Financial Statement Analysis of UFIL

Financial Statement Analysis of Uttara Finance and Investments Limited (UFIL)

Executive Summary

The leasing company is a financial service oriented company provide like of all banking services. It has wide varieties program and clients make the job challenging for the leasing company to keep their satisfied. this study was conducted among “Performance Appraisal of Financial Statement Analysis. A case of Uttara Finance and Investments Limited’’ of all leasing company a case study of Uttara Finance and Investments Limited. Firstly to assess company’s background, financial strength and activities, using the SWOT analysis. The second is to identify the provided service quality dimensions that need to be improved. Thirdly analysis of all financial activities which is contributing financial development of a society more over country. On the country this types of study reveals is very important therefore it is hoped that this study would contribute to the leasing company also leasing sector understanding performance through financial activities as well as contribution of economic development of a country also this sector customer.

To give the provided service and of all financial services and activities which is tangible and intangible must be materials with the service, the existing staffs need to have a professional appearance and facilities must be visually appealing. The reliability of most of the leasing company of Bangladesh from the serve-quall point of view is not very good which has created a gap between the expected services and provided services.

Uttara Finance and Investments Limited offers all lease finance, term finance, documentary credit and merchant banking service covering was registered as non-banking financial institution under the Financial Institution Act 1993 and the Companies Act 1994 with the license from Bangladesh Bank.

Uttara Finance and Investments Limited started its operation as a Public Limited Company. Its authorized capital is 1,000,000,000 and paid up capital Tk. 316,800,000. Uttara Finance and Investments Limited is a top listed leasing company in Bangladesh. It is renowned for its smooth operation and customer care. Its profit growth index is increasing day by day.

BACKGROUND OF THE STUDY

As all of us know that the economic condition of Bangladesh is not so cheerful. There are so many ways to modernize the national economic condition of Bangladesh. One of the ways is to enlarge the different, integral, and unique business program and shore up the industrial growth of Bangladesh. The most important objective is to support the Government with the development programs in different issues for boosting the national economic growth of Bangladesh. Also we need extensive amount of funds or investments for different businesses.

The primary concern of this dissertation is to appraise the overall performance of a company. The report is prepared on UTTARA FINANCE AND INVESTMENTS LTD. (UFIL). Company is a non-banking financial public limited institution. UFIL is a mainly a leasing and financing company. For supporting the analysis, I need to know the basic things of leasing and the major impact of leasing company in Bangladesh.

In Bangladesh there are significant numbers of non-banking financial institutions including leasing companies. These types of initiatives have a very imperative impact on overall national economy of a country. Leasing companies plays a major role to develop the domestic business sector in every aspects of company in Bangladesh.

ORIGIN OF THE REPORT

The BBA internship/Internship Reportis an important requirement for the students who are post graduating from the school of business of Stamford University, Bangladesh. It is 06 credit hours course with duration of twelve week. Student who have completed all the required courses (at least 36 credit hours ) are eligible for this course. In this Internship Reportprogram, our main target organization Uttara Finance and Investments Limited is a representative of all leasing company. Leasing company play vital role in country financial sector so performance appraisal through financial statement analysis is very important matter of our financial sector development and up gradation. This is the main theme and origin of the report.

OBJECTIVES OF THE STUDY

General Objective:

• Understanding performance appraisal through financial statement analysis

Specific Objectives:

• To depict the Overview of UFIL

• To assess the principle activities of UFIL

• To analyze the present financial position of UFIL

• To ascertain the major problems of UFIL

• To find out short term and strategic plans to ensure service quality of UFIL

• To provide suggestions for pull through such problems of UFIL

HISTORICAL BACKGROUND OF UFIL

Uttara Finance and Investments Limited ( UFIL ), is a joint venture leasing and financing company, was registered as non-banking financial institution under the Financial Institution Act 1993 and the Companies Act 1994 with the license from Bangladesh Bank to operate and transact all kinds of businesses as provided under the relevant laws. The company was authorized to commence business in Bangladesh as per Certificate of Commencement dated 08 August 1995. The company had an authorized capital of 2.5 million shares with the value of Tk. 100 each and had a paid up capital of 1.32 million ordinary shares each at the rate of Tk. 100. Those made the total of authorize capital of Tk. 250 million and paid up capital of Tk. 132 million. The company received license from Bangladesh Bank on 07 September 1995. The company started commercial operation on 01 November 1995.

