Letter of Transmittal

Date: 27 November, 2018

Dr. Md. Kismatul Ahsan

Professor & Chairman
Department of Finance
Faculty of Business Studies
University of Dhaka

Dear Sir,
This is our immense pleasure to submit the report regarding “Practices of Financial Tools and
Technique in the field manufacturing industry”.

We have given our level best effort to collect necessary relevant information regarding subject
matter from local corporate to study and present accordingly. However we can’t make sure our
study presented in the detail report is flawless. Still we hope that this study would provide
minimum range of understanding about Practices of Financial Tools and Technique in the field of
manufacturing industry

We would like to express gratitude to you for the topic which helps us to understand the uses of
financial tools and their real life implication‘

Regards,
Md. Moazzem Hossain
Md. Mamun Sarder
Md. Azizur Rahman Bhuiyan
Mohammad Shahidul Islam

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 Acknowledgement
First of all we thank Almighty Allah for giving us the opportunities that we found in the in the
program of “Masters of Professional Finance”. The study has been made possible with the help
of different people who forwarded their hand, encouragement and time.

Acknowledgement of debt should start with the teacher, Dr. Md. Kismatul Ahsan Sir, Professor &
Chairman, Department of Finance, University of Dhaka for his constant suggestions, guidance
and help during the courses of our research work. We are immensely benefited from his
stimulating advice. Without his guidance, it would not have been possible for us to complete this
work. It was indeed our good fortune to have had such an able and devoted guide.

We would like to thank the management of the Panna Battery Litd. for their co-operation,
Statement and sensitive information. I would like to thank Mr. Mr. Khondokar Mohd. Iqbal
General Manager of the firm for his cordial behavior cooperation and guidance.

Finally gratitude to every single in dividable involving in preparation of the report

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Chapter 1: Introduction

1.1: Origin of the report:

This report has been prepared to conduct a brief study on “Practices of Financial Tools and
Technique in the field manufacturing industry” of Bangladesh.

1.2: Objective of the Report:

The fundamental goals of the studies are to observe whether the manufacturing industry in
Bangladesh are using Managerial Finance technique in order to evaluate their financial position

1.4: Methodology of the Study:

The given topic is a research work, therefore we like to use both primary and secondary data.
In this regard we have collect some primary data from the Two local manufacturing firm by
interviewing the finance Manager of the firm and data they have provided
For secondary data, we use books reference.

1.5: Limitations of preparing the report:

This report is mostly covered the theoretical aspect of the managerial due to the shortage of
information as the officials are reluctant to disclose which are seem to be confidential

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Chapter 2: The Report

This report has been prepared on the financial position of “Panna Battery Limited” the second
largest Battery manufacturing firms in the country after Rahim Afroz Limited. In order to conduct
the report we have interviewed the General Manager of the

From this point onward we would discuss about the firm, their financial position and draw
whether they uses the basic financial tools and technique.

A glimpse Panna Battery Limited:

1. Company Name Panna Battery Limited (PBL)

2. Nature of Manufacturing and trading
Business
3. Constitution : Private Limited Company
4. Products Battery for household appliances, automobiles and industrial
purposes. They manufacture and distribute battery under Brand
name “Volvo”, “Panna” and “ Green Power”.
5. Office Address Business: Nasir Trde Centre (Level#12), 89, Bir Uttam C.R
Datta Road, Dhaka-1205
Factory: West Rasulpur, Kamrangirchar, Dhaka-1211,
Bangladesh
6. Year of 2006
incorporation
7. Authorized Capital : BDT 30.00 Million
8. Paid –up Capital : BDT 10.00 Million
9. Total Asset : BDT 4,497 million
10. Total Liabilities : BDT 2,029 million
11. Net worth : BDT 2,468 million

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Financial Statement & Credit Line

We have been provided financial data such as Three years income statements, summary of
three years balance sheet, Net worth statement and data of credit line with different banks and
financial institutions.

Three Years Income statement of

Panna Battery Limited
Fig in Thousand
Particulars 31-Dec-16 31-Dec-17 31-Oct-18
Gross Sales 3,483,090.00 4,202,116.00 4,567,966.00
Less: Sales Return+Discount+VAT 511,113.00 527,073.00
Net Sales 3,483,090.00 3,691,003.00 4,040,893.00
Add: Other Operating Income 13,686.00 13,687.00 13,686.00
Total Sales Revenue 3,496,776.00 3,704,690.00 4,054,579.00
Less :Cost of Goods Sold 2,503,443.00 2,634,705.00 2,843,394.00
Gross Profit 993,333.00 1,069,985.00 1,211,185.00
Less: Selling. Gen. & Admin. Expenses 223,050.00 236,901.00 260,212.00
Less: Other Operating Expense
EBITDA 770,283.00 833,084.00 950,973.00
Less: Depreciation 175,357.00 209,205.00 280,281.00
Less: Interest Expense 164,699.00 174,530.00 191,074.00
EBT 430,227.00 449,349.00 479,618.00
Add: Other Income (Non-Operating) 312.00 313.00 312.00
Less: Other Expense (Non-Operating )
Less: Income Taxes (35%) 50,579.45 157,272.15 167,866.30
EAT 279,959.55 292,389.85 312,063.70
EPS 14.00 14.62 15.60

Three years Balance Sheet:

Panna Battery Limited

31-Dec-15 31-Dec-16 31-Oct-17

Total Current Assets 2,577,987.00 2,950,130.00 2,769,403.00
Net Fixed Assets 1,075,742.00 1,471,509.00 1,695,634.00
Total Non-Current Assets 1,170,701.00 1,547,015.00 1,787,422.00
Total Assets 3,748,688.00 4,497,145.00 4,556,825.00
Total Current Liabilities 1,346,650.00 1,575,251.00 1,238,415.00

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 Long Term Liabilities
Total Liabilities 1,730,936.00 2,029,731.00 1,609,481.00
Net worth Statement:
Panna Battery Limited

NET WORTH 31-Dec-15 31-Dec-16 31-Oct-17

Paid-up Capital 1,0000.00 1,0000.00 1,0000.00
Retained Earnings 2,016,752.00 2,466,414.00 2,946,344.00
NET WORTH 2,026,752.00 2,476,414.00 2,956,344.00

Credit Line

Sl Nature of Limit Outstanding Interest Weight of Weighted

No: facility Rate Outstanding Avg. Interest
I w iw
1 Overdraft 260.00 261.64 10.00 0.18 1.80%
2 Rev. Time loan 380.00 293.12 10.00 0.20 2.01%
3 CCHYC 200.00 196.10 10.50 0.13 1.41%
4 Short Term 9.00 00 9.50
Loan-1 0.00 0.00%
5 Short Term 420.00 394.14 9.50
Loan-2 0.27 2.57%
6 Short Term 3.47 9.50
Loan-3 0.00 0.02%
7 Term Loan-1 75.00 46.48 10.00 0.03 0.32%
8 Term Loan-2 52.00 10.00 0.00 0.00%
9 Term Loan-3 25.00 109.27 10.00 0.08 0.75%
10 Term Loan-4 108.00 78.81 10.00 0.05 0.54%
11 Term Loan 100.00 68.40 9.5.00 0.05 0.45%
12 Lease Finance 1.28 3.73 12.5 0.00 0.03%
Total 1630.28 1455.16 1.00 ∑iw=9.91%

Required information received from General Manager

To analyze the data firms General manager has given the following data:
a. The firm is a non-listed manufacturing firm. It has build-up it’s capital by entrepreneurs’
investment to the firm, retained earnings and debt financing from commercial banks and
financial institution. The firm’s General Manager informed us that the firm calculated cost
of debt Retained earning.
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 b. The firm has paid dividend 18%, 22% for last two years and projects that

c. the firm will be able to pay 25% which would be equivalent to BDT 3.90 per share for
the current year.

