1.

Conceptual framework for financial reporting

In financial reporting, a conceptual framework is a theory of accounting prepared by a
standard-setting body against which practical problems can be tested objectively. A
conceptual framework deals with fundamental financial reporting issues such as the
objectives and users of financial statements, the characteristics that make accounting
information useful, the basic elements of financial statements (e.g., assets, liabilities, equity,
income, and expenses), and the concepts for recognizing and measuring these elements in the
financial statements.

First level: Basic objective

Financial reporting should provide information:

 That is useful to present and future investors, creditors who are making decision about
investment, credit or similar.

 That is useful to present and future investors, creditors in assessing the future cash
flows.

 About the economic resources of the organization, claims on those resources and
changes in them.

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Second level: Fundamental concepts

Second level of conceptual framework forms a bridge between why of accounting which is
the first level and how of accounting which is third level of accounting. Second level of
conceptual framework is consisting of:

2. Qualitative characteristics of accounting information:

Qualitative characteristics of accounting information are identified as a way to distinguish

more useful information from the less useful information for decision-making purpose.
Qualitative characteristics divided into two types:

Primary qualities: Relevance and reliability are two types of primary qualities which makes
accounting information more useful for decision- making purpose.

 Relevance of information means that the information must be capable of making a

difference in decision making. If the information does not make any difference in the
decision, then it will be irrelevant. For information to be relevant, it must have a
predictive or feedback value and must be presented in a timely basis. The Predictive
value of information means an information that help user to make a prediction about
past, present and future events. An information which helps a user to confirm prior
expectations is called the feedback value of that information. Timeliness means
information must be available to the user before it loses its capability to influence.

 Information is reliable when it is verifiable, faithfully represented and free from error
and bBAS. Verifiability helps user assure that information is faithfully represented.
An Information is faithful when it represents what really existed or happened and an
information is neutral, when it is free from error or bBAS.

Secondary qualities: Comparability and consistency are two types of secondary qualities
which influence the decision-making

 Information that has been measured and reported in a similar manner for different
enterprises is considered as comparable. Comparability lets a user identify the real
similarities and differences in economic phenomena.

 Consistency means a company should follow a particular method for similar events
from period to period. For example, if a company follows the straight line method to
charging depreciation, then it should always follow it.

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Elements of financial statement:

 Asset: Asset is a resource which can obtain the probable future economic benefit.

 Liability: Liability is a present obligation arising from past events. In other words,
liability is the claim against the asset.

 Expenses: Expense is an expenditure whose benefit is not fulfilled or enjoyed

immediately.

 Revenues: Revenue is the inflow of assets which results an increase of owners’ equity.

 Equity: Equity is the right to claim ownership when the company dissolves.

 Gain: Gain is an increase in the company asset which is not related to sales.

 Loss: Loss is a decrease in the company asset which is not related to sales.

Third level: Recognition and measurement concept

Third level consists of:

Basic assumption

 Economic entity: Economic entity means that the activity of a business enterprise can
be kept separate from its owner and any other business unit. The entity concept does
not necessarily refer to a legal entity.

 Going concern: The going concern assumption means that the organization will have a
long life. It will last long enough to fulfill its objectives and commitments.

 Monetary Unit: The monetary unit assumption explains money is the common
denominator of an economic activity. The monetary unit is relevant, simple,
universally available, understandable and useful.

 Periodicity: Periodicity assumption explains that the economic activity of an

organization can be divided into artificial time periods. These artificial time periods
can vary depending on the organization but most commonly used time periods are
monthly, quarterly and yearly.

Basic principles

 Historical cost: Historical cost principle explains that an asset should be recorded at
its cost price (purchase price). It also includes all the cost that was necessary to get the
asset ready for use. Historical cost helps an organization distinguish an asset’s original
cost from its current cost.

 Revenue recognition: Revenue recognition principle states that revenue is recognized

when it is earned. For example, ABC Company got an order to produce three hundred
shirts. ABC Company will recognize the revenue when they will actually deliver the
order and receive the payment.
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  Matching principle: Matching principle means expense is recognized at the time
revenue is recognized. For example, ABC Company will recognize the cost of
producing three hundred shirts when produced shirts will make a contribution to
revenue.

 Full disclosure: Full disclosure principle holds that organization should provide all the
information that is important enough to make a change in judgment or decision of the
user.

Constraints:

 Cost Benefit Relationship: The costs of providing the information must be weighed
against the benefits that can be derived from using the information.

 Materiality: Sound and acceptable standards should be followed if the amount

involved is significant when compared with the other revenues and expenses, assets
and liabilities, or net income of the entity.

 Industry Practices: Follow the general practices in the firm's industry, which
sometimes requires departure from basic theory.

 Conservatism: Conservatism means when in doubt, choose the solution that will be
least likely to overstate assets and income.

3. List of BAS& BFRS

BAS Effective Date

BAS BAS Title
No.

on or after 1 Jan 2010

1 Presentation of Financial Statements
on or after 1 January
2 Inventories
2007
on or after 1 January
7 Statement of Cash Flows
1999
Accounting Policies, Changes in Accounting Estimates and on or after 1 January
8
Errors 2007
Events after the Reporting on or after 1 January
10
Period 1999
on or after 1 January
11 Construction Contracts
1999

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 on or after 1 January
12 Income Taxes
1999
on or after 1 January
16 Property, Plant & Equipment
2007
on or after 1 January
17 Leases
2007
on or after 1 January
18 Revenue
2007
on or after 1 January
19 Employee Benefits
2013
Accounting of Government Grants and Disclosure of on or after 1 January
20
Government Assistance 1999
on or after 1 January
21 The Effects of Changes in Foreign Exchange Rates
2007
on or after 1 January
23 Borrowing Costs
2010
on or after 1 January
24 Related Party Disclosures
2007
on or after 1 January
26 Accounting and Reporting by Retirement Benefit Plans
2007
on or after 1 January
27 Separate Financial Statements
2013
on or after 1 January
28 Investments in Associates and Joint Ventures
2013
BAS on or after 1 January
Financial Reporting in Hyperinflationary Economics
29 2015
on or after 1 January
31 Interest in Joint Ventures
2007
on or after 1 January
32 Financial Instruments: Presentation
2010
on or after 1 January
33 Earnings per Share
2007
on or after 1 January
34 Interim Financial Reporting
1999
on or after 1st January
36 Impairment of Assets
2005
on or after 1 January
37 Provisions, Contingent Liabilities and Contingent Assets
2007
on or after 1 January
38 Intangible Assets
2005
on or after 1 January
39 Financial Instruments: Recognition and Measurement
2010
on or after 1 January
40 Investment Property
2007
on or after 1 January
41 Agriculture
2007

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BFRS /
Title Effective Date on or after
BFRS
First-time adoption of International Financial
BFRS 1 1 January 2009
Reporting Standards
BFRS 2 Share-based Payment 1 January 2007
BFRS 3 Business Combinations 1 January 2010
BFRS 4 Insurance Contracts 1 January 2010
Non-current Assets Held for Sale and
BFRS 5 1 January 2007
Discontinued Operations
Exploration for and Evaluation of Mineral
BFRS 6 1 January 2007
Resources
BFRS 7 Financial Instruments: Disclosures 1 January 2010
BFRS 8 Operating Segments 1 January 2010
NA (Not yet adopted but under review
BFRS 9 Financial Instruments
process)
BFRS
Consolidated Financial Statements 1 January 2013
10
BFRS
Joint Arrangements 1 January 2013
11
BFRS
Disclosure of Interests in other Entities 1 January 2013
12
BFRS
Fair Value Measurement 1 January 2013
13

4. BFRS with details

Bangladesh Financial Reporting Standard 1
First-time Adoption of Bangladesh Financial Reporting Standards

Objective

1 The objective of this BFRS is to ensure that an entity’s first BFRS financial
statements, and its interim financial reports for part of the period covered by those
financial statements, contain high quality information that:
(a) is transparent for users and comparable over all periods presented;
(b) provides a suitable starting point for accounting in accordance with
Bangladesh Financial Reporting Standards (BFRSs); and
(c) Can be generated at a cost that does not exceed the benefits.

