Analysis on financial performance of RSRM

ANALYSIS ON FINANCIAL PERFORMANCE OF RSRM

RSRM INDUSTRIAL TOUR REPORT

INDUSTRIAL TOUR REPORT 1

Bismillahir Rahmanir Rahim

Industrial Tour Report

Topic: Analysis on Financial Performance of RSRM

Submitted To:

Mrs. Nasrin Jahan Nasu

Lecturer

Department of Accounting and Information Systems

University of Chittagong

Submitted By:

Abu Hasan Al-Nahiyan

ID No: 09301120


Session: 2008 -09

Department of Accounting and Information Systems

University of Chittagong

Date of Submission: -31/12/2014

SUPERVISOR’S CERTIFICATE

This is to certify that Abu Hasan Al-Nahiyan bearing ID No09301120 has

completed his Industrial Tour Report successfully under my supervision. It is

to be noted that in this report he tried to find out the “Financial performance

of “Ratanpur Steel Re-Rolling Mills Ltd.” During the preparation of the

report he regularly contacted with me and took my suggestions regularly as

well as followed my direction as directed. I wish his great success and

prosperity in life.

I therefore recommend accepting the industrial tour report with best wishes.

Signature


Mrs. Nasrin Jahan Nasu

Lecturer

Department of Accounting & Information Systems

University Of Chittagong

LETTER OF SUBMISSION

Date: 31st December, 2014. Mrs. Nasrin Jahan Nasu Lecturer Department of Accounting & Information Systems University of Chittagong Subject:Submission of Industrial Tour Report. Dear Madam, With an enormous pleasure, I would like to submit my industrial tour report on Ratanpur Steel Re-Rolling Mills Limited to fulfill the requirement of the BBA Program. In preparing this report, the relevant information related to this paper is collected and integrated accordingly. It is highly pleasure for me to get you as a supervisor of my theoretical with pragmatic experience work, which is an integral part of my BBA Program.In every segment of this report, I have made an honest endeavor to present it as good combination of my knowledge, intelligence and the information gathered from the research paper.


In preparing this report, perhaps some mistakes are there. You, I hope, will consider these mistakes clemently. I also expect your cooperation whenever I require. Thanking You, Yours faithfully, …………………………. (Abu Hasan Al-Nahiyan) ID No: 09301120, Session: 2008-09 Department of Accounting & Information System University of Chittagong

PREFACE

Now in the world competition is increasing smoothly. New types of business are emerging day by day. Every single enterprise has to complete several national and multinational organizations. To face this competition business enterprise needs highly educated employees who have knowledge about all the aspects influencing the activities of business. Field work is considered as a bridge between academic knowledge and practical field. Practical knowledge is imperative for the Business students especially BBA students. The business world is going more critical in this new millennium & the practical situations are changing day by day. For that, by doing this sort of assignment task students can have first-hand idea about organization and can get practical exposure by doing industrial tour in different organizations. In developed countries, the business schools give more preference to practical knowledge than theoretical knowledge. That is why; the program on any practical aspect is conducted for the BBA students of Faculty of Business Administration, Chittagong University. Here students are assigned with practical topics to prepare study report conducted on the organization. In this respect, I have been assigned to prepare industrial tour report on RATANPUR STEEL RE-ROLLING MILLS LIMITED. The core object of such type of program is to familiarize the students with the real life business situations.


This report represents the findings of short study on“Financial Performance of RSRM”. The report has been prepared by collecting information from practical working, reference books, newspaper and various web sites. Then I have analyzed collected data and included only those data which are appropriate for my paper. Extreme care has been taken in explaining the theoretical and statistical aspects in a most logical manner. All the different items have been systematically arranged under different headings. Finally, I take entire responsibility of any deficiency that might have in the report.

ACKNOWLEDGEMENT

In the commencement, I would like to say that, all praise due to Almighty ALLAH. All the progress, achievement and success throughout our life are His blessing. With His inestimable mercy and sympathy we are alive. Now, I would like to convey my heartiest gratitude to our honorable Chairperson Professor Dr. Abdur Rahaman for providing us forwarding letter by which we have officially visited Ratanpur Steel Re-Rolling Mills Ltd. And I also indebted and grateful to Mrs. Nasrin Jahan Nasu for helping me momentously in conducting the tour and preparing this report successfully.

To accomplish this sort of report visiting of industry is mandatory and to visit and preparing this kind of report many officials and persons help is needed. And the respondents of the questionnaire are the main key of this report. Without their friendly cooperation there might be no primary data. And exclusive of primary data the report could be meaningless. So we all, the members of the tour group are very much thankful to Mr. Md. Mostafa Kamal, AGM of HR& Admin, Mr. Md. Farid Iqbal, Assistant Manager of HR and Mr. Subash Chad Shivdaras Sharma, In-charge Production of RSRM who sacrifice their valuable time for answering the questionnaire and shared their personal experience about overall management of KAFCO with us. In


addition, we would like to give credit to the officials who helped us to reach the respondent. To me this would be a great achievement, if the report serves my purpose at

least to some extent. And I would like to offer gratitude to all whoever helped

me in preparing this paper. As a final point I take entire responsibility of any

deficiency that might have crept in this report.


ABSTRACT

Keeping pace with globalization, Bangladesh is experiencing rapid

infrastructural development. In this situation iron & steel industry has a

bright growth prospect & Ratanpur Steel Re-Rolling Mills Ltd. is pioneer in

this industry. The slogan of the RSRM is “Steel for the nation”.

In this competitive market RSRM using most advanced and latest technology

suitable for the production of Termo–Mechanically Treated (TMT)

reinforcement bar renowned worldwide for its special features of having

strength with high elongation percent and toughness which is not possible in

other ordinary reinforcement bars of conventional processes.

