1

CHAPTER

Introduction
1.1Introduction:
Every decision made in a business has financial implications, and any decision that involves
the use of money is a corporate financial decision. Broadly everything that a business does
fits under the rubric of corporate finance. All businesses have to invest their resources wisely,
find the right kind and mix of financing to fund these investments, and return cash to the
owners if there are not enough good investments. Principles that govern corporate finance
-The investment principle specifies that businesses invest only in projects that yield a return
that exceeds the hurdle rate. The financing principle suggests that the right financing mix for
a firm is one that maximizes the value of the investments made. The dividend principle
requires that cash generated in excess of good project needs be returned to the owners. These
principles are the core for corporate finance.
To analyze different aspects of corporate finance of a company industry analysis is done to
select the profitable industry. I have taken 3 companies from Fuel & Power sector including
Linde BD, Padma Oil, and Meghna Petroleum. There after all possible aspects of corporate
finance of aforesaid companies are analyzed and evaluated to employ the bookish knowledge
in empirical arena.
1.2 Objectives:
The main objective of the study is to analyze the different corporate finance Aspects of Fuel
& power sector of Bangladesh specially 3 selected companies of identical sector.
The specific objectives are as follows:

To analyze the corporate goal/objectives & CSR activities of the selected Companies.

To calculate the intrinsic value of the share of the companies.

To analyze the financial statements of the selected Companies.
To analyze the capital structure pattern of the aforesaid companies.
To evaluate the divided policy and dividend pattern of the companies.

1.3 Methodology
Page | 1

Methodology is the way to come out with solution systematically. This paper has been
completed by following systematic and sequential steps.
1.3.1Data Source:
This report is mostly based annual report and Dhaka Stock Exchange. The data collection
method was based on the secondary data, which were available on the web and also collected
DSE library. My main source of secondary data was the DSE (web& Library) and companys
web and stockbangladesh.com.
1.3.2 Time Frame
To prepare the report I took the data set of previous 5-6 years data of my selected companies
1.4 Scope of Report
Our main focus of this report is to analyze:

Corporate goal
Valuation
Financial and statement and performance analysis
Cost of capital and capital structure
Dividend policy

CHAPTER

Page | 2

Industry Analysis & Selection

2.1 About Fuel & Power Sector:
Energy is the driving force behind all economic activities and most importantly the economy
can be seen as a system of energy flows, as a sequence of energy conversion that culminate in
the production of goods and services. Hence economic growth of a country is directly linked
to energy growth of the country.
Energy Sector Structure of Bangladesh
According to the source of energy, we can represent the sector in the following structure:

2.2 Industry Analysis

2.2.1 Porters five forces model
Industry analysis helps to measure the profit potential of the industry in which the firm is
competing because the profitability of various industries differs systematically and
predictability over time. To analyze the industry situation `Porters Five Forces Model has
been used. By using this analysis the present Fuel and Power industry situation is determined
to make further decision. The result of industry analysis by using Porters Five Forces Model
is given below:
1. Threat from New Entrants:

Page | 3

High capital requirements: High capital requirements positively affect Energy

sector/industry because it limits the competition.

Industry is highly dominated and guided by the government. So, the scope of

private sector companies is limited.

High sunk costs limit competition: High sunk costs make it difficult for a competitor
to enter a new market especially in the energy sector. High sunk costs positively affect

Energy industry because the new entrants must have to spend huge money on R&D
Industry requires economies of scale

2. Rivalry among Existing Firms:

Degree of product differentiation is low.

Government policies limit competition: Government policies and regulations can
dictate the level of competition within the industry. When they limit competition, this

is a positive for Energy

There are a very good number of big companies in this industry. Their earnings and

market capitalization is very strong.

Competitive Supply businesses were highly susceptible to changes in the price of
electricity

3. Threat from Substitute Products:

Little substitute: The substitute produced by other sector may be coal. In terms of
Gas, petroleum, the substitute is not much alike. Moreover, the collection of coal from
the coalmine is required large investment and it may not be an environmental friendly
investment. So the threat of substitute product produced by other sector is also very

low.
Switching cost: Its a very essential product and customer switching cost is high

4. Bargaining Power of Buyers:

Large number of Consumers: There are huge number of consumers of Energy

industry which limit the bargaining power of the consumers

Low buyer price sensitivity: when buyers are less sensitive to prices, prices can
increase and buyers will still buy the product. Inelastic demand positively affects

Energy
Product is important to customer: When customers cherish particular products
they end up paying more for that one product. This positively affects Energy.

5. Bargaining Power of the Supplier:

Page | 4

There are few sellers

Suppliers have the bargaining power over their buyers and they set the price of
petroleum products. Thus, the bargaining power of the suppliers is high.

2.3 Selection Company:

Linde BD: Linde Bangladesh Limited (Formerly BOC Bangladesh Limited) is a part of The
Linde Group, world leading supplier of industrial, process and specialty gases. Linde
products and services can be found in nearly every industry, in more than 100 countries. BOC
Bangladesh re-branded as Linde Bangladesh in November 2011 since its parent company
Germany's Linde Group acquired BOC Group. LindeBDs principal activities are the
manufacture and supply of industrial and medical gases, anesthesia, welding equipments and
products and ancillary equipments. The product line is categorized into three segments based
on the sectors the company serves its products and services such as Bulk Gases, Package
Gases (PG&P) and Hospital Care. PG&P is the main revenue driver which contributes Appx.
81.64 percent of revenue of Linde BD.
Padma Oil: The Padma Oil Company Limited formerly is a Bangladeshi-state owned
petroleum company. It is a descendant of the historic Burmah Oil Company in the British
Empire. Burmah Oil sold the company to the Bangladesh Petroleum Corporation in 1977. It
was renamed as the Padma Oil Company in 1988 after the Padma River. Today, the company
Page | 5

is one of the largest distributors of petroleum products in Bangladesh, and is listed on the
Dhaka Stock Exchange and the Chittagong Stock Exchange. The prime activities of the
company include the procurement, storage and marketing of petroleum products, lubricants &
greases, bitumen, LPG & manufacturers and marketing of agro chemicals

Meghna Petroleum: The prime activities of the company include the procurement, storage
and marketing of all petroleum oil and lubricating products, Bitumen, Liquefied Petroleum
Gas (LPG) and Battery Water across the national terrains of Bangladesh. The lubricants
products that MPL markets include BP Super V, BP Visco 5000, BP Energol HD 40, BP
Vanellus C3 40, BP Vanellus C3 Multigrade and others.

