An Appraisal of

DIVIDEND POLICY of
 East West University

Course Title: Managerial finance

Course Code: Fin435

Section: 02

Topic: An Appraisal of Dividend of ACI Ltd.

Submitted To:
Professor Dr. Tanbir Ahmed Chowdhury
Dean
Faculty of Business & Economics
East West University

Submitted By:
Names ID
Sanjida Afrin 2013-1-10-134
A.K.M. Rakibuzzaman 2012-2-10-057
Md. Akram Hossain Tamal 2013-1-10-026
Maria Rahman 2013-1-10-301
Mahmudul Hasan 2013-1-10-172
Mim Takia 2012-2-13-059

Submission Date: 30th March 2016

Letter of Transmittal

30th March 2016

Dr. Tanbir Ahmed Chowdhury

Professor
Department of Business Administration
East West University
Subject: Submission of the Term Paper on “An Appraisal of Dividend Policy of ACI
Ltd”.

Dear Sir,

We are glad to submit our term paper on “An Appraisal of Dividend Policy of ACI Ltd”, as you
authorized us. It was a pleasure for us to prepare this term paper under your guidance, which
really was an excellent occasion for us. The data used for preparing this term paper includes
materials available from the internet, our text book and information from company’s financial
statements. We have worked really hard and tried our level best in order to arrange this term
paper. We believe that it is your encouragement for us which motivated us to get involved with
this process and a way to improve our practical knowledge of dividend policy. We will be very
much pleased to provide further explanation on this term paper whenever it is necessary. We
have got support of different finance people who provide their ideas, time and guidance that
strengthen the report's contents. We want to convey my heartiest gratitude to them for their
valuable responses. We made sincere efforts to analyze secondary data, observe the operation
and performance of ACI pharmaceutical Company Ltd. and examine relevant records for
preparation of the report. We have tried our best to accumulate the relevant information as
comprehensively as possible.

Sincerely yours,

Table of content:
Executive Summary……………………………………………………………………………06

1.0 Introduction…………………………………………………………………………………07
1.1 (a)An overview of dividend policy………………………………………………....07

1.1 (b) An overview of ACI…………………………………………………………….07

 1.1.1
Mission…………………………………………………………………….08
 1.1.2
Vision………………………………………………………………………08
 1.1.3
Values……………………………………………………………………...09
 1.1.4 Strategic Business
Units………………………………………………….09
 1.1.5 Subsidiaries of
ACI……………………………………………………….11
 1.1.6 Joint
Venture……………………………………………………………...12

