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Introduction:

Some financial analysts feel that the consideration of a dividend policy is irrelevant because
investors have the ability to create “homemade dividends”. These analysts claimed that this
income is achieved by individuals adjusting their personal portfolios to reflect their own
preferences. For example, investors looking for a steady stream of income are more likely to
invest in bonds (in which interest payments don't change), rather than a dividend-paying stock
(in which value can fluctuate). Because their interest payments won't change, those who own
bonds don't care about a particular company's dividend policy but again what about those
investors who interested in dividend-paying stock. Determining dividend policy has been one of
the most difficult challenges facing by financial economist. Somehow, we have not yet
completely understood the factors that influence dividend policy and the manner in which these
factors interact.

An Overview of Determining Dividend Policy:

The study on dividend policy decision according to Dr. Gurdep Chawala of National University,
California highlighted that dividend theories such as MM proposition, tax preference, and bird-
in-the-hand theories have presented wide ranging arguments from dividend irrelevance to low
dividends to high dividends. The argument is elaborate further on the dividend theory as stated
below.
• MM Proposition Theory:
MM proposition theory emphasized that a company’s value depends on the types of investments
it makes, the associated business risk and the earnings which the company’s generated. The
argument from Merton Miller and Franco Modiglaini (MM) is that investors can generate their
own dividends by selling their stock and their arguments are valid under restrictive assumptions
which include : no personal or corporate income taxes, no flotation or transactions costs,
investors are indifferent between dividends and capital gains, companies’ dividend policies and
capital budgeting decisions are independent and availability of symmetric (or same) information
to investors and managers. Somehow, MM proposition has been challenged because of its
unrealistic assumptions.
• Tax Preference Theory:
On tax preference theory, Litzenberger and Ramasamy highlighted that there are taxes in real
world and tax rates on capital gains have historically been lower than tax rates on ordinary
income . Taxes on capital gains can be postponed until realized (securities are sold) in future
years but ordinary income is taxed in current year. Therefore, investors prefer companies that
pay low or no dividends and postpone the distribution of earnings.

• Bird-in-The-Hand Theory:
In contrast to MM proposition and Litzenberger and Ramaswamy favoring low dividends,
Gordon and Lintner have advocated high dividends. They have developed “bird-in-the-hand’
theory and argued that dividends paid during current period are more certain than promises for
capital gains and higher returns in future. They have further argued that investors are risk averse
and require higher returns for taking higher risk. This mean, a company paying low or no
dividends would experience higher cost of capital which would result in increased overall costs
in running their business and this will decreased their earnings thus lower stock prices.

Contradiction in Dividend Theory:


According to Dr. Gurdeep Chawla, MM have called Gordon and Lintner’s theory “bird-in-the-
hand” fallacy and acknowledged that stock prices increase as a result of more than expected
increase in dividends. They have claimed that, companies are usually reluctant to cut dividends
and, therefore, an increase in dividends indicates managers’ expectations about increased
earnings, increased cash flows, and better company performance in future.

MM have further stated that a company sends positive signal to market about its future
performance by increasing dividends and it leads to increase in stock prices. Changes in
dividend policy would make the company more or less appealing to different types of investors,
impact
demand for its securities, and lead to change in stock prices.
Overall, these theories contradict each other and advocate different approaches to formulating
dividend policies. Somehow, according to Dr.Gurdep Chawla, empirical studies have been
conducted to evaluate the dividends theories but the results are inconclusive because the
difficulty in explaining the changes in stock prices which can be attributed to a number of
variables.
Companies’ Dividend Policy:
Dividend policy is the policy used by a company to decide how much it will pay out to
shareholders in dividends. After deducting expense from the revenue, a company generates
profit. Part of the profit is kept in the company as retained earnings and the other part is
distributed as dividends to shareholders. From the share valuation model, the value of a share
depends very much on the amount of dividend distributed to shareholders.

