FINANCIAL PERFORMANCE ANALYSIS OF KHULNA POWER

COMPANY LIMITED (KPCL)

Prepared for
Md. Mohiuddin
Course Instructor: Accounting For Non-Accountant
Program: AFNA Intake-2, Batch-2

Prepared by
1. . (AFNA 02-02-..)
2. .(AFNA 02-02-.)
3. (AFNA 02-02-.)
4. (AFNA 02-02-)
5. Md. Abdur Rahim Arif (AFNA 02-02-57)

Submission date: January 10, 2014

INSTITUTE OF BUSINESS ADMINISTRATION (IBA)

UNIVERSITY OF DHAKA

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January 10, 2014

Mr. Md. Mohiuddin

Course Instructor
Financial Information Analysis
Institute of Business Administration
University of Dhaka

Subject: Letter of transmittal

Dear Sir:

As per your instruction, we have prepared the report titled Financial Performance
Analysis of KPCL. This report provided me with an opportunity to get an exposure to the
financial conditions of KPCL.

We have tried our best to compile the pertinent information as comprehensively as possible
and if you need any further information, we will be obliged to assist you.

Sincerely yours,

.
Md. Abdur Rahim Arif
(On behalf of group)

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 ACKNOWLWDGEMENT

This report is teamwork on Financial Information Analysis (F-608) under the Executive
MBA program for the Spring Session 2013.

First of all, we would like to thank my course teacher at IBA, Mr. Arif Khan sir for his
guidance and assistance in the preparation of this report. His invaluable advice has helped
us a lot in writing this report. We are immensely thankful to him for the exclusive and
excellent advice to complete the report.

A very special thanks goes to Mr. Mr. Mr. Hasan Mahmood Raja, Managing Directors of
KPCL for helping us preparing the report. His overwhelming support for this project gave
me the inspiration to do a better report. At last I like to thank Mr. Khandaker Moinul
Ahsan Shamim, one of the directors of KPCL for providing valuable advice in the
successful completion of this project.

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Table of Contents Page Number

Executive Summary v
1.0 Introduction 1

1.1 Origin of the Report 1

1.2 Objective of the Report 1
1.3 Methodology 1
1.4 Limitations 2
2.0 Industry and Company Overview 2
2.1 Industry Overview 2
2.2 Company Profile 3
2.2.1 Nature of Business 4
2.3 Financial Highlights by Using 5 Years Data 5
3.0 Financial Position 6
3.1 Financial Statements 6
3.2 Financial Highlights 9
3.3 Common Size Financial Statements 10
3.3.1 Common Size Income Statement 10
3.3.2 Common Size Balance Sheet 11
3.4 Ratio Analysis 12
3.4.1 Liquidity Dimension 12
3.4.1.1 Current Ratio 13
3.4.1 2 Quick Ratio 14
3.4.2 Activity Dimension 14
3.4.2.1 Accounts Receivable Turnover 15
3.4.2.2 Average Collection Period 16
3.4.2.3 Inventory Turnover 16
3.4.2.4 Fixed Asset Turnover 17
3.4.2.5 Total Asset Turnover 18
3.4.3 Profitability Dimension 18
3.4.3.1 Gross Profit Margin 19
3.4.3.2 Net Profit Margin 19
3.4.3.3 Return on Total Asset (ROA) 20
3.4.3.4 Return on Total Equity (ROE) 20
3.4.4 Debt Utilization Ratios 20
3.4.4.1 Debt Ratio 21
3.4.5 Ownership Ratios 21
3.4.5.1 Earnings Per Share (EPS) 22
4.0 Conclusion 22
5.0 References 23

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 EXECUTIVE SUMMARY

This report The analysis of financial performance of KPCL is prepared to fulfill the partial
requirement of the course (Financial Information Analysis) for the EMBA program of IBA,
University of Dhaka. The topic of dissertation was selected upon consultation with the course
instructor.

