Summer- 2016

Financial
Statement
And Accounting
Policy Analysis

Pharmaceutical & Chemicals

Companies

1. Wata Chemicals Ltd. (Local Company)

2. Marico Bangladesh Ltd. (Industry Benchmark)
3. Abbott Laboratories (U.S. Company)
1

4. E Therapeutics plc. (IFRS Company)

ACT 330
Group Name: luminous

Prepared By:
Name

ID

Section

Khandoker Rafiul Hasan

0920060530

06

Fariha Tasneem

1321500030

06

Sk. Mashfia Hoque

1410254030

06

Farhana Amin

1310197630

06

Md.Arif Sarker

1320145030

06

Syed Shahriar Amin

1210254030

06

Submitted To:
Ms. Nabila Nisha
Lecturer, North South University
Date of submission: 28th July 2016

Letter of Transmittal

28th July, 2016

To,
Ms. Nabila Nisha
Lecturer, Department of Accounting & Finance
School of Business and Economics
North South University
Subject: Submission of Group Project.
Dear Miss,
We take immense pleasure in presenting this group project to you as part of
our course requirement. We found this report to be truly challenging in many
aspects, indeed very interesting in relation to the various interpretational and
absorbing exercises. This report has definitely helped us to broaden our
knowledge in collecting information, writing and communicating it effectively
with utmost professionalism. We have thoroughly followed the guideline
suggested by you and carried out an accounting and financial analysis. We
have tried our best to complete the report with respect to the desired
requirements within deadline. However, if any explanation is required, we
would be honored to oblige.
Your kind acceptance of this humble effort of bringing forward our research and
findings on the subject matter will be much appreciated.
Yours sincerely,

All group members of Luminous.

TABLE OF CONTENTS

SL.

PAGE
NO.

TOPIC

1.

Abstract

2.

Company Overview

4 to 6

3.
4.
5.

6.

Appendix A: Event Exhibit

Appendix B: Estimates Exhibit

Appendix C: Comparison Exhibit

Appendix D: Ratio Analysis Between
Local
Company & U.S Company

7 to 8

9 to 11

11 to 17

Appendix E: Ratio Analysis Between

Local
17 to 20

7.

8.

Company & IFRS Company

Appendix F: Ratio Analysis Between
Local

21 to 26

Company & Industry Benchmark

5

9.

Peer Evaluation form

27

Abstract
Concentrating mainly on a distinction analysis of the accounting standards and
practices established in three discrete systems, this report summarizes the
major consequences related to the need for accounting convergence issues.
We first analyzed the financial reports, especially the notes to financial
statements, identified their significant transactions, estimates throughout the
year. We have also analyzed their accounting policies. We have observed that
despite operating in the same industry, there are many discrepancies in them.
This is how we understood why International convergence is required. The
purpose of this project was to enhance our depth of understanding of IFRS,
BFRS, U.S. GAAP financial statements and to apply financial statement analysis
techniques for comparison. We have got the chance to apply all the knowledge
that we have gathered so far within the classroom.

Brief overview of the Four Companies

1. Wata chemical limited:
The WATA Chemicals Limited is a Public Limited Company incorporated in
Bangladesh on August 19, 1981 under the Company's Act, 1913 (repealed in
1994). This company produces sulfuric acid, basic chrome sulphate powder,
magnesium sulphate, zinc sulphate-mono, hepta, aluminum sulphate and
linear alkyl benzene sulfonic acid. Wata is a pioneer in the industry with annual
sales of 10 to 30 million USD. Growth and success is achieved by Enhancing
the

value

we

deliver

to

our

customers

being

globally

competitive,

Internationalization of our business, Improving shareholder value, Commitment

to

corporate sustainability, strengthening

stakeholder

relationships

and

providing new and innovative offerings.

2. Marico Bangladesh Limited:
Marico Bangladesh Limited is amongst the top 3 FMCG MNC companies and a
trusted brand in beauty and wellness space in Bangladesh. The company
touches the lives of 1 out of every 2 Bangladeshis with an array of brands in
various categories, including hair nourishment, edible oil and male grooming,
through a strong distribution network that reaches more than 790,000 outlets
throughout the country. Summary of their journey in Bangladesh is given
bellow:

Started operations in 2000

Marico Bangladesh listed on Dhaka and Chittagong Stock Exchange in

2009
7

Lauched Parachute Advansed Cooling Hail Oil in 2011

Launched Nihar shanty Badam amla and Hair Code Keshkala in 2014

3. Abbott Laboratories:
Abbott Laboratories (Abbott), incorporated on March 6, 1900, is engaged in the
discovery, development, manufacture and sale of a line of healthcare products.
The Company operates in four business segments: Established Pharmaceutical
Products, Diagnostic Products, Nutritional Products and Vascular Products. The
Company's products include a range of branded generic pharmaceuticals
manufactured across the world and marketed and sold outside the United
States.
4. e-Therapeutics
e-Therapeutics is an AIM-listed biotechnology company with a proprietary
platform in network pharmacology, an innovative new approach to drug
discovery based on advances in network science and chemical biology. The
Companys discovery and development activity is focused in cancer and
disorders of the nervous system. e-Therapeutics is based at sites in Oxford and
Newcastle, UK..

