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Contents 1.0 Introduction ............................................................................................................................... 1 1.1 Issue....................................................................................................................................... 1 1.2 Origin of the Report .............................................................................................................. 2 1.3 Objective: .............................................................................................................................. 3 1.3.1 Broad objective: .............................................................................................................. 3 1.3.2 Specific objectives: ......................................................................................................... 3 1.4 Scope: .................................................................................................................................... 3 1.5 Limitation: ............................................................................................................................. 3 1.6 Methods of data collection .................................................................................................... 4 1.7 Data Analysis Techniques ..................................................................................................... 4 2.0 Company Overview .................................................................................................................. 4 2.1 Ejab Group and its Business Units ........................................................................................ 4 2.2 Vision, Mission & Objective ................................................................................................. 9 2.2.1 Vision.............................................................................................................................. 9 2.2.2 Mission ........................................................................................................................... 9 2.2.3 Objectives ..................................................................................................................... 10 2.3 Corporate Social Responsibilities (CSR) ............................................................................ 10 3.0 Research Part .......................................................................................................................... 11 3.1 Literature Review ................................................................................................................ 11 3.2 Analysis ............................................................................................................................... 12 3.2.1 Composition of Balance Sheet: Himadri Limited ........................................................ 12 3.2.2 Composition of Balance Sheet: Golden Harvest Agricultural Industries Limited (GHAIL) ................................................................................................................................ 14 3.2.3 Assessment of Financial Ratios .................................................................................... 16 4.0 Findings................................................................................................................................... 29 5.0 Recommendations and Conclusion ......................................................................................... 32 Appendix ....................................................................................................................................... 33 Reference ...................................................................................................................................... 41 0 1.0 Introduction 1.1 Issue All the strategic business units of Ejab Group including Himadri Limited are private limited companies. This a medium sized firm. Currently it has 7 potato cold storages all in the North of Bangladesh, in Rangpur, Shibganj, Upson (Bogra), Battoli (Khetlal, Joypurhat), Jagannathpur (Thakurgaon), Gobindaganj (Gaibandha) and Komorpur (Birganj, Dinajpur). Future plan is to increase the number of cold storages in different locations of Bangladesh and also expand the product range of items that can be stored other than potatoes like some fruits and vegetables. Golden Harvest Agro Industries Limited, on the other hand, is a public listed company that owns and controls the country’s first frozen food processing plant. Although Himadri Limitied and Golden Harvest Agro Industries Limited are operating in similar industries, Golden Harvest Agro Industries Limited is huge. The company’s supply process links directly or indirectly with over 100,000 Bangladeshi agricultural partners who provide 95% of the company’s raw materials. This nationalistic approach has satisfied the company’s duty to its domestic economy and values whilst exporting products and services in the global market. Golden Harvest Agro Industries Ltd (GHAIL) processes over 75 varieties of premium quality frozen food products of vegetables, ready to eat foods, finger foods and more. The facility is an ISO 9001:2008 and BRC (British Retail Consortium) certified. Golden Harvest Agro Industries Ltd. is the country’s leading frozen food supplier possessing an extensive network of temperature controlled fleet transportation system. The company distributes nationwide and exports to USA, Canada, Australia, Middle East and the European countries, maintaining a temperature of -18⁰ C. Golden Harvest Agro is currently setting up the nation’s first ever largest cold chain network under the GDA program with the support of USAID. The project is estimated at over 50 million USD. A private limited company has its merits and demerits in terms of financial performance. Similarly, a public limited company has its unique pros and cons as well. There are differences