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Company Valuation and Bankruptcy
prediction of
Group Profile
Serial no Name ID No.
1. Tasrina Akter jery 88
2. Md. Redoy Hossain 90
3. Md. Rizwanul Haque 190
4. Md. Mehedi Hasan 192
5. Jannatul Naim 198
Overview of BATA Shoe Ltd.
 Bata shoes company started its
operation in 1962 which is enlisted in DSE.
 Annual shoe sales currently stand
about 30 million pairs.
 Bata Shoe Company (Bangladesh) Ltd.
has strived towards one goal – customer
satisfaction. With the vision of building
a worldwide family of satisfied customers .
Data Analysis
Historical Figure
Sales growth Rate
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
2013 2014 2015 2016 2017
6.69%
2.51%
5.51%
3.07% 2.91%
Gross Profit Margin
35.00%
36.00%
37.00%
38.00%
39.00%
40.00%
41.00%
42.00%
43.00%
44.00%
45.00%
2013 2014 2015 2016 2017
38.34%
38.77%
40.22%
43.45%
44.76%
Inventory Turnover
0
0.5
1
1.5
2
2.5
2013 2014 2015 2016 2017
Column1 2.39 2.29 2.3 1.96 1.6
Account receivable turnover
0
10
20
30
40
50
60
70
80
90
2013 2014 2015 2016 2017
Column1 22.13 18.12 12.51 9.13 80.4
22.13
18.12
12.51
9.13
80.4
Accounts payable turnover
12.61
10.03
10.87
8.28
5.25
0
2
4
6
8
10
12
14
2013 2014 2015 2016 2017
Prospective analysis: is the forecasting the expected
future payoff to estimate company value. It includes
forecasting of the balance sheet, income statement
and statement of cash flow.
Forecasted Income Statement
2018 2019 2020 2021 2022
Gross profit
margin
41.99% 41.99% 45.20% 41.98% 41.99%
Net profit
margin
1.93% 1.92% 1.91% 1.90% 1.89%
Forecasted Balance Sheet
2018 2019 2020 2021 2022
Current Ratio 2.49 2.78 2.81 2.85 2.88
Account
receivable
turnover
12.33 18.58 24.56 29.08 31.91
Inventory
Turnover
1.77 1.92 2 2.05 2.07
Total Debt to
Equity
0.57 0.56 0.55 0.54 0.53
Total asset
turnover
1.28 1.34 1.38 1.40 1.43
Application of Prospective Analysis in the residual income
valuation model
Thus the valuation model requires estimates of six parameters:
 Sales growth: For year 2018-2022 it is increasing trend and for terminal year sales
growth is 2.50%
 Net profit margin: It is 13% for the entire forecast horizon
 Net working capital: (Sales/Net working capital) is 3.9 for the entire forecast
horizon
 Fixed asset turnover: (Sales/Fixed asset) is 7.31 for the entire forecast horizon
 Financial leverage: (Operating asset/Equity) is 1.07 for the entire forecast horizon
 Cost of Equity is: 12.5%
Residual Income Computation
2018 2019 2020 2021 2022 2023
Netincome 1184891740 1254119273 1299267567 1351238270 1398531609 1433494900
Beginningequity 4224698311 4761234996 5380195546 6079620967 6869971693 7763068013
Requiredequityreturn 12.50% 12.50% 12.50% 12.50% 12.50% 12.50%
Expectedincome 528087288.9 595154374.6 672524443.3 759952620.9 858746461.6 970383501.6
Residual income 656804451.4 658964898.8 626743124 591285649.1 539785147.8 463111398
Discountfactor 0.8889 0.7901 0.7023 0.6243 0.5549
Presentvalue of residual income 583833476.8 520648166.6 440161696 369139630.7 299526778.5
Cumulative p.value of residual income 583833476.8 1104481643 1544643339 1913782970 2213309749
Terminal value of residual income 2569939252
Beginningbookvaluedof equity 4224698311
value of equity 9007947312
Commonsharesoutstanding 13915605
Value of equitypershare 647.327034
Comparison
 S0, we can easily comment that Bata Shoes Company’s Share
value is overvalued.
