MBA Program 2011

A Study on Some Financial Ratios of Bangladeshi Companies

Department of Finance and Banking Faculty of Business Studies University of Rajshahi

Letter of Transmittal

September 10,2013

To A K M Abdul Mazid Professor Department of Finance & Banking, University Of Rajshahi. Subject: Submission of a Research Report on A Study on Some Financial Ratios of Bangladeshi Companies.

Dear Sir, It gives me pleasure to submit the report on A Study on Some Financial Ratios of Bangladeshi Companies. It was a fantastic opportunity for me to prepare the report under your guidance, which really was a great experience for me. I have worked hard and tried my best to prepare the report. But due to some limitations I failed to collect more accurate data. I will be very pleased to provide further information if necessary.

Sincerely yours__________________ Md. Sayeed Iqbal MBA Program 2011 Roll No: 07087605 Department of Finance and Banking University of Rajshahi Mobile No: +88 01737777014
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ACKNOWLEDGEMENT

To begin with, I would like to express our infinite gratitude towards almighty Allah and my course teacher A K M Abdul Mazid, Professor, Department of Finance and Banking, Faculty of Business Studies, University of Rajshahi, to provide not only extremely well arranged guidelines to complete my report work but would also help me to confront problems in my future career. I would like to express my heartiest appreciation to my all classmates, who have been a constant support to us and have patiently helped me throughout our report. I wish to extend our thanks to the computer lab assistant and all the peers of the Department who made it possible to work comfortably even in tough times.

Md. Sayeed Iqbal Roll No: 07087605 MBA Program 2011 Department of Finance and Banking University of Rajshahi

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Dedicated To

My Respectable Parents & Dear Friends

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Table of Contents
Executive Summary ............................................................................................ Chapter 01: Introduction .................................................................................... 1.0. 1.1. 1.2. 1.3. 1.4. 1.5. V 1-3

Name of the topic ..................................................................................... 1 Background and statement of the problem.............................................. Importance of the study............................................................................ 1 1

Objectives of the study.............................................................................. 2 Methodology of the study......................................................................... Limitation of the study.............................................................................. 2 3 4-10

Chapter 02: Literature Review & Conceptual Framework..................................... 2.1. 2.2. 2.3. 2.4. 2.5. 2.6. 2.6.1. 2.6.2. 2.6.3. 2.6.4. 2.6.5. 2.6.6. 2.7. 2.7.1. 2.7.2.

Introduction .............................................................................................. 4 Meaning And Rationale............................................................................. Nature of Ratio Analysis ........................................................................... Basis of Comparison.................................................................................. Financial Statement................................................................................... 4 5 5 6

Importance of Ratio Analysis..................................................................... 6 Liquidity Position....................................................................................... Long-term Solvency................................................................................... Operating Efficiency.................................................................................. Overall Profitability................................................................................... Inter-firm Comparison.............................................................................. Tend Analysis............................................................................................ Limitations of Ratio Analysis..................................................................... Difficulty in Comparison............................................................................ Impact of Inflation..................................................................................... 7 7 8 8 8 9 9 9 10 11-15 16-20 21-26 27-31 32-33 34 Page | V

Chapter 3: Price Earnings Ratip (P/E) .................................................................. Chapter 4: Debt Ratio.......................................................................................... Chapter 5: Return on Equity................................................................................ Chapter 6: Return on Assets................................................................................ Chapter 7: Conclusion.......................................................................................... Works Cited ........................................................................................................

Appendix.................................................................................................................

35

Executive Summary

Ratio is a way of expressing the relationship between one accounting result and another, which is intended to provide a useful comparison. Ratios assist in measuring the efficiency and profitability of a company based on its financial reports. Accounting ratios form the basis of fundamental analysis. The ratios can be used to evaluate the financial condition of a company, including the company's strengths and weaknesses.

Here my report is about Comparative ratio analysis of Bangladeshi Companies. In this report different types of ratios are calculated and compared according to the standard norm of pioneer and dominating companies in Bangladesh with their industry average.

For each company ratios are demonstrated here in matrix structures with their results, for three years, for every ratio separately.