Dividends are usually distributed in the form of:

• Cash dividends (most common) are those paid out in the form of a check. Such
dividends are a form of investment income and are usually taxable to the recipient in the
year they are paid. This is the most common method of sharing corporate profits with the
shareholders of the company. For each share owned, a declared amount of money is
distributed. Thus, if a person owns 100 shares and the cash dividend is $0.50 per share,
the person will be issued a check for 50 dollars.
• Stock dividends are those paid out in form of additional stock shares of the issuing
corporation, or other corporation (such as its subsidiary corporation). They are usually
issued in proportion to shares owned (for example, for every 100 shares of stock owned,
5% stock dividend will yield 5 extra shares). If this payment involves the issue of new
shares, this is very similar to a stock split in that it increases the total number of shares
while lowering the price of each share and does not change the market capitalization or
the total value of the shares held.
• Property dividends are those paid out in the form of assets from the issuing corporation
or another corporation, such as a subsidiary corporation. They are relatively rare and
most frequently are securities of other companies owned by the issuer, however they can
take other forms, such as products and services.
• Other dividends can be used in structured finance. Financial assets with a known market
value can be distributed as dividends; warrants are sometimes distributed in this way. For
large companies with subsidiaries, dividends can take the form of shares in a subsidiary
company. A common technique for "spinning off" a company from its parent is to
distribute shares in the new company to the old company's shareholders. The new shares
can then be traded independently.

When a company distributes a cash dividend, it must have sufficient cash to do so. This creates a
cash flow issue. Profit generated may not be in the form of cash. Insufficient cash may mean the
company is unable to distribute a dividend. Investors earn returns from their shares in the form
of capital gains and dividend yield. Dividend yield is an important ratio in evaluating
investment. For example, if XTZ Bank distributed a $6.30 dividend per share in 2009 and if an
investor purchased shares in of that bank at $87 per share, the company’s dividend yield was
7.2% ($6.30/$87). Dividend payout ratio is another important indicator:
Dividend payout ratio = Dividend per share ÷ Earnings per share
This ratio indicates how much of the profit is distributed as dividend to shareholders. The higher
the dividend payout ratio, the more attractive the share is to shareholders. Dividend payout ratios
vary among companies. There are drastic differences between the dividend payout ratios in
different industries. The banking industry had a higher dividend payout ratio than property
developers. This is due to one important accounting issue. A large proportion of the profit
earned by property developers is not cash in nature, so these companies cannot distribute high
dividends.

Other factors in addition to profit and cash flow may influence the dividend level. In some
countries, dividends are taxable. The higher the dividend, the higher the tax an investor needs to
pay. In such cases, high dividends are not desirable. If a company is expanding, it needs to keep
sufficient cash for its plans rather than having to go to the equity or debt market to raise
additional finance.

Dividend policy is based on the answers to several important questions:


• How much dividend should a company distribute to shareholders?
• What will the impact of the dividend policy be on the company’s share price?
• What will happen if the amount of dividend changes from year to year?
Common dividend policies are the stable dividend policy, constant payout ratio and residual
dividend policy.
• In the stable dividend policy, management maintains a fixed dividend per share each
year. The impact on share pricing can be seen from the share valuation formula
P0 = D1/(r-g)
Where P0 is the current price,
D1 is the dividend in the coming year,
r is the required equity return and
g is the dividend growth rate.
If there is no growth in dividend, g=0, and P0 = D1/r.
After one year P1 = D1/r but D1 = D2.
Thus P1 = P2 and there is no growth in the share price.
• In the constant payout ratio situation, management maintains a fixed percentage dividend
payout ratio. For example, both Esprit and Hong Kong Exchanges and Clearing have
indicated that they distribute about 80% and 90% of their profit respectively as
dividends.
This provides clear direction to investors.

• In a residual dividend policy, profits are used to fund new projects with the residual or
remaining profit distributed as dividends. If a company has a profit of $100 million and
is going to fund a new development project costing $60 million, the remaining $40
million will be distributed as dividends. The calculations are slightly more complicated if
the company wants to maintain its target debt-equity ratio. Using the same example,
assume the target debt-equity ratio is 0.5. If the whole $100 million is kept in the
company as retained earnings, equity is increased by $100 million. To maintain the target
debt-equity ratio, the company must borrow an additional $50 million. If there is a new
project requiring $60 million, this sum is also funded using the same debt-equity ratio.
That is, the company needs to raise $20 million debt and $40 million equity. Since the
profit is $100 million, the amount of dividend distributed is $60 million ($100 million -
$40 million).

