Internship Report On: Financial Analysis of KDS Accessories Limited
Internship Report On: Financial Analysis of KDS Accessories Limited
Internship Report On: Financial Analysis of KDS Accessories Limited
On
Submitted to
Supervisor
Md Thasinul Abedin
Assistant professor
Department of Accounting
University of Chittagong
Submitted by
Wazed Chowdhury
ID: 14301002
Department of Accounting
University of Chittagong
Md Thasinul Abedin
Assistant Professor
Department of Accounting
University of Chittagong
Dear Sir,
I have tried my level best to follow your guidelines in every aspect of planning of this report. I
have also collected what I believe to be the most important information to make this report
specific and comprehensible as possible. I enjoyed the challenge of preparing the report as it
provided me with an opportunity to widen knowledge on the professional implications of
accounting in the corporate domain. I am honestly thankful for your guidance during the
preparation of this report. I hope you will appreciate my effort. I have done the study in a
complete form and I have tried my level best to conduct this in a professional manner. It is true
that, it could have been done in a better way if there were not limitations. I hope you will assess
my report considering the limitations of the study.
Yours sincerely,
Wazed Chowdhury
ID: 14301002
Acknowledgement
First of all I would like to express my gratitude to Almighty Allah for his blessings that
help me to complete this report. This internship report has been prepared based on the
basis of one month’s successful completion of Internship program at KDS Accessories
Ltd , Corporate office : 191-192 Baizid Bostami Road Nasirabad 1/A, Chattogram -4210
Bangladesh.
I am also grateful to the HRD of KDS Accessories Ltd. for offering me the Internship
training.
I would like to express my earnest gratitude to the Chief Financial Officer (CFO) of KDS
Accessories Ltd. Mr Biplob Kanti Banik FCA for helping me a lot to understand the
official work and preparing the report. At the very outset, my cordial thanks to the entire
employees of Finance and Accounts department to provide me all sorts of help regarding
the collection of data to prepare the report.
Finally, I would like to thank my family who has been with me not only these few weeks
but during all my life. They have been extremely patient and always willing to sacrifice
when it came to my studies and now work.
Executive Summary
KDS Accessories Ltd (KDSA) is one of the first generation garments accessories
company, which makes a significant contribution to the RMG industry of Bangladesh
through their quality products, products variety and strong supply chain management.
Since 1991, the year of starting journey, KDS Accessories has attained its recognition as
one of the country’s leading garment Accessories Company with a significant and growing
global each.
KDS offers one of the most comprehensive range of apparel Trims & packaging products
and services. In order to meet continuous customer demand and ensure world class service,
KDS now have two plants in strategic locations in Bangladesh making it accessible to the
industry geographically. Both plants together it produces the highest number of accessories
in Bangladesh.
General Packaging
Sewing Threads
Hangers
Polybags
Buttons
Woven Labels
Offset Printing
Heat Transfers
Gum Tape
Table of Contents
Chapter 1.............................................................................................................................. 7
Introduction....................................................................................................................................................7
1.1Origin of the report.................................................................................................... 7
1.2 Objectives................................................................................................................ 7
1.3 Data Analysis and Reporting:.................................................................................. 8
1.4 Scope of the report.................................................................................................. 8
1.5 Limitations............................................................................................................... 8
Chapter 2.............................................................................................................................. 9
Literature Review.............................................................................................................. 9
Chapter 3............................................................................................................................ 12
Methodology of the Report.............................................................................................. 12
3.1 Macro-economic factors affecting KDS Accessories Ltd........................................ 14
3.2 SWOT Analysis of KDS Accessories Ltd:.............................................................. 18
3.3 Competitor Analysis of KDS Accessories Ltd:........................................................ 22
3.4 Working Capital management of KDS Accessories Ltd:......................................... 25
3.5 Projected Income statement for forecasting period:............................................... 33
3.6 Projected Balance Sheet for forecasting period:.................................................... 34
3.7 Assumptions & Calculations:.................................................................................. 36
3.8 Calculation of financial ratios for both actual & forecasting period:........................ 40
Chapter 4............................................................................................................................ 42
Findings and Analysis:.................................................................................................... 42
Chapter 5............................................................................................................................ 46
5.1 Conclusions:.............................................................................................................. 46
5.2 Recommendations:................................................................................................... 47
Bibliography.....................................................................................................................................................49
Chapter 1
Introduction
1.2 Objectives
To analyze the gathered data I have done forecasting based on the past data and have used
specific financial tools i.e. ratio analysis. Some necessary number of charts and graphs
are used to present the report. MS word and MS Excel are used to process the data.
There is a certain boundary to cover the report. To achieve the objective of the report
it is not possible to cover each and every activity performed in an organizations. The
report has covered only the data which are published in the annual reports. Moreover,
KDS Accessories Ltd have got some confidential information which is not possible to
disclose publicly so those data and information had to be ignored for this report.
Here Forecasting has been done on the basis of past financial information and there is
no connection with the actual forecast made by KDS Accessories Ltd. Forecasting
has been made based on the assumptions.
1.5 Limitations
I tried my level best to enrich and complete this report although there are some limitations:
• Information relating to the survey is very sensitive that is why secondary data
have been used in some extent.
• I have to be aware that ratio analysis is widely used as a performance indicator but it
does have its limitations too. For instance, accounts show only the monetary aspects of
the business. They do not show management or staff strengths or weaknesses. So ratio
analysis ignores this aspect of the performance as well.
Literature Review
Financial analysis is the process of determining the operating and financial characteristics of
a firm from accounting and financial statements. The goal of such analysis is to determine the
efficiency and performance of a firm’s management as reflected in the financial records and
reports.
Literature review is indispensable part of a research because it represents the whole range of
research in the past on the topic selected by the researcher on the basis of which research
designs of a study is formulated. Literature review gives better insight and helps to bridge
gap for the research to be undertaken. Efforts have been made to present a common scheme
of various facets and issues relating to this empirical studies carried out in past.
