OBJECTIVE OF THE PROJECT The purpose and objectives of this project is to fully analyze the financial data of the two companies: Meghna Petroleum Limited (Main Company) and Jamuna Oil Company. (Competitor). In addition, to calculate their Liquidity, Asset management, Debt, profitability, and market value ratio and compare the two companies by explaining the implications of different ratios. This would enable us to conclude upon whom is in a better position.
In addition, in this project we will look at the DuPont value, which will help us to see whether the company is fully utilizing its Total asset turnover, Equity multiplier, and profit margin all together. COMPANY OVERVIEW Meghna Petroleum Limited (Target Company): Meghna Petroleum Limited was registered as a private limited company on 27th December, 1977 under the company’s Act 1913 (Amended 1994). The Company took over all the physical possession of the fixed assets of the erstwhile Meghna Petroleum Marketing Company Limited (MPMCL) and Padma Petroleum Limited (PPL) on March 31, 1978 & started its business operations since then.
MPMCL inherited from the world wide reputed oil company Esso Eastern Inc. , USA which on the other hand is the successor of Standard Vacuum Oil Co. Ltd. of America. Esso Eastern Inc. started its business operation in 1956 in Bangladesh. The Government acquired Esso Eastern Inc. in 1975 through Esso Acquisition Ordinance and the company was renamed as MPMCL. The other company Padma Petroleum Ltd. was the successor of Dawood Petroleum Ltd. which was established in 1968. The Government by Presidential Order No. 16 took over the ownership of the company in 1972.
After formation of Bangladesh Petroleum Corporation (BPC) in the year 1976, the assets and liability of the company were transferred and handed over to BPC as per BPC ordinance on LXXXVIII. Since then Meghna Petroleum Limited has been functioning as a subsidiary of BPC. As per decision taken by the Government and BPC the company was converted into a Public Limited Company on 29th May, 2007. Jamuna Oil Company(Competitor): In 1964 Pakistan National Oil Limited (PNOL), the maiden National Oil Company of the then Pakistan was established as a private limited company. The company started functioning with an authorized capital of Tk. . 00 crore. After the Independence of Bangladesh in 1971 the Government of the Peoples Republic of Bangladesh acquired the assets and liabilities of Pakistan National Oil Limited by virtue of Bangladesh Abandoned Property (control, Management & Disposal) Order, 1972 (P. O. No. 16 of 1972) and the Company was renamed as Bangladesh National Oil Limited. The Company has been finally renamed as Jamuna Oil Company Limited (JOCL) by the Government on 13 January, 1973. At that time the company was operated by an adhoc committee called Oil Companies Advisory Committee (OCAC) under Petrobangla, constitute by the notification No. 1 m-4/76 (NR) dated 21-4-73, M/O. Natural Resources. Jamuna Oil Company Limited was registered with the registrar of Joint Stock Companies & Firms as fully Government owned Private Limited Company on 12 March, 1975 under Companies Act 1913 with authorized capital of Tk. 10. 00 crore and paid-up capital of Tk. 5. 00 crore. Subsequently, in the year 1976 the assets and liabilities of the Company were transferred & handed over to Bangladesh Petroleum Corporation (BPC) as per schedule stated in clause 31(c) of BPC Ordinance No. LXXXVIII (published in Bangladesh Gazette extra ordinary on 13 November, 1976).
Since then Jamuna Oil Company Limited has been functioning as a Subsidiary of BPC. On 1 January, 1986 all assets and liabilities of Indo-Burmah Petroleum Company Limited (IBPCL) were transferred to the Company. Purpose Of Choosing Meghna Petroleum Limited (MPL): Meghna Petroleum Limited operates from it’s headquarter at Chittagong through its 4 (Four) Regional offices located at Chittagong, Dhaka, Khulna and Bogra. It has a strong and wide Marketing/logistic network, which supports the company to cater more than 35% of the country’s demand of POL product timely and efficiently from Chittagong to the remotest locations of the country.
