out its all long-term debt, which results in this ratio to come down
which indicates increased equity base of the firm, and it has reduced the risk of the firm.

29

Market Based Ratio


Under this analysis we have attempted to analyze the importance of information discloser
and possible reaction of investors. We know positive information is accompanied by the
increase in share price same as negative information create dilution in share price. So
firm should be careful about the information flow in market. In this part we are analyzing
the flow of information by Apex and how investor reaction changes along with these
flows.
Dividend per Share
Higher than normal dividend is given a signal to the investors that the firms management
predicting good earnings in future. On the other hand, lower than normal dividend is
given a bad signal to the investors that the firms management predicting poor future
earnings.
Year
Dividend Per Share

2007
17

2006
15

2005
13

2004
12

Taka

Dividend Per Share


20
15
10
5
0
2007

2006

2005

2004

Year

Here for Apex the dividend per share has increased through the years. This indicates the
higher efficiency of the firm and the management of the firm predicting good earnings in
future.

30

Earning Per Share


Earning per share is used to compare operating performance and for valuation purposes
either directly or together with market prices.
Year
EPS

June 30, 2007


17.56

June 30, 2006


28.07

June 30, 2005


21.30

June 30,2004
11.39

Earning Per Share

Taka

30
20
10
0
2007

2006

2005

2004

Year

From the above trend we can summarize that earning per share of this project was
decreasing over the year from the year of 2006. This was happened due to lower amount
of earnings than the investors anticipation.

31

Price-Earning Ratio
The price-earning ratio measures the degree to which the market capitalizes a firms
earnings.
Year
PER

June 30, 2007


17.00

June 30, 2006


8.91

June 30, 2005


23.45

June 30,2004
13.70

Price Earning Ratio

Ratio

30
20
10
0
2007

2006

2005

2004

Year

From the above figure it can easily say that Apexs price-earning ratio is fluctuating over
the years. Therefore, we can conclude that market was failed to capitalize its earnings.

32

Dividend yield
Year
Dividend yield

June 30, 2007


5.70

June 30, 2006


6.00

June 30, 2005


5.73

June 30,2004
4.49

Dividend Yield
8
6
4
2
0
2007

2006

2005

2004

Year

.
Due to increase in dividend per share dividend yield ratio increased over the year in the
long run it will crate positive impact on market price of the share.

33

DU- Pont Analysis


We have already compute return on equity by dividing net income by equity. Now we can
compute the same ROE by decompose the formula into 5 dimensional criteria, which are
given below:
Year

Tax
burden
(NP/EB
T)

Five- Component Disaggregating of ROE


Interest OPM
NPM
Turnover
burden EBT/
(NP/SALES TAT
ROA
(EBT/ SALES )
SALES/ NP/TA
EBIT)
TA

2007
2006

0.78
0.81

.39
.51

.03
.04

.009
0.016

1.746
1.649

0.015
0.026

Solvency
LM
TA/
EQUITY

ROE
NP/
EQU
-TY

2.1
1.95

3.%
5%

Apexs OPM decreases in year 20007 than that of previous year. It means that Apex fails
to manage its overhead effectively than that of the previous year. Thats why the firms
operating cost efficiency and production efficiency both has decreased.
On the other hand the increasing TAT shows the efficiency of the firm in squeezing out
sales from the total assets is holds. Because total asset usage to generate sales in 2007,
has done efficiently than the previous year.
Apexs interest burden has decreased in the year 2007. This was happened because Apex
paid back its debt over the year.
LM has increased which indicates debt is more than equity in generating total asset.

34

Year

Tax
Interest OPM
NPM
burden
burden EBT/
(NP/SALES)
(NP/EBT)* (EBT/ SALES* *
EBIT)*

2007 0.81
2006 0.81

.39
.51

.03
.04

0.0095
0.017

Turnover
TAT
ROA
SALES/ NP/TA*
TA

Solvency ROE
Cha
LM
NP/EQUTA/
TY
EQUITY

1.746
1.649

2.1
1.95

0.016
0.028

3.4%
5.5%

35

13%
10%

Year

Tax
Interest OPM
NPM
burden
burden EBT/
(NP/SALES
(NP/EBT) (EBT/
SALES )
EBIT)

2007 0.78
2006 0.81

Year

0.51
0.51

.03
.04

0.012
0.017

Tax
Interest OPM
NPM
burden
burden EBT/
(NP/SALES
(NP/EBT) (EBT/ SALES )
EBIT)

2007 0.78
2006 0.81

.39
.51

0.04
0.04

0.012
0.017

Turnover
TAT
ROA
SALES/ NP/TA
TA

Solvency ROE
Change
LM
NP/EQUTA/
TY
EQUITY

1.746
1.649

2.1
1.95

0.021
0.028

4.4%
5.5%

46%
10%

Turnover
TAT
ROA
SALES/ NP/TA
TA

Solvency ROE
Change
LM
NP/EQUTA/
TY
EQUITY

1.746
1.649

2.1
1.95

.021
.028

4.4%
5.4%

36

46%
8%

Year

Tax
Interest OPM
NPM
burden
burden EBT/
(NP/SALES
(NP/EBT) (EBT/ SALES )
EBIT)

2007 0.78
2006 0.81

Year

.39
.51

.03
.04

.009
0.017

Tax
Interest OPM
NPM
burden
burden EBT/
(NP/SALES
(NP/EBT) (EBT/ SALES )
EBIT)
2007 0.78
2006 0.81