Therefore, this part provides a review of some notable, theoretical and empirical research
works done by various institutions and authors in evaluating the financial performance.
Kennedy and Muller (1999) in his research article on financial performance analysis has
pointed that the analysis and interpretation of financial statements are an attempt to
determine the significance and meaning of financial statements data. So the forecast may be
made of the prospects for future earnings, ability to pay interest and debt maturates (both
current and long term) and profitability (Muller, 1999).
Akbas and Caliskan (Caliskan, 2011) have tried to shed light on the empirical relationship
between efficiency of working capital management and corporate profitability of selected
companies in the Istanbul stock exchange for the period of 2005-2009. The companies should
focus on the working capital management in order to increase their profitability by
professionally considering the issues on their cash conversion cycle.
Jonas Elmerraji (2005) in his research article on financial performance has pointed that he
tries to say that ratios can be an invaluable tool for making an investment decisions. Even
so many new investors would rather leave their decisions to fate than try to deal with the
intimidation of financial ratios. Even if you don’t have a degree in finance or business,
Using ratios to make informed decisions about an investment makes a lot of sense, once
you know how to use them (Elmerraji, 2005).
Mallick and Sur (1998) made an attempt to analyze the impact of working capital
management on profitability in Indian Tea industry with the help of statistical tools and
techniques. The study revealed that, out of the nine ratios relating to working capital
management five ratios registered positive association and the remaining four ratios
showed negative correlation with the profitability indicator (Sur, 1998).
Alam and Hossain (2000) found that the capital structure management of Khulna Shipyard
Ltd was in a poor shape because the interest coverage ratio was negative as there is the
possibility of non-payment of interest charges to creditors (Hossain, 2000).
John J.Wild, K.R.Subramanyam & Robert F.Halsey (2006) in his research article on
financial performance has pointed about that financial statement analysis is the application of
analytical tools and techniques to general purpose financial statements and related data to
derive estimates and inferences useful in business analysis (Wild, 2006).
Gangadevi (2008) studied that the leverage and financing decisions for the selected 30
electronic companies for the five years period ranging from 1998 to 2003. In his study he
found that the company having a high operating leverage should kept low financial
leverage and vice versa. So it is desirable that a company has a low operating leverage and
a high financial leverage (Gangadevi, 2008).
I.M Pandey (2007) in his research article on financial performance has pointed that the
financial performance contain information about the financial consequences and sources and
uses of financial resources, one should be able to say whether the financial condition of a
firm is good or bad; whether it is improving or deteriorating (Pandey I. , 2007).
Rachchh Minaxi A (2011) in his research article on financial performance has pointed and
suggested that the financial statement analysis involves analyzing the financial statements
to extract information that can facilitate decision making. It is the process of evaluating the
relationship between component parts of the financial statement to obtain a better
understanding of an entity’s position and performance (Minaxi, 2011).
Susan Ward (2008) in his research article on financial performance has put emphasis on
financial analysis using ratios between key values that enables investors cope with the massive
amount of numbers in company financial statements. For example, they can compute the
percentage of net profit a company is generating on the funds it has deployed. All other things
remaining the same, a company that earns a higher percentage of profit compared to
other companies is a better investment option (Ward S. , 2008).
Finance always being disregarded in financial decision making since it involves investment
and financing in short term period. Further also act as a restrain in financial performance
since it doesn’t contribute to return on equity (Rafuse, 1996). Dilemma in financial
management is to achieve desired tradeoff between liquidity, solvency and profitability
(Lazarid et al, 2007). Management of working capital in terms of liquidity and profitability
is essential for sound financial interpretation as it has a direct impact on profitability of the
company (Rajesh and Ramana Reddy, 2011). The crucial part in managing working capital
is required maintaining its liquidity in day to day operations to ensure its smooth running and
meet its obligations (Eljelly, 2004). Ultimate goal of profitability can be achieved by efficient
use of resources. It is concerned with maximization of shareholders or owner’s wealth
(Panwala, 2009).It can be attained through financial analysis.
From the above literature review, it is evident that the financial performance depicts the
efficiency of organization. Along with that financial statements analysis using financial ratios,
forecasting , trend analysis etc. are very useful for decision making in the company by board
of directors and management. It enables to know the prosperity of the company with the
profitability.
The analysis of financial statement can be best done by various yardsticks of which, the
important is known as ratio or percentage analysis. Financial statements (Income statement,
Balance sheet) contain a wealth of information which, if properly analyzed and interpreted,
can provide valuable insights into a firm’s performance and position. Performance
measurement of public enterprises has been the subject matter of discussion for planners,
administrators, managers, economists and academics since long. But some lack of clarity about
performance and the existence of defensive attitude on the part of those who have to take
responsibility for inefficient operations have the effect of inhibiting both frame discussion and
decisive action in this regard (Bunnett, 1987).
Chapter 3
Introduction:
This report is the reflection of one month internship program in KDS Accessories Ltd.
Garments accessories sectors is one of the fastest growing sector in Bangladesh. All
companies are facing tremendous competition from each other. So the officers remain very
busy to gain a competitive advantages over competitors. As an intern, I had to collect data and
information from that busy corporate environment. Information collected to furnish this report
is both from primary and secondary sources.
Research type:
This is a descriptive research which briefly reveals the overall activities of the company. This
internship report has been prepared based on the information provided extracted from
different sources collected by using a specific methodology.
I have selected the last three years (2015/2016-2017-2018) for my analysis. I have
collected data and financial papers of these three years to prepare this report.
To make this report presentable and effective, the necessary information has been
collected from two sources:
• Primary Sources
• Secondary Sources
Primary Sources:
Secondary Sources:
Macro-economics is the study of the aggregated effects of the decisions of individual economic
units. It looks at a complete national economy or the international economic system as a whole.
