MBA Dissertation Paper

On

Stock Selection Process in Capital Market of

Bangladesh

Exam Roll: 140133

 MBA Dissertation Paper
On
Stock Selection Process in Capital Market of Bangladesh

Prepared For:
Exam Committee
MBA Program
19th Batch

Prepared by:
Exam ID: 140133
Area of concentration: Finance
Academic session: 2013-13
MBA Program
Batch -19th
MBA Program

Institute of Business Administration

Jahangirnagar University,
Savar, Dhaka-1342

15 September, 2015
15 September, 2015
Chairman
Examination Committee
MBA Program
Session 2013-2014
Institute of Business Administration,
Jahangirnagar University,
Savar, Dhaka 1342.

Subject: Submission of the Dissertation paper on Stock Selection Process in Capital Market of Bangladesh

Dear Sir,

It has been my great pleasure to work on Stock Selection Process in Capital Market of Bangladesh. I have
put my best contribution for successfully completing this paper and I am really happy to submit it for your
perusal.

I am very grateful to you for providing me the opportunity to have such an excellent experience. I believe this
report will meet your expectation. For any sort of clarification regarding this report, Ill be gladly available.
Finally, in submitting this report I seek your in-depth suggestions and further direction.

Sincerely yours

Exam Roll: 140133

MBA Program
Session 2013-14
Area of Concentration: Finance
Institute of Business Administration
Jahangirnagar University
1.0 Introduction
The indispensable part of an economy is Stock Market which acts as an intermediary for
movement of funds between surplus units and deficit units. It is a place to raise capital by means
of issuing share and hence transacting it on a regular basis among the participants. Thus, a share
is just like a commodity sold in the stock market through stock exchange. By purchasing shares
of a company an investor become the owner of that company up to the intrinsic value of his
shareholding and also become entitled to the profit or loss of the company proportionate to his
share.
In a market economy, the capital market plays a vital role in the efficient allocation of scarce
resources. Well-functioning and developed capital market augment the process of economic
development, efficiency welfare through different ways such as encourage savings, draw more
savers and users into the investment process (Chowdhury, T.A., 2005). The recent surge in the
capital market has shaken the whole country as millions of people became insolvent within a very
short span of time. It was observed in 2010 that the DSE (Dhaka Stock Exchange) general index
was the highest ever which made it Asias top performer after China (Islam, 2011), while the
reverse scenario was scaring investors in the 1st quarter of 2011 as the lowest down ever in the
index was observed during that period.

1.1 Origin of the Paper

As part of the academic requirement of the MBA program at the Institute of Business
Administration, Jahangirnagar University, Savar, Dhaka, the students are obligated to submit a
research paper on an issue relevant with their respective concentration or the major area. So to be
compliance with that the researcher had to conduct a research paper titled Stock Selection
Process in Capital Market of Bangladesh.

1.2 Background of the Study

The capital market of Bangladesh is passing through a period of extreme volatility, uncertainty
and grave crisis. Following the bust of the bubble in December 2010, the market has lost values
in terms of all major indicators. While the bust in the market is itself a matter of grave concern, it
is no less disconcerting that now that market has reached a level which matches preboom levels,
and investors are nonetheless coming back to the market. To determine the value of shares of
particular company investors must pay close attention to its operating environment. The state of
the global and Bangladeshi economies and changes in an industry sector can have profound
effects on individual companies, over which they have no control. The key point is that in

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analyzing the outlook for a company's share price it is necessary to consider a wide range of
factors that will impact on the company's current and future earnings. Some of these factors are
'internal' to the company in the sense that they are directly subject to the company's control.
Examples include management capability, marketing strategies and new product development.
However, there are also many factors that will influence a company's earnings performance that
are largely 'external' to the company in the sense that the management of the company has little or
no control over them. Examples include the rate of economic growth, the level of interest rates
and government fiscal policy.

1.3 Objective
1.3.1 Primary Objective
The main aim of the study is to find out the necessary steps should be considered while investing
in capital market
1.3.2 Specific Objectives
The specific objectives of the research are:
To find out the way stockholders behave normally while buying stock
To pinpoint the drawbacks of the stock selection process
To find out how to select the right stock in a proper way

1.4 Methodology
1.4.1 Type of Data: This Research is mostly fabricated with Secondary data. Data is qualitative
and quantitative in nature. Data set of Year 2014 with some exceptions depending on availability
is used; as data set of year 2015 is available on half yearly basis which, if used, might not expose
the clear picture to make a optimal decision.

1.4.2 Sources of Data: Secondary data will be collected from the following Sources: Publications
of Securities and Exchange Commission, Dhaka stock Exchange (DSE), Stock market Report,
Bangladesh Bank, Bangladesh Bureau of Statistics, Bangladesh Economic Review, Books and
Journal, Popular stock market based website like Stock Bangladesh, Lanka Bangla Portal and so
on.

1.4.3 Significance of the study: By conducting this study both individual and collective group
can be benefited; specially those who want to invest in share market. After the completion of this
study, research on this particular issue will be enriched. This can also help analysts and other

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researcher to make more confident judgment regarding stock market. Moreover, this study will
give an overview of current erroneous beliefs actually happened on Stock Market everyday which
can be way-out for many investors.

1.4.4 Sample Design: The sample includes stock of actively traded few companies of Bangladesh
listed in DSE. Bank sector is our main area of concern for the studies. For this purpose, thirty
listed banks in DSE are taken and analyzed thereby. The main reason for taking the Bank sector is
the attractiveness of the sector as well as well-performing in the stock market; shown in analysis
part.

Rationale behind choosing Bank Sector: One of the publications of Research Department of
Bangladesh Bank titled A Comprehensive Study on Capital Market Developments in
Bangladesh showed that Banking sector dominates the stock market. Two main bases are:
Banking sector owned the largest share in market capitalization and stable income based Price
Earning Ratio. In Bangladesh, the banking sector, which dominates the financial sector, has
served the economy very well and extended its performance in the capital market in terms of the
share in the total market capitalization and turnover in value and volume of capital market. Over
the period during June 2004 to June 2010, the contribution of banking sector's market
capitalization in DSE, almost hold 40 percent share of the total market capitalization mobilizing
increased capital flow and maintaining the stability of the financial system. Despite notable
progress of the other service sectors including telecommunications and real estate, its share is still
negligible in the stock market. Like market capitalization, in terms of turnover, banking sector
also holds the major share in the total market as well as stable P/E ratio.

1.4.5 Analysis of Data: There are several stock valuation methods. The most popular techniques
are Technical Analysis and Fundamental Analysis. For stock valuation purpose, Fundamental
analysis is highly recommended although Technical analysis is also considered to some extent.
Therefore, in lieu of fundamental analysis P/E ratio, EPS ratio, NAV ratio, Growth ratios,
Liquidity and Leverage ratios, Profitability and Investment Return ratios, Asset Management and
Asset Quality ratios, Efficiency, Productivity & Capital Strength ratios are taken for individual
company. After being taken those ratios are compared to the market/industry average.

1.4.6 Techniques used in Data Analysis: After data collection, necessary screening is performed
before tabulation and graphical presentation. Relevant tables, figures, graphs and charts are

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applied in this study wherever appropriate so that it could help individual investor to make
decision by noticing the exhibitions at a glance. Finally, based on the findings and analyses, some
good stocks are finally selected.

1.5 Organization of the research paper

This study is structured into four chapters excluding the prefatory and appended parts. In the first
chapter, the basic information of the research regarding research objectives and research
methodology is described. In the second chapter, stockholders normal actions while buying stocks
are discussed. In the third chapter, controversy of the process discussed in the previous chapter
along with comparative analysis between fundamental and technical analysis is scrutinized. In the
fourth chapter, reshuffling the process of selecting stock through Detailed Fundamental Analysis
will be emphasized. Finally after fundamental analysis being done, some fundamentally good
stocks are chosen.

