Course Title: Introduction to Finance

Course Code: fin254

Sec: 06

Prepared by

Name ID
Tabassum Jannati 1410321030
Nazmul Hasan Shishir 1521692630
Sharmin Hossain Tisha 1522114030
Maisha Zenan Hossain 1531348630
Sohel Ahmed 1612437030

Prepared for

Syed Asif Hossain (Sys)

Lecturer, dept of Accounting and Finance

School of Business and Economics

North South University

Date of Submission – 23rd April, 2018

 Acknowledgement

My most sincere thanks, dedicated to our honorable faculty Mr. Syed Asif Hossain for his
support, encouragement in the preparations of this report. We have tried our level best to
prepare this report according to the given structure. We hope we have done an adequate job
considering our level of experience, expertise and we hope that we have been able to portray
the picture of what we have experienced during doing the ratio analysis.

We would also like to thank Shidhra Shawkat and Shahariar Showmik for helping us to prepare
this report.

[AUTHOR NAME]
 Letter of Transmittal
23rd April, 2018.

Syed Asif Hossain

Lecturer,
Department of Accounting and Finance,
School of Business & Economics,
North South University.

Subject: Submission of Ratio Analysis report.

Dear Sir,

With due respect, we are student of your FIN254; sec: 06. According to your instruction, we have
prepared Ratio Analysis report. This report will give you an idea, of Two Cement Companies Ratios.

In the end, we would like to thank you for the guidance you provided us throughout the semester.

Sincerely Yours,

Tabassum Jannati
ID-1410544030 _______________________

Nazmul Hasan Shishir

ID- 1521692630 _______________________

Sharmin Hossain Tisha

ID-1522114030 _______________________

Maisha Zenan Hossain

ID-1531348630 _______________________

Sohel Ahmed

ID-1612437030 _______________________

[AUTHOR NAME]
Contents

Introduction ................................................................................................................................... 1
Objectives....................................................................................................................................... 1
Liquidity Ratio .............................................................................................................................. 2
Debt Ratio ...................................................................................................................................... 3
Activity Ratio ................................................................................................................................. 5
Profitability Ratio ......................................................................................................................... 9
Market Value Ratio .................................................................................................................... 14
Conclusion ................................................................................................................................... 15
Recommendation......................................................................................................................... 16

[AUTHOR NAME]
Ratios at a glance

Premier Cement Ltd. 2013 2014 2015 2016

Liquidity Ratio
Current Ratio 0.75 0.77 0.87 1.06
Quick Ratio 0.99 1.03 1.16 1.52
Debt Ratio
Debt/Equity Ratio 1.64 2.15 2.15 1.53
Time Interest Earned Ratio 1.99 2.50 2.61 2.20
Activity Ratio
Average Collection Period 60.18 64.01 62.69 73.98
Inventory Turnover 6.67 4.87 5.26 7.47
Average age of Inventory 54.75 74.96 69.38 48.86
Profitability Ratio
Gross Profit Margin 17.98% 17.19% 15.30% 21.24%
Operating Profit Margin 17.55% 14.67% 11.21% 14.68%
Profit Margin (Return On Sales) 7.78% 6.75% 5.05% 7.38%
Earnings Per Share (EPS) 4.13 4.78 3.83 6.48
Return on Assets (ROA) 5.88% 5.19% 4.05% 6.37%
Return on Equity (ROE) 15.51% 16.87% 13.17% 16.23%
Market Value Ratio
P/E Ratio 15.1331719 12.4477 18.85117 12.22222
M/B Ratio 6.25 5.95 7.12 79.2/10

[AUTHOR NAME]
Lafarge Surma Cement 2013 2014 2015 2016
Liquidity Ratio
Current Ratio 2.27 1.42 1.99 2.55
Quick Ratio 1.34 2.09 2.80 3.56
Debt/Equity Ratio
Debt/Equity Ratio 0.419542991 0.337085 0.306041 0.267267
Times interest earned ratio 4.17 12.46 9.78 11.23
Activity Ratio
Average collection period 96.24223305 96.41 105.63 112.09
Inventory Turnover 3.968864912 4.55 4.93 5.59
Average age of Inventory 91.96584114 80.23487 74.02719 65.30901
Total Asset Turnover 0.60 0.58 0.53 0.51
Profitability Ratio
Gross Profit Margin 41.51% 38.56% 35.73% 35.14%
Operating Profit Margin 28.38% 32.62% 26.36% 26.88%
Profit Margin (Return On Sales) 22.47% 24.34% 20.87% 20.75%
Earnings Per Share (EPS) 2.19 2.43 1.97 1.92
Return on Assets (ROA) 13.38% 14.10% 11.06% 10.61%
Return on Equity (ROE) 23.05% 21.27% 15.94% 14.48%
Market Value Ratio
P/E Ratio 22.17351598 21.09877 28.05076 33.4375
M/B Ratio 4.856 5.12 5.526 6.42

[AUTHOR NAME]
 Executive Summary

For quick evaluation of a company’s financial performance in respective key areas, we analyze
financial statement. There are some tools to measure financial statements. Here, we are using
several ratios to analyze. The ratios are categorized as Liquidity Ratios, Activity Ratios, Debt
Ratios, Profitability Ratios and Market Ratios. After measuring all of these ratios we can make
beneficial decisions of our own.

