This is the financial statement analysis of Apex Tannery Limited. As a part of Managerial Finance course this analysis is prepared under the BBA program. It is very much important to gather practical knowledge about financial condition of any company that helps to increase our efficiency. We are also familiar with the name that company use in different ways.
Objective
The main objective of this analysis is to have a clear and practical idea about the financial conditions of a company. Here, we have applied our learning and experience to find out the financial condition (2005-2009)and problems of Apex Tannery Limited such their business methodology, accounting policy, capital structure, cost of capital, dividend policy, capital budgeting etc.
Methodology
To complete this analysis we have applied our learning and experience based on the knowledge of fundamentals of finance and managerial finance course. We have used different formulas of cost of capital, capital structure, dividend policy, working capital management to complete this term paper.We have used Microsoft word and Microsoft Excel office software to complete it.
Limitation
Though the annual report is the only media that external creditor know about the firm's condition, but this information is not arranged in a effective way. Many of the terms that used in the annual report we would not familiar with that. Time constraints are one of the factors that prepared the annual report. Group members are not coping with the team leader. They didn't provide the given information on time. It is also very much time consuming to work with Microsoft Word and Microsoft Excel. It could be much easier if specialized software is used.
About the Company
Apex Tannery is the largest tannery in Bangladesh and one of the largest in South Asia. It is a 100% export oriented company. The company is using state of the art machineries from Italy, France and Germany. Apex Tannery Limited was incorporated as a private limited company on 26th July, 1976 under company act 1913 and was converted into a public limited company in 1986. The share of the company is publicly traded at Dhaka Stock Exchange Limited and Chittagong Stock Exchange Limited. Though the year of 2009, its production has been progressively entailing constant expansion of building and machinery. Annual production exceeds 23 million USD, thus creation an explanatory model for corporate development in the tannery sector. Apex Tannery Limited is a leading edge tannery company based in Bangladesh. Bangladesh and is acclaimed for its outstanding product quality, world-class manufacturing facility, product development capabilities and outstanding professional service.
Analysis Criteria
Financial analysis plays a significant role for any corporation's future decision making. By analyzing the financial report shareholders can predict the future growth rate of a company and how much it will increase there value. Obviously it helps to know the companies strength and weakness, thus they can improve their financial situations. Ration analysis, Cost of capital, Optimal Capital Structure policy and Dividend policy plays the most important role in analysis of financial statement.
Ratio analysis is 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.
The cost of capital determines how a company can raise money (through a stock issue, borrowing, or a mix of the two). This is the rate of return that a firm would receive if it invested in a different vehicle with similar risk. As we know that, capital is a necessary factor of production, and like any other factor, it has a cost. For an investment to be worthwhile, the expected return on capital must be greater than the cost of capital. The cost of capital is the rate of return that capital could be expected to earn in an alternative investment of equivalent risk. If a project is of similar risk to a company's average business activities it is reasonable to use the company's average cost of capital as a basis for the evaluation.
The process in which a business determines whether projects such as; building a new plant or investing in a long-term venture is worth pursuing. Oftentimes, a prospective project's lifetime cash inflows and outflows are assessed in order to determine whether the returns generated meet a sufficient target benchmark. Businesses should pursue all projects and opportunities that enhance shareholder value. However, because the amount of capital available at any given time for new projects is limited, management needs to use capital budgeting techniques to determine which projects will yield the most return over an applicable period of time.
Last we discussed the dividend policy of this firm. Dividend policies are the regulations and guidelines that companies develop and implement as the means of arranging to make dividend payments to shareholders. Establishing a specific dividend policy is to the advantage of both the company and the shareholder. In order to make sure the policy is workable, a company should develop a viable policy and then run this policy through a number of test scenarios in order to determine what impact the dividend policy would have on the operation of the business.
In many cases, companies choose to explicitly state the provisions within the dividend policy. This is definitely to the advantage of the shareholder, as a well defined policy makes it much easier to project the amount of payout profits generated for the period under consideration and thus be able to determine the size of the dividends that will be issued. When the dividend policy is well defined and documented, it is easy for the shareholder to obtain a written copy and thus be fully informed as to how the policy works.
However, there are cases where the dividend policy is not so well documented. When this is the case, investors sometimes base their assumptions on upcoming dividend payments on what has occurred in the past. While less systematic, it is still possible to project a more or less accurate estimate of what the dividend payout will actually be.
In cases where the dividend policy is not specifically defined, investors often look at the history to spot any trends that emerged in the past. If the dividend payments have been more or less constant for the last several years, and there has been no loss in business volume, it is reasonable to assume the payments will still be in the same general range as before. However, if the dividend history is more volatile, the shareholder may attempt to identify what factors led to the up and down movement of the dividends and determine if any of those factors are relevant to the current dividend period.
Future
The Apex Tannery Limited Company went into production is 1976. In their 33 years of experience, they have never faced such a crisis in marketing. Most of their leather are meant for the leather bag industries. This sector faced the worst recession with no improvement in sight. While the shoe sector has shown some signs of gain but they are unable to take advantage of this as conversion of bag leather to show leather will take some time. However the good sign is that the prices of raw hides and skins have fallen considerable thereby reducing their COGS. This enables them to make some profit. In conclusion, they can say that with the turnover of the world economy, the demand for leather bags and shoes will rise, resulting in better performance.
