FINANCIAL STATEMENT ANALYISIS

Of

Desh Garments Ltd (DSHGARME)

Submission Date: July 29, 2021

Submitted to:
DR. MOHAMMED KAMRUL HASAN
Associate Professor, Dept. of Finance
Faculty of Business Administration, AIUB

Submitted by: XXXXXXXXXXX

ID: XX-XXX-XX
Company Profile: Desh garments XXXXXX…………………………………………………………..in 5-8 sentences.

Current Ratio
An indication of a company's ability to meet short-term debt obligations, the higher the
ratio, the more liquid the company is. Current ratio is calculated by dividing firm’s current
asset by current liability.

Current Ratio = Current Asset ÷ Current Liability

Particulars 2015 2016 2017 2018 2019
Current Asset(a) 16,04,99,880 13,97,54,079 13,53,43,366 24,73,00,276 29,91,98,257

Current 21,04,77,368 17,47,19,905 13,86,73,683 22,16,71,820 25,30,15,734

Liability(b)
Current ratio (a÷b) 0.762551 0.799874 0.975984 1.115614 1.182528

Table: Current ratios of Desh Garments Ltd. in different years.

Current Ratio
1.4

1.2

1
Current Ratio

0.8

0.6

0.4

0.2

0
2015 2016 2017 2018 2019
Year

Figure: Graph shows the change of Current ratio.

The above graph shows that, in 2015 the current ratio of Desh Garments Limited was
0.762551; it means Desh Garments Limited has 1 taka of current liabilities against
0.762551taka of current assets. It indicates Desh Garments Limited may not have the ability
to pay off its current liabilities with its current assets. In 2016 the current ratio was 0.799874
which means Desh Garments Limited investment in current assets was higher than in 2015.
In 2017, 2018 and 2019 the current ratio was 0.975984, 1.115614 and 1.182528 which was
better than 2016 which means at that time period Desh Garments Limited invested more in
short term assets.
In this graphical representation it is quite apparent that their current ratio of 1.18 is capable of
paying its obligations. The company is in good financial health in terms of current ratio
 analysis and it was improving year on year which is definitely a good sign. The company had
used its current assets or its short-term financing facilities efficiently so far.

Debt Ratio
Debt to Asset ratio measures how efficiently a firm manages its debt. It shows the
percentage of claim of the creditor on the asset of the company.

Total Debt
Total Debt to Asset Ratio/Debt Ratio =
Total Assets

Particulars 2015 2016 2017 2018 2019

Total Debt 22,58,82,423 18,50,43,949 146416716 25,01,84,142 28,46,08,837
Total Asset 26,01,06,253 24,71,24,173 23,89,84,900 37,57,35,945 42,80,26,088
Debt Ratio 0.868423 0.748789 0.612660 0.665850 0.664933
Table: The Debt ratios of Desh Garments Limited in different years

Debt Ratio
1
0.9
0.8
0.7
0.6
Debt Ratio

0.5
0.4
0.3
0.2
0.1
0
2015 2016 2017 2018 2019

Year

Figure: Graph shows the change of Debt ratio.

The above graph shows that from the year 2015 to 2017 the ratios were 0.868423, 0.748789,
and 0.612660 which have decreased year after year considerably which is a good sign for the
company, but at the year 2018 and 2019 the ration was 0.665850 and 0.664933 which was
higher than 2017. The lower debt ratio may decrease the financial risk of Desh Garments Ltd.
Debt ratio of 0.5 means that half of the company's assets are financed through debts. As a rule
of thumb, normally firms are structured as 40% ratios which mean if there is 100 taka asset
then 40 taka is debt and 60 taka is equity. Sometimes if the business environment favors
leveraging a firm may go debt ratio of 60% but banks could have as high as 92% debt ratio.
 Net Profit Margin Ratio

Net Profit Margin tells you the net profit that the business is earning per taka of sales. Net
Profit Margin is the ratio measures net income per taka of sales and is calculated as net
income divided by revenues, or net profits divided by sales. It measures how much out of
every taka of sales a company actually keeps in earnings. Profit margin is very useful when
comparing companies in similar industries.

