Financial Analysis – “ACI Vs.

Chevron”
2014 - 2018
 Table of Contents
1. Liquidity Ratios ....................................................................................................................... 1
1.1 Current Ratio .................................................................................................................... 1
1.2 Quick Ratio ...................................................................................................................... 3
1.3 Cash Ratio ........................................................................................................................ 4
2. Profitability Ratios ..................................................................................................... 6
2.1 Gross Profit Margin .............................................................................................................. 6
2.2 Operating Profit Margin ........................................................................................................ 8
2.3 Net Profit Margin ................................................................................................................ 10
2.4 Return on Total Assets ........................................................................................................ 11
2.5 Return on Equity (ROE – Dupont) ..................................................................................... 12
2.6 Earnings Per Share .............................................................................................................. 15
3. Debt Management Ratio ........................................................................................... 16
3.1Debt Ratio ............................................................................................................................ 16
4. Market Ratios ........................................................................................................................ 17
4.1 Price-to-Earnings Ratio .................................................................................................. 17
4.2 Book-to-Market Ratio .................................................................................................... 19
5. Other Ratios ........................................................................................................................... 20
Operating Leverage ................................................................................................................... 20
6. Rates 21
7. Income Statement .................................................................................................................. 22
8. Balance Sheet ........................................................................................................................ 24
9. Free Cash Flow ........................................................................................................ 26
10. Beta 28
11. Weighted Average Cost of Capital (WACC)..................................................................... 28
12. Valuation of the Company ................................................................................................. 30
13. Stock Price Calculation ...................................................................................................... 32
14. Appendix 33
Advanced Chemical Industries (ACI) Limited ............................................................................. 33
Chevron ......................................................................................................................................... 36
 PART A: Ratio Analysis of Chevron

1. Liquidity Ratios

1.1 Current Ratio

Current Ratio =Current Asset/ Current Liabilities

Year Current Asset Current Liabilities Current Ratio
2014 42232 31926 1.322808996

2015 35347 26464 1.335663543

2016 29619 31785 0.931854648

2017 28560 27737 1.029671558

2018 34021 27171 1.252107026

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 CURRENT RATIO
45000

40000

35000

30000

CURRENT RATIO
AMOUNTS

25000

20000

15000

10000

5000

0
2014 2015 2016 2017 2018

Current Asset Current Liabilities Current Ratio

Current ratio is a financial ratio to measure whether a company has enough resources to pay its
debt by comparing it current assets to its current liabilities over the next business cycle. It basically
answers this question ‘how many dollars in current assets does the company have to cover each $
of current liabilities. By observing the current ratio, we see that in 2014 Chevron had $1.32 of
assets for every $1 of debt; in 2016 it decreased to 0.93 and from 2017 it again started to increase
and in 2018 it became $1.25 which means they have $1.25 of assets for every $1 of debt. This
means the company is progressing in terms of their current ratio.

Current ratio from 2014 to 2018 of ExxonMobil are as follows: 0.8186, 0.7897, 0.8694, 0.8159
and 0.8396. Current ratio of ExxonMobil from 2014 to 2018, every year it is below 1 and less
than that of Chevron’s. So Chevron is doing better than ExxonMobil here also.

Page | 2
1.2 Quick Ratio

Quick Ratio = (Cash and Cash Equivalents + Account Receivable)/ Current

Liabilities
Cash & Cash Account
Year Equivalents Receivable Current Liabilities Quick Ratio

2014 12785 16736 31926 0.924669548

2015 11022 12860 26464 0.902433495

2016 6988 14092 31785 0.663205915

2017 4813 15353 27737 0.7270433

2018 9342 15050 27171 0.897721836

Quick Ratio
35000 1
30000 0.9
0.8
25000 0.7
AMOUNTS

20000 0.6
0.5
15000 0.4
10000 0.3
0.2
5000
0.1
0 0
2014 2015 2016 2017 2018

Cash & Cash equivalents Account receivable Current liabilities Quick ratio

Page | 3
The quick ratio or acid ratio provides us a better scenario of a company’s ability to pay its current
liabilities. It provides us with a better picture on the coverage of short-term obligations. A healthy
acid test ratio is 1. After calculating 2014, 2015, 2016, 2017 & 2018 quick ratio, Chevron has
always quick ratio which is less than 1. Quick ratio less than 1 means the company has more
current liabilities than assets, they cannot currently fully payback their pay back their current
liabilities. Though Chevron’s quick ratio is below 1, they are trying to do better than before because
their quick ratio is increasing and almost 1 in 2018.

