Documente Academic
Documente Profesional
Documente Cultură
1.0 Introduction
1.1 Issue
All the strategic business units of Ejab Group including Himadri Limited are private limited
companies. This a medium sized firm. Currently it has 7 potato cold storages all in the North of
Bangladesh, in Rangpur, Shibganj, Upson (Bogra), Battoli (Khetlal, Joypurhat), Jagannathpur
(Thakurgaon), Gobindaganj (Gaibandha) and Komorpur (Birganj, Dinajpur). Future plan is to
increase the number of cold storages in different locations of Bangladesh and also expand the
product range of items that can be stored other than potatoes like some fruits and vegetables.
Golden Harvest Agro Industries Limited, on the other hand, is a public listed company that owns
and controls the countrys first frozen food processing plant. Although Himadri Limitied and
Golden Harvest Agro Industries Limited are operating in similar industries, Golden Harvest Agro
Industries Limited is huge. The companys supply process links directly or indirectly with over
100,000 Bangladeshi agricultural partners who provide 95% of the companys raw materials. This
nationalistic approach has satisfied the companys duty to its domestic economy and values whilst
exporting products and services in the global market. Golden Harvest Agro Industries Ltd
(GHAIL) processes over 75 varieties of premium quality frozen food products of vegetables, ready
to eat foods, finger foods and more. The facility is an ISO 9001:2008 and BRC (British Retail
Consortium) certified. Golden Harvest Agro Industries Ltd. is the countrys leading frozen food
supplier possessing an extensive network of temperature controlled fleet transportation system.
The company distributes nationwide and exports to USA, Canada, Australia, Middle East and the
European countries, maintaining a temperature of -18 C. Golden Harvest Agro is currently setting
up the nations first ever largest cold chain network under the GDA program with the support of
USAID. The project is estimated at over 50 million USD.
A private limited company has its merits and demerits in terms of financial performance. Similarly,
a public limited company has its unique pros and cons as well. There are differences in their
financial performances. Financial performance is a subjective measure of how well a firm can use
assets from its primary mode of business and generate revenues. This term is also used as a general
measure of a firm's overall financial health over a given period of time, and can be used to compare
similar firms across the same industry or to compare industries or sectors in aggregation. There
1
are many different ways to measure financial performance. Line items such as revenue from
operations, operating income or cash flow from operations can be used, as well as total unit sales.
Financial ratios are the best tools for measuring financial performance. This study will endeavor
to unveil the differences in financial performance of Himadri Limited as a private limited company
and Golden Harvest Agro Industries Limited as a public limited company. In simple words, how
good Himadri Limited is doing as a medium private limited company compared to Golden Harvest
Agro Industries Limited, a large public limited company will explored with the help of few key
financial ratios.
1.2 Origin of the Report
Internship Program is a graduation requirement for the BBA students of BUP. This study is a
partial requirement of the Internship program of BBA curriculum at BUP. The main purpose of
internship is to get the students exposed to the corporate world. Being an intern, the main challenge
is to translate the theoretical concepts learned in classrooms into real life experience in real life
working environment.
The internship program and the study have the following purposes:
i.
ii.
iii.
iv.
This report titled Comparative Study of Financial Performance between Himadri Limited A
Concern of Ejab Group and Golden Harvest Agro Industries Limited is the result of 10 weeks
long internship program conducted at Ejab Group and is prepared as a requirement for the
completion of the BBA program of BUP. This report is based on and includes information acquired
during the internship period at Ejab Group.
1.3 Objective:
1.3.1 Broad objective:
To compare the financial performance of Himadri Limited and Golden Harvest Agricultural
Industries Limited
1.3.2 Specific objectives:
i.
ii.
To calculate the key financial ratios of Golden Harvest Agro Industries Limited
iii.
To interpret the ratios and compare the firms using the interpretation of the ratios
1.4 Scope:
The scope of the research is limited to the Agricultural and Food Processing sector of Bangladesh
and the findings and results of the research are applicable to only Himadri Limited and may not
apply to other similar or competitive companies. The main focus will be to compare the financial
performance of Himadri Limited and Golden Harvest Harvest Agro Industries Limited primarily
using ratio analysis.
1.5 Limitation:
The limitations faced in preparing the report are:
i.
Time: The report has to be completed in 10 weeks. This time is insufficient for preparing
a standard report with high precision.
ii.
