1.

PREFACE
It is great pleasure to work on our own chosen topic Investment and Security Analysis at work on our chosen company Beximco Synthetic Company.During the preparation of this report we had great support from the companys financial manager. Without his help it would be difficult to prepare our report. In this report we have taken the judgment of the persons regarding our topic. Here we have tried to compare the behavior of the other companies lying in the same categories. We have taken certain consideration into our minds, of course from the book, and gathered information regarding those considerations. All of the information in the size of a report is described in the following part. Here before beginning the report we would like to thank our honorable course teacher Lubna Rahman for giving us the chance to exercise our bookish knowledge in the practical field. When we were working on this report we faced some advantages, disadvantages, limitations, and used some methodologies which are shown below:

1.1 ORIGIN OF THE REPORT

This report, entitled Investment &Security Analysis: Beximco Synthetic Company , is prepared for Lubna Rahman, lecturer, Department of Finance, University of Dhaka. The report is being submitted to fulfill the partial requirements of the course Investment & Security Analysis, F-307. It will provide a brief perception about the effective finance concept.

1.2 OBJECTIVES
We have prepared the report for some definite purposes. Those purposes are photographed beneath as, To find out the required rate of return for the investment To gather some knowledge about environment for investment whether it is favorable or not. To identify the threat and opportunities of the company through industry analysis To identify the financial strength of the company through ratio analysis To be acquainted with various valuation techniques To decide whether we should invest our selected company or not.

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1.3 LIMITATIONS
Lack of information due to the policy of the authors not to publish information Inadequate knowledge on contemporary terms of the companys business representatives. Insufficient time due to the final examination, Financial problems due to the inability of the group members, Insufficient published information

1.4 METHODOLOGY
This report consists of several references from the book, journal and article. Tables are used to express the information Reference is used at the end of the main body as endnotes. For diagram we have taken help of other software other than MS Word.

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2. INTRODUCTION
Investment is a commitment of funds for a period of time to derive a rate of return that would compensate the investor for the time during which the funds are invested, for the expected rate of inflation during the investment horizon and for the uncertainty involved.

2.1 DETERMINANTS OF RATE OF RETURN

Real Risk-Free Rate Nominal Risk Free Rate Risk premium

Real Risk-Free Rate: The real risk-free rate is the basic interest rate assuming no inflation and no uncertainty about future flows. An investor in an inflation free economy who knew with certainty what cash flows he or she would receive at what time would demand the RRFR on an investment. RRFR depends on time preference and investment opportunities available in the economy. The investment opportunities in turn are determined by the long-run real growth rate of the economy. RRFR is also referred to as pure time value of money.

Nominal Risk-Free Rate: Nominal rates of interest that prevail in the market are determined by real rates of interest, plus factors that will affect the nominal rate of interest such as the expected rate of inflation and the monetary environment.

NRFR = (1+ RRFR)(1+ IR) 1

Risk Premium: Most investors require higher rates of return on investments if they perceive that there is any uncertainty about the expected rate of return. This increase in the required rate of return over the NRFR is the risk premium (RP). Although the required risk premium represents a composite of all uncertainty, it is possible to consider several fundamental sources of uncertainty including: 1) Business risk, 2) Financial risk, 3) Liquidity risk, 4) Exchange rate risk, 5) Political or Country risk.

Risk Premium = f(Business Risk; Financial Risk; Liquidity Risk; Exchange Rate Risk; Country Risk)

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2.2 COMPANY PROFILE

Beximco Synthetics Limited (the "Company") a member of the BEXIMCO Group, was incorporated in Bangladesh as a public limited company. It went for public issue of shares and debentures in 1993 and commenced commercial operation in July 1994. The shares of the Company are listed in the Dhaka and Chittagong stock exchanges of Bangladesh and the debentures of the Company are listed in the Dhaka Stock Exchange of Bangladesh. The registered office of the Company is located at House No.17, Road No.2, Dhanmondi Residential Area, Dhaka-1205. The industrial unit is located at Kabirpur, Savar, Dhaka. The principal activities of the Company are manufacturing of Polyester Filament Yarn namely, Partially Oriented Yarn (POY) and Draw Texturized Filament Yarn (DTFY) and sales thereof. The Company employed 408 employees as of 31 December 2008.

Other information

Listing Year
Market Category Electronic Share Share Percentage: Remark

1993

A
Y

Sponsor/Director Govt.0 Institute 35.67 8.84

Foreign 0.02

Public 55.47

1. The Face Value of the securities has been changed into TK 10. The No. of Shares, Market Lot, EPS, NAV and DPS have been changed accordingly. 2. TK 1,329,335,883 Revaluation Surplus has been added to Reserve and Surplus.

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2.3 COST OF CAPITAL CALCULATION

Beximco Synthetic Company Cost of Capital Calculation
Month January(2006) February March April May June July August September October November December January(2007) February March April May June July August September October November December January(2008) February March April May June July August September October General Index 1,643.34 1,531.43 1,491.77 1,361.27 1,355.04 1,339.52 1,406.81 1,587.08 1,562.53 1,541.65 1,527.29 1,609.51 1,805.12 1,791.54 1,760.88 1,743.33 2,003.58 2,149.32 2,384.18 2,455.08 2,548.49 2,850.81 2,971.11 3,017.21 2,907.17 2,931.38 3,016.49 3,072.85 3,167.99 3,000.49 2,761.05 2,791.20 2,966.82 2,748.60 %-Change (Index) (0.07) (0.03) (0.09) (0.00) (0.01) 0.05 0.13 (0.02) (0.01) (0.01) 0.05 0.12 (0.01) (0.02) (0.01) 0.15 0.07 0.11 0.03 0.04 0.12 0.04 0.02 (0.04) 0.01 0.03 0.02 0.03 (0.05) (0.08) 0.01 0.06 (0.07) Security Price 69.00 68.00 70 68.75 79.5 62.75 62.5 79 79 77.75 74.25 76.75 96.5 85.25 83.75 79.75 75.5 93.5 101.75 78.25 75 107.75 108.25 96.75 97.25 96 130.5 156 143.5 137.75 130.25 120.25 138.75 164.25 %- Change (Price) -0.014492754 0.029411765 -0.017857143 0.156363636 -0.210691824 -0.003984064 0.264 0 -0.015822785 -0.045016077 0.033670034 0.25732899 -0.116580311 -0.017595308 -0.047761194 -0.053291536 0.238410596 0.088235294 -0.230958231 -0.041533546 0.436666667 0.004640371 -0.106235566 0.005167959 -0.01285347 0.359375 0.195402299 -0.080128205 -0.040069686 -0.054446461 -0.076775432 0.153846154 0.183783784

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November December January(2009) February March April May June July August September October November December January(2010) February March April May June July August September October November December Total

2,468.92 2,795.34 2,649.49 2,570.96 2,446.92 2,554.36 2,572.18 3,010.26 2,914.53 2,941.28 3,083.89 3,364.26 4,380.95 4,535.53 5,367.11 5,560.56 5,582.33 5,654.88 6,107.81 6,153.68 6,342.76 6,657.97 7,097.38 7,957.12 8,602.44 8,290.41 196,465.26

(0.10) 0.13 (0.05) (0.03) (0.05) 0.04 0.01 0.17 (0.03) 0.01 0.05 0.09 0.30 0.04 0.18 0.04 0.00 0.01 0.08 0.01 0.03 0.05 0.07 0.12 0.08 (0.04) 1.79

115.5 164.5 248.5 228.5 453.5 370 480.5 475 422.75 460.25 472.75 481.25 447 373 396.5 355.5 415.5 394.25 325 285.5 314.75 413.5 408 426.5 474.5 514.75 13,181.00

-0.296803653 0.424242424 0.510638298 -0.080482897 0.984682713 -0.184123484 0.298648649 -0.01144641 -0.11 0.088704908 0.027159153 0.017979905 -0.071168831 -0.165548098 0.063002681 -0.103404792 0.168776371 -0.051143201 -0.175649968 -0.121538462 0.102451839 0.313741064 -0.013301088 0.045343137 0.112543962 0.084826133 3.078339308

CAPM (Capital Asset Pricing Model): We calculate the cost of capital of Beximco Synthetic Company under the CAPM method assuming the risk free return 7.5% of the 90 days T-bill. Beta =

= .19

K = Risk-Free Return + (Market Return Risk-Free Return) = .075 + 0.1916 (0.36 - .075) = 13% 6|Page

2.4 VALUATION PROCESS

Psychologists suggest that the success or failure of an individual can be caused as much by his or her social, economic and family environment as by genetic gifts. Extending this idea to the valuation of securities means we should consider a firms economic and industry environment during the valuation process. Regardless of the qualities or capabilities of a firm and its management, the economic and industry environment will have a major influence on the success of a firm and the realized rate of return on its stock. Types: There are two valuation process- top-down or three-step approach or the bottom-up, stock valuation, stock picking approach. Both of these approaches can be implemented by either fundamentalists or technicians. The difference between the two approaches is the perceived importance of the economy and a firms industry on the valuation of a firm and its stock. But we use top-down approach for security valuation as most of the specialists use it.

