final term paper

Introduction:

Purposes & Objectives of this project:

The purpose and objective of this project is to fully analyze the financial data of two companies:

Lafarge Surma Cement Ltd. and Heidelberg Cement Bangladesh Ltd. The purpose of this project

also encompasses calculating five major ratios e.g. Productivity, Liquidity, Leverage, Market

Value and Profitability ratios. This will enable us to conclude which company is in a better

position among the two companies. Moreover, in this project we will focus on DuPont analysis

of the two selected companies which will help us to conclude whether the companies are fully

utilizing total asset, equity and profit margin.

Brief Overview of Lafarge Surma Cement Limited (Target Company):

Lafarge Surma Cement Limited (LSC) is one of the largest cement manufacturers of the country

which was incorporated on 11th November 1997 as a private limited company under the

Companies Act 1994 and with a registered office in Dhaka. On January 20, 2003 Lafarge Surma

Cement Ltd. was made into a public limited company. The company is now listed in both Dhaka

and Chittagong Stock Exchange. At present, this company has more than 20,000 shareholders.

The company is fortunate to have a blend of both international and local shareholders. The

international shareholders of the company bring in technological and management expertise

while the local partners provide deep insights of the economy of Bangladesh.

Presently the company is meeting about 6.7% of the total market need for cement and 10% of

total clinker requirements of Bangladesh market whereas they continue to enjoy strong growth

rates. By supplying clinkers to other producers of the market they contribute some USD 50-60

million per annum worth of foreign currency savings for the country. They are producing world

class clinker and cement which is a demonstration of the sophisticated and state-of-the art

machineries and processes of their production plants. They are contributing around BDT 1

billion per annum as government revenue to the national exchequer Bnagladesh. The present

cement manufacturing of this company is 1.20 Million Metric Tons per year.

Brief Overview of Heidelberg Cement Bangladesh Limited (Competitor

Company):

Heidelberg Cement Bnagladesh Limited is one of the largest producers of quality cement in

Bnagladesh. Heidelberg Cement Bnagladesh Limited is a member of Heidelberg Cement Group,

Germany. This company is representing two reputed brands “Ruby Cement” and “Scan Cement”.

In 1998 Heidelberg Cement Group established its presence in Bnagladesh by setting up a floating

terminal with on board packing facilities in the port of Chittagong and by distributing the cement

to the key markets of Dhaka and Chittagong. The company is now listed in both Dhaka and

Chittagong Stock Exchange.

At present, the company is meeting 9.3% of the Bangladesh demand for cement from two plants

located at Dhaka and Chittagong. The company with 1.5 million tones of annual cement

production has become a major force in the Bangladesh cement industry over the last eight years.

Through acquisition of Chittagong Cement Clinker Grinding Company Ltd., it has brought

together regional manufacturing whose history stretches back to the very beginning of

commercial cement production of Bangladesh. In Bangladesh Heidelberg Group is one of the

largest foreign investors having an investment of 100 million US$ and more than 260 employees

working round the clock to materialize the mission of this great global company. By satisfying

the needs and aspirations of its customers, employees, shareholders, and the wider community,

the company is able to maintain its position of strength as a sustainable cement provider without

compromising commitment to long term stability and environmental responsibility.

Reasons for Choosing Lafarge Surma Cement Ltd. & Heidelberg Cement

Bangladesh Ltd.:

Currently 123 companies are listed as cement manufacturers in the country. Lafarge Surma

Cement Ltd. and Heidelberg Cement Bangladesh Ltd. are among two big players of the industry.

Heidelberg Cement Bangladesh Ltd. and Lafarge Surma Cement Ltd. have market shares

of 6.7% and 9.3% respectively. As their market shares are close to each other, we have

chosen the companies to get closer approximation of the ratios.

Both the companies are listed in Dhaka Stock Exchange (DSE).

Both companies use similar type of raw materials for manufacturing cement. Moreover,

the production phases and production lines of their products are also similar. The quality

of their products is almost same.

Both companies have strong goodwill in the cement industry of Bangladesh.

There are resemblances between the marketing policies and strategic approaches of the

two companies.

The net income of the income of the companies are

Sales volume or revenues of the companies

Ratio AnalysisIn this report we have calculated and analyzed five major ratios of both the companies. They

are:-

1. Liquidity Ratio

2. Asset Management Ratios

3. Leverage Ratios

4. Profitability Ratios

5. Market Ratios

1. Liquidity RatiosThis ratio expresses a company's ability to repay short-term creditors out of its total cash. The

liquidity ratio is the result of dividing the total cash by short-term borrowings. It illustrates the

number of times short-term liabilities are covered by cash.

