dividend assignment report

Introduction:

Some financial analysts feel that the consideration of a dividend policy is irrelevant because

investors have the ability to create “homemade dividends”. These analysts claimed that this

income is achieved by individuals adjusting their personal portfolios to reflect their own

preferences. For example, investors looking for a steady stream of income are more likely to

invest in bonds (in which interest payments don't change), rather than a dividend-paying stock

(in which value can fluctuate). Because their interest payments won't change, those who own

bonds don't care about a particular company's dividend policy but again what about those

investors who interested in dividend-paying stock. Determining dividend policy has been one of

the most difficult challenges facing by financial economist. Somehow, we have not yet

completely understood the factors that influence dividend policy and the manner in which these

factors interact.

An Overview of Determining Dividend Policy:

The study on dividend policy decision according to Dr. Gurdep Chawala of National University,

California highlighted that dividend theories such as MM proposition, tax preference, and bird-

in-the-hand theories have presented wide ranging arguments from dividend irrelevance to low

dividends to high dividends. The argument is elaborate further on the dividend theory as stated

below.

MM Proposition Theory:

MM proposition theory emphasized that a company’s value depends on the types of investments

it makes, the associated business risk and the earnings which the company’s generated. The

argument from Merton Miller and Franco Modiglaini (MM) is that investors can generate their

own dividends by selling their stock and their arguments are valid under restrictive assumptions

which include : no personal or corporate income taxes, no flotation or transactions costs,

investors are indifferent between dividends and capital gains, companies’ dividend policies and

capital budgeting decisions are independent and availability of symmetric (or same) information

to investors and managers. Somehow, MM proposition has been challenged because of its

unrealistic assumptions.

Tax Preference Theory:

On tax preference theory, Litzenberger and Ramasamy highlighted that there are taxes in real

world and tax rates on capital gains have historically been lower than tax rates on ordinary

income . Taxes on capital gains can be postponed until realized (securities are sold) in future

years but ordinary income is taxed in current year. Therefore, investors prefer companies that

pay low or no dividends and postpone the distribution of earnings.

Bird-in-The-Hand Theory:

In contrast to MM proposition and Litzenberger and Ramaswamy favoring low dividends,

Gordon and Lintner have advocated high dividends. They have developed “bird-in-the-hand’

theory and argued that dividends paid during current period are more certain than promises for

capital gains and higher returns in future. They have further argued that investors are risk averse

and require higher returns for taking higher risk. This mean, a company paying low or no

dividends would experience higher cost of capital which would result in increased overall costs

in running their business and this will decreased their earnings thus lower stock prices.

Contradiction in Dividend Theory:

According to Dr. Gurdeep Chawla, MM have called Gordon and Lintner’s theory “bird-in-the-

hand” fallacy and acknowledged that stock prices increase as a result of more than expected

increase in dividends. They have claimed that, companies are usually reluctant to cut dividends

and, therefore, an increase in dividends indicates managers’ expectations about increased

earnings, increased cash flows, and better company performance in future.

MM have further stated that a company sends positive signal to market about its future

performance by increasing dividends and it leads to increase in stock prices. Changes in dividend

policy would make the company more or less appealing to different types of investors, impact

demand for its securities, and lead to change in stock prices.

Overall, these theories contradict each other and advocate different approaches to formulating

dividend policies. Somehow, according to Dr.Gurdep Chawla, empirical studies have been

conducted to evaluate the dividends theories but the results are inconclusive because the

difficulty in explaining the changes in stock prices which can be attributed to a number of

variables.

Companies’ Dividend Policy:

Dividend policy is the policy used by a company to decide how much it will pay out to

shareholders in dividends. After deducting expense from the revenue, a company generates

profit. Part of the profit is kept in the company as retained earnings and the other part is

distributed as dividends to shareholders. From the share valuation model, the value of a share

depends very much on the amount of dividend distributed to shareholders.

