MANAGERIAL FINANCE

BUS 635

INTRODUCTION
HeidelbergCement Bangladesh Limited (HCBL) is one of the largest producers of quality cement in Bangladesh. It is a member of HeidelbergCement Group Company, Germany. The group has 136 years of experience in producing cement and is operating in more than 50 countries. The group established its presence in Bangladesh in 1998 by setting up a floating terminal with onboard packing facilities in the port of Chittagong and by distributing the cement to the key markets of Dhaka and Chittagong. In 1999 the group further strengthened its position in Bangladesh and built a Greenfield manufacturing plant near Dhaka namely ScanCement International Limited with an installed capacity of 0.750 million tonnes per year. In 2000 HeidelbergCement group bought a minority position at Chittagong based company namely Chittagong Cement Clinker Grinding Co. Limited (CCCGCL) quickly followed by the acquisition of controlling stake. The plant in Chittagong has an installed capacity of 0.7 million tonnes per year. In 2003, the two companies were amalgamated and the companys name was changed to HeidelbergCement Bangladesh Limited.

OBJECTIVES OF THE REPORT

The objective of this study is to identify the financial strength of Power HEIDELBERGCEMENT BANGLADESH LIMITED by analyzing their financial statements (focusing on Balance Sheet, Income Statement & Cashflow Statements) from the year 2004 to 2008. The main objectives are as follows: Make a thorough analysis of the companys financial statements from 2004 to 2008 with the aid of ratio analysis, income statement, cash flow and analysis of major components of the balance sheet. 1

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Find out any specific trends or fluctuations occurred during the Find out HCBLs financial position to identify its current strength and weakness and to suggest actions that the firm might persue to take advantage of those strengths and correct any weaknesses.

periods taken into consideration for analysis.

METHODOLOGY
Statistical Technique Balance sheet analysis, cash flow analysis, ratio analysis of Heidelberg Cement Bangladesh Ltd. has been performed for a period of five years and pictorial representation such as bar charts, trend lines are used to present the results and interpret effectively. Furthermore, Microsoft Excel has been used for preparing Vertical Commonsize Balance Sheet, Income Statement and also to calculate the ratio analysis models by the help of current and past data. Nature and Sources of Data The financial analysis of Heidelberg Cement Bangladesh Ltd. is performed by using secondary data only. Annual Reports from year 2004-2008 are collected from Dhaka Stock Exchange Library and websites. Secondary Data of the 5 years are utilized in this study for carrying out trend analysis which reflects the up-to-date financial scenario of the firm which is easy for comparing different years financial position. Nature of Analysis We mainly monitor the performance of our company of focus over the years with respect to Ratio Analysis, Cash Flow Statement Analysis, Balance Sheet and Income Statement Analysis which helped us identify any specific

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trends or fluctuations occurred during the periods taken into consideration for analysis. The ratio had been analyzed with respect to time series analysis. In the ratio analysis five major types of ratios had been considered, namely Liquidity Ratio Debt Management Ratio Asset Management Ratio Profitability Ratio Market Value Ratio

LIMITATIONS
Lack of availability of comprehensive data on Heidelberg Cement Bangladesh Ltd., on the cement industry, thus a thorough analysis of the firm could not be made due to unavailability of important information. Primary data such as interviews with the companys managers and officials are not collected due to time constraint which can provide great insight into the actual scenario of the company from the inside. Furthermore, detailed information about the firms accounting standards is not obtained which can assist the analysis of balance sheet and stock price movement more completely. Finally, time constraint was a major limitation of this report.

ANALYSIS OF BALANCE SHEET

Asset
Current Asset Current assets of HEIDELBERGCEMENT BANGLADESH LIMITED have grown quite steadily over the years. In 2004 current assets of company was TK 11,38,483. In 2006 it was TK 14,17,403. In 2008 current assets of company is TK 30,19,316. From the graph, we see that from the year 2004 to year 2006 there is a steady growth but in the year 2007 and 2008 there is an sharp increase in the companys current assets. 3

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The rapid growth may indicate quite a number of things. For instance, the rise in accounts receivables indicate that the rate of sales have increased at quite a healthy rate over the years. A healthy amount of current assets are important for any company as it will eventually increase its solvency and improve creditworthiness.

Figure -1: Current Assets Fixed Asset HEIDELBERGCEMENT BANGLADESH LIMITED has invested quite intensely an amount of Tk 29,95,107 in the year 2004. Increase in property, plant and equipment is very prominent and it also shows the companys rise during this year. In 2005, there is a sharp fall in the net fixed asset and it was only TK 27,21,059. Though in the year 2007 there is an increase an amount of Tk 29,50,713 but in the next year again fall back to Tk 28,51,224 The following figure shows the trend in net fixed asset.

Figure -2: Fixed Assets 4

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Total Asset HEIDELBERGCEMENT BANGLADESH LIMITED has a remarkable increase in the total asset in the year 2008 amounted to Tk. 58,70,540. There is a steady increase in the company total asset from year 2004 to 2006. The total asset in the year 2007 was Tk. 51,52,659.