CHAPTER

Analysis & Interpretation

3.1 Corporate Goal
A. Corporate Goal:
Page | 6

a) Linde Bangladesh Ltd:

Corporate Vision: We shall be recognized as the leader in all the business sectors in which
we compete in Bangladesh. Our success will be built on our absolute dedication to the
satisfaction of our customers, through constant innovation, operational efficiency, cost
effectiveness and the talents of our people. We shall always apply high standards of integrity
and responsibility in our activities.
b) Padma Oil Company Ltd:
Vision: To build our Company into an efficient, market driven, customer focused institution
with good Corporate Governance structure. Continuous improvement in our business
policies, procedure and operations through Integration of technology at all levels.
Mission: To be the Leader in Oil Marketing Industries in Bangladesh in terms of efficiency,
capital adequacy, asset quality, sound management and profitability having strong liquidity.
Corporate Goals

To ensure steady supplies of POCL products and others commodities of companys

marketing list to the door-steps of consumers in the best possible way and cost

effective manner.
To maintain the process of attaining excellence for the time honored management
system set by the predecessors who were the pioneers of oil industry in the part of the

world.
To ensure reasonable dividend for the investors and safeguard the interest of the

consumers as well.
To create efficient manpower for countrys oil industry.

Analysis of Goal & Strategies:

Corporate Goal of the Linde BD has well defined but subsequent issues are not well defined
specially the time frame. They should have well time defined objectives and mission that will
entice the most to achieve their goal. The motto of Linde BD is to ensure optimum
conditions in health, safety and the environment for employees, customers and stakeholders
which is consistent with their goal.

Page | 7

Padma Oil has well defined corporate goal which is backed by its distinct objectives and
mission. According to its mission statement all except asset quality has been up to the mark.
The company has Appx 95% current asset where only little percent of total asset is fixed
portion.

B. Corporate Social Responsibility:

Corporate responsibility policy of Linde BD:
Linde Groups Corporate Responsibility policy builds on the values and principles set down
in the Linde Spirit. It outlines our sense of responsibility to our stakeholders, such as business
partners, employees and society. It also addresses our commitment to protecting natural
resources. Linde BDs corporate responsibility programme HELP (ie Healthcare,
Education, Local Community Development & Protecting the Environment).
Analysis of CSR Activities:
Linde BD has performed few CSR activities by their HELP program but Linde didnt get any
sort of tax benefit for these activities. Its getting 10% tax rebate for giving more than 20%
divided according to the Income Tax Ordinance. On the other hand, Padma oil and Meghna
petroleum are not directly involved with CSR activities as they are distribution channel of
Bangladesh Petroleum Corporation (BPC). If BPC asked to participate any sort of CSR
activities then they join but according to the ISO 26000 these are not yet CSR rather
philanthropy. I recommend these companies to follow ISO 26000(CSR) to practice true CSR
activities. Because, implementation of 7 core principles of ISO 26000 (CSR) including
Accountability, Transparency, Ethical Behavior, Respect for Stakeholder Interest, Respect for
rule of Law, Respect for International norms of Behavior and Human Rights may ensure a
firms true intention to practice CSR activities.

2. Valuation
2.1 Book Value of the Firm:
Book value of the firm = Book Value of Equity + Book Value of Interest Bearing Debt
Linde Bangladesh Ltd.
Particulars/Years
Book Value of Equity
Book Value of long term debt

2007
1,394
2

2008
1,511
0

2009
1,839
0

2010
1,995
0

2011
2,165
0

2012
2,191
0
Page | 8

Total Book Value of the Firm

No of Shareholders
Book Value Per Share

1,397
15.22
91.77

1,511
15.22
99.28

1,839
15.22
120.81

1,995
15.22
131.13

2,165
15.22
142.29

2,191
15.22
144.00

Padma Oil Company:

Particulars/Years
Book Value of Equity
Book Value of long term debt
Total Book Value of the Firm
No of SH after BSA
Book Value Per Share
Industry Average
Book Value of Equity
Book Value Firm

2008
1342
0
1342
9.80
137.02
2008
1938
4034

2009
1769
0
1769
29.40
60.20
2009
2733
5128

2010
2358
0
2358
44.09
53.49

2011
3235
0
3235
66.14
48.91

2010
3238
6078

2011
3847
7926

2012
4330
0
4330
89.32
48.48
2012
4531
6395

(All numbers in Millions)

Interpretation: Book Value of Equity of Linde BD & Padma Oil gradually increased and it
indicate it will increase in future time. BVPS of the Linde BD was in positive trend where as
Padma Oils BVPS went down because the company has declared Bonus Share in last couple
of years especially in 2008 to 2013. Industry Avg. Book Value of Equity was in increasing
since 2008
2.2 Market Value of the Firm:
Market value of firm = Market Value of Equity + Market Value of Long Term Debt

Linde Bangladesh Ltd

Particulars/Year
MV Per Share
No of Shareholders
MV of Equity
MV of Finance Lease
Total MV of the firm

2008
265.8
15.22
4044
2
4047

2009
486.9
15.22
7409
0
7410

2010
692.30
15.22
10535
0
10535

2011
612.20
15.22
9316
0
9316

2012
549.1
15.22
8356
0
8356

2013
630
15.22
9587
0
9587

Padma Oil Company:

Particulars/Year
2008
2009
Market Value Per Share 727.7
620.2
No of Shareholders 9.80
29.40
Market Value of Equity 7132.5 18233.4
MV of long Debt
-

2010
2011
2012
2013
828.10
509.2
187.5
260.4
44.09
66.14
89.32
89.32
36513.9
33679.4 16747.0 23254.4
Page | 9

Total MV of the firm 7132.5 18233.4

36513.9
33679.4 16747.0 23254.4
Source: DSE (*All numbers in Millions)

