Financial Strength Analysis of Rangpur Foundry Ltd

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Financial Strength Analysis of Rangpur Foundry Ltd

Executive Summary

This project will cover the complete knowledge about the main working of Rangpur Foundry

Ltd. The Rangpur Foundry Ltd. is the largest domestic Cast Iron & Plastic goods-producing unit in Bangladesh. Its excellent quality-control standards have helped the Company acquire the ISO-9001:2000 certification. The Company was started commercial production in January 1983.

This project will discuss about the financial strength & weakness and also discuss the Current Financial situations of RFL. Now a day Manufacture company play an important role in economic development the main function of Manufacture is to promote tile movement of Region. The code of conduct approved by the board of director, expresses fundamental principles that guide all the employees and shape the organization business activities. It’s started journey as a privet Ltd company 1981 & converted as public Ltd Company in 1996.

It also describes the various financial ratios and try to find out its past, present and future financial position. This report we find out the liquidity, Asset management, Debit Management, Market Value, Profitability Ratio. We analysis the fixed assets turnover, total assets turnover, profit margin, ROA & ROE. And lastly analysis the DuPont.

RAGPUR FOUNDRY LTD.

1.1 Introduction

Finance is the blood of any business organization. Any public or private limited company needs to conduct a financial statement every year to know its current performance, strengths as well as weaknesses.

Ratio Analysis enables the business owner/manager to spot trends in a business and to compare its performance and condition with the average performance of similar businesses in the same industry. To do this compare the ratios with the average of businesses similar to the company and compare own ratios for several successive years, watching especially for any unfavorable trends that may be starting. Ratio analysis may provide the all-important early warning indications that allow you to solve your business problems before your business is destroyed by them.

The Rangpur Foundry Ltd. is the largest domestic Cast Iron & Plastics production unit in Bangladesh. In this report we are going to analyze its financial strength by analyzing it various financial ratios.

1.2 Objectives

1.2.1 Primary Objective

The primary objective of this report is to determine the Financial Strength and Weakness of Rangpur Foundry Ltd. by analyzing the last six years Financial Statement starting 2003 to 2008.

1.2.2 Secondary Objectives

To fulfill the primary objective the secondary objectives of this report includes the following key aspects of Rangpur Foundry Ltd:

· Determine the Liquidity position

· Find out the profile of the assets management

· Verify the level of Debt management practices

· Know the Profitability

· And finally, figure out the Market Value

1.3 Origin of the Report

This report has been prepared for as a partial requirement of BBA program. I hope this report will give my instructor a clear idea about the histories, activities and operations, structure, management of asset, liability, liquidity, function and overall financial performance of RFL.

1.4 Background:

I am the student of Business Administrative as a fulfillment BBA degree I have to a complete an internship report. My honorable supervisor Mr. Siddique Hayat khan assigned me to prepare this report on “Performance of the RFL.” This had the formal approval of my supervisor of Business Faculty. This report is prepared based on the qualitative research.

1.5 Rationale of the Report:

Internship program is the practical aspect of our theoretical learning. It makes a bridge between the gap of classroom learning and practical learning. In this view, Internship plays a pivotal role for each professional degree like BBA. The study will help formulate suitable policies taking into consideration different ideas. Further more, it may note that RFL executives who are really executing the policies undertaken by the top management will have a chance to communicate their interaction and provide necessary feedback.

1.6 Scope of the study:

This report has been prepared through extensive discussion with finance employees and with the marketing employee and covers all the trade related products handled by the “RFL.” such as finance department, costing department, etc. While preparing this report, I had a great opportunity to have an in-depth knowledge of all the finance activities perspective of a leading company RFL in Bangladesh.

This report gives “Financial performance analysis of the RFL”. The scope of the report is limited to the overall financing description of the company, its service and its position in the industry and its financing strategies. The scope of the study is limited to organizational setup, functions, and financial performance.