Investors prefer steady growth of dividends each year and avoid investment to companies with
fluctuating dividend policy. Some companies reduced their dividends during weak economic
times but others were still able to maintain the same dividend per share. Dividend theory
includes an argument called dividend irrelevance which was proposed by two Noble Laureates,
Modigliani and Miller. They argued that if a company distributed high dividends now it may
reduce its dividends later and thus the total effect is zero in time value. For example, a company
may distribute a dividend of $1.1 per share and investors may expect it can maintain this
payment for some time. Eventually the company reduces its dividend to $0.89 per share and the
ultimate time value result is the same.

A sudden increase in dividend may not be a good sign. In an efficient market, investors are able
to distinguish between a genuine dividend increase and an artificial dividend increase. A
company must not cut a positive NPV project by paying dividends. Otherwise, dividends cannot
be maintained. It must not reduce its dividend as this may imply there are cash flow problems. A
company should try to pay dividends but at the same time maintain sufficient retained earnings
to avoid having to raise new finance. A company must never allow the distribution of high
dividend to be funded by borrowing money and worsening its debt-equity ratio. Finally, the
company should set a target dividend payout ratio which is constructive but which also depends
on the stability and prospects of the business.

On deciding the amount of dividend payment, a company determines the amount of payment
based on the residual dividend policy where a company uses internal equity (retained earnings)
to finance its projects first and then any leftover (residual) earnings are distributed to
shareholders in form of dividends. However, dividends tend to fluctuate under this policy
because dividends depend upon the capital budget and retained earnings of a particular year
which might change from year to year and this situation create more uncertainty for investors
and they demand higher returns for increased risk which raises companies’ cost of capital. In
addition, a decrease in dividends might send a negative signal to the market and adversely
impact stock prices. Therefore, the policy can be used for long-term planning but can not be
strictly implemented every year.

Importance of dividend policy:


Shareholders look into the capability of companies to initiate a dividend. Dividends are
payments made by a company to a shareholder usually after a company earns a profit (Wikipedia
2007 [online]). Since dividends are money divided to shareholders after a profit, it is not
considered a business expense but a sharing of recognized assets among shareholders. Dividends
are either paid regularly or can be called out anytime. Consequently, a dividend policy is a set of
company rules and guidelines used to decide how much the company will pay out to its
shareholders.

A dividend policy is first known as a heavy factor in a company’s stock value. However, more
scholars are suggesting that corporate dividend policies do not matter and should not matter in a
company’s stock value. Arguments against dividend policies start from the fact that investors can
create their own dividends on other investment option. A wise investor can look at more stable
bonds to earn a return of investment rather than a dividend policy that can fluctuate. Secondly,
earning from dividends is taxed higher than capital gains. For these reasons, investors are not
lured to relative corporate dividend policies of companies as an accurate value of their stock.

Some companies believe that a no-dividend policy is just as sound as companies with a dividend
policy. Companies without a dividend policy can use their profit earnings to reinvest and expand
the company shares or buy assets. Having a dividend policy foregoes these opportunities.

For people who value profit certainty of a company, a sound dividend policy is important. It
follows that a high and regular corporate dividend policy means that companies have a
benchmark for doing well. Therefore, more dividends can equate to the overall health of the
company. Dividend policies are more valuable to small companies or cooperatives with excess
cash and a few good projects where the net present value of these projects is positive. Meanwhile
companies, without excess cash but have several good projects where NPV is also positive will
only derail the undertaking of current projects. While a good corporate dividend policy is equated
to excess cash, the value of the company is not hinged on the value of dividends as there are other
indicator’s of a company’s performance.

There are different kinds of dividend policies. First, residual dividend policy is a method of
distribution where dividends are paid after all the requirements for capital are met. Thus,
dividends are computed from the residual cash after spending on new capital goods. The aim of
this dividend policy is to decide if there is enough money left after all costs are met.

A cyclical policy or stable policy is a regular dividend payout usually given every quarter. A
cyclical dividend policy is set at a fixed fraction of quarterly earnings while a stable policy is set
as a fraction of yearly earnings. This produces certainty for investors that they get regular income
for their investments.

In the end, the value of dividend policies falls on investor decisions. While there are contrasting
views of its usefulness, the most important factor is achieving the best bang-for-buck.

