Introduction

Objective
The objective of this report is to analyze the scenario of Bata Shoe Company (Bangladesh) Ltd. as
well as gathering practical knowledge from the financial context and establish a relation with our
knowledge of the course. A key objective is to conduct a ratio analysis, developing common size
income statement of the company and evaluate their performances by generating industry averages
or industry standard values. To evaluate their performances against the industry standard values
we have used the Do Pont System to analyze the ratios. The project includes application of various
ratio formulas to find out the ratios required to understand the financial situation of the company
in comparison to the industry average.

Methodology

Before gathering all the information, we generated a clear and precise strategy to work. First we
collected the Annual report of the company for the year 2005 & 2004. Then the ratios and industry
standard values are generated using Microsoft Excel. Afterwards, the original reports are
common sized using the format of our book (Principles of Managerial Finance, Lawrence
J.Gitman.) Finally, implementing our learning in the course did the analysis part.

Scope
This report focuses on the various ratios under the criterion of liquidity, profitability, asset
management, debt management, market value which are generated on the financial performances
of the shoe manufacturing company naming Bata Bangladesh from Dhaka Stock Exchange of
the year 2005.

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Limitation

T analysis part reflects our limited knowledge about the vast financial world. Furthermore, the
assumptions made about various situations can be different from what it is in the real world. So,
the content of the report may vary slightly from reality and the analysis in the report may not fully
reflect the actual situation of the company.

Source of data

The information provided in this report was collected in several ways. We collected the annual
report from people in parental level and other essential information was collected from the
internet. Finally, they were manipulated with the help of the contents of our book.

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Background of the Company
Bata Bangladesh is affiliated to the Bata Shoe Organization, the world's largest footwear
manufacturing and marketing organization. It started operation in Bangladesh in 1962. In 1972 it
incorporated in Bangladesh.

Currently, Bata Bangladesh operates 2 manufacturing plant Tongi and Dhamrai, Bata Bangladesh
is producing around 110,000 pairs of shoes daily. It has a modern tannery with the latest
technological facilities to process 5 million square feet of leather yearly. The Tannery is equipped
with a high-tech effluent treatment plant ensuring a pollution free environment for both workers
and locality where we operate. Bata Bangladesh sells all kinds of footwear which are classified in
alignment with market sectors as follows:

Domestic market under the trademarks of Bata, Power, Weinbrenner Bubblegummers,

Marie Claire, B-First and Sandak through a countywide distribution network
comprising retail stores, DSPs and independent dealers.

Overseas market under the trademarks of its customers, and also markets its own brands to
sister companies and the Middle East.

Why we have chosen the company

Bata Shoe Company (Bangladesh) Ltd. is the leading footwear manufacturing and marketing
organization in Bangladesh. For the last 22 years they are operating here. From their annual report
we have seen that it has a high turnover and profit rate and these are increasing every year. Last
year it achieved 18% growth in turnover. It has also achieved the VIP taxpayer status in the year
2005. All these points have helped us to choose the company for our project.

3
 RATIO CALCULATIONS

Workings:

All the calculations are done for the ratio shown in below:

Liquidity Ratios

1. Liquidity Ratio = Current Asset/Current Liabilities (Current Asset and Current Liabilities
are taken from balance sheet)
2. Quick or Acid Ratio = Current Asset-Inventories/Current Liabilities (Current Asset,
Inventories, Current Liabilities are taken from balance sheet)

Activity or Asset Management Ratios

3. Inventory Turnover = Cost of Good Sold/Inventory(COGS is taken from income statement,

and Inventory from balance sheet)
4. Fixed Asset Turnover = Cost of Good Sold/Fixed Asset(COGS is taken from income
statement and Fixed Asset from balance sheet)
5. Total Asset Turnover = Total Operating Income/Total Asset(Total Operating Income Total
Asset is taken from income statement and Total Asset from balance sheet)
6. Average collection period (period average) = Accounts receivable/Average sales per day .
[Average sales per day = Annual sales/ 360]

7. Average payment period (period end) = Accounts payable/ Average purchases per
day.
[Average purchases per day = Annual purchases/ 360]