The products marketed are HOBC, MS, SKO, HSD, JBO, HSFO, LPG, Bitumen, Lubricating oil (BP Brand), Greases and Battery Water . Since, 1985 MPL is marketing the world class BP Brand Lubricants in Bangladesh under a licensing agreement with British Petroleum (BP) Plc. A wide range of automotive and industrial grade of imported and locally blended lubricants are available at the company’s every storage points and distribution outlets. MPL is also the “Consignee Stockist” of BP Marine Lubricants, ensuring timely supplies of all grades of marine Lubricants to BP nominated vessels.
The company has a social commitment and as such ensures product availability at every nook and corner of the country through its nationwide distribution outlets at government regulated price. Purpose Of Choosing Jamuna Oil Company: Jamuna Oil Company is one of the first oil companies in Bangladesh. We counted Jamuna Oil Company as competitor for Meghna Petroleum Limited for its vast success in the oil industry. It has some unique qualities to be a major competitor of MPL. It has 335 filling stations, 573 distributors Point and 153 Packed Paint Dealers.
Besides, the Company delivers products directly to industries and Power Plants. Apart from that, Company has 732 Liquefied petroleum gas dealers and 83 pesticide dealers. Company gets supply of LPG from LP Gas Limited, Chittagong and Kailashtila Project, Sylhet. The present employee strength of the Company is 591 which include 176 officers, 123 staff and 292 workers. Jamuna Oil Company has all the features of being a strong competitor to beat MPL. That’s why we selected Jamuna Oil Company as our competitor for Meghna Petroleum Limited in our project. FINANCIAL RATIO ANALYSIS
Financial Ratios are useful indicators of a firm’s performance and financial situation. Most ratios can be calculated from information provided by the financial statements. Financial ratios can be used to analyze trends and to compare the firm’s financials to those of the firms. In some cases, ratio analysis can predict future bankruptcy. The financial ratios can be classified according to the information they provide. The following types of ratios are frequency used: 1. Liquidity Ratio 2. Asset Management Ratio 3. Leverage Ratio 4. Profitability Ratio 5. Market Value Ratio
LIQUIDITY RATIO: A class of financial metrics that is used to determine a company’s ability to pay off its short-terms debts, obligation and the higher the value of the ratio, the larger the margin of safety that the company possesses to cover short-term debts. It measures the ability of the firm to meet its maturing financial obligations through liquid resources. Bankruptcy analysts and mortgage originators frequently use the liquidity ratios to determine whether a company will be able to continue as a going concern. Liquidity ratio includes three types of ratio: 1.
Working capital ratio 2. Current ratio 3. Quick(acid –test ratio) ratio * Working Capital Ratio: The working capital ratio is the term that determines whether a certain business entity has enough cash or capability to meet its short term debts or liabilities. It measures the percentage of total assets that is invested in current assets. It helps to analyze capital intensity as well as corporate liquidity. Working Capital Ratio= Current Assets/Total assets Graph: Table of Working capital ratios | June 2008-09| June 2009-10| June 2010-11| Jamuna Oil Company Limited| 0. 95:1| 0. 7:1| 0. 97:1| Meghna Petroleum Limited| 0. 97:1| 0. 98:1| 0. 98:1| Interpretation: Jamuna Oil Company Limited has a very high working capital ratio. It means most of the total assets are invested in current assets. The ratios show that the working capital ratio is increasing in 2010 but remains the same in 2011. In 2009 the working capital ratio is 0. 95:1, in 2010 it is 0. 97:1 and 2011 it remains the same which is 0. 97:1. Meghna Petroleum Limited has high working capital too. It has increased over the years. In 2009 it was 0. 97:1 and in 2010 and 2011 the ratio is 0. 8:1. In 2011 there is no increase. This rate is very high which shows almost all the assets are liquid. It indicates strong liquid position. Meghna is in better position than Jamuna. It has higher ratio than jamuna though the difference is very little. Meghna is in better position to pay off its liability than Jamuna. This might occur because of less spending is fixed assets. The trend analysis shows both the company has increased over time. * Current Ratio: Current ratio is a balance sheet financial performance measure of company liquidity.
