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RATIO ANALYSIS OF HEIDELBERGCEMENT BANGLADESH LTD MEGHNA CEMENT MILLS LTD AND CONFIDENCE CEMENT MILLS LTD PREPARED BY ABDULLAH-AL-MAMUN 082057030 MD.ZUNAYED SADEQUE 081637030 M.SAYED HASAN 081223030 MAHFUZUR RAHMAN 0930929030 [Type text] Company Profile Heidelberg Cement Bangladesh Limited: is a sister concern of Heidelberg Cement Group. 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. Heidelberg Cement Bangladesh Limited meets 13% of the Bangladesh demand for cement from two plants located at Dhaka & Chittagong. The company with 1.5 million tones annual cement production has become a major force in the Bangladesh Cement industry over the last eight years. Confidence Cement Limited (CCL): is the first private sector cement manufacturing company in Bangladesh established in early 90's with having 4,80,000 M/T annual production capacity at Chittagong, 16 K.M away from Chittagong port, besides Dhaka Chittagong highway. CCL is the first ISO-9002 certified cement manufacturing in Bangladesh. The Meghna cement mills limited (MCML): was the first undertaking Bashundhara group in the manufacturing sector. This enterprise produces world-class cement and, as a testimony to this, stands the fact that the concern has been awarded the iso-9001 certification for sustained quality control effort. The company markets its cement under the registered trademark of king brand. 2 [Type text] RATIO ANALYSIS Financial ratios can be used to analyze trends and to compare the firm’s financials to those of other firms. Financial ratios can be classified according to the information they provide. The following types of ratios frequently are used: Liquidity ratios Asset management ratios Debt management ratios Profitability ratios Market value ratios LIQUIDITY RATIOS CURRENT RATIO Current ratio indicates the extent to which current liabilities are covered by those assets expected to be converted to cash in the near future. Current asset CR = Current liabilities 3 [Type text] Company’s Name 2007 2008 2009 Heidelberg Cement 1.030 times 1.268 times 2.034502679 Bangladesh Ltd. Meghna Cement 1.1 times 1.427 times 1.2948 times Mills Ltd. Confidence cement 1.29 times 1.07 times 1.419 times 2.5 2 Heidelberg Cement Bangladesh Ltd 1.5 Meghna Cement 1 Mills Ltd. Confidence cement 0.5 0 2007 2008 2009 Heidelberg: From 2007 to 2008 there is a slight increase in current ratio for Heidelberg cement. From 2008 to 2009 it has also increased. Meghna: Current ratio for this company is also increasing every year. So it is also good for the company and it is a positive sign for the company. Confidence: from 2007 to 2008 the current ratio has increased, but in 2009 it has decreased. 4 [Type text] QUICK RATIO This ratio is an indicator of a company's short-term liquidity. The quick ratio measures a company's ability to meet its short-term obligations with its most liquid assets. The higher the quick ratio, the better is the position of the company (Current asset - Inventory) Quick Ratio = Current liability Company’s Name 2008 2007 2009 Heidelberg Cement 0.657 times 0.7134 times 1.5163 times Bangladesh Ltd. Meghna Cement Mills Ltd. 0.9169 times 0.4327 times 1.23times Confidence cement 0.88 times 0.77 times 0.00553 times 1.6 1.4 Heidelberg 1.2 Cement 1 Bangladesh Ltd. 0.8 Meghna Cement 0.6 Mills Ltd. 0.4 0.2 Confidence cement 0 2007 2008 2009 5 [Type text] Heidelberg: From 2007 to 2009, the ratio has been taking ups and downs. In 2008, the company’s ratio was lower than 2007 and in 2009,it is higher than 2008; so basically we can see that in 2009 the company had more Current Assets than other two years to pay off the Current Liabilities. So, in year 2009, the company was in better position than the other two years. Meghna: From 2007 to 2008, the ratio has been increasing and it followed the same trend in 2009; so basically we can see that in 2009 the company had more Current Assets than other two years to pay off the Current Liabilities. So, in year 2009, the company was in better position than the other two years. Confidence: We can see that the quick ratio fo Confidence cement is decreasing from 2007 to 2008 and followed the same trend in 2009 too. Asset Management Ratios There are discussed five types of asset management ratios: Inventory turnover ratio The days sales outstanding Fixed asset turnover ratio Total asset turnover ratio INVENTORY TURNOVER RATIO The ratio is regarded as a test of efficiency and indicates the rapidity with which the company is able to move its merchandise. Sales ITR = Inventory 6 [Type text] Company’s Name 2007 2008 2009 Heidelberg Cement 8.303 times 4.37 times 8.3702 times Bangladesh Ltd. Meghna Cement 2.97 times 5.378 times 43.6 times Mills Ltd. Confidence cement 6.42 times 7.72 times 12.510 times 50 Heidelberg 40 Cement Bangladesh Ltd 30 Meghna Cement Mills Ltd. 20 10 Confidence cement 0 2007 2008 2009 Heidelberg: In 2007 the company had a turnover of 8.3 times its inventory. In 2008 the ratio decreased but in 2009 it increased again. Meghna: In 2007 the inventory turnover ratio was 2.97 times its inventory. In 2008 the ratio increased a bit but in 2009 it increased to 43.6. Confidence: In 2007, the companies ITR was 6.42 times, in 2008 and 2009 it was 7.72 times and 12.510 times respectively. 7 [Type text] Summarize: Comparing the three companies, we can see that the ITR for Meghna cement has the best position from the other two.The ratio decreased in 2008 a bit, but it was recovered again in 2009. The company has sold and restocked goods more than the other two companies. This is the reason for the increase of sales of the company. TOTAL ASSET TURNOVER RATIO The ratio is regarded as a test of efficiency and indicates the rapidity with which the company is able to move its merchandise. Sales TATO = Total asset Company’s Name 2007 2008 2009 Heidelberg Cement 1.091 times 1.1084 times 1.1951 times Bangladesh Ltd. Meghna Cement 0.983 times 1.120 times 1.4188 times Mills Ltd. Confidence cement 1 times 1.07 times 0.5221 times 8 [Type text] 1.6 1.4 1.2 Heidelberg Cement 1 Bangladesh Ltd 0.8 Meghna Cement Mills 0.6 Ltd. 0.4 Confidence cement 0.2 0 2007 2008 2009 Heidelberg: - The ratio has increased a bit from 20o7 to 2009. So, far the highest total asset turnover ratio has been in year 2009. Meghna: - The ratio has been increased from 2007 to 2008 and then again increased at 2009. It has been highest in the year 2009 .That means Meghan’s total asset turnover ratio has improved much in 2009 compared to 2007. Confidence: The ratio has increased a bit in 2008 from 2007, but in 2009 it decreased again. Summarize: According to the graph, we can see that Meghna cement has maintained a good TATO from 2007 to 2009 from the other two companies. It means, Meghna has better position in terms of TATO. The reason is the increase of sales than the other two companies against total asset. FIXED ASSET TURNOVER RATIO Sales Fixed Asset Turnover Ratio = Fixed asset 9 [Type text] Company’s Name 2007 2008 2009 Heidelberg Cement 1.9051 times 2.233 times 2.72018 times Bangladesh Ltd. Meghna Cement 2.256 times 2.79 times 4.1158 times Mills Ltd. Confidence cement 1.95 times 2.08 times 0.72326 times 4.5 4 3.5 3 Heidelberg Cement Bangladesh Ltd. 2.5 Meghna Cement Mills 2 Ltd. 1.5 Confidence cement 1 0.5 0 2007 2008 2009 Heidelberg: In 2007 the company had a fixed asset turnover of 1.905 times which increased to 2.23 in 2008 and 2.72 in 2009. Meghna: In 2007 the company had a fixed asset turnover of 2.5 times which increased to 2.79 in 2008 and 4.115 in 2009. The increase shows that the company is doing well and using its assets efficiently. Confidence: In 2007 the ratio was 1.95 and it increased a bit to 2.08 in 2008 but deceased to .72 in 2009. Summarize: Comparing the company’s fixed asset ratio we can see that Meghna is doing better as their ratio increases every year, whereas Hiedelberg has a slightly increasing ratio and Confidence has a downward sloping ratio. This means the productivity of Meghna cement has reached its maximum using the existing fixed asset. 10 [Type text] DSO ANALYSIS It indicates the average length of time the firm must wait after making a sale before it receives cash. Company’s Name 2007 2008 2009 Heidelberg Cement 37 days 35 days 29.7200 days Bangladesh Ltd. Meghna Cement 31 days 34 days 22.2420 days Mills Ltd. Confidence cement 39 days 43 days 52.618 days DSO = 60 50 Heidelberg Cement 40 Bangladesh Ltd 30 Meghna Cement Mills Ltd 20 Confidence cement 10 0 2007 2008 2009 11 [Type text] Heidelberg: It took 35 days for the company to collect the receivables which has decreased from the previous year and it decreased again in 2009. Meghna: It took 34 days for the company to collect the receivables which has increased from the previous year and it decreased again in 2009. Confidence: it took 43 days for the company to collect the receivables which has increased from the previous year and it increased again in 2009. Summarize: comparing the ratios we can see that Meghna is taking less days to collect the receivables than the other two companies which is good for the company. DEBT MANAGEMENT RATIOS Debt management ratios reveal 1) The extent to which the firm is financed with debt and 2) Its likelihood of defaulting on its debt obligations. These ratios include: Debt ratio Times-Interest-Earned (TIE) ratio Debt Ratio TIE RATIO This ratio measures the extent to which operating income can decline before the firm is unable to meet its annual interest cost. The higher the value the better able the firm is to fulfill its interest obligation. EBIT TIE = Interest charge 12 [Type text] Company’s Name 2007 2008 2009 Heidelberg Cement 12.84 times 11.19 times 52.30times Bangladesh Ltd. Meghna Cement 2.79 times 1.31 times 4.26339 times Mills Ltd. Confidence cement 4.49 -0.5 20.408 times 60 50 Heidelberg Cement 40 Bangladesh Ltd. 30 Meghna Cement Mills Ltd. 20 Confidence cement 10 0 2007 2008 2009 -10 Heidelberg: from 2007 to 2008, the company’s TIE ratio has decreased to 11.19, but it increased to 52.3 in 2009. Meghna: On the other hand TIE ratio of Meghna is relatively low which is not so good for that company. If they increase this ratio, it will be good for the company. Confidence: For Confidence cement, the TIE ratio decreased in 2008 but increased again in 2009. 13 [Type text] After analyzing the ratios we can say that Heidelberg is having a good position in terms of TIE ratio. This is because the company is taking less loan and making a good operating profit. DEBT RATIO Debt ratio measures the proportion of total assets financed by the firm’s creditors. The higher the ratio the greater the amount of other people’s money being used to generate profit. Total debt Debt Ratio = Total asset Company’s Name 2007 2008 2009 Heidelberg Cement 44.56 % 53.65 % 34% Bangladesh Ltd. Meghna Cement 48.44 % 80.29 % 79.7020% Mills Ltd. Confidence cement 37.7% 46% 19.58% 90 80 70 60 Heidelberg Cement Bangladesh Ltd. 50 Meghna Cement Mills 40 Ltd. 30 Confidence cement 20 10 0 2007 2008 2009 Heidelberg: From 2007 to 2008 the company’s debt ratio is increasing and from 2008 to 2009 the ratio has decreased. 14 [Type text] Meghna: Meghna’s debt is also increasing which is not good for the company. In 2008, it increased to 80.29% and from that year it maintained a stable position but it is still high, which is not good for the company. So it is needed to decrease the debt ratio. Confidence: the company’s ratio increased in 2008 a bit but it dropped down in 2009 again. Summarize: After analyzing 3 years ratio we can see that Heidelberg and Confidence had financed more or less half of its assets with debt. But Meghna has very higher debt ratio than Heidelberg and Confidence in each year. From this ratio Meghna is in risky position. Therefore, the Meghna may want to take the tax advantage for short term position. Comparing to Meghna, Heidelberg and Confidence is in good position. PROFITABILITY RATIO Profitability is the net result of a number of policies and decisions. Profitability ratios show the combined effects of liquidity, asset management and debt on operating results. There are four important profitability ratios that we are going to analyze: Return on Asset Return on Equity Profit Margin on Sales Return on Assets ROA Net income available to common stockholders ROA = Total Assets 15 [Type text] Company’s Name 2007 2008 2009 Heidelberg Cement 12 % 10 % 14.1097% Bangladesh Ltd. Meghna Cement 3.71 % 0.793 % 3.98% Mills Ltd. 4.79% (2.47%) 6.1665% Confidence cement 16 14 12 Heidelberg Cement 10 Bangladesh Ltd. 8 Meghna Cement 6 Mills Ltd. 4 Confidence cement 2 0 -2 2007 2008 2009 -4 Heidelberg: From the year 2007 to 2008, the ROA has decreased but from year 2008- 2009 ROA has increased which basically means that in the year of 2009, the company had the most net income compared to other two years. Net income has increased compared to year 2008 which is good sign for the company. Meghna: From the year 2007 to 2008, the ROA has decreased but from year 2008-2009 ROA has increased which basically means that in the year of 2009, the company had the most net income compared to other two years. Net income has increased compared to year 2008 which is good sign for the company. Confidence: From the year 2007 to 2008, the ROA has decreased but from year 2008- 2009 ROA has increased which basically means that in the year of 2009, the company 16 [Type text] had the most net income compared to other two years. Net income has increased massively compared to year 2008 which is good sign for the company. Summarize: In 2007, 2008 and as well as 2009, ROA of Heidelberg is much higher than Meghna and Confidence. This high return of assets results from Heidelberg high basic earning power and low interest cost resulting from its less use of debt than Meghna and Confidence. Basic earning power and interest cause Heidelberg’s net income relatively high. It is a good sign for the company. ROE Net income available to common stockholders ROE = Common equity Company’s Name 2007 2008 2009 Heidelberg Cement 21.75 % 17.9 % 21.4193% Bangladesh Ltd. Meghna Cement 17.2 % 4% 19.6089% Mills Ltd. Confidence cement 7.69% (4.53%) 7.668% 17 [Type text] 25 20 15 Heidelberg Cement Bangladesh Ltd. 10 Meghna Cement Mills Ltd. 5 Confidence cement 0 2007 2008 2009 -5 -10 Heidelberg: we can see that from 2007 to 2008 the company’s ROE has decreased, but it increased again in 2009. Meghna: From 2007 to 2008, the company’s ROE has decreased a lot. The ratio is taking ups and downs. In 2009, the ratio increased again to 19.9%. Confidence: we can see that the ROE of this company was also taking ups and downs. The ratio decreased to -4.53% in 2008 and increased again in 2009. Summarize: analyzing all the data, we can conclude that Heidelberg is in better position in terms of ROE. The money Heidelberg generates from every 1 taka of equity is more than both of Meghna and Confidence cement. PROFIT MARGIN ON SALES Net income available to common stockholders Profit Margin on Sales = Sales 18 [Type text] Company’s Name 2007 2008 2009 Heidelberg Cement 11.05 % 9.3 % 11.8059% Bangladesh Ltd. Meghna Cement 3.77 % 0.71 % 2.8% Mills Ltd. 4.78% (2.31%) 11.8089% Confidence cement 14 12 10 Heidelberg Cement 8 Bangladesh Ltd. 6 Meghna Cement Mills 4 Ltd. 2 Confidence cement 0 -2 2007 2008 2009 -4 Heidelberg: In 2007 it generates 11.05 taka net profit from every 1 taka of net sales; in 2008 it generates 9.3 taka net profit from every 1 taka of net sales and in 2009 it generates 11.8059 taka net profit from every1 taka. The Profit Margin of year 2009 is the highest; increased from 2007 which showed the company was doing pretty well. But in 2008 it decreased, but in year 2009 it increased a lot which is a good sign for the company. Meghna: In 2007 it generates 3.77 taka net profit from every 1 taka of net sales; in 2008 it generates 0.71 taka net profit from every 1 taka of net sales and in 2009 it generates 2.8 taka net profit from every1 taka. The Profit Margin of year 2007 is the highest; in 2009 it has increased from 2008 but less than 2007 which showed the company are not doing pretty well. But in 2008 it decreased, but in year 2009 it increased which is not a good sign for the company. 19 [Type text] Confidence: : In 2007 it generates 4.78 taka net profit from every 1 taka of net sales; in 2008 it generates (2.31) taka net profit from every 1 taka of net sales and in 2009 it generates 11.8089 taka net profit from every1 taka. The Profit Margin of year 2009 is the highest; in 2009 it has increased from 2007 which showed the company is doing pretty well. But in 2008 it decreased, but in year 2009 it increased which is a good sign for the company. Summarize: After analyzing the 3 years ratios, we can see that Heidelberg’s Profit margin ratios are well above from the ratios of Meghna and Confidence cement but in year 2009 Confidence cement is above Heidelberg. Heidelberg’s ratio is high because their costs are relatively lower than Meghna and Confidence cement. Confidence has also lowered their cost for that reason their above Heidelberg cement in year 2009. MARKET VALUE RATIO We are going to have a discussion mainly on two types of ratios: Price/ Earnings ratio Market/ Book ratio PRICE / EARNING RATIO Price per share Price / Earnings Ratio = Earning per share Company’s Name 2007 2008 2009 Heidelberg Cement 10.954 times 11.562 times 14.25 times Bangladesh Ltd. Meghna Cement 5.34 times 37.55 times 22.229 times Mills Ltd. Confidence cement 13.3 times N/A 20.379 times 20 [Type text] 40 35 Heidelberg 30 Cement 25 Bangladesh Ltd. Meghna Cement 20 Mills Ltd. 15 10 Confidence 5 cement 0 2007 2008 2009 Heidelberg: The price earnings ratio from 2007 to 2009 has been increasing, which shows the company’s growth prospects are getting better every year. It even shows that the company is not that much of riskier in the year 2009 compared to the year 2007. Meghna: The price earnings ratio of this company is taking ups and down.But in the year 2008, the company’s ratio went up which shows that the company’s growth prospects are getting better. But in the year of 2009, the ratio went down again. Confidence: The ratio for the company is not good. From 2007 to 2009 the ratio has decreased much. Summarize: Though the ratio for Meghna is higher than the other two companies, the unstable condition of the ratio has made it risky. On the other hand, Hiedelberg has a stable ratio from the other two companies which will attract the investors easily. 21 [Type text] MARKET BOOK VALUE PER RATIO Market price per share M/B Ratio = Book value per share Company’s Name 2007 2008 2009 Heidelberg Cement 2.38 times 2.074 times 3.061 times Bangladesh Ltd. Meghna Cement 1.28 times 1.51 times 4.359 times Mills Ltd. Confidence cement 1.02 times N/A 1.56 times 5 4 Heidelberg Cement 3 Bangladesh Ltd. Meghna Cement 2 Mills Ltd. Confidence cement 1 0 2007 2008 2009 Heidelberg: From year 2007 to 2009, the ratio is very stable. From 2007 to 2009 the ratio did not increased much. Meghna: From year 2007 to 2008, the ratio was stable. But in the year 2009, the ratio was higher than the other two years; the investors were willing to pay more for stocks than their accounting book values. But the ratio has very unstable condition. Confidence: We can see that the ratio has increased a bit from 2007 in 2009, but still it is lower than the other two companies. 22 [Type text] Summarize: By analyzing 3 years ratio we see that in 2007 Heidelberg paid 2.38 taka for each 1 taka of book value of each stock and in 2008 and 2009 it paid 2.07 taka and 3.06 taka for each 1 taka of book value of each stock. Firms expect to earn high returns relative to their risk, typically have a higher Market to Book Value ratio. We can easily improvise that Heidelberg is performing well than Meghna and Confidence by improving profit, increasing their market share as well as offering higher quality products. Its higher Market to Book Value ratio indicates that the stock of Heidelberg has more attractive outlook than Meghna and Confidence cement. Conclusion:- Considering the overall market valuations for the three companies, Heidelberg Cement Bangladesh Ltd. seems to be in a better position in market than Meghna Cement Mills Ltd. and Confidence cement Ltd. Heidelberg Cement Bangladesh Ltd has been yielding high rates of return during 2007-2009, has been able to create greater expectations from their investors making them willing to pay more for their shares. For a higher Return On Asset and Return On Equity, stable P/E ratio and a good Market to Book value ratio, the investors still put more confidence in Heidelberg Cement Bangladesh Ltd. than in Meghna Cement Mills Ltd and Confidence cement Ltd. whose market growth rate is relatively lower than Heidelberg Cement Bangladesh Ltd in most of the aspects. Lastly, the earning per share of Heidelberg Cement Bangladesh Ltd is higher than the Meghna Cement Mills Ltd. and Confidence cement Ltd. So, above all it is safer to invest in Heidelberg Cement Bangladesh Ltd. 23