RATIO

ANALYSIS
A method of
quantifying a
company's
liquidity,
operational
efficiency, and
profitability to
evaluate its
performance
over time and
relative to its
peers

FINANCIAL REPORT ANALYSIS

2021-2022
An assignment on Financial Performance Analysis of 5
Power and gas power Companies

SUBMITTED BY:
SHAHEEN SULTANA SHAHARIAR ALI
ID: 20210102005 ID: 20210102028
Nazmus sakib Owaly Mohammad Nafi
ID: 20210102020 ID: 20210102029
Nishat islam Bony yeamin
ID: 20210102025 ID: 20210102037

Submitted TO:
Dr. Naznin Sultana Chaity
Associate Professor
School of business
Ahsanullah University of Science and Technology
Email: nschity.sob@aust.edu
Table pf cantent
 Acknowledgement

First and foremost, we express our gratitude to Allah for granting us the strength and guidance
throughout the process of preparing this report.
We would like to extend our heartfelt appreciation to Dr. Naznin Sultana Chaity our esteemed
associate professor, whose valuable insights and constant support have been instrumental in
shaping this report. Her guidance and encouragement have been invaluable to us.
We are also thankful to all the team members who collaborated on this project. Their dedication
and hard work have been vital in gathering the necessary data and conducting the analysis.
Furthermore, we would like to acknowledge the various power and gas companies in Bangladesh
for providing the financial information and data required for this analysis. Without their
cooperation, this report would not have been possible.
Overall, we are grateful to all those who have played a part, directly or indirectly, in making this
report a success. Your support and contributions have been invaluable to us.

Thank you.
 Executive Summary:

The power and gas industry in Bangladesh play a crucial role in the country's economic
development and energy supply. This sector is a significant part of the industrial division and a
key contributor to the overall workforce. The foreign trade earnings and business generation in
the power and gas sector have shown consistent growth rates over the years.
In the fiscal year 2020-21, the power and gas sector's export earnings amounted to $31.45
billion, accounting for 81.16% of the country's total export revenue. However, due to the global
impact of the Covid-19 pandemic, the share was slightly lower compared to the previous year,
which stood at 84.21% with export earnings of $34.13 billion.
The primary objective of this study is to analyze the financial performance of five power and gas
companies over the past five years (2016-2021). The study focuses on the utilization of
resources, management of liabilities, shareholder's equity, inventory management, sales, and
expenses, as these factors significantly influence a company's financial performance.
Financial ratio analysis is employed as the primary method to assess the companies' financial
performance and evaluate their overall financial health. Liquidity ratios, efficiency ratios,
leverage ratios, and profitability ratios are utilized to assess the efficiency and effectiveness of
these companies during the specified period.
Both cross-sectional and time-series analyses are conducted to gain a comprehensive
understanding of the companies' financial positions and trends over the years. The evaluation of
each company's financial performance and stability is essential to identify strengths and
weaknesses in comparison to industry peers.
Financial ratio analysis provides valuable insights that aid in decision-making and strategic
planning for the power and gas companies. By understanding their financial performance, these
companies can make informed business decisions and position themselves effectively in the
competitive market.
Overall, this executive summary highlights the importance of assessing the financial
performance of power and gas companies in Bangladesh and emphasizes the significance of
using financial ratio analysis as a valuable tool for making informed business decisions and
ensuring financial stability and growth.
 Introduction

performance examination is a vital process that involves assessing the achievement of specific
objectives in comparison to the intended outcomes. In the context of financial analysis, this
evaluation is carried out using financial statements. Financial statements are collections of
information organized according to consistent accounting procedures, aiming to provide insights
into various financial aspects of a business firm. The two primary financial statements are the
Balance Sheet, which represents a company's financial position at a specific point in time, and
the Income Statement, which illustrates a company's financial performance over a given period.
In this report, we have conducted a comprehensive analysis of five power and gas companies to
evaluate their financial performance. The selected companies are significant players in the
energy sector of Bangladesh and play crucial roles in the country's economic development and
energy supply.
To assess the financial performance of these power and gas companies, we have employed ratio
analysis as a fundamental tool. Ratio analysis helps in understanding the relationships between
different financial variables and provides valuable insights into a company's efficiency and
financial health.
For our report we used ratio analysis to evaluate the performance of Alhaj Textile Mills Ltd,
Style Craft Rahim Textiles The ratios that has been used are (1) Liquidity ratios (2) Asset
Management ratios (3) Debt Management ratios (4) Profitability ratios (5) Market Value ratios.
Objective of the report

The financial performance analysis of the five power and gas companies aims to achieve the following
objectives:

Evaluate Financial Health: The primary objective is to assess the overall financial health of the power
and gas companies. By analyzing their financial statements and key ratios, we aim to determine their
profitability, liquidity, solvency, and efficiency in managing resources.

Identify Strengths and Weaknesses: The analysis will identify the strengths and weaknesses of each
company in terms of their financial performance. This will help stakeholders and investors understand
the areas where a company excels and areas that need improvement.