Figure -3: Total Assets

Liability and Equity

Total Liabilities There has been steady rise in overall liabilities over the years 2004 and 2005 for HEIDELBERGCEMENT BANGLADESH LIMITED. There is a decrease in liabilities only in the year 2006 but in the following two years the overall liabilities increased. The reason for this is the expansion of the company over the years and also the rise in operations. The major thing in the liability segment is long term loan, which are provided by Standard Chartered Bank, Citibank N.A., HSBC, Uttara Bank, Mercantile Bank Ltd. etc.

Figure -4: Total Liabilities 5

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Shareholders Equity Over the years shareholders of HEIDELBERGCEMENT BANGLADESH LIMITED have experienced healthy growth in the total equity. In 2004 it was Tk. 16,99,075. In 2009 it becomes Tk. 33,08,072.

Figure -5: Shareholders Equity

ANALYSIS OF CASHFLOW
Cash flow is a statement reporting the change in net cash position, from the beginning to the ending affected by firms operating, investing and financing activities. It is designed to show how the firms operations have affected its cash position by examining the investment (use of cash) and financing decisions (sources of cash) of the firm. It helps us to identify whether the firm is generating sufficient cash to purchase additional fixed assets for growth, whether the firm has excess cash flows to repay debt or to invest in new products. This information is useful for both financial managers and investors. So we constructed the cash flow statement of Heidelberg Cement Bangladesh Limited for five consecutive years and interpret on few important items of the statement which cause major changes in net cash of the firm and also determine its liquidity position.

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Figure -6: Cash at the end of the year After constructing the cash flow for five years we found that the ending cash balance we see that it was positive throughout the whole five years. From the graph we see that the cash holding position of the company improved over the five years except a decline in 2005. But there was a sharp upward movement in 2007. At the year end 2008 the company is holding 810,032 thousand taka which indicate the high liquidity of the company though in previous year it was little bit more. The company can able to maintain such cash because of the well cash management in Operating & Financing activities. Those are explained below:

Cashflow from Operating Activity:

The operating cash flows generated principally from the day to day operation of the firm.

Figure -7: Net Cashflow from Operating Activities 7

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There are both ups and downs in net cash flow from operating activities. In FY 2006 net cash increased from negative 93,979 thousand taka to 8,37,859 thousand taka. But in FY 2008 it decreased from 9,36,999 thousand to negative 1,68,066 thousand taka. The main reason behind that is the huge increase of net income in 2005 which was around 12 times higher than year 2004. Also at 2006 it was around 3 times higher compare to previous year. After that the company was able to main to steady growth in net income.

Figure -8: Net Income

After maintaining such net profit the company was in negative position in operating cash flow at 2008 because they piled up huge inventory in this year. In 2008 net cash investment in inventory was 19 times higher than the previous year. Company piled up huge inventory because they through that the inventory price will be higher in the next year because of world economy recovery from recession. Also in 2009 the political parties will take the power of the government which will increase the economic activities of the country. So to support that sale the company was going for huge inventory piled up.

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Figure -9: Inventory Another reason behind the highly positive operating cash flow is raising the accounts payable. From graph we see that the company was maintaining a steady growth in accounts payable. Company basically wants to grape the benefits of interest free liabilities by increasing non interest bearing liabilities which also help them to increase the operating cash flow.

Figure -10: Accounts Payable

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Cash flow from Investment Activity:

The second section of cash flow shows long term investing activities.

Figure -11: Net Cashflow from Investment Activities

After constructing the cash flow statement we found that from 2003 to 2006 new investment in fixed assets was positive which means the company sold out its fixed asset but in 2007 the company was jump for a huge investment for which the net cash flow was negative. At 2003 international cement company Heidelberg Cement take over the management of the company from then the management planed for new investment to increase the production capacity. On the basis of their plan they sold out their old machinery and equipment gradually from 2003 to 2006. At 2007 they extended their production capacity for which the net cash flow from investment activities was negative. At 2008 they also remove some of their old parts and need not go for new investment as they make huge investment in 2007 so the net cash flow was positive.

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Cashflow from Financing Activity: Cash flow from financing deals with long term loan, notes payable, any dividend offered in the FY and also any change in common stock.

Figure -12: Net Cashflow from Financing Activities From the cash flow statement we see that the company has negative cash flow at financing activities from 2004 to 2006. After that they have positive cash flow in conjugative two years. At 2006 the net cash out flow in financing activities was 869,330 thousand taka which was 25 times higher than the previous year. This happened because the company wanted to pay out all of their long term liabilities.

Figure -13: Net Cashflow in Long term Loan 11

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When the new company took over the company management at 2003 the management wants to pay out the interest bearing liabilities because at that time the company was running under loss. So it was difficult for the company to pay the interest of the liabilities. So they use the equity to pay out the liabilities which help them to get release from the interest paying obligation.

