Financial Analysis of Rahimafrooz Ltd

Chapter 1

 Introduction

Rahimafrooz is one of the reputed business houses in Bangladesh. It has crossed 55 years of operation. Rahimafrooz has endured turbulences of the last 55 years and has been able to renovate itself from a small trading company into a top diversified business house. This is, certainly, a milestone, which Rahimafrooz has achieved with trust, support and dedication of all stakeholders including its customers. First Rahimafrooz start it journey in 1954 as a trading company. Then it entered into collaboration agreement with LUCAS, UK for setting up manufacturing and distribution system of Lead-Acid automotive batteries at Dhaka and now it’s a giant company it not only sell batteries but many other products like UPS, IPS, electric equipment, solar system etc. Rahimafrooz vision is to become a company of 2000 corers within 2011. With the growth of the company, Rahimafrooz was acquired Lucas service (Bangladesh) limited and renamed it Rahimafrooz Batteries Limited. In 1991 Rahimafrooz deployed the expertise of Chloride Batteries of UK for technical up gradation and export development. In 1994 Rahimafrooz acquired Yuasa Battery Bangladesh limited and its factory. The company diversified by entering into type retreating, textile weaving and real estate. In 2001 the company was awarded the best enterprise of the year. It also established the first grocery retail chain superstore in Bangladesh called, “AGORA” in Dhaka. Rahimafrooz has an extensive distribution and network extending to the international markets. It has expanded its business reach to Middle East and South East Asia. Since the customers are spread on different places though market is divided into various segments. Rahimafrooz is divided into various SBUs like Rahimafrooz Batteries Ltd, Rahimafrooz distribution limited, Rahimafrooz solar, Rahimafrooz superstore limited, Rahimafrooz energy services, Rahimafrooz CNG. Rahimafrooz (Bangladesh) ltd always try to ensure its product quality as well as customer satisfaction. Currently it has 1500 employee. All those are employees are working sincerely for increasing company profit as well as welfare. Rahimafrooz also motivates their employees using several incentives

ORIGIN OF THE REPORT

Internship is mandatory part of the BBA it fulfills the requirement of the degree. This report is supervised and submitted to . The report is done with the support of Rahimafrooz Batteries Ltd. Specially the industrial battery marketing and sales department. The research was all about the Battery marketing in Bangladesh based on Rahimafrooz batteries Ltd.

OBJECTIVES OF THE STUDY

The study has been carried out with the following objectives:

• To describe the Battery Market in Bangladesh.
• To identify the target market of Rahimafrooz batteries Ltd.
• To describe various types of Batteries of Rahimafrooz batteries Ltd.
• To explain the promotional activities of Rahimafrooz batteries Ltd.
• To analysis of battery market of RBL
• To know the marketing strategy & marketing practice of Rahimafrooz batteries Ltd.

METHODOLOGY

To prepare the report both primary and secondary data and information were needed which are summarized below.

Types of study:

This is an Exploratory study in nature.

Sources of Data:

Primary sources:

• Company  officers ( Management and non-management stuff)
• Dealers
• Customers

Secondary Sources:

• Sales and marketing Report.
• Company website.
• Annual Report.
• Previous research documents.
• Different battery related website.

Target Population:

All officers, Dealers and Customers of Dhaka city.

Sample size :

Officers 10, Dealers 20 and customer 20.

Sampling Method:

Convenience Sampling: The convenience sampling method is used in exploratory research where the research is interested in getting an inexpensive approximation of the truth. As the name implies, the sample is selected because they are convenient. This no probability method is often used during preliminary research efforts to get a gross estimate of the results, without incurring the cost or time required to select a random sample.

Data collection Method:

1. Face to face interview with a questionnaire
2. Visiting the retail stores.

Scope of the Study

This study covers Five years sales data, Trends of business of Rahimafrooz Batteries Limited, Historical & future global Industrial battery market and finally analysis of major findings

Limitations

The major limitations include:

• The data used in this research for local market are fully based on primary which were collected from different suppliers’ which sometimes impossible to get.
• Barriers in disclosing actual data from some of the supplier and the end user.
• Internet was the only source for global market demand forecasting, relevant data is limited for the study.

Chapter 2

Rahimafrooz Ltd: An Overview

 Introduction

In the first chapter I have given a brief insight into the objective, methodology and limitations of the report.  In this chapter I take a look inside Rahimafrooz Batteries Ltd. (RBL). I gain an understanding regarding the company’s background and history.  It is very important to have a good understanding about a company’s past in order to rightfully forecast and determine its future path.

Rahimafrooz Batteries Limited (RBL):

RBL is the largest lead-acid battery manufacturer in Bangladesh and offers an extensive range of automotive & specialized industrial battery. It manufactures over 300 different types of automotive and industrial batteries.  Its plant is ISO 9001 & ISO 14001 certified.  It is one of the key players in South Asia in its field.

RBL has also extended its product line to secure power solution with UPS, Rectifier and VRLA Batteries with collaboration of Enersys-USA, Eltek-Norway, AEES-France.

RBL has a successful story of installing solar power in the remote rural areas of Bangladesh. It has successfully installed more than 10,000 home solar systems in the remote rural areas of Bangladesh.

Rahimafrooz (Bangladesh) Limited (RABL)

Rahimafrooz (Bangladesh) Limited (RABL) is the Group Holding and Parent Company including the Group Corporate Center that guides the Strategic Business Units (SBUs). It ensures continuous management innovation, technology adoption, new initiatives, corporate governance and compliance. Now Rahimafrooz is one of the respected and reputed business houses in Bangladesh. It has crossed 55 years of operation. Rahimafrooz has endured turbulences of the last 55 years and has been able to transform itself from a small trading company into a leading diversified business house. This is, indeed, a milestone, which Rahimafrooz has achieved with trust, support and dedication of all stakeholders, past and present, most importantly, its customers.