ExxonMobil’s quick ratio from 2014 to 2018 are as follows: 0.505, 0.437, 0.457, 0.498, and
0.486. Though Chevron’s quick ratio from year 2014 to 2018 is below 1, they are doing better
than ExxonMobil. Because at least Chevron’s quick ratio is almost 1 and progressing every year.

1.3 Cash Ratio

Cash Ratio= Cash & Cash Equivalents/ Current Liabilities

Year Cash & Cash Equivalents Current Liabilities Cash ratio

2014 12785 31926 0.400457308

2015 11022 26464 0.416490326

2016 6988 31785 0.219852132

2017 4813 27737 0.173522731

2018 9342 27171 0.343822458

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 CASH RATIO
35000 0.45

0.4
30000
0.35
25000
Amounts

0.3

CASH RATIO
20000 0.25

15000 0.2

0.15
10000
0.1
5000
0.05

0 0
2014 2015 2016 2017 2018

Cash & cash equivalents Current Liabilities Cash ratio

Cash ratio is another form of liquidity ratio which gives us the ultimate position of a company. It
takes only the cash & cash equivalents. There are the most liquid assets within the current Assets.
If a company has a cash ratio more than 1, it’s more likely to be able to pay its short-term liabilities.
Chevron’s cash ratio in 2015 was 0.42 which gradually decreased in 2016 and also in 2017,but
again increased in 2018 and became 0.34. This means the company has insufficient cash on hand
exists to pay off short term debt, which is not good for them.

Cash ratio of Chevron’s peer group ExxonMobil from 2014 to 2018 are as follows: 0.071, 0.069,
0.077, 0.055, 0.053. ExxonMobil’s cash ratio of every year from 2014-2018 is much less than
Chevron company. So, Chevron is in better position in terms of cash ratio than Exxon’s.

Page | 5
 2. Profitability Ratios

2.1 Gross Profit Margin

Gross Margin Formula = Gross Profit / Sales

Year 2014 2015 2016 2017 2018

Revenue 200,494 129,925 110,215 134,674 158,902

Cost of Revenue (119,876) (69,784) (59,067) (75,803) (94,409)

Gross Profit 80,618 60,141 51,148 58,871 64,493

Gross Margin 40.21% 46.29% 46.41% 43.71% 40.59%

Gross Profit Margin

250,000 47.00%
46.00%
200,000 45.00%
44.00%
150,000 43.00%
42.00%
100,000 41.00%
40.00%
50,000 39.00%
38.00%
- 37.00%
2014 2015 2016 2017 2018

Revenue Cost of Revenue Gross Profit Gross Margin

Gross profit indicates the difference between sales and the cost of goods sold or providing
service. Higher gross profit indicates that the company is able to generate higher profit.

Page | 6
Here, Chevron had 40.21% Gross profit margin on 2014 increased to 46.29% and 46.41%
respectively on 2015 and 2016 which shows that the company was maintain a good ability to
maintain their profit.

Then the gross profit margin started falling by 43.71% on 2017 and it got lower on 2018 by
40.59%. Which shows that due to decrease in the revenue, the gross profit margin was constantly
falling.

Comparison with Exxon Mobil:

Chevron Vs. Exxon Mobil (Gross Profit Margin)

Year Chevron Exxon Mobil

2014 40.21% 20.27%

2015 46.29% 21.40%

2016 46.41% 21.37%

2017 43.71% 21.83%

2018 40.59% 22.29%

In this table, Gross profit margin of Exxon Mobil (A potential competitor of Chevron), from
2014 to 2018 are given, as we can see here, the GPM increased in 2014 to 2016 then started
decreasing till 2018. But In Exxon Mobil, The ratio is steadily increasing from 20.27% to
22.29% from 2014 to 2018.

As the purpose of calculating Gross profit margin is to assess the financial health and finding out
the remaining sales revenue after deducting all cost of sales/ revenue, The financial health or the
percentage amount of gross profit (after deducting cost of sales) is fluctuating whereas Exxon
Mobil is maintaining a continuous and steady growth in GPM.

Page | 7
 2.2 Operating Profit Margin

Operating Profit Margin = EBIT / Net Sales

Year 2014 2015 2016 2017 2018

EBIT 31,202 4,842 (2,160) 9,221 20,575

Net Revenues 200,494 129,925 110,215 134,674 158,902

Operating Profit Margin 15.56% 3.73% -1.96% 6.85% 12.95%

Operating Profit Margin

250,000 18.00%
16.00%
200,000 14.00%
12.00%
150,000 10.00%
8.00%
100,000
6.00%
50,000 4.00%
2.00%
- 0.00%
2014 2015 2016 2017 2018 -2.00%
(50,000) -4.00%

EBIT Net Revenues Operating Profit Margin

Operating profit margin is calculated to measure how much profit a company generates on a
dollar sales after deducting all the variable costs.

