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ASSIGMENT NO -4 (COMPANY VALUATION) Prepared By: 0920032030 0920307030 0930103030

Course Instructor: JK

Course: FIN440 SECTION-3 Date: 11th December, 2011

ABSTRACT:
The purpose of this assignment is valuation of a specific company in an industry. We have chosen 3 companies in the ceramic industry. They are SHINPUKUR CERAMIC MONNO CERAMIC FU-WANG CERAMIC An extensive analysis has been performed on each of the companies to understand its major financial and operational perspectives. Furthermore, the intrinsic stock price of each of the companies has been determined. Here, for our analytical purposes we assume that the ceramic industry is comprised of only the three companies mentioned above.

SHINPUKUR CERAMICS

DONE BY - 0920032030

Company Overview : 1.LEVERAGE ANALYSIS : Year 2008 Shinepukur Industry Ceramics 1.22 1.32 1.85 2.67 2.27 3.53 2009 Shinepukur Industry Ceramics 1.19 1.30 1.80 2.35 2.14 3.07 2010 Shinepukur Industry Ceramics 1.16 1.31 1.78 2.02 2.06 2.64

DOL DFL DCL

DOL depends on fixed operating cost, Shinepukur Ceramics level of operating risk throughout the three years has a decreasing trend. It looks optimistic because their gross profit also rises during this period. The DFL of Shinepukur Ceramics was also decreasing throughout the three years. So, DCL also shows a decreasing trend. However when looking at the industry. Shinepukur Ceramics Degree of risk (DFL, DOL, DCL) is lower than the industry indicating a safer position for the company. 2.Market Share : Item Sales Total Asset Shinepukur Ceramic Industry 2,296,011,556.00 3,654,812,937.00 5,125,726,997 6,915,521,520 Market Share 60.80% 74.11%

Apparently, it seems that Shinepukur Ceramics has a large market share, as it is a bigger company in Ceramic industry. But for our analysis, we took Monno ceramics, Shinepukur and fu wang to build a representation of our industry. So, these findings are subject to specification. 3.RATIO ANALYSIS:
Liquidity ratios 2008 2008 Shinepu Indus kur try 2009 2009 Shinepu Indus kur try 2010 2010 Shinepu Indus kur try Comparison with industry(2010 based)

Current Ratio Quick Ratio NWC To Asset Cash Ratio

0.89 0.25 (0.03) 0.01

0.86 0.27 (0.05 ) 0.01

0.88 0.31 (0.04) 0.01

0.86 0.31 (0.05 ) 0.02

1.12 0.54 0.03 0.02

1.02 More Current assets 0.46 More Liquid based on QR 0.01 assets 0.03 Less cash
More NWC compared to

4.LIQUIDITY RATIOS: Shinepukur Ceramics has enough current assets to meet their current liabilities for 2010, but there are some high liquidity pressures. The company may come under some liquidity risk if they come under sudden need of huge cash. In terms to liquidity ratios Shinepukur Ceramics is more liquid than the industry. But its cash ratio is less than the industry standards.

Efficiency Ratios and CCC

2008

2009

2010

Comparison (2010) (with industry) 1.63 Lower than average

Shinepukur Industry Shinepukur Industry Shinepukur Industry

Inventory Turnover Ratio 1.21 1.53 1.32 1.47 1.49 Inventory Turnover Period 298.76 238.27 272.73 248.43 241.94 223.57 Higher than average In the efficiency position, ShinepukurCeramics position is less efficient than the average Receivable Turnover Ratio industry although the company has a higher inventory turnover ratio and higher inventory 8.11 cycle 5.56 5.75 than the4.59 Lower than average turnover period. Their6.17 cash conversion is less efficient industry. 5.25 Their Average Days Sales Outstanding 58.33 44.42 64.69 62.63 78.38 68.58 Higher than average Collection Period (Days Sales Outstanding) is very high compare to their Payable Deferral Payables Deferral Period 22.98 34.88 32.32 25.07 in 2005 36.41(9.55) Lower Period. However, if we look individually at 21.18 their Payable Deferral Period, & than average Cash Conversion Cycle 334.10So currently, 247.81 they 316.24 278.74 295.25 255.75 Higher than average 2006 (28.24) it increased. are better off.

