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INTRODUCTION
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Introduction:
1.1 Origin of the Report
To complete the course of Corporate Finance (FIN 6150), it is necessary to prepare a report based
on corporate finance analysis of Meghna Cement. This report is prepared by Imtiaz Ahmed &
Md. Abu Faysal on Corporate finance analysis of Meghna Cement, under the guidance of Syed
A. Al Mamun, Associate Professor, South East University.
1.2 Objectives:
1.3 Methodology:
Sources of information:
In order to collect the above-mentioned information following potential sources has been used:
o Annual Report of the company
o Websites
o Different texts books
1.4 Limitations
The limitation of the study was collecting information because the organization is reluctant to
give the required information. Research methodology or Questionnaire is not taken to prepare
this report.
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CHAPTER-02
Organization
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The promotional activities must be increase and proper way like TV commercial need to moderate
for gaining attention of customers. On the other hand print media should be attractive toward
customer. Consumer scheme is more attractive other than other promotional activities. The quality
of King Brand Cement is so good but price is high. It should be price competitive and reasonable.
To provide well advantage toward the dealers for fulfilled their objectives and will be created
smooth distribution Mechanism.
Since the starting of the operation King Brand Cement confident that they are quite capable of
challenging others and positioning themselves in the highest rank by increasing the sales per day,
introduction of the consistence quality blended cement, with integrating supply and distribution
chains and logistics, securing an exclusive distribution network and buildings strong relationship
all over the country segmented on the basis of consumers use. Though King Brand Cement is in
good position in the market, it should think critically to generate new ideas for existing and
potential consumers to hold the consistent growth in the market.
Mission
To be the leader in the cement sector of the country by rendering quality products and services
through maintaining high standards in business operations and to bring fullest satisfaction to our
valued shareholders, customers and employees.
Vision
To significantly contribute to the sustainable development and growth of our country towards its
journey for a better and prosperous future.
Company in Brief
Registered Office
Year of Incorporation
1992
1996
Year of Listing
DSE 1995
CSE 1996
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Products
Authorized Capital
Paid-up Capital
Tk. 225,004,000
Face Value
Capacity
Board of Directors
Chairman
Managing Director
Sayem Sobhan
Directors
Afroza Begum
Sadat Sobhan
Shafiat Sobhan
Safwan Sobhan
Independent Director
Audit Committee
Company Secretary
Statutory Auditors
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Bangladesh being one of the densely populated countries in the world, our standard of life,
communication, industrial and agricultural growth etc. has not been remarkably developed. As
such employment opportunity has not been satisfactorily improved. Bashundhara Group is playing
significant role by creating employment opportunity for hundreds of young generation through
Industrialization. The main objective is efficient customer services, ensure quality product. As a
result these products also reached to their doorstep within short time. On the basis of priority
MCML also produces various types of quality cement as per customers desire want and needs.
We are able to produce any type of quality cement and maintain proper standardization, using
modern equipment for laboratory testing which ensure the quality. Since inception we are actively
contributing to the national as well as global economy by way of effective utilization of human
resource using raw materials, producing and marking high quality product at most competitively
prices and creating employment opportunities. We mark all endeavors to utilize our financial
resources efficiently and the right opportunities arise, we invest in fruitful areas with strong market
position and high growth potential for realization of a better future. We continue our efforts to
improve performance and increase contribution towards socio economic development of this
beloved earth. Meghna Cement Mills Ltd. do lot of charity activities for the betterment of people
as well as society. MCML is running/patronizing a Madrasha cum School for about 250 nos. Under
privileged students of Apa Bari, Digraj, Mongla, Bagerhat area. In case of natural disaster like
Cidor/Aila, MCML bestowed significant volume of warm clothes, medicine, dry food, removing
saline water from pond and financial assistances. On the different national memorable day like
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Victory Day, 21st February, Independent Day, May Day etc. MCML donated sewing machine,
financial assistance to freedom fighter and others through Thana & District administration. Cement
sacks and cash payment are also bestowed for construction of different Mosque, School, Mondir,
Madrasha etc.
and raising money to fund the firms operations. In recent years, a number of factors have increased
the importance and complexity of the financial managers duties. These factors include the recent
global financial crisis and subsequent responses by regulators, increased competition, and
technological change. For example, globalization has led U.S. corporations to increase their
transactions in other countries, and foreign corporations have done likewise in the United States.
These changes increase demand for financial experts who can manage cash flows in different
currencies and protect against the risks that arise from international transactions. These changes
increase the finance functions complexity, but they also create opportunities for a more rewarding
career. The increasing complexity of the financial managers duties has increased the popularity
of a variety of professional certification programs outlined in the Focus on Practice box below.
Financial managers today actively develop and implement corporate strategies aimed at helping
the firm grow and improving its competitive position. As a result, many corporate presidents and
chief executive officers (CEOs) rose to the top of their organizations by first demonstrating
excellence in the finance function.
costs are costs borne by shareholders due to the presence or avoidance of agency problems, and in
either case represent a loss of shareholder wealth. For example, shareholders incur agency costs
when managers fail to make the best investment decision or when managers have to be monitored
to ensure that the best investment decision is made, because either situation is likely to result in a
lower stock price.
individual and institutional investors share the same goal, individual investors benefit from the
shareholder activism of institutional investors.
Investment Decision
In general, each project's value will be estimated using a discounted cash flow (DCF) valuation,
and the opportunity with the highest value, as measured by the resultant net present value (NPV)
.This requires estimating the size and timing of all of the incremental cash flows resulting from
the project. These present values are then summed, and this sum net of the initial investment outlay
is the NPV.
The NPV is greatly affected by the discount rate. Thus, identifying the proper discount rate often
termed, the project "hurdle rate" is critical to choosing good projects and investments for the
firm. The hurdle rate is the minimum acceptable return on an investment i.e., the project
appropriate discount rate. The hurdle rate should reflect the riskiness of the investment, typically
measured by volatility of cash flows, and must take into account the project-relevant financing
mix. Managers use models such as the CAPM or the APT to estimate a discount rate appropriate
for a particular project, and use the weighted average cost of capital (WACC) to reflect the
financing mix selected. (A common error in choosing a discount rate for a project is to apply a
WACC that applies to the entire firm. Such an approach may not be appropriate where the risk of
a particular project differs markedly from that of the firm's existing portfolio of assets.)
In conjunction with NPV, there are several other measures used as (secondary) selection criteria
in corporate finance. These are visible from the DCF and include discounted payback period, IRR,
Modified IRR, equivalent annuity, capital efficiency, and ROI.
Financing Decision
Achieving the goals of corporate finance requires that any corporate investment be financed
appropriately. The sources of financing are, generically, capital self-generated by the firm and
capital from external funders, obtained by issuing new debt and equity (and hybrid- or convertible
securities). As above, since both hurdle rate and cash flows (and hence the riskiness of the firm)
will be affected, the financing mix will impact the valuation of the firm. There are two interrelated
considerations here:
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Management must identify the "optimal mix" of financing the capital structure that results
in maximum firm value but must also take other factors into account (trade-off theory). Financing
a project through debt results in a liability or obligation that must be serviced, thus entailing cash
flow implications independent of the project's degree of success. Equity financing is less risky with
respect to cash flow commitments, but results in a dilution of share ownership, control and
earnings. The cost of equity is also typically higher than the cost of debt - which is, additionally, a
deductible expense and so equity financing may result in an increased hurdle rate which may
offset any reduction in cash flow risk.
Management must attempt to match the long-term financing mix to the assets being
financed as closely as possible, in terms of both timing and cash flows. Managing any potential
asset liability mismatch or duration gap entails matching the assets and liabilities respectively
according to maturity pattern ("Cashflow matching") or duration ("immunization"); managing this
relationship in the short-term is a major function of working capital management.
Dividend policy
Dividend policy is concerned with financial policies regarding the payment of a cash dividend in
the present or paying an increased dividend at a later stage. Whether to issue dividends and what
amount, is determined mainly on the basis of the company's unappropriated profit (excess cash)
and influenced by the company's long-term earning power. When cash surplus exists and is not
needed by the firm, then management is expected to pay out some or all of those surplus earnings
in the form of cash dividends or to repurchase the company's stock through a share buyback
program.
If there are no NPV positive opportunities, i.e. projects where returns exceed the hurdle rate, and
excess cash surplus is not needed, then finance theory suggests management should return
some or all of the excess cash to shareholders as dividends. This is the general case, however there
are exceptions. For example, shareholders of a "growth stock", expect that the company will,
almost by definition, retain most of the excess cash surplus so as to fund future projects internally
to help increase the value of the firm.
Management must also choose the form of the dividend distribution, generally as cash dividends
or via a share buyback. Various factors may be taken into consideration: where shareholders must
pay tax on dividends, firms may elect to retain earnings or to perform a stock buyback, in both
cases increasing the value of shares outstanding. Alternatively, some companies will pay
"dividends" from stock rather than in cash. Financial theory suggests that the dividend policy
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should be set based upon the type of company and what management determines is the best use of
those dividend resources for the firm to its shareholders. As a general rule, shareholders of growth
companies would prefer managers to retain earnings and pay no dividends (use excess cash to
reinvest into the company's operations), whereas shareholders of value or secondary stocks would
prefer the management of these companies to payout surplus earnings in the form of cash dividends
when a positive return cannot be earned through the reinvestment of undistributed earnings. A
share buyback program may be accepted when the value of the stock is greater than the returns to
be realized from the reinvestment of undistributed profits. In all instances, the appropriate dividend
policy is usually directed by that which maximizes long-term shareholder value.
Working capital is the amount of funds which are necessary to an organization to continue its
ongoing business operations, until the firm is reimbursed through payments for the goods or
services it has delivered to its customers. Working capital is measured through the difference
between resources in cash or readily convertible into cash (Current Assets), and cash requirements
(Current Liabilities). As a result, capital resource allocations relating to working capital are always
current, i.e. short term. In addition to time horizon, working capital management differs from
capital budgeting in terms of discounting and profitability considerations; they are also
"reversible" to some extent.
The (short term) goals of working capital are therefore not approached on the same basis as (long
term) profitability, and working capital management applies different criteria in allocating
resources: the main considerations are (1) cash flow / liquidity and (2) profitability / return on
capital (of which cash flow is probably the most important).
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This method estimates the value of an asset based on its expected future cash flows, which are
discounted to the present (i.e., the present value). This concept of discounting future money is
commonly known as the time value of money. The size of the discount is based on an opportunity
cost of capital and it is expressed as a percentage or discount rate.
In finance theory, the amount of the opportunity cost is based on a relation between the risk and
return of some sort of investment. Classic economic theory maintains that people are rational and
averse to risk. They, therefore, need an incentive to accept risk. The incentive in finance comes in
the form of higher expected returns after buying a risky asset. In other words, the more risky the
investment, the more return investors want from that investment. For a valuation using the
discounted cash flow method, one first estimates the future cash flows from the investment and
then estimates a reasonable discount rate after considering the riskiness of those cash flows and
interest rates in the capital markets. Next, one makes a calculation to compute the present value of
the future cash flows.
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CHAPTER-03
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52.3
52.34
Public (%)
2010
2011
26.61
23.27
24.83
10.42
14.3
22.83
33.4
39.46
50.12
Institutional (%)
50.12
Directors (%)
34.09
52.3
SHAREHOLDING STATUS
13.61
No. Of
Shareholders
16,861
13,846
11,794
12,029
9,875
2012
2013
2014
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No. of independent
directors(ID)
% ID to total
members
No. of Board
Meetinngs
2010
2011
2012
2013
2014
09
09
08
08
08
01
01
02
02
02
11%
11%
25%
25%
25%
07
06
07
13
12
2010
2011
2012
2013
2014
Current Assets
Non-Current Assets
2,305,163,660
2,886,387,943
3,054,920,138
3,230,991,441
3,034,958,636
Total Assets
Capital workin-progress
1,836,914
3,610,766,118
4,107,665,653
4,171,434,210
4,236,269,134
3,933,033,938
Company has invested in different projects like Land, building, plant and machinery,
furniture, Motor Vehicle, Sundry Assets, Factory apparatus and Loose Tools, fixtures and
equipments, held for use in the production or supply of goods and services, or for
administrative purpose.
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Year
Total Assets
Total
Liabilities
Current
Liabilities
Long Term
Liabilities
Total Equity
Short
Long
Weight Weight
Term
Term
of
of
Structure Structure Debt
Equity
0.28
0.81
0.19
0.25
0.84
0.16
760,720,671 0.59
0.23
0.82
0.18
822,119,156 0.59
0.22
0.81
0.19
812,236,849 0.64
0.15
0.79
0.21
Company take short term loan from bank to meet the working capital Requirements, retire
the import document and Importation of raw material. It takes long term borrowings from
leasing company.
Year
Cash Dividend
2010
2011
2012
2013
2014
78,751,400
56,251,000
117,649,485
33,750,600
39,750,600
Stock Dividend
Dividend Payout
Ratio
58%
85%
83%
29%
34%
Meghna cement pays cash dividend in every year. In 2011 & 2012 it paid highest dividend
and later years it becomes low. However dividend payout ratio is good for the company.
Company did not pay any stock dividend during the years.
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Year
ROA (%)
ROE (%)
Asset Turnover
EPS
2010
2011
2012
2013
2014
Average
1.39
1.62
3.39
2.78
2.56
2.35%
7.47
9.85
18.58
14.31
12.41
12.53%
1.58
1.48
1.59
1.18
0.95
1.36
0.88
1.09
2.14
2.35
2.69
1.83%
2.23
2.96
6.28
5.23
4.48
4.24
ROA measures the firms overall effectiveness in generating profits with its available
assets. Meghna cement earn average 2.35% return on assets during the years.
ROE measures the return earned on the owners investment in the firm. This ratio of this
company on average 12.53%
Total asset turnover indicates the efficiency with which the firm uses its assets to generate
sales. The company therefore turns an amount equal to its total assets on average 1.36 times
during the years.
The net profit margin measures of the firm success with respect to earnings on sales. The
company net profit margin on average 1.83% during the years.
The Company presents its basic earnings per share (EPS) data for its ordinary shares. Basic
EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the
Company by the weighted average number of ordinary shares outstanding during the year.
2010
2011
2012
2013
2014
293,139,418
(451,169,652)
204,890,615
152,238,077
145,873,453
(90,725,521)
30,856,027
62,632,531
39,441,768
(44,681,652)
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2010
2011
2012
2013
2014
-40,000,000
-60,000,000
-80,000,000
-100,000,000
In 2010 & 2014 Meghna cement has negative free cash flow owing to acquisition of fixed
assets.
In 2011, net operating cash flow negative because the company made payment purchase of
raw materials. During the year, company recovered it by taking short term loan and shows
positive free cash flow.
Year
2010
2011
2012
2013
2014
Total Market
Capitalization
No. of Share*average
market price
Tk. 225,004,000
Tk. 225,004,000
Tk. 225,004,000
Tk. 225,004,000
Tk. 225,004,000
Tobins Q
( total liability + total market
capitalization / total assets)
0.88
0.89
0.87
0.85
0.85
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=10.40%+1.21(22.08-10.40) %
=24.53%
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CHAPTER-04
Conclusion
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Cement Industry relatively fast growing industry, is developing in pace with increasing building
and construction activities. Cement has long been used as a bonding agent to unite particles or to
cause one surface to adhere to another. The growth of cement market in Bangladesh was not in
satisfied. There was a critical competition in the market. In that critical time King Brand Cement
of Meghna Cement Mills Limited start its operation in the country. Availability and awareness of
this brand is very good. Most of the people prefer quality cement and they are willing to pay a little
bit higher prices for that. As King Brand Cement has a reputation about its quality it has a good
market response.
The company uses more debt in total capital structure and also paid yearly cash dividend. It has
potential growth rate in the cement industry. Average profitability ratio during the years become
satisfied its shareholders and stakeholders.
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CHAPTER-05
References
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