Fin254 Report-1 2020 spring PDF

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RATIO ANALYSIS OF HEIDELBERGCEMENT BANGLADESH & LAFARGEHOLCIM BANGLADESH Course: FIN254.11 APRIL 13, 2020

SUBMITTED TO: Ms. Shanila Taneem Senior Lecturer Department of Accounting and Finance

SUBMITTED BY:

Name

ID

Sameen Tashfia

1813206030

Tanzeem Mahamud

1831189030

Kazi Sumaiya

1831893030

Samanta Obaid

1911384630

Tasnim Zaman Asha

1911903030

0

Date: 13h April, 2020

Ms. Shanila Taneem Senior Lecturer Department of Accounting and Finance, School of Business and Economics, North South University Subject: Submission of report on ratio analysis of two companies Dear Ma’am, Here is the report that we were assigned to do as per your request on the topic “Report on ratio analysis of HEIDELBERGCEMENT BANGLADESH Ltd and LAFARGEHOLCIM BANGLADESH Ltd”. The report has been completed by the knowledge we have gathered from the course “FIN254”. We have tried to employ our best knowledge to prepare this report as accurately as possible and it sure has enhanced our understanding through financial skills. Our group would be obliged if you read the report carefully where we will be trying to analyze the two companies’ performances and base the report in correct comparison through factual data. We have tried our level best in order to complete the report accurately, as much as possible. We hope that this effort helped you to see our knowledge of the subject. Thank you, Yours obediently, Name:

ID:

Sameen Tashfia

1813206030

Tanzeem Mahamud

1831189030

Kazi Sumaiya

1831893030

Samanta Obaid

1911384630

Tasnim Zaman Asha

1911903030

1

Acknowledgement We are thankful to our groupmates, research materials and to all those people who provided us with important information and gave us valuable advice. Special gratitude to Ms. Shanila Taneem, Lecturer, North South University for giving us a good guideline for assignment throughout numerous suggestions, and also by encouraging and helping us to coordinate our project and making it possible to finish our report effectively. We would also like to thank Almighty Allah for giving us the patience and strength amidst the global pandemic in order to complete this project successfully. While our dedication and teamwork made the completion of this project on time, we couldn’t have done it without Ms. Shanila Taneem’s grooming and motivation.

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Table of Contents Introduction ........................................................................................................... 4 Ratio Analysis ....................................................................................................... 6 Liquidity ratios ................................................................................................... 6 Activity Ratios ................................................................................................... 8 Profitability Ratios ........................................................................................... 11 Debt Management Ratios................................................................................. 18 Market Ratios ................................................................................................... 20 Conclusion & Recommendation ......................................................................... 22 References ........................................................................................................... 23

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Introduction Heidelberg Cement Bangladesh Ltd Heidelberg Cement Bangladesh Ltd (HCBL) is one of the largest producers of quality cement in Bangladesh. Heidelberg Cement Bangladesh Ltd is a member of the Heidelberg Cement Group, which was founded in Germany in 1873. The core products of this company are cement, ready- mixed concrete, aggregates and related activities. It is one of the leading producers of building materials worldwide. It is also impressive due to the group employing 60,000 people in 3,000 locations of 60 countries, and its reported annual turnover is equivalent to €15.2 billion. In Bangladesh, it represents two reputed brands namely “Ruby Cement” and “Scan Cement”. In 1998, Heidelberg Cement Group established its presence in Bangladesh in the port of Chittagong and by distributing the cement to the key markets of Dhaka and Chittagong. The latest milestones and achievements of HCBL are the successful acquisition of 99.99% shares of Meghna Energy ltd in 2017 and the inauguration of another SILO in its Kanchpur Plant, having a capacity of 8000MT. The prestigious projects of HCBL are the Bijoy Sarani- Tejgaon Railway Overpass, the Mohakhali Flyover, Shah Amanat International Airport, North South University etc. The Padma Multipurpose Bridge and the Cox’s Bazaar Airport Development Project are some of the ongoing illustrious projects of Heidelberg Cement Bangladesh Ltd. Heidelberg Cement’s current and future intended, product quality and sustainability relative to projected market demand are the premeditated advantage that will enable the Company to enhance its profitability and future growth. The Company continues to pursue a prudent longterm strategy which appropriately balances margins with growth.