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Debt Management Ratios

7. Debt Ratio = Total Liabilities/ Total Asset (Total Liabilities, Total Asset are taken from
balance sheet)
8. Times Interest Earned = EBIT/Interest paid on borrowing (EBIT, and Interest are taken
from Income sheet)
9. Fixed payment coverage = EBIT + Lease payment/ Interest + Lease payments +
{(principal payments + Preferred stock dividends) * [1/(1-T)]}

Profitability Ratios

10. Gross Profit Margin = Sales Cost of goods sold/ Sales ( Sales or Turn over and Cost of
goods sold are taken from Income statement)
11. Operating Profit Margin = Operating Profits / Sales ( Sales and Operating Profits are taken
from Income statement)
12. Net Profit Margin = Earnings Available for Common stockholders/ Sales ( Sales and
Earnings available for common stockholders are taken from Income Statement )
13. Earnings per Share = Earnings Available for common stockholders/ Numbers of Shares of
common stock outstanding. ( EACSH is from income statement and No. of common stock
is from Balance sheet)

14. Return On Total Assets = Earnings Available for common stockholders /Total Assets
(EACSH is taken from Income sheet and Total Asset is taken from balance sheet)
15. Return On Equity = Earnings Available for common stockholders /Common Stock Equity
(EACSH is taken from Income sheet and Common stock Equity is taken from balance
sheet)

Market Value Ratios

16. Price/Earnings = Market Price Per Share of common stock / Earnings Per Share (Price Per
Share taken from News paper and EPS from Income statement)

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LIQUIDITY RATIO

i) Current Ratio

= Tk. 1507240857
Tk. 979377824

= 1.54

ii) Quick(Acid-test) Ratio

= Tk. (1507240857 900592601)

Tk. 979377824

= 0.62

ACTIVITY RATIOS

i) Inventory Turnover Ratio

= Tk. 1921820859
Tk. 900592601
= 2.13

Average age of inventory = (360/2.13) = 160.01 days

ii) Average Collections Period

= Tk. 189892488
Tk. 3064425608/360

= 22.3 days
iii) Average Payment Period

= Tk. 217771865+249040789+88211625
Tk. 1126412581/360

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 = 105.75 days
iv) Total Asset Turnover

= Tk. 3064425608
Tk. 746888105

= 1.65

v) Fixed Asset Turnover

= Tk. 1921820859
Tk. 341664110

= 5.41

DEBT RATIOS

i) Debt Ratio

= Tk. 1107552416
Tk. 1854440521

= 0.60 * 100

= 60 %

ii) Times Interest Earned Ratio

= Tk. 321355315
Tk. 3547076

= 90.58

iii) Fixed Payment Coverage Ratio

Tk. 21355315+2013384
= Tk. 3547076+2013384+ {(0+164160000)*[1/ (1-
114717000)]}

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 = 4.20

PROFITABILITY RATIOS

i) Gross Profit Margin

= Tk. 1142604749
Tk. 3064425608

= 37.2 %

ii) Operating Profit Margin

= Tk. 321355315
Tk. 3064425608

= 10.48 %

iii) Net Profit Margin

= Tk. 206638315
Tk. 3064425608

= 6.74 %

iv) Earnings Per Share (EPS)

= Tk. 206638315
Tk. 13680000

= Tk. 15.11

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 v) Return on Total Assets (ROA)

= Tk. 206638315
Tk. 1854440521

= 11.14 %
vi) Return on Common Equity (ROE)

= Tk.206638315
Tk.746888105
= 27.67 %

MARKET RATIOS

i) Price/Earnings (P/E) Ratio:

= Tk.125
Tk.15.11

= 8.27

AT A GLANCE

Ratio Formula Year Industry Cross-

2005 Average Sectional
Evaluation
Liquidity Ratios
Current Ratio Current Assets 1.57 1.3 Good
Current Liabilities
Quick (Acid- Current Assets- Inventory 0.62 1.2 Poor
Test) ratio Current Liabilities
Activity Ratios
Inventory Cost of Goods Sold 2.13 2.8 Good

