Aarong OCP or internship

Evaluation of Financial Performance: Aarong (THIS OCP REPORT IS SUBMITTED FOR THE PARTIAL FULFILMENT OF THE DEGREE OF MASTER OF BUSINESS

ADMINISTRATION WITH A MAJOR IN FINANCE AND BANKING)

Prepared by:

Ranabir Bhowmik ID No: M 112008R

Program: EMBA

Major: Finance & Banking

Trimester: Autumn 2013

Duration: March 01- April 30, 2014

Date of Submission: May 08, 2014

Department of Business Administration

Faculty of Business Studies

International Islamic University Chittagong

Evaluation of Financial Performance: Aarong (THIS OCP REPORT IS SUBMITTED FOR THE PARTIAL FULFILMENT OF THE DEGREE OF MASTER OF BUSINESS

ADMINISTRATION WITH A MAJOR IN FINANCE AND BANKING)

Prepared By:

Ranabir Bhowmik ID No: M 112008R

Program: EMBA

Major: Finance & Banking

Trimester: Autumn 2013

Supervised By:

Serajul Islam Associate Professor


Duration: March 01- April 30, 2014

Date of Submission: May 08, 2014

Signature of Supervisor




Letter of Submission

Date: 08/04/14

To

The Dean



Subject: Submission of OCP Report

Dear Sir,

With due respect and humble submission, I would like to submit my OCP report on "Financial

Performance Analysis of Aarong." This study is the outcome of two months which I have

done based on information of Aarong. I have gained vast knowledge doing this study about

the financial performance of Aarong. Specially, I would like to thank my honorable Supervisor,

who provided me the guidance to complete my study with great enthusiasm. Under the shade

of the study I try to understand Aarong financial statements and analyze it from different

aspects in order to gain experience about financial statement analysis.

In this concern, I therefore pray and hope that you would be kind enough to accept this study and

oblige thereby.

Thanking you in anticipation,

Sincerely Yours,

Ranabir Bhowmik

ID No. M l12008R

Major in Finance & Banking



Acknowledgements

At First, I would like to thank almighty Allah for giving me the opportunity to complete my OCP

successfully from the beginning to the end. I also want to thank all the people, who have given

their support and assistance and extremely grateful to all of them for the completion of the report

successfully.

At first, I would like to thank my honorable Supervisor for his kind concern, valuable time and

constant guidelines for making report.

I would like to thank Mr. Manik Kumar Sarkar, ACA, General Manager of brac-Aarong, AAF &

brac Dairy for his valuable time and constant guidelines and encouragement to prepare OCP

report.

I would also like to express my foremost gratitude to other officials of Aarong who helped me

and gave their valuable time, providing me with the most relevant information on the basis of

which I have prepared this report. I am thankful to all of them for helping and guiding me and for

being nice and kind to me.

I have tried my level best and worked hard to make this report informative one.

Executive Summary

The OCP program as a part of the academic requirement of the MBA program has been

designed to acquire practical knowledge. It is expected that the integrated knowledge of

theories and practices will make us competent and efficient through the OCP program. I have

got the chance to acquire some experience, which is expected to enlighten my career.

This OCP report is aimed at providing a comprehensive analysis of the financial

performance of Aarong. Efforts have been employed to make the content relevant, reliable &

understandable.

This study has been divided into different parts. In the first part, it reflects the background of the

study. Here I discussed the objectives of my study. Main objective of my study is Financial

Performance analysis of Aarong. I used annual report, financial highlight & website of Aarong

as a methodology regarding this study. Like all study this study has also certain limitations

which were in some cases unavoidable.

After that this study reflects the company overview, vision, mission & corporate objectives,

corporate information, products & customers of Aarong. While middle part reflects the

conceptual method of financial performance analysis based on profitability, liquidity, capital

adequacy & efficiency ratio.

From the analysis of the findings, it can be understood that trend of current ratio & profit margin

ratio is increasing compared to previous year which means Aarong is in better position in terms

of these ratios. Inventory turnover ratio is inconsistent in the last previous year but Aarong

dependency on external financing is decreasing year by year which is a good sign for company.

After findings some recommendations are presented that is to use its total assets more

efficiently & Aarong should pay more attention to its inventory management. I have taken all

the reasonable care to ensure the quality of the report and I hope that it includes all the

necessary information which is in the scope of my ability. I would like to express that my effort

will provide you a better picture regarding the subject matter of the study.

Table of Contents

CHAPTER NAME PAGE NO

Chapter 1 : Background of the study 1

1.1 Introduction 2-4

1.2 Objectives of the study 4

1.3 Methodology of the study 4-5

1.4 Scope of the study 5

1.5 Limitations of the study 5

Chapter 2 : Corporate Profile 6

2.1 Historical background of Aarong 7-9

2.2 Company’s Profile in Short 10

2.3 Organizational Structure 11

2.4 Business Philosophy, Portfolios & Ethics 11-12

2.5 Corporate Objectives & Values 12-16

2.6 Products of Aarong 16-19

2.7 SWOT Analysis of Aarong 19-22

Chapter 3 : Theoretical aspects of Financial Analysis 23

3.1 Financial Statement Analysis 24

3.1.1 Income Statement 24

3. 1.2 Balance Sheet 25

3.2 Objectives of Financial Statement 25

3.3 Ratio Analysis 25

3.3.1 Purposes & uses of ratio analysis 26

3.3.2 Major types of ratio 26-28

Chapter 4 : Financial Performance Analysis 29

4.1 Activity Ratio Analysis 30

4.1.1 Inventory Turnover Ratio 30-31

4.1.2 Fixed Asset Turnover Ratio 31-32

4.1 .3 Total Asset Turnover Ratio 32-33

4.2 Liquidity Ratio 34

4.2.1 Current Ratio 34-35

4.2.2 Quick Ratio 35-36

4.2.3 Cash Ratio 36-37

4.3 Long Term Debt Ratio 37

4.3.1 Debt to Capital Ratio 37-38

4.4 Profitability Ratio 38

4.4.1 Gross Margin 39

4.4.2 Profit Margin 40

4.4.3 Return on Asset 41

Chapter 5 : Summary & conclusion 42

5.1 Summary of Findings 43-44

5.2 Recommendations 44-45

5.3 Conclusion 45

References 46

Appendix 47

a brac social enterprise

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CHAPTER-1

Background of the Study


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“To provide a stable and gainful source of employment for the under privileged rural artisans, lift

up the traditional identity and the commitment of quality service”. On the basis of these principal