The ratio is mainly used to give an idea of the company’s ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). It measures the number of dollars of current assets for each dollar of current liability. Current ratio= Current Assets/ Current liabilities Graph: Table of Current ratios: | June 2008-09| June 2009-10| June 2010-11| Jamuna Oil Company Limited| 1. 16:1| 1. 14:1| 1. 19:1| Meghna Petroleum Limited| 1. 09:1| 1. 07:1| 1. 09:1| Interpretation: Jamuna has a stable current ratio over the years 2009-2011. In 2009 its 1. 6 and it decreases by 0. 02 in 2010. But in 2011 it increases by 0. 05. It has the capacity to meet its financial obligations. Jamuna’s current assets are 1. 16 times greater than current liabilities in 2009. Most favorable current ratio is 2:1. So Jamuna is doing quite well. Meghna is doing okay as well. But there is no increase over years. In 2009 the value is 1. 09 and in 2010 it decreased by 0. 02. But in 2011 it increases by 0. 02 and became as same as 2009. When we compare these two companies we can state that, Jamuna is in better position because its current ratio is higher than Meghna.
Meghna’s current ratio is very inconsistent and we cannot say it will increase over time. The graph shows frequent fluctuations whereas Jamuna’s ratio is higher and it has increased drastically in 2011. So we can assume there might have some increase in coming years. It has bright chances to pay off its short term debts easily comparing to Meghna. In fact Meghna should take some serious steps to prevent further decrease in current ratio. Quick ratio: An indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.
It is also known as acid test ratio. The quick ratio provides a more rigorous assessment of a company’s ability to pay its current liability. Recognizing that inventories may be less liquid than other current assets, and in some cases, when liquidated quickly resulted in cash flows that are less than book value, the quick ratio gives a clearer indication of the firm’s ability to meeting maturing financial obligations out of current, liquid assets. Quick ratio=(C+MS+AR)/CL = (Current Assets – Inventories)/Current Liability Graph: Table of quick ratios: | June 2008 – 09| June 2009 -10| June 2010 –11 |
Jamuna Oil Company| 0. 53:1| 0. 61:1| 0. 72:1| Meghna Petroleum Limited| 0. 58:1| 0. 78:1| 0. 86:1| Interpretation: The quick ratio of Jamuna is not very consistent. It is increasing over years. In 2009 the rate is 0. 53 and in 2010 it has increased by 0. 08 and 2011 the increment is 0. 11. The growth of this ratios show improvement of the company. Jamuna’s inventories are 0. 53 times compared to its current liabilities in 2009. The graph shows the company’s quick ratio will increase over time. Meghna’s quick ratio is increasing over years. It is positive for the company. In 2009 it is 0. 8 then after 1 year it is 0. 78 which is 0. 2 increase and 2011 the rate is 0. 86 greater than 0. 78 by 0. 1. 1:1 is perfect for acid test ratio. So the increase in the rate of acid test ratios shows the improvement of financial condition of the company. It has almost reached the ability to pay every dollar of current liability using its highly liquidated current assets. When we compare these two companies by looking at the table and graph we can see, Meghna is in better position than Jamuna. But Jamuna has all the chances to improve over year as we can see in the graph.
But right now Meghna is leading over Jamuna. ASSET MANAGEMENT (PRODUCTIVITY) RATIO: The asset management ratios, measures how effectively the firm is managing its assets that are the ability of the firm to generate sales from assets that it employs. It includes the following: 1. Days Sales Outstanding 2. Inventory Turnover 3. Fixed Assets Turnover 4. Total Assets Turnover * Days Sales Outstanding (DSO): Days sales outstanding represents the average length of time that the firm must wait after making a sale before receiving cash, which is the average collection period.
