Term Paper

Principles of Accounting
ALD 1202

Financial Statement Analysis of

Linde Bangladesh Limited
For the Year 2019

Submitted By

Kaniz Fatema Mehzabin

2025171048
Section B
Batch 2020
Department of Marketing
Faculty of Business Studies
Bangladesh University of Professionals

Submitted To

Mohammed Moin Uddin Reza

Asst. Professor
Department of Accounting
Faculty of Business Studies
Bangladesh University of Professionals
Date: November 6, 2020
Horizontal Analysis
Statement of Financial Position – Linde Bangladesh Limited

In case of analyzing the statement of financial position, we will take the details of balance sheet
of two consecutive financial years i.e. 2018 and 2019. We have to put the details accordingly

to determine the increase and decrease that has taken place and the change is to be noted
which

will be expressed as an amount and percentage. Here, 2018 is the base year and we will

measure all percentage increases or decreases from the base period amount as follows.

Change since Base Period = (Current Year Amount – Base Year Amount)/Base Year
Amount

The comparative balance sheet indicates significant changes occurring in Linde Bangladesh
Limited’s financial structure from the time period of 2018 to 2019.
 As at 31 December

2019 2018 Amount (Taka) Percentage

‘000 Taka ‘000 Taka
Assets
Property, plant and equipment 3,617,639 3,445,462 1,72,177 4.75%
Intangible assets 5,295 11,755 (6,460) 54.9%
Advances, deposits and prepayments 109,752 90,757 18,995 17.30%
Non–current assets 3,732,686 3,547,974 1,84,712 4.94%

Inventories 831,800 842,895 (11,095) -1.33%

Trade and other receivables 714,085 618,969 95,116 13.31%
Advances, deposits and prepayments 123,868 224,415 (1,00,547) -81.17%
Investment 1,244,619 10,753 12,33,866 99.13%
Cash and cash equivalents 1,004,646 1,604,221 (5,99,575) -0.59%
Current assets 3,919,018 3,301,253 6,17,765 15.76%

Total assets 7,651,704 6,849,227 8,02,477 10.48%

Equity and Liabilities

Shareholders' equity
Share capital 152,183 152,183 - -
Other component of equity (28,911) (2,282) (26,629) 92.10%
General reserve/retained earnings 4,984,999 4,322,503 6,62,496 13.28%
Equity attributable to owners of the Company 5,108,271 4,472,404 6,35,867 12.44%
Non– controlling interest (0.03) 0.38 0.41 -
Total shareholders' equity 5,108,271 4,472,404 6,35,813 12.44%

Employee benefits 166,963 155,465 11,498 6.88%

Deferred tax liabilities 374,931 327,328 47,603 12.69%
Other non–current liabilities 253,782 248,235 5,547 2.18%
Non–current liabilities 795,676 731,028 64,648 8.12%

Trade and other payables 1,364,789 1,413,511 (48,722) -3.56%

Provision for expenses 216,242 146,017 70,225 32.47%
Current tax liabilities 166,726 86,267 80,459 48.25%
Current liabilities 1,747,757 1,645,795 1,01,962 5.83%

Total equity and liabilities 7,651,704 6,849,227 8,02,477 10.48%

Net Assets Value (NAV) Per Share 335.67 293.88 41.79 12.44%
These financial statements should be read in conjunction with annexed notes.
Here in the statement of Financial Position we can see that Linde Bangladesh Limited has
15.76% increase of Current Asset and 10.48% increase on total asset. As well as we can see
that they have an increase of liability by 12.44%. The current liability stands at 5.83%. The total
equity and liability stand at 10.48% which indicated the company has a balance amongst its
assets and liabilities. They should focus on capital maximization as well as increasing their
assets and long-term investments as that will bring them interest and other revenues.

Horizontal Analysis:

Income Statement- Linde Bangladesh Limited

While preparing the horizontal analysis of the statement of Profit or Loss, we require the details

of income statement of two consecutive year i.e. 2018 and 2019. To assess the increase and

decrease that has taken place, we have to put the specifics accordingly and the improvement is
to be noted, which will be expressed as a number and percentage. Here, 2018 is the base year
and all percentage changes or decreases from the sum of the base year will be calculated as
follows. The comparative income statement shows that a number of significant changes have
occurred

Linde Bangladesh Limited’s financial structure from 2018 & 2019.