Today, Rahimafrooz has emerged as a respected national company by upholding high ideals and values, solemn integrity & honesty, excellence, service and innovation in all spheres of the company’s activities building on the already established foundation.

Rahimafrooz Milestones

Rahimafrooz began its operation as a trading company in 1954. Today Rahimafrooz has diversified in many areas from storage power solution to automotive aftermarket to retailing

  VISION, MISSION AND VALUES OF RAHIMAFROOZ

Rahimafrooz (Bangladesh) limited has specific mission and vision. Company top management determine mission discussing with lower level managers and employees.

The core missions, vision, values of the company are presented below:

Company Vision

Rahimafrooz (Bangladesh) limited already pass their 50 year with the people of this country as well as with many other foreign countries. The corporation vision is “To be the most admired and trusted organization through excelling in everything I do, following ethical business practices and adding value to stakeholders”.

Its long term vision is to establish” Rahimafrooz” as world wide well known brand.  One of its announced visions is becoming an enterprising Group of Taka 2,000 crore by the year 2010 with a diversified business portfolio focused on dynamic growth, excellence, innovation, customer delight in enriching our world.

Company Mission

• Pursue to operate as a market oriented company.
• Ensure quality product and service excellence for total customer satisfaction.
• Endeavor for constant enhancement of technical and professional skills of our people.
• Maintain high ethical standard in all spheres of operation.
• Respect the social norms and customs and contribute to the welfare of the society.

Company Aspiration

I strive to be the most admired and trusted organization by excelling in everything I do, following ethical business practices and adding value to stakeholders.

Company Values

Rahimafrooz (Bangladesh) limited has several values by which it tries to satisfy its customers and try to achieve their organizational goals. There are four specific values which are: –

• Integrity in all our dealings
• Excellence in everything I do
• Total commitment to customer satisfaction
• Thinking ahead and taking new initiatives

 Products and Capacity

Rahimafrooz has state of the art manufacturing plant. It is equipped with all latest technologies with complete air treatment and lead-recycling management. RBL produces different types of batteries to meet the local and international market.

Its capacity in Automotive Battery is 660,000 (N50) units per annum and  15 million AH of Industrial Battery  per annum. All the products are manufactured under strict quality control and ensured by international certifications. Its main product range includes:

• Automotive battery
• Motorcycle battery
• Appliance battery
• Deep cycle – Flat plate battery
• Industrial tubular battery
•   VRLA battery
•   UPS

Brands

Rahimafrooz markets batteries in different brand names such as Lucas, Optus,       Rahimafrooz, Spark and Volta, of which Lucas is the most common local brand and Volta and Optus are more popular in foreign markets, Optus being the premium brand.

It has different technical collaboration agreements with Lucas Battery Company, U.K, Technical support Group (TSG), Hawker Batteries, UK, Invensys, UK, Hawker Batteries, UK, Eltek – Norway, AEES – France to ensure the quality of battery.

Chapter 3

Internal Analysis

Introduction:

In the previous three chapters I have gained insight into the battery market as a whole and both the global automotive and IB market in detail. In this chapter, I inspect the internal environment. I have attempted to conduct an internal analysis of RBL through SWOT analysis. The SWOT gives us a clear understanding of where RBL’s strengths and weaknesses lie. Examining RBLs strengths and weaknesses can give indications regarding what RBL is doing right and what still needs to be improved upon if they are to survive in the global market. I also explore opportunities and assess current and future threats that may prove to be critical for future business success.

 SWOT Analysis of Rahimafrooz Ltd:

The SWOT analysis of Rahimafrooz reveals the actual scenario and the competitiveness of Rahimafrooz Batteries Ltd in the market. Though there are large number of competitor exists in different areas but Rahimafrooz Batteries Ltd has some advantages over them. The SWOT analysis of Rahimafrooz Batteries Ltd is in the following:

Strengths

• Strong brand image and brand recognition that increases the Company’s value to the whole world.
• Strong local Distribution network that ensures the proper supply of battery through out the whole world.
• Over four decades of battery manufacturing experience.
• Local market Leadership with 54% market share.
• Efficient workforce to ensure the best quality as well as production.
• Competitive price through out the international arena.
• Outsized Production Capacity to meet the market demand both home and abroad

Weaknesses

• No lead reclamation facility.
• Lack of own Brand Image in export markets.
• Absence of a global brand.
• New product development.
• Technical know how.
• Product outlook is not up to the mark.
• Reduced battery life: ignore consumer preference.
• Inadequate sales force in RBL India operation.
• Lack of forecasting skill.
• Less control over primary raw material .(Lead)
• Dependency on few big dealers/importers for local & export markets.
• Lack of marketing communication along with the promotional activities that leads to a less sale.
• Inappropriate warranty management for local & India market.
• Declining brand equity & brand recall trend.
• Internal brand cannibalization.

Opportunities

• Growing & emerging markets in Asia.
• Battery market growing by 7%.
• Increasing price trend of Chinese products.
• Cash Incentive in Export.
• High Growth potential in Middle East, Asia & Africa.
• Duty Free access Canada, Thailand, China, Australia, New Zealand.
• International exposure by set up sales office in Dubai.
• Re-export facility from Dubai.
• Jebel-Ali facility to do sourcing, branding & re-exporting.
• FTA arrangement with more countries.
• Merger & acquisition of production facilities in overseas.
• Rural market (AP battery).
• Marine battery market.
• Penetration in CV segment.
• High Price inviting more competition from local & overseas.
• Trade barriers in overseas markets.
• Increasing quality concerns from customers.
• Absence of brand registration in some Export markets.
• New competitors in the local market that gaining local market share.
• Entrance of major Global battery manufacturer in Bangladesh.

