AMCL Pran Finincial Performance

Rationalization of Stock Price through Financial Analysis:A Case Study of Agricultural Marketing Co Ltd [AMCL PRAN]

Prepared for

Dr. Masud RahmanProfessor of FinanceSchool of Business

North South University

Name of the Course – Managerial Finance

Course No – BUS 635

Prepared By

NUR-A-ASHRAFUL ALAM - 0910038060

SHARMEEN KHAN - 0910324060

MD. FERDOUS ALAM FAISAL – 0910055560

ACKNOWLEDGEMENT

The success of this project work depends on the contribution of a number of people,

especially those who have taken the time to share their thoughtful guidance and

suggestions to improve this project.

It’s our pleasure to acknowledge the invaluable contribution and assistance of our faculty

Dr. Abdul Hannan Chowdhury, professor, School of business, North South University for

providing us this opportunity to prove our knowledge into practicing skills. We thank him

for his kind cooperation and understanding and providing of relevant guidelines and

advises on the proceedings of a good report submission. Without his observation our

report would not have been successful.

And finally we would like to thank the group participation spirit for the successful

outcome.

2

ContentsCHAPTER – 1...................................................................................................................................5

INTRODUCTION AND METHODOLOGY...........................................................................................5

1.1 Introduction:...................................................................................................................6

1.1.1 Problem Statement:.....................................................................................................7

1.2 Objectives of The study:..................................................................................................9

1.3 METHODOLOGY....................................................................................................................9

1.3.1 Statistical techniques-..................................................................................................9

1.3.2 Nature and source of data-..........................................................................................9

1.3.3 Period Under consideration-........................................................................................10

1.3.4 Nature of Analysis-.......................................................................................................10

1.3.5 Standard of comparison-.............................................................................................10

1.4 Limitation of the Study:......................................................................................................11

CHAPTER 2....................................................................................................................................12

ANALYSIS AND INTERPRETATION..................................................................................................12

2.1 Balance Sheet Analysis..................................................................................................13

2.1.1 Inventory Analysis:.......................................................................................................13

2.1.2 Cash & Cash equivalents:.............................................................................................14

2.1.3 Trade Debtor Analysis:.................................................................................................15

2.1.4 Fixed Assets Analysis....................................................................................................16

2.1.5 Debt Analysis:..............................................................................................................17

CHAPTER – 3.................................................................................................................................18

RATIONALIZATION OF THE BALANCE SHEET FROM THE BOOK VALUE TO MARKET VALUE..........18

3.1 Balance sheet analysis and correction:...............................................................................19

3.1.1 New Balance Sheet Justifying the Market Value (From 2009-2005)............................20

Chapter – 4...................................................................................................................................26

CASH FLOW ANALYSIS..................................................................................................................26

4.1 Cash Flow Analysis:.............................................................................................................27

4.1.1 Net Cash Provided by Operating Activities:..................................................................27

3

4.1.2 Net Cash Provided by Investing Activities:...................................................................28

4.1.3 Net Cash Provided by Financing Activities:..................................................................29

4.1.3 Cash at the End of the Year..........................................................................................30

CHAPTER 5....................................................................................................................................31

RATIO ANALYSIS............................................................................................................................31

5.1 Ratio Analysis:.....................................................................................................................32

5.1.1 Liquidity Ratios:............................................................................................................32

5.1.2 Asset Management Ratios:..........................................................................................37

5.1.3 Debt Management Ratios............................................................................................44

5.1.4 Profitability Ratios:.......................................................................................................48

5.1.4 Market value ratio.......................................................................................................53

CHAPTER 6....................................................................................................................................57

FINDINGS AND CONCLUSION........................................................................................................57

6.1 Findings..............................................................................................................................58

6.2 Conclusion....................................................................................................................59

APPENDIX.................................................................................................................................60

4

CHAPTER – 1

INTRODUCTION AND METHODOLOGY

5

1.1 Introduction:

Managerial finance refers to the functions of procurement, utilization and distribution of

funds. Performance of modern finance is reflected both at firm level and market level.

Experiences although suggest that the two levels are not perfectly interdependent; but

efforts are often made to optimize market performances through firm level optimization

of decisions related to investment, financing and cash management.

The stated objective of the management of any company is to make higher profits

consistently, in terms of wealth maximization which should attract investors to purchase

and retain shares of the company for its sustained future prospect. The key instrument by

which the management of any company communicates its performance level to its

shareholders is its year-end annual report. Annual report portrays a snapshot of its

operating performance for a given period in terms of a number of statements like Income

Statement, Balance Sheet, Statement of Cash flows, Statement of Equity Changes and

notes thereto.

The goal of this report is to evaluate the performance of our selected company in terms of

accounting measures and compare them with market-driven indicators of its performance

and finally rationalize the discrepancy that may exist between the market value per share

and Book value per share of Agricultural Marketing Co Ltd [AMCL PRAN] .

Profile of Agricultural Marketing Co Ltd:

Company profile and present status: PRAN stands for Programme for Rural

Advancement Nationally. “PRAN” is currently the most well known household name

among the millions of people in Bangladesh and abroad also. Since its inception in 1980,

PRAN Group has grown up in stature and became the largest fruit and vegetable

processor in Bangladesh. It also has the largest exporter of processed agro products with

compliance of HALAL & HACCP to more than 70 countries from Bangladesh

6

PRAN is the pioneer in Bangladesh to be involved in contract farming and procures raw

material directly from the farmers and processes through state of the art machinery at its

several factories into hygienically packed food and drinks products. The brand “PRAN”

has established itself in every category of food and beverage industry and can boost a

product range from Juices, Carbonated Drinks, Confectionery, Snacks, and Spices to

even Dairy products.

Historical Highlights: AMCL PRAN has achieved prestigious certificate like ISO

9001:2000.

Office: Property Heights, 12 R K Mission Road,

Dhaka1203

Listing Status: public limited Company

DSE listing year: 1996

Current Authorized capital: 500 million

Current paid up capital: 80 million

Total No of securities: 800000

Face Value: 100 tk

1.1.1 Problem Statement:

There are discrepancies between the Market Values of the Share and the Book Values of

the share of Agricultural Marketing Co Ltd. From the Table 1 and Figure 1 below, it is

noticeable that, the book value per share is fluctuating with time and market value per

share also changes with time. Further, there is significance discrepancy between each

year’s market value and book value per share of AMCL PRAN. To be more precise, the

book value per share of AMCL PRAN as on June 30, 2009 was Tk. 449.96, whereas the

closing market price at Dhaka Stock Exchange as on June 30, 2009 was TK 1363. The

underlying effects of fluctuating market value per share and book value per share is the

issue of interest of our study.

7

Year 2009 2008 2007 2006 2005

Market Value Per Share 1363.00 1142.00 382.63 386.00 519.25

Book Value Per Share 449.96 428.39 409.91 422.11 412.55

Table 1.1: Market Value & Book Value per Share Of AMCL PRAN

20092008

20072006

2005

0

200

400

600

800

1000

1200

1400

Market Value Per ShareBook Value Per Share

Figure 1.1: comparison of market value per share and market value per share of AMCL PRAN

Data source – Annual reports of AMCL PRAN(2005-2009)

8

1.2 Objectives of The study:The main objectives of the study are –

1 To identify the underlying factors causing the discrepancy between market

value per share and book value per share of AMCL PRAN.

2 To explain the reasons why market value is higher/Lower than the book

value of the company using financial tools to explore whether the above

stated discrepancy is good news or a bad news for the company.

