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Executive summery

Advanced Chemical Industries (ACI) Limited is one of the leading


conglomerates in Bangladesh, with a multinational heritage. The
company has diversified into four major Strategic Business Units.
ACI was established as the subsidiary of Imperial Chemical
Industries (ICI) in the then East Pakistan in 1968. After
independence the company has been incorporated in Bangladesh
on the 24th of January 1973 as ICI Bangladesh Manufacturers
Limited and also as Public Limited Company. This Company also
obtained listing with Dhaka Stock Exchange on 28 December,
1976 and its first trading of shares took place on 9 March, 1994.
Later on 5 May, 1992, ICI plc divested 70% of its shareholding to
local management. Subsequently the company was registered in
the name of Advanced Chemical Industries Limited. Listing with
Chittagong Stock Exchange was made on 22 October 1995.
The main strength of ACI Limited is use of the assets in productive
way, well managed inventory and higher production capacity. In
the bearish market ACI Limited is offering very good return to the
security holder which encouraging more investment.
ACI Ltd. has enough financial strength to expand its business in
future. They have earned the faith of the investors with its
transparent financial system and ensuring the safe return of their
precious investment. In future ACI Limited will contribute more to
the economy of Bangladesh by expanding their business

Introduction
Background:
Knowing the financial strength and Share performance is one of
the vital tasks for an organization. To identify the core financial
strength of ACI Limited, I have analyzed financial statement and
prepared some charts and graphs to better understand the
financial position of ACI Limited.

Objective:
The purpose of this report is to analyze ACI Limiteds financial
strength and its Share performance in DSE to describe its core
financial strength.

Sources of Data:
Secondary Data were used to complete this study.
Sources of the secondary data were
Website of ACI Limited
Website of Dhaka Stock Exchange (DSE)
Annual report (Year 2013-2014)
Magazine of ACI Limited
Different text books and website

Limitation:
Lack of detailed information

About ACI Group


Mission:
ACIs mission is to enrich the quality of life of people through
responsible application of knowledge, skills and technology. ACI is
committed to the pursuit of excellence through world class
products, innovative processes and empowered employees to
provide the highest level of satisfaction to its customers

Vision:
Endeavor to attain a position of leadership in each category
of its businesses.
Attain a high level of productivity in all its operations through
effective and efficient use of resources, adoption of
appropriate technology and alignment with our core
competencies.
Develop its employees by encouraging empowerment and
rewarding innovation.
Promote an environment for learning and personal growth of
its employees.
Provide products and services of high and consistent quality,
ensuring value for money to its customers.
Encourage and assist in the qualitative improvement of the
services of its suppliers and distributors.
Establish harmonious relationship with the community and
promote greater environmental responsibility within its
sphere of influence.

Values:

Quality
Customer Focus
Fairness
Transparency
Continuous Improvement
Innovation

Calculation of the Ratios:


Liquidity ratios
1.Current Ratio =CURRENT ASSETS/CURRENT LIABILITIES
= 9927161551/8358791057 = 1.19 Times [2014]
= 9461772496/8101494869 = 1.17 Times [2013]
2.Quick Ratio (Acid-Test Ratio) =QUICK ASSETS /CURRENT
LIABILITIES
= (9927161551-2961175971)/8358791057 = 0.83
Times [2014]
= (9461772496-2553330342)/8101494869 = 0.85
Times [2013]
3. Working Capital = Current Asset Current Liabilities
= (9927161551-8358791057)/1000000 = BDT
1568.37[2014
= (946177249 -8101494869)/1000000 = BDT
1360.28[2013]

Activity ratios

1.Inventory Turnover Ratio = INVENTORY REVENUE or


SLAES/INVENTORY
= 12318723190/2961175971 = 4.16 Times [2014]
= 10683600712/2553330342 = 4.18 Times [2013]
2. Total Asset Turnover Ratio = ASSETS TOTAL REVENUE or
SALES/TOTAL ASSETS
= 12318723190/15526192783 = 0.79 Times [2014]
= 10683600712/14693912974 = 0.73 Times [2013]
3. Average Payment Period =(ACCOUNTS PAYABLE* NO. OF
DAYS)/NET PURCHASES OR COGS
= (1624157078*360)/7147881434 = 81.80 Days [2014]
= (1833527360*360)/6426070148 = 102.72 Days [2013]

