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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
British American Tobacco Bangladesh
Horizontal BALANCE SHEET
(All figures divided by the amount of base year 2007)
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British American Tobacco Bangladesh
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:
British American Tobacco Bangladesh
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
British American Tobacco Bangladesh
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
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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.
Time series analysis
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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.
Cross-Sectional Analysis
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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
Time series analysis
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The number is increasing from 2006-07 to 2008-09 Then it start decreasing.
Cross-Sectional Analysis
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.
Time series analysis
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It is decreasing throughout last 5 years from 3.74 ( 2006-07) to 2.5 in ( 2007-08).
Cross-Sectional Analysis
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
Time series analysis
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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
Cross-Sectional Analysis
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
Time series analysis
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.
Cross-Sectional Analysis
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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.
* Asset management ratio
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.
Time series analysis
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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).
Cross-Sectional Analysis
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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.
* Asset management ratio
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.
Time series analysis
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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).
Cross-Sectional Analysis
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.
* Asset management ratio
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.
Time series analysis
From time series analysis, it is fluctuate year to year from 2006-07 to 2010-11.
Cross-Sectional Analysis
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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.
Time series analysis
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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Cross-Sectional Analysis
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.
Time series analysis
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.
Cross-Sectional Analysis
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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.
Time series analysis
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%).
Cross-Sectional Analysis
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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 :
*
Profitability Ratio 2006-07 2007-08 2008-09 2009-10 2010-11
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.
Time series analysis
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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%).
Cross-Sectional Analysis
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.
*
Profitability Ratio 2006-07 2007-08 2008-09 2009-10 2010-11
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.
Time series analysis
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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.
Cross-Sectional Analysis
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.
*
Profitability Ratio 2006-07 2007-08 2008-09 2009-10 2010-11
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.
Time series analysis
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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Cross-Sectional Analysis
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.
Time series analysis
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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.
Cross-Sectional Analysis
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.
*
Profitability Ratio 2006-07 2007-08 2008-09 2009-10 2010-11
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.
Time series analysis
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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%).
Cross-Sectional Analysis
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
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Interpretation:
In the year 2010-11, the companys common shareholders have
received TK 42.50/Share.
Time series analysis
From time series analysis we see that 2006-07 to 2009-10 EPS increase, than it decreases in next
one year.
Cross-Sectional Analysis
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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.
*
Stock market ratio 2006-07 2007-08 2008-09 2009-10 2010-11
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.
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Time series analysis
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.
Cross-Sectional Analysis
It is above industry average.
Market value of the share price increase.
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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.
*
Stock market ratio 2006-07 2007-08 2008-09 2009-10 2010-11
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.
Time series analysis
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.
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Cross-Sectional Analysis
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:
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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.
Time series analysis
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%)
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Cross-Sectional Analysis
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.
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Time series analysis
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%).
Cross-Sectional Analysis
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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
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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
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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
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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
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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)
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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)
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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%
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C.V. 2.7931
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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
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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
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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.
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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.
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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
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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]
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=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
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2. Capital Structure = 60% Debt & 40% Equity
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
3. Capital Structure = 20% Debt & 80% Equity
WACC
= WL*KL*(1-Tax rate) +WB*KB (1Taxrate) + (WPS*KPS+ (WCS*KCS+WRE*KRE)
= .20*.001727(1- .24021) +0+0+ .80*.17848
= 14.3046%
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Value of the firm =
=
= 4797651.1638
4. Capital Structure = 25% Debt & 75% Equity
WACC
= WL*KL*(1-Tax rate) +WB*KB (1Taxrate) + (WPS*KPS+ (WCS*KCS+WRE*KRE)
= .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. .
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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
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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
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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 %