Financial_Ratios_on_Aftab_Auto

Chapter-01: Introduction and Methodology 1: Introduction The most significant reason of doing a financial analysis is to satisfy current or prospect investors or stock holders. So they understand the position of the company in the market and achieve full satisfaction and invest on the company. However our purpose for this project is to analyze financial statements and show the significant change in company’s performance over the last 5 years period. Generally financial analysis of financial statements involves generating different sort of ratios such as liquidity ratios, asset management ratios, debt management ratios, profitability ratios, and market value ratios. As we mentioned earlier, figuring out the company’s position is one of the most important purpose of doing financial analysis. Therefore, maneuvering these entire ratios will certainly give us a scenario of the company’s current position in the market. By comparing with the industry average, these ratios can indicate whether the company is doing better or bad in the market. So it is very important for financial managers to analyze financial statements before making any financial decision for the company, because only this way they will figure out the intrinsic difference of their market value of shares with the book value per share. Eventually they will be able to find out the change between book value and market value of share, and rectify if necessary. In order to predict free cash flow, future earnings, and dividends, analyzing financial statements is very important, especially from the investor’s point of view. That is how investor’s usually forecast the future return and gets inspiration or trust to invest on the company. The main company that we are performing financial analysis is on Aftab Motors LTD. Since our major focus is to compare two companies’ financial performances over time, so we have selected Atlas Bangladesh LTD as the rival company of Aftab Motors LTD. According to the project instruction, we aimed towards rationalizing stock price through financial statement analysis, and in doing so we have seriously dealt with the book value and market value of shares. By comparing the book value and the market value of Aftab Motors LTD from the year 2005-2009, we found out following information: |Year |B/V |*M/V |Comments | |2005 |260.70119 |422 |Good News | |2006 |415.55044 |304 |Bad News | |2007 |406.49975 |366 |Bad News | |2008 |267.74384 |391.75 |Good News | |2009 |390.38248 |1530 |Good News | *Source: Dhaka Stock Exchange Library [pic] Regression Analysis comparing MV and BV Cross Correlation Analysis [pic] [pic] [pic] Curve Fit Independent: YEAR Dependent Mth Rsq d.f. F Sigf b0 b1 BV LIN .051 3 .16 .714 -21849 11.0598 MV LIN .491 3 2.89 .188 -461810 230.400 [pic] [pic] 2: Objectives ▪ Identifying the difference between the book value and the market value of the share. ▪ Find out reasons behind the difference of BV and MV. ▪ Add comments in considering to the company’s performance related to the BV and MV. ▪ Forming an overall understating about the financial condition of the company over last five years. ▪ Analyzing the ratios of individual company based on financial statements. ▪ Determine the financial weakness and strength of the company. ▪ Prepare a new balance sheet eliminating the differences. ▪ Marking trends of Aftab Motors Ltd. and then comparing its performance and conditions with respect to Atlas Bangladesh LTD. ▪ Forecasting on the basis of the trend in different ratios. \ 3: Methodology: Information Source This study is based on the secondary financial data which is published in annual reports and monthly reviews of Dhaka Stock Exchange Ltd. by the respective companies. We have obtained the necessary information from the DSE (Dhaka Stock Exchange LTD), Motijjhil, Dhaka, and from the annual report of the company. Data Processing and Analysis We have calculated different ratio using sourced data from DSE, and showed the comparison between the two companies’ performances over the last five years. Here the positions of companies were compared to their previous year’s performance and then the analysis has been done between those companies current year’s situations. Period of Data We have used data of five consecutive years from 2005, 2006, 2007, 2008, 2009. Statistical Techniques We basically used two different statistical techniques. First we used the Time Series method for ratio analysis and then Cross-Sectional method for showing the comparison between Aftab Motor’s LTD and Atlas Bangladesh LTD. There is also couple of tables