A REPORT ON

VALUATION OF STOCK
OF
GQ BALL PEN
INDUSTRIES LIMITED

Analysis of Financial Investments

i
 F-307

Prepared for: Khairul Alam Siddique

Lecturer

Department of Finance

University of Dhaka

Prepared by: Md Mehedi Hasan

ID: 23-031

Section: A

Date of Submission: 12th February 2020.

Letter of Transmittal:
Date: 12th February, 2020.
Khairul Alam Siddique

ii
Lecturer,
Department of Finance,
University of Dhaka
Subject: Submission of the report on “Valuation of stock of GQ BALL PEN INDUSTRIES
LIMITED.”

Dear Sir,
It gives me an immense pleasure to submit the report on “Valuation of stock of GQ BALL PEN
INDUSTRIES LIMITED”. This is a result of your inspiration and continuous support as a
requirement of our BBA program under the Faculty of Business Studies, University of Dhaka.
Apart from our academic knowledge, the preparation of report gives us the concept of how to
evaluate the value of the stock of a company. It also give me a knowledge of stock exchange of
Bangladesh. It has to be mentioned further that without your kind hearted advice and cooperation
it would not have been possible to substantiate this report. I shall be pleased to answer any kind
of query you think necessary, assuring of my presence if and when needed.
Sincerely yours,

_____________________
Md Mehedi Hasan
ID: 23-031
Batch: 23rd, Section: A
Department of Finance
University of Dhaka

Contents
Executive Summary:....................................................................................................................................v

iii
Introduction.................................................................................................................................................6
Company overview......................................................................................................................................7
Analysis of the Company............................................................................................................................8
Global Analysis:.......................................................................................................................................8
Macroeconomic analysis:........................................................................................................................9
Industry Analysis:...................................................................................................................................11
Company Analysis:.................................................................................................................................16
VALUATION OF STOCK OF GQBALLPEN.........................................................................................21
ASSUMPTIONS:......................................................................................................................................23
APPENDICES:..........................................................................................................................................24
Conclusion:...............................................................................................................................................34
References.................................................................................................................................................34

iv
Executive Summary:
We know that Valuation is used by financial market participants to determine the price they are
willing to pay or receive to effect a sale of a business. In this report, I have tried to evaluate the
stock price of GQ BALL PEN INDUSTRIES LIMITED. Here I have tried to evaluate the stock
of the company using FCFF (Free Cash Flow to Firm), DDM (Dividend Discounting Model). I
have also shown the relative valuations of the company. This report shows shallow global
economic analysis, macroeconomic analysis of Bangladesh, Industry analysis of BALL Pen,
Foods and Plastic. This valuation of stock of the GQBALLPEN is very much necessary if
anyone wants to invest in this company with discretion.

v
Introduction
GQ Ball Pen Industries Limited started its journey in 1981 as the initial member of GQ Group of
Companies. Within a very short transition and due to its unprecedented and quality products GQ
won the hearts of millions and emerged as no. 1 brand for ball point pen in Bangladesh.

Origin of the report:

The report has been prepared as a part of the requirement of the course F-307 (Analysis of
Financial Investment and valuation).

Objectives of the report:

The objectives of the report are as follows:

 To primarily fulfil the degree requirement for the Bachelors of Business Administration under
BRAC Business School
 More specifically, this report intends to provide an estimation of the common stock valuation of
GQ BALL PEN Industries Ltd. Using FCFF, DDM and Relative valuation model.

Methodology:
This report is quantitative in nature, and it relies extensively on secondary data collected from:
Dhaka Stock Exchange and Annual Reports (2016-2019) of GQ BALL PEN INDUSTRIES
LTD.

Limitations of the report:

The limitations of the report are as follows:
 Unavailability of the required data
 Valuation is the estimation not the absolute
 Time constraints
 The used model has the inherent limitation
 Some model may not work in reality in the context of Bangladesh.

6
Company overview
GQ Ball Pen Industries Limited started its journey in 1981 as the initial member of GQ Group of
Companies. Within a very short transition and due to its unprecedented and quality products GQ
won the hearts of millions and emerged as no. 1 brand for ball point pen in Bangladesh.
The Ball pen industry became the center of attention with its legendary brand “ECONO”. Within
a very short time ECONO became the integral leader in providing high quality writing
instrument in the education sector.
ECONO won the hearts of millions because of its great writing experience and affordable price.
The company offers: Best and standard Quality, Affordable price that ensures higher profit
margin and Radiant style with multiple products.
GQBALLPEN is under GQ group. The companies under GQ group are as follows.
1. GQ Ball Pen Industries Limited
2. GQ Foods Ltd. (GQFL)
3. GQ Industries Limited (GQIL)
4. GQBPIL-Biodegradable/Recyclable Goods
5. Maladesh International (Pvt.) Limited
6. GQ Enterprise Limited (GQEL)
7. GQ Marketing Limited (GQML)
GQ Group of Company was first incorporated with GQ Ball Pen Industries on July 18, 1981.
The company was listed in Dhaka Stock Exchange – 14, July 1986 and Chittagong Stock
Exchange – 10, October 1996.

Mission and Visons:

With a mission of producing high-quality hygiene products and reaching to every aspects of
society in Bangladesh GQ Ball pen Industries Ltd. started its journey in 1981 with its factory in
Jessore, Bangladesh. GQ stands for “Guaranteed Quality” in accordance with their corporate
vision as well. Since its foundation they are following a rigorous quality control process in every
step of their production in all of their business concerns. They are committed to uphold the
quality of their products above all. GQ GROUPS are constantly adapting based on the market
demand and trend by introducing new and innovative product that can set a landmark for others.

