Professional Documents
Culture Documents
Bata is playing a pivotal role in developing the leather industry of the country. Bata has a firm
commitment to eco-friendly business and a state of the art Effluent Treatment Plant (ETP) has
been set up to provide a pollution free environment for both workers and the locality.
Fashion would never be complete without a well-designed pair of shoes. This marketing insight
has prompted Bata to introduce a number of designers collections for men, women and children.
Internationally renowned brands such as Bata Comfit, Marie Claire, Hush Puppies, Scholl, Nike,
Bubblegummers, Sandak, Weinbrenner and Bfirst are a few names that testify to the momentous
change towards branded shoe marketing in Bangladesh. Specialized shoe categories such as
athletic shoes have been targeted through development of the Power brand. Uncompromising
quality with striking designs have put Bata shoes in a key position to appeal to different
segments of consumers.
Another major change in the Bata business policy is the segmentation of retail outlets according
to profiles of different market segments and the introduction of novel concepts such as Bata City
Stores. These selective outlets, in conjunction with other types of outlets such as Bata Bazar and
Bata Family Stores, are adding a new level of consumer satisfaction. The City Stores incorporate
spacious floor space allowing a comfortable shopping experience, modern interior dcor
enriched with novel shelving systems, fittings, fixtures and lighting that can be found in the large
retail shops in the Far Eastand Europe. Bata has a network of 242 retail outlets located
strategically in different parts of the country. These retail outlets are an integral part of our brand
marketing. This extensive retail network is supplemented by an equally extensive network of
depots and dealers. Bata has 13 Wholesale depots covering Bangladesh. Under these depots 390
RWD (Registered Wholesale Dealers) and 553 DSP (Dealer Support Program) stores are
operating. Bata Bangladesh has already developed its vision up to 2013 showing significant
business growth as well as increased market share.
One of the critical areas associated with external shareholders and the community at large is the
Corporate Social Responsibility Program of the company. From supporting nationwide sports
sponsorships and disabled persons to addressing environmental concerns, scholarship programs,
charity contributions etc Bata has always supported individuals and communities in need.
Partnerships with other voluntary and charitable organizations are another prominent feature of
Batas corporate social responsibility.
Bata, in partnership with CARE, extends assistance to over two thousand rural women in order
to become independent entrepreneurs in the Rajshahi, Comilla and Chittagong division selling
shoes from door to door under its Rural Sales Programme. Since its inception, Bata Shoe
Company (Bangladesh) Ltd. has strived towards one goal customer satisfaction. With the
vision of building a worldwide family of satisfied customers and dedicated workers the legacy of
Tomas Bata continues strong and unabated to this day the tradition is safe.
Dividend Theories
Dividend Irrelevance Theory
A theory put forth by Metorn H. Millar & Franco Modigliani (M&M) that in a perfect world, the
value of a firm is unaffected by the distribution of dividends and is determined solely by the
earnings power and risk of its assets. Bata shoe Bangladesh does not follow this theory.
% Dividend
NET
(TK)
INCOME(TK)
2006
235.00
121.4
277,022,059
2007
250.00
223.6
324,849,273
2008
220.00
320.70
449,415,702
2009
220.00
528.30
449,406,445
2010
250.00
645
543,970,530
According to available data of Bata Shoe BD from 2006 to 2010, it is clear that Bata Shoe is
following Bird-in -The Hand Theory which is developed by Myron J. Gordon & Linter. Myron
J. Gordon & Linter said that a company may declare higher dividend because of the following
reason:
Direct link between Dividend Policy of the firm and its market value
Investors are risk averse & attach less risk to current as opposite to future dividends or
capital gains.
Investors believe that a bird in the hand is worth two in the bush
Bata Shoe follows Bird-in -the Hand Theory: From last few years, Bata Shoe declared higher
dividend and retained less earnings in order to attract those risk averse investors who prefer
current dividend and think that declaration of higher dividend minimize the uncertainty of the
company therefore share price of its also increases up to certain level of pay-out ratio that is the
indication of Bird-in -the Hand theory.
Dividend Policies
Constant- Pay-out ratio
The dividend policy ratio indicates the percentage of if each amount earned that is distributed to
the owners in the form of cash. It is calculated by Dividend payout ratio = Cash Dividend Per
Share / E.P.S. With a constant-payout-ratio dividend policy, the firm established that a certain
percentage of earnings are paid to owners in each dividend period.
The problem with this policy is that if the firms earnings drop or if a loss occurs in a given
period, the dividends may be low or even nonexistent which could adversely affect the firms
share price.
NET INCOME(TK)
GROWTH (%)
2005
206,638,315
-----
2006
277,022,059
2007
324,849,273
= 34.06%
(324,849,273 - 277,022,059) / 277,022,059 * 100
= 17.26%
2008
449,415,702
2009
449,406,445
=38.35%
(449,406,445 - 449,415,702)/449,415,702 * 100 =
(0.00206)%
2010
543,970,530
(543,970,530-449,406,445)/ 449,406,445*100 =
21.04%
Interpretation:
Growth in net income is even more important than sales because net income tells the investor
how much money is left over after all of the operating costs are subtracted from sales. From the
above table, we can see that Bata Shoe Bangladesh has earned profit in the years 2006, 2007,
2008 and 2010. But in the year 2009 it had a negative growth rate of (0.00206) % in profit. In
2009, the growth of Bata shoe was significantly affected because of global economic recession.
Therefore, consumers concentrated more on essential consumable items instead of footwear.
