METHODOLOGY

In this project titled Financial Analysis of Quasem Drycells Ltd., I have followed the method called Time Series Analysis. I have shown different financial analysis in different times and compared them with each other to have the best results in my analysis.

Limitations

Companies are not exactly alike in the nature of their operations. Different companies use different accounting policies. Ratios are primarily a starting point from which to identify further questions related to present position & future directions of the operations and so they do not provide answers in themselves. A single ratio can mislead the users. The financial statements being compared should be dated at the same point in time during the year. Audited financial statement should be used to analyze ratios. Time series analysis ignores the impact of inflation.

Literature Review

Liquidity Ratios: Current Ratio = CA / CL Quick Ratio or Acid Test or Liquid Asset Ratio = (CA Ending Inventory) / CL

Debt /Gearing/ Leverage Ratios: Debt/Equity Ratio = Long-term loan * 100 / Stockholders equity Debt Ratio = Total Liability / Total Asset Times Interest Earned Ratio or Interest Coverage Ratio = EBIT / Interest

Activity (Efficiency) Ratios: Inventory (Stock) Turn over = Cogs / Av. Inventory Average age of Inventory or Stockholding Period = (Av. Inventory * 365) / Cogs TA Turnover Ratio = Sales / TA FA Turnover Ratio = Sales / Net FA

Profitability Ratios: ROCE= EBIT * 100 / (FA + CA CL) Net Profit Margin= (Net Profit * 100) / Sales Operating Profit Margin= (Operating Profit * 100) / Sales Gross Profit Margin = (GP * 100) / Sales ROA= (Earnings Available for Common Stock Holders * 100) / TA ROE= (Earnings Available for Common Stock Holders *100)/Stockholders Equity EPS= Earnings Available for Common Stock Holders/ Number of Common Stock Outstanding

Market Ratio: P/E Ratio = Market Price / EPS

Quasem Drycells Ltd.

Findings and Analysis

RATIO ANALYSIS
Using the financial statements of Quasem Drycells Ltd., I have calculated the companys financial ratios in order to analyze companys financial trends and to compare its performance with the industry average. In carrying out the ratio analysis, I have taken the following types of ratios into account:

1. Liquidity ratios 2. Asset management ratios 3. Debt management ratios 4. Profitability ratios 5. Market value ratios

LIQUIDITY RATIOS
Liquidity ratios indicate how easily the companys current assets are convertible to cash, without losing their fair market value. These ratios also show the relationship of a firms cash and other current assets to its current liabilities. These include two ratios, namely:

1. Current ratio 2. Quick/ Acid Test ratio.

Current Ratio Quick Ratio

31-12-2009 1.06 times 0.49 times

31-12-2010 1.03 times 0.42 times

CURRENT RATIO

Interpretation

In 2010 Quasem Drycells current ratios were 1.03 times than their current liabilities and it was 1.06 times in the year 2009. It has gone down from 2009 to 2010. It has gone down because the current assets have gone down.

QUICK RATIO/ ACID TEST RATIO

Interpretation

In 2010 Quasem Drycells had current assets except inventories were 0.42 times than their current liabilities and it was 0.49 times in the year 2009. It has gone down because current assets and inventories have gone down in a substantial amount and that is why the total ratio has gone down.

ACTIVITY (EFFICIENCY) RATIOS

1. Inventory turnover ratio 2. Stock holding period 3. Fixed asset turnover ratio 4. Total asset turnover ratio

Inventory turnover ratio Stock holding period Fixed asset turnover ratio Total asset turnover ratio

31-12-2009 4.29 83.90 3.14 1.86

31-12-2010 3.43 104.98 2.57 1.80

INVENTORY TURNOVER RATIO

Interpretation
In the year 2010 Quasem Drycells has sold out and restocked its inventory 3.43 times and in 2009 it was 4.29 times. It has gone down from 2009 to 2010. Sales have gone down but inventories have gone up much larger than that of the sales and that is why the total ratio has gone up from 2009 to 2010.

FIXED ASSETS TURNOVER RATIO Interpretation

In the year 2010 Quasem Drycells has generated 2.57 times of sales utilizing 1 worth of net fixed asset, 3.14 in 2009. It has gone down from 2009 to 2010. Sales have gone down and fixed asset has gone up and that is why the total ratio has gone up also from 2009 to 2010.

TOTAL ASSET TURNOVER RATIO Interpretation

In the year 2010 Quasem Drycells has generated 1.80 times worth of sales utilizing 1 times worth of total assets and it was 1.86 times in 2009. It has gone down from 2009 to 2010. Sales have gone down substantially and total asset has gone down and that is why the total ratio has gone down from 2009 to 2010.