In this report, we have taken two companies from cement Industry. The companies are -The
Premier Cement and The Lafarge Surma Cement. These two cement companies are listed in
stock market companies. We have done Ratio Analysis to represent the comparative situation of
financial health and make investment decisions for these two companies.

From the liquidity ratio we can say that Lafarge Surma Cement is doing a profitable work. They
are trying to maximize utilize of their current assets. From the analysis of Debt Ratio, Lafarge
Surma is doing good this sector. They are perfectly utilizing their assets and equities. In Activity
Ratio part, Premier Cement is not performing well. Profitability Ratio showed that Lafarge
Surma Cement is doing up to the mark to maximize their profit over the year than Premier
Cement. In the Market Ratio, over the year Premier’s M/B was higher than Lafarge’s. The low
ratio of Lafarge could also indicate that there is something wrong with the company. Lafarge has
a higher P/E Ratio, which suggests that the investors are willing to pay more for their stock the
Premier’s stock.

[AUTHOR NAME]
 Introduction

Ratio analysis refers to measures the financial statements in cohesion with the interpretation of
financial results of a specific period. This determines the financial soundness of company’s
concern. Financial statement represents the financial data of the entity in question as specific as
possible for entity and readers. It includes Balance sheet, Income statement, retained earnings,
cash flows and other possible data.

Evaluating of Financial statement is essential for a company. Hence, we have taken two
companies from Cement Industries. There are-

I. Premier Cement Mills Ltd.

II. Lafarge Surma Cement Ltd.
Premier Cement started their commercial production in 2004. It is known as one of the
top cement company in Bangladesh. It is one of the leading cement manufactures in our
country. They enjoy a good history and a sustaining reputation in Bangladesh.

Lafarge Surma Cement Ltd. Is a joint venture of Lafarge Holcim, a Spanish company with
powerful global presence. It was incorporated on 11th November 1997 as a Private limited
company under the company Act 1994. After that, it was made into a public limited company on
20th January 2003 in Bangladesh. The company has 35000 shareholders and enlisted in Dhaka
and Chittagong Stock exchange.

Objectives

The main objective of this report is measuring and reviewing two companies’ financial
statements, thereby obtaining an understanding the financial condition of these two companies
and qualifying more effective decision making. Financial statement shows financial data; but this
data must be measured through financial statement analysis to become more effective to
investors, managers, shareholders and third parties. In this report we are using ratio analysis for
analyzing two companies’ financial statements. Afterward, we have come to a recommendation
and conclusion.

[AUTHOR NAME] 1
 Liquidity Ratio

A company's ability to pay back its short term debt obligations is measured by Liquidity ratios.
Liquidity refers to the solvency of the firm’s overall financial position-the ease with which it can
pay its bills. The ratios that we generally calculate to find outstanding its margin of safety are
the current ratio, quick ratio and ratio. If a company’s liquidity ratios are higher than industry
average, then the company will probably have better chance of getting short term loan from
lenders. Because a common precursor to financial distress and bankruptcy is low or declining
liquidity, these rations can provide early signs of cash flow problems and impending business
failure.

Current Ratio:it is a liquidity ratio that measures a company's ability to pay short-term and
long-term obligations. To find this ability of the company, the current ratio considers the current
total assets of the company (both liquid and illiquid) relative to that company’s current total
liabilities. The current ratio is called “current” because, unlike other liquidity ratios, it
incorporates allcurrent assets and liabilities. The current ratio is also known as the ratio. The
higher the current ratio, the more capable the company is of paying its obligations.

Current Ratio
premier cement lafarge cement

2.55
2.27
1.99
1.42
0.87 1.06
0.75 0.77

2013 2014 2015 2016

The Graph illustrated a comparative representation of Current Ratio among Premier and Lafarge,
over four years. It is seen that Lafarge has better position from its competitor company Premier
in Current Ratio over these years. From 2014, Lafarge’s ratio started decreasing, but in 2016 it
increased. Over years, Primer’s current ratio increased.

