Financial
Statement
And Accounting
Policy Analysis
ACT 330
Group Name: luminous
Prepared By:
Name
ID
Section
0920060530
06
Fariha Tasneem
1321500030
06
1410254030
06
Farhana Amin
1310197630
06
Md.Arif Sarker
1320145030
06
1210254030
06
Submitted To:
Ms. Nabila Nisha
Lecturer, North South University
Date of submission: 28th July 2016
Letter of Transmittal
TABLE OF CONTENTS
SL.
PAGE
NO.
TOPIC
1.
Abstract
2.
Company Overview
4 to 6
3.
4.
5.
6.
7 to 8
9 to 11
11 to 17
7.
8.
21 to 26
9.
27
Abstract
Concentrating mainly on a distinction analysis of the accounting standards and
practices established in three discrete systems, this report summarizes the
major consequences related to the need for accounting convergence issues.
We first analyzed the financial reports, especially the notes to financial
statements, identified their significant transactions, estimates throughout the
year. We have also analyzed their accounting policies. We have observed that
despite operating in the same industry, there are many discrepancies in them.
This is how we understood why International convergence is required. The
purpose of this project was to enhance our depth of understanding of IFRS,
BFRS, U.S. GAAP financial statements and to apply financial statement analysis
techniques for comparison. We have got the chance to apply all the knowledge
that we have gathered so far within the classroom.
value
we
deliver
to
our
customers
being
globally
competitive,
stakeholder
relationships
and
Launched Nihar shanty Badam amla and Hair Code Keshkala in 2014
3. Abbott Laboratories:
Abbott Laboratories (Abbott), incorporated on March 6, 1900, is engaged in the
discovery, development, manufacture and sale of a line of healthcare products.
The Company operates in four business segments: Established Pharmaceutical
Products, Diagnostic Products, Nutritional Products and Vascular Products. The
Company's products include a range of branded generic pharmaceuticals
manufactured across the world and marketed and sold outside the United
States.
4. e-Therapeutics
e-Therapeutics is an AIM-listed biotechnology company with a proprietary
platform in network pharmacology, an innovative new approach to drug
discovery based on advances in network science and chemical biology. The
Companys discovery and development activity is focused in cancer and
disorders of the nervous system. e-Therapeutics is based at sites in Oxford and
Newcastle, UK..
Significant Transaction
3. Dividend paid
Industry
mark
Bangladesh
equipment.
Limited)
IFRS
LOCAL
INDUSTRY
COMPANY
COM.
COMPANY
U.S
Sales rebates
IFRS
Taxes
Inventories
Carrying valu
of goodwill
Patents
Trademarks
Long-term contacts
Property,
plant
&
equipment
depreciation
Employees
benefit
plans
Provisions
Income taxes
Property,
plant
& Pension
equipment depreciation
Reserves
Amortization
Contingencies
Deferred tax
Litigation
Deferred tax
Employee benefits
Accounts receivables
Operating
lease
Property,
plant
equipment
depreciation
Valuation of intangible Amortization
assets
payments
Inventory
Common Items of the Company Estimation:
In Appendix B we figure out the estimates companys management used in
preparing the annual report. Every company maintained their own stated rules
and regulation according country base standard. As per the guideline
requirement, in our project we can see some identical estimates i.e. Taxes are
common in all, employment benefits and property; plant & equipment
depreciation are common in minimum three companies. In this appendix we
can also see some estimates which are common in two companies i.e.
intangible assets, Inventories, sales rebate, Amortization, legal contingencies,
goodwill, trademarks, and provision.
IFRS
Lower of cost or
net realizable
value
Depreciation
straight line
method
Cash flow
presentation
Indirect method
US GAAP
Lower of
cost(firstin-first
basis) or
market
Depreciati
on straight
line
method
Indirect
method
COMMENT
Both companies from
same industry, but follow
different valuation system
Revenue
recognition
Goodwill
Sales
basis
method
No
reduction
of goodwill
relating to
impairmen
ts.
used.
Both companies are from
same industry but use
different methods of
revenue recognition.
Both companies use
different methods.
Property,
Plant &
equipmen
t
Cash flow
presentati
on
BFRS
US GAAP
COMMENT
Finished
goods
stock
Lower of
cost or
market
At the lower of
weighted average
cost or net
realizable value.
Raw
At the lower of
materials weighted average
stock
cost or net
Realizable value.
Stores
At the lower of
and
weighted
spares
average cost or net
realizable value.