.39
.51

.03
.04

.009
0.017

Turnover
TAT
ROA
SALES/
NP/TA
TA

Solvency ROE
Change
LM
NP/EQUTA/
TY
EQUITY

1.649
1.649

2.1
1.95

.015
.028

3.2%
5.5%

6%
10%

Turnover
TAT
ROA
SALES/ NP/TA
TA

Solvency ROE
Change
LM
NP/EQUTA/
TY
EQUITY

1.746
1.649

2.21
2.21

0.016
0.028

3.5%
6.2%

Analysis shows when we kept constant Tax burden then we saw that other four
parameters cause less change on ROE than the change for changing other parameters.
When we kept Interest burden constant we saw that the changes on ROE become greater
for the impact of other factor. Then we kept OPM constant the changes on ROE is little
lower. In case of TAT the change has decreased than the previous parameter. When we
kept constant LM we saw that the changes on ROE become higher than that of previous
parameter. When we keep constant any parameter the others impact on ROE. It is found
from the above charts that Interest burden has more impact on ROE

37

16%
24%

Common-size statements
. Common size statements are used to standardize financial statement components by
expressing them as a percentage of a relevant base. It is not only scaling factor for
standardization. They provide with useful information to the analyst as a first step in
developing insights into the economic characteristics of different industries and of
different firms in the same industry.
The following table represents common size income statement and balance sheet for
Apex Tannery Limited for the years 2007and 2006.The scaling factors are total assets for
the balance sheet and sales for the income statement
Common size balance sheet.
Assets
Current assets
Inventories
Trade Debtors
Advancce deposits and Prepayments
Cash &Bank Balances

As on June 30, 2007


%
1276458
87.55084
981296
76.87648
217782
17.06143
66279
5.192415
11101
0.869672

As on June 30, 2006


%
1173149
87.06826
836895
71.33749
190880
16.27074
114589
9.767642
30785
2.624134

Non current assets


Fixed assets
Investment
Total

181504
175579
5925
1457962

12.44916
12.04277
0.406389
100

174241
168316
5925
1347390

12.93174
96.59954
3.400463
100

Liabilities
Current liabilities
Short term loans
Workingh capital loan
Current portion of long term loan
Trade creditors
Sundry creditors
Provision for income tax
Proposed dividend

768763
162059
452300
27200
82420
31300
13484

52.7286
21.08049
58.83478
3.538152
10.72112
4.071476
1.753987

659482
106209
457807
27200
27312
2273
15821
22860

48.94515
16.10491
69.41918
4.124449
4.141432
0.344664
2.399004
3.466357

Long Term Liabilities


long term loan
Total

33800
33800
802563

2.318305 59270
59270
55.04691 718752

4.398875

Share holders' equity


Share capital
Share premium
Reserve for re-investment
Retained earnings
Total

655399
152400
425333
16165
61501
1457962

44.95309
23.25301
64.8968
2.466436
9.383749
100

46.65598
24.24289
67.65945
2.571432
5.526233
100

628638
152400
425333
16165
34740
1347390

53.34402

From the above common size balance sheet we can see that inventories has increased
which indicates the firm maintaining higher inventory and there has significant increase
in short term loan and decrease in long term liabilities

38

.
Common Size Profit and Loss Account
As on June 30, 2007
Sales
2535432
Cost of Sales
I. Cost of Goods Sold
2295905
Frieght & Forwarding
90524
Total
2386429
Gross Profit
149003
Other Income
14472
Operating Profit
163457
Fixed Expenses:
Administrative Expenses
Marketing Expenses
Bank Interest & Charges
Director's Remuneration
Legal and Audit Fees
Depriciation
Total

19748
49401
49380
3408
287
5682
127906

Profit before WPP & WF


35551
Provision for Contribution to WPP & WF 1693
Profit before Tax
Provision for Tax

33876
7115

Net Profit after Tax


Appropriations:
Privious year's retained earnings
Dividend
Income Tax

26761

Retained Earnings
Earning per Share(per value Tk 100)

34740
0
0
34740
61501
17.56

As on June 30, 2006


2212651
90.55281
3.570358
94.12317
5.876829
0.57079
6.446909
0
0
0.778881
1.948425
1.947597
0.134415
0.01132
0.224104
5.044742
0
1.402167
0.066774
0
1.336104
0.280623
0
1.055481
0
1.370181
0
0
0
1.370181
2.425662
0.000693

1969396
77706
2047102
165549
12006
177555

18349
49802
45792
3408
224
5057
122632
54923
2614
52309
9527
42782
17154
-22860
-2336
-8042
34740
28.07

89.00617
3.511896
92.51807
7.48193
0.542607
8.024537
0
0
0.829277
2.250784
2.069554
0.154023
0.010124
0.228549
5.542311
0
2.482226
0.118139
0
2.364087
0.430569
0
1.933518
0
0.775269
-1.03315
-0.10557
0
-0.36346
1.570062
0.001269

From the above common size Profit and Loss Account it is noticeable that sales has
increased in 2007 but cost of good sold also increased due to increased sales. Net profit
has declined though there has a increase in sales. It indicates the firm is not efficient in
managing operating and financial expenses.

Conclusion
Above financial analysis executed the over all financial condition othe firm APEX
TANNERY LIMITED. We have tried to achieve our objective through the analysis. The
39

whole analysis shows the firm as quite efficient one which operating with healthier
financial condition. Using its assets and liabilities the firm has gained success in 2007
than 2006. We found that the firm more efficient in various factors like assets using,
inventory management, debt repayment, collecting receivables, etc.
Therefore, at conclusion we can remark the firm as a promising and energetic firm which
is very much capable of competing in the relative market.

40