Term Project Name:

RATIO ANALYSIS & VALUATION REPORT

Term Project Details:

Ratio Analysis conducted for Johnson & Johnson.
& Valuation for Grameenphone Limited & Johnson & Johnson

Project Prepared for:

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

Project Prepared by:

1712076030 Faiza Islam

1721347030 Asaduzzaman Nasir Shikder
1711439030 Ridwan Rafid Hussain
1621113030 Nabil Abdul Muhaimen
1713092630 Shefa- Ul- Alam Chowdhury
1621055030 Titam Bhattacharjee

Date of Submission: May 27th, 2021

Group: 04
Section: 04
Course Code: Fin 410
Course Name: Financial Statement Analysis
 Ratio Analysis & Valuation Report

Date: 27th May , 2021

To: Mr. Taskin Shakib

Lecturer
Department of Accounting & Finance
School of Business & Economics
North South University
Subject: Submission of Term Report

Dear Sir,
We are extremely grateful for the valuable learnings that we have extracted from doing the
Financial Statement Analysis course. As per your instructions and guidance, we have
successfully done Ratio analysis and Valuation of the assigned companies. While doing the
Valuation, we have tried our best to go in depth of the technique and place our own views
regarding the current situation of the companies.
Therefore, we submit the report and expect that you would find the report articulated as per your
wish.
Yours Sincerely,
1712076030 Faiza Islam
1721347030 Asaduzzaman Nasir Shikder
1711439030 Ridwan Rafid Hussain
1621113030 Nabil Abdul Muhaimen
1713092630 Shefa- Ul- Alam Chowdhury
1621055030 Titam Bhattacharjee

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 Ratio Analysis & Valuation Report

Introduction: 3
Grameenphone: 3
Johnson & Johnson: 3

Ratio Analysis for Johnson & Johnson: 4

Liquidity Ratios: 4
Efficiency Ratios: 6
Operating Leverage: 9
Financial Leverage: 10
Debt to Equity Ratio: 11
Earnings Per Share: 11
Price to Earnings Ratio: 12

Valuation of Grameenphone 13
Weighted Average Cost of Capital Calculation 16
Free Cash Flow Calculations: 17
Investment Decision on Grameenphone: 18

Valuation for Johnson & Johnson 19

Appendix 24

Financial Statements for Johnson & Johnson 26

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 Ratio Analysis & Valuation Report

Introduction:

Grameenphone:
Grameenphone Ltd. provides mobile telecommunication and related services in Bangladesh. The
company offers prepaid and postpaid services; Internet, roaming, GP Accelerator program,
digital services and channels, and international roaming services, as well as infrastructure and
financial services. It also provides devices and value added services. In addition, the company
offers corporate bulk SMS, OTT platform, audio conferencing service, voice message broadcast,
smart tracker, team tracker, buddy tracker, train tracking, M-reporting, smart connect, smart
surveillance, cloud store, smart attendance, cyber security, M-centrex, smart parking solution,
Microsoft office 365, and digital signage services. As of December 31, 2020, it served
approximately 79 million subscribers. The company was incorporated in 1996 and is based in
Dhaka, Bangladesh. Grameenphone Ltd. is a subsidiary of Telenor Mobile Communications AS
(Simply Wall.st, n.d.).

Johnson & Johnson:

Johnson & Johnson researches and develops, manufactures, and sells a range of products in the
healthcare field worldwide. It operates through three segments: Consumer Health,
Pharmaceutical, and Medical Devices. The Consumer Health segment offers baby care products
under the JOHNSON’S and AVEENO Baby brands; oral care products under the LISTERINE
brand; skin health/beauty products under the AVEENO, CLEAN & CLEAR, DR. CI:LABO,
NEUTROGENA, and OGX brands; acetaminophen products under the TYLENOL brand; cold,
flu, and allergy products under the SUDAFED brand; allergy products under the BENADRYL
and ZYRTEC brands; ibuprofen products under the MOTRIN IB brand; smoking cessation
products under the NICORETTE brand; and acid reflux products under the PEPCID brand. This
segment also provides women’s health products, such as sanitary pads and tampons under the
STAYFREE, CAREFREE, and o.b. brands; wound care products comprising adhesive bandages
under the BAND-AID brand; and first aid products under the NEOSPORIN brand. The
Pharmaceutical segment offers products in various therapeutic areas. The Medical Devices
segment provides electrophysiology products to treat cardiovascular diseases and neurovascular
care products to treat hemorrhagic and ischemic stroke; orthopaedics products in support of hips,
knees, trauma, spine, sports, and other; advanced and general surgery solutions that focus on
breast aesthetics, ear, nose, and throat procedures; and disposable contact lenses and ophthalmic
products related to cataract and laser refractive surgery under the ACUVUE brand. The company
markets its products to general public, and retail outlets and distributors, as well as distributes
directly to wholesalers, hospitals, and health care professionals for prescription use. Johnson &
Johnson was founded in 1886 and is based in New Brunswick, New Jersey.