7
Analysis of the Company

Global Analysis:

Global growth is expected to recover to 2.5 percent in 2020 which is slightly above from the
post-crisis low of 2.4 percent registered last year amid weakening trade and investment.
Nevertheless, downside risks predominate, including the possibility of a re-escalation of global
trade tensions, sharp downturns in major economies, and financial disruptions. Emerging market
and developing economies need to rebuild macroeconomic policy space so that it can enhance
resilience to adverse shocks.
South Asian perspective:
Growth rate in this region is expected to rise to 5.5% in 2020. It is presumed that a modest
rebound in domestic demand and as economic activity benefits from policy accommodation in
India and Sri Lanka and improved business confidence and support from infrastructure
investments in Afghanistan, Bangladesh, and Pakistan. In India, where weakness in credit from
non-bank financial companies is expected to loiter and growth is estimated to slow to 5% in
Fiscal year 2019/20, which ends March 31 and recover to 5.8% the following fiscal year.
Pakistan’s growth is expected to rise to 3% in the next fiscal year after bottoming out at 2.4% in
FY2019/20, which ends June 30.
In Bangladesh, growth is expected to ease to 7.2% in FY2019/2020, which ends June 30, and
edge up to 7.3% the following fiscal year. Growth in Sri Lanka is forecast to rise to 3.3%.

TABLE 2.5.2 South Asia country forecasts

(Real GDP growth at market prices in percent, unless indicated Percentage point differences
otherwise) from June projections
2016 2017 2018 2019e 2020f 2021f 2022f 2018 2019e 2020f 2021f
1
Calendar year basis                      
Afghanistan 2.3 2.7 1.8 2.5 3.0 3.5 3.5 0.8 0.1 -0.2 -0.1
Maldives 7.3 6.9 6.7 5.2 5.5 5.6 5.6 -1.2 -0.5 0.3 0.3
Sri Lanka 4.5 3.4 3.2 2.7 3.3 3.7 3.7 0.0 -0.8 -0.3 0.0

15/1 16/1 17/1 18/19 19/20 20/21 21/22 17/1

Fiscal year basis 1 18/19e 19/20f 20/21f
6 7 8 e f f f 8
Bangladesh 7.3 7.3 7.9 8.1 7.2 7.3 7.3 0.6 0.8 -0.2 0.0
Bhutan 6.3 6.3 3.8 3.9 5.6 7.6 6.2 -1.6 -1.5 0.2 2.4
India 8.2 8.2 7.2 6.8 5.0 5.8 6.1 0.0 -0.4 -2.5 -1.7
Nepal 8.2 8.2 6.7 7.1 6.4 6.5 6.6 -0.4 0.0 0.0 0.0
Pakistan (factor cost) 5.2 5.2 5.5 3.3 2.4 3.0 3.9   2.1 -0.1 -0.3 -1.0

Source: World Bank.

Global growth decelerated to an estimated 2.4 percent in 2019, the slowest pace since the global
financial crisis, and is expected to gradually rise to 2.7 percent by 2022.

8
Bangladesh, the third-largest economy in the region which grew at an officially estimated 8.1%
in FY2018/19. It ended June 30 of last year. Moderation in domestic demand was more than
offset by a pickup in exports, partly as a result of trade diversion following bilateral tariff goes
up between the United States and China.

Macroeconomic analysis:
Bangladesh, the third-largest economy in the region which grew at an officially estimated 8.1%
in FY2018/19. It ended June 30 of last year. Moderation in domestic demand was more than
offset by a pickup in exports, partly as a result of trade diversion following bilateral tariff goes
up between the United States and China.
Economic growth is likely to slow going forward, partly due to flagging global trade. Besides,
downside risks include threats from a banking system under strain from non-performing loans
and vulnerability to natural disasters such as flooding and cyclones. Our panellists project GDP
to expand 7.6% in FY 2020, which is unchanged from last month’s forecast, and 7.3% in FY
2021.

Unemployment:
Unemployment is very important indicator for an economy. It tells many things about country
and economic outlook. A graph is shown below.

9
 Unemployment, total (% of total labor force) (modeled ILO estimate)
6

0
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20

Financial Market:
During 2019, capital raising through IPO was also lowest in last 11-years. We expect the market
reversal 2020. Bangladesh Bank & Ministry of Finance is also working for the market
development and may approve a special fund for stabilization of the capital market. New
Executive Bodies of BMBA and DBA are committed to work relentlessly with different
stakeholders for the betterment of the market. BSEC reconstitution and appointment of new
MDs for DSE & CSE will continue the market development initiatives.
DSE SUMMARY:
 Particular YE2019 YE2018 Change Change Jun-19 EP( Ch HY
ange Change
DSEX 4,453 5,386 (933.) -17.% 5,422 (969.) -18.%
DS30 1,513 1,881 (368.) -20.% 1,929 (416.) -22.%
DSES 1,000 1,233 (233.) -19.% 1,245 (245.) -20.%
Market Cap (BDT 3,396 3,873 (478.) -12.% 3,998 (603.) -15.%
bn)
Avg. Turnover 4,812 5,511 (699.) -13.% 5,801 (988.) -17.%
(BDT MN)
Avg. Volume 137 139 (1.) -1.% 150 (13.) -8.%
(MN)
Market P/NAV 1. 1.8 (0.) -23.% 1.7 (0.) -17.%
Market Forward 12. 15. (3.) -18.% 13.9 . (2.) -14.%
PIE

10
Industry Analysis:
An industry life cycle depicts the various stages where businesses operate, progress, prospect and
slump within an industry. An industry life cycle typically consists of five stages — start-up,
growth, shakeout, maturity, and decline. These stages can last for different amounts of time.
some can be months or years.

Startup Stage/ Launch:

At the startup stage, customer demand is limited due to unfamiliarity with the new product’s
features and performance. Distribution channels are still underdeveloped, so there are very few
product supply and promotional activities. There is also a lack of complementary products that
add value to the customers, limiting the profitability of the new product.
Companies at the startup stage are likely to generate zero or very low revenue and experience
negative cash flows and profits due to a large amount of capital initially invested in technology,
equipment, and other fixed costs.
Growth Stage
As the product slowly attracts attention from a bigger market segment, the industry moves on to
the growth stage where profitability starts to rise. Improvement in product features leads to the
easiness of use, thus increasing value to customers. Complementary products also start to
become available in the market so people have greater benefits in purchasing the product and its
complements. As demand increases, product price goes down, which further increases customer
demand.
At the growth stage, revenue continues to rise and companies start generating positive cash flows
and profits as product revenue and costs break-even.

