Chapter-1 :

Introduction
The Dhaka Stock Exchange is the prime bourse of the country. Through its nonstop highly
fault tolerant screen based automated trading system the exchange has been offering facilities
for transparent and highly efficient provisions for secondary market activities of securities.

Origin of the topic

This term paper originated as an academic requirement of BBA Program. This is authorized
and organized by the department of BBA. After completion of the program period a student
must submit the term paper on the assigned topic to the Supervisor and to the department.
The program is three months duration. I was assigned to Dhaka Stock Exchange Limited, to
complete the program.
Objective of the study
Objectives of this study are as follows To present an overview of Dhaka Stock Exchange.
-To identify the trend line of CSE and that of those securities incorporated in CSE.
-To identify the strength and performance of CSE 5 Banks. .
-To compare among CSE 5 Banks. .
-To develop the practical knowledge by the practical orientation of Work.
Scope of the Study
Scope of the study could be to understand contribution of stock exchange in economic
development of a country. The economy of Ban in gaining in confidence and scope for
development of capital market is gaining ground. If we can educate the investors regarding
risk in management and adopt suitable legal measure to protect the investors interest, a
substantial volume of saving of masses will flow into capital markets economic growth leads
to increase national incomes and thus savings, which in turn are often channeled into the
capital market.
Limitation of the Study
I have been provided with all necessary information at Dhaka Stock Exchange Ltd as my
level best; but, all required information and data are not elaborated as a guideline of the
report.. Some problems may be terms as limitations of my study which are given below Relevant papers and documents were not available sufficiently
In some cases , up to date information or data are not published.
Due some, up to date information or data are not published. reason, the study limits
only on the available published data and certain degree of formal and inform
interview.

Part Two: Conceptual Issues

CHAPTER-2: concept issue

Investment
Generally investment means to invest money any profitable sector. Investment is an activity
that is engaged in by who have saving.
In general sense, investment means the sacrifice of current dollars of future dollars.
In the financial sense, Investment the commitment of a persons fund to derive future income
in the form of interest, dividend, premiums, pension benefit.
According to C.P.JONES, Investment means commitment of the fund to one or more assets
will beheld over some future time period.
According to Reilly &Brown An investment is the current commitment of dollars for a
period of the time order to derive future payment that will compensate the investor for i)the
time the fund is the commitment ii)the expected rate of inflation and iii)the uncertainty of the
future payment.
In the end we can say that investment is a commitment of fund made in the expectation of
some positive rate of return over the future time period .
Investment making process
Investment making is the part of investment. Investing has a logical and making process for
successful implementation. Using a defined process when tackling complicated tasks helps
us keep our focus and improves our chances of success. The following illustration of the
investment decision making process has been simplified, however it provides a great
foundation for starting your quest for investing knowledge.
Investment making process the foundation in making investment decision. The making
processes are the trade-off between expected return and risk. But numerous separate must be
made for organizational purposes. traditionally making process two step.
Security Analysis for investment decision
Security analysis involves the valuation and analysis of individual securities within the broad
categories of financial assets. Professional analysts are employed by institutional investor. A
security analyst must be in a position to understand the various financial statements, as the
financial statement is an important source of information. This way of analyzing the security
takes place from an investor point of view.
Economic analysis
A systematic approach to determining the optimum use of scarce resources, involving
comparison of two or more alternatives in achieving a specific objective under the given
assumptions and constraints. Economic analysis takes into account the opportunity costs of
resources employed and to measure in monetary terms the private and social costs and
benefits of a project to the community or economy.
2

Company Analysis
Company Analysis or corporate analysis, refers to actions undertaken for an in-depth
evaluation and to gain an understanding of a particular companys.
Investors conduct company analysis to evaluate securities, gathering information about the
companys profile, products or services and profitability. It is also called fundamental
analysis.
Industry Analysis
An industry analysis is a business function completed by business owners and other
individuals to assess the current business environment. This analysis helps businesses
understand various economic pieces of the marketplace and how these various pieces may be
used to gain a competitive advantage. Although business owners may conduct an industry
analysis according to their specific needs, a few basic standards exist for conducting this
important business function.
Technical Analysis
Technical analysis is a method in which the analyst never cares about the value of the
security. They decide upon the price movement of the security based on the price movement
of the security in the market. The main factor that a technical analyst studies is the supply
and demand factor.
Part Three: Database
Chapeter-3: Database
Source of information
Different data and information are required to meet the goal of this report. Those data and
information were collected from various sources, such as, primary and secondary which is
showed below:
Primary Sources of Data

Personal observation.
Face to face conversation of the officers.
Face to face conversation of the clients.
Working at different desks of the R&D.

