Financial Analysis on Aftab Auto Essay

Chapter 1Introduction & orderological compend1 IntroductionAftab automobilemobiles Limited has been our selected partnership, which is iodine of the largest automobile assembling plants in the private sector in Bangladesh. Aftab Automobiles Ltd. is in this business since 1967. In 1981 the apiece(prenominal)iance registered itself as a Public Limited everyiance. The Comp any(prenominal) was listed with Dhaka linage Exchange Limited and Chittagong product line Exchange Limited in the grade 1987 and 1996 respectively. The principal activities of the Company through surface the period were assembling of Toyota cut down Cruiser soft top/ Pick-up, region Cruiser Prado, Hino Bus, Hino Mini Bus / Truck Chassis with a production Capacity of 2400 units of vehicles in 3 shifts in Assembling whole. But since inception, the Plant is cultivatening play unity shift considering the securities patience demand. The Company has added four units namely Body Building Unit, Paint Unit, Battery Unit & Furniture Unit and the commercial production of which started in May 5, 1997, November 01, 1999, January 03, 2002 and May 01, 2002 respectively.Over every(prenominal), it is a party with spate of maximizing bundleholders wealth and its fit outors nominate already shown their confidence in the caller-out. Its character look upon has accessiond oer the geezerhood compared to its book think of. Furtherto a greater extent, it enjoys a decreed signaling effect from the commercialise and there is best watchword for Aftab Auto. In this report, we allow try to find out few reasons behind(predicate) the near risings and the positive signaling effect.The main gild that we are performing m one(a)tary analysis is on Aftab Motors LTD. Since our major accent is to compare two companies financial performances over epoch, so we conf use of uncorrupteds and services selected book of maps Bangladesh LTD as the rival phoner of Aftab Motors LTD. According to the rove instruction, we aimed towards proportionnalizing rail line expense through financial story analysis, and in doing so we fuck off seriously dealt with the book lever and grocery hold dear of divides. By equivalence the book respect and the trade appraise ofAftab Motors LTD from the grade 2005-2009, we found out fol broken ining schooling2 Objectives Making a thoroughgoing analysis of the governmental partys financial statements over the last 5 old age through symmetry analysis, hard currency liquefy analysis and analysis of major components of the balance sheet and trying to identify the verit equal state of the companionship since its enlistment in Dhaka Stock Exchange (DSE). regulate out the battle between book take account and trade value of the shell out monetary value and to identify the possible reasons behind this difference, and find if there is any specific hidden discrepancy in the existing financial statements of the participation. Find out the development to make the Pro Forma Statements (The Income Statement and the poise Sheet) and and so forecast the issue potentials of Aftab Automobiles Ltd along with the stated out the results yielding out later the 5 year long line acoustic projection (long call cumulative process)., as considerably as projection of sway value through financial analysis. To compare the stanchs financial status with one of its rival truehearted ( atlas vertebra Auto) through proportionality analysis with the justification of balancing between the food market footing and book value of the shares.3 MethodologyInformation consultationThis study is found on the secondary financial data which is published in annual reports and monthly reviews of Dhaka Stock Exchange Ltd. by the respective companies. We commit obtained the necessary information from the DSE (Dhaka Stock Exchange LTD), Motijjhil, Dhaka, and from the annual report of the company.Data Processing and summaryW e have compute distinguishable dimension utilise sourced data from DSE, and showed the comparison between the two companies performances over the last five historic period. here the positions of companies were compared to their previous years performance and and so the analysis has been done between those companies original years situations.Period of DataWe have employ data of five consecutive age from 2005, 2006, 2007, 2008, 2009.statistical TechniquesWe basically used two different statistical techniques. First we used the cartridge holder serial method for dimension analysis and because(prenominal) cross sectional method for showing the comparison between Aftab Motors LTD and atlas Bangladesh LTD. There is likewise couple of tables and charts to specifically present the data with comments. We in like manner did the regression analysis utilize the Microsoft Excel.Standard of ComparisonAs we know that there are few competitors for Aftab Motors LTD in Bangladesh. Among them, we figure that Atlas Bangladesh LTD is one of the most challenging one for Aftab Motors in terms of market share and financial performance over time.4 Limitations of the Study Due to different month of year closing project comparison whitethorn non be accu sum up. We face up problem while breaking down the actual balance sheet and sorting out the adjustments. Due to time constraints we could not visit the premise of Aftab Auto toincorpo judge more recent information and views of the Top Management about the performance & position of the company. somewhat opposite limitation was collecting the industry middlings for the proportionality analysis. No such data are readily uncommitted in context of Bangladesh. So, instead of the industry average data we have to discern the best addressable rival data. similarly we had some problem regarding what allow for be the early enthronement of the company. We had to depend on the secondary source for that. We did no t find exact unit footing of companys products as it was not clearly mentioned in their annual report. Also the companys official website is not real informative and organized through which we could collect the information about the company. Lack of technical knowledge-how in gamey-level statistical techniques. Moreover, time constrains and former(a) factors deterred us to anticipate racyest concent dimensionn that we could have given to prepare this report.Chapter 2 analysis & Interpretation2.1 Revised Balance Sheet establish on trade Value of Share marketplace Value & arrest Value of Aftab Auto LtdFrom the Annual Report of the Aftab Automobiles ltd we lookd the Book Vale of their share from 2005 to 2009. Besides that we also collected the Market Value of the share from the library of the DSE (Dhaka Stock Exchange). The fol number 1ing chart shows the Market Value and the Book Value per share of our proposed company.Figure-1 Market & Book Value of Aftab Ltd. From 2005 to 2 009From the high up chart we down that in year 2005, 2008 and 2009 the market cost is higher thusly the book value, which is really well-grounded news for us. But in 2006 and 2007 the market worth is be first-class honours degree then the market price, which indicates that the investors underestimated the companys wealth. But as our last year in 2009, so our analysis pull up stakes be ground on year 2009.In year 2009, we found that the Market Value is far more then the Book value which is Taka 1,530 and taka 390.38248 respectably. This figure indicates that the investors are willing to even up more for per share for the company then the book value shows because the investors may think that the company may underestimated the companys wealth. So we constructed a new Balance Sheet