Report on

Financial analysis of Fu-Wang Ceramic Limited and

R.A.K Ceramic Limited
Fin 254
Section: 02
Submitted To:
Mr. Shahran Abu Sayeed (ASY)
Department of Accounting & Finance

Submitted By :

S.L NO. NAME ID

Date of Submission:17th April 2019

1
 Letter of Transmittal

Date: 17th April 2019

Mr. Shahran Abu Sayeed

School of Business

Department of Accounting & Finance

North South University

Subject: Submission of the project on ratio analysis of Fu-Wang Ceramic Limited and R.A.K
Ceramic Limited .

Dear Sir,

We would like to thank you for assigning us coursework for the course of Managerial Finance.
This report has given us the opportunity to combine our theoretical knowledge with a practical
scenario in the case. We worked as a team to analyze the ratios as you teach in the class. Thank
you very much sir for teaching us the ratios in a very efficient way that all the students
participated with full attention. It really helped us for preparing the report. We have tried to make
use of our best knowledge to analyze the project as meticulously as possible and it sure had
offered us the opportunity to enhance our knowledge on ratio analysis of Fu-Wang Ceramic
Limited and R.A.K Ceramic Limited of Managerial Finance.

Furthermore, if you have any queries about the case report, please feel free to ask any of the
group members for further cooperation.
Sincerely,
Salina Akter

Benazir Tanisha Pew

Rashad Al Ibrahim

2
 Table of Contents

S.L Name of Contents Page

No
1 Acknowledgement 4

2 Background of Fu-Wang Ceramic Limited 5

3 Background of R.A.K Ceramic Limited 6

4 Income Statement of Fu-Wang Ceramic Limited 7

5 Balance Sheet of Fu-Wang Ceramic Limited 8

6 Income Statement of R.A.K Ceramic Limited 9

7 Balance Sheet of R.A.K Ceramic Limited 10-11

8 Ratio Analysis 12-13

9 Ratio Analysis of Fu-Wang Ceramic Limited 12

10 Financial Analysis of R.A.K Ceramic Limited 13

11 Cross Sectional and Time Series 14-25

12 Recommendation 26

13 Conclusion 26

3
Acknowledgement

In writing our report we had to take help guideline from our honorable faculty Mr. Shahran Abu

Sayeed. We would like to show our gratitude to him for giving us the good guideline for report

throughout the entire semester. Without his immense support, we would not be able to compete

the report.

The objective of this report is to project the financial volatility of a specific company, as in this

case Fu-Wang Ceramic Limited and R.A.K Ceramic Limited through different financial analysis.

This analysis is done based on the information collected from the annual report issued Fu-Wang

Ceramic Limited and R.A.K Ceramic Limited in the fiscal years 2015-2018.

4
Background of Fu-Wang Ceramic Limited

Fu-Wang Ceramic Industry Limited, the pioneer ceramic manufacturer in Bangladesh was

established in May 1995 as a joint venture company. Subsequently, in 1998, it was listed in the

Dhaka and Chittagong capital markets. Since then, it has been operating as a public limited

company with an authorized capital of Tk. 5 billion and a paid-up capital of Tk. 1,239 million.

The company is engaged in production of various types of wall and floor tiles. Within a short

period, the business expanded its market share by its unique quality, competitive price, exclusive

designs, and wide variety of sizes and models. Its effective and creative marketing campaign

enabled the company to establish its brand value in the tiles market in Bangladesh.

Our mission is to continuously increase customer satisfaction by offering products of the highest

standards. This will be possible through our culture of systematic innovation and utilization of

the latest technology and management practices.

Fu-Wang Ceramic Industry Limited meets European standards in production. With an affordable

pricing structure, the company aims to reach a vast residential and commercial property

development market that is presently experiencing rapid growth in Bangladesh. The company is

also exporting its products to the North Eastern region of India.

5
Background of R.A.K Ceramic Limited

RAK Ceramics was established in Ras Al Khaimah in 1989 by H.H. Sheikh Saud Bin Saqr Al

Qasimi, member of the Supreme Council and Ruler of Ras Al Khaimah, who aspired to have the

best machinery, latest technology, and to produce the best products possible for sale in the world.

