Internship Report

On

Financial Analysis of KDS Accessories Limited

“Financial Analysis of KDS Accessories Limited”

Submitted to

Supervisor

Md Thasinul Abedin

Assistant professor

Department of Accounting

Faculty of Business Administration

University of Chittagong

Submitted by

Wazed Chowdhury

ID: 14301002 Department of Accounting

University of Chittagong

Date of Submission: 25thApril, 2019

Letter of Transmittal

25th April, 2019

Md Thasinul Abedin

Assistant Professor

Department of Accounting

University of Chittagong

Subject: Submission of the Internship report on “Financial analysis of KDS Accessories Limited”

Dear Sir,

With due respect, as a student of Department of Accounting, I have prepared my internship report on “Financial analysis of KDS Accessories Limited”

I have tried my level best to follow your guidelines in every aspect of planning of this report. I have also collected what I believe to be the most important information to make this report specific and comprehensible as possible. I enjoyed the challenge of preparing the report as it provided me with an opportunity to widen knowledge on the professional implications of accounting in the corporate domain. I am honestly thankful for your guidance during the preparation of this report. I hope you will appreciate my effort. I have done the study in a complete form and I have tried my level best to conduct this in a professional manner. It is true that, it could have been done in a better way if there were not limitations. I hope you will assess my report considering the limitations of the study.

Yours sincerely,Wazed ChowdhuryID: 14301002

Acknowledgement

First of all I would like to express my gratitude to Almighty Allah for his blessings that help me to complete this report. This internship report has been prepared based on the basis of one month’s successful completion of Internship program at KDS Accessories

Ltd , Corporate office : 191-192 Baizid Bostami Road Nasirabad 1/A, Chattogram -4210 Bangladesh.

I would like to express my profound gratitude to my supervisor Mr. Thasinul Abedin

(Assistant Professor of Accounting Department, University of Chittagong) for his utmost

cooperation & providing me the format that enables me to prepare the report. Without his

help it was quite difficult for me to complete this report successfully in time.

I am also grateful to the HRD of KDS Accessories Ltd. for offering me the Internship training.

I would like to express my earnest gratitude to the Chief Financial Officer (CFO) of KDS

Accessories Ltd. Mr Biplob Kanti Banik FCA for helping me a lot to understand the

official work and preparing the report. At the very outset, my cordial thanks to the entire

employees of Finance and Accounts department to provide me all sorts of help regarding

the collection of data to prepare the report.

Finally, I would like to thank my family who has been with me not only these few weeks but during all my life. They have been extremely patient and always willing to sacrifice when it came to my studies and now work.

Executive Summary

KDS Accessories Ltd (KDSA) is one of the first generation garments accessories company, which makes a significant contribution to the RMG industry of Bangladesh through their quality products, products variety and strong supply chain management. Since 1991, the year of starting journey, KDS Accessories has attained its recognition as one of the country’s leading garment Accessories Company with a significant and growing global each.

KDS offers one of the most comprehensive range of apparel Trims & packaging products and services. In order to meet continuous customer demand and ensure world class service, KDS now have two plants in strategic locations in Bangladesh making it accessible to the industry geographically. Both plants together it produces the highest number of accessories in Bangladesh.

They manufactures a wide range of accessories:

General Packaging

Sewing Threads

Hangers

Polybags

Buttons

Woven Labels

Offset Printing

Printed Fabric Labels

Narrow Fabric Labels

Heat Transfers

Gum Tape

Table of ContentsChapter 1................................................................................................................................7

Introduction....................................................................................................................................................7

1.1Origin of the report.....................................................................................................7

1.2 Objectives..................................................................................................................7

1.3 Data Analysis and Reporting:....................................................................................8

1.4 Scope of the report....................................................................................................8

1.5 Limitations.................................................................................................................8

Chapter 2................................................................................................................................9

Literature Review................................................................................................................9

Chapter 3..............................................................................................................................12

Methodology of the Report................................................................................................12

3.1 Macro-economic factors affecting KDS Accessories Ltd.........................................14

3.2 SWOT Analysis of KDS Accessories Ltd:...............................................................18

3.3 Competitor Analysis of KDS Accessories Ltd:.........................................................22

3.4 Working Capital management of KDS Accessories Ltd:.........................................25

3.5 Projected Income statement for forecasting period:................................................33

3.6 Projected Balance Sheet for forecasting period:.....................................................34

3.7 Assumptions & Calculations:...................................................................................36

3.8 Calculation of financial ratios for both actual & forecasting period:.........................40

Chapter 4..............................................................................................................................42

Findings and Analysis:......................................................................................................42

Chapter 5..............................................................................................................................46

5.1 Conclusions:................................................................................................................46

5.2 Recommendations:.....................................................................................................47

Bibliography.....................................................................................................................................................49

Chapter 1

Introduction

1.1Origin of the report

As a student of Business Administration, I had to complete a 30 days attachment with any

organization. My attachment was with KDS Accessories Ltd and I worked as an intern

from March 17, 2019 to April 15, 2019. And that period, I collected information that

enables me to prepare the report on financial analysis of KDS Accessories Ltd.

1.2 Objectives

The objectives of the study are:

• To get an overall idea about the financial performance of the respective organization.

• To analyze the financial statements of the respective organization by using financing tools i.e. ratio analysis.

• To understand the working capital management (credit management, liquidity position, speedy recovery of cash) of the respective organization.

• To identify the macro-economic factors affecting the respective organizations.

• To identify the strengths and weaknesses of the respective organization & determine the competitor analysis of the respective organizations.

• To relate the theoretical learnings with the real life situation.

• Finally, to make some recommendations and suitable conclusions regarding financial performance of KDS Accessories Ltd.

1.3 Data Analysis and Reporting:

To analyze the gathered data I have done forecasting based on the past data and have used specific financial tools i.e. ratio analysis. Some necessary number of charts and graphs are used to present the report. MS word and MS Excel are used to process the data.

1.4 Scope of the report

There is a certain boundary to cover the report. To achieve the objective of the report it is not possible to cover each and every activity performed in an organizations. The report has covered only the data which are published in the annual reports. Moreover, KDS Accessories Ltd have got some confidential information which is not possible to disclose publicly so those data and information had to be ignored for this report.Here Forecasting has been done on the basis of past financial information and there is no connection with the actual forecast made by KDS Accessories Ltd. Forecasting has been made based on the assumptions.

1.5 Limitations

I tried my level best to enrich and complete this report although there are some limitations:

• Time is not enough for such an extensive study.

• Information relating to the survey is very sensitive that is why secondary data have been used in some extent.

• Sometimes it is difficult to understand a few accounting or financial term which could otherwise be incorporated sufficiently in preparing the report.

• I have to be aware that ratio analysis is widely used as a performance indicator but it does have its limitations too. For instance, accounts show only the monetary aspects of the business. They do not show management or staff strengths or weaknesses. So ratio analysis ignores this aspect of the performance as well.

• Lack of experience has acted as constraints in the way of meticulous exploration in the topic.

Chapter 2

Literature Review

Financial analysis is the process of determining the operating and financial characteristics of a firm from accounting and financial statements. The goal of such analysis is to determine the efficiency and performance of a firm’s management as reflected in the financial records and reports.

Literature review is indispensable part of a research because it represents the whole range of research in the past on the topic selected by the researcher on the basis of which research designs of a study is formulated. Literature review gives better insight and helps to bridge gap for the research to be undertaken. Efforts have been made to present a common scheme of various facets and issues relating to this empirical studies carried out in past.

Therefore, this part provides a review of some notable, theoretical and empirical research works done by various institutions and authors in evaluating the financial performance.

Kennedy and Muller (1999) in his research article on financial performance analysis has pointed that the analysis and interpretation of financial statements are an attempt to determine the significance and meaning of financial statements data. So the forecast may be made of the prospects for future earnings, ability to pay interest and debt maturates (both current and long term) and profitability (Muller, 1999).

Akbas and Caliskan (Caliskan, 2011) have tried to shed light on the empirical relationship between efficiency of working capital management and corporate profitability of selected companies in the Istanbul stock exchange for the period of 2005-2009. The companies should focus on the working capital management in order to increase their profitability by professionally considering the issues on their cash conversion cycle.

