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INTRODUCTION


CHAPTER 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 identify
factors which influence to increase the value of firm as well as companys 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)
Companys 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


CHAPTER 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 taxpaying 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 Bfirst 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 Batas 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 Batas 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

CHAPTER 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 firms 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 firms 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 Theory
According 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 firms value.
According to this approach, as long as the firms 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 firms 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 Ms 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
Firms 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 firms
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 firms 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 firms 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 firms dividend policies must be
formulated with two basic objectives in mind that is providing for sufficient financing and
maximizing the wealth of the firms 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 firms earnings drop or if a loss occurs in a given
period, the dividends may be low or even nonexistent which could adversely affect the firms
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 firms 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 firms future condition and status, the firms 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 years 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 Income
Retained
Earnings
Dividend
Payout Ratio
Percentage
of Dividend
EPS
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 years competitive data


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Analysis of key factors:
Net Income
Net Income (NI) indicates a companys 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 2009 2010 2011 2012
Net Income (Tk)
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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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Year
Cash 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 thats why
earning per share increased gradually this preference of investors leads to the Gordon and
Lintners 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
%

2008 2009 2010 2011 2012
DI VI DEND PAY OUT RATI O
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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% 320.70
2009 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

2008 2009 2010 2011 2012
RELATI ON BETWEEN DI V. & STOCK PRI CE
Dividend (Tk)
Stock Price in DSE
(Tk)
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invest in the companys 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
39.66
42.34
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

2008 2009 2010 2011 2012
SHARE PRI CE GROWTH
Share price
Growth
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FINDINGS

CHAPTER 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 price
went 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

CHAPTER 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

CHAPTER 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.

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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