compared with the new year (2009) Balance Sheet based on the Market Value of the corpo proportionalityn.Revised Balance Sheet Based on the Market Value in 2009Aftab Automobiles Ltd Balance Sheet 2009 Based on Book Value Based on Market Increase / strike Value summations online summations Stock And Stores (Inventory) bestow Stock & Stores 737,517,274 1,281,969,612 544,452,338 add up Accounts Receivable 993,547,199 993,547,199 Income evaluate Deducted at Source 93,002,081 93,002,081 Advance, Deposits & Prepayments 149,320,158 149,320,158 specie & Bank Balances 27,881,100 27,881,100 Total rate of liquefy Assets 2,001,267,812 2,545,720,150 544,452,338 Non- menstruation Assets Property, Plant & Equipment Land 58,959,642.00 58,959,642 648,556,062 589,596,420 Building 169,846,130.00 142,270,645 213,405,968 71,135,323 Shades 2,682,800.00 Less collect 1,529,591.00 disparagement work 2008 Tools & Equipment 45,965,960.00 Less Accumulated 17,743,259.00 dispraise coin bank 2008 Office Equipment 31,021,242.00 Less Accumulated 7,323,987.00 Deprecia tion till 2008 Furniture & Fixture 16,953,271.00 Less Accumulated 2,973,873.00 Depreciation till 2008 Less Accumulated 26,595,111.00 Depreciation till 2008 enthronisation (4109300 Share Of Navana CNG) 33,961,309 796,793,270 762,831,961 Intangible Assets 1,263,853,978 1,263,853,978 Total Assets 2,438,883,896 5,744,380,219 3,305,496,323 Liabilities & Owners justness Current Liabilities Short Term bestow 229,914,219 229,914,219 Total Accrued & Other Current Liabilities 1,275,342,755 1,263,853,978 (11,488,777) Dividend Payable for Preference Share 1,179,500 1,179,500 Total Current Liabilities 1,506,436,474 1,494,947,697 (11,488,777) Non-Current Liabilities lend & Deferred Liabilities 17,100,000 17,100,000 Preference Share Capital including Premium 9,827,929 9,827,929 Total Liabilities 1,533,364,403 1,521,875,626 (11,488,777) Equity Attri besidesable to Equity Holders Pa id up Share Capital (Ordinary Shares 2319570 Shares) 231,957,000 3,548,942,100 3,316,985,100 Share Premium 250,191,730 250,191,730 Reserve 107,100,735 107,100,735 checked Earnings 316,270,028 316,270,028 Total Assets & Liabilities 2,438,883,896 5,744,380,219 3,305,496,323 Justifications1. Stock & Stores The investors may think that the company underestimatesthe price of the finished goods. As the company use to measure the finished goods based on the woo of Production basis. But the original market price is higher then the value written in the Annual Report. Also the market price of the Raw Materials, Store & Spares, Goods in Transit, L/C moulding, Work-In-Process is underestimated. So in Revised Balance Sheet we improver the value of the Stock & Stores.2. Land The Land value is underestimated as we know that the land value is cipherd as per the corrupt price, not as per the market value. We know that the value of the land always subjoins. So we increase the value of the land.3. Buildings The value of the Building is deliberate as per the establishment cost and the genuine value is calculated by deducting depreciation. So in this facial expression the investors may find the Market value of the Building is more then the value used in the annual report. The investors may find the Building in better check into and able to offer the higher price than the value calculated in the balance sheet. So we also increase the value.4. Plant & Machinery, Tools & Equipment, and Transport Vehicle As all of these items value is written on the basis of the purchase price and also by deducting the accumulated depreciation. So the investors may find these items in better condition and also think that the market price is higher than the written in Balance sheet.5. coronation funds This Company purchased 4,109,300 pcs of share from Navana CNG Ltd. The value written on the Balance Sheet is from the purchased price. But the Current market pric e of this share is taka 193.90. So we also increased the value of the investment funds by use the market value of the stock.6. Intangible Assets The market price of the share is increased. This value increased may be the reason is the value increase of the companys intangible assets like Patent, Trademark etc.7. Goods Supplied Account We are fall this account on the basis is that, the company may get some purchase discount from the vendors. So the value of the accounts receivable is decreasing.Overall rumourmongersIn year 2009, we analyze that the Market price is much higher then the Book Value of each share. Investors are willing to pay more than the book value of each share. The major reasons of the higher market value are the underestimation of the assets, as the assets are calculated based on the purchase price not on the basis of the market price. Besides that investment to the other shares are also calculated on the purchase price. But the market price is also higher. More over, Aftab Automobiles ltd enjoys a better reputation on the market. So the Intangible assets like, Patent, Trade mark should be considered. So we washbowl say that the companys financial position is good.2.1 money time period digestCash flows are the funds receipts and the bullion disbursement of the company. Since money does not flow in and out at an equal rate, so in most of the businesses, an analysis of cash flow is important. In our case we are working with the Cash shine Statement of Aftab Automobiles Ltd from the year 2005 to 2009. subsequently analyzing the statements we shadower have an motif of the cash dealing of the company of the historic period under our study.Sources 2005 2006 2007 2008 2009 EBIT 55,369,060 61,681,543 43,530,063 79,204,842 125,312,761 Depreciation 26,964,852 26,964,85226,964,852 26,964,852 26,964,852 Tax-7,179,527 -14,602,650 -13,059,019 -21,781,331 -51,261,009 in operation(p) cash Flow 75,154,385 74,043,745 57,435,89 6 84,388,363 101,016,604 Capital Spending Ending bread Fixed Investment 30,149,974 26,582,937 23,015,900 Less Beginning Fixed Investment -30,531,889 -30,531,889 -23,666,305 -23,666,305 Deprecation 26,964,852 26,964,852 26,964,852 26,964,852 make Fixed Investment 26,582,937 23,015,900 26,314,447 29,612,994 Changes In solve works Capital Ending Net Working Capital 425,800,770 260,925,322 298,947,675 905,519,493 Less Beginning Net Working Capital 171,666,619 425,800,770 260,925,322 620,450,571 Changes In Net Working Capital 254,134,151 -164,875,448 38,022,353 285,068,922 Free Cash Flow from Assets Operating Cash Flow 75,154,385 74,043,745 57,435,896 84,388,363 101,016,604 Net Fixed Investment -26,582,937 -23,015,900 -26,314,447 -29,612,994 Changes In Net Working Capital -54,134,151-164,875,448 -38,022,353 -285,068,922 Free Cash Flow -6,673,343 -130,455,452 20,051,563 -213,665,312 Cash Flow from/to Creditors quest Pai d 34,992,217 44,619,538 48,012,628 54,362,263 90,846,346 Less New Long Term Borrowing 17,100,000 17,100,000 17,100,000 117,100,000 26,927,929 Cash Flow From Creditors 17,892,217 27,519,538 30,912,628 -62,737,737 63,918,417 Cash Flow From Investors Dividend Paid 24,000,000 12,000,000 12,000,000 12,000,000 1,179,500 New Equity 439,792,483 701,016,976 685,748,820 621,050,571 905,519,493 Cash Flow To Investors 463,792,483 713,016,976 697,748,820 633,050,571 906,698,993 As we contributenister suck up from the cash flow statement that, in 2006, 2007 & 2009 the free cash flow figures are negative. This might pass along because of high investment in inventory and R&D departments, path the company used more cash than they had sourced of. Also the cash flows to Investors were sufficient for the company over the years. The company had sufficient fund to pay out dividends and that would at long last maximize the value of the firm. Fixed investments were consistent and c onsumed huge cash over the years.Overall we see that the gross revenue of the company are increasing which is a good sign. Besides that the company is investing heavily on the resolved assets,which may used to stupefy more revenue for the company. They are also offering cash dividend each year and also the company paying its petty term load and also pickings short term loans, which indicates that the company is enjoying a palmy environment in terms of the short term credit situation. So, we can conclude that the Aftab Automobiles Ltd is financially well based on the Cash Flow analysis. symmetry abbreviation and InterpretationsTo evaluate a firms financial condition and performance, the financial analyst commonly performs analyses on various aspects to find out the financial health of the firm among which ratio analysis is one of the most important and commonly used methods. ratio analysis is a tool frequently used during the analysis to relate two pieces of financial data b y dividing one quality by the other. In this study various ratio analyses will be done to understand the financial condition of the company and to compare this condition with its rival firm to get a clear picture. The analysis of financial ratios involves two types of comparison termSeries Analysis First, the analyst compares a present ratio with past and anticipate coming(prenominal) ratios for the same company. The current ratio (the ratio of current assets to current liabilities) for the present year could be compared with the current ratio for the previous year-end. When financial ratios are arranged over a period of years, the analyst can study the composition of change and determine whether there has been an progress or deterioration in the firms financial condition and performance over time. here(predicate) we will conduct time series only on the Aftab Auto Ltd. Cross-Section Analysis The second method of comparison involves comparing the ratios of one with those of simil ar firms or with industry averages at the same point in time. Such a comparison gives insight into the relative financial condition and performance of the firm. It also helps us identify any significant deviation from any applicable industry average (or standard).Here we will discuss and calculate different types of ratios. Then we willcompare the ratios between Aftab Auto Ltd. and Atlas Auto Ltd. The reason for doing this is that the industry average is not available in perspective of Bangladesh. Liquidity status Analysis symmetrys that show the consanguinity of a firms cash and other current assets to its current liabilities are known as liquidity ratios. Different types of liquidity ratios are discussed below.Current balanceThe ratio that relates current assets to current liabilities is the current ratio. The current ratio indicates the ability of a company to pay its current liabilities from current assets and shows the strength of the companys working capital position.picsFi gure-1 The Current dimensions of Aftab and Atlas for the years 2005-2009Time Series Analysis Current ratio for Aftab is higher than 1 and it is consistent for all five years. In 2006 it has increased a grass from the previous year but in 2007 it dropped for two consecutive years but over once again in 2009 it has increased again and is in a good satisfactory condition.Cross-Section Analysis However, comparing to the ratios of Atlas, we see significant difference the two companies ratios. Aftabs ratios seem to be much weaker than Atlass. None of the years it has made the benchmark of 2. However, the last 3 years results are not satisfactory at all because none of them is showing benchmark of 2 or the increasing manner. So, we can conclude that Aftab is showing wretched trend in its quick ratio. straightaway RatioInventories typically are the least liquid of a firms current assets they are the assets on which losses are most likely to overstep in the event of liquidation. Ther efore, it is important to measure the firms ability to pay off short term obligations without having to rely on the trade of inventories. This is why quick ratio is used.picFigure-2 The Quick Ratios of Aftab and Atlas for the years 2005-2009Time Series Analysis Quick ratio of Aftab is less than 1 which means it has piled up inventories as its current assets. The trend of quick ratio of Aftab shows that the ratio had been increasing from 2005 to 2006 but then suddenly vicious significantly in year 2007 and 2008. Then it has increased in 2009. So, we can conclude that Aftab is showing low quick ration but increasing trend in its quick ratio.Cross-Section Analysis comparison with Atlas, Aftab has a real poor quick ratio even though it has increased but its running with risky conditions in terms its quick ratio.Cash RatioIt is another measure of liquidity of the firm. It shows cash solvency of the firm.Figur-3 The Cash Ratios of Aftab and Atlas for the years 2005-2009Time Series An alysis Aftabs cash ratio has seen a fluctuating matter. The ratio is very low. Even though the ratio improved in 2008 than previous year, the ratio is significantly debase. Too much inventory pile up and poor credit arrangement form _or_ system of government may led to such deteriorating trend in cash ratios.Cross-Section Analysis Comparing with Aftab, Atlas has a very high cash ratio which indicates Atals has a better credit arrangement insurance policy and declinepiled up inventories.Asset-Management Efficiency AnalysisA set of ratios that measure how effectively a firm manages its assets compared to its gross revenue. These ratios are designed to find out whether the summarise amount of each type of asset as reported on the balance sheet appear reasonable, too high, or too low considering current and projected sales levels. Asset Management Ratio is done based on inventory upset ratio, days sales large and fixed asset and total asset disturbance ratioTotal Asset turno ver rateThe total asset employee turnover ratio is calculated by dividing sale by total assets. The total assets turnover ratio measures the turnover of all the firms assets.picFigure-4 The Total Asset Turnover Ratios of Aftab and Atlas for the years 2005-2009Time Series Analysis Total turnover of Aftab is not very satisfactory which means its not generating bountiful revenue by using its total assets which indicates it may some in economic assets in its stock which deteriorating the total revenue. Its in decreasing trend till 2007 but later on that it as an increasing trend which is a very good sign in fact.Cross-Section Analysis Atlas has a very high asset turnover ratios which indicates its assets high-octane enough to generate more revenues and its in increasing trend for some(prenominal) the firm.Fixed Asset TurnoverThe fixed asset turnover ratio is calculated by dividing sale by total fixedassets. The total fixed assets turnover ratio measures the turnover of all the firm s fixed assets.picFigure-5 Fixed Asset Turnover Ratios of Aftab and Atlas for the years 2005-2009Time Series Analysis Fixed Asset Turnover of Aftab is very low and its in decreasing trend which indicates that it has very inefficient fixed assets in its stock to generate enough sales. . It means it is become more efficient to utilize its short term assets to generate sales and even though its fixed asset is generating more sales than does the short term assetsCross-Section Analysis in terms of Fixed Assets Turnover Atlas has a very high fixed asset turnover ratio compare to Aftab which indicates Atlas is doing well in terms of using its fixed assets and generating revenue.Inventory TurnoverThis ratio indicates how active the company has been. It talks about the efficiency as well as the management of the company. This ratio indicates the number of quantify in a trading year a firm sells the value of its stocks.picFigure-6 Inventory Turnover Ratios of Aftab and Atlas for the years 2 005-2009Time Series Analysis Inventory Turnover of Aftab is very low but its in increasing trend till 2006 then there was a drop in 2007 aft(prenominal) that it increased in 20008 then again it increased in 2009. So tells us that its inventory turnover is fluctuating and it doesnt have efficient inventory to generate sales properly. This means Aftab was suffering from poor inventory management which is also apparent(a) from the balance sheet. But, recently it improving and overcoming the situation which is a good indication.Cross-Section Analysis comparing with Atlas Aftab has a very low inventory turnover ratio whereas Atlass inventory turnover is very high which indicates that Atlas is efficient in managing its inventory. But Atlass inventory turnover has a decreasing trend whereas as Aftabs is in increasing trendDays gross revenue Outstanding (DSO)DSO indicates the average length of time it takes the firm to collect its credit sales. It is also called the average collection per iod, is used to evaluate the firms ability to collect its credit sales in a timely manner.picFigure-7 DSO of Aftab and Atlas for the years 2005-2009Time Series Analysis From the graph its been seen that initially low but then there were increasing trend in DSO but after 2007 its again starts to decrease which us a good sign that indicates thats they are being more efficient in collecting its receivables.Cross-Section Analysis Comparing with Aftab, Atlas has a very low collection period which means Atlas take less time to collect its receivable. Debt-Management Efficiency AnalysisThis ratio measures how effectively a firm is managing its debts. Debt Management ratios include analysis of two types of ratio debt ratio and times interest earned ratio.Debt to Asset RatioIt measures the percentage of the firms assets financed by creditors.picFigure-8 Debt Ratios of Aftab and Atlas for the years 2005-2009Time Series Analysis Debt ratio of Aftab is fluctuating trend. It has high debt ratios which indicate that they a high leveraged firm and since interest on debt enjoy tax advantage, this is evident in the gradual increment in EPS figures. This is good news for the investors.Cross-Section Analysis Comparing with Aftab, Atlas has a very low debt ratio which indicates they have a long-term solvency and low risk but at the same time they dont have much leverage power to generate more inter boodle and enjoy the tax benefits. times Interest bring in (TIE) RatioThe TIE ratio measures the extent to which earnings before interest and taxes (EBIT), also called operational income, can decline before the firm is unable to satiate its annual interest cost. blow to meet this obligation can bring legal action by the firms creditor, mayhap resulting in bankruptcy. It measures the ability of the firm to meet its annual interest paymentspicFigure-09 TIE Ratios of Aftab and Atlas for the years 2005-2009Time Series Analysis TIE ratio of Aftab is very low which means it has low abil ity to meet its annual interest payments. Aftab is covering its interest charges by a low margin of safety. This needs the potentiality of acme further debt in future.Cross-Section Analysis Compare to Atlas, Aftab has a very low TIE ratio which means Atlas has very high safety of margin to cover its interest payment. lucrativeness Condition AnalysisA group of ratios showing the effect of liquidity, asset management, and debt management on operating results. lucreability is the net result of a number of policies and decisions. goodability ration are of iii types- Net loot margin on sales, sire on Asset (ROA) and emergence on Equity ( roe).Net Profit MarginThis ratio measures how much the sales is contributing to the net winnings of the company, which belongs to the shareholders.picFigure-10 Net Profit Margin of Aftab and Atlas for the years 2005-2009Time Series Analysis Net Profit Margin of Aftab gradually rock-bottom in the first three year then it started rising and cont inue to rise. This is a very good indication for the company and as well as the investors. This increasing trend in Aftabs profit margin ratio will help to attract the investors.Cross-Section Analysis from the figure we can see that initially Atlas net profit was higher than the Aftab but later on Aftabs net profit gradually increased and Atlass started to decrease. This indicates that Aftab earning more than Atlas does. The decreasing trend in Atlass profit margin ratio will not help to attract the investors.Operating Profit MarginpicFigure-11 Operating Profit Margin of Aftab and Atlas for the years 2005-2009Time Series Analysis From the graph we can see that Aftabs operating profitis in increasing trend which is a good indication of the fact that Aftab is becoming more efficient is its operation thus it has been able to invalidate the operating cost which enable for higher and increasing operating profits.Cross-Section Analysis Comparing with Atlas, Aftab is doing well in terms o f making operating profit and Afatb has an increasing trend in its operating profit margin whereas Atlas has a decreasing operating profit margin.Earnings Per Share (EPS)picFigure-12 EPS of Aftab and Atlas for the years 2005-2009Time Series Analysis EPS of Aftab has a decreasing trend for the first three years and then it followed and increasing trend and a big jump in EPS in 2009. So Aftab is earning more per share of its then it was previously earned.Cross-Section Analysis From the graph we can see that Aftab has higher EPS then Atlas. indeed Aftab will be able to attract more investors then Atlas as its earning more than Atlas for its per share. give back On AssetpicFigure-13 ROA of Aftab and Atlas for the years 2005-2009Time Series Analysis From the table we can see that return on total asset of Aftab is decreasing from the very start period. But from 2007 it starts increasing and its a positive factor for the company and the investors as wellCross-Section Analysis ROA ratio of Aftab is lower than Atlas all through the five years. Aftab has faced a severe downfall at 2007 which may betriggered by the high interest charges on its huge amount of debt. So, it is very poor compare to Atlas but its improving for the last three years.Return on EquityROE measures the rate of return on stockholders investment.picFigure-14 ROE of Aftab and Atlas for the years 2005-2009Time Series Analysis From the table we can see that return on total equity of Aftab is decreasing from the very start period. But from 2007 it starts increasing and its a positive factor for the company and the investors as well. This improvement indicates firms improving liquidity position, efficient asset management and efficient use of high debt amount.Cross-Section Analysis ROE ratio of Aftab is lower than Atlas all through the five years. Aftab has faced a severe downfall at 2007 which may be triggered by the high interest charges on its huge amount of debt. So, it is very poor compare to Atlas but its improving for the last three years. Market Condition AnalysisThe market value ratios represent a group of ratios that relates the firms stock price to its earnings and book value per share. These ratios give management an indication of what investors think of the companys past performance and future prospect. If the firms liquidity, asset management, debt management, and profitability ratios are all good then market value ratios will be high which will lead to an increase in the stock price of the company. Market value ratio is of two types- determine/Earnings Ratio and Market/Book value Ratio.Market to Book RatioThe ratio of a stocks market price to its book value gives another suggestion of how investors regard the company. Companies with relatively high evaluate of return on equity generally sell at higher multiples of book value than those with low returns.picFigure-15 M-B Ratio of Aftab and Atlas for the years 2005-2009Time Series Analysis It is noticeable that Aftab has an increasing trend in its M/B ratio after 2005 which is good indicator. This indicates investors are gaining confidence on Aftabs share and are now ready to pay more for Aftabs book value of its share.Cross-Section Analysis Even though there are increasing trend in the M/B ratio of Aftab it is much lower than the Atlass. It indicates that Atlas is gaining more investors trust over the years then Aftab. This justifies the high riskiness of Aftabs securities due to its huge debts. But its M/B is increasing which means investors are gaining the confidence which is a good indicator to compete with Atlasmonetary value-Earnings RatioThis is the ratio of the price per share to earnings per share. It shows the dollar amount investors will pay for $1 of current earnings. It is computed by market price per share and earnings per share (EPS).picFigure-16 P/E Ratio of Aftab and Atlas for the years 2005-2009Time Series Analysis P/E ratio of Aftab was decreasing trend for the first two years then it experienced a rise in 2007 which indicates the firms high appendage potential. later that it starts to decrease. This shows firms huge riskiness which we have already seen by its increasing debt financing and overall poor management and other ratios. This indicates that investors are now willing to pay less for 1taka of current earnings.Cross-Section Analysis Aftab has a lower P/E ratio then Atlas but both the company has the same decreasing trend in its P/E ratio. So both the company is losing investors confidence and investors are now willing to pay less for 1taka of current earnings.Summary of all the Ratio CalculationThe calculation of the pursuit ratios has been done following the particular formulas. In the Appendix section we have attached the calculation procedures in details.Aftab Automobiles LimitedType of Ratios 2005 2006 2007 2008 2009 Liquidity Ratio Current Ratio 1.19 1.39 1.20 1.20 1.33 Quick Ratio 0.39 0.83 0.79 0.78 0.84 Cash Ratio 0.027 0.014 0.019 0.020 0.019 Asset-Management Efficiency Ratio Total Asset Turnover 1.03 0.86 0.65 0.83 0.87 Fixed Asset Turnover 5.00 5.31 2.95 4.22 4.86 Inventory Turnover 1.7 2.0 1.9 2.7 2.5 DSO 38.3 135 210 178.2 128 Debt Management Ratio Debt-Asset Ratio 68.13 61.22 66.09 72.23 62.87 Time Interest Earned 2.5 2.7 2.0 2.6 2.4 ProfitabilityRatio Net Profit Margin 3.38 3.03 2.33 3.10 14.90 Operating Profit 6.19 6.17 6.37 6.95 10.30 Earnings per Share 28.58 27.91 18.06 24.76 136.50 Return on Assets 3.5 2.6 1.5 2.6 13.0 Return on Equity 11.0 6.7 4.4 9.2 35.0 Market Ratio Price Earning Ratio 14.8 10.9 20.3 15.8 11.6 Market/Book Ratio 1.62 0.73 0.90 1.46 4.07 Atlas Bangladesh LimitedType of Ratios 2005 2006 2007 2008 2009 Liquidity Ratio Current Ratio 2.46 2.45 2.55 2.12 1.86 Quick Ratio 2.07 1.82 1.86 1.33 1.11 Cash Ratio 1.08 0.77 0.94 0.55 0.40 Asset-Management Efficiency Ratio Total Asset Turnover 2.22 2.53 2.73 3.34 3.31 Fixed Asset Turnover 114.72 121.53 111.04 170.57 237 .08 Inventory Turnover 11.0 12.1 10.0 10.6 9.4 DSO 4.08 6.20 2.872.16 3.32 Debt Management Ratio Debt-Asset Ratio 46.50 46.59 44.46 51.69 56.85 Time Interest Earned 1510.2 539.6 3477.4 363.4 827.3 Profitability Ratio Net Profit Margin 4.60 3.84 4.69 3.21 5.22 Operating Profit 4.73 5.93 3.95 6.94 4.73 Earnings per Share 17.33 11.97 12.63 9.69 22.39 Return on Assets 10.2 9.7 12.8 10.7 17.3 Return on Equity 19.1 18.2 23.0 22.2 40.0 Market Ratio Price Earning Ratio 19.5 16.8 24.4 37.7 21.3 Market/Book Ratio 3.72 3.06 5.62 8.37 8.54 Chapter 3Enquiry into Stock Price MovementIn this chapter we will consider only the stock price movement of the year 2005-2009. Daily stock price is collide withed due to various factors that can be a macroeconomic variable as well as company specific variable. But in this section we will consider only the corporate decision factors.Variables can be some the following ones1. Dividend firmness of purpose2. AGMShare Price Movement for the year o f 2009Figure-17 Stock Price fluctuation of Aftab for the year 2009 chin-waggingWe can see that the price of Aftab Auto rose continuously throughout the year till the optic of May. DSE inquiry tells us that there was no sensitive price information that was undisclosed for the price ascension that we see. Then there were drop in the stock price but after that we can see a significant rise from around beginning of the September. We can only conclude that dividend declaration on 3 foremost August may contribute to this price hike. Again after the AGM took place in sixth December, the stock price started to fall. But at the end of the year, the company experienced a slight increase in the share price.Calculation of BetaAverage Market return (RM) = 1.884658331Covariance (Ri,RM) = 0.00543901Variance = 0.01175511849i = 0.462692922CommentBeta measures the volatility, or systematic risk, of a tribute or a portfolio in comparison to the market as a whole. As beta of Aftab Auto is less than 1 that is 0.463 which means that the security will be less volatile than the market.Dividend declaration & Stock Price MovementWe will now take a functional approach to the matter of dividend declaration for the year. We have taken the dividend declaration on 31/08/2009 an important factor which affected the stock price during that period. A regression analysis is done using dummy variable. The regression output summary followsSUMMARY OUTPUT OF REGRESSIONR Square 0.549260989 Cost of Capital 15% social class 10 Investment 1,500,000,000.00 standard 200 200.00 Price 10,000,000.00 10,000,000.00 Revenue 2,000,000,000.00 VC 70% 1,400,000,000.00 FC 3.50% 70,000,000.00 Depreciation 150,000,000.00 EBIT 380,000,000.00 Tax 27.50% 104,500,000.00 Net Income 275,500,000.00 Cash flow 425,500,000.00 So, project NPV at 2010 is, NPV2010 = -1,500,000,000 + (425,500,000.00 X PVIFAn=10, i=15%)NPV2010 = -1,500,000,000 + 425,500,000.00 * 5.018768626= 635,486,050.36 Ta kaSo the NPV of the bulge is 635,486,050.36 Taka which is positive. So the company may go for this project based on the assumptions we took to calculate the NPV.Sensitivity AnalysisNow we would like to test the sensitivity of NPV to various inputs of the project. Because we contain to know what happens to NPV if some inputs change. This helps give us better understanding of the projects situation to sustain the NPV.Particulars Amount in Taka Amount in Taka Change Revenue 2,000,000,000.00 1,600,000,000.00 (0.20) VC 1,400,000,000.00 1,120,000,000.00 (0.20) FC 70,000,000.00 70,000,000.00 - Depreciation 150,000,000.00 150,000,000.00 - EBIT 380,000,000.00 260,000,000.00 (0.32) Tax 104,500,000.00 71,500,000.00 (0.32) Net Income 275,500,000.00 188,500,000.00 (0.32) Cash flow 425,500,000.00 338,500,000.00 (0.20) NPV 635,486,050.36 198,853,179.90 (0.69) Relative Change 3.44 Here we see that,%in Revenue= -20%%in NPV = -69%And Relative Change = 3.44So from the above analysis we c an see that NPV is very sensitive to change in revenue. For 20% decrease of Revenue, NPV is change magnitude by 69%. Besides that, 1% change of revenue NPV is changed for 3.44%.New Share Price with the projectNew share price= (current capitalization + NPV of the project) / shares outstanding= (market price per share on the last day of 2009 * shares outstanding +NPV) / shares outstanding= (2,048.75 * 2,319,570+ 635,486,050.36) / 2,319,570= 2,322.72 Taka/ shareScenario AnalysisFor scenario analysis we took three cases1. Pessimistic2. Expected3. sanguine situationWe will produce that only sales are taken for the scenario analysis. The whole income statement is vertical size statement. Then after calculating the NPV for three scenarios of sales we will find the share price.We took that in pessimistic scenario sales will drop by 20% and in hopeful scenario sales will increase by 20%.Particulars Pessimistic Normal Optimistic total 160.00 200.00 240.00 Price 10,000,000.00 10,000,000 .00 10,000,000.00 Revenue 1,600,000,000.00 2,000,000,000.00 2,400,000,000.00 VC 1,120,000,000.00 1,400,000,000.00 1,680,000,000.00 FC 70,000,000.00 70,000,000.00 70,000,000.00 Depreciation 150,000,000.00 150,000,000.00 150,000,000.00 EBIT 260,000,000.00 380,000,000.00 500,000,000.00 Tax 71,500,000.00 104,500,000.00 137,500,000.00 Net Income 188,500,000.00 275,500,000.00 362,500,000.00 Cash flow 338,500,000.00 425,500,000.00 512,500,000.00 NPV 198,853,179.90 635,486,050.36 1,072,118,920.83 Now we can calculate the future stock price for these three scenarios using the new share price finding process shown earlier in this chapter.Description Pessimistic Normal Optimistic MKT Price 2,048.75 2,048.75 2,048.75 No. Of Share Outstanding 2,319,570.00 2,319,570.00 2,319,570.00 Current Capitalization (A) 4,752,219,037.50 4,752,219,037.50 4,752,219,037.50 NPV (B) 198,853,179.90 635,486,050.361,072,118,920.83 (A + B) 4,951,072,217.40 5,387,705,087.86 5,824,337,958.33 New Share Pr ice With Project 2,134.48 2,322.72 2,510.96 We can see that according to NPV the future market price of the company changes.Breakeven Quantity Based on NPVPVIFAn=10, i=15% 5.019 Initial Investment 1,500,000,000.000 EAC 298,878,093.768 Fixed Cost 70,000,000.000 VC 7,000,000.000 Price 10,000,000.000 Tax 0.275 1-Tc 0.725 Depreciation 150,000,000.000 After Tax Fixed Charge 308,378,093.768 After Tax Contribution 2,175,000.000 BEP Quantity 141.783 Particulars Year (2011-2021) Investment 1,500,000,000.000 Quantity 141.78 Price 10,000,000.00 Revenue 1,417,830,316.17 VC 992,481,221.32 FC 70,000,000.00 Depreciation 150,000,000.00 EBIT 205,349,094.85 Tax56,471,001.08 Net Income 148,878,093.77 Cash flow 298,878,093.77 So, project NPV at 2010 is, NPV2010 = -1,500,000,000 +(298,878,093.77 X PVIFAn=10, i=15%)NPV = -1,500,000,000 + 298,878,093.77 * 5.018768626= 0.00 Taka.Breakeven Price Based on NPVParticulars Amount in Taka Revenue 1,825,349,094.85 VC 1,400,000,000.00 FC 70,000,000.00 Depreciation 150,000,000.00 EBIT 205,349,094.85 Tax 56,471,001.08 Net Income 148,878,093.77 Cash flow 298,878,093.77 We know,Revenue = Price X QuantityPrice = Revenue / QuantityPrice = 1,825,349,094.85 / 200Break-Even Price = 9,126,745.47Chapter 5Prospective AnalysisWith the different factors positively contribute to the harvest of the stock price of Aftab Automobiles, we have analyzed the trend of different variables from the five year financial statement and detected the growth or reduction of every item. After that we have selected few components which show a growing trend and positively contribute to the growth of Stock Price.As we found that for Aftab Automobiles ltd, Market price movement is mostly similar with companys financial performance as like sales growth & profit growth. reaping positions (%) 2009-2008 2008-2007 2007-2006 2006-2005 GEOMEAN Sales 14.74% 41.81% -15.92% 8.95% 17.67% Net Profit/Loss 28.96% 88.45% -35.28% -2.36% 50.61% Operating Profit/Loss 69.27% 26.14% 47.34% 7.64% 28.45% EBIT 58.21% 81.95% -29.43% 11.35% 37.83% From the income statement we can concentrate on growth rates of sales revenue, operating profit, EBT and Net income. We are concentrating on average of last 4 years growth performance. From here we will use average sales growth of 17.67% for forecasting future market price. As growth rate of operating profit, EBT and Net income is close in figure, we are going to use average net income growth of 50.61% for forecast the market price trend.As the world economy is experiencing the recession and the impact of recession is also started touch our economy, so it will be a highly optimistic choice if we expect that the company will grow at the rate of 17.67% or 50.61%. On the other hand, the other growth rates that have been calculated also give us the indication that we cannot consider them ascompany growth rate given GDP growth of Bangladesh is 5.5% and world economy is in recession. We can assume that average growth rate for forecasting the share price & value of the company. harvest-tide Rate Scenario -1 presume growth rate of 17.67% as average of last 4 years growth of Sales Current 5 Year Projection Year 2009 2010 2011 2012 2013 2014 Growth Rate 17.67% 17.67% 17.67% 17.67% 17.67% Sales 2,124,637,706 2,500,061,189 2,941,822,001 3,461,641,948 4,073,314,080 4,793,068,678 Net Income 316,616,692 372,562,861 438,394,719 515,859,066 607,011,363 714,270,271 Dividend 47,570,900 55,976,678 65,867,757 77,506,590 91,202,004 107,317,398 Addition to extend Earnings269,045,792 316,586,183 372,526,962 438,352,476 515,809,359 606,952,873 Total Asset 2,438,883,896 2,869,834,680 3,376,934,468 3,973,638,789 4,675,780,763 5,501,991,224 Total Debt 1,533,364,403 1,804,309,893 2,123,131,451 2,498,288,779 2,939,736,406 3,459,187,829 crude Stock 589,249,465 589,249,465 589,249,465 589,249,465 589,249,465 589,249,465 Retained Earnings 316,270,028 632,856,211 1,005,383,174 1,443, 735,650 1,959,545,009 2,566,497,881 Total backing 2,438,883,896 3,026,415,569 3,717,764,090 4,531,273,893 5,488,530,879 6,614,935,175 Funds mandatory - (156,580,889) (340,829,621) (557,635,104) (812,750,116) (1,112,943,951) Debt Equity Ratio 1.691.48 1.33 1.23 1.15 1.10 sustainable Growth Rate 42.27% 34.96% 30.48% 27.49% 25.37% 23.81% EPS 136.50 160.62 189.00 222.39 261.69 307.93 Price 2,048.75 2,410.76 2,836.75 3,338.00 3,927.82 4,621.87 Assuming 17.67% growth rate, it has been found that the company has excess fund, which can be financed distributed to payoff long term debt and reduce the obligations of interest expenses. The projection says that presume 17.67% growth rate, after 5 years in 2014 EPS of the company would be 307.93 as well as considering current P/E ratio as unalterable factor, in year 2014 share price would be Taka 4,621.87.Growth Rate Scenario -2Assuming growth rate of 50.61% as average of last 4 years growth of Net income Current 5 Year Projection Year 2009 2010 2011 2012 2013 2014 Growth Rate 50.61% 50.61% 50.61% 50.61% 50.61% Sales 2,124,637,706 3,199,916,849 4,819,394,766 7,258,490,458 10,932,012,478 16,464,703,993 Net Income 316,616,692 476,856,400 718,193,424 1,081,671,116 1,629,104,867 2,453,594,840 Dividend 47,570,900 71,646,532 107,906,843 162,518,496 244,769,106 368,646,751 Addition to Retain Earnings 269,045,792 405,209,867 610,286,581 919,152,620 1,384,335,761 2,084,948,089 Total Asset 2,438,883,896 3,673,203,0365,532,211,092 8,332,063,126 12,548,920,274 18,899,928,825 Total Debt 1,533,364,403 2,309,400,127 3,478,187,532 5,238,498,242 7,889,702,202 11,882,680,486 Common Stock 589,249,465 589,249,465 589,249,465 589,249,465 589,249,465 589,249,465 Retained Earnings 316,270,028 721,479,895 1,331,766,477 2,250,919,096 3,635,254,857 5,720,202,947 Total funding 2,438,883,896 3,620,129,488 5,399,203,473 8,078,666,803 12,114,206,524 18,192,132,898 Funds Needed - 53,073,548 133,007,619 253,396,323 434,713,750 707,7 95,927 Debt Equity Ratio 1.69 1.76 1.81 1.84 1.87 1.88 Sustainable Growth Rate 42.27% 44.75% 46.56% 47.85% 48.74% 49.35% Price 2,048.75 3,085.62 4,647.26 6,999.23 10,541.54 15,876.62 Assuming 50.61% growth rate, it has been found that the company required additional fund to run to sustain the business in this growth rate. The projection says that assuming 50.61% growth rate, after 5 years in 2014 EPS of the company would be 1057.78 as well as considering current P/E ratio as constant factor, in year 2014 share price would be Taka 15,876.62.Growth Rate Scenario -3Assuming growth rate of 42.27% as sustainable growth rateSustainable Growth Rate = pic= pic= 42.27% Current 5 Year Projection Year 2009 2010 2011 2012 2013 2014 Growth Rate 42.27% 42.27% 42.27% 42.27% 42.27% Sales 2,124,637,706 3,022,749,966 4,300,506,074 6,118,386,469 8,704,708,779 12,384,303,496 Net Income 316,616,692 450,454,726 640,867,854 911,771,112 1,297,188,735 1,845,527,449 Dividend 47,570,900 67,679,744 9 6,288,861 136,991,427 194,899,502 277,286,081 Addition to Retain Earnings 269,045,792 382,774,982 544,578,993 774,779,685 1,102,289,233 1,568,241,368 Total Asset 2,438,883,896 3,469,832,148 4,936,575,765 7,023,331,171 9,992,185,492 14,216,013,523 Total Debt 1,533,364,403 2,181,537,673 3,103,702,297 4,415,678,018 6,282,243,106 8,937,829,769 Common Stock 589,249,465 589,249,465 589,249,465 589,249,465 589,249,465 589,249,465 Retained Earnings 316,270,028 699,045,010 1,243,624,003 2,018,403,688 3,120,692,921 4,688,934,289 Total Financing 2,438,883,896 3,469,832,148 4,936,575,765 7,023,331,171 9,992,185,492 14,216,013,523 Funds Needed - - - - - - Debt Equity Ratio 1.69 1.69 1.69 1.69 1.69 1.69 Sustainable Growth Rate 42.27% 42.27% 42.27% 42.27% 42.27% 42.27% EPS 136.50 194.20 276.29 393.08 559.24 795.63 Price 2,048.75 2,914.78 4,146.90 5,899.85 8,393.79 11,941.96 Assuming 42.27% growth rate, it has been found that the company has no excess fund or no deficit. The projection s ays that assuming 42.27% growth rate, after 5 years in 2014 EPS of the company would be 795.63 as well as considering current P/E ratio as constant factor, in year 2013 share price would be Taka 11,941.96.Growth Rate Scenario -4Assuming growth rate of 5.5% as GDP growth rate Current 5 Year Projection Year 2009 2010 2011 2012 2013 2014 Growth Rate 5.50% 5.50% 5.50% 5.50% 5.50% Sales 2,124,637,706 2,241,492,780 2,364,774,883 2,494,837,501 2,632,053,564 2,776,816,510 Net Income 316,616,692 334,030,610 352,402,294 371,784,420 392,232,563 413,805,354 Dividend 47,570,900 50,187,300 52,947,601 55,859,719 58,932,004 62,173,264 Addition to Retain 269,045,792 283,843,311 299,454,693 315,924,701 333,300,559 351,632,090 Earnings Total Asset 2,438,883,896 2,573,022,510 2,714,538,748 2,863,838,380 3,021,349,490 3,187,523,712 Total Debt 1,533,364,403 1,617,699,445 1,706,672,915 1,800,539,925 1,899,569,621 2,004,045,950 Common Stock 589,249,465 589,249,465 589,249,465 589,249,465 5 89,249,465 589,249,465 Retained Earnings 316,270,028 600,113,339 899,568,031 1,215,492,732 1,548,793,291 1,900,425,381 Total Financing 2,438,883,896 2,807,062,249 3,195,490,411 3,605,282,122 4,037,612,377 4,493,720,796 Funds Needed - (234,039,738) (480,951,663) (741,443,742) (1,016,262,887) (1,306,197,084) Debt Equity Ratio 1.69 1.36 1.15 1.00 0.89 0.80 Sustainable Growth Rate 42% 31% 25% 21% 18% 16% EPS 136.50 144.01 151.93 160.28 169.10 178.40 Price 2,048.75 2,161.43 2,280.31 2,405.73 2,538.04 2,677.63 Assuming vivid one 5.5% growth rate, it has been found that the company has excess fund, which can be financed distributed to payoff long term debt and reduce the obligations of interest expenses. The projection says that assuming 5.5% growth rate, after 5 years in 2014 EPS of the company would be 178.40 as well as considering current P/E ratio as constant factor, in year 2014 share price would be taka 2,677.63.Calculating Expected Return of Aftab Auto using CAPMThe general i dea behind CAPM is that investors need to be compensated in two ways time value of money and risk. The time value of money is represented by the risk-free (Rf) rate in the formula and compensates the investors for placing money in any investment over a period of time. The other half of the formula represents risk and calculates the amount of compensation the investor needs for fetching on additional risk or risk premium. This is calculated by taking a risk measure (beta) that compares the returns of the asset to the market over a period of time and to the market premium (Rm-Rf). picpic = 7.25% + 0.463 (1.88% 7.25%) pic = 4.915%We have determined market return Rm for year 2009 taking the monthly changein DSE Index. The average market return in 2009 has been found to be 1.88% and beta for the company is 0.46. If we post all the values in the above equation (considering Rf=7.5) we get the expected return pic to be 4.915%. This is lower than the risk free rate. This is the outcome of low market return. As such the expected return derived from CAPM can not be used for stock valuation.Future Stock Price Valuation under Gordon bewilder In this section we shall make a projection of market stock price of Aftab Auto. It has a security specific beta risk of 0.46 and the expected return for the company is 4.915%. But the expected return 4.915% is based on market return 1.88%. This phenomenon may be due to the fact that in 2009 due to the political situation & anti corruption activity of the government, a lot of money has been invested in DSE. As a result the price of stocks increased. It is vivid from the below graph.picFigure-20 DSE General Index for the 2009As the Expected Return derived from CAPM is too low (4.915%), we shall use another formula for expected rate of return.ks=(D1/P0)+gGrowth rate, g= memory Rate*ROERetention Rate = 0.85g= (0.85*0.35) =29.71%ROE = 35%D1= D0 (1+g) =20.51*1.2975=26.50ks = (26.61/ 2048.75)+0.2975 = 31.01%From this formula we get the Ex pected Return (ks) 31.01%. utilize the above information we can forecast expected stock value for Aftab Auto using the Gordon Model (Dividend Valuation Model). We assume that dividends will grow at a constant rate, g, forever. Since future cash flows grow at a constant rate forever, the value of a constant growth stock is the present value of a growing perpetuitypicWhere, picWe assume g=29.71% & k=37.12%. From all the above information we can forecast the future stock price for 2009. So the stock price for 1st January, 2010 would be BDT 459.64 But the real average stock price for first three months in 2010 was BDT 298.43. The average stock price is 54% lower than our forecasted price. This indicates the price of Aftab share is undervalued in the market. The explanation for lower market price may be due to decreasing trend in the General Index in 2010.Fig-21 DSE General Index in 2010Year Dividend Projected Price of Stock(using Gordon Model) 2009 (Actual) Do 20.51 2,048.75 2010 (pro jected) D1 26.60388 2048.75 2011 (projected) D2 34.50836 2657.469714 2012 (projected) D3 44.76141 3447.050776 2013 (projected) D4 58.06081 4471.230282 2014 (projected) D5 75.3117 5799.711558 2015 (Projected) D6 97.68813 Future Market Price projection in different growth RatepicGrowth Rate 2006 2007 Sales 2,124,637,706 2,500,061,189 Cost 1,808,021,014 2,127,498,327 Net Income 316,616,692 372,562,861.48 Asset 2,438,883,896 2,869,834,680.42 Debt 1,533,364,403 1,804,309,893.01 Equity 905,519,493.00 1,065,524,787.41 Total 2,438,883,896.00 2,869,834,680.42 Debt Equity Ratio 1.69 1.69 Here the plug variable is Dividend distribution of taka 