DSO = Receivables/(Annual Sales/365) Graph: Table of DSO: | June 2008 – 09| June 2009 -10| June 2010 –11 | Jamuna Oil Company| 0. 46 days| 2. 74 days| 2. 41 days| Meghna Petroleum Limited| 31. 52 days| 55. 37 days| 39. 64 days| Interpretation: Jamuna Oil faced an increase in their figures from the year 2009 to 2010 from 0. 46 days to 2. 74 days which was bad for the company but in the following year they managed to decrease their figures a little. Meghna Petroleum has experienced an increase in the number of days in 2010 compared to 2009. It increased from 31. 52 days to 55. 7 days which is a bad sign as it indicates they are taking more time to collect their debts. However, the figures again decreased to 39. 64 days in 2011, which may prove to be favorable for the company. It is every evident that Jamuna Oil is in a far better position compared to Meghna Petroleum in terms of collecting money from debtors. * Inventory Turnover: It is the cost of goods sold in a time period divided by the average inventory level during that period. Inventory Turnover: Sales/ Inventory Graph: Table of Inventory Turnover | June 2008 -09| June 2009 – 10| June 2010 -11|
Jamuna Oil Company| 12. 03 times| 10. 07 times| 11. 35 times| Meghna Petroleum Limited| 10. 72 times| 12. 32 times| 17. 79 times| Interpretation: From the year 2008 to 2009, Jamuna Oils’ turnover decreased from at 12. 03 times to 10. 07 times and increased very little in the year 2011 which shows that they are holding too much inventories compared to what is sold. This is not good sign for Jamuna Oil. From the year 2009 to 2011, Meghna Petroleum’s inventory turnover increased from 10. 72 times to 12. 32 times and then the following year it increased rapidly to 17. 79 times times.
This indicates that the sales have increased compared to the number of inventories in the warehouse. Meghna Petroleum is definitely in a better position than Jamuna Oil. * Total Asset Turnover (TATO): The total asset turnover illustrates how much of sales have been generated from the total assets used. Total Asset Turnover evaluates the efficiency of managing all of the company’s assets. Graph: Table of TATO | June 2008 – 09| June 2009 -10| June 2010 –11 | Jamuna Oil Company| 6. 23 times| 4. 54 times| 4. 36 times| Meghna Petroleum Limited| 4. 86 times| 3. 38 times| 3. 77 times| Interpretation:
From the year 2009 to 2010, Meghna Petroleum and Jamuna Oil experienced a fall in the turnover ratio. Meghna Petroleum fell from 4. 86 times to 3. 38 times and Jamuna Oil fell from 6. 23 times to 4. 54 times. This means that there is a decrease in sales for Meghna Petroleum and Jamuna Oil. This is a very bad sign, for both the companies. In the following year Meghna Petroleum Limited’s ratio increased slightly. Jamuna Oil Company’s ratio also fell slightly in 2011. They are both in a good but Jamuna Oil Company is better off. * Fixed Asset Turnover (FATO): The fixed assets turnover ratio measures ow effectively the firm uses its plant and equipment. It is the ratio of sales to net fixed assets. FATO = Sales/ Fixed Assets Graph: Table of FATO | June 2008 – 09| June 2009 -10| June 2010 –11 | Jamuna Oil Company| 130. 86 times| 131. 88 times| 131. 68 times| Meghna Petroleum Limited| 163. 59 times| 147. 51 times| 174. 68 times| Interpretation: For Jamuna Oil the ratio remained constant during these three years. From 2009 to 2010 Meghna Petroleum faced a fall, from 163. 59 times to 147. 51 times. Then in the following year the FATO increased to 174. 68 times, which higher than 2009’s ratio.
It’s a good sign as it shows that the company is utilizing its fixed assets. It can be concluded that among the two companies Meghna Petroleum is better off. Both the companies have a high fixed asset turnover ratio and a low total asset turnover ratio, which indicates that fixed assets are being properly utilized. The companies have few idle fixed assets. PROFITABILITY RATIOS: Also known as efficiency ratios measure how efficiently a dollar of sales is turned into profits. Profitability ratios show a company’s overall efficiency and performance. Profitability ratio includes these ratios: . Return On Total Assets 2. Return On Equity 3. Net Profit Margin 4. Operating margin * Return on Total Assets: The Return on Assets ratio is an important profitability ratio because it measures the efficiency with which the company is managing its investment in assets and using them to generate profit. It measures the amount of profit earned relative to the firm’s level of investment in total assets. It is determined by dividing net income for the past 12 months by total average assets. Return on Total Assets = Net income / Total Assets Graph: Table of Return on Total Assets: June 2008-09| June 2009-10| June 2010-11| Jamuna Oil Company Limited| 4. 63%| 4. 42%| 6. 80%| Meghna Petroleum Limited| 2. 37%| 2. 43%| 3. 96%| Interpretation: Jamuna Oil Company’s ROA decreased insignificantly from 4. 63% in 2009 to 4. 42% in 2010. Then again increased to 6. 80% in 2011. From 2010 the net income is increasing proportionately to the total assets of the company. Meghna Petroleum’s ROA has increased at a steady rate from 2. 37% in 2009 to 2. 43% in 2010 to 3. 96% in 2011. In comparison Jamuna has a better return on asset ratio then Meghna overall.
