COURSE NO: F-602

TERM PAPER
CORPORATE

ON

FINANCE

PREPARED

FOR

PROF. DR. MAHMOOD OSMAN IMAM

DEPARTMENT
UNIVERSITY

OF FINANCE
OF DHAKA

PREPARED

BY

ABU SAYED MD. RAZIB (ID # 23048)

Letter of Transmittal
April 28, 2014
Prof. Dr. Md. Osman Imam
Department of Finance,
University of Dhaka

Subject: Submission of term paper.

Dear Sir:
We, a group of EMBA Program, Department of Finance, have prepared a term paper on
Corporate Finance as per your guideline.
We have prepared this report presenting valuation, financial statement analysis, and capital
structure & dividend policy using data from year 2008 to year 2012.
We, therefore, lay our highest level of gratitude to you to consider our limitations and
restrictions and grant this report.
Sincerely Yours,

Abu Sayed Md. Razib

EMBA Program
Department of Finance
University of Dhaka

I.

Corporate Goal:

Every firm has a corporate goal but the goals are not same for all firm. Some
firms want to enhance the value of the stockholder, some want to become a
profitable organization etc. The chosen company is Bangas Limited that lies in
pharmaceutical sector. Its mission is to provide maximum value to their
customers & communities that they belong.
In my point of view the goal of the firm that they mentioned in their annual
report is not well defined. The firm should focus onto the value of their equity
holders.
Philosophy of Bangas Limited:
Business is and always has been dynamic and diversification process.
We strive to be at the fore front of change in fashion and trend setting while in
continuous pursuit of quality and commitments through total customer focus in
all operational areas.
Products to be of best available quality. Products for premium market segments
integrated diversification/product range expansion.
Care for value of money.
Faith in individual potential and respect for human values.
Encouraging innovation for constant improvements and research for quality
product and better packaging.
Accepting changing as a way of life.
Strict adherence to financial and administrative principles.
That is why we have based our production and marketing philosophy on three
basic principles Stability, Quality and Efficiency.
Bangas Limited is on the right course to becoming more diversified, more
customer-oriented and, in particular, more profitable. We are accepting the
challenges posed by a changing world economy and making use of the
opportunities. In doing so, we are building on our proven strengths of new
product development and diversification to increase market share. For
shareholders, customers and employees, Bangas stands for innovation, knowhow and a strong business ethics. The company has the core skills and
technologies that will allow it both to maximize the opportunities available in the
food sector, in doing s to earn for the shareholders an even returns for their
investment.

CSR of Bangas Limited:

As a company operating in food industry in Bangladesh, I believe Bangas should
have a clear idea of Corporate Social Responsibility. In their annual reports there
is no mention of any CSR activities.

II. Valuation
Computation of FCF & Evaluation of price of stock of Bangas
Limited

The Corporate Value Model (By Discounted Cash Flow Method)

FCF = NOPAT+ Depreciation - CAPEX - Changes in NWC
Terminal Value = FCF Steady State / (WACC - g ) = Vcompany at t=n
V = FCF1 / (1+WACC)1 + FCF2 / (1+WACC)2 + ..+FCFn / (1+WACC)n +Terminal Value
V=D+E
Steady Growth Rate (g)
Initials
NOPAT
Depreciation
CAPEX
Changes in Net Working Capital
Free CASHFLOW

3%
2010

2011

(106)

1,09
2
287
1,45
5
1,13
4
1,05
8

(106)

1,05
8

855
322
-1,283
0

WACC

3.24%
201
5
2,12
7
106

201
6
2,54
7
80

(993
)
(935
)

(998
)
(939
)

(51)

305

690

1,174
18,69
6

(51)

305

690

1,174

2012

2013

2014

1,238
252

1,483
189

1,776
142

(1,002
)

(1,013
)

(856)

(955)

(695)

(186)

(695)

(186)

-832
(1,353
)

Terminal Value
FCF+Terminal Value
Enterprise Value
Debt Value
Equity Value
No of Equity Shares

20,885
15,815
5,070
12

Share Value

438.2
0

2017
3,051
60
(998)
(938)

Part III: Financial Statement & analysis

Bangas Limited
Particulars

31-Dec-08

31-Dec-09

31-Dec-10

31-Dec-11

31-Dec-12

Current Assets (in Millions Tk.)

Current Liabilities (in Millions Tk.)
Inventories (in Millions Tk.)

1506.07
1313.39
959.41

1643.1
1409.73
1075.31

2081.68
1869.56
1303.64

2464.13
3385.85
1585.1

3310.22
2876.86
1986.74

Total Liabilities (Million Tk.)

1500.1

1644.09

2142.46

3732.99

4682.6

Shareholder's Equity (Million Tk.)

1662.07

2207.28

2971.47

3958.61

5070.48

Net Operating Income (Million Tk.)

