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1: ABSTRACT
Fuji Ink Industries Limited was established in 2006, it opens in market from 2008 with offset
printing ink in different dimensions. Within three year it reaches the second position in the
market of offset printing ink. Toka ink is its main competitor in the market for offset printing
ink. Fuji Ink Industries Limiteds factory is located in Dhamrai, Savar, its sales center is
situated in Motijheel, Dhaka and its Head office is located in Niketan Gulshan. Fuji Ink
Industries Limited is the sister concern of Graphic Machinery and Equipment Limited (GME
Group). I am servicing in Fuji Ink Industries Limited from March 2010 as Sr. Accounts
Officer and Accounts in Charge. This project paper is prepared on the Financial Statements
Analysis on Fuji Ink Industries Limited. Financial statements analysis is too much significant
for owner, shareholders, stakeholders, and also for the internal decision making. Financial
statements analysis says about the firm positions regarding strength, weakness, opportunity
and threats about its survives in the market. In this project paper I try to present all things
about the financial statement analysis and also financial analysis of Fuji Ink Industries
Limited in different dimensions such as horizontal analysis, vertical analysis, and ratio
analysis. This project paper also covers the findings, problems, and suggestions regarding
this matter.
1
1.5: METHODOLOGY OF THE STUDY
In order to make the project paper more meaningful and presentable, two sources of data and
information have been used widely.
Secondary sources
Financial Statements of Fuji Ink Industries Limited
Website of Fuji Ink Industries Limited
Various book, articles, compilations etc.
Website Information.
2
1.7 LIMITATIONS OF THE STUDY
It is obvious that every study has some limitations. The study I have made is of great
importance and required me huge work. Those limiting factors that hampered my smooth
workings and finally in preparing this project are as follows:
Time constraint: Time constraint is the major limitation for preparing this project
paper. It is too much difficult to manage time to prepare the project paper as a
student of MBA program (Friday) because I have to work six days in office and one
days for conducting MBA Class, side by side I have to manage my family, so there
have no extra time of this study besides these I try to present this project paper
worthwhile in a short time.
As a small firm Fuji Ink Industries Limited has not any well organized annual
report for collecting the information, as a result it was difficult to collect necessary
information when needed.
Scope of my study is so wide that analytical and comprehensive study is not
possible.
Lack of sufficient books, papers and journals etc.
Web site of the Organization isnt up to date to gather valuable information.
3
2.1: INTRODUCTION
Fuji Ink Industries Limited starts its operations in market from 2008 with offset printing ink
which is mainly used in different press for printing. Financial statement analysis has great
significance for evaluating a firm about it financial positions, measurements, strengths, and
so on. For financial statement analysis different methods, tools and techniques are widely
used. Financial statement analysis is the process of understanding the risk and profitability of
a firm through analysis of reported financial information, by using different accounting tools
and techniques. Financial statements include the Income Statement, Balance Sheet, and
Statement of Cash Flows. Financial statement analysis is a valuable tool for gauging the
financial stability and health of a company. Financial statement analysis is a popular tool for
investors, stakeholders and the key decision makers within the organization. In this project it
would be discussed all over the things about financial statements analysis and Fuji Ink
Industries Limited.
The marketing devision of Fuji Ink Industries Limited is very efficient and is inspired by its
theme 'Customer First" which brings the team very close to the customers. The marketing
team is always ready to address the various customers needs.
Based on the requirements of the printing and packaging industry Fuji Ink Industries Limited
manufactures four types of offset printing inks Fuji Ink HG, Fuji Ink MG, Fuji Ink QS, Fuji
Ink, Fuji Ink EG, Web Offset and any Special Color. It has a plan to include Graviour Ink,
Flexo Graphic Ink, Foil Printing Ink etc to its product line in future.
4
2.4: PRODUCT
We are menufactuer of offset Printing Ink. Our Products are Sheet-feb Offset Ink and Web
Offset Ink.
HG SERIES INK
Specially desined for high quality printing job. This is the fasted-setting and strongest ink
with excellent gloss and lithographic properties.
MG SERIES INK:
Medium range of spot colors with good gloss and quick setting properties.
QG SERIES INK:
Medium range of spot colors with good gloss and quick setting properties.
2.5: CHARACTERISTICS
Characteristics of Fuji Ink is mentioned as follows
Sharp reproduction for photo process dots
Excellent ink/water balance
High pigmentation and stable emulsions produces excellent mileage and low dot gain
Excellent gloss
Quick setting
Excellent rub resistance
Good ink distribution and transfer
Excellent light fastness
Suitable tack value for all kinds paper and board
Excellent alkali and heat resistance.
5
3.1: FINANCIAL STATEMENT ANALYSIS
Financial statement analysis is the process of understanding the risk and profitability of a
firm through analysis of reported financial information, by using different accounting tools
and techniques. Financial statements include the Income Statement, Balance Sheet, and
Statement of Cash Flows. Financial statement analysis is a valuable tool for gauging the
financial stability and health of a company. Financial statement analysis is a popular tool for
investors, stakeholders and the key decision makers within the organization.