3 To rationalize the discrepancy by constructing a corrected balance sheet,

Balance sheet analysis, Ratio analysis and Cash Flow analysis.

1.3 METHODOLOGY

We initiated our study through the gathering of information. The data were collected

from the Annual Reports of 2005, 2006, 2007, 2008 and 2009 of the respective company.

We used various financial analysis tools and statistical tools to have a deep understanding

of financial activities of the company. We did cross-sectional analysis and time series

analysis in order to find out how the company is doing with respect to the competitor

company. Fu-Wang Foods Ltd. was taken as the competitor of our company of study.

1.3.1 Statistical techniques-

The statistical techniques applied in the study include primarily descriptive statistics

statistics. The descriptive statistics techniques applied are graphical analysis. By using

the tool we conducted cross-sectional analysis and time series analysis to have a better

perception of the company.

1.3.2 Nature and source of data-

9

We use secondary data for our study. We mainly use last five year [2005 to 2009] annual

report of Agricultural Marketing Co Ltd and Fu-Wang Foods Ltd. We collected annual

reports from Dhaka stock exchange library, they gave us the soft copy of reports; we also

collected some hard copy of reports from outside Dhaka stock exchange building. We

also collected information related to market price from Dhaka stock exchange web site

which is www.dsebd.org.

1.3.3 Period Under consideration-

Annual Reports of last 5 years were considered for both the companies. The annual

reports of 2005, 2006, 2007,2008 and 2009 of “AMCL PRAN” and “Fu-Wang Foods

Ltd” were taken into consideration for analysis. It would have been better if we could

have used the data over the period of last ten years to have a lucid view of the company

throughout the period of time. Due to time constraint and unavailability of data we were

unable to do that. So we have refrain ourselves in analyzing the data of last five years,

which enable us to understand the relevant position of both the companies.

1.3.4 Nature of Analysis-

For our study we make a thorough analysis of balance sheet items to identify the source

of discrepancies for what book value per share can differ from the market value per share

of the both company. We also make a cash flow analysis to gather the insight of the cash

dealings of the firm of the year from 2005 to 2009. We make ratio analysis for each year

under consideration to evaluate asset management, liquidity, debt management and

profitability.

We also make the time series and analysis and cross section analysis to expand our

finding about AMCL PRAN and its rival company Fu-Wang Foods Ltd.

1.3.5 Standard of comparison-

10

http://www.dsebd.org/

As industry average data for comparison is not available in our country, so we choose a

rival company for Agricultural Marketing Co Ltd which is Fu-Wang Foods Ltd. We

compare our major finding in balance sheet analysis, ratio analysis, and cash flow

analysis between these two companies. The reason for choosing Fu-Wang Foods Ltd as a

rival company of Agricultural Marketing Co Ltd is that both company is in the business

segment of Food and Allied, both has a long experience in local and international market.

AMCL PRAN has listed to stock market in 1996 and Fu-Wang foods listed in 2000. At

present PRAN is leading the way in this business.

1.4 Limitation of the Study:

Due to time constraints we could not visit the premise of AMCL PRAN and Fu-

Wang Foods ltd to incorporate more recent information and views of the Top

Management about the performance & position of the company. If more time is

available we could use more statistical tools and techniques to compare the

performance of the companies. We also cannot analyze last 10 years report due to

time constrain.

Another limitation we face is that both the Companies do ambiguous accounting

practices to get rid of tax that dilute the actual scenario. Many times, these

companies try to make their performance much more lucrative to the Shareholders

by means of unethical practice which are completely unnoticeable to general public.

Such practice if had taken place might have diluted our findings, which are entirely

based on the information available in the Annual Reports.

Moreover, comparison with the “Industry Average” would have been the best source

of comparison of the performance of the company with respect to the “Food

Industry.” Even though the relative performance of AMCL PRAN is far better

compared to Fu-Wang Foods Ltd but their performance would have been far more

closely scrutinized and analyzed if we had the Industry Benchmark. The two

11

companies that have been assigned may not to represent the whole picture of the

Food industry of Bangladesh.

CHAPTER 2

ANALYSIS AND INTERPRETATION

12

2.1 Balance Sheet Analysis

Balance sheet is the snapshot of the financial position evolved from the overall

performance of the company. To analyze the balance sheet, the effect of various activities

over the company’s asset, liability and equity are identified which facilitate the

rationalization of the companies’ market value of share.

Reasons for Fluctuation:

2.1.1 Inventory Analysis:

1 2 3 4 5

Year 2009 2008 2007 2006 2005

Inventory 481449835 484200145 483346039 496023771 491608049

50000000

150000000

250000000

350000000

450000000

550000000

Inventory analysis of AMCL

Tak

a

Figure 2.1: Inventory Analysis for AMCL PRAN

Data source – Annual reports of AMCL PRAN (2005-2009)

2009- In this year inventory has gone down by .56% compare to previous year 2008,

though sales have increased by 12.29%. And inventory turnover was increased by

13.45% compared to previous year this is because cost of goods sold has increased by

12.8%.

13

2008- In this year inventory has gone up by 1.73% compare to previous year 2007. This

may because sales have increased only by 6.4% compare to previous year and Inventory

turnover also increased only by 6.08%.

2007- Inventory has decreased by 2.5%, because sales have increased by 6.7%. Cost of

goods sold is increased by 7.20%, with which inventory turnover ratio is increased by

10.44% compare to previous year.

2006- In this year inventory have increased by very small percentage [0.89%] though

sales have increased by 8.68%. Cost of goods sold has increased by 12.6%.

2005- Inventory gone down by 0.34% and sales has increased by 2% compare to 2004.

2.1.2 Cash & Cash equivalents:

1 2 3 4 5

Year 2009 2008 2007 2006 2005

Cash & Cash Equiva-lence

40968825 16173069 32660159 39484215 33184149

2500000

7500000

12500000

17500000

22500000

27500000

32500000

37500000

42500000

Cash analysis of AMCL

Tak

a

Figure 2.2: Cash Analysis of AMCL PRAN


2009- In this year Cash has increased by 153.31% compare to 2008. This is because of

increase in short term and long term loan from the banks. Also sales has increased by

12.29%.

14

2008- In this year Cash has decreased by 46.23% compare to 2007. This is because of

huge increase in advance deposits and prepayments and also big amount of short term

loan is paid out.

2007- In this year Cash has decreased by 17.28% compare to 2006. It is because of

increase in advance deposits and prepayments decrease in short term loan. Another

reason for decrease in cash is that the company has invested huge money to punches

fixed assets.

2006- In this year Cash has increased by 18.98% compare to 2005. This is because Sales

increase by 8.68%, and also increase has occurred in other current liabilities.

2005- In this year Cash has increased by 45.66% compare to 2004.

2.1.3 Trade Debtor Analysis:

1 2 3 4 5

Year 2009 2008 2007 2006 2005

Trade Debtors 37284380 44242900 59711981 45504079 42501462

5000000

15000000

25000000

35000000

45000000

55000000

65000000

Trade debtors Analysis of AMCL

[Tak

a]

Figure 2.3: Trade Debtor Analysis of AMCL PRAN


2009- Debtors have decreased by 15.72% as a small amount of previously held debt has

been realized.

15

2008- Debtors have decreased by 25.9% compare to year 2007.

2007- Debtors have increased significantly as a large amount of sales were on credit.

