“Financial Analysis of RAK Ceramics Ltd.

Prepared By

Rakibul Hossen
Research Assistant
Royal Capital Ltd.

Research & Innovation Lab

Date of Submission: December 9, 2017

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 Summary

Financial analysis is the examination of a business from a variety of perspective in order to fully
understand the greater financial situation and determine how best to strengthen the business. A
financial analysis looks at many aspects of a business from its profitability and stability to its
solvency and liquidity.

RAK Ceramics is one of the leading ceramics manufacturer in Bangladesh ceramics industry. RAK
is a joint venture with UAE company. RAK ceramics has a long history in this sector. The study
covers the financial analysis of RAK ceramics from a variety of angel. The study includes
Horizontal Analysis, Vertical Analysis and Ratio Analysis of RAK Ceramics. To complete the
study and to see the long-term effect this study is based on 5 years’ time period which is 2012 to
2016. The study also covers the ceramic industry outlook, company potentials, financial
performance, determine some important findings and concluded with appropriate
recommendations.

The overall financial performance is stable and still has greater growth potential of RAK Ceramics
Ltd.

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 Table of Contents
Summary ....................................................................................................................................................... 2
CHAPTER ONE ............................................................................................................................................... 5
1.1 Rational of the Report......................................................................................................................... 6
1.3 Methodology of the Report ................................................................................................................ 6
1.4 Limitations of the Report .................................................................................................................... 6
CHAPTER 2 .................................................................................................................................................... 7
2.1 Horizontal Analysis .............................................................................................................................. 8
2.2 Vertical Analysis .................................................................................................................................. 8
2.3 Ratio Analysis ...................................................................................................................................... 8
2.4 Profitability Ratio ................................................................................................................................ 8
2.5 Gross Margin ....................................................................................................................................... 8
2.6 Operating Margin ................................................................................................................................ 9
2.7 Return on Assets ................................................................................................................................. 9
2.8 Return on Equity ................................................................................................................................. 9
2.9 Net Profit Margin ................................................................................................................................ 9
2.10 EBITDA Margin ................................................................................................................................ 10
2.11 Current Ratio ................................................................................................................................... 10
2.12 Quick Ratio ...................................................................................................................................... 10
2.13 Cash conversion cycle ..................................................................................................................... 11
2.14 Debt/Equity Ratio............................................................................................................................ 11
2.15 Net Asset Value ............................................................................................................................... 11
2.16 Earnings Per Share (EPS) ................................................................................................................. 12
2.17 Price-Earnings Ratio - P/E Ratio ...................................................................................................... 12
2.18 Earnings Yield .................................................................................................................................. 12
2.19 Dividend Payout Ratio..................................................................................................................... 12
2.20 Dividend Yield ................................................................................................................................. 13
2.21 Free Cash Flow Per Share................................................................................................................ 13
2.22 Return on Invested Capital ............................................................................................................. 13
CHAPTER THREE .......................................................................................................................................... 14
3.1 Industry Outlook ............................................................................................................................... 15
3.2 Company Outlook ............................................................................................................................. 17
3.3 Vision................................................................................................................................................. 17

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 3.4 Mission .............................................................................................................................................. 17
3.5 RAK Ceramics growth enablers ......................................................................................................... 18
3.6 RAK Ceramics growth strategy .......................................................................................................... 18
3.7 Management of RAK Ceramics ......................................................................................................... 19
3.8 Award & Recognition ........................................................................................................................ 19
3.9 Associate Companies ........................................................................................................................ 20
4.10 Market Price Movement ................................................................................................................. 20

3.11 Capacity Utilization ....................................................................................................................... 21

3.12 Horizontal Analysis .......................................................................................................................... 22
3.13 Vertical Analysis .............................................................................................................................. 25
3.14 Ratio Analysis .................................................................................................................................. 28
CHAPTER FOUR ........................................................................................................................................... 32
4.1 Findings ............................................................................................................................................. 33
4.2 Recommendations ............................................................................................................................ 34
Conclusion ................................................................................................................................................... 35
Reference .................................................................................................................................................... 36

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CHAPTER ONE
INTRODUCTION

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1.1 Rational of the Report
The main objective of preparing report on this topic is that, I’ve been closely associated with the
Research and Investment team in Royal Capital Ltd. The report is completely reach with accurate
data and information which I managed from the annual reports of RAK Ceramics Ltd.
I’ve found few more objectives while I am preparing my report. These are as follows:
1. To review the Ceramics Industry of Bangladesh
2. To review the performance of RAK Ceramics Ltd. as a company in Bangladesh Ceramics
Industry.
3. To review the financial performance of RAK Ceramics from 2012 to 2016.
4. To apply practical knowledge gained from theoretical and practical knowledge on different
financial analysis like- Horizontal, Vertical and Ratio analysis

1.3 Methodology of the Report

From my regular experience I have selected RAK Ceramics Ltd. and made this report but I’ve
collected some data from different external sources.
According to those sources I can category those sources-

Primary Source:
 On the job Experience
 Global Report
 Information from discussion with colleague
Secondary Source:
 Annual Report of RAK Ceramics Ltd.
 Journals and Financial Portal like Investopedia, Economic Times, The Daily Star etc.

