Introduction To Ratio Analysis Final

1.
Introduction
1.1 Introduction to ratio analysis:
Financial information is always prepared to satisfy in some way the needs of various interested parties (the "users of accounts"). Stakeholders in the business (whether they are internal or external to the business) seek information to find out three fundamental questions: (1) How is the business trading? (2) How strong is the financial position? (3) What are the future prospects for the business? For outsiders, published financial accounts are an important source of information to enable them to answer the above questions. To some degree or other, all interested parties will want to ask questions about financial information which is likely to fall into one or other of the following categories, and be about:
Performance Area Profitability
Key Issues Is the business making a profit? How efficient is the business at turning revenues into profit? Is it enough to finance reinvestment? Is it growing? Is it sustainable (high quality)? How does it compare with the rest of the industry? Is the business making best use of its resources? Is it generating adequate returns from its investments? Is it managing its working capital properly? Is the business able to meet its short-term debts as they fall due? Is the business generating enough cash? Does the business need to raise further finance? How risky is the finance structure of the business? What returns are owners gaining from their investment in the business? How does this compare with similar, alternative investments in other businesses?
Financial efficiency
Liquidity and gearing
Shareholder return
1.2 Statement of the Research Problem:
When we prepare the report we face some problem to accomplish this report. Unavailability of the most recent data and service Information. Lake of enough Information. Lack of secret Information. We are not expert on report writing so it should have some wrong. The data collection process is time consuming.
1.3 Objective of Study

We try to measuring and evaluating the Financial position and Dividend Policy, in Energy sector; Bangladesh.
1.4 Methodology of the study

The main objective of our report is to measuring and evaluating the Financial Statement and Dividend Policy, in Energy sector; Bangladesh. We used ratio analysis to find out dividend policy. To prepare our analysis we have collected information from our report topic. The information that contains in the thesis is from primary source and secondary source. We have taken help from primary source and secondary source. These sources are Primary Source:
These companies financial report are the main source of collecting primary information. Secondary Source:
Internet Prospectus Finance Book
2. Literature Review
2.1 Definition of 'Ratio Analysis':
A tool used by individuals to conduct a quantitative analysis of information in a company's financial statements. Ratios are calculated from current year numbers and are then compared to previous years, other companies, the industry, or even the economy to judge the performance of the company. Ratio analysis is predominately used by proponents of fundamental analysis. A financial ratio (or accounting ratio) is a relative magnitude of two selected numerical values taken from an enterprise's financial statements. Often used in accounting, there are many standard ratios used to try to evaluate the overall financial condition of a corporation or other organization. Financial ratios may be used by managers within a firm, by current and potential shareholders (owners) of a firm, and by a firm's creditors. Security analysts use financial ratios to compare the strengths and weaknesses in various companies. If shares in a company are traded in a financial market, the market price of the shares is used in certain financial ratios. Ratios can be expressed as a decimal value, such as 0.10, or given as an equivalent percent value, such as 10%. Some ratios are usually quoted as percentages, especially ratios that are usually or always less than 1, such as earnings yield, while others are usually quoted as decimal numbers, especially ratios that are usually more than 1, such as P/E ratio; these latter are also called multiples. Given any ratio, one can take its reciprocal; if the ratio was above 1, the reciprocal will be below 1, and conversely. The reciprocal expresses the same information, but may be more understandable: for instance, the earnings yield can be compared with bond yields, while the P/E ratio cannot be: for example, a P/E ratio of 20 corresponds to an earnings yield of 5%.
2.2 Sources of data for financial ratios:

Values used in calculating financial ratios are taken from the balance sheet, income statement, statement of cash flows or (sometimes) the statement of retained earnings. These
comprise the firm's "accounting statements" or financial statements. The statements' data is based on the accounting method and accounting standards used by the organization.
2.3 Purpose and types of ratios:

Financial ratios quantify many aspects of a business and are an integral part of the financial statement analysis. Financial ratios are categorized according to the financial aspect of the business which the ratio measures. Liquidity ratios measure the availability of cash to pay debt. Activity ratios measure how quickly a firm converts non-cash assets to cash assets. Debt ratios measure the firm's ability to repay long-term debt. Profitability ratios measure the firm's use of its assets and control of its expenses to generate an acceptable rate of return. Market ratios measure investor response to owning a company's stock and also the cost of issuing stock. These are concerned with the return on investment for shareholders, and with the relationship between return and the value of an investment in companys shares. Financial ratios allow for comparisons

between companies between industries between different time periods for one company between a single company and its industry average
Ratios generally hold no meaning unless they are benchmarked against something else, like past performance or another company. Thus, the ratios of firms in different industries, which face different risks, capital requirements, and competition, are usually hard to compare.
2.4 Accounting methods and principles:

Financial ratios may not be directly comparable between companies that use different accounting methods or follow various standard accounting practices. Most public companies are required by law to use generally accepted accounting principles for their home countries, but private companies, partnerships and sole proprietorships may not use accrual basis accounting. Large multi-national corporations may use International Financial Reporting Standards to produce their financial statements, or they may use the generally accepted accounting principles of their home country.
There is no international standard for calculating the summary data presented in all financial statements, and the terminology is not always consistent between companies, industries, countries and time periods.
2.5 Abbreviations and terminology:

Various abbreviations may be used in financial statements, especially financial statements summarized on the Internet. Sales reported by a firm are usually net sales, which deduct returns, allowances, and early payment discounts from the charge on an invoice. Net income is always the amount after taxes, depreciation, amortization, and interest, unless otherwise stated. Otherwise, the amount would be EBIT, or EBITDA (see below). Companies that are primarily involved in providing services with labor do not generally report "Sales" based on hours. These companies tend to report "revenue" based on the monetary value of income that the services provide. Note that Shareholder's Equity and Owner's Equity are not the same thing, Shareholder's Equity represents the total number of shares in the company multiplied by each share's book value; Owner's Equity represents the total number of shares that an individual shareholder owns (usually the owner with controlling interest), multiplied by each share's book value. It is important to make this distinction when calculating ratios.
2.6 Other abbreviations:

(Note: These are not ratios, but values in currency.)

