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REPORT ON

FINANCIAL STATEMENTS ANALYSIS ON


RENATA LIMITED

PATUAKHALI SCIENCE AND TECHNOLOGY UNIVERSITY


Financial Statements Analysis on Renata Limited

Prepared For:
M. Takibur Rahman
Lecturer
Department of Accounting & Information System
Faculty of Business Administration and Management

Prepared by
Group: 01(Warrior)
Level- lI, Semester- II
Faculty of Business Administration and Management
Sl. No. Name of the students Position Roll No. Reg. No.

01 Md. Kamruzzaman Group Leader 01 00660


02 Shuvradeb Barai Asst. Group leader 09 00668
03 Abu Zafour Member 21 00680
04 Sahana Parveen Member 07 00666
05 Nazmul Alam Siddiqui Member 25 00565

Financial Management-II
Course Code: FBK 221
Date of submission: 23 August 2007

PATUAKHALI SCIENCE AND TECHNOLOGY UNIVERSITY

Date: 23 August 2007

To
M. Takibur Rahman
Lecturer
Department of Accounting and Information System
Faculty of Business Administration and Management

Subject: Letter of Transmittal

Dear Sir,

Here is the report on Financial Statements Analysis on Renata Limited


you asked us to prepare this report as a course requirement of Financial
Management-II.
This report focuses on the Financial Management-II. We are proud of making
this report. We have tried our level best to make the report informative and
fruitful. For any classification we will be available and looking for such term
paper in coming days. We will be happy to get such type of report further.

Sincerely Yours

Md. Kamruzzaman
(Group Leader)
Group: 01(Warrior)
Level-II, Semester-II
Faculty of Business Administration and Management

A cknowledgment

At first we desire to express our deepest sense of gratitude of almighty Allah.

With profound regard we gratefully acknowledge our respected course teacher


M. Takibur Rahman Lecturer, Department of Accounting & Information
System, Faculty of Business Administration and Management for his generous
help and day to day suggestion during the survey.
We like to give thanks especially to our friends & many individuals, for their
enthusiastic encouragements and helps during the preparation of this report and
for their assistance in typing and proofreading this manuscript.

III

E xecutive Summary

This report is an assigned job as a partial fulfillment of course requirement


by honorable Course teacher M. Takibur Rahman Lecturer, Department
of Accounting & Information System, Faculty of Business Administration
and Management. Patuakhali Science and Technology University. It is the
optimum aggregated outcome of 5 pupils about Financial Statements
Analysis on Renata Limited. The view of this report is to find out the
financial position of Renata Limited. Now its make a great position in the
market of Bangladesh. Accounting procedure is highly important for
knowing the condition of a particular companys asset, liabilities, net
incomes, and retained earnings etc. According to our survey we found that
Renata Limiteds financial position is comparably standard.

IV
Contents

Section1
e

1. Introduction...01
1.1OriginoftheReport.02
1.2 Purpose of the Report...03
1.3 Limitation and Scope of the report. .....04
1.4 Methodology .......05

Section 2

2. Description
2.01 Company Chronology........06
2.02 Analysis of Financial Statements......07
2.03 Balance Sheet.....08
2.04 Income Statement.......10
2.05 Statement of Changes Equity.... 12
2.06 Cash Flow Statement.....13
2.07 Ratio Analysis of Financial Statements ....15

Section 3

3.01 Analysis of Renata Limiteds financial statements at a glance......25


3.02 Graphical Presentation of the Financial Statement Analysis.26
3.03 Overall Comment about Renata Limited ......29

Section 4

4.01. Findings. ...30

4.02. Recommendations.33

Section 5

5. Conclusion......35
.
7. Bibliography ..........36

8.Appendix.....37

i ntroduction

With the ever increasing size and complex items of modern business it has
become necessary for every business man to base decisions of facts expressed in
quantities form. Many new of ways of using qualitative data in making business
decisions have been developed in recent year from elementary statistical
technique. Financial statement that expresses the relationship between selected
financial statement data to compute ratio and describe their purpose and use in
analyzing a firms liquidity, profitability and solvency. Through it we will
understand the concept of earning power and indicate how the materials items
not typically of regular operations are presented. It provides us potential
information for decision making over a company in the current year with the
same item or relationship in one or more prior years.

01

O rigin of the report

We are lucky to say that our honorable course teacher M. Takibur


Rahman Lecturer, Department of Accounting and Information System, of
Faculty of Business Administration and Management. Assigned us a report
on Financial Statements Analysis on Renata Limited This report is
prepared on the basis of surveying the Renata Limited.
02

P urpose of the Report

As a business expectative of future, we should have to gather experience


beside our survey. We should not concern our lesion only in classroom but
to implement it in practical life that will help us in our future life .A clear
objective help in preparation of well decorated report in which other take
the right type of decision .So, we identifying objectives is very much
important. Our purpose of preparing the report is:

To identifying how the company maintaining the accounting procedure


To know about the companys financial statements
To find out the companys decision making process through ratio
analysis.

