Introduction
Apex Foods
Limited is a renowned food processing company in Bangladesh having its
head office at Dhaka and manufacturing facility at Chittagong. It is regarded
with great honor among its buyer in global market now as “value added
processors of shrimp” which was previously famous as a “supplier of raw
material”. It is incorporated under companies act in Bangladesh in 1979 and
listed in Dhaka and Chittagong Stock Exchanges. Apex Food has modern and
hi-tech shrimp processing plant and exports 100% of its output to the foreign
markets. Its products are exported mainly to European and American Countries.
About 50% of its products are exported to Portuguese and Netherland Markets. It also exports its product to countries like Mauritius, Russia and Canada. It exports around five million Kilogram of shrimps every year to the markets of the above mention countries. Company has completed all the necessary certification obligations needed for its business. It has acquired eight different types of national and international certificates. Among these certificates, major are ISO 9001-2008, BAP Certificate 2011 and Bangladesh BRC Certificate. It follows strict quality standards in its plant to avoid rejection in export markets. Company currently has around 560 employees on its role. It has taken enough care to give employee the benefits like PF, Perquisites, and Bonuses so as to keep them charged. Company is a 100% Food Processing EOU (EXPORT ORIENTED UNIT) and its product, shrimp is used as a favorite sea food in Europe and America. Apex Foods Limited’s financials are very healthy. It has sales of around Tk. 4000 Million and Net Profit of Tk. 15 Million in the year 2011-2012. Its plant has installed capacity of 7200 MT and is currently utilizing 60% of it. The company’s utilization is lower due to unavailability of Shrimp round the year. Company is paying dividend since last five years and it has EPS of around 27 last year. Company’s strength in finance is shown on its cash reserves of around Tk. 330 Million in 2011-12. Its investment portfolio in other companies including group companies stood at Tk. 189 Million last year. With the great performance in a turbulent economy company has completed 33 years of successful operation in 2012 and looking forward to be a major player in Food Processing Industry of Bangladesh.
About 50% of its products are exported to Portuguese and Netherland Markets. It also exports its product to countries like Mauritius, Russia and Canada. It exports around five million Kilogram of shrimps every year to the markets of the above mention countries. Company has completed all the necessary certification obligations needed for its business. It has acquired eight different types of national and international certificates. Among these certificates, major are ISO 9001-2008, BAP Certificate 2011 and Bangladesh BRC Certificate. It follows strict quality standards in its plant to avoid rejection in export markets. Company currently has around 560 employees on its role. It has taken enough care to give employee the benefits like PF, Perquisites, and Bonuses so as to keep them charged. Company is a 100% Food Processing EOU (EXPORT ORIENTED UNIT) and its product, shrimp is used as a favorite sea food in Europe and America. Apex Foods Limited’s financials are very healthy. It has sales of around Tk. 4000 Million and Net Profit of Tk. 15 Million in the year 2011-2012. Its plant has installed capacity of 7200 MT and is currently utilizing 60% of it. The company’s utilization is lower due to unavailability of Shrimp round the year. Company is paying dividend since last five years and it has EPS of around 27 last year. Company’s strength in finance is shown on its cash reserves of around Tk. 330 Million in 2011-12. Its investment portfolio in other companies including group companies stood at Tk. 189 Million last year. With the great performance in a turbulent economy company has completed 33 years of successful operation in 2012 and looking forward to be a major player in Food Processing Industry of Bangladesh.
Company overview
Company Background
Apex Foods
Co., Ltd. is the subsidiary of Apex Group Co., Ltd. established in 1994. And
under great effort of all staffs , Apex Foods Co., Ltd. was granted with GMP.
We are determine to deliver the best standard of production by choosing good
quality of raw materials and manufacturing all products in high hygienic rooms.
Furthermore,
we have quality control in every process and provide training program for
employee’s hygienics in order to correspond to GMP system. As the result, our
products have delivered top standard quality and met customers’ expectations.
Apex Foods
Limited was enlisted in Dhaka Stock Exchange in 1981. It’s been rated as “A”
category share under the Food & Allied sector as on 04-12-2012.
Major
Products manufactured by Apex Food Ltd.
1. Spicy Garlic Shrimp
2. Shrimp Appetizer
3. Jumbo Shrimp Parmesan
4. Butterfly Shrimp and Pasta
5. Chili Garlic Roasted Shrimp etc
General
Products
Apex Foods
is the manufacturer and distributor of yoghurt wafers, corn snacks, candies,
and etc. We also manufacture “candy toys” type, which most of products are
licensees of famous characters around the world.
Licensed Products
We
have been working with well-known Japanese and other licensors such as
-Disney
(Micky Mouse, Winnie The Pooh, Lilo & Stich, Ben Ten, and Toy story)
Imported Product
In
addition, we are trying to expand our market by importing many products around
the world such as Chocolate and Biscuit (Japan) Sanrio and Disney (Hong Kong),
Mints (Canada), Biscuit (France), Pastilles (Australia), and etc.
Distribution Channels
Our
main distribution channels are
●
Convenience
store : 7-Eleven, Familymart, Suncolor, Freshmart, and etc.
●
Hypermarket
: Big C, Carrefour, Makro, Tesco Lotus, and etc.
●
Supermarket
: Foodland, Home Fresh Mart, Marketplace, Tops, Villa Market, and etc.
●
Department
Store : Siam Paragon, The Emporium, Central, Isetan, Robinson, The Mall, Tung
Hua Seng, and etc.
●
Gas
station : Jet, Shell, Petronas, Caltex, and etc.
-
Contact information of Apex Foods
Limited:
Address:
Rupayan Golden Age, 5th&6th Floor
99 Gulshan Avenue, Dhaka-1212, Bangladesh
Contact Phone: 9883358
Fax: 8810990, 8810850
Email: apex@apexfoods.com
99 Gulshan Avenue, Dhaka-1212, Bangladesh
Contact Phone: 9883358
Fax: 8810990, 8810850
Email: apex@apexfoods.com
Financing & Dividend Policy
Dividend policy is concerned with taking a decision
regarding paying cash dividend in the present or paying an increased dividend
at a later stage. The firm’s dividend policy must be formulated with two basic
objectives in mind: providing for sufficient financing and maximizing the
wealth of the firm’s owners. A particular firm’s cash dividend policy may
incorporate elements of each.
