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INTRODUCTION

C HAPTER 1



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Origin:

Corporate Finance (MBA 507) is a course to be completed as a degree requirement for Masters

of Business Administration (MBA). During the course taken our honorable teacher asked to

prepare a report on dividend policy. We have chosen “Bata Shoe (Bangladesh) Ltd.” to study to

prepare this report.

The report is designed to gather practical knowledge from the corporate world. The objective is

to get the experience of dividend policy that used in real corporate environment. It helps to

integrate the knowledge learned in the class room from this course.

Study Purpose:

We are going to identify the theory which can be applicable for dividend policy to attract the

investors. To find out the value of the corporation & scatter the importance of its uniqueness

towards all the stakeholders, competitors and contemporary corporation. However, BATA has

already demonstrated its excellence through good products to customers, but has not yet

deceased his journey to titan its capital & Customers providing fruitful dividend. Bata is trying

to formulate an accomplished dividend policy that offers the dividend after undertaking the

investment for expanding the business and financial decision.

Report Objective:

The objective of the report is to know about the dividend policy of Bata Shoe (Bangladesh)

limited. This report will help us to understand the appraisal process and to find out the scope of

learning financing activities of a large organization. It will bring the opportunity to identifyfactors which influence to increase the value of firm as wel l as company’s performance, which

will be beneficial in our future professional life. Finally we will try to find the opportunity to

identify scopes and some suggestions for the organization which will help to carry out the

mission to reach the organizational goal.



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Methodology:

To prepare this report we have used the following method-

Primary Data Sources

Information that are collected through the direct conversation.

And from Bata Shoe Co Ltd. Web sites.

Secondary Data Sources

The secondary sources of data include as under:

Annual Report Bata Shoe Co Limited.

Group Instruction Manual & Business Instruction Manual

Prior research Report

Different books and periodicals related to the same business sector

Newspapers

Limitation:

Nothing is beyond limitations. Everywhere and in every task there must have some sort of

limitations. We also faced some problems at the time of preparing my internship report as

well.

The limitations are:

Shortage of time

Lack of availability of funds (financial budget constraints)

Company’s restrictions to disclose all information

In spite of above limitations, we have tried with all of our efforts to know and find out the

response pattern of the subject and consultation of relevant record and document. Data have

reached a fairly acceptable degree of accuracy.



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ORGANIZATION

OVERVIEW

C HAPTER 2



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Overview

The Bata Shoe (Bangladesh) Ltd. was founded in 1894 by Czech businessman Tomas Bata in the

city of Zlin. Today the Bata is a sprawling geo-centric company encompassing operations in

more than 70 countries around the world and is managed by 3 Meaningful Business Units

(MBU) across five continents.

In Bangladesh, Bata started its operation in 1962. Bata Shoe (Bangladesh) Ltd. (hereinafter

referred to as "Bata"/"the company"/"the parent company") is a public company limited by

shares. It was incorporated in Bangladesh in 1972 under the Companies Act 1913. The address

of the registered office of the company is Tongi, Gazipur, Bangladesh. The company is one of

the operating companies of worldwide Bata Shoe Organization (BSO). The shares in the

company are listed in both Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE).

The company is mainly engaged in manufacturing and marketing of leather, rubber, plastic,

canvas footwear, hosiery and accessories items as well as finished leather. The company is one

of the largest tax –paying corporate bodies contributing Tk. 1.17 billion (year 2011) which

represents approximately 70% of tax paid by the entire footwear sector of Bangladesh. With a

production capacity of 110,000 pairs of shoes daily, the company also has a modern tannery

facility with an output of 5 million square feet of leather annually.

Bata introduce a number of designers’ collections for men, women and children. Internationally

renowned brands such as Bata Comfit, Marie Claire, Hush Puppies, Scholl, Nike,

Bubblegummers, Sandak, Weinbrenner and B’first are a few names that testify to the

momentous change towards branded shoe marketing in Bangladesh. Specialized shoe

categories such as athletic shoes have been targeted through development of the Power brand.