and charts to specifically present the data with comments. Standard of Comparison As we know that there are few competitors for Aftab Motors LTD in Bangladesh. Among them, we figured that Atlas Bangladesh LTD is one of the most challenging one for Aftab Motors in terms of market share and fiscal performance over time. 4: Limitations of the Study • To write this project, we required to meet several times which was pretty hard task as different members are involved into different jobs. • Also it was hard to collect annual report of the company since we all had to go to DSE (Dhaka Stock Exchange), Motijjhil. • We faced problem while breaking down the actual balance sheet and sorting out the adjustments. • Another limitation was collecting the industry averages for the ratio analysis. No such data are readily available in context of Bangladesh. So, instead of the industry average data we have to take the best available rival data. • More over time constrain and other factors deterred us to anticipate highest concentration that we could have given to prepare this report. Chapter-02: ANALYSIS and Interpretation 5: Revised Balance Sheet based on Market Value of Share Market Value & Book Value of Aftab Auto Ltd: From the Annual Report of the Aftab Automobiles ltd we calculated the Book Vale of their share from 2005 to 2009. Besides that we also collected the Market Value of the share from the library of the DSE (Dhaka Stock Exchange). The following Graph shows the Market Value and the Book Value per share of our proposed company. Figure-1: Market & Book Value of Aftab Ltd. From 2005 to 2009 From the above graph we see that in year 2005, 2008 and 2009 the market price is higher then the book value, which is really good news for us. But in 2006 and 2007 the market price is below then the market price, which indicates that the investors underestimated the company’s wealth. But as our last year in 2009, so our analysis will be based on year 2009. In year 2009, we found that the Market Value is far more then the Book value which is Taka 1,530 and taka 390.38248 respectably. This figure indicates that the investors are willing to pay more for per share for the company then the book value shows because the investors may think that the company may underestimated the company’s wealth. So we constructed a new Balance Sheet compared with the current year (2009) Balance Sheet based on the Market Value of the corporation. Revised Balance Sheet Based on the Market Value in 2009: |Aftab Automobiles Ltd | |Balance Sheet | |2009 | | |Based on Book Value | Based on Market | Increase / Decrease | | | |Value | | |Assets | |Current Assets | |  |Stock And Stores (Inventory) |  |  |  | | |  | | | | |  |Total Stock & Stores | 737,517,274 | 1,281,969,612 | 544,452,338 | |  |Total Accounts Receivable | 993,547,199 | 993,547,199 | - | |  |Income Tax Deducted at Source | 93,002,081 | 93,002,081 | - | | |  | | | | |  |Advance, Deposits & Prepayments | 149,320,158 | 149,320,158 | - | |  |Cash & Bank Balances | 27,881,100 | 27,881,100 | - | |Total Current Assets | 2,001,267,812 | 2,545,720,150 | 544,452,338 | |  | |  | |Non-Current Assets | |  |Property, Plant & Equipment |  |  |  |  | |  |Land | 58,959,642.00 | 58,959,642 | 648,556,062 | 589,596,420 | |  |Building | 169,846,130.00 | 142,270,645 | 213,405,968 | 71,135,323 | |  |Shades | 2,682,800.00 |  | |  | |  |Less: |Accumulated | 1,529,591.00 |  | | | | |Depreciation till 2008 | | | | |  |Tools & Equipment | 45,965,960.00 |  | |  | |  |Less: |Accumulated | 17,743,259.00 |  | | | |Depreciation till | | | | | |2008 | | | |  |Office Equipment | 31,021,242.00 |  | |  | |  |Less: |Accumulated | 7,323,987.00 |  | | | |Depreciation till | | | | | |2008 | | | |  |Furniture & Fixture | 16,953,271.00 |  | |  | |  |Less: |Accumulated | 2,973,873.00 |  | | | | |Depreciation till 2008 | | | | |  |Less: |Accumulated | 26,595,111.00 |  | | | |Depreciation till | | | | | |2008 | | | |  |Investment (4109300 Share Of Navana CNG) | 33,961,309 | 796,793,270 | 762,831,961 | |  |Intangible Assets | - | 1,263,853,978 | 1,263,853,978 | |Total Assets | 2,438,883,896 | 5,744,380,219 | 3,305,496,323 | |Liabilities & Owners Equity | - | - | |Current Liabilities | |  | - | - | |  |Short Term Loan |  | 229,914,219 | 229,914,219 | - | |  |Total Accrued & Other Current Liabilities |  | 1,275,342,755 | 1,263,853,978 | (11,488,777) | |  |Dividend Payable for Preference Share |  | 1,179,500 | 1,179,500 | - | |Total Current Liabilities | 1,506,436,474 | 1,494,947,697 | (11,488,777) | |Non-Current Liabilities | |  | | - | |  |Loan & Deferred Liabilities | | 