Financial Statement Analysis

Ratio Analysis of Pfizer Inc.

&
Company Valuation of Olympic Industries Ltd.

Section: 03
Summer 2020
Group: 5

Submitted to,
Mr. Taskin Shakib (TkS)
Lecturer
Department of Accounting & Finance,
North South University

Name ID

Sheikh Sameen Faizan 1620107030

Safayeat Hossain Uthsa 1620529030

Samiha Anwar 1711003030

Aninda Singha Sourav 1711304030

Date of Submission: 9th October, 2020

 ACKNOWLEDGEMENT

We are grateful to almighty for helping us all the way to complete this report as a part of our
B.B.A. Program. This report is prepared on the basis of our theoretical knowledge and from the
information that we have collected from different sources.
First of all, we would like to thank our respected course instructor TASKIN SHAKIB, Lecturer,
Department of Accounting and finance, North South University, for his generous guidance
throughout the work. His outstanding support, faith in us, and inspiration for this report, was a
tower of strength in putting the pieces together and an unfailing source of cheer and encouragement
and for being patient until we knew what to do and for being helpful for completing our report.
Without his proper guidance we could not complete the report successfully.
We would also like to thank our parents for providing financial support which was required to buy
things that are related to this report work. Moreover, the advices of our family members were of a
great help. Internet, text books and computer were a part of the sources of this report.
Last but not the least, we the group members who were doing this project as a team and we are
thankful to each other for being extremely co-operative and for sharing ideas with one another.
 LETTER OF TRANSMITTAL

Date: 9th October, 2020

Taskin Shakib
Lecturer, Department of Accounting & Finance
School of Business and Economics
North South University

Subject: Submission of the report on financial analysis of Pfizer Inc & company valuation of
Olympic Industries Ltd.

Dear Sir,

We hereby, submit our report regarding the ratio analysis and valuation of two
companies, Pfizer Inc & Olympic Industries Ltd.

Throughout the assignment we had to research a lot which helped us to gain an in-depth
knowledge on the analyzing of financial ratios. We have conducted research on
determining the quantitative performance of Pfizer Inc through the time series analysis
of the financial ratios. Using those, aided with vital macroeconomic assumption, we were
able to forecast the future cash flow of the firm and find the enterprise value per share
by discounting the total value with WACC. Finally, with a few qualitative aspects, we
are able to comment on the performance of the stock market.

We sincerely hope that you will find this report useful and appropriate as per the
requirements. We have tried to make the report as comprehensive as we possible, but
we would appreciate you contacting us if you have any further queries.

Sincerely,

Aninda Singha Sourav

Samiha Anwar
Sheikh Sameen Faizan
Safayeat Hossain Uthsa
 Executive Summary

In this report we have analyzed the financial ratios of Pfizer Inc. for the year 2017 to 2019.
We have also done the valuation of Olympic Industries Ltd. in our report. For this,
we have analyzed the financial statement of these two companies in which one is a
foreign company and the other is a local company.

For Pfizer Inc, we have analyzed their financial statement and calculated different ratios. And
those ratios indicate whether this company hold a good position or not. All companies are not of
same stature in size, might not be even in the same industry. Ratio analysis is prepared from the
information contained in a company’s financial statements on the line items of the aforementioned
statement like the income sheet, balance sheet and cash flow statement; using them as a variable
of an equation, ratios are calculated.

For Olympic Industries Ltd., we have also analyzed their financial information and
calculated the Terminal value and Enterprise Value. This helped us to decide whether
their stock is undervalued or overvalued. In addition, this also provides information
whether to invest in Olympic Industries and is it profitable or not.

Therefore, we tried our best to provide the actual performance, analyzing the ratios
and calculate valuation perfectly. We believe that, this report will give clear knowledge
about the financial ratios and valuation.
Contents
Company Overview ....................................................................................................................................... 1
Pfizer Inc.................................................................................................................................................... 1
Olympic Industries Ltd. ............................................................................................................................. 1
Analysis of Financial Ratios: Pfizer Inc. ......................................................................................................... 2
Liquidity Ratios:......................................................................................................................................... 2
Asset Management Ratios: ....................................................................................................................... 5
Profitability Ratios:.................................................................................................................................... 8
Debt Management Ratios: ...................................................................................................................... 14
Market ratios: ......................................................................................................................................... 16
Other Ratios ............................................................................................................................................ 18
Summary Chart of Ratios ............................................................................................................................ 19
Company Valuation: Olympic Industries Ltd............................................................................................... 21
Justification for Growth Rate (SGR) ........................................................................................................ 21
Pro-Forma Statements ............................................................................................................................ 21
Assumptions and Techniques Used for WACC Calculation ......................................................................... 25
Cost of Debt: ........................................................................................................................................... 25
Cost of Equity: ......................................................................................................................................... 25
Weighted Average Cost of Capital (WACC):............................................................................................ 26
Valuation ..................................................................................................................................................... 26
FCF Calculation: ....................................................................................................................................... 26
DCF Calculation: ...................................................................................................................................... 27
Enterprise Value:..................................................................................................................................... 27
Fair Value and Fair Price of Stock:........................................................................................................... 27
Comparison of Fair Price with Current Market Price: ............................................................................. 28
Investment Decision.................................................................................................................................... 28
References .................................................................................................................................................. 29
Appendix ..................................................................................................................................................... 30
Company Overview
Pfizer Inc.
Pfizer, Inc., is one of the world’s largest research-based pharmaceutical and biomedical
companies, dedicated to discovering, developing, manufacturing, and marketing prescription
medications for both humans and animals. Headquarters are in New York City.