The main aim of this report is to find out the financial situation and the financial trend of the
organization and justify the result. From this analysis we find out the financial performance and
this analysis from the annual reports issued KPCL from the year 2009 to 2011, which were the
main sources of information.

After the analyzing the different ratios of we can see that there were a slight decrement in
Earning Per Share in 2010 and the EPS was 2.25, comparatively lower than 2.79 in 2009 and
2.83 in 2011. From the analysis we can also say that KPCL has failed to use its asset efficiently.
The return on asset (ROA) is 6%, 6% and 13% for the years 2011, 2010 and 2009 respectively.
Net profit margin was 7%, 7% and 11% for the years 2011, 2010 and 2009 respectively which is
also very low compare to the industry average (30.07%). This position has a bad impact on
investor view. As a whole from the analysis we can say that KPCL had a bad year in 2010
because maximum ratios in 2010 have decreased from 2009. But according to chairmans
statement the business results for the year were satisfactory. Debt equity ratio increased in 2011
dramatically than in 2010.

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1.0 Introduction

1.1 Origin of the Report

This report is prepared to fulfill the partial requirement of the course AFNA program of IBA on
the ratio analysis of a company. So the business organization KPCL is chosen and we are
discussing on different ratio of this company over few years. We have based this report from the
background information and knowledge that I acquired from KPCL and it provides a reliable and
effective insight into the ratio analysis of the particular company. We have tried to reflect our
experience on this report in terms of financial performance of the company.

1.2 Objective of the Report

The specific objectives aimed for this report is:

To fulfill the partial requirement of the course under the guidance of the coordinator.
To gain experience and knowledge of analyzing the financial ratios from the real life
which will help me in the practical working environment.
To find out the financial situation of KPCL.
To identify the problem area
Giving suggestion to overcome those problems
Finally comment on the result from investor and creditors point of view.

1.3 Methodology

Information used to prepare this report has been collected from both the Secondary source and
the primary survey. The secondary sources of information were collected from KPCL, Dhaka
Stock Exchange, Annual report of KPCL, periodicals and materials from various newspapers and
articles. An open discussion method was followed to gather primary information by interviewing
the some related person of the company.

1.4 Limitations

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Lack of availability of information and data, and most recent data were not available. The record
system of the annual report is not efficient. Lack of access in many section of the organization.
Time is not sufficient to complete the study perfectly.

2.0 Industry and Company Overview

2.1 Industry Overview

The Ministry of Power, Energy, and Mineral Resources (MEMR) monitors the overall power
sector of the country through the Power Division and Power Cell. Generation and distribution
activities have been opened to foreign and private sector, although both the sectors remain
dominated by state-owned entities. Given the poor state-run electricity infrastructure, the
government issued the "Private Sector Power Generation Policy of Bangladesh" in 1996 and
began to invited proposals from Independent Power Producers (IPPs) in the private sector in
order to ease the countrys electricity supply shortage. In response, several IPPs were set up after
1996. The Private Sector Power Generation Policy of 1996 (Amended a few clause in September
11, 2001) offers attractive incentive packages to IPPs including exemption from income tax for
15 years. However, the private power producers are still in hesitation due to the tariff policy
regarding gas supply and power sale etc. Recent move of the Government to increase the tariff
rate of gas supply is a major concern to the private power producers. Side by side with the large
IPP projects, the Government also adopted a policy of "Small Power Generation Policy," which
encourages development of small local generation projects of up to 10-MW in capacity in
underserved areas. The country has an active rural electrification program, which is supported by
the ADBs Power Sector Development Program (PSDP) initiated in 2003. Since natural gas
dominates our power sector in Bangladesh, 95% of electricity comes from conventional thermal
power (primarily natural gas) and the remaining 5 percent through hydroelectric power. In
January 2006, Bangladeshs first coal-fired power plant began commercial production at the 250-
MW Barapukuria facility in Parbotipur.
According to Power Cell, the Bangladesh Power Development Board (BPDB) generated 3400
MW of the countrys 5245 MW of total commercial electricity, or about 64% percent of the total
installed capacity. Over the last several years although the demand of power and gas grew in
geometric progression, yet the power sector did not grow as per requirement and gas sector failed
to explore its resources and developed its reserve. In the last one and half years natural gas
production, transmission and supply situation has deteriorated. PDB viewed that, for gas supply
shortage alone, it failed to generate about 850MW and for maintenance and overhauling of plants

