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Executive Summary

British American Tobacco Bangladesh is one of the largest multinational companies in


the country and has been operating for over 100 years... By doing this report on BATBC we have
tried to have a deeper look on the financial performance of the company and we have tried to
apply our theoretical knowledge in the practical life. In this report we have done ratio
calculation, ratio analysis, calculation of risk and return, stock valuation, finding the dividend
policy and weighted average cost of capital. By doing all of those things we have tried to
evaluate the financial performance of the company.
First of all we have calculated ratios and we have analyzed those ratios to comment on the
performance of company. By analyzing the ratios we have also tried to find the weak side of the
company and we have recommended the company to overcome them Secondly we have found
the risk and return of the company to compare it with the market. By doing it we have
determined that the company is less risky than market. In the next step we have evaluated the
stock price of the company which indicates that the stock price of the company is over-valued.
We have also found the optimum weighted average cost of capital of the company which from
our analysis indicates the best ultimate mixture of debt and equity for the company. Last but not
the least we have found that the company is following the second view of dividend policy.
In conclusion we can say that by doing this report we have understood the basic jobs of a
financial manager. This report will help us to make practical financial decisions in our future life.

British American Tobacco Bangladesh


VERTICAL BALANCE SHEET
(All figures divided by Total Assets and Expressed as a %)
2007
%

2008
%

2009
%

2010
%

2011
%

46.0
0

34.6
7

31.6
9

39.7
6

27.9
2
3.58
11.0
8
11.4
1
54.0
0
100

27.2
2
8.56
12.7
5
16.8
0
65.3
3
100

29.7
6
4.28
17.6
2
16.6
4
68.3
1
100

32.6
6
3.65
13.8
8
10.0
5
60.2
4
100

EQUITY & LIABILITIES


7.46 6.01
32.5 38.7
9
3
0.81 0.65
40.8 45.3
6
9

4.99
37.4
2
0.54
42.9
5

4.49
41.7
1
0.49
46.6
8

31.95
0.40

1.54
4.07
0.11
5.72

ASSETS
Non-current asset
Property plant and equipment
Current asset
Inventories
Trade and other receivables
Advance,deposit and prepayments
Cash and cash equlvalents
Total current asset
TOTAL ASSETS
Share capital
Revenue reserve
Capital reserve

Total equity
Non-current liabilities
Deferred liability (gratuity)
Deferred tax liability
Obligation under finance lease
Total non-current liabilities
Current liabilities
Creditors and accruals
Provision for corporate tax
Total current liabilities

Total equity and liabilities


TOTAL EQUITY & LIABILITIES

2.71
6.24
0.19
9.14

1.87
4.27
0.19
6.33

1.84
3.01
0.21
5.06

1.89
3.87
0.26
6.02

36.5
9
13.4
1
50.0
0
100.
00
100

32.7
9
15.4
9
48.2
8
100.
00
100

32.5
4
19.4
5
51.9
9
100.
00
100

31.7
2
15.5
8
47.3
0
100.
00
100

32.74
32.72
5.64
23.79
5.10
67.26
100
3.65

36.00

32.13
26.15
58.28
100.00
100

British American Tobacco Bangladesh


Vertical Income Statement
(All figures divided by Sales and Expressed as a %)

31Dec,
2007
37869293
100

Gross turnover
Supplementary duty &
vat

68.48776923

Net turnover

31.51223077

Cost Sales

22.15194775

Gross profit

9.360283013

Operating expenses

5.922151755

Operating profit

3.438131258

Interest expenses

0.120342886

Net finance income


Worker's profit
participation fund
profit before tax
Tax:

3.317788373

Current tax
Deferred tax

1.10749361
0.100482467

31Dec,
2008

31Dec,
200
9

31Dec,
201
0

45414187
100
69.10572
02
30.89427
98
19.81618
872
11.07809
108
6.034563
605
5.043527
477

5507465
1
100
68.08606
2
31.91393
8
20.81509
3
11.09884
5
5.817928
8
5.280915
9

6598650
3 75357351
100
100
68.25708 69.12197
4
59
31.74291 30.87802
6
41
20.42189 17.85563
3
69
11.32102 13.02238
3
72
4.767079 6.011847
4
47
6.553943 7.010539
3
69
0.024467 0.146882
1
82

0.167815
401
5.211342
878
0.260566
153
4.950776
725

0.058489
7
5.339405
6
0.266970
4
5.072435
2

6.529476
2
0.326474
3
6.203001
8

6.863656
87
0.343183
51
6.520473
36

1.440637
922
0.164435

1.435484
4
0.118980

1.603226
3
0.237384
9

2.935314
17
0.200498
02

31Dec,
2011

profit after tax


transferred to
revenues reserve
Earnings per share
(par value Tk. 10)

1.207976077

4
1.276202
522

2.109812296
13.32

3
1.316504

1.840611
3

3.135812
19

3.674574
203

3.755931
2

4.362390
6

3.384661
17

27.81

34.48

47.98

42.91

British American Tobacco Bangladesh


Horizontal BALANCE SHEET
(All figures divided by the amount of base year 2007)

31Dec,200
7
Property plant and
equipment
Current asset
Inventories
Trade and other
receivables
Advance,deposit and
prepayments
Cash and cash
equlvalents
Total current asset
Total assets
EQUITY AND LIABILITIES
Equity
Share capital
Revenue reserve
Capital reserve
Total equity
Non-current liabilities
Deferred liability (gratuity)
Deferred tax liability
Obligation under finance
lease
Total non-current
liabilities
Current liabilities
Creditors and accruals
Provision for corporate
tax
Total current liabilities
Total equity and liabilities

31Dec,08

31Dec,1
31Dec,09 0

31Dec,11

100.00%

93.64%

103.00%

143.74%

145.39%

100.00%

121.12%

159.36%

194.51%

239.34%

100.00%

296.72%

178.59%

169.41%

321.73%

100.00%

142.91%

237.77%

208.25%

438.56%

100.00%
100.00%
100.00%

182.90%
189.10%
139.72%

217.95%
237.93%
168.13%

146.44%
233.39%
187.01%

91.25%
320.06%
229.70%

100.00%
100.00%
100.00%
100.00%

100.00%
147.67%
100.00%
138.02%

100.00%
171.66%
100.00%
157.15%

100.00%
212.83%
100.00%
189.99%

100.00%
200.25%
100.00%
179.96%

100.00%
100.00%

85.63%
85.11%

101.61%
72.05%

115.71%
103.28%

115.56%
133.40%

100.00%

122.85%

164.13%

227.55%

116.55%

100.00%

86.05%

82.74%

109.56%

127.75%

100.00%

111.32%

132.96%

144.15%

179.35%

100.00%
100.00%
100.00%

143.51%
119.96%
124.24%

216.83%
155.45%
149.50%

193.16%
157.30%
166.29%

398.28%
238.08%
204.25%

British American Tobacco Bangladesh


Horizontal INCOME STATEMENT
(All figures divided by the amount of base year 2007)