RAK Ceramics (Bangladesh) Limited is the country’s largest and most respected tiles and

sanitary ware brand.

The Company was incorporated in Bangladesh on 26 November, 1998 as a private limited

company under the Companies Act, 1994 as a UAE-Bangladesh joint venture project. It has

started its commercial production on 12 November 2000. It has converted into public limited

company on 10 June 2008 and listed in the stock exchanges of Bangladesh on 13 June 2010. 

The ownership of RAK Ceramics (Bangladesh) Limited comprises with 75.59% held by the

sponsors (71.67% by RAK Ceramics PJSC, UAE and 3.92% by local investor Mr. S.A.K.

Ekramuzzaman) and remaining 24.41% is holding by general public including institutional

investors as on December 31, 2016.

With an annual turnover of over BDT 5,661.41 million in 2016, within the short span of 16 years

RAK has firmly established itself as one of the leading manufacturer of high quality ceramic

wall, floor tiles, gres porcellanato and sanitary wares products in Bangladesh.

6
Income Statement of Fu-Wang Ceramic Limited

2015 2016 2017 2018

Revenue/ Sales 676,314,432.00 836,889,015.00 472,605,400.00 572,643,469.00
Costs of Sales 513,941,489.00 594,204,332.00 286,182,155.00 371,383,485.00
Gross Profit 162,372,943.00 242,684,683.00 186,423,245.00 201,259,984.00
Administrative expenses 40,617,170.00 40,940,077.00 34,859,479.00 27,537,026.00
Selling and Distribution expenses 57,674,931.00 62,517,689.00 26,183,589.00 27,941,713.00
Total Operating Expenses 98,292,101.00 103,457,766.00 61,043,068.00 55,478,739.00
Operating Profit/ (loss) 64,080,842.00 139,226,917.00 125,380,177.00 145,781,245.00
Financial Expenses 23,211,614.00 20,770,595.00 23,098,871.00 27,193,679.00
Provision for Gratuity 2,000,000.00 2,400,000.00 3,000,000.00 3,000,000.00
Trade Mark Written-off 45,060.00 - - -
Total Operating Income 38,824,168.00 116,056,322.00 99,281,306.00 115,587,566.00
Non Operating Income 6,237,368.00 53,947,955.00 2,399,444.00 2,868,609.00
Net Profit before Tax and WPPF 45,061,536.00 170,004,277.00 101,680,750.00 118,456,175.00
Contribution to WPPF and Welfare Fund 2,145,787.00 8,095,442.00 4,841,940.00 5,640,770.00
Profit / (loss) Before Tax 42,915,749.00 161,908,835.00 96,838,810.00 112,815,405.00
Current tax (8,547,655.00) (29,668,662.00) (24,209,702.00) (28735952.00)
Profit / (loss) for the Period/ Net Profit 34,368,094.00 132,240,173.00 72,629,108.00 84,079,453.00
before Tax
Earnings Per Share 0.37 1.29 0.64 0.68

Balance sheet of Fu-Wang Ceramic Limited

2015 2016 2017 2018

Property Plant & Equipment 852,229,550.00 836,084,383.00 865,486,976.00 996,947,317.00
Investment in Property 31,586,080.00 14,016,828.00 14,016,828.00 14,016,828.00
Capital Work in Progress for Machinery 17,029,896.00 5,244,889.00 93,272,760.00 88,132,682.00
Total Non Current Assets 900,845,526.00 855,346,100.00 972,776,564.00 1,099,096,827.00
Inventory 426,979,967.00 487,372,462.00 645,653,045.00 753,810,051.00
Trade & other receivables 86,560,370.00 87,876,934.00 124,857,872.00 126,156,405.00
Advance, Deposits and Prepayments 108,335,543.00 129,626,009.00 140,629,305.00 142,345,320.00
Cash and Cash Equivalents 9,952,580.00 13,098,240.00 19,218,381.00 19,769,824.00
Total Current Assets 631,828,460.00 717,973,645.00 930,358,603.00 1,042,081,600.00
Total Assets 1,532,673,986.00 1,573,319,745.00 1,903,135,167.00 2,141,178,427.00
Stated capital 930,736,260.00 1,023,809,880.00 1,126,190,860.00 1,238,809,940.00
Share Premium 110,596,499.00 110,596,499.00 110,596,499.00 110,596,499.00
Tax Holiday Reserve 58,960,533.00 - - -

