Beruflich Dokumente
Kultur Dokumente
Prepared for:
Prepared by:
Md.Taijul Islam Urmee Rahman Saurav Majumder Samiur Rahman Adeep Kabir Hemel (2009-2-10-217) (2009-1-10-169) (2008-3-10-062) (2010-2-10-014) (2010-1-10-048)
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04 April, 2013
Dr. Tanbir Ahmed Chowdhury Professor Department of Business Administration East West University
Dear Sir: Here is the assignment on Analysis of the Dividend Policy: A Study on the ACI Pharmaceuticals Ltdthat we would like to submit for the requirement of our Managerial Finance course. In preparing the assignment, we have made sincere efforts to present the relevant information pertinent to this report and have analyzed them accordingly. In this connection, may we urge upon the benign honor of yours to go through the assignment and let us know about any change and adjustment needed in the assignment.
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Acknowledgement
At the very outset, we would like to express our sincere gratefulness to the Almighty Allah, the most merciful and beneficiary for empowering us to accomplish the dissertation within scheduled time.
We are highly indebted to our course instructor, Dr. Tanbir Ahmed Chowdhury. He allowed us to encroach upon his precious time right from the very beginning of this paper work till the completion. His expert guidance, affectionate encouragement and critical suggestion provided us necessary insight into the problem and paved the way for the meaningful ending of this assignment work in a short duration. Without his constant supervision and valuable advices a suggestion from time to time, we would not be able to complete the whole thing in a right manner.
We would like to thank all those who contributed through their comments and suggestions to prepare the term paper in a comprehensive manner.
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Executive Summary
This report provides an analysis and evaluation of dividend policy of ACI Limited. A dividend is a usually distributed in cash form to stock holders of a corporation approved by the board of director. It may also include stock dividend or other forms of payment. A stock dividend represents a distribution of additional shares to common stockholders. Dividend policy is the most important thing for a public or private limited company. It is the key tool for attracting investors towards the company. A company can pay dividend in several ways. In this study we have analyzed those ways of paying dividend of the ACI Limited. We have finished this work as much efficiently as we could. In this report we have worked on the dividend policy of the ACI Limited. The data needed were collected from the annual reports of the Company over last 5 years, the website of the company, the website of the Dhaka stock exchange and DSE Library. We also took help from the class lectures and the managerial finance text book while preparing the theory part of the assignment and while taking the decision about the dividend policy of the ACI Limited. We have gone through the study by analyzing the following things of the bank over last five years data: Net Income (NI) Earnings Per Share (EPS) Retained Earnings (RE) Cash Dividend Stock Dividend Dividend Payout Ratio
Based on these data we have worked on the dividend policy of the ACI Limited and come to the conclusion that is they give more cash dividend. They give stock dividend at irregular basis and follow dividend Relevance theory and the low regular and extra dividend policy to pay shareholders dividend. Finally we give some recommendations for the company to do their business well further. In this way, we have prepared our study in a well manner and as relevant and reliable as possible.
1. Introduction:
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Table of content
1.0 Introduction 1
1.1 Origin of the Study 1 1.2 Objective of the Study ...1 1.3 Scope of the Study 2 1.4 Methodology 2 1.5 Limitations 2 1.6 Report Preview .3
2.0 Dividend 3
2.1 Dividend policy ...3 2.2 Dividend types .4 2.2.1 Cash dividend ...4 2.2.2 Stock dividend ..4 2.2 Theories related to dividend policies ..4 2.2.1 The Residual Theory of Dividend ...5 2.2.2 Dividend Irrelevance Theory ...5 2.2.3 Dividend Relevance Theory ...6 2.3 Types of Dividend Policies 6 2.3.1 Constant Payout Ratio 7 2.3.2 Regular Dividend Policy .7 2.3.3 Low Regular and Extra Dividend Policy 7 2.4 Factors Affecting Dividend Policies ..7 2.4.1 Legal Constraints 8 2.4.2 Contractual Constraints ..8 2.4.3 Growth Prospects 9 2.4.4 Internal Constraints .9 2.4.5 Owners Consideration .9 2.4.6 Market Consideration .10 2.5 Other Important Terms ..10 2.5.1 Stock Split ..10 2.5.2 Stock Repurchase 10
3.5 Values 13 3.6 Nature of ACI Pharmaceuticals Ltd ..13 3.7 Production departments of ACI Pharmaceuticals Ltd. 14 3.8 Bases of Production Department determination ...14 3.9 Product Line .14 3.10 Strategic priorities ..14
5.0 Findings .23 6.0 Recommendations ..................................................................24 7.0 Conclusions .............................................................................25 8.0 Reference ................................................................................25
Money or fund is the life blood of any business. Success of any organization depends on availability and utilization of this fund. Owners and shareholders are the major provider of funds for any kind of business. Therefore, organizations and business tries to maximize the wealth of the shareholders and owners. However, maximizing wealth is not an easy task. And not all shareholders are looking for long term wealth maximization. So, company provide dividend to the shareholders in a view to satisfy their short term needs. Besides, dividend also helps to increase the price of firm's shares. To some shareholders,dividend also carry a signal about the financial health of the firm. In this assignment we have tried to find out ACI's dividend policy, and other issues related to dividend policy and decisions.
