Term Paper On

Company Valuation & Bankruptcy

Prediction of Matin Spinning Mills
Limited

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 Term Paper
Course Name: Financial Analysis and Control (B-403)

Submitted To:
Aftab Uddin Mahmud Chowdhury
Assistant Professor

Department of Banking and Insurance

Faculty of Business Studies

University of Dhaka

Submitted By: Group 13

Name ID No.
ShomailaNargisSaika 22-065
JarinTasnimArnika 22-067
Md. Abdul Mazid 22-097
MasumaBinteSakhawat 22-101
SaimaAlamNadi 22-139

4th Year 1st Semester

Department of Banking and Insurance

Faculty of Business Studies

University of Dhaka

Submission Date: July 20, 2019

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 Letter of Transmittal

July 20, 2019

Aftab Uddin Mahmud Chowdhury

Course Teacher of

Financial Analysis and Control

Department of Banking and Insurance,

Faculty of Business Studies,

University of Dhaka

Subject: Submission of term paper on “Company Valuation & Bankruptcy Prediction of

Matin Spinning Mills Limited.”

Honorable Sir,

With due respect and humble submission, we would like to inform you that we are the
students of department of banking and insurance, 22nd batch, section-B.

Here is the report that we prepared on company valuation and bankruptcy prediction of Matin
Spinning Mills Ltd. of Bangladesh. We are grateful to all those persons who gave us
important information related to the term paper. We would be happy if you go through our
term paper and we have tried our best to answer all the necessary questions that you may
have about this.

We hope that you will find the term paper satisfactory.

Sincerely Yours

On behalf of the group members

Shomaila Nargis Saika

ID No. 22-065

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 Acknowledgement

First of all we express our gratitude to ALLAH the Almighty, who aided us with his strength,
gave us wisdom and patience to complete this term paper. Additionally, we thank our course
instructor Aftab Uddin Mahmud Chowdhury Sir who believed that we could terminate this
term paper on time. His moral guidelines, endless effort, and joyful encouragement made us
successful in this paper. Furthermore, we want to show our appreciation to each and
individuals who conveyed much important information related to the term paper. Moreover,
we are also thankful to our classmates, group members, and friends for their helps and
supports. At last, we thank to our parents and other family members for their helps, supports
and sacrifices during the study period.

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Table of Contents
Letter of Transmittal..........................................................................................................................3
Acknowledgement.............................................................................................................................4
Executive Summary...........................................................................................................................6
Chapter-1...........................................................................................................................................7
Introduction.......................................................................................................................................7
Chapter 02.........................................................................................................................................9
Methodology.....................................................................................................................................9
Chapter 03.......................................................................................................................................10
Company Profile..............................................................................................................................10
Chapter 04.......................................................................................................................................11
Analysis............................................................................................................................................11
4.1 Prospective Analysis of Matin Spinning Mills Ltd.:.....................................................................11
4.2 Ratio Analysis of MSML.............................................................................................................15
4.3 Valuation of Matin Spinning Mills Ltd.:......................................................................................19
4.4 Prediction of Financial Distress..................................................................................................23
Chapter 04.......................................................................................................................................28
Findings...........................................................................................................................................28
Chapter 05.......................................................................................................................................29
Conclusion.......................................................................................................................................29
References.......................................................................................................................................30

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 Executive Summary

The term paper works as a bridge between theoretical knowledge and the real life experience.
It focuses on valuation and bankruptcy prediction of a manufacturing company named Matin
Spinning Mills Ltd. The main objective of the term paper is to prepare prospective analysis
for the forecasting 5 years of the company and to calculate the value of the co. using residual
income model and to predict the bankruptcy possibility of the co. using Altman’s Z-score
model. We have also compared the intrinsic value per share with the market share of the
company. The term paper also includes the ratio analysis of the forecasting years of the
company.

Prospective analysis is the forecasting of the future financial information. This involves the
analysis of past data and forecasting of financial statements. This report provides an analysis
and evaluation of the current and prospective profitability, liquidity and financial stability of
Matin Spinning Mills Ltd.

