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Capital structure and profitability analysis

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Company profile
 History
Earlier in November 1980, Bangladesh Bank, the country’s
Central Bank, sent a representative to study the working of
several Islamic banks abroad.

In November 1982, a delegation of IDB visited Bangladesh

and showed keen interest to participate in establishing a joint
venture Islamic Bank in the private sector. They found a lot of
work had already been done and Islamic banking was in a
ready form for immediate introduction. Two professional
bodies - Islamic Economics Research Bureau (IERB) and
Bangladesh Islamic Bankers’ Association (BIBA) made
significant contributions towards introduction of Islamic
banking in the country.
 Vision
Vision of the organization is to always strive to achieve
superior financial performance, be considered a leading
Islamic Bank by reputation and performance.

Mission
To establish Islami banking through the introduction of a welfare oriented
banking system and also ensure equity and justice in the field of all
economic activities, achieve balanced growth and equitable development
through diversified investment operations particularly in the priority
sectors and less developed areas of the country.
 Distinguishing features of Islamic Banking:

Abolition of interest (Riba):

Adherence to public interest:
Multi-purpose bank:
More careful evaluation of investment demand: 
Work as catalyst of development:
Capital structure and profitability comparison
Between
Dhaka Bank and BRAC Bank
 Capital structure
Debt ratio
The debt ratio measures what portion of capital in
firm’s total assets financed its debt holders. The Dhaka Bank

higher this ratio, the greater the amount of other Total Assets Financed by

people’s money being used to generate profits. The

ratio is calculated as. 93.61%
Debt capital

Debt ratio = 6.39%

Equity capital

The debt ratio of Dhaka Bank is 93.61%

The debt ratio of BRAC Bank is 90.67%
Comments BRAC Bank
Total Assets financed by
This ratio of both company represent higher risk.
But it is obvious that in Bank industry this figure is 9.33%
not represent greater risk because it is calculated
from total liability where also include the deposit of Debt capital
Equity capital
the people But in consideration of tow companies
the Dhaka Bank is in greater risk than that of 90.67%

BRAC Bank.
 Capital structure
Capital Structure (Debt/Equity ratio): Dhaka Bank

Capital structure ratio provides insight into the Capital structure

extent to which non-equity capital is used to

finance the assets of the firm. The higher the ratio, 1, 6%
the higher proportion of assets financed by non- Debt capital
shareholders parties. The capital structure is Equity capital

calculated as 14.66, 94%

Debt/Equity ratio =
BRAC Bank
For Dhaka Bank 14.66:1 Capital structure

For BRAC Bank 10.26:1

Comments
1, 9%

this ratio shows the both company that they have Debt capital
Equity capital

huge amount liability against Tk. 1 equity capital.

But for the bank industry it is not an abnormal 10.26, 91%

result because in total liability include the deposit

of the people.
 Profitability
Operating profit margin:
The operating profit margin measures the
percentage of each sales dollar remaining after all
costs and expenses other than interest, taxes and Operating Profit Margin

preferred stock dividends are deducted. 70.00% 66.36%

operating profits
Operating profit margin = Total operating revenue
60.00%
51.33%
50.00%

For Dhaka Bank 66.36% 40.00% BRAC Bank

30.00% Dhaka Bank
For BRAC Bank 51.33% 20.00%
Comments 10.00%

The operating profit margin of Dhaka Bank is 0.00%

66.36% and BRAC Bank is 51.33%. This result Operating profit margin

indicates that the Dhaka Bank can generate more

operating profit than BRAC Bank Because of there
management efficiency in operating cost control
system.
 Profitability
Net profit margin:
The net profit margin measures the percentage of
each sales dollar remaining after all costs and
expenses, including interest, taxes, and preferred Net Profit margin
stock dividends have been deducted.
Net profit margin = Total operating
EACS
revenue
25.00% 22.65%

20.00% 17.28%
For Dhaka Bank 22.65% 15.00% BRAC Bank
For BRAC Bank 17.28% 10.00% Dhaka Bank
Comments 5.00%
The net profit margin of Dhaka Bank is 22.65% 0.00%
and BRAC Bank is 17.28%. The result shows that Net profit margin
the Dhaka Bank is able to produce more net profit
that is available for common stockholders
Because of lower debt in capital structure of BRAC
Bank their net profit margin did not decline as
much than the Dhaka bank.
 Profitability
Earnings per share (EPS):
EPS represents the number of dollars earned during
the period on behalf of each outstanding share of
common stock. Earnings per share is calculated as EPS in Tk.
follows:
EACS
EPS = Number of common stock share 70
60
60.98