ACCOUNTING ANALYSIS Appendix A: Event Exhibit

(Illustration)
Company
Local

Significant Transaction

company 1. Acquisition of fixed Asset.

(Wata Chemicals 2. Loan received

Ltd.)

3. Dividend paid

Industry
mark

Bench 1. Gain on sale of asset.

(Marico 2. Gain or loss on disposal of property, plant and

Bangladesh

equipment.

Limited)

3. Profit or loss in foreign exchange fluctuation.

8

4. Encashment (Investment) in fixed deposits.

5. Dividend paid.
US

1. Acquisitions of businesses and technologies, net of

company( Abbott cash acquired.

Laboratories)

2. Purchases of investment securities.

3. Effect of exchange rate changes on cash and cash
equivalents.
4. Investing and financing (gains) losses, abbot.

IFRS

company 1. Impairment of intangible asset.

( e- therapeutics 2. (Increase)/decrease in fixed-term deposits.

PLC )

3. Net proceeds from issue of share capital.

Appendix B: Estimates Exhibit (Illustration)

LOCAL
INDUSTRY
COMPANY
COM.
COMPANY

U.S

Sales rebates

IFRS

Taxes

Inventories

Carrying valu
of goodwill
Patents
Trademarks

Long-term contacts
Property,
plant
&
equipment
depreciation
Employees
benefit
plans

Provisions
Income taxes
Property,
plant
& Pension
equipment depreciation

Reserves

Amortization

Contingencies

Deferred tax

Litigation

Deferred tax

Employee benefits

Accounts receivables

Operating
lease

Recoverable amount of Post-employment

the asset
benefits

Property,
plant
equipment
depreciation
Valuation of intangible Amortization
assets

payments

Inventory
Common Items of the Company Estimation:
In Appendix B we figure out the estimates companys management used in
preparing the annual report. Every company maintained their own stated rules
and regulation according country base standard. As per the guideline
requirement, in our project we can see some identical estimates i.e. Taxes are
common in all, employment benefits and property; plant & equipment
depreciation are common in minimum three companies. In this appendix we
can also see some estimates which are common in two companies i.e.
intangible assets, Inventories, sales rebate, Amortization, legal contingencies,
goodwill, trademarks, and provision.

APPENDIX C: COMPARISON EXHIBIT (ILLUSTRATION)

Comparison between IFRS and US GAAP
Accounting Policy
Inventory
valuation

IFRS
Lower of cost or
net realizable
value

Property, Plant &

equipment

Depreciation
straight line
method

Cash flow
presentation

Indirect method

US GAAP
Lower of
cost(firstin-first
basis) or
market
Depreciati
on straight
line
method
Indirect
method

COMMENT
Both companies from
same industry, but follow
different valuation system

Though they use similar

method, but different way
or standards of
calculations.
Presentation is same for
both. But different
accounting standards
10

Revenue
recognition

For current period

no revenue is
recorded, use
future principal
Not amortized but
is tested
Annually for
impairment.

Goodwill

Sales
basis
method
No
reduction
of goodwill
relating to
impairmen
ts.

used.
Both companies are from
same industry but use
different methods of
revenue recognition.
Both companies use
different methods.

Comparison between BFRS and US GAAP

Accountin
g Policy
Inventory
valuation

Property,
Plant &
equipmen
t
Cash flow
presentati
on

BFRS

US GAAP

COMMENT

Finished
goods
stock

Lower of
cost or
market

BFRS company uses

valuation method in
accordance with BAS2.
But the other
company uses lower
of average cost
method. Convergence
should provide better
results as distinction
in BFRS would be
less.
Though they use
different methods

At the lower of
weighted average
cost or net
realizable value.
Raw
At the lower of
materials weighted average
stock
cost or net
Realizable value.
Stores
At the lower of
and
weighted
spares
average cost or net
realizable value.
Depreciation computed using
reducing balance method

Direct method

Depreciati
on straight
line
method
Indirect
method

Revenue
recognitio
n

Sales basis method

Sales
basis
method

Goodwill

N/A

No

Both the company

use different method
as one is local and
other is international.
As both companies
are from same
industry, revenue
cognition is pretty
much identical
despite the
accounting standards.
BFRS has no goodwill
11

reduction
of goodwill
relating to
impairmen
ts.

but US use reduction

from accumulated
amortization value
only for goodwill

BFRS

IFRS

COMMENT

Finished
goods
stock

Lower of
cost or net
realizable
value

BFRS company uses

valuation method in
accordance with BAS2.
But the other
company uses lower
of cost method.