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Chapter 1: Introduction
1.0. Name of the topic: Financial Performance Analysis through Ratio Analysis- "A study on Some financial ratios of Bangladeshi Companies." 1.1. Background and statement of the problem: The purpose of the financial statements i.e. balance sheet and revenue statement is to show firstly, the result of operations for the period under review and secondly, the assets and liabilities of the firm as at the relevant date. But it is difficult to deduce any inference from the mass of figures included in the usual financial statements. So, in order to gauge accurately the financial health of the firm it is generally necessary to regroup and analyze the figures as disclosed by these conventional statements. The use of financial ratios enables conclusions to be drawn from the redrafted figures as to the earning capacity and financial condition of a concern. 1.2. Importance of the study: Being an MBA student, I am in need of acquiring the skill how to analyze financial statements of a business concern. Especially I have to assess the efficiency, profitability, and liquidity of a company/industry. Assessing the efficiency, profitability or otherwise of a concern can be ascertained through financial ratio analysis and evaluation of accounting data. Such analysis enables management to take prudent decisions in conduct of the business affairs, to promote efficiency and thereby increase profit. In particular, profitability ratios show the overall efficiency of a business concern. They are concerned with how effectively an organization has used its available resources. Like manner, liquidity ratios are concerned with the organizations current financial position and in particular with its capacity to pay it's as they arise in the short term. Thus ratio
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analysis is the systematic process of financial analysis as well as the way to assess the strengths, weakness and financial position of a firm according to what management can decide what to do or not. 1.3. Objectives of the study: The objectives of the study are: i) ii) iii) To analyze the relevant financial ratios. To find out the strengths and weakness of the concern companies, To measure liquidity and other main points to determine whether the project is viable to finance or not. 1.4. Methodology of the study: Ratio analysis is a complex process. Each ratio reveals a different aspect of a companys condition, at the same time it must be remembered that these parts are interrelated. In interpreting the findings of ratio analysis, the analyst may rely on two types of comparison. First, the analyst can compare a present ratio with past ratio. The second method of comparison involves comparing the ratio of one firm with those of similar firms or with industry average at the same point in time. Such a comparison gives insight into the relative financial condition and performance of the firm. However the present study has been undertaken only to compare the ratio of each firm with industry average at the same point in time: Keeping in mind the objectives of the study annual reports of three financial years and other related secondary data of 27 companies of different industries had been collected and existing literature like books, journals and magazines had been used. As to the period, the study covers three financial years viz 2012 to 2010. Necessary primary data had also been collected by inquiring the company officials. 1.5. Limitation of the study:
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i) ii)

The time was too short and limited to prepare a good report. The study is mainly on the annual audited balance sheet and profit & loss accounts. Data for monthly variation inventory level, receivables, cash would have been meaningful, but reliance is placed on yearly basis data.

iii)

Interpretations are made here on the basis of ratios calculated from the financial statements. No physical visit or investigation was done.

iv)

There are hundreds of ratios for financial analysis. Due to time constraint only four important ratios are used in this study.

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Chapter 2: Literature Review & Conceptual Framework

2.1. Introduction: Financial analysis is the process of identifying the financial strengths and weakness of the firm by properly establishing relationships between the items of the balance sheet and the profit & loss account. Financial analysis can be undertaken by management of the firm, or by parties outside the firm, viz. owners, Creditors, investors and others. The nature of analysis depends on the purpose of the analyst. Ratio analysis is the process of determining and interpreting numerical relationships based on financial statements. A ratio is statistical yardstick that provides a measure of the relationship between variable of figures. This relationship can be expressed as percent of as a time. Ratio analysis is based on the notion that the analysis of absolute figures may not be the best means available of assessing an organization performance and prospects. For example and annual profit of Tk. 20,000 represents a good level of performance for a local grocer with one shop but a poor achievement for a large company owing a chain of grocery stores. One possible reason for this is that two businesses may use very different amounts of capital. In brief, financial analysis is the process of selection, relation and evaluation. 2.2. Meaning and Rationale: Ratio analysis is a widely used tools of financial analysis. It is defined as the systematic use of ratio to interpret the financial statements so that the strengths and weaknesses of a firm as well as its historical performance and current financial condition can be determined. The term ratio refers to the numerical or quantitative relationship between two items/variables. This can be expressed as: (i) Percentages, say net profits are 25 percent of sales (assuming net profits of Tk. 25,000 and sales of Tk.1,00,000), (ii) Fraction (net profit is one-fourth of sales) and
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(iii)

Proportion of numbers (the relationship between bet profits and sales is 1:4).

These alternative methods of expressing items, which are related to each other rate, for purpose of financial analysis, referred to as ratio analysis. It should be noted that computing the ratio does not add any information not already inherent in the above figures of profit and sales. What the ratios do is that they reveal the relationship in a more meaningful way so as to enable us to draw conclusions from them. The rationale of ratio analysis lies in the fact that it makes related information comparable. A single figure by itself has no meaning but when expressed in terms of a related figure, it yields significant inferences. Ratio analysis is a quantitative tool, enables analysis to draw quantitative answers to questions such as: (i) (ii) (iii) (iv) Are the net profits adequate? Are the assets being used efficiently? Is the firm solvent? Can the firm meet its current obligations and so on?

2.3. Nature of Ratio Analysis: Ratio analysis is a powerful tool of financial analysis. A ratio is defined as the indicated quotient of two mathematical expressions and as the relationship between two of more things. In financial analysis, a ratio is used as a benchmark for evaluating the financial position and performance of a firm. The absolute accounting figures reported in the financial statements do not provide a meaningful understanding of the performance and financial position of a firm. An accounting figure conveys meaning when it is related to some other relevant information. The relationship between two accounting figures, expressed mathematically, is known as a financial ratio (or simply as ratio). Ratios help to summarize the large quantities of financial data and to make qualitative judgement about the firms financial performance. 2.4. Basis of Comparison: Four types of comparisons are involved with the ratio analysis: (i) (ii) (iii) Trend Ratios Inter-firm comparisons Comparison with Indusry average.
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Trends ratios involve a comparison of the ratios of a firm over time i.e. present ratios are compared with past ratios for the same firm. The comparisons of the profitability of a firm. Trend ratios indicate the direction of change in the performance-improvement, deterioration or constancy- over the years. The inter-firm comparison involving comparison of the ratios of a firm with those of others in the same line of business or for the industry as a whole reflects its performance in relation to its competitors. Other type of comparison may relate to comparison of items within a single years financial statement of a firm and comparison with Idustry average. 2.5. Financial Statement: The financial statement that shows the financial position of the business concern. There are three types of financial statements: (i) Balance Sheet: This financial statement reflects the financial position at a particular date of a firm. (ii) Income Statement: This is commonly known as Profit & Loss Account i.e. net profit or loss which has been incurred in business over a given period of time and also explain how has been incurred. (iii) Cash Flow Statement: This statement highlights those major activities, which have a direct & indirect impact on the cash position of the business. 2.6. Importance of Ratio Analysis: As a tool financial management, ratios are of crucial significance. The importance of ratio analysis lies in the fact that it presents fact on a comparative basis and enables the drawing of inferences, regarding the performance of a firm. Ratio analysis is relevant in assessing the performance of a firm in respect of the following aspects: (i) (ii) (iii) Liquidity Positions Long-term solvency Opening Efficiency
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(iv) (v) (vi)

