fin 440 term paper raw.pdf

7/30/2019 Fin 440 term paper raw.pdf

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Executive Summary

BOC is the leading oxygen production company in Bangladesh. BOC is competing with

many others such as MJL Bangladesh Limited, Summit Power, DESCO and Khulna Power to

hold the leading position in the sector. By doing this report on BOC 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 riskier 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 not

the 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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BOC Bangladesh Limited

Vertical Balance Sheet

2010 2009 2008 2007 2006Assets:

Non-current assets:Property, plant and equipment 37.24% 35.681800% 35.41% 50.05% 58.665%Intangible assets 0.17009% 0.227% 0.244% 0.169872% 0.055%Investment in subsidiary 0.00078% 0.00078% 0.0009199% 0.0009969% 0.001079%

Total non-current assets 37.420% 35.91% 44.46% 50.2213% 58.7213%Current assets:Inventories 12.9008% 10.7864% 24.90% 19.27% 17.33%Trade debtors 7.1415% 5.9709% 6.53% 5.76% 7.704%Advances, deposits and prepayments 4.1985% 4.14376% 4.12% 4.51% 3.87%Cash and cash equivalents 38.34% 43.189% 19.99% 20.234% 12.370%

Total current assets 62.58% 64.09% 55.54% 49.7787% 41.27870%Total assets 100% 100% 100% 100% 100%

Equity and Liabilities:Shareholders equity:

Share capital 5.43% 5.88% 7.00% 7.59% 8.2120%Revaluation reserve 0.72% 0.78% 2.12% 2.25% 2.49207%General reserve 64.97% 64.43% 60.37% 59.61% 56.73506%

Total equity 71.12% 71.10% 69.50% 69.50% 67.43942%Non-current liabilities:

Employee benefits 4.08% 3.15% 10.32% 0.11% 0.156%Deferred tax liabilities 2.31% 2.74% 4.15% 11.11% 10.8676%Other non-current liabilities 5.91% 6.41% 0.00% 5.38% 5.97%

Total non-current liabilities 12.31% 12.31% 14.47% 16.60% 16.9936%Current liabilities:

Current Portion of Financial Lease 0.03% 0.065835%Trade creditors 2.19% 1.89% 0.1027% 1.21% 2.24762%Expense creditors and accruals 7.38% 6.74% 2.0970% 6.70% 5.40166%Sundry creditors 1.97% 2.90% 7.42% 2.73% 2.68456%Provision for taxation 5.00% 5.01% 2.49% 3.22% 5.16476%

Total current liabilities 16.47% 16.59% 3.916% 13.90% 15.56440%Total liabilities 28.88% 28.90% 30.50% 30.50% 32.56058%

Total equity and liabilities 100% 100% 100% 100% 100%


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Vertical Income Statement

2010 2009 2008 2007 2006

Revenue 100% 100% 100% 100% 100%

Cost of sales -58.06% -59.54% -66.61% -65.59% -66.05%

Gross profit margin 41.94% 40.46% 33.39% 34.41% 33.95%

Operating expenses -16.26% -18.41 -16.54% -17.65% -20.16%

Operations profit margin 25.68% 22.04 16.85% 16.76% 13.79%

Gain on sale of lease land 4.01% 0.07% 0.22%

Other income 0.55% -0.05 0.04%

Interest income 2% 2.16% 1.43% 0.67% 0.26%

Profit before taxation 28.23% 28.16% 18.32% 17.50% 14.27%Taxation -7.35% -5.93% -3.94% -4.32% -3.82%

Net profit margin 20.88% 22.23% 14.38% 13.18% 10.45%


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Horizontal Balance Sheet

2010 2009 2008 2007 2006

Assets: Non-currentassets:Property, plant and equipment 95.99% 84.88% 88.41% 92.36% 100%Intangible assets 466.34% 574.95% 519.67% 333.46% 100%Investment in subsidiary 100% 100% 100% 100% 100%

Total non-current assets 96.34% 85.34% 88.82% 92.59% 100%Current assets:

Inventories 112.58% 86.87% 168.60% 120.40% 100%Trade debtors 140.17% 108.16% 99.47% 80.99% 100%Advances, deposits and prepayments 163.85% 149.25% 124.79% 125.05% 100%

Cash and cash equivalents 468.57% 487.08% 189.54% 177.04% 100%Total current assets 366.30% 216.67% 157.86% 130.55% 100%Total

assets 151.20% 139.55% 117.32% 108.26% 100%

Equity and Liabilities:Shareholders

equity:Share capital 100% 100% 100% 100% 100%Revaluation reserve 43.68% 43.68% 100% 100% 100%General reserve 173.41% 158.48% 124.84% 113.75% 100%

Totalequity 159.67% 147.11% 120.90% 111.57% 100%Non-current

liabilities:EmployeebenefitsDeferredliabilities 111.44% 110.67% 100%Deferred tax liabilities 58.67% 64.21% 81.59% 97.59% 100%Finance Lease 77.21% 100%Other non-current

liabilitiesTotal non-current liabilities 1.10% 101.08% 99.92% 105.77% 100%Current liabilities:

Current Portion of Financial Lease 183.03% 53.61% 100%Trade creditors 142.52% 117.52% 109.48% 58.34% 100%Expense creditors and accruals 206.60% 175.53% 161.24% 134.35% 100%Sundry creditors 111.03% 150.49% 108.72% 110.24% 100%Provision for taxation 146.38% 135.41% 88.95% 67.74% 100%

Total currentliabilities 160.01% 148.78% 120.81% 96.67% 100%

Totalliabilities 133.66% 123.88% 109.91% 101.42% 100%

Total equity andliabilities 151.20% 139.55% 117.32% 108.26% 100%
mailto:113.75@mailto:113.75@


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Horizontal Income Statement

2010 2009 2008 2007 2006

Sales 135.05% 116.27% 105.92% 84.79% 100%

Cost Of Goods Sold 119.21% 104.80% 106.81% 84.19% 100%

Gross Profit 167.57% 138.59% 104.19% 80.96% 100%

Operating Expense 109.37% 106.20% 86.89% 74.25% 100%

EBIT 252.67% 185.94% 129.48% 103.09% 100%

Interest Expense 31.75% 22.02% 22.38% 46.33% 100%

EBT 268.50% 229.65% 136.06% 104.08% 100%

Tax 260.82% 180.48% 109.12% 95.94% 100%

Net Income 279.13% 247.66% 145.92% 107.07% 100%


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Pro forma balance sheet (% of Sales Method)

As at December 31, 2011

Fixed Asset 1,137,280,634

Current Asset 1,902,240,868

Total Asset 3,039,521,502

Equity and Liabilities

Share capital 152,183,000

Revaluation reserve (3470493237*0 .6305%) 21,881,460

General reserve 7,436,411,822

Total Equity 7,610,476,282

Total non-current liabilities 344,977,000

Total Current Liabilities 488,602,928

Total liabilities 833,579,928

Proposed Dividend (5,404,534,708)

Total equity and liabilities 3,039,521,502


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Pro Forma Income statement (% of Sales Method)

For the year ended Dec 31, 2011

2011

Revenue (3199375000

(1.084741)

3470493237

Cost of turnover 347049323758% 2012886077

Gross Profit 1457607160

Operating Expenses:

Operating Expenses 347049323716.26% (564302200)

Operating profit 893304960

Profit before other income 34704932375.50% 190877128

Interest income 34704932372% 6940986474Profit before taxation 8025168562

Taxation 802516856224.021

%

(1927725740

)

Profit after taxation 6097442822


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Pro forma balance sheet (% of Sales Method)

As at December 31, 2012

Fixed Asset 1,306,249,830

Current Asset 2,184,862,501

Total Asset 3,491,112,331

Equity and Liabilities:

Share capital 152,183,000

Revaluation reserve (3986114829*0 .6305%) 25,132,454

General reserve 7,780,301,238

Total Equity 7,957,616,692

Total non-current liabilities 344,977,000

Total Current Liabilities 540,532,126

Total liabilities 885,509,126

Proposed Dividend (5,352,013,487)

Total equity and liabilities 3,491,112,331


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Pro - Forma Income statement BOC Bangladesh Limited

For the year ended Dec 31, 2012

2011

Revenue (3470493237

(1.148573)

3986114829

Cost of turnover 398611482958% 2311946601

Gross Profit 1674168228

Operating Expenses:

Operating Expenses 398611482916.26% 648142271.