1.4 Limitations of the Report

 The limitations I have face during making this report
 The data and information is based on company’s annual report.
 Some data was too confidential to collect.
 Updated data may vary the output of the report
 Limited time is also worked as a constrain.

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CHAPTER 2
THEORITICAL OVERVIEW

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2.1 Horizontal Analysis
A horizontal analysis, or trend analysis, is a procedure in fundamental analysis in which an analyst
compares ratios or line items in a company's financial statements over a certain period of time.

2.2 Vertical Analysis

Vertical analysis is a method of financial statement analysis in which each entry for each of the
three major categories of accounts, or assets, liabilities and equities, in a balance sheet is
represented as a proportion of the total account.

2.3 Ratio Analysis

A ratio analysis is a quantitative analysis of information contained in a company's financial
statements. Ratio analysis is used to evaluate various aspects of a company's operating and
financial performance such as its efficiency, liquidity, profitability and solvency.

2.4 Profitability Ratio

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 you have deducted all costs and expenses related to earning the income.
The formulas you are about to learn can be used to judge a company's performance and to compare
its performance against other similarly-situated companies.

2.5 Gross Margin

Gross margin tells you about the profitability of your goods and services. It tells you how much it
costs you to produce the product. It is calculated by dividing your gross profit (GP) by your net
sales (NS) and multiplying the quotient by 100:

Gross Margin = Gross Profit/Net Sales * 100

GM = GP / NS * 100

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2.6 Operating Margin
Operating margin takes into account the costs of producing the product or services that are
unrelated to the direct production of the product or services, such as overhead and administrative
expenses. It is calculated by dividing your operating profit (OP) by your net sales (NS) and
multiplying the quotient by 100:

Operating Margin = Operating Profit / Net Sales * 100

OM = OP / NS * 100

2.7 Return on Assets

Return on assets measures how effectively the company produces income from its assets. You
calculate it by dividing net income (NI) for the current year by the value of all the company's assets
(A) and multiplying the quotient by 100:

Return on Assets = Net Income / Assets * 100

ROA = NI/A * 100

2.8 Return on Equity

Return on equity measures how much a company makes for each dollar that investors put into it.
You calculate it by taking the net income earned (NI) by the amount of money invested by
shareholders (SI) and multiplying the quotient by 100:

Return on Equity = Net Income / Shareholder Investment * 100

ROE = NI / SI * 100

2.9 Net Profit Margin

Net profit margin is the percentage of revenue remaining after all operating expenses, interest,
taxes and preferred stock dividends (but not common stock dividends) have been deducted from a
company's total revenue.

Net Profit Margin = Net Profit after tax/Total Revenue

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2.10 EBITDA Margin
EBITDA margin is a measurement of a company's operating profitability as a percentage of its
total revenue. It is equal to earnings before interest, tax, depreciation and amortization (EBITDA)
divided by total revenue. Because EBITDA excludes interest, depreciation, amortization and taxes,
EBITDA margin can provide an investor, business owner or financial professional with a clear
view of a company's operating profitability and cash flow

EBITDA Margin = (Operating Profit + Amortization Expense + Depreciation Expense)/Total

Revenue

2.11 Current Ratio

The current ratio is a financial ratio that investors and analysts use to examine the liquidity of a
company and its ability to pay short-term liabilities (debt and payables) with its short-term assets
(cash, inventory, receivables). The current ratio is calculated by dividing current assets by current
liabilities:

Current Ratio = Current Assets ÷ Current Liabilities

2.12 Quick Ratio

The quick ratio is a measure of how well a company can meet its short-term financial liabilities.
Also known as the acid-test ratio, it can be calculated as follows:

(Cash + Marketable Securities + Accounts Receivable) / Current Liabilities

A common alternative quick ratio formula is:

(Current assets – Inventory) / Current Liabilities

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2.13 Cash conversion cycle
The Cash conversion cycle (CCC) measures how long a firm will be deprived of cash if it increases
its investment in resources in order to expand customer sales. It is thus a measure of the liquidity
risk entailed by growth. However, shortening the CCC creates its own risks: while a firm could
even achieve a negative CCC by collecting from customers before paying suppliers, a policy of
strict collections and lax payments is not always sustainable.
CCC = days between disbursing cash and collecting cash in connection with undertaking a
discrete unit of operations.

2.14 Debt/Equity Ratio

Debt/Equity (D/E) Ratio, calculated by dividing a company’s total liabilities by its stockholders'
equity, is a debt ratio used to measure a company's financial leverage. The D/E ratio indicates how
much debt a company is using to finance its assets relative to the value of shareholders’ equity.
The formula for calculating D/E ratios is:

Debt/Equity Ratio = Total Liabilities / Shareholders' Equity

2.15 Net Asset Value

Net asset value(NAV) is the value of a fund's asset less the value of its liabilities per unit.

