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Assignment #4 Company Valuation
Bangladesh cement industry is the 40th largest market in the world. There are as many as
130 cement companies in the country and daily production capacity is about 16.687 million MT.
Average revenue per year from this industry is almost 9060/- million. For the purpose of this
assignment, we have chosen cement industry. Among the multinational cement companies
Heidelberg Cement Ltd. and Lafarge Surma Cement Ltd. are mentionable whereas Crown
Cement and Meghna Cement Ltd. are some big cement companies in Bangladesh. The main
purpose of this assignment is to calculate the valuation of the selected companies. We have
chosen 3 years time period e.g. 2010, 2011 and 2012 for all the four companies. Different ratios
have been calculated based on the companies financial statement data. Book value, true value
and market value of each company have been calculated. Also WACC of each company has been
calculated. Risk based on returns for each company has been analyzed over the periods through
variance, standard deviation, and coefficient of variance. Finally industry average has been
calculated and performance of each company has been analyzed based on industry average
values.
2010
Liquidity Ratio
NWC = CA
2,597,842,00
CL (In BDT)
0
Productivity Ratio
2011
2,421,622,00
0
2012
3,506,526,000
Average
2,841,996,667
Standard
Deviation =
( x ix )2
i=1
Coefficient of
Variance, CV =
n1
582,205,117
0.20
Page | 1
FATOR
TATOR
Leverage Ratio
TIE Ratio
Efficiency Ratio
ROA
ROE
Operating
Margin
Valuation Ratios
Dividend
Payout
Ratio
Plowback
Ratio (PBR)
3.08
1.16
2.45
1.06
3.08
1.18
2.87
1.13
0.36
0.06
0.12
0.05
5%
2.9%
5.2%
4.37%
1.27%
0.29
0.14
0.22
0.09
0.14
0.14
0.20
0.12
0.19
0.03
0.04
0.24
0.22
18%
10.2%
14.3%
14.17%
3.90%
0.27
18.00%
28.20%
17.20%
21.13%
6.13%
0.29
82.00%
71.80%
82.80%
78.87%
6.13%
0.07
2010
2011
2012
68.58
25.49
88.11
5.96
56.27
33.87
97.58
(7.44)
48.61
30.36
77.65
1.32
Average
57.82
29.91
87.78
(0.05)
So it can be seen that, Heidelberg Cement Ltd. keeps cash on hand for at least some hours
due to its average Cash conversion cycle of -0.05 days.
WACC Calculation
Cost of Debt
Cost
Kd
of
2010
2011
2012
53.56%
45.02%
37.28%
45.29%
27.50%
38.83%
27.50%
32.64%
27.50%
27.03%
27.50%
32.83%
Average
Calculation
Debt,
Kd
Wd
Calculation
Page | 2
Total Liability
Total Invested Capital
10.53%
11.23%
11.32%
11.03%
22.76%
43.17%
5.57%
23.83%
89.47%
88.77%
88.68%
88.97%
24.45%
41.98%
8.00%
24.81%
Total Assets
Less: Intangible Asset
Less: Total Liabilities
Book Value of Company (In BDT)
2011
8,010,817,000
(979,000)
(2,747,620,000)
5,262,218,000
2012
9,181,511,000
(2,251,000)
(2,426,198,000)
6,753,062,000
2011
2,747,620,000
2012
2,881,486,000
14,459,294,271
14,956,526,743
17,206,914,271
17,838,012,743
2010
1,491,991,000
20.70
30,884,213,700
2011
866,910,000 19.29
2012
1,556,574,000 11.58
16,722,693,900
18,025,126,920
2011
16,722,693,900
56,503,690
295.96
255.90
Undervalued
2012
18,025,126,920
56,503,690
319.00
264.70
Undervalued
Page | 3
From the above table it is seen that, Heidelberg Cement Limiteds stock price is
undervalued in all the three years. Hence it will be profitable to buy more of them.