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LafargeHolcim Bangladesh Ltd. LafargeHolcim Bangladesh Ltd. (LHBL) is a joint venture of LafargeHolcim and Cementos Molins, and it distinguishes itself as the only fully integrated Cement Company in Bangladesh, producing clinker and cement of high premium quality. Since the beginning in 1997, Lafarge Surma Cement has contributed to millions of lives by providing durable, affordable and accessible building materials and solutions as well as by undertaking initiatives for the betterment of the economy, society and environment. Operating for more than a decade, it has made about US$ 500 million investment in building one fully integrated cement plant and three grinding plants --- the largest foreign direct investment in the sector. With state-of-the art technology and well-groomed staff, the company produces world class cement to meet the growing demand generated by massive infrastructure development programs and improved socio-economic conditions. LafargeHolcim Bangladesh Limited is also regarded as a dependable solution provider in construction materials. It is producing and supplying customized cement for high profile projects in the country. Using tailored processes, LHBL’s Geocycle program is converting industrial waste into a source of heat for operating the cement kilns. Besides, as part of its Corporate Social Responsibility, the company has an extensive welfare programs for the local community around its plants in Bangladesh and Meghalaya. These programs have been benefitting thousands of people to eject out from the cycle of poverty and run decent lives with opportunities for education, empowerment and health-care. The LHBL plant at Chhatak near Sylhet in north east Bangladesh is a unique cross-border operation, its sources limestone, the basic raw material, from its own quarry in neighboring Meghalaya in India. By producing clinker, this plant enables the country save around US$ 45 million annually in foreign exchange. Besides, the company has provided direct and indirect employment opportunities for over 3000 people.

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Ratio Analysis Liquidity ratios: 1. Current Ratio The current ratio can be a useful measure of a company’s short-term solvency meaning it refers to the ability of a business to pay its short-term obligations when they become due. A higher current ratio indicates strong solvency position and is therefore considered better. Company name

2014

2015

2016

2017

Lafarge

2.29

1.99

2.55

2.24

Heidelberg

2.33

1.96

1.73

1.59

CURRENT RATIO CURRENT RATIO

3 2.5

2.55

2.33 2.29

2.24

1.96 1.99 1.73

2

1.59

1.5 1 0.5 0

2014

2015

2016

2017

Lafarge

2.29

1.99

2.55

2.24

Heidelberg

2.33

1.96

1.73

1.59

YEARS Lafarge

Heidelberg

Interpretation Lafarge: If we look at Lafarge’s Current Ratio starting from 2014, it has decreased till 2015 and increased again in the next year to only fall by the end of 2017. Heidelberg: On the other hand, Heidelberg’s current ratio kept declining throughout the four years till 2017. Comparison: The current ratio, one of the most commonly cited financial ratios, measures the firm’s ability to meet its short-term debts. It is better to have a higher current ratio in order to indicate a higher liquidity of a business. Comparing the companies, we can see that 6

Lafarge is doing better than Heidelberg current ratio wise.

2. Quick Ratio Quick ratio measures a firm’s ability to pay its short-term debts without including inventory in their current assets. Company name

2014

2015

2016

2017

Lafarge

1.09

1.63

2.16

1.90

Heidelberg

1.96

1.65

1.34

1.24

QUICK RATIO 2.5

2.16 1.96

QUICK RATIO

2

1.9 1.65 1.63 1.34

1.5

1.24

1.09 1 0.5 0

2014

2015

2016

2017

Lafarge

1.09

1.63

2.16

1.9

Heidelberg

1.96

1.65

1.34

1.24

YEARS Lafarge

Heidelberg

Interpretation Lafarge: The quick ratio of Lafarge started to increase in 2014 from 1.09 to 2.16 till 2016 which eventually fall again 1.9 by the end of 2017. Heidelberg: The quick ratio just like the current ratio declined till 2017. Comparison: Heidelberg had a higher quick ratio of 1.96 in 2014 and 1.65 in 2015 compared to Lafarge who had a quick ratio of 1.09 in 2014 and 1.63 in 2015 respectively. In 2016 the quick ratio of Lafarge increased to 2.16 and became higher than Heidelberg’s one which decreased to 1.34. The quick ratio fell in 2017 for both companies but Lafarge still had a higher