Macro-economic policy describes the policies and actions a government takes to control
economic issues such as economic growth, inflation, employment and trade performance.
KDS Accessories Ltd is one of the major player in garments accessories industry with its
attractive market share. There are several macro-economic factors affecting the garments
accessories industry. The level of competition has grown intense and the battle for the market
share has made KDS Accessories twist their marketing and pricing strategies. There are
some very macro-economic factors whose effect on the KDS Accessories Ltd. is important to
consider for they affect the businesses profitability and competitiveness.
Here we will assess the impact of macro-economic factors by PESTEL analysis that consists
of political, economic, social, technological, ecological and legal.
Political Analysis: A country’s businesses largely depends on the country’s smooth and stable
political system. Democratic government, fiscal policy, monetary policy helps to gain
economic growth. Bangladesh is emerging as a new emerging tiger by the help of its
readymade garments and textile sectors. But it is being affected by some problems:
Though the problems stated above, exists in Bangladesh, the government has taken many
positive steps and initiative in favor of garments sector which has a positive impact on
garments accessories business like KDS Accessories Ltd. Foreign investments are welcomed.
Favorable policy, tax holiday , export – import policies, investment incentives , reduced import
duties on capital machinery and spares are some important initiative helping the garments
sector along with the KDS Accessories Ltd.
Economic Analysis: Garments sector is the highest single contributor of Bangladesh
economy. About 22 million people are directly or indirectly involved in this sector. And about
78% of the employees are women who are playing a pivotal role in decision making, poverty
alleviation in their family. The garments sector are dependent on the garments accessories
business like KDS Accessories Ltd. The earning of garments accessories sector like KDS
Accessories Ltd is likely to increase up to US$12.5 billion by the end of 2019 and to US$18
billion by the end of the year 2025 as suggested by estimation. Companies like KDS
Accessories Ltd. are providing accessories to the garments sector and with those the garments
sector are making finished products meeting both domestic and overseas demand. Even KDS
Accessories Ltd provides Corrugated Curton (packaging box) to send the garments finished
products to the importers.
Such way, KDS Accessories Ltd. are accelerating the industrial growth and employment
opportunities. Banks are making a lot of profit only from this types of sectors by export
and import services.
KDS Accessories Ltd are being affected in terms of economic variables such as: Interest rate
risk, exchange rate risk, currency fluctuation risks and inflation (price level risk).
• Interest rate risk: Changes in an interest rates and banking policies results in an increase
in financial expenses may have an adverse impact in company’s profitability.
The company is dependent on bank for working capital requirements. The management
of KDS Accessories Ltd is always aware of the interest rates at which the debts of the
company are being financed. Management finances both long term and short term funds
at competitive rates. The company has been repaying borrowed funds on a continuous
basis to reduce such interest risk. The higher the interest rate, the lower the investment
and vice versa.
• Exchange rate risk: KDS Accessories Ltd carries foreign exchange rate fluctuation
risks as it imports raw materials against payments of foreign currency. Unfavorable
volatility or currency fluctuation of foreign currency to BDT exchange rate fells a
negative impact on the cost structure and profitability of the company. Such risk cannot
be eliminated fully as the company imports raw materials. However the management is
always alert in minimizing the negative impact of currency fluctuation costs by
identifying new sources of raw materials and constantly negotiating with suppliers to
reduce prices. Furthermore as a natural hedge, this 100% export oriented company
enjoys the benefit of any further devaluation of BDT in against foreign currency.
• Currency fluctuation risk: The Company is exposed to currency risk on sales,
purchases ad borrowings that are denominated in a currency other than the functional
currency of the company. Being a 100% export oriented company, the company can
mitigate foreign currency risk exposure by tradeoff between import and export.
• Inflation: Cost of the products of the company may increase due to various reasons such
as increased costs of raw materials and other variable costs that adversely affect the
input costs. In case the company is unable to pass on such increase to the consumers
because of the competition or otherwise it may affect the profitability of the company.
Social Analysis: Bangladesh is a country of about 180 million and a large number of people
are unemployed. Women are the most unused labor force in our economy and those who are
working are not getting well compensation packages as compared to men. Garments
Accessories Company like KDS Accessories Ltd have helped them to engage in the mainstream
of the economy by employing a large number of woman. Hence, they are participating in
decision making of families. From this point of view the social impacts of garments are as
follows:
1) Women empowerment has been achieved in private and public sector.
2) They are contributing to increase savings.
3) Economic solvency of woman has been achieved.
4) Their children are getting educated more.
5) Awareness about health care has been increased.
6) Standard of living is increasing day by day.
Technological Analysis: It’s an age of technology and KDS Accessories Ltd is totally
dependent on technology. It has adopted flexible manufacturing process and just in time
inventory process. Its whole manufacturing process is dependent on technology and each &
every production is run by machinery equipment regardless of anything in manual process. Its
whole functional department process like finance & accounts, Human resource, sales and
marketing, production is run by their own in house software. KDS Accessories Ltd is the first
who has comprehensive Heat transfer, label printing facility in Bangladesh with the most
advanced line of equipment & materials meeting global standards & safety compliance. The
company is aware of technological changes and has adopted new technology according to its
needs. Furthermore, routine and proper maintenance of equipment carried out by the
company ensures longer service life for the existing equipment and facilities.
Ecological analysis: Ecological impacts of KDS Accessories Ltd on the environment are not
well enough to describe because of poor waste management. The improper drainage system is
mainly responsible for it. Besides, government is not taking enough steps for waste
management in Dhaka and Chittagong. Sound and air pollution are the outcome of garments
and garments accessories sector. To maintain environmental protection, KDS Accessories Ltd
has its own compliance executive manager to identify its compliance with environmental
protection policy laid down by government.