Aarong started its journey in Bangladesh. Aarong is an organization that is dedicated to change

the lives of disadvantages, promoting traditional Products from Bangladesh and opening the doors

so their products can be exported. Throughout Bangladesh and in international destinations, the

name of Aarong is the synonym of quality originality and uniqueness. The designer and the

creators of the product range offered by reignited interest and popularity for styles and traditional

crafts those are native to the country. Aarong, have not only established the organization as

leaders in deshi handicraft, but have also reignited interest and popularity for styles and traditional

crafts that are native to the country. It is the gracious blend of contemporary and customary that

ensures that each product is original and saleable in modern society. Aarong therefore has

thousands of artisans producing pottery work, jewellery, woven baskets, silk, leather items, brass

pieces and magnificent wood carvings.

Today, few urban consumers will argue that Aarong is the local Mecca for deshi handicraft.

Aarong’s product designs has brought consumer attention back to the products and styles that are

indigenous to Bangladesh, its designers blending the traditional with the contemporary in a

manner that has won instant consumer appeal, starting a revolution in trends that has now been

taken up by countless other boutiques and stores. Aarong’s product designs focus on the diverse

types and textures of crafts and patterns that have been passed along from generation to

generation among weavers and artisans in craft hubs around the country.

Aarong also plays the role of protector and promoter of traditional Bangladeshi products and

designs. It houses an extensive design library where remnants of our rich craft heritage, such as

Nakshikantha art and Jamdani patterns, have been widely researched and archived for present as

well as future use.

1.1 Introduction:


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Today, Aarong's reach has spread from where it started, Manikganj, to the rest of the country.

From a single shop, Aarong has grown into one of Bangladesh's biggest retail chains offering

one-stop shopping experience through 12 stores spread across the major metropolitan areas of

the country - in Dhaka, Chittagong, Khulna and Sylhet and one in London, UK. Aarong

showcases over 100 product categories from clothing to household items, gifts and fashion

accessories to children’s toys, ethnic wear to beautiful crafts, from silks, handloom cotton, Endi

to Terracotta, bamboo, jute and much more.

A Fair Trade Organization

Aarong symbolizes fairness in the global village. The organization has identified three basic

constraints for gainful employment of the low income and marginalized people in the rural areas:

lack of working capital, marketing support and opportunity for skills development. In order to

bridge these gaps, Aarong provides a wide range of services to its workers and suppliers:

• Spot payment on product delivery to encourage efficiency and productivity

• Reach out to producers in remote areas to ensure fair value for their efforts

• Marketing communication and information for artisans

• Advances against purchase orders where necessary

• Training & Education in skills development to raise product quality and marketability

• Product Design and Support in Product Development

• Quality Control to increase producer awareness of the importance of quality

These values reflect fair trade principles which have been developed by registered Fair Trade

Organisations. Fair Trade is a trading partnership, based on dialogue, transparency and respect,

that seeks greater equity in international trade. It contributes to sustainable development by

offering better trading conditions to, and securing the rights of, marginalized producers and

workers – especially in the South (IFAT).

Aarong’s target customers include –

� The urban and middle to upper class Bangladeshis and expatriates;


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� Bangladeshis living abroad who are looking for products that connect them to their

country and roots and represent their identity as a Bangladeshi.

� Foreigners visiting Bangladesh, as Aarong is a must-visit destination that has a

prominent mention in The Lonely Planet guide to Bangladesh.

There are two objectives of the study:

1. Main Objective

2. Specific Objectives

The main objective of the study is the Evaluation of Financial Performance of

Aarong.

The specific objectives of the study are as follows:

� To know about Aarong.

� To highlight the theoretical aspects of Financial Analysis

� To analyze the Financial Performance of Aarong.

The relevant data is collected from primary sources and secondary sources.

I. Primary sources-

a. Practical work

b. Personal Interrogation within the office

c. Personal Observation within the office

1.3 Methodology of the Study

1.2 Objectives of the Study:


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II. Secondary sources-

a. Financial report

b. Income Statement

c. Official Website.

I tried to find out all necessary data from these sources and then analyzed the data to have a clear

view of Financial Performances of Aarong. I was responsible on my specific duties of all the

departments. To collect these data during my office hour I specially depend on the information

provided by authority.

The scope of the study is identified after and during the study is conducted. The study is based

on last 3years financial statement Aarong. And even factor like competitors analysis was not

considered while preparing the project.

The limitation of the study is as follows:-

� Limitation of time

� Unavailability of data

� Company’s restrictions and unwillingness to disclose data

� Lacking of proper assistance of the higher authority of the organizations.

1.4 Scope of the Study

1.5 Limitations of the Study


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CHAPTER-2

Corporate Profile


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2.1 Historical Background of KFC

Aarong began as a cause – a means to an end for a quiet organization fighting to

uphold the dignity of the marginalized. In 1976, when BRAC- a Bangladeshi

dedicated to alleviating poverty and empowering the poor, first began encouraging

sericulture for women in Manikganj, their only buyers were a few scattered retailers

in Dhaka. Weeks, even months would pass between supply and payment, until BRAC

intervened. Aarong was born out of a need to ensure that the penniless silk farmers of

Manikganj were paid for their goods upon delivery, so that they could feed their

families.