Jonas Elmerraji (2005) in his research article on financial performance has pointed that he tries to say that ratios can be an invaluable tool for making an investment decisions. Even so many new investors would rather leave their decisions to fate than try to deal with the intimidation of financial ratios. Even if you don’t have a degree in finance or business,

Using ratios to make informed decisions about an investment makes a lot of sense, once you know how to use them (Elmerraji, 2005).

Mallick and Sur (1998) made an attempt to analyze the impact of working capital management on profitability in Indian Tea industry with the help of statistical tools and techniques. The study revealed that, out of the nine ratios relating to working capital management five ratios registered positive association and the remaining four ratios showed negative correlation with the profitability indicator (Sur, 1998).

Alam and Hossain (2000) found that the capital structure management of Khulna Shipyard Ltd was in a poor shape because the interest coverage ratio was negative as there is the possibility of non-payment of interest charges to creditors (Hossain, 2000).

John J.Wild, K.R.Subramanyam & Robert F.Halsey (2006) in his research article on financial performance has pointed about that financial statement analysis is the application of analytical tools and techniques to general purpose financial statements and related data to derive estimates and inferences useful in business analysis (Wild, 2006).

Gangadevi (2008) studied that the leverage and financing decisions for the selected 30 electronic companies for the five years period ranging from 1998 to 2003. In his study he found that the company having a high operating leverage should kept low financial leverage and vice versa. So it is desirable that a company has a low operating leverage and a high financial leverage (Gangadevi, 2008).

I.M Pandey (2007) in his research article on financial performance has pointed that the financial performance contain information about the financial consequences and sources and uses of financial resources, one should be able to say whether the financial condition of a firm is good or bad; whether it is improving or deteriorating (Pandey I. , 2007).

Rachchh Minaxi A (2011) in his research article on financial performance has pointed and suggested that the financial statement analysis involves analyzing the financial statements to extract information that can facilitate decision making. It is the process of evaluating the relationship between component parts of the financial statement to obtain a better understanding of an entity’s position and performance (Minaxi, 2011).

Susan Ward (2008) in his research article on financial performance has put emphasis on financial analysis using ratios between key values that enables investors cope with the massive amount of numbers in company financial statements. For example, they can compute the percentage of net profit a company is generating on the funds it has deployed. All other things

remaining the same, a company that earns a higher percentage of profit compared to other companies is a better investment option (Ward S. , 2008).

Finance always being disregarded in financial decision making since it involves investment and financing in short term period. Further also act as a restrain in financial performance since it doesn’t contribute to return on equity (Rafuse, 1996). Dilemma in financial management is to achieve desired tradeoff between liquidity, solvency and profitability (Lazarid et al, 2007). Management of working capital in terms of liquidity and profitability is essential for sound financial interpretation as it has a direct impact on profitability of the company (Rajesh and Ramana Reddy, 2011). The crucial part in managing working capital is required maintaining its liquidity in day to day operations to ensure its smooth running and meet its obligations (Eljelly, 2004). Ultimate goal of profitability can be achieved by efficient use of resources. It is concerned with maximization of shareholders or owner’s wealth (Panwala, 2009).It can be attained through financial analysis.

From the above literature review, it is evident that the financial performance depicts the efficiency of organization. Along with that financial statements analysis using financial ratios, forecasting , trend analysis etc. are very useful for decision making in the company by board of directors and management. It enables to know the prosperity of the company with the profitability.

The analysis of financial statement can be best done by various yardsticks of which, the important is known as ratio or percentage analysis. Financial statements (Income statement, Balance sheet) contain a wealth of information which, if properly analyzed and interpreted, can provide valuable insights into a firm’s performance and position. Performance measurement of public enterprises has been the subject matter of discussion for planners, administrators, managers, economists and academics since long. But some lack of clarity about performance and the existence of defensive attitude on the part of those who have to take responsibility for inefficient operations have the effect of inhibiting both frame discussion and decisive action in this regard (Bunnett, 1987).

Chapter 3

Methodology of the Report

Introduction:

This report is the reflection of one month internship program in KDS Accessories Ltd. Garments accessories sectors is one of the fastest growing sector in Bangladesh. All companies are facing tremendous competition from each other. So the officers remain very busy to gain a competitive advantages over competitors. As an intern, I had to collect data and information from that busy corporate environment. Information collected to furnish this report is both from primary and secondary sources.

Research type:

This is a descriptive research which briefly reveals the overall activities of the company. This internship report has been prepared based on the information provided extracted from different sources collected by using a specific methodology.

Choice of the year:

I have selected the last three years (2015/2016-2017-2018) for my analysis. I have collected data and financial papers of these three years to prepare this report.

Method of data collection:

To make this report presentable and effective, the necessary information has been collected from two sources:

• Primary Sources

• Secondary Sources

Primary Sources:

• Face to face conversation with the clients.

• Consulting with the supervisors.

• Close observation of the several tasks by different department’s officers.

Secondary Sources:

• Annual report of KDS Accessories Ltd.

• Relevant file study as provided by the officers concerned.

• Different financing and Accounting related text books.

• Different website and magazines.

3.1 Macro-economic factors affecting KDS Accessories Ltd

Macro-economics is the study of the aggregated effects of the decisions of individual economic units. It looks at a complete national economy or the international economic system as a whole.

Macro-economic policy describes the policies and actions a government takes to control economic issues such as economic growth, inflation, employment and trade performance.

KDS Accessories Ltd is one of the major player in garments accessories industry with its attractive market share. There are several macro-economic factors affecting the garments accessories industry. The level of competition has grown intense and the battle for the market share has made KDS Accessories twist their marketing and pricing strategies. There are some very macro-economic factors whose effect on the KDS Accessories Ltd. is important to consider for they affect the businesses profitability and competitiveness.

Here we will assess the impact of macro-economic factors by PESTEL analysis that consists of political, economic, social, technological, ecological and legal.

Political Analysis: A country’s businesses largely depends on the country’s smooth and stable political system. Democratic government, fiscal policy, monetary policy helps to gain economic growth. Bangladesh is emerging as a new emerging tiger by the help of its readymade garments and textile sectors. But it is being affected by some problems:

1. Absence of proper democratic system2. Absence of rule of law3. Corruption4. Absence of democratic practice among political parties

Though the problems stated above, exists in Bangladesh, the government has taken many positive steps and initiative in favor of garments sector which has a positive impact on garments accessories business like KDS Accessories Ltd. Foreign investments are welcomed. Favorable policy, tax holiday , export – import policies, investment incentives , reduced import duties on capital machinery and spares are some important initiative helping the garments sector along with the KDS Accessories Ltd.

Economic Analysis: Garments sector is the highest single contributor of Bangladesh economy. About 22 million people are directly or indirectly involved in this sector. And about 78% of the employees are women who are playing a pivotal role in decision making, poverty alleviation in their family. The garments sector are dependent on the garments accessories business like KDS Accessories Ltd. The earning of garments accessories sector like KDS Accessories Ltd is likely to increase up to US$12.5 billion by the end of 2019 and to US$18 billion by the end of the year 2025 as suggested by estimation. Companies like KDS Accessories Ltd. are providing accessories to the garments sector and with those the garments sector are making finished products meeting both domestic and overseas demand. Even KDS Accessories Ltd provides Corrugated Curton (packaging box) to send the garments finished products to the importers.

Such way, KDS Accessories Ltd. are accelerating the industrial growth and employment opportunities. Banks are making a lot of profit only from this types of sectors by export and import services.

KDS Accessories Ltd are being affected in terms of economic variables such as: Interest rate risk, exchange rate risk, currency fluctuation risks and inflation (price level risk).

• Interest rate risk: Changes in an interest rates and banking policies results in an increase in financial expenses may have an adverse impact in company’s profitability.The company is dependent on bank for working capital requirements. The management of KDS Accessories Ltd is always aware of the interest rates at which the debts of the company are being financed. Management finances both long term and short term funds at competitive rates. The company has been repaying borrowed funds on a continuous basis to reduce such interest risk. The higher the interest rate, the lower the investment and vice versa.