Profit and loss account


Gross turnover

145.43%

174.25%

198.99%

Supplementary duty &Method


vat
100.00%
121.01%
144.58%
1: Average
Sales Growth
Rate from 2007
to 2011

173.66%

200.84%

Net turnover

147.29%
2010-11
136.66%
14.20%

175.52%
Average
160.64%
18.80%

194.99%

100.00%
141.93%
172.45%
Method 2: Historical Compounded Annual Growth Rate
Operating expenses
100.00%
122.20%
142.87%

210.75%
]
140.26%

276.85%

Operating profit

223.38%
18.77%

332.16%

405.76%

Interest expenses
4557300.00%
Average Sales Growth Rate
18.79%
Net finance income
7621200.00% 3221300.00%

35.43%

242.88%

Cost Sales
Energy Sales

100.00%

2007-08
19.92%

100.00%
2008-09
100.00%
21.27%

119.92%

117.57%
2009-10
107.28%
19.80%

Gross profit

Sales

100.00%

175.92%

160.40%

202.01%

2366689.00

2940659.00

4308573.0
0

5172270.0
0

118334.00

147033.00

215429.00

258614.00

1256423.00

178.95%

222.35%

325.78%

391.08%

Current tax

100.00%

156.00%

188.50%

252.24%

527.41%

Deferred tax

38052.00

-74677.00

-65528.00

156642.00

151090.00

Total Tax
profit after tax transferred to
revenues reserve

100.00%

126.70%

158.50%

265.50%

516.57%

100.00%

208.87%

258.90%

360.29%

319.23%

1332.00%

2781.00%

3448.00%

4798.00%

4291.00%

Worker's profit participation


fund
profit before tax
Tax:

Earnings per share (par


value Tk. 10)

A. Forecasting Next Two Years Income Statement and Balance Sheet


First we have to calculate average sales growth rate by using two methods.

Average Tax Rate:


Formula
Income
Tax Rate

2006-07
36.41%

2007-08
25.78%

2008-09
25.95%

2009-10
26.67%

Average Tax Rate

2010-11
48.10%

32.58%

British American Tobacco Bangladesh


Pro-Forma Balance Sheet (% of Sales Method)
As at 31 December 2012 and 2013
Balance Sheet
Non-current asset
Property plant and
equipment
Current asset
Inventories
Trade and other
receivables
Advance, deposit and
prepayments

31 December, 2012
Taka

31 December, 2013
Taka

5376634

5376634

6382625.901

7581921.307

1100995.612

1307872.687

4641228.647

5513315.51

Cash and cash equivalents


Total current asset
Total assets
EQUITY AND LIABILITIES
Equity
Share capital
Revenue reserve
Capital reserve
Total equity
Non-current liabilities
Deferred liability (gratuity)
Deferred tax liability
Obligation under finance
lease
Total non-current liabilities
Current liabilities
Creditors and accruals
Provision for corporate tax
Total current liabilities
Total equity and liabilities

994739.1447

1181650.63

18496223.3

20961394.13

600000
6232203.312
64896
6897099.312

600000
7403234.314
64896
8068130.314

669079

669079

17876
939044

17876
939044

6267097.874
5101871.321
11368969.2
19205112.51

7444685.565
6060512.943
13505198.51
22512372.82

British American Tobacco Bangladesh


Pro-Forma Income Statement (% of Sales Method)
As at 31 December 2012 and 2013
Profit & Loss Account
Profit and loss account
Gross turnover
Supplementary duty & vat
Net turnover
Cost Sales
Gross profit
Operating expenses

2011-12
Taka
61464418.2
28052579.05
15877531.3
12175047.75

2012-13
Taka
73013582.38
33323658.71
18735486.93
14588171.78

Operating profit
Interest(Income/expense)
Net finance income
Worker's profit
participation fund
profit before tax
Tax:
Current tax
Deferred tax
Total Tax
profit after tax transferred
to revenues reserve

6829212.333
-110687

8280085.983
-110687

6718525.333

8169398.983

305164.52

360094.1336

2089472.953

2544271.52

4323887.86

5265033.33

3. Ratio Analysis
Ratio analysis quantifies many aspects of a business and is an integral part of financial
statement analysis. Ratio analysis is categorized according to the financial aspect of the business
which the ratio measures. Liquidity ratios measure the availability of cash to pay debt. Asset
management ratios measure how quickly a company converts non-cash assets to cash
assets. Debt management ratios measure the company's ability to repay long-term
debt. Profitability ratios measure the firm's use of its assets and control of its expenses to
generate an acceptable rate of return. Stock market ratios measure investor response to owning a
company's stock and also the cost of issuing stock.
Ratio analysis is mostly used to compare between companies, industries, different time
periods for one company and a single company with the industry average.
Ratios generally hold no meaning unless they are benchmarked against something else,
like past performance or another company. Thus, the ratios of firms in different industries, which
face different risks, capital requirements, and competition, are usually hard to compare.
The Five major categories of ratios are:

Liquidity Ratio

Asset Management Ratio

Debt Management Ratio

Profitability Ratio &

Stock Market Ratio


a. Ratio of British American Tobacco (BAT-BC), Gemini Sea Food and Apex Foods and
Industry Average