NAV = (Value of Assets-Value of Liabilities)/number of units outstanding

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2.16 Earnings Per Share (EPS)
Earnings per share or EPS is an important financial measure, which indicates the profitability of a
company. It is calculated by dividing the company's net income with its total number of
outstanding shares. It is a tool that market participants use frequently to gauge the profitability of
a company before buying its shares.

EPS = Net profit after tax / Number of share outstanding

2.17 Price-Earnings Ratio - P/E Ratio

The price-earnings ratio (P/E ratio) is the ratio for valuing a company that measures its current
share price relative to its per-share earnings. The price-earnings ratio is also sometimes known as
the price multiple or the earnings multiple.

Market Value per Share / Earnings per Share

2.18 Earnings Yield

Earnings yield are the earnings per share for the most recent 12-month period divided by the
current market price per share. The earnings yield (which is the inverse of the P/E ratio) shows the
percentage of each dollar invested in the stock that was earned by the company. The earnings yield
is used by many investment managers to determine optimal asset allocations.

2.19 Dividend Payout Ratio

The dividend payout ratio is the amount of dividends paid to stockholders relative to the amount
of total net income of a company. The amount that is not paid out in dividends to stockholders is
held by the company for growth. The amount that is kept by the company is called retained
earnings.

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2.20 Dividend Yield
Dividend yield is the financial ratio that measures the quantum of cash dividends paid out to
shareholders relative to the market value per share. It is computed by dividing the dividend per
share by the market price per share and multiplying the result by 100.

2.21 Free Cash Flow Per Share

Free cash flow per share is a measure of a company's financial flexibility that is determined by
dividing free cash flow by the total number of shares outstanding. This measure serves as a proxy
for measuring changes in earnings per share.

2.22 Return on Invested Capital

Return on invested capital (ROIC) is a profitability ratio. It measures the return that an investment
generates for those who have provided capital, i.e. bondholders and stockholders. ROIC tells us
how good a company is at turning capital into profits.

ROIC = (Net income - Dividends) / (Debt + Equity)

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CHAPTER THREE
ANALYSIS

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3.1 Industry Outlook
The ceramics industry is a booming manufacturing sector in Bangladesh. Over the years the
industry has flourished immensely. While it caters to 85 percent of the local demand it also exports
quality ceramic products to international markets. The growth trend is an indication of the
industry's potential to be one of the top foreign exchange earners of the country.

The ceramics industry in Bangladesh started its journey in 1958 with the establishment of a small
manufacturing plant for porcelain tableware by Tajma Ceramic Industries in Bagura. Currently,
there are more than 60 ceramic manufacturers in the country. Another 20 will hit the market by
June 2018.

The local ceramics industry mainly produces tiles, tableware and sanitary ware. According to
Bangladesh Ceramics Manufacturers and Exporters Association (BCMEA), the yearly production
capacity of the local ceramics industry is as follows: tableware (250 million pieces), tiles (120
million square metres) and sanitary ware (7.5 million pieces). Value addition in ceramics stands at
nearly 65 percent. To cater to the increasing demand of ceramic products all major Bangladeshi
ceramic companies have been expanding their plants and operations. The local industry is also
actively exploring the potential of manufacturing advanced ceramic products such as industrial
ceramics for spinning and textile factories, medical ceramics, ceramic plate for bulletproof jackets,
and so on.

Currently, more than 500,000 people are engaged in the local ceramics industry. To create skilled
manpower for the sector specialised departments and institutes have been established in the leading
universities of the country such as the department of glass and ceramic engineering (GCE) in
Bangladesh University of Engineering and Technology, Rajshahi University of Engineering and
Technology, Bangladesh Institute of Glass & Ceramics, Faculty of Fine Arts in Dhaka University,
and so on.

Bangladesh's ceramics industry has carved a niche in the global market. According to BCMEA,
the industry earns more than USD 42 million through export. Of the different ceramic products,
tableware is exported to more than 50 countries including the US, Canada, European Union,
Australia; tiles to India, Nepal and Bhutan; and sanitary ware to the Middle East, especially to the
UAE. Tableware accounts for more than 90 percent of Bangladesh's ceramics export.

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One of the main challenges to the growth of the ceramics industry is inadequate supply of natural
gas. Natural gas is not only the key energy source for the industry but also crucial for maintaining
quality of the products as the local natural gas does not contain any sulphur which makes locally
produced ceramic products look brighter and shiny. Shirajul Islam Mollah MP, President of
BCMEA, shares that the government has assured them of resolving the crisis by June or July next
year when liquefied natural gas (LNG) will come into operation. It will reduce the burden on the
natural gas reserve and productive sectors, and the ceramics industry in particular will receive
supply of grid-gas.

There is shortage of raw materials for ceramic goods in Bangladesh and manufacturers are heavily
dependent on imported raw materials. Moreover, the ceramic companies have to bear a huge
amount of cost due to duties and advance income tax on import of these raw materials. The ceramic
manufacturers urge the government for zero-duty benefits on import of raw materials and 25
percent incentive on exports like the garments industry.

