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CHAPTER-1

ANALYSIS AND

INTERPRETATION

1.1 ANALYSIS OF BALANCE SHEET

2



The discrepancies between the mar!et value and boo! value generally arise from the

overstating or understating of certain items in the balance sheet. $n an attempt to identify

the sources of discrepancies and rationali%ing the price of the stoc!, a new figure for

common euity based on mar!et price has been first calculated and then items in the

balance sheet has been adjusted.

&T"'( )"*+& /0$T1 234st +ecember, 447

,83,495,

&T"'( )"*+& /0$T1 234st +ecember, 47

:36,;8:,48

4

T"T<* +=$<T$">

1,656,280,8

09

<+?0&T@>T A<'T0<* W$B)T <+?0&T+ T" <+?0&T+ C1

$>=>T"1

4:9,::4,9

:8

8:,;;3,:

8;

4:9,::4,9:

8

T>B$C* D$E+ <&&T&

45,6,5

68 6

633,645,:

4:

5;,4,;:

5'<F$T<* W"( $>

F"B&&

8,345,;

8 6

495,;8:,;

5:

4:6,598,:

5

B""+W$**

;,9:9,4

9

;,9:9,49

1,6,!80,809

Shareholders’ Equity

&hareholders’ uity as on 34st +ecember 44 was BDT "6,89,191 and boo! value per

share was BDT 92.6. The adjusted balance sheet of that year comes with &hareholders’

uity of BDT 2,!02,!02,09! using the mar!et price of BDT ".00 with :,95,

shares outstanding.

Tangible Fixed Assets

*ong term leasehold assets, Cuildings on long term leasehold assets, Flant G @achinery,

Durniture, fi#tures G euipment, 'omputers G =ehicles are the components of Tangible

3



Di#ed <ssets of ec!itt Cenc!iser 2Cangladesh7 *td which were stated at cost or revaluated

amount less accumulated depreciation.

The mar!et price of buildings, machineries, various euipments and most importantly land

has increased with the rise in the general level of prices which are not reflected on the

balance sheet of the firm as that are represented at cost as fi#ed tangible assets cannot be

showed at revaluated amount due to &tandard <ccounting Folicy. @oreover revaluation of

fi#ed assets on the basis of open mar!et value was not done in recent times, which

indicates the understatement of tangible fi#ed assets e#ists, which has been adjusted in the

hypothetical balance sheet on the basis of subjective judgment.

Capital Work-in-Progress

Wor!-in-progress includes building and Flant G @achinery which are stated at cost of C+T

8,345,;8 does not reflect the authentic value and understated referred to change in the

level of mar!et price. &o, balance sheet amount adjusted to C+T 495,;8:;5: on the basis

of open mar!et value.

Inentory

$nventories are the current asset category consists of finished products, aw and pac!ing

materials, Wor!-in-process, $tems-in-transit, &tores and spares.

ec!itt Cenc!iser 2C+7 *td values its finished products at the lower of costs or net reali%able

value. 'ost is determined using the weighted average method. Cut weighted average cost

method is best applicable when the inventory involved is homogenous in nature, but for

ec!itt Cenc!iser 2C+7 ltd. the inventories are not homogenous, therefore this method does

not reflect actual cost of inventory. The company uses the lower of cost or net reali%able

value to measure inventories on the balance sheet which understates the value of

inventories to a significant e#tent as the balance sheet does not reflect the higher mar!et

price of the inventories or inflation effect.

The understatement of inventory value of the balance sheet has been multiplied by times

to its estimated value in the hypothetical balance.

!ood"ill

0sually, the largest intangible asset that appears on a company’s balance sheet is goodwill.

Boodwill is the value of all the favorable attributes that relate to a business enterprise which

4



include strong brand value, good management, s!illed employees, high uality products,

technological advances.

ec!itt Cenc!iser is a multinational company which has a number of renowned brands li!e

@ortein, )arpic, +ettol and =eet which has high perceived value in the mar!et. $n the

circumstance of our economy and nature of the target group, people li!e to perceive high

value in multinational products. "n the other hand, product line of the company has strong

positive image beyond the country boundary which is !nown to the customers. <s a result,

the company is enjoying a good amount of positive goodwill in the mar!et. To justify and

!eep consistent this goodwill, ec!itt Cenc!iser is using a celebrity endorsement promotion

also. <s well as, for the other brands, integrated mar!eting communication for the product

line is used as li!e the international campaign with a very little local customi%ation which

leads to generate a positive brand image at the international level. @oreover the product

line has a very few product defect which can be ignored easily. $t means, it the feature of

consistence, the company is carrying a very fair amount of goodwill.