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Scope

2 An entity shall apply this BFRS in:

(a) its first BFRS financial statements; and
(b) each interim financial report, if any, that it presents in accordance with
BAS 34 Interim Financial Reporting for part of the period covered by its
first BFRS financial statements.
3 An entity’s first BFRS financial statements are the first annual financial
statements in which the entity adopts BFRSs, by an explicit and unreserved
statement in those financial statements of compliance with BFRSs. Financial
statements in accordance with BFRSs are an entity’s first BFRS financial
statements if, for example, the entity:
(a) presented its most recent previous financial statements:
(i) in accordance with national requirements that are not consistent
with BFRSs in all respects;
(ii) in conformity with BFRSs in all respects, except that the financial
statements did not contain an explicit and unreserved statement
that they complied with BFRSs;
(iii) containing an explicit statement of compliance with some, but not all,
BFRSs;
(iv) in accordance with national requirements inconsistent with
BFRSs, using some individual BFRSs to account for items for
which national requirements did not exist; or
(v) in accordance with national requirements, with a reconciliation of
some amounts to the amounts determined in accordance with
BFRSs;
(b) prepared financial statements in accordance with BFRSs for internal use
only, without making them available to the entity’s owners or any other
external users;
(c) prepared a reporting package in accordance with BFRSs for consolidation
purposes without preparing a complete set of financial statements as
defined in BAS 1 Presentation of Financial Statements (as revised in
2007); or
(d) did not present financial statements for previous periods.
4 This BFRS applies when an entity first adopts BFRSs. It does not apply when, for
example, an entity:
(a) stops presenting financial statements in accordance with national
requirements, having previously presented them as well as another set of
financial statements that contained an explicit and unreserved statement of
compliance with BFRSs;

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 BFRS 2 Share-based Payment

Definition of share-based payment

A share-based payment is a transaction in which the entity receives goods or services either
as consideration for its equity instruments or by incurring liabilities for amounts based on the
price of the entity's shares or other equity instruments of the entity. The accounting
requirements for the share-based payment depend on how the transaction will be settled, that
is, by the issuance of (a) equity, (b) cash, or (c) equity or cash.
Scope
The concept of share-based payments is broader than employee share options. BFRS 2
encompasses the issuance of shares, or rights to shares, in return for services and goods.
Examples of items included in the scope of BFRS 2 are share appreciation rights, employee
share purchase plans, employee share ownership plans, share option plans and plans where
the issuance of shares (or rights to shares) may depend on market or non-market related
conditions.
BFRS 2 applies to all entities. There is no exemption for private or smaller entities.
Furthermore, subsidiaries using their parent's or fellow subsidiary's equity as consideration
for goods or services are within the scope of the Standard.
There are two exemptions to the general scope principle:
 First, the issuance of shares in a business combination should be accounted for under
BFRS 3Business Combinations. However, care should be taken to distinguish share-
based payments related to the acquisition from those related to continuing employee
services
 Second, BFRS 2 does not address share-based payments within the scope of
paragraphs 8-10 of BAS 32Financial Instruments: Presentation, or paragraphs 5-7 of
BAS 39Financial Instruments: Recognition and Measurement. Therefore, BAS 32
and BAS 39 should be applied for commodity-based derivative contracts that may be
settled in shares or rights to shares.

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BFRS 3 Business Combinations

Background
BFRS 3 (2008) seeks to enhance the relevance, reliability and comparability of information
provided about business combinations (e.g. acquisitions and mergers) and their effects. It sets
out the principles on the recognition and measurement of acquired assets and liabilities, the
determination of goodwill and the necessary disclosures.
Scope
BFRS 3 must be applied when accounting for business combinations, but does not apply to:
 The formation of a joint venture* [BFRS 3.2(a)]
 The acquisition of an asset or group of assets that is not a business, although general
guidance is provided on how such transactions should be accounted for [BFRS 3.2(b)]
 Combinations of entities or businesses under common control (the BASB has a
separate agenda project on common control transactions) [BFRS 3.2(c)]
 Acquisitions by an investment entity of a subsidiary that is required to be measured at
fair value through profit or loss under BFRS 10 Consolidated Financial Statements.
[BFRS 3.2A]

BFRS 4 Insurance Contracts

Definition of insurance contract

An insurance contract is a "contract under which one party (the insurer) accepts significant
insurance risk from another party (the policyholder) by agreeing to compensate the
policyholder if a specified uncertain future event (the insured event) adversely affects the
policyholder." [BFRS4.Appendix A]
Accounting policies
The BFRS exempts an insurer temporarily (until completion of Phase II of the Insurance
Project) from some requirements of other BFRSs, including the requirement to consider BAS
8Accounting Policies, Changes in Accounting Estimates and Errors in selecting accounting
policies for insurance contracts. However, the standard: [BFRS 4.14]
 prohibits provisions for possible claims under contracts that are not in existence at the
reporting date (such as catastrophe and equalization provisions)

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  requires a test for the adequacy of recognized insurance liabilities and an impairment
test for reinsurance assets
 requires an insurer to keep insurance liabilities in its balance sheet until they are
discharged or cancelled, or expire, and prohibits offsetting insurance liabilities against
related reinsurance assets and income or expense from reinsurance contracts against
the expense or income from the related insurance contract.
Changes in accounting policies
BFRS 4 permits an insurer to change its accounting policies for insurance contracts only if, as
a result, its financial statements present information that is more relevant and no less reliable,
or more reliable and no less relevant. [BFRS 4.22] In particular, an insurer cannot introduce
any of the following practices, although it may continue using accounting policies that
involve them: [BFRS 4.25]
 measuring insurance liabilities on an undiscounted basis
 measuring contractual rights to future investment management fees at an amount that
exceeds their fair value as implied by a comparison with current market-based fees for
similar services
 using non-uniform accounting policies for the insurance liabilities of subsidiaries.

BFRS 5 Non-current Assets Held for Sale and Discontinued Operations

Key provisions of BFRS 5 relating to assets held for sale

Held-for-sale classification
In general, the following conditions must be met for an asset (or 'disposal group') to be
classified as held for sale: [BFRS 5.6-8]
 management is committed to a plan to sell
 the asset is available for immediate sale
 an active programmer to locate a buyer is initiated
 the sale is highly probable, within 12 months of classification as held for sale (subject
to limited exceptions)
 the asset is being actively marketed for sale at a sales price reasonable in relation to its
fair value
 actions required to complete the plan indicate that it is unlikely that plan will be
significantly changed or withdrawn

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The assets need to be disposed of through sale. Therefore, operations that are expected to be
wound down or abandoned would not meet the definition (but may be classified as
discontinued once abandoned). [BFRS 5.13]
An entity that is committed to a sale involving loss of control of a subsidiary that qualifies for
held-for-sale classification under BFRS 5 classifies all of the assets and liabilities of that
subsidiary as held for sale, even if the entity will retain a non-controlling interest in its former
subsidiary after the sale. [BFRS 5.8A]
Held for distribution to owner’s classification
The classification, presentation and measurement requirements of BFRS 5 also apply to a
non-current asset (or disposal group) that is classified as held for distribution to owners.
[BFRS 5.5A and IFRIC 17] The entity must be committed to the distribution, the assets must
be available for immediate distribution and the distribution must be highly probable. [BFRS
5.12A]
Disposal group concept
A 'disposal group' is a group of assets, possibly with some associated liabilities, which an
entity intends to dispose of in a single transaction. The measurement basis required for non-
current assets classified as held for sale is applied to the group as a whole, and any resulting
impairment loss reduces the carrying amount of the non-current assets in the disposal group
in the order of allocation required by BAS 36. [BFRS 5.4]

BFRS 6 Exploration for and Evaluation of Mineral Resources

Definitions
Exploration for and evaluation of mineral resources means the search for mineral resources,
including minerals, oil, natural gas and similar non-regenerative resources after the entity has
obtained legal rights to explore in a specific area, as well as the determination of the technical
feasibility and commercial viability of extracting the mineral resource.
Exploration and evaluation expenditures are expenditures incurred in connection with the
exploration and evaluation of mineral resources before the technical feasibility and
commercial viability of extracting a mineral resource is demonstrable.
Accounting policies for exploration and evaluation
BFRS 6 permits an entity to develop an accounting policy for recognition of exploration and
evaluation expenditures as assets without specifically considering the requirements of
paragraphs 11 and 12 of BAS 8Accounting Policies, Changes in Accounting Estimates and
Errors. [BFRS 6.9] Thus, an entity adopting BFRS 6 may continue to use the accounting
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policies applied immediately before adopting the BFRS. This includes continuing to use
recognition and measurement practices that are part of those accounting policies.

