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“RATIO ANALYSIS OF Industrial Promotional and

Development Company of Bangladesh (IPDC)”.

A Study To Compare Performance Through Financial Data

Course: Business FinanceCourse Code: FIN 201Section: 2

Submitted to:

Farzana HudaSenior LecturerDepartment of Business Administration East West University

Submitted by:

Md. Foysal Kabir Id: 2009-2-10-074

Nahid Hossain Id: 2010-2-10-233

Md. Nasir Uddin Id: 2010-2-10-068

Abu Bakar Siddique Id: 2011-2-13-039

Date of submission: December 15, 2013

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LETTER OF TRANSMITTAL

15 December 2013

Farzana Huda

Senior Lecturer

Department of Business Administration

East West University

Subject: Submission of assignment on ratio analysis of financial company.

Dear Madam:

We are honored to submit this Assignment on ratio analysis of financial company (IPDC) as you have authorized us to in this semester. We are very pleased to prepare this assignment under your guidance since it gave us the opportunity to know the process how we can do Financial ratio analysis. The congenial atmosphere, the information assistance, feedback on the topic and to improve this assignment, we are so grateful to you.

We tried our level best to accumulate the information for you as comprehensive as possible. We will be obliged to provide further clarification on this report whenever necessary.

Sincerely Yours,

Name ID. Signature

Md. Foysal Kabir 2009-2-10-074

Nahid Hossain 2010-2-10-233

Md. Nasir Uddin 2010-2-10-068

Abu Bakar Siddique 2011-2-13-039

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ACKNOWLEDGEMENT

First and foremost we would like to express our gratitude and indebtedness to our honorable

faculty Farzana Huda, Department of Business administration, East West University. We would

like to thank our madam for providing full assistance and detailed outline about how to proceed

with data collection and writing procedure. With her inexhaustible guidance, valuable advice,

continuous inspiration, constructive criticism and generosity she helped us to carry out this report

successfully

We also would like to some senior student for their outstanding support to prepare this

assignment. We would further like to thank all the people who are giving us full support all the

time. At this stage, we must show our gratitude to our senior student of our university, who

significantly assisted us.

Finally, we would like to thank to all group members that directly or indirectly helped us to

provide and accumulate all the necessary information for the accomplishment of this assignment.

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TABLE OF CONTENTS

Sequence Number Topic Name

Page Number

Executive Summary 05

Chapter 1.0 : INTRODUCTION

1.1 Origin of The study

1.2 Objective of The Study

1.3 Methodology

1.4 Limitations

06

06

06

06

07

Chapter 2.0 : Company Overview 08

2.1 Shareholding Structure

2.2 Vision

2.3 Mission

2.4 Objectives

2.5 Core values

09

09

10

10

11

3. Chapter 3.0 : Presentation of Ratio Analysis

4. Chapter 4.0: Findings and Conclusion

5. Chapter 5.0: References

13-20

21

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EXECUTIVE SUMMARY

Our assignment topic has been choosing a financial company which is Industrial Promotional

and Development Company of Bangladesh. Here we are going to do ratio analysis of this

company.

Industrial Promotional and Development (IPDC) established in 28 November 1981. Ratio

analysis is the most popular trend to evaluate a financial company’s performance over years with

another year. In our report we had to study these company’s financial statements for the last five

years then had to analyze and give significant comments regarding the changes in the financial

position. Analysis and interpretation of these financial statements through ratio analysis has now

become an important technique for performance appraisal because the investors, financial

experts, management executives and the bankers are always rely on these ratios to make

important decisions. The management team of any bank, investor and the government agencies

always concern about liquidity ratios and adequacy ratios of a financial company which

interprets the efficiency of a company.

.

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CHAPTER 1.0: INTRODUCTION

1.1 Origin of the Study:

Assignment is a practical part of academic studies. This is a reflection of academic knowledge and practical work experience. Thus this assignment aims to reflect the professional view of a real world work environment.