Overall Profitability Inter-firm comparison and Trend analysis

2.6.1. Liquidity Position: With the help of ratio analysis conclusions can be drawn regarding the liquidity position of a firm. The liquidity position of firm would be satisfactory if it is able to meet its current obligations when they become due. A firm can be said to have the ability to meet its short-term liabilities if it has sufficient liquid funds to pay the interest on its short maturing debt usually within a year as well as to repay the principal. This ability is reflected in the liquidity ratios of a firm. The liquidity ratios are particularly useful in credit analysis by bank and other suppliers of short-term loans. 2.6.2. Long-term Solvency: Ratio analysis is equally useful for assessing the long-term financial viability of a firm. This aspect of the financial position of a borrower is of concern to the long-term creditors, security analysis and the present and potential owners of a business. The long-term solvency is measured by the leverage/capital structure and profitability ratios, which focus on earning power and operating efficiency. Ratio analysis reveals the strength and weaknesses of a firm in this respect. The leverage ratios, for instance, will indicate whether a firm has a reasonable proportion of various sources of finance or if it is heavily loaded with debt in which case its solvency is exposed to serious strain. Similarly, the various profitability ratios would reveal whether or not the firm is able to offer adequate return to its owners to owners consistent with the risk involved.

2.6.3. Operating Efficiency: Yet another dimension of the usefulness of the ratio analysis, relevant from the viewpoint of management, is that it throws light on the degree of efficiency in the
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management and utilization of its assets. The various activity ratios measure this king of operational efficiency. In fact, the solvency of a firm is, in the ultimate analysis, dependent upon the sales revenues generated by the use of its assets-total as well as its components. 2.6.4. Overall Profitability: Unlike the outside parties, which are interested in one aspects of the financial position of a firm, the management is constantly concerned about the over-all profitability of the enterprise. That is, they are concerned about the ability of the firm to meet its short-term as well as long-term obligations to its creditors, to ensure a reasonable return to its owners and secure optimum utilization of the assets of the firm. This is possible if an integrated view is taken and all the ratios are considered together. 2.6.5. Inter-firm Comparison: Ratio analysis not only throws light on the financial position of a firm but also serves as a stepping stone to remedial measures. This is made possible due to inter-firm comparison and comparison with industry averages. A single figure of a particular ratio is meaningless unless it is related to some standard or norm. One of the popular techniques is to compare the ratios of a firm with the industry average. It should be reasonably expected that the performance of a firm should be in broad conformity with that of the industry to which it belongs. An inter-firm comparison would be demonstrated the firms position vis--vis its competitors. If the results are at variance either with the industry average or with those of the competitors, the firm can seek to identify the probable reasons and in that light, take remedial measures. 2.6.6. Tend Analysis: Finally, ratio analysis enables a firm to take the time dimension into account. In other words, whether the financial position of a firm is improving or deteriorating over the years. This is made possible by the use of trend analysis. The significance of a trend
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analysis of ratios lies in the fact that the analysis can know the direction of movement, that is, whether the movement is favorable or unfavorable. For example, the ratio may be low as compared to the norm but the trend may be upward. On the hand, though the present level may be satisfactory but the trend may be a declining one. 2.7. Limitations of Ratio Analysis: Ratio analysis is a widely used tool of financial analysis. Yet, it suffers from various limitations. The operational implication of this is that while using ratios, the conclusions should not be taken on their face value. Some of the limitations that characterize ratio analysis are: (i) (ii) (iii) Difficulty in comparison Impact of Inflation and Conceptual Diversity

2.7.1. Difficulty in Comparison: One serious limitation of ratio analysis arises out of the difficulty associated with their comparability. One technique that is employed is inter-firm comparison. But such comparisons are vitiated by different procedures adopted by various firms. The differences may release to: Differences in the basis of inventory valuation (e.g. last in first out, first in first out, average cost and cost); Different depreciation methods (i.e. straight line vs. written down basis); Estimated working life of assets, particularly of Plant and Equipment: Amortization of intangible assets like goodwill, patents and so on; Amortization of deferred revenue expenditure such as preliminary expenditure and discount on issue of shares; Capitalization of lease; Treatment of extraordinary items of income and expenditure; and so on.

