Strategic Financial Ratio Analysis

strategical Financial dimension Analysis Meghna cementum Mills Bangladesh picky & Heidelberg cement Bangladesh Limited For the year of 2009,2010 & 2011 stemma Title Fin 254 Section 11 Submitted to SFR Submission date 09/04/2013 throng 5Mohammad Riyasad Jamil (Id XXXXXXXXXX) Saika Alam (Id XXXXXXXXXX) Rifat Kaniz (Id XXXXXXXXXX) Mohammad Shaikh Ashfaq (Id1020668030) Anika Tabassum (Id XXXXXXXXXX) Ishraq Aahmed (Id XXXXXXXXXX) Introduction proportion synopsis is the broad method by which monetary data is converted into simple mathematic proportionalitys for comparison. Since the data is widely available, conniving ratio analysis effects can be accomplished by anyone with access to public financial statements.External usage of the ratio analysis data is widespread. While these ratios dont tell the whole story, sagaciously deviations from an industry standard, can forecast growth or step-down. In this project we have selected two companies from The cement Industries of Bangladesh, one as our main club for which we intend to analyze through dimension Calculation and the some other one as the direct competitor to that club. The main association we have selected is the Heidelberg Cement and the competitor company is to be Meghna Cement Mills Bangladesh Limited. Both of these companies are enlisted in Dhaka Stock Ex neuter since 2007 money box present.The whole purpose of this project is to comparatively evaluate the main company (The Heidelberg Cement) to its direct competitor (The Meghna Cement Mils Bangladesh Limited), to determine the all over-all strategic financial health of The Heidelberg Cement. Heidelberg Cement Bangladesh Ltd, one of the group companies of Heidelberg Cement Group, founded in Germany in 1873, with its core products being cement, ready-mixed concrete, aggregates and related activities, is one of the leading producers of building materials worldwide. The group employs around 43,000 people in more than 50 countries.In 19 99, Heidelberg Cement acquired its operations in Bangladesh. The subsidiary Heidelberg Cement Bangladesh Ltd. , which is the market leader in Bangladesh, operates two cement grinding plants in Dhaka, the speeding-case letter city, and in Chittagong. At present it has 9. 31 % market shares among chalk up market share of 78. 29 % of 13 major cement manufacturers in Bangladesh. The companys last estimated production from 2011 was 1,320,129 MT and observed sales were 1,318,110 MT. The last observed market value from 2001 of this company was 248. 8 Taka/share and the book value was 142 Taka/share.So the company was overvalued by the Market. These worked as the reasons for us to choose this company as a test company for The Strategic proportionn Analysis. We have selected Meghna Cement Mills Bangladesh Limited to be the direct competitor of our test company for this project. Meghna Cement Mills Ltd is the first manufacturing unit of Bashundhara Group and it is one of the largest cemen t industries in the country producing nearly 1 million metric tons a year. The company is listed with both Dhaka and Chittagong Stock Exchanges. The last observed Share price of the company from 2011 was 136. 0 Taka/share. Although its a domestic company compared to The Heidelberg Cement, it gives quite a completion to the Heidelberg Group in Bangladesh as we are going to observe in the hobby part of this project. Ratio Analysis When we calculate the ratios of a squiffy we have to go through five major categories of ratios as follows * Liquidity Ratio Which determines if the firm can make required payments for its maturing financial responsibilities through Liquid Cash drawn from its assets * productiveness Ratio Which measures the ability of a firm to generate Sales from its employed summations Leverage Ratio These ratios put a light on the Financial Leverages of a firm and the ability of that firm to meet those Financial Leverages effectively. * favourableness Ratio These rat ios measure how efficiently a unit of sales is turned into profit for the company * evaluation Ratio These ratios are used to assess how the market is valuing the firm (share price) in relationship to additions and flowing earnings, moolah and dividends. Liquidity Ratio There are three different ratios under liquidity ratios as follows * new Ratio * works jacket crown of the United States Ratio Quick Ratio 1) reliable Ratio Measures the number of units of genuine assets to pay out for each unit of current liabilities. The facial expression for Current Ratio Current Ratio = Current AssetsCurrent Liabilities Current Ratio = Current AssetsCurrent Liabilities Company digit 2011 2010 2009 Heidelberg cement 0. 56 (x) 0. 17 (x) 0. 56 (x) Meghna cement 0. 70 (x) 0. 64 (x) 0. 66 (x) Interpretation In 2009 Heidelbergs working(a) capital ratio was 0. 56 (x) and in 2010 and in 2011 its working capital was 0. 17 (x) and 0. 56 (x) which implies its current asset went round off and tot al asset went up in 2010.In 2009 Meghnas working capital ratio was 0. 66 and in 2010 and in 2011 its working capital was 0. 64 and 0. 70 which I plies its current assent went down and total assent went up in 2010. Heidelberg holds a constant working capital ratio which diminutiond in 2010 and they managed to pull it up in 2011 where as Meghnas working capital increased gradually from 2009 to 2011. 2) Working Capital Ratio This Ratio measures the percentage of total assets that is invested in current assets. The formula of Working Capital Ratio Working Capital Ratio = Current AssetsTotal AssetsWorking Capital Ratio = Current AssetsTotal Assets Company name 2011 2010 2009 Heidelberg cement 0. 56 (x) 0. 17 (x) 0. 56 (x) Meghna cement 0. 70 (x) 0. 64 (x) 0. 66 (x) Interpretation In 2009 Heidelbergs working capital ratio was 0. 56(x) and in 2010 and in 2011 its working capital was 0. 17 (x) and 0. 56 (x) which implies its current asset went down and total asset went up in 2010. In 2009 Meghnas working capital ratio was 0. 66 (x) and in 2010 and in 2011 its working capital was 0. 64 (x) and 0. 70 (x) which implies its current asset went down and total asset went up in 2010.Heidelberg holds a constant working capital ratio which decreased in 2010 and they managed to pull it up in 2011 where as Meghnas working capital increased gradually from 2009 to 2011. 3) Quick Ratio The quick ratio gives a clearer indication of the firms ability to meet its maturing financial obligations out of current, liquid assets. The formula for the Quick Ratio Quick Ratio = Current Assets-InventoriesCurrent Liabilities Quick Ratio = Current Assets-InventoriesCurrent Liabilities Company name 2011 2010 2009 Heidelberg Cement 1. 61(x) 1. 74 (x) 1. 51 (x) Meghna Cement 0. 86 (x) 0. 80 (x) 0. 79 (x)Interpretation In 2011 Heidelbergs current asset without its inventory was 1. 61 (x) and in 2010 and 2009 it was 1. 74 (x) and 1. 51 (x) its current liabilities. In 2011 Meghnas current asset without its inventory was 0. 86 (x) and in 2010 and in 2009 it was 0. 80 (x) and 0. 79 (x) its current liabilities. Heidelbergs performance declined over the year of 2009 to 2011. This decrease can be attributed to the fact that the relevant change in its current liabilities was more than the relevant change in its current asset and inventory. Whereas its competitor Meghna cements performance increased over the year. Productivity RatiosThere are five different ratios under the measurement of Productivity Ratio * Receivable turnover Ratio * Days Sales Outstanding (DSO) * Inventory Turnover * Total asset turnover ratio * restore Asset turnover Ratio 4) Total Asset Turnover Ratio (TA TO) This ratio estimates the number of units in Sales, produced by each units investiture in the companys Assets TA TO = Net SalesTotal Assets TA TO = Net SalesTotal Assets The formula for TA TO Company name 2011 2010 2009 Heidelberg Cement 1. 0631 (x) 1. 1586 (x) 1. 1951 (x) Meghna Cement 1. 844 (x) 1. 5855 (x) 1. 4189 (x) Interpretation In 2009 Heidelbergs TA TO was 1. 1951 (x), in 2010 and 2011 its TA TO was 1. 1586 (x) and 1. 0631 (x) of its Total Assets In 2009 Meghnas TA TO was 1. 4189 (x), in 2010 and 2011 its TA TO was 1. 5855 (x) and 1. 4844 (x) of its Total Assets Both the two companys TA TO s are comparatively close to each other. However Meghnas Ratios are a little bit higher than Heidelbergs. So we could say that over the past three years Meghna has shown a little bit more dexterity than Heidelberg in utilizing its total assets for generating sales.In this scenario Meghanas performance as a competitor is better than Heidelberg Cement 5) indomitable Asset Turnover Ratio (FA TO) This ratio estimates the number of units in Sales, produced by each unit investment in the companys Net furbish up Assets FA TO = Net SalesNet Fixed Assets FA TO = Net SalesNet Fixed Assets The formula for FA TO Company name 2011 2010 2009 Heidelberg Cement 2. 