Chapter 4

External Analysis

 Introduction:

In the previous chapter I have describe about the Strength, weakness, Opportunities and Threats of Rahimafrooz Batteries Ltd. in this chapter, I will analyze the market environment. This chapter depicts the external environment that will affect the global business of RBL.

 External Analysis

In this chapter, I have conducted a PESTLE analysis of the global battery market environment. First I glimpse the political factors like political instability, currency instability and nationalism that may affect RBL’s global business. Then I look at the economic and socio-cultural factors for different regions; Europe, North America, Asia and Africa. Next I discuss the technology and how though it has improved over the years, RBL still needs to improve their technological quality in order to meet international standards. I also discuss how the emerging fuel cell technology may be a future threat to the battery industry, especially for the forklift segments. After, I look at the legal factors that will may aid or obstruct RBLs entry into foreign markets. I examine the Free Trade Agreements (FTA) in different parts of the world, especially the ones that Bangladesh is involved in like: SAFTA, SAARC, etc. Lastly I glace at the environmental factors that may need to be considered like proper disposal, reuse and recycling of lead, which is the main raw material for batteries.

This chapter will give a clear understanding about which external factors will most likely influence the battery market in the international arena. These factors needs to be taken into consideration when decisions are made regarding RBLs global business strategy.

 Political Factors:

Political instability:

Before entering any country, RBL must first look and its political stability.  Even if a market may look very attractive from the economic view-point, if that market is not politically stable then it will not be a fruitful market for RBL to enter into.  For example, Africa may seem like a very attractive market to enter for RBL to market its solar products. The country offers a wide untapped market with huge demand. However political instability in the region presents great risk to any investor in the country.  The region is constantly plagued with political instability, fighting and war. These factors make all the other factors null and diminish the attractiveness of these markets.

Currency instability:

The international markets are now constantly plagued with currency fluctuations.  The current dip in the dollar has affected any company remotely related to international trading.  RBL must keep currency fluctuations in mind when conducting business in international markets.  It should take the help of certain tools like hedging, in order to reduce currency fluctuation risks.

Nationalism:

The home government may impose restrictive policies like import control, equity requirements, local content requirements, limitations on the repatriation of profits and so on (Dersky, 2000).  India for example, has imposed imports controls in the form of anti-dumping taxes on Bangladeshi battery manufacturers in order to protect their domestic manufacturers. Before entering a foreign market, RBL must thoroughly examine their policies and attitude toward foreign companies.

Economic Factors:

Europe:

GDP of Europe (PPP) is $ 13.06 trillion. The growth rate is 3.1%. Per capita income is US $ 29900. These data indicate that people in Europe is able to live above their need. So standard of living is high which shows that industry is booming. The booming industry explains the industrialization of that region. Where there is industrialization there must have demand of forklift. That means the demand of traction battery will be better than any other region. At the same time in this region mobile user is bit higher and therefore the BTS tower is available and that is why demand of stationary battery is also obtainable.

North America:

North American GDP (PPP) is $ 15,857 billion (2007) and per capita income is $ 35, 491. In that territory nominal GDP is $ 15,723 billion. From this scenario it is well clear that in this region people’s living standard is better.

From this point of view in this region industry is expanding, communication system is well equipped. So in the battery industry perspective there is demand for huge amount of battery for forklift and in telecommunication sector there is demand for stationary battery.

Asia:

Asia’s average GDP is $ 8.7. this is very lower than Europe or North American territory which means in this region there is a lot of scope for developing. In this region there are some country which are developing like India, Bangladesh, Pakistan, Nepal etc and some countries like Japan, China are developed. So in Asia among the countries there are two divisions, one is developed countries and other one is developing countries. So these two divisions have two different scenarios. For developing country like India  the GDP (PPP) is $2.989 trillion and GDP per capita is $ 2700 which is also lower than any developed country, but India is in booming stage of their economy. So because of that the demand for battery for forklift, telecom is increasing and as long as there is huge IT sector is booming, so there’s a huge demand for UPS as well.

On the other hand Japan is developed country and their GDP (PPP) is $ 4.29 trillion and GDP per capita $33600 (2007) which is clearly better than India. In this country their living standard is much higher than India or any other developing country and their industry has huge demand for forklift battery and telecom sector they demand for stationary battery. As a developed country Japan is always quality conscious and to do business they need quality product.

Africa

The gross domestic product (GDP) in Africa is forecast to rise 5.9 percent in 2007 and 5.7 percent in 2008, according to a report from the African Development Bank (ADB) and the Organization for Economic Cooperation and Development (OECD) Development Center. This is a region where industry booming is lower than any region of the world. Purchasing power is very low and on the other hand there are lots of ethnic and tribal exists who always fights among themselves. Corruption level is higher so to do business in this region tougher than anywhere.

 Socio-Cultural Factors:

North America:

In North America USA and Canada are developed country and in technology sector US is in the superior position. The raising high oil globally and because of environmental awareness this region’s people are developing of producing electricity with alternative or renewable energy. So the solar system which is getting popular day by day is very happening thing is this region.

 Europe:

Europe is also an advanced region where technology is developed and in this region people are also aware of green environment though the electrification rate is 100% in almost every country. So here in this region like is the world number one in producing solar power and other country like Spain, France, UK are more focusing on solar power rather than using electricity with oil.

 Asia:

 Asia is mixed culture continent where people are more traditional and living with poor technology. Though the scenario is changing day by day and in this region electrification rate is lower than any developed continent but this region is going for solar. Like Japan is developed country and this country is top five list in generating solar electricity. India has 15% solar electricity production from the global perspective. China has the 10% of global off grid solar production and they are increasing day by day.

This scenario has encouraged lots solar companies and solar battery companies to do business in this region.

