1. Industry Overview
Cement sector is the largest increase sector in Bangladesh. There are 70+
cement factories in Bangladesh and daily production capacity is 16.687 Million
MT. The
cement market in Bangladesh consists of 100% supply in bagged cement. The
dominant type of cement used in Bangladesh is Ordinary Portland Cement (OPC).
The clinker, a raw material used in the production of cement, is imported from
other countries like India, Thailand, Malaysia and China. The country lacks
limestone—a major raw material required to make cement. The only production
stage performed in Bangladesh, to make cement, is importing the clinker and
grinding it with gypsum to give pure cement.
The first cement factory in the country
was Chattak Cement Factory, which was established in the early 1940 when
Bangladesh was a part of India. This was the only integrated cement plant in
the whole country because of the lack of raw materials. The first cement
factory by the private sector was the Aynepur Cement Factory, which was
established in 1992, had a capacity of 30,000 TPA. This was also an integrated
cement plant, but it did not play any significant role in the cement industry
because of irregular production and Other than these two factories, there are
no other plants in the country. All other cement production facilities that are
in operation today are clinker grinding units, facilities where imported
clinkers are ground to produce cement. By 2002, there were as many as 56 cement
grinding factories in the country with a total production capacity of 11.8
million tons.
Till the first half of 90’s, Bangladesh
cement market was typically an import market. Hyundai was the first
multinational company to start up a local factory primarily to fulfill the
demand of Jamuna Bridge. After the year 1990, Bangladesh government changed its
rules as it withdrew the price control, and had a favorable tax control for the
imported clinker. As a result, the cement industry in the country began to develop
after 1990. In 2001, Bangladesh became self sufficient in cement production.
Many multinational companies and entrepreneurs also started setting up their
plants in the country because of the favorable duty structure imposed by the
government for local production. This included world leaders like Lafarge,
Holcim, Heidelberg (Scancem) or Cemex – each now having their own plants. Now
Bangladesh is producing surplus cement to its requirements and there are more
companies than what the country needed.
Figure 1: Demand & Supply of Cement in Bangladesh 1997-2005
Bangladesh is having a Free Trade
Agreement talk with Sri Lanka which means that Bangladesh may have good chance
of exporting its surplus cement to Sri Lanka, and once it does that, the doors
of other countries who lack cement industry, may also open up for Bangladeshi
cement.
The cement industry in Bangladesh is
riddled with lots of problems, which are hindering its growth. Most of the companies
hardly utilize 50 percent of their production capacities as the supply vastly
exceeds the demand. Moreover, obtaining raw materials, environmental issues,
political instability, natural disasters, inconsistent supply of electricity
and unavailability of foreign machinery severely affect the local cement
industries.
Currently there are 8 public listed
companies in the cement industry. They are,
Aramit Cement
Ltd. – A
Confidence Cement
Ltd. – A
Heidelberg Cement
Ltd. – A
Lafarge Surma Cement
Ltd. – G (Greenfield)
Meghna Cement
– A
Modern Cement – Z
Niloy Cement – Z
Padma Cement – Z
Among these 8 companies, we
chose 5 for industry analysis. Those 5 companies are Confidence Cement, Meghna
Cement, Aramit Cement, Heidelberg Cement & Niloy Cement.
2. Company Overview
Confidence Cement Ltd. was incorporated as a public
limited company on May 2, 1991 with an authorized capital of Tk. 200,000,000
equally divided into 2,000,000 ordinary shares with par value of Tk. 100 each.
This capital was increased on March 31, 1998 to Tk. 500,000,000. Confidence
Cement Ltd. is the first privately held cement manufacturing company in
Bangladesh. The company’s production facility was established in 1990 with
480,000 Metric Ton annual production capacity in Chittagong. Currently,
Confidence Cement Ltd’s annual turnover ranges from US$ 10 million to US$ 50
million, the main markets being Eastern Asia and the subsidiary ones being
Bangladesh and India.
Confidence Cement manufactures ordinary Portland
cement. The company aims to be the best cement manufacturing company of
Bangladesh through continuous development and by producing high and consistent
quality cement to meet all customers’ needs. To achieve these objectives, it
uses modern state-of-art machinery, calibrated testing equipments and
computerized packing and raw materials mixing devices in its controlled
production process. Confidence Cement Ltd’s Research and Development team
consists of 20 personnel out of the total workforce of 500.
Confidence Cement Ltd. is the first ISO-9002 certified
cement manufacturer in Bangladesh. To generate customer satisfaction and
confidence it adopted the ISO-9002 standards which ensure standard operating
procedures for half-yearly marketing sales, procurements and manufacturing
processes of ordinary Portland cement. These standards are recognized worldwide
as the highest for developing a company’s production process and external
customer services. ISO-9002 regulations have been brought into t Confidence
Cement Ltd. administration as well. All staff at all levels of Confidence
Cement has been trained in the highly demanding quality control system. The
receipt of ISO-9002 delineates the determination on part o the management and
staff of the company to maintain a quality system that efficiently meets all
customer and government requirements.
3. Analysis
of Financial Statements
The
analysis of the financial statements of the Confidence Cement Ltd. has been
done by applying a few analytical tools and techniques to financial statements
and the other relevant data to obtain useful information. The analyses rely on
comparisons or relationships of data as they enhance the utility o practical
value of accounting information. They help to assess the company’s past
performance and current financial position. The information shows the
consequences of prior management decisions. It is also used to make predictions
that may have direct effect on decisions made by users of financial
statements. A company’s financial statements
are analyzed internally my management and externally by investors and
creditors.
Present
investors and potential investors are both interested in its profitability- the future ability of a company to generate
income or earn profits. These investors wish to predict future dividends
and changes in the market price of the company’s common stock. Since both
dividends and price changes are likely to be influenced by earnings, investors
may seek to predict earnings.
Creditors
are interested to in predicting a company’s solvency- the ability of a company to pay debts as they come due. The
liquidity of a company affects its shorter solvency. The company’s liquidity is
its state of possessing liquid assets like cash and other assets which will
soon be converted to cash. Since companies must pay short-term debts soon,
liquid assets must be available for their payment. Long-term creditors are
interested in a company’s long-term solvency. A company is considered solvent
when its assets exceed its liabilities so that the company has positive stockholder’s
equity.
To
analyze the financial position of the company Confidence Cement Ltd. and to
decide whether we should invest in this industry, particularly in this company
by buying its shares, several techniques have been applied. These include,
Analysis of the
Comparative Balance Sheets 2002-2006
Horizontal
Analysis
Vertical Analysis
Analysis of the
Comparative Profit & Loss Account 2002-2006
Horizontal
Analysis
Vertical Analysis
Trend Percentages
of the Income Statement
Ratio Analysis of
the company along with the overall industry
This sequential analysis
process will gradually bring out the whole financial scenario of the company
and help us decide whether it will be profitable to invest in this company or
not.