Impairment
BFRS 6 effectively modifies the application of BAS 36Impairment of Assets to exploration
and evaluation assets recognized by an entity under its accounting policy. Specifically:
 Entities recognizing exploration and evaluation assets are required to perform an
impairment test on those assets when specific facts and circumstances outlined in the
standard indicate an impairment test is required. The facts and circumstances outlined
in BFRS 6 are non-exhaustive, and are applied instead of the 'indicators of
impairment' in BAS 36 [BFRS 6.19-20]
 Entities are permitted to determine an accounting policy for allocating exploration and
evaluation assets to cash-generating units or groups of CGUs. [BFRS 6.21] This
accounting policy may result in a different allocation than might otherwise arise on
applying the requirements of BAS 36
 If an impairment test is required, any impairment loss is measured, presented and
disclosed in accordance with BAS 36. [BFRS 6.18]

BFRS 7 Financial Instruments: Disclosures

BFRS 7:
 adds certain new disclosures about financial instruments to those previously required
by BAS 32mFinancial Instruments: Disclosure and Presentation (as it was then cited)
 replaces the disclosures previously required by BAS 30 Disclosures in the Financial
Statements of Banks and Similar Financial Institutions
 puts all of those financial instruments disclosures together in a new standard on
Financial Instruments: Disclosures. The remaining parts of BAS 32 deal only with
financial instruments presentation matters.

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Disclosure requirements of BFRS 7
BFRS requires certain disclosures to be presented by category of instrument based on the
BAS 39 measurement categories. Certain other disclosures are required by class of financial
instrument. For those disclosures an entity must group its financial instruments into classes of
similar instruments as appropriate to the nature of the information presented. [BFRS 7.6]
The two main categories of disclosures required by BFRS 7 are:
1. information about the significance of financial instruments.
2. information about the nature and extent of risks arising from financial instruments
Information about the significance of financial instruments
Statement of financial position
 Disclose the significance of financial instruments for an entity's financial position and
performance. [BFRS 7.7] This includes disclosures for each of the following
categories: [BFRS 7.8]
o financial assets measured at fair value through profit and loss, showing
separately those held for trading and those designated at initial recognition
o held-to-maturity investments
o loans and receivables
o available-for-sale assets
o financial liabilities at fair value through profit and loss, showing separately
those held for trading and those designated at initial recognition
o financial liabilities measured at amortized cost

BFRS 8 Operating Segments

Scope
BFRS 8 applies to the separate or individual financial statements of an entity (and to the
consolidated financial statements of a group with a parent):
 whose debt or equity instruments are traded in a public market or
 that files, or is in the process of filing, its (consolidated) financial statements with a
securities commission or other regulatory organization for the purpose of issuing any
class of instruments in a public market [BFRS 8.2]
However, when both separate and consolidated financial statements for the parent are
presented in a single financial report, segment information need be presented only on the
basis of the consolidated financial statements [BFRS 8.4]
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Operating segments
BFRS 8 defines an operating segment as follows. An operating segment is a component of an
entity: [BFRS 8.2]
 that engages in business activities from which it may earn revenues and incur
expenses (including revenues and expenses relating to transactions with other
components of the same entity)
 whose operating results are reviewed regularly by the entity's chief operating decision
maker to make decisions about resources to be allocated to the segment and assess its
performance and
 for which discrete financial information is available
Reportable segments
BFRS 8 requires an entity to report financial and descriptive information about its reportable
segments. Reportable segments are operating segments or aggregations of operating segments
that meet specified criteria: [BFRS 8.13]
 its reported revenue, from both external customers and intersegment sales or transfers,
is 10 per cent or more of the combined revenue, internal and external, of all operating
segments, or
 the absolute measure of its reported profit or loss is 10 per cent or more of the greater,
in absolute amount, of (i) the combined reported profit of all operating segments that
did not report a loss and (ii) the combined reported loss of all operating segments that
reported a loss, or
 its assets are 10 per cent or more of the combined assets of all operating segments.
Two or more operating segments may be aggregated into a single operating segment if
aggregation is consistent with the core principles of the the standard, the segments have
similar economic characteristics and are similar in various prescribed respects. [BFRS 8.12]
If the total external revenue reported by operating segments constitutes less than 75 per cent
of the entity's revenue, additional operating segments must be identified as reportable
segments (even if they do not meet the quantitative thresholds set out above) until at least 75
per cent of the entity's revenue is included in reportable segments.

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 BFRS 9 Financial Instruments

Initial measurement of financial instruments

All financial instruments are initially measured at fair value plus or minus, in the case of a
financial asset or financial liability not at fair value through profit or loss, transaction costs.
[BFRS 9, paragraph 5.1.1]
Subsequent measurement of financial assets
BFRS 9 divides all financial assets that are currently in the scope of BAS 39 into two
classifications - those measured at amortized cost and those measured at fair value.
Where assets are measured at fair value, gains and losses are either recognized entirely in
profit or loss (fair value through profit or loss, FVTPL), or recognized in other
comprehensive income (fair value through other comprehensive income, FVTOCI).
For debt instruments the FVTOCI classification is mandatory for certain assets unless the fair
value option is elected. Whilst for equity investments, the FVTOCI classification is an
election. Furthermore, the requirements for reclassifying gains or losses recognized in other
comprehensive income are different for debt instruments and equity investments.
The classification of a financial asset is made at the time it is initially recognized, namely
when the entity becomes a party to the contractual provisions of the instrument. [BFRS 9,
paragraph 4.1.1] If certain conditions are met, the classification of an asset may subsequently
need to be reclassified.
Debt instruments
A debt instrument that meets the following two conditions must be measured at amortised
cost (net of any write down for impairment) unless the asset is designated at FVTPL under
the fair value option
model test: The objective of the entity's business model is to hold the financial
asset to collect the contractual cash flows (rather than to sell the instrument prior to its
contractual maturity to realize its fair value changes).
flow characteristics test: The contractual terms of the financial asset give rise on
specified dates to cash flows that are solely payments of principal and interest on the
principal amount outstanding.

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BFRS 10 Consolidated Financial Statements

The objective of BFRS 10 is to establish principles for the presentation and preparation of
consolidated financial statements when an entity controls one or more other entities. [BFRS
10:1]
The Standard: [BFRS 10:1]
 requires a parent entity (an entity that controls one or more other entities) to present
consolidated financial statements
 defines the principle of control, and establishes control as the basis for consolidation
 set out how to apply the principle of control to identify whether an investor controls
an investee and therefore must consolidate the investee
 sets out the accounting requirements for the preparation of consolidated financial
statements
 defines an investment entity and sets out an exception to consolidating particular
subsidiaries of an investment entity

Changes in ownership interests

Changes in a parent's ownership interest in a subsidiary that do not result in the parent losing
control of the subsidiary are equity transactions (i.e. transactions with owners in their
capacity as owners). When the proportion of the equity held by non-controlling interests
changes, the carrying amounts of the controlling and non-controlling interests area adjusted to
reflect the changes in their relative interests in the subsidiary. Any difference between the
amount by which the non-controlling interests are adjusted and the fair value of the
consideration paid or received is recognized directly in equity and attributed to the owners of
the parent