Africa:

 The continent, which is still living in the dark. Here the electrification rate is lower in world and therefore the cultural development is not seen in this region. There are lots funding organization are working to develop this scenario and therefore off grid solar generation is effectively seen in this region. Among them Kenya has a huge potential for this sector and they have the highest solar home system among any African country. In this country the electrification rate is 10% only and Govt. fails to reach their rural to distribute their traditional electricity.

 Technology

The battery technology available to battery manufacturers has significantly developed in Bangladesh compared to the beginning of the industry. Though the industry has not yet been able to reach the international standard but some companies are very close.  Rahimafrooz Batteries Ltd. is currently in the process building a new factory in Savar where they will able to serve the country by supplying international standard battery products.  RBL needs to involve itself in continuous product improvement and innovation in order to succeed in the global market. It also needs to be aware of alternative technology that might prove to be a threat in the future.

Technological threat: Fuel cell technology can be a significant threat to the battery industry in the future. A fuel cell is an electrochemical conversion device. It produces electricity from fuel and an oxidant, which react in the presence of an electrolyte. The reactants flow into the cell, and the reaction products flow out of it, while the electrolyte remains within it. Fuel cells can operate virtually continuously as long as the necessary flows are maintained (http://en.wikipedia.org). The prospect of this product is brighter because the scientists and business people are expecting that by the end of 2020 fuel cell will be a threat to battery. (http://www.poweravenuecorp.com) Fuel cell technology can emulate any type of battery, therefore theoretically replace any battery.  The technology has yet to be perfected and is currently too expensive for commercialization.  Fuel cell technology is advancing at a rapid pace and there are currently many public trials being conducted around the world. The fuel cell community has targeted the forklift industry as its first stepping-stone into commercialization. If the technology becomes established then it will become a direct and lethal threat for forklift battery or traction battery manufacturers. However this technology has a long way to go before that is a reality.

Legal Factors:

International Trade Agreements: Bangladesh is a founder member of the World Trade Organization (WTO) since its inception (Jan, 1995). Despite active participation in the WTO System, there is a need for expanding trade through engagement in Bilateral, Regional & Multilateral Trading Arrangements.

Free Trade Agreement (FTA): FTA is a treaty between two or more countries to establish a free trade area where commerce in goods and services can be conducted across their common borders (http://www.businessdictionary.com). FTA refers to an arrangement where all barriers to the trade of goods and services among member countries are removed.

Bangladesh is conducting preliminary bilateral FTA talks are going with India, Pakistan and Sri Lanka since 2003. These free trade agreements severely impact the import duties on lead, which constitute around 70% of total cost of battery production. FTA agreement also affects the export duties that batteries manufacturers need to bear when exporting their products to other countries.

The domestic battery industry is anticipating a spurt in exports from Bangladesh to India following the recent withdrawal of anti-dumping duty. Bangladesh has a fairly large capacity compared to its domestic demand. It already has an edge over Indian battery producers owing to lower import duty on lead and there is a possibility of the excess capacity might be dumped into India. India charges 20 per cent import duty on lead as against 5% in Bangladesh and nil in Thailand http://www.thehindubusinessline.com).

The Bangladeshi domestic battery industry is now expecting an early reduction in import duty on lead due to the recent withdrawal of anti-dumping duty on lead-acid batteries from Bangladesh after being previously disturbed by the FTA installed by India with Thailand.

Regional Trade Arrangement (RTA): Presently, Bangladesh is involved with the following RTAs: SAFTA (South Asian Free Trade Area), BIMSTEC (The Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation), and APTA (Asia Pacific Trade Agreement.

SAFTA

The Agreement on South Asian Free Trade Area (SAFTA) was signed in Jan 6, 2004 in Islamabad. SAFTA has entered into force from Jan 1, 2006. Members include Bangladesh, Bhutan, Maldives, India, Pakistan, Nepal, Sri Lanka and Afghanistan

All member countries of SAARC except India, Maldives, & Bhutan have included battery item into their sensitive list Tariff reduction under SAFTA has started from 1 July 2006. India, Pakistan and Sri Lanka have agreed to bring down their tariff for batteries to 0-5 % for LDCs in 3 years.

India, Pakistan and Sri Lanka are keen to conclude bilateral Free Trade Agreement (FTA) negotiations with Bangladesh. Nepal and Bhutan are also interested in having bilateral FTAs with Bangladesh. Govt. of Bangladesh (GOB) should pursue with our counterparts to establish bilateral FTA for boosting up our trade & investment in the battery sector.

Pakistan-Bangladesh: FBCCI have already sent a list of products (28 items) including battery for Duty Free (DF) list to the High Commission of Pakistan. There is an immense possibility of signing a FTA with Pakistan, if the GoB pursues the mater seriously.

India-Bangladesh: India Bangladesh Chamber of Commerce & Industry (IBCCI) is going to prepare a product list of 18 items including automotive and other types of battery for seeking duty free market access in India. The battery manufacturing companies of Bangladesh are continuously pursuing with FBCCI & IBCCI in this regard.

Nepal-Bangladesh: Nepal and Government of Bangladesh is going to prepare a product list for duty free market in both countries after consultation with FBCCI & FNCCI. The domestic battery manufacturers have already sent their proposal to FBCCI for inclusion of accumulator battery for duty free market access in Nepal.

BIMSTEC-FTA

The BIMSTEC Framework Agreement on FTA was concluded in February 2004. The BIMSTEC FTA on trade in goods was scheduled to enter into force from 1 July 2006. Members include Bangladesh, India, Myanmar, Sri Lanka, Thailand, Nepal and Bhutan. BIMSTEC FTA is a more comprehensive agreement than SAFTA, The seven country forum aims to have its own free trade area by 2017 (http://www.twnside.org). The recent BIMSTEC meeting concluded with a satisfactory decision for reduction of the negative list up to 15 percent of the total 5226 tariff lines. FBCCI has established Joint Business Commission (JBC) with more than 30 countries for increasing trade & investment. JBC meeting plays a vital role for increasing trade and investment among the counties. RBL attends this meeting for introducing our products to the international traders/buyers. According to FBCCI , two prominent business entities of Myanmar have shown keen interest to import auto battery from Bangladesh.

