Financial Performance Analysis of

RECKITT BENCKISER
PREPARED BY: Name: Nazla Naim Subha Farzana Mir Tanzir Islam MD. Shaifur Rahman ID: 1020547030 1020730520 1110857030 1030708530

PREPARED FOR: Riyashad Ahmed (RyA)

MBA in Finance University of Wales Institute Cardiff, UK. BBA in Finance St. Francis Xavier University Nova Scotia, Canada

School of Business North South University

Table of Content
Executive summary, 1 Introduction, 2 Financial Performance Analysis:
Liquidity Ratio, 4 Asset Management Ratio, 6 Debt Management Ratio, 9 Profitability Ratio, 10 Stock Market Ratio, 13 Du-Pont Equation, 16 Modified Du-Pont Equation, 17

Conclusion and Recommendations, 18 Appendices, 19

Executive summary

The project assigned to us was to study the financial health of Reckitt Benckiser Bangladesh. Through this thorough financial analysis, our aim to understand the financial factors is influencing the company and its decision making. Later, we try and evaluate the various ratios to appreciate their impact on companys performance over the last five years. The financial statements of last five years are identified, studied and interpreted in light of companys performance. Critical decisions are analyzed and their impact on the bottom line of the company is assessed. Finally, we study ratio analysis of the company to analyze the financial position of the company in last five years.

Introduction
For such a fast-paced, entrepreneurial business some are surprised to learn the companys history spans 150 years of innovation for consumers across the world. Reckitt Benckiser is a world leader in FMCG household, health and personal care. In Bangladesh it has started its journey in the year of 1987 by enlisting as a pharmaceutical and chemical company at DSE and CSE. Reckitt Benckiser (Bangladesh), Ltd. offers health and hygiene care products for consumers in Bangladesh. It provides products in the areas of surface and fabric care, dishwashing, homecare, health and personal care, and food. The companys surface care products include disinfectant and lavatory cleaners, general purposes and specialty cleaners, and polishes and waxes. Its fabric care products comprise fabric treatments, fine fabric, water softeners, fabric softeners, and ironing aids laundry detergents. The companys health and personal care products comprise antiseptics, depilatories, denture care, analgesics cold/flu, and gastro-intestinal. Reckitt Benckiser (Bangladesh), Ltd. was formerly known as Reckitt & Colman Bangladesh, Ltd. The company was founded in 1961 and is based in Dhaka, Bangladesh. Reckitt Benckiser (Bangladesh), Ltd. operates as a subsidiary of Reckitt Benckiser Plc. Reckitt Benckiser Group Plc. manufactures and markets household cleaning products. The company's brands include air fresheners, household cleaners, laundry products, furniture polishes, and dishwashing detergents. It also makes over-the-counter pharmaceuticals such as analgesics, antiseptics, flu remedies, and gastrointestinal medications and offers products for hair removal, denture cleaning, and pest control. The company was founded in December 1999 and is headquartered in Slough, the United Kingdom RBs health, home and hygiene brands are sold in over 180 countries around the world. RB's entrepreneurial and creative people drive its marketing, sales, research and development. RB's vision is a world where people are healthier and live better. RB's purpose is to make a difference by giving people innovative solutions for
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healthier lives and happier home. RB is a genuinely global force and a truly multinational company. In 2010, RB sold 20 million product units worldwide. Its a FTSE top 15 company and since 2000 net revenues have doubled and the market cap has quadrupled. Today it is the global No.1 in the majority of its fast-growing categories, driven by an exceptional rate of innovation over a third of revenue comes from innovations launched in the prior 3 years. In Bangladesh some strong branded products of its portfolio are in market including: DETTOL, HARPICK, LYSOL, VANISH, and VEET etc.