Secondary Sources of Data

Annual term paper of Dhaka Stock Exchange

Monthly Review of Dhaka Stock Exchange
Several kinds of Academic test-book.
Different publications regarding Stock Exchange function
Website of CSE

Method of collection Data

The collect data are two kind are qualitative and quantitative. Qualitative data are quality,
mistake and good things. Quantitative data are power and usage etc.
Reliability of Data
This data are reliable because this data are source of primary and secondary data. All data
are collect website and physically. And all data collect reliable source .So all data trust and
reliable.
Method used in the study
We used qualitative and quantitative both data. the theory part use qualitative data and the
math part we use quantitative data. Both data are use for this term paper.
Part-4 : Finding of the Study
Chapter-4: Economic Analysis
Global Economy
Now 2013 the global economy is going to start recover. This time the global
Economic climate is much better this year than last year, but the recovery is fragile and
timid. The International Monetary Fund forecasts 3.5% GDP growth for the global economy
in 2013. The recovery as fragile and timid because the Euro zone is prone to political crisis
and slow decision-making processes. Some good policy decisions have been made in the
various corners of the world, including by central banks In 2013, they have to keep the
momentum. Europe to operational the new tools policy-makers have recently devised,
including Europes banking union..
Bangladesh Economy
Now Bangladesh economic position is not good but last year economic is so. The economic
position bad cause political situation. But GDP of Bangladesh grew by 6.3% in Fiscal Year
2012. While export growth slowed sharply, private consumption held up well, supported by a
recovery in remittance growth and healthy credit flows. Agricultural growth slowed to only
2.5% because of higher production costs, mainly from higher power, fuel, and fertilizer
prices. Industry grew robustly by 9.5%, boosted by construction and small-scale
manufacturing for the domestic market. Service sector growth stood at 6.1%.
PESTEL Analysis
The mission of Pestel-Analysis.com is to provide access to the top international risk analysis
information available online. Brought to you by Communication 18 Ventures, we aggregate
data that assists you in your PESTEL research. One must use accurate and relevant
information when analyzing the Political, Economic, Social, Technical, Environmental, and
Legal aspects of a country, whether it is ones own country, or one foreign to theirs.

Political
Political factors are basically to what degree the government intervenes in the economy.
Specifically, political factors include areas such as tax policy, labour law, environmental law,
trade restrictions, tariffs, and political stability.). Furthermore, governments have great
influence on the health, education, and infrastructure of a nation. Now political situation is
not good. often different political parties called strike. so bank political is not good but not
bad.
Economic
Economic factors include economic growth, interest rates, exchange rates and the Economic
factors include economic growth, interest rates, exchange rates and the inflation rate. These
factors have major impacts on how businesses operate and make decisions. For example,
interest rates affect a firms cost of capital and therefore to what extent a business grows and
expands. Exchange rates affect the costs of exporting goods and the supply and price of
imported goods in an economic. These factors have major impacts on how businesses
operate and make decisions.
Social
Social factors include the cultural aspects and include health consciousness, population
growth rate, age distribution, career attitudes and emphasis on safety. The five Banks have
contributed different social activities. They are awarded scholarship to the brilliant student
They have also awarded scholarship to the poor brilliant student. They have distributed
blanket to the helpless people of different areas of country in the winter season
Technological
Technological factors include technological aspects such as R&D activity, automation,
technology incentives and the rate of technological change. They can determine barriers to
entry, minimum efficient production level and influence outsourcing decisions. Furthermore,
technological shifts can affect costs, quality, and lead to innovation. The five banks have
online Remittance management system and successfully implemented a online Banking
Solution thought its branches.
Legal
Legal factors include discrimination law, consumer law, antitrust law, employment law, and
health and safety law. These factors can affect how a company operates, its costs, and the
demand for its products. The five banks have legal it comply with law society codification
of right.

Chapter- Industry Analysis

PORTERS 5 forces model
5

Porters 5 forces industry analysis. Porters model is based on the insight that a corporate
strategy should meet the opportunities and threats in the organizations external environment.
Especially, competitive strategy should base on and understanding of industry structures and
the way they change. Porter has identified five competitive forces that shape every industry
and every market. These forces determine the intensity of competition and hence the
profitability and attractiveness of an industry. The
Bargaining power of buyers
An advantage to consumers that comes from gathering together to put collective pressure on
producers to lower prices or improve quality. The bargaining power of buyers typically has
the strongest effect on pricing when buyers are organized and they collectively account or
much of the producers income, they are interested in a product that has an excess of supplier,
and they are interested in making substantial purchases. But banks have no bargaining power
of buyer. That means we are no bargaining with the bank.
Bargaining power of suppliers
Advantage that result when (1) suppliers are concentrated it is, however, usually illegal for
them to openly or secretly form a cartel . (2) too few goods are chased by too many buyer,
(3) a suppliers goods are unique or highly differentiated with few or no substitutes, (4)
suppliers are forward integrated (see forward integration and/or (5) high costs are involved
in switching from one supplier to another .the bank have bargaining power of supplier. that
mean the banks are bargaining with supplier. Supplier competition ability to forward
vertically integrate and cut out the buyer. The bargaining power of suppliers is also described
as the market of inputs.