03

L imitation & Scope of the Report

As a student of faculty of Business Administration and Management, 4th


semester, this is our first initiative for making a report on Financial
Statements Analysis on Renata Limited by meeting a survey. Beside this we
have faced the following hindrances in preparing this report:

Lack of knowledge and experience


Short of time
Lack of computer facilities
Lack of sufficient privileges
Lack of communication facilities
The survey report focuses on Financial Statements Analysis on Renata
Limited. The survey may not be more comparable or more valid. Moreover, the
report is emphasized on the primary data such as interview of the manager of
Renata Limited. Here we consider only the information that we collect from our
survey.

04

M ethodology of the Study

This report is based on both primary and secondary data. Initially, the work is
started with data those were available at Companys Annual Report and
companys news letter. Moreover, it becomes helpful to gather some more
information from the website of the company.

Later on, the work progressed through some depth interviews of good range
professionals trying to heat some expected area of the study. After that, an
effective questionnaire is designed to collect likely data from the target group of
people.
Then we analyze those data from many angles, in different aspect and present
the information in different segment according to their category, in compact
way. We highlight different important things, which we found during our
survey. After doing all of those we submit the report to the proper authority.

05

Company Chronology

Renata Limited has created a new vista in manufacturing Pharmaceutical,


Animal Health Medicine, Nutritional and Vaccines. Its year of Incorporation is
19972: as Pfizer laboratories (Bangladesh) Limited, subsidiary of Pfizer
corporations, USA. In 1993 it renamed as Renata Limited after divestment of
shareholders by Pfizer corporations, USA. Renatas 10 products have been
licensed to M/s Deurali-Janta pharmaceutical Ptv. Ltd., Nepal for manufacture,
marketing and distribution in Nepal. Renata Limited is giving technical
assistances for upgrading their manufacturing plant to WHO GMP standards.

Renata Limited is dedicated to serving its valued customers with products of


excellent quality through continuous improvement in process and technology;
complain with the guidelines of good manufacturing process (GMP) and the
requirements of ISO 9110:1999 quality management system. Its top
management is committed to ensure that quality policy is adopted and practice
in all phases of company activities and urge all concerned to perform their
duties by following the principles.

A sound system of internal and financial control has been established by Renata
Limited, which involves periodical reporting, continuous audit of different
segments of the business and budgetary control to ensure optimum utilization of
the companys resources. Renata Limited is a highly professionally managed
organization. A team of skilled professionals has been dedicating their efforts in
order to achieve the corporate objectives.

06
Analysis of Financial Statements

Financial Statement Analysis

Financial Statement analysis is the art of transforming the data from financial
statements into information that is useful for informed decision making. The
analysis is used to determine the firms financial position so as to identify its
current strength and weakness. To take the rational decisions in keeping with the
objective of the firm, the financial statement is too much significant for the
managements. Financial statement analysis is not only important for the firms
managements, but also for the firms investors and creditors internally, financial
managers use the information provides by financial analysis to help make
financing and investing decisions to maximize the firms value. Externally,
stockholders and creditors use financial statement analysis to evaluate the
attractiveness of the firm as an investment by examining its ability to meet its
current and expected future financial obligations. Financial analysis involves the
use of various financial statements. These statements do the several things
which are as follows-

Balance Sheet

Balance sheet is that statement which represents the summary of a firms


financial position on a given data that shows the total assets, liabilities and
owners equity or stockholders equity of a financial year.

Income Statement

Income Statement is that statement which represents the summary of a firms


revenues and expenses over a specified period for the purpose of determining
the net income or loss for the period. For determining the net income or loss
Renata Limited represents revenues and expenses to their income statement for
the period.

07
Cash flow statement
The statement of cash flows reports the cash receipts, cash payments, and net
change in cash resulting from operating, investing, and financing activities
during the year. For determining the total cash inflow and outflow of a financial
year, Renata Limited prepares the cash flow statement.

Stockholders Equity
This statement represents the companys total common stock plus additional
paid-in capital and retained earnings. It also shows the changes in equity during
the period. To identify these things Renata Limited prepares the Stockholders
Equity.

Balance Sheet
Property& Assets
The Company has the following Property & Assets: Property, plant and
equipment, capital work-in-progress, investment in subsidiaries, other
investment, trade and other receivables, advances, deposits and prepayments,
cash and cash equivalents, and other assets.

Total Assets
31 December 2005, 31 December 2006

Particulars 2005(TK) 2006(TK)

Total Assets 1,274,556,982 1,776,512,741

Through this table, we see that the Total Assets TK 501,955,759 (39.38%) in
2006 is grater than then the previous year (2005).

Liability and capital


Liabilities: The liabilities of Renata limited are as follows-
Deferred liability-staff gratuity, deferred tax liability, bank overdraft, creditors
for goods, accrued expenses, other payables, unclaimed dividend, and provision
for taxation, and other liabilities.