5.CCC Ratios and NWC The Shinepukur Ceramics Inventory turnover ratio is showing an increasing trend, indicating increase in efficiency in inventory management, which led to a decreasing trend in DIH. But DSO is increasing indicating more lax credit terms. Here, CCC has a decreasing trend, which is a good sign. But even though for ceramic industry CCC is very high, Shinpukurs CCC is higher than the industry . The companys NWC for 2010 is tk 171,556,305. 6.FATOR, TATOR and % of FA
Other Efficiency Ratios 2008 2009 2010 Comparison (2010) (with industry) Higher than average Lower than average Lower than average

Shinepukur Industry Shinepukur Industry Shinepukur Industry Percentage of Fixed Assets FATOR TATOR

73.18% 46.99% 34.39%

68.63% 65.16% 44.72%

71.57% 51.01% 36.51%

67.12% 64.57% 43.34%

68.07% 55.22% 37.59%

64.16% 71.42% 45.82%

Shinepukur Ceramics has a decresing trend in the percentage of FA in their balance sheet. It shows that the companys risk level is decreasing over time. But compared to industry, they have higher percentage of FA. Both FATOR AND TATOR of Shinepukur are increasing over time, but it is still lower than industry average. Emphasis on this point is important.
Debt Management Ratio Debt Ratio Long Term Debt Ratio (interest bearing) Equity Multiplier Times Interest Earned Ratio 2008 2009 2010 Comparison (2010) Shinepukur Industry Shinepukur Industry Shinepukur Industry 0.47 0.50 0.47 0.50 0.47 0.50 Less Debt More Long term 0.16 0.14 0.14 0.11 0.18 0.14 debt 1.87 2.02 1.87 2.01 1.88 1.99 Lower than industry Higher than 2.17 1.60 2.25 1.74 2.28 1.98 industry

7.DEBT MANAGEMENT: Shinepukur has a nearly constant total debt ratio over the year. Its TIE ratio is increasing over the years and is higher than industry average, which indicates greater financial strength. Shinepukurs current liabilities interest bearing debt portion is more than its long term interest bearing debt. Its use of interest bearing current liabilities is higher than industry.

Profitability Ratio

Net Profit Margin Ratio Operating Profit Margin Ratio gross margin Ratio ROI BEP Pay Out Ratio

Comparison (with industryShinepukur Industry Shinepukur Industry Shinepukur Industry 2010) 11.76% 6.37% 10.17% 6.31% 13.14% 8.88% Higher 26.72% 34.21% 7.57% 17.20% 10.00% 20.07% 26.53% 5.69% 17.93% 12.00% 27.79% 32.98% 6.95% 19.01% 0.00% 21.74% 28.32% 5.44% 18.74% 0.00% 29.59% 32.64% 9.27% 20.87% 0.00% 22.61% 29.55% 8.10% 20.63% Higher Higher Higher Higher stock dividend 0.00% paid

2008

2009

2010

8.PROFITABILITY RATIOS: Shinpukur ceramics has an increasing trend in all profitability ratios. They are also higher than the industry average. This indicates a bright future for the company. But in recent years only rarely cash dividend is paid. There is a trend of giving stock dividends instead of cash dividends in the industry. It can be assumed cash or liquidity is highly important. 9.MARKET RATIOS:
Market Ratio EPS Market To Book Value Ratio P/E Ratio Dividend Yield Ratio 2008 2009 2010 Comparison Shinepukur Industry Shinepukur Industry Shinepukur Industry with industry(Based on 2010) 2.57 1.40 1.78 1.13 2.62 4.39 Lower than industry 2.62 34.59 11.25% 1.74 -1.58 4.75% 3.06 44.04 0.00% 2.16 185.50 0.00% 3.87 41.79 0.00% 3.37 Higher than industry 46.87 Lower than industry 0.00% No cash dividends given