Ratio Name

Gemini Sea
Food

Apex Foods

BAT-BC

Industry
Average

Current
Ratio

1.05

1.13

1.15

1.1

Quick Ratio

1.150

1.41

0.59

1.20

Working
Capital

121,6234

1435326

1473710

1375090

Inventory
Turn Over
Ratio

7.70

6.42

2.5

5.54

Total Asset
Turn Over
Ratio

0.0013

0.0009

0.00079

0.001

Fixed Asset
Turn Over
Ratio

3.13

4.10

4.32

3.85

Average
Collection
Period

11.61

10.47

14.54

12.2

Average
Payment
Period

99.18

94.51

116.5

103.4

Cash
Conversion
Cycle

32.92

30.68

44.04

35.88

Debt Ratio

0.34

0.73

.64

0.57

Time Interest
Earning

68.06

68.91

47.73

61.57

Gross Profit
Margin

28.18

26.86

42.1

32.66

Operating
Profit

42.74

23.49

22.70

17.52

Net Profit
Margin

21.39

14.78

10.96

8.43

Return On
Asset

17.12

19.24

15.53

17.69

Operating
Return On
Asset

24.23

22.97

32.17

25.87

Return On
Equity

35.26

41.67

43.15

40.03

Earnings Per
Share

36.32

24.07

42.50

35.20

Market To
Book Value
Ratio

3.90

4.27

6.36

4.72

P/E Ratio

30.61

31.51

14.60

24.6

Du-Pont
(ROA)

15.12

12.24

15.53

14.69

Extended
Du-Pont
(ROE)

36.06

41.67

43.15

40.5

b. Standard ratio calculation


c. Analysis ( Time series and cross sectional)
The Ratios of Dhaka Electric Supply Company (DESCO) are as follows:

Liquidity Ratio
a. Current Ratio :
The current ratio is a popular financial ratio used to test a company's liquidity (also referred to as
its current or working capital position) by deriving the proportion of current assets available to
cover current liabilities.
*

a)

LIQUIDITY RATIO

2006-07

2007-08

2008-09

2009-10

2010-11

CURRENT RATIO

0.86 Times

1.35 Times

1.32 Times

1.27 Times

1.15 Times

Interpretation:

In the year 2010-11, the companys current asset is 1.15 times higher than the current
liabilities.

Time series analysis

Industry
Average
1.10
Times

From time series analysis we can see that the ratio is decreasing from 2006-07 (0.86 times) to
2007-08 (1.35) and decreasing until 2010-11 (1.15 times).

Cross-Sectional Analysis

Performance is good, and companys current ratio is above the industry average. It is good for
the company.

In 2010-11 proportional increase in current asset is more than proportional increase in


current liabilities.

b. Quick Ratio:
The quick ratio is used to test a company's liquidity (also referred to as its current or working
capital position) by deriving the proportion of current assets available to cover current liabilities.

*
LIQUIDITY RATIO

2006-07

2007-08

2008-09

2009-10

2010-11

Industry
Average

QUICK RATIO

0.3 Times

0.79 Times

0.74 Times

0.58 Times

0.59 Times

1.20Times

b)

Interpretation:

In the year 2010-11, the companys current asset excluding inventory is .59 times higher
than the current liabilities.

Time series analysis

From time series analysis we can see that the ratio is increasing from 2006-07 (0.3 times) to
2007-08 (0.79), and it decreases to .59 times until the year 2010-11.

Cross-Sectional Analysis

Performance is not good, because companys current ratio is below the industry average. It is bad
for the company.

In 2010-11 proportional increase in current asset excluding inventory is less than


proportional increase in current liabilities.

c. Working Capital
The working capital ratio is used to calculate exactly what amount of capital is working in
market. It is derived by deducting current liabilities from current assets.

c)

LIQUIDITY
RATIO

2006-07

2007-08

2008-09

2009-10

2010-11

Industry
Average

WORKING
CAPITAL

-569241

1703269

1961263

1730467

1473710

1375090

Interpretation:

The companys current assets are higher than the current liabilities by tk. 14,73710

Time series analysis

The number is increasing from 2006-07 to 2008-09 Then it start decreasing.

Cross-Sectional Analysis

Ratio is above industry average, and it is good for the company

The companys current assets are increasing than current liabilities proportionately. So
working capital is in such a good position.

Asset Management Ratio

a. Inventory Turnover Ratio:


This ratio is regarded as a test of efficiency and indicates the rapidity with which the company is
able to move its merchandise.

a)

Asset
Managemen
t Ratio

2006-07

2007-08

2008-09

2009-10

2010-11

Inventory
turnover ratio

3.74

3.31

3.2

3.1

2.5

Industry
Average

5.54

Interpretation:

In the year 2010-11, the company has Sold out & Restocked its
inventory 2.5 times.

Time series analysis

It is decreasing throughout last 5 years from 3.74 ( 2006-07) to 2.5 in ( 2007-08).

Cross-Sectional Analysis

It is below industry average. Performance is bad, but industry average is too high. Some
company under this industry have more inventory turnover ratio, that affect the industry average
and show the higher industry average.

Proportional increase in inventory is significant less than proportional increase in cost of


goods sold.

b. Total Asset turnover Ratio


The total asset turnover illustrates how much of sales have been generated from the total assets
used.
*
Asset management ratio
b)

TOTAL ASSET
TURNOVER RATIO

2006-07

2007-08

2008-09

2009-10

2010-11

0.00076
times

0.00079
times

0.00075
times

0.0008 times

0.0008 times

Interpretation:

In the year 2010-11, every TK 1 worth of Total Assets generated TK


0.008 of Total Sales

Time series analysis

Industry
Average
0.001
times

From the time series analysis, companys ratio is fluctuating significantly from 07 to 2010 then
remain constant in year 2010 & 2011

Cross-Sectional Analysis

It is below than industry average. We r in medium line, we need to improve it.

c. Fixed Asset turnover Ratio


The fixed asset turnover means how much of sales have been generated by using the fixed assets.
*

c)

Asset management ratio


FIXED ASSET
TURNOVER RATIO

Interpretation:

2006-07

2007-08

2008-09

2009-10

2010-11

3.23 times

4.05 times

4.61 times

3.94 times

4.32 times

Industry
Average
3.85
times

In the year 2010-11, every TK 1 worth of Total Fixed generated TK 4.32


of Total Sales

Time series analysis

From the time series analysis we can conclude that there was an eventual
increase, from 2006-07 (3.23) to 2008-09 (4.61), than it decreases to 4.32 in
2010-11.

Cross-Sectional Analysis

It is above industry average, performance is good.

Proportional increase in fixed asset is significant less than proportional increase in sales.

d. Average collection period or days sales outstanding:


Average collection period or days outstanding ratio determines on an average how much time is
taken to collect the money from the collectors.
*

Asset management ratio


Average collection
period

d)

2006-07

2007-08

2008-09

2009-10

2010-11

8.81 days

22.24 days

10.68 days

8.51 days

14.54 days

Interpretation:

In the year 2010-11, On an average it took 14.54 days for the


company to collect their receivables.

