FIN-440

Term Project

Topic: “Financial Analysis of Renata Limited”

Course Instructor
Mr. Riyashad Ahmed
Sec: 3
Date of Submission:
1st August, 2012

School of Business
North South University
 Fin-440: Term Project

Group members for the Project:

Name ID

1. Abrar Ahmed 1010251030

2. Woali Ullah Oli 1010343030

3. Asif Zahir 1020417030

4. Masrur Yousuf 1010268030

Letter of Transmittal
2
1st August, 2012
Mr. Riyashad Ahmed
Lecturer
Department: School of Business
North South University
Bashundhara Residential Area, Dhaka.

Subject: Submission of Fin-440 “Term Project”

Dear Sir,
Enclosed is a copy of Term Project which is based on the comprehensive financial analysis of
Renata Limited. As instructed, the following dissertation discusses about the overall financial
position of Renata Limited.

In this assignment, we tried our level best to include all the key Ratios, Returns and other terms
of finance. We also tried to implement our learning throughout semester properly. To make this
assignment enriched, we fulfilled the entire outline which was given at the class. As you go
through the contents, you will find our endeavor in the overall assignment clearly.

If you have any questions or comments regarding the interpretation of this assignment, please
feel free to contact us. It was a very enriching and enthralling experience for us to prepare the
whole task.

Thank You for believing in us and giving us this wonderful opportunity.

Sincerely

Abrar Ahmed Woali Ullah Oli Asif Zahir Masrur Yousuf

3
 Executive Summary
The term paper contains the comprehensive analysis and discussions about the financial
conditions of Renata Limited. By using the company’s historical financial information from their
annual reports, ratio analysis, graphs and interpretations have been done to see the overall
position. We have also compared the ratios with other companies (GlaxoSmithKline Bangladesh
Limited, Reckitt Benckiser Bangladesh Limited, Beximco Pharmaceuticals Limited, Advanced
Chemicals industry (ACI) Limited) from the same industry. Forecasting of income statement and
balance sheet have been prepared to check whether they need any financing to cover the shortage
of capital in future or they have surplus of it. We also have analyzed the Renata’s risk and
required rate of return which helps to take the investment decision for an investor. We have
calculated the weighted average cost of capital and evaluated their capital structure as well. The
Term Paper also contains the intrinsic or theoretical values of Renata’s Share and their dividend
policy. Finally, we can say that the whole Project is a combination of seven items which was
given in the outline.

4
 Table of Contents
Topics Page Number
1.Company Overview 6
2.Common Size statements 7-12
3. Forecasted Income statement and Balance 13-15
sheet
4.Ratio Analysis 16-46
5.Calculation and analysis of Returns 48-55
6.Beta calculation 55-56
7.WACC Calculation 56-58

8.Optimum Capital Structure 58-59

9.Intrinsic Share value calculation 60-61

10.Corporate value model 62-63
11. Dividend policy 64-65

5
 C O M P A N Y O V E R V I E W:

Renata limited is one of the leading pharmaceuticals company in Bangladesh. The company has
two production sites. These sites are Manufacture and Marketing of Human Pharmaceuticals and
Animal Therapeutics. The Company started its operations as Pfizer (Bangladesh) Limited in
1972. For the next two decades it continued as a highly successful subsidiary of Pfizer
Corporation. However, by the late 1990s the focus of Pfizer had shifted from formulations to
research. In accordance with this transformation, Pfizer divested its interests in many countries,
including Bangladesh. Specifically, in 1993 Pfizer transferred the ownership of its Bangladesh
operations to local shareholders, and the name of the company was changed to Renata Limited.
Renata Limited is a public company and it was listed in Dhaka stock exchange in 1979.
Currently it has over 3,485 employees. The company is not only confine it’s self in Bangladesh
but also export human pharmaceuticals in many countries of the world. Currently it has
international presence in: Afghanistan, Cambodia, Guyana, Jordan, Kenya, Malaysia, Myanmar,
Nepal, Philippines, Hong Kong, Sri Lanka, Vietnam, and United Kingdom. From 2000 to 2010,
it shows an increasing turnover and in the mean time the company also acquires the shareholders
trust. From 2003 to 2011 it remains consistent in its dividend policy almost on an average of
50% cash and 25% stock dividend paid to the shareholders. After the changing rule of SEC the
Company split its face value and changed it to tk.100 to tk.10. The company also holds the 100%
share of its two subsidiaries which are Renata Agro and Renata Purnava Limited.

6
 PART: 2

Common Size statements

a) Vertical Balance sheet: Here all figures of Balance sheet divided by total assets and expressed as Percentage (%)

Vertical Income Statement: Here all figures divided by sales and expressed as a percentage (%) and it also includes Averages
and standard Deviation.

Renata Limited
Vertical Balance Sheet
as at

31st Dec, 31st Dec, 31st Dec, 31st Dec, 31st Dec, Standard
Average
2007 2008 2009 2010 2011 Deviation

Assets

Non-current assets

Property, plant and

36.98% 32.08% 36.25% 49.97% 49.18% 40.89% 0.0815
equipment
Capital work-in-progress 14.20% 18.03% 19.13% 7.09% 17.81% 15.25% 0.0493
Investment in subsidiary 2.93% 1.99% 1.64% 1.23% 0.82% 1.72% 0.0081
Other investment 0.05% 0.26% 0.31% 1.15% 0.15% 0.38% 0.0044
Total non-current assets 54.15% 52.37% 57.33% 59.44% 67.96% 58.25% 0.0608
Current assets
Inventories 30.72% 30.34% 27.92% 25.40% 20.61% 27.00% 0.0416
Trade and other
9.04% 10.89% 8.93% 9.53% 8.32% 9.34% 0.0097
receivables
Advance, deposits and
3.85% 2.51% 2.09% 2.16% 1.27% 2.38% 0.0094
prepayments
Cash and cash equivalent 2.24% 3.89% 3.72% 3.47% 1.84% 3.03% 0.0093
Total current assets 45.85% 47.63% 42.66% 40.56% 32.04% 41.75% 0.0608

Equity and liabilities

Equity attributable to equity
holders of the company
Share capital 4.47% 3.66% 3.75% 3.52% 2.94% 3.67% 0.0055
Revaluation surplus 7.22% 4.90% 4.01% 3.00% 2.06% 4.24% 0.0198
Tax holiday reserve 2.17% 1.67% 2.16% 2.42% 1.71% 2.03% 0.0032
Retained earnings 45.42% 42.33% 47.38% 48.95% 44.76% 45.77% 0.0253
Total equity attributable
to equity holders of the 59.28% 52.56% 57.31% 57.89% 51.47% 55.70% 0.0346
company

Non-current liabilities

Deferred liability-staff
4.13% 3.33% 3.22% 2.70% 1.94% 3.06% 0.0081
gratuity
Deferred tax liability 3.31% 2.58% 2.86% 2.97% 2.57% 2.86% 0.0031
Total non-current
7.44% 5.91% 6.08% 5.67% 4.51% 5.92% 0.0105
liabilities

8
Current liabilities
Bank overdraft 16.77% 26.03% 20.62% 22.00% 31.24% 23.33% 0.0552
Creditors for goods 1.76% 4.02% 0.72% 0.62% 0.65% 1.55% 0.0146
Accrued expenses 4.55% 4.21% 4.64% 4.30% 4.25% 4.39% 0.0019
Other payables 5.72% 2.53% 6.16% 5.79% 4.47% 4.93% 0.0149
Unclaimed dividend 0.11% 0.10% 0.10% 0.10% 0.08% 0.10% 0.0001
Provision for taxation 4.36% 4.65% 4.52% 3.61% 3.32% 4.09% 0.0059
Total current liabilities 33.27% 41.54% 36.60% 36.42% 44.02% 38.37% 0.0433
Total liabilities 44.71% 47.45% 42.69% 42.10% 48.53% 45.10% 0.0284
Renata Limited
Vertical Income Statement
for the year ended