Legal analysis: Government always encourages garments related industry by its supportive
hands most of the time. That’s why a large number of companies have been established here
and there in the city. But recent fire in some garments company has drawn the sight of the
government and as a result, it has increased some legal and compliance issues which has an
impact on KDS Accessories Ltd. Such incidents also had an impact on the garments companies
because the foreign suppliers had stopped or reduced the order for products from the country’s
garments companies and other garments related companies. Such had a big impact on KDS
Accessories Ltd. Therefore KDS Accessories Ltd has adopted some steps to comply with those
legal policies and procedures regarding remuneration policy, working environment & safety
regulations.
Conclusions: From the above analysis, it can be said that garments related industry is a
blessing for Bangladesh no doubt. It is growing day by day having a lot of political instability.
Though there were little impacts of global economic recession on Bangladeshi garments related
sector , the external factors like political instability , labor unrest, inadequate safety system etc.
has shrinked the image of Bangladeshi garments to the global arena which has an undesirable
effect on KDS Accessories Ltd. Still though, KDS Accessories Ltd has managed to maintain its
consistent financial performance and market share in the market. Some recommendations can
be drawn here:
• Equal opportunities in terms of compensation packages for both man and woman
should be ensured by both companies and monitoring authority.
• Garments related industry should be kept free from hartal, strike and other
political instability.
• The monitoring and licensing authority of Bangladeshi garments related industry should
ensure the internationally accepted policies regarding safety and security, compensation,
working environment and environmental protection.
• More international markets should be haunted so that exports increases and more people
can engage themselves in this business.
• More banking and government facilities in term of tax rebate, low interest rate, Zero
L/C margin should be enhanced to boost up the garments related sector so that it can
sustain in the international market in case of pricing as there is no GSP facility.
3.2 SWOT Analysis of KDS Accessories Ltd:
SWOT analysis is the detailed study of an organizations exposure and potential in perspective
of its strength, weakness, opportunity and threat. This facilitates the organization to make
their existing line of performance and also foresee the future to improve their performance in
comparison to their competitors. Here SWOT Analysis has been performed for KDS
Accessories Ltd. which reflects the current position of KDS Accessories Ltd. It can also be
considered as an important tool for making changes in the strategic management of KDS
Accessories Ltd.
Factors pertaining to the internal environment of the company. These are usually
classified as Strengths (S) and Weaknesses (W).
Factors pertaining to the external environment of the company. These are classified as
opportunities (O) and Threats (T).
Strength describes what an organization excels at and what separates it from the competitors,
weaknesses stops an organization from performing at its optimum level, opportunities are the
external factors that could give an organization a competitive advantages and threats are
• Uses its own in-house software (Accounting Management system) without depending
on external service provider.
• Energy cost is lower as its production assisted machinery depends on gas generator
rather than electricity connection from Power Development Board (PDB).
• Each and every production process of KDS Accessories Ltd is automated (there is no
manual system in manufacturing line) and as a result it gets the benefit of economies of
scale with a large scale of output.
• Bank interest is still high enough, particularly of private sector bank, for investment
of export-oriented project.
• Bank usually doesn’t provide loan for “any” purpose term. They usually provides
loan for specific term. So KDS Accessories Ltd. Cannot utilize the loan in different
purposes.
• Bank usually provides loan and gives time to start its first repayment within 180 days
but cash conversion cycle of KDS Accessories Ltd. Requires 240-270 days due to
fluctuation in sales and demand.
Opportunities
• With the help of further increase of productivity & quality, KDS Accessories Ltd. can
minimize cost and maximize profit and export value.
• Bangladesh, as a proven experienced RMG & textile manufacturer can expand share in
the existing and the country is targeting to reach its export to $50 billion in 2021 and
business of garments accessories will be in same place.
• If the garments accessories sector gets policy support and cooperation from
government, the earning of this sector is likely to increase up to US$12.5 billion by
the end of 2019 and to US$18 billion by the end of the year 2025 as suggested by
estimation.
Threats
• Changes in interest rates and banking policies may results in an increase in financial
expenses which may have an adverse impact in the profitability of KDS Accessories
Ltd.
• Due to lower barriers to entry to entry in this sector, competition may rise with too
many new players.
• Unfavorable volatility of foreign currency to BDT exchange rate may have negative
impact on the cost structure and profitability of KDS Accessories Ltd.
• The sudden price hike of Kraft paper and Thread in the global market may push KDS
Accessories Ltd. to a very awkward situation to devastate the business and their
business may face similar obstacle also.
• The type of labor and political anarchies of the recent days if prevails in the future,
Bangladesh may lose the business of garments which will directly impact the business
of its backward linkages accordingly.
3.3 Competitor Analysis of KDS Accessories Ltd:
One of the framework of competitive analysis is Porters Five Forces model that enables to
assess and evaluate the competitive strength and position of a business organization. Here,
Competitive analysis of KDS Accessories Ltd are done by following Porters Five forces
model framework.
Five forces model tool was created by Harvard Business School professor Michael Porter to
analyze an industry’s attractiveness and likely profitability. Since its publications in 1979, it
has become one of the most popular and highly regarded business strategy tools. Porter
recognized that organizations likely keep a close watch on their rivals but he encouraged them
to look beyond the actions of their competitors and examine what other factors could impact
This is how much pressure suppliers can place on a business. If one supplier has a large enough
impact to affect a company’s margin and volumes, then it holds substantial power. As KDS
Accessories LTD is a garments accessories manufacturer so it needs raw materials which is not
found in the country. It needs to import machinery and tools from the global market and it is
highly dependent on the global market. For KDS Accessories Ltd, the bargaining power of
supplier is high.
This is how much pressure customers can place on a business. If one customer has a large
enough impact to affect a company’s margins and volumes, then the customer holds substantial
power. For KDS Accessories Ltd, the bargaining power of customer is low. KDS Accessories
Ltd has a diversified product regarding garments accessories and it produces high quality
garments accessories with its flexible and automated manufacturing process. Moreover, it
provides faster delivery and 1 stop trim solutions and it has a strong brand recognition that
enables KDS Accessories Ltd to hold high power over customers.