1.6 Limitations of the study

The study is mostly based on the secondary data. The researcher is mainly dependent on
the stock related websites like Stock Bangladesh, Lanka Bangla Portal and various
articles.
There are thirty banks listed in the DSE website. The researcher wanted to use the
research for all the foreign, government owned and commercial banks operating in
Bangladesh but the DSE library could hardly provide the listed banks information and
that is the reason why the researcher had to confine the research into the commercial
banks whose are available in the DSE library and other stock related websites.
Besides that, the annual reports of the rest of the companies are not very much available
in in their respective websites
Due to time constraints, multiple years data; like 5 years historical data as well as
multiple sectors; like Engineering, Pharmaceuticals and Chemical etc. arent integrate in
the study. If used, it could track the finest stocks to invest in and thereby could form an
effective portfolio.

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2.0 Literature Review
Investing money into unpredictable, unstable, and uncontrollable facets can be extremely risky.
Like the lottery, the success of stock market trading is partly attributed to luck. Many people
have lost vast amounts of money through poor investment decisions that theyve made. Investors
must understand and accept this risk as an intrinsic part of investing.
There are attractive benefits to successful financial investments. With intelligent decisions,
investing can yield significant capital gains, stability, and security. By analyzing the trends of the
stock market and by following the right investment strategy, one can be successful in the stock
market. There has been much research into various ways of analyzing the stock market as a
means of facilitating investment decisions in stock market. Some of them are presented below:
The stock market contributes to economic development as it facilitates equity finance, spreads
ownership among a large set of investors and thus mobilize the savings of the population,
provides a mechanism for allocating capital to productive use and facilitates a link between the
capital markets of a particular country and the markets of the industrial world (Ryrie, 1991)
Investment Climate in Bangladesh: Enhanced Role of the Capital Market a publication of
Economic Research Group conducted a survey responded by banks, financial institutions,
engineering, food and allied, textile, pharmaceutical and chemical, ceramic, cement, and service
providers. The Bangladesh Association of Publicly Listed Companies (BAPLC) also responded to
the survey questionnaire.
Survey Results(Figure-1) found that Investors assign maximum weight to the nature of the
industry (80%) when to buy shares from Primary Market. Earnings profiles of the companies are
mentioned by 74 percent of the respondents. Investors generally analyze the earnings profile of a
company using Earnings Per Share (EPS), P/E Ratio, Earnings growth, Dividend per share,
Dividend yield, etc. Net Asset Value (NAV) per unit etc. 68 percent of the respondents recorded
the above criteria.
Figure 1: Factors Considered in Buying Shares from the Primary Market

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Source: Survey result of the publication
Survey Result(Figure-2) found that Price/earnings ratio and earnings per share are considered by
74 percent of the respondents when considering whether to buy shares from the secondary market
or not. Usually, shares with good fundamentals have high P/E ratios. It rewards a company for its
good prospects, good governance, openness and transparency.

Figure 2: Factors Considered in Buying Shares from the Secondary Market

Source: Survey result of the publication

Amazingly, both of the survey results strongly agree upon choosing stocks that are fundamentally
strong.
Asian Business Review(Volume-1, Issue 1) published an article titled Is the Stock Market
Overvalued: A Study in the Context of Bangladesh? showed that the reason for the market
inefficiency is also the poor institutional infrastructure, weak regulatory framework, lack of
supervision, and a lack of accountability, poor corporate governance, slow development of the
market infrastructure, and low level of capacity of major market players, and lack of transparency
of market transactions. As an institutional policy to improve the capital market, the timely
disclosure and dissemination of information to the shareholders and investors on the performance
of listed companies should be emphasized.
Campbell and Shiller (2001) showed that stock prices are probably overvalued based on the
dividend-price and price-smoothed-earnings ratios. In another study regarding Bangladesh stock
market it is found that there is a general tendency among investors to hold onto their shares till
the record date so that they get entitled for dividend, and then sells it off after the record date.
Chowdhury & Chowdhury (2010) gathered secondary data of publicly listed companies, traded in
Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE), to see the relationship
between capital structure and firm value in Bangladesh. It was observed that by changing its

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current ratio, operating leverage, EPS, dividend payout ratio or share capital, a firm may increase
its value in the market.
Relatively, most of the review focuses on the Fundamental approach for picking up the right
investment decision in stock market.

3.0 General Investors Stock Selection Process

3.1 Capital Market in Bangladesh-Present Status

Sound Capital Market is an indispensable part of an Economy. Without sound and efficient
capital market, rapid economic development could be hampered as capital market provides long
term funds to entrepreneurs. Capital Market of Bangladesh is still highly speculative and lacks
transparency due to poor regulatory framework. In Bangladesh, Financial sector was historically
driven by banks and capital market had fewer rules to play as people had mixed perception about
the risk pattern in capital market that discouraged them mostly to invest there. But in the mid of
ninetieths of last century capital market started to show vibrant behavior that make people
interested about the stock exchanges. As the index was rising sharply and everyone was making
money, many people started to invest their money to the heated market that made a bigger bubble
and finally the bubble bursts. Benchmark index came down to 700 point in November 1997 from
its highest 3600 point in November 1996. Thousands of investors lost their money that made
them reluctant to invest in the capital market again. It took one decade for them to forget the
history of collapse.
Bangladeshi Stock Market has experienced a big crash twice from its inception. In 1996, the
market was crashed because of speculative bubble whereas; it was an asset bubble in the year
2011. The stock price was overvalued in that time. Price was inflated about 500-700 percent
compare to the face value. The stock market of Bangladesh was bullish before 2010. But in 2010,
the market become bearish as there was a market crash. This situation turned millions of investors
as bankrupt. The investors blamed the government for this crash as they believed that the crash
was caused artificially to benefit some group of investors at the expense of some big players of
the market. They lost their confidence on the fairness of the market. As a result, the market
continued to fall.
The trading in DSE has been increasing in recent years. At present there are over 750 companies
listed with DSE. Another participant in Bangladesh stock market is Chittagong Stock Exchange
CSE. It was established in February 1995 as a public company. There are different types of
instruments in Bangladesh share market such as, government securities (treasury bills and savings

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certificates). The savings certificates are consists of 8-year Defense Saving Certificates, 7-year
Bonus Certificates, 5-year Bangladesh Saving Certificates, Wage Earners Bonds, and National
Investment Bond. The government also issues debenture of State Owned Corporations.
Convertible debentures and mutual funds are also traded at the exchange. There are also private
companys ordinary shares and debentures in the market. In these stock markets, there are
individual investors and institutional investors. Since 2011, Bangladeshs benchmarked stock
index dropped 55% and it continues to fall.

3.2 How Stockholders normally choose stocks from Bangladesh Stock Market

This is a comprehensive report on Investment in Bangladeshi Capital Market with the help of
Stock Bangladesh website and Lanka Bangla Portal. The following STEPS are conducted
according to Stock Bangladesh How to use Stock Bangladesh site effectively. Moreover, it is
found more or less maximum numbers of stockholders invest in stock market based on following
steps like-good sectors for investment, sector gainer, good sector index, high P/E, EPS, positive
price movement and so on. Furthermore, most of stock related portal of Bangladesh like-
LankaBangla Portal, E-nrb follow almost same format. But StockBangladesh portrayed the better
synopsis by following ten steps. For example, Lanka Bangla Portal uses a tool for investors called
Stock Screener so that they can use to filter stocks given certain criteria of their choice of
preferrence.