7
Retained Earnings 49,511,257.00 147,638,343.00 117,886,471.00 89,346,843.00
Total Equity 1,149,804,549.00 1,282,044,722.00 1,354,673,830.00 1,438,753,282.00
Long Term Loan Net off Current Maturity 50,430,007.00 24,486,446.00 69,381,799.00 116,946,155.00
Deferred Tax Liabilities 36,500,000.00 43,576,959.00 50,914,334.00 61,696,537.00
Total Non Current Liabilities 86,930,007.00 68,063,405.00 120,296,133.00 178,642,692.00
Short Term Bank Loans 210,211,742.00 120,233,754.00 304,142,726.00 382,395,497.00
Current Portion of Long Term Loan 44,936,620.00 35,900,084.00 61,603,016.00 70,054,584.00
Trade and Other 26,053,976.00 31,328,086.00 30,498,925.00 35,798,978.00
Payables/Creditors,Accruals and other
payables
Liabilities for Expenses/Accrued Expenses 12,689,437.00 13,157,991.00 14,988,210.00 17,579,644.00
Provision for Income Tax 2,047,655.00 22,591,703.00 16,872,327.00 17,953,750.00
Total Current Liabilities 295,939,430.00 223,211,618.00 428,105,204.00 523,782,453.00
Total Liabilities 382,869,437.00 291,275,023.00 548,401,337.00 702,425,145.00
Total equity and liabilities 1,532,673,986.00 1,573,319,745.00 1,903,075,167.00 2,141,178,427.00
Book value per share 12.35 12.52 12.03 11.61

Income Statement of R.A.K Ceramic Limited

2015 2016 2017 2018

Revenue/ Sales 5,059,300,403.00 5,661,411,578.00 7,067,872,487.00 6,830,783,735.00
Costs of Sales 2,896,889,441.00 3,252,054,966.00 4,251,220,093.00 4,315,805,600.00

Gross Profit 2,162,410,962.00 2,409,356,612.00 2,816,652,394.00 2,514,978,135.00

Other Income 841,198,710.00 3,109,360.00 12,392,921.00 65,663,417.00
Administrative expenses 859,551,141.00 355,404,446.00 378,110,155.00 381,819,268.00
Impairment loss on trade receivable - - - 3,601,431.00
Selling and Distribution expenses 688,070,995.00 706,362,135.00 890,034,944.00 909,398,992.00
Total Operating Expenses 706,423,426.00 1,058,657,221.00 1,255,752,178.00 1,229,156,274.00
Operating Profit/ (loss) 1,455,987,536.00 1,350,699,391.00 1,560,900,216.00 1,285,821,861.00
Financial Expenses 18,935,684.00 40,014,661.00 101,024,936.00 39394022.00
Financial Income 90,059,260.00 21,029,885.00 22,165,853.00 38,410,830.00
Total Operating Income 1,527,111,112.00 1,331,714,615.00 1,482,041,133.00 1,284,838,669.00
Share of profit/(loss) of equity- 20,409,802.00 - - -
accounted investees
Net Profit before Tax and WPPF 1,506,701,310.00 1,331,714,615.00 1,482,041,133.00 1,284,838,669.00
Contribution to WPPF and Welfare Fund 27,305,761.00 61,056,166.00 67,441,264.00 58,913,315.00
Profit / (loss) Before Tax 1,479,395,549.00 1,270,658,449.00 1,414,599,869.00 1,225,925,354.00
Current tax (385,055,782.00) (355,403,678.00) (396,587,747.00) (316179434.00)
Deferred tax - - - (19120735.00)
Profit / (loss) for the Period/ Net Profit 1,094,339,767.00 915,254,771.00 1,018,012,122.00 890,625,185.00
before Tax
Earnings Per Share 3.25 2.72 2.88 2.29

