project ustc 3

8/13/2019 Project USTC 3

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1.1 Introduction:

This project helped me to get the deeper understanding of the process of Financial

Statement Analysis and how decisions are taken to strengthen the financial position. For

this study two years comparative Income Statement & Balance Sheet have een taken for

calculating ratio analysis. !ain ojective in undertaking this project is to supplement

academic knowledge with asolute practical e"posure to day to day functions of the

sector.

Financial analysis which is the topic of this project refers to an assessment of the

viaility# staility and profitaility of a usiness. This important analysis is performedusually y finance professionals in order to prepare financial or annual reports. These

financial reports are made with using the information taken from financial statements of

the company and it is ased on the significant tool of $atio Analysis. These reports are

usually presented to top management as one of their asis in making crucial usiness

decisions.

1.2 Objectives of the study:

There have een various ojectives for this study# the first of which is a detailed analysis

of the financial statements that is the alance sheet and the income statement of BS$!

%$'(.

The second ojective# however the most important one or in other word the principle aim

of this project is the understanding and assessment of financial ratios ased on the

statements of the company.

The ne"t aim of the project is to recogni)e the position of the company through those

ratios and data availale. This recognition is a leading factor in changes of each and every

company and the ase and root of lots of management decisions.

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1.3 Methodology of the study:

Types of data which helped to prepare this report*

+. First type is the primary data which was collected personally to e used and studied

to prepare and reach the ojectives already mentioned.

,. The secondary data which was already prepared so these data was only used to reach

the aims and ojectives of this project. These data has een collected from the

financial reports of the company.

(reliminary data collection

Interview# Survey# servation# -uestionnaire

Secondary data collection

ournal

!aga)ine

/esites

Annual report

1.4 eneficiaries of the study:

$atio analysis is an important techni0ue of financial analysis. It is a means for judging

the financial health of a usiness enterprise. It determines and interprets the li0uidity#

solvency# profitaility# etc. of a usiness enterprise.

It ecomes simple to understand various figures in the financial statements through the

use of different ratios. Financial ratios simplify# summaries# and systemi)e the accounting

figures presented in financial statements.

/ith the help of ratio analysis# comparison of profitaility and financial soundness

can e made etween one industry and another. Similarly comparison of current year

figures can also e made with those of previous years with the help of ratio analysis and

if some weak points are located# remedial measures are taken to correct them.

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If accounting ratios are calculated for a numer of years# they will reveal the trend of

costs# sales# profits and other important facts. Such trends are useful for planning.

Financial ratios# ased on a desired level of activities# can e set as standards for

judging actual performance of a usiness. For e"ample# if owners of a usiness aim at

earning profit 1 ,23 on the capital which is the prevailing rate of return in the industry

then this rate of ,23 ecomes the standard. The rate of profit of each year is compared

with this standard and the actual performance of the usiness can e judged easily.

$atio analysis discloses the position of usiness with different viewpoint. It discloses

the position of usiness with li0uidity viewpoint# solvency view point# profitaility

viewpoint# etc. with the help of such a study# we can draw conclusion regarding the

financial health of usiness enterprise.

$atio analysis is an important and age4old techni0ue of financial analysis. The following

are some of the advantages of ratio analysis*

+. !implifies financial statements* It simplifies the comprehension of financial

statements. $atios tell the whole story of changes in the financial condition of theusiness.

,. "acilitates inter#firm comparison* It provides data for inter4firm comparison. $atios

highlight the factors associated with successful and unsuccessful firm. They also reveal

strong firms and weak firms# overvalued and undervalued firms.

5. $elps in planning* It helps in planning and forecasting. $atios can assist management#

in its asic functions of forecasting. (lanning# co4ordination# control and

communications.

6. Ma%es inter#firm comparison possible* $atios analysis also makes possile

comparison of the performance of different divisions of the firm. The ratios are helpful in

deciding aout their efficiency or otherwise in the past and likely performance in the

future.

