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INTRODUCTION
1.4 METHODOLOGY:
To acquire data for our report primarily we use the annual reports of Lafarge
Surma Cement, Meghna Cement, Confidence Cement and Heidelberg Cement.
The annual reports that we use as our source are given below:
We have also collected the necessary and relevant data from different
secondary sources. These sources are:
Page 1
The limitations of the study are defined by the extensive of the facts covered by
the study and those that left out. However, these limitations can be presented in
the following lines:
The first limitation is the lack of intellectual thought and analytical ability
to make it the most perfect one.
2.0
COMPANY OVERVIEW:
For our term paper we have chosen Lafarge Surma Cement Ltd as our base
company and for our industry average we have chosen Meghna Cement,
Confidence Cement and Heidelberg Cement. The overview of these companies
are given below:
Page 2
(IFC The World Bank Group), the Asian Development Bank (ADB), German
Development
Bank
(DEG),
European
Investment
Bank
(EIB),
and
the
Page 3
and Chittagong Stock Exchange, the two bourses of the country in 1995 and
1996 respectively. The Company markets its products under the registered trade
mark KING BRAND. The manpower of Meghna Cement Mills Ltd. is 420 persons
out of which there are 80 Officers and 340 staff/workers.
The industry enjoys a unique facility in cargo handling both in receiving raw
materials and in dispatching finished product through its own 02 nos. of jetties
suitable for berthing sea going vessels. At present the production capacity of
MCML is approx.1.0 million MT/annum.
There are 4 nos. of grinding mill in MCML having production capacity of 3000
MT/ day and these mills are equipped with high efficiency separator to segregate
fine particle from the coarse one. The dimension of each of the 02 (two) mills is
3m diameter x 9m length (production capacity 30 TPH) while the each of the
rest 02 is 3m diameter x 11m length (production capacity 40 TPH).
To ensure the product quality, the Quality Assurance (Q.A.) department collects
samples from different areas of mill house every after 1hrs. to evaluate quality
of the crushed product and thus feed back to the production department. Based
on the quality report determined by Q.A department,
Production department
acts accordingly.
There are 4 nos. of cement silo for cement storing purpose in MCML, where the
capacity of each of the first 02 silo is 3500 MT while the capacity of each of the
rest 02 is 5000 MT. Cement is extracted from the cement silo through extraction
system which consists of roots blower, inlet box, pneumatic shut off valve, flow
control valve etc. which are controlled from the control room of the pack house.
There are 2 nos. of roto packer having packing capacity of 100 MT / Hr. and 110
MT / Hr. respectively. These packers are the equipments of modern technology
where weighing system of the delivered cement sack is fully electronic based to
ensure proper weight of every sack of cement.
Mainly paper made cement sacks are preferred for filling purpose although small
percentage of poly sack are also used based on the consumers demand. It may
be mentioned here that, the paper sacks are manufactured by the Sack plant of
BG.
To assist the production process i.e. to enhance the mill output as well as for
securing dust free working environment there are several nos. of dust collectors
with modern deducting system in the mill house area. Moreover there are
Ratio Analysis of Lafarge Surma Cement Ltd.
Page 4
several nos. of dust collector having larger capacity of modern deducting system
to secure almost dust free working environment.There exists 02 modes of
cement delivery system i.e. road delivery and vessel delivery available in this
plant. To prevent bag bursting while loading in vessel one spiral chute has been
designed with the barge loader. To ensure smooth delivery of cement sacks 19
nos. ten wheeler and 16 nos. six wheeler company delivery trucks are being
used.
There exists a modern equipped jetty facility in this organization where the sea
going vessel can berth easily. There exists 02 nos. of hydraulic crane of modern
technology of German origin having unloading capacity of 250 MT/Hr each of
which contribute a lot to faster unloading.