Chevron’s Operating profit margin significantly decreased from 15.56% to 3.73% from 2014 to
2015 and incurred loss in 2016 having a negative operating margin of (-1.96%). Which means
they somehow struggled to maintain their ability to ear profit on a dollar sales after deducting all
the variable costs. But on year 2017 the Operating profit margin again increased 6.85% and then

Page | 8
it significantly increased in 2018 by 12.95%. So we can see here, that chevron was able to cover
their loss and increase their profit on a dollar sales from 2017 to 2018.

Comparison with Exxon Mobil:

Chevron Vs. Exxon Mobil (Operating Profit Margin)

Year Chevron Exxon Mobil

2014 15.56% 12.53%

2015 3.73% 8.81%

2016 -1.96% 3.83%

2017 6.85% 7.64%

2018 12.95% 10.67%

In this table, operating profit margin ratios are given for Exxon Mobil from 2014 to 2018.

The scenario of these two company is comparatively same. Because both of the company’s
Operating from started decreasing from 2014 till 2016 but here in 2016 Exxon although had
lower Operating ratio but didn’t incur loss like Chevron did. And also two of the company
started improving from 2017 to 2018. So the trend is quite same here for these two companies.

Although in term of operating margin ratio, Chevron seems to have higher Operating profit
margin then Exxon so we can easily say that Chevron is more able to earn profit on a dollar sales
after deducting variable costs than Exxon.

Page | 9
 2.3 Net Profit Margin

Net Profit Margin = Net Income/ Revenue

Net Income Revenues Net Profit Margin

19241 211970 0.090772279

4587 138477 0.033124634

-497 114472 -0.004341673

9195 141722 0.064880541

14824 166339 0.089119208

NET PROFIT MARGIN

250000 0.1

200000 0.08

150000 0.06

N.P MARGIN
Amounts

100000 0.04

50000 0.02

0 0
2014 2015 2016 2017 2018
-50000 -0.02

Net Income Revenues Net Profit Margin

Net Profit Margin is a financial ratio applied to measure the percentage of profit a company
makes from its total revenue. The net profit margin is generally expressed as a percentage but
can also be illustrated in decimal form. The higher the ratio, the effective the company to control
its cost. The lower the ratio, higher risk to decline the sales which leads lower profit for them.
We can see that in 2014 their net profit margin is 0.091 and then it decreased rapidly reached at
0.0331 and -0.00434 in 2015 and 2016 respectively. Net profit margin then increased rapidly in
2017 and 2018 which is 0.06488 and 0.08911. Regarding comparison to Exxon, it shows the

Page | 10
similar trend like Chevron Company. The net profit margin in 2014 is 7.8944 and decreased
slightly to 6.4795 in 2015. Subsequently, the net profit margin plunged and reached a low of
3.7672 in 2016. Afterwards, the net profit margin rocketed to a high of 8.0659 in 2017 and
dropped slightly to 7.181 in 2018.

2.4 Return on Total Assets

Return on Total Asset = EBIT/ Total Asset

Year EBIT Total Asset Return on Total Asset

2014 31204 266026 0.117296806

2015 4842 266103 0.018195962

2016 -2160 260078 -0.008305201

2017 9221 253806 0.036330898

2018 20575 253863 0.081047652

RETURN ON TOTAL ASSET

300000 0.14

250000 0.12
0.1
200000
0.08
Amounts

150000
ROA

0.06
100000
0.04
50000
0.02
0 0
2014 2015 2016 2017 2018
-50000 -0.02

Year EBIT Total Asset Return on Total Asset

Page | 11
 Return on total assets is a profitability ratio that measures the net income produced from the
total asset. Higher ROA means company is generating more profit by using their asset and it
attracts investors most to invest in the company. As it is illustrated by the graph, in 2014 and
2015 CHEVRON’s ROA are 0.1173 and 0.0182 gradually. Hence, it signifies that the
company is generating a Return on Total Assets of 0.1173 and 0.0182. But, in 2016 the
return of the total asset plummeted to -0.0083. After that, from 2017 to 2018, the return of
the total asset increased significantly from 0.03633 to 0.08105 and it implies that the
company is generating a Return on Total Assets of 0.03633 and 0.08105. The time has
passed the company become more profitable. There is a similar pattern in the return of the
total asset made by Exxon Company. In 2014 and 2015 Exxon's ROA are 9.6182 and 4.9148.
Then, the return of the total asset reached a low of 2.5335 in 2016. After that, in 2017 and
2018, the return of the total asset increased gradually from 5.692 to 6.1895.