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Turnover Inventory
Average Accounts Receivables 22.3 days 75.1 days Good
Collections Average Sales per day
Period
Average Accounts Payable 105.75 77.9 days Poor
Payment Period Average purchases per day days
Total Asset Sales 1.65 1.1 Good
Turnover Total Assets
Fixed Asset Sales 5.41 8.7 Poor
Turnover Total Fixed Asset

Continued..
Debt Ratios
Debt Ratio Total Liabilities 0.6 0.7 Good
Total Assets
Times Earned Earnings before interest and tax 90.58 59.4 Good
Interest Ratio Interest
Fixed-payment Earnings before interest and 4.20 0.4 Good
coverage ratio tax+ Lease payments
Interest+ Lease Pay. + {Prin.
+Pref div.)*[1/(1-T)]}
Profitability Ratios
Gross Profit Gross Profits 37.2% 27.60% Good
Margin Sales
Operating Profit Operating Profits 10.48% 14.80% Good
Margin Sales
Net Profit Earnings available to Common 6.74% 5.50% Good
Margin Stockholders
Sales
Earnings per Earnings available to Common Tk.15.11 9.6 Good
share (EPS) stockholders
Number of shares of common
stock outstanding
Return of total Earnings available for common 11.14% 6.10% Good
assets (ROA) stockholders
Total Assets
Return of Earnings available for common 27.67% 19.20% Good
common equity stockholders
(ROE) Common Stock Equity
Market Ratios
Price/Earnings Market price per share of 8.27 15.7 Poor
(P/E) ratio common stock
Earnings per share

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 BATA SHOE COMPANY LTD RATIO ANALYSIS

The recent trends of BATA and comparison with the industrys average in terms of its
financial performance according to the several criteria are illustrated below:

Analysis on Current Ratio:

Industry Comparison: Batas current ratio (1.57) was above the industry average (1.3), so its
liquidity position was good. In the year 2005 it increased along with the industry average but the
difference was low.

Comment: So we can say that Batas current ratio is higher than the industry average which
means that the company has substantial ability to meet its short term obligations as they come due.

Analysis on Acid Ratio:

Industry Comparison: Comparing with the industry standards we can say that it is doing quiet
well. Batas quick ratio is half of the industry average. Though its quick (acid) ratio (0.62) is less
than the industry average (1.2) but it is acceptable in comparison with current ratio.

Comment: So we can say that the company has to improve its performance regarding inventory
because it has less liquid current asset than the industry average.

Analysis on Inventory Turnover Ratio:

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Industry Comparison: Batas inventory turnover (2.13) is less than the industry standard (2.8).
But it is acceptable.

Comment: So we can say that Bata is using its inventory properly. It is not holding up too much
inventory. But they have to improve its performance regarding this matter as the industry average
is higher than the companys ratio. Its trend is good and if it continues like this it will improve and
the ratio may go up than the industry standard.

Analysis on Average Collections Period

Industry Comparison: The average collections period for the company is about 22.3 days which
is substantially lower than the industry average of 75.1 days.

Comment: The Company must have very strict collections policies which are implemented thus
showing that the company has a very efficient receivables management. So it can be said that Bata
is very efficient in collecting their credits.

Analysis on Average Payment Period:

Industry comparison: The average payment period, however is about 105.75 days which is
higher than the industry average 77.9 days for almost 1 month.

Comment: So the company has to take the initial steps to turn their Average payment rate faster
than the industry average.

Analysis on Fixed Asset Turnover:

Industry Comparison: The industry average for fixed asset turnover is 8.7 where the companys
ratio of fixed asset turnover is 5.41. The fixed asset turnover indicates the efficiency with which

12
the firm uses its fixed asset to generate sales. The industry average is almost 1.6 times of
companys ratio.

Comment: Bata is not utilizing its fixed asset effectively to generate revenue. As a result the
industry average goes up than the company ratio. However, the company has acquired new fixed
assets during the year due to which the fixed asset turnover is lower
Analysis on Total Asset Turnover:

Industry Comparison: In the recent year the industry average is 1.1 where the company ratio is
1.65.

Comment: The firm is generating sufficient volume of business given its total asset as the other
firms of the industry. This would mean that the company is utilizing its assets efficiently to
generate sales as the company ratio is higher (1.65).

Analysis on Debt Ratio:

Industry Comparison: The industrys capital structure contains high debt (0.7), and is above that
of City Banks (0.6).