Threat of new entrants

threat of new entrants refers to the threat new competitors pose to existing competitors in an
industry. A profitable industry will attract more competitors looking to achieve profits. If it is
easy for these new entrants to enter the market if entry barriers are low this poses a threat
to the firms already competing in that market. The banks have threat of new entrants. The
banks have brand equity, capital requirements, Access to distribution, Switching costs ,
Customer loyalty to established brands, Absolute cost . Industry profitability; the more
profitable the industry the more attractive it will be to new competitors.
Threat of substitute products or services
The existence of products outside of the realm of the common product boundaries increases
the propensity of customers to switch to alternatives. The banks have threat of substitute
product or services. Buyer propensity to substitute Relative price performance of substitute
Buyer switching costs Perceived level of product differentiation Number of substitute
products available in the market Ease of substitution. Information-based products are more
prone to substitution, as online product can easily replace material product
Competitive Rivalry between Existing Players
This force describes the intensity of competition between existing players (companies) in an
industry. High competitive pressure results in pressure on prices, margins, and hence, on
6

profitability for every single company in the industry. Competition between existing players
is likely to be high. For most industries, the intensity of competitive rivalry is the major
determinant of the competitiveness of the industry. There are many players of about the same
size, Players have similar strategies
Chapter-6 Company Analysis
SWOT Analysis
SWOT analysis is the detailed study of an organizations exposure and potential in
perspective of its strength, weakness, opportunity and threat. This facilitates the organization
to make their existing line of performance and also foresee the future to improve their
performance in comparison. As though this tool, an organization can also study its current
position, it can also be considered as an important tool for making changes in the strategic
management of the organization.
Strength
Weakness
Threat
Opportunity
SWOT Analysis of National Bank
Strengths

National Bank Limited has already established a favorable reputation in the banking
industry of the country. It is one of the leading private sector commercial banks in
Bangladesh.

National Bank Limited has already achieved a high growth rate accompanied by an
impressive profit growth rate in 2001.

National Bank has the reputation of being the provider of good quality service too
its , potential customer.

Weaknesses

The main important thing is that the bank has no clear mission statement and
strategic plan.

The banks have any long-term strategies of whether it wants to focus on retail banking
or become a corporate bank.

The bank failed to provide a strong quality recruitment policy in the lower and some
mid level position.


The poor service quality has become major problem for the bank. The quality of the
service at National Bank is higher than Dhaka Bank or Prime Bank.

The bank main weakness is having a group of unsatisfied employees.

Opportunity

National Bank reduces the business risk and Bank has to expand their business
portfolio.

Starting merchant banking the activity in the secondary financial market has direct
impact on the primary financial market.

National Bank must expand its product line to enhance its sustainable competitive
advantage.
Threats:

All sustain banks and upcoming foreign, private banks posses enormous threat to
National Bank Limited.

If that happens the intensity of competition will use further and banks will have
develop strategies to compete against an on slough of foreign the banks.

The default risks of all terms of loan have to be minimizing in order to sustain in the
financial market.
SWOT-Analysis of National Credit &Commerce Bank NCCB
Strengths

NCC Bank Limited has already established a favorable reputation in the banking
industry of the country. It is one of the leading private sector commercial banks in
Bangladesh.

NCC Bank has already achieved a high growth rate accompanied by an impressive
profit growth rate in 2001.The number of deposits and loan and advances are also increasing
rapidly.

NCC Bank Limited has the reputation of being the provider of good quality service
too its, potential customer.

NCC Bank has interactive corporate culture. The working environment is very
friendly, interactive and informal.

Weaknesses


Not proper utilization of banking system and important thing is that the bank has no
clear mission statement plan.

The banks have any long-term strategies of whether it wants to focus on retail banking
or become a corporate bank.

The bank failed to provide a strong quality recruitment policy in the lower and some
mid level position.

The poor service quality has become major problem for the bank. The quality of the
service at National Bank is higher than Dhaka Bank or Dutch Bank but The bank has to
compete with multinational Bank located here.
Opportunity:

NCC bank reduces the business risk and Bank has to expand their business portfolio.

Starting merchant banking the activity in the secondary financial market has direct
impact on the primary financial market.

Opportunity in the retail banking lies in the fact that country increased population is
gradually learning to adopt consumer finance.
Threats

All sustaining multinational banks and upcoming foreign, private banks significant
threat to NCC Bank Limited.

The default risks of all terms of loan have to be minimizing in order to sustain in the
financial market.