Competitive rivalry
This describes the intensity of competition between existing firms in an industry. Rivalry
among existing competitors is very high.
The prime competitors are:
• A1 fashion Handlers
• Mastex Accessories
• Recent Touch Bangladesh limited
• Dekko Accessories
• Coats Bangladesh Ltd
• Fabian Group
KDS Accessories LTD captured the largest portion of the Garments accessories market that
makes the company a leading and largest accessories manufacturer and a major player in RMG
market of Bangladesh.
But KDS Accessories Ltd faces stiff competition from other garments accessories suppliers in
some specific products like Coats Bangladesh ltd regarding thread, A1 fashion handler &
Recent Touch Bangladesh Ltd regarding buttons etc.
Threat of new entrants
The easier it is for new companies to enter the Industry, the more aggressive competition there
will be. Issues that can limit the threat of new entrants are known as barriers to entry. As market
is saturated, there is a very few chance for the new markets. Already KDS Accessories Ltd is in
a top position followed by some other companies covering all sorts of garments accessories
products so threat of entrants is very low. Moreover KDS Accessories Ltd is globally
considered as a pioneer of packaging having single largest capacity and strong brand value, so it
will take time for new competitors to become a threat for KDS Accessories Ltd.
Forces Position
Working capital is the difference between a company’s current assets and current liabilities. It
is a financial measure that calculates whether a company has enough liquid assets to pay its bill
that will be due in a year. When a company has excess current assets, that amount can be used
to spend on its day to day operations. Positive working capital indicates a good sign of the short
term financial health for a company because it has enough liquid assets remaining to pay off
short term bills and to internally finance the growth of their business. Negative working capital
means assets are not being utilized effectively and a company may face a liquidity crisis that
will lead the company to borrow additional funds from a bank.
To understand working capital better we should have basic knowledge about the various
aspects of working capital. To start with, there are two concepts of working capital:
• Gross Working Capital
• Net Working Capital
Gross Working Capital: Gross working capital refers to the firm’s investment in current
assets. Another aspect of gross working capital points out the need of arranging funds to finance
the current assets. The gross working capital concept focuses attention on two aspects of current
assets management, firstly optimum investment in current assets and secondly in financing the
current assets.
Net Working Capital: Net working capital refers to the differences between current assets
and current liabilities. It can be positive as well as negative. Positive working capital refers to
the situation where current assets exceed current liabilities and negative working capital refers
to the situation where current liabilities exceed current assets.
Working capital represents the net current assets available for the day-to-day operating
activities. Many businesses that appear profitable are forced to cease trading due to an inability
to meet short term obligations when they fall due. Successful management of working capital
is essential to remaining in business.
Working capital management requires great care due to potential interactions between its
components. For example, extending the credit period offered to customers can lead to
additional sales. But the company’s cash position will fall if the businesses need to wait for so
long to collect its payment that will ultimately leads to the need for a bank overdraft. Interest on
the overdraft may even exceed the profit arising from the additional sales, particularly if there
is an increase in the incidence of bad debts.
Working capital management is central to the effective management of a business because-
• Current assets comprise the majority of the total assets of some companies.
• Shareholder wealth is more closely related to cash generation than accounting profits.
• Failure to control working capital, and hence to manage liquidity, is a major cause of
corporate collapse.
Table showing Current assets as percentage of total assets of KDS Accessories Ltd.
Year Percentage
2017-2018 61%
2016-2017 53%
2015-2016 47%
Ratios useful to analyze working capital management of KDS Accessories Ltd.
(A) Efficiency 2017-2018 2016-2017 2015-2016 Ideal Ratio
Ratio
1) Working capital 7.45 6.15 10.23
Turnover (Times)
2) Current Asset 0.90 0.99 1.33
Turnover (Times)
3) Inventory 3.02 3.03 3.36
Turnover (Times)
Working Capital turnover: A ratio measuring how efficiently a business uses its working
capital to produce sales and it can be calculated through dividing net sales by net working
capital.
There is a fluctuating trend in the working capital turnover of KDS Accessories Ltd. in this
three years period which indicates the firm needs to put much emphasis regarding the sale of
inventory and collecting the payment from customers hastily to run the company’s operation
more smoothly which in turn leads to limiting the need for additional financing.
Current Asset Turnover: A ratio measuring the ability of the firm to generate sales through
its current assets and it can be calculated through dividing net sales by current assets.
There is a diminishing trend in the Current asset turnover of KDS Accessories Ltd. in this three
years period which indicates the firm has a high needs of the external finance. One of the causes
that influenced this situation is the growth of accounts receivable. The firm needs to keep the
inventory stock to the minimum level which will allow the continuous operation process and
efficiency should be accelerated regarding the accounts receivable collection process. Besides,
the firm needs to put much emphasis on the sales promotion and marketing research.
Inventory Turnover ratio: A ratio measuring the number of times a business sells and
replaces its stock during a given period and it can be calculated dividing cost of sales
by average inventory.
3.4 3.36
3.35 3.3
3.3
3.25 3.2
3.2
3.15
3.1
2017-2018 2016-2017 2015-2016
There is also a diminishing trend in the inventory turnover ratio of KDS Accessories Ltd. in this
three years period which indicates most of the inventory are being tied up in the capital which
may be challenging for business. So the firm needs to sells its good fasters to clear up the
inventory level and the firm must put emphasis in sales promotion.
Current ratio: A ratio measuring the ability of the firm to meet its short term obligations that
are due within a year and it can be calculated by dividing current assets by current liability.