Figure -14: Net Cashflow in Over Draft From cash flow statement we see that the company was paying out their short term interest bearing loan also. The main motivation behind that was the reducing the interest payment as because the company was not making profit. Thats why we see that there was no short term loan in last two years. Overall Comments on Cash flow: It can be concluded that, though the net cash flow in 2008 is negative, there are some good news for the company in cash operation. The company was able to show tremendous improvement in net income which was negative at the beginning. The company paid out most of their interest bearing liabilities especially all long term loans. For this reason at the time of slow down economy the company was able to make profit. More over the company paid out the all over draft and replace it with the non interest bearing current asset. Though the huge amount cash is stuck in inventory, it will give them competitive advantage in next year because of lower cost of raw materials, if there is inflation. 12

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At the same time it will give support to companys next years sales which company is expecting to increase because of improvement of economy. Company already went for a huge investment in 2007 for which the net cash flow from investment activities was negative. This investment will bring huge amount of cash inflow in future.

RATIO ANALYSIS
Ratio analysis is the calculation and comparison of ratios which are derived from the information in a company's financial statements. The level and historical trends of these ratios can be used to make inferences about a company's financial condition, its operations and attractiveness as an investment. To evaluate a firms financial condition and performance, the financial analyst usually performs analysis on various aspects to find out the financial health of the firm; among which ratio analysis is one of the most important and commonly used methods. Here in this section we are going to derive few commonly used financial ratios over time which will help us to determine the improvement or deterioration in its financial position. Five major categories of ratios are:
Liquidity ratios Asset Management ratios Debt Management ratios Profitability ratios Market Value ratios

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LIQUIDITY RATIOS
Liquidity or Short Term Solvency ratios are used to determine a company's ability to pay off its short-terms debts obligations. The higher the value of the ratios, the larger will be the margin of safety that the company possesses to cover short-term debts. It shows the relationship of a firms cash and other current assets to its current liabilities. Different types of liquidity ratios are discussed below. Current Ratio: Current Ratio is the ratio of current assets to current liabilities. The current ratio indicates the ability of a company to pay its current liabilities from current assets and shows the strength of the companys working capital position. Current ratio of 2:1 is considered to be a healthy condition for most businesses. The ratio is calculated as follows:
Current Ratio = Current Assets / Current Liabilities

The following table shows the current ratio data of HCBLHCBL Current Ratio 2004 0.57 X 2005 0.7 X 2006 0.87 X 2007 1.03 X 2008 1.27 X

The result shows how much current asset the organization is holding for every taka in current liabilities. In 2004 company had a ratio of .57 X and it gradually increased over the next four years. At year 2008 it rises to 1.27 X from last year 1.03 X. This happened because of piling inventory. They thought inventory price would rise in upcoming years as because of inflation. 14

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Quick Ratio: The Acid-test or quick ratio measures a company's ability to meet its shortterm obligations with its most liquid assets. Inventories typically are the least liquid of a firms current assets they are the assets on which require more time to be sold and losses are most likely to occur in the event of liquidation. Therefore, it is important to measure the firms ability to pay off short term obligations without having to rely on the sale of inventories. Quick ratio of 1:1 is considered to be a healthy condition for most businesses. It is calculated as follows. Quick Ratio= (Current Assets- Inventories)/ Current Liabilities The following table shows the quick ratio data of HCBLHCBL Quick Ratio 2004 0.25X 2005 0.34X 2006 0.48X 2007 0.71X 2008 0.66X

Quick ratio is a more severe measure of liquidity which measures a companys ability to pay off its short term liability without relying on inventory sale. At 2004 the ratio was 0.25X which gradually increase up to 2007 and reach to 0.71X. In 2008, quick ratio decreased to 0.66X from 0.71 in 2007. The reason behind the fall of the quick ratio is the pile up of inventory. This may bring benefit for the company if there is inflation in the next year. Another reason behind the improvement in quick ratio over the five years is increasing the cash. This indicates the company can face any type of financial crisis. 15

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Overall comment on Liquidity Ratios:

HEIDELBERGCEMENT BANGLADESH LIMITED liquidity position gradually improved over the five years and it slightly fall down in 2008 because of huge amount of inventory piled up from which company will get the benefits in future.

ASSET MANAGEMENT RATIOS

A set of ratios that measure how effectively a firm manages its assets compared to its sales. These ratios are designed to find out whether the total amount of each type of asset as reported on the balance sheet appear reasonable, too high, or too low considering current and projected sales levels. Asset Management Ratio is done based on inventory turnover ratio, days sales outstanding and fixed asset and total asset turnover ratio. Inventory turnover ratio: Inventory Turnover Ratio tells how often a business' inventory turns over during the course of the year. Inventories are the least liquid form of asset and a high inventory turnover ratio is generally positive. On the other hand, an unusually high ratio compared to the average for the industry could mean that the business is losing sales because of inadequate stock on hand.
Inventory turnover ratio= Cost of goods sold or Sales Revenue / Average Inventory

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The following table shows the quick ratio data of HCBLHCBL Inventory Turnover 2004 5.63X 2005 4.97X 2006 7.87X 2007 8.3X 2008 4.38X

The inventory turnover in 2004 is 5.63X and it increase up to 8.30X at 2007. At 2008 it fall down to 4.38X. This fall does not occur because of the fall of sales. It decreases because of the increase in inventory by 18X. Basically company is going to utilize more of their capacity to increase the sales of next year. As the company will go for more production, the sales will increase and inventory will decrease which will improve the inventory turnover ratio again. Average Collection Period or Days Sales Outstanding (DSO): The DSO ratio is calculated by dividing accounts receivable by average sales per day which indicates the average length of time it takes the firm to collect its credit sales. It is also called the average collection period, is used to evaluate the firms ability to collect its credit sales in a timely manner. DSO is calculated as follows:
Average Collection Period or Days Sales Outstanding (DSO) = 365 or 360 / Accounts Receivable Turnover