Assess Management Performance: By examining the financial statements, we aim to evaluate the
effectiveness of the management in utilizing resources and making strategic decisions. This will provide
insights into the company's operational efficiency and effectiveness.

Provide Informed Decision-Making: The analysis aims to offer essential information to the readers of
the financial statements, enabling them to make informed decisions. It will assist investors, regulators,
and other stakeholders in assessing the financial stability and future prospects of the power and gas
companies.

Forecast Business Success: Through the examination of financial performance, the analysis will help in
predicting the potential success or failure of the power and gas companies. It will provide a basis for
making forecasts about the companies' future performance and growth prospects.

Mitigate Risks and Fraud: The analysis will help in identifying any discrepancies in the financial
statements and reducing the risk of potential fraud. By detecting any irregularities or anomalies, it will
enhance the transparency and credibility of the financial information presented.

Support Future Decision-Making: The insights gained from the financial performance analysis will serve
as a valuable reference for future decision-making, strategic planning, and financial forecasting.

By pursuing these objectives, the financial performance analysis of the five power and gas companies
will contribute to a comprehensive understanding of their financial standing, aiding stakeholders and
investors in making sound and informed decisions related to investment and business partnerships.
Methodology

Liquidity ratios:
Liquidity ratios are the ratios that measure the ability of a company to meet its
short-term debt obligations. These ratios measure the ability of a company to pay
off its short-term liabilities when they fall due Generally, the higher the liquidity
ratios are, the higher the margin of safety that the company possess to meet its
current liabilities. Liquidity ratios greater than 1 indicate that the company is in
good financial health and it is less likely fall into financial difficulties.
Activity ratios:
an activity ratio broadly described as any type of financial metrics that helps investors and
research analyst gang how efficiently a company uses its assets to generate revenues and cash
types of activity ratios inventory turnover average collection period average payment period
total asset turnover.

Debt ratios:
of ratio analysis is defined as an expansion of the relationship between a company total Dept
and its assets it is a measurement for the ability of a company to pay its debts adaptor ratio
measures the amount of liquid is used by a company in terms of total Dept to total assets basic
measures of debt ratio are debt ratio time interest ratio fixed payment coverage ratio.

Profitability ratios:
profitability ratios uses a company's ability to earn profits from its sales or and operations
balance sheet assets or shareholders equity profitability ratio indicate how efficiently a
company generates profit and value for shareholders basic measures of profitability ratio are
gross profit margin operating profit margin net profit margin earning per share return on equity
return on total assets return on equity.

Market ratios:
market value ratios are used to evaluate the current share price of a publicly held company
stock these ratios out implied by current and potential investors to determine whether a
company share over priced or underpriced the basic measures of market ratio are price
earnings ratio market book ratio.
Application of Ratio Analysis
The fundamental basis of ratio analysis is to compare multiple figures and derive a calculated
value. By itself, that value may hold little to no value. Instead, ratio analysis must often be
applied to a comparable to determine whether or a company's financial health is strong, weak,
improving, or deteriorating.

Ratio Analysis Over Time

A company can perform ratio analysis over time to get a better understanding of the trajectory of
its company. Instead of being focused on where it is today, the company is more interested in
how the company has performed over time, what changes have worked, and what risks still exist
looking to the future. Performing ratio analysis is a central part in forming long-term decisions
and strategic planning.
To perform ratio analysis over time, a company selects a single financial ratio, then calculates
that ratio on a fixed cadence (i.e. calculating its quick ratio every month). Be mindful of
seasonality and how temporarily fluctuations in account balances may impact month-over-month
ratio calculations. Then, a company analyzes how the ratio has changed over time (whether it is
improving, the rate at which it is changing, and whether the company wanted the ratio to change
over time).

Ratio Analysis Across Companies

Imagine a company with a 10% gross profit margin. A company may be thrilled with this
financial ratio until it learns that every competitor is achieving a gross profit margin of 25%.
Ratio analysis is incredibly useful for a company to better stand how its performance compares
to similar companies.
To correctly implement ratio analysis to compare different companies, consider only analyzing
similar companies within the same industry. In addition, be mindful how different capital
structures and company sizes may impact a company's ability to be efficient. In addition,
consider how companies with varying product lines (i.e. some technology companies may offer
products as well as services, two different product lines with varying impacts to ratio analysis).
Ratio Analysis Against Benchmarks
Companies may set internal targets for their financial ratios. These calculations may hold current
levels steady or strive for operational growth. For example, a company's existing current ratio
may be 1.1; if the company wants to become more liquid, it may set the internal target of having
a current ratio of 1.2 by the end of the fiscal year.
Benchmarks are also frequently implemented by external parties such lenders. Lending
institutions often set requirements for financial health as part of covenants in loan documents.
Covenants form part of the loan's terms and conditions and companies must maintain certain
metrics or the loan may be recalled.
If these benchmarks are not met, an entire loan may be callable or a company may be faced with
an adjusted higher rate of interest to compensation for this risk. An example of a benchmark set
by a lender is often the debt service coverage ratio which measures a company's cash flow
against it's debt balances.
Financial ratio analysis

Liquidity Ratio
Current Ratio = (Current assets/current Liabilities)
The current ratio is a liquidity ratio that measures whether a firm has enough resources to meet its
short-term obligations.

