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Ethical And Unethical Business Practices Of Wal-Mart & Grameen Phone Ltd.

Introduction

Outright Fashion Limited, a private limited company, incorporated in 1991 with having its business in 100% export oriented RMG (both Knit and Woven) situated in 965, Shawrapara , Mirpur, Dhaka in its own six storied building within the industrial park of the groups own. Since its inception in 1991, it gradually expanded to present status having more than 2200 sewing machine with more than 55 production line. Annual Turnover of the company is more than 142 crore taka in 2007.

COMPARATIVE STATEMENT ON EXPORT OF RMG AND TOTAL EXPORT

YEAR EXPORT OF RMG(IN MILLION US$)

TOTAL EXPORT OF BANGLADESH (IN MILLION US$)

% OF RMG'S TO TOTAL EXPORT

1983-84 31.57 811.00 3.891984-85 116.2 934.43 12.442003-2004  4912.09 6548.44 75.012004-2005 5686.09 7602.99 74.792005-2006  6417.67 8654.52 74.152006-2007 7900.80 10526.16 75.06

  2007-2008(Dec) 4730.36 6220.61 76.04

From the above table we can assume the importance of RMG sector in our total export earning. RMG sector become the most important sector in Bangladesh even in Quota free world Market. Competitive Wages, Quality products and Compliances make Bangladeshi Garment Industries viable though there are number of difficulties. Bank finance plays an important role to expand this sector to its present condition. However, there are still many miles to go and this industry needs more and more investment from Financial Institutions as well as from own sources of the sponsors.

This is why we have chosen a firm in RMG sector to be analyzed with concentration on Common Size analysis, Ratio & Trend Analysis for healthiness of the firm to meet its financial obligations with its assets. Financial analysis is a process which involves reclassification and summarization of information through the establishment of ratios and trends.Analysis of financial statement refers to the examination of the statements for the purpose of acquiring additional information regarding the activities of the business.

For our purpose we have used the following financial statements of Outright Fashion Limited. These financial statements are audited ones.

Income Statement of OFL:

INCOME STATEMENT      FYE 31.12.2005 31.12.2006 31.12.2007Income Statement Actual Actual Actual

Amountin (000) Taka

in (000) Taka

in (000) Taka

Gross sales 1,317,271 1,392,230 1,424,119Less:VAT 0 0 0Net Sales 1,317,271 1,392,230 1,424,119Total Sales Revenue 1,317,271 1,392,230 1,424,119Less :Cost of Goods Sold 1,184,724 1,291,664 1,283,879GROSS PROFIT/REVENUE 132,547 100,566 140,240Less: Selling. Gen. & Admin. Expenses 30,151 29,810 42,392TOTAL OPERATING PROFIT (EBITD) 102,396 70,756 97,848Less: Depreciation 30,388 31,285 43,525Less: Interest Expense 25,656 24,642 47,489PROFIT BEFORE TAXES & EXTR ITEM 46,352 14,829 6,834Add: Other Income 353 0 0Income Taxes 1,144 2,448 3,560NET PROFIT 45,561 12,381 3,274

Balance Sheet of OFL:

FYE 31.12.2005 31.12.2006 31.12.2007B/S Actual Actual Actual

Amountin (000) Taka

in (000) Taka

in (000) Taka

CURRENT ASSETS      Cash/Bank Balances 1,025 -89 2,353Acc. Receivables-Trade 229,052 271,629 202,230Accounts Receivable - Others 353 0 0Advance deposit & prepayments 6,078 10,422 28,995Inventory 174,660 181,669 225,977TOTAL CURRENT ASSETS 411,168 463,631 459,555FIXED ASSETS      Gross Fixed Assets 522,446 672,444 847,233Less: Depreciation 165,145 196,430 239,932NET FIXED ASSETS 357,301 476,014 607,301NON-CURRENT ASSETS      Machinery under installation 1,416 99,066 29,784Building under construction 0 52,751 15,290Long term security deposits 3,083 4,757 7,732others 2,352 2,352 2,352TOTAL NON-CURRENT ASSETS 364,152 634,940 662,459TOTAL ASSETS 775,320 1,098,571 1,122,014