Shinepukurs market to BV shows an increasing trend and it is higher than the industry. When we focus on EPS the company seems to be moving towards a better future, as it increased from 2008 to 2010. But in 2010, EPS is lower than industry. Risk Analysis And Other components of the Project: 10.CALCULATING WACC The WACC of Shinepukur is 24.02%, whereas the WACC of Industry average is 26.17%. Therefore, the cost of capital is lower than the competitors. Shinepukur Ceramics is not succeeding in maintaining a fair balance between debt and equity financing. It can further minimize its WACC by taking in more debt. But this will increase the Companys DFL. This high Cost of capital is due to the Extreme fluctuations in the DSE. [ REFER TO APPENDIX FOR WACC CALCULATIONS:]

11.BETA OR MARKET RISK Shinepukur Ceramics has a Beta (?) of 0.0966 ; calculated on a daily basis via the price taken from 2008 to 2010. The beta indicates that their stock is 0.097 times volatile than the overall market. If the overall market risk increases by 1 unit the companys risk will rise by 0.097 units. Again, the Standard Deviation of Shinepukur Ceramics daily returns is 3.67% which may be risky for the investors because if stock price decline they will severely suffer. The average market return is 0.24% (daily basis) and 56.91% (yearly basis). On the other hand Shinepukur ceramics has 23.41% (yearly basis) average return. [REFER TO APPENDIX FOR BETA OUTPUT:]

12.FORECASTED IS & BS : From the forecasted IS & BS we get the picture that Shinepukur Ceramics profitability is going to decrease for the year of 2011 and FCF will also be low that year. But the following years both profitability and FCF will increase. All forecasted statements require discretionary finance. All of this will be financed by debt. So, debt is increased in financial statements. Also from Forecasted IS, average sales growth is 12.01%. [REFER TO APPENDIX FOR FORECASTED STATEMENTS:] 13.DETERMINING THE INTRINSIC VALUE OF STOCK: To determine the intrinsic value of the stock, we calculated the future expected FCF for the next 3 years. For 2011, 2012 and 2013 the projected FCF are 334,131,053; 387,949,022 & 448,029,024 Tk respectively. Now assuming the final FCF to be constant and a perpetuity, we discount all FCF at WACC to get value of firm. That minus mkt value of debt gives us equity. We divide it to get the intrinsic value of stock. It gives us Tk 8.61/share. But at December 9, the mkt price is 31.6 Tk and at end of 31st December, 2010 mkt price per share was 109. This overvaluation of the stock is caused by severe stock market fluctuations. [REFER TO APPENDIX FOR FCF AND OTHER CALCULATIONS:]

14.DIVIDEND POLICY: Shinepukur gave a cash dividend at the year 2008. After that they have continued to issue stock dividends. It appears they now prefer stock dividends rather than to use up cash. So, they may like to use most of the cash for internal financing.

FU-Wang Ceramics LTD Done by: 0920307030

Company Overview: Fu-Wang Ceramics LEVERAGE ANALYSIS:


Year DOL DFL DCL 2008 Fu-Wang Industry 1.89 1.32 -2.96 2.67 -5.57 3.53 2009 Fu-Wang Industry 2.19 1.30 -24.85 2.35 -54.47 3.07 2010 Fu-Wang Industry 2.12 1.31 1.73 2.02 3.67 2.64

DOL depends on fixed operating cost, Fu-Wang Ceramics level of operating risk throughout the three years has a increasing trend. However, their gross profit also rises during this period recovering from the operating loss in 2008. The DFL of Fu-Wang Ceramics was also decreasing in first 2 years in a negative way & further rose in 3rd year but in positive way. So, DCL also shows a similar trend. However when looking at the industry. Fu-Wang Ceramics Degree of risk (DFL, DOL, and DCL) is much higher than the industry indicating a much riskier position for the company. Market Share: Item Sales Total Asset Fuwang Industry Market Ceramics Share 3654812937 11.71% 428,081,147 12.55% 867,904,980 6915521520

So we can see Fu-Wang Ceramics has a smaller market share in compare to other the two companies, as it is a relatively new company in Ceramic industry. RATIO ANALYSIS: LIQUIDITY RATIOS:
Liquidity ratios NWC To Asset -0.15 Current Ratio 0.675 Quick Ratio 0.187 Cash Ratio 0.014 0.01 0.015 0.02 0.013 0.03 Less cash 0.27 0.252 0.31 0.282 0.46 Less Liquid 0.86 0.689 0.86 0.756 1.02 Lower current ratio -0.05 -0.15 -0.05 -0.115 0.01

