MBA 511 Financial Management:

Assignment
The impact of COVID-19 on financial status/health/performance
of companies by applying Financial Statement Analysis (through ratios)

Submitted to:
Dr. Samiul Parvez Ahmed

Associate Professor & Head of Finance Department

Deputy Director, Center for Business Policy Research (CBPR)

School of Business, Independent University, Bangladesh (IUB)

Submitted By:
Md. Muhtaseem Mahboob
(ID- 2222268)
Sadikur Rahman –
(ID 1931017)
Rahat Khan –
(ID 2120701)

DATE OF SUBMISSION: August 8, 2022

Letter of Transmittal
8th November 2022
To,
Dr. Samiul Parvez Ahmed
Associate Professor & Head of Finance Department
Deputy Director, Center for Business Policy Research (CBPR)
School of Business, Independent University, Bangladesh (IUB)
Subject: An Assignment on the analyze the impact of COVID-19 on financial
status/health/performance of companies by applying Financial Statement Analysis (through
ratios)
Dear Sir,
We gave our best effort for the preparation of this assignment and hence any sort
of flows, mistakes or difficulties in understandability may arise as we are still a learner in
accountancy field. Almost all the instructions given in class have been followed by us.
Provided content in the assignment is done on our own and some references have been
taken.
We will be glad to clarify variations that may arise and will be more than happy to
accept suggestion related to the assignment.
Finally, we would love to express our gratefulness for your support and kind
consideration in and outside the classroom.
Thank you.
 Background of the Textile industry

The textile and clothing industries provide a single source of growth in Bangladesh's
rapidly developing economy. Exports of textiles and garments are the principal source of
foreign exchange earnings. By 2002 exports of textiles, clothing, and ready-made
garments (RMG) accounted for 77% of Bangladesh's total merchandise exports.

In 1972, the World Bank approximated the gross domestic product (GDP) of Bangladesh at
US$6.29 billion, and it grew to $368 billion by 2021, with $46 billion of that generated by
exports, 82% of which was ready-made garments. As of 2016 Bangladesh held the 2nd place
in producing garments just after China. Bangladesh is the world's second-largest apparel
exporter of western fast fashion brands. Sixty percent of the export contracts of western
brands are with European buyers and about thirty percent with American buyers and ten
percent to others Only 5% of textile factories are owned by foreign investors, with most of
the production being controlled by local investors. [In the financial year 2016-2017 the RMG
industry generated US$28.14 billion, which was 80.7% of the total export earnings in exports
and 12.36% of the GDP; the industry was also taking on green manufacturing practices.

Bangladesh's textile industry has been part of the trade versus aid debate. The encouragement

of the garment industry of Bangladesh as an open trade regime is argued to be a much more
effective form of assistance than foreign aid. Tools such as quotas through the
WTO Agreement on Textiles and Clothing (ATC) and Everything but Arms (EBA) and the
US 2009 Tariff Relief Assistance in the global clothing market have benefited entrepreneurs
in Bangladesh's ready-made garments (RMG) industry. In 2012 the textile industry accounted
for 45% of all industrial employment in the country yet only contributed 5% of the
Bangladesh's total national income. After several building fires and collapses, resulting in the
deaths of thousands of workers, the Bangladeshi textile industry and its buyers have faced
criticism. Many are concerned with possible worker safety violations and are working to have
the government increase safety standards. The role of women is important in the debate as
some argue that the textile industry has been an important means of economic security for
women while others focus on the fact that women are disproportionately textile workers and
thus are disproportionately victims of such accidents. Measures have been taken to ensure
better working conditions, but many still argue that more can be done. Despite the hurdles,
riding the growth wave, Bangladesh apparel making sector could reach 60 percent value
addition threshold relying on the strong backwardly linked yarn-fabric making factories
directly from imported raw cotton, reaching a new height of exports worth of US$30.61
billion in the fiscal year 2018.

Impact of Covid 19 and the currernt status and issues of the textile industry

The garment industry is notoriously competitive in terms of delivery time and price. Across
the global supply chain, margins and buffers have consistently been too low. Due to the
pandemic, underlying problems that have existed for years have now risen to the surface, like
the immense power imbalance between brands and factories in garment supply chains, which
resulted in increased pressure on factories with lower order volumes and prices being pushed
down further. Not surprisingly, this negatively impacted the millions of workers who depend
on the garment industry for their employment and income.