2

Operating profit 1026025957

Profit before other income 17602000

Interest income 63951000

Profit before taxation 1107578957

Taxation 110757895724.021%

266051541

Profit after taxation 8415274157


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Liquidity

Ratio

2006 2007 2008 2009 2010 Industry

Average

(2010)Current Ratio 2.652

times

3.581

times

3.47 times 3.86 times 3.80 times 4.0788

times

Acid Test

Ratio

1.54 times 2.20 times 1.918

times

3.21 times 3.02 times 3.36036

times

Net Working

capital

ratio

476515

TK

719857

TK

859097

TK

1228261

TK

1292137

TK

4596716639

TK

Cash

Conversio

n Cycle

87 days 122 days 130 days 72 days 82 days 108 day

Asset

Manage

ment

Ratio

Inventory

Turnover

4.852

times


times

4.42058 times

Total Asset

Turnover

1.27 times .996 times 1.149

times

1.06 times 1.1418

times

0.75948 times

Fixed Asset

Turnover

2.168

times

1.99 times 2.585

times

2.95 times 3.0518

times

6.32456 times

Daily Sales

Outstanding

22 days 21 day 21 day 21 day 23 day 40.968

day

Average

Payment

Period

10 days 7 days 10 days 11 days 12days 42.054 day


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Debt M

Ratio

Debt Ratio 32.560% 30.50% 30.50% 28.90% 28.78% 23.78%

Time Interest

Earned

74.113

times

164.884

times

428 times 625.98

times

589.88

times

200.38 times

Profitability

Ratio

Gross Profit

Margin

33.945% 34.41% 33.39% 40.46% 41.49% 30.04%

Operating

Profit Margin

13.786% 16.76% 16.85% 22.05% 25.68% 21.60%

Net Profit

Margin

10.439% 13.18% 14.38% 22.24% 20.88% 19.00%

Return on

Asset

13.288% 13.14% 16.53% 23.58% 23.84% 11.46%

Return on

Equity

19.704% 18.91% 23.78% 33.17% 33.48% 19.19%

Stock Market

RatioEPS TK 16.18/

share

Tk 17.32/

share

Tk 23.61/

share

Tk 40.08/

share

Tk 43.90/

share

Tk 32.706/

Share

P/E Ratio 7.3609 18.5334 11.2579 11.9338 15.769 35.85

Market to

Book value

ratio

1.4502

times

3.50359

times

2.6771

times

4.030

times

5.2795

times

5.548

times

DU Pont Equation ROA Net Profit Margin Total Asset Turnover

2006 13.26% 10.44% 1.27

2007 13.13% 13.18% 0.996

2008 16.54 14.38% 1.15

2009 23.57% 22.24% 1.06


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DU Pont Equation ROE Net Profit Margin Total Asset Turnover Equity Multiplier

2006 19.70% 10.44% 1.27 1.482007 18.91% 13.18% 0.996 1.44

2008 23.78% 14.38% 1.15 1.44

2009 33.17% 22.24% 1.06 1.41

2010 33.48% 20.88% 1.14 1.40

FINANCIAL ANALYSIS

1. Liquidity Ratios:

Liquidity ratios attempt to measure a company's ability to pay off its short-term debt obligations.

The analysis of these ratios is done by comparing a company's most liquid assets (those easily

convertible to cash) to its short-term liabilities.

The greater the coverage of liquid assets to short-term liabilities the better as it is for that

company as it can pay its debts that are coming due in the near future and still fund its ongoing

operations. On the other hand, a company with a low coverage rate will have difficulty meeting

running its operations, as well as meeting its obligations.

The biggest difference between each ratio is the type of assets used in the calculation. Whileeach ratio includes current assets, the more conservative ratios will exclude some current assets

as they aren't as easily converted to cash.

Liquidity

Ratio

2006 2007 2008 2009 2010 Industry

Average

(2010)

Current

Ratio

2.652

times

3.581

times


timesAcid Test

Ratio

1.54 times 2.20 times 1.918

times

3.21 times 3.02 times 3.36036

times

Net

Workin

476515

TK

719857

TK

859097

TK

1228261

TK

1292137

TK

4596716639

TK

2010 23.80% 20.88% 1.14


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g

capital

ratio

Cash

Conver

sion

Cycle

87 days 122 days 130 days 72 days 82 days 108 day

a. Current Ratio:

The current 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.

It measures the number of dollars of current assets for each dollar of current liabilities.

0

0.5

1

1.5

2

2.5

3

3.5

44.5

2006 2007 2008 2009 2010

t

i

m

e

s

year

current ratio

Industry Average


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Interpretation:

In 2010, BOC current assets were 3.80 times higher than their current liabilities.

Though this particular ratio gradually increased from the initial year 2006 to 2010, the

performance is not satisfactory.

This ratio has a industry average of 4.07 times which is quite above the BOC current

ratio. So it is need to be fixed.

In 2007, current assets increased by a huge margin and current liability decreased

compared to 2006. In 2008 Proportionate increase in current liability was more than

current assets compared to last year. Proportionate increase in current asset in 2009 was

more than current liability and the complete opposite happened in 2010 whereproportionate increase in current liability was more than current assets.

BOC should increase its current assets or decrease current liabilities to increase this

particular ratio.

b. Quick (Acid Test) Ratio:

The quick ratio or the acid-test ratio is a liquidity indicator that further refines the current ratioby measuring the amount of the most liquid current assets there are to cover current liabilities.

The quick ratio excludes inventory and other current assets, which are more difficult to turn into

cash.

9.704

3.8

2.08

3.64

1.17

4.078

0

2

4

6

8

10

12

Summit Power BOC MJL DESCO Khulna Power IndustryAverage

current ratio


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Interpretation:

In 2010 the current assets excluding inventories were 3.02 times higher than current

liabilities.

0.000

0.500

1.000

1.500

2.000

2.500

3.000

3.500

4.000

2006 2007 2008 2009 2010

TI

M

E

S

year

Acid test

Industry Average

8.786

3.02

1.48

2.6598

0.856

3.36036

0

1

2

34

5

6

7

8

9

10


Acid test


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It is slightly below the industry average which is unfavorable for the company.

Though this particular ratio slightly increased in 2009, but it decreased in the 2010.

In 2010 relative increase in inventory and current liabilities was more than increase in

current assets as a result the ratio decreased.