Business Administration Department of East West University offers four years BBA program majoring in different related fields. This four years academic program is the building up of the theoretical knowledge. Knowledge in measuring ratio analysis of a financial company or any other company is must for any BBA student, especially who doing or going to do major in finance. This is a field of study that define various tools and techniques of ratio analysis to understand the present and past financial condition of a company.

Our esteem faculty given us the company name and complete a study that covers an assessment of indicators about the financial condition of that company..

1.2 Objective of the study:

This program was designed to accomplish two objectives. The objectives were identified closer interaction and exchange of views with the financial ratio analysis of the company.

Followings were the objectives of the study:

To know briefly about financial analysis of the company

To find out the financial level of the company

To identify the financial comparative analysis of different years.

1.3 Methodology:

This report is prepared mainly on the extensive use of secondary data available in annual reports. Based

on the data from the annual reports the overall assignment is prepared. The overall conceptual and

theoretical framework has been explained as well as the how the data are analyzed is explained below:

Data Sources

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The “Primary sources”are absent in this case, as because Ratio Analysis is conducted on

the basis of the analysis of data of the Financial company concentrating the period of

2008-2012. Thus I rely on the annual reports of the company, which is the Secondary

source of Data Collection.

The “secondary Sources”of data and the information are as follows:

1. Annual Report of Industrial Promotional and Development Company from 2008 to 2012.

2. Google

1.4 Limitations of the study:

The time constraint confined this study mostly on the data collected in Dhaka zone. Moreover, it

was not possible to get all required internal information of the company as these are treated as

confidential to the company.

So, they have very little time to talk with us. We have few limitations. But we were quite

successful to collect our main information. So the result was hopefully satisfactory.

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CHAPTER 2.0 COMPANY OVERVIEW

 

Industrial Promotional and Development Company of Bangladesh IPDC was established by a

distinguished multilateral team of shareholders in 1981 as the first private sector financial

institution (Bank or non-Bank) in Bangladesh. The founding shareholders were:

 

The Government of the Peoples Republic of Bangladesh  (GOB)

  The Aga Khan Fund for Economic Development (AKFED),Switzerland

International Finance Corporation (IFC) an affiliate of the  World Bank

German Investment and Development Company (DEG), Germany

Commonwealth Development Corporation (CDC) United Kingdom

 In early 2004, AKFED, as part of its strategy to strengthen its presence in the financial sector of this region, acquired 70% stake in IPDC by purchasing the shares from IFC, CDC and DEG. 

In 2006, the shareholding structure was again changed by issuance of public shares. However, AKFED maintains the management control of the company holding 51% of the shares . IPDC Board of Directors has eleven members, GOB 2, AKFED 6, Independent 2, Managing Director (Ex-officio) 1.

2.1 Shareholding Structure 

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 Share Capital Structure as of July 02, 2012 Authorized Tk. 4,000 millionIssued, Subscribed & Paid Up Tk. 1,043 million 

Shareholder No. of shares Paid up Capital Percentage

Government of the Peoples Republic of Bangladesh (GOB) 22,828,971 228,289,710 21.88%

Aga Khan Fund for Economic Development (AKFED) 53,267,467 532,674,670 51.05%

Public 28,242,060 282,240,600 27.07%Directors & Independent Director 737 7,370 0.00%

Total 104,339,235 1,043,392,350 100%

   Aga Khan Fund for Economic Development (AKFED) In early 2004, AKFED as part of its strategy to strengthen its presence in the financial sector of

this region acquired 70% stake in IPDC by purchasing the shares from IFC, CDC and DEG.

After being public, AKFED maintains management control of the company by holding 51%

shares.