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Secondly, apart from the different accounting procedures, company may have deferent accounting periods, implying differences in the composition of the assets, particularly current assets. For these reasons, the ratio of two firms may not be strictly comparable. Another basis of comparison is the industry average. This presupposes the availability, on a comprehensive scale, of various ratios for each industry group over a period of time. If, however, as is likely, such information is not compiled and available, the utility of ratio analysis would be limited. 2.7.2. Impact of Inflation: The second major limitation of the ratio analysis as a tool of financial analysis is associated with price level changes, This, in fact, is a weakness of the traditional financial statements which are based on historical costs. An implication of this feature of the financial statements as regards ratio analysis is that assets acquired at different periods are, in effect, shown at different prices in the balance sheet, as they are not adjusted for changes in the price level. As a result, ratio analysis will not yield strictly comparable and, therefore, dependable results.

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Chapter 03: Price Earnings Ratio (P/E)

There are several ratios to analyze. It's difficult to analyze all ratios at a ceratain time. So in my research I have calculated four major ratios (ie. Price Earnings Raitos (P/E Ratio), Debt to Equity Ratio, Return on Total Assets, Return on Equity). I have compared the outcome of individual companies with their idustry avarage. 3.1. Price/Earnings (P/E) Ratio: The price/earnings ratio (P/E) is the best known of the investment valuation indicators. The P/E ratio has its imperfections, but it is nevertheless the most widely reported and used valuation by investment professionals and the investing public. P/E ratio is an offquoted measure of the ratio of the market price of each share of common stock to the earnings per share. The price-earnings (P/E) ratio reflects the investors assessments of a companys future earnings. The industry average of P/E ratio is about 26 times in abroad market place. Here, throughout this report it was our endeavor to assess the investors investing decision. From 2008 to 2010 I represented the total 3 years P/E ratio of different firms of different industries.The P/E ratio is calculated as follows.

3.1.1. Price Earnings Ratio of Insurance Companies:

YEAR WISE COMPARISON Name of the Companies Delta Fareast Meghna Popular Pragati Prime Prograssive Rupali Industry Average 2012 0.07 0.04 0.02 0.04 0.05 0.07 0.27 0.07 0.08 Year 2011 0.05 0.05 0.02 0.09 0.07 0.14 0.47 0.07 0.12 2010 0.03 0.04 0.06 0.10 0.09 0.06 0.54 0.05 0.12
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Inferences: A stock with a high P/E ratio suggests that investors are expecting higher earnings growth in the future compared to the overall market, as investors are paying more for today's earnings in anticipation of future earnings growth. Hence, as a generalization, stocks with this characteristic are considered to be growth stocks. Conversely, a stock with a low P/E ratio suggests that investors have more modest expectations for its future growth compared to the market as a whole. So, I can asses Progressive life insurance is expecting higher earnings compared the overall market among 8 insurance firm. Rupali life insurance is also expecting a growth over the years and therefore, the investors are paying more of their earnings today for future earnings growth.

3.1.2. Price Earnings Ratio of Banks:

YEAR WISE COMPARISON Name of Banks 2012 Al Aarafa Ibbl Marcentile Trust Prime bank Industry average 12.53 0.038 12.21 0.039 6.11 6.1854 Years 2011 13.4 0.052 13.83 0.087 6.9795 6.8697 2010 10.45 0.039 8.62 0.1 4.393 4.7204
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Inferences: From the above calculation, I can asses Al Arafa Islami Bank Ltd. and Marcentile Bank Ltd. are expecting higher earnings compared the overall market among 5 banks and regarding with their industry average.

3.1.3. Price Earnings Ratio of Financial Institutions:

YEAR WISE COMPARISON Name of Companies IDLC ULC PEOPLES UNION CAPITAL MIDAS INDUSTRY AVERAGE 2012 12.53 12.21 6.11 15.21 98.45 28.90 Years 2011 13.4 13.83 6.9795 12.32 48.2 18.95 2010 10.45 8.62 4.393 10.25 25.3 11.80

Inferences:
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From the above calculation, I can asses MIDAS is over priced. As the Industry average is lower than MIDAS price earning ratio. Other companies are under value from the point of idustry average.

3.1.4. Price Earnings Ratio of Fuel and Power Companies:

YEAR WISE COMPARISON Name of Companies KPCL SUMMIT GBPOWER BEDL SPCL INDUSTRY AVERAGE 2012 9.63 12.29 17.86 17.47 9.38 13.13 Years 2011 17.73 8.37 19.56 29.95 13.82 17.89 2010 25.83 4.45 21.26 42.43 18.26 22.65

Inferences: In the sector of fuel and power, the industry average has been decreased from the previous years. As BEDL has maintained good P/E ratio rather than the other companies. Most of the companies are over valued than the industry average in the year of 2012. But in the year 2011 they have maintained a good P/E except Summit power.

3.1.5. Price Earnings Ratio of Ceramic Companies:

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YEAR WISE COMPARISON Name of Companies FU WANG MONNO SHINEPUKUR STANDARD INDUSTRY AVERAGE 2012 9.63 12.29 17.86 17.47 14.31 Years 2011 17.73 8.37 19.56 29.95 18.90 2010 25.83 4.45 21.26 42.43 23.49

Inferences: In 2010 the average industry ratio was better than the following years. In 2012 the industry has come to a steedy point. Every company has maintained a good P/E ratio.

