Term Paper

On
Financial Statement analysis of ACI ltd.

Submitted To
Mr. Tasnim Uddin Chowdhury
Assistant Professor
Finance Discipline
Department of Business Studies
Premier University, Chattogram

Submitted by
Arup Sinha
ID: 1503210108473
Section: Finance ‘B’
Batch: 32nd
Finance Discipline
Department of Business Studies
Premier University, Chattogram

Date of submission: 15th July 2020

1
 I

Letter of Transmittal

July 15, 2020

Mr. Tasnim Uddin Chowdhury

Assistant Professor

Finance Discipline

Subject: Submission of Report on “Financial Performance Analysis on ACI Limited”.

Dear Sir,

With due respect it is stated that I am submitting my Report on “Financial Performance Analysis
on ACI Limited”, which is the requirement for obtaining the degree of Bachelor of Business
Administration (BBA) offered by Premier University. It was a great experience for me to go
through the process, which reaffirm my theoretical knowledge into practice. Though my
knowledge is not enough, I tried my level best to make sure that project report has achieved its
purpose to an operative extent.

Please find enclose herewith one copy of project report for your recitation and kind
consideration. It will be delightful to me if you kindly accept my report.

Thanking You,

Sincerely yours

Name: Arup Sinha

Sec: Finance’ B’

Batch: 32nd

ID: 1503210108473

2
 II

Acknowledgement

As per decision of my supervisor Mr. Tasnim Uddin Chowdhury, I have prepared a Term Paper
on “Report on the Financial Performance Analysis of ACI Limited”. This paper serves good
efforts for analyzing this Paper questions and preparing the report. The mathematical
representation presents the how the students use the internet for their general purposes. It is
hopefully believed that this paper will be a strong foundation to procure knowledge.

First, I am grateful to Almighty for his kindness and helpful hand for completing my report.
Specially, I am thankful to my honorable faculty Mr. Tasnim Uddin sir who helped me in every
step of starting and completing my report properly. I also pay my indebtedness to those websites
that helped me by providing a lot of information. Without these help & support I could not be
able to complete this report successful.

However, one may find a very few unintentional human errors and editing mistakes. Apart from
correction any useful suggestions for the improvement will be received with thanks.

3
 III

Executive summary

In this competitive market of Bangladesh to sustain and being profitable is necessary. To do so, a
company must focus on its well management of financial assets and keep satisfying its
stockholders to. ACI Limited was established in 1992. ACI Agribusiness is the largest integrator
in Agriculture sector of Bangladesh, ACI Agribusiness deals with Crop Protection, Seed,
Fertilizer, Agri machineries, and Animal Health products and equipments, Fish and Poultry
medicine and feeds. It is also the most profitable business units of ACI Ltd after ACI
Pharmaceuticals. The main strength of ACI Limited is use of the assets in productive way, well
managed inventory and higher production capacity. In the bearish market ACI Limited is
offering very good return to the security holder which encouraging more investment.ACI Ltd.
has enough financial strength to expand its business in future. They have earned the faith of the
investors with its transparent financial system and ensuring the safe return of their precious
investment. In future ACI Limited will contribute more to the economy of Bangladesh by
expanding their business.

This term paper goes on the various factors on ACI Ltd. At first discussed about their
organizational overview, history, aim, mission, vision and methodology. Information has been
taken from secondary sources. Here there has been discussed about financial condition, financial
performance, Common size technique, trend analysis, ratio analysis on financial statement of
ACI Ltd. Here there goes discussion on its findings and recommendations with little knowledge
as also been put to improve and flourish their business as well as to have contribution in the
national economy in this way or in a better way. In a nutshell, a dissertation has been given from
a neutral view.

Finally I summed up the whole topic and specified them to different chapters and parts.

4
 IV
Table of contents

SL. No Particulars Page

no.
Chapter- 01 Introductory Aspects 07-09
1.1 Introduction 08

1.2 Scope of the study 08

1.3 Objectives of the study 08-09

1.4 Methodology of the study 09

1.5 Limitations of the study 09

Chapter- 02 Theoretical Aspects 10-27

2.1 Financial Statement 11

2.1.1 Users of Financial Statement Analysis 11-12

2.1.2 Types of Financial Statement Analysis 13-14

2.2 Financial Statement Analysis 14

2.2.1 Importance of Financial Statement Analysis 14-15
2.2.2 Limitations of Financial Statement Analysis 15-16
2.2.3 Types of Financial Statement Analysis
17
2.2.3.1 Financial ratio Analysis
17-23
2.2.3.2 Common size technique
23-25
2.2.3.3 Trend Analysis
26-27

Chapter- 03 Overview of the company(Part-A) 28-30

3.1 Background of the company 29

3.2 Vision 29

3.3 Mission 20

5
 3.4 Values 30

3.5 Sister concern of ACI 30

Chapter-03 Practical Aspects (Part-B) 31-44

3.6 Ratio Analysis 31-36

3.7 Trend analysis 37-39

3.8 Common size technique analysis 40-43

3.9 SWOT Analysis 43-44

Chapter-04 Conclusionary Aspects 45-46

4.1 Recommendations 46

4.2 Conclusion 46

Chapter- 05 Ending Matters 47-48

5.1 References 48

5.2 Bibliography 48

6
 Chapter-01
Introductory
Aspect

7
1.1 Introduction:
I, the student of Bachelor of business Administration (BBA) major in Finance, study the subject
related to business. As a student of finance background, we must analyze about companies in
real world. The project paper helps me to get this type of practical knowledge on doing analysis
of a company. University helps its students by providing this type of opportunity. There are lots
of financial institutions, business firms, industries etc. at home and abroad which provide us this
facility. If we do not attain this opportunity then there will be a huge gap between our study and
experience. This is a valuable art of study for us. We, the business students, usually do this by
taking 3-4 months. There are many organizations particularly the private sectors and
multinational business firms provide us this opportunity. In this respect, I have done my project
on ACI Pharmaceutical Ltd. In the business environment, at home and abroad there are lots of
financial institution, businesses, firms, and industries, which provide this facility towards us. If
we could not get this facility of doing a project paper then a wide gaps will take place between
our study and experience, I think this is a valuable part of study for us. We the students of
business do this usually by taking three months. In our country, there are many organizations
particularly the esteemed in the private sectors and elite business firms provide this. In this
respect, I have done my project paper on Financial Performance Analysis on ACI Pharmaceutical
Limited, one of the most renowned companies in Bangladesh. I am thankful to my honorable
faculty for giving me the opportunity.

1.2 Scope of the study:

The basic area for the report is analyzing the activities and performance of management
operation of ACI Pharmaceutical Limited. In this work the overall view of the financial
performance in according to pharmaceutical industry, history and Mechanism, policies of ACI
Pharmaceutical Limited and other activities are extensively analyzed and the findings are
clarified along with depth study.

1.3Objectives of the study:

The major objective of this report is to gather a practical knowledge of relating with the four-
year theoretical learning to business. Moreover, it is required to fulfill the bachelor program. The
objectives are:

8
  To understand and analyze the overall activities of ACI Pharmaceutical Limited.

 To study the operational efficiency of ACI Pharmaceutical Limited.

 To get an overall idea about the financial performance of ACI Pharmaceutical Limited.

 To know the investment schemes of ACI Pharmaceutical Limited.

1.4 Methodology of the study:

This report has been prepared based on experience gathered during the period of project paper.
For preparing this report, I studied different circulars and files of the organization. As well as, I
have searched about other organizations in this industry and collect financial data.

There is no primary data for the preparing the report.

Secondary Data Annual reports of ACI Limited

 Annual report of the company.

 Different books, training papers, manuals etc. related to the topic.

 Official Website of the Organization and others.

 Product details given by the organization.