6
3.2.1.1.A: Horizontal Analysis of the Income Statement
Horizontal analysis of the income statement is usually in a two-year format, such as the one
shown below, with a variance also shown that states the difference between the two years for
each line item. An alternative format is to simply add as many years as will fit on the page,
without showing a variance, so that you can see general changes by account over multiple
years. A third format is to include a vertical analysis of each year in the report, so that each
year shows expenses as a percentage of the total revenue in that year.
Horizontal analysis can be misused to report skewed findings. This can happen when the
analyst modifies the number of comparison periods used to make the results appear unusually
good or bad. For example, the current period's profits may appear excellent when only
compared with those of the previous month, but are actually quite poor when compared to the
results for the same month in the preceding year. Consistent use of comparison periods can
mitigate this problem.
Horizontal analysis of income statement of Fuji Ink Industries shows that sales increase in
2013 than that of previous year 2012. Due to increase in sales 2013 there also increase in
gross margin but decrease in profit from operation in 2013. From the above comparison we
see that operating expenses increase in case of administrative, marketing & selling,
distribution expenses during the year. As a result profit decrease during the year.
Management must have to consider this matter for future for maintaining the expenses side
by side also take proper step for increasing sales for next years.
7
2011 2012 2013
100000000.00
90000000.00
80000000.00
70000000.00
60000000.00
50000000.00
40000000.00
30000000.00
20000000.00
10000000.00
0.00
Total Operating Total Income for
SALES GROSS PROFIT
Expenses the Year
2011 80175656.00 19574472.00 18646872.00 1529900.00
2012 91846260.00 17897800.00 14261900.00 3805550.00
2013 92780200.00 18581600.00 16324550.00 2637950.00
Graphical comparison of Income Statement items of Fuji Ink Industries Limited for last three
years.
In the next page shown horizontal analysis of balance sheet of Fuji Ink Industries Limited for
last two years 2012 and 2013.
8
FUJI INK INDUSTRIES LIMITED
Horizontal Analysis of Balance Sheet
Year 2012 2013 2013-2012
Property & Assets Amount (Tk.) Amount (Tk.) Difference
Fixed Assets 1,28,96,700.00 1,45,23,810.00 16,27,110.00
Current Assets
Advance Deposit & Prepayments 73,26,750.00 59,80,300.00 (13,46,450.00)
Accounts Receivable 2,27,05,370.00 2,92,71,500.00 65,66,130.00
Inventories 6,95,95,850.00 5,79,63,100.00 (1,16,32,750.00)
Material in Transit 0.00 93,51,200.00 93,51,200.00
Short Term Loan 44,55,300.00 51,91,800.00 7,36,500.00
Cash & Cash Equivalents 35,34,440.00 45,74,440.00 10,40,000.00
Total Current Assets 10,76,17,710.00 11,23,32,340.00 47,14,630.00
Liabilities
Non-Current Liabilities
Long Term Loan 6,75,00,000.00 6,75,00,000.00 0.00
Current Liabilities
Liabilities against Goods Supplied 42,62,860.00 1,46,29,900.00 1,03,67,040.00
Liabilities for others Finance 3,88,35,800.00 3,48,32,300.00 (40,03,500.00)
Liabilities against Expenses 10,96,000.00 9,20,550.00 (1,75,450.00)
Short Term Bank Loan 24,84,300.00 0.00 (24,84,300.00)
Total Current Liabilities 4,66,78,960.00 5,03,82,750.00 37,03,790.00
Total Capital and Liabilities 12,05,14,410.00 12,68,56,150.00 63,41,740.00
9
In the following graph shows the comparison of major balance sheet items for last three
years.
140000000.00
120000000.00
100000000.00
80000000.00
60000000.00
40000000.00
20000000.00
0.00
Total
Total Long Total
Fixed Total Total Capital
Current Term Current
Assets Assets Capital and
Assets Loan Liabilities
Liabilities
2011 7039044.0 95234869. 102273913 2529900.0 67500000. 32244013. 102273913
2012 12896700. 107617710120514410 6335450.0 67500000. 46678960. 120514410
2013 14523810. 112332340126856150 8973400.0 67500000. 50382750. 126856150
10
3.2.1.2.A: Vertical Analysis of the Income Statement
The most common use of vertical analysis in an income statement is to show the various
expense line items as a percentage of sales, though it can also be used to show the percentage
of different revenue line items that make up total sales. An example of vertical analysis for
an income statement is shown in the far right column of the following condensed income
statement: The information provided by this income statement format is useful not only for
spotting spikes in expenses, but also for determining which expenses are so small that they
may not be worthy of much management attention.
FUJI INK INDUSTRIES LIMITED
Vertical Analysis of Profit and Loss Account
Total Income for the Year 15,29,900.00 1.91% 38,05,550.00 4.14% 26,37,950.00 2.84%
11
2011 2012 2013
90.00%
80.51%
79.97%
80.00% 75.59%
70.00%
60.00%
50.00%
40.00%
30.00%
24.41% 23.26%
20.03%
19.49%
20.00% 17.59%
15.53%
10.00%
3.96%2.43%
1.16%
0.00%
Total Operating Profit From
COGS GROSS PROFIT
Expenses Operation
2011 75.59% 24.41% 23.26% 1.16%
2012 80.51% 19.49% 15.53% 3.96%
2013 79.97% 20.03% 17.59% 2.43%
In the above graph it is shown that the cost of goods sold, gross profit, operating expenses
and profit from operation as the percentage of sales of respective year.
