Executive Summary EMDAD 2003 FORMAT

7/28/2019 Executive Summary EMDAD 2003 FORMAT

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Executive Summary

British American Tobacco Bangladesh is one of the largest multinational companies in

the country and has been operating for over 100 years... By doing this report on BATBC we have

tried to have a deeper look on the financial performance of the company and we have tried to

apply our theoretical knowledge in the practical life. In this report we have done ratio

calculation, ratio analysis, calculation of risk and return, stock valuation, finding the dividend

policy and weighted average cost of capital. By doing all of those things we have tried to

evaluate the financial performance of the company.

First of all we have calculated ratios and we have analyzed those ratios to comment on the

performance of company. By analyzing the ratios we have also tried to find the weak side of the

company and we have recommended the company to overcome them Secondly we have found

the risk and return of the company to compare it with the market. By doing it we have

determined that the company is less risky than market. In the next step we have evaluated the

stock price of the company which indicates that the stock price of the company is over-valued.

We have also found the optimum weighted average cost of capital of the company which from

our analysis indicates the best ultimate mixture of debt and equity for the company. Last but notthe least we have found that the company is following the second view of dividend policy.

In conclusion we can say that by doing this report we have understood the basic jobs of a

financial manager. This report will help us to make practical financial decisions in our future life.


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British American Tobacco BangladeshVERTICAL BALANCE SHEET

(All figures divided by Total Assets and Expressed as a %)

2007 2008 2009 2010 2011

% % % % %ASSETS

Non-current asset

Property plant and equipment

46.00

34.67

31.69

39.76 32.74

Current asset

Inventories

27.92

27.22

29.76

32.66 32.72

Trade and other receivables 3.58 8.56 4.28 3.65 5.64

Advance,deposit and prepayments11.0

812.7

517.6

213.8

8 23.79

Cash and cash equlvalents

11.41

16.80

16.64

10.05 5.10

Total current asset

54.00

65.33

68.31

60.24 67.26

TOTAL ASSETS 100 100 100 100 100

EQUITY & LIABILITIES

Share capital 7.46 6.01 4.99 4.49 3.65

Revenue reserve32.5

938.7

337.4

241.7

1 31.95

Capital reserve 0.81 0.65 0.54 0.49 0.40

Total equity

40.86

45.39

42.95

46.68 36.00

Non-current liabilities

Deferred liability (gratuity) 2.71 1.87 1.84 1.89 1.54

Deferred tax liability 6.24 4.27 3.01 3.87 4.07

Obligation under finance lease 0.19 0.19 0.21 0.26 0.11

Total non-current liabilities 9.14 6.33 5.06 6.02 5.72Current liabilities

Creditors and accruals

36.59

32.79

32.54

31.72 32.13

Provision for corporate tax

13.41

15.49

19.45

15.58 26.15

Total current liabilities

50.00

48.28

51.99

47.30 58.28

Total equity and liabilities

100.

00

100.

00

100.

00

100.

00 100.00TOTAL EQUITY & LIABILITIES 100 100 100 100 100


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British American Tobacco Bangladesh

Vertical Income Statement

(All figures divided by Sales and Expressed as a %)

31Dec,

2007

31Dec,

2008

31Dec,

200

9

31Dec,

201

0

31Dec

201

37869293 45414187

5507465

1

6598650

3 7535735Gross turnover 100 100 100 100 10

Supplementary duty &vat 68.48776923

69.1057202

68.086062

68.257084

69.12195

Net turnover 31.5122307730.89427

9831.91393

831.74291

630.8780

4

Cost Sales 22.1519477519.81618

87220.81509

320.42189

317.8556

6

Gross profit 9.36028301311.07809

10811.09884

511.32102

313.0223

7

Operating expenses 5.9221517556.034563

6055.817928

84.767079

46.01184

4

Operating profit 3.4381312585.043527

4775.280915

96.553943

37.01053

6

Interest expenses 0.1203428860.024467

10.14688

8

Net finance income 0.167815

4010.058489

75.211342

8785.339405

66.529476

26.86365

8

Worker's profit

participation fund

0.260566

153

0.266970

4

0.326474

3

0.34318

5

profit before tax 3.3177883734.950776

7255.072435

26.203001

86.52047

3

Tax:

Current tax 1.107493611.440637

9221.435484

41.603226

32.93531

1Deferred tax 0.100482467 -

0.164435-

0.1189800.237384

90.20049

0


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4 3

1.2079760771.276202

522 1.3165041.840611

33.13581

1profit after taxtransferred to

revenues reserve 2.109812296

3.674574

203

3.755931

2

4.362390

6

3.38466

1

Earnings per share(par value Tk. 10) 13.32 27.81 34.48 47.98 42.9


Horizontal BALANCE SHEET

(All figures divided by the amount of base year 2007)


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Horizontal INCOME STATEMENT

(All figures divided by the amount of base year 2007)

31Dec,2007 31Dec,08 31Dec,09

31Dec,10 31Dec,1

Property plant andequipment 100.00% 93.64% 103.00% 143.74% 145.39%

Current asset Inventories 100.00% 121.12% 159.36% 194.51% 239.34%

Trade and otherreceivables 100.00% 296.72% 178.59% 169.41% 321.73%

Advance,deposit andprepayments 100.00% 142.91% 237.77% 208.25% 438.56%

Cash and cashequlvalents 100.00% 182.90% 217.95% 146.44% 91.25%

Total current asset 100.00% 189.10% 237.93% 233.39% 320.06%

Total assets 100.00% 139.72% 168.13% 187.01% 229.70%

EQUITY AND LIABILITIES Equity

Share capital 100.00% 100.00% 100.00% 100.00% 100.00%

Revenue reserve 100.00% 147.67% 171.66% 212.83% 200.25%

Capital reserve 100.00% 100.00% 100.00% 100.00% 100.00%

Total equity 100.00% 138.02% 157.15% 189.99% 179.96%

Non-current liabilities

Deferred liability (gratuity) 100.00% 85.63% 101.61% 115.71% 115.56%

Deferred tax liability 100.00% 85.11% 72.05% 103.28% 133.40%

Obligation under finance

lease 100.00% 122.85% 164.13% 227.55% 116.55%Total non-currentliabilities 100.00% 86.05% 82.74% 109.56% 127.75%

Current liabilities

Creditors and accruals 100.00% 111.32% 132.96% 144.15% 179.35%

Provision for corporatetax 100.00% 143.51% 216.83% 193.16% 398.28%

Total current liabilities 100.00% 119.96% 155.45% 157.30% 238.08%

Total equity and liabilities 100.00% 124.24% 149.50% 166.29% 204.25%


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Profit and loss accountGross turnover 100.00% 119.92% 145.43% 174.25% 198.