)owever, ec!itt Cenc!iser 2C+7 *td. has no goodwill and no intangible asset category on

its balance sheet as of +ecember 34, 44. &ince ec!itt Cenc!iser 2C+7 *td. is subsidiary

of a well-!nown multinational company Hec!itt Cenc!iser’ that has well-established

reputation, future earning power in 44 is better than previous years, the company

incorporated state-of-the-art technology and machineriesI and the increasing trend in

mar!et price reflect increasing confidence of investors, hence it can be presumed that if the

company was sold out today, the firm would at least obtain an e#cess of C+T ;,9:9,49

over the mar!et value of its net assets. )ence that amount is allocated to goodwill in the

adjusted balance sheet.

R#$%&'' B#($%&)#* +BD L'.

B/($# S##'

A) D#$#34#* "1, 2011

5



2Digures in Ta!a7

A$'/ A)'#

'urrent <sset

;86,;::,35

1,044,286,0

99

Boodwill

- 822,747,170

Tangibles Di#ed <sset

45,6,568 633,615,414

'apital Wor! in Frogress

8,345,;8 175,894,854

+eferred ta# assets

:,934, :,934,*ong term deposits and

prepayments

46,:;,966 46,:;,966

*ong term loans and advances

:,88;,98: :,88;,98:

Total Asset

#$%&'$()#$)*

* )$'%)$'%)$%('

'urrent *iabilities 589,583,4; 589,583,4;

*ong Term liabilities 3,:33,8;8 3,:33,8;8

Total *iabilities 64,9,89 64,9,89

uity :36,;8:,484 ,83,495,

Total Equity + ,iabilities

#$%&'$()#$)*

* )$'#$)%)$%('

1.2 C) /7 (/)&)

The statement of cash flows is generally prepared using Jcash and cash euivalentsK as its

basis. The primary aspect of the statement of cash flows is to provide information about an

entity’s cash receipts and payments during a period. The other aspect is to provide

information about its operating, investing, and financing activities throughout the year

6



comparing the last year. $t is conducted to evaluate how the firm’s operations have

affected its cash position by e#amining the investment 2use of cash7 and financing decisions

2sources of cash7 of the firm. $t helps us to identify whether the firm is able to produce

available cash to purchase more fi#ed assets for productivity, whether the firm has

generates cash flows to meet debt obligation or to invest in new innovative products. Thispublished data is essential for both mid level managers and investors. &o we designed the

cash flow statement of ec!itt Cenc!iser 2C+7 *imited for five consecutive years and

interpret on basic items of the statement which affects in net cash flow of the firm.

Cash Flow From Operations 2007 2008 2009 2010 2011

Net Income 38,293,8

2370,876,35

9109,592,33

5139,398,89

9165,622,01

0

Add Back Depreciation 20,232,7

7630,034,21

416,629,31

922,343,53

526,595,41

7

7



Increase/ Decrease in Current Assets

Inventories 23,133,662! 4,571,392! 13,847,250! 48,218,045! 1,382,704!

"#ort term prepa$ments 5,321,0

00! 2,434,02

4535,56

25,298,80

9! 3,480,04

0"#ort term %oans, advances and ot#er

receiva&%es

20,7

27 ' '

15,744,59

0!

16,145,26

5

Accr(ed interest on &ank deposit 3,216,449! 583,445 2,864,339! 23,910! 4,827,661!

Increase/ Decrease in CurrentLiabilities

)reditors and accr(a%s 50,887,649 20,765,147 120,589,796 158,261,828 95,465,379

*rovision +or taation 2,446,439 17,669,712 4,964,431 12,331,908 13,654,150

-nc%aimed dividend 2,417,525 139,975 59,247! 883,251 202,269!

et cash pro!i"e" b# operations 82,627,828 137,931,484 235,540,607 263,934,067 314,549,627

Cash Flow From In!estmentActi!ities

.an/i&%e +ied asset 18,533,

11725,534,80

216,785,02

9! 28,728,96

0! 9,579,77

9

)apita% ork in *ro/ress 500,000 2,999,622! 232,259 2,418,617 28,967,063!