BFRS 11 Joint Arrangements

Joint arrangements
A joint arrangement is an arrangement of which two or more parties have joint control.
[BFRS 11:4]
A joint arrangement has the following characteristics: [BFRS 11:5]
 the parties are bound by a contractual arrangement, and
 the contractual arrangement gives two or more of those parties joint control of the
arrangement.
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A joint arrangement is either a joint operation or a joint venture. [BFRS 11:6]
Joint control
Joint control is the contractually agreed sharing of control of an arrangement, which exists
only when decisions about the relevant activities require the unanimous consent of the parties
sharing control. [BFRS 11:7]
Before assessing whether an entity has joint control over an arrangement, an entity first
assesses whether the parties, or a group of the parties, control the arrangement (in accordance
with the definition of control in BFRS 10Consolidated Financial Statements). [BFRS 11:B5]
After concluding that all the parties, or a group of the parties, control the arrangement
collectively, an entity shall assess whether it has joint control of the arrangement. Joint
control exists only when decisions about the relevant activities require the unanimous consent
of the parties that collectively control the arrangement. [BFRS 11:B6]
The requirement for unanimous consent means that any party with joint control of the
arrangement can prevent any of the other parties, or a group of the parties, from making
unilateral decisions (about the relevant activities) without its consent. [BFRS 11:B9]
Types of joint arrangements
Joint arrangements are either joint operations or joint ventures:
 A joint operation is a joint arrangement whereby the parties that have joint control of
the arrangement have rights to the assets, and obligations for the liabilities, relating to
the arrangement. Those parties are called joint operators. [BFRS 11:15]
 A joint venture is a joint arrangement whereby the parties that have joint control of
the arrangement have rights to the net assets of the arrangement. Those parties are
called joint ventures. [BFRS 11:16]

BFRS 12 Disclosure of Interests in other Entities

Objective and scope

The objective of BFRS 12 is to require the disclosure of information that enables users of
financial statements to evaluate: [BFRS 12:1]
 the nature of, and risks associated with, its interests in other entities
 the effects of those interests on its financial position, financial performance and cash
flows.
Where the disclosures required by BFRS 12, together with the disclosures required by other
BFRSs, do not meet the above objective, an entity is required to disclose whatever additional
information is necessary to meet the objective. [BFRS 12:3]

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BFRS 12 is required to be applied by an entity that has an interest in any of the following:
[BFRS 12:5]
 subsidiaries
 joint arrangements (joint operations or joint ventures)
 associates
 unconsolidated structured entities
BFRS 12 does not apply to certain employee benefit plans, separate financial statements to
which BAS 27Separate Financial Statements applies (except in relation to unconsolidated
structured entities and investment entities in some cases), certain interests in joint ventures
held by an entity that does not share in joint control, and the majority of interests in another
entity accounted for in accordance with BFRS 9Financial Instruments. [BFRS 12:6]
An investment entity that prepares financial statements in which all of its subsidiaries are
measured at fair value through profit or loss presents the disclosures relating to investment
entities required by BFRS 12.

BFRS 13 Fair Value Measurement

Objective
BFRS 13: [BFRS 13:1]
 defines fair value
 sets out in a single BFRS a framework for measuring fair value
 requires disclosures about fair value measurements.
BFRS 13 applies when another BFRS requires or permits fair value measurements or
disclosures about fair value measurements (and measurements, such as fair value less costs to
sell, based on fair value or disclosures about those measurements), except for: [BFRS 13:5-7]
 share-based payment transactions within the scope of BFRS 2Share-based Payment
 leasing transactions within the scope of BAS 17Leases
 measurements that have some similarities to fair value but that are not fair value, such
as net realizable value in BAS 2Inventories or value in use in BAS 36Impairment of
Assets.

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Fair value hierarchy
Overview
BFRS 13 seeks to increase consistency and comparability in fair value measurements and
related disclosures through a 'fair value hierarchy'. The hierarchy categorizes the inputs used
in valuation techniques into three levels. The hierarchy gives the highest priority to
(unadjusted) quoted prices in active markets for identical assets or liabilities and the lowest
priority to unobservable inputs. [BFRS 13:72]
If the inputs used to measure fair value are categorized into different levels of the fair value
hierarchy, the fair value measurement is categorized in its entirety in the level of the lowest
level input that is significant to the entire measurement (based on the application of
judgment). [BFRS 13:73]
Level 1 inputs
Level 1 inputs are quoted prices in active markets for identical assets or liabilities that the
entity can access at the measurement date. [BFRS 13:76]
A quoted market price in an active market provides the most reliable evidence of fair value
and is used without adjustment to measure fair value whenever available, with limited
exceptions. [BFRS 13:77]
If an entity holds a position in a single asset or liability and the asset or liability is traded in an
active market, the fair value of the asset or liability is measured within Level 1 as the product
of the quoted price for the individual asset or liability and the quantity held by the entity, even
if the market's normal daily trading volume is not sufficient to absorb the quantity held and
placing orders to sell the position in a single transaction might affect the quoted price. [BFRS
13:80]
Level 2 inputs
Level 2 inputs are inputs other than quoted market prices included within Level 1 that are
observable for the asset or liability, either directly or indirectly. [BFRS 13:81]
Level 2 inputs include:
 quoted prices for similar assets or liabilities in active markets
 quoted prices for identical or similar assets or liabilities in markets that are not active
 inputs other than quoted prices that are observable for the asset or liability, for
example
o interest rates and yield curves observable at commonly quoted intervals
o implied volatilities
o credit spreads
 inputs that are derived principally from or corroborated by observable market data by
correlation or other means ('market-corroborated inputs').

Page 19 of 64
 5. Annual report Analyze (ACI) 2010-2014

Brief History

ACI was established as the subsidiary of Imperial Chemical Industries (ICI) in the then East
Pakistan in 1968. After independence the company has been incorporated in Bangladesh on
the 24th of January 1973 as ICI Bangladesh Manufacturers Limited and also as Public
Limited Company. This Company also obtained listing with Dhaka Stock Exchange on 28
December, 1976 and its first trading of shares took place on 9 March, 1994. Later on 5 May,
1992, ICI plc divested 70% of its shareholding to local management. Subsequently the
company was registered in the name of Advanced Chemical Industries Limited. Listing with
Chittagong Stock Exchange was made on 22 October 1995

Advanced Chemical Industries (ACI) Limited is one of the leading conglomerates in

Bangladesh, with a multinational heritage. The company has diversified into four major
Strategic Business Units

Mission

ACI’s mission is to enrich the quality of life of people through responsible application of
knowledge, skills and technology. ACI is committed to the pursuit of excellence through

Page 20 of 64
world-class products, innovative processes and empowered employees to provide the highest
level of satisfaction to its customers.

Vision
To realize the mission ACI will:

 Endeavor to attain a position of leadership in each category of its businesses.

 Attain a high level of productivity in all its operations through effective and efficient
use of resources, adoption of appropriate technology and alignment with our core
competencies.
 Develop its employees by encouraging empowerment and rewarding innovation.
 Promote an environment for learning and personal growth of its employees.
 Provide products and services of high and consistent quality, ensuring value for
money to its customers.
 Encourage and assist in the qualitative improvement of the services of its suppliers
and distributors.
 Establish harmonious relationship with the community and promote greater
environmental responsibility within its sphere of influence

ACI Quality Policy

One of our important visions is to provide products and services of high and consistent
quality, ensuring value for money to our customers.

To attain the Vision ACI will:

 Aim to achieve business excellence by understanding, accepting, meeting and

exceeding customer expectations.
 Follow International Standards on Quality Management System to ensure consistent
quality of products and services to achieve customer satisfaction.
 ACI will also meet all national and regulatory requirements relating to its current
businesses and ensure that current Good Manufacturing Practice (cGMP) as
recommended by World Health Organization is followed for its pharmaceutical
operations and conform to all other guidelines and best practices relating to its other
businesses.
 Commit itself to quality as the prime consideration in all its business decisions. All
employees of ACI follow documented procedures to ensure compliance with quality
standards.
 Develop a pool of human resources of the Company to their full potential through
regular training and participation in seeking continuous improvement of the Quality
Management System.

Page 21 of 64
 ACI Group’s five Years Comparative Statistics From 2010-2014

5.1. Financial Ratio Analysis

Financial ratios are useful indicators of a firm's performance and financial situation. Most of
the ratios can be calculated from information provided in the financial statements.

Objectives of Financial Ratio Analysis:

 
 To analyze the financial statements of ACI Ltd.
 