Depreciation computed using
reducing balance method
Direct method
Depreciati
on straight
line
method
Indirect
method
Revenue
recognitio
n
Sales
basis
method
Goodwill
N/A
No
reduction
of goodwill
relating to
impairmen
ts.
BFRS
IFRS
COMMENT
Finished
goods
stock
Lower of
cost or net
realizable
value
Depreciati
on straight
line
method
Indirect
method
Property,
Plant &
equipmen
t
Cash flow
presentati
on
At the lower of
weighted average
cost or net
realizable value.
Raw
At the lower of
materials weighted average
stock
cost or net
Realizable value.
Stores
At the lower of
and
weighted
spares
average cost or net
realizable value.
Depreciation computed using
reducing balance method
Direct method
Revenue
recognitio
n
For current
period no
revenue is
recorded
Goodwill
N/A
Not
amortized
but is
tested
Annually
for
impairmen
12
t.
Property,
Plant &
equipmen
t
Cash flow
presentati
on
Revenue
recognitio
n
Goodwill
and other
Local company
Finished
goods
stock
At the lower of
weighted average
cost or net
realizable value.
Raw
At the lower of
materials weighted average
stock
cost or net
Realizable value.
Stores
At the lower of
andspare weighted
s
average cost or net
realizable value.
Depreciation computed using
reducing balance method
Industry
Benchmark
At the lower
of cost and
net realizable
value, based
on weighted
average cost
method
COMMENT
Depreciation
straight line
method
Direct method
Direct method
Sales basis
method
Both companies
follow same
method though
both the
companies follow
different
accounting
standards.
N/A
Stated at cost
less
Local company
has no intangible
13
intangible
assets
accumulated
amortization
and any
Impairment
losses.
assets, where
industry
benchmark has,
and follows the
normally
accounting
standards.
2013
2014
2013
Local
Company
Local
Company
U.S.
Company
U.S.
Compa
Current Ratio
1.06
1.58
1.45
2.02
Quick Ratio
0.37
0.54
1.20
1.74
0.40
0.24
0.21
Ratios
01.Liquidity :
02.Activity:
Receivables Turnover
13.66
16.44
5.65
4.93
Inventory Turnover
1.45
1.79
3.49
3.4
0.34
0.44
0.36
0.32
12%
21%
11%
13%
4.6%
9.3%
4.0%
4.1%
7.5%
13.9%
6.2%
5.8%
5.79
4.71
1.51
1.65
03.Profitability:
14
Price-Earnings Ratio
19.36
24.5
18
16.7
Payout ratio
7.22%
16.25%
16%
13%
38%
33%
35%
28%
1.40
3.12
16.8
14
25%
56%
26%
23%
97.35
92.18
115.78
183.45
-48060970
39694538
54m
107m
04.Coverage:
1. Liquidity Ratios:
Current Ratio:
In the year 2013 the current assets of Wata Chemicals Ltd. were 1.58 times
higher than the current liabilities. In 2014 it decreased at 1.04 times. From
2013 to 2014 the local companys current ratio decreased by .54. U.S
Company Abbott ltd. current ratio of 2013 was 2.02 & then 1.45 in 2014.
Abbott company current ratio decreased by a larger portion from 2013 to 2014
than Wata. In comparison of two companies, we can say that the US Company
is better than the local company .Because the higher the current ratio means
the company has enough cash to pay the accounts payable and notes payable.
Quick ratio:
This ratio attempts to measure the ability of the company to meet its
obligations. Quick ratio means how quickly a company can convert their
current assets into cash. In the year 2013 the local company had a quick ratio
of 0.54 and in 2014 it was decreased to 0.37.On the other hand the US
Companys quick ratio was 1.74 in 2013 and 1.20 in 2014. We can say that
from 2013 to 2014 the Local Company was better in converting current assets
into cash quickly than the U.S Company.
Current Cash Debt Coverage Ratio:
15
It is a liquidity ratio that measures the relationship between net cash provided
by operating activities and the average current liabilities of the company. It
indicates the ability of the business to pay its current liabilities from its
operations. . In the year 2013 the local company had a Current Cash Debt
Coverage Ratio of 0.40 and in 2014 it was decreased to 0.16 which is too bad
for any company. On the other hand the US Companys Current Cash Debt
Coverage Ratio was .21 in 2013 and 0.24 in 2014. We can say that from 2013
to 2014 information both the company had a very tough situation although the
US Company indicates a better liquidity position than the local company.
