1.

INTRODUCTION
Bata Shoe Company is one of the largest companies not only in Bangladesh but
also in many other countries. Bata Shoes (Czech: Baťa or Baťovy závody) is a
large, family owned shoe company based in Bermuda but currently
headquartered in Lausanne, Switzerland , and operates 4 business units
worldwide – Bata Europe, Bata Emerging Markets, Bata Branded Business and
Bata North America. It has a retail presence in over 50 countries and production
facilities in 26 countries. In its history the company has sold more than 14 billion
pairs of shoes. In 1985 Bata Shoe listed in Dhaka Stock Exchange. At this
moment, its shares are traded in our two stock exchanges (DSE& CSE).

1.1. Objective
Our term paper named “Financial Statement Analysis of Bata Shoe
Company (Bangladesh) Limited” which is essential to fulfill the course
requirement. We also interested to make this term paper, to apply our
theoretical knowledge on a real company.

1.2. Scope
Though Bata is a multinational company here we just focus the financial
position of Bata Shoe Company (Bangladesh) limited not any other country
branch. [Observed area DSE only]

1.3 Limitation

To prepare this term paper we faced a lot of problems which include time &
cost. Moreover, we faced a lot of difficulties to find out the actual data from
our term paper. In some cases, lack of necessary data we are totally unable
to do some calculation.

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2. Company overview

Bata Shoe Company Bangladesh is a subsidiary of Bata and operates as a

footwear retailer and manufacturer in Bangladesh. The company offers footwear
such as shoes, slippers, dress shoes, and casual tie ups for men, women and
children under the brand names B First, Bata, Bubblegummers, Dr Scholls,
Hawaianas, Marie Claire, North Star, Power, Sandak and Weinbrenner. The
company produces around 110,000 pairs of shoes per day. The company
primarily operates in Bangladesh where it is headquartered in Dhaka.

Key facts:

Tongi , Gazipur , Dhaka , BGD

Fax : 880 2 98 00 511

http://www.batabd.com

Dhaka Stock Exchange ticker: BATASHOE

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 “Financial Statement Analysis”

1. Calculation of WACC

2008

2007

= =

= 61.10% = 63.47%

= =

= 38.90% = 36.53%

Here in case of 2008 61.10% Debt and 38.90% Equity is used. On the other
hand, in case of 2007 63.47% Debt and 36.53% Equity was used. So it is clear
that they use almost 2/3 debt for their capital financing.

2008

2007

If debt 127064575 then interest = 5043064 If debt 140265275 then interest = 3277362

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If Debt 100 then interest = ×100 If Debt 100 then interest = ×100

3.97% 2.34%

(1-T) = 0.0397 (1-0.2475) = 2.99% (1-T) = 0.0234 (1-0.3423) = 1.54%

NOTE:

Here, Tax (2008) = given in page 24 (Note – 3.10.1 )

Tax (2007) = calculation, dividing the income tax expense by profit before income tax. ( )

Here in 2008, the after tax cost of debt is 2.99% and for 2007 it was 1.54%.

Note: We assume that Bata is a constant growth company.

= +g = +g

= + 0.1518 = +0

= 23.08% = 11.18%

Here in 2008, cost of retained earnings is 23.08% and for 2007 it was 11.18%.
(We assume it is a constant growth company)

We know that there are 3 (three) approaches, like CAPM approach, Bond-Yield-
Plus-Risk-Premium approach & DCF approach, for calculating . Here we have
just followed the DCF approach because for following other approaches we need
market risk premium ( ), risk free rate ( ), estimated beta (b), bond yield etc.
that are not available in our annual report.

*** There are not any flotation cost & issue of new stock.

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2008

2007

WACC = (1-T) + WACC = (1-T) +

=0.6110(2.99%) + 0.3890 (23.08%) =0.6347(1.54%) + 0.3653 (11.18%)

= 10.81% = 5.06%

Here, No. of Preferred Stock is 0(Zero).

