Statement of the Problem In Bangladesh the performance of public sector enterprise in general and public sector food industry

in particular in terms of overall performance and profit is far from satisfactory. Deficiencies in working capital [current asset] manageme nt and capital investment decisions [fixed assets] have been found by the resear chers. Current assets management includes planning and control of a firms liquid researchers via-cash, marketable securities, inventories. On the other hand fixe d asset management refers to the current outlay or series of outlays of cash res ources in long-turn assets in return for an anticipated flow of future benefits. Asset management deals with activities as to how effectively the assets can be employed by the firm. In fact, the efficiency and performance of a firm depends to a large extent of the efficiency with which the assets are managed and utiliz ed. However, on perusal of existing literature on food industry in Bangladesh it can be said that very little attention has so far been given to the impact of asset management on productivity of public sector jute industry. It is further assert ed that although various concerned agencies like planners, policy makers, econom ists, researchers and academicians have recognized directly or indirectly poor s tate of management in the public sector jute industry of Bangladesh, so far our knowledge goes no study on impact of poor asset management on productivity has y et been done. This research gap motivated the author to undertake this study. Objectives of the Study The study focuses on the following objects I] To identify the asset management efficiency criteria for the study purpose. Ii] To evaluate the efficiency of asset management on the basis of the selected criteria. Iii] To find out the impact of poor asset management on productivity of sample e nterprises. Iv] To recommend ways and means to overcome the asset management inefficiencies in the food industry of Bangladesh.

Research Methodology The study is the result of the combination of two methods ie, desk research and field work. Desk study covers literature survey of the subject in order to colle ct relevant material for the purpose of this research work. In field work, the r esearchers conducted interview directly with the concerned personnel ie, enterpr ise head, accounts heads of the selected sample mills with the help of a pre-des igned questionnaire prepared in the lights of the objectives of the study. The s econdary relevant data were collected through perusal of accounts statement , pr oduction reports, sales reports etc of selected enterprises Management uses a member tools and devices for planning and controlling of finan cial activities of a concern. The commonly used techniques are Ratio Analysis, F und Flow Analysis, Cash Budgeting, Cost Volume, Profit Analysis, Capital Budgeti ng etc. Among the various techniques, ratio is considered a very acceptable devi ce because predictive value. Moreover, it is also simple to compute and easy to understand the meaning and the indication of the ratio. Asset management ratios measured how effectively the asset are invest by the ent erprises. In such a contest activity or turnover ratios can be employed to evalu ate the efficiency with which the firm manages its assets. Moreover, many resear chers like Kaven found that a number of ratios viz, current ratio, stock turnove r ratio and current asset to net sales etc can predict financial health and thus efficiency of asset management concern. The following ratios have been used in this study to examine the asset managemen t activities of the sample enterprises via current ratio, current asset to net s ales, inventory turnover ratio, average collection period, receivable turnover r atio to evaluate efficiency of current asset management and fixed asset turnover

ratio, total asset turnover ratio and return capital employed ratio to evaluate the efficiency of fixed asset management. The study is limited to food sector of public enterprises. The study is confined to six food industry in Bangladesh. These industry were selected purposely co nsidering the easy accessibility to the data. The study covered data and informa tion for a five year period via 2004-2005,2005-2006,2006-2007,2007-2008,2008-200 9.

Findings and their analysis The major findings of the present study are as follows: Current asset efficiency measurement Table -1 prepared in order to measure the efficiency or otherwise of current ass et management in the samples miles. Table -1 Current asset efficiency measurement ratios (average position) Samples

Items Apex Food Gemini Sea Food Bangas National Tea Tobacco British American tobacco Industry Average Current ratio (in times) 1.43 5.55 1.06 0.49 1.05 1.07 1.78 Current assets to net sales (in percentage) 0.43 0.61 0.51 0.61 3.60 0.40 1.03 Inventory Turnover (in times) 4.31 10.08 3.18 3.10 1.21 16.30 6.36