8
Balance sheet of R.A.K Ceramic Limited

2015 2016 2017 2018

Property Plant & Equipment 2,311,590,599.00 3,500,775,258.00 3,394,940,284.00 5,382,929,527.00

Investment in Property - 504,343,755.00 701,681,877.00 -

Investment in shares - - - 68,500,904.00
Intangible Assets 6,683,955.00 6,740,159.00 5,429,027.00 -
Capital Work in Progress for 1,545,379,710.00 28,726,285.00 41,415,719.00 -
Machinery
Trade Marks/Trade & other 148,050,000.00 74,025,000.00 - -
receivables
Total Non Current Assets 4,011,704,264.00 4,114,610,457.00 4,143,466,907.00 5,451,430,431.00
Inventory 2,239,844,230.00 2,527,507,042.00 2,533,703,266.00 695,025,952.00
Trade & other receivables 638,387,373.00 618,841,556.00 590,423,877.00 198,228,498.00
Amount due from Subsidiary 201,898,000.00 201,898,000.00 - -
Company/ Loan to deposed
subsidiary
Advance, Deposits and 340,158,392.00 406,247,968.00 309,772,083.00 108,696,738.00

Prepayments
Advance Income Tax 2,219,806,786.00 2,485,841,759.00 2,831,624,003.00 -
Cash and Cash Equivalents 1,101,566,520.00 802,643,479.00 1,382,359,206.00 10,755,136.00
Total Current Assets 6,741,661,301.00 7,042,979,804.00 7,647,882,435.00 1,012,706,324.00
Total Assets 10,753,365,565.00 11,157,590,261.00 11,791,349,342.00 6,464,136,755.00
Stated capital 3,368,506,110.00 3,368,506,110.00 3,536,931,410.00 1,469,660,550.00
Share Premium 1,473,647,979.00 1,473,647,979.00 1,473,647,979.00 -
Revaluation reserve & surplus - - - 2,966,690,015.00
Fair value loss on investment in - - - (96,469,701.00)
shares
Retained Earnings 1,196,443,022.00 1,269,570,793.00 1,445,455,970.00 (124,634,883.00)
Non Controlling Interest 1,529.00 1,501.00 1,524.00 -
Total Equity 6,038,598,640.00 6,111,726,383.00 6,456,036,883.00 4,215,245,981.00
Long Term Loan Net of Current 420,624,802.00 601,200,132.00 359,163,292.00 376,998,771.00
Maturity
Gratuity Payable - -- - 120,142,415.00
Deferred Tax Liabilities 75,811,194.00 128,416,223.00 178,813,760.00 81,472,077.00
Total Non Current Liabilities 496,435,996.00 729,616,355.00 537,977,052.00 578,613,263.00
Short Term Bank Loans - - - 780,951,629.00
Current Portion of Long Term 771,119,369.00 566,254,999.00 548,162,038.00 186,108,052.00

Loan
Trade and Other Payables / 640,626,199.00 590,472,114.00 573,706,416.00 703,217,830.00
Creditors ,Accruals and other
payables
Liabilities for Expenses/Accrued 196,618,285.00 269,520,037.00 447,661,843.00 -
Expenses
Employees benefits payable 26,224,135.00 26,224,135.00 - -
Provision for Income Tax 2,583,742,941.00 2,886,541,590.00 3,227,805,110.00 -
Total Current Liabilities 4,218,330,929.00 4,316,247,523.00 4,797,335,407.00 1,670,277,511.00
Total Liabilities 4,714,766,925.00 5,045,863,878.00 5,335,312,459.00 2,248,890,774.00
Total equity and liabilities 10,753,365,565.00 11,157,590,261.00 11,791,349,342.00 6,464,136,755.00
Book value per share 17.93 18.14 18.25 28.68