2.5 Return on Equity (ROE – DuPont)

DuPont ROE= (Net income/Sales)*(Sales/Total Assets)*(Total Assets/Shareholder's Equity)

Year 2014 2015 2016 2017 2018

Net Income 19,241 4,587 -497 9195 14,824

Sales 200,494 129,925 110,215 134,674 158,902

Total Assets 266,026 266,103 260,078 253,806 253,863

Shareholder's Equity 156,191 153,886 146,722 149319 155642

DuPont ROE 12.32% 2.98% -0.34% 6.16% 9.52%

Page | 12
 Return on Equity- ROE (Dupond)
300,000 14.00%

250,000 12.00%

10.00%
200,000
8.00%
Amounts

150,000

ROE
6.00%
100,000
4.00%
50,000
2.00%

0 0.00%
2014 2015 2016 2017 2018
-50,000 -2.00%

Net Income Sales Total Assets Shareholder's Equity Dupont ROE

DuPont analysis is the popular way to measure the returns on assets from the Shareholder’s
perspective. Return on Equity allows us to know the ability of the company to generate cash
internally and to judge overall financial performances. Higher ROE indicates that the
company is able to generate income from its internal equity than its potential Peer group.

In our calculation, Chevron has higher ROE (DuPont) of 12.32% but it remarkably decreased
by 2.98% on 2015 and on 2016 the company had a negative ROE of 0.34% because of
incurring net loss. The again from 2017 to 2018, it again started increasing from 6.16% to
9.52% respectively.
From overall scenario, we can see that, although the ability to generate return from the
internal equity started getting lower from 2014 but the chevron managed to increase it from
2017 onwards.

Page | 13
Comparison with Exxon Mobil:

Chevron Vs. Exxon Mobil (Return On Equity – ROE).

Year Chevron Exxon Mobil

2014 12.32% 18.55%

2015 2.98% 9.36%

2016 -0.34% 4.82%

2017 6.16% 10.20%

2018 9.52% 10.79%

In this table, return on equity (ROE) are given for Exxon Mobil from 2014 to 2018.
The scenario of these two company is comparatively same. Because both of the company’s
ROE from started decreasing from 2014 till 2016. And also two of the company started
improving from 2017 to 2018. So the trend is quite same here for these two companies.
Although in term of Return on Equity (ROE), Chevron seems to have lower ROE then
Exxon so we can easily say that Exxon Mobile has higher ability to generate high return from
their equity then Chevron.

Page | 14
2.6 Earnings per Share

Earnings Per Share= Total Earnings/Outstanding Shares

Year Total Earnings Outstanding Shares EPS

2014 19241 1884 10.21285

2015 4587 1868 2.455567

2016 -497 1873 -0.26535

2017 9195 1883 4.883165

2018 14824 1898 7.810327

EARNING PER SHARE

25000 12

20000 10

8
15000
Amounts

6
EPS

10000
4
5000
2

0 0
2014 2015 2016 2017 2018

-5000 -2

Total earnings Outstanding Shares EPS

Page | 15
Earnings per share are measured as a company's profit divided by the outstanding shares of its
common stock. The higher a company's EPS, the more profitable it is considered. In 2014 their
EPS is 10.21285 and in 2016 their EPS is 2.455567. For the year 2017 and 2018, their EPS are
4.883185 and 7.810327. It means investors are earning more while they are investing. When they
earn more, they will be encouraged more to invest more in the shares, which is a good sign for
the company.

3. Debt Management Ratio

3.1 Debt Ratio

Debt Ratio = Total Liabilities / Total Assets

Year 2014 2015 2016 2017 2018

Total Liabilities 109,835 112,217 113,356 104,487 98,221

Total Assets 266,026 266,103 260,078 253,806 253,863

Debt Ratio 0.413 0.422 0.436 0.412 0.387

DEBT RATIO
300,000 0.44
0.43
250,000
0.42
200,000
DEBT RATIO
AMOUNTS

0.41
150,000 0.4
0.39
100,000
0.38
50,000
0.37
- 0.36
2014 2015 2016 2017 2018

Total Liablities Total Assets Debt Ratio

Page | 16
Debt ratio is a financial ration which is used to measure the extent of a company’s leverage. By
this ratio we can know that how much assets of chevron are finance to debt. Lower debt ration
indicates the ability of borrowing money. In 2014 their debt ratio is 0.413 and 2015 debt ratio is
0.422. For the year 2016 their debt ratio is 0.436. We can see that their debt ratio is not that much
high. For the year 2017 their debt ratio is 0.412 and 2018 debt ratio is 0.387. Their debt ratio is
reasonable that they can get loan when they need finance. From the analysis we can say that
chevron is much freer from risk and it generated enough cash to fulfil debt obligations. Exxon
financial debt ratio in 2014 is 0.1608 where chevron debt is higher which 0.413. In 2015 Exxon
debt ratio is 02188 and chevron debt is 0.422 which is higher than Exxon. For the 2016 and 2017
Exxon debt ratio is 0.436 and 0.412 on the other side Exxon debt ratio is 0.246 and 0.2177 which
is lower than chevron. In the last fiscal year 2018 Exxon debt ratio is 0.1904 and chevron debt
ratio is 0.387 which is higher than Exxon. Comparatively for the debt ratio chevron is higher
debt than Exxon.