If that happens the intensity of competition will rise further and banks will have to
Develop strategies to compete against these local and foreign banks.

SWOT-Analysis of One bank

Strengths

One bank has already established a role mode in the Banking sector of Bangladesh.

It is one of the leading private sector commercial banks in Bangladesh.

One Bank has already achieved a high growth rate accompanied by an impressive
profit growth rate in 2001.

The bank is number of deposits and loan and advances are also increasing rapidly.

The banks provide fulfillment for our People and create shareholder value.

Good working environment.

Weaknesses

No clear mission statement plan.

The banks have any long-term strategies of whether it wants to focus on retail banking
or become a corporate bank.

This is a weakness of one bank that it is having a group of unsatisfied employees.

The bank has lack of motivation exists in person filling those position.

The poor service quality has become major problem for the bank. The quality of the
service at National Bank is higher than Dhaka Bank or Dutch Bank.
Opportunity:

In order to reduces the business risk.

The bank management can consider options of starting merchant banking or diversify
into leasing and insurance sector.

Merchant Banking activity in the secondary financial market has direct impact on the
primary financial market.

Investment in the secondary market governs the national economic activity.

Threats

Default risks of all terms of loan have to be minimizing in order to sustain in the
financial market.

Because default risk the organization may be become bankrupt One bank has to
remain vigilant about this problem so that proactive strategies are taken to minimize this
problem if not eliminate.

The low compensation package of the employees from mid level to lower position is
not able to keep the employee motivation.

Premier Bank SWOT Analysis

10

Strengths

The Bank has a clear vision towards its ultimate destiny- to be the best amongst the
top financial institutions.

The bank to be the most caring and customer friendly provider of financial services,
creating opportunities for more people in more places.

The bank to ensure stability and sound growth whilst enhancing the value of
shareholders.

Primer bank to provide congenial atmosphere which will attract competent work force
that will proud and eager to work for the Bank.
Weaknesses

No clear vision.

The bank has to follow aggressive marketing campaign.

The bank has to aggressively adopt technology.

Long term strategies not enough. aggressively adopt technology

Opportunity:

Service first is not just an abstraction; we mean it. It holds a

central focus in our operation.

Discharge of quick & quality service is the hallmark for banking standard.

The bank is a good understanding with them, while carrying out business
transactions, helps us perceive their goals and thus, enable to respond pro-actively to their
financial needs.
Threats

Competitors are using several new marketing policies to attract the customer.

They obey ethical standard in all operation.

Competitors are offering innovative new products and services.

Upcoming of new commercial banks, leasing companies and merchant bank etc. they
all are competitors.

The bank Expertise, efficiency and experience in Management

Prime bank SWOT-analysis

11

Strengths

Adequate capitalization.

Good profitability. This banking is introduced on line banking.

It provides quick and prompt service to its customer.

Bank quickly expanding its business all over the country.

T 24 has been implemented at the branch.

It is located at a convenient place of the city.

Weaknesses

Long term investment is not sufficient.

Lack of experienced employees in junior level management.

Shortage of lower level manpower.

Capital resources are short for its investment.

Has not yet expanded its network in rural areas.

Insufficient workforce.

Opportunity:

Launching own master card-Credit service.

It can expand its network in rural areas.

Potential to expand franchise bases on customer.

Internet and SMS Banking.

Opportunity to take market share from rivals by offering new innovative product or
service.

Clients reliability on MTBL is growing day by day on the bank.

Threats:

Very competitive market.

Central Banks policies sometime are not in favor of the private banks policies.

12


Entry of new commercial banks, leasing companies and merchant bank etc. they all
are competitors.

Competitors are offering innovative new products and services.

Competitors are using several new marketing policies to attract the customer.
Chapter 07: Ratio analysis
Risk analysis

Business risk analysis

Business analysis is a technique to identify and assess factors that may jeopardize the
success of a project or achieving a goal. This technique also helps to define preventive
measures to reduce the probability of these factors from occurring and identify to
successfully deal with possible negative effects on the competitiveness of the company.

Financial Risk Analysis

Financial risk analysis the practice of creating economic value in a firm by using financial
instruments to manage exposure to risk, particularly credit risk and market risk. Other types
include Foreign exchange, Shape, Volatility, Sector, Liquidity, Inflation risks, etc
Financial risk analyses are two kinds. These are
1)

Degree of Operating Leverage DOL

2) Degree of Financial Leverage DFL

Credit risk

Credit risk refers to the risk that a borrower will default on any type of debt by failing to
make payments which it is obligated to do. The risk is primarily that of the lender and
includes lost principal and interest, disruption to cash flows, and increased collection costs.
The loss may be complete or partial and can arise in a number of circumstances
Degree of Operating Leverage DOL
A type of leverage ratio summarizing the effect a particular amount of operating leverage has
on a companys earnings before interest and taxes (EBIT). Operating leverage involves using
a large proportion of fixed costs to variable costs in the operations of the firm. The higher the
degree of operating leverage, the more volatile the EBIT figure will be relative to a given
change in sales

13

Degree of Financial Leverage DFL

A leverage ratio summarizing the affect a particular amount of financial leverage has on a
companys earnings per share (EPS). Financial leverage involves using fixed costs to finance
the firm, and will include higher expenses before interest and taxes (EBIT). The higher the
degree of financial leverage, the more volatile EPS will be, all other things remaining the
same.

