A Report on Financial Ratio Analysis of BATA Shoe Company Ltd and APEX Footwear

Company

Course: Introduction to Financial Management; FIN254

Section: 20

Assigned Company: BATA Shoe Company Ltd and APEX Footwear Company

Submitted To: Tanjina Shahjahan

Department Of Accounting & Finance
School Of Business & Economics
North South University

Group name:
Abdullah Abrar Galib 2011233030
Meherin Nusrat Aishee 2011336615
Tasnim Raiyana Arpita 1931551630
Naeem Ahmed 2011913030
Saima Akther 2011210630
Sakib Hossain Rana 2012377030
 Letter of transmittal

Date:
Tanjina Shahjahan
School of Business
Department of Accounting & Finance
North South University

Subject: Submission of report on Bata Shoe Company Bangladesh Limited and Apex
Footwear Ltd.’s ratio analysis.

Dear Madam,

With the Almighty's help, we were only able to complete our mission in the midst of the COVID-

19 pandemic. Furthermore, the way you advised us and helped us understand how to do things

correctly during the outbreak was just extraordinary. This is to inform you that we are pleased to

present our report on Bata Shoe Company Bangladesh Limited and Apex Footwear Limited's ratio

analysis, which is based on their annual reports. We tried our hardest to include your outstanding

advice into each aspect of our report. This research paved the way for the creation of a relationship

between academic knowledge and real-world experience. I believe that completing this report

would be impossible without your kind guidance. Finally, we'd want to thank you for your

assistance and apologies for any mistakes.

With sincere regards,

Abdullah Abrar Galib 2011233030 Naeem Ahmed 2011913030
Meherin Nusrat Aishee 2011336615 Saima Akther 2011210630
Tasnim Raiyana Arpita 1931551630 Sakib Hossain Rana 2012377030
 Acknowledgement

To begin, we would want to express our gratitude to Almighty Allah for keeping us well and secure

during the awful Covid-19 catastrophe. Special thanks to our respected faculty, Tanjina Shahjahan,

for giving us her full support throughout these struggling times. Her detailed instructions and ideas

also assisted in the timely and fruitful completion of this report. She selected the company and has

given us the opportunity to showcase our expertise. She was quite helpful in answering all of our

questions. Furthermore, we would like to acknowledge the contribution of our fellow group

members as well as anybody who gave us with important information. Finally, we thank North

South University for providing us the opportunity to embark on this project.

 INDEX

Table of Contents
Introduction .................................................................................................................................................. 1
1. Liquidity Ratio ....................................................................................................................................... 2
1.1 Current Ratio ....................................................................................................................................... 2
1.2 Quick Ratio .......................................................................................................................................... 3
2. DEBT RATIOS ............................................................................................................................................. 4
2.1 Debt Ratio ........................................................................................................................................... 4
2.2 Times Interest Earned Ratio ................................................................................................................ 6
3. Profitability ratios ..................................................................................................................................... 7
3.1 Gross Profit Margin: ............................................................................................................................ 7
3.2 Operating Profit Margin: ..................................................................................................................... 8
4.Activity Ratio .............................................................................................................................................. 9
4.1 Inventory Turnover Ratio: ................................................................................................................... 9
5. Market Ratios .......................................................................................................................................... 10
5.1 Price Earnings Ratio .......................................................................................................................... 10
Conclusion ................................................................................................................................................... 12
Recommendation........................................................................................................................................ 13
References: ................................................................................................................................................. 14
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Introduction

Bata

Bata Shoe Company (Bangladesh) Limited is a Bangladesh-primarily based totally organization

engaged in producing, advertising, and marketing leather, rubber, plastic, canvas footwear,
hosiery, and add-ons items. The Company's segments encompass Domestic and All different
Segments. The Domestic section is engaged in producing, advertising, and marketing leather,
rubber, plastic, and canvas footwear, hosiery, and add-ons in the home market. The Company gives
merchandise to ladies, guys, and youngsters. It offers add-ons, closed footwear, flip-flops and
thongs, sandals, doors, and sports activities footwear for ladies and guys. The Company's
manufacturers encompass Bata, Bubble gummers, Comfit, Hushpuppies, Marie Claire, NorthStar,
Patapata, Power, Sandak, B. First, Scholl, Weinbreinner, and Bubble gummers. Under the
youngster's category, it gives footwear for boys and faculty footwear. It provides several add-ons,
including a ladies' bag, belts, eye gear, wallet, shoe shiner, and socks. The Company's production
flowers are positioned at Tongi and Dhamrai.