2010
Liquidity Ratio
NWC =
(7,886,006,000.00
CA CL
(In BDT)
Productivity Ratio
FATOR
0.36
TATOR
0.32
Leverage Ratio
TIE Ratio
(167.48%)
Efficiency Ratio
ROA
(0.05 )
ROE
(0.59 )
Operatin
(19.73%)
g Margin
Valuation Ratios
Dividend
Payout
0%
Ratio
2011
2012
Average
Standard
Deviation =
Coefficient
of
Variance,
n
2
( x ix ) CV =
i=1
n1
(4,657,891,000.00
)
(4,477,112,000.00)
(5,673,669,666.67
)
1,918,070,46
3
(0.34)
0.40
0.33
0.73
0.57
0.50
0.41
0.20
0.14
0.41
0.35
55.71%
402.29%
96.84%
287.10%
2.96
(0.10 )
(0.34 )
(0.10 )
0.22
(0.08 )
(0.23 )
0.03
0.42
(0.31)
(1.78)
3.39%
31.35%
5.00%
25.58 %
5.11
0%
0%
0%
0%
Page | 4
Plowback
Ratio
(PBR)
100%
100%
100%
100%
0%
2011
2012
Average
92.04
21.35
109.50
3.89
WACC Calculation
Cost of Debt
Cost
Kd
of
2010
2011
2012
5.20%
11.47%
11.62%
9.43%
27.50%
3.77%
27.50%
8.32%
27.50%
8.43%
27.50%
6.84%
82.50%
47.89%
46.72%
59.04%
22.83%
26.41%
4.25%
17.83%
17.50%
52.11%
53.28%
40.96%
7.11%
17.74%
6.20%
10.35%
Average
Calculation
Debt,
Kd
Wd
Calculation
Total Liability
Total Invested Capital
2010
17,914,804,000
(1,219,360,000)
2011
18,559,381,000
(1,293,051,000)
2012
18,523,368,000
(1,185,810,000)
Page | 5
(15,146,325,000)
1,549,119,000
(12,107,398,000)
5,158,932,000
(7,134,806,000)
10,202,752,000
2010
2011
2012
13,045,189,000
8,282,622,000
7,134,806,000
327,362,183,50
0
340,407,372,50
0
15,446,268,880
19,104,595,720
23,728,890,880
26,239,401,720
EBIT PE Ratio
True Value (In BDT)
2011
206,884,000 (7.06)
1,460,601,040
2012
3,336,088,000 10.51
35,062,284,880
2010
2011
2012
Average
Standard
Deviation =
Coefficient of
Variance, CV =
Page | 6
Liquidity Ratio
NWC = CA 439,465,000
CL (In BDT)
( x ix )2
i=1
n1
477,137,000
527,210,000
481,270,666.7
44,018,310.4
7
0.09
3.68
1.28
4.62
1.18
3.97
1.22
0.57
0.05
0.14
0.04
270%
191%
290.33%
1.11%
0.38
0.03
0.14
0.03
0.16
0.03
0.16
0.003
0.02
0.09
0.13
2.82%
2.68%
3.10%
0.006%
0.20
56.28%
48.06%
50.21 %
0.05%
0.11
43.72%
51.94%
49.79%
5.33%
0.11
Productivity Ratio
FATOR
3.60
TATOR
1.22
Leverage Ratio
TIE Ratio
410%
Efficiency Ratio
ROA
0.03
ROE
0.18
Operating
3.80%
Margin
Valuation Ratios
Dividend
Payout
46.30%
Ratio
Plowback
Ratio (PBR)
53.70%
2010
2011
2012
61.48
35.18
46.54
50.12
45.98
8.07
37.80
52.78
38.09
56.97
36.81
58.25
Average
48.52
33.40
40.38
53.72
From the above table it is seen that, Meghna Cement Ltd. is out of cash for more than 53
days on an average.
WACC Calculation
Cost of Debt
Cost
Kd
of
2010
2011
2012
2.65%
3.62%
6.60%
Average
Calculation
Debt,
Kd
4.29%
Page | 7
Wd
27.50%
1.92%
27.50%
2.62%
27.50%
4.78%
27.50%
3.10%
87.40%
93.60%
93.50%
91.5%
9.71%
6.12%
8.27%
8.03%
12.60%
6.70%
6.50%
8.60%
2.90%
2.86%
5.00%
3.58%
Calculation
Total Liability
Total Invested Capital
2010
3,610,766,000
(0)
(2,563,431,000)
1,047,335,000
Total Assets
Less: Intangible Asset
Less: Total Liabilities
Book Value of Company (In BDT)
2011
3,550,277,000
(0)
(2,835,214,000)
715,060,000
2012
4,171,434,000
(0)
(3,104,511,000)
1,066,923,000
2010
2,045,545,000
2011
2,606,781,000
2012
2,492,577,000
7,596,135,040
3,141,055,840
2,358,041,920
9,641,680,040
5,747,836,840
4,850,618,920
2010
203,518,000 31.43
6,396,570,740
2011
222,980,000 62.51
1,3938,479,800
2011
1,3938,479,800
2012
295,124,000 20.15
5,946,748,600
2012
5,946,748,600
Page | 8
Share Outstanding
True value/share (In BDT)
Market price/share (In BDT)
Comment
22,500,400
284.29
337.60
Overvalued
22,500,400
619.48
139.60
Undervalued
22,500,400
264.30
104.80
Undervalued
From the investors standpoint, it is not profitable to buy the shares of the company when
they are overvalued, but they can make some profit when they are undervalued
RATIOS
Fiscal Years
2010
2011
2012
Average
Standard
Deviation =
Liquidity Ratio
NWC = CA
253,440,971
CL (In BDT)
Productivity Ratio
FATOR
2.73
TATOR
Leverage Ratio
TIE Ratio
Efficiency Ratio
ROA
ROE
Operating
Margin
Valuation Ratio
Dividend
Payout
Ratio
( x ix )
Coefficient of
Variance, CV =
2
i=1
n1
3,383,041,300
245,195,296
1,293,892,522
1,809,260,611
1.39
1.80
1.36
1.96
0.70
0.35
1.37
0.57
0.57
0.83
0.46
0.55
12.18%
6.37%
3.23%
7.26%
4.54%
0.62
0.14
0.25
0.06
0.08
0.05
0.10
0.08
0.14
0.05
0.09
0.62
0.64
15%
11%
18%
14%
4%
0.28
0%
0%
26.00%
8.66%
15.01%
1.73
Page | 9
Plowback
Ratio (PBR)
100.00%
100.00%
74.00%
91.33%
15.01%
0.16
2010
2011
2012
52
36
53
35
65
30
12
83
33
48
11
70
Average
50
38
25.33
62.67
Cash Conversion Cycle on an average is 63 days for CROWN cement which means that,
the company does not have the money in hand for 63 days in a year.
