Century Paper & Board Mills Limited

Managerial Finance Project Report

Submitted To:
1

Century Paper & Board Mills Limited

Sir, Ch. Mazhar Hussain

Submitted By:
Faisal Rasool
M. Toufique
YasirMehmood
Bilal Shahid

Reg. No:
6822-FMS/MBA/F14
6776-FMS/MBA/F14
6823-FMS/MBA/F14

6837- FMS/MBA/F14
Class:
MBA 1.5
Semester:
2ndB

International Islamic University Islamabad

Century Paper & Board Mills Limited

Acknowledgment

This project consumed huge amount of work, need data and implementation would
not have been possible if we did not have a support of many individuals and organization
management. Therefore we would like to extend our sincere gratitude to all of them.
First of all we are thankful to Century Paper & Board Mills Limited for their
financial and Accounts support and for providing necessary information and guidance
concerning projects implementation.
We are also indebted to our teacher Mr. Ch. Mazhar Hussain for his guidance and
supervision, which has played a vital role in the completion of this research.
We are also extremely grateful to our parents who always wanted the best for us and
encouraged us to carry on.
Our thanks and appreciations also go to my colleague in developing the project and people
who have willingly helped me out with their abilities.

Table of Contents
Acknowledgment................................................................................................... 3
Chapter 1............................................................................................................... 4
1.0 Introduction:.................................................................................................... 4
1.1 Objectives of the study:................................................................................... 4
1.2 Purpose/ Scope................................................................................................ 4
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Century Paper & Board Mills Limited

1.3 Significance..................................................................................................... 4
1.4 Company Profile............................................................................................... 4
1.4.1 Short History................................................................................................. 4
1.4.2 Lakson Group of companies..........................................................................5
1.4.3 Vision Statement.......................................................................................... 6
1.4.4 Mission Statement........................................................................................ 6
1.6 Project Details.................................................................................................. 8
Chapter 2............................................................................................................... 9
2.0 Capital Budgeting............................................................................................ 9
2.0.1 Capital expenditures..................................................................................... 9
2.1 Steps in capital budgeting decision making....................................................9
2.2 Initial investment........................................................................................... 10
2.3 Operational Cash Flows.................................................................................11
2.4 Terminal Cash Flows...................................................................................... 12
Chapter 3............................................................................................................. 13
3.0 Net present value:......................................................................................... 13
3.0.1 Advantages and Disadvantages.................................................................14
3.1 Pay Back Period:............................................................................................ 15
3.1.1 Advantages and Disadvantages.................................................................16
3.2 Internal rate of return.................................................................................... 17
3.2.1 Advantages and Disadvantages of IRR.......................................................18
Chapter 4............................................................................................................. 20
4.0 Cost of Capital............................................................................................... 20
4.1 Cost of long-term debt...................................................................................20
4.2 Cost of preferred stock,................................................................................. 20
4.3 Cost of common stock equity,.......................................................................21
4.4 Constant-growth valuation (Gordon growth) model.......................................21
4.5 Capital asset pricing model (CAPM)...............................................................22
4.6 Weighted average cost of capital (WACC),.....................................................23
Chapter 5............................................................................................................. 24
5.0 Leverage and Capital Structure:....................................................................25
5.1 Operating leverage........................................................................................ 26
5.2 Financial Leverage......................................................................................... 27
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Century Paper & Board Mills Limited

5.3 Total leverage................................................................................................ 28

Chapter 6............................................................................................................. 29
Conclusions:........................................................................................................ 29
RECOMMANDATION

Chapter 1
1.0 Introduction:
Project on Century Paper & Board Mills Limited

1.1 Objectives of the study:

Overview of the company

To get the knowledge about Product
Study of the organizational structure
Capital budgeting and cash-flow of the company
Capital budgeting Techniques of the company
Cost of Capital of the company
Leverage & capital structure

Century Paper & Board Mills Limited

1.2 Purpose/ Scope

We are doing the financial analysis of the century paper and board mill limited for
investment purpose and want to know the value of the organization by applying the different
type of analysis. It beneficial for the management decision making for the company and
helpful for investors for investment decision.