1.5 Limitations of the study:

I had to face some limitations at the time of preparing this report. The present study was not out
of limitations. But as a project planner it was a great opportunity for me to know the activities of
ACI Limited. Some constraints are as follows:
 One of the major limitations is the shortage of project paper period. Since four month is
not enough to know everything of an Organization, so this report does not contain all the
area of ACI Limited.

9
  Another limitation is collecting the data from the organizations in the industry. It was
hard to collect all information of every organization within the stipulated time.
Because of the limitations of various sources of information, the report does not contain many
important information and data.

Chapter-02
Theoretical
Aspect

10
2.1 Financial Statement:

A financial statement (or financial report) is a formal record of the financial activities and

position of a business, person, or other entity.

Relevant financial information is presented in a structured manner and in a form easy to

understand. They typically include basic financial statements, accompanied by a management
discussion and analysis:

 A balance sheet or statement of financial position, reports on a

company's assets, liabilities, and owners’ equity at a given point in time.
 An income statement or statement of comprehensive income, statement of revenue &
expense, P&L or profit and loss report, reports on a company's income, expenses,
and profits over a period of time. A profit and loss statement provides information on the
operation of the enterprise. These include sales and the various expenses incurred during
the stated period.
 A Statement of changes in equity or equity statement or statement of retained earnings,
reports on the changes in equity of the company during the stated period.
 A cash flow statement reports on a company's cash flow activities, particularly its
operating, investing and financing activities.

For large corporations, these statements may be complex and may include an extensive set
of footnotes to the financial statements and management discussion and analysis. The notes
typically describe each item on the balance sheet, income statement and cash flow statement in
further detail. Notes to financial statements are considered an integral part of the financial
statements.

2.1.1 Users of financial statements:

11
There are many users of the financial statements produced by an organization. The following list
identifies the more common users and the reasons why they need this information:

 Company management: The management team needs to understand the profitability,

liquidity, and cash flows of the organization every month, so that it can make operational
and financing decisions about the business.
 Competitors: Entities competing against a business will attempt to gain access to its
financial statements, in order to evaluate its financial condition. The knowledge they gain
could alter their competitive strategies.
 Customers: When a customer is considering which supplier to select for a major contract,
it wants to review their financial statements first, in order to judge the financial ability of
a supplier to remain in business long enough to provide the goods or services mandated
in the contract.
 Employees: A company may elect to provide its financial statements to employees, along
with a detailed explanation of what the documents contain. This can be used to increase
the level of employee involvement in and understanding of the business.
 Governments: A government in whose jurisdiction a company is located will request
financial statements in order to determine whether the business paid the appropriate
amount of taxes.
 Investment analysts: Outside analysts want to see financial statements in order to decide
whether they should recommend the company's securities to their clients.
 Investors: Investors will likely require financial statements to be provided, since they are
the owners of the business and want to understand the performance of their investment.
 Lenders: An entity loaning money to an organization will require financial statements in
order to estimate the ability of the borrower to pay back all loaned funds and related
interest charges.
 Rating agencies: A credit rating agency will need to review the financial statements in
order to give a credit rating to the company as a whole or to its securities.
 Suppliers: Suppliers will require financial statements in order to decide whether it is safe
to extend credit to a company.

12
  Unions: A union needs the financial statements in order to evaluate the ability of a
business to pay compensation and benefits to the union members that it represents.

2.1.2 Types of financial statement:

The four main types of financial statements are:

 Balance sheet
Statement of Financial Position, also known as the Balance Sheet, presents the financial position
of an entity at a given date. It is comprised of the following three elements:
 Assets: Something a business owns or controls (e.g. cash, inventory, plant and
machinery, etc)
 Liabilities: Something a business owes to someone (e.g. creditors, bank loans, etc)
 Equity: What the business owes to its owners. This represents the amount of capital that
remains in the business after its assets are used to pay off its outstanding liabilities.
Equity therefore represents the difference between the assets and liabilities.

 Income Statement
Income Statement, also known as the Profit and Loss Statement, reports the company's financial
performance in terms of net profit or loss over a specified period. Income Statement is composed
of the following two elements:
 Income: What the business has earned over a period (e.g. sales revenue, dividend income,
etc)
 Expense: The cost incurred by the business over a period (e.g. salaries and wages,
depreciation, rental charges, etc)

Net profit or loss is arrived by deducting expenses from income.

13
  Cash Flow Statement
Cash Flow Statement, presents the movement in cash and bank balances over a period. The
movement in cash flows is classified into the following segments:

 Operating Activities: Represents the cash flow from primary activities of a business.
 Investing Activities: Represents cash flow from the purchase and sale of assets other than
inventories (e.g. purchase of a factory plant)
 Financing Activities: Represents cash flow generated or spent on raising and repaying
share capital and debt together with the payments of interest and dividends.

 Statement of Changes in Equity

Statement of Changes in Equity, also known as the Statement of Retained Earnings, details the
movement in owners' equity over a period. The movement in owners' equity is derived from the
following components:

 Net Profit or loss during the period as reported in the income statement
 Share capital issued or repaid during the period
 Dividend payments
 Gains or losses recognized directly in equity (e.g. revaluation surpluses)
 Effects of a change in accounting policy or correction of accounting error

2.2 Financial statement analysis

Financial statement analysis is the process of reviewing and analyzing a company's financial
statements to make better economic decisions to earn income in future. These statements include
the income statement, balance sheet, statement of cash flows, notes to accounts and a statement
of changes in equity (if applicable). Financial statement analysis is a method or process
involving specific techniques for evaluating risks, performance, financial health, and future
prospects of an organization.

It is used by a variety of stakeholders, such as credit and equity investors, the government, the
public, and decision-makers within the organization. These stakeholders have different interests

14
and apply a variety of different techniques to meet their needs. For example, equity investors are
interested in the long-term earnings power of the organization and perhaps the sustainability and
growth of dividend payments. Creditors want to ensure the interest and principal is paid on the
organizations debt securities (e.g. bonds) when due.

2.2.1 Importance of financial statement analysis:

The financial statement analysis is important for different reasons. The importance of financial
statement analysis can be presented as follows:

Holding of share: Shareholders are the owners of the company. Time and again, they
may have to take decisions whether they have to continue with the holdings of the
company's share or sell them out. The financial statement analysis is important as it
provides meaningful information to the shareholders in taking such decisions.
Decisions and Plans: The management of the company is responsible for taking
decisions and formulating plans and policies for the future. They, therefore, always need
to evaluate its performance and effectiveness of their action to realise the company's goal
in the past. For that purpose, financial statement analysis is important to the company's
management.
Extension of credit: The creditors are the providers of loan capital to the company.
Therefore they may have to take decisions as to whether they have to extend their loans
to the company and demand for higher interest rates. The financial statement analysis
provides important information to them for their purpose.
Investment decision: The prospective investors are those who have surplus capital to
invest in some profitable opportunities. Therefore, they often have to decide whether to
invest their capital in the company's share. The financial statement analysis is important
to them because they can obtain useful information for their investment decision making
purpose.

2.2.2 Limitations of financial statement analysis:

1. Not a Substitute of Judgement

15
An analysis of financial statement cannot take place of sound judgement. It is only a means to
reach conclusions. Ultimately, the judgements are taken by an interested party or analyst on his/
her intelligence and skill.

2. Based on Past Data

Only past data of accounting information is included in the financial statements, which are
analyzed. The future cannot be just like past. Hence, the analysis of financial statements cannot
provide a basis for future estimation, forecasting, budgeting and planning.

3. Problem in Comparability
The size of business concern is varying according to the volume of transactions. Hence, the
figures of different financial statements lose the characteristic of comparability.

4. Reliability of Figures
Sometimes, the contents of the financial statements are manipulated by window dressing. If so,
the analysis of financial statements results in misleading or meaningless.