1.7 Methodology of the Study

1.7.1 Type of the report

The ultimate objective of this report is to determine the Financial Strength and Weakness of Rangpur Foundry Ltd. by analyzing the data of last six years Financial Statement. For this reason this report has been prepared by incorporating the characteristics of the exploratory research, through which Rangpur Foundry Ltd.’s financial market positioning has been pointed

1.7.2 Data Collection Method:

To make the Report more meaningful and presentable, two sources of data and information have been used widely.

Source of Data

PRIMARY DATA
SECONDARY DATA

Primary sources

· Practical desk work

· Face to face conversation with the officer

· Financial paper observations.

Secondary sources

· Annual report of RFL

· Files & Folders

· Websites

To complete the report according to the plan designed the required data has been collected from mainly from the Secondary sources. And all the secondary data has been collected from the Annual Reports of Rangpur Foundry Ltd. available in the Dhaka stock exchange.

1.7.3 Research Design:

After the data collection, all the necessary data has been analyzed thoroughly according to the specified formula provided in the textbook of Managerial Finance. To analyze the data the following computer packages were used:

Microsoft Word: MS Word was used for word processing and to write report.

Microsoft Excel: MSExcel was used for analyzing the data, creating charts, and computation purpose.

1.7.4 Type of analysis

In this report, we are basically analyze the trend of various financial ratios and try to find out its past, present and future financial position.

In trend analysis, ratios are compared over time, typically years. Year-to-year comparisons can highlight trends and point up the need for action. Trend analysis works best with three to five years of ratios.

1.8 Conceptual Framework

Financial ratios quantify many aspects of a business and are an integral part of financial statement analysis. Financial ratios are categorized according to the financial aspect of the business which the ratio measures. In this report following ratios are used to analyze the company’s financial strength and weakness.

1.8.1 Liquidity Ratios:

Liquidity ratios help to analyze a company’s ability to meet short-term financial obligations.

Example Ratios Formula Measures
Current Ratio Current Asset

Current Liabilities

Ability to pay current debts
Quick ratio/Acid-test ratio Current assets – Inventory

Current liabilities

Ability to convert current assets to cash for the purpose of meeting current liabilities. Called the acid-test — is a crucial test of the firm’s liquidity

1.8.2 Asset management (efficiency) Ratios:

Asset Management ratios help to analyze how quickly a company’s resources can be converted to cash or sales.

Example Ratios Formula Measures
Inventory turnover Sales

Inventory

The speed with which inventory moves through the company and is turned into sales.
Fixed asset turnover Sales

Fixed assets

Extent to which company is utilizing existing property, plant, and equipment to generate sales.
Total asset turnover Sales

Total assets

How effectively company uses its total resources to generate sales.
Average collection period (DSO) Accounts receivable

Average daily credit sales

Serves as a basis for determining how rapidly a company’s credit accounts are being collected.

1.8.3 Debt Management (leverage) Ratios:

Debt Management ratios help to analyze the degree and effect of a company’s use of borrowed funds (debt) to finance its operations.

Example Ratios Formula Measures
Debt ratio Total debt

Total assets

The extent to which the total assets of the firm have been financed using borrowed funds.
Times interest earned (TIE) EBIT

Interest charges

The ability to the companies to meet is interest obligations should profits decline.

1.8.4 Market Value Ratios:

Market value ratios help to analyze the degree of investor’s responseness to owning a company’s stock.

Example Ratios Formula Measures
Price/Earning ratio Market price per share

Earning per share

The extent investors are willing to pay per taka of reported profit.
Market/book value ratio Market price per share

Book value per share

The extent investors are regards the company.

1.8.5 Profitability:

Profitability ratios help to analyze management’s ability to control expenses and earn profits through the use of company’s resources.

Example Ratios Formula Measures
Profit margin Net profit

Sales

Measures percentage of each sales taka remaining after all expenses
Return of equity (ROE) Earnings

Shareholders equity

Rate of return that owners receive on their investment.
Return on investment (ROI) Net profits

Total assets

Overall effectiveness to generate profits from total investment in assets.