Methods of analysis include trend, horizontal and vertical analyses as well as ratios such as
Debt, Current and profitability ratios etc. Other calculations include rates of return on
Shareholders’ Equity and Total Assets and earnings per share to name a few. All calculations
can be found in the appendices. Results of data analyzed show that all ratios are below
industry averages. In particular, comparative performance is poor in the areas of profit
margins, liquidity, credit control, and inventory management.

We have given a short description about the manufacturing company of Bangladesh. The
financial statement ratios were calculated using formula and the annual reports. The valuation
of the company is done by using Residual income model. The term paper provides how to
calculate the Altman Z score to measure possibility of bankruptcy. It is considered as one of
the most well-known model of financial distress. We have also provided our major findings
during the making of the term paper.

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 Chapter-1

Introduction

Origin of the Study:

This report has been made as a part of our course Financial Analysis and Control (B 403),
Mr. Aftab Uddin Mahmud Chowdhury Sir has assigned us this report in order to gain some
practical knowledge about how to calculate the value of the company and predict the
bankruptcy possibility of a company. The perspective of such a report is to make us familiar
with the key factors of security market and performance analysis that shows the position of
the company. For this purpose we have chosen the annual report of Matin Spinning Mill
Limited, and tried to analyze and understand the components according to our best effort.

Prospective analysis is the final step in the financial statement analysis process. It can only
be undertaken after the historical financial statements have been properly
adjusted to accurately reflect the economic performance of the company. Prospective
analysis is central to security valuation. The residual income model for example
requires projections of future net profits and book values of equity in order to
estimate stock prices. We can also analyze whether the current strategic plans
will yield the benefits forecasted by management. Thirdly, prospective analysis can
be used by creditors to assess the ability of a company to service its debts.

Ratio analysis is the most popular and widely used tools of financial analysis. The ratios are
the tolls to provide us with insights into underlying conditions. Ratios often are most useful
when they are future oriented. Ratio analysis is applied three important areas of financial
statement analysis - credit analysis, profitability analysis and valuation.

Objective of the Study:

Broad objective: The objective is to find out the value of the company and measure
the possibility of bankruptcy.

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 Specific objectives: Objectives of the study is to:

 Past Performance and Current Position Assessment.

 Prediction of Net Income and Judging the Growth.
 Perform ratio analysis to find out the underlying conditions of the company.
 Prediction of the Bankruptcy possibility of the company.
 Help Stakeholders and other users to make Economic Decisions.

Scope of the Study:

During the term paper work, we had disadvantages to collect huge knowledge about the
company activities and procedures followed by the Matin Spinning Mills Ltd. Moreover due
to time and resource constraints this term paper will be confined within some specific
analysis.

Limitations of the Study:

 The major obstacle of the study is lack of information which was required for the
study. There is a lot of information, the company can't provide for their security and
other corporate obligations.
 Due to limitations of time some areas of financial analysis could not be covered in the
term paper.
 Due to lack of experience we have faced some problems like: coordination problem.
 We faced difficulties to find information because the information was not in a place.

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 Chapter 02

Methodology

The company that is selected for preparing the term paper is Matin Spinning Mills Ltd. It is
selected as it one of the most well-known listed companies of Dhaka Stock Exchange.
Moreover, it was slightly easier for us to accumulate the necessary information related to the
company and our calculations.

Data sources:

We have collected data from

 Annual report of Matin Spinning Mills Ltd.

 Financial report and website of Matin spinning mill Ltd.
 Dhaka Stock Exchange (DSE) .
 Prospectus of the company

Data Collection Mechanism:

We have gone through a focused group discussion to get the accurate result of our
prospective analysis.

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 Chapter 03
Company Profile

The company that we have selected for preparing the term paper is Matin Spinning Mills Ltd.
It is one of the most modern spinning mills in Bangladesh having 50,000 spindles. The mill is
well equipped with the best machinery available. It was incorporated as a Private Limited
Company in September 2002 and commenced commercial operation in October 2006. Matin
Spinning Mills Ltd is an ISO 9001:2008 certified company. MSML is an export oriented
company engaged in manufacturing and sale of combed, carded cotton, Mélange and
synthetic yarn from raw cotton, polyester and viscose fiber. Matin Spinning Mills Ltd has
converted into a Public Limited Company in 4 th November 2010. It provides combed, carded,
synthetic, vortex, slub, and mélange yarns. It primarily serves knit garment industries.

