Report

On
Financial Statement Analysis of
Tex Harbour Limited

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The basic limitation of the traditional financial statement, comprising the balance sheet and
the profit and loss account is that do not provide all the information related to the
financial operations of a firm. Nevertheless, that provides some extremely useful
information to the extent that the balance sheet mirrors the financial position on a
particular date in terms of the structure of assets, liabilities, and owners’ equity, and so
on and the profit and loss accounts shows the results of operations during a certain
period of time in terms of the revenues obtained the cost incurred during the year. Thus,
the financial statements provide a summarized view of the financial position and
operations of a firm. Therefore, we have analyzed the accompanying financial statement
of Tex Harbour Limited. Consisting of a balance sheet, a profit and loss account as well
as the notes to the financial statements for the year from July 1, 2016 to June 30, 2017 &
from July 1, 2015 to June 30, 2016.

1.1 Objectives of the Report

The main objectives of preparing the report are

To get knowledge about financial performance of Tex Harbour Limited

To measure the operational effectiveness in terms of financial management
To make comparison between the theoretical and practical knowledge

1.2 Scope of the Report

Every study or expedition must operate on a specific scope and a scope discloses the working
periphery of a specific investigation. The scope of our report is confined to Tex Harbour
Limited. It is not comparable with others one.

1.3 Methodology of the Report

Firstly, we have collected the annual report of Tex Harbour Limited. Then different reference
materials of the organization such as books, newspaper & journals are studied. At the same
time, an informal discussion was held with some of the employees working under Finance
Department of the organization. Then the collected data was thoroughly processed, analyzed,
summarized, organized, and finally revised.

1.4 Limitations of the Report

Hardly any report overcomes all the limitations getting complete accuracy. Ours one is also not
exceptional. The limitations of the report are:

Financial procedure is quite confidential and the executives were a bit conservative in
disclosing the entire procedure.
There was lack of reference materials.
Vast scope of the study and descriptive nature of the report topic.
There was lack of experience.

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2.1 Financial Statement Analysis

The analysis of financial statement is a process of evaluating the relationship between

components parts of financial statements to obtain a better understanding of the firm’s
position and performance. In brief, financial analysis is the process of selection, relation, and
evaluation.

2.2 Ratio Analysis

Ratio analysis is widely used tool of financial analysis. It can be used to compare the risk and
return relationship of firms of different sizes. It is defined as the systematic use of ratio to
interpret the financial statements so that the strength and weaknesses of a firm as well as its
historical performance and current financial condition can be determined.

2.3Types of Ratios

Ratios can be classified into six broad groups:

(a) Short-term liquidity ratio,
(b) Capital structure and long term solvency ratio,
(c) Profitability or operating performance ratio,
(d) Assets utilization ratio
(e) Integrated analysis of ratio,
(f) Growth ratio.

2.4 Liquidity Ratio

The importance of adequate liquidity in the sense of the ability of a firm to meet
current/short-term obligations when they become due for payment can hardly be
overstressed. The liquidity ratio measures the ability of a firm to meet its short-term
obligations and reflect the short-term financial strength/solvency of a firm.

2.5 Capital Structure and Long-term Solvency Ratio

The second category of financial ratios is capital structure ratios. The long-term
lenders/creditors would judge the soundness of a firm on the basis of the long-term financial
strength measured in terms of its ability to pay the interest regularly as well as repay the
installment of the principal on due date on in one lump sum at the time of maturity.

2.6 Profitability or Operating Performance Ratio

Apart from the creditors, short-term and long-term, also interested in the financial soundness
of a firm are owners and management or the company itself. The management of the firm is
naturally eager to measure its operating efficiency. Similarly, the owners invest their funds in
the expectation of reasonable returns. The opera6ting efficiency of a firm and its ability to

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ensure adequate returns to its shareholders/owners depend ultimately on the profits earned by
it. The profitability of a firm can be measured by its profitability ratios.