11
Shakeout Stage
Shakeout usually refers to the consolidation of an industry. Some businesses are naturally
eliminated because they are unable to grow along with the industry or are still generating
negative cash flows. Some companies merged with competitors or are acquired by those who
were able to obtain bigger market shares at the growth stage.
At the shakeout stage, growth of revenue, cash flows, and profit start slowing down as industry
approaches maturity.
Maturity Stage
At the maturity stage, the majority of the companies in the industry are well-established and the
industry reaches its saturation point. These companies collectively attempt to moderate the
intensity of industry competition to protect themselves and maintain profitability by adopting
strategies to deter the entry of new competitors into the industry. They also develop strategies to
become a dominant player and reduce rivalry.
At this stage, companies realize maximum revenue, profits, and cash flows because customer
demand is fairly high and consistent. Products become more common and popular among the
general public, and the prices are fairly reasonable compared to new products.
Decline Stage
The decline stage is the last stage of an industry life cycle. The intensity of competition in a
declining industry depends on several factors: speed of decline, the height of exit barriers, and
the level of fixed costs. To deal with decline, some companies might choose to focus on their
most profitable product lines or services in order to maximize profits and stay in the industry.
Some larger companies will attempt to acquire smaller or failing competitors to become the
dominant player. For those who are facing huge losses and do not believe there are opportunities
to survive, divestment will be their optimal choice.
The industry in which GQBALLPEN belongs to the Maturity Stage.
As GQ ball pen industries firstly produced Ball pen only and then it went on to diversify
producing food type products. Now it belongs to miscellaneous type of industry. So here I have
shown food type industry data. This industry stands on Growing stage in our country.
Food industry is a rapidly growing sector in Bangladesh, employing a significant portion of the
labor force in the country. Between 2004 and 2010, the food processing industry in Bangladesh
grew at an average 7.7 percent per annum.
Bangladesh Bureau of Statistics, in its 25006 Economic Census, reported that there were
approximately 246 medium-sized food processing industries employing 19 percent of the
industrial manufacturing workforce in Bangladesh or 8 percent of the total manufacturing labor
force. The food industry employs 2.45 percent of the country's total labor force and its share in
the GDP was 2.01 percent in 2010. According to some industry analysts, the food processing
sector in Bangladesh is a 4.5 billion US Dollar industry.

12
 In 2010, Bangladesh exported over $700 million worth of processed food and beverages, over
60 percent of them were shrimp and fish products.
Porters Five Forces model:
Porter's Five Forces is a model that identifies and analyses five competitive forces that shape
every industry and helps determine an industry's weaknesses and strengths. Five Forces analysis
is frequently used to identify an industry's structure to determine corporate strategy. Porter's
model can be applied to any segment of the economy to understand the level of competition
within the industry and enhance a company's long-term profitability. Here we are going to
analyze the Food and Plastic sector of Bangladesh according to the Porter's Five Forces model.

1. Threats of New Entrants:

A high risk of entry by potential competitors represents a threat to the profitability of established
companies. The risk of entry by potential competitors is a function of the height of barriers to
entry, that is, factors that make it costly for companies to enter an industry. Threats of new
entrants in this industry is low because of some reasons:
 Government strict regulation
 Considering the Economics of scale, the risk of entry by Potential competitors is low.
 Because of high switching cost, the customers cannot usually switch. As customers
cannot switch, it reduces the possibility of new entrants to enter into the market and
attract new customers.

2. Rivalry among Existing Competitor:

The competitive structure of an industry refers to the number and size distribution of companies
in it. It is something that strategic managers determine at the beginning of an industry analysis.
Industry structures vary, and different structures have different implications for the intensity of
rivalry. Some important implications are:
 Food and Plastic industry of Bangladesh is fragmented. The rivalry among established
companies is much acute.
 Both the domestic and international demand of plastic and food products is high. The
higher demand actually helps to reduce the intensity of rivalry among established firms as
all companies can sell more without taking market share away from other companies.

13
3. Threats of Substitute:
Porter's threat of substitutes definition is the availability of a product that the consumer can
purchase instead of the industry's product. A substitute product is a product from another
industry that offers similar benefits to the consumer as the product produced by the firms within
the industry.
The intensity of threats of substitute is lower for Foods and plastic industry. Besides, As GQ is
mainly running as a ball pen industry, it has some competitors in the pen and stationery
industry. The name of the competitors of GQBALLPEN is given below.
1. Matador Ball pen Industries
2. Anchor Ball Pen
3. Nipun Ball Pen Industries Ltd.
4. S. Hoque International
5. Choice Trading Pvt. Ltd.
6. Janani Ball Pen Industries
7. Olympic Industries
4. Bargaining Power of Supplier:
The Bargaining Power of Suppliers, one of the forces in Porter's Five Forces Industry Analysis
Framework, is the mirror image of the bargaining power of buyers and refers to the pressure that
suppliers can put on companies by raising their prices, lowering their quality, or reducing the
availability of their products.
The bargaining power of the supplier in an industry affects the competitive environment and
profit potential of the buyers. The buyers are the companies and the suppliers are those who
supply the companies. The bargaining power of suppliers is one of the forces that shape the
competitive landscape of an industry and helps determine the attractiveness of an industry.
There are five major factors when determining the bargaining power of suppliers:
 Number of suppliers relative to buyers
 Dependence of a supplier’s sale on a particular buyer
 Switching cost (switching costs of supplier)
 Availability of suppliers for immediate purchase
 Possibility of forward integration by suppliers
It is difficult to measure the Bargaining Power of Suppliers in the plastic and food industry.

5. Bargaining Power of Customer:

14
The Bargaining Power of Buyers, one of the forces in Porter’s Five Forces Industry Analysis
Framework, refers to the pressure that customers/consumers can put on businesses to get them to
provide higher quality products, better customer service, and/or lower prices.
It is important to keep in mind that the bargaining power of buyer analysis is conducted from the
perspective of the seller (the company). The bargaining power of buyers would refer to
customers/consumers who use the products/services of the company.
In Food and Plastic sectors, the buyers have low bargaining power.