Three liquidity ratios are:

1. Working Capital Ratio

2. Current Ratio

3. Quick (acid-test) Ratio

1.1 Working Capital Ratio:

This ratio measures the percentage of total assets that is invested in current assets. It helps to

analyze capital intensity as well as corporate liquidity. This ratio is also a measurement of

company’s efficiency and short term financial health.

Formula Used: Working Capital Ratio = Current Assets

Total Assets

Table for Working Capital Ratio of Heidelberg Cement Bangladesh Ltd. & Lafarge Surma

Cement Ltd. from Year 2009 - 2011

Company Names Year 2009 Year 2010 Year 2011Lafarge Surma Cement Ltd.

0.136 0.135 0.194

Heidelberg Cement Bangladesh Ltd.

0.560 0.624 0.566

Interpretation: From the above table, we can see that for Lafarge Surma Cement Ltd. the Working Capital Ratio

was almost same for the years 2009 and 2010, but it increased to 0.194 in the year 2011. The

higher working capital ratio in 2011 has been resulted from an increase in total current assets in

that year. Almost all the components of current assets e.g. Inventories, Trade and other

receivables, cash and cash equivalents etc. increased significantly in 2011 which ultimately

resulted higher level of current assets in that year. This increased ratio reflects the farms

increased efficiency and healthier short term financial health.

For Heidelberg Cement Bangladesh Ltd. Working Capital Ratio increased from 0.560 in the year

2009 to 0.624 in the year 2010. In 2010, the company’s current assets increased which increased

their working capital ratio in that year. In 2011, the ratio decreased to 0.566 which is actually the

result of an increased level of current liabilities in the year.

Among the two companies, Heidelberg Cement Bangladesh Ltd. is in a better position as they

have higher values of working capital ratio which means they are in a better position to meet

their short term liabilities.

2. Asset Management RatiosThese ratios measure how efficiently the firm is managing its assets. They are used to judge

whether the company has right amount of assets against its sales or not.

Five Asset Management ratios are:

1. Inventory Turnover Ratio

2. Receivable Turnover

3. Days Sales Outstanding (DSO)

4. Total Asset Turnover (TATO)

5. Fixed Asset Turnover (FATO)

2.1 Inventory Turnover:

The ratio is considered as a test of efficiency of a company and indicates the rapidity of the

company to convert its ending inventories into sales. This ratio involves both stock and flow

values.

Formula used: Inventory Turnover = Cost of Goods sold

Invent ory

Table for Inventory Turnover Ratio of Heidelberg Cement Bangladesh Ltd. & Lafarge

Surma Cement Ltd. from Year 2009 - 2011

Company Names Year 2009 Year 2010 Year 2011

Lafarge Surma Cement Ltd. 4.7040× 4.6033× 3.8799×


6.2884× 5.2489× 6.3975×

2009 2010 20110

1

2

3

4

5

6

7

Lafarge Surma Cement Ltd.Heidelberg Cement Bangladesh Ltd.

Figure: Trend Analysis for Inventory Turnover

Interpretation:

From the above table, we can see that for Lafarge Surma Cement Ltd. the Inventory Turnover

Ratio was almost same for the years 2009 and 2010, but it decreased to 3.8799 in the year 2011.

The lower inventory turnover ratio in 2011 has been resulted from a higher amount of inventory

in their warehouse. The reason for higher inventory in the year 2011 is mainly because of the

higher amount of finished goods and work in progress and higher amount of raw materials than

these components of inventory account in the years 2009 and 2010. The lower inventory

turnover in 2011 is an indication of the farms decreased efficiency of converting their raw

materials and work in progresses to finished goods and finally into sales.

For Heidelberg Cement Bangladesh Ltd. Inventory Turnover Ratio was 6.2884 in the year 2009

but it decreased to 5.2489 in the year 2010. This has been resulted from higher amount of

inventory in 2010 due to a significant increase in the amount of raw materials in that year. In

2011, the ratio increased to 6.3975 which is actually the result of higher amount of sales and

lower amount of inventory in 2011. It illustrates their increased efficiency of converting their

inventories into sales.

If we compare the inventory ratio between the two companies, than we can see that Heidelberg

Cement Bangladesh Ltd. is in a better position as it has a higher ratio. It indicates the company is

more efficient than Lafarge Surma Cement Ltd. in managing their inventories.

2.2 Receivable Turnover:

This ratio is an accounting measure used to quantify a firm’s effectiveness in extending credits as

well as collecting debts. In fact, it is an activity ratio which reflects the amount of sales generated

by every dollar of receivables.