31st Dec, 31st Dec, 31st Dec, 31st Dec, 31st Dec, Standard
Average
2007 2008 2009 2010 2011 Deviation

Turnover 100% 100% 100% 100% 100% 100% 0.0000

Cost of sales -51.26% -49.41% -46.67% -47.25% -47.54% -48% 0.0189
Gross profit 48.74% 50.59% 53.33% 52.75% 52.46% 52% 0.0189
Other income 0.46% 0.50% 0.21% 0.12% 0.33% 0% 0.0016
49.20% 51.09% 53.54% 52.87% 52.79% 52% 0.0176

Operating expenses:
Administrative, selling
-27.49% -27.35% -28.68% -27.08% -26.12% -27.34% 0.0092
and distribution expenses
Operating profit 21.71% 23.74% 24.85% 25.79% 26.67% 24.55% 0.0193

9
Gain on disposal of
property, plant and 0.02% 0.0038% 0.02% 0.01% -0.05% 0.00% 0.0003
equipment
Interest on over draft -2.27% -2.82% -2.55% -2.31% -3.30% -2.65% 0.0042
Other expenses -0.13% -0.19% -0.17% -0.16% -0.14% -0.16% 0.0002
Contribution to WPPF -0.92% -0.99% -1.05% -1.11% -1.10% -1.03% 0.0008
Profit before tax 18.41% 19.74% 21.10% 22.21% 22.07% 20.71% 0.0162

Tax expenses:
Current tax -4.81% -5.39% -4.89% -4.63% -4.61% -4.87% 0.0032
Deferred tax -0.35% -0.33% -0.74% -0.84% -0.77% -0.61% 0.0025
Net Profit after tax for
13.25% 14.02% 15.47% 16.75% 16.69% 15.24% 0.0157
the year
Basic earnings per share
0.000011% 0.0000097% 0.0000086% 0.0000074% 0.0000074% 0.0000088%
(par value of Tk 100)

10
b) Horizontal Balance sheet and income statement:

Here we use the same base year for both. All base year figures will become 100%, and the others
items will be expressed as a percentage of that item’s base year figure.

Horizontal Balance Sheet

Asset 2007 2008 2009 2010 2011 Average

Non-current assets            
Property, plant and equipment 100.00% 127.31% 175.23% 321.84% 474.73% 239.82%
Capital work-in-progress 100.00% 186.38% 240.85% 118.96% 447.81% 218.80%
Investment in subsidiary 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Other investment 100.00% 837.78% 1193.11% 5896.51% 1133.39% 1832.16%
Total non-current assets 100.00% 141.93% 189.24% 261.43% 447.98% 228.12%
             
Current assets            
Inventories 100.00% 144.92% 162.43% 196.92% 239.44% 168.74%
Trade and other receivables 100.00% 176.77% 176.59% 251.09% 328.76% 206.64%
Advance, deposits and
prepayments 100.00% 95.41% 97.09% 133.25% 117.41% 108.63%
Cash and cash equivalent 100.00% 255.19% 296.84% 369.65% 292.74% 262.89%
Total current assets 100.00% 152.42% 166.29% 210.68% 249.38% 175.75%
Total assets 100.00% 146.74% 178.72% 238.16% 356.92% 204.11%
             
EQUITY AND IABILITIES            
Equity attributable to equity
holders of the company            
Share capital 100.00% 120.00% 150.00% 187.50% 234.38% 158.38%
Revaluation surplus 100.00% 99.69% 99.38% 99.08% 101.85% 100.00%
Tax holiday reserve 100.00% 112.80% 177.85% 264.96% 280.49% 187.22%
Retained earnings 100.00% 136.75% 186.43% 256.69% 351.74% 206.32%
Total equity attributable to
equity holders of the
company 100.00% 130.09% 172.77% 232.58% 309.85% 189.06%
             
Non-current liabilities            
Deferred liability-staff gratuity 100.00% 118.30% 139.61% 155.75% 167.67% 136.27%
Deferred tax liability 100.00% 114.25% 154.38% 213.98% 277.43% 172.01%
Total non-current liabilities 100.00% 116.50% 146.19% 181.67% 216.53% 152.18%
             
Current liabilities            
Bank overdraft 100.00% 227.72% 219.77% 312.45% 664.77% 304.94%
Creditors for goods 100.00% 335.12% 73.55% 83.72% 132.27% 144.93%
Accrued expenses 100.00% 135.64% 175.32% 225.23% 333.40% 193.92%
Other payables 100.00% 64.88% 192.68% 241.38% 279.25% 175.64%
Unclaimed dividend 100.00% 127.68% 159.39% 207.80% 263.59% 171.69%
Provision for taxation 100.00% 156.49% 185.41% 196.98% 271.70% 182.12%
Total current liabilities 100.00% 183.16% 196.60% 260.72% 472.18% 242.53%
Total liabilities 100.00% 170.98% 187.38% 246.28% 425.47% 226.02%
Total equity and liabilities 100.00% 146.74% 178.72% 238.16% 356.92% 204.11%

Horizontal Income Statement

  2007 2008 2009 2010 2011 Average

             
Turnover 100.00% 121.92% 153.93% 200.87% 257.27% 166.80%
Cost of sales 100.00% 117.52% 140.16% 185.18% 238.61% 156.29%
Gross profit 100.00% 126.55% 168.40% 217.36% 276.89% 177.84%
Other income 100.00% 131.41% 68.61% 51.06% 183.03% 106.82%
126.60
  100.00% % 167.47% 215.79% 276.00% 177.17%
Operating expenses:            
Administrative, selling and
distribution expenses 100.00% 121.30% 160.56% 197.86% 244.40% 164.82%
133.31
Operating Profit 100.00% % 176.21% 237.42% 312.13% 191.81%
Gain/(or loss) on disposal of
property, plant and equipment 100.00% 23.75% 187.30% 119.55% -708.17% -55.51%
Interest on overdraft 100.00% 151.83% 173.13% 204.37% 374.59% 200.78%
Other expenses 100.00% 180.71% 206.34% 250.45% 282.20% 203.94%
Contribution to WPPF 100.00% 130.65% 176.30% 241.97% 308.22% 191.43%
130.71
Profit before tax 100.00% % 176.38% 241.05% 303.75% 190.38%
             
Tax expenses:            
Current tax 100.00% 136.64% 156.56% 193.31% 247.00% 166.70%
Deferred tax 100.00% 116.31% 324.23% 480.76% 565.73% 317.41%
  100.00% 135.26% 167.95% 212.84% 268.65% 176.94%
Net profit after tax for the 128.94
year 100.00% % 179.66% 253.80% 323.80% 197.24%

12
             
103.15
Basic Earnings per share 100.00% % 114.98% 13.00% 16.58% 69.54%

13
c) Forecasted Income statement and the balance sheet: Here we forecast the upcoming two years income statements and balance sheet
by using percentage of sales method.