Porter argues that the stronger each of these forces, the more limited the ability of established
companies to raise prices and earn greater profits.
Within Porter’s framework, a strong competitive force can be regarded as a threat because it
depresses profits. A weak competitive force can be viewed as an opportunity because it allows
a company to earn greater profits. The below picture shows the five factors of Porter’s model.

15
Company Analysis:
In 1986, GQ Ball Pen Industries Ltd, took a great leap by becoming a public limited company.
Along the way the company expanded from ball pen industry to other market sectors of
Bangladesh such as; PP Woven Sacks, Disposable items, Food grade plastic products, Mosquito
coils etc.
In 1992 GQ started food manufacturing with its sister concern GQ Foods Limited and launched
different types of corn based snacks. As expected it captured the food market as well in a short
period of time with its unique and fingerlicking flavors.
In 1994, GQ expanded itself into PP Woven Bag Industry in order to continue its journey
towards diversified business market. The company also entered into a technical collaboration
with Malaysia and initiated its first ever joint venture named Maladesh International (Pvt.),
another sister concern of GQ Ball Pen Industry, producing highly effective mosquito coil. This
manufacturing facility uses a state of the art technology to produce environmentally friendly
mosquito repellent coil.
The company analysis of GQBALLPEN is shown below with the help of VRIO model, Ansoff
matrix, BCG matrix.

VRIO model:
VRIO is an acronym for a four-question framework of value, rarity, imitability, and
organization. These four components are typically approached in the style of a decision tree.
The VRIO analysis, derived from Jay B. Barney's framework, is a strategic management and
strategic planning tool to inform decision makers about the organizational resources and
capabilities that support long-term competitive advantages.
How a company use this framework as a strategic management tool and how GQBALLPEN is
related to VIRO model is described below.

16
 Value: Do you offer a resource that adds value for customers? Are you able to exploit an
opportunity or neutralize competition with an internal capability?
No: You are at a competitive disadvantage and need to reassess your resources
and capabilities to uncover value.
Yes: If value is established, move on in your VRIO analysis to rarity.
 Rarity: Do you control scarce resources or capabilities? Do you own something that’s
hard to find yet in demand?
No: You have value but lack rarity, putting your company in a position of
competitive parity. Your resources are valuable but common, which makes
competing in the marketplace more challenging (but not impossible). It’s
recommended to go back one step and reassess.
Yes: With value and rarity identified, your next hurdle is imitability.
 Imitability: Is it expensive to duplicate your organization’s resource or capability? Is it
difficult to find an equivalent substitute to compete with your offerings?
No: If your resource has value and rarity, but is affordable or easy to copy, you
have a temporary competitive advantage. It will require considerable effort to
stay ahead of competitors and differentiate your services—go back one step and
reassess.
Yes: You offer something that’s valuable, rare, and hard to imitate—now the
focus is on your organization.

17
  Organization: Does your company have organized management systems, processes,
structures, and culture to capitalize on resources and capabilities?
No: Without the internal organization and support, it will be difficult to fully
realize the potential of your valuable, rare, and costly-to-imitate resources. Your
company will have a unused competitive advantage and will need to reassess
how to attain the needed organization.
Yes: Your company has achieved the ultimate goal of sustained competitive
advantage when it has successfully identified all four components of the VRIO
framework.

GQBALLPEN takes decision considering the VRIO model. At the time of incipient, the
company only produced Ball pen but today the company is on a diversified way of business. It
constantly analyses its resources and capabilities to add value to the customers. The company is
trying to keep it unique in the business strategy compared to its competitors. It always try to
make something new which is valuable to the customers, rare in the market, not easily imitable
by the competitors and strongly organized strategy. It is conspicuous and transparent if we see
the diversity of the company’s business.

BCG matrix: It is designed to help with long-term strategic planning, to help a business
consider growth opportunities by reviewing its portfolio of products to decide where to invest, to
discontinue or develop products. It's also known as the Growth/Share Matrix.
The Matrix is divided into 4 quadrants based on an analysis of market growth and relative market
share, as shown in the diagram below.

18
The chart is a graphical planning tool, where the company’s products and services can be plotted
to help make key business decisions. These decisions include whether to keep a particular
business unit, sell it or to invest more in it. The y-axis of the graph represents rate of market
growth while the x-axis represents market share.
 Dogs: These are products with low growth or market share.
 Question marks or Problem Child: Products in high growth markets with low
market share.
 Stars: Products in high growth markets with high market share.
 Cash cows: Products in low growth markets with high market share.
GQ BALL PEN INDUSTRIES LTD is on the Cash cows position as its markets growth is not so
high and it has high market share. The product line may be considered boring and settled in a
mature market. The company will attempt to milk these as much as possible with as little
investment as possible.

GQBALLPEN is an A category company. Here is some basic information of the company.

19
Ansoff Matrix:
The Ansoff Matrix is a strategic planning tool that provides a framework to help executives,
senior managers, and marketers devise strategies for future growth. It is named after Russian
American Igor Ansoff, an applied mathematician and business manager, who created the
concept.

 Market penetration, in the lower left quadrant, is the safest of the four options. Here,
you focus on expanding sales of your existing product in your existing market: you know
the product works, and the market holds few surprises for you.
 Product development, in the lower right quadrant, is slightly riskier, because you're
introducing a new product into your existing market.
 With market development, in the upper left quadrant, you're putting an existing product
into an entirely new market. You can do this by finding a new use for the product, or by
adding new features or benefits to it.
 Diversification, in the upper right quadrant, is the riskiest of the four options, because
you're introducing a new, unproven product into an entirely new market that you may not
fully understand.
GQBALLPEN industries ltd is on the diversification position of Ansoff matrix or market
expansion grid. Because the company is constantly trying to diversify its business portfolio.
They are committed to uphold the quality of their products above all. GQ GROUPS are
constantly adapting based on the market demand and trend by introducing new and innovative
product that can set a landmark for others.