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2. $elp in investment decisions* It helps in investment decisions in the case of investors

and lending decisions in the case of ankers etc.

1.& 'imitation of the study:

The ratios analysis is one of the most powerful tools of financial management. Though

ratios are simple to calculate and easy to understand# they suffer from serious limitations.

'imitations of financial statements* $atios are ased only on the information

which has een recorded in the financial statements. Financial statements

themselves are suject to several limitations. Thus ratios derived# there from# are

also suject to those limitations. For e"ample# non4financial changes though

important for the usiness are not relevant y the financial statements. Financial

statements are affected to a very great e"tent y accounting conventions andconcepts. (ersonal judgment plays a great part in determining the figures for

financial statements.

(omparative study re)uired* $atios are useful in judging the efficiency of the

usiness only when they are compared with past results of the usiness. 7owever#

such a comparison only provide glimpse of the past performance and forecasts for

future may not prove correct since several other factors like market conditions#

management policies# etc. may affect the future operations.

*roblems of price level changes* A change in price level can affect the validity of

ratios calculated for different time periods. In such a case the ratio analysis may

not clearly indicate the trend in solvency and profitaility of the company. The

financial statements# therefore# e adjusted keeping in view the price level changes

if a meaningful comparison is to e made through accounting ratios.

'ac% of ade)uate standard* 8o fi"ed standard can e laid down for ideal ratios.

There are no well accepted standards or rule of thum for all ratios which can e

accepted as norm. It renders interpretation of the ratios difficult.

'imited use of single ratios* A single ratio# usually# does not convey much of a

sense. To make a etter interpretation# a numer of ratios have to e calculated

which is likely to confuse the analyst than help him in making any good decision.

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*ersonal bias* $atios are only means of financial analysis and not an end in itself.

$atios have to interpret and different people may interpret the same ratio in

different way.

Incomparable* 8ot only industries differ in their nature# ut also the firms of thesimilar usiness widely differ in their si)e and accounting procedures etc. It makes

comparison of ratios difficult and misleading.

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2.1 ac%ground

In +92, two resolutely courageous usinessmen Taherali Africawala & Akerali

Africawala stepped forward to introduce the first steel rolling industry of :ast

(akistan ;Bangladesh< . It was a rave decision to take such a step on that condition of

the country as it was the same year of historic language movement. They started with

6 small manual rolling mills in 8asiraad # =hittagong.

The historic development of BS$! group over the years is mentioned elow

+92, > The BS$! saga egins with the first steel re4rolling mill in Bangladesh.

+9?6 > Introduced high4strength cold4twisted steel ars to the construction industry

+9?@ > Introduced AST! +2 %rade reinforced steel ars

+99 > =ommissioned the largest illet4making plant in the country

, > Introduced micro4reinforcement wires for low4cost rural construction

,? > Introduced %rade 2 steel ars# the current international standard for modern

construction > BS$! Ctreme 2 /

,? > BS$! %roup contriuted nearly Tk. + crores to the national e"che0uer in

ta"es# Devis# duties & EAT

,9 > The largest illet4making plant of the country nears completion

,+ 4 The largest illet4making plant of the country started its operation &

production.

,++ 4 Start the work of Industrial (ark in !irsarai upa)ila of =hittagong.

,+, 4 /ork of Industrial (ark in !irsarai upa)ila of =hittagong in progress.

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2.2 . +ature of business:

!,M -roup usiness:

+. Section & /ire $od $olling*

BS$!# the site of the founding company in +92,# is the largest structural sections

producer. It rolls angle sections ranging in si)es from 5? mm " 5? mm to @2 mm "

@2 mm. Typical gauge thickness ranges from 5 mm for the smaller si)es to 9 mm

for the larger si)es. Structural channel sections range in si)es from + mm " 2

mm " 2 mm to @2 mm " 6 mm " 2 mm. larger diameter rounds up to mm are

also produced in the mill.