4. Market Ratios
4.1 Price-to-Earnings Ratio
Price-to-Earnings Ratio

Year 2014 2015 2016 2017 2018

Price Per Share 112.18 89.96 117.70 125.19 108.79

Earnings Per Share 10.21 2.46 (0.27) 4.88 7.81

P/E ratio 10.98727 36.56911 -435.92593 25.65369 13.92958

Page | 17
 PRICE TO EARNINGS RATIO
140 100

120
0
100
-100
80
AMOUNTS

P/E RATIO
60 -200

40
-300
20
-400
0
2014 2015 2016 2017 2018
-20 -500

Price Per Share Earnings Per Share P/E ratio

The price-earnings ratio (P/E ratio) is the ratio for valuing a company that measures its current
share price relative to its per-share earnings. The price-earnings ratio indicates the dollar amount
an investor can expect to invest in a company in order to receive one dollar of that company’s
earnings. Comparing to Exxon in 2014 the (P/E) ratio of ACI is $10.98727 it means that investors
have to pay $10.98727 dollar for every $1 dollar of earnings that company generates, where in
Exxon investors have to pay $10.39 which is lower. In mean time 2015-2018 they have to pay
more than the industry average for every $1 dollar of earnings that company generates. Statistic
shown that investors have to pay less in 2015-2017 as company did well in those years.

Page | 18
 4.2 Book-to-Market Ratio
Book-to-market ratio = common shareholders’
equity / market capitalization

Year 2014 2015 2016 2017 2018

Common shareholder’s 155,028 152,716 145,556 148,124 154,554

equity

Market capitalization 212,917 168,675 220,452 237,610 208,224

Book-to-market ratio 0.728115 0.905386 0. 660262 0.623391 0.742249

BOOK TO MARKET RATIO

250,000 1

200,000 0.8

B/M RATIO
AMOUNTS

150,000 0.6

100,000 0.4

50,000 0.2

0 0
2014 2015 2016 2017 2018

Common shareholders equity Market capitalization

Book-to-market ratio

The book to market ratio is used to find the value of company by comparing the book value of
firm to its market value. Book value is calculated by looking at the firm's historical cost, or
accounting value. Market value is determined in the stock market through its market
capitalization. Here in 2014 our company’s (M/B) ratio is $0.73. A book-to-market ratio below 1
implies that investors are willing to pay more for a company than its net assets are worth. This
could indicate that the company has healthy future profit projections and the investors are willing
to pay a premium for that possibility. In 2015-2018 the (M/B) ratios are $0.91, $0.66, $0.63 and
$0.74 which is a good sign for the company.

Page | 19
 5. Other Ratios
Operating Leverage
Operating leverage = % change in EBIT/ % change in Sales

Year 2014 2015 2016 2017 2018

Sales 200,494 129,925 110,215 134,674 158,902

% change in sales (8.93) (35.20) (15.17) 22.20 17.99

EBIT 31,202 4,842 (2,160) 9,221 20,575

% change in EBIT (13.09) (84.48) (-144.61) (526.89) 55.18

Operating Leverage 1.46 2.40 9.53 (23.73) 3.06

OPERATING LEVERAGE
250,000 15
10
200,000

OPERATING LEVERAGE
5
150,000 0
AMOUNTS

-5
100,000
-10
50,000 -15
-20
0
2014 2015 2016 2017 2018 -25
-50,000 -30

Sales EBIT % change in sales

% change in EBIT Opereting Leverage

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. For this
company in 2014 Operating profit changes by 1.46% for every 1% change in Sales, 2015
Operating profit changes by 2.40% for every 1% change in sales, in 2016 operating profit
changes by 9.53%, in 2017 (23.73%) and in 2018 3.06% for every 1% change in sales. Means
greater use of fixed costs, Greater the impact of a change in sales on the operating income of
company. Higher sales will generate higher operating profit.

Page | 20
 PART B: Valuation of Advanced Chemical
Industries (ACI) Limited

6. Rates

First we have calculated Return on Equity, Sustainable growth rate, tax rate and depreciation
rate.