The free cash flow theory of dividends:

Under this theory, the dividend decision is very simple. The firm simply pays out, as dividends,
any cash that is surplus after it invests in all available positive net present value projects.
A key criticism of this theory is that it does not explain the observed dividend policies of real-
world companies. Most companies pay relatively consistent dividends from one year to the next
and managers tend to prefer to pay a steadily increasing dividend rather than paying a dividend
that fluctuates dramatically from one year to the next. These criticisms have led to the
development of other models that seek to explain the dividend decision.
Dividend clienteles:
A particular pattern of dividend payments may suit one type of stock holder more than another.
A retiree may prefer to invest in a firm that provides a consistently high dividend yield, whereas
a person with a high income from employment may prefer to avoid dividends due to their high
marginal tax rate on income. If clienteles exist for particular patterns of dividend payments, a
firm may be able to maximize its stock price and minimize its cost of capital by catering to a
particular clientele. This model may help to explain the relatively consistent dividend policies
followed by most listed companies.
A key criticism of the idea of dividend clienteles is that investors do not need to rely upon the
firm to provide the pattern of cash flows that they desire. An investor who would like to receive
some cash from their investment always has the option of selling a portion of their holding. This
argument is even more cogent in recent times, with the advent of very low-cost discount
stockbrokers. It remains possible that there are taxation-based clienteles for certain types of
dividend policies.
Information signaling:
A model developed by Merton Miller and Kevin Rock in 1985 suggests that dividend
announcements convey information to investors regarding the firm's future prospects. Many
earlier studies had shown that stock prices tend to increase when an increase in dividends is
announced and tend to decrease when a decrease or omission is announced. Miller and Rock
pointed out that this is likely due to the information content of dividends.
When investors have incomplete information about the firm (perhaps due to opaque accounting
practices) they will look for other information that may provide a clue as to the firm's future
prospects. Managers have more information than investors about the firm, and such information
may inform their dividend decisions. When managers lack confidence in the firm's ability to
generate cash flows in the future they may keep dividends constant, or possibly even reduce the
amount of dividends paid out. Conversely, managers that have access to information that
indicates very good future prospects for the firm (e.g. a full order book) are more likely to
increase dividends.
Investors can use this knowledge about managers' behavior to inform their decision to buy or
sell the firm's stock, bidding the price up in the case of a positive dividend surprise, or selling it
down when dividends do not meet expectations. This, in turn, may influence the dividend
decision as managers know that stock holders closely watch dividend announcements looking
for good or bad news. As managers tend to avoid sending a negative signal to the market about
the future prospects of their firm, this also tends to lead to a dividend policy of a steady,
gradually increasing payment.

Practices of Dividend Policy in Bangladesh:

As Bangladesh is a developing country, the corporate culture is growing very slightly in our
country. Dividend policy is a major financing decision that involves with the payment to
shareholders in return of their investments. Every firm operating in a given industry follows
some sort of dividend payment pattern or dividend policy and obviously it is a financial
indicator of the firm. Thus, demand of the firm’s share should to some extent is dependant on
the firm’s dividend payment pattern. Many investors like to watch the dividend yield, which is
calculated as the annual dividend income per share divided by the current share price. The
dividend yield measures the amount of income received in proportion to the share price. If a
company has a low dividend yield compared to other companies in its sector, it can mean two
things:
• the share price is high because the market reckons the company has impressive prospects
and isn’t overly worried about the company’s dividend payments, or
• the company is in trouble and cannot afford to pay reasonable dividends.
At the same time, however, a high dividend yield can signal a sick company with a depressed
share price. Dividend yield is of little importance for growth companies because, retained
earnings will be reinvested in expansion opportunities, giving shareholders profits in the form of
capital gains.

Objectives of the study:


Dividend policy has been seen as the key financing decisions affecting the firm. This study looks
at the dividend policy of a sample of only following 5 out of 12 firms quoted on the Dhaka
Stock Exchange (under food sector) and examines the relationship between dividend policy and
other related variables over the fiscal years between 2002 and 2006:
 AMCL (PRAN)
 British American Tobacco Bangladesh Company Limited
 Apex Foods Limited
 Bangas Limited
 Fu-Wang Foods Limited.

Methodology:
The study was based on financial data and information collected from the ‘Annual Reports’ of
the five food sectorindustries of Bangladesh. The disclosure of information is inadequate. In
many cases we found that further explanation or elaboration was necessary to understand
financial data. In those cases we had to make assumption to calculate the different financial
ratios and multiples. Each student is assigned with analysis of one company and later on the
group data are used for the industry analysis.