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The following table shows the Days Sales Outstanding (DSO) data of HCBLHCBL DSO 2004 38.25 Days 2005 45.96 Days 2006 37.8 Days 2007 37.56 Days 2008 35.02 Days

The DSO ratio for HCBL in FY 2004 was 38.25 days which decreases slightly to 35.02 days in 2008 which indicate that the management is doing well in credit sales management. The absolute figure of credit sales is increased but the proportion of credit sales compare to sales drastically fall down. This happened because the company emphasize on cash sales through dealers instated of huge amount of credit sales to few clients. Fixed asset turnover: Fixed Asset Turnover ratio measures the amount of sales generated for every dollar's worth of fixed assets. The fixed asset turnover ratio is calculated by dividing sale by total assets. It is calculated as follows: Fixed Assets Turnover Ratio = Sales Revenue/ Fixed Assets

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The following table shows the Fixed Asset Turnover data of HCBL-

HCBL Fixed Asset Turnover

2004 1.05X

2005 1.27X

2006 1.84X

2007 1.91X

2008 2.23X

As like other sales we see that the fixed asset ratio is also gradually improved over the five years period of life. At 2004 it was 1.05 times which reach to 2.23 times at 2008. Heidelberg Cement was successful in utilizing its revenue generating assets, as a result its fixed asset turnover gradually increased over the last 5 year periods. Sales Turnover or Total Asset Turnover: Sales Turnover or Total Asset Turnover ratio measures the amount of sales generated for every dollar's worth of assets. The total asset turnover ratio is calculated by dividing sale by total assets. It is calculated as follows: Sales Turnover or Total Assets Turnover = Sales Revenue/ Total Assets

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The following table shows the Sales Turnover or Total Asset Turnover data of HCBLHCBL Sales or Total Asset Turnover 2004 0.78X 2005 0.85X 2006 1.21X 2007 1.09X 2008 1.08X

As like fixed asset ratio the company is maintaining the growth of total asset ratio. At 2006, this ratio jump to 1.21X because of sold out of old machinery and decrease at 2007 because of huge investment in fixed asset which will increase sales in future. In 2008, the ratio should be much higher than the existing one but it decrease because of management decision of increasing inventory to decrease cost of goods sold in next year by utilizing cheap inventory. Overall comment on Asset Management Ratio: By analyzing the all types of asset management ratio, we see that all the ratios is improving year after year which indicates that the company is performing well. The company was able to improve its credit sales management. It also improved the return on asset which was poor at beginning. In case of inventory management, company took the concern of cost reduction in next year for which they piled up the inventory.

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DEBT MANAGEMENT RATIOS

Debt Management ratios help to evaluate a company's long-term solvency measuring the extent to which the company is using long-term debt. This ratio reflects how effectively a firm is managing its debts. It helps the analyst to determine the extent to which borrowed funds have been used to finance assets and review how well operating profits can cover fixed charges such as interest.

Debt ratio: The debt ratio indicates how much of a company's assets are provided through debt or the percentage of the firms assets financed by creditors. Total debt includes both current liabilities and long term liabilities. Creditors prefer low debt ratios, because the lower the ratio, the greater the cushion against creditors losses in the event of liquidation. The owners on the other hand can benefit from leverage because it magnifies earnings, and thus the return to stockholder. But, too much debt often leads to financial difficulty, which eventually might cause bankruptcy. It is calculated as follows: Debt Ratio= Total Debt/ Total Assets The following table shows the Debt Ratio data of HCBLHCBL Debt Ratio 2004 59% 2005 60% 2006 53% 2007 55% 2008 59%

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It is a measure of the percentage of the funds provided by creditors. From the graph we see that at 2004, 59% of the companys assets are financed through debts. In the year 2006, the companys debt ratio was 53% which is comparatively lower than the previous two years. But in 2007 and 2008 the debt ratio tend to increase gradually compare to the year 2006. Time interest earned ratio: The TIE ratio measures the extent to which earnings before interest and taxes (EBIT), also called operating income, can decline before the firm is unable to meet its annual interest cost. Failure to meet this obligation can bring legal action by the firms creditor, possibly resulting in bankruptcy. The TIE ratio is computed by dividing earning before interest and taxes (EBIT) by interest charges. It measures the ability of the firm to meet its annual interest payments. The TIE ratio is calculated as follows: Interest Coverage Ratio or Times interest earned ratio = Operating Income or EBIT/ Interest expenses The following table shows the Interest Coverage or Times interest ratio data of HCBLHCBL Times Interest Earned Ratio 2004 1.37X 2005 1.88X 2006 2.17X 2007 1.7X 2008 1.58X

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It measures the ability of the firm to meet its annual interest payments. At 2004 Heidelberg Cement had a TIE ratio of 1.37X only. In 2005 and 2006, they improved the position by increasing the gross profit margin. But in the next following two years TIE ratio started to fall and it became to 1.58X in 2008. Debt Equity Ratio The ratio between total debt & total equity is termed as Debt Equity Ratio. Debt Equity Ratio (DER) gives an indication by what factor the total debt is, compared to the total equity of a company. Below, the DER for Heidelberg Cement Bangladesh Ltd. (HCBL) has been plotted for five years, to show the trend between 2004 and 2008. Debt Equity = Total Debt / Total Equity The following table shows the current ratio data of HCBLHCBL Debt Equity Ratio 2004 1.36 X 2005 1.37 X 2006 0.78 X 2007 0.80 X 2008 0.78 X

The trend is downwards, indicating an overall decrease of debt over equity gradually, in the recent years, which is a positive indication for the company.