MSML at a glance:

Group: DBL group

Type of the company: public limited company
Industry: RMG manufacturing
Location: Sadarganj, Kashimpur, Gazipur
Enlistment: DSE (02 April, 2014), CSE (27 March, 2014)
Authorized capital: BDT 1500 million
Paid up capital: BDT 974.90 million
Share trading code: MATINSPINN
Count range: 10 to 16 Ne
Capacity: 51 tons/ day (cotton, mélange, synthetic)
No. of employees: around 2000 employees
Website: www.matinspinning.com

Matin Spinning Mills Limited offers a diverse product line to fulfill demands of customers
and has the finest yarn spinning facility in the country. They have optimized their spinning
processes by applying state-of-the-art technology & machineries to every phase of their
production processes. Matin Spinning Mills Ltd takes immense pride in identifying its role as
the pioneer of quality yarn manufacturers of Bangladesh.

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 Chapter 04
Analysis

4.1 Prospective Analysis of Matin Spinning Mills Ltd.:

Prospective Analysis can be defined as the forecasting of future financial information . It

helps to forecast the financial performance and examine the viability of company strategic
plan. Prospective analysis is important for:
i. Security Valuation,
ii. Management assessment and
iii. Assessment of solvency.
Prospective analysis is usually carried out in two broad stages:
1. Long term forecasting: This involves the analysis of past data and forecasting of
financial statements.
2. Implementation: This is the use of the forecasts to value common stock or to
accomplish any other objective for which the forecast was carried out.

Financial Statements Forecasting:

Projected Financial statements gives us an indication about the impact of certain action like
going in for expansion, mergers or acquisition, valuable changes in company policies etc. on
the future financial statements. It is an important component of building up to a successful
plan for the future.
For the prospective analysis we have projected income statement and balance sheet.
Income Statement Projections:
Income statement is the indicator of the company future performance. This is where the
forecasting of the income takes place using the performance in the previous years as a guide.
In order to perform the projection for income statements we need to start with the following
process:
Compute an expected growth in sales revenue.
Formula has been used to compute growth,
P1 – P0
Growth =
P0
The calculated growth for each year is multiplied by different weight. The result
stated from formula for each is multiplied by different weight. The more weight has

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 been given to the more recent year. For example, .4 for year 2018, .3 for year 2017
and .1 is for year 2016, 2015 and 2014 respectively.
The sum of growth and weight has been calculated from year 2014 to 2018.
The value of has been used to compute forecasted sales revenue for year 2019 to
2023.
Compute gross profit margin, operating profit margin and net profit margin based on
sales revenue for historical period.
The calculated margins have been multiplied by different weight and the sum of
weight and margins have been calculated which has been used for calculating gross
profit, operating profit and net income for the year 2019 to 2023 based on the
forecasted sales revenue.
Then the forecasted cost of goods sold has been computed by subtracting gross profit
from sales revenue for respective years.
Other income has been calculated based on sales.
Some elements such as distribution expenses, financial cost etc. have been placed
constant.
We have measured contribution to workers' profit participation funds assuming 5% on
Net profit before taxation.
We have calculated income tax and deferred tax by assuming tax rate 15%.
Thus we have prepared forecasted income statement.

Some elements of projected income statements of our chosen company Matin Spinning Mill
Ltd. has given bellow:
Table 01: Forecasted Income Statement
In Millions

Forecasted Horizon
Items 2019 2020 2021 2022 2023
Sales 5,151.95 6,553.72 8,336.90 10,605.25 13,490.79
revenue
Gross Profit 836.76 1,064.43 1,354.04 1,722.46 2,191.12
Net Profit 545.97 694.52 883.49 1,123.87 1,429.66

Balance Sheet Projection:

Unlike a past balance sheet that shows a business's actual, historical financial positions, a
projected balance sheet communicates expected changes in future asset investments,
outstanding liabilities and equity financing. A projected balance sheet, also referred to as pro
forma balance sheet, lists specific account balances on a company's assets, liabilities and
equity for a specified future time.