2.7 Assets Utilization Ratio

Activity ratios are concerned with measuring the efficiency in asset management. These
ratios are also called efficiency ratios or asset utilization ratio. The efficiency with which the
assets are used would be reflected in the speed and rapidity with which assets are converted
into sales. The greater is the rate of turnover or conversion, the more efficient is utilization of
assets, other thing being equal.

2.8 Integrated Analysis of Ratio

The ratios discussed so far measure a firm’s liquidity, solvency, efficiency of operations and
profitability independent of one another. However, there exists inter relationships among this
ratios. This aspect is brought out by integrated analysis of ratios.

2.9 Growth Ratio

These ratios measure the rate of which a firm should grow. Growth in sales needs additional
investment to support incremental sales both in terms of current assets (such as inventory and
debtors) and productive capacity/long-term assets (such as plant and machinery). The rate at
which a firm can grow depends on many factors. Included among these are, investment in
assets required for a given growth rate, net profit margin, retention ratio, and willingness and
ability to raise finance from the financial market.

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3.1 Historical Background

TEX HARBOUR LIMITED is a well known business organization in the Textile sector
which was founded in 2005 and started its business as a reliable Manufacturer and Exporter
of an extensive range of Pocketing Fabrics. With the course of time it has extended its
business in the field of shell fabrics. It has its own strong establishment with factory of
various kinds advanced looms and manufacturing techniques of loom. At the same time has a
good team who are dedicated and eager to develop and provide customer support for any
requirement.

3.2 Location

THL’s corporate office is in Dhaka addressed at House# 11(2 nd Floor), Road# 21, Sector# 07,
Uttara, Dhaka-1230. Factory is located at its own industrial land known as Vatpara,
Pachdona, Narsingdi,

3.3 Business Activities

Tex Harbour Limited operates in a single Industry segment. It owns textile weaving mill that
produce fabric of different counts, and sells. Eventually that is, by and large, consumed by
the export oriented fabric manufacturer of Bangladesh.

3.4 Compliance and Social Commitment

Being the largest company and the largest employer of the country, Tex Harbour Limited
always performs the social responsibilities and maintains the conformity of compliance
issues at each and every level of production and management which starts from the
recruitment of worker where the relevant clauses of the law and ILO conventions are
properly followed and ends up with the delivery of the finished goods. Considering the social
responsibilities of the company the innovation of new products, services and ideas for which
the company is earning a huge reputation and stepping towards the globalization in terms of
products, markets, efficient etc. should be counted at first. Tex Harbour Limited is the
company, which is always being in the front row of market penetration through their
innovations and product development, which further brings the benefit for the whole industry
of the country through increasing the flow of orders for the country.

3.5 Company Mission

To become a leading and responsible textile industry, which understands the human
requirements and acts to balance these requirements by producing world-class
products, keeping in view the social, economical and environmental concerns of the
nation.
To obtain customer satisfaction through the enhancement of product standards and
long-term relationship with the customers world over.
To contribute to the economy of the society and country.
Create employment opportunity.

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3.6 Marketing Network

The company has country-wide marketing network through Fabrics. The same has been
following up by a company of qualified and efficient professional for marketing of fabrics.
While transaction among the units under the company is considered to be arms length
transactions and the remarkable quantity has been sold to the outside buyers.

3.7 Website Address

http://www.texharbourbd.com/index.php

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4.1 Two Years Statistics

Results of Operations 2017 2016

Revenue 2,945,921 2,930,421
Gross Profit 51,707,137 50,835,925
Operating Profit (EBIT) 47,431,272 44,855,311
Net Profit before Tax (EBT) 16,456,975 9,284,011
Net Profit after Tax (EAT) 15,551,841 8,866,230
Basic Earning Per Share 2.03 1.66
Cash Dividend Per Share 0.50 1.00
Stock Dividend in % 25 5
Cash Flow from Operating Activities (144,457) (22,484)