Moreover, electricity shortage throughout the country has interrupted production. This is why
growth was negative.
YEAR
EPS
GROWTH (%)
2006
20.25
2007
23.75
2008
32.85
2009
32.85
2010
39.76
Interpretation:
From the above chart, we can see that the Earning per share is increasing each year, which is
good for both the firm and for the shareholders.
YEAR
(1)
CASH
DIVIDEND PER
SHARE (2)
EPS
(3)
2006
23.50
20.75
113.25%
2007
25.00
23.75
106.26%
2008
22.00
32.85
66.97%
2009
22.00
32.85
66.97%
2010
22.00
39.76
55.33%
Interpretation:
From the above table, we can see that the dividend payout ratio is decreasing each year. This is
due to the increase in Cash Dividend is not as much as the increase in EPS. This indicates that
Bata Shoe is trying to retain its earning for future expansion needs.
Dividend payout
ratio
113.25%
106.26%
66.97%
66.97%
55.33%
Interpretation:
In 2006 & 2007 retention ratio was 0 (zero), but Bata shoe company retained 33.03 % of their
earning in 2008 & 2009 consecutively. However, they raised the portion of their retained
earnings in 2010 and that was 44.67%, which shows us they are now following dividend
irrelevance theory for their future growth.
c. Stock Dividend
After analyzing % Dividend of the last 5 years, we found out that Bata Shoe had not declared
any Stock Dividend to its shareholders. A stock dividend is paid when a company needs to
preserve funds to finance rapid growth. Since, Bata is an established firm; it has numerous
sources for funding. So, it does not required to use Stock Dividend instead of Cash dividend.
This could send a positive signal to investors thinking that Bata has enough financing power for
future growth, which we can see by observing the increase in its share price for the last 5 years.
Year
2006
2007
2008
2009
2010
% Dividend
235.00
250.00
220.00
220.00
250.00
Interpretation:
From the above table, we could see that the rates at which Bata Shoe is offering Cash Dividend
to its shareholders is quite attractive. This activity can be attributed to the cause that Bata Shoe is
trying to attract more investors to invest in Bata Shoe. For this reason, they are trying to give a
positive signal to the stock market through high percentage of dividend payments. We can say
that Bata has been able to attract more investors just by looking at its yearly increase in stock
price.
The Chart given below depicts that market price was low when rate of dividend was lower in
2006. Then the increasing rates of dividend results gradually increase of market price. Highest
the market price growth rate occur from 2007 to 2010. At this time it has reduced payout ratio
substantially. Here we can comment according to dividend irrelevance theory as it says dividend
should be paid whatever is left after meeting all available investment decision. In last two years
firm follow dividend irrelevance theory and was able to increase shareholders value.
Interpretation:
We can see from the above line graph that the price of Bata Shoe stock is increasing each year as
the % of dividend payments is quite stable.
Year
2005
2006
2007
2008
2009
2010
% Dividend
120.00
235.00
250.00
220.00
220.00
250.00
% Dividend Yield
8.06
19.36
11.18
6.86
4.16
3.83
Interpretation:
It is seen that year end P/E ratio has been increasing in 5 years which is a good sign for the future
growth and prospect of the company, which will encourage the investors for investing in the
company.
Findings
The findings of the study are as follows.
During 2008 to 2010 Bata Shoe Company paid on an average 63.09% of their net income as
dividend where in 2006 & 2007 those were 113.25% and 106% respectively. That is
more than their net income. In that year firm finance this extra dividend amount from
their retained earnings. According to our theory we can assume that for reducing dividend
payout ratio the stock price of Bata Shoe Company may fall. But the management
team was able to convince the stockholder that they cut their payout for increasing
growth and running recession. For this reason their stock price goes up.
Clientele effect means the tendency of a firm to attract a set of investors who like its
dividend policy .If the large number of investors of the particular company prefer
high dividend then company must pay more dividends to the investors. On the other hand, if
large number of investors of the particular company do not prefer high amount of
dividend then company must retain most of their earnings inside the organization. I n c a s e o f
B a t a S h o e C o m p a n y m o s t o f t h e i n v e s t o r s p r e f e r m o r e d i v i d e n d s because the
company has small number of wealthy investors.
The company believes that the investors are irrational and they like bird-in the-hand theory
but after a certain payout it started to follow dividend irrelevance theory.
In last five years they did not pay any stock dividend.
The analysis shows that dividend was not stable over time.
In the year 2008 and 2009 the firm used the residual dividend model to set payout ratio at a
level that will permit the firm to meet its Financing requirements with retained earnings.
It is not following any particular dividend policy. As it is paying varying amount of
increasing dividend rate.
Recommendation
Bata should continue to follow dividend irrelevance theory for their future growth.
They should follow any particular dividend policy so that investors can assume their
expected return on the basis of their preference (Short term or Long term).
Bata Shoe is currently trading at 12.5 P/E. With a BDT 542.57 million in 2010 earnings and BDT
96.57 2010 Net Asset Value per Share, Current price of share is BDT 526.4. So it can easily be
said that the dividend policy adopted by Bata Bangladesh is effective enough. They usually pay
cash dividend instead of stock dividend which satisfy its investors who want instant income or
gain.
Appendix
o http://www.batabd.com/
o http://www.dsebd.org/displayCompany.php?name=BATASHOE
o Ahsan, A 2008, Security price relation to dividend announcement: evidence from Dhaka
stock exchange Ltd. viewed 18 July 2011,
o http://www.bdresearch.org/home.