2. Activity Ratios:
Receivable Turnover:
In the year 2013, the local company takes on an average to near 16.5 days to
collect the accounts receivable and it was decreased to near 14.50 days in
2014.The less days for receivable turnover is better for any company because
the company can collect the receivable early. On the other hand US Company
on an average took 4.93 days to collect the accounts receivable in 2013 and it
was higher in 2014 and it goes to near 5.5 days. Its a good thing for the U.S
Company. In comparison to these two companies the U.S Company is better for
collecting their receivables and it took fewer days than local Company.
Inventory Turnover:
In the year 2013, the Wata chemicals ltd. sold out and risked out their
inventory 1.79 times and in the year 2014 it was 1.45 times. The Abbott
Company has taken 3.40 times in 2013 and 3.49 times to sell out their
inventory in 2014. If a companys inventory is really low then the company has
really high inventory turnover .If inventory is too high then the company is
holding its inventory. As a result, cost of inventory increased so net profit
decreased.
Total Asset Turnover:
16
In the year 2013 by using total asset of 1 taka, the local company generated
Sales revenue of 0.44 taka by selling their goods. But In 2014 it decreased and
generated sales revenue of 0.34 taka by using 1 taka of total assets. For US
company in the year 2013 by using 1 dollar of total assets the US Company
generated sales revenue of 32 cents and it went down up 2014 and generated
revenue of 36 cents. The Revenue could have been in a better position for the
local company in comparison to the US Company. Wata should focus on
increasing its total asset turnover.
3. Profitability Ratios:
Profit margin on sales:
In the year 2013 of every 100 taka sales the local company generated profit of
21 taka and in the year of 2014 company generated 12 taka for every 100 taka
sales. The US Company generated profit of $13 by selling every $100 in 2013
and this company made profit of $11 by selling every $100 in 2014. The gross
profit of local company was decreased from 2013 to 2014 and for the US
Company it decreased too. But if we compare these two companies, the local
Company is better because higher profit means Company charges a higher
price to sell their product and that offsets the cost of the product. We have
seen that the local Company generate higher profit margin than the U.S
Company.
18
19
1. Liquidity Ratios:
Current ratio:
In the year 2012-2013 the Wata Chemicals Ltd Companys current assets were
1.58 times higher than the current liabilities. And it was decreased to 1.06.
From 2012-2013 to 2013-2014 the local companys current ratio decreased. In
the year 2012-2013 E-therapeutics plc current assets were 12.32 times higher
than the current liabilities whereas it was increased in 2013-2014 and goes to
44.87 times . Overall financial scenario of these two companies shows that the
IFRS Company was better than the Local Company because from 2012-2013 to
2013-2014 the E-therapeutics plc current ratio increased so, more cash at hand
to pay their payable.
Quick ratio:
In the year 2012-2013 the quick ratio of the local company was 0.54 and it
decreased to 0.37 in 2013-2014. E-therapeutics plc quick ratio was 12.32 in
20
2012-2013 and it increased in the year 2013-2014 taking to 44.87. Quick ratio
measures the ability of a company to pay their payable quickly. So, we
conclude the local company was better because higher quick ratios are more
favorable for companies because it shows there are more quick assets than
current liabilities.
Current cash debt coverage ratio:
It is a liquidity ratio that measures the relationship between net cash provided
by operating activities and the average current liabilities of the company. It
indicates the ability of the business to pay its current liabilities from its
operations. In the year 2012-2013 the ratio of the local company was 0.40 and
it decreased to 0.16 in 2013-2014.e therapeutics plc ratio was (4.40) in 20122013 and it decrease to (6.05) in 2013-2014.so we conclude that the local
company is better than the IFRS company.
2. Activity Ratios:
Receivable Turnover:
In the year 2012-2013 Wata Chemicals Ltd collects their accounts receivable
on an average to 16 days and it was 13 in 2013-2014.On the other hand, Etherapeutics plc accounts receivable were not given in 2012-2013 and 20132014 respectively. The lower the ratio means a company is more efficient to
collect their accounts receivables.
Inventory Turnover:
In the year 2012-2013 the local company sold out their inventory 1.78 times
and in the year 2013-2014 it was 1.45 times. On the other hand, the IFRS
Companys inventory is not given. So we cannot measure the ratio. Inventory
turnover is a measure of how efficiently a company can control its
merchandise, so it is important to have a high turn.