Pfizer was founded in Brooklyn, New York, in 1849 as Charles Pfizer & Company by the German
chemist and entrepreneur Charles Pfizer and his cousin Charles Erhart, a confectioner.
The company, then a fine-chemicals business, was financed with a $2,500 loan from Pfizer’s
father. Pfizer and Erhart achieved immediate success with their first product, a flavorful form of
santonin, an anthelmintic drug used to treat intestinal worms, a common affliction in the mid-
1800s. The subsequent demand for disinfectants, preservatives, and painkillers during
the American Civil War (1861–65) doubled the company’s revenue and allowed for its expansion.

In the 21st century Pfizer persisted in its acquisition of pharmaceutical companies,

including Warner-Lambert followed by Pharmacia Corporation (2003) and Wyeth (2009). Pfizer
also joined UN Global Impact (2002), the world’s largest global corporate responsibility initiative.

Olympic Industries Ltd.

Olympic Industries Ltd. engages in the manufacturing and sale of consumer goods. Its products
include biscuits, cookies and bakery, confectionery, snacks, and batteries. The firm's brands under
biscuits include Energy Plus, Hilux, and Nutty; Daily Cookies, Dry Cake, and Badami Cookies
under cookies and bakery; confectionery include Pulse Masala Mango, Pineapple, and Eclairs;
Foodie Noodles Chicken, Namakpara Butter Garlic, and Tritos-Tomato Madness under snacks;
and batteries include Volt-UM3, Olympic Gold, and Olympic Laser. The company was founded
on June 26, 1979 and is headquartered in Dhaka, Bangladesh.

1|Page
Analysis of Financial Ratios: Pfizer Inc.
Liquidity Ratios:

Current Ratio: Time Series Analysis of Pfizer: We know, Current ratio helps us to understand
the relationship between the current assets & current liabilities. The figure above shows the current
ratio of Pfizer. In 2017, the current ratio was 1.83 which implies that Pfizer has $ 1.83 of current
asset for each one dollar of current liability.

However, over the years the ratio had a declining trend and in 2019 the ratio fell to 0.98. Over the
years their current asset did increase, although it wasn’t enough since their current liabilities were
greater than current assets. In 2019, their current asset was $ 32,803 Million which was less than
their current liability of $ 37, 304 Million. We know, if the current asset is greater than current
liability, then the company can liquidate its current assets and pay off its current liabilities and
survive for at least one operating cycle. Therefore, the current ratio is quite alarming for Pfizer and
they need to increase their current assets in order to successfully sustain in the long run. They need
to start collecting their cash receivables more efficiently and get rid of large inventories to improve
their current assets & current ratio and sustain in the long run.

2|Page
Quick Ratio: Time Series Analysis of Pfizer: We know, Quick ratio helps us to look at our
current asset’s position more clearly. In quick ratio we exclude inventories and include the most
liquid assets like Cash & Cash Equivalents & Receivables. The figure above shows the Quick ratio
of Pfizer. In 2017, the ratio was 0.97 which implies that Pfizer has $ 0.97 of current assets
excluding inventory to pay off each 1 dollar of current liability.

From the 2017-2019 period the ratio has been declining and fell to 0.53 in 2019. We know, the
rule of thumb for a healthy acid test index is 1.0 and Pfizer’s quick ratio is below that standard.
Their quick ratio is not quite healthy over the years. From 2017 to 2019, their Cash & Cash
equivalents declined from $ 19,992 Million to $ 9,830 Million and there they had a negative cash
growth of negative 0.478 which is quite alarming. Therefore, they need to improve their cash
position and they may take a long-term source of capital at a sustainable rate to perform better in
the future.

3|Page
Cash Ratio: Time Series Analysis of Pfizer: We know, Cash ratio considers only the cash & cash
equivalents since it is the most liquid current assets. It shows company’s ability to pay off current
liabilities with current cash in hand. If a company has a higher cash ratio then they are more likely
to pay off their short-term liabilities. The figure above shows the Cash Ratio of Pfizer Inc.