17,100,000 | 17,100,000 | - | |  |Preference Share Capital including Premium | | 9,827,929 | 9,827,929 | - | |Total Liabilities | 1,533,364,403 | 1,521,875,626 | (11,488,777) | |Equity Attributable to Equity Holders | |  |Paid up Share Capital (Ordinary Shares - 2319570 Shares) | | 231,957,000 | 3,548,942,100 | 3,316,985,100 | |  |Share Premium | | 250,191,730 | 250,191,730 | - | |  |Reserve | | 107,100,735 | 107,100,735 | - | |  |Retained Earnings |  | 316,270,028 | 316,270,028 | - | |Total Assets & Liabilities | 2,438,883,896 | 5,744,380,219 | 3,305,496,323 | Justifications: 1. Stock & Stores: The investors may think that the company underestimates the price of the finished goods. As the company use to measure the finished goods based on the Cost of Production basis. But the original market price is higher then the value written in the Annual Report. Also the market price of the Raw Materials, Store & Spares, Goods in Transit, L/C Margin, Work-In-Process is underestimated. So in Revised Balance Sheet we increase the value of the Stock & Stores. 2. Land: The Land value is underestimated as we know that the land value is calculated as per the purchase price, not as per the market value. We know that the value of the land always increases. So we increase the value of the land. 3. Buildings: The value of the Building is calculated as per the establishment cost and the current value is calculated by deducting depreciation. So in this case the investors may find the Market value of the Building is more then the value used in the annual report. The investors may find the Building in better condition and able to offer the higher price than the value calculated in the balance sheet. So we also increase the value. 4. Plant & Machinery, Tools & Equipment, and Transport Vehicle: As all of these items value is written on the basis of the purchase price and also by deducting the accumulated depreciation. So the investors may find these items in better condition and also think that the market price is higher than the written in Balance sheet. 5. Investment: This Company purchased 4,109,300 pcs of share from Navana CNG Ltd. The value written on the Balance Sheet is from the purchased price. But the Current market price of this share is taka 193.90. So we also increased the value of the investment by using the market value of the stock. 6. Intangible Assets: The market price of the share is increased. This value increased may be the reason is the value increasing of the company’s intangible assets like Patent, Trademark etc. 7. Goods Supplied Account: We are decreasing this account on the basis is that, the company may get some purchase discount from the vendors. So the value of the accounts receivable is decreasing. Overall Comments: In year 2009, we see that the Market price is much higher then the Book Value of each share. Investors are willing to pay more than the book value of each share. The major reasons of the higher market value are the underestimation of the assets, as the assets are calculated based on the purchase price; not on the basis of the market price. Besides that investment to the other shares are also calculated on the purchase price. But the market price is also higher. Moreover, Aftab Automobiles ltd enjoys a better reputation on the market. So the Intangible assets like, Patent, Trade mark should be considered. So we can say that the company’s financial position is good. 6: Cash Flow Analysis: Cash flows are the cash receipts and the cash disbursement of the company. Since money does not flow in and out at an equal rate, so in most of the businesses, an analysis of cash flow is important. In our case we are working with the Cash Flow Statement of Aftab Automobiles Ltd from the year 2005 to 2009. After analyzing the statements we can have an idea of the cash dealing of the company of the years under our study. Here we would like to address the different components of the Cash flow statements. So to serve our purpose we divided our analysis in three parts based on different types of activities considered to prepare the cash flow statement. Cash Flow from Operating Activities: In year 2005, we have a positive cash flow from the operating activities, as in that year we have a higher amount of sales and other collectables. Besides that, the payment of the suppliers and the other financial expenditures are low. In year 2006, we get a negative cash flow the operating activities. This may occurs that the sales are going down then the previous year, which is 30.15%. Moreover, other collections are 20.68% lower than the previous year. On the other