Financial Performance Analysis

Liquidity Ratio
Current Ratio Quick Ratio 2007 1.52 Times 2008 1.5 Times 2009 2010 2011 1.41 Times 1.15 Times 1.14 Times

1.22 Times 1.25 Times 0.82 Times 0.69 Times 0.63 Times

Current Ratio:
Interpretation: In 2011, the companys current assets were 1.14 times of their current liabilities. It means that for one taka of current liabilities, the current assets are 1.14 taka is available to the company. The Current Ratio is more or less stable. Relative change in current assets was greater than the relative change of current liabilities. So, the ratio has deteriorated. Current Ratio is declining over the last 5 years. (Times Series)

Current Ratio
1.41

1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 1.52 1.5

1.15

1.14

0
2007 2008 2009 2010 2011

Quick Ratio:
Interpretation: The quick ratio indicates the liquid financial position of an enterprise. In 2011, the companys current assets excluding inventory were 0.63 times of their current liabilities. The Quick Ratio is unsatisfactory. Current Assets excluding inventory has gone up, at the same time, Current Liabilities has gone up. So, the ratio has deteriorated. Quick Ratio is declining over the last 5 years. (Time Series)

Quick Ratio
1.4
1.2 1 0.8 0.6 1.22 1.25 0.82 0.69 0.63

0.4
0.2 0 2007 2008 2009 2010

2011

Asset Management Ratio

Inventory Turnover Ratio Total Asset Turnover Ratio Fixed Asset Turnover Ration Average Collection Period Average Payment Period 2007 6.20 Times 2.05 Times 10.98 Times 3.83 Days 2008 7.03 Times 1.95 Times 5.65 Times 8.15 Days 2009 4.40 Times 2.58 Times 2010 2.92 Times 2.48 Times 2011 4.70 Times 2.03 Times 9.86 Times 1.09 Days

12.21 Times 11.30 Times 5.80 Days 5.27 Days

178.92 Days 187.74 Days 125.97 Days 176.04 Days 206.63 Days

Inventory Turnover Ratio:

Interpretation: In 2011, the company sold out and restocked their inventory 4.70 times. Relativity change in COGS was more than the relative change in inventory. Company improved form the last year. It shows that the solvency position of the company is sound. (Time series)

Inventory Turnover Ratio

8 6 4 2 7.03

6.2
4.4 2.92 4.7

0
2007 2008 2009 2010 2011

Total Asset Management Ratio:

Interpretation: In 2011, the companys every 1 dollar worth of total asset has generated 2.03 dollar worth of sales. Relativity change in total asset is more than the relative change in sales Not improved from the last year. (Times series)
3 2.5 2 1.5 1 0.5 0 2007 2008 2009
7

Total Asset Turnover Ratio

2.58 2.48

2.05

1.95

2.03

2010

2011

Fixed Asset Turnover Ratio:

Interpretation: In 2011, the companys every 1 dollar worth of fix asset has generated 9.86 dollar worth of sales. Relative change in fixed asset is more than relative change in sales. Company not improved form the last year. (Times series)

Fixed Asset Turnover Ratio

12.21

14
12 10 8 6 4 2 0 2007 2008 2009 2010 2011 5.65 10.98 11.3 9.86

Average Collection Period:

Interpretation: In 2011, the company in an average it took 1.09 days to make the collection from the customers. The relative change in account was less than the relative changes in average per day sale. Improved performance compared to last year. (Time series)

Average collection Period

9 8 7 6 5 4 3 2 1 0 1.09 3.83 5.8 5.27 8.15

2007

2008

2009
8

2010

2011

Average Payment Period:

Interpretation: This is a managerial decision.
250

Average Payment Period

206.63 176.04

200
150 100 50 0 2007 2008 2009 2010 178.92

187.74 125.97

2011

Debt Management Ratio

Debt Ratio TIE Ratio 2007 57.5% 243 Times 2008 2009 58.7% 60.3% 332 Times 356 Times 2010 72.5% 272 Times 2011 73.02% 260 Times

Debt Ratio:
Interpretation: The debt equity ratio is important tool of financial analysis to appraise the financial structure of the company. It expresses the relation between the external equities & internal equities. This ratio is very important from the point of view of creditors& owners. In 2011, the companys 73.02% of Total Assets were financed by debt.
80.00% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00%

Debt Ratio
72.50% 57.50% 58.70% 60.30% 73.20%

2007

2008
9

2009

2010

2011

Times Interest Earned (TIE) Ratio:

Interpretation: In 2011, the company has covered their interest expense 260 times. It has improved, the particular ratio is favorable. EBIT compared to interest expenses has increased significantly. TIE ratio has been relatively constant over the last 5 years. (Time Series)