Financial Position 2017 2016

Total Assets 532,540,876 456,976,095
Fixed Assets-Gross 4,061,812 3,886,559
Fixed Assets-Net 1,880,976 1,965,201
Financial Assets 2,326,217 2,029,095
Reserve and Surplus 1,255,774 1,174,908
Gross Working Capital 3,696,006 3,169,116
Net Working Capital 2,085,452 1,168,297
Authorized Capital 1,000,000 1,000,000
Share holders’ Equity 1,979,759 1,875,728
Paid-up Capital 486,486 463,320
Long-term Debt 2,109,002 1,533,399

Key Financial Ratios 2017 2016

Current Ratio 3.05 1.31
Debt Equity Ratio 1.00 0.67
Return on Investment 2.78% 1.52%
Net Assets Value Per Share 81.53 67.85
Payout Ratio 15.67% 59.17%
Market Value of Share (at Dhaka Stock Exchange) 29.50 16.79
Price Earnings Ratio (Based on DSE Price) (Times) 14.53 10.11

Others 2017 2016

Number of Shares 48,648,600 46,332,000
Number of Shareholders 5,905 5,209
Production (40’s Equivalent) in Lbs 27,583 27,560
Capacity Utilization 96.98% 96.90%

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4.2 Balance Sheet (At 30 June 2017)

Assets 2017 2016

Property, Plant and Equipment-Carrying Value 98,975,594 165,201,481
Long Term Security Deposits 5,058,913 5,058,913
Total Long Term Assets 104,034,407 170,260,394
Inventories 186,199,389 79,254,346
Trade Debtors 230,097,005 201,332,017
Advances, Deposits, and Prepayments 9,849,164 5,024,822
Cash and Cash Equivalents 2,360,911 1,104,516
Total Current Assets 428,506,469 282,715,701
Total Assets Tk. 532,540,876 456,976,095
Equity and Liabilities 2017 2016
Issued Share Capital 76,486,000 53,320,000
Share Premium 17,500,000 17,500,000
Tax Holiday Reserves 8,943,797 8,943,797
Retained Earnings 56,829,504 35,964,200
Shareholders’ Equity 159,759,483 115,727,997
Long Term Loans-Net of Current Maturity (Secured) 48,927,502 33,028,603
Security Deposit from Distributor 5,000,000 5,000,000
Long Term Liabilities 53,927,502 38,028,603
Short Term Loans 16,138,892 29,838,256
Overdraft-Social Islami Bank Ltd. 90,501,880 134,007,052
Long Term Loans-Current Maturity (Secured) 7,073,942 10,369,741
Accrued Expenses 7,130,640 9,998,158
Other Creditors 19,708,819 31,606,315
Current Liabilities 140,554,173 215,819,522
Total Shareholders’ Equity and Liabilities Tk. 354,241,158 369,576,122

4.3 Profit And Loss Account (For the Year Ended 30 June 2017)
Particulars 2017 2016
Gross Profit 51,707,137 50,835,925
Operating Expenses (4,275,865) (5,980,614)
Profit from Operations (EBIT) 47,431,272 44,855,311
Finance Cost (Interest) (28,704,648) (34,186,599)
Profit before Contribution to Workers’ Participation 18,726,624 10,668,712
Contribution to workers Participation (2,263,649) (1,384,701)
Net Profit before Tax 16,456,975 9,284,011
Income Tax Expenses (905,134) (417,781)
Net Profit (after tax) 15,551,841 8,866,230
Net Sales 281,803,897 282,647,743
Cost of Goods Sold 73,209,403 50,314,892
Administrative Expenses 3,715,399 5,049,400
Distribution Costs (Selling) 560,466 931,214
4.4 Others Information

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The basis of preparation of Financial Statement is the ‘Historical Cost Convention’.
The basis of presentation and disclosures of information are based on relevant and
applicable requirements of the:
Companies Act. 1994;
Securities and Exchange Rules 1987;
Bangladesh Accounting Standards (BASs) adopted by the Institute of
Chartered Accountants of Bangladesh (ICAB) based on International
Financial Reporting Standards.
The Financial Statements are presented in Bangladeshi currency (Taka).
Figures in brackets indicate deductions.
Sales are recorded at the time of delivery of products along with issue of invoice.
All property, plant and equipment are initially recorded over their expected useful
life.
Land is held on a free hold basis and is not depreciated considering the unlimited life.
Depreciation on Fixed Assets is charged on closing book value. Depreciation rates are
as follows:-
Plan & Machinery 5%
Factory A/C 4%
Furniture & Fixture 10%
Electrification A/C 5%
Office Equipment 25%
Electricity Bill A/C 30%
Fire Equipment 25%
Vehicles 8%

Assets leased under agreements qualifying as operating lease.

IBP Document has been created against export Bills as well as BB LC which was
submitted to our Bank after complete the delivery, so it was 10% of the purchased
document and total amount of non purchased export bill/document.
Inventories are carried at the lower of cost and net realizable value. Cost is
determined on weighted average cost basis.
Cash and Equivalents comprise cash in hand and at bank.
Income Tax has provided by applying reduced tax rate of 15% applicable for textile
Industries.
The company provides a variety of post employment benefit plans to eligible
employees comprising recognized contributory provident fund and group insurance
scheme.
Basic earning represents net profit for the year attributable to ordinary shareholders.

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5.1 Ratio Analysis

5.1.1. Short Term Liquidity Ratios

Current Assets
Current Ratio = Current Liabilities

428506469
Year 2017: = 3.05
140554173

282715701
Year 2016: = 1.31
215819522

Current Assets  Inventory

Acid Test Ratio = Current Liabilities  Over draft

428506469  186199389
Year 2017: = 4.84
140554173  90501880

282715701  79254346
Year 2016: = 2.49
215819522  134007052

Cost Of Goods Sold

Inventory Turnover Ratio = Closing Inventory

73209403
Year 2017: =0.39
186199389

50314892
Year 2016: = 0.63
79254346

Working Capital = Current Assets – Current Liabilities

Year 2017: 428506469-140554173 = 287952296

Year 2016: 282715701-215819522 = 66896179

5.1.2 Capital Structure and Long-Term Solvency Ratios

Current Liabilities  Long Term Liabilities

Total debt to total capital = Equity Capital  Total Liabilities

140554173  53927502
Year 2017: = 0.55
159759483  194481675

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 215819522  38028603
Year2016 = = 0.69
115727997  253848125

Long Term Liabilitie s

Long term debt to equity capital = Equity Capital

53927502
Year 2017: = 0.34
159759483

38028603
Year 2016: = 0.33
115727997

Income Before Interest & Tax ( EBIT )

Times Interest Earned =
Interest

47431272
Year 2017: = 1.65
28704648

44855311
Year 2016: = 1.31
34186599

Long Term Liabilities

Debt to equity ratio = Equity Capital  Long Term Liabilities

53927502
Year 2017: = 0.26
159759483  53927502

38028603
Year 2016: = 0.25
115727997  38028603

5.1.3 Profitability or Operating Efficiency Ratios

Operating Profit ( EBIT )

Return on Assets (ROA) = Total Assets

47431272
Year 2017:
532540876
 100 = 8.91 %

44855311
Year 2016:  100 = 9.81%
456976095

Net Profit
Return on Equity (ROE) = Common Share Holders Equity  100

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 15551841
Year 2017:  100 = 20.33 %
76486000

8866230
Year 2016:  100 = 16.62 %
53320000

Gross Profit ( Margin )

Gross Profit Ratio =  100
Sales

51707137
Year 2017:  100 = 18.34 %
281803897

50835925
Year 2016:  100 = 17.99 %
282647743

Operating Profit ( EBIT )

Operating Profit to Sales =  100
Sales

47431272
Year 2017:  100 = 16.83 %
281803897

44855311
Year 2016:  100 = 15.87 %
282647743

Income Before Tax ( EBT )

Pre-Tax Income to Sales =  100
Sales

16456975
Year 2017:  100 = 5.84 %
281803897

9284011
Year 2016:  100 = 3.28 %
282647743

Net Profit
Net Profit to Sales =  100
Sales

15551841
Year 2017:  100 = 5.52 %
281803897

8866230
Year 2016:  100 = 3.13 %
282647743

Net Income
Earning Per Share = Number of Shares Outstanding

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 15551841
Year 2017: = 2.03
7648600

8866230
Year 2016: = 1.66
5332000

Market Price Per Share

Price Earnings Ratio = Earning Per Share

29.50
Year 2017: = 14.53
2.03

16.79
Year 2016: = 10.11
1.66

Earning Per Share

Earning Yield = Market Price Per Share

2.03
Year 2017: = 0.07
29.50

1.66
Year 2016: = 0.10
16.79

Dividend Per Share

Dividend Payout Ratio = Earning Per Share

0.50
Year 2017: = 0.25
2.03

1
Year 2016: = 0.60
1.66

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5.1.4 Assets Utilization Ratios

Sales
Sales to Cash & Cash equivalent = Cash & Cash Equivalents

281803897
Year 2017: = 119.36
2360911

282647743
Year 2016: = 255.90
1104516

Sales
Sales to Inventories = Inventory

281803897
Year 2017: = 1.51
186199389

282647743
Year 2016: = 3.56
79254346

Sales
Sales to Working Capital = Working Capital

281803897
Year 2017: = 1.00
287952296

282647743
Year 2016: = 4.23
66896179

Sales
Sales to Fixed Assets = Fixed Assets

281803897
Year 2017: = 2.71
104034407

282647743
Year 2016: = 1.66
170260394

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 Sales
Sales to Total Assets = Total Assets

281803897
Year 2017: = 0.53
532540879

282647743
Year 2016: = 0.62
456976095

Cost Of Goods Sold

Total Assets Turnover = Total Assets

7309403
Year 2017: = 0.01
532540876

50314892
Year 2016: = 0.11
456976095

Cost Of Goods Sold

Fixed Assets Turnover = Fixed Assets

73209403
Year 2017: = 0.70
104034407

50314892
Year 2016: = 0.30
170260394

Cost Of Goods Sold

Capital Turnover = Capital Employed

73209403
Year 2017: = 0.34
213686985

50314892
Year 2016: = 0.33
153756600

Cost Of Goods Sold

Current Assets Turnover = Current Assets

73209403
Year 2017: = 0.17
428506469

50314892
Year 2016: = 0.18
282715701

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 Cost Of Goods Sold
Working Capital Turnover = Working Capital

73209403
Year 2017: = 0.25
287952296

50314892
Year 2016: = 0.75
66896179

5.1.5 Integrated Analysis of Ratios

Earning AfterTax Sales Earning After Tax

Earning Power =  =
Sales Total Assets Total Assets

15551841
Year 2017: = 0.03
532540876

8866230
Year 2016: = 0.02
456976095

EAT EBT EBIT Sales Assets EAT

Return on Equity = EBT  EBIT  Sales  Assets  Equity = Equity

15551841
Year 2017: = 0.0973 = 9.73%
159759483

88669230
Year 2016: = 0.0766 = 7.66%
115727997

5.1.6 Growth Ratios

ROA  b
Internal Growth Rate = 1  ( ROA  b)

8.91%  0.75
Year 2017: = 7.16%
1  (8.91%  0.75)
9.81%  0.40
Year 2016: = 4.08%
1  (9.81%  0.40)

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 ROE  b
Sustainable Growth Rate = 1  ( ROE  b)

20.33%  0.75
Year 2017: = 18%
1  ( 20.33%  0.75)
16.62%  0.40
Year 2016: = 7.12%
1  (16.62%  0.40)

5.2 Comments

5.2.1 Short Term Liquidity Analysis

The liquidity ratios indicate that considerable deterioration has occurred in the liquidity of
the company. In year 2017 the current ratio was 3.05 and the acid test ratio 4.84. Both ratios
were much higher than the standard requirement of 2 and 1. Thus, the Tex Harbour Limited is
liquidity to meet short-term liabilities was adequate in year 2017. But it is important to note
that a very high ratio of current assets and quick assts to current liabilities indicate the Tex
Harbour Limited practices slack management. It is also indicate that, this firm may not be
making full use of its current borrowing capacity.