Resource: As the research is self-funded, the collection of specific data was done on a
limited scale.
iii.
Availability of Data: Much of the company and market reports are not easily available.
iv.
Accessibility: As Himadri Limited is a private limited company, Ejab Group was reluctant
to disclose any information in order to maintain confidentiality.
v.
ii.
iii.
Return on Assets
iv.
Current Ratio
ii.
Debt Ratio
iii.
Interest Cover
Involving itself in the fields of Jute based products, Edible Oil Mill, Rice Mill and Potato Cold
Storages, Ejab Group went a step ahead with adding wide range of processed food products.
Adding another new venture is its own Seed processing expertise by which we produce potato,
rice, maize, wheat and vegetable seeds. Through our distribution network, we not only distribute
our own products but also distribute Cepsa Lubricants, a product of Spain. The group is also
involved in Real Estate and Housing Development under the name of Ejab Developers Ltd. (EDL).
Based on the increasing changes in the consumer behavior, Ejab Group is open to take any
necessary changes and steps to help enhance its business policies and planning. With a
commitment to provide social services through its products, Ejab Group strongly adheres to its
motto: "No Compromise with Quality". In its existence of over 50 years, Ejab Group has branched
into 11 Companies under its four divisions.
The four divisions are:
A. Agro Division
B. Food Division
C. Real Estate Division
D. Distribution Division
The 11 Companies are:
A. Himadri Ltd. (1974) 6 Units
B. Rabeya Flour Mills Ltd. (1980) 2 Units
C. Northern Agricultural & Industrial Co. Ltd. (2002) 4 Units
D. Multipurpose Himadri Agro Processing Co. Ltd. (2005) 2 Units
E. Ejab Alliance Ltd. (2005) 1 Unit
F. Ejab Foods Ltd. (2006) 3 Units
G. Ejab Trading Co. Ltd. (2006) 1 Unit
H. Ejab Developers Ltd. (2006) 28 Units
I. Ejab Distribution Ltd. (2007) 1 Unit
J. Ejab Agro Ltd. (2010) 2 Units
K. Munchy Food & Beverage Ltd. (2011) 1 Unit
5
A. Himadri Limited
Himadri Limited and Multipurpose Himadri Agro- Processing Co. Ltd currently have 7 potato
cold storages all in the North of Bangladesh, in Rangpur, Shibganj, Upson (Bogra), Battoli
(Khetlal, Joypurhat), Jagannathpur (Thakurgaon), Gobindaganj (Gaibandha) and Komorpur
(Birganj, Dinajpur). Future plan is to increase the number of cold storages in different locations of
Bangladesh and also expand the product range of items that can be stored other than potatoes like
some fruits and vegetable.
B. Ejab Agro Ltd.
Ejab Agro Ltd. (formed in 2010) is involved in following activities: Tissue Culture Lab, seed
production and marketing. The products of this company are potato plantlet, potato mini tuber,
potato seed of different generation (starting from basic to certified), high yielding rice seed, hybrid
rice seed, etc. although our seed business started in 2007 under the banner of Northern Agricultural
& Industrial Co. Ltd. But eventually Ejab Agro Ltd. was formed to give it more focus and emphasis
on the seed business. It sincerely believes that the seed market is developing day by day with
awareness of quality seed by the farmers and with limited land area the national challenge is to
ensure maximum production/yield in given area. This is where quality seed will play key role in
days to come.
C. Multipurpose Himadri Agro-processing Co. Ltd. (MHAL)
The company was formed in 2005 is located in Birgonj, Dinajpur with a view to get involved in
various agro-based businesses. Currently its activities are limited to cold storage of seed & table
potato and contract farming of processing variety potato. But in future it plans to expand its
contract farming program to produce aromatic rice, maize, soya bean, mustard seed, various spices,
etc. and contribute in backward linkage for our other food & agro processing units. It also has plan
to set-up automatic rice plant in its existing facility.
D. Ejab Foods Limited
The company was formed in 2006. Although it is yet to come into operation but it has empty plots
in baliadangi, thakurgaon and ashulia, Savar. The nature of business would be to produce
pasteurized milk, U.H.T. milk, milk based products like sweet, yoghurt, yoghurt drink, ice cream,
fruit juice, bottle water, rice bran oil, etc.