Ratanpur Steel Re-Rolling Mills Ltd. was incorporated in Bangladesh as

private limited company on 22 April, 1986 as company limited by shares

under the Companies Act, 1913 and converted into public limited company on

26 June 2012 under the Companies Act, 1994. The Company is engaged in the

manufacturing process of producing various grades of M.S. Deformed Bar

(300W/40 Grade, 400W/60 Grade and 500W/TMT) from M.S.Billet and

sakes/export of the products and other business related thereto. The

Company has set up its Re-Rolling Mills factory at 176, BaizidBostami I/A,

BaizidBostami road, Nasirabad, Chittagong, and commenced commercial

production from 1986. The Company is listed with Dhaka Stock Exchange

(DSE) and Chittagong Stock Exchange (CSE) as a publicly quoted company.

Trading of the shares of the company started in two stock exchanges from 22

September 2014.


TABLE OF CONTENTS

1 INTRODUCTION ------------------------------------------------------------------------- 10

1.1 PRELUDE--------------------------------------------------------------------------------- 10

1.2 STATEMENT OF THE PROBLEMS ------------------------------------------------- 11

1.3 OBJECTIVES OF THE STUDY-------------------------------------------------------- 12

1.4 METHODOLOGY OF THE STUDY -------------------------------------------------- 13

1.5 LIMITATIONS OF THE STUDY ----------------------------------------------------- 14

2 AN OVERVIEW OF RSRM-------------------------------------------------------------- 15

2.1 COMPANY PROFILE------------------------------------------------------------------- 15

2.2 BUSINESS PRINCIPLES--------------------------------------------------------------- 16

2.2.1 VISSION: -------------------------------------------------------------------------------- 16

2.2.2 MISSION:-------------------------------------------------------------------------------- 16

2.2.3 OBJECTIVES: --------------------------------------------------------------------------- 16

2.2.4 CORPORATE FOCUS: ----------------------------------------------------------------- 16

2.2.5 VALUES:--------------------------------------------------------------------------------- 17

2.2.6 PRODUCT OF RSRM: ----------------------------------------------------------------- 18

2.2.7 STRENGTH OF RSRM:---------------------------------------------------------------- 18

2.3 MANAGING BODY OF RSRM -------------------------------------------------------- 18

3 FINDINGS & ANALYSIS ON FINANCIAL PERFORMANCE OF RSRM------- 19

3.1 LIQUIDITY RATIOS: ------------------------------------------------------------------ 19

3.1.1 CURRENT RATIO: --------------------------------------------------------------------- 20

3.1.2 ACID TEST RATIO: -------------------------------------------------------------------- 21

3.2 LEVERAGE RATIOS:------------------------------------------------------------------- 22

3.2.1 DEBT-EQUITY RATIO: --------------------------------------------------------------- 22

3.2.2 COVERAGE RATIO: ------------------------------------------------------------------- 23


3.3 ACTIVITY RATIOS: -------------------------------------------------------------------- 24

3.3.1 INVENTORY TURNOVER RATIO:-------------------------------------------------- 24

3.3.2 TOTAL ASSETS TURNOVER RATIO: ---------------------------------------------- 25

3.3.3 DEBTOR TURNOVER RATIO: ------------------------------------------------------ 26

3.3.4 CREDITOR TURNOVER RATIO: ---------------------------------------------------- 27

3.4 PROFITABILITY RATIOS: ----------------------------------------------------------- 28

3.4.1 GROSS PROFIT RATIO: -------------------------------------------------------------- 28

3.4.2 OPERATING PROFIT RATIO: ------------------------------------------------------- 29

3.4.3 NET PROFIT RATIO:------------------------------------------------------------------ 30

3.4.4 EBITDA MARGIN TO SALES: ------------------------------------------------------- 31

3.4.5 RETURN ON SHAREHOLDERS’ EQUITY: ---------------------------------------- 32

3.4.6 RETURN ON CAPITAL EMPLOYED: ----------------------------------------------- 33

3.4.7 EARNING PER SHARE: --------------------------------------------------------------- 34

3.4.8 DIVIDEND PER SHARE:-------------------------------------------------------------- 35

3.5 USEFUL INFORMATION TO EVALUATE RATIO ANALYSIS ---------------- 36

4 RECOMMENDATION ------------------------------------------------------------------- 37

5 CONCLUSION ----------------------------------------------------------------------------- 38

6 APPENDICES ------------------------------------------------------------------------------ 39

7 REFERENCES ----------------------------------------------------------------------------- 41


1 . INTRODUCTION

1.1PRELUDE

The basis of financial planning, analysis and decision-making is the financial

information. Financial information is needed to predict, compare and evaluate

the firm’s earning ability. It is also required to aid in economic decision-

making and investment & financial decision-making. The financial information

of an enterprise is contained in the financial statements or accounting reports.

Financial analysis is the process of identifying the financial strengths and

weaknesses of the firm by properly establishing relationships between the

items of the balance sheet and the profit & loss account. Financial analysis can

be undertaken by management of the firm, or by parties outside the firm, viz.

owner, creditors, investors and others. Management, creditors, investors and

others to form judgment about the operating performance and financial

position of the firm use the information contained in these statements.

A financial ratio is a relationship between two financial variables. It helps to

ascertain the financial condition and performance of a firm. Ratio analysis is a

process of identifying the financial strengths and weakness of the firm. This

may accomplish either through a trend analysis of the firm’s ratios over the

period of the time or through a comparison of the firm’s ratios with its nearest

competitors and with the industry averages.


1.2STATEMENT OF THE PROBLEMS

Financial analysis is the starting point for making plans, before using any

sophisticated forecasting and planning procedures. It helps to understand the

past which is prerequisite for anticipating the future. User of financial

statement can get further insight about financial strength and weakness of the

firm if they properly analyze information reported in these statements.