Time series analysis

Industry
Average
12.20
days

From the time series analysis it is significantly increase from 2006-07 to 2007-08 (8.81 to 22.24),
than it is decrease significantly to 2010-11 (14.54).

Cross-Sectional Analysis

It is bad for the company, because they need more time to collect account receivable compare to
industry average.

e. Average payment period:


Average payment period distinguishes on an average how many days are needed to pay back to
the creditors.
*

Asset management ratio


Average payment
period

e)

2006-07

2007-08

2008-09

2009-10

2010-11

46.92 days

62.77 days

74.44 days

56.42 days

116.5 days

Industry
Average

In the year 2010-11 On an average, the company had to take 116.5


day to pay their creditors.

Time series analysis

103.4
days

From the time series analysis the days of paying off creditors have
increased significantly from 2006-07 (46.92 days) to 2010-11 (116.5).

Cross-Sectional Analysis

It is good for the company, because they have more time to pay a payable compare to industry
average.

On an average it collects account receivables very frequently than it pay an account


payable. It is good for the company because they first receive receivable than pay a
payable.

f. Cash Conversion Cycle:


Cash Conversion Cycle is the number of days between disbursing cash and collecting cash in
connection with undertaking a discrete unit of operations.
*

f)

Asset management ratio

Cash conversion cycle

2006-07

2007-08

2008-09

2009-10

2010-11

59.48 days

69.74 days

50.34 days

69.83 days

44.04 days

Industry
Average
35.88
days

On an average DESCO took 60 days for conversion of cash.

Time series analysis

From time series analysis, it is fluctuate year to year from 2006-07 to 2010-11.

Cross-Sectional Analysis

It took more days to complete a cash cycle, compare to its industry average.

It decrease from 2009-10 to 2010-11, because in 2010-11 inventory turnover ratio is


increase than 2009-10.

Debt management ratio


a. Debt Ratio:
The debt-to-asset ratio tells us how much of the total assets are financed by the overall liability
of the company.

Interpretation:

Debt management ratio

a)

Debt Ratio

2006-07

2007-08

2008-09

2009-10

2010-11

Industry
Average

67%

55%

57%

53%

64%

57%

In the year 2010-11, the companys 64% of total assets were financed
by debt.

Time series analysis

From the time series analysis, in the past five years the percentage has been
quite stable, varying from 67% to 53%.

Cross-Sectional Analysis

It is above industry average. So this companys asset financed by debt is more than the industry
average.

Capital structure of the company is consisting of 64% debt.

b. Times Interest Earned


The interest coverage ratio is used to determine how easily a company can pay interest expenses
on outstanding debt. The lower the ratio, the more the company is burdened by debt expense.
*

b)

Debt management ratio

Times interest earned

2006-07

2007-08

2008-09

2009-10

2010-11

Industry
Average

28.57 times

30 times

90.3 times

67.87 times

47.73 times

61.57

times

Interpretation:

The companys EBIT is 47.73 times higher than interest expense.

Time series analysis

from time series analysis it increase significantly 2007-08 to 2008-09 (30 to 90.3) than it
decrease again 2010-11 to 47.73.

Cross-Sectional Analysis

It is below than industry average. But industry average is also too high because some companys
times interest earning is too high that effect the industry average.

In 2010-11 it is decreases because its proportional increase in EBIT is less than its
proportional increase in interest expense.

Profitability Ratio
a. Gross Profit Margin
The gross profit margin is used to analyze how efficiently a company is using its raw materials,
labor and manufacturing-related fixed assets to generate profits. A higher margin percentage is a
favorable profit indicator.
*

a)

Profitability Ratio

2006-07

2007-08

2008-09

2009-10

2010-11

Gross profit margin

29.70%

35.86%

34.78%

35.66%

42.17%

Industry
Average
32.66%
times

Interpretation:

In the year 2010-11, the company has earned TK 42.17 worth of gross
profit, from every TK 100 worth of Sales.

Time series analysis

From the time series analysis, we can say that, in the past five years, the Gross profit margin has
been fairly stable, varying from (21.13% to 22.75.59%).

Cross-Sectional Analysis

It is above industry average, and their performance is good.

Increase in sales increase the gross profit margin.

b. Operating Profit Margin :


*

b)

Profitability Ratio

2006-07

2007-08

2008-09

2009-10

2010-11

Industry
Average

Operating profit
margin

10.91%

16.33%

16.55%

20.65%

22.70%

17.52%

Interpretation:

In the year 2010-11, the company has earned TK 22.70 worth of


operating profit, from every TK 100 worth of Sales.

Time series analysis

From the time series analysis, we can say that, in the past five years, the Operating profit margin
has been fairly increased from (10.91% to 22.70%).

Cross-Sectional Analysis

It is above industry average, and their performance is good.

Increase of operating profit kept going up proportionately more than the revenues. That
resulted in the ratio going high.

c. Net Profit Margin :


Investors can easily see from a complete profit margin analysis that there are several income and
expense operating elements in an income statement that determine a net profit margin. It allows
investors to take a comprehensive look at a company's profit margins on a systematic basis.
*

c)

Profitability Ratio

2006-07

2007-08

2008-09

2009-10

2010-11

Industry
Average

Net profit margin

6.70%

11.90%

11.77%

13.74%

10.96%

8.43%

Interpretation:

In the year 2010-11, the company has earned TK 10.96 worth of net
profit, from every TK 100 worth of Sales.

Time series analysis

From time series analysis we see that in 2006-07 net profit is 6.70% than it increase to 13.74% in
2009-10, than it again decrease to 10.96% in 2010-11.

Cross-Sectional Analysis

It is above industry average, and their performance is average.

Their operating profit in increase compare to last year, and their net profit is also
increase. So they pay less interest or tax or both that increase their net profit.

d. Return on Assets:
The Return on Total Assets, also called return on investment measures the overall effectiveness
of management in generating profits with its available assets. The higher the firms return on
total assets, the better it is considered.
*

d)

Profitability Ratio

2006-07

2007-08

2008-09

2009-10

Return on asset

11.18%

16.70%

17.20%

21.53%

2010-11

15.53%

Industry
Average
17.69%

Interpretation:

In the year 2010-11, every TK. 100 worth of assets are generating TK. 15.53 of net
income.