2006- Debtors have increased by 7.62% as a amount of sales were on credit.

2005- Debtors have increased by 41.87% due to higher level of credit sales.

2.1.4 Fixed Assets Analysis

1 2 3 4 5

Year 2009 2008 2007 2006 2005

Fixed Asset 329129366 249925685 280520679 316861409 335022646

25000000

75000000

125000000

175000000

225000000

275000000

325000000

375000000

Fixed Asset of AMCL

Taka

Figure 2.4: Fixed Asset Analyis of AMCL PRAN


2009- Fixed assets have increased by 31.69% due to increase in land, building and

machinery equipment.

2008- Due to depreciation Fixed assets have reduced by 10.90 % and there was no

addition in land and factory building.

2007- Due to depreciation fixed assets have reduced by 11.46 % and there was no

addition in land and factory building.

2006- Fixed assets have decreased by small amount of 5.42% due to depreciation of

machinery equipment.

16

2005- Fixed assets have decreased due to depreciation of machinery equipment and

factory building.

2.1.5 Debt Analysis:

1 2 3 4 5

Year 2009 2008 2007 2006 2005

Debt 637623968 580472177 629060410 652956862 665569483

50000000

150000000

250000000

350000000

450000000

550000000

650000000

Debt Analysis of AMCL

Taka

Figure 2.5: Fixed Asset Analysis of AMCL PRAN


2009- It’s obvious from the above table that AMCL PRAN is heavily on long term and short term debt compare to the total current asset of the company. In 2009 debt has increased by 9.84% due to substantial increase in long term debt.

2008- Debt has been decreased by 7.72% compare to 2007 because a large amount of current portion of long term loan is been paid out.

2007- Debt has been decreased by 3.65% compare to 2006 because a significant amount of long term debt is been paid out.

2006- A very small amount of debt is been paid out.

17

CHAPTER – 3

RATIONALIZATION OF THE BALANCE SHEET FROM THE BOOK VALUE TO

MARKET VALUE

18

3.1 Balance sheet analysis and correction:

The discrepancies between the market value and book value usually arise from the

overstating or understating of certain items in the balance sheet. In an attempt to identify

the sources of discrepancies and rationalizing the price of the stock, a new figure for

common equity based on market price has been first calculated and then items in the

balance sheet has been adjusted.

We can see from the table below that for the year 2009, the market price of the stock was

Tk.1363.00 and the book value was Tk. 449.96 so, the common equity for the book value

is lower than the common equity based on the market price. The source of discrepancy

could be estimated and have higher probability of being miscalculated. Again intangible

asset like trade mark was not under consideration for profitability calculation. On the

other hand, the value of fixed assets as stated in the annual reports and the market value

of these fixed assets are likely to be different.

Year 2009 2008 2007 2006 2005

Market value per Share

1363.00 1142.00 382.50 386.00 519.25

Book Value per Share

449.96 428.39 409.91 422.11 412.55

Difference 913.04 713.61 -27.41 -36.11 106.70

Table 3.1: Market Value & Book Value per Share Of AMCL PRAN


19

year 2009 2008 2007 2006 2005

Market Value Per Share 1363 1142 382.5 386 519.25

Book Value Per Share 449.96 428.39 409.91 422.11 412.55

100

300

500

700

900

1100

1300

1500

Tak

a

Figure 2.5Comparison of book value per share and market value per share of AMCL PRAN


3.1.1 New Balance Sheet Justifying the Market Value (From 2009-2005)

In general Market prices tend to reflect the actual value of the share more than the book

values, therefore studies of finance prefers the market price as a basis of analysis of the

company’s position. And this study is designed to identify the sources and thus eliminate

the discrepancies.

Since with the information available from annual reports there is no justification that its

current liabilities can be revalued and that it has no long term liability with a bank or any

financial institution, it is most probable that either current assets or fixed assets of the

company is overvalued/undervalued in the balance sheet. In case of current assets it is

more probable that the discrepancy arises from inventories and/or from trade debtors. In

case of fixed assets it is more probable that the price of land, and other fixed assets are

overstated/understated.

20

The fixed assets of AMCL PRAN consist of land and land development, building and

other construction plant, machinery and equipment, vehicles, furniture and fittings.

Tangible fixed assets like machinery and equipments are capitalized at their cost of

acquisition, which comprises of purchase price including import duties. It is likely that

such assets have been used for a long time and so their market value has gone down.

Thus a new balance sheet was prepared for the year 2009 to justify the market value.

Here the following two tables are showing the balance sheet based on the book value and

our new adjusted balance sheet based on the market price of the share.

Balance Sheet 2009

Balance sheet based on book value of shareAsset Amount Liabilities AmountCurrent Asset 668461522 Debt 637623968Fixed Asset 329129366 Equity 359966920Total 997590888 Total 997590888

Table 3.2 Balance sheet based on book value of share


Proposed Balance sheet based on Market value of shareAsset Amount Liabilities AmountCurrent Asset 668461522 Debt 637623968Fixed Asset

Tangible 658258732 Equity 1090400000Intangible 401303714

Total 1728023968 Total 1728023968Table 3.3 Proposed Balance sheet based on market value of share


21

For the year 2009, we can see that Market value is higher than the book value by a huge

amount. In Balance sheet based on book value of share the Fixed asset was

underestimated and company does not show there intangible asset in calculation. AMCL

PRAN has gained reputation in local market and international market which attracts the

investors to buy share in capital market. In the new proposed balance sheet based on

market value per share we adjusted the fixed asset by revaluing tangible fixed asset and

by adding intangible asset [trade marks, good will].

Balance Sheet For 2008




Balance sheet based on Market value of shareAsset Amount Liabilities AmountCurrent Asset 673260852 Debt 580472177Fixed Asset


Total 1494072177 Total 1494072177Table 3.5 Proposed Balance sheet based on market value of share


For the year 2008, we can see that in Balance sheet based on book value of share the

Fixed asset was underestimated and company does not show there intangible asset in

calculation. Here inventory turnover of the company increased heavily which might

affect the profitability and dividend proposed to the share holders, in this speculation

investors put trust on the AMCL PRAN. In the new proposed balance sheet based on

22

market value per share we adjusted the fixed asset by revaluing tangible fixed asset and

by adding intangible asset [trade marks, good will].

Balance Sheet For 2007




Balance sheet based on Market value of shareAsset Amount Liabilities AmountCurrent Asset 676467480 Debt 629060410Fixed Asset 258696930 Equity 306104000

Total 935164410 Total 935164410Table 3.7 Balance sheet based on market value of share


For the year 2007, we can see that market value is lower than the book value, the reason

behind may be the investor did not see any growth potentiality in dividend declaration. In

Balance sheet based on book value of share, the fixed asset was over estimated. In the

new proposed balance sheet based on market value per share we adjusted the fixed asset

by reducing tangible fixed asset.

23

Balance Sheet for 2006




Balance sheet based on Market value of shareAsset Amount Liabilities AmountCurrent Asset 673783245 Debt 652956862Fixed Asset 287973617 Equity 308800000



For the year 2006, we can see that market value is also lower than the book value. In

Balance sheet based on book value of share, the fixed asset was over estimated. In the

new proposed balance sheet based on market value per share we adjusted the fixed asset

by reducing tangible fixed asset.