The Aga Khan Fund for Economic Development S.A. (AKFED), incorporated in Switzerland, is

an international development agency which promotes entrepreneurship in private sector in

specific regions of the developing world. AKFED promotes private sector initiative and

entrepreneurship through equity investment in partnerships with multilateral agencies,

international investors, local development institutions and individuals. AKFED operates in five

broad sectors: industry and infrastructure, tourism development, financial services, media and

aviation.

 2.2 Vision 

To be the most respected and innovative financial institution of the country.   

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 2.3 Mission  To be the brand of quality and integrity for delivering innovative and tailored financial solutions to a diverse client base.   

2.4 Objectives To ensure maximum return on investment

Profitability is the key to achieving superior returns, building our capital, and motivating and

retaining our best people.

 To ensure steady sustainable growth in business

Our increasing corporate profits since inception has been manifestation of our steady growth.

Amidst a competitive environment, our goal is to take the organization forward with excellence

in all our operations. We shall harness and use our distinctive competencies to ensure a long term

competitive advantage.

 To improve the quality of services

Our strength is not in the volume but in the quality of services that we provide. Our clients'

interests always come first. We relentlessly strive to anticipate the changing needs of our clients

and to develop better solutions to those needs. Our experience tells that if we serve our clients to

the best of our ability, our own success follows.

 To create innovative product and services

Creativeness and imagination is encouraged in everything we undertake. We pride ourselves on

having pioneered many products and services that have become standard in the industry.

 To maintain highest level of ethical standard

We are dedicated to full compliance to the spirit of laws, rules and ethical principles that govern

us. Our continued success depends upon unwavering adherence to this standard.

   

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2.5 Core Values  We address to client needs promptly, impartially and with utmost importance.  

We take great pride in our dedicated teams of staff members and will continue to develop their

potential and skills at all levels within our organization by rewarding outstanding performance

and promoting from within to develop a climate of high expectation and achievement.  

We remain quality-minded and devoted to uphold our corporate culture.  

We will retain our position of leadership in this field through our commitment to quality,

compliances, services and values.  

We will continue personal and corporate involvement in activities benefiting the society and

nation.  

We uphold the values of the communities we are privileged to serve by honoring their traditions

and preserving the environment.  

We pledge to remain alert to economic changes which affect our businesses, and to respond to

ever-changing market demands.  

We will continue to confront all challenges through planning, balanced diversification and

orderly growth.  

We take our responsibility towards our shareholders very seriously and are committed to be a

model for others to follow.

 Role of IPDC in Financing  

IPDC specializes in project financing and provides innovative investment solutions. This

includes investing in projects that add value and contribute to the country's overall economic

development. It invests through equity participation, term lending and lease financing. IPDC has

played pivotal role in almost all the industrial sectors. It has also special focus in infrastructure

and social sector projects.

IPDC has also been providing innovative investment solutions and project advisory services to

its clients in industrial and social sectors like education and health care.IPDC makes investments

in order to achieve a number of objectives:

Employment and income generation

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Revenue generation for the government

Production capacity addition

Earned or saved foreign exchange

Linkage and business development

Skills and technology transfer

Offering environmental risk assessment and its management

The positive image IPDC has created has been established through more than two decades of

consistent commitment towards excellence in providing financial services. With a conscious

effort to anticipate influences in the domestic and foreign investment, IPDC has the ability to

adapt to the changing needs of time.

IPDC envisages continuing and expanding its role as catalyst in inspiring, strengthening and

enhancing the financial sector development of the country. IPDC has pioneered the concept of

lease financing in Bangladesh. It was one of the sponsor shareholders of Industrial Development

Leasing Company of Bangladesh Limited (IDLC). Another IPDC initiative has been developing

the concept of house mortgage financing in the country. IPDC was also promoter shareholder of

National Housing and Finance Company Ltd (NHFL). IPDC has been credited with pioneering

subscription of Cumulative Redeemable Preference Shares and issuance of Zero Coupon Bond

through asset backed securitization as an alternate means of finance.

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CHAPTER 3.0 PRESENTATION OF RATIO ANALYSIS

. Step # 01: Ratio Title and Formula.