1.3 Significance
Our analysis beneficial for shareholder and investors. It will provide the basic
information to everyone who wants to know about the company. Our analysis will helpful for
the future researchers.

1.4 Company Profile

1.4.1 Short History
Century Paper & Board Mills Limited (CPBM), established in 1984, is Flagship
Company of the Lakson Group of Companies Pakistan.
The Lakson Group was founded in 1954. Lakson Group is a well-known business
group in Pakistan. The conglomerate is run by the Lakhani brothers among whom Iqbal Ali
Lakhani is Chairman of the Lakson group. His siblings are Amin Lakhani, Sultan Lakhani
and Zulfiqar Lakhani. Its head office is located in Karachi, Sind, Pakistan. The Group's
portfolio consists of detergents and soaps, toothpaste, food products, fast food restaurants,
insurance, internet services, software, paper and board, printing, powdered beverages and tea,
packaging, publications, surgical instruments, and textiles.

1.4.2 Lakson Group of companies

Media

Express News, Urdu-language news channel

Express 24/7, English-language 24-hour news channel (closed down)
Express Entertainment, Urdu-language Entertainment channel
Times TV, Urdu-languageentertainment and news channel
The Daily Express, No. 2 Urdu daily in Pakistan
Express Tribune, English newspaper
Century Publications

Other
AccuraySurgicals Limited
Century Insurance Company
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Century Paper & Board Mills Limited

Century Paper and Board Mills

Century Power Generation Limited
Clover Pakistan
Colgate-Palmolive Pakistan
Cybernet Internet Service (Private) Limited
Ice Animations
Lakson Business Solutions Limited ,Software Solution Provider
LaksonInvestments Limited
Merit Packaging Limited
Princeton Travels (Private) Limited
SIZA Foods (Private) Limited (McDonald's)
Sybrid (Pvt) Limited
TetleyClover Pakistan (Private) Limited
Tritex Cotton Mills Limited

The Company started commercial production in 1990 and established its name as
major producer of quality Packaging boards in the country. It has attained a position of
Market Leader in Packaging Boards in particular and is considered as most Preferred
Supplier to Printing and Packaging Industry. The Company serves many of the prestigious
clientele and maintaining Strategic Business Relationships with leading Packaging and
Converting units as well as end users, which include national and multinational companies.
The Company is also in export business and its Packaging Boards are successfully competing
in the international market.
The company entered into Corrugated Cartons Manufacturing Business in 2003 by
installing Agnati Italian corrugators, renowned name in the industry. The plant is capable to
cater large continuous orders for different types of boxes to serve multifarious sectors
including Soaps & Detergents, Home Appliances, Dairy Products, Ice Cream, Food and
Beverages, Cigarettes and Tobacco and Lubricants etc. Being vertically integrated
corrugation unit with companies own Liner and Fluting supplies the plant has an edge to
ensure consistency in supplies and quality.
The company is managed by a competent team of professionals in all the relevant
fields like Process, Paper Technology, Engineering, Finance, Business Management and
Human Resource. The Company assigns great importance to its Human Capital Development
and has been managing Trainings of its professionals by sending them to Foreign and Local
Training Programs / Exhibitions / Courses.
The plant comprising of Seven Paper Machines (PMs), a Complete Corrugated
Cartons Manufacturing Plant, Integrated Pulp Mills (Major Inputs Wheat Straw), in house
Engineering Workshop, Captive Power Generation Plant, and Chemical House etc. is situated
on 162 Acres close to major business city (Lahore) of the country.
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Century Paper & Board Mills Limited

1.4.3 Vision Statement

To be the market leader and an enduring force in the paper, board and packaging
industry, positively influencing and providing value to our stakeholders, society and our
nation.

1.4.4 Mission Statement

To strive incessantly for excellence and sustain our position as a preferred supplier of
quality paper, board and packaging material within a team environment and with a customer
focused strategy.