Against this backdrop, Fair Wear commissioned two research studies. The South Asian
Network on Economic Modelling researched the impact of COVID-19 on the costs of
production and orders in Bangladesh. Interviews were conducted with 54 factories in the four
production hubs: Dhaka, Gazipur, Narayanganj, and Chittagong. Karmojibi Nari – a female-
led, non-profit organisation – examined the impact of the pandemic on garment workers in
Bangladesh through a questionnaire survey administered to 500 workers (125 respondents
each from the aforementioned regions).

The research shows that expenditures for firms within the ready-made garment (RMG)
industry—be it production costs, overhead costs, share of labour costs, operational costs, and
transportation costs—have all risen over the Covid period. The research also shows that the
pandemic resulted in lower unit prices, smaller order sizes/values, downward pressure on
factories’ mark-up, cancellation of orders and delays in buyers’ payments. The situation
appears particularly difficult for factories that produce woven items, reflecting the change in
consumer behavior brought about by the Covid pandemic.

Considering these increased costs and coupled with the wave of order cancellations and the
decrease in demand for RMG products, it is not surprising that the workers within this
industry have been among the hardest hit. The reduction in production and the closing down
of factories have directly contributed to decreased work hours, cuts in bonus payments and
other issues brought about by economic uncertainty.
In this regard, the research found that the average monthly income (including overtime) of
garment workers decreased during the Covid pandemic. The average income dropped to its
lowest level in the month of April, averaging BDT 5,425, when factories faced a government-
imposed one-month closure. The survey data reveals that the average income gradually
increased from May and had almost returned to the pre-Covid levels in October, as factories
began to resume operations and overtime hours started to go up again.

Furthermore, the study revealed that four in every ten respondents claimed that their factories
retrenched workers during the Covid period. The rate of retrenchment was slightly higher in
knit factories and comparatively lower in composite factories. Job loss and retrenchment
occurred more in the first three months of the Covid outbreak in the country. Workers
reported arbitrary and informal methods to retrench workers, and a lack of notice period
observed. The studies also found that not all workers received their due wage or overtime
allowance after being retrenched.

Furthermore, only 39% of retrenched workers are currently involved in income-earning

activities. Male workers engaged in rickshaw pulling, vegetable selling, labouring and street
vending, among other things, while female workers engaged in tailoring, and as domestic
workers, among other things. The average monthly income of such workers dropped to BDT
5,056, less than half of the average income of workers pre-pandemic.

The fact that RMG producers of Bangladesh were forced to comply with the buyers’ demands
of a price cut or accept abrupt cancellation and delay in payment of orders already delivered
highlights the power imbalance between brand and factory and the producers’ lack of
leverage in negotiating fairer trade terms during the pandemic.

The intensifying competition in the global RMG market and the absence of an effective
international regulatory authority with the capacity to oversee and enforce deals among
parties are two factors which have contributed to the capitulation of producers. The
combination of these two factors and the economic crisis prompted by the Covid pandemic
have induced a zero-sum game where the buyers hold all the advantages. Therefore, to the
buyer’s demand for a price cut, the factory’s only rational response is to accept the deal, due
to the lack of any other viable alternatives. The factory can either sell it or keep it unsold. In
case of not selling, the seller loses everything they could have earned. When agreeing to sell,
even at a lower price that is below the cost of production, it could (partly) cover salaries of
the workers, try to avoid complete shutdown and keep the business afloat.
 Profitability situation for the firms before and after COVID-19 occurred

The Profitability situation for the firms before and after covid 19 is very significant. Covid 19
has hit very hard in the profitability sector of the firms in the year2020and 2021. Based on
our calculation we can clearly see that all the firm’s profitability has gone down significantly
after covid 19 outbreak. Since textile industry is heavily connected to global business chain it
has suffered the most in our country. In our analysis of the portability ratios of the firms we
found that after covid 19 two of the firms could not generate the same amount of profit as
they were generating in 2019. Only one firm has able to generate higher profit after covid 19
comparatively it was generating in 2019.

Further explanations are shown in the figures below: -

Profit Margin
10.00%

8.00%

6.00%

4.00%

2.00%

0.00%
2019 2020 2021
-2.00%

-4.00%

Envoy Textiles EVINCE TEXTILES LIMITED

MAKSONS SPINNING MILLS LIMITED

The profit margin ratio, also called the return on sales ratio or gross profit ratio, is a
profitability ratio that measures the amount of net income earned with each dollar of sales
generated by comparing the net income and net sales of a company.