Renata Limited
Forecasted Income Statement
for the year ended

31st Dec, 2011 % of sales 31st Dec, 2012 31st Dec 2012
6,51,96,39,234.0 8,25,71,23,090.0 10,45,76,46,393.0
Turnover 0 0 0
-3,09,93,55,955.0 -3,92,54,36,316.9 -4,97,15,65,095.2
Cost of sales 0 47.54% 9 3
3,42,02,83,279.0 4,33,16,86,773.0 5,48,60,81,297.7
Gross profit 0 1 7

Operating expenses:
Administrative, selling and -1,70,29,13,272.0 -2,15,67,60,551.1 -2,73,15,37,237.8
distribution expenses 0 26.12% 1 5
1,71,73,70,007.0 2,17,49,26,221.9 2,75,45,44,059.9
Operating profit 0 1 2
2,14,77,196.0 2,72,48,506.2 3,45,10,233.1
Other income 0 0.33% 0 0
Gain/loss on disposal of -35,18,170.0
property, plant and equipment 0 - -
-21,53,15,416.0 -27,24,85,061.9 -34,51,02,330.9
Interest on over draft 0 3.30% 7 7
-92,34,832.0 -1,15,59,972.3 -1,46,40,704.9
Other expenses 0 0.14% 3 5
 -7,19,41,847.0 -9,08,28,353.9 -11,50,34,110.3
Contribution to WPPF 0 1.10% 9 2
1,43,88,36,938.0 1,82,73,01,339.8 2,31,42,77,146.7
Profit before tax 0 2 7

Tax expenses
-30,08,77,218.0 -44,62,26,987.1 -56,51,46,479.2
Current tax 0 8 4
-5,02,40,589.0 -5,02,40,589.0 -5,02,40,589.0
Deferred tax 0   0 0
-35,11,17,807.0 -49,64,67,576.1 -61,53,87,068.2
0   8 4
Net Profit after tax for the 1,08,77,19,131.0 1,33,08,33,763.6 1,69,88,90,078.5
year 0   4 3

15
 Forecasted Forecasted
Forecasted Balance Sheet 2011 % of Sales 2012 2013
Taka Taka Taka
Assets:
Current Asset 2,464,125,653 37.8 3121192528 3952990337
Fixed Asset 5,227,476,247 NA 5227476247 5227476247
Total Assets 7,691,601,900   8348668775 9180466584

Liabilities:
Current Liabilities 3,385,850,284 51.93 4287924021 5430655772
Long-term Liabilities 347,143,580 NA 347143580 347143580
Total Liabilities 3,732,993,864 4635067601 5777799352

Shareholders' Equity:
Common Stock 225,935,000 NA 225,935,000 225,935,000
Revaluation surplus 158,434,421 NA 158434421 158434421
Tax holiday reserve 131,443,579 NA 131443579 131443579
Retained Earnings 3,442,795,036 NA 3,442,795,036 3,442,795,036
Total Equity 3,958,608,036   3958608036 3958608036
Total Liabilities and
Equity 7,691,601,900   7691601900 7691601900
 3. Ratio Analysis
Liquidity Ratio:

Title Formula 2011 2010 2009 2008 2007 IA

Current
Current 1.38 1.68
Asset/Curren 0.73 1.11 1.17 1.15
Ratio times times
t Liabilities times times times times

Current
Quick Test asset- 0.45 0.93
0.26 0.42 0.40 0.42
or Acid Test Inventories/ times times
times times times times
Ratio Current
Liabilities

Current
Working Asset- TK. - TK.2121 TK.233 TK.1926 TK.27 TK.1,432,
Capital Current 921724631 21218 379831 78136 10241 728,099
Liabilities 70
Days in
Inventory +
Average
Cash
collection 242 203da 103 days
Conversion 216 days 227 days 241 days
period- days ys
Cycle
Average
payment
period

17
 Current ratio
1.6

1.4
1.38
1.2
1.15 1.17
1 1.11
Times

0.8

0.6 0.73

0.4

0.2

0
2007 2008 2009 2010 2011

Current ratio industry(2011)

3

2.5

1.5
Tim es

2.7
1 2.51
1.31
0.5 1.14 1.68
0 0.73
ACI
Beximco Pharma
Reckitt
Glaxo Smith
Renata
Industry Average

18
 Quick Ratio
0.5
0.45
0.47
0.4 0.42 0.42
0.4
0.35
0.3
Times

0.25
0.26
0.2
0.15
0.1
0.05
0
2007 2008 2009 2010 2011

Quick ratio industry(2011)

2
1.8
1.6
1.4
1.2
1
Tim e s

1.83
0.8
0.6 0.98
0.4
0.95
0.2 0.63
0.93
0
ACI 0.26
Beximco Pharma
Reckitt
Glaxo Smith
Renata
Industry Average

Working capital
400000000

200000000
271024170
233379831 212121218
192678136
0
2007 2008 2009 2010 2011

-200000000
Taka

-400000000

-600000000

-800000000

-1000000000 -921724631

19
 Working Capital industry(2011)
12,000,000,000

10,000,000,000

8,000,000,000

6,000,000,000 11,638,873,834
Take

4,000,000,000

2,000,000,000 4,500,300,765

0
101,654,657
ACI 1,086,606 1,432,728,099
Beximco Pharma
Reckitt
-2,000,000,000 Glaxo Smith -921,724,631
Renata
Industry Average

Cash conversion ratio

250

240
241 242
230
227
220
Days

210 216

200203

190

180
2007 2008 2009 2010 2011

20
 Cash Conversion on Cycle industry (2011)
250

200

150

100 203
153
216
50
Days

0 103
32
ACI
Beximco Pharma
-50 Reckitt
-91 Glaxo Smith
Renata
-100 Industry Average

Interpretation of Current Ratio: In 2011, the current assets of Renata were 0.73 times higher
than its current liabilities. In 2008 the ratio decreased but in 2009, the ratio increased. Then again
in 2010 and 2011 it dropped.

 The ratio is much lower than the industry average and this is not favorable.
 The proportionate change in CA from 2010 to 2011 was lower than the proportionate
change in CL from 2010 to 2011.
Interpretation of Quick Ratio:
 In 2011 current asset excluding inventories of Renata was 0.26 times its current
liabilities. From 2007 to 2010, the ratio was almost same but in 2011 it decreased.
 The quick ratio is less than half the value of industry average (IA) and this is not
favorable.
 The proportionate change in CA excluding inventories from 2010 to 2011 was lower than
the proportionate change in CL from 2010 to 2011.

Interpretation of Working Capital:

 In 2011, the company had TK.-921724631 worth of current asset for operating the
business after paying all the current liabilities.

21
  The working capital was almost same through 2007 to 2010. It did not have much
fluctuation during this period. But in 2011 it decreased significantly.

 This ratio is much lower than the industry average and this is definitely not favorable for
the company.

Interpretation of Cash Conversion Cycle:

On an average in the year 2011 this company took 216 days to recover its cash investments.