24

Balance Sheet for 2005




Balance sheet based on Market value of shareAsset Amount Liabilities AmountCurrent Asset 660584792 Debt 665569485Fixed Asset




For the year 2005, we can see that Market value is higher than the book value . In

Balance sheet based on book value of share the Fixed asset was underestimated and

company does not show there intangible asset in calculation.. In the new proposed

balance sheet based on market value per share we adjusted the fixed asset by revaluing

tangible fixed asset and by adding intangible asset [trade marks, good will].

25

Chapter – 4

CASH FLOW ANALYSIS

26

4.1 Cash Flow Analysis:

Cash flows are the cash receipts and the cash disbursements of the company that is the

inflows and outflows of cash. It is an analysis over a period of time revealing the

availability, or lack, of cash. More simply put the difference between cash in (income) vs.

cash out (expenses). Since money does not flow in and out at an equal rate, in most

businesses, an analysis of cash flow is important.

4.1.1 Net Cash Provided by Operating Activities:This section shows how much cash came into the company and how much went out

during the normal course of business.

Cash flow from operating activitiesYear Amount of Cash (Taka)2009 1099193742008 305107112007 730661292006 638124572005 53424896

Table 4.1 Cash flow from operating activities of AMCL PRAN


2009 2008 2007 2006 2005

0

20000000

40000000

60000000

80000000

100000000

120000000

Cash flow from operating activities

Net cash provided by operation

Year

Taka

Figure 4.1Cash flow from operating activities of AMCL PRAN

27

We can see that cash net cash provided by operation is positive over the five of AMCLPRAN ltd. In 2009 company’s Cash has increased by higher net income and also because of increase in long term debt. In 2008 net cash provided by operation was much lower compare to previous year because company has paid out a huge amount of current amount of short term and long term loan. In 2007 cash from operation activities has increased due to increase in current portion of long term loan and increase in defer tax liability. In 2006 cash has increased compared to previous year because higher sales. In 2005 company has increase cash by current portion of long term loan though it has paid out huge amount of money for advance deposit and prepayment.

4.1.2 Net Cash Provided by Investing Activities:

Cash flow from investment activitiesYear Amount of Cash (Taka)2009 -1081047342008 -27233952007 -22065762006 -228650712005 -31460546

Table 4.2 Cash flow from investment activities of AMCL PRAN


2009 2008 2007 2006 2005

-120000000

-100000000

-80000000

-60000000

-40000000

-20000000

0

Cash flow from investment activities

Cash flow from investment activi-ties

Year

Taka

Figure 4.2Cash flow from investment activities of AMCL PRAN

28

We can see that net cash provided from investment activities is negative over the five years. It measures company’s position in investment sector, company has made huge investment to purchase fixed assets which consume cash.

4.1.3 Net Cash Provided by Financing Activities:

Cash flow from investment activitiesYear Amount of Cash (Taka)2009 248711592008 -420308542007 -591616662006 -352759062005 -7930227

Table 4.3 Cash flow from financing activities of AMCL PRAN


2009 2008 2007 2006 2005

-60000000

-50000000

-40000000

-30000000

-20000000

-10000000

0

10000000

20000000

30000000

Cash flow from Financing activities

Cash flow from Financing activities

Year

taka

Figure 4.3 Cash flow from financing activities of AMCL PRAN

Net cash flow from financing is positive in 2009 as company has taken huge long term loan for increasing investment activities. Over the five years company has not changed its shared capital, company has paid out continuous cash dividend.

The Net change in cash of AMCL PRAN Ltd is fluctuating from 2009 to 2005. In 2009 net change in cash is positive this indicated that during the year the firm has more cash

29

inflow then outflow the cash position have improved from the previous year as the company was heavily dependent on long term debt. Huge inventories is piled up that the company might sold out more inventories to improve its liquidity position, while in 2008 net change in cash is negative. due to increase in advance deposit and prepayments and also payment of current portion of short term loan.

4.1.3 Cash at the End of the Year

Cash At the End of the YearYear Amount of Cash (Taka)2009 662668862008 399410872007 541846252006 424867382005 36815258

Table 4.4 Cash flow at the end of year for AMCL PRAN


2009 2008 2007 2006 20050

10000000

20000000

30000000

40000000

50000000

60000000

70000000

Cash at the end of the year

Cash at the end of the year

Year

Taka

Figure 4.4 Cash at the end of the year for AMCL PRAN

The AMCL PRAN maintains positive cash at the end of each year. In 2009 its cash has increased by 65.91% due to higher net income. In 2008 cash has decreased compare to 2007 and in 2006 cash increase compare to 2005.

30

CHAPTER 5

RATIO ANALYSIS

5.1 Ratio Analysis:

31

To evaluate a firm’s financial condition and performance, the financial analyst needs to

perform “checkups” on various aspects of a firm’s financial health. A tool frequently

used during these checkups is a financial ratio, or index, which relates two pieces of

financial data by dividing one quality by the other.

We calculate ratios because in this way we comparison that may prove more useful than

the raw numbers of themselves. The analysis of financial ratios involves two types of

comparison,

First, the analyst can compare a present ratio with past and expected future ratios

for the same company. The current ratio (the ratio of current assets to current

liabilities) for the present year could be compared with the current ratio for the

previous year-end. When financial ratios are arrayed over a period of years, the

analyst can study the composition of change and determine whether there has

been an improvement or deterioration in the firm’s financial condition and

performance over time.

The second method of comparison involves comparing the ratios of one with

those of similar firms at the same point in time. Such a comparison gives insight

into the relative financial condition and performance of the firm.

Here we will discuss about different types of ratios and we will calculate the ratios. Then

we will compare the ratios of AMCL PRAN with the ratios of FUWANG FOODS LTD.

5.1.1 Liquidity Ratios:Ratios that show the relationship of a firm’s cash and other current assets to its current

liabilities are known as liquidity ratios. Different types of liquidity ratios are discussed

below.

5.1.1.1 Current Ratio:The ratio is calculated by current assets divided by current liabilities. It shows a firm’s

ability to cover its current liabilities with its current assets.

32

Current Ratio = Current Assets / Current Liabilities

The following table is showing the current ratios of AMCL PRAN and FUWANG

FOODS LTD. for the last five years, from 2005 to 2009.

Years AMCL PRANFUWANG FOODS LTD.

2009 1.280978209 0.994088018

2008 1.319127822 1.238216886

2007 1.262394735 1.339228552

2006 1.292841036 1.105166519

2005 1.269315553 1.266573682

Table 5.1 Current ratios of AMCL PRAN and Fu-Wang Foods Ltd.

Data source – Annual reports of AMCL PRAN (2005-2009), FUWANG Foods Ltd.

(2005-2009)

33

2009 2008 2007 2006 2005

AMCL PRAN

1.280978209 1.319127822 1.262394735 1.292841036 1.269315553

FUWANG FOODS LTD.

0.994088018 1.238216886 1.339228552 1.105166519 1.266573682

0.1

0.3

0.5

0.7

0.9

1.1

1.3

Current ratio

Ratio

Figure-5.1: Current Ratio Trend of AMCL PRAN and Fu-Wang Foods Ltd.

Comment:

From table 7.1 we can see that AMCL PRAN has a liquidity which is less than

Benchmark of 2.

This ratio of 2009 has decreased from previous year. It seems that liquidity position of

the firm has become weaker. This is because of increase in current liability especially in

short term loan, deferred tax liability etc. and also current asset has been reduced in

current year specially in stock and advanced deposits & prepayment. The firm has to

consider their current asset as it would be difficult for the company to allocate more

funds for investment which is a bad news. We can also see from the graph (figure-7.1),

this ratio has decreased from the year 2006 and increased from the year 2007 & 2005.