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Overall comment on Debt Management Ratio: The management is efficient enough in managing their debt since over the five year period their debt ratio was in the range of 50-60%. But the management should be concern in improving the TIE ratio.

PROFITABILITY RATIOS
Profitability ratios show the combined effect of liquidity, asset management, and debt management on operating results. It is the net result of a number of policies and decisions. A group of ratios showing the effect of liquidity asset management, and debt management on operating results, the ratios are profit margin on sales, return on asset (ROA) and return on equity (ROE). Net Profit Margin: Net Profit Margin is the ratio of profitability calculated as net income divided by sales revenues, or net profits divided by sales. It measures how much out of every dollar of sales a company actually keeps in earnings. Profit margin is very useful when comparing companies in similar industries. A higher profit margin indicates a more profitable company that has better control over its costs compared to its competitors. Profit margin is displayed as a percentage; a 20% profit margin, for example, means the company has a net income of $0.20 for each dollar of sales. It is calculated as follows: Net Profit Margin = Net Income/ Sales Revenue

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The following table shows the Net Profit Margin ratio data of HCBLHCBL Net Profit Margin 2004 0% 2005 4% 2006 10% 2007 11% 2008 9%

Improvement in profit margin was tremendous over the five years period (2004-2008). At the beginning it was 0% which improved up to 11%. At 2008 it slightly falls down to 9% because of the slowdown of the economy. Gross Profit Margin The ratio between Gross Profit & Sales Revenue is termed as Gross Profit Margin (GPM). Gross Profit Margin (GPM) gives an indication of profit per Taka of sales and is calculated by dividing the Gross Profit by the Sales revenue. Below, the GPM for Heidelberg Cement Bangladesh Ltd. (HCBL) has been plotted for five years, to show the trend, between 2004 and 2008. Gross Profit Margin = Gross Profit / Sales Revenue The following table shows the GPM ratio data of HCBL:
HCBL GPM 2004 13.26% 2005 2006 15.86% 19.40% 2007 21.53% 2008 19.17%

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The trend is upwards, indicating an overall increase of gross profit over sales revenue, which is a positive indication for the company. Operating Profit Margin: The ratio between Operating Profit & Sales Revenue is termed as Operating Profit Margin (OPM). Operating Profit Margin (OPM) gives an indication of operating profit per Taka of sales and is calculated by dividing the Operating Profit by the Sales revenue. Below, the OPM for Heidelberg Cement Bangladesh Ltd. (HCBL) has been plotted for five years, to show the trend, between 2004 and 2008. Operating Profit Margin = Operating Profit / Sales Revenue The following table shows the OPM ratio data of HCBLHCBL OPM 2004 3.85% 2005 7.87% 2006 14.49% 2007 16.84% 2008 14.05%

The trend is upwards, indicating an overall increase of gross profit over sales revenue, which is a positive indication for the company. Return on Asset (ROA): Return on Asset (ROA) an indicator of how profitable a company is relative to its total assets. It gives an idea as to how efficient management is at using its assets to generate earnings. It is calculated by dividing a company's annual earnings by its total assets, ROA is displayed as a percentage.

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Sometimes this is referred to as "return on investment". The ROA after interest and taxes are computed as follows: Return on Asset (ROA) = Net Income / Total Assets The following table shows the Return on Asset (ROA) data of HCBLHCBL Return on Assets 2004 0% 2005 3% 2006 13% 2007 12% 2008 10%

In 2004 the ROA was 0% and from this year to 2006, ROA was increasing and it was at the highest peak having 13% return on assets. After 2006 the ROA was in the declining trend in the next two years. In 2007 and 2008 it slightly went down to 12% and 10% respectively. It happened because at 2007 the company went for huge investment in machinery which will bring higher return in future. In the other hand at 2008 the company piled up huge amount of inventory to get the benefits of inflation in next year. Return on Equity (ROE): Return on Equity (ROE) is the amount of net income returned as a percentage of shareholders equity. It measures a company's profitability by revealing how much profit a company generates with the money shareholders have invested. The return on equity (ROE) is measured as follows:

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Return on Equity (ROE) = Net income available for common stockholders / Common Equity The following table shows the Return on Equity (ROE) data of HCBLHCBL Return on Equity 2004 -0.01% 2005 0.08% 2006 0.22% 2007 0.22% 2008 0.18%

As like ROA of the company, ROE has an increasing upto the year 2007 and it fall in the year 2008. ROE increased up to 22% at 2007 and it went down to 18% at 2008. They were capable to maintain such ROE through improvement of gross profit and by decreasing the interest bearing liabilities.

MARKET VALUE RATIOS

The market value ratios represent a group of ratios that relates the firms stock price to its earnings and book value per share. These ratios give management an indication of what investors think of the companys past performance and future prospect. If the firms liquidity, asset management, debt management, and profitability ratios are all good then market value ratios will be high which will lead to an increase in the stock price of the company.

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A set of ratios that relate the firms stock price to its earnings and book value per share, two ratios like price earnings ratio and market book value ratio these two ratios give management an indicating of what investors think of the companys past performance and future prospects. If the firms liquidity, asset management, debt management and profitability ratios are all good then its market value ratios will be high and its stock price will also be higher than its book value per share and vice versa. Price-earnings Ratio or Earnings Multiple: This is the ratio of the price per share to earnings per share. It shows how much investors are willing to pay per dollar of reported profit. It is calculated as follows: P/E Ratio = Market Price per Share/ Earnings per Share The following table shows the Return on Equity (ROE) data of HCBLHCBL Price Earning Ratio 2004 380.55X 2005 16.32X 2006 7.05X 2007 10.28X 2008 11.6X

It measures how much investors are willing to pay per taka of current earnings. We observe from the graph that before 2005 this ratio was very poor because they have negative EPS at that time. From 2005 it gradually increasing that means the share price of the company increasing. This indicates that investors strongly believe Heidelberg Cement has high growth potential in future. Also investors believe that as the company pay off its long term loan it will able produces better ROA and ROE in future. 29

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Earnings Per Share The ratio between the net profit & total number of outstanding shares is given by Earnings Per Share (EPS). It is an indicator of the overall operational profitability of the company, as well as the performance. EPS can be used as a barometer for measuring the firms potential for generating future cash flows. Earning Per Share (EPS) = Net Income Available for Common Stockholders/Number of Common Shares outstanding The following table shows the EPS ratio data of HCBLHCBL EPS 2004 -3 Tk. 2005 31 Tk. 2006 92 Tk. 2007 110 Tk. 2008 105 Tk.

Here, the EPS for HCBL between 2004 ~ 2008 is gradually increasing, showing a positive trend and indicating that the company is gradually generating more profit per share in recent years.

Dividend Per Share: The ratio between the dividend declared & total number of outstanding shares is given by Dividend Per Share (DPS). It is an indicator of how much the company is parting/distributing with its shareholders at the end of the operational year. Generally, investors are encouraged to invest in the company, if it has a increasing DPS trend which in turn, also denotes that the company is doing well in its business.

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Dividend Per Share (DPS) = Amount of common dividend declared / Number of Common Shares outstanding The following table shows the Dividend Per Share ratio data of HCBLHCBL DPS 2004 17 Tk. 2005 18 Tk. 2006 21 Tk. 2007 25 Tk. 2008 33 Tk.

Here, the DPS for HCBL between 2004 ~ 2008 is gradually increasing, showing a positive trend and indicating that the company is gradually generating more profit per share in recent years, which the company is providing/sharing with the investors. Dividend Payout Ratio: The ratio between the dividend per share & earnings per share is given by Dividend Payout Ratio (DPR). It gives an indication about the relative amount of earnings that the company is sharing with or paying out to its investors, per share. Generally, management view on dividend policy can be reflected through DPR. Dividend Payout Ratio = DPS/EPS

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The following table shows the dividend payout ratio data of HCBL
HCBL Dividend Payout Ratio 2004 566.67% 2005 58.06% 2006 2007 22.83% 22.73% 2008 31.43%

Here, the DPR for HCBL between 2005 ~ 2008 is found to be in a stable position, showing a relatively positive trend. However, in 2004, the DPR rose sharply due to the formation of a consolidated company HCBL, through the merger of Scan Cement Intl. Ltd. & Chittagong Cement Clinker Grinding Co. Retention Ratio: Retention Ratio gives a measure of the amount from net profit that the company is retaining within itself each year, for future expansion & business purposes. Retention Ratio = 1 - DPR The following table shows the retention ratio data of HCBLHCBL Retention Ratio 2004 666.67 % 2005 41.94% 2006 2007 2008 68.57% 77.17% 77.27%

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Book Value Per Share: Book Value Per Share or BVPS is the ratio between the common equity/net worth and the number of common shares outstanding (amount). Book Value Per Share = Common Equity or Net Worth / Number of Common Shares Outstanding The following table shows the Book Value Per Share ratio data of HCBL
HCBL BVPS 2004 958 Tk. 2005 888 Tk. 2006 769 Tk. 2007 912 Tk. 2008 1039 Tk.