Brief Overview of the Selected Companies:

I. AMCL PRAN:
PRAN stands for Programme for Rural Advancement Nationally.
“PRAN” is currently the most well known household name among the millions of people in
Bangladesh and abroad also. Since its inception in 1980, PRAN Group has grown up in stature
and became the largest fruit and vegetable processor in Bangladesh. It also has the distinction of
achieving prestigious certificate like ISO 9001:2000, and being the largest exporter of processed
agro products with compliance of HALAL & HACCP to more than 70 countries from
Bangladesh.

PRAN is the pioneer in Bangladesh to be involved in contract farming and procures raw material
directly from the farmers and processes through state of the art machinery at our several factories
into hygienically packed food and drinks products. The brand “PRAN” has established itself in
every category of food and beverage industry and can boost a product range from Juices,
Carbonated Drinks, Confectionery, Snacks, and Spices to even Dairy products.
Today, our consumers not only value “PRAN” for its authentic refreshing juice drinks
products , but also for its mouth watering quality confectionery products with high visual appeal
and exciting texture. We intend to expand our presence to every corner of the world and strive to
make “PRAN” a truly international brand to be recognized.
The main items produced by AMCL PRAN are:

• Juices

• Beverage

• Confectionary

• Drink

• Culinary

• Snacks

• Biscuits and Bakery

• Dairy
Some financial information:

Market Cap in BDT (mn) 1488


Authorized Capital in BDT (mn) 500
Paid-up Capital in BDT (mn) 80
Face value 100
Total number of securities 800,000
Reserve and surplus in BDT (mn) 217
Current Price Earning Ratio (P/E) 35
(Based on Continuing operation)
Listing year 1996
Category A

II. British American Tobacco Bangladesh Company Limited:


The company goals are “to grow our brands and the value of the business, to improve
productivity and to embed the principles of corporate responsibility around the Group.” It is
one of the first multinational company to invest in Bangladesh (in 1910). British American
Tobacco Bangladesh, is the market leader in cigarette manufacturing companies in Bangladesh.
BATB is a company faced with multifarious challenges of tobacco manufacturing industry.

British American Tobacco Bangladesh (BATB) is one of the pioneer cigarette manufacturers in
the world. The company was formed at the turn of the 20th century with the objective of
establishing a worldwide business. Today British American Tobacco sells the leading brands in
over 30 markets covering 102 countries, has more than 200 brands worldwide, employs more
than 55,000 people and produces some 2 billion cigarettes every day.

British American Tobacco Bangladesh Company Limited is one of the largest private sector
enterprises in Bangladesh, incorporated under the Company’s Act 1913 on 2nd February 1972.
BAT has over the decades consistently invested in Bangladesh market through Bangladesh
Tobacco Company (BTC).

Some financial information:

Market Cap in BDT (mn) 44898


Authorized Capital in BDT (mn) 600
Paid-up Capital in BDT (mn) 600
Face value 10
Total number of securities 60 million
Reserve and surplus in BDT (mn) 4562
Current Price Earning Ratio (P/E) 16.8
(Based on Continuing operation)
Listing year 1977
Category A

III. Apex Foods Limited:


It is basically a shrimp and fish processing industry situated in Chittagong. EU, Japan and USA
are the principal buyers of the shrimps and fish. The processing factory is in Fouzderhat,
Chittagong. This is a sister concern of Apex group, a leading business group of Bangladesh.

Some financial information:

Market Cap in BDT (mn) 633


Authorized Capital in BDT (mn) 150
Paid-up Capital in BDT (mn) 57
Face value 100
Total number of securities 570240
Reserve and surplus in BDT (mn) 135
Current Price Earning Ratio (P/E) 53.08
(Based on Continuing operation)
Listing year 1981
Category A

IV. Bangas Limited:


Bangas Ltd is Established in 1980 and is a well known manufacturer and exporter of a wide
array of delectable Biscuits, Noodles, chips etc. It is a public Limited company in Bangladesh.
Presently the company is exporting products to Asia, USA & Europe.