1.9 Limitations

To review the financial standing of any company it requires several types of data, different types of analysis. In this report to full fill the course requirement we have just covered the analysis of the financial statement of Rangpur Foundry Ltd. While analyzing of the financial statement of Rangpur Foundry Ltd only the technique of Ratio analysis has been incorporated.

A reference point is needed. To be meaningful, most ratios must be compared to historical values of the same firm, the firm’s forecasts, or ratios of similar firms. But unfortunately we haven’t collect ant reference.

Some ratios may not highly meaningful. They should be viewed as indicators, with several of them combined to paint a picture of the firm’s situation.

Year-end values may not be representative. Certain account balances that are used to calculate ratios may increase or decrease at the end of the accounting period because of seasonal factors. Such changes may distort the value of the ratio. Average values should be used when they are available. Ratios are subject to the limitations of accounting methods. Different accounting choices may result in significantly different ratio values.

Organizational Profile

2.1 Introduction of the RFL

The Rangpur Foundry Ltd. is the largest domestic Cast Iron & Plastic goods-producing unit in Bangladesh. Its excellent quality-control standards have helped the Company acquire the ISO-9001:2000 certification. The product of the company is being marketed under the trademark of ‘RFL’. This brand now has a steady market share. The company was set up in 1981 on 5 acres of land and went into commercial production in January 1983.

The Rangpur Foundry Limited (RFL) was the first undertaking of PRAN-RFL Group. This enterprise produces world-class Plastic goods and, as a testimony to this, stands the fact that the concern has been awarded the ISO-9001:2000 certification for sustained quality control effort.

The factory of this Company is located in the Northern part of Bangladesh at BSCIC Industrial Estate, Kellabond, Rangpur, under the Rajshahi Division. Northern part of Bangladesh is poor & labour intensive area. The product of this company is also labour intensive. So, they are enjoying the facility labour availability & also lower labour cost.

Board of Director

Managing Director

Mr. Ahsan Khan Chowdhury

Directors

Maj Gen Amjad Khan Chowdhury

Mrs. Sabiha Amjad

Lt Col Mahtabuddin Ahmed

Mr. Shiban Kumar Na

2.2 RFL Information at a Glance:

Name of the Company Rangpur Foundry Ltd.
Date of Company Journey 1981.
Date of Commercially Production January, 1983
Logo
Organizational Structure Tall
Head Office 12, R.K. Mission Road, Dhaka-1203

Bangladesh.

Principal Factory BSCIC Industrial Estate, Kellabond, Rangpur
Chairman Lt Col Mahtabuddin Ahmed (Retd)
Managing Director Mr. Ahsan Khan Chowdhury
Net Profit After Tax (2008) 17493000
Board of Directors 4
Number of Production Units 3
Operating Profit (2007) 3,257 million
Raw Materials Used Cast Iron Products from Ship Scrap, Plastics Products from PP Resin and marketing thereof.
Initial Public Offering Number of Shareholder
Share percentage Sponsor/ Director-50, Govt.-0, Institute- 0.95, Foreign-0, Public- 49.05

2.3 Products of RFL

CI (Cast Iron)

1. Tube well

2. Tube well spares

3. Centrifugal pump

4. Centrifugal pump spares

5. Water pump ( imported from China)

6. Gas stove (S/C & imported from China)

7. Belcha/ shovel (S/C)

8. Kodal/ Hoe head (imported from China)

9. Bearing ( imported from China)

10. Teflon Tape , Electric Motor, Capacitor etc( imported from China)

PVC (Polyvinyl Chloride)