Analysis of Alternative Economies and Security Markets Objectives: Decide how to allocate investment funds among countries and within countries to bonds, stocks and cash Analysis of Atlernative Industries Objectives: Based upon the economic and market analysis, determine which industries will prosper and which indusries will suffer on a global basis and within countries

Analysis of Individual Companis & Stock

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3. ECONOMIC ANALYSIS
Fluctuations in security markets are related to changes in expectations for the aggregate economy. The prices of government and investment grade corporate bonds are determined by the level of interest rates, which is influenced by overall economic activity and govt. policy. Aggregate stock prices reflect investor expectations about corporate performance in terms of earnings, cash flows and the required rate of return by investors. All of these expectations are heavily impacted by the economic outlook.

3.1 SECTORS
Given the significant expected relationship between security markets and the economy, this section has four subsections: Documentation of the relationship between the economy and stock prices Presentation of several economic series that provide specific insights related to the stock market Specific discussion of the macroeconomic impact of inflation and interest rate on security prices Brief considerations of what additional factors should be analyzed when dealing with world security markets.

3.2 GENERAL ECONOMIC INFLUENCES

Monetary and fiscal policy measures enacted by various agencies of national governments influence the aggregate economies of those countries. The resulting economic conditions influence all industries and companies within the economies. Gross Domestic Product (GDP): The term GDP means Gross Domestic Product. GDP is arguably the most important of all economic statistics as it attempts to capture the state of the economy in one number. GDP is the monetary value of all the finished goods and services produced within a country's borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory. GDP = C + G + I + NX where: "C" is equal to all private consumption, or consumer spending, in a nation's economy "G" is the sum of government spending "I" is the sum of all the country's businesses spending on capital "NX" is the nation's total net exports, calculated as total exports minus total imports. (NX = Exports - Imports). 8|Page

GDP (Last Five Years)

Year 2006 2007 2008 2009 2010 GDP 6.525 6.305 6.032 5.429 6.023

Conclusion: From the graph we have shown that GDP is consistent over the period. Although it is decreasing pattern from the year 2007 to 2009 it again shows increasing pattern in the year 2010 which is a positive sign for the country.

GDP
GDP 6.525 6.305

6.032 5.429

6.023

2006

2007

2008

2009

2010

Tax-GDP Ratio: From the graph we have shown that the tax-GDP ratio and tax-revenue ratio increasing over the period. This increasing condition indicates an economic expansion of the country. This is also consistent with GDP condition in the country. As GDP increases, the income of the individuals as well as corporate earnings also increases. As the earning increases the amount of tax paid also increases. Again it is also consistent with unemployment rate which is shown in the preceding sections. As the GDP increases, the unemployment rate decreases over the period.

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Current Account Balance: In economics, the current account is one of the two primary components of the balance of payments, the other being the capital. The current account is the sum of the balance of trade (exports minus imports of goods and services), net factor income (such as interest and dividends) and net transfer payments (such as foreign aid). One may refer to the list of countries by current account balance.

It can also be said A record of a country's earnings from the sale of visible and invisible items minus its expenditure on visible and invisible items from abroad.

Current Account Balance Year 2005 2006 2007 2008 2009 Current Account Balance 0.012 1.172 1.121 1.915 2.86

Conclusion: From the graph we have shown that current account balance of the country is gradually increasing over the period. This also indicates positive aspects of the economy. This is due to increase in exports, dividend and interest earnings and net transfer payments.

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Current Account Balance

3.5 3 2.5 2 1.5 1 0.5 0 2005 0.012 2006 2007 2008 2009 1.172 1.121 1.915 Current Account Balance 2.86

Exchange Rate: Rate at which one currency may be converted into another is known as Exchange Rate. The exchange rate is used when simply converting one currency to another (such as for the purposes of travel to another country), or for engaging in speculation or trading in the foreign exchange market. There are a wide variety of factors which influence the exchange rate, such as interest rates, inflation, and the state of politics and the economy in each country also called rate of exchange or foreign exchange rate or currency exchange rate. Exchange Rate
Year 2005 2006 2007 2008 2009 2010 Taka per US$ 61.39 67.08 69.03 68.60 68.80 69.18

Conclusion: From the chart we have found that the value of taka is decreasing over the period. That means the US $ becomes stronger in terms of taka. For the devaluation of taka the exports becomes attractive to the potential exporters to make profit which is consistent with current account balance chart. On the other hand, it is very expensive for the importers to import the goods or services. So the imported goods is also decreasing which is also consistent with current account balance. 11 | P a g e

Taka Per US$

70 69.03 68 67.08 66 64 62 60 58 56 2005 2006 2007 2008 2009 2010 Taka Per US$ 61.39 68.6 68.8 69.18

Gross National Income (GNI): Gross National Income comprises the total value of goods and services produced within a country (i.e. its Gross Domestic Product), together with its income received from other countries (notably interest and dividends), and less similar payments made to other countries. Gross National Income Year 2005 2006 2007 2008 2009 GNI($Billions) 172.088 192.058 213.235 234.399 250.648

Conclusion: From the bar-chart we have seen that the gross national income increases over the period. In the current period the GNI is highest than any other periods. This increasing indicates that the domestic production of goods or services and the income from abroad (remittance) are increasing successively.

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GNI ($Billions)
GNI ($Billions) 250.648

172.088

192.058

213.235

234.399

2005

2006

2007

2008

2009

Inflation: Inflation means a sustained increase in the aggregate or general price level in an economy. Inflation means there is an increase in the cost of living. In another word Inflation means that your money wont buy as much today as you could yesterday . Inflation Rate Year Inflation Rate (Consumer Price) 6.0 7.0 7.2 9.1 8.9 5.4

2005 2006 2007 2008 2009 2010

Conclusion: From the graph we have shown that the inflation rate is increasing from the year 2005 to 2009 which is consistent with economic growth. We know that inflation is positively related to economic growth and money supply. Money supply decreases the interest rate which in turn increasing the price of the consumable good which is termed as inflation. 13 | P a g e

Inflation Rate (Consumer Price)

9.1 7 6 7.2 5.4 8.9

2005

2006

2007

2008

2009

2010

Inflation Rate (Consumer Price)

Remittance: In general Remittance means a payment of money sent to a person in another place. In another sense Money (or its representative, as a bill of exchange or draft or other order for money) forwarded from one place to another is known as remittance; also, the act of forwarding it is remittance. It can also be said as Funds forwarded from one person to another. Remittance Year 2005 2006 2007 2008 2009 Remittance
(US$ million)

4178.82 5425.98 6570.96 9258.6 10104.96

Conclusion: From the graph we have shown that the remittance amount is increasing over the period and it is high in the period of 2009. This amount also furnishes our economic environment as more money is in hand to people to invest in the money market or capital market securities.

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12000 10000 8000 6000 4000 2000 0 2005 2006 2007 2008 2009 Remittance (US $million)

Unemployment Rate: The percentage of the work force that is unemployed at any given date is known as unemployment rate. An economic condition marked by the fact that individuals actively seeking jobs remain unfired. Unemployment is expressed as a percentage of the total available work force. The level of unemployment varies with economic conditions and other circumstances. Unemployment is a serious social evil & the rate of unemployment is an indicator of the health of an economy" Unemployment Rate Year 2005 2006 2007 2008 2009 2010 Unemployment Rate (%) 40.00 2.50 2.50 2.50 2.50 5.10

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Conclusion: From the graph we have shown that the unemployment rate remains constant from the period 2006 to 2009 and then jumps to 5.1% in the year 2010. We have known from the phillip curve that unemployment rate is inversely related to inflation rate. We have seen that the inflation rate increases from the period 2006 to 2009 which is consistent with phillip curve. Again in the period 2010 the inflation rate falls which increases the unemployment rate.

Unemployment Rate
Unemployment Rate

5.1

2.5

2.5

2.5

2.5

2006

2007

2008

2009

2010

Findings: Finally, we have said that the economic environment is favorable for the country as
GDP, GNI, remittance, current-account balance, tax-GDP ratio increases over the period. Again the unemployment rate is increased in the period in 2010, is quite satisfactory for the country which indicates economic booming condition of the country.

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4. INDUSTRY ANALYSIS
Investment practitioners perform industry analysis because they believe it helps them isolate investment opportunities that have favorable return-risk characteristics. We likewise have recommended it as part of our three-step, top-down approach.

4.1 IMPORTANCE OF INDUSTRY ANALYSIS

The conclusions of the studies dealing with industry analysis are During any time period, the returns for different industries vary within a wide range, which means that industry analysis is an important part of the investment process. The rates of return for individual industries vary over time so we cannot simply extrapolate past industry performance into the future. The rates of return of firms within industries also vary, so analysis of individual companies in an industry is a necessary follow-up to industry analysis. During any time period, different industries risk levels vary within wide range so we must examine and estimate the risk factors for different industries. Risk measures for different industries remain fairly constant over time, so the historical risk analysis is useful when estimating future risk.

4.2 INDUSTRY ANALYSIS PROCESS

The industry analysis is similar first is a macro analysis of the industry to determine how this industry relates to the business cycle and what economic variables drive this industry. This part of the process will make the second component easier and better. The second component is a micro valuation of the industry using the several valuation techniques. The specific macro-analysis topics are Business cycle and industry sectors Structural economic changes and alternative industries Evaluating an industrys life cycle Analysis of the competitive environment in an industry

Business Cycle & Industry Sector: Economic trend can take two basic forms: cyclical changes that arise from the ups and downs of the business cycle and structural changes occur when the economy is undergoing a major change in how it functions. Normally toward the end of the recession, financial stock rise in value because investors anticipate that banks earnings will rise as both the economy and loan demand recover. Once the economy begins its recovery, consumer durable firms that produce expensive consumer items, such as cars, personal computer, refrigerators, lawn tractors, and snow blowers become attractive investments because a reviving economy will increase consumer confidence and personal income. Once businesses recognize the economy is recovering, they begin to think about modernizing, renovating, or purchasing new equipment to satisfy rising demand and reduce costs. Thus, capital goods industries, such as heavy equipment manufacturer, machine tool makers, and airplane manufactures become attractive.

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Beximco Synthetic Co

Cyclical industries whose sales rise and fall along with general economic activity are attractive investments during the early stages of an economic recovery because of their high degree of operating leverage, which means that they benefit greatly from the sales increases during an economic expansion. Industries with high financial leverage likewise benefit from rising sales volume. Traditionally toward the business cycle peak, the rate of inflation increases as demand starts to outstrip supply. Basic materials industries such as oil, metals and timber, which transform raw materials into finished products, become investor favorites. Because inflation has little influence on the cost of extracting these products and they can increase prices, these industries experience higher profit margins. During a recession, some industries do better others. Consumer staples, such as pharmaceuticals, food, and beverages, outperform other sectors during a recession because, although overall spending may decline, people still spend money on necessities so these defensive stock industries generally maintain their values. Decision: As our selected company (Beximco Synthetic Company) belongs to Pharmaceuticals Company and the earnings variability and sales variability are low which is measured by beta (systematic risk or market risk) and the stock is defensive stock, according to definition we can say it falls in consumer staples industry. Structural Economic Changes: Influences other than the economy are part of the business environment. Demographics, life styles, changes in technology, and political and regulatory environment such as economic reasoning, fairness, regulatory changes, regulation in international business also can have a significant effect on the cash flow and risk prospects of different industries.

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Evaluating Industry Life Cycle: An insightful analysis when predicting industry sales and trends in profitability is to view the industry over time and divide its development into stages similar to those that human progress through: birth, adolescence, adulthood, middle age, old age. A five stage model would include-

Net Sales

Beximco Synthetic Company

Stage 1 Pioneering
Development

Stage 2 Rapid Acceleration Growth

Stage 3 Mature Growth

Stage 4 Stabilization & market maturity

Stage 5
Deceleration of Growth & decline

Time

Pioneering Development: During this start-up stage, the industry experiences modest sales growth and very small or negative profit margins and profits. The market for the industrys product or service during this time periods is small, and the firms involved incur major development costs. Rapid Acceleration Growth: During this rapid growth stage, a market develops for the product or service and demand becomes substantial. The limited number of firms in the industry face little competition, and individual firms can experience substantial backlogs. The profit margins are very high. The industry builds its productive capacity as sales grow at an increasing rate as the industry attempts to meet excess demand. Mature Growth: The success in stage 2 has satisfied most of he demand for the industry goods or service. Thus future sales growth may be above normal but it no longer accelerates. Also, the rapid growth of sales and the high profit margins attract competitors to the industry, which causes an increase in supply and lower prices, which means that the profit margins begin to decline levels. Stabilization and Market Maturity: During this stage, this is probably the longest phase, the industry growth rate declines to the growth rate of the aggregate economy or its industry segment. During this stage, sales correlate with an economic series. Although sales growth in line with the economy, profit

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growth varies by industry because the competitive structure varies by industry and by individual firms within the industry because the ability to control costs differs among companies. Competition produces tight profit margin. Deceleration of Growth and Decline: At this stage of maturity, the industrys sales growth declines because of shifts in demand or growth of subsidies. Profit margins continue to be squeezed and some firms experience low profits or even losses. Firms that remain profitable may show very low rates of return on capital. Decision: As our selected companys (Beximco Synthetic Company) sales and earnings on the line of the economic activity that is as the GDP increases the companys profit earnings are also increasing in the same line. So our selected company belongs to mature growth.

Analysis of Industry Competition: Porters five forces. 1. The intensity of competitive rivalry 2. The threat of the entry of new competitors 3. The bargaining power of suppliers 4. The bargaining power of customers (buyers) 5. The threat of substitute products or services

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Usages of Porter's five forces model Porter's five forces framework is used when making a qualitative evaluation of a firm's strategic position. However, for most consultants, the framework is only a starting point or "checklist" they might use Value Chain afterward. Like all general frameworks, an analysis that uses it to the exclusion of specifics about a particular situation is considered naive. According to Porter, the five forces model should be used at the line-of-business industry level; it is not designed to be used at the industry group or industry sector level. An industry is defined at a lower, more basic level: a market in which similar or closely related products and/or services are sold to buyers. A firm that competes in a single industry should develop, at a minimum, one five forces analysis for its industry. Porter makes clear that for diversified companies, the first fundamental issue in corporate strategy is the selection of industries (lines of business) in which the company should compete; and each line of business should develop its own, industry-specific, five forces analysis Implication for Beximco Synthetic Ltd.

1. Potential Competitors: Medium pressure o o o Bengal Synthetic Fivers Ltd. could potentially enter into the retail side. Entry barriers are relatively high, as Beximco Synthetic Ltd. has an outstanding distribution systems, locations, brand name, and financial capital to fend off competitors. Beximco Synthetic Ltd. often has an absolute cost advantage over other competitors.

2. Rivalry Among Established Companies: Low Pressure o o

Currently, there is no synthetic company that exists in the same market as Beximco Synthetic Ltd. Mature industry life cycle.

3. The Bargaining Power of Buyers: Low pressure o o o The individual buyer has little to no pressure on Beximco Synthetic Ltd. Consumer advocate groups have complained about Beximco Synthetic Ltd.s pricing techniques. Consumer could shop at a competitor who offers comparable products at comparable prices, but the convenience is lost.

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4. Bargaining Power of Suppliers: Low to Medium pressure o Since Beximco Synthetic Ltd. holds so much of the market share, they offer a lot of business to manufacturers and wholesalers. This gives Beximco Synthetic Ltd. a lot of power because by Beximco Synthetic Ltd. threatening to switch to a different supplier would create a scare tactic to the suppliers. Beximco Synthetic Ltd. could vertically integrate.

5.

Substitute Products: Low pressure o o When it comes to this market, there are not many substitutes that offer convenience and low pricing. The customer has the choice of going to many specialty stores to get their desired products but is not going to find Beximco Synthetic Ltd.s low pricing.

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5. COMPANY ANALYSIS 5.1 TYPES OF COMPANY

The stock of a wonderful firm with superior management and strong performance measured by sales and earnings growth can be priced so high that the intrinsic value of the stock is below its current market price and should not be acquired. In contrast, the stock of a company with less success based on its sales and earnings growth may have a stock market price that is below its intrinsic value. In this case, although the company is not as good, its stock market could be the better investment.

Growth Company & Growth Stock

Speculative Company & Speculative Stock

Types of Company & Stocks

Defensive Company & Defensinve Stock

Cyclical Company & Cyclical Stock

Beximco Synthetic Company

Growth Companies and Growth Stock: Growth companies are those that consistently experience above-average increases in sales and earnings. This definition has some limitations because many firms could qualify due to certain accounting procedures, mergers or other external events. Again, a growth company is defined as a company who has management ability and the opportunities to make investments that yield rates of return greater than the firms rate of return. In contrast, a growth stock is a stock with a higher rate of return than other stocks in the market with similar risk characteristics. The stock achieves this superior risk-adjusted rate of return because at some point in time the market undervalued it compared to other stocks. If the stock is 23 | P a g e

undervalued, its price should eventually increase to reflect its true fundamental value when the correct information becomes available. During this period of price adjustment, the stocks realized rate of return will exceed the required rate of return for a stock with its risk, and during this period of adjustment it will be considered a growth stock. So the stocks of growth companies have generally not been growth stocks. Defensive Companies and Defensive Stock: Defensive companies are those whose future earnings are likely to withstand an economic rate of return. Business risk and financial risk are relatively low for these companies. Typical examples are grocery chain and public utilities. In contrast, defensive stocks rate of return is not expected to decline during an overall market decline or decline less than the overall market. Again it also has a low systematic risk (market risk). Cyclical Companies and Cyclical Stock: A cyclical companys sales and earnings are heavily influenced by aggregate business activity. This volatile earnings pattern is typically a function of the firms business risk (both sales volatility and operating leverage) and can be compounded by financial risk. Typical examples are auto, steel or heavy machinery equipments etc. In contrast, a cyclical stock experiences changes in its return greater than changes in overall market rate of return. A cyclical stock is the stock of any company that has returns that are more volatile than the overall market- that is high beta stocks that have high correlation with the aggregate market and greater volatility. Speculative Companies and Speculative Stock: A speculative company is one whose assets involve great risk but that also has a possibility of great gain. A good example of a speculative firm is one involved in oil exploration. A speculative stock possesses a high probability of low or negative rates of return and a low probability of normal or high rates of return. Specifically, a speculative stock is one that is overpriced, leading to a high probability during the future period when the market adjusts the stock price to its true value, it experiences either low or possibly negative rates of return. Such an expectation might be the case for an excellent growth company whose stock is selling a an extremely high price/earnings ratio- that is typically it is subsequently overvalued.

Conclusion: From the calculation of cost of capital we have seen that the market risk of
Beximco Synthetic Company is very low (Beta = 0.19). Again the financial risk measured by debt-equity ratio, debt ratio and interest coverage ratio are favorable for the company which indicates lower financial risk. Based on these market risk and financial risk we can conclude that our selected company falls in a defensive company and defensive stock.

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5.2 INCOME STATEMENT & BALANCE SHEET

Beximco Synthetic Company Income Statement (Historical)

Particulars Revenue Cost of Revenue (871,747,066) Gross Profit 182,497,823 Operating Expenses Administrative Expenses (8,456,961) Selling Expenses (4,286,508) -12,345,466 (12,743,469) Profit from Operations 169,754,354 Finance Cost (102,273,294) Profit before contribution to WPPF 67,481,060 Contribution to workers participation Net profit before Tax Income Tax Expense 8,501,085 Profit After Tax for the year 72,768,761 -35,567,404 18,885,302 11,655,948 27,474,123 Profit (3,213,384) -33,562,578 64,267,676 -2,004,826 -3,332,700 -6,751,608 -3,184,700 22,218,002 18,407,556 30,658,823 _ -1,110,900 -920,378 -1,532,942 104,897,261 -33,562,578 -99,327,085 23,328,902 -94,865,888 19,327,934 -85,649,980 32,191,765 71,334,683 122,655,987 114,193,822 117,841,745 -13,325,494 -13,192,070 -15,854,944 -3,437,973 -3,764,239 -3,527,286 -3,947,721 -8,907,493 -9,561,255 -9,664,784 -11,907,223 FY- 2006 1,054,244,889 FY- 2007 790,103,124 706,422,975 83,680,149 FY - 2008 932,831,738 -796,850,257 135,981,481 FY- 2009 792,781,515 -665,395,623 127,385,892 FY - 2010 1,009,552,138 -875,855,449 133,696,689

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Beximco Synthetic Company Balance Sheet (Historical)

ASSETS Property, Plant and Equipment Cost Accumulated Depreciation Long Term Security Deposits Total Non-current Assets Current Assets Inventories Accounts & Other Receivables Advances, Deposits Prepayments Cash & Cash Equivalents Total Assets EQUITY AND LIABILITIES Shareholders Equity Issued Share Capital Revaluation Surplus Capital Reserve Tax Holiday Reserve Retained Earnings Current Liabilities Debentures-Current Maturity (Secured) Interest Free Block- Account Current Maturity Short Term Loan from Banks (Secured) Accounts & Other Payables Accrued Expenses Non Current Liabilities Debentures-Net of Maturity (Secured) Defferd Tax Liability Current _ 173718295 152338837 178302766 851709680 33321718 29423093 697297344 45841962 45825563 355174809 168461717 857839 116220524 69634729 2092394387 _ 89,664,983 69,355,723 2,324,154,400 _ 152,338,837 86,420,701 1,164,458,597 33,305,500 19,350,054 979,880,195 48,762,106 83,160,742 308,895,470 149,874,764 _ 81,982,184 65,036,404 2,988,593,401 885509898 381150000 850,800,333 438,322,500 173,718,295 _ _ 206,275,661 707,239,254 38,428,644 19,184,102 523,967,488 54,984,784 70,674,236 263,587,853 116,569,265 _ 45,130,637 54,941,244 2,919,075,446 2,017,766,294 482,154,750 1,329,335,883 _ _ 145,608,396 710,661,585 33,305,500 19,184,102 518,709,213 73,826,489 65,636,281 178,991,619 78,919,738 _ 31,208,043 41,922,512 2,859,698,938 2,029,422,242 554,477,963 1,329,335,883 _ _ 89,910,825 726,097,679 50,298,789 28,776,153 502,915,003 83,324,900 60,782,834 118,290,741 45,160,186 2,015,310,518 596,063,810 1,329,335,883 & FY- 2006 411078030 1130656477 719578447 3934971 415013001 1677381386 754,145,894.00 692267490 185558034 45409968 2092394387 FY-2007 361,073,094 1,130,776,637 769,703,543 3,934,971 365,008,065 1,959,146,335 757,336,700 1,005,929,079 188,281,007 7,599,549 2,324,154,400 FY- 2008 1,504,423,768 2,297,244,043 792,820,275 3,934,971 1,508,358,739 1,480,234,662 789,637,475.00 514,401,229 174,427,665 1,768,293 2,988,593,401 _ _ 5,107,298 1,489,533,171 1,429,542,275 767,296,947.00 527,839,772 130,528,834 3,876,722 2,919,075,446 5,107,298 1,465,424,394 1,394,274,544 837,904,260 483,382,252 67,756,450 5,231,582 2,859,698,938 FY - 2009 1,484,425,873 FY- 2010 1,460,317,096

Interest Free Block- Account Net of Current Maturity Lease Obligation for Finance Lease Total Liabilities and Shareholders Equity

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5.3 ANALYSIS OF FINANCIAL RATIOS

Analysts use financial ratios because numbers in isolation typically convey little meaning. Thus, ratios are intended to provide meaningful relationships between individual values in the financial statements. Because the major financial statements report numerous individual items, it is possible to produce a vast number of potential ratios, many of which will have little value. Therefore we limit our examination to the most relevant ratios and group them into categories that will provide information on important economic characteristics of the firm.

5.4 IMPORTANCE OF RELATIVE FINANCIAL RATIOS

Just as a single number from a financial statement is of little use, an individual financial ratio has little value except in relation to comparable ratios for other entities. That is only relative financial ratios are relevant. Therefore it is important to compare a firms performance relative to The aggregate economy Its industry or industries Its major competitors within the industry Its past performance (time-series analysis)

5.5 LIMITATION OF FINANCIAL RATIOS

Although financial ratios are used to determine the strength and weakness of the company there exist some limitations. These are Accounting treatment principle: There are several generally accepted methods for treating various accounting items, and the alternatives can cause a difference in results for the same event. Heterogeneity: Many companies have divisions that operate in different industries, which can make it difficult to derive comparable industry ratios. Consistency: It is important to develop a total profile of the firm and not depend on only one set of ratios (internal liquidity ratios). As an example, a firm may be having shortterm liquidity problems but be very profitable- the profitability will eventually alleviate the short-term liquidity problems. Range: One should consider a range of appropriate values for the ratio because a value that is either too high or too low for the industry can be a problem.

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5.6 COMPUTATION OF FINANCIAL RATIOS

In the following discussion we divide the financial ratios into five major categories that underscore the important economic characteristics of a firm. The five categories areI. II. III. Common size statements Internal liquidity (solvency) Operating performance a) Operating efficiency b) Operating profitability Risk analysis a) Business Risk b) Financial risk c) External liquidity risk Growth analysis

IV.

V.

EVALUATING INTERNAL LIQUIDITY

Internal liquidity (solvency) ratios are intended to indicate the ability of the firm to meet future short-term financial obligations. They compare near-term financial obligations such as account payable or notes payable, to current assets or cash flows that will be available to meet these obligations. Current Ratio: Clearly the best known liquidity measure is the current ratio, which examines the relationship between current assets and current liabilities. These current ratios experienced a consistent decrease during the years of 2008 to 2010 which indicates not a good position in this ratio. This situation occurs due to increase in the payment of account payable or notes payable.

Current Ratio
1.97 1.68 2.09 2.01 1.92

2006

2007

2008

2009

2010

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Quick Ratio: Some observers question using total current assets to gauge the ability of a firm to meet its current obligations because inventories and some other current assets might not be very liquid. They prefer the quick ratio, which relates current liabilities to only relatively liquid current assets (cash items and account receivable). From the graph we have seen that the quick ratios of Beximco Synthetic Co. are consistently declining which is not a good sign for the company. This is due to deduct inventories from the calculation which is increased consistently.

Quick Ratio
1.08 1.03 0.98 0.93 0.77

2006

2007

2008

2009

2010

Cash Ratio: The most conservative liquidity ratio is the cash ratio, which relates the firms cash and short-term marketable securities to its current liabilities. From the graph we have seen that the cash ratio shows declining trend during the period of 2006 to 2008 and again shows upward trend because the firm has strong line of credit at various banks.

Cash Ratio
0.05

0.01 0.002 2006 2007 2008 2009 0.005 2010

0.007

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Receivable Turnover: In addition to examining total liquid assets, it is useful to analyze the quality (liquidity) of the accounts receivable by calculating how often the firms receivable turn over, which implies an average collection period. The faster these accounts are paid the sooner the firm gets the funds to pay off its own current liabilities. The results of accounts receivable turnover are mixing. In the recent period, the turnover is high which indicates less collection period (compared 243 days to 174 days) leading to higher liquidity.

Account Receiveable Turnover

2.09 1.81 1.52 1.5

0.78

2006

2007

2008

2009

2010

Inventory Turnover: We also examine the liquidity of inventory based on the firms inventory turnover (i.e, how many times it is sold during a year) and the implied processing time. Inventory turnover can be calculated relative to sales or cost of goods sold. The preferred turnover ratio is relative to cost of goods sold, which does not include the profit implied in sales. This graph shows the mixing condition. But in the recent period, the inventory turnover increases indicating less processing period (compared 419 days to 347 days) leads to higher liquidity.

Inventory Turnover
1.16 0.93 1.01 0.87 1.05

2006

2007

2008

2009

2010

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As with receivables, a firm does not want an extremely low inventory turnover value and long processing time, because this implies that capital is being tied up in inventory and could signal obsolete inventory (especially for firms in the technology sector). Alternatively, an abnormally high inventory turnover and a short processing time could mean inadequate inventory that could lead to outages, backorders and slow delivery to customers, which would eventually have an adverse effect on sales.

Payable Turnover: Payable turnover is also used to examine the liquidity based on the firms payable turnover and the implied paid period. Payable turnover can be calculated relative to cost of goods sold. The more the time period, the more liquidity of the ratio. From the graph we have seen that the payable turnover result is mixing. From the period of 2006 to 2009 the turnover is decreasing but after that the turnover is quite high which indicates less payable period (compared 40 days to 34 days) leading to less liquidity.

Payable Turnover
19.01 14.49 14.49 9.01 10.51

2006

2007

2008

2009

2010

Cash Conversion Cycle: A very useful measure of overall internal liquidity is the cash conversion cycle, which combines information from the receivables turnover, the inventory turnover, and the accounts payable turnover. Cash is tied up in assets for a certain number of days. Specifically, cash is committed to receivables for the collection period and in inventory for a number of days- the inventory processing period. At the same time the firm receives an offset to this capital commitment from its own suppliers who provide interest-free loans to the firm by carrying the firms payables. From the graph we have seen that the cash conversion period shows declining trend which indicated the more liquidity. Overall we can say the overall result is a very small decline in its cash conversion cycle. Although the overall cash conversion cycle appears to be quite good as always we should examine the firms long-term trend and compare it to other drugstore chains.

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Cash Conversion Cycle

Cash Conversion Cycle 834 622 534.8 537 487

2006

2007

2008

2009

2010

EVALUATING OPERATING PERFORMANCE

The operating performance can be divided into two subcategories: 1) operating efficiency ratios and 2) operating profitability ratios. Efficiency ratios examine how the management uses its assets and capital, measured by taka of sales generated by various asset or capital categories. Profitability ratios analyze the profits as a percentage of sales and as a percentage of the assets and capital employed.

OPERATING EFFICIENCY RATIOS

Total Asset Turnover: The total asset turnover ratio indicates the effectiveness of the firms use of its total asset base (net assets equal gross assets minus depreciation on fixed assets). Total asset turnover ratios range from less than 1 for large, capital-intensive industries (steel, autos, and heavy manufacturing companies) to over 10 for some retailing or service operations. It also can be affected by the use of leased facilities. it is poor management to have an exceedingly high asset turnover relative to the industry because this might imply too few assets for the potential business (sales) or it could be due to the use of outdated, fully depreciated assets. It is equally poor management to have an extremely low asset turnover because this implies that the firm is tying up capital in excess assets relative to the needs of the firm and its competitors. From the graph we have seen that there is a declining trend during the period of 2006 to 2009 and then increase which indicates the increase in the sales volume leading to higher profit.

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Total-Asset Turnover
0.5

0.34

0.31

0.35 0.27

2006

2007

2008

2009

2010

Net Fixed Asset Turnover: The net fixed asset turnover ratio reflects the firms utilization of fixed assets. Again an abnormally low turnover implies capital tied up in excessive fixed assets. An abnormally high asset turnover ratio can indicate a lack of productive capacity to meet sales demand, or it might imply the use of old, fully depreciated plant and equipment that may be obsolete. From the graph we have seen that the fixed asset turnover declines during the period of 2006 to 2008, remain constant during the period 2008 to 2009 and then increasing at a slight rate.

Fixed Asset Turnover

2.54 2.16

0.61

0.53

0.69

2006

2007

2008

2009

2010

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OPERATING PROFITABILITY RATIOS

There are two facets of profitability: 1) the rate of profit on sales (profit margin) and 2) the percentage return on capital employed. The analysis of profitability of sales actually entails several component profit margins that consider various expense categories. These component margins provide important information relative to the final net profit margin. Thus, if we determine that a firm has experienced a significant increase or decrease in its net profit margin, the analysis of the component profit margins will help us to determine the specific causes of the change. Gross Profit Margin: This ratio indicates the basic cost structure of the firm. This margin can also be impacted by a change in the firms product mix toward higher or lower profit margin items. From the graph we have seen that the gross profit margin increases in the period of 2007 to 2009 and then declines due to increase in the cost of revenue.

Gross Profit Margin

0.17 0.15 0.11 0.16 0.13

2006

2007

2008

2009

2010

Net Profit Margin: This margin relates after-tax net income to sales. This ratio should be computed using sales and earnings from continuing operations, because our analysis seeks to derive insights about future expectations. From the graph we have seen that net profit margin shows declining trend from the period of 2006 to 2009 and shows upward trend due to decrease in selling expenses.

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Net Profit Margin

0.07

0.04 0.03 0.02 0.01 2006 2007 2008 2009 2010

Return on Equity: The return on owners equity (ROE) ratio is extremely important to the owner of the enterprise (the common stockholder) because it indicates the rate of return that management has earned on the capital provided by stockholders after accounting for payments to all other capital suppliers. This ratio reflects the rate of return on the stockholders capital. It should be consistent with the firms overall business risk, but it also should reflect the financial risk assumed by the common stockholder because of the prior claims of the firms bondholders. From the graph we have seen that the ROE is declining from the period of 2006 to 2008 and remain constant from the period of 2008 to 2010.

Return On Equity
0.08

0.04

0.01 2006 2007 2008

0.01 2009

0.01 2010

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RISK ANALYSIS
Risk analysis examines the uncertainty of income flows for the total firm and for the individual sources of capital (that is debt, preferred stock and common stock). The typical approach examines the major factors that cause a firms income flows to vary. More volatile income flows mean greater risk (uncertainty) facing the investor. Business Risk: Business risk is the uncertainty of operating income caused by the firms industry. In turn, this uncertainty is due to the firms variability of sales caused by its products, customers and the way it produces its products. Specifically, a firms operating earnings vary over time and is measured by the volatility of the firms operating income over time, which is due to two factors: 1) the volatility of the firms sales over time and 2) how the firm produces its products and its mix of fixed and variable costs- that is operating leverage. Specifically, a firms operating earnings vary over time because its sales and production costs vary. Again business risk depends on Sales variability Adjusting volatility measure for growth Operating leverage

Financial Risk: Financial risk is the additional uncertainty of returns to equity holders due to a firms use of fixed financial obligation securities. This financial uncertainty is in addition to the firms business risk. As with operating leverage, during an economic expansion, the net earnings available for common stock after the fixed interest payments will experience a larger percentage increase than operating earnings. In contrast, during a business decline, the earnings available to stockholders will decline by a larger percentage than operating earnings because of these fixed financial costs (i.e, interest payments). Notably as a firm increases its relative debt financing with fixed contractual obligations, it increases its financial risk and the possibility of default and bankruptcy. Debt- Equity Ratio: The debt figure includes all long-term fixed obligations, including subordinated convertible bonds. The equity typically is the book value of equity and includes preferred stock, common stock and retained earnings. From the graph we have seen that the debtequity ratio declines over the periods which indicate the higher ownership position to the borrowed capitals. This is a good sign for the investors to retain the confidence of the stakeholders. Again it also indicates a bad sign because as the borrowed capital reduces the company losses its investments in the profitable projects.

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Debt-Equity Ratio
0.4 0.36

0.13 0.09 0.06 2010

2006

2007

2008

2009

Debt Ratio: This ratio measures the percentage of funds provided by creditors. From the graph we have seen that the debt ratio declines from the period of 2007 to 2010 which indicates lower financial risk. As the borrowed capital reduces the commitment of the company to pay interest reduces.

Debt Ratio
0.63 0.58

0.32

0.3

0.29

2006

2007

2008

2009

2010

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Interest Coverage Ratio: This ratio indicates how many times the fixed interest charges are earned, based on the earnings available to pay these expenses. Alternatively, one minus the reciprocal of the interest coverage ratio indicates how far earnings could decline before it would be impossible to pay the interest charges from current earnings. From the graph we have seen that the interest coverage ratio increases from the period of 2007 to 2010 due to decrease in debt interest payment. As the interest payment decreases the earnings before interest and expense increases which also indicate the higher interest coverage ratio and lower financial risk.

Interest Coverage Ratio

1.66 1.37 1.23 1.2

0.68

2006

2007

2008

2009

2010

Growth Ratio: From the graph we have seen that growth rate decline in the period of 2006 and 2007 and then remain constant in the period from 2008 to 2010. This scenario is due to constant dividend payout ratio and return on equity. Normally the company retains huge amount for the prospect profitable investment.

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Growth Rate
0.08 0.07 0.06 0.05 0.04 0.03 0.02 0.01 0 2006 2007 2008 2009 2010 0.0085 0.009 0.0085 0.034 Growth Rate 0.068

Conclusion: From the ratio analysis we have said that the company financial condition is moderately strong as their financial risk decreases and cash conversion cycle decreases in the recent period. Although quick ratio declines in the recent period, the other liquidity ratios (current ratio, cash ratio, accounts payable turnover etc.) show a positive sign of the company. So from the ratio perspective we can select the company as an investment opportunity.

5.7 VALUATION TECHNIQUES DIVIDEND DISCOUNT MODEL (DDM) APPROACH

Assumptions of DDM approach are1. Dividends grow at a constant rate 2. The constant growth rate will continue for an infinite period 3. The required rate of return (k) is greater than the infinite growth rate (g)

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I.

Infinite Growth Model: Here, we assume that the securitys growth rate will be increased infinitively. In our security, the constant growth rate is 2.56% and cost of equity or required rate of return is 7% and cash dividend per share for the base period (2010) is TK 15.
Pi D1 kg

=
= TK. 148 Decision: From this model we have seen that the share is overvalued as Tk. 148 is less than TK. 574 in period December 2010 and the average price in 2010 is Tk 394. So the decision is not to purchase the share.

II.

Multiple Dividend Growth Model: In this model we assume that the dividend growth rate 6% for the first 4 years and then the dividend growth rate is 2.56% for infinitively. Now the value becomes

P=

+ +

+ +

+ +

+ +

= 14.07 + 13.20+12.38 + 11.62 + 114 = Tk.166 Decision: As the share price under this method is less than historical price in December 2010 we should not buy this security. Also on the basis of average price in the year 2010 we are deciding not to invest in it.

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5.8 PROJECTED INCOME STATEMENT & BALANCE SHEET

Beximco Synthetic Company Income Statement (Projected)

Particulars Revenue Cost of Revenue Gross Profit Operating Expenses Administrative Expenses Selling Expenses Profit from Operations Finance Cost Profit before contribution to WPPF Contribution to workers participation Net profit before Tax Income Tax Expense Profit

FY - 2011 FY - 2012 FY- 2013 FY - 2014 FY - 2015 1023027351 1036682427 1050519767 1064541803 1.079E+09 876140117.9 887834585 899685147 911693886.4 923862915 146887232.8 148847841 150834620 152847917.1 154888087

15210995.99 131676236.8 61,959,985

15414028 133433813 60,403,178

15619770 15828258.26 16039529 135214850 137019658.8 138848558 58,885,487 57,405,930 55,963,548

69,716,252 10,457,437.73

73,030,635 10954595.3 62,076,040

76,329,363 79,613,729 82,885,010 11449404.4 11942059.35 12432752 64,879,958 67,671,670 70,452,259

Profit After Tax for the year

59,258,813.79

III.

Operating Free Cash Flow: This is also referred to as free cash flow to the firm (FCFF) and the entity DCF model. The object is to determine a value for the total firm and subtract the value of the firms debt obligations to arrive at a value for the firms equity. Under this approach, the OCF is discounted by WACC.

Weighted Average Cost of Capital = =.60* .13

(1 tax)

+.40* (1 - .15).13

= 12.22%

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FY-2010 Net Income Depreciation Operating Cash Flow Working Capital Change in NWC Capital Expenditure Total Present Value Net Present Value Number of Shares Price Per Share

FY-2011 59,258,814 33,486,107 92,744,921 3,216,198,421 2,548,021,556 2,640,766,477 2353204845

FY-2012 62,076,040 33,486,107 95,562,147 3,242,756,474 26,558,053 122,120,200 96972140

FY-2013 64,879,958 33,486,107 98,366,065 3,269,314,526 26,558,053 124,924,118 88393587

FY-2014 67,671,670 33,486,107 101,157,777 2,699,808,769 -569,505,757 -468,347,981 -295316420

FY-2015 70,452,259 33,486,107 103,938,366 2,726,366,822 26,558,053 130,496,418 73324189

668,176,865 1,460,317,096 792,140,231 1524438110 5,960,637 255.75

Decision: From the OCF technique we can see the intrinsic value of the share is Tk. 256 which
is lower than the market price TK. 574. So the share is overvalued at this approach. So we have to decide not to buy the security. IV. Free Cash Flow to Equity: FCFE measures the owner position after meeting the liabilities to the lenders or the lending parties. It is almost similar to FOCF method, but only difference in the discounting factor. Under this approach, the FCFE is discounted by cost of equity.
FY-2011 Net Income Depreciation Operating Cash Flow Working Capital Change in NWC Capital Expenditure Change in Capital Expenditure Free Cash Flow To Equity Total Present Value Net Present Value Number of Shares Price Per Share 59,258,814 33,486,107 92,744,921 3,216,198,421 2,548,021,556 1,483,389,658 FY-2012 62,076,040 33,486,107 95,562,147 3,242,756,474 26,558,053 1,503,189,519 19,799,860 FY-2013 64,879,958 33,486,107 98,366,065 3,269,314,526 26,558,053 1,523,253,662 20,064,143 104,859,975 72673223 FY-2014 67,671,670 33,486,107 101,157,777 2,699,808,769 -569,505,757 1,543,585,615 20,331,953 -488,679,934 -299716555 FY-2015 70,452,259 33,486,107 103,938,366 2,726,366,822 26,558,053 1,564,188,954 20,603,339 109,893,080 59645561

1,157,376,818 102,320,340 1024227273 80131835 936961337 5,960,637 157.19147

Decision: From this approach we see that the intrinsic value of the share is Tk 157 which is
lower than the market price Tk. 574. As the share is overvalued we have to decide not to invest in it 42 | P a g e

Beximco Synthetic Company Balance Sheet (Projected)

ASSETS Property, Plant and Equipment Cost Accumulated Depreciation Long Term Security Deposits Total Non-current Assets Current Assets Inventories Accounts & Other Receivables Advances, Deposits Prepayments Cash & Cash Equivalents Total Assets EQUITY AND LIABILITIES Shareholders Equity Issued Share Capital Revaluation Surplus Capital Reserve Tax Holiday Reserve Retained Earnings Current Liabilities Debentures-Current Maturity (Secured) Interest Free Block- Account Current Maturity Short Term Loan from Banks (Secured) Accounts & Other Payables Accrued Expenses Non Current Liabilities Debentures-Net of Maturity (Secured) Defferd Tax Liability Current &

FY - 2011 1,426,830,989

FY - 2012

FY- 2013

FY - 2014

FY - 2015

1,393,344,882 1,359,858,775 1,326,372,668 1,292,886,561

5,107,298 1,431,938,287

5,107,298 5,107,298 5,107,298 5,107,298 1,398,452,180 1,364,966,073 1,331,479,966 1,297,993,859

921,662,626.00 942,602,217.50

858,843,852 879,783,443.00 900,723,034.50 741872010.3 67,756,450 2,251,115,348 5,351,525,946.35 2,015,310,518 596,063,810 1,329,335,883 _ 596,063,810.00 703,389,239 50,298,789 28,776,153 490278755.6 69513389.25 64,522,152 111,362,687 45,160,186 _ 31,208,043 34,994,458 5,351,525,946.35 _ 31,208,043 28,066,404 751774305.3 67,756,450 761808773.4 67,756,450

771977178.6 67,756,450

937566675.5 67,756,450

2,289,478,716 2,227,434,240 1,619,805,099 1,453,125,556 5,387,245,095 5,322,688,571 4,712,681,320 4,699,044,758 2,015,310,518 2,015,310,518 2,015,310,518 2,015,310,518 596,063,810 596,063,810 596,063,810 596,063,810 1,329,335,883 1,329,335,883 1,329,335,883 1,329,335,883 _ _ _ _ 596,063,810 746,036,441 50,298,789 28,776,153 477960006.7 70441234.05 68,261,470 104,434,633 45,160,186 596,063,810 688,407,971 50,298,789 28,776,153 465950778.8 71381463.46 72,000,787 97,506,578 45,160,186 _ 31,208,043 21,138,349 596,063,810 681,392,585 50,298,789 28,776,153 454243294.9 72334242.78 75,740,105 90,578,524 45,160,186 _ 31,208,043 14,210,295 596,063,810 674,684,078 50,298,789 28,776,153 442829973.3 73299739.53 79,479,423 83,650,470 45,160,186 _ 31,208,043 7,282,241

Interest Free Block- Account Net of Current Maturity Lease Obligation for Finance Lease Total Liabilities and Shareholders Equity

5,387,245,095 5,322,688,571 4,712,681,320 4,699,044,758

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6. TECHNICAL ANALYSIS
Technical analysts or technicians develop technical trading rules from observations of past price movements of the stock market and individual stocks. The philosophy behind technical analysis is in sharp contrast to the efficient market hypothesis which contends that past performance has no influence on future performance or market values. It also differs from fundamental analysis which involves making investment decisions based on the examination of the economy, an industry and company variables that lead to an estimate of intrinsic value for an investment which is then compared to its prevailing market price. In contrast to the efficient market hypothesis or fundamental analysis, technical analysis involves the examination of past market data such as prices, and the volume of trading, which leads to an estimate of future price trends and therefore, an investment decision. Whereas fundamental analysts use economic data that are usually separate from the stock or bond market, the technical analysts use economic data from the market itself because the market is its own best predictor. Technical analysts see no need to study the multitude of economic, industry and company variables to arrive at an estimate of future value because they believe that past price movements will signal future price movements. Technicians also believe that a change in the price trend may predict a forthcoming change in the fundamental variables such as earnings and risk before the change is perceived by most fundamental analysis.

6.1 ASSUMPTIONS OF TECHNICAL ANALYSIS

Technical analysts base trading decisions on examinations of prior price and volume data to determine past market trends from which they predict future behavior for the market as a whole and for individual securities. The underlying assumptions are The market value of any good or service is determined solely by the interaction of supply and demand. Supply and demand are governed by numerous rational and irrational factors. Included in these factors are those economic variables relied on by the fundamental analyst as well as opinions, moods, and guesses. The market weighs all these factors continually and automatically. Disregarding minor fluctuations the prices for individual securities and the overall value of the market tend to move in trends, which persist for appreciable lengths of time. Prevailing trends change in reaction to shifts in supply and demand relationships. These shifts, no matter why they occur, can be detected sooner or later in the action of the market itself.

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Price

Old equilibrium price

Technical analysts identifies the new trend and takes appropriate action

New information begins to enter market

New equilibrium price

Time

6.2 ADVANTAGES OF TECHNICAL ANALYSIS

Although technicians understand the logic of fundamental analysis, they see several benefits in their approach. Most technical analysts admit that fundamental analysts with good information, good analytical ability, and a keen sense of informations impact on the market should achieve above-average returns. According to the technical analysts, it is important to recognize that the fundamental analysts can experience superior returns only if they obtain new information before other investors and process it correctly and quickly. It is not heavily dependent on financial accounting statements- the major source of information about the past performance of a firm or industry. Problems with accounting statements are1. Lack information needed by security analysts such as information related to sales, earnings and capital utilized by product line and customers. 2. GAAP allows firms to select reporting procedures for reporting expenses, assets or liabilities, resulting in difficulty comparing statements from two firms whether it is aggressive or conservative. 3. Non-quantifiable factors such as employee training and loyalty, customer goodwill and general investor attitude toward an industry; do not show up in financial statements. Fundamental analyst must process new information and quickly determine a new intrinsic value, but technical analyst merely has to recognize a movement to a new equilibrium. Technicians trade when a move to a new equilibrium is underway but a fundamental analyst finds undervalued securities that may not adjust their prices as quickly. 45 | P a g e

6.3 CHALLENGES TO TECHNICAL ANALYSIS

Those who doubt the value of technical analysis for investment decisions question the usefulness of this technique in two areas. First, they challenge some of its basic assumptions. Second, they challenge some specific technical trading rules and their long-run usefulness. Assumptions of Technical Analysis: The major challenge to technical analysis is based on the results of empirical tests of the efficient market hypothesis. Almost all the studies testing the weak form of EMH using statistical analysis have found that prices do not move in trends based on statistical tests of auto-correlation and runs. Technical Trading rules: An obvious challenge to technical analysis is that the past price patterns or relationships between specific market variables and stick prices may not be repeated. Other challenges are Patterns may become self-fulfilling prophecies A successful rule will gain followers and become less successful. It is contended that this popularity and the resulting competition will eventually neutralize the technique. If numerous investors focus on a specific technical trading rule, some of them will attempt to anticipate the price pattern and either run the expected historical price pattern or eliminate profits for most traders by causing the price to change faster than expected. Rules require a great deal of subjective judgments. Two technical analysts looking at he same price pattern may arrive at widely different interpretations of what has happened and therefore, will come to different investment decisions. This implies that the use of various techniques is neither completely technical nor obvious.