hand, Financial Expenses increased by 27.51%. Figure-2: Cash Flow from operating activities In year 2007, we again get the positive cash inflow. In this year the sales are lightly increased by 0.52% then the previous year. On the other hand, Financial Expenditure decreased by 27.40%. In year 2008, the net cash flow from operating activities increased by 47.73% with a positive balance. Sales increased by 50.25%, which is a very good sign. Besides that, we found that, there is a cash inflow from other income. In year 2009, again the cash inflow from operating activities increased by 9.01% then the previous year. This is resulting from the Sales increase of 35.01%. Moreover, there is a cash inflow from the profit of the Investment in Shares. On the other hand, Payment to the Suppliers and the Employees, Financial Expenditure and Income Tax payments are also increased by 58.82% and 67.11% respectively. But the tax payment decreased by 40.23%. So in total we can say that the Aftab Automobiles are consuming less then the Income from their day to day operations. Cash Flow from Investing Activities: This section of the Cash flow indicates that, the cash inflow and the outflows of the company from its investment activities during the time period. In year 2005, the company is purchasing the fixed assets, which indicates that, the company is increasing its wealth and also increasing the chance to increase the revenue by investing the fixed assets. In year 2006, Cash outflow from the investing activities in decreased as the company purchased less fixed assets then the previous year. The investment is decreased by 49.69%. [pic] Figure-3: Cash Flow from investing activities In year 2007, the Cash Outflow of the company is increased dramatically which is 474.22%. This dramatic increase in Outflow resulting from the investment of the Capital which is work in process, which will generate more profit in future. In year 2008 and 2009, there is a cash outflow (Negative Balance), as the company continuously purchasing fixed assets. Cash Flow from Financing Activities: This part indicates the company’s cash position from its Financing Activities during the time period. In year 2005, there is a net cash outflow from its financing activities. In year 2006, there is net Cash inflow from its Financing Activities. The cash inflow is resulting from the Increase in the Share Capital & premium. On the other hand, the company is offering 49.61% more cash dividend then the previous year. Moreover, the company is paid its short term loan in this year. So the short term loan will be decreased. In year 2007, we have a net cash outflow from the Financing activities. In this year the company is taking more short term loan and also receive money from Dividend Equalisation Fund. Besides that the company is offering 29.77% more cash dividend then the previous year. So there is a net Cash outflow. [pic] Figure-4: Cash Flow from financing activities In year 2008 and 2009, there is also a net cash outflow from its financing activities. In these two years, the major cash outflow goes to the Dividend Equalisation Fund. In overall we see that the Sales of the company are increasing which is a good sign. Besides that the company is investing heavily on the fixed assets, which may used to generate more revenue for the company. They are also offering cash dividend each year and also the company paid its short term load and also taking short term loans, which indicates that the company is enjoying a favorable environment in terms of the short term credit situation. So, we can conclude that the Aftab Automobiles Ltd is financially sound based on the Cash Flow analysis. Ratio Analysis and Interpretations To evaluate a firm’s financial condition and performance, the financial analyst usually performs analyses on various aspects to find out the financial health of the firm; among which ratio analysis is one of the most important and commonly used methods. Ratio analysis is a tool frequently used during the analysis to relate two pieces of financial data by dividing one quality by the other. In this study various ratio analyses will be done to understand the financial condition of the company and to compare this condition with its rival firm to get a clear picture. The analysis of financial ratios involves two types of comparison: ← Time–Series Analysis: First, the analyst compares a present ratio with past and expected future ratios for the same company. The current ratio (the ratio of current assets to current liabilities) for the present year could be compared with the current ratio for the