FIN440

2019

SUBAH NASHWA (1812598030)

EHSAN MUNIRUS SALEHEEN (1812834030)
NAIMUR RAHMAN (1731898030)
AYESHA TASIN (1812331630)
MOHAMMAD MUNTASIR RAHMAN (1813632630)
Apex Foods and Golden Harvest
12/23/2019
 Apex Foods
PRO-FORMA AND EFN
All the relevant information for historical data and for structuring Pro forma from 2020-2024 are
gathered from the Audited Annual reports of 2015-2019 of Apex Foods Limited and the tax rate
was taken 27.5%

The Pro-forma Growth rates:

ASSUMPTIONS: Sales Growth -22.01%

COGS rate -22.01%
Operating Expense -22.01%
Tax Rate 27.50%
Divident payout ratio 97%
Retention ratio (for retained earnings) 3%
Worker's Fund 43.43%

Sales growth: It has been assumed to be a negative 22.01%. It was found by taking the average
of incremental sales of last years.

Cost of goods sold and operating expense rate: They are assumed to be the same rate as sales
growth. Hence due to a change in sales, the production, distribution and operational cost will also
change relative to the same amount as the sales. As a result administrative and selling overhead
will change when there is also a change in sales.

Dividend payout ratio has been directly taken from page-5 of the audited annual report 2019 of
Apex Foods. Hence the retention ratio was found by deducting the dividend payout ratio from
100%.

Provision for contribution to PPF and WF: Since it represents 5% of the net profit as
mentioned in note 39 of 2019’s annual report of Apex Foods, this component is expect to change
in the future. However no company policy has not been mentioned regarding this. Hence we
forecasted this component by taking the average of incremental changes of provision for
contribution to PPF and WF in percentage in order to predict a possible change of this
component.
Depreciation: Since no overall depreciation is not mentioned for the total amount of property,
plant and equipment, we will take the depreciation amount which was found in note 34 and 36 of

2019’s annual report and it will change according to the change in sales since it is related to
property, plant and equipment.

Current tax Deferred tax expense: Under note 40, it is stated they are the components which
relates to income tax. Hence they are expect to grow according to the tax rate of 27.5%.
Moreover current tax is an estimation of income tax expense

HISTORICAL DATA
Income Statement
2019 2018 2017 2016 2015
Revenue 1712669526 1922167738 1642772107 2031946945 2751779885
Cost of goods sold (1515615626) (1712436974) (1446964520) (1840425960) (2534570075)
GROSS PROFIT 318325075 209730764 195807587 191520985 217209810
Financial expenses (77313727) (85778333) (96935681) (96886161) (101765185)
Administrative & selling overhead (100982602) (9107315995) (94402363) (115435237) (168969980)
OPERATING EXPENSES: (178296329) (9193094328) (191338044) (212321398) (270735165)
Financial Income 21568662 19079429 0 0 0
Other operating income/(loss) 73 680 23990656 30566537 183855603
OPERATING PROFIT/(LOSS) 21568735 19080109 4469543 (20800413) (53525355)
PROFIT BEFORE PPF & WF 40326306 35716545 28460199 9766124 130330248
Provision for contribution to PPF & WF (1920300) (1785827) (1423010) (488306) (6516512)
PROFIT BERFORE TAX 38406006 33930718 27037189 9277818 123813736
Current tax (21299272) (23403275) (18777970) (19982054) (38787121)
Deferred tax (expenses)/income (5295687) (867520) 660309 (2524346) (184081)
Tax expenses: (26594959) (24270795) (18117661) (22506400) (38971202)
NET PROFIT/ (LOSS) AFTER TAX or Net Income 11811047 9659923 8919528 (13228582) 84842534
Other comprehensive income:
Fair valuation surplus/(deficit) during the year (78198760) 142605744 43830808 47817224 0
Deferred tax income/(expense) on share valuation surplus 7819876 (14260574) (4383081) (4781722) 0
Fair valuation surplus/(deficit) of investments (70378884) 128345170 39447727 43035502 (13006024)
TOTAL COMPREHENSIVE INCOME (58567837) 138005093 48367255 29806920 71836510
Basic Earning Per Share (EPS) 2.07 1.69 1.56 2.32 14.88

