Anda di halaman 1dari 14

ANALYSIS OF CAPITAL STRUCTURE AND

DIVIDEND POLICY
OF
TEXTILE INDUSTRIES IN BANGLADESH
(TERM PAPER ON CORPORATE FINANCE)

Submitted By
Md. Wahiduzzaman Khan ID#12034
Nur Muhammad Nadir ID#14002
A S M Rezaul Karim ID#14022
Sayeed Mahmud ID#14040
Shahidullah Kaisar ID#14020

EMBA PROGRAM
DEPARTMENT OF FINANCE
UNIVERSITY OF DHAKA

1. INTRODUCTION

The capital structure and dividend policy are the crucial issues for any company when its growth
and profitability are concerned. This article is intended to investigate the financial structure and
dividend policy of some of the textile companies in Bangladesh with an emphasis on growth and
access to capital markets. Financial performance of the firms, pecking order and agency theory
perspectives are reviewed in order to formulate a sizeable levels of long-term, short-term and
total debt, and liquidity. Up-to-date financial data were collected from DSE library. Regression
results indicate significant relationships between financial structure and profitability, asset
structure, size, age .

The importance of the industry has a strong influence to firm-level financial and real decisions.
We find that in addition to standard industry fixed effects, financial structure also depends on a
firm's position within its industry.

2. Methodology

We were assigned to perform the analysis of capital structure and dividend policy of textile
industry as a part of the requirements of completion of the subject named Corporate Finance.

The condition of textile industry in this country is very bad. There is hardly any company that is
profitable or has sustainable profitability. When we go through the financial statements of
different companies we found that many companies had even negative gross profit. As our
assignment includes the dividend policy also, we had to select companies that seem to be
profitable at the first sight, and pay dividend. The disclosure of information is very poor or
inadequate. In many cases we found that further explanation or elaboration was necessary to
understand financial statement. In those cases we had to make assumption to calculate the
different financial ratios and multiples.

We selected five companies “Apex Spinning and Knitting Mills, Bex Tex, H R Textile Mills,
Alltex Industries Limited, Square Textiles”, and distributed one company to every group
member.

3. Capital Structure Analysis

To perform the capital structure analysis we had to calculate some debt related ratios such as
Debt to Equity, Debt to Total Asset, Times Interest Earned Ratios (TIER). We also calculated
some ratios that are related to operating profit such as Operating Profit Mergin (OPM),
Operating Profit on Assets (OPA). Then we tried tofind out the relationship of profitability and
other performances of different companies with their capitalstructure. We tried also to find out

2
the deviation of the empirical scenario from that of idle one and tried to find out the reason of
that deviation.

3.1 Alltex Industries Limited

Alltex Industries Limited was incorporated on 24 January 1985 as a private limited company
under the Companies Act, 1913 now repealed and re-enacted as the Companies Act, 1994. The
Company was converted into public limited company on 25 October 1994. The Company was
listed in Dhaka Stock Exchange Ltd. (DSE) on 31.08.1996 and Chittagong Stock Exchange Ltd.
On 07.08.1996

Ratios 2008 2007 2006 2005 Average

OPM 5% 3% 4% 4% 4%
OPA 6% 5% 4% 5% 5%
TIER 1.17 1.21 1.22 1.27 1.21
Debt Ratio 0.65 0.65 0.61 0.53 0.61
Debt to equity0.62 0.65 0.43 0.55 0.5625
Ratio
CFCR 0.50 0.21 0.15 0.13 0.24

Table: 1 (Capital Structure of Alltex))

Analysis of Debt and Operating Profit Related Ratios: Debt to Total Assets ratio (From
Table: 1) for the company had been increasing from 2005 to 2007; however in 2008 it was equal
to that of the 2007. The average for these three years is 0.61. The Debt to Equity (From Table:
1) ratio was lower in 2006 than that of 2005; however it was higher in 2007 than that of 2005,
and in 2008 the Debt to Equity ratio is little lower than that of 2007. The Average debt to equity
ratio is 0.5625.

Operating Profit Mergin (From Table: 1) increased from 4% in 2005 to in 5% in 2008, and the
average figure was 4%. Operating Profit on Assets also increased from 5% in 2005 to 6% in
2008, and the average is 5%. It is clear (From Table: 1) that TIER ratio decreased from 2005 to
2008. OPM and OPA increased however TIER decreased as Debt Ratio and Debt to Equity Ratio
increased.

