Comparative Ratio Analysis of Three Listed

Companies
Of ICT Sector

August 08, 2012

TABLE OF CONTENT
Title

Page No

Letter of Transmittal
Acknowledgement
Introduction and Rationale of the study
Objectives
Sources of Data
Methodology
Findings of the Ratio Analysis
Liquidity Ratio
Debt Ratio
Profitability/Performance
Activity Ratio
Market Performance
Conclusion
Bibliography

3
4
6
6
6
7
8
8
9
10
13
18
19
19

Introduction and Rationale of the study

A widely held view is that the growth of the ICT industry may provide an opportunity for
developing countries to leapfrog into the industrialized economy. For example, low-income
economies that have a strong human capital base can take advantage of the rapid decline in the
cost of computing power and telecommunication over the last decade that has made it possible
to deliver IT service from a remote location. This has led to the emergence of
offshore/outsourcing industry, the market of which is expected to reach US$252 billion in 2010.
(IGC, 2012)

There is considerable potential for the development of ICT industries in Bangladesh because of
the availability of trained personnel at relatively low wage rates. The present government of
Bangladesh envisions creating a Digital Bangladesh by 2021, which critically depends on
proper policies as well as infrastructure development for this sector. However, in order to
capture significant gains from the growth of the ICT industry worldwide, policy makers and
firms both require a clear understanding of its dynamics. While a cheap and abundant human
capital base can explain the early stage of software industry development, improved
productivity is required to take advantage of emerging opportunities and carve out a niche in
the export of outsourced services.

Objectives
This Study will examine the financial statement and analysis its financial prospects in terms of
liquidity, debt, company performance, efficiency and the market performance of the market.

Sources of Data
The main data source ids the published annual reports of DAFODILCOM (Daffodil Computers
Ltd.), ISNLTD (Information Services Network Ltd.), and BDCOM (BDCOM Online limited) for
the year ended 2007, 2008, 2009, 2010 and 2012.

Methodology
The Financial Ratios:
I.

II.

III.

Liquidity Ratio
i)
Current Ratio
ii)
Quick Ratio
Debt Ratio
i)
Debt-to-equity
ii)
Debt-to-Total Asset
Profitability/Performance
i)
Gross Profit Margin
3

IV.

V.

ii)
Net Profit Margin
iii)
Return on Asset (ROA)
iv)
Return on Equity (ROE)
Activity Ratio
i)
Account Receivables Turnover
ii)
Average Collection Period
iii)
Inventory Turnover
iv)
Inventory Turnover in days
v)
Payable Turnover
vi)
Payable Turnover in Days
vii)
Operating Cycle
viii)
Cash Conversion Cycle
Market Performance
i)
EPS
ii)
Payout Ratio
iii)
PE Ratio

Findings of the Ratio Analysis

Liquidity Ratio
In a nutshell, a company's liquidity is its ability to meet its near-term obligations, and it is a
major measure of financial health. Liquidity can be measured through several ratios.
I.

Current ratio

The current ratio is the most basic liquidity test. It signifies a company's ability to meet its shortterm liabilities with its short-term assets. A current ratio greater than or equal to one indicates
that current assets should be able to satisfy near-term obligations. A current ratio of less than
one may mean the firm has liquidity issues.
Current Ratio = (Current Assets) / Current Liabilities

Company/Years
DAFODILCOM
ISNLTD

Current ratio
200 200 200

201

201

7
2.5

8
1.4

9
1.7

0
1.8

1
2.6

1
3.1

2
4.9

1
6.1

4
2.8

6
2.0

Average
2.03
3.83

BDCOM

7.1

7.0

1.6

1.5

4.6

4.40

Table 1: Current ratio

Among the three companies BDCOM online Ltd. is more liquid then ISNLTD and then
DAFODIL.

II.