Depreciati
on straight
line
method
Indirect
method

Use different methods

of depreciation with
different accounting
standards.
Both company from
same industry but use
different cash flow
methods.
As both companies
are from same
industry, but follow
different method for
revenue recognition.
IFRS use only
impairment loss to
calculate goodwill.

Comparison between BFRS and IFRS

Accountin
g Policy
Inventory
valuation

Property,
Plant &
equipmen
t
Cash flow
presentati
on

At the lower of
weighted average
cost or net
realizable value.
Raw
At the lower of
materials weighted average
stock
cost or net
Realizable value.
Stores
At the lower of
and
weighted
spares
average cost or net
realizable value.
Depreciation computed using
reducing balance method

Direct method

Revenue
recognitio
n

Sales basis method

For current
period no
revenue is
recorded

Goodwill

N/A

Not
amortized
but is
tested
Annually
for
impairmen

12

t.

Comparison between Local Company and Industry Benchmark

Accountin
g Policy
Inventory
valuation

Property,
Plant &
equipmen
t
Cash flow
presentati
on
Revenue
recognitio
n

Goodwill
and other

Local company
Finished
goods
stock

At the lower of
weighted average
cost or net
realizable value.
Raw
At the lower of
materials weighted average
stock
cost or net
Realizable value.
Stores
At the lower of
andspare weighted
s
average cost or net
realizable value.
Depreciation computed using
reducing balance method

Industry
Benchmark
At the lower
of cost and
net realizable
value, based
on weighted
average cost
method

COMMENT

Depreciation
straight line
method

They use different

methods and
follow different
standards.
Presentation is
identical.

They are same

companies, follow
different
standards and
inventory
valuation method.

Direct method

Direct method

Sales basis method

Sales basis
method

Both companies
follow same
method though
both the
companies follow
different
accounting
standards.

N/A

Stated at cost
less

Local company
has no intangible
13

intangible
assets

accumulated
amortization
and any
Impairment
losses.

assets, where
industry
benchmark has,
and follows the
normally
accounting
standards.

Financial Ratio Analysis:

Appendix D: Ratio analysis of Table 1
(Illustration)
2014

2013

2014

2013

Local
Company

Local
Company

U.S.
Company

U.S.
Compa

Current Ratio

1.06

1.58

1.45

2.02

Quick Ratio

0.37

0.54

1.20

1.74

Current Cash Debt Coverage 0.16

Ratio

0.40

0.24

0.21

Ratios
01.Liquidity :

02.Activity:
Receivables Turnover

13.66

16.44

5.65

4.93

Inventory Turnover

1.45

1.79

3.49

3.4

Total Assets Turnover

0.34

0.44

0.36

0.32

Profit Margin On Sales

12%

21%

11%

13%

Rate Of Return On Assets

4.6%

9.3%

4.0%

4.1%

Rate Of Return On Equity

7.5%

13.9%

6.2%

5.8%

Earnings Per Share

5.79

4.71

1.51

1.65

03.Profitability:

14

Price-Earnings Ratio

19.36

24.5

18

16.7

Payout ratio

7.22%

16.25%

16%

13%

Debt To Total Assets

38%

33%

35%

28%

Times Interest Earned

1.40

3.12

16.8

14

Cash Debt Coverage Ratio

25%

56%

26%

23%

Book value per Share

97.35

92.18

115.78

183.45

Free Cash Flow

-48060970

39694538

54m

107m

04.Coverage:

1. Liquidity Ratios:
Current Ratio:
In the year 2013 the current assets of Wata Chemicals Ltd. were 1.58 times
higher than the current liabilities. In 2014 it decreased at 1.04 times. From
2013 to 2014 the local companys current ratio decreased by .54. U.S
Company Abbott ltd. current ratio of 2013 was 2.02 & then 1.45 in 2014.
Abbott company current ratio decreased by a larger portion from 2013 to 2014
than Wata. In comparison of two companies, we can say that the US Company
is better than the local company .Because the higher the current ratio means
the company has enough cash to pay the accounts payable and notes payable.
Quick ratio:
This ratio attempts to measure the ability of the company to meet its
obligations. Quick ratio means how quickly a company can convert their
current assets into cash. In the year 2013 the local company had a quick ratio
of 0.54 and in 2014 it was decreased to 0.37.On the other hand the US
Companys quick ratio was 1.74 in 2013 and 1.20 in 2014. We can say that
from 2013 to 2014 the Local Company was better in converting current assets
into cash quickly than the U.S Company.
Current Cash Debt Coverage Ratio:
15

It is a liquidity ratio that measures the relationship between net cash provided
by operating activities and the average current liabilities of the company. It
indicates the ability of the business to pay its current liabilities from its
operations. . In the year 2013 the local company had a Current Cash Debt
Coverage Ratio of 0.40 and in 2014 it was decreased to 0.16 which is too bad
for any company. On the other hand the US Companys Current Cash Debt
Coverage Ratio was .21 in 2013 and 0.24 in 2014. We can say that from 2013
to 2014 information both the company had a very tough situation although the
US Company indicates a better liquidity position than the local company.

