Contents

2ABSTRACT

21.0 INTRODUCTION

32.0 OBJECTIVES

33.0 COMPANY PROFILE

54.0 FINANCIAL RATIOS: THEORETICAL DISCUSSION

54.1 ACTIVITY RATIOS

64.2 LIQUIDITY RATIOS

64.3 SOLVENCY (DEBT) RATIOS

64.4 PROFITABILITY RATIOS

75.0 ANALYSIS AND FINDINGS

75.1 ACTIVITY RATIOS

75.1.1 Inventory Turnover Ratio

75.1.2 RECEIVABLE TURNOVER RATIO

85.1.3 FIXED ASSET TURNOVER RATIO

85.1.4 TOTAL ASSET TURNOVER RATIO

95.2 LIQUIDITY RATIOS

94.2.1 CURRENT RATIO

95.2.2 QUICK RATIO

105.2.3 CASH RATIO

105.2.4 DEFENSIVE INTERVAL

115.3 SOLVENCY RATIOS

115.3.1 DEBT TO EQUITY RATIO

115.3.2 TIME INTEREST EARNED

125.4 PROFITABILITY RATIOS

125.4.1 GROSS MARGIN

125.4.2 RETURN ON SALES

135.4.3 RETURN ON ASSET

135.4.3 RETURN ON EQUITY

145.4.4 OPERATING INCOME TO SALES

146.0 CONCLUSION

157.0 Appendix

ABSTRACTThis assignment shows the performance evaluation of ceramic industry of Bangladesh and to test its financial soundness. The main aim is achieved through ratio analysis of five selected ceramic (Fu Wang, Monno, Shinepukur, RAK and Standard) companies in Bangladesh. Measurement of financial performance by ratio analysis helps identify organizational strengths and weaknesses by detecting financial anomalies and focusing attention on issues of organizational importance. The financial performance of this industry is measured in terms of profitability, solvency, efficiency and liquidity analysis and to test the financial soundness. The assignment covers five public sector ceramic companies listed on Dhaka Stock Exchange. The assignment has been undertaken for the period of one year on 2011and the necessary data has been obtained from the audited annual report of the selected companies. This assignment will help us to identify the nature of financial performance of the ceramic industry of Bangladesh and will also help to take investment decision.1.0 INTRODUCTION

CERAMIC industry of Bangladesh is a booming sector and the growth potential of both domestic and foreign market indicates it may become one of the big foreign currency earners for the country. Now its time to measure and analyze the performance of this industry. In this gap of analysis we have tried to evaluate and interpret the performance of the selected five ceramic companies for the period of 2011. Performance evaluation of a company is usually related to how well a company can use it assets, share holder equity and liability, revenue and expenses. Financial ratio analysiss one of the best tools of performance evaluation of any company. In order to determine the financial position of the ceramic companys and to make a judgment of how well the ceramic companys efficiency, its operation and management and how well the company has been able to utilize its assets and earn profit. We used ratio analysis for easily measurement of liquidity position, asset management condition, profitability and market value and debt coverage situation of the ceramic companys for performance evaluation. It analysis the company use of its assets and control of its expenses. It determines the greater the coverage of liquid assets to short-term liabilities and it also compute ability to pay ceramic companies short-term and tong-term payments obligation from the cash generate. It determines of share market condition of ceramic companies. It also used to analysis the ceramic companys past financial performance and to establish the future trend of financial position. Finally, to measure and evaluate the overall financial performance and financial soundness of the selected five companies (Fu Wang, Monno, Shinepukur, RAK and Standard) some like mean, how individual ceramic company move with market.2.0 OBJECTIVESThe assignment is designed to achieve the following objectives:I. To assess the financial performance of the selected ceramic companies. II. To compare individual performance with the industry performance.3.0 COMPANY PROFILE

