Introductory Discussion

In 1973, the UK based multinational pharmaceutical company, ICI plc, established a subsidiary
in Dhaka, known as ICI Bangladesh Manufacturers Limited. In 1992, ICI plc divested its share to
local management, and the company was renamed Advanced Chemical Industries (ACI)
Limited.
ACI formulates and markets a comprehensive range of more than 387 products covering all
major therapeutic areas, which come in tablet, capsule, powder, liquid, cream, ointment, gel ,
ophthalmic and injection forms. ACI also markets world-renowned branded pharmaceutical
products like Arimidex, Casodex, Zoladex, Atarax etc. from world-class multinational
companies like ASTRAZENECA, UK and UCB, BELGIUM in Bangladesh.
ACI is actively engaged in introducing newer molecules and Novel Drug Delivery Systems
(NDDS) to meet the needs of the future.
ACI introduced the concept of quality management system by being the first company in
Bangladesh to achieve ISO 9001 certification in 1995 and follows the policy of continuous
improvement in all its operations.
Aligned with the concept that a pharmaceutical must ensure effective management of
environment, ACI complies with standard environment management policy, thus adorned with
EMS 14001 in 2000.
It has been in the financial market continuous dividend system. Since last night it has been
entertaining a capital gain of almost BDT 9.00 each share. The shares outstanding are ranked as
CATERGORY A shares.
On the current context of our country this is a famous name in the economy holding its brand

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image high in the market.

Analysis on ACI
GROUP-A
1. Total Profit Before Tax
YEAR

AMOUNT OF EBT IN BDT

1998

68,173,879

1999

74,758,879

2000

94,929,607

2001

136,715,428

2002

163,602,582

2003

93,443,211

2004

141,390,129

2005

169,075,335

2006

232,942,159

2007

431,842,771

2008

1,179,647,904

2009

1,107,570,334

2010

808,045,858

2011

893,282,612

2012

736,643,071

Total Profit Before Tax

1,400,000,000
1,200,000,000
1,000,000,000
800,000,000
600,000,000

AMOUNT OF EBT IN BDT

400,000,000

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1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012

200,000,000

2. Net Profit After Tax

YEAR

AMOUNT IN BDT

1998

52,673,879

1999

58,258,879

2000

64,129,607

2001

91,715,428

2002

109,180,668

2003

85,416,760

2004

89,516,202

2005

112,270,813

2006

153,825,615

2007

313,035,231

2008

1,072,683,550

2009

989,561,962

2010

591,590,014

2011

681,129,073

2012

545,115,873

Net Profit After Tax

1,200,000,000
1,000,000,000
800,000,000
600,000,000

AMOUNT IN BDT

400,000,000
200,000,000

3
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2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

3. Total Operating Expenses

YEAR

AMOUNT IN BDT

1998

220,080,947

1999

263,522,330

2000

293,861,323

2001

318,278,594

2002

473,781,711

2003

583,605,005

2004

540,425,340

2005

726,132,328

2006

884,474,379

2007

1,235,098,936

2008

1,324,537,151

2009

1,719,222,750

2010

1,919,655,805

2011

2,193,597,248

2012

2,670,135,457

Total Operating Expenses

3,000,000,000
2,500,000,000
2,000,000,000
1,500,000,000

AMOUNT IN BDT

1,000,000,000
500,000,000

4
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2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

4. Retained Earnings
YEAR

AMOUNT IN BDT

1998

393,917

1999

20,266,297

2000

37,583,098

2001

69,823,582

2002

117,230,026

2003

125,820,859

2004

138,691,741

2005

189,086,117

2006

344,542,827

2007

563,800,530

2008

1,488,114,482

2009

2,302,905,481

2010

2,691,050,437

2011

3,136,486,047

2012

3,484,501,642

Retained Earnings
3,500,000,000
3,000,000,000
2,500,000,000
2,000,000,000
AMOUNT IN BDT

1,500,000,000
1,000,000,000
500,000,000

5
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2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

