An Overview of Lanka Banla Finance Ltd.

LankaBangla Finance Limited (LBFL) a joint venture financial institution

established with multinational collaboration is in operation since 1997 having
license from Bangladesh Bank under Financial Institutions Act, 1993. With
institutional shareholding structure, educated & motivated human resources,
friendly working environment & dynamic corporate culture has enabled LBFL
to be a diversified financial services providing institution of the country.
Technical support provided by Sampath Bank Limited, Sri Lanka has been
working as a catalyst to emerge LBFL as most innovative financial solution
provider strictly in compliance with the rules & regulations of Bangladesh
Bank.
LankaBangla Securities Limited (LBSL) is a subsidiary of LankaBangla Finance
Limited and a leading equity brokerage house in the country with a diverse
clientele of institutions, high net worth individuals, foreign funds and retail
investors. The company commenced stock broking activities in 1997 and has
over time become the largest stock broking company in the country having
developed a strong team of highly skilled and experienced professionals.
LBSL (Formerly known as Vanik Bangladesh Securities Ltd) started its stock
broking business in 1997 trading on the Chittagong Stock Exchange (CSE)
Ltd, while commencing trading on the Dhaka Stock Exchange (DSE) in1998.
The company was renamed LankaBangla Securities with effect from 27 April
2005.

Nature of Business:
The Company extends brokerage services as its core business. Basically the Company
performs margin loan facilities, research & analysis and provides advisory Services to the
clients.

Vision
To be the nation's most sought after facilitator in creating, nurturing and
maximizing value to the stakeholders, the society, the environment, and
thereby, GROWING TOGETHER.

Mission:
To lead by example through a committed team of nurtured resources
fostering ownership that motivates thriving towards excellence in knowledge,
systems, processes and procedures, thereby empowering the organization on
at every level to deliver the highest quality of product, customer care, and
stakeholder value keeping environmental safety a priority.

Principal products and services:

Lanka Bangla Securities Limited offers various kinds of services all over the country,

Which includes the followings?

Brokerage Services
Trading Facility through NITA (Non Resident Investors Taka Account)
Internet Trading
CDBL Services
Research Services

Listing of Lanka Bangla Finance Ltd. in Stock Exchange

Dhaka Stock Exchange
Chittagong Stock Exchange

Basic Information:
Authorized Capital in BDT* (mn)
Paid-up Capital in BDT* (mn)
Face Value
Total no. of Securities

COMPANY INFORMATION
Financial Performance:
Basic EPS

Basic EPS (restated)

Based on
Based on
Continuin Including Continuin Including
Year
g
Extrag
Extraoperation Ordinary operation Ordinary
s
Income
s
Income

200
2.56
6
200
6.01
7
200
9.81
8
200 16.81

n/a

n/a

n/a

n/a

5.47

n/a

n/a

8.53

n/a

n/a

14.00

n/a

Net
Restate
Net Profit After Tax
Asset d Net
(mn)
Value Asset Continuin Including
Per Value Per
g
ExtraShare Share operation Ordinary

10.58

Income

n/a

71.49

n/a

15.52

210.47

n/a

20.84

377.64

n/a

47.44 39.54

744.07

n/a

15.57
23.96

9
201
32.00
0

n/a

20.65

n/a

90.18

58.18

1700.15

n/a

Dividend Theories
Bird-in-the Hand theory
A theory developed by Myron J. Gordon & Linter that tells Stockholders prefer
current dividend. It also tells that there is a direct link between Dividend
Policy of the firm and its market value. Fundamental to this proposition is
that Bird-in the-Hand argument suggests that investors are risk averse &
attach less risk to current as opposite to future dividends or capital gains.

Dividend Irrelevance Theory

A theory put forth by Metorn H. Millar & Franco Modigliani (M&M) that in a
perfect world, the value of a firm is unaffected by the distribution of
dividends and is determined solely by the earnings power and risk of its
assets. Lanka Bangla Finance Ltd. follows this theory.
Table 1(Stock)
%
Yea Dividen
r
d
200
6
0
200
7
10
200
8
15
200
9
20
201
0
55

Stock Price in
DSE (TK)

Net
income(Mn
Tk)

17.5

31.43

25.5

126.82

37.5

252.82

43.5

638.82

48

742.39

According to available data of Lanka Bangla Finance Ltd. from 2006 to 2010,
it is clear that Lanka Bangla Finance Ltd. is following Dividend irrelevance
Theorywhich is developed by Metorn H. Millar & Franco Modigliani (M&M)
said that a company may not declare higher dividend because of the
following reason:

Use their profits to grow their business.

