This report is prepared with an intention to make capital structure and dividend policy analysis of the assigned two firms which are FU-WANG food limited and Rangpur dairy and food limited who are the participants of food and allied sectors. In an effort to performed capital structure and dividend policy analysis the paper first consider a general overview of the food and allied sector based on some information and analysing the Porter's five competitive factors model. After that this report demonstrates company overview for both the selected firm. The company overview generally contains some basic information of the selected firms and briefly discusses the corporate goals of the firms.
Then the capital structure analysis has been conducted based on the stock variable, flow variable and flow concept. Summarizing the result is like that - Under stock concept FU-WANG food has higher financial debt, D/E and financial leverage than those of Rangpur dairy. It indicates FU-WANG food is carrying more debt in its capital than Rangpur dairy. Under flow concept Rangpur dairy has greater cash flow coverage and interest coverage ratio whereas debt service coverage ratio is higher for FI-WANG food. Based on the checklist it has been found that tangibility is higher for Rangpur dairy. But in case of rest of the factors which are profitability (measured in both return on asset and return on operating asset), growth rate, financial slack and uncertainty of operating income is higher for FU-WANG food.
This report also performed five factors extended DuPont analysis that reveals FU-WANG food has substantial higher return on equity than that of Rangpur dairy. This result occurs mainly due to the higher interest burden and financial leverage of the firm. In the analysis of dividend policy this report also demonstrates the trends of the earnings per share, dividend pay-out for the last five years. It has revealed that both of the firm is following residual dividend policy. In this policy investment is the major priority. If any amount of residual cash is available to the firm after making investment then the firm will distribute cash dividend. Both of the firms are not paying any cash dividend during the last five years so that it can be understood that the firms have no residual amount of cash is available to them after making investment to distribute cash dividend.
Table of Contents
1. Introduction:
2. Objectives of the Report:
3. Sources of Data:
4. Scope of the report
5. Limitations of the Report:
6. Industry Overview:
6.1.1: Status of Exports of Agro-Based Products
6.1.2 GDP Impact
6.1.3. Porter's Five factor Analysis of Food and Allied Sector:
7. Company Overview:
7.1. Overview of Rangpur Dairy& Food Products:
7.2. Corporate goal of Rangpur Dairy& Food Products:
7.3. Corporate Social Responsibility of Rangpur Dairy& Food Products:
7.4. Overview of FU-WANG FOOD Limited:
7.5. Corporate goal of FU-WANG FOOD Limited:
7.6. Corporate Social Responsibility of Rangpur Dairy& Food Products:
8. Analysis of Capital Structure:
8.1. Stock Concept:
8.1.1. Financial Debt Ratio:
8.1.2. Debt to Equity Ratio:
8.1.3. Financial Leverage:
8.2. Flow Concept:
8.2.1. Interest Coverage Ratio:
8.2.2. Debt Service Coverage Ratio:
8.2.3. Cash Flow Coverage Ratio:
8.3. Checklist:
8.3.1. Tangibility:
8.3.2. Uncertainty of Operating Income:
8.3.3. Profitability:
8.3.4. Sustainable Growth Rate:
8.3.5. Financial Slack:
9. DuPont Analysis:
9.1. Tax Burden:
9.2. Interest Burden:
9.3. EBIT or Operating Income Margin:
9.4. Asset Turnover Ratio:
9.5. Equity Multiplier:
9.6. DuPont Return on Equity:
10. Dividend Policy:
10.1. Types of dividends:
10.2. Types of Dividend Policy:
10.3. The stylized fact of dividend policy:
10.4. Analysis of Dividend Policy of FU-WANG food:
10.5. Analysis of Dividend Policy of Rangpur Dairy:
10.6. The stylized facts of Dividend policy of the selected firm:
11. Pecking Order Theory:
11.1. Pecking Order theory test for Rangpur Dairy:
11.2. Pecking Order theory test for FU-WANG Food:
12. Conclusion:
13. References
14. Appendix:
Research Objectives and Themes
This report aims to analyze the capital structure and dividend policies of two prominent companies in Bangladesh's food and allied sector, FU-WANG Food Limited and Rangpur Dairy and Food Limited, to provide insights into their financial performance and strategic decision-making.
- Comparative capital structure analysis using stock and flow variables.
- Evaluation of financial efficiency through DuPont analysis.
- Assessment of dividend policies and adherence to residual dividend policy.
- Testing the applicability of Pecking Order theory to the selected firms.
- Industry-level analysis using Porter's Five Forces model.
Excerpt from the Book
1. Introduction:
Corporate finance is defined as the area of finance which is dealing with the sources of fund and the capital structure of firms and the actions that managers take to maximize the value of the firm to the shareholders including the tools and analysis which are used to allocate financial resources. The main objective of corporate finance is to maximize or increase shareholder value. Corporate finance governs 3 principles which are investment principle, financing principle and dividend principle. The investment principles specifies that firms invest only in projects that yield a return that exceeds the hurdle rate or required rate of return (project with positive net present value). The financing principle suggests that accurate mix of debt and equity in the capital structure that will maximize the value of the firm. Maximizing the value of the firm is ensured by making optimal mix of debt and equity which will minimize the cost of capital. Thereby, value can be created and added to the firm.
To analyze different aspects of corporate finance of the selected firms, first industry analysis is performed. I have been assigned 02 (two) stock-listed companies from the Food and Allied Sector named FU-WANG Food Limited and Rangpur Dairy and Food Limited. There after all possible aspects of corporate finance of aforesaid companies are analyzed and evaluated to employ the bookish knowledge in practical arena.
Chapter Summaries
1. Introduction: Outlines the foundational principles of corporate finance, specifically investment, financing, and dividend decisions, and establishes the report's purpose.
6. Industry Overview: Provides a comprehensive look at the food processing sector in Bangladesh, including its contribution to GDP and a Porter’s Five Forces analysis.
7. Company Overview: Details the corporate profiles, goals, and social responsibility initiatives for both FU-WANG Food Limited and Rangpur Dairy and Food Limited.
8. Analysis of Capital Structure: Evaluates the financial strength of the selected firms using stock concepts, flow concepts, and various financial checklists.
9. DuPont Analysis: Breaks down the return on equity for both companies into tax burden, interest burden, EBIT margin, asset turnover, and equity multiplier.
10. Dividend Policy: Examines dividend patterns and policies, concluding that both firms follow a residual dividend policy.
11. Pecking Order Theory: Tests whether the firms follow the hierarchical financing preferences suggested by the Pecking Order theory.
Keywords
Corporate Finance, Capital Structure, Dividend Policy, FU-WANG Food, Rangpur Dairy, Financial Leverage, DuPont Analysis, Pecking Order Theory, Earnings Per Share, Return on Equity, Debt-to-Equity Ratio, Food and Allied Sector, Residual Dividend Policy, Profitability Analysis, Asset Turnover.
Frequently Asked Questions
What is the primary focus of this study?
The study focuses on the capital structure and dividend policies of two companies: FU-WANG Food Limited and Rangpur Dairy and Food Limited, operating within the food and allied sector in Bangladesh.
What are the central thematic areas examined?
The key themes include financial performance analysis, capital structure composition, efficiency evaluation via DuPont analysis, dividend payout patterns, and the applicability of the Pecking Order theory.
What is the main objective of this research?
The primary goal is to apply corporate finance theoretical knowledge to real-world financial statements of the assigned firms to evaluate their capital structure health and dividend strategies.
Which scientific methods are utilized in this report?
The report utilizes secondary data analysis, including financial ratio analysis (debt, leverage, coverage ratios), DuPont five-factor analysis, and testing financial theories like the Pecking Order theory.
What does the main body of the report cover?
It covers industry context, detailed company profiles, rigorous financial statement analysis (stock and flow concepts), profitability and sustainability metrics, and dividend policy investigations.
Which keywords best describe this research?
Key terms include Corporate Finance, Capital Structure, Dividend Policy, Financial Leverage, DuPont Analysis, and Pecking Order Theory.
How does the financial leverage of the two firms compare?
The analysis indicates that FU-WANG Food maintains a higher financial leverage and debt-to-equity ratio compared to Rangpur Dairy throughout the studied five-year period.
What conclusion is drawn regarding the dividend policy?
Both companies are found to follow a residual dividend policy, as neither firm has paid out cash dividends during the five-year period, preferring to retain earnings for recapitalization and sustainable growth.
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- Sajjad Hossine Sharif (Autor:in), 2018, Capital Structure and Dividend Policy Analysis of FU-WANG Food Limited and Rangpur Dairy and Food Limited, München, GRIN Verlag, https://www.grin.com/document/950923