Management should particularly interest in knowing financial strengths of the

firm to make their best use and to be able to spot out financial weaknesses of

the firm to take suitable corrective actions. Management should always keep

an eye whether its current financial policy regarding financial performance is

doing well or not because one slight deviation from its optimal financial

performance may cause a significant problem to the firm.

From the literature review, we have come to know thatin the financial year

2013-14 country faced a lot of challenges those are political unrest and

slowdown in the real estate sector and infrastructural development which

effects in the overall financial performance of RSRM such as decreasing gross

profit, decreasing operating profit, decreasing net profit etc. In this financial

year RSRM utilized 46% production capacity produced 85398 MT of MS

Deformed Bar. Whereas in the previous financial year it was 47% utilization

of capacity and produced 88040 MT of MS Deformed Bar. In this regard, the

financial performance of RSRM is not good. As we see that the company’s EPS

(Earning per share) for the year is tk. 5.24 which is 0.39 less than preceding

year. Decrease of EPS is a great concerned for shareholders. Apart from that

company declare 15% dividend of which 5% cash and 10% stock dividendfor

the year ended June 30, 2014 which is good for shareholders. In absence of

adequate liquidity the firm would not be able to pay creditors who have

supplied goods and serviced on the due date promised.

The main purpose of this study is to know whether the financial condition and

performance of RSRM is good or not. If not then what corrections can make it

a perfect one.


1.3OBJECTIVES OF THE STUDY

The main purpose of the industrial visit is to acquire knowledge about the

internal and external environment of an industry and find out the consistency

and inconsistency between theoretical and practical knowledge that we

acquired from an industry that is live. We also try to adjust with the gap to be

competent at the modern job market.

The areas on which we will give emphasis are:

To find out the financial strength of RSRM.

To find out the financial weakness of RSRM.

To evaluate financial condition& performance of RSRM.

To analyze critically the financial factors of RSRM.

Lastly, recommends solution related to their financial performance.


1.4METHODOLOGY OF THE STUDY

The scope of the study was confined. One of the most renowned enterprises is

“Ratanpur Re-Rolling Stills Ltd. The methodology followed for the purpose of

the study has been desk research as well as filed survey. We collected all kinds

of data from primary & secondary sources.

Primary Data is collected through:

Making a formal questionnaire.

Questionnaire has been designed through department wise.

Discussion with high officials.

Practical experience gained by studying & visiting.

Secondary Data is collected through:

Prospectus

Annual Report of RSRM

Websites

The major portions of data source used in this report are from secondary

sources. Finally, the collected data are classified, tabulated, analyzed,

interpreted and presented in the form of research report thereafter.


1.5LIMITATIONS OF THE STUDY

The study has been conducted subject to certain limitations. Time constraint

is one of the major limitations. I have been allowed only one day for the

industrial visit, which is not enough to study and industry in depth.

In addition to the above, our sample enterprise is a private limited company,

which does not provide all sophisticated information. So they provide us only

Annual Report. They are concerned about their competitor sensitivity in the

field of fertilizer production organization. Another important reason is as

follows:

Most of the official was so much busy to provide me enough time.

Difficult to contact with all top management.

Lack of proper communication with RSRM in the earlier stage.

Lacks of information is prevailed in this report because the

representative of RSRM did not disclose many confidential matter.

The success rate of this study may be limited due to lack of our

experience in collecting data.

In spite of these limitations, I have tried my best to pinpoint various finding

and to provide the students and researchers of tomorrow with valuable

information.


2 . AN OVERVIEW OF RSRM

2.1COMPANY PROFILE Ratanpur Steel Re- rolling Mill (RSRM) is a local company has launched finest

quality rod in the country as Bangladesh’s construction industry looks for

quake-resistance steel for increasing number of high-rise buildings.Ratanpur

Steel Re- rolling Mill (RSRM) is one of well-known steel mill in steel re-rolling

sector. It has 24 years’ experience exclusively in steel making. It is one of the

biggest steel manufacturing companies in the private sector in Bangladesh. It

was established

in 1984. The

slogan of the

Ratanpur steel

mill is “Steel for

the nation”.

Thinking about

the increasing

demand of steel

in the country

this prominent

entrepreneur

decided to set

up this factory.

It has been manufacturing plain and deformed bar to meet the requirement of

the customers of the country.

The factory of this company is located at

NasirabadbesideBaizidBostamiroad in Chittagong. The company is using

latest and sophisticated technology to manufacture product. Ratanpur steel

mill has a modern chemical analysis and physical testing lab to ensure the

quality of the product.


2.2BUSINESS PRINCIPLES

2.2.1 VISSION:

Our vision is to be the trend setter and the power force of the steel re-rolling

industry.

2.2.2 MISSION:

We will continueto be the first name in the region’s steel industry by

harnessing our assets & resources to achieve profitable growth, operational

and organizational excellence and good corporate citizenship.

2.2.3 OBJECTIVES:

Our objectives are to conduct business operation based on market mechanism

within the legal and social frame work with aims to attain the mission

reflected by our vision.

2.2.4 CORPORATE FOCUS:

Our vision, our mission and our objectives are to emphasize on the quality of

product, process and services leading to augmentation of the company with

corporate governance practices.


2.2.5 VALUES:

QUALITY:

Providing products & services to our customers.

Constantly improving our processes reducing wastage.

Minimizing costs of products & services.

Developing our resources for creating skilled workforce.

TRUST:

Preserve the faith & goodwill of all our shareholders by adopting

ethical and transparent business practices.

Being fair and honest in all our dealing and good governance and

risk management process.

BUSINESS RELATIONSHIP:

By offering quality product.

By providing our best & timely service.

By honoring all our commitments even with challenges.

