ARMY INSTITUTE OF BUSINESS ADMINISTRATION

Term Paper on

Financial Performance Analysis of Argon Denims Ltd.

Course Name: Principles of Finance

Course Code: FIN 2301

Submitted by: Submitted to:

Syed Muhammad Hussain Mubasshir
ID: B6190B002 Kaniz Fatema
Abul Khair Nadim
ID: B6190B004 Lecturer
Israt Jahan Sharna
ID: B6190B0040 Army IBA, Savar
Batch: BBA 6

Date of Submission: 27th may, 2020

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 LETTER OF TRANSMITTAL

27 May, 2020

To

Kaniz Fatema

Lecturer

Army Institute of Business Administration, Savar Cantonment.

Subject: Submission of report on Financial statements analysis of Argon Denims Ltd.

With respect to mam,

This is my pleasure to present my term paper. This paper is an outcome of the analysis that I
have made for Argon Denims Ltd. I have tried my best to prepare this report with providing all
of my effort and to cover all aspects regarding the matter.

Consequently, I am transmitting this report to your very concern. Hopefully, you will notice the
paper informative approach as a consequence of my hard work. In case of any future clarification
or elaboration regarding this term paper I would welcome the opportunity to consult with you to
explore how my findings could best meet your needs.

Sincerely yours,

Syed Muhammad Hussain Mubasshir

ID: B6190B002

Abul Khair Nadim

ID: B6190B004

Israt Jahan Sharna

ID: B6190B0040

Batch: BBA6
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 ACKNOWLEDGEMENT

I sincerely acknowledge my debt to my course advisor, Kaniz Fatema, lecturer, Army

Institute of Business Administration for her valuable counseling towards the improvement of
the report. Without her encouragement, this would have never been possible.

I am overwhelmed with gratitude to my course advisor as she helped me in terms of propulsion

and completing this term paper impeccably. The report is prepared only to meet academic
purpose not for any other reason.

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 EXECUTIVE SUMMARY

This report applies performance evaluation of Argon Denims Ltd. his company’s financial
statement analyzed and studied thoroughly to understand company’s financial performance. That
financial statement incorporates with balance sheet, income statement. The main data collection
from the annual financial reports on this selected textile company in 2018 to 2019. Different
financial ratio is considered such as liquidity ratios, leverage ratio, debt ratios, profitability
ratios, activity ratios etc. The most important factors for this performance evaluation are
graphical analysis.

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 TABLE OF CONTENTS
Details Sub Topics Page
CHAPTER 1 INTRODUCTION 1
1.1 Objectives of the Study 1
1.2 Scope of the Study 2
1.3 Limitation of the study 2

CHAPTER 2 METHODOLOGY 4

CHAPTER 3 ORGANIZATION OVERVIEW 6

BALANCED SHEET OF ARGON DENIM 8
LIMITED
FINANCIAL PERFORMANCE ANALYSIS 10
CHAPTER 4 10
4.1 Liquidity Ratio 11
4.2 Activity Ratio 12
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4.3 Debt Ratio
4.4 profitability Ratio

CHAPTER 5 CONCLUSION 15

References 16

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 CHAPTER 1: INTRODUCTION

Performance analysis of a company is generally related to how efficiently a company can use it
assets, shareholder equity and liability, revenue and expenses. Financial ratio analysis is one
of the important tools of performance analysis, In order to determine the financial
position of the textiles company and to make a decision of how efficient the textiles company,
its operation and management and how well the company has been able to use its
resources and earn profit. We used ratio analysis for easily measurement of liquidity position,
asset management condition, profitability and market value and debt coverage situation
of the textiles company for performance analysis. Its analysis the company utilized of its
assets and control of its expenses and determines the coverage of liquid assets to short-term
liabilities. It measures textiles companies’ overall efficiency and performance. It also used to
analysis the textiles companies’ previous financial performance and to establish the future trend
of financial position.

I selected Argon Denims Ltd. I discuss and analysis the financial condition of the company. This
is one of the famous textile company of Bangladesh. Their mission is to produce and provide
quality product to people around the world, maintain strongly ethical standard in business
operation also ensuring benefit to the shareholder, stakeholder, and society.

1.1 Objectives of the Study

The following report has two types of objectives which are described as follows:

1.1.1 Broad Objectives:

 To get an overall idea about the financial performance of Argon Denims Ltd.

 To relate the theoretical knowledge to the original financial data of Argon Denims Ltd.

1.1.2 Specific Objectives:

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  To understand the theoretical aspect of financial performance.
 To analyze the financial statements of Argon Denims Ltd by using financial tools
 To know about different ratios applicable for measuring financial performance of a
company.
 To identify the strength and weakness of the company based on the financial performance
in the last year (2018-2019).
 Finally, to make some recommendations and suitable conclusion regarding financial
performance of Argon Denims Ltd.