The company should start adjusting its current liabilities and inventories to increase its

quick ratio.

c. Net working capital ratio:

The working capital is used to calculate exactly what amount of capital is working in market. It

is derived by deducting current liabilities from current assets.

$-

$1,000,000,000.0

$2,000,000,000.0

$3,000,000,000.0

$4,000,000,000.0

$5,000,000,000.0

$6,000,000,000.0

2006 2007 2008 2009 2010

A

m

o

n

u

t

Year

Working capital

Industry Average


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Interpretation:

In 2010, BOCs net working capital was 46.11% of total assets.

In 2007 it decreased by a huge amount but it overcame in 2008 and remained nearly same

in the following year.

It is quite below the industry average which is not good for the company.

d. Cash Conversion Cycle:

We use cash to invest in assets. Those assets eventually generates revenue, thus in this way the

original cash we invested comes back to us in the form of revenue. Cash conversion cycle is the

number of days it takes to get back the initial investment the company made.

21267269811292137000

7869377944

12545059356

441126777

4854885612

0

2E+09

4E+09

6E+09

8E+09

1E+10

1.2E+10

1.4E+10


working capital


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Interpretation:

In 2010 on average BOC inventory remained at its level for nearly 83 days before it was

sold and it took 82 days which means a little time of a day to get back the initial

investment that was made.

This is hugely favorable for the company.

0

20

40

60

80

100

120

140

2006 2007 2008 2009 2010

D

A

Y

S

YEAR

Cash Conversion Cycle

Industry Average

116

82

144

190

8

108

0

20

40

6080

100

120

140

160

180

200


Cash Conversion Cycle


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2. Asset Management Ratios:

Asset management ratios measure profitability that is affected by the way that the assets of a

business are used. These ratios which are also known as efficiency ratios help us to overcome

these problems of in efficient use of assets. The ratios are used to ensure that production targets

are met efficiently.

Asset

Manage

ment

Ratio

2006 2007 2008 2009 2010 Industry

Averag

e

(2010)

Inventory

Turnover

4.852 times 3.39 times 3.07 times 5.85 times 5.138 times 4.42058

times

Total Asset

Turnover

1.27 times .996 times 1.149 times 1.06 times 1.1418

times

0.75948

times

Fixed Asset

Turnover

2.168 times 1.99 times 2.585 times 2.95 times 3.0518

times

6.32456

times

Daily Sales

Outstand

ing

22 days 21 day 21 day 21 day 23 day 40.968

day

Average

Payment

Period

10 days 7 days 10 days 11 days 12days 42.054 day

e. Inventory Turnover Ratio:

The ratio is regarded as a test of Efficiency and indicates the rapidity with which the company is

able to move its merchandise.


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Interpretation:

In the year 2010, the company sold out and restocked its inventory 5.138 times.

This particular ratio is above the industry average which is quite good for the company.

Though it is decreasing from 2006 to 2008 but got increased in a great amount in the year

2009.

0

1

2

3

4

5

6

7

2006 2007 2008 2009 2010

T

I

ME

S

YEAR

Inventory Turnover Ratio

Industry Average

3.45

5.138

2.79

1.8529

8.872

4.42058

01

2

3

4

5

6

7

8

9

10


inventory turnover


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The ratio got slightly decreased in the 2010 so the company needs to be more focus for the

near future.

f. Total Asset Turnover Ratio:

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

used.

0

0.2

0.4

0.60.8

1

1.2

1.4

2006 2007 2008 2009 2010

T

IM

E

S

YEAR

Total Asset Turnover Ratio

Industry Average

0.2113

1.1418

0.76

0.4143

1.27

0.75948

0

0.2

0.4

0.6

0.8

1

1.2

1.4


Total Asset Turnover Ratio


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Interpretation:

In 2010 every 1 taka worth fixed asset was generated by 3.0518 taka worth of sales.

This ratio got decreased from the year 2006 to 2007 but increased from 2007 to 2010.

Comparing to its industry average it is quite unfavorable. It is far below the industry average.

So the ratio needs to be fixed.

In 2007, it decreased due to decrease in sales and also increases in fixed asset. But it

increased in the rest of the years due to a greater portion of increase in sales than fixed asset.

Average Collection Period (Days Sales Outstanding/DSO):

The Days Sales Outstanding ratio shows both the average time it takes to turn the receivables

into cash and the age, in terms of days, of a company's accounts receivable. This ratio is of

particular importance to credit and collection associates.

0.3043.0518 2.58 1.23

24.457

6.32456

0

5

10

15

20

25

30


Fixed Asset Turover Ratio


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0

5

10

15

20

25

30

35

40

45

2006 2007 2008 2009 2010

D

A

Y

S

YEAR

Average Collection Period

Industry Average

3023

16.84

80

55

40.986

0

10

20

30

40

50

60

70

80

90


Average Collection Period


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Interpretation:

In 2010, on an average BOC took 23 day to collect its account receivables from its

customers.

Its quite impossible to measure the well being of a company only by measuring days sales

turnover. We also need to analyze the Average payment period which is on an average how

much days needed to pay of the creditors.

h. Average Payment Period (APP):

Average payment period determines on an average how much time are needed to pay back the

creditors of the company.

0

5

10

15

20

25

30

35

40

45

2006 2007 2008 2009 2010

D

A

YS

YEAR

Average Payment PeriodIndustry Average


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Interpretation:

On an average it took 12 days for Reckitt to clear its accounts payable to its creditors.

We can see from these two ratios that BOC has to pay their creditors before collecting

money from customer. So the condition is not favorable for the company. To improve

their performance BOC has to collect their money as quickly as possible.

3. Debt Management Ratios:

The third series of ratios in this tutorial are debt ratios. These ratios give users a general idea of

the company's overall debt load as well as its mix of equity and debt. Debt ratios can be used to

determine the overall level of financial risk a company and its shareholders face. In general, the

greater the amount of debt held by a company the greater the financial risk of bankruptcy.

While it is not mandatory in understanding the individual debt ratios, it will give some

background information on the debt of a company. The ratios covered in this section include the

debt to asset ratio, which is gives a general idea of a company's financial leverage as does the

debt-to-equity ratio. While the interest coverage ratio show how well a company can meet its

obligations.

2012

3.27

87 88

42.058

0

10

20

30

40

50

60

70

80

90

100


Average Payment Period


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a. Debt ratio:

Debt ratio is the ratio of total asset to total debt which measures the percentage of funds which

provided by the creditors.

Debt

Manage

ment

Ratio

2006 2007 2008 2009 2010 Industry

Averag

e

(2010)

Debt Ratio 32.560% 30.50% 30.50% 28.90% 28.78% 23.78%Time

Interest

Earned

74.113

times

164.884

times

428 times 625.98

times

589.88

times

200.38

times

0.000%

5.000%

10.000%

15.000%

20.000%

25.000%

30.000%

35.000%

2006 2007 2008 2009 2010

%

YEAR

Debt Ratio

Industry Average


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Interpretation:

In the year 2010, BOC 28.78% % of total asset were financed by the debt.

For every 1 taka of total assets nearly 0.29 taka is financed by total debt.

The debt ratio for BOC was slightly decreasing in last two years which is very favorable

for the company because lower the debt ratio, the higher the cushion against creditors

losses in the event of bankruptcy.

b. Time 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.