LEADERSHIP:

By setting landmark though our products, processes & people.

By persistently moving ahead of competition by differencing our

products and processes.

By increasing our market share.

BUSINESS AUGMENTATION:

Improving the efficiency of processes.

By anticipating & responding to the changing business and the

environmental needs using experience within the organization.

SOCIAL CARE:

Tree plantation program

Earthquake campaign

Building passenger shade in bus stands

Providing safety road sign

Scholarship program


2.2.6 PRODUCT OF RSRM:

RSRM mainly produces 500W (TMT), 400W (60 Grade) and 300W (40 Grade).

Grade steel using most advanced and latest technology suitable for the

production of TMT bar which is renowned worldwide for its special features

of having high strength with high elongation percent and toughness which is

not possible in other ordinary reinforcement bars of conventional processes.

2.2.7 STRENGTH OF RSRM:

Greater Ductility

Superior Bendability

Better Weld ability

High Corrosion-Resistance

Ideal Property Balance

2.3MANAGING BODY OF RSRM NAME DESIGNATION

Mrs. ShamsunNaharRahman Chairman Mr. MaksudurRahman Director& Managing Director

Mr. Md. YounusBhuiyan Director Mr. Md. MizanurRahman Director

Mr. MarzanurRahman Director Mr. Md. Jahangir Miah Independent Director

Mr. Zulfiker Ali Azad Executive Director-Marketing & Sales

Mr. ObaidurRahman FCA Chief Financial Officer Mr. Md. Jafar Imam Company Secretary

Mr. Md. Serajul Islam Consultant-Quality Control Mr. Mohammad Ali Chief Electrical Engineer

Mr. TapanKantiMajumder Chief Mechanical Engineer Mr. Md. Mostafa Kamal AGM, HR & Admin

Mr. Md. FaridIqbal Assistant Manager of HR

Mr. Md. DewanMabood Ahmed Manager-Commercial Mr. Subash Chad Shivdaras Sharma In-Charge Production

Mr. Md. NizamUddin Head of Information Technology


3 . FINDINGS & ANALYSIS ON

FINANCIAL PERFORMANCE OF RSRM

The present study has been undertaken for analyzing the financial

performance of RSRM. Various sources are used to make the report more

informative. The direct interview method has followed as the primary source

and annual reports of RSRM, the website of RSRM and various journals&

books related to financial analysis.

Financial statements are historical in their nature as they relate to the past performance of the firm. When ratio analysis is applied to the past financial statements, strength and weakness of the firm could be analyzed and identified. Changes are inevitable as future is not a replica of the past. Only management is aware of the expected changes in policies,in future. So, ratio analysis can be applied by the management to anticipate the future performance / results, after considering the impact of changes in policies to the past financial statements. An outsider is not aware of the likely changes in policies. So, only management, not public, is in a better position to use ratio analysis to forecast or predict the future performance of a firm.

Performance of RSRM is evaluated using the ratio analysis in the following different directions:

3.1LIQUIDITY RATIOS: Liquidity ratios are highly useful to creditors and commercial banks that provide short-term credit. Short-term refers to a period not exceeding one year. Liquidity ratios measure the firm’s ability to meet current obligations, as and when they fall due. A firm should ensure that it does not suffer from lack of liquidity and also does not have excess liquidity. The most common ratios which indicate the extent of liquidity or lack of it are following with the analysis of financial performance of RSRM:-


3.1.1 CURRENT RATIO:

A short-term indicator of the company’s ability to pay its short-term liabilities

from short-term assets, how much of current assets are available to cover

each dollar of current liabilities.

Current ratio = 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑎𝑠𝑠𝑒𝑡𝑠

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

2014 Times 2013 Times

=2,684,574,070

2,786,066,653 0.96 =

2,192,672,783

2,474,310,829 0.89

Interpretation:As a conventional rule, a current ratio of 2:1 is considered

satisfactory. The role is based on the logic that in the worst situation even if

the value of current assets becomes half, the firm would be able to meet its

obligations. In the diagram, as we see that last two years current ratio of

RSRM are respectively 2013-0.89:1 & 2014-0.96:1. In both situations RSRM

maintains insufficient liquidity to meet its short term obligations.In the

absence of liquidity, firm would not be able to make payments on the due

date. There would be delay for suppliers of goods and services. Creditors

would be unhappy with the repayment behavior of the firm and may suspend

or delay supplies that would affect smooth production.

2013 2014

Current Ratio 0.89 0.96

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

Tim

es

Current Ratio


3.1.2 ACID TEST RATIO:

It measures the company’s ability to pay off its short-term obligations from

current assets, excluding inventories.

Acid test ratio = 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑎𝑠𝑠𝑒𝑡𝑠−𝐶𝑙𝑜𝑠𝑖𝑛𝑔 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠


=2,684,574,070−1,751,235,595

2,786,066,653

0.34 =2,192,672,783−1,613,125,611

2 ,474,310,829 0.23

Interpretation: As a conventional rule, a quick ratio of 1:1 is considered

satisfactory. In the diagram, as we see that last two years quick ratio of RSRM

are respectively 2013- 0.23:1 & 2014- 0.34:1 which is not acceptable. Thus, if

the RSRM’s inventories do not sell, and it has to pay all its current liabilities, it

may find it difficult to meet its obligations because its quick assets are 0.34

times of current liability. Apart from this this good to see that year-to-year the

quick assets are increasing against current liabilities.

2013 2014

Acid Test Ratio 0.23 0.34

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

Tim

es

Acid Test Ratio


3.2LEVERAGE RATIOS: The long-term creditors, like debenture holders, financial institutions etc. are

more concerned with the firm’s long term financial strength. The most

common ratios which indicate the extent of debt financing in a firm are:

3.2.1 DEBT-EQUITY RATIO:

This ratio is calculated to measure the relative claims of outsiders (lenders) and owners against the firm’s assets. The ratioshows the relationship between the outsiders’ funds and shareholders’ funds.