Liquidity Ratios

Liquidity ratios measure the bank ability to meet its short-term obligations. Banks face liquidity

problem due to excess withdrawal from current and saving account. There are several measures

of liquidity. Liquidity position of banks is measured by using four following ratios.

Current Asset Ratio (CAR) = Current asset /Total asset

Quick/ Acid Test Ratio = Current Assets-Inventory/ Current Liabilities

Asset management ratio:A set of ratios that measures how effectively a firm is managing its asset. There are several

measures of assets. Asset position of a financial company is measured by using four following

ratios.

Inventory turnover ratio = Cost of Goods Sold/Inventory

Days Sales Outstanding = Receivables/ Sales/360

Fixed Asset Turnover Ratio = Sales/ Net Fixed Asset

Presentation of Ratio Analysis

Step # 01 Ratio Title and Formula

Step # 02 Calculation (with numerator and denominator)

and Interpretations

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Total Asset Turnover Ratio = Sales/ Total Asset

Debt Ratio

The ratio of total debt to total asset. It is a measure of the percentage of funds provided by

creditors. There are several measures of debt. Debt position of a financial company is

measured by using two following ratios.

Debt ratio = Total debt/ Total asset

Time interest earned ratio = EBIT/ Interest charged

Profitability Ratios

Profitability ratios measure the managerial efficiency. These ratios use margin analysis and show

the return on assets, deposits, investments, and equity. The higher profitability ratios are

indicator of better performance. The ratios are-

Net profit margin =Net income/ Sales

Return on Assets (ROA) = Net Income / Total Assets

Return on Equity Capital (ROE) = Net Income / Total Equity Capital

Earnings Per Share (EPS) = Net Income / Common Equity Shares Outstanding

Price earnings ratio = Market price per share/ Earnings per share

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Step # 02: Calculation and Interpretation.

Ratio Analysis:Liquidity Ratio

Current Asset Ratio-

2008

(in times)

2009

(in times)

2010

(in times)

2011

(in times)

2012

(in times)

6.539 7.268 47.542 31.363 62.511

Table # 01: Liquidity Ratio.

This ratio shows the relationship of IPDC cash and other short term assets to its current liabilities. Here this ratio is continuously increasing year to year for IPDC. So, it is a good indication in liquidity ratio. This means IPDC has more liquid asset in hand.

Acid Test Ratio-

Here acid test ratio will remain same as current asset ratio because in this there is no invento in this company.

Asset Management Ratio

Current Asset Ratio (CAR) = Current asset /Total asset

Quick/ Acid Test Ratio = Current Assets-Inventory/ Current

Liabilities

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Inventory turnover ratio –

There is no inventory specifically given in the financial report of IPDC. So, we cannot calculate this ratio.

Days Sales Outstanding-

There are no A/C receivables specifically given in the financial report of IPDC. So, we cannot calculate this ratio.

Fixed Asset Turnover Ratio-

2008

(in times)

2009

(in times)

2010

(in times)

2011

(in times)

2012

(in times)

0.114 0.1066 0.099 0.119 0.134

Table # 02: Fixed Asset Turnover Ratio.

Fixed asset turnover measure how effectively the firm use its plant and equipment to help

generate sales. Although it is less than 1 but increasing year to year which is a good indication

far IPDC.

Total Asset Turnover Ratio-

Inventory turnover ratio = Cost of Goods Sold/Inventory

Days Sales Outstanding = Receivables/ Sales/360

Fixed Asset Turnover Ratio = Sales/ Net Fixed Asse

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2008

(in times)

2009

(in times)

2010

(in times)

2011

(in times)

2012

(in times)

0.097 0.086 0.072 0.082 0.111

Table # 03: Total Asset Turnover Ratio.

It measures the turnover of all of the firm’s assets. In case of IPDC it is more volatile. Because some years it increases and some years it decreases slightly.

