Strategic Financial Ratio Analysis

Strategic pecuniary proportion summary Meghna cement move Bangladesh Limited & Heidelberg cement Bangladesh Limited For the socio-economic class of 2009,2010 & 2011 Course agnomen Fin 254 Section 11 Submitted to SFR Submission date 09/04/2013 Group 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) submission ratio depth psychology is the broad method by which financial entropy is converted into simple mathematic balances for comparison. Since the data is widely available, calculating ratio analysis takingss shtup be accomplished by anyone with access to in the public eye(predicate) financial statements.External usage of the ratio analysis data is widespread. While these ratios adoptt tell the whole story, sharp deviations from an industry standard, can foreshadow growth or decomposition. In this project we make believe s elected two companies from The cement Industries of Bangladesh, one as our main caller-up for which we intend to analyze finished Ratio Calculation and the other one as the direct rivalry to that attach to. The main ac partnership we have selected is the Heidelberg cement and the competitor company is to be Meghna Cement Mills Bangladesh Limited. twain of these companies argon enlisted in Dhaka ocellus Exchange since 2007 till present.The whole purpose of this project is to comparatively measure the main company (The Heidelberg Cement) to its direct competitor (The Meghna Cement Mils Bangladesh Limited), to determine the everyplace-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 em ploys around 43,000 people in more than 50 countries.In 1999, Heidelberg Cement acquired its operations in Bangladesh. The subsidiary Heidelberg Cement Bangladesh Ltd. , which is the food market leader in Bangladesh, operates two cement grinding plants in Dhaka, the capital city, and in Chittagong. At present it has 9. 31 % market shares among total market share of 78. 29 % of 13 major cement manufacturers in Bangladesh. The companys happen upon it 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 Ration 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 B ashundhara Group and it is one of the largest cement industries in the country producing nearly 1 million metric tons a course of study. The company is listed with both Dhaka and Chittagong Stock Exchanges. The last observed helping 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 following part of this project. Ratio Analysis When we calculate the ratios of a firm we have to go through vanadium major categories of ratios as follows * liquid state Ratio Which determines if the firm can make required payments for its maturing financial responsibilities through Liquid Cash drawn from its summations * productivity Ratio Which measures the ability of a firm to generate gross sales from its diligent Assets 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. * profitableness Ratio These ratios measure how efficiently a unit of sales is false into profit for the company * Valuation Ratio These ratios are used to measure how the market is valuing the firm (share price) in relationship to assets and incumbent earnings, profits and dividends. Liquidity Ratio There are trinitysome different ratios under liquidness ratios as follows * circulating(prenominal) Ratio * Working slap-up Ratio strong Ratio 1) reliable Ratio Measures the number of units of current assets to pay go forth for each unit of current liabilities. The approach pattern for authoritative Ratio Current Ratio = Current AssetsCurrent Liabilities Current Ratio = Current AssetsCurrent Liabilities Company delineate 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 works 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 calibrate and total 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 fine-tune and total assent went up in 2010. Heidelberg holds a unending 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. 2) Working Capital Ratio This Ratio measures the percentage of total assets that is invested in current assets. The rule of Working Capital Ratio Working Capital Ratio = Current AssetsTotal AssetsWorking Capital Ratio = Current AssetsTotal Assets Company identify 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 wa s 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) diligent 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 affectionate 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. productiveness RatiosThere are five different ratios under the criterion of productiveness Ratio * Receivable Turnover Ratio * Days Sales expectant (DSO) * Inventory Turnover * Total asset turnover ratio * set(p) Asset turnover Ratio 4) Total Asset Turnover Ratio (TA TO) This ratio estimates the number of units in Sales, produced by each units investment 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 relatively close to each other. However Meghnas Ratios are a teensy bit higher than Heidelbergs. So we could say that over the past three years Meghna has shown a little bit more efficiency than Heidelberg in utilizing its total assets for generating sales.In this scenario Meghanas performance as a competitor is break up than Heidelberg Cement 5) inflexible Asset Turnover Ratio (FA TO) This ratio estimates the number of units in Sales, produced by each unit investment in the companys Net Fixed Assets FA TO = Net SalesNet Fixed Assets FA TO = Net SalesNet Fixed As sets The formula for FA TO Company name 2011 2010 2009 Heidelberg Cement 2. 4539 (x) 3. 0817(x) 2. 7202 (x) Meghna 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 nub 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 significantly higher sales, on the other turn over Heidelbergs Sal es generating capacity from its Fixed Assets has declined. So Meghna holds an upper hand when it comes to use its Fixed Assets effectively. Leverage Ratios There are four different ratios under the criterion of Productivity Ratio * Debt to Asset ratio * Debt to uprightness * generation Interest Earned * Cash Flow to Debt ratio 1) Debt to Asset Ratio This ratio indicates the proportion of total assets financed by debt at a picky point in time The formula for Debt to Asset RatioDebt to Asset = Total LiabilitiesTotal Assets X light speed 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 not 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 proportion 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 worry to draw a concluding summary by using the sentiment of Dupont Analysis in comparative traits for both of the firms.The Dupont system provides a cheeseparing 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 * Profitability Profit generated from a companys Sales * Asset Utilization Sales generated from investment in Assets * Debt Utilization piece of Assets that is held against Owners Equity. Return on Equity ( roe) = Net IncomeSales X SalesTotal Asset X Total AssetTotal Equity Or, hard roe = Profit border (PM) X TA TO X Equity multiplier (EM)Return on Equity (hard 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 appr oximately similar, the ROE falls callable 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 pitiable performance in generating Profit from its Sales, in the last observed year of 2011.