2008 Fu-Wang

2008 Industry

2009 Fu-Wang

2009 Industry

2010 Fu-Wang

2010 Industry

Comparison with industry(2010 based) More Current liability depended

Fu-Wang Ceramics is more depended on current liability as source financing its CA & FA as we can see NWC is negative all over the period. So, there is a high liquidity pressures & it may come under severe liquidity crisis if they come under sudden need of huge cash. In terms to liquidity ratios, Fu-Wang Ceramics is much illiquid than the industry. Moreover, its cash ratio is less than the industry standards as well.

Efficiency Ratios and CCC

2008 Fu-Wang Industry 1.53 238.27 8.11 44.42 34.88 247.81

2009 FuWang Industry 1.343 271.808 8.643 42.232 13.489 300.551 1.47 248.43 5.75 62.63 32.32 278.74

2010 FuWang Industry 1.656 220.387 10.01 36.465 18.052 238.8

Comparison with Industry (2010)

Inventory Turnover Ratio Inventory Turnover Period Receivable Turnover Ratio Days Sales Outstanding Payables Deferral Period Cash Conversion Cycle

1.223 298.397 23.756 15.364 23.861 289.9

1.63 closer to average 223.57 Lower than average 5.25 Lower than average 68.58 Lower than average 36.41 Lower than average 255.75 Lower than average

In the efficiency position, Fu-Wang Ceramics position was having significant improvement over the period along with it cash conversion cycle. But, Their Average Collection Period (Days Sales Outstanding) is much higher compare to their Payable Deferral Period in 2009/10. CCC Ratios and NWC The Fu-Wang Ceramics Inventory turnover ratio is showing an increasing trend, indicating increase in efficiency in inventory management, which led to a decreasing trend in DIH. But DSO is increasing indicating more lax credit terms. Here, CCC has a significant decreasing trend with lower CCC than the industry in 2010. FATOR, TATOR and % of FA
Other Efficiency Ratios Percentage of Fixed Assets FATOR TATOR 2008 Fu-Wang 69% 51% 35% Industry 68.63% 65.16% 44.72% 2009 Fu-Wang 67% 54% 36% Industry 67.12% 64.57% 43.34% 2010 Fu-Wang 64% 77% 49% Industry 64.16% 71.42% 45.82% Comparison (2010) (with industry) Equal to average Lower than average Higher than average

Fu-Wang Ceramics has a slow decreasing trend in the percentage of FA in their balance sheet. It shows that the companys risk level is decreasing over time & that is equal to industry average. Fu-Wangs FATOR &TATOR are increasing gradually, but it is still much lower than industry average. Emphasis on this point is important. DEBT MANAGEMENT: Fu-Wangs total debt ratio varied to 48-49% over the years. Its TIE ratio is increasing over the years and higher than industry average, which indicates greater financial strength. Use of interest bearing debt by Fu-Wangs is increasing & slightly higher than industry.

Debt Management Ratio Debt Ratio Long Term Debt Ratio (interest bearing) Equity Multiplier Times Interest Earned Ratio Interest bearing debt to total debt

2008 Fu-Wang 0.487 0.026 1.948 4.062 83%

Industry 0.50 0.14 2.02 1.60 84.02%

2009 Fu-Wang 0.495 0.011 1.980 5.703 89%

Industry 0.50 0.11 2.01 1.74 84.97%

2010 Fu-Wang 0.471 0.000 1.891 9.044 85%

Comparison (2010) Industry 0.50 0.14 1.99 1.98 84.60% Closer to average No Long term debt Closer to industry Higher than industry Closer to industry

PROFITABILITY RATIOS: Fu-Wang ceramics has a fluctuating trend in all profitability ratios as well as lower then industry average. This indicates an unstable position for the company in the market. But in recent years only once cash dividend is paid. It can be assumed cash or liquidity is highly important.
Profitability Ratio 2008 FuWang -3% 12% -2% 44% 5% 2009 FuWang 1% 10% 1% 42% 2010 FuWang 6% 12% 7% 42% Comparison (with industry2010) Lower Lower Lower Higher No dividend paid