1. Fu Wang Ceramics: Fu-Wang Ceramic Industry Limited, the pioneer ceramic manufacturer in Bangladesh was established in May 1995 as a joint venture company. Subsequently, in 1998, it was listed in the Dhaka and Chittagong capital markets. Since then, it has been operating as a public limited company with an authorized capital of Tk. 1 billion and a paid-up capital of Tk. 769 million. The company is engaged in production of various types of wall and floor tiles. Within a short period, the business expanded its market share by its unique quality, competitive price, exclusive designs, and wide variety of sizes and models. Its effective and creative marketing campaign enabled the company to establish its brand value in the tiles market in Bangladesh. Fu-Wang Ceramic Industry Limited is capable of meeting the increasing demand of customers countrywide. By using high quality raw materials, Italian/Chinese machinery and highly experienced foreign and local engineers, the company has created good reputation in the Bangladesh ceramic market. The business is engaged in selling luxurious glazed floor and wall tiles, that are produced by utilizing the latest printing and laser cut technology. Fu-Wang Ceramic Industry Limited meets European standards in production. With an affordable pricing structure, the company aims to reach a vast residential and commercial property development market that is presently experiencing rapid growth in Bangladesh. The company is also exporting its products to the North Eastern region of India.2. Monno Ceramics: Monno Ceramic Industries began producing porcelain tableware for the Bangladesh home market in 1985, and secured its first export order the following year. Monno soon earned an enviable reputation for both quality and value. The subsequent introduction of bone china to its range of quality dinnerware has only served to strengthen that reputation. As the original exporter of porcelain dinnerware Made in Bangladeshi Monno is proud to contribute to the growth of the Bangladesh economy. In a developing country the kudos accorded to exports and the valuable foreign exchange derived is significant. Today in Bangladesh Monno is a household name and regarded as one of the countrys premier companies. Bangladesh is still a relatively young country. When after independence British India was partitioned in 1947, West Pakistan and East Pakistan were created. Subsequently East Pakistan proclaimed independence in 1971 and Bangladesh (meaning Bengali homeland) came into being. As a developing country Bangladesh is accorded preferential tariffs by the European Union which means zero import duty on Monno tableware. Monno offers products in Porcelain, New Bone China, Ivory China, and real Bone China. In fact they source the materials in their bone china body and glaze from Stoke on Trent, to which is added pure water filtered from their own wells. So Monno likes to think of it as English Bone China. Customers include many well known prestigious department stores, specialty and chain stores around the world for which they manufacture own label products. Some customers have been with Monno for as long as 20 consecutive years and Monno is proud to enjoy a close relationship with them. They work with customers to develop their own shapes or decorations, or can offer designs from their extensive stable. Their talented teams of artists and designers work closely with the experienced technicians of an own in-house decal print unit. That combination of man and machine helps achieve striking results.

3. Shinepukur Ceramics: Shinepukur Ceramics Limited (SCL) is a member of BEXIMCO Group which is the Largest Private Sector Business Conglomerate in Bangladesh with about over 45,000 people worldwide in the permanent payroll, have over 300000 shareholders, handling a diversified range of merchandise to and from Bangladesh. The Group's operations and investments across a wide range of industries including Textiles, Trading, Marine Food, Real Estate Development, Hospitality, Construction, Information and Communication Technologies, Media, Ceramics, Aviation, Pharmaceuticals, Financial Services and Energy. Shinepukur Ceramics has been registered in Bangladesh in 1997 and the Plants were commissioned in 1998. Commercial production of Porcelain Tableware started in April 1999 and Bone China in November 1999. SCL is located in the BEXIMCO Industrial Park, near Dhaka Export Processing Zone (DEPZ), 40 Km from Capital Dhaka City, where captive power generation, water supply, effluent waste water treatment and all other infrastructural facilities are available. Total Investment in the Company is in excess of US$ 35 Million. The Company has already made additional Investment of US$ 10 Million to expand its Bone China Unit.4. Standard Ceramics: Standard Ceramic Industries Ltd., a public limited company with an authorized capital of Tk. 100 million was floated on 13.08.1984. The factory was designed by famous ceramist Mr. Kyoki Yamazaki of Some Ceramic, Japan (Later a JODC expert). The operating machinery was mainly procured from famous producer of Japan. The factory went into commercial production on September 1st. 1993. The factory is located 10 Km from Dhaka International Airport. It has a working force of 600 people. Through the active and dedicated participation of all SCI personnel, the factory is now turning out approximately 47,000 assorted pieces (13.1 M.Tons) of tableware per day. The superb quality and design of vitrified Stoneware Products coupled with competitive price made our product a popularly choice at home and abroad. SCI Products are available in 4 continents of the world including the United States and European markets.