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In today's rapidly moving world, only theoretical knowledge does not cover our needs. To keep up with this fast moving business world we have to acquire practical as well as theoreticalknowledge. Assignment and reports gives us the chance to implement our theoretical knowledge in practical life. Therefore, the reason of this report is to know about real world business and link them with our academic knowledge. We have been assigned to prepare this report by our honorable faculty Mr. Tanbir Ahmed Chowdhury, as a requirement of our Managerial Finance" (FIN-435) course. Managerial Finance is a major course and a very important part to the completion of our undergraduate program. Because of his proper guidance we are able to complete this report in a very well manner and short time.
1.4 Methodology:
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We have tried to use secondary source to collect relevant information. We have used Dhaka Stock Exchange and ACI website to collect information. Sources: 5 years annual report of ACI from year 2007-2011. Financial information in Dhaka stock exchange. Website of the ACI. DSE Library
All the information we have collected here are from valid sources.
1.5 Limitations:
Limitations are part off report. We knew that there will be some difficulty in preparing this report and we have taken preparation very well. The main limitations that we have faced are given below: 1. Unavailability of data: This is the major problem that we have faced to prepare this report. There are very limited data available in the internet. So, we had to go to the corporate office to collect all the necessary information. 2. Limited time: Time is always a problem . If we want to prepare a comprehensive report , we need more time. 3. Conservativeness of the management: In Bangladesh business executives are conservative. They don't want to share any information. Collecting information is from them is very hard. 4. Relevancy of information: We have to go through a lot of information to prepare this report. Not all the information are relevant and we cannot use everything. So, it was a very difficult to identify the relevance information re-arrange them according to structure. In spite of all the limitations we have we have worked so hard to prepare this report. We have overcome these limitations and successfully submit this report on time.
Then we compared those information and created link between them to find out the dividend policy of ACI.
2. Dividend:
Dividend refers to the corporate net profits distributed among shareholders. Dividends can be both preference dividends and equity dividends. Preference dividends are fixed dividends paid as a percentage every year to the preference shareholders if net earnings are positive. After the payment of preference dividends, the remaining net profits are paid or retained or both depending upon the decision taken by the management. Dividend is that part of the profits of a company which is distributed amongst its shareholders.According to ICAI, "Dividend is a distribution to shareholders out of profits or reserves available for this purpose."
If a firm give dividend in form of stock then it is called stock dividend. Organizations declare stock dividend to increase the amount of retained earnings to maximize the wealth of the shareholders.Firms pay stock dividend as a replacement for or supplement to cash dividend. After the dividend is given, the per-share value of the shareholders stock decreases in proportion to the dividend in such way, that the shareholders proportion of ownership in the firm also remains the same, and as long as the firms earnings remain unchanged.
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earnings, that is, from earnings left over after all the suitable investment opportunities have been financed. According to this theory the firm should treat dividend decisions in three steps as follows: Determine optimum level of expenditure. Estimate the amount of equity financing needed to support the expenditure. Use retained earnings to meet equity requirement.
The residual theory of dividend focuses on maximize owners by investing more in acceptable projects.
The firm's value is determined solely by the earning power (EPS) and risk of its assets (investment). If dividend do affect value, they do because of informational content. A clientele effect exists that causes a firm's shareholdersto receive the dividend they expect.
Clientele Effect: The argument that a firm attracts shareholders whose preferences for the payment and stability of dividends correspond to the payment pattern and stability of the firm itself. Informational Content: The information provided by the dividends of a firm with respect to future earnings, which causes owners to bid up or down the price of the firms stock.
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an optimal dividend policy, which the managers should seek to determine, that maximises the value of the firm. There are three models, which have been developed under this approach. These are
A dividend policy based on the payment of a fixed dollar dividend in each period. Firms revise and adjust the dividend rate time to time. Naturally dividend increases over time. If the firm incur loss in a particular year, even though the firm may declare dividend from retained earnings.