in their financial performances. Financial performance is a subjective measure of how well a firm can use assets from its primary mode of business and generate revenues. This term is also used as a general measure of a firm's overall financial health over a given period of time, and can be used to compare similar firms across the same industry or to compare industries or sectors in aggregation. There 1 are many different ways to measure financial performance. Line items such as revenue from operations, operating income or cash flow from operations can be used, as well as total unit sales. Financial ratios are the best tools for measuring financial performance. This study will endeavor to unveil the differences in financial performance of Himadri Limited as a private limited company and Golden Harvest Agro Industries Limited as a public limited company. In simple words, how good Himadri Limited is doing as a medium private limited company compared to Golden Harvest Agro Industries Limited, a large public limited company will explored with the help of few key financial ratios. 1.2 Origin of the Report Internship Program is a graduation requirement for the BBA students of BUP. This study is a partial requirement of the Internship program of BBA curriculum at BUP. The main purpose of internship is to get the students exposed to the corporate world. Being an intern, the main challenge is to translate the theoretical concepts learned in classrooms into real life experience in real life working environment. The internship program and the study have the following purposes: i. To get knowledge of the job responsibilities of our respective fields ii. To experience the real corporate world iii. To compare and use what we learned in classrooms in real life scenario iv. To fulfill the requirement of BBA Program This report titled “Comparative Study of Financial Performance between Himadri Limited – A Concern of Ejab Group – and Golden Harvest Agro Industries Limited” is the result of 10 weeks long internship program conducted at Ejab Group and is prepared as a requirement for the completion of the BBA program of BUP. This report is based on and includes information acquired during the internship period at Ejab Group. 2 1.3 Objective: 1.3.1 Broad objective: To compare the financial performance of Himadri Limited and Golden Harvest Agricultural Industries Limited 1.3.2 Specific objectives: i. To calculate out the key financial ratios of Himadri Limited ii. To calculate the key financial ratios of Golden Harvest Agro Industries Limited iii. To interpret the ratios and compare the firms using the interpretation of the ratios 1.4 Scope: The scope of the research is limited to the Agricultural and Food Processing sector of Bangladesh and the findings and results of the research are applicable to only Himadri Limited and may not apply to other similar or competitive companies. The main focus will be to compare the financial performance of Himadri Limited and Golden Harvest Harvest Agro Industries Limited primarily using ratio analysis. 1.5 Limitation: The limitations faced in preparing the report are: i. Time: The report has to be completed in 10 weeks. This time is insufficient for preparing a standard report with high precision. ii. Resource: As the research is self-funded, the collection of specific data was done on a limited scale. iii. Availability of Data: Much of the company and market reports are not easily available. iv. Accessibility: As Himadri Limited is a private limited company, Ejab Group was reluctant to disclose any information in order to maintain confidentiality. v. Researcher: As a novice researcher, I have a lack of experience, expertise and knowledge. 3 1.6 Methods of data collection All the data used in this report are collected from secondary and tertiary sources like company reports and information available in internet. The analysis used in this report is based on mainly qualitative analysis. 1.7 Data Analysis Techniques After the data has been collected the following financial analytical tools has been used to compare the financial performance. The tools that used are as follows: a. Key Profitability Ratios: i. Gross Profit Margin ii. Net Profit Margin iii. Return on Assets iv. Return on Capital Employed b. Key Liquidity Ratio i. Current Ratio c. Key Financial Position Ratios i. Capital Gearing Ratio ii. Debt Ratio iii. Interest Cover d. Key Efficiency Ratio i. Asset Turnover Ratio 2.0 Company Overview 2.1 Ejab Group and its Business Units In the year 1959, Late Engineer Ejabuddin Ahmed gave birth to Ejab Group with the establishment of National Construction Company (now defunct), National Jute Mills Limited (1968) and over the years gained recognition with Himadri Limited (1974), a potato cold storage and finally Rabeya Flour Mills Limited in 1978. 4 Involving itself in the fields of Jute based products, Edible Oil Mill, Rice Mill and Potato Cold Storages, Ejab Group went a step ahead with adding wide range of processed food products. Adding another new venture is its own Seed processing expertise by which we produce potato, rice, maize, wheat and vegetable seeds. Through our distribution network, we not only distribute our own products but also distribute Cepsa Lubricants, a product of Spain. The group is also involved in Real Estate and Housing Development under the name of Ejab Developers Ltd. (EDL). Based on the increasing changes in the consumer behavior, Ejab Group is open to take any necessary changes and steps to help enhance its business policies and planning. With a commitment to provide social services through its products, Ejab Group strongly adheres to its motto: "No Compromise with Quality". In its existence of over 50 years, Ejab Group has branched into 11 Companies under its four divisions. The four divisions are: A. Agro Division B. Food Division C. Real Estate Division D. Distribution Division The 11 Companies are: A. Himadri Ltd. (1974) – 6 Units B. Rabeya Flour Mills Ltd. (1980) – 2 