Department of Business Administration

MBA/EMBA Program

Course Title: Financial Management

Course Code: FIN 501
Section 03

Assignment on
“Ratio Analysis”
Submitted To:
Dr. Mahnoor Sattar (MNS)
Assistant Professor
Department of Business Administration
East West University
Submitted By:
“Group 7”
Name Student ID
Najmus Sakib Foysal 2022-3-91-023
Md. Alim Ul-Razee 2023-1-91-026
Anik Saha 2022-2-95-037
Tanzin Sultana Anin 2023-1-95-032
Arif Ur Rahman 2022-3-91-014

Date of Submission: 20th May, 2024

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 LETTER OF TRANSMITTAL

20th May, 2024

Dr. Mahnoor sattar

Department of Business Administration
East West University
A/2, Jahurul Islam Avenue, Aftabnagar,
Dhaka-1212, Bangladesh

Subject: Submission of Term Paper on “Financial Ratio Analysis of Dragon Sweater & spinning Ltd”.

Dear Mam,

This is to inform you that we have completed our report on the “Financial Ratio Analysis of
Dragon Sweater & spinning Ltd.”. Here we tried our best to give an overview of the company
and seeks to identify and analyze different financial ratios of the company that help investors
buy/sell decision based on the analysis.
Also, we have tried our level best to make this analysis and report a successful one.

This report gave us an opportunity to apply our theoretical expertise and ideas to the analysis of
the topic mentioned and hence provided us with real research experience, which has sharpened
our views, ideas, and ability to do research further. We hope you will find the report in an
appropriate manner. We appreciate your cooperation and hope you will call us with any queries
occasioned by this report. In preparing this report, we have followed your instructions.

We are thanking you and looking forward to receiving your cordial approval of our submission.

Sincerely Yours,

Name Student ID
Najmus Sakib Foysal 2022-3-91-023
Md. Alim Ul-Razee 2023-1-91-026
Anik Saha 2022-2-95-037
Tanzin Sultana Anin 2023-1-95-032
Arif Ur Rahman 2022-3-91-014

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 ACKNOWLEDGMENT

All applause to the Almighty Allah for giving us the solidarity to finish this term paper. We
would like to extend our heartfelt gratitude to all those who have supported and guided us
throughout the process of conducting this term paper on the “Financial Ratio Analysis of Dragon
Sweater & Spinning Ltd.”.

First and foremost, We express our sincere appreciation to Dr. Mahnoor sattar,our esteemed
mentor and guide. Her extensive knowledge, valuable insights, and unwavering support have
been indispensable in shaping the direction and methodology of this research. Dr. Mahnoor
sattar’s guidance, encouragement, and patient discussions have significantly enriched our
understanding of Financial Market and Institutions. Lastly, we wish to express our thanks to our
families for their unwavering support and understanding during the demanding period of this
study.

In conclusion, this term paper would not have been possible without the combined efforts of all
those who supported us. Thank you for your contributions, guidance, and encouragement that
have made this endeavor a meaningful and enriching experience.

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Table of Contents
Executive Summary..........................................................................................................5
Company Profile...............................................................................................................6
Dragon Sweater and Spinning Ltd......................................................................................6
Ratio Analysis...................................................................................................................7
Current Ratio............................................................................................................................7
Quick Ratio...............................................................................................................................8
Inventory Turnover Ratio.........................................................................................................9
Days Sales Outstanding (DSO)................................................................................................10
Fixed Asset Turnover Ratio....................................................................................................11
Total Asset Turnover Ratio.....................................................................................................12
Debt Ratio...............................................................................................................................13
Times Interest Earned (TIE) Ratio.........................................................................................14
Net Profit Margin (NPM)........................................................................................................15
Return on Total Asset (ROA)..................................................................................................16
Return on Equity (ROE).........................................................................................................17

Decision Table:...............................................................................................................18
Recommendation:...........................................................................................................19
Conclusion:.....................................................................................................................20
Reference:.......................................................................................................................21

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Executive Summary

This term paper aims to analyze the financial performance of a textile company listed on the
Dhaka Stock Exchange: Dragon Sweater and Spinning Limited. The annual reports for the last
five years, from 2017 to 2021, were collected and used to calculate 11 different financial ratios
of the company that help investor’s buy/sell decision based on the analysis and to compare the
companies' financial health.