Chapter 04: Debt Ratio

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4.1. Debt to Total Asset Ratio (Debt Ratio): Debt Ratio is a financial ratio that indicates the percentage of a company's assets that are provided via debt. It is the ratio of total debt (the sum of current liabilities and longterm liabilities) and total assets (the sum of current assets, fixed assets, and other assets such as 'goodwill'). A low percentage means that the company is less dependent on leverage, i.e., money borrowed from and/or owed to others. The lower the percentage, the less leverage a company is using and the stronger its equity position. In general, the higher the ratio, the more risk that company is considered to have taken on. The formula as follows:

4.1.1. Debt Ratio of Insurance Companies:

YEAR WISE COMPARISON Name of Companies POPULAR MEGHNA PRAGATI PRIME PROGRESSIVE DELTA FAREAST INDUSTRY AVERAGE 2012 0.085 0.08 0.07 0.07 0.065 0.08 0.075 0.075 Years 2011 0.09 0.09 0.085 0.08 0.07 0.09 0.08 0.084 2010 0.115 0.11 0.09 0.085 0.08 0.1 0.095 0.096

Inferences:
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The table 4.1.1. shows debt ratio of the insurance sector. It is appeared that in 2012 the industry debt ratio is 7.5%. Now if it is compared with the each company, it has shown that POPULAR, MEGHNA, and DELTA have the debt ratio which is higher than the industry average. Whereas PRAGATI, PRIME, PROGRESSIVE have lower rate than the industry average. Again FAREAST has equal debt ratio with the industry. Actualy debt ratio measures how much a firm is levered. In above data, it is clear that the rate of using debt has been decreasing from 2010 to 2012. A levered firm gets benefit by using debt. In this instance it may be concluded for this sector that Companies may reduce their financial risk that is why we find the decreasing trend of using debt ratio.

4.1.2. Debt Ratio of Banks:

YEAR WISE COMPARISON Name of Banks AL ARAFA IBBL MARCENTILE TRUST PRIME BANK INDUSTRY AVERAGE 2012 0.87 0.93 0.94 0.85 0.885 0.90 Years 2011 0.93 0.93 0.93 0.83 0.83 0.89 2010 0.87 0.93 0.92 0.84 0.865 0.89

Inferences:
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The table 4.1.2. shows debt ratio of the banking sector. It is appeared that in 2012 the industry debt ratio is 90%. Now if it is compared with the each banks, they closer to the industry average. In 2010 and 2009, all the banks have maintained a good debt ratio against the indusry ratio. Actualy debt ratio measures how much a firm is levered. In above data, it is clear that the rate of using debt has been increasing in the bank industry sector. As banks do not have its own capital, the debt ratio always increases.

4.1.3. Debt Ratio of Financial Institutions:

YEAR WISE COMPARISON Name of Companies IDLC ULC PEOPLES UNION CAPITAL MIDAS INDUSTRY AVERAGE 2012 0.42 0.45 0.52 0.29 0.36 0.41 Years 2011 0.45 0.52 0.29 0.36 0.46 0.42 2010 0.45 0.52 0.29 0.36 0.25 0.37

Inferences:

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The table 4.1.3. shows debt ratio of the financial institution sector. It is appeared that in 2012 the industry debt ratio is 41%. Now if it is compared with the each institutions, IDLC, ULC & Peoples leasing have used more debt than the industry average. On the other hand, MIDAS and Union capital has used the debt comparatively lower than others. In 2010 & 2009 the same trend can be seen in the calculation.

4.1.4. Debt Ratio of Fuel and Power Companies:

YEAR WISE COMPARISON Name of Companies KPCL SUMMIT GBPOWER BEDL SPCL INDUSTRY AVERAGE 2012 0.54 0.48 0.36 0.28 0.35 0.43 Years 2011 0.52 0.45 0.39 0.3 0.38 0.41 2010 0.50 0.42 0.42 0.32 0.41 0.39

Inferences: The table 4.1.4. shows debt ratio of the fuel and power sector. It is appeared that in 2012 the industry debt ratio is 43%. Now if it is compared with the each companies, every companies were close the industry average except KPCL. On the other hand, BEDL has been less levered than the industry average.

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4.1.5. Debt Ratio of Ceramic Companies:

YEAR WISE COMPARISON Name of Companies FU WANG MONNO SHINEPUKUR STANDARD INDUSTRY AVERAGE 2012 0 4.6 13.91 0.08 4.6475 Years 2011 0 8.15 17.85 1.2 6.8 2010 1.14 8.56 13.99 2.61 6.575

Inferences: The table 4.1.5. shows debt ratio of the ceramic sector. It is appeared that in 2012 the industry debt ratio is 46%. Now if it is compared with the each companies, there is a constant trend in the industry. Even no debt has been used in some companies.

Chapter 05: Return on Equity Ratio (ROE)

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5.1. Return on Equity Ratio (ROE): Return on equity or return on capital is the ratio of net income of a business during a year to its stockholders' equity during that year. It is a measure of profitability of stockholders' investments. It shows net income as percentage of shareholder equity. The higher the ratio is the better the firm is.