Debt equity ratio = 𝑇𝑜𝑡𝑎𝑙 𝑑𝑒𝑏𝑡

𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟 𝑠′𝑒𝑞𝑢𝑖𝑡𝑦


=3,005,258,500

1,744,278,182 1.72 =

2,721,373,158

1,589,320,327 1.71

Interpretation:As a conventional rule, a debt-equity ratio of 1:1is considered satisfactory. In the diagram, as we see that last two years debt-equity ratio of RSRM are respectively 2013- 1.71:1 & 2014- 1.72:1 which is unfavorable. It is clear that from the debt-equity ratio that RSRM’s lenders/creditors have contributed more funds than owners; lenders’/creditors’ contribution is 1.72 times of owners’ contribution. A high debt-equity ratio may be unfavorable as the firm may not be able to raise further borrowing, without paying higher interest, and accepting stringent conditions. This situation creates undue pressures and unfavorable conditions to the firm from the lenders/creditors.

2013 2014

Debt-Equity Ratio 1.71 1.72

1.71.7021.7041.7061.708

1.711.7121.7141.7161.718

1.721.722

Tim

es

Debt-Equity Ratio


3.2.2 COVERAGE RATIO:

It indicates the ability of the company to meet its annual interest costs. The

Interest Coverage ratio or the Times-Interest-Earned (TIE) ratio is used to test

the firm’s debt-servicing capacity. It shows the number of times the interest

charges are covered by funds that are ordinarily available for their payment.

Coverage ratio = 𝑁𝑒𝑡 𝑝𝑟𝑜𝑓𝑖𝑡 𝑏𝑒𝑓𝑜𝑟𝑒 𝑖𝑛𝑐𝑜𝑚𝑒 𝑡𝑎𝑥

𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑒𝑥𝑝𝑒𝑛𝑠𝑒


=209,829,235

169,083,190 1.24 =

279,533,824

159,680,646 1.75

Interpretation:In the diagram, as we see that last two years interest coverage ratio of RSRM are respectively 2013- 1.75 times & 2014- 1.24 times. The higher the coverage ratio, better it is both for the firm and lenders. For the firm, the probability of default in payment of interest is reduced and for the lenders, the firm is considered to be less risky. But in 2014 the coverage ratio of RSRM is down 1.75 to 1.24 which is not good because a lower coverage ratio indicates the excessive use of debt.

2013 2014

Coverage Ratio 1.75 1.24

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

Tim

es

Coverage Ratio


3.3ACTIVITY RATIOS: Activity ratios are employed to evaluate the efficiency with which the firm

manages and utilizes its assets. It indicates the speed with which assets are

being converted or turned over into sales. Several activity ratios can be

calculated to judge the effectiveness of asset utilization-

3.3.1 INVENTORY TURNOVER RATIO:

It measures the number of times that average inventory of finished goods was

turned over or sold during a period of time, usually a year.

Inventory turnover ratio =𝐶𝑜𝑠𝑡 𝑜𝑓 𝑔𝑜𝑜𝑑𝑠 𝑠𝑜𝑙𝑑

𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦

Average Inventory = 𝑂𝑝𝑒𝑛𝑖𝑛𝑔 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 +𝐶𝑙𝑜𝑠𝑖𝑛𝑔 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦

2


=4,301,993,578

1,613125,611+1,751,235,595

2

2.5 =4,738,541,235

1,250,041,298+1,613,125,611

2

3.31

Interpretation:In the diagram, we see that then debt inventory turnover ratio

of RSRM in 2013 is much higher than the ratio of 2014. RSRM is turning its

inventory of finished goods into sales 2.5 times in a year while in 2013 it was

3.31 times. Generally, a low inventory turnover implies excessiveinventory

levels than warranted by production and sales activities.

2013 2014

Inventory Turnover Ratio 3.31 2.5

0

0.5

1

1.5

2

2.5

3

3.5

Tim

es

Inventory Turnover Ratio


3.3.2 TOTAL ASSETS TURNOVER RATIO:

It measures the utilization of all the company’s assets, measures how many

sales are generated by those assets. Therefore, a firm should manage its assets

efficiently to maximize sales. The relationship between sales and assets is

called assets turnover. If the firm manages the assets more efficiently, sales

would be more and equally profits would be up.

Total assets turnover = 𝑅𝑒𝑣𝑒𝑛𝑢𝑒/𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠

𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠


=4,766,995,506

4,749,536,683 1.05 =

5,253,806,261

4,310,693,485 1.30

Interpretation:In the diagram, we see that the assets turnover ratio of RSRM

in 2014 is 1.05 times,while in 2013 it was 1.3 times. So it is clearly observe

that the asset turnover ratio of RSRM is declined. The Total assets turnover of

1.05 times implies that RSRM generates a sale of Tk. 1.05 for one taka

investment in fixed assets & current assets together.

2013 2014

Total Asset Turnover Ratio 1.3 1.05

0

0.2

0.4

0.6

0.8

1

1.2

1.4

Tim

es

Total Asset Turnover Ratio


3.3.3 DEBTOR TURNOVER RATIO:

It indicates the number of times that accounts receivable are cycled during the

period, usually in a year. The higher the value of debtor turnover, the more

efficient is the management of credit.

Debtor/Accounts receivable turnover = 𝑆𝑎𝑙𝑒𝑠 /𝐶𝑟𝑒𝑑𝑖𝑡 𝑆𝑎𝑙𝑒𝑠

𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑎𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑟𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒

Average accounts receivable = 𝑂𝑝𝑒𝑛𝑖𝑛𝑔 𝐴.𝑅.+𝐶𝑙𝑜𝑠𝑖𝑛𝑔 𝐴.𝑅.

2


=4,766,995,506

638,797,191 7.46 =

5,253,806,261

489,946,817 10.72

Debtor collection period = 365

𝐷𝑒𝑏𝑡𝑜𝑟 𝑡𝑢𝑟𝑛𝑜𝑣𝑒𝑟

2014 Days 2013 Days

=365

7.46 49 =

365

10.72 34

Interpretation:In the diagram, we see that the RSRM is able to turnover its debtors 7.46 times in the year of 2014, while in the previous year it was 10.72 times. So the management of credit of RSRM is inefficient in this year compared to previous year. Again the debtor collection period of RSRM is increased 34 days to 49 days which is also not a good sign because the shorter the collection period, the better the quality of debtors.

2013 2014

Debtor Turnover Ratio 10.72 7.46

0

2

4

6

8

10

12

Tim

es

Debtor Turnover Ratio


3.3.4 CREDITOR TURNOVER RATIO:

It indicates the average length of time in days that the company takes to pay

its credit purchases.

Creditor/Accounts payable turnover = 𝑃𝑢𝑐ℎ𝑎𝑠𝑒𝑠 /𝐶𝑟𝑒𝑑𝑖𝑡 𝑃𝑢𝑟𝑐ℎ𝑎𝑠𝑒𝑠

𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑎𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑝𝑎𝑦𝑎𝑏𝑙𝑒

Average accounts payable = 𝑂𝑝𝑒𝑛𝑖𝑛𝑔 𝐴.𝑃+𝐶𝑙𝑜𝑠𝑖𝑛𝑔 𝐴.𝑃.

2


=4,440,103,562

1,005,198,353 4.21 =

4,876,651,219

937,053,485 5.20

Creditor payment period = 365

𝐶𝑟𝑒𝑑𝑖𝑡𝑜𝑟 𝑡𝑢𝑟𝑛𝑜𝑣𝑒𝑟

2014 Days 2013 Days

=365

4.21 87 =

365

5.20 70

Interpretation:In the diagram, we see that the RSRM is able to turnover its creditors 4.21 times in the year of 2014, while in the previous year it was 5.2 times. Again the creditor collection period of RSRM is increased 87 days to 70 days which is also not a good sign. If the period is more, it indicates the firm is defaulting in payments and enjoying longer period of credit from the suppliers. Creditors can understand that they may be getting false promises.

2013 2014

Creditor Turnover Ratio 5.2 4.21

0

1

2

3

4

5

6

Tim

es

Creditor Turnover Ratio


3.4PROFITABILITY RATIOS: Profitability ratios are to measure the operating efficiency of the company. Creditors want to get interest and repayment of principal regularly. Owners want to get a required rate of return on their investment. This is possible only when the company earns enough profits. Following are profitable ratios:

3.4.1 GROSS PROFIT RATIO:

It indicates the total margin available to cover other expenses beyond cost of goods sold and still yield a profit.

Gross profit ratio = 𝐺𝑟𝑜𝑠𝑠 𝑝𝑟𝑜𝑓𝑖𝑡

𝑁𝑒𝑡 𝑠𝑎𝑙𝑒𝑠× 100

2014 Percentage 2013 Percentage

=465,001,928

4,766,995,506× 100 9.75 =

515,265,026

5,253,806,261× 100 9.81

Interpretation:In the figure, we see that the ratio has declined from 2013 to 2014 respectively 9.81% to 9.75% which is not expectable at all because it effects on overall net profit of RSRM. Low gross profit ratio is not sign of good management. The gross profit ratio of RSRM falls because it may be increased in cost of raw materials due to political unrest; inefficient utilization of plant and machinery which resulting in higher cost of production; excessive competition, compelling to sell at reduced prices etc.

2013 2014

Gross Profit Ratio 9.81% 9.75%

9.70%

9.72%

9.74%

9.76%

9.78%

9.80%

9.82%

Pe

rce

nta

ge

Gross Profit Ratio


3.4.2 OPERATING PROFIT RATIO:

It indicates the percentage of difference between the gross profit and

operating expenses. It reflects the efficiency of operation of a company.

Operating ratio = 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝑝𝑟𝑜𝑓𝑖𝑡



=389,122,952

4,766,995,506× 100 8.16 =

453,643,321

5,253,806,261× 100 8.63

Interpretation:In the figure, we see that the ratio has declined from 2013 to

2014 respectively 8.63% to 8.16% which isunfavorable because it effects on

overall net profit of RSRM which resulting decrease of net profit as well as

selling price will be increased.

2013 2014

Operating Profit Ratio 8.63% 8.16%

7.90%

8.00%

8.10%

8.20%

8.30%

8.40%

8.50%

8.60%

8.70%

Pe

rce

nta

ge

Operating Profit Ratio


3.4.3 NET PROFIT RATIO:

Net Profit ratio indicates the overall efficiency of the management inmanufacturing, administering and selling the products. It also indicates the firm’s capacity to withstand adverse economic conditions.

Net profit ratio = 𝑁𝑒𝑡 𝑝𝑟𝑜𝑓𝑖𝑡 𝑎𝑓𝑡𝑒𝑟 𝑖𝑛𝑐𝑜𝑚𝑒 𝑡𝑎𝑥



=154,957,856

4,766,995,506× 100 3.25 =

166,740,993

5,253,806,261× 100 3.17

Interpretation:In the figure, we see that the ratio has increased from 2013 to 2014 respectively 3.17% to 3.25%. As we expected the decreasing ratio of Gross profit& Operating profit affects the net profit but it is not happening this is because of big difference in deferred tax expense of RSRM. In 2014 the deferred tax expense is tk. 8,915,075 while in 2013 it was 72,896,584.