CURRENT RATIO
Current Ratio
1.2 1.19
1.18
1.16 1.15
1.14
1.14
1.12
1.1
2017-2018 2016-2017 2015-2016
There is a fluctuating trend in the current ratio of KDS Accessories Ltd. in this three years
period which indicates that the business is in perplexing position to meet its short term
obligations and the firm needs to put emphasis to keep some financial resources to remain
solvent in the short term but it doesn’t mean that the company is unable to meet its short term
debts because current ratio alone cannot measure the true liquidity form of the firm. Again
too better current ratio indicates the firm is not efficiently managing the assets.
Quick Ratio: A ratio measuring the ability of a business to pay its short term liabilities by
having assets that are readily convertible into cash. The assets are known as quick assets since
they can be quickly converted into cash. Usually the ratio can be calculated as same as
current ratio except the amount of current assets short of prepaid expenses & inventory as this
two cannot be converted into cash quickly .
QUICK RATIO
Quick ratio
0.86 0.85
0.84
0.82 0.81
0.8 0.79
0.78
0.76
2017-2018 2016-2017 2015-2016
There is a fluctuating trend in the quick ratio of KDS Accessories Ltd. in this three years
period with the ratio of less than one (1) which indicates the firm is in challenging position to
pay expenses or loans and sustain its operations.
Cash Ratio: A ratio estimating the share of current liabilities of the firm that can be paid
off immediately with highly liquid assets and it can calculated dividing the firm’s most
liquid assets by its current liabilities.
CASH RATIO
Cash Ratio
0.025 0.02
0.02
0.015 0.01 0.01
0.01
0.005
0
2017-2018 2016-2017 2015-2016
In KDS Accessories Ltd. there is a decreasing trend in cash ratio but still the firm is maintaining
preferable ratio of 1%.
The ratio provides the most conservative measure of the liquidity position of the firm and it is
unrealistic for a firm to hold large amount of cash. On that perspective KDS Accessories Ltd
is holding enough cash and cash equivalents to meet its current liabilities.
Procedures of managing working capital in KDS Accessories Ltd.
• Objectives: The main objectives of KDS Accessories Ltd. regarding the management
of working capital is the efficient use of current assets, maintaining liquidity and
profitability.
• Ratios uses to calculate working capital: The KDS Accessories Ltd. personnel uses
various ratios to review working capital situation such as Current ratio , net working
capital to net worth, net working capital to total assets , current assets to fixed assets.
a) Price fluctuations.
b) Delay in realization of dues from debtors.
c) Increase in duty on holding inventory.
d) Excessive credit granting to customers.
• Sources of working capital finance: KDS Accessories Ltd. collects raw materials from
outside exporters and for this KDS Accessories Ltd. needs to open L/C with its bank to
provide guarantee to the exporters bank that the payment will be made in due time on
behalf of KDS Accessories Ltd. KDS Accessories Ltd. opens a loan A/C against that L/C
where the firm requests its bank to give the time of repayment for about 240 days as its
operating cycle is about 240-280 days. The firm goes through the process of converting
the raw materials to finished goods and to sell the goods to customers. In the meantime,
the firm collects some payments from the previously sold customers and pays financial
expenses. Besides, the firm sells some goods in cash and meets the financial expenses. If
there is need for any cash, the senior manager of finance and accounts reports to CFO to
apply for loan from bank and it takes about 3-4 months for loan process completion. So
the senior manager of finance and accounts needs to forecast the need for external
financing. The senior manager need to assess whether inventory carrying costs are
maintained at reasonable level. Overall the whole working capital finances depends
mainly on external loan.
3.5 Projected Income statement for forecasting period:
KDS Accessories Ltd
Projected Statement of Profit or loss and other comprehensive income
The projected income statement for upcoming three
For the year years
ended (2018/2019-2020/2021)
30 June 2021 period has
been prepared based on some assumptions which will be mentioned in page no 36. The
Actual Forecast
projected income Statement has no relation with the real budget or any forecasts made by KDS
Accessories Ltd. TheParticulars
whole mathematical calculations 2017/2018
have been 2018/2019 2019/2020
done using excel functions. 2020/2021
The projected balance sheet for upcoming three years (2018-2021) period has been prepared
based on some assumptions in page no 36. The projected balance sheet has no relation with the
real budget or any forecasts made by KDS Accessories Ltd. The whole calculations being done
with excel functions.
Assets
Non-Current Asset:
Property, Plant & Equipment(PPE) 1,371,421,690 1,533,292,873 1,714,269,981 1,916,608,118
Investment in associate 48,265,804 48,345,224 48,424,774 48,504,455
Intangible assets 1,662,505 1,377,433 1,141,242 945,552
Capital work in progress 14,529,904 4,551,317 1,425,645 446,566
Other investment 4,920,847 5,142,983 5,375,146 5,617,790
Total Non-Current Assets 1,440,800,750 1,592,709,829 1,770,636,788 1,972,122,481
Current Assets:
Inventories 667,063,710 664,591,264 761,280,416 872,036,547
Trade Receivables 1,128,378,143 1,205,597,009 1,380,995,270 1,581,911,635
Advances, Deposits & Prepayments 58,349,397 96,063,800 110,039,800 126,049,121
Other Receivables 373,446 1,848,412 2,117,331 2,425,375
Short Term investments 8,820,656 9,236,097 9,671,105 10,126,601
Cash & Cash Equivalents 6,082,955 12,004,658 13,751,176 15,751,788
Due from affi liated company 421,112,376 275,842,216 315,973,574 361,943,508
Total Current Assets 2,290,180,683 2,265,183,457 2,593,828,671 2,970,244,575
Shareholders Equity:
Share Capital 600,600,000 645,645,000 694,068,375 746,123,503
Share Premium 120,000,000 120,000,000 120,000,000 120,000,000
Revulation Reserve 214,391,703 214,391,703 214,391,703 214,391,703
Retained earnings 559,538,849 650,876,605 751,875,684 865,072,315
Total Shareholers Equity 1,494,530,552 1,630,913,308 1,780,335,762 1,945,587,521
Non-Current Liabilities:
Current Liabilities:
Trade and other payables 937,557,390 801,857,316 918,516,845 1,052,148,776
Current portion of long term borrowings 90,559,800 99,719,306.32 121,563,814.08 148,193,578.96
Current Tax liability 36,859,697 35,620,055 34,422,105 33,264,443
Due to affi liated company 39,918,292 109,158,689 125,039,820 143,231,444
Short term bank loan 842,600,806 788,625,896 903,360,430 1,034,787,306
Provision for WPPF and welfare fund 64,895,319 79,824,873 91,438,326 104,741,381
Total current Liabilities 2,012,391,304 1,914,806,136 2,194,341,339 2,516,366,928
Assumptions:
• The forecasting has been done hypothetically and there is no connection with the actual budget
or forecast made by KDS Accessories Ltd.