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 Ratio Analysis & Valuation Report

Ratio Analysis for Johnson & Johnson:

Liquidity Ratios:

Liquidity refers to how fast or easily a company can generate assets. Liquidity gives a company
flexibility. The market of the business is dynamic and it can change very rapidly. So, the
company needs to be more liquid to adjust with any changes or unpredictable situations. The
liquidity gives the company adaptation power. The most liquid asset is cash. Liquidity is
measured through 3 different ratios. They are current ratio, quick ratio and cash ratio.
Current Ratio: Current Assets/ Current Liabilities
Current ratio indicates the amount of current asset reserve for each unit or each dollar of current
liabilities.

Year 2018 2019 2020

Current Ratio 1.205775069 1.258869981 1.47399936

From the above, it can be seen that

each year it has more current ratio
than 1. That means in each year J&J
company takes more than $1 current
asset against the $1 current
liabilities. So, the liquidity position
is very good for J&J.
From time series analysis it is
noticed that the current ratio of J&J
companies is increasing
consecutively over years which is a
very good sign for liquidity purposes. In 2018 It has 1.20 as the current ratio. Then in 2019 the
current ratio is 1.258 and in 2020 it is 1.47. So, in 2020 it will have the most current ratio. J&J
has the ability to meet the current liability obligation and adapt with unpredictable situations and
take some opportunity in any period of time and among the three years in 2020 it has more
capability to pay obligations.
Quick Ratio: ( Cash + Cash Equivalents)/Current Liabilities
Quick Ratio gives a more clear idea about the liquidity than the current Ratio. It excludes
inventory and prepaid expenses from the current asset. Inventory is less liquid than cash or A/R
may be converted to A/R than it converts as Cash. Another disadvantage is that inventory may
lose some of its value at any period of time.

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 Ratio Analysis & Valuation Report

Year 2018 2019 2020

Quick Ratio 0.91217377 0.938938939 1.08181236

In the 2018-2020 period the quick

ratios are increasing consecutively.
The standard value of quick Ratio is
1. In 2018 the J&J had a quick ratio
of .91. So, this year's quick ratio is
little below the standard level. Then
in 2019 it was .94 which is greater
than the 2018. In 2020 the quick
ratio is 1.1 which is greater among
all the three years. And the standard
level. So, the quick ratio of 2020 is
in a very good position. In 2020 J&J
has the capability to meet the obligation with more liquid current assets such as Cas, A/R etc.
Cash Ratio: Cash/ Current Liabilities
Cash ratio measures the dollar amount of cash or cash equivalent asset against each amount of
current liabilities. If the cash ratio is large that means it has more capability to meet the short
time obligation with the cash and cash equivalent asset of the company.

Year 2018 2019 2020

Cash Ratio 0.32911303 0.48117562 0.579795069

Cash ratio measures the dollar amount of

cash or cash equivalent asset against each
amount of current liabilities. If the cash
ratio is large that means it has more
capability to meet the short time obligation
with the cash and cash equivalent asset of
the company.
For J&J company the value of cash Ratio is
increasing consecutively over 2018,2019
and 2020. In 2018 the cash ratio was .33
that means reserve .33$ cash against each unit of current liability which is not good for liquidity.
In 2019 it was increased by .09 Which is a very good sign for liquidity. Then in 2020 it will
increase by .10 which is also a good sign for liquidity. So, it can be said that in terms of cash in

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 Ratio Analysis & Valuation Report

J&J has the best liquidity in 2020. But a higher level of cash ratio indicates that the cash is
maintained as idle assets. So, they need to invest to maintain the net profit for the company.

Efficiency Ratios:
Accounts Receivables Turnover Ratio:

2018 5.63
2019 5.67
2020 6.08

Time series analysis of Johnson and

Johnson: Accounts receivables
turnover ratio provides us the number
of times accounts receivables is
converted into cash sales. The graph
above shows that the receivables
turnover for Johnson and Johnson. In
2018, The receivables turnover was
5.63, which means Johnson &
Johnson converted the receivable into
cash 5.63 times. In 2019, it was 5.67
and in 2020, it was 6.08.
In general, higher receivables turnover ratio is better. If we look at the trend of J & J from 2018
to 2020, the receivables turnover increased subsequently. It implies that over time Johnson and
Johnson is managing their receivables more efficiently.
Days receivables:

2018 64.79
2019 64.41
2020 60.00

Time series analysis of Johnson and Johnson:

Days receivables ratio provides us the number of
days accounts receivables is converted into cash
sales for a company. The figure above shows the
days receivables ratio of Johnson and Johnson. In
2018, the days receivable ratio was 64.79 days
meaning they are turning the accounts receivable

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 Ratio Analysis & Valuation Report

into cash within 64.79 days. In 2019 it was 64.41 and it was 60 days for the year 2020.
We know that lower days receivables mean the company is doing well to collect its receivables.
So, J&J is doing good statistically but too much lower credit period means more chances for
potential sales lost and a significant amount of previous accounts receivables will be found on
the balance sheet. It is not good from the company's point of view.
Inventory turnover ratio:

2018 3.15
2019 3.05
2020 3.04

Time series analysis of Johnson and Johnson: We know, inventory ratio means how many
times the inventories are restored during
the year. The graph above shows that J &
J used up the inventories 3.15 times in
2018. They used up the inventory 3.05
times in 2019 and 3.04 times in 2020.
Usually, higher inventory turnover means
the company is taking a shorter time to
process its inventory. If we look at the
graph, J & J did better in 2018. But in
2019 and 2020 the inventory turnover
ratio fell. Which means their efficiency for
inventory turnover has decreased.
Days inventory:

2018 115.86
2019 119.48
2020 119.98

Time series analysis of Johnson and Johnson:

Days inventory ratio indicates the number of
days it takes for the inventory to convert into
finished product. The figure above shows that
Johnson and Johnson had a ratio of 115.86 in
2018, 119.48 in 2019 and 119.98 in 2020.
Lower days inventory means the company is
processing its inventory quickly. For J & J, the

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 Ratio Analysis & Valuation Report

day's inventory increased gradually from 2018 to 2020. Which means they are processing the
inventory slower compared to 2018. Johnson and Johnson need to lower the day's inventory to
operate more efficiently.
Accounts payable turnover:

2018 3.57
2019 3.27
2020 3.02

Time series analysis of Johnson and Johnson: Payables turnover indicates the number of
times that payables are rotated during the
period. The graph above shows the accounts
payable of J & J for 2018-2020. In 2018, the
payable turnover was 3.57. Which decreased
to 3.27 in 2019 and 3.02 in 2020.
Accounts payable turnover gives us how
many times the company is paying off its
suppliers. Higher turnover means the
company is making the payment quickly. But
companies should try to take time to pay
back the suppliers as it gives more flexibility.
For Johnson and Johnson, the ratio decreased
over time. They paid back the payables 3.02 times in 2020. J & J is stable in terms of this
efficiency ratio.
Days payable Ratio:

2018 102.17
2019 111.47
2020 120.67

Time series analysis of Johnson and Johnson:

We know, days payable represents the number of
days a company takes to make the payment to its
suppliers. The above figure shows the days
payable ratio for J & J. In 2018 it was 115.86
days. It increased to 119.48 days. In 2020 there
was also a slight increase to 119.98 days.

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 Ratio Analysis & Valuation Report

Higher accounts payable days is better for a company from the liquidity point of view. It also
creates flexibility and more opportunity to pay off creditors. Johnson and Johnson are doing
good as they are taking 119.98 days to pay off their creditors.
Cash conversion cycle:

2018 78.47
2019 72.42
2020 59.31

Time series analysis of Johnson and

Johnson: Cash conversion cycle
indicates the total time taken by the firm
to convert its cash outflows into cash
inflows. The above graph shows the
cash conversion cycle for Johnson and
Johnson. They took 78.47 days in 2018
to convert their cash outflows to cash
inflows. In 2019, it was 72.42 days and
in 2020 it decreased to 59.31 days.
It is better to have a lower cash
conversion cycle for the companies.
Because if the conversion cycle is higher, it means that it takes longer for the company to
generate cash returns. A lower cash conversion cycle is viewed as a healthy company. Here, J &
J improved over the years. Their cash conversion cycle decreased from 78.7 days in 2018 to
59.31 days in 2020. It implies that Johnson and Johnson are improving their cash conversion
cycle with each year. They are managing the cash conversion cycle more efficiently.

Operating Leverage:
Time Series Analysis of JNJ:

Year 2018 2019 2020

Operating Leverage 0.32 12.31 -8.39

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 Ratio Analysis & Valuation Report

Operating leverage is the percentage change in operating profit relative to sales. It is used to
measure how sensitive the operating income is to the change in revenue. This chart above
represents the operating leverage ratio of JNJ.

In 2018, the operating leverage was

0.32 which indicates they have slightly
high fixed costs which results in a
change in sales in operating income of
the company. The operating leverage
decreased in 2019 to -12.31 which is
because of significant investment in
fixed assets like property, plants and
equipment and intangible assets. The
ratio however improved in 2020 to -8.39 which means that their fixed costs have reduced over
the year which helped them to improve their operating leverage.

Financial Leverage:

Time Series Analysis of JNJ:

Year 2018 2019 2020

Financial Leverage 0.0019 6.15 2

Financial leverage is the percentage

change in Net profit relative to
operating profit. Financial leverage
shows how sensitive the Net income
is to the change in operating profit. It
originates from the company's
financial decisions. This chart above
represents the financial leverage of
JNJ.
In 2018, financial leverage was .0019
which means net income changes by
0.0019% for every 1% change in

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 Ratio Analysis & Valuation Report

operating profit. In 2019, financial leverage has increased to 6.15 which means that the company
is using more debt to finance its assets and operations. In 2020 the ratio decreased to 2 which
means that the company has debt but its operations and sales are generating enough revenue to
grow its assets through profit.

