Introduction
Objective The objective of this report is to analyze the scenario of Bata Shoe Company (Bangladesh) Ltd. as well as gathering practical nowledge from the financial conte!t and establish a relation with o"r nowledge of the co"rse. # ey objective is to cond"ct a ratio analysis$ developing common size income statement of the company and eval"ate their performances by generating ind"stry averages or ind"stry ind"stry standard standard val"es. val"es. To eval"ate eval"ate their performances performances against the ind"stry ind"stry standard standard val"es we have "sed the %o &ont System to analyze the ratios. The project incl"des application of vario"s ratio form"las to find o"t the ratios re'"ired to "nderstand the financial sit"ation of the company in comparison to the ind"stry average.
Methodology Before gathering all the information$ we generated a clear and precise strategy to wor. irst we collected the #nn"al report of the company for the year **+ , **-. Then the ratios and ind"stry standa standard rd val"es val"es are genera generated ted "sing "sing /icr /icroso osoft ft 0!cel1 0!cel1.. #fterw #fterward ards$ s$ the origin original al report reportss are
Principl iples es of /anagerial inance$ Lawrence common sized "sing the format of o"r boo (Princ 2.3itman.) inally$ inally$ implementing o"r learning in the co"rse did the analysis part.
Scope This This report report foc"se foc"sess on the vario" vario"ss ratios ratios "nder "nder the criter criterion ion of li'"id li'"idity ity$$ profi profitab tabili ility ty$$ asset asset management$ debt management$ maret val"e which are generated on the financial performances of the shoe man"fact"ring company naming Bata Bangladesh1 from %haa Stoc 0!change of the year **+.
4
Limitation T analysis part reflects o"r limited nowledge abo"t the vast financial world. "rthermore$ the ass"mptions made abo"t vario"s sit"ations can be different from what it is in the real world. So$ the content of the report may vary slightly from reality and the analysis in the report may not f"lly reflect the act"al sit"ation of the company.
Source of data The information provided in this report was collected in several ways. 5e collected the ann"al report from people in parental level and other essential information was collected from the internet. inally$ inally$ they were manip"lated with the help of the contents of o"r boo.
Background of the Company Bata Bangladesh is affiliated to the Bata Shoe 6rganization$ the world7s largest footwear man"fact"ring and mareting organization. 8t started operation in Bangladesh in 49:. 8n 49; it incorporated in Bangladesh. C"rrently$ Bata Bangladesh operates man"fact"ring plant Tongi and %hamrai$ Bata Bangladesh is prod"cing aro"nd 44*$*** pairs of shoes daily. 8t has a modern tannery with the latest technological facilities to process + million s'"are feet of leather yearly. The Tannery is e'"ipped with a high
"nder the trademars of ?Bata@$ ?&ower@$ ?5einbrenner@ B"bbleg"mmers@$
?/arie Claire@$ ?B<irst@
and
?Sanda@
thro"gh
a
co"ntywide distrib"tion
networ
comprising retail stores$ %S&s and independent dealers. Overseas market > "nder the trademars of its c"stomers$ and also marets its own brands to
sister companies and the /iddle 0ast.
hy !e have chosen the company Bata Shoe Company (Bangladesh) Ltd. is the leading footwear man"fact"ring and mareting organization in Bangladesh. or the last years they are operating here. rom their ann"al report we have seen that it has a high t"rnover and profit rate and these are increasing every year. Last year it achieved 4A growth in t"rnover. 8t has also achieved the 8& ta!payer stat"s in the year **+. #ll these points have helped "s to choose the company for o"r project.