For calculating Return on Equity, we have collected equity & net profit amount from the annual
financial report of ACI Ltd. ROE of ACI is 9.73%.

ROE of ACI = Net income/ Total equity

= 1035948452/ 10639058984

= 0.0973

Substantial growth allows a firm to collect extra debt financing and not equity financing, without
changing the debt to equity ratio. To calculate Sustainable growth rate (SGR), first we have
calculated Dividend payout.

Dividend payout = Dividend payment/ Shareholder’s equity

= 175281604/ 438204010

= 0.4

SGR of ACI =ROE (1- Dividend payout)

= 0.0973 (1- 0.4)

= 5.84%

We calculated the tax rate by dividing income tax expense by profit before tax, amounts collected
from annual reports. The tax rate is 52.6%.

Page | 21
Tax Rate = Income tax expense/ Profit before tax

= 1153038139/ 2188986591

= 52.6%

The depreciation rate was also calculated by dividing depreciation expense by assets, amounts
collected from annual reports. The depreciation rate is 0.7746%.

Depreciation rate = Depreciation expense/ Assets

= 363833605/ 46970018468

= 0.7746%

7. Income Statement

We have calculated 5 years pro forma income statement of ACI Ltd. using the sustainable growth
rate 5.84%. The income statement items are collected from the annual report.

Income Statement

Particulars FY - FY - FY - FY - FY - FY -
2017-2018 2018-2019 2019-2020 2020-2021 2021-2022 2022-2023

Revenue 476680276 504518404 533982279 565166844 598172587 633105866

08 20 00 09 78 90

Cost of sale 335637433 355238659 375984597 397942097 421181916 445778940

44 55 26 73 23 13

Gross profit 141042842 149279744 157997681 167224746 176990671 187326926

64 65 7 4 6 8

Other income 82477299 87293973 92391941 977887630 983598427 104104057

5

Page | 22
Operating 328501790 347686295 367991175 389481859 412227600 436301692
profit 9 4 0 6 2 0

Gain from 403900000 427487760 452453045 478876302 506842678 536442290

sale of brands

Share of……. 143913167 152317695 161213048 170627890 180592558 191139163

Net finance 145782052 154295723 163306594 172843699 182937771 193621336
cost 0 8 0 0 0 8

Profit….WPPF 237501055 376201172 398171320 421424525 446035717 472086202

Contribution 186023965 196887764 208386009 220555751 233436206 247068880
to WPPF

Profit before 218898659 231682340 245212589 259533004 274689731 290731612

tax 1 7 3 5 9 2

Current tax 116643147 123455106 130664885 138295714 146372184 154920319

2 9 1 3 0 5

Deferred tax 13393333 14175503 15003352 15879547 16806912 17788435

income

Profit after 103594845 109644784 116048039 122825244 129998239 137590136

tax 2 1 4 9 2 3

Other _ _ _ _ _ _
comprehensi
ve income

Total 113429344 120053618 127064749 134485331 142339274 150651888

comprehensi 8 5 8 1 4 0
ve income

Page | 23
 8. Balance Sheet

We have calculated 5 years pro forma balance sheet of ACI Ltd. using the sustainable growth
rate 5.84%. The balance sheet items are collected from the annual report.

Balance Sheet
FY - FY - FY - FY - FY - FY -
2017- 2018-2019 2019-2020 2020-2021 2021-2022 2022-2023
2018
ASSETS
PPE 1945392 2059003749 2179249568 2306517743 2441218379 2583785533
8098 8 7 5 7 0
Equity 1067888 1130253478 1196260281 1266121881 1340063398 1418323100
774
Other 5151154 545198213 577037788 610736794 646403822 684153805
investment 70

Intangible 8591072 90927911 96238101 101858406 107806936 114102861

asset 5
Non-current 2112284 2235641710 2366203185 2504389451 2650645795 2805443510
asset 3066 1 9 9 8 2

Inventories 1055093 1116711391 1181927336 1250951892 1324007483 1401329520

9071 2 4 8 3 3
Trade 8530045 9028199687 9555446548 1011348462 1070411212 1132923227
receivables 056 6 8 6

Other 9125430 965835550 1022240335 1081939170 1145124417 1211999682

receivables 28

Inter- 1327755 14052966 14873659 15742280 16661629 17634668

company 7
receivables

Advances, 4328616 4581407251 4848961434 5132140781 5431857802 5749078297

Deposits 073
Cash & Cash 1511754 1600040896 1693483284 1792382707 1897057857 2007846035
Equivalent 437