1.2 Objectives of Study……………………………………………................................12

1.3 Scope and Methodology of The study……………………………………………..13

1.4 Limitations of the Study…………………………………………………………....14

2.0 Appraisal of Dividend policy of ACI…………………………………………………..15-17

2.1 Capital Structure of ACI……………………………………………………….17-20

2.2 Net Income…………………………………………………………………………..20

2.3 Dividend Payout Ratio……………………………………………………………...21

2.4 Cash Dividend & Stock Dividend………………………………………………….22

2.5 EPS Vs DPS…………………………………………………………………………24

 2.6 Retained Earnings………………………………………………………………25-26

3.0 Findings of Study…………………………………………………………………………..27

3.1 ACI Dividend Policy………………………………………………………………..27

3.2 ACI Ltd’s Dividend Following Theory……………………………………………27

4.0 Recommendation…………………………………………………………………………....28

5.0 Conclusion…………………………………………………………………………………..29

6.0 Reference……………………………………………………………………………………30
Executive Summary

ACI Limited was established as the subsidiary of Imperial Chemical Industries (ICI) in the then
East Pakistan in 1968. After independence, the company was incorporated in Bangladesh in 1973
as ICI Bangladesh Manufacturers limited as a Public Limited Company. In 1992, the company
was divested to local management and the name of the company changed to Advanced Chemical
Industries (ACI) Limited. ACI inherited the rich ICI culture of product quality, customer service
and social responsibility.  ICI Bangladesh Manufacturers Limited was a subsidiary of world
renowned multinational ICI Plc and was a listed public limited company under Dhaka Stock
Exchange. ACI has ten subsidiaries: ACI Formulations Ltd, ACI Agrochemicals, Apex Leather
crafts Limited, ACI Salt Limited, ACI Pure Flour Limited, ACI Foods Limited, Premiaflex
Plastics Limited, Creative Communication Limited, ACI Motors Limited and ACI Logistics
Limited. ACI also manufactures and markets food products such as spice, edible oil, snacks,
confectionery under its brand name "'Pure", which are popular among Bangladeshi consumers.
After analyzing ACI ltd’s dividend policy we can understand that ACI ltd is following Dividend
Irrelevance Theory. As they retain more of their earnings for reinvestment and less is paid as
dividend to the shareholders. That means they concentrate more on maximizing basic earning
power and thus believe in wealth maximization and long term future capital gain for their
shareholders. As they are following Dividend Irrelevance Theory, it is also consistent with
Residual theory of dividend which focuses on accepting all acceptable investment opportunities
that leads to long term capital gain by maximizing basic earning power and thus leads to owner’s
wealth maximization and thus increases the value of the company means they are using majority
of their earnings (retained earnings) for new investment opportunities. We have also found that
ACI ltd is following Regular Dividend Policy as the dividend per share has increased over time,
and that is why ACI ltd. has a positive impact on shareholders and regular increasing dividend
reduces uncertainty and thus the demand for their shares remain high. We think they are
 CHAPTER 1

INTRODUCTION

following an appropriate dividend policy and we will like to follow the same if we can become a
financial manager of any company in future.

1.1. A) an overview of Dividend Policy

Once a company makes a profit, management must decide on what to do with those profits. They
could continue to retain the profits within the company, or they could 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. What they decide depends
on the situation of the company now and in the future. It also depends on the preferences of
investors and potential investors. Dividend policy is the set of guidelines a company uses to
decide how much of its earnings it will pay out to shareholders. Some evidence suggests that
investors are not concerned with a company's dividend policy since they can sell a portion of
their portfolio of equities if they want cash. This evidence is called the "dividend irrelevance
theory," and it essentially indicates that an issuance of dividends should have little to no impact
on stock price. That being said, many companies do pay dividends, so let's look at how they do
it. There are three main approaches to dividends: residual, stability or a hybrid of the two.

1.1. B) An overview of ACI Limited

ACI (DSE : ACI) is one of the largest Bangladeshi conglomerates. The company operates
through three reportable segments: Pharmaceuticals, Consumer Brands and Agribusiness. ACI
established as the subsidiary of Imperial Chemical Industries (ICI) in 1968. It has been
incorporated as ICI Bangladesh Manufacturers Limited on January 24, 1973. The company was
renamed as Advanced Chemical Industries Limited (ACI Limited) on 5 May 1992.
ICI Bangladesh Manufacturers Limited was a subsidiary of world renowned multinational ICI
Plc and was a listed public limited company under Dhaka Stock Exchange. In 1992 ICI Plc
divested its shareholding through a management buyout and the company name was changed
from ICI Bangladesh Manufacturers Limited to Advanced Chemical Industries (ACI) Limited.

ACI was incorporated as a private limited company on 29 October 1995. The address of the
Company's registered office is 245 Tejgaon Industrial Area, Dhaka-1208. The Company went
into commercial operations on 1 July 1998. The Company was converted from private limited to
public limited company on 4 May 2005 and listed with both Dhaka Stock Exchange Limited
(DSE) and Chittagong Stock Exchange Limited (CSE) on 30 October 2008. Advanced Chemical
Industries Limited incorporated in Bangladesh is the immediate as well as ultimate parent of the
Company.ACI has diversified into four major strategic business divisions which include Health
Care, Consumer Brands, Agribusinesses and Retail Chain.