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another 323 MW power could not be generated. Per capita Electricity in Bangladesh is one of the
lowest in the world, at about 169.69 kilowatt hours (kwh) in 2006. At present only 42.09%
percent of the population has access to electricity, primarily in the more developed eastern zone
of the country. Since much of the country is disconnected from the national electricity grid,
noncommercial sources of energy such as biomass are estimated to represent more than half of
Bangladeshs energy consumption.

2.2 Company Profile

Khulna Power Company Ltd. (KPCL) is the first Independent Power Producer (IPP) of the
country established on October 15, 1997 under the Private Sector Power Generation Policy. It
owns and operates a 110 MW barge mounted power plant that commenced its operation in
October 1998. Its paid up capital is BDT 2085.93 million (US$ 44.10 million).

Ownership of the company belongs to

United Enterprises & Company Limited (37.49 %)

Summit Industrial & Mercantile Corporation (Pvt.) Limited ( 18.74 %)
Summit Power Limited ( 18.74 %)

Now only local shareholders hold 100% ownership of the company. KPCL project was initially
financed by the IFC and the sponsors equity with a debt-to-equity ratio of 54:46. The total initial
project cost was USD 96.07 million. KPCL owns and operates a barge mounted power plants in
Khulna and supply electricity to the national grid of Bangladesh. The plant came into operation
in October 1998. Nine generator sets are mounted on one barge and ten on the other. Each barge
is approximately 91 meters long and 24 meters wide. The plant consumes about 600 MT of
Heavy Fuel Oil daily to generate 110 MW power by the 19 generators on the two barges located
in Khalishpur, Khulna.

On July 19, 2009 the company was converted into a public limited company. KPCL was formed
with a paid up capital of BDT 2,085.93 million (US$ 44.10 million) and the initial project cost
was US$ 96.07 million. KPCL commenced its full commercial operation on October 13, 1998
and since then, it has been supplying uninterrupted reliable power to the national grid. The
formation of KPCL Project was initially sponsored by Summit Group and United Group along

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with their foreign partner El Paso Corporation (El Paso), USA, one of the worlds largest and
most diversifi ed natural gas exploration and pipeline companies and Wrtsil Corporation
(Wrtsil), Finland, a leading power plant manufacturer of the world. In 2008, El Paso, as part of
its global repositioning strategy disposed of its shares in KPCL to Summit Group and United
Group. Later in 2009 Wrtsils share was also acquired by Summit and United. Khulna Power
Company Ltd. has two subsidiary companies named as:
i) Khulna Power Company Unit II Ltd.; and
ii) Khanjahan Ali Power Company Ltd.

2.2.1 Nature of Business

The principal activity of the Company is to generate electricity, to sell generated electricity to
any legal entity and to acquire fuel required for such electricity generation from home and
abroad. For this purpose, the Company has set up a nominally rated 110 MW liquid fuel-fired,
convertible to dual fuel-fired (liquid gas), barge mounted power plant in Khulna, Bangladesh.
Since inception the company is supplying electricity to the national grid of Bangladesh through
selling the same to Bangladesh Power Development Board (BPDB) under Power Purchase
Agreement (PPA) between the Company and BPDB. The subsidiaries have been awarded two
separate contracts by Bangladesh Power Development Board (BPDB) to supply electricity under
the Contract for Supply of Electricity on Rental Basis. Khulna Power Company Unit II Ltd. and
Khanjahan Ali Power Company Ltd. have set up the nominally rated 115 MW and 40 MW liquid
fuel-fired, rental power plant respectively in Khulna and Jessore, Bangladesh for generation of
electricity. The principal activity of the subsidiaries is to supply electric power and energy to
BPDB on rental basis for a period of five years from the date of commercial operation. Khulna
Power Company Unit II Ltd. commenced commercial operation from 1 June 2011 and
Khanjahan Ali Power Company Ltd. from 29 May 2011. However the companies intend to seek
extension after this five years, and except a renewal, even if under somewhat different terms.