2.61%

28.78%

36.12%

48.25%

3.15%

23.78%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%


Debt Ratio


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Interpretation:

In 2010 BOCs EBIT was 589.88 higher than interest expense. The ratio is far above the industry average so the company is in a good shape.

The ratio got increased from 2006 to 2009. But it got decreased in the year 2010.

0

100

200

300

400

500

600

700

2006 2007 2008 2009 2010

T

IM

E

S

YEAR

Times Interest Earned

Industry Average

4.32

589.88

6.94

200.38

0

100

200

300

400

500

600

700


Times Interest Earned


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The proportionate increase in EBIT was higher than the interest expense so the company

was going well .But the ratio got suddenly decreased in the year 2010. So the company

should have a look into this fact.

4. Profitability Ratios:

Profitability ratios distinguish the different measures of corporate profitability and financial

performance. The long-term profitability of a company is vital for both the survivability of the

company as well as the benefit received by shareholders. It is these ratios that can give insight

into the all important "profit".

Profitability is the net result of a number of policies and decisions. Profitability ratios show the

combined effects of liquidity, asset management, and debt on operating results.

Profitability

Ratio

2006 2007 2008 2009 2010 ndustry

Average

(2010)

Gross Profit

Margin

33.945% 34.41% 33.39% 40.46% 41.49% 30.04%

Operating

Profit Margin

13.786% 16.76% 16.85% 22.05% 25.68% 21.60%

Net Profit

Margin

10.439% 13.18% 14.38% 22.24% 20.88% 19.00%

Return on

Asset

13.288% 13.14% 16.53% 23.58% 23.84% 11.46%

Return onEquity

19.704% 18.91% 23.78% 33.17% 33.48% 19.19%


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a. Gross Profit Margin:

A company's cost of sales, or cost of goods sold, represents the expense related to labor, raw

materials and manufacturing overhead involved in its production process. Thus 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.

0.000%

5.000%

10.000%

15.000%

20.000%

25.000%30.000%

35.000%

40.000%

45.000%

2006 2007 2008 2009 2010

%

YEAR

Gross Profit Margin

Industry Average


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Interpretation:

In the year 2010, for every 100 taka sale BOC received 41.49%taka.

BOC gross profit was increasing efficiently every year except the year 2008.

BOC gross profit was increasing every year with a greater proportion compared to sales.

That is the reason behind its increasing of this ratio.

Comparing with industry average it is quite good . So it can be said that the company is

in a good track.

b. Operating Profit Margin:

The operating profit margin ratio indicates how much profit a company makes after paying forvariable costs of production such as wages, raw materials, etc. It is expressed as a percentage of

sales and shows the efficiency of a company controlling the costs and expenses associated with

business operations. Phrased more simply, it is the return achieved from standard operations and

does not include unique or one time transactions.

52.89%

41.94%

24.67%21.58%

9.10%

30.04%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%


Gross Profit Margin


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33

0.000%

5.000%

10.000%

15.000%

20.000%

25.000%

30.000%

2006 2007 2008 2009 2010

%

YEAR

Operating Profit Margin

Industry Average

42.25%

25.68%

17.72%14.19%

8.17%

21.60%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

45.00%


Operating Profit Margin


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Interpretation:

In 2010, for every 100 taka sale BOC received 25.68 taka.

This particular ratio is increasing every year .

It is quite above the industry average which is favorable for the company.

Net Profit Margin:

Investors or any stakeholders of a company can easily see from a complete profit margin analysis

that there are several income and expenditure 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.

0.000%

5.000%

10.000%

15.000%

20.000%

25.000%

2006 2007 2008 2009 2010

%

YEAR

Net Profit Margin

Industry Average


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Interpretation:

In the year 2010, BOC made a net profit margin of 20.88% which means for every 100

taka sale Reckitt has made a net profit of 20.88 taka.

The ratio kept going up from year 2006 to 2009.But the ratio got decreased in 20010.

The ratio is quite favorable for the company as it is above the industry average.

Because of the decrease in interest and rising net income of every year this particular ratio

has increased every year excepting the year 2010.

The company should have a look into it as it goes down.

c. Return on asset:

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.

37.51%

20.88%

13.21%

16.55%

6.85%

19%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%


Net Profit Margin


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Interpretation:

In 2010, every 100 taka worth of asset of BOC was generating 23.84 taka of net income.

This ratio got slightly decreased from the initial year to 2007 but then hugely increased in

2009. But in 2010 it again decreased.

0.000%

5.000%

10.000%

15.000%

20.000%

25.000%

30.000%

2006 2007 2008 2009 2010

%

YEAR

Return On Asset

Industry Average

7.93%

23.84%

10%

6.85%8.67%

11.46%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%


Return On Asset


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This particular ratio is nearly double of industry average which is very favorable for the

company.

Due to greater portion of increase in total asset than net income this ratio got decreased in

2007. In 2009, both net income and total asset increased by a huge amount but net income

increased by a greater portion which is reason behind increment. Then in 2010, the

proportionate in net income was less than the proportionate increase in total asset .So the

ratio got decreased.

d. Return on Equity:

This particular ratio completely belongs to the shareholders of the company. It measures how

much return the shareholder will get on their investment. It also measures the amount of Net

Income earned by utilizing each dollar of Total common equity. It is the most important of the

Bottom line ratio. By this, we can find out how much the shareholders are going to get for their

shares.

0.000%

5.000%

10.000%

15.000%

20.000%

25.000%

30.000%

35.000%

40.000%

2006 2007 2008 2009 2010

%

YEAR

Return On Equity

Industry Average


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Interpretation:

In the year 2010, shareholders of BOC earned 33.48 taka for every 100 taka investment

in the company.

The ratio got decreased in the year 2007. Its huge increment year in 2009. In 2010, the

ratio increased from the previous year.

This ratio is nearly 2 times above than the industry average which means it gives its

shareholders 2 times more profit than its competitors industry.

As the ROE is quite favorable for the company, we can say that the company is doing a

great job in profitability ratio.

8.41%

33.48%

15.63%

20.42%18.02% 19.19%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%


Return On Equity


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5. Stock Market Ratios:

Stock Market ratios attempt to simplify the evaluation process by comparing relevant data that

help users gain an estimate of valuation. When looking at the financial statements of a company,

many users can suffer from information overload as there are so many different financial values.

Stock Market ratios help to evaluate easily.

For example, the most well-known investment valuation ratio is the P/E ratio, which compares

the current price of company's shares to the amount of earnings it generates. The purpose of this

ratio is to give users a quick idea of how much they are paying for each 1 taka of earnings. And

with one simplified ratio, you can easily compare the P/E ratio of one company to its competition

and to the market.

Stock

Market

Ratio

2006 2007 2008 2009 2010 Industry

Average

(2010)

EPS Tk 16.18/

share

Tk 17.32/

share

Tk 23.61/

share

Tk 40.08/

share

Tk 43.90/

share

Tk 32.706/

Share

P/E Ratio 7.3609 18.5334 11.2579 11.9338 15.769 35.85

Market to

Book value

ratio

1.4502

times

3.50359

times

2.6771

times

4.030

times

5.2795

times

5.548

times

a. Earnings Per Share:

The portion of a company's profit allocated to each outstanding share of common stock. Earnings

per share serve as an indicator of a company's profitability. The earnings per share is a good

measure of profitability and when compared with EPS of similar companies, it gives a view of

the comparative earnings or earnings power of the firm. EPS ratio calculated for a number of

years indicates whether or not the earning power of the company has increased.