 2019 2018 Amount Percentage
(Taka)
‘000 Taka ‘000 Taka
Revenue 5,683,441 5,460,190 223,251 4%
Cost of sales (3,170,929) (3,177,097) 6,168 0%
Gross profit 2,512,512 2,283,093 229,419 9%

Other income/(loss) (2,954) 30,539 -33,493 -

Operating expenses (833,774) (906,805) 73,031 -9%
Profit from operations 1,675,784 1,406,827 2,68,957 16%

Net finance income 72,474 29,335 43,139 60%

Profit before contribution to WPPF 1,748,259 1,436,162 3,12,097 18%

Contribution to WPPF (87,420) (71,814) (15,606) 18%

Profit before tax 1,660,839 1,364,348 296,491 18%
Income tax expenses (429,401) (360,700) (68,701) 16%
Profit after tax 1,231,438 1,003,648 2,27,790 18%

Other comprehensive income/(loss) (26,629) (393) (26,236) 99%

Total comprehensive income 1,204,809 1,003,255 201,554 17%

Profit attributable to:

Owners of the Company 1,231,438 1,003,648 2,27,790 18%
Non–controlling interests - -
1,231,438 1,003,648 227,790 18%
Total comprehensive income attributable to:
Owners of the Company 1,204,809 1,003,255 201,554 17%
Non–controlling interests - -
1,204,809 1,003,255 201,554 17%

Earnings per share (EPS):

Basic and diluted earnings per share (par value Tk 80.92 65.95 15 18.53%
10) in Taka

In the analysis of the income statement of Linde Bangladesh Limited we can note that they have
made a significant growth of 4% in Revenue and a Gross Profit of 9% which is a very positive
indication for the company. Company made a profit of 18% after all taxes.
Another positive note is the company has reduced their operating expense by 9% than the
previous year 2018 and generated a 16% profit from operations.

Vertical Analysis:

Statement of Financial Position- Linde Bangladesh Limited

In case of analyzing the statement of financial position, we will consider the value of the entire

asset as 100%. We start off by calculating the percentage of the individual current and non-

current assets against this value. That is, let an asset entry be x, so the percentage of that
specific

asset will be {(x/Total asset) X 100}%.

Following the same procedure, we also calculate the percentage of the individual entries of

current and non-current liabilities and the owner's equity as well.

Finally, we see that the total values of the assets sum up to be 100%, as well as total equity and

liabilities end up with the same value. Hence, the equation [Asset = Liability + Owner's
equity]

has been accurately followed and the vertical analysis of the balance sheet is being prepared by

making necessary remarks on the obtained values or percentages.

 As at 31 December

2019 Percent 2018 Percent

‘000 Taka ‘000 Taka
Assets
Property, plant and equipment 3,617,639 47% 3,445,462 50%
Intangible assets 5,295 0% 11,755 0%
Advances, deposits and prepayments 109,752 1% 90,757 1%
Non–current assets 3,732,686 3,547,974

Inventories 831,800 11% 842,895 12%

Trade and other receivables 714,085 9% 618,969 9%
Advances, deposits and prepayments 123,868 3% 224,415 5%
Investment 1,244,619 16% 10,753 0%
Cash and cash equivalents 1,004,646 13% 1,604,221 23%
Current assets 3,919,018 3,301,253

Total assets 7,651,704 100% 6,849,227 100%

Equity and Liabilities

Shareholders' equity
Share capital 152,183 2% 152,183 2%
Other component of equity (28,911) 0% (2,282) 0%
General reserve/retained earnings 4,984,999 65% 4,322,503 63%
Equity attributable to owners of the Company 5,108,271 4,472,404
Non– controlling interest (0.03) 0.38
Total shareholders' equity 5,108,271 4,472,404

Employee benefits 166,963 2% 155,465 2%

Deferred tax liabilities 374,931 5% 327,328 5%
Other non–current liabilities 253,782 3% 248,235 4%
Non–current liabilities 795,676 731,028

Trade and other payables 1,364,789 18% 1,413,511 21%

Provision for expenses 216,242 3% 146,017 2%
Current tax liabilities 166,726 2% 86,267 1%
Current liabilities 1,747,757 1,645,795

Total equity and liabilities 7,651,704 100% 6,849,227 100%

Net Assets Value (NAV) Per Share 335.67 293.88

These financial statements should be read in conjunction with annexed notes.