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ratio of 1.9 compared to that of Heidelberg which had only 1.24. Indicating that Lafarge where easily able to get rid of their short term debts excluding inventories than that of Heidelberg.

Activity Ratios: 1. Average Collection Period: Average collection period ratio measures the time period a firm requires to collect the dues from their debtors. Company name

2014

2015

2016

2017

Lafarge

27.27

30.23

46.32

51.66

Heidelberg

29.92

29.92

29.92

29.92

Average Collection Period AVERAGE COLLECTION PERIOD

60

51.66 46.32

50 40 30

29.92 27.27

29.92 30.23

29.92

29.92

20 10 0

2014

2015

2016

2017

Lafarge

27.27

30.23

46.32

51.66

Heidelberg

29.92

29.92

29.92

29.92

YEARS Lafarge

Heidelberg

Interpretation Lafarge: The average collection period of Lafarge kept increasing. In 2014 the ratio was 27.27 which increased to 30.23 in 2015. In 2016 the ratio increased as high 46.32 while further increasing to 56.66 by the end of 2017. Heidelberg: The average collection period of Heidelberg had a constant value of 29.92 from 2014 to 2017.

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Comparison: Only in the year 2014 Lafarge had a decent average collection than Heidelberg. But after that till the end of 2017 it can be seen that average collection period for Heidelberg remained the same while the Lafarge’s one almost doubled. It means that Heidelberg had a higher liquidity than that of Lafarge.

2. Inventory Turnover The inventory turnover is a measure of the number of times inventory is sold or used in a time period such as a year. Company name

2014

2015

2016

2017

Lafarge

4.55

4.93

5.55

6.11

Heidelberg

8.27

8.08

5.25

6.7

Inventory Turnover 9

8.27

8.08

INVENTORY TURNOVER

8 7 6 5

5.55 4.55

6.7 6.11

4.93 5.25

4 3 2 1 0

2014

2015

2016

2017

Lafarge

4.55

4.93

5.55

6.11

Heidelberg

8.27

8.08

5.25

6.7

YEARS Lafarge

Heidelberg

Interpretation Lafarge: The ratio was 4.55 in 2014, 4.93 in 2015, 5.55 in 2016 and 6.11 in 2017 for Lafarge. Heidelberg: As for Heidelberg the ratio was 8.27, 8.08, 5.25, 6.7 in the year 2014, 2015, 2016 and 2017 respectively.

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Comparison: Even though the inventory turnover increased for Lafarge and decreased for Heidelberg from 2014 to 2017. But at the end of 2017 Heidelberg still had a higher inventory turnover ratio than that of Lafarge meaning that Heidelberg had a higher liquidity.

3. Total Asset Turnover The total asset turnover ratio is an efficiency ratio that measures a company's ability to generate sales using their assets by comparing net sales with average total assets. Company name

2014

2015

2016

2017

Lafarge

0.58 1.03

0.53 1.10

0.51 1.04

0.50 1.12

Heidelberg

Total Asset Turnover 1.2

1.03

1.1

1.04

1.12

1

TATO

0.8 0.58

0.6

0.53

0.51

0.5

0.4 0.2

0

2014

2015

2016

2017

Lafarge

0.58

0.53

0.51

0.5

Heidelberg

1.03

1.1

1.04

1.12

YEARS Lafarge

Heidelberg

Interpretation Lafarge: Lafarge had a Total Asset Turnover of 0.58, 0.53, 0.51, 0.5 in the year of 2014, 2015, 2016, 2017 respectively. Heidelberg: Total Asset Turnover for Heidelberg were 1.03, 1.1, 1.04, 1.12 during the years 2014, 2015, 2016, 2017 respectively. Comparison: Since it can be seen that Heidelberg had higher Total Asset Turnover ratio than that of Lafarge throughout the period 2014-2017. It can be concluded that Heidelberg were more efficient in using its asset to generate sales than Lafarge. 10

Profitability Ratios: 1. Gross Profit Margin The gross profit margin measures the percentage of each sales dollar remaining after the firm has paid for its goods. The higher the gross profit margin is the better it is. Higher gross profit margin means the firm is able to make a higher profit from sales. Company name

2014

2015

2016

2017

Lafarge

38.56%

35.73%

35.55%

24.02%

Heidelberg

19.16%

24.20%

25.86%

19.97%

GROSS PROFIT MARGIN

Gross Profit Margin 45.00% 40.00%

38.56%

35.00% 30.00%

25.00%

35.73%

35.55%

24.20%

25.86%

19.16%

24.02% 19.97%

20.00% 15.00% 10.00% 5.00% 0.00%

2014

2015

2016

2017

Lafarge

38.56%

35.73%

35.55%

24.02%

Heidelberg

19.16%

24.20%

25.86%

19.97%

YEARS Lafarge

Heidelberg

Interpretation Lafarge: The Gross Profit Margin decreased over ally. It was 38.56% in 2014, 35.73% in 2015, 35.55% in 2016 and 24.02% in 2017. Heidelberg: The Gross Profit Margin increased for the company over ally. It increased from 19.16% in 2014 to 24.20% in 2015 to 25.86% in 2016. But at the end of 2017 the margin decreased to 19.97%.

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Comparison: By the end of 2017 it can be seen that Lafarge had a higher Gross Profit Margin than Heidelberg. Both the companies were able to make higher profits from sales but Lafarge was better off between the two.

2. Operating Profit Margin The operating profit margin measures the percentage of each sales dollar remaining after all costs and expenses other than interest, taxes and preferred stock dividends are deducted. It represents the “pure profits” earned on each sales dollar, these are “pure” because they measure only the profits-earned on operations and ignore interest, taxes and preferred stock dividends. Company name

2014

2015

2016

2017

Lafarge Heidelberg

32.62%

26.36%

26.88%

11.74%

12.44%

16.24%

18.36%

10.40%

Operating Profit Margin OPERATING PROFIT MARGIN

35.00%

3

30.00%

26.88%

26.36%

25.00% 20.00% 15.00%

18.36%

16.24%

11.74%

12.44%

10.00%

10.40%

5.00% 0.00%

2014

2015

2016

2017

Lafarge

32.62%

26.36%

26.88%

11.74%

Heidelberg

12.44%

16.24%

18.36%

10.40%

YEARS Lafarge

Heidelberg

Interpretation Lafarge: According to the data, Lafarge has had a declining OPM, similar to GPM. It had Operating Profit Margin of 32.62%, 26.36%, 26.88% and 11.74% in the year 2014, 2015, 2016 and 2017 respectively.

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Heidelberg: As the GPM, the OPM of Heidelberg is also on a rise from 12.44% in 2014 to 16.24% in 2015 to 18.34% in 2016. But at the end of 2017 the margin decreased to 10.40%. Comparison: It can be seen that Heidelberg’s OPM has had a relative increasing rate till 2016, but falling back again in 2017 at 10.4%. But it’s OPM has always been below Lafarge’s. Whereas Lafarge’s GPM has been decreasing since 2014, dropping down to 11.74% in 2017. Overall it can be said LafargeHolcim Bangladesh Ltd. has been doing a bit better here since it has a higher Operating Profit margin, and this indicates that the company is becoming operationally more efficient.

3. Net Profit Margin The net profit margin measures the percentage of each sales dollar remaining after all costs and expenses, including interest, taxes and preferred stock dividends have been deducted. Higher net profit margin is always preferred as this goes to show that firms can distribute more money to their shareholders. Company name

2014

2015

2016
...