Comment: The debt ratios indicate the debt position of the company. Low debt is going to give
the Bata Company comparative advantage over other companies, as it will provide cushion against
creditors losses in the event of liquidation. It has a debt ratio of 60% which means that 60% of the
companys assets are financed externally. Although a higher degree of indebtedness means the
company has greater financial leverage, the
companys debt ratio as compared to the industry average of 70% is good as it shows that more
portions of the companys assets has been financed internally compared to the industry average.

Analysis on Times-Interest-Earned Ratio:.

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Industry Comparison: The ratio of Bata Company (90.58) is well above the industry average
(59.4).

Comment: interest coverage ratio measures the firms ability to make contractual interest
payments. The higher the ratio the better able the firm is to fulfill its interest obligation. This
shows that Bata is covering its interest charges effectively.

Analysis on Fixed-payment coverage ratio:

Industry average: The comparison shows that the company ratio (4.2) is 10.5 times more than the
industry average (0.4).

Comment: The fixed payment coverage ratio measures the firms ability to meet all fixed
payment obligations. The ratio shows that the company is in a good position to meet the fixed
debts. The higher the ratio the lower the risk to both lenders and owners. This ratio gives the
interested parties a clear picture to assess the firms ability to meet additional fixed obligations
without being bankrupt.

Analysis on Gross Profit Margin:

Industry Comparison: City Banks gross profit margin ratio (37.2%) is higher than that of the
industrys (27.60%).

Comment: Batas increasing profit margin will provide it with cushion to take more risks. The
higher the gross profit margin the better is the position. Comparatively they have less gross profit
than the pervious year.

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Analysis on Operating Profit Margin:

Industry average: The company ratio is 10.48 where the industry standard is 14.80.

Comment: Operating profit margin represents the pure profit earned on each dollar sales.
Though the ratio is less than the industry average the company is in a good position. But a higher
operating profit margin is preferred

Analysis on Net Profit Margin

Industry comparison: The net profit margin, 6.74% is almost 1.23 times greater than the industry
average of 5.5%.

Comment: This reflects that the company is performing well in comparison to other companies.

Analysis on Earnings per share (EPS):

Industry average: The EPS is about Tk 15.11. It is Tk. 5.51 more than the industry average (9.6).

Comment: Basic earning power of Bata is higher than the industry. This indicates that City
Banks is doing well.

Analysis on Return On Assets:

Industry Comparison: The Return on Asset for Bata (11.14%) is higher than that of industrys
(6.10%) up to 2005 but in recent years it is much higher than that of the industries.

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Comment: The Companys ratio is almost 2 times higher than the industry average. This indicates
that the firm is generating higher profit from each dollar investment on its assets than the industry.

Analysis on Return on Equity:

Industry Comparison The Return on Equity for Bata (27.67%) is much higher than that of
industrys (19.20%)

Comment: This indicates that City Banks profit on each dollar investment is getting higher than
that of other firms of the industry. The ratio is significantly higher than the industry averages thus
depicting that the company is affectively earning substantially on the investments made in the
company.

Analysis on Price/Earnings (P/E) Ratio:

Industry Comparison: The Price/Earnings Ratio (8.27) for Bata is lower than the industry
average (15.7).

Comment: This ratio is commonly used to assess the owners appraisal of share value. This gives
a picture of how much the investors are willing to pay for each Tk. of a firms earning. This
indicates that Bata is somewhat riskier than most. Because the higher the P/E ratio the greater is
investors confidence.

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 Bata Company Limited
Common Size Income Statement
For the Year Ended December 31

2005 2004 Evaluation

(2004-2005)

Sales Revenue (Turnover) 100.00% 100.00% same

Less: cost of goods sold (62.71%) (59.91%) poor
Gross profit margin 37.29% 40.09% poor
Less: Administration, selling and (26.55%) (29.10%) good
Distribution expenses
10.74% 10.99% good
Add: Other income 0.31% 0.24% good
11.05% 11.23% good
Less: Workers participation fund (0.55%) (0.56%)
poor
Profit for the year before tax 10.50% 10.67% poor
Provision for tax:
Current 3.92% 3.96% good
Deferred (0.17%) (0.13%)
poor
3.75% 3.83% good
Profit for the year after tax 6.75% 6.84% poor
Inappropriate profit brought forward 14.01% 16.92% poor
Adjustment in respect of earlier years 0.02% _ good
14.03% 16.92% poor
Profit available for appropriation 20.78% 23.76% poor