Here we can observe that, in 2019 the current asset was 51.2% and in 2018 the current asset
was 48.1. So, it is clear that in 2019 we can see a substantial increase in the current asset.
Current asset is good for the operational and current expense benefits.

Same with liabilities, we can see that in 2019 the current liability is 22% which is 2% less than
the previous year 2018’s 24% current liability. The management should try to reduce the
liabilities gradually every year.

Vertical Analysis
Income Statement - Linde Bangladesh Limited

While preparing the vertical analysis of the statement of Profit or Loss, we require the value of

net sales if there is any purchase discount or purchase return. We consider the value of the
sales revenue as 100% and proceed with our analysis. With respect to this value, we find the
percentage of the other entries of revenue and expense as mentioned in the income statement
i.e. COGS, Gross profit, Operating profit, Finance income, Income tax expense etc. This way we

obtain those values and compare them for the years 2018 and 2019 and make necessary
remarks as a part of analyzing the income statement of Linde Bangladesh Limited.
 2019 Percentage 2018 Percentage
‘000 Taka ‘000 Taka
Revenue 5,683,441 100% 5,460,190 100%
Cost of sales (3,170,929) 55.80% (3,177,097) 58.18%
Gross profit 2,512,512 44.20% 2,283,093 41.82

Other income/(loss) (2,954) 0% 30,539 2%

Operating expenses (833,774) -50% (906,805) -64%
Profit from operations 1,675,784 1,406,827

Net finance income 72,474 4.14% 29,335 2.04%

Profit before contribution to WPPF 1,748,259 1,436,162

Contribution to WPPF (87,420) -5% (71,814) -5%

Profit before tax 1,660,839 1,364,348
Income tax expenses (429,401) -35% (360,700) -36%
Profit after tax 1,231,438 1,003,648

Other comprehensive income/(loss) (26,629) -2% (393) 0%

Total comprehensive income 1,204,809 1,003,255

Profit attributable to:

Owners of the Company 1,231,438 1,003,648
Non–controlling interests - -
1,231,438 1,003,648
Total comprehensive income attributable to:
Owners of the Company 1,204,809 1,003,255
Non–controlling interests - -
1,204,809 1,003,255

Earnings per share (EPS):

Basic and diluted earnings per share (par value Tk 80.92 65.95
10) in Taka
In the income statement of Linde Bangladesh Limited, there is no sales discount or

sales return included. For this, we have counted the sales revenue as net sales. So, the sales

revenue of both the year is 100% The initial concern of Linde Bangladesh Limited

in the income statement is the net profit or total comprehensive income of the year which is
4.14% in 2019 and 2.04% in 2018. We can see a gradual and substantial increase in gross
profit as well 44.20% and 41.82%. The Net Profit of an organization is the most significant
element. Without profit, the organization may disappear. So, Linde Bangladesh Limited should
focus on cost management and decrease the Cost of Goods Sold, Total Expense and other
expenses.

Ratio Analysis
I. Current Ratio

Current Assets / Current Liabilities

This ratio reflects the number of times short-term assets cover short-term liabilities and
is a fairly accurate indication of a company's ability to service its current obligations. The
composition of current assets is a key factor in the evaluation of this ratio.

Current Ratio = Current Asset/Current Liabilities

The current ratio is 2.24, which compared to the previous year of 2.00 indicates the
company's ability to service short-term obligations is satisfactory. And the percentage of
increase is 1.12. However, the value of the quick ratio will provide a clearer indication of
the company's success in this area.

II. Quick Ratio

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

This ratio, also known as the acid test ratio, measures immediate liquidity - the number
of times cash, accounts receivable, and marketable securities cover short-term
obligations. A higher number is preferred because it suggests a company has a strong
ability to service short-term obligations. This ratio is a more reliable variation of the
Current ratio because inventory, prepaid expenses, and other less liquid current assets
are removed from the calculation.