2. Activity Ratios:
Receivable Turnover:
In the year 2013, the local company takes on an average to near 16.5 days to
collect the accounts receivable and it was decreased to near 14.50 days in
2014.The less days for receivable turnover is better for any company because
the company can collect the receivable early. On the other hand US Company
on an average took 4.93 days to collect the accounts receivable in 2013 and it
was higher in 2014 and it goes to near 5.5 days. Its a good thing for the U.S
Company. In comparison to these two companies the U.S Company is better for
collecting their receivables and it took fewer days than local Company.

Inventory Turnover:
In the year 2013, the Wata chemicals ltd. sold out and risked out their
inventory 1.79 times and in the year 2014 it was 1.45 times. The Abbott
Company has taken 3.40 times in 2013 and 3.49 times to sell out their
inventory in 2014. If a companys inventory is really low then the company has
really high inventory turnover .If inventory is too high then the company is
holding its inventory. As a result, cost of inventory increased so net profit
decreased.
Total Asset Turnover:
16

In the year 2013 by using total asset of 1 taka, the local company generated
Sales revenue of 0.44 taka by selling their goods. But In 2014 it decreased and
generated sales revenue of 0.34 taka by using 1 taka of total assets. For US
company in the year 2013 by using 1 dollar of total assets the US Company
generated sales revenue of 32 cents and it went down up 2014 and generated
revenue of 36 cents. The Revenue could have been in a better position for the
local company in comparison to the US Company. Wata should focus on
increasing its total asset turnover.
3. Profitability Ratios:
Profit margin on sales:
In the year 2013 of every 100 taka sales the local company generated profit of
21 taka and in the year of 2014 company generated 12 taka for every 100 taka
sales. The US Company generated profit of $13 by selling every $100 in 2013
and this company made profit of $11 by selling every $100 in 2014. The gross
profit of local company was decreased from 2013 to 2014 and for the US
Company it decreased too. But if we compare these two companies, the local
Company is better because higher profit means Company charges a higher
price to sell their product and that offsets the cost of the product. We have
seen that the local Company generate higher profit margin than the U.S
Company.

Rate of Return on Assets:

In the year 2013 the local company had a ROA ratio was 9.3% and in 2014 it
decreased to 4.6%. The US Company had a ROA ratio was4 .1% in 2013 and
4% in 2014.The U.S companys ROA ratio is more than the local Companys in
2013 and 2014. High ROA is always better for any company. ROA decreases
when the assets that are inefficient increases. So, US Company has more
assets and company doesnt use its asset properly to generate income. In
comparison, the local company is more efficient for generating profits by using
their total assets.
17

Rate of Return on Equity (ROE):

The return on equity ratio is a profitability ratio that measures the ability of a
company to generate profits from its shareholders investments in the
company. In the year 2013 the local companys ROE ratio had 13.9% and in
2014 it decreased to 7.5% .Within one year this ratio was decreased by almost
half .The US Company had 5.8% in 2013 and 6.2% in 2014. So, we can
conclude that from the investors perspective the local company is the better
and efficient in generated profit from the shareholders equity since it has
higher Roe than the US Company but the US Company is improving its
performance as it shows a upward trend as opposed to the local company.
Wata should focus on increasing its ROE.
Earnings per share (EPS):
In the year 2013 the local companys EPS was 4.71 taka which increased at
5.79 taka per share in 2014. The US Companys EPS was $1.65 in 2013 and it
decreased in 2014 at $1.51 per share. Higher earnings per share is always
better than a lower ratio because this means the company is more profitable
and the company has more profits to distribute among its shareholders. The
U.S Company is still better and efficient to generate profit from per share
compared to the local company as we know the difference between dollar and
taka value.

Price Earnings Ratio:

As we can see that investors of local company were willing to pay 24.5 d in
2013 and in 2014, 19.4 for every taka earnings. For U.S Company there
investors were willing to pay 16.7 in 2013 and in 2014 they were willing to pay
18 dollars for every dollar of earnings. In general a higher P/E ratio means that
investors are anticipating higher performance and growth in the future. So
from their perspective we see that local company Wata is in a better position
than U.S company.