Although both of their ratio are increasing. Return On Equity: The Return on Equity ratio is perhaps the most important of all the financial ratios to investors in the company. It measures the return on the money the investors have put into the company. This is the ratio potential investors look at when deciding whether or not to invest in the company. It is determined by dividing net income for the past 12 months by common stockholder equity. Return On Equity = Net Profit/ Total Common Equity Graph: Table of Return On Equity: | June 2008-09| Jun 2009-10| Jun 2010-11|
Jamuna Oil Company Limited| 27. 22%| 30. 12%| 38. 14%| Meghna Petroleum Limited| 31. 08%| 31. 32%| 40. 46%| Interpretation: Jamuna Oil Company’s ROE increased gradually from 27. 22% in 2009 to 38. 14% in 2011. These ratios are higher than the ROA due to the use of debts as leverage. Meghna Petroleum’s ROE also increased from 31. 08% in 2009 to 40. 46% in 2011. Meghna has a slighter better return on equity ratio than Jamuna does. Net Profit Margin: The net profit margin shows how much of each sales dollar shows up as net income after all expenses are paid.
For example, if the net profit margin is 5% that means that 5 cents of every dollar is profit. Net Profit Margin = Net Income / Net Sales Graph: Table of Net Profit Margin: | June 2008-09| June 2009-10| June 2010-11| Jamuna Oil Company Limited| 0. 76%| 0. 97%| 1. 27%| Meghna Petroleum Limited| 0. 62%| 0. 72%| 1. 05%| Interpretation: Jamuna Oil Company has a increasing net profit margin of 0. 76% in 2009 to 1. 27% in 2011 Meghna also has a increasing net profit margin of 0. 62% in 2009 to 1. 05% in 2011. Both Jamuna and Meghna have increasing net profit margin. But Jamuna has a higher Profit Margin so it is better.
Operating margin: A ratio used to measure a company’s pricing strategy and operating efficiency. Operating margin is a measurement of the proportion of a company’s revenue that is left over after variable costs of production such as wages, and raw materials have been paid. A healthy operating margin is required for a company to be able to pay for its fixed costs, such as interest on debt. Operation Margin = Operating Income/ Net Sales Graph: Table of Operating Margin: | June 2008-09| June 2009-10| June 2010-11| Jamuna Oil Company Limited| 0. 26%| 0. 42%| 0. 46%| Meghna Petroleum Limited| 0. 7%| 1. 01%| 1. 48%| Interpretation: Jamuna Oil Company’s operating profit margin is increasing from 0. 26% in 2009 to 0. 46% in 2011. Meghna Petroleum’s operating profit is increasing from 0. 87% in 2009 to 1. 48% in 2011. Meghna and Jamuna both have increasing operating margin. But Meghna’s ratios are higher so it has better operating margin. LEVERAGE / DEBT MANAGEMENT RATIOS: The extent to which a firm uses debt financing, or financial leverage, has three important implications: (1) By raising funds through debt, stockholders can maintain control of a firm while limiting their investment. 2) Creditors look to the equity, or owner-supplied funds, to provide a margin of safety, so the higher the proportion of the total capital that was provided by stockholders, the less the risk faced by creditors. (3) If the firm earns more on investments financed with borrowed funds than it pays in interest, the return on the owners’ capital is magnified, or “leveraged. ” Leverage ratios include the following: 1. Debt Ratio 2. Debt Equity Ratio 3. Time Interest Earned Ratio 4. Cashflow to Debt Ratio * Debt Ratio: The ratio of total debt to total assets, generally called the debt ratio, measures the percentage of funds provided by creditors.