12
FUJI INK INDUSTRIES LIMITED
Vertical Analysis of Balance Sheet
Year 2011 2012 2013
Property &
Amount (Tk.) Amount (Tk.) Amount (Tk.)
Assets
Fixed Assets 70,39,044.00 6.88% 1,28,96,700.00 10.70% 1,45,23,810.00 11.45%
Current Assets
Advance Deposit
29,02,573.00 2.84% 73,26,750.00 6.08% 59,80,300.00 4.71%
& Prepayments
Accounts
2,18,79,858.00 21.39% 2,27,05,370.00 18.84% 2,92,71,500.00 23.07%
Receivable
Inventories 5,23,70,681.00 51.21% 6,95,95,850.00 57.75% 5,79,63,100.00 45.69%
Material in
1,02,16,527.00 9.99% 0.00 0.00% 93,51,200.00 7.37%
Transit
Short Term Loan 36,33,432.00 3.55% 44,55,300.00 3.70% 51,91,800.00 4.09%
Cash & Cash
42,31,798.00 4.14% 35,34,440.00 2.93% 45,74,440.00 3.61%
Equivalents
Total Current
9,52,34,869.00 93.12% 10,76,17,710.00 89.30% 11,23,32,340.00 88.55%
Assets
Total Assets 10,22,73,913.00 100.00% 12,05,14,410.00 100.00% 12,68,56,150.00 100.00%
Capital & Liabilities:
Capital
Share Capital
Authorized :
1,00,000 Ordinary
10,00,000.00 0.98% 10,00,000.00 0.83% 10,00,000.00 0.79%
Shares @tk. 100
Retained
15,29,900.00 1.50% 53,35,450.00 4.43% 79,73,400.00 6.29%
Earnings
Total Capital 25,29,900.00 2.47% 63,35,450.00 5.26% 89,73,400.00 7.07%
Liabilities
Non-Current Liabilities
Long Term Loan 6,75,00,000.00 66.00% 6,75,00,000.00 56.01% 67,5,00,000.00 53.21%
Current Liabilities
Liabilities
against Goods 1,11,45,412.00 10.90% 42,62,860.00 3.54% 1,46,29,900.00 11.53%
Supplied
Liabilities for
1,41,67,050.00 13.85% 3,88,35,800.00 32.23% 3,48,32,300.00 27.46%
others Finance
Liabilities
8,58,633.00 0.84% 10,96,000.00 0.91% 9,20,550.00 0.73%
against Expenses
Short Term Bank
60,72,918.00 5.94% 24,84,300.00 2.06% 0.00 0.00%
Loan
Total Current
3,22,44,013.00 31.53% 4,66,78,960.00 38.73% 5,03,82,750.00 39.72%
Liabilities
Total Capital &
10,22,73,913.00 100.00% 12,05,14,410.00 100.00% 12,68,56,150.00 100.00%
Liabilities
13
The information provided by this balance sheet format is useful for noting changes in a
company's investment in working capital and fixed assets over time, which may indicate an
altered business model that requires a different amount of ongoing funding.
90.00%
80.00%
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
Total Total Total
Total Long Term
Fixed Assets Current Total Assets Current Capital and
Capital Loan
Assets Liabilities Liabilities
2011 6.88% 93.12% 100.00% 2.47% 66.00% 31.53% 100.00%
2012 10.70% 89.30% 100.00% 5.26% 56.01% 38.73% 100.00%
2013 11.45% 88.55% 100.00% 7.07% 53.21% 39.72% 100.00%
In the above graph shows the different balance sheet items in comparison to total assets.
14
3.2.2: FINANCIAL STATEMENTS RATIO ANALYSIS
The second method for analyzing financial statements is the use of many kinds of ratios.
Financial ratios are very powerful tools to perform some quick analysis of financial
statements. One of the most popular tools of financial statement analysis tools is ratio
analysis on the basis of reformulated and adjusted financial statements. Financial ratios are
just calculated on the basis of the reported numbers. Financial statement analysis is the
foundation for evaluating and pricing credit risk and for doing fundamental company
valuation. In this assignment I try to make financial statements analysis of FUJI INK
INDUSTRIES LIMITED based on annual report 2011, 2012, and 2013.
Operational information:
Financial analysis only reviews a company's financial information, not its operational
information, so you cannot see a variety of key indicators of future performance, such as the
size of the order backlog, or changes in warranty claims. Thus, financial analysis only
presents part of the total picture.
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3.2.2.2.A: LIQUIDITY RATIOS:
This is the most fundamentally important set of ratios, because they measure the ability of a
company to remain in business. The liquidity of a firm is measured by its ability to satisfy its
short-term obligations as they come due. Liquidity refers to the solvency of the firms overall
financial positionthe ease with which it can pay its bills. Because a common precursor to
financial distress and bankruptcy is low or declining liquidity, these ratios can provide early
signs of cash flow problems and impending business failure. Followings are the different
liquidity ratios
Current Ratio: Measures the amount of liquidity available to pay for current
liabilities.