COGS = Cost of goods sold, or cost of sales. EBIT = Earnings before interest and taxes EBITDA = Earnings before interest, taxes, depreciation, and amortization EPS = Earnings per share
2.7 Ratios:
2.7.1 Profitability ratios:
Profitability ratios measure the company's use of its assets and control of its expenses to generate an acceptable rate of return Gross profit margin or Gross Profit Rate
OR
Operating Income Margin, Operating profit margin or Return on sales (ROS)
Note: Operating income is the difference between operating revenues and operating expenses, but it is also sometimes used as a synonym for EBIT and operating profit. This is true if the firm has no non-operating income. (Earnings before interest and taxes / Sales) Profit margin, net margin or net profit margin
Return on equity (ROE)
Return on investment (ROI ratio or Du Pont Ratio)
Return on assets (ROA)
Return on assets Du Pont (ROA Du Pont)
Return on Equity Du Pont (ROE Du Pont)
Return on net assets (RONA)
Return on capital (ROC)
Risk adjusted return on capital (RAROC)
OR
Return on capital employed (ROCE)
Note: this is somewhat similar to (ROI), which calculates Net Income per Owner's Equity Cash flow return on investment (CFROI)
Efficiency ratio
Net gearing
Basic Earnings Power Ratio
2.7.2 Liquidity ratios:

Liquidity ratios measure the availability of cash to pay debt. Current ratio (Working Capital Ratio)
Acid-test ratio (Quick ratio)
Cash ratio
Operation cash flow ratio
2.7.3 Activity ratios (Efficiency Ratios):

Activity ratios measure the effectiveness of the firms use of resources. Average collection period
Degree of Operating Leverage (DOL)
DSO Ratio
Average payment period
Asset turnover
Stock turnover ratio
Receivables Turnover Ratio
Inventory conversion ratio
Inventory conversion period (essentially same thing as above)
Receivables conversion period
Payables conversion period
Cash Conversion Cycle Inventory Conversion Period + Receivables Conversion Period - Payables Conversion Period
2.7.4 Debt ratios (leveraging ratios):

Debt ratios measure the firm's ability to repay long-term debt. Debt ratios measure financial leverage. Debt ratio
Debt to equity ratio
Long-term Debt to equity (LT Debt to Equity)
Times interest-earned ratio / Interest Coverage Ratio
OR
Debt service coverage ratio
2.7.5 Market ratios:

Market ratios measure investor response to owning a company's stock and also the cost of issuing stock. These are concerned with the return on investment for shareholders, and with the relationship between return and the value of an investment in companys shares. Earnings per share (EPS)
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Payout ratio
OR
Dividend cover (the inverse of Payout Ratio)
P/E ratio
Dividend yield
Cash flow ratio or Price/cash flow ratio
Price to book value ratio (P/B or PBV)
Price/sales ratio
PEG ratio
2.7.5.1 Other Market Ratios: EV/EBITDA
EV/Sales
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3. Organization Profile
Summit Power Limited

3.1 Organizational Profile of Summit Power Ltd.:
Company Name: Summit Power Limited Registered Address: Summit Centre (9th Floor), 18 Karwan Bazar, Dhaka-1215 Plant Addresses: Ashulia, Savar Madhabdi, Narshingdi Chandina, Comilla Ullapara, Sirajganj Maona, Gazipur Jangalia, Comilla Rupgonj, Narayanganj Madanganj, Narayanganj Paid Up Capital: Tk. 3,033,539,730 (Ordinary Shares) Sponsors: Summit Industrial and Mercantile Corporation (Pvt.) Ltd. & Euro Hub Investments Ltd. Off taker: Bangladesh Power Development Board (BPDB), Rural Electrification Board Number of Employees: 144 Total electric output: 317 MW Engine type: CATERPILLER G3616, CATERPILLER G3516, Wrtsil 16V34SG, Wrtsil 20V34SG, Wrtsil 18V46GD, GE JGS 620 GS-NL Year of Starting Commercial Operation: 2001 45 MW 35 MW 25 MW 11 MW 33 MW 33 MW 33 MW 102 MW
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3.1.2 History of Summit Power Ltd.:

Summit Power Limited (SPL), sponsored by Summit Group, is the first Bangladeshi Independent Power Producer (IPP) in Bangladesh in private sector providing power to national grid. SPL was incorporated in Bangladesh on March 30, 1997 as a Private Limited Company. On June 7, 2004 the Company was converted to Public Limited Company under the Companies Act 1994. Summit Power Limited in the year 2001, has successfully established three power plants of 11 MW capacity each, for sale of electricity to Rural Electrification Board (REB) on Build, Own and Operate basis at Savar, Narsingdi and Comilla. During 2006 and 2007 in each of the above three places, 2nd unit was commissioned enhancing the capacity of SPL to 105 MW. In 2009 SPL with its 99% owned two subsidiaries has established 4 new power plants raising its capacity to 215 MW. In 2011 SPL has commissioned another power plant of 102 MW capacity at Narayanganj under Summit Narayanganj Power Limited, where SPL has 55% ownership. In association with its parent company Summit Industrial & Mercantile Corporation (Pvt.) Ltd. (SIMCL), SPL has also participated and became lowest bidder in three more power plants tender and expected to sign contracts with BPDB for establishment of 52 MW Summit Shantahar, 104 MW Summit Saidpur and 104 MW Summit Amin Bazar Power Plants. These are 15 years term IPP is expected to be commissioned by 3rd quarter of 2012. Considering the immense opportunities, the company is striving to establish more power plants around the country. The fast-growing company has set a mission to expand the company with a power generation capacity to the tune of 1000 MW, which is a modest 20% of the electricity requirement in Bangladesh.
3.1.3 Our Vision:

To provide quality & uninterrupted electricity to the vast majority of rural Bangladesh for their personal, social & economic development.
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3.1.4 Our Mission:

"Empowering Bangladesh, we can & we will." To expand the company into a power generation capacity to the tune of 1000 MW this is 20% of the electricity requirement of Bangladesh and maintains that level.
3.1.5 Our Quality Policy:

We are committed to generate and provide uninterrupted supply of electricity to our customers as per their demand by meeting all the requirements of Power Purchase Agreements signed between the company and the valued Customer. We integrate the philosophy of "Pioneering Sprit" with "Continuous Improvement" by efficient utilization of Capital, Machines, Materials and Human Resources.
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Titas Gas Transmission and Distribution Company Limited

3.2 Historical Background of Titas Gas Transmission and Distribution Co. Ltd.:
The history of the use of Natural Gas as a source of energy and feed-stock in Bangladesh dates back to early sixtys. Haripur Gas Field, discovered in Sylhet district in the year 1955, cameinto commercial production in 1961 with the supply of gas to Natural Gas Fertilizer Factory (NGFL) at Fenchuganj by 28 miles 8 DN pipeline. The Chatak Gas Field, discovered in 1959 was brought into commercial production with commencement of gas supply to Chatak Cement Factory in 1960 by 12 miles long transmission pipeline. Titas Gas T & D Co. Ltd. (TGTDCL) was formed in November 1964 as a joint Stock Company (Under the Companys Act 1913) of the central Government of Pakistan on the one hand and Pakistan Shell Oil Company on the other, with a view to transmitting and distributing natural gas to the Dhaka city the then provincial capital of Pakistan from the discovered gas field called Titas located on the bank of the River Titas, within the close vicinity of the present Brahmanbaria district of Bangladesh. The authorized capital was Taka 17.8 million only, divided into 17800 shares of Taka 10.00 each. Ninety percent of the shares were subscribed by the then central Government of Pakistan and remaining ten percent by the Shell Oil Company. The basic objective of the Company was to construct, own and operate natural gas transmission & distribution facilities in the mid-eastern region of Bangladesh i.e. Comilla, Mymensingh and Dhaka district with the right of purchasing, transmission, distribution, sales and disposal of natural gas within the jurisdiction of greater districts before creation of new districts.
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In December 1971, after nine months of liberation war, Bangladesh emerged in the world map as a new independent state with the same geographical boundary of the then East Pakistan. Plunged into a state of total economic collapse following the war of liberation, vigorous activities were immediately started at all levels to rebuild the country. Certain national priorities were set by the then Govt. and significant changes were brought about in the management of development activities. A no. of Sector or Corporations were formed and each of them was entrusted with the operation and management of the units under it. In March 26, 1972 Govt. has formed Bangladesh Oil, Gas & Mineral Corporation (BOGMC) under the Presidential Executive Order and Titas Gas T&D Co. Ltd. has become an enterprise of BOGMC. Titas Gas T&D Co. Ltd. which was earlier established as a joint stock company with 90% share capital of the Govt. of Pakistan naturally vested to the Govt. of the Peoples Republic of Bangladesh and the rest 10% share capital of Pakistan Shell Oil Company was transferred to the newly formed Bangladesh Shell Oil Company. During 1975, under the nationalization program, Govt. has brought back 10% share of Shell Oil Co. and Titas Gas T&D Co. Ltd. has become a 100% Government owned Company. Meanwhile, during August1974, Bangladesh Oil & Gas Corporation/Petrobangla and during October 1975, Ministry of Energy & Mineral Resources had been formed. TGTDCL has been placed under the administrative control of the newly formed ministry along with Petrobangla and its subsidiary Companys. The gas supply area of the Company has been extended to new areas of Greater Dhaka, Greater Mymensingh and Brahmanbaria which includes Dhaka Metropolitan city & suburbs, Tongi, Joydevpur, Gazipur, Mirzapur, Tangail, Savar, Dhamrai, Manikaganj, Aricha, Narayanganj, Sonargaon, Rupganj, Araihazar, Jinjira, Keraniganj, Munshiganj, Mirkadim, Brahmanbaria, Bhairab Bazar, Ashuganj, Narsingdi, Ghorashal, Madhabdi, Sreepur, Mymensingh, Netrokona, Jamalpur, Sherpur, Kishoreganj, Tarakandi, Bhaluka, Trishal & Gaffergaon. Presently, Titas system is receiving gas from Titas, Habiganj, Narsingdi & Bakhrabad Gas Fields under Bangladesh Gas Fields Co. Ltd. and from Rashidpur, Kailashtila, Beanibazar Gas Fields under Sylhet Gas Fields Co. Ltd. and Jalalabad Gas Field of Oxydental/Unicol. The Company own and operate 735 Km of Transmission pipelines (6DN thru 24 DN) and 7585 Km of Distribution & Service lines (3/4DN thru 12DN).
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Presently, in Titas System the Daily average offtake of gas is 800 Million Cubic Feet (MMCF) and the yearly Revenue Earnings is Tk. 24000 million. The Company has so far given gas connection to around 9,73,419 customers (17 Power stations, 4 Fertilizer factories, 2953 Industrial units, 7832 Commercial units, 152 Seasonal units, 55 CNG and 968016 Domestic customers). TGTDCL alone is saving a sum of over Tk.22000.00 Million annually on fuel import bill of the country other than its payment to National Exchequer in the form of Excise Duty, CD/VAT, Corporate Tax and Dividend. At Present, there are 2642 Employees (660 Officers and 1982 Staffs) serving in the Company, among which 205 are foreign trained Graduate Engineers, Economists and Accountants. Among the four gas marketing Companies the market share of business of TGTDCL is 70 % of which Power, Fertilizer, Industrial, Commercial, Domestic and Seasonal are 48.20 %, 18.97 %, 20.28 %, 1.04 %, 11.56 % and 0.13 % respectively. The company operates from its own office complex at Titas Bhaban, Kawranbazar C/A, that is in the centrally located business area of Dhaka Metropolitan City. The office is fully furnished with all modern office facilities and logistics. The office is also equipped with security system with modern digital telephone, Fax, SCADA as well as electronic mail. With the increased shape the authorized and paid-up capital of the Company has increased to Tk. 2000 million and 1507.30 million. Titas Gas is now a household name for its uses in the houses, Power plants, Industries, hotels and restaurants. And as raw materials to the Fertilizer factories, it is helping attain autarky in food and other agricultural products. TGTDCL has, by its own right and merit, earned the reputation as well the capacity to undertake any major project in Gas Engineering, Pipeline Construction, Operation and Maintenance thereof and also in the marketing of gas in the country.
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Jamuna Oil Company Limited

