Ratio Analysis of Cement Industry of Bangladesh

1.
INTRODUCTION
1.1 BACKGROUND OF THE STUDY:

This term paper has been made as a part of our course Managerial Finance
(FIN201). Our course instructor Ms. Salma SaharatChowdhury assigned us to
develop a term paper based on ratio analysis of a corporation and analyze and
interpret the current financial situation of that corporation.
1.2 PURPOSE OF STUDY:

Through this term paper we want to gain practical knowledge of the financial
aspects of a corporation through ratio analysis. The perspective of such a report
is to make us familiar with the financial instruments along with ratio analysis to
measure the financial situation of corporation.
1.3 SCOPE OF THE STUDY:

To accomplish the report we have been assigned to Cement Industry which
includes Lafarge Surma Cement Ltd as the base company and for industry
average we choose Meghna Cement, Confidence Cement and Heidelberg
Cement. We use annual reports of these corporations to find out the financial
situation of our base company through ration analysis comparing with the
industry average.
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:
Lafarge Surma Cement Annual Report 2007, 2008 & 2009.

Meghna Cement Annual Report 2009.
Confidence Cement Annual Report 2009.
Heidelberg Cement Annual Report 2009.
We have also collected the necessary and relevant data from different
secondary sources. These sources are:
LarfargeSurma Cement Website (www.lafarge-bd.com)

Meghna Cement Website (www.bg.com.bd)
Confidence Cement Website (confidencegroupbd.com/cement/index.html)
Heidelberg Cement Website (www.heidelbergcement.com)
1.5 LIMITATIONS OF STUDY:

Ratio Analysis of Lafarge Surma Cement Ltd.
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
We have to offset with the quality due to time constraint.
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:
2.1 LAFARGE SURMA CEMENT:

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
11,000 shareholders.
In November 2000, the two Governments of India and Bangladesh signed a
historic agreement through exchange of letters in order to support this unique
cross border commercial venture and till date it is the only cross border
industrial venture between the two countries. Since Bangladesh does not have
any commercial deposit of limestone, the agreement provides for uninterrupted
supply of limestone to the cement plant at Chhatak in Bangladesh by a 17 km
long belt conveyor from the quarry located in the state of Meghalaya. The
company in Bangladesh, Lafarge Surma Cement Ltd. wholly owns a subsidiary
company Lafarge Umiam Mining Private Ltd. (LUMPL) being registered in India,
which operates its quarry at Nongtrai in Meghalaya.
This commercial venture with an investment of USD 280 million, which is one of
the largest foreign investments in Bangladesh, has been financed by Lafarge of
France, world leader in building materials, CementosMolins of Spain, leading
Bangladeshi business houses together with International Finance Corporation
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(IFC The World Bank Group), the Asian Development Bank (ADB), German
Development
Bank
(DEG),
European
Investment
Bank
(EIB),
and
the
Netherlands Development Finance Company (FMO).

Lafarge Group, with 176 years of experience, holds worlds top-ranking position
in Cement, Aggregates, Concrete and Gypsum. It operates in 78 countries with
around 78,000 employees. Lafarge is named as one of the 100 Most Sustainable
Companies in the World.
CementosMolins of Spain, with 75 years of experience, also operates in Mexico,
Argentina, Uruguay, and Tunisia.
Now, after three years of production operations, they are producing world class
clinker and cement which is a demonstration of the sophisticated and state-ofthe-art machineries and processes of our plant at Chhatak. The Company is
already meeting about 8% of the total market need for cement and 10% of total
clinker requirements of Bangladesh market whereas they continue to enjoy
strong growth rates. By supplying clinker to other cement producers in the
market, they contribute some USD 50~60 million per annum worth of foreign
currency savings for the country. They contribute around BDT 1 (one) billion per
annum as government revenue to the national exchequer of Bangladesh. About
5,000 people depend on our business directly or indirectly for their livelihood.
They believe that cement is an essential material that addresses vital needs of
the construction sector. They are optimistic to meet the growing needs for
housing and infrastructure in the construction sector of Bangladesh.
2.2 MEGHNA CEMENT:

Meghna Cement Mills Ltd. (MCML), the first manufacturing enterprise of
Bashundhara Group is one of the largest Cement manufacturing industries in
Bangladesh. This organization was established in 1992 on the bank of Pashur
River and in the industrial zone of Mongla Port on 9.83 acres of land to produce
Portland cement. MCML has an excellent communication facility connecting all
parts of the country through river and roads.
MCML has started its commercial operation on 15th January 1996. Following a
successful public offerings, the company was listed with Dhaka Stock Exchange
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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
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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
belt conveyors which has been designed technically and which
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.
2.3 CONFIDENCE CEMENT:

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. It has a unique management
system in quality Assurance, Marketing, Sales, Procurements. It manufactures
ordinary Portland cement. Our company aims to be the number one cement
manufacturing company in Bangladesh, through continuous development and by
producing high & consistent quality cement to meet all customers requirement at
all time. To achieve these objectives CCL uses modern machineries, calibrated
testing equipment's, computerized packing & raw materials mixing devices in its
production process. Additionally the company frequently arranges internal
&external training program for the staff of all level to develop the potentiality
and skill of its human resources. CCL is always keen to keep the customers
satisfied by proving the best possible service.
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.
2.4 HEIDELBERG CEMENT:

Heidelberg Cement Bangladesh Ltd is one of the largest producers of quality
cement in Bangladesh. Heidelberg Cement is a member of Heidelberg group,
Germany. The group has 136 years of experience in producing cements abd is
operating in more than 40 countries. In Bangladesh it represents two reputed
brands Ruby cement and Scan Cement.
In 1998 Heidelberg group established its presence in Bangladesh by setting up a
floating terminal with onboard packing facilities in the port of Chittagong and by
distribting the cement the cement to the key markets of Dhaka and Chittagong.
In 1999 the group has further strengthened its position in Bangladesh and built
a
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
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.
3.0 PRODUCTS AND SERVICES

3.1 LAFARGE SURMA CEMENT PRODUCT & SERVICES:
Lafarge cements are designed to respond to the requirements of all of the
Group's customers. Its broad range of products is suitable for industrial players,
individual customers and architects:
1. Portland cements: high-quality basic building materials that are both
efficient and versatile,
2. Cements for different types of environments: products suitable for
exposure to sea water, sulfates and other aggressive environments,
3. Special cements for specific applications: including white cements for
architectural projects, cements for well drilling operations, cements
containing silica fume or fly ash, pozzolan cements, and cements for road
surfacing that incorporate slag and hydraulic binders,
4. Cements for masonry and mortars for concrete blocks, tiles, rendering,
stucco, etc. These different cements can all be used to produce concretes
with a variety of characteristics and properties.
5.Sensium, a new generation of cement: Sensium technological
cements were launched in France in 2007. They are innovative in 3
key respects:
Cleaner and more comfortable to use, their dust-free composition
makes it easier to obtain an excellent finish,
Page 7
Mortar that is easier to handle and more workable, concrete which

is more fluid and easier to spread. Sensium requires less effort
during application and makes construction work easier,
Accelerated
hardening
and
increased
resistance
results
in
substantial gain in productivity on building sites.

Support and assistance Lafarge offers:
1. Technical and logistical support for orders and deliveries so customers
receive their cement at the right place and the right time,
2. Documentation, demonstrations and training in the characteristics and
correct use of the Group's cements.
3.2 MEGHNA CEMENT PRODUCTS & SERVICES:

Meehan Cement Mills Ltd, which are-, is manufacturing two types of cement Portland Composite Cement (PCC): Ingredients used in PCC are
Clinker 65-79%, Slag Fly Ash limestone 21-52% & Gypsum 0-05%.
Ordinary Portland Cement (OPC): Ingredients used in OPC are Clinker
95-100% &Gypsum 0-05%.
PCC are widely used in our country in all sorts of construction. But now few
developer use OPC for improving strength of their construction.
3.3 HEIDELBERG CEMENT PRODUCTS & SERVICES:

Portland Composite Cement (PCC): As part of its relentless pursuit
for innovation and constant drive to improve quality, Heidelberg
Cement has introduced Portland Composite Cement (PCC) during
2003.
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
sand, pulverized limestone, burnt limestone, white pulverized

limestone and limestone hydrate.
Sand-lime bricks: Sand-lime brick construction systems, solid,
perforated, oversize and facing sand lime bricks.