1. PVC Pipe (1/2” ~ 20”)

2. PVC Filter (1.5”~ 14”)

3. PVC Fitting (Molded & Fabricated)

4. HDPE Pipe (1/2”~ 8”)

5. Threaded Pipe ( ½”~ 8”)

6. Braided Hose

7. Corrugated Hose

8. Garden Hose

Plastics product group containing the following two types

1. Furniture group

2. Household group

Furniture group contains the following product

1. Chair

2. Table

3. Baby chair

4. Tool

5. Rack

6. Basket

Household group contains the following product

1. Kitchen wares

2. Sanitary wares

3. Table top wares

Building materials group contains the following product

1. PVC door

2. PVC sheet

3. Garments Accessories group contains the following product

4. Hangers

5. Gum tape

6. Mitsubishi products are containing the following

7. Poly shopping bag

8. Wind break net

9. Cutleries

How to sell

Sales are performed by three ways

Market sales- performed through 26 zones under 10 regions & divided the products group as below:

1. CL & PVC group

2. HW & M group

3. Doors & Sheets group

4. Furniture group

5. Household-1 group

6. Household-2 group

Field sales forces are containing 92 numbers of zonal & regional managers and 760 numbers of sales representatives. RFL has integrated distribution channel through out the country. In this respect it has fifteen distributor depots and around 5000 distributors all over the country.

Institutional sales: – performed through tender participation and personal persuasion of different government and non government institutional, real estates companies etc.

Export sales- perform through local L/C for domestic & overseas.

2.4 Objective of the RFL:

To achieve the desired goal, it has the intention to pursuit of excellence at all stages with a climate of continuous improvement. Eventually the Company emphasizes on the following objectives

· To contribute for economic development of the country

· To provide the low cost product with high quality for the mess population of the country

· To help farmers by supplying agriculture equipment

· To provide the best after sales service to the customers

· To reach the products to every possible customers destination

· To expend the business through overseas market

2.5 Vision:

To be one of the best Privet manufacturing companies in Bangladesh in terms of efficiency of the employee, well use working capital management. Proper inventory & low cost product with high quality.

2.6 Mission:

RFL has been successful in trading business & established RFL Brand as a reliable quality product and service provider, the company well keep on increasing volume in trading business and secure greater market share.

2.7 Corporate Governance Guidelines and Code of Ethics

Rangpur Foundry Ltd. is an industrial concern engaged in production and marketing of Cast Iron & Plastics under rigid ethical standard. Our code of conduct approved by the board of directors, expresses fundamental principles that guide all the employees and shape the organizations business activities. It is corporate guiding principles, upholding the law, honoring trust, fairness objectivity, confidentiality, integrity and corporate and individual responsibility

2.8 Human Resource Management

Rangpur Foundry Ltd continued to implement appropriate human resource management policies and practical to motivate and develop its employees and also to ensure there optimum contribution towards the achievement of corporate goals. The company continues its policy of hiring the best people and implementing programs to develop and retain high quality human resources.

As a part of company human resources development program, a good number of employees were sent to different training programs both inside and outside the country which included both managerial development and technical modules.

2.9 Domicile, legal form and country of incorporation

Rangpur Foundry Ltd was incorporated in Bangladesh on third of March, 1981. As a private limited company Ltd by shares under the companies act, 1913. It is converted as public limited company in 1996 and it shares are listed in the Dhaka and Chittagong stock exchanges.

2.10 Principal activities and nature of operations

The nature and principal business activities of the company are manufacturing of Cast Iron Products from Ship Scrap, Plastics Products from PP Resin and marketing thereof.

2.11 Units

The company operates three units. The second & third unit has been operating commercially since 2007 & 2008.

2.12 Depreciation

Depreciation is charged on fixed assets on the straight line method at varying rates considering the useful lives of the assets. No depreciation is charged on land & land development. No depreciation has been charged on additions and disposals of the fixed assets during the year under review.

The rates of depreciation on each class are as follows:

Particulars of assets Annual rate of depreciation
Building and other construction 10%
Plant & Machinery 20%
Furniture & Fixtures 10%
Office Equipment 25%
Telephone Installation 20%
Motor Vehicle 20%
Sundry Assets 33%

2.13 Inventories

Inventories comprise of raw materials, packing materials finished goods and store & spares. They are stated at the lower of cost and realizable value in accordance with BAS- 2 “Inventories” after making due allowances for any obsolete or slow moving items. The costs of inventories are assigned by using weighted average cost formula. Net realizable value is determined after deducting the estimated cost of completion and/or cost to be incurred for effecting the sale from sales price.

