Annual Report Analysis

Far Chemical Industries Ltd. & Global Heavy Chemicals Ltd.

Group Name: THE ACOUNT-ANTS

Submitted By,
Sonali Siddika Oishi
ID-1810115

Salma Masuda
ID- 1710141

Instructor,
Dr. Rushdi Razzaque
Department of Accounting
School of Business & Entrepreneurship, IUB

HGHU
Contents
Table of Contents ..................................................................................... Error! Bookmark not defined.
Executive Summary................................................................................................................................. 3
Far Chemical Industries Limited .............................................................................................................. 4
1. Checklist ...................................................................................................................................... 4
2. Computation of Year 2018 .......................................................................................................... 4
Accounts Receivable Turnover Ratio .............................................................................................. 4
Inventory Turnover Ratio ................................................................................................................ 4
Asset Turnover Ratio ....................................................................................................................... 5
3. Profit Margin on Sales ................................................................................................................. 5
Gross Profit Margin on Sales ........................................................................................................... 5
Operating profit margin on sales .................................................................................................... 5
Net Profit on Sales .......................................................................................................................... 5
Return on Assets ............................................................................................................................. 5
Return on equity ............................................................................................................................. 6
Earnings per share .......................................................................................................................... 6
Price Earnings Ratio ........................................................................................................................ 6
Payout Ratio .................................................................................................................................... 6
4. Computing the analysis ............................................................................................................... 7
Debt to asset ................................................................................................................................... 7
Times Interest Earned ..................................................................................................................... 7
Cash Debt Coverage ........................................................................................................................ 7
Book Value Per Share ...................................................................................................................... 7
Free Cash Flow ................................................................................................................................ 7
GLOBAL HEAVY CHEMICAL LTD ............................................................................................................... 8
2. Computation of the year of 2018 ................................................................................................... 8
Accounts receivable turnover ratio: ............................................................................................... 8
Inventory turnover ratio: ................................................................................................................ 8
Asset turnover ratio: ....................................................................................................................... 8
Profit margin on sales ..................................................................................................................... 9
Gross profit margin on sales: .......................................................................................................... 9
Operating profit margin on sales: ................................................................................................... 9
Net profit margin on sales: ............................................................................................................. 9
Return on assets: ............................................................................................................................ 9
Return of equity: ........................................................................................................................... 10
Earnings per share ........................................................................................................................ 10
Price earnings ratio: ...................................................................................................................... 10
Payout ratio:.................................................................................................................................. 10
Debt to assets: .............................................................................................................................. 10
Times interest earned: .................................................................................................................. 11
Cash debt coverage: ...................................................................................................................... 11
Book value per share: ................................................................................................................... 11
Free cash flow: .............................................................................................................................. 12
 Executive Summary

This assignment is based on analysis of two companies Far Chemicals Industries Ltd. and
Global Heavy Chemical Ltd. the companies are based on pharmaceuticals practice.

We have chosen the numbers optimised by the company’s annual report. We made an
analytical comparison between the ratios of these two companies and tried to cover all the
possible ratios which were mentioned.

The calculations are based on the reports found on the website of the companies. We chose
the reports of 2018 and 2019 which were referred are the annual reports of 2018-19.

The disclosed computations and critical analysis are based on the respective annual reports of
the given companies.
 Far Chemical Industries Limited

1. Checklist

Items Check 2018 2019

Amount (in Taka) Amount (in Taka)
a) Revenue  133,73,66,121 118,66,80,670
b) Financial Cost  2,23,40,481 2,18,72,878
c) Share of the profit - -
and loss of associates X
and joint ventures
d) Tax Expenses X - -
e) (Ea) Discontinued X - -
Operations

2. Computation of Year 2018

Accounts Receivable Turnover Ratio

Net sales/ Average accounts receivable

= 289,373,348/ {(626,642,699+ 617,542,172)/2}

= 289,373,348/622,092,435

=0.465

The accounts receivable turnover ratio of 0.465 indicates that ―Far Chemicals Industries
Ltd.‖ is collecting their average receivables 0.465 times per year. As we know, the higher
your ratio, the more times an organization is turning over the accounts receivable, which
means that there’s a higher likelihood that their customers’ debts are being paid lately or not
within the time.

Inventory Turnover Ratio

Cost of Goods Sold/ Average inventory

= 1,047,992,773/ {(426,959,883+468,297,673)/2}
=1.585

The inventories turnover ratio of 1.585 indicates that Far Chemicals Industries Ltd. is not
overspending by buying too much and wasting resources on storage costs. It also shows that
their effectively selling the inventory they buy and replenishing cash quickly. As we know
the, higher inventory turnover indicates better performance and lower turnover, inefficiency.

Asset Turnover Ratio

Net sales/ Average total assets

= 289,373,348/ {(2,813,864,694+3,021,791,121)/2}

=0.067

Asset turnover ratio of 0.067 which means their assets are not using properly and they are not
getting enough returns from their assets. Because the higher the asset turnover ratio, the better
the company is performing.

3. Profit Margin on Sales

Gross Profit Margin on Sales

(Gross Profit / Net Sales) × 100
=289,373,348/ 1,337,366,121) × 100

=2.164%

Operating profit margin on sales

(Operating profit / Net Sales) × 100

= (266,454,954/1,337,366,121) × 100

= 4.97%

Net Profit on Sales

(Net Income after Tax / net sales) × 100

= 266,370,270/1,337,366,121) × 100

=19.92%

Return on Assets
Profit Margin on Sales × Asset Turnover
=19.92% × 0.067

= 2.97
Return on assets indicates the amount of money earned per dollar of assets. Therefore, a
higher return on assets value indicates that a business is more profitable and efficient. The
company is earning 2.9% taka for per taka of amount. That is not profitable for the company.