5. RAK Ceramics: RAK Ceramics (Bangladesh) Limited, a UAE-Bangladesh joint venture company, was incorporated in Bangladesh on 26 November, 1998 as a private company limited by shares under the Companies Act 1994. The name of the Company was thereafter changed to its name from RAK Ceramics (Bangladesh) Private Limited to RAK Ceramics (Bangladesh) Limited as per resolution passed in extraordinary general meeting on 10 June 2008, certificate issued by the Registrar of Joint Stock Companies dated 11 February, 2009. It is engaged in manufacturing and marketing of ceramics tiles, bathroom sets and all types of sanitary ware. The companys headquartered in Dhaka with manufacturing facilities at Gazipur. RAK Ceramics is Bangladeshs largest ceramic tiles and sanitary ware manufacturer. It has started its commercial production on 12 November, 2000. The commercial production of new sanitary ware plant was started on 10 January, 2004. Further expansion of the existing facilities of ceramics tiles plant took place in year 2004, and for tiles and sanitary plant were in year 2007.4.0 FINANCIAL RATIOS: THEORETICAL DISCUSSION

Financial analysis offers a system of appraisal and evaluation of a firms performance and operations; it is the analysis of the financial statement of an enterprise. The analysis of financial statement can be best done by various yardsticks of which, the important is known as ratio or percentage analysis. Ratio is a numerical or an arithmetical relation between two figures. It is expressed when one figure is divided by another. Accounting ratios show inter-relationship which exist among various accounting data. Accounting ratio can be expressed in various ways such as, a pure ratio, a rate or a percentage. Ratio analysis is certainly a very admirable device because it is simple and it has a predictive value. Managements and other users thus, rely substantially on the financial ratios based on accounting data for making assessments and predictions of past performance, present position and probable future potentials. One important way for diagnosing the financial health is to measure the profitability, liquidity, activity and solvency of the bankruptcy of enterprise.

4.1 ACTIVITY RATIOS

Asset management (Activity) ratios compare the assets of a company to its sales revenue. Analysis of asset management ratios tells how efficiently and effectively a company is using its assets in the generation of revenues. They indicate the ability of a company to translate its assets into the sales. Asset management ratios are computed for different assets. Common examples of asset turnover ratios include fixed asset turnover, inventory turnover, accounts payable turnover ratio, accounts receivable turnover ratio, and cash conversion cycle. The higher the asset turnover ratios, the more sales the company is generating from its assets. Low asset turnover ratios mean that the company is not managing its assets wisely. They may also indicate that the assets are obsolete. Companies with low asset turnover ratios are likely to be operating below their full capacity.

4.2 LIQUIDITY RATIOS Liquidity ratios are the ratios that measure the ability of a company to meet its short term debt obligations. Liquidity is a prerequisite for the very survival of an enterprise. They show the number of times the short term debt obligations are covered by the cash and liquid assets. If the value is greater than 1, it means the short term obligations are fully covered. Generally, the higher the liquidity ratios are, the higher the margin of safety that the company posses to meet its current liabilities. Most common examples of liquidity ratios include current ratio, acid test ratio (also known as quick ratio), cash ratio, cash flow from operation ratio and working capital ratio.4.3 SOLVENCY (DEBT) RATIOS Financial leverage ratios (debt ratios) indicate the ability of a company to repay principal amount of its debts, pay interest on its borrowings, and to meet its other financial obligations. They also give insights into the mix of equity and debt a company is using. They give indications about the financial health of a company. Companies need to carefully manage their financial leverage ratios to keep their financial risk at acceptable level. Careful management of financial leverage ratios is also important when seeking loans from banks and financial institutions. Favorable ratios can help the company to negotiate a favorable interest rate. The long-term solvency of a company can be measured by the use of solvency ratios named debt to total assets, the times interest earned and fixed charge coverage ratio.4.4 PROFITABILITY RATIOS Profitability ratios measure a companys ability to generate earnings relative to sales, assets and equity. These ratios assess the ability of a company to generate earnings, profits and cash flows relative to relative to some metric, often the amount of money invested. They highlight how effectively the profitability of a company is being managed. Different profitability ratios provide different useful insights into the financial health and performance of a company. For example, gross profit and net profit ratios tell how well the company is managing its expenses. Return on capital employed (ROCE) tells how well the company is using capital employed to generate returns. Return on investment tells whether the company is generating enough profits for its shareholders.

5.0 ANALYSIS AND FINDINGS5.1 ACTIVITY RATIOS5.1.1 Inventory Turnover RatioName of The CompanyYear 2011

Fu Wang2.13

Monno1.89

Shinepukur1.39

Standard2.22

RAK1.62

Average1.85

In inventory turnover ratio the market average is 1.85. Here Fu Wang, Monno and Standard Ceramics Companys performance is good. RAK and Shinepukur Ceramics Companys reflect dull business that means more inventory remain in warehouse5.1.2 RECEIVABLE TURNOVER RATIOName of The CompanyYear 2011

