Financial Management of United Leasing Company Ltd

Corporate Goal

United Leasing Company Ltd a joint venture non-bank financial institution engaged mainly in lease finance business and bills discounting.

Question No.1. What is the corporate goal of the firm? Do you think the goal of the   firm is well-defined? If the goal the firm is not stated anywhere in the annual report then what do you think the goal of the firm should be?

  1. Answer: The corporate goals of United Leasing Company Ltd. are:
    • Ensuring highest return and growth of their shareholders’ assets.
    • Valuing their social obligations.
    • Providing best compensation to all the employees who constitute the backbone of the management and operational strength of the company.
    • Co-operation of the creditors and debtors the bank and financial institutions who provide financial support.
    • Fulfillment their responsibility to the government through payment of tax duties and claims by various public agencies.
    • Striving for an environment free from pollution and poisoning.
    • Striving for the achievement of millennium Development goals for the Human Civilization

    Question No.2. What is your comment regarding the corporate social responsibility (CSR) of the firm? Is anything stated about the CSR in the annual report?

    Answer:

    The firm is highly awoken of the corporate social responsibilities (CSR). The firm’s corporate social responsibility is well diversified. They are very aware about the internal environment and also responsible to the social activities.

    The CRS of United Leasing Company Ltd. stated in the annual report is:

    The board of director is awoken of the corporate social responsibilities especially in the areas of gender equality, race-religion-regional equality, social-marketing, social activities (promotion of sports & culture, health care and population control programs, elimination of corruption programs, participation in charitable activities etc. in non-partisan manner) right to form and participate in Union under ILO convention, employment of disables etc.

  Valuation

Question No.3. What is the book value of the firm?

Answer:

The Book Value of the Firm

 = Face Value of Share × Total Outstanding Share + Retain Earnings

 + Book Value of Long term Debt.

= (100 *700000+1400000*100) + (42000000+21000000+5379552)

 +1959964676

 = 2238344228

Question No.4. What is the market value of the firm?

Answer:

Market Value

 = Market price of the Last Year Share × Total Outstanding Share

 + Book Value of Long term Debt.

 = ?????????? × 100923 + 492569379

 = ???????????

Question No.5. Using Price-earning multiples of the Industry, find out the price of the share of the company.

Answer:

  Price per Share

Price Earning Multipliers of the Industry =Earning per Share  ??????

 = 69

 =?????

Question No.6. Compute FCF to the equity holders over the 5 years forecasted periods and discount these free cash flows at the cost of equity (with an average growth rate) to arrive at the price of the company.

Financial Statements & Analysis

Question No. 7. What are the Financial Statements the Firm has included in the    Annual Report?

Financial Statements that the company has included in the Annual Report

Balance sheet

Profit & Loss Account

Statement of Changes in Equity

Cash Flow Statement

Question No.8. Analysis your firms behavior with the analysis of structure, conduct and performance of the industry to which your firm belong.

Answer:

The principal activities of the Company are:

Long term financing in the form of lease and term loan

Short term financing in the form of factoring of accounts receivable and short term revolving loan.

Home loan product was introduced at the end of 2007 as a part of its product diversification commitment.

Question No.9. Evaluate the firm’s financial condition of the recent five years using the ratios like 

a) Liquidity (CR , QR)

b) Efficiency & activity (A/R period, Inventory period, TAT, Operating and cash cycle)

c) Solvency (debt equity ratio, debt to total asset, debt service coverage ratio )

d) Profitability (OPM, NPM, ROA , ROE) and

e) Market (BV/MV, P/E ratio, TOBIN Q).

Answer:

(a)Liquidity Ratios

Year20072006200520042003
Current Ratio1.07:10.9:11.39:11.33:11.20:1
Quick Ratio1.07:10.9:11.39:11.33:11.20:1

(c) Solvency Ratio

Year20072006200520042003
Debt-Equity Ratio6.65.75.35.96.0
Debt to total assets     
Debt service ratio     

Question No.10. Prepare five factors Du Pont Analysis for the firm. If you want to increase the ROE what may be your course of actions? Suggest specific actions.

Answer:

ROE = ROA × Equity Multiplier

Net Income        Total Asset

=                          ×

Total Asset            Equity

=      Net Income

Equity

= 144538853

1037129552

= 0.1393

= 13.93%

This is the Du Pond analysis of the firm- strategic study of the financial ratios describing the firm’s ROE. For increasing ROE we can increase Net Income or decrease Equity. But decreasing equity is not desirable to the management of the firm. Here increase in net income is rational action

TAX

Question No.11. Compute the average tax rate for the company for recent two years. In which year the company paid higher tax amount? Between the years , which year the company  paid lower amount of tax due to depreciation and interest expense?

Risk & Return Analysis

Question No.12. What is the stock return from the company for the most recent year? Do you find this return as attractive?

Question No.13. Calculate the Bets of the company using five year monthly data series and then adjust Beta.

Question No.14. Estimate cost of Equity/RRR of the company using CAPM.

Operating & Financial Leverage

Question No.15. Using your judgment, make a list of variable cost, and fixed costs of the company.

Answer:

List of variable costs –

Name of the Expense2006

2007

Financial Expense

432295281

541926190

Administrative Expense

79311892

88313867

Provision for doubtful assets

58931980

92329049

Depreciation on Property, plant, & equipment

5135083

6059933

Amortization on intangible assets

472640

472640

Total variable cost

576146876

729101679

List of fixed costs –

Fixed costs

2006

2007

 

Purchase of Property, plant , & equipment

 

17260361

7054000

Total Fixed Cost

17260361

7054000

Question No.16. Compute the breakeven point (in revenue) of the company. How much is the margin of safety in the most recent year?

Question No.17. Compute the degree of operating leverage (DOL) of the company.

Answer:

 % change in EBIT

DOL =

% change in Operating revenue

 EBIT 2007 – EBIT 2006

 EBIT 2006

=

 Operating revenue 2007 – Operating revenue 2006

Operating revenue 2006

 201304752-178894374

178894374

930529186-739236646

739236646

 = 0.484

Question No.18. Compute the degree of financial leverage (DFL) of the company.

Answer:

EPS in 2007- EPS 2006

EPS 2006

DFL   =

 EBIT 2007 – EBIT 2006

EBIT 2006

 69-59

 59

=201304752-178894374

178894374

= 1.349

Question No.19. Compute the degree of total leverage (DTL) of the company.

Answer:

 DTL = DOL × DFL

 = 0.484× 1.349

 = 0.652

Cost of Capital & Capital Structure

Question No.20. What is the company’s cost of equity? What is the cost of debt? What is the company’s current cost of capital (hurdle rate)?

Question No.21. Analyze the optimum debt equity ratio of the company using the checklist of capital structure.

Working Capital

Question No.22. Compute the working capital required for the recent two years. Compare each year’s working capital with the related sales. Do you find any pattern? Using the financial ratios related to the working capital comment on the working capital management.

Answer:

Working Capital

Year

Current Asset – Current Liability

Amount (TK)

2006

2802093758–3312484552

-510390794

2007

4149080853–3871921740

277159113

 Question No.23. Compute the required new fund (RNF) for the next year if the sales are forecaster to be increased by 10% in the next year.