De+erred .a Assets ' 9,303,833! 2,900,833 3,890,000 2,218,000!

on/ term deposit and prepa$ments ' 168,646! 2,686,914 606,688 1,527,912

on/ term %oans and advances ' ' 3,191,294! 255,428 2,062,928!

et cash pro!i"e" b# in!estment 19,033,117 13,062,701 14,156,317! 21,558,227! 22,140,300!

Cash Flow From Financin$Acti!ities

*rovision +or emp%o$ees /rat(it$ 582,109! 3,154,408 808,674! 1,332,331! 5,349,064

*a$ment o+ dividend 15,548,030! 17,983,420! 19,862,587! 93,616,749! 104,004,471!

et cash pro!i"e" b# %inancin$ 16,130,139! 14,829,012! 20,671,261! 94,949,080! 98,655,407!

8



et chan$e in Cash 85,530,806 136,165,173 200,713,029 147,426,760 193,753,920

&'lus( Cash at the be$innin$ o% the#ear

97,354,508

160,009,318 265,932,447

425,754,865 549,954,875

Cash at the en" o% the #ear 182,885,314 296,174,491 466,645,476 573,181,625 743,708,795

C) /7 *3 #*'&(: $'&;&'

The operating cash flows are dependent on the income of the in calculation of usage of cash

in current assets and current liabilities. $n the case of R#$%&' B#($%&)#*, the current asset

items are inventories, short term prepayments 2ental, other e#penses7, short term loans

to others, advances, receivables 2account receivables7 and accrued interest on ban!

deposit. $f any of the figure of the mentioned figure goes up then it is an indication of usage

of cash means cash outflow and reverse scenario represents cash inflow.

The graph shows the increasing trend in net cash flow from operating activities. Drom 9

to 44 net cash increased proportionately. This means the company is having positive cash

flow with an increasing rate wish is an indication of cash inflow in a better manner. $n the D1

44, net cash flow from operation is greater than the last year by an amount of 564556.

9

Cash Flow %rom Operations

0

100000000

200000000

300000000

400000000

ear

Amo(nt

ear 2007 2008 2009 2010 2011

Amo(nt 82627828 137931484 235540607 263934067 314549627

1 2 3 4 5



$n the part of short term prepayments, the overall scenario presents a fluctuating state. Cutin the last year, it has been decreased in comparison with D1 4 and which has generated

a cash inflow by an amount of 3:;:.

The graph shows an increasing amount of inventory from the year 9 to year 44 where

it has dropped down in the year 44. This means a increase in sales which demands more

inventory. 'ash is also being used to !eep this inventory. $n the D1 44, as it went down,

a positive cash flow which is cash inflow has incurred. Cut overall, the graph represents the

increment of sales which is the output of inventory.

10

0

5000000

10000000

15000000

20000000

)hort *erm 'repa#ments

Amo(nt

ear

Amo(nt 14634767 12200743 11665181 16963990 13483950

ear 2007 2008 2009 2010 2011

1 2 3 4 5

0

50000000

100000000

150000000

In!entor#

ear

Amo(nt

ear 2007 2008 2009 2010 2011

Amo(nt 79422358 83993750 97841000 146059045 147441749

2007 2008 2009 2010 2011



The major ingredients contributing the increasing cash inflow from operation activities are

'reditors and <ccruals which are current liability. Drom the starting D1 9-44, we find

an increasing positive rate in the net figure and it means the company is paying less each

year in part of its current liability. &o, fewer outflows are occurring year by year and earn

positive cash inflow.

The graph shows that its current liabilities in payable to creditors have been piled up means

less payment.

&ame case goes for Frovision for ta#ation. The ta# amount is increasing throughout the

calculated financial years. <nd, it is meaning more dues in ta# amount which is have been

saved results cash inflow for R#$%&' B#($%&)#*.