Advanced Chemical Industries (ACI)

Type Public DSE : ACI
Industry chemicals, foods, pharmacy, consumer products, logistics, consumer
electronics, automobile services, communication
Founded 1968
Headquarters Dhaka, Bangladesh
Key people Mr. M. Anis Ud Dowla, Chairman and Dr. Arif Dowla, Managing Director
Revenue ৳ 238 Million
Website www.aci-bd.com

1.1.1 Mission
ACI’s mission is to enrich the quality of life of people through responsible application of
knowledge, skills and technology. ACI is committed to the pursuit of excellence through world-
class products, innovative processes and empowered employees to provide the highest level of
satisfaction to its customers.

1.1.2 Vision
 Endeavor to attain a position of leadership in each category of its businesses.
  Attain a high level of productivity in all its operations through effective and efficient use
of resources, adoption of appropriate technology and alignment with our core
competencies.
 Develop its employees by encouraging empowerment and rewarding innovation.
 To realize the mission ACI will: Provide products and services of high and consistent
quality, ensuring value for money to its customers.

 Encourage and assist in the qualitative improvement of the services of its suppliers and
distributors.

 Establish harmonious relationship with the community and promote greater

environmental responsibility within its sphere of influence.
 Promote an environment for learning and personal growth of its employees.

1.1.3 Values

1.1.4 Strategic Business Units

 Healthcare/Pharmaceuticals: ACI carries the legacy of ICI- world renowned British
Multinational in providing the people of Bangladesh with quality medicines and
healthcare products. Its state-of-the art pharmaceutical plant represents Bangladesh's
quest for a truly world class manufacturing facility. ACI's rich heritage leads to
innovative and higher value added formulations.

The comprehensive product range of ACI pharmaceuticals include products from all
major therapeutic classes and in various dosage forms like tablet, capsule, dry powder,
liquid, cream, gel, ointment, ophthalmic and inject able. ACI Pharma also has state of the
art plant on Novel Drug Delivery System (NDDS). It produces world class Modified
Release drug and medicine to cater the requirement of pharmaceutical manufacturer of
domestic and international market. It exports high quality pharmaceuticals to a good
number of countries of Asia, Africa & South America.

 Consumer Brands & Commodity Products: The Consumer Brands Division boasts in
having an unequivocal presence in consumers' heart with the market leading brands like
ACI Aerosol, ACI Mosquito Coil, and Savlon. These are the persistent performers in
keeping the household clean and free from germs and harmful insects.

The necessity of pure food in the minds of Bangladeshi consumers especially in the
commodity food business has pushed ACI to fill up the market gap by producing
commodity products such as Salt, Flour and Spices. Now the customers of Bangladesh
are ensured with 100% pure Salt, Spices products and Wheat products under the brand
name of "ACI Pure".

ACI also represents the world renowned product range of Colgate, Nivea, Tetley, Godrej
& Dabur in Bangladesh through distribution and forming joint ventures
  Agribusinesses: ACI Agribusiness is the largest integrator in Bangladesh in Agriculture,
Livestock and Fisheries and deals with Crop Protection, Seed, Fertilizer,
Agrimachineries, and Animal Health products. These businesses have glorified presence
in Bangladesh.

CC & PH supplies crop protection chemicals, Seed supplies Hybrid Rice, vegetable and Maize
seeds, Fertilizer Supplies Micronutrient and Foiler fertilizer, Agrimachineries supplies Tractors,
Power Tiller and Harvester and Animal Health supplies high quality Nutritional, Veterinary and
Poultry medicines and vaccines.ACI Agribusiness is having strong partnership with national and
international R & D companies, universities and research institutions. Before introducing any
product, it is elaborately tested in the laboratory and farmers field. ACI provides solution to the
farmers through a large team of scientists & skilled professionals.

1.1.5 Subsidiaries of ACI:

The principal activities of the Company are manufacturing and marketing of a number of
agrochemical and consumer products. All the consumer products were sold to Advanced
Chemical Industries Limited, which acted as the sales and marketing agent of the Company. The
entire agro chemical products (Crop Care) are however, directly marketed by the Company
without using Advanced Chemical Industries Limited as selling and marketing agent with effect
from 1 January 2009.