 To calculate the different types of financial ratios of the company.
 
 To know the financial condition of the company.

To know the company’s financial development for last five years

5.1.1Methodology

For calculating different types of ratios for the project work, the following formulae were
used:

Liquidity Ratios:

CURRENT ASSETS
1. Current Ratio = CURRE NT LIAB ILIT IES

It’s a measures a company’s ability to meet short term obligations with short term assets, a
useful indicator of cash flow in the near future. A social enterprise needs to ensure that it can
pay its salaries, bills and expenses on time. Failure to pay loans on time may limit your future
access to credit and therefore your ability to leverage operations and growth. The one
problem with the current ratio is that it does not take into account the timing of cash flows.

Page 22 of 64
 QUICK ASSE TS
2. Quick Ratio (Acid-Test Ratio) = CURR EN T LIAB ILITIE S

A more stringent liquidity test that indicates if a firm has enough short-term assets (without
selling inventory) to cover its immediate liabilities. This is often referred to as the “acid test”
because it only looks at the company’s most liquid assets only (excludes inventory) that can
be quickly converted to cash). A ratio of 1:1 means that a company can pay its bills without
having to sell inventory.

3. Working Capital = Current Asset – Current Liabilities

Working Capital is a measure of both a company's efficiency and its short-term financial
health.

Activity Ratios:

1. Inventory Turnover Ratio :- Sales or revenue/

inventory

It is the calculation the number of times inventory is turning over into sales during the year or
how many days it takes to sell inventory. This is a good indication of production and
purchasing efficiency. A high ratio indicates inventory is selling quickly and that little unused
inventory is being stored (or could also mean inventory shortage). If the ratio is low, it
suggests overstocking, obsolete inventory or selling issues.
2. Total Asset Turnover Ratio:- Sales or revenue/ total
asset
Total Asset Turnover Ratio is the company's total revenue, the invoice, cash payments and
other revenues. Total Asset Turnover Ratio represents the value of goods and services
provided to customers during a specified time period - usually one year. How efficiently a
business generates sales on each currency of assets. An increasing ratio indicates a company
is using its assets more productively.
3. Days Sales Outstanding (DSO) = ( Accounts Receivable / total sales ) *No.ofDAYS

It is a measurement of the average number of days that a company takes to collect revenue

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after a sale has been made. A low DSO number means that it takes a company fewer days to
collect its accounts receivable. A high DSO number shows that a company is selling its
product to customers on credit and taking longer to collect money.

4. Average Payment Period = (ACCOUNTSPAYABLE  NO. OF

DAYS) NET PURCHASES or COGS

The average time period in which a business or company typically takes in paying off its
purchases that have been made by credit. This will not have an effect on the company's
working capital. A shorter payment period indicates prompt payments to creditors.

Leverage Ratios:

TOTAL DEBT
1. Debt Ratio = 100
TOTAL ASSET

It is a financial ratio that measures the extent of a company’s or consumer’s leverage. The
debt ratio is defined as the ratio of total debt to total assets, expressed in percentage, and can
be interpreted as the proportion of a company’s assets that are financed by debt. The higher
this ratio, the more leveraged the company and the greater its financial risk.

Profitability Ratios:

NET PROFIT
1. Net Profit Ratio = SALE S or REVE NUE

A ratio of profitability calculated as net income divided by revenues, or net profits divided by
sales. It measures how much out of every currency of sales a company actually keeps in
earnings.

Profit margin is very useful when comparing companies in similar industries. A higher profit
margin indicates a more profitable company that has better control over its costs compared to
its competitors. This ratio measures your ability to cover all operating costs including indirect
costs

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2. Return on Equity = NET INCOM E AVAILABLE FOR COM M ON STOCKHOLDERS
STOCKHOLDER'S EQUITY

The amount of net income returned as a percentage of shareholders equity. Return on equity
measures a corporation's profitability by revealing how much profit a company generates
with the money shareholders have invested. This is one of the most important ratios to
investors. How does this return compare to less risky investments like bonds.

3. Return on Assets (ROA) = NET INCOME

TOTA L ASSE T

It’s a measurement of the ability of a company to turn the assets into profit. This is a very
useful measure of comparison within an industry. A low ratio compared to industry may
mean that your competitors have found a way to operate more efficiently. After tax interest
expense can be added back to numerator since ROA measures profitability on all assets
whether or not they are financed by equity or debt.

4. Earnings per Share (EPS) = NET INCOME

TOTAL NO. OF COMMON STOCK OUTSTANDING

The portion of a company's profit allocated to each outstanding share of common stock.
Earnings per share serve as an indicator of a company's profitability.

6. Analysis of the ratios

6.1. Liquidity ratio

Ratio 2010 2011 2012 2013 2014

Current Ratio (Times) 1.42 2.09 1.17 1.17 1.19

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 Quick Ratio (Times) 1.00 0.98 0.87 0.85 0.83

Working Capital (Taka) 1713.96 5780.92 1232.99 1360.28 1568.37

Graphical presentation of different types of Liquidity Ratios:

1. Current Ratio:

Current ratio is used to gauge the ability of a company to meet its liabilities with its assets.
This ratio gives an idea about the financial health of an organization. The higher ratio reflects
the more capability of a company to pay its liabilities. Current ratio of ACI Limited is 1.19
times in 2014 and was relatively stable in the past five years except in 2011. The ratio was
highest in 2011. Current ratio of 2014 suggests that the company is liquid and in a good
position to meet its current obligations.

2.50%

2.00%

1.50%

Series 1
1.00%

0.50%

0.00%
2010 2011 2012 2013 2014

2. Quick Ratio:

It’s also known as Acid-test ratio. This ratio is an indicator of short-term liquidity of a
company. The quick ratio was highest, 1times, in 2010 after that it gradually decreased and in
2014 it was 0.83 times. This ratio is also a sign that the company is in liquid position to meet

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its short-term obligations.
1.20%

1.00%

0.80%

0.60%
Series 1
0.40%

0.20%

0.00%
2010 2011 2012 2013 2014

3. Working Capital:

Working capital indicates the operating liquidity of a company. Higher the working capital
higher the ability of the company to pay off its short term obligation and it’s also a signal that
the company can expand its business. In 2014 Working capital was BDT 1568 Million which
was the highest in the year 2011. The working capital were increased from 2010 to 2011 but
in 2012 it reduced to BDT 1233 Million and after that it was increasing in the rest of the year.
In 2014 working capital was BDT 1568 Mio.

6.2. Activity Ratios

Ratio 2010 2011 2012 2013 2014

Inventory Turnover Ratio (Times) 4.61 4.81 4.55 4.18 4.16

Total Asset Turnover Ratio (Times) 0.82 0.77 0.73 0.73 0.79

Days Sales Outstanding (Days) 149.78 182.46 202.07 195.31 169.57

Average Payment Period (Days) 66.92 98.16 79.70 102.72 81.80

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 Table.2: Results of the Activity Ratio Analysis

Graphical presentation of different types of Activity Ratios:

1. Inventory Turnover Ratio:

Inventory turnover ratio indicates how well the company managed its inventory. High value
of the ratio reflects good management of inventory. In 2014 the ratio was 4.16 times and the
ratio is slightly decreasing from 2010. Inventory turnover ratio was the highest, 4.81 times, in
2011.

2. Total Asset Turnover Ratio:

It is the calculation of how many BDT of Sales or revenues are generated by a company in
relation to its asset. The higher the ratio, the better the company is performing that is the
company is generating more revenue from each BDT of asset. The ratio was decreasing from
2010 to 2013 but in 2014 it was 0.79 times which was higher than last three years.

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3. Days Sales Outstanding (DSO):

It is a measurement of average number of days that a company takes to collect revenues after
a sale has been made. The trend line of Days Sales Outstanding (DSO) of ACI Limited is
relatively stable. In 2014 Days Sales Outstanding (DSO) was 170 days which means it takes
170 days on an average to collect the revenue after the sales. In 2012 it took 202 days to
collect revenues.