Analysis of Cash flow Conversion Ratio (CFCR): From Table:1 we have seen the Cash Flow
Conversion Cycle Ratio is less than one which implies more repayment of principle and interest
than the operating cash flow it generates. However the ratio is increasing from 2005 to 2008.

3033778518
Growth The sales of this company has a growth rate of 3 −1 =0.1165 or 11.65%.
2179677556
However this is an average annual growth rate for last three years. The sales in 2005 were nearly

3
equal to that of 2006. And sales in 2008 are nearly equal to that of the 2007. However the sales
had a drastic elevation in 2007. We also found that OCF is greater than FCFF in every year
except 2006. Considering this two thing we can conclude that the company is growing.

Square Tex, Bex Tex & HR Textile.

Square Textile Limited, Bextex Limited and HR Textile Limited are the three pillars in textile
sector in Bangladesh. The share of these three companies are jointly owned by government,
publics, institutional shareholders and the foreign companies. The percentage of shareholding of
these companies are shown below.

Share Percentage: Share Percentage of Square r


Sponsor/Directo

Textile Govt.
SQUARE TEXTILE LIMITED
Sponsor/Director 53.94 Institute
Govt. 0
Foreign
Institute 4.49
Foreign 10.33 Public

Public 31.24

BEXTEX LIMITED Share Percentage of BEXTEX


Sponsor/Director 39.47
Govt. 0 Sponsor/Director
Govt.
Institute 0 Institute
Foreign 0 Foreign
Public 60.53 Public

HR TEXTILE LIMITED Share Percentage of HR Textile


Sponsor/Director 50
Govt. 0 Sponsor/Director
Institute 26 Govt.

Foreign 0 Institute

Public 24 Foreign
Public

4
3.2 APEX Spinning and Knitting Mills ltd.

The Apex Spinning & Knitting Mills Limited is a public limited company registered under the
Companies Act, 1913. The Company was incorporated in Bangladesh on 25.11.1990. Shares of
the Company are listed in the Dhaka Stock Exchange Ltd. and Chittagong Stock Exchange Ltd.

Nature of Business Activities:


The Company owns and operates a 100% export oriented vertically integrated knitting, dyeing
& finishing and garment factory.

APEX S
CAPITA

Year D/E Ratio D/


 With respect to the other companies that we have studied APEX spinning mainatains a
comparatively smaller amount of leverage in its capital structure. Though operating profit
margin is low with respect to the other companies but it maintains a satisfactory growth
rate in its asset and net profit.
 APEX maintains a constant dividend policy and sufficient amount of Dividend Payout

2007 .199
ratio so the market price of its share has got the rising tendency in the observed time.
990650
 The Total Assets of this company has a growth rate of 5 −1 =0.1187 or 11.87%.
565507
However this is an average annual growth rate for last five years.

5
3.3 Comparison among the companies.

 When we compared different ratios within the companies we found that different
companies maintained different level of debt in their capital structure.
 Where BEXTEX got the D/E ratio from 0.67 to 2.45 from 2003 to 2007 whereas the
APEX got only 0.30 average at the same period.

COMPARIS

Year Square
 Square Textile has a decreasing Debt Equity Ratio. i.e. they are trying to use less Debt in
financing.
BEX
Tex
 Both BEXTEX and HR Textile has a increasing Debt Equity ratio. But BEXTEX has the
highest ratio and the increment rate is higher than others. That means, it has been
aggressive in financing its growth with debt.
 APEX Spinning has relatively lower and constant D/E ratio over the years and in 2007 it
fell sufficient.

2007 6
0.674 2.
COMPARISO

.
 Square Textile has an increasing Profit margin. But the margin is lower than that of
BEXTEX.
 BEXTEX has a higher and increasing Profit margin.
 HR Textile has the same profit margin for last 3 years and it is the lowest margin also .
 AllTex and APEX have less but constant profit margin over the years.

Year Square
Tex
2007 0.163
2006 0.167
2005 0.174
2004 0.098
2003 0.090

7
CO
 Square Textile had a higher market value per share in 2007. There is no gradual
increment with time.
 Though HR Textile has a lower Share value, it has a gradual increase and it seems steady.
 BEXTEX Ltd. has a lower market value than others.
 The market price of APEX Spinning has an increasing tendency over the years and

Year Square
jumped to 547 in 2007.
 Square Textile has the highest market value per share.