• The sales growth rate has been calculated in accordance with the formula: (sales current year
- sales previous year)/sales previous year.
• The sales of the forecasting period has been done by taking the average of the growth rate
of the actual period.
• Interest rate has been calculated based on the average of all the interest taken by the firm in
each actual period.
• Current proportion of long term borrowings have been calculated in proportion to long
term loans.
• We have assumed the firm will provide 5% stock and 10% cash dividend for the
forecasting period.
• The retained earnings has been calculated by adding retained earnings of previous year with the
net profit of the current year deducting cash dividend and stock dividend of that current year in
case of forecasting period.
Calculations: The calculations have been done using excel functions and on the basis of
assumptions made in page no 36.
calculations
Actual Forecast
Particulars 2015/2016 2016/2017 2017/2018 2018/2019 2019/2020 2020/2021
Sales growth -0.014807197 0.305780
Average sales growth 0.145486642 0.145486642 0.145486642 0.145486642
Actual Forecast
Share capital
Share capital Share Capital Share capital Share Capital Share Capital
Calculation of bonus share & cash dividend 30 June 2016 30 June 2017 30 June 2018 30 June 2019 30 June 2020 30 June 2021
520,000,000 572,000,000 600,600,000 645,645,000 694,068,375 746,123,503
Growth rate (share capital) 0.10 0.05
Average (share capital) 0.08
2018-2019 2019-2020 2020-2021
Bonus share (Assumed 5% will continue as of last two years) 5% 30030000 32,282,250 34,703,418.75
Cash dividend( assumed 10% will continue as of last two years) 10% 60060000 64,564,500 69,406,837.50
3.8 Calculation of financial ratios for both actual & forecasting period:
Ratio Analysis:
• Liquidity Ratio
• Activity Ratio
• Debt Ratio
• Profitability ratio
➢
Activity Ratio: The three basic measures of activity are:
Asset Turnover ratio = Sales/Average assets
Average assets = (Beginning Assets + Ending Assets)/2
➢ Inventory days= Ending Inventory/Cost of sales x 365
➢ Receivable days= Receivables/Credit sales x 365
➢ Payable days= Payable/credit purchase (cost of sales) x 365
**** The P/E ratio for 2018/2019 to 2020/2021 known as forward P/E has been calculated
by the following manner:
Forward P/E = current price per share / expected EPS of the forecasting period.
Chapter 4
Every study belongs some specific findings, my report is not an exception to this. The
major findings of the report are as follows:
The higher the current ratio, the more liquid the firm is considered to be.
Current ratio of KDS Accessories is in fluctuating trend in its actual period
but it is expected to boost in the forecasting period adjacent to 1.18 taka
against 1tk current liabilities which is a good sign.
The net working capital position indicates a good sign in the actual period
which is expected to endure in the forecasting period as such is in increasing
trend i.e. current assets are growing at a higher rate than current liabilities.
The quick ratio is less than 1 indicating the current assets are highly
dependent on inventory. The quick ratio is in fluctuating trend in the current
period but it is expected to rise gradually in the forecasting period. To
enhance the ratio, KDS Accessories Ltd has to accelerate cash, short term
investments & reduce the current liability.
The greater the asset turnover ratio the more the company is efficient in
utilizing the assets. The asset turnover ratio is in fluctuating trend in the
actual as it decreases at a greater margin in 2016/2017 due to lower sales but
such is expected to grow at an increasing trend in the forecasting period.
The situation of inventory days was not satisfactory in actual period as there
was an increasing trend but such is expected to decrease in the forecasting
period. KDS Accessories need to improve its sales or advertising technique
to sell its inventory quickly so the capital doesn’t get tied in the inventory.
EPS indicates how much money a company makes for each share of its
stock. There is an increasing trend in ROE of KDS Accessories Ltd and
such indicates investors will pay more for the firm with higher profit. It is
not wise to judge a performance of the company with EPS alone as it can be
distorted if a company conducts a share buy-back. Moreover, EPS doesn’t
take account of a company’s debt position and financial leverage also. It
will be better if it can be judged with P/E ratio that indicates the value of
share per dollar earned. KDS Accessories Ltd have a fluctuating trend in
P/E ratio. Too high P/E ratio indicates a positive future performance and
investors have higher expectation for future earnings growth but such
growth stocks are volatile as they are considered overvalued. From that
perspective , KDS Accessories Ltd have a moderate P/E ratio which is less
volatile and investors faces less risk to invest in the stock . And if the stock
price rises higher, the investors make a good profit. To be noted, KDS
Accessories had high P/E ratio in 2016/2017 that indicates investors
considered its stock as overpriced stock and risky investments for investors
that time.
The P/E ratio for 2015/2016 to 2017/2018 are trailing P/E ratio whereas the
P/E ratio for 2018/2019 to 2020/2021 are forwarding P/E ratio. If the
forward P/E ratio is lower than the current P/E ratio it means analysts are
expecting earnings to increase. If the forward P/E ratio is higher than the
current P/E ratio analysts expects a decrease in earnings. It is to be noted
that forward P/E is smaller than the trailing P/E since the forward P/E
accounts for future earnings growth relative to today’s share price. However
trailing P/E has shortcomings as the company’s past performance doesn’t
signal future behavior. Investors will commit money based on future
earnings power, not the past. In KDS Accessories Ltd, forward P/E ratio is
smaller than current trailing P/E that indicates positive future.