RBL can take advantage of all these FTA’s in order to become a truly global and international country.

Environmental Factors:

The main component of automotive and industrial batteries is lead-acid.  Lead is a metal found naturally in the environment as well as in manufactured products.  Today, the highest levels of lead in air are usually found near lead smelters. Other stationary sources are waste incinerators, utilities, and lead-acid battery manufacturers.

Lead and lead compounds can be highly toxic to humans when eaten or inhaled. Although lead is absorbed very slowly into the body, its rate of excretion is even slower. Thus, with constant exposure, lead accumulates gradually in the body (http://www.macslab.com). Depending on the level of exposure, lead can adversely affect the nervous system, kidney function, immune system, reproductive and developmental systems and the cardiovascular system.

Lead is persistent in the environment and accumulates in soils and sediments through deposition from air sources, direct discharge of waste streams to water bodies, mining, and erosion.  Ecosystems near point sources of lead demonstrate a wide range of adverse effects including losses in biodiversity, changes in community composition, decreased growth and reproductive rates in plants and animals, and neurological effects in vertebrates.

There are many rules and regulation regarding the proper handling, disposal and recycling of lead. Lead acid battery manufacturers must involved in collection, reuse, smelting and recycling of used lead acid batters.  RBL involved in recovery programs where they collect old and used lead-acid batteries from customers, recycle them and then produce new batteries using the old lead.  This method is good for the environment as it encourages and increases the likelihood of lead acid batteries of being disposed of properly.  It also helps manufacturers secure a cheaper and cost effective source of lead.

Chapter:5

RATIO ANALYSIS

Introduction

Financial ratios are useful indicators of a firm’s performance and financial situation. Financial ratios can be used to analyze trends and to compare the firm’s financials to those of other firms.

Financial ratios can be classified according to the information they provide. The following types of ratios frequently are used:

1. Liquidity ratios
2. Asset management ratios
3. Debt management ratios
4. Profitability ratios
5. Market value ratios

LIQUIDITY RATIOS

Liquidity ratios are the first ones to come in the picture. These ratios actually show the relationship of a firm’s cash and other current assets to its current liabilities. Two ratios are discussed under Liquidity ratios. They are:

1. Current ratio

2. Quick/ Acid Test ratio.

1. Current ratio:  This ratio indicates the extent to which current liabilities are covered by those assets expected to be converted to cash in the near future. Current assets normally include cash, marketable securities, accounts receivables, and inventories. Current liabilities consist of accounts payable, short-term notes payable, current maturities of long-term debt, accrued taxes, and other accrued expenses (principally wages).

Current Ratio=Current Assets/Current Liabilities

Following table shows the Current ratios of Rahimafrooz in different years:

Following graph shows the change of Current ratios over different periods:

From the analysis, we can see that in 2008-09 the current assets were 1.62 times than the current liabilities that has not fluctuated much through out these three years. A minimal increase is seen in 2009-10 and it went up to 1.66 times which kept slightly increasing and resulted at 1.78 times in 2010-11. The reason for such stability can be there not investing remarkably on assets and not making any huge loan or financing from outside. If we take a closer look on the balance sheet, this assumption gets a more realistic touch. Year by year assets have gone slightly up and the liabilities as well, but proportionately assets were a littler higher than the liabilities which actually reflected as a marginal increase in the ratio.

2.  Quick/ Acid Test ratio:  This ratio indicates the firm’s liquidity position as well. It actually refers to the extent to which current liabilities are covered by those assets except inventories.

Quick Ratio=(Current Assets-Inventories)/Current Liabilities

Following table shows the Quick/ acid test ratios of Rahimafrooz in different years:

Following graph shows the change of Current ratios over different periods:

Analysis of this ratio speaks in a same language as current ratio. In 2008-09, the quick ratio was .98 times which increased very silently just like current ratio and resulted as 1.19 times in 2010-11. Both of these ratios portray the idea that Rahimafrooz has so far an almost constant liquidity position which is good at some point, but at the same token it can be said that they have not been able to improve them-selves. Standing at this point, we can make an assumption that may be their profit margin was not so high that they can make some investments paying off the liabilities that could result in an increase in assets and decrease in liabilities to make the liquidity position far better. This assumption can only be proved as we go on analyzing their financial statement and calculate the profitability ratios.

Asset Management Ratios of Rahimafrooz

ASSET MANAGEMENT RATIOS
Asset management ratios are the financial statement ratios that measure how effectively a business uses and controls its assets. Below are discussed five types of asset management ratios:

1. Inventory turnover ratio
2. The days sales outstanding
3. Average payment period
4. Fixed asset turnover ratio
5. Total asset turnover ratio

1.  Inventory turnover ratio: The ratio is regarded as a test of efficiency and indicates the rapidity with which the company is able to move its merchandise.

Inventory turnover ratio = Gross Turnover / Inventories

Following table shows the Inventory Turnover ratio of Rahimafrooz in different years:

Analysis shows a gradual declination of Inventory Turnover Ratio over the last three yeas. In 2008-09, the ratio was 6.89 times, then it rapidly declined to 5.41 times in following year and dropped further to 5.27 times in the year 2010-11.

The company’s balance sheets show increase of inventory with declining turnover every year. Declining inventory turnover commonly indicates that the company is not being able to flush its inventory very well as it was doing in the previous years. A low turnover rate may point to overstocking, obsolescence, or deficiencies in the product line or marketing effort. High inventory levels are unhealthy because they represent an investment with a zero rate of return in addition to the increased cost associated with maintaining those inventories. It also opens the company up to trouble should prices begin to fall. However, in some instances a low rate may by appropriate, such as where higher inventory levels occur in anticipation of rapidly rising prices or shortages.