There are three major
types of dividend policy a firm may follow-
●
Constant-Payout-Ratio Dividend Policy
●
Regular Dividend Policy
●
Low Regular & Extra Dividend Policy
Apex foods
ltd has a policy of giving dividends to their shareholders on a regular basis.
It is informal to understand that they follow the Dividend Relevance Theory
which says a company’s value is affected by the dividend policy it has. In
addition, a positive and ever increasing dividend in every year, apex foods ltd
has a positive image in front of its shareholders. Apex foods ltd has always
given away cash dividend to their stockholders. It can be assumed that apex
foods ltd had never had such liquidity crisis during their operation in
aforementioned fiscal years. Apex foods ltd follows this policy is because they
find the local investors as mixture of only profit seeking and growth lovers.
Industry Structure
Food
industry is a potential industry and its growth is also related with national
GDP. About one percent of our GDP is used in consumption of food product that
is why it becomes a huge market for the competitors of food industry. There are
many food companies in Bangladesh. At present there are hundreds of firms that
manufacture sea food in Bangladesh. Among them Apex Foods Ltd. is the pioneer and leading food manufacturer
followed by local manufacturer Dhaka food. It is abundantly clear that the
British American Food Bangladesh and Dhaka Food Industries play the dominant
role in the cigarette market of Bangladesh.
Industry Analysis
Using Porters
Five Forces Model for industry analysis, managers are able to affectively gauge
the intensity of competitive forces against the threats to profit facing an
average firm in the industry. The five
competitive forces used to analyze the industry are the threat of new entrants,
the threat of rivalry, power of suppliers, power of buyers, and the threat of
substitution. In doing this, firms are
able to determine the potential profitability and attractiveness of an industry.
Apex Food
Ltd. Mainly produce shrimp but they also produce some other foods.
Forces
|
Ranking
|
Threat
of New Entrants
|
Low
– Medium
|
Threat
of Existing Competitor
|
High
|
Threat
of Substitute Products
|
low-Medium
|
Bargaining
Power of Suppliers
|
Low
|
Bargaining
Power of Buyers
|
Low-Medium
|
Threat of new entrants
Threat of new entrants in Food and Allied industry in
Bangladesh is somewhere low and somewhere medium. Food business is needed low
capital/technical requirements for setting up basic local expeller/crushing
units and solvent extraction units. The the food industry is not is highly
regulated and administrated. Increasing regulations through permits and bonds
required to manufacture tobacco as well as imposing advertising restrictions on
tobacco companies create inconvenience for the new entrants to enter into the
industry. Sea food processing , fish production and bakery products does not
need high technological help and capital but maintaining economics of scale or
optimum production is not difficult for such company. . In the event a new competitor enters the
industry, economies of scale enable the established firms to exercise price
flexibility and lower their prices to maintain their market share.
Threat of existing Competitor
The edible oil industry is highly fragmented with no
differentiation within products. Switching cost for the consumers from the
lower strata is low as they seek unbranded varieties of low priced oil to save
expenses. In the tobacco manufacturing, the top two firms in the industry are
all relatively equal in size and hold nearly identical market share
percentages. In our country many local small business involve in producing
bakery, fish and sea food processing.
This makes for intense rivalry because competitors are constantly
seeking ways to reach a competitive advantage over one another to gain market
share. The pursuit for an advantage over competitors can lead to businesses
changing their prices of their products or increasing the amount of capital for
product innovation, both of which have a negative effect on profits. And while there are only a few major
competitors in the industry, there is a significant amount of brands and
products available to consumers, adding to the intensity of the rivalry.
Threat of substitute
product
So far there are no major
substitutes to edible oil. This leads to substitution of traditional oils like
groundnut, sunflower and mustard oil by cheaper palm/soya-bean oils. The market
currently does not have other substitute products for tobacco. While there is
research ongoing to find safer alternatives for tobacco, consumers simply do
not have any other options for tobacco substitutes. In fisheries there are some
good substitutes. Such as chicken, beef, mutton etc .Sea food is also
substitute of fish.
Bargaining power of
supplier
Main Raw
materials of the edible oil is crude oil imported from Malaysia, Indonesia,
Brazil, etc. Imports
are primarily of crude oil due to 0% import duty (Duty on refined oil is 7.5%).
The share of refined oil in the overall import of vegetable oil has recently
increased from 13% in Nov 2011 to 35% in Feb 2012 due to the reduction in
export duty on refined oil by the primary supplier, Indonesia. The
materials required for tobacco manufacturing include various types of paper,
cellulose fibers, and a variety of additives. However, the most important raw
material used by tobacco manufacturing companies is tobacco leaves, which are
purchased directly through tobacco farmers or at auction. In our country, the
number of tobacco suppliers fall shorts than demand causing most companies to
enforce contracts to purchase internationally. The supplier of bakery is not so
strong.
Bargaining Power of Buyers
Price of the edible oil is fixed by government in accordance
with international price. Many industries are now operating much below its
optimum capacity level of production and this is because of insufficient
domestic market for consuming the entire product when produced utilizing full
capacity level. The immediate market for tobacco manufacturers is wholesalers;
however, a majority of tobacco manufacturers have their own wholesaling
operations. By adding wholesale
operations in addition to manufacturing, the firms are able to successfully
hedge themselves by having greater control of downstream buyers. Buyers of
tobacco are also composed of the end consumers. However, in light of the
current economic downturn, some buyers have turned to low-price tobacco
products. The buyers of bakery, sea food, fisheries have low switching cost and
lot of substitute. So they have some bargaining power.