Sales Growth
2015 -92.84%
2016 -26.16%
2017 -19.15% Sales forecasting was done by
2018 17.01%
2019 -10.90% taking the average of incremental
Average -22.01%
sales from 2015-2019
Historical data has been imported for forecasting purposes and thus create a Pro-forma Income
statement for the next five years:
2019 2020 2021 2022 2023 2024
Revenue 1712669526 1335751672 1041784479 812512477.2 633697793.6 494235971.7
Cost of goods sold (1515615626) (1182064652) (921920318.4) (719027569.5) (560786692) (437370870.6)
GROSS PROFIT 3228285152 153687020.4 119864160.2 93484907.62 72911101.51 56865101.1
Financial expenses (77313727) (77313727) (77313727) (77313727) (77313727) (77313727)
Administrative & selling overhead (100982602) (78758731.57) (61425806.77) (47907446.74) (37364156.4) (29141193.71)
OPERATING EXPENSES: (178296329) (156072458.6) (138739533.8) (125221173.7) (114677883) (106454920.7)
Financial Income 21568662 21568662 21568662 21568662 21568662 21568662
Other operating income/(loss) 73 73 73 73 73 73
OPERATING PROFIT/(LOSS) 21568735 19183296.84 2693361.446 (10167531.12) (20198046.9) (28021084.62)
Depreciation 20156891 15720838.4 12261055.54 9562688.651 7458168.175 5816802.634
PROFIT BEFORE PPF & WF 40326306 34904135.24 14954416.99 (604842.4689) (12739878.7) (22204281.98)
Provision for contribution to PPF & WF (1920300) (2754193.817) (2148061.223) (1675324.005) (1306625.01) (1019067.905)
PROFIT BERFORE TAX 38406006 32149941.43 12806355.76 (2280166.474) (14046503.8) (23223349.89)
Current tax (21299272) 8841233.892 3521747.835 (627045.7803) (3862788.53) (6386421.219)
Deferred tax (expenses)/income (5295687) (6752000.925) (8608801.179) (10976221.5) (13994682.4) (17843220.08)
Tax expenses: (26594959) 2089232.967 (5087053.344) (11603267.28) (17857471) (24229641.3)
NET PROFIT/ (LOSS) AFTER TAX 11811047 34239174.39 7719302.42 (13883433.76) (31903974.7) (47452991.19)

The items which changes according to sales growth are: Revenue, cost of goods sold, Administrative &
selling overhead and Depreciation.

HISTORICAL DATA
Balance sheet
2019 2018 2017 2016 2015
Property, Plant and Equipment 88988280 103204859 113077574 131304818 155,016,900
Investments 331744610 409943370 267337626 223506818 175,689,594
Security Deposits 5414252 5414352 5118616 0 0
Total Non- Current Assets 426147242 518562581 385533816 354811636 330,706,494
Inventories 889149386 880408407 879429665 658163316 906,868,231
Trade Receivables 0 24577415 62374483 38621067 0
Advance, Deposits & Prepayments 48060310 45804763 39858786 26551657 139,965,723
Other Receivable 122397364 183263253 161028170 130296148 84,081,039
Investment in Financial Assets 187990415 212153262 0 0 0
Short term investments 0 0 224137880 326190639 0
Cash & Cash Equivalents 8339358 7413287 6138736 10875718 318,325,075
Total Current Assets 1255936832 1353620387 1372967720 1190698545 1,449,240,068
Total Assets 1682084074 1872182968 1758501536 1545510181 1,779,946,562
Share Capital 57024000 57024000 57024000 57024000 57,024,000
Share Premium 209088000 209088000 209088000 209088000 209,088,000
Reserve and Surplus 184853079 184446833 186191710 192815966 225,931,381
Fair valuation surplus of investment 257845465 328224349 199879179 160431452 130,439,944
Total Equity 708810544 778783182 652182889 619359418 622,483,325
Deferred Tax Liabilities 41015326 43539516 28411421 20549666 199,603
Long Term Loan 1692058 2380997 0 22500000 52,500,000
Total Non-Current Liabilities 42707384 45920513 28411421 43049666 52,699,603
Working capital loan (Secured) 744293057 762783215 768870623 712860848 794,270,004
Long term loan-current maturity 670848 593836 22500000 30000000 30,000,000
Short term loan 69610121 145343446 96450532 65871088 52,627,377
Trade Creditors 31650971 64708622 104521999 27740829 61,893,746
Other Payables 28479206 22923522 39356388 20428089 0
Sundry Creditors 0 0 0 0 24,688,471
Income tax payable 44702547 42181245 38760024 19982054 136,051,951
Other liabilities 11159396 8945387 7447660 6218189 5,232,085
Total Current Liabilities 930566146 1047479273 1077907226 883101097 1,104,763,634
Total Equity AND Liabilities 1682084074 1872182968 1758501536 1545510181 1,779,946,562
Debt to Equity Ratio 1.37 1.40 1.70 1.50 1.86
Equity ratio 0.43 0.43 0.38 0.41 0.36
Historical data has been imported for forecasting purposes and thus create a Pro-Forma Balance
Sheet for the next five years:
2019 2020 2021 2022 2023 2024
Property, Plant and Equipment 88988280 69404074.74 54129887.57 42217185.93 32926186.77 25679915.69
Investments 331744610 281644403.6 281644403.6 281644403.6 281644403.6 281644403.6
Security Deposits 5414252 4222703.827 3293387.084 2568590.868 2003305.071 1562425.242
Total Non- Current Assets 426147242 355271182.2 339067678.3 326430180.4 316573895.4 308886744.5
Inventories 889149386 693468740.4 540852753.8 421823918.3 328990500.3 256587511
Trade Receivables 0 0 0 0 0 0
Advance, Deposits & Prepayments 48060310 37483378.12 29234177.54 22800429.94 17782597.25 13869070.27
Other Receivable 122397364 95460613.46 74452001.45 58066885.59 45287744.27 35320988.21
Investment in Financial Assets 187990415 187990415 187990415 187990415 187990415 187990415
Short term investments 0 0 0 0 0 0
Cash & Cash Equivalents 8339358 70,218,435 70,218,435 70,218,435 70,218,435 70,218,435
Total Current Assets 1255936832 1084621582 902747782.6 760900083.6 650269691.6 563986419.2
Total Assets 1682084074 1439892764 1241815461 1087330264 966843587 872873163.8
Share Capital 57024000 57024000 57024000 57024000 57024000 57024000
Share Premium 209088000 209088000 209088000 209088000 209088000 209088000
Reserve and Surplus 184853079 184853079 184853079 184853079 184853079 184853079
Fair valuation surplus of investment 257845465 257845465 257845465 257845465 257845465 257845465
Total Equity 708810544 708810544 708810544 708810544 708810544 708810544
Deferred Tax Liabilities 41015326 41015326 41015326 41015326 41015326 41015326
Long Term Loan 1692058 1692058 1692058 1692058 1692058 1692058
Total Non-Current Liabilities 42707384 42707384 42707384 42707384 42707384 42707384
Working capital loan (Secured) 744293057 580491846.3 452739388.7 353102210.5 275392806.9 214785395.9
Long term loan-current maturity 670848 523210.3007 408064.1497 318258.9297 248217.704 193590.8873
Short term loan 69610121 69610121 69610121 69610121 69610121 69610121
Trade Creditors 31650971 24685344.6 19252687 15015628.21 11711045.35 9133722.63
Other Payables 28479206 22211609.69 17323362.34 13510902.05 10537473.65 8218426.169
Sundry Creditors 0 0 0 0 0 0
Income tax payable 44702547 34864578.95 27191713.82 21207463.93 16540205.2 12900099.18
Other liabilities 11159396 11159396 11159396 11159396 11159396 11159396
Total Current Liabilities 930566146 743546106.9 597684733.1 483923980.6 395199265.8 326000751.8
Total Equity AND Liabilities 1682084074 1495064035 1349202661 1235441909 1146717194 1077518680