In this analysis we see that the profit margin is high in 2019 compared to other two years in
Envoy Textiles Ltd and Evince Textile Ltd. But in 2020 all the firms profit margin gone
down significantly and Maksons Spinning Mills Ltd profit margin has gone below the chart
that shows the firm has suffered a loss in their business operation. But on the other hand, in
2021 Maksons Spinning Mills Ltd has able come back in full flow gaining higher profit
margin than the other two firms comparatively.
 Return on assets
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
2019 2020 2021
-1.00%
-2.00%

Envoy Textiles EVINCE TEXTILES LIMITED

MAKSONS SPINNING MILLS LIMITED

The return on assets or ROA ratio, often called the return on total assets, is a profitability
ratio that measures the net income produced by total assets during a period by comparing
net income to the total assets.

In this analysis we can also see that the Return on Assets is high in 2019 compared to other
two years in Envoy Textiles Ltd and Evince Textile Ltd. But in 2020 all the firms Return on
Assets gone down significantly, and Maksons Spinning Mills Ltd Return on Assets has gone
below the chart that shows the firm has suffered a loss in their business operation. But on the
other hand, in 2021 Maksons Spinning Mills Ltd has able come back in full flow gaining
higher Return on Assets than the other two firms comparatively.

Return on equity
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
2019 2020 2021
-2.00%
-4.00%

Envoy Textiles EVINCE TEXTILES LIMITED

MAKSONS SPINNING MILLS LIMITED

The return on equity ratio or ROE is a profitability ratio that measures the ability of a firm
to generate profits from its shareholders investments in the company. In other words, the
return on equity ratio shows how much profit each dollar of common stockholders’ equity
generates

Liquidity situation for the firms before and after COVID-19 occurred

Liquitidy ratios measure the company’s liquidity (its ability to payshort-term debts) .The
higher the ratio, the lower the risk of inability to pay. Based on our calculations we did not
see any major changes in liquidity situations for the firms before and after COVID-19
occurred.

Further explanations are shown in the figures below: -

Current ratio
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
2019 2020 2021

Envoy Textiles EVINCE TEXTILES LIMITED

MAKSONS SPINNING MILLS LIMITED

The current ratio is a financial ratio that measures a company’s ability to pay off its current
obligations with current assets. Management and external users analyze this ratio to judge the
liquidity of the company as well as its efficiency.

In this analysis we see that Maksons Skinning Ltd.’s current ratios the highest in 2021
compared to other two years. On the other hand, we can also see that, other two firm’s current
ratios didn’t get affected due to covid 19 before and after comparatively.

Quick ratio
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
2019 2020 2021

Envoy Textiles EVINCE TEXTILES LIMITED

MAKSONS SPINNING MILLS LIMITED
The quick ratio is a financial liquidity ratio that compares quick assets to current liabilities.
Quick assets generally include cash, cash equivalents, and accounts receivable except
inventory.

In this analysis we see that Maksons Spinning Ltd.’s quick ratio is the highest in 2021
compared to other two years. On the other hand, we can also see that, other two firm’s quick
ratios got affected slightly due to covid 19. But in 2021 their quick ratios again increased
significantly after covid 19.
 Long-term debt situation for the firms before and after COVID-19 occurred

Debt Utilization Ratios: -Measure the company’s ability to pay long-term debts.

Debt to total asset ratio measures a firm’s total liabilities as a percentage of its total assets. In
a sense, the debt ratio shows a company’s ability to pay off its liabilities with its assets. In
other words, this shows how many assets the company must sell in order to pay off all of its
liabilities.

Debt to total Asset

70.00%

60.00%

50.00%

40.00%

30.00%

20.00%

10.00%

0.00%
2019 2020 2021

Envoy Textiles EVINCE TEXTILES LIMITED

MAKSONS SPINNING MILLS LIMITED

In this analysis we see that Envoy Textiles Ltd.’s Debt to total assets ratio is highest all the
three years. It’s not good for company. Also, their Debt to assets ratio has increased highest
in 2021 post which falls under the post covid 19 timeframes. On the other hand, Masons
Skinning Ltd.’s Debt to assets ratio had increased slightly higher in 2020 but it came down to
2021 better than 2019.
Times interest earned is the financial ratio that compares interest before interest expense and
taxes to the total interest expense. Time interest earned ratio measures the ability of a
company to pay its interest expense based on its current income levels.

Times interest earned

3

2.5

1.5

0.5

0
2019 2020 2021

Envoy Textiles EVINCE TEXTILES LIMITED

MAKSONS SPINNING MILLS LIMITED

In this analysis we see that Maksons Spinning Ltd.’s Times interest earned is the highest in
2021 compared to other firms. So, we can say that Maksons Spinning Ltd. doing better than
the other two firms after covid 19 situation.