Bangladesh Leaf

Average collection period (in days) 27.04 35.32 22.20 26.73 12.16 4.74 21.37 Receivable Turnover (in times) 18.84 10.56 25.51 16.17 0.01 42.83 18.98

Current ratio: Current ratio shows the ability of an enterprise to meet its current debts. It is calculated by dividing the current asset by current li abilities. The standard norm of current ratio is 2. Table -1 reveals that except Gemini sea food all the samples haves current ratio below the standard norm. It is further evident that the enterprise average curr ent ratios works out at 1.78 which, however varies from 0.49 to 5.55 recorded by sample number 4 and 2 respectively. It is to be mentioned that a low ratio indi cates the shortage of working capital of funds which is harmful for an organizat ion . On the other hand , a high ratio indicates inefficient use of capital whi ch may be due to poor inventory control and poor investment policy in the manage ment. It can suggest that a company should maintain a standard of working capita l by which it can meet up its daily obligations . It should not be excessive or lower. Current asset to net sales: This ratio is used to measure whether the fi rm is in a liquid position to support its activities. A firm maintains current a ssets because they are needed to support the operational activities that culmina te in sales. As a result over time a firm will keep a fairly steady rate of curr ent assets to net sales. The ratio should not be excessive or too low. The forme r indicates the excessive blockage of fund and the latter indicates short fall t o maintain smooth production flow. A ratio of 20 percent to 40 percent is consid ered to be slandered or satisfactory in this regard. Table 1 Shows that the average current asset to net sales ratio works out at 1. 03 which vary from 0.40 to 3.60 recorded by sample number 6 and 5 respectiv

ely. It is depicted that the ratio for all these samples is much above the stand ard norm during the study period. This result reveals heavy tied up fund in tota l current assets for all the samples. It indicates a situation of over trading. Over trading is harmful because it adversely affects liquidity position of a man ufacturing enterprise.

Inventory turnover ratio: It shows the efficiency of sales and indicates the nature of sale inventory of an organization. It is calculated by dividing s ales by closing inventory. According to some authors the standard norm of invent ory turnover ratio is 8 times to 9 times for manufacturing concern. Table 1 reveals that inventory turnover ratio is very low in the sample enterpri ses compared to standard norm. It is seen that the average inventory turnover ra tio is 6.37 for low in the sample enterprises which, however, varies from 1.21 t o 16.30 recorded by sample numbers 5 and 6 respectively. This indicates that the generation of taka sales by inventory is not up to satisfactory level in sample enterprises. Average collection period: It shows the number of periods of credit of a n organization allows to customers to pay the amount of sales products to them. It is calculated by dividing trade debtors by credit sales and multiplied by quo tient by 365 days. Some authors are of opinion that average collection period of 20 days is standard norm for the industrial enterprises. Table 1 depicts that the average collection period for the samples works out at 21.37 days which varies from 4.74 to 35.32 days recorded by sample number 2 and 6 respectively. Thus when considered with the standard norm the average collect ion period of the sample enterprises appears to be very excessive. As a result o f excessive collection period the concerned enterprise have been facing liquidit y problem and may be in danger in future. Receivable turnover ratio: It enables a firm to judge adequacy of curren t ratio. It represents a valuable test of collectability of currency of receivab le. It is calculated by dividing credit sales by debtors. Table 1 portrays that the receivable turnover ratio for the samples works out a t 18.98 which varies from 0.01 to 42.83 recorded by sample numbers 5 and 6 respe ctively. When compared with standard average collection period the norm stands a t 18.25 to 6.08 times (considering 20 to 60 days as standard average collection period opined by the academicians as mentioned earlier). Hence, this ratio was f ound to be around this limit and the position is not quite unsatisfactory in sam ple food industry.