d. Firm’s growth rate is 4.44% (for the year 2017).

e. Market price of per share BDT 522.00 (initial value per share value plus growth rate)

Cost of debt :
The firm has been availing different types of credit facility from different banks & Financial
Institution. Credit line information showed in the above, firms total credit limit (only Funded
Facility considered) is BDT 1630.28 million and present outstanding is BDT 1455.16 million. The
firms waited average rate of interest is 9.9%. Since the firm is non-listed therefore the tax rate
is 35%. Considering the above information firm calculated cost of debt is 6.44%

Calculation :
Formula KD = Kd(1-t)
KD = Effective cost of date
Kd = Contractual Cost of Debt (Weighted)
T = Firms corporate Tax
KD = 9.91%(1-.35)
= 9.91% x .65
= 6.44%

Cost of retained Earning:

The firm has been building-up their capital by retaining certain percentage earning per year
therefore the firm calculate the cost of retain earning as 5.19%

From the received data we have calculated the same as under

Formula:
D1
KS = +g
Po

D1 = Divided to be paid end of the year is BDT3.9

Po = Current market price of share is BDT 522.00

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 G = Growth rate is BDT .044
3.9
Ks = + 0.044
522

= 5.19%

Leverage

We have asked to the finance manger Whether they calculate the leverage of the firm. The
manager inform that there is no ready reference always however the calculate as an when
required, such as for Board of Directors and for business proposal to the bank as per the
universal formula He also informed that fro the given financial information leverage of the firm
can be calculated.

Leverage of the firm

Degree of Operating Leverage: A quantitative measure of sensitivity of a firm’s oerating

profit to change in the firms sales is refer to the Degree of Operating Leverage
DOL of the fir is as under (Data refer to the income statement)

EBIT+Operating Fixed Cost

DOL =
EBIT

EBIT = 950,973.00
Operating fixed cost = 260,212.00

(950973+260212)
DOL =
950973

DOL= 1.27
Implication: If the sales increase by 10% Operating profit will increase by 12.70% again if the
sales is dropped by 10% operating profit will dropped by 12.70% of the firm.
The greater is a DOL the more its EBIT will very with sales fluctuations, therefore the DOL is
refer as the indicator of the firm’s business risk.

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Degree of financial Leverage: Degree of financial leverage is a quantitative measure of the
sensitivity of a firms earning per share to change in the firms operating profit.

% 𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝐸𝑃𝑆
DFL =
(% 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝐸𝐵𝐼𝑇)

EBIT
=
(EBIT−Ff)

EBIT = 950,973.00
Ff = 191,074.00

950,973.00
DFL =
(950,973.00−191,074.00 )

DFL = 1.25

Implication: If 20% increase in EBIT, the DFL indicates EPS will increase 25% if EBIT is
dropped by 20% EPS will also be dropped by 25%

Degree of Combined leverage. A degree of combined leverage (DCL) is a leverage ratio that
summarizes the combined effect that the degree of operating leverage (DOL) and the degree of
financial leverage have on earnings per share (EPS), given a particular change in sales.

DCL = DFL x DCL

DFL = 1.25
DOL = 1.27

DCL = 1.25 x 1.27

= 1.59
Implication: If sales of the Panna Battery Ltd increases by 10% it EPS will increase by 15.90%

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Usage of Other financial tools:

We did asked for the some information of such as NPV, Payback Period, Discounted payback
period. Average accounting return.

We have been informed that firm has been running its project since long, there is no such new
project in hand that it could show its their net present Payback Period, Discounting payback
period. Average accounting return. However incase of project appraisal the firm usually calculate
pay bake period and average accounting return.

Conclusion: From our observation and the provided data it can be remarked that the firm are
using the financial tools and technique.

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