Supplementary duty & vat 100.00% 121.01% 144.58% 173.66% 200.Net turnover 100.00% 117.57% 147.29% 175.52% 194.

Cost Sales 100.00% 107.28% 136.66% 160.64% 160.

Gross profit 100.00% 141.93% 172.45% 210.75% 276.

Operating expenses 100.00% 122.20% 142.87% 140.26% 202.

Operating profit 100.00% 175.92% 223.38% 332.16% 405.

Interest expenses 4557300.00% 35.43% 242.

Net finance income 7621200.00% 3221300.00%

2366689.00 2940659.00

4308573.0

0

51722

Worker's profit participationfund 118334.00 147033.00 215429.00 25861

profit before tax 1256423.00 178.95% 222.35% 325.78% 391.

Tax:

Current tax100.00% 156.00% 188.50% 252.24% 527.

Deferred tax 38052.00 -74677.00 -65528.00 156642.00 15109

Total Tax 100.00% 126.70% 158.50% 265.50% 516.profit after tax transferred torevenues reserve 100.00% 208.87% 258.90% 360.29% 319.

Earnings per share (parvalue Tk. 10) 1332.00% 2781.00% 3448.00% 4798.00% 4291.

A. Forecasting Next Two Years Income Statement and Balance Sheet

First we have to calculate average sales growth rate by using two methods.

Method 1: Average Sales Growth Rate from 2007 to 2011

2007-08 2008-09 2009-10 2010-11 Average

Energy Sales 19.92% 21.27% 19.80% 14.20% 18.80%

Method 2: Historical Compounded Annual Growth Rate ]

Sales 18.77%

Average Sales Growth Rate 18.79%


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Average Tax Rate:


Pro-Forma Balance Sheet (% of Sales Method)

As at 31 December 2012 and 2013

Balance Sheet 31 December, 2012Taka

31 December, 2013Taka

Non-current asset

Property plant andequipment 5376634 5376634Current assetInventories 6382625.901 7581921.307

Trade and otherreceivables 1100995.612 1307872.687Advance, deposit andprepayments 4641228.647 5513315.51

Formula 2006-07 2007-08 2008-09 2009-10 2010-11

IncomeTax Rate

36.41% 25.78% 25.95% 26.67% 48.10%

Average Tax Rate 32.58%


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Cash and cash equivalents 994739.1447 1181650.63Total current assetTotal assets 18496223.3 20961394.13EQUITY AND LIABILITIESEquityShare capital 600000 600000Revenue reserve 6232203.312 7403234.314Capital reserve 64896 64896

Total equity 6897099.312 8068130.314Non-current liabilitiesDeferred liability (gratuity)Deferred tax liability 669079 669079Obligation under financelease 17876 17876

Total non-current liabilities 939044 939044Current liabilitiesCreditors and accruals 6267097.874 7444685.565

Provision for corporate tax 5101871.321 6060512.943Total current liabilities 11368969.2 13505198.51Total equity and liabilities 19205112.51 22512372.82


Pro-Forma Income Statement (% of Sales Method)

As at 31 December 2012 and 2013

Profit & Loss Account 2011-12

Taka

2012-13

TakaProfit and loss accountGross turnoverSupplementary duty & vat 61464418.2 73013582.38Net turnover 28052579.05 33323658.71Cost Sales 15877531.3 18735486.93Gross profit 12175047.75 14588171.78Operating expenses


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Operating profit 6829212.333 8280085.983Interest(Income/expense) -110687 -110687Net finance income

6718525.333 8169398.983Worker's profitparticipation fund 305164.52 360094.1336profit before tax

Tax:Current taxDeferred tax

Total Tax 2089472.953 2544271.52profit after tax transferredto revenues reserve 4323887.86 5265033.33

3. Ratio Analysis

Ratio analysis quantifies many aspects of a business and is an integral part of financial

statement analysis. Ratio analysis is categorized according to the financial aspect of the business

which the ratio measures. Liquidity ratios measure the availability of cash to pay debt. Asset

management ratios measure how quickly a company converts non-cash assets to cash

assets. Debt management ratios measure the company's ability to repay long-term

debt. Profitability ratios measure the firm's use of its assets and control of its expenses togenerate an acceptable rate of return. Stock market ratios measure investor response to owning a

company's stock and also the cost of issuing stock.

Ratio analysis is mostly used to compare between companies, industries, different time

periods for one company and a single company with the industry average.

Ratios generally hold no meaning unless they arebenchmarked against something else,

like past performance or another company. Thus, the ratios of firms in different industries, which

face different risks, capital requirements, and competition, are usually hard to compare.