Dragon Sweater and Spinning Limited has a lower inventory turnover ratio indicating that it is
carrying too much inventory, or experiencing poor inventory management. It also incorporate
lower fixed asset & total asset turnover indicating that investments in fixed assets are more, but
sales performance is low. Firms DZO is higher indicating it takes the company longer to collect
cash from its customers and could potentially signal inefficiencies in the collections processes. In
terms of liquidity, DSSL has a higher current ratio and quick ratio, indicating that it can meet its
short-term obligations more effectively but generate lower rate of return in the long run.

However The ratio analysis shows that Dragon Sweater and Spinning Limited (DSSL) has
significantly higher ratios in terms of net profit margin, return on assets and return on equity. The
firm is performing much better in terms of Profitability. The company has a lower debt ratio
compared with its industry average that indicates the firm is less levered and closer to being fully
equity financed & the level of risk is low.

Furthermore, the line graphs represent the trends of the ratios for the company over the five
years. Dragon Sweater and Spinning Limited’s ratios show a mixed trend, with some ratios
increasing and others decreasing over the years.

Based on the overall analysis, we recommend that investors should buy shares of Dragon
Sweater and Spinning Limited as it has been significantly performing better in terms of Net
Profit Margin (NPM), Return on Assets (ROA) and Return on Equity (ROE). As Profit is always
a primary consideration in business when investing & we always prefer high profit margin
investors should buy shares of Dragon Sweater and Spinning Limited.

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Company Profile

Dragon Sweater and Spinning Limited is a 100% export-oriented sweater manufacturing and spinning

company producing and supplying sweaters to world’s biggest renowned buyers. DSSL has strategic

partnerships with diverse and leading global brands. .

It was incorporated as a private limited company under the Companies Act, 1994 on 16th June 1999 at

Chandul, Miah Bazar in Comilla, Bangladesh. Subsequently, the company was converted into a public

limited company on 13th January 2012. DSSL is strategically located on the Dhaka Chittagong High Way

in its own industrial complex and employs a huge number of local people in its manufacturing facilities.

The machineries have been exported by world class suppliers from Germany, Italy and other European

countries to enable us to manufacture value added products on time. DSSL is a project that contains the

Spinning of yarns such as acrylic or acrylic blended with wool, cotton, cashmere, silk, polyester, and

other synthetic fibers. The sweater factories utilize their own spanned yarns to make readymade sweaters,

which are exported, to top retailers across the globe. The company exports its products to diversified

markets such as the USA, Canada, Brazil, Japan, Australia, the UK, and Europe. DSSL achieved an ISO

9001:2000 certificate for Quality Control. DSSL authorized capital is BDT 3,000,000,000 and paid-up

capital is BDT 2,107,932,750. Annual Production Capacity of Spinning is 6,570,000 LBS. The annual

Production Capacity of Sweaters is 6,918,000 pieces.

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 Ratio Analysis

Current ratio
This ratio shows how much CA the company has for each taka CL.
The current ratio is called current because, unlike some other liquidity ratios, it incorporates all
current assets and current liabilities.
Year 2017 2018 2019 2020 2021
Ratios 13.41 10.3 10.09 9.57 9.39

Fig: Current Ratio 2017- 2021

From the above chart (year 2017-2021), it is clearly observed that firms current ratios are
gradually decreasing but still much higher (almost 3 times) than the Industry average. However,
the company has a very high current ratio compared with its industry average; it indicates that
management may not be using its assets efficiently.
Current assets that are liquid, safe assets generate lower rate of return, so the firm is not investing
wisely.

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Quick Ratio
This ratio shows how much liquid CA the company has for each taka CL. Higher QR means
company can easily pay its current liabilities. QR is more accurate measure of liquidity as it
deducts inventory (inventory is least liquid current asset).
The quick ratio only considers certain current assets. It considers more liquid assets such as
cash, accounts receivables, and marketable securities. It leaves out current assets such as
inventory and prepaid expenses because the two are less liquid. Therefore, the quick ratio is
more of a true test of a company’s ability to cover its short-term obligations.
Year 2017 2018 2019 2020 2021
Ratios 9.99 7.81 7.29 7.43 7.6

Fig: Quick Ratio 2017- 2021

From the above chart (year 2017-2021), it is observed that firms quick ratios are much higher
(almost 3 times) than the Industry average. However, a company has a very high quick ratio
compared with its industry average; it indicates that-
The firm with higher quick ratio is more likely to avoid insolvency in short run than other firms
in the industry as the quick assets are more than current liabilities.
The Company has invested too heavily in low return assets.

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Inventory Turnover
The Inventory Turnover Ratio measures a company's efficiency in managing its inventory. It
shows how many times a company sells and replaces its inventory over a given period. A higher
ratio generally indicates that a company is selling its inventory more frequently, which can be a
positive sign for investors.

Year 2017 2018 2019 2020 2021

Ratios 2.49 3.22 3.15 2.66 2.87

Fig: Inventory Turnover Ratio 2017- 2021

From the above chart (year 2017-2021), it is observed that firms Inventory turnover ratios are
lower than the Industry average. The company has a very low Inventory turnover ratios
compared with its industry average; it indicates that-
A low turnover implies that a company’s sales are poor; it is carrying too much inventory, or
experiencing poor inventory management. Unsold inventory can face significant risks from
fluctuating market prices and obsolescence.
A lower ratio can point to weak sales and/or decreasing market demand for the goods.

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Days Sales Outstanding (DSO)
Days sales outstanding (DSO) is a measure of the average number of days that it takes a
company to collect payment for a sale. DSO is often determined on a monthly, quarterly, or
annual basis.
A high DSO number shows that a company is selling its product to customers on credit and
waiting a long time to collect the money.
A lower DSO ratio is generally considered better, as it indicates that a company is collecting
payment from its customers more quickly.
Year 2017 2018 2019 2020 2021
Ratios 301.76 227.95 247.05 305.24 353.81

Fig: DSO Ratio 2017- 2021

From the above chart (year 2017-2021), it is observed that firms Days sales outstanding are
much higher (Almost 3 times) than the Industry average. The company has significantly higher
Days sales outstanding compared with its industry average; it indicates that-
It takes the company longer to collect cash from its customers and could potentially
signal inefficiencies in the collections processes.
A high DSO number also suggests that the company is experiencing delays in receiving
payments, which can result in a cash flow problem.
A consistently increasing DSO indicates that the business is headed in the wrong direction with
respect to the receivables.

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The DSO ratio can provide useful information about a company's collection practices; it should
be used in conjunction with other financial ratios and metrics to gain a comprehensive
understanding of a company's financial health.
Fixed asset Turnover (FAT)
This efficiency ratio compares net sales (income statement) to fixed assets (balance sheet) and
measures a company's ability to generate net sales from its fixed-asset investments,
namely property, plant, and equipment (PP&E).
A high ratio indicates that a business is doing an effective job of generating sales with a
relatively small amount of fixed assets.
The fixed asset turnover ratio (FAT) is, in general, used by analysts to measure operating
performance.

A higher ratio implies that management is using its fixed assets more effectively.

Year 2017 2018 2019 2020 2021

Ratios .69 1.31 1.37 1.31 1.84

Fig: FAT Ratio 2017- 2021

From the above chart (year 2017-2021), it is observed that firms Fixed asset Turnover ratios are
lower than the Industry average. The company has lower Fixed asset Turnover ratios compared
with its industry average; it indicates that-

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The company is not generating enough sales per taka of fixed assets, which could be a cause for
concern.
A lower ratio indicates poor efficiency, which may be due to poor utilization of fixed assets, poor
collection methods, or poor inventory management.
With a lower ratio, we should know that company’s investments in fixed assets are more, but
sales performance is low. Company’s management should pay attention to it; otherwise, The
Company may have low asset utilization, may face future losses and high depreciation cost,
which is not a good indication.