18

Pay Out Ratio:

As we can see, Wata Company is paying out 16.25% in 2013 and 7.22%
percent of its net income to its shareholders. Abbott company was paying out
13% in 2013 and 16% in 2014.So here wata company is paying more than the
U.S company to its shareholders.
04. Coverage Ratios:
Debt to total assets:
The debt to total assets ratio is an indicator of financial leverage. As we can
see, Wata had a debt ratio of .33 in 2013 and 0.38 in 2014. In other words,
Wata had about 4 times as many assets as its liabilities. This is a relatively high
ratio and implies that Wata will be able to pay back its loan. U.S Company only
had a debt ratio of .28 in 2013 and .35 in 2014 In other words, Abbott had
more than 4 times as many assets than liabilities. This implies that Abbott will
be able to pay back its loan more easily. If we compare, US companys
performance is better.
Times Interest Ratio:
It measures the ability to meet interest payments as they come due. Watas
ratio was 1.40 and 3.12 in 2013 and 2014 respectively. It shows that their
ability to meet interest payments is not good. On the other hand, Abbotts ratio
was 16.8 in 2013 and 14 in 2014 which is good but in 2014 it got worse as it
fell down.

Cash Debt Coverage Ratio:

For Local Company Wata, it had a ratio of 53% in 2013 and 25% in 2014
whereas for U.S Company it had 23% in 2013 and 26% in 2014. A
higher current cash debt coverage ratio indicates a better liquidity position.
From that perspective local company in better position than U.S company.

19

Book value per share:

It measures the amount each share would receive if the company were
liquidated at the amounts reported at the balance sheet. Watas book value
per share was 92.18 in 2013 and 97.35 in 2014. Abbotts was $183.45 in 2013
and $115.78 in 2014 respectively. So Abbott is in a better position although its
book value decreased in 2014.
Free cash Flow:
It measures the amount of discretionary cash flow. Watas free cash flow
situation was not good which was 39694583 in 2013 and -48060970 in 2014.
The free cash flow was negative in 2014 which is not good for the company. On
the other hand, Abbott had a positive free cash flow of 107000000 in 2013 and
54000000 in 2014 which is a very good sign. Overall, US companys free cash
flow situation is up to the mark and it is doing great.

Appendix E: Ratio analysis Table 2 (Illustration)

1. Liquidity Ratios:
Current ratio:
In the year 2012-2013 the Wata Chemicals Ltd Companys current assets were
1.58 times higher than the current liabilities. And it was decreased to 1.06.
From 2012-2013 to 2013-2014 the local companys current ratio decreased. In
the year 2012-2013 E-therapeutics plc current assets were 12.32 times higher
than the current liabilities whereas it was increased in 2013-2014 and goes to
44.87 times . Overall financial scenario of these two companies shows that the
IFRS Company was better than the Local Company because from 2012-2013 to
2013-2014 the E-therapeutics plc current ratio increased so, more cash at hand
to pay their payable.
Quick ratio:
In the year 2012-2013 the quick ratio of the local company was 0.54 and it
decreased to 0.37 in 2013-2014. E-therapeutics plc quick ratio was 12.32 in
20

2012-2013 and it increased in the year 2013-2014 taking to 44.87. Quick ratio
measures the ability of a company to pay their payable quickly. So, we
conclude the local company was better because higher quick ratios are more
favorable for companies because it shows there are more quick assets than
current liabilities.
Current cash debt coverage ratio:
It is a liquidity ratio that measures the relationship between net cash provided
by operating activities and the average current liabilities of the company. It
indicates the ability of the business to pay its current liabilities from its
operations. In the year 2012-2013 the ratio of the local company was 0.40 and
it decreased to 0.16 in 2013-2014.e therapeutics plc ratio was (4.40) in 20122013 and it decrease to (6.05) in 2013-2014.so we conclude that the local
company is better than the IFRS company.
2. Activity Ratios:
Receivable Turnover:
In the year 2012-2013 Wata Chemicals Ltd collects their accounts receivable
on an average to 16 days and it was 13 in 2013-2014.On the other hand, Etherapeutics plc accounts receivable were not given in 2012-2013 and 20132014 respectively. The lower the ratio means a company is more efficient to
collect their accounts receivables.
Inventory Turnover:
In the year 2012-2013 the local company sold out their inventory 1.78 times
and in the year 2013-2014 it was 1.45 times. On the other hand, the IFRS
Companys inventory is not given. So we cannot measure the ratio. Inventory
turnover is a measure of how efficiently a company can control its
merchandise, so it is important to have a high turn.
Total Assets Turnover:
In the year 2012-2013 the local company generated Sales revenue of 0.36 taka
by selling their goods and in the year 2013-2014 local company generated
0.35 taka. In IFRS Company, sales are not given, so the ratio cannot be
calculated. Higher turnover ratios mean the company is using its assets more
efficiently. So a higher ratio is always more favorable.
3. Profitability ratio:
Profit margin on sales ratio:
In 2012-2013 Wata Chemicals Ltd provides 21% gross profit by selling every
100 taka. Their ratio decreased in 2013-2014 to 12%. On the contrary, Etherapeutics plcs net sales are not given. So the ratio cannot be calculated
higher ratios mean the company is selling their inventory at a higher profit
percentage.
21