5. Various methods of Accounting and Financing

The closing stock of raw material is valued at purchase cost. The closing stock of finished goods
is value at market price or cost price whichever is less. In general, the closing stock is valued at
cost price or market price which ever is less. It means that the closing stock of raw material is
valued at cost price or market price whichever is less. So; an analyst should keep in view these
points while making analysis and interpretation otherwise the results would be misleading.

6. Change in Accounting Methods

There must be uniform accounting policies and methods for number of years. If there are
frequent changes, the figures of different periods will be different and incomparable. In such a
case, the analysis has no value and meaning.

7. Changes in the Value of Money

The purchasing power of money is reduced from one year to subsequent year due to inflation. It
creates problems in comparative study of financial statements of different years.

16
8. Limitations of the Tools Application for Analysis
There are different tools applied by an analyst for an analysis. Even though, the application of a
particular tool or technique is based on the skill and experience of the analyst. If an unsuitable
tool or technique is applied, certainly, the results are misleading.

9. No Assessment of Managerial Ability

The results of the analysis of financial statements should not be taken as an indication of good or
bad management. Hence, the managerial ability can not be assessed by analysis.

10. Change of Business Condition

The conditions and circumstances of one firm can never be similar to another firm. Likewise, the
business condition and circumstances of one year to subsequent can never be similar. Hence, it is
very difficult for analysis and comparison of one firm with another.

2.2.3 Types of financial statements analysis:

Common methods of financial statement analysis include

 The use of financial ratios.

 Common size technique.

 Trend analysis.

Historical information combined with a series of assumptions and adjustments to the financial
information may be used to project future performance. The Chartered Financial Analyst
designation is available for professional financial analysts.

2.2.3.1 Financial ratio analysis

Financial ratios are useful tools that help companies and investors analyze and compare
relationships between different pieces of financial information across an individual company's
history, an industry, or an entire business sector. Numbers taken from a company's income
statement, balance sheet, and cash flow statement allow analysts to calculate several types of
financial ratios for different kinds of business intelligence and information.

17
Financial ratio analysis can provide meaningful information on company performance to a firm's
management as well as outside investors. Calculating the ratios is relatively easy; understanding
and interpreting what they say about a company's financial status takes a bit more work. Ratios
serve as a comparative tool of analysis for liquidity, profitability, debt, and asset management,
among other categories—all useful areas of financial statement analysis.

Companies typically start with industry ratios and data from their own historical financial
statements to establish a basis for ratio comparison. Analysts compare the ratios for a given firm
to the ratios of other firms in the same industry and against previous quarters or years of
historical data for the firm itself.

Performing an accurate financial ratio analysis and comparison helps companies gain insight into
their financial position so that they can make necessary financial adjustments to enhance their
financial performance.

 Types of financial ratios:

 Liquidity Ratios:
Current assets
 Current Ratio=
Current liabilities
It’s a measures a company’s ability to meet short term obligations with short term assets, a useful
indicator of cash flow in the near future. A social enterprise needs to ensure that it can pay its
salaries, bills and expenses on time. Failure to pay loans on time may limit your future access to
credit and therefore your ability to leverage operations and growth. The one problem with the
current ratio is that it does not take into account the timing of cash flows.

Quick assets
 Quick Ratio (Acid-Test Ratio) =
Current liabilities
A more stringent liquidity test that indicates if a firm has enough short-term assets (without
selling inventory) to cover its immediate liabilities. This is often referred to as the “acid test”
because it only looks at the company’s most liquid assets only (excludes inventory) that can be
quickly converted to cash). A ratio of 1:1 means that a company can pay its bills without having
to sell inventory.

18
 Activity Ratios:

Sales∨Revenue
 Inventory Turnover Ratio =
Inventory
It is the calculation the number of times inventory is turning over into sales during the year or
how many days it takes to sell inventory. This is a good indication of production and purchasing
efficiency. A high ratio indicates inventory is selling quickly and that little unused inventory is
being stored (or could also mean inventory shortage). If the ratio is low, it suggests overstocking,
obsolete inventory or selling issues.

Sales∨revenue
 Total Asset Turnover Ratio=
Total assets

Total Asset Turnover Ratio is the company's total revenue, the invoice, cash payments and other
revenues. Total Asset Turnover Ratio represents the value of goods and services provided to
customers during a specified time period -usually one year. How efficiently a business generates
sales on each currency of assets. An increasing ratio indicates a company is using its assets more
productively.

Accounts receivables
 Days Sales Outstanding (DSO) = × No. of Days
Total sales

It is a measurement of the average number of days that a company takes to collect revenue after a
sale has been made. A low DSO number means that it takes a company fewer days to collect its
accounts receivable. A high DSO number shows that a company is selling its product to
customers on credit and taking longer to collect money.

Accounts payables
 Average Payment period= × No. of Days
COGS

19
The average time period in which a business or company typically takes in paying off its
purchases that have been made by credit. This will not have an effect on the company's working
capital. A shorter payment period indicates prompt payments to creditors.

 Leverage Ratios:

Total debt
 Debt Ratio = × 100
Total assets

It is a financial ratio that measures the extent of a company’s or consumer’s leverage. The debt
ratio is defined as the ratio of total debt to total assets, expressed in percentage, and can be
interpreted as the proportion of a company’s assets that are financed by debt. The higher this
ratio, the more leveraged the company and the greater its financial risk.

 Profitability Ratios:

Net profit after tax

 Net Profit Ratio = Sales
revenue
❑
A ratio of profitability calculated as net income divided by revenues, or net profits divided by
sales. It measures how much out of every currency of sales a company actually keeps in
earnings. Profit margin is very useful when comparing companies in similar industries. A higher
profit margin indicates a more profitable company that has better control over its costs compared
to its competitors. This ratio measures your ability to cover all operating costs including indirect
costs

Net income available for common stock holders

 Return on equity=
Stock holders equity

The amount of net income returned as a percentage of shareholders equity. Return on equity
measures a corporation's profitability by revealing how much profit a company generates with
the money shareholders have invested. This is one of the most important ratios to investors. How
does this return compare to less risky investments like bonds.

20
 Net income
 Return on Assets (ROA) =
Total assets

It’s a measurement of the ability of a company to turn the assets into profit. This is a very useful
measure of comparison within an industry. A low ratio compared to industry may mean that your
competitors have found a way to operate more efficiently. After tax interest expense can be
added back to numerator since ROA measures profitability on all assets whether or not they are
financed by equity or debt.

Net income
 Earnings per share=
Total no of common stock holders

The portion of a company's profit allocated to each outstanding share of common stock. Earnings
per share serve as an indicator of a company's profitability.

 Importance of financial ratio analysis:

Analysis of Financial Statements
Interpretation of the financial statements and data is essential for all internal and external
stakeholders of the firm. With the help of ratio analysis, we interpret the numbers from the
balance sheet and income statements. Every stakeholder has different interests when it comes to
the result from the financial like the equity investors are more interested in the growth of the
dividend payments and the earnings power of the organization in the long run. Creditors would
like to ensure that they get their repayments on their dues on time.

Helps in Understanding the Profitability of the Company

Profitability ratios help to determine how profitable a firm is. Return on Assets and Return on
Equity helps to understand the ability of the firm to generate earnings. Return on assets is the
total net income divided by total assets. It means how many does a company earn a profit for
every dollar of its assets. Return on equity is net income by shareholders equity. This ratio
basically tells us how well a company uses its investors’ money. Ratios like the Gross profit and
Net profit margin. Margins help to analyze the firm’s ability to translate sales to profit.

21
 Analysis of Operational Efficiency of the Firms
Certain ratios help us to analyze the degree of efficiency of the firms. Ratios like account
receivables turnover, fixed asset turnover, and inventory turnover ratio. These ratios can be
compared with the other peers of the same industry and will help to analyze which firms are
better managed as compared to the others. It measures a company’s capability to generate
income by using the assets. It looks at various aspects of the firm like the time it generally takes
to collect cash from debtors or the time period for the firm to convert the inventory to cash. This
is why efficiency ratios are very important, as an improvement will lead to a growth in
profitability.