E. Ejab Alliance Limited
This cattle breeding farm is situated in Thakurgaon under the name Ejab Alliance ltd., established
in 2004. The activities include semen collection and processing it for Artificial Insemination to
improve the future variety of cattle in Bangladesh. At the moment we have 7 numbers of Australian
Holstein Frisian Bulls in our farm. It has more than 450 highly skilled Artificial Insemination
workers all over the country. This is the only project of its kind in private sector. Our rate of
success since its inception is higher than other Government and Non-Government Organization
owned establishment for such purpose. Nature of business is production of Semen from F1 & F2
generation Bull stock. Its future plan is to Composite Dairy Plant
F. Northern Agricultural & Industrial Co. Ltd.
i.
Sonapukur Unit
Sonapukur unit at Dinajpur, was established in 2010, adjacent to the flourmill. In this unit
following products are produced: Mustard Oil, cooking spices, Toast biscuits, vermicelli. Its future
plans include processing different fruits and vegetables grown in North Bengal, like mango,
tomato, olive, etc. into pickles and ketchup.
ii.
NAICOL Rice Mill - Uttam, Kellabondh, Rangpur Unit was established in the year 2011. It is an
automatic rice mill with the facility of making Parboiled rice and Atop (unboiled) rice. It processes
fine Aromatic rice, coarse rice, for both local and Export market. Its future plans include expanding
the production capacity and processing rice bran into oil. Upcoming products include Quality
Miniket, Quality Nazirshail, NAICOL Chinigura, NAICOL Banglamoti
iii.
NAICOL Ashulia, Savar Unit was established in the year 2005. It is a state of the art factory where
Custard cake, Candy, Spicy snacks, Potato snacks and Bombay Mix. Are produced. Future plans
include expansion of production units as per growing demand to meet the consumer satisfaction.
G. Rabeya Flour Mills Limited
Rabeya Flour Mills Limited established in 1978, is situated in Sonapukur (adjacent Syedpur
Town), Parbatipur, Dinajpur. It was one of the first major automatic flourmills in the country
producing fine flour, Coarse flour, Vitamin fortified Flour, Whole wheat flour, Semolina and Bran.
With the growing demand of our produce in the market, it has gone into expansion over the years.
Key brand is Quality and Rabeya. Future plans include setting up Feed mill, Woven PP, Leno
mesh bag industries
H. Munchy Food & Beverage Ltd.
"Munchy Food & Beverage Ltd." is an automatic biscuit industry situated at BISIC Industrial Area,
Moktarpur, Munshigonj. Future plans include product diversity and export.
I. Ejab Foods Limited
The company was formed in 2006. Although it is yet to come into operation, it has empty plots in
Baliadangi, Thakurgaon and Ashulia and Savar. The nature of business would be to produce
pasteurized milk, U.H.T. milk, milk based products like sweet, yoghurt, yoghurt drink, ice cream,
fruit juice, bottle water, rice bran oil, etc.
J.
Ejab Developers Ltd. (EDL) always uses renowned, tested and certified building materials for its
projects. However, we also prefer the clients' choice on building material selection including
interior designs and fittings. We have a team of qualified and dynamic architects to meet the
clients dream and make it a reality with great integrity. It believes post-handover services to be
as important as the construction of your home. EDL always cares about the proper maintenance of
the complex with its routine supervision team to ensure the valued clients' safety and security. The
on-spot solution service for the clients' recommendations and instructions are always given FIRST
priority.
8
2.2.3 Objectives
a. To meet the latent demand of the consumers.
b. To increase growth through quality product & Service.
c. To maximize the utilization of existing wealth.
2.3 Corporate Social Responsibilities (CSR)
As Ejab Group has always been self-committed to help the under-privileged masses of the society,
particularly in the fields of education, building moral & religious values, growing up &
rehabilitation of orphans, we have established and still run a number of educational & religious
institutions and workshops in different places of Bangladesh. Ejab Group with its helpful hands
has always helped the poor in many ways by distributing rice, flour, clothes, even money to dowry
affected families. Ejab Group regularly conducts Workshops, Training Programs, and Seminars
etc. at its Project Sites. With a view to growing more crops under the auspices of Agricultural
Consultancy Division headed by Agro-graduates, these initiatives are aimed to touch every
farmers life with knowledge and awareness for better farming in order to enrich their lives. Its
institutions are as follows:
i.
Begum Rabeya Ahmed Girls High School, named after our Ex-Managing Director Begum
Rabeya Ahmed.
ii.