Apex

Apex Footwear Limited is a Bangladesh-primarily based leather-based shoe manufacturer and

exporter with Western Europe, North America, and Japan clients. Ago cemented Leather shoe is
the corporation's product line. For men, the corporation presents get dressed and formal, informal
and lifestyle, boots and sandals; for women, the corporation gives boots and lengthy boots; and for
children, the corporation provides get dressed, boots, and sandals. Men's and women's moccasins
are to be had from the corporation. Most of the corporation's brands are Venturini, Apex, Sprint,
Maverick, Moochie, Nino Rossi, Sandra Rosa, Twinkler, SchoolSmart, and Dr. Mauch. The
corporation has approximately 380 resellers and more or less one hundred ninety unique retail
shops. Everyday production potential of 20,000 pairs of footwear is to be had on the corporation.
Cutting dies facility, leather-based completing plant, effluent remedy plant, consuming water
purification plant, bonded warehouse, scientific middle, and baby care, and education centers are
most of the corporation's in-residence centers.
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Ratio Analysis

1. Liquidity Ratio

A liquidity ratio is a financial measure that is used to assess a company's capacity to meet its
short-term financial obligation (Gitman & Zutter, 2015).

1.1 Current Ratio

The current ratio indicates whether or not a corporation is liquid. A company would always
prefer a country's current ratio to be larger than 1. If the ratio is more than one, the business is
liquid. The company has enough assets to cover its liabilities even if it goes bankrupt. It can sell
those assets to cover its debts. If the current ratio is less than one, the corporation does not have
enough cash to pay down its debts.

The graph below shows the Liquidity ratio of Bata Shoe Company (Bangladesh) Limited and
Apex Footwear Limited for four years from 2017 to 2020.

Current Ratio
Bata Apex

2.5
2
1.5
1
0.5
0
2016.5 2017 2017.5 2018 2018.5 2019 2019.5 2020 2020.5

2017 2018 2019 2020

Bata 2.012 2.014 2.344 2.001
Apex 1.031 1.004 1.001 0.95

Bata Shoe Company (BD) Limited: Here the Bata company, we see that in 2017, 2018, 2019,
2020 current ratio is 2.012 times, 2.014 times, 2.344 times and 2.001 times. In 4 years, the
company is considered as being well-capitalized and has sufficient assets to cover its
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liabilities. Because its current ratio is twice the number required to be liquid. In 2020 it was
decreased. In 2020 pandemic is here, that’s why the current ratio decreased a huge.

Apex Footwear Limited: In this area, the current ratio of Apex has decreased from 1.031 times,
then 1.004 times, next 1.001 and at last 0.950. This company is also liquid enough to recover its
liabilities in the event of an unfavorable situation. Pandemic is totally damaged their asset. They
can’t sell their product more and more.

Cross-sectional Analysis: Comparing two companies, we see that Bata is better than Apex
every year. Bata is well-capitalized to cover its liabilities. Apex needs more assets to overcome
its current ratio. The higher is better for this particular company. If the current ratio is higher, it’s
better for this particular company. Apex needs more and more sales.

1.2 Quick Ratio

The quick ratio is often used to assess a company's liquidity. When the quick ratio is greater than
one, the corporation has sufficient other current assets and does not need to rely on inventory
sales to meet its obligations. It eliminates the need for inventory.

The graph below shows the Quick ratio of Bata Shoe Company (Bangladesh) Limited and Apex
Footwear Limited for four years from 2017 to 2020.