Liquidity of the Firms

Liquidity determines whether the company can pay its short-term obligations or not. By short-
term obligations, we mean the short term debts which can be paid off within 12 months or within
the operating cycle. For example the salaries due, sundry creditors, tax payable, outstanding
expenses etc. Current ratio, quick ratio are used to measure the liquidity of the firms

Helps in Identifying the Business Risks of the Firm

One of the most important reasons to use ratio analysis is that it helps in understanding the
business risk of the firm. Calculating the leverages (Financial Leverage and Operating
Leverages) helps the firm understand the business risk i.e. how sensitive the profitability of the
company is with respect to its fixed cost deployment as well as debt outstanding.

Helps in Identifying the Financial Risks of the Company

Another importance of ratio analysis is that it helps in identifying the Financial Risks. Ratios
like Leverage ratio, interest coverage ratio, DSCR ratio etc helps the firm understand how it is
dependent on external capital and whether they are capable of repaying the debt using their own
capital.

For Planning and Future Forecasting of the Firm

Analysts and managers can find a trend and use the trend for future forecasting and can also be
used for important decision making by external stakeholders like the investors. They can analyze
whether they should invest in a project or not.

22
 To Compare the Performance of the Firms
The main use of ratio analysis is that the strengths and weakness of each firm can be compared.
The ratios can be also compared to the firm’s previous ratio and will help to analyze whether
progress has been made by the company.

Limitations of financial ratio analysis:

Some of the most important limitations of ratio analysis include:

 Historical Information: Information used in the analysis is based on real past results
that are released by the company. Therefore, ratio analysis metrics do not necessarily
represent future company performance.
 Inflationary effects: Financial statements are released periodically and, therefore, there
are time differences between each release. If inflation has occurred in between periods,
then real prices are not reflected in the financial statements. Thus, the numbers across
different periods are not comparable until they are adjusted for inflation.
 Changes in accounting policies: If the company has changed its accounting policies and
procedures, this may significantly affect financial reporting. In this case, the key financial
metrics utilized in ratio analysis are altered and the financial results recorded after the
change are not comparable to the results recorded prior to the change. It is up to the
analyst to be up to date with changes to accounting policies. Changes made are generally
found in the notes to the financial statements section.
 Operational changes: A company may significantly change its operational structure,
anything from their supply chain strategy to the product that they are selling. When
significant operational changes occur, the comparison of financial metrics before and
after the operational change may lead to misleading conclusions about the company’s
performance and future prospects.
 Seasonal effects: An analyst should be aware of seasonal factors that could potentially
result in limitations of ratio analysis. The inability to adjust the ratio analysis to the
seasonality effects may lead to false interpretations of the results from the analysis.
 Manipulation of financial statements: Ratio analysis is based on information that is
reported by the company in its financial statements. This information may be

23
 manipulated by the company’s management to report a better result than its actual
performance. Hence, ratio analysis may not accurately reflect the true nature of the
business, as the misrepresentation of information is not detected by simple analysis. It is
important that an analyst is aware of these possible manipulations and always complete
extensive due diligence before reaching any conclusions.

2.2.3.2 Common size technique:

A common size financial statement displays all items as percentages of a common base figure
rather than as absolute numerical figures. This type of financial statement allows for easy
analysis between companies or between time periods for the same company. The values on the
common size statement are expressed as ratios or percentages of a statement component, such as
revenue or income.

While most firms don't report their statements in common size format, it is beneficial for analysts
to compute it to compare two or more companies of differing size or different sectors of the
economy. Formatting financial statements, in this way, reduces bias that can occur and allows for
the analysis of a company over various time periods, revealing, for example, what percentage of
sales is the cost of goods sold, and how that value has changed over time. Common size financial
statements commonly include the income statement, balance sheet, and cash flow statement.

Advantages of Common Size technique:

(a) Easy to Understand:

Common-size Statement helps the users of financial statement to make clear about the ratio or
percentage of each individual item to total assets/liabilities of a firm. For example, if an analyst
wants to know the working capital position he may ascertain the percentage of each individual
component of current assets against total assets of a firm and also the percentage share of each
individual component of current liabilities.

(b) Helpful for Time Series Analysis:

24
A Common-Size Statement helps an analyst to find out a trend relating to percentage share of
each asset in total assets and percentage share of each liability in total liabilities.

(c) Comparison at a Glance:

An analyst can compare the financial performances at a glance since percentage of increase or
decrease of each individual component of cost, assets, liabilities etc. are available and he can
easily ascertain his required ratio.

(d) Helpful in analysing Structural Composition:

A Common-Size Statement helps the analyst to ascertain the structural relations of various
components of cost/expenses/assets/liabilities etc. to the required total of assets/liabilities and
capital.

Limitations of Common Size technique:

(a) Standard Ratio:

Common-Size Statement does not help to take decisions since there is no standard
ratio/percentage regarding the change of percentage in the various component of assets,
liabilities, sales etc.

(b) Change in Price-level:

Common-Size statement does riot recognise the change in price level i.e. inflationary effect. So,
it supplies misleading information’s since it is based on historical cost.

(c) Following Consistency:

If consistency in the accounting principle, concepts, conventions is not maintained then Common
Size Statement becomes useless.

25
Common-Size Statement fails to convey proper records during seasonal fluctuations in various
components of sales, assets liabilities etc. e.g. sales and closing stock significantly vary. Thus,
the statement fails to supply the real information to the users of financial statements.

(e) Window Dressing:

Effect of window dressing in financial statements cannot be ignored and Common-Size

Statements fail to supply the real positions of sales, assets, liabilities etc. due to the evil effects of
window dressing appearing in the financial statements.

(f) Qualitative Element:

Common-Size Statement fails to recognise the qualitative elements, e.g. quality of works,
customer relations etc. while measuring the performance of a firm although the same should not
be ignored.

(g) Liquidity and Solvency Position:

Liquidity and solvency position cannot be measured by Common-Size Statement. It considers

the percentage of increase or decrease in various components of sales, assets, liabilities etc. In
other words it does not help to ascertain the Current Ratio, Liquid Ratio, Debt Equity Capital
Ratio, Capital Gearing Ratio etc. which are applied in testing liquidity and solvency position of a
firm.

2.2.3.3 Trend analysis:

Trend analysis is a financial statement analysis technique that shows changes in the amounts of
corresponding financial statement items over a period of time. It is a useful tool to evaluate the
trend situations.

The statements for two or more periods are used in horizontal analysis. The earliest period is
usually used as the base period and the items on the statements for all later periods are compared

26
with items on the statements of the base period. The changes are generally shown both in dollars
and percentage.

Advantages of Trend Analysis:

(a) Possibility of making Inter-firm Comparison:

Trend analysis helps the analyst to make a proper comparison between the two or more firms
over a period of time. It can also be compared with industry average. That is, it helps to
understand the strength or weakness of a particular firm in comparison with other related firm in
the industry.

(b) Usefulness:

Trend analysis (in terms of percentage) is found to be more effective in comparison with the
absolutes figures/data on the basis of which the management can take the decisions.

(c) Useful for Comparative Analysis:

Trend analyses is very useful for comparative analysis of date in order to measure the financial
performances of firm over a period of time and which helps the management to take decisions
for the future i.e. it helps to predict the future.

(d) Measuring Liquidity and Solvency:

Trend analysis helps the analyst/and the management to understand the short-term liquidity
position as well as the long-term solvency position of a firm over the years with the help of
related financial Trend ratios.

(e) Measuring Profitability Position:

27
Trend analysis also helps to measure the profitability positions of an enterprise or a firm over the
years with the help of some related financial trend ratios (e.g. Operating Ratio, Net Profit Ratio,
Gross Profit Ratio etc.).