Ratio Analysis
Ratio Analysis against Benchmark
The
benchmark company of Apex Food Ltd. is BATBC. The ratio of 2012 of both
companies are compared below-
Apex Foods Ltd
|
BATBC
|
|
Current Ratio
|
1.39
|
1.30
|
Quick Ratio
|
0.53
|
0.619
|
Inventory Turnover
|
5.07
|
3.087
|
Receivable Turnover
|
47.95
|
28.740
|
Total Assets Turnover
|
2.50
|
1.949
|
Debt-to-equity ratio
|
1.67
|
0.003
|
Return on Assets
|
0.01
|
0.262
|
Return on Equity
|
0.03
|
0.294
|
Liquidity Ratios of Apex Foods Ltd.
Liquidity
ratio analysis focuses on cash flows, measures a company’s ability to meet
short term liabilities. Liquidity measures how quickly assets are converted
into cash. Ratios of Apex Food Ltd from 2008-12 as follows
2008
|
2009
|
2010
|
2011
|
2012
|
|
Liqudity (Short term solvency Ratio)
|
|||||
1)Quick Ratio
|
0.68
|
0.40
|
0.64
|
1.09
|
0.53
|
2) Current ratio
|
1.47
|
1.42
|
1.69
|
1.36
|
1.39
|
Trends of Liquidity ratios
Quick
ratio decrease in 2012 compare to 2011 while the Current ratio increase in 2012
compare to 2011. The company’s liquidity position can be is not sound as though
it’s current ratio was somewhat stable the others indicators of liquidity
position were in a volatile trend.
Activity/efficiency
ratio
Activity
ratio measures how efficiently a company performs day-to-day tasks. The
industry benchmark for the liquidity ratios are as follows:
2008
|
2009
|
2010
|
2011
|
2012
|
|
1) Total asset turnover
|
2.29
|
1.80
|
1.94
|
2.16
|
2.50
|
2) Account receivable turnover
|
25.67
|
189.55
|
109.35
|
344.56
|
47.95
|
3) Inventory turnover
|
5.13
|
3.11
|
3.47
|
13.56
|
5.07
|
Trends of Activity ratios
From the trend of ratio we see that that A/R turnover ratio
is highly volatile. Inventory turnover ratio is very high in 2011 compare to
other years. On the other hand total asset turnover ratio is quite stable.
c
2008
|
2009
|
2010
|
2011
|
2012
|
|
1) Current Liability to equity ratio
|
1.32
|
1.46
|
1.42
|
2.30
|
1.59
|
2) Debt to equity ratio
|
1.21
|
1.42
|
1.75
|
2.44
|
1.67
|
The debt to equity ratio of Apex Food Ltd is very high. That
is the co. use huge sum of debt in it’s capital structure.
Profitability Ratios:
2008
|
2009
|
2010
|
2011
|
2012
|
|
1)Net income to revenue
|
0.010332
|
-0.004894
|
0.003881
|
0.003366
|
0.003924
|
2) Return on Equity
|
0.06
|
-0.02
|
0.02
|
0.03
|
0.03
|
3)Return on Asset
|
0.02
|
-0.01
|
0.01
|
0.01
|
0.01
|
Trends of profitability ratio of Apex Foods
Ltd
Ratio Analysis against Peer
Ratio Analysis against Peer
|
||
Apex
Food Ltd
|
Gemini
Sea Food Ltd.
|
|
Liquidity
|
||
1)Quick Ratio
|
1.3931
|
0.334194527
|
2) Current ratio
|
0.5340
|
0.8317928
|
Activity/efficiency ratio
|
||
1) Total asset turnover
|
5.0705
|
5.567117941
|
2) Account receivable turnover
|
47.9465
|
8.799373811
|
3) Inventory turnover
|
2.5031
|
2.04403848
|
Leverage/solvency Ratio
|
||
1) Current Liability to equity ratio
|
1.5912
|
30.16291319
|
2) Debt to equity ratio
|
1.6733
|
0
|
Pfofitability Ratioes:
|
||
1)Net income to revenue
|
0.0039
|
0.000304047
|
2) Return on Equity
|
0.0280
|
0.030984779
|
3)Return on Asset
|
0.0098
|
0.001692664
|
Market value ratio
|
||
1) Price earnings ratio
|
27.2296
|
5097.401368
|
2) Dividend payout ratio
|
0.6650
|
0.452545
|
Here we see that quick solvency ratio of Apex Food Ltd. Is
better than Gemini Sea food Ltd. Current ratio of apex food ltd. Is not so
good as Gemini Sea food ltd. Apex Food has current ratio only .53 where Gemini sea food has current
ratio equal .83 .
Total asset turnover ratio of apex foods is almost equal to
Gemini sea foods . Apex is more efficient in managing its Account receivable
because its Account receivable turnover ratio greater than Gemini food ltd.
Debt to equity ratio of Apex food is very high on the other
hand Gemini food do not use any kind of debt in their capital structure.
ROE of apex food is less than Gemini sea food. Dividend paid
by apex food in proportion to its net income is more than Gemini Sea food ltd.
There is huge difference in P/E ratio.