Aarong emanated from BRAC’s core mission of alleviating poverty and empowering

people. In the 1970s, BRAC was examining any and all possibilities for alternative

forms of productive livelihood, especially for women, and the proper

commercialization of art and crafts turned out to be a promising option. In December

1978 when BRAC decided to open its own retail outlet under the brand name Aarong,

meaning ‘village fair’, it broadened its arms to include other artisans and master

craftsmen throughout Bangladesh who were involved in the making of handicrafts for

generations, and were finding it extremely difficult to survive in the newly formed

country. Ever since then Aarong has been helping to establish market linkages for

rural artisans, revive crafts and interpret them for the contemporary marketplace.

Aaong is a Fair Trade Organization:

Aarong symbolizes fairness in the global village. The organization has identified three

basic constraints for gainful employment of the low income and marginalized people

in the rural areas: lack of working capital, marketing support and opportunity for

skills development. In order to bridge these gaps, Aarong provides a wide range of

services to its workers and suppliers:

2.1 Historical Background of Aarong


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• Spot payment on product delivery to encourage efficiency and productivity

• Reach out to producers in remote areas to ensure fair value for their efforts

• Marketing communication and information for artisans

• Advances against purchase orders where necessary

• Training & Education in skills development to raise product quality and

marketability

• Product Design and Support in Product Development

• Quality Control to increase producer awareness of the importance of quality

These values reflect fair trade principles which have been developed by registered

Fair Trade Organizations. Fair Trade is a trading partnership, based on dialogue,

transparency and respect that seek greater equity in international trade. It contributes

to sustainable development by offering better trading conditions to, and securing the

rights of, marginalized producers and workers – especially in the South (IFAT).

Logo

The logo of Aarong is an image of peacock. it is spectacularly beautiful because of the

brilliant, iridescent, diversified colorful pattern in its tail. The color of the peacock in

the logo is orange because it represents energy. By this logo Aarong communicates

that its products are as stunning and as unique as a peacock. Moreover it wants to

emphasize its natural, eco-friendly products through the emblem.

Artisans

Holding steadfast to its original mission, Aarong today supports the lives and

livelihoods of nearly sixty five thousand rural artisans and handicraft producers, 85%

of who are women. More than forty thousand of these women work directly for

Aarong in its 13 production centers in Baniachong, Gorpara, Jamalpur, Jessore,

Kushtia, Manikganj, Rajbari, Sherpur, and Pabna, Pollobi, Kurigram, Nilphamary,

Jhenaidah and 653 subcentres spread across Bangladesh.

Twenty five thousand independent cooperative groups and traditional family-based

artisans also market their crafts through Aarong. Potters, Brass Workers, Jewelers,


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Jute workers, Basket Weavers, Handloom Weavers, Silk Weavers, Wood Carvers,

Leather workers and various artisans with specialized skills from all over the country

come to Aarong for marketing and support services

Aarong Production Centre

The Ayesha Abed Foundation (AAF) is an organization that aims to provide avenues

for employment and income generation for underprivileged rural women. It is an

enclave for women, formed to uplift them economically, through their work as

producers, and also socially, through their development into entrepreneurs. The

Foundation provides an appropriate working environment, financial and technical

assistance, and training to develop the women’s skills in various crafts. The

Foundation was established to commemorate the memory and work of late Mrs.

Ayesha Abed, a co-worker and wife of the Founder and Chairperson of BRAC. The

work that is done in the Foundation is a testament to her commitment to the issues of

education, training and employment opportunities for disadvantaged women. It was

she who in 1976 initiated all the present major activities of AAF in Manikgonj.

The AAF aims to work with the most underprivileged women in the society. These

women are often the most neglected and are in need of much assistance and support.

The AAF plays the role of a facilitator. The women are placed in an enabling

environment, with other women of similar socio-economic backgrounds. They are

trained and then given the opportunity to generate income. One of the major

challenges that these women have to face is that they are marginalized and they, on

their own, have no way of becoming part of the economic system. This is where the

AAF steps in, helping such marginalized women out of their peripheral existence in

society, and giving them the opportunity to become involved in sustainable enterprise.

The AAF is closely interrelated with other programs, especially BRAC Development

Program (BDP) and Aarong. The women workers of the AAF come from the BDP

organized Village Organizations. Working at the AAF thus gives the women access to

other BRAC programs. All of the AAF’s finished products are sold through Aarong,

which additionally provides designs, raw materials and financial support to the AAF.

Since AAF supplies exclusively to Aarong, it is treated as Aarong Production Centers.


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2.3 Company profile’s in short

Company Name Aarong

Chairman Sir Fazle Hasan Abed

Sr. Executive Director Tamara Hasan Abed

COO Md. Abdur Rouf

GM ( Finance & Accounts) Manik Kumar Sarkar,ACA

DGM (HR) Nisbat Anwar

GM (Admin & Procurement) Major (rtd) Mohammad Ashraful Alam

Product Fashion Products.

Total Employee Almost 10,000.

Head office Aarong Center, 346 Tejgaon I/A, Dhaka.

2.2 Company profile’s in short


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2.4 Organizational Structure

Management of Aarong is excellent. Every step of management is most responsible &

committed as well. Here I mentioned management structured of Aarong.

Senior Director

COO

GM (Retail)

Shop Manager

Floor Manager

Supervisor

2.5 KFC, Chittagong-At a glance

Continuous improvement of existing enterprise’s operations as well as constant

pursuit for new branches with contemporary business opportunities at home plus

abroad as well as Organizational growth through diversification and quality

management has become the core of business philosophy of Aarong. Aarong has

Emphasizes on business ethics for full customer’s satisfaction through world-class

and quality goods and service. Quality is the trademarks of everything it does. Its

efficient human resources are trying to maintain the quality, standard and customer’s

satisfaction through research and development. They always work together with

2.3 Organizational Structure

2.4 Business Philosophy & Ethics


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customers to understand their changing needs and requirements with innovative

products that are affordable to the supreme number of the people.