Return on equity
Net Income / Shareholder’s Equity

= 266,730,270/ 2,813,864,694

=0.095 * 100

=9.48%

The company’s ROE is 9.48 which indicates they are generating less profit. A rising ROE
suggests that a company is increasing its profit generation without needing as much capital. It
also indicates how well a company's management deploys shareholder capital. Put another
way, a higher ROE is usually better while a falling ROE may indicate a less efficient usage of
equity capital.

Earnings per share

Net Income / Weighted Average Shares Outstanding

=266,730,270/ 180,242,498

=1.48

Earnings per share is better at a higher ratio because this means the company is more
profitable and the company has more profits to distribute to its shareholders. The EPS of 1.48
shows the company is not earning much per share.

Price Earnings Ratio

Market Value Per Share / Earning Per Share

= 10/ 1.48

=6.76

Payout Ratio
Total Dividends / Net Income
=163,856,820/266,730,270

=0.61

4. Computing the analysis

Debt to asset
(Total Liabilities / Total Assets) × 100

=49,521,896/2,813,864,694

=1.76%

Times Interest Earned

Income before Interest and Taxes / Interest Expenses

= 266,730,270/-

=-

Cash Debt Coverage

Net Cash Provided by Operating Activities / Average Current Liabilities

= 314,925,560/3,669,335

= 85.83

Book Value Per Share

(Total Equity - Preferred Equity) / Total Shares Outstanding

= (2,813,864,694- 0)/ 56,999,867

= 49.37

Free Cash Flow

Cash from Operations – Capital Expenditure

=314,925,560- 234,570,874

= 803,546,686
 GLOBAL HEAVY CHEMICAL LTD

2. Computation of the year of 2018

Accounts receivable turnover ratio:

Net Sales / Average Accounts Receivable

=547,672,137/[(240,633,897+254,423,658)/2]

=2.21 TIMES

Here accounts receivable turnover ratio of 2.21 indicates that GLOBAL HEAVY
CHEMICAL LTD is collecting their average receivables 2.21 times per year. As we know,
the higher your ratio, the more times you’re turning over your accounts receivable, which
means that there’s a higher likelihood that their customers’ debts are being paid quickly.

Inventory turnover ratio:

Cost of Goods Sold / Average Inventory

=385,783,150/[(212,636,633+201,209,701)/2]

=1.86 TIMES

Here inventories turnover ratio of 1.86 ndicates that GLOBAL HEAVY CHEMICAL LTD is
not overspending by buying too much and wasting resources on storage costs. It also shows
that their effectively selling the inventory they buy and replenishing cash quickly. As we
know the, higher inventory turnover indicates better performance and lower turnover,
inefficiency.

Asset turnover ratio:

Net Sales / Average Total Assets

= 547,672,137/[(4,669,923,557+4,515,539,901)/2]
=0.11 TIMES

Profit margin on sales:

Gross profit margin on sales:

(Gross Profit / Net Sales) × 100

= (161,888,987/547,672,137)×100

=0.295 × 100

=29.5%

Operating profit margin on sales:

(Operating profit / Net Sales) × 100

= (111,497,589/547,672,137) × 100

=0.204× 100

=20.4%

Net profit margin on sales:

(Net Income After Tax / net sales) × 100

= (63,006,424/547,672,137) × 100

=0.115× 100

=11.5%

Indicates the number of profit dollars generated for each $100 in sales. This result may be
considered positive or negative, depending on the industry standard for companies of similar
size and activity.

Return on assets:
Profit Margin on Sales × Asset Turnover

= 11.5% × 0.11

=1.3%
Return of equity:
Net Income / Shareholder’s Equity

= (63,006,424/ 3,975,388,111)× 100

= 0.016× 100

=1.6%

Earnings per share:

Net Income / Weighted Average Shares Outstanding

= 63,006,424/ 72,000,000

= 0.88

Price earnings ratio:

Market Value Per Share / Earning Per Share

= 10/ 0.88

= 11.4

Payout ratio:
Total Dividends / Net Income

= 22,295,000/ 63,006,424

= 0.35

Debt to assets:
(Total Liabilities / Total Assets) × 100

= 4272535446 /4,669,923,557)× 100

= 0.915× 100

= 91.5%

Times interest earned:

Income Before Interest and Taxes / Interest Expenses

= 111,497,589/ 17,485,715

= 6.38 TIMES

Cash debt coverage:

Net Cash Provided by Operating Activities / Average Current Liabilities

= 168,672,491 / 237963908

= 0.709

A higher current cash debt coverage ratio indicates a better liquidity position. Generally, a
ratio of 1: 1 is considered very comfortable because having a ratio of 1: 1 means the business
is able to pay all of its current liabilities from the cash flow of its own operations. The cash
debt ratio of 0.709 : 1 shows that the company has enough cash to pay it’s debt.

Book value per share:

(Total Equity - Preferred Equity) / Total Shares Outstanding

=3,975,388,111-0/ 72,000,000

=55.21

The BVPS represents the value of equity that remains after paying up all debts and the
company’s assets liquidated.
If a company’s BVPS is higher than its market value per share—its current stock price—then
the stock is considered undervalued. BVP of this company is considered undervalued. The
current stock price needs to go up to value the BVP of 55.21

Free cash flow:

Cash from Operations – Capital Expenditure

=168,672,491-(-263562763

=432,235,260