11

0

100000000

200000000

300000000

400000000

500000000

600000000

Creitors an" Accruals

ear

Amo(nt

ear 2007 2008 2009 2010 2011

Amo(nt 144105789 164870936 285460732 443722560 539187939

2007 2008 2009 2010 2011

0

20000000

40000000

60000000

'ro!ision o% *a+ation

ear

Amo(nt

ear 2007 2008 2009 2010 2011

Amo(nt 8909228 26578940 31543371 43875279 57529429

1 2 3 4 5



C) /7 *3 &(;#)'3#(' $'&;&'

$nvestment activities of R#$%&' B#($%&)#* are in tangible fi#ed assets, capital wor!ing

progress 2>ew plant, building for new product7, deferred ta# assets, long term deposit and

prepayments 2Di#ed deposit, rental etc7 and long term loans and advances 2within any unitof the company7. <ny increase in the mentioned items resembles usage of cash or in other

word, it is an investment. &o, increase in the figure comparing the last year means cash

outflow and decrease means cash inflow.

Drom the graph, we see the investment is becoming more year after year. 'ash is being

used for purchasing tangible fi#ed assets, capital wor! in process and long term deposit. &o,

the net cash flow from investment is a outflow. This is a good sign that it is investing more

to e#pand and also to manufacture more.

12

et Cash Flow %rom In!estment

'30000000

'20000000

'10000000

0

10000000

20000000

30000000

ear

Amo(nt

ear 2007 2008 2009 2010 2011

Amo(nt 19033117 13062701 '14156317 '21558227 '22140300

1 2 3 4 5



$n the tangible fi#ed asset part, R#$%&' B#($%&)#* includes building, plant G machineries,

furniture, euipments etc. the graph show a fluctuating state where from the D1 ;-4,

it is increasing and went down in the year 44. <s a result, it has produced a cash inflow in

the year 44 comparing the year 4.

<t 44, the company increased its capital wor! in progress amounted to C+T ,869,63

than previous year. This change affects the most in cash flow for investment. <t 44 they

also remove some of their old parts and need not go for new investment as they ma!e

investment in 4.

13

0

20000000

40000000

60000000

80000000

100000000

120000000

*an$ible %i+e" asset

ear

Amo(nt

ear 2007 2008 2009 2010 2011

Amo(nt 95203161 69668359 86453388 115182348 105602569

2007 2008 2009 2010 2011



C) /7 *3 &(($&(: $'&;&'

Dor R#$%&' B#($%&)#*, there is no long term debt from the ban!. &o, its financial activities

only include the dividend payment in each year plus the changes in provision of employees’

gratuity. We find a negative cash flow year to year.

Drom the above graph, we find an increasing rate from the year ; to year 44 which is

ma!ing net cash flow from financing negative. $t means, the dividend payment by the

company has been increased which is major contributor for impacting cash flow of financing

outcome. "n the other hand, provision of employees’ gratuity is fluctuating throughout the

analysis and last it has been increased which is a good sign.

14

et Cash %low %rom Financin$

'120000000

'100000000

'80000000

'60000000

'40000000

'20000000

0

20000000

ear

Amo(nt

ear 2007 2008 2009 2010 2011

Amo(nt 16,130,139 14,829,012 20,671,261 94,949,080 98,655,407

1 2 3 4 5



C) ' '# #( '# #*

<ctually, a company is most concern with the cash balance of each year. Cecause,

depending on this figure, company ta!es most of the important decisions li!e e#pansion,

dividend payment, long term loan etc. nding cash balance is the sum of net change in cash

considering operating, investment and financing activities plus the opening cash balance of

the opening year. R#$%&' B#($%&)#* considers cash and cash euivalents to understand

the balance.

<fter the calculation of cash flow of D1 9 to D1 44, we find a increasing positive

growth in the cash balance of each year. Drom the graph, the line showing that the

company is improving it cash balance year after year and has a positive slope. The situation

arrived because of well management in operational, investment and financial activities

which were stated above.