The Five major categories of ratios are:

Liquidity Ratio

Asset Management Ratio
http://en.wikipedia.org/wiki/Benchmarkinghttp://en.wikipedia.org/wiki/Benchmarking


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Debt Management Ratio

Profitability Ratio &

Stock Market Ratio


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a. Ratio of British American Tobacco (BAT-BC), Gemini Sea Food and Apex Foods and

Industry Average

Ratio Name Gemini Sea

Food

Apex Foods BAT-BC Industry

Average

Current

Ratio

1.05 1.13 1.15 1.1

Quick Ratio 1.150 1.41 0.59 1.20

Working

Capital

121,6234 1435326 1473710 1375090

Inventory

Turn Over

Ratio

7.70 6.42 2.5 5.54

Total Asset

Turn Over

Ratio

0.0013 0.0009 0.00079 0.001

Fixed Asset

Turn Over

Ratio

3.13 4.10 4.32 3.85

Average

Collection

Period

11.61 10.47 14.54 12.2

Average

Payment

Period

99.18 94.51 116.5 103.4

Cash

ConversionCycle

32.92 30.68 44.04 35.88

Debt Ratio 0.34 0.73 .64 0.57

Time Interest

Earning

68.06 68.91 47.73 61.57


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Gross Profit

Margin

28.18 26.86 42.1 32.66

Operating

Profit

42.74 23.49 22.70 17.52

Net Profit

Margin

21.39 14.78 10.96 8.43

Return On

Asset

17.12 19.24 15.53 17.69

Operating

Return On

Asset

24.23 22.97 32.17 25.87

Return On

Equity

35.26 41.67 43.15 40.03

Earnings Per

Share

36.32 24.07 42.50 35.20

Market To

Book Value

Ratio

3.90 4.27 6.36 4.72

P/E Ratio 30.61 31.51 14.60 24.6

Du-Pont(ROA) 15.12 12.24 15.53 14.69

Extended

Du-Pont

(ROE)

36.06 41.67 43.15 40.5


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b. Standard ratio calculation

c. Analysis ( Time series and cross sectional)

The Ratios of Dhaka Electric Supply Company (DESCO) are as follows:

Liquidity Ratio

a. Current Ratio :

The current ratio is a popular financial ratio used to test a company's liquidity (also referred to as

its current or working capital position) by deriving the proportion of current assets available to

cover current liabilities.

*

LIQUIDITY RATIO 2006-07 2007-08 2008-09 2009-10 2010-11

Industry

Average

a) CURRENT RATIO 0.86 Times 1.35 Times 1.32 Times 1.27 Times 1.15 Times 1.10

Times

Interpretation:

In the year 2010-11, the companys current asset is 1.15 times higher than the current

liabilities.

Time series analysis


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From time series analysis we can see that the ratio is decreasing from 2006-07 (0.86 times) to

2007-08 (1.35) and decreasing until 2010-11 (1.15 times).

Cross-Sectional Analysis


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Performance is good, and companys current ratio is above the industry average. It is good for

the company.

In 2010-11 proportional increase in current asset is more than proportional increase incurrent liabilities.

b. Quick Ratio:

The quick ratio is used to test a company's liquidity (also referred to as its current or working

capital position) by deriving the proportion of current assets available to cover current liabilities.

*

LIQUIDITY RATIO 2006-07 2007-08 2008-09 2009-10 2010-11

Industry

Average

b)

QUICK RATIO 0.3 Times 0.79 Times 0.74 Times 0.58 Times 0.59 Times 1.20Times

Interpretation:

In the year 2010-11, the companys current asset excluding inventory is .59 times higher

than the current liabilities.



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From time series analysis we can see that the ratio is increasing from 2006-07 (0.3 times) to

2007-08 (0.79), and it decreases to .59 times until the year 2010-11.



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Performance is not good, because companys current ratio is below the industry average. It is bad

for the company.

In 2010-11 proportional increase in current asset excluding inventory is less thanproportional increase in current liabilities.

c. Working Capital

The working capital ratio is used to calculate exactly what amount of capital is working in

market. It is derived by deducting current liabilities from current assets.

*

LIQUIDITY

RATIO

2006-07 2007-08 2008-09 2009-10 2010-11

Industry

Average

c) WORKING

CAPITAL

-569241 1703269 1961263 1730467 1473710 1375090

Interpretation:

The companys current assets are higher than the current liabilities by tk. 14,73710



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The number is increasing from 2006-07 to 2008-09 Then it start decreasing.


Ratio is above industry average, and it is good for the company

The companys current assets are increasing than current liabilities proportionately. So

working capital is in such a good position.


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Asset Management Ratio

a. Inventory Turnover Ratio:

This ratio is regarded as a test of efficiency and indicates the rapidity with which the company is

able to move its merchandise.

*

Asset

Managemen

t Ratio

2006-07 2007-08 2008-09 2009-10 2010-11 Industry

Average

a) Inventory

turnover ratio

3.74 3.31 3.2 3.1 2.5 5.54

Interpretation:

In the year 2010-11, the company has Sold out & Restocked its

inventory 2.5 times.



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It is decreasing throughout last 5 years from 3.74 ( 2006-07) to 2.5 in ( 2007-08).


It is below industry average. Performance is bad, but industry average is too high. Some

company under this industry have more inventory turnover ratio, that affect the industry average

and show the higher industry average.


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Proportional increase in inventory is significant less than proportional increase in cost of

goods sold.

b. Total Asset turnover Ratio

The total asset turnover illustrates how much of sales have been generated from the total assets

used.

*

Asset management ratio 2006-07 2007-08 2008-09 2009-10 2010-11

Industry

Average

b)

TOTAL ASSET

TURNOVER RATIO 0.00076

times

0.00079

times

0.00075

times

0.0008 times 0.0008 times 0.001

times

Interpretation:

In the year 2010-11, every TK 1 worth of Total Assets generated TK

0.008 of Total Sales



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From the time series analysis, companys ratio is fluctuating significantly from 07 to 2010 then

remain constant in year 2010 & 2011


It is below than industry average. We r in medium line, we need to improve it.

c. Fixed Asset turnover Ratio

The fixed asset turnover means how much of sales have been generated by using the fixed assets.

* Asset management ratio

2006-07 2007-08 2008-09 2009-10 2010-11

Industry

Average

c)

FIXED ASSET

TURNOVER RATIO 3.23 times 4.05 times 4.61 times 3.94 times 4.32 times 3.85

times

Interpretation:


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In the year 2010-11, every TK 1 worth of Total Fixed generated TK 4.32

of Total Sales


From the time series analysis we can conclude that there was an eventualincrease, from 2006-07 (3.23) to 2008-09 (4.61), than it decreases to 4.32 in

2010-11.



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It is above industry average, performance is good.