733.48

969.52

1312.32

1708.14

2161.1

Net Profit (Million Tk.)

609.92
1662.07

823.03
2207.28

1129.61
2971.47

1438.84
3958.61

1712.38
5070.48

Earnings Per Share (EPS)

9010.45
15.34

17426.28
21.37

23393.67
30.19

27225.17
38.51

20884.87
43.83

Number of Shares (in Millions)

11.57

14.46

18.07

22.59

28.24

Profit Before Tax & Interest

764.81

1016.46

1404.69

1886.18

2379.96

Net Profit Before Tax (Million Tk.)

609.92
433.15

823.03
603.52

1129.61
851.43

1438.84
1090.63

1712.38
1247.28

Book value of the Firm (Tk. In millions)

Market value of the firm (Tk. In millions)

Net Profit After Tax (Million Tk.)

(a) Liquidity (CR, QR):

Current Ratio (CR)

Quick Ratio (QR)

1.147
0.416

1.166
0.403

1.113
0.416

0.728
0.260

1.151
0.460

Accounts Receivable (in Millions Tk.)

Annual Sales (in Millions Tk.)
Annual Cost of Goods Sold (in Millions
Tk.)
Total Assets (in Million Tk.)

344.23
3089.75

343.87
3900.73

478.36
5090.32

640.2
6519.64

843.23
7671.57

1526.51

1820.5

2405.36

3619.61

3099.36

3162.23

3851.37

5113.93

7691.6

9753.08

Creditors & other payables

207.01

265.2

310.68

50.17

41.21

Accrued Expenses (in Million Tk.)

Unclaimed Dividend (in Million Tk.)

133.01
3.17

171.93
3.96

220.86
5.16

326.94
6.55

272.57
7.91

Accounts Payable (in Millions

Tk.)

343.19

441.09

536.7

383.66

321.69

A/R Period

40.665

Inventory Period (in days)

229.402

29.479
180.49
6
0.861

31.311
145.65
0
1.102

35.290
210.32
1
1.297

(b) Efficiency & Activity:

Total Asset Turnover (TAT)

0.522

32.194
203.97
5
0.660

Days Inventory Outstanding (DIO)

Days Sales outstanding (DSO)
Days Payable Outstanding (DPO)

229.402
40.665
82.059

203.975
32.194
78.622

180.496
29.479
74.187

145.650
31.311
46.404

210.321
35.290
41.533

Operating or Cash Cycle (in

188.008

157.54

135.78

130.55

204.07

days)

Bangas Limited
(c) Solvency:

Debt Equity Ratio

Debt to total asset
Debt service coverage ratio
(d) Profitability:
Operating Margin (OPM)
Net Profit Margin (NPM)
Return on Asset (ROA)
Return on Equity (ROE)
(e) Market:
BV/MV
P/E Ratio

0.903
0.474
0.4890

0.745
0.427
0.5897

0.721
0.419
0.6125

0.943
0.485
0.4576

0.924
0.480
0.4615

0.2374
0.1402
0.1370
0.2606

0.2485
0.1547
0.1567
0.2734

0.2578
0.1673
0.1665
0.2865

0.2620
0.1673
0.1418
0.2755

0.2817
0.1626
0.1279
0.2460

0.1845
16.870

0.1267
25.030

0.1270
27.480

0.1454
28.870

0.2428
20.800

Tobin's Q ratio

2.849

4.525

4.574

3.540

2.141

4.1700

4.1959

4.3974

4.8282

4.9502

Five Factor DU Point Analysis

IV. Cost of Capital & Capital Structure

Bangas Limited
Particulars

31-Dec-08

31-Dec-09

31-Dec-10

31-Dec-11

Current Stock Price (Tk.)

Dividend per Share (Tk.)
Dividend Growth Rate (Constant)

778.92
7.50
0.03

1205.15
8.50

1294.27
8.50

1205.00
8.50

Cost of Equity

0.04

0.03

0.03

0.03
1886.18
3732.99

31-Dec12
739.50
8.50

0.04
2379.9
6
4682.6

Profit Before Tax & Interest

Total Liabilities (Million Tk.)
Financial/Interest Exprense (Million
Tk.)

764.81
1500.16

1016.46
1644.09

1404.69
2142.46

154.89

193.43

275.08

447.34

Net Profit Before Tax (Million Tk.)

Tax (Million Tk.)
Interest Rate (%)
Tax Rate (%)

609.92
176.77
10.32%
28.98%

823.03
219.51
11.77%
26.67%

1129.61
277.02
12.84%
24.52%

1438.84
351.12
11.98%
24.40%

667.58
1712.3
8
474.45
14.26%
27.71%

10.3
1%

Cost of Debt

7.33%

8.63%

9.69%

9.06%

Shareholder's Equity (Million Tk.)