4.Profitability ratios:
1. Net Profit Ratio = NET PROFIT/SALES REVENEUE
= 950713609/12318723190 = 0.08 = 8% [2014]
= 764187906/10683600712 = 0.07 = 7% [2013]
2. Return on Equity
= (NET INCOME AVAILABLE FOR COMMON STOCK
HOLDERS)/SHAREHOLDERS EQUITY
= 479115177/4274198745 = 0.11 = 11% [2014]
=103239482/4040414787 = 0.03 = 3% [2013]
3.Return on Assets (ROA) = NET INCOME/ TOTAL ASSETS
= 950713609/15526192783 = 0.06 = 6% [2014]
= 764187906/14693912974 = 0.05 = 5% [2013]
4.Earnings per Share (EPS) =NET INCOME/ TOTAL NO. COMMON
STOCK OUTSTANDING

= 950713609/34394401 = BDT27.64 [2014]


= 764187906/28582082 = BDT 26.74 [2013]

Result and Discussion:


Ratio Analysis is a kind of Financial Statement Analysis that is
used to
Gain a quick suggestion of a firm's financial health
in several key areas. For the
project purpose we have analyzed the following Categories of
ratios
Liquidity ratios
Activity ratios
Profitability ratios

Liquidity ratios:
Liquidity ratios are used asses firms ability to meet its short-term
obligations using short-term assets. The short-term obligations
are recorded under current liabilities that come due within one
financial year. Short-term assets are the current assets.
Current ratio indicates the ability of a company to meet its short
term obligation. Any value below 1 indicates the weakness of
financial health of a company on the other hand value over 2
suggests that the company is not investing its excess assets.
Ratio between 1.1 to 2.0
reflects strong financial condition of a company. Current ratio of
ACI limited in 2014 is 1.19 times in
2014 which means the company is in liquid condition to meet its
obligation. In 2013 the ratio was 1.17 Which was normal level as
2014 and become relatively stable.
Quick ratio also measures the liquidity of an organization but
this ratio further narrowed down to measure the ability of a

company to meet its immediate liabilities, without selling its


inventory .This known as the acid test because it only looks at
the companys most liquid assets that can be quickly converted to
cash). Quick ratio of ACI Limited in 2013 was 0.85 times and it
gradually decreased in 2014 it was 0.83 times. Quick ratio of ACI
Limited also indicates its healthy financial condition.
Working capital reveals a companys efficiency and its short
term financial health. A positive value of working capital shows
the ability of a company to pay back the liabilities to the creditors
in the short term and it also gives an idea of the comp
anys operational efficiency to the investors. Continuous declining
in the working capital is a red alert for an organization. It may also
led to the bankruptcy. In 2013 the working capital was BDT
1360.28Million which increases and in 2014 BDT
1568 Million. Huge amount of working capital also encourage a
company to diversify its business. ACI Limited has more
opportunity to expand its business with the support of its good
financial condition.
Activity ratios:
Activity ratios are also known as Asset management ratios also
indicate the efficiency of the use of assets in generating sales.
Inventory turnover ratio is the measurement of no. of times the
inventory of a company is turned over in a year.
This ratio is an indication of production and purchasing efficiency.
The higher value shows quick selling of the inventory and a little
unused amount of the inventory. In 2014 highest value was 4.81
times in 2011 but it decreases gradually
and in 2013 it was 4.16 times. The result reveals the good
management of the inventory and very high production capacity
of ACI Limited.
Total asset turnover ratio is the measurement of the efficiency
of use of the total assets in generating sales. This ratio indicates
how efficiently an organization uses its assets. High value of the
ratio means more efficiency in using its assets. Total asset
turnover ratio of ACI Limited was In 2013 it

was 0.73 times which means ACI Limited is generating BDT 0.79
from single BDT of its assets in 2014. The result reveals the
higher efficiency of ACI Limited in using its total assets.
Average payment period is average time period is taken by a
company to making payment to its creditors. The result of
Average payment period of ACI Limited varies every year. In 2013
the day was 102.72 days which was decreased In 2014 it was 82
days which indicates ACI Limited took 82 days to make payment
to the creditors.
Profitability ratios:
Profitability ratios are used to assess a business's capability to
generate earnings as compared to its expenses and other
relevant costs incurred during a specific period of time. Higher
value Profitability ratios from a previous period indicate
that the company is doing well.
Net profit ratio actually measures how much from every BDT of
revenue a company is keeping as its earnings.Net profit ratio was
relatively stable for ACI Limited .In 2014 which was 0.08 (8%). The
result reveals that ACI Limited is keeping BDT 8 as its earning
from each BDT 100 of revenues. This leads ACI Limited to a very
healthy financial position.
Return on equity is the amount of net income gained as a
percentage of shareholders equity. Return on equity measures a
companys profitability by illuminating how much profit a
company
is generating with the money shareholders have invested.
Return on equity of ACI Limited was in 2013 the ratio turned is to
3% and in 2014 they become stronger and the ratio was 11%. The
ratio suggests that the shareholders are earning BDT 11 from
every BDT 100 of investment.
Return on asset is the measurement of a companys ability to turn
assets into profit. It is an indicator of how profitable a company is
relative to its total assets.