NON-CURRENT ASSESTS:Property. Plant and equipment and security deposit will increase
as the same rate as sales since they directly affects sales. Even though they stated in their future
plan about training workers and selling products with more added value along with an attempt to
increase their market share by exploring new markets, they have not stated a specific time-frame
about when all this implementations are going to take place. It is also unclear what kind of shares
they are going to invest in and what are the returns. So Investment was changed by the average
of last five years.

CURRENT ASSETS: Inventories, trade & other receivables, Advance deposits and payments
have increased by sales growth rate since they directly change according to the change in sales.
Other items under this section got no clear company policy. Hence the average of last 5 years
was taken throughout.

EQUITY: Share capital has been kept constant as it depends on public offerings and share
premium was also kept constant as it depends on board of directors. Fair valuation surplus of
investment and reserve and surplus were also kept the same as last year as there is no clear
company policy regarding managing them.

All the items under non-current liabilities will be the same as 2019 since no concrete
statements has been given by the company on how they will handle them.

CURRENT LIABILTIES: Working capital loan will increase according to sales growth as
Apex foods operating related activities directly affects sales. Long term loan- current maturity
will also increase with sales growth as they do use long-term loan to finance their company.
Trade creditors and other payables will increase according to sales growth too. Also when sales
increase tax payable increases too. There is no clear statement about what other liabilities are.
Hence it is kept same as 2019.
2020 2021 2022 2023 2024
Financing from debt -33010222.27 -64252196.67 -88618555.1 -107622457.2 -122444052.2
Financing from equity -22161048.62 -43135003.53 -59493089.5 -72251149.57 -82201463.86
EFN -55171270.88 -107387200.2 -148111644.6 -179873606.8 -204645516