Quick Ratio: The same as the current ratio, but does not include inventory.
Cash Coverage Ratio: Shows the amount of cash available to pay interest.
Liquidity Index: Measures the amount of time required to convert assets into
cash.
The liquidity or short term solvency ratio of Fuji Ink Industries Limited shown as follows
CURRENT RATIO
One of the first ratios that a lender or supplier reviews when examining a company is its
current ratio. The current ratio measures the short-term liquidity of a business; that is, it gives
an indication of the ability of a business to pay its bills. A ratio of 2:1 is preferred, with a
lower proportion indicating a reduced ability to pay in a timely manner. Since the ratio is
current assets divided by current liabilities, the ratio essentially implies that current liabilities
can be liquidated to pay for current liabilities. It is expressed as follows:
Current Assets
Current Ratio
Current Liabilitie s
The current ratio can yield misleading results under the following circumstances:
Inventory component. When the current assets figure includes a large proportion of
inventory assets, since these assets can be difficult to liquidate. This can be a
particular problem if management is using aggressive accounting techniques to apply
an unusually large amount of overhead costs to inventory, which further inflates the
recorded amount of inventory.
Paying from debt. When a company is drawing upon its line of credit to pay bills as
they come due, this means that the cash balance is near zero. In this case, the current
ratio could be fairly low, and yet the presence of a line of credit still allows the
business to pay in a timely manner.
16
Current ratios of Fuji Ink Industries Limited for last three years are as follows:
Comment:
Fuji Ink Industries Limited has 2.95 times current assets than its current liabilities in 2011,
2.30 in 2012 and 2.23 in 2013. Though it was high in 2011 but it reduces this in 2012, and
2013. It can be said that this ratio is in good position for Fuji Ink Industries Ltd. it would be
able to meet up its short term obligation by its current assets.
17
QUICK/ ACID-TEST RATIO
The quick ratio formula matches the most easily liquidated portions of current assets with
current liabilities. The intent of this ratio is to see if a business has sufficient assets that are
immediately convertible into cash to pay its bills. The key elements of current assets that are
included in the quick ratio are cash, marketable securities, and accounts receivable. Inventory
is not included in the ratio, since it can be quite difficult to sell off in the short term, and
possibly at a loss. Because of the exclusion of inventory from the formula, the quick ratio is a
better indicator than the current ratio of the ability of a company to pay its immediate
obligations. The ratio is most useful in manufacturing, retail, and distribution environments
where inventory can comprise a large part of current assets. It is particularly useful from the
perspective of a potential creditor or lender that wants to see if a credit applicant will be able
to pay in a timely manner, if at all. It is calculated by the following formula.
Comment:
The ideal of Acid-Test Ratio of a firm is 1:1. The Acid-Test Ratio of Fuji Ink Industries Ltd.
in 2013 is 1.08 times and in 2012 is 0.82 times. So it can be said that it is in good position for
short term liquidity management. From the above calculation we see the quick ratio is more
and more fluctuate from year to year. So the firm should maintain this properly.
18
CASH COVERAGE RATIO
The cash coverage ratio is useful for determining the amount of cash available to pay for a
borrower's interest expense, and is expressed as a ratio of the cash available to the amount of
interest to be paid. To show a sufficient ability to pay, the ratio should be substantially greater
than 1:1.
To calculate the cash coverage ratio, take the earnings before interest and taxes (EBIT) from
the income statement, add back to it all non-cash expenses included in EBIT (such
as depreciation and amortization), and divide by the interest expense. The formula is:
The calculation reveals that Fuji Ink Industries Ltd. can pay for its interest expense, but has
very little cash left for any other payments.
19
LIQUIDITY INDEX
The liquidity index calculates the days required to convert a company's trade receivables and
inventory into cash. The index is used to estimate the ability of a business to generate the
cash needed to meet current liabilities.
The liquidation days information in the formula is based on historical averages, which may
not translate well to the receivables and inventory currently on hand. Actual cash flows may
vary substantially around the averages indicated by the formula. Also, if this information is
plotted on a trend line, be sure to consistently apply the same averaging method to all
periods; otherwise the results may be unreliable.
The larger proportion of inventory in this calculation tends to skew the number of days well
past the liquidation days for trade receivables. In short, Fuji Ink Industries Limited will
require a lengthy period to convert several current assets to cash, which may impact its ability
to pay bills in the short term.
20
3.2.2.2.B: ACTIVITY RATIOS:
These ratios are a strong indicator of the quality of management, since they reveal how well
management is utilizing company resources. Activity ratios are constructed to measure how
efficiently the firms assets are being managed. Activity ratios measure the speed with which
various accounts are converted into sales or cash inflows or outflows. In a sense, activity
ratios measure how efficiently a firm operates along a variety of dimensions such as
inventory management, disbursements, and collections. A number of ratios are available for
measuring the activity of the most important current accounts, which include inventory,
accounts receivable, and accounts payable. The efficiency with which total assets are used
can also be assessed.
Total Assets Turnover Ratio: Total assets turnover ratio measures how effectively
the firm uses its plant and equipment to help generate sales.
Fixed asset turnover ratio: Measures a company's ability to generate sales from a
certain base of fixed assets.