WACC (Interpretation)

Here in 2008, the WACC (Weighted Average Cost of Capital) is 10.81% and
2007 it was 5.06%.It is almost double from 2007 to 2008 because of growth rate
and after tax cost of capital is increased.

Prediction of WACC in 2009

Because of the increasing trend of bank interest rate we can easily assume that
the WACC of 2009 must be greater than 10.81%.

2. Calculation of Growth Rate

2008

2007

Payout = Payout =

= =

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 = 67% = 105%

In 2008 Bata Shoe Company paid 67% of their net income as dividend where in
2007 it was 105%. That is more than their net income. In that year firm finance
this extra dividend amount from their retained earnings. According to our theory
we can assume that for reducing dividend payout ratio the stock price of Bata
Shoe Company may fall. But the management team was able to convince the
stockholder that they cut their payout for increasing growth and running
recession. For this reason their stock price goes up.

2008

2007

Retention Ratio = 1 – Payout Ratio Retention Ratio = 1 – Payout Ratio

= 1 – 0.67 = 1 –1 (though 1.05)

= 0.33 or 33% = 0% [No (-)ve Allow]

In 2008 Bata Shoe Company retained 33% of their net income where in 2007 the
Retention Ratio was 0(zero).

2008

2007

g = Retention Ratio × ROE g = Retention Ratio × ROE

= 0.33 × 0.46 = 0.00 × 0.3949

= 15.18 % = 0%

Actually it is very difficult to find out a constant growth rate company in this real
world. To simplify our calculation we assume that, in 2008 the 15.18% is constant
forever & in 2007 0% is constant forever. But actually its growth rate is
increasing.

3. Calculation of ROIC

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2008

2007

ROIC = ROIC =

= =

= 18.18% = 15.33%

ROIC (Interpretation)

ROIC means return on investment capital. In 2008, the ROIC is 10.18% where in
2007 it was 15.33%.This sort of thing is happening because of increasing Net
Income.

Prediction of ROIC in 2009

Because of increasing trend of net income we can easily assume that in 2009, it
will be increased that is greater than 18.18%.

*** Lack of sufficient information we can’t find out Operating Leverage & Financial
Leverage.

4. Calculation of Break Even Quantity

Revenue and Production amount

Product un
Category it 2008 2007
Quantity in Amount Quantity Amount
'000' '000' Taka in '000' '000' Taka
Shoe
Pai
2526 310205 2976 283128
Plastic r
Thong Pai 16407 778304 19512 753017

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 r
Rubber & Pai
1387 403360 1203 296869
canvas r
Pai
8248 2916341 7472 2473173
Leather r

Pai
1910 119816 1702 96651
Hosiery r
Export -
Sft
228 23332 569 35017
Leather .
Pai
208 71954 66 38533
Shoes r

BDT BDT
Total = 30914 4,623,312 33500 3,976,388

Source: page 31 (Notes of No. 18), Annual Report 2008 - For annual production.

2008

2007

Avg. Fixed Cost = Avg. Fixed Cost =

= =

= 31 = 24.51

Assumption:

Here, Fixed Cost = All administration, selling and distribution expenses

In 2008 per shoe fixed cost is 31 that were 24.51 in 2007. Here this fixed cost
means- if they produce nothing, they have to bear this cost. Though the fixed cost
is increasing day by day, we can easily expect that in 2009 it will be more than
31.

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Avg. Variable Cost = Avg. Variable Cost =

= =

= 98 = 79.21

Assumption:

Here, Variable Cost = Cost of goods sold

In 2008 per shoe variable cost is 98 that were 79.21 in 2007. Here this variable
cost - means this cost is not fixed it vary over production. Though the variable
cost is increasing day by day, we can easily expect that in 2009 it will be more
than 98.

Avg. Price per Shoe = Avg. Price per Shoe =

= =

= 150 = 119

In 2008 per shoe price is 150 that were 119 in 2007. The main reasons for this
price increase are increase of avg. fixed cost and variable cost. If this condition
going on we can expect that the avg. price per shoe will cross 150 in coming
2009.