Disadvantages of Trend Analysis:

(a) Selection of Base Year:

It is not so easy to select the base year. Usually, a normal year is taken as the base year. But it is
very difficult to select such a base year for the propose of ascertaining the trend. Otherwise,
comparison or trend analyses will be of no value.

(b) Consistency:

It is also very difficult to follow a consistent accounting principle and policy particularly when
the trends of business accounting are constantly changing.

(c) Useless in Inflationary Situations:

Analysis of trend percentage is useless at the time of price-level change (i.e. in inflation). Trends
of data which are taken for comparison will present a misleading result.

28
 Chapter-03
Practical
Aspect

Part- A

3.1 Background of the company:

29
ACI or Advanced Chemical Industries (DSE : ACI) is one of the largest Bangladeshi
conglomerates. The company operates through three reportable segments: Pharmaceuticals,
Consumer Brands and Agribusiness. ACI established as the subsidiary of Imperial Chemical
Industries (ICI) in 1968. It has been incorporated as ICI Bangladesh Manufacturers Limited on
24 January 1973. The company was renamed as Advanced Chemical Industries Limited (ACI
Limited) on 5 May 1992. The company sold its insect control, air care and toilet care brands to
SC Johnson & Son in 2015.

3.2 Mission:
ACI's Mission is to enrich the quality of life of the people through responsible application of
knowledge, technology and skills. ACI is committed to the pursuit of excellence through world-
class products, innovative processes and empowered employees, to provide the highest level of
satisfaction to our customers.

3.3 Vision:
To realise the Mission, ACI will:
 Provide products and services of high and consistent quality, ensuring value for money to
our customers.
 Endeavour to attain a position of leadership in each category of our businesses.
 Develop our employees by encouraging empowerment and rewarding innovation.
 Promote an environment for learning and personal growth.
 Attain a high level of productivity in all our operations through effective utilisation of
resources and adoption of appropriate technology.
 Promote inclusive growth by encouraging and assisting our distributors and suppliers in
improving efficiency.
 Ensure superior return on investment through judicious use of resources and efficient
operations, utilizing our core competencies.

3.4 Values:
 Quality
 Customer Focus

30
  Innovation
 Fairness
 Transparency
 Continuous Improvement

3.5 Sister Concern of ACI Limited

 ACI Aronno
 ACI Consumer Brands
 ACI Fertilizer
 ACI Formulations Ltd.
 ACI Agrochemicals
 Apex Leather-crafts Limited
 ACI Salt Limited
 ACI Pure Flour Limited
 ACI Foods Limited
 Premiaflex Plastics Limited
 Creative Communication Limited
 ACI Motors Limited (Yamaha)
 ACI Logistics Limited (Shwapno)
 ACI HealthCare Limited
 ACI consultants
 ACI Pharmaceuticals
 ACI Electronics Ltd. (Panasonic etc.)

Part- B

31
3.6 Ratio analysis of ACI Limited over the year from 2015 to 2019:

Ratios 2015 2016 2017 2018 2019

Current Ratio 1.67 1.57 1.33 1.18 1.13

Quick Ratio 1.07 1.08 0.95 0.92 0.92

Accounts receivable turnover ratio 4.13 6.38 5.19 6.06 6.18

Average collection period 88.43 57.23 70.37 60.23 59.10

Inventory turnover ratio 1.78 2.72 2.17 2.61 2.56

Inventory turnover period 204.85 134.40 168.28 140.08 142.84

Total asset turnover ratio 0.50 0.78 0.63 0.74 0.75

Profit margin 21.85% 17.28% 6.79% 6.16% 2.52%

Gross margin ratio 42.99% 43.76% 44.77% 43.21% 45.36%

Operating profit margin 11.06% 10.49% 8.69% 7.84% 7.62%

Return on asset 16.45% 18.43% 4.60% 3.69% 1.32%

Return on equity 27.17% 32.56% 9.57% 9.21% 3.82%

Debt to equity ratio 0.36% 0.44% 0.07% 0.99% 3.95%

Debt ratio 0.22% 0.25% 0.03% 0.40% 1.36%

Price earnings ratio 0.16 0.13 0.40 0.38 0.91

 Current ratio Analysis:

A ratio under current ratio suggests that the company would be unable to pay off its obligations
if they came due at that point. While this shows the company is not in good financial health, it
does not necessarily mean that it will go bankrupt. It is definitely not a good sign. If current
liabilities exceed current assets (the current ratio is below 1), then the company may have
problems meeting its short-term obligations. We also know that this ratio represents the margin
of safety available to the creditors. It is an index of the firm’s financial stability. If the current

32
ratio is too high, then the company may not be efficiently using its current assets or its short-term
financing facilities. This may also indicate problems in working capital management. If a
company has a current ratio of 3 or 4, it may want to be concerned. A number this high means
that management has so much cash on hand; they may be doing a poor job of investing it. In this
table we have seen that over the year from 2015 to 2019 their current ratio was decreasing over
the period of 2015-2019 & ratio was over 1 but less than 2. That means the company was not
capable of paying its obligations. The company was not in good financial health & it was not
definitely a good sign. The company did not use its current assets or its short-term financing
facilities with efficiently. This indicates the company should improve in working capital
management.

 Quick ratio Analysis:

The quick ratio (also called the acid test or liquidity ratio) is the most excessive and difficult test
of a company's financial strength and liquidity. It is a reflection of the liquidity of a business. It
measures the firm's capacity to pay off current obligations immediately and is more rigorous test
of liquidity than the current ratio. It is used as a complementary ratio to the current ratio. The
quick test ratio does not apply to the handful of companies where inventory is almost
immediately convertible into cash. Since inventory is rarely sold that fast in most businesses, it is
excluded. Liquid ratio is more rigorous test of liquidity than the current ratio because it
eliminates inventories and prepaid expenses as a part of current assets.

In this table we have seen that in 2016 company’s liquid ratio was high & in 2019 company’s
liquid ratio was low. We have also noticed that this ratio declined slightly in 2017, 2018 & 2019.
Since 2016 company’s liquid ratio was high that means the firm was liquid and had the ability to
meet its current or liquid liabilities in time. On the other hand 2019 company’s liquid ratio was
low that means the firm's liquidity position was not good.

 Accounts receivables turnover ratio Analysis:

33
As we know that accounts receivable turnover ratio or debtor’s turnover ratio indicates the
number of times the debtors are turned over a year. The higher the value of debtor’s turnover the
more efficient is the management of debtors or more liquid the debtors are. Similarly, low
debtors turnover ratio implies inefficient management of debtors or less liquid debtors. It is the
reliable measure of the time of cash flow from credit sales. In this table we have seen that their
receivables turnover improved in 2016. The turnover of 6.38 times was better than other years.
Since in 2016 the value of debtor’s turnover was higher than other years that mean they were
more efficient to convert receivables into cash. In the year 2015, 2017 & 2018 they were
inefficient in the collection of receivables as we have seen above. There are some reasons behind
this. Massive inflationary pressure, full blown global financial crisis, the increase in the cost of
living in Bangladesh and many other factors occurred over the years. For this reason they were
unable to collect their receivables as far as I think. But it was slightly increased in the year 2019.