1.4.5

Century Paper & Board Mills Limited

1.4.6

1.4.7

Century Paper & Board Mills Limited

1.6 Project Details

In first chapter we introduce the company with vision and mission statement and also
describe the objective, purpose and significance. In chapter 2 we will describe capital
budgeting cash flow and estimations, theoretically and also with analysis. In chapter 3 we
will describe PBP, NPV and IRR and analysis. In chapter 4 cost of capital of the company
theoretically and numerically. In chapter 5 we will describe leverage and capital structure.
And in last chapter we will explain conclusion and recommendation and references.

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Century Paper & Board Mills Limited

Chapter 2
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Century Paper & Board Mills Limited

2.0 Capital Budgeting:

Capital budgeting is the process of evaluating and selecting long-term investments that are
consistent with the firms goal of maximizing owners wealth. Firms typically make a variety
of long-term investments, but the most common is in fixed assets, which include property
(land), plant, and equipment. These assets, often referred to as earning assets, generally
provide the basis for the firms earning power and value.
Capital Budgeting is the process by which the firm decides which long-term investments to
make. Capital Budgeting projects, i.e., potential long-term investments, are expected to
generate cash flows over several years.
The process in which a business determines whether projects such as building a new plant or
investing in a long-term venture are worth pursuing. Oftentimes, a prospective project's
lifetime cash inflows and outflows are assessed in order to determine whether the returns
generated meet a sufficient target benchmark.

2.0.1 Capital expenditures are made for many reasons.

The basic motives for capital expenditures are to expand, replace, or renew fixed assets or to
obtain some other less tangible benefit over a long period.

2.1 Steps in capital budgeting decision making

1. Proposal gnration:
Proposals for new investment projects are made at all levels within a business
organization and are reviewed by finance personnel. Proposals that require large outlays are
more carefully scrutinized than less costly ones.

2. Review and analysis:

Financial managers perform formal review and analysis to assess the merits of
investment proposals.

3. Dcision making:
Firms typically delegate capital expenditure decision making on the basis of dollar
limits. Generally, the board of directors must authorize expenditures beyond a certain
amount. Often plant managers are given authority to make decisions necessary to keep the
production line moving.

4. Implementation:
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Century Paper & Board Mills Limited

Following approval, expenditures are made and projects implemented. Expenditures

for a large project often occur in phases.

5. Follow-up:
Results are monitored and actual costs and benefits are compared with those that were
expected. Action may be required if actual outcomes differ from projected ones.
If CurrentAssest>CurrentLabilitiesitmeaninflow
If CurrentAssest<CurrentLabilitiesitmeanoutflow

2.2 Initial investment of proposed machinery at Century Paper & Board

Mills Limited
Rupees(000)

Rupees(000)

Installed Cost of New Asset

Cost of new asset
+

Installation Costs

200000
57000

Total Installed Cost- Proposed

257000

After Tax Proceeds from sale of Present machine

Proceeds from sale of present machine
-

Tax on sale of present machine

8000
-2011

Total after-tax proceeds- Present

+ Change in net working capital
Initial Investment

-5989
251011

Working 1
Tax Calculation:
Dep = 90, 00,000 x 83% = 7,47,0000
BV= Price of Asset- Dep
BV= 9000000-7470000 = 1530000
Rep. Dep. = S.P BV
Rep. Dep = 8000000-1530000 = 6470000
6470000 x .3109=2011523
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Century Paper & Board Mills Limited

2.3 Operational Cash Flows of Century Paper & Board Mills

Limited.Amount in (000)
Years

Revenue

110000

130000

140000

160000

170000

-Expenses
EBITD
-Depreciation
Profit Before tax
-Tax
Net income after tax

2160
107840
18478
89362
27783
61579

2270
127730
22565
105165
32696
72469

2750
137250
17554
119696
37213
82483

3100
156900
11086
145814
45334
100480

3510
166490
11086
155404
48315
107089

+Depreciation

18478

22565

17554

11086

11086

4619

Net operating cash flow

80057

95034

100037

111566

118175

3183

4619
-4619
-1436
-1436

2.4 Terminal Cash Flows of Century Paper & Board Mills Limited
Rupees (000)
After tax proceeds from sale of proposed machine
Proceeds from sale of proposed machine
- Tax on sale of proposed machine
Total after tax proceeds---- Proposed

Rupees (000)

=
180000
(Working # 1) 52853
127147

AfterTaxProceedsfrom sale of Present machine

Proceeds from sale of present machine

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Century Paper & Board Mills Limited

Tax on sale of present machine

Total after-tax proceeds--- Present

+ Change in net working capital

Terminal Cash Flow

127147

Working 2
Cost Price of new machine = 200000
Accumulated Depreciation:
(20%+32%+19%+12%+12%) 200000 = 190000
Book Value = Initial Cost- Accumulated Depreciation
Book Value = 200000 - 190000
Book Value = 10000
Recaptured Depreciation = Sale Price - Book Value
Recaptured Depreciation = 180000 10000
Recaptured Depreciation = 170000
Tax = Recaptured Depreciation Tax rate
Tax = 170000 35.09%Tax = Rs. 52853

Chapter 3

Capital Budgeting Techniques

Capital budgeting (or investment appraisal) is the process of determining the viability of
long-term investments on purchase or replacement of property, plant and equipment, new
product line or other projects.
Capital budgeting consists of various techniques used by managers such as:

Net Present Value

Payback Period
Discounted Payback Period
Internal Rate of Return
Accounting Rate of Return

Profitability Index
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Century Paper & Board Mills Limited

3.0 Net present value:

The difference between the present value of cash inflows and the present value of cash
outflows. NPV is used in capital budgeting to analyse the profitability of an investment or
project.

Where:
Ct = net cash inflow during the period
Co= initial investment
r = discount rate, and
t = number of time periods

Acceptaproject if its NPV > 0;

Rejectaproject if its NPV < 0;
Indifferentwhere NPV = 0.

Calculate the value of NPV Century Paper & Board Mills Limited we assumed Discount rate
11%
Years

Cash Inflows (000)

Present Value (000)

1
2

110000
130000

99099
105511

3
4

140000
160000

102367
105397

170000

100886

Discoun
t Rate
11%
11%
11%
11%
11%

NPV = 513260500000
t=1

NPV= 13260
The NPV value of the project is > 0 so it show project will accepted.
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Century Paper & Board Mills Limited

3.0.1 Advantages and Disadvantages

Advantages of Net Present Value (NPV)
1. NPV gives important to the time value of money.
2. In the calculation of NPV, both after cash flow and before cash flow over the life span
of the Project are considered.
3. Profitability and risk of the projets are given high priority.
4. NPV helps in maximizing the firm's value.

Disadvantages of Net Present Value (NPV)

1. NPV is difficult to use.
2. NPV cannot give accurate decision if the amount of investment of mutually exclusive
projects are not equal.
3. It is difficult to calculate the appropriate discount rate.
4. NPV may not give correct decision when the projects are of unequal life.

3.1 Pay Back Period:

The payback period, PP, is the length of time it takes to recover the initial investment of the
project. To apply the payback period criterion, it is necessary for management to establish a
maximum acceptable payback value PP*. In practice, PP* is usually between 2 and 4 years.
In determining whether to accept or reject a particular project, the payback period decision
rule is:

Accept if PP < PP*

Reject if PP > PP*
Indifferentwhere PP = PP*
For mutually exclusive alternatives accept the Project with the lowest PP if PP<PP*

Formula:
If annual cash inflow is the same for every year then we use this formula
Payback Period =

Total Investment
Cash inflow ( net profit )

If the cash inflow is not same then we calculate PP by using this formula

PBP= a+

{ bc }
d

]
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Century Paper & Board Mills Limited

a= number of recovery year of initial investment

b= initial investment
c= cumulative cash inflow in recovery year
d= cash inflow of the next year
PP tells us how much time will be required to recover the initial investment. By helping this
technique, we can select the best project for investment and recover the initial investment in
minimum time period.

Calculation of Payback period for Century Paper & Board Mills Limited
Cash Inflows (000)

Cumulative Cash inflows (000)

0
1

(500000)
110000

110000

130000

240000

140000

380000

160000

520000

170000

690000

Years

PBP=[3+

500000380000
]
160000
PBP= 3.75

Payback period tells us about in how much time period we will get back our initial
investment. As we analyze our data by applying payback period technique we got that the
project will get back its initial investment in 3.75 years. Therefore, we will accept this
project without any hesitation.