20
VALUATION OF STOCK OF GQBALLPEN
Free Cash Flow to the Firm (FCFF)
Free cash flow to the firm (FCFF) represents the amount of cash flow from operations available
for distribution after depreciation expenses, taxes, working capital, and investments are
accounted for and paid. FCFF is essentially a measurement of a company's profitability after all
expenses and reinvestments. It is one of the many benchmarks used to compare and analyse a
firm's financial health.
KEY TAKEAWAYS:
 Free cash flow to the firm (FCFF) represents the cash flows from operations available for
distribution after depreciation expenses, taxes, working capital, and investments are
accounted for.
 Free cash flow is arguably the most important financial indicator of a company's stock
value.
 A positive FCFF value indicates that the firm has cash remaining after expenses.
 A negative value indicates that the firm has not generated enough revenue to cover its
costs and investment activities.
FCFF represents the cash available to investors after a company pays all its business costs,
invests in current assets (e.g., inventory), and invests in long-term asset. FCFF
includes bondholders  and stockholders when considering the money left over for investors.
The FCFF calculation is a good representation of a company's operations and its performance.
FCFF considers all cash inflows in the form of revenues, all cash outflows in the form of
ordinary expenses, and all reinvested cash to grow the business. The money left over after
conducting all these operations represents a company's FCFF

The Formula for FCFF Is:

The calculation for FCFF can take several forms, and it's important to understand each version.
The most common equation is shown as:
FCFF=NI+NC+ (I× (1−TR))−LI−IWC
Where:
NI=Net income
NC=Non-cash charges
I=Interest

21
TR=Tax Rate
LI=Long-term Investments
IWC=Investments in Working Capital
As per our requirement for the valuation purpose of the stock of GQBALLPEN, I have
calculated stock price in two different form such as FCFF, DDM using excel. I have also
calculated relative valuations for comparison purposes.
1. Requirement FCFF:
a) Beta calculation. I have collected market data and stock price data. ( this calculation is
attached with Appendices number (a).
b) Balace sheet of previous four years from 2016 to 2019. (See Appendix number b)
c) Income statement of previous four years from 2016 to 2019. (See Appendix number c)
d) Calculation of rate or Percentage.
e) Proforma income statement of upcoming five years from 2020 to 2024. (See appendix
number d)
f) Proforma Balance sheet of upcoming five years from 2020 to 2024. (See appendix
number e)
g) WACC (See Appendix number f)
h) Changes in NWC. (See Appendix number g)
i) FCF and Share valuation. (See Appendix number h)

Requirement 2. DDM (Dividend Discounting Model):

I have calculated share price based on DDM. (See Appendix number i)
Requirement 3. Relative Valuations.
For relative valuations, I have chosen 3 food type listed company. Because I have not found any
listed Ball pen company in the DSE. As GQ group has food production activities, I have chosen
food companies for relative valuations. They are GEMINISEA, GHAIL, AMANFEED. I have
calculated P/E, P/BV, P/S ratios and compare them between the companies.
(See Appendix number j)
EVM calculation. (See Appendix number k). As the P/E ratio of GQBALLPEN is less than the
relative company, I am unable to calculate growth duration model.

j)

22
ASSUMPTIONS:
For valuation purposes, I have assumed some information where I was unable to find any data.
These are pointed below.
FCF:
 Assuming that the dividend payment in 2020 and 2021 was 550000 and 600000 taka
respectively.
 Assuming that other 3 types fixed assets remain same amount in upcoming 5 years.
 Assuming Retained Earnings will be in same amount in upcoming 5 years.
 Assuming liabilities for goods and expense and Credits from other Finance will be in
same amount in upcoming 5 years.
 Risk free rate 9.20%
 Assuming market rate 20% (because calculated market return is very low and minus
figure. -0.0030588. So for calculation purposes, it is assumed.
 Assuming no capital expenditure in same amount in upcoming 5 years. Actually no
expenditure was spent.
DDM
 Assuming growth rate of stock will be 3% constant in the projected years.
 Assuming Dividend growth rate will be 3% constant in the projected years.
Relative Valuations
 EPS of GQBALLPEN is taken from 2016 annual report.
 As there is no direct competitors, foods and agro based company are selected as relative
company.

23
APPENDICES:
Requirement 1 (FCF valuation):
a) Beta Calculation:
Date DSEX Price GQBALLPEN market return GQBALLPEN
return
20-Feb 4,452.96 77.5 -0.003734073 0.011749347
20-Jan 4,469.65 76.6 0.003754831 0.068340307
19-Dec 4,452.93 71.7 -0.058861697 -0.049071618
19-Nov 4,731.43 75.4 0.010363236 0.183673469
19-Oct 4,682.90 63.7 -0.053506426 -0.183333333
19-Sep 4,947.63 78 -0.029071171 0.001283697
19-Aug 5,095.77 77.9 -0.008371621 -0.013924051
19-Jul 5,138.79 79 -0.052167064 -0.019851117
19-Jun 5,421.62 80.6 0.008159561 0.01511335
19-May 5,377.74 79.4 0.033614269 0.008894536
19-Apr 5,202.85 78.7 -0.052632058 -0.010062893
19-Mar 5,491.90 79.5 -0.038502614 -0.073426573
19-Feb 5,711.82 85.8 -0.018757913 0.091603053
19-Jan 5,821.01 78.6 0.080839046 0.038309115
18-Dec 5,385.64 75.7 0.019766154 0.073758865
18-Nov 5,281.25 70.5 -0.000543137 0.073059361
18-Oct 5,284.12 65.7 -0.015800110 -0.075949367
18-Sep 5,368.95 71.1 -0.041368486 -0.093112245
18-Aug 5,600.64 78.4 0.056200414 -0.102974828
18-Jul 5,302.63 87.4 -0.019023358 -0.053087757
18-Jun 5,405.46 92.3 0.011525355 0.383808096
18-May 5,343.87 66.7 -0.068885667 -0.113031915
18-Apr 5,739.22 75.2 0.025329436 0.009395973
18-Mar 5,597.44 74.5 -0.035745417 -0.039948454
18-Feb 5,804.94 77.6 -0.038882211 -0.054811206
18-Jan 6,039.78 82.1 -0.032787148 -0.087777778
17-Dec 6,244.52 90 -0.009884475 -0.041533546
17-Nov 6,306.86 93.9 0.047722519 0.008592911
17-Oct 6,019.59 93.1 -0.012022308 -0.013771186
17-Sep 6,092.84 94.4 0.014386249 -0.099236641
17-Aug 6,006.43 104.8 0.024876123 0.029469548
17-Jul 5,860.64 101.8 0.036173719 0.182346109
17-Jun 5,656.04 86.1 0.046811929 0.003496503
17-May 5,403.11 85.8 -0.013229721 0.07518797
17-Apr 5,475.55 79.8 -0.042670742 0.002512563
17-Mar 5,719.61 79.6 0.019049689 -0.00871731
17-Feb 5,612.69 80.3 0.026397408 0.020330368