Fu Wang14.81

Monno10.51

Shinepukur3.23

Standard10.63

RAK9.29

Average9.68

The receivable turnover ratio (debtors turnover ratio, accounts receivable turnover ratio) indicates the velocity of a company's debt collection, the number of times aver- age receivables are turned over during a year. This ratio determines how quickly a company collects outstanding cash balances from its customers during an accounting period. This Table shows that the industry average receivable turnover is 9.68. The average it is seen from the table that in 14.81 in Fu Wang, 10.51 in Monno, 3.23 in Shinepukur, 10.63 in Standard and 9.29 in RAK ceramics. As we know higher is better, indicate more cash sales and less quantity of credit sales. Fu Wang, Monno, Standard Ceramics companies performance was good in year 2011 and Shinepukur ceramics performance was not good in year 2011.5.1.3 FIXED ASSET TURNOVER RATIO

Name of The CompanyYear 2011

Fu Wang1.09

Monno2.60

Shinepukur0.42

Standard1.88

RAK1.65

Average1.52

Fixed asset turnover ratio compares the sales revenue of a company to its fixed assets. This ratio tells us how effectively and efficiently a company is using its fixed assets to generate revenues. There is no standard guideline about the best level of asset turnover ratio. Therefore, it is important to compare the asset turnover ratio over the years for the same company. An increasing trend in fixed assets turnover ratio is desirable because it means that the company has less money tied up in fixed assets for each unit of sales. A declining trend in fixed asset turnover may mean that the company is over investing in the property, plant and equipment. Some authors consider that an ideal fixed assets turnover ratio for an enterprise like ceramic should be 3 times of the fixed assets. This Table shows the fixed assets turnover ratios for the selected ceramic for the year 2011. We see that Monno, Standard, RAK ceramic company performance was good in year 2011. Fu Wang ceramics have to increase their fixed asset turnover little bit but Shinepukur ceramics company performance is very bad.5.1.4 TOTAL ASSET TURNOVER RATIO

Name of The CompanyYear 2011

Fu Wang0.69

Monno0.26

Shinepukur0.26

Standard0.91

RAK0.59

Average0.54

It measures the extent of sales generated by utilizing the total assets (both long term and short term assets) Here Total Asset Turnover for ceramics industry in Bangladesh is 0.54. We see that Fu Wang, RAK and Standard ceramics performance is good but other two companys performance is very bad. 5.2 LIQUIDITY RATIOS

4.2.1 CURRENT RATIOName of The CompanyYear 2011

Fu Wang1.66

Monno0.94

Shinepukur0.98

Standard0.30

RAK2.15

Average1.20

The current ratio indicates a companys ability to meet short-term debt obligations. The current ratio measures whether or not a firm has enough resources to pay its debts over the next 12 months. If the current ratio is too low, the firm may have difficulty in meeting short run commitment as they measure. Is the ratio is too high the firm may have an excessive investment in current assets or to be under utilizing short term credit. The average current ratio is 1.20. Fu Wang, RAK Ceramics Companys performance is good. Monno and Shinepukur have to increase their current ratio. Standard ceramics company performance is very bad.5.2.2 QUICK RATIO

Name of The CompanyYear 2011

Fu Wang0.30

Monno0.28

Shinepukur0.37

Standard0.30

RAK1.39

Average0.53

The quick ratio is a measure of a company's ability to meet its short-term obligations using its most liquid assets (near cash or quick assets). Quick assets include those current assets that presumably can be quickly converted to cash at close to their book values. This Table, shows that the industry average of quick ratio is 0.53. Here RAK ceramics have good quick ratio. Other companys performance is bad.5.2.3 CASH RATIO

Name of The CompanyYear 2011

Fu Wang0.15

Monno0.06

Shinepukur0.02

Standard0.15

RAK0.66

Average0.21

Cash ratio is the ratio of a company's cash and cash equivalent assets to its total liabilities. Cash ratio is a refinement of quick ratio and indicates the extent to which readily available funds can pay off current liabilities. Cash ratio is the most stringent and conservative of the three liquidity ratios (current, quick and cash ratio). It only looks at the company's most liquid short-term assets cash and cash equivalents which can be most easily used to pay off current obligations. Industry cash ratio is 0.21. Here RAK ceramics have pretty much good performance and other companies performance is very bad.

