British American Tobacco Bangladesh Company L

Introduction

Date of Submission: 2nd December 2014

British American Tobacco Bangladesh Company Limited is one of the largest

multinational
corporations,
operated
by British
American
Tobacco in Bangladesh. They are listed on the stock index of the Dhaka Stock
Exchange and Chittagong Stock Exchange. It is doing its business over 100
years in this region. It was founded in Bangladesh on 1910. It had
established its first depot at Armanitola in Dhaka. After partition in 1947, it
was established in 1949.
After the independence of Bangladesh from Pakistan, it was renamed as
Bangladesh Tobacco Company (BTC) in 1972. But in 1998, it is again
renamed as British American Tobacco Bangladesh (BATB). In Bangladesh,
British American Tobacco Bangladesh has more than 1,200 people as direct
employees and more than 50,000 people as indirect employees
(mostlyfarmers).
British American Tobacco Bangladesh's motto is "success and responsibility
go together". Shehzad Munim is the current Managing Director of BATB. He is
serving as the first ever Bangladeshi Managing Director in the history of
BATBCL.

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Liquidity Ratios
This is the most fundamentally important set of ratios, because they
measure the ability of a company to remain in business. Liquidity ratios are
used to determine how quickly a company can turn its assets into cash if it
experiences financial difficulties or bankruptcy. It essentially is a measure of
a company's ability to remain in business. A few common liquidity ratios are
the current ratio and the quick ratio. The current ratio is current
assets/current liabilities and measures how much liquidity is available to pay
for liabilities. The quick ratio is same as the current ratio, but does not
include inventory.
Now according to the financial position of British American Tobacco
Bangladesh Company Limited Current Ratio and Quick Ratio of 2012 & 2013
are calculating as follows:
Particulars

2013 (TK)

2012 (TK)

Current Assets

9,950.631

9,172.866

Current Liabilities

8,314.769

7,029.777

Inventories

6,626.703

4,956.887

* Amount in Million Figures

We know,
CurrentRatio

1.
QuickRatio

2.
S.
No

Ratios

01
02

CurrentAssets
CurrentLiabilities

CurrentAssets- Inventorie
s
CurrentLiabilities

2013

2012

Current Ratio

1.20 times

1.30 times

Quick Ratio

0.40 times

0.60 times

01. The concept behind Current Ratio is to ascertain whether a company's

short-term assets (cash, cash equivalents, marketable securities, receivables
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and inventory) are readily available to pay off its short-term liabilities (notes
payable, current portion of term debt, payables, accrued expenses and
taxes). In theory, the higher the current ratio, the better.
In a liquidity contest between the year of 2012 & 2013 of BATBCL,
2012 Current Ratio (1.30 times) was better than the year of 2013 (1.20
times). In 2012, BATBCL had an ample margin of current assets over its
current liabilities, where it droped 0.10 times in the following year.
02. The Quick Ratio is a liquidity indicator that further refines the current
ratio by measuring the amount of the most liquid current assets there are to
cover current liabilities. The quick ratio is more conservative than the current
ratio because it excludes inventory, which is more difficult to turn into cash.
Therefore, a higher ratio means a more liquid current position.
In the scenario of Quick Ratio of BATBCL, the difference between the
year of 2012 & 2013 was 0.20 times. As the Quick Ratio was lower than
1:1 in both year may indicate that BATBCL relies too much on inventory
or other assets to pay its short-term liabilities.
Asset Management Ratios or Activity Ratios
These ratios are a strong indicator of the quality of management, since they
reveal how well management is utilizing company resources. Two common
activity ratios are accounts payable turnover and accounts receivable
turnover. These ratios demonstrate how long it takes for a company to pay
off its accounts payable and how long it takes for a company to receive
payments, respectively.
Now according to the financial position of British American Tobacco
Bangladesh Company Limited each ratio under asset management ratios of
2012 & 2013 are calculating as follows:
Particulars

2013 (TK)

2012 (TK)

Sales (Net Turnover)

31,225.437

27,471.344

6,626.703

4,956.887

770.917

937.873

3,701.889

3,245.676

18,463.798

15,034.493

Inventories
Accounts Receivables (Trade & Other
Receivables)

Accounts Payables (Trade & Other Payables)

Total Assets

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Fixed Assets (Non-Current Assets)

8,513.167

5,861.627

* Amount in Million Figures

We know,
Inventory
TurnoverRatio

1.