In order to improve Inventory Turnover ratio, at first an end-to-end view in addressing inventory needs to be looked at. Supply chains need to be optimized, production processes should have to be efficient as well, so that the suppliers become able to produce and deliver materials in a timely, low cost fashion that allows the company to minimize their inventory and cost of materials. Collaborative relationships with customers can allow them to make their demand for products more predictable thereby allowing to minimize finished product inventory without failing to meet their needs for volume and timeliness.

Discount-driven sales may generate a boost in sales. Such discounts can erode the company’s profit margins but will boost revenue and rate of inventory turnover. The company might look like it is becoming leaner, when in fact it may simply be pushing products into the marketplace using artificial low pricing. However, before it can be done, the gross margins reported by the business needs to be analyzed carefully. If gross margins decrease as a percentage of sales in spite of an increase in inventory turnover, they should not apply this policy.

Supplier-financed inventory may reduce inventories and show improved inventory turnover by forcing suppliers to carry the inventory for the company. The suppliers assume the cost of maintaining inventory and passes that cost on. Alternatively, the company may reduce inventory by the use of express shipment or other costly means of delivery to ensure the availability of materials and supplies when needed.

2.  The Days Sales Outstanding: The Days Sales Outstanding ratio shows both the average time it takes to turn the receivables into cash and the age, in terms of days, of a company’s accounts receivable. This ratio is of particular importance to credit and collection associates.

Days Sales Outstanding (DSO) = Trade Debtors/(Annual gross turnover/365)

Following table shows the DSOs of  in different years:

Analysis shows that was 15.75 days in 2008-09; highest among the three years. In 2009-10, it was 14.99 days and in 2010-11 it was 14.87 days; lowest among the three years.

Since  the highest in 2009-10 that indicates that customers were taking longer times to pay their bills, which may be a warning that customers were dissatisfied with the company’s product or service, or that salespeople were making sales to customers that are less credit-worthy, or that salespeople have to offer longer payment terms in order to seal the deal. Long credit policy might be used deliberately to boost sales temporarily. Of course, it could also mean that the company has an inefficient or overtaxed accounts receivables department. However, the significant improvement in 2005-06 signifies that the company collected its outstanding receivables quicker than the previous years and that the credit terms are getting more realistic. It also connotes that the company had greater control over quality of its customer relationship management (CRM) during the following year.

3. Average payment period: The accounts payable turnover ratio includes all outstanding obligations that a company owes its creditors.

Average Payment Period (APP) = Payables / (Cost of goods sold/365)

Following table shows the APPs of Rahimafrooz in different years:

Analysis shows a gradual increase of company’s average payment period. In 2008-09, the average payment period was 161.25 days, and then it became 225.27 days and 234.07 days consecutively for the following two years.

The underlying reason for the ratio to go up is the significant increase of company’s debt; especially short and long term bank loans (which made the current portion of long-term loans high). Each year this amount is getting higher than the previous years. Furthermore, in 2009-10 there was a huge sum trade credits unpaid. All these played key role for the payables to increase. A long payment period at first improves the company’s liquidity, but my also be an indicator for liquidity problems. Therefore, it is important to keep the value equal or close to the average value. Since the company’s payment period is getting longer, i.e. the company pays too late, then it means the liquidity problem of the company. The company probably lacks of the money to pay its liability. Hence, questions may arise on the company’s credit worthiness and paying habits. It has long been recognized that late payment of business debt is a serious problem for suppliers of goods and services. Late Payment can make it necessary for a company to increase borrowing and to extend overdraft facilities.  Time and resources can be taken up on maintaining and collecting late payments instead of being devoted to other areas of business.

4. Fixed asset turnover ratio: The Fixed Asset Turnover ratio measures the effectiveness in generating Net Sales revenue from investments in Net Property, Plant, and Equipment back into the company evaluates only the investments.

Fixed assets turnover ratio (FATO) = Gross Turnover / Net fixed assets

Following table shows the FATO ratios of Rahimafrooz in different years:

Analysis shows that the fixed asset turnover ratio was as high as 1.42 times among three years. However, it declined to 1.33 times in the following year. In 2010-11 the turnover somewhat increased to 1.35 times.   

The rapid declination of turnover in 2009-10 occurred because sales did not keep pace with the increase of company’s fixed assets. Company’s capital work-in-progress increased substantially in the year 2010-11. 2009-10 capital work-in-progress was also higher then the previous year. It may happen if the company was not being able to utilize its assets efficiently. However, conclusions should not be drawn solely on the numerical results of this ratio. A careful study on the balance sheet shows that large amount of investments were made during that year that inflate the dollar volume of fixed assets, and give an impression of mismanagement. The case is applicable for the 2005-06 as well. The turnover was highest in 2003-04 only because no significant investments were made during that period and the capital work-in-progress was lowest amongst the three years. Therefore, enough evidence is not available from this ratio analysis whether the company is really performing inefficiently or it is the investments that pulled down the turnover.

5. Total asset turnover ratio: The Total Asset Turnover is similar to fixed asset turnover since both measures a company’s effectiveness in generating sales revenue from investments back into the company. Total Asset Turnover evaluates the efficiency of managing all of the company’s assets.

Total assets turnover ratio(TATO) = Gross Turnover/Total Assets

Following table shows the TATO ratios of Rahimafrooz in different years:

Analysis shows a gradual fall of company’s total asset turnover. In 2008-09, it was 0.93 times, declined to 0.78 times in the following year and then again declined slightly to 0.76% in 2010-11.