In 2017, the ratio was 0.70 which implies that it has $ 0.70 of cash & cash equivalents to pay off
each 1 dollar of current liability. From 2017-2019, the ratio declined which is not good for the
company. In 2019 it fell 0.30 which is very poor.

From 2017 to 2019, their Cash & Cash equivalents declined from $ 19,992 Million to $ 9,830
Million and there they had a negative cash growth of negative 0.478 which is quite alarming.
Therefore, they need to improve their cash position and they may take a long-term source of capital
at a sustainable rate to perform better in the future.

4|Page
Asset Management Ratios:

Inventory Turnover: Time Series Analysis of Pfizer: We know, Inventory Turnover shows the
frequency at which inventories are converted to sales. The figure above shows the inventory
turnover ratio of Pfizer. In 2017, the inventory turnover was 1.48 times which implies that the firm
on an average sold & restocked the inventories 1.48 times in an accounting period. However, in
2018 it was 1.49 times but by next year the inventory turnover ratio fell to 1.23 times.

We know, the trend for this ratio is higher the better but from 2017 to 2019, the inventory turnover
ratio fell for Pfizer. From 2017-2019 their inventories increased from $ 7578 to $ 8283. Therefore,
they need to manage their inventories more efficiently.

5|Page
Average Collection Period: Time Series Analysis of Pfizer: We know, Average Collection
Period measures the number of days the credit department of Pfizer is taking to collect back cash
from its credit customers. The graph above depicts the average collection period of Pfizer from
2017-2019.

In 2017, the ratio was around 56 days, which implies that Pfizer is taking almost 56 days to collect
cash from customers. On the other hand, in 2018 the ratio fell to 53 days but in 2019 it again
increased to around 61 days.

We know, the trend for the ratio is lower the better and lower days are desirable. However, there
is immense competition in the market and at times there could be fear of losing customers due to
strict cash collection policies.

6|Page
Average Payment Period: Time Series Analysis of Pfizer: We know, Average Payment Period
measures the number of days a firm takes to pay off credit accounts payable. The figure above
shows the average payment period of Pfizer from 2017-2019.

In 2017, the ratio was around 139 days for Pfizer which implies that on an average it is taking 139
days to pay off their creditors. On the contrary, in 2018 the ratio increased to around 150 days and
then again fell to 138 days in 2019.

We know, the trend for the ratio is higher the better since a higher number of days creates flexibility
& more opportunity to pay off creditors. Here, Pfizer is taking almost around 138 days to pay off
their creditors which is quite good.

7|Page
Profitability Ratios:

Gross Profit Margin: Time Series Analysis of Pfizer: In 2017, Pfizer Inc.’s Gross Profit Margin
(GPM) was 78.6% which means they had 78.6 paisa left against 1-taka sales to cover their
operating costs and other costs. In 2018 and 2019, they had 79 paisa and 80.3 paisa left over
respectively against 1-taka sales to cover their operating costs and other costs.

Pfizer Inc.’s GPM has increased subsequently in 3 years (2017-2019). If we look into their income
statement, then it is noticeable that their sales have increased in 2018 from year 2017 and decreased
in 2019. But their GPM in 2019 has not decreased because in 2019 their cost of sales also
decreased. So, it can be said that their GPM has increased from year 2017 till 2018 because of their
growth in revenues. And control of cost of sales resulted in increasing GPM in 2019. As a company
of the pharmaceutical industry, Pfizer’s GPM looks fine based on how they are balancing revenues
with cost of sales. Also, according to Ready Ratios, industry averages were 65.1% and 66.5% for
2017 and 2018 respectively, which are less than Pfizer’s GPM for those years.

8|Page
Operating Profit Margin: Time Series Analysis of Pfizer: In 2017, Pfizer Inc.’s Operating Profit
Margin (OPM) was 23.4 which means they made 23.4 paisa before interest and taxes against every
taka of sales. In 2018 and 2019, they made 22.2 paisa and 18.5 paisa respectively.

Pfizer’s OPM has declined throughout the three years. Their R & D cost has increased
consecutively throughout 3 years. Also, they had significant restructuring charges and acquisition
related costs in 2018 which can be the reason for decreasing OPM in 2018. And in 2019, OPM
drastically fell because 2019 revenues were less than the previous two years and also R & D
expenses were greater than the other two years. So, it can be concluded that Pfizer’s rate of profit
after operating expenses has a trend of decline throughout the last three years. But they are
spending more in R & D which is needed to enhance or preserve existing quality and this spending
is one of the reasons behind their fall of OPM. Also, the industry averages were -123.5% and -
232.1% for 2017 and 2018 respectively (Source: Ready Ratios), which are less than Pfizer’s OPM.
This indicates that Pfizer Inc. is managing their operational expenses better than most of their
competitors.