Total asset Turnover (TAT)

The asset turnover ratio measures how effectively a company uses its assets to generate revenues
or sales. The ratio compares the dollar amount of sales or revenues to the company's total assets
to measure the efficiency of the company's operations. To calculate the ratio, divide net sales or
revenues by average total assets.
A higher ratio is generally favored as there is the implication that the company is more efficient
in generating sales or revenues.
Year 2017 2018 2019 2020 2021
Ratios .44 .47 .54 .47 .47

Fig: TAT Ratio 2017- 2021

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From the above chart (year 2017-2021), it is observed that firms Total asset Turnover ratios are
lower than the Industry average. The company has lower Total asset Turnover ratios compared
with its industry average; it indicates that-
A lower ratio illustrates that the company may not be using its assets as efficiently.
A lower asset turnover ratio indicates that a company is not especially effective at using its assets
to generate revenue.
The ratio is lower than industry peers, it might signal a need to boost sales, optimize inventory,
or reevaluate asset investments.
A lower ratio indicates poor efficiency, which may be due to poor utilization of assets, poor
collection methods, or poor inventory management.

Debt Ratio
This ratio shows how much total liabilities the firm has for each 100 taka total assets. Higher
Debt ratio means company has more risk. Lenders/creditors prefer low debt ratios.
The debt ratio of a business is used in order to determine how much risk that company has
acquired. The debt ratio is defined as the ratio of total debt to total assets, expressed as a
percentage. It can be interpreted as the proportion of a company’s assets that are financed by
debt.

Year 2017 2018 2019 2020 2021

Ratios 17% 11.22% 16.15% 15.11% 12%

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 Fig: Debt Ratio 2017- 2021

From the above chart (year 2017-2021), it is clearly observed that firms Debt ratios are lower
than the Industry average. So, a company has a lower ratio compared with its industry average; it
indicates
The firm is less levered and closer to being fully equity financed.
As low level of risk is preferable, and is linked to a more independent business Dragon not need
to rely heavily on borrowed funds, and is therefore more financially stable. These also indicating
that most of their assets are fully owned (financed through the firm's own equity, not debt).

A lower ratio indicates a company is at a lower risk of defaulting on its loans and may be more
likely to secure favorable financing terms. Lenders use this metric as one of the critical factors in
assessing the company’s ability to service its debt and make timely interest and principal
payments.

Times Interest Earned (TIE)

This ratio shows how much EBIT the firm has for each taka interest. Higher the TIE, higher the
firm’s ability to pay current interest.
A low TIE ratio may indicate that a company is taking on too much debt and may struggle to
meet its interest payments. This could suggest that a company is not managing its finances well
and may be at risk of defaulting on its debt.

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 Year 2017 2018 2019 2020 2021
Ratios 5.56 10.29 10.3 9.37 19.94

Fig: TIE Ratio 2017- 2021

From the above chart (year 2017-2021), it is clearly observed that firms TIE ratios are much
higher than the Industry average. So, Dragon has a significantly higher TIE ratios compared with
its industry average; it indicates-
Generally speaking, the higher the TIE ratio, the better. However, the company with an
excessively high TIE ratio could indicate a lack of productive investment by the company's
management.
Although a higher times interest earned ratio is favorable, it does not necessarily mean that the
company is managing its debt repayments or its financial leverage in the most efficient way.
A TIE ratio far above the industry average can point to misappropriation of earnings. This would
mean that the company is not utilizing its earnings towards reinvestment, expansion or new
projects but rather paying down debt vigorously.
This company with a high times interest earned ratio may lose favor with long-term investors.
Therefore, using the TIE ratio as the only measure in choosing investments would not be wise.
Net Profit Margin (NPM)
This ratio shows how much net income the company earns for 100 taka sales. Higher NPM
means company has higher profitability.
The net profit margin, also known as net margin, indicates how much net income a company
makes with total sales achieved. A higher net profit margin means that a company is more
efficient at converting sales into actual profit.