5. Total Liabilities
YEAR

AMOUNT IN BDT

1998

271,466,090

1999

496,015,525

2000

496,053,219

2001

648,024,565

2002

957,960,222

2003

1,410,553,011

2004

1,517,203,137

2005

1,768,558,876

2006

1,941,116,907

2007

3,458,717,159

2008

4,710,448,147

2009

4,500,634,826

2010

5,228,091,771

2011

6,329,473,598

2012

8,125,180,846

Total Liabilities
9,000,000,000
8,000,000,000
7,000,000,000
6,000,000,000
5,000,000,000
4,000,000,000

AMOUNT IN BDT

3,000,000,000
2,000,000,000
1,000,000,000

6
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2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

6. Total Assets
YEAR

AMOUNT IN BDT

1998

770,696,534

1999

1,004,588,598

2000

1,012,160,899

2001

1,195,210,173

2002

1,548,343,748

2003

2,009,138,547

2004

2,378,690,093

2005

2,674,494,145

2006

2,915,188,818

2007

4,730,813,195

2008

6,915,104,121

2009

7,742,246,126

2010

9,686,269,567

2011

11,096,971,158

2012

13,206,467,006

Total Assets
14,000,000,000
12,000,000,000
10,000,000,000
8,000,000,000
AMOUNT IN BDT

6,000,000,000
4,000,000,000
2,000,000,000

7
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2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

7. Total Shareholders Equity

YEAR

AMOUNT IN BDT

1998

423764111

1999

508367182

2000

607863574

2001

545925167

2002

590165773

2003

672572913

2004

860732712

2005

905409782

2006

986061635

2007

1277694820

2008

2332935080

2009

3239155358

2010

4454744081

2011

4766473569

2012

5080297046

Total Shareholders Equity

6E+09
5E+09
4E+09
3E+09
2E+09

AMOUNT IN BDT

1E+09

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COMPARATIVE ANALYSIS- GROUP A

40,000,000,000
35,000,000,000
30,000,000,000
Total Shareholders Equity
25,000,000,000

Total Assets
Total Liabilities

20,000,000,000

Retained Earnings
15,000,000,000

Total Operating Expenses

Net Profit After Tax

10,000,000,000

Total Profit Before Tax

5,000,000,000

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

ANALYTICAL DISCUSSION
The major points we have achieved from the illustration above are The level of assets has gradually increased for ACI. Importantly, significant increase can
be seen for shareholders equity.
The company has been performing at a steady and nice pace to increase both assets and
equity. Shareholders equity maximization is a key objective.
Again, the level of retained earnings suggests a continuous distribution of dividends that
has a positive impact on share price in the market.
Along with the assets there a considerable amount of increase in companys liabilities. It
gives a notification of danger for the near future because more liabilities absorb liquidity.

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bad. We have to watch from different angles and so we move to our next phase.

Only one side of a company doesnt provide the information whether its performing good or

GROUP B
PROFITABILITY ANALYSIS
1. ROE
RETURN ON EQUITY = NET INCOME / SHAREHOLDER'S EQUITY

YEAR

ROE

YEAR

ROE

1998

12.43%

2005

12.4%

1999

11.46%

2006

15.6%

2000

10.55%

2007

24.5%

2001

16.8%

2008

45.98%

2002

18.5%

2009

30.55%

2003

12.7%

2010

13.28%

2004

10.4%

2011

14.29%

2012

10.73%

ROE
50.00%
45.00%
40.00%
35.00%
30.00%
25.00%
20.00%
15.00%
10.00%

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

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0.00%

10

5.00%

2. ROA
ROA = NET INCOME / TOTAL ASSETS
YEAR

ROA

YEAR

ROA

1998

6.83%

2006

5.27%

1999

5.79%

2007

6.61%

2000

6.33%

2008

15.51%

2001

7.67%

2009

12.78%

2002

7.05%

2010

6.10%

2003

4.25%

2011

6.13%

2004

3.76%

2012

4.12%

2005

4.19%

ROA
18.00%
16.00%
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%

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1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