2.3 Financial Highlights by Using 5 Years Data

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3.0 Financial Position

3.1 Financial Statements

A. Statement of Balance Sheet as of 31 December 2011

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B. Statement of Comprehensive Income for the year ended 31 December
2011

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C. Statement of Cash Flows for the year ended 31 December 2011

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 3.2 Financial Highlights

During the year 2011, the company has earned a consolidated net profit of Tk. 815.50 million.
Directors of the company would like to report the companys financial results for the year ended
December 31, 2011 with the recommendation for appropriation as follows:

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Moreover, net profit ranges from Tk.200.00 to Tk.800.00 millions maintaining Tk.440.00
millions on an. Figure 3.1 shows a bar diagram of total income, total expenses and net profit for
four years.

Figure: Bar Diagram of Gross Profit, Net profit, Current assets and Total assets.
Source: Data retrieved from annual report-2011 of KPCL

3.3 Common Size Financial Statements

3.3.1 Common Size Income Statement

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 Table 1 : Common size income statement of KPCL

Revenue of the company increased gradually year by year and whereas cost of goods sold
decrease in 2011. General and administrative expenditure also increased in 2011. There is a
greater percentage of finance expense in 2011 because of higher debt. This is the main reason of
lower profit in 2011 compare to 2009.

Net profit is the final item of income statements. There is a higher percentage of net profit in
2009 (9.11 percent) whereas 20010 has lower percentage of this item (6.79 percent). The
percentage of net profit is decreasing over the years.

3.3.2 Common Size Balance Sheet

2011 2010 2009

Non-current assets:
Property, plant and equipment 73.70% 34.60% 61.34%
Capital work in progress - 41.11% -
Investments in subsidiaries - - -

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 Total non-current assets 73.70% 75.71% 61.34%

Current assets:
Inventories 8.26% 8.85% 18.21%
Accounts receivable 13.86% 12.88% 7.19%
Other receivables 0.04% 0.17% 0.23%
Advances, deposits and prepayments 0.63% 1.62% 0.03%
Inter-company receivable 0.04% - -
Cash and cash equivalents 3.48% 0.77% 13.00%
Total current assets 26.30% 24.29% 38.66%
100.00
Total assets 100.00% 100.00% %

Equity and liabilities

Equity:
Share capital 22.38% 26.07% 38.69%
Capital redemption reserve 1.71% 2.39% -
Retained earnings 5.69% 4.30% 11.08%
Equity attributable to owners of the
company 29.78% 32.76% 49.77%
Non controlling interest 0.16% 0.03% -
Total equity 29.94% 32.79% 49.77%

Non-current liabilities:
Redeemable cumulative class A
preference shares: non-current 3.42% 7.17% 16.32%
Term loan: non-current portion 8.44% - 0.00%
Deferred liabilities 0.08% 0.12% 0.20%
Long term provision 0.12% - -
Total non-current liabilities 12.06% 7.29% 16.52%

Current liabilities:
Accounts payable 21.62% 18.83% 27.56%
Short term/working capital loan 27.25% 6.38% -
Inter-company loan 0.78% - -
Inter-company payable 0.26% 0.32% -
Accrued expenses and others 0.32% 0.19% 0.75%
Liability for interest and other financial charges 2.18% 0.69% 1.31%
Liability for project implementation
expenditure 1.04% 31.03% -
Redeemable cumulative class A preference
shares: current 1.71% 2.39% 4.08%
Term loan: current portion 2.78% - -
Unclaimed dividend 0.07% 0.10% -
Total current liabilities 58.00% 59.92% 33.71%
Total liabilities 70.06% 67.21% 50.23%
100.00
Total shareholders equity and liabilities 100.00% 100.00% %

