Services marketing and relationship marketing Essay

Services marketing and relationship marketing - Essay Example The process of addressing customer concerns on every call is considered the front-stage activity. Every customer interaction is a â€Å"moment of truth.† (Teboul, 2007, p.19) The back-stage is where the company works on how to provide the services promised on the front-stage interactions. Both the front-stage and back-stage components are essential in providing services to the customers (Blumberg, 2003, p.23). Every successful service provision is composed of interaction and material transformation (Cook, 2011, 34). Both are significant, but very distinct (See Figure 1). Knowledge of the distinction is necessary because overseeing a direct interaction with customer in the front-stage is very different from managing the material transformation in the back-stage. The end result of successful front-stage and back-stage operations is customer satisfaction (Blumberg, 2003, p.27 and Cook, 2011, 35). Figure 1 Front-Stage and Back-Stage Distinction SERVICES AND RELATIONSHIP MARKETING 3 It is noticeable that the arrows in the flow chart go both ways. This is because every aspect of service delivery consists both of the front-stage and back-stage processes, and although not interchangeably, very much connected to each other (Glushko & Tabas, 2009, p.407). Gathering of Services Request Information – This involves a direct customer interaction of the company representative, either through phone, mails, or face-to-face communication (Vargo & Lusch, 2004, p.68). A fitting scenario could be, a customer calls in and talks to the service representative. The customer inquires about services provided by the company, and decides whether the services suit his/her needs and budget. The representative provides information that is based on the set procedures by the company. These procedures are also based on the ability of the company to process the promised services. This is the reason why the arrows here go in both directions (Glushko & Tabas, 2009, p.4011). Processing of Promised Services – This is where the processing of requested services takes place. Representatives from the operations department, where the actual customer interaction takes place, pass the requests to a certain department where the planning for material transformation of the promised service occurs. Activities may range from paper works to on-field delivery or services. No services will be processed in the back-stage without requests from the front-stage (Wa?gar, 2007, p.641), which is another reason why the arrows here go in both directions. Information-intensive interaction – This involves the actual interaction again with customers. When a customer calls in and contacts the customer service department (front-stage), they usually ask for information on possible services they could obtain. The representative’s responsibility is to provide adequate information and choices to the customer. They should sound knowledgeable and expert in the service informati on they offer (Glushko & Tabas, 2009, p.416-7). Confidence building in customers usually start at this stage (Vargo & Lusch, 2004, p.68). The decision on whether the customer will acquire the services offered by the company usually depends on how well the interaction took place. It is the duty of these

The Fashion Industry of Lebanon, SWOT Assignment

The Fashion Industry of Lebanon, SWOT - Assignment Example This paper will examine the strategies incorporated into fashion and will analyze the strengths and weaknesses that are a part of the culture. The fashion industry is one that is continuing to grow in various regions, specifically because of the growth and changes in the economy. Currently, the movement into global capitalism and the focus that is incorporated into different industries is the central focus. The fashion industry began to change with the industrial revolution, specifically because it allowed for mass production and exploitation at an international level. Industry leaders in fashion are known to have two components. The first is based on global trends that are reaching different regions. The second is from ethnically diverse types of clothing, all of which help with a combination of trends and fashion forward thinking that is based on regional concepts. This is further combined with different regions that combine industrial materials that are available as resources with the fashion that is available (Chandler, 303, 2004). The several changes that are a part of the fashion industry at large have also affected t he fashion industry structure in Lebanon and the different concepts that apply to this. The Lebanon fashion industry has over 92 companies that produce different levels of fashion. The fashion is divided first by accessories, design, footwear and overall fashion. This is further divided by the expected industry that is based on global expectations, specifically which combines the economic scale of fashion with the production. Haute couture is the most expensive. This is followed by luxury items for those who still require high quality but want a lower price. Affordable luxury is the next target market followed by  mainstream brands and discount brands. The most fashion-forward area is in Beirut, the capital of Lebanon.  There are over 5,000 artisans working in this area as well as a Beirut Art Center, which includes exhibition spaces for artists.   Schools specifically designed for the visual arts are also a part of the culture.  Ã‚  

Visual Aids Help Tths Students Improve Their English Education Essay

Visual Aids Help Tths Students Improve Their English Education Essay In Vietnam, English is considered the most important foreign language, which is taught as one of the main subjects in schools as well as in universities and is also used the most in communication among other foreign languages. According to the Longman dictionary of language teaching and applied linguistics, English is used as a foreign language or a second language to communicate with foreigners who speak the English language in non-English speaking countries. The English teaching and learning at Thuong Tin High School is not very significant in terms of the students achievement. Especially, the big concern is for English vocabulary retention. At the end of the first term 2009 2010 only about 50% of the students got an average of 5 and 6, and only 8% got 7 or 8 and the rest got 3 or 4 in the English oral test in the 2009 State First Term Examination. These figures have made the teachers of English in TT High School feel worried, they need to consider the serious problem carefully and find out the best methods to improve the situation quickly. This poor achievement is not new but has lasted for years, and there have been many things done about it but the situation has not improved. Students have been given extra lessons so that they have more time to practice their English, especially English speaking lessons, they have been helped a lot with revision before every test. They have even been provided with well-prepared hand-outs of the points on which they are going to be tested and told what to learn to do the tests well. In spite of what they have been informed and reminded of, unexpected things have still occurred, students have not improved their achievement, and the fact that most students were not very proficient in speaking and writing tests which were shown on the report of first term. To find out which factors are important in language learning, it is necessary to have a close look at social factors as well as a number of psychological dimensions of difference. Attitudes and motivation, self-confidence, intelligence, language aptitude, and language learning strategies have also been found to have an effect on language learners success in their language learning (Gardner, 2001). The research project took place at Thuong Tin High School located in Thuong Tin, a town about 30 kilometres from Ha Noi Capital and has been developing very fast. The people have become richer and a large number of families have invested money in after school activities and private tutoring for their children in English and other core subjects. If students and learners have an excellent level of English, they will gain acceptance to higher schools of learning and better-paid jobs. English is an important and compulsory subject at almost every school in Vietnam. Thus, usually students have to learn English for at least 7 years, from grade 6 to grade 12. In many schools in cities children start learning English in grade 3. There is even a trend to learn English before elementary school as their parents believe that the English language is a useful investment for their childrens future. Most jobs now require the applicants to have knowledge of English language at certain levels. Though English is taught from grade 3 in primary schools, most high school students are difficult to read an English paragraph fluently, talk to each other in English as a conversation, listen to a short introduction on television or write a letter or even a paragraph of description in English well. The issue that why most TTHS students have still had low results on speaking and writing tests though they have been helped a lot before tests, and what possible solutions could be found. The TTHS teachers have had a serious discussion and come to conclusion that most TTHS students have low English vocabulary retention and this has great influence on their speaking and writing tests. Students can not speak, listen, read and write English if they do not have enough necessary English vocabulary. But what we, teachers, have to do to help our students improve their English vocabulary. More things must be done to change the situation for the better, and the concerns were carried out, such as; motivation, methods of teaching and learning, environment of teaching and learning, materials and inclusive of Visual Aids. The defined solution for this issue was that Using Visual Aids to help students improve English vocabulary retention, because the teachers believed that there is no ways of lear ning vocabulary better than seeing the real things or illustrated things. Most teachers of English agree that it is difficult for them to have successful lessons on vocabulary or communication without visual aids and students will not be easy to understand and practice if they do not have certain visual aids for every task because students do not have enough necessary vocabulary to practice. The purpose of this research is to determine using Visual Aids helps TTHS students improve English vocabulary and the effects that visual teaching strategies have on the academic achievement of TTHS students. Research questions: How do VISUAL AIDS help students improve English vocabulary retention? What effects do visual teaching strategies have on the academic achievement of TTHS students? LITERATURE REVIEW Visual aids Brown (1973:1) emphasizes that using variety of media, visual aids, will increase the probability that the students will learn more, retain better what they learn and improve their performance of the skills they are expected to develop. Moreover, Finocchiaro (1974:63) states that the students will understand and retain better when they have been shown or taught some objects that associate with it. Educational professionals have acknowledged the fact that students who struggle in reading comprehension because they may lack the ability to comprehend words. Joseph (2006) realised, there are several approaches to teaching word-reading skills but few incorporate systematic procedures that facilitate mastery, build fluency and lead to retention of skills for struggling readers(p.803). Students who struggle in acquisition skills need specific interventions to increase their reading level and word knowledge. These interventions should be ongoing and occur early in the learning process in order to ease the cognitive load at the students current reading level and for the next grade level. Using visual aids to enhance English vocabulary and vocabulary retention is a strategy that has been researched and implemented into TTHS English classromms. With the use of visual aids, such as; authentic materials or illustrated things, students could increase their English vocabulary retention as well as they can base on their vocabulary to improve their speaking, writing, listening and reading comprehension skills. Joseph (2006) confirmed that students tend to be more motivated and choose to complete assignments and tasks that contain some items that are known to them and that appear to demand lower level of effort because they feel confident about their ability to complete such tasks. If implemented properly, visual aids, which are authentic materials or illustrated things, can make ongoing deffernces in students ability to read with confidence independently and continually. It is the consistency of vocabulary interventions that allows the struggling students to see the vocabulary terms within the reading passage if they are to expand their knowledge of the vocabulary term. This can make the difference in their proficiency of languag e acquisition Dave (1975: 10-11) also proposes some of the visual aids as follows: Real things and toys with different sorts, sizes and colors are useful to draw students interest. Real things can be presented to students by means of field trip or bringing the object to the class for direct observation. Chalkboard or blackboard are certain to be the most useful teaching aids, used in the class. They have the advantage of providing points of attention for the class and they can be used for many purposes. Pictures are flashed for a brief moment, therfore, the pictures should be simple and big enough to be seen clearly by every student in the class. Wall charts or wall pictures are big papers with some pictures and words, useful for presenting vocabulary to the class. From the explanation above, not all of media can be applied in the classroom; the teachers have to select the appropriate media that directly related to the learning process. Vocabulary assessments should also be used for a precursor to evaluate students comprehension. Johnston (1997) pointed that as childen spend more and more time reading and writing, many routines and common patterns become automatic, picking up speed and actually going through a different part of the brain, no longer involving conscious efforts (p 145). This is an important factor if students are to become independent of the classroom teacher. It is important to increase students toolbox of vocabulary strategies. According to Haycraft (1983: 102) teaching aids can be used for consolidating vocabulary, practicing structure and word order or for variety of games. Besides, teaching aids can also give a great help to the teacher in the class. A learner cannot always successfully learn English just by listening to the explanation from the teacher. Visual aids help teacher give more emphasis on pronunciation of the words, utterances and incorrect written of words. Moreover, in vocabulary class, the learners are encouraged to give their opinions about the visual aids that are presented by the teacher, thus the learners can be more active in teaching-learning process. Visual aids are also very useful to train the students to speak and memorize the words automatically. Visual aids, especially pictures are very useful in teaching vocabulary to encourage and motivate the students to learn the language. As stated by Coppen (1969: 88) pictures are parts of visual aids.The purpose of picture is to provide a stimulus which will elicit a particular response from the learner. The picture represents some action and in order to learn the appropriate words to describe the action itself must not be in question. Pictures are parts of visual aids. They may be used in teaching the elementary school students to avoid