The company performance both in sales and manufacturing has been commendable. The sales
and expenses are not comparable because last year the arrangement with ACI Ltd. was finalized
after a few month of start of the year. The total turnover of the Company was Tk. 2,080 million
and the previous year turnover was Tk. 2,093 million. The turnover growth was not positive due
to prolonged draught and low paddy price, for which the farmers took less care of their crop.
However, they maintained market share of over 20% and retained market leadership of several
major products. The Company has registered several new compounds which have been necessary
to complete our range of insecticides, pesticides and fungicides to cover all types of pests. A
complete range will enable us to buy competitively and service all types of customer.

The Company has started Sulphur 80WG Plant which is the first and only plant in the country
ready for commercial production, of Sulphur 80WG. The annual capacity of the plant is 3000
MT per year which is 40% of the national requirement. The quality of the product from the trial
production is superior compared to imported product and has been well received by the farmers.
This plant will deliver higher gross profit because of local production.

Agriculture is the backbone of our economy. They have many opportunities for expansion of the
existing products and diversification in related fields. They also have good scope for
improvement of their market share. They believe that the Company has a very good future and
that the investors will gain significantly from the future growth of the company.

1.1.6 Joint Ventures:

 ACI Godrej Agro vet Private Ltd. Tetley ACI (Bangladesh) Ltd Asian
Consumer Care (Pvt.) Ltd.
1.1Objectives of the Study
Everything is performed for achieving some selected goals. So, our present report named
“Dividend appraisal of ACI Limited”. The main objectives of our report are:

 To know about the financial statements of ACI Limited and how it reported to the
interested parties.
 To know about how they evaluate plant assets, intangible assets and how depreciation,
amortization is measured.
 To identify the major problems in the financial statements reporting system of ACI
Limited.
 To know how they issued share, record and reports it.
 To know about the Advanced Chemical Industries Limited and its products in the market.
 To gather knowledge about the dividend policy of a Bangladeshi Company.
 To comment about the future of the firm depending on the annual report and past
information.

1.2Scope and Methodology of the Study

This term paper is prepared to give an idea about the dividend paid by the ACI Limited and the
analysis of the paid dividend in contrast to some other financial tools. The submission of this
term paper is supplementary requirement of the course: Managerial Finance.

 Data Required: Mainly, secondary data is required to appraise the dividend

policy of ACI Limited.
 Data Sources: All necessary information was collected basically from two
sources, the annual report downloaded from the official website of ACI Ltd.
Secondly, the official website of Dhaka Stock Exchange (DSE) provided with
some additional information too.
 Sampling Design: Some quantitative data are taken from the annual report of
2010 to 2014 and also from the homepage of ACI Limited.
 Techniques of Analysis: Both quantitative and qualitative analyses were
conducted in the study. All the visual presentation are made using Microsoft
 Excel. Some data are graphically represented with tables and bar charts.
Qualitative information is presented with logical explanation.

This report contains an overview of ACI Ltd., the financial performance of the organization and
finally, the paid out dividends were analyzed in contrast to some other financial indicators. Our
work methodology requires gathering relevant information from different secondary sources
arriving at more complete understanding of behavior of dividend policy of ACI Limited.

1.3Limitations of the Study

While preparing this term paper, there are some noticeable limitations. The following limitations
we are faced during the preparation of term paper:-
 CHAPTER 2

APPRAISAL OF DIVIDEND POLICY OF ACI LTD.

A Brief Theory on Dividend Policies:

Dividends are payments made to stockholders from a firm’s earnings, whether these earnings
were generated in the current period or in previous periods.
Dividends may affect capital structure:
Retaining earnings increases common equity relative to debt.
Financing with retained earnings is cheaper than issuing new common stock equity.
Whatever is the dividend policy, whether, optimal dividend or stable dividend, there must be a
consistent dividend policy which has impact on investors and perceptions of the company in the
financial markets. It also has impact on the preferences of investors and potential investors.
These are various theories that try to explain a firm’s dividend policy and have a brief idea
about the topic.
Dividend Irrelevance Theory:
A theory that investors are not concerned with a company's dividend policy since they can sell a
portion of their portfolio of equities if they want cash. The Miller and Modigliani's Irrelevance
theory essentially indicates that an issuance of dividends should have little to no impact on
stock price.