9
 Ratio Analysis of Fu-Wang Ceramic Limited

Ratios Formula 2015 2016 2017 2018

Liquidity Ratios
1. Current Ratio Current Assets/Current Liabilities 2.135 3.217 2.173 1.990
2. Quick Ratio Current Assets-Inventories/Current 0.692 1.033 0.665 0.550
Liabilities
Activity Ratios
1. Inventory Cost of Goods Sold/Net Inventory 1.204 1.219 0.443 0.493
Turnover
2. Average Accounts Receivable/Sales/365 46.716 38.327 96.430 80.411
Collection Period
3. Average 365/Inventory Turnover 303.240 299.377 823.473 740.853
Payment period
4. Total Asset Sales/Total Asset 0.441 0.532 0.248 0.267
Turnover
Debt Ratio Total Liabilities/Total Assets 0.250 0.185 0.288 0.328
Profitability
Ratios
1.Net Profit Margin Earnings Available to Common 0.051 0.158 0.154 0.147
Shareholders/Sales
2.Gross Profit Gross Profit/Sales 0.240 0.290 0.394 0.351
Margin
3.Operating Profit Operating Profit/Sales 0.095 0.166 0.265 0.255
Margin
Market Ratios
1.P/E Ratio Market Price Per Share/Earning Per Share 27.027 7.752 15.625 14.706

10
2.M/B Ratio Market Price Per Share/Book Value Per 0.810 0.799 0.831 0.861
Share
DuPont System
(DPS) Ratios
1.ROA Net Profit Margin*Total Asset Turnover 0.022 0.084 0.038 0.039
2.ROE Earnings available for common 0.030 0.103 0.054 0.058
stockholders/ Common Stock Equity
Earnings Per Earnings available for common 0.37 1.29 0.64 0.68
Share (EPS) stockholders/ Number of Shares of
Common outstanding Stocks

Ratio Analysis of R.A.K Ceramic Limited

Ratios Formula 2015 2016 2017 2018

Liquidity Ratios
1. Current Ratio Current Assets/Current Liabilities 1.598 1.632 1.594 0.606
2. Quick Ratio Current Assets-Inventories/Current 1.067 1.046 1.066 0.190
Liabilities
Activity Ratios
1. Inventory Cost of Goods Sold/Net Inventory 1.293 1.287 1.678 6.210
Turnover
2. Average Accounts Receivable/Sales/365 46.056 39.898 30.491 10.592
Collection Period
3. Average 365/Inventory Turnover 282.214 283.679 217.538 58.780
Payment period
4. Total Asset Sales/Total Asset 0.470 0.507 0.599 1.057
Turnover
Debt Ratio Total Liabilities/Total Assets 0.438 0.452 0.452 0.348
Profitability
Ratios
1.Net Profit Margin Earnings Available to Common 0.000 0.162 0.144 0.130
Shareholders/Sales
2.Gross Profit Gross Profit/Sales 0.427 0.426 0.399 0.368
Margin
3.Operating Profit Operating Profit/Sales 0.288 0.239 0.221 0.188
Margin
Market Ratios
1.P/E Ratio Market Price Per Share/Earning Per Share 3.077 3.676 3.472 4.367

2.M/B Ratio Market Price Per Share/Book Value Per 0.558 0.551 0.548 0.349
Share
DuPont System
(DPS) Ratios

11
 1.ROA Net Profit Margin*Total Asset Turnover 0.000 0.082 0.086 0.138
2.ROE Earnings available for common 0.181 0.150 0.158 0.211
stockholders/ Common Stock Equity
Earnings Per Earnings available for common 3.250 2.720 2.880 2.290
Share (EPS) stockholders/ Number of Shares of
Common outstanding Stocks

Time and Cross Series Analysis

(Fu-Wang Ceramic Limited VS R.A.K Ceramic Limited)

Liquidity Ratios

Current Ratio:
This ratio measures the ability to meet their short term obligations for the organizations. The
higher the current ratio, the better for the firm.
Current ratio gives us the idea of a firm’s or company’s ability to meet up its short-term
liabilities. It is calculated by dividing the total current assets by total current liabilities.