Samiruddin Memorial Degree College, named after our Founder Late Engr. Ejabuddin
Ahmeds father.
iii.
Hasina Memorial Child Orphanage, being run in memory of our Founder Managing
Director Late Engr. Ejabuddin Ahmeds mother.
iv.
v.
vi.
Stipends to poor and Meritorious Students of Higher Studies under the banner of Emdad
Ahmed Afzal Memorial Trust and Begum Rabeya Ahmed Trust are provided.
vii.
viii.
ix.
x.
xi.
11
sheet and income statement, it is also possible to develop an infinite number of ratios and items
related to income statement and to each other, also items of balance sheet to each other, and as
well as with the items of one statement to the items of other statement. However, the various items
present in the financial statements are mostly highly correlated with each other so that the financial
ratios are highly correlated with one another (Horrigan, 1996; Zeller & Stanko, 1997).
3.2 Analysis
To analyze the financial performance of the companies at hand, we will delve into the composition
of assets, equity and liabilities of each company and compare the composition between year 2014
and 2015. We will then focus on scrutinizing the profitability of each company using four key
profitability ratios gross profit margin, net profit margin, return on assets and return on capital
employed. We will look into its liquidity through current ratio. Afterwards, focus would be shifted
to exploring the financial position of each company using three key financial position ratios
capital gearing ratio, debt ratio and interest cover. We will look into its efficiency through asset
turnover ratio. These would give us enough insight of the financial performance of the companies
in question and facilitate superior comparison.
12
Current
Assets
1%
Current
Assets
7%
2014
2015
NonCurrent
Assets
99%
NonCurrent
Assets
93%
In 2014, the total current liabilities 9% of the total equity and liabilities. Corresponding non-current
liabilities was 1%, and equity was 90%. In 2015, the total current liabilities 12% of the total equity
and liabilities. Corresponding non-current liabilities was 1%, and equity was 87%. The following
pi-charts clearly demonstrates the composition of equity and liabilities:
Current
Liabilitie
s
12%
2015
NonCurrent
Liabilitie
s
1%
Current
Liabilities
9%
2014
Equity
87%
NonCurrent
Liabilities
1%
Equity
90%
The balance sheet of Himadri Limited can be found in the appendix. The following diagram shows
the changes in Balance Sheet Account graphically and in more detail:
13
600,000,000
500,000,000
400,000,000
300,000,000
200,000,000
100,000,000
0
Non-Current Current Assets Total Assets
Assets
2015
Equity
Current
Liabilities
2014
3.2.2 Composition of Balance Sheet: Golden Harvest Agricultural Industries Limited (GHAIL)
Balance Sheet of GHAIL shows the current assets over total assets are 35% in 2014, and noncurrent assets was 65%. In 2015, the current assets constituted 30% of the total assets and noncurrent assets was 70%. This shows the percentage of current assets decreased by 5 units. The
following pi-charts clearly demonstrates the composition of assets:
14
Current
Assets
30%
2015
2014
Current
Assets
35%
NonCurrent
Assets
65%
NonCurrent
Assets
70%
In 2014, the total current liabilities 27% of the total equity and liabilities. Corresponding noncurrent liabilities was 6%, and equity was 67%. In 2015, the total current liabilities 26% of the
total equity and liabilities. Corresponding non-current liabilities was 7%, and equity was 677%.
The following pi-charts clearly demonstrates the composition of equity and liabilities:
2015
Current
Liabilities
26%
NonCurrent
Liabilities
7%
2014
Current
Liabilities
27%
Equity
67%
NonCurrent
Liabilities
6%
Equity
67%
The balance sheet of GHAIL can be found in the appendix. The following diagram shows the
changes in Balance Sheet Account graphically and in more detail:
15
3,000,000,000
2,500,000,000
2,000,000,000
1,500,000,000
1,000,000,000
500,000,000
0
Non-Current Current Assets Total Assets
Assets
2015
Equity
Current
Liabilities
2014
16
This ratio is used to assess a firm's financial health by revealing the proportion of money left over
from revenues after accounting for the cost of goods sold. Gross profit margin serves as the source
for paying additional expenses and future savings. The following table shows the gross profit
margin of Himadri Limited and GHAIL:
Himadri
GHAIL
2015
2014
2015
2014
Sales Revenue
80250145
33108874
256,095,176
184,546,936
Gross Profit
32,277,457
-14,381,574
111,367,441
63,685,302
0.4022
-0.4344
0.4349
0.3451
Himdris revenue in 2015 is much higher than it is in 2014. In 2015, it made some profit although
in 2014 it made loss. It recovered in 2015. Therefore, its gross profit margin in 2015 is positive,
while in 2014 it is negative. For every taka earned in 2015, Taka 0.4022 gross profit was made.