9|Page
Net Profit Margin: Time Series Analysis of Pfizer: In 2017, Pfizer Inc.’s Net Profit Margin
(NPM) was 40.6% which means they made 40.6 paisa of net profit after all expenses against every
taka of sales. In 2018 and 2019, they made 20.8 paisa and 31.4 paisa respectively.

Throughout the three years, Pfizer’s NPM seems to have fluctuated. But in 2018, NPM fell
significantly because they incurred a significant amount of non-recurring restructuring and
acquisition related costs in this year. And also, the factor behind the huge difference in their net
profit between 2018 and 2019 is that they had a gain of 8086m from completion of Consumer
Healthcare JV transaction in 2019. This resulted in having high net profit in 2019 and thus their
NPM increased in 2019. The industry averages were -255.5% and -271.4% for 2017 and 2018
respectively (Source: Ready Ratios), which are less than Pfizer’s NPM and thus it can be said that
Pfizer Inc. is managing their overall expenses better than their competitors which in turn position
them as a dominating competitor in the industry.

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 Return On Asset (ROA) of Pfizer

10.8

7.4
7.1

2017 2018 2019

Return on Asset: Time Series Analysis of Pfizer: We know, it is an indicator of how profitable
a company is relative to its total assets. ROA gives an idea as to how efficient a company's
management is at using its assets to generate earnings. Return on assets is displayed as a
percentage. Return on assets gives an indication of the capital intensity of the company, which will
depend on the industry; companies that require large initial investments will generally have lower
return on assets. ROAs over 5% are generally considered good.

The figure above shows the Return on assets (ROA) ratio of Pfizer. In 2017, the Return on assets
was 17.1% However, in 2018 it was 17.4% but by next year the Return on assets (ROA) ratio grew
to 10.2% which indicates the trend for this ratio is in better position from 2017 to 2019 of Pfizer.

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 Return On Equity (ROE) of Pfizer

29.9

25.8

17.6

2017 2018 2019

Return on Equity: Time Series Analysis of Pfizer: We know, it is a measure of financial

performance calculated by dividing net income by shareholders' equity. Because shareholders'
equity is equal to a company's assets minus its debt, ROE is considered the return on net assets.
As with return on equity, a ROE is a measure of management's ability to generate income from the
equity available to it. ROEs of 15-20% are generally considered good. ROE is also a factor in stock
valuation, in association with other financial ratios.

The figure above shows the Return on equity (ROE) ratio of Pfizer. In 2017, the Return on equity
was 29.9%. However, in 2018 it was 17.6% in this year ROE for Pfizer fall but by the next year
the Return on equity (ROE) ratio grew to 25.8% which indicates the trend for this ratio is increased
in 2019 of Pfizer.

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 Earnings Per Share (EPS) of Pfizer

3.57

2.92

1.89

2017 2018 2019

Earnings per Share: Time Series Analysis of Pfizer: Earnings per share (EPS) is calculated
as a company's profit divided by the outstanding shares of its common stock. The resulting number
serves as an indicator of a company's profitability. It is common for a company to report EPS that
is adjusted for extraordinary items and potential share dilution. The higher the earnings per share
of a company, the better is its profitability. While calculating the EPS, it is advisable to use the
weighted ratio, as the number of shares outstanding can change over time.

The figure above shows the Earnings per share (EPS) ratio of Pfizer. In 2017, the Earnings per
share was 3.57. However, in 2018 it was 1.89 in this year (EPS) for Pfizer fall but by the next year
the Earnings per share ratio grew to 2.92 which indicates again Pfizer has better EPS than 2018.

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Debt Management Ratios:

Debt Ratio: Time Series Analysis of Pfizer: The debt ratio is a financial ratio that measures the
extent of a company’s leverage. The debt ratio is defined as the ratio of total debt to total assets,
expressed as a decimal or percentage. A debt ratio greater than 1.0 (100%) tells you that a company
has more debt than assets. Meanwhile, a debt ratio less than 100% indicates that a company has
more assets than debt. A debt ratio less than 0.5 (50%) is ideal. In other words, no more than half
of the company's assets should be financed by debt. Debt ratios vary widely across industries, with
capital-intensive businesses such as utilities and pipelines having much higher debt ratios than
other industries such as the technology or services sector.

In 2017 the debt ratio of Pfizer Inc. was 0.58/58% whereas the industry average was 0.47/47% in
2017 which states that it was not in a good position. In 2018, the industry average was 0.41 and of
Pfizer Inc. was 0.60 which again stated that they were not in a good position. The debt ratio in
2019 was 0.62 which states that Pfizer Inc. is becoming more levered as days went by.

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Interest Coverage Ratio: Time Series Analysis of Pfizer: The interest coverage ratio is a debt
ratio used to determine how easily a company can pay interest on its outstanding debt. The interest
coverage ratio may be calculated by dividing a company's earnings before interest and taxes,
depreciation and amortization expense (EBITDA) during a given period by the company's interest
payments due within the same period. A higher coverage ratio is better, although the ideal ratio
may vary by industry.