5.1.1. Return on Equity Ratio of Insurance Companies:

YEAR WISE COMPARISON Name of Companies
DELTA MEGHNA PRAGATI PROGRESSIVE FAREAST POPULAR PRIME INDUSTRY AVERAGE

2012
30.54 34.02 21.48 29.38 37.46 38.12 26.39 31.06

Years 2011
34.14 39.36 32 32.26 40.37 37.25 29.78 35.02

2010
34.679 48.24 47.23 38.2 38.09 38.38 29.34 39.17

Inferences:
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It is shown in the above table that in 2012 industry return on equity of insurance sector is 31.06%. MEGHNA, FAREAST, POPULAR have done very well in 2012, their return on equity is higher than the industry return on equity. Again return on equity of PRAGATI, PROGRESSIVE, PRIME is lower than the industry return on equity. Obviously they didnt obtain the optimum return on equity. These firms should be carefull about this issue otherwise it will decrease the confidence of shareholders. It can be concluded that the overall industry return on equity is not satisfactory. The industry return on equity was 39.17% in 2010, 35.02% in 2011 , 31.06% in 2012. It is very clear that a decreasing rate is followed, if it is continued it will be a frightening issue for this industry.

5.1.2. Return on Equity Ratio of Banks:

YEAR WISE COMPARISON Name of Banks AL ARAFA IBBL MARCENTILE TRUST PRIME BANK INDUSTRY AVERAGE 2012 18 19 17.75 24.51 24.385 20.729 Years 2011 24 17 18.45 20.3 17.525 19.455 2010 25 19 21.94 14.45 12.92 18.662

Inferences:
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It is shown in the above table that in 2012 industry return on equity of Banking sector is 20.729%. Trust Bank Ltd and Prime Bank Ltd. have done very well in 2012, their return on equity is higher than the industry return on equity. Again return on equity of Al Arafa Islmai Bank Ltd., IBBL, Marcentile Bank Ltd. is lower than the industry return on equity. Obviously they didnt obtain the optimum return on equity. These firms should be carefull about this issue otherwise it will decrease the confidence of shareholders. It can be concluded that the overall industry return on equity is not satisfactory. The industry return on equity was 18.662% in 2010, 19.455% in 2011, 20.729% in 2012. It is very clear that a increasing rate is followed, if it is continued it will be a positive issue for this industry.

5.1.3. Return on Equity Ratio of Financial Institutions:

YEAR WISE COMPARISON Name of Companies IDLC ULC PEOPLES UNION CAPITAL MIDAS INDUSTRY AVERAGE 2012 18 26.2 25 23 32 24.8 Years 2011 24 12.5 18.45 20.3 17.525 18.6 2010 25 12.12 21.94 14.45 12.92 17.3

Inferences:

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It is shown in the above table that in 2012 industry return on equity of Financial sector is 24.8%. ULC, Peoples and MIDAS have done very well in 2012, their return on equity is higher than the industry return on equity. Again return on equity of Union Capital and IDLC is lower than the industry return on equity. Obviously they didnt obtain the optimum return on equity. These firms should be carefull about this issue otherwise it will decrease the confidence of shareholders. It can be concluded that the overall industry return on equity is not satisfactory. The industry return on equity was 17.3% in 2010, 18.6% in 2011, 24.8% in 2012. It is very clear that a increasing rate is followed, if it is continued it will be a satisfying status for this industry.

5.1.4. Return on Equity Ratio of Fuel and Power Companies:

YEAR WISE COMPARISON Name of Companies 2012 KPCL SUMMIT GBPOWER BEDL SPCL INDUSTRY AVERAGE 23.87 16.83 4.13 3.42 15.58 12.5 Years 2011 21.65 26.02 10.24 6.91 25.42 18.05 2010 19.43 35.21 16.35 10.4 35.26 23.6

Inferences:
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It is shown in the above table that in 2012 industry return on equity of insurance sector is 12.5%. Summit Power, KPCL and SPCL have done very well in 2012, their return on equity is higher than the industry return on equity. Again return on equity of GBpower, BEDL is lower than the industry return on equity. Obviously they didnt obtain the optimum return on equity. These firms should be carefull about this issue otherwise it will decrease the confidence of shareholders. It can be concluded that the overall industry return on equity is not satisfactory. The industry return on equity was 23.6% in 2010, 18.05% in 2011, 12.5% in 2012. It is very clear that a decreasing rate is followed, if it is continued it will be a frightening issue for this industry.

5.1.5. Return on Equity Ratio of Ceramic Companies:

YEAR WISE COMPARISON Years Name of Companies FU WANG MONNO SHINEPUKUR STANDARD INDUSTRY AVERAGE 2012 10.2 10.9 4.8 3.9 4.5 2011 7.3 1.7 11.2 5.2 4.5 2010 0.8 0.5 10.1 -3.1 4.5

Inferences:
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It is shown in the above table that in 2012 industry return on equity of insurance sector is 4.5%. FU Wang, Munnu and Sinepukur have done very well in 2012, their return on equity is higher than the industry return on equity. Again return on equity of Standerd is lower than the industry return on equity. Obviously they didnt obtain the optimum return on equity. These firms should be carefull about this issue otherwise it will decrease the confidence of shareholders. It can be concluded that the overall industry return on equity is not satisfactory. The industry return on equity was 4.5% in 2010, 4.5% in 2011, 4.5% in 2012. It is very clear that a steady rate is followed, if it is continued it will be a satisfactory issue for this industry.