24
 17-Jan 5,468.34 78.7 0.085839100 0.130747126
16-Dec 5,036.05 69.6 0.048906116 -0.030640669
16-Nov 4,801.24 71.8 0.045527496 0.068452381
16-Oct 4,592.17 67.2 -0.021939521 0.001490313
16-Sep 4,695.18 67.1 0.037248955 -0.094466937
16-Aug 4,526.57 74.1 0.000271803 0.124430956
16-Jul 4,525.34 65.9 0.003940030 0.103852596
16-Jun 4,507.58 59.7 0.019955243 0.005050505
16-May 4,419.39 59.4 0.053316618 0.038461538
16-Apr 4,195.69 57.2 -0.037140307 -0.12
16-Mar 4,357.53 65 -0.034226811 -0.055232558
16-Feb 4,511.96 68.8 -0.006370998 0.022288262
16-Jan 4,540.89 67.3 -0.013902552 -0.211943794
15-Dec 4,604.91 85.4 0.005221579 0.423333333
15-Nov 4,580.99 60 0.003617060 -0.097744361
15-Oct 4,564.48 66.5 -0.059273549 -0.085281981
15-Sep 4,852.08 72.7 0.017493384 -0.012228261
15-Aug 4,768.66 73.6 -0.004932913 -0.027741083
15-Jul 4,792.30 75.7 0.045645960 0.089208633
15-Jun 4,583.10 69.5 -0.000839338 -0.033379694
15-May 4,586.95 71.9 0.133341405 0.03008596
15-Apr 4,047.28 69.8 -0.106655365 -0.27892562
15-Mar 4,530.48 96.8 -0.048859907 -0.07456979
15-Feb 4,763.21 104.6

COVARIANCE 0.00195625
5
Variance of Market return 0.001777
Beta 1.10087503
5
market return -0.0002549
market return-yearly -0.0030588
Here calculated yearly market return is negative, So for calculation purposes, it is assumed that
market return is 20%.

b) Balance Sheet
Particular 2016 2017 2018 2019

25
PPE 990,748,943 957,042,034 975315093 987985853
Capital work in progress 12,558,536 4,809,402 7,267,521 2,615,466
Patent and trademark 111,706 111,706 111,706 111,706
Investmens 182,417,287 147,849,646 145,959,218 135,552,380
Total fixed asset 1,185,836,4 1,109,812,7 1,128,653,5 1,126,265,4
72 88 38 05
Inventory 92,928,367 94,588,568 90,535,851 85,487,217
Accounts receivable 22,474,053 22,181,360 22,168,572 23,929,290
Advance and prepayment of 187,788,594 194,224,243 198,545,104 203186649
income tax
Other asset 1(short term 237,284,396 333,327,436 269,369,617 278422888
investment)
Other asset 2 59,869,293 103,988,913 61,779,571 65,942,918
Cash & cash equivalents 26,087,890 15,570,146 11,933,363 2,157,357
Total curent asset 626432593 763880666 654332078 659126319
Total asset 1,812,269,0 1,873,693,4 1,782,985,6 1,785,391,7
65 54 16 24

Share capital 89,280,914 89,280,914 89,280,914 89,280,914

Share premium 123,236,202 123,236,202 123,236,202 123,236,202
Tax holiday reserve 83,482,054 83,482,054 83,482,054 83,482,054
Revaluation Surplus 588,400,723 584,485,140 582145803 579864949
AFS reserve 0 0 106976203 114464720
Retained Earnings 472,702,358 548,169,551 350592725 333118009
Total equity 1,357,102,2 1,428,653,8 1,335,713,9 1,323,446,8
51 61 01 48
Long-term loan 0 390,534 97861 0
Deferred Income tax liability 214,335,618 206,959,930 209,896,485 225528511
Total long-term liability 214335618 207350464 209994346 225528511
Short-term loan 53,413,911 31,366,324 23,648,009 25,202,839
Liabilities for goods and expense 5,878,349 15,499,639 17,587,353 10,061,724
Credits for other finance 1,573,789 2,663,527 5,625,646 6,003,855
Other liabilities 12,983,381 14,390,155 14,046,548 15,330,257
Provision for Income Tax 166,981,766 173,769,483 176,369,814 179817691
Total current liability 240,831,196 237,689,128 237,277,370 236,416,366
Total liabilities 455,166,814 445,039,592 447,271,716 461,944,877
Total equity & liabilities 1,812,269,0 1,873,693,4 1,782,985,6 1,785,391,7
65 53 17 25

Number of Outstanding shares 8910800

c) Income Statements:

26
Particulars 2016 2017 2018 2019
Sales 136,338,171 107,413,972 79,223,972 75,925,425
Less: COGS 122,726,593 99,476,937 77,168,105 73,666,597
Gross profit 13611578 7937035 2055867 2258828
Less: Operating expense 46,106,946 48,621,403 58,266,249 31,844,128
Operating profit -32495368 -40684368 -56210382 -29585300
Plus: Other income 36,184,806 56,967,117 16,826,355 21,758,480
Less: Contribution to 240,418 775,369 0 0
WPPF
Less: Gratuity expense 0 0 0 377,870
EBT 3,449,020 15,507,380 -39,384,027 -8,204,690
Less: Tax 5,174,802 6,787,716 2,600,331 3447877
Deferred tax -1,189,602 6,070,493 -3,716,334 -3,674,008
(liability)/asset
Net income -2,915,384 14,790,157 -45,700,692 -15,326,575
Less: Dividend 8,446,354 5,447,016 4,432,148 4,238,737
Transfer to the reserve -11,361,738 9,343,141 -50,132,840 -19,565,312