Net Profit after Tax

Net Profit Margin=
Sales

Particulars 2015 2016 2017 2018 2019

Net Profit 83,70,786 2,61,22,654 3,44,63,291 2,80,10,878 1,69,85,225
Sales 43,75,40,598 41,04,53,025 37,57,22,677 53,58,23,009 67,12,09,539
Ratio 0.019131 0.063643 0.091725 0.052276 0.025305
Percentage 1.9131% 6.3643% 9.1725% 5.2276% 2.5305%
Table: The Gross Profit Margin of Desh Garments Ltd in different years.

Net Profit Margin Ratio

0.1
0.09
0.08
0.07
0.06
Ratio

0.05
0.04
0.03
0.02
0.01
0
2015 2016 2017 2018 2019
Year

Figure: Graph shows the change of Net Profit Margin ratio.

Profit margin at the year 2015, 2016 and 2017 is displayed as a percentage; 1.91%, 6.36%
and 9.17% profit margin, which was increasing steadily. For example, the profit margin of
0.0917 means the firm has a net income of Tk. 0.0917 for Tk. 1 of sales. A higher profit
margin indicates a more profitable company that has better control over its costs compared to
its competitors and also do possess some brand value. The main reason that the profit margin
declined is high cost. High cost, in turn, generally occurs due to inefficient operations. Profit
 margin also declined because in 2019, Desh Garments Ltd used a lot of long-term debt. This
invariably resulted in more interest charges, which has brought the Net Income down.

Return on Asset

Return on assets is the ratio of annual net income to average total assets of a business during
a financial year. It measures efficiency of the business in using its assets to generate net
income. It is a profitability ratio. Return on Asset (ROA) is an indicator of a company which
deals with profit relative to its total assets. It gives an idea as to how efficient management is
at using its assets to generate earnings. It is calculated by dividing a company's annual
earnings by its total assets, ROA is displayed as a percentage. Sometimes this is referred to as
"return on investment".

Net Income
Returnon Asset=
Total Assets

Particulars 2015 2016 2017 2018 2019

Net Profit After Tax 83,70,786 2,61,22,654 3,44,63,291 2,80,10,878 1,69,85,225
Total asset 26,01,06,253 24,71,24,173 23,89,84,900 37,57,35,945 42,80,26,088
Return on Asset 0.032182 0.105706 0.144206 0.074549 0.039682
Table: The Return on Total Assets of Desh Garments Ltd in different years.

Return on Asset Ratio

0.16

0.14

0.12

0.1
Ratio

0.08

0.06

0.04

0.02

0
2015 2016 2017 2018 2019
Year

Figure: Graph shows the change of Return on Asset ratio.

Return on total assets indicates the number of paisas earned on each taka of assets. Thus,
higher values of return on assets show that business is more profitable. An increasing trend of
ROA indicates that the profitability of the company is improving. Conversely, a decreasing
trend means that profitability is deteriorating. This may have occurred in 2019 because it had
used more debt financing in 2019 compared to 2017 which resulted in more interest expenses
and brought the net income down.

Return on Equity

Return on Equity (ROE) measures the rate of return on common stockholders’ equity. It
measures a company's profitability by revealing how much profit a company generates with
the money shareholders have invested. Return on Equity measures the amount of Net Income
earned by utilizing each taka of Total common equity. It is the most important of the “Bottom
line” ratio. By this, you can find out how much the shareholders are going to get for their
shares.
Particulars 2015 2016 2017 2018 2019
Net Profit After Tax 83,70,786 2,61,22,654 3,44,63,291 2,80,10,878 1,69,85,225
Shareholders’ Equity 3,42,23,830 6,20,80,224 9,25,68,184 12,55,51,803 14,34,17,251
Return on Equity 0.244589 0.420788 0.372301 0.223102 0.118432
Percentage 24.4589% 42.0788% 37.2301% 22.3102% 11.8432%
Return on Equity (ROE) is equal to net income divided by common equity. Stockholders
invest to get a return on their money, and this ratio tells how well they are doing in an
Net Income
accounting sense. Return on Equity=
Shareholder s ' Equity

Table: The Return on Total Equity of Desh Garments Ltd in different years.