Uncompromising quality with striking designs have put Bata shoes in a key position to appeal to

different segments of consumers. Bata has 13 Wholesale depots covering Bangladesh. Under

these depots 390 RWD (Registered Wholesale Dealers) and 553 DSP (Dealer Support Program)

stores are operating. Bata has a firm commitment to eco-friendly business and a state of the art

Effluent Treatment Plant (ETP) has been set up to provide a pollution free environment for both



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workers and the locality. Partnerships with other voluntary and charitable organizations are

another prominent feature of Bata’s corporate social responsibility.

One of the critical areas associated with external shareholders and the community at large is

the Corporate Social Responsibility Program of the company. From supporting nationwide

sports sponsorships and disabled persons to addressing environmental concerns, scholarship

programs, charity contributions etc – Bata has always supported individuals and communities

in need. Partnerships with other voluntary and charitable organizations is another prominent feature of Bata’s corporate social responsibility. Bata, in partnership with CARE, extends

assistance to over two thousand rural women in order to become independent entrepreneurs

in the Rajshahi, Comilla and Chittagong division selling shoes from door to door under its Rural

Sales Programme.

Since its inception, Bata Shoe Company (Bangladesh) Ltd. has strived towards one goal –

customer satisfaction. With the vision of building a worldwide family of satisfied customers and

dedicated workers the legacy of Tomas Bata continues strong and unabated to this day – the

tradition is safe.



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LITERATURE

REVIEW

C HAPTER 3



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Dividend:

Once a company makes a profit, they must decide on what to do with those profits. They can

continue to retain the profits within the company, or they can pay out the profits to the owners

of the firm in the form of dividends. Once the company decides on whether to pay dividends,

they may establish a somewhat permanent dividend policy, which may in turn impact on

investors and perceptions of the company in the financial markets. Dividends refer to that

portion of a firm’s earnings which are paid out to the shareholder. Dividend policy may be of

two types. Preferred Stock Dividend is fixed and focus on Common stockholders dividend

varies. Dividend policy refers to the policy chalked out by companies regarding the amount it

would pay to their shareholders as dividend. These policies shape the attitude of the investors

and the financial market in general towards the concerned company. What the company

decided what will be their dividend policy depends on the situation of the company now and in

the future. It also depends on the preferences of investors and potential investors. We are

going to find out about the dividend policy of Bata through this report.



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Dividend Theories:

There are some arguments both for and against the dividend payment decision of a firm.

Among them some arguments support that the dividend decision is not important in

determining the firm’s value. But in the other hand, some arguments directly oppose this

declaration. Some theories are described flowingly in this regard. Such as

The residual Theory

The Dividend Irrelevance Theory

The Dividend Relevance Theory

The Residual TheoryAccording to this theory ‘The dividend paid by a firm should be the amount left over after all

acceptable investment opportunities has been undertaken.” That means, this suggests that the

firm should not lose any opportunity of investment which would yield a return (IRR) in access of

cost (WMCC). It also implies that the dividend represents an earning residual rather than an

active decision variable that affects the firm’s value.

According to this approach, as long as the firm’s equity need exceeds the amount of retained

earnings, no cash dividend is paid. The argument for this approach is that it is sound

management to be certain that the company has the money it needs to compete effectively.This view of dividends suggests that the required return of investors, cost of common stock ( k s)

is not influenced by the firm’s dividend policy – a premise that in turn implies that dividend

policy is irrelevant.

The Dividend Irrelevance Theory

This theory was given by Metorn H. Millar & Franco Modigliani (M&M) which suggests, ‘In a

perfect world, the value of a firm is unaffected by the distribution of dividends and is

determined solely by the earning power and risk of its assets and that the manner in which it

splits its earnings stream between dividends and internally retained funds does not affect this

value.



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M and M’s theory shows that in a perfect world:

Certainty, no taxes, no transaction cost and no other market imperfection.

In a perfect world the value of the firm is unaffected by the distribution of dividend

Firm’s value is determined solely by the earnings power & risks of the assets. In response to studies showing that large dividend changes affect share price.

These views of M & M with respect to dividend irrelevance are consistent with the residual

theory, which focuses on making the best investment decisions to maximize share value. The

proponents of dividend irrelevance conclude that because dividends are irrelevant to a firm’s

value, so the firm does not need to have a dividend policy.

The Dividend Relevance Theory

This theory was developed by Myron J. Gordon & Linter that tells Stockholders prefer current

dividend. It also tells that there is a direct link between Dividend Policy of the firm and its

market value. Fundamental to this proposition is that Bird-in –the-Hand argument suggests that

investors are risk averse & attach less risk to current as opposite to future dividends or capital

gains. If dividends are reduced or are not paid, investor uncertainty will increase, raising the

required return (Ks) and lowering the value of the firm’s stock. However, financial managers &

stockholders believe that dividends are relevant.

Among the theories above first two suggest that the dividend decision is important in

determining the firm’s value where the last one goes against this decision.



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Dividend policies:

The dividend policies represents a plan of action to be followed whenever the dividend decision

is made. Firms develop policies consistent with their goal. The firm’s dividend policies must be

formulated with two basic objectives in mind that is providing for sufficient financing and

maximizing the wealth of the firm’s owners. There are three more commonly used dividend

policies are described below.

Constant Payout Ratio Dividend Policy

Regular Dividend Policy

Non-Regular And Extra Dividend Policy

Constant- Pay-out ratio:The dividend policy ratio indicates the percentage of if each amount earned that is distributed

to the owners in the form of cash. It is calculated by Dividend payout ratio = Cash Dividend per

Share / EPS With a constant-payout-ratio dividend policy, the firm established that a certain

percentage of earnings are paid to owners in each dividend period.

The problem with this policy is that if the firm’s earnings drop or if a loss occurs in a given

period, the dividends may be low or even nonexistent which could adversely affect the firm’s

share price.

For Example:

Year NI (cr) Div. (40%) R. E.

2008 50 20 30

2009 40 16 24

2010 60 24 36

2011 30 12 18

2012 (5) 0

The problem with this policy is that if the firm’s earnings drop or if a loss occurs in a given

period, the dividend may be low or even non consistent. Because dividends are often

considered an indicator of the firm’s future condition and status, the firm’s stock price may be

adversely affected.



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Regular Dividend Policy:

The regular dividend policy is based on the payments of a fixed amount dividend in each period.

This policy provides the owners with generally positive information, thereby minimizing

uncertainty. Often, firms that use this policy increase the regular dividend once a proven

increase in earnings has occurred. Under this policy, dividends are never decreased.

For example:

Year EPS Dividend

2008 50 12

2009 40 12

2010 60 12

2011 30 12

2012 25 12

Low-Regular-And- Extra Dividend Policy:

Some firms establish a low-regular-and-extra dividend policy, paying a low regular dividend

supplemented by an additional dividend when earnings are higher than normal in a given

period. By calling the additional dividend an extra dividend, the firm avoids giving shareholders

false hopes. This policy is especially common among companies that experience cyclical shifts in

earnings. For Example:

Year Dividend

2008 5%

2009-11 5%+30% = 35%

2012 8%

2013-15 8%+45% = 53% 2016 15%



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Capital Structure:

Capital Structure consists of authorized Capital, paid up Capital, share money deposit, statutory

reserve & retained earnings. Capital structure of Bata from 2008 to 2012 is shown in the

following table:

SL.

No.Capital Components

Years

2008 2009 2010 2011 2012

1 Authorized Capital 200.00 200.00 200.00 200.00 200.00

2 Paid up Capital 118.30 124.45 128.56 137.20 137.00

3 Statutory reserve 126.55 130.40 136.80 143.20 171.72

4 Retained earnings 82.44 86.30 89.10 93.45 96.72

Table 1: - Capital Structure (Figure in million Taka)

Other financial Performance Indicators:

SL.No.

Indicators 2008 2009 2010 2011 2012

1 Total Assets 2483.40 2722.95 2920.40 3112.55 3980.02

2 Loans & Advances 330.12 393.43 398.10 402.25 566.73

3 Deposits 48464.6 32,919.7 19,252 18,985 17,398

4 Total Equity 972.05 1120.50 1260.85 1320.28 1854.00

5 Net Profit After Tax 385.50 390.12 398.26 427.43 671.92

Table 2: - Other financial Performance

(Figure in million Taka)



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Comparative statistics: 2008 - 2012

The following table will show the five year’s data of Bata Shoe (Bangladesh) Ltd. which includes

Net Income, Retained Earnings, and Dividend Payout Ratio, Percentage of Dividend, EPS and

Share price. Based on the analysis of these statistics the interferences have been drowned in

the following sections.

Year Net IncomeRetained

Earnings

Dividend

Payout Ratio

Percentage

of DividendEPS

Share

Price

2008 449,415,702 123,574,273 66.97% 220.00 32.85 320.70

2009 449,406,445 170,382,566 66.97% 220.00 32.85 528.30

2010 543,970,530 184,257,799 55.33% 250.00 39.76 648.00

2011 580,617,053 421,461,253 59.045% 250.00 42.34 598.50

2012 671,916,303 1,606,707,776 55.99% 275.00 49.12 598.4

Table: 5 year’s competitive data



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Analysis of key factors:

Net Income

Net Income (NI) indicates a company’s total earnings or profit. Net Income is even more

important than sales because it tells the investor how much money is left over after all of the

operating costs are subtracted from sales.Net income can be distributed among holders of

common stock as a dividend or held by the firm as an addition to retained earnings. This

number is found on a company's income statement and is an important measure of how

profitable the company is over a period of time.

The following table is showing the net income for Bata Shoe (Bangladesh) Ltd. from the year

2008 to 2012.

Table & Graph: Net Income of 5 years

Interpretation

From the above table, we can see that the NI of Bata Shoe (Bangladesh) Ltd. increased in 2008.

But it fall slightly in 2009. During that time was significantly affected because of global

economic recession. Therefore, consumers concentrated more on essential consumable items

instead of footwear. Moreover, electricity shortage throughout the country has interrupted

production. This is why growth was negative. As the NI increased, the company got more

opportunity to declare dividend after satisfying their equity financing need.

Year Net Income (Tk)

2008 449,415,702

2009 449,406,445

2010 543,970,530

2011 580,617,053

2012 671,916,303 0

100,000,000

200,000,000

300,000,000

400,000,000

500,000,000

600,000,000

700,000,000

800,000,000

2008

N



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Retained Earnings

Retained earnings are the portion of net income which is held by the company for

reinvestment. The company does so to increase the growth rate of the company. On the other

hand the company can declare dividend instead of retaining the net income.

Year Net Income Retained Earnings(Tk) % of Retention

2008 449,415,702 123,574,273 72.50%

2009 449,406,445 170,382,566 62.08%

2010 543,970,530 184,257,799 66.12%

2011 580,617,053 421,461,253 27.41%

2012 671,916,303 967,259,128 30.534%

Table: 5 years Retained Earnings

Interpretation

From the chart above it can be seen that Bata Shoe (Bangladesh) Ltd. preferred to retain its

income previously. But in the recent year it did not retained that much portion of its income. It

indicates the company the company is trying to follow dividend relevance theory in recent

years.

Dividend Payout Ratio

Dividend payout ratio is the fraction of net income a firm pays to its stockholders in dividends.

The dividend payout ratio is a relatively simple calculation:

Dividend payout ratio = Cash Dividend per Share / EPS

Dividend Payout Ratio helps us to determine whether it is following dividend relevance theory

or dividend irrelevance theory.



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YearCash Dividend Per Share

(Tk)EPS

Dividend Pay Out Ratio

(Cash Dividend Per Share/ EPS)

2008 22.00 32.85 66.97%

2009 22.00 32.85 66.97%

2010 25.00 39.76 55.33%

2011 25.00 42.34 59.045%

2012 27.50 49.12 56%

Table: Dividend Payout ratio for last 5 years

Fig: Dividend Payout ratio for last 5 years

Interpretation

From the above table, we can see that the dividend payout ratio decreased each year. This was

due to the increase in Cash Dividend which was not as much as the increase in EPS. This

indicated that Bata Shoe was trying to retain its earning for future expansion needs. Increasing

of EPS indicates that investors are risk averse. They take the cash dividend and that’s why

earning per share increased gradually this preference of investors leads to the Gordon and

Lintner’s dividend relevance theory which indicates a direct relationship with cash dividend

and earnings per share.

6 6 . 9 7

%

6 6 . 9 7

%

5 5 . 3 3 %

5 9 . 0 5 %

5 6 %

2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2

DIVIDEND PAY OUT RATIO



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Percentage of Dividend

Dividend Rate is calculated by dividing cash dividend by face value of share .After analyzing %

Dividend of the last 5 years, we have found that Bata Shoe (Bangladesh) Ltd. has not declared

any Stock Dividend to its shareholders. A stock dividend is paid when a company needs to

preserve funds to finance rapid growth. Since, Bata is an established firm; it has numerous

sources for funding. This could send a positive signal to investors thinking that Bata has enough

financing power for future growth, which we can see by observing the increase in its share price

for the last 5 years. Here the face value is Tk.10.

Year Dividend (Tk) % Dividend Stock Price in DSE (Tk)

2008 22 220% 320.702009 22 220% 528.30

2010 25 250% 648.00

2011 25 250% 598.50

2012 27 275% 598.40

Table: Percentage of Dividend Payments

Interpretation

The table shows that the rate at which Bata is offering Cash Dividend is quite attractive. This

activity can be attributed to the cause that Bata Shoe is trying to attract more investors to

2 2

2 2

2 5

2 5

2 7

3 2 0 . 7

5 2 8 . 3

6 4 8

5 9

8 . 5

5 9

8 . 4

2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2

RELATION BETW EEN DIV. & STOCK PR ICE

Dividend (Tk)

Stock Price in DSE

(Tk)



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invest in the company’s stock. They are trying to give a positive signal to the stock market

through high percentage of dividend payments.

Relation between Dividend Rate and Market Price of Stock:

The Chart given beside depicts that stock price of Bata was low when rate of dividend was

lower in 2008 and 2009. Then the increasing rates of dividend results gradually increase of

market price. Highest the market price growth rate occur from 2010 to 2012. Here we can

comment according to dividend irrelevance theory as it says dividend should be paid whatever

is left after meeting all available investment decision. In last two years firm follow dividend

irrelevance theory and was able to increase shareholders value.

Relationship between Profit and Total Dividend paid:

The graph beside shows that Bata declared gradually higher dividend from 2009 to 2012. On

that time it paid most of its profit as Dividend but in 2011 it paid comparatively lower dividend

than profit compare to last four years. In 2011, the organization preferred to growth of the firm

that increased their basic earning power. It attracted those shareholders who were interested

to maximize the basic earning power, stability of dividends & growth of the firm.

Earnings per Share (EPS)

Earnings per Share (EPS) are the amount of money earned by a company expressed in per

share. Following Chart provides the information of EPS of Bata Shoe (Bangladesh) Ltd. in

different years.

Year EPS Growth (%)

2008 32.85 32.85 - 23.75 / 23.75 * 100 =

38.00%2009 32.85 32.85 - 32.85 / 32.85 * 100 =

0.00%

2010 39.66 39.66 - 32.85 / 32.85 * 100 =

21.00%

2011 42.34 42.34 - 39.66 / 39.76 * 100 =

6.74%

38%

0%

21%

6.74%

16%

2008 2009 2010 2011 2012

Growth Rate



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2012 49.12 49.12 - 42.34 / 42.34 * 100 =

16.00%

Table: EPS and its growth in the last 5 years

Fig: EPS in last 5 years.

Interpretation

From the above table we can see that from 2008 to 2012, EPS is increasing which is good for

both the firm and for the shareholders. But the rate of increasing is not very constant. It is

fluctuating during this time period. EPS in 2008 and 2009 is same. EPS has increased

substantially and highest amount of increase in the year of 2010 because of high amount of net

income.

Share Price & Growth A share price is the price of a single share of a number of saleable stocks of a company. Once

the stock is purchased, the owner becomes a shareholder of the company that issued the

share.

YEAR Share price GROWTH (%)

32.85 32.85

39.6642.34

49.12

2008 2009 2010 2011 2012

EPS



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2008 320.70 320.7 – 223.6 / 223.5 * 100 = 43.42%

2009 528.30 528.30 – 320.7/ 320.7* 100 = 64.73%

2010 648.00 648- 528.30 / 528.30 * 100 = 22.65%

2011 598.50 598.5 - 648.0 / 648.0 * 100 = (7.63)%

2012 598.40 598.40 - 598.50 / 598.50*100 = (1.67)%

Table: Share price of 5 years

Fig: Share price growth

The table above shows that the growth of share price was not very stable. From 2008 to 2011

the share price increased. But in 2012 the share price decreased. Share price has increased

substantially and highest amount of increase in the year of 2010 because of high amount of net

income. A high net income bears a positive sign to the shareholders and thus they bid their

share price up. This results price increasing.

3 2 0 . 7

5 2 8 . 3

6 4 8

5 9 8 . 5

5 9 8 . 4

4 3 . 4 2

6 4 . 7 3

2 2 . 6 5

- 7 . 6 3

- 1 . 6 7

2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2

SHARE PRICE GROWTH

Share price

Growth



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FINDINGS

C HAPTER 4



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Findings

The findings of the study are as follows….

The company paid cash dividend over last five years, and shows that dividend was not

stable over time.

During 2008 to 2011 Bata Shoe (Bangladesh) Ltd. paid on an average 60% of their net

income as dividend. In the following years firm used much of their earnings for

reinvestment. According to Dividend Relevance the stock price of Bata should fall. But

the management team could able to convince the

stockholder that they cut their payout percentage for the purpose of accelerating

the growth and overcoming the running recession. Consequently their stock pricewent up.

Customers’ achieve means the tendency of a firm to attract a set of investors who like

its dividend policy. In case of Bata Shoe (Bangladesh) Ltd. most of the investors prefer

more dividends because the company has small number of wealthy investors.

In the year 2008 and 2009 the firm used the residual dividend model to set payout ratio

at a level that will permit the firm to meet its Financing requirements with RE.

It is found that though Bata shoe does not practice any particular dividend policy but the

relatively practice relates to Regular Dividend Policy because it is declared more or less

fixed dividend (ranging from 22% to 25%)



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RECOMMENDATION

C HAPTER 5



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RECOMMENDATION

Bata shoe (Bangladesh) Ltd. should continue to follow dividend relevance theory for

their future growth and attract Share holder.

They should follow any particular dividend policy so that investors can assume their

expected return on the basis of their preference (Short term or Long term).

Share holder will be able to calculate the expected return more accurately that will

affect the market price.

Bata shoe should maintain constant dividend that is the positive signal to increase share

price.

Share holder will prefer high .dividend; So Bata should maintain high dividend policy.



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CONCLUSION

C HAPTER 5



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Conclusion

Bata Shoe (Bangladesh) Ltd. tried to provide highest possible dividend for its investors. It always

tried to provide dividend for its investor without considering a large amount investment. We

can see the Bata Shoe (Bangladesh) Ltd. is in the maturity stage of business life cycle. The

investor of Bata Bangladesh is not much interested in long term investment. People also have a

trend to earn high dividend from this company. In conclusion we can say that Bata Bangladesh

follows the Dividend Relevance Theory which indicates that the investors consider current

dividends as less risky than future dividend and future gain.



Reference

Lecture notes of FIN-507 prepared by Dr. Md. Tanbir Ahmed Chowdhury

Annual Report of Bata Shoe (Bangladesh) Ltd. (2008-2012).

Principles of Managerial Finance by Lawrence J.Gitaman-. 10Th edition,

Essentials Of Managerial Finance by Scott Basely & Eugene F. Bringham

www.batabd.com

www.dsebd.org

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