For every taka earned in 2014, Taka 0.4344 worth of loss was incurred. The corresponding figures
for GHAIL are similar in 2015. Hence, compared to GHAILs gross profit margin, the Himadris
is similar in 2015. The following chart clearly depicts the differences:
17
2014
GHAIL
0.3451
2015
0.4349
2014
Himadri
-0.4344
2015
-0.6000
-0.4000
-0.2000
0.0000
0.4022
0.2000
0.4000
0.6000
()
Net profit margin is the percentage of revenue left after all expenses have been deducted from
sales. The measurement reveals the amount of profit that a business can extract from its total sales.
The following table shows the net profit margin of Himadri Limited and GHAIL:
Himadri
GHAIL
2015
2014
2015
2014
Sales Revenue
80,250,145
33,108,874
256,095,176
184,546,936
Net Profit
583,797
-46,800,819
9,350,195
18,516,750
0.0073
-1.4135
0.0365
0.1003
Himdris revenue in 2015 is much higher than it is in 2014. In 2015, it made some profit although
in 2014 it made loss. Therefore, its gross profit margin in 2015 is positive, while in 2014 it is
negative. For every taka earned in 2015, Taka 0.0073 net profit was made. For every taka earned
18
in 2014, Taka 1.4135 worth of net loss was incurred. The corresponding figures for GHAIL are
favorable. Hence, compared to GHAILs net profit margin, the Himadris is below par. The
following chart clearly depicts the differences:
2014
GHAIL
0.1003
2015
0.0365
2014
Himadri
-1.4135
2015
0.0073
0.2000
The return on assets ratio, often called the return on total assets, is a profitability ratio that measures
the net income produced by total assets during a period by comparing net income to the average
total assets. In other words, the return on assets ratio or ROA measures how efficiently a company
can manage its assets to produce profits during a period. Since company assets' sole purpose is to
generate revenues and produce profits, this ratio helps both management and investors see how
well the company can convert its investments in assets into profits. The following table shows the
return on assets of Himadri Limited and GHAIL:
19
Himadri
GHAIL
2015
2014
2015
2014
Operating Profit
12,491,951
-33,001,732
78,261,099
29,332,086
Total Assets
632,700,684
609,006,401
1,811,195,450 1,381,142,334
Return on Assets
0.0197
-0.0542
0.0432
0.0212
In 2015, Himadri made some profit although in 2014 it made loss. Its assets did not change much
in two years. Therefore, its ROA in 2015 is positive, while in 2014 ROA is negative. In 2015,
every taka worth of asset earned Taka 0.0197. In 2015, every taka worth of asset made a loss of
Taka 0.0542. The corresponding figures for GHAIL are much favorable. Hence, compared to
GHAILs ROA, the Himadris is below par. The following chart clearly depicts the differences:
0.0212
GHAIL
2014
2015
0.0432
2014
Himadri
-0.0542
2015
-0.0600
-0.0400
-0.0200
0.0000
0.0197
0.0200
0.0400
0.0600
Return on Assets
20
Return on capital employed or ROCE is a profitability ratio that measures how efficiently a
company can generate profits from its capital employed by comparing net operating profit to
capital employed. In other words, return on capital employed shows investors how many takas in
profits each taka of capital employed generates. ROCE is a long-term profitability ratio because it
shows how effectively assets are performing while taking into consideration long-term financing.