Dupont Analysis
DuPont
analysis (also known as the DuPont identity, DuPont equation, DuPont Model or
the DuPont method) is an expression which breaks ROE (Return on Equity) into
three parts. However the decomposition of ROE of Apex Food Ltd. into 5 factors
is shown below-
Decomposition
of ROE of Apex foods ltd. from 2008-2012
2007-08
|
2008-09
|
2009-10
|
2010-11
|
2011-12
|
|
Operating profit margin
|
0.041252619
|
0.03262806
|
0.037098201
|
0.031380129
|
0.039147847
|
Total asset turnover
|
2.28731558
|
1.802534874
|
1.941025429
|
2.159583155
|
2.503059658
|
Interest burden
|
0.470917552
|
0.031883278
|
0.235352165
|
0.339690479
|
0.303310393
|
After tax retention rate
|
0.531856754
|
-4.704575301
|
0.444476819
|
0.315741994
|
0.330466363
|
Financial leverage
|
2.401444225
|
2.551410448
|
2.831931258
|
3.665323082
|
2.849651079
|
ROE
|
0.056753111
|
-0.022508091
|
0.021332124
|
0.02664113
|
0.027988868
|
Measuring sensitivity of ROE of Apex Foods
Limited:
Sensitivity of ROE in terms of operating profit margin:
Year
|
O.Profit Margin
|
Total Asset turnover
|
Interest Burden
|
After tax Retention Rate
|
Financial Leverage
|
ROE
|
% Change in ROE
|
2007-08
|
0.0413
|
2.2873
|
0.4709
|
0.5319
|
2.4014
|
0.0568
|
|
2008-09
|
0.0326
|
2.2873
|
0.4709
|
0.5319
|
2.4014
|
0.0449
|
-0.2091
|
2009-10
|
0.0371
|
2.2873
|
0.4709
|
0.5319
|
2.4014
|
0.0510
|
0.1370
|
2010-11
|
0.0314
|
2.2873
|
0.4709
|
0.5319
|
2.4014
|
0.0432
|
-0.1541
|
2011-12
|
0.0391
|
2.2873
|
0.4709
|
0.5319
|
2.4014
|
0.0539
|
0.2475
|
Mean
|
0.0053
|
variance
|
0.04913208
|
Standard deviation
|
0.221657573
|
CV
|
4155.01
|
Sensitivity of ROE in terms of total asset turnover:
Year
|
O.Profit Margin
|
Total Asset turnover
|
Interest Burden
|
After tax Retention Rate
|
Financial Leverage
|
ROE
|
% Change in ROE
|
2007-08
|
0.0413
|
2.2873
|
0.4709
|
0.5319
|
2.4014
|
0.0568
|
|
2008-09
|
0.0413
|
1.8025
|
0.4709
|
0.5319
|
2.4014
|
0.0447
|
-0.2119
|
2009-10
|
0.0413
|
1.9410
|
0.4709
|
0.5319
|
2.4014
|
0.0482
|
0.0768
|
2010-11
|
0.0413
|
2.1596
|
0.4709
|
0.5319
|
2.4014
|
0.0536
|
0.1126
|
2011-12
|
0.0413
|
2.5031
|
0.4709
|
0.5319
|
2.4014
|
0.0621
|
0.1590
|
Mean
|
0.03413
|
variance
|
0.028045714
|
Standard deviation
|
0.167468545
|
CV
|
490.6258858
|
Sensitivity
of ROE in terms of interest burden:
Year
|
O.Profit Margin
|
Total Asset turnover
|
Interest Burden
|
After tax Retention Rate
|
Financial Leverage
|
ROE
|
% Change in ROE
|
2007-08
|
0.0413
|
2.2873
|
0.0413
|
0.5319
|
2.4014
|
0.0050
|
|
2008-09
|
0.0413
|
2.2873
|
0.0413
|
-4.7046
|
2.4014
|
-0.0440
|
-9.8456
|
2009-10
|
0.0413
|
2.2873
|
0.0413
|
0.4445
|
2.4014
|
0.0042
|
-1.0945
|
2010-11
|
0.0413
|
2.2873
|
0.0413
|
0.3157
|
2.4014
|
0.0030
|
-0.2896
|
2011-12
|
0.0413
|
2.2873
|
0.0413
|
0.3305
|
2.4014
|
0.0031
|
0.0466
|
Mean
|
1.45
|
variance
|
11.14489673
|
Standard deviation
|
3.33839733
|
CV
|
230.8067193
|
Sensitivity of ROE in terms of after tax retention rate:
Year
|
O.Profit Margin
|
Total Asset turnover
|
Interest Burden
|
After tax Retention Rate
|
Financial Leverage
|
ROE
|
% Change in ROE
|
2007-08
|
0.0413
|
2.2873
|
0.0413
|
0.5319
|
2.4014
|
0.0050
|
|
2008-09
|
0.0413
|
2.2873
|
0.0413
|
-4.7046
|
2.4014
|
-0.0440
|
-9.8456
|
2009-10
|
0.0413
|
2.2873
|
0.0413
|
0.4445
|
2.4014
|
0.0042
|
-1.0945
|
2010-11
|
0.0413
|
2.2873
|
0.0413
|
0.3157
|
2.4014
|
0.0030
|
-0.2896
|
2011-12
|
0.0413
|
2.2873
|
0.0413
|
0.3305
|
2.4014
|
0.0031
|
0.0466
|
Mean
|
-2.795761014
|
variance
|
22.31801383
|
Standard deviation
|
4.724194517
|
CV
|
-168.9770511
|
Sensitivity
of ROE in terms of Financial leverage:
Year
|
O.Profit Margin
|
Total Asset turnover
|
Interest Burden
|
After tax Retention Rate
|
Financial Leverage
|
ROE
|
% Change in ROE
|
2007-08
|
0.0413
|
2.2873
|
0.0413
|
0.5319
|
2.4014
|
0.0050
|
|
2008-09
|
0.0413
|
2.2873
|
0.0413
|
0.5319
|
2.5514
|
0.0053
|
0.0624
|
2009-10
|
0.0413
|
2.2873
|
0.0413
|
0.5319
|
2.8319
|
0.0059
|
0.1099
|
2010-11
|
0.0413
|
2.2873
|
0.0413
|
0.5319
|
3.6653
|
0.0076
|
0.2943
|
2011-12
|
0.0413
|
2.2873
|
0.0413
|
0.5319
|
2.8497
|
0.0059
|
-0.2225
|
Mean
|
0.061035516
|
variance
|
0.04573762
|
Standard deviation
|
0.213863556
|
CV
|
350.391982
|
After going through the sensitivity analysis of each of the
component mentioned in the DU Pont analysis from
the year 2008 to 2012, the following CV’s have been found-
O. Profit Margin
|
Total Asset Turnover
|
Interest Burden
|
After tax Retention rate
|
Financial Leverage
|
|
CV
|
4155.01
|
490.62
|
230.81
|
-168.98
|
350.39
|
The higher the co-efficient of variation of a factor, the
higher will be the sensitivity of ROE. So, from this data it is apparent that
the ROE of Apex Food Limited is most sensitive to its operating profit margin.