Current asset 2584717 2735665044 2895427883 3064520871 3243488890 3432908641

5402 5 0 3 1 2
Total asset 4697001 4971306754 5261631069 5568910323 5894134686 6238352151
8468 6 0 4 2 8
EQUITY

Page | 24
Share capital 4382040 463795124 490880759 519548195 549889809 582003373
10
Share 4023103 425805292 450672321 476991584 504847892 534331008
premium 67
Reserves 4579908 4847375099 5130466180 5430080773 5747197490 6082833823
446 4
RE 5153137 5454081049 577259382 914379185 967778929 1024297218
802
Equity 1057356 1119105656 1184461426 1253633974 1326846198 1404334016
attributed to 0625 5 8 1 1 0
the owners of
the company
Non - 6549832 69323424 73371911 77656830 82191988 86992000
controlling 2
interest
Total equity 1063905 1126037999 1191798618 1261399657 1335065397 1413033216
8948 0 1 3 2 3
LIABILITIES

Employee 7880321 834053188 882761894 934315188 988879194 1046629738

benefits 13
Long term 5151447 5452292292 5770706161 6107715400 6464405597 6841927288
bank loan 744 9
Deferred tax 7243142 766614186 811384454 858769306 908921433 962002444
liabilities 35

Non- current 6663794 7052959666 7464852510 7900799896 8362206609 8850559474

liabilities 092

Bank 1696673 1795826750 1900703032 2011704089 2129187607 225353216

overdraft 7293
Loan & 1968026 2082959606 2204604446 2333353346 2469621181 2613847058
borrowings 8387 0 9 5 9 9

Trade payable 2347414 2484503418 2629598417 2783166964 2945703914 2117733022

417
Others 3325117 3519304510 3724831893 3942362075 4172596020 4416275627
payable 640
Current tax 2617627 2770497147 2932294180 3130540160 3284786905 3476618460
liabilities 690

Current 2966716 3139972788 3323347199 3517430675 3722848627 3940269871

liabilities 5427 7 5 9 3
Total liabilities 3633095 3845268720 4069832413 4307510625 4559069245 4825318888
919
Total equities 4697001 4971306754 5261631069 5568910323 5894134686 6238352151
& liabilities 8468 6 0 4 2 8

Page | 25
 9. Free Cash Flow

We have calculated free cash flows for next 5 fiscal years. First, we have calculated the Net
working capital, Operating cash flow & Net capital expenditure required to find free cash flows.

For calculating net working capital, we have taken total current assets & total current liabilities
from the annual report. After calculating total NWC by subtracting total liabilities from total assets,
we calculated the changes in NWC for 5years.

Then we calculated net capital expenditure (NCS) by taking net fixed assets from the annual report
and finding the difference in fixed assets for 5years.

For calculating operating cash flow, first, we have taken net fixed assets from the annual report
and then using the depreciation rate calculated earlier we found the depreciation expense of ACI
Ltd. Then we took the earnings before interest & tax and the tax expense amount from the annual
report. By adding the depreciation expense with EBIT and subtracting tax expense we calculated
the OCF.

Finally, by using the FCF formula (OCF-NWC-NCS) we calculated free cash flow for 5years of
ACI Ltd.

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 Free Cash Flow Calculation
FY - 2017-2018 FY - 2018-2019 FY - 2019-2020 FY - 2020-2021 FY - 2021-2022 FY - 2022-2023

Total
Current 25,847,175,402 27,356,650,445 28,954,278,830 30,645,208,713
Assets 32,434,888,901 34,329,086,412
Total
Current
Liabilities 29,667,165,427 31,292,926,093 33,120,432,976 35,054,666,261 37,101,858,770 39,268,607,322

NWC (3,819,990,025) (3,936,275,648) (4,166,154,146) (4,409,457,548) (4,666,969,869) (4,939,520,910)

Change in
NWC 116,285,623 229,878,498 243,303,402 257,512,321 272,551,041

Net Fixed
Assets 21,122,843,066 22,356,417,101 23,662,031,859 25,043,894,519 26,506,457,958 28,054,435,102
Capital
Expenditure
(NCS) 1,233,574,035 1,305,614,758 1,381,862,660 1,462,563,439 1,547,977,144

Net Fixed
Assets 21,122,843,066 22,356,417,101 23,662,031,859 25,043,894,519 26,506,457,958 28,054,435,102
Percentage 4.17% 4.17% 4.17% 4.17% 4.17% 4.17%

Depreciation 880,822,555 932,262,593 986,706,728 1,044,330,410 1,105,319,296 1,169,869,943

EBIT 2,188,986,591 2,375,926,046 2,578,830,130 2,799,062,223 3,038,102,137 3,297,556,059

Tax Expense 1,153,038,139 1,251,507,596 1,358,386,345 1,465,265,094 1,590,398,733 1,726,218,785

OCF = EBIT +
Depreciation
– Taxes 1,916,771,007 2,056,681,043 2,207,150,513 2,378,127,539 2,553,022,700 2,741,207,217

FCF = OCF -
NWC – NCS 4,759,382,656 5,067,689,901 5,405,722,427 5,757,429,130 6,132,750,983

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 10. Beta
Beta can be calculated through:

The Beta for Olympic Industries Ltd. is 0.5.

