1. INTRODUCTION Bata Shoe Company is one of the largest companies not only in Bangladesh but

also in many other countries. Bata Shoes (Czech: Baťa or Baťovy závody) is a

large, family owned shoe company based in Bermuda but currently

headquartered in Lausanne, Switzerland , and operates 4 business units

worldwide – Bata Europe, Bata Emerging Markets, Bata Branded Business and

Bata North America. It has a retail presence in over 50 countries and production

facilities in 26 countries. In its history the company has sold more than 14 billion

pairs of shoes. In 1985 Bata Shoe listed in Dhaka Stock Exchange. At this

moment, its shares are traded in our two stock exchanges (DSE& CSE).

1.1.Objective Our term paper named “Financial Statement Analysis of Bata Shoe

Company (Bangladesh) Limited” which is essential to fulfill the course

requirement. We also interested to make this term paper, to apply our

theoretical knowledge on a real company.

1.2.Scope Though Bata is a multinational company here we just focus the financial

position of Bata Shoe Company (Bangladesh) limited not any other country

branch. [Observed area DSE only]

1.3 Limitation

To prepare this term paper we faced a lot of problems which include time &

cost. Moreover, we faced a lot of difficulties to find out the actual data from

our term paper. In some cases, lack of necessary data we are totally unable

to do some calculation.

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2. Company overview

Bata Shoe Company Bangladesh is a subsidiary of Bata and operates as a

footwear retailer and manufacturer in Bangladesh. The company offers footwear

such as shoes, slippers, dress shoes, and casual tie ups for men, women and

children under the brand names B First, Bata, Bubblegummers, Dr Scholls,

Hawaianas, Marie Claire, North Star, Power, Sandak and Weinbrenner. The

company produces around 110,000 pairs of shoes per day. The company

primarily operates in Bangladesh where it is headquartered in Dhaka.

Key facts:

3. Tongi , Gazipur , Dhaka , BGD Fax : 880 2 98 00 511 http://www.batabd.com

Dhaka Stock Exchange ticker: BATASHOE “Financial Statement Analysis” 1. Calculation of WACC 2008

2007

= = =

61.10% = 63.47%

=

= = 38.90% =

36.53%Here in case of 2008 61.10% Debt and 38.90% Equity is used. On the other hand, in case of 2007 63.47% Debt and 36.53% Equity was used. So it is clear that they use almost 2/3 debt for their capital financing. 2008 2007If debt 127064575 then interest = 5043064 If debt 140265275 then interest =

3277362If Debt 100 then interest = ×100 If Debt 100 then interest =

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×100 3.97%

2.34% (1-T) = 0.0397 (1-0.2475) = 2.99% (1-T) = 0.0234 (1-

0.3423) = 1.54%NOTE:Here, Tax (2008) = given in page 24 (Note – 3.10.1 ) Tax (2007)

= calculation, dividing the income tax expense by profit before income tax. ( )Here in

2008, the after tax cost of debt is 2.99% and for 2007 it was 1.54%.Note: We assume

that Bata is a constant growth company. = + g

= + g = + 0.1518 =

+ 0 = 23.08% =

11.18% Here in 2008, cost of retained earnings is 23.08% and for 2007 it was 11.18%. (We assume it is a constant growth company)We know that there are 3 (three) approaches, like CAPM approach, Bond-Yield-Plus-Risk-

Premium approach & DCF approach, for calculating . Here we have just

followed the DCF approach because for following other approaches we need

market risk premium ( ), risk free rate ( ), estimated beta (b), bond yield

etc. that are not available in our annual report.*** There are not any flotation cost & issue of new stock.2008

2007WACC = (1-T) + WACC = (1-

T) + =0.6110(2.99%) + 0.3890 (23.08%) =0.6347(1.54%) +

0.3653 (11.18%) = 10.81% = 5.06% Here, No. of Preferred Stock is 0(Zero).WACC (Interpretation) Here in 2008, the WACC (Weighted Average Cost of Capital) is 10.81% and 2007 it was 5.06%.It is almost double from 2007 to 2008 because of growth rate and after tax cost of capital is increased.Prediction of WACC in 2009 Because of the increasing trend of bank interest rate we can easily assume that the WACC of 2009 must be greater than 10.81%.2. Calculation of Growth Rate2008 2007