Rate of Return on Assets:

The return on assets ratio or ROA measures how efficiently a company can
manage its assets to produce profits during a period. It only makes sense that
a higher ratio is more favorable to investors because it shows that the
company is more effectively managing its assets to produce greater amounts
of net income. Local company produces 9.3% in 2012-2013 and it decreased in
the very next year which was 4.6%.On the other hand IFRS Company
decreased their ROA ratio from 2012-2013 to 2013-2014. IFRS Company didnt
use their assets properly to produce profit in comparison with local company.
Return on Equity:
Return on equity measures how efficiently a firm can use the money from
shareholders to generate profits and keep the company ahead. Return on
equity is investors point of view, not the company. So, higher the ROE ratio
indicates always better position than the lower ratio. Local Company generated
ROE ratio 13.9% in the year of 2012-2013 and it decreased more in the next
year which was 7.5%.IFRS Company decreased their ROE ratio in 2012-2013 to
2013-2014.At the end we say that Local Company was much better position
than IFRS.
Earnings Per share:
EPS measures the amount of net income earned per share of stock
outstanding. Higher EPS always better because the company has the financial
ability to distribute profits to the shareholders. Earnings per share of local
company in 2012-2013 was 4.72 taka and 5.79 taka in
2013-2014. IFRS Company Earning per share was -3.02 (259.75taka) and 1.98 (170.30 taka). In comparison to these companies IFRS Company has less
financial ability to distribute their profit to shareholders. And local company is
in better position than IFRS Company.
Price earnings ratio:
In essence, the price-earnings ratio indicates the amount an investor can
expect to invest in a company in order to receive one taka of that companys
earnings. For the local company in 2012-2013 it was 1.69 and
in 2013-2014 it was 1.38.and in IFRS company in 2012-2013 it was -0.01(0.86)
and in 2013-2014 it was -0.04(3.44taka).so local company is in the better
position than the IFRS company.
Payout Ratio:
The payout ratio is a key financial metric used to determine the sustainability
of a companys dividend payments. A lower payout ratio is generally preferable
22

to a higher payout ratio, with a ratio greater than 100% indicating the
company is paying out more in dividends than it makes in net income. The
local companys ratio was 16.25% in 2012-2013 and 7.22% in 2013-2014.and
the IFRS companys dividend per share is not given. So it cannot be calculated.
4. Coverage Ratio:
Debt-to-total assets ratio:
In the year 2012-2013 the local that means Wata Chemicals Ltd total liability
compared to the total assets were 33% which was little bit increased in the
year of 2013-2014 taking to 38%. In the year 2012-2013 the IFRS that means
E-therapeutics plc total liability compared to the total assets were 77% and
22% in 2013-2014. In comparison we conclude that E-therapeutics plc has
lower liabilities than Wata Chemicals Ltd .So here E-therapeutics plc is better.
Times Interest Earned Ratio:
Local Company EBIT was 3.12 times higher than the interest expense in 20122013 and in 2013-2014 it was decreased a huge portion which was 1.40. IFRS
Company EBIT was 5.94 times and 5.74 times higher than the interest expense
in 2012-2013 and 2013-2014 respectively. Here IFRS Company had more
profits to pay their interests.
Cash debt coverage ratio:
It indicates the ability of the business to pay its current liabilities from its
operations. In the local company the ratio is 56% in 2012-2013 and 25% in
2013-2014.and in IFRS company its 52% in 2012-2013 and 15.1% in 20132014.so here the local company is in the better position.
Book value per share:
It would be the amount of money that a holder of a common share would get if
a company were to liquidate. For the local company it is 92.17 in 2012-2013
and 77.85 in 2013-2014.and for the IFRS Company it is 41.59 in 2012-2013 and
166.28 in 2013-2014.so the IFRS Company is in better position in this situation.
Free cash flow:
Free cash flow (FCF) represents the cash that a company is able to generate
after laying out the money required to maintain or expand its asset base. Free
cash flow is important because it allows a company to pursue opportunities
that enhance shareholder value. Without cash, it's tough to develop new
products, make acquisitions, pay dividends and reduce debt. From the table we
can say that the local company is in the better position than the IFRS
Company.