boredom. Brown (1973: 410) states some functions of pictures as follows: Media are used to teach the students to learn effectively. Pictures help the students read the books and eventually interpret and memorize words. Edmund Fason (1959: 416) states that teaching-learning process with pictures will get succeed if the pictures are related to the material of the study, pictures should be coloured and varied, colourful pictures intensify the students imagination. Using visual aids can give a great help to the teacher in the class. The students will not always be successful in learning English just by listening to the explanation from the teacher or by reading many books. Using visual aids in vocabulary class encourage the students to give their opinions about the presented pictures. The teacher can make them more active during the teaching-learning process. Moreover, flashing visual aids for a short time is very useful for the students to speak and memorize the words automatically. Retention Retention should be a requirement for the acquisition of vocabulary terms. Joseph (2008) makes these recommendations, in specific environmental conditions, words that were taught were considered learned when they were read correctly on next-day retention probes. Words that were not read correctly on next-day retention probes were not considered learned. Previously taught but unlearned words were retaught with the same instructional condition until they were read correctly on next-day retention probes (p 298). This would be a good procedure to follow if learners are to highten their retention of vocabulary terms. These retention probes were designed to measure students vocabulary acquisition. Retention probes were always administered the day immediately following the instructional condition and before another round of instructional conditions bagan. Each retention probe consisted of all the visual aids of unknown words that were taught in the previuos daily sessons. The visual aids we re exchanged and presented as one group of words to the students. Reiser and Dempsey (2007) states, maximizing learning with rich media involves two memories systems; working memory and long term memory that shapes human learning (p314). METHODOLOGY Subjects This research study took place in Thuong Tin High School in Thuong Tin town, 30 kilometres away from the centre of Ha Noi Capital. The subjects involved in this research were 40 students, they were in two different classes 12A2 and 12A3 (aged 16-18). They were randomly selected to put into two groups: 20 students in the control group (12A2) and 20 other students in the experimental group (12A3) (This means that the class 12A2 has 20 participants who belong to the control group, and the class 12A3 has 20 participants who belong to the experimental group). All of them are grade-12 students in the school year 2009 2010 and go to school everyday from Monday to Saturday. They have 3 English periods every week, each period lasts 45 minutes. The experiment lasted one month. After forming two groups, a test was given to students to check their English vocabulary so that the researcher could ensure students in two groups had the English vocabulary equivalence (Appendice 2). Instruments. Many visual aids were used when conducting this research, this was done by using pictures, real things and illustrated things. To make clear the research question, these following types of data were collected: surveys, pre-tests and post-tests, interviews, observations, and test scores. A survey was given at the beginning of the study to determine if the students enjoyed learning English and their attitudes to the instructional style of the class (Appendice 1). This helped me understand students perception of the class and if any changes, other than those used during the study, needed to be made to maximize the students academic performance. A Pre-test and Post-test were used before and after the research to find out the difference between the pre-test results and post-test results in order to know whether studentsvocabulary retention has been improved (Appendice 3A, 3B). Observations and test scores were also used as measurement tools. In order to take notes and determine the participation and attitudes of the students, observations were used daily. Did the students respond differently to the various visual aids? Were the students on task during a certain visual strategy? Did the students enjoy some visual strategies over others? Observing also made it possible to determine if outside variables affected the students test scores. Were the students having a stressful day? Did the students just come back to school from a holiday break? To determine if the use of visuals affected test scores, test scores during the four week study were compared with those from the previous four weeks. At the end of the study, the answers to the questions must be found; Why do TTHS students speak, listen to, read and write English so badly? How do visual aids help them improve their English vocabulary retention? Which effects do the visual teaching strategies have on the academic achievement of TTHS students? Design and Methods of Data Collection When implementing the experiment, the researcher used different visual aids in lessons, for example; pictures, real things and illustrated things were utilized alternatively so that students could understand the mentioned words and memorize them more effectively. Interviews were done before and after the research in order to know whether students were interested in the experiment, how they behaved during the research and what they achieved after the research. Observation was implemented in the process of research, this helped the researcher know that all the students in the experimental group took part in the experiment regularly. Test scores were done after the experiment finished, the test scores were collected from the pre-test results and the post-test results to show the improvement and difference of using visual aids in teaching and learning English vocabulary. Teaching activities that used visual aids were provided to the experimental group students in the class 12A3 in all the lessons; listening, speaking, reading and writing lessons every week. RESULTS Survey Results. The survey that was given to the two English classes included five questions and five answers, numbers 1-5 (Appendice 1). When asked students the five questions, the researcher found that there was a big difference about students attitude to learning English, and learning English vocabulary with the help of visual aids before and after the experiment. The result was compared in the Pre and Post-survey (Appendice 1). Questions Answers Before the experiment (n=students) After the experiment (n=students) 1. Do you enjoy learning English? Yes 32 68 No 48 12 2. If you do not like learning English, why? Because : Teaching methods 34 18 Lack of visual aids 46 62 3. Would you like to learn English vocabulary by watching visual aids, such as; pictures, real things or illustrated things? Yes 52 68 No 28 12 4. Do you think you will improve your English vocabulary better by looking at the visual aids when you are discussing a topic? Yes 46 67 No 34 13 5. Should visual aids be used and taught regularly and variously in classes Yes 48 66 No 32 14 There were several tests (a sample test in appendice 2) given to students in the both groups to ensure that the students in the experimental group was equivalent with students in the control group about the English vocabulary before the experiment. Groups Percentage of words that recalled and written down before the experiment 0 20% 30 50% 50 70% 80 100% Control group (n=20) 2 8 7 3 Experimental Group (n=20) 3 9 6 2 Interview Results In each group, 5 students were randomly invited to interview before and after the experiment. They were asked to give answers to 3 questions (Appendice 4). The 5 students in the experimental group produced the same words as the 5 students in the control group before the experiment but the experimental students produced more words than the control students after the ezperiment. a. An interview before the experiment b. An interview after the experiment. Tests Results Pre-tests: Groups Number of words 10 40 40 70 70 -100 Control (n=students) 8 9 3 Experimental (n-students) 7 10 4 Pots-tests Groups Number of words (n=100 words) 10 40 40 70 70 -100 Control (n=students) 5 10 5 Experimental (n-students) 2 11 7 From the results of the post-tests, it was easy to find that if students were provided with visual aids in their lessons. They could increase their vocabulary much better. Before the experiment, the two groups were equivalent in their vocabulary, but there was a big gap between the control group and experimental group after the experiment. The experimental group increased their vocabulary a lot more than they were before. However, the control group did not improve their vocabulary a lot. Questionnaire Results After the study time, the 20 students in the experimental group were given a five question interview about their feelings towards the class. The answers were categorized as either being agreement and disagreement and compared with the results before the experiment.. Comparison of Agreement and Disagreement Responses from the Interview QUESTIONS Answers from Ex-group (n=students) YES NO Before After Before After 1) Do you like the English class? 8 15 12 5 2) Do you enjoy learning with visual aids 12 17 7 3 3) Do you think the visual aids are helping you? 10 14 10 6 4) Do you want to have visual aids in future lessons? 11 16 9 4 5) Are you motivated with and interested in learning English vocabulary with visual aids? 10 18 10 2 Discussion The objective of my research was to find out how visual aids help students improve their English vocabulary and to discover if visual learning strategies have an effect on ESL academic achievement in a high school English classroom. The main findings of this research show that there is a positive correlation between the use of visual aids and the results when using surveys, interviews, observations, and test score comparison Comparison of Averages from the Control and Study Periods According to Dong (2002), he found that when teachers use visuals, the students ask more questions. During the study period, I observed that the students in the experiment asked more questions than the control group. The students were interested in the visual aids and always asked questions to clarify their misunderstanding. CONCLUSION This research indicates that students may learn in many different ways and teachers should do many things possible to support and to meet the needs of all students. Visual aids can break the language barrier that separates students from teachers. Pictures, ral things or illustrated things always helped to explain both special and common English words fully. For example, the word fire an employee was given to students in a question on a test, but none of the students in the class knew what that word meant and trying to explain it did not help either. The meaning of the word was then made clear when I made a picture on the board. This research would recommend that teachers use as many visual aids as possible in their classroom. This research also shows that visual aids can increase students English vocabulary and improve their vocabulary retention. The most useful and popular visual aids were introduced in class were pictures, illustrated things, such as; toys or model forms. For example, during the unit on cars, it was so easy for students to guess and to know the parts of a car when they saw pictures of car parts or a toy car. My research had a positive impact on student learning, English is quite a difficult subject with lots of vocabulary and visuals are the best way to learn those words. There are also a lot of topics that have to be covered in an English class. Visuals, especially pictures, are a great way to show students the overall concept and the minute details of a topic. The students in my English class have learnt and improved their vocabulary a lot when I applied the visual aids in the class. As already mentioned, pictures were the most popular and effective. There was a purpose behind each and every visual. I carefully planned out how I would do and explain each visual so that students could performed well. REFERENCES Collier, V. P. (1992). A synthesis of studies examining long-term language minority student data on academic achievement. Bilingual Research Journal, 16 (1-2), 187-212. Dong, Y. R. (2002). Integrating language and content: Education and Bilingualism, 5 (2), 40-57. Duran, B. J., Dugan, T., Weffer, R. (1998). Language minority students in high school Hamblen, K. A. (1993). Theories and research that support art instruction for instrumental outcomes. Theory into Practice, 3 (4), 191-198. Mayer, R. E. (1989). Models for understanding. Review of Educational Research, 59 (1), 43-64. Gardner, R.C. (1985), Social Psychology and Second Language Learning: The role of attitudes and motivation, London: Edward Arnold Gardner, R. C. 2001. Language Learning Motivation: The Student, the Teacher, and the Researcher.Texas Papers in Foreign Language Education, Volume 6,  Number 1,  Fall 2001. Joseph, L. (2006, May). Incremental rehearsal: A flashcard drill technique for increasing retention of reading words. International Reading Association, 51 (1), 90-92. Petrie, G. M. (2003). ESL teachers views on visual language: A grounded theory. The Reading Matrix, 3 (3), 137-168. Tan, A., Nicholson, T. (1997, June). Training poor readers to read words faster improve their comprehension of vocabulary. Journal of Educational Psychology, 89(2), 276. Appendice 1 Survey The servey was given to 2 classes (each class consists of 40 students). Questions Answer Before the experiment (n=students) After the experiment (n=students) 1. Do you enjoy learning English? Yes 32 68 No 48 12 2. If you do not like learning English, why? Because : Teaching methods 34 18 Lack of visual aids 46 62 3. Would you like to learn English vocabulary by watching visual aids, such as; pictures, real things or illustrated things? Yes 52 68 No 28 12 4. Do you think you will improve your English vocabulary better by looking at the visual aids when you are discussing a topic? Yes 46 67 No 34 13 5. Should visual aids be used and taught regularly and variously in classes Yes 48 66 No 32 14

Prophet and Tecumseh Essay -- essays research papers

It is believed that Tecumseh was born in 1768 in central Ohio. He was the second son of a Shawnee warrior who was killed at the Battle of Point Pleasant. In his dying breaths, his father commanded his eldest son Cheesuaka, to train Tecumseh as a warrior and to never make peace with the whites. Cheesuaka was good to his word and became an excellent warrior and a teacher. He grew close with his younger brother, and after their mother moved to Missouri he acted as a foster parent as well. Tecumseh was a model child, and although it is claimed that he ran in terror from his first battle, his courage never faltered from then on. Tall, muscular, intelligent, and highly charismatic, Tecumseh proved to be a master battle tactics and an excellent speaker. (Edmunds) Prophet was one of a set of triplets born just a few years after Tecumseh. Tenskwatawa, as he was first known was the only one of the three believed to have survived into adulthood. Part of this could be because, unlike Tecumseh, Tenskwatawa was a clumsy child who was unskilled in hunting and would never become a warrior. This was a serious faux paux for a young man in Shawnee society. Tenskwatawa lost his right eye in a hunting accident when he was young. As he grew older, developed a taste for whiskey and quickly degenerated into severe alcoholism. Despite his flaws, Tenskwatawa was devoted to Tecumseh, and the older brother acted as his protector. (Edmunds) Tenskwatawa’s life was filled with alcohol and despair when, he...

Business Practice in Australia

Some rural communities will not have the same exposure to immigrants and international visitors, although the popularity of Australia as a budget traveler destination has affected that. Generally variety is accepted and people of many cultures will be seen in the workplace and are accepted. (Source 3) Source 3: Cultural Dimension and Concept Hoofed Background to Business in Australia Book Author: Egger The country is very large with smallest amount of population compared to land area though has equally states of USA relatively has a population half the size of California.Due to lack of domestic market in size compared to geographic isolation which means Australian business increasingly recognize the need of international market to ensure their future country income as well as well being of country. Indeed, a criticism that has been leveled against Australian business organizations has been their slowness to take up the challenge of international. Source 4) Thus, Australia finds itsel f needing to become ever more international in its outlook both economically and politically.The extremely successful economy is dependent upon trade with both the US and increasingly with key Asian countries such as China, Japan and India. Traditional British Commonwealth links have been declining in importance over several decades. ( Source 4) In short Australia is a small market with a highly educated, affluent population which realizes the importance of international trade – they are waiting to do business with you! ( Source 4) Australian Business Structures people do not give the impression that they ‘think they are somebody'.It is much better to be seen as a ‘good bloke' or a ‘good mate' than somebody who is overtly proud of themselves and their achievements. Australian business thinking is based on US business modeling where people would have conflict with influence to be slavish with others who are in favor of US style entrepreneurial. ( Source 5) Th ese dispute combination leads Australian organization to be fairly non-hierarchical in their structure. Attention is paid to titles and ranking with the organizations. Thus NY integration organization looking to set up operation in country should be well advised against their behavior of business structure.Similarly, do not be too surprised if Australian business contacts seem willfully disrespectful of hierarchy when working internationally – they are not being rude, merely acting in a consistent Australian manner. ( Source 5) (Source 4 & 5: Horticulturalists. Com/ Australian Business Structure. HTML) Australian Management Style It is believe in Australia that in work everyone is Just having different Jobs not as in terms of different position, therefore manages are not expected to see themselves as n any way superior to their colleagues.Such approach may provoke outright hostility. Challenging the idea of boss in open meeting is not at all consider as rude or disrespectful on contrary it is found as committed or an professional approach, therefore it is compulsory to adopt consultative style of management which is inclusive of person's opinions or an open debate of ideas. In keeping with the Australian direct style of communication, debates between senior and Junior executives may appear from the outside as confrontational and occasionally they rarely are.This style of interaction is merely viewed as the most acrimonious ? effective way of attaining the end goal. ( Source 6) Australian managers to not remain aloof from members of their team ? they usually want to be ‘one of the boys' and be seen as ‘a good bloke'. The idea of managers only socializing with other managers would be viewed as very affected and would be likely to result in alienation. ( Source & 6: Horticulturalists. Com/Australian Management Style) Australian Meetings Australian do considered punctuality as virtue, however meeting often start five or ten minutes late.In addit ion, it has tradition to go through few minutes of small talk fore getting down to serious discussion of meeting where sport is considered as common theme of discussions. Post planning culture is very well known in Australia prior to client facing meetings where little preparation is done before to attend such meetings. As an egalitarian approach, Australian are often set as an forum for open debate of an issue during meeting and found professional in doing so.Being ‘over- prepared' for meetings can result in certain negative feelings towards those who have prepared in advance as they can be seen to be trying to dictate and force their ideas on other people. If something important arises during the open debate it will not be excluded simply because it does not occur on the agenda. ( Source 7) Source 7 : Horticulturalists. Com/Australian Meetings Australian Team Australian looks for those who are very good as team player and has extreme importance according to their psyche wher e as Loner or invariable person not considered as good team person.Food and drinks are actively encouraged during make themselves out to be better than their colleagues in workplace does not make a good team player. A competitive edge should be directed towards the other am' (the competition) rather than being internally focused. ( Source 8: Horticulturalist. Com/ Australian Team) Australian Communication Styles Although Australia is resided with many different people from parts of world with over 100 languages being spoken by those population who have emigrated there, English is the official and by far most commonly spoken language.Directness is cherished in Australia and failure to say what you mean and mean what you say can be mistaken for evasiveness and even hypocrisy. ( Source 9) It is important not to be too self-promotional when presenting to Australians. A hard sell approach can often be misconstrued as bragging and can provoke a very negative response. Remember that people do not like to make out that they are better than others ? the same probably applies to products and services. A factual description of issues will be far better received than a more hyperbolic approach. Source 9) First names are invariably used in all business situations in Australia. It would be very unusual to call a business contact by their surname. Similarly, educational titles play relatively little part in business situations. (Source 9: Horticulturalists. Mom/Australian Communication style) Women in Business in Australia Women currently make up a large percentage of the workforce but as in many other countries are often found in lower paid and part-time Jobs. Whilst progress is being made, statistics will show that women are still paid comparatively less for doing the same Job as a man.On the other hand, women have made more progress in attaining managerial positions than in many other leading industrialists nations and more and more women are reaching the highest levels o f Australian organizations. (Source 10) :horticulturalists. Mom/ Women in business in Australia Australian Dress Code In corporate Australia, standard business dress is still very much the norm. Dark suits and ties are the standard dress for management level businessmen with women wearing business suits with either skirts or trousers.Remember that, for much of the year, Australia is a very hot country – so make sure that your clothing is lightweight and cool during those periods. Try to avoid excessive Jewelry and accessories which may be viewed as too ‘flashy' and therefore unprofessional. ( Source 1 1 : Horticulturalists. Mom/Australian dress code. HTML) Australian Etiquette & Customs ( Source 12) Meeting Etiquette Australians are not very formal so greetings are casual and relaxed. A handshake and smile suffices. While an Australian may say, ‘Giddy' or ‘Giddy, mate', this may sound patronizing from a foreigner.Visitors should simply say, ‘Hello' or ‘Hello, how are you? ‘ Gussies prefer to use first names, even at the initial meeting Gift Giving Etiquette Small gifts are commonly exchanged with family members, close friends, and neighbors on birthdays and Christmas. Trades people such as sanitation workers ay be given a small amount of cash, or more likely, a bottle of wine or a six-pack of beer! If invited to someone's home for dinner, it is polite to bring a box of chocolates are opened when received. Dining Etiquette Many invitations to an Gussies home will be for a ‘Barbie' (BBC).Guests to a barbeques typically bring wine or beer for their personal consumption. In some cases, very informal barbecues may suggest that you bring your own meat! Arrive on time if invited to dinner; no more than 15 minutes late if invited too barbeques or a large party. (Source 12: Kiss, Bow, Shake hand , Page 25-26) Successful Entertaining in Australia There is no great tradition for business entertaining in Australia and it ce rtainly shouldn't be viewed as the quick way to cement relationships with a new client or contact.In fact, you are more likely to be asked out for lunch or dinner once a firm relationship has been established – in this way the meal can in no way be seen to have influenced a business decision. People will very often ‘go Dutch' over a meal – this means that the bill is split equally amongst those present at the meal. If you wish to pay, make sure you make this clear before the meal to avoid any embarrassing abates when the bill is presented. ( Source 13) If invited to a pub or bar for a drink, it is very important to make sure you pay your ‘shout' – that means that everybody is expected to pay for a round of drinks.It is unadvisable to develop a reputation as someone who does not pay for his or her fair share of the drinks! Tipping is not always necessary but is usually expected at the better restaurants. Tips are usually for about 10% of the total bil l. (Source 13 : Worldliness culture website- Entertaining in Australia. HTML ) Appendix Source: World Business Culture -Australia/ Tips to live and to do business in Australia . Although Australia is relatively geographically remote and has a small domestic market, it is economically successful and its citizens have a comparatively high standard of living. . Due to its small domestic market, Australia needs to trade actively on the international market place and Australians know this – they are open to new ideas from overseas. 3. Australians prize their egalitarian approach to life- people should not try to make out that they are better than others. 4. This egalitarian world view is mirrored in many aspects of Australian business culture from corporate truckers to management and communication style. 5. On the whole, Australian hierarchical approach tends to sit uneasily in egalitarian Australia. 6.Managers try to develop a ‘mate' relationship with their colleagues and w ould be viewed negatively if they tried to seem aloof from subordinates. 7. Everybody expects to have an input into the decision-making process even if, in the final analysis, the boss still makes the decision. If the boss makes the decision with no prior consultation, it unlikely that people will be very keen to ensure implementation. 8. Decision-making meetings can e quite animated and it is expected that people will say exactly what they think without necessarily having to defer automatically to the boss' viewpoint. . Although Australians will say that they value punctuality as a professional necessity, do not be surprised if people appear five to ten minutes late for a meeting. 10. Some small talk is usually engaged in before the meeting proper starts. This stage of the meeting is, however, rarely protracted (five minutes or less. ) 1 1 . Australians tend to plan in less detail than certain other countries 12. The object of a meeting is often to explore the arioso possibilities available at that time, in order to determine what detailed actions may need to be taken after the meeting 13.Agendas are often produced at meetings but will not, necessarily, be strictly adhered to. Some deviation is allowed if it is felt to be constructive deviation. This is viewed as pragmatic. 14. Australians like to be viewed as good team players and will try very hard to play the role. 15. Teams are best managed by somebody who wants to be part of the team, rather than somebody who wished to be seen as apart from the team. 16. A team leader should IEEE themselves the ‘first amongst equals'. 17. Australians like people to say exactly what is on their mind.Hiding your views behind diplomatic language can be seen as evasiveness. 18. Never try to ‘hard sell' things to Australians who will probably view such an approach as bragging. Such an approach will invariably backfire in Australia. 19. Humor is an oft-used communication device in Australian business circles. It is difficult to envisage many situations where the use of humor would be deemed inappropriate. 20. Business attire in Australia tends towards the formal with suits ND ties the norm for men in management positions in major cities.Appendix II Australian Society & Culture Susie Modesty Australians are very down to earth and always mindful of not giving the impression that they think they are better than anyone else. They value authenticity, sincerity, and loathe pretentiousness. Australians prefer people who are modest, humble, self- deprecating and with a sense of humor. They do not draw attention to their academic or other achievements and tend to distrust people who do. They often downplay their own success, which may make them appear not to be achievement- oriented. Mates Australians place a high value on relationships.

Financial Analysis on Aftab Auto Essay

Chapter 1 Introduction & Methodology 1: Introduction Aftab Automobiles Limited has been our selected company, which is one of the largest automobile assembling plants in the private sector in Bangladesh. Aftab Automobiles Ltd. is in this business since 1967. In 1981 the Company registered itself as a Public Limited Company. The Company was listed with Dhaka Stock Exchange Limited and Chittagong Stock Exchange Limited in the year 1987 and 1996 respectively. The principal activities of the Company throughout the period were assembling of Toyota Land Cruiser soft top/ Pick-up, Land Cruiser Prado, Hino Bus, Hino Mini Bus / Truck Chassis with a production Capacity of 2400 units of vehicles in 3 shifts in Assembling Unit. But since inception, the Plant is running single shift considering the market demand. The Company has added four units namely Body Building Unit, Paint Unit, Battery Unit & Furniture Unit and the commercial production of which started in May 5, 1997, November 01, 1999, January 03, 2002 and May 01, 2002 respectively. Overall, it is a company with vision of maximizing shareholders’ wealth and its investors have already shown their confidence in the company. Its share price has increased over the years compared to its book value. Furthermore, it enjoys a positive signaling effect from the market and there is good news for Aftab Auto. In this report, we will try to find out few reasons behind the good news and the positive signaling effect. The main company that we are performing financial analysis is on Aftab Motors LTD. Since our major focus is to compare two companies’ financial performances over time, so we have selected Atlas Bangladesh LTD as the rival company of Aftab Motors LTD. According to the project instruction, we aimed towards rationalizing stock price through financial statement analysis, and in doing so we have seriously dealt with the book value and market value of shares. By comparing the book value and the market value of Aftab Motors LTD from the year 2005-2009, we found out following information: 2: Objectives †¢ Making a thorough analysis of the company’s financial statements over the last 5 years through ratio analysis, cash flow analysis and analysis of major components of the balance sheet and trying to identify the actual state of the company since its enlistment in Dhaka Stock Exchange (DSE). †¢ Find out the difference between book value and market value of the share price and to identify the possible reasons behind this difference, and find if there is any specific hidden discrepancy in the existing financial statements of the company. †¢ Find out the growth to make the Pro Forma Statements (The Income Statement and the Balance Sheet) and thus forecast the growth potentials of Aftab Automobiles Ltd along with the stated out the results yielding out after the 5 year long term projection (long term cumulative process)., as well as projection of stock price through financial analysis. †¢ To compare the firm’s financial status with one of its rival firm (Atlas Auto) through ratio analysis with the justification of balancing between the market price and book value of the shares. 3: Methodology: Information Source This study is based on the secondary financial data which is published in annual reports and monthly reviews of Dhaka Stock Exchange Ltd. by the respective companies. We have obtained the necessary information from the DSE (Dhaka Stock Exchange LTD), Motijjhil, Dhaka, and from the annual report of the company. Data Processing and Analysis We have calculated different ratio using sourced data from DSE, and showed the comparison between the two companies’ performances over the last five years. Here the positions of companies were compared to their previous year’s performance and then the analysis has been done between those companies current year’s situations. Period of Data We have used data of five consecutive years from 2005, 2006, 2007, 2008, 2009. Statistical Techniques We basically used two different statistical techniques. First we used the Time Series method for ratio analysis and then Cross-Sectional method for showing the comparison between Aftab Motor’s LTD and Atlas Bangladesh LTD. There is also couple of tables and charts to specifically present the data with comments. We also did the regression analysis using the Microsoft Excel. Standard of Comparison As we know that there are few competitors for Aftab Motors LTD in Bangladesh. Among them, we figured that Atlas Bangladesh LTD is one of the most challenging one for Aftab Motors in terms of market share and fiscal performance over time. 4: Limitations of the Study †¢ Due to different month of year closing date comparison may not be accurate. †¢ We faced problem while breaking down the actual balance sheet and sorting out the adjustments. †¢ Due to time constraints we could not visit the premise of Aftab Auto to  incorporate more recent information and views of the â€Å"Top Management† about the performance & position of the company. †¢ Another limitation was collecting the industry averages for the ratio analysis. No such data are readily available in context of Bangladesh. So, instead of the industry average data we have to take the best available rival data. †¢ Also we had some problem regarding what will be the future investment of the company. We had to depend on the secondary source for that. †¢ We did not find exact unit price of company’s products as it was not clearly mentioned in their annual report. †¢ Also the company’s official website is not very informative and organized through which we could collect the information about the company. †¢ Lack of technical knowledge-how in higher-level statistical techniques. †¢ Moreover, time constrains and other factors deterred us to anticipate highest concentration that we could have given to prepare this report. Chapter 2 Analysis & Interpretation 2.1: Revised Balance Sheet based on Market Value of Share Market Value & Book Value of Aftab Auto Ltd: From the Annual Report of the Aftab Automobiles ltd we calculated the Book Vale of their share from 2005 to 2009. Besides that we also collected the Market Value of the share from the library of the DSE (Dhaka Stock Exchange). The following Graph shows the Market Value and the Book Value per share of our proposed company. Figure-1: Market & Book Value of Aftab Ltd. From 2005 to 2009 From the above graph we see that in year 2005, 2008 and 2009 the market price is higher then the book value, which is really good news for us. But in 2006 and 2007 the market price is below then the market price, which indicates that the investors underestimated the company’s wealth. But as our last year in 2009, so our analysis will be based on year 2009. In year 2009, we found that the Market Value is far more then the Book value which is Taka 1,530 and taka 390.38248 respectably. This figure indicates that the investors are willing to pay more for per share for the company then the book value shows because the investors may think that the company may underestimated the company’s wealth. So we constructed a new Balance Sheet compared with the current year (2009) Balance Sheet based on the Market Value of the corporation. Revised Balance Sheet Based on the Market Value in 2009: |Aftab Automobiles Ltd | |Balance Sheet | |2009 | | |Based on Book Value | Based on Market | Increase / Decrease | | | |Value | | |Assets | |Current Assets | | |Stock And Stores (Inventory) | | | | | | | | | | | |Total Stock & Stores | 737,517,274 | 1,281,969,612 | 544,452,338 | | |Total Accounts Receivable | 993,547,199 | 993,547,199 | – | | |Income Tax Deducted at Source | 93,002,081 | 93,002,081 | – | | | | | | | | |Advance, Deposits & Prepayments | 149,320,158 | 149,320,158 | – | | |Cash & Bank Balances | 27,881,100 | 27,881,100 | – | |Total Current Assets | 2,001,267,812 | 2,545,720,150 | 544,452,338 | |Non-Current Assets | | |Property, Plant & Equipment | | | | | | |Land | 58,959,642.00 | 58,959,642 | 648,556,062 | 589,596,420 | | |Building | 169,846,130.00 | 142,270,645 | 213,405,968 | 71,135,323 | | |Shades | 2,682,800.00 | | | | | |Less: |Accumulated | 1,529,591.00 | | | | | |Depreciation till 2008 | | | | | |Tools & Equipment | 45,965,960.00 | | | | | |Less: |Accumulated | 17,743,259.00 | | | | |Depreciation till | | | | | |2008 | | | | |Office Equipment | 31,021,242.00 | | | | | |Less: |Accumulated | 7,323,987.00 | | | | |Depreciation till | | | | | |2008 | | | | |Furniture & Fixture | 16,953,271.00 | | | | | |Less: |Accumulated | 2,973,873.00 | | | | | |Depreciation till 2008 | | | | | |Less: |Accumulated | 26,595,111.00 | | | | |Depreciation till | | | | | |2008 | | | | |Investment (4109300 Share Of Navana CNG) | 33,961,309 | 796,793,270 | 762,831,961 | | |Intangible Assets | – | 1,263,853,978 | 1,263,853,978 | |Total Assets | 2,438,883,896 | 5,744,380,219 | 3,305,496,323 | |Liabilities & Owners Equity | – | – | |Current Liabilities | | | – | – | | |Short Term Loan | | 229,914,219 | 229,914,219 | – | | |Total Accrued & Other Current Liabilities | | 1,275,342,755 | 1,263,853,978 | (11,488,777) | | |Dividend Payable for Preference Share | | 1,179,500 | 1,179,500 | – | |Total Current Liabilities | 1,506,436,474 | 1,494,947,697 | (11,488,777) | |Non-Current Liabilities | | | | – | | |Loan & Deferred Liabilities | | 17,100,000 | 17,100,000 | – | | |Preference Share Capital including Premium | | 9,827,929 | 9,827,929 | – | |Total Liabilities | 1,533,364,403 | 1,521,875,626 | (11,488,777) | |Equity Attributable to Equity Holders | | |Paid up Share Capital (Ordinary Shares – 2319570 Shares) | | 231,957,000 | 3,548,942,100 | 3,316,985,100 | | |Share Premium | | 250,191,730 | 250,191,730 | – | | |Reserve | | 107,100,735 | 107,100,735 | – | | |Retained Earnings | | 316,270,028 | 316,270,028 | – | |Total Assets & Liabilities | 2,438,883,896 | 5,744,380,219 | 3,305,496,323 | Justifications: 1. Stock & Stores: The investors may think that the company underestimates the price of the finished goods. As the company use to measure the finished goods based on the Cost of Production basis. But the original market price is higher then the value written in the Annual Report. Also the market price of the Raw Materials, Store & Spares, Goods in Transit, L/C Margin, Work-In-Process is underestimated. So in Revised Balance Sheet we increase the value of the Stock & Stores. 2. Land: The Land value is underestimated as we know that the land value is calculated as per the purchase price, not as per the market value. We know that the value of the land always increases. So we increase the value of the land. 3. Buildings: The value of the Building is calculated as per the establishment cost and the current value is calculated by deducting depreciation. So in this case the investors may find the Market value of the Building is more then the value used in the annual report. The investors may find the Building in better condition and able to offer the higher price than the value calculated in the balance sheet. So we also increase the value. 4. Plant & Machinery, Tools & Equipment, and Transport Vehicle: As all of these items value is written on the basis of the purchase price and also by deducting the accumulated depreciation. So the investors may find these items in better condition and also think that the market price is higher than the written in Balance sheet. 5. Investment: This Company purchased 4,109,300 pcs of share from Navana CNG Ltd. The value written on the Balance Sheet is from the purchased price. But the Current market price of this share is taka 193.90. So we also increased the value of the investment by using the market value of the stock. 