Formula used: Receivable Turnover = Net Sales

Accounts Receivable

Table for Receivable Turnover of Heidelberg Cement Bangladesh Ltd. & Lafarge Surma

Cement Ltd. from Year 2009 – 2011




12.2814× 14.1209× 10.6287×

Figure: Trend Analysis for Receivable Turnover

Interpretation:

The Receivable Turnover Ratio of Lafarge Surma Cement Ltd. significantly increased from

19.4382 in 2009 to 42.4670 in 2010 which tells us that the company’s ability to quickly convert

its credit sales into cash increased in 2010. The reason for the increase in the ratio in 2010 is

heavy fall of their accounts receivable in the year. In the year 2011, the company’s receivable

ratio sharply decreased to 11.4315. The sharp fall of the ratio in 2011 has been resulted from a

fourfold increase in accounts receivable in the year than that of 2010.

The Receivable Turnover Ratio of Heidelberg Cement Bangladesh Ltd. increased from 12.2814

in year 2009 to 14.1209 in year 2010. Their sales increased in 2010 than the previous year which

ultimately increased their receivable turnover ratio in that year. The company’s receivable ratio

dropped to 10.6287 in 2011 which has been resulted from a significant increase of accounts

receivable in 2011.

If we compare the receivable turnover ratio of the two companies we can see that Heidelberg

Cement Bangladesh Ltd. is in a better position having consistent values of ratios. But the overall

performance of Lafarge Surma Cement Ltd. is good as they have higher values of receivable

turnover ratio than their Heidelberg Cement Bangladesh Ltd. It means that they are generating

more sales form every unit of receivables than Heidelberg Cement Bangladesh Ltd. This is a

reflection of their increased efficiency in collecting credit sales in 2010.

2.3 Days Sales Outstanding (DSO):

2009 2010 20110

5

10

15

20

25

30

35

40

45


This ratio shows both the average time it takes to turn the receivables into cash i.e. how much

time it takes to collect money from the payers and the age, in terms of days, of a company’s

accounts receivable. This ratio is of particular importance to credit and collection associates of a

company.

Formula used: Days Sales Outstanding = ReceivablesAnnual Sales

365

Table for Days Sales Outstanding of Heidelberg Cement Bangladesh Ltd. & Lafarge

Surma Cement Ltd. from Year 2009 – 2011


Lafarge Surma Cement Ltd. 18.7775 Days 8.5949 Days 31.9297 Days


29.7200 Days 25.8482 Days 34.3410 Days

2009 2010 20110

5

10

15

20

25

30

35

40


Figure: Trend Analysis for Days Sales Outstanding (DSO)

Interpretation:

From the table, we can see that the DSO ratio of Lafarge Surma Cement Ltd. sharply decreased

from 19 days in the year 2009 to 9 days in the year 2010. The company’s accounts receivable

significantly decreased in 2010 which decreased their DSO ratio in 2010. The DSO ratio sharply

increased to 32 days in 2011. This has been resulted from a fourfold increase in accounts

receivable in 2011 than the previous year.

The DSO ratio of Heidelberg Cement Bangladesh Ltd. decreased from 30 Days in 2009 to 26

days in 2010. This is the result of their increased sales in 2010. But the company’s DSO ratio

increased to 34 days in 2011, which is the result of a higher amount of accounts receivable in

the year than that of 2010.

Comparing the DSO ratios of the two companies we can notice that Heidelberg Cement

Bangladesh Ltd. is more consistent than Lafarge Surma Bangladesh Ltd. in maintaining their

ratios. But the overall performance of Lafarge Surma Cement Ltd. is good as they have smaller

values of DSO ratio which reflects that they are more efficient in collecting their credit sales than


2.4 Total Asset Turnover (TATO):

This ratio illustrates how much of sales have been generated from the total asset used. It

evaluates the efficiency of managing all the company’s assets in generating sales or revenue –

the higher the number the better. It also indicates pricing strategy: companies with low profit

margins tend to have high asset turnover, while those with high profit margins have low asset

turnover.

Formula used: Total Asset Turnover = Sales

Total Assets

Table for Total Asset Turnover of Heidelberg Cement Bangladesh Ltd. & Lafarge Surma

Ltd. from Year 2009 – 2011




1.1951× 1.1586× 1.0631×

2009 2010 20110

0.2

0.4

0.6

0.8

1

1.2

1.4


Figure: Trend Analysis for Total Asset Turnover (TATO)

Interpretation:

The total asset turnover ratio of Lafarge Surma Cement had fallen from 0.4434 in the year 2009

to 0.3415 in the year 2010 which had been resulted from their decreased sales in 2010. This

indicates their decreased efficiency of managing assets to generate sales in 2010. The ratio

slightly increased to 0.3500 in 2011 which is the result of an increased amount of sales in that

year.