Dividends can only be paid out of: ** Current or past profits of the company.
o
Money provided by the State/ Central Government in pursuance of the guarantee given by the Government.
Payment of dividend out of capital is illegal. A company cannot declare dividends unless: ** It has provided for present as well as all arrears of depreciation.
o
Certain percentage of net profits has been transferred to the reserve of the company.
Past accumulated profits can be used for declaration of dividends only as per the rules framed by the Central Government
A firm's ability to pay cash dividends is constrained by restrictive provisions in a loan agreement. Generally, these constraints prohibit the payment of cash dividends until a certain level of earnings has been achieved, or they may limit dividend to certain dollar amountor percentage of earnings. Constraints on dividends help to protect creditors from losses due to the firm's insolvency.Lenders sometimes may put restrictions on the dividend payments to protect their interests (especially when the firm is experiencing liquidity problems) Example: A loan agreement that the firm shall not declare any dividend so long as the liquidity ratio is less than 1:1.
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The firm will not pay dividend more than 20% so long as it does not clear the loan.
The firms financial requirements are directly related to the degree of assets expansion that is anticipated. It must evaluate its profitability and risk to develop insight into its ability to raise capital externally. A large, mature firm has adequate access to new capital , whereas a rapidly growing firm may not have sufficient funds to support its acceptable projects. A growth firm is likely to have to depend heavily on internal financing through retained earnings. So, it is likely to pay a small percent of its earning as dividends. A more established firm is in a better position to pay out a large proportion of its earnings if it has ready sources of financing.
percentage of its earnings as dividend, then new equity capital will have to be raised with common stock. The result of new stocks issue may be dilution of both control and earnings for existing owners.
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Stock repurchase enhance the value of shareholders by reducing the number of shares outstanding and thereby raising earnings per share as well as by sending a positive signal to the investors in the marketplace. It also helps to provide a floor for the stock price.
Pharmaceuticals Consumer Brands & Commodity Products Agribusinesses: Crop Care Public Health Livestock & Fisheries Fertilizer Cropex Seeds ACI has the following subsidiaries: ACI Formulations Ltd. ACI Agrgochemicals Apex Leathercrafts Limited ACI Salt Limited ACI Pure Flour Limited ACI Foods Limited Premiaflex Plastics Limited Creative Communication Limited ACI Motors Limited ACI Logistics Limited Joint Ventures: ACI Godrej Agrovet Private Limited Tetley ACI (Bangladesh) Limited Asian Consumer Care (Pvt) Limited
3.3 Mission:
ACIs mission is to enrich the quality of life of people through responsible application of knowledge, skills and technology. ACI is committed to the pursuit of excellence through world-class products, innovative processes and empowered employees to provide the highest level of satisfaction to its customers.
3.4 Vision:
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1.Endeavor to attain a position of leadership in each category of its businesses. 2. Attain a high level of productivity in all its operations through effective and efficient use of resources, adoption of appropriate technology and alignment with our core competencies. 3.Develop its employees by encouraging empowerment and rewarding innovation. 4.Promote an environment for learning and personal growth of its employees. 5.Provide products and services of high and consistent quality, ensuring value for money to its customers. 6.Encourage and assist in the qualitative improvement of the services of its suppliers and distributors. 7.Establish harmonious relationship with the community and promote greater environmental responsibility within its sphere of influence.
3.5 Values:
1. Quality 2. Customer Focus 3. Fairness 4. Transparency 5. Continuous Improvement 6. Innovation
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We have collected Net Income of ACI Group from 2007 to 2011. We see that the net income increased at 2008. Net income was decreased in 2009 and 2010. Then again the net income was increased. It is a positive signal for ACI Group. We hope that the net income will be increased in future year. So, it is a good news for ACI Group. The table of Net Income is given below.
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Amount (Tk) Growth % 313035231 20.54 1075666883 70.89 989561962 -8.70 591590014 -67.27 681129073 13.14 Table : Net income of ACI Group over last 5 years
We can also shows the net income in a graphical way. The graph is given below. We see that the growth rate was high in 2008. Then again it has fallen down. But in 2011 the growth rate is increasing. This is a very good indication for the banks operation, because it will surely have some positive outcome in the banks future operation. More investors will be attracted towards the bank to buy its shares. A graphical presentation is given below about the net income.
Figure : Net Income over last 5 years From the diagram above, we can clearly understand about the increasing trend of net income for ACI Group.