Figure 3: Stock Screener

Min Max
Close Price

Stock Change Percentage %

Market Capital (Enter value in thousands)

Audited P/E (x)

Last Audited P/B Ratio (x)

EPS (BDT)

ROA %

ROE %

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Volume Change Ratio %

Turnover (BDT mn)

Volume

Trades

Weekly Price Change %

Bi-weekly Price Change %

Monthly Price Change %

Yearly Price Change %

Gross Profit Margin

Operating Profit Margin

Net Profit Margin

Source: Lanka Bangla Portal

While on the subject of Stock Bangladesh, investors could follow the following steps. In every
step, only one example is quoted from the Stock Bangladesh due to space limitation of the paper;
later residual (one-week) examples are presented in Appendix section:

STEP- 01 Market Composition:

Firstly, well-performing sectors are to be identified. To identify well-performing sectors,

sectorwise index position with higher market cap/turnover is preferred. That could provide us a
glimpse of lucrative sector to the investor. After watching few days turnover in the DSE, it is
noticed that Bank sector turnover place 4th/5th all the time in the whole August month (weekly
data is provided in appendix section). An example is taken from StockBangladesh website from
Last week of August.

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In this Scenario, Dated 23/8/2015 to 24/8/2015 Fuel and Power (18 companies), Pharmaceuticals
and Chemicals (28 companies), Engineering (31 companies), Banks (30 companies) and Textiles
(45 companies) are the top five performing sectors.

STEP- 02 Sectorwise Gainer/Loser:

It is very crucial to know about whether most of the companies under a particular sector is
gainer/loser. It is easily perceived the idea by screening Sector wise Gainer/Loser comparison and
notice how many companys share price has positive/negative/unchanged money flow. For
example, result of analyzing Sector wise Gainer/Loser of a working day of last week of August

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STEP- 03 Sector Index:

Sector index provides an investor the information about the sector index movement at the
particular timeframe. By that way, an investor gets clear idea about that particular index; whether
it is upward/downward trends for the particular time horizon. Results of analyzing this week
sector index reveals downtrends compared to yesterday (red curve-this day, blue curve-previous
day).

N.B- As per the concern of Research, before moving on to the next step, bear in mind that bank
sector is favored (clarified in Methodology of the paper).

STEP- 04 Data Matrix

Data matrix is a powerful scanner for an investor to select a share considering to investors
necessity. Through using data matrix, necessary information in a palatable form can be presented.
Like- EPS, P/E ratio, Price change (positive), NAV and so on. This helps the investors to select a
company under the chosen industry without worrying too much. A snapshot is shown below of a
working day of last week of August, 2015. Here, stocks with Price Change more than 1%, P/E
more than 8 (Bank Sector P/E 7.33 for this week), EPS more than 1 and NAV more than 10
(Change in price, EPS, NAV are chosen hypothetically-based on preference of individuals) are
categorized and results followed by:

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STEP- 05 Company Page one stop solution- this company page solution can give an investor
the glimpse of a particular company. For example, from the bank sector, DUTCHBANGLA has
higher P/E, NAV, EPS etc. compared to others. Exclusively, DUTCHBANGLA company
summary is highlighted as it is the most valuable stock now from Bank Sector; it is found through
Comparison of Price Movement of all bank shares considering 1-year data August 31, 2014 to
August 31, 2015

DUTCHBANGLA

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DUTCHBANGLA BANK
Category: A
Sector: Bank
Sector PE: 7.35
Sector Cap: 395142935419.00
Sector Earnings: 53745690072.50
Sector Beta: 1.01
Last EPS: 5.58
Annu EPS: 11.16
P/E: 8.58

STEP- 06 Financial condition analysis through fundamental chart- Fundamental charts could
help investors to dig out the condition of a particular stock. Like- Dividend history, Net
Profit(quarterly), Yearly NAV, Yearly EPS etc. For example, DUTCHBANGLA BANK
fundamental chart in this case is referred.

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In this snapshot, DUTCHBANGLA share distribution, combination chart and dividend history
over past decade is portrait. As this bank provides dividend either by cash/bonus regularly over
the past years, this must be a verified stock to invest in.

Moreover although Yearly NAV as well as EPS decline radically at the year 2010 due to market
crash aftermath, the stock grows at a slow and steady rate in other area like Net Profit per quarter
afterwards.

N:B- Following steps from Step-07 to Step-10 are interconnected to buy/sell decision.

STEP- 07 News Chart that helps us to make buy/sell decision by observing the probable
timing of dividend payment

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STEP- 08 Market Timing will be actionable when the share condition remains good in technical
chart (both technical and interactive chart can be used)

STEP- 09 Understand the sentiment of buyer/seller through bullish or bearish movement in

the minute chart-if there shows green signal in the minute chart then its time to buy the stock;
otherwise sell.

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STEP- 10 Time to execute- if everything is OK then now its time to execute the stock time to
time.

4.0 Controversy of the Process

4.1 Stock Bangladesh Controversy:

The whole process from step-1 to step-10 doesnt provide us concrete and complete solution to
make an investment decision. Its not very well-judged decision to ignore the whole flow chart,
rather taking help from some of the parts related to Fundamental analysis like Sector movement,
Data matrix, Company page one stop solution, financial condition through fundamental chart and
buy/sell decision by following technical chart will be more judgmental. Some major drawbacks of
Stock Bangladesh are:

Up to this point DUTCHBANGLA is considered to be a good stock. But how long? Will
it survive for long-run? Probably not, because investors cant make a conclusion showing
1-day movement. It will be misleading for the investors to buy a stock watching good
market position only for the specific timeframe.
Stock Bangladesh rarely considers fundamental analysis, but this part should be first and
foremost. While making an investment the investor needs to know the viability of its
investment and needs to know if the current price charged per unit is justified by the
results the company fundamentals.
Many of the steps merely consider 1-day movement like sector movement, sector
gain/loss, sector index, price movement of selected few stocks etc. But It will be

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 meaningless if investors take investment decision on the basis of technical analysis
because a good stock today can be overturned into a bad stock tomorrow.

It will be clearer to all referring an example by following the steps discussed earlier

Previously Market Composition, Sector wise gainer/loser, Sector Index, Data matrix etc. have
been done. And finally, Bank and Textiles sector are selected as because both have higher
turnover, higher sector gainer.

Still, Market sometimes can become so volatile that it is tough to predict the end result with such
indicators. Here is an example dated 12/8/15 to 13/8/15

STEP-01 Market Composition

In this Scenario, Dated 12/8/2015 to 13/8/2015 Engineering (31 companies), Textile (45
companies), Fuel and Power (18 companies), Pharmaceuticals and Chemicals (28
companies), Banks (30 companies) are the top performer sector. But after analyzing the second
chart it is noticed that the investors invest more on Engineering (above 20%); although it has
negative change and Fuel & Power and Pharmaceuticals and Chemicals do the same (Good
turnover with negative change). But Textile and Bank has positive change as well as promising
market contribution.

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Summary Output:

This sectorial analysis shows changes that took place from 12-8-15 and 13-8-15. Conclusively,
amongst those chosen sectors only Bank and Textile index has positive change 4.77% and 2.38%
respectively which is a positive sign for the sector. Still, investors cant reached to ultimate
solution which sector to choose unless theyve monitor day wise at a regular basis. Thats why,
weekly data is taken in this paper shown on Appendix section with few steps sideways.

STEP-02 Sector wise Gainer/Loser

With this sector wise Gainer/Loser chart it is clearly identified that Textile and Bank sector are
todays good sector for investment.