The company got listed under the Chittagong stock Exchange Ltd. on 31 August 1997 and to Dhaka Stock Exchange Ltd. on 07 September 1997. The company was registered under the Security and Exchange Commission as a Merchant Bank on 25 March 1998. (Source: Annual Report 2006)

UFIL is the non-banking financial institution playing a very important job in the economical development of the company through providing financial aid to the various emerging business section. Among the mainstream leasing companies in Bangladesh, UFIL is the third largest. The company offers lease in different sectors like all types of machineries, equipment, household products, vehicle for industrial purpose, for commercial purpose, and for individual purpose. UFIL believes that a country’s development depends on its business and trade; therefore, they opt to take such significant opportunity to be a one of the part of the economical development of Bangladesh. UFIL is undeniably an integrated business solution company with two counts:

Firstly, they provide fund to those fixed earning group of people who cannot able to afford certain deluxe household product for better life style. Secondly, the Directors of UFIL are enthusiastic to guarantee that the company runs lenient only on professional basis.

The company is liberated of providing lease finance to any types of machineries, equipments, and commercial vehicles as per lessee’s choice. Therefore, plenty of vehicles leased by UFIL have been seen especially on the urban roads. This is a momentous notice of UFIL’ contribution for developing the urban transportation business in Bangladesh. Recently, World bank give top importance on the development of urban transportation system of Bangladesh, therefore, they take an initiative to improve the urban transport system.

ORGANIZATIONAL STRUCTURE OF UFIL

Board of Directors

Board of Directors is the main organizational part of UFIL. There are eight individual persons in the Board of Directors of UFIL and Chairman is the leasing person of Board of Directors. The Board of Directors of the Company consists of persons with long experience in running different business pursuits including leasing and financing activities. The Directors have successfully provided their ability in providing service to the people in the areas of leasing and financial facilities. UFIL emerged as a success story for leasing and financing Company in Bangladesh in the recent past.

The qualification of a Director of the Company shall be the holding in his own name-unencumbered shares in the company of the nominal value of not less than Tk. 1,000,000/- (One million). A director may, however, act before acquiring the qualification shares, but shall in any case acquire the qualification shares, within two month from the date of his/her election and/ or appointment.

So the election procedure of all the Directors of UFIL is dependent on his/her share. Most of the Directors are nominee of several companies. They act as Alternative Director under the Subject to Selection 101 of the Companies Act 1994.

The Directors to retire by rotation every year shall be those who have been longest in office since their last election, but as between persons who become directors on the same day those who are to retire shall, unless they otherwise agree among themselves. A director retiring by rotation shall be eligible for re-nomination/ re-election by the respective group of shareholders.

SHARE CAPITAL

Authorized Capital:

10,000,000 ordinary shares of Tk. 100.00 each Tk. 1,000,000,000.00

Issued, Subscribed and paid up:

3,168,000 ordinary shares of Tk. 100.00 each

Full paid up in cash Tk. 316,800,000.00

Source: Annual Report – 2008

SHARE HOLDING STRUCTURE

Category of Shareholders (%) Tk.

Bangladeshi Sponsors 25% 79,200,000

Foreign Sponsors 10.42% 33,000,000

Investment Corporation of BD 14.09% 44,631,500

General Public(Employee, Other Members of Public) 50.49% 159,968,500

Source: Annual Report – 2008

Management Hierarchy of UFIL:

At the present time, in our country the leading leasing companies are:

01. IDLC of Bangladesh Ltd.

02. United Leasing Co. Ltd.

03. Midas Finance Ltd.

04. First Lease International Ltd.

05. People’s Leasing Co. Ltd.

06. Prime Finance Ltd.

07. Premier Leasing Ltd.

08. Islamic Finance & Investments Ltd.

09. Fareast Leasing Company Ltd.

10. Oman Bangladesh Leasing & Finance Co. Ltd.

Among them UFIL is one of the largest leasing and investing companies in Bangladesh. The major part of this success is gone to its management. UFIL has very much well- educated, qualified, experienced and efficient management, who are very much devoted to their work. It has a very effective workforce team that contributing significantly in the regular improvement of the company. The management cannot able to rune the company so effortlessly and successfully without helping of the assistant force. The management positions of UFIL are as follows:

The top of the management position in organizational structure of UFIL is Managing Director. The Board of Directors appoints the Managing Director of the company. The Managing Director shall be the ex-officer member of the Board of Director.

Board of Directors selects the management level executives. They recruit the person who is well experienced, knowledgeable, efficient, and last but not in the list is to have enough capability to make immediate decisions. In UFIL, all the executives are professional, smart, highly qualified, and well skilled. All of them are proficient to make a suitable and steadfast decision in any type of situation. The company recruits the executives, who have the experienced to work in financial or leasing institution.

The Workforce of UFIL:

The other employee of UFIL is very highly qualified, well skilled as well. The management recruits some personnel from the trainees and internee, who work as probationary officer. Experienced person who has knowledge similar level also be recruited. They are very much cooperative, highly determinant, and well trained. Therefore, UFIL, now a day, is one of the largest leasing companies. UFIL has Senior Principal Officer, Principal Officer, Officer, and Assistant Officer. All of them are smart, Expert, Experienced, Proficient of hard working, and knowledgeable.

FUNCTIONAL DEPARTMENT OF UFIL

Functional Department of UFIL includes the following Department

o Operational Department

o The monitoring Department

o Accounts Department

The details about these departments are described in the following:

The operational department is the part and parcel of functional department. This department maintains the direct relation with clients. The necessary papers are collected from clients for sanctioning loan.

The operational and monitoring department is interrelated with each other. The activities of the operational are followed up by monitoring department. Monitoring department also repossess the leased asset if the lessee unable to pay the regular monthly rental and also take legal initiatives.

Accounting Department deals with the daily expenditures by maintaining the petty cash book. Accounting department also maintain the bank related activities. The price of the leased asset is paid to the supplier by Accounting Department.

THE MISSION AND OBJECTIVE OF UFIL

Mission of UFIL

• UFIL has an excellent teamwork-spirit. A moderate and up-to-date is engaged to run the activities of UFIL. The workforce of UFIL always tries to be an outstanding company.

• Quality service is the main mission of UFIL. The company always tries to give proper service to its clients. Aftermath steady growth of the company can be ensured.

• By the proper utilization of idle money UFIL plays a vital role to being about a qualitative improvement in the life style of our people.

• To provide lease finance to professionals and technicians on attractive terms and condition.

• To encourage continuous technological development and creation of employment opportunities.

• To ensure human resources development to meet the challenges of them.

Objectives of UFIL

• To be in the top list among the existing leasing companies by providing lease financing and related services.

• To provide the lease financing to independently supervised and managed public enterprise.

• To be an ideal choice to the customers for imminent and personalizing service.

• To be the first choice for cutting frame technology, personalized solutions for business needs.

• To assist in balancing, modernizing, replacing and developing of existing enterprise.

• To expand financial support to small and medium ranges of enterprise.

• To earn a steady rate of return for shareholders of the company.

• To provide finance for various agriculture equipment.

• To support the health sector of the country by financing the hospitals to acquire the highly advanced and modernized medical equipment.

• To actively support the industrialization of the country regular with the development program of the Government.

• To assist in the modernization of transportation sector.

PRODUCTS & SERVICES OF UFIL

Uttara Finance and Investments Limited ( UFIL ), generally, is a leasing company. That is why it’s highlighting more on lease finance. It also provides other financing service along with lease finance. In the mean time, it provides other financing services along with lease finance. In the mean time, they offer the subsequent services too:

• Lease Finance

• Term Finance

• Documentary Credit

• Merchant Banking

Lease Finance

UFIL are providing lease finance in the various sectors of business. In the process, they provide finance to their customers for a certain period of time to procure the equipments they needed. The customer is eligible to pay a predetermined rental every month for the agreed period. The rental is settled based on the existing rate that UFIL offers, and the rate may vary based on the period.