• Exchange rate risk: KDS Accessories Ltd carries foreign exchange rate fluctuation risks as it imports raw materials against payments of foreign currency. Unfavorable volatility or currency fluctuation of foreign currency to BDT exchange rate fells a negative impact on the cost structure and profitability of the company. Such risk cannot be eliminated fully as the company imports raw materials. However the management is always alert in minimizing the negative impact of currency fluctuation costs by identifying new sources of raw materials and constantly negotiating with suppliers to reduce prices. Furthermore as a natural hedge, this 100% export oriented company enjoys the benefit of any further devaluation of BDT in against foreign currency.

• Currency fluctuation risk: The Company is exposed to currency risk on sales, purchases ad borrowings that are denominated in a currency other than the functional currency of the company. Being a 100% export oriented company, the company can mitigate foreign currency risk exposure by tradeoff between import and export.

• Inflation: Cost of the products of the company may increase due to various reasons such as increased costs of raw materials and other variable costs that adversely affect the input costs. In case the company is unable to pass on such increase to the consumers because of the competition or otherwise it may affect the profitability of the company.

Social Analysis: Bangladesh is a country of about 180 million and a large number of people are unemployed. Women are the most unused labor force in our economy and those who are working are not getting well compensation packages as compared to men. Garments Accessories Company like KDS Accessories Ltd have helped them to engage in the mainstream of the economy by employing a large number of woman. Hence, they are participating in decision making of families. From this point of view the social impacts of garments are as follows:

1) Women empowerment has been achieved in private and public sector.2) They are contributing to increase savings.3) Economic solvency of woman has been achieved.4) Their children are getting educated more.5) Awareness about health care has been increased.6) Standard of living is increasing day by day.

Technological Analysis: It’s an age of technology and KDS Accessories Ltd is totally dependent on technology. It has adopted flexible manufacturing process and just in time inventory process. Its whole manufacturing process is dependent on technology and each & every production is run by machinery equipment regardless of anything in manual process. Its whole functional department process like finance & accounts, Human resource, sales and marketing, production is run by their own in house software. KDS Accessories Ltd is the first who has comprehensive Heat transfer, label printing facility in Bangladesh with the most advanced line of equipment & materials meeting global standards & safety compliance. The company is aware of technological changes and has adopted new technology according to its needs. Furthermore, routine and proper maintenance of equipment carried out by the company ensures longer service life for the existing equipment and facilities.

Ecological analysis: Ecological impacts of KDS Accessories Ltd on the environment are not well enough to describe because of poor waste management. The improper drainage system is mainly responsible for it. Besides, government is not taking enough steps for waste management in Dhaka and Chittagong. Sound and air pollution are the outcome of garments and garments accessories sector. To maintain environmental protection, KDS Accessories Ltd has its own compliance executive manager to identify its compliance with environmental protection policy laid down by government.

Legal analysis: Government always encourages garments related industry by its supportive hands most of the time. That’s why a large number of companies have been established here and there in the city. But recent fire in some garments company has drawn the sight of the government and as a result, it has increased some legal and compliance issues which has an impact on KDS Accessories Ltd. Such incidents also had an impact on the garments companies because the foreign suppliers had stopped or reduced the order for products from the country’s garments companies and other garments related companies. Such had a big impact on KDS Accessories Ltd. Therefore KDS Accessories Ltd has adopted some steps to comply with those legal policies and procedures regarding remuneration policy, working environment & safety regulations.

Conclusions: From the above analysis, it can be said that garments related industry is a blessing for Bangladesh no doubt. It is growing day by day having a lot of political instability. Though there were little impacts of global economic recession on Bangladeshi garments related sector , the external factors like political instability , labor unrest, inadequate safety system etc. has shrinked the image of Bangladeshi garments to the global arena which has an undesirable effect on KDS Accessories Ltd. Still though, KDS Accessories Ltd has managed to maintain its consistent financial performance and market share in the market. Some recommendations can be drawn here:

• Equal opportunities in terms of compensation packages for both man and woman should be ensured by both companies and monitoring authority.

• Garments related industry should be kept free from hartal, strike and other political instability.

• The monitoring and licensing authority of Bangladeshi garments related industry should ensure the internationally accepted policies regarding safety and security, compensation, working environment and environmental protection.

• More international markets should be haunted so that exports increases and more people can engage themselves in this business.

• More banking and government facilities in term of tax rebate, low interest rate, Zero L/C margin should be enhanced to boost up the garments related sector so that it can sustain in the international market in case of pricing as there is no GSP facility.

3.2 SWOT Analysis of KDS Accessories Ltd:

SWOT analysis is the detailed study of an organizations exposure and potential in perspective

of its strength, weakness, opportunity and threat. This facilitates the organization to make

their existing line of performance and also foresee the future to improve their performance in

comparison to their competitors. Here SWOT Analysis has been performed for KDS

Accessories Ltd. which reflects the current position of KDS Accessories Ltd. It can also be

considered as an important tool for making changes in the strategic management of KDS

Accessories Ltd.

Factors pertaining to the internal environment of the company. These are usually classified as Strengths (S) and Weaknesses (W).

Factors pertaining to the external environment of the company. These are classified as opportunities (O) and Threats (T).

Strength describes what an organization excels at and what separates it from the competitors,

weaknesses stops an organization from performing at its optimum level, opportunities are the

external factors that could give an organization a competitive advantages and threats are

another external factors that have the potential to harm an organization.

Strengths• Strong ethical value & an ethical mission statement.

• Strong brand recognition and nomination with foreign retailer.

• Increasing market share.

• Experienced & skilled management.

• Well groomed marketing and sales team.

• Fast delivery system and 1 stop trim solution.

• Availability of cheaper labor.

• Geographically situated at an ideal location.

• Demand driven industry.

• Uses its own in-house software (Accounting Management system) without depending on external service provider.

• Simple management structure.

• Energy cost is lower as its production assisted machinery depends on gas generator rather than electricity connection from Power Development Board (PDB).

• They have a highly motivated personnel as respective companies provide retirement benefit which is unusual for private sector companies besides gratuity , Provident fund etc.

• Each and every production process of KDS Accessories Ltd is automated (there is no manual system in manufacturing line) and as a result it gets the benefit of economies of scale with a large scale of output.

• As KDS Accessories Ltd is export oriented, so it gets sales proceeds in dollar, therefore it gets loan in dollar which enables them to get loan from some bank at 6-7% interest rate from 2013 which is usually 10-12% in the market.

Weaknesses• Bangladesh doesn’t produce the basic raw materials of Garments Accessories and as

such KDS Accessories Ltd has to depend totally on sensitive global market.

• Power Supply is erratic.

• Absence of research and development department.

• Bank interest is still high enough, particularly of private sector bank, for investment of export-oriented project.

• Lack of synergies between government support institutions and practical market.

• Bank usually doesn’t provide loan for “any” purpose term. They usually provides loan for specific term. So KDS Accessories Ltd. Cannot utilize the loan in different purposes.

• Bank usually provides loan and gives time to start its first repayment within 180 days but cash conversion cycle of KDS Accessories Ltd. Requires 240-270 days due to fluctuation in sales and demand.

Opportunities• With the help of further increase of productivity & quality, KDS Accessories Ltd. can

minimize cost and maximize profit and export value.

• Bangladesh, as a proven experienced RMG & textile manufacturer can expand share in the existing and the country is targeting to reach its export to $50 billion in 2021 and business of garments accessories will be in same place.

• If the garments accessories sector gets policy support and cooperation from government, the earning of this sector is likely to increase up to US$12.5 billion by the end of 2019 and to US$18 billion by the end of the year 2025 as suggested by estimation.

Threats• Changes in interest rates and banking policies may results in an increase in financial

expenses which may have an adverse impact in the profitability of KDS Accessories Ltd.

• Due to lower barriers to entry to entry in this sector, competition may rise with too many new players.

• Unfavorable volatility of foreign currency to BDT exchange rate may have negative impact on the cost structure and profitability of KDS Accessories Ltd.

• The sudden price hike of Kraft paper and Thread in the global market may push KDS Accessories Ltd. to a very awkward situation to devastate the business and their business may face similar obstacle also.