Fixed asset efficiency measurement Table -2 is prepared to in order to measure the efficiency of fixed asset manage ment in the sample mills. Table -2 Fixed Asset Efficiency Measurement Ratios (Average Pos ition)

Samples

Items Apex Food Gemini Sea Food Bangas National Tea Tobacco British American tobacco Average Fixed asset turnover (in time) 15.17 27.84 3.41 0.50 0.06 10.54 9.60 Total assets turnover (in percentage) 1517.21 2784.82 341.40 50.92 6.06 1063.43

Bangladesh Leaf

960.64 Capital employed ratio(in percentage) 0.04 0.23 0.23 0.10 (0.06) 1.44 0.33 (Source: Annual Accounts statements of the Sample Enterprises) Note: i) The average position for each enterprise represent the study period2004 -05,2005-06,2006-2007,2007-08,2008-09.

Fixed Assets Turnover Ratio: It is calculated by dividing sales by net fixed ass ets . A turnover of 5 times is considered to be standard for this purpose. It is used to indicate the extent the generation of sales in terms of net fixed asset s of a concern. Table-2 portrays that the fixed assets turnover ratio varies from 0.06 to 27.84 recorded by sample number 5 and 2 respectively. Further, on the average the rati o works out 9.60 for the sample enterprise which is near to ideal condition. Total Assets Turnover Ratio: It is calculated by dividing sales with total tangi ble assets and the quotient is multiplied by 100. According to some authors 200 percent total assets turnover is considered as standard norms for manufacturing concern. Moreover, it is an important tool to measure the extent of generating s ales through use of assets. Table -2 reveals that the total assets turnover ratio for the sample works out a

t 960.64 which varies from 6.06 to 2784.82 recorded by sample number 5 and 2 re spectively during the study period. This ratio is very in the sample mills compa red to standard norms. It is further depicted that there was poor sales volume i n terms of total investment which ultimately might result in poor use of capital in the sample mills. Return on capital employed ratio: The term capital employed refers to the net fi xed assets plus working capital. The fourth Five Year Plan of India prescribes 1 1 percent to 12 percent return on capital employed for the public sector industr ial enterprise. This ratio shows the relationship between earnings and capital e mployed. Table-2 reveals that annual average return on capital employed is positiv e for all the samples . The position of sample -2 & 3 is better and near to stan dard norms. Such positive position of capital employed ratio indicates highly sa tisfactory profitability performance of the food industry. The aforesaid findings of the various ratios relevant to ratios relevan t to measurement of efficiency of the use of current assets indicate inadequate or inefficient use of current assets in the sample. Again, the ratios relevant to measurement of the efficiency of fixed a sset management also show inefficient use of fixed assets. Only Bangladesh Leaf Tobacco has inefficient asset management with adverse impact in the food industr y in terms of liquidity and profitability. Impact of poor asset management efficiency on productivity of sample food indust ry The term `productivity` have various concepts such as labor productivity. Capita l productivity and material productivity etc. broadly speaking, labor productivi ty means the ratio of output to the input. More categorically, labor productivit y may be defined as the ratio of value of output to the value of labor input. Ca pital productivity may be defined as the ratio of the value of output to the cap ital input. Material productivity means the ratio of the value of output to the input of materials. In this study only capital productivity has been taken into consideration. After analyzing the discussions as made in section-4 of this study it may be sai d that asset management efficiency has been poor in almost all the sample mills in all the years under review. Such poor asset management efficiency has adverse impact on productivity of the sample mills. It can be said that due to poor ass et management efficiency capital productivity of the sample industry has been l ow as revealed in table 3. From table 3 it is seen that the annual average capit al productivity for all the sample food industry has been only 2.954. The annual average capital productivity varies from 0.047 to 10.672 in the sample mills, t he highest position recorded by sample no.2 and the lowest recorded by sample no .5. Table- 3 Table Showing Capital Productivity of Sample Enterprise Serial no: Year Industry name 2004-05 2005-06 2006-07 2007-08 2008-09 Average Apex food 1.433 Gemini sea food 35.87 1.917 4.82 2.776 4.47 2.425 3.71 1.9095 2.092 4.49 10.672