5.2.4 DEFENSIVE INTERVAL

Name of The CompanyYear 2011

Fu Wang198.99

Monno113.46

Shinepukur171.96

Standard82.64

RAK262.21

Average165.85

Here Defensive Interval for ceramics Industry is 165.85. As we know lower defensive interval is good. Here Standard Ceramics company performance is good and other ceramics companies have poor performance.5.3 SOLVENCY RATIOS5.3.1 DEBT TO EQUITY RATIO

Name of The Company Year 2011

Fu Wang0.28

Monno2.25

Shinepukur0.58

Standard1.21

RAK0.03

Average0.87

The analysis of a firms capital structure is essential to evaluate its long-term risk and return prospect. Excess return to shareholder, when ROI is greater than the cost of debt. The fixed cost (interest on debt) may affect profitability if the demand or profit margins decline. This obligation may lead the company to default or bankruptcy. Here industry average for debt to equity ratio is 0.87. RAK, Fu Wang and Shinepukur performance is good. Standard and Monno ceramics companies have poor performance in this particular ratio.5.3.2 TIME INTEREST EARNED

Name of The Company2011

Fu Wang2.1

Monno2.99

Shinepukur1.99

Standard1.99

RAK43.86

Average10.59

This ratio also called Interest Coverage Ratio (ICR). It measures a companys ability to meet its interest payments. Basically it measures the number of times a company could make the interest payments on its debt with its EBIT. It determines how easily a company can pay interest expenses on outstanding debt. Times Interest Earned Ratio is also known as interest coverage ratio, debt service ratio or debt service coverage ratio. The table shows the times interest earned ratio for the selected ceramic companies for the year 2011 is revealed from the table that the industry average 10.59. The RAK ceramics have good performance only in year 2011.5.4 PROFITABILITY RATIOS

5.4.1 GROSS MARGIN

Name of The CompanyYear 2011

Fu Wang0.11

Monno0.22

Shinepukur0.34

Standard0.20

RAK0.41

Average0.26

Gross profit margin (gross margin) is the ratio of gross profit (gross sales less cost of sales) to sales revenue. It is the percentage by which gross profits exceed production costs. Gross margins reveal how much a company earns taking into consideration the costs that it incurs for producing its products or services. Gross margin measures a companys manufacturing and distribution efficiency during the production process. Here industry average is 0.26. RAK and Shinepukur have great performance. Monno and Standard ceramics companies have to increase their gross margin but Fu Wang have poor performance. 5.4.2 RETURN ON SALESName of The CompanyYear 2011

Fu Wang0.14

Monno0.03

Shinepukur0.93

Standard0.02

RAK0.17

Average0.26

It shows that how return or net income is come from sales. Higher ROS show that the good ratio. Here Industry average is 0.26. Shinepukur have good performance. Other companies have bad performance.5.4.3 RETURN ON ASSETName of The CompanyYear 2011

Fu Wang0.08

Monno0.008

Shinepukur0.27

Standard0.12

RAK0.10

Average0.12

It shows that how return or net income is come from assets. Higher ROA show that the good ratio. Here Industry average is 0.12. Shinepukur and Standard have good performance. Other companies have bad performance.5.4.3 RETURN ON EQUITY

Name of The CompanyYear 2011

Fu Wang0.09

Monno0.01

Shinepukur0.39

Standard0.04

RAK0.14

Average0.13

It shows that how return or net income is come from equity. Higher ROE show that the good ratio. Here Industry average is 0.13. Shinepukur have very much good performance, RAK ceramics move with market. Other companies have bad performance.

5.4.4 OPERATING INCOME TO SALES

Name of The Company Year 2011

Fu Wang0.15

Monno0.04

Shinepukur20.99

Standard0.03

RAK0.20

Average4.28

It means how much operating income is come from sales Higher is better. Industry average is 4.28. Here Shinepukur have very much good position, others have poor performance.6.0 CONCLUSIONIn the preceding analysis, it has been observed that the financial position and operational performance of the selected ceramic companies in terms of profitability and efficiency is good and shown an increasing trend. Due to inefficiency in liquidity management and not to utilize the debt financing as suggested, the industry shown very low performance. By calculating the Z score it is seen that the overall financial health of the selected companies was at the medium level of bankruptcy.7.0 AppendixRAIO ANALYSIS FORMULAS:-1. Activity Ratios:-

i.

ii. iii. Fixed Asset Turnover = Sales / Fixed Assets iv. Total Assets Turnover = Sales / Total Assets2. Liquidity Ratios:-

ii.

iii.

iv. Defensive Interval = (Cash + Marketable securities + Account receivables) / Cost of goods Sold3. Solvency Ratios:-

i.

ii. Time Interest Earned= Earnings before Interest and tax / Interest Expense4. Profitability Ratios:-

i. Gross Margin= Net income / Salesii. Operating Income to sales = Income Before Tax + Interest / Salesiii. Return on Sales = Net Income / Salesiv. Return On Assets = Net Income + Interest / Total Assetsv. Return on Equity = Net Income/ Equity

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