Accounts receivable turnover ratio: Measures a company's ability to collect
accounts receivable.
Accounts payable turnover ratio: Measures the speed with which a company pays
its suppliers.
Inventory turnover ratio: Measures the amount of inventory needed to support a
given level of sales.
Sales to working capital ratio: Shows the amount of working capital required to
support a given amount of sales.
Working capital turnover ratio: Measures a company's ability to generate sales
from a certain base of working capital.
21
Comment:
This ratio is intended to indicate how effectively a firm is using all of its assets. If the assets
turnover ratio is high, the firm is presumably using its assets effectively in generating sales.
If the ratio is low, the firm is not using its assets to their capacity and must either increase or
dispose of some of the assets. Total assets turnover ratio of Fuji Ink Industries Ltd. shows
that its efficiency is not in good position. It has to require more time for generating sales
against assets.
Doing an effective job of generating sales with a relatively small amount of fixed
assets
Outsourcing work to avoid investing in fixed assets
Selling off excess fixed asset capacity
A low ratio indicates that a business:
Is overinvested in fixed assets
Needs to issue new products to revive its sales
Has made a large investment in fixed assets, with a time delay before the new assets
start generating revenues
Has invested in areas that do not increase the capacity of the bottleneck operation,
resulting in no additional throughput
The concept of the fixed asset turnover ratio is most useful to an outside observer, who wants
to know how well a business is employing its assets to generate sales.
The formula for the ratio is to subtract accumulated depreciation from gross fixed assets, and
divide into net annual sales. It may be necessary to obtain an average fixed asset figure, if the
amount varies significantly over time. Do not include intangible assets in the denominator,
since it can skew the results. The formula is:
Net annual sales
Gross fixed asset - Accumulated depreciation
22
Here are several cautions regarding the use of this measurement:
Industry specific. The fixed asset turnover ratio is most useful in "heavy industry,"
such as automobile manufacturing, where a large capital investment is required in
order to do business. In other industries, such as software development, the fixed asset
investment is so meager that the ratio is not of much use.
Accelerated depreciation. A potential problem with this ratio may arise if a company
uses accelerated depreciation, such as the double declining balance method, since this
artificially reduces the amount of net fixed assets in the denominator of the
calculation, and makes turnover appear higher than it really should be.
Re-investment impact. Ongoing depreciation will inevitably reduce the amount of the
denominator, so the turnover ratio will rise over time, unless the company is investing
an equivalent amount in new fixed assets to replace older ones. Thus, a business
whose management team deliberately decides not to re-invest in its fixed assets will
experience a gradual improvement in its fixed asset ratio for a period of time, after
which its decrepit asset base will be unable to manufacture goods in an efficient
manner.
23
Account Receivable Turnover in Days (DSO)/ Average Collection Period:
Account receivables turnover in days (DSO) is used to evaluate the firms ability to collect
its credit sale in a timely manner.
Days in Period
Average Collection Period
Receivable s Turnover
Average collection period for Fuji Ink Industries Ltd. is
2012 2013
360 360
4.12 3.57
87 Days 100 Days
Comment:
The receivables turnover ratio and average collection period provide some information on the
success of the firm in managing its investment in accounts receivable. If receivables turnover
is high then it will be better for a firm because higher receivables turnover indicate that the
firm can collect its receivables with in short period. Accounts receivables turnover ratio and
average collection period of Fuji Ink Industries Ltd. for last two years says that it was not in
good position because it require too many time for accounts recevable collection. So it has to
emphasize on the matter.
The formula can be modified to exclude cash payments to suppliers, since the numerator
should include only purchases on credit from suppliers. However, the amount of up-front
cash payments to suppliers is normally so small that this modification is not necessary. The
cash payment exclusion may be necessary if a company has been so late in paying suppliers
that they now require cash in advance payments.
24
Accounts payable turnover ratio of Fuji ink Industries Ltd. is as follows
Particulars 2011 2012 2013
25
When there is a low rate of inventory turnover, this implies that a business may have a flawed
purchasing system that bought too many goods, or that stocks were increased in anticipation
of sales that did not occur. In both cases, there is a high risk of inventory aging, in which case
it becomes obsolete and has little residual value.
When there is a high rate of inventory turnover, this implies that the purchasing function is
tightly managed. However, it may mean that a business does not have the cash reserves to
maintain normal inventory levels, and so is turning away prospective sales. The latter
scenario is most likely when the amount of debt is unusually high and there are few cash
reserves. It is calculated by dividing cost of goods sold by inventories.
26
Inventory Turnover Refinements
A more refined measurement is to exclude direct labor and overhead from the annual cost of
goods sold in the numerator of the formula, thereby concentrating attention on just the cost of
materials.
There are several ways in which the inventory turnover figure can be skewed. For example:
Cost pools. The contents of the cost pools from which overhead costs are allocated to
inventory may be altered. For example, some items that were charged to expense as
incurred are now allocated.
Overhead allocation. The method for allocating overhead to inventory may change,
such as from using direct labor hours as the basis of allocation to using machine hours
used.
Standard costs. If standard costing is used, the standard cost applied to an inventory
item may diverge from its actual cost.