Table 2: Common size balance sheet of KPCL

In the asset side of the balance sheet of KPCL, cash in hand decreased drastically from 13% to 0.77% and it raised
to 3.48% in 2011. The maximum portion of the companys assets are non-current assets (73.48% in 2011).
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Inventories are decreasing year by years. In 2009 it was 18.21% and in 2011 the inventory decreased to 8.26%. On
the other hand, accounts receivables are increasing over the years and in 2011, it raised to 13.86%.Share capital
and equity attributable to owners of the company is decreasing over the years. Therefore, the total equity also
decreased to 29.94% in 2011, whereas it was 49.77% in 2009.

In the liabilities & equity side of the balance sheet of KPCL, noncurrent liabilities & other account is fluctuating over
the years. Noncurrent liabilities was 12.06%, 7.29% and 16.52% in the years 2011, 2010 and 2009 respectively.
Short term/working capital loan increase in huge amount in 2011 to 27.25%, whereas it was only 6.38% in 2010.
However, total current liabilities decreases slightly in 2011 compare to 2010. Finally the total liabilities in 2011
raised to 70.06% in 2011 and it was 50.23% in 2009.

3.4 Ratio Analysis

Ratio analysis involves methods of calculating and interpreting financial ratios to assess the
firms performance. Ratio analysis of a firms financial statements is of interest to shareholders,
creditors and firms own management. Ratio analysis is the starting point in developing the
information desired by the analyst. Ratio analysis provides only a single snapshot, the analysis
being for one given point or period in time. In ratio analysis it is possible to compare the
company ratio with a standard one. Ratio analysis can be classified as follows:
1. Liquidity ratio
2. Activity ratio
3. Profitability ratio
4. Debt-coverage ratio
5. Owners Ratio
3.4.1 Liquidity Dimension
A firm's ability to pay its debts can be measured partly through the use of liquidity ratios. A firm
should ensure that it does not suffer from lack of liquidity and also that it is not too much highly
liquid. Short term liquidity involves the relationship between current assets and current
liabilities. If a firm has sufficient net working capital (the excess of current assets over current
liabilities), it is deemed to have sufficient liquidity. There are some ratios that are commonly
used to measure liquidity directly, they are:
1. Current ratio
2. Quick ratio or acid test.

3.4.1.1 Current Ratio

The current ratio is a ratio of the firm's total current assets to its total current liabilities. The
current ratio is computed by dividing current assets by current Liabilities. Current asset normally
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includes cash, sundry debtors, inventory, marketable securities, and current liability consists of
Sundry creditors, short-term loans and advance current liabilities and provision for taxes and
other accrued expenses. The ratio is generally an acceptable measure of short term creditors are
covered by assets that are likely to be converted into cash in a period corresponding to the
maturity of the claims.

A low ratio is an indicator that a firm may not be able to pay its future bills on time, particularly
if conditions change, causing a slowdown in cash collections. A high ratio may indicate an
excessive amount of current assets and management's failure to utilize the firm's resources
properly.

Current Ratio = Current assets /Current liabilities

Year 2011 2010 2009

Current Ratio 0.45 0.41 1.15

Analysis
KPCL has current asset lower than current liability. As a result current ratio of this company is
very low. We hope they will recover from this situation soon. By going through over the
components of current liability in year 2011 we see that accounts payable, working capital loan
and term loan (current portion) are of huge amount relative to other current liabilities. The
industry average current ration in 2011 was 2.2 and the companys current ratio is far below than
the industry average.