TIE Ratio
400 300 200 100 0 242.8 331.7 355.5 271.8 259.7

2007

2008

2009

2010

2011

Profitability Ratio
2007 Gross Profit Margin Net Profit Margin Return on asset Return on equity 40.66% 9.14% 15.81% 37.1% 2008 40.60% 9.50% 15.66% 37.9% 2009 43.89% 10.50% 27.10% 68.3% 2010 46.73% 6.16% 15.26% 55.5% 2011 42.99% 6.32% 12.84% 47.6%

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Gross Profit Margin

Interpretation: The gross profit is the profit made on sale of goods. It is the profit on turnover. In 2011, the company made a gross profit of tk. 42.99 for every tk. 100 sales. Therefore the Cost of Goods Sold is Tk. 57.01 for every tk. 100 sales. In 2010, the company had a gross profit margin of 46.73%. Thus the company had a poor performance this year. The gross profit declined by tk. 45349327 and sales has risen by tk. 72983971.
48.00% 46.00% 44.00% 42.00% 40.00% 40.66% 40.60% 43.89% 42.99%

Gross Profit Margin

46.73%

38.00%
36.00%
2007 2008 2009 2010 2011

Net Profit Margin

Interpretation: In 2011, the company made a net profit of tk. 6.32 for every tk. 100 sales. The company had an improved performance in case of net profit since the net profit margin has risen from 6.16% to 6.32%. Both net profit and sales have increased significantly, but the relative change in net profit was less than relative change in sales. Companys sales have increased in 5 years and decreased in the last year. At the same time company has been successful in controlling the expenses i.e. manufacturing & other expenses. It is a clear index of cost control.

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Net Profit Margin

12 10 8 6 4 2 9.14 9.5 10.5

6.16

6.32

0
2007 2008 2009 2010 2011

Return on Investment:
Interpretation: In 2011, every tk. 100 worth of asset generated tk. 12.84 worth of net profit. The company had a declining performance this year. In 2010, return on assets was 15.26%. Both net profit and total asset have risen but the relative change in total assets was significantly higher than the relative change in net profit.

30
25 20 15 10 5 0 15.81 15.66

Return on Assets
27.1

15.26

12.84

2007

2008

2009

2010

2011

Return on Equity:
Interpretation: In 2011, the shareholders of this company earned tk. 47.6 for every tk. 100 investment in the company. In this case also company had a demonstrated a declining performance. Both net profit and total common equity have risen, but the relative change in net profit in much lower than the relative change in the total common equity.

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80 60 40 37.1 20 0

Return on Equity
68.3 55.5 47.6 37.9

Stock Market Ratio

Earnings per share Dividend per share Market to book value ratio Price to earnings ratio 2007 29.50/ share 19.81/ share 4.70 Times 12.64 2008 35.05/ share 22.00/ share 4.90 Times 12.92

2007

2008

2009

2010

2011

2009 41.90/ share 73.00/ share 25.66 Times 37.59

2010 26.71/ share 40.08/ share 25.22 Times 45.45

2011 28.37/ share 16.91/ share 13.15 Times 27.63

Earnings per Share

Interpretation: The common shareholders have earned $29.05 per share in 2007, $35.05 per share in 2008, $41.90 per share in 2009, $26.71 per share in 2010 and $28.37 per share in 2011. The EPS ratio of the company has been increasing at an increasing rate from 2007 to 2009. However, the ratio fell to $26.71 per share in 2010, which is a huge decline. The ratio again slightly increased in 2011. Thus the ratio has been fluctuating. In 2010, the ratio decreased because the net income available to common shareholders decreased greatly. In 2011, the ratio increased because the net income available to common shareholders increased. During
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the five year of study the total number of common share outstanding has been constant. Earnings per Share
45 40 35 30 25 20 15 29.05 35.05 26.71 28.37

41.9

10
5 0 2007 2008 2009 2010 2011

Dividend per Share

Interpretation: During the five year of study the common shareholders have earned $19.81 per share, $22.00 per share, $73 per share, $40.08per share and $16.91 per share respectively. The DPS ratio has been increasing from 2007 to 2009. However, the ratio started to fall in 2010. The ratio fell to $16.91 per share in 2011, which is a huge decline. Thus the ratio has been fluctuating. The reason behind the decline of DPS ratio is that the total dividend amount paid to shareholders decreased in 2010. In 2011 the amount decreased even more.