Dividends are usually distributed in the form of:

Cash dividends (most common) are those paid out in the form of a check. Such dividends

are a form of investment income and are usually taxable to the recipient in the year they

are paid. This is the most common method of sharing corporate profits with the

shareholders of the company. For each share owned, a declared amount of money is

distributed. Thus, if a person owns 100 shares and the cash dividend is $0.50 per share,

the person will be issued a check for 50 dollars.

Stock dividends are those paid out in form of additional stock shares of the issuing

corporation, or other corporation (such as its subsidiary corporation). They are usually

issued in proportion to shares owned (for example, for every 100 shares of stock owned,

5% stock dividend will yield 5 extra shares). If this payment involves the issue of new

shares, this is very similar to a stock split in that it increases the total number of shares

while lowering the price of each share and does not change the market capitalization or

the total value of the shares held.

Property dividends are those paid out in the form of assets from the issuing corporation

or another corporation, such as a subsidiary corporation. They are relatively rare and

most frequently are securities of other companies owned by the issuer, however they can

take other forms, such as products and services.

Other dividends can be used in structured finance. Financial assets with a known market

value can be distributed as dividends; warrants are sometimes distributed in this way. For

large companies with subsidiaries, dividends can take the form of shares in a subsidiary

company. A common technique for "spinning off" a company from its parent is to

distribute shares in the new company to the old company's shareholders. The new shares

can then be traded independently.

When a company distributes a cash dividend, it must have sufficient cash to do so. This creates a

cash flow issue. Profit generated may not be in the form of cash. Insufficient cash may mean the

company is unable to distribute a dividend. Investors earn returns from their shares in the form of

capital gains and dividend yield. Dividend yield is an important ratio in evaluating investment.

For example, if XTZ Bank distributed a $6.30 dividend per share in 2009 and if an investor

purchased shares in of that bank at $87 per share, the company’s dividend yield was 7.2%

($6.30/$87). Dividend payout ratio is another important indicator:

Dividend payout ratio = Dividend per share ÷ Earnings per share

This ratio indicates how much of the profit is distributed as dividend to shareholders. The higher

the dividend payout ratio, the more attractive the share is to shareholders. Dividend payout ratios

vary among companies. There are drastic differences between the dividend payout ratios in

different industries. The banking industry had a higher dividend payout ratio than property

developers. This is due to one important accounting issue. A large proportion of the profit earned

by property developers is not cash in nature, so these companies cannot distribute high

dividends.

Other factors in addition to profit and cash flow may influence the dividend level. In some

countries, dividends are taxable. The higher the dividend, the higher the tax an investor needs to

pay. In such cases, high dividends are not desirable. If a company is expanding, it needs to keep

sufficient cash for its plans rather than having to go to the equity or debt market to raise

additional finance.

Dividend policy is based on the answers to several important questions:

How much dividend should a company distribute to shareholders?

What will the impact of the dividend policy be on the company’s share price?

What will happen if the amount of dividend changes from year to year?

Common dividend policies are the stable dividend policy, constant payout ratio and residual

dividend policy.

In the stable dividend policy, management maintains a fixed dividend per share each

year. The impact on share pricing can be seen from the share valuation formula

P0 = D1/(r-g)

Where P0 is the current price,

D1 is the dividend in the coming year,

r is the required equity return and

g is the dividend growth rate.

If there is no growth in dividend, g=0, and P0 = D1/r.

After one year P1 = D1/r but D1 = D2.

Thus P1 = P2 and there is no growth in the share price.

In the constant payout ratio situation, management maintains a fixed percentage dividend

payout ratio. For example, both Esprit and Hong Kong Exchanges and Clearing have

indicated that they distribute about 80% and 90% of their profit respectively as dividends.

This provides clear direction to investors.