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Quick ratio= (Current Assets-inventory)/Current Liabilities
In finance, the quick ratio, also known as the acid-test ratio is a type of liquidity ratio, which
measures the ability of a company to use its near cash or quick assets to extinguish or retire its
current liabilities immediately.

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1.55

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1.45

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1.35

1.3
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Power Grid Company of Bangladesh Ltd. Khulna Power Company Limited

Activity ratio or asset management ratio
Inventory Turnover = (Cost of goods sold/Inventory)

In accounting, the inventory turnover is a measure of the number of times inventory is sold or used in
a time period such as a year. It is calculated to see if a business has an excessive inventory in
comparison to its sales level.

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2.5

1.5

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Power Grid Company of Bangladesh Ltd. Khulna Power Company Limited

Average Collection Period= (Account Receivable)/(Sales/365)

he average collection period is the average number of days it takes a business to collect
and convert its accounts receivable into cash. It is one of six main calculations used to
determine short-term liquidity, that is, the ability of a company to pay its bills (current liabilities)
as they come due.

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Power Grid Company of Bangladesh Ltd. Khulna Power Company Limited

Average Payment Period = (Account Payable)/(Sales/365)

Average payment period is the metric used to represent the average number of days a
company takes to pay the amount payable to its supplier. Whereas, average collection
period is the metric used to indicate the average number of days a company takes to collect and
convert its accounts receivable into cash.

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Power Grid Company of Bangladesh Ltd. Khulna Power Company Limited

Total asset turnover = (Sales/Total Assets)

Asset turnover, total asset turnover, or asset turns is a financial ratio that measures the efficiency of
a company's use of its assets in generating sales revenue or sales income to the company

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Power Grid Company of Bangladesh Ltd. Khulna Power Company Limited

Debt Management Ratio

i)Debt Ratio= (Total Liability/Total Asset)

Debt Ratio is a financial ratio that indicates the percentage of a company's assets that are provided
via debt. It is the ratio of total debt and total assets.

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Power Grid Company of Bangladesh Ltd. Khulna Power Company Limited

Times Interest Earned=(EBIT/Interest Charges)

The times interest earned (TIE) ratio is a measure of a company's ability to

meet its debt obligations based on its current income

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Power Grid Company of Bangladesh Ltd. Khulna Power Company Limited

Debt to Equity Ratio= (Total Liabilities/Common Stock equity)

The debt-to-equity ratio is a financial ratio indicating the relative proportion of shareholders' equity
and debt used to finance a company's assets. Closely related to leveraging, the ratio is also known
as risk, gearing or leverage.

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Power Grid Company of Bangladesh Ltd. Khulna Power Company Limited

Profitability Ratio
i) Gross Profit Margin = (Gross Profit/Sales)
ii)
shows the percentage ratio of revenue you keep for each sale after all
costs are deducted. It is used to indicate how successful a company is in
generating revenue, whilst keeping the expenses low.

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DHAKA ELECTRIC SUPPLY COMPANY LIMITED Khulna Power Company Limited

Operating Profit Margin= (Operating Profit/Sales)

In business, operating margin—also known as operating income margin, operating profit margin,
EBIT margin and return on sales —is the ratio of operating income to net sales, usually expressed in
percent.

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Power Grid Company of Bangladesh Ltd. Khulna Power Company Limited

Net Profit Margin = (Net Profit/Sales)

Profit margin is a measure of profitability. It is calculated by finding the profit as a percentage of the
revenue. There are 3 types of profit margins: gross profit margin, operating profit margin and net
profit margin. Gross Profit Margin is calculated as gross profit divided by net sales

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Power Grid Company of Bangladesh Ltd. Khulna Power Company Limited

Earning Per Share

Earnings per share is the monetary value of earnings per outstanding share of common stock for a
company. It is a key measure of corporate profitability and is commonly used to price stocks.

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Power Grid Company of Bangladesh Ltd. Khulna Power Company Limited

Return on Assets= (Earning available for common stockholders)/Total Assets)

The return on assets shows the percentage of how profitable a company's assets are in generating
revenue.

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Power Grid Company of Bangladesh Ltd. Khulna Power Company Limited

Return on Equity= (Net Income/ Shareholders Equity)

The return on equity is a measure of the profitability of a business in relation to the equity. Because
shareholder's equity can be calculated by taking all assets and subtracting all liabilities, ROE can
also be thought of as a return on assets minus liabilities

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Power Grid Company of Bangladesh Ltd. Khulna Power Company Limited