 Inventory turnover ratio Analysis:

As we know that every firm has to maintain a certain level of inventory of finished goods so as
to be able to meet the requirements of the business. But the level of inventory should neither be
too high nor too low. A too high inventory means higher carrying costs and higher risk of stocks
becoming obsolete whereas too low inventory may mean the loss of business opportunities. It is
very essential to keep sufficient stock in business. Inventory turnover ratio measures the velocity
of conversion of stock into sales. Usually a high inventory turnover/stock velocity indicates
efficient management of inventory because more frequently the stocks are sold; the lesser
amount of money is required to finance the inventory. A low inventory turnover ratio indicates
an inefficient management of inventory. A low inventory turnover implies over-investment in
inventories, dull business, poor quality of goods, stock accumulation, accumulation of obsolete
and slow moving goods and low profits as compared to total investment. The inventory turnover
ratio is also an index of profitability, where a high ratio signifies more profit; a low ratio signifies
low profit. Sometimes, a high inventory turnover ratio may not be accompanied by relatively
high profits. Similarly a high turnover ratio may be due to under-investment in inventories. It
may also be mentioned here that there are no rule of thumb or standard for interpreting the
inventory turnover ratio. The norms may be different for different firms depending upon the
nature of industry and business conditions. In the table we have seen that their inventory turnover

34
improved in the year 2016. The turnover of 2.72 times was better compared to other years. Since
inventory turnover ratio in 2016 was higher than other years that mean they were more efficient
in the management of inventory. They were more capable to convert the stock into sales.
 Total assets turnover ratio Analysis:

As we know that asset turnover can give an indication of how efficient a company is. A high
asset turnover which expresses how many times a company sells or turns over its assets in a year
is a sign of high efficiency. The higher the ratio, the more sales that a company is producing
based on its assets. Thus a higher ratio would be preferable to a lower one. A low asset turnover
ratio means inefficient utilization or obsolescence of fixed assets, which may be caused by
excess capacity or interruptions in the supply of raw materials. In the table we have seen that
their asset turnover improved in 2016. Their asset turnover declined slightly in 2017 and again
improved gradually from 2018 to 2019.

 Profit margin ratio Analysis:

As we know that profit margin is an indicator of a company's pricing strategies and how well it
controls costs. The profit margin ratio provides clues to the company's pricing, cost structure and
production efficiency. The higher the profit margin the better off the business, the profit margin
is an extremely useful measure of how the business is performing over time. At a glance,
company can see whether their business’s net profit has increased, stayed the same or decreased
over last year. If it’s decreased, company will take steps to cure the problem such as better
controlling the expenses. A low profit margin ratio indicates that low amount of earnings, low
profits is generated from revenues. A low profit margin ratio indicates that the business is unable
to control its production costs. In the table we have seen that their profit margin improved in
2015. That means their net profit was increased in this period, they took better pricing strategy,
emphasized production efficiency and well controlled cost structure. Their business was not
performing better as the time progress as their profit margin was decreasing hugely with the time
change.

 Return on assets turnover ratio Analysis:

35
As we know that ROA is an indicator of how profitable a company is relative to its total assets. It
gives an idea as to how efficient management is at using its assets to generate earnings. It gives
investors an idea of how effectively the company is converting the money it has to invest into net
income. The higher the ROA number, the better, because the company is earning more money on
less investment. In this table we have seen that their ROA was hugely declined from 2017 to
2019. The ratio was high in the year 2016. They should utilize their assets to generate earnings
with efficiently.

 Return on equity ratio Analysis:

As we know that ROE reveals how much profit a company earned in comparison to the total
amount of shareholder equity found on the balance sheet. It measures how much the shareholders
earned for their investment in the company. A business that has a high return on equity is more
likely to be one that is capable of generating cash internally. A higher return on equity means
that surplus funds can be invested to improve business operations without the owners of the
business (stockholders) having to invest more capital. It also means that there is less need to
borrow. The higher the ratio percentage, the more efficient management is in utilizing its equity
base and the better return is to investors. So this ratio is more meaningful to the equity
shareholders who are interested to know profits earned by the company and those profits which
can be made available to pay dividends to them. In this table we have seen that their ROE much
improved in 2016. Since the value of ROE in 2016 was better compared to other years which
refers company was capable of generating cash internally, surplus funds invested to improve
business operations without the owners of the business (stockholders), they utilized their equity
base with efficiently & provided better return to the investors. As the time progress their ROE
declined which was not a good sign for the company.

 Debt to total assets ratio Analysis:

As we know that the higher the ratio, the greater risk will be associated with the firm's operation.
In addition, high debt to assets ratio may indicate low borrowing capacity of a firm which in turn
will lower the firm's financial flexibility. If the ratio is less than 0.5, most of the company's assets
are financed through equity. If the ratio is greater than 0.5, most of the company's assets are
financed through debt. Companies with high debt/asset ratios are said to be "highly leveraged"
not highly liquid. A company with a high debt ratio (highly leveraged) could be in danger if

36
creditors start to demand repayment of debt. In the table we have seen that debt to asset ratio in
2015-2018 were less than 0.5. That means the firm is not highly leveraged and most of the assets
financed through equity. But in the year 2019 the ratio is higher than 0.5 so we can say that in
this period the firm is highly leveraged and most of the assets financed through debt.

 Price earnings ratio Analysis:

As we know that price earnings ratio helps the investor in deciding whether to buy or not to buy
the shares of a particular company at a particular market price. It depends on investor’s
willingness to pay for earnings. The more investors are willing to pay, which means he/she
believes the company has good long term prospects over and above its current position. Higher
the price earnings ratio the better it is. A high P/E ratio suggests that investors are expecting
higher earnings growth in the future compared to companies with a lower P/E ratio. If the P/E
ratio falls, the management should look into the causes that have resulted into the fall of this
ratio. The higher the P/E ratio the more the market is willing to pay for the company’s earnings.
Generally investors are most interested in future cash flows, prospective P/E ratio. Some
investors read a high P/E ratio as an overpriced stock and that may be the case, however it can
also indicate the market has high hopes for this stock’s future and has bid up the price. In the
table we have seen that over the year 2019 their P/E ratio improved. It was a good sign for them.
Since their P/E ratio continuously increased which refers that the company will have a good long
term prospects over and above its current position in the future. As investors are most interested
about future cash flows, prospective P/E ratio, when they will notice their performance carefully
then investors will be interested to buy the shares of a particular company at a particular market
price, they will be interested to pay for the company’s earnings because they are expecting
higher earnings growth in the future. Here the company’s P/E ratio was improved from 2015 to 2019
and that is good for the company’s future prospects.

3.7 Financial Statement Analysis (Trend Analysis):

Particulars 2016 2017 2018 2019

37
 Non-current assets 1.20% 18.48% 40.48% 50.05%
Property, plant and equipment 0.86% 20.52% 41.28% 51.25%
Investments 2.37% 11.31% 37.68% 42.30%
Intengible assets 205.45% 117.99% 30.53% -16.93%
Deferred tax assets 0.00% 0.00% 0.00% 0.00%
Current assets 15.03% 56.07% 117.96% 164.70%
Inventories 0.13% 21.87% 29.47% 38.67%
Trade receivables 15.36% 75.58% 149.38% 164.50%
Other receivables 110.56% 153.50% 213.65% 5.32%
Inter-company receivables 13.59% 74.01% 242.28% 395.22%
Advances, deposits and prepayment 43.47% 79.39% 34.02% 73.43%
Cash and Cash equivalents 17.85% 33.00% 105.67% 88.89%
Total Assets 9.03% 39.77% 84.35% 114.96%

Shareholders' Equity 2.00% 10.90% 22.06% 22.78%

Share capital 0.00% 10.00% 21.00% 25.23%
Share premium 0.00% 0.00% 0.00% 0.00%
Reserves 0.39% 3.40% 8.44% 11.18%
Retained earnings 2.90% 14.73% 29.09% 28.81%
Non-current Liabilities 1.56% 7.40% -2.35% 37.74%
Employee benefit 7.90% 30.49% 47.50% 71.90%
Long term bank loan 24.91% -79.19% 232.42% 1234.90%
Deferred tax liabilities -7.26% -10.33% -76.11% -100.00%
Current Liabilities 22.86% 96.82% 210.29% 292.79%
Bank overdraft 78.71% -13.76% 281.42% 322.96%
Loans and borrowings 4.80% 157.41% 301.45% 354.08%
Trade payables -22.11% -11.76% 4.92% 58.49%
Other payables 15.65% 21.75% 63.10% 91.07%
Inter-company payables 445.94% 1144.85% 1813.00% 3730.12%
Current tax liabilities 36.18% 50.31% 51.19% 124.13%
Total Liabilities 9.03% 39.77% 84.35% 114.96%

Interpretation:
The trend analysis shows that a number of significant changes have occurred in ACI limited
financial structure from 2016 to 2019 compared to year 2015.