Market Capital of Fuel & Power Sector

Industry Avg. MV of Equity

259964 Million
17331

Interpretation: Both Linde BD and Padma Oils MV was all time high in 2010 but its
reflection of market unrest in 2010-11 market value of equity increased from year 2008 to
2010, it fell in 2011 and 2012.. Then both companies MV were decreasing to adjust the
market actual Value. This declining of market value of equity was due to collapse in capital
market in 2010-11 coupled with the declining of profitability of the companies. According to
the MV of the equity TITAS Gas is the Market leader and Industry Average MV is 17331
Million TK.
3. Price-Earnings Multiple:
Particulars/Years
Padma Oil
Meghna Petroleum
Jamuna Oil
Linde BD
DESCO
BD Welding
Eastern Lubricants
Summit Power
Industry Avg. (P/E Multiple)
Particulars/Years
Industry Avg. (P/E Multiple)
EPS- Linde BD
Stock Price of Linde BD
EPS- Padma Oil
Stock Price of Padma Oil

2008
42.8x
22.4x
17.8x
11.3x
11.9x
83.6x
117.3x
46.7x
44.2x

2009
56.5x
30.3x
21.6x
12.2x
14.0x
63.0x
85.0x
48.0x
41.3x

2010
62.5x
26.7x
39.1x
15.8x
26.7x
246.8x
144.6x
45.5x
75.9x

2011
55.3x
13.3x
17.9x
13.7x
30.0x
118.1x
75.1x
14.6x
42.3x

2012
18.7x
12.5x
10.9x
17.3x
32.5x
23.2x
49.5x
16.8x
22.7x

2008

2009

2010

2011

2012

44.2x
23.61
1044
23.90
1056.49

41.3x
40.08
1657
15.36
634.79

75.9x
43.90
3334
14.46
1098.18

42.3x
44.78
1892
13.25
559.99

22.7x
31.71
718
16.38
371.28

Interpretation: Average P/E of the Industry was 22.7x on December 31, 2012. And the EPS
of the Linde BD was Tk 31.71 per share at that time. Using the industry P/E multiple, we
have found the price of the share of Linde BD is 718 and Padma Oil price is 371.28. P/E
ration of the sector in 2010 was 75.9x which reflect the unusual situation.

4.1 Valuation of Linde BD

Page | 10

In calculation of free cash flow, there are some assumptions that we need to consider. These
are given in tabular form apart the result of valuation also given:
Particulars
Value of the Firm
Cash in Hand
Debt
Equity Value
No of shareholders
Intrinsic Value Per share
Market Value Per Share
Terminal Growth rate
Cost of Equity
Cost of Debt
WACC
Tax Rate

Amount/Rate
10640.2
412
0
10228.3
15.2
672.1
629.1 Undervalued (As on 30th Dec-13)
0.02
12.05%
0
12.05%
24.75% (10% tax Rebate for 20% or above
Dividend)
5%
((1+.1205)*(1+.05))-1 = 17.65%

Inflation rate
Inflation Adjusted Discount rate

Details Calculation: Valuation of Linde Bangladesh Ltd.

Particulars/Years
Revenue
Cost of sales

2012
3,81
7
2,527

Gross profit

1,29

Operating expenses

0
-514

EBITDA

777

Depreciation &

150

Amortization
EBIT

627

2013

2014

2015

2016

2017

Inflati

GEO

rate
8.92

6,529

7,46
7

on
5%

4,071

4,656

4,36
5
2,72
2

3,113

5,70
9
3,56
0

1,64
3

1,879

2,14
9

2,458

2,811

-551

-631

-721

-825

-943

1,09
2
191
901

Gain on disposal of PPE

Interest income, net

EBT

4,992

1,249

1,42
8

219

250

1,030

1,17
8

1,633
286
1,347

2
69
972

2
79
1,111

3
90
1,27

3
103
1,453

62.2

37.6

37.5

%
13%

%
12.4

25%

%
25.0

4%

%
4.4%

21%

20.5

0.14

%
.

049

2%
23%

%
1.6%
22.9

1,868
327
1,541

33
660

%
62.4

4
118
1,662
Page | 11

Taxation
NOPAT

-178
483

Add-Dep. &
Amortization
Changes in Working
Capital
Operating Cash Flow
Capital Expenditure
FCF to Firm
Present Value of FCF

-240

-275

1
-315

731

836

956

1,094

1,251

191.
20
42.8
3
879.
57
-286
594
505

218.6
6

250.
07
42.8
3
1163
.5
-435
729
619

285.9
8

327.0
5

42.83
1336.
8
-536
800
680

42.83
1534
.9
-661
873
742

42.83
1012.
-353
659
560

-360

-411

24.75%

6%
17%

%
5.6%
17.3
%

TV
8863
7533

I have valued Linde BD by applying discounted cash flow (DCF) model with two stages of
growth where I have forecasted free cash flow for equity holder (FCFE) for next five years
over which I have reasonable estimates. By discounting the free cash flow for equity holder
of the forecasted five years and the terminal free cash flow of equity holder at the cost of
equity, I get an intrinsic price of share of the firm. For the valuation date December 30 2013,
the intrinsic value of Linde BDs stock was tk. 672.1 BDT. But in the market, it was sold at
629.1 BDT. So, we can infer that Linde BDs stock was underpriced in the market.

3. Financial Statements and Analysis

1. Analysis of Firm & Performance of the Industry:
Performance of Industry:
The Bangladesh economy maintained a growth of about 6% in last fiscal year in the face of
weak global recovery from earlier economic down turn. However it registered lower growth
compared to the previous year (2011). Some improvement in power sector was made through
investment in the quick rental power and private sector power plants. On the other hand
shortage of natural gas and upward price adjustment in fuel and power adversely affected
growth in some sectors. High import cost of food and non food commodities and devaluation
of local currency caused high inflation in the economy. Weighted average costs of the major
Page | 12

raw materials were much higher, compared to the previous year. Selling price of some
products was revised upward to recover high inflation impact on raw materials. But due to
competitive environment, entire inflation impact could not be recovered from the market
through price adjustment.
Analysis of Firms Performance:

Linde BD: LindeBDs principal activities are the manufacture and supply of industrial and
medical gases, anesthesia, welding equipments and products and ancillary equipments. The
product line is categorized into three segments based on the sectors the company serves its
products and services such as Bulk Gases, Package Gases (PG&P) and Hospital Care. PG&P
is the main revenue driver which contributes Appx. 81.64 percent of revenue of Linde BD.
Under these circumstances the turnover registered a net growth of 2% as against operating
profit fall by 29% over the previous year. Operating profit dropped mainly due to inflation
impact on cost of raw materials and higher operating expenses. Interest income for the year
was much lower over last year due to fall in liquidity fund resulting from payment of
dividend, purchase of capital items and excess investment in working capital.
Padma Oil: The Padma Oil is one of the largest distributors of petroleum products in
Bangladesh, the prime activities of the company include the procurement, storage and
marketing of petroleum products, lubricants & greases, bitumen, LPG & manufacturers and
marketing of agro chemicals. The firms last 3 years sales growth was 37.78%, 13.22% and
0.05% in 2010, 11, & 12 respectively. 05% growth in to 2012 reflects how adversely this
sector affected by macroeconomic factors.