Time series analysis

From the time series analysis, it can be inferred that the company did quite
well comparatively in 2006-07 to 2009-10, having Return on Assets within
the range of (11.18%-21.53%),but then in last year it falls down to 15.53.

Cross-Sectional Analysis

It is below industry average. So company performance is not good.

In 2010-11 its net income decrease but on the other hand its total assets increase, so it
goes down from 2009-10 to 2010-11.

e. Operating return on asset:


*

e)

Profitability Ratio

2006-07

Operating Return on
asset

18.21%

2007-08

22.93%

2008-09

24.20%

2009-10

32.35%

2010-11

Industry
Average

32.17%

25.87%

Interpretation:

In the year 2010-11, every TK. 100 worth of assets are generating TK. 32.17 of operating
profit.

Time series analysis

From the time series analysis, it can be inferred that the company did quite well
comparatively in the past five years.

Cross-Sectional Analysis

It is above than industry average. Company performance is good, so they need to keep it.

In 2010-11 proportional increase in total asset is less than proportional increase in EBIT.

f. Return on equity:
The return on common equity measures the return earned on the common stockholders
investment in the firm. Generally, the higher the return, the better it is for the owners.
*

f)

Profitability Ratio

2006-07

2007-08

Return on equity

24.32%

36.81%

2008-09

2009-10

40.10%

46.13%

2010-11

Industry
Average

43.15%

40.03%

Interpretation:

In the year 2010-11, shareholders of this company had earnings of TK. 43.15 for every
TK. 100 investment.

Time series analysis

From the time series, it is increase from 2006-07 to 2009-10 (46.13%) than it again little bit
decrease up to 2010-11 (43.15%).

Cross-Sectional Analysis

It is above industry average. Company performance is good.

Decrease in net income and little increase in equity decrease the ratio in 2010-11.

Stock Market Ratio


a. Earnings per share:
Earnings per Share are the most frequently used of all the ratios and are generally felt to give the
best view of performance. It indicates how much of a companys profit can be attributed to each
ordinary share in the company.
*

a)

Stock market ratio

2006-07

Earnings per share

13.32Tk

2007-08
27.81Tk

2008-09

2009-10

2010-11

Industry
Average

34.48Tk

47.98Tk

42.50Tk

35.20Tk

Interpretation:

In the year 2010-11, the companys common shareholders have


received TK 42.50/Share.

Time series analysis

From time series analysis we see that 2006-07 to 2009-10 EPS increase, than it decreases in next
one year.

Cross-Sectional Analysis

It is above industry average. This is good for the share holders.

Number of share holder increase, and net income decrease, thus why is go down compare
to last year.

b. Market to Book Ratio:


The Market to Book value of the share compares the book value of the share, which is the
internal or face value of the share with the market price of the share.
*

b)

Stock market ratio

2006-07

Market to book
value ratio

1.43 times

2007-08

2008-09

2009-10

2010-11

2.67 times

8.9 times

6.89 times

6.36 times

Industry
Average
4.72
times

Interpretation:

In the year 2010-11 the companys each shares market price is 6.36 times higher than the
market book value.

Time series analysis

From the time series analysis we see that it is going up significantly, than going down in last two
year and it is not in a stable situation.

Cross-Sectional Analysis

It is above industry average.

Market value of the share price increase.

Price earnings ratio or P/E ratio:


The price/earnings (P/E) ratio is the best known of the investment valuation indicators. The P/E
ratio has its imperfections, but it is nevertheless the most widely reported and used valuation by
investment professionals and the investing public.
*

c)

Stock market ratio

2006-07

P/E ratio

11.16

2007-08
7.25

2008-09

2009-10

2010-11

Industry
Average

11.87

14.93

14.60

24.60

Interpretation:

In the year 2010-11, the companys shareholders were willing to pay $14.60 for every $1
of reported earnings.

Time series analysis

For year to year comparison we see that it decrease from 2006-07 to 2008-09 (11.16 to 7.25),
than it increase to 14.6 in 2010-11.

Cross-Sectional Analysis

It is close to industry average.

In 2010-11 proportional decrease in market value of share price is more than proportional
decrease in earnings per share.

Du-Pont Analysis:

a. Return on asset

Du-Pont Analysis

a)

Return on asset

2006-07

2007-08

2008-09

2009-10

2010-11

Industry
Average

11.18%

16.71%

17.21%

21.53%

15.53%

14.69%

Interpretation:

In the year 2010-11, every TK. 100 worth of assets are generating TK. 15.53 of net
income.

Time series analysis

From the time series analysis, it can be inferred that the company did quite
well comparatively in the past five years, having Return on Assets within the
range of (11.18%-15.53%)

Cross-Sectional Analysis

It is above industry average. So company performance is good.

In 2010-11 its net income decrease but on the other hand its total assets increase, so it
goes down from 2009-10 to 2010-11.

Extended Du-Pont Analysis:


a. Return on equity

a)

Extended Du-Pont
Analysis

2006-07

2007-08

2008-09

2009-10

2010-11

Industry
Average

Return on equity

24.32%

36.81%

40.07%

46.13%

43.15%

40.50%

Interpretation:

In the year 2010-11, shareholders of this company had earnings of TK. 43.15 for every
TK. 100 investment.

Time series analysis

From the time series, it is increase from 2006-07 to 2009-10 (46.13%) than it is little bit
down to 2010-11 (43.15%).

Cross-Sectional Analysis

It is above industry average. Company performance is good.

Decrease in net income and little increase in equity decrease the ratio in 2010-11.

d. RECCOMENDATION:
After analyzing the major ratios, it can be concluded that the British American Tobacco (BATBC) condition is good, compared to how well they were doing in the previous years. The
companys availability of cash to pay debt has increase compared to the past
five years, but however it is in stable condition. The Companys ability to
quickly convert non-cash assets to cash assets have also increases. The
company's ability to repay long-term debt is comparatively in a better shape.
With a positive credit rating, the company will be benefited by the advantage
of acquiring loans and purchasing raw materials on credit. . The Company
uses its assets and controls its expenses to generate an acceptable rate of
return. In this case, the company was doing better than previous; maintain
better standards of using assets and controlling expenses to generate better
rates of return. Their cash conversion cycle is too long, it is approximately 160 days to
complete this cycle. They need to reduce this time for better profit. Their interest expense is low,
for this they cant save more tax, but if it increase they have a problem in future to pay the loan
and interest, which will affects on their net income. Their profitability margin is good and return
on asset and equity is average compare to industry average. Earnings per share of the share
holder is decreasing compare to last year, because their net income decrease little and number of
share increase because of stock dividend for last year. They are doing well and the market value
of the share increases compare to last year. I think it is good for this company; because the
performance of share market is bad and maximum companys share price go down through they
are doing well.