2.7 Corporate Objectives & Values

Mission:

Be the best socially responsible enterprise empowering people to realize their

potential by creating appeal for a Bangladeshi lifestyle experience.

Vision:

Customers:

• By 2014, 5 Million customers to be served of which 10% through e-

commerce.

• Open 8 new outlets all over Bangladesh including Dhaka by 2015.

• 90% satisfaction rating in customer service index.

Employees:

• Seen as the employer of choice having a dedication, trained & motivated

professional team.

• Having a effective performance management system in place that justly

rewards performances on the basis of values, skills, and abilities.

Society:

• We are viewed as a socially responsible enterprise providing equal opportunity

development and having respect for the environment.

2.5 Corporate Objectives & Values


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• Standing as a symbol of pride for Bangladeshi heritage and culture.

Shareholders:

• 100% increase in revenue generated for BRAC.

• Profit percentage will increase by cost control.

• BRAC to showcase Aarong as a model of successful social enterprise that

maximizes benefit for all stakeholders.

Supplies:

• Suppliers will expect steady and growing business

• All suppliers will be treated fairly and professionally.

Producers:

• 500 producers supported to become socially compliant model

producers/entrepreneurs employing 25000 artisans.

• Create producer categories and develop need based central service functions

catering to individual categories.

Artisans:

• Ensure that all artisans get maximum benefit from BRAC (Health, sanitation,

legal aid, children education, financial support.)

• By 2014, all artisans will know that Aarong’s core mission is to empower

them in realizing their potential.

• Artisans and their children will seek to preserve Bangladeshi craft tradition

through Aarong (50%).

Our Values:

• Being Visionary


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• Ownership

• Integrity

• Continuous Improvement

• Empathy

� Being Visionary:

Leading the way in setting standards in our industry & community

1. We are creative and innovative.

2. We believe that our strength lies in being socially and environmentally

responsible.

3. We are actively taking care of today & preparing for tomorrow.

Personality Traits:

• Innovative

• Pioneering

• Courageous

� Ownership:

Taking personal responsibility for the organization’s success.

1. We have passion and pride in what we do.

2. We put ‘We’ before ‘I’

3. We care for all our assets which include people and our brand.

Personality Trait:

• Responsible

• Passionate


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� Integrity:

We always try to do the right thing.

1. We do as we say and say as we do.

2. We are not afraid to admit mistakes

3. We are honest and trustworthy

Personality Traits:

• Authentic

• Trustworthy

• Transparent.

� Continuous Improvement:

Facilitating the learning of all our members and consciously transforming ourselves to

achieve our goals

1. We are committed to continuously improving all aspects of ourselves, our

organization and those we serve.

2. We share our ideas, information, knowledge & experience.

3. We learn from our mistake

Personality Traits:

• Team Player

• Proactive

• Open

� Empathy:

Spontaneously and naturally tuning into other’s thoughts and feelings understand their

point of view


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1. We are willing to listen and to understand others’ point of view

2. We value our own time while respecting that of others.

Personality Traits:

• Respectful

• Sensitive

• Caring

Holding the steadfast to its original Mission, Aarong today supports the lives and

livelihoods of thousands of rural artisans and handicraft producers. These producers

and artisans create wide range of products for the different types of consumers in home

and abroad. The products are unique and traditional and appealing to the modern

consumers, staring from clothes, accessories to home wares. Aarong designs and

creates clothes for women, men and children. There are designers and more than 3000

weavers across the country are involved with the production of Aarong clothing lines.

And for the fashionable accessories there is one special department called jewelry

department where jeweler creates elegant jewelries that are contemporary yet

traditional using gold, silver and jewels like pearl, emerald and diamonds. The other

accessories like bag, sandals and produced in AAF centers using leather, jute, bamboo

etc. In home ware and decorative Aarong produces pottery vases and sculpture of

wood, bamboo, brass and clay etc.

For exporting the products Aarong has a separate department in head office and very

selective artisans work here to produce fine quality products and these are sent to the

production centers as sample of the exporting products. Here is the list of products

Aarong produces:

2.6 Products of Aarong


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Cloths & Accessories:

Men’s Products:

1.Panjabee

2.Executive Shirt

3.Lungi

4.Fotua

5.Short Kurta

6.T-Shirt

7.Sandal

WOMEN'S PRODUCTS :

1.Salwar-Kameez

2.Sharee

3.Nightwear

4.Bag

5.Fabrics

6.Shawls

7. Taaga

CHILDREN'S PRODUCTS :

1.Cloths

2.Toys

3.Books

4.Shoes

JEWELLARY PRODUCTS : 1.Gold

2.Silver

3.Diamond

4.Pearl

5.Fashion Jewellary


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LEATHER PRODUCTS : 1.Shoes

2.Bags/Wallets

3.Belts

4.Boxes

5.Photo Frames

NAKSHI

KANTHA PRODUCTS :

1.Decorative

2.Wall Hangings

3.Christmas Decorations

Along with the clothes, accessories and home ware Aarong also produces food

products like milk, flavored milk (mango & chocolate) juices (mango & tamarind),

yogurt drinks (orange, strawberry), curd (sweet & sour), butter and honey. And herbal

skincare products like soaps, shampoo, oil and face pack etc.

Home Wares & Furniture:

HOME ACCESSORIES:

1. Curtain

2. Bed cover & cushions

3. Rugs

4. Table Lamps

5. Photo Frames

6. Coasters


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7. Napkin Rings

8. Mats

9. Trays

10. Cutlery

11. Bowls and Platters

12. Photo Frames

13. Bookends

14. Boxes

15. Hammocks

16. Plant Accessories

17. Candles

SWOT analysis is a powerful technique for understanding organizations Strength &

Weakness and looking for the Opportunities & Threats it may face. Used in a business

context it helps organization carve a sustainable niche in a market. This analysis is

mainly based on an imaginary situation.

SWOT Analysis of Aarong.

