Draft Report

On

The Evaluation of Business performance and expansion proposal and strategic action with prospects and
associated issued inclosing economic, social and involved with……………………….Ltd

Muhammad Khourshed Alam

01670696943
 Table of Contents

SL. Content Page No.

1. Executive Summary 3
2. Evaluation of financial and non-financial performances of 5
ALC Ltd.
3. SWOT Analysis and evaluation on strategic options. 9
4. Feasibility of using Sukuk Bonds as alternative financing 12
options.
5. Assessment of economic, social, and ethical issues. 13
6. Appendices
Appendix 1: Analysis of Statement of Profit or Loss 15
Appendix 2: Adjusted Statement of Financial Position 15
Appendix 3: Ratio Analysis 16
Appendix 4: Evaluation of expansion projects 17
Appendix 5: Feasibility of using Sukuk Bonds 17

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Term of Reference (TOR)

This report is prepared for the management of ………………………..Ltd based on the information provided by
the management. No attempt has been made to verify the authenticity of the data and information
produced by the management. Necessary adjustment have been made where relevant to present financial
statements fairly and analysis of data for economics decision making purpose

The report covers the following:

1. Executive summary
2. Answer to question consecutively
3. Answer to question consecutively
4. Answer to question consecutively
5. Answer to question consecutively
6. Assessment of economic and social impact and evaluation of ethical issues

This report prepared for the internal used by the management and Board of the Directors of Company

Muhammad Khourshed Alam

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 Executive Summary

The ABC company Ltd. has been operating with reputation in ……..industry of Bangladesh since its
incorporation. It has been experiencing impressive business and financial growth since incorporation
except any thing happen in the case which is related to case such as outbreak of COVID-19. Its
manufacture or provide service the name of service or manufacturing product within Bangladesh. The
Company intended to acquire or establish new business segment for business expansion through
diversification of service or goods. The expansion financing will be generated either through Initial Public
Offering (IPO), issuance of subordinate bond, taking bank loan or issuance Sukuk Bond. It also appraises
ABC’s strategic planning highlighting SWOT and its impact on the economy and society including ethical
issues.

May mention following things:

Appointment of auditor.
Review of FS for applying to the BSEC for getting IPO approval. Or any highlighting issues.

Performance analysis

We have calculated the adjusted net profit of the company considering the accounting adjustment which
is attached appendix-A. the adjusted net profit shows net profit after tax of Tk. …… Million for the year
2022-23.

Overall revenue of the company has massively increased by 24% (48 million) from previous year
revenue of 196 million despite impact of Covid-19 Pandemic when business was slow. Cost of sales
has also increased by 23% (36 million) compared to last year which followed the revenue growth rate.

Company’s gross profit in 2021 increased by humungous 32% (11 million) from last year. However,
gross profit margin has slightly increased by 20.1% from previous 19%. Growth in GP has been
contributed by increase in revenue volume.

The liquidity ratio-current ration and quick ratio has soared to 1.2 times and 1.09 times respectively
in 2022-23 from 1.16 times and 1.06 times in 2021-22 which shows the company has enough current
asset to meet the current obligation.

Debt to equity ratio is increased or decrease by % compare with last year. Also interest coverage
ratio is also impressive indicator from last year by………….

The receivable turnover period of the company has ascended to 44 days in 2022-23 in comparison
with 37 days in 2021-22. The supplier period has also increased to 74 days in 2022-23 from 53 days
in 2021-22. The outgoing ratio indicated poor management of the company in terms of recovery of
accounts receivable and working capital management. If positive change then above word will be
change positively.

Muhammad Khourshed Alam

01670696943
Appendix Shows:

1. Performance Indicator:

Gross Profit Margin: GP/Revenue

Net Profit Margin: NP/Revenue

2. Liquidity Indicators:

Current Ratio: CA/CL

Quick Ration: CA-Inventory/CL

3. Leverage Indicators:

Debt to equity ratio: Total Liabilities/ Total Shareholders’ Equity

Interest coverage ratio: Earnings before interest and tax/Interest expenses

4. Efficiency indicator:

Debtor turnover in days: (Average AR/ Sales) *365

Inventory turnover in days: (Average Inventory/ COGS) *365
Accounts payable turnover in days: (Average AP/ COGS) *365

Conclusion and recommendation:

• Take initiative to maintain the revenue growth.