Equity Multiplier: The ratio between the total assets & common equity is the Equity multiplier. It gives an indication on the factor to which total assets is more than that of

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common equity. Equity Multiplier indicates how much the total assets have multiplied, with respect to common equity. Equity Multiplier = Total Assets / Common Equity

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The following table shows the Equity Multiplier ratio data of HCBLHCBL Equity Multiplier 2004 2.3577 X 2005 2.3635 X 2006 1.7828X 2007 1.8036X 2008 1.7746X

Dividend Yield: The ratio between dividend per share (DPS) and market value per share (MVPS) is known as Dividend Yield (DY). Dividend Yield = DPS/MVPS The following table shows the Dividend Yield ratio data of HCBLHCBL Dividend Yield 2004 2.35% 2005 3.56% 2006 3.25% 2007 2.07% 2008 2.72%

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Market to Book Value Ratio: The ratio of a stocks market price to its book value gives another suggestion of how investors regard the company. Companies with relatively high rates of return on equity generally sell at higher multiples of book value than those with low returns. The formula for Market/Book Value is given below: Market to Book Value Ratio = Market Value per Share / Book Value per Share The following table shows the Return on Equity (ROE) data of HCBLHCBL Market to book value ratio 2004 0.7557X 2005 0.5698X 2006 0.8414X 2007 2008 1.3213X 1.1684X

It compares the market value of the firms investment to their cost. A value less than one could mean that the firm has not been successful overall in creating value for its stockholders. From the five years data between 2004 & 2008, we noticed that Heidelberg Cements M/B ratio was initially below 1 from 2004 to 2006. However, it became higher than 1 in the coming years of 2007 & 2008. This indicates that the management was successful in creating value for shareholders gradually. Overall comment on Market Value Ratio: The market value per share is higher than the book value per share in all the years that means the investors keep trust on the management of the company. The investors believe that there are potentiality of future growth, near future expected net income will be higher as they pay of their long term loan and inventory pilled up to get cost advantage in next year. 36

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More over the company is able to show a significant improvement in credit collection for which the investors are very happy on the management.

VERTICAL COMMON SIZE BALANCE SHEET

Veritical Common Size Balance Sheet Percent of Total Assets 2004 2005 2006

2007 ASSETS Non-Current Assets Property, plant and equipment 71.86 66.60 65.52 50.50 Capital Working Progress 0.37 0.07 0.16 6.68 Intangible Assets 0.06 0.10 0.07 0.09 Preliminary and pre-operational expenses 0.17 Total Non-Current Assets 72.46 66.77 65.75 57.27 Current Assets Inventories 13.49 17.03 15.36 13.14 Trade & Other Receivables 7.84 10.50 12.35 10.95 Current Account with Meghna Energy Limited 0.11 0.16 0.17 0.28 Advance, Deposits & Pre-payments 1.65 2.01 1.74 1.85 Advance Income Tax Paid 3.09 3.09 2.43 0.00 Cash & Bank Balances 1.36 0.46 2.20 16.52 Total Current Assets 27.54 33.23 34.25 42.73 TOTAL ASSETS 100.00 100.00 100.00 100.00 Percent of Total Equity & Liabilities EQUITY Shareholders' Equity Share Capital 10.12 11.33 13.00 10.97 Capital Reserves 14.65 14.02 14.63 11.75 Revenue, reserves & surplus 0.00 0.00 0.00 0.00 General Reserve 0.36 0.35 0.36 0.29 Dividend equalization fund 0.21 0.20 0.21 0.17 Retained Earnings 15.77 16.68 27.88 32.27 Total Equity 41.10 42.58 56.09 55.44 LIABILITIES Non-Current Liabilities Long term Loan 9.74 6.74 1.20 0.00 Suppliers' Credit-blocked 0.06 0.06 0.06 0.05 Quasi equity loan 2.97 2.84 2.96 2.38 ADP loan 0.31 0.29 0.31 0.25 Deferred Liability-Gratuity 0.11 0.13 0.08 0.24 Deferred Tax Liability 0.00 0.00 0.00 0.17

2008

48.25 0.25 0.07 48.57 24.78 10.30 0.11 3.15 0.00 13.09 51.43 100.00

9.62 10.32 0.00 0.26 0.15 36.01 56.35

0.00 0.04 2.09 0.22 0.28 0.47

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Veritical Common Size Balance Sheet Percent of Total Equity & Liabilities (Continued) 2004 2005 2006 2007 Total Non-Current Liabilities 13.18 10.07 4.61 3.08 Current Liabilities Bank Overdraft 0.00 0.23 0.00 0.00 Trade & Other Payables 19.27 20.52 25.48 26.17 Long term Loan (Current Portion) 2.68 2.56 1.07 0.97 Short-term loan 23.41 23.54 11.31 12.70 Provisions for other liabilities & Charges 0.02 0.19 0.76 0.87 Provisions for tax liabilities 0.00 0.00 0.00 0.05 Unclaimed Dividend 0.33 0.32 0.07 0.72 Total Current Liabilities 45.72 47.36 39.30 41.48 TOTAL LIABILITIES 58.90 57.42 43.91 44.56 TOTAL EQUITY & LIABILITIES 100.00 100.00 100.00 100.00