A theory stating that if financial markets are perfectly efficient, then how a company is a
financed has no bearing on its performance. That is, without taxes, asymmetric information, or
government and other unnecessary fees, then a company is equally likely to perform well
regardless if it is financed by equity issues, debt, or something else. It also states that a
company's dividend policy is irrelevant in these circumstances. This theory has been used to
justify the increased use of leverage since the 1980s and critics contend that it has led to
needless risk-taking.
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
(investments).
 In response to studies showing that large dividend changes affect share price. So they
have given explanation that it can be happen for 2 factors.
The Relevance theory of dividend: The theory advanced by Gordon and Lintner, that there is a
direct relationship between a firm’s dividend policy and its market value. The fundamental to
this proposition is their bird-in-the-hand argument, which suggests that investors see current
dividends as less risky than future dividends or capital gains. That means investors are risk
averse & attach less risk to current as opposite to future dividends or capital gains.

There are three dividend policies a firm can follow:

These are:

a) Constant- Pay out-Ratio Dividend Policy: A dividend policy where a certain percentage of
Net Income is distributed as dividend.

b) Regular Dividend Policy: A dividend policy based on the payment of fixed dividend in each
period.

c) Low regular and Extra Dividend Policy: A dividend policy based on paying a low regular
dividend, supplemented by an additional dividend when earnings are higher than normal in a
given period.

ACI Limited is one of the largest and most recognized pharmaceuticals manufacturing
companies in Bangladesh. Maintaining the legacy of its predecessor company British ICI, ACI
has good manufacturing practices and technical leadership in its flagship pharmaceuticals
business. However, the company has expanded its business beyond pharmaceuticals
encompassing agro-chemical, animal health, agro-machinery, consumer brands and retail chains.
Since the company has been expanding its business horizon rather aggressively for the last few
years, ACI has found itself in a cash crunch, which ultimately led the company to resort to a fair
bit of leverage. Despite cash constraint, ACI is one of the more consistent dividend paying
companies in the local market.

ACI is following an appropriate dividend theory as dividend irrelevance theory which leads to
owner’s wealth maximization, and an appropriate dividend policy of regular and increasing
dividend that in turn increases shareholders’ confidence on the company by reducing uncertainty.
We understand that for following an appropriate theory they have established themselves as one
of the largest company in Bangladesh and have been able to maintain such a successful long
existence in such a competitive pharmaceutical and consumer product industry in Bangladesh.
We think that, in future if we can achieve a position like a financial manager of any corporation,
then we will definitely like to follow a dividend theory and policy like ACI ltd. for assuring a
long term existence in the market with such a good reputation and satisfaction of owners and
consumers.

2.1 Capital Structure of ACI Limited

The capital structure is how a firm finances its overall operations and growth by using different
sources of funds. Debt comes in the form of bond issues or long-term notes payable, while equity
is classified as common stock, preferred stock or retained earnings.

 Equity:
Equity is the value of an asset less the value of all liabilities on that asset.

Equity Year 2013 Year 2014

Share capital (a) Tk. 285,820,824 Tk. 343,944,021
Share premium 333,302,465 351,340,343
Capital reserve 1,671,386 1,671,386
Revaluation surplus 892,463,915 890,868,633
Available-for-sale reserve 111,330,089 157,326,614
Retained earnings 4,012,663,572 4861,534,405
Total Equity 5,637,252,251 6,606,685,402
 Share Capital

Share capital is the money invested in a company by the shareholders. Share capital is a long-
term source of finance. In return for their investment, shareholders gain a share of the ownership
of the company.