Leverage Analysis
Degree
of Operating Leverage
DOL is a
quantitative measure of the “sensitivity” of a firm’s operating profit to a
change in the firm’s sales. When comparing firms, the firm with the highest DOL
is the firm that will be most “sensitive” to a change in sales. Thus, the EBIT
or Operating Profit would be unpredictable for the company, even if all the
other factors remain the same.
2007-08
|
2008-09
|
2009-10
|
2010-11
|
2011-12
|
Average
|
|
% change in
sales
|
-0.0511
|
-0.2035
|
0.2086
|
0.4542
|
0.2264
|
|
% change in
EBIT
|
1.4496
|
-0.0566
|
0.1659
|
0.1824
|
0.1130
|
0.3709
|
Degree of
operating leverage (DOL)
|
-28.3480
|
0.2779
|
0.7953
|
0.4015
|
0.4991
|
0.4935
|
The average DOL for Apex foods ltd is 0.4935,
although it is observed from the table that there is a low volatility of DOL
over the period. As the DOL is medium the sensitivity of operating profit to a
change in the firm’s sales is also medium.
Degree of Financial Leverage
The degree
of financial leverage or DFL makes use of fixed cost to provide finance to the
firm and also includes the expenses before interest and taxes. If the Degree of
Financial Leverage is high, the Earnings per Share or EPS would be more
unpredictable while all other factors would remain the same. The degree of
financial leverage (DFL) indicates the sensitivity of the EPS in relation to
the changes of the operating profit of the firm.
2007-08
|
2008-09
|
2009-10
|
2010-11
|
2011-12
|
|
Turnover
|
2,291,194,337
|
1,824,823,719
|
2,205,549,551
|
3,207,314,733
|
3,933,346,104
|
Growth rate
|
-20.35%
|
20.86%
|
45.42%
|
22.64%
|
|
A/R
|
89,252,478
|
9,627,220
|
20,169,720
|
9,308,500
|
82,036,136
|
growth
|
-89.21%
|
109.51%
|
-53.85%
|
781.30%
|
|
Inventories
|
402,397,836
|
531,786,340
|
573,384,439
|
216,977,700
|
715,872,045
|
Growth Rate
|
32.15%
|
7.82%
|
-62.16%
|
229.93%
|
|
Reported income
|
23,672,984
|
-8,930,907
|
8,559,275
|
10,794,736
|
15,434,217
|
Cash flow from operating activities
|
136611144
|
-72479592
|
46284431
|
-228925474
|
152091482
|
Gap between RI & OCF
|
-112,938,160
|
63,548,685
|
-37,725,156
|
239,720,210
|
-136,657,265
|
Degree
of Financial Leverage of Apex foods ltd ltd. from 2008-2012.
2007-08
|
2008-09
|
2009-10
|
2010-11
|
2011-12
|
|
EBIT
|
23,672,984
|
-8,930,907
|
8,559,275
|
10,794,736
|
15,434,217
|
EBT
|
44,510,075
|
1,898,345
|
19,256,966
|
34,188,471
|
46,704,351
|
Degree of financial leverage (DFL)
|
4.4202
|
97.7753
|
11.2380
|
7.4843
|
6.0976
|
A
relatively higher DFL indicates the firm’s riskiness as great compared to other
firms.
The
industry average of the DOL & DFL would give better insight about the
performance of the individual company.
Leverage in Food
Industry
Industry Average of
Leverage
|
||||||
BATBC
|
Apex Foods
|
Fine Foods
|
Rahima Foods
|
FuWang Foods
|
Average
|
|
Degree of
Operating Leverage
|
2.33750
|
-5.274841
|
4.7568440
|
-0.63912077
|
3.46
|
0.9281
|
Degree of
Financial Leverage
|
0.86509
|
25.40307
|
1.088683
|
-26.4557846
|
-9.0116
|
-1.6221
|
Potential red flags of Apex Food Ltd
In addition to accounting analysis, A very common approach
to accounting quality analysis is to look for “red flags” pointing to
questionable accounting quality. These indicators suggest that the analyst
should examine items more closely or gather information on them. Some common
red flags are
●
Unusual increase in inventories in relation to
sales increase.
●
An increasing gap between a firm’s reported
income and its cash flow from operating
activities.
●
An increasing gap between a firm’s reported
income and its tax income.
●
A tendency to use financing mechanism like research and development
partnership and the sale of receivables
with recourse .
●
Unexpected
large assets write off.
●
Large fourth quarter adjustments
●
Unexplained
changes in accounting especially when performance is poor.
●
Unexplained transactions that boost up
profits.
●
Unusual increase in accounting receivable in
relation to increase in sales.
●
Related
party transactions or transactions between related parties.
●
Qualified
audit opinions or changes in accounting auditors that are not well justified.
These are the Red flags found in Apex Foods
Ltd.
1. Unusual
increase in account receivable in relation to sales increase: Apex Food Ltd. showed
its turnover decreases 20.35% in year 2008-09 but its A/R decreases 89.21%.
Next year A/R increases 109.51% while sales increase only 20.86%. Most radical
increase occurred in year 2011-2 that is 781.30% in relation to an increase in
sales only 22.64%. This may suggest that company relaxing its credit policies
or artificially loading up its distribution channels to record revenue
during current period. If credit policies relaxed unduly, the firm may face
receivable write off in the subsequent period.
2. Unusual increase in inventory in relation to sales
increase: In year
2008-09 sales decreases 20.35% on the other hand inventory increases by 32.15%.