Bangladesh's ceramics industry has experienced 200 percent growth in production in the last five
years. This growth momentum is expected to sustain for a considerable period of time thanks to
the robust development of the real estate sector and rising living standard of the people in the
country. The industry is also positioned to expand rapidly in the global market with its high-quality
products, low labour costs and creative entrepreneurs. Traditional manufacturers of ceramics such
as Italy and Spain have been experiencing difficulties in remaining competitive due to rising labour
cost and the ongoing global financial crisis. Therefore, more orders are being placed to low-cost
countries like Bangladesh. In terms of quality Bangladeshi ceramics can easily compete with the
products of its close competitors China and India. Now, if the industry gets proper incentives and
support from the government, it has all the potential to be one of the top ceramics-exporting
countries in the world. Much like the garments industry this would be another manufacturing
success for Bangladesh.

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3.2 Company Outlook
RAK Ceramics (Bangladesh) Limited is the country’s largest and most respected tiles and sanitary
ware brand. The Company was incorporated in Bangladesh on 26 November, 1998 as a private
limited company under the Companies Act, 1994 as a UAE-Bangladesh joint venture project. It
has started its commercial production on 12 November 2000. It has converted into public limited
company on 10 June 2008 and listed in the stock exchanges of Bangladesh on 13 June 2010. The
Company has anchored this position on the basis of its market-leading capacities, world- class
manufacturing assets, high production utilization, optimized cost structures, vibrant sales and
distribution network and robust customer engagement programs. The core business of RAK
Ceramics (Bangladesh) Limited is to manufacture and sell of ceramics and gres porcellanato
(Porcelain/ fully vitrified) tiles, bathroom sets and all types of sanitary ware. The Company has
over 2,500 models active in the ceramic and porcelain tile business and regularly adds several new
designs to the product portfolio. The Company manufactures tiles in a very wide range of tiles in
the sizes from 20 cm X 30 cm up to 60 cm X 60 cm in Bangladesh location. The Company has
over 30 models an exclusive range of sanitary ware to offer with a very wide choice. In sanitary
ware various models are produced in wash basins (mounted as well as pedestal), water closets,
accessories and marble sets. Besides, the product mix is geared to produce mostly value added
products. This paired with the other advantages will ensure a shrunken payback cycle. Production
is mostly consumed in local market.

3.3 Vision
Our vision is to be the world’s leading ceramics lifestyle solutions provider.

3.4 Mission
Our mission is to foster an internal culture that we are committed to our vision of becoming the
world’s leading ceramics lifestyle solutions provider and we will achieve this by utilizing our
experience, our wide product range, our innovative approach and continuing to deliver quality.
We want to build a world class organization. We have applied our expertise in some of the most
iconic and innovative projects around the world and we aim to continue to push the boundaries in
new and exciting projects as we move forwards.

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3.5 RAK Ceramics growth enablers
 Premium brands
 Expansive product portfolio
 Focus on innovation and technology
 Attentive customer service
 Skilled employees, best practices
 Loyal and trusted trade channel distribution
 Financial conservatism

At RAK Ceramics (Bangladesh), all of these elements underpin a strong and sustainable
competitive advantage, a stable earnings profile and a platform for compelling growth options.

3.6 RAK Ceramics growth strategy

We seek above-market growth rates by:

 Extending our market leading product positions to newer customers in newer geographies
 Transferring our core marketing, sales and supply chain capabilities to provide full-fledged
home and office improvement solutions
 Continuing to seek low-risk business opportunities that enable high customer value-
addition
 Focusing on organic growth through debottlenecking and strategic capacity expansion

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3.7 Management of RAK Ceramics
Chairman
Mr. Abdallah Massaad
Managing Director Director
Mr. S.A.K. Ekramuzzaman Mr. Pramod Kumar Chand
Independent Directors Chief Executive Officer
Mr. Faheemul Huq, Barrister-at-Law Mr. Imtiaz Hussain
Mr. Wassim Moukahhal
Chief Financial Officer Company Secretary
Mr. Kaushik Das Mr. Muhammad Shahidul Islam FCS

3.8 Award & Recognition

ICAB AWARD
RAK Ceramics (Bangladesh) Limited placed
in the 1st position in “16th, 13th, 12th & 11th
ICAB National Awards” for best presented
Annual Reports over the years under the
manufacturing category from the Institute of
Chartered Accountants of Bangladesh
(ICAB).
SAFA AWARD
South Asian Federation of Accountants
(SAFA) awarded the Certificate of Merit in the
manufacturing sector for the Best Presented
Annual Report 2012, 2011 & 2010 to RAK
Ceramics (Bangladesh) Limited.

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3.9 Associate Companies
1. RAK Ceramics (Bangladesh) Limited
2. RAK Power Pvt. Ltd.
3. RAK Security and Services (Pvt.) Ltd.

4.10 Market Price Movement

Market price movement of RAK ceramics during last five years are as follows:

RAK Ceramics Market Price

66.9
61.9
56.8 57.7 58.9
53.3

2012 2013 2014 2015 2016 2017

(NOVEMBER)

Over the last five years’ companies market price fluctuated from Tk. 53 to Tk. 67. The highest price in last
five years was in 2015 and lowest was in 2013. Till November 2017 the companies price was Tk. 58.9 per
share.

