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 Department of Business Administration Duration: March 01- April 30, 2014

Date of Submission: May 08, 2014

Signature of Supervisor

Department of Business Administration Faculty of Business Studies International Islamic University Chittagong

Letter of Submission
Date: 08/04/14 To The Dean Faculty of Business Studies International Islamic University Chittagong

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 Department of Business Administration International Islamic University Chittagong

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 Chapter 1 : Background of the study 1.1 1.2 1.3 1.4 1.5 2.1 2.2 2.3 2.4 2.5 2.6 2.7 3.1 Introduction Objectives of the study Methodology of the study Scope of the study Limitations of the study Chapter 2 : Corporate Profile Historical background of Aarong Companys Profile in Short Organizational Structure Business Philosophy, Portfolios & Ethics Corporate Objectives & Values Products of Aarong SWOT Analysis of Aarong Chapter 3 : Theoretical aspects of Financial Analysis Financial Statement Analysis 3.1.1 Income Statement 3. 1.2 Balance Sheet 3.2 3.3 Objectives of Financial Statement Ratio Analysis 3.3.1 Purposes & uses of ratio analysis 3.3.2 Major types of ratio Chapter 4 : Financial Performance Analysis 4.1 Activity Ratio Analysis 4.1.1 Inventory Turnover Ratio 4.1.2 Fixed Asset Turnover Ratio 4.1 .3 Total Asset Turnover Ratio PAGE NO 1 2-4 4 4-5 5 5 6 7-9 10 11 11-12 12-16 16-19 19-22 23 24 24 25 25 25 26 26-28 29 30 30-31 31-32 32-33

4.2

Liquidity Ratio 4.2.1 Current Ratio 4.2.2 Quick Ratio 4.2.3 Cash Ratio

34 34-35 35-36 36-37 37 37-38 38 39 40 41 42 43-44 44-45 45 46

47

4.3 4.4

Long Term Debt Ratio 4.3.1 Debt to Capital Ratio Profitability Ratio 4.4.1 Gross Margin 4.4.2 Profit Margin 4.4.3 Return on Asset Chapter 5 : Summary & conclusion

5.1 5.2 5.3

Summary of Findings Recommendations Conclusion References Appendix

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CHAPTER-1
Background of the Study

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1.1 Introduction:
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. Aarongs 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. Aarongs 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.

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a brac social enterprise 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 childrens 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). Aarongs target customers include The urban and middle to upper class Bangladeshis and expatriates;

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a brac social enterprise 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.

1.2 Objectives of the Study:

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.

1.3 Methodology of the Study

The relevant data is collected from primary sources and secondary sources. I. Primary sourcesa. Practical work b. Personal Interrogation within the office c. Personal Observation within the office

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a brac social enterprise II. Secondary sourcesa. 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.

1.4 Scope of the Study

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.

1.5 Limitations of the Study

The limitation of the study is as follows:Limitation of time Unavailability of data Companys restrictions and unwillingness to disclose data Lacking of proper assistance of the higher authority of the organizations.

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CHAPTER-2
Corporate Profile

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2.1 2.1Historical HistoricalBackground Backgroundof ofKFC Aarong

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 BRACs 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:

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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 womens 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 AAFs 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 profiles in short 2.2 Company profiles in short

Company Name Chairman Sr. Executive Director C!! %" & Finance ' Accounts( D%" &H#( %" &Admin ' -rocurement( -roduct otal Employee Head o$$ice

Aarong Sir Fazle Hasan Abed amara Hasan Abed "d. Abdur #ou$ "ani) *umar Sar)ar+ACA Nisbat An,ar "a.or &rtd( "ohammad Ashra$ul Alam Fashion -roducts. Almost /0+000. Aarong Center+ 123 e.gaon 45A+ Dha)a.

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2.4 Organizational Structure 2.3 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, ChittaPhilosophy on -At a lan!e 2.4 Business & Ethics

Continuous improvement of existing enterprises 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 customers 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 customers satisfaction through research and development. They always work together with
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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.

2.5 Corporate Corporate Objectives & Values 2.7 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 ecommerce. 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.