4. Average Payment Period:

Average payment period means the average time period is taken by a company in making
payments to its debtors. The average time period of ACI Limited is fluctuating year to year.
In 2014 Average Payment Period was 82 days which mean prompt payment is made to the
creditors. In 2013 it took 103 days to make payment to the creditors which were higher in
between 2010 to 2014.

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6.3. Leverage Ratios

Ratio 2010 2011 2012 2013 2014

Debt Ratio (Percentage) 0.54 0.57 0.62 0.62 0.79

Table.3: Results of the Leverage Ratio Analysis

Graphical presentation of Leverage Ratio:

1. Debt Ratio:

Debt ratio indicates the percentage of assets financed by all types of debts. It reflects the
financial structure of an organization. Higher percentage of debt ratio means more financial
risk in the organization. The debt ratio trend is more or less stable over the last five years but
in 2014 the debt ratio percentage has increased which is 0.79. The percentage value is highest
in last five years which is alarming for the company.

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6.4. Profitability Ratios

Ratio 2010 2011 2012 2013 2014

Net Profit Ratio (Percentage) 0.07 0.08 0.06 0.07 0.08

Return on Equity (Perrcentage) 0.03 0.04 (0.07) 0.03 0.11

Return on Assets (Perrcentage) 0.06 0.06 0.04 0.05 0.06

Earnings Per Share (BDT) 30.49 34.55 22.93 26.74 27.64

Graphical presentation of different types of Profitability Ratios:

1. Net Profit Ratio:

This ratio is an indicator of profitability of an organization. It shows how much money is kept
out of each BDT of sales or revenues by an organization in the form of its earning. Except the
year 2012, the percentage was stable for ACI Limited. In 2014 it was 0.08 which means BDT
Page 31 of 64
8 was kept as earning of ACI Limited out of each BDT 100 of sales.

2. Return on Equity (ROE):

ROE measures how much the shareholders earned for their investment in the company. The
higher percentage means higher returns to the investors. In 2012 the value of ROE was
alarming but in the next year ACI Limited recovers from the turmoil and in 2014 it produces
highest value of ROE which is 0.11.

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3. Return on Assets (ROA):

It measures how profitably a firm has utilized its assets. The higher the ROA percentage the
more a company is earning, the more efficiently the company is converting its assets to profit.
In 2014 the ROA percentage was 0.06 with less fluctuation than last five years.

4. Earnings Per Share (EPS):

Earnings per share indicate a company’s profitability. In 2011 the EPS was highest but then it
Decreases and in 2014 it was BDT 27.64.

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 7. Result and Discussion

Ratio Analysis is a kind of Financial Statement Analysis that is used to gain a quick
suggestion of a firm's financial health in several key areas.

For the project purpose I have analyzed the following Categories of ratios:
 

Liquidity ratios
 

Activity ratios


Leverage ratios 
 
Profitability ratios

Liquidity ratios:

Liquidity ratios are used asses firm’s ability to meet its short- term obligations using short-
term assets. The short-term obligations are recorded under current liabilities that come due
within one financial year. Short-term assets are the current assets.

Current ratio indicates the ability of a company to meet its short term obligation. Any value
below 1 indicates the weakness of financial health of a company on the other hand value over
2 suggests that the company is not investing its excess assets. Ratio between 1.1 to 2.0
reflects strong financial condition of a company. Current ratio of ACI limited is 1.19 times in
2014 which means the company is in liquid condition to meet its obligation. In 2011 the ratio
was 2.09 which were above normal but again from 2012 the ratio come down to normal level
and become relatively stable.

Quick ratio also measures the liquidity of an organization but this ratio further narrowed
down to measure the ability of a company to meet its immediate liabilities, without selling its
inventory. This known as the “acid test” because it only looks at the company’s most liquid
assets that can be quickly converted to cash). Quick ratio of ACI Limited was highest in 2010
(1.00 times) but it gradually decreased in the next four years and in 2014 it was 0.83 times.
Quick ratio of ACI Limited also indicates its healthy financial condition.

Working capital reveals a company’s efficiency and its short term financial health. A positive
value of working capital shows the ability of a company to pay back the liabilities to the
creditors in the short term and it also gives an idea of the company’s operational efficiency to
the investors. Continuous declining in the working capital is a red alert for an organization it

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may also led to the bankruptcy. In 2011 the working was BDT 5781 Million which was
sharply declined to BDT 1233 Million in 2012 after that it increases and in 2014 it was BDT
1568 Million. Huge amount of working capital also encourage a company to diversify its
business.

ACI Limited has more opportunity to expand its business with the support of its good
financial condition.

Activity ratios:

Activity ratios are also known as Asset management ratios also indicate the efficiency of the
use of assets in generating sales.

Inventory turnover ratio is the measurement of no. of times the inventory of a company is
turned over in a year. This ratio is an indication of production and purchasing efficiency. The
higher value shows quick selling of the inventory and a little unused amount of the inventory.
In last five years (2010-2014) highest value was 4.81 times in 2011 but it decreases gradually
and in 2014 it was 4.16 times. The result reveals the good management of the inventory and
very high production capacity of ACI Limited.

Total asset turnover ratio is the measurement of the efficiency of use of the total assets in
generating sales. This ratio indicates how efficiently an organization uses its assets. High
value of the ratio means more efficiency in using its assets. Total asset turnover ratio of ACI
Limited was highest, 0.82 times, in 2010 but it was declining up to 2013. In 2014 it was 0.79
times which means ACI Limited is generating BDT 0.79 from single BDT of its assets. The
result reveals the higher efficiency of ACI Limited in using its total assets.

Days sales outstanding reveal the no. of days a business take to collect cash from the market
after credit sales. ACI Limited took 170 days in 2014 for collecting its receivables which was
202 days in 2012. Collection in short period is good sign for ACI Limited because by quickly
turning sales into cash the company has the possibility to put the cash to reinvest and make
more sales.

Average payment period is average time period is taken by a company to making payment to
its creditors. The result of Average payment period of ACI Limited varies every year. In 2014
it was 82 days which indicates ACI Limited took 82 days to make payment to the creditors.

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Leverage ratios:

Companies depend on both owners’ equity and debt for financing in the business operations.
Leverage ratio is a financial measurement that looks at how much capital comes in the form
of debt, or judges the ability of a company to meet its financial obligations. Higher level of
debt can be risky for a company and its investors. On the other hand, low level of debts can
also raise questions to investors. Unwillingness to borrow may be an indication that operating
margins are simply too tight.

Debt ratio measure the ratio of debt to assets. The higher this ratio, the more leveraged the
company and the greater its financial risk. Debt ratio of ACI Limited was increasing from
2010. In 2014 debt ratio is 0.79 (79%), which was the highest value in last five years. Debt
ratio of 2014 suggests that ACI Limited is getting more financial leverage but more financial
risk is associated with the company.

Profitability ratios:

Profitability ratios are used to assess a business's capability to generate earnings as compared
to its expenses and other relevant costs incurred during a specific period of time. Higher
value Profitability ratios from a previous period indicate that the company is doing well.

Net profit ratio actually measures how much from every BDT of revenue a company is
keeping as its earnings. Net profit ratio was relatively stable for ACI Limited from 2010 to
2014. In 2012 the ratio was the lowest, 0.06 (6%) but ACI Limited has regained its ration in
2014 which was 0.08 (8%). The result reveals that ACI Limited is keeping BDT 8 as its
earning from each BDT 100 of revenues. This leads ACI Limited to a very healthy financial
position.

Return on equity is the amount of net income gained as a percentage of shareholders equity.
Return on equity measures a company’s profitability by illuminating how much profit a
company is generating with the money shareholders have invested. Return on equity of ACI
Limited was negative (-7%) in 2012 which means their return was less than their equity and
they incurred loss in 2012. In 2013 the ratio turned to positive and in 2014 they become
stronger and the ratio was 0.11 (11%) which was the highest value in last five years. The ratio
suggests that the shareholders are earning BDT 11 from every BDT 100 of investment.

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Return on asset is the measurement of a company’s ability to turn assets into profit. It is an
indicator of how profitable a company is relative to its total assets. Return on asset of ACI
Limited was steady in last five years. In 2014 it was 0.06 (6%) which means ACI Limited is
generating 6 taka of profit from every 100 taka of its assets. Steady trend line indicates good
financial management of ACI Limited.