2013 2014

Net Profit Ratio 3.17% 3.25%

3.10%

3.12%

3.14%

3.16%

3.18%

3.20%

3.22%

3.24%

3.26%

Pe

rce

nta

ge

Net Profit Ratio


3.4.4 EBITDA MARGIN TO SALES:

EBITDA means Earnings Before Income Tax & Depreciation Allowance. It

measures the overall profit before income tax & depreciation margin on sales.

EBITDA margin to sales = 𝐸𝐵𝐼𝑇𝐷𝐴



=446,180,514

4,766,995,506× 100 9.36 =

507,791,687

5,253,806,261× 100 9.67

Interpretation:In the figure, we see that the ratio has declined from 2013 to 2014. The EBITDA margin to sales of RSRM in 2014 is 9.36% while it was in 2013 it was 9.67% which is not satisfactory. It indicates the operating expense has gone up.

2013 2014

EBITDA margin to sales 9.67% 9.36%

9.20%

9.25%

9.30%

9.35%

9.40%

9.45%

9.50%

9.55%

9.60%

9.65%

9.70%

Pe

rce

nta

ge

EBITDA margin to sales


3.4.5 RETURN ON SHAREHOLDERS’ EQUITY:

It measures the rate of return on the book value of shareholders’ total

investment in the company. It indicates how well the firm has used the

resources of owners.

Return on shareholders’ equity = 𝑁𝑒𝑡 𝑝𝑟𝑜𝑓𝑖𝑡 𝑎𝑓𝑡𝑒𝑟 𝑖𝑛𝑐𝑜𝑚𝑒 𝑡𝑎𝑥

𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠′𝑒𝑞𝑢𝑖𝑡𝑦× 100


=154,957,856

1,744,278,182× 100 8.88 =

166,740,993

1,589,320,327× 100 10.49

Interpretation: In the diagram, we see that the return on shareholders’

equity of RSRM in the year of 2014 is much lower than the year of 2013. In

2014 the ROE of RSRM is 8.88% while in 2013 it was 10.49%. This is because

the profit after tax to shareholders’ equity of RSRM is comparatively lower

than previous year. The higher the ratio, the better it is for equity

shareholders.

2013 2014

Return on Shareholders' Equity 10.49% 8.88%

8.00%

8.50%

9.00%

9.50%

10.00%

10.50%

11.00%

Pe

rce

nta

ge

Return on Shareholders' Equity


3.4.6 RETURN ON CAPITAL EMPLOYED:

Another way to calculate return on investment is through capital employed or

net assets. Net assets are equal to net fixed assets plus current assets minus

current liabilities. Net assets andcapital employed convey the same meaning,

though called differently.

Return on capital employed = 𝑁𝑒𝑡 𝑝𝑟𝑜𝑓𝑖𝑡 𝑏𝑒𝑓𝑜𝑟𝑒 𝑖𝑛𝑐𝑜𝑚𝑒 𝑡𝑎𝑥

𝑇𝑜𝑡𝑎𝑙 𝑐𝑎𝑝𝑖𝑡𝑎𝑙 𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑑× 100


=209,829,235

1,963,470,029× 100 10.69 =

279,533,834

1,836,382,657× 100 15.22

Interpretation:In the diagram, we see that the return on capital employed of RSRM in the year of 2014 is much lower than the year of 2013. In 2014 the return on capital employed of RSRM is 10.69% while in 2013 it was 15.22%. A lower percentage of return on capital employed will not satisfy the owners that their funds are not profitably utilized.

2013 2014

Return on Capital Employed 15.22% 10.69%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

Pe

rce

nta

ge

Return on Capital Employed


3.4.7 EARNING PER SHARE:

It indicates the profitability of the firm on a per share basis, it does not reflect

how much is paid as dividend and how much is retained in the business.

Earnings per share = 𝑁𝑒𝑡 𝑝𝑟𝑜𝑓𝑖𝑡 𝑎𝑓𝑡𝑒𝑟 𝑖𝑛𝑐𝑜𝑚𝑒 𝑡𝑎𝑥

𝑁𝑜.𝑜𝑓 𝑜𝑟𝑑𝑖𝑛𝑎𝑟𝑦 𝑠ℎ𝑎𝑟𝑒𝑠 𝑜𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔

2014 Taka 2013 Taka

=154,957,856

29,600,000 5.24 =

166,740,993

29,600,000 5.63

Interpretation:EPS calculation, over the years, indicates how the firm’s earning power, per share basis, has changed over the years. EPS of the firm is to be compared with the industry and its immediate competing firm to understand the relative performance of the firm. But in 2014 the EPS is 5.63 while it was 5.24 in 2013. In 2014 the earning per share of RSRM is decreased compare to previous year which is not good sign at all for shareholders of RSRM because they always expect better EPS from an organization. Otherwise they are not interested to invest anymore.

2013 2014

Earning Per Share 5.63 5.24

5

5.1

5.2

5.3

5.4

5.5

5.6

5.7

Taka

Earning Per Share


3.4.8 DIVIDEND PER SHARE:

It is the earning distributed to ordinary shareholders. A large number of

present and potential investors may be interested in DPS rather than EPS.

Dividend per share = 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑑𝑖𝑠𝑡𝑟𝑖𝑏𝑢𝑡𝑒𝑑 𝑡𝑜 𝑒𝑞𝑢𝑖𝑡𝑦 𝑠ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠

𝑁𝑜.𝑜𝑓 𝑜𝑟𝑑𝑖𝑛𝑎𝑟𝑦 𝑠ℎ𝑎𝑟𝑒𝑠 𝑜𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔

2014 Taka 2013 Taka

=74,000,000

29,600,000 2.5 =

0

29,600,000 0

Interpretation:After payment of dividend to preference shareholders, balance net profit belongs to equity shareholders, whether distributed in the form of dividend or retained in business.RSRM distribute Tk. 2.5 per share as dividend out of Tk. 5.24 earned per share. The difference per share is retained in the business. While in 2013 RSRM retained Tk. 5.63 earned per share fully.