11

0.00%

3. Operating Margin
OPERATING MARGIN = OPERATIN INCOME / NET SALES

YEAR

OM

YEAR

OM

1998

9.95%

2006

8.28%

1999

8.04%

2007

8.77%

2000

7.69%

2008

10.35%

2001

8.24%

2009

8.94%

2002

7.64%

2010

11.38%

2003

2.48%

2011

11.78%

2004

7.81%

2012

9.50%

2005

7.48%

Operating Margin
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%

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12

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

4. Earnings Per Share

EPS = (NET INCOME DIVIDENDS ON PREFERRED STOCKS) / AVERAGE
OUTSTANDING SHARES

YEAR

EPS (in BDT)

YEAR

EPS (in BDT)

1998

3.26

2006

9.51

1999

3.60

2007

19.03

2000

3.97

2008

55.43

2001

5.67

2009

51.00

2002

6.75

2010

30.49

2003

5.25

2011

28.83

2004

5.54

2012

22.94

2005

6.94

EPS (in BDT)

60
50
40
30
20

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

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13

10

5. Net Profit Margin

NET PROFIT MARGIN = NET INCOME / SALES

YEAR

NPM

YEAR

NPM

1998

5.46%

2006

4.37%

1999

4.85%

2007

6.36%

2000

4.54%

2008

18.00%

2001

5.60%

2009

13.69%

2002

5.31%

2010

7.47%

2003

3.81%

2011

8.00%

2004

3.49%

2012

5.63%

2005

3.63%

Net Profit Margin

18.00%
16.00%
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%

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14

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

6. Equity Multiplier
EQUITY MULTIPLIER = TOTAL ASSET / TOTAL STOCHHOLDERS EQUITY

YEAR

EM

YEAR

EM

1998

1.54

2006

2.99

1999

1.97

2007

3.71

2000

1.96

2008

3.13

2001

2.18

2009

2.38

2002

2.62

2010

2.17

2003

3.35

2011

2.32

2004

2.76

2012

2.59

2005

2.95

Equity Multiplier
4
3.5
3
2.5
2
1.5
1
0.5
0

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15

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

COMPARTIVE ANALYSIS
BETWEEN ROE & ROA
70.00%
60.00%
50.00%
40.00%
ROA
30.00%

ROE

20.00%
10.00%
0.00%
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

BETWEEN OPERATING MARGIN & NET PROFIT MARGIN

30.00%

25.00%

20.00%

NPM

15.00%

OM
10.00%

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

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0.00%

16

5.00%

ANALYTICAL DISCUSSION ON- GROUP B

A number of points are very important ROE determines the revenue for each unit (Dollar or BDT) of equity involved.
Again, ROA measures the revenue for each unit (Dollar or BDT) of asset involved.
There is a positive correlation observed in between ROE and ROA from
comparative analysis.
Another vital point is- the company is suffering from efficiency due to some kind of
reasons which are causing both the rationale returns to decline recently.
Equity multiplier measures the level of equity involved in the business.
The company had comparatively high amount of liabilities in the recent past. It had
paid off more of its liabilities then, but recently the equity multiplier shows that the
level of liabilities is going upwards again. It is not a good sign.
Due to the decrease in equity multiplier the company is going through borrowing
process incurring interest expenses.
Net Profit Margin deals with the profit made earned by each unit (Dollar or BDT)
of sale. Operating Margin measures the efficiency of a company to meet up the
current liabilities through income from operations.
Net Profit Margin and Operating Margin declined sharply in 2003, but they tend to
recover. With the use of increased assets the net profit margin has increased over
the years but it has recently following a downward motion. On the other hand,
operating profit has not been good enough and recently going down. Thus, these
situations call for lack in operations.
Most of the time, from the trend, we have found a relatively positive correlation
between net profit margin and operating margin.
Certain dysfunctional characteristics must be affecting the firms productivity. Its
pretty confirmed from the recently declining attitude of both net profit margin and

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17

operating margin. There is a lack of efficiency for sure.