BEQ = BEQ =

= =

= 18301172 Units = 20639655 Units

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Break Even Quantity (Interpretation)

In 2008 the Break even quantity is 18301172 units of shoe where in 2007 it was
20639655 units of shoe. It is less than 2007.The main reason behind this is
increase of price per shoe and the increase of contribution margin.

5. Calculation of Capital Structure: [calculation no. 1]

In 2008, Debt = 61.10% & Equity = 38.90%

In 2007, Debt = 63.47% & Equity = 36.53%

Capital Structure (Interpretation)

From this capital structure it is clear that the Bata Shoe company slightly
decreases its debt because of high interest rate (2007, =1.54% & 2008, =
3.97%).

Prediction of capital structure in 2009

If this situation is going on in near future then the Bata Shoe Company will largely
decrease its Debt amount.

Lack of sufficient data like probability, estimated beta (b), market risk premium (
), and risk free rate ( ), we are not able to estimate the capital structure of
2009.

*** Lack of proper information we can’t find out “Operating Leverage & Financial
Leverage”.

6. Divided Policy

In 2008, company’s dividend payout ratio is 67% and retention ratio is 33%.
Whereas in 2007 Dividend payout ratio was 105% and retention ratio was 0%.

The main reason of decreasing payout ration in 2008 is the global financial crisis
and the increase of growth rate (15.18%).

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Now we want to focus on the relationship between dividend & stock price.

In 2007 Company’s dividend was 250%, in that time the stock price was BDT
223.60. In 2008, though its earnings increases but company cut its dividend that
is 220%. But surprisingly its price does not fall rather the price of the stock is BDT
320.70. The main reason is that, shareholders have tremendous trust on the
company and they believe that in near future the company will achieve a good
position. Then in that time the price of the stock will be increased.

Trend of Earning per Share and Dividend (%).

Year Earnings per Share Dividend (%)

2000 14.09 160
2001 15.74 100
2002 19.75 150
2003 22.46 105
2004 12.97 125
2005 15.11 120
2006 20.25 235
2007 23.75 250
2008 32.85 220

7. Dividend Theory

2008

2007

EPS = EPS =

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 = =

= 32.85 = 23.75

DPS = DPS =

= =

= 22 = 25

*** Though there are some variation in EPS and Dividend, the Chairman mentioned that
they are maintaining a stable financial position (including Dividend). [Source: Page-9]

Cost of Capital (k) = 23.08% (coming from ) Cost of Capital (k) = 11.18%

Rate of return (r) = 46.23 % Rate of return (r) = 39.50 %

Calculation of Rate of return (r)

r= r=

= =

= 46.23 % = 39.50 %

Assumption:

Growth rate = Constant.

Dividend Relevance: Walter’s Model

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2008

2007

P= P=

= =

= 189 = 184.11

Dividend Relevance: Gordon’s Model

2008

2007

= =

= =

= 281.18 = 201.27

Dividend Irrelevance: The Miller – Modigliani (MM) Hypothesis

2008

2007

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 = (1+k) – DIV = (1+k) – DIV

=320.70 (1+0.2308) – 22 = 223.60 (1+0.1118) – 25

= 372.72 = 223.60

8. Signaling Effect
According to the signaling theory, if company increases its dividend then
shareholders think that company has more possibility to earn a lot in near future.
So the price of share will be increased. And the opposite scenario is vice versa.
But in case of Bata Shoe Company, though they deduct their dividend but their
stock price does not fall. Because we previously described that shareholders
have too much confidence on the company’s future profitability.

9. Clientele Effect
Clientele effect means the tendency of a firm to attract a set of investors who like
its dividend policy .If the large number of investors of the particular company
prefer high dividend then company must pay more dividends to the investors. On
the other hand, if large number of investors of the particular company do not
prefer high amount of dividend then company must retain most of their earnings
inside the organization.

In case of Bata Shoe Company most of the investors prefer more dividends
because the company has small number of wealthy investors.