Chart Title

FUWANG

RAK

0 0.5 1 1.5 2 2.5 3 3.5

2015 2016 2017 2018

12
Time series: From the graph we can see that FUWANG has an upward trend than RAK between
2016 and 2017. RAKs current ratio decreased in 2018.

Cross Sectional: Ideal benchmark for current ratio is 1:1. FUWANG has current ratio higher than
2. So they have a better current ratio than RAK.

Quick Ratio:

Quick ratio’s other name is acid-test ratio. It measures the liquidity of the firm. It is calculated by
subtracting inventory from current asset and then dividing the result with current liabilities. This
ratio measures the ability of a company to pay its current liabilities when they come due with
only quick assets. If quick ratio is higher, the company may keep too much cash on hand or have
a problem collecting its accounts receivable.

Chart Title

FUWANG

RAK

0 0.2 0.4 0.6 0.8 1 1.2

2015 2016 2017 2018

Time Series: From the graph we can see that GUWANG is in upward trend. The graph gives a
clear visual view how the quick ratio has increased from 2015 to 2016. But RAKs graph has
decreased. So FUWANG is more efficient to pay its daily expenditures

Cross Sectional: FUWANG is more efficient to pay its daily expenses than RAK as its ratios are
higher than RAK and it’s in a better position.

Activity Ratios

Inventory Turnover:

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Inventory turnover ratio show up the activity or the liquidity of the company’s inventory. It is
calculated by dividing cost of goods sold by inventory. It shows how quickly a company’s
inventory turns into cash. This ratio measures how efficiently a company can control its
merchandise, so it is important to have a high turn. This shows the company does not overspend
by buying too much inventory and wastes resources by storing non-salable inventory. It also
shows that the company can effectively replace or sell its total inventory.

Chart Title

FUWANG

RAK

0 1 2 3 4 5 6 7

2015 2016 2017 2018

Time series: From the graph, Inventory turnover of RAK increased in 2018 from 2015. It’s in
upward trend. FUWANGs graph has decreased from 2016 to 2017. So, it’s downward trend.

Cross Sectional: if we compare them RAK has a better inventory turnover because it has an
upward trend

Average Collection Period:

 Average Collection Period is referred to as the days' sales in accounts receivable. This ratio
measures the average number of days that accounts receivable is outstanding. This activity ratio
should be the same or lower than the company's credit terms. Less number of days means the
company collects it receivable cash faster than before.

14
 Chart Title

FUWANG

RAK

0 20 40 60 80 100 120

2015 2016 2017 2018

Time Series: From the graph we can see that RAKs sales has decreased overall from 2015 to
2018. On the other side FUWANGs sales has increased massively from 2016 to 2017.

Cross Sectional: Comparing the two graphs we can say that FUWANG has a better sales than
RAK because it has upward trend

Average Payment Period:

The APP is defined as the number of days a company takes to pay off credit purchases. Average
payment period means the average period taken by the organization for making payments to its
creditors.

15
 Chart Title

FUWANG

RAK

0 100 200 300 400 500 600 700 800 900

2015 2016 2017 2018

Time Series: From the graph we can see that FUWANG has an upward trend from 2016 to 2018
in terms of paying credit purchases. But RAKs ratio gradually decreased. That means they failed
to pay for the credit purchases on time.

Cross Sectional: FUWANG has a better ratio than RAK in terms of paying the credit purchases.

Total Asset Turnover:

The Asset Turnover ratio can be used as an indicator of the efficiency with which a company is
deploying its assets in generating revenue. This ratio measures how effectively a firm uses its
assets to generate sales, so a higher ratio is always more favorable for any company. Higher
turnover ratios mean the company is using its assets more effectively. More number means better
position of the company. This ratio measures how efficiently a firm uses its assets to generate
sales, so a higher ratio is always more favorable. Higher turnover ratios mean the company is
using its assets more efficiently.

16
 Chart Title

FUWANG

RAK

0 0.2 0.4 0.6 0.8 1 1.2

2015 2016 2017 2018

Time Series: FUWANGs graph increased in 2015-16 but then again fell down in 2017. RAKs
TATO has gradually increased and it is in the upward trend.

Cross Sectional: The higher the TATO the better is for the company. From the graph we can say
that RAK has a better TATO overall because it is upward trend.

Dept Ratio

Debt Ratio:

The debt ratio is a financial ratio that measures the extent of a company’s leverage. The debt
ratio of a company calculates the part of total assets that has been financed by the creditors.
Therefore, it’s always better for a company if it has a ratio value lower than 1, as this means that
they have more assets to pay back their liabilities. More debt ratio means more risk.

17
 Chart Title

FUWANG

RAK

0 0.05 0.1 0.15 0.2 0.25 0.3 0.35 0.4 0.45 0.5

2015 2016 2017 2018

Times Series: It’s better to have a higher debt ratio for companies. From the graph we can see
that FUWANGs ratio is upward from 2016 and RAKs ratio is downward from 2017.

Cross Sectional: Though RAK has a better average debt ratio but FUWANG has overall better
ratio because it is upward.

Profitability Ratios

Net Profit Margin:

Net profit margin is the percentage of revenue left after all expenses have been deducted from
sales. The measurement reveals the amount of profit that a business can extract from its total
sales. The net sales part of the equation is gross sales minus all sales deductions, such as sales
allowances. This ratio is the profit earned after deducting after all operating expenses, interest,
taxes and preferred stock dividends (but not common stock dividends from a company's total
revenue relative to sales revenue).

18
 Chart Title

FUWANG

RAK

0 0.02 0.04 0.06 0.08 0.1 0.12 0.14 0.16 0.18

2015 2016 2017 2018

Time’s series: From the graph we can see that both the companies graph is upward trend from
the year 2016 though they initially increased their profit.

Cross sectional: FUWANG has a better ratio because it’s higher than the average industry
margin.

Gross Profit Margin:

Gross profit margin is a financial metric used to assess a company's financial health and business
model by revealing the proportion of money left over from revenues after accounting for the cost
of goods sold (COGS). Gross profit margin, also known as gross margin, is calculated by
dividing gross profit by revenues.

Chart Title

FUWANG

RAK

0 0.05 0.1 0.15 0.2 0.25 0.3 0.35 0.4 0.45

2015 2016 2017 2018

19
Time series: RAK managed to increase their gross profit margin in 2016 and FUWANG
managed to increase the ratio in 2015 up to 2017. But both of the companies ration went
downward trend in the end.

Cross Sectional: RAK has a better overall ratio because FUWANG has a ratio in 2015 which is
lower than the industry average.

Operating Profit Margin:

Operating margin is a margin ratio used to measure a company's pricing strategy and operating
efficiency. Operating margin is a measurement of what proportion of a company's revenue is left
over after paying for variable costs of production such as wages, raw materials, etc.

Chart Title

FUWANG

RAK

0 0.05 0.1 0.15 0.2 0.25 0.3

2015 2016 2017 2018

Times Series: From the graph we can see that RAK has gradually decreased their ratio which is
downward trend from 2015. FUWANG had a low ratio in the beginning but eventually increased
its ratio from 2016.

Cross Sectional: FUWANG has a better ratio than RAK because its graph is upward trend.

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Market Ratio

P/E Ratio:

The price/earnings ratio is the ratio of a company's share price to the company's earnings per
share. The ratio is used for valuing companies and to find out whether they are overvalued or
undervalued.

Chart Title

FUWANG

RAK

0 5 10 15 20 25 30

2015 2016 2017 2018

Time’s series: We can see that FUWANG was overvalued in 2015 with high price ratio but the
ratio decreased massively in 2016 but later on it again increased. RAK has upward trend graph
from the beginning of 2015.

Cross Sectional: RAK has a better ratio because the prices are stable and consistent despite being
lower that FUWANGs ratio

M/B Ratio:

The market to book ratio is defined as the market value of a firm's equity divided by the book
value of equity.This value shows how investors view the organizations performance by
comparing the market value of the firms to its book value. M/B ratio is basically an assessment
for the investors about the firm. Evaluating the two companies.