In 2017 the interest coverage ratio was 12.21 which in 2018 got better to 13.92. Again in 2019 the
ratio increased to 14.91. During these years, the US pharma companies suffered as they had
negative industry averages, but Pfizer Inc. is doing quite well with respect to its competitors.

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Market ratios:

P/E Ratio: Time Series Analysis of Pfizer: The price-to-earnings ratio (P/E ratio) is the ratio for
valuing a company that measures its current share price relative to its per-share earnings (EPS). A
high P/E ratio could mean that a company's stock is over-valued, or else that investors are
expecting high growth rates in the future.

In 2017 the P/E ratio of Pfizer Inc. was 9.32 which increased to 21.96. A higher P/E ratio indicates
that investors are willing to pay a higher share price today because of growth expectations in the
future. They expect higher earnings later. In 2019 the ratio fell to 13.25. The average P/E for the
S&P 500 has historically ranged from 13 to 15. As Pfizer Inc. is a S&P component stock compared
to the average P/E ratio we can say that it is in a stable position.

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M/B Ratio: Time Series Analysis of Pfizer: The M/B ratio measures the market's valuation of a
company relative to its book value. M/B ratio is used by value investors to identify potential
investments. M/B ratios under 1 are typically considered solid investments. The higher the ratio,
the higher the premium the market is willing to pay for the company above its hard assets. A
company either is undervalued or in a declining business if the value of 1 or less.

In 2017, the M/B ratio of Pfizer Inc. was 2.75 which is quite good as any value over 1 means the
market is willing to pay a premium for buying the stock of the company. In 2018 it was 3.80 while
it declined to 3.35 in 2019 which indicates that 2018 was its best year.

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Other Ratios

Operating Leverage: Time Series Analysis of Pfizer: We know, Operating leverage is the
percentage change in operating profit relative to sales. Operating leverage is a measure of how
sensitive the operating income is to the change in revenues. The figure above shows the operating
leverage ratio of Pfizer Inc.

In 2017, the operating leverage was -69.683 which indicates that they have high fixed costs and
thus greater the impact of a change in sales on the operating income of a company. They made
significant investments in Property, plant and equipment as well as intangible assets. Both these
long-term assets account for more than 40% of the total assets. However, in 2019 it improved to
5.45. Their fixed costs have reduced over the years which helped them to improve their operating
leverage ratio.

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Summary Chart of Ratios
Company: Pfizer Inc.
# Ratio name Comment Years

Liquidity 2017 2018 2019

Decreasing current
1 Current ratio
ratio
0.97 0,88 0.53
Decreasing quick
2 Quick Ratio
ratio
1.16 0.96 0.95
Decreasing cash
3 Cash Ratio ratio
0.70 0.63 0.30

Asset Management
Ratios
Inventory Increase first then
1
Turnover decrease
1.48 1.50 1.23
Accounts
Little fluctuation
2 Receivable
here
Turnover
0.31 0.34 0.31
Average
Decrease first then
3 Collection
increase
Period
56 54 61
Average Increase first then
4
Payment Period decrease
139 150 138

Debt Management
Ratio
Increasing Debt
1 Debt ratio
Ratio
58% 60% 62%

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 Times Interest
2 Increasing ratio
Earned Ratio
12.21 13.92 14.91

Profitability Ratio

Gross Profit
1 Increasing ratio
Margin
78.6% 79.0% 80.3%
Operating Profit
2 Decreasing ratio
Margin
23.4% 22.2% 18.5%
Net Profit Decrease first then
3
Margin increase
40.6% 20.8% 31.4%
Earnings per Decrease first then
4
Share increase
3.569 1.899 2.922
Return on Total
5 Increasing ratio
Assets
7.1% 7.4% 10.5%
Return on Decrease first then
6
Equity increase
29.9% 17.6% 25.8%

Market Ratios

Price Earnings Increase first then

1
(P/E) Ratio decrease
9.32 21.96 13.25
Market/ Book Increase first then
2
Ratio decrease
2.75 3.80 3.35

Other Ratios

Operating
1 Increasing ratio
Leverage
-69.683 -1.633 5.447

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Company Valuation: Olympic Industries Ltd.
Justification for Growth Rate (SGR)

ROE 22.77%
Retention Rate 0.42
Dividend Payout 0.58

SGR 9.47%

We have calculated Sustainable Growth Rate (SGR) to forecast “Statement of Profit and Loss”
and “Statement of Balance Sheet” for year 2020 to 2025. We have considered year 2019 as base
year and have calculated SGR by taking ROE and Retention Rate of 2019. To calculate the
retention rate, we have calculated dividend payout ratio of 2019. We have assumed that Olympic
Industries will grow from 2020 to 2025 by a constant growth rate which is our calculated SGR
9.47%. In this growth rate, Olympic Industries is allowed to take sustainable loans which will not
exceed their optimum D/E.