 Cash Conversion Cycle seems very much unsteady through the last 5 years. It increased
from 2007 to 2009; then continiously descreased through last 2 years.
 Though the cash Conversion Cycle of this company has decreased from year 2010 to
2011 which is good for the company we cannot say that the is in a good position because
this is still much higher than the Industry Average which is unfavorable for the company

22
 Asset management ratio

Title Formula 2011 2010 2009 2008 2007 IA

Inventory
COGS/Inven 1.96 1.85 1.69
Turnover 1.59 1.96 2.59
tories times times times
Ratio times times times
Total Asset
Sales/Total 1.27 0.99 1.01
Turnover
asset times times times 0.98 1.18 1.25
Ratio
times times times
Fixed Asset
Sales/Fixed 1.25 1.67 1.77
Turnover
Asset times times times 1.87 2.17 4.70
Ratio
times times times
Account
Days Sales
Receivable/( 36 days 35 days 32 days
Outstanding 41days 28days 30days
Sales/365)
Average Account
Payment payable/(CO 6 days 5 days 6 days 30 days
Period GS/365) 11days 76days

23
 Inventory Turnover
2.5

2
1.96 1.96
1.85
1.5 1.69
1.59
Times

0.5

0
2007 2008 2009 2010 2011

Inventory Turnover Ratio Industry(2011)

3.5

2.5

1.5 3.02
3.23
Times

2.97
1
1.79
2.59
0.5 1.96

0
ACI
Beximco Pharma
Reckitt
Glaxo Smith
Renata
Industry Average

24
 Fixed Asset Turnover
2.5

2.17
2

1.87
1.77
1.5 1.67
Times

1.25
1

0.5

0
2007 2008 2009 2010 2011

Fixed Asset Turnover Ratio Industry(2011)

10
9
8
7
6
5
9.86
9.85
Times

4
3
2
2.06
1
4.7
0 0.5
ACI 1.25
Beximco Pharma
Reckitt
Glaxo Smith
Renata
Industry Average

25
 Day's Sales Outstanding
45
40
41
35
35 36
30 32
2528
Days

20
15
10
5
0
2007 2008 2009 2010 2011

DAYS SALES OUTSTANDING INDUSTRIES (2011)

10
9
8
7
6
5
9.86
9.85
Times

4
3
2
2.06
1 4.7
0 0.5
ACI 1.25
Beximco Pharma
Reckitt
Glaxo Smith
Renata
Industry Average

26
 Average Payment Period
35

30
30
25

20
Days

15

1011

5 6 6
5
0
2007 2008 2009 2010 2011

Average Payment period industry (2011)

250

200

150

100
Days

206

50
107
15 47
0 76
ACI
Beximco Pharma 6
Reckitt
Glaxo Smith
Renata
Industry Average

Interpretation of Inventory Turnover Ratio:

 The Inventory Turnover Ratio for 2011 is 1.96 times which indicates that the company
has ‘sold out and restocked’ its inventory 1.96 times.

27
  The Inventory Turnover Ratio of this company for last 5 years was fluctuating.
 Total sales in 2011 of this company increased from 2010; on the other hand total
inventory also increased in 2011 from 2010. But relative change in sales was higher than
the relative change in inventory. For this Inventory Turnover Ratio increased in 2011.
 The Inventory Turnover Ratio of this company has increased from previous years but it
is below the Industry Average. So, though, the Inventory Turnover Ratio has increased
this year it is unfavorable for the company.

Interpretation of Total Asset Turnover Ratio:

 The Total Asset Turnover Ratio for 2011 is 1.27 times which indicates that the company
generates 1.27 Tk worth of sales using company’s every 1 Tk worth of Total Assets.
 The Total Asset Turnover Ratio of this company for last 5 years shows low fluctuation.
 The Total Asset Turnover Ratio increased in 2011 from 2010. Both the sales and total
assets increased in 2011 but the relative change in total sales was higher than relative
change in assets. For this total assets turnover ratio increased in 2011.
 The Total Asset Turnover Ratio of this company is almost same as Industry average. So,
it is favorable for the company.

Interpretation of Fixed Asset Tunover Ratio:

 The Fixed Asset Turnover Ratio for 2011 is 1.25 times which indicates that the company
generates 1.25 dollar worth of sales using company’s every 1 dollar worth of Fixed
Assets.
 The Fixed Asset Turnover of this company for last 5 years shows a lot of fluctuation.
The ratio decreased from 2007 to 2011; continuously.
 Both the sales and fixed assets of this company increased in the year 2011 but the
relative change in fixed assets is higher than relative change in sales. For this The Fixed
Asset Turnover ratio has decreased in the year 2011.

The Fixed Asset Turnover Ratio of this company is significantly below the Industry average. So,
it is unfavorable for the company.

28
Interpretation of Days Sales Outstanding:

 Days sales outstanding ratio for 2011 is 36 days which indicates the company took 36
days on an average to collect its accounts receivable.
 Days sales outstanding ratio seems stable through the last 5 years.
 Days sales outstanding ratio decreased in 2010 from 2009. Both sales and accounts
receivable increased in 2011 but the relative change in accounts receivable is higher
than relative change in sales. For this, days sales outstanding ratio has increased in 2011.

 Days sales outstanding ratio has incresed form previous years and higher the Industry
Average.So, it is unfavoralbe for the company.

Interpretation of Average Payment Period:

 Average payment period ratio for 2011 is 6 days which indicates the company took 6
days on an average to pay its accounts payable.
 Average payment period ratio seems steady through the last 4 years except 2007. It was
almost constant from 2010 to 2011.
 Average payment period ratio increased in 2011 from 2010. Both COGS and Accounts
payable of this company increased in 2010 but the relative change in Accounts payable is
higher than relative change in COGS. For this, Average payment period ratio has
increased in 2011.

 If we compare this period with the Average collection period we can see that this
company is taking 36 days on an average to collect its accounts receivable while it is
paying its accounts payable in 6 days on an average. This situation is bad for the
company. In this situation we can say that the company’s credit policy and paying policy
both are not that much well. The company should decrease credit sales and emphasize
more on cash sales. If the company goes for credit sales then the maximum collection
period should be 30 days. At the same time it should renegotiate with its suppliers to
extend its payment period.

29
  If we compare the Average payment period of this company with the Industry Average
we can see that it is much below the Industry Average. So, we can say the company’s
payment policies are in a good position.

Debt management Ratio:

Title Formula 2011 2010 2009 2008 2007 IA

Debt to (Total
48.53
Asset Debt/Total 42.10% 42.68% 47.43% 40.71% 49.70%
%
Ratio Asset)*100

Times
EBIT/Interes 7.98 11.12 9.74 8.40
Interest 9.57 25.41
t Expense times times times times
Earns times times

30
 Debt ratio
50

48 48.53
47.43
46

44
Times

42 42.68
42.1
40
40.71

38

36
2007 2008 2009 2010 2011

Dedt Ratio Industry(2011)

80%
70%
60%
50%
40%
Percentage

57% 73%
30%
20%
45% 49%
10% 25% 50%

0%
ACI
Beximco Pharma
Reckitt
Glaxo Smith
Renata
Industry Average

31
 Times Interest Earned Ratio (TIE)
12

11.12
10
9.57 9.74
8 8.4
7.98
Times

0
2007 2008 2009 2010 2011

Times Interest Earned Ratio Industry(2011)

120

100

80

60
Percentage

110.91
40

20
1.8 3.5
0 2.87
ACI 7.98 25.41
Beximco Pharma
Reckitt
Glaxo Smith
Renata
Industry Average

32
 Interpretation of Debt-to-Asset Ratio:

 In 2011, 48.53% of the total assets were financed by debt. From 2007 to 2008 the ratio
increased but, from 2008 onwards the ratio declined but in 2011 it again increased.
 The ratio was slightly below the IA
 From 2010 to 2011 the relative change of Total Debt is higher than that of Total Asset

Interpretation of Times Interest Earned (TIE)):

 In 2011, the company covered its interest expense 7.98 times.

 Over the years from 2007 to 2011 the TIE ratio was fluctuating
 It was much below the industry average.

Profitability Ratio:

Title Formula 2011 2010 2009 2008 2007 IA

(Gross 48.74 41.82

Gross profit margin 52.46% 52.75% 53.33% 50.60%
profit/sales)*100 % %

Operating profit
(EBIT/Sales)*100 26.34% 25.66% 24.85% 23.74% 21.71 17.21
margin
% %
(Net
Net profit margin 13.08% 16.75% 15.47% 14.02% 13.26 9.71
Income/Sales)*100
% %
(Net Income/Total
Return on asset(ROA) 14.14% 16.61% 15.67% 13.69% 15.59 9.83
asset)*100
% %
Operating return on
(EBIT/equity)*100 43.38% 43.96% 43.92% 44.13% 43.06 38.31
equity
% %
(Net
Return on Income/equity)*10 26.29 23.32
equity(ROE) 0 27.48% 28.69% 27.34% 26.06% % %

33
 Gross Profit Margin
54

53 53.33
52.75
52 52.46

51
Percentage

50 50.6

49
48.74
48

47

46
2007 2008 2009 2010 2011

Gross Profit Margin Industry (2011)

60.00%

50.00%

40.00%

30.00%
Percentage

48%
20.00% 37% 43% 52%

10.00% 42%
29%

0.00%
ACI
Beximco Pharma
Reckitt
Glaxo Smith
Renata
Industry Average

34
 Operating profit margin
30

25 26.34
24.85 25.66
23.74
20
21.71
Percentage

15

10

0
2007 2008 2009 2010 2011

Operating Profit Margin industry (2011)

30.00%

25.00%

20.00%

15.00%
Percentage

25.20%
10.00% 26.34%
11.36% 14.36%
5.00%
17.21%
8.80%
0.00%
ACI
Beximco Pharma
Reckitt
Glaxo Smith
Renata
Industry Average

35
 Net Profit Margin
18

16 16.75
15.47
14
14.02
13.26
12 13.08

10
Percentage

0
2007 2008 2009 2010 2011

Net Profit Margin Industry (2011)

16%
14%
12%
10%
8%
15.19%
Percentage

6%
8.00% 13.08%
4%
2% 6.32% 9.71%
5.96%
0%
ACI
Beximco Pharma
Reckitt
Glaxo Smith
Renata
Industry Average

36
 Return On Asset (ROA)
18

16 16.61
15.59 15.67
14
13.69 14.14
12

10
Percentage

0
2007 2008 2009 2010 2011

Return on Asset Industry (2011)

16.00%
14.00%
12.00%
10.00%
8.00%
Percentage

6.00% 12.84% 14.14%

4.00% 10.84%
6.14%
2.00% 5.20% 9.83%

0.00%
ACI
Beximco Pharma
Reckitt
Glaxo Smith
Renata
Industry Average

37
 Operating Return On Equity (ROE)
44.4
44.2
44 44.13
43.8 43.96 43.92
43.6
Percentage

43.4
43.2
43
43.06 43.06
42.8
42.6
42.4
2007 2008 2009 2010 2011

Operating Return on equity Industry(2011)

120.00%

100.00%

80.00%

60.00%
percentage

108%
40.00%

20.00%
20%
12% 29% 43%
0.00% 43%
ACI
Beximco Pharma
Reckitt
Glaxo Smith
Renata
Industry Average

38
 Return On Equity (ROE)
29
28.5 28.69
28
27.5
27.48
27 27.34
Percentage

26.5
26.29
26
26.06
25.5
25
24.5
2007 2008 2009 2010 2011

Return on equity ratio Industry(2011)

50.00%
45.00%
40.00%
35.00%
30.00%
25.00%
percentage

48%
20.00%
15.00%
10.00% 14% 27%
5.00% 20%
7% 23%
0.00%
ACI
Beximco Pharma
Reckitt
Glaxo Smith
Renata
Industry Average

39
Interpretation of Gross profit margin:

 In the year 2011, for every Tk100 of Sales, the company has a gross profit of
Tk52.46.
 When compared to the past four years, it can be concluded that the gross profit
margin has remained fairly stable.
 When compared to the industry average, it can be inferred that the company has a
gross profit margin above the industry average.

 The relative increase in gross Profit was greater than that of the sales

Interpretation of Operating profit margin:

 In the year 2011, for every Tk100 of Sales, the company incurs a operative profit of
Tk 26.34
 When compared to the last four year, it can be concluded that the operating profit has
margin has remained fairly stable. When compared to the industry average, it can be
inferred that the company has an operating profit above the industry average.

Interpretation of Net profit margin:

 In the year 2011, for every Tk100 of Sales, the company incurred a Net profit of Tk
13.08.
 When compared to the past three years, it can be concluded that the net profit margin has
slightly decreased.
 It can be seen that the net profit margin is above the industry average.

Interpretation of Return on Asset:

 In the year 2011, every Tk100 worth of Total asset generated a Net profit of Tk. 14.14.

40
  When compared to the past four years it can be seen that the ROA percentage has risen
from over the years till 2010 and then slightly declined in the year 2011. This is because
the relative change in Total asset was greater than relative change in Net profit.
 When compared with the company average, it can be concluded that ROA percentage of
2011 is above the company average.

Interpretation of Operating Return on equity:

 In the year 2011, the shareholders have earned Tk. 27.48 for every Tk. 100 of
investment.
 For the last five years, Operating Return on equity was almost same in every year.

 When compared to the industry average of 38.31%, it was found that the ROE is
above IA.

Interpretation of Return on equity:

 In the year 2011, the shareholders have earned Tk. 27.48 for every Tk. 100 of
investment
 For the last five years ROE slightly fluctuated.
 When compared to the industry average of 23.32%, it was found that the ROE is
above IA.

41
Stock market Performance ratio of Renata:

Ratio Formula 2011 2010 2009 2008 2007 IA

name

Earni Net profit tk.48.14 tk37.74 tk333.90 tk299.55 tk290.39 Tk.27.85

ngs after
Per tax/total
share number of
(EPS) common
share
Mark Market 6.88 times 9.87 6.77 6.78 Times 15.78 times
et to value per Times 9.86 Times
Book share/ Times
ratio Book value
per share

PE Price per 25.03 34.26 36.09 26.00 25.80 Tk.21.98

ratio share/EPS

**Bo Total tk.175.21 tk.131.52 Tk.1221.2 tk.1149.44 Tk.1104.44 Tk.111.29

ok Common 0
Value equity/Tota
per l Common
share Share
Calcu outstanding
lation

42
 Earning Per Share(EPS)
400

350

300 333.9
290.39 299.55
250

200
Taka

150

100

50
37.74 48.14
0
2007 2008 2009 2010 2011

Earning Per Share Industry(2011)

50
45
40
35
30
25
20
Taka

34.55 48.14
15
28.37
10
23.41
5 27.85
4.76
0
ACI
Beximco Pharma
Reckitt
Glaxo Smith
Renata
Industry Average

43
 Market to Book-value Ratio
12

10
9.86 9.87
8

6.78 6.77 6.88

Times

0
2007 2008 2009 2010 2011

Market to book value ratio Industry(2011)

60

50

40

30
Taka

56.8
20

10
0.85 13
0 1.38
ACI 6.88 15.78
Beximco Pharma
Reckitt
Glaxo Smith
Renata
Industry Average

44
 Price to Earning Ratio
40

35
36.09
34.26
30

25
25.8 26 25.03
Times

20

15

10

0
2007 2008 2009 2010 2011

Price to earning ratio Industry(2011)

30

25

20

15
27.3
Taka

28
10 19.66 25.03
21.98
5
6
0
ACI
Beximco Pharma
Reckitt
Glaxo Smith
Renata
Industry Average

45
 Book Value Per Share
1400

1200
1221.2
1149.44
1104.44
1000

800
Taka

600

400

200
175.21
131.52
0
2007 2008 2009 2010 2011

Book Value Per Share Industry(2011)

250

200

150
241.82
100
Taka

50 175.21
68.03
59.61 111.29
0
ACI 11.81
Beximco Pharma
Reckitt
Glaxo Smith
Renata
Industry Average

46
Interpretation of Earnings per Share:

 In 2011 the common shareholders have earned Tk48.14 for every share they held.
 When compared to the previous years, it can be said that the Earnings per Share has
fluctuated a lot.
 The company has its Earnings per Share above the industry average which is
Tk48.14.