Assumption

We assume that, if any investor has more than ten thousand shares then that investor is wealthy
investor.

Source: page 29 of annual report 2008 (Note – 11 Holding)

10. Payment Procedures

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 Holder-of-Record Date
2008
2007

April, 2009 May, 2008

Ex-Dividend Date
2008
2007

April, 2009 May, 2008

*** There are not any Stock Dividends, Stock Splits, and Stock Repurchase.

11. Calculation of Net Working Capital

2008
2007

Net Working Capital = CA – CL Net Working Capital = CA - CL

=2028881928 -1527094938 =1832286106 – 1289110686

=501786990 =543175420

NOTE:

Here, CA = Current Asset

CL = Current Liability

12. Calculation of Quick ratio

2008
2007

Quick ratio = Quick ratio =

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 = =

= 37.24% = 40.40%

13. Calculation of Cash Conversion Cycle:

2008
2007

ICP = ICP =

= =

= 115 days =120 days

NOTE:

Here, ICP = Inventory Conversion Period

In 2008, 115 days are required to convert materials into finished goods and then
to sell those goods where it was needed 120days in 2007. So it is clear that the
company is trying to improve their working efficiency.

RCP = RCP =

= =

= 6 days = 4 days

NOTE:

Here, RCP = Receivable Collection Period

In 2008, 6 days are required to convert the firm’s receivable into cash where it
was needed 4 days in 2007. This increasing may happen for better relationship
with buyers or to increase firm’s sale in recession period.

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PDP = PDP =

= =

= 73 days = 71 days

NOTE:

Here, PDP = Payable Deferral Period

NOTE:

Total payable consists of:

a. Payable to local suppliers (creditor for goods)

b. Payable to BSO companies (creditor for goods)

c. Payable to Non BSO companies (creditor for goods)

d. Payable to local suppliers (creditor for expenses)

e. Payable to local suppliers (creditor for expenses)

f. Salary and wages payable

Source: page 30 (Notes of No. 14, 15, and 16), Annual Report 2008

In general Bata takes 73 days to pay cash to its suppliers and labor (2008) where
it was 71 days in 2007.

Cash Conversion Cycle:

2008 2007

Inventory Conversion Period = 115 days 120 days

(+) Receivable Collection Period = 06 days 04 days

(-) Payable Deferral Period = (73 days) (71days)

Cash Conversion Cycle = 48 days 53 days

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In 2007, Company’s BDT is tied up in current asset 53 days whereas in 2008, the
cash conversion cycle is reduced by 48 days. That shows the company’s
efficiency of collecting cash.

14. Current Asset Investment Policy

As external users of annual report it is very difficult to identify the company’s
current asset investment policy.

15. Cash Management

2008 2007

Transactions Balance = 83176927 90284362

Compensating Balance = 195986023 209829265

Source: page 28 (Note of No. 10), Annual Report 2008

16. Inventory Types

Inventories 2008 2007

Raw materials 317112970 333106330

Raw materials in 15088375 70454672

transit

Work in process 74989549 75378927

Work in process 1052947539 832680083

1460138433 1311620012

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 17. Inventory Control Systems
With the help of Point of Sales (POS) technologies the Bata Shoe Company can
speed up inventory control and it accordingly it can accelerate re-supply to
increase its business.

Source: page 8 and 9 (the continuation of Chairman’s Statement)

18. Days Sales Outstanding (DSO)

2008
2007

DSO = DSO =

= =

= 6.27 days = 3.66 days

In 2008 actually 6.27 days are required to collect the credit sales and in 2007 it
was 3.66 days.