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Century Paper & Board Mills Limited

3.1.1 Advantages and Disadvantages

Advantages of payback period are:
1. Payback period is very simple to calculate.
2. It can be a measure of risk inherent in a project. Since cash flows that occur later in a
project's life are considered more uncertain, payback period provides an indication of
how certain the project cash inflows are.
3. For companies facing liquidity problems, it ,provides a good ranking of projects that
would return money early.
Disadvantages of payback period are:

1. Payback period does not take into account the time value of money which is a serious
drawback since it can lead to wrong decisions. A variation of payback method that
attempts to remove this drawback is called discounted payback period method.
2. It does not take into account, the cash flows that occur after the payback period.

3.2 Internal rate of return

The internal rate of return (IRR) is the discount rate that equates the NPV of an investment
opportunity with $0 (because the present value of cash inflow equals the initial investment).
It is the rate of return that the firm will earn if it invests in the project and receives given cash
inflow.

If the IRR is greater than the cost of capital, accept the project.
If the IRR is less than the cost of capital, reject the project.

PVat low rate = I (PVIFA) + MV (PVIF)

PVat high rate = I (PVIFA) + MV (PVIF)

IRR formula
IRR= i L +[

( i H i L )( Pv LInitial Investment )
Pv L Pv H

We assumed the Discount factor @ 8% and the NPV of the project is calculated as below

Years
1
2

Discount
Rate
27%
27%

Cash Inflows (000)

110000
130000
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Century Paper & Board Mills Limited

3
4

27%
27%

140000
160000

27%

170000

PV L = 557,746.33

We assumed the Discount factor @ 13% and the NPV of the project is calculated as below

Years

Discount
Rate
13%
13%

1
2
3
4
5

Cash Inflows (000)

110000
130000

13%
13%

140000
160000

13%

170000

PV H = 486,581.41

Now the IRR value can be calculated using the interpolation formula, i.e.

( 0.130.08 )( 557,746500000 )
( 557,746486,581 )

( 0.05 )( 57747 )
( 71165 )

2887.35
71165

IRR=0.08+

IRR=0.08+

IRR=0.08+

IRR=12.05
We will accept the project because the internal rate of return is greater than the opportunity cost or the
cost of capital.
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Century Paper & Board Mills Limited

3.2.1 Advantages and Disadvantages of IRR

Advantages
1.
2.
3.
4.

Tells whether an investment increases the firm's value

Considers all cash flows of the project
Considers the time value of money
Considers the risk of future cash flows (through the cost of capital in the decision rule)

Disadvantages
1. Requires an estimate of the cost of capital in order to make a decision
2. May not give the value-maximizing decision when used to compare mutually exclusive
projects
3. May not give the value-maximizing decision when used to choose projects when there is
capital rationing
4. Cannot be used in situations in which the sign of the cash flows of a project change more than
once during the project's life

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Century Paper & Board Mills Limited

Chapter 4
4.0 Cost of Capital
The Rate of return that a firm must earn on the project in which it invests it maintain its
market value and attract funds.
Types of Cost of Capital
There are basically three main types of cost of capital
1. Cost of debt
2. Cost of preferred stock
3. Cost of equity

4.1 Cost of long-term debt

The financing cost associated with new funds raised through long-term borrowing.
Net proceeds
Funds actually received by the firm from the sale of a security
Flotation costs
The total costs of issuing and selling a security.
par valueN d
n
N d + par value
2

I+

Kd

Kd

Given in Annual Report that is

K d =

10.73%

4.2 Cost of preferred stock,

The ratio of the preferred stock dividend to the firms net proceeds from the sale of preferred
stock.
Cost of preferred stock can be calculated as follows:
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Century Paper & Board Mills Limited

K ps=

D ps
N ps

Where:
Np= (sales proceeds - flotation cost)
Kp= Cost of preferred stock
Dp= Annual dividend
Calculation Kp for Century Paper & Board Mills Limited

K ps =

1.5
53.43
K ps=2.81 %

4.3 Cost of common stock equity,

The rate at which investors discount the expected dividends of the firm to determine its share
value.
Calculation Ke for Century Paper & Board Mills Limited

Cost of Equity =

Ke=

Do ( 1+g )
+g
Po

1.5 ( 1+0.09 )
+0.09
53.83

Cost of Equity =12.03%

4.4 Constant-growth valuation(Gordon growth) model

Assumes that the value of a share of stock equals the present value of all future dividends
(assumed to grow at a constant rate) that it is expected to provide over an infinite time
horizon.
Calculation for Century Paper & Board Mills Limited

Gordan Formula

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Century Paper & Board Mills Limited

P0=

D 0(1+ g)
(Keg)
1.5 ( 1+0.09 )
(0.12030.09)

= 53.96

4.5 Capital asset pricing model (CAPM)

Describes the relationship between the required return, rs, and the non-diversifiable risk of
the firm as measured by the beta coefficient, b.
CAPM=

Rf + B(RmRf )

Calculation for Century Paper & Board Mills Limited with Assumed Value

= 5%+.70(14%-5%)
= 11.3%

4.6 Weighted average cost of capital (WACC),

Reflects the expected average future cost of capital over the long run; found by weighting the
cost of each specific type of capital by its proportion in the firms capital structure.
WACC= ( WeKe ) + ( WpKp ) +(KdWd )(1T )

Source of capital

Weight

Cost

Debt

0.48

10.71 %

Common

0.52

12.03 %

Calculation of WACC for Century Paper & Board Mills Limited

= (.58*12.03) + (0) + (.42*10.73) (1-0.3109)
WACC= 10.09%

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Century Paper & Board Mills Limited

Chapter 5
5.0 Leverage and Capital Structure:
Leverage involves the use of fixed costs to magnify returns. Its use in the capital
structure of the firm has the potential to increase its return and risk. Leverage and capital
structure are closely related concepts that are linked to capital budgeting decisions through
the cost of capital. These concepts can be used to minimize the firms cost of capital and
maximize its owners wealth.
Capital structure the mix of long-term debt and equity maintained by the firm can
significantly affect its value by affecting return and risk. Unlike some causes of risk,
management has almost complete control over the risk introduced through the use of
leverage. Because of its effect on value, the financial manager must understand how to
measure and evaluate leverage, particularly when making capital structure decisions.
The three basic types of leverage
1. Operating leverage is concerned with the relationship between the firms sales
revenue and its earnings before interest and taxes, or EBIT
2. Financial Leverage is concerned with the relationship between the firms EBIT and
its common stock earnings per share (EPS).
3. Total leverage is concerned with the relationship between the firms sales revenue
and EPS

5.1 Operating leverage

Operating leverage results from the existence of fixed operating costs in the firms income
stream. Operating leverage as the potential use of fixed operating costs to magnify the effects
of changes in sales on the firms earnings before interest and taxes.
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Century Paper & Board Mills Limited

The degree of operating leverage (DOL) is the numerical measure of the firms operating
leverage. It can be derived using the following equation
DOL=

changeEBIT
changesales

Calculation of DOL for Century Paper & Board Mills Limited

The EBIT and SALES of Century Paper & Board Mills Limited for the year 2013 and 2014 is given
as below:
Year
2014
2013

EBIT in Millions
Rs.2350
Rs.2099

DOL=

11.96
3.75

%Change EBIT
11.96%

Sales in Millions
Rs.17132
Rs.16513

% Change in sales
3.75%

DOL= 3.19
DOL is 3.19 1
This show operating cost of Century Paper & Board Mills Limited covers from Operating leverage.

