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Introduction

A company’s financial statements provide various financial information that investors and

creditors use to evaluate a company’s financial performance. Financial statements are also

important to a company’s managers because by publishing financial statements, management can

communicate with interested outside parties about its accomplishment running the company.

Different financial statements focus on different areas of financial performances.

Financial Conditions

A company’s financial conditions are of a major concern to investors and creditors. As capital

providers, investors and creditors rely on a company’s financial conditions for both the safety and

profitability of their investments. More specifically, investors and creditors need to know where

their money went and where it is now. The financial statement of balance sheet addresses such

issues by providing detailed information about a company’s asset investments.

Cash Flows

A company’s profits reported in the income statement are accounting income and most likely

contain certain non-cash elements, providing no direct information on a company’s cash exchange

during the period. Moreover, a company also incurs cash inflows and outflows during a period

from other non-operating activities, namely investing and financing. To investors, cash from all

sources, not just accounting income from operations, is what pays back their investments. The

importance of the cash flow statement is that it shows the exchange of cash between a company

and the outside world during a period, and so investors can know if the company has enough cash

to pay for expenses and asset purchases.

Shareholders’ Equity

The statement of shareholders’ equity is especially important to equity investors because it shows

the changes in various equity components, including retained earnings, during a period. The

amount of shareholders’ equity is a company’s total assets minus its total liabilities, representing

the company’s net worth. A steady growth in a company’s shareholders’ equity by way of

increasing retained earnings, as opposed to expanding shareholder base, means the accumulation

of investment returns for current equity shareholders.

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Operating Results

Financial conditions shown in the balance sheet are snapshots of a company’s assets, liabilities

and equity at the end of a financial reporting period; they don’t reveal what happened during the

period from operations that may have caused changes to financial conditions. Therefore, operating

results during the period also concerns investors. The financial statement of income statement

reports operating results such as sales, expenses and profits or losses. Using the income statement,

investors can both evaluate a company’s past income performance and assess the uncertainty of

future cash flows.

The main users (stakeholders) of financial statements are commonly grouped as follows:

Investors

Employees

Lenders

Government

Suppliers

Customers

The public

Many things can impact the calculation of ratios and make comparisons difficult. The limitations

include:

The use of estimates in allocating costs to each period. The ratios will be as accurate as the

estimates.

The cost principle is used to prepare financial statements. Financial data is not adjusted for

price changes or inflation/deflation.

Companies have a choice of accounting methods (for example, inventory LIFO vs FIFO

and depreciation methods). These differences impact ratios and make it difficult to compare

companies using different methods.

Companies may have different fiscal year ends making comparison difficult if the industry

is cyclical.

Diversified companies are difficult to classify for comparison purposes.

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Financial statement analysis does not provide answers to all the users' questions. In fact, it

usually generates more questions!

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2.Financial Statements (Ratio Analysis of Apex Adelchi Footwear Limited)

2.1 Liquidity Ratios: A class of financial metrics that is used to determine a company's ability to

pay off its short-terms debts obligations. Generally, the higher the value of the ratio, the larger

the margin of safety that the company possesses to cover short-term debts.

2.1.1 Current Ratio: The current ratio is a financial ratio that shows the proportion of

current assets to current liabilities. The current ratio is used as an indicator of a company's

liquidity.

Current Ratio = Current Assets / Current Liabilities

The following table shows the current ratio of Apex Adelchi Footwear Limited:

Table 1: Current Ratio of Apex Adelchi Footwear Limited

Figure 1: Current Ratio of Apex Adelchi Footwear Limited (2010-2014)

Year 2010 2011 2012 2013 2014

Current

Assets 4,258,672,075 5,290,770,436 6057169775 7,420,556,241 9,809,373,339

Current

Liabilities 3,950,977,717 4,651,574,679 5060830061 6,260,776,879 8412539684

Current Ratio 1.08 1.14 1.20 1.19 1.17

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Analysis: As we know that the higher the current ratio, the more capable the company is of paying

its obligations. A ratio under one suggests that the company would be unable to pay off its

obligations. The graph represents that Current same over the period and it was below the Ratio

was the highest (1.20 times) in 2012 & lowest (1.08 times) in 2010. Current Ratio was also standard

(2:1). Therefore, in terms of the standard of Current Ratio, liquidity position of (Apex Adelchi

Footwear) was not satisfactory. The company should try to improve its liquidity position by

increasing its current assets and decreasing current liabilities.