Appendix F: Ratio analysis of Table 3 (Illustration)

23

1. Liquidity Ratio:
Current Ratio:
Current ratio measures how much short-term assets you have to pay your
obligations. From the above chart we can see that in 2012-2013 the current
ratio of Wata Chemicals Ltd. Was 1.58 and then in 2013-2014 it went down to
1.06. This means that the company is lacking its liquid asset which they can use
to pay their debts. On the other hand, Marico Bangladesh Ltd.s current ratio
was 3.104 which mean previously it wasnt using its current assets efficiently to
generate profit. Rather than it was keeping it to pay for its debt. Then in 20132014 its current ratio went down to 1.415 which means it has enough current
ratio to pay for its debt and also it is using its current assets efficiently. If we
compare the performance of these 2 companies, Marico has better position
than Wata when it comes to current ratio and Maricos performance is better.

Quick Ratio:
Quick ratio measures the most liquid short term assets of the company. It
implies how well the company is managing its inventories as it is the least
liquid current asset. The higher the quick ratio is the better for the company.
From the table we see that Watas quick ratio went down from .54 to .37 which
means the company doesnt manage its most liquid assets properly to pay its
debt. Maricos quick ratio went down from 2.160 to .944. Its performance
deteriorated but still its performance is better than Watas performance as the
quick ratio is higher.
Current cash debt coverage ratio:
It measures a companys ability to pay off its current liabilities in a given year
from its operations. Once again, the ratio of Wata has gone down from 0.40 in
2013 to 0.16 in 2014 which is a sign of performance deteriorating but still
better than the performance of Marico. Marico is not doing well since their
current cash debt coverage ratio has gone down from 1.472 to 0.058. It implies
that Marico is not generating enough money from its operating activities.

02. Activity Ratio:

Receivables Turnover:
The receivables turnover ratio indicates the efficiency with which a firm
manages the credit it issues to customers and collects on that credit. Here the
Receivables turnover ratio cannot be calculated as the calculation of net credit
sales is not possible here.
Inventory Turnover:
24

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

sold and replaced over a period. The higher it is means the better the company
is managing its inventories. Watas inventory turnover went down from 1.79 to
1.45 and Maricos went up from 3.38 times to 3.55 times. This means Marico
sells its inventories more times to generate money than Wata. Therefore,
Maricos performance is better.
Total Asset Turnover: Total asset turnover measures how efficiently the
company is using its assets to generate sales. For this ratio, higher is better.
Watas asset turnover ratio went down from 0.44times to 0.34 times. On the
other hand Maricos asset turnover ratio went up from 1.436 times to 1.751
times. So Marico can turn its assets into sales more times in a year than Wata.
Hence Maricos performance is better.

03. Profitability Ratio:

Profit Margin On Sales:
It is a profitability ratio that measures the amount of net income earned with
each taka of sales generated by comparing the net income and net sales of a
company. The higher this ratio is the better. For Wata the ratio went down from
21% to 12% and Maricos went up from 38% to 58%. So Watas performance is
deteriorating day by day whereas Maricos performance improved significantly.
If we compare these 2 companies, we see that Maricos ratio is a lot higher
than that of Wata. Therefore, Marico is doing a lot better.
Rate of Return on Asset:
ROA gives an idea as to how efficient management is at using its assets to
generate earnings. Wata has done well in both 2013 and 2014 having a return
of 9.3 % and 4.6% respectively. Maricos ROA went significantly up from 27% to
38% which showed a significant improvement in their profitability. If we
compare these 2 companies, Maricos performance is a lot better than Watas.
The reason behind it is it has increased its net income by reducing its operating
expenses.
Rate of Return on Equity:
Return on equity measures a corporation's profitability by revealing how much
profit a company generates with the money shareholders have invested. That
means how many dollars of profit a company generates with each dollar of
shareholders' equity. For every institution a higher ROE is better because it
means that the return stockholders are getting from investing in the bank is
more. If we compare the two companies, Marico is maintaining a higher ROE
25

than Wata. Thus the return stockholders are going to get by investing 1 taka in
the Maricos equity is more than they are going to get by investing in Wata as
Watas equity in 2014 is 7.5% whereas Maricos is 81%.
Earnings Per Share:
It is the portion of the companys distributable profit which is allocated to each
outstanding equity share (common share). Watas EPS is increasing year by
year from 4.71 in 2013 to 5.79 in 2014. On the other hand, in 2012-2013
Maricos EPS was 27.53 and it grew very high at 43.99. Both the banks
increasing EPS may be one result for recent stock market stability after the
crisis. If we compare, Maricos performance is a lot better that watas
performance.
Price earnings ratio:
The price-earnings ratio (P/E Ratio) is the ratio for valuing a company that
measures its current share price relative to its per-share earnings. In the year
2013 the price earnings ratio of Wata jumped down significantly from 24.5 to
19.36. It states that the market was expecting big things from the company
over 2012-2013, shareholders were ready to pay more for Watas earnings. The
next years decreasing ratio suggests that the company failed to accomplish
the shareholders expectations. For Marico, in 2012-2013 the ratio was really
low at 0.363 and it became even lower in 2013-2014 at 0.227. It suggests,
shareholders did not expect something good from the bank and their
expectation turned out true in reality. If we compare, Wata has better
performance than Marico.
Payout Ratio:
The payout ratio is a key financial metric used to determine the sustainability
of a company's dividend payments. A lower payout ratio is generally preferable
to a higher payout ratio. Wata had a payout ratio of only 16.25% in 2013 and
7.22% in 2014 respectively. On the other hand, Maricos payout ratio jumped
up at 76% in 2013-2014 from 13%. If we compare the two companies, Wata is
doing better by keeping a lower payout ratio indicating the company is paying
out less in dividends than it makes in net income.