3.4.1.2 Quick Ratio

The quick ratio, which is also known as acid-test ratio is a better test of financial strength than
the current ratio, as it gives no consideration to inventory, which may be very slow moving. Here
merchandise inventory is omitted because merchandise is normally sold on credit and then the
receivable must be collected before cash is realized. A comparison of the current ratio with quick
ratio would give an indication regarding inventory position. Moreover, in the very short-term the
ability to meet requirements of cash can be judged only on the basis of a properly drawn cash
budget and not on the basis of the quick ratio.

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Quick Ratio = (Current Assets - Inventory) / Current Liabilities

Year 2011 2010 2009

Quick Ratio 0.31 0.26 0.20

Analysis
The quick ratio is increasing from 2010 because the components of current asset except
inventory are increasing at higher rate than that of current liability. The industry average quick
ratio was 1.9 in 2011 and the companys ratio was very poor in comparison with the industry
average. The company should increase its cash and cash equivalents for better security and
creditworthiness. They must follow just in time process to increase quick ratio and as well as
their actual liquidity position.

3.4.2 Activity Dimension

Activity ratios reflect the firms efficiently in utilizing its assets. The funds of creditors and
owners are invested in various kinds of assets to generate sales and profits. The better the
management of assets the larger the amount of sales. These ratios are also called Turnover Ratios
because they indicate the speed with which assets are being converted or turned over into sales.
A proper balance between assets and sales generally reflects that the assets are managed well.
There are some ratios under these criteria. They are as follows:
1. Accounts receivable turnover
2. Average collection period
3. Inventory turnover
4. Fixed asset turnover
5. Total asset turnover

3.4.2.1 Accounts Receivable Turnover

The Accounts receivable turnover is a comparison of the size of the firms sales and the size of
its uncollected bills from customers. If the firm is having difficulty collecting its money, it has a
large receivables balance and a low ratio. If it has a strict credit policy and aggressive collection
procedures, it has a low receivable balance and a high ratio. It measures the effectiveness of the
firm's credit policy.
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Accounts receivable turnover = Sales / Accounts receivable

Year 2011 2010 2009

Accounts Receivable
6.32 times 6.70 times 16.48 times
Turnover

Analysis
From this analysis we get that the ratio is continuously decreasing from 2009. It means that
Account receivable is increasing day by day which is very bad for the company because it has
tied up a lot of cash money, which can be invested by the company in other sector.

3.4.2.2 Average Collection Period

The average collection period provides a rough approximation of the average time that it takes to
collect receivables. It compares the receivables balance with the daily sales required to produce
the balance. The ratio reflects the average collection period.

Average collection period = 360 days / Accounts receivable turnover

Year 2011 2010 2009

Average Collection Period 56.96 days 53.73 days 21.85 days

Analysis
The average collection period is increasing each year which is bad for the company although the
industry average collection period is quite high (76). The goal of any company should be
increase sale without increasing average collection period because it tied up the cash balance and
makes ultimate loss for the company.

3.4.2.3 Inventory Turnover

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This relationship expresses the frequency with which average level of inventory investment is
turned over through operations. The higher the inventory turnover the larger the amount of profit,
the smaller the amount of capital tied up in inventory and the more current the merchandise
stock. Moreover, a firm with a high turnover has a great competitive advantage as it can afford to
sell its merchandise at a lower price because increased sales volume may yield a larger total
profit even though the margin of profit unit is slightly less.

Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory

Year 2011 2010 2009

Inventory Turnover 9.13 times 8.87 times 5.83 times

Analysis
Analysis shows a continuous improvement of inventory turnover through three years from 2009
to 2011. Here we found that the level of inventory is increasing day by day as well as the
turnover is also increasing. It happens because the increasing rate of sales is higher than the rate
of increase in inventory.

Normally when inventory turnover increases we think that the stock of inventory is going to be
finished but in this case the level of inventory has not decreased and thus we can guess that the
firm will not face any inventory problem. But one thing is important that they are holding much
more inventory, which has tied up the cash balance. The industry average inventory turnover is
5.71 in 2011.