Debt Ratio = Total Debts / Total Assets Graph: Table of Debt Ratio | June 2008 – 09| June 2009 – 10| June 2010 -11| Jamuna Oil Company| 81. 9%| 84. 5%| 81. 2%| Meghna Petroleum| 88. 9%| 90. 9%| 89. 1%| Interpretation: Debt ratio of Jamuna Oil Company is higher in 2010 than in 2009. This means thatin 2010 liability increased compared to its assets than in 2009. In 2011 the ratio fell to 81. 2%, which below 81. 9%, ratio in 2009. This indicates the position of the company improved. On the other hand, from 2009 to 2010, the debt ratio of Meghna Petroleum Limited rose from 88. % times to 90. 9% times. In 2011 it fell to 89. 1%. This means the company is better off in 2011 than in 2010 in terms of its debt ratio. It can be concluded that the Jamuna Oil Company is in a better position at end of June 2011 as its debt ratio is lower than Meghna Petrleum Limited. * Debt Equity Ratio: Is a stock ratio indicating the proportion that total debt represents in relationship to the shareholders equity (common stock and retained earnings) at the balance sheet date. Debt Equity Ratio: Total Debt/ Shareholder’s Equity Graph: Table of Debt Equity Ratio June 2008 -09| June 2009 -10| June 2010 -11| Jamuna Oil Comapany| 4. 817x| 5. 734x| 4. 555x| Meghna Petroleum Limited| 9. 223x| 11. 749x| 9. 034x| Interpretation: In 2009, the debt-equity ratio of Jamuna Oil Company was 4. 817 times and in 2010 it rose to 5. 734 times. But in 2011 it fell to 4. 555 times, which is good. The fall shows that debt in the company fell and proportion of equity in the company increased. Debt equity ratio of Meghna Petroleum Limted is in a more or less same condition at the end of June 2011. However, in 2010 it increased by a large extend. In 2010 it was 11. 49 times. At the end of June 2011 Jamuna Oil Company is better off as its operations are carried out using shareholder’s equity rather debt. * Times Interest Earned Ratio (TIE): The TIE ratio measures the extent to which operating income can decline before the firm is unable to meet its annual interest costs. Failure to meet this obligation can bring legal action by the firm’s creditors, possibly resulting in bankruptcy. TIE = Earnings Before Interest and Tax / Interest Expenses Graph: Table of TIE: | June 2008 -09| June 2009 -10| June 2010 -11| Jamuna Oil Company| 3. 327x| 5. 481x| 7. 567x|
Meghna Petroleum Limited| 4. 056x| 5. 324x| 6. 449x| Interpretation: Times interest earned ratios of both the companies rose constantly from 2009 to 2011. Jamuna Oil Company’s ratio was less than Meghna Pertroleum Limited in 2009. In 2010 they were neck to neck. That means both of the company ability to pay its interest was same. However in 2011 Jamuna Oil Company’s ratio was 7. 567 times whereas Meghna Petroleum Limited’s ratio was 6. 449 times. It can be concluded that Jamuna Oil Company’s ratio improved more compared to Meghna Petroleum Limited’s, thus Jamuna is in a better position in this ratio.
Cashflow To Debt Ratio: Measures how long it would take to pay off a firm’s debt. Cashflow to Debt Ratio = Cashflow from Operations/ Total Debt Graph: Table of Debt to Cash flow Ratio: | June 2008 -09| June 2009 – 10| June 2010 -11| Jamuna Oil Company| 0. 095x| 0. 169x| 0. 124x| Meghna Petroleum Limited| 0. 022x| 0. 140x| 0. 213x| Interpretation: In 2009, 2010 and 2011 the ratio of Jamuna Oil Company has been constanly from 0. 095 times to 0. 169 times to 0. 124 times. The increase indicates that the cashflow has increased compared to its debt or the debt has decreased compared to its cashflow.
On the other hand, Meghna Petroleum Limited’s ratio increased in 2010 to 0. 140 times and then fell in 2011 to 0. 213 times. Therefore it can be deduced that Jamuna Oil Company is better off in this ratio. . MARKET VALUE RATIOS: Market value ratios evaluate the economic status of your company in the wider marketplace. Market value ratios are used to assess how the market is valuing the firm (share price) in relationship to assets and current earnings, profits and dividends. These ratios give management an indication of what investors think of the company’s past performance and future prospects.