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Interpretation:

In the year 2010, the common shareholders of BOC earned 43.90 taka for every share

they hold.

Earnings per share of BOC have gradually increased from 2006 to 2010. It got a huge

increment in 2009.

This is much above the industry average which means investors are earning more per

share than the competitor industrys investors.

The reason behind their success is their growing net income.

05

101520253035404550

2006 2007 2008 2009 2010

P

E

R

S

HA

R

E

YEAR

Earning Per Share

Industry Average

2.06

43.9

3.62

111.68

2.27

32.706

0

20

40

60

80100

120


Earning Per Share


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Market to book value (M/B) 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. The market to book value is quite

important. If the stock goes bankrupt, the shareholders might receive most of their investment

back or not at all depending on the specific ratio. Furthermore, value investing is based on the

concept of high intrinsic value of a stock. The price to value can give one a helping hand when

screening stocks with high value compared to its selling price.

0

1

2

3

4

5

6

2006 2007 2008 2009 2010

T

I

M

E

S

YEAR

Market to Book Value

Industry Average


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Interpretation:

In the year 2010, market price per share was 5.28 times higher than the book value per

share.

This particular ratio increased in 2007 but decreased in 2008. It kept on increasing for

2009 and 2010.

It is slightly below the industry average so the condition is not favorable for the company.

From 2006 to 2007 the market price increased a lot and book value got decreased. This is

the reason behind the increment in 2007. Then in 2008, the market price increased but

book value increased by a greater portion. In 2009 and 2010 the market price increased

more than book value.

.

5.473 5.2795

4.31173.713

8.963

5.548

0

1

2

3

4

5

6

7

8

9

10


Market to Book Value


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43

b. Price earnings 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. The price-to-earnings ratio is a financial ratio

used for valuation: a higher P/E ratio means that investors are paying more for each unit of net

income, so the stock is more expensive compared to one with a lower P/E ratio. The P/E ratio

also shows current investor demand for a company share.

This particular ratio has no unit. It should be near the industry average. Very low and high P/E

ratio is unfavorable for the company.

0

5

10

15

20

25

30

35

40

2006 2007 2008 2009 2010

YEAR

P/E Ratio

Industry Average

68.0097

15.769

27.596618.1858

49.692

35.85

0

1020

30

40

50

60

70

80


P/E Ratio


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44

Interpretation:

In the year 2010, BOCs shareholders were willing to pay 15.769 taka for every 1 taka of

reported earnings.

It is very much below the industry average which is unfavorable for the company.

Du Pont Equation:

DU Pont Equation ROA Net Profit Margin Total Asset Turnover

2006 13.26% 10.44% 1.27

2007 13.13% 13.18% 0.996

2008 16.54 14.38% 1.15

2009 23.57% 22.24% 1.06

2010 23.80% 20.88% 1.14


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Interpretation:

In 2010 every 100 taka of asset generated 10.44 taka of net profit. Thus the ROA

of13.26% % comprised of10.44 % in Net Profit Margin and 1.27times Total Asset

Turnover.

The ROA increased on a more or less steady range from 2008 to 2010. The only

exception to the steadiness being the ROA of 2007 which was 13.13%. The main reason

for the steady increase was due to the gradual increase in Net Profit Margin. The huge

increase in 2009 was due to the great increase net profit margin from 14.38% to

22.24%.The only exception in 2007 where Net Profit Margin increased slightly but

Total Asset Turnover fell in a great amount.

ROA of 2010 was more than that of 2009. This occurred as total asset turnover increased

from 1.06 to 1.14. Although, the net profit margin decreased 22.24% to 20.88% the total

asset turnover increased .The increase in total asset turnover was more significant than

the reduction in net profit margin in this case.

Extended Du Pont Equation:


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46

DU Pont Equation ROE Net Profit Margin Total Asset

Turnover

Equity

Multiplier

2006 19.70% 10.44% 1.27 1.48

2007 18.91% 13.18% 0.996 1.44

2008 23.78% 14.38% 1.15 1.44

2009 33.17% 22.24% 1.06 1.41

2010 33.48% 20.88% 1.14 1.40

Interpretation:

In 2010 shareholders earned 33.48 taka for every 100 taka invested. This comprised of

10.44% of Net Profit margin, 1.14times of Total Asset Turnover and 1.40 times Equity

Multiplier.

The ROE increased on a gradual basis from 19.70% in 2006 to 33.48% in 2010, the only

exception being 18.91% in 2007.Without considering the 2007 ROE, the main reason forthe rise from 2008 to 2009 was the increase in Net profit margin from 23.78 to 33.17% .

The exception was 2007 was as the total asset turnover and equity multiplier decreased in

2007.

ROE of 2010 was slightly above that of 2009. The main reason for this was the increase

in Total Asset Turnover and from 2009 to 2010 the influence of which was greater than

the fall in Net Profit margin which decreased from 2009 to 2010.


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47

BOC BANGLADESH Date Closing PriceMonthly Return

% General indexMonthly

Return %2010

January 03-01-2010 506.2 13.10% 4,568.4017.483

31-01-2010 572.50 5,367.10

February 01-02-2010 569.7 2.76% 5,451.15

2.0007028-02-2010 585.4 5,560.56

March 01-03-2010 582.5 -11.16% 5,567.40

(0.1311204)28-03-2010 517.5 5,560.10

April 01-04-2010 515.8 4.83% 5,594.321.08252

29-04-2010 540.7 5,654.88

May 02-05-2010 539.4 11.98% 5,631.308.46180

31-05-2010 604.00 6,107.81

June 01-06-2010 621.00 4.10% 6,152.39

0.009930-06-2010 647.00 6,153.68

July 04-07-2010 656.00 19.36% 6,217.08

2.02152729-07-2010 783.70 6,342.76

August 01-08-2010 781.20 -5.61% 6,436.773.436506

31-08-2010 737.00 6,657.97

September 02-09-2010 740.00 6.86% 6,774.87

4.76038630-09-2010 791.70 7,097.38

October 03-10-2010 816.20 1.43% 7,223.49

10.1617431-10-2010 827.90 7,957.12

November 01-11-2010 826.40 -2.94% 7,947.80

8.2467430-11-2010 802.10 8,602.44

December 01-12-2010 795.60 -12.98% 8,723.18(4.96114)

30-12-2010 662.30 8,290.41

BOC BANGLADESH Date Closing Price

Monthly Return%

General index

MonthlyReturn %


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2009

January 01-01-2009 268.10 -1.98% 2,807.61

(5.63183)

29-01-2009 262.80 2,649.49

February 01-02-2009 265.90 5.11% 2,661.69(3.4109)

26-02-2009 279.50 2,570.96

March 01-03-2009 285.60 -8.05% 2,626.27(6.8291)