Bangas food 1.056 National tea com. 0.389

1.094 0.388

1.352 0.427 1.405 1.592

1.386 0.275 1.462 2.954

1.251 0.419 3.294

1.228 0.438 0.047

Bd leaf tobacco 0.0469 BAT 4.255 4.636 4.710 Average 7.17 2.149 2.264 1.558

(Source: Annual Accounts Statement of the Sample Enterprise) Correlation co-efficient & t-test analysis Descriptive Statistics CPR CR CANS ITR ACP RTR FATR TATR ROCER Mean Std. Deviation N 2.9537 3.96068 6 1.7750 1.87375 6 1.0267 1.26372 6 6.3633 5.72900 6 21.3650 11.11351 6 18.9867 14.49232 6 9.5867 10.74004 6 960.6402 1074.26631 .3300 .55519 6

Correlations CPR CR CANS ITR ACP RTR FATR TATR ROCER

Pearson Correlation

CPR CR CANS ITR ACP RTR FATR TATR ROCER

.966 -.337 .552 .494 -.020 .931 .931 .159

-.159 .334 .592 -.264 .888 .887 -.079

-.464 -.358 -.681 -.428 -.429 -.381

-.307 .704 .534 .537 .901

-.434 .510 .508 -.623

.044 .047 .864

1.000 .135

.139

Sig. (1-tailed)

CPR CR CANS ITR ACP RTR FATR TATR ROCER

.001 .257 .128 .160 .485 .003 .003 .382

.382 .259 .108 .307 .009 .009 .441

.177 .243 .068 .198 .198 .228

.277 .059 .138 .136 .007

.195 .151 .152 .093

.467 .465 .013

.000 .399

.397

CPR CR CANS ITR ACP RTR FATR TATR ROCER

6 6 6 6 6 6 6 6

6 6 6 6 6 6 6

6 6 6 6 6 6

6 6 6 6 6

6 6 6 6

6 6 6

6 6

ANOVA(b) Model Sum of Squares df Mean Square F Sig.

Regression 78.435 5 Residual .000 0 Total 78.435 5

15.687 . .

.(a)

a Predictors: (Constant), ROCER, CR, CANS, TATR, RTR

b Dependent Variable: CPR Coefficient Correlations(a) Model ROCER CR CANS TATR RTR

Correlations

ROCER CR CANS TATR RTR

-.483 -.837 .019 -.957

.361 -.809 .582

.149 .896

-.105

a Dependent Variable: CPR

The correlation co efficient between current ratio and capital productivity(positive) .966, current assets to net sales and capital productivity(negative) -.337, Inventory turnover ratio and capital productivity(positive).552, average collection period and capital productivity(positive).494, receivables turnover ratio and capital productivity(negative) -.020, fixed asset turnover ratio and capital productivity(positive) .931, total asset turnover ratio and capital productivity(positive) .931, return on capital employed ratio and capital productively(positive) .159 have been respectively. It is also found through T test that the correlation b etween current ratio and capital productivity, current assets to net sales and c apital productivity, total assets turnover ratio and capital productivity and fi xed assets turn over ratio and capital productivity have been significant.

APPENDIX 1. Current ratio = (Current assets)/(current liability) Year company 2005 2006 2007 2008

2009 Average Industry average Apex Food 1.37 1.43 1.46 1.47 1.41 1.43

1.78 Gemini Sea Food 3.92 4.76 3.37 7.39 8.29 5.55 Bangas 1.15 1.03 1.06 National Tea 0.49 0.38 Bangladesh Leaf Tobacco 1.05 British American tobacco

1.05 0.37 1.05 0.73

1.04 0.38 1.05 0.90

1.06 0.81 1.05 1.08

0.49 1.04 1.35

1.05 1.31

1.07

2. Current Asset to net sales = (current assset)/(net sales) Year Company 2005 2006 2007 2008 2009 Average Industry average Apex Food 0.59