This indicates 52.50% net increase in inventory in relation to sales. In
financial year 20011-12 inventory increases 229.93% while sales increases only
22.64%. it could be a sign that the demand of firm’s product decreasing in that
year. Inversely in year 2010-11 inventory decreases while sales increases.
3) An increasing gap between a firm’s reported income and
its cash flow from operating activities. If we take into account 2008, 2009,
2010 we see that there is an increasingly negative gap between income and OCF.
While in 2011 and 2012 we see that the
firm is doing well on this quality and the gap between these decreases significantly
Earnings Quality
Evaluation
Earnings
quality is typically defined in terms of persistence and sustainability. To
build a meaningful forecast of future cash flows one should recognize that very
high and very low earnings are expected not to continue into the future.
Aggregate accruals measures the extent of distortion embedded in the reported
financial statements.
Activity
Ratios of Apex Foods Ltd. Based on Balance Sheet from 2008-2012
Balance sheet based aggregate accruals
|
96,868,201
|
-21,227,658
|
317,061,895
|
25,144,565
|
Average
net operating assets
|
772,721,588.50
|
810,541,860.00
|
958,458,978.50
|
1,129,562,208.50
|
Balance
sheet based accruals ratio=BSA/Avg NOA
|
0.125359771
|
-0.026189465
|
0.330803824
|
0.022260452
|
Aggregate Accruals
|
-65,297,314
|
97,248,117
|
-23,748,243
|
317,479,111
|
-113,121,223
|
Accruals Ratio
|
0.13
|
(0.03)
|
0.33
|
(0.10)
|
Activity
Ratios of Apex Foods Ltd. Based on Cash flow statement from 2008-2012
Comparative Analysis
Comparative Earnings Quality
Analysis
|
||
APEX
|
BATBC
|
|
Accruals
Ratio Cash Flow Basis
|
0.081911315
|
0.137791166
|
Accruals
Ratio Balance Sheet Basis
|
0.113058645
|
0.333666151
|
From the
table it is observed that Apex Foods Ltd has comparatively better performance
in maintaining the earnings or alternatively it has more earnings manipulation
than its peer one.
Analysis of cash flow Statement
2007-08
|
2008-09
|
2009-10
|
2010-11
|
2011-12
|
|
Free cash flow
|
116,616,619
|
-60,481,104
|
75,223,074
|
423,844,657
|
-484,992,076
|
Operating Cash flow
|
136,611,144
|
-72,479,592
|
46,284,431
|
-228,925,474
|
152,091,482
|
Free cash flow versus operating cash flow
analysis
Free Cash Flow: A
measure of financial performance calculated as operating cash flow minus
capital expenditures. Free cash flow (FCF) represents the cash that a company
is able to generate after laying out the money required to maintain or expand
its asset base. Free cash flow is important because it allows a company to
pursue opportunities that enhance shareholder value. Without cash, it's tough
to develop new products, make acquisitions, pay dividends and reduce debt.
From the
following graph we see that FCF is negative in Year 2008-09 and 2011-12. Except
these two year FCF is positive.
Operating
Cash flow: operating cash flow means cash collected from the operations of the
firm. In accounting, a measure of the amount of cash generated by a company's
normal business operations. Operating cash flow is important because it
indicates whether a company is able to generate sufficient positive cash flow
to maintain and grow its operations, or whether it may require external
financing. OCF is calculated by adjusting net income for items such as
depreciation, changes to accounts receivable and changes in inventory.
Operating cash flows of Apex Foods Ltd. Are negative in years 2008-09 and
2010-11 and rest of the cash flows are positive.
Free cash flow versus operating cash
flow
As we have known from our study that with the comparison OCF
and FCF we determine the firms category.
There are four types
of decision that we can take:
OCF
|
FCF
|
Category
|
Positive
(+)
|
Negative (-)
|
Growth Company
|
Positive
(+)
|
Positive (+)
|
Cash Cow
|
Negative
(-)
|
Positive (+)
|
Disinvest/Quit
|
Negative
(-) > FCF
Negative
(-) <FCF
|
Negative (-)
|
1)Disinvest/Quit
2) BMRE
|
From the comparison of Operating cash flow and free cash
flow of Apex Foods Ltd. we find out the following characteristics of the company-
Year
|
OCF
|
FCF
|
Characteristics
|
2008
|
Positive
|
Positive
|
Cash Cow
|
2009
|
Negative
|
Negative
|
BMRE
|
2010
|
Positive
|
Positive
|
Cash Cow
|
2011
|
Negative
|
Positive
|
Disinvest/Quit
|
2012
|
Positive
|
Negative
|
Growth Company
|
As the company’s OCF is positive and FCF negative so the co.
is a growth company in 2012. But in previous year the company disinvests that
is it contract its business. The contraction might be temporary because the
company wants to setup new plant and machinery so they sell their previous/old
assets. From the analysis we can predict that the company will be a growth
company.
Actual &
Sustainable Growth Rate
Sustainable growth rate refers to the maximum growth rate
that a firm can achieve without any equity financing while maintaining a
constant debt to equity ratio. Actual growth rate is assumed as the groth rate
of sales.
Factors affecting
sustainable growth rate:
1. Profit
margin: An increase in profit margin will
increase the sustainable growth rate.
2.
Dividend policy:
A decrease in the amount paid out as dividend from net income will increase the
sustainable growth rate.
3. Financial
policy:
The higher the amount of debt used in the capital structure, the higher will be
the leverage of the firm, the higher will be the sustainable growth.
4. Asset
turnover:
An increase in the total asset turnover of a firm increases the sales generated
for each dollar in assets. This decreases the firm's need for new assets as
sales grow and this thereby increases the sustainable growth.
The important note to remember here is that,
If a firm does not wish to sell new equity and its profit margin, dividend
policy, financial policy and asset turnover are all fixed, then there is only
one possible growth rate.