6.4 SECURITY PRICE TREND

Beximco Synthetic Company Security Price
Month January(2006) February March April May June July August Security Price 69.00 68.00 70 68.75 79.5 62.75 62.5 79 Month January(2009) February March April May June July August Security Price 248.5 228.5 453.5 370 480.5 475 422.75 460.25

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September October November December January(2007) February March April May June July August September October November December January(2008) February March April May June July August September October November December

79 77.75 74.25 76.75 96.5 85.25 83.75 79.75 75.5 93.5 101.75 78.25 75 107.75 108.25 96.75 97.25 96 130.5 156 143.5 137.75 130.25 120.25 138.75 164.25 115.5 164.5

September October November December January(2010) February March April May June July August September October November December

472.75 481.25 447 373 396.5 355.5 415.5 394.25 325 285.5 314.75 413.5 408 426.5 474.5 514.75

From the figure we have seen that the security remain constant over the period of January(2006) to February(2008). Then the figure shows the upward trend of the security price from November (2008) to March (2009) which indicates to buy or invest in the security. Again in the period of April (2009) to March (2010) shows the stable price trend between Tk350 to Tk. 400 which indicates the selling point. After the period of March (2010) the security shows declining trend till June (2010). Again after the period of June (2010) the security price begins to increase which indicates to buy the security.

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600.00 500.00 400.00 300.00 200.00 100.00 0.00

Security Price
Buying Point

Buying Point

Selling Point

6.5 FORECASTING SECURITY PRICE MOVING& DOUBLE MOVING AVERAGE

Often technical analysts use moving average method to forecast the future trend of the security price. Under this method, equal weights are assigned to each observation. Each new data point is included in the average as it becomes available and the earliest data point is discarded. Again another approach used by technicians is double moving average method to show the linear trend of the security price. Here we use both the moving average and double moving method to forecast the trend of the security price.

January(2006) March May July September November January(2007) March May July September November January(2008) March May July September November January(2009) March May July September November January(2010) March May July September November
Security Price

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Beximco Synthetic Company Security Price (Moving Average & Double-Moving Average)
Month January(2006) February March April May June July August September October November December January(2007) February March April May June July August September October November December January(2008) February March April May June July August September October November December January(2009) Security Price 69.00 68.00 70 68.75 79.5 62.75 62.5 79 79 77.75 74.25 76.75 96.5 85.25 83.75 79.75 75.5 93.5 101.75 78.25 75 107.75 108.25 96.75 97.25 96 130.5 156 143.5 137.75 130.25 120.25 138.75 164.25 115.5 164.5 248.5 Sum MA Sum DMA

480.50 490.50 501.50 509.25 514.75 512.00 545.75 568.50 573.25 574.00 571.75 591.00 616.00 597.75 587.50 611.50 640.00 661.25 665.00 659.25 711.50 792.50 828.25 857.75 891.25 914.25 957.00 990.75 950.25 971.25

80.0833 81.75 83.5833 84.875 85.7917 85.3333 90.9583 94.75 95.5417 95.6667 95.2917 98.5 102.667 99.625 97.9167 101.917 106.667 110.208 110.833 109.875 118.583 132.083 138.042 142.958 148.542 152.375 159.5 165.125 158.375 161.875

501.42 512.29 525.29 537.25 548.04 557.54 570.71 582.42 587.29 589.67 595.92 607.29 619 627.17 637.42 658.08 688.25 719.63 752.38 790.08 832.58 873.5 906.54 926.88

83.569 85.382 87.549 89.542 91.34 92.924 95.118 97.069 97.882 98.278 99.319 101.22 103.17 104.53 106.24 109.68 114.71 119.94 125.4 131.68 138.76 145.58 151.09 154.48

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February March April May June July August September October November December January(2010) February March April May June July August September October November December January(2011)

228.5 453.5 370 480.5 475 422.75 460.25 472.75 481.25 447 373 396.5 355.5 415.5 394.25 325 285.5 314.75 413.5 408 426.5 474.5 514.75

1,082.00 1,180.25 1,513.50 1,744.75 2,061.00 2,420.50 2,678.75 2,890.50 3,134.75 3,162.50 3,239.50 3,132.00 3,053.50 2,986.25 2,941.50 2,863.00 2,706.75 2,545.25 2,487.00 2,504.00 2,556.50 2,567.50 2,647.75 2,837.50

180.333 196.708 252.25 290.792 343.5 403.417 446.458 481.75 522.458 527.083 539.917 522 508.917 497.708 490.25 477.167 451.125 424.208 414.5 417.333 426.083 427.917 441.292 472.917

945.79 977.58 1021.9 1114.7 1240.3 1425.5 1667 1933.1 2218.2 2488.4 2724.7 2921.1 3039.7 3102.1 3118.1 3085.9 3036 2947.2 2849.4 2755 2674.6 2610.4 2561.2 2551.3

157.63 162.93 170.32 185.78 206.72 237.58 277.83 322.19 369.69 414.73 454.11 486.85 506.61 517.02 519.68 514.31 505.99 491.19 474.9 459.16 445.76 435.07 426.86 425.22

Implications
After using the 6 month moving average method we find that the security price in the beginning of the period January (2011) is Tk. 472.917 and again using the double moving average method we also find the security price is Tk. 425.22. Both of these indicators tell us the security is showing upward trend in the price again indicating to buy the security as we have shown in the absolute trend in the security price.

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Chart Title
Moving Average Double Moving Average

454.1111 539.917 99.31944 106.667 2007 151.0903

426.8611 441.292

425.2222 472.917

158.375

2008

2009

2010 2011

Conclusion: Using moving-average and double moving-average method, we find that the
security price shows an upward trend under the technical viewpoint. From this sense we can say that it is wise to take decision to invest (buy security) in Beximco Synthetic Companys stock.

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7. CONCLUSION & FINDINGS

Thorough our report we have tried to show various techniques or approaches to evaluate our selected companys performance and its intrinsic value. For this, we have applied top-down approach and found some inclusion regarding the environment, industry and companys insights. The major findings are The cost of capital is low as its market risk or systematic risk is low The environment for investing in the security market is favorable for the potential investors which is analyzed by environmental analysis. From the industry analysis it is seen that threat of new entrants is medium; rivalry among established companies, bargaining power of the buyers and threat of substitute product are low; and bargaining power of suppliers is low to medium. The internal liquidity, operating performance, risk of the company is apparently favorable which is found in analyzing companys financial statement The intrinsic value of the stock is undervalued which is determined by applying various techniques (DDM, FCFE, FOCF). Based on the historical income statement & balance sheet and historical analysis the projected income statement & balance sheet are forecasted. As the price of the stock shows upward trend, the technical analysis shows the intrinsic value of the price which is undervalued.

From the above findings, we can say both environmental analysis and industrial analysis are favorable for the investment climate. The financial statement analysis also provides favorable outlook. But in the company analysis it is found that the intrinsic value of the stock is overvalued. Although environmental and industrial analysis are favorable, we have to decide not to invest in the securities (Beximco Synthetic Company) as it is an overvalued share.

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BIBLIOGRAPHY
www.bangladeshbankbd.com www.beximco.org Investment Analysis & Portfolio Management By Reilly & Brown www.dse.com

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