2. Ratio Analysis of the Companies:

A. Liquidity Ratios:
Particulars/Year
Current Ratio (Times)

Quick Ratio (Times)

Firm
Linde BD
Padma Oil
Meghna Petro
Industry Avg.
Linde BD
Padma Oil
Meghna Petro
Industry Avg.

2008
3.47
1.04
1.08
1.75
1.91
0.89
0.75

2009
3.86
1.05
1.09
1.95
3.21
0.84
0.58

2010
3.8
1.06
1.07
1.93
3.02
0.84
0.77

2011
3.64
1.05
1.11
1.88
2.28
0.88
0.87

2012
2.6
1.05
1.09
1.72
1.35
0.93
0.86

1.29

1.45

1.51

1.42

1.30

Interpretation: Current ratio refers how current assets cover short term
obligations. All firms CR are more than 1 which indicates good sign about the
Page | 13

companys current position or current liquidity. Linde BDs CR is higher than

industry it shows its a cash cow company whereas Padma oil and Meghna
petroleums CR is below industry average.
Quick Ratio shows the ratio of cash and other liquid resources in comparison to
current liabilities. Quick ratio is an indicator of solvency of an entity and must be
analyzed over a period of time and also in the context of the industry the
company operates in. As a Cash Cow company Linde BDs QR is more than
industry avg. whereas Padma oil & Meghna Petroleums liquidity position also
good.

B. Efficiency & Activity Ratios:

Particulars/Year
A/R Turnover (Times)
Collection Period (Days)
Inventory Turnover (Times)
Inventory Conversion time (Days)
Operating Cycle (Days)
Payable Turnover (Times)
Payment Deferred Time (Days)
Cash Conversion Cycle (Days)
Industry Average

2008
19.40
18.56
3.59
100.36
118.92
6.37
56.47
62.45

2009
18.51
19.45
3.98
90.41
109.87
5.45
66.03
43.84

2010
18.05
19.95
5.80
62.06
82.00
5.78
62.29
19.71

2011
19.29
18.66
4.48
80.44
99.10
5.79
62.22
36.88

2012
16.77
21.46
3.45
104.23
125.69
4.50
79.92
45.77

42.99

58.32

76.85

66.02

22.05

Interpretation: Accounts receivable turnover measures the efficiency of a business in

collecting its credit sales. A/R Turnover had been decreasing (increasing) trend from 2008 to
2010 and then had been increasing (decreasing) trend from 2010 to 2012. Credit Collection
period is also good as it took 18 to 21 days to collect its credit sales though its credit policy is
not sturdy.
Inventory Turnover indicates that Linde BD had the tendency to heap up its inventory. It is
said earlier that it may be due to the nature of business. Nevertheless, we can see that its
inventory management was becoming improved year to year from 2008 to 2011 though in
2012 it was in down. In 2012, inventory was produced and sold its inventory earlier than all
other. Operating Cycle was decreasing & increasing trend from year 2008 to 2012 (except
2009).
On the other hand, payable payment period has increased from 2008 to 2012 suggesting that
cash leaving the company over the years made slow down & indicates Linde had enough

Page | 14

cash. Overall, the cash conversion cycle (CCC) has been decreasing since 2008 to 2010 but
it was in increasing trend from 2011 to 2012. Compare with industry average we can see that
the Linde BDs CCC was pretty good in 2010 & 2011.
Activity Ratios:
Particulars/Year
Total Asset Turnover (Times)

Firm
Linde BD
Padma Oil
Industry Avg.

Fixed Asset Turnover (Times)

Linde BD
Padma Oil
Industry Avg.

2008
1.15
0.03

2009
1.06
0.04

2010
1.14
0.04

2011
1.24
0.03

2012
1.19
0.02

0.66
2.59

0.56
2.95

0.51
3.05

0.53
3

0.48
2.51

2.49

2.28

3.25

3.63

3.80

2.48

2.39

2.48

2.61

2.49

Interpretation: The total asset turnover of Linde BD indicates by using 1tk of asset firm
generate 1.15 tk sales. From the total asset turnover ratio, we can see that Linde can use its
total asset more efficient in 2011 to generate sales than that of all other years. On the other
hand, performance of Padma oil to generate sales by using total asset was tremendously low.
Fixed asset turnover ratios are higher than that of the total asset turnover ratios and following
the same trend from 2008 to 2012 but it was falling since 2011. It indicates that Linde was
more efficient in using its fixed assets to generate sales in 2010 than all over years where as
Padma Oil generate more sales in 2012.

C. Solvency Ratios:
Debt Ratio =

Debt-Equity Ratio =
Particulars
Debt Ratio

Firm
Linde BD
Padma Oil
Meghna
Industry Avg.

2007
0.14%
0.00%
0.00%

D to E Ratio

Linde BD

0.21%

2008
0.10%
0.00%
0.00%
26.01
%
0.15%

2009
0.00%
0.00%
0.00%
25.29
%
0.00%

2010
0.00%
0.00%
0.00%
22.40
%
0.00%

2011
0.00%
0.00%
0.00%
28.03
%
0.00%

2012
0.00%
0.00%
0.00%
37.44%
0.00%
Page | 15

Padma Oil
Meghna
Industry Avg.

0.00%
0.00%

0.00%
0.00%

0.00%
0.00%

27%

0.00%
0.00%

14%

0.00%
0.00%

11%

0.00%
0.00%

18%

23%

Interpretation: From this table, we can find that Linde BD is unlevered firm. We can also
find that the peer company i.e. Padma oil & Meghna Petroleum Limited is also all equity firm
but the industry average show few firms in the sector may took debt in their capital structure
but which is not tremendously high because debt capital range is 20-25% only..

D. Coverage Ratios:
Interest coverage ratio =
Interest Coverage Ratio

2008

2009

2010

2011

2012

Linde BD
Padma Oil Company

N/A
N/A

N/A
N/A

N/A
N/A

N/A
N/A

N/A
N/A

Meghna Petroleum Limited

N/A

N/A

N/A

N/A

N/A

0.39

1.22

1.29

0.35

0.70

Industry Average

Interpretation: Interest Coverage ratio is the ratio of Operating Income to Interest Expense
against Debt. This indicates a firms ability to pay interest on outstanding debt from its
operating income. Since Linde BD, Padma Oil Company Limited, Meghna Petroleum
Limited and the industry avg. interest coverage ratio is given as few firms taken debt.
Cash Flow Coverage Ratio

2008

2009

2010

2011

2012

Linde BD
Padma Oil Company

N/A
N/A

N/A
N/A

N/A
N/A

N/A
N/A

N/A
N/A

Meghna Petroleum Limited

N/A

N/A

N/A

N/A

N/A

Industry Average

N/A

N/A

N/A

N/A

N/A

Interpretation: Cash Flow Coverage ratio is the ratio of Operating Cash Flow to Interest
Expense and Principal Payment against Debt. This indicates a firms ability to pay interest on
outstanding debt and principal amounts when they become due from its operating cash flow.
Since Linde BD, Padma Oil Company Limited, Meghna Petroleum Limited and the industry
are unlevered, so the cash flow coverage ratio is not applicable for them.
E. Profitability Ratios:
Particulars

Firm

2008

2009

2010

2011

2012
Page | 16

Gross Profit

Linde BD
Padma Oil
Meghna

33.39%
21.90%
1.40%

40.46%
36.06%
0.94%

41.94%
47.26%
1.20%

38.88%
21.01%
1.19%

33.81%
37.23%
1.03%

OPM

Linde BD
Padma Oil
Meghna

16.85%
43.94%
1.66%

22.05%
66.88%
1.48%

25.68%
67.59%
1.01%

23.26%
80.54%
0.87%

16.43%
48.33%
1.01%

Net Profit

Linde BD
Padma Oil
Meghna
Industry Avg.

14.38%
29%
1.58%

22.24%
46%
1.40%

20.88%
47%
0.96%

18.27%
57%
0.83%

12.64%
96%
0.96%

27.61%

33.72%

25.16%

24.25%

30.50%

Margin

Margin

Interpretation: In 2008, GPM of was Linde BD the lowest. This was due to huge COGS. In
2008 revenue was sufficient but COGS was 66.61% of total revenue where in other years
COGS almost same. GPM of Meghna Petroleum is lower the all other peers company.
Operating profit dropped mainly due to inflation impact on cost of raw materials and higher
operating expenses. Interest income for the year was much lower over last year due to fall in
liquidity fund resulting from payment of dividend, purchase of capital items and excess
investment in working capital. OPM & NPM of both Padma oil and Meghna petroleum
increased because of non-operating income of these companies. NPM of Linde BD in
downward since 2011 but it was good in 2009 and 2010.
Particulars
ROE

ROA

Firm
Linde BD
Padma Oil
Meghna
Industry Avg.
Linde BD
Padma Oil
Meghna
Industry Avg.

2008

2009

2010

2011

2012

23.78%
16.9%
38.71%

33.17%
24.8%
37.57%

33.48%
26.5%
31.32%

31.47%
26.7%
31.08%

22.02%
33.4%
37.36%

19.66%
16.53%
0.89%
5.15%

24.60%
23.58%
1.74%
5.58%

22.97%
23.84%
1.82%
3.41%

22.87%
22.72%
1.66%
4.24%

23.15%
15.09%
2.10%
4.71%

5.70%

8.47%

7.56%

7.42%

6.44%

Interpretation: The return on equity ratio of Linde BD was the lowest in 2012 and was
increasing since 2008 to till 2010. Peers companies ROE also in good shape. ROA of Linde
BD was better but Padma Oil ROA is reflecting it excess of noncurrent asset. From this table,
we can find that the Return on Operating Asset is comparatively lower for Padma Oil
Company Limited than that of the peer and the industry average. We can also find that the
Page | 17

ROA of Padma Oil, Meghna Petroleum and the industry is showing mostly decreasing trend
over the years.
F. Marketability Ratios: Linde BD ltd.
Particulars/Year
BV of Equity
MV of Equity
BV to MV Ratio
BV to MV Industry

P/E Ratio
NAV per Share
Price to NAV

2008
99.28
265.80
0.37

2009
120.81
486.90
0.25

2010
131.13
692.30
0.19

2011
142.29
612.20
0.23

2012
144.00
549.10
0.26

0.27

0.19

0.14

0.20

0.73

11.26
99.28
2.68

12.15
120.81
4.03

15.77
131.13
5.28

13.67
142.29
4.30

17.32
144.00
3.81

BV to MV Ratio: We know that lower BV/MV ratio indicates that investors are willing to
pay relatively high for the firms stock than its book value. We see here that Linde BDs
BV/MV ratio was lowest in 2010 where Linde BD stock price was highest. However, the fall
of market value, hence, the increase of BV/MV ratio can also be attributed to the overall
capital market condition of the firm.
Price to NAV: Price to NAV shows how many times an investor pay for a stock against it
NAV. NAV reflects an investor will get back this amount of money if company go to
liquidation right now.

4. Du Pont Analysis:
Particulars/Year
OPM=EBIT/Sales
TAT=Sales/TA
Interest Burden=EBT/EBIT
Tax Burden= EAT/EBT
Equity Multiplier=TA/TE
ROE

2008
16.85%
1.15
108.71%
78.50%
143.89%
23.78%

2009
22.05%
1.06
127.77%
78.94%
140.66%
33.17%

2010
25.68%
1.14
109.93%
73.96%
140.41%
33.48%

2011
23.26%
1.24
108.37%
72.49%
138.55%
31.47%

2012
16.43%
1.19
105.34%
73.05%
145.96%
22.02%

We can see that OPM is the highest in 2010 and the lowest in 2012. In case of tax burden,
Apex paid the highest tax in 2009 and the lowest in 2011. TAT is the highest in 2011
indicating that Linde BD is more efficient in utilizing its asset to generate sales and the

Page | 18

lowest in 2009 indicating lower efficient in its asset utilization. In analyzing ROE, we can say
that Linde BD is in better situation in 2010.

Suggested Actions to Boost up ROE:

To increase ROE, Linde BD should try to increase in ROA more. To do this, the company can
focus on NPM. It can increase its OPM by reduction its COGS. It is now trying to reduce in
COGS. COGS are very high for Linde BD in every year. On the tax burden also increased
from 2011 to 2012. So, it should take some long term debt as industry follows moderate debt
to equity ratio. Currently it doesnt have any long term debt. It should focus on TAT means
increase its efficiency to generate more sales by using its total Asset.

4. Cost of Capital and Capital Structure

1. Weighted Average Cost of Capital:
Cost of Equity:
1. Cost of Equity using CAPM:
Cost of Equity

Rate
Ke= Rf+ (Rm -Rf)*

RF ( 91 days T-bill)
RM (Market Return)

6.40%
13.12%

Beta= (COVlm/VARm)= 0.0048/0.0092

Adjusted Beta (.33*historical beta + .67*1)
CAPM Ke= Rf+ (Rm -Rf)* = 6.40% + (13.12% -6.40%)* 0.840

0.5161
0.840
12.05%

Risk Free Rate: I have take average Risk free rate of last five Years 91 days T-Bill rate.
Market Return: Market return is calculated from DGEN return.
Page | 19

Calculation beta: we have calculated the covariance between average DSEN return and
average Linde BDs return and we have also calculated the variance of the Linde BDs return.
Then, we have divided the covariance by variance. The calculation of beta has been given in
Appendix.
Beta Adjustment: Adjusted Beta = (.33*historical beta + .67*1)
2. Cost of Equity using DDM:
Year
Cash Dividend
Growth
2008
17.7
2009
17.7
=(P1/Po)-1=0.000
2010
35
0.977
2011
35
0.000
2012
31
-0.114
Expected Divided
=((17.7+17.7+35+35+31)/5)*(1+.216)
=(.0+.97+.0-.114)/4
=33.17
=0.216
Current Market Price
630
Cost of Equity
=(D1/Po)+g=(33.17/630)+.216 =26.84%
Cost of Debt:
Cost of Debt
Before Tax (Kd)
After Tax (Kd) = 0%* (1-.2475)

Interest Bearing debt

0%
0%

*Marginal Tax rate for Linde BD= .2750*(1-.10) = 24.75%.

Weighted Average Cost of Capital (Hurdle Rate):

WACC= We*Ke + Wd*Kd(1-T)
=1*.1205 + 0 *0
=12.05%
Capital Structure:

Firm
Linde Bangladesh Ltd
Padma Oil Ltd
Meghna Petroleum

Capital Structure
All-Equity Firm
All-Equity Firm
All-Equity Firm

2. Analyze Optimum Debt-Equity Ratio of Linde BD using Checklist:

1. Tangibility
Page | 20

Tangibility
Linde BD
Padma Oil
Meghna Petroleum
Industry Avg.

2008
44%
1.25%
3.19%
16%

2009
36%
1.65%
2.93%
13%

2010
37%
1.18%
2.04%
13%

2011
41%
0.80%
1.95%
15%

2012
46%
0.58%
1.66%
16%

Interpretation: From this table, we can find that the tangibility of Linde BD, Padma Oil
Company Limited, Meghna Petroleum Limited and the industry is showing gradually mostly
decreasing trend from time to time and but Linde BDs tangibility has been increasing since
2009. The percentage of operating fixed asset in terms of total asset of Padma Oil and
Meghna Petroleum are very low because the firms are engaged in marketing (distribution) of
Oil as these firms are subsidy of BPC, so they have no need to acquire large amount of
operating fixed asset. The tangibility of Linde BD is higher than industry avg. and Peer
companies.

2. Growth
2.1 Sustainable Growth (in a Discrete Growth) = ROE*RR
Particulars
Sustainable Growth

Firm
Linde BD
Padma Oil
Meghna Oil
Industry

2008
5.96%
15.60%
27.52%
16.09%

2009
18.52%
22.71%
16.72%
17.85%

2010
6.78%
20.81%
17.28%
16.09%

2011
6.88%
22.57%
30.42%
18.77%

2012
0.49%
23.86%
30.81%
16.63%

Interpretation: From this table, we can find that the sustainable growth rate of Linde BD is
around 6% but it was tremendously lower in 2012, Padma Oil Company Limited, Meghna
Petroleum Limited showing gradually increasing trend from time to time that may indicate
these firm may take debt for operating business. Reason: All of our concerned firms in this
industry are unlevered. But the total equity of Padma Oil Company Limited is higher than
that of the Meghna petroleum company and the industry in most of the years. But the Net
Profit after Tax of Padma Oil Company Limited is not that much higher than that of the peer
company and the industry. So the Return on Equity of Padma Oil Company Limited is
comparatively very lower than that of the peer company and the industry. For this reason in
spite of slightly higher retention ratio of Padma Oil Company Limited than that of the peer
company and the industry, the discrete growth of Padma Oil Limited Company is lower than
Page | 21

that of the peer company and the industry because of very lower Return on Equity of Padma
Oil.

2.2 Tobin's Q = Total Market Value of Firm / Total Asset Value of Firm
Particulars/Year
MV of Equity
Total Asset
Replacement Cost of Asset
Tobin's Q
Linde BD
Linde BD
Padma Oil
Meghna Oil
Industry Avg.

2008

2009

2010

2011

2012

4047.18
2,174
1008
1.86
4.02

7409.64
2,586
966
2.87
7.67

10535.42
2,802
929
3.76
11.35

9316.46
3,000
1048
3.11
8.89

8356.20
3,199
1243
2.61
6.73

0.27
1.58
1.95

0.70
1.79
3.19

1.04
1.55
4.51

0.64
1.31
2.84

0.24
1.26
1.91

Interpretation: We know that Tobins Q-ratio greater than 1 indicates the firm has done well
with its investment decisions; thus the firm has significant competitive advantage. In case of
Linde BD, we see that the Q ratio was well above 1 and increased from year 2009 to 2011.
From 2010, it was in a decreasing pattern. This can be due to the capital market collapse.
Padma oils Q-ratio is below 1 except in 2010 Meghna petroleum Q-ratio is also above 1 in
last 5 years, High Tobin's q values encourage companies to invest more in capital because
they are "worth" more than the price they paid for them. From the ratio we can see that this
premium is lower for Padma Oil compared to Meghna Petroleum as well as the industry over
the year.

2.3 Growth (continues time Frame) =

Particulars/Year

2008

2009

2010

2011

2012

NPM
RR
Equity/TA
NPM*RR*(E/TA)
TA/Sales
Growth

14.38%
25.04%
0.69
0.03
0.87
3%

22.24%
55.83%
0.71
0.09
0.94
9%

20.88%
20.27%
0.71
0.03
0.88
3%

18.27%
21.85%
0.72
0.03
0.80
4%

12.64%
2.23%
0.69
0.00
0.84
.23%

3. Operating Leverage:
DOL (Times)

2008

2009

2010

2011

2012
Page | 22

Linde BD
Padma Oil
Meghna Petroleum
Industry Avg.

1.98
4.8
4.12

1.84
2.8
3.91

1.63
2.1
8.97

1.67
4.7
1.95

2.06
2.7
0.40

3.63

2.85

4.23

2.77

1.72

Operating Leverage is the ratio of Change in Operating Income (EBIT) to Change in Sales.
The higher the degree of operating leverage, the more volatile the EBIT figure will be relative
to a given change in sales, all other things remaining the same.
4. Sales Growth:
Sales Growth
Linde BD
Padma Oil
Meghna Petroleum

2009
9.77%
19.13%
11.39%

2010
16.65%
37.78%
4.65%

2011
16.58%
13.22%
31.36%

2012
2.34%
0.05%
37.16%

GEOMEAN
8.92%
4.55%
15.76%

From this table, we can find that the sales growth of Linde BD, Padma Oil Company Limited,
Meghna petroleum Limited and the industry is showing gradually mostly increasing trend
from time to time though the sales growth of Padma Oil Company Limited is decreased from
year 2010-2012. The growth rate of sales of the peer company and the industry is higher in
most of the years than that of Padma Oil Company Limited.
5. Size of The Companies:
Market Capital:
Size
Linde BD
Padma
Meghna
DESCO
EL
KPCL
BDWELDING
POWERGRID
SUMITPOWER

Price
619
274.3
225
58.9
307.5
49.5
23.5
52.8
38.7

No of Share
15,218,280
89,302,500
81,981,900
299,318,506
994,000
344,080,676
40,876,290
460,912,991
591,540,246

Market Capital in million

9420
24496
18446
17630
306
17032
961
24336
22893

TITASGAS

73.6

989,221,831

72807

BEDL

35.4

131,115,600

4641

12

GBBPOWER

30.3

73,312,485

2221

13

JAMUNAOIL
MJLBD
SPPCL

200.8
74.3
63.2

91,260,000
238,473,200
138164276

18325
17719
8732

6
7
11

Market Capital of Fuel & Power Sector

Ranking
10
2
5
8
15
9
14
3
4

259964 Million
Page | 23

Industry Avg. MV of Equity

17331

6. Ownership:
Sponsor Ownership: Sponsor ownership represents the sponsors shareholding position in
percentage form for any firm.
Sponsor Ownership
Linde BD

2008
60%

2009
60%

2010
60%

2011
60%

2012
60%

Padma Oil

50.35%

50.35%

50.35%

50.35%

50.35%

Meghna Petroleum

70.88%

70.00%

70.00%

70.00%

58.67%

From this table, we can find that the Sponsor shareholding is pretty high for this industry
because government is the sponsor of these companies. Though this ratio is falling for the
peer Meghna Petroleum Limited but steady for Padma Oil Company. The industry average is
also falling for the change in Meghna Petroleum shareholding position.
Free Float Ownership: Free float ownership means the shares other than the sponsor
holding, strategic holding and any government ownership within the company.
Free Float Ownership

2008

2009

2010

2011

2012

Linde BD

40%

40%

40%

40%

40%

Padma Oil

49.65%

49.65%

49.65%

49.65%

49.65%

Meghna Petroleum

29.12%

30.00%

30.00%

30.00%

41.33%

Industry Average

39.56%

39.86%

39.86%

39.86%

43.63%

From this table, we can find that the free float ownership is overall lower for the industry as
the major shares are hold by the sponsor company, BPC. The government agency holding
may decrease in near future but till that time the tradable shares will be remain low for the
entire industry. We have seen the free float ownership is increasing for Meghna Petroleum
over the time period.
7. Uncertainty of Operating Income: We have measured the uncertainty of income for the
firms by calculating Co-efficient of Variation of EBIT of these firms.
Uncertainty of
Income
CV of EBIT

Operating

Linde BD

Padma Oil

.54

0.27

Meghna
Petroleum
0.36

Industry
Average
0.39

From this table, we can find that the Co-efficient of Variation figure is lower for Padma Oil
Company Limited than that of the peer company and the industry. As we know the higher the
Page | 24

CV value the more risk is there for single unit of expected return, so the Linde BD is more is
more risky peer company in this industry.
8. Profitability
Basic Earning Power =EBIT/Total Assets
Basic Profit Margin
Linde BD
Padma Oil
Meghna Petroleum
Industry Avg.

2008
19.4%
1.31%

2009
23.4%
2.40%

2010
29.3%
2.46%

2011
28.9%
2.22%

2012
19.6%
3.12%

4.10%
8.26%

1.95%
9.24%

1.84%
11.21%

2.53%
11.22%

1.73%
8.15%

Basic earning power (BEP) ratio is a measure that calculates the earning power of a business
before the effect of the business' income taxes and its financial leverage. It is calculated by
dividing earnings before interest and taxes (EBIT) by total assets.