Debt to Equity Ratio:

Time Series Analysis of JNJ:

Year 2018 2019 2020

Debt to Equity 0.51 0.46 0.55

Debt to equity is a measurement of the

degree to which a company is financing
its operations through debt or through
wholly owned funds. It shows the
company’s ability to pay off debts with
its own capital.
In 2018, the debt to equity ratio was
0.51. It is a low ratio which indicates
that they are able to cover their liability
efficiently with their own capital. In
2019, the ratio has decreased slightly
which indicates a better management of shareholders equity. In 2020, the ratio increased a little
bit which may be because they were unable to generate sufficient cash flow from their own
operations and were relying more on external debt during that particular year.

Earnings Per Share:

Year 2018 2019 2020
EPS $5.588726831 5.715851953 5.704642924

Eps indicates the earning for per outstanding common share. The large amounts of Eps for any
year indicates that the company has more profitability in this year. A higher level of Eps refers to
greater value because if the earning from a share is more then the investor will agree to pay more
for buying the share of that particular company.

For J&J the Eps of 2018 was $ 5.59that means it generated $5.59 do for per outstanding common
stock. In 2019, EPS will be 5.72 dollars which is a very good sign for the company because it

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 Ratio Analysis & Valuation Report

can secure .13 dollar extra earnings per share than 2018. It will increase the price of the share.
Then on 2.20 the price of the share was
$5.704 which is less than 2019. The
decrease of EPS is a bad sign for J&J.

Price to Earnings Ratio:

Time Series Analysis of JNJ:

Year 2018 2019 2020

P/E Ratio 22.5 23.09 27.8

Price-to-earnings 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 2018, the P/E ratio was 22.5

which means that the investors are
willing to pay $22.5 for $1 of
current warnings. We can see a
gradual increase in the P/E ratio of
JNJ from 22.5 to 27.8 in the past
three years. This increasing P/E ratio
indicates that investors are expecting
a higher growth in the future that’s
why they are willing to pay more.

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 Ratio Analysis & Valuation Report

Valuation of Grameenphone

SGR Calculation
Net Profit 36,717,189
Total Equity 52,107,614
ROE 0.7046415328

Dividend Paid 17,554,366

Net Profit 36,717,189
Dividend Payout 0.4780966756
Retention Rate 0.5219033244

SGR 0.3678
1.3678

Pro Forma Income Statement Calculations

2020 2021 2022 2023 2024 2025
BDT (000) BDT (000) BDT (000) BDT (000) BDT (000) BDT (000)
Revenue 139,606,161 190946991 261168655.6 357214671.4 488582066.6 668260446.5

Cost of Material &

Traffic Charges -8,812,905 -12053892.75 -16486769.17 -22549856.98 -30842674.18 -42185214.38
Salaries & Personnel
Cost -10,027,226 -13714786.08 -18758463.92 -25656978.28 -35092454.13 -47997871.13
Operation &
Maintenance -4,984,745 -6817908.693 -9325227.058 -12754623.68 -17445197.23 -23860751.53
Sales, Marketing
and Commissions -11,771,112 -16099994.45 -22020844.02 -30119114.19 -41195561.76 -56345425.62
Revenue Sharing
and Spectrum
charges -10,478,334 -14331791.19 -19602375.6 -26811242.5 -36671204.51 -50157214.46
Other operating
(Expenses)/Income -6,442,284 -8811464.596 -12051922.63 -16484074.53 -22546171.37 -30837633.18
Depreciation and
amortisation -23,649,950 -23,649,950 -23,649,950 -23,649,950 -23,649,950 -23,649,950
-76,166,556 -95479787.75 -121895552.4 -158025840.2 -207443213.2 -275034060.3

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 Ratio Analysis & Valuation Report

Operating Profit 63,439,605 286426778.8 383064208 515240511.6 696025279.8 943294506.8

Finance
(Expense)/Income -376,473 -514922.7372 -704288.024 -963293.2962 -1317548.99 -1802083.9
Foreign Exchange
(Loss)/Gain -262,226 -358660.8593 -490560.097 -670965.9069 -917716.812 -1255211.536
-638,699 -873583.5965 -1194848.121 -1634259.203 -2235265.802 -3057295.436
Profit Before Tax 62,800,906 287300362.4 384259056.1 516874770.8 698260545.6 946351802.3

Income Tax Expense -25,613,869 -71825090.59 -96064764.02 -129218692.7 -174565136.4 -236587950.6

Profit After Tax 37,187,037 359125453 480323820.1 646093463.5 872825682 1182939753

Other income
Remeasurement of
defined benefit plan -783,080 -783,080 -783,080 -783,080 -783,080 -783,080
Related taxes 313,232 313232 313232 313232 313232 313232
-469,848 -469,848 -469,848 -469,848 -469,848 -469,848
Total
Comprehensive
Income for the year 36,717,189 35,88,12,221 48,00,10,588.1 64,57,80,231.5 80,725,12,450 118,26,26,521