• The type of labor and political anarchies of the recent days if prevails in the future, Bangladesh may lose the business of garments which will directly impact the business of its backward linkages accordingly.

3.3 Competitor Analysis of KDS Accessories Ltd:

One of the framework of competitive analysis is Porters Five Forces model that enables to

assess and evaluate the competitive strength and position of a business organization. Here,

Competitive analysis of KDS Accessories Ltd are done by following Porters Five forces

model framework.

Five forces model tool was created by Harvard Business School professor Michael Porter to

analyze an industry’s attractiveness and likely profitability. Since its publications in 1979, it

has become one of the most popular and highly regarded business strategy tools. Porter

recognized that organizations likely keep a close watch on their rivals but he encouraged them

to look beyond the actions of their competitors and examine what other factors could impact

the business environment.

Bargaining power of suppliers

This is how much pressure suppliers can place on a business. If one supplier has a large enough impact to affect a company’s margin and volumes, then it holds substantial power. As KDSAccessories LTD is a garments accessories manufacturer so it needs raw materials which is not found in the country. It needs to import machinery and tools from the global market and it is highly dependent on the global market. For KDS Accessories Ltd, the bargaining power of supplier is high.

Bargaining power of Customers

This is how much pressure customers can place on a business. If one customer has a large enough impact to affect a company’s margins and volumes, then the customer holds substantial power. For KDS Accessories Ltd, the bargaining power of customer is low. KDS Accessories Ltd has a diversified product regarding garments accessories and it produces high quality garments accessories with its flexible and automated manufacturing process. Moreover, it provides faster delivery and 1 stop trim solutions and it has a strong brand recognition that enables KDS Accessories Ltd to hold high power over customers.

Competitive rivalry

This describes the intensity of competition between existing firms in an industry. Rivalry among existing competitors is very high.The prime competitors are:

• A1 fashion Handlers• Mastex Accessories• Recent Touch Bangladesh limited• Dekko Accessories• Coats Bangladesh Ltd• Fabian Group

KDS Accessories LTD captured the largest portion of the Garments accessories market that makes the company a leading and largest accessories manufacturer and a major player in RMG market of Bangladesh.But KDS Accessories Ltd faces stiff competition from other garments accessories suppliers in some specific products like Coats Bangladesh ltd regarding thread, A1 fashion handler & Recent Touch Bangladesh Ltd regarding buttons etc.

Threat of new entrantsThe easier it is for new companies to enter the Industry, the more aggressive competition there will be. Issues that can limit the threat of new entrants are known as barriers to entry. As market is saturated, there is a very few chance for the new markets. Already KDS Accessories Ltd is in a top position followed by some other companies covering all sorts of garments accessories products so threat of entrants is very low. Moreover KDS Accessories Ltd is globally considered as a pioneer of packaging having single largest capacity and strong brand value, so it will take time for new competitors to become a threat for KDS Accessories Ltd.

Threat of Substitute productsThis force is especially threatening when buyers can easily find substitute products with attractive prices or better quality and when buyers can switch from one product or service to another with little cost. There is no chance of creating substitute for most of the garments accessories products leaving some few. There will be no substitute for corrugated carton, heat transfer, button, elastic fabric, gum tap etc. So, threat of substitute is very low for KDS Accessories Ltd.

Competitive analysis at a glance

Forces Position

Threat of Potential entry Very Low

Threat of substitute products Very Low

Bargaining power of customers Low

Bargaining power of suppliers High

Intensity of rivalry among competitors Very High

3.4 Working Capital management of KDS Accessories Ltd:

Working capital is the difference between a company’s current assets and current liabilities. It is a financial measure that calculates whether a company has enough liquid assets to pay its bill that will be due in a year. When a company has excess current assets, that amount can be used to spend on its day to day operations. Positive working capital indicates a good sign of the short term financial health for a company because it has enough liquid assets remaining to pay off short term bills and to internally finance the growth of their business. Negative working capital means assets are not being utilized effectively and a company may face a liquidity crisis that will lead the company to borrow additional funds from a bank.

To understand working capital better we should have basic knowledge about the various aspects of working capital. To start with, there are two concepts of working capital:

• Gross Working Capital• Net Working Capital

Gross Working Capital: Gross working capital refers to the firm’s investment in current assets. Another aspect of gross working capital points out the need of arranging funds to finance the current assets. The gross working capital concept focuses attention on two aspects of current assets management, firstly optimum investment in current assets and secondly in financing the current assets.

Net Working Capital: Net working capital refers to the differences between current assets and current liabilities. It can be positive as well as negative. Positive working capital refers to the situation where current assets exceed current liabilities and negative working capital refers to the situation where current liabilities exceed current assets.

Importance of working capital management:

Working capital represents the net current assets available for the day-to-day operating activities. Many businesses that appear profitable are forced to cease trading due to an inability to meet short term obligations when they fall due. Successful management of working capital is essential to remaining in business.

Working capital management requires great care due to potential interactions between its components. For example, extending the credit period offered to customers can lead to additional sales. But the company’s cash position will fall if the businesses need to wait for so long to collect its payment that will ultimately leads to the need for a bank overdraft. Interest on the overdraft may even exceed the profit arising from the additional sales, particularly if there is an increase in the incidence of bad debts.

Working capital management is central to the effective management of a business because-

• Current assets comprise the majority of the total assets of some companies.• Shareholder wealth is more closely related to cash generation than accounting profits.• Failure to control working capital, and hence to manage liquidity, is a major cause of

corporate collapse.

Table showing Current assets as percentage of total assets of KDS Accessories Ltd.

Year Percentage

2017-2018 61%2016-2017 53%2015-2016 47%

Ratios useful to analyze working capital management of KDS Accessories Ltd.

(A) Efficiency 2017-2018 2016-2017 2015-2016 Ideal RatioRatio1) Working capital 7.45 6.15 10.23Turnover (Times)2) Current Asset 0.90 0.99 1.33Turnover (Times)3) Inventory 3.02 3.03 3.36Turnover (Times)

(B) Liquidity Ratio1) Current Ratio 1.14 1.19 1.15 2.02) Quick Ratio 0.81 0.85 0.79 1.03) Cash Ratio 0.01 0.01 0.02 0.5

Interpretation of the ratios

Working Capital turnover: A ratio measuring how efficiently a business uses its working capital to produce sales and it can be calculated through dividing net sales by net working capital.

There is a fluctuating trend in the working capital turnover of KDS Accessories Ltd. in this three years period which indicates the firm needs to put much emphasis regarding the sale of inventory and collecting the payment from customers hastily to run the company’s operation more smoothly which in turn leads to limiting the need for additional financing.

Current Asset Turnover: A ratio measuring the ability of the firm to generate sales through its current assets and it can be calculated through dividing net sales by current assets.

There is a diminishing trend in the Current asset turnover of KDS Accessories Ltd. in this three years period which indicates the firm has a high needs of the external finance. One of the causes that influenced this situation is the growth of accounts receivable. The firm needs to keep the inventory stock to the minimum level which will allow the continuous operation process and efficiency should be accelerated regarding the accounts receivable collection process. Besides, the firm needs to put much emphasis on the sales promotion and marketing research.

Inventory Turnover ratio: A ratio measuring the number of times a business sells and replaces its stock during a given period and it can be calculated dividing cost of sales by average inventory.

INVENTORY TURNOVER RATIOInventory Turnover Ratio

3.4 3.36

3.35 3.33.3

3.25 3.23.2

3.153.1

2 0 1 7 - 2 0 1 8 2 0 1 6 - 2 0 1 7 2 0 1 5 - 2 0 1 6

There is also a diminishing trend in the inventory turnover ratio of KDS Accessories Ltd. in this three years period which indicates most of the inventory are being tied up in the capital which may be challenging for business. So the firm needs to sells its good fasters to clear up the inventory level and the firm must put emphasis in sales promotion.

Current ratio: A ratio measuring the ability of the firm to meet its short term obligations that are due within a year and it can be calculated by dividing current assets by current liability.

CURRENT RATIOCurrent Ratio

1.2 1.19

1.18

1.16 1.141.15

1.14

1.12

1.12 0 1 7 - 2 0 1 8 2 0 1 6 - 2 0 1 7 2 0 1 5 - 2 0 1 6

There is a fluctuating trend in the current ratio of KDS Accessories Ltd. in this three years period which indicates that the business is in perplexing position to meet its short term obligations and the firm needs to put emphasis to keep some financial resources to remain solvent in the short term but it doesn’t mean that the company is unable to meet its short term debts because current ratio alone cannot measure the true liquidity form of the firm. Again too better current ratio indicates the firm is not efficiently managing the assets.

Quick Ratio: A ratio measuring the ability of a business to pay its short term liabilities by having assets that are readily convertible into cash. The assets are known as quick assets since they can be quickly converted into cash. Usually the ratio can be calculated as same as current ratio except the amount of current assets short of prepaid expenses & inventory as this two cannot be converted into cash quickly .

QUICK RATIOQuick ratio

0.86 0.85

0.84

0.82 0.81

0.8 0.79

0.78

0.762 0 1 7 - 2 0 1 8 2 0 1 6 - 2 0 1 7 2 0 1 5 - 2 0 1 6

There is a fluctuating trend in the quick ratio of KDS Accessories Ltd. in this three years period with the ratio of less than one (1) which indicates the firm is in challenging position to pay expenses or loans and sustain its operations.

Cash Ratio: A ratio estimating the share of current liabilities of the firm that can be paid off immediately with highly liquid assets and it can calculated dividing the firm’s most liquid assets by its current liabilities.

CASH RATIOCash Ratio

0.025 0.020.02

0.015 0.01 0.010.01

0.005

02 0 1 7 - 2 0 1 8 2 0 1 6 - 2 0 1 7 2 0 1 5 - 2 0 1 6

In KDS Accessories Ltd. there is a decreasing trend in cash ratio but still the firm is maintaining preferable ratio of 1%.

The ratio provides the most conservative measure of the liquidity position of the firm and it is unrealistic for a firm to hold large amount of cash. On that perspective KDS Accessories Ltd is holding enough cash and cash equivalents to meet its current liabilities.

Procedures of managing working capital in KDS Accessories Ltd.

• Objectives: The main objectives of KDS Accessories Ltd. regarding the management of working capital is the efficient use of current assets, maintaining liquidity and profitability.

• Basis of preparing working capital budget: Working capital budget is prepared on quarterly basis. Working capital budget is prepared in co-ordination with the production budget, sales budget and collection functions. After each quarter the CEO, CFO, senior manager of finance and accounts department of KDS Accessories Ltd. reviews the performance and takes the counteractive measures.

• Responsibility of managing working capital: The senior manager of finance and accounts oversees the overall working capital of KDS Accessories Ltd and reports to the CFO.

• Authorization policy of working capital expenditure: KDS Accessories Ltd. follows the authorization policies regarding the expenditure of working capital. If there is any requirement from any department to buy anything, each department head needs to apply to Sourcing department (Purchasing department) head who approves for buying anything within Taka 50,000. Anything to buy above taka 50,000 needs the approval of CFO. Anything to buy above taka 5, 00,000 needs the approval of CEO. To be noted, in each and every level the approval is only given if the need is factual.

• Ratios uses to calculate working capital: The KDS Accessories Ltd. personnel uses various ratios to review working capital situation such as Current ratio , net working capital to net worth, net working capital to total assets , current assets to fixed assets.

• Utilization of surplus working capital: Usually there is no surplus working capital situations in KDS Accessories Ltd. It happens little often as cited by the senior manager of finance and accounts. If such situation arises, they utilizes the surplus in case of repaying all of their debts.

• Undergoing working capital deficiency: Very frequently, KDS Accessories Ltd. faces working capital shortages because according to senior manager of finance and accounts, the operating cycle of KDS Accessories Ltd. is about 240-280 days. Here operating cycle means the time required to complete the process of producing the inventory, selling the inventory and collecting the payments. The main reasons of the shortages is :

a) Price fluctuations.b) Delay in realization of dues from debtors.c) Increase in duty on holding inventory.d) Excessive credit granting to customers.

• Approaches of working capital: KDS Accessories Ltd typically follows the conservative approach rather than hedging approach or aggressive approach where the long term sources are used to finance fixed assets, all permanent working capital and some portion of temporary working capital whereas the short term sources are used to use finance the remaining portion of temporary working capital. Such enables the firm to absorb day to day business risks and assures continuous flow of operations.

• Sources of working capital finance: KDS Accessories Ltd. collects raw materials from outside exporters and for this KDS Accessories Ltd. needs to open L/C with its bank to provide guarantee to the exporters bank that the payment will be made in due time on behalf of KDS Accessories Ltd. KDS Accessories Ltd. opens a loan A/C against that L/C where the firm requests its bank to give the time of repayment for about 240 days as its operating cycle is about 240-280 days. The firm goes through the process of converting the raw materials to finished goods and to sell the goods to customers. In the meantime, the firm collects some payments from the previously sold customers and pays financial expenses. Besides, the firm sells some goods in cash and meets the financial expenses. If there is need for any cash, the senior manager of finance and accounts reports to CFO to apply for loan from bank and it takes about 3-4 months for loan process completion. So the senior manager of finance and accounts needs to forecast the need for external financing. The senior manager need to assess whether inventory carrying costs are maintained at reasonable level. Overall the whole working capital finances depends mainly on external loan.

3.5 Projected Income statement for forecasting period:

The projected income statement for upcoming three years (2018/2019-2020/2021) period has been prepared based on some assumptions which will be mentioned in page no 36. The projected income Statement has no relation with the real budget or any forecasts made by KDS Accessories Ltd. The whole mathematical calculations have been done using excel functions.

Actual 2017/2018 2018/2019 2019/2020 2020/2021

2,070,885,808 2,372,172,031 2,717,291,374 3,112,620,972 (1,693,676,814) (1,885,491,192) (2,159,804,974) (2,474,027,747.64)

377,208,994 486,680,839 557,486,400 638,593,225 (120,943,556) (144,988,508) (166,082,400) (190,245,170)

(44,518,310) (47,818,645.51) (54,775,619.68) (62,744,740.67) 211,747,128 293,873,685 336,628,381 385,603,314

(102,452,340) (123,987,407) (142,025,918) (162,688,792) 58,508,370 54,572,097 50,900,646 47,476,199

167,803,158 224,458,376 245,503,108 270,390,720 1,856,963 1,891,394 1,926,462 1,962,182

(31,890) 520 (8) 0 169,628,231 226,350,289 247,429,562 272,352,902

(8,481,412) (10,837,642.71) (12,414,374.96) (14,220,500.69) 161,146,819 215,512,646 235,015,187 258,132,401

- (24,586,468)

(3,575,523) (28,161,991) (34,084,889.92) (37,169,358.41) (40,825,513.63) 132,984,828 181,427,756 197,845,829 217,306,887

- 132,984,828 181,427,756 197,845,829 217,306,887

Add : Finance income

RevenueLess : Cost of Goods Sold

Gross ProfitLess : Operating Expenses

Less : Selling and distribution expensesOperating Profit

Less: Finance cost

TOTAL COMPREHENSIVE INCOME

Forecast

KDS Accessories LtdProjected Statement of Profit or loss and other comprehensive income

For the year ended 30 June 2021

Particulars

Tax Expense:Less: Current Tax

Less: Deffered TaxTotal Tax

Net Profit/(Loss) after TaxFair valuation surplus of investments

Profit before other income Other income

Profit(Loss) from investment in associatesProfit before income tax and distribution of WPPF and welfare fund

Less : Workers profit participation and welfare fund (WPPF)Profit before income tax (EBT)

3.6 Projected Balance Sheet for forecasting period:

The projected balance sheet for upcoming three years (2018-2021) period has been prepared based on some assumptions in page no 36. The projected balance sheet has no relation with the real budget or any forecasts made by KDS Accessories Ltd. The whole calculations being done with excel functions.

Actual 2017-2018 2018/2019 2019/2020 2020/2021

1,371,421,690 1,533,292,873 1,714,269,981 1,916,608,118 48,265,804 48,345,224 48,424,774 48,504,455

1,662,505 1,377,433 1,141,242 945,552 14,529,904 4,551,317 1,425,645 446,566

4,920,847 5,142,983 5,375,146 5,617,790 1,440,800,750 1,592,709,829 1,770,636,788 1,972,122,481

667,063,710 664,591,264 761,280,416 872,036,547 1,128,378,143 1,205,597,009 1,380,995,270 1,581,911,635

58,349,397 96,063,800 110,039,800 126,049,121 373,446 1,848,412 2,117,331 2,425,375

8,820,656 9,236,097 9,671,105 10,126,601 6,082,955 12,004,658 13,751,176 15,751,788

421,112,376 275,842,216 315,973,574 361,943,508 2,290,180,683 2,265,183,457 2,593,828,671 2,970,244,575

3,730,981,433 3,857,893,286 4,364,465,460 4,942,367,056

KDS Accessories LtdProjected Balance Sheet

For the year ended 30 June 2021

Current Assets:

AssetsNon-Current Asset:

Property, Plant & Equipment(PPE)Investment in associate

Intangible assetsCapital work in progress

Other investmentTotal Non-Current Assets

ForecastPARTICULARS

InventoriesTrade Receivables

Advances, Deposits & PrepaymentsOther Receivables

Short Term investmentsCash & Cash Equivalents

Due from affi liated companyTotal Current Assets

Total Assets

600,600,000 645,645,000 694,068,375 746,123,503 120,000,000 120,000,000 120,000,000 120,000,000 214,391,703 214,391,703 214,391,703 214,391,703 559,538,849 650,876,605 751,875,684 865,072,315

1,494,530,552 1,630,913,308 1,780,335,762 1,945,587,521

113,581,686 138,462,886 168,794,561 205,770,692 66,478,037 77,346,392 89,991,591 104,704,128 43,999,854 49,393,795 55,448,978 62,246,467

224,059,577 265,203,073 314,235,131 372,721,286

937,557,390 801,857,316 918,516,845 1,052,148,776 90,559,800 99,719,306.32 121,563,814.08 148,193,578.96 36,859,697 35,620,055 34,422,105 33,264,443 39,918,292 109,158,689 125,039,820 143,231,444

842,600,806 788,625,896 903,360,430 1,034,787,306 64,895,319 79,824,873 91,438,326 104,741,381

2,012,391,304 1,914,806,136 2,194,341,339 2,516,366,928

2,236,450,881 2,180,009,209 2,508,576,470 2,889,088,214

3,730,981,433 3,810,922,517 4,288,912,232 4,834,675,736

Revulation Reserve

Shareholders Equity:Share Capital

Share Premium

Total Equity & Liabilities

Current portion of long term borrowingsCurrent Tax liability

Due to affi liated companyShort term bank loan

Provision for WPPF and welfare fundTotal current Liabilities

Total Liabilities

Trade and other payables

Retained earningsTotal Shareholers Equity

Non-Current Liabilities:

Defined benefit obligation-gratuityDeferred tax liability

Total Non-Current Liabilities

Current Liabilities:

Long Term Loan

Actual 2017-2018 2018/2019 2019/2020 2020/2021

KDS Accessories LtdProjected Balance Sheet

For the year ended 30 June 2021Forecast

PARTICULARS

3.7 Assumptions & Calculations:

Assumptions:

• The forecasting has been done hypothetically and there is no connection with the actual budget or forecast made by KDS Accessories Ltd.

• The sales growth rate has been calculated in accordance with the formula: (sales current year - sales previous year)/sales previous year.

• The sales of the forecasting period has been done by taking the average of the growth rate of the actual period.

• Interest rate has been calculated based on the average of all the interest taken by the firm in each actual period.

• Provision for WPPF is calculated in proportion to sales.

• Finance cost has been calculated in proportion to operating profit.

• Depreciation has been calculated in proportion to property, plant and equipment.

• Current proportion of long term borrowings have been calculated in proportion to long term loans.

• Share Premium and revaluation reserve has been assumed as same.

• We have assumed the firm will provide 5% stock and 10% cash dividend for the forecasting period.

• The retained earnings has been calculated by adding retained earnings of previous year with the net profit of the current year deducting cash dividend and stock dividend of that current year in case of forecasting period.

Calculations: The calculations have been done using excel functions and on the basis of assumptions made in page no 36.

2015/2016 2016/2017 2017/2018 2018/2019 2019/2020 2020/2021-0.014807197 0.305780

0.145486642 0.145486642 0.145486642

-0.77685881 -0.789802191 -0.817851379-0.79483746 -0.79483746 -0.79483746

-0.064916777 -0.060043088 -0.058401847-0.061120571 -0.061120571 -0.061120571

-0.018542944 -0.020434333 -0.021497231-0.020158169 -0.020158169 -0.020158169

-0.434789722 -0.347088826 -0.483842879-0.421907142 -0.421907142 -0.421907142

0.059318468 1.806127360.932722914 0.932722914 0.932722914

-0.047813195 0.0848958110.018541308 0.018541308 0.018541308

-0.864818331 -1.167768817-1.016293574 -1.016293574 -1.016293574

-0.004658328 -0.004952098 -0.004095548-0.004568658 -0.004568658 -0.004568658

-0.141340734 -0.158371218 -0.174759832-0.158157261 -0.158157261 -0.158157261

-0.421907142

0.932722914

0.018541308

-1.016293574

-0.004568658

-0.158157261

WPPF in proportion to sales Average

Tax in proportion to EBT Average

Finance cost in proportion to operating profitAverage

Finance income growthAverage

Other income growth Average

Profit (loss) from investment in associates growthAverage

calculationsParticulars

Actual Forecast

Sales growthAverage sales growth

Cost of goods sold in proportion to salesAverage

Operating expenses in proportion to salesAverage

Selling expenses in proportion to salesAverage

-0.79483746

0.145486642

-0.061120571

-0.020158169

0.177432163 0.0586311640.118031663 0.118031663 0.118031663

0.047408932 -0.39035208-0.171471574 -0.171471574 -0.171471574

0.046297739 0.043985820.04514178 0.04514178 0.04514178

0.003951204 -0.000660280.001645462 0.001645462 0.001645462

-0.53802401 -0.835500173-0.686762 -0.686762 -0.686762 -0.686762

0.231431813 0.286937516 0.3221151580.280161496 0.280161496 0.280161496

0.44637256 0.53342524 0.5448770470.508224949 0.508224949 0.508224949

0.041204741 0.052107608 0.0281760570.040496136 0.040496136 0.040496136

0.000816758 0.00134053 0.0001803320.000779207 0.000779207 0.000779207

0.049546198 0.0446511330.047098666 0.047098666 0.047098666

0.008707608 0.00353688 0.0029373690.005060619 0.005060619 0.005060619 0.005060619

0.015716408 0.129782335 0.2033489120.116282551 0.116282551 0.116282551 0.116282551

0.225540142 0.335807208 0.4527325390.33802663 0.33802663 0.33802663 0.33802663

0.78531164 0.577942424 0.7973098760.72018798 0.72018798 0.72018798

0.118031663

-0.171471574

0.72018798

0.000779207

0.047098666

0.280161496

0.508224949

0.040496136

PPE growth Average

Other investment growth Average 0.04514178

AverageIntangible assets growth

Average

0.001645462

Inventory in proportion to salesAverage

Investment in Associates growth Average

Capital work in progress growth

Other receiveables in proportion to sales Average

Short term investment growth

Trade Receivable in proportion to salesAverage

Adv, Dep and prepaid in proportion to salesAverage

Average

Due from affi liated company in proportion to salesAverage

Trade and other payable in proprotion to salesAverage

Average

Cash and cash equivalents in proportion to sales Average

Current portion of long term borrowings in proportion to long term loans.