Expanding for the business.

To build up a strong company.
Lanka Bangla Finance Ltd. follows Irrelevance theory from last few years,
Lanka Bangla Finance Ltd. declared Less dividend and retained higher
earnings in order to attract those less risk averse investors who prefer future
dividend.
Here some Dividend policies are given below:

Dividend Policies
Constant- Pay-out ratio
The dividend policy ratio indicates the percentage of if each amount earned
that is distributed to the owners in the form of cash. It is calculated
by Dividend payout ratio = Cash Dividend per Share / E.P.S. With a
constant-payout-ratio dividend policy, the firm established that a certain
percentage of earnings are paid to owners in each dividend period.
The problem with this policy is that if the firms earnings drop or if a loss
occurs in a given period, the dividends may be low or even nonexistent
which could adversely affect the firms share price.

Regular Dividend Policy

The regular dividend policy is based on the payments of a fixed amount
dividend in each period. This policy provides the owners with generally
positive information, thereby minimizing uncertainty. Often, firms that use
this policy increase the regular dividend once a proven increase in earnings
has occurred. Under this policy, dividends are never decreased.

Low-Regular-And- Extra Dividend Policy

Some firms establish a low-regular-and-extra dividend policy, paying a low
regular dividend supplemented by an additional dividend when earnings are
higher than normal in a given period. By calling the additional dividend an
extra dividend, the firm avoids giving shareholders false hopes. This policy is
especially common among companies that experience cyclical shifts in
earnings.

Key Components of Discussion

Net Income:
Year

Table 2
Net Income(Mn
Tk)

Growth

2006
2007
2008
2009
2010

31.43
126.82
252.82
638.82
742.39

42.34
337.61
99.36
152.41
13.95089

Table 2: NI and its growth in the last 5 years

Interpretation:
Growth in net income is even more important than sales because net income
tells the investor how much money is left over after all of the operating costs
are subtracted from sales. From the above table, we can see that Lanka
Bangla Finance Ltd. has earned profit in the years 2006, 2007, 2008, 2009
and 2010. In 2010, the growth of Lanka Bangla Finace was significantly
affected because of Stock Market Recession.

Figure 01: Growth in last 5 years

Earnings per Share

An Earnings per Share (EPS) is the amount
of money earned by a company expressed
Year
EPS
Growth
in per share. Following table provides the
2006
5.8
42.34
information of EPS of Lanka Bangla Finance
2007
11.48
337.61
Ltd in different years. It shows that from
2008
16.52
99.36
2006 to 2009, EPS is increasing but the rate
2009
15.95
152.41
of increasing is not same. It is fluctuating in
2010
13.5
13.95089
this time period. EPS in 2008 and 2009 is
same. But the, growth rate for each year is fluctuated.
Table 03

Interpretation:
From the above chart, we can see that the Earning per share is increasing
from year 2006to 2009 but in 2010 the earning per share was decrease by
Tk 13.5.

Information Regarding Dividend, Lanka

Bangla Finance
a. Dividend payout ratio
Dividend payout ratio = Cash Dividend per Share /
E.P.S.
Dividend payout ratio says the % of EPS that is paid as dividend. It helps us
to determine whether it is following dividend relevance theory or dividend
irrelevance theory.
Table 4
Yea
r
200
6
200
7
200
8
200
9
201
0

Cash Dividend Per

Year (%)
10

EPS

15

5.8
11.4
8
16.5
2
15.9
5

13.5

15
15

Dividend Pay Out

Ratio(4)=(2)/(3)
172.4137931%
130.6620209%
90.799031485%
94.04388715%
0

Table 4: Dividend Payout and retention ratio for last 5 years

Interpretation:
From the above table, we can see that the dividend payout ratio is
decreasing each year. This is due to the increase in Cash Dividend is not as
much as the increase in EPS. In 2010, Lanka Bangla Finance was not
declaring cash dividend. So the dividend payout ratio was zero.

b. Stock Dividend
After analyzing Stock Dividend of the last 5 years, we found out that Lanka
Bangla Finace Ltd. had declared Stock Dividend to its shareholders. A stock

dividend is paid when a company needs to preserve funds to finance rapid

growth.