It may be an indicator of company’s pricing strategy as company with high profit margins tends to have low asset turnover. It is in fact might be one of the reasons for why the assets turnover was low in the year 2009-10. Profit margin went up from 17.69% in 2008-09 to 20.25% in the next year. However, there are other reasons as well. In 2009-10 total assets increased by 25.68% while sales increased by only 11.57%. Other than investment in marketable securities, every other asset especially long-term investments, inventories, short-term loans and cash balance had gone up substantially. Same is the case for the year 2010-11 as sales could not keep up with assets. Long-term investment, capital work-in-progress, inventories, short-term loan was also high during this year. On the other hand, the profit margin was only 16.45%. So it could be concluded than higher profit margin may not be the actual reason for the turnover to go down. Perhaps the company is not utilizing its assets efficiently.

 Debt Management Ratios of Rahimafrooz

Debt Management Ratios

Debt management ratios reveal 1) the extent to which the firm is financed with debt and 2) its likelihood of defaulting on its debt obligations. These ratios include:

1.Debt
2. Times-Interest-Earned(TIE)ratio
1. Debt ratio: The ratio of total debt to total assets, generally called the debt ratio, measures the percentage of funds provided by the creditors.

Debt ratio = Total Debt / Total Assets

Following table shows the Debt ratios of Rahimafrooz in different years:

Calculating the debt ratio, we came to see that this company is not that highly leveraged one. In 2008-09, it was 37%, in 2009-10, it suddenly went up to 46%, and than again in 2010-11, it climbed down to 31%. A little bit of fluctuation is seen here in debt management, which is actually nothing but their strategic move. The reason behind such fluctuation is better understandable form the balance sheet. In 2004-05, the company has issued long-term loan, which happens to be BTD 389,193,080 that is way too high than the previous year’s loan, which is BDT 36,544,158 that actually increased the total debt thus resulting in a high debt ratio. Again, in the following year they paid off the loans and have not made any huge financing from outside which decreased.

2. Times-Interest-Earned (TIE) ratio: This ratio measures the extent to which operating income can decline before the firm is unable to meet its annual interest cost.

TIE ratio = EBIT / Interest Charges

Following table shows the times-interest-earned (TIE) ratios of Rahimafrooz in different years:

We can see from this ratio analysis that, this company has covered their interest expenses 11 times in 2008-09, 15 times in 2009-10 and 11 times in 2010-11. It means they have performed pretty much same in 2008-09 and 2010-11 but has taken a different look in 2010-11.  As in 2009-10 they issued a little high number of long-term loans and does not have good liquidity position, their EBIT became high thus making TIE a little high as well.

Profitibility Ratios of Rahimafrooz

PROFITIBILITY RATIO:
Profitability is the net result of a number of policies and decisions. Profitability ratios show the combined effects of liquidity, asset management and debt on operating results.
There are four important profitability ratios that we are going to analyze:

1.  Net Profit Margin
2.  Gross Profit Margin
3.  Return on Asset
4.  Return on Equity

1. Net Profit Margin: Net Profit Margin gives us the net profit that the business is earning per dollar of sales. The equation is as follows:

Net Profit margin = Net income available to the stockholders / gross turnover

Following shows the Net Profit Margin of Rahimafrooz in different years:

Therefore, the Net Profit Margin was 17.69% in 2008-09, increase to 20.26% in 2009-10 and then again decreased to 16.45% in 2010-11.

The main reason that the profit margin declined is high cost. High cost, in turn, generally occurs due to inefficient operations. Profit margin also declined because in 2010-11 Square Pharmaceuticals used a lot of long-term debt. This invariably resulted in more interest cost, which brought the Net income down.

2. Gross Profit Margin: Gross Profit Margin gives us the amount of Gross profit a firm is earning per dollar of its sales. The equation is as follows:

Gross Profit Margin (GPM) = Gross profit / Gross turnover

Following shows the Gross Profit Margin of Rahimafrooz in different years:

So, the Gross Profit Margin has remained pretty much stable throughout the whole three years. It increased slowly each year. It indicates that Rahimafrooz is managing its Sales and Cost of Goods Sold very well.

Return on Total Assets (ROA): Return of total asset measures the amount of Net Income earned by utilizing each dollar of Total Assets. The equation is:

Return on Total Assets (ROA) = Net income available to total common shareholders / Total assets

Following shows the Return on Total Assets of Rahimafrooz  in different years:

So, return on total assets decreased gradually throughout the years. This may have occurred because Square used more debt financing in 2010-11 and 2009-10 compared to 2008-09 which resulted in more interest cost and brought the Net income down.

4. Return on Equity (ROE): Return on Equity measures the amount of Net Income earned by utilizing each dollar of Total common equity. It is the most important of the “Bottom line” ratio. By this, we can find out how much the shareholders are going to get for their shares. The equation is:

Return on Equity (ROE) = Net income available to common shareholders / Total common equity

Following shows the Return on equity of Rahimafrooz in different years:

Therefore, the Return on Equity increased in 2008-09 but decreased a little in 2010-11. This again may have happened due to the issue of more long-term debt in 2009-10

 Market Value Ratios of Rahimafrooz

MARKET VALUE RATIOS

The final group of ratios, the market value ratios relates the firm’s stock price to its earnings and book value per share. These ratios give management an indication of what investors think of the company’s past performance and future prospects. In this section, we are going to have a discussion mainly on two types of ratios:

1.  Price/ Earnings ratio

2.  Market/ Book ratio

1.  Price/ Earnings ratio: The Price/ Earnings ratio (price-to-earnings ratio) of a stock is a measure of the price paid for a share relative to the income or profit earned by the firm per share.