3.4.2.4 Fixed Asset Turnover

A similar measure of usage, but one, which concentrates on the productive capacity, as measured
by fixed assets, indicates how successful the company is in generating sales from fixed assets. It
measures how efficiently the companies are using fixed asset in generating sales.

Fixed asset turnover = Sales / Net fixed asset

Year 2011 2010 2009

Fixed Asset Turnover 1.19 2.50 1.93

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Analysis
From the analysis we see that the turnover is the turnover is sometime increasing and sometime it
is decreasing. The ratio has increased in 2010 compare with 2009. This has happened because
sales have increased and on the other hand fixed asset has decreased.
By this analysis we can say that management has able to use fixed asset efficiently. Thus the way
they have increased their sales by decreasing the fixed asset. In 2011, the fixed asset turnover
decrease drastically. However, the position is good in comparison with industry average which is
0.50 in 2011.

3.4.2.5 Total Asset turnover

Total assets turnover indicates how well a company has used its fixed and current assets to
generate sales. It is the most asset measure ratio. Such ratio is probably most useful as an
indication of trends over of years. There is no particular value, which is too high or too low, but a
sudden change would prompt the observer to ask questions. In these criteria a high ratio means
the company is achieving more profit.

Total asset turnover = Sales / Total asset

Year 2011 2010 2009

Total Asset turnover 0.88 0.86 1.19

Analysis
There is an uneven trend of total asset turnover over 3 years from 2009 to 2011. Here we find
that the ratio has increased in 2011 compare with the year 2010. This increase has happened
because the sales have increased at a higher rate than the rate of increase in total asset. The
industry average in 2011 was 0.39 and the companys total asset turnover is in good position.

3.4.3 Profitability Dimension

There are many measures of profitability, which relate the returns of the firm to its sales, assets,
or equity. As a group, these measures allow the analyst to evaluate the firms earnings with
respect to a given level of sales, a certain level of assets, or the owners investment. Without
profits, a firm could not attract outside capital. Moreover, present owners and creditors would

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become concerned about the companys future and attempt to recover their funds. Owners,
Creditors, and management pay close attention to boosting profits due to the great importance
placed on earnings in the marketplace.

The profitability ratios are:

1. Gross profit margin

2. Net profit margin
3. Return on total asset (ROA)
4. Return on total equity (ROE)

3.4.3.1 Gross Profit Margin

The gross profit margin measures the percentage of each sales amount remaining after the firm
has paid for its goods. It may be used as an indicator of the production operation and the relation
between production cost and selling price. The gross profit margin is calculated as follows:

Gross Profit Margin = Gross Profit / Sales

Year 2011 2010 2009

Gross Profit Margin 14% 9% 11%

Analysis
The gross profit margin has slightly increased in 2011 compare with 2010. However, the gross
profit margin is very low compare with the industry average which was 45.86% in 2011. To
increase gross profit margin they should try to increase in sales and decrease their cost of goods
sold. So we can say that they have failed to handle the COGS.

3.4.3.2 Net Profit Margin

The net profit margin measures the percentage of each sales remaining after all costs and
expenses including interest and taxes deducted. The higher firms net profit margins the better.
The net profit margin is calculated as follows:

Net Profit Margin = Net profit after tax / Sales

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 Year 2011 2010 2009

Net Profit Margin 7% 7% 11%

Analysis
In this case also net profit margin has decreased in 2010 and 2011 compare with 2009. The
overall net profit margin is quite low compare with industry average which is about 30.07%.

3.4.3.3 Return on Total Asset (ROA)

Calculating the return on total assets is another variation on measuring how well the assets of the
business are used to generate profit Return on total assets also called return on investment. It
measures the overall effectiveness of management to generate profit with its assets. It could be
measures as follows:

Return On Total Assets = Net profits after taxes / total assets

Year 2011 2010 2009

ROA 6% 6% 13%

Analysis
From 3 years data we see that net income has continuously decreased to 6% till 2011 which is
low comparing with industry average (8.86%).