Tex
D/E vs OPM for all of the companies

2007
 When we analyzed D/E and the OPM of all the companies from year 2003 to 2007 we
found that the company which has higher leverage also has the higher OPM. As we can
see in the five year average column. The reason behind this may be the fact that the
127.4
company uses debt in its capital structure to make it profitable.
 But in individual case the scenario is different. The company when uses more debt, its
operating profit margin either remains constant or decreases.

Comp Year D/E OPM Avg D/E Avg OPM 2006 74.9
SQUARE 2007 0.674 0.163
TEX 2006 0.701 0.167
2005 0.653 0.174 .7864 .1384

8 2005 82
2004 0.877 0.098
2003 1.027 0.09
BEX 2007 2.45 0.23
TEX 2006 2.03 0.34
2005 1.14 0.15 1.5 .21
2004 1.25 0.16
2003 0.67 0.15
HR 2007 0.81 0.03
TEX 2006 0.79 0.03
2005 0.31 0.03 .45 .03
2004 0.24 0.029
2003 0.11 0.037
ALL 2007 0.65 0.03
TEX 2006 0.43 0.04
2005 0.55 0.04 .534 .04
2004 0.54 0.04
2003 0.5 0.045
APEX 2007 0.2 0.033
SPINNING 2006 0.3 0.032
2005 0.3 0.03 .29 .033
2004 0.33 0.033
2003 0.32 0.039

4.0 Dividend Policy

Dividend Policy refers to the explicit or implicit decision of the Board of Directors regarding the
amount of residual earnings (past or present) that should be distributed to the shareholders of the
corporation.

This decision is considered a financing decision because the profits of the corporation are an
important source of financing available to the firm.

Types of Dividend Policies


Residual dividend policy
Residual dividend policy is one in which a firm pays dividends from the amount remaining after
undertaking all desirable projects from internally generated cash flows.
Managed dividend policy
Three of the more commonly used managed dividend policies are:
- Stable dollar dividend policy,
- Constant payout ratio policy, and
- Low-Regular-and-Extra dividend policy.

Stable Dollar Dividend Policy


A dividend policy based on the payment of a fixed-dollar dividend in each period.
It is the most popular kind of dividend policy for dividend paying firms.

9
Constant-Payout-Ratio Policy
Constant-Payout-Ratio dividend policy, is based on the payment of a certain percentage of earnings in
each dividend period.
Such a policy is likely to result in wildly fluctuating dividends. As a result, only a small percentage of
dividend paying firms follow such a policy.

Low-Regular-and-Extra Policy
A dividend policy based on paying a low regular dividend, supplemented by an additional dividend
when earnings are higher than normal.
Extra dividend is an additional dividend optionally paid by the firm if earnings are higher than normal
in a given period.
Other Forms of Distribution

Stock dividends,
Stock splits, and
Share repurchases.

4.1 Dividend other related criteria of different companies

The Dividend paid by the different Textile companies under consideration are of different types.
In fact a company maintains its own strategy when paying dividend. As we discussed earlier the
policy varies from industry to industry and again it also varies from company to company in the
same industry . This is because the profitability and the intention to distribute that profit as
dividend vary from company to the company. The analysis of the dividend policy of the
companies under our observation will give a clear picture of variation.

4.2.1 Table of HR Textile -


1
Dividend - Closing
Cash Stock FCF 1
Year EPS Pay Out OCF PS price of
DPS DPS PS 2
.
Ratio stock
200 0
5
7 8.5 0.00 9.65 88.08% 45.56 .
3 110.40
200 3
6 7.5 0.00 8.15 92.02% -9.47 8 80.80
200 100.67
5 7.5 0.00 7.45 % 42.13 2.83 60.65
200
4 5 0.00 6.84 73.10% 18.49 0.66 56.70
200
3 5 0.00 8.4 59.52% 32.57 -4.08 42.15

Dividend Closing
Cash Stock FCF
Year EPS Pay Out OCF PS price of
4.2.2 Table of Square textile
DPS DPS
Ratio
PS
stock
200
7 2.5 0.20 8.94 30.20% 13.05 7.84 127.40
200
6 3 0.15 10.17 30.97% 13.97 21.76 74.85
200
5 3 0.125 8.38 37.29% 12.56 -0.41 64.27
200 10
4 3 0.10 7.17 43.23% 11.50 4.14 95.86
200
3 3 0.10 6.67 46.48% 11.16 3.49 76.98
Growth estimation (Asset growth)