previous year-end. When financial ratios are arranged over a period of years, the analyst can study the composition of change and determine whether there has been an improvement or deterioration in the firm’s financial condition and performance over time. Here we will conduct time series only on the Aftab Auto Ltd. ← Cross-Section Analysis: The second method of comparison involves comparing the ratios of one with those of similar firms or with industry averages at the same point in time. Such a comparison gives insight into the relative financial condition and performance of the firm. It also helps us identify any significant deviation from any applicable industry average (or standard). Here we will discuss and calculate different types of ratios. Then we will compare the ratios between Aftab Auto Ltd. and Atlas Auto Ltd. The reason for doing this is that the industry average is not available in perspective of Bangladesh. ▪ Liquidity Condition Analysis: Ratios that show the relationship of a firm’s cash and other current assets to its current liabilities are known as liquidity ratios. Different types of liquidity ratios are discussed below. Current Ratio: The ratio that relates current assets to current liabilities is the current ratio. The current ratio indicates the ability of a company to pay its current liabilities from current assets and shows the strength of the company’s working capital position. [pic]s Figure-5: The Current Ratios of Aftab and Atlas for the years 2005-2009 Time Series Analysis: Current ratio for Aftab is higher than 1 and it is consistent for all five years. In 2006 it has increased a lot from the previous year but in 2007 it dropped for two consecutive years but again in 2009 it has increased again and is in a good satisfactory condition. Cross-Section Analysis: However, comparing to the ratios of Atlas, we see significant difference the two companies’ ratios. Aftab’s ratios seem to be much weaker than Atlas’s. None of the years it has made the benchmark of 2. However, the last 3 years results are not satisfactory at all because none of them is showing benchmark of 2 or the increasing manner. So, we can conclude that Aftab is showing poor trend in its quick ratio. Quick Ratio: Inventories typically are the least liquid of a firm’s current assets – they are the assets on which losses are most likely to occur in the event of liquidation. Therefore, it is important to measure the firm’s ability to pay off short term obligations without having to rely on the sale of inventories. This is why quick ratio is used. [pic] Figure-6: The Quick Ratios of Aftab and Atlas for the years 2005-2009 Time Series Analysis: Quick ratio of Aftab is less than 1 which means it has piled up inventories as its current assets. The trend of quick ratio of Aftab shows that the ratio had been increasing from 2005 to 2006 but then suddenly fell significantly in year 2007 and 2008. Then it has increased in 2009. So, we can conclude that Aftab is showing low quick ration but increasing trend in its quick ratio. Cross-Section Analysis: Comparing with Atlas, Aftab has a very poor quick ratio even though it has increased but its running with a risky conditions in terms its quick ratio. Cash Ratio: It is another measure of liquidity of the firm. It shows cash solvency of the firm. Figur-7: The Cash Ratios of Aftab and Atlas for the years 2005-2009 Time Series Analysis: Aftab’s cash ratio has seen a fluctuating matter. The ratio is very low. Even though the ratio improved in 2008 than previous year, the ratio is significantly lower. Too much inventory pile up and poor credit collection policy may led to such deteriorating trend in cash ratios. Cross-Section Analysis: Comparing with Aftab, Atlas has a very high cash ratio which indicates Atals has a better credit collection policy and lower piled up inventories. Asset-Management Efficiency Analysis: A set of ratios that measure how effectively a firm manages its assets compared to its sales. These ratios are designed to find out whether the total amount of each type of asset as reported on the balance sheet appear reasonable, too high, or too low considering current and projected sales levels. Asset Management Ratio is done based on inventory turnover ratio, day’s sales outstanding and fixed asset and total asset turnover ratio Total Asset Turnover: The total asset turnover ratio is calculated by dividing sale by total assets. The total assets turnover ratio measures the turnover of all the firm’s assets. [pic] Figure-8: The Total Asset Turnover Ratios of Aftab and Atlas for the years 2005-2009 Time Series