Net Profit Margin Ratio Operating Profit Margin Ratio ROI BEP Pay Out Ratio

Industry 6.37% 20.07% 5.69% 17.93% 12.00%

Industry 6.31% 21.74% 5.44% 18.74% 0.00%

Industry 8.88% 22.61% 8.10% 20.63% 0.00%

MARKET RATIOS: Market Ratio EPS Market To Book Value Ratio P/E Ratio Dividend Yield Ratio 2008 2009 2010 Comparison with Fu-Wang Industry Fu-Wang Industry Fu-Wang Industry industry (2010) -2.480 1.40 0.850 1.13 7.710 4.39 Higher 0.798 -46.371 0.023 1.74 -1.58 4.75% 2.689 458.529 0.000 2.16 185.50 0.00% 3.954 71.336 0.000 3.37 Closer to industry 46.87 Higher than industry 0.00% No cash dividends

Fu-Wangs market to BV shows an increasing trend and closer to the industry. When we focus on EPS the company seems to be recovering & improving, as it increased from 2008 to 2010. But in 2008-09, EPS is too low than industry. Risk Analysis & Other components of the Project: CALCULATING WACC The WACC of Fu-Wang is 24.76%, whereas the WACC of Industry average is 26.17%. Therefore, the cost of capital is lower than the competitors. Fu-Wang Ceramics was

successful in maintaining a fair balance between debt and equity financing. (REFER TO APPENDIX FOR WACC CALCULATIONS) BETA OR MARKET RISK Fu-Wang Ceramics has a Beta () of 0.1001; calculated on a daily basis via the price taken from 2008 to 2010. The Standard Deviation of Fu-Wang Ceramics daily returns is 7%. The average market return is 0.16% (daily basis) and 57% (yearly basis). (REFER TO APPENDIX FOR BETA OUTPUT) FORECASTED Income Statement & Balance Sheet: All forecasted statements require discretionary finance. All of this will be financed by debt. So, debt is increased in financial statements. Average sales growth is 14% is calculated from the last three years geometric mean. (REFER TO APPENDIX FOR FORECASTED STATEMENTS) DETERMINING THE INTRINSIC VALUE OF STOCK: To determine the intrinsic value of the stock, we calculated the future expected FCF for the next 3 years. For 2011, 2012 and 2013 the projected FCF are 63,587,688 41,170,320 & 258,743,611 Tk respectively. Now assuming the final FCF to be constant and perpetuity, we discount all FCF at WACC (24.76%) to get value of firm. We get Equity value by deducting market value of debt from the firm value. We divide it to get the intrinsic value of stock. It gives us Tk 86.12/share. But the mkt closing price of December, 2010 was 570.75 prices per share. This overvaluation of the stock is caused by severe stock market fluctuations & inefficiency. (REFER TO APPENDIX FOR FCF AND OTHER CALCULATIONS) DIVIDEND POLICY: Fu-Wang gave a cash dividend at the year 2008 & no further dividend declared.

MONNO CREMICS

DONE BY 093-0103-030

Company Overview: LEVERAGE ANALYSIS: Year 2008 MONNO Ceramics 0.59 0.39 1.50 2009 MONNO Ceramics 1.56 -4.38 -6.84 2010 MONNO Ceramics 1.77 1.35 2.39

Industry 1.32 2.67 3.53

Industry 1.30 2.35 3.07

Industry 1.31 2.02 2.64

DOL DFL DCL

DOL depends on fixed operating cost, MONNO Ceramics level of operating risk throughout the three years has a increasing trend. It looks pessimistic because their gross profit also decreases during this period. The DFL of MONNO Ceramics fluctuates heavily throughout the three years. So, DCL also shows a fluctuation trend. However when looking at the industry. MONNO Ceramics Degree of risk (DFL, DOL, DCL) was higher than the industry in 2009 but 2010 it came lower than industry indicating a safer position for the company. Market Share : Item Sales Total Asset MONNO Ceramic 813,786,510.00 921,889,543.00 Industry 3,654,812,937.00 6,915,521,520 Market Share 22.27% 13.33%