4. Analysis
of the Balance Sheets
4.1
Comparative Balance Sheets – 2006
& 2005 :
December 31 |
Increase or 2006 over 2005 |
Percent of Total |
||||
2006 |
2005 |
Taka |
Percent |
2006 |
2005 |
|
ASSETS |
|
|
|
|
|
|
Current Assets |
|
|
|
|
|
|
Stores and spares |
64,283,578 |
64,109,994 |
173,584 |
0.3 |
6.4 |
6.1 |
Stock of raw and packing materials |
104,771,563 |
153,257,431 |
(48,485,868) |
-31.6 |
10.4 |
14.5 |
Book debts |
140,737,743 |
144,598,910 |
(3,861,167) |
-2.7 |
14.0 |
13.7 |
Advances, deposits and pre-payments |
69,277,082 |
78,480,587 |
(9,203,505) |
-11.7 |
6.9 |
7.4 |
Other receivables |
4,238,262 |
3,003,777 |
1,234,485 |
41.1 |
0.4 |
0.3 |
Cash and cash equivalents |
41,629,728 |
39,376,003 |
2,253,725 |
5.7 |
4.1 |
3.7 |
Total Current Assets |
424,937,956 |
482,826,702 |
(57,888,746) |
-12.0 |
42.3 |
45.8 |
Fixed & Long-Term Assets |
|
|
|
|
||
Operating Fixed Assets -at cost |
845,234,939 |
801,804,143 |
43,430,796 |
5.4 |
84.1 |
76.1 |
Less: |
(298,273,434) |
(265,617,733) |
(32,655,701) |
12.3 |
-29.7 |
-25.2 |
Capital work-in-progress |
|
673,659 |
(673,659) |
-100.0 |
0.0 |
0.1 |
Investment-at cost |
31,325,000 |
31,325,000 |
– |
0.0 |
3.1 |
3.0 |
Pre-production expenses |
2,047,826 |
2,632,919 |
(585,093) |
-22.2 |
0.2 |
0.2 |
Total Fixed & Long-Term |
580,334,331 |
570,817,988 |
9,516,343 |
1.7 |
57.7 |
54.2 |
Total Assets |
1,005,272,287 |
1,053,644,690 |
(48,372,403) |
-4.6 |
100.0 |
100.0 |
|
|
|
|
|
||
LIABILITIES & STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
Current Liabilities & Provisions |
|
|
|
|
|
|
Creditors and accruals |
61,807,398 |
52,985,936 |
8,821,462 |
16.6 |
6.1 |
5.0 |
Short term loans-secured |
238,698,077 |
361,626,333 |
(122,928,256) |
-34.0 |
23.7 |
34.3 |
Current portion of long term loans |
12,000,000 |
5,178,000 |
6,822,000 |
131.7 |
1.2 |
0.5 |
Proposed dividend |
28,500,000 |
9,500,000 |
19,000,000 |
200.0 |
2.8 |
0.9 |
Provision for taxation |
21,200,000 |
|
21,200,000 |
2.1 |
0.0 |
|
Total Current Liabilities |
362,205,475 |
429,290,269 |
(67,084,794) |
-15.6 |
36.0 |
40.7 |
Long-term Liabilities |
|
|
|
|
|
|
Long-term loan-secured |
10,501,799 |
4,421,453 |
6,080,346 |
137.5 |
1.0 |
0.4 |
Total Liabilities |
372,707,274 |
433,711,722 |
(61,004,448) |
-14.1 |
37.1 |
41.2 |
Stockholders’ Equity |
|
|
|
|
|
|
Share Capital |
190,000,000 |
190,000,000 |
– |
0.0 |
18.9 |
18.0 |
Share Premium |
220,192,749 |
220,192,749 |
– |
0.0 |
21.9 |
20.9 |
Reserves |
220,862,754 |
208,362,754 |
12,500,000 |
6.0 |
22.0 |
19.8 |
Profit & Loss Account |
1,509,510 |
1,377,465 |
132,045 |
9.6 |
0.2 |
0.1 |
Total stockholders’ equity |
632,565,013 |
619,932,968 |
12,632,045 |
2.0 |
62.9 |
58.8 |
Total |
1,005,272,287 |
1,053,644,690 |
(48,372,403) |
-4.6 |
100.0 |
100.0 |
Table 1: Comparative Balance Sheets – 2006 & 2005
5.1.1 Horizontal Analysis:
In 2006, the
total current assets have decreased Tk. 57,888,746, consisting largely of Tk.
48,485,868 decrease in cash, while total current liabilities have decreased Tk.
67,084,794.
Total assets have
decreased Tk. 57,888,746, while total liabilities have decreased Tk.
61,004,448.
The current
assets decreased by 12%, while the current liabilities decreased by 15.6%.
Though current liabilities are decreasing, the high decrease rate of current
assets can be a major threat to the company.
The long-term
liabilities increased by an astonishing 137.5% as the company took a loan of
Tk. 10,501,799 from Prime Bank Ltd.
Overall, the
decrease in total assets is 4.6%, whereas, the decrease in total liabilities is
14.1%.
The change in
total fixed & long-term assets & total stockholders’ equity was not
much.
5.1.2 Vertical Analysis:
The vertical
analysis of the company’s balance sheet discloses each account’s significance
relative to total assets or equities.
The stock of raw
and packing materials decreased from being 14.5% to 10.4% of the total assets.
The
pre-production expense did decrease by 22.2% but it is only 0.2% of the total
assets.
The current
liabilities decreased by 4.7% from 40.7% to 36% of the total equities
(liabilities & stockholders’ equity)
The total
liabilities decreased from being 41.2% to 37.1% of the total equities.
Finally, the
vertical analysis shows, the percentage of stockholder financing to total
assets of the company increased from 58.8% to 62.9%
By
analyzing the comparative balance sheets of 2006 & 2005, we can conclude
that the sudden decrease in the company’s assets is not a good sign.
5.1.3
Comparative Balance Sheets – 2005
& 2004 :
December 31 |
Increase or 2005 over 2004 |
Percent of Total |
||||
2005 |
2004 |
Taka |
Percent |
2005 |
2004 |
|
ASSETS |
|
|
|
|
|
|
Current Assets |
|
|
|
|
|
|
Stores and spares |
64,109,994 |
67,110,497 |
(3,000,503) |
-4.5 |
6.1 |
7.2 |
Stock of raw and packing materials |
153,257,431 |
100,108,278 |
53,149,153 |
53.1 |
14.5 |
10.7 |
Book debts |
144,598,910 |
119,980,667 |
24,618,243 |
20.5 |
13.7 |
12.8 |
Advances, deposits and pre-payments |
78,480,587 |
40,166,325 |
38,314,262 |
95.4 |
7.4 |
4.3 |
Other receivables |
3,003,777 |
894,284 |
2,109,493 |
235.9 |
0.3 |
0.1 |
Cash and cash equivalents |
39,376,003 |
29,055174 |
10,320,829 |
35.5 |
3.7 |
3.1 |
Total Current Assets |
482,826,702 |
357,315,225 |
125,511,477 |
35.1 |
45.8 |
38.1 |
Fixed & Long-Term Assets |
|
|
|
|||
Operating Fixed Assets -at cost |
801,804,143 |
778,917,673 |
22,886,470 |
2.9 |
76.1 |
83.1 |
Less: |
(265,617,733) |
(234,041,557) |
(31,576,176) |
13.5 |
-25.2 |
-25.0 |
Capital work-in-progress |
673,659 |
107,007 |
566,652 |
529.5 |
0.1 |
0.0 |
Investment-at cost |
31,325,000 |
31,325,000 |
0.0 |
3.0 |
3.3 |
|
Pre-production expenses |
2,632,919 |
3,218,012 |
(585,093) |
-18.2 |
0.2 |
0.3 |
Total Fixed & Long-Term |
570,817,988 |
579,526,135 |
(8,708,147) |
-1.5 |
54.2 |
61.9 |
Total Assets |
1,053,644,690 |
936,841,360 |
116,803,330 |
12.5 |
100.0 |
100.0 |
|
|
|
|
|||
LIABILITIES & STOCKHOLDERS’ EQUITY |
|
|
|
|
||
Current Liabilities & Provisions |
|
|
|
|
||
Creditors and accruals |
52,985,936 |
41,688,822 |
11,297,114 |
27.1 |
5.0 |
4.4 |
Short term loans-secured |
361,626,333 |
250,184,131 |
111,442,202 |
44.5 |
34.3 |
26.7 |
Current portion of long term loans |
5,178,000 |
27,715,744 |
(22,537,744) |
-81.3 |
0.5 |
3.0 |
Proposed dividend |
9,500,000 |
9,500,000 |
– |
0.0 |
0.9 |
1.0 |
Provision for taxation |
|
|
|
|||
Total Current Liabilities |
429,290,269 |
329,088,697 |
100,201,572 |
30.4 |
40.7 |
35.1 |
Long-term Liabilities |
|
|
|
|||
Long-term loan-secured |
4,421,453 |
83,293 |
4,338,160 |
5208.3 |
0.4 |
0.0 |
Total Liabilities |
433,711,722 |
329,171,990 |
104,539,732 |
31.8 |
41.2 |
35.1 |
Stockholders’ Equity |
|
|
|
|
||
Share Capital |
190,000,000 |
190,000,000 |
– |
0.0 |
18.0 |
20.3 |
Share Premium |
220,192,749 |
220,192,749 |
– |
0.0 |
20.9 |
23.5 |
Reserves |
208,362,754 |
207,412,754 |
950,000 |
0.5 |
19.8 |
22.1 |
Profit & Loss Account |
1,377,465 |
(9,936,133) |
11,313,598 |
-113.9 |
0.1 |
-1.1 |
Total stockholders’ equity |
619,932,968 |
607,669,370 |
12,263,598 |
2 |
58.8 |
64.9 |
Total liabilities & stockholders’ equity |
1,053,644,690 |
936,841,360 |
116,803,330 |
12.5 |
100.0 |
100.0 |
Table 2: Comparative
Balance Sheets – 2005 & 2004
5.2.1 Horizontal Analysis:
In 2005, the
total current assets increased Tk. 125,511477, while total current liabilities
increased Tk. 100,201,572.
Total assets have
increased Tk. 116,803,330, while total liabilities have increased Tk.
104,539,732.
The current
assets increased by 35.1%, while the current liabilities increased by 30.4%.
Though current liabilities are increasing, the increase in the company’s
current assets is definitely a good sign.
The long-term
liabilities increased by an astonishing 5208.3%.
Overall, the
increase in total assets is 12.5%, whereas, the increase in total liabilities
is 31.8%.
The change in
total fixed & long-term assets & total stockholders’ equity was not
much.
5.2.2 Vertical Analysis:
The stock of raw
and packing materials decreased from being 14.5% to 10.4% of the total assets.
The
pre-production expense did increase by 18.2% but it is only 0.2% of the total
assets.