Pro-Forma Statements
Olympic Industries- Statement of Profit and Loss (amount in million BDT)
Gro
w by
Particulars 2019 2020 2021 2022 2023 2024 2025 SGR
11290. 13530. 14812. 16215. 17751. 19432.
Total Revenue 6 12360 8 4 5 5 9 Yes
11290. 13530. 14812. 16215. 17751. 19432.
Revenue 6 12360 8 4 5 5 9 Yes
Other revenue,
Total 0 0 0 0 0 0 0 Yes
Cost of Revenue, 7523.1 8235.7 9015.8 9869.8 10804. 11828. 12948.
Total 2 2 2 1 7 1 5 Yes
3767.4 4514.9 4942.6 5410.7 5923.3 6484.3
Gross Profit 4 4124.3 6 2 9 1 8 n/a
Total Operating 9137.4 10002. 10950. 11987. 13123. 14366.
Expense 3 9 4 7 2 2 15727 Yes
Selling/General/Ad
min. Expenses, 1605.1 1757.2 1923.6 2305.3 2523.7 2762.7
Total 9 4 8 2105.9 7 4 9 Yes
Research &
Development 0.09 0.1 0.11 0.12 0.13 0.14 0.15 Yes

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 Depreciation /
Amortization 4.3 4.71 5.15 5.64 6.18 6.76 7.4 Yes
Interest Expense
(Income) - Net
Operating - n/a
Unusual Expense
(Income) 4.73 5.18 5.67 6.21 6.79 7.44 8.14 Yes
Other Operating
Expenses, Total - Yes
2153.1 2357.0 2580.3 2824.7 3092.3 3385.2 3705.8
Operating Income 3 8 4 6 2 3 9 n/a
Interest Income
(Expense), Net
Non-Operating 169.95 186.05 203.67 222.96 244.08 267.2 292.51 Yes
Gain (Loss) on Sale
of Assets - n/a
- - - - - - -
Other, Net 100.29 109.79 120.19 131.57 144.04 157.68 172.62 Yes
Net Income 2222.7 2433.3 2663.8 2916.1 3192.3 3494.7 3825.7
Before Taxes 9 4 3 5 7 6 8 n/a
Provision for
Income Taxes 579.53 634.42 694.52 760.3 832.32 911.16 997.47 No
Net Income After 1643.2 1798.9 1969.3 2155.8 2360.0 2828.3
Taxes 5 1 1 4 5 2583.6 2 n/a
Minority Interest - n/a
Equity In Affiliates - n/a
U.S GAAP
Adjustment - n/a
Net Income Before 1643.2 2155.8 2360.0 2583.5
Extraordinary Items 5 1798.9 1969.3 3 3 8 2828.3 Yes
Total Extraordinary
Items - n/a
1643. 1798. 1969. 2155. 2583. 2828.
Net Income 3 9 3 8 2360 6 3 Yes

We have grown all the items of income statement except dividend and tax expense. We have
calculated future dividend amounts by considering they will grow at constant dividend payout of
2019 which is 58%. And we have calculated tax amounts by taking 2019 tax rate which is 26%.

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 Olympic Industries- Balance Sheet (amounts in million BDT)
Grow by
Particulars 2019 2020 2021 2022 2023 2024 2025 SGR
Total Current 7058. 7726.6 8458. 9259.7 11097. 12148
Assets 12 8 56 7 10136.9 1 .2 Yes
Cash and Short- 4734. 5182.5 5673. 6210.8 8148.
Term Investments 14 7 47 6 6799.17 7443.2 23 Yes
493.5 591.4 849.4
Cash 5 540.3 8 647.5 708.84 775.98 8 Yes
114.4 137.1 197.0
Cash & Equivalents 8 125.32 9 150.19 164.42 179.99 4 Yes
Short Term 4126. 4516.9 4944. 5413.1 6487.2 7101.
Investments 1 3 78 6 5925.9 1 69 Yes
Total Receivables, 1052. 1152.4 1261. 1381.1 1655.1 1811.
Net 73 5 61 1 1511.93 4 92 Yes
Accounts
Receivables -
Trade, Net - n/a
1253. 1371.7 1501. 1643.9 1970.1 2156.
Total Inventory 07 6 7 4 1799.66 2 74 Yes
Prepaid Expenses 18.18 19.9 21.79 23.85 26.11 28.58 31.29 Yes
Other Current
Assets, Total - n/a
1095 1313 1885
Total Assets 7.2 11995 1 14375 15737 17227 9 Yes
Property/Plant/Eq
uipment, Total - 3899. 4672. 6710.
Net 06 4268.4 7 5115.3 5599.8 6130.3 9 Yes
Property/Plant/Eq
uipment, Total -
Gross - - - - - - - n/a
Total Current 3181. 3225.7 3274. 3327.0 3448.3 3517.
Liabilities 63 8 11 2 3384.93 3 74 n/a
466.0 558.5 802.1
Accounts Payable 5 510.19 2 611.43 669.34 732.74 5 Yes
Payable/Accrued - - - - - - - No
Accrued Expenses 130.2 130.2 130.2 130.2 130.2 130.2 130.2 No
Notes
Payable/Short 1411. 1411.7 1411. 1411.7 1411.7 1411.
Term Debt 76 6 76 6 1411.76 6 76 No
Current Port. of LT
Debt/Capital 245.1 245.1 245.1
Leases 4 245.14 4 245.14 245.14 245.14 4 No
Other Current 928.4 928.4 928.4
liabilities, Total 9 928.49 9 928.49 928.49 928.49 9 No