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 Chart Title

FUWANG

RAK

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1

2015 2016 2017 2018

Time Series: FUWANG has an upward graph from 2016 and RAK has a downward graph from
2016

Cross Sectional: FUWANG has a better ratio than RAK because it has upward trend.

DuPont System

ROA:

Return on assets (ROA) is an indicator of how profitable a company is relative to its total assets.
ROA gives a manager, investors, or analyst an idea as to how efficient a company's management
is at using its assets to generate earnings. Return on assets is displayed as a percentage

Chart Title

FUWANG

RAK

0 0.02 0.04 0.06 0.08 0.1 0.12 0.14

2015 2016 2017 2018

22
Time Series: From the graph we can see that RAK has maximized their profit from 2016 to 2018.
It is upward trend. FUWANG made huge profit out of the assets in 2016 but their profit
decreased in 2017.

Cross Sectional: RAK has a better ratio because of having an upward trend graph and their profit
has increased massively over the year.

ROE:

ROE is considered a measure of how effectively management is using a company’s assets to

create profits. ROE is expressed as a percentage and can be calculated for any company if net
income and equity are both positive numbers. Net income is calculated before dividends paid to
common shareholders and after dividends to preferred shareholders and interest to lenders.

Chart Title

FUWANG

RAK

0 0.05 0.1 0.15 0.2 0.25

2015 2016 2017 2018

23
Times Series: We can see that RAK made the higher profit from the stakeholder’s equity in
2016, 2017 and 2018. The graph is upward trend. FUWANGS profit increased in 2016 but
dropped in 2017.

Cross Sectional: RAK has a better profitability ratio because it has an upward graph.

EPS:

Earnings per share is the monetary value of earnings per outstanding share of common stock for
a company. Earnings per share (EPS) is the portion of a company’s profit allocated to each
outstanding share of common stock. Earnings per share serves as an indicator of a company’s
profitability. Therefore, the greater value of EPS shows that company is performing well.

Chart Title

FUWANG

RAK

0 0.5 1 1.5 2 2.5 3 3.5

2015 2016 2017 2018

Times Series: RAK has maximum EPS in 2015 but which decreased in 2016 but again increased
in 2017. FUWANGs ratio was lower than the average industry margin in 2016 but drastically
increased in 2016.

Cross Sectional: RAK has an increasing ratio in a decreasing rate than FUWANGs EPS.

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Recommendation

If the company manages to produce returns above their cost of capital, financiers will get
advantage. However, with the added risk of the debt on its books, a business can be easily hurt
by this leverage if it is unable to generate returns above the cost of capital.

However, RAK Company have very less debts, which make it more lucrative to the lenders to
lend them money. This indicates that they have enough money to pay their interest expenses
when they come due. This should give the lenders more assurance towards lending the company.
Now, for the invertors, almost all the profitability ratios of RAK Company show a better-quality
performance than the industry from the year 2015 onwards. This means that the company
execute well and are generating more profit than Fu-Wang, which makes investing on the
company look like a good choice. On the other hand Fu-Wang lacking in so many side. So it will
be a risk if investors invest their money on Fu-Wang.

Conclusion

When an analyst compares a company's ratios with the industry average, he or she can determine
the strengths of the business and the potential weaknesses. While ratio analysis has become an
important tool for the fundamental analyst, a successful analysis does not always correlate to a
successful investment. An analyst should have a good grasp of the relevant ratios, but he or she
should also understand the competitive landscape, the economic landscape and the direction of
the overall industry. After above discussion and analyzing working capital ratios we can say that
is at superior position in market rather than. After completing the whole report and analysis for
both the competing companies, we came to a conclusion that RAK is ahead of Fu-Wang . While
calculating many of the ratios, it has been observed that RAK had a better performance than Fu-
Wang . However, both the companies are financially stable which we have calculated and
analyzed from their financial reports.

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