The current
liabilities decreased by 4.7% from 40.7% to 36% of the total equities
(liabilities & stockholders’ equity)
The total
liabilities increased from being 35.1% to 41.2% of the total equities.
Finally, the
vertical analysis shows, the percentage of stockholder financing to total
assets of the company decreased from 64.9% to 58.8%
By
analyzing the comparative balance sheet of the year 2004 & 2003, we can
conclude that, the rate of increase in the company’s liabilities is greater
than that of the company’s assets.
5.2
Comparative Balance Sheets – 2004
& 2003 :
December 31 |
Increase or 2004 over 2003 |
Percent of Total |
||||
2004 |
2003 |
Taka |
Percent |
2004 |
2003 |
|
ASSETS |
|
|
|
|
|
|
Current Assets |
|
|
|
|
|
|
Stores and spares |
67,110,497 |
69,533,018 |
(2,422,521) |
-3.5 |
7.2 |
7.4 |
Stock of raw and packing materials |
100,108,278 |
109,473,965 |
(9,365,687) |
-8.6 |
10.7 |
11.6 |
Book debts |
119,980,667 |
92,724,917 |
27,255,750 |
29.4 |
12.8 |
9.8 |
Advances, deposits and pre-payments |
40,166,325 |
35,148,538 |
5,017,787 |
14.3 |
4.3 |
3.7 |
Other receivables |
894,284 |
|
894,284 |
0.1 |
0.0 |
|
Cash and cash equivalents |
29,055174 |
28,884,680 |
170,494 |
0.6 |
3.1 |
3.1 |
Total Current Assets |
357,315,225 |
335,765,118 |
21,550,107 |
6.4 |
38.1 |
35.6 |
Fixed & Long-Term Assets |
|
|
|
|
||
Operating Fixed Assets -at cost |
778,917,673 |
776,446,70 |
2,470,973 |
0.3 |
83.1 |
82.3 |
Less: |
(234,041,557) |
(204,286,681) |
(29,754,876) |
14.6 |
-25.0 |
-21.7 |
Capital work-in-progress |
107,007 |
|
107,007 |
0.0 |
0.0 |
|
Investment-at cost |
31,325,000 |
31,325,000 |
0.0 |
3.3 |
3.3 |
|
Pre-production expenses |
3,218,012 |
3,803,105 |
(585,093) |
-15.4 |
0.3 |
0.4 |
Total Fixed & Long-Term |
579,526,135 |
607,288,124 |
(27,761,989) |
-4.6 |
61.9 |
64.4 |
Total Assets |
936,841,360 |
943,053,242 |
(6,211,882) |
-0.7 |
100.0 |
100.0 |
|
|
|
|
|||
LIABILITIES & STOCKHOLDERS’ EQUITY |
|
|
|
|
||
Current Liabilities & Provisions |
|
|
|
|
||
Creditors and accruals |
41,688,822 |
36,706,946 |
4,981,876 |
13.6 |
4.4 |
3.9 |
Short term loans-secured |
250,184,131 |
202,269,119 |
47,915,012 |
23.7 |
26.7 |
21.4 |
Current portion of long term loans |
27,715,744 |
29,290,392 |
(2,189,648) |
-7.3 |
3.0 |
3.20 |
Proposed dividend |
9,500,000 |
9,500,000 |
– |
0.0 |
1.0 |
1.0 |
Provision for taxation |
|
|
|
|
||
Total Current Liabilities |
329,088,697 |
278,38,457 |
50,707,240 |
18.2 |
35.1 |
29.5 |
Long-term Liabilities |
|
|
|
|
||
Long-term loan-secured |
83,293 |
22,513,604 |
(22,430,311) |
-99.6 |
0.0 |
2.4 |
Total Liabilities |
329,171,990 |
300,895,061 |
28,276,929 |
9.4 |
35.1 |
31.9 |
Stockholders’ Equity |
|
|
|
|
||
Share Capital |
190,000,000 |
190,000,000 |
– |
0.0 |
20.3 |
20.1 |
Share Premium |
220,192,749 |
220,192,749 |
– |
0.0 |
23.5 |
23.3 |
Reserves |
207,412,754 |
217,862,754 |
(10,450,000) |
-4.8 |
22.1 |
23.1 |
Profit & Loss Account |
(9,936,133) |
14,102,678 |
(24,038,811) |
-170.5 |
-1.1 |
1.5 |
Total stockholders’ equity |
607,669,370 |
642,158,181 |
(34,488,811) |
-5.4 |
64.9 |
68.1 |
Total liabilities & stockholders’ equity |
936,841,360 |
943,053,242 |
(6,211,882) |
-0.7 |
100.0 |
100.0 |
5.3.1 Horizontal Analysis:
In 2004, the
total current assets have increased Tk. 21,550,107, while total current
liabilities have increased Tk. 50,707,240.
Total assets have
decreased Tk. 6,211,882, while total liabilities have increased Tk. 28,276,929.
The current
assets increased by 6.4%, while the current liabilities increased by 18.2%.
This can be a threat to the company as it started losing its solvency.
The long-term
liabilities decreased by 99.6%.
Overall, the
decrease in total assets is 0.7%, whereas, the increase in total liabilities is
9.4%.
Both the total
fixed & long-term assets & total stockholders’ equity decreased in this
period.
5.3.2 Vertical Analysis:
The book debts
increased from being 9.8% to 12.8% of the net sales.
The current
assets increased from being 35.6% to the 38.1% of the net sales.
The current
liabilities increased from being 29.5% to 35.1% of the total equities
(liabilities & stockholders’ equity)
The total
liabilities increased from being 31.9% to 35.1% of the total equities.
Finally, the vertical
analysis shows, the percentage of stockholder financing to total assets of the
company decreased from 68.1% to 64.9%
By
analyzing the comparative balance sheets of 2006 & 2005, we can conclude
that the decrease in the company’s asset along with the increase of its
liabilities is a very bad sign for the company. It means, the company is losing
its ability to pay its debts and has a very high chance of being bankrupt.
5.3
Comparative Balance Sheets – 2003
& 2002 :
December 31 |
Increase or 2003 over 2002 |
Percent of Total |
||||
2003 |
2002 |
Taka |
Percent |
2003 |
2002 |
|
ASSETS |
|
|
|
|
|
|
Current Assets |
|
|
|
|
||
Stores and spares |
69,533,018 |
86,609,695 |
(17,076,677) |
-19.7 |
7.4 |
8.1 |
Stock of raw and packing materials |
109,473,965 |
153,902,053 |
(44,428,088) |
-28.9 |
11.6 |
14.3 |
Book debts |
92,724,917 |
80,819,765 |
11,905,152 |
14.7 |
9.8 |
7.5 |
Advances, deposits and pre-payments |
35,148,538 |
65,663,718 |
(30,515,180) |
-46.5 |
3.7 |
6.1 |
Other receivables |
|
|
|
|
||
Cash and cash equivalents |
28,884,680 |
57,916,886 |
(29,032,206) |
-50.1 |
3.1 |
5.4 |
Total Current Assets |
335,765,118 |
444,912,117 |
(109,146,999) |
-24.5 |
35.6 |
41.5 |
Fixed & Long-Term Assets |
|
|
|
|
||
Operating Fixed Assets -at cost |
776,446,70 |
739,487,743 |
36,958,957 |
5.0 |
82.3 |
68.9 |
Less: |
(204,286,681) |
(174,329,556) |
(29,957,125) |
17.2 |
-21.7 |
-16.2 |
Capital work-in-progress |
|
27,378,577 |
(27,378,577) |
-100.0 |
0.0 |
2.6 |
Investment-at cost |
31,325,000 |
31,325,000 |
– |
0.0 |
3.3 |
2.9 |
Pre-production expenses |
3,803,105 |
4,388,198 |
(585,093) |
-13.3 |
0.4 |
0.4 |
Total Fixed & Long-Term |
607,288,124 |
628,249,962 |
(20,961,838) |
-3.3 |
64.4 |
58.5 |
Total Assets |
943,053,242 |
1,073,162,079 |
(130,108,837) |
-12.1 |
100.0 |
100.0 |
|
|
|
|
|||
LIABILITIES & STOCKHOLDERS’ EQUITY |
|
|
|
|
||
Current Liabilities & Provisions |
|
|
|
|
||
Creditors and accruals |
36,706,946 |
73,168,190 |
(36,461,244) |
-49.8 |
3.9 |
6.8 |
Short term loans-secured |
202,269,119 |
276,754,204 |
(74,485,085) |
-26.9 |
21.4 |
25.8 |
Current portion of long term loans |
29,290,392 |
43,817,392 |
(13,912,000) |
-31.7 |
3.20 |
4.1 |
Proposed dividend |
9,500,000 |
|
9,500,000 |
1.0 |
0.0 |
|
Provision for taxation |
|
|
|
|
||
Total Current Liabilities |
278,38,457 |
393,739,786 |
(115,358,329) |
-29.3 |
29.5 |
36.7 |
Long-term Liabilities |
|
|
|
|
||
Long-term loan-secured |
22,513,604 |
43,987,929 |
(21,474,325) |
-48.8 |
2.4 |
4.1 |
Total Liabilities |
300,895,061 |
437,727,715 |
(136,832,654) |
-31.3 |
31.9 |
40.8 |
Stockholders’ Equity |
|
|
|
|
||
Share Capital |
190,000,000 |
190,000,000 |
– |
0.0 |
20.1 |
17.7 |
Share Premium |
220,192,749 |
220,192,749 |
– |
0.0 |
23.3 |
20.5 |
Reserves |
217,862,754 |
217,862,754 |
– |
0.0 |
23.1 |
20.3 |
Profit & Loss Account |
14,102,678 |
7.378,861 |
6,723,817 |
91.1 |
1.5 |
0.7 |
Total stockholders’ |
642,158,181 |
635,434,364 |
6,723,817 |
1.1 |
68.1 |
59.2 |
Total liabilities & stockholders’ equity |
943,053,242 |
1,073,162,079 |
(130,108,837) |
-12.1 |
100.0 |
100.0 |
Table 4: Comparative
Balance Sheets – 2003 & 2002
5.4.1 Horizontal Analysis:
In 2003, the
total current assets decreased Tk. 109,146,999, while total current liabilities
decreased Tk. 115,358,329.