Dividend per Share

80
70 60 50 40 30 20 10 0 2007 2008 2009
14

73.00

40.08

19.81

22.00

16.91 2010 2011

Market to Book Value Ratio

Interpretation: During the five years of study the market value per share has been 4.70 times, 4.90 times, 25.66 times, 25.22 times and 13.15 times respectively. The ratio has continuously increased from 2007 to 2009. However the ratio started to decline in 2010. Thus the ratio has not been stable. In 2010 the decline of the ratio was because both market price and book value per share decreased but the relative change in market price was higher than relative change in book value of shares. In 2011 the decline of the ratio was because market price decreased from $1214 per share to $784 per share and book value per share increased from $48.13 per share to $59.61 per share.

Market to Book Value Ratio

30 25 20 15 10 5 4.9 2008 2009 2010 2011 25.66 25.22

13.15

4.7 0
2007

Price to Earnings Ratio

Interpretation: According to the price to earnings ratio the shareholders of this company were willing to pay 12.64, 12.92, 37.59, 45.45 and 27.63 for every taka of reported earnings during the five years study. The ratio has been increasing from 2007 to 2010. However, the ratio largely declined in 2011. In 2010 the ratio increased from 37.59 to 45.45 because market price per share and EPS declined but relative change in market price was higher than relative change in EPS. In 2011 the ratio decreased from
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45.45 to 27.63 because relative change in market price was higher than relative change in EPS although market price fell and EPS increased.

Price to Earnings Ratio

50 45 40 35 30 25 20 15 10 5 0

45.45
37.59

27.63

12.64

12.92

2007

2008

2009

2010

2011

Du-Pont Equation
Return on Assets = Total Asset Turnover Net Profit Margin 2007 2008 2009 2010 2011 15.81 15.66 27.10 15.26 12.84 = = = = = 1.73 1.65 2.58 2.48 2.03 9.14 9.50 10.50 6.16 6.32

16

Modified Du-Pont Equation

Return on Equity = Total Asset Net Profit Equity Turnover Margin 9.14 9.50 10.50 6.16 6.32 Multiplier 2.35 2.42 2.52 3.64 3.71

2007 2008 2009 2010 2011

37.16 37.93 68.27 55.61 47.60

= = = = =

1.73 1.65 2.58 2.48 2.03

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Recommendation
Liquidity refers to the ability of the concern to meet its current obligations as and when these become due. The company should improve its liquidity position. The company should make the balance between liquidity and solvency position of the company. The profit ratio is decreased in current year so the company should pay attention to this because profit making is the prime objective of every business. The cost of goods sold is high in every year so the company should do efforts to control it. The long term financial position of the company is very good but it should pay a little attention to short term solvency of the company.

Comments
Reckitt Benckisers overall position is at a very good position. RB has been a great growth story over much of the past 5 years. The company achieves sufficient profit in past five years. The long term solvency position of the company is very good. The company maintains low liquidity to achieve the high profitability. The company distributes dividends every year to its shareholders. The profit of the company increased in the last year and maintained comparatively high liquidity.

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Appendix
Liquidity Ratio
Current Ratio Quick Ratio Formula Current Assets / Current Liabilities Current Assets Inventory / Current Liabilities 2007 2008 2009 2010 2011 742972417/ 896844350/ 576011025/ 646005672/ 828984916/ 488675848 597593108 408783401 563607559 727330259 742972417 146059045/ 488675848 896844350 147441749/ 597593108 576011025 240509838/ 408783401 646005672 828984916 373847987/ 257136739/ 727330259 563607559

Asset Management Ratio

Inventory Turnover Ratio Total Asset turnover Ratio Fixed Asset Turnover Ration Average Collection Period Average Payment Period Formula Cost of goods sold/ Inventory Sales/ Total Assets Sales/ Fixed Assets Account Receivable/ (Sales/365) Accounts Payable/ (Sales/365) 2007
905206021/ 146059045 1525487547/ 881909055 1525487547/ 138936638 21336849/ (1525487547 /365) 443722560/ (905206021 /365)

2008
1037206570/ 147441749 1746267981/ 1057921288 1746267981/ 308935838 5191584/ (1746267981 /365) 539187939/ (1037206570 /365)