Return on asset of ACI Limited was steady in last five years. In


2014 it was (6%) which means ACI Limited is generating 6 taka of
profit from every 100 taka of its assets.
An Earnings per share is the portion of a company's profit to be
paid to each outstanding share. Earnings per share is an indicator
of determining a shares price. Higher amount of EPS is desirable
for the share holders and it increases the confidence of the
investors. EPS of ACI Limited in 2013 was 26.74% and the EPS
was BDT 27.64 in 2014.

Significant accounting policies of ACI Pharma


The accounting policies set out below have been applied
consistently to all periods presented in these financial statements.
There is an index of the significant accounting policies, the details
of which are available on the following pages:
A. Basis of consolidation
B. Revenue
C. Employee benefits
D. Finance income and finance costs
E. Income tax
F. Investment
G. Inventories
H .Property, plant and equipment
I. Intangible assets
J. Leased assets
K. Financial instruments
L. Share capital
M. Provisions
N. Going concern
O. Contingencies
P. Events after the reporting period
(A)

Basis of consolidation

1. Subsidiaries:

Subsidiaries are entities controlled by ACI Limited. Control exists


when ACI Limited has the power to govern the financial and
operating policies of an entity so as to obtain benefits from its
activities. In assessing control, potential voting rights that
presently are exercisable are taken into account. The financial
statements of subsidiaries have been included in the consolidated
financial statements from the date that control commences until
the date that it ceases. The accounting policies of subsidiaries
have been changed when necessary to align them with the
policies adopted by ACI Limited.
2. Transactions eliminated on consolidation
Intra-group balances and transactions and any unrealized income
and expenses arising from intra-group transactions are eliminated
in preparing the consolidated financial statements. Unrealized
gains arising from transactions with associates are eliminated
against the investment to the extent of ACI Limited's interest in
the investee. Unrealized losses, if any, are eliminated in the same
way as unrealized gains but only to the extent that there is no
evidence of impairment.
(B) Revenue
(i) Sale of goods
Revenue is recognized upon invoicing the customers for goods
sold and delivered. Sales are accounted for net of value added
tax, trade discount and allowances (if any). In case of cash
delivery, revenue is recognized when delivery is made and cash is
received by the Company.
(ii) Revenue arising from services
Revenue from services rendered is recognized in income
statement in proportion to the stage of completion of the
transaction at the reporting date.
(iii) Revenue arising from commission
When the Group acts in the capacity of an agent rather than as
the principal in a transaction, the revenue is recognized in the net
amount of commission earned by the Group.
(iv) Dividend income
Dividend income is recognized when right to receive payment of
such dividend is established.

(v) Allocation of common service costs


Common costs and facilities are allocated to entities based on
common cost sharing agreement and followed consistently.
(C)

Employee benefits

(i) Defined contribution plan (provident fund)


The Company operates a recognized provident fund scheme
where employees contribute 10% of their basic salary with equal
contribution by the Company. The provident fund is considered as
defined contribution plan being managed by a Board of Trustees.
(ii) Defined benefit plan (gratuity)
The Company operates an unfunded gratuity scheme, provision in
respect of which is made annually covering all permanent
employees. The Employees' Gratuity Fund is being considered as
defined benefit plan. Defined benefit plan is a retirement benefit
plan under which amounts to be paid as retirement benefits are
determined by reference to employees' earnings and year of
services. The rate used to discount post employment benefit
obligations is determined by reference to the rate stated in the
actuarial report.
Actuarial valuation of gratuity scheme has been made in 2013 to
assess the adequacy of the liabilities provided for the schemes.
(iii) Workers' profit participation fund
The Company had created funds for workers as 'Workers' Profit
Participation Fund' and 5% of the profit before charging such
expense have been transferred to this fund.
(D)

Finance income and finance costs

The Companys finance income and finance costs include:


interest income; and
interest expense;
Interest income or expense is recognised using the effective
interest method.
(E) Income tax