Quick Ratio
1.2
1
0.8
0.6
0.4
0.2
0
2016.5 2017 2017.5 2018 2018.5 2019 2019.5 2020 2020.5

Bata Apex

2017 2018 2019 2020

Bata 0.948 1.001 1.092 0.439
Apex 0.328 0.324 0.312 0.162
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Bata Shoe Company (BD) Limited: Bata's quick ratio in 2017, 2018, and 2019 are 0.94 times,
1.001 times, and 1.092 times. It demonstrates that Bata Company does not need to rely on
inventories. If the company goes bankrupt, it will be able to recover its liabilities through current
assets other than inventories. But in 2020 it has 0.439, which was shocked. A valuable reason is,
their 59% business shut down a maximum period. In this pandemic period, their assets will be
lacking. Their quick ratio is down above this particular period, Now this time, they rely on their
inventories.

Apex Footwear Limited: However, Apex's quick ratios for 2017, 2018, 2019, and 2020 are
0.32, 0.32, 0.31, and 0.162, indicating that Apex is heavily reliant on inventory sales. If the
company goes bankrupt, it must wait until its inventories are sold to recover its liabilities.
Because the company lacks sufficient other current assets. They have minimum amount of
inventory.

Cross-sectional Analysis: When comparing Bata to Apex, it is clear that Bata is in a better
position than Apex from 2017 to 2020. So, in terms of quick ratio, Bata is sufficiently liquid
because three of its year’s quick ratios are greater than but except in 2020 when Apex remains
reliant on inventory. As a result, Apex is not at all liquid.

2. DEBT RATIOS

A company's debt position reflects how much other people's money is being utilized to generate
profits. In general, the more debt it employs compared to its overall assets, the larger a
company's financial leverage (Gitman & Zutter, 2015).

2.1 Debt Ratio

The debt ratio is a measurement of how much of a company's total assets are financed by its
creditors. The higher this percentage is, the more money from other people is utilized to create
profit (Gitman & Zutter, 2015). The ratio is calculated as,

Debt ratio = Total liabilities ÷ Total assets

The graph below illustrates the debt ratio of Bata Shoe Company (Bangladesh) Limited and
Apex Footwear Limited for four years from 2017 to 2020.
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Debt Ratio
90.00% 81.40% 81.72% 81.46% 84.03%
80.00%
70.00%
60.00%
45.50% 46.02% 45.12% 44.50%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
2017 2018 2019 2020
Bata 45.50% 46.02% 45.12% 44.50%
Apex 81.40% 81.72% 81.46% 84.03%

Bata Apex

Bata Shoe Company (BD) Limited: Here, the company has financed 45.5% of its assets with
debt in 2017 and then gradually increased to 46.02% in 2018. Again, during 2020, the ratio has
fallen from 45.12% to 44.5%, which is a good sign. This implies that the company has a lesser
level of debt in relation to its overall assets. However, it also can be noted that the company's
drop in the operating activities by 140% in the year 2020 have resulted in lower assets and a
good payback of liabilities.

Apex Footwear Limited: In this case, the debt ratio of Apex has increased slightly from 81.40%
to 81.72% during 2018. Then, in the following year, the ratio drops to 81.46%. However, in
2020, the ratio raised by 2.31% making Apex more challenging to take loans. The almost equal
increment of liability and assets (about 244 crore) in 2020 has caused this change. This would
imply that the company is heavily reliant on creditors to stay in operation.

Cross-sectional Analysis: In comparison to Apex, it can be clearly seen that Bata is in a better
position since its debt ratio is much lower than Apex from 2017 to 2020. Apex is less likely to
repay its debt as it has a higher ratio of more than 50%. Thus, in order to strengthen its position,
the company must reduce its liabilities or limit the sale of accounts receivable and increase its
assets.
 Page |6

2.2 Times Interest Earned Ratio

The interest coverage ratio, also known as the times interest earned ratio, assesses a company's
capacity to meet its contractual interest expenses. The higher the value, the better the company's
ability to meet its interest payments (Gitman & Zutter, 2015). TIE ratio is measured as,

Times interest earned ratio = Earnings before interest and taxes ÷ Interest

The graph below represents the times interest earned ratio of Bata Shoe Company (Bangladesh)
Limited and Apex Footwear Limited for four years from 2017 to 2020.