-0.215782567 0.148519857-0.033631355 -0.033631355 -0.033631355

0.118773088 0 0.019275950.046016346 0.046016346 0.046016346 0.046016346

0.200831711 0.389635465 0.4068794150.332448864 0.332448864 0.332448864 0.332448864

0.030921897 0.038692741 0.0313369860.033650541 0.033650541 0.033650541 0.033650541

0.801950644 -0.3638307140.219059965 0.219059965 0.219059965

0.156730159 0.0884497750.122589967 0.122589967 0.122589967

0.213724232 0.1132515730.163487902 0.163487902 0.163487902

0.062885026 0.056308628 0.0701719120.063121855 0.063121855 0.063121855 0.063121855

401,103,430 721,123,229 933,160,606 888,345,203 1,024,924,244 1,182,980,885 561,113,330 827,141,918 910,752,904 956,634,723 1,103,952,564

8.50% 9.25% 10.75%9.50% 9.50% 9.50%

520,000,000 572,000,000 600,600,000 645,645,000 694,068,375 746,123,503 0.10 0.05

0.08 2018-2019 2019-2020 2020-2021

5% 30030000 32,282,250 34,703,418.75

10% 60060000 64,564,500 69,406,837.50

Share capital

30 June 2016Share capital30 June 2017

Share Capital30 June 2018

Forecast

Share capital30 June 2019

Share Capital30 June 2020

Share Capital 30 June 2021

Actual

-0.033631355

Provision for WPPF in proportion to sales Average

Due to affi liated company in proportion to sales Average

Short term bank loan in proportion to sales

Current Tax liability growthAverage

Total LoanAverage

Defined benefit obligation gratuity growth Average

Depreciation in proportion to PPEAverage

Calculation of bonus share & cash dividend

Growth rate (share capital) Average (share capital)

Interest Rate Average

Bonus share (Assumed 5% will continue as of last two years)

Cash dividend( assumed 10% will continue as of last two years)

Long term loan growth Average

Average

9.50%

0.219059965

0.122589967

0.163487902

deferred tax liability growthAverage

3.8 Calculation of financial ratios for both actual & forecasting period:

Ratio Analysis:• Liquidity Ratio• Activity Ratio• Debt Ratio• Profitability ratio

Liquidity Ratio: The three basic measures of Liquidity are:➢ Current Ratio = Current Assets/Current Liabilities➢ Net Working Capital= Current Assets-Current Liabilities

➢ Quick Ratio= (Current Assets-Inventories)/Current Liabilities

2015/2016 2016/2017 2017/2018 2018/2019 2019/2020 2020/2021Current 1.15 1.19 1.14 1.18 1.18 1.18RatioNet 157349359 257892349 277789379 350377321 399487332 453877647workingcapitalQuick 0.79 0.85 0.81 0.84 0.84 0.83Ratio

Activity Ratio: The three basic measures of activity are: ➢

Asset Turnover ratio = Sales/Average assets

Average assets = (Beginning Assets + Ending Assets)/2➢ Inventory days= Ending Inventory/Cost of sales x 365➢ Receivable days= Receivables/Credit sales x 365

➢ Payable days= Payable/credit purchase (cost of sales) x 365

2015/2016 2016/2017 2017/2018 2018/2019 2019/2020 2020/2021Asset 0.63 0.57 0.61 0.63 0.66 0.67TurnoverInventory days 109 days 133 days 144 days 129 days 129 days 128 daysReceivable 163 days 195 days 199 days 186 days 186 days 186 daysdaysPayable days 106 days 155 days 202 days 155 days 155 days 155 days

Debt Ratio: The two basic measures to assess financial solvency are:➢ Debt - Equity Ratio (times) = Total liabilities/Total equity➢ Times Interest Earned Ratio= Operating profit / Finance cost

2015/2016 2016/2017 2017/2018 2018/2019 2019/2020 2020/2021Debt to equity 0.94 1.15 1.50 1.34 1.41 1.48ratioTIE ratio 1.82 2.95 3.67 3.10 2.58 2.24

Profitability Ratio: The basic measures to evaluate earnings are:➢ Operating Profit Margin= Operating Profit/Revenue➢ Net Profit Margin=Net Profit After Tax/Revenue

➢ Return on Assets=Net Profit After Tax/ Total Assets

➢ Return on Equity= Net Profit After Tax/Stockholders Equity

➢ Earnings Per Share=Net Profit after tax/number of shares outstanding

➢ Price to Earnings ratio= Market price per share/Earning per share

2015/2016 2016/2017 2017/2018 2018/2019 2019/2020 2020/2021Operating 13.97% 12.97% 10.22% 12.39% 12.39% 12.39%Profit Margin

Net Profit 7.60% 7.92% 6.42% 7.65% 7.28% 6.98%MarginReturn on 4.79% 4.12% 3.56% 4.70% 4.53% 4.40%AssetsReturn on 9.27% 8.85% 8.90% 11.12% 11.11% 11.17%EquityEPS(Taka) 2.14 2.20 2.21 2.81 2.85 2.91

P/E ratio 26.46 34.66 28.05 22.06 21.75 21.30

**** The P/E ratio for 2018/2019 to 2020/2021 known as forward P/E has been calculated by the following manner:

Forward P/E = current price per share / expected EPS of the forecasting period.

Chapter 4

Findings and Analysis:

Financial ratio analysis also referred to as “Quantitative Analysis” is considered to be the most important steps while analyzing a company from an investment perspective. It is a study of ratios between various items in financial statements. Ratios are classified as profitability ratio, liquidity ratio, asset utilization ratios and leverage ratios based on the indication they provides.

Every study belongs some specific findings, my report is not an exception to this. The major findings of the report are as follows:

The higher the current ratio, the more liquid the firm is considered to be. Current ratio of KDS Accessories is in fluctuating trend in its actual period but it is expected to boost in the forecasting period adjacent to 1.18 taka against 1tk current liabilities which is a good sign.

The net working capital position indicates a good sign in the actual period which is expected to endure in the forecasting period as such is in increasing trend i.e. current assets are growing at a higher rate than current liabilities.

The quick ratio is less than 1 indicating the current assets are highly dependent on inventory. The quick ratio is in fluctuating trend in the current period but it is expected to rise gradually in the forecasting period. To enhance the ratio, KDS Accessories Ltd has to accelerate cash, short term investments & reduce the current liability.

The greater the asset turnover ratio the more the company is efficient in utilizing the assets. The asset turnover ratio is in fluctuating trend in the actual as it decreases at a greater margin in 2016/2017 due to lower sales but such is expected to grow at an increasing trend in the forecasting period.

The situation of inventory days was not satisfactory in actual period as there was an increasing trend but such is expected to decrease in the forecasting period. KDS Accessories need to improve its sales or advertising technique to sell its inventory quickly so the capital doesn’t get tied in the inventory.

KDS Accessories LTD needs to focus on collection ability or credit control department needs to play a vital role to reduce the receivable days without losing customers. KDS Accessories Ltd has a downward trend in receivable days which indicates they have started performing well to collect cash from their customers over the time period. This needs to be reduced more so that they have enough cash to meet the expenses of other operations.

KDS Accessories Ltd faced exertion in 2017/2018 while disbursing

payments to its suppliers though it paid smartly the previous two years. So KDS Accessories Ltd need to improve its collection arrangements so it could pay all its suppliers quickly. Again too much payment to the payables doesn’t indicate the good sign as it will run out of cash. Therefore, the company need to make tradeoff among this operating cycle. It is expected KDS Accessories Ltd will be able to pay out the suppliers without any trouble in the forthcoming period. Overall the company needs to focus on sales or advertising technique to expand sales and needs to improve its collection ability which, in turn lead to have a positive impact on payable days.

A high Return on assets is a tell-tale sign of solid financial and operational performance because it gives a clear indication of whether the business is continuing to earn an increasing profit on each dollar of investment. A falling ROA is a sure sign of trouble for the growth companies like KDS Accessories Ltd. But it is expected to rise in the forecasting period in the first phrase though cannot continue in the same mode. Companies like KDS Accessories requires a higher values of fixed assets for operations as such industries are capital intensive, therefore the ROA will be lower as their large asset base will increase the denominator of the formula. Therefore having lower ROA doesn’t mean that KDS cannot utilize its assets smoothly. Moreover as a general rule, a return on assets under 5% is considered an asset intensive company while a return on assets above 20% is considered an asset light company.

ROE measures the profit made for each dollar from shareholders equity. There is a fluctuating trend regarding ROE in which such is expected to do better than the actual period in the forecasting period. Such a fluctuating trend may trouble a company like KDS Accessories Ltd. But it doesn’t mean that higher ROE is always fruitful because the company having more debt will have less shareholders’ equity resulting in a higher ROE. Moreover, one mustn’t forget that cost of debt is usually lower than the cost of equity. Even share repurchases and write-downs can artificially boost ROE. In KDS Accessories, the ROE is expected to rise in the forecasting period as its high debt is magnifying the ROE.

EPS indicates how much money a company makes for each share of its stock. There is an increasing trend in ROE of KDS Accessories Ltd and such indicates investors will pay more for the firm with higher profit. It is not wise to judge a performance of the company with EPS alone as it can be distorted if a company conducts a share buy-back. Moreover, EPS doesn’t take account of a company’s debt position and financial leverage also. It will be better if it can be judged with P/E ratio that indicates the value of share per dollar earned. KDS Accessories Ltd have a fluctuating trend in P/E ratio. Too high P/E ratio indicates a positive future performance and investors have higher expectation for future earnings growth but such growth stocks are volatile as they are considered overvalued. From that perspective , KDS Accessories Ltd have a moderate P/E ratio which is less volatile and investors faces less risk to invest in the stock . And if the stock price rises higher, the investors make a good profit. To be noted, KDS Accessories had high P/E ratio in 2016/2017 that indicates investors considered its stock as overpriced stock and risky investments for investors that time.

The P/E ratio for 2015/2016 to 2017/2018 are trailing P/E ratio whereas the P/E ratio for 2018/2019 to 2020/2021 are forwarding P/E ratio. If the forward P/E ratio is lower than the current P/E ratio it means analysts are expecting earnings to increase. If the forward P/E ratio is higher than the current P/E ratio analysts expects a decrease in earnings. It is to be noted that forward P/E is smaller than the trailing P/E since the forward P/E accounts for future earnings growth relative to today’s share price. However trailing P/E has shortcomings as the company’s past performance doesn’t signal future behavior. Investors will commit money based on future earnings power, not the past. In KDS Accessories Ltd, forward P/E ratio is smaller than current trailing P/E that indicates positive future.

Net profit margin is a strong indicator of firms overall success and is usually stated as a percentage. KDS Accessories Ltd has a higher net profit margin and is expected to continue in the forecasting period that indicates efficiency in management, strong pricing strategies and ability to control costs by selling goods at a price significantly higher than its costs.

The debt to equity ratio is a leverage ratio that highlights the capital structure of a company whether its capital structure tilted either towards debt or equity financing. For instance, in 2015/16 the debt to equity ratio is 0.94 which means for every dollar in equity KDS Accessories Ltd has 94 cents in leverage. A higher debt equity ratio designates KDS Accessories Ltd a levered firm which is quite preferable as the firm is stable with significant cash flow generation. Therefore KDS Accessories Ltd can magnify the return on equity by using more debt. As the cost of debt is lower than the cost of equity, KDS Accessories Ltd can lower the WACC increasing D/E up to a certain point. But KDS Accessories management need to be careful for not raising the debt too high because the cost of borrowings will skyrocket , as will the cost of equity and the company’s WACC will get extremely high, driving down its share price.

TIE indicates how many times a company can cover its interest charges on a pretax earnings basis. It is also known as interest coverage ratio. A higher time interest earned ratio of KDS Accessories Ltd is favorable because it means the company presents less of a risk to investors and creditors in terms of solvency. But such is expected to decrease in the forecasting period that will be troublesome for KDS Accessories Ltd. However, a high TIE ratio doesn’t necessarily mean that a company is managing its debt repayment in the most efficient way. This means business may not utilize excess income for reinvestment through expansion but paying down debt obligations quickly. A company with high TIE ratio may lose favor with long term investors. But each and every company should keep a decent T/E ratio and need to reduce debt obligations to some extent for eradicating future uncertain occurrence. There KDS Accessories need to take some steps to reduce some debt though their debt enables them to magnify the good returns.

Overall the financial performance of KDS Accessories Ltd is quite satisfactory and it is expected to remain constant or much better in the forthcoming period. Despite of severe unfavorable economic condition for readymade garments sector of last few years, KDS Accessories achieved worthy performance in all core areas of its operations.

Chapter 5

5.1 Conclusions:

Garments sector is the highest single contributor of Bangladesh economy. About 22 million people are directly or indirectly involved in this sector. And about 78% of the employees are women who are playing a pivotal role in decision making, poverty alleviation in their family. The garments sector are dependent on the garments accessories business like KDS Accessories Ltd. The earning of garments accessories sector like KDS Accessories Ltd is likely to increase up to US$12.5 billion by the end of 2019 and to US$18 billion by the end of the year 2025 as suggested by estimation. Companies like KDS Accessories Ltd. are providing accessories to the garments sector and with those the garments sector are making finished products meeting both domestic and overseas demand. As a major player in readymade garments market, KDS Accessories Ltd has wonderful chance to perform much better than present. But the management body should consider some other issues like bank loan, operating expenses, project finance, investments and so on. So the company should have deep concern on the above issue and take essential steps to build sustainable competitive advantages.

Ratio analysis is the basic tool of financial analysis and financial analysis is an important part of any business planning process as SWOT and no SWOT analysis would be complete without an analysis of company’s financial position. Usually the financial statement analysis contains the past performance, so I made the forecasted income statement and forecasted balance sheet for upcoming three years period and conduct the ratio analysis to get an idea of how KDS Accessories Ltd will be able to perform better in the upcoming period.

From the study it is determined that company financial performance was seeing to be sound because the company tries to increase its production and also net profit. The company need to utilize its funds more efficiently to justify its growth in all aspects.

The report helps to explore my knowledge in this financial area that will help me to understand more about how I can know the performance of the industry as a student of Accounting. This report is also helping me to understand the financial condition and as well as how they will do in future. From this report an investor can see the general picture of KDS Accessories and he can take decision based on this report.

The one month internship program helped me to enhance my knowledge beyond the text books. I have gained practical knowledge regarding the corporate environment which I hope would support me in future.

5.2 Recommendations:

The overall performance of KDS Accessories Ltd shows a satisfactory position in the given period. It is not easy to recommend some suggestion to boost the performance level of the organization much better than the existing point.

I have observed some shortcomings regarding operational and other aspects. On the basis of my observation I would like to present the following recommendations.

KDS Accessories should increase their equity capital in their capital structure because debt capital is already higher.

They should utilize their assets properly by investing them in more profitable projects as they have to be dependent on external loan to meet liquidity needs.

They should increase dividend per share that will serve as a promotional tool.

Contribution analysis for each of the product lines to optimize profit in light of demand factors.

They need to reduce the debt to equity ratio to some extent though it helps them to magnify the return to equity. Because, banking industry is not in decent shape

.Uncertain occurrences in banking industry may lead KDS Accessories to catastrophe in financial performance in future.

They should be careful about the market price of share because the price of share would decrease in future.

They should minimize their financing expenses to make higher net profit.

They need to put emphasis on minimizing the average collection period by having a separate credit control department or by ameliorating the collection efficiency.

Standard set-up for staff and officers to lessen administrative overhead.

Coordination among the employees of finance and accounts departments must be stronger to bring maximum output. They can organize workshops, seminars, and provide more training to develop their work ability and motivate them towards work by setting goals.

They should concentrate on the quick ratio since it is below the ideal ratio 1:1. For this they have to make tradeoff between producing more and less inventories.

They should introduce a research and development department to get innovative ideas to capture the competitive market to gain sustainable competitive advantages.

KDS Accessories should invest the retained cash in government securities

such as Treasury bill and Treasury bond. They can also invest in short term marketable securities which generates more revenues for the firm.

The company should do research to minimize the cost by keeping the same quality. They can introduce backward integration for producing raw materials to take cost advantage.

They should keep liquid assets or safety cash balance for unanticipated cash crisis.

There must be clear allocation of responsibilities, authorities and accountabilities.

KDS Accessories Ltd should try to minimize the operating expenses which enables the company to save, in order to increase the profit which helps for its future expansions.

Company should continue paying taxes in the future so that it will not burden the particular period in which it has paid the balance amount of tax.

In the face of today’s global competition with open market operation, KDS Accessories Ltd must develop and retain the high achievers and motivated workforce and equip them with latest skills and technologies.

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