The total asset turnover ratio of Heidelberg Cement Bangladesh Ltd. decreased from 1.1951 in

year 2009 to 1.1586 in the year 2010. This decrease occurred due to an increase in total assets in

2010. The increased amount of total assets was caused by increased level of capital work-in-

progress, inventories, and advance, deposits and prepayments. The company’s total asset

turnover ratio further decreased to 1.0631 in 2011 due to a further increase in the amount of total

assets.

Comparing the total asset turnover ratio of the two companies we can notice that Heidelberg

Cement Bangladesh Ltd. is in a better position having higher values of TATO ratio than Lafarge

Surma Cement Ltd. which illustrates that they are more efficient in managing their assets in

generating sales. But it is also noticeable that Heidelberg Cement Bangladesh Ltd. is not in a

good position due to decreasing TATO ratio from year to year.

2.5 Fixed Asset Turnover (FATO):

This ratio measures how much sales have been generated by using the fixed assets – specifically

property, plant and equipment (PP&E) – net of depreciation. A higher fixed asset turnover ratio

shows that the company has been more effective in using the investment in fixed assets to

generate revenues.

Formula used: Fixed Asset Turnover = SalesNet ¿

Assets¿

Table for Fixed Asset Turnover of Heidelberg Cement Bangladesh Ltd. & Lafarge Surma

Ltd. from Year 2009 – 2011



Heidelberg Cement

Bangladesh Ltd.2.7202× 3.0817× 2.4530×

2009 2010 20110

0.5

1

1.5

2

2.5

3

3.5


Figure: Trend Analysis for Fixed Asset Turnover (FATO)

Interpretation:

The fixed asset turnover ratio of Lafarge Surma Cement Ltd. had fallen from 0.5134 in 2009 to

0.3952 in 2010. The reason of this decreased FATO in 2010 is decreased amount of sales in the

year. It illustrates their decreased efficiency in managing fixed assets to generate sales. The ratio

increased to 0.4345 in 2011 due to an increased level of sales and a decreased level of fixed

assets in the year.

The fixed asset turnover ratio of Heidelberg Cement Bangladesh Ltd. increased from 2.7202 in

the year 2009 to 3.0817 in year 2010 due to a significant increase in sales in year 2010. It reflects

their increased efficiency in managing their fixed assets to generate sales in 2010. In 2011 the

company’s fixed assets increased significantly which decreased their fixed asset turnover ratio to

2.4530 in the year. The increase in fixed assets occurred due to a huge increase in capital work-

in-progress in 2011.

Comparing fixed asset turnover ratio of the two firms, we can see that Heidelberg Cement

Bangladesh Ltd. is in a better position having higher values of fixed asset turnover ratio which

reflects their higher efficiency level in managing fixed assets to generate sales.

DuPont Analysis

DuPont Analysis is a method of performance measurement of a farm which reinforces the

concept that good financial analysis requires looking at each ratio in the context of the other.

Within this method, assets are measured at their gross book value rather than at net book value in

order to produce a higher Return on Equity (ROE).

According to DuPont Analysis ROE of a farm is affected by three measurements:

I. Operating efficiency which is measured by profit margin

II. Asset use efficiency, which is measured by Total Asset Turnover (TATO)

III. Financial Leverage, which is measured by equity multiplier

Formula Used:

Return on Equity (ROE) = Net Profit Margin × Total Asset Turnover × Equity Multiplier

= Net Income

Sales ×

SalesTotal Asset

× Total AssetTotal Equity

DuPont Chart for Lafarge Surma Cement Ltd.

The DuPont System

Net Profit Margin

Total Asset Turnover

Equity Multiplier Return on Equity

Year 2009

Year 2010

Year 2011

DuPont Chart for Heidelberg Cement Bangladesh Ltd.

The DuPont System

Net Profit Margin

Total Asset Turnover

Equity Multiplier Return on Equity

Year 2009

Year 2010

Year 2011

Interpretation:

As the DuPont System has three components e.g. Net Profit margin, Total Asset Turnover, and

leverage; we have divided our DuPont analysis in three following sections:

Profitability Analysis:

Conclusion

Notes

All the comments we have made are on the comparative performance analysis of our two

chosen companies – Lafarge Surma Cement Ltd. and Heidelberg Cement Ltd. where

Lafarge Surma Cement Ltd. is our target company whereas Heidelberg Cement Ltd. is

the competitor company.

The information of market price per share (year end closing price) has been directly

obtained from the website: http://www.bdstockprice.com

All the relevant data for comparative financial performance analysis have been obtained

from Annual Reports of both the companies of year 2009, 2010 and 2011.

Research paper on “Cement Sector of Bangladesh” published by IDLC Finance Ltd.

All relevant information about the companies have been obtained from their respective

websites –

Lafarge Surma Cement Ltd.: http://www.lafarge-bd.com/

Heidelberg Cement Bangladesh Ltd.: http://www.heidelbergcementbd.com/

APENDIX

All the Ratios at a Glance:

Liquidity Ratios

Year 2009 Year 2010 Year 2011 Comment

Lafarge Surma Cement

Ltd.

HeidelbergCement

BangladeshLtd.


Ltd.

HeidelbergCement

BangladeshLtd.

Lafarge Surma

Cement Ltd.

HeidelbergCement

Bangladesh

Ltd.


Ltd.

HeidelbergCement

BangladeshLtd.

Current Ratio

http://www.heidelbergcementbd.com/

http://www.lafarge-bd.com/

http://www.bdstockprice.com/

Quick Ratio

Working Capital Ratio

Asset Management Ratios

Inventory Turnover Ratio

4.7040x 6.2884x 4.6033x 5.2489x 3.8799x 6.3975x √

Receivable Turnover Ratio

19.4382x

12.2814x 42.4670x

14.1209x 11.4315 x 10.6287x √

DSO Ratio (Days)

18.774 29.7200 8.5797 25.8482 31.9297 34.3410 √

TATO 0.4434x 1.1951x 0.3415x 1.1586x 0.3500x 1.0631x √

FATO 0.5134x 2.7202x 0.3952x 3.0817x 0.4345x 2.4530x √

Leverage Ratios

Debt Ratio

Debt to Equity Ratio

TIE

Cash Flow to Debt Ratio

Profitability Ratios

Profit Margin

Operating Margin

ROA

ROE

Market Valuation Ratios

BPS

P/E RatioMarket Book RatioPrice-To-Cash-Flow Ratio

Financial Statements of Lafarge Surma Cement Ltd. & Heidelberg Cement Bangladesh Ltd. from Year 2009 to 2011

Detailed Calculation of All The Ratios of Lafarge Surma Cement Ltd. & Heidelberg Cement Ltd. for the Year 2011

Ratios Formula For Calculation Lafarge Surma Cement Ltd.


Liquidity Ratios

Current Ratio Current AssetsCurrent Liabilities

33858555921049

=0.57145404252118803

=¿2.142

Quick Ratio Current Assets−InventoriesCurrent Liabilites

19481705921049

=0.32934188742118803

=¿1.613

Working Capital Ratio Current AssetTotal Asset

338585517421631

=0.19445404258010817

=¿0.566

Asset Management Ratios

Inventory Turnover Ratio

Cost of Goods SoldInventory

55781340001437685000

=

3.8799×

71751510001121551000

=

6.3975×Receivable Turnover Ratio

Net SalesAccounts Receivable

6098478000533487000

=

11.4315×

8516206000801247000

=

10.6287×

DSOAccounts Receivable

Annual Sales365

533487000609847800

365 =

31.9297 Days

8012470008516206000

365 =

34.3410 Days

TATO SalesTotal Asset

609847800017421631000

=

0.3500×

85162060008010817000

=

1.0631×

FATO Sales¿ Asset

609847800014035776000

=

0.4345×

85162060003470392000

=

2.4530×

Leverage Ratios

Debt Ratio Total DebtTotal Asset

Times-Interest-Earned (TIE) Ratio

EBITInterest Rate

Debt-Equity Ratio Total DebtTotal Equity

Cash Flow to Debt Ratio Cash Flow ¿Operations ¿Total Debt

Profitability Ratios

Net Profit Margin Net ProfitSales

Operating Margin Operating IncomeSales

Return on Asset Net ProfitTotal Asset

Return on Equity Net ProfitTotal Equity

Market Valuation Ratios

P/E Ratio Price per shareEarning per share

Market Book Ratio Martket Price per ShareBook Value per Share

Book Value per Share Shareholde r ' s EquityNumber of Shares Outsatnding

Earnings Per Share (EPS)

Net Profit After TaxNumber of Shares Outstanding

final term paper

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