Chapter 1

Introduction & Methodology

1.1 Introduction of the Company
Bata Bangladesh is affiliated to the Bata Shoe Organization, the world's largest
footwear manufacturing and marketing organization. BATA was started its operation
in Bangladesh in 19!, "ncorporation in Bangladesh in 19#!.
$urrentl%, Bata Bangladesh operates ! manufacturing plant Tongi and &hamrai,
Bata Bangladesh is producing around 11',''' pairs of shoes dail%. "t has a modern
tanner% with the latest technological facilities to process ( million s)uare feet of
leather %earl%. The Tanner% is e)uipped with a high*tech effluent treatment plant
ensuring a pollution free en+ironment for ,oth workers and localit% where we
operate. Bata Bangladesh sells all kinds of footwear which are classified in alignment
with market sectors as follows-
&omestic market . under the trademarks of /Bata0, /1ower0, /2ein,renner0 /Bu,,le
gummers0, /3orth Star0 and /4arie $laire0, through a count%wide distri,ution network
comprising retail stores, &S1s and independent dealers.
O+erseas market . under the trademarks of its customers, and also markets its own
,rands to sister companies and the 4iddle 5ast.
1.2 Objective of the Study
The Basic o,6ecti+e is to anal%ze the ,usiness strateg% of Bata Shoe Company
(Bangladesh) Ltd ,ased on compan%7s financial report performance of pre+ious
%ears, as well as do accounting anal%sis to identif% how financial reports are
dependent 8 manipulated ,% different accounting policies, also e+aluating
$ompan%7s future performance with the help of prospecti+e anal%sis.
1 9 1 a g e
1. Methodology!
1..1 Stati"tical #echni$ue
2e used ,ar chart and line chart to interpret the processed data.
1..2 %ature of &ata
&ata had ,een used during the preparation of this report, is secondar% data.
1.. Source" of &ata
This report was prepared mainl% ,ased on the secondar% data a+aila,le in the
market. The secondar% data was collected from the internet, newspapers and the
compan%7s annual reports. The report prepared from the anal%sis of the raw data is
of the formal t%pe and the information from the secondar% data was used to support
the findings of the financial anal%sis.
1..' (eriod under Con"ideration
&ata for the last fi+e financial %ears, starting from !''( up to !''9, had ,een taken
under consideration while preparing this report. 2e ha+e considered last ( %ears
data for the compan%7s statistical and financial trend anal%sis.
1..) %ature of *naly"i"
2e mainl% relied on /$ross Sectional Stud%0 to compare ,etween the two ri+al firms.
To monitor the performance of our compan% of focus o+er the %ears with respect to
/:atio Anal%sis0, /$ash ;low Statement Anal%sis0, /Balance Sheet and "ncome
Statement Anal%sis0 which helped us identif% an% specific trends or fluctuations
occurred during the periods taken into consideration for anal%sis.
The ratio had ,een anal%zed with respect to three +iewpoints, ,enchmarking, time
series anal%sis and cross section anal%sis.
The strategic anal%sis is done through their industr% anal%sis 8 positioning,
competiti+e strateg% anal%sis and corporate strateg% anal%sis.
! 9 1 a g e
The accounting anal%sis is done through asset anal%sis, lia,ilit% 8 e)uit% anal%sis,
re+enue anal%sis 8 e<pense anal%sis.
1..+ Standard of Compari"on
2e relied on /$ross Sectional Stud%0 as standard for comparison of the performance
of /Bata Shoe Company (Bangladesh) Ltd0 with /Ape< adelchi ;ootwear =imited0.
&ue to una+aila,ilit% of data and also difficult% of calculation of the /"ndustr%
A+erages0, we carried out ratio anal%sis of ,oth the companies for the last ( %ears
and compared their performances with respect to all the ma6or ratios. ;inall%, we
came up with our comments regarding relati+e performances of each compan% in
due course of time.
2e took /Ape< adelchi ;ootwear =imited0 as the comparison of /Bata Shoe
Company (Bangladesh) Ltd0 ,ecause ,oth are the ;ootwear industr% and en6o%ing
health% financial position with good demand of their shares.
1.' ,imitation
Time was a +er% ,ig constraint during the process of preparation of this report. As
the report had ,een prepared o+er a time period of onl% two months, time had to ,e
,udgeted and scheduled +er% calculatedl%. There was +er% little time that can ,e
used as lagging in case something falls ,ehind schedule.
Also the una+aila,ilit% of all the annual financial reports of the compan% and market
price had ,een a ,ottle neck throughout the entire preparation of the report. Another
matter of concern was that, the report considers data onl% from the last fi+e financial
%ears. This ma% not ,e sufficient to clearl% show the reasons for the de+iations in
share prices along those %ears. A report with anal%sis of the last ten to fifteen %ear
ma% ha+e ,een more precise and accurate.
4oreo+er man% companies practice am,iguous accounting practices to get rid of ta<
that dilute the actual scenario. Also sometimes, these companies tr% to make their
performance much more lucrati+e to the Shareholders ,% means of unethical
practice which are completel% unnoticea,le to general pu,lic. Such practice if had
> 9 1 a g e
taken place might ha+e diluted our findings which are ,ased on the information
a+aila,le in the /Annual :eports0.
Chapter 2
*naly"i" & Interpretation of -inancial &ata
2.1 *naly"i" of .alance Sheet
/econ"truction of .alance Sheet .a"ed on .oo0 1alue & Mar0et 1alue of Share
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2ear on -ocu"! 2334536
Book @alue per Share is the accounting +alue of a share, e)ual to common e)uit%
di+ided ,% the num,er of shares outstanding.
4arket +alue is current price of the stock. "f the profita,ilit%, li)uidit%, asset and de,t
management is good market +alue will pro,a,l% ,e as high as can ,e e<pected.
The market +alue of BATA was Tk. 1?A.9' per share at the end of !''(, and was
increased to Tk.(!A.>' at the end of !''9. "nitiall% the ,ook +alue of the share of the
compan% is Tk. (?.' per share and at the %ear !''9 it ,ecome A1.91
;rom the a,o+e data, it is e+ident that the 4arket +alue is su,stantiall% greater than
the ,ook +alue.
"t is not +er% a,normal for market +alue to differ with ,ook +alue of a firm. The reason
is, a compan% is a going concern and when compan% issues shares to the pu,lic,
depending on +arious factors like demand and suppl% of the firm7s shares, the prices
e+entuall% fluctuate. "n other words, if a firm is profita,le or at least deemed to ,e
profita,le, demand for that firm7s share is higher and conse)uentl% the share price of
that firm7s share is higher. Of course, this can also occur the other wa% around.
Therefore, it is safe to infer that market +alue of and ,ook +alue of a compan% can
+ar% to )uite some e<tent. As a result market +alue and ,ook +alue of the compan%
differs in a great e<tend. &ue to this, this change in +alue can change the +alue of
the shareholder7s e)uit% and not to mention the +alue of assets, fi<ed ones in
particular. The same principle is o,+iousl% also applica,le for Bata Shoe Company
(Bangladesh) Ltd and an% other going concern.
There are lots of factors that indicate fundamental difference of market +alue and
,ook +alue, like as ,elow-
1. 7ndervaluation of -i8ed *""et"! &ue to under+aluation of fi<ed asset, there
ma% ,e a difference in Book +alue and 4arket +alue.
2. Over &epreciation of -actory .uilding and Other -i8ed *""et"! &ue to o+er
depreciation of factor% ,uilding and other fi<ed asset, it ma% happen. =ike The
( 9 1 a g e
depreciation rate for the factor% ,uilding was calculated at some percentage ,ut in
realit% the actual depreciation rate was lower than that. The depreciation rate for
other fi<ed assets was also o+er estimated than in realit%. "n other words,
depreciation is often o+erestimated and applied accordingl%.
. Intangible a""et! &ue to intangi,le asset like goodwill, patent or trademark etc,
4arket +alue ma% differ from Book +alue.
3ow at date >1
th
&ecem,er !''9 4arket price is B&T (!A.>' and Book +alue is B&T
A1.91.
3ow ,ased on the current ,ook +alue of the firm, ,alance sheet of !''9 can ,e
summarized as follows
The new ,alance sheet will eliminate the difference ,etween the market price and
,ook +alue per share. Because of the market price of the share, +alue of total e)uit%
will ,e increased and therefore +alue of lia,ilit% 8 owners e)uit% will ,e increased. To
appl% matching principle, +alue of the asset should get increased since source of
fund is o+er+alued. Bere we ha+e added a certain amount to intangi,le assets which
is goodwill.