2008
|
2009
|
2010
|
2011
|
2012
|
|
Sustainable growth rate
|
3.03%
|
-3.82%
|
0.43%
|
0.70%
|
0.95%
|
Actual
growth rate
|
-5.11%
|
-20.35%
|
20.86%
|
45.42%
|
22.64%
|
Over the
time Apex foods ltd. has higher actual growth rate than the sustainable one
which indicates the vulnerability associated with the growth of the company.
Estimation of
value addition
2012
|
|
NOPAT
|
224,285,567
|
Invested Capital
|
1,474,151,687
|
Cost of capital
|
0.098776412
|
Economic Value Added
|
78674152.38
|
The
positive value of EVA tells us that
generating BDT 224285566.5 in
after-tax net operating profits, Apex Foods Ltd can cover cost of capital. it
fully serviced its debt, we find that Apex Food Ltd gain (some would say "increse
value") BDT 78674152.38 in economic profit over the year.
|
Disclosure Practices
In every
financial statement disclosure of the information provided by the respective
company can be classified into two basic categories, these are-
Mandatory Disclosures of Apex Foods Ltd.
Name of the BAS
|
BAS No.
|
Status
|
Notes No.
|
Presentation of Financial Statement
|
1
|
Applied
|
|
Inventories
|
2
|
Applied
|
3.4,5
|
Cash Flow Statement
|
7
|
Applied
|
|
Accounting Policies, Changes and Estimation Errors
|
8
|
Applied
|
3
|
Events after balance date
|
10
|
Applied
|
3.17,39
|
Construction Contracts
|
11
|
N/A
|
|
Income Taxes
|
12
|
Applied
|
3.12,3.12.1,3.12.2,23
|
Property, Plant and Equipment
|
16
|
Applied
|
3.2,4,37
|
Leases
|
17
|
Applied
|
3.3,14
|
Revenue
|
18
|
Applied
|
|
Employee Benefit
|
19
|
Applied
|
|
Accounting for Government Grant and Disclosure of
Government Assistance
|
20
|
N/A
|
|
The Effects of changes in foreign exchange
|
21
|
Applied
|
|
Related Party Disclosures
|
24
|
Applied
|
3.14,32
|
Comparatives
|
32
|
Applied
|
|
Earnings Per Share
|
33
|
Applied
|
3.13,3.13.1,24
|
Impairment of Assets
|
36
|
Applied
|
|
Provisions Contingent Liabilities and Contingent Assets
|
37
|
Applied
|
|
Investment in Property
|
40
|
Applied
|
M&D Analysis
Management Discussion and Analysis or MD&A is an
integrated part of a company's annual financial statements. There are five
contents elements that should be included in a typical MD&A prescribed by
the International Accounting Standard Board (IASB), which are:
●
The
nature of the business
●
Management’s
objectives and strategies
●
The
company’s significant resources
●
Results
of operation
●
Critical
performance measures.
From 2008-2011 Standard ceramic presented their managerial
discussion analysis in a comprehensive segment called “Directors Report”. This
report has the following aspects of the business
●
Growth
of the business- the company’s overall performance was reflected in this
section whether they are growing in terms of revenue generation. And they also
provide the reason why that increase of the revenue is achieved or why they are
not generating revenue more than the previous year. They also provided the
overall industry growth for the respective years to make it clear whether their
performance was actually good or not. Moreover, they also provide the
challenges that they have encountered throughout the previous fiscal years and
also probable challenges for the upcoming years.
●
Management’s
Objectives & Strategies- over the time what were the company’s management’s
strategies is also a part of MD&A. Over the time the focus of SC was on the
improvement of its supply chain, in doing so they were proactive to enhance
EH&S standards across all sites. Besides this they also take initiatives to
increase mine productivity, to reduce waste and to improve quality of
warehousing and logistics. They also aimed at leaf import substitution by
quality improvement as well as Wrapping material cost reduction initiatives.
●
Results of Operations-
the company presents the key financial performance which includes gross
turnover, changes in the profit before tax, contribution to National Exchequer,
foreign currency income from leaf export, interim & final dividend amount,
and the amount that has been transferred to reserve over the years etc. in the
“Directors Report”.
●
Resources & Risks- it is evident that the company
follows an indirect approach to present the risk exposures relevant to the
company. They provide this into their “Statement of Internal Control’ section
of their financial reports. In addition to this they practiced a conservative
way to present only those risks that are controllable by the company and the
other factors those can be addressed within the capability of the firm.
In the year 2012 the company employed new audit firm and the
MD&A structured has been changed to a new format. Till then they provide a
“Statement of Chairman” regarding the
overall performance of the business along with separate auditor’s report,
statement of internal control, corporate governance report & Director’s
report. The profile of the directors and the composition of directors, audit
committee members and their shareholding positions are also presented in the
MD&A.
Accounting Policies
Corporate & Financial Reporting:
The Company has complied most of the
requirements of Corporate Governance as required by The Securities and Exchange
Commission. Accordingly, the Directors are pleased to confirm the following:
● The Financial Statements together
with the notes thereon have been drawn up in conformity With the Companies Act
1994 and Securities and Exchange Rules 1987. These statements present fairly
the Company's state
of affairs, the
results of its
operations, cash flow
and changes in equity.
● Proper books of accounts of the
Company have been maintained.
● Appropriate Accounting
Policies have been
consistently applied in
the preparation of financial
statements and the
accounting estimates are
based on reasonable
and prudent judgment.
● The International Accounting
Standards, as applicable in Bangladesh, have been followed in the preparation
of financial statements.
● The
systems of internal
control are sound
and have been
effectively implemented and monitored.
● There are no significant doubts upon
the Company's ability to continue as a going concern.
● The key operating and financial data
for the last five years is annexed. Basis of preparation:
These
financial statements are prepared as going concern under historical cost
convention subject to revaluation of land and land development on 29-02-1996.
● Revenue
recognition - sales
are recognized at the time of delivery from go down.