In a residual dividend policy, profits are used to fund new projects with the residual or

remaining profit distributed as dividends. If a company has a profit of $100 million and is

going to fund a new development project costing $60 million, the remaining $40 million

will be distributed as dividends. The calculations are slightly more complicated if the

company wants to maintain its target debt-equity ratio. Using the same example, assume

the target debt-equity ratio is 0.5. If the whole $100 million is kept in the company as

retained earnings, equity is increased by $100 million. To maintain the target debt-equity

ratio, the company must borrow an additional $50 million. If there is a new project

requiring $60 million, this sum is also funded using the same debt-equity ratio. That is,

the company needs to raise $20 million debt and $40 million equity. Since the profit is

$100 million, the amount of dividend distributed is $60 million ($100 million - $40

million).

Investors prefer steady growth of dividends each year and avoid investment to companies with

fluctuating dividend policy. Some companies reduced their dividends during weak economic

times but others were still able to maintain the same dividend per share. Dividend theory

includes an argument called dividend irrelevance which was proposed by two Noble Laureates,

Modigliani and Miller. They argued that if a company distributed high dividends now it may

reduce its dividends later and thus the total effect is zero in time value. For example, a company

may distribute a dividend of $1.1 per share and investors may expect it can maintain this

payment for some time. Eventually the company reduces its dividend to $0.89 per share and the

ultimate time value result is the same.

A sudden increase in dividend may not be a good sign. In an efficient market, investors are able

to distinguish between a genuine dividend increase and an artificial dividend increase. A

company must not cut a positive NPV project by paying dividends. Otherwise, dividends cannot

be maintained. It must not reduce its dividend as this may imply there are cash flow problems. A

company should try to pay dividends but at the same time maintain sufficient retained earnings

to avoid having to raise new finance. A company must never allow the distribution of high

dividend to be funded by borrowing money and worsening its debt-equity ratio. Finally, the

company should set a target dividend payout ratio which is constructive but which also depends

on the stability and prospects of the business.

On deciding the amount of dividend payment, a company determines the amount of payment

based on the residual dividend policy where a company uses internal equity (retained earnings)

to finance its projects first and then any leftover (residual) earnings are distributed to

shareholders in form of dividends. However, dividends tend to fluctuate under this policy

because dividends depend upon the capital budget and retained earnings of a particular year

which might change from year to year and this situation create more uncertainty for investors

and they demand higher returns for increased risk which raises companies’ cost of capital. In

addition, a decrease in dividends might send a negative signal to the market and adversely impact

stock prices. Therefore, the policy can be used for long-term planning but can not be strictly

implemented every year.

Importance of dividend policy:Shareholders look into the capability of companies to initiate a dividend. Dividends are

payments made by a company to a shareholder usually after a company earns a profit (Wikipedia

2007 [online]). Since dividends are money divided to shareholders after a profit, it is not

considered a business expense but a sharing of recognized assets among shareholders. Dividends

are either paid regularly or can be called out anytime. Consequently, a dividend policy is a set of

company rules and guidelines used to decide how much the company will pay out to its

shareholders.

A dividend policy is first known as a heavy factor in a company’s stock value. However, more

scholars are suggesting that corporate dividend policies do not matter and should not matter in a

company’s stock value. Arguments against dividend policies start from the fact that investors can

create their own dividends on other investment option. A wise investor can look at more stable

bonds to earn a return of investment rather than a dividend policy that can fluctuate. Secondly,

earning from dividends is taxed higher than capital gains. For these reasons, investors are not

lured to relative corporate dividend policies of companies as an accurate value of their stock.

Some companies believe that a no-dividend policy is just as sound as companies with a dividend

policy. Companies without a dividend policy can use their profit earnings to reinvest and expand

the company shares or buy assets. Having a dividend policy foregoes these opportunities.

For people who value profit certainty of a company, a sound dividend policy is important. It

follows that a high and regular corporate dividend policy means that companies have a

benchmark for doing well. Therefore, more dividends can equate to the overall health of the

company. Dividend policies are more valuable to small companies or cooperatives with excess

cash and a few good projects where the net present value of these projects is positive. Meanwhile

companies, without excess cash but have several good projects where NPV is also positive will

only derail the undertaking of current projects. While a good corporate dividend policy is equated

to excess cash, the value of the company is not hinged on the value of dividends as there are other

indicator’s of a company’s performance.

