An over view discussion from an investor’s point of view

Investors who buy shares in a company want to be able to compare the benefit from the investment with the amount they have paid, or intend to pay, for their shares. There are two measures of benefit to the investors. One is the profit of the period. The other is the dividend which is an amount actually paid to the shareholders. Profit indicates wealth created by the business. That wealth may accumulate in the business or else part of it may be paid out in the form of dividend. There are some ratios, which may consider by the investor. They are as follows:

1. Net profit margin
2. Return on asset
3. Return on equity
4. Earning per share
5. Dividend per share
6. Asset per share

All of these ratios are related to profitability dimension. An investor wants to invest his money on those organizations, which are profitable for him. So he might give more emphasize on profitability dimension rather than other ratios. So that above ratio might give him a clear view of the company whether it is profitable or not. By the following ratio we will justify BOC Bangladesh Ltd. from an investor’s point of view.

Ratio                                              2001             2000               1999                 1998                1997
Net profit margin                          17.23%           19.42%          14.30%             14.06%            9.75%
Return on total asset (ROA)          12.18%          12.46%           10.40%             9.12%             7.07%
Return on total equity (ROE)         18.46%          21.19%           17.89%             16.20%           10.97%
Earnings per Share (EPS)            13.27 Taka    13.36 Taka       9.60 Taka         7.79 Taka       4.84 Taka
Dividend per share                      4.40 Taka       3.99 Taka        3.99 Taka         3.80 Taka        3.00 Taka
Asset per share                           71.91 Taka     63.04 Taka      53.68 Taka       48.08 Taka      44.09 Taka

From the above ratio we see that except Dividend per share and Asset per share all of profitability ratios have gone down in the year 2001 from the year 2000. In 2001 sales has not increased in it’s average rate. On the other hand all of expenses have increased at a higher rate. As a result all of ratio has decreased and it has created a bad impact on investors. Here we also see that the cash and bank has increased about 33.58 times than 2000. It means the company is holding idle cash. And the investors never like this types of situation. In 2001 account receivable has also increased significantly. From this we can say that management has failed to manage all sorts of expenses as well as it’s assets.  Here one thing is important that every type of ratios under profitability dimension has continuously increased till the year 2000. So definitely a question arises. What is the problem for decreasing the ratio in 2001?

According to chairman’s statement the company has faced some sorts of problem during 2001. Difficulties were faced at almost every level of activity from clearing of goods at ports, movement of goods and personnel, and to marketing of products due to frequent closures caused by hartals and other political activities. The activities of the Company had also to face deterioration in the law and order situation. And finally due to the event of September 11 last year in the United States of America, the company has faced a big problem because it has mostly destroyed the world economy. Despite all these, the Company had been able to keep up its progress.

In spite of all the above-mentioned factors a decent growth in the business of this Company was achieved last year. Profits available for distribution did not reflect this growth because of higher incidence of interest and tax, as expected. Moderate capital expenditure and good working capital management were able to bring down the level of borrowing. The turnover of the company increased over the previous year by about 12%. Though there was virtually no increase in the profits available for appropriation in the year, the directors recommends a dividend of Taka 4.40 per each share of Taka 10 that is 44%. Asset per share is also increasing day by day. In the year 2001 tax has also increased about 3,000,000 Taka. It shows a greater profit before tax. Ultimately the company is helping the government by giving more tax. We must concentrate on shareholders equity to understand the current position of the company in the market. The equity was 642,973,000 Taka in 1996 and it has increased to 1,094,420,000 Taka in 2001. To make a clear view of shareholders equity we can show a graph with 5 years data.

From this graph we can realize that how rapidly equity is increasing. An investor could be interested by seeing this graph because it shows a healthy position of the company in the competitive market. And finally we must give a close eye to the development strategy of BOC Bangladesh Ltd. In March 1998 a second line of production was added to the integrated Welding Electrode Factory at Rupganj, doubling the capacity. Same year, in November 1998 a new site with a 20 TPD liquid plant was acquired in Shitalpur, Chittagong. In November 2000 a second hand but unused carbon dioxide plant has been installed at the Tejgaon factory and has been accepted after suitable testing.

By analyzing all sorts of discussion an investor might be interested to invest his money in this organization. Though the company has suffered some problem in the year 2001 but they have a continuous growth in market. And we hope that the company will overcome those problems and will be back with it’s own position.