• Increase equity and lower gearing. If applicable to the case
• Maintain lower amount of inventory. If applicable to the case
• Management should focus on reducing operating expenses which will eventually
increase profitability. If applicable to the case
• Increase efficiency in generating revenue utilizing Regals toral assets. If applicable to
the case
• ABC board should undertake business expansion projects if they could service the debts
and manage the high gearing of the company. If applicable to the case

Muhammad Khourshed Alam

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 Feasibility of expansion plan or viability of business expansion plan

We have reviewed the expansion plan of the company and evaluated the options using discounted cash
flows techniques. We used CAPM approach to determine the expected rate of return, which we used to
discount the future cash inflows and evaluate the options. Also analyzing the suitability, acceptability,
and feasibility for accepting the project. For details, please see the appendix 2. The following features
of the investor’s options:

NPV of this project …Million.

Any double project pleas mention all NPV of that project.

Conclusion and recommendation:

The overall expansion strategy is feasible as it has positive NPV.

Financing option
Financing option of the Company to promote business modernization/expansion/acquisition of
business or plant and equipment.

Initial Public Offering (IPO):

The Company will go for IPO for raising funds. The company can also obtain premium for selling shares
on premium. We use 3 different methods of valuation to explore offer price of share. The share price
could be from Tk. (25 to 35) per share. We used the following price under different method in
Appendix-----.

1. Net asset value method Tk……

2. Value based on sector P/E ratio Tk……
3. Value based on similar stock Tk……..

The management should be considering the followings:

1. Underwriting fees
2. The audited financial statements must show profit for the last 3 years
3. SEC rules must be followed
4. Credit report submission

Issuance of Bond:

Fixed rate interest.

Need stable income to meet the interest expenses.
Interest rate is defaulting paid at higher %.

Muhammad Khourshed Alam

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Taking Bank loan:

Interest charge
Highly geared
Tax savings

Sukkuk Bond:

Tax exemption
Easy to get financing
Less regulation
Separate company

Conclusion:

IPO/Right share will give greater scope of financing and less burden for payment of interest. Although it
will have to go through many formalities.

Recommendation:

Abide by the laws set out by BSEC

Issue of right share/IPO instead of entering loan.

Assessment of business strategy/ comments on strategic planning

The company has option to Organic growth as well as acquisition of business to provide better service to
the customer by acquiring market share. Following business strategy taken by ABC company:

1. ABC is in the process of introducing new line of business

2. Acquiring new business line
3. Better customer services

Conclusion and recommendation: The Company have sound business strategy. The company need to
revisit its market survey before taking expansion strategy.

Muhammad Khourshed Alam

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 Feasibility of using Sukuk Bonds.

ABC has plans to raise fund though newly introduced Sukuk bonds. Appraisal of the Sukuk bond show
that it will create much higher net present value than the project for setting up own tannery with 8%
bond. ABC should plan for issuing Sukuk though its SPV. However, it will be very challenging to attract
investors for Sukuk bond as it is very new concept and investors are not yet interested to invest in Sukuk
issued by non-government organization. Government has offered various incentives like tax and vat
exemptions for the Sukuk investors and the Special Purpose Vehicles. ALC can use these benefits to
draw interest for the investor.

Recommendation to the board includes:

Restate the financial statement to recognize additional provision if it is material.

ABC should go for the project financed by Sukuk Bond.
ABC should attempt to raise interest of the prospective investors.

SWOT Analysis:

Strength: Write At least 2 points from main report.

Weakness: Write At least 2 points from main report.

Opportunities: Write At least 2 points from main report.

Threats: Write At least 2 points from main report.

No use bullet form. Suggest using paragraph form.

Appointment of ABC as external auditor instead of existing auditor

We evaluate the situation and observe that existing auditor expressed their willingness for
reappointment. The management must conform the following for appointment of new auditor:

1. Have to take consent from existing auditor

2. Give notice to existing auditor
3. Need board approval
4. Have to inform to RJSC
5. Take appointment from shareholder in AGM

Conclusion and recommendation: The Company should follow Company Act, 1994 for appointing auditor.