Total Liabilities 08
31 December 2005, 31 December 2006

Particulars 2005(TK) 2006(TK)

Total Liabilities 500,439,779 794,199,946

Through this table, we see that the total liabilities TK 293,760,167 (58.70%) in
2006 is less than then the previous year (2005).

Shareholders equity
The sources of shareholders equity are as follows:
Share capital, revaluation surplus, tax holiday reserve, proposed stock
dividend, proposed cash dividend, and retained earnings.

Shareholders equity
31 December 2005, 31 December 2006
Particulars 2005(TK) 2006(TK)

Shareholders equity (capital) 774,117,203 982,312,795

Through this table we see that total shareholders equity is TK 208,195,592


(26.89%) in 2006 is greater than the previous year (2005).

Liabilities & Shareholders equity


31 December 2005, 31 December 2006

Particulars 2005(TK) 2006(TK)

Liabilities & Shareholders equity 1,274,556,982 1,776,512,741

Through the above table we see that the total liabilities and shareholders equity
is TK 501,955,759 (39.38%) in 2006 is greater than the previous year (2005).

09
Income Statement

Interest Income
Renata Limited is a manufacturing company. The company produces different
type of products and sales the products. Their revenue comes from the
following different sources. The sources are divided into mainly two parts:

1. Non-tax holiday (unit 1, 2, 3)


2. Tax holiday (unit 4).

In non-tax holiday unit they produce and sale the different products which are-
Pharmaceutical products, Animal health products, Animal nutritional products
and ORS. In tax holiday unit they produce the potent product facility.

Net income
31 December 2005, 31 December 2006
Particulars 2005(TK) 2006(TK)

Total revenue 1,625,773,193 1,962,528,378


Total expenses (1,433,204,932) (1,720,396,741)
Net income 192,568,261 242,131,637

Through this table, we see that the net interest income TK 49,563,376 (25.78
%) in 2006 is grater than then the previous year (2005).

Operating expense
Renata Limited has done expenses in different sources. The sources are as
follows:

Cost of goods sold, administrative, selling and distribution expenses, Salary


and allowances, managing directors salary & allowances, rent, rates and taxes,
insurances, electricity, legal expenses, postage, stamp, telecommunication, audit
fees, printing , stationery & advertisement , repairs, maintenances &
depreciations, and other expenses.

10
Expense for tax purpose
The sources of taxes are provision for tax, current tax & deferred tax:

Profit after tax


31 December 2005, 31 December 2006

Particulars 2005(TK) 2006(TK)

Profit before tax 279,387,690 347,221,767


Tax (86,819,429) (105,090,130)
Profit after tax 192,568,261 242,131,637

Appropriations
The sources of Appropriation are- tax holiday reserve, proposed stock dividend,
proposed cash dividend and retain earnings.
Through this table, we see that the Profit before tax TK 49,563,376 (25.78%) in
2006 is grater than then the previous year (2005).

Particulars 2005(TK) 2006(TK)


Earning per share (TK.) 239.71 (05) 301.41(06)

Through this table, we see that the earning per share TK 61.7 (25.74%) in 2006
is greater than then the previous year (2005).

11

Statement of Changes in Equity

Owners equity summarizes the changes in owners equity for a specific


period of time. It discloses the sources of the changes in the various
permanent shareholders equity accounts that occurred during the period.
The statement of shareholders equity only shows the net effects on
retained earnings.

In following table shows the changes of owners equity of Orion Infusion


Ltd. for the year ended 31 December 2005 and 31 December 2006.

31 December 2005 31 December 2006.

Total stockholder equity Total stockholder equity


774,117,203 982,312,795

In 2006 the shareholders equity is increased by TK 208,195,592 (26.89%)


than the previous year.
So we understood that the change in equity is increased TK 1.2689 in
2006 instead of TK 1 in 2005.

12
Cash flow Statement

Cash flows from operating activities


Operating activities includes the cash effects of transactions that create
revenues and expenses. They thus enter into the determination of the net
income. The sources of cash inflows from the operating activities are-
Collection from customers and other sources of income. The sources of
cash outflows from the operating activities are - Financial cost, payment
of tax, payment of value added tax (VAT), payment to suppliers and
employees and others.

Net Cash from Operating Activities


For the year ended 31 December 2005 and 31 December 2006.

2005 2006

Cash inflow Cash outflow Cash inflow Cash outflow


1,836,005,683 1,624,549,823 2,185,812,587 2,116,621,297

Net Cash from operating activities = Net Cash from operating activities =
211,455,860 69,191,290

Cash flows from Investing Activities


The company has been done the following investing activities-
Purchase of property, plant and equipment, investment in share, sale
procedure of property, plant and equipment.

Net Cash from Investing Activities


For the year ended 31 December 2005 and 31 December 2006.

2005 2006
Cash inflow Cash outflow Cash inflow Cash outflow

260,000 151,986,364 1,928,200 224,799,510


Net Cash from investing activities = Net Cash from investing activities =
(151,726,364) (224,871,310)

13
Cash Flows from Financing Activities:
The company has been done the following financing activities-
Medium term loan repaid, and dividend paid.