By using this equation the per share earnings is calculated by any organization. High-quality EPS means that the number is a relatively true representation of what the company actually earned (i.e. cash generated). But while evaluating EPS cuts through a lot of the accounting
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gimmicks, it does not totally eliminate the risk that the financial statements are misrepresented. While it is becoming harder to manipulate the statement of cash flows, it can still be done. A low-quality EPS number does not accurately portray what the company earned. GAAP EPS (earnings reported according to Generally Accepted Accounting Principles) may meet the letter of the law but may not truly reflect the earnings of the company. Sometimes GAAP requirements may be to blame for this discrepancy; other times it is due to choices made by management. In either case, a reported number that does not portray the real earnings of the company can mislead investors into making bad investment decisions. The earnings per share of the ACI Group for the last 5 years are given below and analyzed very carefully with the help of a table and a diagram.
Amount (Tk) 19.03 55.43 51.00 30.49 34.64 Table: Earnings per share over last 5 years
We show that the EPS was increased in 2008 and decreased in 2010. But EPS is positive in 2011. From the table above shows the earnings per share for ACI Group over last 5 years. The per share earnings also have an upward trend throughout the year 2007 to 2008. But in the year 2010 we can see a big drop of EPS to TK 67.26. This drop may because of the term Stock Split which means the bank increased the number of shares outstanding in the
market in that year. This increased in the number of shares have reduced the face value of per shares from Tk. 100 to Tk. 10. They did this to attract more small investors towards the ACI to buy the shares. But in 2011 EPS is TK. 34.64. So it is a positive signal for the company. We can assume that ACI Group is turning over and try to earn more profit. We can see that the percentage of net income is above in the year 2011 than the previous year. For this reason the company can try to increase the profit. So, it is a positive signal for the company.
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Figure: Earnings per share over last 5 years We can see that the EPS was higher in 2008. In 2011 EPS was higher than 2010. So, we can recommend that the company will try to do their best. EPS is lower in 2011 than 2008. It is possible that an entire industry may generate negative operating cash flow due to cyclical causes. Operating cash flows may be negative also because of the company's need to invest in marketing, information systems and R&D. In these cases, the company is sacrificing nearterm profitability for longer-term growth. But overall condition, it is good for company. Because EPS is higher in 2011 than 2010.
To find out this ratio we need two important contents. Those are: Cash Dividend Stock Dividend
These two types of dividend are analyzed below. But before that we analyze Dividend Pay Out Ratio. The table is given below. As per the formula of dividend payout ratio, we need dividend per share and earnings per share to calculate this ratio. Now, the calculation of the dividend payout ratio is shown below:
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Ratio % 44.67 21.65 20.59 39.36 28.87 Table : Dividend Payout ratio of last five years
High dividend yielding stocks have become investors favorites these days. However, one should also consider the sustainability of dividend payments. Above we have analyzed 5 years dividend stocks with dividend yields, payout ratios and a positive outlook on ability to continue paying dividends.
Figure: Dividend payout over last 5 years After declining in its stock price over the last year, ACI is trading at forward price to earnings ratio and is offering a forward annual dividend yield of 3.2% in 2010. The company, also offers a high return on equity. In the last reported quarter, the company reported a decline in earnings. Despite the lower earnings, the companys payout stood at an impressive much higher than the sector payout. Even after the decline in its bottom line, ACI Group is much more efficient than the industry players. This is evident from its high operating margins.
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This is the most liquid form of dividend. In this way, dividend is paid in form of cash. It has real value to the investors. Most of the investors want cash dividend, because it help them to fulfil their present needs. Companies fund dividends with profits, but they are not required to pay out 100% of their profits in dividends. They can reinvest all or some of their profits if their boards deem it appropriate. There is usually some controversy about which use of profit is most beneficial to a company's shareholders. Even though reinvested profits may raise the value of the corporation over the long term, dividends can be an important source of current income for shareholders. In general, however, companies pay dividends when the rate of return on their reinvested profits falls below their dividend yields.
Cash Dividend % 85.00 100.00 105.00 120.00 80.00 Figure: Cash Dividend over last five years
From the table, we can see that company pay cash dividend continuously basis than stock dividend.ACI try to attract the short term investrs.So they follow Dividend Relevance Theory.From the table, we can see that the bank follows the Low Regular and Extra Dividend PolicyHere, we see that the maximum dividend was paid in 2010. But in 2011 the percentage of dividend was 80%. In 2008 to 2010 amount of dividend was increased. But in 2011 the dividend was fall.
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Figure: Cash dividend per share over last five years The market generally regards the cessation or reduction in dividends as bad news. For this reason, companies sometimes become "addicted" to dividends even when their earnings can no longer supportthe practice. It is also important to note that if a corporation's board of director declares a dividend that would come out of the corporation's capital surplus or would in any way make the company insolvent, some state laws may declare the dividend illegal.