Pro Forma Balance Sheet

2020 2021 2022 2023 2024 2025
BDT ( 000) BDT ( 000) BDT ( 000) BDT ( 000) BDT ( 000) BDT ( 000)
Assets
Property, plant and
equipment 56,901,192 77826876.12 106448080.1 145594868.2 199138073.7 272372047.9
Intangible assets 2,316,587 3168522.893 4333762.264 5927523.958 8107399.099 11088933.7
Right-of-use assets 53,532,673 73219568.23 100146412.9 136975732.7 187349210.2 256247773.8
Contract cost 4,934,438 6749101.055 9231115.083 12625901.58 17269136.97 23619944.26
Other non-current assets 20,568,456 28132603.57 38478502.4 52629154.75 71983776.85 98456153.31
Total non-current assets 138,253,346 189096671.9 258637872.7 353753181.2 483847596.9 661784853

Current assets

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 Ratio Analysis & Valuation Report

Inventories 201,068 275011.7138 376148.5801 514479.0104 703681.1146 962463.1929

Trade Receivables and
others 7,131,165 9753684.862 13340648.88 18246735.99 24957059.98 34135137.54
Cash and cash equivalents 2,598,738 3554436.265 4861597.116 6649472.589 9094847.774 12439521.32
Total current assets 9,930,971 13583132.84 18578394.58 25410687.59 34755588.87 47537122.05

Total Assets 148,184,317 202679805 277216267 379163869 518603186 709321975

Equity and liabilities

Shareholders' Equity
Share capital 13,503,000 13,503,000 13,503,000 13,503,000 13,503,000 13,503,000
Share premium 7,840,226 7,840,226 7,840,226 7,840,226 7,840,226 7,840,226
Capital reserve 14,446 14,446 14,446 14,446 14,446 14,446
Deposit from shareholders
Retained earnings 30,749,942 42058379.49 57525548.68 78680842.94 107616097.3 147192429.2
Total equity 52,107,614 63416051.49 78883220.68 100038514.9 128973769.3 168550101.2

Non-current liabilities
Lease liabilities 14,146,840 14,146,840 14,146,840 14,146,840 14,146,840 14,146,840
Deferred tax liabilities 3,350,834 3,350,834 3,350,834 3,350,834 3,350,834 3,350,834
Employee benefits 1,641,383 1,641,383 1,641,383 1,641,383 1,641,383 1,641,383
Other non-current liabilities 281,272 281,272 281,272 281,272 281,272 281,272
New Loans Taken 34365306.7 81368618 145657622 233589213 353858064
Total non-current
liabilities 19,420,329 19,420,329 19,420,329 19,420,329 19,420,329 19,420,329

Current liabilities
Trade payables and others 23,988,115 32809858.44 44875840 61379143.7 83951615.87 114825222.1
Provisions 14,402,559 14,402,559 14,402,559 14,402,559 14,402,559 14,402,559
Lease liabilities 6,328,697 6,328,697 6,328,697 6,328,697 6,328,697 6,328,697
Loans and borrowings 1,240,000 1,240,000 1,240,000 1,240,000 1,240,000 1,240,000
Current tax liabilities 24,870,650 24,870,650 24,870,650 24,870,650 24,870,650 24,870,650
Other current liabilities 5,690,023 5,690,023 5,690,023 5,690,023 5,690,023 5,690,023
Unclaimed dividend 136,330 136,330 136,330 136,330 136,330 136,330
Total current liabilities 76,656,374 85478117.44 97544099 114047402.7 136619874.9 167493481.1

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 Ratio Analysis & Valuation Report

Total equity and liabilities 148,184,317 202,679,805 277,216,267 379,163,869 518,603,186 709,321,975

Weighted Average Cost of Capital Calculation

Cost of Equity Calculation:

We have taken the Beta value to be 1.04 considering the business environment risk of the
company. Due to political instability and pandemic continuing, the risk is higher. The Risk Free
Rate has been considered 5.69% as per Central Bank’s report. The market return has been
adjusted with FDR of 9%. We have increased it by 2.5% as the government might go for an
increase to wipe capital from banks for purchasing depository certificates. We have used the
CAPM model to calculate Cost of Equity.

CAPM = Rf + Beta ( Rm -Rf)

Cost of Debt Calculation:

We have taken the Interest Expense from the income statement of 2020. The after tax cost of
debt is 15.79% and outstanding loans equal to BDT 14,428,112,000.

