TERM PAPER

ON
“Comparative Analysis with Dividend Policy & Capital Structure of
Two Manufacturing Companies”

SUBMITTED TO:

MS. TASMIA TAHLIL

Assistant Professor
Department of Finance
Faculty of Business Studies
Premier University, Chittagong

SUBMITTED BY:

Ismail Hasan
BBA (Finance A)
Batch: 26th
ID: 12-026-1-01-05843
Faculty of Business Studies
Premier University, Chittagong

SUBMISSION DATE:

March 15th, 2018

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 LETTER OF SUBMISSION

Date: March 15th, 2018

To

The Honorable Supervisor

Faculty of Business Studies

Premier University, Chittagong

Subject: Submission of the term paper.

Dear Madam,

It gives me immense pleasure to submit the report on “Comparative Analysis with Dividend
Policy & Capital Structure of manufacturing companies”. This report is submitted as
requirements to fulfil the degree of Bachelor of Business Administration.

I am thankful to you, as you have allowed me to conduct the internship and to submit the report.
I hope that the report will meet the standard and will serve its purpose.

Sincerely yours,

Ismail Hasan
BBA (Finance A)
Batch: 26th
ID: 12-026-1-01-05843
Faculty of Business Studies
Premier University, Chittagong

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 Acknowledgements

It is high time for me to express my deepest gratitude and humble submission to the almighty
Allah but for whose support I would not be able to complete a huge task of preparing this term
paper within the scheduled time.

Term paper is an essential part of BBA program as one can gather practical knowledge within the
period of chosen organization. At first, I would like to pay my gratitude to my supervising
teacher MS. Tasmia Tahlil , BBA Program, Faculty of Business Studies for her guidelines for
preparing this Internship Report.

I am also indebted to all of the peoples who extended their wholehearted cooperation to me
despite their huge workload during my Practical Orientation.

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 TABLE OF CONTENTS

Serial Number Topic Name Page Number

Tittle Page i
Letter of Transmittal ii
Acknowledgement iii
Table of Content iv
Executive Summary v
Chapter- One Introductory Aspects 1
1.1 Background of The Study 2
1.2 Rational The Study 2
1.3 Scope of the Study 2
1.4 Objectives of the Study 2
1.5 Methodology of the Study 3
1.6 Limitations of the study 3
Chapter- Two Theoretical Aspects 4
2.1 Dividend Policy 5-8
2.2 Capital Structure 9-11
Problems Related to Dividend Policy and Capital Structure of
2.3 12
both the Companies
Chapter- Three Findings and Analysis 13
3.1 Company Background 14-17
3.2 Findings and analysis 18
Dividend Payout Ratio 18-19
Dividend Yield 20-21
Degree of Operating Leverage 22-23
Degree of Financial Leverage 24-25
Debt to Asset Ratio 26-27
Debt to Capital Ratio 28-29
Debt to Equity Ratio 30-31
3.3 SWOT Analysis 32-33
Chapter- Four Conclusionary Aspects 34
5.1 Recommendation 35
5.2 Conclusion 36
5.3 Bibliography 37
Chapter- Four Ending Matters 38
APPENDIX 39-48

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 Executive Summary
I have been taught extensively about the importance as the techniques of financial Statement
analysis. As such, this term paper required me to analyze the Dividend Policy and Capital
Structure of two cement manufacturing companies of Bangladesh".

This report is based on two manufacturing companies of Bangladesh: Heidelberg Cement

Bangladesh Limited (HCBL), Olympic Cement Limited. My Purpose was to find the real life
implications of the study materials. This report is divided into two parts.

Firstly I focused on the individual analysis of the companies in terms of various ratio
measurements to evaluate their performance for the last 3 years, 2014 to 2016. Here, I showed
whether the companies are following in particular trend or not. All the two companies are
evaluated separately on the basis of Dividend Policy and Capital Structure analysis.

Secondly I provided the Industrial Analysis. Here I have compared together all the information.
My focus and medium of comparison was based on the ratios of the above mention dimensions.
Based on these comparisons I tried to find out the two manufacturing companies position of the
manufacturing companies of Bangladesh.

Thus this report provided me with a bird's eye view of the financial statement analysis of the two
stated companies of the manufacturing companies of Bangladesh.

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 Chapter 1
Introductory Aspects

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1.2 Background of the study:

In this term paper I have analyzed the Dividend policy and Capital structure of the Olympic
Cement Ltd. and Heidelberg Cement Bangladesh Limited by observing the previous three years
data and by using the degree of operating leverage analysis, degree of financial leverage analysis
and debt to capital, debt to asset and debt to equity ratio analysis. Financial analysis is the
process of reviewing and analyzing a company's financial statements to make better economic
decisions. These statements include the income statement, balance sheet, statement of cash
flows. Dividend policy and Capital structure analysis is a method or process involving specific
techniques for evaluating risks, performance, financial health, and future prospects of an
organization.

1.2 Rational of the study:

After completing our academic life, we are going to start a much broader practical life. Our
thoughts will no more reflect by imagined mirror, so we have to face the reality.

Bachelor of Business Administration (BBA) is one of the most dynamic courses in this
competitive world. Bangladesh is a treasure-trove, but was still in the list of most poor countries.
We are very much needed by qualified persons, new ideas, to utilize our resources and for
development of entrepreneurship. For this why we need to convert our knowledge into practical.
In this case term paper is very much beneficiary for a student of business.

1.3 Objectives of the Study

The broad objective of the research is to access the terminologies related to dividend policy &
capital structure, the research is expected to know the Followings:

 To know the mechanism of dividend policy.

 To know what is function of dividend policy & capital structure.
 To calculate dividend payout ratios, dividend yield, degree of operating leverage, degree
of financial leverage etc.
 To know how affects dividend policy & capital structure in an economy.

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  To know the problems and prospects of dividend policy & Capital structure of the related
companies.

1.4 Methodology

This study or report is completed by using the secondary data.

Secondary Data

 Internet
 Website
 Books
 Journals

1.5 Limitations of the Report

Everything has its limitations. My report is not also out of this weakness. For some certain
causes, I could not effort to conduct my report properly. I have considered the following causes
as the limitations of the study.

1. The information was hard to obtain from the website.

2. Lack of knowledge on the topic.

3. Lack of experience.

4. Time restrictions.

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 Chapter 2
Theoretical Aspects

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Dividend Policy:

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.

Types of Dividend

A dividend is generally considered to be a cash payment issued to the

holders of company stock. However, there are several types of dividends,
some of which do not involve the payment of cash to shareholders. These
dividend types are:

1. Cash Dividend

A cash dividend is the most common form of dividend, and it is one that the test focuses on. A
corporation will send out a cash payment in the form of a check directly to the stockholders. For
those stockholders who have their stock held in the name of the brokerage firm, a check will be
sent to the brokerage firm and the money will be credited to the investor’s account. Securities
held in the name of the brokerage firm are said to be held in “street name.” To determine the
amount that an investor will receive, simply multiply the amount of the dividend to be paid by
the number of shares.

Dividend payouts follow a set procedure. To understand it, first we'll define the following terms:

i. Declaration Date
The declaration date is the day the company's board of directors announces approval of
the dividend payment.

ii. Ex-Dividend Date

The ex-dividend date is the date on which investors are cut off from receiving a dividend.
If, for example, an investor purchases a stock on the ex-dividend date, that investor will
not receive the dividend. This date is two business days before the holder-of-record date.
The ex-dividend date is important because from this date forward, new stockholders will

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 not receive the dividend, and the stock price reflects this fact. For example, on and after
the ex-dividend date, a stock usually trades at a lower price as the stock price adjusts for
the dividend that the new holder will not receive.

iii. Holder-of-Record Date

The holder-of-record (owner-of-record) date is the date on which the stockholders who
are eligible to receive the dividend are recognized.

iv. Payment Date

Last is the payment date, the date on which the actual dividend is paid out to the
stockholders of record.

2. Stock Dividend

A corporation that wants to reward its shareholders, but also wants to conserve cash for other
business purposes, may elect to pay a stock dividend to their shareholders. With a stock
dividend, each investor will receive an additional number of shares based on the number of
shares that they own. The market price of the stock will decline after the stock dividend has been
distributed to reflect that there are now more shares outstanding, but the total market value of the
company will remain the same.

Dividend Yield = Annual Dividend / Current Stock Price

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3. Property dividend

A company may issue a non-monetary dividend to investors, rather than

making a cash or stock payment. Record this distribution at the fair
market value of the assets distributed. Since the fair market value is likely
to vary somewhat from the book value of the assets, the company will
likely record the variance as a gain or loss. This accounting rule can
sometimes lead a business to deliberately issue property dividends in
order to alter their taxable and/or reported income.

4. Scrip dividend

A company may not have sufficient funds to issue dividends in the near
future, so instead it issues a scrip dividend, which is essentially a
promissory note (which may or may not include interest) to pay
shareholders at a later date. This dividend creates a note payable.

5. Liquidating dividend

When the board of directors wishes to return the capital originally

contributed by shareholders as a dividend, it is called a liquidating
dividend, and may be a precursor to shutting down the business. The
accounting for a liquidating dividend is similar to the entries for a cash
dividend, except that the funds are considered to come from the
additional paid-in capital account.

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Dividend Payout Ratio

Dividend payout ratio compares the dividends paid by a company to its earnings. The
relationship between dividends and earnings is important. The part of earnings that is not paid
out in dividends is used for reinvestment and growth in future earnings. Investors who are
interested in short term earnings prefer to invest in companies with high dividend payout ratio.
On the other hand, investors who prefer to have capital growth like to invest in companies with
lower dividend payout ratio.

Dividend payout ratio differs from company to company. Mature, stable and large companies
usually have higher dividend payout ratio. Companies which are young and seeking growth have
lower or modest dividend payout ratio.

Dividend Payout Ratio = Dividend per Share / Earnings per Share (EPS) x 100%

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2.2 Capital Structure

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

What is 'Leverage'

Leverage is the investment strategy of using borrowed money: specifically, the use of
various financial instruments or borrowed capital to increase the potential return of an
investment. Leverage can also refer to the amount of debt used to finance assets. When one
refers to something (a company, a property or an investment) as "highly leveraged," it means that
item has more debt than equity.

Degree of Operating Leverage:

DOL measures the percentage changes in Net Operating Income (NOI or EBIT) with a given
changes in sales. The greater the DOL for a particular level of operations the more sensitive
EBIT will be to the changes in sales volume. The higher DOL is better for the firm. DOL is
concern with the upper portion of an income statement.

DOL = Gross Profit / EBIT

Degree of Financial Leverage:

Degree of Financial Leverage measures the percentage change in EPS that results from a given
changes in EBIT. The greater the Degree of Financial Leverage for a particular level of
operations the more sensitive EPS will be to the changes in EBIT. The lower Degree of Financial
Leverage is better for the firm. Degree of Financial Leverage is concern with the lower portion
of an income statement.

DFL = EBIT / (EBIT-Interest)

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Degree of Total Leverage:

The degree of total leverage is the proportional change in net income associated with a given
change in revenues. It is a combination of the degree of operating leverage and the degree of
financial leverage. When a company has a large amount of operating and financial leverage, even
a modest change in its sales can trigger a substantial change in its profitability. The degree of
total leverage can be calculated by dividing the percentage change in earnings per share by the
percentage change in sales.

Capital Structure Theory:

According to Pure MM theory, a firm should use almost 100% debt financing to minimize cost
by reducing tax. But this theory is not practical in nature and square do not follow Pure MM
theory. Extended MM theory suggested that use an optimum level of debt and equity that will
minimize cost. We see square debt / asset ratio is not very high in any year that means they use
more equity capital. So we can say that square does not follow pure MM theory.

Debt to Asset Ratio

The debt to asset ratio is a leverage ratio that measures the amount of total assets that are
financed by creditors instead of investors. In other words, it shows what percentage of assets is
funded by borrowing compared with the percentage of resources that are funded by the investors.

Basically it illustrates how a company has grown and acquired its assets over time. Companies
can generate investor interest to obtain capital, produce profits to acquire its own assets, or take
on debt. Obviously, the first two are preferable in most cases.

Debt to Asset Ratio = Total Debt/Total Asset

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Debt to Capital Ratio

The debt to capital ratio is a liquidity ratio that calculates a company’s use of financial leverage
by comparing its total obligations to total capital. In other words, this metric measures the
proportion of debt a company uses to finance its operations as compared with its capital.

This ratio is really a measure of risk and allows us to calculate how well a company can handle a
down turn in sales because it highlights the relationship between debt and equity financing.
Financing operations through loans carries some level of risk because the principal and interest
must be paid to the lender. Thus, companies with higher ratios are considered more risky because
they must maintain the same level of sales in order to meet their debt servicing obligations. A
down turn in sales could spell solvency issues for the company.

Debt to Capital Ratio = Total Debt/(Total Debt + Shareholders Equity)

Debt to Equity Ratio

The debt to equity ratio is a financial, liquidity ratio that compares a company’s total debt to total
equity. The debt to equity ratio shows the percentage of company financing that comes from
creditors and investors. A higher debt to equity ratio indicates that more creditor financing (bank
loans) is used than investor financing (shareholders).

Debt to Equity Ratio = Total Liabilities/Total Equity

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2.3 Problems Related to Dividend Policy and Capital Structure of both the Companies:

Problems that are faced by the Olympic Cement Limited and Heidelberg are stared bellow:

 As Heidelberg a German based cement manufacturing firm they need not depends on
long term leverages but should focus mostly on short term cash flows.
 Olympic Cement Limited needs to strategic focus on credit collection procedure for
maintaining short term cash flows and growth in profitability.
 Olympic Cement Limited has prospect in market as their export is growing majestically
but need to correlate sales and inventory management much more proficiently.
 Dependency on long term loans are growing Olympic Industry Limited but utilization of
that amount in different portfolio is generally important. Interest payment may keep
upward pressure in future for Olympic Industry Limited.
 Olympic Cement Limited and Heidelberg both have elementary pressure in cost
management functions as growth is running arithmetic order.
 Investment portfolio for both the organization need to diversify in value generating
criterion as ordinary shareholders focus on growth of a firm and required fruitful returns
on their investments.
 Olympic Cement Limited requires capturing feasible market promptly with multi-
dimensional marketing tools and tactics and main focus point must be wealth generation
for stakeholders.

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 Chapter 3

Findings and Analysis

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3.1. The Companies Being Studied At a Glance:

For the dividend policy and capital structure analysis I have choose the Heidelberg Cement
Bangladesh Limited (HCBL) and Olympic industries companies in Bangladesh.

Heidelberg Cement Bangladesh Limited (HCBL)

Heidelberg Cement Bangladesh Ltd. is one of the group companies of Heidelberg Cement
Group, founded in Germany in 1873, with its core products being cement, ready-mixed concrete,
aggregates and related activities, is one of the leading producers of building materials worldwide.
The group employs around 43,000 people in more than 50 countries.

Heidelberg Cement Bangladesh Limited meets 13% of the Bangladesh demand for cement from
two plants located at Dhaka & Chittagong.

Heidelberg Cement Bangladesh Limited employs 260 people across the country. The company
with1.5 million tones 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 in Bangladesh .In Bangladesh, Heidelberg group is one of the
largest foreign investors having an investment of 100 million US$ with 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.

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Brief History

Heidelberg Cement Bangladesh Limited employs 260 people across the country. The company
with 1.5 million tones annual cement production has become a major force in the Bangladesh
Cement industry over the last eight year 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 in Bangladesh.

In Bangladesh, Heidelberg group is one of the largest foreign investors having an investment of
100 million US$ with 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.

Mission

 Market Strategy:
Building growth on a solid base of earnings.
 Customer Philosophy:
Building customer satisfaction, because their success is the success of the company.
 Quality Standard:
Building on quality products to build reputation.

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Olympic Cement Limited.

It is the most famous company in Bangladesh. It was established in 1979 but their converted into
public limited company in 1982. It is the first position among all national multinational private
and public of manufacturing company of Bangladesh. Their mission is to produce and provide
quality healthcare relief of people, maintain strongly ethical standard in business operation also
ensuring benefit to the shareholder, stakeholder, and society.
Mission Statement

 Maintain their leadership position in the cement industry by producing the best quality
products for their consumers that are unique, innovative and delicious
 Protect the interest of their shareholders through fiscal prudence
 Be an employer of choice while developing future leaders for their organization and the
country
 Be stewards of social responsibility in Bangladesh through our initiatives.
 They believe that quality and integrity is the recipe of our success. Now the leader in the
biscuit market, we were only able to get to where we are today by staying true to our core
values and by developing new quality products we believe our customers will love.

Stakeholders

No CSR program is honest and solid without changes from within. A company which is serious
about corporate responsibility must commit to making itself better first. As such, they will focus
on projects which improve the life of workers, their close communities, and the environments we
directly affect. After the first initial years, we plan to expand their projects outward, eventually
reaching more distant communities and stakeholders.

Exports

Olympic is the largest cement manufacturer in Bangladesh. We have seven biscuit production
lines, three confectionery lines and a bakery line. Olympic’s products are synonymous with
quality, as represented by its market share and consumer confidence in our products. Consumers

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buy our products because of our dedication towards producing safe and hygienic products.
Olympic was the first cement manufacturer in Bangladesh to be ISO 22000 certified.

Brands

Energy Plus, Tip and Nutty are three of the most widely sold biscuits in Bangladesh and are all
premier constituents of our product portfolio. Over the past two decades, we’ve introduced new,
unique and innovative products never offered before in Bangladesh. And our entire team is
working hard to cook up new recipes to satisfy your every craving.

Investors

Olympic is publicly listed on both national stock exchanges in Bangladesh. And we’re also a
constituent of the Dhaka Stock Exchange’s DSE30 index. We’re constantly thinking of ways to
make our amazing company even better. We think we’re pretty unique and we hope you’ll think
so too.

Sustainability

Living in Bangladesh, we have experienced firsthand how important sustainable practices are to
a company and to its stakeholders. We have recently committed to taking on environmental,
social and governance challenges in order to become a better corporate citizen.

Vision

Their vision is social wellbeing of the investors, employee and society at large, wealth financial
and moral gains as a part of the process of the human civilization. Their objectives are to conduct
transparent business operation based on market mechanism within the legal & social frame work.

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3.2 Findings and analysis

1. Dividend Payout Ratio

Calculating the Dividend Payout Ratio for Heidelberg Cement Bangladesh Limited (HCBL)

Dividend Payout Ratio = Dividend per Share / Earnings per Share (EPS) x 100%

2014 2015 2016

Dividend per Share 37.15 37.10 37.19

Earnings per Share 20.88 24.81 26.69

Dividend Payout Ratio 177.92% 149.54% 139.34%

It is seen from the above calculation that the dividend payout ratio of the Heidelberg Cement
Bangladesh Limited (HCBL) is in a decreasing trend which means the firm is paying less
dividends to its shareholders compare to its earnings, which also signifies that the firm is holding
more retain earnings for the firm.

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Calculating the Dividend Payout Ratio for Olympic Cement Limited (OCL)

Dividend Payout Ratio = Dividend per Share / Earnings per Share (EPS) x 100%

2014 2015 2016

Dividend per Share 0.38 1.16 2.36

Earnings per Share 5.48 5.75 8.54

Dividend Payout Ratio 6.93% 20.17% 27.63%

It is seen from the above calculation that the dividend payout ratio of the Olympic Cement
Limited is in a increasing trend which means the firm is paying more dividends to its
shareholders compare to its earnings, which also signifies that the firm is holding less retain
earnings for the firm.

Dividend Payout Ratio Comparison:

From the dividend payout ratio we see that the ratios are decreasing every year for the
Heidelberg Cement Bangladesh Limited but on the other hand we see that the ratios are
increasing every year for Olympic Cement Limited. So it is clear that Olympic Cement Limited
is paying dividend to its shareholders compare to Heidelberg Cement. This will encourage more
investor to the Olympic cement to invest in their company.

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2. Dividend Yield

Calculating the Dividend Yield Ratio for Heidelberg Cement Bangladesh Limited (HCBL)

Dividend Yield = Annual Dividend / Current Stock Price

2014 2015 2016

Annual Dividend 2101721000 2096324000 1672451000

Current Stock Price 157 157 157

Dividend Yield 13386757.96 13352382.17 10652554.14

It is seen from the above calculation that the dividend yield ratio of the Heidelberg Cement
Bangladesh Limited (HCBL) is decreasing trend which means the firm is paying less
dividends to its shareholders compare to its earnings.

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Calculating the Dividend Yield Ratio for Olympic Cement Limited (OCL)

Dividend Yield = Annual Dividend / Current Stock Price

2014 2015 2016

Annual Dividend 72031154 221637244 449641243

Current Stock Price 132 132 132

Dividend Yield 545690.6 1679070 3406373.1

It is seen from the above calculation that the dividend yield ratio of the Olympic Cement
Limited is in a increasing trend which means the firm is paying more dividends to its
shareholders compare to its earnings.

Dividend Yield Ratio Comparison:

From the dividend yield ratio we see that the ratios are decreasing every year for the
Heidelberg Cement Bangladesh Limited but on the other hand we see that the ratios are
increasing every year for Olympic Cement Limited. It is clear that Olympic Cement Limited
is in a better position in case of dividend yield ratio. This will encourage more investor to the
Olympic cement to invest in their company to get a higher dividend yield.

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 3. Degree of Operating Leverage:

Calculating the degree of operating leverage for Heidelberg Cement Bangladesh Limited
(HCBL)

Degree of Operating Leverage = Gross Profit / EBIT

2014 2015 2016

Gross Profit 2012517000 2536974000 2741574000

EBIT 1307027000 1702475000 1946190000

Degree of Operating
Leverage 1.54 1.49 1.41

It is seen from the above calculation that the degree of operating leverage of the Heidelberg
Cement Bangladesh Limited (HCBL) is in a decreasing trend, as we know that a higher DOL
denotes a better sales position of the firm which means the firm’s sales is reducing every year
which is not a good sign for the company.

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Calculating the degree of operating leverage for Olympic Cement Limited (OCL)

Degree of Operating Leverage = Gross Profit / EBIT

2014 2015 2016

Gross Profit 2282579239 2635194734 3690754161

EBIT 1184915769 1427913160 2116440080

Degree of Operating
Leverage 1.93 1.85 1.74

It is seen from the above calculation that the degree of operating leverage of the Olympic
Cement Limited is in a decreasing trend as well, as we know that a higher DOL denotes a better
sales position of the firm which means the firm’s sales is reducing every year which is not a good
sign for the company. This will affect the firms operating income.

Degree of Operating Leverage Comparison:

The degree of operating leverage indicating that both the firms are facing sales problem because
we know that degree of operating leverage represents sales a higher degree of operating leverage
means a higher sales. So both the firms need to take necessary step to increase their sales which
will ultimately increase their profitability. We see that both the firm are in a similar position in
case of degree of operating leverage.

4. Degree of Financial Leverage:

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Calculating the degree of financial leverage for Heidelberg Cement Bangladesh Limited (HCBL)

Degree of Financial Leverage = EBIT / (EBIT-Interest)

2014 2015 2016

EBIT 1307027000 1702475000 1946190000

EBIT - Interest 1306856000 1684536000 1943676000

Degree of Financial 1.00013 1.01064 1.00129

Leverage

As we know the lower the degree of financial leverage the better it is for the firm, after
calculating the data collected from the Heidelberg Cement’s financial report we see that the
degree of financial leverage of the firm was the lowest in the year 2014 after that it increased a
little but then the company was able to bring down the DFL by stabilizing its operating income
which is a good sign for the company.

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Calculating the degree of financial leverage for Olympic Cement Limited (OCL)

Degree of Financial Leverage = EBIT / (EBIT-Interest)

2014 2015 2016

EBIT 1184915769 1427913160 2116440080

EBIT - Interest 1120674370 1329290758 2026807719

Degree of Financial Leverage 1.05732 1.07419 1.04422

The degree of financial leverage the better it is for the Olympic Cement Limited (OCL), after
calculating the data we see that the degree of financial leverage of the firm was the lowest in the
year 2016. Though it was a little higher in 2015, but then the company was able to bring down
the DFL. That signifies that the company can generate more operating income which is a good
sign for the company.

Degree of Financial Leverage Comparison:

In case of degree of financial leverage we can see from the above calculation that both the
companies are having lower financial leverage in the year 2016 which is a good sign the both the
companies. Degree of financial leverage also denotes that both companies are having a stabilized
EPS that is why their EBIT is not fluctuating enough throughout the year. We see that both the
firm are in a similar position in case of degree of financial leverage.

5. Debt to Asset Ratio

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Calculating the debt to asset ratio for Heidelberg Cement Bangladesh Limited (HCBL)

Debt to Asset Ratio = Total Debt/Total Asset

2014 2015 2016

Total Debt 3648857000 3992860000 4596897000

Total Asset 10172859000 9771707000 10188507000

Debt to Asset Ratio 0.36 0.41 0.45

From the above calculation it is seen that the Heidelberg Cement’s debt to asset ratio is in an
increasing trend, as we know that the debt to asset ratio signifies that how much of the total asset
are financed by borrowed fund, here we can see that the firm’s debt to asset ratio is increasing
every year which means they are taking more debt financing which is not good for the company
as they have to pay the due interest once the maturity is over.

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Calculating the debt to asset ratio for Olympic Cement Limited (OCL)

Debt to Asset Ratio = Total Debt/Total Asset

2014 2015 2016

Total Debt 3109495848 2382025686 2526239640

Total Asset 5048637186 5763679785 7604768208

Debt to Asset Ratio 0.62 0.41 0.33

From the above calculation it is seen that the Olympic Cement Limited’s debt to asset ratio is in
decreasing every year which means that their investors are more active in investing the firm’s
asset compare to the leverage, which is a good sign for the firm.

Debt to Asset Ratio Comparison:

After calculating debt to asset ratio we can see that Olympic Cement Limited is in a better
position than Heidelberg Cement Bangladesh Limited, because Olympic Cement is introducing
more equity financing to finance their assets in every year, on the other hand Heidelberg Cement
is taking more debts to finance its assets which ultimately increases the risk for the company.
From the above analysis it is clear that Olympic Cement Limited is in a better position than
Heidelberg Cement Limited in case of debt to asset ratio.

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 6. Debt to Capital Ratio

Calculating the debt to capital ratio for Heidelberg Cement Bangladesh Limited (HCBL)

Debt to Capital Ratio = Total Debt / (Total Debt + Shareholders Equity)

2014 2015 2016

Total Debt 3648857000 3992860000 4596897000

Shareholders’ Equity 605657000 565036000 565036000

Debt to Capital Ratio

0.86 0.88 0.89

From the above calculation it is seen that the debt to capital ratio of the firm is increasing in
every year which is not a good sign for the firm, because the ratio signifies the debt and equity
relationship in the capital of a firm. Here we see that Heidelberg Cement Bangladesh Limited is
taking more debt to finance their assets and to mitigate other needs which will increase the risk
associated with debt to repay the loan in time.

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Calculating the debt to capital ratio for Olympic Cement Limited (OCL)

Debt to Capital Ratio = Total Debt / (Total Debt + Shareholders Equity)

2014 2015 2016

Total Debt 3109495848 2382025686 2526239640

Shareholders’ Equity 1175419680 1586816560 1904179870

Debt to Capital Ratio

0.71 0.60 0.57

We can see that the debt to capital ratio of the Olympic Cement Limited is decreasing in every
year which is a good sign for the firm, because the firm is financing more equity than debt to
acquire their assets and meet other necessities, thus the firm can avoid the risk of paying debt in
due time which will increase their sales and income.

Debt to Capital Ratio Comparison:

As like the debt to asset scenario, in debt to capital Heidelberg Cement also introduced more
debts in its capital compare to Olympic Cement and it is increasing every year which not very
good for the firm as more debt comes with more liability. On the other hand Olympic Cement
Limited has a lower debt to capital ratio which is a good sign for the company.

From the above analysis it is clear that Olympic Cement Limited is in a better position than
Heidelberg Cement Limited in case of debt to capital ratio.

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 7. Debt to Equity Ratio

Calculating the debt to equity ratio for Heidelberg Cement Bangladesh Limited (HCBL)

Debt to Equity Ratio = Total Liabilities/Total Equity

2014 2015 2016

Total Liabilities 3648857000 3992860000 4596897000

Total Equity 6524002000 5778847000 5591610000

Debt to Equity Ratio 0.56 0.69 0.82

Debt to equity ratio signifies that the portion of debt and equity in the capital structure of a firm.
Here we can see that the Heidelberg Cement Bangladesh Limited’s debt to equity ratio is in an
increasing trend that refers that the company has taken more debt in its capital structure, which
not very good for the company, as there is risk involved with debt to pay the principle with
interest, so the company should try to reduce its debt by increasing more equity financing in their
capital structure thus their total sales will increase and as consequence EPS will increase as well
that will attract more investor to invest in the firm.

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Calculating the debt to equity ratio for Olympic Cement Limited (OCL)

Debt to Equity Ratio = Total Liabilities / Total Equity

2014 2015 2016

Total Liabilities 3109495848 2382025686 2526239640

Total Equity 1939141338 3381654099 5114528568

Debt to Equity Ratio 1.60 0.70 0.49

Here we can see that the Olympic Cement Limited’s debt to equity ratio is in a decreasing trend
that refers that the company has more equity in its capital structure, which is very good for the
company, hence the firm do not need to worry to pay debt as the risk involved with debt to pay
the principle with interest. Increasing equity capital signifies that the company is selling their
products efficiently so the shareholders are getting attracted to Olympic company to invest more.

Debt to Equity Ratio Comparison:

It is seen from the above calculation that Olympic Cement Limited has a better debt to equity
ratio compare to Heidelberg Cement Bangladesh Limited. Which Olympic cement is focusing
more to introduce equity in their capital structure and Heidelberg Cement is focused on debt
financing. Overall Olympic Cement is in better position as they do not have to bear the risk for
debt financing.

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3.3 SWOT Analysis

Strengths:

 Olympic Cement Ltd. has a higher dividend payout ratio which is a strong position for

the company its will attract more investors to the company.

 Both companies have a good degree of financial leverage and which is in a decreasing

trend, it indicates that they are having a stable operating income from their sales.

 Olympic Cement Ltd. has a lower debt to assets ratio, it’s a good sign for the company

because they are financing their assets more with equity than debt which ultimately

reducing their risks associated with debts.

Weakness:

 Heidelberg Cement Bangladesh Limited has a low dividend payout ratio which is a weak

point for the firm because it will discourage investors to invest in the company.

 Heidelberg Cement Bangladesh Limited has a high debt to asset ratio which not good for

the company as it is financing its assets more with debt financing than equity financing.

 Heidelberg Cement Bangladesh Limited has a high debt to capital ratio which means the

firm is taking more debts in their capital which is very risky.

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Opportunity:

 Olympic Cement Ltd. has a lower debt to equity ratio which is an opportunity for the

company because it will attract more investors into the company to invest.

 Olympic Cement Ltd. has a lower debt to asset ratio they can utilize their asset in the best

manner because there is less risk involved with the asset, hence the firm can generate

more sales and profit.

Threats:

 In terms of operating leverage both firms has poor ratios which is a potential threat to

both firms it indicates that they are not having expected sales during the year.

 Heidelberg Cement Bangladesh Limited has a high debt to equity ratio which means they

have more debts in their capital structure. It is a potential threat for the company because

there is high interest risk involved.

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 Chapter 4

Conclusion Aspects

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4.1 Recommendation

After analyzing the dividend policy and capital structure of Olympic Cement Limited and
Heidelberg Cement Limited and on the basis of SWOT analysis the following recommendations
are suggested to implemented by both the companies –

1. Heidelberg Cement Bangladesh Limited should increase their total dividend payment in
order attract more investors into the company which will ultimately increase their equity
capital.

2. Heidelberg Cement Bangladesh Limited should lower their debt to asset ratio because it
might discourage potential investors to invest in their company; if the firm has more debt
than asset then it generates more risk to pay the debt on time.

3. High debt to capital ratio indicates that Heidelberg Cement has higher debt obligations to
its capital which is good for the company; Heidelberg Cement should reduce this by
introducing more equity in their capital.

4. Both companies should try to reduce their operating leverage to have a smooth operating
income generated from sales, to do that they should finance their working capital from
equity financing sources.

5. Heidelberg Cement should introduce more equity capital in their capital structure thus
they would be able to reduce the debt to equity ratio and ultimately it will increase their
number of investors.

6. Olympic Cement Ltd should properly utilize their low debt to equity ratio, because it is
an opportunity for the firm to increase their investors and profitability.

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4.2 Conclusion:

A company’s shareholders are the most important capital suppliers to the firm, and financial

decision making is aimed toward maximizing their wealth. One of the important financial

decisions made within a company is its dividend policy; that is, the strategy the company uses to

transfer cash to its shareholders. The proper practice of dividend policy & capital structure can

help the company to get continuous flow of profit with ensuring their sustainability.

Our calculation shows that, Olympic Cement Ltd and Heidelberg Cement Bangladesh Limited

are both in a similar position in terms of operating and financial leverage but in other areas

Olympic Cement Ltd is a little ahead compare to Heidelberg Cement. Nevertheless they are the

leading cement companies in Bangladesh and they are exporting their products worldwide.

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4.3 Bibliography

1. Annual report of Heidelberg Cement Bangladesh Limited (2014-2016)

2. Annual report of Olympic Cement Limited (2014-2016)
3. http://www.scribd.com/doc/16993379/Company-Dividend-Policy
4. http://en.wikipedia.org/wiki/Capital_structure
5. http://en.wikipedia.org/wiki/Dividend_policy

6. Shekhar, K.C. and Shekhar, Lekshmy (1998), “banking Theory and

Practice”, New Delhi, 18th edition.

7. George Foster, 2013 edition, Financial Statement Analysis.

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 Chapter 5

Ending Matters

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APPENDIX

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