5.8.

2 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.

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 (In 000)

Particulars 2014(TK) 2015(TK)

Total Assets 5,296,370 140,068

Through this table, we see that the Total Assets TK 5,296,370 in 2014 is higher than then
the year (2015).

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 (in 000)

Particulars 2014 (TK) 2015 (TK)

Total Liabilities 144,935,67 584,640

Through this table, we see that the total liabilities TK 144,935,67 in 2014 is higher than then
the year 2015.

Liabilities & Shareholders equity

Particulars 2014(TK) 2015(TK)

Liabilities & Shareholders equity 9,279,390 10,490,562

 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 .
2. Tax holiday.

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.

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.

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.

Cash flow Statement

Csh 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.
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.

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
 F INDINGS

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
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.
 R ECOMMENDATIONS

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
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 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.
C onclusion

Appendix
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