4539 (x) 3. 0817(x) 2. 7202 (x) Meghn a Cement 4. 9925 (x) 4. 3774 (x) 4. 1159 (x) Interpretation In 2009 Heidelbergs FA To was 2. 7202 (x) and in 2010 it went up to 3. 817 (x) of its Fixed Assets. But in 2011 the FA TO went down to 2. 4539 (x), the companys Fixed Assets. This indicates that in 2011 Heidelberg invested more in its Current Assets in comparison to the previous years. As a result the company was generating fewer sales from its Fixed Assets compared to 2009 & 2010. In 2009 Meghnas FA TO was 4. 1159 (x) its Fixed Assets. In 2010 and 2011 the FA TO was 4. 3774 (x) and 4. 9925 (x) of its Fixed Assets. Meghna had a significant rise in its FA TO over the years. This means they are utilizing their Fixed Assets more efficiently for generating sales.Over the years Meghna has shown efficiency in utilizing its Fixed Assets and has generated importantly higher sales, on the other mint Heidelbergs Sales generating capacity from its Fixed Assets has declined. So Meghna holds an upper hand when it comes to utilize its F ixed Assets effectively. Leverage Ratios There are four different ratios under the criterion of Productivity Ratio * Debt to Asset ratio * Debt to candour * Times Interest Earned * Cash eat to Debt ratio 1) Debt to Asset Ratio This ratio indicates the proportion of total assets financed by debt at a particular take aim in time The formula for Debt to Asset RatioDebt to Asset = Total LiabilitiesTotal Assets X degree Celsius Debt to Asset = Total LiabilitiesTotal Assets X 100 Company name 2011 2010 2009 Heidelberg Cement 34. 2989 (%) 33. 7784 (%) 34. 1261 (%) Meghna Cement 83. 5524 (%) 81. 5425 (%) 79. 7020 (%) Interpretation Heidelberg did non have any significant change in its Debt to Asset Ratio over the year though it went down by a little in 2010. We can see that in 2009, 34 % of its Assets were financed by Debt and in 2010 and 2011 33% and 34% of its Assets were financed by its Liabilities.Heidelberg holds a large proportion of Assets to its Equity and a less(prenominal) pr oportion to debt. Meghna has a large Debt to Asset Ratio which has a significant rise over the years, from 2009 to 2011 its debt to asset went up from 79% to 83%. Meghna holds a large proportion of Assets financed by its Liabilities. In comparison, Heidelberg has the upper hand In this segment, because it has a lot less Assets exposed to Debt rather than Meghna, which has a large Debt against its Assets. Dupont Analysis At the end of the project wed like to draw a concluding summary by victimization the concept of Dupont Analysis in comparative traits for both of the firms.The Dupont system provides a good starting point for any financial analysis. It shows that financial strength in a company comes from three major sources, rather it focuses on three major segments * lettuceability Profit generated from a companys Sales * Asset Utilization Sales generated from investment in Assets * Debt Utilization Portion of Assets that is held against Owners Equity. Return on Equity (hard ro e) = Net IncomeSales X SalesTotal Asset X Total AssetTotal Equity Or, ROE = Profit border (PM) X TA TO X Equity Multiplier (EM)Return on Equity (ROE) = Net IncomeSales X SalesTotal Asset X Total AssetTotal Equity Or, ROE = Profit Margin (PM) X TA TO X Equity Multiplier (EM) So, the formula for Dupont looks like this Dupont analysis for Heidelberg Cement From the Ratios we calculated earlier (PM, TA TO & EM) we get the following values for ROE by using the Dupont formula Year PM TA TO EM ROE 2011 8. 8028% 1. 0631 (x) 1. 5220 (x) 14. 3243% 2010 12. 0014% 1. 1586 (x) 1. 5101 (x) 20. 977% 2009 11. 5059% 1. 1951 (x) 1. 5181 (x) 20. 8749% Interpretation From 2009 to 2010 we can see a slight rise up from 20. 8749% to 20. 9977% in the ROE Ratio for Heidelberg Cement. However from 2010 to 2011 there was major decline in ROE of 20. 9977% to 14. 3243%. Where TA TO and EM remains rough similar, the ROE falls due to a declining Profit Margin in the year of 2011. So undermining the decline in the Profit Margin, it is safe to say that Heidelberg showed a considerable poor performance in generating Profit from its Sales, in the last observed year of 2011.