Current ratio

The current ratio is the best known ratio of financial analysis. It presents in relative terms
what net working capital measures in absolute terms.

Quick ratio:

The quick ratio, also known as the acid-test ratio, is a liquidity ratio that is more refined and
more stringent than the current ratio.

Cash ratio

The cash ratio is the most conservative of the three liquidity ratios covered in this article. As
the name implies, this ratio is simply the ratio of cash and equivalents compared to current
liabilities

Debt ratio

Debt ratio measures the percentage of total funds in the business provided by its creditors.

Return on asset

The return on assets (ROA) percentage shows how profitable a companys assets are in
generating revenue.

Debt Equity Ratio

The debt-to-equity ratio (D/E) is a financial ratio indicating the relative proportion of
shareholders equity and debt used to finance a companys assets

Priceearnings ratio

The price-to-earnings ratio, or P/E ratio, is an equity valuation measure defined as market
price per share divided by annual earnings per share.

14

7.6 Ratio analysis

Current ratio
Company name
2009

2010

2011

2.25

2.26

2.46

3.53

1.18

6.77

27.77

11.40

2.18

4.11

12.27

0.35

1.26

National bank Limited

NCC Bank Limited
One Bank Limited
Premier Bank Limited
Prime bank Limited

Quick ratio
Company name
2009

2010

2011

2.25

2.26

2.46

3.53

1.18

6.77

27.77

11.40

2.18

4.11

1.27

.35

1.26

National bank Limited

NCC Bank Limited
One Bank Limited
Premier Bank Limited
Prime bank Limited

Cash ratio
Company name
National bank Limited
NCC Bank Limited
One Bank Limited
Premier Bank Limited
Prime bank Limited

2009
1.99
5.90
1.86
0.355

2010
17.68
3.73
22.35
1.55
2.47

2011
2.11
1.57
0.73
1.23

Return on asset
Company name
National bank Limited

2009

2010
3.6%

2011
5.08%
15

NCC Bank Limited

One Bank Limited
Premier Bank Limited
Prime bank Limited

2.61%
4.37%
2.16%

2.84%
5.92%
2.63%
2.37%

2.61%
4.54%
2.30%
2.07%

2010
14.14 times
18.76 times
12.58 times
10.67 times
12.02 times

2011
12.54 times
26.57 times
12.50 times

2010
87%
88.80%
91.71%
90.61%

2011
85.37%
88.79%
90.61%

Price earning ratio

Company name
National bank Limited
NCC Bank Limited
One Bank Limited
Premier bank Limited
Prime bank Limited

2009
13.28times
12.97 times
8.85 times
16.60 times

9.48 times

Debt ratio
Company name
National bank Limited
NCC Bank Limited
One Bank Limited
Premier Bank Limited
Prime bank Limited

2009
90.84%
93.20%
90.20%
90.23%

90.42%

Debt equity ratio

Company name
National bank Limited
NCC Bank Limited
One Bank Limited
Premier Bank Limited
Prime bank Limited

2009
98.10%
93.20%
90.94%
90.23%

2010
29.28%
97.58%
91.71%
95.22%
80.67%

2011
85.8%
99.78%
90.61%

2010
1.32
1.22
.41
1.03
.441

2011
.737
1.68
.424

86.07%

Degree of Operating Leverage

Company name
National bank Limited
NCC Bank Limited
One Bank Limited
Premier Bank Limited
Prime bank Limited

2009
1.48
3.93
1.72
.454

3.51

Degree of financial leverage

16

Company name
National bank Limited
NCC Bank Limited
One Bank Limited
Premier Bank Limited
Prime bank Limited

2009

2010
2.09
1.74
.166
1.89
1.71

1.62
2.33
1.46
.163

2011
1.90
1.57
2.05
1.58

Z-score
National bank Limited
Year

T1

T2

T3

T4

z-score

zone

2010
2011

0.0435
0.039

0.0302
0,0302

.753
.075

0.127
0.11

1.02
.9748

Distress
Distress

National bank is Distress.

NCC Bank Limited
Year

T1

T2

T3

T4

z-score

zone

2009
2010
2011

.0344
.0098
.5644

.0169
.0183
.0218

.187
.057
.1014

.089
.105
.067

1.63
1.15
4.49

Grey
Grey
Safe

NCC Bank is grey and safe.