15

Cash ,alance at -!er# .ear

0

200000000

400000000

600000000

800000000

ear

Amo(nt

ear 2007 2008 2009 2010 2011

Amo(nt 183467423293020083467454150574513956738359731

1 2 3 4 5



O;#*// C33#(')

The above circumstances illustrated that, though R#$%&' B#($%&)#*<) net cash flow in

investment of year 8 to year 44, it is good news for the company. 'ause, it is doing

much better in operating activities which is increasing positively and also contributing to thenet cash flow of each year significantly. The company was able to increase the cash flows of

trade creditors which had no interest and at the same time they improved their credit

collection which provided cash inflow. $t can increase amount of inventory which will give

them competitive advantage in ne#t year because of lower cost of raw materials, if there is

inflation. <nother reason for increase in inventory refers higher sales. "n the other hand, in

finance activities, its dividend payment is increasing. &o, it is going to attract the mar!et.

This is also an indication of company’s better status as it pays dividend without ta!ing any

long term loan. This actually adding values to goodwill of the company. The good thing is

the payment of provisions for employee’s gratuity creates opportunity for the e#pansion of

the productive capacity.

<s the cash balance of each year is positive and increasing, it symboli%es itself solvent and

doing well in the mar!et. Drom the ualitative analysis, we can say that the firm enjoying

fair goodwill and enrichment of brand loyalty is happened. $t has better chance to go for

e#pansion or product innovation, investment in research and development, offering more

dividends or increase its total sale through e#tensive promotion without ta!ing any long

term liabilities. "n the hand, with the healthy amount of cash balance, it can fi# it up its

company bottlenec!s.

&o, the cash flow activities of the firm illustrate good news of the company which stated at

the beginning of the discussion.

16



1." R'& A(/)&)

Dinancial ratios are designed to help evaluate financial statements. atio <nalysis facilitates

us to ma!e comments on financial performanceLcondition of a company. $t addresses some

critical financial concerns that a firm might face. These may include what should be the ideal

percentage of debt vis-M-vis assets of a particular firm, for e#ampleN What level of inventory

should a firm maintainN e the fi#ed assets being utili%ed properlyN etc. Time &eries analysis

has been used for analy%ing financial statements for the last si# years 29-447 of

ec!itt Cenc!iser 2C+7 *td.

$n Dinancial analysis, atio analysis plays a very important role to understand the inherent

status of a company, which apparently appears to be performing good in the eyes of the

investors but not doing well in reality. &o it gives us cues and clues to get into those hidden

side of a firm. We have learned from our course material that there are five broadcategories that we can divide the atio <nalysis into. They are as followsA

4. L&=&&' R'&A $t provides us information about a firm’s ability and also stability to

meet its short term financial obligations.

. A))#' M(:#3#(' R'&)> $t indicates how efficiently the firm utili%es its assets.

3. D#4' M(:#3#(' R'&)> $t gives information whether there are right mi# of debt

and euity.

:. P*&'4&/&' R'&)> $t offers several different measures of success of the firm at

generating profits.

5. M*%#' ;/# R'&)> $t shows the company’s standing in capital mar!et.

L&=&&' R'&)

• &hort term solvency or liuidity measures the firm’s ability to pay its bills and current

liabilities on time.

• $t indicates the ease with which non-cash assets can be converted to cash, and also

the ratio of non-cash assets to current liabilities

17



Figure 1: Current Ratio for RECKITT

The very basic uestion that the current ratios answer is can a firm ma!e its reuired

payments on timeN &o it shows the short term solvency of a firm. The graph tells us that

ec!itt’s current ratios are slightly below the benchmar! of .This does not mean the

liuidity position of ec!itt Cenc!iser is poor, because it has a considerable amount of

receivables which if collected on time can easily meet the short term obligations. "n the

other hand too much liuidity may sometimes spell trouble because it indicates the firm is

not ma!ing the wise use of its money thereby not investing properly. &o liuidity is not an

absolute indicator of a firm’s financial position in the mar!et.

18



?&$% R'&

/uic! ratio e#presses a company’s ability to repay its current liabilities out of its most liuid

assets.

Figure 2: Qui! Ratio for Re!itt

$nventories are typically the least liuid of a firm’s current assets. )ence, they are the

assets on which losses are most li!ely to occur. Therefore, a measure of a firm’s ability to

pay off its short term obligations without selling its inventory is important. The benchmar!

as we !now for this ratio is 4, where ec!itt has consistently maintained this ratio above

this standard over the years. &o we can conclude here that the position of ec!itt is pretty

good in terms of this uic! ratio. "n the other hand, the position of the comparing firm has

not been tat stable compared to the standard and also compared to that of ec!itt.

specially in the last for years it was awfully low, which could have spelled lots of trouble

but fortunately last year in 44 their situation has improved and the ratio has jumped over

4.