Sales
Inventorie
s

Accounts
Receivable
Ratio

2.
Accounts
PayableRatio

Sales
Accounts
Receivable
s

Sales
Accounts
Payables

3.
AssetTurnoverRatio

4.

Sales
TotalAssets

FixedAssetTurnoverRatio

5.

Sales
FixedAssets

DaysSalesOutstandin
g(DSO)
Ratio

Accounts
Receivable
s
Sales/ 365

6.
S.
No

Ratios

01

Inventory Turnover Ratio

02

Accounts Receivable Ratio

03

2013

2012

4.71 times
40.50
times

5.54 times
29.29
times

Accounts Payable Ratio

8.44 times

8.46 times

04

Asset Turnover Ratio

1.69 times

1.83 times

05

Fixed Asset Turnover Ratio

3.67 times

4.69 times

06

Days Sales Outstanding (DSO) Ratio

9 days

12 days

01. Inventory Turnover Ratio is one of the efficiency ratios and measures the
number of times, on average; the inventory is sold and replaced during the
fiscal year. Inventory Turnover Ratio measures company's efficiency in
turning its inventory into sales. Its purpose is to measure the liquidity of the
inventory.
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 Compared between the years of BATBCL, Year 2013 Inventory Turnover

Ratio became lower than the year of 2012. Low Inventory Turnover
Ratio is a signal of inefficiency, since inventory usually has a rate of
return of zero. It also implies either poor sales or excess inventory. A
low turnover rate can indicate poor liquidity, possible overstocking, and
obsolescence, but it may also reflect a planned inventory buildup in the
case of material shortages or in anticipation of rapidly rising prices.
02. Accounts Receivables Turnover ratio measures Companys efficiency in
collecting its sales on credit and collection policies. This ratio takes in
consideration only the credit sales. If the cash sales are included, the ratio
will be affected and may lose its significance. It is best to use average
accounts receivable to avoid seasonality effects. If the company uses
discounts, those discounts must be taken into consideration when calculate
net accounts receivable.
Compared between two year, 2013 had boost up its Account
Receivable Ratio to 40.50 times, which is 11.21 times more than the
previous year. Higher Receivables Turnover Ratio implies either that the
BATBCL operates on a cash basis or that its extension of credit and
collection of accounts receivable are efficient. Also, a high ratio reflects
a short lapse of time between sales and the collection of cash, while a
low number means collection takes longer.
03. The Accounts Payable Turnover Ratio is a liquidity ratio that shows a
company's ability to pay off its accounts payable by comparing sales to the
average accounts payable during a period. In other words, the accounts
payable turnover ratio is how many times a company can pay off its average
accounts payable balance during the course of a year.
As it has seen that, BATBCL had approximate same Accounts Payable
Ratio over the past two years (2013 8.44 times; 2012 8.46 times).
This means that BATBCL paid its vendors back on average twice every
three months of a year. This is on average a high turnover ratio, but it
should be compared to others in BATBCL industry.
04. The Asset Turnover Ratio is an efficiency ratio that measures a
company's ability to generate sales from its assets by comparing net sales
with average total assets. In other words, this ratio shows how efficiently a
company can use its assets to generate sales.