The EFN calculations comes negative which indicates possible surplus. In realistic situations,
Apex Foods will not require any external financing in the next 5 years since negative EFN also
means Apex foods ability to pay off their existing debts. Also in page 23 of 2019’s annual report,
it is stated Apex foods goes for own fund based financing which can also indicate that they are
not entirely dependent on long-term loans and other sorts of equities to fund their company.
However for theoretical approach and for the purpose of our project, we calculated the EFN to 0
with average debt and equity ratios of last 5 years:
Debt Ratio 0.60 Debt to equity ratio is kept constant to maintain capital structure.
Equity Ratio 0.40 LONG TERM LOAN from non-current assets and SHARE CAPITAL from equity section has been changed.
 2020 2021 2022 2023 2024
Total Assest 1439892764 1241815461 1087330264 966843587 872873164
EFN for equity Share Capital 34862951.38 13888996.5 -2469089.5 -15227149.6 -25177464
Share Premium 209088000 209088000 209088000 209088000 209088000
Reserve and Surplus 184853079 184853079 184853079 184853079 184853079
Fair valuation surplus of investment 257845465 257845465 257845465 257845465 257845465
Total Equity 686649495.4 665675540 649317454 636559394.4 626609080
Deferred Tax Liabilities 41015326 41015326 41015326 41015326 41015326
EFN for debt Long Term Loan -31318164.27 -62560138.7 -86926497.1 -105930399 -120751994
Total Non-Current Liabilities 9697161.733 -21544812.7 -45911171.1 -64915073.2 -79736668
Working capital loan (Secured) 580491846.3 452739389 353102210 275392806.9 214785396
Long term loan-current maturity 523210.3007 408064.15 318258.93 248217.704 193590.887
Short term loan 69610121 69610121 69610121 69610121 69610121
Trade Creditors 24685344.6 19252687 15015628.2 11711045.35 9133722.63
Other Payables 22211609.69 17323362.3 13510902.1 10537473.65 8218426.17
Sundry Creditors 0 0 0 0 0
Income tax payable 34864578.95 27191713.8 21207463.9 16540205.2 12900099.2
Other liabilities 11159396 11159396 11159396 11159396 11159396
Total Current Liabilities 743546106.9 597684733 483923981 395199265.8 326000752
Total Equity AND Liabilities 1439892764 1241815461 1087330264 966843587 872873164
EFN 0 0 0 0 0
New Debt to Equity Ratio 1.097 0.865 0.675 0.519 0.393
CAPITAL ASSET PRICING MODEL AND WACC
The closing stock price and the returns of both Apex foods and DSEX has been taken from
investing.com. T-bill rate of 91 days has been taken from Bangladesh Bank website. The market
risk premium has been taken from the research published by Aswath Damodaran on “Country
Default Spreads and Risk Premiums” in his nyu site. The number of share and the Market price
has been taken from DSE website.

Covariance 0.00096265
Variance 0.00193908
Beta 0.49644760
Slope 0.49644760

Beta is 0.496. It means if the market gains/lose 1 taka, Apex Foods will gain/lose 0.4964 tk.

A beta (0.496) < 1 implies the Apex Foods has less systematic risk than the overall market
Regression analysis was conducted in order to ensure we calculated the correct beta’s value

Coefficients
Intercept 0.011714139
X Variable 1 0.496447604

Market Risk premium= Rm-Rf, CAPM=Rf+Beta*(Market Risk Premium)

Market Risk Premium -1.39%
CAPM 6.37%

The overall calculation of market risk premium of last 5 years comes negative and the value is
really small.

A negative market risk means the assest is risky. As no company will ever
invest in a risky asset, we will calculate CAPM with the value of market risk premium
found in http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/ctryprem.html
Market Risk Premium 10.96%
Revised CAPM 12.13%

Interest 71280260
Long term debt 816266084
before tax cost of debt 9%

Interest expense was given in note 38 of 2019’s annual report. Long term debt was found by
adding long-term loan, working capital loan, short term loan and current maturity of long-term
loan. Their notes can be found in page 56 and 57 respectively of 2019’s annual report. The
respective items were taken as no clear explanation was given on which are the exact amounts of
long-term debt.

According to Investopedia: “A firm's WACC is the overall required return for a firm. Because of
this, company directors will often use WACC internally in order to make decisions, like
determining the economic feasibility of mergers and other expansionary opportunities.”

The WACC for Apex Foods is 8.78%. It means if Apex Foods wants an additional 1TK, on
average they have to pay a return of 8.78% to investors.
DCF VALUATION
Free Cash Flow (FCF) for 2020-2024 was calculated using the formula:

FCF = OCF – Capital Expenditure – Change in NWC

Or, FCF = (EBIT + Depreciation – Tax) – Capital Expenditure-Change in NWC

Enterprise value of 2022 was determined. It is used to measure company’s performance to some
extent.The formula of enterprise value:

Enterprise value = Market Capital + Total Debt + Total Cash

Where, Market Capital = Total Shares Outstanding x Stock Price

The WACC was calculated before. Using that WACC, all the Free Cash Flows of each year and
the enterprise value was discounted to 2019

After that, all the discounted values were added together to find the value of the company.

Value of company = Discounted Enterprise value + Discounted FCFs

To calculate the current intrinsic value of a stock, find the company's average historical P/E ratio
and multiply by the projected earnings per share.

Intrinsic Value = P/E Ratio X Earnings Per Share

-No. of ordinary shares outstanding was taken from page 63 of 2019’s annual report

Intrinsic value being higher than market stock price means there is weak investment demand,
resulting in possible undervaluation of the company.

Negative FCF implies Apex Foods is actually taking advantage of niche market of black tiger
shrimp in Bangladesh. They did stated in page 23 of 2019’s annual report about adopting modern
technologies shrimp farming. Hence it is likely they had taken loan in previous years which
might also be the reason of capital expenditure having quite higher value. Moreover, they are
providing training to workers and continues to do so to increase efficiency and meet international
standards. Hence to meet international standards, they might have taken up loan to train them
with high-standard equipment and tools.
 GOLDEN HAVEST
PRO-FORMA AND EFN
All the relevant information for historical data and for structuring Pro forma from 2020-2024 are
gathered from the Audited Annual reports of 2015-2019 of Golden Harvest Foods Limited and
the tax rate was taken 27.5%

The Pro-forma Growth rates:

Pro-Forma Growth Rates

Sales growth 43.56%
Costs of goods sold/Sales 43.56%
Operating expense 43.56%
Tax rate 27.50%
Contribution to workers' profit participation fund 28.85%
Rentention Ratio 33.00%

Sales growth: It has been assumed to be a negative 43.56%. It was found by taking the average
of incremental sales of last years.