WACC Calculation
Cost of Debt
Cost
Kd
of
2010
2011
2012
20.41%
7.32%
6.02%
11.25%
27.50%
14.8%
27.50%
4.65%
27.50%
3.82%
27.50%
7.76%
20.18%
58.06%
77.00%
51.70%
27.33%
30.53%
1.68%
19.8%
79.82%
41.90%
23.00%
48.28%
24.8%
15.49%
3.33%
14.54%
Average
Calculation
Debt,
Kd
Wd
Calculation
2010
2,282,435,892
(0)
2011
7,004,458,502
(0)
2012
9,915,183,783
(0)
Page | 10
(946,438,009)
1,335,997,883
(1,975,964,799)
5,028,493,703
(4,477,224,213)
5,437,959,570
2010
996,438,009
2011
1,975,964,799
2012
4,477,224,213
16,580,025,00
0
17,576,463,00
9
10,297,556,200
13,176,000,000
12,273,520,999
17,653,224,213
EBIT PE Ratio
True Value (In BDT)
2011
60,6013,786 43.13
26,137,274,590
2012
574,892,238 25.7
14,774,730,520
2011
2012
28,500,825,950
26,137,274,590
14,774,730,520
Share Outstanding
100,000,000
100,000,000
135,000,000
285.00
261.37
109.44
101.6
126.6
97.10
Undervalued
Undervalued
Undervalued
Comment
Stocks of three years are undervalued. So its better to buy more of it.
INDUSTRY ANALYSIS
Heidelberg
Companie
Cement Ltd.
s
Liquidity Ratio
NWC
=
2,841,996,667
CA CL
(In BDT)
Productivity Ratio
FATOR
2.87
TATOR
1.13
Leverage Ratio
Lafarge Surma
Cement Ltd.
Crown Cement
Bangladesh Ltd.
Average
(5,673,669,666.67
)
481,270,666.7
1,293,892,522
93,725,297.58
0.50
0.41
3.97
1.22
1.96
0.83
2.32
0.90
Page | 11
TIE Ratio
Efficiency Ratio
ROA
ROE
Operating
Margin
Valuation Ratio
Dividend
Payout
Ratio
Plowback
Ratio
(PBR)
4.37%
96.84%
290.33%
7.26%
99.70%
0.12
0.19
(0.08 )
(0.23 )
0.0307
0.1598
0.08
0.14
0.04
0.06
14.17%
5.00%
3.1%
14%
21.13%
0%
50.21 %
8.66%
20%
78.87%
100%
178.33%
91.34%
80%
9.1%
Inventory Turnover
Period (Days)
Days Sales Outstanding
(Days)
Days Payable
Outstanding (Days)
CCC = ITP + DSO
DPO (Days)
Heidelberg Cement
Ltd.
Lafarge Surma
Cement Ltd.
Meghna
Cement Ltd.
Crown Cement
Bangladesh Ltd.
57.82
92.04
48.52
29.91
21.35
33.40
38
30.66
87.78
109.50
40.38
25.33
65.75
(0.05)
3.89
53.72
62.67
30.06
50
Average
62.095
Comparison between book value, market value and true value of each company:
Book values of all the companies have been calculated by deducting intangible assets and
total liabilities from total assets. Market value of each of the four companies is the summation of
market value of both debt and equity where market value of equity is the product of total number
of shares outstanding and market price of that particular company. The True Value of a company
is product of operating income (EBIT) and PE ratio. As different methods were applied to
calculate the values, there exist differences between book value, market value and true value of
each of the four companies.
Company performance Analysis based on industry averages:
Heidelberg Cement Ltd.:
Page | 12
From the above table of Industry Analysis, it is apparent that Heidelberg Cement Ltd. is
in a better position than its competitors. According to its negative average cash conversion cycle,
it is the only company among the four companies which is keeping cash in hand. The companys
FATOR and TATOR values are substantially higher than industry average. The companys
efficiency ratios are also higher than industry averages. Its only weakness is significantly low
value of TIE ratio, which depicts the companys too much dependency on debt financing.
Valuation ratios are almost similar to industry averages.
Page | 13