Muhammad Khourshed Alam

01670696943
 Economic & Social Impact of the company
By assessing the economic and social impact we see that expansion plan of the company has positive
impact in the economy and society such as:

Contribution to GDP

Create more employment

Ensure quality consumable product

Donation its NGO and health program

Give more tax and VAT to the national board of revenue

But the company ethical issue may hamper reputation.

Conclusion and recommendation: We recommend the management for not doing unethical activities

More points included based on the case to case.

END OF EXECUTIVE SUMMARY

Muhammad Khourshed Alam

01670696943
 Final Report

Evaluation of business performance

Overall results have been promising for the company with an impressive growth of revenue and other
performance indicators even if pandemic is inflicting high and rising human cost as well as currency
devaluation in the worldwide which in turn is having a sever impact on economic activity around the
global.

The performance of the company has been evaluated based on the financial information after necessary
adjusting entries by management. For details calculation, please sees appendix-01

Revenue
Overall revenue of the company has massively increased by 24% (48 million) from previous year
revenue of 196 million despite impact of Covid-19 Pandemic when business was slow. Cost of sales
has also increased by 23% (36 million) compared to last year which followed the revenue growth rate.
The company management is trying their best to capture global business/patterning/acquisition of
increasing revenue as well as enjoying synergy benefits.

Profitability Ratio

Company’s gross profit in 2021 increased by humungous 32% (11 million) from last year. However,
gross profit margin has slightly increased by 20.1% from previous 19%. Growth in GP has been
contributed by increase in revenue volume. Now company is more focused to diversify the
product/service to increase the profitability ratio. Also committed to customer to provide the better
service.

Liquidity Ratio

The liquidity ratio-current ration and quick ratio has soared to 1.2 times and 1.09 times respectively
in 2022-23 from 1.16 times and 1.06 times in 2021-22 which shows the company has enough current
asset to meet the current obligation. It indicates the company has enough current asset to meet the
current liabilities or vice versa.

Efficiency Ratio

The receivable turnover period of the company has ascended to 44 days in 2022-23 in comparison
with 37 days in 2021-22. The supplier period has also increased to 74 days in 2022-23 from 53 days
in 2021-22. The outgoing ratio indicated poor management of the company in terms of recovery of
accounts receivable and working capital management. If AP turnover days will be decreased that
means weak in negotiation with supplier to increase the credit period. Writing will be depended on
the indicator of ratio.

Muhammad Khourshed Alam

01670696943
Conclusion:

Overall performance of the company appears to be satisfactory with steeper growth in revenue,
sound liquidity position, ideal capacity structure and efficient management.

Recommendation:

• Identify the value driver of the company

• Explore new source of revenue (Product development)
• Increase/ maintain the revenue growth of existing products (market penetration)
• Explore marker in local as well as in abroad (market development)
• Increase operating profit margin
• Reduce investment in working capital
• Reduce cost of capital
• Increase competitive advantage period
• Overall cost control

Above recommendation based on the case to case.

Feasibility of expansion plan or viability of business expansion plan

The incremental revenue of …..% over the next estimated years and is evaluated in terms of present
value at expected rate of return 11% per annum under calculating CAPM method. The acquisition
consideration is computed at net assets value of the 190 million. The project gave positive Net Present
Value (Refers to the annexure). Now company shall go for acquisition because increase in market shares
and revenue generation along with the following synergy impacts:

• Revenue synergy
• Cost synergy
• Operation synergy
• Economic of scale

Before accepting new project should be analysis in below point one by one:

Suitability

• exploit company strengths and distinctive competences?

• rectify company weaknesses?89
• neutralize or deflect environmental threats?
• help the firm to seize opportunities?
• satisfy the goals of the organization? (And, at a more general level, does it fit with the
company's
• mission and objectives?)

Muhammad Khourshed Alam

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 • fill the gap identified by gap analysis?
• generate/maintain competitive advantage?
• involve an acceptable level of risk?
• suit the politics and corporate culture?

Acceptability (to stakeholders)

• Return on investment
• Profits
• Growth
• Earnings per share
• Cash flow
• Price/Earnings
• Market capitalisation

Feasibility

Feasibility asks whether the strategy can, in fact, be implemented.