Return on Equity (ROE)

0.45
0.4
0.35
0.3
0.25
Ratio

0.2
0.15
0.1
0.05
0
2015 2016 2017 2018 2019
Year

Figure: Graph shows the change of Return on Equity (ROE) ratio.

After doing the analysis from Desh Garments Ltd financial statements it is shows in the years
2015 to 2019, the return from 100 taka invested by the shareholders was respectively
24.4589%, 42.0788%, 37.2301%, 22.3102% and 11.8432%. The higher the percentage is the
better for the company as well as for shareholders it also means that the company is efficient
in generating income on new investment. Desh Garments Ltd had higher ROE in 2016, after
2016 their ROE gradually decreased so it can be said that the rate of return from equity is
almost constant decreasing at around 10% which is not good and investors may ask for higher
return.

Earnings per Share (EPS)

Earnings per Share (EPS) are the portion of a company's profit allocated to each outstanding
share of common stock. It serves as an indicator of a company's profitability. It is generally
considered to be the single most important variable in determining a share's price. It is also a
major component used to calculate the price-to-earnings valuation ratio.

Net Earning
Earnings per share (EPS) =
Number of Shares

Particulars 2015 2016 2017 2018 2019

Net Earning 83,70,786 2,61,22,654 3,44,63,291 2,80,10,878 1,69,85,225
Numbers of Shares 33,70,000 40,44,000 52,57,200 60,45,780 63,73,260
EPS 2.48 6.46 6.56 4.63 2.67
Table: The Earnings per Share (EPS) of Desh Garments Ltd in different years.

Earnings per Share (EPS)

7

4
EPS

0
2015 2016 2017 2018 2019
Year

Figure: Graph shows the change of Earning per Share.

EPS of Desh Garments Ltd has been decreasing rate over the years. This is not good news
because this will not help to attract the investors and thus the company can collect more
money from stock market.
This one we will do after finishing Cost of capital chapter

Weighted Average Cost of Capital (WACC)

E D
WACC= ∗Ke+{ ∗Kd (1−Tax ) }
V V
For DSHGARME,
Market value of the firm’s equity E= 14,34,17,251
Market value of the firm’s debt D= 28,46,08,837
Total market value of the firm’s financing V= 42,80,26,088
Corporate Tax =25%
Long Term Liabilities = 3,15,93,103
Km= 16%
Krf =7.41%
EBIT= 343 million
Beta β = 1.47

LongTerm Liabilities 31593103

So, Cost of debt Kd= = =0.09210
EBIT 343000000

Cost of equity Ke = Krf + β (Km - Krf) = 0.0741+1.47(0.16-0.0741) =0.200

E D
WACC= ∗Ke+{ ∗Kd (1−Tax ) }
V V

143417251 284608837
= 428026088 ∗0.200+ { 428026088 ∗0.09210 ( 1−0.25 ) }

= 0.0670+0.04593

= 0.11293 = 11.293%

Reference: For DSHGARME

1. Financial Report: https://www.deshgroup.com/desh-garments-ltd.html
2. Beta: https://www.amarstock.com/stock/DSHGARME
3. Risk Free Rate (Krf): https://www.bb.org.bd/monetaryactivity/treasury.php and
http://www.worldgovernmentbonds.com/country/bangladesh/)
4. EBIT: https://www.marketscreener.com/quote/stock/DESH-GARMENTS-
LIMITED-20707212/financials/