D
"#$IO C#LC%L#$IO&S
orkings'
#ll the calc"lations are done for the ratio shown in below=
Liquidity Ratios
4. Li'"idity Eatio F C"rrent #ssetGC"rrent Liabilities (C"rrent #sset and C"rrent Liabilities are taen from balance sheet) . H"ic or #cid Eatio F C"rrent #sset<8nventoriesGC"rrent Liabilities (C"rrent #sset$ 8nventories$ C"rrent Liabilities are taen from balance sheet)
Activity or Asset Management Ratios
D. 8nventory T"rnover F Cost of 3ood SoldG8nventory(C63S is taen from income statement$ and 8nventory from balance sheet) -. i!ed #sset T"rnover F Cost of 3ood SoldGi!ed #sset(C63S is taen from income statement and i!ed #sset from balance sheet) +. Total #sset T"rnover F Total 6perating 8ncomeGTotal #sset(Total 6perating 8ncome Total #sset is taen from income statement and Total #sset from balance sheet) :. #verage collection period (period average) F #cco"nts receivableG#verage sales per day . I J#verage sales per day F #nn"al salesG D:*K
;. #verage payment period (period end) F #cco"nts payableG #verage p"rchases per day. I J#verage p"rchases per day F #nn"al p"rchasesG D:*K
-
Debt Management Ratios
;. %ebt Eatio F Total LiabilitiesG Total #sset (Total Liabilities$ Total #sset are taen from balance sheet) A. Times 8nterest 0arned F 0B8TG8nterest paid on borrowing (0B8T$ and 8nterest are taen from 8ncome sheet) 9. i!ed payment coverage F 0B8T Lease paymentG 8nterest Lease payments M(principal payments &referred stoc dividends) N J4G(4
Proftability Ratios
4*. 3ross &rofit /argin F Sales > Cost of goods soldG Sales ( Sales or T"rn over and Cost of goods sold are taen from 8ncome statement) 44. 6perating &rofit /argin F 6perating &rofits G Sales ( Sales and 6perating &rofits are taen from 8ncome statement) 4. Pet &rofit /argin F 0arnings #vailable for Common stocholdersG Sales ( Sales and 0arnings available for common stocholders are taen from 8ncome Statement ) 4D. 0arnings per Share F 0arnings #vailable for common stocholdersG P"mbers of Shares of common stoc o"tstanding. ( 0#CSQ is from income statement and Po. of common stoc is from Balance sheet)
4-. Eet"rn 6n Total #ssets F 0arnings #vailable for common stocholders GTotal #ssets (0#CSQ is taen from 8ncome sheet and Total #sset is taen from balance sheet) 4+. Eet"rn 6n 0'"ity F 0arnings #vailable for common stocholders GCommon Stoc 0'"ity (0#CSQ is taen from 8ncome sheet and Common stoc 0'"ity is taen from balance sheet)
Market Value Ratios
4:. &riceG0arnings F /aret &rice &er Share of common stoc G 0arnings &er Share (&rice &er Share taen from Pews paper and 0&S from 8ncome statement)
+
LIQUIDITY RATIO
i)
Current Ratio =
=
ii)
Tk. 1507240857 Tk. 979377824 1.54
Quick(Acid-test) Ratio =
=
Tk. (1507240857 – 900592601) Tk. 979377824 0.62
ACTIVITY RATIOS
i)
Inventory Turnover Ratio = =
Tk. 1921820859 Tk. 900592601 2.13
Average age of inventory = (360/!"3) = "60!0" days ii)
Average Co##ections $eriod =
=
iii)
Tk. 189892488 Tk. 3064425608/360 22.3 !"#
Average $ay%ent $eriod
=
Tk. 217771865$249040789$88211625 Tk. 1126412581/360 :
=
iv)
Tota# Asset Turnover =
=
v)
105.75 !"#
Tk. 3064425608 Tk. 746888105 1.65
&i'ed Asset Turnover =
=
Tk. 1921820859 Tk. 341664110 5.41
D%&T RATIOS
i)
et Ratio =
Tk. 1107552416 Tk. 1854440521
=
0.60 ' 100
=
60
ii) Ti%es Interest *arned Ratio
iii) =
=
Tk. 321355315 Tk. 3547076
=
90.58
&i'ed $ay%ent Coverage Ratio Tk. 21355315$2013384 Tk. 3547076$2013384$ (0$164160000)'*1/ (1+ 114717000),-
;
=
()*+
ROITA&ILITY RATIOS
i)
+ross $ro,t argin =
=
ii)
=
Tk. 321355315 Tk. 3064425608 10.48
et $ro,t argin =
=
iv)
37.2
.erating $ro,t argin =
iii)
Tk. 1142604749 Tk. 3064425608
Tk. 206638315 Tk. 3064425608 6.74
*arnings $er 12are (*$1) =
=
Tk. 206638315 Tk. 13680000 Tk. 15.11
A
v)
Return on Tota# Assets (R.A) =
Tk. 206638315 Tk. 1854440521
=
vi)
11.14
Return on Co%%on *uity (R.*) =
=
Tk.206638315 Tk.746888105 27.67
AR%T RATIOS
i)
$rice/*arnings ($/*) Ratio4 =
=
Tk.125 Tk.15.11 8.27
AT A GLANCE Ratio
Formula
Year 2005
Industry Average
CrossSectional Evaluation
L" R!# C"rrent Eatio H"ic (#cid< Test) ratio
C"rrent #ssets C"rrent Liabilities C"rrent #ssets< 8nventory C"rrent Liabilities
4.+;
4.D
3ood
*.:
4.
&oor
.A
3ood
A" R!# 8nventory
Cost of 3oods Sold
.4D
9
T"rnover #verage Collections &eriod #verage &ayment &eriod Total #sset T"rnover i!ed #sset T"rnover
8nventory #cco"nts Eeceivables #verage Sales per day #cco"nts &ayable #verage p"rchases per day Sales Total #ssets Sales Total i!ed #sset
.D days
;+.4 days
3ood
4*+.;+ days 4.:+
;;.9 days
&oor
4.4
3ood
+.-4
A.;
&oor
*.:
*.;
3ood
9*.+A
+9.-
3ood
-.*
*.-
3ood
D;.
;.:*
3ood
4*.-A
4-.A*
3ood
:.;-
+.+*
3ood
T.4+.44
9.:
3ood
44.4-
:.4*
3ood
;.:;
49.*
3ood
Continued……..
D: R!# %ebt Eatio Times 0arned 8nterest Eatio i!ed
Total Liabilities Total #ssets 0arnings before interest and ta! 8nterest 0arnings before interest and ta! Lease payments 8nterest Lease &ay. M&rin. &ref div.)NJ4G(4
;<!:" R!# 3ross &rofit /ar gin 6perating &rofit /argin Pet &rofit /argin 0arnings per share (0&S)
Eet"rn of total assets (E6#) Eet"rn of common e'"ity (E60)
3ross &rofits Sales 6perating &rofits Sales 0arnings available to Common Stocholders Sales 0arnings available to Common stocholders P"mber of shares of common stoc o"tstanding 0arnings available for common stocholders Total #ssets 0arnings available for common stocholders Common Stoc 0'"ity
!;k R!# &riceG0arnings (&G0) ratio
/aret price per share of common stoc 0arnings per share
A.;
4+.;
&oor
4*
B#$# S,O- COM.#&/ L$D "#$IO #L/SIS
$he recent trends of B#T# and comparison with the ind"stry1s average in terms of its
financial performance according to the several criteria are ill"strated below=
#nalysis on Current "atio'
Industry Comparison' Bata1s c"rrent ratio (4.+;) was above the ind"stry average (4.D)$ so its
li'"idity position was good. 8n the year **+ it increased along with the ind"stry average b"t the difference was low.
Comment' So we can say that Bata1s c"rrent ratio is higher than the ind"stry average which
means that the company has s"bstantial ability to meet its short term obligations as they come d"e.
#nalysis on #cid "atio'
Industry Comparison' Comparing with the ind"stry standards we can say that it is doing '"iet
well. Bata1s '"ic ratio is half of the ind"stry average. Tho"gh it1s '"ic (acid) ratio (*.:) is less than the ind"stry average (4.) b"t it is acceptable in comparison with c"rrent ratio.
Comment= So we can say that the company has to improve its performance regarding inventory
beca"se it has less li'"id c"rrent asset than the ind"stry average.
#nalysis on Inventory $urnover "atio'
44
Industry Comparison' Bata1s inventory t"rnover (.4D) is less than the ind"stry standard (.A).
B"t it is acceptable.
Comment' So we can say that Bata is "sing its inventory properly. 8t is not holding "p too m"ch
inventory. B"t they have to improve its performance regarding this matter as the ind"stry average is higher than the company1s ratio. 8ts trend is good and if it contin"es lie this it will improve and the ratio may go "p than the ind"stry standard.
#nalysis on #verage Collections .eriod
Industry Comparison' The average collections period for the company is abo"t .D days which
is s"bstantially lower than the ind"stry average of ;+.4 days.
Comment' The Company m"st have very strict collections policies which are implemented th"s
showing that the company has a very efficient receivables management. So it can be said that Bata is very efficient in collecting their credits.
#nalysis on #verage .ayment .eriod'
Industry comparison' The average payment period$ however is abo"t 4*+.;+ days which is
higher than the ind"stry average ;;.9 days for almost 4 month.
Comment' So the company has to tae the initial steps to t"rn their #verage payment rate faster than the ind"stry average.
#nalysis on 0i1ed #sset $urnover'
Industry Comparison' The ind"stry average for fi!ed asset t"rnover is A.; where the company1s
ratio of fi!ed asset t"rnover is +.-4. The fi!ed asset t"rnover indicates the efficiency with which
4
the firm "ses its fi!ed asset to generate sales. The ind"stry average is almost 4.: times of company1s ratio.
Comment' Bata is not "tilizing its fi!ed asset effectively to generate reven"e. #s a res"lt the
ind"stry average goes "p than the company ratio. Qowever$ the company has ac'"ired new fi!ed assets d"ring the year d"e to which the fi!ed asset t"rnover is lower #nalysis on $otal #sset $urnover'
Industry Comparison' 8n the recent year the ind"stry average is 4.4 where the company ratio is
4.:+.
Comment' The firm is generating s"fficient vol"me of b"siness given its total asset as the other
firms of the ind"stry. This wo"ld mean that the company is "tilizing its assets efficiently to generate sales as the company ratio is higher (4.:+).
#nalysis on Debt "atio'
Industry Comparison' The ind"stry1s capital str"ct"re contains high debt (*.;)$ and is above that
of City Ban1s (*.:).
Comment' The debt ratios indicate the debt position of the company. Low debt is going to give
the Bata Company comparative advantage over other companies$ as it will provide c"shion against creditors1 losses in the event of li'"idation. 8t has a debt ratio of :* which means that :* of the company1s assets are financed e!ternally. #ltho"gh a higher degree of indebtedness means the company has greater financial leverage$ the company1s debt ratio as compared to the ind"stry average of ;* is good as it shows that more portions of the company1s assets has been financed internally compared to the ind"stry average.
#nalysis on $imes2Interest2-arned "atio' .
4D
Industry Comparison' The ratio of Bata Company (9*.+A) is well above the ind"stry average
(+9.-).
Comment' interest coverage ratio meas"res the firm1s ability to mae contract"al interest
payments. The higher the ratio the better able the firm is to f"lfill its interest obligation. This shows that Bata is covering its interest charges effectively.
#nalysis on 0i1ed2payment coverage ratio'
Industry average' The comparison shows that the company ratio (-.) is 4*.+ times more than the
ind"stry average (*.-).
Comment' The fi!ed payment coverage ratio meas"res the firm1s ability to meet all fi!ed
payment obligations. The ratio shows that the company is in a good position to meet the fi!ed debts. The higher the ratio the lower the ris to both lenders and owners. This ratio gives the interested parties a clear pict"re to assess the firm1s ability to meet additional fi!ed obligations witho"t being banr"pt.
#nalysis on 3ross .rofit Margin'
Industry Comparison' City Ban1s gross profit margin ratio (D;.) is higher than that of the
ind"stry1s (;.:*).
Comment' Bata1s increasing profit margin will provide it with c"shion to tae more riss. The
higher the gross profit margin1 the better is the position. Comparatively they have less gross profit than the pervio"s year.
4-
#nalysis on Operating .rofit Margin'
Industry average' The company ratio is 4*.-A where the ind"stry standard is 4-.A*.
Comment' 6perating profit margin represents the ?p"re profit@ earned on each dollar sales.
Tho"gh the ratio is less than the ind"stry average the company is in a good position. B"t a higher operating profit margin is preferred
#nalysis on &et .rofit Margin
Industry comparison' The net profit margin$ :.;- is almost 4.D times greater than the ind"stry
average of +.+.
Comment' This reflects that the company is performing well in comparison to other companies.
#nalysis on -arnings per share 4-.S5'
Industry average' The 0&S is abo"t T 4+.44. 8t is T. +.+4 more than the ind"stry average (9.:).
Comment' Basic earning power of Bata is higher than the ind"stry. This indicates that City
Ban1s is doing well.
#nalysis on "eturn On #ssets'
Industry Comparison' The Eet"rn on #sset for Bata (44.4-) is higher than that of ind"stry1s
(:.4*) "p to **+ b"t in recent years it is m"ch higher than that of the ind"stries.
4+
Comment' The Company1s ratio is almost times higher than the ind"stry average. This indicates
that the firm is generating higher profit from each dollar investment on its assets than the ind"stry.
#nalysis on "eturn on -6uity'
Industry Comparison The Eet"rn on 0'"ity for Bata (;.:;) is m"ch higher than that of
ind"stry1s (49.*)
Comment' This indicates that City Ban1s profit on each dollar investment is getting higher than
that of other firms of the ind"stry. The ratio is significantly higher than the ind"stry averages th"s depicting that the company is affectively earning s"bstantially on the investments made in the company.
#nalysis on .rice7-arnings 4.7-5 "atio'
Industry Comparison' The &riceG0arnings Eatio (A.;) for Bata is lower than the ind"stry
average (4+.;).
Comment' This ratio is commonly "sed to assess the owner1s appraisal of share val"e. This gives
a pict"re of how m"ch the investors are willing to pay for each T. of a firm1s earning. This indicates that Bata is somewhat risier than most. Beca"se the higher the &G0 ratio the greater is investors confidence.
4:
Bata Company Limited Common Si8e Income Statement 0or the /ear -nded December 9:
**+
**-
Sales Eeven"e (T"rnover) Less= cost of goods sold 3ross profit margin Less= #dministration$ selling and %istrib"tion e!penses #dd= 6ther income Less= 5orers1 participation f"nd poor &rofit for the year before ta! &rovision for ta!= C"rrent %eferred poor &rofit for the year after ta! 8nappropriate profit bro"ght forward #dj"stment in respect of earlier years &rofit available for appropriation #ppropriations= %ividend< 8nterim &roposed final %ivided distrib"tion ta!