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Using a projected balance sheet, financial personnel can present lenders and investors with
detailed financial information about planned future asset expansion, making it easier to
persuade capital providers to supply the required financing.
To create a projected balance sheet, we have made certain assumptions about how individual
balance sheet items may change over time in the future. The assumptions are given bellow:

Compute some relevant ratios for balance sheet.

To measure PPE for forecasted year from year 2019 to 2023 we have calculated ratio
capital expenditure to sales revenue for historical period from year 2014 to 2018. The
ratio has been multiplied by different weight and the sum of weight and ratios have
been computed. The weighted ratio has been used to measure capital expenditure for
forecasted years based on sales revenue. The calculated capital expenditure has been
added with the previous PPE to get gross PPE and depreciation has been deducted
from the gross PPE to get Net PPE.
Other elements of non-current asset have been kept constant and by summing up all
elements total non-current asset has been computed.
To measure Cash and Cash equivalents we have measured cash turnover for historical
period and multiplying the ratio by weight we have measured weighted cash turnover
which has been used to get forecasted cash depending on forecasted sales revenue.
Account receivables and inventories for forecasted year have also been calculated in
the same way of cash based on sales and cost of goods sold respectively.
Other elements of current asset have been placed constant and by summing up all the
elements total current asset has been calculated.
By summing up total non-current asset and total current asset, total asset has been
measured.
Retained earnings have been measured by subtracting dividend from the addition of
net income and previous years retained earnings. This process has been continued
through the year 2019 to 2023 to calculate retained earnings.
Other elements have been placed constant and by adding all the elements of
shareholder’s equity, total shareholder’s equity has been computed.
Long term loan has been increased as we have assumed that the forecasted PPE has
been expanded.
By adding all ingredients total non-current liabilities has been measured.
Accounts payable for the forecasted years 2019 to 2023 has been calculated in the
same way of cash based on forecasted cost of goods sold.
By summing up all the variables of current liabilities total current liabilities has been
calculated.
By adding total shareholder’s equity, total non-current liabilities and total current
liabilities total liabilities and shareholder’s equity has been measured.
Thus the forecasted balance sheet for 5 years from 2019 to 2023 has been made.

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Some elements of projected balance sheet of our chosen company Matin Spinning Mill Ltd.
has given bellow:
Table 02: Forecasted Balance Sheet
In Millions

Forecasted Horizon
Items 2019 2020 2021 2022 2023
Total Current 2,891.98 3,582.53 4,460.97 5,578.42 6,999.92
Asset
Total Non-current 5,145.13 6,300.41 7,770.04 9,639.52 12,017.67
Asset
Total Asset 8,037.11 9,882.95 12,231.01 15,217.94 19,017.58

Total 4,441.99 4,683.68 4,991.12 5,382.22 5,879.73

shareholders’
equity
Total Current 2,443.62 3,081.46 3,905.80 4,971.64 6,350.35
Liabilities
Total Non-current 1,151.51 2,117.81 3,334.09 4,864.08 6,787.51
Liabilities
Total SE & L 8,037.12 9,882.95 12,231.01 15,217.94 19,017.58

Thus, prospective analysis is useful in the scope of assessment of solvency as it help creditor
to assess a company’s ability to meet debt, services, requirement, both short term and long-
term.

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4.2 Ratio Analysis of MSML

Ratio analysis is the comparison of line items in the financial statements of a business.it is
used to evaluate and compare a number of issues with an organization like liquidity, financial
performance, profitability, operating efficiency etc. for the purpose of doing ratio analysis of
MSML, we have used some of the ratios to interpret the financial conditions of the company
which include current ratio, total debt to equity ratio, RNOA, ROCE, GPM, NPM and
dividend payout ratio. A short description has been given below:

Figure 01: Current ratio

3.50
3.08
3.00

2.50

2.00

1.50
1.18 1.16 1.14 1.12 1.10
1.00

0.50

0.00
2019 2020 2021 2022 2023 2024

Interpretations: It shows the similar trends. It’ll reach a pick in 2024 and lowest in 2023.
However, throughout these 5 years Matin Spinning Company Ltd. has been holding adequate
liquidity to meet current obligations.

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 Figure 02: Total debt to equity:

3.00

2.50

2.00

1.50

1.00

0.50

0.00
2019 2020 2021 2022 2023 2024

Interpretations: A lower debt to equity ratio usually implies a more financially stable
business. Companies with a higher debt to equity ratio are considered more risky to creditors
and investors than companies with a lower ratio.