This is why ROCE is a more useful ratio than return on equity to evaluate the longevity of a
company. The following table shows the return on capital employed of Himadri Limited and
GHAIL:
Himadri
GHAIL
2015
2014
2015
2014
Operating Profit
12,491,951
-33,001,732
78,261,099
29,332,086
Capital Employed
0.0225
-0.0594
0.0623
0.0295
In 2015, it made some profit although in 2014 it made loss. Its capital employed did not change
much in two years. Therefore, its ROCE in 2015 is positive, while in 2014 ROA is negative. In
2015, every taka worth of capital employed generated Taka 0.0225. In 2015, every Taka worth of
capital generated a loss of Taka 0.0594. The corresponding figures for GHAIL are greater. Hence,
compared to GHAILs ROCE, the Himadris is below par. The following chart clearly depicts the
differences:
21
2014
GHAIL
0.0295
2015
0.0623
2014
Himadri
-0.0594
2015
-0.0800
-0.0600
-0.0400
-0.0200
0.0000
0.0225
0.0200
0.0400
0.0600
0.0800
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. In other words, a large amount
22
of current assets in relationship to a small amount of current liabilities provides some assurance
that the obligations coming due will be paid. The following table shows the current ratios of
Himadri and GHAIL:
Himadri
GHAIL
2015
2014
2015
2014
Current Assets
41,608,891
6,181,182
432,130,850
503,780,024
Current Liabilities
77,681,469
53,670,983
554,345,794
388,426,676
Current Ratio
0.5356
0.1152
0.7795
1.2970
Current assets of Himadri in 2014 was low compared to its current assets. Hence, its current ratio
in that year was a mere 0.1152. In 2015, current assets increased significantly with slight increase
in current liabilities. Hence, current ratio increased. Yet the ratio is not up to the mark compared
to GHAIL. The following chart clearly depicts the differences:
2014
GHAIL
1.2970
2015
0.1152
Himadri
2014
0.7795
2015
0.0000
0.5356
0.2000
0.4000
0.6000
0.8000
1.0000
1.2000
1.4000
Current Ratio
23
Gearing focuses on the capital structure of the business that means the proportion of finance that
is provided by debt relative to the finance provided by equity (or shareholders). The gearing ratio
is also concerned with liquidity. However, it focuses on the long-term financial stability of a
business. Gearing (otherwise known as "leverage") measures the proportion of assets invested in
a business that are financed by long-term borrowing. In theory, the higher the level of borrowing
(gearing) the higher are the risks to a business, since the payment of interest and repayment of
debts are not "optional" in the same way as dividends. However, gearing can be a financially sound
part of a business's capital structure particularly if the business has strong, predictable cash flows.
The following table shows the capital gearing ratios of the companies:
Himadri
GHAIL
2015
2014
2015
7,717,065
7,717,065
645,691,000 397,294,125
0.0141
0.0141
1.0565
2014
0.6672
Himadris long term debt and share holders remained same in both the years. Long term debt is
much lower than share holders fund. Hence, capital gearing ratio is only 0.0141 in both the years.
Himadri can easily pay off its long term debt. Hence, immediate chances of bankruptcy is
negligible. Nevertheless, it is not leveraging enough. GHAIL on the other hand has optimum
gearing ratios. The following chart clearly depicts the differences:
24
2014
GHAIL
0.6672
2015
1.0565
0.0141
2015
0.0141
Himadri
2014
0.0000
0.2000
0.4000
0.6000
0.8000
1.0000
1.2000
B. Debt Ratio
This ratio measures the extent of a companys 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 companys assets that are financed by debt. The following
table shows the debt ratios of Himadri and GHAIL:
Himadri
GHAIL
2015
2014
2015
2014
Total Assets
632,700,684
609,006,401
1,811,195,450
1,381,142,334
Total Liabilities
85,398,534
61,388,048
1,200,036,794
785,720,801
Debt Ratio
0.1350
0.1008
0.6626
0.5689
Himadri finances an insignificant portion of its assets using debt. The debt ratios of Himadri are
around six times lower than those of GHAIL. Himadri is not maximizing on its opportunities to
take more loan. The following chart depicts the differences:
25
2014
GHAIL
0.5689
2015
0.6626
2014
Himadri
0.1008
2015
0.1350
0.0000
0.1000
0.2000
0.3000
0.4000
0.5000
0.6000
0.7000
Debt Ratio
C. Interest Cover
( )
Interest cover or interest coverage ratio measures the ability of a company to pay the interest on
its outstanding debt. This measurement is used by creditors, lenders, and investors to determine
the risk of lending funds to a company. A high ratio indicates that a company can pay for its interest
expense several times over, while a low ratio is a strong indicator that a company may default on
its loan payments. The following table shows the interest coverage ratios of Himadri and GHAIL:
Himadri
2015
GHAIL
2014
2015
2014
Operating Profit
29,332,086
Interest Expenses
11,908,154 13,799,087
64,630,475
6,093,851
Interest Cover
1.0490
1.2109
4.8134
-2.3916
26
Himadri is not generating enough profit to cover its interest in 2014. In 2015, the profit is more
than enough for that. GHAIL, on the other hand, makes sufficient profit to cover its interest both
the year. The following chart depicts the differences:
2014
GHAIL
4.8134
2015
1.2109
2014
Himadri
-2.3916
2015
1.0490
0.0000
1.0000
2.0000
3.0000
4.0000
5.0000
6.0000
Interest Cover
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The asset turnover ratio is an efficiency ratio that measures a company's ability to generate sales
from its assets by comparing net sales with average total assets. In other words, this ratio shows
how efficiently a company can use its assets to generate sales. The total asset turnover ratio
calculates net sales as a percentage of assets to show how many sales are generated from each taka
of company assets. The following table shows the asset turnover ratios of Himadri and GHAIL:
Himadri
GHAIL
2015
2014
2015
2014
Sales Revenue
80,250,145
33,108,874
256,095,176
184,546,936
Total Assets
632,700,684
609,006,401
1,811,195,450
1,381,142,334
0.1268
0.0544
0.1414
0.1336
Asset turnover ratios for Himadri and GHAIL are comparable. Himdris assets are generating
sufficient revenue. Himadris ratio increased from 2014 to 2015, while GHAILs remained similar.