BATBC
BANGLADESH

Date

Closing
Price

Monthly
Return %

General
index

2006
29-06-2006

99.20

1339.525

Monthly
Return %

July
August
September
October
November
December

BATBC
BANGLADESH

7/2/2006

69.70

7/31/2006

68.50

8/1/2006

69.60

8/31/2006

69.00

9/3/2006

70.10

9/28/2006

66.90

10/1/2006
10/31/200
6

68.10

11/1/2006
11/30/200
6

70.30

12/3/2006
12/28/200
6

72.80

Date

70.30

73.00

84.10

1,341.25

-1.721664275
.

1,426.65

-0.862068966
.

11.24522
1,587.08
1,588.24

(1.61877)

-4.564907275
.

1562.53
1,551.88

3.230543319
.

(0.6592)
1,541.65
1,533.20

3.840682788
.

(0.385476)
1,527.29
1,544.17

15.52197802

Monthly
Return %

Closing
Price

4.8879
1,406.81

4.2313
1610.67

General
index

Monthly
Return %

2007
January

February

March

April

04-01-2007

1589.41

82.00

31-01-2007

84.60

05-02-2007

84.00

28-02-2007

83.90

01-03-2007

83.60

29-03-2007

81.80

02-04-2007

81.60

30-04-2007

74

3.170731707
.

1805.12

14.02578

1,883.62
-0.119047619
.

(1.91833)
1,791.54
1,794.02

-2.153110048
.

(1.8472)
1,760.88
1,737.36

-9.31372549
.

0.3436
1,743.33

May

June

July

August

September

October

November

December

03-05-2007

1,762.36

74.60

31-05-2007

72.80

03-06-2007

75.20

28-06-2007

75.20

02-07-2007

73.70

31-07-2007

92.80

01-08-2007

94.00

29-08-2007

108.50

03-09-2007

112.90

30-09-2007

111.00

01-10-2007

112.00

31-10-2007

119.70

01-11-2007

120.00

29-11-2007

154.70

02-12-2007

148.60

30-12-2007

149.70

-2.412868633
.

13.68732
2,003.58
2,007.05

0
.

7.08670
2,149.32
2,190.46

25.91587517
.

8.84380
2,384.18
2,394.11

15.42553191
.

2.54708
2,455.09
2,540.97

-1.682905226
.

2548.49

1.262357

2,627.02
6.875
.

8.51577
2,850.81
2,836.32

28.91666667
.

4.7522840
2,971.11
2,878.74
4.81009

BATBC
BANGLADESH

Date

0.740242261

Monthly
Return %

Closing
Price

3,017.21

General
index

Monthly
Return %

2008
January

01/01/ 2008

144.80

31/01/ 2008

132.60

3,008.91
-8.425414365

(3.3812)
2,907.17

February

March

April

May

June

July

August

September

October

November

December

03/02/ 2008

2,890.25

130.40

28/02/ 2008

132.20

02/03/ 2008

129.20

1.380368098

1.4230
2,931.38
2,916.20

8.513931889

3.4440

31/03/ 2008

140.20

3,016.49

01/04/ 2008

142.70

30/04/ 2008

161.90

04/05/ 2008

157.10

29/05/ 2008

161.50

01/06/ 2008

168.10

30/06/ 2008

141.90

02/07/ 2008

144.00

31/07/ 2008

233.60

03/08/ 2008

217.40

28/08/ 2008

144.80

01/09/ 2008

132.60

25/09/ 2008

130.40

05/10/ 2008

132.20

30/10/ 2008

129.20

02/11/ 2008

140.20

30/11/ 2008

142.70

01/12/ 2008

161.90

2,517.05

30/12/ 2008

157.10

15.59633028 2,795.34

3,025.57
13.45480028

1.56268
3,072.85
3,101.94

2.800763845

2.1343
3,167.99
3,207.89

-15.58596074

(6.46499)
3,000.50
3,029.24

62.22222222

(8.53376)
2,761.05
2,689.94

-1.471941122

2.80749
2,765.46
2,820.79

7.321509777

5.17690
2,966.82
3,001.37

-13.88053287

(8.421820)
2,748.60
2,684.69

-11.89133778

(8.03704)
2,468.92
11.0519

2009
January

01-01-2009

207.30

2,807.61
(5.63183)

2.363724071

February

29-01-2009

212.20

01-02-2009

216.80

2,649.49
2,661.69
(3.4109)

1.660516605
March

26-02-2009

220.40

01-03-2009

225.40

2,570.96
2,626.27
(6.8291)

-5.412599823
April

31-03-2009

213.20

01-04-2009

213.80

2,446.92
2,443.25
4.5576

16.93171188
May

30-04-2009

250

03-05-2009

243.50

2,554.36
2,539.17
1.30

-19.71252567
June

31-05-2009

195.50

01-06-2009

195.90

2,572.18
2,597.00
15.91297

14.03777437
July

30-06-2009

223.40

02-07-2009

229.40

3,010.26
3,069.71
(5.0620)

16.30340017
August

30-07-2009

266.80

02-08-2009

272.10

2,914.53
2,941.02
0.00884

1.543550165
September

31-08-2009

276.30

01-09-2009

277.70

2,941.28
2,950.12
4.53439

4.645300684
October

30-09-2009

290.60

01-10-2009

309.50

3,083.89
3,123.24
7.73955

5.977382876
November

29-10-2009

328.00

01-11-2009

345.80

3,364.26
3,392.02
29.15460

0.838635049
December

26-11-2009
01-12-2009

348.70
354.40

4,380.95
15.51918736
4,424.02

2.520558

30-12-2009

BATBC
BANGLADESH

Date

409.40

4,535.53

Monthly Return
%

Closing Price

General index

Monthly
Return %

2010
January

February

03-01-2010

432.10

31-01-2010

486.40

01-02-2010

487.60

4,568.40
17.483

12.56653552
5,367.10
5,451.15

2.00070

6.931911403
March

28-02-2010

521.40

01-03-2010

520.60

5,560.56
5,567.40
(0.1311204)