2.14 Taxation

The company enjoyed Tax holiday for 7 (seven) years with effect from first July, 2001. The company is a “Publicly Traded Company” as per Income Tax Ordinance and the company provided tax holiday reserve as per section 46A(2)(C) of the Income Tax Ordinance 1984 for Unit-11.

2.15 Financial Results and Appropriations

(Taka in `000)

Year 31.12.2008 31.12.2007
Net profit After Tax 20,710 20,537
Tax Holiday Reserve 3,216 6,990
Net Profit After Tax Holiday Reserve 17,493 14,064
Prior Year Adjustment 517
Profit Available For Appropriation 17,493 13,547
Proposed Dividend 18,000 16,000

2.16 Address of registered office and principles place of business

The registered office is at Property Heights, 12, R.K. Mission Road, Dhaka-1203. The factory is situated at BSCIC Industrial Estate, Kellabond, Rangpur

Financial Strength Analysis

3.1 Financial Data

Balance Sheet
Year 2003 2004 2005 2006 2007 2008
Fixed Asset 1,371,325,646 1,387,753,844 1,497,115,518 1,427,560,032 1,397,087,008 1,378,737,392
Receivables 155,373,067 226,096,928 148,920,859 214,205,438 272,848,466 255,117,098
Inventory 730,762,998 863,547,351 750,976,338 578,848,917 727,569,478 554,073,661
Current Asset 1,018,622,921 1,253,123,650 1,003,252,653 952,008,134 1,180,027,914 1,064,749,181
Total Asset 2,389,948,567 2,640,877,494 2,500,368,171 2,379,568,166 2,577,114,922 2,443,486,573
Current Liabilities 990,863,219 1,229,932,887 952,991,742 943,392,659 1,188,086,536 1,128,318,964
Long Term Debts 839,901,875 821,657,681 932,123,746 812,529,812 718,168,213 594,207,439
Total Debt 1,830,765,094 2,051,590,568 1,885,115,488 1,755,922,471 1,906,254,749 1,722,526,403
Total Equity 559,183,473 589,286,926 615,252,683 623,645,695 670,860,173 720,960,170
Total E & L 2,389,948,567 2,640,877,494 2,500,368,171 2,379,568,166 2,577,114,922 2,443,486,573

Table 1- Simplified balance sheet of Rangpur Foundry Ltd.

Income Statements
Year 2003 2004 2005 2006 2007 2008
Sales 2,816,088,319 2,528,410,255 2,080,001,886 1,939,520,713 2,954,896,139 3,367,396,868
COGS 2,392,133,075 2,195,101,873 1,847,194,360 1,724,674,491 2,705,960,316 3,075,067,567
Interest Expence 129,894,936 149,780,053 162,297,008 133,986,008 118,067,797 120,127,996
Leage Payment 277,860 277,860 436,260 994,725
Other 104,427,027 96,963,008 44,488,719 46,548,452 55,761,151 65,837,676
Total Expenses 2,626,455,038 2,441,844,934 2,053,980,087 1,905,208,951 2,879,789,264 3,261,033,239
EBIT 189,633,281 86,565,321 26,021,799 34,311,762 75,106,875 106,363,629
Tax 1,266,922
Net Profit 189,633,281 86,565,321 26,021,799 34,311,762 75,106,875 105,096,707

Table 2- Simplified Income Statement of Rangpur Foundry Ltd.