Net Cash from Financing Activities


For the year ended 31 December 2005 and 31 December 2006.

2005 2006
Cash inflow Cash outflow Cash inflow Cash outflow

- 27,398,386 - 33,160,404
Net Cash from financing activities = Net Cash from financing activities =
27,398,386 33,160,404

Net Cash Outflows


For the year ended 31 December 2005 and 31 December 2006.

2005 2006
Total Cash Total Cash
Total Cash inflow Total Cash inflow
outflow outflow
1,836,265,683 1,803,934,573 2,187,740,787 2,374,581,211
Net Cash outflow = 32,331,110 Net Cash outflow = (186,840,424)

Closing cash and cash- equivalents


For the year ended 31 December 2005 and 31 December 2006.

2005 2006
Opening Cash and Opening Cash
Net Cash outflows Net Cash
cash equivalents and cash
outflows
equivalents
32,331,110 (135,303,998) (186,840,424) (102,972,888)

Closing cash and cash equivalents = Closing Cash outflow equivalents =


(102,972,888) (289,813,312)

14
Ratio Analysis of Financial Statements

Working Capital
Working capital is the excess of current assets over the current liabilities.
It is calculated by deducting current liabilities from current assets.
Working capital = Current assets - Current liabilities

2005 2006
Current assets Current liabilities Current assets Current liabilities
672,355,277 384,140,329 979,254,859 658,881,691
Working capital =288,214,948 Working capital = 320,373,168

Current ratio
The current ratio is a widely used measure for evaluating companys
liquidities & short-term debt- paying ability:
Current ratio = Current assets Current liabilities

2005 2006
Current assets Current liabilities Current assets Current liabilities
672,355,277 384,140,329 979,254,859 658,881,691
Current ratio =1.75 Current ratio = 1.49

Comment
The ideal current ratio of an organization is 1.2 times. The current ratio of
Renata Ltd. in 2005 is 1.75 times and in 2006 is 1.49 times, which is
lower than the previous year 2005. So liquidity and short-term debt paying
ability is worse than the previous year. But the Renata Ltd. has liquidity
ability 1.49 to pay the short term debt for 1 which is higher from the
probable ideal ratio.

Acid-Test Ratio
15
The acid-test ratio is a measure of a companys immediate short-term
liquidity.
Acid test ratio = (Current assets Inventories) Current liabilities

2005 2006
Current assets - Current Current assets - Current
Inventories liabilities Inventories liabilities
672,355,277 384,140,329 979,254,859 658,881,691
388.384.007 638,784,952
Acid test ratio = 0.74 Acid test ratio = 0.52

Comment
The ideal of Acid-Test Ratio an organization is 0.8 times. The Acid-Test
Ratio of Renata Ltd. in 2005 is 0.74 times and in 2006 is 0.52 times,
which is less than the previous year. Our evaluations of the liquidity ratios
suggest that Renatas liquidity position currently is poor.
Inventory Turnover
The total inventory turnover ratio measures the liquidity of inventories of
a firm. It is calculated by dividing cost of goods sold by inventories.
Inventory turnover = Cost of goods sold Average inventories

2005 2006
Cost of goods sold Average Cost of goods sold Average
inventories inventories
829,197,436 388,384,007 978,390,209 (638,784,952 +
388,384,007)
2
Inventory turnover = 2.14 Inventory turnover = 1.91

Inventory Turnover in Days


Inventory turnover in days measure the average days to sale the
inventories.
Inventory Turnover in Days = Days in the year Inventory turnover

2005 2006 16
Days in the year Inventory Days in the year Inventory
turnover turnover
360 2.14 360 1.91
Inventory turnover in days = 168 Inventory turnover in days = 188

Comment
Inventory turnover ratio of Renata Ltd. in 2005 is 2.14 times and in 2006
is 1.91 times, which is lower than the previous year 2005. The average
selling time of inventories in 2005 is 168 days and in 2006 is 188 days.
The ideal industry average of inventory selling time is 92 days. Our
evaluations of the inventory turnover suggest that Renatas average days
to sale the inventories in days currently are lower than the industry
average.

Account Receivable Turnover


Account receivable turnover measures the liquidity of receivables.
Account receivable turnover = Net credit sales Average net receivables.

2005 2006
Net credit sales Average net Net credit Average net receivables
receivables sales
1,608,555,839 162,224,078 1,927,731,88 (198,626,085+162,224,0
5 78) 2
Account receivable turnover = 9.91 Account receivable turnover = 10.68

Account Receivable Turnover in Days (DSO)


Account receivables turnover in days (DSO) is used to evaluate the firms
ability to collect its credit sale in a timely manner.
DSO = Days in the year Account receivable turnover

2005 2006
Days in the year Account receivable Days in the Account receivable
turnover year turnover
360 9.91 360 10.68
Account receivable turnover in days = 36 Account receivable turnover in days =
34

Comment 17

Accounts receivables turnover ratio of Renata Ltd. in 2005 is 9.91 times


and in 2006 is 10.68 times, which is grater than the previous year 2005.
The firms ability to collect its credit sales is occurred in 36 days in 2005
and in 2006 is 34 days which is lower than the previous year 2005.
The ideal industry average of account receivable turnover in days (DSO)
is 116.1 days. Our evaluations of the account receivables turnover suggest
that Renatas average days to collect its credit sale currently are lower but
it is better for the company.