UFIL is engaged in providing lease financing for various types of assets.

Lease business covers in major area of operation with the objective to provide the benefits of assets based facilities.

With the objective to improve the life standards of the people of our country UFIL has the policy of providing lease financing for household durables with straightforward and clear terms and condition.

UFIL covers the following sectors concerning the lease finance:

 Transportation

 Auto Loan

 Household Durables

 Medical Equipments

 Marine Equipments

 Industrial Equipments

 Agricultural Equipments

 Official flourishes/ Equipments

 The Procedure of Lease Financing

The client is to decide the leased asset, manufacturer or supplier of that asset, and last but most important is price of asset. The leased asset price has to be competitive and adequate to UFIL.

Submission of application

After deciding the conditions and terms of lease financing, the client then, need to apply, in the approved application form, formally along with service charge payable to UFIL.

Approval the proposal in Management Committee Meeting

Lease proposal have to get approval from the Management Committee. Hence, the application letter will be disseminated to meet the higher authority opinion poll. A note, which is summarizing the pertinent information, is prepared to approve at the MC meeting or EC meeting. If the committee approves the lease proposal, the client needs the sanction letter. The client ought to sign the agreement within 10 days from the date of sanctioning the letter.

Required Documents to sanction the loan

Before issuing the purchase order/opening L/C, the client is required to give a list of documents, papers, and cheque to UFIL. A list of information and documents should be submitted with the lease application.

Documents for both individuals and corporation are as follows:

FOR INDIVIDUAL CORPORATION

1. Lease agreement

2. DP Notes

3. Schedule of Payments

4. P.G.

5. Land Security/Personal Guaranty

6. Cheques 1. Corporate Guaranty

2. Board approval

3. P.G. of Board

4. Articles and Associations.

5. CIB Report ( Provide Bangladesh Bank)

6. Cheques

An agreement will be signed between UFIL and lessee after sanctioning the lease amount. Lease rentals, Lease deposit, Interest during Construction Period (IDCP), Delinquent Charges etc. will be clearly stated in the lease agreement. The lease agreement is prepared in the basis of the acquisition cost of the lease asset, and UFIL will be obliged to purchase the lease asset for that specified leased asset that cannot be cancelled.

The agreement also reserves the condition on the subject of the renewal of this lease agreement, or returning the lease asset to the lesser. The lessee have to make deposit, which is equivalent to two months rental, to UFIL as lease deposit at the signing, the agreement and that will be refunded to lessee at the expiry time of lease term.

Formalities regarding purchase order & disbursement note

UFIL must place a purchase order to the supplier, after completing the lease agreement procedure, and pay out the full costs according to the agreement. If supplied pay tax then UFIL does not reduce the tax, if not, UFIL collects tax from the supplier. When supplier agrees to sell the asset, UFIL made the full disbursement to the supplier.

Determining and payment procedure

After receiving the full amount from UFIL, the supplier of the asset to the lessee, and afterward lessee installs the asset. Once lessee receives the asset, he/she requires to paying the lease rental to UFIL. Lease rental is planned on the basis of acquisition cost of the leased asset, and he/she will be supposed to pay the rental is every month as advance. The ranges of lease rental are from 1 to 5 years. Rental calculation has some factor rate, which depends on period. The factor rate of UFIL is as follows:

Lease Term (Month) 12 18 24 36 48 60

Factor Rate 9.05% 6.31% 4.94% 3.59% 2.92% 2.53%

Source: UFIL Report 2008

Computation of Monthly Rental

At first lessee select the payment term at his/her convenience. Afterward, UFIL make out the factor rate; next, multiply the factor rate the acquisition cost that is lease rental of the lessee.

Lease Rental = Acquisition Cost × Factor Rate.

The lessee must pay the rental within a specific date in a month that is fixed by UFIL: 5th, 15th, 25th date of a month.

Transfer the Leased Asset

When lessee completes all the commitment to the company, at the time UFIL transfers the leased asset to the lessee. To do this, UFIL charge 1% of acquisition cost as transfer cost.