11. Weighted Average Cost of Capital (WACC)

Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each
category of capital is proportionately weighted. The sources of capital of Advanced Chemical
Industries (ACI) Limited are Equity and Debt. These are included in the WACC calculation, the
amounts are collected from the annual reports.

WACC increases as the beta and rate of return on equity increase, because an increase in WACC
denotes a decrease in valuation and an increase in risk.

To calculate WACC, we multiplied the cost of each capital component by its proportional weight
and took the sum of the results. The method for calculating WACC can be expressed in the
following formula:

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First, we have calculated the CAPM of Advanced Chemical Industries (ACI) Limited. The items
needed for calculating CAPM are risk free rate, average annual market return & market risk
premium.

The risk-free rate is taken from the Bangladesh Bank website, which is the 7.02% (for 364day
Treasury bill). The average annual market return that we have taken is 10%. Then we subtracted
the risk-free rate from the average annual market return and calculated the market risk premium.
Then we calculated the CAPM using the formula:

CAPM or Expected Return on Equity Calculation

Risk Free Rate, RF (364days treasury bill rate) 7.02%
Beta, β 0.50
Average Annual Market Return 10.00%
Market Risk Premium 2.98%
CAPM or Expected Return on Equity 8.51%

For the final calculation of WACC, first, we calculated the total value of Advanced Chemical
Industries (ACI) Limited. For calculating the total value of the firm, we needed the value of equity
& debt and the amounts of equity & debt were taken from the annual report. By adding the value
of equity & debt we calculated the total value of the firm. The cost of equity was calculated
earlier and the cost of debt was mentioned in the annual report, so we took that directly.
Using the total value of the firm and the individual value of equity & debt, we calculated the
proportional weight of equity & debt. And the tax rate was already calculated in previous steps.

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Finally, by using the formula and the items required we calculated the WACC of ACI, which is
8.50 %.

Calculation of WACC
Value of Equity, E 154,554,000,000
Value of Debt, D 34,500,000,000
Value of the firm, V 189,054,000,000

Cost of Equity or CAPM, Re 8.51%

Cost of Debt, Rd (Taken from annual report) 2.23%

We 81.75%
Wd 18.24%

Tax Rate 25%

WACC 7.25%

12. Valuation of the Company

First, we calculated the terminal value at the 5th year. We used the constant growth rate of 7.28%
and the discount rate (WACC) 7.25% and the 5th year FCF. Terminal value formula:

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 Terminal Value Calculation

Constant Growth Rate 7.02%

Discount Rate (WACC) 7.25%
5th Year Free Cash Flow 6,132,750,983

Terminal Value at 5th Year 213,846,360,363

Then we calculated the present value of the 5years’ free cash flows and the terminal value. Present
value formula:

Then by adding the 5years’ present value and the terminal value’s present value we got the
Enterprise value. By subtracting debt from the enterprise value, we got the fair value of the
Olympic Industries Ltd.

Value of the Company

Year FCF Present Value
FY - 2018-2019 4,759,382,656 4,437,652,826
FY - 2019-2020 5,067,689,901 4,405,705,164
FY - 2020-2021 5,405,722,427 4,381,893,714
FY - 2021-2022 5,757,429,130 4,351,504,102
FY - 2022-2023 6,132,750,983 4,321,841,411
Terminal Value 213,846,360,363 150668877357

Enterprise Value, EV 45183463136

Fair Value (EV-Debt) 10683463136
Discount Rate (WACC) 7.25%

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 13. Stock Price Calculation

We calculated the stock price of Olympic by dividing the fair value with the no. of shares
outstanding. The share price calculated was 221.64, but the current stock price of ACI Ltd., as of
31st December, 2018 is 253.00 (BDT). So, the stock of Olympic Industries Ltd. is undervalued by
31.36 (BDT). So, an investor should buy the stock.

Stock Price Calculation

Fair Value, FV 10683463136
Number of outstanding shares 48,202,441
Price = (FV / Outstanding Shares) 221.64

Current Share Price (As of 1st January, 2019) 253.00

Overvalued by (BDT.) 31.36

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14. Appendix

Advanced Chemical Industries (ACI) Limited

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Chevron

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