P/E ratio – Price per share / earnings per share

2.  Market/ Book ratio: The ratio of book value to market value of stocks.

Market/Book ratio (M/B) = Market price per share / Book value per share

Following table shows the P/E and M/B ratios of Square Pharmaceuticals in different years:

The P/E ratio was 8.43 times in 2008-09 and increased further to as high as 12.95 times in the following year. However, in 2010-11 it declined to 9.70 times which is an alarming signal for the potential investors.

The M/B ratio was 1.78 times in 2008-09 and increased further to 2.92 times in the following year which was excellent to draw the attention of investors. However, in 2010-11 it became as same as 2008-09 value.

The main reason behind the declination of P/E and M/B ratio is the fall of price per share. Price of share may fall for several reasons. Failing to meet market expectations is one of the main reasons for the market to lose interest in a share. Shares are usually valued according to what investors reckon the company will do in future. Therefore, when a business fails to meet those expectations then it is not unreasonable for investors to reconsider their position. We can see this fact applicable for this company too. As the company was doing well in 2003-08, the share price was higher than among the three years. Interestingly, the impact on shares depends to a large degree on the influence that they have on the market as well. During 2009-10 financial year the capital market situation deteriorated to the level that the DSE General Index fell by 14.91%. The overall hostile market situation put a negative impact on Square Pharmaceutical’s stock price too. Therefore, the investors should not be concerned much about the particular company’s P/E and M/B ratio.

 Overall Financial Summary of Rahimafrooz

OVERALL FINANCIAL SUMMARY

After analyzing all the ratios, we have found out the following information:

1.  Liquidity Ratios: In the liquidity ratio we can see that both current ratio and quick ratio improved over time marginally. The situation was almost stable.

2.  Asset Management Ratios: Inventory turnover, Total Asset Turnover, Fixed Asset Turnover all had been relatively stable throughout the three years. Average Collection period is also very good. The only problem here is the Average collection period which is way high. However, such a situation is actually pretty much normal for big companies.

3.  Debt Management Ratios: Here Debt ratio has improved over time and TIE has remained pretty much stable.

4.  Profitability Ratios: Apart from Gross Profit Ratio, most of the Profitability ratios have actually decreased in 2005-06. Although the decrease rate is very minimal still it is a problem for Square and they need to try to improve these ratios.

5.  Market Value Ratios: Both P/E ratio and M/B ratio declined in the year 2005-06. But this happened mostly not because of the company’s failure but for the fact that the whole market was not so friendly for investment in that year.

From the total analysis, we can summarize that Square Pharmaceuticals Ltd. has been doing pretty good through out the years. It is true that last year there return did decline but it is still pretty much satisfactory. Therefore, we can conclude that Square Pharmaceuticals Ltd. is a good enough company to invest on.

APPENDIX

All the ratios below are calculated for 2010-11 financial year:
1.  Current ratio = 1.78 times
2.  Quick ratio = 1.19 times
3.  Inventory turnover ratio = 5.27 times
4.  Days Sales Outstanding (DSO) = 14.87 days
5.  Average Payment Period (APP) = 234.07 days
6.  Fixed assets turnover ratio (FATO) = 1.35 times
7.  Total assets turnover ratio (TATO) = 0.76 times
8.  Debt ratio = 31%
9.  TIE ratio = 11.30 times
10. Net Profit margin = 16.45%
11. Gross Profit Margin (GPM) = 36.19%
12. ROA = 12.54%
13. ROE = 18.21%
14. P/E ratio = 9.70 times
15. Market/Book ratio (M/B) = 1.77 times
16. Book value per share = BDT 1,288,65

Notes on Analysis:

1. In 2009-10 and 2010-11 Quick ratio analysis, STOCK has been used as Inventory.

2. In 2009-10 and 2010-11 TIE ratio analysis, NET PROFIT AFTER WPPF has been used as EBIT and FINANCIAL EXPENSE found in cash flow statement has been used as INTEREST EXPENCE.

Chapter 6

Findings, Recommendations and Conclusion

Findings

The findings of the study mean the present status and condition of Battery marketing of RBL . The major findings of the study are as follows-

• Strong distribution channel.
• Better after sales service.
• Produce superior product among their competitors.
• Competitive pricing.
• Efficient workforce.
• Limited production capacity.
• Wastage is high.
• Less control over raw materials.
• No lead reclamation facility.

 Recommendations

The RBL is a renowned Battery company of Bangladesh. So far they are successful in the battery market in Bangladesh. Yet they should have concentrate on following recommendations:

• RBL should increase their production plant.
• RBL should use raw materials properly in order to reduce wastage.
• RBL should create more suppliers to procure available raw materials.
• RBL should set up lead reclamation facility.

Conclusion

Rahimafrooz  Ltd is the market leader of battery industry in Bangladesh. It holds overall 74% market share in the local  market. Rahimafrooz  Ltd. has two battery plants operating one in Nakhalpara and another one in Savar. Company now is setting up their plan up to 2017. Company has to deliver best value for money with on time delivery of superior product, and to support with quality service based on best technical knowledge. The vision should be a global supplier of industrial battery and recognized as an enterprise that offers reliable and best value products with environmentally and socially responsible practices in order to exceed stakeholder returns and expectations, and to lead as market leader through our professionalism, innovation, integrity, and commitment to quality & service to our partners and customers. Globally companies are now going to setup their production plant by environmental friendly technology.

Bibliography

Books

Introduction to Finance

Fundamentals of Financial Management- Brigham & Huston

Sources

Annual report Of “Rahimafrooz Ltd” in 2009-10

Annual report Of “Rahimafrooz Ltd” in 2008-09.

Annual report Of “Rahimafrooz Ltd” in 2010-11.

Website:

www.myRahimafrooz.com

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http://www.engineersedge.com

http://www.pvcdrom.org

http://en.wikipedia.org/wiki/Fuel_cell

http://www.businessdictionary.com/definition/common-external-tariff-CET-or-CXT/