Appropriations:
Dividend-
Interim 4.46% 6.71% good
Proposed final 0.89% 1.05% good
Divided distribution tax _ 0.11% good
5.35% 7.87% good

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Inappropriate profit, carried forward 15.43% 15.89% poor

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 DU PONT SYSTEM

Relate ROA and ROE-----

ROA = Earnings available to common stockholder/ Total Asset

= (Earnings available to common stockholder/ sales) * (Sales / Total Asset)

= Net Profit Margin * Total Asset Turnover

ROE = Earnings Available to common stockholder/ Common stock Equity

= (Earnings available to common stockholder/ Total Asset) * (Total Asset/ Common

stock Equity)

= ROA * FLM (Financial Leverage multiplier)

CALCULATION:

ROA = 6.74% * 1.65

= 11.12 %

FLM = Total Asset / Common stock Equity

= (341664110+5535554+1507240857)/ 746888105

= 2.48

ROE = ROA *FLM

= 11.12% * 2.48

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 = 27.58 %

DUPONT System Analysis

The DuPont Equation is designed to show that how the profit margin on sales, the total asset
turnover ratio, and the use of debt interact to determine the rate of return on equity. The DuPont
formula enables the firm to break down its return into profit on sales and efficiency of asset use
components. In our findings we have found the following ratios:

Return on Total Assets (ROA)

= Tk.206638315
Tk.1854440521

= 11.14 %

Return on Common Equity (ROE)

= Tk.206638315
Tk.746888105

= 27.67 %

From the above ratio we can trace that Batas high ROE is primarily the consequences of fast
collections of accounts receivable, which resulted in low levels of receivable and therefore low
levels of total assets. The low total assets slowed Batas total asset turnover driving up its ROA,
which then drove up its ROE. By using the DuPont system of analysis to combined Batas overall
returns as measured by its ROE.
The advantage of DuPont system is that it allows the firm to break its return on equity into a profit
on sales component (net profit margin), an efficiency of asset use component (total asset turnover),
and a use of financial leverage component (financial leverage multiplier). The total return to
owners therefore can be analyzed in these important dimensions.

20
Suggestions
After completing the analysis part we have recommended some suggestions which they may
follow:

1. Though the current ratio of Bata is in a better position than the industry average but their
quick ratio is very poor compared to the industry average. Inventory is the least liquid
current asset. Analyzing the quick ratio we can say that the companys inventory
management is not so good. If they keep on carrying their inventory for a long time then
there is a possibility of their inventory becoming obsolete. So they have to focus on their
inventory management system.
2. Although their inventory turn over ratio sounds good but it is less than the industry average
ratio. We know from the quick ratio that their inventory management is not good enough.
If they run their company with the same inventory ratio they wont be able to cope with the
industry standard to be in the market.
3. They need to improve their average payment period otherwise the lenders and the
suppliers would not be interested to invest or supply goods on credit to the company.
4. They must improve their price per earnings as this will attract investors as it indicates the
degree of confidence of the investor in the firms future performance.

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 What we have learned from this project

As BBA graduates, in the near future when we will be a part of the corporate activities, it will be
important for us to understand the financial situation of the company we will be working for or
will be running. This project gave us an opportunity to learn several important aspects about the
finance of a company. We learned to prepare common size income statement and calculate ratios
from the figures of the companys balance sheet and income statement. We have also learned how
to interpret financial ratios to analyze and monitor a firms performance. It helped us to gather
practical knowledge from the financial context and establish a relation with our knowledge of the
course.

CONCLUSION

Bata Shoe Company Ltd. is one of the leading companies in the footwear manufacturing
industry in Bangladesh. Analyzing the overall ratios we have found that although their overall
performance is good but they need to focus on some areas where they need to improve their
performance which will in turn boost up their profit and will help them to battle with their

competitors.

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