19. Total Working Capital

2008 2007

Cash = 279162950 300113627

(+) Marketable Securities = - -

(+) Inventories = 1460138433 1311620012

(+) Account Receivables = 79409238 39911945

Total Working Capital = 1818710621 1651645584

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 20. Ratio Analysis

2008 2007

2,028,881,92 1,832,286,10
Current Asset 8 6
1 Current Ratio =
current 1,400,030,36 1,289,110,68
Liability 3 6.00
1.45 1.42

79,403,238.0 39,911,945.0
Days sales Receivables 0 0
2
outstanding= Annual 12,666,608.4 10,894,213.9
Sales /365 3 6
6.27 3.66

4,623,312,07 3,976,388,09
Fixed Asset Sales 7.00 6.00
3
turnover = Net Fixed 470,253,888. 419,674,829.
Assets 00 00
9.83 9.47
4,623,312,07 3,976,388,09
Total Assets Sales 7.00 6.00
4
Turnover = 2,499,135,81 2,251,960,93
Total Assets 6.00 5.00
1.85 1.77

1,527,094,93 1,429,375,96
Total Debt to Total Total Debt 8.00 1.00
5
Assets = 2,499,135,81 2,251,960,93
Total Assets 6.00 5.00
61.10% 63.47%

648,273,621. 507,710,137.
Time Interest EBIT 00 00
6
Earned (TIE) = Interest 5,043,064.00 3,277,362.00
Charge
128.55 154.91

449,415,702. 324,849,273.
Profit Margin on Net Income 00 00
7
Sales = 4,623,312,07 3,976,388,09
Sales 7.00 6.00
10% 8.17%

648,273,621. 507,710,137.
Basic Earning EBIT 00 00
8
Power (BEP) = 2,499,135,81 2,251,960,93
Total Assets 6.00 5.00

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 26% 22.55%

9 Return on Total Net Income 449,415,702. 324,849,273.

Assets (ROA) = 00 00
Total Assets 2,499,135,81 2,251,960,93
6.00 5.00
18% 14.43%

449,415,702. 324,849,273.
1 Return on Common Net Income 00 00
0 equity (ROE) = Common 972,040,878. 822,584,974.
Equity 00 00
46% 39.49%

Price per
1 Price / Earnings Share 320.70 223.60
1 Ratio (P/E) = Earnings per 32.85 23.75
Share
9.76 9.41

Market price
1 Market / Book per share 320.70 223.60
2 (M/B) = 10.00 10.00
Book value
per Share
32.07 22.36

4,623,312,07 3,976,388,09
1 Inventory Turnover Sales 7.00 6.00
3 = 1,460,138,43 1,311,620,01
Inventories 3.00 2.00
3.17 3.03

*** Founder of Bata *** Bata the Clothing Sponsor of Bangladesh

Cricket Team Page | 21
 *** Logo of Bata

*** Bata Outlet *** Some Designs of Bata

Shoe

*** Brand Ambassador of Bata

Bangladesh

Key Financials (at a glance)

Title 2008 2007
61.10% 63.47%

38.90% 36.53%

Tax 24.75% 34.23%

3.97% 2.34%

23.08% 11.18%

WACC 10.81% 5.06%

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Payout Ratio 67% 105%

Retention Ratio 33% 0%

Growth Rate 15.18 % 0%

ROIC 18.18% 15.33%

BEQ 18301172 Units 20639655 Units

EPS 32.85 23.75

DPS 22 25

CCC 48 days 53 days

Working Capital 1,818,710,621 1,651,645,584

No. of Shareholders 13,680,000 13,680,000

Total Asset 2,499,135,816 2,251,960,935

Cash Balance 279,163,000 300,114,000

Net Income 449,415,702 324,849,273

21. Recommendation
________________________
From the analysis of annual report 2007 and 2008, we can easily expect that the
PROTAP ROY
Bata Shoe Company (Bangladesh) Ltd. will be one the leading companies in
(On behalf of the group)
Bangladesh. Here our expectation is based on their growth rate, cash balance,
and net income position. At the same time, if this situation going on not only the
Bata but also the overall Bangladeshi economy will be improved. So we are
waiting for that day ………………………..

Reference
i. www.batabd.com/

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ii. http://www.dsebd.org/

Attachment

i. Annual report
ii. DSE report
iii. Ratio Components (workings)

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