Units C. Northern Agricultural & Industrial Co. Ltd. (2002) – 4 Units D. Multipurpose Himadri Agro Processing Co. Ltd. (2005) – 2 Units E. Ejab Alliance Ltd. (2005) – 1 Unit F. Ejab Foods Ltd. (2006) – 3 Units G. Ejab Trading Co. Ltd. (2006) – 1 Unit H. Ejab Developers Ltd. (2006) – 28 Units I. Ejab Distribution Ltd. (2007) – 1 Unit J. Ejab Agro Ltd. (2010) – 2 Units K. Munchy Food & Beverage Ltd. (2011) – 1 Unit 5 A. Himadri Limited “Himadri Limited” and “Multipurpose Himadri Agro- Processing Co. Ltd” currently have 7 potato cold storages all in the North of Bangladesh, in Rangpur, Shibganj, Upson (Bogra), Battoli (Khetlal, Joypurhat), Jagannathpur (Thakurgaon), Gobindaganj (Gaibandha) and Komorpur (Birganj, Dinajpur). Future plan is to increase the number of cold storages in different locations of Bangladesh and also expand the product range of items that can be stored other than potatoes like some fruits and vegetable. B. Ejab Agro Ltd. Ejab Agro Ltd. (formed in 2010) is involved in following activities: Tissue Culture Lab, seed production and marketing. The products of this company are potato plantlet, potato mini tuber, potato seed of different generation (starting from basic to certified), high yielding rice seed, hybrid rice seed, etc. although our seed business started in 2007 under the banner of Northern Agricultural & Industrial Co. Ltd. But eventually Ejab Agro Ltd. was formed to give it more focus and emphasis on the seed business. It sincerely believes that the seed market is developing day by day with awareness of quality seed by the farmers and with limited land area the national challenge is to ensure maximum production/yield in given area. This is where quality seed will play key role in days to come. C. Multipurpose Himadri Agro-processing Co. Ltd. (MHAL) The company was formed in 2005 is located in Birgonj, Dinajpur with a view to get involved in various agro-based businesses. Currently its activities are limited to cold storage of seed & table potato and contract farming of processing variety potato. But in future it plans to expand its contract farming program to produce aromatic rice, maize, soya bean, mustard seed, various spices, etc. and contribute in backward linkage for our other food & agro processing units. It also has plan to set-up automatic rice plant in its existing facility. D. Ejab Foods Limited 6 The company was formed in 2006. Although it is yet to come into operation but it has empty plots in baliadangi, thakurgaon and ashulia, Savar. The nature of business would be to produce pasteurized milk, U.H.T. milk, milk based products like sweet, yoghurt, yoghurt drink, ice cream, fruit juice, bottle water, rice bran oil, etc. E. Ejab Alliance Limited This cattle breeding farm is situated in Thakurgaon under the name Ejab Alliance ltd., established in 2004. The activities include semen collection and processing it for Artificial Insemination to improve the future variety of cattle in Bangladesh. At the moment we have 7 numbers of Australian Holstein Frisian Bulls in our farm. It has more than 450 highly skilled Artificial Insemination workers all over the country. This is the only project of its kind in private sector. Our rate of success since its inception is higher than other Government and Non-Government Organization owned establishment for such purpose. Nature of business is production of Semen from F1 & F2 generation Bull stock. Its future plan is to Composite Dairy Plant F. Northern Agricultural & Industrial Co. Ltd. i. Sonapukur Unit Sonapukur unit at Dinajpur, was established in 2010, adjacent to the flourmill. In this unit following products are produced: Mustard Oil, cooking spices, Toast biscuits, vermicelli. Its future plans include processing different fruits and vegetables grown in North Bengal, like mango, tomato, olive, etc. into pickles and ketchup. ii. Uttam, Kellabondh, Rangpur Unit NAICOL Rice Mill - Uttam, Kellabondh, Rangpur Unit was established in the year 2011. It is an automatic rice mill with the facility of making Parboiled rice and Atop (unboiled) rice. It processes fine Aromatic rice, coarse rice, for both local and Export market. Its future plans include expanding the production capacity and processing rice bran into oil. Upcoming products include Quality Miniket, Quality Nazirshail, NAICOL Chinigura, NAICOL Banglamoti iii. Ashulia, Savar Unit 7 NAICOL Ashulia, Savar Unit was established in the year 2005. It is a state of the art factory where Custard cake, Candy, Spicy snacks, Potato snacks and Bombay Mix. Are produced. Future plans include expansion of production units as per growing demand to meet the consumer satisfaction. G. Rabeya Flour Mills Limited Rabeya Flour Mills Limited established in 1978, is situated in Sonapukur (adjacent Syedpur Town), Parbatipur, Dinajpur. It was one of the first major automatic flourmills in the country producing fine flour, Coarse flour, Vitamin fortified Flour, Whole wheat flour, Semolina and Bran. With the growing demand of our produce in the market, it has gone into expansion over the years. Key brand is Quality and Rabeya. Future plans include setting up Feed mill, Woven PP, Leno mesh bag industries H. Munchy Food & Beverage Ltd. "Munchy Food & Beverage Ltd." is an automatic biscuit industry situated at BISIC Industrial Area, Moktarpur, Munshigonj. Future plans include product diversity and export. I. Ejab Foods Limited The company was formed in 2006. Although it is yet to come into operation, it has empty plots in Baliadangi, Thakurgaon and Ashulia and Savar. The nature of business would be to produce pasteurized milk, U.H.T. milk, milk based products like sweet, yoghurt, yoghurt drink, ice cream, fruit juice, bottle water, rice bran oil, etc. J. Ejab Developers Ltd. Ejab Developers Ltd. (EDL) always uses renowned, tested and certified building materials for its projects. However, we also prefer the clients' choice on building material selection including interior designs and fittings. We have a team of qualified and dynamic architects to meet the clients’ dream and make it a reality with great integrity. It believes post-handover services to be as important as the construction of your home. EDL always cares about the proper maintenance of the complex with its routine supervision team to ensure the valued clients' safety and security. The on-spot solution service for the clients' recommendations and instructions are always given FIRST priority. 