The quick ratio is 1.69, which compared to the previous year of 1.35 indicates the
company's ability to service short-term obligations is favorable as the percentage of
increase is 0.34.

III. Accounts Receivable Turnover

Net Sales / Average Net Receivable

This ratio measures the number of times receivables turn over in a year and reveals
how

successful a company is in collecting its outstanding receivables. A higher number is

preferred because it indicates a shorter time between sales and cash collection.

The accounts receivable turnover is 4.91. So, the company’s accounts receivable
turned over 4.91 times during the past year, which means that the average account
receivable was collected in 74.33 days which is to be improved.

IV. Inventory turnover

Cost of Goods Sold/ Average Inventory

Inventory turnover is the rate at which a company replaces inventory in a given period
due to sales. Calculating inventory turnover helps businesses make better pricing,
manufacturing, marketing, and purchasing decisions. Well-managed inventory levels
show that a company's sales are at the desired level, and costs are controlled. The
inventory turnover ratio is a measure of how well a company generates sales from its
inventory.

The inventory turnover is 2.34 which is not ideal. Ideal inventory turnover is around 5.

V. Profit Margin

Net income/ Net sales

This ratio measures how much profit a company makes on each sales dollar received
and how well a company could potentially deal with higher costs or lower sales in the
future.

In 2019 the profit margin is 0.126%

VI. Asset Turnover

Net sales/ Average assets

The asset turnover ratio measures the value of a company's sales or revenues relative
to the value of its assets. The asset turnover ratio can be used as an indicator of the
efficiency with which a company is using its assets to generate revenue. The higher the
asset turnover ratio, the more efficient a company is at generating revenue from its
assets. Conversely, if a company has a low asset turnover ratio, it indicates it is not
efficiently using its assets to generate sales.

The asset turnover ratio of Linde Bangladesh in 2019 is 1.181 which is decent as
company tries more likely to aim for an asset turnover ratio that's between 0.25 and 0.5.

VII. Return on Assets

Net Income / Average Assets

This ratio measures how effectively a company's assets are being used to generate
profits. It is one of the most important ratios when evaluating the success of a business.
A higher number reflects a well-managed company with a healthy return on assets.
Heavily depreciated assets, a large number of intangible assets, or any unusual income
or expenses can easily distort this calculation.

The return on assets ratio is 0.14, which indicates the ratio is quite decent for the
company as the ideal rate is 0.05/5%.

VIII. Return on Common Stockholders’ Equity

(Net income – Preferred Dividend) / Average Common Stockholders’ Equity

Return on common stockholders’ equity ratio measures the success of a company in

generating income for the benefit of common stockholders. It is computed by dividing
the net income available for common stockholders by common stockholders’ equity.
The ratio is usually expressed in percentage.

The return of common stockholders’ equity ratio of 2019 is 0.0137 which is 1.37% and
the value is normal as the ideal value stands at 10% or less.
IX. Payout Ratio

Total Dividends / Net Income

The payout ratio is a financial metric showing the proportion of earnings a company
pays shareholders in the form of dividends, expressed as a percentage of the
company's total earnings. On some occasions, the payout ratio refers to the dividends
paid out as a percentage of a company's cash flow. The payout ratio is also known as
the dividend payout ratio.

The payout ratio Linde Bangladesh in 2019 is 0.689 or 68.9%. As, payout ratio that is
around 80 percent is considered high. A company with a high payout ratio is generally
on the cusp of declaring most or all the money it makes as dividends.

X. Debt to Asset Ratio

Total Debt / Total Asset

Debt to assets is a leverage ratio that defines the total amount of debt relative to assets
owned by a company. Using this metric, analysts can compare one company's leverage
with that of other companies in the same industry. This information can reflect how
financially stable a company is. The higher the ratio, the higher the degree of leverage
(DoL) and, consequently, the higher the risk of investing in that company.

The debt to asset ratio in 2019 was 0.423 and in 2018 was 0.418. A lower debt-to-asset
ratio suggests a stronger financial structure, just as a higher debt-to-asset ratio
suggests higher risk. Generally, a ratio of 0.4 – 40 percent – or lower is considered a
good debt ratio. The ratio is little bit higher than the ideal value.