Figure03: Return on net operating asset:

0.14

0.12

0.10

0.08

0.06

0.04

0.02

0.00
2019 2020 2021 2022 2023 2024

Interpretations: The return on net operating assets ratio measures how effectively a
company can earn a return on its investment in assets. In other words, RNOA shows how
efficiently a company can convert the money used to purchase assets into net income or
profits.

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 Figure 04: Return on common equity:

0.30

0.25

0.20

0.15

0.10

0.05

0.00
2019 2020 2021 2022 2023 2024

Interpretations: Most of the time, ROE is computed for common shareholders. In this case,
preferred dividends are not included in the calculation because these profits are not available
to common stockholders. Preferred dividends are then taken out of net income for the
calculation.

Figure 05: Gross profit margin:

0.18

0.16

0.14

0.12

0.10

0.08

0.06

0.04

0.02

0.00
2019 2020 2021 2022 2023 2024

Interpretations: Generally the higher the gross profit margin the better. A high GPM means
that the company did well in managing its costs of sales. It also shows that the company has
more to cover for operating, financing and other costs.

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 Figure 06: Net profit margin

0.12

0.10

0.08

0.06

0.04

0.02

0.00
2019 2020 2021 2022 2023 2024

Interpretations: The net profit margin, also known as net margin, indicates how much net
income a company makes with total sales achieved. A higher net profit margin means that
a company is more efficient at converting sales into actual profit.

Figure 07: Dividend payout ratio

0.70

0.60

0.50

0.40

0.30

0.20

0.10

0.00
2019 2020 2021 2022 2023 2024

Interpretations: Companies that make a profit at the end of a fiscal period can do a number
of things with the profit they earned. They can pay it to shareholders as dividends, they can
retain it to reinvest in the business for growth, or they can do both.

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4.3 Valuation of Matin Spinning Mills Ltd.:

Valuation is an important outcome of many types of business and financial statement

analysis. It refers to estimating the intrinsic value of a company or its stock. The value of an
asset is basically the present value (PV) of all future cash flows that the asset is forecasted to
produce. There are many different methods to valuing a company or its stock. Those are:

 Dividend Discount Model

 Free Cash Flow to Equity Model and
 Residual Income Model

We have opted to use Residual Income Valuation Model for stock valuation of the company
(Matin Spinning Mills Ltd.).

Residual Income Valuation Model:

Residual Income Valuation model is also known as residual income method or residual
income model (RIM) is a method of equity valuation which properly accounts for the cost of
equity capital. The word ‘residual’ refers to any opportunity costs in excess which is
measured as compared to the book value of the shareholders’ equity and the income that a
firm generates after accounting for the true cost of capital is then the residual income.

1. Calculating residual income

Residual income reflects net income minus a deduction for the required return on
common equity. In calculating a firm's residual income, the key calculation is to
determine its equity charge. Equity charge is simply a firm's total equity capital
multiplied by the required rate of return of that equity.

The formula for calculating residual income is as follow:

Equity Charge = Equity Capital * Cost of Equity

Residual Income = Net Income – Equity Charge

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 Table 01: Residual Income Computation

Residual Income Computation

Items 2018 2019 2020 2021 2022 2023 2024
Net 306 545.96 694.51 883.48 1123.87 1429.66 1622.66
Income
Beginning 4252.00 4441.99 4683.68 4991.12 5382.22 5879.73 6444.40
Equity
Capital 850.4 888.39 936.73 998.22 1076.44 1175.94
Charge
Residual -304.43 -193.88 -53.2486 125.64 353.21 446.71
Income
In Millions

We have assumed cost of capital 20% from the year 2019 to 2024 and based on the rate we
have calculated residual income.

2. Computing Intrinsic Value With Residual Income:

In residual income approach, a company’s stock value can be calculated as sum total of
its book value and its expected future residual income’s present value which is discounted
at cost of equity. This formula is used when it is assumed that the company will achieve
maturity or constant growth. Here, for calculating the corresponding terminal value,
mainly perpetual growth model is used.