Here it needs to mention that there exists a clinker shed having storing capacity
of 35000 MT and for easy and faster conveying there exists a substantial
numbers of
lengths about 02 kilometers. Besides the two nos. of hydraulic crane there also
exists 02 nos. of mechanically driven crane namely Fransiab Crane which are
mainly engaged for limestone unloading.
Cement
Limited
(CCL)
is
the
first
private
sector
cement
Page 5
In 1994 after commencement of production CCL was able to make two most
popular brands is cement in this country. Now Lion brand is the brand leader in
all over the country. Rajmistry brand is popular leading brand in own territories
as well as other parts of the country. CCL manufactures Ordinary Porland
Cement (OPC) in conformance with BSTI requirements. It is noted that CCL's
cement specifications is much higher than the parameters specified by BDS
232:1993 or meets the BS12:1996 & ASTM C150:95 type-1. To ensure best
quality, CCL maintains a unique computerized raw material mixing process to get
the finest & high quality cement with compressive strength. The clinker is
grained through close circuit ball mills with uniform blains, which gives the
cement better spread. The uniform fineness of CCL cement helps in cutting down
construction costs as only small quantities are required to cover large areas.
Apart from the most modern technology the paper bags used by CCL have
additional features. The bags ends are pasted not stitched. Pasted means all the
piles of paper are overlapped upon each other and glued. Due to this,
pilferage/Adulteration in a pasted sack is protected.
Greenfield
manufacturing
plant
near
Dhaka
namely
Scan
Cement
International Ltd with an installed capacity of 0.75 million tones per year. In
2000 it brought Chittagong Cement Clinker Grinding Co. Ltd.
In 2003 the two companies were amalgamated and the companys name was
changed to Heidelberg Cement Bangladesh Ltd. Since 2004, the company has
diversified its products range by introducing Portland Composite Cement into the
Ratio Analysis of Lafarge Surma Cement Ltd.
Page 6
market. The Company also produces other types of cement namely Ordinary
Portland Cement.
The company further increased the capacity of its Kanchpur plant by setting up
another grinding unit of 0.45 million tones per year that was commissioned in
2008. The company is also currently increasing the capacity of its Chittagong
plant by installing another grinding unit of 0.75 million tones per year expected
to be commissioned by end of 2011.
Page 7
hardening
and
increased
resistance
results
in
Absorbing
European
Norms
in
cement
producing
made
Heidelberg Cement Bangladesh Ltd. the pioneer in this sector. Now-adays all the cement factories of Bangladesh are producing cement as
per European Norm. The category Portland Composite Cement (CEM
II) is the market leader in Europe.
Page 8
Cement produced according to the BDS EN: Scan Cement and Ruby
Cement are designed to achieve the best characteristics for its customers;
this result is achieved by design using clinker and high quality other
constituents. PCC has the optimum of: Durability, Long-term strength and
workability. Scan Cement and Ruby Cement are produced according to the
European norm.
Lime-stone and lime-products: Limestone aggregates, limestone
Page 9
2008
0.32x
2007
0.261x
Industry Average
1.58x
Table-1
Figure-1
At 2007,it is revealed that the firm has used a huge amount of debt, because of
poor liquidity condition within the firm. It couldnt use its assets properly to
cover the current liabilities by converting current assets into cash. Though its
DSO is less or equal to 8days, inventories are not used properly to generate the
sales. So all means of generate the returns is depressing. Thus has a very poor
current ratio, is .261% less than industry average rate.
Page 10
But in 2008, though the DSO is presenting a high deliberate in paying cash
credit, usage of current assets and fixed assets start improving for paying the
debt interest somehow. And inventory turnover is also increased. Thus the ratio
is also increased in 2008 is .32%.
And managing of both financial and current assets are improving in 2009 and
DSO is equal to the average industry point. And the order of the debt ratio is
also increased in 2009 and it all paid in liquid cash. But the usage of inventories
is more than last two years in 2009. And a large portion of debt is paid on cash.
It shows the reason why the firms current ratio is somewhat less than from
2008, is .31%.
2008
0.17x
2007
0.127x
Industry average
1.05x
Table-2
Figure-2
In 2007 the amount if inventory used is less than any other year in the firm, but
still firm has lacked behind in managing in asset, both fixed and current assets
that can meet the current liabilities. And the account receivables are also very
Page 11
low. Thus company has poor amount of liquidity cash in hand. All this turns the
ratio 0.127 in 2007.
In 2008, the company has started improving its asset management. Thus the
receivables also in increased but DSO is taking a long time to paying the credit
sale. And its liquidity of money is still lacked behind. And still the firm has to pay
a huge current liabilities or debt interest. Thus its ratio has come in a slight
improved way and it is 0.17.
But in 2009, the company has managed its debt interest by managing its current
asset. But as firm has paid huge amount of interest, automatically the firm has
less liquidity of cash in hand. Thats why its ratio is decreased to 0.147 times.
2008
37 days
2007
8 days
Industry average
19 days
Table-3
Figure-3
The DSO represents the average length of the time the firm must wait after
making sales before receiving cash, which is the average collection period. At
Page 12
2007, firm has 8 days outstanding, customers paying credit sales much earlier at
8days, comparing to industry period.
But at 2008, the customers are delaying the credit sales. Thus it takes 37 days
much than average rate. And the last year,
At 2009 it shows that the company managed to collect its credit sales in 19
days, which is equal to the industry average.
2008
3.4x
2007
2.79x
Industry average
5.02x
Table-4
Figure-4
In 2007, it is shown on the analysis, that the firm is not used its current assets
properly, as well as cannot utilized its inventories properly to generated sales.
May be there are some unused inventories, or some obsolete inventories. Thus
the ratio is less then industry level is 2.79x.
In 2008, company has started using its asset management in an exact way.
Also, increased its inventory utilization. Thus it generated sales greater than
2007. And it shows the ratio to increased to 3.4x.
Page 13
And lastly in 2009, the firm has met its financial obligations in a better way. And
used its inventory to generate a better sales. Thus the ratio is improved to
3.74%. But still less than industry level, cause there must be some problem lies
with the entire firms management of both financial, current assets and debt
management. A great share of income is used for paying the interest. So there is
automatically alteration in the income statement where it is shown that, the
contribution margin is still undersized to cover up the whole fixed expenses or it
be converted into in a smaller percentage with relation of earn a higher
profitability margin.
2008
0.41x
2007
.15x
Industry Average
2.58x
Table-5
Figure-5
Page 14
In 2008, fixed asset ratio increased to 0.41 times that means the company has
been able to increase their sales and started to lower their investment in fixed
assets. But the score is not good enough because it is less than one times.
In 2009, fixed assets turnover is 0.51 times which indicates that it is gradually
increasing their sales by using their fixed assets properly. But they are not using
their fixed assets like the other firms of the industry. The industry average of
fixed asset turnover is 2.58 times whereas the fixed assets turnover for Lafarge
Surma Cement is only 0.51 times which indicates that they are not efficient to
utilize their fixed assets like the other firms in the industry.
2008
0.35x
2007
0.135x
Industry Average
2.62x
Table-6
Figure-6
The total asset turnover ratio measures the ability of a company to use its assets
to generate sales. In 2007 it is only 0.135 times. The reason of low total asset
turnover is that there is a problem of using the assets properly.
In 2008, the total asset turnover has increased from 0.135 times to 0.35 times
which indicates that the firm is able increase their sales in this year but not good
enough.
Page 15
In 2009, total asset turnover has increased from 0.35 to 0.44 times by
increasing their sales but still it is below the industry average. The reason of low
total asset turnover is a problem with the asset categories composing total
assets - inventory, receivables, or fixed assets.
inventory. The firm is holding obsolete inventory and not selling inventory fast
enough. With regard to accounts receivable, the firm's collection period is
fluctuating and credit accounts may be on the books too long. Fixed assets, such
as plant and equipment, could be sitting idle instead of being used to their full
capacity. There is also liquidation problem of current assets. All of these issues
lower the total asset turnover ratio of Lafarge Surma Cement.
2008
80.7%
2007
81.6%
Industry average
45%
Table-7
Figure-7
It shows the debt financing in the firm. At 2007, company has used 81.6%debt.
Means its creditors have supplied about most of the firms total financing. It
shows that it is the sales are lower, or the net income is also lower. And expected
costs are also high, as there is a problem lies with operational obligations and
Page 16
2008
2007
Industry average
7.79x
1.84x
-0.3x
10.03x
Table-8
Figure-8
Page 17
But in 2008, company has started paying its debt interest, and sales was raising
or net income was rising. Thus usage of assets both current and fixed was
increased in 2008. So, the change is taken place in 2008 and the TIE has come
1.84%.
And in 2009, the firm has earned a greater operating profit due to increase in
sales, and it helps to cover the fixed operating cost. And, also the debt ratio has
reduced to 74%. As the operating profit has increased thus it results an
improved percentage in TIE and this is 2.6%. But still lacking behind the
industry level, cause may be they used a huge amount of debt, and the
management does not properly finance the management of operation. And there
is insufficiency of liquid cash. Certainly firm has a great difficulty dealing with
this under-poor situation. So, the firm has lack behind.
2008
1%
2007
-6.1%
Industry Average
8.15%
Table-9
Figure-9
Page 18
In 2007, ROA is -6.1% it indicates that they have incurred loss in 2007 and the
reason is using of huge debt and poor asset management to generate sales.
In 2008 the increase to 1% because they have use lot of debt which is almost
80% and the current assets have been used for the problem of huge debt for
that their sales gone down and net income decline.
In 2009 the ROA has again increased to 5.75% because they have lowered their
debt and paid up some debt and sales and net income also increased but that is
still below the industry average. The reason is that the firm is not using their
assets efficiently to increase the revenue of the firm. They have liquidation
problem of current assets and also using huge debt above the average level of
industry average.
2008
5.15%
2007
-33.6%
Industry Average
17.05%
Table-10
Figure-10
Page 19
In 2007, ROE for Lafarge Surma Cement is -33.6%. ROE is negative because
firm is using 81.6% debt which is very higher they are using more debt for their
investment rather than common equity and for using more debt and poor asset
management they have incurred loss as a result there is no earning available for
common stockholders in 2007.
In 2008, ROE increased to 5.15%. It indicates that for each dollar of common
equity there is a return of tk. 0.0515. They have profit in this year because they
have improved their asset management and just able to make a profit though
they have huge debt.
In 2009, ROE increased to 22.4% and it is above industry average. It indicates
that they are able to use the common equity efficiently than the other firms.
They have paid up some.Profit goes up as a result ROE also goes up.
2008
2.84%
2007
-45.6%
Industry average
8.33%
Figure-11
In industry average it is 8.33%. Thus at 2007, the company has huge gap in
managing their operational obligations and asset management. The usage of
debt is also high. For large amount of debt it has to pay a large interest
Ratio Analysis of Lafarge Surma Cement Ltd.
Page 20
payment. Thus companys EBIT is also low. And all these caused a negative or
loss in profit margin on sale and it is 45.6%.
But as it has mentioned that company gradually starts using its current assets,
inventory or fixed assets a good way, it caused the profit margin to increased by
2.84%.
And at the end year at 2009, it has come 13.19%. That indicates the company is
increasingly boosted its current asset management, as well as its operational
functions. Thus manage its inventory to generate the sales largely. Thus EBIT
also increased. So it has crossed the industry level average.
2008
168.75x
2007
N/A
Industry Average
71.12x
Table-12
Figure-12
Due to a huge loss in 2007, the company does not provide the P/E ratio. Thus it
cannot be determinened.
But in 2008, the company may gain favorable earnings that can satisfy the
shareholders wealth. Thus demands on investing the shares on Lafarge Company
Page 21
have 168.75, which is greater than the industry average level. It shows that
company may have a potential high growth that fascinated the investors mind
for invest money at this point. For every dollar of earnings investors are like to
pay 168.75%.
In 2009, the company has paid a huge amount of debt as interest. And it
decreases the amount of profit or income though the sales are high in 2009. It
reduced the income of shareholders or may be for unfavorable circumstance in
economy or market condition. So the P/E ratio has decreased to 29.46% less
than industry level.
2008
8.69x
2007
N/A
Industry Average
4.86x
Table-13
Figure-13
In 2008, the M/B ratio is 8.69 times which means for each dollar of book value
by 8.69 times larger price the share is selling in the market.
In 2009, we can see that the M/B ratio decreased to 6.62 times which is above
the industry average but the ratio is fluctuating. That means in 2008 people
Ratio Analysis of Lafarge Surma Cement Ltd.
Page 22
were more excited about the future prospects of the common stock as an
investment than in 2009. The reason fluctuating may be people may feel that
the firm has poor asset management and liquidity problems.
II.
III.
IV.
The DSO is also very fluctuating over time. It couldnt fix its time of credit
period.
V.
Recommendations:
I.
Company should manage its both current asset management and financial
obligations efficiently.
II.
The percentage of debt ratio must be lowered for saving the company
from the risk of bankruptcy.
III.
IV.
Firm may try to boost its position where it can automatically attracted
more investors for further expansion.
7.0 CONCLUSION:
Page 23
From the above content we can conclude that in liquidity ratios Lafarge Surma
Cement Ltd are below industry average and the values are far away from the
industry
average.
So
they
definitely
have
liquidity
problem.
In
asset
management Lafarges position is not good. They are lagging behind from the
other companies in this industry. Their inventory turnover, fixed asset turnover
and total asset turnover are improving every year but good enough. There DSO
is just as the industry average but it is fluctuating every year. So they have poor
asset management. They are inefficient in managing current and fixed assets.
They are using a huge debt which is a great risk of bankruptcy to the company.
Their debt ratio is higher than the industry average. Times interest earned is
below the industry average but it is improving each year. In profitability ratios
ROA is below industry average but ROE and profit margin is above industry
which means they are trying to improve their asset management and liquidity
position. In market ratios we can see that they have a good position in 2008 but
in 2009 it declined though the ratios are above industry average. That means
people are becoming less interested to the company than the previous year. So
to improve from the current situation they need to improve their asset
management, liquidity position and use low debt and must be strict in receiving
credit sales and finally try to attract the customers through expansion of firm.
Page 24
APPENDIX
CURRENT RATIO
Page 25
2007:
Current Ratio =
= 0.261x
2008:
Current Ratio =
= 0.32x
2009:
Current Ratio =
= 0.31x
Ratio Analysis of Lafarge Surma Cement Ltd.
Page 26
Quick Ratio
2007:
Quick Ratio =
= 0.127x
2008:
Quick Ratio =
= 0.17x
2009:
Quick Ratio =
Page 27
= 0.147x
Inventory Turnover
2007:
= 2.787x
2008:
Page 28
= 3.4x
2009:
= 3.74x
2007:
DSO =
= 8.48 Days
2008:
Page 29
DSO =
= 37 Days
2009:
DSO =
= 19 Days
2007:
Page 30
= 0.149x
2008:
= 0.407x
2009:
= 0.506x
Page 31
2007:
= 0.135x
2008:
= 0.35x
2009:
= 0.436x
Page 32
Debt Ratio
2007:
Debt Ratio =
= 81.64%
2008:
Debt Ratio =
=
= 0.80
= 80%
2009:
Debt Ratio =
Page 33
=
= 0.74
= 74%
2007:
TIE =
=
= -0.3x
2008:
TIE =
= 1.84x
Page 34
2009:
TIE =
= 2.6x
2007:
ROA =
= -.061
= -6.1%
2008:
Page 35
ROA =
= 0.01
= 1%
2009:
ROA =
= 0.0575
= 5.75%
Return on Equity (ROE)
2007:
ROE =
Page 36
= -0.336
= -33.6%
2008:
ROE =
= 0.0515
= 5.15%
2009:
ROE =
= 0.224
= 22.4%
2007:
Page 37
= -0.456
= -45.6%
2008:
= 0.0284
= 2.84%
2009:
= 13.19%
Page 38
2007:
= N/A
2008:
= 168.75x
2009:
Page 39
= 29.46x
2007:
Market/Book Ratio =
= N/A
2008:
Market/Book Ratio =
= 8.695x
2009:
Page 40
Market/Book Ratio =
= 6.62x
Meghna Cement:
Current Ratio =
=
= 1.29x
Heidelberg Cement:
Current Ratio =
=
= 2.03x
Page 41
Confidence Cement:
Current Ratio =
=
= 1.42x
Industry Average =
= 1.58x
Quick Ratio
Meghna Cement:
Quick Ratio =
=
= 0.795x
Heidelberg Cement:
Quick Ratio =
Page 42
=
= 1.52x
Confidence Cement:
Quick Ratio =
=
= 0.83x
Industry Average =
= 1.05x
Inventory Turnover
Meghna Cement:
Page 43
= 5.09x
Heidelberg Cement:
=
= 6.29x
Confidence Cement:
=
= 3.66x
Industry Average =
= 5.02x
Meghna Cement:
Page 44
DSO =
=
= 22 Days
Heidelberg Cement:
DSO =
=
= 29 Days
Confidence Cement:
DSO =
=
= 5 Days
Industry Average =
= 19 Days
Page 45
=
= 4.29x
Heidelberg Cement:
=
= 2.72x
Confidence Cement:
=
= 0.723x
Industry Average =
= 2.58x
Page 46
Meghna Cement:
=
= 1.439x
Heidelberg Cement:
=
= 1.2x
Confidence Cement:
Page 47
= 0.52x
Industry Average =
= 2.62x
Debt Ratio
Meghna Cement:
Debt Ratio =
=
= 81.1%
Heidelberg Cement:
Debt Ratio =
=
= 0.3413
= 34.13%
Page 48
Confidence Cement:
Debt Ratio =
=
= 0.1958
= 19.58%
Industry Average =
= 45%
Meghna Cement:
TIE =
=
= 1.97x
Heidelberg Cement:
Page 49
TIE =
=
= 7.79x
Confidence Cement:
TIE =
=
= 20.41x
Industry Average =
= 10.03x
Meghna Cement:
ROA =
Page 50
=
= 0.0481
= 4.81%
Heidelberg Cement:
ROA =
=
= 0.1410
= 14.10%
Confidence Cement:
ROA =
=
= 6.17%
Industry Average =
= 8.15%
Page 51
Meghna Cement:
ROE =
=
= 0.2181
= 21.81%
Heidelberg Cement:
ROE =
=
= 0.2141
= 21.41%
Confidence Cement:
ROE =
=
= 0.0793
= 7.93%
Industry Average =
= 17.05%
Page 52
Meghna Cement:
=
= 2.19%
Heidelberg Cement:
=
= 0.118
= 11.8%
Confidence Cement:
=
= 11.8%
Page 53
Industry Average =
= 8.84%
Meghna Cement:
=
= 174.66x
Heidelberg Cement:
=
= 14.24x
Confidence Cement:
Page 54
=
= 1.94x
Industry Average =
= 71.12x
Meghna Cement:
Market/Book Ratio =
=
= 10.62x
Heidelberg Cement:
Market/Book Ratio =
Page 55
= 2.01x
Confidence Cement:
Market/Book Ratio =
=
= 1.94x
Industry Average =
= 4.86x
Page 56