Proportional increase in fixed asset is significant less than proportional increase in sales.

d. Average collection period or days sales outstanding:

Average collection period or days outstanding ratio determines on an average how much time is

taken to collect the money from the collectors.


2006-07 2007-08 2008-09 2009-10 2010-11

Industry

Average

d)

Average collection

period 8.81 days 22.24 days 10.68 days 8.51 days 14.54 days 12.20

days

Interpretation:

In the year 2010-11, On an average it took 14.54 days for the

company to collect their receivables.



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From the time series analysis it is significantly increase from 2006-07 to 2007-08 (8.81 to 22.24),

than it is decrease significantly to 2010-11 (14.54).



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It is bad for the company, because they need more time to collect account receivable compare to

industry average.

e. Average payment period:

Average payment period distinguishes on an average how many days are needed to pay back tothe creditors.


2006-07 2007-08 2008-09 2009-10 2010-11

Industry

Average

e)

Average payment

period 46.92 days 62.77 days 74.44 days 56.42 days 116.5 days 103.4

days

In the year 2010-11 On an average, the company had to take 116.5

day to pay their creditors.



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From the time series analysis the days of paying off creditors have

increased significantly from 2006-07 (46.92 days) to 2010-11 (116.5).


It is good for the company, because they have more time to pay a payable compare to industry

average.

On an average it collects account receivables very frequently than it pay an accountpayable. It is good for the company because they first receive receivable than pay a

payable.

f. Cash Conversion Cycle:

Cash Conversion Cycle is the number of days between disbursing cash and collecting cash in

connection with undertaking a discrete unit of operations.


2006-07 2007-08 2008-09 2009-10 2010-11

Industry

Average

f) Cash conversion cycle 59.48 days 69.74 days 50.34 days 69.83 days 44.04 days 35.88

days


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On an average DESCO took 60 days for conversion of cash.


From time series analysis, it is fluctuate year to year from 2006-07 to 2010-11.



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It took more days to complete a cash cycle, compare to its industry average.

It decrease from 2009-10 to 2010-11, because in 2010-11 inventory turnover ratio is

increase than 2009-10.

Debt management ratio

a. Debt Ratio:

The debt-to-asset ratio tells us how much of the total assets are financed by the overall liability

of the company.

Interpretation:


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* Debt management ratio

2006-07 2007-08 2008-09 2009-10 2010-11

Industry

Average

a) Debt Ratio 67% 55% 57% 53% 64% 57%

In the year 2010-11, the companys 64% of total assets were financed

by debt.


From the time series analysis, in the past five years the percentage has been

quite stable, varying from 67% to 53%.


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It is above industry average. So this companys asset financed by debt is more than the industry

average.

Capital structure of the company is consisting of 64% debt.

b. Times Interest Earned

The interest coverage ratio is used to determine how easily a company can pay interest expenses

on outstanding debt. The lower the ratio, the more the company is burdened by debt expense.

* Debt management ratio

2006-07 2007-08 2008-09 2009-10 2010-11

Industry

Average

b) Times interest earned 28.57 times 30 times 90.3 times 67.87 times 47.73 times 61.57


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times

Interpretation:

The companys EBIT is 47.73 times higher than interest expense.


from time series analysis it increase significantly 2007-08 to 2008-09 (30 to 90.3) than it

decrease again 2010-11 to 47.73.



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It is below than industry average. But industry average is also too high because some companys

times interest earning is too high that effect the industry average.

In 2010-11 it is decreases because its proportional increase in EBIT is less than its

proportional increase in interest expense.

Profitability Ratio

a. Gross Profit Margin

The gross profit margin is used to analyze how efficiently a company is using its raw materials,

labor and manufacturing-related fixed assets to generate profits. A higher margin percentage is a

favorable profit indicator.

*

Profitability Ratio 2006-07 2007-08 2008-09 2009-10 2010-11

Industry

Average

a) Gross profit margin 29.70% 35.86% 34.78% 35.66% 42.17% 32.66%times


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Interpretation:

In the year 2010-11, the company has earned TK 42.17 worth of gross

profit, from every TK 100 worth of Sales.


From the time series analysis, we can say that, in the past five years, the Gross profit margin has

been fairly stable, varying from (21.13% to 22.75.59%).



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It is above industry average, and their performance is good.

Increase in sales increase the gross profit margin.

b. Operating Profit Margin :

*


Industry

Average

b)Operating profit

margin 10.91% 16.33% 16.55% 20.65% 22.70% 17.52%

Interpretation:

In the year 2010-11, the company has earned TK 22.70 worth of

operating profit, from every TK 100 worth of Sales.



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From the time series analysis, we can say that, in the past five years, the Operating profit margin

has been fairly increased from (10.91% to 22.70%).


It is above industry average, and their performance is good.


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Increase of operating profit kept going up proportionately more than the revenues. That

resulted in the ratio going high.

c. Net Profit Margin :

Investors can easily see from a complete profit margin analysis that there are several income and

expense operating elements in an income statement that determine a net profit margin. It allows

investors to take a comprehensive look at a company's profit margins on a systematic basis.

*


Industry

Average

c) Net profit margin 6.70% 11.90% 11.77% 13.74% 10.96% 8.43%

Interpretation:

In the year 2010-11, the company has earned TK 10.96 worth of net

profit, from every TK 100 worth of Sales.



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From time series analysis we see that in 2006-07 net profit is 6.70% than it increase to 13.74% in

2009-10, than it again decrease to 10.96% in 2010-11.


It is above industry average, and their performance is average.

Their operating profit in increase compare to last year, and their net profit is also

increase. So they pay less interest or tax or both that increase their net profit.

d. Return on Assets:

The Return on Total Assets, also called return on investment measures the overall effectiveness

of management in generating profits with its available assets. The higher the firms return on

total assets, the better it is considered.

*


Industry

Average

d) Return on asset 11.18% 16.70% 17.20% 21.53%15.53%

17.69%


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Interpretation:

In the year 2010-11, every TK. 100 worth of assets are generating TK. 15.53 of net

income.