1.2 Scope of the Study

The scope of the study is to have an idea about Financial Performance Analysis of ARGON
DENIMS LTD. The report starts with the outline of the organization in focus, presenting the
mission and vision of organization. It accompanied by the global perspective and look into the
future. The researcher provides information about the strengths, weakness, opportunities and
threats of the organization. Those who looking for the information about Financial Performance
Analysis of ARGON DENIMS LTD they might get help from this report. The study explores the
present market scenario of Argon Denims Ltd and future market growth prospects in
Bangladesh.

1.3 Limitations of the Study

To make a report various aspects and experiences are needed. But I have faced some barriers for
making a complete and perfect report. These barriers or limitations, which hinder my work, are
as follows:

Confidentiality: The company’s policy of not disclosing some data and information for obvious
reasons, which would have been very much useful for the report.

Lack of time: Time constraint was one of the major drawbacks in the report. The duration of the
Report was very short. So, I could not go in depth analysis and also the situation of the current

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world made my mind very much lazy to do any kind of analysis and go for further more
information about the company.

Other limitation: There was non-availability of some preceding and latest data. As I am a
newcomer, there is a lack of previous experience in this concern. And many practical matters
have been written from my own observation that may vary from person to person.

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 CHAPTER 2: METHODOLOGY

Planning
1 st

Data Collecting
2 nd

Data Analyzing
3 rd

Make a Conclusion
4 th

The study covers a period of financial and operational year from 2018-2019. Net profit, total
assets, total liabilities, number of shares, current assets. were selected to measure the
performance. In this study the main analytical area is financial performance and analytical tools
are the various statistical techniques, spread ratios, burden ratios, profitability ratios and
productivity ratios. All the necessary data are taken and analyzed in a systematic manner. The
main sources of data used in the study are annual reports, annual accounts and official records of
Argon Denims Ltd.

Moreover, published literatures and journals, Bangladesh Stock Exchange, web-sites of different
companies and Books are used. The data collected for the purpose have been analyzed and
examined critically on the light of various statistical techniques and selected accounting ratios.

Planning: To start working for this term paper at first, the author plan about how we will work
for it.

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Data collecting: After planning the author start working for this term paper and start
collecting data. There is no primary data. The author only collected data from secondary sources.
Here the author used internet for gathering the information on the topic. As this is a research
work on the scientific researches and theories, the author took the references from various
website. All the information provided on this term paper is from secondary sources, such as
various links, web pages and some books.

Data analyzing: After collecting data the author start analyzing those data. The author
eliminated and process those data for analyzing.

Make a conclusion: After analyzing data the author tries to make a proper conclusion of this
term paper based on data analyzing.

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 CHAPTER 3: ORGANIZATION OVERVIEW

3.1 Background of Argon Denims Ltd:

Argon Denims Ltd was incorporated as a Private Limited Company on July 13, 2006 under the
Companies Act 1994 to produce Denim Fabrics. The commercial operations of the company
started in March, 2008. The factory is situated at Sreepur in Gazipur district of Bangladesh. The
Company mainly produces medium and premium range denim fabrics in various weights ranging
from 4.5 Oz to 13 Oz. The annual production capacity will reach a mark of 18 million
yards by December 2012.Fabrics in 100% cotton, Cotton Stretch, Cotton Polyester and Cotton
Polyester Stretch are made in optics like Slab, Crosshatch, Mixed counts and Regular with
various weaves like Plain, Twill, Broken twill and Herringbone offered in different finishes
like preshrunk, flat, over dyed and coated. Our dyeing line is equipped for Light and Dark
Indigo, Sulphur Black, SBIT, IBST with casts and colors. State-of-the-art water effluent
treatment and sewage treatment plant ensures environment friendly operations; we are
accredited with Ecotax and Organic Content Standard certificates. Advanced production
equipment’s, strict quality control systems, robust sample development capability and well-
established design and marketing network contribute to our growing reputation in this industry.
More and more branded enterprises appear in our customer’s list Investment in Merchant
Companying activities.

3.2 Vision of Argon Denims Ltd

To establish the company as the most admired institution in the textile industry of Bangladesh by
producing and supplying quality products to customers at affordable prices while following an
ethical business process so that the stakeholders and society at large are benefitted

3.3 Mission of Argon Denims Ltd

 To gain market leadership in the denim fabric manufacturing industry within 2 years.

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  Use innovation and speed as the driving factor for Progress.
 To produce various type of premium denim fabrics for global retailers and brands.
 To be a good corporate citizen
 Ensure environment friendly and ethical process flow

3.5 Objectives of Argon Denims Ltd

 To grow continuously & ensure a fair return by giving at least 20% dividends.
 To ensure that the return on investment is above the industry norm.
 To ensure development of skills and human resources.
 To contribute significantly to the national economy.

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Balanced Sheet of Argon Denim Limited:

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CHAPTER 4: FINANCIAL PERFORMANCE ANALYSIS
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Financial performance analysis is the process of identifying the financial strengths and
weaknesses of the firm by properly establishing the relationship between the items of balance
sheet and profit and loss account. It also helps in short-term and long-term forecasting and
growth can be identified with the help of financial performance analysis.

The dictionary meaning of ‘analysis’ is to resolve or separate a thing in to its element or

components parts for tracing their relation to the things as whole and to each other. The analysis
of financial statement is a process of evaluating the relationship between the component parts of
financial statement to obtain a better understanding of the firm’s position and performance. This
analysis can be undertaken by management of the firm or by parties outside the namely, owners,
creditors, investors. Standards also require auditors to obtain an understanding of the
measurement and review of the entity’s financial performance, including both internal and
external.

4.1 Liquidity Ratios

The liquidity of an organization is measured by its ability to satisfy its short-term obligations as
they come due. Liquidity refers to the solvency of the organizations overall financial position.
The ease with which it can pay its bills. Because a common precursor to financial distress and
bankruptcy is low or declining liquidity, these ratios are viewed as good leading indicators of
cash flow problems. The two basic measures of liquidity are the current ratio and the quick ratio.

4.1.1 Current ratio

Generally, the higher the current ratio, the more liquid the firm is considered to be. A current
ratio of 2.0 is occasionally cited as acceptable, but a value’s acceptability depends on the
industry in which the firm operates. For example, a current ratio of 1.0 would be considered
acceptable for a public utility but might be unacceptable for a manufacturing firm. The more
predictable a firm’s cash flows, the lower the acceptable current ratio.

total current asset 3,618.31

Current ratio =
total current liabilities
=
1,807.04
= 2.002340845

Analysis: As a manufacturing organization the current ratio of 2.00 is very much stable and very
much acceptable for the company.

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4.1.2 Quick ratio

The quick (acid-test) ratio is similar to the current ratio except that it excludes inventory, which
is generally the least liquid current asset.

total current asset - Inventory 3,618.31−1167.22

Quick ratio = total current liabilities =
1,807.04
= 1.35641159

Analysis: A quick ratio of 1.0 or greater is occasionally recommended, but as with the current
ratio, what value is acceptable depends largely on the industry. The quick ratio provides a better
measure of overall liquidity only when a firm’s inventory cannot be easily converted into cash. If
inventory is liquid, the current ratio is a preferred measure of overall liquidity. So, the quick
ration of 1.35 is very good for Argon Denims Ltd.

4.2 Activity Ratios

Activity ratios measure the speed with which various accounts are converted into sales or cash—
inflows or outflows. With regard to current accounts, measures of liquidity are generally
inadequate because differences in the composition of a firm’s current assets and current
liabilities can significantly affect its “true” liquidity. It is therefore important to look beyond
measures of overall liquidity and to assess the activity of specific current accounts. A number of
ratios are available for measuring the activity of the most important current accounts, which
include inventory, accounts receivable, and accounts payable.

4.2.1 Inventory turnover ratio

Cost of Goods Sold 2,741.62

Inventory turnover = Inventory =
1,167.22
= 2.348845976

Analysis: The resulting turnover is meaningful only when it is compared with that of other firms
in the same industry or to the firm’s past inventory turnover. So, if we look at the company’s
previous years inventory turnover which is 2.308159559 compared to that one it is acceptable
this year.

4.2.2 Total Asset Turnover

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The total asset turnover indicates the efficiency with which the firm uses its assets to generate
sales. Total asset turnover is calculated as follows:

Net Sales 3,448.59

Total Asset Turnover = total Assets = 5,344.79 = 0.6452246019

Analysis: This means the company turns over its assets 0.64 times a year. Generally, the higher a
firm’s total asset turnover, the more efficiently its assets have been used. This measure is
probably of greatest interest to management, because it indicates whether the firm’s operations
have been financially efficient.

4.3 Debt Ratio

total Liabilities 1,993.30

Debt ratio = total Assets =
5,344.79
= 0.3729426226 = 37.29%

Analysis: This value indicates that the company has financed 37.29% of its assets with debt. The
higher this ratio, the greater the firm’s degree of indebtedness and the more financial leverage it
has.

4.4 Profitability Ratios

There are many measures of profitability. As a group, these measures enable the analyst to
evaluate the firm’s profits with respect to a given level of sales, a certain level of assets, or the
owners’ investment. Without profits, a firm could not attract outside capital. Owners, creditors,
and management pay close attention to boosting profits because of the great importance placed
on earnings in the marketplace.

4.4.1 Gross Profit Margin

The gross profit margin measures the percentage of each sales dollar remaining after the firm has
paid for its goods. The higher the gross profit margin, the better. The gross profit margin is
calculated as follows:

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 Gross profit 3,448.59−2,741.62
GPM = Net Sales =
3,448.59
= 0.2050026243= 20.50%

Gross profit= Sales- Cost of goods sold

4.4.2 Net Profit Margin

The net profit margin measures the percentage of each sales dollar remaining after all costs and
expenses, including interest, taxes, and preferred stock dividends, have been deducted. The
higher the firm’s net profit margin, the better. The net profit margin is calculated as follows:

Earnings Available to Common Stockholders 3,66.61

NPM=Sales =
3,448.59
=0.1063072=10.63%

Analysis: The net profit margin is a commonly cited measure of the firm’s success with respect
to earnings on sales. “Good” net profit margins differ considerably across industries. A net profit
margin of 1 percent or less would not be unusual for a grocery store, whereas a net profit margin
of 10 percent would be low for a retail jewelry store. Higher net profit margin indicated
favorable situations for the company. Here Argon Denim Ltd is in good position.

4.4.3 Earnings Per Share

The firm’s earnings per share (EPS) is generally of interest to present or prospective stockholders
and management. As we noted earlier, EPS represents the number of dollars earned during the
period on behalf of each outstanding share of common stock. Earnings per share is calculated as
follows:

Earnings Available to Common Stockholders

EPS = Number of Shares Outstanding = 3.06

4.4.4 Return on total Asset (ROA):

The return on total assets (ROA), often called the return on investment (ROI), measures the overall
effectiveness of management in generating profits with its available assets. The higher the firm’s return
on total assets, the better. The return on total assets is calculated as follows:

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 Earnings Available to common stockholders 3,66.61
ROA = total Asset =
5,344.79
= 0.06859=6.9%
Analysis: This value indicates that the firm earned 6.9 cents on each dollar of asset investment

4.4.5 Return on Equity

The return on common equity (ROE) measures the return earned on the common stockholders’
investment in the firm. Generally, the higher this return, the better off are the owners. Return on
common equity is calculated as follows:
Earnings Available to common Stockholders 3,66.61
ROE = total Equity =
3,351.49
= 0.10938=10.94%

Analysis: The calculated ROE of 10.94 percent indicates that during 2018- 2019 the company
earned 10.94 cents on each dollar of common stock equity.

CHAPTER 5: CONCLUSION

This report is conduct on performance analysis of Argon Denims Ltd of Bangladesh. We apply
many techniques to understand the company’s scenario. For understand companies financial

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statement we conduct common-size analyses. And for understand companies’
performance analysis we conduct various ratio analysis related to our study.

5.1 Findings

Every study belongs some specific findings, my report is not exception to this. Throughout my
research I had an opportunity to observe some unnoticed things of Argon Denims Ltd (ARGON
DENIMS LTD). Those are given below:

 The Liquidity Condition of Argon Denims Ltd is quite Satisfactory. Its Liquidity Ratios
are around its standard level and it has amount of loans as compared to total assets is
average which resulted in an average risk.
 This Company’s ROI, ROE and Net Profit is in a good condition.

5.2 Recommendations

This report is prepared on the basis of financial performance analysis. The report has attempted
to give details of financial performance. In preparing the report it is understood that financial
performance is not a simple matter, rather it is the parents of all analysis of a company.
Nevertheless, it will again recommend some issues that will be useful for the operation of
financial performance.

 To concentrate more to increase return on asset and return on equity ratios by ensuring
maximum utilization of its assets.
 Liquidity position of the company should be improved by reducing current liabilities.
 The company should regularly make use of ratio analysis and measure should be taken to
improve undesirable ratios.

REFERENCE

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Books:

Jerry j. Weygandt, Donald E Kieso & Warfield Kimmel, (2005), Accounting Principles, 8th
edition, pp.781-798.

Lawrence J. Gitman (2009-2010) Principles of Managerial Finance, 12th edition, pp.58-71.

Khan, A. R. “Company Management”

Zikmund, William G (1997) “Research Management” 16th edition

C.R.Kothari (2011) “Research Methodology” 2nd edition fair corporation, Bangsladesh

Reading Materials on Theory & Practice of Companying (B- 101)’, Bangladesh Institute of
Company Management (BIBM)

Websites:

http://bangladesh-company.org

http://www.argondenims.com/

www.en.wikipedia.com

www.investopedia.com

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