One Bank Limited
Year

T1

T2

T3

T4

z-score

zone

2009
2010
2011

.081
.0917
.0965

1.26
0.23
0.018

.058
.0416
.424

0.60
0.90
.103

5.09
5.09
6.33

Safe
Safe
Safe

T2

T3

T4

z-score

One Bank safe Zone.

Premier Bank Limited
Year

T1

zone

17

2009
2010

0.048
.097

0.0171
.020

0.0518
.071

0.0895
.080

1.30
1.23

Grey
Grey

Premier Bank is grey zone.

Prime bank Limited
Year

T1

T2

T3

T4

z-score

zone

2009
2010
2011

.034
0.0628
0.145

.067
0.176
.140

.081
.296
.0582

.077
1.21
..104

1.65
4.56
2.09

Grey
Safe
Safe

Prime bank is Grey and Safe zone.

Part -5 Decision Making and Conclusion

Chapter-8: Decision making and conclusion
Decision making
Company name
National bank Limited

Future prospect based on different

ratio
This Bank ratio analyses is so so.
But z-score are not good .they have
not big profit so this bank is risky

risk

NCC Bank Limited

Because this bank ratio falls

compare two or three year.
The NCC BL is ratio 1st time not
The bank less risk because
good but last year this bank ratio is this bank position up to
so good.
down.

The bank ratio is risky and

other thing is not good. But
A category bank but bank
more risk.

And compare 3 year bank ratio down

then up.
So this bank less risky.
The bank ratio is good

18

One Bank Limited

The one bank is position is best.

The bank less risk but ratio

position medium and good.

And 3 year ratio compare good.

Premier bank Limited

So bank is less risky.

The bank position is not bad. The 2 T he bank is not more risk
year ratios are medium.
and position of bank medium

Prime bank Limited

So bank are not more risky.

The bank position is not bad. the 3 The bank is less risk.
year ratio medium ,good and
medium.
So bank is not more risky

Conclusion
The Dhaka Stock Exchange is the prime bourse of the country. Through its nonstop highly
fault tolerant screen based automated trading system the exchange has been offering facilities
for transparent and highly efficient provisions for secondary market activities of securities. I
had the opportunity to work for this organization during my internship program. I was placed
at the of CSE main office, Stock Exchange Building ,9E motijheel. During this time I got
opportunity to observe the overall activities process of the CSE specially about CSE
performance and potential Banks. of CSE .

The overall performance of 5 bank is satisfactory than the all other listed Banks. .
Companys corporate governance is efficiently and trying there level best.

The CSE has been able to attract a significant volume of foreign funds and the number of
foreign investor is growing day by day .

19

Reference
1. "Khan Ghoshal", (Investment Analysis And Portfolio Management)
2. "M.A Kalam", (Investment Analysis And Portfolio Management)
3. Investments, Jones
4. Kyngs, H. T., Tytti (2003). "Miksi opiskelen? Kokemuksia opiskelijoiden portfoliotyst
Oulun yliopiston hoitotieteen laitoksessa."
5. Mattus, M.-R. (2003). "Opetuskansio itsens kehittmisen vlineen." Peda-forum
korkeakoulupedagoginen tiedotuslehti 2/2003, s. 9 - 11.
6. Principal Managerial Finance, Lawrence L.J. Gitman
7. Annual report 2011, National Bank Limited.
8. Annual report 2011, One Bank Limited
9. Annual report 2010, One Bank Limited
10. Dhaka Stock exchange.
11. Annual report 2009,Prime Bank Limited
12. Annual report 2010,Prime Bank Limited

20

Question & Solution

Question : 1
From the following information of solvent Ltd . calculate the cost of equity capital using
NOI approach :
Debt =Tk 24,00,000@8%
Earning before interest &Tax ( EBIT) =Tk 5,00,000
Fixed overall capital (k o ) = 14%
Solution :
Calculation the cost of equity capital ( k e )
We know that,
EBT
S
EBIT I
=
S

ke=

5,00,000 1,92,000
23,30,000
3,08,000
= 23,30,000

=13%

Here ,
EBIT=Tk 5,00,000
B=24,00,000
I=(24,00,000*8%)
=1,92,000
EBIT
KO
5,00,000
=
.14

V=

=14%=.14
Now, S=V-B
=70,000-24,00,000
=23,30,000
k o =?
O

Question :02

21

There are two firms M&N which are identical in all respects except that the firm M
has 10% debentures of Tk 12,00,000 .The EBIT of both firms are Tk 2,40,000 . The cost of
capital of firm M&N are 12% &11% respectively. Determine the total market value (V) &
overall cost of capital of two firms.
Mr. Sohorab an investor holds 10% of the outstanding share of the firm. Should he prefer
switching from M firm to N firm.
Solution :
Table for calculation
Particulars
EBIT
(-) Interest (1200000* 10%
EBT
Cost of equity capital ( k e )
EBT

Market value of share (S= K

Market value of debenture

Total market value (V=S+B)

Overall cost of capital (k

EBIT
)
V

M Firm
2,40,000
1,20,000
1,20,000
12%

N Firm
2,40,000
2,40,000
11%

10,00,000
12,00,000
22,00,000

21,81,818

5.45%

11%

21,81,818

Comment: This Mr. Shohab should not buy the share of N company by selling of M
company because value of M firm is more . than of N firm on the other hand cost of M firm
is lower . than N firm .