Cost of goods sold and operating expense rate: They are assumed to be the same rate as sales
growth. Hence due to a change in sales, the production, distribution and operational cost will also
change relative to the same amount as the sales. As a result administrative and selling overhead
will change when there is also a change in sales.

Dividend payout ratio has been directly taken investing.com which is 67%. Hence the retention
ratio was found by deducting the dividend payout ratio from 100%.

Provision for contribution to PPF and WF: No company policy has not been mentioned
regarding this. Hence we forecasted this component by growing it with the worker’s fund growth
rate.

Depreciation: Since no overall depreciation is not mentioned for the total amount of property,
plant and equipment, we will take the depreciation amount which was found in note 18A of
2019’s annual report and it will change according to the change in sales since it is related to
property, plant and equipment.

Income tax expense: It is expect to grow according to the tax rate of 27.5%.
Non-controlling interest is only given for 2018 and 2019. There is no company policy regarding
tis. Hence will take 22019’s value and keep it same throughout the forecasted years.

HISTORICAL DATA:
Income Statement 2019 2018 2017 2016 2015
Sales 2,240,120,323 1,870,954,629 626,923,856 624,438,657 520,563,813
Cost of goods sold (1229082581) (1034189476) (321120596) (320284720) (266945082)
Gross Profit 1,011,037,742 836,765,153 305,803,260 304,153,937 253,618,731
Operating Expenses (319463440) (258058135) (95913058) (97489945) (89257976)
Fair value adjustments of biological assets 18,072,083 13,657,758
Other operating income 63,723,132 48,610,260 22,852,281 14,674,032 50,404,368
Operating Profit 773,369,517 640,975,036 232,742,483 221,338,024 214,765,123
Finance Income 6,483,206 1,819,962 168,940 385,895 5,824,435
Finance Cost (433525364) (298081582) (94481337) (90840300) (105632793)
Net Profit from operation 346,327,359 344,713,416 138,430,086 130,883,619 114,956,765
Provision for worker's profit participation fund (16495001) (16642721) (6589272) (6230060) (5471942)
Net Profit before tax and share of non-consolidated companies 329,832,358 328,070,695 131,840,814 124,653,559 109,484,823
Share of profit/(loss) from associates 300,000
Income Tax expenses (73580877) (106362765) (15392671) (9988949) (17617161)
Net Profit after tax 256,251,481 221,707,930 116,448,143 114,664,610 91,867,662
Non controlling interest (13412370) 1,164,716
Net profit after tax attributable to ordinary shareholders 242,839,111 222,872,646 116,448,143 114,664,610 91,867,662
Other comprehensive income
Share of profit from subsidiary 70,597,693 64,403,385 9,167,750
Total comprehensive income 242,839,111 222,872,646 187,045,836 179,067,995 101,035,412
Number of share used to calculate EPS 119,909,790 119,909,790 99,099,000 90,090,000 81,900,000
EPS 2 2 1 1 1

Historical data has been imported for forecasting purposes and thus create a Pro-forma Income
statement for the next five years:
 Income Statement 2019 2020 2021 2022 2023 2024
Sales 2,240,120,323 3215901284 4616725701 6627739572 9514737214 13659291116
Cost of goods sold (1229082581) (1764462476) (2533050159) (3636429336) (5220432873) (7494417423)
Gross Profit 1,011,037,742 1451438809 2083675542 2991310236 4294304342 6164873692
Operating Expenses (319463440) -458619510.9 -658391006.5 -945181588 -1356896168 -1947950779
Fair value adjustments of biological assets 18,072,083 18,072,083 18,072,083 18,072,083 18,072,083 18,072,083
Other operating income 63,723,132 63,723,132 63,723,132 63,723,132 63,723,132 63,723,132
Operating Profit 773,369,517 1074614513 1507079751 2127923863 3019203389 4298718128
Finance Income 6,483,206 6,483,206 6,483,206 6,483,206 6,483,206 6,483,206
Depreciation 4,626,810 6642216.522 9535520.223 13689127.06 19652016.38 28212299.17
Finance Cost (433525364) (433525364) (433525364) (433525364) (433525364) (433525364)
Net Profit from operation 350,954,169 652199164.7 1080037593 1700881705 2592161231 3871675970
Provision for worker's profit participation fund (16495001) -21253474.9 -28267121.62 -37595271.8 -50001711.44 -66502276.21
Net Profit before tax and share of non-consolidated companies 334,459,168 630945689.8 1051770471 1663286434 2542159520 3805173694
Share of profit/(loss) from associates
Income Tax expenses (73580877) 804455754.5 1341007351 2120690203 3241253388 4851596460
Net Profit after tax 260,878,291 1435401444 2392777822 3783976636 5783412907 8656770154
Non controlling interest (13412370) (13412370) (13412370) (13412370) (13412370) (13412370)
Net profit after tax attributable to ordinary shareholders 247,465,921 1421989074 2379365452 3770564266 5770000537 8643357784