8 K. Ejab Distribution Ltd The company was formed in 2007 with a vision to work as marketing company of the food products produced in our different food units. Currently it has a sales team, depots in different locations and vehicles covering the entire nation under this company. In 2008 Ejab Distribution Ltd. came into an agreement with CEPSA Lubricants, Spain to market its petroleum products in Bangladesh. Although contrast to its existing business, looking at the growing industrial market, especially in power generation sector the company decided to venture in the business. When first launched in the market we were focused in the automotive market but in past 3 years the focus has shifted to industrial market and the response from our clients have been positive. It believes like all other products even quality petroleum products will have opportunity in future with public awareness and government regulation. L. Ejab Trading Co. Ltd. The company was formed in 2006 with a vision to do trading of commodities like wheat, maize, rice, soya bean, mustard seed, etc. as these products are grown once in a year thus have seasonal effect of price and availability. 2.2 Vision, Mission & Objective 2.2.1 Vision To be one of the top 10 leading conglomerates by 2020 by providing superior quality products and services and developing an enduring and transformational relationship with all key stakeholders 2.2.2 Mission a. To provide growth and profitability to our shareholders. b. To provide a challenging work environment this gives our employees pride and dignity. c. To have a win-win growth for all our partners working with us. d. To work with farmers as their caring long term partner. e. To achieve market leadership and operating excellence by continuously providing our consumer with quality product and services. 9 2.2.3 Objectives a. To meet the latent demand of the consumers. b. To increase growth through quality product & Service. c. To maximize the utilization of existing wealth. 2.3 Corporate Social Responsibilities (CSR) As Ejab Group has always been self-committed to help the under-privileged masses of the society, particularly in the fields of education, building moral & religious values, growing up & rehabilitation of orphans, we have established and still run a number of educational & religious institutions and workshops in different places of Bangladesh. Ejab Group with its helpful hands has always helped the poor in many ways by distributing rice, flour, clothes, even money to dowry affected families. Ejab Group regularly conducts Workshops, Training Programs, and Seminars etc. at its Project Sites. With a view to growing more crops under the auspices of Agricultural Consultancy Division headed by Agro-graduates, these initiatives are aimed to touch every farmer’s life with knowledge and awareness for better farming in order to enrich their lives. Its institutions are as follows: i. Begum Rabeya Ahmed Girls’ High School, named after our Ex-Managing Director Begum Rabeya Ahmed. ii. Samiruddin Memorial Degree College, named after our Founder Late Engr. Ejabuddin Ahmed’s father. iii. Hasina Memorial Child Orphanage, being run in memory of our Founder Managing Director Late Engr. Ejabuddin Ahmed’s mother. iv. Baitul Ejab Jame Mosque. v. Moheshmari Central Mosque. vi. Stipends to poor and Meritorious Students of Higher Studies under the banner of Emdad Ahmed Afzal Memorial Trust and Begum Rabeya Ahmed Trust are provided. vii. Thakurgaon Diabetic Hospital. viii. Conducting Eye Camps at different places of Thakurgaon. ix. Hostel beside the Samiruddin Memorial Degree College x. Vocational Training Center (Proposed) 10 xi. Child & Maternal Health Care Center in Moheshmari (Proposed) 3.0 Research Part 3.1 Literature Review The comparison that shows the relationship between two amounts is basically known as ratio. The major financial information of a business brought out from the balance sheet and income sheet so that this statements are the principal sources that are mainly used to calculate the financial ratios (Dong Jin Kim, 2006). Andrew and schmidgall (1993) categorized the financial ratios into different types for the hospitality industry; Solvency ratios, Liquidity ratios, Profitability ratios and Operating ratios. Comparison of financial ratios of different firms from different countries is conducted by Meric et al. with the help of his collegues (Meric et all., 1997; 2002; 2004). There are many scholars and researchers like Smith, 1997; Zaman & Unsal, 2000; Locke & Scrimgeour, 2003, also did the same study (Dond Jin Kim, 2006). Dong Jin Kim also concludes that the comparison of financial characteristics of different industries from different countries is understandable because the firms of these segments are intrinsically homogeneous. The result of investigation by Andrew, (1993) through the leverage ratio of restaurants and hotels shows that in restaurants segment the value maximizing capital structure would be between 45% and 55% but in hotels this ratio would be between 55% and 60%.Hales J. (2005) argues that in hotels industry to assess the future it is necessary to financial analyze the past performance of hotel. These analysis reports should be daily, weekly, monthly and quarterly, but the monthly reports are more important because these are examined by the internal as well as the external analysts. Jangels & Ralston (2006) argue that the managers of internal operations, the shareholders of organization and current creditors are those groups who are interested in the financial