Financial Analysis On

BENGAL WINDSOR THERMOPLASTICS LTD.

Submitted To: Mohammad Moniruzzaman, ACA Lecturer Department of Accounting & Information Systems Faculty of Business Studies University of Dhaka

Submitted By: Name Salma Hakim Zinia Arabinda Das Anee Nidal Adnan Kibria Ayesha Siddiqua Nishat Farjana Mushtary Roll No. 14092 14100 14102 14103 14157

MBA 14th Batch Sec- A Department of Accounting & Information Systems Faculty of Business Studies University of Dhaka

Date of Submission: April 1, 2013

Abstract:
The paper examines the financial analysis on Bengal Windsor Thermoplastics Limited. Within the study we have used Activity, Liquidity, Solvency, Profitability and Valuation ratios to take decision whether to invest or not to invest in BWTL shares. For the purpose of study, we collected prospectus of BWTL who are a manufacturers of garment accessories. We have made explanations of our calculated ratios and also made recommendations to make study successful.

Introduction:
The company is one of the largest garments accessories manufacturer and exporter in Bangladesh. The company is currently dedicated to the production of hangers to be supplied to exporters as accessories for garments export. The company has ten lines of hanger manufacturing machines serving its customers who are the leading garments exporters of the country. It has authorized capital Tk. 1,000,000,000, Face Value per TK.10, Offer Price per share and Tk. 25.00 (including a premium of Tk. 15.00 per share).

Objective:
The primary objective of the study is to take decision whether to invest in Bengal Windsor Thermoplastics ltd. So that we have made different ratios calculations.

Methodology:
Our total study based on secondary data. We have used e-data on BWTL that was assigned by our course teacher. We have used 5 types of ratios: Activity, Liquidity, Solvency, Profitability and Valuation.

Limitation:
The major limitation of this study was lack of good observation and practical experience of the preparers.

Findings
S L A Categori es Activity ratios Inventory turnover Days of inventory on hand (DOH) Receivabl es turnover Working capital turnover Fixed asset turnover Total asset turnover Formula Calculation Result

2010-2011

2009-2010

20102011 3.15 times 115 days

2009 2010 4.2 time s 87 days

2.4

2.5

.96

1.23 3 8.67

3.60

0.64

0.95

Categori es B Liquidity ratios Current ratio Quick ratio Cash ratio

Formula

Calculation

Result

2010-2011

2009-2010

20102011 3.63

2009 2010 7.41

2.22

3.30

.87

.13

Defensive interval ratio

703.0 9

183. 41

Solvency ratios

Debt to asset ratio Debt to equity ratio Financial leverage ratio

0.22

0.12

0.28

0.14

1.23

1.13

Categori es D Profitabili ty ratios Return on sales Gross profit margin Operating profit margin Pretax profit margin Net profit margin Return on investmen t Operating ROA ROA

Formula

Calculation

Result

2010-2011

2009-2010

20102011 33.68 %

2009 2010 32.5 1%

28.19 % 26.93 % 26.93 % 18.14 % 17.33 % 14.30 %

27.3 3% 25.7 8% 25.7 8% 25.9 8% 24.5 1% 26.8 5%

Return on total capital ROE

21.32 % 63.60 %

27.8 5% 1562 6.98 %

Return on common equity

Categorie s

Formula

Calculation

Result

2010-2011

2009-2010

20102011

20092010

E Valuation ratios P/E -

P/CF

P/S

P/B

Dividend payout ratio Retention rate

100%

100%

Sustainable growth rate

Retention rate x ROE

100% X 21.32%

100% X 27.85%

21.32%

27.85 %

Explanations:

Activity Ratios:
Activity ratios are also known as asset utilization ratios or operating efficiency ratios. This category is intended to measure how well a company manages various activities particularly how efficiently it manages its various assets. Activity ratios are analyzed as indicators of ongoing operational performance how effectively assets are used by a company. These ratios reflect the efficient management of both working capital and long-term assets. To determine the operational performance of Bengal Windsor ThermoPlastics Limited we use the following ratios-like inventory turnover, receivable turnover, working capital turnover and fixed capital turnover ratios. 1. Inventory Turnover Ratio: Every firm has to maintain a certain level of inventory of finished goods so as to be able to meet the requirements of the business. But the level of inventory should neither be too high nor too low. A too high inventory means higher carrying costs and higher risk of stocks becoming obsolete whereas too low inventory may mean the loss of business opportunities. It is very essential to keep sufficient stock in business. Inventory turnover indicates the efficiency of the firm in producing and selling its product. This ratio is a relationship between the cost of goods sold during a particular period of time and the cost of average inventory during a particular period. Here, the result indicates the minimum inventory turnover ratio in both the years and the periods that inventory held is not too shorter. 2. Receivable Turnover: To quantify a firm's effectiveness in extending credit as well as collecting debts. The receivables turnover ratio is an activity ratio, measuring how efficiently a firm uses its assets. The receivable turnover ratio indicates that the inefficiency in collecting outstanding sales.

3. Working Capital Turnover: Working capital turnover is a measurement comparing the depletion of working capital to the generation of sales over a given period. This provides some useful information as to how effectively a company is using its working capital to generate sales. A company uses working capital to fund operations and purchase inventory. These operations and inventory are then converted into sales revenue for the company. The working capital turnover ratio is used to analyze the relationship between the money used to fund operations and the sales generated from these operations. In a general sense, the higher the working capital turnover, the better because it means that the company is generating a lot of sales compared to the money it uses to fund the sales. In this case, we found that the company had low working capital turnover which indicates the lower efficiency of the company. 4. Fixed Asset Turnover Ratio: Fixed asset turnover ratio measures how efficiently the company generates revenues from its investments in fixed assets specifically property, plant and equipment (PP&E) - net of depreciation. Here, we find that the fixed asset turnover ratio is 3.60 in the year of 2010-11 and it was more in the year of 2009-10. Thus it can be said that the companys past position was better than the present. 5. Total Asset Turnover ratio: The total asset turnover ratio measures the ability of a company to use its assets to efficiently generate sales. This ratio considers all assets, current and fixed. Those assets include fixed assets, like plant and equipment, as well as inventory, accounts receivable, as well as any other current assets. The result of the analysis shows that the company has lower total asset turnover ratio both the years .It also indicates the lower efficiency of the company.

Liquidity ratios
1. Current ratio: The current ratio is an indication of a firm's market liquidity and ability to meet creditor's demands. Acceptable current ratios vary from industry to industry and are generally between 1.5 and 3 for healthy businesses. If a company's current ratio is in this range, then it generally indicates good short-term financial strength. If current liabilities exceed current assets (the current ratio is below 1), then the company may have problems meeting its short-term obligations. If the current ratio is too high, then the company may not be efficiently using its current assets or its short-term financing facilities. This may also indicate problems in working capital management. The calculated results indicate good short term financial strength. The current ratio 7.41 in year 2009-2010, shows better performance than the ratio 3.63 in the current year. 2. Quick ratio: The quick ratio or liquid ratio measures the ability of a company to use its near cash or quick assets to retire its current liabilities immediately. A company with a Quick Ratio of less than 1 cannot currently pay back its current liabilities. The calculated result indicates that the company has more liquid assets to extinguish its current liabilities immediately. In the year 2009-2010, the company had Tk. 3.30 more quick assets to retire its Tk. 1 current liabilities comparing to the year 2010-2011, company had Tk. 2.22 quick assets to retire its Tk. 1 current liabilities. 3. Cash ratio: Cash ratio is the ratio of cash and cash equivalents of a company to its current liabilities. It is an extreme liquidity ratio since only cash and cash equivalents are compared with the current liabilities. A cash ratio of 1.00 and above means that the business will be able to pay all its current liabilities in immediate short term. Therefore, creditors usually prefer high cash ratio. But businesses usually do not plan to keep their cash and cash equivalent at level with their current liabilities because they can use a portion of idle cash to generate profits. This means that a normal value of cash ratio is somewhere below 1.00. In the year 2010-2011, the company had Tk. .87 cash and cash equivalent to pay its Tk. 1 current liabilities comparing to the year 2009-2010, company had Tk. .13 cash and cash equivalent to pay its Tk. 1 current liabilities. A ratio of 1:1 shows better results. But the result indicates the poor paying capability. Moreover, it also shows that company used their idle cash to generate profits.

4. Defensive interval ratio: Defensive Interval Ratio is an efficiency ratio that measures how many days a company can operate without having to access non-current or long term assets. Defensive Interval Ratio or DIR is a good way to find out if the company is a good investment for you or not. Defensive Interval Ratio is also called as Defensive Interval Period. Defensive interval ratio is a liquidity ratio that allows company the ability to meet the daily expenses of the business or the debts. This shows how strong the company is in the market. The result shows that current liquid assets are sufficient to help business last without seeking outside revenues. The projected daily expenses of the company are determined by dividing the cost of the goods sold and all the operating expenses and cash expenses by 360. In the year 2010-2011, the company for 703.09 days can run on its own without having to make use of either investment from the market or by selling long term assets comparing to the year 2009-2010, when it was 183.41 days.

Solvency Ratio:
Solvency ratio is used to measure a company's ability to meet long-term obligations. The solvency ratio measures the size of a company's after-tax income; excluding non-cash depreciation expenses, as compared to the firm's total debt obligations. It provides a measurement of how likely a company will be to continue meeting its debt obligations. To find out the companys ability to meet long-term obligations, we use following ratios- debt-asset ratio, debt-equity ratio and financial leverage ratio. 1. Debt-to-asset Ratio: The debt to assets ratio (or debt to asset ratio) is an indicator of the proportion of a company's assets that are being financed with debt, rather than equity. A ratio greater than 1 indicates that a considerable proportion of assets are being funded with debt, while a low ratio indicates that the bulk of asset funding is coming from equity. The calculated debt-to asset ratio is 0.22 in 2010-2011 and 0.12 in 2009-2010. It indicates the lower financial risk and stronger solvency. 2. Debt-to-equity ratio: The debt-to-equity ratio (D/E) is a financial ratio indicating the relative proportion of shareholders' equity and debt used to finance a company's assets. A high debt/equity ratio generally means that a company has been aggressive in financing its growth with debt. This can

result in volatile earnings as a result of the additional interest expense. The debt/equity ratio also depends on the industry in which the company operates. The debt-to-equity ratio of Bengal Windsor Thermoplastic Limited is 0.28 in the year of 20102011 and 0.14 in 2009-10.From this result, it can be said that the solvency position is strong. 3. Financial Leverage Ratio: Financial leverage can be aptly described as the extent to which a business or investor is using the borrowed money. Business companies with high leverage are considered to be at risk of bankruptcy if, in case, they are not able to repay the debts, it might lead to difficulties in getting new lenders in future. It is not that financial leverage is always bad. However, it can lead to an increased shareholders return on investment. Here the financial leverage ratio is 1.23 in 2010-11 and 1.13 in 2009-10 which indicates that the company is less leveraged in the sense of using debt and other liabilities to finance assets.

Profitability ratios:
1. Gross profit margin: Gross profit margin measures company's manufacturing and distribution efficiency during the production process. It is a measurement of how much from each dollar of a company's revenue is available to cover overhead, other expenses and profits. The ideal level of gross profit margin depends on the industries, how long the business has been established and other factors. Although, a high gross profit margin indicates that the company can make a reasonable profit, as long as it keeps the overhead cost in control. A low margin indicates that the business is unable to control its production cost. Gross profit margin can be used to compare a company with its competitors. More efficient firms will usually see a higher margin. Also, it provides clues about company's pricing, cost structure and production efficiency. Therefore, gross profit margin can be used to compare company's activity over time. The calculated result shows that the company is efficient to manage its cost of goods sold or other costs related to the purchase of raw material. Company shows gross profit margin 33.68 % in the year 2010-2011 and 32.51% in the year 2009-2010.

2. Operating profit margin: Operating margin is used to measure company's pricing strategy and operating efficiency. It gives an idea of how much a company makes (before interest and taxes) on each dollar of sales. Operating margin ratio shows whether the fixed costs are too high for the production or sales volume. A high or increasing operating margin is preferred because if the operating margin is increasing, the company is earning more per dollar of sales. Operating margin can be used to compare a company with its competitors and with its past performance. It is best to analyze the changes of operating margin over time and to compare company's figure to those of its competitors. The calculated result shows that companys operating profit percentages increased 28.19 % in the year 2010-2011 and comparing to the 27.3% in the year 2009-2010.

3. Pretax profit margin: The higher the pre-tax profit margin, the more profitable the company. The trend of the pretax profit margin is as important as the figure itself, since it provides an indication of which way the company's profitability is headed. The calculated result shows that company earned more revenues in the year 2010-2011 that the revenues in year 2009-2010. And the companys pretax profit margin 26.93% in 2010-2011 and 25.78% in 2009-2010. 4. Net profit margin: Net profit ratio all refer to a measure of profitability. It is calculated by finding the net profit as a percentage of the revenue. Profit margin is an indicator of a company's pricing strategies and how well it controls costs. A low profit margin indicates a low margin of safety: higher risk that a decline in sales will erase profits and result in a net loss, or a negative margin. The companys pretax profit margin 26.93% in 2010-2011 and 25.78% in 2009-2010. 5. Operating ROA: Operating return on assets is to provide some insight into how well the company is managing its expenses. Since the total amount of operating expenses is deducted from gross profits in order to identify the net profits generated. A low operating return on assets may also be a sign that sales initiatives are not working well enough to keep up with current production levels.

The result shows that the company did not perform better in the year 2010-2011. In that year, company increased their assets but profit did not increase highly comparing to the previous year 2009-2010. The companys operating ROA 18.14% in 2010-2011 and 25.98% in 2009-2010. 6. ROA: It indicates how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings. ROA tells what earnings were generated from invested capital (assets). ROA for public companies can vary substantially and will be highly dependent on the industry. This is why when using ROA as a comparative measure, it is best to compare it against a company's previous ROA numbers or the ROA of a similar company. The result shows that the company did not perform better in the year 2010-2011. In that year, company increased their assets but profit did not increase highly comparing to the previous year 2009-2010. It means company is better at converting its investment into profit. The companys ROA 17.33 % in 2010-2011 and 24.51% in 2009-2010.

7. Return on total capital: Total capital is defined as total stockholder liability and equity. This ratio measures the total return the company generates from all sources of financing. Moreover, the general idea of the measure is to see how much a company earns on the money it has been given by outside investors. Companies with high scores are, presumably, better wards of capital. The result shows that company did not perform better in the year 2010-2011 in respect of turning capital into profits effectively. Return on total capital in 2009-2010 was 26.85% and in 20102011 was 14.30% 8. ROE: Return on equity (ROE) measures the rate of return on the ownership interest (shareholders' equity) of the common stock owners. It measures a firm's efficiency at generating profits from every unit of shareholders' equity. ROE shows how well a company uses investment funds to generate earnings growth. ROEs between 15% and 20% are generally considered good. ROE is best used to compare companies in the same industry. Higher ROE indicates that company has higher growth. Averaging ROE over the past 5 to 10 years can give a better idea of the historical growth. Computed result shows good performance of the company in year 2009-2010 (27.85%) and 2010-2011 (21.32%).

9. Return on common equity: The return on common equity ratio shows the return to common stockholders after factoring out preferred shares. A return of over 10% indicates enough to pay common share dividends and retain funds for business growth. This is a measure of how well the company is investing the money invested in it. A high return on common equity indicates that the company is spending wisely and is likely profitable; a low return on common equity indicates the opposite. As a result, high returns on common equity lead to higher stock prices. Some analysts believe that return on common equity is an extremely important indicator in publicly-traded companies' health.

Valuation ratios:
1. Price-Earnings Ratio (P/E ratio): It is a valuation ratio of a company's current share price compared to its per-share earnings. A high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. The company did not have any market price so probable comment could not be presented here. But we found earning per share of the BWTL. Year Earnings attributable ordinary shareholders to / Weighted EPS average no. of shares outstanding 47,529,688 3.62 46,000,000 3.40

2010-2011 2009-2010

172,033,958 156,269,834

/ /

2. Price/ Cash flow ratio (P/CF): The price-to-cash flow ratio (P/CF) is used to evaluate the price of a company's stock as compared to the amount of cash flow it generates. The price/cash flow ratio is used by investors to evaluate the investment attractiveness, from a value standpoint, of a company's stock. The lower a stock's price/cash flow ratio is, the better value that stock is. A high P/CF ratio indicates that the specific firm is trading at a high price but is not generating enough cash flows, depending on the firm, industry, and its specific operations.

The company did not have any market price so probable comment could not be presented here. But we found cash flows per share of the BWTL. Cash flow per share in 2010-2011 was .95 (44,973,398 / 47,529,688) and in 2009-2010 was .21 (9,641,306/ 46,000,000). 3. Price-To-Sales Ratio (P/S ratio): It is a ratio for valuing a stock relative to its own past performance, other companies or the market itself. Price to sales is calculated by dividing a stock's current price by its revenue over the past 12 months. The smaller this ratio (less than 1.0) is usually thought to be a better investment since the investor is paying less for each unit of sales. However, sales do not reveal the whole picture, as the company may be unprofitable with a low P/S ratio. Because of the limitations, this ratio is usually used only for unprofitable companies, since they don't have a priceearnings ratio (P/E ratio). The company did not have any market price so probable comment could not be presented here. But we found revenues per share of the BWTL. Revenues per share in 2010-2011 was 13.44 (638,887,995 / 47,529,688) and in 2009-2010 was 13.18 (606,091,768 / 46,000,000). 4. Price-To-Book Ratio - P/B Ratio: A ratio used to compare a stock's market value to its book value. It is calculated by dividing the current closing price of the stock by the latest quarter's book value per share. A lower P/B ratio could mean that the stock is undervalued. However, it could also mean that something is fundamentally wrong with the company. This ratio also gives some idea of whether investors are paying too much for what would be left if the company went bankrupt immediately. The company did not have any market price so probable comment could not be presented here. But we found book value per share of the BWTL. Book value per share in 2010-2011 was 22.16 (1,053,085,717 / 47,529,688) and in 2009-2010 was 12.20 (561,051,759 / 46,000,000). 5. Dividend payout ratio: This ratio indicates the percentage of earnings paid to shareholders in dividends. Investors seeking high current income and limited capital growth prefer companies with high Dividend payout ratio. High growth firms generally have low or zero payout ratios. As they mature, they tend to return more of the earnings back to investors. BWTL did not pay any cash dividend during the year 2009-2010 and 2010-2011.

6. Retention rate: This ratio indicates the percentage of present earnings held back or retained by a corporation. A high retention rate makes it more likely a firm's income and dividends will grow in future years. BWTL retained their full net profit 100% as they did not pay any cash dividend. 7. Sustainable growth rate: The sustainable growth rate is a measure of how much a firm can grow without borrowing more money. After the firm has passed this rate, it must borrow funds from another source to facilitate growth. As the BWTL retained their full net profit, so growth rate was equal to its ROE i.e. 21.32% in 2010-2011 and 27.85% in 2009-2010

Recommendations
Due to lack of industry of average data or available market data, we have selected BEXTEX Limited to compare BWTL performance.

BWTL 2010
Working turnover capital .101

BEXTEX 2010 5.570 .57 1.30 .50 2.04 35.13% 31.14 8.54% 17.43% 4.36

Good/Bad Bad good good good bad bad bad good good good

Total assets turnover Current ratio Debt to asset ratio Financial leverage ratio Gross profit margin Operating profit margin ROA ROE EPS

.64 3.63 .22 1.23 33.68% 28.19% 17.33% 21.32% 3.62

So, we have found that some of the financial indicators show good performance. Moreover, ROA, ROE and EPS are three ratios favorable to the investor to invest in this company. In addition, P/E ratio is also a better indicator whether to invest in this company. However, there is lack of available data. And we have also found that the company also performing good corporate governance and financial reporting practices. This is better than BEXTEX Ltd. We also expect to perform better in further reporting. Conclusion: Finally we can conclude that the measured key financial indicators are favorable to the investor for investment in shares of Bengal Windsor Thermoplastic Limited. Some of problems, we have found in the study, are hindrance to the financial analysis. However, above indicators show that the company is performing well in the market.

Reference: 1. The prospectus of Bengal Windsor Thermoplastics Limited. 2. Beximco Textile Annual Report, 2010 3. Financial Analysis Techniques.