Some financial information:

Market Cap in BDT (mn) 214


Authorized Capital in BDT (mn) 15
Paid-up Capital in BDT (mn) 9
Face value 100
Total number of securities 90000
Reserve and surplus in BDT (mn) 5.83
Current Price Earning Ratio (P/E) 143
(Based on Continuing operation)
Listing year 1984
Category A

V. Fu-Wang Foods Limited:


It is a concern of Fu-Wang group and started its commercial operation in 1997. It is an ISO
-9002 certified food and beverage processing industry. The main products are biscuits, cakes,
chips, bread and other food items.
Some financial information:

Market Cap in BDT (mn) 1888


Authorized Capital in BDT (mn) 1000
Paid-up Capital in BDT (mn) 202
Face value 10
Total number of securities 20240000
Reserve and surplus in BDT (mn) 53.38
Current Price Earning Ratio (P/E) 44.86
(Based on Continuing operation)
Listing year 2000
Category A

Findings from Annual Report Analysis:

AMCL PRAN
OCF
FCF/ Growth (%)
Ye DP OC / Pri
Share EPS FCF Shar P/E NAV
ar S F Sha ce
e
re Sale Earning
s s
-
20 800,0 54.2 54. 68.1 - 37 312. 11.8
25 30.6 6.9 2.38
02 00 6 5 3 24.5 5 8 6
3
-
20 800,0 55.4 91.2 42 343.
24 73 -21 26.2 7.7 5.02 2.23
03 00 8 5 6 4
5
20 800,0 50.3 13 170. 131. 13. 67 362.
24 105 2.92 -9.19
04 00 9 6 0 3 3 1 3
20 800,0 50.9 13 167. 73.2 40 386.
26 58.6 7.7 2.97 1.17
05 00 6 4 0 5 1 6
20 800,0 36.1 14 183. 137. 10. 38 396.
26 109 8.65 -29.02
06 00 8 7 3 0 7 6 1

Analysis:
• Total numbers of shares (800,000) do not change over the span of 5 years.
• EPS is almost constant around (50 taka) expect in 2006. This is basically due to year
long political unrest and strikes and also intense competition and increase in raw
materials of the products.
• Dividend varies over a narrow range of 24-26 taka. The company is following stable
dividend policy irrespective of earnings of the company.
• Operative cash flow and hence OCF per share is constantly increasing over the years
from 68.13 taka to 183.3 taka. So, the cash from operative activities is increasing.
• Free cash flow and hence FCF per share is also increasing over the period from -30.63
taka to 137.0 taka.
• There is no regular trend in price earnings ratio. The highest value was seen in 2004 and
then it decreased.
• Highest market price of share is also seen 2004. Then the price decreased.
• Net asset value increased over the period at a constant moderate rate.
• In every year, there was growth in sales but the magnitude varied from 2.92% to 11.86%
but in some years there were negative growth in earnings particularly in 2006. The
reasons are political unrest and increase in price of raw materials.
• The share of sponsors in ownership structure remained unchanged at 42.75%. but share
of institutional investors reduced from 17.44% to 6.35% whereas the share of
general/public investors increased from 39.81% to 50.9%.

BATBCL

OCF
Sha FCF/ Growth (%)
Ye DP OC / FC
re EPS S
Shar P/E Price NAV
ar F Sha F
(ml) e
re Sale Earnin
s gs
20 16.5 10 17.3 42 133. 39.0 13.5
60 11 7.15 8.08 13.39
02 2 42 7 9 48 9 6
20 14.5 65 10.8 - 10.4 151. 38.4
60 10 -0.23 8.29 -12.11
03 2 1 5 14 3 44 8
20 11.2 71 11.9 29 93.4
60 10 4.97 8.33 38.7 6.21 -22.73
04 2 5 2 8 6
20 16 27.7 88 14.7 18.1 70.3 39.3
60 3.88 3 7.29 -65.38
05 67 8 4 3 4 8 8
20 11 19.6 48 13.9 84.1 19.0
60 6.03 3 8.13 42.4 55.36
06 81 8 8 5 2 6
Analysis:
• Total numbers of shares (60 million) do not change over the span of 5 years.
• EPS is almost continuously reducing over the years. This is basically due to increase in
tax burdens and entrance of new brands of local cigarette manufacturing companies.
• Dividend varies over a wide range of 3-11 taka. The company is a cash cow company. It
distributed dividend as per income. In 2002, when the EPS was very high, it gave 110%
cash dividend but as the earnings reduced over the period, in 2006, the company gave
only 30% cash dividend. But, this dividend is also high in comparison to most of the
listed manufacturing companies.
• Operative cash flow and hence OCF per share did not show any specific trends. The
highest value is seen in 2005.
• Free cash flow and hence FCF per share did not show any specific trends. The highest
value is also seen in 2005. In 2003, the FCF is negative.
• There is no regular trend in price earnings ratio. The highest value was seen in 2005 and
then it decreased.
• Highest market price of share is seen 2003. Although price earnings ratio in 2005 is
highest among these five years, price is lowest due to extremely low EPS in 2005.
• Net asset value is almost constant within a narrow range of 38.48 to 42.4 taka.
• In every year, there was growth in sales but the magnitude varied from 6.21% to 19.06%.
In most of the years there were negative growth in earnings particularly in 2005. The
reasons are increased competition from other cigarette manufacturer and increased tax
burden.
• The share of sponsors in ownership structure remained unchanged at 65.91% but share of
institutional investors reduced from 31.65% to 28.51% whereas the share of
general/public investors increased from 2.44% to 5.58%.
Bangas Limited