19



O;#*// C33#(' S*'-'#*3 S/;#($

Coth time series and the benchmar! analysis suggest that ec!itt’s financial position in

terms of the liuidity ratio is satisfactory

A))#' M(:#3#(' R'&)

<sset @anagement ratios measure how effectively a firm manages its assets. These ratios

are designed to answer this uestionA does the total amount of each type of asset as

reported on the balance sheet seem reasonable, too high or too low in view of the current

and the projected sales levelsN

5.6

5.8

6

6.2

6.4

6.6

6.8

7

7.2

2010 2011

Inventory Turnover

Figure: In"entor# Turno"er of Re!itt

$t shows each item of ec!itt’s inventory is sold out and restoc!ed or Jturned overK 9.3

times in 44 and this trend has been almost consistent over the years ranging from : to

the highest 9. $t indicates that ec!itt has very efficiently managed its inventory and never

held e#cessive amount of it. $t is also consistent with its increasing demand for its products

and increasing sales turnover.

20



F&@# A))#') T*(;#* R'&

The fi#ed assets turnover ratio measures how effectively the firm uses its plant and

euipment to help generate sales.

Figure: Fi$e% &''et Turn o"er for RECKITT

$n 44, ec!itt’s Di#ed <ssets turnover ratio is 46.5: times which indicates that ec!itt isusing its assets very efficiently and this ratio has steadily increased over the period as we

can see from the graph

21



T'/ A))#') T*(;#* R'&

$t measures the turnover of all the firm’s assets.

Figure: Tota( &''et Turn o"er for RECKITT

ec!itt’s total asset turnover has been pretty consistent over the years which indicates that

ec!itt is generating sufficient volume of business given its investment in total assets. Thegradual increase in sales volume over the period justifies it.

O;#*// C33#(' ( A))#' M(:#3#('

ec!itt’s managing its assets very efficiently as the business or the sales figure suggests

which has increased steadily over the years and also it’s in part attributable to the efficient

inventory management.

22



D#4' M(:#3#(' R'&)

+ebt management ratios address very important concerns as in firms with relatively high

debt ratios have higher e#pected returns when the business is good or normal, but they are

at the same time e#posed to higher level of ris! when the business is poor. "n the other

hand, firms with low debt ratios are less ris!y but they also forgo the opportunity to

leverage up their return on euity.

D#4' R'&

$t measures percentage of the firm’s assets financed by the creditors.

Figure: )e*t Ratio for RECKITT

They don’t have any long term debt and as a result they are not subject to any fi#ed

interest charges. &o here current liabilities constitute the total debt. <s we have seen earlier

that their liuidity is maintained pretty efficiently, enough to meet up the short term

liabilities, they are not going to face any trouble in case of liuidation and as a result their

scope of financing is not constrained, they can raise funds, borrow from the creditors if it’s

reuired and there’s no reason for the creditors to be unwilling to lend them the funds.

23



O;#*// C33#(' ( D#4' M(:#3#('

&ince ec!itt has been gradually generating more sales revenue this debt ratio is justified.

P*&'4&/&' R'&)

Frofitability is the net result of a number of policies and decisions. The ratios e#amined thus

far provide some information about the way the firm is operating, but the *&'4&/&'

*'&) show the combined effects of liuidity, asset management, and debt on operating

results.

a7 N#' *&' 3*:&( ( S/#)> $t gives the profit per dollar sales.

Figure: +rofit argin on -a(e' for RECKITT

The graph shows profit margin on sales for '($TT is has been pretty consistent over the

years and highest in the year 44. &o we can say that the sales figures are pretty

satisfactory.

24



4 R#'*( ( A))#' +ROA

$t gives idea about the overall return on investment earned by the firm, it is the after ta#

earnings generated by total asset.