Total assets have
decreased Tk. 130,108,837, while total liabilities have decreased Tk.
136,832,654.
The current
assets decreased by 24.5%, while the current liabilities decreased by 29.3%.
Though current liabilities are decreasing, the high decrease rate of current
assets can be a major threat to the company.
The cash and cash
equivalents decreased by 50.1%. This could be very harmful for the company
The long-term
liabilities decreased by 48.8%.
Overall, the
decrease in total assets is 12.1%, whereas, the decrease in total liabilities
is 31.3%.
The change in
total fixed & long-term assets & total stockholders’ equity was not
much.
5.4.2 Vertical Analysis:
The stock of raw
and packing materials decreased from being 14.3% to 11.6% of the total assets.
The cash and cash
equivalent did decrease from being 5.2% to 3.1% of the total assets.
The current
liabilities decreased from 36.7% to 29.5% of the total equities (liabilities
& stockholders’ equity)
The total
liabilities decreased from being 40.8% to 31.9% of the total equities.
Finally, the
vertical analysis shows, the percentage of stockholder financing to total
assets of the company increased from 59.2% to 68.1%.
We can finally conclude that,
though the decrease in the company’s liabilities is good but the simultaneous
decrease rate of the assets is very harmful.
6. Analysis
of the Profit & Loss Account
December 31
Increase or (Decrease)
2006 over 2005
Percent of Net Sales
2006
2005
Taka
Percent
2006
2005
Sales (net of VAT)
950,502,498
685,713,532
264,788,966
38.6
100.0
100.0
Less: Cost of goods sold
(620,643,737)
(223,800,333)
36.1
-88.8
-90.5
Gross Profit/(Loss)
106,058,428
65,069,795
40,988,633
63.0
11.2
9.5
Less: Expenses:
Administrative
(21,341,906)
(18,614,660)
(2,727,246)
14.7
-2.7
Selling and distribution
(7,723,865)
(7,774,899)
51,034
-0.7
-0.8
-1.1
Total expenses
(29,065,771)
(26,389,559)
(2,676,212)
10.1
-3.1
-3.9
Trading Profit/(Loss)
76,992,657
38,680,236
38,312,421
99.1
8.1
5.6
Less: Financial charges
(17,559,894)
(21,573,826)
4,013,932
-18.6
-1.9
-3.2
Operating profit/(loss) before other income
59,432,763
17,106,410
42,326,353
247.4
6.3
2.5
Add: Other income
6,179,916
4,802,640
1,377,276
28.7
0.7
0.7
Operating profit/(loss) before income tax &
workers’ profit participation fund
65,612,679
21,909,050
43,703,629
199.5
6.9
3.2
Less: Contribution to workers’ profit participation fund (@5%)
(3,280,634)
(1,095,452)
(2,185,182)
199.5
-0.4
-0.2
Net profit/(loss) before tax
62,332,045
20,813,598
41,518,447
199.5
6.6
3.0
Less: Provision for income tax
Current year
(18,700,000)
(18,700,000)
-2.0
0.0
Deferred tax
(2,500,000)
(2,500,000)
-0.3
0.0
Total tax
(21,200,000)
(21,200,000)
-0.3
0.0
Net profit after tax
41,132,045
20,813,598
20,318,447
97.6
4.3
3.0
Unappropriated profit brought forward
1,377,465
(9,936,133)
11,313,598
-113.9
Profit/(loss) available for appropriation
42,509,510
10,877,465
31,632,045
290.8
Appropriation:
Transferred from dividend equalization fund
Less: Proposed dividend
(28,500,000)
(9,500,000)
(19,000,000)
200.0
Transferred to dividend equalization
fund
(12,500,000)
(12,500,000)
Dividend distribution tax
(41,000,000)
(9,500,000)
(31,500,000)
331.6
Unappropriated
profit for the year transferred to statement changes in shareholder’s equity
1,509,510
1,377,465
132,045
9.6
6.1.1 Horizontal Analysis:
Net sales
increased by 38.6% in 2006.
Gross profit
increased by 63%.
Expenses
increased by 10.1%.
Trading profit
increased by 99.1%.
Financial charges
decreased by 18.6%.
Operating profit
before other income increased by 247.4%.
Other income
increased by 28.7%.
Operating profit
before income tax & worker’s profit participation fund, contribution to
worker’s profit participation fund & net profit before tax increased by
199.5%.
The company paid
income tax of total Tk. 21,200,000.
Net profit after
tax increased by 97.6%
Proposed dividend
increased by 200%.
Finally, the
unappropriated profit for the year increased by 9.6%
6.1.2 Vertical Analysis:
The gross profit
increased from being 9.5% to 11.2% of the net sales.
The expenses
decreased from being 3.9% to 3.1% of the net sales.
The trading
profit increased from being 5.6% to 8.1% of the net sales.
The operating
profit before other income increased from being 2.5% to 6.3% of the net sales.
Other income
remained the same portion of the net sales.
Operating profit before
income tax & worker’s profit participation fund increased from being 3.2%
to 6.9%.
Contribution to
worker’s profit participation fund increased from being 0.2% to 0.4% of the net
sales.
Net profit before
tax increased from being 3% to 6.6% of the net sales.
Net profit after
tax increased from being 3% to 4.3% of the net sales.
So,
we can conclude that, financially 2006 was a much better year than 2005 as the
net income had increased significantly.
December 31 |
Increase or (Decrease) 2005 over 2004 |
Percent of Net Sales |
|||||
2005 |
2004 |
Taka |
Percent |
2005 |
2004 |
||
|
|
|
|
|
|
||
Sales (net of VAT) |
685,713,532 |
466,480,439 |
|
47.0 |
100.0 |
100.0 |
|
Less: Cost of goods sold |
|
|
42.6 |
-90.5 |
-93.3 |
||
Gross Profit/(Loss) |
|
31,247,999 |
33,821,796 |
108.2 |
9.5 |
6.7 |
|
|
31,247,999 |
|
|
|
|
||
Less: Expenses: |
|
|
|
|
|
|
|
Administrative |
|
|
(335,157) |
1.8 |
-2.7 |
-3.9 |
|
Selling and distribution |
|
(14,792,401) |
7,017,502 |
-47.4 |
-1.1 |
-3.2 |
|
Total expenses |
|
(33,071,904) |
6,682,345 |
-20.2 |
-3.8 |
-7.1 |
|
|
|
|
|
|
|
||
Trading Profit/(Loss) |
|
(1,823,905) |
40,504,141 |
-2220.7 |
5.6 |
-0.4 |
|
Less: Financial charges |
|
|
3,690,889 |
-14.6 |
-3.1 |
-5.4 |
|
|
|
|
|
|
|
||
Operating profit/(loss) before other income |
|
(27,088,620) |
44,195,030 |
-163.1 |
2.5 |
-5.8 |
|
Add: Other income |
|
3,049,809 |
1,752,831 |
57.5 |
0.7 |
0.7 |
|
|
|
|
|
|
|
||
Operating profit/(loss) before income tax & workers’ profit participation fund |
|
(24,038,811) |
45,947,861 |
-191.1 |
3.2 |
-5.2 |
|
Less: Contribution to workers’ profit participation fund (@5%) |
|
– |
(1,095,452) |
|
-0.2 |
0.0 |
|
|
|
|
|
|
|||
Net profit/(loss) before tax |
|
(24,038,811) |
44,852,409 |
-186.6 |
3.0 |
-5.2 |
|
Less: Provision for income tax |
|
|
|
|
|
|
|
Current year |
|
|
|
|
|
|
|
Deferred tax |
|
|
|
|
|
|
|
Total tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Net profit after tax |
|
(24,038,811) |
44,852,409 |
-186.6 |
3.0 |
-5.2 |
|
Unappropriated profit brought forward |
|
|
|
-170.5 |
|
|
|
|
|
|
|
|
|
||
Profit/(loss) available for appropriation |
|
(9,936,133) |
20,813,598 |
-209.5 |
|
|
|
Appropriation: |
|
|
|
|
|
|
|
Transferred from dividend equalization fund |
|
|
|
-100.0 |
|
|
|
Less: Proposed dividend |
|
(9,500,000) |
– |
0.0 |
|
|
|
Transferred to dividend equalization |
|
|
|
|
|
|
|
Dividend distribution tax |
|
(950,000) |
950,000 |
|
|
|
|
|
– |
(9,500,000) |
|
|
|
||
Unappropriated profit for the year transferred to statement changes in |
1,377,465 |
(9,936,133) |
11,313,598 |
-113.9 |
|
|
6.2.1 Horizontal Analysis:
Net sales
increased by 47% in 2006.
