Business analysis and

valuation of apex food

company

Dewan Muktadir Al- Mukit

Assistant professor
FBA
Eastern University
 Name ID Sl. No.
Tahera jabin 133200010 06
Keyamoni
Mily Biswash 133200083
Farhana Afroj 133200001
 OUTLINE
Company background
COMPANY BACKGROUND
Apex Foods Co., Ltd. is the subsidiary of Apex Group
Co., Ltd. established in 1994.

Under great effort of all staffs, Apex Foods Co., Ltd.

was granted with GMP.

Apex Food Company determines to deliver the best

standard of production by choosing good quality of
raw materials and manufacturing all products in
high hygienic rooms.

Apex Foods Limited was enlisted in Dhaka Stock

Exchange in 1981.
OBJECTIVE
Broad objective
o To evaluate the business analysis and
valuation of Apex Food Company

Specific objectives
o To evaluate the industry analysis and
competitive analysis.

o To evaluate the performance of Apex food.

o To determine the intrinsic value of the share.

METHODOLOGY
We have been used secondary data for business
analysis and valuation of share price of Apex Food
Company.

We have been collected 5 years annual reports

from 2011 to 2015.

For calculating industry average we have been used

5 companies ratio analysis as Fu Wang Food, Nestle
Food ltd, ENGRO Food Ltd, and Gemini Sea Food,
Haque Brothers Limited.
SWOT ANALYSIS
STRENGTH

Strong management ca help

to reach its potential by utilizing
strengths and eliminating weakness.
have a long-term positive impact on the
entity, which adds to its value.
WEAKNESS
Low Liquidity Ratio of Apex Food Ltd. has a significant impact,

so an analyst should put more weight into it.

On the other hand Low Liquidity Ratio of Apex Food Ltd will
have a long-term negative impact on this entity, which
subtracts from the entity's value.

A high debt burden increases the risk that Apex Food Ltd.
goes bankrupt if they make a poor business decision.

Increasing risks can increase Apex Food Ltd debt interest

payments.

Weak R&D can slow Apex Food Ltds growth as competitors

out-innovate Apex Food.

A weak brand means Apex Food Ltd cant charge the same
prices for goods and services as their competitors, because
OPPORTUNITY
Leveraging the balance sheet allows Apex Food Ltd to quickly
expand into other markets and products, especially in fragmented
industries.

Emerging markets are fast growing regions of the world that

enable Apex Food Ltd to quickly expand.

New markets allow Apex Food Ltd to expand their business and
diversify their portfolio of products and services.

International markets offer Apex Food Ltd new opportunities to

expand the business and increase sales.

New services help Apex Food Ltd to better meet their customers
needs. These services can expand Apex Food business and
diversify their customer base.
THREAT
Intense completion can lower Apex Food Ltds profits,
because competitors can entice consumers away with
superior products.

Politics can increase Apex Foods risk factors, because

governments can quickly change business rules that
negatively affect Apex Food Ltds business.

Volatile costs mean Apex Food Ltd has to plan for

scenarios where costs skyrocket. Cautious planning
leads to development delays that can negatively affect
Apex Food Ltd.
1. INDUSTRY ANALYSIS
The five competitive forces used to analyze
the industry are divided into two categories:

Degree of Actual and Potential Competition:

o The rivalry among existing firms

o The threat of new entrants,
o the threat of substitute products,

Bargaining power in input and output markets:

o Bargaining power of suppliers,

o Bargaining power of buyers
2.FINANCIAL ANALYSIS
Current Ratio
1.80
1.60
1.40
1.20
1.00
Axis Title 0.80
0.60
0.40
0.20
0.00
2015 2014 2013 2012 2011
Apex food had more ability to use their current
assets to pay short term liabilities compared to other
companies within the same industry. Current ratio is
much lower than minimum acceptable level of 2:1
which indicates the greater margin of safely for
creditors.
 Quick Ratio
0.70
0.60
0.50
0.40
Axis Title 0.30
0.20
0.10
0.00
2015 2014 2013 2012 2011

Apex food had lower ability to use their Quick assets

(excluding inventory) without relying heavily on its inventory
to pay short term liabilities compared to other companies
within the same industry. Moreover Quick ratio is higher
than maximum acceptable level of 1:1 which indicates the
greater margin of safely for creditors.
 Cash Ratio
0.40