5. Dividend Policy
1. Last 5 years Dividend Pattern of Linde BD
Particulars
NI (in Millions)
No of SH(in Millions)
EPS
Industry Average
Dividend
Cash Dividend
Industry Average

2008
359.34
15.22
23.61

2009
609.87
15.22
40.08

2010
668.02
15.22
43.90

2011
681.52
15.22
44.78

2012
482.51
15.22
31.71

38.6
177%
17.7

42.9
177%
17.7

36.9
350%
35

29.3
350%
35

13.7
310%
31

12.6

10.2

14.5

13.3

8.6

Page | 25

Earnings per Share (EPS): Earning per Share is the ratio of net profit after tax to total
number of outstanding common shares of the company. It is a measure of how much earnings
a company can generate for each share after payment of all the current expense. This ratio
provides an idea of the profitability of a firm. A stable growth in EPS indicates a solid
performance of the company. EPS is the portion of a company's profit allocated to each
outstanding share of common stock. EPS serves as an indicator of a company's profitability.
Two companies could generate the same EPS number, but one could do so with less equity
(investment) - that company would be more efficient at using its capital to generate income
and, all other things being equal, it would be a "better" company. From this table, we can see
that Linde BDs NI was increasing and company increased its dividend though its NI become
down in 2012.
Dividend Payout Ratio (DPR): Dividend Payout Ratio is the ratio of Dividend per Share (DPS) to
Earnings per Share (EPS). It is a measure of how much earnings a company is paying out to its
shareholders as compared to how much it is retaining for reinvestment. This ratio provides an idea of
how well earnings support the dividend payments. A stable Dividend Payout Ratio indicates a solid
dividend policy by the company's board of directors. The dividend payout decision will depend on
personal and corporate tax rates. If personal tax rates are higher than corporate tax rates, a firm will
have an incentive to reduce dividend payout. But if personal tax rates are lower than corporate tax
rates, a firm will have an incentive to pay out any excess cash as dividends.

2. Table on the Computation:

Year

2008

2009

2010

2011

2012

Cash dividend Per Share

Industry Average
Stock Dividend Per

17.7
12.6
-

17.7
10.2
-

35
14.5
-

35
13.3
-

31
8.6
-

Share
Industry Average
EPS
Diluted EPS
Dividend Payout Ratio
Industry Average
Retention Ratio
Industry Average
Dividend Yield
Operating CF Per Share
Industry Average
Free Cash Flow Per

52.5%
23.61
0
74.96%
39.1%
25.04%
70.7%
6.66
25.1
131.96
18.9

78.3%
40.08
0
44.17%
27.9%
55.83%
72.1%
3.64
68.4
69.37
62.0

33.3%
43.90
0
79.73%
38.7%
20.27%
70.9%
5.06
45.5
100.85
28.3

33.3%
44.78
0
78.15%
39.1%
21.85%
70.7%
5.72
34.6
106.89
13.5

20.8%
31.71
0
97.77%
45.3%
2.23%
54.7%
5.65
31.8
34.38
6.3

Share
Industry Average

136.2

12.0

73.2

85.9

25.5
Page | 26

Market Price
Price-Earnings Ratio

265.8
11.3

486.9
12.2

692.3
15.8

612.2
13.7

549.1
17.3

(Times)
P/E Multiple of the

44.2

41.3

75.9

42.3

22.7

Industry
Book Value Per Share
Reserve & RE Per Share
Sustainable Growth Rate

99.28
89.3
5.96%

120.81
110.8
18.52%

131.13
121.1
6.78%

142.29
132.3
6.88%

144.00
134.0
0.49%

(G)
Industry Average
Inflation R (Avg. of 12

16.09%
9.34%

17.85%
5.20%

16.09%
8.15%

18.77%
10.68%

16.63%
8.79%

months)
GDP Growth Rate

6.19%

5.88%

5.93%

6.71%

6.32%

The stylized facts of the dividend behavior:

Firms smoothen the dividend. From 2008 to 2012, company paid dividend in an
increasing rate in respect to increase in earning. They have created dividend equalization

fund to smooth dividend.

we see the dividend per share of Linde BD which increased every year, we can say Linde
BDs management are concerned with changes in dividend rather than absolute of
dividend because they believe changes in dividend conveys information of the

marketplace.
Managers are increasing dividend which indicates that earnings are sustainable in long

run.
Managers are reluctant to cut the dividend as we see here all the firms managers were
cutting the divided only its required but they tried out to increase the dividend over last
couple of years

3.6 CRG Score of Linde BD

I have found the Credit risk score of Linde BD by using Excel software.

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CHAPTER

Conclusion
4.1 Conclusion:
Energy is the driving force behind all economic activities and most importantly the economy
can be seen as a system of energy flows, as a sequence of energy conversion that culminate in
the production of goods and services. This paper is about the different Corporate finance
aspects of a Fuel and power sector of Bangladesh specially analysis of five major areas. For
doing this I have to first analyze the selected industry and then selected 3 companies to
complete aforesaid corporate finance aspects. Firstly, I have analyzed the corporate goal and
CSR activities of the companies. Secondly, MV, BV and Valuation of the companies have
taken place to make out the intrinsic value of the stock of selected companies. Thirdly, firms
performances are analyzed by using different ratio analysis. Fourthly, cost of capital and
capital structure and checklist of the optimal capital structures are analyzed and finally,
dividend policy and stylized factors of divided policy are analyzed.

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References
1. Palepu K. G., Hearly P., and Bernard V. L., Business Analysis & Valuation: Using
Financial Statement (Second Edition), South-Western College Publishing, Ohio, 2000.
2. Ross S. A., Westerfield R. W., and Jaffe J., Corporate Finance (Seventh Edition),
McGraw- Hill/ Irwin, Singapore, 2005.
3. Linde Bangladesh Ltd, Annual Report 2008, Dhaka, 2008.
4. Linde Bangladesh Ltd, Annual Report 2009, Dhaka, 2009.
5. Linde Bangladesh Ltd, Annual Report 2010, Dhaka, 2010.
6. Linde Bangladesh Ltd, Annual Report 2011, Dhaka, 2011.
7. Linde Bangladesh Ltd, Annual Report 2012, Dhaka, 2012.
8. Padma Oil Company Ltd, Annual Report 2008, Dhaka, 2008.
9. Padma Oil Company Ltd, Annual Report 2009, Dhaka, 2009.
10. Padma Oil Company Ltd, Annual Report 2010, Dhaka, 2010.
11. Padma Oil Company Ltd, Annual Report 2011, Dhaka, 2011.
12. Padma Oil Company Ltd, Annual Report 2012, Dhaka, 2012.
13. Five Years Annual Report of Meghna Petroleum ltd. (2008 to 2012)
14. http://www.dsebd.org
15. http://www.tradingeconomics.com
16. www.stockbangladesh.com

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