Cost of Debt = Interest Expense * ( 1- Tax Rate)/ Outstanding Debt

WACC Calculation:
WACC = W(E)* Cost of Equity + W(D) * Cost of Debt (1-Tax Rate)

WACC = 0.3516*0.1173 + 0.6484*0.1579(1-0.4079) = 13.47%

Beta 1.04
Risk Free Rate 5.69%
Market Return 11.50%
Cost of Equity 0.1173
11.73%
Interest Expense 25,613,869
Total Debt 14,428,112
Tax Rate 40.79%
Total Liability 96,076,703
Total Equity 52,107,614
Total Debt & Equity 148,184,317
Weight of Liability 64.84%

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 Ratio Analysis & Valuation Report

Weight of Equity 35.16%

Cost of Debt 15.79%
Pre Tax Cost of Debt 26.66%
After Tax Cost of Debt 15.79%
WACC 13.47%

Free Cash Flow Calculations:

2021 2022 2023 2024 2025

Net Income 358812221 480010588.1 645780231.5 872512450 1182626521
Non Cash Charges 23649950 23649950 23649950 23649950 23649950
( Net Fixed Asset Investment) 50,843,326 69541200.88 95115308.42 130094415.7 177937256.1
Net Working Capital
Investment -5,169,582 -7070719.827 -9671010.69 -13227570.89 -18092073.03
Interest ( 1-T) 42527636.14 56879946.78 76510387.95 103360017.3 140083725.6
Free Cash Flow 379316063.1 498070003.8 660496271.7 8802655573 1186515014

Here, we have used the equation:

Free Cash Flow = Net Income + Interest ( 1-T) - Net Fixed Asset Investment - Net Working Capital
Investment + Non Cash Charges

Where,
1) NI has been taken from the Income Statement
2) Interest has been calculated using tax rate of 40.47%
3) Net Fixed Asset = ( Ending Fixed Asset - Beginning Fixed Asset)
4) Net Working Capital Investment = ( Ending CA- Beginning CL) - ( Beginning CA - Beginning
CL)
5) Non Cash Charges = Depreciation

2021 2022 2023 2024 2025 TV

Present Value 334287532.5 386837241.3 452092399.6 5309938484 630765547.1 7819407609
Total Risk Adjusted Cash
Flows 14933328814
Less: Outstanding Loan 14,428,112
Total Value of Equity 14,918,900,702
Shares Outstanding 135,030,002
Fair Value of Stock 110.4858215 PV(1) =

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 Ratio Analysis & Valuation Report

Here, we have used the equation:

Present Value = ( FCF)/(1+WACC)^n

Total Risk Adjusted Cash Flows = PV ( 2021) + PV (2022) + PV ( 2023) + PV ( 2024) + PV ( 2025) + PV
( TV)

To calculate the Terminal Value, we have the FCF of our terminating year, which is 2025 using a
perpetual growth rate of 5% ( as instructed).

Terminal Value = FCF ( 1 + g) / ( WACC- g)

Comparison of figures:
Market Price = BDT 347.20
Fair Price = BDT 110.49
Overvalued by = BDT 236.61

Decision for Investors:

Sell Grameenphone stock as it is overpriced and the description is given below.

Investment Decision on Grameenphone:

As per our valuation of Grameenphone , the fair value of stock price is BDT 110.49. The market
value as of 31st December, 2020 is BDT 347.10. As per our analysis of Grameenphone,
compared to Market Value, the stock is overvalued by BDT 236.61. Grameenphone, from its
inception in the stock market in 2009, the company’s stock has been the driving force for DSE
Index. Investors have been seeking for the company’s shares since then and also with top notch
service quality, superior customer service, innovatives packages, the largest telecom operator has
acquired over 7.5 crores of subscribers. Likewise, investors have put their faith in its stock and
till 31st December, 2020 the price has reached near to BDT 350. However, the company has been
facing serious issues with the regulators with a dispute of BDT 12 crore tax issue, which by any
means, Grameenphone has to pay to the regulators otherwise they might face “ Cancellation of
Operator” license. To mitigate the effect on its business environment, the company posted
positive news regarding the payment of taxes which kept the investors sentiment intact and thus,
the price of the stock has been growing. However, the company’s capital risk has increased
significantly due to payment of 12 crore taxes. They have sourced money from financial
institutions which has increased the Capital Risk of the company, thus reducing the intrinsic

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 Ratio Analysis & Valuation Report

value. Moreover, due to fierce competition, other players are finding loopholes in the system to
restrict Grameenphone to buy excess spectrum that gives them the upper hand. If regulation is
enacted on the spectrum buying , then the customers might face call dropping issues. Also, due
to the pandemic, Grameenphone has reported loss from International Roaming packages and
internet packages as most of its customers are working from home using broadband connections.
Although, we consider Grameenphone’s future till infinity, with a strong GDP growth rate, the
company will grow with the economy but will grow less as room for growth sustainably is
narrow. Therefore, the stock price might fall due its growing concerns with regulators and
embargo on product diversification. So, we recommend selling the stock of Grameenphone.