It seems that MONNO Ceramics has a very low market share, although it is a bigger company in Ceramic industry, which is very disappointing. But for our analysis, we took Monno ceramics, Shinepukur and fu wang to build a representation of our industry. So, these findings are subject to specification. RATIO ANALYSIS:
Liquidity ratios 2008 2008 2009 2009 2010 MON Indust MON Indust MON NO ry NO ry NO Comparison with 2010 industry(2010 based) Indust ry More Current assets except in 1.02 2010 More Liquid based on QR 0.46 except in 2010 Less NWC compared to 0.01 industry 0.03 More cash

Current Ratio Quick Ratio NWC To Asset Cash Ratio

0.93 0.39

0.86 0.27

0.93 0.34

0.86 0.31

0.96 0.37

(0.02) (0.05) (0.04) (0.05) (0.02) 0.03 0.01 0.03 0.02 0.06

LIQUIDITY RATIOS: MONNO Ceramics has enough current assets to meet their current liabilities but it falls heavily in 2010, makes a high liquidity pressures. But its cash ratio is more than the industry standards.

Efficiency Ratios and CCC

2008 MONNO

2009 Industry MONNO

2010 Industry MONNO Industry

Comparison (2010) (with industry) 1.63 Higher than average

Inventory Turnover Ratio 3.27 1.53 2.44 1.47 2.48 Inventory Turnover Period 110.19 238.27 147.57 248.43 145.35 223.57 Lower than average In the efficiency position, ShinepukurCeramics position is less efficient than the average Receivable Turnover Ratio industry although the company has a higher inventory turnover ratio and higher inventory 12 conversion 8.11 cycle 9.66 5.75 than10.83 5.25 Higher than average turnover period. Their cash is less efficient the industry. Their Average Days Sales Outstanding 33.69 44.42 37.76 62.63 33.69 68.58 Lower than average Collection Period (Days Sales Outstanding) is very high compare to their Payable Deferral Payables Deferral Period 34.88 21.18 32.32Deferral 25.07 36.41 Lower than Period. However, if 22.98 we look individually at their Payable Period, in 2005 (9.55) & average Cash Conversion Cycle 79.24 So247.81 134.34 278.74 141.09 255.75 Lower than average 2006 (28.24) it increased. currently, they are better off.

CCC Ratios and NWC The MONNO Ceramics Inventory turnover ratio is higher than industry but there a decreasing trend, indicating increase in inefficiency in inventory management. On the other hand DSO, CCC both are lower than average, which is disappointing for the company. FATOR, TATOR and % of FA
Other Efficiency Ratios 2008 MONNO Percentage of Fixed Assets FATOR TATOR 2009 Industry MONNO 2010 Industry MONNO Industry Comparison (2010) (with industry)

47.24% 44.93% 88.27%

68.63% 65.16% 44.72%

45.25% 53.79% 84.13%

67.12% 64.57% 43.34%

42.17% 47.78% 100%

64.16% Lower than average 71.42% Lower than average 45.82%


Higher than average

MONNO Ceramics has increasing trend in the percentage of FA in their balance sheet. It shows that the companys risk level is increasing over time. But TATOR of MONNO is increasing over time, and it is much higher than industry average.
Debt Management Ratio Debt Ratio Long Term Debt Ratio (interest bearing) Equity Multiplier Times Interest Earned Ratio Interest bearing debt to total debt 2008 2009 2010 Comparison (2010) MONNO Industry MONNO Industry MONNO Industry 0.68 0.50 0.68 0.50 0.69 0.50 High Debt Less Long term 0.11 0.14 0.09 0.11 0.08 0.14 debt Higher than 3.16 2.02 3.18 2.01 3.27 1.99 industry 1.01 61.64% 1.60 84.02% 0.97 64.29% 1.74 84.97% 1.06 70.49% 1.98 Lower than industry 84.60% Lower than industry

DEBT MANAGEMENT: MONNO has a nearly constant total debt ratio over the year. Its TIE ratio is fluctuating over the years and is lower than industry average, which indicates financial weakness. Although MONNOs use of interest bearing debt is increasing, it is still lower than industry

Profitability Ratio

2008

2009

2010

Net Profit Margin Ratio Operating Profit Margin Ratio gross margin Ratio ROI BEP Pay Out Ratio