2.7 SWOT Analysis of Aarong


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Strength

� Brand Name

� Market leadership

� Customer loyalty

� Sales

� Product quality

� Production centers

Weakness

� Similar design

� Limited R& D

� Limited outlet

� High Price

Opportunity

� New distribution channel

� New market segment

� Seasonal fashion influence

� Innovation

Threats

� Competitors

� Price competing

Strength

Aarong is a very reputed organization. They are now capturing 68% of total

handicraft market share in Bangladesh. It’s a local brand and now exporting their

products outside of the country. Aarong has good reputation for fine quality products.

It has a strong management team who are continuously giving their great effort to

make it a successful one. Another important fact is that, Aarong has almost “Zero”

production damage rate which reduces their cost. They are innovative and always


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bring some new product in the market which meets customer requirement and

expectations. The organization is a respected employer that values its workforce.

Weakness

Aarong has a reputation for new product development and creativity. However, they

remain vulnerable to the possibility that their producer may not be able to produce

product timely due to their inability. The collection channel of the organization is not

that much structured so that they can get the products from the producer on time and it

may create problem for them in future. If any producer is not able to make the product

on time due to some personnel problem then the company will also not be able to

deliver their product on time. This is a big problem and it happens most of the time on

delivery. Aarong charges higher price relatively than their other competitors as a

result sometimes customers lose their interest to by product from them. Its sales force

or sales girls within the outlet are not properly trained up. Sometimes they make

customers disappointed by their attitude and customer doesn’t feel good to buy from

there. Sometimes they suffer for financial problem, although it’s a rare situation.

Opportunities

Aarong is very good at capturing the advantage of opportunities. It can go for new

distribution channel like it can make some joint venture with some other small

Boutique and sales its products in more places. Through that it can capture more

market share in the handicraft industry in Bangladesh. Aarong can expand its

business globally. New market for handicraft such as Europe and America are

beginning to emerge. People are now trendier about local events & functions like

Pahela Falgun, Pahela Baisakh, Victory day, Independence Day etc and they buy new

and special products for these events. Aarong can make new products to sell in those

special occasions. According to the season change, people are also changing their

preference in buying products and considering this scenario Aarong can produce

products on the basis of seasonal variations.


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Threats

Aarong doesn’t have any big competitors right now. But they have some small

competitors like KayKraft, Anjans, Deshal, Jattra, Khubsurti, Rina Latif, OZ, Rang

and some other Boutiques established at Banani 11, who are taking their 32%

customer and increasing in a slow rate. Aarong always face price wars with their

competitors. Its competitors have some superior products like OG’s Panjabi shape,

Khubsurti’s design of Salwar kamiz Rang’s Shari’s color, which is decreasing

Aarongs market share as well as sales. But now they are repositioning their Brand to

compete with them.


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CHAPTER-3

Theoretical Aspects of Financial Analysis


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Analysis is the process of critically examining in detail accounting information given in the

financial statement. For the purpose of analysis, individual items are studied; their

relationship with other related figures established, sometimes rearranged to have better

understanding of the information with help of different techniques or tools for the purpose.

Analyzing financial statement is a process of evaluating relationship between component

parts of financial statement to obtain a better understanding of position and performance.

Financial statement analysis is largely a study of relationship among the various financial

factors in a business as disclosed by a single set of statements and a study of the trend of

these factors as shown in a series of statements. The analysis of financial statements thus

refers to the treatment of the information contained in the financial statement in a way so as

to afford to full diagnosis of the profitability and financial position of the firm concerned. For

this purpose financial statements are classified methodically, analyzed and compared with the

figures of previous years or other similar organizations.

The income statement, often called the statement of income or statement of earnings, is

the report that measures the success of enterprise operations for a given period of time.

The business and investment community use this report to determine profitability,

investment value and credit worthiness. It provides investors and creditors with information

that helps them predict the amounts, timing and uncertainty of future cash flows.

3.1 Financial Statement Analysis

3.1.1 Income Statement


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The balance sheet sometimes referred to as the statement of financial position, reports the

assets, liabilities and shareholders’ equity of a business enterprise at a specified date. The

financial statement provides information about the nature and amounts of investments in

enterprise resources, obligation to creditors and the owners’ equity in net resources. It

therefore helps in predicting the amounts, timing and uncertainty of future cash flows.

In short, the main objectives of analysis of financial statements are to assess: the present and

future earnings capacity or profitability of the concerns, the operational efficiency of the

concern as a whole and of its various parts or departments, the short-term and long-term

solvency of the concern for the benefit of the debenture holders and trade creditors, the

comparative study in regard to one firm with another firm or one department with another

department, the possibility of developments in the future by making forecasts and preparing

budgets, the financial stability of a business concern, the real meaning and significance of

financial data.

A tool used by analysts which utilizes the relationship between accounting figures and their

trends over time to establish values and evaluate risks. Ratio analysis provides analyst with

useful information understand about developing insights into the economic characteristics of

different industries and different firms in the same economic additional different over time in

a single firm or between firms due to operation, financing and investing decision made by

management as well as external economic factor are often highlighted by common-side

statement.

3.1.2 Balance Sheet

3.2 Objective of Financial Analysis

3.3 Ratio Analysis


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A primary advantage of ratios is that they can be used to compare the risk and return

relationships of firms of different sizes. Ratios can also provide a profile of a firm, its

economic characteristics and competitive strategies and its unique operating, financial and

investment characteristics. In addition ratios are very informative for both the insiders and

outsiders of the firm. Ratio analysis expresses the relationship among selected financial

statement data. The relationship is expressed in terms of a percentage, a rate or a simple

proportion.

Activity or management performance ratio

These ratio measure the speed with which various account are converted into sales or cash-

inflow or outflow

� Inventory Turnover Ratio: Inventory turnover is the ratio of cost of goods sold by a

business to its average inventory during a given accounting period. It is an activity

ratio measuring the number of times per period; a business sells and replaces its entire

batch of inventory again.