From the time series analysis, it can be inferred that the company did quite

well comparatively in 2006-07 to 2009-10, having Return on Assets within

the range of (11.18%-21.53%),but then in last year it falls down to 15.53.


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It is below industry average. So company performance is not good.

In 2010-11 its net income decrease but on the other hand its total assets increase, so it

goes down from 2009-10 to 2010-11.

e. Operating return on asset:

*

Profitability Ratio 2006-07 2007-082008-09

2009-10 2010-11

Industry

Average

e)Operating Return on

asset 18.21%22.93% 24.20% 32.35%

32.17% 25.87%

Interpretation: In the year 2010-11, every TK. 100 worth of assets are generating TK. 32.17 of operating

profit.



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From the time series analysis, it can be inferred that the company did quite well

comparatively in the past five years.


It is above than industry average. Company performance is good, so they need to keep it.


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In 2010-11 proportional increase in total asset is less than proportional increase in EBIT.

f. Return on equity:

The return on common equity measures the return earned on the common stockholders

investment in the firm. Generally, the higher the return, the better it is for the owners.

*


Industry

Average

f) Return on equity 24.32% 36.81%40.10% 46.13%

43.15% 40.03%

Interpretation:

In the year 2010-11, shareholders of this company had earnings of TK. 43.15 for every

TK. 100 investment.



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From the time series, it is increase from 2006-07 to 2009-10 (46.13%) than it again little bit

decrease up to 2010-11 (43.15%).


It is above industry average. Company performance is good.

Decrease in net income and little increase in equity decrease the ratio in 2010-11.

Stock Market Ratio

a. Earnings per share:

Earnings per Share are the most frequently used of all the ratios and are generally felt to give the

best view of performance. It indicates how much of a companys profit can be attributed to each

ordinary share in the company.

*

Stock market ratio 2006-07 2007-08 2008-09 2009-10 2010-11

Industry

Average

a) Earnings per share 13.32Tk 27.81Tk 34.48Tk 47.98Tk 42.50Tk 35.20Tk


44/74

Interpretation:

In the year 2010-11, the companys common shareholders have

received TK 42.50/Share.


From time series analysis we see that 2006-07 to 2009-10 EPS increase, than it decreases in next

one year.



45/74

It is above industry average. This is good for the share holders.

Number of share holder increase, and net income decrease, thus why is go down compare

to last year.

b. Market to Book Ratio:

The Market to Book value of the share compares the book value of the share, which is the

internal or face value of the share with the market price of the share.

*


Industry

Average

b)Market to book

value ratio 1.43 times 2.67 times 8.9 times 6.89 times 6.36 times 4.72times

Interpretation:

In the year 2010-11 the companys each shares market price is 6.36 times higher than the

market book value.


46/74


From the time series analysis we see that it is going up significantly, than going down in last two

year and it is not in a stable situation.


It is above industry average.

Market value of the share price increase.


47/74

Price earnings ratio or P/E ratio:

The price/earnings (P/E) ratio is the best known of the investment valuation indicators. The P/E

ratio has its imperfections, but it is nevertheless the most widely reported and used valuation by

investment professionals and the investing public.

*


Industry

Average

c) P/E ratio 11.16 7.25 11.87 14.93 14.60 24.60

Interpretation:

In the year 2010-11, the companys shareholders were willing to pay $14.60 for every $1

of reported earnings.


For year to year comparison we see that it decrease from 2006-07 to 2008-09 (11.16 to 7.25),

than it increase to 14.6 in 2010-11.


48/74


It is close to industry average.

In 2010-11 proportional decrease in market value of share price is more than proportional

decrease in earnings per share.

Du-Pont Analysis:


49/74

a. Return on asset

* Du-Pont Analysis

2006-07 2007-08 2008-09 2009-10 2010-11

Industry

Average

a) Return on asset 11.18% 16.71% 17.21% 21.53% 15.53% 14.69%

Interpretation:

In the year 2010-11, every TK. 100 worth of assets are generating TK. 15.53 of net

income.


From the time series analysis, it can be inferred that the company did quite

well comparatively in the past five years, having Return on Assets within the

range of (11.18%-15.53%)


50/74


It is above industry average. So company performance is good.

In 2010-11 its net income decrease but on the other hand its total assets increase, so it

goes down from 2009-10 to 2010-11.

Extended Du-Pont Analysis:

a. Return on equity

* Extended Du-Pont

Analysis 2006-07 2007-08 2008-09 2009-10 2010-11

Industry

Average

a)

Return on equity

24.32% 36.81% 40.07% 46.13% 43.15% 40.50%

Interpretation:

In the year 2010-11, shareholders of this company had earnings of TK. 43.15 for every

TK. 100 investment.


51/74


From the time series, it is increase from 2006-07 to 2009-10 (46.13%) than it is little bit

down to 2010-11 (43.15%).



52/74

It is above industry average. Company performance is good.

Decrease in net income and little increase in equity decrease the ratio in 2010-11.

d. RECCOMENDATION:

After analyzing the major ratios, it can be concluded that the British American Tobacco (BAT-

BC) condition is good, compared to how well they were doing in the previous years.The

companys availability of cash to pay debt has increase compared to the past

five years, but however it is in stable condition. The Companys ability to

quickly convert non-cash assets to cash assets have also increases. The

company's ability to repay long-term debt is comparatively in a better shape.

With a positive credit rating, the company will be benefited by the advantage

of acquiring loans and purchasing raw materials on credit.. The Company

uses its assets and controls its expenses to generate an acceptable rate of

return. In this case, the company was doing better thanprevious; maintain

better standards of using assets and controlling expenses to generate better

rates of return. Their cash conversion cycle is too long, it is approximately 160 days to

complete this cycle. They need to reduce this time for better profit. Their interest expense is low,

for this they cant save more tax, but if it increase they have a problem in future to pay the loan

and interest, which will affects on their net income. Their profitability margin is good and return

on asset and equity is average compare to industry average. Earnings per share of the shareholder is decreasing compare to last year, because their net income decrease little and number of

share increase because of stock dividend for last year. They are doing well and the market value

of the share increases compare to last year. I think it is good for this company; because the

performance of share market is bad and maximum companys share price go down through they

are doing well.