Total Assets Turnover:
In the year 2012-2013 the local company generated Sales revenue of 0.36 taka
by selling their goods and in the year 2013-2014 local company generated
0.35 taka. In IFRS Company, sales are not given, so the ratio cannot be
calculated. Higher turnover ratios mean the company is using its assets more
efficiently. So a higher ratio is always more favorable.
3. Profitability ratio:
Profit margin on sales ratio:
In 2012-2013 Wata Chemicals Ltd provides 21% gross profit by selling every
100 taka. Their ratio decreased in 2013-2014 to 12%. On the contrary, Etherapeutics plcs net sales are not given. So the ratio cannot be calculated
higher ratios mean the company is selling their inventory at a higher profit
percentage.
21
to a higher payout ratio, with a ratio greater than 100% indicating the
company is paying out more in dividends than it makes in net income. The
local companys ratio was 16.25% in 2012-2013 and 7.22% in 2013-2014.and
the IFRS companys dividend per share is not given. So it cannot be calculated.
4. Coverage Ratio:
Debt-to-total assets ratio:
In the year 2012-2013 the local that means Wata Chemicals Ltd total liability
compared to the total assets were 33% which was little bit increased in the
year of 2013-2014 taking to 38%. In the year 2012-2013 the IFRS that means
E-therapeutics plc total liability compared to the total assets were 77% and
22% in 2013-2014. In comparison we conclude that E-therapeutics plc has
lower liabilities than Wata Chemicals Ltd .So here E-therapeutics plc is better.
Times Interest Earned Ratio:
Local Company EBIT was 3.12 times higher than the interest expense in 20122013 and in 2013-2014 it was decreased a huge portion which was 1.40. IFRS
Company EBIT was 5.94 times and 5.74 times higher than the interest expense
in 2012-2013 and 2013-2014 respectively. Here IFRS Company had more
profits to pay their interests.
Cash debt coverage ratio:
It indicates the ability of the business to pay its current liabilities from its
operations. In the local company the ratio is 56% in 2012-2013 and 25% in
2013-2014.and in IFRS company its 52% in 2012-2013 and 15.1% in 20132014.so here the local company is in the better position.
Book value per share:
It would be the amount of money that a holder of a common share would get if
a company were to liquidate. For the local company it is 92.17 in 2012-2013
and 77.85 in 2013-2014.and for the IFRS Company it is 41.59 in 2012-2013 and
166.28 in 2013-2014.so the IFRS Company is in better position in this situation.
Free cash flow:
Free cash flow (FCF) represents the cash that a company is able to generate
after laying out the money required to maintain or expand its asset base. Free
cash flow is important because it allows a company to pursue opportunities
that enhance shareholder value. Without cash, it's tough to develop new
products, make acquisitions, pay dividends and reduce debt. From the table we
can say that the local company is in the better position than the IFRS
Company.
1. Liquidity Ratio:
Current Ratio:
Current ratio measures how much short-term assets you have to pay your
obligations. From the above chart we can see that in 2012-2013 the current
ratio of Wata Chemicals Ltd. Was 1.58 and then in 2013-2014 it went down to
1.06. This means that the company is lacking its liquid asset which they can use
to pay their debts. On the other hand, Marico Bangladesh Ltd.s current ratio
was 3.104 which mean previously it wasnt using its current assets efficiently to
generate profit. Rather than it was keeping it to pay for its debt. Then in 20132014 its current ratio went down to 1.415 which means it has enough current
ratio to pay for its debt and also it is using its current assets efficiently. If we
compare the performance of these 2 companies, Marico has better position
than Wata when it comes to current ratio and Maricos performance is better.
Quick Ratio:
Quick ratio measures the most liquid short term assets of the company. It
implies how well the company is managing its inventories as it is the least
liquid current asset. The higher the quick ratio is the better for the company.
From the table we see that Watas quick ratio went down from .54 to .37 which
means the company doesnt manage its most liquid assets properly to pay its
debt. Maricos quick ratio went down from 2.160 to .944. Its performance
deteriorated but still its performance is better than Watas performance as the
quick ratio is higher.
Current cash debt coverage ratio:
It measures a companys ability to pay off its current liabilities in a given year
from its operations. Once again, the ratio of Wata has gone down from 0.40 in
2013 to 0.16 in 2014 which is a sign of performance deteriorating but still
better than the performance of Marico. Marico is not doing well since their
current cash debt coverage ratio has gone down from 1.472 to 0.058. It implies
that Marico is not generating enough money from its operating activities.
than Wata. Thus the return stockholders are going to get by investing 1 taka in
the Maricos equity is more than they are going to get by investing in Wata as
Watas equity in 2014 is 7.5% whereas Maricos is 81%.