Do invest in this firm?
No
Bankruptcy Prediction Model
Altman
’s Z-
score
Capital Turnover
Rate: (𝐗𝟓)
𝑆𝑎𝑙𝑒𝑠
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
Liquidity (𝐗𝟏)
𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝐶𝑎𝑝𝑖𝑡𝑎𝑙
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
Profitability: (𝐗𝟑)
𝐸𝐵𝐼𝑇
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
Age of Firm and
Cumulative
Profitability (𝐗𝟐)
𝑅𝑒𝑡𝑎𝑖𝑛𝑒𝑑 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
Financial Structure: (𝐗𝟒)
Shareholders Equity
Total Liabilities
Bankruptcy Prediction Model
Z
Score 𝟎. 𝟕𝟏𝟕𝑿𝟏 +𝟎. 𝟖𝟒𝟕𝑿𝟐 +𝟑. 𝟏𝟎𝟕𝑿𝟑 + 𝟎. 𝟒𝟐𝟎𝑿𝟒 + 𝟎. 𝟗𝟗𝟖𝑿𝟓
Conditions:
 A Z-score of less than 1.20 suggests a high probability
of bankruptcy.
 A Z-score above 2.90 imply a low probability of
bankruptcy.
 Scores between 1.20 and 2.90 are in gray or
Z-Score of Bata Shoes Company
2.95
3
3.05
3.1
3.15
3.2
3.25
2018 2019 2020 2021 2022
Series 1 3.06 3.15 3.18 3.21 3.24
3.06
3.15
3.18
3.21
3.24
Results
 All the scores are above 2.90 and the scores
are increasing year by year. So there is low
chance of Bankruptcy according to our
forecasting.
Findings
Company’s sales growth rate
is decreasing in recent year
Company’s growth profit
margin is increasing
Company’s account receivable
turnover is increasing
Findings
Company’s net working capital is
increasing trend
Company’s share price is
overvalued
Company’s Z-score for forecasting
five years are above 3
Conclusion
Recommended
not to invest in
the company as
the share price
is overvalued
• The z score is
more than 3
for last five
years
So it can be
concluded that
the possibility
of bankruptcy
is low
Thank You

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Company Valuation and Bankruptcy prediction of Bata Shoe Company Bangladesh Ltd.

  • 1. Company Valuation and Bankruptcy prediction of
  • 2. Group Profile Serial no Name ID No. 1. Tasrina Akter jery 88 2. Md. Redoy Hossain 90 3. Md. Rizwanul Haque 190 4. Md. Mehedi Hasan 192 5. Jannatul Naim 198
  • 3. Overview of BATA Shoe Ltd.  Bata shoes company started its operation in 1962 which is enlisted in DSE.  Annual shoe sales currently stand about 30 million pairs.  Bata Shoe Company (Bangladesh) Ltd. has strived towards one goal – customer satisfaction. With the vision of building a worldwide family of satisfied customers .
  • 6. Sales growth Rate 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 2013 2014 2015 2016 2017 6.69% 2.51% 5.51% 3.07% 2.91%
  • 8. Inventory Turnover 0 0.5 1 1.5 2 2.5 2013 2014 2015 2016 2017 Column1 2.39 2.29 2.3 1.96 1.6
  • 9. Account receivable turnover 0 10 20 30 40 50 60 70 80 90 2013 2014 2015 2016 2017 Column1 22.13 18.12 12.51 9.13 80.4 22.13 18.12 12.51 9.13 80.4
  • 11. Prospective analysis: is the forecasting the expected future payoff to estimate company value. It includes forecasting of the balance sheet, income statement and statement of cash flow.