If the liquidity, asset management, debt management and profitability ratios all look food, then the market value ratios will be high, stock price will probably as high as can be expected. Market value ratios include: 1. Book Value Per Share, 2. Price earnings ratio, 3. Market/book ratio. 4. Dividend Payout * Book Value Per Share: Book value per share equals to the book value of a company divided by the number of shares outstanding. Book value is a good way of judging if the stock market value is reasonable compared to company’s true value. Book Value Per Share = Shareholder’s Equity / Average Outstanding Shares
Graph: Table of Book Value per Share: | June 2008-09| June 2009-10| June 2010-11| Jamuna Oil Company Limited| BDT 34. 2| BDT 41. 8| BDT 49. 3| Meghna Petroleum Limited| BDT 27. 9| BDT 32. 1| BDT 45. 4| Interpretation: Jamuna Oil Company’s book value per share has increased from BDT 34. 2 in 2009 to BDT 49. 3 in 2011. From 2009 to 2010 there is an increase in shareholders’ equity due to increase in the general reserve and from 2010 to 2011 there is an increase in the shareholders equity due to issuance of share capital. Meghna Petroleum’s book value per share has increased from BDT 27. 9 in 2009 to BDT 45. in 2011. This is evidently the result of the substantial increase in the shareholders equity through the retained earnings of the company. Jamuna Oil and Meghna Petroleum both experienced increase in the book value per share. Their growth is similar. Jamuna Oil has a higher book value per share than Meghna Petroleum; the difference is very small between the two companies. * Price Earnings Ratio: The Price-Earnings Ratio is calculated by dividing the current market price per share of the stock by earnings per share (EPS). The P/E Ratio indicates how much investors are willing to pay per dollar of current earnings.
Price Earnings Ratio = Share Price / Earnings per Share Graph: Table of Price Earnings Ratio: | Jun 2008-09| Jun 2009-10| Jun 2010-11| Jamuna Oil Company Limited| 21. 68x| 32. 79x| 13. 76x| Meghna Petroleum Limited| 30. 39x| 25. 44x| 10. 23x| Interpretation: Jamuna oil company’s PE ratio increased in 2010 from 21. 68 times to 32. 79 times. There was an increase in the amount of investor willing to pay for the current earnings. The market share of the shares increased significantly. But in 2011 the PE ratio declined drastically from 32. 79 times to 13. 76 times the company lost a lost of investors due to the decrease in market price.
Meghna Petroleum’s PE ratio has a declining trend from 2009 to 2011. In 2010 it decreased from 30. 39 times to 25. 44 times and in 2011 to 10. 23 times. The investors are losing hope since the earnings per share is decreasing so significantly. Both companies have decreasing PE ratios. But Jamuna has a higher rate and has more growth than Meghna. * Market/book Ratio: The Market-to-Book Ratio relates the firm’s market value per share to its book value per share. Market/book Ratio = Market price per share / Book value per share Graph: Table of Market/Book Ratio: | Jun 2008-09| June 2009-10| June 2010-11|
Jamuna Oil Company Limited| 5. 91x| 9. 83x| 5. 25x| Meghna Petroleum Limited| 6. 74x| 7. 97x| 5. 80x| Interpretation: Jamuna Oil Company’s M/B ratio is increasing from 5. 91 times in 2009 to 9. 83 times in 2010. This means the investors are willing to pay more for the stocks than the actual value of the stocks. But in 2011 the ratio declines to 5. 25 times, the investors refused to buy the stocks due to the high market price. Meghna Petroleum’s M/B ratio is also increasing from 6. 74 times in 2009 to 7. 97 times in 2010. But then again there is a decrease in the trend from 7. 97 in 2010 to 5. 80 times in 2011.
Jamuna oil and Meghna petroleum both seem to have the same trend in the market. In 2010 their M/B ratios increased and then in 2011 it decreased, due to the sharp increases in the market prices. * Dividend Payout Ratio: The Dividend Payout Ratio what a company’s pays out to investors in the form of dividends. You calculate the DPR by dividing the annual dividends per share by the Earnings per Share. Dividend Payout Ratio = Dividends Per Share / Earnings Per Share Graph: Table of Dividend Payout Ratio: | June 2008-09| June 2009-10| June 2010-11| Jamuna Oil Company Limited| 42. 92%| 20. 94%| 15. 96%|
Meghna Petroleum Limited| 46. 19%| 44. 78%| 19. 03%| Interpretation: Jamuna oil company has a sharp decrease in the dividend payout ratio from 42. 92% in 2009 to 20. 94% in 2010. Then the dividend payout ratio again decreases from 20. 94% to 15. 96%. About 85% of the net income is reinvested to the company. The dividends to shareholders are decreased Meghna petroleum also have a small decrease in the dividend payout ratio from 46. 92% in 2009 to 44. 78% in 2010. Then the dividend payout ratio again decreases sharply from 44. 78 % to 19. 03%. In meghna petroleum about 80% of the net income is reinvested in the company.