OCF/ FCF/ Growth (%)


Ye Shar OC FC Pric
EPS DPS Shar Shar P/E NAV
ar e F F e
e e
Sale Earnin
s gs
20 9000 11. 12. 2. 28.8 1.7 19.5 20. 224. 148.
8.55 -14.41
02 0 17 5 6 9 6 6 14 96 19
20 9000 13. 12. 4. 45.5 2.0 22.7 17. 240. 161. -
19.8
03 0 48 5 1 6 5 8 81 08 67 11.9
-
20 9000 2.8 12. 6. 72.2 - 10. 30.5 150. 122.3
73.2 4.98
04 0 2 5 5 2 6.6 82 1 74 1
2
20 9000 7.0 12. 8. 96.6 8.1 90.8 33. 238. 144.
2.15 -76.21
05 0 7 5 7 7 8 9 72 40 06
20 9000 14. 8. 92.2 9.8 109. 14. 217. 146. 110.9
13 4.54
06 0 97 3 2 4 33 56 96 54 4
Analysis:
• Total numbers of shares (90,000) do not change over the span of 5 years.
• EPS is almost shown a sine curve pattern. First it increased, then dropped a lot and then
increased again.
• Dividend varies over a narrow range of 12.5-13 taka. The company is following stable
dividend policy irrespective of earnings of the company.
• Operative cash flow and hence OCF per share is constantly increasing over the years at a
good rate. In the year 2002, the OCF was 2.6 taka which rose to 8.3 taka in the year
2006.
• Free cash flow and hence FCF per share increased every year except in the year 2004.
• There is no regular trend in price earnings ratio. The highest value was seen in 2005 and
then it decreased.
• Highest market price of share is seen 2003. Although price earnings ratio in 2004 is
moderate, price is lowest due to extremely low EPS in 2004.
• Net asset value is almost constant within a narrow range of 144.06 to 161.67 taka.
• In every year, except the year 2003, there was growth in sales but the magnitude varied
from 2.15% to 8.55%. The growth in earnings showed an erratic trend. In some years,
there were high positive growths which were followed by high negative growths.
• The share of sponsors in ownership structure remained unchanged at 50.0% but share of
institutional investors increased from 23.3% to 25.2% whereas the share of
general/public investors reduced from 26.7% to 24.68%.