  • 12. Forecasted Income Statement 2018 2019 2020 2021 2022 Gross profit margin 41.99% 41.99% 45.20% 41.98% 41.99% Net profit margin 1.93% 1.92% 1.91% 1.90% 1.89%
  • 13. Forecasted Balance Sheet 2018 2019 2020 2021 2022 Current Ratio 2.49 2.78 2.81 2.85 2.88 Account receivable turnover 12.33 18.58 24.56 29.08 31.91 Inventory Turnover 1.77 1.92 2 2.05 2.07 Total Debt to Equity 0.57 0.56 0.55 0.54 0.53 Total asset turnover 1.28 1.34 1.38 1.40 1.43
  • 14. Application of Prospective Analysis in the residual income valuation model Thus the valuation model requires estimates of six parameters:  Sales growth: For year 2018-2022 it is increasing trend and for terminal year sales growth is 2.50%  Net profit margin: It is 13% for the entire forecast horizon  Net working capital: (Sales/Net working capital) is 3.9 for the entire forecast horizon  Fixed asset turnover: (Sales/Fixed asset) is 7.31 for the entire forecast horizon  Financial leverage: (Operating asset/Equity) is 1.07 for the entire forecast horizon  Cost of Equity is: 12.5%
  • 15. Residual Income Computation 2018 2019 2020 2021 2022 2023 Netincome 1184891740 1254119273 1299267567 1351238270 1398531609 1433494900 Beginningequity 4224698311 4761234996 5380195546 6079620967 6869971693 7763068013 Requiredequityreturn 12.50% 12.50% 12.50% 12.50% 12.50% 12.50% Expectedincome 528087288.9 595154374.6 672524443.3 759952620.9 858746461.6 970383501.6 Residual income 656804451.4 658964898.8 626743124 591285649.1 539785147.8 463111398 Discountfactor 0.8889 0.7901 0.7023 0.6243 0.5549 Presentvalue of residual income 583833476.8 520648166.6 440161696 369139630.7 299526778.5 Cumulative p.value of residual income 583833476.8 1104481643 1544643339 1913782970 2213309749 Terminal value of residual income 2569939252 Beginningbookvaluedof equity 4224698311 value of equity 9007947312 Commonsharesoutstanding 13915605 Value of equitypershare 647.327034
  • 17.  S0, we can easily comment that Bata Shoes Company’s Share value is overvalued. Do invest in this firm? No
  • 18. Bankruptcy Prediction Model Altman ’s Z- score Capital Turnover Rate: (𝐗𝟓) 𝑆𝑎𝑙𝑒𝑠 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 Liquidity (𝐗𝟏) 𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 Profitability: (𝐗𝟑) 𝐸𝐵𝐼𝑇 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 Age of Firm and Cumulative Profitability (𝐗𝟐) 𝑅𝑒𝑡𝑎𝑖𝑛𝑒𝑑 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 Financial Structure: (𝐗𝟒) Shareholders Equity Total Liabilities
  • 19. Bankruptcy Prediction Model Z Score 𝟎. 𝟕𝟏𝟕𝑿𝟏 +𝟎. 𝟖𝟒𝟕𝑿𝟐 +𝟑. 𝟏𝟎𝟕𝑿𝟑 + 𝟎. 𝟒𝟐𝟎𝑿𝟒 + 𝟎. 𝟗𝟗𝟖𝑿𝟓 Conditions:  A Z-score of less than 1.20 suggests a high probability of bankruptcy.  A Z-score above 2.90 imply a low probability of bankruptcy.  Scores between 1.20 and 2.90 are in gray or
  • 20. Z-Score of Bata Shoes Company 2.95 3 3.05 3.1 3.15 3.2 3.25 2018 2019 2020 2021 2022 Series 1 3.06 3.15 3.18 3.21 3.24 3.06 3.15 3.18 3.21 3.24
  • 21. Results  All the scores are above 2.90 and the scores are increasing year by year. So there is low chance of Bankruptcy according to our forecasting.
  • 22. Findings Company’s sales growth rate is decreasing in recent year Company’s growth profit margin is increasing Company’s account receivable turnover is increasing
  • 23. Findings Company’s net working capital is increasing trend Company’s share price is overvalued Company’s Z-score for forecasting five years are above 3
  • 24. Conclusion Recommended not to invest in the company as the share price is overvalued • The z score is more than 3 for last five years So it can be concluded that the possibility of bankruptcy is low