0.44

0.31

0.35

0.45

0.43

1.03 Gemini Sea Food 0.23

0.17

0.19

0.23

0.18

0.61

Bangas 0.56 0.52 0.40 National Tea 0.62 0.46 Bangladesh Leaf Tobacco 18.02 British American tobacco

0.45 0.84 .. 0.28

0.53 0.57 . 0.43

0.51 0.58 .. 0.36

0.61 0.46

3.60 0.46

0.40

3. Inventory Turnover Ratio = sales/(closing inventory) Year Company 2005 2006 2007 2008 2009 Average Industry average Apex Food 2.36

3.83

6.24

5.69

3.43

4.31

6.37 Gemini Sea Food 8.67 11.98 Bangas 3.17 2.90 3.63 National Tea 2.47 3.46 Bangladesh Leaf Tobacco 6.05 British American tobacco

12.32 3.26 2.24 .. 15.94

8.08 2.93 3.81 .. 16.62

9.33 3.18 3.50 . 16.86

10.08 3.10 .. 16.70 1.21 15.39

16.30

4. Average Collection Period = (trade debtors)/(credit sales) x 365 Year Company 2005 2006 2007 2008 2009 Average Industry average Apex Food 35.03 44.22 39.80 14.21 1.92 27.04

21.37 Gemini Sea Food 40.72 32.08 Bangas 26.28 9.29 7.09 National Tea 1.57 1.22 Bangladesh Leaf Tobacco 60.81 British American tobacco

38.02 25.05 62.85 .. 4.97

38.75 43.32 40.21 .. 5.71

27.06 22.20 27.79 .. 2.77

35.32 26.73 6.87 12.16 3.40

4.74

5. Receivable Turnover Ratio = (credit Sales)/debtors Year Company 2005 2006 2007 2008 2009 Average Industry average Apex Food 10.41 8.25 31.00 25.67 18.87 18.84

18.98 Gemini Sea Food 8.96 11.37 Bangas 13.88 39.28 51.43 National Tea 23.20 29.69 Bangladesh Leaf Tobacco 0.0600 British American tobacco

9.60 14.56 5.80 . 73.32

9.41 8.42 9.07 . 63.88

13.48 25.51 13.13 13.14

10.56 16.17 .. 0.01 53.12 10.70

42.83

6. Fixed asset turnover ratio = Sales/(Net fixed asset) Year Company 2005

2006 2007 2008 2009 Average Industry average Apex Food 9.50

13.11

22.38

17.26

13.60

15.17

9.59 Gemini Sea Food 20.84 30.85 Bangas 2.87 2.78 3.25 National Tea 0.51 0.53 Bangladesh Leaf Tobacco 0.30 British American tobacco

30.09 4.06 0.35 6.83

28.99 4.08 0.55 .. 8.52

28.44 3.41 0.58 .. 10.24

27.84 0.50 13.11 0.06 14.45

10.54

7. Total Asset Turnover ratio = Sales/(Net fixed asset) Year Company 2005 2006 2007 2008 2009 Average Industry average Apex Food 950.05 1311.57 2238.14 1726.12 1360.15 1517.21

960.64 Gemini Sea Food 2084.84 3085.61 Bangas 287.84 278.85 325.82 National Tea 51.20 53.42 Bangladesh Leaf Tobacco 30.3 British American tobacco 6

3009.55 406.41 35.91 683.41

2899.99 408.06 55.14 852.38

2844.11 341.40 58.97 . 1024.00

2784.82 50.92 . 6.06 1311.48 1445.88 1063.431

Ear nings 8. Return on capital employed ratio = net fixed asset+working capital Year Company 2005 2006 2007 2008 2009 Average Industry average Apex Food 0.04

0.04

0.06

0.06

(0.02) 0.04

0.33 Gemini Sea Food 0.03 0.04 Bangas 0.02 0.04 0.06 National Tea 0.06 0.06 Bangladesh Leaf Tobacco (0.15) British American tobacco

