Performance Evaluation and Ratio Analysis of

Crown Cement

Prepared for
Professor Dr. Md. Mohiuddin
Course Instructor: Financial Theory and Practices

Prepared by
Name Roll EMBA Batch
Mohammed Akhtab Ul Huda ZR1703016 29
Md Walee Zaman ZR1703026 29
Syed Parvez Imran ZR1703032 25

IBA, DU, Dhaka.

September 15, 2018
Performance Evaluation and Ratio Analysis
Crown Cement

i
EXECUTIVE SUMMARY

The purpose of the report is to evaluate the financial performance of Crown Cement Bangladesh
from 2016 to 2017. We have conducted the study based on financial reports of 2015-2016 and
2017-2018 available in company’s website.

We have conducted horizontal analysis (Trend Analysis) of Income Statement and Balance Sheet
for last 3 years starting from 2015-2017 and vertical analysis (Common Size) of Income
Statement and Balance Sheet for last 2 years starting from 2016-2017. We have also calculated
various financial ratios to understand different aspects of the company e.g. profitability, liquidity,
efficiency and solvency of Crown Cement and have cross analyzed them with some of the
competitors operating in cement industry of Bangladesh. The major competitors that are
considered for calculating industry average are: Holcim, Meghna Cement, Confidence Cement,
Lafarge cement and Heidelberg Cement.

Crown Cement LTD has experienced a downfall in liquidity position and profitability position
from 2016 to 2017 that can be understood from horizontal and vertical analysis of income
statement and balance sheet.

The trend analysis of Crown Cement from 2016 to 2017 indicates that the company is not in a
favorable position in terms of liquidity, profitability, efficiency and solvency in 2017 compared
to 2016. Further comparison of Crown Cement with its competitors in 2017 tells us that Crown
Cement is better in terms of liquidity position and solvency than its competitors. However the
company is in unfavorable position in terms of efficiency and profitability.

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Table of Contents
1. Introduction ................................................................................................................................. 1
1.1 Origin of the Report: ........................................................................................................ 1
1.2 Background of the Report: .................................................................................................... 1
1.3 Objective of the Study .......................................................................................................... 1
1.4 Scope of the Study ................................................................................................................ 1
1.5 Methodology of the Study .................................................................................................... 2
1.6 Limitations of the Study........................................................................................................ 2
2:0 Company Overview .................................................................................................................. 2
2.1 Presentation of Balance Sheet 2016-2017 ................................................................................ 3
2.2 Presentation of Income Statement 2016-2017 .......................................................................... 4
2.3 Presentation of Cash Flow Statement 2016-2017 ..................................................................... 5
3. Financial Analysis ....................................................................................................................... 6
3.1.1 Horizontal Analysis (Balance Sheet) ................................................................................. 6
3.1.2 Horizontal Analysis (Income Statement) ........................................................................... 6
3.2.1 Vertical Analysis (Balance Sheet) ..................................................................................... 7
3.2.2 Vertical Analysis (Income Statement) ............................................................................... 7
3.3 Ratio Analysis ........................................................................................................................... 8
4. Comments on financial analysis ................................................................................................. 9
5. Conclusion ................................................................................................................................ 18

List of Tables

Table 1: Balance Sheet.................................................................................................................... 3

Table 2: Income Statement ............................................................................................................. 4
Table 3: Cash Flow Statement ........................................................................................................ 5
Table 4: Horizontal Analysis of Balance Sheet .............................................................................. 6
Table 5: Horizontal Analysis of Income Statement ........................................................................ 6
Table 6: Vertical Analysis of Balance Sheet .................................................................................. 7
Table 7: Vertical Analysis of Income Statement ............................................................................ 7
Table 8: Analysis of Crown Cement with Industry Average 2017 ............................................... 17

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List of Figures

Figure 1: Current Ratio of Crown Cement 2016-2017 ................................................................. 10

Figure 2: Quick Ratio of Crown Cement 2016-2017.................................................................... 11
Figure 3: Gross Profit Margin of Crown Cement 2016-2017 ....................................................... 12
Figure 4: Net Profit Margin of Crown Cement 2016-2017 .......................................................... 12
Figure 5: Return on Equity of Crown Cement 2016-2017 ........................................................... 13
Figure 6: Return on Asset of Crown Cement 2016-2018 ............................................................. 13
Figure 7: Total Asset Turnover Ratio of Crown Cement 2016-2017 ........................................... 14
Figure 8: Inventory Turnover Ratio of Crown Cement 2017-2018 .............................................. 15
Figure 9: Debt to Asset Ratio of Crown Cement 2016-2017........................................................ 16
Figure 10: Debt to Equity Ratio of Crown Cement 2016-2017 .................................................... 16

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1. Introduction

1.1 Origin of the Report:

Under the EMBA program of IBA, University of Dhaka this report is prepared for Professor Dr.
Md. Mohiuddin as a course requirement for Financial Theory and Practices.

1.2 Background of the Report:

The world is witnessing rapid urbanization and rise of megacities, reflecting economic growth,
which brings upon infrastructure development and construction at the last couple of decades for
19th century. Cement has continuously been playing a major component in this chain. But in our
country, as the economy continued to remain agro based, construction sectors had not been able
to gain momentum and as the infrastructure development was selective; therefore, cement
remained a product of low demand. So, till 1990s, about 95% of the country's demand for cement
had been met through import. Some enthusiastic entrepreneurs ventured into setting up cement
plants during 1997 to 2000 which opened a new era in this sector. Prior to inception, Bangladesh
used to import cement from global market. As new players entered into the market with no
participants, they tapped into the already existing huge demand for cement. The dependency on
import lowered in the following years so the analysis and interpretation of financial statements of
a cement company is essential to bring out the mystery behind the figures in financial statements.

1.3 Objective of the Study

The primary objective of the study is to find out some in depth financial perspective of the
company by analyzing financial information over the tenure of last two years.

1.4 Scope of the Study

The scope of the study is the analysis of the financial information of the company and infers
some conclusive statements based on those data.

1
1.5 Methodology of the Study

Data Collection
The main source of the data was from the company website.
https://www.crowncement.com/

1.6 Limitations of the Study

The collected data are mainly found from the company website and the analysis is only done for
the year 2015, 2016 and 2017.

2:0 Company Overview

M. I. Cement Factory Ltd. is M. I. Cement Factory Ltd., a public limited company, is one of the
leading cement manufacturers in Bangladesh. It started its journey on 31 December 1994 with
the commitment of manufacturing high quality cement under the brand name “Crown Cement”
that has already won renown both at home and abroad. Initially, the plant was installed with a
capacity of producing 600 MT/Day of Portland cement. With the Passing of time, the demand for
Crown Cement has been increasing day-by-day. So, the Sponsors expanded the project gradually
to the 2nd unit started in 2002 with a production capacity of 800 MT/Day, the 3rd unit in 2008 of
1,400 MT/Day, the 4th unit in 2011 of 3,000 MT/Day and the 5th unit in 2017 of 5,200 MT/Day
to take the total production capacity to 11,000 MT/Day i.e. 3.3 million Metric Ton per annum.

The Company’s backward and forward integration endeavors have given new dimensions to its
growth platform. With this end in view, the associate industrial units such as Crown Polymer
Bagging Ltd., Crown Power Generation Ltd., Crown Mariners Ltd., Crown Transportation &
Logistics Ltd. and Crown Cement Concrete & Building Products Ltd. have been set up and are in
operation. It has also acquired three Handy Max size Ocean. It is hopefully expected that these
new growth platforms will facilitate creation of new dimensions and frontiers to the mother
company M. I. Cement Factory Ltd. Crown Cement pioneered in cement export in 2003 and
paved the way for earning hard-earned foreign currency.

2
2.1 Presentation of Balance Sheet 2016-2017
(All Amount in BDT ’000)
Table 1: Balance Sheet
Particulars 2017 2016
ASSETS
Property, plant and equipments 4,709,505,952 4,951,214,875
Capital work in progress 2,872,591,490 465,481,202
Non- current assets 7582097442 5416696077
Investment in associate companies 198,584,589 133,919,313
Investment in shares 379,375,055 130,919,903
Inventories 980,360,894 797,868,489
Trade receivables 1,610,719,068 1,065,262,109
Current account with sister concerns 916,032,230 969,556,496
Other receivables 190,901,018 75,030,322
Advances, deposits and prepayments 712,669,413 730,491,856
Advance income tax 1,492,092,598 1,156,538,198
Cash and cash equivalents 3,856,614,400 3,683,336,114
Current assets 10,138,764,676 8,609,003,487
TOTAL ASSETS 17,919,446,707 14,159,618,877
EQUITY AND LIABILITIES
Share capital 1,485,000,000 1,485,000,000
Share premium 2,956,560,000 2,956,560,000
Retained earnings 1,996,018,828 1,596,350,972
Revaluation reserve 660,215,921 686,912,883
Shareholders' equity 7,097,794,749 6,724,823,855
LIABILITIES
Long term borrowing net of current maturity 1,829,140,112 129,371,414
Liabilities for gratuity 92,279,541 80,286,677
Deferred tax liability 527,461,004 503,887,928
Non-current liabilities 2,448,880,657 713,546,019
Trade payables 234,043,729 349,900,640
Other payables 255,251,109 270,338,013
Current portion of long term borrowings 259,050,872 483,395,584
Short term loan 6,909,413,890 5,064,048,878
Provision for tax liabilities 636,268,528 469,928,794
Liabilities for WPPF 42,994,185 49,000,462
Payable to IPO applicants 12,772,304 12,833,356
Unclaimed dividend 22,976,684 21,803,276
Current liabilities and provision 8,372,771,301 6,721,249,003
TOTAL LIABILITIES 10,821,651,958 7,434,795,022
TOTAL EQUITY AND LIABILITIES 17,919,446,707 14,159,618,877

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2.2 Presentation of Income Statement 2016-2017
Table 2: Income Statement
Particulars 2016-17 2015-16
Revenue 9,439,820,021 9,016,548,629
Cost of sales -7,829,382,292 -7,357,193,511
Gross profit 1,610,437,729 1,659,355,118
Other operating income 108,535,500 40,086,000
Administrative expenses -209,406,229 -150,300,608
Selling and distribution expenses -399,790,016 -353,005,066
Operating profit 1,109,776,984 1,196,135,444
Non-operating income 58,694,471 33,860,900
Finance cost -499,434,000 -466,095,750
Finance income 169,175,158 228,145,544
Share of profit from associates 64,665,276 36,963,569
Profit before WPPF & income tax 902,877,889 1,029,009,706
Workers' profit participation fund (WPPF) -42,994,185 -49,000,462
Profit before income tax 859,883,704 980,009,244
Current tax -166,339,734 -177,534,373
Deferred tax -32,464,873 -58,227,046
Income tax expenses -198,804,607 -235,761,419
Net profit after tax for the year 661,079,097 744,247,825
Earnings per share 4.45 5.01

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2.3 Presentation of Cash Flow Statement 2016-2017

Table 3: Cash Flow Statement

Particulars 2016-17 2015-16

Cash flows from operating activities
Cash received from customers 8,894,363,062 9,097,768,811
Cash received from other operating income - 1,252,505
Cash received from non-operating income 14,756,307 31,567,206
Cash received from financial activities 161,839,962 245,910,149
Cash paid to suppliers & employees -7,796,280,620 -6,817,096,343
Cash paid for operating expenses -681,999,330 -715,769,873
Income tax paid -335,554,400 -257,434,738
Net cash flows from operating activities 257,124,981 1,586,197,717
Cash flows from investing activities
Acquisition of property, plant and equipments -132,996,285 -720,328,318
Proceeds from sale of property, plant and equipments 907,700 12,167,085
Increase/ (decrease) of payment for capital work in progress -2,407,110,288 -352,968,843
Investment in shares -201,406,395 -2,399,138
Paid to associates companies 53,524,266 -56,439,102
Net cash used in investing activities -2,687,081,002 -1,119,968,316
Cash flows from financing activities
Receipt of short term loan 1,845,365,012 921,432,115
Repayment of term loan 1,475,423,986 -372,397,770
Paid against financial expense -421,667,047 -466,095,750
Increase of IPO application funds due to foreign exchange
-61,052 -6,865
fluctuation
Dividend paid -295,826,592 -368,241,289
Net cash flows from financing activities 2,603,234,307 -285,309,559
Net increase in cash and cash equivalents 173,278,286 180,919,842
Cash and cash equivalents at beginning of the year 3,683,336,114 3,502,416,272
Cash and cash equivalents at end of the year (note: 14) 3,856,614,400 3,683,336,114
Net operating cash inflows per share 1.73 10.68

5
3. Financial Analysis

3.1 Horizontal Analysis:

An analysis of percentage financial statements where all balance sheet or income statement
figures for a base year equal 100.00 (percent) and subsequent financial statement items are
expressed as percentages of their values in the base year is called horizontal analysis or
trend/index analysis. In the following case of Crown Cement LTD., base year has been taken of
the financials of 2015.

3.1.1 Horizontal Analysis (Balance Sheet)

Table 4: Horizontal Analysis of Balance Sheet

Description Audited 2015 (%) Audited 2016 (%) Audited 2017 (%)

Current Assets 100% 111.02% 130.75%

Non-current Assets 100% 128.66% 180.09%
Net Current Assets 100% 78.31% 73.26%
Total Assets 100% 117.39% 148.56%
Current Liabilities 100% 125.77% 156.68%
Non-current Liabilities 100% 85.11% 292.09%
Total Equity 100% 114.38% 120.72%
Total Liability & Equity 100% 117.39% 148.56%
*Net Current Assets = Current Assets – Current Liabilities)

3.1.2 Horizontal Analysis (Income Statement)

Table 5: Horizontal Analysis of Income Statement

Description Audited 2015 (%) Audited 2016 (%) Audited 2017 (%)

Turnover 100% 109.10% 130.75%

Cost of Sales 100% 107.40% 114.29%
Gross Profit 100% 117.38% 113.92%
Operating Profit 100% 121.48% 112.71%
Profit after Tax 100% 114.70% 101.88%

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3.2 Vertical Analysis:

An analysis of percentage financial statements where all balance sheet items are divided by total
assets and all income statement items are divided by net sales or revenues is called vertical
analysis or common size analysis. In the following case of Crown Cement Ltd., vertical analysis
have been computed for 02 (two) years i.e. 2016 & 2017.

3.2.1 Vertical Analysis (Balance Sheet)

Table 6: Vertical Analysis of Balance Sheet

Description Audited 2016 (%) Audited 2017 (%)

Current Assets 60.80% 56.58%

Non-current Assets 39.20% 43.42%
Total Assets 100.00% 100.00%
Current Liabilities 47.47% 46.72%
Non-current Liabilities 5.04% 13.67%
Total Equity 47.49% 39.61%
Total Liability & Equity 100.00% 100.00%

3.2.2 Vertical Analysis (Income Statement)

Table 7: Vertical Analysis of Income Statement

Description Audited 2016 (%) Audited 2017 (%)

Turnover 100.00 100.00

Cost of Sales 81.60% 82.94%
Gross Profit 18.40% 17.06%
Operating Profit 13.27% 11.76%
Profit after Tax 8.25% 7.00%

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3.3 Ratio Analysis

Financial ratios are the tools used to analyze financial condition and performance. By calculating
ratios one can get comparisons that are more useful than the raw numbers by themselves.
Financial ratios can be divided into five basic types: liquidity, leverage (debt), coverage, activity,
and profitability. No one ratio is itself sufficient for realistic assessment of the financial
condition and performance of a firm. With a group of ratios, however, reasonable judgments can
be made.

Audited Audited
Aspects Ratio Formula
2016 2017
Current Current Asset/Current Liabilities 1.28 1.21
Liquidity {Current Asset-(Inventory + Prepaid
Quick/Acid 1.05 1.01
Expense)}/Current Liabilities
Gross Profit
(Gross Profit/Sales)*100% 18.40% 17.06%
Margin
Net Profit
(Net Income after Tax/Net Sales)*100 8.25% 7.00%
Margin
Profitability
Return on (Net Income after Tax/Average
5.68% 4.12%
Asset Asset)*100
Return on (Net Income after Tax/Average
11.81% 9.57%
Equity Owner's Equity)*100
Total Asset
Net Sales/Average Total Asset 0.69 0.59
Turnover
Efficiency
Inventory
Cost of Goods Sold/Average Inventory 9.68 8.81
Turnover
Debt- total
Total Debt (Liability)/Total Assets
Solvency Asset 52.51% 60.39%
Debt-Equity Total Debt (Liability)/Total Equity 110.56% 152.46%

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4. Comments on financial analysis

4.1 Horizontal analysis

Over the period of three years, sales and cost of goods sold has increased gradually. However,
the relative increase in cost of goods sold was more than relative increase in sales compared to
its base year of 2015. As a result, gross profit, operating profit and net profit is lower in 2017
compared to 2016 and base year 2015. This might indicate lower profitability over the period of
3 years.

Over the period of 3 years, considering 2015 as base year, it is seen that current assets, non-
current assets, total assets, current liabilities, owner’s equity has increased gradually. However
the non-current liabilities had risen exceptionally over the last year of 2017 compared to 2015
and 2016. This is due to exceptionally high increase in long term borrowing net-off current
maturity. This is because Crown Cement has invested in setting up its unit 5 Plant. By
considering the nature of the loan, it has been recorded in non-current liabilities. However since
the assets are not yet fully transferred, it is not yet recorded in non-current asset of 2017.

Also it is seen that net current asset has decreased over the period of 3 years. This indicate lower
liquidity position in 2017 compared to 2016 and base year 2015.

4.2 Vertical analysis

Over the period of two years, cost of sales has increased and is around 82.27% from 2016-2017.
Gross profit margin has dropped and is approximately 17.73% over last two years followed by
drop in operating margin which is approximately 12.51% on an average in last two years (2016-
2017). This resulted in lower net profit after tax ranging from 8.25% in 2016 to 7% in 2017 due
to increased cost of goods sold and operating costs.

Over the period of two years, current assets have decreased and are approximately 58.69% in last

9
 two years of 2016 and 2017 whereas non-current assets have increased to an average of 41.31%.

Similarly, current liabilities has decreased slightly is around 47.10% whereas non-current
liabilities has increased significantly to an average of 9.35% in 2016-2017.

Equity has dropped over the period of last two years and is approximately 43.55% over the last
two years on an average. This indicates that the company has leveraged its capital structure by
debt and has invested in long term assets for growth financing.

4.3 Ratio Analysis

(a) Liquidity position trend analysis of Crown Cement Ltd. on Year 2016-2017

Current Ratio
1.30
1.28 1.28
1.26
1.24
1.22 Current
1.21
1.20
1.18
1.16
Year 2016 Year 2017

Figure 1: Current Ratio of Crown Cement 2016-2017

1. In 2017, Crown Cement had 1.21 times higher current assets than current liabilities i.e. the
company has TK 1.21 worth of current assets to pay off its TK 1 worth of current liabilities.

2. It is seen that current ratio increased from 1.28 times in year 2016 to 1.21 times in year 2017
because relative increase in current assets were less than relative increase in current liabilities
from year 2016-2017

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 Quick/Acid Ratio
1.06
1.05
1.04

1.02 Quick/Acid
1.01 Linear (Quick/Acid)
1.00

0.98
Year 2016 Year 2017

Figure 2: Quick Ratio of Crown Cement 2016-2017

3. In 2017, Crown Cement’s current asset excluding inventories and prepaid expenses are 1.01
times higher than the current liabilities.

4. From 2016-2017, there is a sharp decline by 0.05 from 1.05 in year 2016 to 1.01 in 2017. Even
though inventory level and current asset increased from 2016 to 2017, the relative change in
(current asset – current liabilities) is less than the relative increase in current liabilities for which,
the quick ratio is lower in 2017.

5. Since the quick ratio of Crown Cement is around 1.03 on an average for both years, this suggests
that Crown cement is not too dependent on its inventory to pay its short term liabilities.

6. The overall liquidity position of Crown Cement shows a declining trend from 2016 to 2017 as
indicated by current ratio and quick ratio indicating that company has lost some of its ability to
pay its short term obligation with available current asset which is unfavorable.

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(b) Profitability position trend analysis of Crown Cement Ltd. on Year 2016-2017

Gross Profit Margin

19.00%
18.40%
18.50%

18.00%

17.50%
17.06% Gross Profit Margin
17.00%

16.50%

16.00%
Year 2016 Year 2017

Figure 3: Gross Profit Margin of Crown Cement 2016-2017

1. In the year 2017, Crown Cement earned a gross profit of TK. 17.06 out of every TK. 100 sales.

2. From 2016 to 2017 gross profit margin decreased from 18.4% to 17.06%. This is because
relative decrease in gross profit was greater than relative increase in sales.

3. This means that Crown Cement is using its raw materials, labor and manufacturing-related fixed
assets less effectively in 2017 to generate profit compared to 2016.

Net Profit Margin

8.50% 8.25%
8.00%

7.50%
7.00%
7.00% Profit Margin

6.50%

6.00%
Year 2016 Year 2017

Figure 4: Net Profit Margin of Crown Cement 2016-2017

4. In the year 2017, out of every TK 100 sales, Crown Cement earns a profit of TK 7.

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5. From 2016 to 2017, net profit margin decreased from 8.25% to 7%. This is because relative
decrease in net income was more than relative increase in sales.

Return on Equity
14.00%
12.00% 11.81%
10.00% 9.57%
8.00%
6.00% Return on Equity
4.00%
2.00%
0.00%
Year 2016 Year 2017

Figure 5: Return on Equity of Crown Cement 2016-2017

6. In the year 2017, common shareholders earned a net income of TK 9.57 on every TK 100
investment.
7. Return on Equity (ROE) fell from 11.81 % in 2016 to 9.57 % in 2017. This is because relative
decrease in net income was more than relative increase in owner’s equity.

Return on Asset
5.68%
6.00%
5.00%
4.12%
4.00%
3.00%
Return on Asset
2.00%
1.00%
0.00%
Year 2016 Year 2017

Figure 6: Return on Asset of Crown Cement 2016-2018

8. In the year 2017, every TK. 100 worth of assets of Crown Cement generated TK. 4.12 of net
income.

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9. From 2016 to 2017, return on asset (ROA) has decreased from 5.68% to 4.12% because relative
decrease in net income was much greater than relative increase in total asset. This further
indicates that company is not making enough income from use of its assets.

10. Over the period of 2016 to 2017, profitability position of Crown Cement has dropped as
indicated by gross profit margin, net profit margin, return on owner’s equity and return on asset
that is unfavorable for the company.

(c) Efficiency position trend analysis of Crown Cement Ltd. on Year 2016-2017

Total Asset Turnover

0.70
0.69
0.65

0.60 Total Asset

0.59
Turnover
0.55

0.50
Year 2016 Year 2017

Figure 7: Total Asset Turnover Ratio of Crown Cement 2016-2017

1. In the year 2017, Crown Cement’s every TK.1 worth of assets is generating TK. 0.59 worth of
sales.

2. From 2016 to 2017, total asset turnover ratio has decreased from 0.69 to 0.59 because relative
increase in sales was less than relative increase in total asset.

3. This tells us that the company is not generating sufficient volume of business given its total
assets.

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 Inventory Turnover
9.80
9.68
9.60
9.40
9.20
9.00 Inventory
8.80 8.81 Turnover
8.60
8.40
8.20
Year 2016 Year 2017

Figure 8: Inventory Turnover Ratio of Crown Cement 2017-2018

4. In the year 2016, Crown Cement sold out and restocked its inventory 8.81 times.

5. From 2016 to 2017, Inventory turnover ratio dropped from 9.68 times to 8.81 times. This is
because the relative increase in cost of goods sold was less than the relative increase in inventory
level for which inventory turnover ratio has decreased which is unfavorable for the company.
Lower inventory turnover means Crown Cement might hold too many inventories in 2017
compared to 2016 which might be unproductive and represents investment with lower rate of
return. The days in inventory has increased from 37.7 days to 41.4 days due to lower inventory turnover.

6. The efficiency position is not favorable for Crown Cement as indicated by total asset turnover
ratio and inventory turnover ratio,

15
(d) Solvency position trend analysis of Crown Cement Ltd. on Year 2016-2017

Debt- total Asset

62.00%
60.00% 60.39%
58.00%
56.00%
54.00% Debt- total Asset
52.00% 52.51%

50.00%
48.00%
Year 2016 Year 2017

Figure 9: Debt to Asset Ratio of Crown Cement 2016-2017

1. In the year 2017, Crown Cement’s 60.39% of total assets were financed by the debt.

2. For every TK. 1 of total assets TK. 0.64 is financed by total debt.

3. From 2016 to 2017, debt to asset ratio gradually increased from 52.51 to 60.39% owing to the
fact that relative change in total liabilities was more than relative change in total asset for which
debt to asset ratio increased rapidly during the period.

Debt-Equity
200.00%

150.00% 152.46%

110.56%
100.00%
Debt-Equity

50.00%

0.00%
Year 2016 Year 2017

Figure 10: Debt to Equity Ratio of Crown Cement 2016-2017

4. In the year 2017, the capital structure of Crown Cement consists of 60.39% debt and 39.61%
equity.

16
5. From 2017 to 2018, Crown Cement is heavily financed by debt as indicated by increase in debt
to equity ratio from 110.56% to 152.46%. This is because relative increase in total equity was
less than relative increase in total liabilities.

6. The Company Crown Cement LTD’s debt management position can be explained by the debt to
asset ratio & debt to equity which shows that company has significantly increased its debt
financing over the period of two years. Even though debt financing has increased significantly,
this is an optimal capital structure because main benefit of debt indicates higher interest expense
that will reduce the taxable income. However, management should now ensure that it has enough
cash inflow to cover its debt obligation. As a consequence of debt financing, earning per share
has dropped from TK 5.01 in 2016 to TK 4.45 in 2017 which is unfavorable. However earning
per share is still higher than earning per share of TK 4.37 in 2015.

(e) Analysis of Crown Cement Ltd with Industry Average on Year 2017
Table 8: Analysis of Crown Cement with Industry Average 2017
Meghna Crown Heidelber Confidenc Industry
Holcim
Cement Cement g e Average
Aspects Ratio
Year Year Year
Year 2017 Year 2017 Year 2017
2017 2017 2017
Current 1.053 1.21 1.59 0.83 2.24 1.17
Liquidity Quick/Aci
0.899 1.01 1.34 0.5 1.9 0.937
d
Profit
1.31% 7.00% 8.19% 13.72% 7.40% 7.56%
Margin
Profitability
Return on
8.27% 9.57% 15.61% 14.03% 5.26% 11.87%
Equity
Total
Asset 1.11 0.59 1.12 1.01 0.51 0.96
Efficiency Turnover
Inventory
7.047 8.81 5.88 4.19 6.13 6.48
Turnover
Debt-
total 82.35% 60.39% 46.00% 51.01% 29.10% 59.94%
Solvency Asset
Debt-
466% 152.46% 86% 88% 41.10% 1.98
Equity

17
(a) The liquidity position of Crown Cement in 2017 is better than industry average as indicated by
current ratio of 1.21 compared to industry average of 1.17 and quick ratio of 1.01 compared to
industry average of 0.94 times thus indicating that Crown Cement is in a better position to pay
off its short term obligation with current assets than its competitors and is not too dependent on
its inventory.

(b) The Profitability position is stable for Crown Cement as it has a profit margin of 7% which is
lower compared to industry average of 7.56%. The return on equity is lower for Crown Cement
having an ROE of 9.57% compared to industry average of 11.87%. Thus competitors are in a
better profitable position.

(c) The efficiency position of Crown Cement is unfavorable in 2017 compared to its competitors as
indicated by asset turnover ratio of 0.59 times compared to industry average of 0.96 times.
However Crown Cement has higher inventory turnover ratio of 8.81 compared to industry
average of 6.48 times that might indicate strong sales. But in actual, the credit sales had gone up
as indicated by higher accounts receivables in 2017.

(d) Crown Cement has a capital structure of 60.39% debt and 39.61% equity that is similar to
industry average of 59.94% Debt to Asset ratio. However the company Crown Cement is
leveraged by less debt having debt to Equity of 152.46% than its competitors as indicated by
industry average of 198.12%

5. Conclusion

Crown Cement LTD has experienced a downfall in liquidity position and profitability position
from 2016 to 2017 that can be understood from horizontal and vertical analysis of income
statement and balance sheet.

The trend analysis of Crown Cement from 2016 to 2017 indicates that the company is not in a
favorable position in terms of liquidity, profitability, efficiency and solvency in 2017 compared
to 2016. Further comparison of Crown Cement with its competitors in 2017 tells us that Crown
Cement is better in terms of liquidity position and solvency than its competitors. However the

18
company is in unfavorable position in terms of efficiency and profitability. Hence management
should focus on controlling operating costs, cost of raw materials, labor etc. and take necessary
steps to better utilize its assets to gain efficiency that will result in higher profitability. The
company should focus on policies to lower credit sales, recover its outstanding account
receivables as well as focus on streamlining its operational process to mitigate risks and earn
higher returns.

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Appendix

a
b