Arithmetic
Year Total Asset Growth
1.41% Average

2007 3483231227 11.62%  8.91%

2006 3120686242 20.71%

2005 2585177475 1.89%

2004 2537295463

2003 2501397076

4.2.3 Table of Bextex

Dividend Closing
Cash Stock FCF
Year
DPS DPS
EPS Pay Out OCF PS
PS
price of
Ratio stock

2007 0.00 0.00 -5.28 0.00% 8.62 7.60 20.85

2006 0.00 0.10 -1.22 -8.20% 13.94 9.30 18.80

2005 0.05 0.10 2.03 7.38% 16.76 8.52 21.80

2004 0.05 0.25 2.55 11.76% 21.17 13.90 18.70

2003 0.10 0.05 1.69 8.88% 21.62 8.05 17.50

4.2.4 Table of ALLtex

2008 2007 2006 2005 Average


Terms

11
EPS 1.26 2.24 2.16 3.50 2.29
(Diluted)
TK
NAVPS 231.70 231.22 203.99 228.34 223.815
(Diluted)
TK
CDPS 2.50 8.00 7.50 4.5
(Diluted)
TK
CDRPS 2.5% 8% 7.5% 4.5%
(Diluted)
TK
Market Price 83.69 63.83 55.67 72 68.79
(DSC)TK
OCFPS 48.11 34.46 27.71 23.80 33.52
(Diluted)
TK
FCFFPS 31.41 -6.09 46.15 21.99 23.365
(Diluted)

4.2.5 Table of APEX Spinning

Terms 2007 2006 2005 2004 2003


EPS 56.93 58.28 57.01 56.18 44.95
TK
Market Price547 218 255 305 199
NAVPS 476.49 417.56 377 338 297
TK
CDPS TK 20.00 20.00 18.00 18.00 15.00

CDRPS 3.66% 9.17% 7.06% 5.90% 7.54%


TK
P/E ratio 9.61 3.73 4.47 5.43 4.43

Div Payout35.13% 34.31% 31.57% 32.04% 33.37%


Ratio

12
4.3 Comparison of Cash DPS of different companies
HR ALL Tex
Square
Year Bextex Te Square APEX
text
xt text
2007 2.5 0.00 8.5 - 20.00
2006 3 0.00 7.5 8.00 20.00
2005 3 0.05 7.5 7.50 18.00
2004 3 0.05 5 - 18.00
2003 3 0.10 5 - 15.00

 From the above chart we can see that HR Tex has paid tk 5 in 2003 & 2004, Tk 7.50 in
2005 & 06 and Tk 8.00 in 2007 in a share having the face value of Tk 50. whereas
BEXtex has paid almost nil dividend in these year on a share of similar face value.
 APEX has paid tk 15 in 2003, Tk 18 in 2004 & 05 and Tk 20 in 06 &07 on a share of
face value Tk 100.
 So apparently we are observing that HR Tex and APEX are paying similar ratio of
dividend on the face value of share.. But when we consider the dividend payout ratio we
can observe that APEX is maintaining an average payout ratio of 33% whereas HR
textile is paying at a ratio from 53% in 2002 to 101% in 2005. That is it is paying highest
dividend with respect to its income. its income.
 Alltex has paid dividend in 2005 & 2006 but in other year it did not pay dividend though
its profitability remains constant.

5.0 Conclusion
 The study implied that capital structure of a firm is independent from other firm in the
same industry.
 But in case of a particular firm profitability is significantly related to capital structure.
Specifically, profitability was inversely related to the amount of liability in a company’s
capital structure. Therefore, the more debt a firm incur, the worse its earnings is hurt.
 Corporate dividend policy is a complex matter to decide.
 A number of conflicting theoretical models (all lacking strong empirical support) define
current attempts to explain corporate dividend behavior.
 One faction sees dividends as attractive and as a positive influence on stock price. A
second bloc believes that stock prices are negatively correlated with dividend payout
levels. The third group of theories maintains that firm dividend policy is irrelevant in
stock price valuation.
 In this study we found that most of the textile company do not pay or pay a little
dividend.
 The dividend paying companies pay a constant amount of dividend per share for years
together. But the dividend payout ratio is different from one another.

13
 The companies which pay cash dividend has a positive outcome with respect to its share
price. That is share price is appreciating in case of the companies which pays regular
cash dividend.

14

Anda mungkin juga menyukai