Share Capital Descriptions Year 2013 Year 2014

Authorized Ordinary shares of Tk. 10 Tk. 500,000,000 Tk. 500,000,000

capital
each
Issued and paid- Issued at 1st January 237,738,330 285,820,824
up capital
Bonus shares issued 47,636,804 57,323,537
Issued for zero coupon 445,690 796,860
bond
Issued for amalgamation 2,800
Total 285,820,824 343,944,021

Debt:

Debt is an amount of money borrowed by one party from another. Many corporations/individuals
use debt as a method for making large purchases that they could not afford under normal
circumstances. A debt arrangement gives the borrowing party permission to borrow money under
the condition that it is to be paid back at a later date, usually with interest.

Non Current Liabilities

Noncurrent liabilities are a business's long-term financial obligations that are not due within the
present accounting year. Examples of noncurrent liabilities include long-term borrowing,
bonds payable and long-term lease obligations. Any noncurrent liabilities will be listed on the
company's balance sheet.

Liabilities Year 2013(TK.) Year 2014(TK.)

 Employee benefit 340664767 441858763
Other non-current liabilities 519789367 56114163
Deferred tax liabilities 94,711,720 62743398
Total 955,165,854 1,023,498,102
Current Liabilities

A company's debts or obligations that is due within one year. Current liabilities appear on the
company's balance sheet and include short term debt, accounts payable, accrued liabilities and
other debts.

Types Year 2013 Year 2014

(Taka) (Taka)
Bank overdrafts 741,441,244 427,836789
Loans and borrowing 5,059,890,494 5,916,571,029
Trade and other payables 1,833,527,360 1,624,157,078
Provision for tax 466,635,771 390,226,161
Total Current Liabilities 8,101,494,869 8,358,791,057
Total Liabilities 9,056,660,723 8,919,507,381

Debt-to-Equity Ratio

The debt-to-equity ratio (D/E) is a financial ratio indicating the relative proportion of
shareholders' equity and debt used to finance a company's assets. Closely related to leveraging,
the ratio is also known as Risk, Gearing or Leverage.

 This ratio is a measure of a company's financial leverage calculated by dividing its total
liabilities by stockholders' equity. It indicates what proportion of equity and debt the
company is using to finance its assets.

Total Liabilities
Debt to Equity Ratio =
S h are h older ' s Equity

 Year  2013  2014

 Debt-to-Equity Ratio  1.58  1.35
 Lower values of debt-to-equity ratio are favorable indicating less risk. Higher debt-to-equity
ratio is unfavorable because it means that the business relies more on external lenders thus it
is at higher risk, especially at higher interest rates. A debt-to-equity ratio of 1.00 means that
half of the assets of a business are financed by debts and half by shareholders' equity. As the
debt to equity ratio of the two consecutive years are more than 1.00, it indicates that more
assets are financed by debt that those financed by money of shareholders'. As a result net
income and dividend may decrease. The ratio of 2014 is slightly lower than 2013. It indicates
that the percentage of assets of a business which are financed by the debts is decreasing.

2.2 Net Income

Net income (NI) is a company's total earnings (or profit). Net income is calculated by taking
Year 2010 2011 2012 2013 2014 revenues
Net 592 681 545 764 951 and
Income (in adjusting
millions) for the
cost of
doing business, depreciation, interest, taxes and other expenses.
 Net Income(in million)
Net Income(in million)

951
592 681 764

545

2010
2011
2012
2013
2014

Interpretation

From the graph and as well as from the table we see that there was fluctuation in net income over
the year. Initially we see that net income was higher in 2011 compare to 2010 and it was
decreased in massive number in 2012 but after that it started to increase in 2013. In the year 2014
the net income was more 900 million.

2.3 Dividend Payout Ratio

The dividend payout ratio is the percentage of earnings paid to shareholders in dividends. The
dividend payout ratio provides an indication of how much money a company is returning to
shareholders, versus how much money it is keeping on hand to reinvest in growth, pay off debt
or add to cash reserves.