Short Term Bank Borrowings 74,643 139,052 170,115Current Funded Portion of Term Debt (CMLTD) 25,478 16,954 41,746Accounts Payable 244,856 263,519 247,644Other Payables 30,648 69,134 50,311Proposed Dividend 28,268 0 0Others 10,216 9,709 12,993TOTAL CURRENT LIABILITIES 414,109 498,368 522,809LONG TERM LIABILITIES      Term Loan 13,809 142,188 105,323Defered L/C Liability 0 45,622 28,996TOTAL LIABILITIES 427,918 686,178 657,128NET WORTH      Paid up Capital 282,680 282,680 282,680Directors Loan(subordinated) 0 49,782 110,729Retained Earnings 20,949 36,158 27,704Tax Holiday Reserve 43,773 43,773 43,773NET WORTH 347,402 412,393 464,886TOTAL LIABILITIES & NET WORTH 775,320 1,098,571 1,122,014

Ratio Analysis

A tool used by individuals to conduct a quantitative analysis of information in a company's financial statements. Ratios are calculated from current year numbers and are then compared to previous years, other companies, the industry, or even the economy to judge the performance of the company. Ratio analysis is predominately used by proponents of fundamental analysis.Financial ratio analysis is a fascinating topic to study because it can teach us so much about accounts and businesses. When we use ratio analysis we can work out how profitable a business is, we can tell if it has enough money to pay its bills and we can even tell whether its shareholders should be happy!Ratio analysis can also help us to check whether a business is doing better this year than it was last year; and it can tell us if our business is doing better or worse than other businesses doing and selling the same things.In addition to ratio analysis being part of an accounting and business studies syllabus, it is a very useful thing to know anyway!One of the ways in which financial statements can be put to work is through ratio analysis. Ratios are simply one number divided by another; as such they may or not be meaningful. In finance, ratios are usually two financial statement items that may be related to one another and may provide the prudent user a good deal of information. Of the myriad of ratios that could be generated, some will be more meaningful than others. Generally ratios are divided into the following gross categories:

1. Growth Ratios: Gross Sales/Revenues Growth, Net Sales/Revenue Growth, Net Income Growth, Net Asset Growth, Net Liability Growth, Net Worth Growth etc.

2. Profitability Ratios: includes various profit margin, expenditure percentage regarding to sales, ROA, ROE etc. Profitability indicates the efficiency with which manages resources.

3. Coverage Ratios: Interest Coverage Ratio, Debt-Service Coverage Ratio. These ratios indicates the firms ability to pay interest/financial costs

4. Activity Ratios: Receivables, Payables, Inventory & Asset Turnover Ratios along with in days. These Ratios indicate how effectively the firm manages resources at its disposal to generate sales.

5. Liquidity Ratios: Current and Quick Ratio. Liquidity ratios indicate the firm's ability to meet it maturing short-term obligations.

6. Leverage Ratios: Debt to equity, Debt to Total Asset, Total Capitalization etc.

This indicates the extent to which the firm is financed by debt.Remember, ratios are just one number divided by another and as such really don't mean much. The trick is in the way ratios are analyzed and used by the decision maker. A good strategy is to compare the ratios to some sort of benchmark, such as industry averages or to what a company has done in the past, or both.Analysis of Ratios: Once ratios are calculated, an analyst needs some benchmarks to find out where the company stands at that particular point. Useful benchmarks are industry comparisons and company trends.It may be useful to compare a company to certain industry averages to get a feel for how the company is performing. In that case it is necessary to obtain industry performance measures. There are a number of sources for industry figures.

Commercial Sources – A number of companies publish information on industry comparisons. Among these sources are private credit reporting agencies such as Dun & Bradstreet and Robert Morris & Associates. Rating agencies such as Moody's and Standard & Poor's also provide industry information.

Government Sources – There are a number of government sources of helpful industry information, such as the U.S. Industrial Outlook and Quarterly Financial Reports.

Trade Associations – Many industries have trade associations or industry groups that regularly publish information for and about members.

The industry averages is difficult to collect in Bangladesh. However we have used another company’s (in the same line of business) ratios as industry average.

Financial Ratios of OFL:

FINANCIAL RATIOS 31.12.2005 31.12.2006 31.12.2007  % % %GROWTH RATIOS:      Sales Growth, Sales% N/A 5.69 2.29Net Sales Growth, Composite % N/A 5.69 2.29Net Income Growth, % N/A -72.83 -73.56Total Assets Growth, % N/A 41.69 2.13Total Liabilities Growth, % N/A 60.35 -4.23Net Worth Growth, % N/A 18.71 12.73

PROFITABILITY RATIOS:      Gross Margin, Composite % 10.06 7.22 9.85SG & A, % 2.29 2.14 2.14Cushion (Gross Margin - SG&A), % 7.77 5.08 6.87Depreciation, Amortization, % 2.31 2.25 3.06Operating Profit Margin, % 7.77 5.08 6.87Interest Expense, % 1.95 1.77 3.33Operating Margin, % 3.52 1.07 0.48Net Margin, % 3.46 0.89 0.23Return on Assets, % 5.88 1.13 0.29Return on Equity, % 13.11 3.00 0.70COVERAGE RATIOS:      Interest Coverage (EBIT/Total Interest) 2.81 1.6 1.14Debt Ser. Coverage(EBITDA/Total Interest +CMLTD) 1.49 1.7 1.1ACTIVITY RATIOS:      Receivables in Days 63 71 52Payables in Days 75 74 70Inventory in Days 54 51 64Sales/Total Assets (X) 1.7 1.3 1.3LIQUIDITY RATIOS:      Working Capital -2,941 -34,737 -63,254Quick Ratio (X) 0.56 0.54 0.39Current Ratio (X) 0.99 0.93 0.88Sales/ Net Working Capital (X) -447.9 -40.08 -22.51LEVERAGE RATIOS:      Total Liabilities/ Net Worth (X) 1.23 1.66 1.41Affiliate Exposure/Net Worth (%) 0.4 24 6.4Total Liabilities/(Net Worth-Affiliates) (X) 1.24 2.19 1.51

Trend Analysis

The Term Trend Analysis can be deifined as a comparative analysis of a company's financial ratios over time. The term "trend analysis" refers to the concept of collecting information and attempting to spot a pattern, or trend, in the information. In some fields of study, the term "trend analysis" has more formally-defined meanings.Although trend analysis is often used to predict future events, it could be used to estimate uncertain events in the past.Specifically this ananlysis is done to take future investment decisions , to take a overveiew on the firms financial strength. Practically Trend Analysis and Ratio Analysis is closely related and often analyzed together. For Trend analysis, Ratio analysis is a prerequisite.

Liquidity Ratios: Trend Analysis  2005 2006 2007Current Ratio 0.99 0.93 0.88

Quick Ratio 0.56 0.54 0.39

Comparison with industry average: Current Ratio

  2005 2006 2007OFL 0.99 0.93 0.88Industry Average 1.70 1.75 1.80

Comparison with industry average: Quick Ratio

  2005 2006 2007OFL 0.56 0.54 0.39Industry 0.85 0.90 0.90

Comparison with Industry: Current Ratio

00.20.40.60.8

11.21.41.61.8

2

2005 2006 2007

Year

Current Ratio

OFL

Industry Average

Liquidity Ratios: Trend Analysis

0

0.5

1

1.5

2005 2006 2007

Year

Ratio Current Ratio

Quick Ratio

Trend Analysis: Liquidity

00.20.40.60.8

11.2

2005 2006 2007

Year

Current RatioQuick Ratio

Comment on the trend analysis of Liquidity Ratios:

The Current ratio of Outright Fashion Limited has been reduced slightly over the years whereas the industry average shows a upward trend. At the same time the Quick Ratio/Acid Test Ratio of OFL decreased sharply whereas that of industry average shows a stable condition.

Hence we can conclude that inventory management is a significant problem for OFL.

Profitability Ratios: Trend Analysis

  2005 2006 2007Gross Margin, Composite % 10.06 7.22 9.85Operating Profit Margin, % 7.77 5.08 6.87Net Margin, % 3.46 0.89 0.23Return on Assets, % 5.88 1.13 0.29Return on Equity, % 13.11 3.00 0.70

Comparison with industry: Quick Ratio

00.10.20.30.40.50.60.70.80.9

1

2005 2006 2007

Year

Quick Ratio

OFL

Industry

Trend Analysis: Profitability Ratios

0

24

68

1012

14

2005 2006 2007

Year

Ratio

Gross Margin, Composite %

Operating Profit Margin, %

Net Margin, %

Return on Assets, %

Return on Equity, %

Comparison with industry average: Operating Profit Margin  2005 2006 2007OFL 7.77 5.08 6.87Industry 15.00 12.00 11.00

Comparison with industry average: Net Margin  2005 2006 2007OFL 3.46 0.89 0.23Industry 12.00 9.00 8.00

Comment on Profitability Analysis:The profitability ratios for OFL have all been falling since 2005. Each of the ratios is bellow the industry average for the past three years. This indicates that COGS, Administrative costs and financial cost may be too high and potential problem for OFL.Hence we can conclude that to increase profitability the management should taken special care of COGS and other costs.

Trend Analysis: Coverage Ratio  2005 2006 2007Interest Coverage (EBIT/Total Interest) 2.81 1.60 1.14Debt Ser.Coverage(EBITDA/Total Interest+CMLTD) 1.49 1.70 1.10

Trend Analysis: Profitability Ratios

0

2

4

6

8

10

12

14

2005 2006 2007

Year

Ratio

Gross Margin,Composite %

Operating ProfitMargin, %

Net Margin, %

Return on Assets,%

Return on Equity,%

Comparison with Industry: Interest Coverage Ratio

  2005 2006 2007OFL 2.81 1.60 1.14Industry 5.40 4.50 3.75

Comparison with Industry: Debt Service Coverage Ratio  2005 2006 2007OFL 1.49 1.70 1.10Industry 3.20 2.80 2.70

Trend Analysis: Coverage Ratio

0

1

2

3

2005 2006 2007

Year

Ratio

Interest Coverage(EBIT/TotalInterest)

DebtSer.Coverage(EBITDA/TotalInterest+CMLTD)

Trend Analysis: Coverage Ratio

0

0.51

1.5

22.5

3

2005 2006 2007

Year

Ratio

Interest Coverage(EBIT/Total Interest)

DebtSer.Coverage(EBITDA/Total Interest+CMLTD)

Comparison with industry: Interest Coverage Ratio

0123456

2005 2006 2007

Year

Ratio Value

OFL

Industry

Comment on Coverage Ratio Analysis:The interest coverage ratio and debt service coverage ratio both for OFL has been falling since 2005. It has been below industry average for the past three years. This indicates too low earnings may be a potential problem for OFL.Hence we can conclude that further investment in OFL in way of Bank financing needs special care.

Trend Analysis: Leverage Ratios

  2005 2006 2007Total Liabilities/ Net Worth (X) 1.23 1.66 1.41Affiliate Exposure/Net Worth (%) 0.40 24.00 6.40Total Liabilities/(Net Worth-Affiliates) (X) 1.24 2.19 1.51

Comparison with industry: Debt Service Coverage Ratio

0

0.5

1

1.5

2

2.5

3

3.5

2005 2006 2007

Year

Ratio Value

OFL

Industry

Leverage Ratios

0

5

10

15

20

25

30

2005 2006 2007

Year

Value of Ratios

Total Liabilities/ Net Worth(X)

Affiliate Exposure/NetWorth (%)

Total Liabilities/(Net Worth-Affiliates) (X)

Comparison with industry: Debt to equity Ratio

  2005 2006 2007OFL 1.23 1.66 1.41Industry 0.98 1.01 1.25

Comment on Leverage Analysis:The leverage ratios indicates that though liability increases in 2006 than 2005, again it decreases in 2007. Debt is decreasing to match almost in the line with the industry. Hence we can conclude that leverage or debt status of OFL is in the line with industry average.Trend Analysis: Activity Ratios

  2005 2006 2007Receivables T/O in Days 63 71 52Payables T/O in Days 75 74 70Inventory T/O in Days 54 51 64Asset T/O (X) 1.7 1.3 1.3

Leverage Ratios

0

5

10

15

20

25

30

2005 2006 2007

Year

Ratio value

Total Liabilities/ NetWorth (X)

Affiliate Exposure/NetWorth (%)

Total Liabilities/(NetWorth-Affiliates) (X)

Comparison with industry: Debt to equity Ratio

00.20.40.60.8

11.21.41.61.8

2005 2006 2007

Year

Ratio value

OFL

Industry

Comparison with Industry: Receivables T/O in days  2005 2006 2007OFL 63 71 52Industry 70 68 65

Comparison with Industry: Payables T/O in days  2005 2006 2007

Trend Analysis: Activity Ratio

0

20

40

60

80

2005 2006 2007

Year

Ratio

Receivables T/O inDays

Payables T/O in Days

Inventory T/O in Days

Asset T/O (X)

Trend Analysis: Activity Ratio

0

20

40

60

80

2005 2006 2007

Year

Ratio

Receivables T/O inDays

Payables T/O inDays

Inventory T/O inDays

Asset T/O (X)

Comparison with industry: Receivables T/O in days

01020304050607080

2005 2006 2007

Year

Ratio Value

OFL

Industry

OFL 75 74 70Industry 70 71 70

Comparison with Industry: Inventory T/O in days  2005 2006 2007OFL 54 51 64Industry 55 52 51

Comparison with industry: Asset T/O Ratio  2005 2006 2007OFL 1.70 1.30 1.30Industry 2.50 2.60 2.70

Comparison with industry: Payables T/O in days

67686970717273747576

2005 2006 2007

Year

Ratio Value

OFL

Industry

Comparison with industry: Inventory T/O in days

0

10

20

30

40

50

60

70

2005 2006 2007

Year

Ratio Value

OFL

Industry

Comment on Activity Ratio Analysis:Activity ratios shows that OFL’s inventory T/O ratio is too high than the industry and still it is paying it’s creditors almost as in the industry. At the same time it is recovering its receivables earlier than the industry, paying the trade creditors as in the industry. Asset T/O ratio is too low.From Activity ratios, it is clear that OFL is yet to be reaching its 100% capacity utilization level.Common Size AnalysisA financial statement displaying all items as a percentage of a common base figure, i,e the items of income statement in the percentage of revenue and that of Balance sheet is in the percentage of total assets. Such a statement may be useful for noting changes in the relative size of the various elements.

Presentation showing Balance Sheet and Profit and Loss Statement as percentages of total Assets and sales, respectively, rather than (or in addition to) currency. Common size analysis, which is also called vertical analysis, facilitates the comparison of one period to another and helps identify trends. Also called one hundred percent statement.

Illustration-1: Common Size Income statement of Outright Fashion Ltd.INCOME STATEMENT            FYE 31.12.2005 31.12.2006 31.12.2007 31.12.2005 31.12.2006 31.12.2007

Income Statement Actual Actual Actual Common Size

Common Size

Common Size

Amountin (000) Taka

in (000) Taka

in (000) Taka % % %

Gross sales 1,317,271 1,392,230 1,424,119 100.00 100.00 100.00Less:VAT 0 0 0 0.00 0.00 0.00Net Sales 1,317,271 1,392,230 1,424,119 100.00 100.00 100.00Less :Cost of Goods Sold 1,184,724 1,291,664 1,283,879 89.94 92.78 90.15GROSS PROFIT/REVENUE 132,547 100,566 140,240 10.06 7.22 9.85Less: Selling. Gen. & Admin. Expenses 30,151 29,810 42,392 2.29 2.14 2.98TOTAL OPERATING PROFIT (EBITD) 102,396 70,756 97,848 7.77 5.08 6.87

Comparison with industry: Asset T/O Ratio

0.00

0.50

1.00

1.50

2.00

2.50

3.00

2005 2006 2007

Year

Ratio value

OFL

Industry

Less: Depreciation 30,388 31,285 43,525 2.31 2.25 3.06Less: Interest Expense 25,656 24,642 47,489 1.95 1.77 3.33PROFIT BEFORE TAXES & EXTR ITEM 46,352 14,829 6,834 3.52 1.07 0.48Add: Other Income 353 0 0 0.03 0.00 0.00Income Taxes 1,144 2,448 3,560 0.09 0.18 0.25NET PROFIT 45,561 12,381 3,274 3.46 0.89 0.23

Illustration-2: Common Size Balance Sheet of Outright Fashion Ltd.FYE 31.12.2005 31.12.2006 31.12.2007 31.12.2005 31.12.2006 31.12.2007

B/S Actual Actual Actual Common Size

Common Size

Common Size

Amount in (000) Taka

in (000) Taka

in (000) Taka % % %

CURRENT ASSETS            Cash/Bank Balances 1,025 -89 2,353 0.13 -0.01 0.21Acc. Receivables-Trade 229,052 271,629 202,230 29.54 24.73 18.02Accounts Receivable - Others 353 0 0 0.05 0.00 0.00Advance deposit & prepayments 6,078 10,422 28,995 0.78 0.95 2.58Inventory 174,660 181,669 225,977 22.53 16.54 20.14TOTAL CURRENT ASSETS 411,168 463,631 459,555 53.03 42.20 40.96FIXED ASSETS       0.00 0.00 0.00Gross Fixed Assets 522,446 672,444 847,233 67.38 61.21 75.51Less: Depreciation 165,145 196,430 239,932 21.30 17.88 21.38NET FIXED ASSETS 357,301 476,014 607,301 46.08 43.33 54.13NON-CURRENT ASSETS       0.00 0.00 0.00Machinery under installation 1,416 99,066 29,784 0.18 9.02 2.65Building under construction 0 52,751 15,290 0.00 4.80 1.36Long term security deposits 3,083 4,757 7,732 0.40 0.43 0.69others 2,352 2,352 2,352 0.30 0.21 0.21TOTAL NON-CURRENT ASSETS 364,152 634,940 662,459 46.97 57.80 59.04TOTAL ASSETS 775,320 1,098,571 1,122,014 100.00 100.00 100.00Short Term Bank Borrowings 74,643 139,052 170,115 9.63 12.66 15.16Current Funded Portion of Term Debt (CMLTD) 25,478 16,954 41,746 3.29 1.54 3.72Accounts Payable 244,856 263,519 247,644 31.58 23.99 22.07Other Payables 30,648 69,134 50,311 3.95 6.29 4.48Proposed Dividend 28,268 0 0 3.65 0.00 0.00Others 10,216 9,709 12,993 1.32 0.88 1.16TOTAL CURRENT LIABILITIES 414,109 498,368 522,809 53.41 45.37 46.60LONG TERM LIABILITIES       0.00 0.00 0.00Term Loan 13,809 142,188 105,323 1.78 12.94 9.39Deferred L/C Liability 0 45,622 28,996 0.00 4.15 2.58

TOTAL LIABILITIES 427,918 686,178 657,128 55.19 62.46 58.57NET WORTH       0.00 0.00 0.00Paid up Capital 282,680 282,680 282,680 36.46 25.73 25.19Directors Loan(subordinated) 0 49,782 110,729 0.00 4.53 9.87Retained Earnings 20,949 36,158 27,704 2.70 3.29 2.47Tax Holiday Reserve 43,773 43,773 43,773 5.65 3.98 3.90NET WORTH 347,402 412,393 464,886 44.81 37.54 41.43TOTAL LIABILITIES & NET WORTH 775,320 1,098,571 1,122,014 100.00 100.00 100.00

Analysis: Income StatementAn examination of OFL’s vertical common-size income statement, presented in illustration-1, shows that while the company was profitable the entire time net profit margin declined sharply from 3.46% in 2005 to 0.89%in 2006 and just 0.23% in 2007. Investors will want to know if this trend is more likely to continue or to reverse. To do this we analyze the components of the income statement. From the components of income statement we find that the interest expense of the company goes much more higher in 2007 which resulted the decrease in net profit margin.Balance Sheet

Both current asset and current liability of the company decreases over 2006 and 2007 which resulted from huge expansion of the project.

Index AnalysisIndex analysis refers to an analysis of percentage financial statements where all balance sheet or income statement figures for a base year equal to 100.00 percent and the items of financial statements of subsequent years are expressed as percentages of their values in the base year.This technique is also known as comparative analysis/horizontal analysis.

It is conducted by setting consecutive balance sheet, income statement or statement of cash flow side-by-side and reviewing changes in individual categories on a year-to-year or multiyear basis. The most important item revealed by comparative financial statement analysis is trend.A comparison of statements over several years reveals direction, speed and extent of a trend(s). The horizontal financial statements analysis is done by restating amount of each item or group of items as a percentage.Such percentages are calculated by selecting a base year and assign a weight of 100 to the amount of each item in the base year statement. Thereafter, the amounts of similar items or groups of items in prior or subsequent financial statements are expressed as a percentage of the base year amount. The resulting figures are called index numbers or trend ratios.

OFL's Indexed Balance Sheet

FYE 31.12.2005 31.12.2006 31.12.2007 31.12.2005 31.12.2006 31.12.2007

B/S Actual Indexed

Amount in (000) Taka

in (000) Taka

in (000) Taka % of base year 2004

CURRENT ASSETS            Cash/Bank Balances 1,025 -89 2,353 100.00 -8.68 229.56Acc. Receivables-Trade 229,052 271,629 202,230 100.00 118.59 88.29Accounts Receivable - Others 353 0 0 100.00 0.00 0.00Advance deposit & prepayments 6,078 10,422 28,995 100.00 171.47 477.05Inventory 174,660 181,669 225,977 100.00 104.01 129.38TOTAL CURRENT ASSETS 411,168 463,631 459,555 100.00 112.76 111.77FIXED ASSETS       0.00 0.00 0.00Gross Fixed Assets 522,446 672,444 847,233 100.00 128.71 162.17Less: Depreciation 165,145 196,430 239,932 100.00 118.94 145.29NET FIXED ASSETS 357,301 476,014 607,301 100.00 133.22 169.97NON-CURRENT ASSETS       0.00 0.00 0.00Machinery under installation 1,416 99,066 29,784 100.00 6996.19 2103.39Building under construction 0 52,751 15,290 0.00 0.00 0.00Long term security deposits 3,083 4,757 7,732 100.00 154.30 250.79others 2,352 2,352 2,352 100.00 100.00 100.00TOTAL NON-CURRENT ASSETS 364,152 634,940 662,459 100.00 174.36 181.92TOTAL ASSETS 775,320 1,098,571 1,122,014 100.00 141.69 144.72Short Term Bank Borrowings 74,643 139,052 170,115 100.00 186.29 227.90Current Funded Portion of Term Debt (CMLTD) 25,478 16,954 41,746 100.00 66.54 163.85Accounts Payable 244,856 263,519 247,644 100.00 107.62 101.14Other Payables 30,648 69,134 50,311 100.00 225.57 164.16Proposed Dividend 28,268 0 0 100.00 0.00 0.00Others 10,216 9,709 12,993 100.00 95.04 127.18TOTAL CURRENT LIABILITIES 414,109 498,368 522,809 100.00 120.35 126.25LONG TERM LIABILITIES       0.00 0.00 0.00Term Loan 13,809 142,188 105,323 100.00 1029.68 762.71Deferred L/C Liability 0 45,622 28,996 0.00 0.00 0.00TOTAL LIABILITIES 427,918 686,178 657,128 100.00 160.35 153.56NET WORTH       0.00 0.00 0.00Paid up Capital 282,680 282,680 282,680 100.00 100.00 100.00Directors Loan(subordinated) 0 49,782 110,729 0.00 0.00 0.00Retained Earnings 20,949 36,158 27,704 100.00 172.60 132.24Tax Holiday Reserve 43,773 43,773 43,773 100.00 100.00 100.00NET WORTH 347,402 412,393 464,886 100.00 118.71 133.82TOTAL LIABILITIES & NET WORTH 775,320 1,098,571 1,122,014 100.00 141.69 144.72

OFL's Indexed Income Statement

INCOME STATEMENT Regular Indexed (%)FYE 31.12.2005 31.12.2006 31.12.2007 31.12.2005 31.12.2006 31.12.2007

Amountin (000) Taka

in (000) Taka

in (000) Taka % of base year 2004

Gross sales 1,317,271 1,392,230 1,424,119 100.00 105.69 108.11Less:VAT 0 0 0 0.00 0.00 0.00Net Sales 1,317,271 1,392,230 1,424,119 100.00 105.69 108.11Total Sales Revenue 1,317,271 1,392,230 1,424,119 100.00 105.69 108.11Less :Cost of Goods Sold 1,184,724 1,291,664 1,283,879 100.00 109.03 108.37GROSS PROFIT/REVENUE 132,547 100,566 140,240 100.00 75.87 105.80Less: Selling. Gen. & Admin. Expenses 30,151 29,810 42,392 100.00 98.87 140.60TOTAL OPERATING PROFIT (EBITD) 102,396 70,756 97,848 100.00 69.10 95.56Less: Depreciation 30,388 31,285 43,525 100.00 102.95 143.23Less: Interest Expense 25,656 24,642 47,489 100.00 96.05 185.10PROFIT BEFORE TAXES & EXTR ITEM 46,352 14,829 6,834 100.00 31.99 14.74Add: Other Income 353 0 0 100.00 0.00 0.00Income Taxes 1,144 2,448 3,560 100.00 213.99 311.19NET PROFIT 45,561 12,381 3,274 100.00 27.17 7.19

As basis of Analysis, the analyst may seek variables which seem to improve or deteriorate and bring a challenge to the stakeholders in their various decisions. Example from the previous tables one can ask the following questions?

Why is there an increase in the inventory of the company? Has the company changed its inventory policy?

Why is there an sharp increase in Advance Deposit and prepayments? Why did taxation increase so tremendously? Were there any changes in taxation? Is it

reflected by the increase in sales? Profit? And many more question which can be elaborated by the management or which can

be used as the basis for discussions.

Conclusion Growth in the sales volume is not much significant with the increase of fixed assets

that is capital machinery. OFL has marked decreased quick ratio trend than the industry which indicates

significant problem in inventory management which further revealed from poor inventory T/O ratio.

To improve OFL’s low profitability status in comparison to the industry, the management should take special care to reduce COGS and other cost items.

Further financing in OFL by Banks or financial institution needs special consideration.

Leverage or debt is almost in the line with that of the industry. OFL paying its creditors earlier than industry, recieves payment from debtors at the

same time as the industry but it still to reach its 100% capacity utilization as asset T/O ratio is too low.