6. Intangible Assets: The market price of the share is increased. This value increased may be the reason is the value increasing of the company’s intangible assets like Patent, Trademark etc. 7. Goods Supplied Account: We are decreasing this account on the basis is that, the company may get some purchase discount from the vendors. So the value of the accounts receivable is decreasing. Overall Comments: In year 2009, we see that the Market price is much higher then the Book Value of each share. Investors are willing to pay more than the book value of each share. The major reasons of the higher market value are the underestimation of the assets, as the assets are calculated based on the purchase price; not on the basis of the market price. Besides that investment to the other shares are also calculated on the purchase price. But the market price is also higher. Moreover, Aftab Automobiles ltd enjoys a better reputation on the market. So the Intangible assets like, Patent, Trade mark should be considered. So we can say that the company’s financial position is good. 2.1: Cash Flow Analysis: Cash flows are the cash receipts and the cash disbursement of the company. Since money does not flow in and out at an equal rate, so in most of the businesses, an analysis of cash flow is important. In our case we are working with the Cash Flow Statement of Aftab Automobiles Ltd from the year 2005 to 2009. After analyzing the statements we can have an idea of the cash dealing of the company of the years under our study. |Sources |2005 |2006 |2007 |2008 |2009 | | | | | | | | |EBIT |55,369,060 |61,681,543 |43,530,063 |79,204,842 |125,312,761 | | | | | | | | |Depreciation | 26,964,852 | 26,964,852|26,964,852 |26,964,852 |26,964,852 | |Tax |-7,179,527 |-14,602,650 |-13,059,019 |-21,781,331 |-51,261,009 | |Operating cash Flow |75,154,385 |74,043,745 |57,435,896 |84,388,363 |101,016,604 | | | | | | | | |Capital Spending: | | | | | | |Ending Net Fixed Investment |30,149,974 |26,582,937 |23,015,900 | |Less Beginning Fixed Investment | |-30,531,889 |-30,531,889 |-23,666,305 |-23,666,305 | |Deprecation | |26,964,852 |26,964,852 |26,964,852 |26,964,852 | |Net Fixed Investment | |26,582,937 |23,015,900 |26,314,447 |29,612,994 | | | | | | | | |Changes In Net Working Capital: | | | | | | |Ending Net Working Capital | |425,800,770 |260,925,322 |298,947,675 |905,519,493 | |Less: Beginning Net Working Capital | |171,666,619 |425,800,770 |260,925,322 |620,450,571 | |Changes In Net Working Capital: | |254,134,151 |-164,875,448 |38,022,353 |285,068,922 | | | | | | | | |Free Cash Flow from Assets | | | | | | |Operating Cash Flow |75,154,385 |74,043,745 |57,435,896 |84,388,363 |101,016,604 | |Net Fixed Investment | |-26,582,937 |-23,015 ,900 |-26,314,447 |-29,612,994 | |Changes In Net Working Capital | |-54,134,151 |-164,875,448 |-38,022,353 |-285,068,922 | |Free Cash Flow | |-6,673,343 |-130,455,452 |20,051,563 |-213,665,312 | |Cash Flow from/to Creditors | | | | | | |Interest Paid |34,992,217 |44,619,538 |48,012,628 |54,362,263 |90,846,346 | |Less New Long Term Borrowing |17,100,000 |17,100,000 |17,100,000 |117,100,000 |26,927,929 | |Cash Flow From Creditors |17,892,217 |27,519,538 |30,912,628 |-62,737,737 |63,918,417 | | | | | | | | |Cash Flow From Investors | | | | | | |Dividend Paid |24,000,000 |12,000,000 |12,000,000 |12,000,000 |1,179,500 | |New Equity |439,792,483 |701,016,976 |685,748,820 |621,050,571 |905,519,493 | |Cash Flow To Investors |463,792,483 |713,016,976 |697,748,820 |633,050,571 |906,698,993 | †¢ As we can see from the cash flow statement that, in 2006, 2007 & 2009 the free cash flow figures are negative. This might happen because of high investment in inventory and R&D departments, means the company used more cash than they had sourced of. †¢ Also the cash flows to Investors were sufficient for the company over the years. The company had sufficient fund to pay out dividends and that would eventually maximize the value of the firm. †¢ Fixed investments were consistent and consumed huge cash over the years. Overall we see that the Sales of the company are increasing which is a good sign. Besides that the company is investing heavily on the fixed assets, which may used to generate more revenue for the company. They are also offering cash dividend each year and also the company paid its short term load and also taking short term loans, which indicates that the company is enjoying a favorable environment in terms of the short term credit situation. So, we can conclude that the Aftab Automobiles Ltd is financially sound based on the Cash Flow analysis. Ratio Analysis and Interpretations To evaluate a firm’s financial condition and performance, the financial analyst usually performs analyses on various aspects to find out the financial health of the firm; among which ratio analysis is one of the most important and commonly used methods. Ratio analysis is a tool frequently used during the analysis to relate two pieces of financial data by dividing one quality by the other. In this study various ratio analyses will be done to understand the financial condition of the company and to compare this condition with its rival firm to get a clear picture. The analysis of financial ratios involves two types of comparison: ↠ Time–Series Analysis: First, the analyst compares a present ratio with past and expected future ratios for the same company. The current ratio (the ratio of current assets to current liabilities) for the present year could be compared with the current ratio for the previous year-end. When financial ratios are arranged over a period of years, the analyst can study the composition of change and determine whether there has been an improvement or deterioration in the firm’s financial condition and performance over time. Here we will conduct time series only on the Aftab Auto Ltd. ↠ Cross-Section Analysis: The second method of comparison involves comparing the ratios of one with those of similar firms or with industry averages at the same point in time. Such a comparison gives insight into the relative financial condition and performance of the firm. It also helps us identify any significant deviation from any applicable industry average (or standard). Here we will discuss and calculate different types of ratios. Then we will  compare the ratios between Aftab Auto Ltd. and Atlas Auto Ltd. The reason for doing this is that the industry average is not available in perspective of Bangladesh. ââ€" ª Liquidity Condition Analysis: Ratios that show the relationship of a firm’s cash and other current assets to its current liabilities are known as liquidity ratios. Different types of liquidity ratios are discussed below. Current Ratio: The ratio that relates current assets to current liabilities is the current ratio. The current ratio indicates the ability of a company to pay its current liabilities from current assets and shows the strength of the company’s working capital position. [pic]s Figure-1: The Current Ratios of Aftab and Atlas for the years 2005-2009 Time Series Analysis: Current ratio for Aftab is higher than 1 and it is consistent for all five years. In 2006 it has increased a lot from the previous year but in 2007 it dropped for two consecutive years but again in 2009 it has increased again and is in a good satisfactory condition. Cross-Section Analysis: However, comparing to the ratios of Atlas, we see significant difference the two companies’ ratios. Aftab’s ratios seem to be much weaker than Atlas’s. None of the years it has made the benchmark of 2. However, the last 3 years results are not satisfactory at all because none of them is showing benchmark of 2 or the increasing manner. So, we can conclude that Aftab is showing poor trend in its quick ratio. Quick Ratio: Inventories typically are the least liquid of a firm’s current assets – they are the assets on which losses are most likely to occur in the event of liquidation. Therefore, it is important to measure the firm’s ability to pay off short term obligations without having to rely on the sale of inventories. This is why quick ratio is used. [pic] Figure-2: The Quick Ratios of Aftab and Atlas for the years 2005-2009 Time Series Analysis: Quick ratio of Aftab is less than 1 which means it has piled up inventories as its current assets. The trend of quick ratio of Aftab shows that the ratio had been increasing from 2005 to 2006 but then suddenly fell significantly in year 2007 and 2008. Then it has increased in 2009. So, we can conclude that Aftab is showing low quick ration but increasing trend in its quick ratio. Cross-Section Analysis: Comparing with Atlas, Aftab has a very poor quick ratio even though it has increased but its running with risky conditions in terms its quick ratio. Cash Ratio: It is another measure of liquidity of the firm. It shows cash solvency of the firm. Figur-3: The Cash Ratios of Aftab and Atlas for the years 2005-2009 Time Series Analysis: Aftab’s cash ratio has seen a fluctuating matter. The ratio is very low. Even though the ratio improved in 2008 than previous year, the ratio is significantly lower. Too much inventory pile up and poor credit collection policy may led to such deteriorating trend in cash ratios. Cross-Section Analysis: Comparing with Aftab, Atlas has a very high cash ratio which indicates Atals has a better credit collection policy and lower piled up inventories. Asset-Management Efficiency Analysis: A set of ratios that measure how effectively a firm manages its assets compared to its sales. These ratios are designed to find out whether the total amount of each type of asset as reported on the balance sheet appear reasonable, too high, or too low considering current and projected sales levels. Asset Management Ratio is done based on inventory turnover ratio, day’s sales outstanding and fixed asset and total asset turnover ratio Total Asset Turnover: The total asset turnover ratio is calculated by dividing sale by total assets. The total assets turnover ratio measures the turnover of all the firm’s assets. [pic] Figure-4: The Total Asset Turnover Ratios of Aftab and Atlas for the years 2005-2009 Time Series Analysis: Total turnover of Aftab is not very satisfactory which means its not generating enough revenue by using its total assets which indicates it may some inefficient assets in its stock which deteriorating the total revenue. It’s in decreasing trend till 2007 but after that it as an increasing trend which is a very good sign in fact. Cross-Section Analysis: Atlas has a very high asset turnover ratios which indicates its assets efficient enough to generate more revenues and its in increasing trend for both the firm. Fixed Asset Turnover: The fixed asset turnover ratio is calculated by dividing sale by total fixed assets. The total fixed assets turnover ratio measures the turnover of all the firm’s fixed assets. [pic] Figure-5: Fixed Asset Turnover Ratios of Aftab and Atlas for the years 2005-2009 Time Series Analysis: Fixed Asset Turnover of Aftab is very low and it’s in decreasing trend which indicates that it has very inefficient fixed assets in its stock to generate enough sales. . It means it is becoming more efficient to utilize its short term assets to generate sales and even though it’s fixed asset is generating more sales than does the short term assets Cross-Section Analysis: in terms of Fixed Assets Turnover Atlas has a very high fixed asset turnover ratio compare to Aftab which indicates Atlas is doing well in terms of using its fixed assets and generating revenue. Inventory Turnover: This ratio indicates how active the company has been. It talks about the efficiency as well as the management of the company. This ratio indicates the number of times in a trading year a firm sells the value of its stocks. [pic] Figure-6: Inventory Turnover Ratios of Aftab and Atlas for the years 2005-2009 Time Series Analysis: Inventory Turnover of Aftab is very low but it’s in increasing trend till 2006 then there was a drop in 2007 after that it increased in 20008 then again it increased in 2009. So tells us that its inventory turnover is fluctuating and it doesn’t have efficient inventory to generate sales properly. This means Aftab was suffering from poor inventory management which is also evident from the balance sheet. But, recently it improving and overcoming the situation which is a good indication. Cross-Section Analysis: comparing with Atlas Aftab has a very low inventory turnover ratio whereas Atlas’s inventory turnover is very high which indicates that Atlas is efficient in managing its inventory. But Atlas’s inventory turnover has a decreasing trend whereas as Aftab’s is in increasing trend Days Sales Outstanding (DSO): DSO indicates the average length of time it takes the firm to collect its credit sales. It is also called the average collection period, is used to evaluate the firm’s ability to collect its credit sales in a timely manner. [pic] Figure-7: DSO of Aftab and Atlas for the years 2005-2009 Time Series Analysis: From the graph it’s been seen that initially low but then there were increasing trend in DSO but after 2007 it’s again starts to decrease which us a good sign that indicates that’s they are being more efficient in collecting its receivables. Cross-Section Analysis: Comparing with Aftab, Atlas has a very low collection period which means Atlas take less time to collect its receivable. ââ€" ª Debt-Management Efficiency Analysis: This ratio measures how effectively a firm is managing its debts. Debt Management ratios include analysis of two types of ratio: debt ratio and times interest earned ratio. Debt to Asset Ratio: It measures the percentage of the firm’s assets financed by creditors. [pic] Figure-8: Debt Ratios of Aftab and Atlas for the years 2005-2009 Time Series Analysis: Debt ratio of Aftab is fluctuating trend. It has high debt ratios which indicate that they a high leveraged firm and since interest on debt enjoy tax advantage, this is evident in the gradual increment in EPS figures. This is good news for the investors. Cross-Section Analysis: Comparing with Aftab, Atlas has a very low debt ratio which indicates they have a long-term solvency and low risk but at the same time they don’t have much leverage power to generate more profit and enjoy the tax benefits. Times Interest Earned (TIE) Ratio: The TIE ratio measures the extent to which earnings before interest and taxes (EBIT), also called operating income, can decline before the firm is unable to meet its annual interest cost. Failure to meet this obligation can bring legal action by the firm’s creditor, possibly resulting in bankruptcy. It measures the ability of the firm to meet its annual interest payments [pic] Figure-09: TIE Ratios of Aftab and Atlas for the years 2005-2009 Time Series Analysis: TIE ratio of Aftab is very low which means it has low ability to meet its annual interest payments. Aftab is covering its interest charges by a low margin of safety. This affects the potentiality of raising further debt in future. Cross-Section Analysis: Compare to Atlas, Aftab has a very low TIE ratio which means Atlas has very high safety of margin to cover its interest payment. ââ€" ª Profitability Condition Analysis: A group of ratios showing the effect of liquidity, asset management, and debt management on operating results. Profitability is the net result of a number of policies and decisions. Profitability ration are of three types- Net profit margin on sales, Return on Asset (ROA) and Return on Equity (ROE). Net Profit Margin: This ratio measures how much the sales is contributing to the net profit of the company, which belongs to the shareholders. [pic] Figure-10: Net Profit Margin of Aftab and Atlas for the years 2005-2009 Time Series Analysis: Net Profit Margin of Aftab gradually decreased in the first three year then it started rising and continue to rise. This is a very good indication for the company and as well as the investors. This increasing trend in Aftab’s profit margin ratio will help to attract the investors. Cross-Section Analysis: from the figure we can see that initially Atlas net profit was higher than the Aftab but later on Aftab’s net profit gradually increased and Atlas’s started to decrease. This indicates that Aftab earning more than Atlas does. The decreasing trend in Atlas’s profit margin ratio will not help to attract the investors. Operating Profit Margin: [pic] Figure-11: Operating Profit Margin of Aftab and Atlas for the years 2005-2009 Time Series Analysis: From the graph we can see that Aftab’s operating profit is in increasing trend which is a good indication of the fact that Aftab is becoming more efficient is its operation thus it has been able to reduce the operating cost which enable for higher and increasing operating profits. Cross-Section Analysis: Comparing with Atlas, Aftab is doing well in terms of making operating profit and Afatb has an increasing trend in its operating profit margin whereas Atlas has a decreasing operating profit margin. Earnings Per Share (EPS): [pic] Figure-12: EPS of Aftab and Atlas for the years 2005-2009 Time Series Analysis: EPS of Aftab has a decreasing trend for the first three years and then it followed and increasing trend and a big jump in EPS in 2009. So Aftab is earning more per share of its then it was previously earned. Cross-Section Analysis: From the graph we can see that Aftab has higher EPS then Atlas. Thus Aftab will be able to attract more investors then Atlas as its earning more than Atlas for its per share. Return On Asset: [pic] Figure-13: ROA of Aftab and Atlas for the years 2005-2009 Time Series Analysis: From the table we can see that return on total asset of Aftab is decreasing from the very start period. But from 2007 it starts increasing and it’s a positive factor for the company and the investors’ as well Cross-Section Analysis: ROA ratio of Aftab is lower than Atlas all through the five years. Aftab has faced a severe downfall at 2007 which may be triggered by the high interest charges on its huge amount of debt. So, it is very poor compare to Atlas but its improving for the last three years. Return on Equity: ROE measures the rate of return on stockholder’s investment. [pic] Figure-14: ROE of Aftab and Atlas for the years 2005-2009 Time Series Analysis: From the table we can see that return on total equity of Aftab is decreasing from the very start period. But from 2007 it starts increasing and it’s a positive factor for the company and the investors’ as well. This improvement indicates firm’s improving liquidity position, efficient asset management and efficient use of high debt amount. Cross-Section Analysis: ROE ratio of Aftab is lower than Atlas all through the five years. Aftab has faced a severe downfall at 2007 which may be triggered by the high interest charges on its huge amount of debt. So, it is very poor compare to Atlas but its improving for the last three years. ââ€" ª Market Condition Analysis: The market value ratios represent a group of ratios that relates the firm’s stock price to its earnings and book value per share. These ratios give management an indication of what investors think of the company’s past performance and future prospect. If the firm’s liquidity, asset management, debt management, and profitability ratios are all good then market value ratios will be high which will lead to an increase in the stock price of the company. Market value ratio is of two types- Price/Earnings Ratio and Market/Book value Ratio. Market to Book Ratio: The ratio of a stock’s market price to its book value gives another suggestion of how investors regard the company. Companies with relatively high rates of return on equity generally sell at higher multiples of book value than those with low returns. [pic]Figure-15: M-B Ratio of Aftab and Atlas for the years 2005-2009 Time Series Analysis: It is noticeable that Aftab has an increasing trend in its M/B ratio after 2005 which is good indicator. This indicates investors are gaining confidence on Aftab’s share and are now ready to pay more for Aftab’s book value of its share. Cross-Section Analysis: Even though there are increasing trend in the M/B ratio of Aftab it is much lower than the Atlas’s. It indicates that Atlas is gaining more investor’s trust over the years then Aftab. This justifies the high riskiness of Aftab’s securities due to its huge debts. But its M/B is increasing which means investors are gaining the confidence which is a good indicator to compete with Atlas Price-Earnings Ratio: This is the ratio of the price per share to earnings per share. It shows the dollar amount investors will pay for $1 of current earnings. It is computed by market price per share and earnings per share (EPS). [pic] Figure-16: P/E Ratio of Aftab and Atlas for the years 2005-2009 Time Series Analysis: P/E ratio of Aftab was decreasing trend for the first two years then it experienced a rise in 2007 which indicates the firm’s high growth potential. After that it starts to decrease. This shows firm’s huge riskiness which we have already seen by its increasing debt financing and overall poor management and other ratios. This indicates that investors are now willing to pay less for 1taka of current earnings. Cross-Section Analysis: Aftab has a lower P/E ratio then Atlas but both the company has the same decreasing trend in its P/E ratio. So both the company is losing investors’ confidence and investors are now willing to pay less for 1taka of current earnings. Summary of all the Ratio Calculation: The calculation of the following ratios has been done following the particular formulas. In the Appendix section we have attached the calculation procedures in details. Aftab Automobiles Limited |Type of Ratios |2005 |2006 |2007 |2008 |2009 | |Liquidity Ratio | |Current Ratio |1.19 |1.39 |1.20 |1.20 |1.33 | |Quick Ratio |0.39 |0.83 |0.79 |0.78 |0.84 | |Cash Ratio |0.027 |0.014 |0.019 |0.020 |0.019 | |Asset-Management Efficiency Ratio | |Total Asset Turnover |1.03 |0.86 |0.65 |0.83 |0.87 | |Fixed Asset Turnover |5.00 |5.31 |2.95 |4.22 |4.86 | |Inventory Turnover |1.7 |2.0 |1.9 |2.7 |2.5 | |DSO |38.3 |135 |210 |178.2 |128 | |Debt Management Ratio | |Debt-Asset Ratio |68.13 |61.22 |66.09 |72.23 |62.87 | |Time Interest Earned |2.5 |2.7 |2.0 |2.6 |2.4 | |Profitability Ratio | |Net Profit Margin |3.38 |3.03 |2.33 |3.10 |14.90 | |Operating Profit |6.19 |6.17 |6.37 |6.95 |10.30 | |Earnings per Share |28.58 |27.91 |18.06 |24.76 |136.50 | |Return on Assets |3.5 |2.6 |1.5 |2.6 |13.0 | |Return on Equity |11.0 |6.7 |4.4 |9.2 |35.0 | |Market Ratio | |Price Earning Ratio |14.8 |10.9 |20.3 |15.8 |11.6 | |Market/Book Ratio |1.62 |0.73 |0.90 |1.46 |4.07 | Atlas Bangladesh Limited |Type of Ratios |2005 |2006 |2007 |2008 |2009 | |Liquidity Ratio | |Current Ratio |2.46 |2.45 |2.55 |2.12 |1.86 | |Quick Ratio |2.07 |1.82 |1.86 |1.33 |1.11 | |Cash Ratio |1.08 |0.77 |0.94 |0.55 |0.40 | |Asset-Management Efficiency Ratio | |Total Asset Turnover |2.22 |2.53 |2.73 |3.34 |3.31 | |Fixed Asset Turnover |114.72 |121.53 |111.04 |170.57 |237.08 | |Inventory Turnover |11.0 |12.1 |10.0 |10.6 |9.4 | |DSO |4.08 |6.20 |2.87 |2.16 |3.32 | |Debt Management Ratio | |Debt-Asset Ratio |46.50 |46.59 |44.46 |51.69 |56.85 | |Time Interest Earned |1510.2 |539.6 |3477.4 |363.4 |827.3 | |Profitability Ratio | |Net Profit Margin |4.60 |3.84 |4.69 |3.21 |5.22 | |Operating Profit |4.73 |5.93 |3.95 |6.94 |4.73 | |Earnings per Share |17.33 |11.97 |12.63 |9.69 |22.39 | |Return on Assets |10.2 |9.7 |12.8 |10.7 |17.3 | |Return on Equity |19.1 |18.2 |23.0 |22.2 |40.0 | |Market Ratio | |Price Earning Ratio |19.5 |16.8 |24.4 |37.7 |21.3 | |Market/Book Ratio |3.72 |3.06 |5.62 |8.37 |8.54 | Chapter 3 Enquiry into Stock Price Movement In this chapter we will consider only the stock price movement of the year 2005-2009. Daily stock price is affected due to various factors that can be a macroeconomic variable as well as company specific variable. But in this section we will consider only the corporate decision factors. Variables can be some the following ones: 1. Dividend declaration 2. AGM Share Price Movement for the year of 2009: Figure-17: Stock Price fluctuation of Aftab for the year 2009 Comment: We can see that the price of Aftab Auto rose continuously throughout the year till the middle of May. DSE inquiry tells us that there was no sensitive price information that was undisclosed for the price hike that we see. Then there were drop in the stock price but after that we can see a significant rise from around beginning of the September. We can only conclude that dividend declaration on 31st August may contribute to this price hike. Again after the AGM took place in 6th December, the stock price started to fall. But at the end of the year, the company experienced a slight increase in the share price. Calculation of Beta: Average Market return (RM) = 1.884658331 Covariance (Ri,RM) = 0.00543901 Variance = 0.01175511849 ÃŽ ²i = 0.462692922 Comment: Beta measures the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. As beta of Aftab Auto is less than 1 that is 0.463 which means that the security will be less volatile than the market. Dividend declaration & Stock Price Movement: We will now take a functional approach to the matter of dividend declaration for the year. We have taken the dividend declaration on 31/08/2009 an important factor which affected the stock price during that period. A regression analysis is done using dummy variable. The regression output summary follows: SUMMARY OUTPUT OF REGRESSION |R Square |0.549260989 | | | |Cost of Capital |15% | | | |Year |10 | | | |Investment | |1,500,000,000.00 | | |Quantity |200 | |200.00 | |Price |10,000,000.00 | |10,000,000.00 | |Revenue | | |2,000,000,000.00 | |VC |70% | |1,400,000,000.00 | |FC |3.50% | |70,000,000.00 | |Depreciation | | |150,000,000.00 | |EBIT | | |380,000,000.00 | |Tax |27.50% | |104,500,000.00 | |Net Income | | |275,500,000.00 | |Cash flow | | |425,500,000.00 | So, project NPV at 2010 is, NPV2010 = -1,500,000,000 + (425,500,000.00 X PVIFAn=10, i=15%) NPV2010 = -1,500,000,000 + 425,500,000.00 * 5.018768626 = 635,486,050.36 Taka So the NPV of the Project is 635,486,050.36 Taka which is positive. So the company may go for this project based on the assumptions we took to calculate the NPV. Sensitivity Analysis: Now we would like to test the sensitivity of NPV to various inputs of the project. Because we need to know what happens to NPV if some inputs change. This helps give us better understanding of the projects situation to sustain the NPV. |Particulars |Amount in Taka |Amount in Taka |Change | |Revenue |2,000,000,000.00 |1,600,000,000.00 |(0.20) | |VC |1,400,000,000.00 |1,120,000,000.00 |(0.20) | |FC |70,000,000.00 |70,000,000.00 |- | |Depreciation |150,000,000.00 |150,000,000.00 |- | |EBIT |380,000,000.00 |260,000,000.00 |(0.32) | |Tax |104,500,000.00 |71,500,000.00 |(0.32) | |Net Income |275,500,000.00 |188,500,000.00 |(0.32) | |Cash flow |425,500,000.00 |338,500,000.00 |(0.20) | |NPV |635,486,050.36 |198,853,179.90 |(0.69) | |Relative Change | | |3.44 | Here we see that, %∆in Revenue= -20% %∆in NPV = -69% And Relative Change = 3.44 So from the above analysis we can see that NPV is very sensitive to change in revenue. For 20% decrease of Revenue, NPV is decreased by 69%. Besides that, 1% change of revenue; NPV is changed for 3.44%. New Share Price with the project: New share price= (current capitalization + NPV of the project) / shares outstanding = (market price per share on the last day of 2009 * shares outstanding +NPV) / shares outstanding = (2,048.75 * 2,319,570+ 635,486,050.36) / 2,319,570 = 2,322.72 Taka/ share Scenario Analysis For scenario analysis we took three cases 1. Pessimistic 2. Expected 3. Optimistic situation We will assume that only sales are taken for the scenario analysis. The whole income statement is vertical size statement. Then after calculating the NPV for three scenarios of sales we will find the share price. We took that in pessimistic scenario sales will drop by 20% and in optimistic scenario sales will increase by 20%. |Particulars |Pessimistic |Normal |Optimistic | |Quantity |160.00 |200.00 |240.00 | |Price |10,000,000.00 |10,000,000.00 |10,000,000.00 | |Revenue |1,600,000,000.00 |2,000,000,000.00 |2,400,000,000.00 | |VC |1,120,000,000.00 |1,400,000,000.00 |1,680,000,000.00 | |FC |70,000,000.00 |70,000,000.00 |70,000,000.00 | |Depreciation |150,000,000.00 |150,000,000.00 |150,000,000.00 | |EBIT |260,000,000.00 |380,000,000.00 |500,000,000.00 | |Tax |71,500,000.00 |104,500,000.00 |137,500,000.00 | |Net Income |188,500,000.00 |275,500,000.00 |362,500,000.00 | |Cash flow |338,500,000.00 |425,500,000.00 |512,500,000.00 | |NPV |198,853,179.90 |635,486,050.36 |1,072,118,920.83 | Now we can calculate the future stock price for these three scenarios using the new share price finding process shown earlier in this chapter. |Description |Pessimistic |Normal |Optimistic | |MKT Price |2,048.75 |2,048.75 |2,048.75 | |No. Of Share Outstanding |2,319,570.00 |2,319,570.00 |2,319,570.00 | |Current Capitalization (A) |4,752,219,037.50 |4,752,219,037.50 |4,752,219,037.50 | |NPV (B) |198,853,179.90 |635,486,050.36 |1,072,118,920.83 | |(A + B) |4,951,072,217.40 |5,387,705,087.86 |5,824,337,958.33 | |New Share Price With Project |2,134.48 |2,322.72 |2,510.96 | We can see that according to NPV the future market price of the company changes. Breakeven Quantity Based on NPV: |PVIFAn=10, i=15% |5.019 | |Initial Investment |1,500,000,000.000 | |EAC |298,878,093.768 | |Fixed Cost |70,000,000.000 | |VC |7,000,000.000 | |Price |10,000,000.000 | |Tax |0.275 | |1-Tc |0.725 | |Depreciation |150,000,000.000 | |After Tax Fixed Charge |308,378,093.768 | |After Tax Contribution |2,175,000.000 | |BEP Quantity |141.783 | |Particulars |Year (2011-2021) | |Investment |1,500,000,000.000 | |Quantity |141.78 | |Price |10,000,000.00 | |Revenue |1,417,830,316.17 | |VC |992,481,221.32 | |FC |70,000,000.00 | |Depreciation |150,000,000.00 | |EBIT |205,349,094.85 | |Tax |56,471,001.08 | |Net Income |148,878,093.77 | |Cash flow |298,878,093.77 | So, project NPV at 2010 is, NPV2010 = -1,500,000,000 +(298,878,093.77 X PVIFAn=10, i=15%) NPV = -1,500,000,000 + 298,878,093.77 * 5.018768626 = 0.00 Taka. Breakeven Price Based on NPV: |Particulars |Amount in Taka | |Revenue | 1,825,349,094.85 | | VC | 1,400,000,000.00 | | FC | 70,000,000.00 | | Depreciation | 150,000,000.00 | | EBIT | 205,349,094.85 | | Tax | 56,471,001.08 | | Net Income | 148,878,093.77 | | Cash flow | 298,878,093.77 | We know, Revenue = Price X Quantity Price = Revenue / Quantity Price = 1,825,349,094.85 / 200 Break-Even Price = 9,126,745.47 Chapter 5 Prospective Analysis With the different factors positively contribute to the growth of the stock price of Aftab Automobiles, we have analyzed the trend of different variables from the five year financial statement and detected the growth or reduction of every item. After that we have selected few components which show a growing trend and positively contribute to the growth of Stock Price. As we found that for Aftab Automobiles ltd, Market price movement is mostly similar with company’s financial performance as like sales growth & profit growth. |Growth Rates (%) |2009-2008 |2008-2007 |2007-2006 |2006-2005 |GEOMEAN | |Sales |14.74% |41.81% |-15.92% |8.95% |17.67% | |Net Profit/Loss |28.96% |88.45% |-35.28% |-2.36% |50.61% | |Operating Profit/Loss |69.27% |26.14% |47.34% |7.64% |28.45% | |EBIT |58.21% |81.95% |-29.43% |11.35% |37.83% | From the income statement we can concentrate on growth rates of sales revenue, operating profit, EBT and Net income. We are concentrating on average of last 4 years growth performance. From here we will use average sales growth of 17.67% for forecasting future market price. As growth rate of operating profit, EBT and Net income is close in figure, we are going to use average net income growth of 50.61% for forecast the market price trend. As the world economy is experiencing the recession and the impact of recession is also started affecting our economy, so it will be a highly optimistic choice if we expect that the company will grow at the rate of 17.67% or 50.61%. On the other hand, the other growth rates that have been calculated also give us the indication that we cannot consider them as company growth rate given GDP growth of Bangladesh is 5.5% and world economy is in recession. We can assume that average growth rate for forecasting the share price & value of the company. Growth Rate: Scenario -1 Assuming growth rate of 17.67% as average of last 4 years growth of Sales | |Current |5 Year Projection | |Year |2009 |2010 |2011 |2012 |2013 |2014 | |Growth Rate | |17.67% |17.67% |17.67% |17.67% |17.67% | |Sales |2,124,637,706 |2,500,061,189 |2,941,822,001 |3,461,641,948 |4,073,314,080 |4,793,068,678 | |Net Income |316,616,692 |372,562,861 |438,394,719 |515,859,066 |607,011,363 |714,270,271 | |Dividend |47,570,900 |55,976,678 |65,867,757 |77,506,590 |91,202,004 |107,317,398 | |Addition to Retain Earnings|269,045,792 |316,586,183 |372,526,962 |438,352,476 |515,809,359 |606,952,873 | |Total Asset |2,438,883,896 |2,869,834,680 |3,376,934,468 |3,973,638,789 |4,675,780,763 |5,501,991,224 | |Total Debt |1,533,364,403 |1,804,309,893 |2,123,131,451 |2,498,288,779 |2,939,736,406 |3,459,187,829 | |Common Stock |589,249,465 |589,249,465 |589,249,465 |589,249,465 |589,249,465 |589,249,465 | |Retained Earnings |316,270,028 |632,856,211 |1,005,383,174 |1,443,735,650 |1,959,545,009 |2,566,497,881 | |Total Financing |2,438,883,896 |3,026,415,569 |3,717,764,090 |4,531,27 3,893 |5,488,530,879 |6,614,935,175 | |Funds Needed |- |(156,580,889) |(340,829,621) |(557,635,104) |(812,750,116) |(1,112,943,951) | |Debt: Equity Ratio |1.69 |1.48 |1.33 |1.23 |1.15 |1.10 | |Sustainable Growth Rate |42.27% |34.96% |30.48% |27.49% |25.37% |23.81% | |EPS |136.50 |160.62 |189.00 |222.39 |261.69 |307.93 | |Price |2,048.75 |2,410.76 |2,836.75 |3,338.00 |3,927.82 |4,621.87 | Assuming 17.67% growth rate, it has been found that the company has excess fund, which can be financed distributed to payoff long term debt and reduce the obligations of interest expenses. The projection says that assuming 17.67% growth rate, after 5 years in 2014 EPS of the company would be 307.93 as well as considering current P/E ratio as constant factor, in year 2014 share price would be Taka 4,621.87. Growth Rate: Scenario -2 Assuming growth rate of 50.61% as average of last 4 years growth of Net income | |Current |5 Year Projection | |Year |2009 |2010 |2011 |2012 |2013 |2014 | |Growth Rate | |50.61% |50.61% |50.61% |50.61% |50.61% | |Sales |2,124,637,706 |3,199,916,849 |4,819,394,766 |7,258,490,458 |10,932,012,478 |16,464,703,993 | |Net Income |316,616,692 |476,856,400 |718,193,424 |1,081,671,116 |1,629,104,867 |2,453,594,840 | |Dividend |47,570,900 |71,646,532 |107,906,843 |162,518,496 |244,769,106 |368,646,751 | |Addition to Retain Earnings |269,045,792 |405,209,867 |610,286,581 |919,152,620 |1,384,335,761 |2,084,948,089 | |Total Asset |2,438,883,896 |3,673,203,036 |5,532,211,092 |8,332,063,126 |12,548,920,274 |18,899,928,825 | |Total Debt |1,533,364,403 |2,309,400,127 |3,478,187,532 |5,238,498,242 |7,889,702,202 |11,882,680,486 | |Common Stock |589,249,465 |589,249,465 |589,249,465 |589,249,465 |589,249,465 |589,249,465 | |Retained Earnings |316,270,028 |721,479,895 |1,331,766,477 |2,250,919,096 |3,635,254,857 |5,720,202,947 | |Total Financing |2,438,883,896 |3,620,129,488 |5,399,203,473 |8,078,666,803 |12,114,206,524 |18,192,132,898 | |Funds Needed |- |53,073,548 |133,007,619 |253,396,323 |434,713,750 |707,795,927 | |Debt: Equity Ratio |1.69 |1.76 |1.81 |1.84 |1.87 |1.88 | |Sustainable Growth Rate |42.27% |44.75% |46.56% |47.85% |48.74% |49.35% | |Price |2,048.75 |3,085.62 |4,647.26 |6,999.23 |10,541.54 |15,876.62 | Assuming 50.61% growth rate, it has been found that the company required additional fund to run to sustain the business in this growth rate. The projection says that assuming 50.61% growth rate, after 5 years in 2014 EPS of the company would be 1057.78 as well as considering current P/E ratio as constant factor, in year 2014 share price would be Taka 15,876.62. Growth Rate: Scenario -3 Assuming growth rate of 42.27% as sustainable growth rate Sustainable Growth Rate = [pic] = [pic] = 42.27% | |Current |5 Year Projection | |Year |2009 |2010 |2011 |2012 |2013 |2014 | |Growth Rate | |42.27% |42.27% |42.27% |42.27% |42.27% | |Sales |2,124,637,706 |3,022,749,966 |4,300,506,074 |6,118,386,469 |8,704,708,779 |12,384,303,496 | |Net Income |316,616,692 |450,454,726 |640,867,854 |911,771,112 |1,297,188,735 |1,845,527,449 | |Dividend |47,570,900 |67,679,744 |96,288,861 |136,991,427 |194,899,502 |277,286,081 | |Addition to Retain Earnings |269,045,792 |382,774,982 |544,578,993 |774,779,685 |1,102,289,233 |1,568,241,368 | |Total Asset |2,438,883,896 |3,469,832,148 |4,936,575,765 |7,023,331,171 |9,992,185,492 |14,216,013,523 | |Total Debt |1,533,364,403 |2,181,537,673 |3,103,702,297 |4,415,678,018 |6,282,243,106 |8,937,829,769 | |Common Stock |589,249,465 |589,249,465 |589,249,465 |589,249,465 |589,249,465 |589,249,465 | |Retained Earnings |316,270,028 |699,045,010 |1,243,624,003 |2,018,403,688 |3,120,692,921 |4,688,934,289 | |Total Financing |2,438,883,896 |3,469,832,148 |4,936,575, 765 |7,023,331,171 |9,992,185,492 |14,216,013,523 | |Funds Needed |- |- |- |- |- |- | |Debt: Equity Ratio |1.69 |1.69 |1.69 |1.69 |1.69 |1.69 | |Sustainable Growth Rate |42.27% |42.27% |42.27% |42.27% |42.27% |42.27% | |EPS |136.50 |194.20 |276.29 |393.08 |559.24 |795.63 | |Price |2,048.75 |2,914.78 |4,146.90 |5,899.85 |8,393.79 |11,941.96 | Assuming 42.27% growth rate, it has been found that the company has no excess fund or no deficit. The projection says that assuming 42.27% growth rate, after 5 years in 2014 EPS of the company would be 795.63 as well as considering current P/E ratio as constant factor, in year 2013 share price would be Taka 11,941.96. Growth Rate: Scenario -4 Assuming growth rate of 5.5% as GDP growth rate | |Current |5 Year Projection | |Year |2009 |2010 |2011 |2012 |2013 |2014 | |Growth Rate | |5.50% |5.50% |5.50% |5.50% |5.50% | |Sales |2,124,637,706 |2,241,492,780 |2,364,774,883 |2,494,837,501 |2,632,053,564 |2,776,816,510 | |Net Income |316,616,692 |334,030,610 |352,402,294 |371,784,420 |392,232,563 |413,805,354 | |Dividend |47,570,900 |50,187,300 |52,947,601 |55,859,719 |58,932,004 |62,173,264 | |Addition to Retain |269,045,792 |283,843,311 |299,454,693 |315,924,701 |333,300,559 |351,632,090 | |Earnings | | | | | | | |Total Asset |2,438,883,896 |2,573,022,510 |2,714,538,748 |2,863,838,380 |3,021,349,490 |3,187,523,712 | |Total Debt |1,533,364,403 |1,617,699,445 |1,706,672,915 |1,800,539,925 |1,899,569,621 |2,004,045,950 | |Common Stock |589,249,465 |589,249,465 |589,249,465 |589,249,465 |589,249,465 |589,249,465 | |Retained Earnings |316,270,028 |600,113,339 |899,568,031 |1,215,492,732 |1,548,793,291 |1,900,425,381 | |Total Financing |2,438,883,896 |2,807,062,249 |3,195,490,411 |3,605,282,122 |4,037,612,377 |4,493,720,796 | |Funds Needed |- |(234,039,738) |(480,951,663) |(741,443,742) |(1,016,262,887) |(1,306,197,084) | |Debt: Equity Ratio |1.69 |1.36 |1.15 |1.00 |0.89 |0.80 | |Sustainable Growth Rate |42% |31% |25% |21% |18% |16% | |EPS |136.50 |144.01 |151.93 |160.28 |169.10 |178.40 | |Price |2,048.75 |2,161.43 |2,280.31 |2,405.73 |2,538.04 |2,677.63 | Assuming realistic one 5.5% growth rate, it has been found that the company has excess fund, which can be financed distributed to payoff long term debt and reduce the obligations of interest expenses. The projection says that assuming 5.5% growth rate, after 5 years in 2014 EPS of the company would be 178.40 as well as considering current P/E ratio as constant factor, in year 2014 share price would be taka 2,677.63. Calculating Expected Return of Aftab Auto using CAPM: The general idea behind CAPM is that investors need to be compensated in two ways: time value of money and risk. The time value of money is represented by the risk-free (Rf) rate in the formula and compensates the investors for placing money in any investment over a period of time. The other half of the formula represents risk and calculates the amount of compensation the investor needs for taking on additional risk or risk premium. This is calculated by taking a risk measure (beta) that compares the returns of the asset to the market over a period of time and to the market premium (Rm-Rf). [pic] [pic] = 7.25% + 0.463 (1.88% – 7.25%) [pic] = 4.915% We have determined market return Rm for year 2009 taking the monthly change in DSE Index. The average market return in 2009 has been found to be 1.88% and beta for the company is 0.46. If we post all the values in the above equation (considering Rf=7.5) we get the expected return [pic] to be 4.915%. This is lower than the risk free rate. This is the outcome of low market return. As such the expected return derived from CAPM can not be used for stock valuation. Future Stock Price Valuation under Gordon Model : In this section we shall make a projection of market stock price of Aftab Auto. It has a security specific beta risk of 0.46 and the expected return for the company is 4.915%. But the expected return 4.915% is based on market return 1.88%. This phenomenon may be due to the fact that in 2009 due to the political situation & anti corruption activity of the government, a lot of money has been invested in DSE. As a result the price of stocks increased. It is vivid from the below graph. [pic]Figure-20: DSE General Index for the 2009 As the Expected Return derived from CAPM is too low (4.915%), we shall use another formula for expected rate of return. ks=(D1/P0)+g Growth rate, g=Retention Rate*ROE Retention Rate = 0.85g= (0.85*0.35) =29.71% ROE = 35% D1= D0 (1+g) =20.51*1.2975=26.50 ks = (26.61/ 2048.75)+0.2975 = 31.01% From this formula we get the Expected Return (ks) 31.01%. Using the above information we can forecast expected stock value for Aftab Auto using the Gordon Model (Dividend Valuation Model). We assume that dividends will grow at a constant rate, g, forever. Since future cash flows grow at a constant rate forever, the value of a constant growth stock is the present value of a growing perpetuity: [pic]Where, [pic] We assume g=29.71% & k=37.12%. From all the above information we can forecast the future stock price for 2009. So the stock price for 1st January, 2010 would be BDT 459.64 But the real average stock price for first three months in 2010 was BDT 298.43. The average stock price is 54% lower than our forecasted price. This indicates the price of Aftab share is undervalued in the market. The explanation for lower market price may be due to decreasing trend in the General Index in 2010. Fig-21: DSE General Index in 2010 |Year |Dividend |Projected Price of Stock(using Gordon Model) | |2009 (Actual) |Do |20.51 |2,048.75 | |2010 (projected) |D1 |26.60388 |2048.75 | |2011 (projected) |D2 |34.50836 |2657.469714 | |2012 (projected) |D3 |44.76141 |3447.050776 | |2013 (projected) |D4 |58.06081 |4471.230282 | |2014 (projected) |D5 |75.3117 |5799.711558 | |2015 (Projected) |D6 |97.68813 | | Future Market Price projection in different growth Rate: [pic] |Growth Rate |2006 |2007 | |Sales |2,124,637,706 |2,500,061,189 | |Cost |1,808,021,014 |2,127,498,327 | |Net Income |316,616,692 |372,562,861.48 | |Asset |2,438,883,896 |2,869,834,680.42 | |Debt |1,533,364,403 |1,804,309,893.01 | |Equity |905,519,493.00 |1,065,524,787.41 | |Total |2,438,883,896.00 |2,869,834,680.42 | |Debt : Equity Ratio |1.69 |1.69 | Here the plug variable is Dividend distribution of taka 212,557,567 and thus the Debt : Equity ratio becomes unchanged. Scenario 2: |Particulars |2,009.00 |17.67% Growth Rate | |Sales |2,124,637,706 |2,500,061,189 | |Cost |1,808,021,014 |2,127,498,327 | |Net Income |316,616,692 |372,562,861.48 | |Asset |2,438,883,896 |2,869,834,680.42 | |Debt |1,533,364,403 |1,591,752,325.95 | |Equity |905,519,493.00 |1,278,082,354.48 | |Total |2,438,883,896.00 |2,869,834,680.42 | |Debt:Equity Ratio |1.69 |1.25 | In this case, no Dividend is paid. So Equity increases for the Net income and thus Debt goes down. So in this case, plug variable is the Debt: Equity ratio. Scenario Analysis: In this case study, the growth rate of 5.5% has been selected as the constant growth rate and the pro forma statement has been generated based on this growth rate. For scenario analysis, both optimistic and pessimistic scenarios are being considered. | |Current |Scenario Analysis of 2009 Pro-forma | |Year |2009 |Pessimistic |Normal |Optimistic | |Growth Rate | |2.50% |5.50% |8.50% | |Sales |2,124,637,706 |2,177,753,649 |2,241,492,780 |2,305,231,911 | |Net Income |316,616,692 |324,532,109 |334,030,610 |343,529,111 | |Dividend |47,570,900 |48,760,173 |50,187,300 |51,614,427 | |Addition to Retain Earnings |269,045,792 |275,771,937 |283,843,311 |291,914,684 | |Total Asset |2,438,883,896 |2,499,855,993 |2,573,022,510 |2,646,189,027 | |Total Debt |1,533,364,403 |1,571,698,513 |1,617,699,445 |1,663,700,377 | |Common Stock |589,249,465 |589,249,465 |589,249,465 |589,249,465 | |Retained Earnings |316,270,028 |592,041,965 |600,113,339 |608,184,712 | |Total Financing |2,438,883,896 |2,752,989,943 |2,807,062,249 |2,861,134,555 | |Funds Needed |- |(253,133,949) |(234,039,738) |(214,945,527) | |Debt: Equity Ratio |1.69 |1.33 |1.36 |1.39 | |Sustainable Growth Rate |42.27% |30.45% |31.35% |32.24% | |EPS |136.50 |139.91 |144.01 |148.10 | |Price |2,048.75 |2,099.97 |2,161.43 |2,222.89 | In the above scenario analysis, we have taken the 5.5% growth rate in normal situation. If we want to be optimistic enough to predict that the economy will have a high growth and the company will also able to grow at 8.50%. On the other hand, the situation can also be worse enough to have a growth lower than the normal and the company may face a growth of 2.50%. After analyzing the scenario of different situation we can say that the projected growth rate is appropriate for the company which will help the company to operate in the market even if the situation is worse. It gives a positive indication towards the company and increases the shareholders confidence to invest in the company’s share. Chapter 6 Findings & Conclusion: At the end we can say that, in year 2009, we see that the Market price is much higher then the Book Value of each share. Investors are willing to pay more than the book value of each share. The major reasons of the higher market value are the underestimation of the assets, as the assets are calculated based on the purchase price; not on the basis of the market price. Besides that investment to the other shares are also calculated on the purchase price. But the market price is also higher. Moreover, Aftab Automobiles ltd enjoys a better reputation on the market. So the Intangible assets like, Patent, Trade mark should be considered. So we can say that the company’s financial position is good. Based on market price if we re-construct the balance sheet, we have to introduce ‘Goodwill’ as intangible asset for Aftab Auto. This goodwill basically shows the confidence of the shareholders & investors on Aftab Auto backed by some positive news. Overall we see that the Sales of the company are increasing which is a good sign. Besides that the company is investing heavily on the fixed assets,  which may used to generate more revenue for the company. They are also offering cash dividend each year and also the company paid its short term load and also taking short term loans, which indicates that the company is enjoying a favorable environment in terms of the short term credit situation. So, we can conclude that the Aftab Automobiles Ltd is financially sound based on the Cash Flow analysis. Profit margin, operating profit, EPS, market-book value of the Aftab is increasing which indicates that the company is becoming more efficient in terms of its operations and also gaining investors confidence. So we can say that after experiencing some downfall Aftab Auto is now experiencing efficiency in its performance and also investors’ confidence. From the cash flow statement we can see that, in 2006, 2007 & 2009 the free cash flow figures are negative. This might happen because of high investment in inventory and R&D departments, means the company used more cash than they had sourced of. . Also the cash flows to Investors were sufficient for the company over the years. The company had sufficient fund to pay out dividends and that would eventually maximize the value of the firm. Fixed investments were consistent and consumed huge cash over the years. Using dummy variable to find effects of Dividend declaration was a success in 2009. We have seen that dividend declaration had a significant effect on the share price of Aftab Auto in the year 2009. Price fluctuated after the dividend was declared. Price increased significantly after the dividend was declared. Using dummy variable to find effects of AGM on Stock Price was a success in 2009. We have seen that AGM declaration also had a significant effect on the share price of Aftab Auto in the year 2009. Price fluctuated after the AGM took place. Price fell enormously after the AGM. We assumed a hypothetical situation of capital investment for Aftab Auto. The project turned out to have a positive NPV of 635,486,050.36 Taka. So it’s a project that adds value to the company. Incorporating the value of the project in the share price result is a share price of 2322.72 taka. This is higher than the market price of 2048.75 taka in the last trading day of 2009. This shows that the project adds value to the wealth of the shareholders. From the sensitivity analysis, we can see that NPV is very sensitive to change in revenue. For 20% decrease of Revenue, NPV is decreased by 69%. Besides that, 1% change of revenue; NPV is changed for 3.44%. The scenario analysis shows that under pessimistic scenario of sales variable NPV becomes 198,853,179.90 taka and the future share price becomes 2134.48 taka. And optimistic scenario of sales variable results in a NPV of 1,072,118,920.83 taka and future price of share becomes 2510.96 taka. This shows how changes in sales in different situation can affect the project, its NPV and the future market price per share. But in this case it is satisfactory that sales change doesn’t affect the share price of the company to a great extent. This can mean that the company has a diversified way to do their business that a single project is not that much strong to affect the company’s price per share. Break-Even Quantity for the new investment is 142 units if the selling price is 10,000,000 per unit. On the other hand, Break-Even Price is 9,126,745.47 if the selling quantity is 200 units. In projecting future market price, assuming realistic one 5.5% growth rate, it has been found that the company has excess fund, which can be financed distributed to payoff long term debt and reduce the obligations of interest expenses. The projection says that assuming 5.5% growth rate, after 5 years in 2014 EPS of the company would be 144.01 as well as considering current P/E ratio as constant factor, in year 2013 share price would be 2,677.63 Initially we assumed many growth variables, but considering current world wide economic condition, Bangladesh GDP growth rate of 5.5% as an assumption would be most appropriate, as due to recession period it would be very optimistic to assume higher growth rate