2.1.2 Quick Ratio:

The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a

company’s ability to meet its short-term obligations with its most liquid assets. For this reason, the

ratio excludes inventories from current assets, and is calculated as follows:

Quick ratio = (current assets – inventories) / current liabilities

Table 2: Quick ratio of Apex Adelchi Footwear Limited

Year 2010 2011 2012 2013 2014

Current

Assets-

Inventories

2,019,472,096 2,462,437,209 2695454735 3,010,099,407 3,538,151,806

Current

Liabilities 3,950,977,717 4,651,574,679 5060830061 6,260,776,879 8412539684

Quick Ratio

0.51 0.53 0.53 0.48 0.42

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Figure 2: Quick ratio of Apex Adelchi Footwear Limited (2010-2014)

Analysis: As we know that the higher the Quick ratio, the more capable the company is of paying

its obligations. A ratio under one suggests that the company would be unable to pay off its

obligations. The graph represents that Quick Ratio was increase from 2010 to 2011 but same

(0.53times) in 2011 ,2012& lowest (0.42times) in 2014 & Quick Ratio was below the standard

(1:1). Therefore, in terms of the standard of Quick Ratio, liquidity position of (Apex Adelchi

Footwear) was not satisfactory. The company should try to improve its liquidity position by

increasing its current assets and decreasing current liabilities & Inventories.

2.2. Asset Management Ratios

Asset management (turnover) ratios compare the assets of a company to its sales revenue.

Asset management ratios indicate how successfully a company is utilizing its assets to generate

revenues. 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 also known as asset turnover ratios and asset

efficiency ratios.

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2.2.1. Inventory Turnover Ratio:

Inventory turnover is a ratio showing how many times a company's inventory is sold and replaced

over a period. The days in the period can then be divided by the inventory turnover formula to

calculate the days it takes to sell the inventory on hand or "inventory turnover days. “Generally it

is calculated as:

Inventory Turnover = Sales / Inventory

Table 3: Inventory Turnover Ratio of Apex Adelchi Footwear Limited

Year 2010 2011 2012 2013 2014

sales 6,961,115,608 9,499,256,667 9748378905 10,940,035,731 11,463,903,330

Inventories 2,239,199,979 2,828,333,227 3361715040 4,410,456,834 6,271,221,533

Inventory

Turnover

Ratio

3.11 3.36 2.90 2.48 1.83

Figure 3: Inventory Turnover Ratio of Apex Adelchi Footwear Limited (2010-2014)

Analysis: Hear the graph represents that Inventory turnover ratio was the lowest (1.83 times) in

2014 & highest (3.11 times) in 2010. Inventory turnover ratio was almost same over the period.

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So overall the inventory turnover position of (Apex Adelchi Footwear) was not good. The

company should try to improve its Inventory turnover position by increasing its sales & decreasing

its unused inventory.

2.2.2. Days Sales Outstanding(DSO):

A measure of the average number of days that a company takes to collect revenue after a sale has

been made. DSO is often determined on a monthly, quarterly or annual basis and can be calculated

by dividing the amount of accounts receivable during a given period by the total value

of credit sales during the same period, and multiplying the result by the number of days in the

period measured. The formula for calculating day’s sales outstanding can be represented with the

following formula:

Table 4: Days Sales Outstanding of Apex Adelchi Footwear Limited

Year 2010 2011 2012 2013 2014

Receivables 881,553,360 953,496,096 792733240 963,826,558 1,295,107,098

Sales ÷ 360 days 19,336,432 26,386,824 27078830.3 30,388,988 31844175.92

Days Sales

Outstanding(DSO) 45.59 36.14 29.28 31.72 40.67

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Figure 4: Days Sales Outstanding of Apex Adelchi Footwear Limited (2010-2014)

Analysis: Hear the graph represents DOS was the highest (45.59 days) in 2010 & lowest (29.28

days) in 2012. DOS Ratio was almost same over the period. So overall the DOS position of (Apex

Adelchi Footwear) is not good. So the company should try to collects its account receivable in

time & also try to develop a better credit policy.

2.2.3. Fixed Assets Turnover Ratio

Fixed assets turnover ratio is an activity ratio that measures how successfully a company is

utilizing its fixed assets in generating revenue. It calculates the dollars of revenue earned per one

dollar of investment in fixed assets.