The other products of this unit are wire rods of si)e ? mm# .52 mm & 2.2 mm#

which are produced in oth commercial & wire4drawing grades.

The present mill was rought from the ' & ecame the first automatic rolling

mill in the country in +9?6. The production from the mill then was +? tons per

month.

Since then it has undergone moderni)ation# notaly the addition of a 5 high 2

mm mill to handle +5 mm s0uare illets. A flying shear with high speed reakers

& twin channels were also added to raise the plant capacity is +,# tons per

month.

,. Steel !aking*

The BS$! %roup first started making steel illets in +99 in 8asiraad Industrial

Area# =hittagong# under !eghna :ngineering /orks ;!:/< & another unit# also

in 8asiraad# BS$! Iron & Steel =ompany Dtd. ;BIS=< is scheduled to go into

production in late ,9.

The comined illet making capacity of the two units will e ,2# tons per

annum. The plant operates state4of4the4art solid state rectifier controlled medium

fre0uency induction furnaces for melting steel scrap & directly reduced Iron

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!:/ & BIS= produce 0uality steel illets which meet international standards

for construction steel. The compliances are ensured y + channel fully

computeri)ed spectroscopes in oth the production units.

The steel making units have invested in the most e"tensive air pollution control &

dust recovery system in the industry > the only such system installed in the

country.

5. 7igh Strength $ear rolling*

Docated on an ++ acres site on the Ghaka4=hittagong highway in Fou)derhat#

BS$! Steels Dtd. is the first continuous rolling mill in the country to roll +, meter

long +5 mm " +5 mm illets. A proven GA8I:DI patented ar thermal

0uenching & tempering ensures the steady production of high strength reinforcing

deformed ars for the construction industry. It is the countryHs first producer of

2 !pa yield strength re4ar# proving BS$!Hs 0uest for innovation &

continuous up4gradation of its products & facilities.

The ars conform to IS 952 & BS 6669 %rade 2 & all major international

standards. Further# it is fully complaint to the BSTI ar specification which is the

legal standard in Bangladesh.

The present capacity of the plant is 62# tons per month. The plant is capale of

producing ar si)es from ? mm to 5 mm in diameter# all in the %rade 2

category.

6. $ied wire production*

The cold4rolling mill which produces high strength ried ars for the

construction industry in si)es 6.2 mm# 2.@ mm & @.,2 mm was commissioned in

, & is the only such unit in the country. The unit# named BS$! /ires Dtd.#

uses state4of4the4art :uropean technology# employing carides rolls to cold4roll

plain wire4rods to ried wires for concrete reinforcement.

ield strength of these wires is aove 2, !pa or @2# psi. /ire reinforcement

reduces steel consumption in many construction applications.

BS$! /ires is again the first & only company to produce high strength wires in

Bangladesh. The plant is located in Sholoshahar Are# 8asiraad# =hittagong.

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2.3 *roduct of !,M -roup of (ompanies:

The followings are product produced y BS$!

a. BS$! Ctreme ars

. Geformed ar %$4

c. Structural Angles conforming to AST! A 45

d. 7 > Beam

e. Flat Bar Springs Steel

f. Structural I >Section ;Beam 5.

2.4 (urrent development programs

BS$! currently plans to develop +9 !/ power plants in to support its e"pansion in

=hittagong. Initially# the group plans to spend Tk 5# crore for the power plant# and

has recently received the green light from the government to join the national grid. After

completion of the project# the company would produce +9 megawatts of electricity.

Basically# itJs part of e"pansion plan for which the company has een working on for the

last couple of months. And it wants to create a sustainale ackward linkage for ne"tproject. The company has already received permission from the government to generate

power for the national grid. 8ow the group is awaiting a government approval for land

ac0uisition to uild up infrastructure for the plant. :verything depends on the approval#

and it will take no longer than three months to complete the project. It will start

producing power once it gets the go4ahead from the government.