31-03-2009 262.60 2,446.92

April 01-04-2009 261.50 -6.85% 2,443.254.5576

30-04-2009 243.60 2,554.36

May 03-05-2009 241.50 3.27% 2,539.17

1.3031-05-2009 249.60 2,572.18

June 01-06-2009 249.00 18.27% 2,597.0015.91297

30-06-2009 294.50 3,010.26

July 02-07-2009 292.30 16.01% 3,069.71

(5.0620)30-07-2009 339.10 2,914.53

August 02-08-2009 348.20 6.23% 2,941.02

0.0088431-08-2009 369.90 2,941.28

September 01-09-2009 368.70 6.13% 2,950.124.53439

30-09-2009 391.30 3,083.89

October 01-10-2009 411.70 4.71% 3,123.24

7.7395529-10-2009 431.30 3,364.26

November 01-11-2009 436.50 -4.19% 3,392.02

29.1546026-11-2009 418.20 4,380.95

December 01-12-2009 419.60 16.04% 4,424.022.520558

30-12-2009 486.90 4,535.53


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BOCBANGLADESH Date

ClosingPrice

MonthlyReturn %

Generalindex

MonthlyReturn %

2008

January 01/01/ 2008 322.8 -14.78% 3,008.91(3.3812)

31/01/ 2008 231.20 2,907.17

February 03/02/ 2008 276.20 -3.33% 2,890.251.4230

28/02/ 2008 267.00 2,931.38

March 02/03/ 2008 254.30 -5.56% 2,916.203.4440

31/03/ 2008 241.00 3,016.49

April 01/04/ 2008 240.90 4.57% 3,025.571.56268

30/04/ 2008 251.40 3,072.85

May 04/05/ 2008 249.40 11.43% 3,101.942.1343

29/05/ 2008 277.90 3,167.99June 01/06/ 2008 301.80 18.42% 3,207.89

(6.46499)30/06/ 2008 246.20 3,000.50

July 02/07/ 2008 244.20 37.80% 3,029.24(8.53376)

31/07/ 2008 336.50 2,761.05

August 03/08/ 2008 309.90 -6.68% 2,689.94

2.8074928/08/ 2008 289.20 2,765.46

September 01/09/ 2008 298.00 4.80% 2,820.795.17690

25/09/ 2008 312.30 2,966.82

October 05/10/ 2008 309.80 -13.04% 3,001.37 (8.421820)


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30/10/ 2008 269.40 2,748.60

November 02/11/ 2008 266.00 -11.09% 2,684.69(8.03704)

30/11/ 2008 236.50 2,468.92

December 01/12/ 2008 237.40 11.96% 2,517.0511.0519

30/12/ 2008 265.80 2,795.34

BOCBANGLADESH Date

ClosingPrice

MonthlyReturn %

Generalindex

MonthlyReturn %

2007

January 04-01-2007 116.40 3.61% 1589.41 14.0257831-01-2007 120.60 1805.12

February 05-02-2007 120.00 13.17% 1,883.62

(1.91833)28-02-2007 135.80 1,791.54

March 01-03-2007 134.00 -5.97% 1,794.02(1.8472)

29-03-2007 126.00 1,760.88

April 02-04-2007 124.60 -2.01% 1,737.360.3436

30-04-2007 122.10 1,743.33

May 03-05-2007 122.70 -0.81% 1,762.3613.68732

31-05-2007 121.70 2,003.58

June 03-06-2007 124.80 2.88% 2,007.057.08670

28-06-2007 128.40 2,149.32

July 02-07-2007 129.70 29.22% 2,190.468.84380

31-07-2007 167.60 2,384.18

August 01-08-2007 166.10 6.56% 2,394.11 2.54708


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29-08-2007 177.00 2,455.09

September 03-09-2007 183.20 16.79% 2,540.971.262357

30-09-2007 205.90 2548.49

October 01-10-2007 207.30 4.05% 2,627.028.51577

31-10-2007 215.70 2,850.81

November 01-11-2007 218.90 37.50% 2,836.324.7522840

29-11-2007 301.00 2,971.11

December 02-12-2007 290.40 10.54% 2,878.744.81009

30-12-2007 321.00 3,017.21

BOCBANGLADESH Date

ClosingPrice

MonthlyReturn %

Generalindex

MonthlyReturn %

2006January 01-01-2006 107.90 -4.82% 1669.80

(1.5849)30-01-2006 102.70 1656.27

February 01-02-2006 103.60 -9.07% 1649.64(7.1658)

28-02-2006 94.20 1531.43

March 05-03-2006 97.90 4.39% 1543.88(4.0490)

30-03-2006 102.20 1491.77

April 02-04-2006 102.20 -5.77% 1478.47 (7.93271)30-04-2006 96.30 1361.27

May 02-05-2006 93.10 3.33% 1355.16(0.008855)

31-05-2006 96.20 1355.04

June 01-06-2006 96.10 3.23% 1349.75


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29-06-2006 99.20 1339.525(0.75754)

July 02-07-2006 98.80 9.92% 1,341.254.8879

31-07-2006 108.60 1,406.81

August 01-08-2006 110.60 11.03% 1,426.6511.24522

31-08-2006 122.80 1,587.08

September 03-09-2006 124.90 -8.25% 1,588.24(1.61877)

28-09-2006 114.60 1562.53

October 01-10-2006 115.00 -1.65% 1,551.88(0.6592)

31-10-2006 113.10 1,541.65

November 01-11-2006 112.90 4.61% 1,533.20(0.385476)

30-11-2006 118.10 1,527.29

December 03-12-2006 117.20 1.62% 1,544.174.2313

27-12-2006 119.10 1610.67


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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%

C.V. 2.7931


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54

y = 0.3998x + 0.0246R = 0.062

-30.00%

-20.00%

-10.00%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

-15.0000%-10.0000%-5.0000%0.0000%5.0000%10.0000%15.0000%20.0000%25.0000%30.0000%35.0000%

A x i s

T i t

l e

Axis Title

Chart Title

Series1

Linear (Series1)


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55

SUMMARYOUTPUT

Regression StatisticsMultiple R 0.248993R Square 0.061997AdjustedR Square 0.045825StandardError 0.11115Observations 60

ANOVA

df SS MS F Significan

ce F Regression 1 0.04736

0.04736

3.833518 0.055054

Residual 580.71654

70.0123

54

Total 590.76390

8

Coefficients

Standar d Error t Stat P-value

Lower 95%

Upper 95%

Lower 95.0%

Upper 95.0%

Intercept 0.024553 0.015256 1.609411 0.112956 -0.00599 0.055091

-

0.00599 0.055091

X Variable1 0.399845

0.204218

1.957937

0.055054 -0.00894

0.808631

-0.0089

40.8086

31

RESIDUAL OUTPUT

Observation

Predicted Y

Residuals

1 0.018216-

0.066422 -0.0041 -0.0866

3 0.0083630.03553

74 -0.00714 -


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56

0.05056

5 0.0245890.00871

1

6 0.0215240.01077

6

7 0.044097 0.055103

8 0.0695170.04078

3

9 0.018081-

0.10058

10 0.021917-

0.03842

11 0.0230120.02308

8

12 0.041472

-

0.0252713 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

522 0.058615 -0.0181

23 0.0435550.33144

5

24 0.043786 0.06158525 0.011034 -0.1588

26 0.030243-

0.06355

27 0.038304-

0.0939528 0.030801 0.01486


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57

1

29 0.0330670.08120

7

30 -0.0013-

0.18293

31 -0.00957 0.38753832 0.039606 -0.1064

33 0.0452530.00273

3

34 -0.00912-

0.12128

35 -0.00758-

0.10332

36 0.0687610.05086

8

37 0.002035 -0.0218

38 0.0109220.04022

5

39 -0.00275-

0.07778

40 0.042737-

0.11119

41 0.0297510.00296

142 0.08818 0.09455

43 0.00434

0.15576

9

44 0.0245880.03773

2

45 0.0426840.01861

3

46 0.055477-

0.00836

47 0.141126-

0.18305

48 0.0346310.12575

9

49 0.094458 0.036518

50 0.032578-

0.00502

51 0.035276-

0.14686

52 0.0288820.01939

3


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58

53 0.0583870.06137

5

54 0.0245930.01643

7

55 0.032636

0.16093

756 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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59

BOC 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 BOCs standard deviation and C.V. both are higher than Market so total

risk of BOC is higher.