9 1 a g e
Assets Liabilities & equity
Assets Equity
Property, plant and equipment
508,297,292
Total Equity
1,120,487,323
Capital or! in pro"ress
13,8#0,#71 $ia%ilities
&n'estment in su%sidiary
19,970,000
Total (on Current $ia%ilities
131,959,233
)e*erred ta+ assets
1#,000,000
Total Current $ia%ilities
1,470,517,4#9
Total (on ,urrent Assets
7,#48,471,9#3
Total $ia%ilities
1,#02,47#,702
Total ,urrent Assets
2,1#4,83#,0#2
Total Assets
2,772,964,025
Total Liabilities and Equity
2,772,964,025
2.2 *naly"i" of Ca"h -lo9 Statement
$ash and 5)ui+alent of cash are the most li)uid assets for the compan%. Cood
management of cash is +er% important for compan% and operating acti+ities re)uires
good management of cash. $ash flows are the cash receipts and the cash
dis,ursements of the compan% that is the inflows and outflows of cash. "t is an
anal%sis o+er a period of time re+ealing the a+aila,ilit%, or lack of cash. 4ore simpl%
# 9 1 a g e
Assets Liabilities & equity
Assets Equity
Property, plant and equipment ,50!,297,292
Total Equity
!,2"0,!",2
#ntan$ible assets%$ood&ill' 4,090,44,000 $ia%ilities
Capital or! in pro"ress 13,8#0,#71
Total (on Current $ia%ilities
131,959,233
&n'estment in su%sidiary 19,970,000
Total Current $ia%ilities
1,470,517,4#9
)e*erred ta+ assets 1#,000,000
Total $ia%ilities
1,#02,47#,702
Total (on ,urrent Assets 7,#48,471,9#3
Total ,urrent Assets
2,1#4,83#,0#2
Total Assets
9,!",0!,025
Total Liabilities and Equity
9,!",0!,025
Operating Activities
0
100000000
200000000
300000000
400000000
500000000
600000000
2005 2006 2007 2008 2009
YEAR
B
D
T
put the difference ,etween ca"h in v". ca"h out. Since mone% does not flow in and
out at an e)ual rate, in most ,usinesses, an anal%sis of cash flow is important,
especiall% of ,usinesses that are c%clical in nature, or su,6ect to e<ternal forces.
;rom the financial statements we can ha+e a look to the cash flow statement of Bata
Shoe Company (Bangladesh) Ltd. from the %ears !''( to !''9. After anal%zing that
statement we can ha+e an idea of the cash dealings of the compan% of the %ears
under our stud%. Bere we will make some comments on different components of the
cash flow statements for these %ears se)uentiall% from !''( to !''9. ;or this
purpose we ha+e di+ided this anal%sis into three parts ,ased on different t%pes of
acti+ities considered to prepare the cash flow statement. These parts are descri,ed
,elow ,riefl%.
2.2.1 %et Ca"h -lo9 from Operating *ctivitie"
Through operating the ,usiness the cash comes in is cash inflow from operating
acti+ities. The operating acti+ities contain net income, specific current assets and
lia,ilities, depreciation etc. This section shows how much cash came into the
compan% and how much cash went out of the compan% during the normal course of
,usiness.
;igure !*1- $ash ;low from Operating Acti+ities
Comment" on Operating *ctivitie"
;rom !''( to !''# there was a downward mo+ement in cash inflow from operating
acti+ities and the main reason of this decreasing is the world economic recession.
But from !''# to !''9 there was an upward mo+ement in cash inflow and in !''9
BATA got the height cash inflow than comparati+el% others anal%zing %ears.
A 9 1 a g e
Investing Activities
-120000000
-100000000
-80000000
-60000000
-40000000
-20000000
0
2005 2006 2007 2008 2009
YEAR
B
D
T
"ncreasing cash refers to increasing current assets and li)uidit% as well as profit also.
"t indicates that BATA performance in operating acti+ities ,etter than the past (
%ears.
2.2.2 %et Ca"h -lo9 from Inve"ting *ctivitie"!
This section shows that how much cash came into DinflowE the compan% and how
much cash went out DoutflowE of the compan% from its in+estment acti+ities during
the time.
;igure !*!- $ash ;low from "n+esting Acti+ities
Comment" on inve"ting activitie"
T-e "rap- s-os a donard mo'ement o* ,as- *lo *rom in'estment a,ti'ities ,ur'e. T-e
in'estment is -ei"-t in 2009 t-an t-e pre'ious 5 years. T-is in'estment is ,onsidered as non ,urrent
assets o* /ATA so t-e "ood nes is t-at t-e in,reases in non ,urrent assets "enerate more return
-i,- in,reases pro*it.
9 9 1 a g e
Financing Activities
-400000000
-350000000
-300000000
-250000000
-200000000
-150000000
-100000000
-50000000
0
2005 2006 2007 2008 2009
YEAR
B
D
T
2.2. %et Ca"h -lo9 from -inancing *ctivitie"!
This section shows that how much cash came into DinflowE the compan% and how
much cash went out DoutflowE of the compan% from its financing acti+ities during the
time. This section represents the net cash flow from the financial acti+it%.
;igure !*>- $ash ;low from ;inancing Acti+ities
Comment" on financing activitie"!
;or the first three %ears from ,asing %ear the changes was so inconsistence ,ut for
the last three %ears the trend was somehow sta,le or predicta,le within a range. But
the last %ear !''9 cash out flow was higher than among the ( anal%zing %ears. One
good news is that the more de,t increases the more Bata $ompan% gets ta<
ad+antages which increases 51S for Bata. One Cood news is that the compan% is
pa%ing more di+idend which decreases their lia,ilities.
2. /atio *naly"i"
1' 9 1 a g e
:atio anal%sis is the calculation and comparison of ratios which are deri+ed from the
information in a compan%'s financial statements. The le+el and historical trends of
these ratios can ,e used to make inferences a,out a compan%'s financial condition,
its operations and attracti+eness as an in+estment. To e+aluate a firm7s financial
condition and performance, the financial anal%st usuall% performs anal%sis on +arious
aspects to find out the financial health of the firmF among which ratio anal%sis is one
of the most important and commonl% used methods. "n this stud% +arious ratio
anal%ses will ,e done to understand the financial condition of the compan% and to
compare this condition with its ri+al firm. The financial ratios can ,e anal%zed ,ased
on three criteria-
.enchmar0 *naly"i"! A ,enchmark is a point of reference with which the
financial ratios of the specific compan% can ,e compared. ;or e<ample, the
current ratio of !-1 is considered to ,e ideal for a compan% and it is assumed
to ,e the ,enchmark.
#ime Serie" *naly"i"! "t in+ol+es comparing a present ratio with past and
e<pected future ratios for the compan%. ;or instance, the current ratio Dthe
ratio of current assets to current lia,ilitiesE for the present %ear could ,e
compared with the current ratio for the pre+ious %ears. 2hen financial ratios
are arranged o+er a period of %ears, the anal%st can stud% the composition of
change and determine whether there has ,een an impro+ement or
deterioration in the firm7s financial condition and performance o+er time.
Cro"" Section *naly"i"! The third method of comparison in+ol+es
comparing the ratios of one with those of similar firms or with industr%
a+erages at the same point in time. Such a comparison gi+es insight into the
relati+e financial condition and performance of the firm. "t also helps us to
identif% an% significant de+iation from an% applica,le industr% a+erage.
"n this paper, ratios of Bata Shoe Company (Bangladesh) Ltd and
Ape<adelchi ;ootwear =td are calculated and anal%zed ,ased on ,ench mark,
time series and cross sectional anal%sis.
2..1 ,i$uidity /atio
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A li)uid asset is one that can ,e easil% con+erted to cash without significant loss of
its original +alue. =i)uidit% or Short Term Sol+enc% ratios are used to determine a
compan%'s a,ilit% to pa% off its short*terms de,ts o,ligations. The higher the +alue of
the ratios, the larger will ,e the margin of safet% that the compan% possesses to
co+er short*term de,ts. "t shows the relationship of a firm7s cash and other current
assets to its current lia,ilities. &ifferent t%pes of li)uidit% ratios are discussed ,elow.