The following chart depicts the differences:
2014
GHAIL
0.1336
2015
0.1414
2014
Himadri
0.0544
2015
0.0000
0.1268
0.0200
0.0400
0.0600
0.0800
0.1000
0.1200
0.1400
0.1600
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4.0 Findings
A. Findings from Profitability Analysis
2014
2015
2014
Himadri
GHAIL
-1.0000
-1.5000
-2.0000
Gross Profit Margin
Return on Assets
GHAIL has a quite healthy profitability. Himadry, on the other hand, made loss in 2014. It
recovered and made profit in 2015 although all the profitability ratios for Himadri may not seem
propitious. Based on these mere numbers, keeping Himadri in operation seems futile.
B. Findings from Liquidity Analysis
0.7795
Current Ratio
0.5356
0.4000
0.2000
0.1152
0.0000
2015
2014
Himadri
2015
2014
GHAIL
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GHAILs liquidity position is strong. Himadris liquidity position, on the other hand, is not up to
the mark. Its current assets do not match its current liabilities. GHAILs liquidity position is
healthy. Hence, the chart accentuates Himadris ill liquidity position.
C. Findings from Financial Position Analysis
2015
2014
2015
Himadri
2014
GHAIL
-3.0000
Capital Gearing Ratio
Debt Ratio
Interest Cover
Himadri has much higher level equity compared to its debt. Hence, it can make use of the
opportunity of taking more loans if it has access to better investment or growth opportunity.
Although its operating profit did not exceed its interest expense in 2014, in 2015 the operating
profit was more than enough for that.
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0.1400
0.1200
0.1268
0.1336
0.1000
0.0800
0.0600
0.0544
0.0400
0.0200
0.0000
2015
2014
Himadri
2015
2014
GHAIL
Himadris asset turnover ratio is comparable to that of GHAL, in 2015. Both firms have
experienced an increase in efficiency from 2014 to 2015, although Himadris improvement
was steeper. This shows a beacon of light for Himadri.
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ii.
Make use of its opportunity to take more loans against Himadris large asset base and invest
in Himadri
I would recommend the second one for three cogent reasons. First, Himadri, although not as
efficient as GHAIL, has enough efficiency. Moreover, its efficiency has grown from 2014 to 2015
significantly. This is apparent from its asset turnover ratio. Second, from 2014 to 2015,
profitability conditions got only healthier insinuating potential for more improvement. Third,
liquidating the business would not yield enough cash since most of Himadris assets include
property, plant and equipment and currently land price is on decline. Nevertheless, offering a
much specific and superior suggestion would demand a comprehensive study of the industry and
the environment which is beyond the scope of this study. Besides, deficiency of pertinent
information impinged on this study as well. Yet this study might aid further, more comprehensive
research.
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Appendix
33
34
35
36
37
38
39
40
Reference
http://www.ejabgroup.com/
http://www.ejabgroup.com/himadri.php
http://www.goldenharvestbd.com/
http://www.goldenharvestbd.com/golden-harvest-agro-industries-ltd/
http://lankabd.com/
http://www.investopedia.com/
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