Gross profit
increased by 108.2%.
Expenses
decreased by 20.2%.
Trading profit
increased by 2220.7%.
Financial charges
decreased by 14.6%.
Operating profit
before other income increased by 163.1%.
Other income
increased by 57.5%.
Operating profit
before income tax & worker’s profit participation fund, increased by
191.1%.
Net profit before
tax increased by 186.6%.
Net profit after
tax increased by 186.6%
Proposed dividend
remained unchanged.
Finally, the
unappropriated profit for the year increased by 113.9%
6.2.2 Vertical Analysis:
The gross profit
increased from being 6.7% to 9.5% of the net sales.
The expenses
decreased from being 7.1% to 3.8% of the net sales.
The trading
profit became 5.6% of the net sales
Operating profit
before income became 2.5% of the net sales.
Other income
remained the same portion of the net sales.
Operating profit
before income tax & worker’s profit participation fund became 3.2% of net
sales
Contribution to
worker’s profit participation fund became 0.2% of net sales.
Net profit before
tax became 3% of the net sales.
Net profit after
tax became 3% of the net sales.
So,
we can conclude that, as there was a loss in the year 2004, 2005 was a good
financial year for the company as they started earning profit again.
December 31 |
Increase or (Decrease) 2004 over 2003 |
Percent of Net Sales |
|||||
2004 |
2003 |
Taka |
Percent |
2004 |
2003 |
||
Sales (net of VAT) |
466,480,439 |
|
(171,394,351) |
-26.9 |
100.0 |
100.0 |
|
Less: Cost of goods sold |
|
|
129,460,570 |
-22.9 |
-93.3 |
-88.5 |
|
Gross Profit/(Loss) |
31,247,999 |
73,181,780 |
(41,933,781) |
-57.3 |
6.7 |
11.5 |
|
|
|
|
|
|
|
||
Less: Expenses: |
|
|
|
|
|
|
|
Administrative |
(18,279,503) |
|
|
-15.5 |
-3.9 |
-3.4 |
|
Selling and |
(14,792,401) |
|
|
-18.5 |
-3.2 |
-2.8 |
|
Total expenses |
(33,071,904) |
|
|
-16.9 |
-7.1 |
-6.2 |
|
Trading Profit/(Loss) |
(1,823,905) |
33,407,694 |
(35,231,599) |
-105.5 |
-0.4 |
5.2 |
|
Less: Financial charges |
(25,264,715) |
|
(6,440,061) |
34.2 |
-5.4 |
-3.0 |
|
|
|
|
|
|
|
||
Operating profit/(loss) before other income |
(27,088,620) |
14,583,040 |
(41,671,660) |
-285.8 |
-5.8 |
2.3 |
|
Add: Other income |
3,049,809 |
3,494,662 |
(444,853) |
-12.7 |
0.7 |
0.5 |
|
|
|
|
|
|
|
||
Operating profit/(loss) before income tax & workers’ profit |
(24,038,811) |
18,077,702 |
(42,116,513) |
-233.0 |
-5.2 |
2.8 |
|
Less: Contribution to workers’ profit participation fund (@5%) |
|
(903,885) |
903,885 |
-100.0 |
0.0 |
-0.1 |
|
|
|
|
|
|
|
||
Net profit/(loss) before tax |
(24,038,811) |
17,173,817 |
(41,212,628) |
-240.0 |
-5.2 |
2.7 |
|
Less: Provision for income tax |
|
|
|
|
|
|
|
Current year |
|
|
|
|
|
|
|
Deferred tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Net profit after tax |
(24,038,811) |
17,173,817 |
(41,212,628) |
-240.0 |
-5.2 |
2.7 |
|
Unappropriated profit brought forward |
14,102,678 |
7,378,861 |
|
91.1 |
|
|
|
|
|
|
|
|
|
||
Profit/(loss) available for appropriation |
(9,936,133) |
24,552,678 |
(34,488,811) |
-140.5 |
|
|
|
Appropriation |
|
|
|
|
|
|
|
Transferred from dividend equalization fund |
10,450,000 |
|
10,450,000 |
|
|
|
|
Less: Proposed dividend |
(9,500,000) |
(9,500,000) |
|
0.0 |
|
|
|
Transferred to dividend equalization |
|
(950,000) |
– |
0.0 |
|
|
|
Dividend distribution |
(950,000) |
|
|
|
|
|
|
– |
|
10,450,000 |
-100.0 |
|
|
||
Unappropriated |
(9,936,133) |
14,102,678 |
(24,038,811) |
-170.5 |
|
|
6.3.1 Horizontal Analysis:
Net sales
decreased by 26.9% in 2004.
Gross profit
decreased by 57.3%.
Expenses
decreased by 16.9%.
Trading profit
decreased by 105.5%.
Financial charges
increased by 34.2%.
Operating profit
before other income decreased by 285.8%.
Other income
decreased by 12.7%.
Operating profit
before income tax & worker’s profit participation fund decreased by 233%.
There was no
contribution to the workers; profit participation fund in 2004.
The net profit
before tax and after tax decreased by 240%.
The company paid
no income tax in the years 2004 & 2003.
Dividend
distribution tax of Tk. 950,000 was paid in 2004.
Finally, the
unappropriated profit for the year decreased by 170.5%
6.3.2 Vertical Analysis:
The gross profit
decreased from being 11.5% to 6.7% of the net sales.
The expenses
increased from being 6.2% to 7.1% of the net sales.
The trading
profit gained a negative value in 2004 as there was a loss.
The operating
profit before other income gained a negative value in 2004 because of loss.
Other income
increased from being 0.5% to 0.7% of the net sales.
Operating profit
before income tax & worker’s profit participation fund gained a negative
value in 2004.
Net profit before
tax and after tax both gained a negative value in 2004 as there was a loss.
The
economic year of 2004 was depressing for the company. They suffered a loss due
to unprecedented flood affecting the whole nation for over three months. Due to
prolonged stagnation of water, all major roads were damaged which disrupted
total surface communication network. They lost three months of effective
selling time. Frequent devaluation of currency also affected the import of
clinkers.
December 31 |
Increase or (Decrease) 2003 over 2002 |
Percent of Net Sales |
|||||
2003 |
2002 |
Taka |
Percent |
2004 |
2003 |
||
Sales (net of VAT) |
|
|
|
58.3 |
100.0 |
100.0 |
|
Less: Cost of goods sold |
|
|
(163,614,455) |
40.8 |
-88.5 |
-99.6 |
|
Gross Profit/(Loss) |
73,181,780 |
1,757,758 |
71,424,022 |
4063.4 |
11.5 |
0.4 |
|
|
|
|
|
|
|
||
Less: Expenses: |
|
|
|
|
|
|
|
Administrative |
|
|
(9,872,000) |
84.0 |
-3.4 |
-2.9 |
|
Selling and |
|
|
2,278,603 |
-11.2 |
-2.8 |
-5.1 |
|
Total Profit |
|
|
(7,593,397) |
23.6 |
-6.2 |
-8.0 |
|
Trading Profit/(Loss) |
33,407,694 |
(30,422,931) |
63,830,625 |
-209.8 |
5.2 |
-7.6 |
|
Less: Financial charges |
|
|
(7,784,357) |
70.5 |
-3.0 |
-2.7 |
|
|
|
|
|
|
|
||
Operating profit/(loss) before other income |
14,583,040 |
(41,463,228) |
56,046,268 |
-135.2 |
2.3 |
-10.3 |
|
Add: Other income |
3,494,662 |
1,916,098 |
1,578,564 |
82.4 |
0.5 |
0.5 |
|
|
|
|
|
|
|
||
Operating profit/(loss) before income tax & workers’ profit |
18,077,702 |
(39,547,130) |
57,624,832 |
-145.7 |
2.8 |
-9.8 |
|
Less: Contribution to workers’ profit participation fund (@5%) |
(903,885) |
|
(903,885) |
|
-0.1 |
0.0 |
|
|
|
|
|
|
|
||
Net profit/(loss) before tax |
17,173,817 |
(39,547,130) |
56,720,947 |
-143.4 |
2.7 |
-9.8 |
|
Less: Provision for income tax |
|
|
|
|
|
|
|
Current year |
|
|
|
|
|
|
|
Deferred tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Net profit after tax |
17,173,817 |
(39,547,130) |
56,720,947 |
-143.4 |
2.7 |
-9.8 |
|
Uappropriated profit brought forward |
7,378,861 |
46,925,991 |
|
-84.3 |
|
|
|
|
|
|
|
|
|
||
Profit/(loss) available for appropriation |
24,552,678 |
7,378,861 |
17,173,817 |
232.7 |
|
|
|
Appropriation |
|
|
|
|
|
|
|
Transferred from dividend equalization fund |
|
|
|
|
|
|
|
Less: Proposed dividend |
(9,500,000) |
|
(9,500,000) |
|
|
|
|
Transferred to dividend equalization fund |
(950,000) |
|
(950,000) |
|
|
|
|
Dividend distribution |
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Unappropriated |
14,102,678 |
7,378,861 |
6,723,817 |
91.1 |
|
|
6.4.1 Horizontal Analysis:
Net sales
increased by 58.3% in 2003.