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A higher profit margin is always desirable.
Year 2017 2018 2019 2020 2021
Ratios 17.15% 17.59% 13.62% 12.15% 13.10%

Fig: NPM Ratio 2017- 2021

From the above chart (year 2017-2021), it is clearly observed that firms NPM ratios are much
higher than the Industry average. So, The Company has a significantly higher NPM ratios
compared with its industry average; it indicates-
A high net profit margin means that the company is able to effectively control its costs and/or
provide goods or services at a price significantly higher than its costs. Therefore, a high ratio can
result from efficient management. Low costs (expenses).
It signifies a healthy level of profitability and efficient management of expenses.
Net margin includes all the factors that influence profitability whether under management control
or not. As the higher the ratio, the more effective the company is at cost control. It tells investors
how well the management and operations of the company is performing against its competitors.

Return on Asset (ROA)

This ratio shows how much net income the company earns for 100 taka Total Assets. Higher
ROA means company has higher profitability.
A lower ROA relative to the industry average can be a red flag indicating that management
might not be deriving the full potential benefits from the assets it owns.
Return on assets is a measure of how well a company turns its owned capital into profit.

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 Year 2017 2018 2019 2020 2021
Ratios 7.62% 8.49% 7.30% 5.71% 6.26%

Fig: ROA Ratio 2017- 2021

From the above chart (year 2017-2021), it is clearly observed that firms ROA ratios are much
higher than the Industry average. So, The company has a significantly higher ROA ratios
compared with its industry average; it indicates-
It can be reasonably assumed that the company’s assets are being used near full capacity or at the
very least, used more efficiently than its industry peers.
A high ROA indicates that a company efficiently uses its assets to produce a profit.
Dragon sweaters ROA is significantly higher than the industry average, it suggests that the
company is utilizing its assets more efficiently and may be more profitable.

Return on Equity (ROE)

This ratio shows how much net income the company earns for 100 taka Shareholder’s equity.
Higher ROE means company has higher profitability. A lower Return on Equity compared to the
industry average may indicate that the company’s profitability is not competitive.
Return on equity ratio interpretation is essential for understanding a company’s financial
performance and profitability in relation to its shareholders’ equity.

2017 2018 2019 2020 2021

9.59% 10.24% 8.72% 6.66% 7.13%

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 Fig: ROE Ratio 2017- 2021

From the above chart (year 2017-2021), it is clearly observed that firms ROE ratios are much
higher than the Industry average. So, The company has a significantly higher ROE ratios
compared with its industry average; it indicates-
The company is using its shareholders’ equity efficiently to generate profits and outperform its
competitors.
A higher ROE than industry averages may indicate a competitive advantage or superior
management performance
The company is performing better than its peers.

 Findings:
 A current ratio that is lower than the industry average could be a sign of impending
trouble or default. However, Dragon Sweater and Spinning LTD's current ratio is three to
four times higher than the industry average. This means that, in comparison to its rivals,
the firm has a relatively high current ratio, which may mean that the management is not
making the most profitable or efficient use of its assets.

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 Dragon Sweater and Spinning LTD's quick ratio is three to four times higher than the
industry average However, a quick ratio that's much higher than the industry average isn't
necessarily a sign of financial health, as it could indicate that the company has invested
too heavily in low-return assets.
 Dragon Sweater and Spinning LTD have lower inventory turnover. They don’t use their
inventory efficiently. A low inventory turnover ratio might be a sign of weak sales or
excessive inventory, also known as overstocking.
 Dragon Sweater and Spinning LTD collect their Accounts Receivable and last year they
only collect one time in 353 days which is not good sign.
 Dragon Industry consistently has a fixed asset turnover ratio below the industry average
from 2017 to 2021, indicating potential inefficiencies in using its fixed assets to generate
revenue compared to its competitors. This suggests underutilization of assets or poor
operational performance, highlighting a need for improvement in asset management and
operational efficiency.
 Dragon Industry's total asset turnover ratio consistently below industry averages suggests
inefficiencies in utilizing assets to generate revenue, potentially indicating suboptimal
operational performance and room for improvement in asset management strategies.
 Dragon Industry consistently maintains lower debt ratios compared to the industry
average, indicating prudent financial management and potentially lower financial risk,
which could be advantageous for long-term stability and growth.
 Dragon Industry's times interest earned ratio consistently surpasses the industry average
from 2017 to 2021, indicating robust ability to cover interest expenses with operating
income. This suggests superior financial health, lower risk of default, and potentially
better access to financing options, positioning Dragon Industry favorably compared to its
industry peers.
 The Dragon industry's significantly higher net profit margins compared to the industry
average from 2017 to 2021 indicate exceptional profitability, reflecting effective cost
management or strong revenue generation relative to its peers.
 Dragon Industry consistently outperforms the industry in terms of Return on Assets
(ROA) and Return on Equity (ROE) over the specified period. With ROA ranging
between 5.71% to 8.49% and ROE between 6.66% to 10.24%, Dragon Industry exhibits