Fixed Assets Turnover Ratio= Sales ÷ Net Fixed Assets

Table 5: Fixed Assets Turnover Ratio of Apex Adelchi Footwear Limited

Year 2010 2011 2012 2013 2014

Sales 6,961,115

,608

9,499,256,

667 9748378905 10,940,035,731

11,463,903,

330

Net Fixed Assets or Net

Non-Current Assets

418,371,7

10

1,889,270,

537 2111103023 2,153,982,977

2,411,991,5

20

Fixed Assets Turnover

Ratio 16.64 5.03 4.62 5.08 4.75

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Figure 5: Fixed Assets Turnover Ratio of Apex Adelchi Footwear Limited (2010-2014)

Analysis: Hear the graph represents that Fixed Assets Turnover Ratio was the highest (16.64times)

in 2010 & lowest (4.62 times) in 2012.we can also see that the gaping of the period is so high.

Therefore, in terms of Fixed assets turnover ratio position of (Apex Adelchi Footwear) was not

satisfactory. The company should try to improve its total assets turnover position by increasing it

is sales & utilize it is fixed assets properly.

2.2.4. Total Assets Turnover Ratio

The asset turnover ratio is a measure of a company’s ability to use its assets to generate sales or

revenue, and is a calculation of the amount of sales or revenue generated per dollar of assets. The

formula for the ratio is as follows:

Sales or Revenues ÷ Total Assets

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Table 6: Total Assets Turnover Ratio of Apex Adelchi Footwear Limited

Year 2010 2011 2012 2013 2014

Sales 6,961,115,608 9,499,256,667 9748378905 10,940,035,731 11,463,903,330

Total

Assets 4,677,043,785 7,180,040,973 3107442737 9,574,539,218 12,221,364,859

Total

Assets

Turnover

Ratio

1.48 1.32 1.19 1.14 0.94

.

Figure 6:Total Assets Turnover Ratio of Apex Adelchi Footwear Limited (2010-2014)

Analyses: Hear the graph represents that Total Assets Turnover Ratio was the highest (1.48times)

in 2010 & lowest (0.94 times) in 2014.we can also see that it was almost same over the period.

Therefore, in terms of total assets turnover ratio position of (Apex Adelchi Footwear) was not

satisfactory. The company should try to improve its total assets turnover position by increasing it

is sales & utilize it is total assets properly.

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2.3. Debt Management Ratios

Standard financial ratios are used to evaluate one's financial condition. Debt management ratios,

in particular, are used by banks and other lenders to evaluate a prospective borrower's suitability

for a home mortgage or other loan.

A variety of different debt-to-income ratios are key indicators of an individual's financial health.

In general, the debt-to-income ratio is calculated by dividing monthly minimum debt payments by

monthly gross income.

2.3.1 Debt Ratio:

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 – long-term and short-term – debt to total assets, expressed as a

decimal or percentage. It can be interpreted as the proportion of a company’s assets that are

financed by debt.

Table 7: Debt Ratio of Apex Adelchi Footwear Limited

Year 2010 2011 2012 2013 2014

Total

Debt

3950977717 5152165002 5689405219 1226178410 9352845065

Total

Asset 4,677,043,785 7,180,040,973 8168272798 9,574,539,218 12,221,364,859

Debt

Ratio

84% 72% 70% 13% 77%

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Figure 7: Debt Ratio of Apex Adelchi Footwear Limited (2010-2014)

Analysis: Hear the graph represents that debt ratio increase from 2010 to 2012 & also increase in

2014 but in 2013 it was decrease. As we know that if debt ratio increases than the interest expenses

also increase & it also increase the probability of default. Hear we can see that the debt ratio will

be increase in maximum period & also in the ended period. So we can say that the debt position

of this corporation is not good & for improving the position the corporation should try to increases

it is assets and decreases it is liabilities.

2.3.2 Equity Multiplier:

The ratio of a company’s total assets to its stockholder’s equity. The equity multiplier is a

measurement of a company’s financial leverage. Companies finance the purchase of assets either

through equity or debt, so a high equity multiplier indicates that a larger portion of asset

financing is being done through debt. The multiplier is a variation of the debt.