0.30

Axis Title0.20
0.10

0.00
2015 2014 2013 2012 2011

Although Apex foods cash ratio is below the industry

average and its below than 1 which is indicate that it
had not enough ability to repay current liabilities by
only using its cash and cash equivalent.
 Inventory Turnover Ratio
6.00
5.00
4.00

Axis Title 3.00

2.00
1.00
0.00
2015 2014 2013 2012 2011

The ratio for Apex Food is higher than the industry average
in 2012 and 2014 So, Apex Food had less money tied-
up in inventory than other firms within the same industry.
Furthermore, the company is most likely not selling its
inventory as quickly as other competing firms.
 Account Recievable Turnover Ratio
400.00
350.00
300.00
250.00
Axis Title 200.00
150.00
100.00
50.00
0.00
2015 2014 2013 2012 2011

The ratio for Apex Food is higher than the

industry average which indicates that the
company was efficient in collecting cash on
credit sales than other firms in the same
industry.
 Average Collection Period
140.00
120.00
100.00
80.00
Axis Title 60.00
40.00
20.00
0.00
2015 2014 2013 2012 2011

It takes longer time period for Apex Food

to collect payment on credit sales than
others firms in the same industry which
indicates that the company is managing
its collection of accounts receivables
inefficiently.
 Fixed Asset Turnover Ratio
20.00

15.00

10.00
Axis Title
5.00

0.00
2015 2014 2013 2012 2011

It takes shorter time period for Apex food to

collect payment on credit sales than other
firms in the same industry which indicates
that the company is managing its collection
of accounts receivable efficiently.
 Total Asset Turnover
5.00
4.50
4.00
3.50
3.00
Axis Title 2.50
2.00
1.50
1.00
0.50
0.00
2015 2014 2013 2012 2011

As the ratio for Apex Food is lower than the

industry average so it can be said that
Apex Food is not managing its all assets
effectively to generate sales.
 Gross Profit Margin
35.00%
30.00%
25.00%
20.00%
Axis Title
15.00%
10.00%
5.00%
0.00%
1 2 3 4 5

As the ratio for Apex Food is lower than the

industry average the firm is not doing well in
setting of pricing policy and also in
controlling production costs.
 Operating Profit Magin
14.00%
12.00%
10.00%
8.00%
6.00%
Axis Title
4.00%
2.00%
0.00%
2015 2014 2013 2012 2011
-2.00%
-4.00%

As the ratio for Apex Food is lower than the industry

average which is indication of worst pricing strategy
and operating inefficiency of Apex Food.
 ROE
45.00%
40.00%
35.00%
30.00%
25.00%
Axis Title 20.00%
15.00%
10.00%
5.00%
0.00%
2015 2014 2013 2012 2011

The return on Equity ratio measures how well a company is

using owners investments to generate after tax profit. The
lower the ratio indicates that owners of Apex Food Company
are not amply rewarded than other share holders in the same
industry.
 ROA
35.00%
30.00%

Axis Title 25.00%

20.00%
15.00%
10.00%
5.00%
0.00%
2015 2014 2013 2012 2011

As the ratio for Apex Food is lower than the

industry average so it can be said that this
company is not managing its all assets
effectively to generate sales.
 Net Progit Margin
25.00%

20.00%

15.00%
Axis Title
10.00%

5.00%

0.00%
2015 2014 2013 2012 2011

As the ratio for Apex Food is lower than the

industry average so it can be said that its
expenses is higher than other companies. For
this case the lower ratio is mostly attributed
by loss on sale of fixed asset.
 Debt Ratio
600.00%
500.00%
400.00%
Axis300.00%
Title
200.00%
100.00%
0.00%
2015 2014 2013 2012 2011

The ratio indicates that above 50% of the company

assets are financed by creditors. The ratio for Apex
Food Company is lower than the industry average.
That means Apex food will have lower principal
payments and interest charges relative to other firms
in the industry which will ultimately increase the
companys cash flow and net income.
 Debt To Equty Ratio
7000.00%
6000.00%
5000.00%
4000.00%
Axis Title 3000.00%

2000.00%
1000.00%
0.00%
2015 2014 2013 2012 2011

It states that Apex Food investing less

than creditors but both significantly rely
on creditors.
3.PROSPECTIVE ANALYSIS
In prospective analysis we have been calculated-

Rm, Ri, Mean, beta, geometric mean, risk free rate of

return, Risk premium, ke, ko, coefficient covariance etc.

We have calculated the net profit or loss for the

expected 5 years from 2016 to 2020 by forecasted
income statement and determine the intrinsic value
of the share of apex Food Company.

Here we have used 3 types of model to determine

intrinsic value of Apex Food Companys share price as
DDM, FCFF, FCFE.
CALCULATION OF RM, RF, BETA
Name Value

Mean Rm 0.0176187

Annual Rm 6.4308

Geometric Mean Rm -0.0029648

Geometric Annual Rm 0.33032647

CAPM Mean Return 0.17805496

CAPM Geometric Mean Return 0.12200844

Beta 0.00919927

Rf 12%

Risk Premium -0.1023813

Ke 0.11905817
 SALES
2011 2012 2013 2014 2015

Sales 3,207,314,7 3,933,346,1 3,305,717,2 3,844,681,2 2,751,779,8

33 04 80 56 85
0.22636736 - 0.16303994 -0.2842139

1 0.15956613 9

2
Averag -0.0136055

e sales
ANALYSIS OF FORECASTED INCOME STATEMENTS
SALES

Expected Sales
4,500,000,000
4,000,000,000
3,500,000,000
3,000,000,000
2,500,000,000
Axis Title
2,000,000,000
1,500,000,000
1,000,000,000
500,000,000
0
2016 2017 2018 2019 2020
 2. COST OF GOODS SOLD

2011 2012 2013 2014 2015

CGS 2,942,378,95 3,629,828,68
2,948,342,36 3,546,802,96 2,532,152,54
3 6
2 6 1
0.917396389 0.922834805 0.891891869 0.92252198 0.920187169
Avg

CGS
0.914966442
3. GROSS PROFIT

Gross Profit
400,000,000
350,000,000
300,000,000
250,000,000

Axis Title 200,000,000

150,000,000
100,000,000
50,000,000
0
2016 2017 2018 2019 2020
 4. OPERATING EXPENSE

2011 2012 2013 2014 2015

Operating 255876181 284782908 336,710,67 266,559,24 273152726

Expense 5 6

% of sales 0.07240219 0.1018570 0.06933194 0.09926401

0.079778944 9 7 9 7
AVG OPE
0.08452684
EXPECTED OPERATING EXPENSE

Operating Expense
350000000

300000000

250000000

200000000
Axis Title
150000000

100000000

50000000

0
2016 2017 2018 2019 2020
 CAPITAL EXPENDITURE

2011 2012 2013 2014 2015

Fixed 216,977,7 349,045,984 350,099,40 372,698,97 330,706,494

Asset 00 1 3

Cap X

-41,992,479
132,068,284 1,053,417 22,599,572
Averag 28,432,19

e Cap 9

X
 DEPRECIATION
2011 2012 2013 2014 2015

Depreciati 35,666,865 33,535,266 35,440,863 37,499,735 33,852,47

on

0.16438032 0.09607692 0.10123085 0.10061668 0.1023641

6 8 9 5 0
Rate

0.1129337

8
 Depriciation Expense
8000000
7000000
6000000
5000000

Axis Title 4000000

3000000
2000000
1000000
0
2016 2017 2018 2019 2020
 EBIT
-125,000,000
2016 2017 2018 2019 2020

-130,000,000

-135,000,000
Axis Title
-140,000,000

-145,000,000

-150,000,000
 Interest Expense
2011 2012 2013 2014 2015
Debt
149,762,032 142,500,000 112,500,000 90,015,522 52,699,603
Average Debt
146131016 127500000 101257761 71357562.5
Interest Expense
255,876,181 284,782,908 44,985,484 104,130,313 101,765,185

EIR 195% 35% 103% 143%

1.19
Average EIR

Current Maturity 149,762,032 142,500,000 112,500,000 90,015,522 52,699,603

Average Current 109,495,43

Maturity 1
2017E 2018E 2019E 2020E
2016E
109,495,43

Current Maturity 1 109,495,431 109,495,431 109,495,431 109,495,431 109,495,431

Long term debt 52,699,603 56,795,828 52,699,603 56,795,828 52,699,603 56,795,828

Forcasted 81,097,517 83,145,630 81,097,517 83,145,630 81,097,517

Average Debt
Forecasted

Interest 96427896.18 98863176.41 96427896.18 98863176.41 96427896.18

FORECASTED INTEREST EXPENSES

Interest expense
99500000
99000000
98500000
98000000
97500000
Axis Title 97000000

96500000
96000000
95500000
95000000
2016 2017 2018 2019 2020
 Net Loss

-165,000,000
2016 2017 2018 2019 2020
-170,000,000

-175,000,000
Axis Title
-180,000,000

-185,000,000

-190,000,000
 Present Value of cash flows

0
2016 2017 2018 2019 2020
-500000000
-1000000000
-1500000000
Axis
-2000000000
Title
-2500000000
-3000000000
-3500000000
-4000000000
ANALYSIS OF FCFF MODEL

Operating Cash Flow

-94,000,000
1 2 3 4 5
-96,000,000
-98,000,000
-100,000,000
Axis Title -102,000,000
-104,000,000
-106,000,000
-108,000,000
-110,000,000
2.CHANGES IN NET WORKING
CAPITAL
2011 2012 2013 2014 2015
Current Asset 1,268,176,84 1,222,369,26 1,408,553,46 1,320,330,29 1,449,240,06

3 0 6 0 8
Current 1,128,293,40 1,040,962,12 1,104,763,63

Liabilty 930,201,888 877,473,962 3 6 4

NWC
337,974,955 344,895,298 280,260,063 279,368,164 344,476,434

3,207,314,73 3,933,346,10 3,305,717,28 3,844,681,25 2,751,779,88

Sales 3 4 0 6 5
Net working

capital % of

sales 0.105376299 0.087684961 0.084780409 0.072663544 0.125183135

Average Net

working 0.009513766

Capital 9

2015 2016E 2017E 2018E 2019E 2020E

2,751,779,88 3,357,171,46 3869532762

Sales 5 0 2954310885 3604259279 3171748166

Change in Net
 Change in Net working Capital
80000000

60000000

40000000

20000000
Axis Title
0
2016 2017 2018 2019 2020
-20000000

-40000000

-60000000
 FCFF
0
2016 2017 2018 2019 2020

-50,000,000

-100,000,000
Axis Title
-150,000,000

-200,000,000

-250,000,000
WACC
Name Value

Variance
0.045166428
Covariance( Rm,Apex Food)
0.000473227

market capitalization 57,024,000

total debt 1157463237

Total Market Value 1,214,487,237

Weight of Debt 95%

Weight of Equity 5%

cost of Debt( before Tax) 0.01762

cost of Debt ( after tax)Kd 1.32%

WACC( Ko) 1.342%

PRESENT VALUE OF CASH FLOWS

Present Value of cash flows

0
2016 2017 2018 2019 2020
-20000000
-40000000
-60000000
-80000000
Axis Title -100000000
-120000000
-140000000
-160000000
-180000000
-200000000
FCFE MODEL

2011 2012 2013 2014 2015

Long term 149,762,03 142500,00 112,500,00 90,015,52 52,699,60

Debt 2 0 0 2 3
New Debt 0 0 0 0

Borrowings
Debt

Repaymen 22,484,47 37,315,91

t 7,262,032 30,000,000 8 9
- -

Net - 22,484,47 37,315,91

 FCFE
0
2016 2017 2018 2019 2020
-50,000,000
-100,000,000
-150,000,000
Axis Title
-200,000,000
-250,000,000
-300,000,000
-350,000,000
4.ACCOUNTING ANALYSIS
Expenditure: For maintenance and repairs are
expenses; major replacements, renewals and
betterment are capitalized.

Revenue (Turnover) - Turnover is stated at net

value.

Retirement benefits - Retirement benefits are

incorporated on payment basis.

Reporting Currency- The figures in the financial

statements represent Bangladesh Taka Currency.
CONT.
Impairment of Assets: the company reviews the recoverable
amount of its assets at each reporting date.

If there exists any indication that the carrying amount of assets exceeds
the recoverable amount, the company recognizes such impairment loss
in accordance with BAS-36 "Impairment of Assets".

Inventories: The raw materials have been valued at weighted

average method.

The finished goods have been valued under variable costing method
following marginal costing technique.

The work-in-process has been valued at cost of materials with

proportion of electricity & gas and factory overhead absorbed in
production.
FINDINGS
From the above report it can be find that:

The company should reduce its debt from its

capital structure.

Apex foods need pay more attention in inventory

management.

Liquidity ratios evaluate the capability of paying

the obligations on time. Apex Food Ltds liquidity
ratio is lower than its industry average.
CONT.
Efficiency ratios illustrate the capability and
effectiveness of Apex Food Company in creating total
earnings.

Return on Assets (ROA) evaluates the overall efficiency

of the company, profit-making ability and production
power which is also lower than the industry average.

The manager should look upon its share price as the

expected share price may decrease.

Cost of production must be reduced by the

management of Apex Food Ltd.