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3.11 Capacity Utilization

The company has a capacity

installed 10 MW to support its Capacity Utilization in 2016 (Kwh)
production. The company has
utilized 85% of its capacity for
production and 15% has
unutilized. According to the Unutilized
demand the company has Utilized

sufficient production capacity till

now.

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3.12 Horizontal Analysis
A horizontal analysis is a procedure in fundamental analysis in which an analyst compares ratios
or line items in a company's financial statements over a certain period of time. The analyst will
use his or her discretion when choosing a particular timeline; however, the decision is often based
on the investing time horizon under consideration.

Horizontal analysis of the balance sheet or income statement is usually in a two-year format, with
a variance showing the difference between the two years for each line item. An alternative format
is to add as many years as will fit on the page, without showing a variance, so that you can see
general changes by account over multiple years.

A horizontal analysis of RAK Ceramics Balance Sheet and Income Statement as of year 2012 to
2016 are shown below:

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 RAK Ceramics (Bangladesh) Ltd.
Consolidated statement of Financial Position
2012 2013 2014 2015 2016
Assets
Property, plant and equipment 100% -9% -33% -23% 33%
Equity-accounted investees 100% -13% -72% 0% 0%
Intangible assets 100% -6% -96% -94% -94%
Capital work-in-progress 100% 13% 834% 4892% -7%
Loan to associate 100% 2623% 731% 0% 0%
Trade and other receivables 100% 0% 0% 56% -22%
Total non-current assets 100% -10% -30% 20% 23%
Inventories 100% 12% 3% 26% 42%
Trade and other receivables 100% -10% -7% 3% 0%
Loan to disposed subsidiary 100% 642% 748% 4110% 4110%
Advances, deposits and prepayments 100% 6% 69% 56% 87%
Advance income tax 100% 27% 54% 70% 91%
Cash and cash equivalents 100% 51% 49% 11% -19%
Total current assets 100% 21% 45% 37% 43%
Total assets 100% 9% 15% 30% 35%

Equity
Share capital 100% 10% 21% 21% 21%
Share premium 100% 0% 0% 0% 0%
Retained earnings 100% -1% -17% -8% -2%
Equity attributable to equity holders of the company 100% 5% 7% 9% 10%
Non-controlling interests 100% -76% -154% -100% -100%
Total equity 100% 3% 4% 7% 8%
Liabilities
Borrowings 100% 0% -100% 2165% 3104%
Deferred tax liability 100% -22% -35% -37% 6%
Total non-current liabilities 100% -19% -44% 255% 418%
Employees benefit payable 100% 40% 226% 20% -84%
Borrowings 100% 19% -17% 98% 46%
Trade and other payables 100% 41% 80% 224% 198%
Accrued expenses 100% 142% 10% 14% 59%
Provision for income tax 100% 26% 50% 77% 98%
Total current liabilities 100% 23% 44% 72% 76%
Total liabilities 100% 21% 39% 82% 94%
Total equity and liabilities 100% 9% 15% 30% 35%

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 RAK Ceramics (Bangladesh) Ltd.
Consolidated statement of Profit & Loss
2012 2013 2014 2015 2016
Sales 100% -4% 3% 3% 15%
Cost of sales 100% -3% 3% -3% 9%
Gross profit 100% -4% 2% 12% 25%
Other income 100% -28% -63% 8689% -68%
Administrative expenses 100% -18% -14% 189% 20%
Marketing and selling expenses 100% -33% -9% -6% -4%
100% -29% -10% -31% 4%
Profit from operating activities 100% 24% 16% 60% 48%
Finance income 100% 27% 25% -12% -80%
Finance expenses 100% -50% -70% -27% 55%
Net finance income 100% 52% 57% -8% -125%
Share of profit/(loss) of equity-accounted investees 100% -32% -19% -72% -100%
Profit before contribution to WPPF 100% 30% 22% 65% 46%
Contribution to WPPF 100% 3% -15% -53% 6%
Profit before income tax 100% 32% 25% 73% 48%
Income tax expense
Current tax 100% 4% 18% 5% -18%
Deferred tax 100% 99% 18% -81% -490%
100% 0% 18% 8% 0%
Profit for the year 100% 55% 30% 119% 83%

EPS 100% -7% -23% 49% 25%

According to the horizontal analysis of RAK ceramics balance sheet, it is observed that the company
has acquired 33% more fixed assets in 2016 than that of 2012. Company provided loans to its
associates in 2013 and 2014 which is reduced to 0% in 2016. It is observed that the share capital of
the company has increased 10% in 2013 and then increased 21% in the following years and continues
at that level in 2016. Companies long-term liability has increased 3104% in 2016 than that of 2012.
Companies current liability has also increased 46% during this period in compare to 2012.

According to the horizontal analysis of RAK ceramics income statement, it is observed that the
company’s sales has increased to 15% in 2016 in compare to 2012. Increase in sales enhances the
gross and operating profit of the company at 25% and 48% respectively in 2016 than that of 2012. The
companies EPS has also increased at 25% till 2016 from 2012.