Debt Management Ratio

Debt ratio-

2008

(%)

2009

(%)

2010

(%)

2011

(%)

2012

(%)

73.288 70.546 69.187 71.916 71.504

Table # 04: Debt Ratio.

It measures the percentage of the firm’s assets, financed by creditors. This condition of IPDC is not good. Because it is too high.

Time interest earned ratio = EBIT/ Interest charged-

Total Asset Turnover Ratio = Sales/ Total Asset

Debt ratio = Total debt/ Total asset

Time interest earned ratio = EBIT/ Interest charged

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2008

(in times)

2009

(in times)

2010

(in times)

2011

(in times)

2012

(in times)

1.582 2.913 9.559 -17.61 2.822

Table # 05: Time Interest Earned Ratio.

It measures the extent to which earnings before interest and tax also called operating income can decline before the firm is unable to meet its annual interest cost. Increasing indication is god. But for IPDC it is not good, because it is too low for IPDC and sometime it’s negative.

Profitability Ratio

Net profit margin-

2008

(%)

2009

(%)

2010

(%)

2011

(%)

2012

(%)

16.44 20.30 28.56 20.14 16.25

Table # 06: Net Profit Margin.

It is the net result of a number policies and decision. The ratio examined thus far provides some

information about the way the firm is operating. It is good for IPDC.

Return on Assets (ROA)-

Net profit margin =Net income/ Sales

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2008

(%)

2009

(%)

2010

(%)

2011

(%)

2012

(%)

1.599 1.766 2.069 1.651 1.807

Table # 07: Return on Asset.

It measures the ratio of net income to total asset, it provides an idea of the overall return on investment earn by the firm. For IPDC it is very low.

Return on Equity Capital (ROE)-

2008

(%)

2009

(%)

2010

(%)

2011

(%)

2012

(%)

5.982 5.998 6.715 5.881 6.343

Table # 08: Return on Equity Capital.

It measures the rate of return on common stockholder’s investment. This condition is moderate

for IPDC, and need to increase day by day.

Earnings Per Share (EPS)-

Return on Assets (ROA) = Net Income / Total Assets

Return on Equity Capital (ROE) = Net Income / Total Equity Capital

Earnings Per Share (EPS) = Net Income / Common Equity Shares Outstanding

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2008

(Taka)

2009

(Taka)

2010

(Taka)

2011

(Taka)

2012

(Taka)

13.25 14.13 15.41 1.18 1.23

Table # 09: Earnings Per Share.

It is good for IPDC and increasing year to year. In 2011 and 2012 it is less than previous years because they split their in 2011 from 1 to 10.

Price earnings ratio-

2008

(in times)

2009

(in times)

2010

(in times)

2011

(in times)

2012

(in times)

18.37 16.66 18.82 16.95 15.79

Table # 10: Price Earning Ratio.

It shows how much investors are willing to pay per taka of reported profits. For IPDC it is not so bad, but less is good for a firm.

CHAPTER 4. FINDINGS AND CONCLUSION

Price earnings ratio = Market price per share/ Earnings per share

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The ratio analysis is done of IPDC. This is a big financial company although it faces many

difficulties to run its business. Because competition among the financial institutions is very high

in today’s world. From the ratio analysis we can say that IPDC’s fixed asset turnover and total

asset turnover are very low, debt ratio is very high which represent bad indication of the

company to its investors. In 2011 time interest earned ratio negative which pay a very bad impact

to the investors. Return on asset is very low. If IPDC wants to attract themselves to the investors

than they need to improve their performance in those sectors describe above. If they can improve

their performance on those ratios then we think the company will make more profit in future and

attract more investors to invest money in their company.

CHAPTER 5. REFERENCES

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1. http://www.ipdcbd.com

2. Google.com

3. Dhaka Stock Exchange

4. Essentials of Managerial Finance by Besley & F. Brigham