In the year 2009,2008,2006,2005, AMCL PRAN is in much better position than

FUWANG Foods Ltd.

34

5.1.1.2 Quick Ratio Inventories typically are the least liquid of a firm’s current assets and they are the assets

on which losses are most likely to occur in the event of liquidation. Therefore, a measure

of the firm’s ability to pay off short term obligations without relying on the sale of

inventories is important. That’s why quick ratio is used and the calculation of that is as

follows:

Quick ratio= (current assets - inventories)/ current liabilities

Years AMCL PRANFUWANG FOODS LTD.

2009 0.358372 0.724146

2008 0.370428 0.7977447

2007 0.360395 0.927235

2006 0.341081 0.7364221

2005 0.324689 0.821689

Table 5.2 Quick ratios of AMCL PRAN and Fu-Wang Foods Ltd.


(2005-2009)

35

2009 2008 2007 2006 2005

AMCL PRAN 0.358372000000001

0.370428000000001

0.360395 0.341081 0.324689000000001

FUWANG FOODS LTD.

0.724146000000001

0.797744700000001

0.927235 0.7364221 0.821689000000001

0.050.150.250.350.450.550.650.750.850.95

Quick ratio

Ratio

Figure-5.2: Quick Ratio Trend of AMCL PRAN and Fu-Wang Foods Ltd.

Comment:

For AMCL PRAN, quick ratio for last five years is below the benchmark 1. This is a bad

news for company, the company should try to concentrate on excess inventories which is

not desirable. In comparison with FUWANG Foods Ltd., the quick ratio is also lower for

all five years.

Overall comment on Liquidity ratio:

Liquidity performance of AMCL PRAN is poor for years 2005-2009. And also it is

below than the benchmark. In comparison to FUWANG Foods Ltd., it is also weaker. So

AMCL PRAN needs to increase it cash balance through increased sales to improve its

liquidity condition.

36

5.1.2 Asset Management Ratios:Asset Management Ratio is a set of ratios that measures how effectively a firm is

managing its assets. These ratios are designed to find out whether the total amount of

each type of asset as reported on the balance sheet seem reasonable, too high, or too low

in view of current and projected sales levels.

5.1.2.1 Inventory Turnover Ratio:The ratio calculated by dividing cost of goods sold by inventories.

Inventory turnover ratio= Cost of goods sold/inventories.

The following table is showing the inventory turnover ratios of AMCL PRAN and

FUWANG Foods Ltd. for the last five years, from 2005 to 2009.

Years AMCL PRAN FUWANG FOODS LTD.

2009 1.783865 7.1883405

2008 1.572352 3.9981206

2007 1.481067 4.666536

2006 1.346243 4.891046

2005 1.205982 4.834153

Table 5.3 Inventory Turnover ratio of AMCL PRAN and Fu-Wang Foods Ltd.


(2005-2009)

37

2009 2008 2007 2006 2005

AMCL PRAN 1.783865 1.572352 1.481067 1.346243 1.205982

FUWANG FOODS LTD.

7.1883405 3.9981206 4.66653599999998

4.891046 4.83415299999999

0.51.52.53.54.55.56.57.5

Inventory Turnover ratio

Ratio

Figure 5.3: Inventory Turnover Ratio Trend of AMCL PRAN and Fu-Wang Foods

Limited.

Comment:

AMCL PRAN’s inventory turnover is improving from year to year. But it is holding

excessive stock inventory which is indeed unproductive. It might have old inventory

piled up that suggests poor inventory management. Even compared to FUWANG Foods

Ltd., the inventory Turnover ratio is not satisfactory. AMCL PRAN should increase its

sales to reduce its level of inventory.

5.1.2.2 Days Sales OutstandingThe DSO ratio is calculated by dividing accounts receivable by average sales per day

which indicates the average length of time it takes the firm to collect its credit sales. DSO

is calculated as follows:

Days Sales Outstanding (DSO) =Receivables/Average sales per day

38

= Receivables/ [Annual sales/360]

The following table shows the DSO ratios of AMCL PRAN and FUWANG Foods Ltd

for the last five years, from 2005 to 2009:

Years AMCL PRAN(days)

FUWANG FOODS LTD. (days)

2009 12.1287 39.8248

2008 16.1625 54.7553

2007 23.2267 43.2845

2006 18.8944 71.9281

2005 19.1812 74.1962

Table 5.4: DSO ratios of AMCL PRAN and Fu-Wang Foods Ltd.


(2005-2009)

39

2009 2008 2007 2006 2005

AMCL PRAN 12.1287 16.1624999999999

23.2266999999999

18.8944 19.1812

FUWANG FOODS LTD.

39.8248 54.7553 43.2845 71.9281 74.1962

5

15

25

35

45

55

65

75

Days Sales Outstanding(DSO)

Days

Figure 5.4: DSO Ratio Trend of AMCL PRAN and Fu-Wang Foods Limited.

Comment:

AMCL PRAN collects receivables quickly from year to year though it is bit higher in

2007. Compared to FUWANG Foods Ltd., AMCL PRAN is much quicker to collect its

receivables. Hence we can say AMCL PRAN has strong credit policy.

5.1.2.3 Fixed Asset TurnoverThe fixed assets turnover ratio measures how effectively the firm uses its plant and

equipment to help generate sales. It is basically the ratio of sales to net fixed assets. It is

computed as follows:

Fixed assets turnover ratio = Sales/ Net fixed assets

The following table shows the fixed asset turnover ratios of AMCL PRAN and

FUWANG Foods Ltd for the last five years, from 2005 to 2009.

40


2009 3.36238 2.03203

2008 3.94298 2.00959

2007 3.299218 1.95609

2006 2.736215 1.8549

2005 2.38098 1.9233

Table 5.5: Fixed Asset Turnover ratios of AMCL PRAN and FUWANG Foods Ltd.


(2005-2009)

2009 2008 2007 2006 2005

AMCL PRAN 3.36238 3.94298 3.299218 2.736215 2.38098

FUWANG FOODS LTD.

2.03203 2.00959 1.95609 1.8549 1.9233

0.25

0.75

1.25

1.75

2.25

2.75

3.25

3.75

Fixed Asset Turnover ratio

Ratio

Figure 5.5: Fixed Assets Turnover Trend of AMCL PRAN and FUWANG Foods Ltd.

41

Comment:

AMCL PRAN has improved Fixed Asset Turnover ratio from 2005 to 2009 though it is a

bit lower in 2009 compared to 2008. In comparison with FUWANG Foods Ltd., AMCL

PRAN is in much better position because of increase in sales of AMCL PRAN over the

years.

5.1.2.4 Total Asset TurnoverThe total asset turnover ratio is calculated by dividing sale by total assets. The total assets

turnover ratio measures the turnover of all the firm’s assets. It is calculated as follows:

Total assets turnover ratio = Sales/ Total assets.

The following table shows the total asset turnover ratios of AMCL PRAN and FUWANG

Foods Ltd for the last five years, from 2005 to 2009.


2009 1.10933 1.08856

2008 1.06749 0.92822

2007 0.96709 0.92705

2006 0.875188 0.98349

2005 0.80120 1.02314

Table 5.6: Total Asset Turnover ratios of AMCL PRAN and Fu-Wang Foods Ltd.