5.2.2 Solvency Analysis

The solvency position of the Tex Harbour Limited is sound for two reasons: First, it has a
satisfactory level of interest coverage ratio during the year 2017 and 2016, being in the range
of 1.65 to 1.31. Secondly, its debt equity ratio over the years has shown a substantial increase
from 0.25 in 2016 to 0.26 by 2017. Likewise, there has been a substantial decrease in total
debt to equity ratio that is 0.26 in 2017 compared to 0.25 in 2016.

5.2.3 Profitability Analysis

The profit margin (gross, operating, net) of the THL over the year has increased markedly.
For instance, gross profit margin increased from 17.99 percent to 18.34 percent. Likewise,
operating profit margin has increased from 15.87 percent to 16.83 percent and net profit
margins from 3.13 percent to 5.52 percent during previous year 2016. The increasing profit
margins have a favorable effect on the various rates of return. The rates of return on capital
employed increased from 16.62 percent to 20.33 percent by 2017. The corresponding figures
were 9.81 percent and 8.91 percent in 2016 and 2017 in respect of rate of return on total
assets. The increase in the overall profitability of THL is due to substantial decrease in cost of
goods manufactured reflected in the sharp down in cost of goods sold. Its non-operating or
other earnings have been the main contributory factor to its positive profitability.

5.2.4 Assets Utilizations Analysis:

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The assets utilizations are used would be reflected in the speed and rapidity with which assets
are converted into sales. The greater is the rate of turnover or conversion, the more efficient
is utilization of assets, other thing being equal. The THL is assets utilization capacity is
moderately good. They use their assets in more efficiently.

5.2.5 Growth Analysis:

Growth ratios measure the rate at which the firm should grow. The Internal Growth Rate 7.16
percent is the reasonable rate at which the firm THL can grow (in sales/asset) without
external financing at any kind. The IGR 7.16 percent is greater in comparison with 4.08
percent 2016. The Sustainable Growth Rate 18 percent indicates the maximum rate at which
the firm can raise by using retained earnings as well as additional external debt but without
increasing its financial leverage.

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The most important recommendation for financial statement preparation is to conform to key
accounting norms and industry standards. These include generally accepted accounting
principles (GAAP) and international financial reporting standards (IFRS). By law,
accountants must display financial items in a specific way when presenting accounting data.
For example, they must show assets distinctly from liabilities in a balance sheet. Similarly,
they must separate revenues from expenses in an income statement.

Company principals understand that producing accurate performance data generally hinges
on steadily training bookkeeping and hiring top accounting talent. Having competent
personnel spearhead financial analysis is a money saver, as it provides the firm with timely,
useful insight about its operating activities. These include a statement of financial statement,
a statement of profit and loss and a statement of shareholders' equity.

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In this report, I tried my best to provide clear and descriptive analysis of Tex Harbour
Limited. I provided necessary tables and include necessary ratios perform a clear picture
about the activity, liquidity position of the discussed firm in this industry.

Here I was able to use the theoretical knowledge learned in all my courses in the setting of
real world. Despite some problem raised in the creation of this report writing process. I
would like to express my gratitude of my honorable supervisor for providing necessary
guidance.

Financial analysis is used to determine the firms’ financial image so as to identify its current
strength and weakness and to suggest action the firm might purpose to take advantage of
strength and correct any weakness. Financial statement is not only important for firm’s
manager but also for external stakeholder. Internally financial manager use the analysis for
rectification of error to maximize the firm’s value. Externally creditor and investor evaluate
the firm’s attractiveness and future growth as an investment. The reliability and significance
attached to ratios will largely hinge upon the quality of data on which they are based. They
are as good or as bad as the data itself. Nevertheless, they are the important tools of financial
analysis.

This process has opened my eyes and given me an in-depth look into real life financial world
in the context of Bangladesh, something I hope to incorporate in my future life.

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