Total Market value of Firm (Million
Tk.)
Weight of Equity
Weight of Debt

1662.07

2207.28

2971.47

3958.61

9010.45
0.184
0.166

17426.28
0.127
0.094

23393.67
0.127
0.092

27225.17
0.145
0.137

5070.4
8
20884.
87
0.243
0.224

1.89%
0.90

1.24%
0.74

1.31%
0.72

1.73%
0.94

3.24
%
0.92

Current Cost of Capital

(Hurdle Rate)
Debt Equity Ratio

V. Dividend Policy
Last Five Years Dividend Pattern of Bangas Limited

Fig. Last Five Years Dividend Payment of Bangas (Taka in Millions)

The Board of Directors is pleased to recommend a cash dividend of Taka 6

per ordinary share of Taka 10 each. This dividend will entail a payment of
Taka 169,451,250. The Board

of Directors also recommend for declaration of Stock Dividend (Bonus

Shares) in the ratio of one Bonus Share for every four shares held (4:1B)
for which an amount of Taka 70,604,688 will have to be transferred to
Share Capital Account.

Computation of the parameters to assess the dividend policy of Bangas Ltd

Earning Price
2008
Share (EPS) in
Taka
Bangas
15.34
Limited
(Major)
ACI Ltd. (Peer) 55.43
Industry
average (based 21.23
on 10 selected
pharmaceutical
companies)
Dividend Per
2008
Share (Taka)
Bangas Limited 7.50
(Major) (Cash)
Bangas Limited
(Major) (Stock
25%
div in %)
Fine Foods (Peer) 12.00
(cash)
Industry average
6.58
(based on 10
selected
pharmaceutical
companies)(cash)

2009

2010

2011

2012

21.37

30.19

38.51

43.83

51.00

30.49

28.83

22.94

23.30

18.85

12.21

12.71

2009

2010

2011

2012

8.50

8.50

8.50

8.50

25%

25%

25%

25%

10.50

12.00

10.00

10.00

6.86

8.17

8.08

8.22

Dividend
payout (In
%)
Bangas
Limited
(Major)
Fine Foods
Ltd. (Peer)
Industry
average
(based on
10 selected
food
companies)

2008

2009

2010

2011

2012

20.03

20.37

18.04

17.66

19.39

21.6

20.6

39.36

34.69

43.58

40.49

39.66

50.50

153.36

161.51

2009

2010

2011

2012

1205.15

1294.27

1205.00

739.50

447.10

372.60

206.60

141.20

1005.98

1057.04

381.91

258.74

Market
2008
Price per
share (Taka)
Bangas
778.92
Limited
(Major)
Fine Foods
521.30
(Peer)
Industry
average
756.57
(based on
10 selected
food
companies)

BV per
2008
share (Taka)
Bangas
73.56
Limited
(Major)
Fine Foods
136.34
Ltd. (Peer)
Industry
average
130.55
(based on
10 selected
foods
companies)

2009

2010

2011

2012

97.70

131.52

175.21

179.54

167.06

229.75

241.98

213.73

106.86

138.10

87.74

82.10

Price
2008
earnings
ratio (times)
Bangas
20.80
Limited
(Major)
Fine Ltd.
9.4
(Peer)
Industry
average
28.13
(based on
10 selected
foods
companies)

2009

2010

2011

2012

28.87

27.48

25.03

16.87

8.8

12.22

7.17

6.20

32.99

42.68

34.14

22.02

OCF per share

(in Taka)
Bangas
Limited
(Major)
Fine Foods
Ltd. (Peer)
Industry
average (based
on 10 selected
food
companies)
FCF per share
(in Taka)
Bangas
Limited
(Major)
Fine Foods
Ltd. (Peer)

2008

2009

2010

2011

2012

9.63

33.24

34.79

39.84

38.50

51.24

36.18

32.16

41.93

25.34

37.48

41.44

16.75

12.11

2008

2009

2010

2011

2012

10.65

9.91

9.87

6.25

11.73

20.54

-3.91

-34.56

2009

2010

2011

2012

28.87

27.48

25.03

16.87

P/E multiple of 2008

the industry
Bangas
20.80
Limited
(Major) (P/E)

31.53

-51.02

X
Industry
average (based
on 10 selected
food
companies)
(P/E)

28.13

32.99

42.68

34.14

22.02

1.35x

1.14x

1.55x

1.36x

1.31x

2009

2010

2011

2012

0.8

0.82

0.83

0.81

27.34

28.69

27.48

24.41

21.87

23.53

22.81

19.77

Retention
2008
ratio=(EPS%Stock
Div.)/EPS
Bangas
0.8
Limited
(Major)
ROE (Bangas) 26.06
in %
Sustainable
growth rate ,g 20.85
=ROE*Ret
ratio (Bangas)
Inflation Rate
(Annual)
GDP Growth
Rate (Annual)

9.94%
6.2%

6.66%

7.31%

8.80%

10.62%

5.74%

6.07%

6.71%

6.32%