2009
1057516657/ 240509838 1884621742/ 730409848 1884621742/ 154398823 3988633/ (1884621742 /365) 364981036/ (1057516657 /365)

2010
1090914090/ 373847987 2047993742/ 827318554 2047993742/ 181312882 3937948/ (2047993742 /365) 526143104/ (1090914090/ 365)

2011
1209247388/ 257136739 2120977713/ 1044053282 2120977713/ 215068366 8400148/ (2120977713 /365) 684558592/ (1209247388 /365)

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Debt Management Ratio

Debt Ratio Formula Total Debt / Total Asset EBIT / Interest charges 2007 2008 2009 2010 2011 506760773/ 621027097/ 440367416/ 599920369/ 762375086/ 881909055 1057921288 730409848 827318554 1044053282 218812248/ 257242903/ 279637616/ 203075401/ 216163745/ 901349 775520 786672 747121 832360

Times Interest Earned (TIE) Ratio

Profitability Ratio
Gross Profit Margin Net Profit Margin Return on Assets Return on Equity Formula Gross Profit/Sales Net Profit/Sales Net Profit/Total Assets Net Profit/Total Common Equity 2007
620281526/ 1525487547 139398899/ 1525487547 139398899/ 881909055 139398899/ 375148000

2008
709061411/ 1746267981 165622010/ 1746267981 165622010/ 1057921288 165622010/ 436894000

2009
827105085/ 1884621742 197972944/ 1884621742 197972944/ 730409848 197972944/ 290042000

2010
957079652/ 2047993742 126216280/ 2047993742 126216280/ 827318554 126216280/ 227398000

2011
911730325/ 2120977713 134061961/ 2120977713 134061961/ 1044053282 134061961/ 281678000

Stock Market Ratio:

EPS Formula Net income available to common shareholder/ Total no. of common shares outstanding 2007 2008 2009 2010 2011 139398899/ 165622010/ 197972944/ 126216280/ 134061961/ 4725000 4725000 4725000 4725000 4725000

20

DPS

Market to book value ratio Price to earnings ratio Book Value Per Share

Total dividend paid/ Total no. of common shares outstanding Market value per share/book value per share Price per share/EPS

93616749/ 4725000

104004471/ 344924872/ 189359047/ 79883965/ 4725000 4725000 4725000 4725000

373/79.40

453/92.46

1575.01/ 61.39

1214/ 48.13

784/ 59.61

373/29.50

453/35.05
436894000/

1575.01/ 41.90
290042000/

1214/ 26.71
227398000/

784/ 28.37
281678000/

Total common 375148000/ 4725000 equity/Total number of common share outstanding

4725000

4725000

4725000

4725000

Stock price
Market price per share 2007 373.00 2008 453.00 2009 1575.01 2010 1214 2011 784

21

Du-Pont Equation
Du-Pont Equation 2007 2008 2009 2010 2011 Return on Assets = Net Profit/ Total Assets
139398899/ 881909055 165622010/ 1057921288 197972944/ 730409848 126216280/ 827318554 134061961/ 1044053282

Total Assets Turnover Sales/ Total Assets

1525487547/ 881909055 1746267981/ 1057921288 1884621742/ 730409848 2047993742/ 827318554 2120977713/ 1044053282

Net Profit Margin Net Profit/ Sales

139398899/ 1525487547 165622010/ 1746267981 197972944/ 1884621742 126216280/ 2047993742 134061961/ 2120977713

Modified Du-Pont Equation

Modified Du-Pont Equation Return on Equity = Net Profit/ Total Common Equity 2007 2008 2009 2010 2011
139398899/ 375148000 165622010/ 436894000 197972944/ 290042000 126216280/ 227398000 134061961/ 281678000

Total Assets Turnover Sales/ Total Assets

1525487547/ 881909055 1746267981/ 1057921288 1884621742/ 730409848 2047993742/ 827318554 2120977713/ 1044053282

Net Profit Margin Net Profit/ Sales

139398899/ 1525487547 165622010/ 1746267981 197972944/ 1884621742 126216280/ 2047993742 134061961/ 2120977713

Equity Multiplier Total Assets/Total Common Equity

881909055/ 375148000 1057921288/ 436894000 730409848/ 290042000 827318554/ 227398000 1044053282/ 281678000

22