Income tax expense comprises current and deferred tax. It is


recognized in profit or loss except to the
extent that it relates to items recognized directly in equity or in
OCI (Other Comprehensive Income).
(i) Current tax
Current tax comprises the expected tax payable or receivable on
the taxable income or loss for the year and any adjustment to tax
payable or receivable in respect of previous years. It is measured
using tax rates enacted or substantively enacted at the reporting
period. The applicable tax rate for the Company is currently
27.5%
(ii) Deferred tax
Deferred tax is recognized in respect of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for taxation purposes.
Deferred tax is not recognized for:
- temporary differences on the initial recognition of assets or
liabilities in a transaction that is not a business combination and
that affects neither accounting nor taxable profit or loss;
- taxable temporary differences arising on the initial recognition of
goodwill. Deferred tax assets are recognized for unused tax
losses, unused tax credits and deductible temporary differences
to the extent it is probable that future taxable profits will be
available against which they can be used. Deferred tax assets are
reviewed at each reporting date and are reduced to the extent
that it is no longer probable that the related tax benefit will be
realized; such reductions are reversed when the probability of
future taxable profits improve.
(F) Investment in shares
In the separate financial statements of the Company, investment
in subsidiaries, associates and joint ventures has been carried at
cost as per Bangladesh Accounting Standard 27 Separate
Financial Statements.
All other investments categorized under 'Investment available for
sale' and 'Held-to maturity' are carried at fair value.
In the consolidated financial statements of ACI Limited, following
valuation principles have been used:

Investments in subsidiaries
- Investment in subsidiaries has been accounted for as per
Bangladesh Financial Reporting Standard 10 Consolidated
Financial Statements. The investment is eliminated in full against
the equity of acquire measured at fair value at the date of
acquisition as per Bangladesh Financial Reporting
Standard 3
Business Combinations.
Investments available for sale
- These are valued at fair value and the change in fair value of
investments available for sale is presented in comprehensive
income statement and in statement of financial position.
This is as per Bangladesh Financial Reporting Standard 7
Financial Instruments Disclosures
, Bangladesh
Accounting Standard 32
Financial Instruments: Presentation
and Bangladesh Accounting Standard 39
Financial Instruments: Recognition and Measurement.
Associates and joint ventures
- Associates are those entities in which ACI Limited has significant
influence, but not control, over the financial and operating
policies. Joint ventures are those entities over whose activities ACI
Limited has joint control, established by contractual agreement
and requiring unanimous consent for strategic, financial and
operating decisions. Associates and joint ventures are accounted
for using the equity method (equity accounted investees).
(G)Inventories
Inventories except materials in transit are measured at the lower
of cost and net realisable value. The cost of inventories is based
on the weighted average method, and includes expenditure
incurred in acquiring the inventories, production or conversion
costs and other costs incurred in bringing them to their existing
location and condition. In the case of manufactured inventories
and work-in-progress, cost includes an appropriate share of
production overheads based on normal operation capacity.

Net realizable value is the estimated selling price in the ordinary


course of business, less the estimated costs of completion and
selling expenses. Stock- in-transit represents the cost incurred up
to the date of the statement of financial position for the items
that were not received till to the date of reporting. Inventory
losses and abnormal losses are recognized as expenses.
(H)Property, plant and equipment
(i)

Recognition and measurement

Items of property, plant and equipment are measured at cost or


revaluation less accumulated depreciation. The items of property,
plant and equipment were revalued in the on the basis of fair
market value. Capital work-in-progress represents the cost
incurred for acquisition and / or construction of items of property,
plant and equipment that were not ready for use at the end of
2014 and these are stated at cost. Cost includes expenditure that
is directly attributable to the acquisition of asset .Subsequent to
initial recognition cost of replacing part of an item of property,
plant and equipment is recognized in the carrying amount of the
item if it is probable that the future economic benefits embodied
within the part will flow to the Company and its cost can be
measured reliably. All other repair and maintenance expenses are
charged to income statement as it is incurred.
(ii) Depreciation
All items of property, plant and equipment have been depreciated
on straight line basis. Depreciation on additions are charged at
50% of normal rates only in the year of acquisition and no
depreciation is charged in the year of disposal. Depreciation is
charged at the rates varying from 2.5% to 20% depending on the
estimated useful lives of assets. No depreciation is charged for
land and capital work-in-progress
Depreciation methods, useful lives and residual values are
reviewed at each reporting date.
Impairment