Analysis: Total turnover of Aftab is not very satisfactory which means its not generating enough revenue by using its total assets which indicates it may some inefficient assets in its stock which deteriorating the total revenue. Its in decreasing trend till 2007 but after that it as a increasing trend which is a very good sign in fact. Cross-Section Analysis: Atlas has a very high asset turnover ratios which indicates its assets efficient enough to generate more revenues and its in increasing trend for both the firm. Fixed Asset Turnover: The fixed asset turnover ratio is calculated by dividing sale by total fixed assets. The total fixed assets turnover ratio measures the turnover of all the firm’s fixed assets. [pic] Figure-9: Fixed Asset Turnover Ratios of Aftab and Atlas for the years 2005-2009 Time Series Analysis: Fixed Asset Turnover of Aftab is very low and it’s in decreasing trend which indicates that it has very inefficient fixed assets in its stock to generate enough sales. . It means it is becoming more efficient to utilize its short term assets to generate sales and even though it’s fixed asset is generating more sales than does the short term assets Cross-Section Analysis: in terms of Fixed Assets Turnover Atlas has a very high fixed asset turnover ratio compare to Aftab which indicates Atlas is doing well in terms of using its fixed assets and generating revenue. Inventory Turnover: This ratio indicates how active the company has been. It talks about the efficiency as well as the management of the company. This ratio indicates the number of times in a trading year a firm sells the value of its stocks. [pic] Figure-10: Inventory Turnover Ratios of Aftab and Atlas for the years 2005-2009 Time Series Analysis: Inventory Turnover of Aftab is very low but it’s in increasing trend till 2006 then there was a drop in 2007 after that it increased in 20008 then again it increased in 2009. So tells us that its inventory turnover is fluctuating and it doesn’t have efficient inventory to generate sales properly. This means Aftab was suffering from poor inventory management which is also evident from the balance sheet. But, recently it improving and overcoming the situation which is a good indication. Cross-Section Analysis: comparing with Atlas Aftab has a very low inventory turnover ratio whereas Atlas’s inventory turnover is very high which indicates that Atlas is efficient in managing its inventory. But Atlas’s inventory turnover has a decreasing trend whereas as Aftab’s is in increasing trend Days Sales Outstanding (DSO): DSO indicates the average length of time it takes the firm to collect its credit sales. It is also called the average collection period, is used to evaluate the firm’s ability to collect its credit sales in a timely manner. [pic] Figure-11: DSO of Aftab and Atlas for the years 2005-2009 Time Series Analysis: From the graph it’s been seen that initially low but then there were increasing trend in DSO but after 2007 it’s again starts to decrease which us a good sign that indicates that’s they are being more efficient in collecting its receivables. Cross-Section Analysis: Comparing with Aftab, Atlas has a very low collection period which means Atlas take less time to collect its receivable. ▪ Debt-Management Efficiency Analysis: This ratio measures how effectively a firm is managing its debts. Debt Management ratios include analysis of two types of ratio: debt ratio and times interest earned ratio. Debt to Asset Ratio: It measures the percentage of the firm’s assets financed by creditors. [pic] Figure-12: Debt Ratios of Aftab and Atlas for the years 2005-2009 Time Series Analysis: Debt ratio of Aftab is fluctuating trend. It has high debt ratios which indicate that they a high leveraged firm and since interest on debt enjoy tax advantage, this is evident in the gradual increment in EPS figures. This is good news for the investors. Cross-Section Analysis: Comparing with Aftab, Atlas has a very low debt ratio which indicates they have a long-term solvency and low risk but at the same time they don’t have much leverage power to generate more profit and enjoy the tax benefits. Times Interest Earned (TIE) Ratio: The TIE ratio measures the extent to which earnings before interest and taxes (EBIT), also called operating income, can decline before the firm is unable to meet its annual interest cost. Failure to meet this obligation can bring legal action by the firm’s creditor, possibly resulting in bankruptcy. It measures the ability of the firm to meet its annual interest payments [pic] Figure-13: TIE Ratios of Aftab and Atlas for