Payout = Payout =

=

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= = 67% =

105%In 2008 Bata Shoe Company paid 67% of their net income as dividend where in 2007 it was 105%. That is more than their net income. In that year firm finance this extra dividend amount from their retained earnings. According to our theory we can assume that for reducing dividend payout ratio the stock price of Bata Shoe Company may fall. But the management team was able to convince the stockholder that they cut their payout for increasing growth and running recession. For this reason their stock price goes up. 2008 2007Retention Ratio = 1 – Payout Ratio Retention Ratio = 1 – Payout Ratio = 1 – 0.67 = 1 –1 (though 1.05) = 0.33 or 33% = 0% [No (-)ve Allow]In 2008 Bata Shoe Company retained 33% of their net income where in 2007 the Retention Ratio was 0(zero).2008 2007 g = Retention Ratio × ROE g = Retention Ratio × ROE = 0.33 × 0.46 = 0.00 × 0.3949 = 15.18 % = 0%Actually it is very difficult to find out a constant growth rate company in this real world. To simplify our calculation we assume that, in 2008 the 15.18% is constant forever & in 2007 0% is constant forever. But actually its growth rate is increasing.3. Calculation of ROIC2008

2007 ROIC = ROIC =

=

= = 18.18%

= 15.33%ROIC (Interpretation) ROIC means return on investment capital. In 2008, the ROIC is 10.18% where in 2007 it was 15.33%.This sort of thing is happening because of increasing Net Income.Prediction of ROIC in 2009 Because of increasing trend of net income we can easily assume that in 2009, it will be increased that is greater than 18.18%.*** Lack of sufficient

information we can’t find out Operating Leverage & Financial Leverage. 4. Calculation of Break Even Quantity

Revenue and Production amount

Product Category unit 2008 2007Quantity in '000'

Amount '000' Taka

Quantity in '000'

Amount '000' Taka

Shoe Plastic Pair 2526 310205 2976 283128

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Thong Pair 16407 778304 19512 753017 Rubber & canvas Pair

1387 403360 1203 296869

Leather Pair 8248 2916341 7472 2473173

Hosiery Pair 1910 119816 1702 96651Export -

Leather Sft. 228 23332 569 35017Shoes Pair 208 71954 66 38533

Total = 30914BDT

4,623,312 33500BDT

3,976,388

Source: page 31 (Notes of No. 18), Annual Report 2008 - For annual production. 2008

2007 Avg. Fixed Cost = Avg. Fixed Cost =

= =

= 31 =

24.51Assumption:Here, Fixed Cost = All administration, selling and distribution expenses In 2008 per shoe fixed cost is 31 that were 24.51 in 2007. Here this fixed cost means- if they produce nothing, they have to bear this cost. Though the fixed cost is increasing day by day, we can easily expect that in 2009 it will be more than

31.Avg. Variable Cost = Avg. Variable Cost =

=

= = 98 =

79.21Assumption:Here, Variable Cost = Cost of goods soldIn 2008 per shoe variable cost is 98 that were 79.21 in 2007. Here this variable cost - means this cost is not fixed it vary over production. Though the variable cost is increasing day by day, we can easily expect that in 2009 it will be more than 98.Avg. Price per

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Shoe = Avg. Price per Shoe =

= = =

150 = 119In 2008 per shoe price is 150 that were 119 in 2007. The main reasons for this price increase are increase of avg. fixed cost and variable cost. If this condition going on we can expect that the avg. price per shoe will cross 150 in coming 2009.BEQ =

BEQ = =

= = 18301172

Units = 20639655 UnitsBreak Even Quantity (Interpretation) In 2008 the Break even quantity is 18301172 units of shoe where in 2007 it was 20639655 units of shoe. It is less than 2007.The main reason behind this is increase of price per shoe and the increase of

contribution margin.5. Calculation of Capital Structure: [calculation no. 1]In 2008, Debt = 61.10% & Equity = 38.90%In 2007, Debt = 63.47% & Equity = 36.53%Capital Structure (Interpretation) From this capital structure it is clear that the Bata Shoe company slightly decreases its

debt because of high interest rate (2007, =1.54% & 2008, =

3.97%).Prediction of capital structure in 2009 If this situation is going on in near future then the Bata Shoe Company will largely decrease its Debt amount. Lack of sufficient data like probability, estimated beta (b), market risk

premium ( ), and risk free rate ( ), we are not able to estimate the capital

structure of 2009.*** Lack of proper information we can’t find out “Operating

Leverage & Financial Leverage”. 6. Divided Policy In 2008, company’s dividend payout ratio is 67% and retention ratio is 33%. Whereas in 2007 Dividend payout ratio was 105% and retention ratio was 0%.The main reason of decreasing payout ration in 2008 is the global financial crisis and the increase of growth rate (15.18%). Now we want to focus on the relationship between dividend & stock price.In 2007 Company’s dividend was 250%, in that time the stock price was BDT 223.60. In 2008, though its earnings increases but company cut its dividend that is 220%. But surprisingly its price does not fall rather the price of the stock is BDT 320.70. The main reason is that, shareholders have tremendous trust on the company and they believe

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that in near future the company will achieve a good position. Then in that time the price of the stock will be increased. Trend of Earning per Share and Dividend (%).

Year Earnings per Share Dividend (%)2000 14.09 1602001 15.74 1002002 19.75 1502003 22.46 1052004 12.97 1252005 15.11 1202006 20.25 2352007 23.75 2502008 32.85 220

7. Dividend Theory2008

2007EPS = EPS =

= =

= 32.85 = 23.75 DPS =

DPS = =

= = 22

= 25*** Though there are some variation in EPS and Dividend, the Chairman mentioned

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that they are maintaining a stable financial position (including Dividend). [Source: Page-

9]Cost of Capital (k) = 23.08% (coming from ) Cost of Capital (k) =

11.18%Rate of return (r) = 46.23 % Rate of return (r) =

39.50 %Calculation of Rate of return (r) r =

r = =

= = 46.23 % = 39.50

%Assumption:Growth rate = Constant.Dividend Relevance: Walter’s Model 2008

2007 P = P =

= =

= 189 =

184.11Dividend Relevance: Gordon’s Model 2008

2007 = = =

= =

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281.18 = 201.27Dividend Irrelevance:

The Miller – Modigliani (MM) Hypothesis 2008

2007 = (1+k) – DIV = (1+k) – DIV

=320.70 (1+0.2308) – 22 = 223.60 (1+0.1118) – 25 =

372.72 = 223.60 8. Signaling

EffectAccording to the signaling theory, if company increases its dividend then

shareholders think that company has more possibility to earn a lot in near future.

So the price of share will be increased. And the opposite scenario is vice versa.

But in case of Bata Shoe Company, though they deduct their dividend but their

stock price does not fall. Because we previously described that shareholders

have too much confidence on the company’s future profitability.9. Clientele

EffectClientele effect means the tendency of a firm to attract a set of investors

who like its dividend policy .If the large number of investors of the particular

company prefer high dividend then company must pay more dividends to the

investors. On the other hand, if large number of investors of the particular

company do not prefer high amount of dividend then company must retain most

of their earnings inside the organization.In case of Bata Shoe Company most of

the investors prefer more dividends because the company has small number of

wealthy investors.Assumption We assume that, if any investor has more than ten thousand

shares then that investor is wealthy investor.Source: page 29 of annual report 2008 (Note – 11

Holding)10. Payment ProceduresHolder-of-Record Date 2008

2007 April, 2009 May,

2008Ex-Dividend Date 2008

2007 April, 2009 May,

2008*** There are not any Stock Dividends, Stock Splits, and Stock

Repurchase.11. Calculation of Net Working Capital2008

2007 Net Working Capital = CA – CL Net Working Capital = CA - CL

=2028881928 -1527094938 =1832286106 – 1289110686

=501786990 =543175420NOTE:Here, CA = Current Asset CL =

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Current Liability 12. Calculation of Quick ratio2008

2007 Quick ratio = Quick ratio =

= =

= 37.24% = 40.40% 13. Calculation of Cash

Conversion Cycle : 2008

2007 ICP = ICP =

= = = 115 days

=120 days NOTE:Here, ICP = Inventory Conversion PeriodIn 2008, 115 days are required to

convert materials into finished goods and then to sell those goods where it was

needed 120days in 2007. So it is clear that the company is trying to improve their

working efficiency.RCP = RCP =

= =

= 6 days = 4

daysNOTE:Here, RCP = Receivable Collection PeriodIn 2008, 6 days are required to convert

the firm’s receivable into cash where it was needed 4 days in 2007. This

increasing may happen for better relationship with buyers or to increase firm’s

sale in recession period.PDP = PDP =

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= =

= 73 days = 71

daysNOTE:Here, PDP = Payable Deferral PeriodNOTE:Total payable consists of:Payable to local

suppliers (creditor for goods)

a. Payable to BSO companies (creditor for goods)b. Payable to Non BSO companies (creditor for goods)c. Payable to local suppliers (creditor for expenses)d. Payable to local suppliers (creditor for expenses)e. Salary and wages payable

Source: page 30 (Notes of No. 14, 15, and 16), Annual Report 2008

In general Bata takes 73 days to pay cash to its suppliers and labor (2008) where

it was 71 days in 2007.

Cash Conversion Cycle:

2008 2007

Inventory Conversion Period = 115 days 120 days

(+) Receivable Collection Period = 06 days 04 days

(-) Payable Deferral Period = (73 days) (71days)

Cash Conversion Cycle = 48 days 53 days

In 2007, Company’s BDT is tied up in current asset 53 days whereas in 2008, the

cash conversion cycle is reduced by 48 days. That shows the company’s

efficiency of collecting cash.

14. Current Asset Investment Policy

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As external users of annual report it is very difficult to identify the company’s

current asset investment policy.

15. Cash Management

2008 2007

Transactions Balance = 83176927 90284362

Compensating Balance = 195986023 209829265

Source: page 28 (Note of No. 10), Annual Report 2008

16. Inventory Types

Inventories 2008 2007

Raw materials 317112970 333106330

Raw materials in transit 15088375 70454672

Work in process 74989549 75378927

Work in process 1052947539 832680083

1460138433 1311620012

17. Inventory Control Systems

With the help of Point of Sales (POS) technologies the Bata Shoe Company can

speed up inventory control and it accordingly it can accelerate re-supply to

increase its business.

Source: page 8 and 9 (the continuation of Chairman’s Statement)

18. Days Sales Outstanding (DSO)

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2008 2007

DSO = DSO =

= =

= 6.27 days = 3.66 days

In 2008 actually 6.27 days are required to collect the credit sales and in 2007 it was 3.66 days.

19. Total Working Capital

2008 2007 Cash = 279162950 300113627 (+) Marketable Securities = - - (+) Inventories = 1460138433 1311620012 (+) Account Receivables = 79409238 39911945 Total Working Capital = 1818710621 1651645584

20. Ratio Analysis

2008 2007

1 Current Ratio = Current Asset 2,028,881,928 1,832,286,106 current Liability 1,400,030,363 1,289,110,686.00

1.45 1.42

2 Days sales outstanding=Receivables 79,403,238.00 39,911,945.00Annual Sales

/36512,666,608.43 10,894,213.96

6.27 3.66

3 Fixed Asset turnover = Sales 4,623,312,077.00 3,976,388,096.00

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Net Fixed Assets 470,253,888.00 419,674,829.00

9.83 9.47

4 Total Assets Turnover =Sales 4,623,312,077.00 3,976,388,096.00

Total Assets 2,499,135,816.00 2,251,960,935.00

1.85 1.77

5 Total Debt to Total Assets =

Total Debt 1,527,094,938.00 1,429,375,961.00Total Assets 2,499,135,816.00 2,251,960,935.00

61.10% 63.47%

6 Time Interest Earned (TIE) =

EBIT 648,273,621.00 507,710,137.00Interest Charge 5,043,064.00 3,277,362.00

128.55 154.91

7 Profit Margin on Sales = Net Income 449,415,702.00 324,849,273.00Sales 4,623,312,077.00 3,976,388,096.00

10% 8.17%

8 Basic Earning Power (BEP) =

EBIT 648,273,621.00 507,710,137.00Total Assets 2,499,135,816.00 2,251,960,935.00

26% 22.55%

9 Return on Total Assets (ROA) =

Net Income 449,415,702.00 324,849,273.00Total Assets 2,499,135,816.00 2,251,960,935.00

18% 14.43%

10 Return on Common equity (ROE) =

Net Income 449,415,702.00 324,849,273.00Common Equity 972,040,878.00 822,584,974.00

46% 39.49%

11Price / Earnings Ratio (P/E) =

Price per Share 320.70 223.60Earnings per

Share32.85 23.75

9.76 9.41

12 Market / Book (M/B) =

Market price per share 320.70 223.60

Book value per Share

10.00 10.00

32.07 22.36

13 Inventory Turnover = Sales 4,623,312,077.00 3,976,388,096.00Inventories 1,460,138,433.00 1,311,620,012.00

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3.17 3.03

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*** Bata the Clothing Sponsor of Bangladesh Cricket Team*** Founder of Bata

*** Bata Outlet

*** Logo of Bata

*** Some Designs of Bata Shoe

*** Brand Ambassador of Bata Bangladesh

Key Financials (at a glance)

Title 2008 2007

61.10% 63.47%

38.90% 36.53%

Tax 24.75% 34.23%

3.97% 2.34%

23.08% 11.18%

WACC 10.81% 5.06%

Payout Ratio 67% 105%

Retention Ratio 33% 0%

Growth Rate 15.18 % 0%

ROIC 18.18% 15.33%

BEQ 18301172 Units 20639655 Units

EPS 32.85 23.75

DPS 22 25

CCC 48 days 53 days

Working Capital 1,818,710,621 1,651,645,584

No. of Shareholders 13,680,000 13,680,000

Total Asset 2,499,135,816 2,251,960,935

Cash Balance 279,163,000 300,114,000

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Net Income 449,415,702 324,849,273

21. Recommendation

From the analysis of annual report 2007 and 2008, we can easily expect that the

Bata Shoe Company (Bangladesh) Ltd. will be one the leading companies in

Bangladesh. Here our expectation is based on their growth rate, cash balance,

and net income position. At the same time, if this situation going on not only the

Bata but also the overall Bangladeshi economy will be improved. So we are

waiting for that day ………………………..

Reference

i. www.batabd.com/ ii. http://www.dsebd.org/

Attachment

i. Annual reportii. DSE reportiii. Ratio Components (workings)

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________________________PROTAP ROY (On behalf of the group)

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