Interpretation of Market Value to Book Value Ratio:

 Market to Book Value Ratio is 6.88 times times for 2011. Its indicate that the company has a
higher market value of its share.

 Market to Book Value Ratio seems unsteady each and every year from 2007 to 2011. It increased
gradually from 2009 to 2010 and decreased in 2011.

 Market to Book Value Ratio is lower than the industry average. So it is not favorable for the
company.

 Market to Book Value Ratio decreased in 2011 from 2010.Relative decreased of Company’s
Book Value was lower than relative change in market value from 2010.As a result the Market to
Book Value Ratio has deccreased in 2011.

Interpretation of Price to Earnings Ratio:

 In 2011, the shareholders were willing to pay Tk25.03 for each taka of reported
earnings.
 Price to earnings ratio fluctuates from 2007-2011.
 The price to earnings ratio of the company is higher than the industry average. We
know that price to earnings ratio is not good when it’s too high or too low. So it
shows that this sector is doing well for the company.

47
 4. Calculation and analysis of Risk and return:

4. Calculation and analysis of risk and returns of Renata Ltd and the Stock market
Year -2007
Date Closing price Return Date DSE General Index Return
January January
January 3,2007 3,201.50 9% January 3,2007 1583.08 12%
January 28,2007 3,500.50 January 28,2007 1,780.52
February February
February 1,2007 3,257.00 -2% February 1,2007 1,826.58 -2%
February 27,2007 3,200.00 February 27,2007 1,797.67
March March
March 1,2007 3,225.00 1% March 1,2007 1,794.02 -2%
March 29,2007 3,265.00 March 29,2007 1,760.88
April April
April 2,2007 3,250 10% April 2,2007 1,737.36 0%
April 30,2007 3,561.50 April 30,2007 1,743.33
May May
May 3,2007 3,646.50 -2% May 3,2007 1,762.36 14%
May 31,2007 3,591.25 May 31,2007 2,003.58
June June
June 5,2007 3,652.00 6% June 5,2007 2,006.83 7%
June 28,2007 3,857.00 June 28,2007 2,149.32
July July
July 2,2007 3,875.00 24% July 2,2007 2,190.46 9%
July 31,2007 4,808.75 July 31,2007 2,384.18
August August
August 1,2007 4,800.00 1% August 1,2007 2,394.11 3%
August 29,2007 4,860.50 August 29,2007 2,455.09
September September
September,2,2007 4,884.50 4% September,2,2007 2516.72 1%
September 5,069.00 September 30,2007 2548.49
30,2007
October October
October 1,2007 5,094.50 4% October 1,2007 2,627.02 9%
October 31,2007 5,304.25 October 31,2007 2,850.81
November November
November,1,2007 5,305.50 4% November,1,2007 2,836.32 5%
November , 5,947.00 November , 29,2007 2,971.11
29,2007
December December
December,2,2007 6,237.25 12% December,2,2007 2,878.74 5%
December, 7,491.25 December, 30,2007 3,017.21
30,2007

Year -2008
Date Closing price Date DSE General Index
January January
January,1,2008 7,793.75 -14% January,1,2008 3,008.91 -3%
January,31,2008 6,736.25 January,31,2008 2,907.17
February February
February 3,2008 6,858.50 4% February 3,2008 2,890.25 1%
February ,28,2008 7,143.25 February ,28,2008 2,931.38
March March
March,2,2008 7,677.00 17% March,2,2008 2,916.20 3%
March,31,2008 8,982.25 March,31,2008 3,016.49
April April
April, 1,2008 8,949.75 -1% April, 1,2008 3,025.57 2%
April, 30,2008 8,848.00 April, 30,2008 3,072.85
May May
May, 4,2008 9,342.00 -13% May, 4,2008 3,101.94 2%
May,29,2008 8,133.25 May,29,2008 3,167.99
June June
June,1,2008 8,130.50 -9% June,1,2008 3,207.89 -6%
June,30,2008 7,401.50 June,30,2008 3,000.50
July July
July,2,2008 7,359.75 -3% July,2,2008 3,029.24 -9%
July,31,2008 7,174.50 July,31,2008 2,761.05
August August
August,3,2008 7,181.25 2% August,3,2008 2,689.94 4%
August ,31,2008 7,309.00 August ,31,2008 2,791.21
September September
September ,1,2008 7,321.75 7% September ,1,2008 2,820.79 5%
September, 7,835.25 September, 25,2008 2,966.82
25,2008
October October
October,5,2008 7,847.75 -4% October,5,2008 3,001.37 -8%
October,30,2008 7,544.75 October,30,2008 2,748.60
November November

49
November,2,2008 7,439.50 2% November,2,2008 2,684.69 -8%
November , 7,587.00 November ,30,2008 2,468.92
30,2008
December December
December,1,2008 7,608.75 2% December,1,2008 2,517.05 11%
December,30,2008 7,789.25 December,30,2008 2,795.34

Year -2009
Date Closing price Date DSE General Index
January January
January 1,2009 7,748.25 2% January 1,2009 2,807.61 -6%
January 29,2009 7,865.50 January 29,2009 2,649.49
February February
February 1,2009 8,377.75 -6% February 1,2009 2,661.69 -3%
February 26,2009 7,889 February 26,2009 2,570.96
March March
March 1,2009 7,929.50 1% March 1,2009 2,626.27 -7%
March 31,2009 8,004 March 31,2009 2,446.92
April April
April 1,2009 7,932.50 2% April 1,2009 2,443.25 5%
April 30,2009 8,051.50 April 30,2009 2,554.36
May May
May 3,2009 8,015.00 -18% May 3,2009 2,539.17 1%
May 31,2009 6,602.75 May 31,2009 2,572.18
June June
June 1,2009 6,587.50 5% June 1,2009 2,597.00 16%
June 30,2009 6,944.50 June 30,2009 3,010.26
July July
July 2,2009 6,924.50 -3% July 2,2009 3,069.71 -5%
July 30,2009 6,732.75 July 30,2009 2,914.53
August August
August 2,2009 7,003.75 6% August 2,2009 2,941.02 0%
August 31,2009 7,423.50 August 31,2009 2,941.28
September September
September,1,2009 7,466.75 7% September,1,2009 2,950.12 5%
September 7,998.50 September 30,2009 3,083.89
30,2009
October October
October 1,2007 7,960.75 13% October 1,2007 3,123.24 8%
October 29,2009 8,981.25 October 29,2009 3,364.26
November November

50
November,1,2009 9,266.50 8% November,1,2009 3,392.02 29%
November,26,200 10,016.75 November,26,2009 4,380.95
9
December December
December,1,2009 9,843.50 22% December,1,2009 4,424.02 3%
December, 12,051.50 December, 30,2009 4,535.53
30,2009

Year -2010
Date Closing price Date DSE General index
January January
January 3,2010 12,009.75 10% January 3,2010 4,568.40 17%
January 31,2010 13,222.75 January 31,2010 5,367.11
February February
February 1,2010 13,165.50 -10% February 1,2010 5,451.15 2%
February 28,2010 11,860.50 February 28,2010 5,560.56
March March
March 1,2010 11,310.00 9% March 1,2010 5,567.40 0%
March 31,2010 12,290.00 March 31,2010 5,582.33
April April
April 1,2010 11,822.50 6% April 1,2010 5,594.32 1%
April 29,2010 12,590.00 April 29,2010 5,654.88
May May
May 2,2010 12,713.25 -2% May 2,2010 5,631.30 8%
May 31,2010 12,472.00 May 31,2010 6,107.81
June June
June 1,2010 12,073.25 -13% June 1,2010 6,152.39 0%
June 30,2010 10,468.75 June 30,2010 6,153.68
July July
July 4,2010 10,279.50 10% July 4,2010 6,217.08 2%
July 29,2010 11,257.75 July 29,2010 6,342.76
August August
August 1,2010 11,325.25 -2% August 1,2010 6,436.77 3%
August 31,2010 11,148.50 August 31,2010 6,657.97
September September
September,2,2010 11,149.75 -1% September,2,2010 6,774.87 5%
September 11,012.00 September 30,2010 7,097.38
30,2010
October October
October 3,2010 11,006.00 12% October 3,2010 7,223.49 10%
October 31,2010 12,315.00 October 31,2010 7,957.12
November November