For Dhaka Bank Tk. 45.09 50 45.09

40 BRAC Bank
For BRAC Bank Tk. 60.98 30 Dhaka Bank
Comments 20
10
The earnings per share of Dhaka bank is Tk.45.09 0
and BRAC Bank is Tk.60.98. The result shows that EPS

the BRAC Bank has higher EPS than the Dhaka

Bank because of both lower number of shareholder
and higher Earnings Available for Common
Stockholders (EACS) than that of Dhaka Bank.
 Profitability
Return on equity:
The return on common equity (ROE) measures the return
earned on the common stockholders’ investment in the
firm. Generally, the higher this return, the better off are Return on Equity (ROE)
the owners.
EACS
Return on common equity = Common stock equity 25.00%
19.32%
20.00%
For Dhaka Bank 19.32% 15.02%
15.00% BRAC Bank
For BRAC Bank 15.02% Dhaka Bank
10.00%
Comments
5.00%
The return on equity (ROE) of Dhaka Bank is 19.32%
and BRAC Bank 15.02%. The result shows that the 0.00%
equity capital of Dhaka Bank has earned higher profit ROE

than the BRAC Bank because of higher amount of debt

use in capital structure than the BRAC Bank. As because
of higher risk to the equity it isavailable
Earnings obvious that stock
for common the equity
equity
holders desire higher profit. Common stock equity
 Profitability
Return on Assets:
The return on total assets (ROA), often called the return
on investment (ROI), measured the overall effectiveness
of management in generating profits with its available
assets. The higher the firm’s return on total assets, the
better. Return on Total Assets (ROA)
EACS
Return total assets = Total assets
1.34% 1.32%
1.32%
For Dhaka Bank 1.23% 1.30%
For BRAC Bank 1.32% 1.28%
BRAC Bank
1.26%
Comments 1.24% 1.23% Dhaka Bank

The return on total assets (ROA) of BRAC Bank is 1.22%

1.32% and Dhaka Bank is 1.23%. The result shows that 1.20%
1.18%
the BRAC Bank is able to generate net profit (Earnings ROA
available for common stockholders) than the Dhaka Bank
Using more debt in capitalEarnings
structure
availableof
for Dhaka Bank
common stock that
equity
decline their net profit a large Common
portion stockin compare to
equity
operating profit as we earlier said in Net profit margin
ratio.
 Profitability
Return on Assets:
The return on total assets (ROA), often called the return
on investment (ROI), measured the overall effectiveness
of management in generating profits with its available
assets. The higher the firm’s return on total assets, the
better. Return on Total Assets (ROA)
EACS
Return total assets = Total assets
1.34% 1.32%
1.32%
For Dhaka Bank 1.23% 1.30%
For BRAC Bank 1.32% 1.28%
BRAC Bank
1.26%
Comments 1.24% 1.23% Dhaka Bank

The return on total assets (ROA) of BRAC Bank is 1.22%

1.32% and Dhaka Bank is 1.23%. The result shows that 1.20%
1.18%
the BRAC Bank is able to generate net profit (Earnings ROA
available for common stockholders) than the Dhaka Bank
Using more debt in capitalEarnings
structure
availableof
for Dhaka Bank
common stock that
equity
decline their net profit a large Common
portion stockin compare to
equity
operating profit as we earlier said in Net profit margin
ratio.
 Comparison
on
Textile industry
Metro Spinning
And
Saiham textile
Earnings available for common stock equity
Common stock equity
Company Profile

Metro Spinning
And
Saiham textile
Earnings available for common stock equity
Common stock equity
 Company Profile
Metro spinning

Vision:
We see Business as a means to the well being of the
shareholders and all other stakeholders, society at large keeping
in line with the Nation’s interest.

Mission Statement:
Our Mission is to provide world-class products to our valued
Customers, Maintaining high Ethical Standard business.