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 superior profitability and efficiency in generating returns from its assets and equity
compared to the industry average. This indicates effective management of assets and
capital, translating into higher profitability and shareholder value creation for the
company.

Recommendations:
1. Optimize Asset Management: Ensure efficient asset allocation for maximum
returns.
2. Improve Inventory Turnover: Streamline processes to reduce excess inventory and
boost cash flow.
3. Accelerate Accounts Receivable Collection: Implement measures for faster
collection to enhance liquidity.
4. Evaluate Fixed Asset Utilization: Review usage to identify and address
inefficiencies.
5. Develop Strategies for Total Asset Turnover: Increase revenue efficiency for better
returns on assets.
6. Maintain Prudent Debt Management: Manage debt levels conservatively for long-
term stability.
7. Sustain a Robust Times Interest Earned Ratio: Ensure adequate coverage of
interest expenses with operating income.
8. Prioritize Cost Management and Revenue Generation: Focus on reducing costs
and maximizing revenue for profitability.
9. Strengthen ROA and ROE Performance: Enhance asset utilization and capital
efficiency for better returns.

Conclusion
Dragon Sweater and Spinning Limited (DSSL), a prominent export-oriented sweater
manufacturing and spinning company based in Comilla, Bangladesh, has demonstrated robust
financial performance and operational efficiency from 2017 to 2021. Incorporated in 1999 and
transformed into a public limited company in 2012, DSSL leverages its strategic location along
the Dhaka Chittagong Highway and advanced machinery imported from Europe to produce high-
quality sweaters for top global brands. The company's strong financial metrics, including Net

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Profit Margin (NPM), Return on Assets (ROA), and Return on Equity (ROE), consistently
exceed industry averages, highlighting its superior cost control, asset utilization, and
profitability.

The NPM ratios, ranging from 12.15% to 17.59% during the five-year period, significantly
outperform industry benchmarks, indicating effective cost management and pricing strategies.
Similarly, DSSL's ROA ratios, which vary from 5.71% to 8.49%, suggest efficient asset use,
resulting in higher profitability relative to its peers. The company's ROE, between 6.66% and
10.24%, reflects proficient use of shareholders’ equity to generate profits, reinforcing its
competitive edge. These metrics collectively affirm DSSL's capability to manage expenses,
utilize assets efficiently, and achieve substantial profitability, thus positioning it as a leading
entity in the global sweater manufacturing industry.

In summary, DSSL demonstrates robust financial performance, efficient management of

resources, and a strong position in the global market. Thus, investing in DSSL presents an
opportunity to capitalize on its continued growth potential, solidifying its position as an attractive
investment choice.

References
 https://dsslbd.com/pdf/AnnualReportcompressed.pdf
 https://dsslbd.com/pdf/18thAgmReport.pdf
 https://dsslbd.com/pdf/19th%20AGM.pdf
 https://dsslbd.com/pdf/20th%20AGM.pdf
 https://dsslbd.com/pdf/21th%20AGM.pdf
https://corporatefinanceinstitute.com › Resources
Essentials of Managerial Finance by Scott Besley & Eugene F. Brigham (14th Edition)

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