A merchant power plant is funded y private investors and sells electricity in the

competitive wholesale power market. Since a merchant plant is not re0uired to serve any

specific retail consumers# consumers are not oligated to pay for the construction#operations or maintenance of the plant.

A traditional rate4ased power plant# on the other hand# is uilt and operated y a

regulated electric utility specifically to serve that utilityJs retail customers. In return# the

customers are oligated to pay for the plantJs construction# operations and maintenance.

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BS$! has applied for permission for land in the industrial park in !irsarai upa)ila of

=hittagong# which the government is yet to respond to.

7owever# the company is yet to finali)e which of its new wings will use electricity from

this venture.

2.& "uture development programs:

!aintain our leadership position in the steel industry y producing the est

0uality steel products# continuously enhancing customer satisfaction &

ecoming a reliale usiness partner of our customer & suppliers

Be an employer of choice# nurturing talent & developing future leaders of the

organi)ation

(rotect the interest of our shareholders through sustainale growth & preserve

value creation

(ersevere the trust of all our stakeholders y adopting ethical usiness

practices

Support the society through =orporate Social $esponsiility ;=S$< initiatives.

2. "inancial performance.

The financial statements of last three years ;,+# ,++# and ,+,< of BS$! %roup

are provided here and from these statements the financial performance of this

company is evaluated y ratio analysis.[10]


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For ratio analysis we have to calculate the following ratiosK

DI-'IGIT $ATIS T'$8 E:$ $ATIS

SDE:8= $ %:A$I8% $ATIS*

($FITABIDIT $ATI

E:$ADD ($FITABIDIT $ $$ $ATIS

I8E:ST$S $ATIS

GIEIG:8G (A'T $ATI

'I/0II ,IO!:The two li0uidity ratios# the current ratio and the acid test ratio# are the most important

ratios in almost the whole of ratio analysis and they are also the simplest to use. Di0uidity

ratios provide information aout a firmLs aility to meet its short4 term financial

oligations. They are of particular interest to those e"tending short term credit to the firm.

Two fre0uently4used li0uidity ratios are current and 0uick ratio.

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1. (0,,5+ ,IO:

=urrent Asset=urrent $atio M =urrent Diailities

5, 2616 2611 2612

=urrent Asset ;in Taka< 5,2.,+ million 9+?9.95 million [email protected] million

=urrent Diailities ;in Taka< ?+6.+, million +5?2.+? million +?@,2.5 million

=urrent $atio .@@ .?? .96

Current Ratio

0

0.2

0.4

0.6

0.8

1

2010 2011 2012

Year

CurrentRat

Series1

(omment:

The higher the current ratio# the more capale the company is of paying its oligations.

The company has shown constant increasing trend in its financial health in suse0uent

years

2. /0I(7 O, (I 5! ,IO:

Di0uid Asset

-uick $atio M

Di0uid Diailities

5, 2616 2611 2612

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Di0uid Asset 5,,.@ million 6?6.65 million +5?9.@@ million

Di0uid Diailities ?+6.+, million +5?2.+? million +?@,2.5 million

-uick $atio .5@ .6@ .2

Quick Ratio

0

0.1

0.2

0.3

0.4

0.5

0.6

2010 2011 2012

Year

Rati

Series1

(omment:

=ompanies with ratios of less than + cannot pay their current liailities and should elooked at with e"treme caution ut in this case companyHs position is improved withrespect to previous years.

0,+O85, ,IO!

Accounting ratios that measure a firmJs aility to convert different accounts within their

alance sheets into cash or sales. =ompanies will typically try to turn their production

into cash or sales as fast as possile ecause this will generally lead to higher revenues.

1. "I95 !!5! 0,+O85, ,IO:

Fi"ed Asset Turnover $atioM8et Sales

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Fi"ed Assets

5, 2616 2611 2612

8et Sales

;in Taka

project ustc 3

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