The fixed charge coverage ratio is a financial ratio that measures a firm’s ability to pay all of
its fixed charges or expenses with its income before interest and taxes.

Fixed charge coverage

4
3.5
3
2.5
2
1.5
1
0.5
0
2019 2020 2021

Envoy Textiles EVINCE TEXTILES LIMITED

MAKSONS SPINNING MILLS LIMITED
In this analysis
we see that Maksons Spinning Ltd.’s fixed charge coverage ratio is the highest and Evince
Textiles Limited’s ratio is the lowest in 2021.So now we can say that Evince Textiles Limited
doing better than Maksons Spinning Ltd. Because Evince company’s overall fixed charges
are lower than Maksons Company after post covid 19 situations.

Asset utilization situation for the firms before and after COVID-19 occurred

Inventory
Inventory Turnover
turnover is a 3
ratio
showing 2.5
how
many times a
2
company’s
1.5
inventory is sold
1
and
0.5
replaced over a
0
period of 2019 2020 2021 time.
Envoy Textiles EVINCE TEXTILES LIMITED
MAKSONS SPINNING MILLS LIMITED

In this analysis we see that Envoy Textiles’ inventory turnover ratio is the highest in all three
years and Evince Textiles Limited’s inventory turnover ratio is the lowest in 2020 and 2021
comparatively than the other two firms.

So, we can say that Envoy Textiles Ltd. is doing better in their inventory management than
Evince Textiles Limited.
The fixed asset turnover ratio is an efficiency ratio that measures a company’s return on their
investment in property, plant, and equipment by comparing net sales with fixed assets.

Fixed Asset Turnover

1
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
2019 2020 2021

Envoy Textiles EVINCE TEXTILES LIMITED

MAKSONS SPINNING MILLS LIMITED

In this analysis we see that Evince Textiles Limited’s inventory turnover ratio is the highest
in 2020 but it decreased in 2021 comparatively than the other two firms. On the other hand,
Maksons Spinning Ltd.’s fixed asset turnover ratio is the highest in 2021.

So, we can say that Maksons Spinning Ltd. is currently doing better than the other two firms.
Total asset turnover is a financial efficiency ratio that measures the ability of a company to
use its assets to generate sales. The total asset turnover ratio calculates net sales as a
percentage of assets to show how many sales are generated from each dollar of company
assets.

Total Asset Turnover

0.6

0.5

0.4

0.3

0.2

0.1

0
2019 2020 2021

Envoy Textiles EVINCE TEXTILES LIMITED

MAKSONS SPINNING MILLS LIMITED

In this analysis we see that Envoy Textiles’ Total asset turnover ratio is the highest in all
three years comparetivley than the other two firms.
 Which company’s stock will we still buy and why?

Taking into consideration of the COVID-19’s impacts and all the ratios, and as an investor
point of view, we will buy Maksons Spinning Ltd.’s stock. Justifications are given below: -

1. Profit margin: - Currently Maksons Spinning Ltd.’s profit margin ratio is the highest
comparatively than the other two firms. Although it suffered a significant loss in 2020
due to covid 19, but right after covid situation it is doing much better in profitability
than the other two firms.
2. ROE: - Currently Maksons Spinning Ltd.’s profit margin ratio is the highest
comparatively than the other two firms. Although it suffered a significant loss in 2020
due to covid 19, but right after covid situation it is doing much better in ROE than the
other two firms.
3. ROA: - Currently Maksons Spinning Ltd.’s ROA is the highest comparatively than
the other two firms. Although it suffered a significant loss in 2020 due to covid 19,
but right after covid situation it is doing much better in ROA than the other two firms.
4. Debt to total assets: - In the analysis we have seen that Envoy Textiles Ltd.’s Debt to
total assets ratio is highest all the three years. It’s not good for company. Also, their
Debt to assets ratio has increased significantly and is the highest in 2021 which falls
under the post covid 19 timeframes. On the other hand, Masons Skinning Ltd.’s Debt
to assets ratio had increased slightly higher in 2020 but it came down to 2021 better
than 2019.
5. Times interest earned: - In the analysis we have seen that Maksons Spinning Ltd.’s
Times interest earned is the highest in 2021 compared to other firms. So, we can say
that Maksons Spinning Ltd. doing better than the other two firms after covid 19
situation.