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Table 8: Equity multiplier Ratio of Apex Adelchi Footwear Limited

Year 2010 2011 2012 2013 2014

Total assets 4,677,043,785 7,180,040,973 8168272798 9,574,539,218 12,221,364,859

Stockholder

equity 726,066,068 2,027,875,971 2286730921 2,496,114,103 2,637,333,839

Equity

multiplier 6.44 3.54 3.58 3.83 4.63

Figure 8: Equity multiplier Ratio of Apex Adelchi Footwear Limited (2010-2014)

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Analysis: Analysis: Hear the graph represents that the equity multiplier ratio decrease from 2010 to 2013

but in 2014 it was increase. As we know that if the equity multiplier ratio increases than the interest expenses

also increase & it also increase the probability of default. Hear we can see that the equity multiplier ratio

will be increase in the ended period. So we can say that the equity multiplier position of this corporation is

not good & for improving the position the corporation should try to increases it is equity and decreases it is

liabilities.

2.4. Profitability Ratios

A class of financial metrics that are used to assess a business's ability to generate earnings as

compared to its expenses and other relevant costs incurred during a specific period of time. For

most of these ratios, having a higher value relative to a competitor's ratio or the same ratio from a

previous period is indicative that the company is doing well. Some examples of profitability ratios

are profit margin, return on assets and return on equity. It is important to note that a little bit of

background knowledge is necessary in order to make relevant comparisons when analyzing these

ratios.

2.4.1. Net Profit Margin:

Profit margin is part of a category of profitability ratios calculated as net income divided

by revenue, or net profits divided by sales. Net income or net profit may be determined by

subtracting all of a company’s expenses, including operating costs, material costs (including raw

materials) and tax costs, from its total revenue. Profit margins are expressed as a percentage and,

in effect, measure how much out of every dollar of sales a company actually keeps in earnings. A

20% profit margin, then, means the company has a net income of $0.20 for each dollar of total

revenue earned.

Profit Margin = Net Income / Net Sales (revenue)

Table 9: Net Profit Margin of Apex Adelchi Footwear Limited

Year 2010 2011 2012 2013 2014

Net

Profit 228,226,667 261,011,193 258854949 265,633,182 203,094,736

Sales 6,931,516,622 9,499,256,667 9748378905 10,940,035,731 11,463,903,330

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Net

Profit

Margin 3.29% 2.75% 2.65% 2.43% 1.77%

Analysis: Hear the graph represents that the net profit margin ratio almost same (3.29%, 2.75%,

2.65%, 2.43%) in 2010 to 2013 but in 2014 (1.77%) it will have decreased. So over all the position

of net profit margin ratio of this corporation is not satisfactory. For improving the corporation

should try to increase it is sales &decrease it is expenses.

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2.4.2 Return on Total Asset:

Table 10: Return on total asset Ratio of Apex Adelchi Footwear Limited

YEAR 2010 2011 2012 2013 2014

NET

INCOME

228,226,667 261,011,193 258854949 265,633,182 203,094,736

TOTAL

ASSETS

4,677,043,785 7,180,040,973 8168272798 9,574,539,218 12,221,364,859

RETURN

ON

TOTAL

ASSET

4.88% 3.64% 3.17% 2.77% 1.66%

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Analysis: Hear the graph represents that the return on total asset decreased from 2010 to 2014 (in

364%, 3.17%, 2.77%, 1.66%). So the overall return on total asset position of this corporation is

not good. The corporation should try to increase it is sale & utilize it is assets properly.

2.4.3 Return on Common Equity:

Table 11: Return on common equity Ratio of Apex Adelchi Footwear Limited

Year 2010 2011 2012 2013 2014

Net

Income 228,226,667 261,011,193 258854949 265,633,182 203,094,736

common

equity 726,066,068 2,027,875,971 2286730921 2,496,114,103 2,637,333,839

Return on

common

equity 31.43% 12.87% 11.32% 10.64% 7.70%

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Analysis: Hear the graph represents that the return on common equity decreased from 2010 to

2014 (in 12.87%, 11.32%, 10.64%, 7.70%). So over all position of return on common equity of

this corporation is not good. The corporation should try to increase it is sales & utilize it is equity

properly.

2.4.4 Earnings Per Share:

Table 12: Earning per share of Apex Adelchi Footwear Limited

Year 2010 2011 2012 2013 2014

Net

Profit 228,226,667 261,011,193 258854949 265,633,182 203,094,736

Number

of

shares 1124989.73 11250482.46 11249671.84 11250875.98 11251785.93

earnings

per

share 202.87 23 23.01 24 18

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Analysis: Hear the graph represent that EPS of this corporation decreased from 2010 to 2014. Which is not

good sign for this corporation? For improve the position, the management of this corporation need to take steep to improved corporation share price in the capital market.