2013 2014

Dividend Per Share 0 2.5

0

0.5

1

1.5

2

2.5

3

Taka

Dividend Per Share


3.5USEFUL INFORMATION TO EVALUATE RATIO ANALYSIS

Particulars 2014 2013 Current assets 2,684,574,070 2,192,672,783 Current liabilities 2,786,066,653 2,474,310,829 Total assets 4,749,536,683 4,310,693,485 Total debt/liabilities 3,005,258,500 2,721,373,158 Opening inventory 1,613,125,611 1,250,041,298 Closing inventory 1,751,235,595 1,613,125,611 Average inventory 1,682,180,603 1,431,583,455 Accounts receivable 787,647,565 489,946,817 Average accounts receivable 638,797,191 489,946,817* Accounts payable 1,173,343,220 937,053,485 Average accounts payable 1,055,198,353 937,053485* Revenue/Net sales/Credit sales 4,766,995,506 5,253,806,261 Cost of goods sold 4,301,993,578 4,738,541,235 Net purchases/Credit purchases 4,440,103,562 4,876,651,219 Gross profit 465,001,928 515,265,026 Operating profit 389,122,952 453,643,321 EBITDA 446,180,514 507,791,687 Net profit before income taxes 209,829,235 279,533,824 Net profit after income taxes 154,957,856 166,740,993 Shareholders’ equity 1,744,278,182 1,589,320,327 Dividend distributed 74,000,000 0 Interest expense 169,083,190 159,680,646 Total capital employed 1,963,470,029 1,836,382,657 No. of ordinary shares outstanding 29,600,000 29,600,000

*Note: In the year of 2013 the Average Accounts Receivable &Average

Accounts Payable are calculated only with the Closing Accounts Receivable &

Closing Accounts Payable respectively because there are no further

information about the Opening Accounts Receivable & the Opening Accounts

Payable.


4 . RECOMMENDATION

Though the Ratanpur Steel Re-rolling Mills Ltd. is undoubtedly a benefited company for the country, we recommend some particular factors which, we think can make some more betterment for the company in the practice of financial policies and programs. The recommendations are given: They should utilize maximum amount of its production capacity which

leads to increase annual turnover as well as profit margin. The industry should increase its channels of distribution of products

which helps to meet local demand as result revenue will increase. The company should increase the production volume by installing new

machine as it has been informed that Government takes some big

project which will increase demand in near future such as Padma

Multipurpose Bridge, Metro rail, Tunnel under the Karnaphuli River etc.

They should maintain proper balance between high liquidity & lack of liquidity.

They should have short-term as well as long-term solvency for financial strength.

They should improveits operational efficiency or retire the debt, early, to have a coverage ratio, comparable to the industry if the coverage ratio is low.

They should compare the collection period of the firm with the industry’s average collection periodand decide whether the firm has to make any change in credit policy.

They should have to paid creditors within the assured period. They should increase earnings per share to attract the shareholders.


5 . CONCLUSION

RSRM is one of the biggest steel manufacturing companies in the private

sector in Bangladesh. RSRM has strong customer relationship with a local

image and always sensitive about competitor’s price. RSRM also gives

honorarium to the engineers to encourage further purchase. It is one of

potential steel mill among the graded bar producer because they have huge

financial strength and long experience in producing no graded bar. The slogan

of the Ratanpur steel mill is “Steel for the nation”.

And finally, we are hopeful to see that the construction sector of Bangladesh

has grown at a calculated average growth rate of 12.2% over the last 10 years

and it is expected to continue in the coming years. The real estate sector also

tries to recover slowly after temporary slowdown of demand due to overall

macroeconomic pressure and contraction policy of government. Government

also undertakes some big project which will increase demand in near future

which is the great opportunity for steel industries like RSRM to meet the

incremental demand of MS Deformed Bar.

Hence the Government should come forward to ensure bright future of this

sector of industry.


7 . APPENDICES

QUESTIONNAIRE

(Information collected by questionnaire will be used for academic purpose only)

1. Name of the organization…………………………………. 2. Location……………………………………………………..……. 3. Name of Respondent………………………………………... 4. Designation……………………………………………………… 5. Form of ownership…………………………………………… 6. Commencement of operation……………………………. 7. Managing body of the company………………………… 8. Nature of company:

o Public o MNC o Joint o Venture o Private Ltd.

9. Total number of employees

o Managerial Staff o Non Managerial Staff o Skilled/ Unskilled


Finance & Accounting Department

1. Please give the following information about the Capital

o Initial capital o Present capital

2. Please mention the total investment of your plant

o Fixed capital o Working capital

3. Did your company go to share market?

o Yes o no

4. Is your company profitable?

o Yes o no

5. What are the sources of short- term financing?

6. What are the sources of long term financing?

7. Is your company able to meet current obligation?

8. Is your company able to meet long-term obligation?

9. Is your company distributing dividend to shareholders?

10. Would you please show yearly turnover of the last 5 years?

Year Yearly Turnover

2010

2011

2012

2013

2014


8 . REFERENCES

Websites:

www.rsrmbd.com

www.investopedia.com

www.businessdictionary.com

Books:

I. M. Pandey – Financial Management.

Weygandt, Kieso & Kimmel – Accounting Principles.

George Foster – Financial Statement Analysis.

Annual Report of RSRM.

Miller, H. Merton. Debt and taxes. The Journal of Finance (May, 1977).

http://www.rsrmbd.com/

http://www.investopedia.com/

http://www.businessdictionary.com/

Analysis on financial performance of RSRM

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