Objective
Our primary objective is to conduct transparent business
operation within legal
Earningsand social
available for commonframework
stock equity with aims to attain the
mission with qualitativeCommon
quantitative
stock equity target in business operation.
Capital structure and profitability comparison
between
Metro Spinning and Saiham textile

Earnings available for common stock equity

Common stock equity
 Capital structure
Debt ratio:
The debt ratio measures what portion of capital in firm’s Metro Spinning
total assets financed its debt holders. The higher this Total assets finaned by

ratio, the greater the amount of other people’s money

being used to generate profits. The ratio is calculated as. 34.97%

Debt ratio = 65.03%

For Metro Spinning 65.03% Debt capital Equity capital

For Saiham textile 38.26%
Saiham Textile
Comments Total assets finaced by

The debt ratio of the Metro spinning Ltd is 65.03%. It

means that the company’s 65.03% of total assets are
collected from the creditors. So it is more levered firm. 38.26%
Debt capital
The greater the financial leverage the greater its risk. Equity capital
Whereas the debt ratio of Saiham textile is 38.26%. So it 61.74%

can say that the Saiham textile is in the better position

than that of Metro spinning Ltd.
 Capital structure
Capital Structure (Debt to Equity) ratio:
Capital structure ratio provides insight into the extent to which Metro Spinning
non-equity capital is used to finance the assets of the firm. The Capintal structure
higher the ratio, the higher proportion of assets financed by non-
shareholders parties.
35%

Total Liability
Debt/Equity ratio = Total equity
65%

For Metro Spinning 1.86 : 1 Debt capital Equity capital

For Saiham textile 0.62 : 1

Comments Saiham Textile

The debt to equity ratio of Metro Spinning is 1.86:1 whereas the Capital structure
same ratio of Saiham textile is 0.62:1. This ratio shows that the
Metro Spinning is using debt capital of Tk.1.86 against Tk.1
equity capital in capital structure and Saiham Textile is using 38%
debt capital of tk.0.62 against tk.1 of equity capital in capital Debt capital

structure. In comparison this two companies the Metro Spinning 62%

Equity capital

uses huge debt capital so this company is in the greater risk and
has greater chance of financial distress cost than that of Saiham
Textile.
 Profitability
Gross profit margin
The gross profit margin measures the percentage of each
sales dollar remaining after the firm has paid for its
goods. The gross profit margin is calculated as follows

Gross profit margin =

For Metro Spinning 33.08%
For Saiham textile 18.67%

Comments
The gross profit margin of Metro Spinning Ltd is
33.08%. It indicates that the company can generate Tk.
33.08 from each Tk100 of sales, so the cost of goods sold
is 66.92%. Whereas the gross profit margin of Saihma
textile Ltd is 18.67%. So we can say that the Metro
spinning Ltd is in the better position than that of Saiham
textile Ltd.
 Profitability
Operating profit margin
The operating profit margin measures the percentage of
each sales dollar remaining after all costs and expenses
other than interest, taxes and preferred stock dividend are Operating profit marg in
deducted.
30.00%
Operating profit margin = 25.00%
20.00%
For Metro Spinning 28.31% 15.00%
10.00%
For Saiham textile 14.48% 5.00%
0.00%
Metro S aiham
Comments spinning textile
The operating profit margin of Metro Spinning Ltd is
28.31%. It indicates that the company is generated Tk.
28.31 of operating profit from each Tk. 100 of sales.
Whereas the Saiham textile Ltd is 14.48%. So we can say
that the Metro Spinning is more capable to produce more
operating profit than the Sahiham textile Ltd. because of
higher capital.
 Profitability
Net profit margin
The net profit margin measures the percentage of each
sales dollar remaining after all costs and expenses,
including interest, taxes and preferred stock dividend Net profti Margin
have been deducted.
Net profit margin = 5.20%
5.10%
For Metro Spinning 5.10% 5.00%
For Saiham textile 4.80% 4.90%
4.80%
Comments 4.70%
4.60%
The net profit margin of the Metro Spinning Ltd is
5.10%. It indicates that the company is capable to Metro spinning Saiham textile
generate net profit of Tk. 5.10 from each sales of Tk.
100. The greater the net profit margins the better for the
company. Whereas the net profit margin of the Saiham
textile Ltd is 4.80%. So in this regard we can say that
Metro Spinning is in the better position than that of
Saiham textile Ltd.
 Profitability
Earnings Per Share (EPS)
EPS represent the dollar amount earned on behalf of each
outstanding share of common stock- not the amount of
earnings actually distributed to shareholders. EPS is
generally of interest to present or prospective
stockholders and management.