Gross profit
increased by 11.5%.
Expenses
increased by 23.6%.
Trading profit
acquired a positive value by as there was a loss in 2002.
Financial charges
increased by 70.5%.
Operating profit
before other income acquired a positive value also.
Other income
increased by 82.4%.
Operating profit
before income tax & worker’s profit participation fund & net profit
before tax also acquired positive values.
Tk. 903,885 was
paid as the contribution to worker’s profit participation fund.
The company paid
no income tax in both of the years.
Net profit after
tax acquired a positive value.
Tk. 9,500,000 was
appropriated for proposed dividend.
Finally, the
unappropriated profit for the year increased by an astonishing 232.7%.
6.4.2 Vertical Analysis:
The gross profit
increased from being 0.4% to 11.5% of the net sales.
The expenses
decreased from being 8% to 6.2% of the net sales.
The trading
profit was 5.2% of the net sales in 2003.
The operating
profit before other income was 2.3% of the net sales in 2003.
Other income
remained the same portion of the net sales.
Operating profit
before income tax & worker’s profit participation fund was 2.8% of the net
sales in 2003
Contribution to
worker’s profit participation fund was only 0.1% of the net sales in 2003
though none was paid in 2002.
Net profit before
and after tax was 2.7% of the net sales in 2003.
As,
there was loss in the year 2002, the financial position of the company in the
year 2003 can be considered good as the company started profiting again.
Trend
Percentages
2002 |
2003 |
2004 |
2005 |
2006 |
|
Sales (net of VAT) |
100% |
73% |
107% |
149% |
|
Cost of goods sold |
100% |
77% |
110% |
150% |
|
Gross Profit/(Loss) |
100% |
43% |
89% |
145% |
|
Operating Expenses |
100% |
83% |
66% |
73% |
|
Trading Profit/(Loss) |
100% |
-5% |
116% |
230% |
|
Financial charges |
100% |
134% |
115% |
93% |
|
Operating profit/(loss) before other income |
100% |
-186% |
117% |
408% |
|
Other income |
100% |
87% |
137% |
177% |
|
Operating profit/(loss) before income tax & workers’ profit |
100% |
-133% |
121% |
363% |
|
Contribution to workers’ profit participation fund (@5%) |
100% |
0% |
121% |
363% |
|
Net profit/(loss) before tax |
100% |
-140% |
121% |
363% |
|
Provision for income tax |
|||||
Net profit/(loss) after tax |
100% |
-140% |
121% |
240% |
Table 9: Trend Percentages of the Income
Statement 2003-2006
* As there was a loss in the year 2002, it
could not be used as a base year.
**
Due to loss in the year 2004, the trend percentage does not show a consistent
upward trend.
As we can see,
excluding 2004, as the company suffered a loss that year, the sales of the
Confidence Cement Ltd. is increasing every year.
Cost of goods sold
also shows an upward trend except in the year 2004.
The gross profit
in 2005 was however less than 2003. However, it increased in the year 2006.
The trading
profit also shows a very good upward trend.
The trend of the
financial charges is not consistent.
Operating profit
before income in the year 2006 is a very good sign telling us that the company
is indeed moving forward.
Both the net
profit before tax and after tax shows upward trend.
If
we exclude the year 2004 from our consideration, as there was a flood which
caused the company to suffer a loss, we can conclude that the company’s trend
percentages show a definite growth.
7.Ratio
Analysis
Ratios
are expressions of logical relationships between certain items in the financial
statements. This part of the report will analyze four kinds of ratios of the
Confidence Cement Ltd. These are,
Liquidity Ratios
Equity or
Long-Term Solvency Ratios
Profitability
Ratios
Markets Tests
Liquidity Ratios:
Liquidity
ratios are used to indicate a company’s short-term debt paying ability. These
ratios show interested parties the company’s capacity to meet maturing current
liabilities.
8.1.1 Current or Working Capital Ratio:
The current ratio indicates
the ability of a company to pay its current liabilities from current assets and
thus shows the strength of a company’s working capital position. Short-term
creditors are particularly interested in the current ratio since the conversion
of inventories and accounts receivable into cash is the primary source from
which the company obtains the cash to pay short-term creditors. Long-term
creditors are also interested in the current ratio because a company that is
unable to pay short-term debts maybe forced into bankruptcy.
Year |
2002 |
2003 |
2004 |
2005 |
2006 |
Current |
444,912,117 |
335,765,118 |
357,315,225 |
482,826,702 |
424,937,956 |
Current |
393,739,786 |
278,381,457 |
329,088,697 |
429,290,269 |
362,205,475 |
Working |
51,172,331 |
57,383,661 |
28,226,528 |
53,536,433 |
62,732,481 |
Current ratio (a÷b) |
1.13:1 |
1.21:1 |
1.09:1 |
1.12:1 |
1.17:1 |
Industry Average |
0.98:1 |
0.76:1 |
0.67:1 |
0.75:1 |
0.77:1 |
Figure 2: Current Ratio of Confidence
Cement Ltd. & the Industry Average 2002-2006
As
we can see, the current ratio of the company has been quite consistent during
the past five years. It does not show any fixed upward or downward trend. The
same can be said about the overall industry. But the company has a slightly
good current ratio ha the industry, meaning it has the ability to pay its
current debts easily.
Acid-Test (Quick) Ratio:
The acid-test ratio is the
ratio of quick assets (cash, marketable securities and net receivables) to
current liabilities. Inventories and prepaid expenses are excluded from the
current assets to compute quick assets because they might not be readily
convertible into cash. Short-term creditors are particularly interested in this
ratio, since it relates the “pool” of cash and immediate cash inflows to
immediate cash outflows.
Year |
2002 |
2003 |
2004 |
2005 |
2006 |
Quick |
204,400,369 |
156,758,135 |
190,096,450 |
265,459,277 |
255,582,815 |
Current |
393,739,786 |
278,381,457 |
329,088,697 |
429,290,269 |
362,205,475 |
Net |
(189,339,417) |
(121,623,322) |
(138,992,247) |
(163,830,992) |
(106,622,660) |
Acid-test ratio (a÷b) |
0.52:1 |
0.56:1 |
0.58:1 |
0.62:1 |
0.71:1 |
Industry Average |
0.48:1 |
0.29:1 |
0.29:1 |
0.33:1 |
0.65:1 |
Figure 3: Acid-Test Ratio of Confidence
Cement Ltd. & the Industry Average 2002-2006
The
acid-test ratios of the past five years tell us that, the company cannot pay
its current debts with the help of its quick assets or assets which can be
readily converted into cash. The ratio of the overall industry is even worse.
But the company’s quick ratio is getting better every year.
Accounts Receivable Turnover:
Year |
2002 |
2003 |
2004 |
2005 |
2006 |
Net |
402,836,313 |
637,874,790 |
466,480,439 |
685,713,532 |
950,502,498 |
Average |
57,776,170 |
86,772,341 |
106,799,934 |
134,238,819 |
146,289,346 |
Accounts receivable |
6.97 |
7.35 |
4.36 |
5.11 |
6.50 |
Industry Average |
13.15 |
8.97 |
6.89 |
8.51 |
9.82 |
Figure 4: Accounts Receivable Turnover
of Confidence Cement Ltd. & the Industry Average 2002-2006
The
turnover ratio provides an indication of how quickly the receivables are being
collected. For example, in 2006, Confidence Cement Ltd. collected its accounts
receivables slightly more than 6 times per year. The turnover ratio of the
Confidence Cement Ltd. does not show any specific upward or downward trend. The
same can be said about the industry. But the industry’s turnover ratio is
better than Confidence Cement Ltd.