• Is there enough money?

• Is there the ability to deliver the goods/services specified in the strategy?
• Can we deal with the likely responses that competitors will make?
• Do we have access to technology, materials and resources?
• Do we have enough time to implement the strategy?

Conclusion:

Recommendation:

• Analysis of the current strategic position of the company

• Product life cycle
• Developing new and improving market
• Analysis the critical success factor
• Perform value chain analysis

Muhammad Khourshed Alam

01670696943
 Financing option
Financing option as the Company to promote business expansion. Best alternative to
finance:

• Initial public offering

• Right share
• Preferred share
• Subordinate bond
• Loan/lease
• Sukkuk Bond

IPO
The company can obtain premium by issuing IPO. We use 3 different methods of valuation
to explore offer price of share. The share price could be from 25 to 35 per share. We used
following method for fixation of price in “Appendix”

1. Net asset value method

2. Value based on sector P/E ratio
3. Value based on similar stock

The management should be considering the followings:

• Underwriting fees.
• The audited financial statements, which must show profit last 3 years.
• BSEC rules must be followed.
• Credit report submission.

Advantages:

• No debt servicing
• Enhance corporate value and branding
• Better corporate practices
• Used large amount of fund with minimum cost

Muhammad Khourshed Alam

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Disadvantages
• Expensive and time consuming process
• Dilution of control
• Increased regulatory oversight
• Enhance reporting requirements
• Market pressure

Issue of right share

Advantages

• Cost saving
• No dilution of control
• No debt services

Disadvantages

• Dilution of the value per share

• Market pressure

Issue preference share

Advantage
• No dilution of control
• Fixed return
• Maintained of capital structure

Disadvantage
• High rate of dividend
• Dilution of control over assets
• Reduce credit worthiness

Muhammad Khourshed Alam

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Subordinate bond

Advantages

• Less expensive and time consuming

• No dilution of control
• Tax benefit from interest expenses
• Less reporting requirements

Disadvantage
• Fixed charge
• High liquidity risk
• Higher gearing risk

Bank Loan

Advantages
• Easy to get the fund
• No dilution of control
• Tax benefit from interest expenses

Disadvantage
• Fixed charge
• High liquidity risk
• Higher gearing risk

SUkkuk Bond

Advantages
Tax exemption
VAT exemption
Easy to get finance
Less regulation

Muhammad Khourshed Alam

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Disadvantages

• Create separate company

• Company running cost
• Asset leased by main company
• Dividend participation by sukuk bond holder

May need more advantage and disadvantage point in the above issue.

Conclusion

Recommendation
WE recommend the management go for IPO financing and comply all regulatory
requirement and ethical issues.

Comments on strategic planning

Mention all strategic planning of the given case one by one in bullet form

Conclusion: ABC has a sound business strategy

Recommendation:

• The company need to revisit its market survey

• The company must have sufficient expansion plan

SWOT Analysis
Strength
Collect from given case in bullet from

• Strong revenue growth

• Brand reputation
• Competitive advantage
• Better service to the customer through customer satisfaction
• Strong distribution channel
• Strong relationship with the supplier

Muhammad Khourshed Alam

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Weakness
Collect from given case in bullet from

Lack of resource planning

Inappropriate accounting policy
It does not have diversified business

Opportunities
Collect from given case in bullet from

• Steady growing economy

• Rapidly rising export
• Highest per capital GDP growth
• Increased export remittance

Threats
Collect from given case in bullet from

• Extend of supply disruption.

• Shifts in spending pattern, behavioral change.
• Global economic recession as well currency volatile.

Conclusion:

Recommendation:

• The company need to revisit its expansion strategy

• The company need to revisit the business model for organic growth
• The company need to address the risk associated with weakness and threats
• Service or produce need to be modernization or upgradation.
• Liaso with government to mitigate political risk
• Weakness converts to strength and threats convert to opportunities.

Muhammad Khourshed Alam

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 Auditor appointments

Carefully read Company Act, 1994 section 210

Economic, Social, and ethical Impact of the Company

Muhammad Khourshed Alam

01670696943