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3.13 Vertical Analysis
Vertical analysis is the proportional analysis of a financial statement, where each line item on a
financial statement is listed as a percentage of another item. Typically, this means that every line
item on an income statement is stated as a percentage of gross sales, while every line item on a
balance sheet is stated as a percentage of total assets.

The most common use of vertical analysis is within a financial statement for a single time period,
so that one can see the relative proportions of account balances. Vertical analysis is also useful for
timeline analysis, to see relative changes in accounts over time, such as on a comparative basis
over a five-year period. For example, if the cost of goods sold has a history of being 40% of sales
in each of the past four years, then a new percentage of 48% would be a cause for alarm.

A vertical analysis of RAK Ceramics Balance Sheet and Income Statement as of year 2012 to 2016
are shown below:

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 RAK Ceramics (Bangladesh) Ltd.
Consolidated statement of Financial Position
2012 2013 2014 2015 2016
Assets
Property, plant and equipment 36% 30% 21% 21% 36%
Equity-accounted investees 1% 1% 0% 0% 0%
Intangible assets 1% 1% 0% 0% 0%
Capital work-in-progress 0% 0% 3% 14% 0%
Investment in shares of listed companies 0% 0% 0% 0% 0%
Loan to associate 0% 1% 0% 0% 0%
Trade and other receivables 1% 0% 0% 1% 1%
Total non-current assets 40% 34% 25% 37% 37%
Inventories 22% 22% 19% 21% 23%
Trade and other receivables 8% 6% 6% 6% 6%
Loan to disposed subsidiary 0% 0% 0% 2% 2%
Advances, deposits and prepayments 3% 3% 4% 3% 4%
Advance income tax 16% 18% 21% 21% 22%
Cash and cash equivalents 12% 17% 16% 10% 7%
Assets held for sale 0% 0% 9% 0% 0%
Total current assets 60% 66% 75% 63% 63%
Total assets 100% 100% 100% 100% 100%

Equity
Share capital 34% 34% 36% 31% 30%
Share premium 18% 16% 16% 14% 13%
Retained earnings 16% 14% 11% 11% 11%
Equity attributable to equity holders of the company 67% 65% 62% 56% 55%
Non-controlling interests 1% 0% -1% 0% 0%
Total equity 69% 65% 62% 56% 55%
Liabilities
Borrowings 0% 0% 0% 4% 5%
Deferred tax liability 1% 1% 1% 1% 1%
Total non-current liabilities 2% 1% 1% 5% 6%
Employees benefit payable 0% 0% 1% 0% 0%
Borrowings 5% 5% 3% 7% 5%
Trade and other payables 2% 3% 4% 6% 5%
Accrued expenses 2% 5% 2% 2% 2%
Provision for income tax 18% 20% 23% 24% 26%
Provision for royalty and technical know-how fee 3% 0% 0% 0% 0%
Liabilities held for sale 0% 0% 4% 0% 0%
Total current liabilities 30% 34% 37% 39% 39%
Total liabilities 31% 35% 38% 44% 45%
Total equity and liabilities 100% 100% 100% 100% 100%

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 RAK Ceramics (Bangladesh) Ltd.
Consolidated statement of Profit & Loss
2012 2013 2014 2015 2016
Sales 100% 100% 100% 100% 100%
Cost of sales -61% -61% -61% -57% -57%
Gross profit 39% 39% 39% 43% 43%
Other income 0% 0% 0% 17% 0%
Administrative expenses -6% -5% -5% -17% -6%
Marketing and selling expenses -15% -10% -13% -14% -12%
-21% -15% -18% -14% -19%
Profit from operating activities 19% 24% 21% 29% 24%
Finance income 2% 3% 3% 2% 0%
Finance expenses -1% 0% 0% 0% -1%
Net finance income 2% 2% 2% 1% 0%
Share of profit/(loss) of equity-accounted investees -1% -1% -1% 0% 0%
Profit before contribution to WPPF 19% 25% 22% 30% 24%
Contribution to WPPF -1% -1% -1% -1% -1%
Profit before income tax 17% 24% 21% 29% 22%
Income tax expense 0% 0% 0% 0% 0%
Current tax -8% -8% -9% -8% -5%
Deferred tax 0% 1% 0% 0% -1%
-7% -8% -8% -8% -6%
Profit for the year 10% 16% 13% 22% 16%

According to the vertical analysis of RAK ceramics balance sheet, it is observed that the company
maintains more than 60% current asset of total asset over the last five years. The company has
invested 2% of total asset in associate companies in 2015 and 2016. The company has 4% and 5% long-
term debt of total assets in 2015 and 2016. The company is keeping 11% of total asset as retained
earnings in last three years.

According to the vertical analysis of RAK ceramics income statement, it is observed that the company
has 61% cost of sales of total sales in 2012 to 2014 which reduces at 57% in 2015 and 2016. The
company has managed a 10% to 22% net profit of total sales over the years.