Number of Day’s Sales in Accounts Receivable:
Year |
2002 |
2003 |
2004 |
2005 |
2006 |
Accounts receivable |
6.97 |
7.35 |
4.36 |
5.11 |
6.50 |
Number of Days’ Sales in |
52.37 |
49.66 |
83.72 |
71.43 |
56.15 |
Industry Average |
41.5 |
59.68 |
100.55 |
57.78 |
40.03 |
Figure 5: Number of Day’s Sales in Accounts Receivable of
Confidence Cement Ltd.
The Industry Average 2002-2006
The number of days’ sales in
accounts receivable ratio measures the average liquidity of accounts receivable
and gives an indication of their quality. Generally, the shorter the collection
period, the higher the quality of receivables. In 2004, both the company and
the industry had long collection period, because of a nationwide flood. After
that both the company and the industry has managed to shorten their collection
period.
Inventory Turnover:
Year |
2002 |
2003 |
2004 |
2005 |
2006 |
Cost of goods sold (a) |
401,078,555 |
564,693,010 |
435,232,440 |
620,643,737 |
844,444,070 |
Average inventory (b) |
213,434,765 |
209,759,366 |
173,112,879 |
192,293,100 |
193,211,283 |
Inventory turnover (a÷b) |
1.88:1 |
2.69:1 |
2.51:1 |
3.23:1 |
4.37:1 |
Industry Average |
6.59:1 |
8.4:1 |
4.44:1 |
5.64:1 |
6.75:1 |
Figure 6: Inventory Turnover of
Confidence Cement Ltd. & the Industry Average 2002-2006
A
company’s inventory turnover shows the number of times its average inventory is
sold during a period. A manager who is able to maintain the highest inventory
turnover ratio is considered the most efficient. But then again, if a company
that achieves high inventory turnover
ratio by keeping extremely small inventories on hand may incur larger ordering
costs, lose quantity discounts and lose sales due to lack of adequate
inventory. So, in order to earn satisfactory income, management must balance
the costs of inventory storage and obsolescence and the cost of tying up funds
in inventory against possible losses of sales and other costs associated with
keeping too little inventory in hand. Confidence Cement Ltd. has managed to
increase its inventory turnover every year. But the inventory turnover of the
industry has been much better than the company during the last 5 years.
Total Assets Turnover:
Year |
2002 |
2003 |
2004 |
2005 |
2006 |
Net |
402,836,313 |
637,874,790 |
466,480,439 |
685,713,532 |
950,502,498 |
Average |
1,033,959,321 |
1,008,107,661 |
939,947,301 |
995,243,025 |
1,029,458,489 |
Total assets turnover |
0.39:1 |
0.63:1 |
0.50:1 |
0.69:1 |
0.92:1 |
Industry Average |
0.83:1 |
0.74:1 |
0.43:1 |
0.88:1 |
1.03:1 |
Figure 7: Total Assets Turnover of
Confidence Cement Ltd. & the Industry Average 2002-2006
This ratio measures the
efficiency with which a company uses its assets to generate sales. For example,
in 2006, each taka of assets in Confidence Cement Ltd produced Tk. 0.92 sales.
The larger the total assets turnover, the larger will be the income on each
dollar invested in the assets of the business. The assets turnover ratio has
increased over the years except for 2004. But a ratio less than 1 is not good
enough for any company. On other hand, since 2002 to 2004 the assets turnover
ratio of the industry showed a downward trend but it started to increase from
2005. Except for the year 2004, the ratio of the industry was better than the
company.
Equity or Long-Term Solvency Ratios:
Equity
or long-term solvency ratios show the relationship between debt and equity
financing in a company.
Equity (Stockholders’ Equity) Ratio:
Year |
2002 |
2003 |
2004 |
2005 |
2006 |
Stockholder’s |
635,434,364 |
642,158,181 |
607,669,370 |
619,932,968 |
632,565,013 |
Total |
1,073,162,079 |
943,053,242 |
936,841,360 |
1,053,644,690 |
1,005,272,287 |
Equity ratio (a÷b) |
0.59 |
0.68 |
0.65 |
0.58 |
0.63 |
Industry Average |
0.53 |
0.50 |
0.46 |
0.29 |
0.60 |
Figure 8: Equity Ratio of Confidence
Cement Ltd. & the Industry Average 2002-2006
The
equity ratio indicates the proportion of total assets (or total equities)
provided by stockholders (owners) on any given date. From a creditor’s point of
view, a high proportion of stockholders’ equity is desirable as it indicates
the existence of a large protective buffer for creditors in the event a company
suffers loss. But from an owner’s point of view, a high proportion of
stockholders’ equity may or may not be desirable. If borrowed funds can be used
by the business generate income in excess of the net after-tax cost of the
interest on such borrowed funds, a lower percentage of stockholders’ equity may
be desirable. The equity ratios of both the company and the industry are low
which is good for the owners as they can use the borrowed funds to generate
income.
Stockholders’ Equity to Debt Ratio:
Year |
2002 |
2003 |
2004 |
2005 |
2006 |
Stockholder’s equity (a) |
635,434,364 |
642,158,181 |
607,669,370 |
619,932,968 |
632,565,013 |
Total debt (b) |
437,727,715 |
300,895,061 |
329,171,990 |
433,711,722 |
372,707,274 |
Equity ratio (a÷b) |
1.45:1 |
2.13:1 |
1.85:1 |
1.43:1 |
1.70:1 |
Industry Average |
1.05:1 |
0.77:1 |
0.70:1 |
0.65:1 |
0.87:1 |
Figure 9: Stockholders’ Equity to Debt
Ratio of Confidence Cement Ltd. & the Industry Average 2002-2006
The
relative equities of owners and creditors can be expressed by this ratio. As we
can see, the ratios of both the company and the industry do not follow a
specific trend. But the company’s ratios are higher than the overall industry.
Profitability Tests:
Profitability
is an important measure of a company’s operating success. Two areas are given
focus while judging profitability: (1) relationship on the income statement
that indicate a company’s ability to recover costs and expenses and, (2)
relationships of income to various balance sheet measures that indicate the
company’s relative ability to earn income on assets employed.
Rate of Return on Operating Assets:
Year |
2002 |
2003 |
2004 |
2005 |
2006 |
Net operating income (a) |
(41,463,228) |
14,583,040 |
(27,088,620) |
17,106,410 |
59,432,763 |
Operating assets (b) |
944,406,586 |
872,776,599 |
861,130,732 |
937,528,748 |
898,384,117 |
Rate of return on operating assets (a÷b) |
-4.4% |
1.67% |
-3.14% |
1.82% |
6.62% |
Industry Average |
-6.2% |
-9.66% |
-7.67% |
-4.29% |
-4.0% |
Figure 10: Rate of Return on Operating Assets of Confidence Cement Ltd.
& the Industry Average 2002-2006
This
ratio is designed to show the earning power of the company as a bundle of
assets. By disregarding both non-operating assets and non-operating income
elements, the rate of return on operating assets measures the profitability of
the company in carrying out business functions.
As
we can see, Confidence Cement Ltd. had a negative ratio in 2002 and 2004. But
right now it is going upward. On the other hand, the cement industry has had a
negative ratio for the past 5 years.
The
ratio can be broken down into two elements- the operating margin & the
turnover of operating assets.
Operating Margin:
Year |
2002 |
2003 |
2004 |
2005 |
2006 |
Net operating income (a) |
(41,463,228) |
14,583,040 |
(27,088,620) |
17,106,410 |
59,432,763 |
Net sales (b) |
402,836,313 |
637,874,790 |
466,480,439 |
685,713,532 |
950,502,498 |
Operating margin (a÷b) |
-10.29% |
2.29% |
-5.81% |
2.49% |
6.25% |
Industry Average |
-5.56% |
-4.76% |
-11.23% |
-0.44% |
4.02% |
Figure 11: Operating Margin of
Confidence Cement Ltd. & the Industry Average 2002-2006
Operating
margin reflects the percentage of each taka of net sales that becomes net
operating income. As we can see, except for in 2004, the operating margin of
Confidence Cement Ltd. is increasing every year. That means more and more net
sales are turning into net operating income. The same can be said for the
overall industry. But the ratio of the overall industry only got positive in
the year 2006.
Turnover of Operating Assets:
Year |
2002 |
2003 |
2004 |
2005 |
2006 |
Net sales (a) |
402,836,313 |
637,874,790 |
466,480,439 |
685,713,532 |
950,502,498 |
Operating assets (b) |
944,406,586 |
872,776,599 |
861,130,732 |
937,528,748 |
898,384,117 |
Turnover of operating assets (a÷b) |
0.43:1 |
0.73:1 |
0.54:1 |
0.73:1 |
1.06:1 |
Industry Average |
0.76:1 |
0.74:1 |
0.63:1 |
1.01:1 |
1.26:1 |
Figure 12: Turnover of Operating Assets of Confidence Cement Ltd. &
the Industry Average 2002-2006
Turnover
of the operating assets shows the amount of sales taka generated for each taka
invested in operating assets. Except for the year 2004, the ratio of the
company has increased every year, meaning more income is being generated by the
money invested. The same thing can be said about the overall industry. But the
ratio of the industry is better than Confidence Cement Ltd.
