Introduction:

As part of our course curriculum (course IB: 105) I was given an assignment related to principles of accounting. In this context I worked on Heidelbergcement Bangladesh limiteds financial report of 2008.The focus of this assignment was to acquaint and analyze a real world corporate financial report.

Heidelberg cement Bangladesh Ltd. Company profile:

In around 50 countries across the world, the name HeidelbergCement stands for competency and quality. HeidelbergCement is the global market leader in aggregates and a prominent player in the fields of cement, concrete and other downstream activities, making it one of the worlds largest manufacturers of building materials. Heidelbergcement Bangladesh Ltd. Is a direct subsidiary of Heidelbergcement Germany with 61% stake in the entity? In 1998 Heildelbergcement group established its presence in Bangladesh by setting up a floating terminal with on board bagging facilities in the port of Chittagong and by distributing the cement to the key markets of Dhaka and Chittagong. In 1999 the group further strengthened its position in Bangladesh and built a green filed manufacturing plant named Scancement international Ltd. In 2000 Heidelbergcement Group also bought a minority position in Chittagong Cement Clinker Grinding Co. Ltd quickly followed by the acquisition

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of a controlling stake. In 2003 two companies were amalgamated and the companys name was changed to HEIDELERGCEMENT BANGLADESH LIMITED.

Missions:
Building on local responsibility for international success is Heidelbergcement groups business culture,

Products:
Heidelbergcement group interests in cement and ready mixed concrete and related building materials

Cement Brands:
HCBL operates their business through two cement brands namely, SCAN CEMENT and RUBY CEMENT.

Location:
HCBLs registered office is located At South Halishshr, Chittagong and corporate office is situated in Red Crescent Concord Tower, 17 Mohakhali, Dhaka.

Plants:
HCBL currently operates two plants in Dhaka and Chittagong.

Stock Exchange Listing:

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The issued ordinary shares of HCBL are listed with Dhaka Stock Exchange Ltd, and Chittagong Stock Exchange Ltd.

Operations:

Financial year 2004 2005 2006 2007 2008

Production (in MT) 807,875 818,260 1,007,401 1,018,827 1,058,016

Sales (in MT) 807,623 816,470 1,010,478 1,018,944 1,059,606

Key Company information:

Year of Establishment Country of operation Commercial production status Business line Parental Company Public limited Company Manufacturing of cement and ready mix concrete Heidelbergcment group Germany Bangladesh 2003 1998

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Authorized Capital (Tk) Paid up Capital ( TK) Number of Shareholders

100 million

56.5 million

Around 16000

Heildelbergcement Bangladesh ltds Position Present situation: Production

Heighdelbergcement Bangladesh operates there business in Bangladesh trough two cement brands named Scan Cement and Ruby Cement. These two cement brands maintained and continued the price leadership in all markets due to high and consistent quality and uninterrupted supply at the 2008. Total cement sold was 1060 kt in 2008 versus 1019 kt in 2007. At present HCBL has cement operations with total capacity of 2.0 million tons of cement (OPC basis). It currently operates 2 plants, one of which is located in Chittagong (two units) and in Kanchpur, Narayangonj.

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Sales:
Total cement sold was 1060 kt in 2008 versus 1019 kt in 2007.HCBL maintained a sales volume growth of about 4%.

Financial Year 2004 2005 2006 2007 2008

Production (in MT) 807,875 818,260 1,007,401 1,018,827 1,058,016

Sales (in MT) 807,623 816,470 1,010,478 1,018,944 1,059,606

Management:
The Heidelberg corporate image is Building worldwide growth by building a better world The Company deeply believes in Management by Objectives and accordingly the company has introduced a new variable system for most of the employees, which is linked to individual objectives as well as company performances... An excellent management team and committed, qualified employees are the foundation of HCBLs success. As a performance and resultorientated company, HCBL gives great value on the competence of their employees and management. This is why HeidelbergCement offers a wide range of possibilities for professional advancement and looks after occupational health and safety.

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Future Plantings:
HCBL has taken several plans for the betterment of the company.

Expansion:
HCBL has taken a plan to expand unit of the company. They have decided to set up a packing plant it increase its bagging capacity from its own source. To ensure more high quality cement production they quality to employ latest mill control technology. The company will set up packing plant in unit-iv at Kanchpur with the capacity of packing of 1200 bags per hour at a cost of Tk 36.00 million from its own source.

Principle Sources and Uses of Cash:

The term CASH refers to both currency and cash equivalents. The inflow and outflow of HCBl is shown from three perspectives Cash flows from operating activities Cash flows from investing activities and Cash flows from financial activities.

Cash flows from operating activities:

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Cash received from customers:

Growth cash received from customers arrived after adjusting accounts receivables for the year. HCBL collected Tk 6,332,191 from customers at FY08.There was about 13.76% increases from previous year.

Operating Income:
HCBL received Tk 84,205 from operating income. Interest income on bank deposits was Tk 77,593.

Uses: Payment to suppliers:

HCBL paid Tk 5,480,284 to the supplier at FY08, which was Tk 3, 835,873 at 2007.

Inventory payments:
For buying raw materials, packing materials etc HCBL made a payment of Tk 1151671

Payment of operating expenses:

Tk 628,326 was paid to meet operating expenses.

Payment of financial expenses:

Interest on NORAD loan, bank gurantee, interest on ADP, interest on supplier credit etc are financial expenses of HCBL. At FY08 Financial expenses of the company has increased about 23.95% from 2007.

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Income tax:
HCBL paid about Tk 206,802 income tax which is Tk 109,855 more than year 2007.

USES of CASH Payment of operating expenses Cash payment to suppliers Payment to financial expenses Payment of tax Purchase of fixed assets Payment of dividends Repayment of long and short term loans

SOURCES of CASH Cash receipts from customers Operating income Sales of fixed assets Borrowings Interest revenue

Cash flows from investing activities:

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Sources: Sales of fixed assets:

Selling fixed assets is another source of cash for the company. For the year 2007 and 2008 HCBL sold plant and equipment, furniture, vehicles. Sales of fixed assets 2008 (Thousand Tk) Plant and equipment Furniture and equipment Transport and vehicles Total 4,922 5,692 10614 2008 (Thousand Tk ) 4,572 3160 884 8,616

Uses: Purchase of fixed assets and software:

HCBL used cash for purchasing fixed assets and software.

Uses of cash

2008 (Thousand Tk)

2007 (Thousand Tk) 3,684

Purchase of Software

2,880

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Purchase of fixed assets

127,3558

423,047

Cash flows from financial activities: Sources: Short term loan received:
HCBL received short term loan from Meghna Energy Limited amounting to TK 175,274.

Long term loan repayment:

The company repaid an amount of Tk 50,230 in respect of long term loan repayment with NOARD which is Tk 2,840 less than FY07.

Payment of dividend:
In 2008 the company paid dividends of Tk 120,861 while Tk 83,103 in 2007.

Amount of cash received from customers:

HCBLs sales was about Tk 6,369,516 and collected Tk 6,332,191 from their customers. Cash collection was Tk 37,325 less than their sales of 2008. But the company collected about 13.76 %

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more from customers in comparison to previous year. At FY07 HCBL collected Tk 5,573,231 while they made sales of Tk 5,621,274.The company made better cash collection from the year 2007.

2008 (Thousand Tk) Sales Cash Collection Difference between sales and cash collection 6,369,516 6,332,191 37,325

2007 (Thousand TK) 5,621,274 5,573,231 48,043

Increase (%)

13.31 13.61

Computation and analysis of various ratios:

Accounting ratio are used as a relative measure that helps to evaluate a companys operations and status. Shareholders, creditors and mangers are interested in ratio analysis as it helps them to get a clear view of a companys performance.

Return on Assets:
Explanation: Return on assets asses the firms ability to operate efficiently. Formula:

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Return on assets= Net income/Total assets Computation: Year 2008 Return on assets = 5, 92,524/5,870,540 Return on assets = 10% Analysis: ROA 10% is very effective for HCBL.HCBL s asset management is all right, efficient asset management helped the company to increase its net income.

Return on equity:
Explanation: Return on equity shows the relationship between the amount of net income and owners equity. Formula: Return on equity = Net income / Owners equity Computation: Year 2008 Return on equity= 5, 92,524/3,308,072 Return on equity = 18%

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Analysis: Profit per Tk of stockholders investment is increasing for HCBL which is indicated by ROE 18%.

Average number of days to collect accounts receivable:

Explanation: The length of average collection for accounts receivable. Formula: Average number of days to collect accounts receivable = 365days/ accounts receivable turnover Accounts receivable turnover = sales/accounts receivable Computation Year 2008 Accounts receivable turnover = 6,369,516/6, 04,752 Account receivable turnover = 10.53 times Average number of days to collect accounts receivable = 365/ 10.53 Average number of days to collect accounts receivable = 35 days

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Analysis: HCBL collected cash from customers within 35days in 2008 which point towards a good collection period.

Average number of days to sell inventory:

Explanation: This ratio shows that how many days it takes to get goods to produced and sold. Formula: Average number of days to sell inventory = 365days/ Inventory turnover Inventory turnover = Costs of goods sold/ Inventory Computation: Year 2008 Inventory turnover = 5,148,797 / 1,454,869 Inventory turnover = 3.53 times Average number of days to sell inventory = 365 / 3.53 Average number of days to sell inventory = 103 days Analysis: It took about 103 days to for HCBL to produce and sell inventories which indicates a higher production and sales period.

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Current ratio:
Explanation: Current Ratio shows a firms ability to meet current liabilities with its current assets. Formula: Current ratio = Current assets /Current liabilities Computation: Year 2008 Current ratio= 3,019,316/2,380,637 Current ratio = 1.27 times Analysis: Current ratio of HCBL for the year 2008 was 1.27 times. It means HCBL had the ability to meet financial obligations at FY08.To repay Tk 1 current liability HCBL possessed Tk 1.27 which indicates the solvency of HCBL. At 2008 current assets was Tk 3,019,316 while current liabilities was Tk 2,380,637.

Quick ratio:
Explanation:

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Acid Test Ratio or Quick Ratio shows a firms ability to meet current liabilities with its most liquid assets.

Formula:

Quick ratio = (current assets-inventory)/ current liabilities

Computation:

Year 2008

Quick ratio = (3,019,316-1,454,869) / 2,380,637

Quick ratio = .65 times.

Analysis:

Quick assets are those current assets that are convertible into cash. Inventories are the least current assets. HCBLs quick ratio was .65 times at 2008 which was not satisfactory for the company. HCBL had to rely on sale of inventories to pay current liabilities.

Debt to equity ratio:

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Expiation: This ratio assesses the funds provided by creditors versus the funds by owners.

Formula:

Debt to equity ratio = Total liabilities / Shareholders equity

Computation:

Year 2008

Debt to equity = 2,562,468 / 1,170,693

Debt to equity = 218.90 %

Analysis:

HCBLs debt to equity ratio is 218.90% for the year 2008. enough equity. Indicates that the firm bears less creditor risk

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Financial Performance of HCBL:

Accounting ratios of HCBL (computed in the previous section) were all positive for the year 2008. These positive ratios are the key indicators of good financial health of the company. In FY08 production and sales was increased by 3.85% and 13.31% correspondingly. Net revenue was Tk 7, 48,242 more than previous year. There was an increase of 4.67% in the net income at 2008. Total assets also improved by 13.93% and total liabilities were decreased by Tk 2, 66,617 in comparison to 2007. Financial expense was Tk 13,197 more than 2007 while operating income was higher about Tk 34,242. HCBL made cash collection of Tk 6,332,191 from their sales of Tk 6,369,516.

Alarming Issues :
Heidelbergcement Bangladesh Ltd.s overall financial performance is satisfactory. Through all my observations and analysis I want to focus on some factors which should be resolved. HCBLLs quick ratio for the FY08 was .65 times. HCBL had to rely on the sales on inventories to pay its current obligations. Average number of days to sell inventory ratio was 103 days which shows that the company needs a longer period to produce and sell its inventories.

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 It took more cash to meet financial expense at the year 2008 than 2007. Return on assets ratio of HCBL was decreased by 2% in FY08.

Recommendations:
Some solutions which can be helpful to HCBL are given below Without relying on the sales of inventory HCBL should increase their liquidity for the payment of current obligations. As it took longer period to produce and sell inventories, the company should bring change in their production process to increase its production Financial expenses should be reduced by proficient cash management. Managerial performance should be more efficient for better asset management.

Conclusion:
Analysis of annual report of Heidelbergcement Bangladesh ltd. gave me better understanding about financial accounting. I learnt how to prepare balance sheet, income statements and cash flow statements, how to evaluate a companys financial health , financial risks, managerial performance . Computation and analysis of different accounting ratios helped me to know how decisions can be taken by using ratios. All these practical leanings will prove to be beneficial for my future career.

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BIBLIOGRAPHY:
1. Heidelbergcement Bangladesh LTD. Annual Report 2007-2008. 2. www.heidelbergcement.com 3. Stephen A. Ross (2006) Corporate Finance McGRAW HILL ,7th Edition.,P- 35-39 4. Thomas P. Edmonds Fundamental Financial Accounting Concepts McGRAW Hill, 3rd Edition.

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