There are different kinds of dividend policies. First, residual dividend policy is a method of

distribution where dividends are paid after all the requirements for capital are met. Thus,

dividends are computed from the residual cash after spending on new capital goods. The aim of

this dividend policy is to decide if there is enough money left after all costs are met.

A cyclical policy or stable policy is a regular dividend payout usually given every quarter. A

cyclical dividend policy is set at a fixed fraction of quarterly earnings while a stable policy is set

as a fraction of yearly earnings. This produces certainty for investors that they get regular income

for their investments.

In the end, the value of dividend policies falls on investor decisions. While there are contrasting

views of its usefulness, the most important factor is achieving the best bang-for-buck.

The free cash flow theory of dividends:

Under this theory, the dividend decision is very simple. The firm simply pays out, as dividends,

any cash that is surplus after it invests in all available positive net present value projects.

A key criticism of this theory is that it does not explain the observed dividend policies of real-

world companies. Most companies pay relatively consistent dividends from one year to the next

and managers tend to prefer to pay a steadily increasing dividend rather than paying a dividend

that fluctuates dramatically from one year to the next. These criticisms have led to the

development of other models that seek to explain the dividend decision.

Dividend clienteles:A particular pattern of dividend payments may suit one type of stock holder more than another.

A retiree may prefer to invest in a firm that provides a consistently high dividend yield, whereas

a person with a high income from employment may prefer to avoid dividends due to their high

marginal tax rate on income. If clienteles exist for particular patterns of dividend payments, a

firm may be able to maximize its stock price and minimize its cost of capital by catering to a

particular clientele. This model may help to explain the relatively consistent dividend policies

followed by most listed companies.

A key criticism of the idea of dividend clienteles is that investors do not need to rely upon the

firm to provide the pattern of cash flows that they desire. An investor who would like to receive

some cash from their investment always has the option of selling a portion of their holding. This

argument is even more cogent in recent times, with the advent of very low-cost discount

stockbrokers. It remains possible that there are taxation-based clienteles for certain types of

dividend policies.

Information signaling:A model developed by Merton Miller and Kevin Rock in 1985 suggests that dividend

announcements convey information to investors regarding the firm's future prospects. Many

earlier studies had shown that stock prices tend to increase when an increase in dividends is

http://en.wikipedia.org/w/index.php?title=Kevin_Rock&action=edit&redlink=1

http://en.wikipedia.org/wiki/Merton_Miller

http://en.wikipedia.org/wiki/Marginal_tax_rate

http://en.wikipedia.org/wiki/Net_present_value

announced and tend to decrease when a decrease or omission is announced. Miller and Rock

pointed out that this is likely due to the information content of dividends.

When investors have incomplete information about the firm (perhaps due to opaque accounting

practices) they will look for other information that may provide a clue as to the firm's future

prospects. Managers have more information than investors about the firm, and such information

may inform their dividend decisions. When managers lack confidence in the firm's ability to

generate cash flows in the future they may keep dividends constant, or possibly even reduce the

amount of dividends paid out. Conversely, managers that have access to information that

indicates very good future prospects for the firm (e.g. a full order book) are more likely to

increase dividends.

Investors can use this knowledge about managers' behavior to inform their decision to buy or sell

the firm's stock, bidding the price up in the case of a positive dividend surprise, or selling it

down when dividends do not meet expectations. This, in turn, may influence the dividend

decision as managers know that stock holders closely watch dividend announcements looking for

good or bad news. As managers tend to avoid sending a negative signal to the market about the

future prospects of their firm, this also tends to lead to a dividend policy of a steady, gradually

increasing payment.