BATBC

BANGLADESH Date

Closing

PriceMonthly

Return %

General

indexMonthly

Return %

2006

29-06-2006 99.20 1339.525


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July 7/2/2006 69.70-1.721664275

.

1,341.25

4.88797/31/2006 68.50

1,406.81

August 8/1/2006 69.60-0.862068966

.

1,426.65

11.245228/31/2006 69.00

1,587.08

September 9/3/2006 70.10-4.564907275

.

1,588.24

(1.61877)9/28/2006 66.90 1562.53

October 10/1/2006 68.103.230543319

.

1,551.88

(0.6592)10/31/2006 70.30

1,541.65

November 11/1/2006 70.303.840682788

.

1,533.20

(0.385476)11/30/2006 73.00

1,527.29

December 12/3/2006 72.80

15.52197802

1,544.17

4.231312/28/2006 84.10 1610.67

BATBC

BANGLADESH Date

Closing

Price

Monthly

Return %General

index

Monthly

Return %

2007

January 04-01-2007 82.003.170731707

.

1589.41 14.02578

31-01-2007 84.60 1805.12

February 05-02-2007 84.00

-0.119047619

.

1,883.62

(1.91833)

28-02-2007 83.90

1,791.54

March 01-03-2007 83.60

-2.153110048

.

1,794.02

(1.8472)

29-03-2007 81.80

1,760.88

April 02-04-2007 81.60

-9.31372549

.

1,737.36

0.3436

30-04-2007 74

1,743.33


54/74

May 03-05-2007 74.60

-2.412868633

.

1,762.36

13.68732

31-05-2007 72.80

2,003.58

June 03-06-2007 75.200

.

2,007.057.08670

28-06-2007 75.20

2,149.32

July 02-07-2007 73.70

25.91587517

.

2,190.46

8.84380

31-07-2007 92.80

2,384.18

August 01-08-2007 94.00

15.42553191

.

2,394.11

2.54708

29-08-2007 108.50

2,455.09

September 03-09-2007 112.90-1.682905226

.

2,540.97

1.26235730-09-2007 111.00 2548.49

October 01-10-2007 112.00

6.875

.

2,627.02

8.51577

31-10-2007 119.70

2,850.81

November 01-11-2007 120.00

28.91666667

.

2,836.32

4.7522840

29-11-2007 154.70

2,971.11

December 02-12-2007 148.60

0.740242261

2,878.74

4.81009

30-12-2007 149.70

3,017.21

BATBC

BANGLADESH Date

Closing

Price

Monthly

Return %General

index

Monthly

Return %

2008

January 01/01/ 2008 144.80

-8.425414365

3,008.91

(3.3812)

31/01/ 2008 132.602,907.17


55/74

February 03/02/ 2008 130.40

1.380368098

2,890.25

1.4230

28/02/ 2008 132.20

2,931.38

March 02/03/ 2008 129.208.513931889

2,916.203.4440

31/03/ 2008 140.203,016.49

April 01/04/ 2008 142.70

13.45480028

3,025.57

1.56268

30/04/ 2008 161.90

3,072.85

May 04/05/ 2008 157.10

2.800763845

3,101.94

2.1343

29/05/ 2008 161.50

3,167.99

June 01/06/ 2008 168.10

-15.58596074

3,207.89

(6.46499)

30/06/ 2008 141.903,000.50

July 02/07/ 2008 144.00

62.22222222

3,029.24

(8.53376)

31/07/ 2008 233.602,761.05

August 03/08/ 2008 217.40

-1.471941122

2,689.94

2.80749

28/08/ 2008 144.80

2,765.46

September 01/09/ 2008 132.60

7.321509777

2,820.79

5.17690

25/09/ 2008 130.402,966.82

October 05/10/ 2008 132.20

-13.88053287

3,001.37

(8.421820)

30/10/ 2008 129.20

2,748.60

November 02/11/ 2008 140.20

-11.89133778

2,684.69

(8.03704)30/11/ 2008 142.70

2,468.92

December 01/12/ 2008 161.90

15.59633028

2,517.05

11.0519

30/12/ 2008 157.10

2,795.34


56/74

2009

January 01-01-2009 207.302.363724071

2,807.61(5.63183)

29-01-2009 212.20

2,649.49

February 01-02-2009 216.80

1.660516605

2,661.69

(3.4109)

26-02-2009 220.40

2,570.96

March 01-03-2009 225.40

-5.412599823

2,626.27

(6.8291)

31-03-2009 213.20

2,446.92

April 01-04-2009213.80

16.93171188

2,443.25 4.5576

30-04-2009 2502,554.36

May 03-05-2009 243.50

-19.71252567

2,539.17

1.30

31-05-2009 195.502,572.18

June 01-06-2009 195.90

14.03777437

2,597.00

15.91297

30-06-2009 223.403,010.26

July 02-07-2009 229.40

16.30340017

3,069.71

(5.0620)30-07-2009 266.80

2,914.53

August 02-08-2009 272.10

1.543550165

2,941.02

0.00884

31-08-2009 276.30

2,941.28

September 01-09-2009 277.70

4.645300684

2,950.12

4.53439

30-09-2009 290.603,083.89

October 01-10-2009 309.50

5.977382876

3,123.24

7.73955

29-10-2009 328.00

3,364.26

November 01-11-2009 345.80

0.838635049

3,392.02

29.15460

26-11-2009 348.704,380.95

December 01-12-2009 354.40 15.51918736 4,424.02 2.520558


57/74

30-12-2009 409.404,535.53

BATBC

BANGLADESH Date Closing Price

Monthly Return

% General index

Monthly

Return %2010

January 03-01-2010 432.10

12.56653552

4,568.40

17.483

31-01-2010 486.405,367.10

February 01-02-2010 487.60

6.931911403

5,451.15

2.00070

28-02-2010 521.405,560.56

March 01-03-2010 520.60

-6.319631195

5,567.40

(0.1311204)