3.3 Organizational Profile of Jamuna Oil Ltd.:
Company Name: Jamuna Oil Company LTD (JOCL) Type: Public (DSE:JOCL) Industry: Petroleum Founded: 1964 Headquarters Chittagong, Bangladesh Area served: National Products: Oil, Petrol, Octane, Diesel, Kerosene Revenue: BDT 489.4 million (2011) BDT 179.3 million (2011)
Operating income: Net income:
BDT 128.7 million (2011)
Employees: 591 (2005) Website: jamunaoil.gov.bd
3.3.1 Historical Background of Jamuna Oil Ltd.:

In 1964 Pakistan National Oil Limited (PNOL), the maiden National Oil Company of the then Pakistan was established as a private limited company. The company started functioning with an authorized capital of Tk.2.00 crore. After the Independence of Bangladesh in 1971 the Government of the Peoples Republic of Bangladesh acquired the assets and liabilities of
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Pakistan National Oil Limited by virtue of Bangladesh Abandoned Property (control, Management & Disposal) Order, 1972 (P. O. No. 16 of 1972) and the Company was renamed as Bangladesh National Oil Limited. The Company has been finally renamed as Jamuna Oil Company Limited (JOCL) by the Government on 13 January, 1973. At that time the company was operated by an adhoc committee called Oil Companies Advisory Committee (OCAC) under Petrobangla, constitute by the notification No. 21 m-4/76 (NR) dated 21-4-73, M/O. Natural Resources. Jamuna Oil Company Limited was registered with the registrar of Joint Stock Companies & Firms as fully Government owned Private Limited Company on 12 March, 1975 under Companies Act 1913 with authorized capital of Tk. 10.00 crore and paidup capital of Tk. 5.00 crore. Subsequently, in the year 1976 the assets and liabilities of the Company were transferred & handed over to Bangladesh Petroleum Corporation (BPC) as per schedule stated in clause 31(c) of BPC Ordinance No. LXXXVIII (published in Bangladesh Gazette extra ordinary on 13 November, 1976). Since then Jamuna Oil Company Limited has been functioning as a Subsidiary of BPC. On 1 January, 1986 all assets and liabilities of Indo-Burmah Petroleum Company Limited (IBPCL) were transferred to the Company.
In 2005-2006 FY the paid-up capital of the company was increased to Tk. 10.00 crore from Tk. 5.00 crore by issuing of bonus share out of its profit. The company was converted into a Public Limited Company from a Private Limited Company on 25 June, 2007 and its authorized capital was increased to Tk. 300.00 crore. On 10 August, 2007 the paid-up capital of the company was increased to Tk.45.00 crore by issuing bonus share of Tk. 35.00 crore. The company was enlisted with Dhaka Stock Exchange Limited and Chittagong Stock Exchange Limited on 9 January, 2008 with a view to off-load 1.35 crore shares of Tk.10.00 each under direct listing procedure and accordingly the shares of the company were offloaded in the capital market.There is a Board of Directors constituting of 9 members to run the Company. The overall activities of the company are performed with the approval of the Board of Directors. The company implements the Government policies as per the guidance and directives of BPC from time to time.
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4. Analysis and Result

4.1 Calculation:
Measuring and evaluating the Financial Statement and Dividend Policy, in Energy sector; Bangladesh. We collected financial statement of Summit Power Ltd, Titas Gas Transmission and Distribution Co. Ltd, & Jamuna Oil Co. Ltd. After collecting data we calculated the ratio analysis in energy sector. 4.1.1 Calculation of Summit Power Ltd.:

Ratio 1. Current Ratio Interpretation Formula Current assets Current liabilities They are having fewer current assets against each tk. of current liabilities. But their current ratio is growing. In 2010 again falls their current ratio. 2006 0.38:1 2007 0.38:1 2008 0.87:1 2009 0.89:1 2010 0.60:1
Ratio 2. Quick Ratio Interpretation
Formula Current assets - Inventory Current liabilities
2006 0.22:1
2007 0.23:1
2008 0.64:1
2009 0.73:1
2010 0.52:1
They are having fewer quick assets against each tk. current liabilities. But their quick ratio is growing. In 2010 again falls their quick ratio.
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Ratio 3. Inventory Turnover Interpretation
Formula Cost of goods sold Inventory
2006 2.45 Times
2007 3.31 Times
2008 4.55 Times
2009 6.51 Times
2010 5.79 Times
They are inventory conversion time is upward into liquidity.
Ratio 4. Average Collection Period Interpretation
Formula Accounts Receivable Average sales per day
2006 45.04 Days
2007 59 Days
2008 42 Days
2009 46 Days
2010 53 Days
They have needed averagely 49.008 day to convert accounts receivable into cash.
Ratio 5. Total Asset Turnover Interpretation
Formula Sales Total assets
2006 0.20 Times
2007 0.26 Times
2008 0.25 Times
2009 0.28 Times
2010 0.24 Times
They have almost same times of total assets to convert sales. But averagely they have 0.25 times total assets to convert into sale.
Ratio 6. Debt Ratio
Formula Total liabilities Total assets
2006 59.01 %
2007 68.09 %
2008 45.36 %
2009 56.87 %
2010 42.47 %
Interpretation
They have been financing averagely 54.36% of assets by the debt.
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Ratio 7. Time Interest Earned Ratio Interpretation
Formula Earnings before interest and taxes Interest
2006 4.43 Times
2007 2.38 Times
2008 2.36 Times
2009 2.24 Times
2010 3.005 Times
They have downward time to payoff the interest. But in 2010 time to payoff the interest is increased.
Ratio 8. Gross Profit Margin Interpretation
Formula Sales Cost of goods sold Sales
2006 53.01 %
2007 51.06 %
2008 54.42 %
2009 52.9 %
2010 54.97 %
The gross profit margin almost same percentage.
Ratio 9. Operating Profit Margin Interpretation
Formula Operating profit Sales
2006 33.01 %
2007 39.22 %
2008 44.45 %
2009 44 %
2010 47.76 %
From 2006 to 2010 operating profit margin gradually increased.
Ratio 10. Net Profit Margin
Formula Earnings available for common stockholders Sales
2006 27 %
2007 23.08 %
2008 26.48 %
2009 24.52 %
2010 31.87 %
Interpretation
Their net profit margin almost same. But in 2010 increased net profit margin.
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Ratio 11. Earnings Per Share (EPS)
Formula Earnings available for common stockholders Number of shares of common stock outstanding
2006 22.40 Tk.
2007 30.90 Tk.
2008 25.71 Tk.
2009 31.40 Tk.
2010 38.7 Tk.
Interpretation
Their earning per share is increasing every year. But in 2008 earnings per share is fall down.
Ratio 12. Return on Total Assets (ROA) Interpretation
Formula Earnings available for common stockholders Total assets
2006 5.7%
2007 6%
2008 6.9%
2009 6.9%
2010 7.78%
Their earning against assets has been increase gradually from 2006 to 2010.
Ratio 13. Return on Common Equity (ROE) Interpretation
Formula Earnings available for common stockholders Common stock equity
2006 15.17 %
2007 18.82 %
2008 12.56 %
2009 16.06 %
2010 13.85 %
Their return on equity increased in2006, 2007 and 2009. Except in 2008 and 2010 thats because common stock equity was increased.
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Ratio 14. Price / Earnings Ratio (P/E) Interpretation
Formula Market price per share of common stock Earnings per share
2006 23.64 Tk.
2007 60.12 Tk.
2008 37.57 Tk.
2009 38.57 Tk.
2010 3.62 Tk.
Investors want to invest averagely 32.70 tk. for 1 tk. of earning. In 2008 and 2009 it was constrain but in 2007 it was very high and 2010 it was very low.
Ratio 15. Market/ Book Ratio (M/B) Interpretation
Formula Market price per share of common stock Book value per share of common stock
2006 3.28 Tk.
2007 11.31 Tk.
2008 4.88 Tk.
2009 6.17 Tk.
2010 5 Tk.
From 2006 to 2007 market to book value ratio increased, but in 2008 it decrease but again it increased in 2006. But again it falls in 2010.
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4.1.2 Calculation of Titas Gas Transmission and Distribution Co. Ltd.:

Ratio 1. Current Ratio Interpretation Formula Current assets Current liabilities From 2006 to 2009 they are having good current assets against each tk. current liabilities. It was upward. But In 2009 & 2010 again falls their current ratio. Ratio 2. Quick Ratio Interpretation Formula Current assets - Inventory Current liabilities From 2006 to 2009 they are having good quick assets against each tk. current liabilities. It was upward. But In 2009 & 2010 again falls their current ratio. 2006 1.05:1 2007 1.10:1 2008 1.25:1 2009 1.18:1 2010 1.10:1 2006 1.11:1 2007 1.19:1 2008 1.35:1 2009 1.29:1 2010 1.19:1
2006 43.63 Times
2007 25.09 Times
2008 25.90 Times
2009 25.33 Times
2010 30.66 Times
They are inventory conversion time is downward into liquidity. But in 2010 it increase.
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2006 138.5 Days
2007 127.72 Days
2008 114.17 Days
2009 88.71 Days
2010 78.68 Days
They are average collection period is downward.
2006 1.01 Times
2007 1.02 Times
2008 1.22 Times
2009 1.23 Times
2010 1.27 Times
They have almost same times total assets to use to convert sales. And total asset turnover times are upward.
Ratio 6. Debt Ratio Interpretation
2006 76.5%
2007 74.49 %
2008 62.65 %
2009 61.10 %
2010 58.01 %
They have been financing averagely 66.55% of assets by the debt. And debt ratio trained is downward.
2006 16.9 Times
2007 22.84 Times
2008 35.84 Times
2009 71.27 Times
2010 112.74 Times
They have upward time to payoff the interest. But in 2010 time to payoff the interest is very high.
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2006 13.73 %
2007 14.85 %
2008 16.72 %
2009 16.69 %
2010 17.74 %
The gross profit margin is averagely 15.95%. But in 2008 & 2009 it was constrain and it is also upward trained.
2006 8.57 %
2007 9.68 %
2008 11.92 %
2009 12.04 %
2010 14.02 %
From 2006 to 2010 operating profit margin gradually increased.
2006 16.07 %
2007 20.57 %
2008 9.43 %
2009 10.01 %
2010 11.02 %
Interpretation
From 2006 to 2007 it was upward. But in 2008 it falls and again it increase.
2006 1161 Tk.
2007 1548 Tk.
2008 49.25 Tk.
2009 63.67 Tk.
2010 85.62 Tk.
Interpretation
Their earning per share is very high from 2006 to 2007. Because the company was listed in 2008. Then their earnings per share gradually increased.
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2006 16.29 %
2007 19.41 %
2008 11.51 %
2009 13.01 %
2010 15.03 %
Their earning has been increase gradually from 2006 to 2010. But it falls in 2008 and again it gradually increased.
2006 59.96 %
2007 67%
2008 30.80 %
2009 32.78 %
2010 34.92 %
Their return on equity was high in2006 & 2007. But from 2008 to 2010 it gradually increased.
2006 0Tk.
2007 0Tk.
2008 10.14 Tk.
2009 10.78 Tk.
2010 11.66 Tk.
The company listed in 2008 for that reason we cannot find 2006 & 2007 P/E ratio. But after listing the P/E ratio gradually increased.
Ratio 15. Market/ Book Ratio (M/B)
2006 0Tk.
2007 0Tk.
2008 3.12 Tk.
2009 3.53 Tk.
2010 4.07 Tk.
Interpretation
The company listed in 2008 for that reason we cannot find 2006 & 2007 M/B ratio. But after listing the M/B ratio gradually increased.
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4.1.3 Calculation of Jamuna Oil Ltd.:

Ratio 1. Current Ratio Interpretation Formula Current assets Current liabilities From 2006 to 2010 they are having good current assets against each tk. current liabilities. It was upward. Ratio 2. Quick Ratio Interpretation Formula Current assets - Inventory Current liabilities They are having fewer quick assets against each tk. current liabilities. Quick is almost same but in 2007 it falls. 2006 0.64:1 2007 0.48:1 2008 0.68:1 2009 0.60:1 2010 0.61:1 2006 1.06:1 2007 1.07:1 2008 1.11:1 2009 1.14:1 2010 1.14:1
2006 0.019 Times
2007 0.007 Times
2008 0.0046 Times
2009 0.009 Times
2010 0.01 Times
They are inventory conversion time is downward into liquidity. But in 2010 it increase.
2006 254.34 Days
2007 246.50 Days
2008 79.09 Days
2009 47.53 Days
2010 237 Days
They are average collection period is downward. But in 2010 it again increases.
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2006 0.075 Times
2007 0.07 Times
2008 0.08 Times
2009 0.052 Times
2010 0.051 Times
They have almost same times total assets to use to convert sales. But averagely they have 0.066 times total assets to convert into sale.
Ratio 6. Debt Ratio
2006 88.63 %
2007 89.27 %
2008 86.68 %
2009 84.27 %
2010 85.20 %
Interpretation
They have been financing averagely 86.81% of assets by the debt. The debt ratio almost same.
2006 2.85 Times
2007 5.55 Times
2008 9.08 Times
2009 3.99 Times
2010 10.6 Times
They have upward time to payoff the interest. But in 2009 time to payoff the interest is decreased.
2006 90.37 %
2007 94.20 %
2008 94.53 %
2009 91.99 %
2010 91.11 %
The gross profit margin is almost same percentage.
30
2006 25.53 %
2007 45.96 %
2008 65.68 %
2009 34.22 %
2010 46.25 %
From 2006 to 2008 operating profit margin gradually increased. But in 2009 it falls and again in 2010 it increases.
2006 30.22 %
2007 46.01 %
2008 68.28 %
2009 93.98 %
2010 101.7 %
Interpretation
Their net profit margin is almost upward.
2006 29.58 Tk.
2007 30.27 Tk.
2008 12.51 Tk.
2009 11.27 Tk.
2010 12.63 Tk.
Interpretation
Their earning per share is high from 2006 to 2007. Because the company was listed in 2007. Then their earnings per share gradually increased.
2006 2.29 %
2007 3.13 %
2008 5.46 %
2009 4.90%
2010 5.04 %
Their earning has been increase gradually from 2006 to 2010. But it falls in 2009 and again it gradually increased.
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2006 20.14 %
2007 29.18 %
2008 43.28 %
2009 32.94 %
2010 35.39 %
Their return on equity was gradually increased in2006 to 2008 and 2010, except 2009.
2006 0Tk.
2007 0Tk.
2008 11.45 Tk.
2009 40.32 Tk.
2010 26.56 Tk.
The company listed in 2007 for that reason we cannot find 2006 & 2007 P/E ratio. After listing the P/E ratio gradually increased. But in 2010 it falls.
Ratio 15. Market/ Book Ratio (M/B) Interpretation
2006 0Tk.
2007 0Tk.
2008 4.96 Tk.
2009 13.27 Tk.
2010 8.03 Tk.
The company listed in 2007 for that reason we cannot find 2006 & 2007 M/B ratio. After listing the M/B ratio increased. But in 2010 it falls.
32
4.2 Comparison with the Industry Average in 2010:

Industry 1. Ratio Average Summit Power Limited Current Ratio Comparison 0.98:1 0.60:1 Titas Gas Transmission and Distribution Company Limited 1.19:1 1.14:1 Jamuna Oil Limited
Compare to industry average with Summit power has less current asset against current liability. But Titas Gas Transmission and Distribution Co. Ltd. & Jamuna Oil Ltd. has good current asset against current liability.
1.5 1 0.5 0 Industry Average Summit Power Limited Titas Gas Transmission and Distribution Company Limited Jamuna Oil Limited 0.98 1.19 0.6 1.14
Industry 2. Ratio Average
Titas Gas Transmission and Distribution Company Limited 1.10:1
Jamuna Oil Limited
Quick Ratio
0.74:1
0.52:1
0.61:1
Comparison
Compare to industry average with Summit power & Jamuna Oil Ltd has less quick asset against quick liability. But Titas Gas Transmission and Distribution Co. Ltd. has good current asset against current liability.
1 0.74 0 Industry Average Summit Power Limited Titas Gas Transmission and Distribution Company Limited Jamuna Oil Limited
33
1.1 0.52
0.61
Titas Gas Transmission and Distribution Company Limited 30.66 Times
Jamuna Oil Limited
Inventory Turnover Comparison
12.15 Times
5.79 Times
0.01 Times
Compare to industry average with Summit power & Jamuna Oil Ltd is not good or efficient in inventory management. But Titas Gas Transmission and Distribution Co. Ltd. are good or more efficient.
40 20 0 12.15 Industry Average Summit Power Limited Titas Gas Transmission and Distribution Company Limited Jamuna Oil Limited 5.79
30.66 0.01
Jamuna Oil Limited
Average collection Period Comparison 122.90 days Compare to industry average with Summit power & Titas Gas Transmission and Distribution Co. Ltd. is not good average collection period. But Jamuna Oil Ltd has good average collection period. 53 days 78.68 days 237 days
300 200 100 122.9 0 Industry Average Summit Power Limited Titas Gas Transmission and Distribution Company Limited Jamuna Oil Limited 53 78.68 237
34
Jamuna Oil Limited
Total Asset Turnover Comparison
0.52 Times
0.24 Times
0.051 Times
Compare to industry average with Summit power & Jamuna Oil Ltd is not good asset turnover. But Titas Gas Transmission and Distribution Co. Ltd. is good asset turnover.
1.5 1 0.5 0.52 0 Industry Average Summit Power Limited Titas Gas Transmission and Distribution Company Limited Jamuna Oil Limited 0.24 1.27
0.051
Titas Gas Transmission and Distribution Company Limited 58.01%
Jamuna Oil Limited
Debt Ratio Comparison
61.90%
42.47%
85.20%
Compare to industry average with Summit power & Titas Gas Transmission and Distribution Co. Ltd. is efficient. But Jamuna Oil Ltd is inefficient.
100.00%
50.00% 61.90% 0.00% Industry Average Summit Power Limited 42.47% 58.01%
85.20%
Titas Gas Transmission and Distribution Company Limited Jamuna Oil Limited
35
Jamuna Oil Limited
Time Interest Earned Ratio Comparison
42.12 Times
3.005 Times
10.6 Times
Compare to industry average with Summit power & Jamuna Oil Ltd is inefficient. But Titas Gas Transmission and Distribution Co. Ltd are efficient.
150 100 50 42.12 0 Industry Average Summit Power Limited Titas Gas Transmission and Distribution Company Limited Jamuna Oil Limited 3.005 112.74 10.6
Jamuna Oil Limited
Gross Profit Margin Comparison
54.61%
54.97%
91.11%
Compare to industry average with Summit power & Jamuna Oil Ltd is good. But Titas Gas Transmission and Distribution Co. Ltd are not good.
100.00% 50.00% 54.61% 0.00% Industry Average Summit Power Limited Titas Gas Transmission and Distribution Company Limited Jamuna Oil Limited
36
91.11% 54.97% 17.74%
Jamuna Oil Limited
Operating Profit Margin Comparison
36.01%
47.76%
46.25%
Compare to industry average with Summit power & Jamuna Oil Ltd is good. But Titas Gas Transmission and Distribution Co. Ltd are not good.
60.00% 40.00% 20.00% 0.00% Industry Average Summit Power Limited Titas Gas Transmission and Distribution Company Limited Jamuna Oil Limited 36.01% 47.76% 14.02% 46.25%
Jamuna Oil Limited
Net profit Margin Interpretation
48.20%
31.87%
101.7%
Compare to industry average with Summit power & Titas Gas Transmission and Distribution Co. Ltd is not good. But Jamuna Oil Ltd is good.
150.00% 100.00% 50.00% 48.20% 0.00% Industry Average Summit Power Limited Titas Gas Transmission and Distribution Company Limited Jamuna Oil Limited
37
101.70% 31.87% 11.02%
Titas Gas Transmission and Distribution Company Limited 85.62 Tk.
Jamuna Oil Limited
Earnings Per Share (EPS) Interpretation

100
45.65 Tk. 38.7 Tk.
12.63 Tk.
Compare to industry average with Summit power & Jamuna Oil Ltd is not good. But Titas Gas Transmission and Distribution Co. Ltd are good.
50 45.65 0 Industry Average Summit Power Limited 38.7
85.62 12.63
Jamuna Oil Limited
Return on Total Asset (ROA) Interpretation Compare to industry average with Summit power & Jamuna Oil Ltd is not good to overall profitable asset. But Titas Gas Transmission and Distribution Co. Ltd are good. 9.28% 7.78% 15.03% 5.04%
20.00% 15.00% 10.00% 5.00% 0.00% Industry Average Summit Power Limited Titas Gas Transmission and Distribution Company Limited Jamuna Oil Limited 15.03% 9.28% 7.78% 5.04%
38
Jamuna Oil Limited
Return on Common Equity (ROE) Interpretation Compare to industry average with Titas Gas Transmission and Distribution Co. Ltd & Jamuna Oil Ltd is good to profitable investment. But Summit power is not good. 28.05% 13.85% 34.92% 35.93%
40.00%
20.00% 28.05% 13.85% 0.00% Industry Average Summit Power Limited
34.92%
35.39%
Jamuna Oil Limited
Price / Earnings Ratio (P/E) Interpretation

30 20 10 0 Industry Average Summit Power Limited Titas Gas Transmission and Distribution Company Limited Jamuna Oil Limited 26.56 13.95 3.62 11.66
13.95 Tk.
3.62 Tk.
11.66 Tk.
26.56 Tk.
Compare to industry average with Summit power & Titas Gas Transmission and Distribution Co. Ltd isnot good. But Jamuna Oil Ltd is good.
39
Titas Gas Transmission and Distribution Company Limited 4.07 Tk.
Jamuna Oil Limited
Market / Book Ratio (M/B) Interpretation
5.7 Tk.
5 Tk.
8.03 Tk.
Compare to industry average with Summit power & Titas Gas Transmission and Distribution Co. Ltd is not good. But Jamuna Oil Ltd is good.
10 8 6 4 2 0 Industry Average Summit Power Limited Titas Gas Transmission and Distribution Company Limited Jamuna Oil Limited 5.7 5 4.07 8.03
40
4.3 Dividend Policy:

4.3.1 Definition of dividend policy The policy a company uses to decide how much it will pay out to shareholders in dividends. Dividend policy is concerned with taking a decision regarding paying cash dividend in the present or paying an increased dividend at a later stage. The firm could also pay in the form of stock dividends which unlike cash dividends do not provide liquidity to the investors; however, it ensures capital gains to the stockholders. The expectations of dividends by shareholders helps them determine the share value, therefore, dividend policy is a significant decision taken by the financial managers of any company. 4.3.2 Types of dividend policy: The firms dividend policy must be formulated with two basic objectives in mind: providing for sufficient financing and maximizing the wealth of the firms owners. There are mainly three types of dividend policy: 1. Constant-Payout-Ratio Dividend Policy. 2. Regular Dividend Policy. 3. Low-Regular-and-Extra Dividend Policy.
41
4.3.3 Dividend policy of Summit power ltd.