Practices of Dividend Policy in Bangladesh:

As Bangladesh is a developing country, the corporate culture is growing very slightly in our

country. Dividend policy is a major financing decision that involves with the payment to

shareholders in return of their investments. Every firm operating in a given industry follows

some sort of dividend payment pattern or dividend policy and obviously it is a financial indicator

of the firm. Thus, demand of the firm’s share should to some extent is dependant on the firm’s

dividend payment pattern. Many investors like to watch the dividend yield, which is calculated

as the annual dividend income per share divided by the current share price. The dividend yield

measures the amount of income received in proportion to the share price. If a company has a low

dividend yield compared to other companies in its sector, it can mean two things:

the share price is high because the market reckons the company has impressive prospects

and isn’t overly worried about the company’s dividend payments, or

the company is in trouble and cannot afford to pay reasonable dividends.

At the same time, however, a high dividend yield can signal a sick company with a depressed

share price. Dividend yield is of little importance for growth companies because, retained

earnings will be reinvested in expansion opportunities, giving shareholders profits in the form of

capital gains.

Objectives of the study:Dividend policy has been seen as the key financing decisions affecting the firm. This study looks

at the dividend policy of a sample of only following 5 out of 12 firms quoted on the Dhaka Stock

Exchange (under food sector) and examines the relationship between dividend policy and other

related variables over the fiscal years between 2002 and 2006:

AMCL (PRAN)

British American Tobacco Bangladesh Company Limited

Apex Foods Limited

Bangas Limited

Fu-Wang Foods Limited.

Methodology:The study was based on financial data and information collected from the ‘Annual Reports’ of

the five food sectorindustries of Bangladesh. The disclosure of information is inadequate. In

many cases we found that further explanation or elaboration was necessary to understand

financial data. In those cases we had to make assumption to calculate the different financial

ratios and multiples. Each student is assigned with analysis of one company and later on the

group data are used for the industry analysis.

Brief Overview of the Selected Companies:

I. AMCL PRAN:

PRAN stands for Programme for Rural Advancement Nationally.

“PRAN” is currently the most well known household name among the millions of people in

Bangladesh and abroad also. Since its inception in 1980, PRAN Group has grown up in stature

and became the largest fruit and vegetable processor in Bangladesh. It also has the distinction

of achieving prestigious certificate like ISO 9001:2000, and being the largest exporter of

processed agro products with compliance of HALAL & HACCP to more than 70 countries

from Bangladesh.

PRAN is the pioneer in Bangladesh to be involved in contract farming and procures raw

material directly from the farmers and processes through state of the art machinery at our

several factories into hygienically packed food and drinks products. The brand “PRAN” has

established itself in every category of food and beverage industry and can boost a product range

from Juices, Carbonated Drinks, Confectionery, Snacks, and Spices to even Dairy products.

Today, our consumers not only value “PRAN” for its authentic refreshing juice drinks products ,

but also for its mouth watering quality confectionery products with high visual appeal and

exciting texture. We intend to expand our presence to every corner of the world and strive to

make “PRAN” a truly international brand to be recognized.

The main items produced by AMCL PRAN are:

Juices Beverage Confectionary Drink Culinary Snacks Biscuits and Bakery Dairy

Some financial information:

Market Cap in BDT (mn) 1488

Authorized Capital in BDT (mn) 500

Paid-up Capital in BDT (mn) 80

Face value 100

Total number of securities 800,000

Reserve and surplus in BDT (mn) 217

Current Price Earning Ratio (P/E)

(Based on Continuing operation)

35

Listing year 1996

Category A

II. British American Tobacco Bangladesh Company Limited:

The company goals are “to grow our brands and the value of the business, to improve productivity and to embed the principles of corporate responsibility around the Group.” It is one of the first multinational company to invest in Bangladesh (in 1910). British American Tobacco Bangladesh, is the market leader in cigarette manufacturing companies in Bangladesh. BATB is a company faced with multifarious challenges of tobacco manufacturing industry.

British American Tobacco Bangladesh (BATB) is one of the pioneer cigarette manufacturers in the world. The company was formed at the turn of the 20th century with the objective of establishing a worldwide business. Today British American Tobacco sells the leading brands in over 30 markets covering 102 countries, has more than 200 brands worldwide, employs more than 55,000 people and produces some 2 billion cigarettes every day.

British American Tobacco Bangladesh Company Limited is one of the largest private sector enterprises in Bangladesh, incorporated under the Company’s Act 1913 on 2nd February 1972. BAT has over the decades consistently invested in Bangladesh market through Bangladesh Tobacco Company (BTC).





Face value 10

Total number of securities 60 million




16.8

Listing year 1977

Category A

III. Apex Foods Limited:

It is basically a shrimp and fish processing industry situated in Chittagong. EU, Japan and USA are the principal buyers of the shrimps and fish. The processing factory is in Fouzderhat, Chittagong. This is a sister concern of Apex group, a leading business group of Bangladesh.





Face value 100

Total number of securities 570240




53.08

Listing year 1981

Category A

IV. Bangas Limited:

Bangas Ltd is Established in 1980 and is a well known manufacturer and exporter of a wide array of delectable Biscuits, Noodles, chips etc. It is a public Limited company in Bangladesh. Presently the company is exporting products to Asia, USA & Europe.





Face value 100


Reserve and surplus in BDT (mn) 5.83



143

Listing year 1984

Category A

V. Fu-Wang Foods Limited:

It is a concern of Fu-Wang group and started its commercial operation in 1997. It is an ISO -9002 certified food and beverage processing industry. The main products are biscuits, cakes, chips, bread and other food items.





Face value 10


Reserve and surplus in BDT (mn) 53.38



44.86

Listing year 2000

Category A

Findings from Annual Report Analysis:

AMCL PRAN

Year Share EPS DPS OCF OCF/Share FCF FCF/

Share P/E Price NAVGrowth (%)

Sales Earnings

2002 800,000 54.26 25 54.5 68.13 -24.5 -30.63 6.9 375 312.8 11.86 2.38

2003 800,000 55.48 24 73 91.25 -21 -26.25 7.7 426 343.4 5.02 2.23

2004 800,000 50.39 24 136 170.0 105 131.3 13.3 671 362.3 2.92 -9.19

2005 800,000 50.96 26 134 167.0 58.6 73.25 7.7 401 386.6 2.97 1.17

2006 800,000 36.18 26 147 183.3 109 137.0 10.7 386 396.1 8.65 -29.02

Analysis:Total numbers of shares (800,000) do not change over the span of 5 years.

EPS is almost constant around (50 taka) expect in 2006. This is basically due to year long

political unrest and strikes and also intense competition and increase in raw materials of

the products.

Dividend varies over a narrow range of 24-26 taka. The company is following stable

dividend policy irrespective of earnings of the company.

Operative cash flow and hence OCF per share is constantly increasing over the years

from 68.13 taka to 183.3 taka. So, the cash from operative activities is increasing.

Free cash flow and hence FCF per share is also increasing over the period from -30.63

taka to 137.0 taka.

There is no regular trend in price earnings ratio. The highest value was seen in 2004 and

then it decreased.

Highest market price of share is also seen 2004. Then the price decreased.

Net asset value increased over the period at a constant moderate rate.

In every year, there was growth in sales but the magnitude varied from 2.92% to 11.86%

but in some years there were negative growth in earnings particularly in 2006. The

reasons are political unrest and increase in price of raw materials.

The share of sponsors in ownership structure remained unchanged at 42.75%. but share

of institutional investors reduced from 17.44% to 6.35% whereas the share of

general/public investors increased from 39.81% to 50.9%.

BATBCL

YearShare (ml) EPS DPS OCF

OCF/Share FCF

FCF/Share P/E Price NAV

Growth (%)

Sales Earnings

2002 60 16.52 11 1042 17.37 429 7.15 8.08 133.48 39.09 13.56 13.39

2003 60 14.52 10 651 10.85 -14 -0.23 10.43 151.44 38.48 8.29 -12.11

2004 60 11.22 10 715 11.92 298 4.97 8.33 93.46 38.7 6.21 -22.73

2005 60 3.88 3 1667 27.78 884 14.73 18.14 70.38 39.38 7.29 -65.38

2006 60 6.03 3 1181 19.68 488 8.13 13.95 84.12 42.4 19.06 55.36

Analysis:Total numbers of shares (60 million) do not change over the span of 5 years.