2.5.1: Price / Earnings (PE) Ratio:

Table 13: PE ratio of Apex Adelchi Footwear Limited

Year 2010 2011 2012 2013 2014

PE Ratio 20.27 12.74 10.04 17.45 24.57

Analysis: As we know that the higher PE ratio, create batter position for the corporation & hear

the graph represents that PE ratio was the lowest (10.04 times) in 2012 & highest (24.57 times) in

2014. Over the period in 2011, 2012 the PE ratio was decrease & in 2013, 2014 the PE ratio was

increase. which is a good sign for the corporation.

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2.5.2: Market / Book value Ratio:

Table 14: Market / Book ratio of Apex Adelchi Footwear Limited

Year 2010 2011 2012 2013 2014

MVPS 0.0999162 295.568 231.0204 411.9945 443.4885

BVPS 645.397952 180 203.2709001 222 234

Market/Book

value

0.00016 1.63979 1.13651 1.85700 1.89208

Analysis: Hear the graph represent that the market / book value ratio increase from 2010 to 2014

which is good sign for the corporation & for more batter the management of this corporation need

to take steep to improved corporation share price in the capital market.

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CONCLUSION

This project of Ratio analysis in the production concern is not merely a work of the project. But a

brief knowledge and experience of that how to analyze the financial performance of the firm. The

study undertaken has brought in to the light of the following conclusions. According to this project

we came to know that from the analysis of financial statements it is clear that Apex Adelchi

Footwear Ltd. Have been incurring loss during the period of study. So the firm should focus on

getting of profits in the coming years by taking care internal as well as external factors.

The company’s overall position is not at a very good position. The company achieves not sufficient

profit in past 5 years. The long term solvency position of the company is very good. The company

maintains low liquidity to achieve the high profitability. The company distributes dividends every

year to its shareholders. The profit of the company decreased in the last year due to maintaining

the comparatively high liquidity. The networking capital of the company is maximum in the last

year shows the maximum liquidity. Without P/E ratio and M/B ratio all others ratios indicate

dissatisfaction.

Financial analysis is helpful in assessing the financial position and profitability of a concern. This

is done through comparison by ratios for the same concern over a period of years; or for one

concern against another; or for one concern against the industry as a whole; or for one concern

against the predetermined standards; or for one department of a concern against other departments

of the same concern. Accounting ratios calculated for a number of years show the trend of the

change of position. The trend is upward or downward or static. The ascertainment of trend helps

us in making estimates for the future. Thus we can say that there is lots of application of financial

analysis in the modern days of business. To assess any business condition financial analysis gives

a clear financial picture of any business organization. This helps to evaluate the trend and condition

of organization. From small to big business organization financial analysis helps a great deal in

decision-making process. As it helps to give idea about the financial condition, thus it helps in

future financial projection and decision making process of any business house. Eventually one can

assess how important is financial analysis in the modern days of business. It gives the exact picture

of the financial condition and helps future projection of any organization. Apex Footwear Ltd is

leading edge footwear company in Bangladesh. It is gradually expanding its asset base and able to

proper utilize assets. No business stays at the top if it doesn’t maintain its performance. Thus it is

very important to fulfill the demand of the consumers through competitive advantage.

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References & Bibliography

Reference Book –

Essential of Managerial Finance – Besley & Brigham

Annual Report of Apex Adelchi Footwear Ltd, 2010 – 2014

All Mathematical Calculation is done by MS Excel 2016

For Line chart presentation we use MS Excel 2016 , Office 365 &

http://www.onlinecharttool.com/

Share’s information collected from : http://www.dsebd.org/

We also Collected information form: http://www.apexfootwearltd.com/apex_footwear/

Other’s Information - http://www.myaccountingcourse.com/financial-ratios/

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Appendix

1.We have computed DAYS SALES OUTSTANDING by dividing accounts receivable by

average sales per day. To computed average sales per day we have to divide annual sales by 360

days.

2. We have computed DEBT RATIO dividing total liabilities by total assets. In 2010 there are only

current liabilities that’s why we take these as total liabilities. In 2011 total liabilities has given

directly. But in 2012,2013 and 2014 we take total liabilities by adding current liabilities and long

term debt/loan/borrowings.

3.Price/Earnings (P/E) ratio are directly given in Dhaka Stock Exchange.

4.We have computed MARKET/BOOK (M/V) VALUE by dividing market price per

share(MPPS) by book value per share(BVPS). Here MPPS and BVPS are not given directly that’s

why we have to find out it. To find out It we divide market price per share(mpps) by book value

per share(bvps).