HISTORICAL DATA
Balance Sheet 2019 2018 2017 2016 2015

Property plant and equipment 3,965,751,209 3,747,437,696 3,111,515,064 2,646,078,977 2,043,007,481

Leased Assets 103,129,286 85,121,706 73,782,335 57,567,310 25,179,884
Intangible Assets 82,205,517 87,126,754 92,291,793 57,896,652 12,379,666
Biological Assets 102,260,141 80,473,506 78,293,068 74,887,804
Capital Work-in-progress 480,138,313 480,138,313 613,618,985 737,137,698 669,487,697
Investment in associates 15,300,000
Total Non-Current Assets 4,748,784,466 4,401,534,806 3,969,501,245 3,573,568,441 2,750,054,728
Inventories 907,889,197 593,936,105 449,612,024 320,478,072 251,548,833
Trade and other receivables 1,058,693,308 1,165,937,448 1,149,976,495 622,758,844 230,130,164
Advances,Deposits and Prepayments 662,956,578 425,313,225 338,074,273 493,053,645 676,538,313
Cash and cash equivalents 370,122,926 14,528,227 74,064,704 34,531,612 98,292,175
Total Current Assets 2,999,662,009 2,199,715,005 2,011,727,496 1,470,822,173 1,256,509,485
Total Assets 7,748,446,475 4,401,534,806 5,981,228,741 5,044,390,614 4,006,564,213

Share capital 1,199,097,900 1,090,089,000 990,990,000 900,900,000 819,000,000

Share premium 28,668,154 137,667,054 236,776,054 326,866,054 408,766,054
Revaluation surplus 219,946,668 283,316,706 278,351,144 283,331,524 303,525,145
Retained earnings 951,631,139 920,797,701 693,397,688 499,493,608 313,605,166
Non-controlling Interest 844,138,981 6,442,044 7,506,750 9,213,602 12,440,400
Total Equity 3,243,482,842 2,438,222,505 2,207,021,636 2,019,804,788 1,857,336,765
Long-Term Loan 1,942,464,852 2,038,263,200 1,507,224,829 1,122,438,336 1,019,563,390
Deferred Tax Liability 256,689,455 223,584,535 199,314,341 162,532,888 153,546,358
Lease Obligation 25,855,925 31,201,753 42,488,979 34,605,096 5,550,753
Total Non-Current Liabilities 2,225,010,232 2,293,049,488 1,749,028,149 1,319,576,320 1,178,660,501
Account and other payables 84,317,316 120,132,335 89,239,865 185,168,043 96,319,442
Accruals and provisions 310,280,515 260,669,841 223,406,265 220,980,557 217,506,265
Short term Loans 1,225,486,192 1,043,722,703 1,435,548,926 1,064,755,756 514,461,293
Current portion of Long-term loans 633,191,796 420,462,647 263,120,757 224,861,349 139,948,048
Current portion of Lease obligations 25,677,582 24,990,293 13,863,143 9,243,801 2,331,898
Total Current Liabilities 2,279,953,401 1,869,977,818 2,025,178,956 1,705,009,506 970,566,946
Total Equity and Liabilities 7,748,446,475 6,601,249,811 5,981,228,741 5,044,390,614 4,006,564,213
Debt to Equity Ratio 1.39 1.71 1.71 1.50 1.16
Equity Ratio 0.593121871 0.515341859 0.557885203 0.604844048 0.611771554
Sales forecasting was done by taking the average of incremental sales from 2015-2019

Sales Growth
2015 -20.72%
2016 19.95%
2017 0.40%
2018 198.43%
2019 19.73%
Average 43.56%

Historical data has been imported for forecasting purposes and thus create a Pro-Forma Balance
Sheet for the next five years:
Balance Sheet 2019 2020 2021 2022 2023 2024

Property plant and equipment 3,965,751,209 5693205081 7571962758 10070710468 13394044923 17814079747
Leased Assets 103,129,286 103,129,286 103,129,286 103,129,286 103,129,286 103,129,286
Intangible Assets 82,205,517 82,205,517 82,205,517 82,205,517 82,205,517 82,205,517
Biological Assets 102,260,141 102,260,141 102,260,141 102,260,141 102,260,141 102,260,141
Capital Work-in-progress 480,138,313 480,138,313 480,138,313 480,138,313 480,138,313 480,138,313
Investment in associates 15,300,000 15,300,000 15,300,000 15,300,000 15,300,000 15,300,000
Total Non-Current Assets 4,748,784,466 6,476,238,338 8,354,996,015 10853743725 14,177,078,180 18,597,113,004
Inventories 907,889,197 1303359469 1871093863 2686129444 3856188902 5535918189
Trade and other receivables 1,058,693,308 1,519,852,810 2,181,890,211 3132306537 4,496,717,660 6,455,456,855
Advances,Deposits and Prepayments 662,956,578 951735890.5 1366305480 1961458722 2815856612 4042424330
Cash and cash equivalents 370,122,926 118,307,929 118,307,929 118,307,929 118,307,929 118,307,929
Total Current Assets 2,999,662,009 3,893,256,099 5,537,597,483 7898202633 11,287,071,103 16,152,107,304
Total Assets 7,748,446,475 10,369,494,437 13,892,593,498 18751946358 25,464,149,283 34,749,220,308

Share capital 1,199,097,900 1,199,097,900 1,199,097,900 1199097900 1,199,097,900 1,199,097,900

Share premium 28,668,154 28,668,154 28,668,154 28,668,154 28,668,154 28,668,154
Revaluation surplus 219,946,668 219,946,668 219,946,668 219,946,668 219,946,668 219,946,668
Retained earnings 951,631,139 1,265,669,415 1,683,340,322 2,238,842,628 2,977,660,695 3,960,288,725
Non-controlling Interest 844,138,981 844,138,981 844,138,981 844,138,981 844,138,981 844,138,981
Total Equity 3,243,482,842 3,557,521,118 3,975,192,025 4530694331 5,269,512,398 6,252,140,428
Long-Term Loan 1,942,464,852 1,942,464,852 1,942,464,852 1942464852 1,942,464,852 1,942,464,852
Deferred Tax Liability 256,689,455 256,689,455 256,689,455 256,689,455 256,689,455 256,689,455
Lease Obligation 25,855,925 25,855,925 25,855,925 25,855,925 25,855,925 25,855,925
Total Non-Current Liabilities 2,225,010,232 2,225,010,232 2,225,010,232 2225010232 2,225,010,232 2,225,010,232
Account and other payables 84,317,316 121045357.3 173771880 249465712.2 358131255.8 514130760.5
Accruals and provisions 310,280,515 310,280,515 310,280,515 310,280,515 310,280,515 310,280,515
Short term Loans 1,225,486,192 1,225,486,192 1,225,486,192 1225486192 1,225,486,192 1,225,486,192
Current portion of Long-term loans 633,191,796 909,005,775 1,304,962,420 1,873,395,049 2,689,433,011 3,860,931,480
Current portion of Lease obligations 25,677,582 25,677,582 25,677,582 25,677,582 25,677,582 25,677,582
Total Current Liabilities 2,279,953,401 2,591,495,421 3,040,178,589 3684305051 4,609,008,556 5,936,506,529
Total Equity and Liabilities 7,748,446,475 8,374,026,771 9,240,380,846 10440009614 12,103,531,186 14,413,657,189

NON-CURRENT ASSESTS: Property. Plant and equipment and security deposit will increase
as the same rate as sales since they directly affects sales. It is also unclear what kind of shares
they are going to invest in and what are the returns. So Investment was changed by the average
of last five years. So investment in associates with other items under this section, it was kept
constant (taking 2019’s value) throughout the forecasting of next 5 years since no clear company
policy is given regarding them.
CURRENT ASSETS: Inventories, trade & other receivables, Advance deposits and payments
have increased by sales growth rate since they directly change according to the change in sales.
Cash and cash equivalents got no clear company policy. Hence the average of last 5 years was
taken and kept constant for the forecasting years.

EQUITY: Share capital has been kept constant as it depends on public offerings and share
premium was also kept constant as it depends on board of directors. Retained earnings will
change according to retention ratio. Other items will be kept the same as last year as there is no
clear company policy regarding managing them.

All the items under non-current liabilities will be the same as 2019 since no concrete
statements has been given by the company on how they will handle them.

CURRENT LIABILTIES: Current portion of Long term loan will increase with sales growth as
they do use long-term loan to finance their company. Accounts and other payables will increase
according to sales growth too. There is no clear company policy stated about other items. Hence
they will be kept same as 2019 forecasting years.
EFN
1,995,467,666 4,652,212,652 8311936745 13,360,618,097 20,335,563,119
Financing from debt 844895163.8 1969779836 3519332975 5656980470.11 8610221666
Financing from equity 1150572502 2682432817 4792603770 7703637627 11725341452.80
EFN 1995467666 4652212652 8311936745 13360618097 20335563119

The EFN calculations comes positive which indicates possible deficit. It indicates that Golden
Harvest Foods ltd. will require any external financing in the next 5 years since positive EFN also
means Golden Harvest not being able to pay off their existing debts. Since no clear statement is
given in their latest annual report, we will finance the extra amount through the combination of
long term debt and equity. Debt to equity ratio is kept constant to maintain capital structure.
Long-term loan and share capital will be changed.
Equity 0.58
Debt 0.42
 Balance Sheet After Enternal Financing
2020 2021 2022 2023 2024

Total Assets 10,369,494,437 13,892,593,498 18751946358 25,464,149,283 34749220308

Share capital (equity financing) 2,349,670,402 3,881,530,717 5,991,701,670 8,902,735,527 12924439353
Share premium 28,668,154 28,668,154 28,668,154 28,668,154 28,668,154
Revaluation surplus 219,946,668 219,946,668 219,946,668 219,946,668 219,946,668
Retained earnings 1,265,669,415 1,683,340,322 2,238,842,628 2,977,660,695 3,960,288,725
Non-controlling Interest 844,138,981 844,138,981 844,138,981 844,138,981 844,138,981
Total Equity 4,708,093,620 6,657,624,842 9,323,298,101 12,973,150,025 17977481880

Long-Term Loan(debt financing) 2787360016 3912244688 5461797827 7599445322 10552686518

Deferred Tax Liability 256,689,455 256,689,455 256689455 256,689,455 256689455
Lease Obligation 25,855,925 25,855,925 25,855,925 25,855,925 25,855,925
Total Non-Current Liabilities 3,069,905,396 4,194,790,068 5,744,343,207 7,881,990,702 10835231898
Account and other payables 121,045,357 173,771,880 249465712.2 358,131,256 514130760.5
Accruals and provisions 310,280,515 310280515 310280515 310280515 310280515
Short term Loans 1,225,486,192 1,225,486,192 1,225,486,192 1,225,486,192 1,225,486,192
Current portion of Long-term loans 909,005,775 1,304,962,420 1873395049 2689433011 3,860,931,480
Current portion of Lease obligations 25,677,582 25,677,582 25,677,582 25,677,582 25,677,582
Total Current Liabilities 2,591,495,421 3,040,178,589 3,684,305,051 4,609,008,556 5,936,506,529
Total Equity and Liabilities 10,369,494,437 13,892,593,498 18751946358 25,464,149,283 34749220308
EFN 0 0 0 0 0
New Debt to Equity Ratio 1.20 1.09 1.01 0.96 0.93

CAPITAL ASSET PRICING MODEL AND WACC

The closing stock price and the returns of both Golden Harvest and DSEX has been taken from
investing.com. T-bill rate of 91 days has been taken from Bangladesh Bank website. The market
risk premium has been taken from the research published by Aswath Damodaran on “Country
Default Spreads and Risk Premiums” in his nyu site. The number of share and the Market price
has been taken from DSE website.

Covariance 0.00317
Variance 0.00194
Beta 1.63364
Slope 1.63364

According to Investopedia: “The beta calculation is used to help investors understand whether a
stock moves in the same direction as the rest of the market, and how volatile or risky it is
compared to the market.”

Beta is 1.63. It means if the market gains/lose 1 TK, Golden Harvest will gain/lose 1.63TK

A Beta of 1.63 indicates that the security's price is theoretically more volatile than the market.

Regression analysis was conducted in order to ensure we calculated the correct beta’s value

Coefficients
Intercept 0.009067946
X Variable 1 1.633643543
Market Risk premium= Rm-Rf, CAPM=Rf+Beta*(Market Risk Premium)

Market Risk Premium 5.33%

CAPM 9.95%

The overall calculation of market risk premium of last 5 years is quite small.

For a more reliable result,

we will calculate CAPM with the value of market risk premium
found in http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/ctryprem.html
Market Risk Premium 10.96%
Revised CAPM 24.59%

Interest Expense 299753388

Long Term Debt 1,942,464,852
Before Tax Cost of Debt 15%

Interest expense was found by adding up the necessary items given in note 33 of 2019’s annual
report. Long term debt was taken directly from Balance Sheet of latest year.

According to Investopedia: “A firm's WACC is the overall required return for a firm. Because of
this, company directors will often use WACC internally in order to make decisions, like
determining the economic feasibility of mergers and other expansionary opportunities.”

The WACC for Golden Harvest is 15.45%. It means if Golden Harvest wants an additional 1TK,
on average they have to pay a return of 15.45% to investors.
DCF VALUATION
Free Cash Flow (FCF) for 2020-2024 was calculated using the formula:

FCF = OCF – Capital Expenditure – Change in NWC

Or, FCF = (EBIT + Depreciation – Tax) – Capital Expenditure-Change in NWC

Enterprise value of 2022 was determined. It is used to measure company’s performance to some
extent.

The formula of enterprise value:

Enterprise value = Market Capital + Total Debt + Total Cash

Where, Market Capital = Total Shares Outstanding x Stock Price

The WACC was calculated before. Using that WACC, all the Free Cash Flows of each year and
the enterprise value was discounted to 2019

After that, all the discounted values were added together to find the value of the company.

Value of company = Discounted Enterprise value + Discounted FCFs

To calculate the current intrinsic value of a stock, find the company's average historical P/E ratio
and multiply by the projected earnings per share.

Intrinsic Value = P/E Ratio X Earnings Per Share

The FCF is negative. Their latest annual report didn’t provide any additional information
regarding their future plans or no statements were published about how they are going to
avail for any sort of research and development projects. Hence no concrete comment
cannot be given. It can only be assumed they took significant amount of loans for some
future investments that they have not disclosed to the public.

Sites used for information sourcing

https://www.investing.com/
https://www.investopedia.com/

https://www.dsebd.org/

https://bb.org.bd/

http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/ctryprem.html

https://www.apexfoods.com/

http://www.goldenharvestbd.com/reports/

https://smallbusiness.chron.com/
APPENDIX