An Earnings per share is the portion of a company's profit to be paid to each outstanding
share. Earnings per share is an indicator of determining a share’s price. Higher amount of
EPS is desirable for the share holders and it increases the confidence of the investors. EPS of
ACI Limited was highest in 2011 (BDT 34.55) and lowest in 2012 (BDT 22.93) because of
incurring loss in 2012. But they come back strongly and the EPS was BDT 27.64 in 2014.

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 8. Share Performance Analysis

Investing in the stocks gives investors the opportunity to get to know about the company and
feel comfortable about where the investor’s money is going. Individual stocks have a greater
upside potential than most mutual funds.

9. Objectives of Share Performance Analysis:

 
 To know the current market position of the security as an investors.
 
 To assess the risk associated with the security and the market.
 
 To determine the correlation of the security with market.
 
To determine the volatility of the security.

10. Methodology

For calculating different parameters of share performance of ACI Ltd., the following
formulae were used:

1. Return

The gain or loss of a security in a particular period is the return. The return consists of the
income and the capital gains relative on an investment. It is usually quoted as a percentage.
The general rule is that the more risk you take, the greater the potential for higher return - and
loss.

For project purpose monthly return of ACI Limited’s security was calculated by using
following formula:

Return = (Month End Price – Month beginning Price) / Month beginning Price

The mean return from the security of ACI Limited was calculated by using following
formula.

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 X 
X
n

Where,

X = Daily return of a single security

n = Total number of days

Yearly Mean return was computed by multiplying 12 with the Average monthly return of the
security of ACI Limited.

2. Risk

The risk of financial assets can be measured with an absolute measure of dispersion or
variability of returns, called the variance. An equivalent measure of total risk is the square
root of the variance, the standard deviation, which measure the deviation of each observation
from the arithmetic mean of the observations and is a reliable measure of variability. The
symbol σ 2 is used to denote the variance and σ is used to denote the standard deviation.
Variance is calculated as:
n

X  X 2
σ2 = i 1 and σ=  2
n 1

Where

σ2 = the variance of the daily returns

σ = Standard deviation, the risk

X = The value of daily returns

X = the mean of the daily returns

n = the number of returns

3. Correlation (ρij)
In the world of finance, a statistical measure of how two securities moves in relation to each
other or how a securities moves in relation with the market. Correlation coefficient ranges

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between -1 and +1. Perfect positive correlation (a correlation co-efficient of +1) implies that
as one security moves, either up or down, the other security will move in the same direction.
Alternatively, perfect negative correlation (a correlation co-efficient of -1) means that if one
security moves in either direction the security that is perfectly negatively correlated will
move in the opposite direction. Correlation denoted by ρ ij.

4. Beta [Slope (β)]

It is the measurement of the volatility, or systematic risk, of a security or a portfolio in

comparison to the market as a whole. Beta is used in the capital asset pricing model (CAPM),
a model that calculates the expected return of an asset based on its beta and expected market
returns. It’s Also known as "beta coefficient."

Beta is calculated using regression analysis, and beta is the indicator of a security's returns to
respond to variation in the market. A beta of 1 indicates that the security's price will move
with the market. A beta of less than one means that the security will be less volatile than the
market. A beta of greater than 1 indicates that the security's price will be more volatile than
the market. For example, if a stock's beta is 1.2, it's theoretically 20% more volatile than the
market.

5. Alpha [Intercept (α)]

It is the measurement of performance on a risk-adjusted basis. Alpha takes the volatility

(price risk) of a security and compares its risk-adjusted performance to a benchmark index.
The excess return of the fund relative to the return of the benchmark index is a securities’
alpha.

\
Page 40 of 64
 11. Result and Discussion

Return is the main component of an investment which is the ultimate desire of an investor.
Return is the gain or loss of a security in a particular period of time. It consists of the income
and capital gain based on an investment. Usually return is expressed in terms of percentage
(%). The average return per month from the security of ACI Limited is 0.1182 (11.82%), and
yearly return is 1.4179 (141.84%) whereas average return per month from the market is
0.0054 (0.54%) and yearly return is 0.0649 (6.49%). Securities of ACI Limited is providing
high return to the investors. As a public limited company it’s very good for the company and
for the investors to have such high percentage of return. In the bearish market securities of
ACI Limited is providing high return which ultimately increasing the confidence of investors.
Considering the market condition investors can invest more in the securities of ACI Limited.

Risk is the chance that actual return of an investment will be different from expectations.
Risk includes the possibility of losing some or all of the original investment. Risk is
computed by standard deviation and higher value of the standard deviation means higher risk
is associated with the investment. The risk associated with this security is 0.2357, this mean
actual return may deviate 23.57% from the anticipated return. But considering the higher
percentage of return from this stock in the bearish market investors are compensating for
taking on additional risk. All the risk taking investors know high return is associated with
higher percentage of risk. The risk associated with the market is 0.0569 which suggest that
actual return may deviate 5.69% from expected return. Less return is associated with the
market as the return is less. Taking into account, the market situation, securities of ACI
Limited is offering more risk with higher percentage of return.

Correlation is the statistical measure of how two securities moves in relation to each other or
how a securities moves with the market. Correlation of the securities of ACI Limited with the
market is 0.0516. The relation is positive. This relation indicates that all the parameters of
this security moves positively with the market. If the market goes up the parameters of
securities of ACI Limited rise up by 5.16% and same results happen when market goes down.
But considering the value of correlation this security is less sensitive with the market.

Beta (slope) is the measurement of volatility of a stock with the market, which means how
many units of return from a stock, is changed with the unit change in return from the market.
Beta describes an investment's sensitivity to broad market movements. The value of the Slope
(β) for this security is 0.2136. Stocks of ACI Limited moves in the same direction as market,
Page 41 of 64
but less susceptible to fluctuation of the market.

Alpha is the Y intercept of the regression line. The Intercept [alpha coefficient (α)] is a
parameter in the Capital Asset Pricing Model (CAPM). It is the intercept of the security
characteristic line (SCL). Value of the intercept (α) is 0.1170; which implies that if the
standard return is 0% investors would expect their investment to return 11.70% so the
investment in the security of ACI Limited was safe for the return.

Page 42 of 64
 12. Summery

For better understanding of the financial condition of ACI Limited, various ratios have been
computed. All the ratios support good financial condition of ACI Limited.

Liquidity ratios (Current ratio, Quick ratio and Working capital) indicate ACI Limited has very
strong financial ground to expand its business in future and continuously supports its existing
business.

Activity ratio (Inventory turnover ratio, Total asset turnover ratio, Days sales outstanding and
Average payment period) illuminates that the total asset is managing well by ACI limited.
Inventory turnover ratio and Total asset turnover ratio reflects the good management of the
inventory, high production capacity and high efficiency in using total asset. Average payment
period is short (82 days) considering the payables but Days sales outstanding is too long (170
days). They need to concentrate to minimize Days sales outstanding days.

Leverage ratio (Debt ratio) suggests that ACI Limited has a good control on their debt and asset.
They are enjoying more financial leverage but higher financial risk is associated with ACI
Limited.

Profitability ratio (Net profit ratio, ROE, ROA, and EPS) of ACI Limited supports their good
liquid financial standing. ACI Limited is managing their wealth in a very productive manner and
in returns they are providing handsome amount in the form of earnings to the share holders.

With good financial position ACI Limited is providing earnings to the share holders which
ultimately increasing the image of ACI Limited and gaining confidence of the investors.

As an investor analyzing the share performance in the market is very important. Each investor is
very sensitive with the return. With limited invest every investor desire to achieve a minimum
return which compensates the risk associated with the investment.

For the project purpose different parameter of share performance of ACI Limited was analyzed.
Value of all the parameters suggests high performance of the securities of ACI Limited
comparing with the market. In the bearish market they are ensuring 11.82% of average monthly
return with 23.57% of risk.

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 13. Recommendations

After analyzing all the ratios and parameters of the share performance following
Recommendations for ACI Limited can be offered:


ACI Limited is maintaining a healthy financial condition they should invest more  in new
 business with its working capital to obtain more financial liquidity in the future.

They should decrease the no. of days in Days Sales Outstanding (DSO) to collect  its
 receivables more quickly to convert its sales into cash. So that they can reinvest in the

 Business operation and generate more sales.

ACI Limited is enjoying financial leverage but they need 
to have a proper management to
 minimize the financial risk associated with the company.

 the
Though ACI Limited is in profitable situation but they need to concentrate to increase
 Net Profit Ratio and Return on Asset Ratio, which will ultimately increase the EPS.

The performance of the securities is very smooth in the market. They should provide risk
 premium to compensate the risk offered by the securities. Offering risk premium in the
Bearish market may encourage more investors to invest in the securities of ACI Limited.

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 14. Conclusion

ACI Limited is a well reputed corporate in Bangladesh. They are operating their business from
1992 with the stated values and have earned the respect of the stakeholders. The company is
operating in a smooth way in terms of financial activities. They have sustained their business by
good management of the assets and providing wealth to the stockholders.

Financial analysis is necessary to know about a business and the performance of its share. All
analysis reveals the financial strength of ACI Limited. ACI limited have immense opportunity to
expand its business in future and contribute more in the economy of Bangladesh.

15. Reference

References of Books:

Jones, P. Charles, Introduction to Financial Management, Richard D. Irwin, Inc. 1992.

Jones, P. Charles (2010). Investments Principles and Concepts (11th ed.). John Wiley & Sons,
Inc, New Delhi

Advance Chemical Industries Limited, Annual Report 2010

Advance Chemical Industries Limited, Annual Report 2011

Advance Chemical Industries Limited, Annual Report 2012

Advance Chemical Industries Limited, Annual Report 2013

Advance Chemical Industries Limited, Annual Report 2014

References of Website:
Dhaka Stock Exchange, viewed from 04 August 2015- 05 August 2015,
http://www.dse.com.bd/
ACI Limited, viewed from 02 July 2015- 05 July 2015, http://www.aci-bd.com Investopedia -
Educating the world about finance, viewed from 07 August 2015- 15 August 2015,
http://www.investopedia.com/

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 16. Appendix

1. Statement of Financial Position:

2014-2013:

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2012-2011:

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2010-2009:

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 2. Statement of Profit and Loss:

2014-2013:-

2012-2011:

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2010-2009:

3. Statement of Profit or Loss and other Comprehensive Income:

2014-2013:

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2012-2011:

2010-2009:

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 4. Consolidated Statement of Financial Position:

2014-2013:

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2012-2011:

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2010-2009:

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 5. Consolidated Statement of profi t or Loss:-

2014-2013:-

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2012-2011:

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2010-2009:

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 6. Share Capital:

2014-2013:

2012-2011:

2010-2009:

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17. Calculation of the Ratios:

Liquidity ratios

CURRENT ASSETS
1. Current Ratio = CURR EN T LIAB ILITIE S
= 9927161551/8358791057 = 1.19 Times [2014]
= 9461772496/8101494869 = 1.17 Times [2013]
=8334671204/7101682744 = 1.17 Times [2012]
=11096971158/5316055351 = 2.09 Times [2011]
=5801121537/4087163416 = 1.42 Times [2010]
QUIC K ASSE TS
2. Quick Ratio (Acid-Test Ratio) = CURR EN T LIAB ILITIE S
= (9927161551-2961175971)/8358791057 = 0.83 Times [2014]
= (9461772496-2553330342)/8101494869 = 0.85 Times [2013]
= (8334671204-2128984396)/7101682744 = 0.87 Times [2012]
= (6954929184-1770481777)/5316055351 = 0.98 Times [2011]
= (5801121537-1716072609)/4087163416 = 1.0 Times [2010]

3. Working Capital = Current Asset – Current Liabilities

= (9927161551-8358791057)/1000000 = BDT 1568.37 Mio. [2014]

= (9461772496-8101494869)/1000000 = BDT 1360.28 Mio. [2013]

= (8334671204-7101682744)/1000000 = BDT 1232.99 Mio. [2012]

= (11096971158-5316055351)/1000000 = BDT 5780.92 Mio. [2011]

= (5801121537-4087163416)/1000000 = BDT 1713.96 Mio. [2010]

Activity ratios

SLAES or REVENUE
1. Inventory Turnover Ratio =
INVENTORY

= 12318723190/2961175971 = 4.16 Times [2014]

= 10683600712/2553330342 = 4.18 Times [2013]

= 9680061562/2128984396 = 4.55 Times [2012]

= 8513841846/1770481777 = 4.81 Times [2011]

= 7915400279/1716072609 = 4.61 Times [2010]

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 SALES or REVENUE
2. Total Asset Turnover Ratio =
TOTAL ASSETS
= 12318723190/15526192783 = 0.79 Times [2014]
= 10683600712/14693912974 = 0.73 Times [2013]
= 9680061562/13206467006 = 0.73 Times [2012]
= 8513841846/11096971158 = 0.77 Times [2011]
= 7915400279/9686269567 = 0.82 Times [2010]
=
ACCOUNTSRECIEVABLS
3. Days Sales Outstanding (DSO) =  No.ofDAYS
TOTALSALES
= (5802572938*360)/12318723190 = 169.57 Days [2014]
= (5796239556*360)/10683600712 = 195.31 Days [2013]
= (5433551092*360)/9680061562 = 202.07 Days [2012]
= (4315151216*360)/8513841846 = 182.46 Days [2011]
= (3293307705*360)/7915400279 =149.78 Days [2010]
4. Average Payment Period = (ACCOUNTSPAYABLE  NO. OF DAYS)
NET PURCHASES or COGS

= (1624157078*360)/7147881434 = 81.80 Days [2014]

= (1833527360*360)/6426070148 = 102.72 Days [2013]

= (1348153456*360)/6089878323 = 79.70 Days [2012]

= (1449832593*360)/5317279883 = 98.16 Days [2011]

= (947031067*360)/5094561620 = 66.92 Days [2010]

Leverage ratios:
TOTAL DEBT
1. Debt Ratio = 100
TOTAL ASSET

= 12318723190/15526192783 = 0.79 = 79% [2014]

= 9056660723/14693912974 = 0.62 = 62% [2013]

= 8125180846/13206467006 = 0.62 = 62% [2012]

= 6329473598/11096971158 = 0.57 = 57% [2011]

= 5228091771/9686269567 = 0.54 = 54% [2010]

Profitability ratios:

NET PROFIT
1. Net Profit Ratio = SALE S or REVE NUE

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= 950713609/12318723190 = 0.08 = 8% [2014]

= 764187906/10683600712 = 0.07 = 7% [2013]

= 545115873/9680061562 = 0.06 = 6% [2012]

= 681129073/8513841846 = 0.08 = 8% [2011]

591590014/7915400279 = 0.07% = 7% [2010]

2. Return on Equity = NET INCOM E AVAILABLE FOR COM M ON STOCKHOLDERS
STOCKHOLDER'S EQUITY

= 479115177/4274198745 = 0.11 = 11% [2014]

=103239482/4040414787 = 0.03 = 3% [2013]

= -282815672/4155380482 = -0.07 = 7% [2012]

= 186069546/4688358251 = 0.04 = 4% [2011]

= 140388450/4914447794 = 0.03 = 3% [2010]

3. Return on Assets (ROA) = NET INCOME

TOTA L ASSE T

= 950713609/15526192783 = 0.06 = 6% [2014]

= 764187906/14693912974 = 0.05 = 5% [2013]

= 545115873/13206467006 = 0.04 = 4% [2012]

= 681129073/11096971158 = 0.06 = 6% [2011]

= 591590014/9686269567 = 0.06 = 6% [2010]

NET INCOME
4. Earnings per Share (EPS) = TOTAL NO. OF COMMON STOCK OUTSTANDING

= 950713609/34394401 = BDT 27.64 [2014]

= 764187906/28582082 = BDT 26.74 [2013]

= 545115873/23773833 = BDT 22.93 [2012]

= 681129073/19714756 = BDT 34.55 [2011]

= 591590014/19404000 = BDT 30.49 [2010]

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