East West University Department of Business Administration Spring 2011 FIN 425 (Investment Analysis and Management) Assignment

Topic: Characteristics of IPO Prospectus Information and Its Relation to Subsequent Price in Secondary Market
1. Each group shall consist of 3-6 Members. 2. Each Group will Work on with Particular Year IPOs to collect the following data and
then arrange it in Excel before working with SPSS. Information available on

http://www.secbd.org/prospectus.html and DSE library.

measures of central tendency.

3. Calculate the characteristics of the financial and operating, offer variables like basic
4. Use small sample t-test, paired sample test, independent sample t-test to gain more insight about the characteristics and proving or disproving hypothesis about the sample companies financial, operating and offer variable characteristics.

5. Develop multiple regressions to understand the impact of these variables on holding

period return for seven different model i.e. model 1 is for the first day HPR, model 2 is for 2nd days HPR etc. 6. Group leader must ensure that everyone participates in the assignment and contributes equitably. 7. Use the SPSS guideline text available in the library as well as statistics books use for STA-217 to complete the assignment.

8. Contact the teaching assistant of STA-217 if you require any help. 9. Submission Date: 1st class of Last week class.
10. Group leaders must resolve any problem that has the chance of being used as an excuse for late submission. No late submission is acceptable and will earn Zero marks.

Data to be collected from the prospectus

Financial and Operational variables: Age of the Company: How many years the company has been incorporated as private or public limited company and operating the business in Bangladesh. Accounts closing date: Account closing date is the companys most recent operational year before going to the IPO. Total Assets: Total asset is the total amount of the companys tangible assets as per balance sheet stated in the prospectus on the account closing date. Total Revenue: Total revenue is the total amount that has been generated through sales or service during the most recent operational year considered in the prospectus.

Net Profit Margin (NPM): NPM is the ratio of Net profit and Total revenue of the company for the most recent operational year before IPO issue. NPM = (Net Profit/Total Revenue) Gross Profit Margin (GPV): GPM is the ratio between Gross profit and Total Revenue. Gross profit is calculated by deducting Cost of Goods Sold (COGS) from total revenue. GPM is calculated by dividing Gross profit by total revenue. GPM = {(Total revenue-COGS)/Total revenue} Return on Assets (ROA): ROA is the ratio between Net profit and total asset. ROA= (Net profit after tax/Total asset) Return on Equity (ROE): ROE is the ratio between n the portion of net profit available to the stock holders and total equity of the stock holders. ROE = (Net profit available to share holder/Total share holders equity) Debt/Equity Ratio: Debt Equity Ratio is the ratio between total debt and total share holders equity of the company. Debt equity ratio = (total debt/total equity) Sales/TA: It is a ratio between total sales and total asset of the company and expressed as a percentage of total asset. It is calculated by dividing total sales by total asset. R&D/TA: It is the ratio between total Research and Development Expenditure and total asset. It is expressed as a percentage of the total asset. R&D/TA= (Total Research and development Expenditure/ Total Asset) Operating Income before Depreciation/TA: It is calculated dividing the operating income after depreciation is added by total asset. It is expressed as the percentage of the total asset. Operating Income before Depreciation/TA= {(Operating Income + Depreciation) / Total Asset} Current Ratio: Current Ratio = Current Asset / Current Liabilities Existing EPS: EPS stands for Earning per Share. Existing EPS is the EPS of the most recent operational year. EPS = (Net Income available to common stock holders / Numbers of common stock holder outstanding) Net Assets Value per share (NAV per share): NAV per share = (Total asset Total Liabilities) / Total No. of shares P/E ratio (Against Offered Price): P/E ratio: (Offer Price per share / EPS) Credit Ratings: It indicates the credit worthiness of the company to the investor conducted by a professional credit rating farm. Historical Dividend: Historical dividend is the most recent years dividend before IPO issued. It is expressed as a percentage of the face value of a share. Projected Dividend: Projected dividend is the proposed dividend which will be distributed after IPO issue. It is expressed as a percentage of the face value of a share. Executive Compensation: Executive compensation is the amount that is paid to the directors as fees and to the employees as salary. It is expressed as a total amount. Offering Variables: Offer size (Shares): Offer size is total number of shares is being offered by the company in IPO. Offer price: Offer price is the per share price of the offerings including or excluding premium or discount respectively.

No. of Risk factors listed in Prospectus: It is the total number of risk factor those are stated IPO prospectus considered as risks for the companys operation. Ratio of Offer size/TA: It is the ratio between offer size in amount and total asset and expressed as percentage of total asset. It is calculated by dividing totals offer size in amount by total asset. Ratio of offer size/TA = (Total offer size in amount / Total Asset) No. of days to finish total subscription: It states how many days it takes to complete total subscription. Basically it indicates that the subscription was opened for how many days to the public. Degree of under pricing: It states the percentage of underpaying of per share is done by the company while pricing the share. Degree of under pricing = {(Opening price for 1st day Offer price) / Offer Price}*100 Underwriting variables (Independent Variables): Underwriters spread (%): it indicates how much of the total offering amount is secured by underwriters. In Bangladesh, the spread is 0.50% which is a requirement as per Securities and Exchange Commission (SEC). But please contact to the company of other websites to get an idea about the correct spread. Subscription ratio: It is a ratio of total offer size in amount and total amount of subscription application. It is calculated by dividing the total offer amount by total amount of subscription application. Subscription ratio = (total offer amount / total amount of subscription application). Other Variables: Holding Period Return for Day1: HPR2 = (Closing price for day1 Issue price of the stock) / Issue price of the stock Holding Period Return for Day2: HPR2 = (Closing price for day2 Closing price for day 1) / Closing price for days 1 Holding Period Return for Day3: HPR3 = (Closing price for day3 Closing price for day 2) / Closing price for days 2 Holding Period Return for Day4: HPR4 = (Closing price for day4 Closing price for day 3) / Closing price for days 3 Holding Period Return for Day5: HPR5 = (Closing price for day5 Closing price for day 4) / Closing price for days 4 Holding Period Return for Day6: HPR6 = (Closing price for day6 Closing price for day 5) / Closing price for days 5 Holding Period Return for Day7: HPR7 = (Closing price for day7 Closing price for day 6) / Closing price for days 6 HPR for 7 Days: HPR2 = (Closing price for day7 Closing price for day 1) / Closing price for days 1