ratio analysis. Financial ratios permit an analyst the right of use not just the absolute value of the relationship and also measure the variance within the relationship (Lawder, 1989). From the management point of view the justification for the use of financial ratio analysis is that we express many figures in the form of ratios, and that information which is missed will be revealed after the individual members are observed (Thomas & Evanson, 1987). And then that information can be used by the managers for the improvement of their operations. Auditors can also use ratios for conducting an analytical review of their clients (Gardiner, 1995). We get numerous amount of information from the balance 11 sheet and income statement, it is also possible to develop an infinite number of ratios and items related to income statement and to each other, also items of balance sheet to each other, and as well as with the items of one statement to the items of other statement. However, the various items present in the financial statements are mostly highly correlated with each other so that the financial ratios are highly correlated with one another (Horrigan, 1996; Zeller & Stanko, 1997). 3.2 Analysis To analyze the financial performance of the companies at hand, we will delve into the composition of assets, equity and liabilities of each company and compare the composition between year 2014 and 2015. We will then focus on scrutinizing the profitability of each company using four key profitability ratios – gross profit margin, net profit margin, return on assets and return on capital employed. We will look into its liquidity through current ratio. Afterwards, focus would be shifted to exploring the financial position of each company using three key financial position ratios – capital gearing ratio, debt ratio and interest cover. We will look into its efficiency through asset turnover ratio. These would give us enough insight of the financial performance of the companies in question and facilitate superior comparison. 3.2.1 Composition of Balance Sheet: Himadri Limited Balance Sheet of Himadri Limited shows the current assets over total assets are 1% in 2014, and non-current assets was 99%. In 2015, the current assets constituted 7% of the total assets and noncurrent assets was 93%. This shows the percentage of current assets increased by six units. The following pi-charts clearly demonstrates the composition of assets: 12 Current Assets 1% Current Assets 7% 2014 2015 NonCurrent Assets 99% NonCurrent Assets 93% In 2014, the total current liabilities 9% of the total equity and liabilities. Corresponding non-current liabilities was 1%, and equity was 90%. In 2015, the total current liabilities 12% of the total equity and liabilities. Corresponding non-current liabilities was 1%, and equity was 87%. The following pi-charts clearly demonstrates the composition of equity and liabilities: Current Liabilitie s 12% 2015 NonCurrent Liabilitie s 1% Current Liabilities 9% 2014 Equity 87% NonCurrent Liabilities 1% Equity 90% The balance sheet of Himadri Limited can be found in the appendix. The following diagram shows the changes in Balance Sheet Account graphically and in more detail: 13 The changes in the main balance sheet accounts of Himadri Limited 700,000,000 600,000,000 500,000,000 400,000,000 300,000,000 200,000,000 100,000,000 0 Non-Current Current Assets Total Assets Assets 2015 Equity Current Liabilities Non-Current Total Liabilities Liabilities 2014 3.2.2 Composition of Balance Sheet: Golden Harvest Agricultural Industries Limited (GHAIL) Balance Sheet of GHAIL shows the current assets over total assets are 35% in 2014, and noncurrent assets was 65%. In 2015, the current assets constituted 30% of the total assets and noncurrent assets was 70%. This shows the percentage of current assets decreased by 5 units. The following pi-charts clearly demonstrates the composition of assets: 14 Current Assets 30% 2015 2014 Current Assets 35% NonCurrent Assets 65% NonCurrent Assets 70% In 2014, the total current liabilities 27% of the total equity and liabilities. Corresponding noncurrent liabilities was 6%, and equity was 67%. In 2015, the total current liabilities 26% of the total equity and liabilities. Corresponding non-current liabilities was 7%, and equity was 677%. The following pi-charts clearly demonstrates the composition of equity and liabilities: 2015 Current Liabilities 26% NonCurrent Liabilities 7% 2014 Current Liabilities 27% Equity 67% NonCurrent Liabilities 6% Equity 67% The balance sheet of GHAIL can be found in the appendix. The following diagram shows the changes in Balance Sheet Account graphically and in more detail: 15 The changes in the main balance sheet accounts of GHAIL 3,500,000,000 3,000,000,000 2,500,000,000 2,000,000,000 1,500,000,000 1,000,000,000 500,000,000 0 Non-Current Current Assets Total Assets Assets 2015 Equity Current Liabilities Non-Current Total Liabilities Liabilities 2014 3.2.3 Assessment of Financial Ratios To evaluate the strength and weakness of company and to evaluate the trend of business the ratios are very helpful. We will scrutinize the profitability of each company using four key profitability ratios – gross profit margin, net profit margin, return on assets and return on capital employed. We will look into its liquidity through current ratio. Afterwards, focus would be shifted to exploring the financial position of each company using three key financial position ratios – capital gearing ratio, debt ratio and interest cover. We will look into its efficiency through asset turnover ratio. These would give us enough insight of the financial performance of the companies in question and facilitate superior comparison. 