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 As we do not know the industry average, so we can say that, Asset

Turnover in 2012 was 1.83 times where as 1.69 times in 2013. That
means the net sales of BATBCL was more the average total assets for
both of the year. In other words, the company is generating 1.69 &
1.83 dollar of sales for every dollar invested in assets. So a higher ratio
is always more favorable. Higher turnover ratios mean the company is
using its assets more efficiently. Lower ratios mean that the company
isn't using its assets efficiently and most likely have management or
production problems.
05. Fixed Asset Turnover Ratio is a rough measure of the productivity of a
company's fixed assets (property, plant and equipment) with respect to
generating sales. For most companies, their investment in fixed assets
represents the single largest component of their total assets.
Here the difference between Fixed Asset Turnover Ratio is 1. That
indicates in 2012 BATBCL sales were 4.69 times then its fixed assets.
But in 2013 sales became only 3.67 times of fixed assets and that
happen because of increasing fixed asset volume.
06. The Days Sales Outstanding (DSO) calculation, also called the average
collection period or days' sales in receivables, measures the number of days
it takes a company to collect cash from its credit sales. This calculation
shows the liquidity and efficiency of a company's collections department.
As it can see, BATBCL took 12 days to collect cash from his customers
on average in 2012 but in 2013 it took only 9 days. This lower ratio is
more favorable because it means companies collect cash earlier from
customers and can use this cash for other operations. It also shows
that the accounts receivables are good and won't be written off as bad
debts.
Debt Management Ratio or Leverage Ratios
These ratios reveal the extent to which a company is relying upon debt to
fund its operations, and its ability to pay back the debt. A very common
leverage ratio used for financial statement analysis is the debt-to-equity
ratio. This ratio shows the extent to which management is willing to use debt
in order to fund operations.

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Now according to the financial position of British American Tobacco

Bangladesh Company Limited each ratio under debt management ratios of
2012 & 2013 are calculating as follows:
Particulars

2013 (TK)

2012 (TK)

9,562.208

8,001.553

18,463.798

15,034.493

Common Equity (Total Equity)

8,901.590

7,032.940

EBITt (Operating Profit + Other Income)

9,594.029

6,963.522

11.215

119.878

Total Debt (Total Current & Non-Current

Liabilities)

Total Assets

Interest Expence (Net Financial Expence)

* Amount in Million Figures

Earning Before Interest & Tax

We know,
DebtRatio

1.

TotalDebt
TotalAssets

Debt- EquityRatio

TotalDebt
Common
Equity

2.
TimeInterestEarnedRatio

EBIT
InterestExpense

3.
S.
No
01

Ratios
Debt Ratio

02

Debt - Equity Ratio

03

Time Interest Earned Ratio

2013

2012

51.79 %

53.22 %

1.07 times

1.14 times

855.46
times

58.09
times

01. Debt Ratio is a solvency ratio that measures a firm's total liabilities as a
percentage of its total assets. In a sense, the Debt Ratio shows a company's
ability to pay off its liabilities with its assets. In other words, this shows how
many assets the company must sell in order to pay off all of its liabilities.
This ratio measures the financial leverage of a company. Companies with
higher levels of liabilities compared with assets are considered highly
leveraged and more risky for lenders.

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 As we can see, in both years BATBCL had 2 times as many assets as it

had liabilities. This is a less riskey ratio and implies that BATBCL will be
able to pay back its loan. BATBCL shouldn't have a problem getting
approved for its loan.
02. The Debt - Equity Ratio is a financial liquidity ratio that compares a
company's total debt to total equity. The debt to equity ratio shows the
percentage of company financing that comes from creditors and investors. A
higher debt to equity ratio indicates that more creditor financing (bank loans)
is used than investor financing (shareholders).
As we can see, the Debt Equity Ratio of BATBCL was on an average 1
that means investors and creditors have an equal stake in the business
assets.
03. The Times Interest Earned Ratio, sometimes called the interest coverage
ratio, is a coverage ratio that measures the proportionate amount of income
that can be used to cover interest expenses in the future. In some respects
the Times Interest Ratio is considered a solvency ratio because it measures a
firm's ability to make interest and debt service payments. Since these
interest payments are usually made on a long-term basis, they are often
treated as an ongoing, fixed expense. As with most fixed expenses, if the
company can't make the payments, it could go bankrupt and cease to exist.
Thus, this ratio could be considered a solvency ratio.
In 2013, the Times Interest Earned Ratio was 855.46 times, that means
BATBCL income is 855.46 times greater than its annual interest
expense. In other words, BATBCL can afford to pay additional interest
expenses.