MONNO Industry MONNO Industry MONNO 0.57% 6.37% 0.13% 6.31% 0.47% 12.12% 20.86% 1.83% 38.65% 10.00% 20.07% 26.53% 5.69% 17.93% 12.00% 13.30% 20.77% 0.35% 35.61% 0.00% 21.74% 28.32% 5.44% 18.74% 0.00% 11.74% 18.24% 1.36% 33.94% 0.00%

Comparison (with industryIndustry 2010) 8.88% Lower 22.61% 29.55% 8.10% 20.63% Lower lower Lower Lower stock dividend 0.00% paid

PROFITABILITY RATIOS: MONNO ceramics has very low all profitability ratios than industry. This indicates a alarming future for the company. But in recent years only rarely cash dividend is paid. There is a trend of giving stock dividends instead of cash dividends in the industry. It can be assumed cash or liquidity is highly important. MARKET RATIOS:
Market Ratio EPS Market To Book Value Ratio P/E Ratio Dividend Yield Ratio 2008 2009 2010 Comparison MONNO Industry MONNO Industry MONNO Industry with industry(Based on 2010) 4.12 1.40 0.76 1.13 2.84 4.39 Lower than industry 1.81 7.00 24.27% 1.74 -1.58 4.75% 2.11 53.93 0.00% 2.16 185.50 0.00% 2.65 27.48 0.00% 3.37 Lower than industry 46.87 Lower than industry 0.00% No cash dividends given

Though MONNOs market to BV shows an increasing trend, but it is higher than the industry. When we focus on EPS, it seems the company is not in right track, as it decrease from 2008 to 2010. Risk Analysis And Other components of the Project: CALCULATING WACC The WACC of MONNO is 18.57%, whereas the WACC of Industry average is 26.17%. Therefore, the cost of capital is lower than the competitors. MONNO Ceramics is not succeeding in maintaining a fair balance between debt and equity financing. It can further minimize its WACC by taking in more debt. But this will increase the Companys DFL. This high Cost of capital is due to the Extreme fluctuations in the DSE .[ REFER TO APPENDIX FOR WACC CALCULATIONS:] BETA OR MARKET RISK MONNO Ceramics has a Beta (?) of 0.25044 ; calculated on a daily basis via the price taken from 2008 to 2010. The beta indicates that their stock is 0.25 times volatile than the overall market. If the overall market risk increases by 1 unit the companys risk will rise by 0.25044 units. Again, the Standard Deviation of MONNO Ceramics daily returns is 5.52% which may be risky for the investors because if stock price decline they will severely suffer.The

average market return is 0.24% (daily basis) and 56.91% (yearly basis). On the other hand MONNO ceramics has 26.49% (yearly basis) average return.[REFER TO APPENDIX FOR BETA OUTPUT:] FORECASTED IS & BS: From the forecasted IS & BS we get the picture that MONNO Ceramics profitability is going to increase for the year of 2011 and FCF will also be high that year. All forecasted statements require discretionary finance. All of this will be financed by debt. So, debt is increased in financial statements. Also from Forecasted IS, average sales growth is 4.12%.[REFER TO APPENDIX FOR FORECASTED STATEMENTS:] DETERMINING THE INTRINSIC VALUE OF STOCK: To determine the intrinsic value of the stock, we calculated the future expected FCF for the next 3 years. For 2011, 2012 and 2013 the projected FCF are 164209765, 133777703, 221,597,180 Tk respectively. Now assuming the final FCF to be constant and perpetuity, we discount all FCF at WACC to get value of firm. That minus mkt value of debt gives us equity. We divide it to get the intrinsic value of stock. It gives us Tk 420.82/share. But at end of 31st December, 2010 mkt price per share was 899.50. This overvaluation of the stock is caused by severe stock market fluctuations. [REFER TO APPENDIX FOR FCF AND OTHER CALCULATIONS:] DIVIDEND POLICY: MONNO gave a cash dividend at the year 2008 and 2009. After that they have continued to issue stock dividends. It appears they now prefer stock dividends rather than to use up cash. So, they may like to use most of the cash for internal financing.