From the trend analysis of the balance sheet it can be seen that total current assets was 15.03%
increased in the year 2016, 56.07% increased in the year 2017, 117.96% increased in the year
2018 and 164.70% increased in the year 2019 compared to the year 2015. In 2019 the percentage
of total current assets position was respectively high from the other years.

38
The inventories was 0.13% increased in the year 2016, 21.87% increased in the year 2017,
29.47% increased in the year 2018 and 38.67% increased in the year 2019 compared to the year
2015. Higher inventories were in the year 2019. The lower inventories were in the year 2016.
Considering large amount of inventory is not profitable for the company. Because company
holding cost and opportunity cost are increased. On the other hand lower amount of inventory are
not bear the holding and opportunity cost.

In 2016 ACI limited trade and other receivable was in 2019 (5.32%) which was lower than other
years and the higher trade receivables were in the year 2018 compared to the year 2015.

The share holders equity was increased 2.00% in the year 2016, 10.90% increased in 2017,
22.06% increased in the year 2018, 22.78% increased in the year 2019 compared to the year
2015. The share holder equity of the company has an increasing trend.

ACI limited total current liability was 22.86% increased in the year 2016, 96.82% increased in
the year 2017, 210.29% increased in the year 2018 and 292.79% increased in the year 2019
compared to the year 2015. In 2019 total current liability was higher than the other years. When
company current liabilities are high that times company total liability is increased and company
faces high much financial risk.

Particulars 2016 2017 2018 2019

Net Revenue 54.52% 25.67% 46.82% 49.62%
Cost of sales 52.42% 21.73% 46.24% 43.41%
Gross profit 57.29% 30.88% 47.59% 57.87%
Administrative & selling Overhead 61.88% 40.81% 61.66% 72.13%
Other income 107.82% -24.00% 7.12% -179.05%
Operating profit 46.54% -1.28% 4.02% 3.08%
Gain from sale of brands 11.62% -83.97% -78.56% -100.00%
Investment imperiment provision 66.67% 0.00% 0.00% -54.67%
Net finance cost 24.07% 118.10% 374.23% 615.81%
Profit before Distribution of WPP & WF 24.96% -56.05% -56.46% -75.51%
Contribution to WPPF 65.40% 18.38% 17.27% -21.82%
Profit before Tax & reserves 24.19% -57.46% -57.85% -76.52%
Current tax 72.16% 16.35% 76.20% 45.48%
Deferred tax(expenses)/income -10.64% -92.61% -2.00% -45.05%
Profit after tax 22.20% -60.94% -58.62% -82.74%

39
 Interpretation:
ACI limited revenue was 54.52% increased in the year 2016, 25,67% increased in the year 2017,
46.82% increased in the year 2018 and 49.62% increased in the year 2019 compared the year
2015. The percentage of net sales is highest in the year 2016. And the lowest net sale was in the
year 2017. It was gradually increased from the year 2018 to 2019.

From the above table we can see that the highest COGS was in the year 2015 as the sales was
also highest in the year and lowest one was in the year 2017 and in the year 2017 the sales was
also lower than the others year. Here we can see that the COGS was changed with the change of
net sales.

ACI limited financial cost has an increasing trend. It was increased hugely from the year 2016-
2019 which is not good sign for the company.

After subtracting all the taxes the profit for the year or profit after tax was increased 22.20% in
the year 2016, 60.94% decreased in the year 2017, 58.62% decreased in the year 2018 and
82.74% decreased in the year 2019 compared to the year 2015. Here the highest profit after tax
was in the year 2016 and the lowest profit after tax was in the year 2019.

From the above analysis we can say that the firm was not able to doing better with the time
change. The company should increase their efficiency. It should increase their sales and
with the increase of sales the company should increase its cost associated with the sales.

3.8 Financial Statement Analysis (Common Size Technique)

Particulars 2015 2016 2017 2018 2019

Non-current assets 43.39% 40.27% 36.78% 33.06% 30.29%

40
 Property, plant and equipment 33.78% 31.25% 29.13% 25.89% 23.77%
Investments 9.60% 9.01% 7.65% 7.17% 6.36%
Intengible assets 0.00% 0.00% 0.00% 0.00% 0.00%
Deferred tax assets 0.00% 0.00% 0.00% 0.00% 0.16%
Current assets 56.61% 59.73% 63.22% 66.94% 69.71%
Inventories 20.40% 18.73% 17.79% 14.33% 13.16%
Trade receivables 10.07% 10.66% 12.66% 13.63% 12.40%
Other receivables 1.37% 2.64% 2.48% 2.33% 0.67%
Inter-company receivables 15.57% 16.22% 19.38% 28.91% 35.87%
Advances, deposits and prepayment 6.49% 8.54% 8.33% 4.72% 5.23%
Cash and Cash equivalents 2.72% 2.94% 2.58% 3.03% 2.39%
Total Assets 100.00% 100.00% 100.00% 100.00% 100.00%

Shareholders' Equity 60.52% 56.61% 48.02% 40.07% 34.57%

Share capital 2.06% 1.89% 1.62% 1.35% 1.20%
Share premium 2.08% 1.91% 1.49% 1.13% 0.97%
Reserves 16.88% 15.54% 12.49% 9.93% 8.73%
Retained earnings 39.50% 37.28% 32.43% 27.66% 23.67%
Non-current Liabilities 5.66% 5.27% 4.35% 3.00% 3.63%
Employee benefit 2.83% 2.80% 2.64% 2.26% 2.26%
Long term bank loan 0.22% 0.25% 0.03% 0.40% 1.36%
Deferred tax liabilities 2.61% 2.22% 1.67% 0.34% 0.00%
Current Liabilities 33.82% 38.11% 47.63% 56.93% 61.81%
Bank overdraft 3.22% 5.27% 1.98% 6.65% 6.33%
Loans loan and borrowings 14.59% 14.03% 26.88% 31.78% 30.83%
Trade payables 3.91% 2.79% 2.47% 2.22% 2.88%
Other payables 7.45% 7.90% 6.49% 6.59% 6.62%
Inter-company payables 0.61% 3.07% 5.47% 6.37% 10.93%
Current tax liabilities 4.04% 5.05% 4.35% 3.32% 4.22%
Total Liabilities 100.00% 100.00% 100.00% 100.00% 100.00%

Interpretation:

Another technique used to analyze balance sheet information is to convert the statement to a
common-size vertical analysis format. This method require only one period of financial data.
Common size analysis stating balance sheet all assets are as a percentage of total assets and all
liabilities and owners equity items are as a percentage(%) of total liabilities and owners equity.

The common-size statement shows that the property, plant and equipment account in year 2019
is 23.77% of total assets, which was calculated by divided the property, plant and equipment by

41
total asset. Following this method converting a balance sheet or a subset of assets, liabilities or
ownership equity conversion procedure is the same of every period.

Cash balance is 2.72%, 2.94%, 2.58%, 3.03% and 2.39% respectively from 2015, 2016, 2017,
2018 and 2019. When company cash and bank balance are decline that times company faces
liquidity crisis. ACI Ltd. may faces many problem for operate their business activities specially
during the year 2019.

Trade and other receivables was high in the year 2018. ACI limited trade and other receivables
are gradually increased from the year 2015 to 2018. It increased comparatively high in 2018 but
again decreased in 2019. Trade and other receivables are increased that means company net
credit sales are increased. Higher trade and other receivables are impact of company net income
that times company net income are increased.

ACI limited total equity has a decreasing trend. It was gradually decreased from the year 2015 to
2019. In 2015 company total equity is 60.52% it was the highest percentage from the other years
and lowest one was in the year 2019.