Management should be cognizant of the problems that can arise if it attempts to alter the
outcome of this ratio. For example, tightening credit reduces sales, shrinking inventory may
also reduce sales, and lengthening payment terms to suppliers can lead to strained relations
with them.
27
Sales to working capital ratio of Fuji Ink Industries Ltd. is as follows
Sales to Working Capital Ratio 1.27 Times 1.04 Times 1.28 Times
Net sales
(Beginning working capital + Ending working capital) / 2
28
Issues with the Measurement
An extremely high working capital turnover ratio can indicate that a company does not have
enough capital to support it sales growth; collapse of the company may be imminent. This is
a particularly strong indicator when the accounts payable component of working capital is
very high, since it indicates that management cannot pay its bills as they come due for
payment.
An excessively high turnover ratio can be spotted by comparing the ratio for a particular
business to those reported elsewhere in its industry, to see if the business is reporting outlier
results.
From the above calculation of working capital turnover ratio of Fuji Ink Industries Limited
says that it has enough capital for support it sales growth. In this point the firm is in good
position but there have high working capital that would be hampered for the firm in future,
the management of the firm must have to concern about the working capital.
29
3.2.2.2.C: FINANCIAL LEVERAGE/ DEBT RATIOS:
These ratios reveal the extent to which a company is relying upon debt to fund its operations,
and its ability to pay back the debt. The financial leverage of a firm indicates the amount of
other peoples money being used to generate profits. In general, the financial analyst is most
concerned with long-term debts because these commit the firm to a stream of contractual
payments over the long run. The more debt a firm has, the greater its risk of being unable to
meet its contractual debt payments. Because creditors claims must be satisfied before the
earnings can be distributed to shareholders, current and prospective shareholders pay close
attention to the firms ability to repay debts.
Debt ratios provide information about protection of creditors form insolvency and
the ability of firms to obtain additional financing for potentially attractive
investment opportunities.
Debt to Equity ratio: Shows the extent to which management is willing to fund
operations with debt, rather than equity.
Equity multiplier indicates that how many times the firm has its assets in compare
to its equity.
Interest Coverage Ratio: The ratio of interest coverage is calculated by dividing
earnings before interest and taxes by interest expense.
DEBT RATIO
Debt ratio measures the percentage of total assets provided by the creditors. Debt ratios
provide information about protection of creditors form insolvency and the ability of firms to
obtain additional financing for potentially attractive investment opportunities.
Comment
Debt ratio indicates that the firms ability to pay its loan/ financial obligation. If debt ratio is
high then it will be better for holder but riskier for creditors. Lower debt ratio protects the
creditors form insolvency. Debt to total assets ratio of Fuji Ink Industries Ltd. says that it
uses high level of debt that is more risky for creditors. The firm cannot maintain standard
level of debt to assets ratio and this would be hampered for both holder and creditors.
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DEBT TO TOTAL EQUITY RATIO
Debt to total equity ratio measures the percentage of total equity provided by the creditors.
Debt to Equity Ratio Total Debt
Total Equity
Comment:
Debt to equity ratio of Fuji Ink Industries Limited says that it does not maintained proper
standard level of debt equity ratio as a result it has high debt in compare to equity.
EQUITY MULTIPLIER
Equity multiplier indicates that how many times the firm has its assets in compare to its
equity.
Equity Multiplier Total Assets
Total Equity
Comment:
From the above calculation we see that Fuji Ink Industries Ltd. has 30.43 times assets than
that of equity in 2011, 19.02 times in 2012 and 14.14 times in 2013.
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INTEREST COVERAGE RATIO
The ratio of interest coverage is calculated by dividing earnings before interest and taxes by
interest expense. The ratio emphasizes the ability of the firm to generate enough income to
cover interest expense. The ratio of interest coverage ratio is directly connected to the ability
of the firm to pay interest. It can be calculated as
Comment:
From the above calculation Interest coverage ratio of Fuji Ink Industries Ltd. says that it has
1.13 times earnings for payment its interest in 2011, 1.45 times in 2012 and 1.32 times in
2013. It indicates that the firm has to ability to generate earnings (e interest and taxes) for
payment of interest expense from their earnings. But this is not enough for the firm.
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3.2.2.2.D: PROFITABILITY RATIOS
These ratios measure how well a company performs in generating a profit. There are many
measures of profitability. As a group, these measures enable analysts to evaluate the firms
profits with respect to a given level of sales, a certain level of assets, or the owners
investment. Without profits, a firm could not attract outside capital. Owners, creditors, and
management pay close attention to boosting profits because of the great importance the
market places on earnings.
Net profit ratio: Calculates the amount of profit after taxes and all expenses have
been deducted from net sales.
Return on equity: Shows company profit as a percentage of equity.
Return on net assets: Shows company profits as a percentage of fixed assets and
working capital.
Return on operating assets: Shows company profit as percentage of assets utilized.
Net profit margin measures the income per taka of sales. The net profit percentage is the
ratio of after-tax profits to net sales. It reveals the remaining profit after all costs of
production, administration, and financing have been deducted from sales, and income taxes
recognized. As such, it is one of the best measures of the overall results of a firm, especially
when combined with an evaluation of how well it is using its working capital. The measure is
commonly reported on a trend line, to judge performance over time. It is also used to
compare the results of a business with its competitors.