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 3740. 4248. 4301.5 4422.8 4492.
Total Liabilities 88 4200.3 63 4 4359.45 5 26 n/a
Total Long-Term 415.2 415.2 415.2
Debt 7 415.27 7 415.27 415.27 415.27 7 No
415.2 415.2 415.2
Long Term Debt 7 415.27 7 415.27 415.27 415.27 7 No
Capital Lease
Obligations - - - - - - - No
Deferred Income 143.9 143.9 143.9
Tax 8 143.98 8 143.98 143.98 143.98 8 No
Minority Interest - - - - - - - No
Other Liabilities,
Total - - - - - - - No
7216. 7216.8 7217. 7218.8 7220.8 7221.
Total Equity 31 9 89 9 7219.89 9 89 n/a
Redeemable
Preferred Stock,
Total - - - - - - - No
Common Stock, 1999. 1999.3 1999. 1999.3 1999.3 1999.
Total 39 9 39 9 1999.39 9 39 No

Total liabilities &

shareholder's 1095 1146 1171
equity 7 11417 7 11520 11579 11644 4 n/a
Total Common 199.9
shares outstanding 4 No
Total Preferred
shares outstanding 0 n/a
EFN / (Cash 1,664 2,854. 4,157.3 5,583. 7,144
Reserve) 577.87 .74 65 6 57 .96

We have grown all items of assets by SGR. And in liabilities we have only grown accounts payable
and in equity, we have added the retained earnings with accumulated retained earnings. Then we
have shown the EFNs as SGR allows taking sustainable loans.

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Assumptions and Techniques Used for WACC Calculation
Cost of Debt:
Cost of debt is basically the rate in which a company pays interest for their debts. We have taken
interest expense from Olympic’s income statement and total debt from their balance sheet of 2019
as we have considered 2019 as base year to calculate WACC. Pre-tax cost of debt is 41% and after-
tax cost of debt is 30%. Here, we have used the tax rate in which Olympic pays their tax which is
26%.

Interest Expense 170m

Total Debt 415.27m
Pre-Tax Cost of Debt 41%
After-Tax Cost of Debt 30%

Cost of Equity:
By cost of equity, we realize the compensation that market demands in exchange for owing the
asset and bearing the risk of ownership. We have calculated cost of equity by using Capital Asset
Pricing Model (CAPM). In this case, we have found out the beta by comparing the movement of
Olympic’s share price and DSEX. Our calculated beta is 0.12 which is positive, and this means
Olympic’s share price is positively correlating with market. We have taken cut-off rate of 5-year
T-bond considering default spread which is 5.19% and market return (Rm) of 10.59%. In this case,
the cost of equity is 5.85%.

Beta 0.12
Risk Free Rate 5.19%
Market Return (Rm) 10.59%
Cost of Equity 5.85%

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Weighted Average Cost of Capital (WACC):
Base year: 2019
Beta 0.12
Risk Free Rate 5.19%
Market Return (Rm) 10.59%
Cost of Equity 5.85%
Interest Expense 170
Total Debt 415.27
Pre-Tax Cost of Debt 41%
After-Tax Cost of Debt 30%
Total Liability 3740.88
Total Equity 7216.31
Total Debt & Equity 10957.19
Percentage of Liability 34%
Percentage of Equity 66%
Tax Rate 26%

WACC 14.18%

Valuation
FCF Calculation:
2020 2021 2022 2023 2024 2025
EBIT 2,357.08 2,580.34 2,824.76 3,092.32 3,385.23 3,705.89
Depreciation 4.7 5.2 5.6 6.2 6.8 7.4
Tax 634.42 694.52 760.30 832.32 911.16 997.47
Operating Cash Flow 1,727.36 1,890.98 2,070.10 2,266.18 2,480.83 2,715.82
Ending Fixed Assets 4268.38 4672.69 5115.30 5599.83 6130.25 6710.92
Begging Fixed Assets 3899.06 4268.38 4672.69 5115.30 5599.83 6130.25
Depreciation 4.7 5.2 5.6 6.2 6.8 7.4
NCS 374 409 448 491 537 588
Ending NWC 4500.89 5184.45 5932.75 6751.94 7648.71 8630.44
Beginning NWC 3876.49 4500.89 5184.45 5932.75 6751.94 7648.71
∆NWC 624.40 683.56 748.30 819.18 896.78 981.72