Particulars Dividend Net Income Number of Shareholders Dividend Payout ratio Dividend per share 20 Tk. 20 Tk. 20 Tk. 25Tk. 3Tk. 81.64% 64.71% 80.54% 79.33% 77.48% 2006 143,000,000 175,102,015 7,150,000 2007 171,600,000 265,153,013 8,580,000 2008 370,655,000 460,208,418 18,532,800 2009 555,984,000 700,823,711 22,239,360 2010 910,061,919 1,174,602,699 303,353,973
Summit power ltd. does not give any information about dividend policy. But by the calculation we find out, That Summit Power Limited is following Constant- Payout- Ratio dividend policy. But in 2007 they retain the most of the net income.
42
4.3.4 Dividend policy of Titas Gas Transmission and Distribution Co. Ltd.

Particulars Dividend 2006 0 2007 882,554,000 2008 803,893,000 2009 2,312,500,000 2010 2,997,647,1 20 Net Income Number of Shareholders Dividend Payout ratio Dividend per share 0 184.73 Tk. 9.39 Tk. 27Tk. 35Tk. 0 11.93% 19.05% 42.40% 40.88% 0 0 7,395,912,840 4,218,212,418 5,453,463,757 7,333,057,157 4,777,615 85,646,912 85,646,912 85,646,912
Titas Gas Transmission and Distribution Company Limited do not give any information about dividend policy. But by the calculation we find out, That Titas Gas Transmission and Distribution Company Limited are following Constant-Payout-Ratio dividend policy. They did not give any dividend in 2006. In 2007 and 2008 is almost same percentage of dividend payout ratio. In 2009 and 2010 they also offered same percentage of dividend which was more than the last two previous years. From that two years dividend pattern, we can say that firm is following constant pay out policy.
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4.3.5 Dividend policy of Jamuna Oil Company Limited

Particulars Dividend Net Income Number of Shareholders Dividend Payout ratio Dividend per share 0 36.5 Tk. 4 Tk. 4Tk. 3.2Tk. 0 120.59% 31.96% 35.48% 21.45% 2006 0 0 0 2007 365,000,000 302,668,605 10,000,000 2008 180,000,000 563,111,978 45,000,000 2009 180,000,000 507,313,743 45,000,000 2010 144,000,000 671,381,111 45,000,000
Jamuna Oil Company Limited does not give any information about dividend policy. But by the calculation we find out, that is following Regular dividend policy except in 2007. But in 2006 they did not give any dividend. Because the company come to market in 2007.
44
Conclusion:
The analysis of financial statements means different things to different people. It is of interest to creditors, present and prospective investors, and the firm`s own management. This report has presented the various financial statement analysis ratio useful in evaluating the firm`s present and future financial condition. This technique is ratio analysis, which provides relative measures of the performance and financial health of the company. The first involved ratio analysis for the company last five years; the second involved making comparisons with industry average, and third identify what dividend policy they follow. While ratio analysis is an effective tool for assessing a company`s financial condition.
Bibliography:
1. Lawrence J. Gitman Principles of Managerial Finance, 12th ed., Pearson Prentice Hall.
Websites:
http://www.jamunaoil.gov.bd/ http://www.summitpower.org/ http://www.titasgas.org.bd/
45

Introduction To Ratio Analysis Final

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Introduction To Ratio Analysis Final

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1.

Performance Area Profitability

Liquidity and gearing

1.2 Statement of the Research Problem:

1.3 Objective of Study

1.4 Methodology of the study

Internet Prospectus Finance Book

2.2 Sources of data for financial ratios:

2.3 Purpose and types of ratios:

2.4 Accounting methods and principles:

2.5 Abbreviations and terminology:

2.6 Other abbreviations:

Operating Income Margin, Operating profit margin or Return on sales (ROS)

Return on equity (ROE)

Return on investment (ROI ratio or Du Pont Ratio)

Return on assets (ROA)

Return on assets Du Pont (ROA Du Pont)

Return on Equity Du Pont (ROE Du Pont)

Return on net assets (RONA)

Return on capital (ROC)

Risk adjusted return on capital (RAROC)

Return on capital employed (ROCE)

Basic Earnings Power Ratio

2.7.2 Liquidity ratios:

Acid-test ratio (Quick ratio)

Operation cash flow ratio

2.7.3 Activity ratios (Efficiency Ratios):

Degree of Operating Leverage (DOL)

Average payment period

Stock turnover ratio

Receivables Turnover Ratio

Inventory conversion ratio

Inventory conversion period (essentially same thing as above)

Receivables conversion period

Payables conversion period

2.7.4 Debt ratios (leveraging ratios):

Debt to equity ratio

Long-term Debt to equity (LT Debt to Equity)

Times interest-earned ratio / Interest Coverage Ratio

Debt service coverage ratio

2.7.5 Market ratios:

Dividend cover (the inverse of Payout Ratio)

Cash flow ratio or Price/cash flow ratio

Price to book value ratio (P/B or PBV)

2.7.5.1 Other Market Ratios: EV/EBITDA

Summit Power Limited

3.1.2 History of Summit Power Ltd.:

3.1.3 Our Vision:

3.1.4 Our Mission:

3.1.5 Our Quality Policy:

Titas Gas Transmission and Distribution Company Limited

Jamuna Oil Company Limited

Operating income: Net income:

BDT 128.7 million (2011)

Employees: 591 (2005) Website: jamunaoil.gov.bd

3.3.1 Historical Background of Jamuna Oil Ltd.:

4. Analysis and Result

Summit Power Limited

Ratio 2. Quick Ratio Interpretation

Formula Current assets - Inventory Current liabilities

Ratio 3. Inventory Turnover Interpretation

Formula Cost of goods sold Inventory

2006 2.45 Times