16 3.2.3.1 Profitability Ratios A profitability ratio is a measure of profitability, which is a way to measure a company's performance. Profitability is simply the capacity to make a profit, and a profit is what is left over from income earned after costs and expenses related to earning have been deducted from the income. A. Gross Profit Margin 𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡 𝑀𝑎𝑟𝑔𝑖𝑛 = 𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡 𝑆𝑎𝑙𝑒𝑠 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 This ratio is used to assess a firm's financial health by revealing the proportion of money left over from revenues after accounting for the cost of goods sold. Gross profit margin serves as the source for paying additional expenses and future savings. The following table shows the gross profit margin of Himadri Limited and GHAIL: Himadri GHAIL 2015 2014 2015 2014 Sales Revenue 80250145 33108874 256,095,176 184,546,936 Gross Profit 32,277,457 -14,381,574 111,367,441 63,685,302 Gross Profit Margin 0.4022 -0.4344 0.4349 0.3451 Himdri’s revenue in 2015 is much higher than it is in 2014. In 2015, it made some profit although in 2014 it made loss. It recovered in 2015. Therefore, its gross profit margin in 2015 is positive, while in 2014 it is negative. For every taka earned in 2015, Taka 0.4022 gross profit was made. For every taka earned in 2014, Taka 0.4344 worth of loss was incurred. The corresponding figures for GHAIL are similar in 2015. Hence, compared to GHAIL’s gross profit margin, the Himadri’s is similar in 2015. The following chart clearly depicts the differences: 17 2014 GHAIL 0.3451 2015 0.4349 2014 Himadri -0.4344 2015 -0.6000 -0.4000 -0.2000 0.0000 0.4022 0.2000 0.4000 0.6000 Gross Profit Margin B. Net Profit Margin 𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 𝑀𝑎𝑟𝑔𝑖𝑛 = 𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 (𝑃𝐵𝑇) 𝑆𝑎𝑙𝑒𝑠 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 Net profit margin is the percentage of revenue left after all expenses have been deducted from sales. The measurement reveals the amount of profit that a business can extract from its total sales. The following table shows the net profit margin of Himadri Limited and GHAIL: Himadri GHAIL 2015 2014 2015 2014 Sales Revenue 80,250,145 33,108,874 256,095,176 184,546,936 Net Profit 583,797 -46,800,819 9,350,195 18,516,750 Net Profit Margin 0.0073 -1.4135 0.0365 0.1003 Himdri’s revenue in 2015 is much higher than it is in 2014. In 2015, it made some profit although in 2014 it made loss. Therefore, its gross profit margin in 2015 is positive, while in 2014 it is negative. For every taka earned in 2015, Taka 0.0073 net profit was made. For every taka earned 18 in 2014, Taka 1.4135 worth of net loss was incurred. The corresponding figures for GHAIL are favorable. Hence, compared to GHAIL’s net profit margin, the Himadri’s is below par. The following chart clearly depicts the differences: 2014 GHAIL 0.1003 2015 0.0365 2014 Himadri -1.4135 2015 0.0073 -1.6000 -1.4000 -1.2000 -1.0000 -0.8000 -0.6000 -0.4000 -0.2000 0.0000 0.2000 Net Profit Margin C. Return on Assets (ROA) 𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝐴𝑠𝑠𝑒𝑡𝑠 = 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝑃𝑟𝑜𝑓𝑖𝑡 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 The return on assets ratio, often called the return on total assets, is a profitability ratio that measures the net income produced by total assets during a period by comparing net income to the average total assets. In other words, the return on assets ratio or ROA measures how efficiently a company can manage its assets to produce profits during a period. Since company assets' sole purpose is to generate revenues and produce profits, this ratio helps both management and investors see how well the company can convert its investments in assets into profits. The following table shows the return on assets of Himadri Limited and GHAIL: 19 Himadri GHAIL 2015 2014 2015 2014 Operating Profit 12,491,951 -33,001,732 78,261,099 29,332,086 Total Assets 632,700,684 609,006,401 1,811,195,450 1,381,142,334 Return on Assets 0.0197 -0.0542 0.0432 0.0212 In 2015, Himadri made some profit although in 2014 it made loss. Its assets did not change much in two years. Therefore, its ROA in 2015 is positive, while in 2014 ROA is negative. In 2015, every taka worth of asset earned Taka 0.0197. In 2015, every taka worth of asset made a loss of Taka 0.0542. The corresponding figures for GHAIL are much favorable. Hence, compared to GHAIL’s ROA, the Himadri’s is below par. The following chart clearly depicts the differences: 0.0212 GHAIL 2014 2015 0.0432 2014 Himadri -0.0542 2015 -0.0600 -0.0400 -0.0200 0.0000 0.0197 0.0200 0.0400 0.0600 Return on Assets D. Return on Capital Employed (ROCE) 𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝐸𝑚𝑝𝑙𝑜𝑦𝑒𝑑 = 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝑃𝑟𝑜𝑓𝑖𝑡 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝐸𝑚𝑝𝑙𝑜𝑦𝑒𝑑 20 Return on capital employed or ROCE is a profitability ratio that measures how efficiently a company can generate profits from its capital employed by comparing net operating profit to capital employed. In other words, return on capital employed shows investors how many takas in profits each taka of capital employed generates. ROCE is a long-term profitability ratio because it shows how effectively assets are performing while taking into consideration long-term financing. This is why ROCE is a more useful ratio than return on equity to evaluate the longevity of a company. The following table shows the return on capital employed of Himadri Limited and GHAIL: Himadri GHAIL 2015 2014 2015 2014 Operating Profit 12,491,951 -33,001,732 78,261,099 29,332,086 Capital Employed 555,019,215 555,335,418 1,256,849,656 992,715,658 Return on Capital Employed 0.0225 -0.0594 0.0623 0.0295 In 2015, it made some profit although in 2014 it made loss. Its capital employed did not change much in two years. Therefore, its ROCE in 2015 is positive, while in 2014 ROA is negative. In 2015, every taka worth of capital employed generated Taka 0.0225. In 2015, every Taka worth of capital generated a loss of Taka 0.0594. The corresponding figures for GHAIL are greater. Hence, compared to GHAIL’s ROCE, the Himadri’s is below par. The following chart clearly depicts the differences: 21 2014 GHAIL 0.0295 2015 0.0623 2014 Himadri -0.0594 2015 -0.0800 -0.0600 -0.0400 -0.0200 0.0000 0.0225 0.0200 0.0400 0.0600 0.0800 Return on Capital Employed 3.2.3.2 Liquidity Ratios Liquidity ratios analyze the ability of a company to pay off both its current liabilities as they become due as well as their long-term liabilities as they become current. In other words, these ratios show the cash levels of a company and the ability to turn other assets into cash to pay off liabilities and other current obligations. Liquidity is not only a measure of how much cash a business has but also a measure of how easy it will be for the company to raise enough cash or convert assets into cash. Assets like accounts receivable, trading securities, and inventory are relatively easy for many companies to convert into cash in the short term. Thus, all of these assets go into the liquidity calculation of a company. Current ratio is the most prevailing measure of liquidity. A. Current Ratio 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑅𝑎𝑡𝑖𝑜 = 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 The current ratio is a financial ratio that shows the proportion of current assets to current liabilities. The current ratio is used as an indicator of a company's liquidity. In other words, a large amount 22 of current assets in relationship to a small amount of current liabilities provides some assurance that the obligations coming due will be paid. The following table shows the current ratios of Himadri and GHAIL: Himadri GHAIL 2015 2014 2015 2014 Current Assets 41,608,891 6,181,182 432,130,850 503,780,024 Current Liabilities 77,681,469 53,670,983 554,345,794 388,426,676 Current Ratio 0.5356 0.1152 0.7795 1.2970 Current assets of Himadri in 2014 was low compared to its current assets. Hence, its current ratio in that year was a mere 0.1152. In 2015, current assets increased significantly with slight increase in current liabilities. Hence, current ratio increased. Yet the ratio is not up to the mark compared to GHAIL. The following chart clearly depicts the differences: 2014 GHAIL 1.2970 2015 0.1152 Himadri 2014 0.7795 2015 0.0000 0.5356 0.2000 0.4000 0.6000 0.8000 1.0000 1.2000 1.4000 Current Ratio 3.2.3.3 Financial Position Ratios These ratios help in the analysis of financial position of the company and in determining the stability of the company and the ability of the company to repay its long-term debts. A. Capital Gearing Ratio 23 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝐺𝑒𝑎𝑟𝑖𝑛𝑔 𝑅𝑎𝑡𝑖𝑜 = 𝐿𝑜𝑛𝑔 𝑇𝑒𝑟𝑚 𝐷𝑒𝑏𝑡 𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠′ 𝐹𝑢𝑛𝑑 Gearing focuses on the capital structure of the business – that means the proportion of finance that is provided by debt relative to the finance provided by equity (or shareholders). The gearing ratio is also concerned with liquidity. However, it focuses on the long-term financial stability of a business. Gearing (otherwise known as "leverage") measures the proportion of assets invested in a business that are financed by long-term borrowing. In theory, the higher the level of borrowing (gearing) the higher are the risks to a business, since the payment of interest and repayment of debts are not "optional" in the same way as dividends. However, gearing can be a financially sound part of a business's capital structure particularly if the business has strong, predictable cash flows. The following table shows the capital gearing ratios of the companies: Himadri GHAIL 2015 2014 2015 Total Long-term Debt 7,717,065 7,717,065 645,691,000 397,294,125 Share Holders’ Fund 547,302,150 547,618,353 611,158,656 595,421,533 Capital Gearing Ratio 0.0141 0.0141 1.0565 2014 0.6672 Himadri’s long term debt and share holders’ remained same in both the years. Long term debt is much lower than share holders’ fund. Hence, capital gearing ratio is only 0.0141 in both the years. Himadri can easily pay off its long term debt. Hence, immediate chances of bankruptcy is negligible. Nevertheless, it is not leveraging enough. GHAIL on the other hand has optimum gearing ratios. The following chart clearly depicts the differences: 24 2014 GHAIL 0.6672 2015 1.0565 0.0141 2015 0.0141 Himadri 2014 0.0000 0.2000 0.4000 0.6000 0.8000 1.0000 1.2000 Capital Gearing Ratio B. Debt Ratio 𝐷𝑒𝑏𝑡 𝑅𝑎𝑡𝑖𝑜 = 𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 This ratio measures the extent of a company’s leverage. The debt ratio is defined as the ratio of total – long-term and short-term – debt to total assets, expressed as a decimal or percentage. It can be interpreted as the proportion of a company’s assets that are financed by debt. The following table shows the debt ratios of Himadri and GHAIL: Himadri GHAIL 2015 2014 2015 2014 Total Assets 632,700,684 609,006,401 1,811,195,450 1,381,142,334 Total Liabilities 85,398,534 61,388,048 1,200,036,794 785,720,801 Debt Ratio 0.1350 0.1008 0.6626 0.5689 Himadri finances an insignificant portion of its assets using debt. The debt ratios of Himadri are around six times lower than those of GHAIL. Himadri is not maximizing on its opportunities to take more loan. The following chart depicts the differences: 25 2014 GHAIL 0.5689 2015 0.6626 2014 Himadri 0.1008 2015 0.1350 0.0000 0.1000 0.2000 0.3000 0.4000 0.5000 0.6000 0.7000 Debt Ratio C. Interest Cover 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐶𝑜𝑣𝑒𝑟 = 𝑃𝑟𝑜𝑓𝑖𝑡 𝐵𝑒𝑓𝑜𝑟𝑒 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑎𝑛𝑑 𝑇𝑎𝑥 (𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝑃𝑟𝑜𝑓𝑖𝑡) 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐸𝑥𝑝𝑒𝑛𝑠𝑒 Interest cover or interest coverage ratio measures the ability of a company to pay the interest on its outstanding debt. This measurement is used by creditors, lenders, and investors to determine the risk of lending funds to a company. A high ratio indicates that a company can pay for its interest expense several times over, while a low ratio is a strong indicator that a company may