(2005-2009)

42

2009 2008 2007 2006 2005

AMCL PRAN 1.10933 1.06749 0.967090000000001

0.875188 0.8012

FUWANG FOODS LTD.

1.08856 0.92822 0.92705 0.983489999999998

1.02314

0.1

0.3

0.5

0.7

0.9

1.1

Total Asset Turnover ratio

Ratio

Figure 5.6: Total Assets Turnover Trend of AMCL PRAN and Fu-Wang Foods Ltd.

Comment:

AMCL PRAN has improved its total asset turnover ratio gradually from 2005-2009. It shows that AMCL PRAN is improving its sales compared to its total assets. Compared to Fu-Wang Foods Ltd., AMCL PRAN has lower total asset turnover in year 2005 & 2006. AMCL PRAN has increased sales in comparison to its total asset.

Overall comment on Asset Management ratio:

AMCL PRAN has poor performance in inventory turnover ratio. The company has to improve its inventory management and sales promotion. To achieve this goal, the company needs to maintain lower level of inventory. Even in comparison with FUWANG Foods Ltd., the company weaker inventory management policy. This is a bad

43

news for the company. The company collects receivables quickly which shows maturity in company’s credit policy.

5.1.3 Debt Management RatiosThis ratio measures how effectively a firm is managing its debts. This ratio helps the

analyst to determine the extent to which borrowed funds have been used to finance assets

and to determine how well operating profits can cover fixed charges such as interest. This

ratio includes analysis of two types of ratio; one is debt ratio and the other is times

interest earned ratio.

5.1.3.1 Debt RatioIt measures the percentage of the firm’s assets financed by creditors. It is computed as

follows:

Debt ratio= Total debt/ total assets

Total debt includes both current liabilities and long term debts. Creditors prefer low debt

ratios, because the lower the ratio, the greater the cushion against creditor’s losses in the

event of liquidation. But, too much debt often leads to financial difficulty, which

eventually might cause bankruptcy.

The following table shows the debt ratio of AMCL PRAN and FUWANG Foods Ltd for

the last five years, from 2005 to 2009.

Years AMCL PRAN

FUWANG FOODS LTD.

2009 63.92% 46.706%

2008 62.88% 43.458%

2007 65.73% 39.28%

44

2006 65.91% 42.51%

2005 66.85% 36.95%

Table 5.7: Debt ratios of AMCL PRAN and Fu-Wang Foods Ltd.


(2005-2009)

2009 2008 2007 2006 2005

AMCL PRAN

0.639200000000001

0.628800000000002

0.657300000000001

0.659100000000002

0.668500000000001

FUWANG FOODS LTD.

0.46706 0.434580000000001

0.392800000000001

0.4251 0.3695

5.00%

15.00%

25.00%

35.00%

45.00%

55.00%

65.00%

Debt ratio

Ratio

Figure 5.7: Debt Ratio Trend of AMCL PRAN and FUWANG Foods Ltd

Comment:

The Debt ratio of AMCL PRAN is significantly high in all the five years a compare to

Fu-Wang Foods the ratio is higher for all the five years, this is alarming as interest

charges are compulsory obligation in future this may result in a constraint to raise debt. It

might be rationalized by an increased EPS by means of high debt financing.

45

5.1.3.2 Time Interest Earned (TIE) Ratio: The TIE ratio is computed by dividing earnings before interest and taxes (EBIT) by

interest charges. It is the measures the ability of the firm to meet its annual interest

payments. The TIE ratio is defined as follows:

Time interest earned ratio = EBIT/ Interest charges

Failure to meet this obligation can bring legal action by the firm’s creditor, possibly

resulting in bankruptcy. The following table is showing the TIE ratios of AMCL PRAN

and FUWANG Foods Ltd. for the last five years, from 2005 to 2009.

Table 5.8: TIE ratios of AMCL PRAN and FUWANG Foods Ltd.


(2005-2009)

46


2009 2.415 3.6246

2008 1.45 3.3003

2007 1.39 2.783

2006 1.4109 4.58

2005 1.577 4.85

2009 2008 2007 2006 2005

AMCL PRAN 2.415 1.45 1.39 1.4109 1.577

FUWANG FOODS LTD. 3.6246 3.3003 2.783 4.58 4.85

0.25

0.75

1.25

1.75

2.25

2.75

3.25

3.75

4.25

4.75

Time Interest Earned ratio

Ratio

Figure 5.8: TIE ratio of AMCL PRAN and FUWANG Foods Ltd.

Comment:

TIE ratio for AMCL PRAN is alarming even compare to fu-wang foods ltd TIE ratio is lower for all five years, AMCL PRAN is covering its interest charges by a low margin of safety. This effects the potentiality of raising further debt in future.

Overall comment on Debt Management Ratio:

AMCL PRAN is a highly levered firm as it has poor debt ratio and TIE ratio. This may affect the cost of debt in future. The firm has raised debt capital to pay dividend and increase fixed assets.

47

5.1.4 Profitability Ratios: Profitability Ratio implies a group of ratios showing the effect of liquidity, asset

management, and debt management on operating results. Profitability is the net result of a

number of policies and decisions.

5.1.4.1 Net Profit Margin on Sales:The ratio measures net income per dollar of sales. It is calculated by dividing net income

by sales. It is defined as follows:

Net profit margin on sales = Net Income/ Sales

The following table is showing the net profit margin on sales ratios of AMCL PRAN and

FUWANG Foods Ltd. for the last five years, from 2005 to 2009.

Table 5.9: Net profit margin on sales ratios of AMCL PRAN and FUWANG Foods ltd.


48


2009 3.612% 4.13%

2008 3.648% 3.67%

2007 3.169% 3.74%

2006 3.339% 7.337%

2005 5.11% 7.73%

2009 2008 2007 2006 2005

AMCL PRAN 0.03612 0.03648 0.03169 0.03339 0.0511

FUWANG FOODS LTD.

0.0413 0.0367 0.0374000000000001

0.07337 0.0773

0.50%

1.50%

2.50%

3.50%

4.50%

5.50%

6.50%

7.50%

Net Profit Margin on Sales

Ratio

Figure 5.9: Profit Margin on Sales Trend of AMCL PRAN and FUWANG Foods Ltd.

Comment:

AMCL PRAN has almost same net profit margin on sales for the year

2009,2008,2007,2006 but profit margin on sales was higher in 2005.even compare to fu-

Wang foods ltd AMCL PRAN has weaker position in Profit margin on sales. AMCL

PRAN should reduce its cost of goods sold, Administrative, selling and financial

expenses to increase its net income.

5.1.4.2 Return on Asset (ROA)It is the ratio of net income to total assets. It provides an idea of the overall return on

investment earned by the firm. The ROA after interest and taxes are computed as follows:

Return on total assets (ROA) = Net Income/ total Assets

The following table shows the ROA ratios of AMCL PRAN and FUWANG Foods Ltd

for the last five years, from 2005 to 2009.

49

Table 5.10: ROA ratios of AMCL PRAN and FUWANG Foods Ltd.


(2005-2009)

2009 2008 2007 2006 2005

AMCL PRAN 0.0400660000000001

0.03894 0.03065 0.02922 0.04095

FUWANG FOODS LTD.

0.04497 0.03407 0.03467 0.072155 0.07908

0.50%

1.50%

2.50%

3.50%

4.50%

5.50%

6.50%

7.50%

Return on Total Asset

Ratio

Figure 5.10: Return on Total Asset (ROA) Trend of AMCL PRAN and FUWANG Foods Ltd.