2008 3.10 0.00 24.42 0.00 14.13 0.78 0.51 0.71 40.55 43.65 100.00

VERTICAL COMMON SIZE INCOME STATEMENT

Vertical Common Size Income Statement Percent of Total Sales 2004 2005 2006 2007 Sales 100.00 100.00 100.00 100.00 Cost of goods sold -84.14 -86.75 -78.47 -80.60 Gross Profit 15.86 13.25 21.53 19.40 Other operating income 0.28 0.38 0.98 0.31 Warehousing, distribution and selling expenses -2.61 -3.04 -1.78 -1.42 Administrative expenses -5.65 -6.49 -3.89 -3.80 Other Operating Expense -0.22 0.00 0.00 0.00 Operating Profit 3.31 9.16 16.84 14.49 Other non-operating income 0.20 0.14 0.03 0.09 Financial Income 0.00 0.00 0.00 0.00 Financial Expenses -3.51 -4.57 -1.31 -2.15 Contribution to Workers' Profit Participation Fund -0.02 -0.26 -0.79 -0.63 Profit before income tax -0.03 4.48 14.77 11.79 Income Tax Expenses -0.30 -0.03 -3.71 -1.37 Current year 0.00 0.00 -3.56 -0.90 Prior year 0.00 0.00 0.00 -0.47 Deferred Tax 0.00 0.00 -0.15 0.00 Profit for the year -0.33 4.46 11.06 10.42

2008 100.00 -80.83 19.17 0.15 -1.47 -3.80 0.00 14.05 0.09 1.22 -1.36 -0.71 13.28 -3.98 -3.39 -0.29 -0.30 9.30

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SUMMARY OF ALL RATIOS

A summary of all the ratios used above has been provided below for a quick reference
NAME OF THE RATIOS Current Ratio Quick Ratio Inventory Turnover Days Sales Outstanding Fixed Asset Turnover Sales or Total Asset Turnover Debt Ratio Interest Coverage or Times Interest Earned Ratio Debt Equity Ratio Net Profit Margin Gross Profit Margin Operating Profit Margin Return On Assets Return On Equity Price Earning Ratio Earning Per Share Dividend Per Share Dividend Payout Ratio Retention Ratio Book Value Per Share Equity Multiplier Dividend Yield Market to Book Value Ratio 2004 0.57X 0.25X 5.63X 38.25Days 1.05X 0.78X 59% 1.37X 1.36X 0% 13.26% 3.85% 0% -0.01% 380.55X (3) Tk. 17 Tk. 566.67% 666.67% 958 Tk. 2.36X 2.35% 0.76X 2005 0.7X 0.34X 4.97X 45.96 Days 1.27X 0.85X 60% 1.88X 1.37X 4% 15.86% 7.87% 3% 0.08% 16.32X 31 Tk. 18 Tk. 58.06% 41.94% 888 Tk. 2.37X 3.56% 0.57X 2006 0.87X 0.48X 7.87X 37.8 Days 1.84X 1.21X 53% 2.17X 0.78X 10% 19.40% 14.49% 13% 0.22% 7.05X 92 Tk. 21 Tk. 22.83% 77.17% 769 Tk. 1.78X 3.25% 0.84X 2007 1.03X 0.71X 8.3X 37.56 Days 1.91X 1.09X 55% 1.7X 0.80X 11% 21.53% 16.84% 12% 0.22% 10.28X 110 Tk. 25 Tk. 22.73% 77.27% 912 Tk. 1.80X 2.07% 1.32X 2008 1.27X 0.66X 4.38X 35.02 Days 2.23X 1.08X 59% 1.58X 0.78X 9% 19.17% 14.05% 10% 0.18% 11.6X 105 Tk. 33 Tk. 31.43% 68.57% 1039 Tk. 1.78X 2.72% 1.17X

OVERALL COMMENT ON ANALYSIS

From the liquidity analysis, it is clearly evident that the management of HCBL is efficient enough in managing the companys liquidity. HCBL have better liquidity according to the current ratio and quick ratio. Good quick ratio indicates the good ability to meet its short-term obligations with its most liquid assets. 39

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From the asset management ratio analysis, it is seen that HCBL was able to improve its credit sales management since all the ratios is improving over the period. The Days Sale Outstanding (DSO) analysis trend also shows that over the years they reduce their DSO which indicates a good credit policy of the company. Fixed asset turnover ratio is increasing over the year which is indicating that the management was successful in utilizing its revenue generating assets for HCBL. From the debt ratio analysis we found that HCBL is efficient in managing their debt ratio. This declining debt ratio is good news for HCBL because lower the debt ratio creditors losses in the event of liquidation are safer. Profitability analysis shows that, HCBL has a positive Profit margin on sales over the years, except little fall in 2009. The market value per share is higher than the book value per share in all the years that means the investors believe that there are potentiality of future growth, near future expected net income will be higher as they pay of their long term loan and inventory pilled up to get cost advantage in next year. More over the company is able to show a significant improvement in credit collection for which the investors are very happy on the management.

CONCLUSION
The whole point of the thorough analysis conducted on HCBL was to asses this entity in terms of liquidity, profitability, solvency, cash health, and so on. Accordingly, it would safe to say that HCBL is a company with great potential for the future. It is invested huge in property, plant, machineries and equipment purpose. All through the year it gain goodwill and create investors trust thus increases 40

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BIBLIOGRAPHY
1. http://www.heidelbergcementbd.com/ 2. Annual Report of 2004-2008.
3. Besley

&

Brigham,

Essentials

of

Managerial

Finance, 14th Edition, Besley & Brigham.

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