Quick Ratio

The quick ratio is a tougher test of liquidity than the current ratio. It eliminates certain current
assets such as inventory and prepaid expenses that may be more difficult to convert to cash. Like
the current ratio, having a quick ratio above one means a company should have little problem
with liquidity. The higher the ratio, the more liquid it is, and the better able the company will be
to ride out any downturn in its business.
Quick Ratio = (Cash + Accounts Receivable + Short-Term or Marketable Securities) / (Current
Liabilities)

Company/Years
DAFODILCOM
ISNLTD
BDCOM

Acid test ratio

200 200 200 201

201

7
1.9

8
1.3

9
0.8

0
1.2

1
2.2

7
3.1

7
4.9

1
6.1

2
2.8

0
2.0

2
6.0

6
5.7

1
1.3

7
1.3

9
4.2

Average
1.51
3.83
3.74

Table 2: Acid test ratio

The quick ratio also behalf like the current ratio. Among the three companies BDCOM online
Ltd. is more liquid then ISNLTD and then DAFODIL. One interesting observation is the Current
and Quick ratios of all selected year are same, because of null inventories in their operations.

Ranking in terms of Liquidity

Rank
1
2

Current ratio
BDCOM
ISNLTD

Acid test ratio

ISNLTD
BDCOM

DAFODILCOM

DAFODILCOM

Table 3: Ranking in terms of Liquidity

Debt Ratio
The debt ratio compares a company's total debt to its total assets, which is used to gain a general
idea as to the amount of leverage being used by a company. 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.
Total debt to equity ratio
Avera
Company/Years

2007
39.00

2008
39.00

2009
23.00

2010
22.00

2011
24.00

ge
29.00

DAFODILCOM

%
24.00

%
14.00

%
7.00

%
20.00

%
31.00

%
19.00

%
7.00

%
8.00

%
33.00

%
33.00

%
11.00

%
18.00

ISNLTD
BDCOM

Table 4: Total debt to equity ratio

DAFODILCOM have comparatively higher debt portion relative to the equity than other two
companies. It might not be normal compared to the industry and which might put the firm
under risk but indicate high leverage.
Debt-to-Total Asset
Company/Years

DAFODILCOM

ISNLTD

BDCOM

Avera

2007

2008

2009

2010

2011

39.91

70.47

58.42

54.42

37.59

52.16

32.10

20.17

16.38

34.84

47.94

30.29

13.94

14.26

61.86

64.15

21.49

35.14

Table 5: Debt-to-Total Asset

ge

DAFODILCOM also have comparatively higher debt portion relative to the Assets than other
two companies. It seems using more debt compared to the industry and which might put the
firm under risk pressure but indicate high leverage.
Ranking in terms of high leverage
Rank
1
2
3

Total debt to

Debt-to-Total

equity ratio
DAFODILCOM
ISNLTD
BDCOM

Asset
DAFODILCOM
BDCOM
ISNLTD

Table 6: Ranking in terms of high leverage

Profitability/Performance
Every firm is most concerned with its profitability. One of the most frequently used tools of
financial ratio analysis is profitability ratios which are used to determine the company's bottom
line. Profitability measures are important to company managers and owners alike. If a small
business has outside investors who have put their own money into the company, the primary
owner certainly has to show profitability to those equity investors. (Bernstein & Wild, 2004)
I.

Gross Profit Margin

The gross profit margin looks at cost of goods sold as a percentage of sales. This ratio looks at
how well a company controls the cost of its inventory and the manufacturing of its products and
subsequently passes on the costs to its customers. The larger the gross profit margin, the better
for the company. The calculation is: Gross Profit/Net Sales = ____%. Both terms of the equation
come from the company's income statement. (Ed., 2012)
Gross Profit Margin
Company/Years
DAFODILCOM
ISNLTD
BDCOM

Avera

2007

2008

2009

2010

2011

19.16

19.16

19.93

18.71

21.72

ge
19.74

%
45.93

%
51.38

%
44.47

%
49.62

%
47.85

%
47.85

%
65.35

%
67.03

%
73.94

%
68.38

%
63.16

%
67.57

Table 7: Gross Profit Margin

Higher GPM indicates higher profitability of the firm.

II.

Net Profit Margin

When doing a simple profitability ratio analysis, net profit margin is the most often margin
ratio used. The net profit margin shows how much of each sales dollar shows up as net
income after all expenses are paid. For example, if the net profit margin is 5% that means
that 5 cents of every dollar is profit. The net profit margin measures profitability after
consideration of all expenses including taxes, interest, and depreciation. The calculation
is: Net Income/Net Sales = _____%. Both terms of the equation come from the income
statement. (Ed., 2012)
Net Profit Margin
Company/Years
DAFODILCOM
ISNLTD
BDCOM

2007

2008

2009

2010

2011

4.72

4.04

6.05

6.29

12.39

%
22.56

%
24.35

%
20.56

%
19.43

%
10.53

%
6.87

%
7.84

%
7.76

%
9.46

%
16.29

Avera
ge
6.70%
19.49
%
9.65%

Table 8: Net Profit Margin

Here also higher NPM indicates higher profitability of the firm.

III.

Return on Asset (ROA)

The Return on Assets ratio is an important profitability ratio because it measures the efficiency
with which the company is managing its investment in assets and using them to generate profit.
It measures the amount of profit earned relative to the firm's level of investment in total assets.
The return on assets ratio is related to the asset management category of financial ratios. The
calculation for the return on assets ratio is: Net Income/Total Assets = _____%. Net Income is
taken from the income statement and total assets are taken from the balance sheet. (Ed., 2012)

Return on Asset
Company/Years
DAFODILCOM
ISNLTD
BDCOM

Averag

2007

2008

2009

2010

2011

3.67

3.06

5.32

4.45

5.21

%
9.33

%
9.50

%
5.81

%
4.97

%
2.62

%
2.96

%
3.42

%
2.81

%
5.04

%
6.02

e
4.34%
6.45%
4.05%

Table 9: Return on Asset

The higher the percentage, the better the firms asset utilization to earn, because that means the
company is doing a good job using its assets to generate sales.
IV.

Return on Equity (ROE)

The Return on Equity ratio is perhaps the most important of all the financial ratios to investors
in the company. It measures the return on the money the investors have put into the company.
This is the ratio potential investors look at when deciding whether or not to invest in the
company. The calculation is: Net Income/Stockholder's Equity = _____%. Net income comes
from the income statement and stockholder's equity comes from the balance sheet. (Ed., 2012)
Return on Equity
Company/Years
DAFODILCOM
ISNLTD
BDCOM

2007

2008

5.11%

3.70%

11.56

10.84

3.17%

3.71%

2009

2010

2011

5.65

5.44

6.45

%
6.23

%
5.96

%
3.42

%
3.74

%
6.69

%
6.68

Averag
e
5.27%
7.60%
4.80%

Table 10: Return on Equity

In general, the higher the percentage, the better earning capability against its equity, with some
exceptions, as it shows that the company is doing a good job using the investors' money.
Ranking in terms of Profitability & Performance
Rank

Gross Profit

Net Profit

Return on Asset

Return on Equity

1
2
3

Margin
BDCOM
ISNLTD
DAFODILCOM

Margin
ISNLTD
DAFODILCOM
BDCOM

ISNLTD
BDCOM
DAFODILCOM

ISNLTD
BDCOM
DAFODILCOM

Table 11: Ranking in terms of Profitability & Performance

Activity Ratio
Activity ratios measure company sales per another asset accountthe most common asset
accounts used are accounts receivable, inventory, and total assets. Activity ratios measure the
efficiency of the company in using its resources. Since most companies invest heavily in
accounts receivable or inventory, these accounts are used in the denominator of the most
popular activity ratios. (Editor, 2012)
I.

Account Receivables Turnover

Accounts receivable is the total amount of money due to a company for products or services
sold on an open credit account. The accounts receivable turnover shows how quickly a
company collects what is owed to it. (Ed., 2012)
Total Credit Sales
Accounts Receivable Turnover =
Accounts Receivable

Company/Years
DAFODILCOM
ISNLTD
BDCOM

Receivable Turnover
200 200 200
2010
7
8
9
5.3
3.8
5.8 22.6
2
1.0

4
0.9

2
0.9

0
2.1

0
2.1

2
2.4

2011
11.2

Average
9.78

0.73

0.63

0.84

3.33

3.21

2.65

Table 12: Receivable Turnover

The higher the receivable turnover indicates quicker chance of receivable collection.

II.

Average Collection Period

This indicates the collection period in days of the receivables of credit sales.
Average Collection Period
Company/Years
DAFODILCOM
ISNLTD
BDCOM

2007

2008

2009

2010

2011

67.6

93.6

61.8

15.8

31.9

9
358.

7
398.

1
389.

9
492.

8
569.

39
170.

53
165.

84
149.

87
108.

13
112.

42

31

81

10

18

Averag
e
54.21
441.75
141.16

Table 13: Average Collection Period

The lower the collection period indicates quicker receivable collection.

III.

Inventory Turnover

For a company to be profitable, it must be able to manage its inventory, because it is money
invested that does not earn a return. The best measure of inventory utilization is the inventory
turnover ratio (aka inventory utilization ratio), which is the total annual sales or the cost of
goods sold divided by the cost of inventory. (Bernstein & Wild, 2004)
Total Annual Sales or Cost of Goods Sold
Inventory Turnover =
Inventory Cost
Using the cost of goods sold in the numerator is a more accurate indicator of inventory
turnover, and allows a more direct comparison with other companies, since different
companies would have different markups to the sale price, which would overstate the actual
inventory turnover. (IGC, 2012)
Inventory Turnover
Company/Year
s
DAFODILCOM
ISNLTD

2007
5.14
-

2008

2009

44.62
-

4.49
11

2010
6.28
-

2011
4.74
-

Avera
ge
13.06
-

BDCOM

5.91

4.51

5.90

8.39

8.73

6.69

Table 14: Inventory Turnover

The higher turnover indicates the maximum utilization of inventory efficiently.

(ISNLTD do not have any inventory for operation)
IV.

Inventory Turnover in days

The lower turnover in days indicates the maximum utilization of inventory efficiently.
Inventory Turnover (Days)
Company/Year
s
DAFODILCOM
ISNLTD
BDCOM

2007

2008

2009

2010

2011

70.08
60.87

8.07
79.87

80.17
61.01

57.28
42.88

75.95
41.23

Avera
ge
58.31
57.17

Table 15: Inventory Turnover (Days)

(ISNLTD do not have any inventory for operation)

V.

Payable Turnover

A short-term liquidity measure used to quantify the rate at which a company pays off its
suppliers. Accounts payable turnover ratio is calculated by taking the total purchases made
from suppliers and dividing it by the average accounts payable amount during the same period.

(Ed., 2012)
Payable Turnover
Company/Year
s
DAFODILCOM
ISNLTD
BDCOM

2007

2008

2009

2010

2011

36.95
8.27

32.62
6.14

41.98
1.54

27.69
4.01

33.40
4.76

Avera
ge
34.53
4.94

Table 16: Payable Turnover

The lower payable turnover allows the firm to get the maximum advantage of credit purchase.

(ISNLTD do not have any credit purchase/ payables)

VI.

Payable Turnover in Days

Payable Turnover (Days)
Company/Year
s
DAFODILCOM
ISNLTD
BDCOM

2007

2008

2009

2010

2011

9.74
-

11.03
-

13.00
-

10.78
-

43.55

58.67

8.57
233.2

89.70

75.65

Avera
ge
10.63
100.1
6

Table 17: Payable Turnover (Days)

The higher payable turnover days allow the firm to get the maximum advantage of credit
purchase.
VII.

Operating Cycle

The time between the purchases of an asset and its sale, or the sale of a product made from the
asset. Most companies desire short operating cycles because it creates cash flow to cover the
company's liabilities.
Operating Cycle
Company/Year
s
DAFODILCOM
ISNLTD
BDCOM

2007

2008

2009

138.7

101.8

143.1

232.1

246.2

211.6

2010

2011

Avera

108.9

ge
113.3

151.5

8
153.9

3
199.1

73.97

Table 18: Operating Cycle

A long operating cycle often necessitates borrowing and thereby reduces profitability.
VIII.

Cash Conversion Cycle

A metric that expresses the length of time, in days, that it takes for a company to
convert resource inputs into cash flows. The cash conversion cycle attempts to measure the
amount of time each net input dollar is tied up in the production and sales process before it is
converted into cash through sales to customers. This metric looks at the amount of time needed
to sell inventory, the amount of time needed to collect receivables and the length of time the
13

company is afforded to pay its bills without incurring penalties, also known as "cash cycle."
(Bernstein & Wild, 2004)
Calculated as:

Where:
DIO represents days inventory outstanding
DSO represents days sales outstanding
DPO represents days payable outstanding
Cash Conversion Cycle
Company/Years

2007

2008

2009

2010

2011

127.

85.5

153.3

72.9

118.

22
358.

2
398.

8
389.8

8
492.

15
569.

39

53
260.

87
-

13

261.

4
-

60

15

644.9

34.3

DAFODILCOM
ISNLTD

BDCOM

36.8
6

Averag
e
111.45
441.75

-24.13

Table 19: Cash Conversion Cycle

The lower the cash conversion cycles the more the firm efficient in liquating its asset.
Ranking in terms of activity ratios
Account
Ran
k

Receivables
Turnover

Inventory

Payable

Average

Inventory

Turnover in

Payable

Collection

Turnover

days

Turnover

BDCOM

BDCOM

BDCOM

DAFODILCO

DAFODILCO

DAFODILCO

Period

DAFODILCO

DAFODILCOM

DAFODILCOM

BDCOM

BDCOM

BDCOM

ISNLTD

ISNLTD

Turnover in
Days

Operating
Cycle

DAFODILCO
M
BDCOM
-

Cash
Conversion
Cycle

BDCOM
DAFODILCO
M
ISNLTD

Table 20: Ranking in terms of activity ratios

Market Performance
I.

EPS

The portion of a company's profit allocated to each outstanding share of common

stock. Earnings

per

share serve

as

an

indicator

of a

company's

profitability.

Calculated as:

Company/Year
s
DAFODILCOM
ISNLTD
BDCOM

200
7
0.69
1.08
0.67

EPS
200 200
8
9
0.47 0.70
1.22 1.18
0.92 0.86

201
0
0.63
1.05
0.61

201
1
0.94
0.55
0.51

Average
0.69
1.02
0.71

Table 21: EPS

II.

Payout Ratio

The amount of earnings paid out in dividends to shareholders. Investors can use the payout
ratio to determine what companies are doing with their earnings.
Calculated as:

Company/Year
s
DAFODILCOM
ISNLTD
BDCOM

200
7
1.84
0.90
0.00

Payout Ratio
200 200
8
9
0.03 0.53
0.32 0.42
0.00 0.00

201
0
0.01
0.00
0.00

Table 22: Payout Ratio

Mostly depend in the company policy

15

201
1
0.00
0.00
0.53

Average
0.48
0.33
0.11

III.

PE Ratio

The P/E looks at the relationship between the stock price and the companys earnings. The P/E
is the most popular metric of stock analysis, although it is far from the only one you should
consider.

P/E = Stock Price / EPS

Company/Year
s
DAFODILCOM
ISNLTD
BDCOM

200
7
26.1
3
15.2
8
32.8
4

PE Ratio
200
200
8
9
25.5 18.6
0
5
14.7 20.3
5
4
20.6 20.9
5
3

201
0
22.2
2
20.9
5
28.6
9

201
1
14.8
9
49.0
9
34.8
0

Average
21.48
24.08
27.58

Table 23: PE Ratio

Ranking in terms of Market performance

Rank
1
2
3

EPS
ISNLTD
BDCOM
DAFODILCOM

Payout
BDCOM
ISNLTD
DAFODILCOM

P/E
BDCOM
ISNLTD
DAFODILCOM

Table 24: Ranking in terms of Market performance

Conclusion
It is to be concluded for this study that, this is a very difficult to make decision about any of the
firms performance and the measurement tools, because all the formulas and functions are
applied to attain an specific requirement of the firm as the part of the firms financial strategy.
So, the qualitative information will also need to understand the purpose of the firm to use any
of the tools to measure their performance. Finally it could be recommended that, the importance
of the ratio analysis depends on the stakeholders specific need and the situational
requirements.

Bibliography
Bernstein, J. A., & Wild, J. J. (2004). Analysis of Financial Statements (5th ed.). New
Delhi: Tata McGraw-Hill.
Ed., F. (2012). Financial Ratios. Retrieved 8 2012, 01, from about.com:
http://stocks.about.com/od/evaluatingstocks/a/pe.htm

Editor. (2012). Free Dictionary. Retrieved 8 2012, 01, from The Free Dictionary:
http://financial-dictionary.thefreedictionary.com/
IGC. (2012). The ICT Sector in Bangladesh. Retrieved 08 2012, 01, from International
Growth Center: http://www.theigc.org/article/ict-sector-bangladesh-analysis-firmcapabilities

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