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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 Aarongs 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 organizations 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 others 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

2.6 Products of Aarong

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:

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Cloths & Accessories:

Mens 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:

H"#E ACCE$$"R%E$&
/. Curtain 6. 7ed cover ' cushions 1. #ugs 2. able 8amps 9. -hoto Frames 3. Coasters

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:. Nap)in #ings ;. "ats <. rays /0. Cutlery //. 7o,ls and -latters /6. -hoto Frames /1. 7oo)ends /2. 7oxes /9. Hammoc)s /3. -lant Accessories /:. Candles

2.7 SWOT Analysis of Aarong

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.

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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

Threats

New distribution channel New market segment Seasonal fashion influence Innovation

Competitors Price competing

Strength Aarong is a very reputed organization. They are now capturing 68% of total handicraft market share in Bangladesh. Its 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 doesnt feel good to buy from there. Sometimes they suffer for financial problem, although its 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 doesnt 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 OGs Panjabi shape, Khubsurtis design of Salwar kamiz Rangs Sharis 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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3.1 Financial Statement Analysis

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.

3.1.1 Income Statement

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.

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3.1.2 Balance Sheet

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.

3.2 O !ecti"e of Financial Analysis

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.

3.3 Ratio Analysis

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.

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3.3.1 Purpose and Use of Ratio Analysis

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.

3.3.2 Major Types of Ratio

Activity or management performance ratio

These ratio measure the speed with which various account are converted into sales or cashinflow 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 firms

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Operation has been financially efficient. Generally the higher a firms 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 firms 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 x100 Sales

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 companys 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

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4.1 Activity Analysis term) 4.1 Activity Ratio(Short Analysis

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:

4.1.1 Inventory Turnover Ratio

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 Average Stock

2,644,345,985 1.94 1,362,703,594

2,644,345,985 1.40 1,882,228,174

2,974,712,117 1.52 1,957,926,569

2,952,158,825 1.35 2,184,809,482

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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

4.1.2 Fixed asset turnover ratio

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

RATIO

FORMULA

2010

Ratio

2011

Ratio

2012

Ratio

2013

Ratio

Fi e! A""et Turnover

Sale" Fi e! A""et

3,397,341,505 685,488,281

4.96

4,150,032,990 847,968,815

4.89

4,529,861,669 574,175,480

7.89

4,748,618,174 500,877,174

9.48

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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

4.1.3 Total assets turnover

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 its 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

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RATIO

FORMULA

2010

Ratio

2011

Ratio

2012

Ratio

2013

Ratio

Total A""et Turnover

Sale" Total A""et

3,397,341,505 1.56 2,178,806,144

4,150,032,990 1.61 2,573,584,710

4,529,861,669 1.51 2,994,215,856

4,748,618,174 1.42 3,343,872,537

Total Asset Turnover Chart

1.65 1.6" 1.55 1.5" Ratio 1.45 1.4" 1.!5 1.!" "1" "11 No. of Years "1 "1! 1.4 1.56 1.51 1.61

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.

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4.2 Liquidity Ratio

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.

4.2.1 Current Ratio 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
RATIO FORMULA 2010
Ratio

2011

Ratio

2012

Ratio

2013

Ratio

#urrent Ratio

#urrent A""et #urrent $ia%ilitie"

1,493,317,863 1,989,504,065

0.75

1,726,615,895 2,357,420,934

0.73

2,420,040,376 2,726,106,007

0.89

2,865,013,637 3,069,741,770

0.93

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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.

4.2.2 Quick Ratio

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 its increased to 0.17. Then in 2013 it was drop to 0.08. Quick ratio = (Current assets Inventories)/Current liabilities

RATIO

FORMULA

2010

Ratio

2011

Ratio

2012

Ratio

2013

Ratio

Aci! Te"t Ratio

#urrent A""et& 'clo"ing "tock ( )re)ai! * )+, #urrent $ia%ilitie"

417,224,575 1,989,504,065

0.21

376,670,456 2,357,420,934

0.16

470,306,571 2,726,106,007

0.17

254,107,330 3,069,741,770

0.08

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Figure: Quick Ratio

Aci Test Ratio Chart

". 5 ". 1 ". " ".15 Ratio ".1" "."5 "."" "1" "11 "1 No. of Years "1! "."$ ".16 ".1#

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

4.2.3 Cash Ratio

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
RATIO FORMULA 2010 Ratio 2011 Ratio 2012 Ratio 2013 Ratio

#a"- Ratio

#a"#urrent $i%ilitie"

126,201,916 1,989,504,065

0.06

159,901,428 2,357,420,934

0.07

129,524,735 2,726,106,007

0.05

141,288,224 3,069,741,770

0.05

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Figure: Cash Ratio

Comment:
Cash ratio should always be less than 1. From the above figure we can say that Aarongs Performance is satisfactory.