0val"ation (**-<**+)
4**.** (:.;4) D;.9 (:.++)
4**.** (+9.94) -*.*9 (9.4*)
same poor poor good
4*.;- *.D4 44.*+ (*.++)
4*.99 *.- 44.D (*.+:)
good good good
4*.+*
4*.:;
poor
D.9 (*.4;)
D.9: (*.4D)
good
D.;+ :.;+ 4-.*4 *.* 4-.*D *.;A
D.AD :.A- 4:.9 R 4:.9 D.;:
good poor poor good poor poor
-.-: *.A9 R +.D+
:.;4 4.*+ *.44 ;.A;
good good good good
4;
8nappropriate profit$ carried forward
4+.-D
4+.A9
poor
4A
DU O>T SYST%
"elate "O# and "O-22222
"O# F
0arnings available to common stocholderG Total #sset
F
(0arnings available to common stocholderG sales) N (Sales G Total #sset)
F
Pet &rofit /argin N Total #sset T"rnover
"O- F
0arnings #vailable to common stocholderG Common stoc 0'"ity
F
(0arnings available to common stocholderG Total #sset) N (Total #ssetG Common stoc 0'"ity)
F
E6# N L/ (inancial Leverage m"ltiplier)
C#LC%L#$IO&' "O# F
F 0LM F
:.;- N 4.:+ ::):* ;
Total #sset G Common stoc 0'"ity
F
(D-4::-44*++D+++-4+*;-*A+;)G ;-:AAA4*+
F
*)(<
"O- F
F
E6# NL/ 44.4 N .-A
49
F
*=)>< ;
D%.O&$ System #nalysis
The %"&ont 0'"ation is designed to show that how the profit margin on sales$ the total asset t"rnover ratio$ and the "se of debt interact to determine the rate of ret"rn on e'"ity. The %"&ont form"la enables the firm to brea down its ret"rn into profit on sales and efficiency of asset "se components. 8n o"r findings we have fo"nd the following ratios= Eet"rn on Total #ssets (E6#) T.*::DAD4+ T.4A+---*+4
?
F
44.4-
Eet"rn on Common 0'"ity (E60) F
T.*::DAD4+ T.;-:AAA4*+ F
;.:;
rom the above ratio we can trace that Bata1s high E60 is primarily the conse'"ences of fast collections of acco"nts receivable$ which res"lted in low levels of receivable and therefore low levels of total assets. The low total assets slowed Bata1s total asset t"rnover driving "p its E6#$ which then drove "p its E60. By "sing the %"&ont system of analysis to combined Bata1s overall ret"rns as meas"red by its E60. The advantage of %"&ont system is that it allows the firm to brea its ret"rn on e'"ity into a profit on sales component (net profit margin)$ an efficiency of asset "se component (total asset t"rnover)$ and a "se of financial >leverage component (financial leverage m"ltiplier). The total ret"rn to owners therefore can be analyzed in these important dimensions.
*
Suggestions #fter completing the analysis part we have recommended some s"ggestions which they may follow= 4. Tho"gh the c"rrent ratio of Bata is in a better position than the ind"stry average b"t their '"ic ratio is very poor compared to the ind"stry average. 8nventory is the least li'"id c"rrent asset. #nalyzing the '"ic ratio we can say that the company1s inventory management is not so good. 8f they eep on carrying their inventory for a long time then there is a possibility of their inventory becoming obsolete. So they have to foc"s on their inventory management system. . #ltho"gh their inventory t"rn over ratio so"nds good b"t it is less than the ind"stry average ratio. 5e now from the '"ic ratio that their inventory management is not good eno"gh. 8f they r"n their company with the same inventory ratio they won1t be able to cope with the ind"stry standard to be in the maret. D.
They need to improve their average payment period otherwise the lenders and the s"ppliers wo"ld not be interested to invest or s"pply goods on credit to the company.
-. They m"st improve their price per earnings as this will attract investors as it indicates the degree of confidence of the investor in the firm1s f"t"re performance.
4
hat !e have learned from this project
#s BB# grad"ates$ in the near f"t"re when we will be a part of the corporate activities$ it will be important for "s to "nderstand the financial sit"ation of the company we will be woring for or will be r"nning. This project gave "s an opport"nity to learn several important aspects abo"t the finance of a company. 5e learned to prepare common size income statement and calc"late ratios from the fig"res of the company1s balance sheet and income statement. 5e have also learned how to interpret financial ratios to analyze and monitor a firm1s performance. 8t helped "s to gather practical nowledge from the financial conte!t and establish a relation with o"r nowledge of the co"rse.
CO&CL%SIO&
Bata Shoe Company Ltd. is one of the leading companies in the footwear man"fact"ring ind"stry in Bangladesh. #nalyzing the overall ratios we have fo"nd that altho"gh their overall performance is good b"t they need to foc"s on some areas where they need to improve their performance which will in t"rn boost "p their profit and will help them to battle with their competitors.