Stock Dividend 0% 20% 0% 0% 20% Table: Stock dividend over last 5 years
From the table, we can see that the bank follows the Low Regular and Extra Dividend PolicyFrom the table, we can see the pattern of the ACI Group of giving dividend. In the
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2nd column of the table, which is20 % stock dividend, we can see that the bank follows the Constant Pay Out Policy. Because in this policy, a certain percentage of the Net Income is distributed as dividend. The amount of dividend depends on the net income. If net income increases then dividend also increases It net income falls then dividend also decreases If the firm incur loss then there will be no dividend in that year
And we see that, dividend policy is depending on Net income. When the net income was decreased the stock dividend will not given for this period. But the dividend was paid when the net income was increased. So we can say that the ACI follow constant pay out ratio.
The amounts of dividend per share offered by the ACI over last five years are shown in a diagram below:
In graph we can see that stock dividend was paid in 2008 and 2011. In 2007, 2009, and 2010 no stock dividend was paid.
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Retained earnings are the portion of the income which is retained for the future growth of the corporation. It is very much needed for any organization for the future growth. If a corporation distribute all the amount of income as dividend then there will be nothing left to them for future investment. For this reason, retained earnings are very much important for any corporation, especially if it is in the growth stage. In case of the ACI Group, the amounts of retained earnings over last 5 years are given below in both table and diagram. Retained Earnings Year 2007 2008 2009 2010 2011 Amount (Tk) 563800530 1488114482 2302905481 2691050437 Growth % 40.19 62.11 35.38 14.42
Retained earnings should boost the company's value and, in turn, boost the value of the amount of money to invest into it. The trouble is that most companies use their retained earnings to maintain the status quo. If a company can use its retained earnings to produce above-average returns, it is better off keeping those earnings instead of paying them out to shareholders. We can see that the retained earning is increasing per year. It is a good signal for the company. It means the company wants to grow its operations further throughout the country. For this reason they are retaining more in the recent years. This is a good indication for the share holders of the corporation, because their wealth might increase because of this decision of the management to retain more from the income of the bank. The retained earnings of ACI is given in a chart below:
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From the figure above, we can see a clear picture of the retained earnings of the ACI Group over last five years. The increasing trend indicates that they want to expand their business to become more competitive in the market.
5. Findings:
We have found out the following points after analyzing the dividend policy of ACI Limited:
1. ACI follows Dvidend Relevance Theory . In support of this we have seen that
They give more cash dividend than stock dividend They try to attract short term investors They give higher cash dividend as a result their stock price was high.
2. ACI also follows Low Regular and Extra Dividend Policy. In support of this
we have seen that they declare high dividend after some period and also declare a fixed amount of dividend in a regular basis. .
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They give cash dividend continuously basis then they also declare a small amount of stock dividend as well Dividend paid doesnt depend on the net income of the bank. Dividend does not follow any pattern over time or a certain fixed rate for a specific period of time. Dividend each year is supplemented by additional
6. Recommendation:
In this report we have seen that how dividend policy affect in the business of ACI. Even though ACI's dividend policy is consistent with their business goal, we think that some modification will help them to perform more better . So we have some recommendations as follows for ACI: 1. They should give some stock dividend at a regular interval. If they start giving stock dividend then many long term investors will invest in the share of ACI and overall wealth of the ACI limited will increase. 2. They should increase their retained earning to invest in good investment opportunities.
7. Conclusion:
Dividend policy plays an important role in a Business firm. It helps a firm to attract more investors and increase the capital. Dividend policy also helps to increase the firms share price in the stock market. Therefore organizations form and follow a dividend policy that is consistent with their organizational goal. As for ACI, they follow Relevance Theory of Dividend. It means they believe that dividend plays an important role in sitting share price. In this report we have seen that the dividend policy of ACI is actually consistent with its goal. Their dividend policy helps them to maximize shareholders wealth as well as the market price of the share. This is actually good for both the investors and shareholders.
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8.Referrence:
1. Lawerence J. Gitman Principles of Managerial Finance, 10th Edition,Herper Collions Publishers Inc., 2004 2. Scott Basely and Equgene F. Brigham, Essential of Managerial Finance,13th Edition, The Dryden Press, 2005. 3. Annual Report of the ACI Limited of last five years (2001-2007)
4. The website of the bank (http://www.aci-bd.com) 5. Website of Dhaka stock exchange (www.dse.org)
10. Articles on the dividend policies in different news papers and websites 11. Text book of managerial finance.
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