Year Net Income Dividend Dividend Payout

(in millions) (in millions) Ratio (%)
2010 592 237 40.03
2011 681 197 28.92
2012 545 238 43.66
2013 764 301 39.26
2014 950 398 41.90
 Dividend Payout Ratio (%)
Dividend Payout Ratio (%)
43.66 41.9
40.03 39.26

28.92

2010 2011 2012 2013 2014

Interpretation

From 2010 to 2014 company ensured standard dividend for its investors. But in 2012 it was
increased than previous year 2010 and in 2011. In 2013 and 2014 the dividend amount also
increase but not like 2012.

2.4 Cash Dividend and Stock Dividend

Cash Dividend:

A cash dividend is money paid to stockholders, normally out of the corporation's current
earnings or accumulated profits. All dividends must be declared by the board of directors and
are taxable as income to the recipients.

Stock Dividend:

A stock dividend is a dividend payment made in the form of additional shares, rather than a
cash payout, also known as a "scrip dividend."
Year 2010 2011 2012 2013 2014

Cash 237 158 191 244 346

Dividend (in
millions)
Stock 0 39 48 57 52
Dividend (in
millions)
Total 237 197 238 301 398
Dividend
Cash 100 80.20 80.25 81.06 86.93
Dividend (%)
Stock 0 19.8 19.75 18.94 13.07
Dividend (%)

Cash Dividend Vs Stock Dividend

Cash Dividend Vs Stock Dividend

Cash Dividend(In million) Stock Dividend(In million)

237 346
244
158 191
0 39 48 57
52

2010
2011
2012
2013
2014

Interpretation
The company paid dividend in 2011, 2012, 2013 and 2014 where the cash dividend is higher
than the stock dividend. In 2010 the company did not paid stock dividend.

2.5 Earnings per Share vs. Dividend

Earnings per share (EPS) are the portion of a company's profit allocated to each outstanding
share of common stock. Earnings per share serve as an indicator of a company's profitability.

Calculated as:

Dividend per share (DPS) is the sum of declared dividends for every ordinary share issued.
Dividend per share (DPS) is the total dividends paid out over an entire year (including interim
dividends but not including special dividends) divided by the number of outstanding ordinary
shares issued.
DPS can be calculated by using the following formula:

D - Sum of dividends over a period (usually 1 year)

SD - Special, one time dividends
S - Shares outstanding for the period

Year 2010 2011 2012 2013 2014

Earnings Per Share 30.49 28.83 19.11 22.27 27.65

Dividend per Share 12.00 10.00 10.00 10.50 11.50

 EPS Vs DPS

EPS(Taka) DPS(Taka)

30.49
28.83 27.65

22.27
19.11

12 11.5
10 10 10.5

2010 2011 2012 2013 2014

Interpretation

In 2010 dividend was given and in that year EPS was higher than the following year EPS.
Although from 2010 dividend was given more than Tk. 10 per share, in 2011 and 2012 dividend
was Tk. 10 per share and in 2013 and 2014 dividend per share increase slightly but from
previous year 2010 to 2012 EPS was decreased gradually and in 2013 and 2014 it was gradually
increased.

2.6 Retained Earnings

Retained earnings refer to the percentage of net earnings not paid out as dividends, but retained
by the company to be reinvested in its core business, or to pay debt. It is recorded under
shareholders' equity on the balance sheet.

The formula calculates retained earnings by adding net income to (or subtracting any net losses
from) beginning retained earnings and subtracting any dividends paid to shareholders:

Retained Earnings (RE) = Beginning RE + Net Income – Dividends.

 Year Net Income (in Dividend (in Retained Retained
millions) millions) Earnings (in Earnings as %
millions) of Net Income

2010 592 237 355 59.97

2011 681 197 484 71.07

2012 545 238 307 56.33

2013 764 301 463 60.60

2014 951 398 553 58.15

80
Retained Earnings as % of Net Income
70
60
50
40
2011; 71.07
30 2010; 59.97 2012; 56.33 2013; 60.6 2014; 58.15
20
10
0
2010 2011 2012 2013 2014