LEVERAGE RATIOS

1. Debt/Equity Ratio 2. Debt Ratio 3. Times-interest earned Ratio

Debt/Equity Ratio

31-12-2009 3.88%

31-12-2010 1.93%

Debt Ratio Times-interest Ratio

0.71 earned 0.98

0.72 1.69

DEBT/EQUITY RATIO

Interpretation
In the year 2010 Quasem Drycells had 0.72 times total debt than that of 1 worth total equity and 0.71 times in 2009.

DEBT RATIO

Interpretation

In the year 2010 Quasem Drycells had 0.72 times total debt against their total asset and it was 0.71 times in 2009.

The ratio had increased in 2009 to 2010 this is due to increase in total debt compared to that of the asset, so the company must come up with some steps to reduce this ratio by reducing their debts and increasing their assets.

PROFITABILITY RATIOS

There are four important profitability ratios that we are going to analyze: 1. Net Profit Margin 2. Gross Profit Margin 3. Operating Profit Margin 4. ROCE (Return on capital employed) 5. Return on Equity 6. Return on Asset 7. Earnings per share

Net Profit Margin Gross Profit Margin Operating Profit Margin

31-12-2009 2.89% 17.73% 3.62%

31-12-2010 4.30% 18.75% 5.88% 36.16%

ROCE (Return on capital 18.67% employed) Return on Equity Return on Asset Earnings per share 5.60% 5.39% 1.44

7.90% 7.75% 2.09

NET PROFIT MARGIN Interpretation

In the year 2010 Quasem Drycells had a 4.30 tk net profit per 100 tk sales and it was 2.89 tk in 2009. It has gone up from 2009 to 2010. Net profit has gone up and at the same time sales has gone up more than that of the gross profit 2009 to 2010 and that is why the total ratio has gone up.

GROSS PROFIT MARGIN Interpretation

In the year 2010 Quasem Drycells had a tk 18.75 gross profit per 100 dollar sales and it was tk 17.73 per 100 dollar in 2009.Gross profit has gone up and at the same time sales has also gone up but in a small amount from 2009 to 2010 and that is why the total amount has gone up.

RETURN ON EQUITY (ROE)

Interpretation
In the year 2010 Quasem Drycells has the common shareholders had earnings of tk 7.90 per tk 100 worth of common equity and it was tk 5.60 in 2009.

RETURN ON ASSETS (ROA) Interpretation

In the year 2010 Quasem Drycells had a net income of tk 7.75 by utilizing tk 100 worth of total assets and it was 5.39 in 2009. Net income has gone up and at the same time total assets has also gone down and that is why the total ratio has gone up.

EARNING PER SHARE (EPS) Interpretation

In 2010 Quasem Drycells net income per share is tk 2.09 then tk 1.44 per share in 2009.

MARKET RATIO Price earnings ratio ( P/E ratio)

P/E ratio(DSE)

31-12-2009 1.53

31-12-2010 1.43

P/E RATIO

Interpretation

In 2010 Quasem Drycells price per share tk 1.43 per share and in 2009 it was tk 1.53 per share.

In 2009 to 2010 price per share and EPS has increases. So, it has gone down.

DUPONT SYSTEM OF ANALYSIS

DuPont formula Modified DuPont formula

ROA ROE

31-12-2009 5.39% 5.60%

31-12-2010 7.75% 7.90%

DUPONT FORMULA

Interpretation
In 2010 Quasem Drycells DuPont formula ROA is 7.75% where as in 2009 it was 5.39%.

MODIFIED DUPONT FORMULA Interpretation

In 2010 Quasem Drycells ROE in the Modified DuPont formula is 7.90%, in 2009 it was 5.60%. This happened due to increase in the Net Profit Margin and the Total Asset Turnover in both the year.

RECOMMENDATIONS
Generally, financial statement analysis generally begins with a set of financial ratio designed to disclose the strengths and weaknesses of a company as compare over year to year position, and to show whether its financial position has been improving or failing over time. From the above analyzed ratios of Quasem Drycells Ltd. our recommendation for the investors is that the company financial wealth which was favorable and in good position for the company. We determined this decision about company because of their increase in liquidity ratio, activity ratio, leverage ratio, profitability ratio except P/E ratio. If the company wants to improve the current financial position and they have to increase stakeholder or ask for more investment from the shareholders in the Quasem Drycells Ltd. so that the company would make Quick turnover of inventories Account receivable Cash liquidity Total assets

Meanwhile, the company should make longer payment period than receiving period. Quasem Drycells Ltd. should reduce their financial and other expenses.

CONCLUSION
From overall financial analysis, I came to know how ratio analysis can help us to evaluate the financial performance of the company. From this project I also learned to analyze the value of different financial reports of different financial years and to improve forecasting skills. I was able to gain specific knowledge about the financial strengths and weaknesses of Quasem Drycells Ltd in the chosen industry.

Bibliography
Principles of MANAGERIAL FINANCE (Twelfth Edition) LAWRENCE J. GITMAN www.dsebd.org www.quasemdrycells.com

APPENDIX