-6.319631195
April

28-03-2010

487.70

01-04-2010

488.30

5,560.10
5,594.32
1.08252

-4.280155642
May

29-04-2010

467.40

02-05-2010

462.90

5,654.88
5,631.30
8.46180

11.40635126
June

31-05-2010

515.70

01-06-2010

522.60

6,107.81
6,152.39
0.0099

0.650593188
July

30-06-2010

526.00

04-07-2010

527.70

6,153.68
6,217.08
2.021527

26.47337502
August

29-07-2010

667.40

01-08-2010

656.50

6,342.76
6,436.77
3.436506

3.442498096
September

31-08-2010

679.10

02-09-2010

684.30

6,657.97
6,774.87
4.760386

1.914365045
October

30-09-2010

697.40

03-10-2010

707.70

7,097.38
7,223.49
10.16174

6.189063162
November

31-10-2010

751.50

01-11-2010

746.30

7,957.12
7,947.80
8.24674

0.924561168
December

30-11-2010
01-12-2010

753.20
756.10

8,602.44
-5.23740246
8,723.18

(4.96114)

30-12-2010

BATBC
BANGLADESH

Date

716.50

8,290.41

Monthly Return
%

Closing Price

General index

Monthly
Return %

2011
January

February

March

April

May

June

July

August

September

October

November
December

02/01/
2011
31/01/
2011
01/02/
2011
28/02/
2011
01/03/
2011
31/03/
2011
03/04/
2011
28/04/
2011
02/05/
2011
31/05/
2011
01/06/
2011
30/06/
2011
02/01/
2011
31/01/
2011
01/02/
2011
28/02/
2011
01/03/
2011
31/03/
2011
03/04/
2011
28/04/
2011
02/05/
2011
31/05/
2011
01/06/
2011

706.10

4,568.40
17.483

-0.963036397
699.30

5,367.10

692.10

5,451.15
2.00070

-20.54616385
549.90

5,560.56

591.10

5,567.40
(0.1311204)

12.9588902
667.70

5,560.10

658.50

5,594.32
1.08252

-10.44798785
589.70

5,654.88

595.00

5,631.30
8.46180

5.56302521
628.10

6,107.81

628.30

6,152.39
0.0099

630.90

0.413815057

706.10

6,153.68
6,217.08
2.021527

-0.963036397
699.30

6,342.76

692.10

6,436.77
3.436506

-20.54616385
549.90

6,657.97

591.10

6,774.87
4.760386

12.9588902
667.70

7,097.38

658.50

7,223.49
10.16174

-10.44798785
589.70

7,957.12

595.00

7,947.80
8.24674

5.56302521
628.10
628.30

8,602.44
0.413815057
8,723.18

(4.96114)

30/06/
2011

Expected rate of return (Monthly)

630.90

8,290.41

3.469682%

(Annual Return)

3.469682% * 12

Standard Deviation

11.37875%

C.V.

3.2795

= 41.636184%

Where,
Rate of Return =

Standard Deviation =

100

Coefficient of variation (CV) =

Expected Rate of Return (Monthly) 2.536899%


(Annually)

2.536899 * 12

Standard Deviation

7.085807%

= 30.36%

C.V.

2.7931

SUMMARY
OUTPUT
Regression Statistics
Multiple R 0.248993
R Square
0.061997
Adjusted
R Square
0.045825
Standard
Error
0.11115
Observatio
ns
60
ANOVA
df

SS

MS
0.0473
6
0.0123
54

F
3.8335
18

Regressio
n

Residual

58

Total

59

0.04736
0.71654
7
0.76390
8

Coefficie
nts

Standar
d Error

t Stat

Pvalue

0.024553

0.01525
6

1.6094
11

0.1129
56

0.399845

0.20421
8

1.9579
37

0.0550
54

Intercept
X Variable
1

RESIDUAL OUTPUT
Observati
on
1
2
3

Predicted
Y

Residua
ls
0.018216 0.06642
-0.0041 -0.0866
0.03553
0.008363
7

Significa
nce F
0.055054

Lower
95%

Upper
95%

-0.00599

0.0550
91

-0.00894

0.8086
31

Lower
95.0%
0.0059
9
0.0089
4

Upper
95.0%
0.0550
91
0.8086
31

-0.00714

0.024589

0.021524

0.044097

0.069517

0.018081

10

0.021917

11

0.023012

12

0.041472

13

0.080635

14

0.016883

15

0.017167

16

0.025927

17

0.079281

18

0.052886

19

0.059915

20

0.034738

21
22

0.029601
0.058615

23

0.043555

24
25

0.043786
0.011034

26

0.030243

27

0.038304

0.05056
0.00871
1
0.01077
6
0.05510
3
0.04078
3
0.10058
0.03842
0.02308
8
0.02527
0.04453
0.11478
3
0.07687
0.04599
0.08743
0.02404
0.23229
8
0.03088
5
0.13829
5
-0.0181
0.33144
5
0.06158
5
-0.1588
0.06355
0.09395

28

0.030801

29

0.033067

30

-0.0013

31
32

-0.00957
0.039606

33

0.045253

34

-0.00912

35

-0.00758

36
37

0.068761
0.002035

38

0.010922

39

-0.00275

40

0.042737

41
42

0.029751
0.08818

43

0.00434

44

0.024588

45

0.042684

46

0.055477

47

0.141126

48

0.034631

49

0.094458

50

0.032578

51
52

0.035276
0.028882

0.01486
1
0.08120
7
0.18293
0.38753
8
-0.1064
0.00273
3
0.12128
0.10332
0.05086
8
-0.0218
0.04022
5
0.07778
0.11119
0.00296
1
0.09455
0.15576
9
0.03773
2
0.01861
3
0.00836
0.18305
0.12575
9
0.03651
8
0.00502
0.14686
0.01939

53

0.058387

54

0.024593

55

0.032636

56

0.038294

57

0.043587

58

0.065162

59

0.057487

60

0.004716

3
0.06137
5
0.01643
7
0.16093
7
0.09437
0.02497
8
0.05083
0.08689
0.13456

BATBC BANGLADESH
Average Return %
Monthly
Yearly
Standard Deviation

General index

3.469682%

2.5368%

41.636184%

30.36%

11.37875%

7.085807%

3.2795

2.7931

.399

CV
SLOPE ()

By analyzing the above data, we can say that the beta of the company is 0.399. We know that the
market beta is always 1. So the beta of the company is less than 1 which is less risky than the
market. In spite of that BATBCs standard deviation and C.V. both are higher than Market so
total risk of BATBC is higher.