APEXFOODS LIMITED
Growth
OCF/ FCF/
Ye DP OC NA (%)
Share EPS Shar FCF Shar P/E Price
ar S F V
e e
Sale Ern
s gs
- - - -
20 570,2 14. - 18.8 281. 63
12 149. 168. 296. 15.3 9.6
02 40 92 85 8 69 5
4 9 1 0
- - -
20 570,2 22. - 343. 64 32.4 52.
12 154. 100. 175. 15.1
03 40 75 88 53 6 4 40
3 0 4
20 570,2 26. 73. 128. 31.5 55.3 17.4 457. 66 16.5 15.
13
04 40 29 4 72 5 3 1 71 0 1 60
- - -
20 570,2 22. 33. 58.7 15.2 346. 68 -
15 16.5 29.0 13.
05 40 77 5 5 1 33 0 11.0
6 4 4
-
20 570,2 21. 80. 141. 127. 224. 130. 67 24.6
16 6.0 4.4
06 40 76 6 34 97 41 56 0 0
0
Analysis:
• Total numbers of shares (570,240) do not change over the span of 5 years.
• EPS is almost shown a opposite U pattern. First it increased, and then decreased.
• Dividend varies over a narrow range of 12.0-16.0 taka. The company is following almost
stable dividend policy irrespective of earnings of the company.
• Operative cash flow and hence OCF per share was a great negative in the first two years.
Later on it improved a lot.
• Free cash flow and hence FCF per share showed an erratic trend. They are negative in 3
years but it was exceptionally good in the year 2006.
• There is no regular trend in price earnings ratio. Except the year 2006, the range was
small but in 2006, the P/E ratio dropped drastically.
• Highest market price of share is seen 2004. Although EPS in 2006 was quite good, price
is lowest due to extremely low P/E ratio in 2006.
• Net asset value is almost constant within a narrow range of 635-680 taka.
• In every year, expect in the year 2005, there was growth in sales but the magnitude
varied from 15.3% to 32.44%. In most of the years there were negative growth in
earnings but the earnings growth in 2003 is exceptional.
• The share of sponsors in ownership structure reduced from 41.4% to 36.44% and the
share of institutional investors reduced from 15.24% to 6.31% whereas the share of
general/public investors increased from 43.36% to 57.53%.

FUWANG FOODS
LIMITED
OCF
Sha FCF/ Growth (%)
Ye DP / Pric
re EPS OCF FCF Shar P/E NAV
ar S Sha e
(ml) e
re Sale Erng
s s
20 15.5 - 11.1 34.3 288.
1.6 1.86 1.2 9.72 -0.82 5.11 9.50
02 5 1.32 4 2 65
20 23.3 28.6 17.9 11.2 11.1 22.4 45.4
1.6 1.62 1.2 37.3 6.97
03 1 8 3 9 8 7 3
20 47.1 29.4 32.7 20.4 14.2 11.4
1.6 1.63 1.3 8.71 7.55 0.46
04 5 7 9 9 0 9
-
20 19.9 - 14.1 13.1 14.0
1.6 1.65 1.5 31.9 21.6 8.55 1.15
05 4 34.7 1 4 5
8
20 30.7 35.5 19.3 10.8 11.9
1.6 1.5 1.6 56.6 7.2 9.97 4.40
06 6 7 3 0 2

Analysis:
• Total numbers of shares (1.6 million) do not change over the span of 5 years.
• EPS is almost constant over a narrow range of 1.5-1.86 taka.
• Dividend varies over a narrow range of 1.2-1.6.0 taka (12% to 16%). The company is
following almost stable dividend policy and it is comparable with the earnings of the
company.
• Operative cash flow and hence OCF per shares almost showed a sine curve pattern. First
it increased, then dropped and increased a lot again.
• Free cash flow and hence FCF per share did not show any specific trends. The highest
value is also seen in 2006. In the year 2002 and 2005 , the FCFs are negative.
• There is no regular trend in price earnings ratio. The highest value was seen in 2004 and
then it decreased.
• Highest market price of share is seen 2004. Although EPS in 2002 was the highest
among these five years, price is lowest due to extremely low P/E ratio in 2002.
• Net asset value is almost constant.
• In every year, there was growth in sales but the magnitude varied from 7.55% to 34.32%.
The company showed extra ordinary earnings growth of 289% in the year 2002. The
reasons were not increasing administrative cost with increased sales and reduced tax
holiday reserve than the previous year. However, the company could not continue high
growth trends and it came down to only 0.46% in 2004.
• The share of sponsors in ownership structure remained almost unchanged from 39.46%
to 39.33% but share of institutional investors increase from 2.07% to 12.32% whereas
the share of general/public investors reduced from 58.47% to 48.35% over the span of
these five years.

Conclusion:
The dividend policy of a company determines what proportion of earnings is distributed to the
shareholders by way of dividends, and what proportion is ploughed back for reinvestment
purposes. Since the main objective of financial management is to maximize the market value of
equity shares, one key area of study is the relationship between the dividend policy and market
price of equity shares.

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