Interpretation

In the initial year company kept all Net Income as Retained Earnings for exploring the
opportunities that in later years followed a mixed trend of upward and downward both. From
2010 to 2014 it is following upward and downward trend. In 2011 it EPS of ACI Company was
71.07 Tk. Per share. EPS of ACI is more than 50TK. per share always which is positive for
companies’ long term objectives which is company’s wealth maximizing goal.
 CHAPTER 3

FINDINGS OF THE STUDY

3.1 ACI Ltd’s Dividend Policy

We can see that in 2010 company paid 12% dividend. And in 2011 & 2012 the company paid
10% dividend. The amount of providing dividend per share is under 10% - 12%. But in other
several years the amount of providing dividend per share differs from each other. According to
their convenience and the maintenance of Earnings per Share, Dividend Per share varies. With
the large Earnings Per Share they are providing high dividend, next initial year they are
providing less dividend, again for maintaining their good will and balancing the dividends for the
risk averse’, either they are not facing maximum EPS, they are maintaining additional dividend
added with the low regular Dividend. This implies ACI Formulation Ltd is bias to low regular
and extra dividend policy. Because they are proving a low regular dividend of 10% and
according to their convenience they are adding some additional dividend with the low regular
dividend.

3.2 ACI Ltd’s Dividend Following Theory

In several years, the ACI Ltd is proving a different amount of dividend according to their
convenience. The large amount of providing the dividend affects the share price of that particular
year.
 When the dividend increases, the share price of that particular year also increases because
it provides the positive signal to the share holders.

 And oppositely, when the amount of dividend decreases the share price also decreases for
that specific year.

From the above analysis we can see that the variation in dividend doesn’t depend on variation in
EPS. But the variation of dividends provided is affecting the share price. So we can say that
company is following dividend irrelevance theory.

In 2013 ACI gave EPS 22.27Tk.and DPS 10.50Tk , it was highest divided giving from 2010 to
2014 which was around 47% of EPS. It shows that ACI invests more in different project than
giving dividend.
 CHAPTER 4
RECOMMENDATIONS

 By analyzing the 2010-2014 dividend policy we have seen that, in 2010 company ensured standard
dividend for its investors. But in 2012 it has given comparatively huge amount of dividend than that
of its previous years, which is even more than its particular year’s net income. By analyzing the
2010-2014 dividend policy we have seen that, in 2010 company ensured standard dividend for its

 The dividend can surely be greater than the EPS though that can't continue forever. Company can
pay dividends out of savings or even borrow money to pay dividends. Further, the EPS are
accounting earnings which may not have anything at all to do with distributable cash. Though EPS is
not corresponding to the dividend.

 If the return gained on the retained earnings is higher than the dividend it would have declared
obvious benefit. As here we see the company pay more dividend so, retained earnings is negative.
The company pays fewer dividends from retained earnings. Dividend relates with share price .since
ACI gives fewer dividend their share price is decreasing. They should gives little more dividend so
share price can increase

 If an investor is interested in long-term capital gains, he or she will likely prefer stock dividends. If an
investor needs a regular source of income, cash dividends will provide liquidity. Here we see,
company pays more cash dividend than stock dividend. They can give more stock dividend so they
can use money more in investment.
 CHAPTER 5
CONCLUSION

Dividend is one kind of return to the shareholders. Therefore dividend is always important to the
shareholders. By realizing this fact ACI Formulation Ltd pays dividend to their shareholders in
regular basis. But in paying dividend it is bias to dividend irrelevance theory. For this reason
although its earnings per share was decreasing but it is paying huge dividend. Therefore in 2011
it paid huge amount of dividend though the earnings per share slightly increased. But for paying
huge amount of dividend it losses huge amount of retained earnings, thus can’t invest in big
project in near future. So we can say that management decision in case of dividend policy is not
effective and efficient.
 References

 www.scribdbd.com
 www.dividendpolicy.wiki.com
 www.ACIcompany.com
 Annual report from 2010 to 2015 of ACI Limited
 Website of ACI Limited.
 <http://www.aci-bd.com/financial.php
 Dhaka Stock Exchange, various issues
 http://www.dsebd.org