28-03-2010 487.70

5,560.10

April 01-04-2010 488.30

-4.280155642

5,594.32

1.08252

29-04-2010 467.405,654.88

May 02-05-2010 462.90

11.40635126

5,631.30

8.46180

31-05-2010 515.706,107.81

June 01-06-2010 522.60

0.650593188

6,152.39

0.0099

30-06-2010 526.006,153.68

July 04-07-2010 527.70

26.47337502

6,217.08

2.021527

29-07-2010 667.406,342.76

August 01-08-2010 656.50

3.442498096

6,436.77

3.436506

31-08-2010 679.106,657.97

September 02-09-2010 684.30

1.914365045

6,774.87

4.760386

30-09-2010 697.407,097.38

October 03-10-2010 707.706.189063162

7,223.4910.16174

31-10-2010 751.507,957.12

November 01-11-2010 746.30

0.924561168

7,947.80

8.24674

30-11-2010 753.208,602.44

December 01-12-2010 756.10 -5.23740246 8,723.18 (4.96114)


58/74

30-12-2010 716.508,290.41

BATBC

BANGLADESH Date Closing Price

Monthly Return

% General index

Monthly

Return %2011

January

02/01/2011 706.10

-0.963036397

4,568.40

17.48331/01/2011 699.30

5,367.10

February

01/02/2011 692.10

-20.54616385

5,451.15

2.0007028/02/2011 549.90

5,560.56

March

01/03/2011 591.10

12.9588902

5,567.40

(0.1311204)31/03/

2011 667.70

5,560.10

April

03/04/2011 658.50

-10.44798785

5,594.32

1.0825228/04/2011 589.70

5,654.88

May

02/05/2011 595.00

5.56302521

5,631.30

8.4618031/05/2011 628.10

6,107.81

June

01/06/2011 628.30

0.413815057

6,152.39

0.009930/06/2011 630.90

6,153.68

July02/01/

2011 706.10

-0.963036397

6,217.08

2.02152731/01/2011 699.30

6,342.76

August

01/02/2011 692.10

-20.54616385

6,436.77

3.43650628/02/2011 549.90

6,657.97

September

01/03/2011 591.10

12.9588902

6,774.87

4.76038631/03/2011 667.70

7,097.38

October

03/04/

2011 658.50-10.44798785

7,223.4910.1617428/04/

2011 589.707,957.12

November

02/05/2011 595.00

5.56302521

7,947.80

8.2467431/05/2011 628.10

8,602.44

December 01/06/2011

628.30 0.413815057 8,723.18 (4.96114)


59/74

30/06/2011 630.90

8,290.41

Expected rate of return (Monthly) 3.469682%

(Annual Return) 3.469682% * 12 = 41.636184%

Standard Deviation 11.37875%

C.V. 3.2795

Where,

Rate of Return =

Standard Deviation = * 100

Coefficient of variation (CV) =

Expected Rate of Return (Monthly) 2.536899%

(Annually) 2.536899 * 12 = 30.36%

Standard Deviation 7.085807%


60/74

C.V. 2.7931


61/74

SUMMARYOUTPUT

Regression StatisticsMultiple R 0.248993

R Square 0.061997AdjustedR Square 0.045825StandardError 0.11115Observations 60

ANOVA

df SS MS F Significa

nce F

Regression 1 0.04736

0.04736

3.833518 0.055054

Residual 580.71654

70.0123

54

Total 590.76390

8

Coefficie

nts

Standar

d Error t Stat

P-

value

Lower

95%

Upper

95%

Lower

95.0%

Upper

95.0%

Intercept 0.0245530.01525

61.6094

110.1129

56 -0.005990.0550

91

-0.0059

90.0550

91

X Variable1 0.399845

0.204218

1.957937

0.055054 -0.00894

0.808631

-0.0089

40.8086

31

RESIDUAL OUTPUT

Observati

on

Predicted

Y

Residua

ls

1 0.018216-

0.06642

2 -0.0041 -0.0866

3 0.0083630.03553

7


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4 -0.00714-

0.05056

5 0.0245890.00871

1

6 0.021524

0.01077

6

7 0.0440970.05510

3

8 0.0695170.04078

3

9 0.018081-

0.10058

10 0.021917-

0.03842

11 0.0230120.02308

8

12 0.041472 -0.02527

13 0.080635-

0.04453

14 0.0168830.11478

3

15 0.017167-

0.07687

16 0.025927-

0.04599

17 0.079281-

0.08743

18 0.052886-

0.02404

19 0.0599150.23229

8

20 0.0347380.03088

5

21 0.0296010.13829

5

22 0.058615 -0.0181

23 0.043555

0.33144

5

24 0.0437860.06158

5

25 0.011034 -0.1588

26 0.030243-

0.06355

27 0.038304-

0.09395


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28 0.0308010.01486

1

29 0.0330670.08120

7

30 -0.0013

-

0.18293

31 -0.009570.38753

8

32 0.039606 -0.1064

33 0.0452530.00273

3

34 -0.00912-

0.12128

35 -0.00758-

0.10332

36 0.068761

0.05086

837 0.002035 -0.0218

38 0.0109220.04022

5

39 -0.00275-

0.07778

40 0.042737-

0.11119

41 0.0297510.00296

1

42 0.08818 0.09455

43 0.004340.15576

9

44 0.0245880.03773

2

45 0.0426840.01861

3

46 0.055477-

0.00836

47 0.141126-

0.18305

48 0.034631

0.12575

9

49 0.0944580.03651

8

50 0.032578-

0.00502

51 0.035276-

0.1468652 0.028882 0.01939


64/74

3

53 0.0583870.06137

5

54 0.0245930.01643

7

55 0.0326360.16093

7

56 0.038294-

0.09437

57 0.0435870.02497

8

58 0.065162-

0.05083

59 0.057487-

0.08689

60 0.004716

-

0.13456


65/74

BATBC BANGLADESH General index

Average Return %

Monthly 3.469682% 2.5368%

Yearly 41.636184% 30.36%

Standard Deviation11.37875% 7.085807%

CV 3.2795 2.7931

SLOPE () .399 1

By analyzing the above data, we can say that the beta of the company is 0.399. We know that the

market beta is always 1. So the beta of the company is less than 1 which is less risky than the

market. In spite of that BATBCs standard deviation and C.V. both are higher than Market so

total risk of BATBC is higher.