ACI ltd. long term loan was 0.22%, 0.25%, 0.03%, 0.40% and 1.36% of total liabilities
respectively from the year 2015, 2016, 2017, 2018 and 2019. The highest long term loan was in
the year 2019.

Total current liability balance was gradually increased. It is not a good sign for ACI limited.
When company current liabilities are high that times total liability are increased and company
faces higher financial risk.

Particulars 2015 2016 2017 2018 2019

Net Revenue 100.00% 100.00% 100.00% 100.00% 100.00

%
Cost of sales 57.01% 56.24% 55.23% 56.79% 54.64%
Gross profit 42.99% 43.76% 44.77% 43.21% 45.36%
Administrative & selling Overhead 32.53% 34.08% 36.45% 35.81% 37.42%

42
 Other income 0.60% 0.81% 0.36% 0.44% -0.32%
Operating profit 11.06% 10.49% 8.69% 7.84% 7.62%
Gain from sale of brands 17.30% 12.50% 2.21% 2.53% 0.00%
Investment imperiment provision 0.21% 0.22% 0.16% 0.14% 0.06%
Net finance cost 0.64% 0.51% 1.11% 2.06% 3.05%
Profit before Distribution of WPP & WF 27.52% 22.25% 9.62% 8.16% 4.50%
Contribution to WPPF 0.51% 0.55% 0.48% 0.41% 0.27%
Profit before Tax & reserves 27.01% 21.71% 9.14% 7.75% 4.24%
Current tax 2.69% 3.00% 2.49% 3.23% 2.62%
Deferred tax(expenses)/income 2.46% 1.42% 0.14% 1.64% 0.90%
Profit after tax 21.85% 17.28% 6.79% 6.16% 2.52%

Interpretation:

The conversion of the income statement total sales revenue takes the value of 100 percent and all
other items on the income statement are expressed as a fraction of total sales revenue.

Cost of goods sold is respectively 57.01%, 56.24%, 55.23%, 56.79% and 54.64% from the year
2015-2019. COGS fluctuate during the year 2019. If COGS decreased gross profit and net profit
will increased.

Here the gross profit is 42.99%, 43.76%, 44.77%, 43.21% and 45.38% respectively from the year
2015, 2016, 2017, 2018 and 2019. The gross profit is relatively high in 2019 and if we see the
table than we can say that the Gross profit has an increasing trend. It is a good sign for the
company.

In 2019 net finance expense was 3.05% and it is the highest percentage from the year 2015 to
2019. When finance expenses are increase that times company profit before interest and tax is
decreased automatically. Lower administrative expense is a good sign for the company but
highest one is not the good for a company.

Profit after tax is 21.85%, 17.28%, 6.79%, 6.16% and 2.52% of net sales from 2015 to 2019.
Here the highest profit after tax was in the year 2015 and it was 21.85% but it declined gradually
in the following years. So ACI limited financial performance scenery is not good from previous
year to present year. The company was better in the year 2015.

3.9 SWOT analysis of the Company:

43
SWOT Analysis is a strategic planning  m e t h o d u s e d t o e v a l u a t e t h e s t r e n g t h s ,
w e a k n e s s e s , opportunities and threats involved in a  project or in a  business venture. It
involves specifying the objectives of the business venture or project and identifying the internal
and external factors that are favorable and unfavorable to achieve that objective.

 Strengths: Characteristics of the business that give it an advantage over others in the
industry.
 Weaknesses: Characteristics that place the firm at a disadvantage relative to others.
 Opportunities: External chances to make greater sales or profits in the environment.
 Threats: External elements in the environment that could cause trouble for the business.

The internal factors may be viewed as strengths or weaknesses depending upon their impact on
the organization’s objectives. What may represent strengths with respect to one objective may be
weaknesses for another objective. The factors may include all of the 4P’s; as well as
personnel, finance, manufacturing capa1ilities and so on. The external factors may include macro
economic matters, technological change, legislation and socio cultural changes as well as
changes in the market place or competitive position. The results are often presented in the form
of a matrix.

Strengths

 ACI has been able maintain its growth above the market growth.

 Market category of ACI is A.

 ACI is the first company in Bangladesh to obtain certificate of Quality Management

System in 1995.

 High profitability.

 It uses modern technology to manufacturing chemicals.

Weaknesses:

 ROE is decreased in 2019 than the previous year.

44
  Lack of competitive strength.

Opportunities:

 High potentiality in export sector.

 Bargaining power of suppliers and buyers is low.

 Technology development and innovation.

Threats:

 The industry is high competitive.

 Export may be reduced if world economy is affected.

 High rivalry among competitors.

 Environmental effects.

 Competitors intentions- reactive.

 Competitors Market demand- high.

 New technologies, services, ideas are also used by competitors.

 The most growing competitors are Beximco Pharmaceutical, Square

Pharmaceutical, General Pharmaceutical and GSK Pharmaceutical.

45
 Chapter-04
Conclusionary
Aspects

46
4.1 Recommendations:

After analyzing all the methods of financial performance analysis following recommendations
for ACI Ltd. can be offered:

 ACI Ltd. is maintaining a healthy financial condition. They should invest more in new
business with its working capital to obtain more financial liquidity in the future.
 They should decrease the no. of days in Days Sales Outstanding (DOS) to collect its
receivables more quickly to convert its sales into cash. So that they can reinvest in the
business operation and generate more sales.
 ACI Ltd. is enjoying financial leverage but they need to have a proper management to
minimize the financial risk associated with the company.
 As ACI Ltd. is not in profitable situation they need to have a concentrate to increase the
Net Profit Ratio and Return on Assets Ratio, which will ultimately increase the EPS.
 The performance of the securities is very smooth in the market. They should provide risk
premium to compensate the risk offered by the securities. Offering risk premium in the
bearish market may encourage more investors to invest in the securities of ACI Ltd.

4.2 Conclusion:

ACI Limited is one of the leading companies in Bangladesh. Every year ACI Limited is growing
at fast rate. ACI Limited is one of the best manufacturer and supplier of many products. Their
diversifications of product range are wide.

This term paper report is a basic scenario of how well company is performing its business in the
related area. This report includes financial calculation. The calculation includes ratio analysis,
common size and trend analysis. All these calculated information will give you an insight of real
fact of the Company. This report could be a helpful phenomenon for the ACI Limited as well as
other users like external and internal.

47
Chapter-05
Ending
Matters

48
5.1 References:
Accounting ForManagement.Org. (n.d.). Retrieved from
www.accountingformanagement.org/horizontal-analysis-of-financial-statements.
Accountingtools. (n.d.). Retrieved from http://www.accounting tools.com/accounts-
receivable-turnover.
Brigham, S. B. Essentials of Manegerial Finance. In B. Brigham. Mike Roche.
Business Dictionary . (n.d.). Retrieved from http:\\www.business
dictionary.com\defination\ratio-analysis.
Corporatefinance. (n.d.). Retrieved from
http://corporatefinanceinstitue.com/resouces/knowledge/accounting/retainedearnings-
guide/.
F.Brigham, S. B. Essentials of Managerial Finance. In B. Bessely, Essestials of
Managerial Finance (p. 81). Harcout College Publishers.
Investinganswers. (n.d.). Retrieved from http://www.investinganswers.com/financial-
dictionary/ratio-analysis/quick ratio.
Investopedia. (n.d.). Retrieved from http://www.investopedia.com/university/ratio/debt
ratio.3asp.
Wikipedia. (n.d.). Retrieved from http://en.wikipedia.org/wiki/Financial-statement-
annalysis.

5.2 Bibliography:
 Brigham, Besley, Essentials of Managerial Finance, Dryden publication, Twelfth Edition.
 Annual report of ACI ltd.
 WWW. Business Dictionary. Com
 WWW. ACI.bd.Com

49