Depreciation 1,010,986 752,212 554,182 540,419

d) Proforma Income statements:

Particulars 2019 2020 2021 2022 2023 2024
Sales 75,925,42 62860463. 52043671. 43088192. 35673738. 29535135.
5 6 59 44 4 78
Less: COGS 73,666,59 59254951. 49058582. 40616766. 33627585. 27841077.
7 23 22 01 8 36
Gross profit 2258828 3605512.3 2985089.3 2471426.4 2046152.6 1694058.4
68 69 24 7 15
Less: Operating 31,844,12 30577069. 25315482. 20959289. 17352693. 14366707.
expense 8 29 28 36 7 49
Operating profit - - - - - -
29585300 26971556. 22330392. 18487862. 15306541. 12672649.
9 91 9 1 07
Plus: Other 21,758,48 22939433. 24184484. 25497111. 26880981. 28339961.
income 0 82 58 17 3 8
Less: 0 141151.69 116862.84 96753.525 80104.543 66320.454
Contribution to 71 43 85 2 89
WPPF
Less: Gratuity 377,870 78211.888 64753.480 53610.945 44385.775 36748.038
expense 11 74 47 7 48
EBT - -4,251,487 1,672,475 6,858,884 11,449,95 15,564,244
8,204,690 0
Less: Tax 3447877 - 607033.32 2489466.3 4155816.8 5649120.6

27
 1543098.4 56 08 3 06
4
Deferred tax - - - - - -
(liability)/asset 3,674,008 3740448.8 3808091.2 3876956.8 3947067.7 4018446.6
5 1 2 9 59
Net income - -6,448,837 -2,742,649 492,461 3,347,065 5,896,677
15,326,57
5
Less: Dividend 4,238,737 550000 600000 49246.064 334706.53 589667.69
13 2 64
Transfer to the - -6,998,837 -3,342,649 443,215 3,012,359 5,307,009
reserve 19,565,31
2

e) Proforma Balance Sheet:

Particular 2019 2020 2021 2022 2023 2024
PPE 98798585 98734796 98671049 98607343 98543678 98480054
3 8 4.9 3.3 3.1 3.9
Capital work in 2,615,466 2,615,466 2,615,466 2,615,466 2,615,466 2,615,466
progress
Patent and 111,706 111,706 111,706 111,706 111,706 111,706
trademark
Investments 135,552,3 135,552,3 135,552,3 135,552,3 135,552,3 135,552,3
80 80 80 80 80 80
Total fixed asset 1,126,265 1,125,627 1,124,990 1,124,352 1,123,716 1,123,080
,405 ,520 ,047 ,985 ,335 ,096
Inventory 85,487,21 60203359 49843792 41266860 34165814 28286689
7 .78 .19 .01 .04 .34
Accounts 23,929,29 15186048 12572890 10409394 8618185. 7135200.
receivable 0 .43 .37 .71 243 359
Advance and 20318664 13150120 10887297 90138519 74627822 61786147
prepayment of 9 3.2 1 .91 .63 .76
income tax
Other asset 27842288 18717919 15497010 12830343 10622545 87946582
1(short term 8 4.5 3.1 1 9.4 .13
investment)
Other asset 2 65,942,91 0 0 0 0 0
8
Cash & cash 2,157,358 74,790,26 118,138,5 157,347,5 192,564,2 224,643,1
equivalents 0 28 45 44 34
Total curent 65912632 468,860,0 444,398,2 427,465,7 416,201,5 409,797,7
asset 0 66 85 50 26 53
Total asset 1,785,391 1,594,487 1,569,388 1,551,818 1,539,917 1,532,877
,725 ,586 ,332 ,736 ,861 ,849

28
Share capital 89,280,91 89,280,91 89,280,91 89,280,91 89,280,91 89,280,91
4 4 4 4 4 4
Share premium 123,236,2 123,236,2 123,236,2 123,236,2 123,236,2 123,236,2
02 02 02 02 02 02
Tax holiday 83,482,05 83,482,05 83,482,05 83,482,05 83,482,05 83,482,05
reserve 4 4 4 4 4 4
Reserve and 57986494 572,866,1 569,523,4 569,966,6 572,979,0 578,286,0
Surplus 9 12 63 77 36 45
AFS reserve 11446472 0 0 0 0 0
0
Retained Earnings 33311800 33311800 33311800 33311800 33311800 33311800
9 9 9 9 9 9
Total equity 1,323,446 1,201,983 1,198,640 1,199,083 1,202,096 1,207,403
,848 ,291 ,642 ,856 ,215 ,224
Long-term loan 0 3821136. 7375064. 10317446 12753513 14770392
901 947 .43 .98 .19
Deferred Income 22552851 22552851 22552851 22552851 22552851 22552851
tax liability 1 1 1 1 1 1
Total long-term 22552851 22934964 23290357 23584595 23828202 24029890
liability 1 7.9 5.9 7.4 5 3.2
Short-term loan 25,202,83 20653218 17099290 14156908 11720841 9703962.
9 .1 .05 .57 .02 808
Liabilities for 10,061,72 10,061,72 10,061,72 10,061,72 10,061,72 10,061,72
goods and 4 4 4 4 4 4
expense
Credits for other 6,003,855 6,003,855 6,003,855 6,003,855 6,003,855 6,003,855
finance
Other liabilities 15,330,25 9561267. 7916000. 6553844. 5426083. 4492383.
7 209 33 783 837 751
Provision for 17981769 11687458 96763244 80112589 66327116 54913796
Income Tax 1 2.9 .54 .57 .65 .03
Total current 236,416,3 163,154,6 137,844,1 116,888,9 99,539,62 85,175,72
liability 66 47 14 22 1 2
Total liabilities 461,944,8 392,504,2 370,747,6 352,734,8 337,821,6 325,474,6
77 95 90 79 45 25
Total equity & 1,785,391 1,594,487 1,569,388 1,551,818 1,539,917 1,532,877
liabilities ,725 ,586 ,332 ,736 ,861 ,849

f) WACC
Risk-free rate 0.092
Market return 0.2
Beta 1.100875
Cost of equity 0.2108945
Cost of debt 0.115