Return on Assets
Return on Assets indicates the overall measure of profitability is return on
assets.
Return on Assets = Net income Average total assets

2005 2006
Net income Average total Net income Average total assets
assets

192,568,261 1,274,556,982 242,131,637 (1,776,512,741+1,274,556,98


2) 2

Inventory turnover = 15.11% Inventory turnover = 15.87%

Comment
Return on Assets ratio of Renata Ltd. in 2005 is 15.11% and in 2006 is
15.87%, which is grater than the previous year 2005. But the ideal
industry average of return on assets is 10.9%. Our evaluations of the
return on assets suggest that Renatas profitability on assets currently is
higher than the industry average. So we think the return on assets of this
company is maintaining a good standard.

Total Assets Turnover Ratio


Total assets turnover ratio measures how effectively the firm uses its plant
and equipment to help generate sales.
Total assets turnover ratio = Sales Average total assets

2005 2006 18
Average total
Sales assets Sales Average total assets

1,608,555,839 1,274,556,98 1,927,731,88 (1,776,512,741+1,274,556,9


2 5 82) 2

Total assets turnover = 1.26 Total assets turnover = 1.26

Comment
Total assets turnover ratio of Renata Ltd. in 2005 is 1.26 times and in 2006
is 1.26 times, which is similar with the previous year 2005. But the ideal
industry average of total assets turnover ratio is 0.6 times. Our evaluations
of the total assets turnover ratio suggest that Renatas plant and equipment
to help generate sales is higher than the industry average. So we think the
total assets turnover of this company is maintaining a good standard.
Debt to Total Assets Ratio
Debt to total assets ratio measures the percentage of total assets provided
by the creditors.
Debt to total assets ratio = Total debt Average total assets.

2005 2006
Total Debt Average total Total Debt Average total assets
assets
500,439,779 1,274,556,982 794,199,946 (1,776,512,741+1,274,556,98
2) 2
Inventory turnover = 39.26% Inventory turnover = 52.06%

Comment
Debt to total assets ratio of Renata Ltd. in 2005 is 39.26% and in 2006 is
52.06%, which is grater than the previous year 2005. But the ideal
industry average of debt to total assets is 62%. Our evaluations of the debt
to total assets suggest that Renatas debt to total assets currently is lower
than the industry average. So they have the opportunity to expand their
business by increasing their debt.

Debt to Total Equity Ratio 19


Debt to total equity ratio measures the percentage of total equity provided
by the creditors.
Debt to total equity ratio = Total debt Total stockholder equity.

2005 2006
Total Debt Total stockholder Total Debt Total stockholder
equity equity
500,439,779 774,117,203 794,199,946 982,312,795
Debt to total equity = 64.64% Debt to total equity = 80.85%

Comment
Debt to total equity ratio of Renata Ltd. in 2005 is 64.64% and in 2006 is
80.85%, which is grater than the previous year 2005. Our evaluations of
the debt to total equity ratio suggest that Renatas debt to total equity
currently is higher than the previous year.

Return on Common Shareholders Equity


This ratio shows how many taka of net income were earned for each taka
invested by the owners.
Return on common shareholders equity = (Net income Preferred
dividend) Average common equity

2005 2006
Net income- Average common Net income Average common
Preferred dividend equity -Preferred equity
dividend
192,568,261 774,117,203 242,131,637 982,312,795

Debt to total equity = 24.88% Debt to total equity = 24.65%

Comment
Return on common shareholders equity of Renata Ltd. in 2005 is 24.88%
and in 2006 is 24.65%, which is less than the previous year 2005. But the
ideal industry average of return on common shareholders equity is 14.6%.
Our evaluations of the return on common shareholders equity suggest that
Renatas net income were earned for each taka invested by the owners is
higher than the industry average. So we think the return on common
shareholders equity of this company is maintaining a good standard.

Net Profit Margin


Net profit margin measures the income per taka of sales. 20
Net profit margin = Net income Net sales

2005 2006
Net income Net sales Net income Net sales

192,568,261 1,608,555,839 242,131,637 1,927,731,885


Net profit margin = 11.97% Net profit margin = 12.56%

Comment
Net profit margin of Renata Ltd. in 2005 is 11.97% and in 2006 is
12.56%, which is grater than the previous year 2005. But the ideal
industry average of net profit margin is 15.4%. Our evaluations of the net
profit margin suggest that Renatas net income were earned for each taka
of sales is lower than the industry average. So they should decrease their
expense to increase the profit.

Earning Per Share


Earning per share measures of the net income earned on share of common
stock.
Earning per share = (Net income Preferred dividend) Number of
common share outstanding.