Chapter 06: Return on Assets Ratio (ROA)

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6.1. Return on Assets Ratio (ROA):

This ratio indicates how profitable a company is relative to its total assets. The Return On Asset (ROA) ratio illustrates how well management is employing the company's total assets to make a profit. The higher the return, the more efficient management is in utilizing its asset base. The ROA ratio is calculated by comparing net income to average total assets, and is expressed as a percentage.

6.1.1. Return on Assets Ratio of Insurance Companies:

YEAR WISE COMPARISON Name of Companies DELTA FAREAST MEGHNA POPULAR PRAGATI PRIME PROGRESSIVE RUPALI INDUSTRY AVERAGE 2012 14.23 16.32 14.56 15.32 15.88 16.21 14.46 17.81 15.60 Years 2011 12.75 12.96 13.63 14.29 14.8 17.51 14.62 12.33 14.11 2010 13.25 13.85 15.85 13.49 15.22 14.45 13.63 14.52 14.28

Inferences:
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Industry average of Insurance industry for 2012 is 15.60% and Farest, Pragati, Prime, Rupali have done very well in 2012, their return on asset is higher than the industry return on asset. Again return on asset of Delta, Meghna, Progressive is lower than the industry average in 2012 and return on asset of popular is near to industry average. It can be concluded that overall return on asset is not so satisfactory which means that asset were not utilized properly. Industry average of return on asset for 2010, 2011, 2012 are 14.28%, 14.11% and 15.60% that means industry average is increasing which is good sign.

6.1.2. Return on Assets Ratio of Banks:

YEAR WISE COMPARISON Name of Companies 2012 AL ARAFA IBBL MARCENTILE TRUST PRIME BANK INDUSTRY AVERAGE 2.45 1.35 1.1 1.24 1.38 1.504 Years 2011 1.77 1.22 1.2 2.24 3.28 1.942 2010 1.71 1.61 1.33 0.79 0.25 1.138

Inferences: Industry average of Bank industry for 2012 is 1.504% and Al-Arafah Bank Ltd. has done very well in 2012, their return on asset is higher than the industry return on asset. Again
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return on asset of IBBL, Mercantile, Trust Bank Ltd, Prime Bank Ltd. is lower than the industry average in 2012. It can be concluded that overall return on asset is not so satisfactory which means that asset were not utilized properly. Industry average of return on asset for 2010, 2011, 2012 are 1.138%, 1.194% and 1.504% that means industry average is not constant or increasing which is a warning sign.

6.1.3. Return on Assets Ratio of Financial Institutions:

YEAR WISE COMPARISON Name of Companies 2012 IDLC ULC PEOPLES UNION CAPITAL MIDAS INDUSTRY AVERAGE 2.45 1.35 1.1 1.24 2.3 2.3 Years 2011 1.77 1.22 1.2 2.24 1.955 1.955 2010 1.71 1.61 1.33 1.8 1.2 1.2

Inferences: Industry average of financial industry for 2012 is 2.3% and IDLC and MIDAS have done very well in 2012, their return on asset is higher than the industry return on asset. Again
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return on asset of ULC, Peoples, and Union Capital is lower than the industry average in 2012 and return on asset of MIDAS is near to industry average. It can be concluded that overall return on asset is not so satisfactory which means that asset were not utilized mcuh as it they should. Industry average of return on asset for 2010, 2011, 2012 are 1.2%, 1.955% and 2.3% that means industry average is increasing which is good sign.

6.1.4. Return on Assets Ratio of Fuel and Power Companies:

YEAR WISE COMPARISON Name of Companies KPCL SUMMIT GBPOWER BEDL SPCL INDUSTRY AVERAGE 2012 8.53 11.71 4.01 2.92 10.42 7.5 Years 2011 6.48 15.34 4.89 5.78 11.9 8.88 2010 4.43 18.97 5.77 8.64 13.38 10.26

Inferences: Industry average of Insurance industry for 2012 is 7.5% and KPCL, SUMMIT and SPCL have done very well in 2012, their return on asset is higher than the industry return on asset. Again return on asset of GB Power and BEDL is lower than the industry average in 2012. It can be concluded that overall return on asset is not so satisfactory which means that asset were not utilized properly. Industry average of return on asset for 2010, 2011,
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2012 are 7.5%, 8.88% and 10.26% that means industry average is decreasing which is warning sign.

6.1.5. Return on Assets Ratio of Ceramic Companies:

YEAR WISE COMPARISON Name of Companies FU WANG MONNO SHINEPUKUR STANDARD INDUSTRY AVERAGE 2012 6.1 3 2.4 1.7 3.3 Years 2011 2.8 0.4 4.9 2.1 2.55 2010 0.3 0.1 3.7 -1.2 0.725

Inferences: Industry average of Insurance industry for 2012 is 3.3% and FU Wang has done very well in 2012, their return on asset is higher than the industry return on asset. Again return on asset of Munnu, Shinepukur and Standerd is lower than the industry average in 2012. It can be concluded that overall return on asset is not so satisfactory which means that asset were not utilized properly. Industry average of return on asset for 2010, 2011, 2012 are 3.3%, 2.55% and 0.725% that means industry average is decreasing which is warning sign.