Net profit margin is a strong indicator of firms overall success and is usually
stated as a percentage. KDS Accessories Ltd has a higher net profit margin
and is expected to continue in the forecasting period that indicates
efficiency in management, strong pricing strategies and ability to control
costs by selling goods at a price significantly higher than its costs.
The debt to equity ratio is a leverage ratio that highlights the capital
structure of a company whether its capital structure tilted either towards
debt or equity financing. For instance, in 2015/16 the debt to equity ratio is
0.94 which means for every dollar in equity KDS Accessories Ltd has 94
cents in leverage. A higher debt equity ratio designates KDS Accessories
Ltd a levered firm which is quite preferable as the firm is stable with
significant cash flow generation. Therefore KDS Accessories Ltd can
magnify the return on equity by using more debt. As the cost of debt is
lower than the cost of equity, KDS Accessories Ltd can lower the WACC
increasing D/E up to a certain point. But KDS Accessories management
need to be careful for not raising the debt too high because the cost of
borrowings will skyrocket , as will the cost of equity and the company’s
WACC will get extremely high, driving down its share price.
TIE indicates how many times a company can cover its interest charges on a
pretax earnings basis. It is also known as interest coverage ratio. A higher
time interest earned ratio of KDS Accessories Ltd is favorable because it
means the company presents less of a risk to investors and creditors in terms
of solvency. But such is expected to decrease in the forecasting period that
will be troublesome for KDS Accessories Ltd. However, a high TIE ratio
doesn’t necessarily mean that a company is managing its debt repayment in
the most efficient way. This means business may not utilize excess income
for reinvestment through expansion but paying down debt obligations
quickly. A company with high TIE ratio may lose favor with long term
investors. But each and every company should keep a decent T/E ratio and
need to reduce debt obligations to some extent for eradicating future
uncertain occurrence. There KDS Accessories need to take some steps to
reduce some debt though their debt enables them to magnify the good
returns.
5.1 Conclusions:
Garments sector is the highest single contributor of Bangladesh economy. About 22 million
people are directly or indirectly involved in this sector. And about 78% of the employees are
women who are playing a pivotal role in decision making, poverty alleviation in their family.
The garments sector are dependent on the garments accessories business like KDS Accessories
Ltd. The earning of garments accessories sector like KDS Accessories Ltd is likely to increase
up to US$12.5 billion by the end of 2019 and to US$18 billion by the end of the year 2025 as
suggested by estimation. Companies like KDS Accessories Ltd. are providing accessories to
the garments sector and with those the garments sector are making finished products meeting
both domestic and overseas demand. As a major player in readymade garments market, KDS
Accessories Ltd has wonderful chance to perform much better than present. But the
management body should consider some other issues like bank loan, operating expenses,
project finance, investments and so on. So the company should have deep concern on the above
issue and take essential steps to build sustainable competitive advantages.
Ratio analysis is the basic tool of financial analysis and financial analysis is an important part
of any business planning process as SWOT and no SWOT analysis would be complete without
an analysis of company’s financial position. Usually the financial statement analysis contains
the past performance, so I made the forecasted income statement and forecasted balance sheet
for upcoming three years period and conduct the ratio analysis to get an idea of how KDS
Accessories Ltd will be able to perform better in the upcoming period.
From the study it is determined that company financial performance was seeing to be sound
because the company tries to increase its production and also net profit. The company need to
utilize its funds more efficiently to justify its growth in all aspects.
The report helps to explore my knowledge in this financial area that will help me to understand
more about how I can know the performance of the industry as a student of Accounting. This
report is also helping me to understand the financial condition and as well as how they will do
in future. From this report an investor can see the general picture of KDS Accessories and he
can take decision based on this report.
The one month internship program helped me to enhance my knowledge beyond the text
books. I have gained practical knowledge regarding the corporate environment which I
hope would support me in future.
5.2 Recommendations:
The overall performance of KDS Accessories Ltd shows a satisfactory position in the
given period. It is not easy to recommend some suggestion to boost the performance level
of the organization much better than the existing point.
I have observed some shortcomings regarding operational and other aspects. On the basis
of my observation I would like to present the following recommendations.
They should increase dividend per share that will serve as a promotional
tool.
They need to reduce the debt to equity ratio to some extent though it helps
them to magnify the return to equity. Because, banking industry is not in
decent shape
They should be careful about the market price of share because the price of
share would decrease in future.
They should minimize their financing expenses to make higher net profit.
They should concentrate on the quick ratio since it is below the ideal ratio
1:1. For this they have to make tradeoff between producing more and less
inventories.
The company should do research to minimize the cost by keeping the same
quality. They can introduce backward integration for producing raw
materials to take cost advantage.
They should keep liquid assets or safety cash balance for unanticipated
cash crisis.
KDS Accessories Ltd should try to minimize the operating expenses which
enables the company to save, in order to increase the profit which helps for
its future expansions.
Company should continue paying taxes in the future so that it will not
burden the particular period in which it has paid the balance amount of tax.
In the face of today’s global competition with open market operation, KDS Accessories
Ltd must develop and retain the high achievers and motivated workforce and equip them
with latest skills and technologies.
Bibliography 5.3:
Caliskan, Akbas (2011). Working capital analysis. Istanbul.
Gangadevi, (2008). Leveraging & financing decisions for the selected 30 companies.
Khan, (2010). Financial Analysis Techniques & Tools which are designed for analyzing
the market and invest right way for maximized profit, Pg no 1063.
2018)
Financial Accounting (ACCA), Ratio Analysis & interpretation, UK, Kaplan Publishing
(2016)