Term Finance:

UFIL also provide temporary finance or term finance to its clients. There are two types of term finance: (1) Short-term Finance and, (2) long-term Finance. The repayment process of short-term finance may be quarterly or at a time basis and, long-term finance may possibly be monthly rentals as like as lease finance. The rate of repayment is determined by following the present the present of value of future amount method. Asset related finances are provided for a fixed term. Other practices are same as lease finance.

Documentary Credit

The client is provided with a finance amount against his/her existing documents in the documentary credit procedure. The document can be Term Deposit Receipt (TDR) / Promissory Notes. The client receives 9.50% for one year, 9.75% for two years and 10% for three years on the basis of the document.

The rest is the business of UFIL upon accrual of the document. For investment on TDR, Promissory Notes is minimum (one) Lac.

Merchant Banking:

In March 1998, UFIL has get license of merchant banking. There are two types of investment account in merchant banking unit in UFIL: (1) Uttara Finance and Investments Ltd’s Discretionary, and (2) Investor’s Choice. In first account, shares will be purchased on behalf of the investors at the sole discretion of UFIL and will also be deposited. At the time of disposal if the shares are lost, UFIL will not be responsible for the concern. In the other account, the shares will be purchased on behalf of investors as per instruction of the investor (s), and will also disposed of accordingly at his/her own risk and responsibility.

Any two Bangladeshi national and Non Residence Bangladeshi (NRB), having minimum age of 18 years and resonance mind may open and investment account with minimum deposit of Tk. 50,000/- The investor can get loan facility against their investment account. They may receive maximum Tk.1.00 million with interest rate @13% interest loan facility.

An investor should also pay some fees and commission, for instance, Documentation fees, Brokerage.

Commission, Portfolio Management Fees, Safe Custody of Shares, and Service Charge for Statement

Merchant banking unit of UFIL renders the following services:

 Underwriting

 Portfolio Management

 Bridge financing

 Facilities through Syndication/Consortia

 Investment in Capital Market Through Investors’ account

The firm acts as intermediaries between the company issuing shares and the person willing to invest and in the process earn some commission from both the parties.

Portfolio Management

The company provides its services to its customers by preparing and managing a portfolio for their investment, minimizing their risks to the lowest level.

Bridge Financing

Bridge financing is a short-term finance in anticipation of immediate long term financing such as loan against public issue, private placement, loan syndication, etc. The program of bright financing involves UFIL to provide credit to a potential company, which is interested in floated shares. In this case UFIL will provide loan in a condition where the company would subscribe its shares through UFIL and in turn they will recover the loans from the company.

Facilities through Syndication/Consortia

Facilities through syndication involve sanction of term loans where the loans are divided among more than one financial institution. The process of syndication starts with a financial institution facing a credit demand, which is in excess of its legal credit limit. In that case financial institution or who are authorized of providing finance to give away the loans. Large financial institutions striving for the reserve fund may sell some portion of term and other loans. This also falls under the syndication service. Sometimes the financial institutions prefer to from syndicate to give away the loans, because it improves their credit diversification.

Investment in Capital Market through Investors’ account

The concept of investment in capital market involves investor’s account collection of funds from the individual investor and then invested in stock of different companies. The whole process goes through construction and management of a portfolio.

FINANCIAL SUPPORT OF UFIL

From the time when UFIL is not entitled to accept the public deposit, it tries to make sure the accessibility of fund from outside sources to meet the operational activities. Its main objective is to minimize the cost of fund.

Sources of Fund

The sources of fund of the company are divided into two categories:

Short Term Money Market Loan

The short- term loan of UFIL is the call loan from money market. The major advantage of call loan is that fund can be arranged in a very short period of time and the source is cheaper than other sources.

Long term credit lines

UFIL has a several long- term credit lines from local financial institution. The company enjoys those types of funds in 2005 from several institutions. The amount of credit lined Tk. 1077.43 million at interest rate “between” 11% to 15%. The local sources are:

o The City Bank Ltd.

o Dhaka Bank Ltd.

o Mutual Trust Bank Ltd.

o National Credit and Commerce Bank Ltd.

o Bangladesh Commerce Bank Ltd.

o Islamic Bank Bangladesh Ltd.

o First Security Bank Ltd.