CAPM = R f + (R m-R f )

= 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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60

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%. Sowe 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 18.711taka among the two values. Which means share price is overvalued.


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61

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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62

Weighted Average Cost of Capital (WACC)

Capital Structure = 28.78% Debt & 71.22% Equity

Cost of Debt =Kd = .1727%

Cost of Common Equity = K CS =17.848%

Cost of retained earnings = K RE =17.848%

Weight of debt =Wd = 28.78%

Weight of Common Equity = W CS = 6.154%

Weight of Retained Earnings = W RE = 65.066%

WACC

= WL*KL*(1-Tax rate)+W B*KB(1Taxrate)+W PS*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 = K CS =17.848%

Cost of retained earnings = K RE =17.848%

Weight of debt =Wd = 6.117%

Weight of Common Equity = W CS = 80.056%Weight of Retained Earnings = W RE = 13.827

= WL*KL*(1-Tax rate)+W B*KB(1-Taxrate)+W PS*KPS+WCS*KCS+WRE*KRE

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

=16.76%


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63

Optimum Capital Structure

Value of the firm =

=

= 3022349.391

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

WACC

= WL*KL*(1-Tax rate) +W B*KB (1Taxrate) +(W PS*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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64


WACC

= WL*KL*(1-Tax rate) +W B*KB (1Taxrate) + (W PS*KPS+ (W CS*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 %

Value of the firm =

=

= 4797651.1638


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65


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 averagecost of capital will decline. .


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66

Dividend Policy

BOC 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

Keeping this in mind BOC 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.


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67

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

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 %


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68

4. Ratio Calculation :


RATIO CALCULATION

2006

Current Ratio 764942/288427

2.652times

Acid TestRatio

764942-321087/288

427

1.54times

WorkingCapital

764942-288427

476515tk

CashConversionCycle

75+22-10 87 days

InventoryTurnoverRatio

1558198/321087

4.852times

Total AssetTurnover 2358955/1853115

1.97times

Fixed AssetTurnover

2358955/1088173

2.168times

AverageCollectionPeriod

142759/2358955/365

22 days

AveragePaymentPeriod

41651/1558198/365

10 days

Debt Ratio 609985/1853115*100

32.56%


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69

Times InterestEarned

325212/4388 74.114times

Gross Profit

Margin

800757/2358955*100

33.945 %

OperatingProfitMargin

325212/2358955 *100

13.786 %

Net ProfitMargin

246252/2358955*100

10.439 %

Return OnAsset

246252/1853115*100

13.288 %

OperatingReturn OnAsset

325212/1853115 *100

17.549%

Return OnEquity

246252/1249730*100

19.704%

Earnings PerShare

246252/15218 Tk 16.18/ share

Market ToBook Ratio

P/E Ratio

Book value per share = 82.1218/ share


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70

RATIO CALCULATION

2007


3.581times

Acid TestRatio

998670-386602/278813

2.20times

WorkingCapital

998670-278813

Tk71985

7Cash

ConversionCycle

108+21-7 122 days


1311832/386602

3.39times

Total Asset

Turnover

2000172/2006

219

0.996

timesFixed Asset

Turnover2000172/1007

5491.99

times


115620/2000172/365

21 days

AveragePayment

Period

24298/1311832/365

7 days

Debt Ratio 611941/2006219*100

30.50%


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71


33540/2033 164.88times

Gross Profit

Margin

688340/2000172*100

34.41 %


335263/2000172 *100

16.76 %

Net ProfitMargin

263651/2006219*100

13.18 %

Return OnAsset

263651/2006219*100

13.14 %


335263/2006219 *100

16.71%

Return OnEquity

263651/1394278*100

18.91 %

Earnings PerShare

263651/15218 Tk 17.32/ share

Market ToBook Ratio

times

P/E Ratio

Book value per share = 91.6203 / share


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72

RATIO CALCULATION

2008


3.465times

Acid TestRatio

1207552-541345/348455

1.918times

WorkingCapital

1207552-348455

Tk85909

7Cash

ConversionCycle

119+21-10 130 days


1664294/541345

3.07times

Total AssetTurnover

2498583/2174061

1.149times

Fixed AssetTurnover

2498583/966509

2.585times


142007/2498583/36521 days


45598/1664294/365

10 days

Debt Ratio 663151/21740

61*100

30.50%


421083/982 428 times

Gross ProfitMargin

834289/2498583*100

33.39 %


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73

Book value per share = 99.28440 / share


421083/2498583 *100

16.85 %

Net Profit

Margin

359342/2174061

*100

14.98 %

Return OnAsset

359342/2174061*100

16.53 %


421083/2174061 *100

19.37%

Return OnEquity

359342/1510910*100

23.78 %

Earnings PerShare

359342/15218 Tk 23.61/ share

Market ToBook Ratio

times

P/E Ratio


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74

RATIO CALCULATION

2009

Current Ratio 1,657,380 / 429119 3.86 times Acid Test

Ratio 3.21 times

WorkingCapital

1657380 429119 tk1,228,261

CashConversionCycle

62 + 21 - 11 72 days


1633072 / 278938 5.85 times

Total AssetTurnover

2742817 / 2586011 1.06 times

Fixed AssetTurnover

2742817 / 928631 2.95 times


154409 / (2742817 / 365)

21 days


48950 / (1633072 / 365)

11 days

Debt Ratio 747477 / 2586011 *

100

28.90%


609699 / 966 625.98days


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75

Gross ProfitMargin

1109745 / 2742817* 100

40.46%

Operating

ProfitMargin

604699 / 2742817 *100

22.05%

Net ProfitMargin

609870 / 2742817 *100

22.24%

Return OnAsset

609870 / 2586011* 100

23.58%

OperatingReturn On

Asset

604699 / 2586011* 100

23.38%

Return OnEquity

609870 / / 1838534* 100

33.17%

Earnings PerShare

609870 / 15218 Tk 40.08 / share

Market ToBook Ratio

times

P/E Ratio

Book value per share = 120.8131/ share


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76

RATIO CALCULATION

2010


3.80times

Acid TestRatio

1753636-361478/461

499

3.02times

WorkingCapital

1753636-461499

Tk12921

37Cash

ConversionCycle

-71+23-12 82days


1857531/361478

5.138times

Total AssetTurnover

3199375/2801974

1.1418times

Fixed AssetTurnover

3199375/1048338

3.0518times


200103/3199375/365

23 days


59360/1857531/365 12 days

Debt Ratio 806476/2801974*100

28.78%


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77


82703/1393 589.880times

Gross Profit

Margin

1341844/3199375*100

41.94 %


821703/3199375 *100

25.68 %

Net ProfitMargin

668068/3199375*100

20.88 %

Return OnAsset

668068/2801974*100

23.84 %


821703/2801974 *100

29.33%

Return OnEquity

668068/1995498*100

33.48 %

Earnings PerShare

668068/15218 Tk 43.90/ share

Market ToBook Ratio

times

P/E Ratio

Book value per share = tk 131.1274/ share


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78

Summit Power

RATIOFormula 2010

Current

Ratio

= = 9.704 times

Acid TestRatio

= = 8.786 times

WorkingCapital Ratio

CA - CL = ( -)