Textile sector Gainer 24 (59%) Loser 16 (39%) Unchanged 1 (2%)

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Bank sector Gainer 10 (33%) Loser 9 (30%) Unchanged 11 (37%)

Engineering sector Gainer 7 (23%) Loser 23 (74%) Unchanged 1 (3%)

Fuel & Power sector Gainer 3 (17%) Loser 13 (72%) Unchanged 2 (11%)

Pharma& Chemicals sector Gainer 6 (23%) Loser 16 (62%) Unchanged 4 (15%)

It is evident that most of the companys price changes under respective industries are declining at
an alarming percentage like Engineering, Fuel & Power and Pharma & Chemicals sectors. Textile
sector, near about 40% losing share a bit ahead amongst those options because of near about 60%
gaining share. And Bank share also looks like sound investment as it has only 30% losing share,
33% gaining share and 37% unchanged share.

But Sector wise Gainer/Loser cant be a determinant of selecting a particular Industry. Because it
cant reveal the true picture of a particular industry- like Industry attractiveness. Moreover, sector
wise gainer/loser is a fluctuating data; and it is invalid to come to a conclusion with this random
data. So from investors point of view, this part needs not to be troubled.

STEP-03 Sector Index

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To show sector index, Ive captured the movement of Bank, Textile, Engineering, Fuel & Power
and Pharmaceuticals & Chemicals of that particular day through 15-minute interval chart. And
the Bank and Textile sector index look promising as others show declining index. Bank sector
index movement is upward trend from the beginning of the day. So, investor can choose their
preferred sector from the optimistic sector index movement. Again reaching into a conclusive

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solution with this sector index is infeasible because tomorrow it is unsure that bank sector could
crash.

N.B-Before going Data Matrix, both bank and textiles sector are chosen because of the further
amplification.

STEP- 04 Data Matrix

Data Matrix is a good solution of choosing the right stocks based on some agreed upon
benchmarks; although still not complete solution.

For example, at 13/8/15 we took those shares only fall under following benchmarks: Sector: -
Bank and Textile, Price change: - More than 1%, P/E ratio: - 8 to 12, EPS: - More than 1, NAV: -
More than 10. And, thus we found 2 Banks (ALARAFA Bank, DBBL) and 4 Textile
(CMCKAMAL, GENNEXT, PTL, TOSRIFA)

Previous day:

The very next working day

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The scenario after 2 days gap (due to holiday of Friday and Saturday), at 16.8.15 the picture was
completely different in both Bank and Textile. Both DBBL and ALARAFABANK price changes
are negative, .83% and .79% respectively at 16.8.15, same is true for Textiles Sector. Thereby,
investors can conclude the judgment on the basis on price/volume movement cant be an absolute
indicator for the valuation of a stock. If they do so, they may go to make a big mistake because
index changes frequently. Like DBBL and ALARAFABANK price changes were 1.48% and
1.6% respectively at 13.8.15. Next working day the stock price fell negative. So, judgment with
this technical data cant lead them in the absolute solution.

Later on Stock Bangladesh take their decision by using Minute chart, Sector chart etc. which
provides the investors a glimpse of price movement either for the particular stock or for particular
sector; which again should not be considered, as stocks with fundamentally strong is a real blue
chip.

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So, through including Fundamental Analysis (P/E, EPS and NAV) without considering positive
price changes the Data Matrix should be reformulated which can stick to the same
decision(shown below)

Reconsidering Data Matrix through only using Fundamental analysis stick to the same
result

Through reconsidering data matrix not taking price change into consideration, that is, P/E ratio: -
8 to 12, EPS: - More than 1, NAV: - More than 10, then the outcome will be almost same at the
next working day (17.8.15). Here is a snapshot. Price changes if taken into consideration, many of
the textiles wouldve been cancelled.

Thereby, alternative solution; that is fundamental analysis must be considered to make a

dependable decision of choosing better stock. And, it is assured that through fundamental
analysis, an investor maynt gain for the short-term but will win for the long-term.

4.2 Comparative analysis between Technical and Fundamental Analysis

Before going In-depth Fundamental analysis, it is obligatory to understand why Fundamental

Analysis is preferred to Technical Analysis. Here is a brief of relative assessment between
fundamental and technical analysis.

Fundamental analysis is a method of evaluating securities by attempting to measure the intrinsic

value of a stock. Fundamental analysts study everything from the overall economy and industry
conditions to the financial condition and management of companies.

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Technical analysis is the evaluation of securities by means of studying statistics generated by
market activity, such as past prices and volume. Technical analysts do not attempt to measure a
security's intrinsic value but instead use stock charts to identify patterns and trends that may
suggest what a stock will do in the future.

In the world of stock analysis, fundamental and technical analyses are on completely opposite
sides of the spectrum. Earnings, expenses, assets and liabilities are all important characteristics to
fundamental analysts, whereas technical analysts could not care less about these numbers. Which
strategy works best is always debated, and many volumes of textbooks have been written on both
of these methods.

Table 1: Difference between Fundamental and Technical Analysis

Fundamental Analysis Technical Analysis

Definition Calculates stock value using economic Uses price movement of security to
factors, known as fundamentals. predict future price movements

Data gathered Financial statements Charts

from

Stock bought When price falls below intrinsic value When trader believes they can sell
it on for a higher price

Time horizon Long-term approach Short-term approach

Concepts Return on Equity (ROE), Return on Price Data like Price Trends,
used Assets (ROA) etc. Volume, Moving Average etc.

Vision looks backward as well as forward looks backward

Best Approach

The best approach to investing likely involves some combination of fundamental and technical
analysis. It is highly recommended to choose stocks or sectors that have strong fundamentals and
then use technical analysis to decide when to buy or sell them.

5.0 Fundamental Analysis Process

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5.1 Fundamental Analysis (In a nutshell)

If investors use fundamental analysis to decide where to invest money, there are many different
metrics they can use. Here are a few of the basics:

5.1.1 The Big Picture: Analysis of the Economy

Its always a good idea to keep the macroeconomic climate in mind when choosing asset
allocation as well as specific investments. Where are we in the economic cycle? Are we at the
beginning, middle, or end of a recession or boom?

5.1.2 Sector Fundamentals: Analysis of the Sector

A single companys performance can be heavily influenced by the sector in which it operates.
During economic slowdowns, for example, defensive sectors like consumer staples and utilities
tend to do better, whereas technology, transportation and financials do better when the economy
is on an upswing

5.1.3 Financial Analysis and Valuation

Some of the crucial financial analysis tools are described below:

Earnings Per Share (EPS)

While revenue is important, earnings are really the bread and butter of corporate success. If a
companys sales are increasing, but they are not able to retain those revenues due to excessive
expenses or poor management, thats a red flag. An investor wants to invest in companies with
rising margins, and therefore rising EPS. And it is very easy to find historical EPS for most
companies as well as EPS estimates for future quarters on most investing websites.

P/E Ratio

The price to earnings ratio of a company is simply the current stock price divided by its annual
earnings per share. So if company XYZ is trading at $27 and it earned $1.50 per share during the
past 12 months, its P/E ratio would be 18. That means its trading at 18 times its annual earnings.

When analysts refer to a companys valuation, they are often referring to its P/E ratio. Whats a
good P/E ratio depends on the sector. For example, high growth stocks like those of technology
companies often trade at much higher P/E ratios whereas stable, lower growth companies trade at

Page 25 of 43
lower valuations. This should make sense naturally because if a company has huge growth
prospects, then one should be willing to pay a much higher price relative to its current earnings.