Whenever the percentage change in EBIT resulting from a given percentage change in
sales is greater than the percentage change in sales, operating leverage exists. This
means that as long as DOL is greater than 1, there is operating leverage.
A more direct formula for calculating the degree of operating leverage

DOL=

QX ( PVC)
QX ( PVC ) FC

5.2 Financial Leverage

Financial leverage results from the presence of fixed financial costs in the firms income
stream. Financial leverage as the potential use of fixed financial costs to magnify the effects
of changes in earnings before interest and taxes on the firms earnings per share. The two
fixed financial costs that may be found on the firms income statement are (1) interest on debt
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Century Paper & Board Mills Limited

and (2) preferred stock dividends. These charges must be paid regardless of the amount of
EBIT available to pay them.
The degree of financial leverage (DFL) is the numerical measure of the firms financial
leverage. Computing it is much like computing the degree of operating leverage. The
following equation presents one approach for obtaining the DFL.
DFL=

change EPS
change EBIT

Calculation of DFL for Century Paper & Board Mills Limited

The EBIT and EPS of Century Paper & Board Mills Limited for the year 2013 and 2014 are given as
below:
Year

EBIT (Million)

%Change EBIT

EPS

% Change in EPS

2014

2350

11.96%

6.46

21.89%

2013

2099

DFL=

21.89
11.96

5.3

DFL= 1.83
The value of DFL is 1.83 1
Thethis shows that Century Paper & Board Mills Limited have greater financial leverage or
Century Paper & Board Mills Limited financial cost cover from financial leverage.is shows
that Century Paper & Board Mills Limited have greater financial leverage or Century Paper
& Board Mills Limited financial cost cover from financial leverage.

A more direct formula for calculating the degree of financial leverage:

EBIT
DFL =

EBIT I ( PDX

1
)
1T

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Century Paper & Board Mills Limited

5.3 Total leverage

Total leverage, can be defined as the potential use of fixed costs, both operating and financial,
to magnify the effect of changes in sales on the firms earnings per share. Total leverage can
therefore be viewed as the total impact of the fixed costs in the firms operating and financial
structure.
The degree of total leverage (DTL) is the numerical measure of the firms total leverage. It
can be computed much as operating and financial leverage is computed. The following
equation presents one approach for measuring DTL
DTL=

%change EPS
%change Sales

Calculation of DTL for Century Paper & Board Mills Limited

The EPS and Sales of Century Paper & Board Mills Limited for the year 2013 and 2014 are given as
below:
Year

Sales in Millions

% Change in sales

EPS

% Change in EPS

2014

Rs.17132

3.75%

6.46

21.89%

2013

Rs.16513

DTL=

5.3

21.89
3.75

DTL= 5.84
If Century Paper & Board Mills Limited sales increase by 10%, the company's EPS will
increase by 58.4% (10%)(5.84).
Direct formula for calculating the degree of total leverage:
QX (PVC )
DTL=

QX ( PVC ) FCI ( PDX

1
)
1T

We can also calculate the DTL By:

Calculation of DTL for Century Paper & Board Mills Limited by this equation

DTL= DOL x DFL

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Century Paper & Board Mills Limited

DTL= 3.19 X 1.83

DTL= 5.84

Chapter 6
Conclusions:
After analysing cash flow statement we came to know that the project of Century Paper &
Board Mill Limited will be the best project they ever had.
We calculate the initial investment, Operational Inflows and Terminal cash flows and after
looking on results we can say that all the things are going in right directions. The terminal
cash flow is approx. half then the initial investment this is little bit confusing thing but the
operation inflows fulfil this drawback.
The techniques which we used to analyze Century Paper & Board Mills Limited is following:
Payback period
IRR
Net present value
The results we got by applying these techniques are discussed in previous pages.
We will accept this project due to reasons which are mention below:

Company got back its investment before its time period.

IRR was greater than its cost of capital.
Net present value of the project was over zero.
Ratio between present value and future cash flow of the project was over one.
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Century Paper & Board Mills Limited

Afterward we calculated WACC, it clearly states that this is the best project ever created. The
Century Paper & Board Mill Limited is showing rapid growth. The IRR of this project is over
WMCC so this project is helpful for Century Paper & Board Mill Limited. Now we
calculated leverage it clearly states that increasing trend is covering its expenses in a better
shape and showing positive results of this project.

RECOMMANDATION
They must continue this hard work in the same passion for future concerns. The things which
is useful for project are following

Keep the work at the same pace for future Progress

Keep an eye on your IRR of the Project consistantly
Avoid all equity structure as its increas esexpected EPS and its deviation

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