3.4.3.4 Return on Total Equity (ROE)

The return on shareholders equity is a measure of company performance from the shareholders
perspective. It measures the return on the owners investment in the firm. Return on equity is
calculated as follows:

Return On Equity = Net profit after tax / Stock holder equity.

Year 2011 2010 2009

ROE 22% 18% 33%

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Analysis
In 2010 ROE decreased to 18% and in 2011 it increased to 22% which is a good sign for the
company and industry average ROE is 18.05%.

3.4.4 Debt Utilization Ratios

The debt utilization ratios measure the proportion of debt and how efficiently management used
the debt capital. The higher the ratio, the greater the amount other peoples money being used in
an attempt to generate profits. There are some ratios under these criteria. They are as follows:

1. Debt Ratio
2. Time interest earned

3.4.4.1 Debt Ratio

The debt ratio measures the proportion of total assets financed by the times creditor. The higher
the ratio, the greater the amount other peoples money being used in an attempt to generate
profits. The ratio is calculated as follows:

Debt Ratio =Total liabilities / Total assets

Year 2011 2010 2009

Debt Ratio 0.70 0.67 0.29

Analysis
Analysis shows that debt ratio has continuously increased from 2009. This will incur more
interest expense for the company. The industry average debt ratio was 0.47 in 2011 which shows
that the company is running with more debt.

3.4.5 Ownership Ratios

Ownership ratios assist the stockholder in analyzing present and future investment in a company.
Stockholders are interested in the way certain variables affect the value of their holdings. The
ratios compare the value of the investment with factors such as debt, dividends, earnings, and the
market price of the stock. By understanding the profitability and liquidity ratios, the owner gains

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insights into the soundness of the firm's business activities. By investigating ownership ratios,
the stockholder is able to analyze the likely future market value of the stock. There are some
ratios under this norm. They are as follows:

1. Earnings per Share (EPS)

2. Dividend ratio

3.4.5.1 Earnings Per Share (EPS)

Stockholders are concerned about the earnings that will eventually be available to pay them
dividends or that are used to expand their interest in the firm because the firm retains the
earnings. These earnings may be expressed on a per share basis. Earnings per share are
calculated by dividing net income by the number of shares outstanding (NOSO). Shares
authorized but not issued, or authorized, issued and repurchased (treasury stock), are omitted
from the calculation.

Earnings per Share (EPS) = Net income / NOSO

Year 2011 2010 2009

EPS 2.83 2.79 2.25

Analysis
The EPS is increasing each year which is good sign for the company. However, the industry
average in 2011 was 3.77 which is higher than the company EPS.

4.0 Conclusion

In this report we have discussed about different ratio of KPCL Bangladesh Ltd. Our main job
was to determine the financial position of this company whether it is running good or not. As we
are very new in finance course, we face some problem while doing this assignment. But we have
tried hard to complete this assignment successfully. From the over view of five years data we
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find that the company face some problem in different sector in 2011. Otherwise everything is
tolerable but they must try hard to increase their net income again to create a good impact on
investor.

5.0 References

1. KHULNA POWER COMPANY LIMITED, 2013. Company History, [online]. Dhaka:

Khulna Power Company Limited. Available from:
http://www.khulnapower.com/history.php [Accessed 06 May 2013].

2. KHULNA POWER COMPANY LIMITED, 2011. Annual Report of KPCL

2011. Dhaka: Khulna Power Company Limited.

3. KHULNA POWER COMPANY LIMITED, 2010. Annual Report of KPCL

2010. Dhaka: Khulna Power Company Limited.

4. KHULNA POWER COMPANY LIMITED, 2010. Annual Report of KPCL

2009. Dhaka: Khulna Power Company Limited.

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