CAPM = R f + (Rm-Rf)

= 11+(30.442-11).399

=18.76%

Where, R f = 11%

Rm = 30.442%

= .399

Here, 11% t-bill which was a 91 days T-bill and was announced in 18 3 12 was used as the

risk free rate.


66/74

Intrinsic share price

37.1850% 37.1850% 10% constantgrowth

Year 2010 2011 2012 2013

Dividend 35 48.014 65.87 72.457 (taka)

Outcomes: 40.429

46.703

586.457 TV2012=827.135

673.59

For constant growth rate after 2012 we need a rate less than the Ke rate of 18.76%. So

we assumed the constant growth rate after 2012 to be 10%.

Intrinsic price is total of the outcomes which is Po= 673.59 taka

This does not reflect the true 2010 market price of 692.30 taka. There is a difference of 18.711

taka among the two values. Which means share price is overvalued.


67/74

CORPORATE VALUE MODEL

10% constant growth

Year 2010 2011 2012 2013

FcF 643777 655784 681282 749410.2(taka

Outcomes: 552192.66

483043.83

6065618.838 TV2012=8554910.959

7100855.328 (value of total company)

Value of 1 common share

(7100855.328 806476) = 6294379.328

=

= 413.614


68/74

Weighted Average Cost of Capital (WACC)

Capital Structure = 28.78% Debt & 71.22% Equity

Cost of Debt =Kd = .1727%

Cost of Common Equity = KCS =17.848%

Cost of retained earnings = KRE =17.848%

Weight of debt =Wd = 28.78%

Weight of Common Equity = WCS = 6.154%

Weight of Retained Earnings = WRE = 65.066%

WACC

= WL*KL*(1-Tax rate)+WB*KB(1Taxrate)+WPS*KPS+WCS*KCS+WRE*KRE

= .2878*.001727(1- .24021)+0+0+ (.06154*.17848)+(.65066*.17848)

=0.0003776+0.1098+0.1169

= 22.707%

WACC (market value)

Capital Structure = 28.78% Debt & 71.22% Equity

Cost of Debt =Kd = .1727%

Cost of Common Equity = KCS =17.848%

Cost of retained earnings = KRE =17.848%

Weight of debt =Wd = 6.117%

Weight of Common Equity = WCS = 80.056%

Weight of Retained Earnings = WRE = 13.827

= WL*KL*(1-Tax rate)+WB*KB(1-Taxrate)+WPS*KPS+WCS*KCS+WRE*KRE

= [.06117*.001727(1- .24021)]+0+0+[ .80056 * .17848] +[ .13827 * .17848]


69/74

=16.76%

Optimum Capital Structure

Value of the firm =

=

= 3022349.391

1. Capital Structure = 50% Debt & 50% Equity

WACC

= WL*KL*(1-Tax rate) +WB*KB (1Taxrate) +(WPS*KPS+(WCS*KCS+WRE*KRE )

= .50*.001727(1- .24021) +0+0+ .50*.17848

= 8.9896%

Value of the firm =

=

= 7634209.267


70/74


WACC

= WL*KL*(1-Tax rate) +WB*KB (1Taxrate) + (WPS*KPS+ (WCS*KCS+WRE*KRE)

= .60*.001727(1- .24021) +0+0+ .40*.17848

= 7.2178%

Value of the firm =

=

= 9508227.94


WACC


= .20*.001727(1- .24021) +0+0+ .80*.17848

= 14.3046%


71/74

Value of the firm =

=

= 4797651.1638


WACC


= .25*.001727(1- .24021) +0+0+ .75*.17848

= 13.418%

Value of the firm =

=

= 5114658.49

The second option that consists of 60% Debt & 40% Equity has the perfect combination of

Capital Structure for the company and it also has the highest value for the firm of 9508227.94.

By following this capital structure the company can increase its share price. To do so the

company will have to keep the greater portion of the capital structure as loan.

The reason for which we will increase the loan is if we increase the loan the weighted average

cost of capital will decline. .


72/74

Dividend Policy

BATBC Bangladesh limited believes that High dividend Payment Increases the

share price

Justification:

In 2010 the company paid dividend of $35. If we observe the historical trend of the

company it can be easily said that the company is following the second view of

dividend policy.

People are always concern about their certain income. In the view of people

dividend is a certain income whereas they are uncertain about the income from the

capital gain. The reason behind their that belief is dividends can be predictable

compared to capital gain as management can control dividend but it cannot dictate

the price of stock. The incremental risk associated with capital gain relative to

dividend income implies a higher required rate for discounting a dollar of capital

gains than for discounting a dollar of dividend. So higher dividend means higher

share price for the company in the eye of people


73/74

Keeping this in mind BATBC Bangladesh Limited gives maximum return to their

shareholders as the form of dividend. This policy is also known as bird in the

hand dividend theory.

Appendix

1. General Reserve: (2011)

Opening balance: 1,836,607,000

Profit earned during the year 6,097,442,822

Payment of dividends (4, 976,38,000)

7,436,411,822

2. General Reserve: (2012)

Opening balance: 7,436,411,822

Profit earned during the year 841,527,416

Payment of dividends (497,638,000)

7780301238


74/74

3. Average Tax Rate:

= EBT (1 - T) = Net profit after tax

2006 = 336425(1 -T) = 246252 Tax Rate = 26.803 %

2007 = 350155(1 - T) = 263651 Tax Rate = 24.704 %

2008 = 457740 (1 - T) = 359342 Tax Rate = 21.496 %

2009 = 772611 (1 - T) = 609870 Tax Rate = 21.064 %

2010 = 903256 (1 - T) = 668068 Tax Rate = 26.038 %

Average Tax Rate =

= 24.021 %

Executive Summary EMDAD 2003 FORMAT

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