22

Question:03
From the following information determine the optimum capital structure of a
business firm .
Situation

Debt Tk

Equity Tk

1
2
3

10,00,000
5,00,000
2,00,000

2,00,000
6,00,000
8,00,000

After tax cost of

debt
8%
7%
6%

Cost of equity
10%
11%
12%

Solution :
Working:

(1) Calculation of

(2)

10,00,000

) 1 = 12,00,000 =.83

) 2 = 11,00,000 =.45

) 3 = 1,00,000 =.20

5,00,000

2,00,000

Calculation of

(W e ) 1 =1-.83=.17

w)
(w )
(

=1-.45=.55
=1-.20=.80

23

The table for calculation of optimum

Capital structure
Situation

ke

we kd

wd

ke
we

kd
wd

ko = ke
we

+ kd

1 0.10

0.17

0.08

0.83

0.0170

0.0664

0.0834

0.11

0.55

0.07

0.45

0.0605

0.0315

0.0920

0.12

0.80

0.06

0.20

0.0960

0.0120

0.1080

Optimum capital structure:

As weighted average cost of capital (WACC) is minimum 0.0834 or 8.34% in situation -1
thus this is the optimum capital structure.
Question:04
From the following information calculate the overall cost of capital of Sonali Ltd. By
using NI approach:
Debt= Tk. 22,00,000 at 8%
Earnings before interest and taxes (EBIT) = Tk. 12,00,000
Preferred stock = nill
Cost of equity capital = 18%
Solution:
Requirement:
Calculation the overall cost of capital ( k o )
We know ,

ko

EBIT
V

Here,
EBIT=12,00,000
INT=B Rate
=22,00,000 8%

=1,76,000
12,00,000

= 78,88,888.89
=0.1521 or 15.21%

S=

EBIT INT

12,00,000 1,76,000
0.18
10,24,000
=
0.18

=56.88,888.89
V= S+B
=56.88,888.89+22,00,000
=78,88,888.89
24

Question:05
If operating income of a firm is Tk. 50,000, cost of debt is 10% and outstanding
debt is Tk. 2,00,000. The overall capitalization rate (Overall cost of catital) is 12%.
What would be the total value of the firm (V) and the equity-capitalization rate ( k ) ?
e

Solution:
Requirement-1: Calculation the total value of the firm (V):
We know,
V=
=

Here,

EBIT

EBIT= Tk. 50,000

50,000
0.125

=Tk. 4,00,000

=12.50% = 0.125

V=?

Requirement -2:
Calculation the equity-capitalization rate ( K e ):
We know,
Ke =

EBIT INT
S

50,000 20,000
2,00,000
30,000
= 2,00,000

=0.15 or 15%

Here,
EBIT= Tk. 50,000
INT= (2,00,000 10%)
=20,000
B=Tk. 2,00,000
V=Tk. 4,00,000
S=V-B
= (4,00,000-2,00,000)
= Tk. 2,00,000
K e =?

25

Question:06
Assuming no taxes given the earning before interest and taxes (EBIT),
interest at 10% and equity capitalization rate ( k e ) below, calculate the total market value of
each firm.
Firm
A
B
C
D

EBIT
2,50,000
3,40,000
5,50,000
7,00,000

I(Tk)
50,000
80,000
2,50,000
3,00,000

ke

12.0%
14.0%
15.0%
18.0%

Also determine the weighted average cost of capital for each firm.

Solution:
The table for calculation of weighted average cost of capital
Firms
Particulars
EBIT
Less: Interest (I)
NI for equity holders
Equity Capitalization Rate ( k e )
Market value of equity (S)
Market value of debt (B)

I
0. 1

Total value of firm (V)

Weight average cost of capital ( K o )