51
November,1,2010 12,905.50 1% November,1,2010 7,947.80 8%
November , 12,997.50 November ,30,2010 8,602.44
30,2010
December December
December,1,2010 13,371.20 -3% December,1,2010 8,723.18 -5%
December, 12,942.80 December, 30,2010 8,290.41
30,2010

Year-2011
Date Closing price Date DSE General index

January January
January 2,2011 13,045.75 -5% January 2,2011 8,304.59 -10%
January 31,2011 12,417.75 January 31,2011 7,484.23
February February
February 1,2011 12,420.25 -16% February 1,2011 7,280.98 -29%
February 28,2011 10,474.50 February 28,2011 5,203.08
March March
March 1,2011 10,716.75 21% March 1,2011 5,601.60 13%
March 31,2011 13,015.75 March 31,2011 6,352.10
April April
April 3,2011 13,311.00 -7% April 3,2011 6,447.01 -6%
April 28,2011 12,427.25 April 28,2011 6,050.85
May May
May 2,2011 12,793.25 -17% May 2,2011 5,991.38 -4%
May 31,2011 10,656.25 May 31,2011 5,758.26
June June
June 1,2011 10,638.75 1% June 1,2011 5,668.68 8%
June 30,2011 10,695.25 June 30,2011 6,117.23
July July
July 3,2011 10,658.00 8% July 3,2011 6,157.52 5%
July 31,2011 11,536.00 July 31,2011 6,459.62
August August
August 1,2011 11,335.50 4% August 1,2011 6,367.60 -2%
August 25,2011 11,782.00 August 25,2011 6,212.00
September September
September,4,2011 11,981.25 10% September,4,2011 6,193.08 -5%
September 13,229.00 September 29,2011 5,910.20
29,2011
October October
October 2,2011 13,321.25 -5% October 2,2011 5,901.74 -15%
October 31,2011 12,662.50 October 31,2011 5,036.50

52
November November
November,1,2011 12,418.25 2% November,1,2011 5,205.17 1%
November , 12,696.00 November ,30,2011 5,268.55
30,2011
December December
December,4,2011 1,294.90 -7% December,4,2011 5,161.23 2%
December, 1,205.00 December, 29,2011 5,257.61
29,2011
Monthly Monthly
Average Return of Renata 2% Average Return of Market 2%
Standard   9% Standard Deviation Of market 9%
Deviation
Annual Return 24% Annual Return of 24%
of Renata Market

Returns over the Period:

    Return Over The Period

  Monthl Monthly  
y
  Renata Return Market
Return
  9%   12%  
  -2% -2%  
  1% -2%  
  10% 0%  
  -2% 14%  
  6% 7%  
  24% 9%  
  1% 3%  
  4% 1%  
  4% 9%  
  4% 5%  
  12% 5%  
  -14% -3%  
  4%   1%  
  17%   3%  
  -1% 2%  
  -13% 2%  

53
  -9% -6%  
  -3% -9%  
  2% 4%  
  7% 5%  
  -4% -8%  
  2% -8%  
  2% 11%  
  2% -6%  
  -6% -3%  
  1% -7%  
  2% 5%  
  -18% 1%  
  5% 16%  
  -3%   -5%  
  6% 0%  
  7% 5%  
  13% 8%  
  8% 29%  
  22% 3%  
  10% 17%  
  -10% 2%  
  9% 0%  
  6% 1%  
  -2% 8%  
  -13% 0%  
  10% 2%  
  -2% 3%  
  -1% 5%  
  12% 10%  
  1% 8%  
  -3% -5%  
  -5% -10%  
  -16% -29%  
  21% 13%  
  -7% -6%  
  -17% -4%  
  1% 8%  
  8% 5%  
  4% -2%  
  10% -5%  
  -5% -15%  

54
   2% 1%  
  7% 2%  
Standar 9% Standard 9%  
d
Deviation Deviation  

Calculation of Beta:

BETA CalCulation
30%
25%
20%

f(x) = 0.53 x + 0.0115%

R² = 0.25 BETA CalCulation
10%
Linear (BETA CalCulation)
5%
0%
-40% -30% -20% -10% 0% 10% 20% 30% 40%
-5%
-10%
-15%
-20%

From the Graph, our Beta is= 0.532. Here on the X axis we plotted the return of the market and
Y axis we plotted the return of the Renata Company limited. The slope is the Beta here.

Beta Calculation from regression analysis

SUMMARY OUTPUT

Regression Statistics
Multiple R 0.5007571
6
R Square 0.2507577
3

55
 Adjusted R 0.2378397
Square 6
Standard 0.0790583
Error 3
Observations 60

ANOVA
  df SS MS F Significanc
eF
Regression 1 0.1213264 0.121326 19.41 4.60553E-
4 2 05
Residual 58 0.3625127 0.006250
2
Total 59 0.4838391      

  Coefficien Standard t Stat P- Lower 95% Upper Lower Upper

ts Error value 95% 95.0% 95.0%
Intercept 0.0108393 0.0104357 1.038672 0.303 - 0.031728 - 0.031729
2 3 0.01005009 7 0.010050
6 1
X Variable 1 0.5322335 0.1208015 4.405853 5E-05 0.29042314 0.774044 0.290423 0.774044
7 3 9 1

Here The Beta is,β= 0.532 which is same as the graph.

Risk-free rate of Return:

According to the website of Bangladesh bank, the last issued Treasury bill has a cut off yield of
11.39%. It is a 91 days treasury bill and the no. of accepted bid for the Treasury bills is 6, so
according to the calculation:

(11.39X365)÷ (91X6) =7.61%

Average market return (Rm) 24%

56
 Risk free rate of return 7.61%
Beta, β 0.532
Risk premium (Rm-Rf) 16.39%
Required rate of return, yearly, Ke=(Rf+ 16.33%
(Rm-Rf)* β

6. WACC Calculation of Renata:

Total debt and equity of Renata=Tk. 7,691,601,900

Total Equity=3,958,608,056

Total Debt=3,732,993,864

Percentage of equity=3,958,608,056/7,691,601,900

=51.46%

Percentage of Debt=3,732,993,864/7,691,601,900

=48.54%

Capital Structure=Equity (51.46%) + Debt (48.54%)

= Total=100%
Formula to calculate WACC:

WACC=Wd X Kd X (1-T) + We X Ke

From Previous Calculation we got, Ke=16.33%

The Weight of Equity=We=51.46%

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The weight of Debt=Wd=48.54%

Tax rate = Tax paid/ Profit before Tax

=351,117,807/1,438,836,938

=24.40%

Cost of Debt=Total Tax Expense (From Income Statement)/Bank loan

=351,117,807/2, 402, 992758=14.61%

WACC= Wd X Kd X (1-T) + We X Ke

=.4854 X .1461 X (1-.2440) + .5146 X .1633

=5.36% + 8.4%

=13.76%

Optimum Capital Structure:

V= EBIT (1-T) ÷WACC

Four Combinations of Debt and Equity:

Debt Equity WACC

Original Debt=48.54% Original Equity=51.46% 13.76%

60% 40% 13.16%

40% 60% 14.22%
35% 65% 14.50%
50% 50% 13.70%

V1= EBIT (1-T)/WACC=1,717,370,007 (1-.2440)/.1376

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 =TK.9, 435.55mn

V2=1,717,370,007 (1-.2440)/.1316

=Tk.9, 865.74mn
V3=1,717,370,007 (1-.2440)/.1422

=Tk.9130.32mn

V4=1,717,370,007 (1-.2440)/.1450

=Tk.8954.01mn

V5=1,717,370,007 (1-.2440)/.1370

=Tk.9, 476.87mn

So, the highest value of the firm came from the 60% of Debt and 40% of Equity Structure

So, the optimum structure should be= 60% Debt +40% equity. Here this value came out form the
lowest assuming WACC which is 13.16%

7. Stock Valuation of Renata:

Intrinsic Value:
The value of 5 years dividend paid is given below:

years 2007 2008 2009 2010 2011

Dividend paid 39,472,951 47,511,431 57,051,213 85,555,885 85,372,340
Dividend Per Share Tk.34.12 Tk.32.86 Tk.31.56 Tk.3.79 Tk.3.78
(DPS)
EPS (TK.) Tk.290.39 Tk.299.55 Tk.333.90 Tk.37.74 Tk.48.14

59
  From 2009 to 2010 The EPS and The DPS Changed due to Stock Split.

Growth Rate Calculation:

Method 01:

Ending Dividend−Beginning Dividend

Growth Rate = x 100
Beginning Dividend

2007-2008 2008-2009 2009-2010 2010-2011 Average

Growth rate -3.69% -3.96% -88% -0.26% -24%

Method 02:

PV = Tk.34.12
FV = Tk.3.78
N = 4years
g = ?

FV = PV (1+i)n

3.78= 34.12 (1+i) 4

g = -42.31%

Method 03:

3) G= (1- Dividend Payout ratio) X ROE

For 2007, g= (1 –DPS/EPS) * ROE= (1-34.12/290.39)X.2629=23.20%

For 2008, g= (1 –DPS/EPS) * ROE= (1-32.86/299.55)X.2606=23.21%

For 2009, g= (1 –DPS/EPS) * ROE= (1-31.56/333.90)X.2734=24.76%

For 2010, g= (1 –DPS/EPS) * ROE= (1-3.79/37.74)X.2869=25.80%

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For 2011, g= (1 –DPS/EPS) * ROE= (1-3.78/48.14)X.2748=25.32%

Average g=24.46%

Average 3 Method= -13.95%

Here Do (2011) = Tk 3.78/per share

Dividend in the year 2012, D12 = 3.78(1-0.1395) = Tk.3.25/share Here g=-13.95%

Dividend in the year 2013, D13 = = Tk.3.25 (1-0.1395), = Tk 2.80/share g= -13.95%

Dividend in the year 2014, D14 = = Tk.2.80 (1-0.1395), = Tk 2.40/share g= -13.95%

From 2013 we, assume that the growth rate will constant and it will be 4% thereafter.

g=4% (assumed)

Ke=16.33%

2011 2012 2013 2014

| | | |
g = -13.95% g = -13.95% gC = 4%
Tk.3.78 Tk.3.25 tk.2.80 tk.2.40

2 3
Calculation, Po=3.25/ (1+.1633) +2.80/ (1+.1633) + 2.40/ (1+.04)

So the Intrinsic value= Tk.7/ share.

Interpretation:
Here, the intrinsic value of the Renata’s share is tk.7.This value is basically a theoretical value. If
we follow this value, we have to try to purchase this share below 7 taka form the market and sell
this share when it become above tk,7.

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 7. Corporate value model of Renata:
If Renata will not pay any kind of dividend in future to shareholders then, investors can use the
corporate value model to find out the intrinsic value of the share of the company

Formula to calculate free cash flow

Free cash flow= Net income+ depreciation-change in working capital- change in capital
spending

For our project, change in capital spending=0,

Then, free cash flow = Net income + depreciation- Change in Working capital

Free cash flow of 2011= 1,087,719,131+ 64,512,996-(-921,724,631-212121218)

= Tk. 2,286mn

Free cash flow of 2012=1,330,833,763+64,512,996-(-1,166,731,493+921,724,631)

=tk.1, 640mn

Free cash flow of 2013=1,698,890,078+64,512,996-(-1,477,665,435+1,166,731,493)

=Tk.2074mn

Ke=16.33%, g=5%

g=5%
Po=?? 1 2011 2 2012 3 2013 4 2014
Tk.2, 286mn Tk.1, 640mn Tk.2074mn

tk.1, 965mn
Tk.1, 211.88mn
Discounting with required rate=16.33% P3/Tv3=FCF4/Ke-g
tk. 1,317.45mn P3/Tv3=FCF3 (1+g)/ ke-g

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 Tv3=tk.19, 220mn
Tk. 12,208.95mn

Total value of the firm=tk.16, 703.28mn, Liabilities=5,777.80mn, Total equity=10,925mn, No. of

share=22,593,500 value per share=10,925mn/22,593,500= Tk.484 Per share.

8. DIVIDEND POLICY

Dividend Policy:

Dividend is the portion of earnings which is distributed among the

shareholders. Dividend policy determines the division of earnings between payment to
shareholders and retained earnings. In other words dividend policy is the policy a
company uses to decide how much it will pay out to shareholders in dividends. There are
three views of dividend policy:

1st view (“Dividend is Irrelevant”):

A theory that investors are not concerned with a company's dividend policy since they can sell a
portion of their portfolio of equities if they want cash. The dividend irrelevance theory
essentially indicates that an issuance of dividends should have little to no impact on stock price.
The key assumption is here “The Capital market should be perfect”.

2nd view (“High Dividend Increases the Share Price”):

The theory that says dividends are more predictable than capital gains
because management can control dividends, but they can’t dictate the price of the stock.
Thus, investors are less certain of receiving income from capital gains than from dividend
income. The incremental risk associated with capital gains relative to dividend income
should therefore cause us to use a higher required rate in discounting a dollar of capital
gains than the rate used for discounting a dollar of dividends. In so doing, we would give
a higher value to the dividend income than we would the capital gains.
3rd view (“Low Dividend Increases the Share Price”):
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 This view is based on the differential tax treatment of dividend income and
capital gains income. Stocks that allow us to defer taxes will possibly sell at a premium
relative to stocks that require us to pay taxes currently. Since high dividends hurt
investors, while low dividends-high retention help the firm's investors, low dividend
stocks should be more valuable.

Analysis of Renata’s Dividend compare to industry:

Dividend of Renata: Industry Average:2011

Dividend Per share-
For last year

2011-Tk.3.78/per share GlaxoSmithKline: Tk.20/per share

Square Pharmaceuticals:24.61 Per share

ACI Limited:Tk.8.57/ per share

Reckitt Benckiser:tk.20 /per share

Industry average:Tk.14 per share

So, Renata follows the low dividend policy. The theory for them is low dividend increase the
share price. They are basically paid dividend below the industry average.

Alternative dividend payment procedure:

Last Five years dividend policy of Renata:

Year Dividend Dividend Yield

2007 50% cash & 20% Stock 0.67

2008 50% cash & 25% Stock 0.65
2009 60% cash & 25% Stock 0.50
2010 60% cash & 25% Stock 0.46
2011 60% cash & 25% Stock 0.50

So, they follow the Percentage (%) procedure in terms of paying dividend.
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