Environmental technology: Specialty products and services for
waste stabilization, landfill construction and immobilization of toxic

compounds.
3.4 CONFIDENCE CEMENT PRODUCTS & SERVICES:
Confidence Group is one of the very few business houses in our country that are
involved in manufacturing innovative mid-tech engineering products. Our list of
products include1. Cement,
2. Spanned pre-stressed concrete (SPC) pole,
3. Paint,
4. Galvanized telescopic pole,
5. Machineries,
6. Gear-box for water pumps,
7. Screws and fasteners,
8. Towers and portable steel bridges,
9. Pole fittings and hardware,
10.
Electronic and electro-mechanical meters etc.
Page 9
4.0 PERFORMANCE EVALUATION OF LAFARGE SURMA CEMENT LTD

THROUGH RATIO ANALYSIS:
4.1 CURRENT RATIO:
Current ratio indicates the extent to which current liabilities are covered by
assets expected to be converted into cash in the near future. The current ratio of
three years of Lafarge Surma Cement is given below:
2009
0.31x
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%.
4.2 QUICK (ACID TEST) RATIO:

The ratio is calculated by deducting inventories from the current assets and
dividing the result by current liabilities. It is a variation of the current ratio. The
quick ratio of three years of Lafarge Surma Cement is given below:
2009
0.147x
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.
4.3 DAYS SALES OUTSTANDING (DSO):

The ratio indicates that the average length of time it takes the firm to collect its
credit sales. The DSO of three years of Lafarge Surma Cement is given below:
2009
19 days
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.
4.4 INVENTORY TURNOVER:

Theratio is calculated by dividing cost of goods sold by inventories. The inventory
turnover of three years of Lafarge Surma Cement is given below:
2009
3.74x
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.
4.5 FIXED ASSET TURNOVER:

The ratio measures how efficiently the firm uses its fixed assets to help to
generate sales. The fixed asset turnover of three years of Lafarge Surma Cement
is given below:
2009
0.51x
2008
0.41x
2007
.15x
Industry Average
2.58x
Table-5
Figure-5
The fixed asset turnover ratio measures the company's effectiveness in

generating sales from its investmentsin plant, property, and equipment. From
the above table we can see that in 2007 fixed assets turnover is very low which
is equal to 0.15 times. The reason of low fixed assets turnover is that they had
invested more on fixed assets but proportion to investment in fixed assets the
sales is very low which indicates they are not utilizing their fixed assets properly.
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.
4.6 TOTAL ASSETS TURNOVER:

The ratio measures the turnover of all the firm assets. The total asset turnover
of three years of Lafarge Surma Cement is given below:
2009
0.44x
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.
There is a problem with
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.
4.7 DEBT RATIO:

The ratio measures the percentage of funds provided by creditors. The debt ratio
of three years of Lafarge Surma Cement is given below:
2009
74%
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
current asset management. Thus it shows that there is a bankruptcy position in

2007.
But gradually in 2008 it has started to use its current assets a better way than
2007. And also successes in rising theyre income or sales, or both. Thus in
2008, the debt ratio has come 80.7%.
And at 2009, it has increased its sales, or income and usage of assets
management at a healthier position than previous years. And it becomes 74%,
which shows a decreasing rate of using debt finance.
4.8 TIMES INTEREST EARNED:

It measures the ability of the firm to meets its annual interest payments. The
TIE of Lafarge Surma Cement for three years is given below:
2009
2008
2007
Industry average
7.79x
1.84x
-0.3x
10.03x
Table-8
Figure-8
As in 2007, firm has a negative operating income. It is occurred due to decrease

in sales, or decrease in income, and the cost of both operating and financial was
high in 2007. And the interest was so high as the debt ratio shown a higher
percentage. So, TIE become negative in 2007 is -0.3%.
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.
4.9 RETURN ON ASSET (ROA):