= Tk 2126726981

Inventory

Turnover

= 3.45 times

DebtRatio

= = 2.609

TimesInterestEarned

Ratio

= = 4.32 times


TotalAssetTurnover

= 0.2113

times

FixedAsset

Turnover

= 0.304 times

OperatingReturnOnAsset

= 8.9278

AverageCollect

= = 30 days


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79

ionPeriod

ReturnOnEquity

= =8.4103%


= = 20 days

CashConversionCycle

Days in Inventory + DSO APP = 106 + 30 20 = 116 days

ReturnOnAsset

=(616686948*100)/7779846388

= 7.926%

Grossprofitmargin

*100 = = 52.8889%

Net ProfitMargin

*100 = *100 = 37.5148%

Earningspershare

= = tk 2.06/share

Price toearningsratio(P/ERatio):

= = 140.1 / 2.06 =68.0097

Market-to-bookratio

= =5.473 times

DU PONTAnalysisROA = Net Profit Margin Total Asset

Turnover= 37.5148* .2113 = 7.926%

ROE = Net Profit Margin Total AssetTurnover Ratio Equity Multiplier

= 37.5148 * .2113 *1.061

=8.4103%


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80

Desco

RATIO CALCULATION 2010

Current Ratio 17288454805/4743395449 3.64 times

Acid TestRatio

2.6598 times

WorkingCapital

17288454805-4743395449 Tk 12545059356

CashConversionCycle

197 + 80 - 87190 days


8,656,378,087 / 1.8529 times

Total AssetTurnover

10810974226/26093791941 0.4143 times

Fixed AssetTurnover

10810974226/8805337136 1.23 times


80 days


87days

Debt Ratio12,590,540,857 /26093791941

* 100 48.251%


1534280431/221200045 6.94 times


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81

Gross ProfitMargin

2332813327/10810974226*100

21.58 %

Operating

ProfitMargin

1534280431/10810974226* 100

14.19 %

Net ProfitMargin

1788730635/10810974226*100

16.5455 %

Return OnAsset

1788730635/26093791941*100

6.85 %

OperatingReturn On

Asset

1534280431/26093791941*100

5.8799 %

Return OnEquity

1788730635/8759855635*100

20.42 %

Earnings PerShare

1,788,730,635 / 16,017,044 Tk111.68 / share

Market ToBook Ratio

2031.5 / 547.132 3.713 times

P/E Ratio 2031.5 / 111.68 18.1858

DU Pont

16.5455 * 0.4143 6.85%ROA:

ROE 16.5455 * .4143 * 2.9788 20.42%


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82

Khulna Power

RATIO CALCULATION 2010

Current Ratio 3023789428/2582662651 1.17 times

Acid Test Ratio 2209729816/2582662651 0.856 times

Average Collection Period 1185346485/21769213 55 days

Inventory Turnover 7222668468/814059612 8.872 times

Debt Ratio 18000/5719 3.15 times

Operating Profit Margin 648809596/7945762818*100 8.165%

Total Asset Turnover 7945762818/6272735929 1.27 times

Fixed Asset Turnover 7945762818/324896501 24.457 times

Operating Return OnAsset

648809596/6272795929 10.34%


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Average Payment Period 1733222020/19788133 88 days

Cash Conversion Cycle 41+55-88 8 days

Net Profit Margin 544091591/7945762818*100 6.85%

Gross Profit Margin 723094350/7945762818*100 9.1%

Return On Asset 544091591/6272735929*100 8.673%

ROE 544091593/3019023067*100 18.02%

EPS 544091593/239,881,950 Tk 2.27 / share

Market Book ratio 112.8/12.585 8.963 times

P/E Ratio 112.8/2.27 49.692


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MJL Bangladesh Limited

RATIO Formula CALCULATION

2010

CurrentRatio

3597263697/1727

8857532.08tim

es

Acid TestRatio

(3597263697-1039932037)/ 1727885753

1.48tim

es

Debt Ratio

1838265995 /5089393965

36.12%

TimesInterestEarned

681900999/NotGiven

N/A

InventoryTurnover

2898731931/1039932037

2.79time

s

Total AssetTurnover

3847949116/5089393965

.76time

s

Fixed AssetTurnover

3847949116/1492130269

2.58tim

es

Days salesoutstanding

177520128/ (3847949116/365

)

16.84day

s

Averagepaymentperiod

25966104/(2898731931/365)

3.27Day

s


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85

CashConversion Cycle

Days in Inventory + DSO APPDays In Inventory

=

131+16.84-3.27 144day

s

Gross profitmargin

949217185/3847949116

24.67%

Operatingprofitmargi n

681900999/3847949116

17.72%

Net profitmargin

508337317/3847949116

13.21%

Return onasset

508337317/5089393965

10%

OperatingReturn onasset

681900999/5089393965

13.39%

Return onEquity

508337317/32511

2797015.63

%

Earnings pershare

508337317/140320000

3.62

Price toearningsratio

136.40/3.62 37.679

Book valueper share

3251127970/1403200000

tk2.32/ shar

e


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86

Market tobookratio

136.4/2.32 58.79

ROA (Returnon Asset) Net Profit Margin Total

Asset Turnover Ratio

13.21 .76 10.04

ROE (ReturnonEquity)

Net Profit Margin TotalAsset Turnover Ratio

EquityMultiplier(TA/TE)

13.21 .761.56

15.72

5. DIVIDENED PAYOUT RATIO

2006

DIVIDENED PAYOUT RATIO =

g = (1-.308996) .19704 = 13.6155%

2007

Dividend payout ratio =

g = (1-.04049) .1891= 11.2694%

2008

Dividend Payout ratio = =

g = (1-.71996).2378 = 6.6586%

2009

Dividend Payout Ratio =

g = (1-.441674) = 18.5196%


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87

2010

Dividend Payout Ratio = = 8.541082%

=11.72082%

Dividend growth rate:

1. 2006 -2007 =

2. 2007-2008 =

3. 2008-2009 =

4. 2009-2010 =

5. Average =

Average of two growth rate

g = %


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6. WACC Calculation

COST OF COMMON STOCK

1ST APPROACH

CAPM = R f + (R m-R f )

= 11+(30.442-11).399

=18.76%

2nd APPROACH

Ke = =

=16.935%

Average of two

Ke =

=17.848%

cost of retained earnings 17.848%

Cost of debt =

Weight of debt =

Weight of common equity

Weight of Retained Earnings


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MARKET VALUE

Common share 15218000692.3 = 10555595

Debt =806476

Retained earnings = 1823141

Total asset market value

806476 + 10555595+1823141 = 13185212

Weight of debt =

Weight of common equity

Weight of Retained Earnings

Cost of common equity =17.848%

Cost of debt = .1727%

Note :

In this project, all companys annual year ends at 31 st December except DESCO whose annual

year ends at 31 st June. Due to lack of options in choosing competitors, it was assumed that

DESCOs annual year also ends at 31 st December.

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