Inventory turnover ratio=Cost of Sales during the year/Inventory

� Fixed assets turnover ratio: The fixed assets turnover ratio measure the efficiency,

with which the firm has been using its fixed or earning, assets to generate more

export. Generally higher fixed assets turnover are preferred since they reflect greater

efficiency of fixed assets utilization.

Fixed asset turnover ratio=Net Sale /Net Assets

� Total assets turnover ratio: Total assets turnover ratio is used to determine how

much sales revenue a company generates from its investment in assets. This measure

is probably of greatest interest to management, since it indicates whether the firm’s

3.3.1 Purpose and Use of Ratio Analysis

3.3.2 Major Types of Ratio


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Operation has been financially efficient. Generally the higher a firm’s total assets

turnover, the more efficiently its assets have been used.

Total assets turnover = Net sales / Total assets

Liquidity ratios

Liquidity ratio measures the short-term ability of the enterprise to pay its maturing obligation

& to meet unexpected needs for cash. In this report the current ratio & the quick ratio are

used to analyze the company short-term debt paying ability. Following liquidity ratio used in

this study to measure the liquid efficiency.

� Current Ratio: The current ratio is an indicated of a factory market liquidity &

ability to meet short-term debt obligation.

Current Ratio= Current Assets / Current Liabilities

� Quick Ratio: This ratio includes the quick assets that can be easily converted into cash.

It measures the liquidity position in more conservative way.

Quick ratio = (Current Assets-Inventory)/ Current Liabilities

� Cash Ratio: A measure of short-term solvency or liquidity.

Cash Ratio= Cash/ Current Liabilities

� Net Working Capital to Total Asset Ratio: Net Working Capital to Total Asset ratio

is a liquidity ratio that expresses the net current assets or working capital of a

company as a percentage of its total assets.

Net Working Capital to Total Asset Ratio = Net Working Capital/Total Assets

Profitability ratios

Profitability ratios reveal the relationship between revenue & cost generated by using the

firm’s asset-both current & fixed in productive activity. The ratios are as follows:

� Gross Margin: Gross profit margin measures the percentage of each sales taka (TK)

remaining after the firm has paid for its goods. The higher the gross profit margin the

better and lower the relative cost of merchandise sold.


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Gross profit margin = Gross profit

Sales x100

� Profit Margin: It measures overall profit margin net of all expenses. Higher the ratio

represents better position.

Profit margin= Net profit/Sales during the year X 100

� Return on Assets (ROA): The Return on total asset (ROA) percentage shows s how

profitable a company’s assets are in generating revenue. This ratio measures the

overall effectiveness of management in generating profits with its available assets.

Return on total asset (ROA) =Net Income/Total Assets

� Return on Equity (ROE): Return on equity (ROE) can be seen as a measure of how

well a company used reinvested earning to generate additional earning, equal to a

fiscal year after tax income divided by total equity, expressed as a percentage.

Generally the higher this return, the better off is the owner.

Return on Equity (ROE): =Net Income/Total Equity

� Return on Investment (ROI): A performance measure used to evaluate the

efficiency of an investment or to compare the efficiency of a number of different

investments. To calculate ROI, the benefit (return) of an investment is divided by the

cost of the investment; the result is expressed as a percentage or a ratio.

Return on Investment (ROI): =Net profit/Average Asset.

Long Term Solvency Measure Ratio

It measures the ability of the company to survive over a long period of time. The ratios are as

follows:

� Total Debt Ratio=(Total Assets-Total Liabilities)/Total Assets

� Debt-Equity Ratio=Total Debt/Total Equity

� Equity Multiplier=Total Assets/Total Equity

� Long Term Debt Ratio=Long Term Debt/(Long Term Debt +Total Equity)

� Times Interest Earned=EBIT/Interest

� Cash Coverage Ratio=(EBIT + Depreciation)/ Interest


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CHAPTER-4

Financial Performance of Aarong


Page 30

4.1 Activity Analysis (Short term)

Aarong always tries to turn their production into cash or sales as fast as possible because

this will generally lead to higher revenues. Activity ratios measure how efficiently a

company performs day-to-day tasks, such as the payment of payable and management of

inventory. Aarong Activity Ratios are as follows:

Inventory turnover ratio measures the efficiency of managing inventory in an

organization. Higher ratio indicates better position of inventory. It means inventory does

not remain in store. This ratio measures how many times inventory turned over in a year.

The operation of a firm starts with purchasing of raw materials and go through

production process and production of finished goods. After completion of production

process finished goods are sold. This entire process is called inventory turnover. This

ratio decreased in 2013 which is almost 12.59% lower than the year 2012 and almost

30.41% lower than the year 2010.It indicates that during those periods inventory

management of the company became inefficient. The ratio was higher in 2010 which was

1.94 and then it gradually decreasing over years.

Inventory turnover ratio=Cost of Sales during the year/Average Inventory

RATIO FORMULA 2010 Ratio 2011 Ratio 2012 Ratio 2013 Ratio

Stock Turnover

Net Sale 2,644,345,985

1.94

2,644,345,985

1.40

2,974,712,117

1.52

2,952,158,825

1.35

Average Stock 1,362,703,594 1,882,228,174 1,957,926,569 2,184,809,482

4.1 Activity Ratio Analysis

4.1.1 Inventory Turnover Ratio


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Figure: Inventory turnover ratio

Comment:

From the above figure we can see that inventory turnover ratio of Aarong is decreasing

gradually that indicates inventory remain in stock for long time

This ratio measures that, how efficiently firm manages its fixed asset and higher ratio indicates

efficiency of firm. The ratio is gradually increased over the years. This ratio increased in 2013

which is almost 20.15% higher than the year 2012 and almost 91.12% higher than the year

2010.It indicates that during those periods Aarong efficiently managed its fixed assets. The

ratio was lowest in 2011 which was 4.89 and then it gradually increasing over years.