the years 2005-2009 Time Series Analysis: TIE ratio of Aftab is very low which means it has low ability to meet its annual interest payments. Aftab is covering its interest charges by a low margin of safety. This affects the potentiality of raising further debt in future. Cross-Section Analysis: Compare to Atlas, Aftab has a very low TIE ratio which means Atlas has very high safety of margin to cover its interest payment. ▪ Profitability Condition Analysis: A group of ratios showing the effect of liquidity, asset management, and debt management on operating results. Profitability is the net result of a number of policies and decisions. Profitability ration are of three types- Net profit margin on sales, Return on Asset (ROA) and Return on Equity (ROE). Net Profit Margin: This ratio measures how much the sales is contributing to the net profit of the company, which belongs to the shareholders. [pic] Figure-14: Net Profit Margin of Aftab and Atlas for the years 2005-2009 Time Series Analysis: Net Profit Margin of Aftab gradually decreased in the first three year then it started rising and continue to rise. This is a very good indication for the company and as well as the investors. This increasing trend in Aftab’s profit margin ratio will help to attract the investors. Cross-Section Analysis: from the figure we can see that initially Atlas net profit was higher than the Aftab but later on Aftab’s net profit gradually increased and Atlas’s started to decrease. This indicates that Aftab earning more than Atlas does. The decreasing trend in Atlas’s profit margin ratio will not help to attract the investors. Operating Profit Margin: How much the sales are contributing to the operating profit of the company is measured by this ratio. [pic] Figure-15: Operating Profit Margin of Aftab and Atlas for the years 2005-2009 Time Series Analysis: From the graph we can see that Aftab’s operating profit is in increasing trend which is a good indication of the fact that Aftab is becoming more efficient is its operation thus it has been able to reduce the operating cost which enable for higher and increasing operating profits. Cross-Section Analysis: Comparing with Atlas, Aftab is doing well in terms of making operating profit and Afatb has an increasing trend in its operating profit margin whereas Atlas has a decreasing operating profit margin. Earnings Per Share (EPS): EPS shows how much net profit per share the company is making in a given period of time. [pic] Figure-15: EPS of Aftab and Atlas for the years 2005-2009 Time Series Analysis: EPS of Aftab has a decreasing trend for the first three years and then it followed and increasing trend and a big jump in EPS in 2009. So Aftab is earning more per share of its then it was previously earned. Cross-Section Analysis: From the graph we can see that Aftab has higher EPS then Atlas. Thus Aftab will be able to attract more investors then Atlas as its earning more than Atlas for its per share. Return On Asset: . ROA provides an idea of the overall return on investment earned by the firm. [pic] Figure-16: ROA of Aftab and Atlas for the years 2005-2009 Time Series Analysis: From the table we can see that return on total asset of Aftab is decreasing from the very start period. But from 2007 it starts increasing and it’s a positive factor for the company and the investors’ as well Cross-Section Analysis: ROA ratio of Aftab is lower than Atlas all through the five years. Aftab has faced a severe downfall at 2007 which may be triggered by the high interest charges on its huge amount of debt. So, it is very poor compare to Atlas but its improving for the last three years. Return On Equity: ROE measures the rate of return on stockholder’s investment. [pic] Figure-17: ROE of Aftab and Atlas for the years 2005-2009 Time Series Analysis: From the table we can see that return on total equity of Aftab is decreasing from the very start period. But from 2007 it starts increasing and it’s a positive factor for the company and the investors’ as well. This improvement indicates firm’s improving liquidity position, efficient asset management and efficient use of high debt amount. Cross-Section Analysis: ROE ratio of Aftab is lower than Atlas all through the five years. Aftab has faced a severe downfall at 2007 which may be triggered by the high interest charges on its huge amount of debt. So, it is very poor compare to Atlas but its improving for the last three years. ▪ Market Condition Analysis: The market value ratios represent a group of ratios that relates the firm’s stock price to its earnings and book value per share. These