The carrying amount of the entity's non-financial assets, other


than inventories and deferred tax assets (considered as disclosed
separately under respective accounting standards), are reviewed
at each reporting date to determine whether there is any
indication of impairment. If any such indication exists, the asset's
recoverable amount is re-estimated. However, no such conditions
that might be suggestive of a heightened risk of impairment of
assets existed at the reporting date.
(I) Intangible asset
(i) Goodwill
Goodwill represents the excess of the cost of the acquisition over
the Group's interest in the net value of the identifiable assets and
liabilities of the acquiree on the date of acquisition.
(ii) Software
Software that is acquired by the Group, which has finite useful life,
is measured at cost less accumulated amortization and
accumulated impairment losses. Subsequent expenditure is
capitalized only when it increases the future economic benefits
embodied in the specific assets to which it relates.
(iii) Amortization
Amortization is charged in the income statement on a straight line
basis over the estimated useful lives of intangible assets other
than goodwill. Amortization on additions are charged at 50% of
normal rates only in the year of acquisition. Amortization is
charged at the rates of 10-20% depending on the estimated
useful lives of assets and no amortization is charged in the year of
disposal. The estimated useful life for the current intangible asset
is as follows:
Useful life
5-10 years
Normal rate 10-20 Percent
Amortization methods, useful lives and residual values are
reviewed at each reporting date.
(J) Leased assets
(i) Finance lease

Leases in terms of which the Company assumes substantially all


the risks and rewards of ownership are classified as finance
leases. Upon initial recognition, the leased asset is measured at
an amount equal to the lower of its fair value and the present
value of the minimum lease payments. Subsequent to initial
recognition, the asset is accounted for in accordance with the
accounting policy applicable to that asset.
Depreciation
Depreciation is charged according to the policy applicable for the
owned assets of the Company.
Lease payments
Minimum lease payments made under finance leases are
apportioned between the finance expense and the reduction of
the outstanding liability. The finance expense is allocated to each
period during the lease term so as to produce a constant periodic
rate of interest on the remaining balance of the liability.
(ii) Operating lease
Payments made under operating leases are recognized in income
statement on a straight line basis over the term of the lease.
(K) Financial instruments
Non-derivative financial instruments comprise investments in
shares and term deposit, trade receivables, cash and cash
equivalents, trade payables and interest-bearing borrowings.
1. Financial assets
The Company initially recognizes receivables and deposits issued
on the date when they are originated. All other financial assets
are initially recognized on the trade date. The Company derecognizes a financial asset when the contractual rights to the
cash flows from the asset expire, or it transfers the rights to
receive the contractual cash flows in a transaction in which
substantially all of the risks and rewards of ownership of the
financial asset are transferred, or it neither transfers nor retains
substantially all of the risks and rewards of ownership and does
not retain control over the transferred asset.

The Company's financial assets comprise trade and other


receivables, investment in shares and term deposit and cash and
cash equivalents
2.Financial Liabilities
The Company recognizes such financial liability when its
contractual obligations arising from past events are certain and
the settlement of which is expected to result in an outflow from
the entity of resources embodying benefits.
3.Trade payables
Trade payables are recognized at fair value.
4.Interest-bearing borrowings
Interest-arising borrowings are recognized initially at fair value
less attributable transaction costs. Subsequent to initial
recognition, interest-bearing borrowings are stated at amortized
cost using the effective interest method less any impairment
losses.
5.ACI 20% Convertible Zero Coupon Bonds (ZCB)
Zero Coupon Bonds are recognized initially at fair value less
attributable transaction costs. Subsequent to initial recognition,
ZCBs are stated at amortized cost using the effective interest
method.
L. Share capital
Ordinary shares are classified as equity. Incremental cost directly
attributable to the issue of ordinary shares are recognized as a
deduction from equity, net of any tax effect.
M. Provisions
A provision is recognized in the statement of financial position
when the Company has a legal or

constructive obligation as a result of a past event, it is probable


that an outflow of economic benefits will be required to settle the
obligation and a reliable estimate can be made of the amount of
the obligation.
N. Going concern
The management is, however, confident that the Company will
continue in operationalexistence for a foreseeable future on the
basis of continued support of the Company's banks and
shareholders. In view of the continued support and assurance
from the Group and major shareholders, management believes
that it remains appropriate to prepare these financial statements
on a going concern basis.
O. Contingencies
Contingent liability is a possible obligation that arises from past
events and whose existence will be confirmed only by the
occurrence or non-occurrence of one or more uncertain future
events not wholly within the control of the entity. The Company
discloses contingent liability in the financial statements. A
provision is recognized in the period in which the recognition
criteria of provision is met.
P. Events after the reporting period
Events after the reporting period that provide additional
information about the Company's position at the
reporting date or those that indicate the going concern
assumption is not appropriate are reflected in the
financial statements. Events after the reporting period that are
not adjusting events are disclosed in the
notes when material.