Chapter-1 Introduction & Methodology

CHAPTER-1
INTRODUCTION & METHODOLOGY

RAK Ceramics (Bangladesh) Limited, was incorporated in 1998 as a
UAE-Bangladesh joint venture private company. It started its
commercial production on 12 November 2000. It is engaged in
manufacturing and marketing of ceramics tiles, bathroom sets, gres
porcellanato and all types of sanitary ware.
RAKs products include varieties of ceramic wall and floor tiles,
decors,
listellos,
pencils,
cappings,
border
and
corners.
The
company has over 1000 models active in the ceramic and porcelain
tile business and has over 40 models of sanitary ware of various
bathroom utility and luxury products. The plant standard capacity is
22,000 square meter tiles per day & 8.03 mn sqm per annum and
3,400 pieces of sanitary ware per day & 1.10 mn pcs per annum.
Revenue for RAK Ceramics comes mainly from Ceramic and Gress
Porcelain tiles (63%), and Sanitary Wares (35.3%). Dcor/Border also
contributes 1.7% of RAKs revenue. Currently the company has two
subsidiaries namely RAK Pharmaceuticals Pvt. Ltd (holding 55%
share), and RAK Power Pvt. Ltd (holding 57% share). RAK ceramics
also has three associates where it holds 47% share in RAK Paints
Pvt. Ltd., 35% in RAK Security Services (Pvt.) Ltd. and 20% share in
RAK-Mosfly (Bangladesh) Pvt. Ltd.
RAK Ceramics (Bangladesh) Limited is an ISO 9001:2008 certified
organization. According to its latest annual report it is the market
leader in the ceramic tiles and sanitary ware products holding 25%
& 67% market share respectively. About 99.6% production is
consumed in local market and rest 0.4% is exported. About 90% of
raw materials are imported.
The company was listed in DSE and CSE in 2010 under Book
building method. At present, 77.82% of total shares of RAKCERAMIC
1
are held by the sponsors/directors 10.45% by institutional investors

and rest 11.73% by general public.
1.1 Book Value Vs Market Value:

The book value of share indicates the dollar value remaining for
common shareholders after all assets are liquidated and all debtors
are paid. In other words, the book value of share is the value of the
shareholders equity according to the financial statement.
Market Value is the value of a share according to the stock market.
The market value of share is decided through the interaction of
demand and supply of that particular companys stock.
Implications of Each
Book value simply implies the value of the company on its books,
often referred to as accounting value. It's the accounting value once
a companys auditors have accounted for assets and liabilities.
Stock market investors who buy and sell the stock determine
whether book value is an accurate assessment of a companys
value. Market value has a more meaningful implication in the sense
that it is the price you have to pay to own a part of the business
regardless of what book value is stated.
1. Book Value Greater Than Market Value: The financial
market values the company for less than its stated value or
net worth. When this is the case, it's usually because the
market
has
lost
confidence
in
the
ability
of
the
company's assets to generate future profits and cash flows. In

other words, the market doesn't believe that the company is
worth the value on its books. Value investors often like to seek
out
companies
in
this
category
in
hopes
that
the
market perception turns out to be incorrect. After all, the
market is giving you the opportunity to buy a business for less

than its stated net worth.
2. Market Value Greater Than Book Value: The market
assigns a higher value to the company due to the earnings
power of the company's assets. Nearly all consistently
profitable companies will have market values greater than
book values.
3. Book Value Equals Market Value: The market sees no
compelling reason to believe the company's assets are better
or worse than what is stated on the balance sheet.
Book Value and Market Value of share for RAK Ceramics

(Bangladesh) Limited
If we look at the shares book value and market value of RAK
Ceramics, we find out that the market value of the share is greater
than the book value. We may say this is good news for them but in
reality this is not. It clearly defines that the market value is shrinking
over the years, which is definitely bad news for RAK.
In 2010, it
was 172 but in 2013 it was 53.3, which is very low. On the other
hand book value is stable over the years that was moving around 21
to 22. Though the book value is lower than market value, still we will
say this a bad news, as the company is not generating the value
once it was creating for the investors. So diminishing value creation
has made RAK in such a position that is not welcomed by the
investors.
The graph shows a comparative presentation of the book value and
market value of the share of RAK Ceramics (Bangladesh)
Limited
Market price Vs Book value

171.60
78.40
56.80
53.30
21.93
22.38
21.96
21.44
2010.0
2011.0
2012.0
2013.0
Book Value
Market Price
In the graph it is clearly seen that the market value is higher than
the book value but the market value has decreased drastically over
the years. This is indeed a bad news for the company. The investors
are not having trust on the company and demanding the share to
invest.
So, on the basis of the above data a hypothesis can be made as
followingHypothesis: the company is not in a good position as its
market value of share is shrinking over the years.
1.2 Objectives of the study:

The objectives of this assignment are
To analyze the financial status of the company with the help of

the latest available annual report. In our case we are
conducting the analysis on the basis of annual report
published in December 2013.

To study the book value and market value of share
To analyze the balance sheet and income statement of 2013
To analyze the cash flow statement of 2013
To analyze different ratios
1.3 Methodology:
Data source: source of data for this report is the annual
reports of the company, which is a secondary source.
Statistical Techniques: for our analysis we will use the
different kind of graphs (line chart, bar chart)
Period under consideration: our point of discussion will be
based on 2013 that is the latest available year for annual
report.
Nature of Analysis: we will conduct both time series and
cross section analysis.
Standard of Comparison: here we are going to conduct a
cross section analysis with another local firm of cement
industry named Fuwang Ceramics
1.4 Limitations:
While conducting the report, some limitations were yet present
here:
1. Due to time constraints we couldnt be focused in depth.
2. We couldnt study the whole industry of ceramic and make a
comparative analysis based on that.
CHAPTER -2
ANALYSIS & INTERPRETATION
The analysis and interpretation would be done by the means of time
series study and cross section study.
Time Series Analysis

2.1 Income Statement Analysis
We have analyzed income statement and Balance sheet by doing a

common size statement. We have also calculated the growth rate
for major income statement and Balance sheet items. For actual
figure of growth rate and common size statement, please refer to
the Table-2, Table -3 and Table-4 in the Appendix portion of the
report.
Based on the Income statements and Balance sheet in terms of
growth rate and common size statements, some of the major
findings that we identified are as below
Sales growth was largely derived from improved realizations

consequent to a price increase during the year and a healthy
off take of value-added products. Export earnings also
increased to Taka 26.14 mn in 2013 from Taka 18.39 mn in
2012, as a result of catering to the demand of the export
market.
Sales
5000
4000
3822
3859
4508
4256
4687
Sales
3000
2000
1000
2010.0
2011.0
2012.0
2013.0
Other income also includes toll manufacturing from subsidiary,

which amounted to Taka 7.33 mn in 2013.
Cost of goods sold has increased by Taka 111 mn (3.9% up) in

2013 than 2012 in tandem with sales.
Raw Materials cost increased by Taka 221.82 mn in 2013, due
to production of bigger size tiles and increase in production

volume in-group companies. Operational efficiency and
innovative waste management optimized input consumption
volume.
Administrative expenses decreased by Taka 9.5 (-3.6%) mn

mainly due to rigorous cost reduction policy.
Marketing & selling expense

12.0%
10.0%
10.8%
10.4%
9.7%
8.9%
8.6%
8.0%
Marketing & selling

expense
6.0%
4.0%
2.0%
0.0%
2009.0
2010.0
2011.0
2012.0
2013.0
Marketing expenses increased by Taka 87 (21.7%) mn mainly

due to increase in advertisement expenses by 7.71 mn,
discount expense by Taka 63 mn.
Interest expenses decreased to Taka 3.92 mn in 2013 from

Taka 16.63 mn in 2012 due to decrease in bank borrowings.
Common size Income Statements (RAK ceramics)

Particulars
2010
2011
2012
2013
Sales
+ 1.0%
+ 10.3%
+ 5.9%
+ 4.0%
COGS
(8.8%)
+ 6.0%
+ 10.9%
+ 3.9%
(9.3%)
(2.6%)
+ 9.8%
+ 21.7%
+ 226.2%
+ 1.7%
+ 25.1%
(3.6%)
Marketing
expense
Administrativ
e expense
EBIT
+ 51.1%
+ 9.7%
(8.7%)
(0.1%)
(75.4%)
+ 8.1%
(58.5%)
(23.5%)
+ 112.7%
+ 33.2%
(13.8%)
+ 4.6%
Financial
expense
Net Income
2.2 Balance Sheet Analysis
There has been an addition of Taka 100.14 mn in 2013

to the gross block of the fixed assets in the following
areas:
Land
proximal
to
the
present
existing
manufacturing facilities to expand tile and sanitary ware

capacities by Taka 21.73 mn, Factory admin and stores
building Taka 17.83 mn, additionsto plant & machinery
and furniture and fixtures by Taka 51.53 mn and Taka
3.22 mn respectively. In 2013 there has also been
installation of new communication equipments of Taka
2.73mn for added data connectivity between factories.
RAK increased its investment from 40% in 2012 to 47%

in 2013 by contributing Taka 36.75 mn in RAK Paints, an
associate company.
Inventory has gone up by 246 mn in 2013 compare to

2012. The reason behind the piled inventory is nothing
but sluggish growth in real estate and housing sector in
2013 and onwards. They are the big driver. Though the
Company has a policy of maintaining 6-7 months
inventory of key inputs to ensure uninterrupted
operations.
CashandbankbalancesincludecashinhandTaka2.7mn,
balancesinbankaccountsTaka270.37mnandFixedDeposits
Taka1150.76mn.Theliquidbalancesofcashandbankarein
commensuratewiththesmoothfunctioningofthebusiness.
Inventory Growth
Quantity mn
2000.00
1800.00
1600.00
1400.00 1359.56
1200.00
1000.00
800.00
600.00
400.00
200.00
.00
2010.0
1858.38
1612.37
1500.94
2011.0
2012.0
2013.0
2.3 Cash Flow Statement Analysis

The statement of cash flows is designed to show how the firms
operations have affected its cash position by examining the
investment
and
financing
decisions
of
the
firm.
Often
the
information contained in the statement of cash flows answer

questions like: Is the firm generative the cash needed to purchase
additional fixed assets for growth? Does it have excess cash flows
that can be used to repay debt or to invest in new products?
Information contained in the Cash Flow Statement is useful both for
financial managers and investors.
The graph followed shows the net cash in hand of RAK ceramics for
the year 2013
10

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CHAPTER-1

INTRODUCTION & METHODOLOGY

are held by the sponsors/directors 10.45% by institutional investors

1.1 Book Value Vs Market Value:

company's assets to generate future profits and cash flows. In

market perception turns out to be incorrect. After all, the

market is giving you the opportunity to buy a business for less

Book Value and Market Value of share for RAK Ceramics

Market price Vs Book value

1.2 Objectives of the study:

To analyze the financial status of the company with the help of

published in December 2013.

Time Series Analysis

We have analyzed income statement and Balance sheet by doing a

Sales growth was largely derived from improved realizations

Other income also includes toll manufacturing from subsidiary,

Cost of goods sold has increased by Taka 111 mn (3.9% up) in

Raw Materials cost increased by Taka 221.82 mn in 2013, due

to production of bigger size tiles and increase in production

Administrative expenses decreased by Taka 9.5 (-3.6%) mn

Marketing & selling expense

Marketing & selling

Marketing expenses increased by Taka 87 (21.7%) mn mainly

Interest expenses decreased to Taka 3.92 mn in 2013 from

Common size Income Statements (RAK ceramics)

2.2 Balance Sheet Analysis

There has been an addition of Taka 100.14 mn in 2013

manufacturing facilities to expand tile and sanitary ware

RAK increased its investment from 40% in 2012 to 47%

Inventory has gone up by 246 mn in 2013 compare to

2.3 Cash Flow Statement Analysis

information contained in the statement of cash flows answer

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