5.2 Comprehensive Fundamental Analysis: Stock Market Top-Down Analysis

Through Fundamental Analysis, an investor seeks to derive value, which when compared with the
price of the security will help to make a decision whether the security should be bought or sold
depending on whether its underpriced or overpriced. (underpriced = buy, overpriced = sell or
short)

5.2.1 Macroeconomic analysis (Is This Investment Right for You?): Macro analysis has its basis
in the large (Macro) tendencies observed in the economy. This involves analyzing capital flows,
interest rate cycles, currencies, commodities, indices, etc. As an investor it is first and foremost
goal is to understand how major forces are affecting the performance of the economy. Then,
investors base investment decisions on findings.

Analysis of the Economy of Bangladesh: Overall Present Status

Bangladesh's economy has been growing at a rate of 6 percent over the last one and a half
decades, despite several complications. Poverty has been declining by 1.7 percent every year
since 2000, according to Bangladesh Bureau of Statistics. According to the survey conducted by
the Washington-based fact tank Pew Research Centre around 71 percent of the respondents in
the survey said their children will be better off than them in future in Bangladesh (SOURCE:
BANGLADESH ECONOMY AND CAPITAL MARKET OVERVIEW 2014). In general, the
survey found that emerging and developing nations are more optimistic that the next generation
will have higher standards of living. Furthermore, they see better opportunities at home than
abroad. 2014 was a challenging year for the Bangladesh capital market and economy in general.
The year 2015 started off well amid few political interruptions. The ADB has recently lifted the
growth forecast of Bangladesh to 6.4 percent for year 2015 from previous 6.2 percent.
Bangladesh has kept its fiscal deficit under control (3.4% of GDP), and has not built up high
levels of government debt (35% of GDP).

There are several major macroeconomic factors which is exhibited below (with figures) in brief:

1. Bangladesh Economic Growth

Figure 4: GDP Annual Growth Rate

Page 26 of 43
(Source: Bangladesh bank)

Present Status: The Gross Domestic Product (GDP) in Bangladesh expanded 6.12 percent in
2014 from the previous year which shows the economy is performing well.

In Bangladesh, services are the biggest sector of the economy and account for 50 percent of total
GDP. Within services the most important segments are: wholesale retail and trade (14 percent of
total GDP); transport, storage and communication (11 percent) and real estate, renting and
business activities (7 percent). Industry accounts for 30 percent of GDP. Within industry, the
manufacturing segment represents 18 percent of GDP while construction accounts for 9 percent.
The remaining 20 percent is contributed by agriculture and forestry (16 percent), and fishing (4
percent)

2. Bangladesh Unemployment Rate

Figure 5: Unemployment Rate

(Source: Bangladesh Bureau of Statistics)

Present Status: The unemployment rate measures the number of people actively looking for a
job as a percentage of the labor force. Unemployment Rate in Bangladesh decreased to 4.30

Page 27 of 43
percent in 2014 from 4.50 percent in 2013. The downturn of unemployment rate in past few years
shows high productivity of labor force.

3. Inflation

Figure 6: Inflation Rate

(Source: Bangladesh Bureau of Statistics)

Present Status: Inflation concerns immoral especially in the second half of 2014 with falling
import prices of essential oil and other commodity imports. The point to point inflation rate as of
December 2013 was 7.85 which saw a downfall to 6.04 as of January 2015 according to the
Bangladesh Bank report. But the economy is improving as inflation reported according to
Bangladesh Bureau of Statistics of July 2015 is 6.36. But, Government should try to control
inflation to avoid rising price of commodities.

4. Consumer Price Index(CPI)

Figure 7: Consumer Price Index (CPI)

(Source: Bangladesh Bureau of Statistics)

Consumer Price Index or CPI measures changes in the prices paid by consumers for a basket of
goods and services. Consumer Price Index CPI in Bangladesh increased to 209.17 Index Points in
June from 208.77 Index Points in May of 2015. Due to rise in Inflation CPI likely to be higher as
people compelled to pay a bit for the same basket of goods.

Page 28 of 43
 5. Export and Import Comparison

Since Bangladesh is an import led economy the import payments are naturally higher than export
earnings.

Bangladesh Imports:

Figure 8: Bangladesh Imports

(Source: Bangladesh Bank)

Imports in Bangladesh increased to 259.93 BDT Billion in May from 249.46 BDT Billion in
April of 2015. Bangladesh imports mostly petroleum and oil (11 percent of the total imports);
textile (10 percent) and food items (9 percent). Others include: iron and steel (7 percent), edible
oil (4 percent), chemicals (4 percent), yarn and plastic and rubber articles (4 percent).

Bangladesh Exports:

Figure 9: Bangladesh Exports

(Source: Bangladesh Bank)

Exports in Bangladesh decreased to 180.39 BDT Billion in April from 207.91 BDT Billion in
March of 2015; again it increased in May 2015 to 190.43 BDT Billion. Bangladesh exports
mainly readymade garments including knit wear and hosiery (80% of exports revenue). Others
include: jute goods, home textile, footwear and frozen shrimps and fish.

Page 29 of 43
 6. Bangladesh Balance of Trade

Figure 10: Balance of Trade

(Source: Bangladesh Bank)

Balance of Trade is the difference between a country's imports and its exports. Balance of trade is
the largest component of a country's balance of payments. Bangladesh has been recording
sustained trade deficits since 1976 mainly due to a high value of imports. Main imports are
petroleum and oil (11 percent of the total imports); food items (11 percent) and textile (10
percent). Main exports mainly ready-made garments (80% of exports revenue). Bangladesh
recorded a trade deficit of 69.10 BDT Billion in April of 2015. The gradual increase in balance of
trade shows Bangladesh becoming an import-led economy.

7. Current Account

Figure 11: Current Account

(Source: Bangladesh Bank)

Current Account is the difference between a nation's savings and its investment. The current
account is an important indicator about an economy's health. A positive current account balance
indicates that the nation is a net lender to the rest of the world, while a negative current account
balance indicates that it is a net borrower from the rest of the world. Bangladesh maintained a

Page 30 of 43
current account surplus from September 2013 to February 2014 but again saw deficit during the
latter part of 2014 as well 2015. Flexible inflow of foreign investment and steady remittance
added with low import payments were the main reasons behind last years surplus. However the
current account deficit on the first half of 2014 indicates increased expenditure on imports which
can be correlated to the rise in price of commodities in the first half of 2014 due to the rise of oil
price. But, as it is seen that the current account deficit is extending more as it advances till
January 2015 and thus Bangladesh is becoming net borrower from the rest of the world.

8. Industry/ Sectorial Growth(2013-14)

Table 2: Net Profit After Tax Growth Rate Sector wise

Sector Growth of Net Profit After Tax(NPAT) than previous year*

TELECOMMUNICATION 43%
PHARMA AND CHEMICALS 23%
FOOD AND ALLIED 16%
FUEL AND POWER 10%
INSURANCE 6%
FINANCIAL INSTITUTIONS 2%
CEMENT -2%
ENGINEERING -4%
TEXTILE -6%
SERVICE AND REAL ESTATE -7%
BANK -17%
JUTE -24%
(Source: Empire Capital Research and Bangladesh Bank)

*Growth rate is calculated by : (NPAT2014-NPAT2013)/NPAT2013

By the above chart, we can see the year on year (2013 to 2014) growth in net profit after tax by
sector. Bank sector NPAT growth declined by 17% between 2013 and 2014 whereas
Telecommunication sector saw an impressive rise of 43% in NPAT between 2013 and 2014.
There are six sectors with negative NPAT growth with Jute sector being the top loser comparing
2013 and 2014.