29
After tax cost of debt 0.0732602

Total market value of equity 690587000

Book value of debt 25,202,839
Weight of equity 0.9647902
Weight of debt 0.0352098

WACC 0.2060484

g) Changes in Working Capital

Particulars 2019 2020 2021 2022 2023 2024
Inventory 85,487,2 60,203,3 49,843,7 41,266,86 34,165,8 28,286,68
17 60 92 0 14 9
Accounts receivable 23,929,2 15,186,0 12,572,8 10,409,39 8,618,18 7,135,200
90 48 90 5 5
Advance and 2031866 1315012 1088729 90138519 7462782 61786147
prepayment 49 03 71 .91 2.6 .76
Non-cash current 312,603, 206,890, 171,289, 141,814,7 117,411, 97,208,03
asset 156 611 654 75 822 7

Liabilities for goods 10,061,7 10,061,7 10,061,7 10,061,72 10,061,7 10,061,72

and expenses 24 24 24 4 24 4
Other liabilities 15,330,2 9,561,26 7,916,00 6,553,845 5,426,08 4,492,384
57 7 0 4
Non- STD Current 25,391,9 19,622,9 17,977,7 16,615,56 15,487,8 14,554,10
liabilities 81 91 24 9 08 8

Working capital 287,211, 187,267, 153,311, 125,199,2 101,924, 82,653,93

175 620 929 06 014 0
Change in WC - - - - -
99,943,5 33,955,6 28,112,72 23,275,1 19,270,08
55 91 3 92 4

h) FCF valuation
Particulars 2020 2021 2022 2023 2024

30
EBIT -4,251,487 1,672,475 6,858,884 11,449,950 15,564,244
EBIT (1-tax rate) -2,708,388 1,065,442 4,369,417 7,294,133 9,915,124
Depreciation 721625.0493 721159.13 720693.52 720228.217 719763.208
8 7 6 1
Capital expenditure 0 0 0 0 0
Change in NWC -99,943,555 - - - -
33,955,69 28,112,72 23,275,192 19,270,084
1 3
Free cashflow 97,956,792 35,742,29 33,202,83 31,289,553 29,904,971
2 4
Terminal CFs 174963910.
1
WACC 0.206048422
Terminal Growth rate 0.03
Present value of free 81,221,275.8 24572701. 18926962. 14789053.5 11719785.5
cashflow 5 8 6 3 3
PV Terminal value 68568516.1
8

Enterprise value 219,798,295.

49
Cash 2,157,358
Interest-bearing debt 25,202,839
Equity value 196,752,814.
49

৳
Value per share
22.08

For Requirement 2 (DDM)

i) DDM
Particulars 2019 2020 2021 2022 2023 2024
EBT -8204690 - 1672475. 685888 114499 155642
4251486. 345 4 50 44
69
Less: Tax 3447877 - 607033.3 248946 415581 564912
1543098. 256 6 7 0.6
44
Deferred tax -3674008 - - - - -
(liability)/asset 3740448. 3808091. 387695 394706 401844
85 21 7 8 6.7
Net income - - - 492460 334706 589667
15326575 6448837. 2742649. .6 5 7

31
 09 19
DIVIDEND payment 4238737 550000 600000 49246. 334706 589667.
06 .5 7
outstanding share of the 8910800
GQBALLPEN
dividend per share (projected years) 0.061722 0.067334 0.0055 0.0375 0.06617
85 022 27 62 45
terminal Dividend 0.30079
47
terminal growth rate of 0.03
Dividend
WACC 0.206048
422
Cost of Equity of 0.210894
GQBALLPEN 504

Yearly CFs will be 0.061722 0.067334 0.0055 0.0375 0.36696

85 022 27 62 92

৳
PV of all CFs
0.26

৳
DDM per Share
0.26

For Requirement 3 (Relative Valuation of the company)

j) Relative valuations
Company price Earning Book Sales P/E P/B P/S
name s value (million
)
GQBALLPEN 74.7 1.66 10 76 45 7.47 0.98419
Relative
Company
GEMINISEA 166.6 0.49 10 184 340 16.66 0.90543
5
GHAIL 17.3 0.6 10 688 28.8333 1.73 0.02514
3 5
AMANFEED 27.1 0.85 10 1955 31.8823 2.71 0.01386
5 2

Average 133.571 7.03333 0.31481

9 3 4

32
k) EVM
EVA in 2016 -27934078.97 (NOPLAT-COST OF CAPITAL)

Conclusion:
This report shows shallow global economic analysis, macroeconomic analysis of Bangladesh,
Industry analysis of BALL Pen, Foods and Plastic. This valuation of stock of the GQBALLPEN
is very much necessary if anyone wants to invest in this company with discretion. After
completing the valuation, I would say that GQBALLPEN can be taken in the portfolio of the
investors. Because the results show a positive sign for the company. By forecasting the balance
sheet of the company, I have found the share value of the GQBALLPEN is 22tk.

References
Data.worldbank.org. (2020). World Bank Open Data | Data. [online] Available at:
https://data.worldbank.org/ [Accessed 11 Feb. 2020].

Dsebd.org. (2020). Dhaka Stock Exchange. [online] Available at: http://www.dsebd.org/

[Accessed 11 Feb. 2020].

Investing.com. (2020). Investing.com - Stock Market Quotes & Financial News. [online]
Available at: https://www.investing.com/ [Accessed 11 Feb. 2020].

Ross, S. (2011). Corporate finance. New York: McGraw-Hill/Irwin.

33
34