EPS =
For Metro Spinning Tk. 3.77
For Saiham textile Tk. 11.52
Comments
The EPS of the Metro Spinning Ltd is Tk. 3.77. Which indicates
the company is able to earn Tk. 3.77 against each share of
common stock outstanding. The higher the EPS the higher the
corporate success. Whereas the EPS of Saiham textile Ltd is Tk.
11.52. So it can say that the Saiham textile Ltd is in the better
position than that of Metro Spinning Ltd. because of lower
number of common stock share.
 Profitability
Return on Assets (ROA)
The Return on Total Assets Measures the overall
effectiveness of management in generating profits with
its available assets also called return on investment ROA
(ROI). ROI is calculated as follows
4.00%
Return on Assets =
3.00%
For Metro Spinning 1.65% 2.00%
For Saiham textile 3.16% 1.00%
0.00%
Comments Metro spinning Saiham textile
The ROA of the Metro Spinning Ltd is 1.65%. Which
indicates that the company is able to generate net profit
of Tk. 1.65 by utilizing each total assets of Tk. 100. The
higher the ROA the more efficient of the management.
Whereas the ROA of the Saiham textile Ltd is 3.16. So
we can say that Saiham textile is more efficient than that
of Metro spinning Ltd. because of their total assets is
lower in compare to EACS than that of Metro Spinning.
 Profitability
Return on Equity (ROE)
The return of Equity measures the return earned on the
common stockholders’ investment. It is calculated as
follows
ROE
Return on Equity =
5.20%
5.10%
For Metro Spinning 4.74% 5.00%
4.90%
For Saiham textile 5.12% 4.80%
4.70%
Comments 4.60%
4.50%
The ROE of the Metro Spinning Ltd is 4.74%. Which Metro spinning Saiham textile
indicate that the company earns Tk. 4.74 against of each
Tk. 100 of Common stock equity. The higher this return
the better for the owners. Whereas the ROE of Saiham
Textile Ltd is 5,12%. So we can say that the Saiham
textile Ltd is in the better position.
 Profitability

Overall comments
Using huge debt amount in capital structure of Metro Spinning their net profit
margin is adversely affected. So their profitability ratio shows their worse
performance than that of Saiham textile. So we can say that the capital
structure of Saiham textile is better.
Findings & Recommendation
Bank industry
 Major Findings
Bank industry
 Dhaka Bank has used a huge amount debt capital (93.61%) in capital
structure. So the company is in greater risk than BRAC Bank.
 As because of higher interest provide to the debt holders the net profit
margin of Dhaka Bank hugely decline in compare to operating profit
margin.
 BRAC Bank did not use huge amount of debt that result their net profit
margin slightly decline.
 From huge deposited amount and profitable investment BRAC Bank is able
to produce higher EPS than Dhaka Bank.
 As because of huge amount of debt in Dhaka Bank’s capital structure, the
equity capital earn more profit because equity posses higher risk than that
of BRAC Bank.
 Huge debt in capital structure of Dhaka Bank that result their net profit
sharply decline that impact on return on total assets.
 Recommendation
Bank industry
 Dhaka bank should restructure their capital structure. They should reduce
their debt amount in order to reduce financial distress cost.

 Efficient cost management system should be implemented for the both

company.

 Net profit margin decline sharply because of huge amount of interest

payment in both company but more in Dhaka bank so debt capital should
be reduced.
Findings & Recommendation
Textile Industry
 Major Findings
Textile Industry
 The equity capital of Metro Spinning is less than 50% (38.26%) the
problem is that the firm can be acquired by any other company.
 The debt capital of metro spinning is higher that posses higher risk.
 Net profit margin of Metro Spinning is sharply decline because of higher
interest on higher debt capital used in capital structure.
 Earnings per share of Metro spinning (3.77) is less than the Saiham Textile
(11.52) because their net profit hugely decline from operating profit
because of higher interest payment.
 The higher interest payment also affect the return on total assets of Metro
Spinning.
 The equity of Metro Spinning posses higher risk that result we find that in
return on equity of this company is (4.74) which is less than Saiham Textile
(5.12).
 Both the companies have effective cost management system that result
operating income is slightly decline to operating profit margin
 Recommendation
Textile Industry
 The Metro Spinning should increase their equity capital slightly more than
50% in order to reduce the chance of hostile takeover from another
company.

 The debt capital of Metro Spinning should slightly decline to reduce the
financial distress cost.

 The debt capital of Saiham Textile can be increased to 40%- 50%.

 The debt capital should decline to reduce the interest payment that
adversely affect in profitability ratio of Metro Spinning Ltd.

 The existing Management body should be continued for both the company.