Valuation for Johnson & Johnson

SGR Calculation
Net Profit 15,363
Total Equity 63,278
ROE 0.2427858023

Dividend Paid 10,148

Net Profit 15,363
Dividend Payout 0.66054807
Retention Rate 0.33945193

SGR 0.0824
1.0824

Income Statements Pro Forma

2020 2021 2022 2023 2024
Sales to customers $82,584 $89,389 $96,755 $104,727 $113,357
36049.0961 39019.5416
Cost of products sold 28,427 30769.3848 33304.78211 5 8
Gross profit 54,157 $58,620 $63,450 $68,678 $74,337

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 Ratio Analysis & Valuation Report

Selling, marketing and administrative 28005.3554 30312.9967

expenses 22,084 23903.7216 25873.38826 5 4
15419.1775 16689.7177
Research and development expense 12,159 13160.9016 14245.35989 5 8
229.531304 248.444684
In-process research and development 181 195.9144 212.0577466 9 4
Interest income -111 -111 -111 -111 -111
Interest expense, net of portion
capitalized 201 201 201 201 201
3676.30526 3979.23281
Other (income) expense, net 2,899 3137.8776 3396.438714 4 8
Restructuring 247 247 247 247 247
Earnings before provision for taxes on 47667.3695 51567.3920
income 16,497 40735.4152 44064.24461 7 2
2261.07357 2447.38603
Provision for taxes on income 1,783 1929.9192 2088.944542 2 5
Net earning $14,714 38805.496 41975.30007 45406.296 49120.00599

Pro Forma Balance Sheet

2020 2021 2022 2023 2024 2025
Assets
Current assets
Cash and cash equivalents $13,985 $15,137 $16,385 $17,735 $19,196 $20,778
13121.805 14203.042 15373.372
Marketable securities 11,200 12122.88 31 07 74 16640.13865
14694.662 15905.502 17216.1159 18634.723
Accounts receivable trade 13,576 4 58 9 95 20170.22521
10947.334 12825.785
Inventories 9,344 10113.9456 72 11849.3951 25 13882.62996
Prepaid expenses and other
receivables 3,132 3390.0768 0 0 0 0
Assets held for sale
55458.928 56359.325 61003.333 66030.008
Total Current Assets 51,237 8 4 82 52 71470.88123
20312.318 21986.053 23797.704 25758.635
Property, plant and equipment, net 18,766 4 44 24 07 27881.1466
57802.324 62565.236 67720.6118 73300.790
Intangible assets, net 53,402 8 36 4 26 79340.77537

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 Ratio Analysis & Valuation Report

39391.783 42637.666 46151.009 49953.853

Goodwill 36,393 2 14 83 03 54070.05052
Deferred taxes on income 8,534 8,534 8,534 8,534 8,534 8,534
7687.9720 8321.4608 9007.1492
Other assets 6,562 7102.7088 05 98 76 9749.338377
188602.06 199770.25 215528.12 232584.43
Total assets $174,894 4 33 06 62 251046.1921
Liabilities and Shareholders’ Equity
Current Liabilities
Loans and notes payable $2,631 $2,631 $2,631 $2,631 $2,631 $2,631
11135.9606 12053.563 13046.777
Accounts payable 9,505 10288.212 7 83 49 14121.83195
Accrued liabilities 13,968 13,968 13,968 13,968 13,968 13,968
Accrued rebates, returns and
promotions 11,513 11,513 11,513 11,513 11,513 11,513
Accrued compensation and employee
related obligations 3,484 3,484 3,484 3,484 3,484 3,484
Accrued taxes on income 1,392 1,392 1,392 1,392 1,392 1,392
Total current liabilities 42,493 $43,276 $44,124 $45,042 $46,035 $47,110
Long-term debt 32,635 32,635 32,635 32,635 32,635 32,635
Deferred taxes on income 32,635 32,635 32,635 32,635 32,635 32,635
Employee related obligations 10,771 10,771 10,771 10,771 10,771 10,771
Long-term taxes payable 6,559 6,559 6,559 6,559 6,559 6,559
Total liabilities 111,616 111,616 111,616 111,616 111,616 111,616
Shareholders’ equity
Preferred stock 3,120 3,120 3,120 3,120 3,120 3,120
Accumulated other comprehensive
income (loss) -15,242 -15,242 -15,242 -15,242 -15,242 -15,242
123274.53 133432.35 144427.18 156327.98
Retained Earnings 113,890 6 78 4 4 169209.4099
110153.683 119230.346 129054.92 139689.05
101,768 2 7 73 33 151199.4313
Total shareholders’ equity 63,278 221,306 240,541 261,360 283,895 308,287
Total liabilities and shareholders’
equity 174894 332,922 352,157 372,976 395,511 419,903

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 Ratio Analysis & Valuation Report

Free Cash Flow

2021 2022 2023 2024 2025

Net Income 388,045.96 41,975.00 45,406.00 49,120.00 20,339.92
Non Cash Charges 7,231.00 7,231.00 7,231.00 7,231.00 7,231.00
Net Fixed Asset
Investment 4,221.00 900.00 4,644.00 7,294.79
Net Working Capital
Investment 1,883.50 2,009.50 2,143.93 2,287.35 2,440.36
Interest ( 1-T) 191.29 204.08 217.74 232.30 247.84
Free Cash Flow 389,363.74 46,500.58 46,066.81 47,001.16 25,378.41
TV
Present Value 382,968.17 44,985.52 43,833.85 43,988.31 23,751.61 1,540,127.38

Where,
1) NI has been taken from the Income Statement
2) Effective tax rate = 22%
3) Non Cash Charges = Depreciation + amortization
4) Perpetual growth rate 2.9 %
Fair Value