Page 31 of 43
Probable causes of crisis in banking sector: As per research concern, in this paper Bank Sector
is highlighted. Therefore, previous years bank sector catastrophe needs to be addressed right
away; otherwise the Sector selection process in this paper will be misty.

Countrys banking sector has been caught in trap and is characterized by high rate of
interest, excess liquidity and declining growth in disbursement of credit to private sector, coupled
with poor risk management, fraudulence, driven by captured governance and negligent
oversight, resulting in lower profitability to the shareholders and institutional weakness in the
economy. Besides this backdrop, questions are being raised concerning the Default loan and
Scrap in loan

Increase in default loan: Non-performing loan both gross and net is increasing. Overall
net Non-performing loan (NPL) increased to 3.9 percent in June 2014 from 3.4 percent in
March 2014

Scrap in loan: Embezzlement of Hall-mark, Bismillah Group and BASIC bank etc. has
become talk of the country in recent times. This loan scrap is alarming for our banking as
well as the financial sector like Bismillah Group loan scrap 1100 crores financed by
Prime Bank, Jamuna Bank, ShahjalalIslami Bank

Overall Macroeconomic outlook for 2015:

With positive expectations in the coming year 2015 based on stable macro economic conditions,
Bangladesh stock market to remain bullish. However as seen with the above comparison with
peers, inflation in Bangladesh needs to be controlled. As future income levels rise, consumer
companies in the country will benefit and therefore the long term story of consumer related stocks
in Bangladesh remains lucrative. Generally the earnings by sector of the listed companies in
Bangladesh stock market showed mixed trend in 2014 in comparison to 2013. While
telecommunication showed impressive growth, Bank also a major index carrier showed declining
net income trends. Investment in such heterogeneous sectorial earning trends suggests careful
research of individual and industry can help to scan for sectors with potential upside. Generally it
is optimistic that deposit rates are falling and restricted lending by Banks and NBFI should
promise well for them in the upcoming year. The government of Bangladesh and the RMG
exporters will need to do more to get renewed GSP facilities from the US. Both the government,
private sector trade bodies, individual businesses will need to show oversight in all regulatory and
business matters in light of global economic events. In summary, the year 2014 may be called the

Page 32 of 43
Year of turnaround for the Bangladesh Capital market after the selloff in 2010 and continuous
downtrend since. This may perhaps be a good year for investors to re-allocate an increased
portion of their assets in the Bangladesh equity market.

5.2.2 Analysis of the Sector: Through Sector Movement, it is found that Pharmaceuticals and
Chemicals, Engineering, Fuel and Power, Bank, Textile are the top 5 sectors throughout
the month August, 2015 (shown step-01 as well as Appendix). Due to page limit, weekly
data is illustrated in appendix section. And due to time constraints, Bank Sector is elected
only.
5.2.3 Financial Analysis and Valuation: Financial analysis and valuation of companies may
often vary wildly between sectors due to the differing ways companies earn money and
capitalization. An individual companys ratio is much more meaningful when taken
alongside ratios of other companies within the same sector. For example, an Jute Sector
may have a high P/E ratio (131.32), but this may reflect a trend within the sector rather
than one merely within the individual company. An individual companys high P/E ratio
would be less cause for concern when the entire sector has high P/E ratios (Illustrated
below)

Table 3: Sector P/E, Sector Cap and Sector Earning (from high to low)

Sector name P/E Ratio Sector name Sector Cap Sector

Sector name Earning
Jute 131.32 Textile 458,560,567,427
Textile 53,806,808,051
Tannery Industries 79.64 Engineering 412,536,810,807 Services & Real
Estate 26,463,732,547
Food & Allied 35.28 Jute 394,592,008,876
Cement 21,682,052,721
Services & Real Estate 33.45 Ceramics Sector 355,731,565,114
Fuel & Power 21,052,601,365
Ceramics Sector 30.9 Services & Real 242,524,226,886
Estate Food & Allied 7,721,827,772
Miscellaneous 30.49 Telecommunication 207,101,361,950
Tannery Industries 6,876,734,320
Cement 30.12 Food & Allied 152,713,166,823
Ceramics Sector 6,874,704,899
Engineering 26.26 Cement 88,387,206,313
Jute 5,814,540,499
Financial Institutions 22.21 Insurance 86,618,824,020 Pharmaceuticals &
Chemicals 4,593,218,204
Telecommunication 21.78 Tannery Industries 77,954,001,512
Engineering 3,510,585,329
IT Sector 19.79 Travel & Leisure 72,367,724,608 Financial
Institutions 2,840,941,583
Pharmaceuticals & Chemicals 19.03 Paper & Printing 27,277,055,550
Miscellaneous 1,553,699,088
Paper & Printing 18.81 Bank 24,849,797,760
Bank 882,648,770
Travel & Leisure 15.99 Pharmaceuticals & 24,623,429,594
Chemicals Insurance 606,818,890
Insurance 15.76 Financial Institutions 20,298,875,187
Paper & Printing 309,174,581
Fuel & Power 13.44 IT Sector 3,186,890,793
Travel & Leisure 160,997,473
Textile 11.45 Fuel & Power 2,449,516,000
IT Sector 130,228,267
Bank 7.33 Miscellaneous 718,068,000
Telecommunication 5,468,200

Page 33 of 43
Source: Stock Bangladesh (Dated 6-8-2015)

For the purpose of Financial Analysis and Valuation, list of stocks under a particular sector are
scrutinized; depends on mostly Ratio Analysis from Lanka Bangla Portal as well Stock
Bangladesh (shown previously)

Firstly, all 30 bank stocks are put together with from the Lanka Bangla Portal for the Ratio
Analysis and summarize at the end.

Ratio Analysis of Listed thirty Banks actively traded in DSE

Ratio analysis is used in order to determine the financial position of a particular company, to
make a judgment of the efficiency of the company, to understand how well the company utilized
its assets and earned profit and so on. Ratio analysis helps investors to measure the liquidity
position, asset management condition, profitability, productivity and capital strength which are
vital for the performance evaluation of a company. In essence using financial ratios, investors can
develop a feel for a companys attractiveness based on its competitive position, financial strength
and profitability.

It is mentioned earlier, for research purpose Listed thirty bank stocks of DSE are articulated and
sort out through ratio analysis. By this means, only notable ratios essential for the investors are
provided here. All ratios information are taken from LankaBangla Portal. Ratios used in this
paper are:

Investor Ratio (Price Earning Ratio), Growth Ratio (Annual Operating Profit Ratio, Earning
Growth Ratio), Liquidity Ratio(Liquid Asset to Total Deposit), Profitability and Return
Ratio(Operating Profit Margin, Net Profit Margin, ROA, ROE), Asset Management Ratio (Non
Performing Loan), Efficiency, Productivity and Capital Strength (Expense Ratio, Interest Yield,
Net Spread and Net Profit per Branch)

1. INVESTOR RATIO
a) P/E ratio:

P/E shows how much investors are willing to pay per dollar of earnings. If a company currently
trading at P/E of 20, the interpretation is that an investor is willing to pay $20 for $1 of current
earnings. In general, a high P/E suggests that investors are expecting higher earnings growth in
the future compared to companies with a lower P/E. A low P/E can indicate that a company may
currently be undervalued

Page 34 of 43
 25
20
15
10
5
0

EXIMBANK

SIBL
PRIMEBANK
BRACBANK

MTB

TRUSTBANK
ABBANK

DUTCHBANGL

NBL

PREMIERBANK

STANDBANKL
BANKASIA

EBL

UTTARABANK
ICBIBANK

ONEBANKLTD

UCBL
ALARABANK

CITYBANK

FIRSTSBANK

JAMUNABANK
DHAKABANK

IFIC
ISLAMIBANK

NCCBANK
MERCANBANK

PUBALIBANK
RUPALIBANK
SHAHJABANK

SOUTHEASTB
Last Audited P/ E Ratio (x) Industry Average

Figure 12: P/E ratio

2. GROWTH RATIO
a) Annual Operating Profit Growth It is clear that operating profit growth is one of the
key indicators of performance measurement and the higher the ratio, the better it will be.