Profitability Ratios
These ratios measure how well a company performs in generating a profit.
A profitability ratio is a measure of profitability, which is a way to measure a
company's performance. Profitability is simply the capacity to make a profit,
and a profit is what is left over from income earned after you have deducted
all costs and expenses related to earning the income. The formulas you are
about to learn can be used to judge a company's performance and to
compare its performance against other similarly-situated companies.

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Now according to the financial position of British American Tobacco

Bangladesh Company Limited each ratio under profitability ratios of 2012 &
2013 are calculating as follows:
Particulars

2013 (TK)

2012 (TK)

Net Profit (Total Comprehensive Income)

4,868.649

3,941.640

Sales (Net Turnover)

31,225.437

27,471.344

Total Assets

18,463.798

15,034.493

Common Equity (Total Equity)

8,901.590

7,032.940

EBITt (Operating Profit + Other Income)

9,594.029

6,963.522

* Amount in Million Figures

Earning Before Interest & Tax

We know,
ProfitMargin(OnSales)

1.

NetProfit
Sales

ReturnonAssets
(ROA)Ratio

NetProfit
TotalAssets

ReturnonEquity(ROE)Ratio

NetProfit
Common
Equity

2.

3.
BasicEarningPower(BEP)Ratio

4.
S.
No
01

EBIT
TotalAssets

Ratios

2013

2012

Profit Mergin Ratio

15.59 %

14.34 %

02

Return on Assets (ROA) Ratio

26.37 %

26.22 %

03

Return on Equity (ROE) Ratio

54.69%

56.05 %

04

Basic Earning Power (BEP) Ratio

51.96 %

46.32 %

01. The Profit Margin Ratio, also called the return on sales ratio or gross
profit ratio, is a profitability ratio that measures the amount of net income
earned with each dollar of sales generated by comparing the net income and
net sales of a company. In other words, the Profit Margin Ratio shows what
percentage of sales are left over after all expenses are paid by the business.

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 In 2012, BATBCL could be able to converted 14.34% of its sales into

profit. But in 2013, profit merzin boost up to 15.59% of BATBCL sales.
That indicate BATBCL efficiently manages its expenses relative to its
net sales.
02. The Return on Assets Ratio (ROA), often called the Return on Total Assets,
is a profitability ratio that measures the net income produced by total assets
during a period by comparing net income to the average total assets. In
other words, the return on assets ratio or ROA measures how efficiently a
company can manage its assets to produce profits during a period.

As we can see, BATBCLs ratio is 26.37% in 2013 and 26.22% in 2012.

In other words, every taka that BATBCL invested in assets during the
year produced Tk. 0.2637 (2013) and 0.2622 (2012) of net income.
Depending on the economy, this can be a healthy return rate no
matter what the investment is.
03. The Return on Equity Ratio (ROE) is a profitability ratio that measures the
ability of a firm to generate profits from its shareholders investments in the
company. In other words, the Return on Equity ratio shows how much profit
each dollar of common stockholders' equity generates. So a return on 1
means that every dollar of common stockholders' equity generates 1 dollar
of net income. This is an important measurement for potential investors
because they want to see how efficiently a company will use their money to
generate net income.
As we can see, from net income BATBCL's ROE is 54.69 % in 2013 and
56.05 % in 2012. This means that every taka of common
shareholder's equity earned about Tk. 0.5469 in 2013 and 0.5605 in
2012. BATBCL's ratio is most likely considered high for its industry. This
could indicate that BATBCL's is a growing company.
04. Basic Earning Power (BEP) ratio is a measure that calculates the earning
power of a business before the effect of the business' income taxes and its
financial leverage. Basic Earning Power (BEP) ratio is similar to return on
assets ratio as both have the same denominator i.e. total assets. However,
unlike return on assets which measures the net earning power, the Basic
Earning Power (BEP) ratio calculated the operating earning power.

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