A
(Tk.)
2,50,000
50,000
2,00,000
0.12
16,66,667
5,00,000

B
(Tk.)
3,40,000
80,000
2,60,000
0.14
18,57,143
8,00,000

C
(Tk.)
5,50,000
2,50,000
3,00,000
0.15
20,00,000
25,00,000

D
(Tk.)
7,00,000
3,00,000
4,00,000
0.18
22,22,222
30,00,000

21,66,667 26,57,143 45,00,000 52,22,222

11.54%

12.79%

12.22%

13.40%

26

Question: 07
Equilibrium value : compute the equilibrium values of the firms and cost of equity
capital , that is the equity capitalization rate ( k e ) of the companies X&Y on the basis of the
following data .
Assume that (1)ther is no income tax (2) the equilibrium value of average cost of capital is
8.50% if NOI approach .
Initial Disequilibrium data
Particular
Total market value ( Tk)
Debt ( B) (Tk)
Equity ( S) ( Tk)
Expected EBIT ( Tk)
Interest (1) Tk
Net income (EBT)(Tk)
Cost of equity ( k e )
Degree of leverage (

B
)
V

Company X

Company Y

25,00,000
Nill
25,00,000
2.50,000
Nill
2,50,000
10%
0%

30,00,000
15,00,000
15,00,000
2,50,000
90,000
1,60,000
10.70%
50%

10%

8.33%

Weighted overage cost capital ( k o )

Solution :
Particulars

Company
X
Y

Requirement (1): equilibrium values of the

firm(V) :
Given , equilibrium average cost of capital (
k o )=8.50%

EBIT
KO

2,50,000
0.085

2,50,000
0.085

=29,41,176

=29,41,176

Requirement (2) equilibrium cost of equity(

k e ):
=29,41,176
Equilibrium value (V) [ as per require (1)]
Nill
Less : value of debt (B)
value of equity (S)
29,41,176

=29,41,176
15,00,000
14,41,176

V=

Thus , Equilibrium ( k e )=

EBT
S

2,50,000

1,60,000

= 29,41.176

= 14,41,176

=0.0850
or 8.50%

=0.1110
or 11.10%

27

Question: 08
Max Ltd . Has EBIT of Tk 3,00,000. The company employs Tk 10,00,000 of debt
carrying 10% interest charge . The equity capitalization rate applicable to the company is
15% . what is market value of the company under the NI approach.
Assume no corporate tax .
Solotion:
Requirement :
Calculation market value (V):
We know that ,
V=S+B
=( 13,33,333+10,00,000)
=Tk 23,33,333

Here,
B=TK 10,00,000

EBIT I
KE
3,00,000 (10,00,000 10%)
=
0.15
3,00,000 1,00,000
=
0.15

S=

= Tk 13,33,3333

EBIT= Tk 3,00,000
k e =15%

=0.15
I=Amount of interest
V= ?

28

Question: 09
Ratio calculation :The management of KHAN Ltd. Subscribing to the net operating
income (NOI) approach , believes that its cost of debt and overall cost of capital will remain
at 8% &12% respectively . If equity shareholders of the firm demand a return of 20%
What should be the proportion of debt and equity in the firms capital structure .
Assume that are no taxes .
Solution :
Requirement :
Calculation of proportion of debt and equity ( B:S):
We know that ,
In NOI model k e = k o ( k o - k d )

0.20=0.12+(0.12-0.08)
0.20-0.12=0.04
0.08=0.04

B
S

B
S

B
S

B
S

Here,
k e =20%

=0.20
k d =8%

=0.08

0.08
= B
0.04
S

k o =12%

=0.12
B
2=
S
B

=2
S

B:S=

B
=?
S

B:S=2:1
Therefore , the debt equity ratio is 2:1

29

Question: 10.
At present a company has 50,000 ordinary shares of Tk 100 each . The company requires
an additional capital of Tk 12,50,000. In order to acquire the additional capital the company
has been considering the following three alternatives:
(1) issue 12,000 ordinary shares (2)Borrow Tk 12,50,000 at 10% interest (3)Issue 12,500
10% preference shares of Tk 100 each .
If the Earning before interest and taxes (EBIT) of the company is Tk 7,50,000 show the
effect of these three alternatives on earning per share , assume tax is 40% . Which method of
financing the company should select ?
Solution:
Calculation of Earning per share (EPS )
Particular
Earning before interest & tax (EBIT)
Less : Interest on loan
Earning before tax (EBT)
Less : Tax @40%
Earning after tax (EAT)
Less: Dividend to pref . shares @10%
Earning fore shareholders
Number of shares
Earning per share (EPS)

1
7,50,000
7,50,000
3,00,000
4,50,000
4,50,000
62,500
Tk 7.20

Method
2
7,50,000
1,25,000
6,25,000
2,50,000
3,75,000
3,75,000
50,000
Tk 7.50

3
7,50,000
7,50,000
3,00,000
4,50,000
1,25,000
3,25,000
50,000
Tk 6.50

Comment : Thus , the company should select method 2 , Because its EPS is highest.

30

31

Exercise: 01

32

Exercise: 02

33

Exercise: 03

Exercise: 03

34

35

Exercise: 04

36

37

38

Exercise: 05

39