Year 2003 2004 2005 2006 2007 2008
Fixed Asset 57.38% 52.55% 59.88% 59.99% 54.21% 56.43%
Receivables 6.50% 8.56% 5.96% 9.00% 10.59% 10.44%
Inventory 30.58% 32.70% 30.03% 24.33% 28.23% 22.68%
Current Asset 42.62% 47.45% 40.12% 40.01% 45.79% 43.57%
Total Asset 100% 100% 100% 100% 100% 100%
Current Liabilities 41.46% 46.57% 38.11% 39.65% 46.10% 46.18%
Long Term Debts 35.14% 31.11% 37.28% 34.15% 27.87% 24.32%
Total Debt 76.60% 77.69% 75.39% 73.79% 73.97% 70.49%
Total Equity 23.40% 22.31% 24.61% 26.21% 26.03% 29.51%
Total E & L 100% 100% 100% 100% 100% 100%

Table 3- Common Size Balance Sheet of Rangpur Foundry Ltd.

Year 2003 2004 2005 2006 2007 2008
Sales 100% 100% 100% 100% 100% 100%
COGS 84.95% 86.82% 88.81% 88.92% 91.58% 91.32%
Interest Expenses 4.61% 5.92% 7.80% 6.91% 4.00% 3.57%
Lesage Payment 0.00% 0.00% 0.01% 0.01% 0.01% 0.03%
Other 3.71% 3.83% 2.14% 2.40% 1.89% 1.96%
Total Expenses 93.27% 96.58% 98.75% 98.23% 97.46% 96.84%
EBIT 6.73% 3.42% 1.25% 1.77% 2.54% 3.16%
Tax 0.00% 0.00% 0.00% 0.00% 0.00% 0.04%
Net Profit 6.73% 3.42% 1.25% 1.77% 2.54% 3.12%

Table 4- Common Size Income Statement of Rangpur Foundry Ltd.

3.2 Liquidity Ratios

Year 2003 2004 2005 2006 2007 2008
Current Asset 1018622921 1253123650 1003252653 952008134 1180027914 1064749181
Current Liabilities 990863219 1229932887 952991742 943392659 1188086536 1128318964
Inventory 730762998 863547351 750976338 578848917 727569478 554073661
Current Ratio 1.03 1.02 1.05 1.01 0.99 0.94
Quick Ratio 0.29 0.32 0.26 0.40 0.38 0.45

From the above chart we can see that current ratio is slightly decreasing over the last six years but quick ratio shows opposite trend. That indicates that company is gaining more control over the inventory management, but in both cases company’s current assets does not meet current obligations.

3.3 Asset Management Ratios

Year 2003 2004 2005 2006 2007 2008
Sales 2816088319 2528410255 2080001886 1939520713 2954896139 3367396868
Inventory 730762998 863547351 750976338 578848917 727569478 554073661
Inventory Turnover 3.85 2.93 2.77 3.35 4.06 6.08

Up to the year 2005 inventory turnover is decreasing but after word sharp increasing trend is observed in above chart. Now its inventory turnover is much better that start of the observed period because of increasing sales as well as the decreasing inventory.

3.4 DSO Analysis

Year 2003 2004 2005 2006 2007 2008
Sales 2816088319 2528410255 2080001886 1939520713 2954896139 3367396868
Receivables 155373067 226096928 148920859 214205438 272848466 255117098
DSO 19.86 32.19 25.77 39.76 33.24 27.27

There is an ups and downs trend is observed in average collection period. So we can see that when ever there is an increase in DSO, company gave more concentration to improve credit or collection policies. Presently collection period decreasing, but it is even now above the earlier year 2003.

3.5 Fixed & Total Assets Turnover

Year 2003 2004 2005 2006 2007 2008
Sales 2816088319 2528410255 2080001886 1939520713 2954896139 3367396868
Fixed Asset 1371325646 1387753844 1497115518 1427560032 1397087008 1378737392
Total Asset 2389948567 2640877494 2500368171 2379568166 2577114922 2443486573
Fixed Asset Turnover 2.05 1.82 1.39 1.36 2.12 2.44
Total Asset Turnover 1.18 0.96 0.83 0.82 1.15 1.38

 

Fixed and Total Asset Turnover
0.00
0.50
1.00
1.50
2.00
2.50
3.00
2003
2004
2005