The ratio of net income to total assets,it provides an idea of the overall return on
investment earned by the firm. The ROA of Lafarge Surma Cement for three
years is given below:
2009
5.75%
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.
4.10 RETURN ON EQUITY (ROE):

The ratio of net income to common equity, it measures the rate of return on
common stockholders investment. The ROE of Lafarge Surma Cement of three
years is given below:
2009
22.4%
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.
4.11 NET PROFIT MARGIN ON SALES:

This ratio measures net income per dollar of sales. The net profit margin on
sales of Lafarge Surma Cement for three years is given below:
2009
13.19%
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
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.
4.12 PRICE/EARNINGS RATIO:

The ratio of the price per share to earnings per share. It shows the amount
investors will pay for each dollar of current earnings. The P/E ratio of Lafarge
Surma Cement is given below for three years.
2009
29.46x
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.
4.13 MARKET/BOOK RATIO:

The ratio of a stocks market price to its book value. It indicates that how the
investors regard the company. The M/B ratio of Lafarge Surma Cement is given
below for three years.
2009
6.62x
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
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.
5.0 FINDINGS AND RECOMMENDATIONS:

Findings:
I.
Asset management is extremely in a poor condition. The way of using it is

not that much effective.
II.
Inventory is utilized in a good way in recent years. But it is not applicable

because of poor asset management.
III.
Thus company is using the debt to finance the companys workload in a

large amount. It can be more dangerous for bankruptcy.
IV.
The DSO is also very fluctuating over time. It couldnt fix its time of credit
period.
V.
The price earnings ratio is fluctuated by having a great difference in

company investment. The company may loss the financial investment due
to having fluctuating earnings.
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.
And they should be stricter in receiving their credit sales.
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
Page 26
Quick Ratio
2007:
Quick Ratio =
= 0.127x
2008:
Quick Ratio =
= 0.17x
2009:
Quick Ratio =
Page 27
= 0.147x
Inventory Turnover
2007:
Inventory Turnover Ratio =
= 2.787x
2008:
Page 28
= 3.4x
2009:
= 3.74x
Days Sales Outstanding (DSO)
2007:
DSO =
= 8.48 Days
2008:
Page 29
DSO =
= 37 Days
2009:
DSO =
= 19 Days
Fixed Asset Turnover
2007:
Fixed Asset Turnover =
Page 30
= 0.149x
2008:
= 0.407x
2009:
= 0.506x
Total Asset Turnover
Page 31
2007:
Total Asset Turnover =
= 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%
Times Interest Earned (TIE)
2007:
TIE =
=
= -0.3x
2008:
TIE =
= 1.84x
Page 34
2009:
TIE =
= 2.6x
Return on Assets (ROA)
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%
Net Profit Margin on Sales
2007:
Page 37
Net Profit Margin on Sales =
= -0.456
= -45.6%
2008:
= 0.0284
= 2.84%
2009:
= 13.19%
Page 38
Price Earnings Ratio (P/E)
2007:
Price Earnings Ratio =
= N/A
2008:
= 168.75x
2009:
Page 39
= 29.46x
Market/Book (M/B) Ratio
2007:
Market/Book Ratio =
= N/A
2008:
Market/Book Ratio =
= 8.695x
2009:
Page 40
Market/Book Ratio =
= 6.62x
INDUSTRY AVERAGE OF THE RATIOS

CURRENT RATIO
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
Days Sales Outstanding (DSO)
Meghna Cement:
Page 44
DSO =
=
= 22 Days
Heidelberg Cement:
DSO =
=
= 29 Days
Confidence Cement:
DSO =
=
= 5 Days
Industry Average =
= 19 Days
Page 45
Fixed Asset Turnover

Meghna Cement:
=
= 4.29x
Heidelberg Cement:
=
= 2.72x
Confidence Cement:
=
= 0.723x
Industry Average =
= 2.58x
Page 46
Total Asset Turnover
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%
Times Interest Earned (TIE)
Meghna Cement:
TIE =
=
= 1.97x
Heidelberg Cement:
Page 49
TIE =
=
= 7.79x
Confidence Cement:
TIE =
=
= 20.41x
Industry Average =
= 10.03x
Return on Assets (ROA)
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%
Return on Equity (ROE)
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
Net Profit Margin on Sales
Meghna Cement:
=
= 2.19%
Heidelberg Cement:
=
= 0.118
= 11.8%
Confidence Cement:
=
= 11.8%
Page 53
Industry Average =
= 8.84%
Price Earnings Ratio (P/E)
Meghna Cement:
=
= 174.66x
Heidelberg Cement:
=
= 14.24x
Confidence Cement:
Page 54
=
= 1.94x
Industry Average =
= 71.12x
Market/Book Ratio (M/B)
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

Ratio Analysis of Cement Industry of Bangladesh

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1.

1.1 BACKGROUND OF THE STUDY:

1.2 PURPOSE OF STUDY:

1.3 SCOPE OF THE STUDY:

Lafarge Surma Cement Annual Report 2007, 2008 & 2009.

LarfargeSurma Cement Website (www.lafarge-bd.com)

1.5 LIMITATIONS OF STUDY:

We have to offset with the quality due to time constraint.

2.1 LAFARGE SURMA CEMENT:

Netherlands Development Finance Company (FMO).

2.2 MEGHNA CEMENT:

Ratio Analysis of Lafarge Surma Cement Ltd.

belt conveyors which has been designed technically and which

2.3 CONFIDENCE CEMENT:

manufacturing company in Bangladesh established in early 90's with having

Ratio Analysis of Lafarge Surma Cement Ltd.

2.4 HEIDELBERG CEMENT:

3.0 PRODUCTS AND SERVICES

Ratio Analysis of Lafarge Surma Cement Ltd.

Mortar that is easier to handle and more workable, concrete which

substantial gain in productivity on building sites.

3.2 MEGHNA CEMENT PRODUCTS & SERVICES:

3.3 HEIDELBERG CEMENT PRODUCTS & SERVICES:

Ratio Analysis of Lafarge Surma Cement Ltd.

sand, pulverized limestone, burnt limestone, white pulverized

perforated, oversize and facing sand lime bricks.

waste stabilization, landfill construction and immobilization of toxic

Electronic and electro-mechanical meters etc.

Ratio Analysis of Lafarge Surma Cement Ltd.

4.0 PERFORMANCE EVALUATION OF LAFARGE SURMA CEMENT LTD

Ratio Analysis of Lafarge Surma Cement Ltd.

4.2 QUICK (ACID TEST) RATIO:

Ratio Analysis of Lafarge Surma Cement Ltd.

4.3 DAYS SALES OUTSTANDING (DSO):

Ratio Analysis of Lafarge Surma Cement Ltd.

4.4 INVENTORY TURNOVER:

Ratio Analysis of Lafarge Surma Cement Ltd.

4.5 FIXED ASSET TURNOVER:

The fixed asset turnover ratio measures the company's effectiveness in

Ratio Analysis of Lafarge Surma Cement Ltd.

4.6 TOTAL ASSETS TURNOVER:

Ratio Analysis of Lafarge Surma Cement Ltd.

There is a problem with

4.7 DEBT RATIO:

Ratio Analysis of Lafarge Surma Cement Ltd.

current asset management. Thus it shows that there is a bankruptcy position in

4.8 TIMES INTEREST EARNED:

As in 2007, firm has a negative operating income. It is occurred due to decrease

Ratio Analysis of Lafarge Surma Cement Ltd.

4.9 RETURN ON ASSET (ROA):

Ratio Analysis of Lafarge Surma Cement Ltd.

4.10 RETURN ON EQUITY (ROE):

Ratio Analysis of Lafarge Surma Cement Ltd.

4.11 NET PROFIT MARGIN ON SALES:

4.12 PRICE/EARNINGS RATIO:

Ratio Analysis of Lafarge Surma Cement Ltd.

4.13 MARKET/BOOK RATIO:

5.0 FINDINGS AND RECOMMENDATIONS:

Asset management is extremely in a poor condition. The way of using it is

Inventory is utilized in a good way in recent years. But it is not applicable

Thus company is using the debt to finance the companys workload in a

The price earnings ratio is fluctuated by having a great difference in

And they should be stricter in receiving their credit sales.