50


2009 4.0066% 4.497%

2008 3.894% 3.407%

2007 3.065% 3.467%

2006 2.922% 7.2155%

2005 4.095% 7.908%

Comment: AMCL PRAN has improves its return on asset from 2006 to 2009 but it was higher in 2005. only in 2008 AMCL PRAN has higher return asset compare to fu-Wang foods. AMCL pran should concentrate on their fixed assets, debt and inventories to increase its net income.

5.1.4.3 Return on Equity (ROE)

This is the ratio of net income to common equity. It measures the rate of return on

common stockholder’s investment. The return on common equity (ROE) or the rate of

return on stockholder’s return is measured as follows:

Return on Common Equity (ROE) = Net income available to common

stockholders/Common Equity

= Net Income – Preferred Dividends/ Common

Equity

Table 5.11: ROE ratios of AMCL PRAN and FUWANG Foods Ltd.


(2005-2009)

51


2009 11.104% 8.438%

2008 10.49% 5.858%

2007 8.944% 5.57%

2006 8.5723% 11.58%

2005 12.354% 12.54%

2009 2008 2007 2006 2005

AMCL PRAN 0.11104 0.1049 0.08944 0.0857230000000001

0.12354

FUWANG FOODS LTD.

0.08438 0.05858 0.0557 0.1158 0.1254

1.00%

3.00%

5.00%

7.00%

9.00%

11.00%

13.00%

Return on EquityRa

tio

Figure 5.11: Return on Total Equity (ROE) Trend of AMCL PRAN and FUWANG Foods

Ltd.

Comment: AMCL PRAN has improved from 2007 to 2009 and it was all time high in

2005 but AMCL PRAN lower ROE in 2005 and 2006 compare to fu-Wang foods.

Overall comment on Profitability Ratio: AMCL PRAN needs to increase its

profitability ratio, both ROA and ROE needs to improve much. AMCL PRAN is

financially levered company this conforms the earlier observation that AMCL PRAN has

excess inventory and debt. AMCL PRAN should devote to its inventory and asset

management. The apparent benefit of leverage in terms of tax extension is not evienditial

in profit promotion. Operating activities of the firm suffered from poor liquidity position,

poor asset management and high debt.

52

5.1.4 Market value ratio

The market value ratios represent a group of ratios that relates the firm’s stock price to its

earnings and book value per share. These ratios give management an indication of what

investors think of the company’s past performance and future prospect. If the firm’s

liquidity, asset management, debt management, and profitability ratios are all good then

market value ratios will be high which will lead to increase the stock price of the

company. Market value ratio is of two types- Price/Earning Ratio and Market/Book value

Ratio.

5.1.4.1 Price/Earning (P/E) Ratio

This is the ratio of the price per share to earnings per share. It shows the dollar amount

investors will pay for $1 of current earnings. It is computed by market price per share and

earning per share (EPS).

P/E ratio = Market price per share/ Earnings per share

Price/Earning ratio is higher for firms with high growth potentials and low for riskier

firms. The investors consider the firm with high leverage more risky than firm with low

leverage. However if the ratio of the firms is increasing it means that it is gaining trust of

the investors.

53

The following table shows the P/E ratio of AMCL PRAN and FUWANG Foods Ltd for

the last five years, from 2005 to 2009.

Table 5.12: P/E ratio of AMCL PRAN and FUWANG Foods Ltd


(2005-2009)

2009 2008 2007 2006 2005

AMCL PRAN 27.28 25.41 10.44 10.67 10.19

FUWANG FOODS LTD. 26.49 30.129 19.714 10.42 8.798

2.5

7.5

12.5

17.5

22.5

27.5

32.5

Price Earning Ratio

Ratio

Figure 5.12: Price/Earnings (P/E) Ratio Trend of AMCL PRAN and FUWANG Foods

Ltd54


2009 27.28x 26.49x

2008 25.41x 30.129x

2007 10.44x 19.714x

2006 10.67x 10.42x

2005 10.19x 8.798x

Comment:

AMCL PRAN has all time high PE ratio in 2009 but it was lower in 2008 compared to

fu-wang foods ltd. PE ratio is higher for firms with high growth potentials and low for

riskier firms. We do not know the growth potentials of AMCL PRAN but we know

investors consider the firm more risky perhaps due to high leveraged one. However the

P/E ratio of the firm is increasing to suggest more trust of the investors.

5.1.4.2 Market/Book value ratio:The ratio of a stock’s market price to its book value gives another indication of how

investors regard the company. Companies with relatively high rates of return on equity

generally sell at higher multiples of book value than those with low returns.

Book value per share = Common equity/ Number of common shares outstanding

Market/ book ratio = Market price per share/ book value per share

The following table is showing the P/E ratio and Market / book ratio of AMCL PRAN

and FUWANG Foods Ltd. for the last five years, from 2005 to 2009

Table 5.13: Market/Book Ratios of AMCL PRAN and FUWANG Foods Ltd.


(2005-2009)

55

Year AMCL PRAN FUWANG FOODS LTD.

Book value (tk)

M/B value ratio (times)

Book value (tk)

M/B value ratio (times)

2009 449.96 3.029 13.9001 2.23

2008 428.39 2.666 12.7254 1.823

2007 409.91 0.9334 12.32 1.12

2006 422.11 0.9144 11.9245 1.308

2005 412.55 1.2586 13.142 1.1033

2009 2008 2007 2006 2005

AMCL PRAN 3.029 2.666 0.9334 0.9144 1.2586

FUWANG FOODS LTD. 2.23 1.823 1.12 1.308 1.1033

0.25

0.75

1.25

1.75

2.25

2.75

3.25

Market/Book Value Ratio

Ratio

Figure 5.13: Market/ Book Ratio (M/B Ratio) Trend of AMCL PRAN and FUWANG

Foods Ltd.

Comment:

In 2009 the market/Book value ratio of AMCL pran is the highest compare to other years

even it is higher in 2009, 2008 and 2005 compare to fu-wang foods ltd. The market value

per share of AMCL PRAN is 3.029 times the book value per share; this is remarkable for

the company. It demonstrates that the trust of investors is going up.

56

CHAPTER 6

FINDINGS AND CONCLUSION

57

6.1 Findings

From the above analysis, the current ratios and quick ratios of AMCL PRAN are low

which means that the company has liquidity problem. It also indicates high liabilities as

can be seen in the financial statement. Poor inventory management has to be improved.

An important aspect that was revealed by the financial analysis was it heavily relies on

borrowing. This increases the interest charges to pay and ties up company’s cash and

cash equivalent. This could lead to serious financial problem even bankruptcy. Another

aspect which needs to be considered is company’s very low profit margin. Low profit

margin is probably due to the net income which intern is because of high interest charges

paid. The assets may not be properly utilized.

Investors often lose their trust in such companies as it has already been reflected in low

market price AMCL PRAN in 2006 and 2007. Investors are not getting enough return on

their investment and such financial condition may lead to investors withdrawing their

investments and may affect the goodwill of the company negatively.

The company should increase the current asset specially cash to cover its liabilities and to

increase the liquidity situation. They should decrease the dependency on debt so that the

company doesn’t face financial difficulties and can increase the investor’s trust. Net

income should be increased to increase the profitability margin which will help to gain

investors faith on the company. The company has matured credit policy to increase it

receivables and to decrease the DSO. They can dispose some unutilized assets which will

help them to increase ROA. To increase the market price of their share AMCL PRAN is

effectively communicating their future prospects and trying to increase their goodwill in

the market .This is being reflected in market price of AMCL PRAN IN 2009.

AMCL PRAN wants to ensure highest return and growth of their assets. AMCL PRAN

has been performing far better than its rival FUWANG FOODS in respect to Fixed asset

turnover, Total asset turnover, ROE and Market/ Book value etc. its market price per

share has been increasing for last three years and its recent market price also suggest that

the investors are keeping faith on AMCL PRAN as a viable investment option and

investors are willing to pay much for the company’s book value than that for of an

average company of the same industry and they are excited about the future prospects of

58

its common stock as an investment. The company is trying to give a positive signal to the

market that the company is doing well by paying regular dividends. The investors think

that AMCL PRAN would bring more profitable return in future and its higher market

price compared to book value confirms that trust of the investors.

It is encouraging, however, to note that for the last few years, the company is operating at

profit although the profit margin is not very attractive. Thus, the company is in the

positive EPS over the five years having attributed to such growth potentiality and

investor’s trust in it as a profitable investment opportunity. Again one of the most

important ratios to evaluate the performance of the firm is the price earnings ratio. The

PE ratio of AMCL PRAN is significantly high in 2009 compared to 2007.Even the

market/book value ratio has significantly improved from 2007 to 2009 and it is better

than FUWANG FOODS Ltd. The improvement may indicate that the firm is gaining

more trust of investors. Thus, the company is in progress for further improvement and

they are improving from years to years.

6.2 Conclusion

To sum up the company is improving its liquidity ratio, profit margin on sales, ROA,

market/book value ratio is very impressive. Besides, it has also been carrying significant amount

of accumulated profit in the balance sheet. The asset management ratio shows that the company is

doing a good job in terms of utilizing its assets towards earning encouraging level of profit. Now,

it may be because of the fact that the assets that the company is utilizing is worth and is not

overstated as per the book value compared to their market value. P/E ratio is higher for high

growth potential firms. As AMCL PRAN shows a better P/E ratio than FU WANG FOODS Ltd

Investors trust on AMCL PRAN is increasing and gaining shareholder’s confidence and

credibility day by day.

59

APPENDIXCash Flow of AMCL PRAN

Particulars Year

2009 2008 2007 2006 2005Cash flow from operation ActivitiesNet Income 39969803 35949959 29331413 28947713 40771757Add Back Depreciation 28901053 33318389 38547306 41026308 42554329INC/DEC IN CURRENT ASSETInc/Dec In Stock 2750310 -854106 12677732 -4415722 1670848inc/Dec in trade Debtor 6958520 15469081 -14207902 -3002617 -12544893Inc/Dec in Advance Deposit and Prepayment 19886256 -27895437 -7978121 519952 -17055834INC/DEC IN CURRENT LIABILITYInc/Dec in short term loan 5855688 -4143976 -10705112 5349150 1116997change in unclaimed dividend 772800 280205 230487 -1126460 1482067change in deferred tax 3604426 -181837 18790827 0 0change in account payable 4037651 2720730 -1178309 -1565617 1609947change in other current liability -1656531 2640301 1665210 403139 -12438634change in proposed dividend 800000 1600000 0 0 1600000current portion of long term lone -1960602 -28392598 5892598 -2323389 4658312Net Cash provided by operation 109919374 30510711 73066129 63812457 53424896Cash Flow From Investment Activities

Inc/Dec in fixed asset-

108104734 -3003395 -3406576 -24595071 -32130546Inc/Dec in investment 0 280000 1200000 1730000 670000

Net Cash flow from Investment Activities-

108104734 -2723395 -2206576 -22865071 -31460546Cash Flow From Financing ActivitiesChange in long term lone loan 46498359 -21511059 -38592153 -13349446 9787706Change in share capital 0 0 0 0 0Dividend paid to shareholder -21627200 -20519795 -20569513 -21926460 -17717933Net Cash Flow from financing Activities 24871159 -42030854 -59161666 -35275906 -7930227Net Change in Cash 26685799 -14243538 11697887 5671480 14034123Cash at the beginning of the year 39941087 54184625 42486738 36815258 22781135Cash at the End of the year 66,626,886 39,941,087 54,184,625 42,486,738 36,815,258

60

Fu-Wang Foods Ltd

History of the Company:

Date of Incorporation : 27th February 1997

Listed in Dhaka Stock Exchange Ltd. : July 2000

Listed in Chittagong Stock Exchange Ltd. : July 2000

Commercial Production : August 1997

ISO certification : ISO-9002 Certified on 04 November 1998

Business Lines : Food Processing Industry

Authorized capital : Tk. 500 Million

Paid-up Capital : Tk. 184 Million

Number of Employees : 819

Financial and Operational Highlights for Five Years

2008 - 2009 2007 - 2008 2006 - 2007 2005 - 2006 2004 - 2005

Turnover (Net) 522.439 384.463 346.245 375.354 341.231Gross Profit 87.470 67.470 64.174 82.728 76.182Net Profit before tax 29.770 23.522 21.580 39.340 37.679Net profit after tax 21.583 14.113 12.948 27.538 26.375Shareholders’ Equity 255.776 234.193 226.778 219.411 210.272Market Price/ per Share

31 23.20 13.80 15.60 14.50

Earning Per Share after Tax(Taka)

1.17 0.77 0.70 1.497 1.648

Cash Dividend Per Share (Taka)

Nil 0.60 0.50 1.00 Nil

Bonus Dividend(Percentage)

10% Nil Nil Nil 15%

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Balance Sheet2009 2008 2007 2006 2005

Net Assets:

Non - Current Assets 257,102,135 191,314,221 177008040 202348238 177419413Tangible Fixed Assets, net of accumulated depriciation 257,095,135 191,307,221 177001040 201122253 174974443

prelimanary expence 11000 22000

Share issues expence 1207985 2415970

Trade Marks 7,000 7,000 7000 7000 7000

Current Assets 222,835,498 222,880,222 196484625 179308689 156095368

Inventories 60,510,390 79,285,401 60445455 59829027 2415970

Sundry Debtors 57,794,689 58,476,200 41630756 74955971 70328009

Loans, Advances and Deposites 83,972,706 73,496,882 64433553 33590158 24359926

Cash and cash Equivalents 20,557,713 11,621,739 29964861 10893533 6542967

Current Liabilities and Provisions

-224,160,732

-180,000,955

-146714782

-162245857

-123242230

Credits, Short Term Bank Loans - Secured

-109,491,742 -58167775 -69542261 -83952431 -75612031

Accrued Expenses -2,757,315 -6173446 -3988270 -3723954 -3635522

Sundry creditors -40,995,911 -46232972 -14282730 -11481702 -11109131

Proposed Dividend -6697830 -5581525 -18400000 0

Provision for Income Tax -70,915,764 -62728952 -53319996 -44687770 -32885546

net current assets -1325234 42879267 49769843 17062832 32853135

Total 255,776,901 234193488 266,77,883 219411070 210272548

Financed By:

Shareholders' equity 255776901 234193488 266777883 219411070 21022548

Share Capital 184000000 148000000 184000000 184000000 160000000

Tax Holiday Reserve 18245470 18245470 1845470 18245470 18245470Retained Earnings-As per Profit & Loss Account 53531431 31948018 24532413 17165600 32027078

Total 255776901 234193488 226777883 219411070 210272548

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AMCL Pran Finincial Performance

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