Figure: Return on &''et for RECKITT

Dor the : years, '($TT’s "< has been consistently around 45O and the ratio is showingan increasing trend in "< from : till 44 which is on the other hand attributable to

increased net income and sales over these 6 year period. $t has also been possible because

the firm does not have any long term debt and is thereby e#empted from any fi#ed interest

charges. "n the contrary,

25



$ R#'*( ( E=&' +ROE

0ltimately, the more important, or Jbottom lineK accounting ratio is the ratio of net income

to common euity, which measure the return on common euity. This net income is

different from the preceding ones in that it’s the net income available to the common stoc!

holders.

DigureA eturn on uity for '($TT

'($TT is showing an increasing trend in ", which has steadily increased over the

years. $n the last two years it’s been more than 39O up from the 45 O in 3.This is

evidential because they are not using any long term debt and thus no pressure from fi#ed

interest charges and also this is indicative of good business generation through gradual

increase in sales.

O;#*// C33#(' P*&'4&/&'

'($ has been performing better than (eya +etergent *td. from year to year which is

attributable to the good profit margin and good inventory management as we !now that

good inventory management reduces the operating e#penses which eventually contributes

to the net income.

26



M*%#' /# R'&)

The mar!et value ratios represent a group of ratios that relates the firm’s stoc! price to its

earnings and boo! value per share. These ratios give management an indication of what

investors thin! of the company’s past performance and future prospects. $f a firm’s liuidity,

asset management, debt management and profitability ratios are all good, then its mar!et

value ratios will be high and its stoc! price will be as high as e#pected. The opposite is also

true in that it gives us the direction as to whether a company is headed toward ban!ruptcy.

P*&$#E*(&(:) R'&

This FL ratio shows how much investors are willing to pay per dollar of reported profits.

"ther things remaining constant the FL ratio is higher for firms with high growth prospects

and lower for ris!ier firms.

Figure: +rie.Earning' ratio for RECKITT

FL ratio has doubled for ec!itt in the last two years from the year 6. ec!itt’s FL ratio

is more consistent e#cept for the last year. The F& for ec!itt has mar!ed a steady growth

over the years, T( 35 against the boo! value which of T! 4 in the year 44, for e#ample,

which is 3.5 times higher than the boo! value.

27



M*%#'B% R'&

The ratio of a stoc!’s mar!et price to its boo! value gives another indication of how

investors regard the company. 'ompanies with relatively high rates of return on

euityLassets generally sell at higher multiples of boo! value than those with low returns.

Figure: ar!et./oo! "a(ue ratio for RECKITT

We !now that the higher the rate of return on assets, more the price a firm can charge for

its share. ec!itt through consistent increase in these ratios over the period has not only

bolstered its financial foothold in the mar!et, but also it has achieved more investor’s trust

in terms of the investment consideration.

O;#*// C33#(' M*%#' R'&)

Our examination of market value ratio of Reckitt indicates that investors are excited

about the future rosects of Reckitt!s common stock as investment.

28



CHAPTER-2

FINDINGS

CONCLSION

Drom the start of this report we have found and learned many important financial thingsabout the company. Celow is the summary of the financial measures and mechanisms and

their implications that we have thus far come across in light of ec!ittA

4. <n increasing trend in &ales Turnover and Frofitability over last si# years.

29



. eturn on asset is stable but increased trend in " and profit margin on sales figure

has steadily increased over the years.

3. < significant increasing trend in dividend payment from the year 5.

:. $mmense growth potential in the future with increasing F&.

5. &ome assets such as inventories, fi#ed assets are understated.

6. $ntangible asset of goodwill is not incorporated on the balance sheet which

rationali%es the high mar!et value of the firm and increasing stoc! price

9. &trong liuidity position with increasing cash flows from the operating activities for

the last five years and holds a very sound financial position.

;. "verall cash balance of each year is positive and shows an increasing trend also

substantiates the aforementioned strong liuidity position.

Dinally, the report is based on the last five years’ information that we have obtained

from the annual reports of the firm. <s such the most recent information available to us

was of the financial year 4-44. $f we could avail more recent information, our

analysis would have been more precise and accurate. <ny further study related can be

more productive by giving emphasis on analy%ing most recent data, collecting relevant

primary data, using statistical tools and techniues and adeuate time.

30



APPENDIX

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