Therefore, the residual income valuation is

Where,

BVt = Book value at end of period t,

RI = Residual Income

k = cost of equity

t = No of period

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 Table 02: Intrinsic Value

In Millions

Particulars 2018 2019 2020 2021 2022 2023 2024

Present value 4252 -253.7 -134.6 -30.8 60.5 141.9 2762.6
of Residual
Income
Intrinsic 6798.04
Value

Here we have used the constant growth rate 27% through the year 2019 to 2023 but in
terminal year we have assumed the growth rate 13.5% and have calculated the intrinsic value.

3. Calculating value per share of Matin Spinning Mills Ltd.:

To calculate the value per share to components are needed. Those are: Intrinsic value and
number of share outstanding.

The formula for calculating value per share is as follow:

Intrinsic value
Value per share =
No. of share outstanding

The estimated intrinsic value of Matin Spinning Mills Ltd. is 6798.04 BDT in million and the
number of share outstanding are 97 in million.

So,
6798.04 BDT
Value per share =
97

= 70.08289152 BDT

Valuation of equity shares is critically dependent on the projection process. As discussed

above, our valuation should closely examine the sensitivity of share price estimates to
underlying assumptions in the projection.

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 4. Comparing Market price and Present value of share of Matin Spinning Mills.
Ltd.:
The market price per share of stock is usually termed simply share price is the dollar
amount that investors are willing to pay for one share of a company's stock. The market
price and present value of share is compared to make decision about the share that it is
overpriced or underpriced.

We know,

When the calculated present value is lower than market price the share of that
company is overpriced. It includes that company is highly pessimistic. In this
situation the investor decides to sell share.
When the calculated present value is higher than market price the share of that
company is underpriced. It includes that company is highly optimistic. In this
situation the investor decides to buy more share.
Here using residual income valuation model we have measured present value of share of the
year 2019 which is 70.08 BDT and from the website of Matin Spinning Mills Ltd. we have
come to know that the market price of the year 2019 is 40.1 BDT.

We can conclude that the present value of share of Matin Spinning Mills Ltd. is higher than
the market price. So the share is perceived to be underpriced and the investors would decide
to buy the share of the company.

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4.4 Prediction of Financial Distress

A common use of financial statement analysis is identifying areas needing further

investigation and analysis. One of these uses is predicting financial distress. Research has
made substantial advances in suggesting various ratios as predictors of distress. Models of
financial distress commonly referred to as Bankruptcy Prediction Models; examine the trend
and behavior of selected ratios. Models presume that evidence of distress appears in ratios, so
that we can detect it earlier to take actions to either avoid risk or to capitalize on the
information.

ALTMAN Z-SCORE
Perhaps the most well-known model of financial distress is Altman’s Z-score. This Model
was initially developed in 1968 by Edward I. Altman where he utilized data drawn from large
US companies. He developed a model for predicting the likelihood that a company would go
bankrupt. This model uses five financial ratios that combine in a specific way to produce a
single number. This number is called the Z score. It is a general measure of corporate
financial health. The model uses a statistical technique to produce a predictor that is a linear
function of several explanatory variables. The Z score is calculated using the formula:

Z= 0.717 X1 + 0.847 X2 + 3.107 X3 + 0.420 X4 + 0.998 X5

Where,

X1= Net Working Capital to Total Assets ratio

X2= Retained Earnings to Total Assets ratio

X3= Earnings before Interests and Tax to Total Assets ratio

X4= Total Shareholders’ Equity to Total Liability ratio

X5= Total sales to Total assets ratio

Brief description about the ratios

X1 = Net working capital to total assets ratio. The net Working capital is the difference
between current assets and current liabilities and the Total assets is the total of current assets
and fixed assets. The ratio shows the liquidity position of the company.

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X2 = Retained Earnings to total assets ratio, It indicates the amount reinvested, the earnings
or losses, which reflects the extents of company’s leverage. In other words, it indicates the
extent to which assets have been paid for by company profits. Those firms with high RE
relative to TA have financed their assets through retention of profits and have not utilized as
much debt. It reflects the age of the firm and cumulative profitability.

X3 = Earnings Before interest & Tax (EBIT) to total assets ratio, It is the measure of the
company’s operating performance and also it indicates the earning power of the company. In
addition, this is a measure of the productivity of the firm’s assets, independent of any tax or
leverage factors.

X4 = Shareholders’ equity to total liabilities ratio, It measures what portion of a company’s

assets can decline in value before the liabilities exceed the assets. It shows the financial
structure of the company.

X5 = Net sales to total assets ratio, this is a standard turnover measure. It reveals the sales
generating capacity of the company’s assets and also measure of management’s capacity to
deal with competitive conditions.

Test Results

If the Z score is less than 1.20 then it indicates bad financial performance which may lead to
bankruptcy. It indicates a poor financial performance if the Z score is ≥ 1.20 and Z ≤ 2.9.
Lastly If the Z score value is greater than 2.9 then it indicates good financial performance.

Z-score analysis of MSML

Table 01: NWC/TA ratio of Matin Spinning Mill Ltd. (in million)

YEAR 2014 2015 201 2017 2018 2019 2020 2021 2022 2023
S 6
NWC 1060.
2156 1587 569 355 582 515 655 833.67 5 1349.05
TA 609 9882.
4955 5715 0 7073 6718 8037.11 9 12231 15218 19017.6
X1
0.43 0.28 0.09 0.05 0.09 0.064 0.066 0.068 0.070 0.071
Interpretation: It can be said from the table that the net working capital to total asset ratio of
MSML have been around 0.05 to 0.44, which are fluctuating from year to year. Total assets
of the company have been increased in all the years except in 2018 which are satisfactory.
Net working capital of the company has been fluctuated rapidly which need to be further
investigated.

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 YEARS 201 2015 2016 2017 2018 2019 2020 2021 2022 2023
4
RE
865 1140 1175 1212 1368 1558 1800 2107 2498 2996
TA 495
5715 6090 7073 6718 8037 9883 12231 15213 19018
5
X2
0.17 0.20 0.19 0.17 0.20 0.19 0.18 0.17 0.16 0.16
Table 02: RE/TA ratio of Matin Spinning Mill Ltd. (in million)

Interpretation: From the above table, it is observed that MSML has good retained earnings
in year 2014 to 2023. It shows the cumulative profitability of company. This study shows that
MSML have been utilizing retained earnings for financing its operations. The increasing
trends of retained earnings during the study period indicate that there is a growth of
MSML.the higher the ratio the greater is financial stability at the of low profitability periods
of the company.

Table 03: EBIT/TA ratio of Matin Spinning Mill Ltd. (in million)

YEAR 201 201 201 201 201 201 202 2021 2022 2023
S 4 5 6 7 8 9 0
EBIT
487 572 427 394 452 761 945 1178 1475 1853
TA 495 571 609 707 671 803 988 1223 1521 1901
5 5 0 3 8 7 3 1 3 8
X3
0.10 0.10 0.07 0.06 0.07 0.09 0.10 0.10 0.10 0.10

Interpretation: The operational performance and earning power can be accessed through
EBIT to Total assets which lead the business success or failure (Table 3). The profitability of
the company has an increasing trend from 2018 to 2023. But compared to profit there was
more increase in total assets. In short, this ratio indicates that the overall profitability of the
company was increasing but few instances where it has decreased.

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 YEARS 201 2015 2016 2017 201 2019 2020 2021 2022 2023
4 8
SE 384 425
3 4023 4059 4092 2 4442 4684 4991 5382 5880
TL 111 246
2 1692 2031 2981 6 3595 5199 7240 9836 13138
X4
3.46 2.38 2.00 1.37 1.72 1.24 .90 .70 .55 .45
Table 04: SE/TL ratio of Matin Spinning Mill Ltd. (in million)

YEAR 201 2015 2016 2017 201 2019 2020 2021 2022 2023
S 4 8
Sales 233 405
2023 2005 3001 5152 6554 8337 10605 13491
4 0
TA 495 671
5715 6090 7073 8037 9883 12231 15218 19018
5 8
X5
0.47 0.35 0.33 0.42 0.60 0.64 0.66 0.68 .70 .71
Interpretation: From the above table it can be said that the shareholders’ equity has been
increased throughout the 10 years and total liabilities have been increased as well. The ratio
has decreased in the prior years as well as the forecasting years which is not good for the
company because the ratio shows proportion of owners’ fund to the long term debt.

Table 05: Sales/TA ratio of Matin Spinning Mill Ltd. (in million)

Interpretation: From table 5, it is observed that sales are expected to be increased in

forecasting years. Sales to total assets ratio measure the power of the asset in generating the
sales. Higher ratio indicates the better performance and while poor ratio indicates the poor
financial management of the companies in the optimum utilization of its assets in generating
the sales revenue. The ratio has been increased in all years except 2015 and 2016. This has a
positive impact on the performance of the company.

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 YEARS 201 201 201 201 201 2019 2020 2021 2022 2023
4 5 6 7 8
X NWC/TA 0.06 0.06 0.06 0.07 0.07
1 0.43 0.28 0.09 0.05 0.09 4 6 8 0 1
X RE/TA
2 0.17 0.20 0.19 0.17 0.20 0.19 0.18 0.17 0.16 0.16
X EBIT/TA
3 0.10 0.10 0.07 0.06 0.07 0.09 0.10 0.10 0.10 0.10
X SE/TL
4 3.46 2.38 2.00 1.37 1.72 1.24 .90 .70 .55 .45
X SALES/
5 TA 0.47 0.35 0.33 0.42 0.60 0.64 0.66 0.68 .70 .71
Z Score
2.69 2.03 1.62 1.35 1.77 1.66 1.54 1.46 1.42 1.38
Table 06: Calculation of Z-score of MSML

Interpretation: The table 06 shows the Z score values of the company. The Z score value
throughout has remained above 1.20 in all years which shows average performance of the
company throughout all the years. As per the Altman’s guidelines, the company financial
position is healthy if the Z score value is greater than 2.9. But the company has the values of
Z-score lower than 2.9 and higher than 1.20 by which we can say neither there is any
possibility of bankruptcy nor the financial position is healthy enough. And Z score has been
decreased in the forecasting years which may indicate that the company may face financial
difficulties in the following years.

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 Chapter 04
Findings

We were asked to prepare a report on company valuation and bankruptcy prediction of a

manufacturing firm. For this purpose we have chosen Matin Spinning Mills Ltd. We have
forecasted income statement and balance sheet for 5 years from 2019 to 2023. We have
analyzed some significant ratios and have measured company valuation by using residual
income model. We have also predicted the possibility of being bankrupted of the company by
measuring Z-score value. By doing all this analysis we have acquired some major findings.
Those are mentioned below:

Gross profit and net profit of the company are in increasing trend which indicates that
the operating performance of the company id remarkable. The sales revenue and cost
of goods sold have also increased throughout the years.
PPE of the company has expanded which indicates that the value of the company has
also increased.
Company generating adequate cash to meet obligations and its trend is in an increased
manner.
Earnings per share (EPS) of the company has been increased which indicates that a
significant net income have been earned by each share of common stock.
The current ratio of the company is in decreasing manner which includes that the
liquidity position is going to be worse.
The company is paying dividend at same rate throughout the year.
The utilization of asset is in satisfactory because RNOA has increased.
The intrinsic value per share is 70.08 BDT and the market price is 40.1 BDT which
indicates that the share is underpriced. So there is the possibility to increase the price
of the share in future and the investors should buy the share.
Z score has been decreased in the forecasting years which may indicate that the
company may face financial difficulties in the following years.
The Z-score of the company is between 1.20 and 2.9 which indicates that it is in
ambiguous area.

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 Chapter 05
Conclusion

The term paper was prepared with an intention to forecast the financial position of Matin
Spinning Mills Ltd. (MSML) for the next 5 years and to calculate the value of the company
using one of valuation models. We also have used ALTMAN Z Score to predict the
bankruptcy possibility of the company in the upcoming year. While analyzing the financial
statements of MSML, some major findings were identified that include Earning Per Share of
the company is in an increasing trend, liquidity position of the company is satisfactory and
the value of the shares is undervalued. So in short we can conclude that overall financial
performance in the forecasting years will be favorable and the value of the company will be
increased in the near future so the investors should purchase the share of the company.

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 References

 www.matinspinning.com
 www.greatlakes.edu.in
 wikipedia.org
 Dsebd.org

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