default on its loan payments. The following table shows the interest coverage ratios of Himadri and GHAIL: Himadri 2015 GHAIL 2014 2015 2014 Operating Profit 12,491,951 -33,001,732 78,261,099 29,332,086 Interest Expenses 11,908,154 13,799,087 64,630,475 6,093,851 Interest Cover 1.0490 1.2109 4.8134 -2.3916 26 Himadri is not generating enough profit to cover its interest in 2014. In 2015, the profit is more than enough for that. GHAIL, on the other hand, makes sufficient profit to cover its interest both the year. The following chart depicts the differences: 2014 GHAIL 4.8134 2015 1.2109 2014 Himadri -2.3916 2015 -3.0000 -2.0000 -1.0000 1.0490 0.0000 1.0000 2.0000 3.0000 4.0000 5.0000 6.0000 Interest Cover 3.2.3.4 Efficiency Ratios Efficiency ratios also called activity ratios measure how well companies utilize their assets to generate income. Efficiency ratios often look at the time it takes companies to collect cash from customer or the time it takes companies to convert inventory into cash—in other words, make sales. These ratios are used by management to help improve the company as well as outside investors and creditors looking at the operations of profitability of the company. Efficiency ratios go hand in hand with profitability ratios. Most often when companies are efficient with their resources, they become profitable. A key efficiency ratio is asset turnover ratio. A. Asset Turnover Ratio 𝐴𝑠𝑠𝑒𝑡 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑅𝑎𝑡𝑖𝑜 = 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 27 The asset turnover ratio is an efficiency ratio that measures a company's ability to generate sales from its assets by comparing net sales with average total assets. In other words, this ratio shows how efficiently a company can use its assets to generate sales. The total asset turnover ratio calculates net sales as a percentage of assets to show how many sales are generated from each taka of company assets. The following table shows the asset turnover ratios of Himadri and GHAIL: Himadri GHAIL 2015 2014 2015 2014 Sales Revenue 80,250,145 33,108,874 256,095,176 184,546,936 Total Assets 632,700,684 609,006,401 1,811,195,450 1,381,142,334 Asset Turnover Ratio 0.1268 0.0544 0.1414 0.1336 Asset turnover ratios for Himadri and GHAIL are comparable. Himdri’s assets are generating sufficient revenue. Himadri’s ratio increased from 2014 to 2015, while GHAIL’s remained similar. The following chart depicts the differences: 2014 GHAIL 0.1336 2015 0.1414 2014 Himadri 0.0544 2015 0.0000 0.1268 0.0200 0.0400 0.0600 0.0800 0.1000 0.1200 0.1400 0.1600 Asset Turnover Ratio 28 4.0 Findings A. Findings from Profitability Analysis Results from Profitability Analysis 1.0000 0.5000 0.0000 2015 -0.5000 2014 2015 2014 Himadri GHAIL -1.0000 -1.5000 -2.0000 Gross Profit Margin Net Profit Margin Return on Assets Return on Capital Employed GHAIL has a quite healthy profitability. Himadry, on the other hand, made loss in 2014. It recovered and made profit in 2015 although all the profitability ratios for Himadri may not seem propitious. Based on these mere numbers, keeping Himadri in operation seems futile. B. Findings from Liquidity Analysis Results from Current Ratios 1.4000 1.2970 1.2000 1.0000 0.8000 0.6000 0.7795 Current Ratio 0.5356 0.4000 0.2000 0.1152 0.0000 2015 2014 Himadri 2015 2014 GHAIL 29 GHAIL’s liquidity position is strong. Himadri’s liquidity position, on the other hand, is not up to the mark. Its current assets do not match its current liabilities. GHAIL’s liquidity position is healthy. Hence, the chart accentuates Himadri’s ill liquidity position. C. Findings from Financial Position Analysis Results from Financial Position Analysis 6.0000 5.0000 4.0000 3.0000 2.0000 1.0000 0.0000 -1.0000 -2.0000 2015 2014 2015 Himadri 2014 GHAIL -3.0000 Capital Gearing Ratio Debt Ratio Interest Cover Himadri has much higher level equity compared to its debt. Hence, it can make use of the opportunity of taking more loans if it has access to better investment or growth opportunity. Although its operating profit did not exceed its interest expense in 2014, in 2015 the operating profit was more than enough for that. 30 D. Findings from Efficiency Ratios Findings from Efficiency Ratio 0.1600 0.1414 0.1400 0.1200 0.1268 0.1336 0.1000 0.0800 0.0600 Asset Turnover Ratio 0.0544 0.0400 0.0200 0.0000 2015 2014 Himadri 2015 2014 GHAIL Himadri’s asset turnover ratio is comparable to that of GHAL, in 2015. Both firms have experienced an increase in efficiency from 2014 to 2015, although Himadri’s improvement was steeper. This shows a beacon of light for Himadri. 31 5.0 Recommendations and Conclusion The alternatives available for Ejab Group, Himadri’s mother entity, include: i. Liquidating Himadri Limited and invest in other more profitable ventures ii. Make use of its opportunity to take more loans against Himadri’s large asset base and invest in Himadri I would recommend the second one for three cogent reasons. First, Himadri, although not as efficient as GHAIL, has enough efficiency. Moreover, its efficiency has grown from 2014 to 2015 significantly. This is apparent from its asset turnover ratio. Second, from 2014 to 2015, profitability conditions got only healthier insinuating potential for more improvement. Third, liquidating the business would not yield enough cash since most of Himadri’s assets include property, plant and equipment and currently land price is on decline. Nevertheless, offering a much specific and superior suggestion would demand a comprehensive study of the industry and the environment which is beyond the scope of this study. Besides, deficiency of pertinent information impinged on this study as well. Yet this study might aid further, more comprehensive research. 32 Appendix 33 34 35 36 37 38 39 40 Reference http://www.ejabgroup.com/ http://www.ejabgroup.com/himadri.php http://www.goldenharvestbd.com/ http://www.goldenharvestbd.com/golden-harvest-agro-industries-ltd/ http://lankabd.com/ http://www.investopedia.com/ 41