0.07 0.06 0.07 (0.005) 0.07

0.04 0.05 0.18 (0.03) 0.10

0.05 0.23 0.12 (0.05) 0.20

0.23 0.10 (0.04) (0.06) 3.23 3.58 1.44

Conclusion and Recommendations The evaluation of asset management efficiency of the samples firms through vario us ratios indicates that assets management efficiency has been poor in all sampl es. Such poor asset management efficiency has adversely affected the performance of the samples in terms of capital productivity which is examined through corre lation analysis. Therefore, it can be said that the improvement in assets manage ment efficiency will surely improve the performance in the sample firms. Hence, the following specific steps may be worth mentioning in order to streamline the assets management efficiency in the sample firms under food industry of Banglade sh. Planned approach: A planned approach should be under taken with regard t o planning and controlling of inventory to overcome stockpiling of inventory and managing the inventory with utmost efficiency. Integrated Material Management may be used as a policy instrument in this regard. Moreover, various stock levels i .e. maximum, minimum and reorder point etc. should be set up and strictly observ ed and reviewed from time to time. Use of modern scientific financial management tools & approach: the con cerned authorities may be encouraged to use modern scientific financial manageme nt tools and approaches, such as breakeven analysis, decision free approach, use of computer & operators research, capital assets pricing model and consideratio n of inflation etc. which may lead to salutary impact on asset management. Use of sales promotion tools: Sales boost up is utmost necessary. For th is purpose sales promotion tools may undertaken. Moreover, quality improvement o f products and cost minimization is essential which will have favorable impact o n current asset to net sales, inventory turnover, average collection period, rec eivable turnover, fixed asset turnover, total assets turnover and capital employ ed ratio. Use of multiple criteria: A multiple criteria need to be set up to eval uate the financial performance of the enterprise. For each ratio standard should -set and communicated. Variance analysis in the strict sense of the term should be made at the end of each quarter. Reward and punishment for the concerned mana gerial personnel should go hand in hand with such evaluation.

Financial indicators: Financial indicators relevant to activity need to periodically computed and evaluated through analysis of financial statements and relevant ratio analysis, break-even analysis, fund flow analysis and budgetary technique. Use of moderate sales and collection policy: In order to improve the rec eivable collections the financial management of the sample firms may follow mode rate sales and collection policy in stead of liberal policies presently followed . It can be concluded that if the above measures are taken properly and timely it would surely improve the asset management performance in the food industry of Ba ngladesh which in turn would also improve the productivity of the concerned firm s.

Notes and References Annual performance report of six food industries. Khan M.Y. and Jain P.K. Financial Management. Pandey I.M. Financial Management, New Delhi; vikas publishing housing ho use pvt. Ltd. 1985. P. 512.

capital productivity component definitions Component Measures Equation Current ratio(CR) Liquidity Current asset/ current liability Quick ratio(QR) Liquidity (current asset-inventory-advances and deposits-t ax deducted at source)/current liabilities Net working capital ratio(NWC) Liquidity Net working capital(current asse t-current liabilities)/net asset Total debt ratio Leverage Total debt/net asset Debt equity ratio Leverage Total debt/net worth Capital equity ratio Leverage Capital employed or net asset/ net worth Inventory turnover(IT) Performance Cost of goods sold /inventory Days of inventory holding(DIH) Performance Inventory turnover(IT)/360 Debtors turnover(DT) Performance Sales / debtors and bills receivable Average collection period (ACP)or days sales outstanding(DSO) Performance Debtors turnover/ 360 Return on equity (ROE) Profitability Profit after tax(PAT)/ net worth Return on investment(ROI) Profitability Profit after tax(PAT)/ net asset Gross margin Profitability Gross profit/sales Net margin Profitability Net income/ sales EBIT/net asset Profitability PAT/Net asset Profitability