2. Dept. of Finance and Banking
University of Chittagong
Higher Education Quality Enhancement Project
&
As a part of INDUSTRIAL TOUR REPORT
Patronized by :
Organised by :
3. Submitted By:
Mir Mohammad Chowdhury
ID: 07303049
BBA Exam (session 2006-2007)
Department of Finance & Banking
University of Chittagong
Supervisor:
Mr. Mohammad Ziaul Hoque
Assistant Professor
Department of Finance & Banking
University of Chittagong
4. StatementoftheProblem This report deals with the important issue of the
Bangladesh Steel Re-Rolling Mills Limited (BSRM).
In this report, I looked into whether the existing
financial structure of BSRM ltd. has a great impact
over the overall performance of the company.
Here, we evaluated existing financial structure of
BSRM ltd with-
Common size statement and
Ratio analysis
Again, the sensation of financial risk has been
measured through the evaluation of leverage on
some key ratios.
5. Objectives of the study
There are two objectives of this study:
1. Principal
2. Specific
Principal Objectives:
To evaluate financial structure of BSRM
6. To accomplish this principal objective following specific objectives have
been covered:
To examine the financing policies & programs of BSRM.
To examine the impact of financial structure on profitability of BSRM.
To evaluate the techniques and mode of financing for both long term
capital & working capital.
To identify the determinants of capital structure.
To identify the problems associated with the capital structure &
current liability of BSRM.
To suggest some product policy measures of making financial
structure of BSRM more effective.
Specific objectives
7. Collection of primary data:
Data collected from CFO of BSRM ltd. through questionnaire.
Collection of secondary data:
Secondary data collected from studying annual data of
BSRM, Bureau of Statistics, websites, magazines , stock
market reports etc.
Analysis of data:
Financial techniques, Ratio analysis, Common size analysis,
Statistical techniques test of significance .
Methodology of the study
8. Summary of the findings
Introduction
Optimality in financial structure is required to enjoy profitability, growth
and above all, long term existence. Cost of capital and value of the firm
are two important basis of optimality.
Financial policies and programs
Financial policies of BSRM include majorly debt –equity policy, working
capital management, cash management, short term financing policy.
Net income approach is consistent with their capital structure which is
influenced by cost of capital and value of the firm factors. IPOs, bank
loan, future funds from retained earnings are available in the financial
programs of BSRM. Equity capital through IPOs an Bank loan
(syndicated and term loan for BMRE) occupy significant portion of
financial structure.
9. Evaluation of Financial Structure &
Performance
In financial structure, BSRM gave their preference on debt (long
term and short) to equity which is reflected with common size
analysis.
Common-size Statement
Operating years
Capital &
liabilities 2009 2010 2011
Equity 1% 17% 14%
Debt 16% 10% 4%
current liabilities 83% 73% 83%
10. From ratio analysis, long debt to equity is on the decline, Debt capitalization is
high, above two year average, long debt to total assets declining compared to
three year average, current liabilities to total assets is on the rise on an average,
total debt to total assets are very high.DFL is greater than 1 indicating financial
risk, timed interest earnings is below the standard 2 times.
Ratio Analysis
Operating year
Ratios 2009 2010 2011 Average
Debt to equity 85% 56% 29% 43%
Debt
capitalization 7817% 473% 627% 550%
Debt ratio 16% 10% 4% 10%
CL to Total
asset 83% 73% 83% 79%
Total debt to
total assets 99% 83% 87% 89%
DFL 2.36 1.53 1.42 1.77
Time interest
11. Financing Financial Structure on BSRM
BSRM ltd has debt-equity to design capital structure as per
financial
statement report. They have a plan to utilize accumulated
non-paid
earnings to shareholders during their imminent expansion
stage.
Net working capital is low compared with others in the
industry.
Current liabilities are term loans, trade creditors, accrued
expenses,
and advance against sale majorly.
12. Determinants of capital structure
Factors really influences the determination of capital structure
of BSRM is as follow.
Changes in the regulation and supervision homework, Private
consumption behavior, Capital Market Performance, World
Economy Performance, National Economic Performance,
Political Stability, Change in firm’s and investor's income
taxation, Interest rate change, Get the firm's shares listed,
Ownership structure and managerial control, Size of free cash
flow, EPS. Investment policy/Growth opportunities, Tax
economics associated with debt financing. Firm's reputation,
change in the level of profitability.
13. Problems associated with the financial
structure of BSRM
Higher leveraged holding greater financial risk
Probable rise in WACC
Poor working capital management
Prone to financial distress
Decline in market price of trading shares
Inconsistent result between profitability
Agency conflict
No use of other means than debt to financing
14. • Select the effective financial instruments to meet funding
requirements
• Match capital structure with company strategy
• Establish cost of capital
• Use of retained earnings
• Issues of right shares
• Lease financing source
• Tax-advantage other than debt
• Estimation of tax-savings vs. cost of bankruptcy
• Money market instruments
• Receivable management
Policy implications and suggestions
15. Conclusion
As leading steel company, BSRM ltd. is expected to
maintain optimal financial structure. But our evaluative
study over financial statements of last three years discovers
some weakness containing in the existing structure. In this
regard, we have provided some suggestions to deal with
them. If financial management of BSRM ltd follows those
suggestions, they can be in a position to maintain optimal
capital structure in upcoming years.