Net profit is not an indicator of cash flows, since net profit incorporates a number of non-cash
expenses, such as accrued expenses, amortization, and depreciation. It is computed by
dividing profits by total operating revenue and thus they express profits as a percentage of
total operating revenue.
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Comment:
Profit margins reflect the firms ability to produce a product or service at a low cost or high
price. Profit margins are not direct measures of profitability because they are based on total
operating revenue, not on the investment made in assets by the firm or the equity investors.
Trade firms tend to have low margins and service firms tend to have high margins.
Net profit margin of Fuji Ink Industries Ltd. in the last three months is not in satisfactory
level because it is too much poor.
Net profit
Fixed assets + Net working capital
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Particulars 2011 2012 2013
Comments
Return on net assets of Fuji Ink Industries Limited for last three years is too poor and also
fluctuating during for last three years.
Accelerated depreciation: You can also use a fixed asset valuation that is net of
depreciation, but the type of depreciation calculation used can skew the net asset
amount significantly, since some accelerated depreciation methods can eliminate as
much as 40% of an assets value in the first full year of usage.
Extraordinary items: If a significant proportion of net income is comprised of income
or losses due to extraordinary items that have nothing to do with ongoing revenue
creation, the impact of these items should be eliminated from net income for the
purposes of the calculation.
Intangibles: Consider eliminating intangible assets from the asset base, especially if
these are "manufactured" assets derived from an acquisition transaction.
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RETURN ON ASSETS (ROA)
Return on Assets is a common measure for evaluating the managerial performance of a firm.
Return on Assets indicates the overall measure of profitability on assets. The return on
operating assets measurement focuses attention on only those assets used to generate
revenue. Once measured, a common outcome is that management works to minimize all of
the other assets on the books that are not contributing to revenue.
The calculation for the return on operating assets is to divide net after-tax income by the
gross recorded amount of all assets used to generate revenue. Two issues related to the
calculation are:
Depreciation. Including depreciation in the denominator is not recommended, since
accelerated depreciation can skew the result.
Unusual income. If there is extraordinary income not related to the ability of assets to
generate revenue, exclude it from the numerator.
Also, the assets to be included in the denominator are subject to a considerable amount of
interpretation. Managers will likely realize that assets not included in the measurement will
eventually be questioned, so expect them to dump as many assets as possible into the
calculation.
It is calculated by the following formula
Return on assets of Fuji Ink Industries Limited for last three years is too poor and also
fluctuating during for last three years.
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RETURN ON EQUITY (ROE)
The return on equity ratio (also known as the return on net worth) reveals the amount of
return earned by investors on their investments in a business. This return can be improved
when a business buys back its own stock from investors, or by using more debt and less
equity to fund its operations.
The use of debt to buy back stock and thereby increase the return on equity can backfire. The
new debt brings with it a new fixed expense in the form of interest payments. If sales decline,
this added cost of debt could trigger a steep decline in profits that could end in bankruptcy.
Thus, a business that relies too much on debt to enhance its shareholder returns may find
itself in significant financial trouble.
This ratio shows how many taka of net income were earned for each taka invested by the
owners.
Net Income
ROE
Average Stockholders ' Equity
Comment:
Most important difference between ROA and ROE is due to financial leverage. It would be
appear that financial leverage always magnifies ROE. Actually, this occurs only when ROA
is greater than the interest rate on debt. Return on common shareholders equity of Fuji Ink
Industries Ltd. shown in the above table for last three years. Fuji Ink Industries Limited use
higher debt in comparison with equity, as a little equity there has more return on equity.
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3.2.2.2.E: VALUE/ MARKET RATIOS
Market value rations give insight into how well investor in the marketplace feel the firm is
doing in terms of risk and return. They tend to reflect, on a relative basis, the common
stockholders assessment of all aspects of the firms past and expected future performance.