Times Interest Earned Ratio (TIE)

350 315.15
300
250
200 175.03
IN TIMES

150
100
5.8
50 1.28
1.11 1.91 1.28
0
-8.52
-50
2017 2018 2019 2020
Bata 315.15 175.03 5.8 -8.52
Apex 1.11 1.91 1.28 1.28

Bata Apex

Bata Shoe Company (BD) Limited: Here, the TIE ratio of Bata reached a peak in 2017, which
was 315.15 times. What stands out in this chart is the rapid decrease in the TIE ratio in the
following three years. In 2020, the company hit its lowest point which was less than 1, due to
their negative EBIT i.e., -1425312055. This indicates that Bata was no longer capable of paying
their interest expense.

Apex Footwear Limited: Apex's TIE ratio has fluctuated over the years. However, in 2018, the
ratio was 1.91 times, which was somewhat higher than the others. This suggests that in 2018, the
company was able to cover its interest expense with operating income slightly better than in
 Page |7

2017, 2019, and 2020. We can see an increment of 25 crores in the interest of 2019; following
this, the ratio drops to 1.28 times, and it remains steady over the next year.

Cross-sectional Analysis: Compared to Apex, Bata is struggling to cover its interest expense
with its operational income since there has been a decreasing trend the whole time. This could
imply that Apex manages its debts a bit more efficiently than Bata.

3. Profitability ratios

3.1 Gross Profit Margin:

The percentage of sales revenue that a company can convert into gross profit is known as gross
profit margin. Gross profit margin of Apex from 2018 to 2020 was gradually increasing 21%,22%
and 29%. Gross profit margin of Bata from 2018 to 2020 was gradually decreasing 44%,45% and
25%. Bata’s gross profit has decreased by 66.91% and revenue has dropped by 40.70% from 2019
to 2020 which is a huge number that’s why their gross profit margin dropped from 45% to 25% in
2020. We can assume that due to pandemic all the businesses have done bad or incurred loss but
this is very huge and bad compared to their competitors.

Gross Profit Margin

50.00%
45.00% 44.76% 44% 45%
40.00%
35.00%
30.00% 29%
25.00% 25%
21% 22%
20.00% 19.93%
15.00%
10.00%
5.00%
0.00%
2017 2018 2019 2020

Apex Gross profit margin Bata Gross profit margin

 Page |8

We can see that Apex gross profit margin is positive but highest from past years in 2020. %. Apex’s
gross profit has decreased by only 3.22% and revenue has dropped by 25.29% from 2019 to 2020
which is a comparatively less than previous years that’s why their gross profit margin increase
from 22% to 29% in 2020. So, we can say that they can make profit on sales. But they should try
to improve more as a healthy gross profit margin ratio would be between 50 and 70%.

On the other hand, Bata had a good position in 2019 of 45% then decreased 20% in 2020. So, we
can say that to be a financial health company Bata need to improve like 2019.

At that we can say that both Apex and Bata able to generate gross profit from sales of products,
but Apex is at a good position.

3.2 Operating Profit Margin:

As we all know, the operating profit margin is the amount of profit a company makes after paying
for variable production costs like wages and raw materials. Operating profit margin of Apex from
2018 to 2020 was gradually increasing 5%,6% and 9%. Operating profit margin of Bata from
2018 to 2021 was gradually decreasing 16%,12% & -28%

Operating Profit Margin

30.00%
20.00% 18.32% 16%
10.00% 12% 9%
5.17% 5% 6%
0.00%
-10.00% 2017 2018 2019 2020

-20.00%
-30.00% -28%

-40.00%

Apex Operating Profit Margin Bata Operating Profit Margin

We can see that Apex operating profit margin is positive and highest in 2020 that means the
company is making enough money from its operations to cover all the costs associated with
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maintaining that business. But apex should try to improve their operating profit as a good operating
margin is one that is greater than 15%.

On the other hand, Bata has inability to control costs as we see in 2020 it was -28%. In the year
2020, they had negative earning from operating activities that means they had loss which
ultimately gives us negative operating profit margin of Bata in 2020. Their EBIT has decreased by
239.81% which is a huge loss and will create a very bad impression to the investors. On the other
hand, Apex’s EBIT has dropped by only 0.71% in 2020. So, we can say that Bata spends too much
money manufacturing a product or has too high overhead costs, that’s why Bata end up with a
negative operating profit. At last, we can say that Apex is at a good position compared to Bata.

4.Activity Ratio

4.1 Inventory Turnover Ratio:

The rate at which inventory is sold, used and replaced is known as inventory
turnover. Divide the cost of products by the average inventory for the same period
to get the inventory turnover ratio.

Chart Title
1.59 1.72 1.7
3.5 1.05
3
2.5 1.63
2 1.5 1.45 1.56
1.5
1
0.5
0
2017 2018 2019 2020
Apex 1.59 1.72 1.7 1.05
Bata 1.5 1.45 1.63 1.56
Bata Apex

Interpretation:
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The inventory turnover ratio of Bata was 1.50 percent in 2017 and 1.45 percent in 2018.
However, in 2019, it climbed by 1.63 percent before decreasing by 1.56 percent. Here, Bata’s
inventory in inventory turnover ratio has changed a lot in the lot two years. That’s why Bata’s
inventory turnover ratio has fluctuated so much.

Apex had a ratio of 1.59 percent in 2017 and 1.72 percent in 2018. However, in 2019, the ratio
declined by 0.02 percent to 1.70 percent, and in 2020, it decreased by 1.05 percent. The
inventory turnover ratio of Apex has also changed a lot in the lot two years. That’s why Apex’s
inventory turnover ratio has fluctuated so much.

Comparison:

Apex's inventory turnover ratio was significantly higher than Bata's in 2017 and 2018. However,
Apex's inventory turnover ratio fell by 0.02 percent in 2019, whereas Bata's increased. Apex's
ratio fell to 1.05 percent in 2020, while Bata's fell to 1.56 percent, indicating that both companies
are inefficient in inventory management.

5. Market Ratios

Market ratio indicates the current share price of a company; this also defines weather a company
is overpriced or underpriced from the analysis. Below is the Price Earnings Ratio calculation of
BATA and Apex.

5.1 Price Earnings Ratio

It is one of the company valuations tools

Price Earning Ratio- Apex
60.00
that defines the price of one share in
50.00
relation to its Earning Per share (EPS).
40.00
47.74
This Ratio gives an idea to the investors 30.00
31.27 39.02
regarding the share demand and 20.00
27.12
10.00
Company's value in the market from the
0.00
view point of share price and EPS. 2017 2018 2019 2020
(Fernando, 2021) 2017 2018 2019 2020
Price Earning
47.74 31.27 27.12 39.02
Ratio
Time series- in the time span of 2017-20
Apex had high P/E Ratio. Although the P/E Ratio dropped to almost half in 2019, however, it
 P a g e | 11

took a slight recovery in the year 2020. In 2017 the P/E Ratio of Apex was 47.74, in 2018 is
came down to 31.27, and in 2019 to 27.12; finally, in 2020 it reached 39.02. This high Ratio can
be the result of higher expectation of the shareholders or the overvaluation of stock. Moreover, in
the year 2019 Apex’s EPS and Market price dropped by 0.63 and 65 respectively; which is not as
bad as 2020 (dropped EPS by 5.29 and market price by 76.6) but was enough to show the lowest
figure in P/E ratio.

On the other hand, the BATA footwear

Price Earning Ratio-Bata
company had relatively lower price
25.00 19.30
earnings ratio in 2017 & 18 and reached it 20.00
peck in 2019; but the loss in 2020's net 15.00
10.00 5.72 6.66
income resulted in negative Ratio for the 5.00
0.00
Company. In 2017 the Ratio stood at
-5.00 2017 2018 2019 2020
15.72, in 2018 at 6.66, in 2019 to 19.30; -7.25
-10.00
2017 2018 2019 2020
lastly in 2020 this falls to -7.25. BATA Series1 5.72 6.66 19.30 -7.25
footwear has mentioned their 41% of
sales drop in 2020 following a 59% business fall and negative 140% drop in the operating
income. (BATA , 2020). This caused a huge damage in the EPS, dropping Tk 169.73 in two
years, resulted in a negative EPS and a E/P ratio.

Cross section- in compression with both the Company and the industrial average Apex company
holds a reasonable value in the marker and still profitable business. Whereas, BATA's last year's
loss has made its P/E Ratio to remain unmatched to the BD market. In the case of Apex, the
investors are likely to expect more form the Company than BATA; however, they both remain
undervalued in the books.
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Conclusion

The representation of a firm is represented through ratios. Bata Shoe Company Bangladesh
Limited and Apex Footwear Limited's ratio analysis reflects the company's overall performance
from 2017 to 2020. According to the research, Bata Shoe Company Bangladesh Limited has
done a better job conducting business than Apex Footwear Limited. According to the liquidity
ratio research, Bata is more liquid than Apex. Bata's liquidity is greater than two, whereas Apex's
is greater than one. Both are sufficient, although Bata has a higher liquid content than Apex.
Furthermore, Bata's debt ratio is lower than Apex's, both with and without inventory. Bata's
assets are sufficient to cover its debts. Bata sells its inventory faster than Apex, indicating that
Apex sells more. A further sign is that Bata has made effective use of its resources. As a result of
the total assets turnover ratio, we can conclude that Bata is properly deploying resources to
create sales. Furthermore, Bata's net profit is consistently higher than Apex, indicating that the
firm is able to pay all of its costs and maintain a healthy cash flow. We can observe that Bata is
in a better situation than Apex after examining all ratios.
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Recommendation

Comparing two companies in liquidity, we see that Bata is better than Apex every year. Bata is
well-capitalized to cover its liabilities. Apex needs more assets to overcome its current ratio. The
higher is better for this particular company. And when it comes to quick ratio, Bata is sufficiently
liquid because three of its year’s quick ratios are greater than but except in 2020 when Apex
remains reliant on inventory. As a result, Apex is not at all liquid and it should be liquid.

Comparing two companies in debt ratio, it can be clearly seen that Bata is in a better position
than Apex, since its debt ratio is much lower than Apex. Apex is less likely to repay its debt as it
has a higher ratio of more than 50%. Thus, we can say that to improve its position the company
must decrease its liabilities and increase its assets. And for the times interest earned ratio, Bata is
struggling to cover its interest expense with its operational income since there has been a
decreasing trend the whole time compared to Apex. Bata should focus more on to cover its
interest expense with its operational income

Comparing two companies in profitability ratios, both Apex and Bata able to generate gross
profit from sales of products, but Bata is not at a good position compared to Apex in operating
profit margin and for this reason Bata should focus more on EBIT.

Apex's inventory turnover ratio was significantly higher than Bata's in 2017 and 2018. However,
Apex's inventory turnover ratio fell by 0.02 percent in 2019, whereas Bata's increased. Apex's
ratio fell to 1.05 percent in 2020, while Bata's fell to 1.56 percent, indicating that both companies
are inefficient in inventory management and for this reason both companies should focus on how
to improve their inventory.

There is small fluctuation in the Apex Footwear industry in terms of price earnings ratio.
However, in case of BATA shoes it was in good position in 2017-19 in terms of industry average
but the pandemic loss dropped its P/E ratio to a negative figure. Here the sales and net income of
both the firm act as a differentiator between the companies.
 P a g e | 14

Finally, we can claim that we should invest in Bata Shoe Company Bangladesh Limited as an
investor. Because of the ratio research, we discovered that Bata has the best performance and is a
safe business to invest in.

References:

1. Gitman, L. J., & Zutter, C. J. (2015). Principles of Managerial Finance. Pearson Education.
2. Marketscreener.com. 2022. BATA SHOE COMPANY (BANGLADESH) LIMITED:
Shareholders Board Members Managers and Company Profile | BD0603BATAS6 | Market
Screener. [online] Available at: <https://www.marketscreener.com/quote/stock/BATA-
SHOE-COMPANY-BANGLA-6500862/company/> [Accessed 25 March 2022].
3. Fernando, J., 2021. Investopedia-Price-to-Earnings (P/E) Ratio. [Online] Available at:
https://www.investopedia.com/terms/p/price-earningsratio.asp [Accessed 05 march 2022].
4. BATA, 2020. Annual Report 2020, Dhaka: BATA Footwear Ltd.