EPS is almost continuously reducing over the years. This is basically due to increase in

tax burdens and entrance of new brands of local cigarette manufacturing companies.

Dividend varies over a wide range of 3-11 taka. The company is a cash cow company. It

distributed dividend as per income. In 2002, when the EPS was very high, it gave 110%

cash dividend but as the earnings reduced over the period, in 2006, the company gave

only 30% cash dividend. But, this dividend is also high in comparison to most of the

listed manufacturing companies.

Operative cash flow and hence OCF per share did not show any specific trends. The

highest value is seen in 2005.

Free cash flow and hence FCF per share did not show any specific trends. The highest

value is also seen in 2005. In 2003, the FCF is negative.


then it decreased.

Highest market price of share is seen 2003. Although price earnings ratio in 2005 is

highest among these five years, price is lowest due to extremely low EPS in 2005.

Net asset value is almost constant within a narrow range of 38.48 to 42.4 taka.

In every year, there was growth in sales but the magnitude varied from 6.21% to 19.06%.

In most of the years there were negative growth in earnings particularly in 2005. The

reasons are increased competition from other cigarette manufacturer and increased tax

burden.

The share of sponsors in ownership structure remained unchanged at 65.91% but share of

institutional investors reduced from 31.65% to 28.51% whereas the share of


Bangas Limited

Year Share EPS DPS OCFOCF/Share FCF

FCF/Share P/E Price NAV

Growth (%)

Sales Earnings

2002 90000 11.17 12.5 2.6 28.89 1.76 19.56 20.14 224.96 148.19 8.55 -14.41

2003 90000 13.48 12.5 4.1 45.56 2.05 22.78 17.81 240.08 161.67 -11.9 19.8

2004 90000 2.82 12.5 6.5 72.22 -6.6 -73.22 10.82 30.51 150.74 4.98 122.31

2005 90000 7.07 12.5 8.7 96.67 8.18 90.89 33.72 238.40 144.06 2.15 -76.21

2006 90000 14.97 13 8.3 92.22 9.84 109.33 14.56 217.96 146.54 4.54 110.94


EPS is almost shown a sine curve pattern. First it increased, then dropped a lot and then

increased again.

Dividend varies over a narrow range of 12.5-13 taka. The company is following stable

dividend policy irrespective of earnings of the company.

Operative cash flow and hence OCF per share is constantly increasing over the years at a

good rate. In the year 2002, the OCF was 2.6 taka which rose to 8.3 taka in the year 2006.

Free cash flow and hence FCF per share increased every year except in the year 2004.


then it decreased.

Highest market price of share is seen 2003. Although price earnings ratio in 2004 is

moderate, price is lowest due to extremely low EPS in 2004.

Net asset value is almost constant within a narrow range of 144.06 to 161.67 taka.

In every year, except the year 2003, there was growth in sales but the magnitude varied

from 2.15% to 8.55%. The growth in earnings showed an erratic trend. In some years,

there were high positive growths which were followed by high negative growths.

The share of sponsors in ownership structure remained unchanged at 50.0% but share of

institutional investors increased from 23.3% to 25.2% whereas the share of general/public

investors reduced from 26.7% to 24.68%.