Price-Earnings Ratio
The price/earnings (P/E) ratio is commonly used to assess the owners appraisal of share
value. Price-earnings ratio measures the market price of each share of common stock to the
earnings per share. It is calculates as
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RATIO ANALYSIS AT A GLANCE
FUJI INK INDUSTRIES LIMITED
SUMMERY OF RATIO ANALYSIS
2011-2013
Year
SL. No. Title
2011 2012 2013
A. LIQUIDITY RATIO
B. ACTIVITY RATIO
1 Total Assets Turnover Ratio 0.7839 Times 0.8245 Times 0.7500 Times
2 Fixed Asset Turnover Ratio 11.39 Times 7.12 Times 6.39 Times
9 Sales To Working Capital Ratio 1.27 Times 1.04 Times 1.28 Times
D. PROFITABILITY RATIO
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These Ratios are graphically shown as below
Liquidity Ratio
Current Ratio Quick Raio Cash Coverage Ratio
3.5
2.5
1.5
0.5
0
2011 2012 2013
Current Ratio 2.95 2.3 2.23
Quick Raio 1.33 0.82 1.08
Cash Coverage Ratio 1.18 1.53 1.47
Activity Ratios
2011 2012 2013
11
10.5
10
9.5
9
8.5
8
7.5
7
6.5
6
5.5
5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
Accounts Accounts Working
Total assets Fixed asset Inventory Sales to
receivable payable capital
turnover turnover turnover working
turnover turnover turnover
ratio ratio ratio capital ratio
ratio ratio ratio
2011 0.7839 11.39 1.27
2012 0.8245 7.12 4.12 10.27 1.21 1.04 1.22
2013 0.75 6.39 3.57 5.4 1.16 1.28 1.16
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Financial Leverage Ratio
2011 2012 2013
4000.00%
3800.00%
3600.00%
3400.00%
3200.00%
3000.00%
2800.00%
2600.00%
2400.00%
2200.00%
2000.00%
1800.00%
1600.00%
1400.00%
1200.00%
1000.00%
800.00%
600.00%
400.00%
200.00%
0.00%
Debt ratios Debt to Equity ratio
2011 97.53% 3942%
2012 94.74% 1802.22%
2013 92.93% 1313.69%
Profitability Ratios
2011 2012 2013
65.00%
60.00%
55.00%
50.00%
45.00%
40.00%
35.00%
30.00%
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
-5.00%
Profit Margin RONA ROA ROE
2011 1.91% 2.18% 1.61% 60.47%
2012 4.14% 3.77% 3.54% 60.06%
2013 2.84% 3.03% 2.35% 29.40%
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4.1: FINDINGS
From the above discussion, analysis of financial statements, and calculation of different types
of ratios for Fuji Ink Industries Limited for last three years, it is find out the following
things
Fuji Ink Industries Limited established in 2006 and it starts its operations from 2008.
Fuji Ink Industries Limited is a sister concern of GME Group.
Fuji Ink Industries Limited produces world class sheet-fed offset ink in Bangladesh.
Fuji Ink Industries Limited is a high leverage firm; it uses about 97% debt on total
assets.
As a sister mother company maximum loan is provided by GME.
GME provide fund for buildup Fuji Ink Industries Limited and treated this fund as
loan.
Fuji Ink Industries Limited Balance Sheet shows that it has only 10,00,000.00 taka as
capital account.
Debt to equity ratio of Fuji Ink Industries Limited is too high because of lower equity
shown in the balance sheet.
Current ratio, quick ratio, and cash coverage ratio of Fuji Ink Industries Limited is
relatively average in position but liquidity index says that there needs too many days
to convert its receivables and inventory into cash.
Assets turnover ratio is less than one for last three years that says that it has required
too many time to convert assets into sales.
Accounts receivables in days is near about 100 days that would be hampered for
generating cash and also impact on liquidity index.
Accounts payable turnover in days says that it requires too many days for payment of
accounts payable.
Another significant things of a firm is inventory turnover in days, Fuji Ink Industries
Limited requires about 300 days for inventory turnover in long term it would be
difficult to manage this.
Due to high leverage firm Fuji Ink Industries Limiteds return on assets is too much
poor, because it has to beat more interest for debt.
Sales growth for the firm is not in good position, it has been seen that for last three
years sales increase in decreasing rate.
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4.2: RECOMMENDATIONS
From the analysis of Financial Statements of Fuji Ink Industries Limited it would be
recommended the following things
Fuji Ink Industries Limited must has to developed its capital structure, present capital
structure is not in standard position.
Management of the firm should take proper initiative or action for sound capital
budgeting.
Management needs to develop its sales and marketing team for increasing sales.
Sales growth for last three years says that it increase in decreasing rate that is warning
for decreasing sales for future. So the management needs to take proper action for
increasing sales. These may include --
Efficient and effective sales and marketing team
Increasing or maintaining sustainable quality products
Conscious about the cost of production and the sales price of the
products
Conscious about it competitors and competitors products
Accounts receivable of the firm increase year to year, and also receivable turnover in
days is more than three months that would lead to increase in bad debts against
receivables, so the management needs to take initiative or proper steps regarding
collection against sales.
Inventory management is too much significant for a manufacturing firm but from the
financial statement analysis of Fuji Ink Industries Limited it is seen that there have
too many inventory in idle position and inventory turnover in days is near about 300
days. It is recommended to the management of Fuji Ink Industries Limited is to take
necessary technique and policies, or to recruit a personnel who is qualified in
inventory management (if not available) to relive from this situation.
Management needs to take aware about the factory overhead and also the operating
expenses.
When production increase, cost of production decrease per unit as a result profit
increase, so the firm needs to emphasis on the production volume and also the sales
volume.
As a new firm Fuji Ink Industries Limited is in an average situation in the market,
there have some lacking if the management takes proper initiative for retrieve the
situation then it is expected that it would be in better position in future.
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4.3: CONCLUSION
The study of the financial statement is fascinating one for analyzing a firms liquidity,
profitability and solvency. It provided us essential information to companys relative
performances within the industry as well as determining the companys competitive
competence position. Financial statement analysis helps us to take appropriate financial
decision in the business field at the right time. Fuji Ink Industries Limited believes in adding
value and confidence to its customers and business partners. Fuji Ink strives towards
providing prompt delivery, customized printing ink service and achieving customers
objectives. We commit ourselves to these values in order to meet our corporate mission. This
commitment has propelled us to cementing our quality standards along with competitive
prices.
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4.4: BIBLIOGRAPHY
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