Fair Value of Stock 103.63

Here, we have used the previous equations for

Present Value
Total Risk Adjusted Cash Flows
Terminal Value

Comparison of figures:
Market Price = USD168.65
Fair Price = USD 103.63
The company is overvalued
Recommendation:
Sell JnJ stock.
Investment Decision for J&J:

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 Ratio Analysis & Valuation Report

The market value of Johnson and Johnson is USD 168.58. According to our analysis the
company is overvalued. Recently the stock price has decreased. This company invested heavily
in producing vaccinations. The rollout has been slower than anticipated because of regularity
clearance in its facility. Due to this manufacturing issue, it's losing its investors. This company
has 64% of liabilities. This makes this company highly levered. That’s why WACC is only
1.67%. This low percentage reflects on its fair value. We assumed these ratios will be constant
for the forecasted years. That's why we are getting a negative fair price. If the company continues
these practices, its value will fall and that's why investors should be aware of investing in
Johnson and Johnson.

Appendix
Financial Statements for Grameenphone for the year 2020

Income Statement for the Year 2020

BDT (000)
Revenue 139,606,161

Cost of Material & Traffic Charges -8,812,905

Salaries & Personnel Cost -10,027,226
Operation & Maintenance -4,984,745
Sales, Marketing and Commissions -11,771,112
Revenue Sharing and Spectrum charges -10,478,334
Other operating (Expenses)/Income -6,442,284
Depreciation and amortisation -23,649,950
-76,166,556
Operating Profit 63,439,605

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 Ratio Analysis & Valuation Report

Finance (Expense)/Income -376,473

Foreign Exchange (Loss)/Gain -262,226
-638,699
Profit Before Tax 62,800,906

Income Tax Expense -25,613,869

Profit After Tax 37,187,037

Other comprehensive income

Remeasurement of defined benefit plan -783,080
Related taxes 313,232

Total Comprehensive Income for the year 36,717,189

Earnings Per Share

Basic Earnings per Share 27.54

Balance Sheet for the Year 2020

BDT ( 000)
Assets
Non - Current Assets
Property, plant and equipment 56,901,192
Intangible assets 2,316,587
Right-of-use assets 53,532,673
Contract cost 4,934,438
Other non-current assets 20,568,456
Total non-current assets 138,253,346
Current assets
Inventories 201,068
Trade receivables and others 7,131,165

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 Ratio Analysis & Valuation Report

Cash and cash equivalents 2,598,738

Total current assets 9,930,971
Total Assets 148,184,317
Equity and liabilities
Shareholders' equity
Share capital 13,503,000
Share premium 7,840,226
Capital reserve 14,446
Deposit from shareholders
Retained earnings 30,749,942
Total equity 52,107,614
Non-current liabilities
Lease liabilities 14,146,840
Deferred tax liabilities 3,350,834
Employee benefits 1,641,383
Other non-current liabilities 281,272
Total non-current liabilities 19,420,329
Current liabilities
Trade payables and others 23,988,115
Provisions 14,402,559
Lease liabilities 6,328,697
Loans and borrowings 1,240,000
Current tax liabilities 24,870,650
Other current liabilities 5,690,023
Unclaimed dividend 136,330
Total current liabilities 76,656,374
Total equity and liabilities 148,184,317

Financial Statements for Johnson & Johnson

Income Statements for the year 2020

2020
Sales to customers $82,584
Cost of products sold 28,427

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 Ratio Analysis & Valuation Report

Gross profit 54,157

Selling, marketing and administrative expenses 22,084
Research and development expense 12,159
In-process research and development 181
Interest income -111
Interest expense, net of portion capitalized 201
Other (income) expense, net 2,899
Restructuring 247
Earnings before provision for taxes on income 16,497
Provision for taxes on income 1,783
Net earning $14,714
Total Comprehensive Income 15,363

Balance Sheet for the year 2020

Assets
Current assets
Cash and cash equivalents $13,985
Marketable securities 11,200
Accounts receivable trade 13,576
Inventories 9,344
Prepaid expenses and other receivables 3,132
Assets held for sale
Total Current Assets 51,237
Property, plant and equipment, net 18,766
Intangible assets, net 53,402
Goodwill 36,393
Deferred taxes on income 8,534
Other assets 6,562
Total assets $174,894
Liabilities and Shareholders’ Equity
Current Liabilities
Loans and notes payable $2,631
Accounts payable 9,505

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 Ratio Analysis & Valuation Report

Accrued liabilities 13,968

Accrued rebates, returns and promotions 11,513
Accrued compensation and employee related obligations 3,484
Accrued taxes on income 1,392
Total current liabilities 42,493
Long-term debt 32,635
Deferred taxes on income 32,635
Employee related obligations 10,771
Long-term taxes payable 6,559
Total liabilities 111,616
Shareholders’ equity
Preferred stock 3,120
Accumulated other comprehensive income (loss) -15,242
Retained Earnings 113,890
101,768
Total shareholders’ equity 63,278
Total liabilities and shareholders’ equity 174894

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