ratios give management an indication of what investors think of the company’s past performance and future prospect. If the firm’s liquidity, asset management, debt management, and profitability ratios are all good then market value ratios will be high which will lead to an increase in the stock price of the company. Market value ratio is of two types- Price/Earnings Ratio and Market/Book value Ratio. Market to Book Ratio: The ratio of a stock’s market price to its book value gives another suggestion of how investors regard the company. Companies with relatively high rates of return on equity generally sell at higher multiples of book value than those with low returns. [pic] Figure-18: M-B Ratio of Aftab and Atlas for the years 2005-2009 Time Series Analysis: It is noticeable that Aftab has an increasing trend in its M/B ratio after 2005 which is good indicator. This indicates investors are gaining confidence on Aftab’s share and are now ready to pay more for Aftab’s book value of its share. Cross-Section Analysis: Even though there are increasing trend in the M/B ratio of Aftab it is much lower than the Atlas’s. It indicates that Atlas is gaining more investor’s trust over the years then Aftab. This justifies the high riskiness of Aftab’s securities due to its huge debts. But its M/B is increasing which means investors are gaining the confidence which is a good indicator to compete with Atlas Price-Earnings Ratio: This is the ratio of the price per share to earnings per share. It shows the dollar amount investors will pay for $1 of current earnings. It is computed by market price per share and earnings per share (EPS). [pic] Figure-19: P/E Ratio of Aftab and Atlas for the years 2005-2009 Time Series Analysis: P/E ratio of Aftab was decreasing trend for the first two years then it experienced a rise in 2007 which indicates the firm’s high growth potential. After that it starts to decrease. This shows firm’s huge riskiness which we have already seen by its increasing debt financing and overall poor management and other ratios. This indicates that investors are now willing to pay less for 1taka of current earnings. Cross-Section Analysis: Aftab has a lower P/E ratio then Atlas but both the company has the same decreasing trend in its P/E ratio. So both the company is losing investors’ confidence and investors are now willing to pay less for 1taka of current earnings. Summary of all the Ratio Calculation: The calculation of the following ratios has been done following the particular formulas. In the Appendix section we have attached the calculation procedures in details. Aftab Automobiles Limited |Type of Ratios | |Current Ratio | |Debt-Asset Ratio | |Net Profit Margin | |Price Earning Ratio | |Current Ratio | |Total Asset Turnover | |Debt-Asset Ratio | |Net Profit Margin | 1. Price Earning Ratio |19.5 |16.8 |24.4 |37.7 |21.3 |19.5 | |Market/Book Ratio |3.72 |3.06 |5.62 |8.37 |8.54 |3.72 | | Findings and Conclusion At the end we can say that, in year 2009, we see that the Market price is much higher then the Book Value of each share. Investors are willing to pay more than the book value of each share. The major reasons of the higher market value are the underestimation of the assets, as the assets are calculated based on the purchase price; not on the basis of the market price. Besides that investment to the other shares are also calculated on the purchase price. But the market price is also higher. Moreover, Aftab Automobiles ltd enjoys a better reputation on the market. So the Intangible assets like, Patent, Trade mark should be considered. So we can say that the company’s financial position is good. In overall we see that the Sales of the company is increasing which is a good sign. Besides that the company is investing heavily on the Fixed assets, which may used to generate more revenue for the company. They are also offering cash dividend each year and also the company paid its short term load and also taking short term loans, which indicates that the company is enjoying a favorable environment in terms of the short term credit situation. So, we can conclude that the Aftab Automobiles Ltd is financially sound based on the Cash Flow analysis. At last but not the least, profit margin, operating profit, EPS, market-book value of the Aftab is increasing which indicates that the company is becoming more efficient in terms of its operations and also gaining investors confidence. So we can say that after experiencing some downfall Aftab Auto is now experiencing efficiency in its performance and also investors’ confidence. ----------------------- Page 35