212,557,567 and thus the Debt Equity ratio becomes unchanged.Scenario 2Particulars 2,009.00 17.67% Growth Rate Sales 2,124,637,706 2,500,061,189 Cost 1,808,021,014 2,127,498,327 Net Income 316,616,692 372,562,861.48 Asset 2,438,883,896 2,869,834,680.42 Debt 1,533,364,403 1,591,752,325.95 Equity 905,519,493.00 1,278,082,354.48 Total 2,438,883,896.00 2,869,834,680.42 DebtEquity Ratio 1.69 1.25 In this case, no Dividend is paid. So Equity increases for the Net income and thus Debt goes down. So in this case, plug variable is the Debt Equity ratio.Scenario AnalysisIn this case study, the growth rate of 5.5% has been selected as the constant growth rate and the pro forma statement has been generated based on this growth rate. For scenario analysis, both optimistic and pessimistic scenarios are being considered. Current Scenario Analysis of 2009 Pro-forma Year 2009 Pessimistic Normal Optimistic Growth Rate 2.50% 5.50% 8.50% Sales 2,124,637,706 2,177,753,649 2,241,492,780 2,305,231,911 Net Income 316,616,692 324,532,109 334,030,610 343,529,111 Dividend 47,570,900 48,760,173 50,187,300 51,614,427 Addition to Retain Earnings 269,045,792 275,771,937 283,843,311 291,914,684 Total Asset 2,438,883,896 2,499,855,993 2,573,022,510 2,646,189,027 Total Debt 1,533,364,403 1,571,698,513 1,617,699,445 1,663,700,377 Co mmon Stock 589,249,465 589,249,465 589,249,465 589,249,465 Retained Earnings 316,270,028 592,041,965 600,113,339 608,184,712 Total Financing 2,438,883,896 2,752,989,943 2,807,062,249 2,861,134,555 Funds Needed - (253,133,949) (234,039,738) (214,945,527) Debt Equity Ratio 1.69 1.33 1.36 1.39 Sustainable Growth Rate 42.27% 30.45% 31.35% 32.24% EPS 136.50 139.91 144.01 148.10 Price 2,048.75 2,099.97 2,161.43 2,222.89 In the above scenario analysis, we have taken the 5.5% growth rate in normal situation. If we want to be optimistic enough to predict that the economy will have a high growth and the company will also able to grow at 8.50%. On the other hand, the situation can also be worse enough to have a growth lower than the normal and the company may face a growth of 2.50%. After analyzing the scenario of different situation we can say that the projected growth rate is appropriate for the company which will help the company to put away in the market even if the situation is wor se. It gives a positive indication towards the company and increases the shareholders confidence to invest in the companys share.Chapter 6Findings & ConclusionAt the end we can say that, in year 2009, we see that the Market price is much higher then the Book Value of each share. Investors are willing to pay more than the book value of each share. The major reasons of the higher market value are the underestimation of the assets, as the assets are calculated based on the purchase price not on the basis of the market price. Besides that investment to the other shares are also calculated on the purchase price. But the market price is also higher. Moreover, Aftab Automobiles ltd enjoys a better reputation on the market. So the Intangible assets like, Patent, Trade mark should be considered. So we can say that the companys financial position is good. Based on market price if we re-construct the balance sheet, we have to introduce grace as intangible asset for Aftab Auto. This goodwill b asically shows the confidence of the shareholders & investors on Aftab Auto backed by some positive news.Overall we see that the Sales of the company are increasing which is a good sign. Besides that the company is investing heavily on the fixed assets,which may used to generate more revenue for the company. They are also offering cash dividend each year and also the company paid its short term load and also taking short term loans, which indicates that the company is enjoying a favorable environment in terms of the short term credit situation. So, we can conclude that the Aftab Automobiles Ltd is financially sound based on the Cash Flow analysis.Profit margin, operating profit, EPS, market-book value of the Aftab is increasing which indicates that the company is becoming more efficient in terms of its operations and also gaining investors confidence. So we can say that after experiencing some downfall Aftab Auto is now experiencing efficiency in its performance and also investors c onfidence.From the cash flow statement we can see that, in 2006, 2007 & 2009 the free cash flow figures are negative. This might happen because of high investment in inventory and R&D departments, means the company used more cash than they had sourced of. . Also the cash flows to Investors were sufficient for the company over the years. The company had sufficient fund to pay out dividends and that would eventually maximize the value of the firm. Fixed investments were consistent and consumed huge cash over the years.Using dummy variable to find effects of Dividend declaration was a success in 2009. We have seen that dividend declaration had a significant effect on the share price of Aftab Auto in the year 2009. Price fluctuated after the dividend was declared. Price increased significantly after the dividend was declared.Using dummy variable to find effects of AGM on Stock Price was a success in 2009. We have seen that AGM declaration also had a significant effect on the share pric e of Aftab Auto in the year 2009. Price fluctuated after the AGM took place. Price fell enormously after the AGM.We assumed a hypothetical situation of capital investment for Aftab Auto. The project turned out to have a positive NPV of 635,486,050.36 Taka. So its a project that adds value to the company.Incorporating the value of the project in the share price result is a share price of 2322.72 taka. This is higher than the market price of 2048.75 taka in the last trading day of 2009. This shows that the project adds value to the wealth of the shareholders.From the sensitivity analysis, we can see that NPV is very sensitive to change in revenue. For 20% decrease of Revenue, NPV is decreased by 69%. Besides that, 1% change of revenue NPV is changed for 3.44%.The scenario analysis shows that under pessimistic scenario of sales variable NPV becomes 198,853,179.90 taka and the future share price becomes 2134.48 taka. And optimistic scenario of sales variable results in a NPV of 1,072,11 8,920.83 taka and future price of share becomes 2510.96 taka. This shows how changes in sales in different situation can affect the project, its NPV and the future market price per share. But in this case it is satisfactory that sales change doesnt affect the share price of the company to a great extent. This can mean that the company has a modify way to do their business that a single project is not that much strong to affect the companys price per share.Break-Even Quantity for the new investment is 142 units if the selling price is 10,000,000 per unit. On the other hand, Break-Even Price is 9,126,745.47 if the selling quantity is 200 units.In projecting future market price, assuming realistic one 5.5% growth rate, it has been found that the company has excess fund, which can be financed distributed to payoff long term debt and reduce the obligations of interest expenses. The projection says that assuming 5.5% growth rate, after 5 years in 2014 EPS of the company would be 144.01 a s well as considering current P/E ratio as constant factor, in year 2013 share price would be 2,677.63Initially we assumed many growth variables, but considering current world wide economic condition, Bangladesh GDP growth rate of 5.5% as an assumption would be most appropriate, as due to recession period it would be veryoptimistic to assume higher growth rate