Yea
r
200
6
200
7
200
8
200
9
201
0

Table 5
Stock Dividend
Per Year

Stock
Price

17.5

10

25.5

15

37.5

20

45.5

55

57.5

Table 5: Percentage of Dividend Payments

Interpretation:
From the above table, we could see that the rates at which Lanka Bangla is
offering Stock Dividend to its shareholders is quite attractive. This activity
can be attributed to the cause that Lanka Bangla is trying to attract more
investors to invest in Lanka Bangla. For this reason, they are trying to give a
positive signal to the stock market through high percentage of dividend
payments. We can say that Lanka Bangla has been able to attract more
investors just by looking at its yearly increase in stock price.

c. Relation between Dividend Rate and Market Price

of Stock
The Chart given below depicts that market price was low when rate of
dividend was lower in 2006. Then the increasing rates of dividend results
gradually increase of market price. Highest the market price growth rate
occur from 2007 to 2010. Here we can comment according to dividend
irrelevance theory as it says dividend should be paid whatever is left after
meeting all available investment decision. In last Four years firm follow
dividend irrelevance theory and was able to increase shareholders value.

Yea

Table 6 (Stock)
Stock Price in

Net

r
200
6
200
7
200
8
200
9
201
0

Dividen
d

DSE (TK)

income(Mn
Tk)

17.5

31.43

10

25.5

126.82

15

37.5

252.82

20

43.5

638.82

55

48

742.39

Table 6: % Dividend and Stock Price

Interpretation:
This table reveals that the % of dividend was increased in every year from
2006-2010. In 2006, the company declared no dividend. In 2007, it declared
10% dividend. After that , they give high dividend to its shareholders. In
2010, they declared 55% dividend, which attract the investors to invest in
the company. The net income of the company also increased year by year. In
2010, the stock price of the company was TK. 48.

Figure 3: Relationship between Dividend and Share Price

d. A comparison of year end P/E ratio for 5 years

Year End
Year
2006
2007
2008
2009
2010

7.73
16.66
23.05
22.41
24.11

Table 7: P/E Ratio

P/E % Dividend
%
Dividend
Yield
0.571428571
10
0.588235294
15
0.4
15
0.32967033
15
0
0
Table 7: P/E ratio for 5 year

Interpretation:
It is seen that year end P/E ratio has been increasing in 5 years which is a
Bad sign for the future growth and prospect of the company, which will
discourage the investors for investing in the company.

Findings:
The findings of the study are as follows.
During 2006 to 2007 Lanka Bangla Finance Limited (LBSL) paid on an average 22.11% of
their net income as dividend . Where in 2008 to 2009 Lanka Bangla Finance Limited (LBSL)
paid on an average 22.28% of their net income as dividend. In 2010 Lanka Bangla Securities
Limited (LBSL) 7% stock dividend In that year firm finance this extra dividend amount from
their retained earnings.According thes table we see that Lankabangla give stock dividend last
year and not paid cash dividend .because they want to rise the capital.
Clientele effect means the tendency of a firm to attract a set of investors
who like its dividend policy .If the large number of investors of the
particular company prefer high dividend then company must pay more
dividends to the investors. On the other hand, if large number of
investors of the particular company do not prefer high amount of
dividend then company must retain most of their earnings inside the
organization. I n c a s e o f l a n k a b a n g l a t h e i n v e s t o r a re r i s k t a ke r
a n d t h e y w a n t t o i n v e s t i n l o n g t e rm b e n e fi t .
The company believes that the investors are rational and they
likeirrelevance theory.
In first four years the company pays cash and stock dividend. But in last
year they declare only stock dividend.
The analysis shows that dividend was not stable over time.
In the year 2008 and 2009 the firm used the residual dividend model to
set payout ratio at a level that will permit the firm to meet its Financing
requirements with retained earnings.
It is not following any particular dividend policy. As it is paying varying
amount of increasing dividend rate.