Fixed asset turnover ratio=Net Sale /Fixed Assets


Fixed Asset Turnover

Sales 3,397,341,505 4.96

4,150,032,990 4.89

4,529,861,669 7.89

4,748,618,174 9.48

Fixed Asset 685,488,281 847,968,815 574,175,480 500,877,174

4.1.2 Fixed asset turnover ratio


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Figure: Fixed Asset Turnover Ratio

Comment:

From the above figure we can see that fixed asset turnover ratio in increasing rapidly

which indicates Aarong is using its fixed assets efficiently

This ratio measures that, how efficiently firm manages its total asset and lower ratio indicates

inefficiency of firm. The ratio is gradually decreasing over the years. This ratio is higher in

2011 which is almost 13.38% higher than the year 2013.After then it’s gradually decreased

and in 2013 the ratio come down to 1.42 which is almost 11.80% lower than the year 2011.

It indicates that during those periods Aarong was not efficient managed its total assets.

Total asset turnover = Net sales / Total assets

4.1.3 Total assets turnover


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Total Asset Turnover

Sales 3,397,341,505

1.56

4,150,032,990

1.61

4,529,861,669

1.51

4,748,618,174

1.42

Total Asset 2,178,806,144 2,573,584,710 2,994,215,856 3,343,872,537

Total Asset Turnover Chart

1.56

1.61

1.51

1.42

1.30

1.35

1.40

1.45

1.50

1.55

1.60

1.65

2010 2011 2012 2013No. of Years

Ratio

Figure: Total assets turnover ratio

Comment:

By analyzing above graph we see that Total Asset Turnover ratio is little bit unstable, in 2013 this

ratio decreased from 2012.


Page 34

Liquidity ratio measures the short-term ability of the enterprise to pay its maturing obligation

& to meet unexpected needs for cash. In this report the current ratio & the quick ratio are

used to analyze the company short-term debt paying ability. Following liquidity ratio used in

this study to measure the liquid efficiency.

4.3.1 Current Ratio

This ratio measures that how much current asset is available to pay out the current liabilities

of company. Higher ratio indicates good liquidity position. Aarong's current ratio is in

increasing position from the year 2011 which is still carry on. This ratio is higher in 2013

which is almost 4.49% higher than the year 2012.

Current ratio = Current Asset/Current Liability


Current Ratio

Current Asset 1,493,317,863 0.75

1,726,615,895 0.73

2,420,040,376 0.89

2,865,013,637 0.93

Current Liabilities 1,989,504,065 2,357,420,934 2,726,106,007 3,069,741,770

4.2 Liquidity Ratio

4.2.1 Current Ratio


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Figure: Current Ratio

Comment:

From the above graph we see that current ratio of the company is in a satisfactory position.

This ratio includes the quick assets that can be easily converted into cash. It measures the

liquidity position in more conservative way. In 2011 the quick ratio was 0.16. In 2012 it’s

increased to 0.17. Then in 2013 it was drop to 0.08.

Quick ratio = (Current assets – Inventories)/Current liabilities


Acid Test Ratio

Current Asset-(closing stock + prepaid Exp.)

417,224,575 0.21

376,670,456 0.16

470,306,571 0.17

254,107,330 0.08

1,989,504,065 2,357,420,934 2,726,106,007 3,069,741,770

Current Liabilities

4.2.2 Quick Ratio


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Figure: Quick Ratio

Acid Test Ratio Chart

0.21

0.160.17

0.08

0.00

0.05

0.10

0.15

0.20

0.25

2010 2011 2012 2013No. of Years

Ratio

Comment:

From the above graph we see that Aarong is always capable of paying its debt without any

stress.

The most conservative measure of liquidity position is cash ratio. In year 2010 the ratio was

0.06 and it improves to 0.07 in 2011. After that the ratio is constant on 0.05 in the year 2012

& 2013 which indicates stable liquidity position and Aarong can pay its short term debt in

cash

Cash ratio = Cash and cash equivalents / Current Liabilities


Cash Ratio Cash 126,201,916

0.06 159,901,428

0.07 129,524,735

0.05 141,288,224

0.05

Current Libilities 1,989,504,065 2,357,420,934 2,726,106,007 3,069,741,770

4.2.3 Cash Ratio


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Figure: Cash Ratio

Comment:

Cash ratio should always be less than 1. From the above figure we can say that Aarong’s

Performance is satisfactory.

A variation of the traditional debt-to-equity ratio and Debt to total capital ratio, these values

compute the proportion of Aarong’s long-term debt compared to its available capital. By

using these ratios, investors can identify the amount of leverage utilized by a specific

company and compare it to others to help analyze the company's risk exposure.

It measures the proportion of debt on total capital. This ratio shows that how much a firm is

dependent on external financing. But from the balance sheet we came to learn that Aarong

4.3 Long Term Debt Ratio

4.3.1 Debt to Capital Ratio


Page 38

was highly dependent on external financing in the year 2012 which make the company more

risky. But after that Aarong reduced its dependency on external debt. In the year 2013

Aarong reduced its dependency on debt almost 18.58% than the year 2012.

Debt to total capital ratio= Debt/Total Capital


Debt to Capital Ratio

Total Debt 236,593,470 13.38

273,891,894 12.95

340,589,824 13.88

321,106,435 11.30

Total Capital 1,768,808,040 2,115,525,452 2,453,646,213 2,840,788,935

Figure: Debt to Total Capital Ratio

Comment:

By analyzing above graph we say that Aarong’s dependency on external financing is

decreasing. Higher the ratio indicates higher the risk the risk for the company

4. 5 Profitability Ratio

Profitability ratio reveals the relationship between revenue & cost generated by using the

firm’s asset-both current & fixed in productive activity.

4.4 Profitability Ratio


Page 39

It shows the relationship between sales and Cost of goods sold. Higher the ratio is better.

Aarong has stable gross margin over four year period. In 2010 the Gross margin was 22.46%

and in 2012 it is 34.95% and in 2013 it is 38.38%. So Aarong is efficient to manage its'

direct expenses which leads to higher profit.