GROUP C
LIQUIDITY ANALYSIS
1. Current Ratio
CURRENT RATIO = CUURENT ASSETS / CURRENT LIABILITIES
YEAR

CA/CL

1998

2.16

1999

1.49

2000

1.52

2001

1.30

2002

1.20

2003

1.20

2004

1.20

2005

1.00

2006

1.00

2007

1.00

2008

1.13

2009

1.13

2010

1.43

2011

1.31

2012

1.17

2. Quick Ratio

QUICK RATIO = (CURRENT ASSETS INVENTORIES) / CURRENT

YEAR

(C A- INV ) / C L

1998

0.89

18

1999

0.51

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LIABILITIES

2000

0.49

2001

0.60

2002

0.50

2003

0.50

2004

0.50

2005

0.60

2006

0.60

2007

0.60

2008

0.66

2009

0.66

2010

1.01

2011

0.98

2012

0.87

3. Operating Cash Flow Ratio

YEAR

OCF RATIO

1998

-0.127

1999

0.008

2000

0.001

2001

-0.002

2002

0.003

2003

0.012

2004

0.005

2005

0.001

2006

0.001

2007

-0.100

2008

-0.012

19

2009

-0.017

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OCF RATIO = NET CASH FLOW FROM OPERATIONS / CURRENT LIABILITIES

2010

-0.029

2011

0.155

2012

0.037

COMPARATIVE ANALYSIS OF LIQUIDITY

2.5

1.5
CURRENT RATIO
1

QUICK RATIO
OCF RATIO

0.5

0
98

99

00

01

02

03

04

05

06

07

08

09

10

11

12

-0.5

ANALYTICAL DISCUSSION ON- GROUP C

Group C is all about the power of liquidity. Its important for a company to have enough
liquidity but too much liquidity suggests idle cash without any use. Therefore, we can focus
on some meaningful conclusion for ACIs liquidity-

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has more than a unit of asset to pay the liability off.

20

The current ratio is between 1 and 2 most of the time. So, the each unit of liability

 The quick ratio is in between 0.5 to 1 and it means that the inventory is not sitting
idle. This is a very good side for the business. At the same time company is not
having enough liquid cash to meet up the current liabilities. It matches with the
problem from operational income.
OCF Ratio shows us some negative and zero figures over the years. This clearly
indicates the operational problem. There may be problem with receivables that
have decreased the efficiency as well as the liquidity of ACI.

GROUP D
GORDONS THEORY OF DIVIDEND PRICING
A model for determining the intrinsic value of a stock, based on a future series of dividends that
grow at a constant rate. Given a dividend per share that is payable in one year, and the
assumption that the dividend grows at a constant rate in perpetuity, the model solves for the
present value of the infinite series of future dividends.
STOCK PRICE (P) = D / K-G

Where:
D = Expected dividend per share one year from now
k = Required rate of return for equity investor
G = Growth rate in dividends (in perpetuity)

DIVIDEND PAY-OUT RATIO

OR

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DIVIDEND PAYOUT RATIO = YEARLY DIVIDEND PER SHARE / EPS

21

The percentage of earnings paid to shareholders in dividends.

DIVIDENDS / NET INCOME

A reduction in dividends paid is looked poorly upon by investors, and the stock price usually
depreciates as investors seek other dividend-paying stocks. A stable dividend payout ratio
indicates a solid dividend policy by the company's board of directors.
The payout ratio provides an idea of how well earnings support the dividend payments. More
mature companies tend to have a higher payout ratio.
RETENTION RATIO
The proportion of earnings kept back in the business as retained earnings. The retention ratio
refers to the percentage of net income that is retained to grow the business, rather than being paid
out as dividends. It is the opposite of the payout ratio, which measures the percentage of earnings
paid out to shareholders as dividends.
On a per-share basis, the retention ratio can be expressed as (1 Dividends per share / EPS).
Again,
RETENTION RATIO = (NET INCOME DIVIDENDS) / NET INCOME
= 1 - (DIVIDENDS / NET INCOME)
= 1 DIVIDEND PAYOUT RATIO
The retention ratio is 100% for companies that do not pay dividends, and is zero for companies

1999

83%

17%

2000

88%

12%

2001

66.1%

34%

2002

55.5%

45%

2003

76.1%

24%

2004

76.8%

23%

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1998

DIVIDEND PAY- RETENTION

OUT RATIO
RATIO
77%
23%

YEAR

22

that pay out their entire net income as dividends. Its also known as plowback ratio.