Earnings Per Share:
It is the portion of the companys distributable profit which is allocated to each
outstanding equity share (common share). Watas EPS is increasing year by
year from 4.71 in 2013 to 5.79 in 2014. On the other hand, in 2012-2013
Maricos EPS was 27.53 and it grew very high at 43.99. Both the banks
increasing EPS may be one result for recent stock market stability after the
crisis. If we compare, Maricos performance is a lot better that watas
performance.
Price earnings ratio:
The price-earnings ratio (P/E Ratio) is the ratio for valuing a company that
measures its current share price relative to its per-share earnings. In the year
2013 the price earnings ratio of Wata jumped down significantly from 24.5 to
19.36. It states that the market was expecting big things from the company
over 2012-2013, shareholders were ready to pay more for Watas earnings. The
next years decreasing ratio suggests that the company failed to accomplish
the shareholders expectations. For Marico, in 2012-2013 the ratio was really
low at 0.363 and it became even lower in 2013-2014 at 0.227. It suggests,
shareholders did not expect something good from the bank and their
expectation turned out true in reality. If we compare, Wata has better
performance than Marico.
Payout Ratio:
The payout ratio is a key financial metric used to determine the sustainability
of a company's dividend payments. A lower payout ratio is generally preferable
to a higher payout ratio. Wata had a payout ratio of only 16.25% in 2013 and
7.22% in 2014 respectively. On the other hand, Maricos payout ratio jumped
up at 76% in 2013-2014 from 13%. If we compare the two companies, Wata is
doing better by keeping a lower payout ratio indicating the company is paying
out less in dividends than it makes in net income.
04. Coverage:
Debt to Total Asset:
A financial ratio that measures the extent of a companys or consumers
leverage. It can be interpreted as the proportion of a companys assets that
are financed by debt. Watas debt ratio has been quite stable in 2013 with 33%
and then 38% in 2014. On the contrary Maricos debt ratio increased
26
drastically from 26% to 54%. The debt ratio increased due to increase in total
liability.
A higher debt ratio means greater financial risk as banks might go bankrupt if
they cannot pay their creditors back. Debt financing is important as it helps to
increase profit but too much dependence on debt is not good. The lower the
debt ratio is better (0% debt ratio is not desirable at the same time) as it
decreases the chances of going bankrupt and reduces the dependence on
borrowed capital.
Times Interest Earned:
It is a debt ratio and profitability ratio used to determine how easily a company
can pay interest on outstanding debt. It indicates how many times a bank can
pay its interest expense by using its operating profit. Watas ratio fell in 2014
at 1.40 from 3.12 in 2013. Maricos ratio also decreased from 8.522 to 6.954.
This fall resulted from decrease in EBIT as there was a rise in interest expense.
The higher the interest coverage ratio is the better. Lower interest coverage
ratio means the company is not generating enough revenues to meet its
interest expenses. As a result debt expenses burden the company. Both
companies need to improve their times interest earned ratio but if we
compare, Maricos performance is certainly better than Watas performance.
Cash Debt Coverage Ratio:
It measures a companys ability to repay its total liabilities in a given year from
its operations. Watas performance in terms of cash debt coverage was really
good in 2013 with 56% but then it dropped drastically at 25% in 2014.
However, Maricos performance was great in both the years as the ratio was
57% and went up at 179% in 2013-2014. Marico is doing great in managing its
cash debt coverage ratio and Wata needs to improve a lot.
Book value per share:
Book value per common share is a measure used by owners of common
shares in a firm to determine the level of safety associated with each individual
share after all debts are paid accordingly. In simple terms it would be the
amount of money that a holder of a common share would get if a company
were to liquidate. Watas book value per share was high which was 92.18 in
2013 and 97.35 in 2014 respectively. On the other hand, Maricos book value
per share was only 37.124 in 2012-2013 and 20.072 in 2013-2014 respectively.
If we compare the performance, Wata is doing a lot in managing the book
value per share than Marico.
27
ID
0920060530
Fariha Tasneem
1321500030
1410254030
Farhana Amin
1310197630
Md.Arif Sarker
1320145030
Work Done
1210254030
29
30
31