Gross margin=Gross profit/Sales during the year X 100


Gross Profit Ratio

Gross Profit X 100% 762,906,873 22.46

1,492,456,636 35.96

1,583,047,303 34.95

1,822,625,122 38.38

Sales 3,397,341,505 4,150,032,990 4,529,861,669 4,748,618,174

Gross Profit Ratio Chart

22.46

35.96 34.9538.38

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

45.00

2010 2011 2012 2013No. of Years

Ratio

Figure: Gross Margin

Comment:

From above figure we see that gross margin ratio of the company is increasing rapidly which

indicates Aarong is efficient to manage its direct expenses which leads to higher profit.

4.4.1 Gross Margin


Page 40

It measures overall profit margin net of all expenses. Higher the ratio represents better

position. Profit margin was 20.72% in year 2010. After that profit margin is decreased to

14.93% up to the year 2012. In the year 2013 profit margin rise to 16.31% which indicate

the improved position of Aarong in terms of profitability.

Profit margin= Net profit/Sales during the year X 100


Net Profit

Ratio

Net Profit X 100% 703,898,869

20.72

693,434,824

16.71

676,241,522

14.93

774,285,442

16.31

Sales 3,397,341,505 4,150,032,990 4,529,861,669 4,748,618,174

Net Profit Ratio Chart

20.72

16.7114.93 16.31

0.00

5.00

10.00

15.00

20.00

25.00

2010 2011 2012 2013No. of Years

Rate

Figure: Profit Margin

Comment:

By analyzing above figure we can say that profit margin of Aarong is increasing that increase

overall earnings of owner.

4.4.2 Profit Margin


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ROA measures the efficiency of firm to utilize its assets to generate revenue and return

available to the capital providers. Aarong ROA 22.58 in year 2012. But gradually ROA of

Aarong has increased to 23.16 at 2013 which indicates better performance of asset in recent

years. So capital providers also get higher return.

Return on Asset (ROA) = Net profit/Total asset


Return on Total Asset

Net Profit X 100% 703898869

32.31

693434824

26.94

676241522

22.58

774285442

23.16

Total Asset 2178806144 2573584710 2994215856 3343872537

Total Asset Return Chart

32.31

26.94

22.58 23.16

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

2010 2011 2012 2013No. of Years

Ratio

Figure: Return on Assets (ROA)

Comment

From above graph we see that ROA of the company is increasing which indicates

company can efficiently use its assets to generate revenue & return.

4.4.3 Return on Asset (ROA)


Page 42

Chapter-5

Summary & Conclusion


Page 43

The major findings of the study are as follows:-

� Inventory management of Aarong is not as efficient as inventory turnover ratio is

lower and it’s decreasing year by year.

� It is found that Aarong manages its fixed asset efficiently as fixed asset turnover has

been increasing year by year.

� Total asset turnover is found to be a bit flexible during last couple of years.

� The current ratio of Aarong increasing year by year that indicates higher ability

to pay current liabilities.

� The decreasing quick ratio of the company indicates that it can’t quickly convert its

quick asset into cash.

5.1 Summary of Findings


Page 44

� Debt to equity ratio & debt to capital ratio of Aarong indicates in recent year

Aarong’s dependency on external financing decrease.

� Gross margin ratio of Aarong indicates its efficiency to manage its direct expense which

leads to higher profit.

� By analyzing Return on Asset (ROA) of Aarong we can say that it utilized its assets in

recent year more efficiently.

Based on the findings of the study, the following suggestions are given for the betterment of the

company:

1. Company should give attention to utilize its total assets more efficiently. To

utilize total assets more efficiently company should increase its volume of

sales.

2. The company should use its current assets and its short term financing facilities

more efficiently.

5.2 Recommendations


Page 45

3. The company should reduce their dependency on external financing to run

business, the company should find other such as owner, relatives & from capital

market. Close attention should also give to debt management.

4. The company should give attention to maintain & increase its current profit

margin to survive in the competitive market. To increase profit margin, company

should try to increase net income & Aarong can do this by increasing sales volume

& reducing costs.

Financial performance analysis is helpful in assessing the financial position and profitability of

a concern. This is done through comparison by ratios for the same concern over a period of years; or

for one concern against another; or for one concern against the company as a whole; or for one

concern against the predetermined standards; or for one department against other department for

the same concern. Accounting ratios calculated for a number of years show the trend help us in

making estimates for the future. The study of Financial Performance Analysis of Aarong has

revealed that the Liquidity ratio was as per the standard organizational practice, it also revealed

company's dependency decreased in external financing. The study has been conducted on ratio

analysis which helped the company to manage its assets, liabilities & equity capital more efficiently

and effectively.

5.3 Conclusion


Page 46

References

• Brigham, Eugene F., Houston, Joel F. (2007), "Fundamentals of Financial Management".

• Ross, S.A., Westerfield, R.W., Jordan, B.D. (2009), "Fundamentals of Corporate

Finance".

• brac (2009 -2013), Annual Financial Statement.

• Web Site of Aarong www.Aarong.com

• Web Site of brac www.brac.net

• Official Facebook page of Aarong www.facebook.com/aarong


Page 47

Appendix

Ratio Analysis of Aarong

(By Using Four Year’s Data)

Ratio 2010 2011 2012 2013

Current Ratio 0.75 0.73 0.89 0.93

Quick Ratio 0.21 0.16 0.17 0.08

Gross Profit Margin 22.46 35.96 34.95 38.38

Net Profit Margin 20.72 16.71 14.93 16.31

Stock Turnover 1.94 1.40 1.52 1.35

Operation Exp. Ratio 79.57 82.97 85.69 84.25

Return on Total Asset 32.31 26.94 22.58 23.16

Total Asset Turnover 1.56 1.61 1.51 1.42

Return on Investment 36.81 29.18 24.29 24.43

Debt to Capital Ratio 13.38 12.95 13.88 11.30

Fixed Asset Turnover 4.96 4.89 7.89 9.48

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