● Recognition
of Property
- plant & Equipment and Depreciation: Property, Plant & Equipment are
stated at cost less accumulated depreciation in accordance with IAS
16
“Property, Plant & Equipment". Cost represents cost of acquisition of
construction and include Purchase price and other directly attributable cost of
bringing the assets to working conditions for its intended use, but do not
include any capitalized borrowing cost. No. depreciation is charged on land and
land development. Depreciation on all other fixed assets are computed using the
reducing balance method in amount sufficient to write off depreciable assets
over their estimated useful life.
● Expenditure
for
maintenance and repairs are expenses; major replacements, renewals and
betterment are capitalized.
● Impairment
of Assets
the company reviews the recoverable amount of its assets at each reporting
date. If there exists any indication that the carrying amount of assets exceeds
the recoverable amount, the company recognizes such impairment loss in
accordance with BAS-36 "Impairment of Assets"
● Inventories
the raw
materials have been valued at weighted average method. The finished goods have
been valued under variable costing method following marginal costing technique.
The work-in-process has been valued at cost of materials with proportion of
electricity & gas and factory overhead absorbed in production.
Revenue (Turnover) - turnover is stated at net value. Retirement benefits -retirement
benefits are incorporated on payment basis.
Reporting Currency-the figures in the financial statements represent
Bangladesh Taka Currency. Foreign
Exchange - transactions in foreign currencies are converted into Taka
currency at rates prevailing on the
Earnings Projection
Apex Foods Ltd.
Pro forma Income Statement
For the next five years
Particulars
|
2011-12
|
2012-13
|
2013-14
|
2014-15
|
2015-16
|
2016-17
|
TURNOVER
|
3,933,346,104
|
4607578021
|
5397382956
|
6322571780
|
7406351234
|
8675906026
|
Cost of goods sold
|
3,629,828,686
|
4192490732
|
4911143754
|
5752984208
|
6739128186
|
7894311380
|
GROSS PROFIT
|
3,629,828,686
|
415087289
|
486239201.8
|
569587572.5
|
667223049
|
781594646
|
OPERATING EXPENSES:
|
||||||
Administrative & selling
overhead
|
177,505,226
|
283928087.5
|
332597432.6
|
389609401.2
|
456394039
|
534626520.5
|
Financial expenses
|
107,277,682
|
132758403.6
|
161580860.2
|
186277611.3
|
215253883
|
249246210.4
|
Total Operating Expense
|
284,782,908
|
416686491.1
|
494178292.8
|
575887012.5
|
671647921
|
783872731
|
OPERATING PROFIT/(LOSS)
|
18,734,510
|
-1599202.082
|
-7939091.037
|
-6299440.071
|
-4424872.29
|
-2278085.009
|
Other income
|
30,305,059
|
44649283.7
|
65783027.67
|
96919958.64
|
142794862
|
210383630.1
|
PROFIT BEFORE PPF & WF
|
49,039,569
|
43050081.62
|
57843936.63
|
90620518.57
|
138369990
|
208105545
|
Provision for contribution to
PPF & WF
|
2,335,218
|
2152504.081
|
2892196.832
|
4531025.929
|
6918499.5
|
10405277.25
|
PROFIT BEFORE TAX
|
46,704,351
|
40897577.53
|
54951739.8
|
86089492.65
|
131451491
|
197700267.8
|
Provision for tax:
|
||||||
Current tax
|
31,164,150
|
17585958.34
|
23629248.12
|
37018481.84
|
56524141
|
85011115.15
|
Deferred tax expenses/(income)
|
105,984
|
84563.83
|
67472.84
|
53836.07
|
42955.39
|
34273.78
|
NET PROFIT/(LOSS) AFTER TAX
|
15,434,217
|
23227055.36
|
31255018.85
|
49017174.74
|
74884394.25
|
112654878.86
|
Dividend
|
10,263,754
|
15595950.38
|
20986376.25
|
32912885.98
|
50281591
|
75642817.1
|
Transfer to the reserve
|
5,170,463
|
7631104.99
|
10268642.60
|
16104288.76
|
24602803.30
|
37012061.76
|
Earnings Per share
|
2.70661774
|
4.073206959
|
5.481028838
|
8.59588502
|
13.1320837
|
19.75569565
|
Free cash flow and
valuation
Particulars
|
2013
|
2014
|
2015
|
2016
|
2017
|
2018
|
EBIT
|
148169492.8
|
186677362.1
|
237394250.3
|
305737670.9
|
398956324.4
|
|
EBIT (1-tax rate)
|
84456610.88
|
106406096.4
|
135314722.7
|
174270472.4
|
227405104.9
|
|
Depreciation
|
31514911.13
|
33540256.58
|
35695763.4
|
37989796.59
|
40431258.7
|
|
Capital expenditure
|
10,247,175
|
10,905,723
|
11,606,593
|
12,352,505
|
13,146,355
|
|
Change in NWC
|
-179370315.6
|
105199890.1
|
123232624
|
144356421
|
169101132.6
|
|
Free cash flow
|
285,094,662
|
23,840,740
|
36,171,269
|
55,551,343
|
85,588,876
|
86872709.51
|
Present value discount factor
|
0.910103265
|
0.828287953
|
0.753827571
|
0.686060933
|
0.624386295
|
|
Present value of free cash
flow
|
259465582.9
|
19746997.65
|
27266899.83
|
38111605.95
|
53440521.44
|
|
Terminal value
|
647463027.9
|
Enterprise
value
|
1065241633
|
Cash
|
332,017,196
|
Interest-bearing debt
|
922,710,405
|
Equity value
|
474,548,424
|
Value per share
|
83.21906992
|
Conclusion &
Recommendations
In compare to that the total security market and industry in
particular, food sector has a different position in the market. To be precise
in the time of the recession the food sector remained unchanged in the security
market. The security condition for APEX FOODS LTD is also holds promising
return compared to the security market. It is highly noticeable that the stock
of APEX FOODS LTD has higher return with lower risk
Recommendations
1. The company should reduce its debt from its capital
structure.
thanks for this information. Growth in Peer
ReplyDelete