Annual Operating Profit Growth Industry Average

140.00%
120.00%
100.00%
80.00%
60.00%
40.00%
20.00%
0.00%
EXIMBANK

MTB

PRIMEBANK

SIBL
ABBANK

BRACBANK

DUTCHBANGL
EBL

NBL

TRUSTBANK
PREMIERBANK

STANDBANKL

UTTARABANK
BANKASIA
ALARABANK

ICBIBANK
CITYBANK
DHAKABANK

FIRSTSBANK

ISLAMIBANK
JAMUNABANK

UCBL
IFIC

NCCBANK
ONEBANKLTD
MERCANBANK

PUBALIBANK
RUPALIBANK
SHAHJABANK

SOUTHEASTB

-20.00%
-40.00%
-60.00%
-80.00%

Figure 13: Annual Operating Profit Growth Ratio

b) Earning Growth is the annual rate of growth of earnings from investments. Likewise,
Earning growth higher is better.

Page 35 of 43
 Earnings Growth Industry Average

60.00%
40.00%
20.00%
0.00%

EXIMBANK

PRIMEBANK

SIBL
BRACBANK

MTB

TRUSTBANK
ABBANK

DUTCHBANGL

NBL

PREMIERBANK

STANDBANKL
BANKASIA

EBL

UTTARABANK
ALARABANK

ICBIBANK

UCBL
CITYBANK
DHAKABANK

FIRSTSBANK

ISLAMIBANK
JAMUNABANK
IFIC

NCCBANK
ONEBANKLTD
MERCANBANK

PUBALIBANK
RUPALIBANK
SHAHJABANK

SOUTHEASTB
-20.00%
-40.00%
-60.00%
-80.00%
-100.00%

Figure 14: Earning Growth Ratio

3. LIQUIDITY AND LEVERAGE

a) Liquid Asset to Total Deposit: shows whether the bank has enough liquid assets. In
other words, to meet the liquidity needs whether the bank hold enough liquid assets.
Obviously, higher ratio is better.

Liquid Assets to Total Deposits Industry Avg

0.35
0.3
0.25
0.2
0.15
0.1
0.05
0
BRACBANK

MTB
CITYBANK

PRIMEBANK

STANDBANKL
ABBANK

NCCBANK

SOUTHEASTB

UCBL
ISLAMIBANK

MERCANBANK

PUBALIBANK
ALARABANK

FIRSTSBANK
ICBIBANK

JAMUNABANK

RUPALIBANK

SIBL

TRUSTBANK
DHAKABANK

IFIC

NBL

PREMIERBANK
EBL
EXIMBANK

ONEBANKLTD

SHAHJABANK
BANKASIA

UTTARABANK
DUTCHBANGL

Figure 15: Liquid Asset to Total Deposit Ratio

4. PROFITABILITY AND INVESTMENT RETURN

a) Operating Profit Margin: Operating Profit Margin is a measurement of what proportion
of a company's revenue is left over after paying for variable costs of production such as
wages, raw materials, etc. It can be calculated by dividing a companys operating profit
during a given period by its net sales during the same period. Higher Operating Profit
Margin is better.

Page 36 of 43
80.00% Operating Profit Margin Industry Average
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%

EXIMBANK

SIBL

STANDBANKL
PRIMEBANK
BRACBANK

DUTCHBANGL

TRUSTBANK
EBL

MERCANBANK
MTB

PREMIERBANK
ABBANK

NBL

UTTARABANK
UCBL
BANKASIA

CITYBANK

IFIC
ISLAMIBANK

NCCBANK
ONEBANKLTD
ALARABANK

ICBIBANK

JAMUNABANK
DHAKABANK

FIRSTSBANK

RUPALIBANK
PUBALIBANK

SOUTHEASTB
SHAHJABANK
Figure 16: Operating Profit Margin Ratio

b) Net Profit Margin shows how much of each dollar earned by the company is translated
into profits. Higher ratio is better.

Net Profit Margin Industry Average

50.00%

0.00%
EXIMBANK

PRIMEBANK

SIBL
BRACBANK

TRUSTBANK
DUTCHBANGL
EBL

PREMIERBANK

STANDBANKL
MTB
ABBANK

NBL

UTTARABANK
UCBL
BANKASIA

NCCBANK
ONEBANKLTD
ALARABANK

ICBIBANK
IFIC
ISLAMIBANK
JAMUNABANK
MERCANBANK

RUPALIBANK
CITYBANK
DHAKABANK

FIRSTSBANK

PUBALIBANK

SHAHJABANK

SOUTHEASTB
-50.00%

-100.00%

-150.00%

-200.00%

Figure 17: Net Profit Margin Ratio

c) ROA is an indicator of how profitable a company is relative to its total assets. ROA gives
an idea as to how efficient management is at using its assets to generate earnings. Higher
ROA is good.

Page 37 of 43
 ROA Industry Average

3.00%
2.00%
1.00%
0.00%

EXIMBANK

SIBL
PRIMEBANK
BRACBANK

DUTCHBANGL

TRUSTBANK
EBL

PREMIERBANK

STANDBANKL

UTTARABANK
ABBANK

JAMUNABANK

MTB
NBL

UCBL
BANKASIA

CITYBANK

ISLAMIBANK

NCCBANK
ONEBANKLTD
ALARABANK

ICBIBANK
IFIC

MERCANBANK

RUPALIBANK
DHAKABANK

FIRSTSBANK

PUBALIBANK

SOUTHEASTB
SHAHJABANK
-1.00%
-2.00%
-3.00%
-4.00%
-5.00%
-6.00%
-7.00%

Figure 18: Return On Asset

d) ROE is the amount of net income returned as a percentage of shareholders equity. Return
on equity measures a corporation's profitability by revealing how much profit a company
generates with the money shareholders have invested. Higher ROE is good.

ROE Industry Avg

25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
EXIMBANK

STANDBANKL
PRIMEBANK

SIBL
BRACBANK

TRUSTBANK
DUTCHBANGL
EBL

PREMIERBANK
MTB

UTTARABANK
ABBANK

NBL

UCBL
BANKASIA

CITYBANK
DHAKABANK

ISLAMIBANK
ICBIBANK

NCCBANK
ONEBANKLTD
ALARABANK

FIRSTSBANK

IFIC

JAMUNABANK
MERCANBANK

RUPALIBANK
PUBALIBANK

SHAHJABANK

SOUTHEASTB

Figure 19: Return On Equity

It is worth mentioning that ROA and ROE give a clear picture of a companys health.

5. ASSET MANAGEMENT AND ASSET QUALITY

a) Non Performing Loan Ratio is the value of nonperforming loans divided by the total
value of the loan portfolio. As Non-performing loan isnt a good indicator; the lesser the
ratio the greater it will be.