Current /atio!
$urrent :atio is the ratio of current assets to current lia,ilities. The current ratio
indicates the a,ilit% of a compan% to pa% its current lia,ilities from current assets that
shows the strength of the compan%7s working capital position. $urrent ratio of !-1 is
considered to ,e a health% condition for most ,usiness organization.
The ratio is calculated as follows-
Current /atio : Current *""et" ; Current ,iabilitie"
The following ta,le shows the current ratio data of the ! companies*
According to Benchmark anal%sis the current ratio of !-1 is considered to ,e ideal for
a compan%. $onsidering the operating %ear !''(*!''9 the current ratio of BATA has
gone down at !''#. This is not necessaril% a ,ad news, the huge in+estment of
working in progress reduces the current asset and the increase of lia,ilities in this
%ear is lia,le for this decline of the ratio. $omparing with ri+al firm A15G, BATA is in
far ,etter position in terms of li)uidit%.
1! 9 1 a g e
(ompany 2005 2006 2007 200! 2009
)ata 1.538 1.539 1.420 1.454 1.472
Ape* 1.009 1.01# 1.031 1.071
<uic0 /atio!
The Huick ratio or acid*test measures a compan%'s a,ilit% to meet its short*term
o,ligations with its most li)uid assets. "n+entories t%picall% are the least li)uid of a
firm7s current assets . the% are the assets on which re)uire more time to ,e sold and
losses are most likel% to occur in the e+ent of li)uidation. Therefore, it is important to
measure the firm7s a,ilit% to pa% off short term o,ligations without ha+ing to rel% on
the sale of in+entories. Huick ratio of 1-1 is considered to ,e a health% condition for
most ,usinesses. "t is calculated as follows.
<uic0 /atio: =Current *""et"5 Inventorie">; Current ,iabilitie"
The following ta,le shows the )uick ratio data of the two companies*
(ompany 2005 2006 2007 200! 2009
)ata 0.#19 0.#24 0.403 0.399 0.497
Ape* 0.503 0.581 0.591 0.583
$ompared to the ,enchmark of )uick ratio 1-1 is ideal for a compan%. The trend of
)uick ratio of BATA Shows that the ratio has gown down in !''# due to the increase
of in+entories is a,out >!.(I respect to %ear of !''. On the other hand, ri+al firm
1> 9 1 a g e
;igure !*?- $urrent :atio of BATA and A15G for the %ears !''(*!''9
A15G is doing ,etter compared to BATA in !''#.$onsidering the %ear !'' to !''A
lia,ilities increase a,out !?.>(I which indicates huge in+estment and declining the
)uick ratio. One more time, this is not a ,ad news for BATA ,ecause compan% will
get ,enefit in future in this inflationar% econom%. As a conse)uence, )uick ratio is
increasing up to !''9 for BATA ,ut ri+al firm is pla%ing opposite role Di.e. sta,le )uick
ratioE. This indicates the good a,ilit% of BATA to meet its short*term o,ligations with
its own li)uid assets.
Ca"h /atio
$ash :atio is the ratio of a compan%'s total cash and cash e)ui+alents to its current
lia,ilities. The cash ratio is most commonl% used as a measure of compan% li)uidit%.
1? 9 1 a g e
;igure !*(- Huick :atio of BATA and A15G for the %ears !''(*!''9
"t can determine how )uickl% the compan% can repa% its short*term de,t. "t shows
cash sol+enc% of the firm. 2e can find cash ratio in the following wa%.
Ca"h /atio : Ca"h;Current ,iabilitie"
(ompany 2005 2006 2007 200! 2009
)ata 320 370 230 190 240
Ape* #0 4.50 50 20
;rom the a,o+e ta,le, we can see that normall% the cash ratio of BATA is higher
compared to A15G, which reflects that BATA has higher cash to meet its current
lia,ilities. Though cash ratio ,elow >'I is considered as /point to make attention0
,ut BATA ha+e significantl% ,etter cash ratio compared to his main ri+al A15G all
through the last four %ears. 1oint to ,e noted that BATA started its 6ourne% on 19!
where A15G Shoe started its 6ourne% on 199' in Bangladesh.
2..2 *""et Management /atio
A set of ratios that measure how effecti+el% a firm manages its assets compared to
its sales. These ratios are designed to find out whether the total amount of each t%pe
1( 9 1 a g e
of asset as reported on the ,alance sheet appear reasona,le, too high, or too low
considering current and pro6ected sales le+els. Asset 4anagement :atio is done
,ased on in+entor% turno+er ratio, da%s sales outstanding and fi<ed asset and total
asset turno+er ratio.
Inventory #urnover /atio
"n+entor% Turno+er :atio tells how often a ,usiness's in+entor% turns o+er during the
course of the %ear. "n+entories are the least li)uid form of asset and a high in+entor%
turno+er ratio is generall% positi+e. On the other hand, an unusuall% high ratio
1 9 1 a g e
compared to the a+erage for the industr% could mean that the ,usiness is losing
sales ,ecause of inade)uate stock on hand. The ratio is calculated as follows-
Inventory turnover ratio: Co"t of good" "old ;Inventorie"
The following ta,le shows the in+entor% turno+er ratio data of the ! companies*
(ompany 2005 2006 2007 200! 2009
)ata 3.401 3.908 3.4#8 3.1## 3.485
Ape* 3.907 4.20# 4.7## 4.342
The trend line of in+entor% ratio shows the ups and downs in+entor% turno+er ratio
from !''( to !''9 ,ut in !''9 it remains more or less same as !''(. This is good
news ,ut comparing with ri+al it is not the health% position. $onsidering the %ear
!'' to !''A the in+entories are increased a,out ?#.9I.&ue to holding e<cess
in+entories the ratio is poor and it7s not ,ad news ,ecause compan% will get the
future ,enefit. "f we consider the %ear !''9 the trend is coming upward from !''A
and continuing with this the compan% can achie+e their landmark easil%.
&ay" Sale" Out"tanding
&SO is called the a+erage collection period, is used to e+aluate the firm7s a,ilit% to
collect its credit sales in a timel% manner. "t is calculated ,% di+iding accounts
recei+a,le ,% a+erage sales per da% which indicates the a+erage length of time it
takes the firm to collect its credit sales. &SO is calculated as follows-
1# 9 1 a g e
;igure !*#- "n+entor% Turno+er :atio of BATA and A15G for the %ears !''(*
!''9
&ay" Sale" Out"tanding =&SO> :/eceivable";*verage "ale" per day
: /eceivable"; ?*nnual "ale";+3@
The following ta,le shows the &SO data of the ! companies*
(ompany 2005 2006 2007 200! 2009
)ata 22.322 10.8101 3.579 #.189 7.277
Ape* #5.7004 5#.453 57.891 43.807
O+er the %ears &SO is decreasing, from !''( to !''#. There is a little increase in
&SO in !''A*!''9 ,ut it is not significant. Though the &SO ratio is increasing in
!''#*!''9, it is negligi,le. $onsidering the ri+al firm among the o+erall operating
%ear !''(*!''9 BATA is doing e<cellent which reflects ,etter credit polic% of the
compan%.
-i8ed *""et #urnover /atio
;i<ed assets turno+er ratio measures how effecti+el% the firm uses its plant and
e)uipment to help generate sales. So, fi<ed Asset Turno+er ratio measures the
amount of sales generated for e+er% dollar's worth of fi<ed assets. The fi<ed asset
1A 9 1 a g e
;igure !*A- &a%s Sales Outstanding of BATA and A15G for the %ears !''(*
!''9
turno+er ratio is calculated ,% di+iding sale ,% total fi<ed assets. "t is calculated as
follows-
-i8ed *""et" #urnover /atio : Sale"; %et -i8ed *""et"
The following ta,le shows the fi<ed asset turno+er ratio data of the ! companies*
The fi<ed asset turno+er ratio is increasing among the operating %ear !''(*!''9.
Bigh trend of fi<ed asset ratio is responsi,le for the increase of sales is a,out
?.1!I. So, BATA is maintaining a good stead% fi<ed asset turno+er ratio, which is a
good news for the compan%.
#otal *""et #urnover /atio
19 9 1 a g e
(ompany 2005 2006 2007 200! 2009
)ata 8.72 11.#1 15.34 1#.23 21.47
Ape* 10.812 13.53 11.77 18.#15
;igure !*9- ;i<ed Asset Turno+er :atio of BATA and A15G for the %ears !''(*
!''9
Total Asset Turno+er ratio measures the amount of sales generated for e+er% dollar's
worth of total assets. The total asset turno+er ratio is calculated ,% di+iding sale ,%
total assets. "t is calculated as follows-
#otal *""et" #urnover /atio : Sale"; #otal *""et"
The following ta,le shows the total asset turno+er ratio data of the ! companies*
(ompany 2005 2006 2007 200! 2009
)ata 1.#405 1.891 1.7#5 1.849 1.834
Ape* 1.#58 1.589 1.733 1.953
$onsidering the ri+al, BATA is maintaining a higher total asset turno+er ratio until
!''A ,ut in !''9 ri+al cross the compan%. "n !''9 total asset turno+er ratio
decreases although sales increases, is a,out A.' I. Because of, the huge
in+estment in fi<ed asset like plant, machineries etc significantl% increases the total
asset. This is also good news for the compan%, though the% ha+e lower total asset
turno+er ratio. But high in+estment in fi<ed asset will return a effecti+e ,enefit in
future.
2.. &ebt Management /atio
!' 9 1 a g e
;igure !*1'- Total Asset Turno+er :atio of BATA and A15G for the %ears
!''(*!''9
&e,t 4anagement ratios help to e+aluate a compan%'s long*term sol+enc%
measuring the e<tent to which the compan% is using long*term de,t. This ratio
reflects how effecti+el% a firm is managing its de,ts. "t helps the anal%st to determine
the e<tent to which ,orrowed funds ha+e ,een used to finance assets and re+iew
how well operating profits can co+er fi<ed charges such as interest.
&ebt /atio
!1 9 1 a g e
The de,t ratio indicates how much of a compan%'s assets are pro+ided through de,t
or the percentage of the firm7s assets financed ,% creditors. Total de,t includes ,oth
current lia,ilities and long term lia,ilities. $reditors prefer low de,t ratios, ,ecause
the lower the ratio, the greater the cushion against creditor7s losses in the e+ent of
li)uidation. The owners on the other hand can ,enefit from le+erage ,ecause it
magnifies earnings, and thus the return to stockholder. But, too much de,t often
leads to financial difficult%, which e+entuall% might cause ,ankruptc%. "t is calculated
as follows-
&ebt /atio: #otal &ebt; #otal *""et"
The following ta,le shows the de,t ratio data of the ! companies*
(ompany 2005 2006 2007 200! 2009
)ata 59.990 #0.000 #3.470 #1.100 58.800
Ape* 82.#00 8#.900 85.800 92.100
:egarding the operating %ear !''(*!''9 &e,t ratio is decreasing for BATA, e<cept
the %ear !''#. 4ore or less it is remaining same .On the other hand the ri+al is
pla%ing opposite role. But declining de,t ratio is good news for compan% ,ecause
lower the de,t ratio, the greater the cushion against creditor7s losses in the e+ent of
li)uidation. &e,t ratio is increasing dramaticall% for ri+al rather than the compan% is
remaining the stead% growth rate that depicts the health% financial strength of the
compan% BATA.
#ime" Intere"t Aarned =#IA> /atio
!! 9 1 a g e
;igure !*11- &e,t :atio of BATA and A15G for the %ears !''(*!''9
The T"5 ratio measures the e<tent to which earnings ,efore interest and ta<es
D5B"TE, also called operating income, can decline ,efore the firm is una,le to meet
its annual interest cost. ;ailure to meet this o,ligation can ,ring legal action ,% the
firm7s creditor, possi,l% resulting in ,ankruptc%. The T"5 ratio is computed ,% di+iding
earnings ,efore interest and ta<es D5B"TE ,% interest charges. "t measures the a,ilit%
of the firm to meet its annual interest pa%ments. The T"5 ratio is calculated as
follows-
#ime intere"t earned ratio : A.I#; Intere"t charge"
The following ta,le shows the times interest ratio data of the ! companies*
(ompany 2005 2006 2007 200! 2009
)ata 92.35 158.37 151.71 123.87 1#1.#2
Ape* 1.57 2.14 1.88 1.74
O+er the %ears BATA has a strong position in T"5 ratio compare to A15G. "n !''( to
!'' there is a sharp growth in T"5 ratio of BATA after than the trend is declining
until !''A, due to increase the amount of interest i.e. 9?.?'I considering the %ear
!'' to !''A. "n !''9 it is increased again and so it7s good news for the compan%.
$onsidering the ri+al, Bata is doing e<cellent.
2..' (rofitability /atio
!> 9 1 a g e
;igure !*1!- T"5 :atio of BATA and A15G for the %ears !''(*!''9
A group of ratios that show the com,ined effect of li)uidit%, asset management, and
de,t management on operating results ."t is the net result of a num,er of policies and
decisions.
(rofit Margin on Sale"
1rofit 4argin is the ratio measures net income per dollar of sales and is calculated
as net income di+ided ,% re+enues, or net profits di+ided ,% sales. "t measures how
much out of e+er% dollar of sales a compan% actuall% keeps in earnings. 1rofit margin
is +er% useful when comparing companies in similar industries. A higher profit margin
indicates a more profita,le compan% that has ,etter control o+er its costs compared
to its competitors. 1rofit margin is displa%ed as a percentageF a !'I profit margin,
for e<ample, means the compan% has a net income of J'.!' for each dollar of sales.
"t is calculated as follows-
(rofit margin on "ale" : %et Income; Sale"
The following ta,le shows the profit margin on sale data of the two companies*
(ompany 2005 2006 2007 200! 2009
)ata #.750 7.170 7.140 9.720 9.000
Ape* 1.700 3.810 3.370 4.310
1rofit margin on sales is increasing o+er the time period of !''( to !''# slowl% for
BATA and !''A there is a peak sale. "n !''9 there is a little fall ,ut still it is high
a,o+e from the ri+al compan% A15G. This is good news for the compan%*
/eturn on *""et =/O*>
!? 9 1 a g e
;igure !*1>- 1rofit 4argin of BATA and A15G for the %ears !''(*!''9
:eturn on Asset D:OAE is an indicator of a compan% which deals with profit relati+e
to its total assets. "t gi+es an idea as to how efficient management is at using its
assets to generate earnings. "t is calculated ,% di+iding a compan%'s annual earnings
,% its total assets, :OA is displa%ed as a percentage. Sometimes this is referred to
as Kreturn on in+estmentK. The :OA after interest and ta<es are computed as
follows-
/eturn on *""et =/O*> : %et Income ; #otal *""et"
The following ta,le shows the :OA data of the ! companies*
(ompany 2005 2006 2007 200! 2009
)ata 11.090 13.530 14.430 17.980 1#.500
Ape* 5.840 3.320 5.840 #.070
:OA of BATA is increasing from !''( to !''A and it is higher from the comparing
compan% A15G. But in the %ear !''9 the trend goes down slightl% this is not a ,ad
news in a sense that BATA in+ested huge in fi<ed asset in ,etween these %ears
which e+entuall% reduce the :OA.
/eturn on A$uity =/OA>
!( 9 1 a g e
;igure !*1?- :OA of BATA and A15G for the %ears !''(*!''9
:eturn on 5)uit% D:O5E measures the rate of return on common stockholders7
e)uit%. "t measures a compan%'s profita,ilit% ,% re+ealing how much profit a compan%
generates with the mone% shareholders ha+e in+ested. The return on e)uit% D:O5E is
measured as follows-
/eturn on A$uity =/OA> : %et income ; #otal Shareholder"B A$uity
The following ta,le shows the :O5 data of the ! companies*
(ompany 2005 2006 2007 200! 2009
)ata 27.##0 33.830 39.490 4#.230 40.100
Ape* 19.910 4#.540 33.720 28.770
The :O5 of BATA is increasing sharpl% from the %ear !''( to !''A and slightl% goes
down in !''9 .On the other hand, considering the ri+al compan% A15G is drasticall%
gone down from !''# to till !''9. The decreasing trend of BATA is responsi,le for
the 1(I increase of e)uit%. "t indicates that the rate of return on the common
stockholders7 in+estment is rising o+er the %ear which is a good indicator for the
compan% in future.
&u(ont *naly"i"
! 9 1 a g e
;igure !*1(- :O5 of BATA and A15G for the %ears !''(*!''9
:OA is increasing from !''( to !''A, which implies the higher net income.
Also the :OA is in +er% ,etter position compared to main ri+al A15G.
;i<ed Asset Turno+er :atio is increased from !''( to !''9. "t ma% ,e happen
for higher sales or disposal of fi<ed asset. But from the annual report it was
found that the disposed amount of fi<ed asset is not that much significant
affect on these ratios. This implies that the% ha+e a clean impro+ement in
sales.
1rofit margin is increased o+er the %ears. 1oint to ,e noted that !''A was the
%ear of recession. But in !''A the% ha+e increased their profit margin in huge
amount. B% anal%zing the scenario a,out what make this thing happen, found
that, the% ha+e increased their ad+ertisement e<pense ,% >#I on that %ear.
:egarding the operating %ear !''(*!''9 &e,t ratio is decreasing for BATA,
e<cept the %ear !''#. But declining de,t ratio is good news for compan%
,ecause lower the de,t ratio, the greater the cushion against creditor7s losses
in the e+ent of li)uidation.
!# 9 1 a g e
2..) Mar0et 1alue /atio
This is a set of ratio that relates the firm7s stock price to its earnings and ,ook +alue
per share. These ratios gi+e management an indication of what in+estors think of the
compan%7s past performance and future prospect. "f the firm7s li)uidit%, asset
management, de,t management, and profita,ilit% ratios are all good then market
+alue ratios will ,e high which will lead to an increase in the stock price of the
compan%.
!A 9 1 a g e
Aarning" per Share
5arnings per Share D51SE are the portion of a compan%'s profit allocated to each
outstanding share of common stock. "t ser+es as an indicator of a compan%'s
profita,ilit%. "t is generall% considered to ,e the single most important +aria,le in
determining a share's price. "t is also a ma6or component used to calculate the price*
to*earnings +aluation ratio. "t is calculated as follows-
A(S : %et Income; %umber of Share" Out"tanding
The following ta,le shows the 51S data of the ! companies*
(ompany 2005 2006 2007 200! 2009
)ata 151.10 202.5 237.5 328.5 328.5
Ape* ##.5# 225.81 1#8.74 188.03
51S of BATA has ,een increasing at health% rate o+er the %ears. This is good news
,ecause this will help to attract the in+estors and thus the compan% can collect more
mone% from stock market. The 51S of BATA is increased from TL 1(1.1' to TL
>!A.(' during !''( to !''9 which helps to increase the share price. ;rom the %ear
!''A to !''9 it remains constant due to the huge in+estment in work in progress it7s
also a good news for the compan%.
(rice;Aarning =(;A> /atio
!9 9 1 a g e
;igure !*1- 51S of BATA and A15G for the %ears !''(*!''9
This is the ratio of the price per share to earnings per share. "t shows how much
in+estors are willing to pa% per dollar of reported profit. "t is calculated as follows-
(;A /atio : Mar0et (rice per Share; Aarning" per Share
The following ta,le shows the 1M5 ratio data of the ! companies*
(ompany 2005 2006 2007 200! 2009
)ata 9.85 5.995 9.414 9.7# 1#.08
Ape* #.989 9.#14 14.134 13.737
$onsidering the %ear !''( to !'' the 1M5 ratio decreases and after than !'' to
!''9 it is transparent that BATA has a health% growth in 1M5 ratio. "n !''9
comparing to A15G D1M5 ratio is 1>.#>#E BATA is continuing with higher ratio. This
indicates the demand and trust for this share is increasing respect to the in+estors.
The in+estors willing to pa% 1.'A taka for earning 1 taka profit from the compan%.
.oo0 1alue per Share
>' 9 1 a g e
;igure !*1#- 1M5 :atio of BATA and A15G for the %ears !''(*!''9
$ommon stockholders' e)uit% is determined on a per*share ,asis. Book +alue per
share is calculated ,% su,tracting lia,ilities and the par +alue of an% outstanding
preferred stock from assets and di+iding the remainder ,% the num,er of outstanding
shares of stock. "t is calculated as follows-
.oo0 1alue per Share:A$uity;%umber of Share" Out"tanding
The following ta,le shows the Book +alue per share data of the ! companies*
(ompany 2005 2006 2007 200! 2009
)ata 54.# 59.85 #0.13 71.0# 81.91
Ape* 33.43 48.51 50.39 #5.34
The ,ook +alue per share is increasing o+er the %ear !''( to !''9. On the other
hand, ri+al is maintaining lower Book @alue 1er Share. But increasing trend of BATA
in ,ook +alue per share is a good indicator for the compan%. So, the le+el of e)uit% is
rising o+er the %ear which makes good sense for BATA.
4+5+4
Mar0et;.oo0 =M;.> /atio
>1 9 1 a g e
;igure !*1A- Book @alue per Share of BATA and A15G for the %ears !''(*!''9
The ratio of a stock7s market price to its ,ook +alue gi+es another suggestion of how
in+estors regard the compan%. $ompanies with relati+el% high rates of return on
e)uit% generall% sell at higher multiples of ,ook +alue than those with low returns.
The formula for 4arketMBook @alue is gi+en ,elow-
Mar0et ;.oo0 /atio : Mar0et (rice per Share ; .oo0 1alue per Share
The following ta,le shows the 4MB ratio data of the two companies*
(ompany 2005 2006 2007 200! 2009
)ata 2.72 2.02 3.72 4.52 #.45
Ape* 1.39 4.47 4.77 3.9#
The cross section anal%sis indicates that the marketM,ook ratio of BATA is much
higher than A15G. The market +alue per share of A15G is not increasing at faster
rate compared to the ,ook +alue per share. &ue to these, in+estors are willing to pa%
more for the ,ook +alue of BATA than that of the ri+al compan% which implies that
trust of in+estors is going up o+er the %ears !''( to !''9 and the in+estors are +er%
much confident a,out the prospect of BATA.
Chapter
>! 9 1 a g e
;igure !*19- 4MB ratio of BATA and A15G for the %ears !''*!''9
Strategic *naly"i"
.1 Indu"try *naly"i"
-oot9ear Indu"try of .anglade"h
The foot wear industr% in Bangladesh is in growth stage now. The industr% mainl%
composed ,% BATA, A15G, some local ,rand and imported footwear from a,roadF
mainl% china. The ma6orit% of consumers of mid*le+el income are mainl% looking for
BATA 8 Ape<. $urrentl% a new ,rand named /;O:TN3A0 enters in to the market.
;ortuna pre+iousl% 1''I e<ported their footwear. 3ow the% are entering in to the
local market. "n near future in L51O a ,ig LO:5A3 shoe manufacturer will ,e going
launch their 6ourne% in Bangladesh. Scenario ma% ,e different than. The% ha+e
freedom to choose pricing structure as there are no specific o,ligations regarding
this issue.
$onceptual framework for industr% anal%sis has ,een pro+ided ,% 1orter. Be
de+eloped a fi+e*factor model for industr% anal%sis, as shown in the e<hi,it. The
model identifies fi+e ke% structural features that determine the strength of the
competiti+e forces within an industr% and hence industr% profita,ilit%. Anal%sis of
shoe "ndustr% of Bangladesh in respect to Bata shoes with 1orters 4odel of "ndustr%
$ompetition has ,een summarized as followed.
/ivalry among e8i"ting firm"
Though Bata has en6o%ing )uite a good market share and know the market for long
the market competition is intensif%ing da% ,% da%. "n the decade the onl% worr% for
Bata was independent sellers who ha+e the minimal esta,lishment costs and in
man% cases sale shoes of high )ualit% of minimal cost or poor )ualit% shoes. But the
situation has ,een changed much since now not onl% the independent sellers ,ut
also the regional and world famous ,rands are now in Bangladesh. So the
competition has now much more intense. Bata Bangladesh has to think ,oth of their
old threats as well as new competitors who has much more organized structure than
the old competitors.
#hreat of %e9 Antrant
>> 9 1 a g e
Threat of new entrants is high in Bangladesh ,ecause Ape< is alread% entered into
the market as a domestic shoe industr% with high e<pectation and good
management. Apart from that foreign competitors like =i,ert% of "ndia which alread%
taking a grip into the shoe market especiall% the women segment. There are also
some other foreign shoe manufacturer like 3ike, :ee,ok, Addidas and 2oodland.
There are also some other domestic companies like Bal%, 1agasus, and Bomeland
etc. Also in newl% constructed L51O a huge Lorean Shoe 4anufacturer will going to
launch their 6ourne% in Bangladesh. So the road ahead for Bata is not smooth at all
and to forget the independent sellers and smuggled shoe sellers who alread% ha+e
the highest market share. Bata has to go for +ariet% as well as their dura,ilit% which
the% known for long.
#hreat of Sub"titute (roduct"
One can7t think of much su,stitute of shoes. There are not too man% ,are footed
people now da%s. At least the% wear a sandal. So the threat of su,stitute is not that
much.
.argaining (o9er of Supplier"
The ,argaining power of suppliers is relati+el% moderate. The num,er of suppliers is
huge. And the upcoming and other shoe companies ,u% in so much )uantit% that the
suppliers ha+e to satisf% them e+en if ,% increasing )ualit% and ,% decreasing price.
The threat of forward integration ,% the suppliers is high as ,rand identit% is not a
critical issue in the shoe industr% in man% cases.
.argaining (o9er of .uyer"
Bargaining power of ,u%ers is increasing da% ,% da% as new shoe companies with
optimistic future plan and changing trend and )ualit% consciousness in increasing
da% ,% da%. 1eople want dura,le shoes as well as modern designs. So to satisf% the
customers the companies ha+e to keep up with the trend as well. The entrance of
foreign ,rands like 3ike, :ee,ok doesn7t make the scenario easier. So we sa% that
the competition is 6ust heating up in the shoe industr%. 3o one can take eas% e+en
>? 9 1 a g e
the esta,lish ,rand like Bata who ha+e more than >( %ears of e<perience in
Bangladeshi market. So the% must aware of the situation and work and take steps
accordingl%.
SCO# *%*,2SIS of .*#* SDOA COM(*%2 =.*%E,*&ASD>,#&.
Strength"! Strength"!
Brand "mage of the compan%
Hualit% 1roduct
&ifferentiated line of products
$ompetiti+e 1ricing
Strong distri,ution channel
4odern manufacturing facilities
Brand lo%alt% at mass le+el
Cea0ne""e"! Cea0ne""e"!
"nsufficient promotional acti+ities
>( 9 1 a g e
%AC A%#/*%#S
3ike, :ee,ok,
2oodland
LO:5A3 Shoe $o. in
L51O
M*FO/
COM(A#I#O/S
Ape<, "ndependent
sellers,
Reebok, Liberty
Smuggled shoes
S7((,IA/S
:u,,er from local
source. =eather from
local source. Some sole
from other su,sidiaries
of Bata like India and
China Bata.
.72A/S
"nfant, teen, %oung, old.
=ower* middle to upper
class
S7.S#I#7#A
=ow )ualit% footwear
;igure >*1- ;i+e forces of competition for BATA Shoe $ompan% DBangladeshE
=td.
Bata at present conducts all the store management acti+it% manuall%.
This results lots of length% paper works, errors 8 waste of time.
"na,ilit% to catch the present trend in time
Opportunitie"! Opportunitie"!
&espite political tur,ulence a segment of our middle*class is coming up
with reasona,le ,u%ing power. 4an% of them are women who are decision
maker so the cit% store concept of Bata can attract them as whole of the
famil% footwear can ,e a+aila,le there.
$onsumer like differentiated products. The% like to shop in a store where
the% ser+e the whole famil%.
4ore competition results in more campaign for products.
Business 5<pansion in Shoe care products
Ntilize outsourcing especiall% the s%nerg% sources to achie+e competiti+e
pricing
;ranchisee opportunit% with glo,al ,rands like 3ike, :ee,ok, Bush 1upp%
4arket e<pansion opportunit% in high fashion 8 +alue for mone% footwear
market for all categories of shoes through :etail channels
#hreat! #hreat!
1olitical insta,ilit% affects the suppl% of raw materials and distri,ution of
finished products.
Nncontrolled counterfeit of Bata products
3ew companies like Ape<, Bomeland, 1agasus of Bangladesh and the
foreign companies like 3ike, :ee,ok, Addidas are alread% in the market
with good )ualit% product. Ba+e to keep up with them respect of )ualit%.
Also a LO:5A3 shoe compan% is going to start its 6ourne% on L51O.
Smuggling of shoes and man% stores in the cit% like the ones in elephant
road are the ma6or market leaders. As the% don7t ha+e to pa% for large
amount of mone% for esta,lishment, production, )ualit% and ad+ertising so
the% can sell at a much lower price than esta,lished ,rands like Bata.
:apid market e<pansion program ,% organized competitors like A15G.
.2 Competitive Strategy *naly"i"
> 9 1 a g e
The profita,ilit% of a firm is influenced not onl% ,% its industr% structure ,ut also ,%
the strategic choice it makes in positioning itself in the industr%. There are man%
wa%s to characterize a firm7s ,usiness strateg%. There are two generic competiti+e
strategies- 1E $ost =eadership 8 !E 1roduct &ifferentiationF ,oth these
strategies can potentiall% allow a firm to ,uild a sustaina,le competiti+e ad+antage.
BATA ha+e some significant features, these are-
=ittle ad+ertisement e<penditure due to ,rand image.
=ow e<pense for distri,ution network ,ecause of their huge own distri,ution
channel.
=ow input cost due to own tanner% D&hamrai 1lantE and A*O machineries of
shoe manufacturing process.
=ittle in+estment in risk% research and de+elopment.
;ocus on product designs that reduce manufacturing costs.
5fficient organizational processes.
So it is o,+ious that BATA following the /$ost =eadership0 Strateg%. But the% ha+e
different t%pes of product on footwear. So it is following a mi< of cost leadership 8
product differentiation.
. Corporate Strategy *naly"i"
># 9 1 a g e
This refers to the corporate decision whether to concentrate on single line of
,usiness or to di+ersif% the ,usiness among different lines. "t relates to the goal of
wealth ma<imization of share holders. $onflicting +iews ha+e ,een o,ser+ed. The
portfolio theor% sa%s that di+ersification is more economic on the part of the in+estors
rather than the firm. Nnlike 19#'7s recent trend of NS companies is to reduce
di+ersit%. On the other hand, the glo,al trend of group of companies or multi*
,usiness organization still continues with some success.
BATA mainl% focus on footwear ,usiness. The% are not di+ersif%ing their ,usiness in
an% other line. Because-
The% ha+e huge histor% in footwear manufacturing which started in 1A9?.
The% ha+e 5<pertise knowledge in leather processes and footwear
manufacturing.
Brand name in ;ootwear industr%.
2ell esta,lished distri,ution channel.

Chapter '
>A 9 1 a g e
*ccounting *naly"i"
'.1 *""et *naly"i"
&i"po"al of -i8ed *""et!
5+er% %ear the% sell out some portion of their fi<ed asset. Some firms do this to show
higher cash ,alance in the ,alance sheet. 2e anal%ze the cash ratio of BATA
including 8 e<cluding the +alue of this disposed fi<ed asset to find out an% significant
change in cash ratio is o,ser+ed. 2e anal%ze the data for !''9 8 !''(
"n !''9 cash ratio P !>.9?I
2ithout the addition of cash coming from this disposal, cash ratio P !>.I
"n !''( cash ratio P >!.>AI
2ithout the addition of cash coming from this disposal, cash ratio P >1.99I
So in ,oth case it is o,ser+ed that the cash ratio is not change significantl%. This
implies that BATA is not focusing on cash realization for ,etterment of an% ratio to
ha+e some financial ,enefit. The% are mainl% selling out their o,solete fi<ed asset as
a routine disposal.
*naly"i" of ,ea"ed *""et!
2e anal%zed the financial report of last fi+e %ears and find out that there is a lease
proportion in !''# 8 !''A and it is onl% for motor*+ehicle purpose. "n !''9 there is
no leased item in the annual report. But from the information gi+en ,% an insider, we
find out that BATA are still continuing with their leased motor*+ehicles.
So we tr% to find out is there an% intention to show ,etter :OA ,% not including those
leased portion.
2e calculate the re+ised :OA for !''9 considering the +alue of leased item of !''A
is included in !''9 asset.
:OA P 1.('I
>9 9 1 a g e
:e+ised :OA P 1.?I
This implies that, the :OA is not change significantl% if the leased asset is e<cluded.
So their intention of not showing the leased item is not clear. 4a% ,e specific
transportation department ha+e some issues relating this leased item, which need
further in+estigation.
'.2 ,iability & A$uity *naly"i"
;irms ha+e two ,road classes of financial claims on their assets- lia,ilities and
e)uit%. The ke% distinction ,etween these claims is the e<tent to which their pa%offs
can ,e specified contractuall%. The firm7s o,ligations under lia,ilities are specified
relati+el% clearl%, whereas e)uit% claims tend to ,e difficult to specif%.
?' 9 1 a g e
The economic differences ,etween lia,ilities and e)uit% are reflected in their
accounting definitions. =ia,ilities are defined as economic o,ligations that arise from
,enefits recei+ed in the past, and for which the amount and timing is known with
reasona,le certaint%. =ia,ilities include o,ligations to customers that ha+e paid in
ad+ance for products or ser+icesF commitments to pu,lic and pri+ate pro+iders of
de,t financingF o,ligations to federal and local go+ernments for ta<esF commitments
to emplo%ees for unpaid wages, pensions, and other retirement ,enefitsF and
o,ligations from court or go+ernment fines or en+ironmental cleanup orders.
;or accounting purposes, e)uit% financing is defined as the claim on the gap
,etween assets and lia,ilities. "t can therefore ,e thought of as a residual claim.
5)uit% funds can come from issues of common and preferred stock, from profits that
are rein+ested, and from an% reser+es set aside from profits.
The lia,ilities of BATA are disclosed in note section of e+er% annual report. The
anal%sis of lia,ilit% is done ,% each and e+er% item inspection. Bere main focus is
gi+en to /pro+ident fund0 and /pension fund0 lia,ilit%. Because these two lia,ilities are
largel% depends on management decision 8 policies.
"nsider information is taken for details understanding of these two lia,ilit% recording.
Ta,le ,elow represents the lia,ilit% recorded in pension fund 8 pro+ident fund o+er
the %ears !''?*!''9
Qears !''? !''( !'' !''# !''A !''9
1ension ;und R R
1,''#,1'
(
1,(1!,A(

1,?A1,?>
#
1,>!>,
A
1ro+ident ;und R R
>,???,##
'
>,9(',9!
?
?,A#>,?9
'
,!,#9
A
R "n !''? 8 !''( annual report BATA was not disclosed the pension fund 8
pro+ident fund lia,ilit% separatel%.
(olicy of .*#* Shoe Company =.anglade"h> ,td. for (rovident -und
$ompan% contri,utes to pro+ident fund according to the emplo%ee7s pa% scale 8
grade of the emplo%ee.
An emplo%ee is eligi,le to get the ,enefit of pro+ident fund when heMshe work with
BATA at least > %ears. "f an emplo%ee lea+es the 6o, after passing > %ears with
?1 9 1 a g e
BATA than BATA will gi+e the actual pro+ident fund sa+ings. "f an emplo%ee lea+es
the 6o, after passing # %ears with BATA than BATA will gi+e the dou,le amount of
the sa+ings of pro+ident fund.
Thus the lia,ilit% recorded for pro+ident fund in three wa%sF these are-
Ser+ice duration - first > %ears . 3o lia,ilit%
Ser+ice duration - > to # %ears . Actual amount of pro+ident fund sa+ings
Ser+ice duration - # %earsS . &ou,le amount of actual pro+ident fund sa+ings
'. /evenue *naly"i"
:e+enues are economic resources earned during a time period. ;irms earn
re+enues from a +ariet% of different sources. 4anufacturers of consumer goods earn
re+enues from sales of their products to distri,utors and to consumers.
?! 9 1 a g e
:e+enue recognition occurs when two critical uncertainties are resol+ed- the product
or ser+ice has ,een pro+ided, and cash collection is reasona,l% likel%. 4anagement
t%picall% has the ,est information on these uncertainties.
Bata ha+e some pro+ision of &ou,t full &e,t in Account :ecei+a,les. "n !''# the
amount was !1,#?9,AAA TL and in !''A it was 1A,1',##> TL and in !''9 it was
1,?#,A#' TL.
3ow the effect of ,ad de,t on current ratio 8 :OA is shown in ,elow ta,le-
Affect on /O*
!''# !''A !''9
2ith pro+ision for
dou,t full de,t
1?.?!I 1#.9AI 1.('I
2ithout pro+ision
for dou,t full de,t
1?.!AI 1#.9I 1.?'I
Affect on Current /atio
!''# !''A !''9
2ith pro+ision for
dou,t full de,t
1.?! 1.?( 1.?#
2ithout pro+ision
for dou,t full de,t
1.?? 1.?# 1.?A
'.' A8pen"e *naly"i"
&epreciation #echni$ue!
The% are following two different depreciation methods for their two different plants.
?> 9 1 a g e
Tongi 1lant- :educing Balance 4ethod
&hamrai 1lant- Straight =ine 4ethod
But the% are not disclosing their asset differentl% for their two plants.
Amployee #raining (rogram
;rom the annual report of !''9 we find out that the% trained ((( emplo%ees in !''A*
!''9. Among them some of the emplo%ees were trained at international le+el. The%
incurred an e<pense against it. The% also ha+e certain ,enefit out of those
emplo%ees. But it is difficult to show the ,enefit in ,alance sheet whether it is BATA7s
asset or emplo%ee7s asset.
Chapter )
(ro"pective *naly"i"
2ith the different factors positi+el% contri,ute to the growth of the stock price of Bata
Shoe $ompan% DBangladeshE ltd, we ha+e anal%zed the trend of different +aria,les
from the fi+e %ear financial statement and detected the growth or reduction of e+er%
?? 9 1 a g e
item. After that we ha+e selected few components which show a growing trend and
positi+el% contri,ute to the growth of Stock 1rice.
!'1'*!'11 !'11*!'1! !'1!*!'1>
A+g. Crowth rateDfor
>%earsE
Sales
:e+enue
1(.'I D1(.>'IE D!?.('IE
3et
"ncome
>.?1I D?.?IE D#IE
The sustaina,le growth rate of sales for !''9 is calculated as g
s
P *'.''9?>I, using
following e)uation-
2here,
T P:atio of total assets to sales
p =3et profit margin on sales
d =di+idend pa%out ratio
& P Total &e,t
5 P 5)uit%
Another growth to ,e considered is the growth rate of Bangladesh C&1. "t is as
follow-
Qear !''( !'' !''# !''A !''9
C&1 growth
rate DIE
?.9 .? . .> ?.9
"n the long run it will ,e sustain as ?I we can assume. So another scenario anal%sis
is done ,% using ?I growth rate.
Ero9th /ate! Scenario5 1
Scenario*1, is assuming the growth rate of 9.1>I as a+erage growth of last >%ears
sales.
Assuming 9.1>I growth rate, it has ,een found that the compan% has e<cess fund,
which can ,e financed distri,uted to pa%off long term de,t and reduce the o,ligations
?( 9 1 a g e
1 1 2 1 1 2 2
1 1 2 1 1 2
E
D
d p T
E
D
d p
g
s
+
+
=
of interest e<penses. The pro6ection sa%s that assuming 9.1>I growth rate, after (
%ears in !'1? 51S of the compan% would ,e ('.A( as well as considering constant
1M5 ratio as constant factor, in %ear !'1? share price would ,e B&T A1#.#1.
The total scenario is illustrated on the ne<t page.
Ero9th /ate! Scenario5 2
Scenario*!, is assuming the growth rate of 1A.(>I as a+erage growth of last >%ears
net income.
Assuming 1A.(>I growth rate, it has ,een found that the compan% re)uired
additional fund to run to sustain the ,usiness in these growth rate. The pro6ection
? 9 1 a g e
sa%s that assuming 1A.(>I growth rate, after ( %ears in !'1? 51S of the compan%
would ,e #.A as well as considering constant 1M5 ratio as constant factor, in %ear
!'1? share price would ,e B&T 1!>.'1.
The total scenario is illustrated on the ne<t page.
Ero9th /ate! Scenario5
Scenario*>, is assuming the growth rate of 1(.!#I as sustaina,le growth rate.
Assuming 1(.!#I growth rate, it has ,een found that the compan% has some e<cess
fund, which can ,e financed distri,uted to pa%off long term de,t and reduce the
o,ligations of interest e<penses. The pro6ection sa%s that assuming 1(.!#I growth
rate, after ( %ears in !'1? 51S of the compan% would ,e .A( as well as
?# 9 1 a g e
considering constant 1M5 ratio as constant factor, in %ear !'1? share price would ,e
B&T 1'#(.1>.
The total scenario is illustrated on the ne<t page.
Ero9th /ate! Scenario5 '
Scenario*?, is assuming the growth rate of ?I as long*term a+g. C&1 growth rate.
Assuming ?I growth rate, it has ,een found that the compan% has huge e<cess
fund, which can ,e financed distri,uted to pa%off long term de,t and reduce the
o,ligations of interest e<penses. The pro6ection sa%s that assuming ?I growth rate,
?A 9 1 a g e
after ( %ears in !'1? 51S of the compan% would ,e >9.9# as well as considering
constant 1M5 ratio as constant factor, in %ear !'1? share price would ,e B&T ?!.#.
The total scenario is illustrated on the ne<t page.
-uture Mar0et (rice (rojection in &ifferent Ero9th /ate
Qear !''9 !'1' !'11 !'1! !'1> !'1?
A+g Sales growth D9.1>IE (!A.> (#>.(> !9.1# A.1 #?9.> A1#.#1
A+g 3et "ncome growth
D1A.(>IE
(!A.> !.19 #?!.!> A#9.# 1'?!.#A 1!>.'1
Sustaina,le growth D1(.!#IE (!A.> 'A.9# #'1.9 A'9.1(( 9>!.#1 1'#(.1>
C&1 growth D?IE (!A.> (?9.?> (#1.?1 (9?.!# 1A.'? ?!.#
?9 9 1 a g e
Chich gro9th rate a""umption i" more appropriateG
Bangladesh current C&1 growth rate is ?.9I D%ear !''9E, and considering longer
period a+erage C&1 growth rate it comes down to around ?I. As an assumption of
?I growth for ne<t ( %ears would ,e most appropriate. $onsidering recent world
wide recession economic condition 8 concern of sa+ing world en+ironment, it would
,e +er% optimistic to assume higher growth rate for future for a footwear compan%.
(lug 1ariable"
The pro forma statements from the a,o+e section indicate the firm will ha+e e<cess
fund if it will grow at all options as all growth rates are lower than the sustaina,le
growth rate of 1(.!#I. The compan% can decrease its de,ts ,% the e<tra fund, thus
will decrease the de,t e)uit% ratio. As the compan% decided to maintain a constant
retention rate, it ends up with e<tra fund at the end of the %ear. "n the current
recession of econom%, it will ,e risk% to do an% new in+estment. So, the compan%
(' 9 1 a g e
;igure (*1- 1ro6ection of ;uture Share 1rice at &ifferent Crowth :ate
can pa% off its de,t which will gi+e an encouraging signal to the shareholders. The
ta,le ,elow lists the change is capital structure of the compan%.
The assumptions are made in preparing the pro forma income statement and
,alance sheet 8 pro6ecting future share price.
3 "nitiall% all assets, including fi<ed assets, accounts pa%a,le +ar% directl% with
sales.
3 =ong term de,t and common stock won7t +ar% with sales as management
decision is to keep a constant long term de,t and common stock.
3 As the compan% decided to maintain a constant retention rate, the compan%
will pa% di+idend e+er% %ear at the same rate.
Scenario *naly"i"
"n this case stud%, the growth rate of ?I has ,een selected as the constant growth
rate and the pro forma statement has ,een generated ,ased on this growth rate. ;or
scenario anal%sis, ,oth optimistic and pessimistic scenarios are ,eing considered.
2e ha+e taken the ?I growth rate in normal situation. "f we want to ,e optimistic
enough to predict that the econom% will ha+e a high growth and the compan% will
also a,le to grow at I to AI. On the other hand, the situation can also ,e worse
enough to ha+e a growth lower than the normal and the compan% ma% face a growth
of !I or e+en *'I. After anal%zing the scenario of different situation we can sa% that
the pro6ected growth rate is appropriate for the compan% which will help the compan%
to operate in the market e+en if the situation is worse. "t gi+es a positi+e indication
towards the compan% and increases the shareholders confidence to in+est in the
compan%7s share.
The optimistic 8 pessimistic scenario is illustrated on the ne<t page.
Chapter +
-inding" & Conclu"ion
BATA Shoe $ompan% DBangladeshE =td. is in this ,usiness since 19!. $urrent
market priceMshare of BATA is B&T (!A.>F on the other hand compan%7s ,ook +alue
is onl% B&T A1.91, which means market price is more than .?( times higher than
the ,ook +alueF and it tells as there is some positi+e information in compan%7s
(1 9 1 a g e
financial performance which leads the 4*B @alue .?(. Based on market price if we
re*construct the ,alance sheet, we are ha+e to introduce TCoodwill7 as intangi,le
asset, for BATA the +alue of goodwill comes B&T ?'.9' Billion, this goodwill
,asicall% shows the confidence of the shareholders 8 in+estors on BATA ,acked ,%
some positi+e news.
Time series 8 $ross functional anal%sis also pro+ide some good information. O+er
the %ears &SO is decreasing. BATA is doing e<cellent which reflects ,etter credit
polic% of the compan%. :egarding the operating %ear !''(*!''9 &e,t ratio is
decreasing for BATA, e<cept the %ear !''#. 4ore or less it is remaining same .On
the other hand the ri+al is pla%ing opposite role. But declining de,t ratio is good news
for compan% ,ecause lower the de,t ratio, the greater the cushion against creditor7s
losses in the e+ent of li)uidation. T"5 ratio is much ,etter than the industr% ri+al
A15G. Because Ape< has huge loan and the% ha+e to pa% huge interest on that
loan. On the other hand BATA has a minimal loan o,ligation which results in a lower
interest rate and ,etter T"5 ratio. This significantl% increases the market reputation of
BATA.
1rofit 4argin of BATA has a highl% increasing trend as well as significantl% ,etter
than competitor. "t is happening due to ,oth increase in sales re+enue as well as well
maintained lower selling 8 distri,ution e<pense. As BATA has ,etter profit margin,
asset management ratio 8 de,t ratio, o,+iousl% :eturn on Asset D:OAE 8 :eturn on
5)uit% D:O5E would ,e ,etter in ,oth time series 8 cross section anal%sis.
Based on strategic anal%sis of footwear industr%, there is a scope of product
differentiation and also cost leadership. So with the o,6ecti+e of ma<imizing profit
BATA has gone for cost control approach. "n the ;inancial anal%sis we found that
BATA is ha+ing higher amount of sales with the tight administrati+e e<pense, ha+ing
cost control on distri,ution 8 transportation e<pense the compan% is achie+ing higher
net income. 2ith the strateg% of increasing efficienc% le+el of distri,ution channel the
compan% can achie+e the higher profit margin.
"n pro6ecting ?I growth rate, it has ,een found that the compan% has huge e<cess
fund, which can ,e financed distri,uted to pa%off long term de,t and reduce the
o,ligations of interest e<penses. The pro6ection sa%s that assuming ?I growth rate,
(! 9 1 a g e
after ( %ears in !'1? 51S of the compan% would ,e >9.9# as well as considering
constant 1M5 ratio as constant factor, in %ear !'1? share price would ,e B&T ?!.#.
"nitiall% we assumed man% growth +aria,les, ,ut the growth rate assumption is more
appropriateF considering current world wide economic condition, Bangladesh7s
long term a+erage C&1 growth rate of ?I as an assumption would ,e most
appropriate, as it would ,e +er% optimistic to assume higher growth rate. As
well as, considering the increasing concern of sa+ing world en+ironment, it
would ,e +er% optimistic to assume higher growth rate for future for a footwear
compan%.
/eferences
Annual :eports D!''(*!''9E of Bata Shoe $ompan% DBangladeshE =td.
Annual :eports D!''(*!''9E of Ape< adelchi ;ootwear =imited.
;undamentals of ;inancial 4anagement ,% James. C. Van Horne,
John M. Wachowc!, Jr
(> 9 1 a g e
Business Anal%sis 8 @aluation Nsing ;inancial Statements ,% "alep#, Healy,
Bernard
(? 9 1 a g e