2005 2006
Net income- No. of common Net income No. of common
Preferred dividend share outstanding -Preferred share outstanding
dividend
192,568,261 803324 242,131,637 803324

Earning per share = 239.71 Earning per share = 301.41

Comment
The Earning per Share of Renata Ltd. in 2005 is 239.71 and in 2006 is
301.41 which is grater than the previous year.

Price-Earnings Ratio 21
Price-earnings ratio measures the market price of each share of common
stock to the earnings per share.
Price-earnings ratio = Market price per share Earning per share

2005 2006
Market price per Earning per Market price per Earning per
share share share share
3000 = 239.71 3099.25 301.41
Price-earnings ratio = 12.52 Price-earnings ratio = 10.28

Comment
Price-earnings ratio of Renata Ltd. in 2005 is 12.52 times and in 2006 is
10.28 times, which is less than the previous year 2005. But the ideal
industry average of price-earnings ratio is 13 times. Our evaluations of the
price earning ratio suggest that Renatas price of each share of common
stock to earning per share is lower than the industry average.

Dividend Yield Ratio


It is measured by dividing dividend per share by market price per share.
Dividend Yield Ratio = Dividend per Share Market price per share

2005 2006
Dividend per Market price per Dividend per Market price per
Share share Share share
58.33 3000 70.00 3099.25
Dividend Yield Ratio = 1.94% Dividend Yield Ratio = 2.26%

Comment
Dividend yield ratio of Renata Ltd. in 2005 is 1.94% and in 2006 is 2.26%,
which is greater than the previous year 2005. Our evaluations of dividend
yield ratio suggest that Renatas dividend yield ratio is higher than
previous year.

Time Interest Earned Ratio 22


Time interest earned ratio measures the ability of the firms to meet its annual
interest payment.
Time interest earned ratio = Net operating profit Interest expense

2005 2006
Net operating profit Interest expense Net operating profit Interest
expense
316,958,675 23,002,949 404,424,412 39,765,118
Time interest earned ratio = 13.77 Time interest earned ratio = 10.17

Comment
Time interest earned ratio of Renata Ltd. in 2005 is 13.77 times and in 2006 is
10.17 times, which is less than the previous year 2005. But the ideal industry
average of time interest earned ratio is 4.9 times. Our evaluations of the time
interest earned ratio suggest that Renatas annual interest payment is higher
than the industry average. So we think the time interest earned ratio of this
company is maintaining a goods standard.

Dividend per Share


It measures the companys dividend on each share. It is calculated b y
dividing common divided by number of shares outstanding.
Dividend per Share = Common divided Number of shares

2005 2006
Common divided Number of Common divided Number of
shares shares
46,860,550 803320 56,232,700 803320
Dividend per Share = 58.33 Dividend per Share = 70.00

Comment
Dividend per share of Renata Ltd. in 2005 is 58.33 and in 2006 is 70,
which is greater than the previous year 2005. Our evaluations of dividend
per share suggest that Renatas try to increase its dividend per share.

Dividend Payout Ratio 23


Dividend payout ratio measures the percentages of earnings distributed in the
form of cash dividends.
Dividend Payout Ratio = Cash dividend Net income

2005 2006
Cash dividend Net income Cash dividend Net income

46,860,550 192,568,261 56,232,700 242,131,637


Dividend Payout Ratio = 24.33% Dividend Payout Ratio = 23.22%

Comment
Dividend payout ratio of Renata Ltd. in 2005 is 24.33% and in 2006 is
23.22%, which is less than the previous year 2005. But the ideal industry
average of dividend payout ratio is 16%. Our evaluations of the dividend
payout ratio suggest that Renatas earnings distributed in the form of cash
dividends is higher than the industry average. So we think the time dividend
payout ratio of this company is maintaining a goods standard.

** These financial statements data is considered as Bangladeshi taka. All


financial information presented in taka has been rounded off to the nearest taka.

Analysis of Renata Limiteds financial statements at a glance 24

Ratios
Particulars Industry
2006 2005 High Low O.K.
average
Current ratio 1.49 1.75 1.2
Acid test ratio 0.52 0.74 0.8
Inventory turnover 1.91 2.14 3.9
Inventory turnover 188 168 92 days
in days
Receivable
10.68 9.91 3.1
turnover
DSO 34 days 36 days 116.1 days
Return on assets 15.87% 15.11% 10.9%
Total assets 0.6
1.26 1.26
turnover
Debt to assets ratio 52.06% 39.26% 62.0%.
Debt to equity ratio 80.85% 64.64%
Return on equity 24.65% 24.88% 14.6%
Net profit margin
12.56% 11.97% 15.4%
ratio
Time interest
10.17 13.77 4.9
earned ratio
Earning per 239.71
301.41
share
Price earning ratio 10.28 12.52

13
Dividend per
70.00 58.33
share
Dividend yield
ratio
2.26% 1.94%
Dividend pay
23.22% 24.33% 16%
out ratio

** This comment based on the year 2006 with industry average.

25
Graphical Presentation of the Financial Statement Analysis
26
27
28
Overall Comment about Renata Limited

For analysis the financial conditions of Renata Limited we can segregate the
financial statements (ratios) of Renata Limited into four different parts -
liquidity ratios, asset management ratios, debt management ratios, and
profitability ratios. These ratios can be used to evaluate the overall condition of
any company. Here we providing the overall comments about Renata Limited
based on the liquidity ratios, asset management ratios, debt management ratios,
and profitability ratios.

In case of liquidity ratios, their current ratio is decreased than the previous year
but it is higher than the industry average. Side by side their quick ratio is
decreased than the previous year and the industry average. So we can say that
for current ratio their have some little idle money. But in case of quick ratio at
the present rate it is not possible for the company to pay its bills as they come
due. In case of asset management their inventory turnover in days is higher than
the previous year and industry average. This suggests that inventory stocks of
Renata Limited are higher than they need to be. Side by side DSO is in better
position in comparison with previous year.

In case of debt management, Renata Limiteds debt to asset ratio is higher than
the previous year but lower than the industry average. So they have the
opportunity to increase their debt up to 10% to expand their business. Their
debt to equity ratio is higher than the previous year and they have to maintain
the standard. In case of profitability position of this company return on assets
is increased than the previous year and industry average. Return on equity is
decrease than the previous year but both are higher than the industry average.
Net profit margin is increase than the previous year and industry average. So
we can say that, overall the companys profitability position is good in spite of
their net profit margin slightly lower than the industry average.

At last we conclude that, their financial condition is not bad and need to keep
the wheel of prosperity for future.

F INDINGS
29

From the analysis of the financial statement of Renata Ltd. we have found
the followings:
Renata Ltd. prepared consolidated financial statement in accordance to the
Bangladesh Accounting Standards 27.

The company manufactures and sales various pharmaceutical, animal


healths, animal nutritional, oral saline, hormone products and other
medical product in the local and foreign market.

Their Financial statement has been prepared in accordance with applicable


International Accounting Standards as adopted by the ICAB and where
relevant with presentational requirements of the law.

Financial statement has been prepared under the historical cost convention
as modified to include revaluations of certain property, plant and
equipment.

The company has adequate resource to continue in operations for faceable


future. For this reason they continue to adopt going concern basis in
preparing the accounts.

Nonderivative financial instrument comprised accounts and other


receivables, cash and cash equivalents, loans and borrowings, and other
payables are shown at transactions cost.

The cost of the day-to-day servicing of property, plant and equipment are
recognized in the profit and loss account as incurred.

Gains and losses on disposal or retirement of assets are credited or


charged to the results operations.

The company has applied for tax holiday on unit-4 (potent product
facility) for a period of 4 years from September 2006 to August 2010; the
approval is yet to be received.

Provisions are made where an obligation exists for future liabilities in 30


respect of the past event and where the amount of the obligations can be
reliably measure.

Revenue from sell of goods is measured at fair value of the considerations


received or receivable, net of return and allowances tread accounts and
volume rebates

All fixed assets are recorded at cost less accumulated depreciation.


Renata Ltd. has followed the straight-line method in terms of charging
depreciation on all fixed assets.

Renata Limited net profits in 2006 are decreased by TK58880748 from


the previous year 2005.

In 2006 The Total Assets of Renata Ltd. is increased by TK 501,955,759


(39.38%) against the base year.

In 2006 The Total liability of Renata Ltd. is increased by TK 293,760,167


(58.70%) against the base year.

The change in equity is increased by TK 208,195,592 (26.89%) against


the base year.

The current ratio of Renata Ltd. in 2005 is 1.75 times and in 2006 is 1.49
times, which is lower than the previous year 2005

The Acid-Test Ratio of Renata Ltd. in 2005 is 0.74 times and in 2006 is
0.52 times, which is less than the previous year.

The average selling time of inventories in 2005 is 168 days and in 2006 is
188 days.

The firms ability to collect its credit sales is occurred in 36 days in 2005
and in 2006 is 34 days which is lower than the previous year 2005.

Return on Assets ratio of Renata Ltd. in 2005 is 15.11% and in 2006 is


15.87%, which is grater than the previous year 2005.

Total assets turnover ratio of Renata Ltd. in 2005 is 1.26 times and in 2006
is 1.26 times, which is similar with the previous year 2005.

31
Debt to total equity ratio of Renata Ltd. in 2005 is 64.64% and in 2006 is
80.85%, which is grater than the previous year 2005

Return on common shareholders equity of Renata Ltd. in 2005 is 24.88%


and in 2006 is 24.65%, which is less than the previous year 2005.

Net profit margin of Renata Ltd. in 2005 is 11.97% and in 2006 is 12.56%,
which is grater than the previous year 2005.
The Earning per Share of Renata Ltd. in 2005 is 239.71 and in 2006 is
301.41 which is grater than the previous year

Price-earnings ratio of Renata Ltd. in 2005 is 12.52 times and in 2006 is


10.28 times, which is less than the previous year 2005.

Dividend yield ratio of Renata Ltd. in 2005 is 1.94% and in 2006 is 2.26%,
which is greater than the previous year 2005.

Time interest earned ratio of Renata Ltd. in 2005 is 13.77 times and in
2006 is 10.17 times, which is less than the previous year 2005.

Dividend payout ratio of Renata Ltd. in 2005 is 24.33% and in 2006 is


23.22%, which is less than the previous year 2005.

R ECOMMENDATIONS
32

Financial statements are most significant part of a company because


financial statement analysis involves a comparison of a firms
performance with that of other firms in the same line of business, which
usually identified by the firms industry classification. The analysis is used
to determine the firms financial position so as to identify its current
strength and weakness and to suggest actions the firm might pursue to take
advantage of the strengths and correct any weakness. Here is our
recommendations about this company are as follows:
Renata Ltd. has liquidity ability 1.49 times to pay the short term debt
for 1, which is higher than the probable ideal ratio 1.2 times. They have a
little amounted of idle money which they opportunity to invest.
Our evaluations of the acid test ratio suggest that Renatas liquidity
position currently is poor. Renatas acid test ratio seems inadequate.

The average selling time of inventories in 2005 is 168 days and in


2006 is 188 days. So their turn over rate is very high in the company,
which is harmful for the country. So they should need to maintain the
standard.
Our evaluations of the account receivables turnover suggest that
Renatas average days to collect its credit sale currently is lower than the
industry average which is determines that companies account receivables
turnover is good.

Our examination of the return on assets suggests that Renatas


profitability on assets currently is higher than the industry average. We
think the return on assets of this company is maintaining a good standard.
So they should try to keep the stability.
Our assessment of the total assets turnover ratio suggests that Renatas
plant and equipment to help generate sales is higher than the industry
average. We think the total assets turnover of this company is satisfactory.

Our valuation of the debt to total assets suggests that Renatas debt to
total assets currently is lower than the industry average. So they have the
opportunity to expand their business by increasing their debt.

Our evaluations of the debt to total equity ratio suggest that Renatas
debt to total equity currently is higher than the previous year. So they 33
should maintain this permanence.

Our opinion of the return on common shareholders equity suggests


that Renatas net income were earned for each taka invested by the owners
is higher than the industry average. We think the return on common
shareholders equity of this company is maintaining a good standard. So
they should maintain this immovability

Our evaluations of the net profit margin suggest that Renatas net
income were earned for each taka of sales is lower than the industry
average. So they should increase their net profit volume.
The Earning per Share of Renata Ltd. in 2005 is 239.71 and in 2006 is
301.41 which is grater than the previous year which is good for the
company and they should keep the steadiness of the increasing level of the
earning per share.

Our consideration of the net price earning ratio that Renatas price of
each share of common stock to earning per share is lower than the
industry average. So the company needs to increase its price earning ratio
with the industry average.

Our evaluations of dividend yield ratio suggest that Renatas dividend


yield ratio is higher than previous year. So they should maintain this
permanence.
Our assessment of the time interest earned ratio suggests that Renatas
annual interest payment is higher than the industry average. So we think the
time interest earned ratio of this company is maintaining a goods standard
and they should keep it on.
Our judgment of dividend per share suggests that Renatas try to
increase its dividend per share.

Our evaluations of the dividend payout ratio suggest that Renatas


earnings distributed in the form of cash dividends is higher than the industry
average. So we think the time dividend payout ratio of this company is
maintaining a goods standard.

34

C onclusion

The study of the financial statement is fascinating one for analyzing a


firms liquidity, profitability and solvency. It provided us essential
information to companys relative performances with in the industry
as well as determining the companys competitive competence
position. Financial statement analysis helps us to take appropriate
financial decision in the business field at the right time.

35

Bibliography
01. Besley Scott and Brigham Eugene f. Essentials of Managerial finance,
International student edition, Thirteen Edition, Thomson South-Western,
6April 2006, p. Al.

02. Annual Report, Renata Limited., Financial year 2005-2006, p. Al.

Appendix 36

Working capital = Current assets - Current liabilities

Acid test ratio = (Current assets Inventories) Current liabilities

Inventory turnover = Cost of goods sold Average inventories

Inventory Turnover in Days = Days in the year Inventory turnover

Account receivable turnover = Net credit sales Average net receivables.


DSO = Days in the year Account receivable turnover

Return on Assets = Net income Average total assets

Total assets turnover ratio = Sales Average total assets

Debt to total assets ratio = Total debt Average total assets.

Debt to total equity ratio = Total debt Total stockholder equity.

Return on common shareholders equity = (Net income Preferred dividend)


Average common equity

Net profit margin = Net income Net sales

Earning per share = (Net income Preferred dividend) Number of common


share outstanding.

Price-earnings ratio = Market price per share Earning per share

Dividend Yield Ratio = Dividend per Share Market price per share

Time interest earned ratio = Net operating profit Interest expense

Dividend per Share = Common divided Number of shares

Dividend Payout Ratio = Cash dividend Net income

37