2005

64.8%

35%

2006

63.1%

37%

2007

44.7%

55%

2008

21.6%

78%

2009

20.6%

79%

2010

39.36%

61%

2011

34.69%

65%

2012

43.58%

56%

Out of 100% Net Income there are two major areas to be served as shown below-

100%
90%
80%
70%
60%
50%

RETENTION RATIO

40%

DIVIDEND PAY-OUT RATIO

30%
20%
10%
0%

DIVIDEND PRICING MODEL

Price = D1 / (1+r) + D2 / (1+r)2 + D3 / ( 1+r)3 + D4 / (1+r)4 + D5 / (1+r)5 + D6 / (1+r)6 + D7 /
(1+r)7 + D8 / (1+r)8 + D9 / (1+r)9 + D10 / (1+r)10 + D11 / (1+r)11 + D12 / (1+r)12 + D13 / (1+r)13 +

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23

D14 / (1+r)14 + D15 / (1+r)15

Average Returns
Thus far in this chapter we have looked closely at simple average returns. But there is another
way of computing an average return. The fact that average returns are calculated in two different
ways leads to some confusion, so our goal in this section is to explain the two approaches, and
also the circumstances under which each is appropriate.
Arithmetic versus Geometric Averages
Lets start with a simple example. Suppose we buy a particular equity for BDT 100.
Unfortunately, the first year we own it, it falls to BDT 50. The second year we own it, it rises
back to BDT 100, leaving you where we started (no dividends were paid).
What was our average return on this investment? Common sense seems to say that our average
return must be exactly zero because we started with BDT 100 and ended with BDT100. But if we
calculate the returns year by year, we see that we lost 50 per cent in the first year (we lost half of
our money). In the second year we made 100 per cent (we doubled your money). Our average
return over the two years was thus (50 per cent + 100 per cent)/2 = 25%.
So which is correct, 0% or 25%? The answer is that both are correct; they just answer different
questions. The 0 per cent is called the geometric average return. The 25 per cent is called
the arithmetic average return.
The geometric average return answers the question What was our average compound return
per year over a particular period?
The arithmetic average return answers the question What was our return in an average year
over a particular period?

Calculating Geometric Average Returns

First, to illustrate how we calculate a geometric average return, suppose a particular investment
had annual returns of 10 per cent, 12 per cent, 3 per cent and 9 per cent over the last four years.

(0.10 + 0.12 + 0.03 0.09)/4 = 4.0 per cent.

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0.91)1/4 1 = 3.66 per cent. In contrast, the average arithmetic return we have been calculating is

24

The geometric average return over this four-year period is calculated as (1.10 1.12 1.03

ARITHMATIC AVG OF DIVIDENDS = BDT. (40425000 + 48510000 + 56595000 +

60638000 + 60638000 + 64680000 + 68723000 + 72765000 + 97020000 + 137000000 +
194000000 + 204000000 + 237000000 + 197000000 + 238000000) / 15
= BDT 118466266.70
GEOMETRIC AVG OF DIVEDENDS = BDT. (40425000 * 48510000 * 56595000 *
60638000 * 60638000 * 64680000 * 68723000 * 72765000 * 97020000 * 137000000 *
194000000 * 204000000 * 237000000 * 197000000 * 238000000) 1/ 15 - 1
= BDT 9828560942.023

FINAL THOUGHTS
The dividend structure of ACI is variable, they dont follow constant growth model. They
do give dividends continuously. This is a very good strategy to hold the financial market
customers but they have been suffering from operation efficiency as we have seen in
different ways in this process.
We would like to advise them to increase supervision in the operation so that the liquidity
status and the profit margins get upward push. ACI having a very solid market being in
one of the great industries is a little bit behind in terms of their asset management. The
amount of debt is increasing as we have seen from the equity multiplier, by so the returns
on assets and equity are getting lower.
Now, they are enjoying capital gains in the secondary market. The shares are performing
quite well but we can see a future drought as certain issues are already noted that can
prove to be harmful in near future.

problem, operational lag etc.

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about. It should provide them a way to solve any kind of prevailing problems like- agency

25

Therefore, it would really helpful for them if they look into the sectors we have discussed