04. Coverage:
Debt to Total Asset:
A financial ratio that measures the extent of a companys or consumers
leverage. It can be interpreted as the proportion of a companys assets that
are financed by debt. Watas debt ratio has been quite stable in 2013 with 33%
and then 38% in 2014. On the contrary Maricos debt ratio increased
26

drastically from 26% to 54%. The debt ratio increased due to increase in total
liability.
A higher debt ratio means greater financial risk as banks might go bankrupt if
they cannot pay their creditors back. Debt financing is important as it helps to
increase profit but too much dependence on debt is not good. The lower the
debt ratio is better (0% debt ratio is not desirable at the same time) as it
decreases the chances of going bankrupt and reduces the dependence on
borrowed capital.
Times Interest Earned:
It is a debt ratio and profitability ratio used to determine how easily a company
can pay interest on outstanding debt. It indicates how many times a bank can
pay its interest expense by using its operating profit. Watas ratio fell in 2014
at 1.40 from 3.12 in 2013. Maricos ratio also decreased from 8.522 to 6.954.
This fall resulted from decrease in EBIT as there was a rise in interest expense.
The higher the interest coverage ratio is the better. Lower interest coverage
ratio means the company is not generating enough revenues to meet its
interest expenses. As a result debt expenses burden the company. Both
companies need to improve their times interest earned ratio but if we
compare, Maricos performance is certainly better than Watas performance.
Cash Debt Coverage Ratio:
It measures a companys ability to repay its total liabilities in a given year from
its operations. Watas performance in terms of cash debt coverage was really
good in 2013 with 56% but then it dropped drastically at 25% in 2014.
However, Maricos performance was great in both the years as the ratio was
57% and went up at 179% in 2013-2014. Marico is doing great in managing its
cash debt coverage ratio and Wata needs to improve a lot.
Book value per share:
Book value per common share is a measure used by owners of common
shares in a firm to determine the level of safety associated with each individual
share after all debts are paid accordingly. In simple terms it would be the
amount of money that a holder of a common share would get if a company
were to liquidate. Watas book value per share was high which was 92.18 in
2013 and 97.35 in 2014 respectively. On the other hand, Maricos book value
per share was only 37.124 in 2012-2013 and 20.072 in 2013-2014 respectively.
If we compare the performance, Wata is doing a lot in managing the book
value per share than Marico.

27

Free Cash Flow:

Free cash flow (FCF) represents the cash that a company is able to generate
after laying out the money required to maintain or expand its asset base. It is
important because it allows a company to pursue opportunities that enhance
shareholder value. Watas free cash flow situation was good which was
39694583 in 2013 and then it decreased sharply and became -48060970 in
2014. The free cash flow went negative recently which is not good for the
company. Likewise, Marico had a positive free cash flow of 1287140034 in
2013-2014 but a negative free cash flow of -354206608 in 2013-2014 which is
not a good sign. Overall, none of the two companies free cash flow situation is
up to the mark. They both should focus on making it positive.
Overall review:
If we review the overall performance of both Marico Bangladesh Ltd. And Wata
Chemicals Ltd., we can say that Maricos overall performance is better than
Watas performance from the above discussion. In most of the ratios analyzed,
Marico showed better and promising performance. Thus we can say that Marico
is doing better than Wata.

PEER EVALUATION FORM

Group Name:
Name

ID

Khandoker Rafiul Hasan

0920060530

Fariha Tasneem

1321500030

Sk. Mashfia Hoque

1410254030

Farhana Amin

1310197630

Md.Arif Sarker

1320145030

Work Done

Company overview, Letter of

transmission, abstract and Part A
has been done By him. He has
also checked the part C.
Compiled the whole report.
Has done part B, has corrected
the Part C &A
Has done Part F, Edited the
whole report, made corrections
in the part D and E.
Has done the ratio analysis of
Part E.
Has done the ratio analysis of
Part D.
28

Syed Shahriar Amin

1210254030

Has done Part C

29

30

31