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OCF 1,727.36 1,890.98 2,070.10 2,266.18 2,480.83 2,715.82
NCS 374 409 448 491 537 588
∆NWC 624.40 683.56 748.30 819.18 896.78 981.72
FCF 728.93 797.96 873.55 956.29 1,046.87 1,146.03

DCF Calculation:

2020 2021 2022 2023 2024 2025 Terminal Value

FCF 728.93 797.96 873.55 956.29 1,046.87 1,146.03 13102.26
PV of Cash Flows 638.38 612.03 586.77 562.56 539.34 517.08 5911.68

We have calculated terminal value as we expect Olympic Industries will continue their business
after 2025 to infinity. We have taken perpetual growth of 5% to calculate the terminal value. We
are assuming that Olympic will grow at a constant rate of 5% after 2025 to infinity. Then we have
discounted the future cash flows by taking WACC as discount rate.

Enterprise Value:
After discounting all the future cash flows, we have calculated the company’s total value often
known as market cap by adding all the PVs of cash flows. We have got 9367.84m BDT as
Olympic’s enterprise value.

Fair Value and Fair Price of Stock:

After calculating the enterprise value, we have found out the fair value of Olympic by subtracting
the total long-term debt of base year from the enterprise value. The fair value of Olympic is
8952.57m BDT.

Then we have found out the fair price of per stock by dividing the fair value by total number of
shares outstanding in the market. The fair price of Olympic’s per stock is 44.78 BDT as per our
calculation.

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Comparison of Fair Price with Current Market Price:
According to DSE, the current market price of Olympic Industries is 167 BDT as per 8th October,
2020. And our calculated fair price of per stock is 44.78 BDT. So, Olympic’s stock is overvalued
in the market as the current market price is greater than the fair price which means that the investors
are investing in Olympic by paying more than our calculated fair price.

Enterprise Value 9,367.84

Fair Value 8,952.57
Number of Common Share Outstanding 199.94
Fair Value per Stock 44.78
Current Market Price 167

Investment Decision
Investing in a company is not only to consider the Intrinsic value but many other aspects. We need
to consider if the Free Cash Flow has a consistent upward trend or not, private information of the
company and the sustainability in all sectors are equally important as well.

Based on all the factors we think that it won’t be a good decision to invest in Olympic industries
Ltd. since their shares are overvalued. However, overvalued stocks are sought by investors
looking to short a position, selling shares to repurchase them when the price falls back in line with
the market.
This overvaluation may result from an uptick in emotional trading, or illogical, gut-driven decision
making that artificially inflates the stock's market price. Overvaluation can also occur due to
deterioration in a company's fundamentals and financial strength. Potential investors strive to
avoid overpaying for stocks. Therefore, we know that the intrinsic value is the actual reflection of
all the assets but Olympic has low intrinsic value with an unstable trading price.

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References

(2020, October 09). Retrieved from Pfizer Inc.: https://www.pfizer.com/

(2020, October 09). Retrieved from Olympic Industries Limited: http://olympicbd.com/
(2020, September 25). Retrieved from Barron's: https://www.barrons.com/articles/pfizer-
highlights-dozens-of-drugs-pipeline-what-it-means-to-growth-vaccine-51600118631
(2020, October 08). Retrieved from Investing.com: https://www.investing.com/equities/olympic-
industries-ltd
(2020, October 09). Retrieved from Dhaka Stock Exchange: https://www.dsebd.org/
Financial Report . (2018-2019). Retrieved from Olympic Industries Limited:
http://olympicbd.com/financials-annual-report/
Financial Report. (2017). Retrieved from Pfizer Inc.:
https://s21.q4cdn.com/317678438/files/doc_financials/Annual/2017/Financial-Report-
2017.pdf
Financial Report. (2018). Retrieved from Pfizer Inc.:
https://s21.q4cdn.com/317678438/files/doc_financials/Annual/2018/2018-Financial-
Report.pdf
Financial Report. (2019). Retrieved from Pfizer Inc. :
https://s21.q4cdn.com/317678438/files/doc_financials/2018/ar/Pfizer-2019-Financial-
Report.pdf
Financial Statement Analysis. (2020, October 06). Retrieved from Investopedia:
https://www.investopedia.com/terms/f/financial-statement-analysis.asp
Thomas R. Robinson, C. E. (n.d.). In International Financial Statement Analysis.

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Appendix
Financial Statements of Pfizer Inc.
2017

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Financial Statements of Pfizer Inc.
2018

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Financial Statements of Pfizer Inc.
2019

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Financial Statements of Olympic Industries Ltd.
2018-2019

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