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Chapter 07: Conclusion

The main finding of the study is to find out whether the analyzed companies are maintaining their standard with their industry ratio. I have tried to explain the findings of the ratios of individul companies along regarding their idustry ratio. Ratio analysis is one of the most important techniques to measure the profitability and liquidity. It measures efficiency of asset management and efficiency of expense control. The findings of this study have been narrated as under:

Findings from P/E ratio:

A price multiple/valuation ratio of a companys current share price compared to its per share earnings, measurement of earning power. The P/E ratio can therefore alternatively be calculated by dividing the company's market capitalization by its total annual earnings. The price-to-earnings ratio is a financial ratio used for valuation; a higher P/E ratio means that investors are paying more for each unit of net income, so the stock is more expensive compared to one with a lower P/E ratio. The P/E ratio can be seen as being expressed in years, in the sense that it shows the number of years of earnings which would be required to pay back purchase price, ignoring inflation and time value of money. The P/E ratio also shows current investor demand for a company share. The reciprocal of the P/E ratio is known as the earnings yield. The earnings yield is an estimate of the expected return from holding the stock if we accept certain restrictive assumptions. In my analysis, I have found most of the companies either over rated than P/E ratio or under rated than P/E ratio. In the every industry, companies have failed to maintain a steady ratio in accordence with the standard P/E ratio 20.

Findings from Debt ratio:

The debt ratio measures the proportion of total assets financed by the firms creditors. The higher this ratio, the greater the amount of other peoples money being used to generate profits. In this catagory of ratio, banking sector has the highest value. Other indutrial companies have used the debt but not much as bank sector, Financial sector and Fuel-power sector. In my findings, I have found that there is increasing trend in using of debt from the year 2010 to 2012. In 2012 all sectors have increased their debt uses except ceramics and insurance sector.

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Findings from Return on Equity (ROE) ratio:

A profitability ratio calculated as audited net income divided by audited NAV. ROE is equal to a fiscal year's net income (after preferred stock dividends but before common stock dividends) divided by total equity (excluding preferred shares), expressed as a percentage. As with many financial ratios, ROE is best used to compare companies in the same industry. High ROE yields no immediate benefit. Since stock prices are most strongly determined by earnings per share (EPS), you will be paying twice as much (in Price/Book terms) for a 20% ROE company as for a 10% ROE company. In my study I have found that Insurance and Banking industry are doing well. On the other hand Fuel and Power sector has a declining trend in their industry average and Ceramic industry has a steady trend.

Findings from Return on Assets (ROA) ratio:

The return on total assets (ROA), often called the return on investment (ROI), measures the overall effectiveness of management in generating profits with its available assets. The higher the firms return on total assets, the better. In my analysis, I have found most the sectors have increased their returns on assets. Some companies from different sector have failed to achive their idustry average. Though the trend has an increase which is a good sign. From 2010 to 2012 every sector has a positive growth in their returns on their total assets. It means the management is generating profits by using their available assets. After the four financial ratio analyses, we can see that there is a good balance among the companies. Most of the companies have good ratio figure. In case of liquidity measurement ratios all of the companies have very high figure. This means they retain much cash then need. This reduces the ability of the companies of earning. In case of profitability indicator ratios all of the companies have healthy figure. This means all of the firms have high net income. Firms have good debt indicator ratios. On the other hand in case of cash flow indicator ratios all of the companies have adequate good figure which refers that all of the companies generate enough cash for their activity. Last of all in case of investment valuation ratios all of the companies have strong ratios. This indicates that all of firms offer very good amount of divided to their equity holders as well as the companies work on the maximization of equity holder's interest in the companies.

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Works Sited
Companies' Documents Books Gitman, J. Lawrence. Principles of Managerial Finance (12th Addison Wesley, ISBN 0-321-55528-7. ed.). Pearson Annual Report 2008, 2009 & 2010 DSE Monthly Review (Half Yearly Edition) Vol: 28, No. 06, June 2013 Brochures Credit Report Statement of Affairs, Dated: 30/06/2012

Haley, D. Lawrence & Schall, W. Charles. Introduction to Financial Management (6th ed.), Macgraw Hills publications. Sekaran, U. Research Methods for Business (4th ed.). Wiley India (p) Ltd. Banerjee, B., Financial Policy and Management Accounting, Calcutta, the World Press Private Ltd, 1995. Khan, M. Y. and Jain, P.K., Financial Management, New Delhi, Tata McGraw Hill Publishing Company Ltd., 1987. I.M. Pandey, Financial Management, New Delhi, Vikas Publishing Home Pvt. Ltd. 1979. Websites & Internet Documents http://en.wikipedia.org http://dspace.bracu.ac.bd http://www.scribd.com http://www.stockbangladesh.com http://www.dsebd.org http://www.assignmentpoint.com http://www.bb.org.bd/pub

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Appendix
Name of the analyzed companies:
Delta Life Isurance Ltd. Fareast Life Isurance Ltd. Meghna Life Isurance Ltd. Popular Life Isurance Ltd. Pragati Life Isurance Ltd. Prime Life Isurance Ltd. Prograssive Life Isurance Ltd. Rupali Life Isurance Ltd. Al Aarafa Islami Bank Ltd. Islami Bank Bangladesh Ltd. Marcentile Bank Ltd. Trust Bank Ltd. Prime Bank Ltd. IDLC ULC PEOPLES UNION CAPITAL MIDAS KPCL SUMMIT GBPOWER BEDL SPCL FU WANG MONNO SHINEPUKUR STANDARD

Life Isurance Compamies

Banks

Financial Institutions

Fuel and Power

Ceramics

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