Net Income to Net Sales (Return on Sales) Ratio:
Year |
2002 |
2003 |
2004 |
2005 |
2006 |
Net income (a) |
(39,547,130) |
17,173,817 |
(24,038,811) |
20,813,598 |
41,132,045 |
Net sales (b) |
402,836,313 |
637,874,790 |
466,480,439 |
685,713,532 |
950,502,498 |
Net income to net sales (a÷b) |
-9.82% |
2.69% |
-5.15% |
3.04% |
4.33% |
Industry Average |
-8.80% |
-9.20% |
-14.43% |
-4.90% |
-13.64% |
Figure 13: Net Income to Net Sales Ratio
of Confidence Cement Ltd. & the Industry Average 2002-2006
This
ratio measures the proportion of the sales taka that remains after the
deduction of all expenses. The industry has had a negative ratio for past 5
years, which means there was no profit generated by the net sales. But except
in 2004, the ratio of the Confidence Cement Ltd. has increased every year.
Net Income to Average Common Stockholders’ Equity:
Year |
2002 |
2003 |
2004 |
2005 |
2006 |
Net income (a) |
(39,547,130) |
17,173,817 |
(24,038,811) |
20,813,598 |
41,132,045 |
Average common stockholders’ equity (b) |
663,153,609 |
638,795,273 |
624,913,776 |
613,801,169 |
626,248,991 |
Net income to average common |
-5.96% |
2.69% |
-3.85% |
3.39% |
6.57% |
Industry Average |
-7.11% |
-12% |
-19.57% |
-26.49% |
22.87% |
Figure 14: Net Income to Average Common Stockholders’ Equity
of Confidence Cement Ltd. & the Industry
Average 2002-2006
From
the stockholders’ point of view, an important measure of the income-producing
ability of a company is the relationship of net income to average common stockholders’
equity. Again, except in 2004, the ratio of the company is increasing day by
day which means the company is earning more in return of the stockholders’
equity. This is good news for the stockholders. But unfortunately, that is not
the case for the overall industry. The ratio for the industry became positive
only in 2006. Until then it had kept on decreasing.
Earnings per Share of Common Stock:
Year |
2002 |
2003 |
2004 |
2005 |
2006 |
Earnings available to |
(39,547,130) |
17,173,817 |
(24,038,811) |
20,813,598 |
41,132,045 |
Weighted-average number of shares (b) |
1,900,000 |
1,900,000 |
1,900,000 |
1,900,000 |
1,900,000 |
EPS of common stock (a÷b) |
-20.81 |
9.51 |
-12.65 |
10.95 |
21.65 |
Industry Average |
7.23 |
-4.09 |
-14.16 |
-3.24 |
31.95 |
Figure 15: Earnings per Share of
Confidence Cement Ltd. & the Industry Average 2002-2006
His
measure is most widely used to appraise a company’s operations. The more the
EPS, people are more likely to buy the company’s shares. As we can see in the
graph, due to nation-wide flood, the EPS in 2004 had a negative value. But
apart from that the EPS of Confidence Cement LTD. is increasing day by day. The
same can be said about the overall industry.
Market Tests:
Market
test ratios are computed using the information from the financial statements
and information about market price of the company’s stock. These tests help
investors and potential investors assess the relative merits of the various
stocks in the marketplace.
Earnings Yield on Common stock:
Year |
2002 |
2003 |
2004 |
2005 |
2006 |
Earnings |
(11.64) |
9.51 |
(12.65) |
10.95 |
21.65 |
Current market price per |
239.75 |
141.75 |
161.75 |
114.75 |
137.75 |
Earnings yield on common |
-4.86% |
6.71% |
-7.82% |
9.54% |
15.72% |
Figure 16: Earnings Yield on Common
Stock of Confidence Cement Ltd. & the Industry Average 2002-2006
The
increase of the earnings yield on common stock every year is a good sign for
the investors. It means buying its share would prove to be profitable.
Price-Earnings Ratio:
Year |
2002 |
2003 |
2004 |
2005 |
2006 |
Current market price per share of |
239.75 |
141.75 |
161.75 |
114.75 |
137.75 |
Earnings per |
(11.64) |
9.51 |
(12.65) |
10.95 |
21.65 |
Price-earnings ratio |
-20.6:1 |
14.91:1 |
-12.79:1 |
10.48:1 |
6.36:1 |
Figure 17: Price-Earnings Ratio of
Confidence Cement Ltd. & the Industry Average 2002-2006
According to the recent data, in 2006, the stock of
the Confidence Cement Ltd. was selling at 6.36 times the earning. But this
comparison of the ratios since 2002-2006 does not show any specific trend.
Dividend Yield on Common Stock :
Year |
2002 |
2003 |
2004 |
2005 |
2006 |
Dividend per share of |
20 |
5 |
5 |
5 |
15 |
Current market price per |
239.75 |
141.75 |
161.75 |
114.75 |
137.75 |
Dividend yield on common |
8.34% |
3.53% |
3.09% |
4.35% |
10.89% |
Figure 18: Dividend Yield on Common Stock of
Confidence Cement Ltd. & the Industry Average 2002-2006
The
dividend paid per share of common stock is also of much interest to common
stockholders. In 2006, the shareholders got the highest dividend yield on
common stock.
Payout Ratio on Common Stock :
Year |
2002 |
2003 |
2004 |
2005 |
2006 |
Dividend per share of |
20 |
5 |
5 |
5 |
15 |
Earnings |
(11.64) |
9.51 |
(12.65) |
10.95 |
21.65 |
Payout ratio on common |
-171.82% |
52.58% |
39.53% |
45.66% |
69.28% |
Industry Average |
-40.38% |
83.13% |
57.37%$ |
24.99% |
32.56% |
In
2006, the payout ratio of Confidence Cement Ltd. was 69.28%. This means 69.28%
of the company’s earnings were paid as dividends. And we can also that the
ratio is increasing every year. But overall, the industry does not have a
steady growth in payout ratio on common stock.
9.
Conclusion
The future of the cement industry is
very bright as Bangladesh is developing, and is in need of variety of
construction materials, chiefly cement, for its overall development. The
country is also facing rapid urbanization, which in turn means lack of space in
the developed cities. Therefore, the multistoried apartment buildings are
indispensable. As the country is regularly visited by floods, cement will play
a vital role as it is unaffected by water. On the contrary, it hardens when it
comes in contact with water. So we can
conclude that, the cement industry in Bangladesh is indeed a prospective
industry.
Should we buy its shares?
Now
the question is, should we invest in this industry or more specifically in
Confidence Cement Ltd.? The analysis of the balance sheets and the profit and
loss account shows, the assets have sometimes increased and sometimes
decreased. The same can be said about liabilities. A steady trend is indeed
hard to find. But the profit and loss account shows us a steady increase in
profit except 2004. In 2004, due to a nationwide flood, the company suffered
loss. The trend percentage also shows the increasing trend of the sales and profit.
Now
moving on to the ratios, the liquidity ratios of the company is not at all
satisfactory. It means the company does not have sufficient current assets to
pay its liabilities. So, if a situation like that occurs, there is a
possibility that the company might be bankrupt. The long-term solvency ratios
are slightly better. Though in the recent past, many of profitability ratios
had negative values, the scenario is changing now. The profitability of the
company is increasing day by day.
The
current EPS along with the market test ratios is pretty satisfactory. The
investors are getting regular dividends and making a profit. The current market
price for each share with 100 taka face value is Tk. 338.75. So, considering
the fact that the cement industry is a prospective industry, the increase in
the amount of exports in the near future and most importantly the current
financial position helps us to conclude that, to invest in this company would
be profitable in the long-run.
Among
the other companies investing in Heidelberg Cement, Lafarge Surma Cement and
Meghna Cement would be profitable.
Bibliography
Annual Reports:
Annual Reports of
Confidence Cement Ltd 2002, 2003, 2004, 2005 & 2006
Annual Reports of
Meghna Cement Ltd 2002, 2003, 2004, 2005 & 2006
Annual Reports of
Heidelberg Cement Ltd 2002, 2003, 2004, 2005 & 2006
Annual Reports of
Aramit Cement Ltd 2002, 2003, 2004, 2005 & 2006
Annual Reports of
Niloy Cement Ltd 2002, 2003, 2004, 2005 & 2006
Text Book:
Accounting
Principles – Fifth Edition – Hermanson, Edwards, Maher
Organizational Assistance:
Dhaka Stock
Exchange
Internet: