Corporate finance

ID:19-099Md.Mojurul Ahsan

About British American Tobacco Bangladesh

born in 1910

In 1998, BAT was transformed as a global identity

Employing more than 1,350 people

Most widely recognized brands in country

Sourcing, Production, Distribution & Consumers

• Sourcing

Partnership with farmers

houses state of the art

manufacturing facilities

Other sources-

wholesalers, retailers.

Sourcing, Production, Distribution & Consumers (cont’)

• Product

Benson & Hedges

John Player

Gold Leaf

Pall Mall

Capstan

Star

Derby

Hollywood

Sourcing, Production, Distribution & Consumers

• Product(array of brands-according to price segments)

Premium• Benson and Hedges

high• John Player Gold Leaf, Pall Mall, Capstan

Medium• star

Low• Derby Hollywood

Fixed & Variable Cost

• A fixed cost is a cost that does not change with an increase or decrease in the amount of goods or services produced or sold

Figure Figure 1: Fixed Cost

• A variable cost is a corporate expense that varies with production output

Figure 2 Variable cost

Sadia Salsabila JerinID:19-095

Total cost

Figure 3: Total Cost

Division of Fixed Cost

Discretionary fixed cost• Advertising campaigns• Employee training• Investor relations• Public relations • Research and

development activities for specific products

Committed fixed cost• difficult to adjust• planning horizon—

more than on year• required to make future

payments

Why Are Committed Fixed Costs the Most Difficult to Change

Long-term Operation Strategy Considerations

Operating Leverage & Financial Leverage

Operating leverage is a measurement of the degree to which a firm or project incurs a combination of fixed and variable costs.

Financial leverage is the degree to which a company uses fixed-income securities such as debt and preferred equity

High and Low Operating Leverage

Figure 4: Effect of high & low OL on EBIT

ID:19-101SHOHEL HOSSAIN

Degree Of Operating Leverage & Degree of Financial Leverage ( DOL & DFL)

Degree of Total Leverage (DTL)

Break-even Point

Figure 5: Break-even point

Margin of Safety

Figure 6: Margin of safety

Effect of Operating Leverage on a Company's Profits

Figure 7: associated risk with operating leverage

Syed Shadab Mahbub19-097

BATBC | Income Statements 2010-’15Particulars 2010

(lacs)2011(lacs) 2012

(lacs)2013 (lacs)

2014 (lacs)

2015 (lacs)

Sales Volume

22245.746

25404.8998

30400 36942.8108

42749.0904

48448.8955

Gross Profit 7470.347 9813.326 11525.12 13724.107 16309.771 18682.383

Operating expenses

3145.629 4530.369 4612.418 4219.739 4775.119 5481.856

Depreciation

627.605 768.565 948.318

Operating profit

4324.718 5282.957 6912.702 9504.368 11536.652 13200.527

Profit 2878.589 2550.591 3941.64 4924.127 6281.922 5874.074

EPS 47.98 42.51 65.694 81 104.7 97.43

AdjustmentsAverage WPPF as a % of OP 5%

Average VC as a % of sales 59%

Average fixed operating costs 4851.60

Average fixed financing costs 89.68

Degree of Operating LeverageParticulars 2010 2011 2012 2013 2014 2015

Contribution margin

8,071.85

9,218.15 11,030.61 13,404.67 15,511.47 17,579.64

Degree of operating leverage

1.93 1.36 1.28 1.22 1.19 1.16

MD ZARIF IBNE ARIF19-093

Degree of financial leverage

2010 2011 2012 2013 2014 2015Degree of financial leverage 1.028648 1.020969 1.014728 1.010597 1.008485 1.007096Degree of total leverage 2.578402 2.155354 1.811467 1.583843 1.467474 1.390975Operating break even 14921.66 14921.66 14921.66 14921.66 14921.66 14921.66Financial breakeven 15197.49 15197.49 15197.49 15197.49 15197.49 15197.49

Effect of DOL, DFL on EPS and EBIT

% increase in operating profit=%increase in sales* DOL

% increase in Net income = %increase in Operating profit* DFL

% increase in Net income = %increase in sales* DTL

Breakeven and Fixed cost

Higher the amount of fixed cost more units need to be sold to reach the level of breakeven.

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

50000

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

Breakeven graphsales Logarithmic (sales) fixed cost total cost