Finance 201 Term Assignment

Financial Analysis of Lafarge Surma Cement Limited And M. I. Cement Factory (Crown Cement)

Prepared By: Mashfiq Morshed - 1010006

Introduction
Lafarge Surma Cement Ltd. (LSC) was incorporated on 11 November 1997 as a private limited company in Bangladesh under the Companies Act 1994 having its registered office in Dhaka. On 20 January 2003 Lafarge Surma Cement Ltd. was made into a public limited company. The Company is listed in Dhaka and Chittagong Stock Exchange. Today, Lafarge Surma Cement Ltd. has more than 10,000 shareholders. Crown Cement of M.I. Cement Factory Ltd. takes the pride of being one of the first cement manufacturers of Bangladesh. Earlier, apart from some production of state-owned Chhatak Cement Factory, the country was dependant on its import. In this context, local investors took the initiative for setting up cement factories and started producing cement in 1992, one of whom were M. I. Cement Factory. They are now a public limited company with shares being traded every day. This report has been prepared for potential investors who are interested in investing in one of the two above mentioned companies. This report will make assumptions and judgements based on 13 ratios that shall be calculated using both the companys annual reports. These ratios are divided in four categories: profitability, asset utilization, liquidity and debt utilization; all of which will be of interest to the potential investor in varying degree of interest depending on the investors personal preferences and requirements. Along with an analysis of every category of ratio, an overall analysis is also presented at the end of the report to summarize and re-iterate the results of the analysis.

Ratio Analysis
LAFARGE SURMA CEMENT PROFITABILITY RATIOS Profit Margin Return on Assets Return On Equity -9.26% -3.16% -12.39% Based on profitability, Lafarge Surma Cement Limited is performing quite poorly. They are suffering substantive losses. ASSET UTILIZATION RATIOS Receivables Turnover Average Collection Period Inventory Turnover Fixed Asset Turnover Total Asset Turnover 42.47 Times 8.59 Days 5.21 Times 0.40 Times 0.34 Times Comparatively, asset utilization is poor except for their receivables turnover and average collection period which indicates a good credit control policy. LIQUIDITY RATIOS Current Ratio Quick Ratio 0.25 Times 0.13 Times Liquidity position is unacceptable. Could lead to disastrous consequences. DEBT UTILIZATION RATIOS Debt to Total Assets Times Interest Earned Fixed Charge Coverage 74.46% -0.06 Times -0.06 Times This company is highly geared and has not been able to earn its interest payments. 28.21% 2.49 Times 2.49 Times This company is low geared and has earned its interest and has enough to provide dividends. 3.47 Times 3.04 Times Liquidity position is quite good. 11.72 Times 31.13 Days 6.84 Times 1.80 Times 0.57 Times Comparatively, asset utilization is much better than the competitor but their credit control policy should be reviewed as it may have much room for improvement. 10.84% 6.22% 8.67% Based on the profitability ratios, Crown Cement is performing quite well. They have a decent return on equity as well. CROWN CEMENT

COMPARISON OF PROFITABILITY RATIOS

15.00%

10.00%

5.00% Lafarge Surma Cement Profit Margin -5.00% Return on Assets Return On Equity Crown Cement

0.00%

-10.00%

-15.00%

COMPARISON OF ASSET UTILIZATION RATIOS

45 40 35 30 25 20 15 10 5 0 Receivables Turnover Fixed Asset Turnover Lafarge Surma Cement Crown Cement

COMPARISON OF LIQUIDITY RATIOS

4 3.5 3 2.5 2 1.5 1 0.5 0 Current Ratio Quick Ratio Lafarge Surma Cement Crown Cement

COMPARISON OF DEBT UTILIZATION RATIOS

80.00% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% Debt to Total Assets Lafarge Surma Cement Crown Cement

EPS FLUCTUATIONS
Year 2005 2006 2007 2008 2009 2010 Lafarge Surma Cement Limited -8.32 -13.92 -18.88 3.04 17.14 -2.822 Crown Cement 0.13 1.80 2.75 4.77 9.39 4.99

COMPARISON OF YEARLY EPS

20 15 10 5 0 2005 -5 -10 -15 -20 -25 2006 2007 2008 2009 2010 Lafarge Surma Cement Limited Crown Cement

Recommendation
Judging by the 13 ratios that have been calculated earlier, any potential investor should invest in M. I. Cement Factory (Crown Cement) without any doubt. M. I. Cement Factory is better in terms of profitability (gives the investor a much higher return on equity), liquidity (will be able to withstand any short-comings of fund), asset utilization and debt utilization. Based on the EPS comparison, Lafarge Surma Cement Limited has been mostly delivering negative EPS while M. I. Cement Factory has been delivering a constant and steadily growing EPS mostly. Thus, concluding all that we have found in the report, we would recommend all potential investors to invest in M. I. Cement Factory Limited instead of Lafarge Surma Cement Limited.