Meghna has a better dividend payout statistics than Jamuna does. But both have decreasing dividend payout ratios. The DuPont System The DuPont system for financial analysis is a means to fairly quickly and easily assess where the business strengths and weaknesses potentially lie. The DuPont system provides a good starting point for any financial analysis. It shows the financial strength that comes from many sources (profitability, asset utilization, leverage). It reinforces the concept that good financial analysis requires looking at each ratio in the context of the other.
Whenever we are presented with financial statements, it is important that we look at a sample of ratios from each major category to identify areas of strength and weakness. It can be calculated using the following formula. Return on Equity =Net Profit Margin x Total Asset Turnover x Equity Multiplier = (Net Income/Net Sales) x (Net Sales/Total Assets) x (Total Assets/Common Equity) The following chart shows the DuPont chart of Jamuna Oil Company : The DuPont System| Return on Equity(approx)| Net Profit Margin| Total Asset Turnover| Equity Multiplier| June 2008-09| 27%| 0. 6%| 6. 23 times| 5. 817 times| June 2009-10| 30%| 0. 97%| 4. 54 times| 6. 734 times| June 2010-11| 31%| 1. 27%| 4. 36 times| 5. 555 times| The following chart shows the DuPont chart of Meghna Petroleum Limited: The DuPont System| Return on Equity(approx)| Net Profit Margin| Total Asset Turnover| Equity Multiplier| June 2008-09| 31%| 0. 62%| 4. 86 times| 10. 223 times| June 2009-10| 31%| 0. 72%| 3. 38 times| 12. 749times| June 2010-11| 40%| 1. 05%| 3. 77 times| 10. 034 times| CONCLUSION APPENDIX Executive Table: NOTES: 1. Investment has been counted in the net fixed asset. 2.
The share price is calculated from dividend yield given in the Dhaka Stock Exchange. Dividend yield = dividend per share / Share price. We know the dividend per share from the book of account of the company. 3. We have taken the Net Sales from the companies websites. Since in the financial accounts only the gross income is stated. The sales are as follows: 4. In the DuPont chart, return on equity values are approximated values. As we have rounded the other ratios we are unable to obtain the actual return in equity. WORKINGS: Meghna Petroleum Limited 2009 : Current assets=12,343,637,389
Fixed assets=Fixed assets+ Investments = (372,974,199+4,584,800)=377,558,999 Total assets=Fixed assets+ Current assets=(377,558,999+12,343,637,389)=12,721,196,388 Current liability=11,307,705,688 Inventories=5,762,045,956 Working capital ratio=Current assets/Total assets =12,343,637,389/12,721,196,388 =0. 97:1 Current ratio =Current assets/Current liabilities =12,343,637,389/11,307,705,688 =1. 09:1 Quick ratio=(Current asset-Inventories)/Current liabilities =(12,343,637,389-5,762,045,956)/ 11,307,705,688 =0. 58:1 Jamuna Oil Limited 2009:
Current assets=8,616,472,185 Fixed assets=( Fixed assets+ Investments)= (254,961,014+175,400,000)=430,361,014 Total assets=( Fixed assets+ Current assets)=((8,616,472,185+430,361,014)=9,046,833,199 Current liability=7,418,343,904 Inventories=4,680,130,510 Working capital ratio=Current assets/Total assets =8,616,472,185/9,046,833,199 =0. 95:1 Current ratio =Current assets/Current liabilities =8,616,472,185/7,418,343,904 =1. 16:1 Quick ratio=(Current asset-Inventories)/Current liabilities =(8,616,472,185-4,680,130,510)/ 7,418,343,904 =0. 53:1