APEXFOODS LIMITED

Year Share EPS DPS OCF OCF/Share FCF FCF/

Share P/E Price NAVGrowth (%)

Sales Erngs

2002 570,240 14.92 12 -85 -149.4 -168.9 -296.1 18.88 281.69 635 15.3 -9.60

2003 570,240 22.75 12 -88 -154.3 -100.0 -175.4 15.1 343.53 646 32.44 52.40

2004 570,240 26.29 13 73.4 128.72 31.55 55.33 17.41 457.71 660 16.51 15.60

2005 570,240 22.77 15 33.5 58.75 -16.56 -29.04 15.21 346.33 680 -11.0 -13.4

2006 570,240 21.76 16 80.6 141.34 127.97 224.41 6.0 130.56 670 24.60 -4.40


EPS is almost shown a opposite U pattern. First it increased, and then decreased.

Dividend varies over a narrow range of 12.0-16.0 taka. The company is following almost

stable dividend policy irrespective of earnings of the company.

Operative cash flow and hence OCF per share was a great negative in the first two years.

Later on it improved a lot.

Free cash flow and hence FCF per share showed an erratic trend. They are negative in 3

years but it was exceptionally good in the year 2006.

There is no regular trend in price earnings ratio. Except the year 2006, the range was

small but in 2006, the P/E ratio dropped drastically.

Highest market price of share is seen 2004. Although EPS in 2006 was quite good, price

is lowest due to extremely low P/E ratio in 2006.

Net asset value is almost constant within a narrow range of 635-680 taka.

In every year, expect in the year 2005, there was growth in sales but the magnitude varied

from 15.3% to 32.44%. In most of the years there were negative growth in earnings but

the earnings growth in 2003 is exceptional.

The share of sponsors in ownership structure reduced from 41.4% to 36.44% and the

share of institutional investors reduced from 15.24% to 6.31% whereas the share of


FUWANG FOODS LIMITED

Year Share (ml) EPS DPS OCF OCF/

Share FCF FCF/Share P/E Price NAV

Growth (%)

Sales Erngs

2002 1.6 1.86 1.2 15.55 9.72 -1.32 -0.82 5.11 9.50 11.14 34.32 288.65

2003 1.6 1.62 1.2 37.3 23.31 28.68 17.93 6.97 11.29 11.18 22.47 45.43

2004 1.6 1.63 1.3 47.15 29.47 32.79 20.49 8.71 14.20 11.49 7.55 0.46

2005 1.6 1.65 1.5 31.9 19.94 -34.7 -21.68 8.55 14.11 13.14 14.05 1.15

2006 1.6 1.5 1.6 56.6 30.76 35.57 19.33 7.2 10.80 11.92 9.97 4.40

Analysis:Total numbers of shares (1.6 million) do not change over the span of 5 years.

EPS is almost constant over a narrow range of 1.5-1.86 taka.

Dividend varies over a narrow range of 1.2-1.6.0 taka (12% to 16%). The company is

following almost stable dividend policy and it is comparable with the earnings of the

company.

Operative cash flow and hence OCF per shares almost showed a sine curve pattern. First

it increased, then dropped and increased a lot again.

Free cash flow and hence FCF per share did not show any specific trends. The highest

value is also seen in 2006. In the year 2002 and 2005 , the FCFs are negative.


then it decreased.

Highest market price of share is seen 2004. Although EPS in 2002 was the highest among

these five years, price is lowest due to extremely low P/E ratio in 2002.

Net asset value is almost constant.

In every year, there was growth in sales but the magnitude varied from 7.55% to 34.32%.

The company showed extra ordinary earnings growth of 289% in the year 2002. The

reasons were not increasing administrative cost with increased sales and reduced tax

holiday reserve than the previous year. However, the company could not continue high

growth trends and it came down to only 0.46% in 2004.

The share of sponsors in ownership structure remained almost unchanged from 39.46% to

39.33% but share of institutional investors increase from 2.07% to 12.32% whereas the

share of general/public investors reduced from 58.47% to 48.35% over the span of these

five years.

Conclusion:

The dividend policy of a company determines what proportion of earnings is distributed to the

shareholders by way of dividends, and what proportion is ploughed back for reinvestment

purposes. Since the main objective of financial management is to maximize the market value of

equity shares, one key area of study is the relationship between the dividend policy and market

price of equity shares.

dividend assignment report

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