4.3 Long Term Debt Ratio

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

4.3.1 Debt to Capital Ratio

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

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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
RATIO FORMULA 2010 Ratio 2011 Ratio 2012 Ratio 2013 Ratio

.e%t to #a)ital Ratio

Total .e%t Total #a)ital

236,593,470 13.38 1,768,808,040

273,891,894 12.95 2,115,525,452

340,589,824 13.88 2,453,646,213

321,106,435 11.30 2,840,788,935

Figure: Debt to Total Capital Ratio

Comment:
By analyzing above graph we say that Aarongs dependency on external financing is decreasing. Higher the ratio indicates higher the risk the risk for the company

4.4 ProfitabilityRatio Ratio 4. 5 Profitability

Profitability ratio reveals the relationship between revenue & cost generated by using the firms asset-both current & fixed in productive activity.

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4.4.1 Gross Margin

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

RATIO

FORMULA

2010

Ratio

2011

Ratio

2012

Ratio

2013

Ratio

/ro"" 0ro1it Ratio

/ro"" 0ro1it 2 1003 Sale"

762,906,873 3,397,341,505

22.46

1,492,456,636 4,150,032,990

35.96

1,583,047,303 4,529,861,669

34.95

1,822,625,122 4,748,618,174

38.38

!ross Profit Ratio Chart

45."" 4"."" !5."" !"."" 5."" Ratio "."" 15."" 1"."" 5."" "."" "1" "11 No. of Years "1 "1! .46 !5.%6 !4.%5 !$.!$

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.

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4.4.2 Profit Margin

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

RATIO

FORMULA

2010

Ratio

2011

Ratio

2012

Ratio

2013

Ratio

Net 0ro1it Ratio

Net 0ro1it 2 1003 Sale"

703,898,869 20.72 3,397,341,505

693,434,824 16.71 4,150,032,990

676,241,522 14.93 4,529,861,669

774,285,442 16.31 4,748,618,174

Net Profit Ratio Chart

5."" ".# "."" 15."" Rate 1"."" 5."" "."" "1" "11 "1 No. of Years "1! 16.#1 14.%! 16.!1

Figure: Profit Margin

Comment:
By analyzing above figure we can say that profit margin of Aarong is increasing that increase overall earnings of owner.

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4.4.3 Return on Asset (ROA)

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

RATIO

FORMULA

2010

Ratio

2011

Ratio

2012

Ratio

2013

Ratio

Return on Total A""et

Net 0ro1it 2 1003 Total A""et

703898869 32.31 2178806144

693434824 26.94 2573584710

676241522 22.58 2994215856

774285442 23.16 3343872537

Total Asset Return Chart

!5."" !"."" 5."" "."" Ratio 15."" 1"."" 5."" "."" "1" "11of Years "1 No. "1! ! .!1 6.%4 .5$ !.16

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.

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Chapter-5 Summary & Conclusion

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5.1 Summary of Findings

The major findings of the study are as follows:-

Inventory management of Aarong is not as efficient as inventory turnover ratio is lower and its 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 cant quickly convert its quick asset into cash.

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

5.2 Recommendations

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.

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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.

5.3 Conclusion

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.

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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

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Appendix Ratio Analysis of Aarong (By Using Four Years Data)

Ratio
Current Ratio Quick Ratio Gross Profit Margin Net Profit Margin Stock Turnover Operation Exp. Ratio Return on Total Asset Total Asset Turnover Return on Investment Debt to Capital Ratio Fixed Asset Turnover

2010
0.75 0.21 22.46 20.72 1.94 79.57 32.31 1.56 36.81 13.38 4.96

2011
0.73 0.16 35.96 16.71 1.40 82.97 26.94 1.61 29.18 12.95 4.89

2012
0.89 0.17 34.95 14.93 1.52 85.69 22.58 1.51 24.29 13.88 7.89

2013
0.93 0.08 38.38 16.31 1.35 84.25 23.16 1.42 24.43 11.30 9.48

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