CAPM

= Rf + (Rm-Rf)
= 11+(30.442-11).399
=18.76%

Where,

Rf

= 11%

Rm

= 30.442%

= .399

Here, 11% t-bill which was a 91 days T-bill and was announced in 18 3 12 was used as the
risk free rate.

Intrinsic share price

37.1850%

37.1850%

10% constant

growth

Year

2010

Dividend

35

Outcomes:

40.429

2011
48.014

2012

2013

65.87

72.457 (taka)

46.703
586.457

TV2012=827.135

673.59
For constant growth rate after 2012 we need a rate less than the Ke rate of 18.76%. So
we assumed the constant growth rate after 2012 to be 10%.

Intrinsic price is total of the outcomes which is Po= 673.59 taka


This does not reflect the true 2010 market price of 692.30 taka. There is a difference of 18.711
taka among the two values. Which means share price is overvalued.

CORPORATE VALUE MODEL

10% constant growth

Year

2010

FcF

643777

2011

2012

655784

681282

2013
749410.2(taka

Outcomes: 552192.66
483043.83
6065618.838

7100855.328 (value of total company)

Value of 1 common share


(7100855.328 806476) = 6294379.328
=
= 413.614

TV2012=8554910.959

Weighted Average Cost of Capital (WACC)


Capital Structure = 28.78% Debt & 71.22% Equity
Cost of Debt

=Kd

= .1727%

Cost of Common Equity

= KCS =17.848%

Cost of retained earnings

= KRE =17.848%

Weight of debt

=Wd

Weight of Common Equity

= WCS = 6.154%

= 28.78%

Weight of Retained Earnings = WRE = 65.066%

WACC
= WL*KL*(1-Tax rate)+WB*KB(1Taxrate)+WPS*KPS+WCS*KCS+WRE*KRE
= .2878*.001727(1- .24021)+0+0+ (.06154*.17848)+(.65066*.17848)
=0.0003776+0.1098+0.1169
= 22.707%

WACC (market value)


Capital Structure = 28.78% Debt & 71.22% Equity
Cost of Debt

=Kd

= .1727%

Cost of Common Equity

= KCS =17.848%

Cost of retained earnings

= KRE =17.848%

Weight of debt

=Wd

Weight of Common Equity

= WCS = 80.056%

= 6.117%

Weight of Retained Earnings = WRE = 13.827

= WL*KL*(1-Tax rate)+WB*KB(1-Taxrate)+WPS*KPS+WCS*KCS+WRE*KRE
= [.06117*.001727(1- .24021)]+0+0+[ .80056 * .17848] +[ .13827 * .17848]

=16.76%

Optimum Capital Structure

Value of the firm

=
= 3022349.391

1. Capital Structure = 50% Debt & 50% Equity

WACC
= WL*KL*(1-Tax rate) +WB*KB (1Taxrate) +(WPS*KPS+(WCS*KCS+WRE*KRE )
= .50*.001727(1- .24021) +0+0+ .50*.17848
= 8.9896%

Value of the firm

=
= 7634209.267

2. Capital Structure = 60% Debt & 40% Equity

WACC
= WL*KL*(1-Tax rate) +WB*KB (1Taxrate) + (WPS*KPS+ (WCS*KCS+WRE*KRE)
= .60*.001727(1- .24021) +0+0+ .40*.17848
= 7.2178%

Value of the firm

=
= 9508227.94

3. Capital Structure = 20% Debt & 80% Equity

WACC
= WL*KL*(1-Tax rate) +WB*KB (1Taxrate) + (WPS*KPS+ (WCS*KCS+WRE*KRE)
= .20*.001727(1- .24021) +0+0+ .80*.17848
= 14.3046%

Value of the firm

=
= 4797651.1638

4. Capital Structure = 25% Debt & 75% Equity

WACC
= WL*KL*(1-Tax rate) +WB*KB (1Taxrate) + (WPS*KPS+ (WCS*KCS+WRE*KRE)
= .25*.001727(1- .24021) +0+0+ .75*.17848
= 13.418%
Value of the firm

=
=
= 5114658.49

The second option that consists of 60% Debt & 40% Equity has the perfect combination of
Capital Structure for the company and it also has the highest value for the firm of 9508227.94.
By following this capital structure the company can increase its share price. To do so the
company will have to keep the greater portion of the capital structure as loan.
The reason for which we will increase the loan is if we increase the loan the weighted average
cost of capital will decline. .

Dividend Policy

BATBC Bangladesh limited believes that High dividend Payment Increases the
share price

Justification:
In 2010 the company paid dividend of $35. If we observe the historical trend of the
company it can be easily said that the company is following the second view of
dividend policy.
People are always concern about their certain income. In the view of people
dividend is a certain income whereas they are uncertain about the income from the
capital gain. The reason behind their that belief is dividends can be predictable
compared to capital gain as management can control dividend but it cannot dictate
the price of stock.

The incremental risk associated with capital gain relative to

dividend income implies a higher required rate for discounting a dollar of capital
gains than for discounting a dollar of dividend. So higher dividend means higher
share price for the company in the eye of people

Keeping this in mind BATBC Bangladesh Limited gives maximum return to their
shareholders as the form of dividend. This policy is also known as bird in the
hand dividend theory.

Appendix
1. General Reserve: (2011)

Opening balance:

1,836,607,000

Profit earned during the year

6,097,442,822

Payment of dividends

(4, 976,38,000)
7,436,411,822

2. General Reserve: (2012)


Opening balance:
Profit earned during the year
Payment of dividends

7,436,411,822
841,527,416
(497,638,000)
7780301238

3. Average Tax Rate:


=

EBT (1 - T)

2006

336425(1 -T) = 246252

Tax Rate = 26.803 %

2007

350155(1 - T) = 263651

Tax Rate = 24.704 %

2008

457740 (1 - T) = 359342

Tax Rate = 21.496 %

2009

772611 (1 - T) = 609870

Tax Rate = 21.064 %

2010

903256 (1 - T) = 668068

Tax Rate = 26.038 %

Average Tax Rate

= Net profit after tax

24.021 %