Page 38 of 43
 NPL Ratio Industry Avg

1.2
1
0.8
0.6
0.4
0.2
0

PREMIERBANK
EXIMBANK

SIBL
PRIMEBANK
BRACBANK

DUTCHBANGL

TRUSTBANK
EBL

STANDBANKL

UTTARABANK
MTB
ABBANK

NBL

UCBL
BANKASIA

ISLAMIBANK
ALARABANK

CITYBANK

ICBIBANK
IFIC

NCCBANK
ONEBANKLTD

RUPALIBANK
DHAKABANK

FIRSTSBANK

JAMUNABANK
MERCANBANK

PUBALIBANK

SOUTHEASTB
SHAHJABANK
Figure 20: Non Performing Loan Ratio

6. EFFICIENCY, PRODUCTIVITY & CAPITAL STRENGTH

a) Expense Ratio is determined through an annual calculation, where a firms operating
expenses are divided by the average value of its assets under management. Lower
expense ratio proves the banks efficiency to lower cost which is always better; so lower
ratio is much acceptable.

100.00% Expense Ratio Industry Avg

80.00%
60.00%
40.00%
20.00%
0.00%

Figure 21: Expense Ratio

b) Interest Yield is the income return on an investment. This refers to the interest or
dividend received from a particular stock. The higher the ratio, the more lucrative the
stock will be to the investor because of higher yield.

Page 39 of 43
 0.18
0.16
0.14
0.12
0.1
0.08
0.06
0.04
0.02
0 BRACBANK
CITYBANK

MTB

PRIMEBANK

STANDBANKL
ABBANK

SOUTHEASTB

UCBL
ISLAMIBANK
JAMUNABANK
MERCANBANK

NCCBANK
ALARABANK

RUPALIBANK

SIBL

TRUSTBANK
DHAKABANK

ICBIBANK
IFIC

PREMIERBANK
EXIMBANK

PUBALIBANK
FIRSTSBANK

NBL

ONEBANKLTD

SHAHJABANK
BANKASIA

EBL

UTTARABANK
DUTCHBANGL

Interest Yield Industry Avg

Figure 22: Interest Yield

c) Net Spread(very similar to Net Profit Margin) is difference between borrowing and
lending rates. The net interest rate spread is a key determinant of a financial institution's
profitability. The greater the spread, the more profitable the financial institution is likely
to be; the lower the spread, the less profitable the institution is likely to be.

Net Spread Industry Avg

0.1
0.08
0.06
0.04
0.02
0
EXIMBANK

SIBL
BRACBANK

DUTCHBANGL
EBL

PREMIERBANK
PRIMEBANK

STANDBANKL
MTB

TRUSTBANK

UTTARABANK
ABBANK

NBL
BANKASIA

ISLAMIBANK

UCBL
ICBIBANK
IFIC

NCCBANK
ONEBANKLTD
ALARABANK

CITYBANK

FIRSTSBANK

JAMUNABANK
MERCANBANK
DHAKABANK

RUPALIBANK

SOUTHEASTB
PUBALIBANK

SHAHJABANK

-0.02
-0.04
-0.06
-0.08
-0.1

Figure 23: Net Spread

d) Net Profit per Branch- According to Net Profit per Branch, banks with higher profit
without any doubt is better.

Page 40 of 43
 Net Profit per Branch Industry Avg

40

Millions 20

0
ABBANK

CITYBANK

PRIMEBANK
BRACBANK

MTB

SOUTHEASTB
ISLAMIBANK

STANDBANKL

UCBL
MERCANBANK

PUBALIBANK
ALARABANK

EXIMBANK

NCCBANK

RUPALIBANK

SIBL

TRUSTBANK
DHAKABANK

FIRSTSBANK
ICBIBANK
IFIC

JAMUNABANK

NBL

PREMIERBANK
EBL

UTTARABANK
ONEBANKLTD

SHAHJABANK
BANKASIA

DUTCHBANGL
-20

-40
Figure 24: Net Profit per Branch

Integrated Table: All Bank Stocks

Here all bank stocks ratios have been put together and presented in a tabulated form. Finally,
Integrated table of Ratio Analysis has been portrayed. With the help of this table, general
investors get a guideline to sort out stocks which are fundamentally sound. Because those stocks
come through thorough-ratio analysis.

Yellow-cross boxes denoted the weakness in that particular ratio (underperformed compared to
the industry average) and Green-tick boxes indicated safe position (outperformed/almost evenly
balanced compared to industry average). Finally, weak spot in ratios of the respective banks are
identified and expressed the weaknesses in percentile. Undoubtedly, lower weakness is better
investment.

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Table 4: Unified Ratio Analysis

After incorporated all these ratios, it is preferred to choose those banks with lower weaknesses
(Fundamentally strong stocks) and they are:

DUTCHBANGLA (7.69%)
EBL (7.69%)
PRIMEBANK (7.69%)
Few more banks also might be chosen with little higher weaknesses (Fundamentally less strong
stocks) and they are:

EXIMBANK (15.38%)
ISLAMIBANK (15.38%)
JAMUNABANK (15.38%)
SIBL (15.38%)

Page 42 of 43
Concluding Remarks

6.0 Conclusion

Most of the Stock related portal likewise Stock Bangladesh follow both fundamental as well as
technical analysis. Technical analysis, the polar opposite of fundamental analysis, is not
concerned with a stock's intrinsic value, but instead looks at past market activity to determine
future price movements. Pure technical analysts couldn't care less about the intrinsic value of a
company or any other factors that preoccupy fundamental analysts. Technicians are concerned
with the trends implied by past data, charts and indicators, and they often make a lot of money
trading companies by knowing almost nothing about. Whereas a fundamental investor must
exercise a lot of patience and wait for the market to correct its undervaluation of a company.

Page 43 of 43
References

Abdullah, M. N., Parvez, K., & Khaled, M. (2012, September). Is the Stock Market Overvalued: A Study
in the Context of Bangladesh? Chittagong, Independent University, Bangladesh: Asian Business
Review.

Banerjee, P. K., & Siddique, M. M. (2010, June). Investment Climate in Bangladesh: Enhanced Role of
the Capital Market. Dhaka, Bangladesh: Economic Research Group.

Moazzem, K. G., & Rahman, M. T. (2012, March). Stabilising the capital market of Bangladesh. CPD
Working Paper.

Pentheny, G. (August 2009). Analysis of Stock Market Investment Strategies. WORCESTER: Interactive
Media and Game Development.

Sarker, M. M., & Nargis, N. (2012). Identifying the Critical Issues of Stock Market: A Study on Dhaka
Stock Exchange. Business Administration and Economics.

Xinat, S. Y. (August 23, 2015). Daily Stock Market Report. LankaBangla Security.

Campbell, John Y., and Robert J. Shiller (1998, 2001), Valuation Ratios and the Long-Run Market
Outlook: An Update. NBER Working Pa-per 8221, April 2001.

(2010). Bangladesh Economy in FY2009-10: An Interim Review of Macroeconomic Performance. Dhaka:

CPD.

Bangladesh Economy and Capital market Overview. (2015, January 27). Retrieved August 29, 2015

DSEBD. (n.d.). Retrieved August 10, 2015, from DSEBD.ORG: http://www.dsebd.org

(n.d.). Retrieved August 25, 2015, from e-nrb.com.

Investopedia. (n.d.). Retrieved September 1, 2015, from www.investopedia.com:

http://www.investopedia.com/technical/techanalysis

Lankabangla Portal. (n.d.). Retrieved August 29, 2015, from www.lankabangla.com.

Stockbangladesh. (n.d.). Retrieved August 23, 2015, from http://www.stockbangladesh.com:

http://www.stockbangladesh.com/grids/data_matrix2
 Appendix
Here are some examples taken from Stock Bangladesh website from Last week of August(5-working day)

STEP- 01 Market Composition

STEP- 02 Sector wise Gainer/Loser
STEP- 03 Sector Index
STEP- 04 Data Matrix
Summary of Work file: