Corporate Finance Case Study: Square Textiles

Corporate Financial Analysis:
Square Textiles Ltd.
TERM PAPER
FIN 639
SEC: 1
Submitted By:
Ehsanul Hannan 081 124 060
Noor-A-Nazia 081 125 060
Md. Sajjad Bin M. Rahman 081 589 060
Submitted To:
Dr. Masud Rahman
Professor
MBA Program, School Of Business
April 16, 2011
April 16, 2011
Dr. Masud Rahman

Professor
MBA Program
School of Business
North South University
RE: Submission of term paper on “Corporate Financial Analysis: A Case on Square textiles
Ltd.”
Dear Sir:
We do hereby feel privileged to submit our term paper on “Corporate Financial Analysis:
Square Textiles Ltd.”, with an intention to have a better understanding of the course
“Corporate Finance”.
We greatly value the opportunity you gave us.
With Regards
Ehsanul Hannan Noor-A-Nazia Md. Sajjad Bin M. Rahman

ID: 081 124 560 ID: 081 125 060 ID: 081 589 060
i
Acknowledgement
At first, we show our gratitude to almighty ALLAH without whose grace, nothing is
possible. Our special thanks go to the honorable course instructor of the course, Dr.
Masud Rahman, who helped us in every sector to prepare this project paper with his
acquired knowledge and vast experience. We are very grateful for his guideline and
utmost patience towards us.
ii
Abstract
The objective of this case study is to find out the policy decisions made by Square
Textiles Ltd. that influenced share price movement. We were also interested to analyze
its investment decisions and the impact on share price. We also tried to forecast the
share price by identifying growth opportunity of the firm.
iii
Contents
Chapter 1 Introduction & Methodology................................................................1

1.1 Introduction........................................................................................................1
1.1.1 Square Textiles Ltd. at a glance...................................................................1
1.2 Objective of the study........................................................................................1
1.3 Methodology......................................................................................................2
1.3.1 Financial Analysis techniques.....................................................................2
1.3.2 Statistical Techniques.................................................................................3
1.3.3 Nature and Source of Data.........................................................................3
1.3.4 Time – Period under Consideration............................................................3
1.3.5 Standard of comparison.............................................................................3
1.4 Limitations of the study......................................................................................3
Chapter 2 Analysis & Interpretation of Financial Data...........................................5

2.1 Balance Sheet Analysis.......................................................................................5
2.1.1 Sources of “Discrepancies” in the Balance Sheet........................................6
2.2 Cash Flow Analysis..............................................................................................8
2.2.1 Analysis of the Cash Flow:..........................................................................9
2.3 Ratio Analysis......................................................................................................9
2.3.1 Liquidity Ratio...........................................................................................10
2.3.2 Asset Management Ratio..........................................................................13
2.3.3 Debt Management Ratio..........................................................................17
2.3.4 Profitability Ratio......................................................................................19
2.3.5 Market Value Ratio...................................................................................22
Chapter 3 Stock Price Movement........................................................................25

3.1 Account Closing................................................................................................25
3.2 Dividend Declaration........................................................................................25
3.3 Record Date......................................................................................................26
3.4 Annual General Meeting...................................................................................26
3.5 M&A Activities..................................................................................................26
Chapter 4 Prospective Analysis............................................................................28
iv
4.1 Different Growth Rates.....................................................................................28
4.2 Scenario 1: Growth at Sustainable Growth Rate..............................................28
4.3 Scenario 2: Growth as per Gordon Model........................................................29
4.4 Scenario 3: Growth at GDP growth rate...........................................................29
4.5 Scenario 4: Optimistic.......................................................................................30
4.6 Scenario 5: Pessimistic......................................................................................30
4.7 Choice of Growth Rate......................................................................................31
4.8 The Plug Variable..............................................................................................31
4.9 Weighted Average Cost of Capital....................................................................31
4.10 Share Price according to Gordon Model...........................................................32
Chapter 5 Findings and Conclusions....................................................................33

5.1 Financial Performance......................................................................................33
5.2 Stock Price Movement......................................................................................33
5.3 Growth Prospect and Future Share Price.........................................................33
Appendix 34
A.1 Regression results.............................................................................................34
A.2 Weighted Average Cost of Capital....................................................................39
A.3 Financial Statements & Performance Data.......................................................40
v
Chapter 1
Introduction & Methodology
1.1 Introduction
This case study is prepared with an intention to meet partial requirement of the course
‘Corporate Finance’ and to have a better insight of the subject matter. We have chosen
Square textiles Ltd., one of the leading yarn manufacturers of the country for this purpose.
We performed an analysis of the company and tried to evaluate its justification with the
acquired knowledge from this course.
1.1.1 Square Textiles Ltd. at a glance
Square Textiles Ltd. was established as a public limited company in 1994 as a group company
in Square Group with a business line of manufacturing and marketing of yarn. The company
started its operation on 1997 and was listed at both Dhaka Stock Exchange and Chittagong
Stock Exchange in 2004. At the end of 2009 paid-up capital of the company was Tk. 705.84
million with 70,584,053 shares outstanding. The company is very profitable and doing very
good in terms of share price also. Dividend payout in both cash and bonus share form has
also been very consistent through the last few years.
Square Textiles got Oeko-Tex Standard 100 and ISO-9002 certification in 2000.
At end of 2009, the production capacity of the company stands at 11,582,899 Kg Ring Yarn
and 12,329,688 Kg of O/E yarn.
1.2 Objective of the study
The objective of this Case Study is to:
Identify policy decisions that has an impact on share price movement
Relate consequences of financial activities with the valuation of the firm
1|Page
1.3 Methodology
A number of methods and techniques which were used towards reaching a conclusion are
stated below: -
1.3.1 Financial Analysis techniques
A balance sheet analysis was performed to identify the sources of discrepancies in balance
sheet that causes book value and market value of share to be different.
A cash flow analysis was performed to study the cash dealings of the firm and to identify its
financial position.
We also performed a ratio analysis to evaluate the firm’s financial strengths or weaknesses.
The most prominent Financial Analysis techniques include the following 3 methods: -
Bench Mark Analysis
Time Series (Trend) Analysis
Cross Section Analysis
Bench mark Analysis
This method is literally unusable in Bangladesh as no industry data is widely available

regardless of any sector. This led to high dependency on the remaining two methods.
Time Series (Trend) Analysis
The time series analysis is predominantly known as “Trend Analysis”, where we try to find a
trend of a specific performance of the company. Different ratios are computed over time
and comment is made whether any increasing / decreasing trend is found.
Cross – Section Analysis
In this type of analysis, Company’s financial ratios are compared with other industry ratio
averages. This can also be performed by issuing comparison between two companies of
similar business.
For the sake of the case study, we will perform Time Series analysis on the seven year data
2|Page
that we have and a Cross Section analysis between our company of interest Square Textiles
Ltd. and Apex Spinning & Knitting Mills Ltd (ASKML).
1.3.2 Statistical Techniques
To relate share price movement with different events or policy decisions e.g. account
closing, record date, dividend declaration, AGM etc. we relied on simple regression by
populating dummy variable against the event.
1.3.3 Nature and Source of Data
The data used in this study is secondary data collected from annual reports and Dhaka Stock
Exchange web site and data archive
1.3.4 Time – Period under Consideration
We collected seven (08) years of data of Square Textiles Ltd., and considered data from 2003
to 2010. For enquiry into share price movement we’ve used only the data from 2008 – 2010
since news about different events were only available for this period. For trend analysis, we
used data of 2003 – 2009 since annual report of 2010 is yet to be published. We accept that
only seven year data is not good enough to comment on the financial performance of the
company, but it can at least give us a glimpse of the recent trend that the company is going
through.
1.3.5 Standard of comparison
As the industry benchmark was not available to us, we decided to compare the ratios of our
company with that of another one. We chose Apex Spinning & Knitting Mills Ltd. for the
comparison as this company’s performance was the best among the companies whose data
were available.
1.4 Limitations of the study
Like all other case studies, this too has got its limitations. Following are the areas where we
had our limitations
 Unable to conduct direct interview with Square Textiles employees to get a better
insight of our findings.
3|Page
 Unavailability of information in a “Soft Copy” which consumed lot of time.
 No information was available on the overall market share in the yarn industry in
Bangladesh. Moreover, the industry averages were not also available which would
have been a better option to compare with.
 Financial year of Square Textiles and ASKML ends in different months which can
create inaccuracies in cross-section analysis
 Due to time constraint, cross section analysis was done only for last year. It would be
better if it was compared for last 7 years.
 Due to unavailability of project data, we could not perform an analysis of investment

decisions made by Square Textiles
4|Page
Chapter 2
Analysis & Interpretation of Financial Data
2.1 Balance Sheet Analysis
The Balance Sheet shows the financial position of a firm at a specific point in time. The
financial statement indicates the investments made by the firm in the form of assets and the
means by which the assets were financed – that is, whether the funds were raised by
borrowing (which is actually the Liabilities part of a Balance Sheet) or by selling ownership
shares or common shares or common stocks (which is basically the Equity part of a Balance
Sheet). Amounts shown on a balance sheet are generally the historic cost of items and not
their current values. Balance sheet can be defined as: Assets = Liabilities + Equity. The assets
side of the balance sheet is always equal to the total liabilities and equities.
Table 1: Balance sheet of Square Textiles Ltd. based on book value of share
Figures in Taka
Balance Sheet
Assets Liabilities and Equities
Current Assets Current Liabilities
Stocks 942,568,134 Short Term Bank Loan 573,802,358
Trade Debtors 1,683,329,048 Short Term Loan 552,993,073
Short Term Loan 431,848,649 Sundry Creditors 870,756,515
Advance, Deposits and
120,651,506 Other Current Liabilities 170,321,074
Prepayments
Cash & Bank Balances 46,332,373 Provision for income tax 108,728,783
Total Current Assets 3,224,729,710 Total Current Liabilities 2,276,601,803
Fixed Assets Non-current Liabilities

Assets at Cost Less
1,378,552,606 Deferred Tax Liability 112,276,486
Depreciation
Investment-Long Term (At
105,000,000 Total Liabilities 2,388,878,289
Cost)
Share Money Deposit 800,000,000 Equities
Total Fixed Assets 2,283,552,606 Share capital 705,804,530
General Reserve and
2,413,563,497
Surplus
Tax Holiday -
Total Equities 3,119,404,027
Total Assets 5,508,282,316 Total Liabilities & Equities 5,508,282,316
5|Page
The above table shows the Balance Sheet of Square Textiles Ltd. as presented in their annual
report. According to this balance sheet the book value of Square Textiles shares for the day
December 31, 2009 should be 44.19 Taka. But in reality we can see that the actual market
price on that day was much higher than that, 111.54 Taka.
Market Value Vs Book Value

180
138.3
160
127.4
111.54
117.3
140
120
Value (in Taka)
81.7
100
75.6
80
51.65
51.23
50.04
49.66
44.53
44.19
48.7
43.1
60
40
20
0
2009 2008 2007 2006 2005 2004 2003
Year
market price book value
Figure 1: Comparison between Market Value & Book Value of Square Textiles Shares
Having a look at the trend analysis of the market value and book value of Square Textiles
Ltd., it was found that the Market value has been much higher than the book value by a
huge margin. These values indicate that there exists some sort of discrepancy between these
two types of values. Our intention is to identify these discrepancies and thus propose a
Balance Sheet based on the Market Value.
2.1.1 Sources of “Discrepancies” in the Balance Sheet
In order to identify the sources of discrepancies we now concentrate on the Balance Sheet
for the year 2009, of Square Textiles Ltd. After a thorough analysis of balance sheet items,
the following items were identified as factors contributing towards raising discrepancies
between the book value and market value: -
Fixed Assets are “Undermined”: The financial statements have been prepared under the
historical cost convention and fixed assets are stated at cost less accumulated depreciation.
But, as suggested by the Time Value of Money concept, price changes as time passes.
Moreover, the depreciation was charged using the Straight – Line method. From this analysis
6|Page
above we reach to a conclusion that the values of fixed assets are undermined. The asset
composition shows that a significant 30% of fixed assets are land and building which have
been recorded at historical cost. But over the years these assets’ market price has
significantly increased which has not been reflected in the balance sheet.
No Intangible Assets section: It was found that the company did not incorporate any
Intangible assets in the balance sheet. One of the most important intangible assets is
“Trademark” which was not considered in preparing the balance sheet. Square Textiles Ltd.
is in operation in Bangladesh for the last 11 years, since 1997, and has been holding a
healthy position for last several years. They have been profitable with a fair performance in
share market also. So, this is certainly an evidence of their goodwill which should be valued.
The firm recently acquired Mithapur Textiles and also merged with Square Spinning Ltd.
These M&A activities have been recorded as cost/share price. But the brand value acquired
from these activities has not been recorded.
Equity “Understated”: As we can find from the balance sheet here that equity of Square
Textiles Ltd. has been severely understated. The company calculates its equity from the
period of 2004 when it was first listed with Dhaka Stock Exchange, but with reference to the
Time Value of Money concept the equity has increased a lot over this period of time. Gain
from price increase in land and building has not been recognized.
Upon identifying the above mentioned discrepancies, we adjusted the balance sheet in
terms of the market value of stocks. In order to standardized in terms of market value the
following three values were changed in the original balance sheet.
The Value of Assets Less Depreciation was changed from taka 1,378,552,606 to Taka
4,132,057,851
Goodwill was added valued as taka 2,000,000,000.
General Reserve and Surplus has been changed from 2,413,563,497 taka to 7,167,104,742
taka.
As a result the Total Assets and Total Liabilities & Equities sides balanced at taka
10,261,787,561.
7|Page
Table 2: Balance sheet of Square Textiles Ltd. based on Market value of share
Balance Sheet
Assets Liabilities and Equities
Current Assets Current Liabilities
Stocks 942,568,134 Short Term Bank Loan 573,802,358
Trade Debtors 1,683,329,048 Short Term Loan 552,993,073
Short Term Loan 431,848,649 Sundry Creditors 870,756,515
Advance, Deposits and
120,651,506 Other Current Liabilities 170,321,074
Prepayments
Cash & Bank Balances 46,332,373 Provision for income tax 108,728,783
Total Current Assets 3,224,729,710 Total Current Liabilities 2,276,601,803
Fixed Assets Non-current Liabilities

Assets Less Depreciation 4,132,057,851 Deferred Tax Liability 112,276,486
Investment-Long Term (At Cost) 105,000,000 Total Liabilities 2,388,878,289
Share Money Deposit 800,000,000
Intangible Assets 2,000,000,000 Equities
Total Fixed Assets 7,037,057,851 Share capital 705,804,530
General Reserve and
7,167,104,742
Surplus
Tax Holiday -
Total Equities 7,872,909,272
Total Assets 10,261,787,561 Total Liabilities & Equities 10,261,787,561
2.2 Cash Flow Analysis
The statement of cash flows is designed to show how the firm’s operations have affected its
cash position by examining the investment and financing decisions of the firm. Often time,
the information contained in the statement of cash flows answer questions like: Is the firm
generative the cash needed to purchase additional fixed assets for growth? Does it have
excess cash flows that can be used to repay debt or to invest in new products? Information
contained in the Cash Flow Statement is useful both for financial managers and investors.
Following is the cash flow analysis of Square Textiles Ltd.:-
Table 3: Cash Flow Statement for Square Textiles Ltd. for the year 2009
2009 2008
Cash flow from operating activities
Receipts:
Cash from sales revenue 3,888,585,244 2,763,272,886
Cash from other income 259,007 23,676
Total cash receipts 3,888,844,251 2,763,296,562
Payments:
Purchase for raw & packing materials (2,840,712,628) (1,951,063,214)
8|Page
Manufacturing & operating expense (517,209,344) (482,296,269)
Finance Cost (112,410,317) (114,091,254)
Income tax (41,934,432) (77,675,961)
Workers profit participation fund (16,355,199) (13,369,264)
Total payment (3,528,621,920) (2,638,495,962)
Net Cash Flow From Operating Activities 360,222,331 124,800,600
Cash flow from investing activities

Cash flow from investing activities
Purchase of fixed assets (97,332,491) (130,606,406)
Profit from disposal of Fixed Assets 295,000 1,047,111
Cash Receiver from Merger of SSL (10,000,000) 13,198,790
Net Cash Flow From Investing Activities (107,037,491) (116,360,505)
Cash flow from financing activities

Short term Bank loan (203,726,227) (27,451,291)
Short term loan from/(to) sister Concern 58,058,364 129,959,939
Payment of Dividend (105,876,079) (98,583,425)
Net Cash Flow From Financing Activities (251,543,942) 3,925,223
Net cash position 1,640,898 12,365,318

Opening cash & cash equivalents 44,691,475 32,326,157
Closing Cash & Cash Equivalent 46,332,373 44,691,475
2.2.1 Analysis of the Cash Flow:
Net Cash Flow from Operating Activities: The net cash flow from operating activities was
much higher than previous year mainly due to increase in sales which shows a good sign for
the company.
Net Cash Flow from Investment Activities: There is no significant change in net cash flow
from investment activities compared to the previous year.
Net Cash Flow from Financing Activities: The company has paid off a large amount of short
term loan which caused a large amount of cash outflow..
Net cash after 2009 position is weaker than 2008 even after a significant rise in sales. This
happened mainly due to paying off a large amount of short term loan.
2.3 Ratio Analysis
The real value of financially statements lies in the fact that they can be used to help predict a
firm’s financial position in the future and to determine expected earnings and dividends. An
9|Page
analysis of the firm’s ratios generally is the first step in a financial analysis. The ratios are
designed to show relationships between financial statement accounts within firms and
between firms.
Sources for these ratios are the company Financial Statements within the industry that
contains figures on assets, liabilities, profits, and losses. Industry ratios are only meaningful
when compared with other information. Since individual companies are most often
compared with industry data, ratios help an individual understand a company's performance
relative to that of competitors and are often used to trace performance over time.
There are 5 major categories when ratio analysis is considered. These categories are:
Liquidity Ratio which gives a picture of a company’s short term financial situation or
solvency.
Asset Management Ratio uses turnover measures to show how efficient a company is in its
operations and use of assets.
Debt Management Ratio shows the extent that debt is used in a company's capital
structure.
Profitability Ratio uses margin analysis and show return on sales and capital employed.
Market Value Ratio shows company’s standing in the capital market.
2.3.1 Liquidity Ratio
Liquid asset is an asset that can be converted to cash without significant loss of its original
value. This basically indicates the strength of a company in terms of meeting the current
obligations or liabilities, e.g. employee salary. Sometimes low liquidity even leads to
bankruptcy. Two commonly used Liquidity Ratios are (1) Current Ratio and (2) Acid Test
Ratio.
Current Ratio
Current Ratio is the ratio of current assets to current liabilities, which refers to the short
term solvency of the company and calculated as: -
10 | P a g e
Current Assets
Current Ratio 
Current Liabilities
Table 1: Current Ratio for Square Textiles Ltd. & Apex Spinning & Knitting Mills Ltd.
Compan
y Square Textiles Ltd. ASKML
Year 2009 2008 2007 2006 2005 2004 2003 2009
Current
Ratio 1.35 1.21 1.38 1.12 1.41 1.14 1.01 1.10
We can see from the above data that the current ratio for Square Textiles is 1.35, which is
below the benchmark standard for any company. But comparing with Apex Spinning &
Knitting Mills Ltd., it is higher as Apex Spinning & Knitting Mills Ltd. has a Current Ratio of
0.89.
Current Ratio
1.60
1.40
1.20
1.00
0.80
Ratio
0.60
0.40
0.20
0.00
2009 2008 2007 2006 2005 2004 2003
Year
Figure 2: Current Ratio Trend
The trend line of current ratio for Square textiles shows that the company has maintained a
somewhat steady current ratio for the last 7 years and also there has been improvement in
current ratio from last year.
Acid Test Ratio (Quick) Ratio
Acid Test Ratio is a better measure than Current Ratio as it deducts inventories from Current
assets and thus provides a better idea about the liquidity of the firm. It is calculated as
follows:
11 | P a g e
Current Assets−Inventories
Acid Test Ratio=
Current Liabilities
Table: Acid Test (Quick) Ratio for Square Textiles Ltd. & Apex Spinning & Knitting Mills Ltd.
Compan
Year 2009 2008 2007 2006 2005 2004 2003 2009
Acid Test
Ratio 0.96 0.76 0.96 0.73 0.91 0.80 0.75 0.76
Currently Square Textiles is maintaining a quick ratio of 0.96, which is lower than the
Benchmark ratio of 1. But comparing with Apex Spinning & Knitting Mills Ltd., it is much
higher as Apex Spinning & Knitting Mills Ltd. has a Quick Ratio of 0.075.
Acid Test Ratio

1.20
1.00
0.80
0.60
Ratio
0.40
0.20
0.00
2009 2008 2007 2006 2005 2004 2003
Year
Figure 3: Acid Test Ratio Trend
As we can see from the graph above, the quick ratio trend is not steady. It may indicate that
the company has gone for multiple projects/investments in last few years. The company’s
quick ratio is pretty much close to the benchmark of 1.
Overall Comment on Liquidity
The overall liquidity position of the company is not very good but it is getting better. Both
the ratios have increased in 2009. Considering the length of operation of Square Textiles the
performance is quite good especially in terms of quick ratio as it is pretty close to
12 | P a g e
benchmark. The kind of ups and downs found in the trend analysis is mainly due to the fact
that the company has gone for multiple projects/investments in last few years. This
eventually is good news for a firm like Square Textiles who has very strong financial support
from the group. Also the company’s position is much better compared to Apex Spinning &
Knitting Mills.
2.3.2 Asset Management Ratio
Whether the assets of the company are being used effectively or in other words is able to
generate sales, is suggested by the asset management ratio.
Inventory Turnover
It shows that how many times the inventory of a firm is sold and replaced in a specific
period.
Cost of Goods Sold
Inventory Turnover=
Inventories
Table: Inventory Turnover for Square Textiles Ltd. & Apex Spinning & Knitting Mills Ltd.
Compan
Year 2009 2008 2007 2006 2005 2004 2003 2009
Inventory
Turnover 3.55 2.04 3.39 4.18 3.79 5.14 5.28 9.56
The inventory turnover for Square Textiles is 3.55 whereas, Apex Spinning & Knitting Mills
Ltd. has inventory turnover of 9.56. So, in this regard, Square Textiles is in a much worse
position.
Inventory Turnover
6.00
5.00
4.00
Times
3.00
2.00
1.00
0.00
2009 2008 2007 2006 2005 2004 2003
Year
13 | P a g e
Figure 4: Inventory Turnover Trend
The trend line does not look very impressive. Inventory turnover is getting lower. This might
be due to increasing price of raw materials and also due to price reduction to cope up with
the competitive market. However, there is a very sharp rise from 2008 to 2009. This can
primarily be attributed to the handsome increase in export sales.
Days Sales Outstanding
Days Sales Outstanding refers to the average time a company takes to turn the receivables
into cash.
Net Receivable
Days Sales Outstanding (DSO)=
Annual Sales/360
Table: Days Sales Outstanding for Square Textiles Ltd. & Apex Spinning & Knitting Mills Ltd.
Compan
Year 2009 2008 2007 2006 2005 2004 2003 2009
DSO 158.26 202.06 117.67 114.36 115.52 123.93 145.83 54.16
During the last year Square Textiles had a DSO of 158.26 days whereas, Apex Spinning &
Knitting Mills Ltd. has DSO of 54.16 days. So, in this regard, Square Textiles is in a much
worse position.
DSO
250.00
200.00
150.00
Days
100.00
50.00
0.00
2009 2008 2007 2006 2005 2004 2003
Year
14 | P a g e
Figure 5: Days Sales Outstanding Trend
The trend analysis shows that during the period 2008 Square Textiles had the worst DSO of
202.06. in 2009, it improved a bit. But DSO is still too high. This may be due to the fact that
most of Square Textiles’ dales are export sales which naturally take longer to be collected.
Fixed Asset Turnover
This ratio refers to how much sales or revenue is generated by employing the fixed assets of
the company.
Sales
Fixed Assets Turnover=
Net Fixed Assets
Table: Fixed Asset Turnover of Square Textiles Ltd. & Apex Spinning & Knitting Mills Ltd.
Compan
Year 2009 2008 2007 2006 2005 2004 2003 2009
Fixed
Asset
Turnover 1.70 1.29 1.62 1.54 2.00 2.08 1.73 4.63
Square Textiles had Fixed Asset Turnover Ratio of 1. 70, which means their Taka 1 of fixed
asset can generate taka 1.70 of sales whereas, Apex Spinning & Knitting Mills Ltd. has Fixed
Asset turnover of 4.63. So, in this regard, Square Textiles is in a much worse position. But a
further inquiry shows that ASKML is very low on fixed assets, which is an indication of off-
balance sheet financing. On the other hand, Square Textiles did not go for leasing option.
15 | P a g e
Fixed Asset Turnover
2.50
2.00
1.50
Ratio
1.00
0.50
0.00
2009 2008 2007 2006 2005 2004 2003
Year
Figure 6: Fixed Asset Turnover Trend
The trend analysis shows that Square Textiles’ Fixed Asset Turnover deteriorated for during
2007 and 2008. But in 2009 it got a little better.
Total Asset Turnover
Like the fixed asset, this ratio refers to how much sales or revenue is generated by
employing the fixed assets of the company.
Sales
Total Assets Turnover=
Total Assets
Table: Total Asset Turnover of Square Textiles Ltd. & Apex Spinning & Knitting Mills Ltd.
Compan
Year 2009 2008 2007 2006 2005 2004 2003 2009
Total
Asset
Turnover 0.70 0.53 0.73 0.84 0.92 0.97 0.84 1.93
Square Textiles had Total Asset Turnover Ratio of 0.70, which means their Taka 1 of total
asset can generate taka 0.70 of sales whereas, Apex Spinning & Knitting Mills Ltd. has Total
Asset turnover of 1.93. This is once again due to the fact that ASKML has opted for off-
balance sheet financing
16 | P a g e
Total Asset Turnover
1.20
1.00
0.80
0.60
Ratio
0.40
0.20
0.00
2009 2008 2007 2006 2005 2004 2003
Year
Figure 7: Total Asset Turnover Trend
The total asset turnover of Square Textiles was increasing during the period 2003-2004 but
then it started to drop and reached a lowest in 2008. It stands at 0.70 in 2009, which shows
a turning point in turnover trend.
Overall Comment on Asset Management
Square Textiles is in a worse position than Apex Spinning & Knitting Mills Ltd. in all the Asset
Management Ratio, except for DSO. Though high DSO is explainable, but the other ratios are
not impressive at all.
It seems that the company is not managing its assets very well though there is an indication
that the company is getting better in asset management.
2.3.3 Debt Management Ratio
Debt Management Ratios judge the debt management performance of a company. If a

company goes for too much debt for financing its operations, it might end up in a very hard
financial situation.
Debt Ratio
The Debt Ratio measures the percent of total funds provided by creditors. Debt includes
both current liabilities and long-term debt.
Total Debt
Debt Ratio=
Total Assets
17 | P a g e
Table: Debt Ratio for Square Textiles Ltd. & Apex Spinning & Knitting Mills Ltd.
Compan
Year 2009 2008 2007 2006 2005 2004 2003 2009
Debt
Ratio 43.37% 48.95% 39.70% 40.69% 38.26% 46.82% 50.67% 53.07%
Square Textiles Ltd. has a much lower debt ratio than Apex Spinning & Knitting Mills Ltd. Last
year the debt ratio of Square Textiles Ltd. was 43.37% which is lower than the industry
recommended average of 50%. It looks like the company prefers capital financing to debt
financing.
Debt Ratio
60.00%
50.00%
40.00%
30.00%
%
20.00%
10.00%
0.00%
2009 2008 2007 2006 2005 2004 2003
Year
Figure 8: Debt Ratio trend
The trend analysis shows that Square Textiles Bangladesh had a high debt ratio at the end of
the year 2003. But after that the debt ratio has started to go down dramatically. This is
actually a very good sign for the company. The company is managing debt in very efficient
way.
Times Interest Earned
EBIT
Times Interest Earned =
Interest Charges
Table: Times Interest Earned for Square Textiles Ltd. & Apex Spinning & Knitting Mills Ltd.
Compan Square Textiles Ltd. ASKML
18 | P a g e
y
Year 2009 2008 2007 2006 2005 2004 2003 2009
TIE 3.56 3.53 4.88 6.22 6.85 4.26 2.46 2.06
Last year Square Textiles Ltd. had Times Interest Earning of 3.56. It means that Square
Textiles Ltd. has got Taka 3.56 to pay interest of Taka 1 whereas Apex Spinning & Knitting
Mills Ltd. had TIE of 2.06. In this respect Square Textiles Ltd. was in a better position.
TIE
8.00
7.00
6.00
5.00
Times
4.00
3.00
2.00
1.00
0.00
2009 2008 2007 2006 2005 2004 2003
Year
Figure 9: Times Interest Earned Trend
Square Textiles have maintained a pretty good TIE for the last 7 years. From the trend, it is
seen that TIE declined between 2005 and 2008. But last year it improved a bit.
Overall comment on Debt Management
Debt Ratio of Square Textiles Ltd. is much lower than Apex Spinning & Knitting Mills Ltd. It is
less than the benchmark of 50%. This indicates that Square Textiles Ltd. is not a highly
levered firm.
Square Textiles Ltd. had much lower debt ratio last year. Higher profitability might be the
reason for what Square Textiles Ltd. did not take more loans.
Last year Square Textiles Ltd. had much high TIE, which can also be justified by high profit of
the last year.
Square Textiles’ overall debt management performance is very impressive which is very
19 | P a g e
good news for the company.
2.3.4 Profitability Ratio
Profitability is the company's ability to generate revenues in excess of the costs incurred in
producing those revenues. Profitability Ration is the measure of performance showing how
much the firm is earning compared to its sales, assets or equity.
Profit Margin on Sales
Net Income
Profit Margin on Sales =
Sales
Table: Profit Margin on Sales for Square Textiles Ltd. & Apex Spinning & Knitting Mills Ltd.
Compan
Year 2009 2008 2007 2006 2005 2004 2003 2009
Profit 13.87 13.31 10.69
Margin 6.71% 7.75% % % % 8.08% 7.98% 0.87%
Last year, Square Textiles had profit margin of 6.71%. It means by utilizing Taka 100 of sales,
it can have net income of Taka 6.71. The profit margin of Square Textiles is much better
compared to Apex Spinning & Knitting Mills.
Profit Margin
16.00%
14.00%
12.00%
10.00%
8.00%
%
6.00%
4.00%
2.00%
0.00%
2009 2008 2007 2006 2005 2004 2003
Year
Figure 10: Profit Margin on Sales Trend
The trend analysis shows that Square Textiles profit margin had been increasing till 2007. But
for the last 2 years, we see a declining trend. Though sales has increased in last few years,
20 | P a g e
the profit margin has gone down due to decline in price of finished goods and also due to
increase in raw material price
Return on Asset
Net Income
Return on Assets =
Total Assets
Table: Return on Assets for Square Textiles Ltd. & Apex Spinning & Knitting Mills Ltd.
Company Square Textiles Ltd. ASKML

Year 2009 2008 2007 2006 2005 2004 2003 2009
10.12 11.18
ROA 4.73% 4.07% % % 9.88% 7.83% 6.71% 1.68%
Last year, it had Return on Asset of 4.73%. It means by utilizing Taka 100 of asset, it can have
net income of Taka 4.73. ROA of Square Textiles also was much better than Apex Spinning &
Knitting Mills.
ROA
12.00%
10.00%
8.00%
6.00%
%
4.00%
2.00%
0.00%
2009 2008 2007 2006 2005 2004 2003
Year
Figure 11: Return on Assets Trend
ROA dropped drastically during 2008. In 2009, it regained a little. This is also due to
decreased profitability caused by price increase of raw materials and price cut for finished
goods
21 | P a g e
Return on Equity
Net Income Available to Common Stockholders

Return on Equity =
Common Equity
Table: Return on Equity for Square Textiles Ltd. & Apex Spinning & Knitting Mills Ltd.
Compan
Year 2009 2008 2007 2006 2005 2004 2003 2009
ROE 8.36% 7.98% 17.44% 19.70% 16.88% 14.72% 13.61% 3.49%
Last year, it had Return on Equity of 8.36%. It means by utilizing Taka 100 of total equity
available to common shareholders, it can have net income of Taka 8.36. ROE of Square
Textiles was better than Apex Spinning & Knitting Mills’ ROE of 3.49%.
ROE
25.00%
20.00%
15.00%
%
10.00%
5.00%
0.00%
2009 2008 2007 2006 2005 2004 2003
Year
Figure 12: Return on Equity trend
The ROE trend is quite similar to ROA.
Overall comment on profitability
Square Textiles has been a profitable company almost since its establishment and during the
past few years the Profit Margin ratio has improved a lot. But in last couple of years,
profitability has gone down to changing economy. But still the firm has considerable offset
compared to its competitor.
22 | P a g e
2.3.5 Market Value Ratio
Market value is the most critical ratio while making any kind of investment decision about
the company.
Price / Earning Ratio

Market Price per Share
Price/Earning Ratio =
EPS
Table: Return on Equity for Square Textiles Ltd. & Apex Spinning & Knitting Mills Ltd.
Compan
Year 2009 2008 2007 2006 2005 2004 2003 2009
P/E Ratio 30.23 24.90 14.25 8.54 12.61 27.44 10.12 48.02
P/E Ratio of Square Textiles Ltd. in the last year was higher than that of Apex Spinning &
Knitting Mills Ltd.
P/E
35.00
30.00
25.00
20.00
Ratio
15.00
10.00
5.00
0.00
2009 2008 2007 2006 2005 2004 2003
Year
Figure 13: Price / Earning Ratio Trend
P/E Ratio of Square Textiles Ltd. climbed up in the last year from 2008. The company has
maintained a healthy P/E ratio for the last 7 years.
Market Value / Book Value Ratio
Market Price per Share

Market/Book Value Ratio =
Book Value per Share
Table: Market / Book Value for Square Textiles Ltd. & Apex Spinning & Knitting Mills Ltd.
23 | P a g e
Compan
Year 2009 2008 2007 2006 2005 2004 2003 2009
M/B
Ratio 2.52 2.34 2.49 1.46 1.65 2.84 0.97 1.67
M/B Ratio of Square Textiles Ltd. is higher than that of Apex Spinning & Knitting Mills Ltd.
M/B
3.00
2.50
2.00
1.50
Ratio
1.00
0.50
0.00
2009 2008 2007 2006 2005 2004 2003
Year
Figure 14: Market Value Book Value Trend
M/B trend shows that for Square Textiles Ltd. it was steady for last 3 years after some ups
and downs in the earlier years.
Overall comment on Market Value
Square Textiles’ P/E ratio of last 7 years suggest that shareholders are willing to spend a
much higher price for the company’s shares compared to the earnings. This indicates trust
on the company. All the previous ratios also suggest that the company is doing quite well for
last several years. The company’s performance has gained trust among the share market
investors and as a result the share price is quite high compared to book value which is also
reflected in M/B ratio.
24 | P a g e
Chapter 3
Stock Price Movement
In this section of the report, we try to relate stock price movement with different
events/corporate decisions like AGM, account closing, dividend declaration, M&A etc. by
doing a simple regression of share price against a dummy variable populated indicating the
event. The value of the dummy variable is taken as 0 for all dates before the event and 1 for
all dates after the event. Regression was done with a 95% confidence interval.
3.1 Account Closing
P-Value of
Year R2 F Significance F Co-efficient
Co-efficient
2008 0.78464 134.805 6.73182E-14 13.3031746 6.73182E-14
2009 0.207308 10.46094 0.002447 -4.07143 0.002447
2010 0.006267 0.239632 0.627286 0.3 0.627286
There is significant statistical evidence that the share price was positively correlated with
account closing in 2008. And we also see a significant negative correlation in 2009. But there
is no statistical evidence that the share price was correlated to account closing in 2010.
3.2 Dividend Declaration
Dividend P-Value of
Paid Co-efficient
25% Cash
2008 0.1537 5.993255 0.019845 4.672222 0.019845
20% Bonus
18% Cash
2009 0.300204 17.58851 0.000143 -3.59545 0.000143
20% Bonus
16% Cash
2010 0.565958 53.46095 6E-09 -10.7548 6E-09
15% Bonus
We see significant positive correlation between dividend declaration and share price in
2008. In later years the correlation is more significant and there is an increase in R 2 which
indicates the correlation becoming higher. If we observe the dividend payout for these
years, we find that the company has declared lesser and lesser dividends in the later years
and the relation is significantly negative. This suggests that the stockholders definitely did
25 | P a g e
not like the decrease in dividend payout.
3.3 Record Date
P-Value of
Co-efficient
2008 0.298928 16.62913 0.000217 -8.16857 0.000217
2009 0.965318 1196.835 5.04E-33 -15.7315 5.04E-33
2010 0.886335 304.1134 5.17E-20 -13.826 5.17E-20
The regression results indicate significant negative relation between record date and share
price. Decrease in share price after record date is mainly due to that fact that shareholders
who likes to get dividends holds the share until record date and sells them afterwards.
3.4 Annual General Meeting
P-Value of
Co-efficient
2008 0.158764 7.549105 0.00896 -5.84909 0.00896
2009 0.131547 6.36187 0.015537 -3.83354 0.015537
2010 0.581957 55.68386 4.3E-09 9.795 4.3E-09
The regression results indicate significant relation between AGM and share price. However
the relation was negative in 2008 and 2009 while we find a significant positive correlation in
year 2010. The change in sign of correlation cannot be explained with available data.
3.5 M&A Activities
Apart from the regular annual events, we were interested to observe the effect on share
price caused by 2 very big decisions made by Square Textiles in recent years: merger with
Square Spinning Ltd. and acquisition of Mithapur Textiles Ltd.
Significance Co- P-Value of

Decision R2 F
F efficient Co-efficient
Merger with Square
0.392191 23.22916 2.6E-05 -3.91818 2.6E-05
Spinning Ltd.
Acquisition of
0.000123 0.004814 0.945042 -0.0599 0.945042
Mithapur Textiles Ltd.
The Regression analysis shows that the stockholders did not like the merger between Square
Textiles and Square Spinning Ltd. On the other hand, they were indifferent about the
26 | P a g e
takeover of Mithapur Textiles.
27 | P a g e
Chapter 4
Prospective Analysis
4.1 Different Growth Rates
It is important to identify a practicable growth rate of a firm to be able to forecast its share
price in future. Different growth scenarios create different effect on share price. In this study
we first consider the following growth scenarios to observe the effect:
 Scenario 1: Growth at Sustainable Growth Rate

 Scenario 2: Growth as per Gordon Model
 Scenario 3: Growth at GDP Growth Rate
 Scenario 4: Optimistic Growth Rate
 Scenario 5: Pessimistic Growth Rate
4.2 Scenario 1: Growth at Sustainable Growth Rate
D
p × ( 1−d ) ×(1+
)
E
Sustainable Growth Rate, gs =
D
T −p × ( 1−d ) ×(1+ )
E
Where,
p = Profit Margin on Sales

d = Dividend Payout Ratio
D/E = Debt Equity Ratio
T =Ratio of total assets to sales
In our case, gs = 1.36%
Table: 3 yrs Forecast at g = gs
2009 2010 2011 2012
Sales 3,882,244,01 3,935,002,59 3,988,478,15 4,042,680,42
0 3 0 4
Net Income 260,634,002 264,175,943 267,766,019 271,404,882
Dividend 218,810,564 221,784,137 224,798,120 227,853,062
Addition to Retained Earnings 41,823,438 42,391,806 42,967,899 43,551,820
Total Assets 5,508,282,31 5,583,138,29 5,659,011,54 5,735,915,88
6 3 2 6
28 | P a g e
Total Debt 2,388,878,28 2,421,342,46 2,454,247,81 2,487,600,33
9 0 0 4
Common Stock 705,840,530 705,840,530 705,840,530 705,840,530
Retained Earnings 2,413,563,49 2,455,955,30 2,498,923,20 2,542,475,02
7 3 2 2
Total Financing 5,508,282,31 5,583,138,29 5,659,011,54 5,735,915,88
6 3 2 6
External Funds Needed 0 0 0 0
Debt: Equity Ratio 0.77 0.77 0.77 0.77
Sustainable Growth Rate 1.36% 1.36% 1.36% 1.36%
EPS 3.69 3.74 3.79 3.85
Price (P/E = 30.227) 111.61 113.13 114.67 116.23
4.3 Scenario 2: Growth as per Gordon Model
According to Gordon Model, g=Retention Rate × ROE
In our case, Retention Rate = 16%
ROE = 8.36%
So, Growth Rate, g = 1.34%
Table: 3 yrs Forecast at g = 1.34%

2009 2010 2011 2012
Sales 3,882,244,01 3,934,149,61 3,986,749,19 4,040,052,02
0 2 3 9
Net Income 260,634,002 264,118,679 267,649,945 271,228,425
Dividend 218,810,564 221,736,062 224,700,673 227,704,921
Total Assets 5,508,282,31 5,581,928,05 5,656,558,42 5,732,186,61
6 1 9 5
Total Debt 2,388,878,28 2,420,817,59 2,453,183,92 2,485,982,99
9 2 3 2
Common Stock 705,840,530 705,840,530 705,840,530 705,840,530
7 4 7 1
Total Financing 5,508,282,31 5,582,604,23 5,657,919,84 5,734,242,41
6 6 0 3
External Funds Needed 0 -583,858 -1,175,539 -1,775,149
EPS 3.69 3.74 3.79 3.84
Price (P/E = 30.227) 111.61 113.11 114.63 116.16
29 | P a g e
4.4 Scenario 3: Growth at GDP growth rate
GDP growth rate = 5.8%
Table: 3 yrs Forecast at g = 5.8%

2009 2010 2011 2012
Sales 3,882,244,01 4,107,414,16 4,345,644,18 4,597,691,54
0 3 4 7
Net Income 260,634,002 275,750,774 291,744,319 308,665,490
Dividend 218,810,564 231,501,577 244,928,668 259,134,531
Total Assets 5,508,282,31 5,827,762,69 6,165,772,92 6,523,387,75
6 0 6 6
Total Debt 2,388,878,28 2,527,433,23 2,674,024,35 2,829,117,77
9 0 7 0
Common Stock 705,840,530 705,840,530 705,840,530 705,840,530
7 4 5 3
Total Financing 5,508,282,31 5,691,086,45 5,884,493,23 6,089,117,60
6 4 2 3
External Funds Needed 0 136,676,236 281,279,695 434,270,153
EPS 3.69 3.91 4.13 4.37
Price (P/E = 30.227) 111.61 118.09 124.94 132.18
4.5 Scenario 4: Optimistic
We assume an optimistic growth rate of 20%
Table: 3 yrs Forecast at g = 20%

2009 2010 2011 2012
Sales 3,882,244,01 4,658,692,81 5,590,431,37 6,708,517,64
0 2 4 9
Net Income 260,634,002 312,760,802 375,312,963 450,375,555
Dividend 218,810,564 262,572,677 315,087,213 378,104,655
Total Assets 5,508,282,31 6,609,938,77 7,931,926,53 9,518,311,84
6 9 5 2
Total Debt 2,388,878,28 2,866,653,94 3,439,984,73 4,127,981,68
9 7 6 3
Common Stock 705,840,530 705,840,530 705,840,530 705,840,530
7 2 3 3
Total Financing 5,508,282,31 6,036,246,09 6,669,802,63 7,430,070,48
6 9 9 6
30 | P a g e
External Funds Needed 1,262,123,89 2,088,241,35
0 573,692,680 6 6
EPS 3.69 4.43 5.32 6.38
Price (P/E = 30.227) 111.61 133.94 160.72 192.87
4.6 Scenario 5: Pessimistic
We assume a pessimistic growth rate of -10%
Table: 3 yrs Forecast at g = -10%

2009 2010 2011 2012
Sales 3,882,244,01 3,494,019,60 3,144,617,64 2,830,155,88
0 9 8 3
Net Income 260,634,002 234,570,602 211,113,542 190,002,187
Dividend 218,810,564 196,929,508 177,236,557 159,512,901
Total Assets 5,508,282,31 4,957,454,08 4,461,708,67 4,015,537,80
6 4 6 8
Total Debt 2,388,878,28 2,149,990,46 1,934,991,41 1,741,492,27
9 0 4 3
Common Stock 705,840,530 705,840,530 705,840,530 705,840,530
7 1 5 2
Total Financing 5,508,282,31 5,307,035,58 5,125,913,52 4,962,903,66
6 1 0 4
External Funds Needed 0 -349,581,497 -664,204,844 -947,365,856
EPS 3.69 3.32 2.99 2.69
Price (P/E = 30.227) 111.61 100.45 90.41 81.37
4.7 Choice of Growth Rate
In the earlier scenarios, we see that high growth rate is not sustainable and it requires a very
high D/E ratio which is not desired. In the trend analysis section, we found that the firm
maintains a Debt Ratio below 50%. Considering this capital structure policy, it is very less
likely that the company will go for debt financing to achieve high growth rates.
We also found out that the sustainable growth rate is also quite similar to the growth rate
found from Gordon Model. So, it seems that the firm is actually looking to grow at
sustainable growth rate. So, we take the sustainable growth rate to predict future stock
price of the company.
31 | P a g e
4.8 The Plug Variable
As the company policy is to keep the debt ratio below a certain level, the company has been
changing the dividend payout ratio every year. So, dividend payout is the plug variable here.
4.9 Weighted Average Cost of Capital
From the financial reports, we find that the cost of debt is 15.8%
To find out the cost of equity, we take help of CAPM which says that
Cost of equity, Rj = Rf + β(Rm – Rf)
Where,
Rf = Risk free return
β = company risk
Rm = Average market return
We consider risk free rate as 8% which is the average rate of return of bonds.
To calculate Rm and β, we took monthly closing DSE index and share price of Square Textiles.
From regression, β = 0.76
Rm = 50.43%
From these values, cost of equity Rj = 40.25%
The firm has a debt ratio = 43.37%
Weighted Average Cost of Capital = 29.65%
4.10 Share Price according to Gordon Model
According to Gordon Model, share price
P = D1/(k-g) = D0(1+g)/(k-g)
D0 = 3.1 k = 29.65% g = 1.36%
32 | P a g e
So, P = 12.42
We see that the stock of Square Textiles is highly overpriced. So, it is highly likely that the
share price will go down in future.
33 | P a g e
Chapter 5
Findings and Conclusions
Square Textiles share price at the end of 2009 BDT 111.54 while its net asset value per share
is only BDT 44.19. So, we were interested to find out the reasons behind this difference and
also to predict future price movement. Following are the key findings in the study:
5.1.1 Financial Performance
 Square Textiles is a profitable company

 It is not utilizing its assets efficiently. ROA is very low.
 The company is not highly levered
 The company may have some hidden profit in terms of market value of their fixed
assets especially land and buildings
5.1.2 Stock Price Movement
 Stock price of the company is highly affected by dividend declaration, record date, AGM
 The stockholders did not like the decrease in dividend in recent years
 There was a merger with Square Spinning which also did not please the shareholders
which resulted in a negative correlation with share price
5.1.3 Growth Prospect and Future Share Price
 The company seems to maintain a debt equity ratio of below 1

 If the firm continues with this policy, it has a very low growth opportunity
 With current growth opportunity, the shares of this company is highly overpriced and
expected to fall in future
With the above observations, we come to a conclusion that the prevailing share price of the
firm is expected to be decreasing in future. However, we still need to explain why the share
price is so high with a high M/B ratio. This can be attributed to the brand value of ‘Square’
which has created a lot of trust among the investors. As a result, investors are ready to
invest in the share even with a low return and growth opportunity.
34 | P a g e
Appendix
A.1 Regression results
A.1.1 Account closing
Year 2008
SUMMARY OUTPUT
Regression Statistics
Multiple R 0.885798821
R Square 0.784639552
Adjusted R Square 0.778818999
Standard Error 3.567105062
Observations 39
ANOVA
df SS MS F Significance F
Regression 1 1715.290867 1715.290867 134.8049916 6.73182E-14
Residual 37 470.7968254 12.72423852
Total 38 2186.087692
Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%
Intercept 123.452381 0.778406141 158.5963605 5.06152E-54 121.8751803 125.0295816 121.8751803 125.0295816
X Variable 1 13.3031746 1.145782816 11.61055518 6.73182E-14 10.98159812 15.62475109 10.98159812 15.62475109
Year 2009
SUMMARY OUTPUT
R Square 0.207307642
Observations 42
ANOVA
Regression 1 174.0535714 174.0535714 10.4609381 0.002447242
Residual 40 665.5371429 16.63842857
Total 41 839.5907143
Intercept 115.8571429 0.890115792 130.1596309 3.47014E-54 114.0581518 117.656134 114.0581518 117.656134
X Variable 1 -4.071428571 1.258813825 -3.234337352 0.002447242 -6.615586187 -1.527270955 -6.615586187 -1.527270955
35 | P a g e
Year 2010
SUMMARY OUTPUT
R Square 0.00626658
Adjusted R Square -0.019884299
Observations 40
ANOVA
Regression 1 0.9 0.9 0.239631724 0.627286287
Residual 38 142.719 3.755763158
Total 39 143.619
Intercept 119.195 0.43334531 275.0577823 2.64807E-64 118.3177383 120.0722617 118.3177383 120.0722617
X Variable 1 0.3 0.612842815 0.489521934 0.627286287 -0.940635407 1.540635407 -0.940635407 1.540635407
A.1.2 Dividend Declaration
Year 2008
SUMMARY OUTPUT
R Square 0.153699796
Observations 35
ANOVA
Regression 1 190.8536032 190.8536032 5.993255378 0.019845461
Residual 33 1050.876111 31.84473064
Total 34 1241.729714
Intercept 130.2277778 1.330094622 97.90865678 2.97752E-42 127.5216799 132.9338756 127.5216799 132.9338756
X Variable 1 4.672222222 1.908499712 2.448112616 0.019845461 0.789350382 8.555094062 0.789350382 8.555094062
Year 2009
SUMMARY OUTPUT
R Square 0.300204054
Observations 43
ANOVA
Regression 1 138.8932452 138.8932452 17.58850743 0.000142899
Residual 41 323.7695455 7.896818182
Total 42 462.6627907
Intercept 114.3 0.613220157 186.3930901 1.14049E-61 113.0615768 115.5384232 113.0615768 115.5384232
X Variable 1 -3.595454545 0.857312803 -4.193865452 0.000142899 -5.326832856 -1.864076235 -5.326832856 -1.864076235
36 | P a g e
Year 2010
SUMMARY OUTPUT
R Square 0.565958209
Observations 43
ANOVA
Regression 1 1242.725244 1242.725244 53.46095014 6.0043E-09
Residual 41 953.0645238 23.24547619
Total 42 2195.789767
Intercept 119.55 1.027916609 116.3032088 2.75037E-53 117.4740803 121.6259197 117.4740803 121.6259197
X Variable 1 -10.7547619 1.470897682 -7.311699539 6.0043E-09 -13.7253 -7.784223805 -13.7253 -7.784223805
A.1.3 Record Date
Year 2008
SUMMARY OUTPUT
R Square 0.298928464
Observations 41
ANOVA
Regression 1 683.5301185 683.5301185 16.62913058 0.000216809
Residual 39 1603.070857 41.10438095
Total 40 2286.600976
Intercept 136.0285714 1.399053778 97.22897973 3.72679E-48 133.1987181 138.8584248 133.1987181 138.8584248
X Variable 1 -8.168571429 2.003140165 -4.077883101 0.000216809 -12.22030481 -4.116838042 -12.22030481 -4.116838042
Year 2009
SUMMARY OUTPUT
R Square 0.965317956
Observations 45
ANOVA
Regression 1 2771.793813 2771.793813 1196.834642 5.03791E-33
Residual 43 99.58529762 2.315937154
Total 44 2871.379111
Intercept 111.0458333 0.310640277 357.4740358 2.56843E-76 110.4193675 111.6722991 110.4193675 111.6722991
X Variable 1 -15.73154762 0.454730803 -34.59529797 5.03791E-33 -16.64859967 -14.81449557 -16.64859967 -14.81449557
37 | P a g e
Year 2010
SUMMARY OUTPUT
R Square 0.886334965
Observations 41
ANOVA
Regression 1 1958.193241 1958.193241 304.1134293 5.16655E-20
Residual 39 251.121881 6.439022589
Total 40 2209.315122
Intercept 114.4809524 0.553732899 206.7439963 6.60641E-61 113.3609219 115.6009829 113.3609219 115.6009829
X Variable 1 -13.82595238 0.792824856 -17.43884828 5.16655E-20 -15.429592 -12.22231276 -15.429592 -12.22231276
A.1.4 AGM
Year 2008
SUMMARY OUTPUT
R Square 0.158764391
Observations 42
ANOVA
Regression 1 358.4100087 358.4100087 7.549104661 0.008960466
Residual 40 1899.086182 47.47715455
Total 41 2257.49619
Intercept 128.1090909 1.469031136 87.20651846 2.97137E-47 125.1400683 131.0781136 125.1400683 131.0781136
X Variable 1 -5.849090909 2.128828365 -2.747563404 0.008960466 -10.15161348 -1.546568334 -10.15161348 -1.546568334
Year 2009
SUMMARY OUTPUT
R Square 0.131547231
Observations 44
ANOVA
Regression 1 161.322349 161.322349 6.361870105 0.015537277
Residual 42 1065.023106 25.35769299
Total 43 1226.345455
Intercept 98.94782609 1.050003996 94.23566624 1.64766E-50 96.82883226 101.0668199 96.82883226 101.0668199
X Variable 1 -3.833540373 1.519874199 -2.522274788 0.015537277 -6.900770648 -0.766310097 -6.900770648 -0.766310097
38 | P a g e
Year 2010
SUMMARY OUTPUT
R Square 0.581956672
Observations 42
ANOVA
Regression 1 1005.106929 1005.106929 55.6838617 4.29564E-09
Residual 40 722.0095 18.0502375
Total 41 1727.116429
Intercept 102 0.905795419 112.6082092 1.12173E-51 100.1693192 103.8306808 100.1693192 103.8306808
X Variable 1 9.795 1.312622267 7.462161999 4.29564E-09 7.142091466 12.44790853 7.142091466 12.44790853
A.1.5 M&A Activities
Merger with Square Spinning
SUMMARY OUTPUT
R Square 0.392191264
Observations 38
ANOVA
Regression 1 142.209378 142.209378 23.22915856 2.60356E-05
Residual 36 220.3927273 6.122020202
Total 37 362.6021053
Intercept 132.4181818 0.527516488 251.0218822 5.49862E-60 131.3483288 133.4880348 131.3483288 133.4880348
X Variable 1 -3.918181818 0.812957507 -4.819663739 2.60356E-05 -5.56693605 -2.269427587 -5.56693605 -2.269427587
Acquisition of Mithapur Textiles
SUMMARY OUTPUT
R Square 0.000123409
Adjusted R Square -0.025514452
Observations 41
ANOVA
Regression 1 0.036234241 0.036234241 0.004813558 0.945041827
Residual 39 293.5740097 7.527538709
Total 40 293.6102439
Intercept 108.8043478 0.572087661 190.1882443 1.70733E-59 107.6471913 109.9615043 107.6471913 109.9615043
X Variable 1 -0.059903382 0.86341235 -0.069379806 0.945041827 -1.806319687 1.686512923 -1.806319687 1.686512923
39 | P a g e
A.2 Weighted Average Cost of Capital
A.2.1 β Calculation
SUMMARY OUTPUT
R Square 0.308470875
Observations 104
ANOVA
Regression 1 0.116762778 0.116762778 45.49921043 9.40568E-10
Residual 102 0.261758461 0.002566259
Total 103 0.378521239
Intercept -0.00112883 0.005051618 -0.223459041 0.823625186 -0.01114869 0.008891031 -0.01114869 0.008891031
Rm-Rf 0.75919073 0.112550898 6.745310255 9.40568E-10 0.535946562 0.982434897 0.535946562 0.982434897
A.2.2 Average Market Return
Average weekly return = 0.97%
So, average annual return = 0.97*52 = 50.43%
A.2.2 Cost of Equity
Ri = .08 + 0.76 (.5043 - .08) = 40.25%
A.2.2 WACC
Cost of Debt = 15.8%
Debt Ratio = 43.37%
WACC = 0.4337 X 15.8 + (1-0.4337) X 40.25 = 29.65%
40 | P a g e
A.3 Financial Statements & Performance Data
Square Textiles Ltd. ASKML

2009 2008 2007 2006 2005 2004 2003
Current Assets 3,224,729,710 3,437,049,714 1,909,672,000 1,417,780,000 1,391,410,000 1,357,092,000 1,284,065,000 481,192,792
Current Liabilities 2,388,878,289 2,843,250,860 1,382,789,000 1,269,821,000 989,212,000 1,187,839,000 1,267,503,000 436,833,644
Inventory 942,568,134 1,267,785,890 577,163,363 487,871,798 487,753,824 405,449,809 329,015,503 150,077,244
COGS 3,348,870,289 2,589,019,736 1,958,696,404 2,041,065,393 1,847,818,461 2,083,702,523 1,737,055,759 1,434,176,589
Accounts
1,683,329,048 1,689,670,282 819,360,445 821,199,524 756,736,173 834,989,837 840,066,283 235,362,912
Receivable
Sales 3,882,244,010 3,052,235,640 2,541,543,000 2,620,966,000 2,390,979,000 2,459,201,000 2,102,670,000 1,586,094,474
Fixed Assets 2,283,552,606 2,370,847,250 1,573,559,000 1,702,906,000 1,193,767,000 1,180,203,000 1,217,332,000 342,491,610
Total Assets 5,508,282,316 5,807,896,964 3,483,231,000 3,120,686,000 2,585,177,000 2,537,295,000 2,501,397,000 823,684,402
Total Debt 2,388,878,289 2,843,250,860 1,382,789,000 1,269,821,000 989,212,000 1,187,839,000 1,267,503,000 437,134,519
EBIT 433,507,033 387,282,778 517,149,366 481,315,121 465,778,608 300,290,342 305,414,202 35,344,028
Interest Expenses 121,730,159 109,701,045 106,026,180 77,350,086 67,966,406 70,530,935 124,160,747 17,176,247
Net Income 260,634,002 236,529,908 352,447,136 348,833,453 255,494,330 198,689,678 167,893,727 13,814,819
Common Equity 3,119,404,027 2,964,646,104 2,020,482,000 1,770,905,000 1,513,511,000 1,349,457,000 1,233,894,000 396,170,995
Market Price 111.54 117.3 127.4 75.6 81.7 138.3 43.1 790
EPS 3.69 4.71 8.94 8.85 6.48 5.04 4.26 16
Book Value 44.19 50.04 51.23 51.65 49.66 48.7 44.53 472
No. of shares 70,584,053 58,820,044 39,433,370 34,289,887 30,479,900 27,709,000 25,190,000 840,000
Dividend payout 218,810,564 223,516,167 177,450,165 154,304,492 129,539,575 110,836,000 100,760,000
Dividend per share 3.10 3.80 4.50 4.50 4.25 4.00 4.00
Source: Annual Reports
41 | P a g e

Corporate Finance Case Study: Square Textiles

Cargado por

Información del documento

Derechos de autor

Formatos disponibles

Compartir este documento

Compartir o incrustar documentos

Opciones para compartir

¿Le pareció útil este documento?

¿Este contenido es inapropiado?

Copyright:

Formatos disponibles

Corporate Finance Case Study: Square Textiles

Cargado por

Copyright:

Formatos disponibles

Corporate Financial Analysis:

Square Textiles Ltd.

Dr. Masud Rahman

We greatly value the opportunity you gave us.

Ehsanul Hannan Noor-A-Nazia Md. Sajjad Bin M. Rahman

Chapter 1 Introduction & Methodology................................................................1

Chapter 2 Analysis & Interpretation of Financial Data...........................................5

Chapter 3 Stock Price Movement........................................................................25

Chapter 4 Prospective Analysis............................................................................28

Chapter 5 Findings and Conclusions....................................................................33

1.1.1 Square Textiles Ltd. at a glance

1.2 Objective of the study

The objective of this Case Study is to:

Identify policy decisions that has an impact on share price movement

Relate consequences of financial activities with the valuation of the firm

1.3.1 Financial Analysis techniques

Bench Mark Analysis

Time Series (Trend) Analysis

Cross Section Analysis

Bench mark Analysis

This method is literally unusable in Bangladesh as no industry data is widely available

Time Series (Trend) Analysis

Cross – Section Analysis

1.3.2 Statistical Techniques

1.3.3 Nature and Source of Data

1.3.4 Time – Period under Consideration

1.3.5 Standard of comparison

1.4 Limitations of the study

 Due to unavailability of project data, we could not perform an analysis of investment

2.1 Balance Sheet Analysis

Fixed Assets Non-current Liabilities

Total Assets 5,508,282,316 Total Liabilities & Equities 5,508,282,316

Market Value Vs Book Value

market price book value

2.1.1 Sources of “Discrepancies” in the Balance Sheet

Goodwill was added valued as taka 2,000,000,000.

Fixed Assets Non-current Liabilities

Total Assets 10,261,787,561 Total Liabilities & Equities 10,261,787,561

2.2 Cash Flow Analysis

Net Cash Flow From Operating Activities 360,222,331 124,800,600

Cash flow from investing activities

Cash flow from financing activities

Net cash position 1,640,898 12,365,318

Closing Cash & Cash Equivalent 46,332,373 44,691,475

2.2.1 Analysis of the Cash Flow:

2.3 Ratio Analysis

Market Value Ratio shows company’s standing in the capital market.

2.3.1 Liquidity Ratio

Figure 2: Current Ratio Trend

Acid Test Ratio (Quick) Ratio

Acid Test Ratio

Figure 3: Acid Test Ratio Trend

Overall Comment on Liquidity

2.3.2 Asset Management Ratio

Days Sales Outstanding

Fixed Asset Turnover

Figure 6: Fixed Asset Turnover Trend

Total Asset Turnover

Figure 7: Total Asset Turnover Trend

Overall Comment on Asset Management

2.3.3 Debt Management Ratio

Debt Management Ratios judge the debt management performance of a company. If a

Figure 8: Debt Ratio trend

Times Interest Earned