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3.14 Ratio Analysis
A ratio analysis is a quantitative analysis of information contained in a company’s financial
statements. Ratio analysis is based on line items in financial statements like the balance sheet,
income statement and cash flow statement; the ratios of one item – or a combination of items - to
another item or combination are then calculated. Ratio analysis is used to evaluate various aspects
of a company’s operating and financial performance such as its efficiency, liquidity, profitability
and solvency.

The trend of these ratios over time is studied to check whether they are improving or deteriorating.
Ratios are also compared across different companies in the same sector to see how they stack up,
and to get an idea of comparative valuations. Ratio analysis is a cornerstone of fundamental
analysis.

Ratio analysis of RAK Ceramics for the year of 2012 to 2016 are given below:

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 Company Metrics
Metrics/Year 2012 2013 2014 2015 2016
Liquidity & Solvency
Current Ratio 2.00 1.97 2.01 1.60 1.63
Quick Ratio 1.28 1.31 1.49 1.07 1.04
Cash Conversion Cycle (Days) 240 260 218 248 257
Debt to Equity Ratio 46% 54% 62% 78% 83%
Cash Ratio 26% 30% 17% 22% 26%
Profitability
Gross Margin 39% 39% 39% 43% 43%
Operating Margin 19% 24% 21% 29% 24%
Net Margin 10% 16% 13% 22% 16%
EBITDA Margin 26% 31% 26% 34% 31%
Cash to Sales 13% 19% 12% 18% 19%
Asset Utilization
Basic Earning Power 11% 13% 11% 14% 12%
Asset Utilization 59% 53% 53% 47% 51%
Investment Valuation
Return on Assets 6% 9% 7% 10% 8%
Return of Equity 9% 13% 11% 18% 15%
Return on Invested Capital 9% 13% 11% 17% 14%
Cash to Invested Capital 11% 15% 11% 14% 16%
Free Cash Flow per Share 0.04 2.58 0.66 (2.63) 1.54
Market Capitalilzation (Tk. mn) 15,811 16,324 19,436 22,522 20,831
Earnings Yield 3.50% 3.81% 2.89% 4.86% 4.39%
Dividend Payout 0.75 0.74 1.50 0.77 0.74
Dividend Yield 3% 3% 4% 4% 3%
Price Earning Multiple (Restated 28 Nov) 28.54 26.26 34.55 20.58 22.76
Earnings Per Share (Restated) 1.99 2.03 1.67 3.25 2.72
Net Assets Value Per Share (Restated) 18.13 17.27 17.57 17.93 18.14

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 PROFITABILITY RATIOS
Gross Margin Operating Margin Net Margin EBITDA Margin

43%

43%
39%

39%
39%

34%

31%
31%

29%
26%
26%

24%
24%

22%
21%
19%

16%

16%
13%
10%

2012 2013 2014 2015 2016

RAK ceramics has 39% gross margin of its turnover in 2012 to 2014 which increased at 43% in 2015
and carried in 2016. Operating margin of RAK ceramics is in between 19% to 29% in last five years.
Net margin of RAK ceramics is 15% on an average in last five years with a volatility of 4%. Companies
EBITDA margin fluctuated between 26% to 31% during 2012 to 2016.

Return on Assets Return of Equity Return on Invested Capital

18%
13%
11% 15%
13% 17% 14%
9%
11%
10%
9% 9% 8%
6% 7%

2012 2013 2014 2015 2016

The average return on Asset for RAK Ceramics is 8% with a volatility of 2% in last five years. ROE
of RAK ceramics has increased from 9% to 15% in last 5 years with an average growth rate of 20%.
Whereas, ROI of RAK ceramics is at 14% from 9% during 2012 to 2016. ROI and ROE of RAK
ceramics is in a parallel movement since 2012.

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 Liquidity (Cash) Ratios
Cash Conversion Cycle (Days) Cash Ratio Cash to Sales Cash to Invested Capital
Days
190 200 210 220 230 240 250 260 270

30%
26% 22% 26%
17% 18% 19%
19%
13% 12% 16%
15% 14%
11% 11%

2012 2013 2014 2015 2016

Over the years it is observed that RAK ceramics has maintained its liquidity ratio. The company has
an average 245 days to convert its sales into cash. Company maintained its cash to current liability at
24% with 5% volatility. Beside these RAK ceramics maintain its cash to sales ratio at 16% with only
3% volatility. RAK ceramics maintain on an average 14% cash to its invested capital over the years.

Earnings Per Share Net Assets Value Per Share

3.25
18.13 18.14
2.72
17.93
1.99 2.03
1.67 17.57
17.27

2012 2013 2014 2015 2016 2012 2013 2014 2015 2016

RAK Ceramics Ltd. has experienced 64% NAV of RAK ceramics has declined in 2013 from
volatility in EPS during 2012 to 2016. Average 18.13 to 17.27 which is returned to 18.14 in 2016.
EPS is Tk. 2.33 in this period and 37% growth During 2012 to 2016 there was only 0.06%
observed from 2012 to 2016. growth in NAV which is very low.

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CHAPTER FOUR
FINDINGS AND RECOMMENDATION

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4.1 Findings
Major findings of the study are as follows:
 According to the Horizontal Analysis RAK Ceramics Ltd. is increasing its both current and
non-current assets since 2012.
 In last 2 years RAK Ceramics has taken some fresh long term loan and short term loan.
 The company increased its share capital in last five years along with increasing fixed assets
and long-term debt which ultimately increases its equity to shareholders.
 According to the horizontal analysis of RAK ceramics income statement, companies cost
of goods sold was negative in respective to 2012 till 2015. In year 2016 cost of goods sold
increased to 9%.
 According to the vertical analysis long-term loan taken by RAK Ceramics in year 2015
and 2016 which is 4% and 5% respectively of total assets of the company. During this
year’s company has 10% and 7% cash in hand which indicates company can easily repay
its long-term debt burden.
 Cost of goods sold of RAK ceramics is 39% to 43% of its total sales over the last 5 years.
 RAK Ceramics secures 10% to 22% Net profit of its total sales over the years.
 RAK ceramics cash conversion cycle is very high, this cycle is last 260 days in 2013 which
is the highest and the lowest is 218 days in 2013.
 Company maintains a 20% to 26% cash ratio to its current liability, which indicates
company has material cash to support its regular working capital.
 Companies EBITDA margin is around 26% to 34% which shows a good profit margin for
the company. Besides companies operating margin fluctuated from 19% to 29% and its net
margin is in between 10% to 22% over the years.
 The company on an average utilizes its asset to 53% in last five years, which indicates
company has additional assets to support its increased demand.
 Companies market capitalization is increasing over the year and keeps its price earning
multiple at 26% on an average in last five years.
 Companies dividend yield is around 3.5% and payout is 0.75 over the last four years.
 Company should try to increase its net margin to ensure more profitability to its
shareholders.
 Company should supply additional capital from its retain earnings instead of taking loans.

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4.2 Recommendations
Some important recommendations have been made as per the study. These are as follows:

 RAK ceramics is currently using 85% of its total production capacity, they should make
proper uses of their installed capacity to support its additional demand.
 In 2016 companies cost of goods sold increases to 9% than that of 2012. Company should
control its cost of goods sold and find a way to minimize.
 Company should try to reduce its cash conversion cycle from 260 days.
 Currently company maintains 26% cash to its current liability, company should maintain
its cash ratio to support its working capital.

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Conclusion
Bangladesh ceramics industry is a highly potential industry. Over the years it makes it mark in
Bangladesh economy. In last five years this industry experienced 200% growth. Currently
Bangladesh ceramic industry has 60 ceramics manufacturer which supplies 85% of local demand
and working more than 500,000 people in this industry.

RAK Ceramics is one of the largest ceramics manufacturer in Bangladesh. It is a joint venture with
UAE based company. The core business of RAK Ceramics (Bangladesh) Limited is to
manufacture and sell of ceramics and gres porcellanato (Porcelain/ fully vitrified) tiles, bathroom
sets and all types of sanitary ware. The Company has over 2,500 models active in the ceramic and
porcelain tile business and regularly adds several new designs to the product portfolio. RAK
Ceramics has awarded with SAFA and ICAB several awards over the years.

According to the financial analysis of the company, it is observed the company has maintained a
sound financial position over the years. According to the horizontal analysis overall the company
observed growth in respect to 2012. The vertical analysis shows that the company recently
increases its long-term debt in recent time. But the company has sufficient cash and cash equivalent
to repay its debt. According to the Ratio analysis company maintain its profit margin at a stable
position with a little volatility. Company secure a 15% return for its equity holder in 2016 and
companies return on invested capital is around 14% in 2016. Companies liquidity ratio is also in a
stable position and its cash conversion cycle is very high. Over the year companies NAV is
increasing at a slower rate, where EPS was a little bit volatile in last five years.

RAK ceramics has great potential and has competitive advantage over its rival. RAK ceramics
should keep its financial position and maintain its growth to be on the leading position.

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Reference
1. Annual Report 2016, RAK Ceramics Ltd.
2. Annual Report 2015, RAK Ceramics Ltd.
3. Annual Report 2014, RAK Ceramics Ltd.
4. Annual Report 2013, RAK Ceramics Ltd.
5. Annual Report 2012, RAK Ceramics Ltd.
6. http://www.dsebd.org/
7. http://www.rclbd.co/
8. http://rakcerambd.com/
9. http://rakcerambd.com/investor-annual-reports.php
10. http://www.thedailystar.net/supplements/overview-bangladeshs-ceramics-industry-
1498489
11. http://rakcerambd.com/about-profile.php?id=15&type=Awards&page=1
12. https://www.investopedia.com/terms/h/horizontalanalysis.asp
13. https://www.investopedia.com/terms/v/vertical_analysis.asp
14. https://www.investopedia.com/terms/r/ratioanalysis.asp
15. https://study.com/academy/lesson/profitability-ratio-definition-formula-analysis-
example.html
16. http://www.investinganswers.com/financial-dictionary/financial-statement-analysis/net-
profit-margin-2233
17. https://www.investopedia.com/terms/e/ebitda-margin.asp

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