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Quick Ratio: The Quick Ratio is also known as the Acid-test or liquidity ratio it measures the
ability of a business to pay its short-term liabilities by having assets that are readily convertible
into cash. The quick ratio is more conservative than the current ratio since it excludes inventories
from current assets and only includes the readily convertible into cash. The assets it uses are-
cash, marketable securities and accounts receivable. They are also known as “quick” assets since
they can quickly be converted into cash. Inventories take time to be converted into cash, and if
they have to be sold quickly, the company may have to accept a lower price than book value of
these inventories. As a result, they are justifiably excluded from assets that are ready sources of
immediate cash.

Quick Ratio
Premier Cement Lafarge Cement
3.56
2.80
2.09
1.34 1.52
0.99 1.03 1.16

2013 2014 2015 2016

The Graph illustrated a comparative representation of Quick Ratio of Premier and Lafarge
Cement over four years.
It is seen that like current ratio, Lafarge’s current ratio is higher than premiers over years.
Though on average Premier’s ability to pay their obligation excluding inventory is not that bad
as well. Both the companies quick ratio increased over years.

Debt Ratio

Debt ratio is used to measure a firm’s ability to meet their debt and other obligations. This
solvency ratio brings out if the company’s cash flow is sufficient to corresponding its long-term
liabilities and short- term liabilities. The lower a firm’s solvency ratio, the greater the probability
that it will fail on its debt obligations.

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Debt/equity ratio: debt/equity ratio measures a firm’s financial leverage which is calculated by
it its total liabilities divided by stockholders’ equity. It specifies what proportion of debt and
equity the firm is measuring to finance its assets and their degree of leverage.

Debt Ratio
Premier Cement Lafarge Cement

2.15 2.15
1.64 1.53

0.41 0.33 0.30 0.26

2013 2014 2015 2016

The graph above illustrated a comparative representation of Debt to Equity between Premier and
Lafarge Surma Cement over four years.

It is shown that, premier has been financing remarkably more from outside sources in spite of
this Lafarge has low debt equity ratio which proved that Lafarge is financing more by stocks.
Because of premier is using so much leverage, it is too much risky compared to Lafarge Surma.

Time Interest Earned Ratio:The Time Interest Earned Ratio is utilized by both creditors and
investors. The times interest earned ratio explains a company’s ability to cover the interest owed
on debt contracts, indicated as income before interest and taxes divided by interest expense.

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 Time Interest Earned Ratio
Premier Cement Lafarge Cement

12.46
11.23
9.78

3.44 4.17
2.93 2.90
1.99

2013 2014 2015 2016

The graph above illustrated a comparative representation of Time Interest Earned Ratio between
Premier and Lafarge cement over four years.

It is shown that Premier has lower ratio than Lafarge Surma. A ratio of 5 explains that the
business reach their total interest payments be in debt on its outstanding. Minimum 2.5 is
considered as an acceptable risk. So Premier has unacceptable risk because they have been
financing lower ratio over the four years and this situation considered as bankruptcy or default.
On the contrary, Lafarge has been financing remarkably higher ratio and favorable. It is less of a
risk to investors of Lafarge Surma.

Activity Ratio

Activity Ratios are the examining how actually and in a well-organized way a firm is managing
its assets to produce sales. These ratios are called asset management ratio, turnover ratio or
efficiency ratios as well.

Average Collection Period: It is the approximate amount of time/ days that a business takes to
receive payments of account receivable. It represents the average number of days between the
date a credit sale is made and the date payment is received from the credit sale. For simplifying
while calculating this, 360 might be used instead if 365/364 days a year.

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 Average Collection Period
Premier Cement Lafarge Cement
112.09
105.63
96.24223305 96.41

73.98
60.18 64.01 62.69

2013 2014 2015 2016

This graph illustrated a comparative representation of Average Collection Period between

Premier and Lafarge Surma Cement.

Usually, a lower average collection period is more favorable than a higher average collection
period. Here we see premier has a significant lower collection period than its competitor Lafarge.
But both of the firms collection period increased over years. Here for premier, the low average
collection period might indicate that the organization is collecting payment faster. It also might
be an indication that its credit terms are stricter than Lafarge.

Inventory Turnover: this ratio showing how many times a company's inventory is sold and
replaced over a period of time. Inventory turnover measures how fast a company is selling
inventory and it is usually compared against industry averages.

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 Inventory Turnover
Premier Cement Lafarge Cement
7.47
6.67
5.26 5.59
4.87 4.93
4.55
3.96

2013 2014 2015 2016

The graph illustrated a comparative representation of Inventory Turnover between Premier and
Lafarge Surma.

Here we see Lafarge has a low inventory turnover than premier. it implies the company’s weak
sales and, therefore, excess inventory. A high ratio of premier implies either strong sales and/or
large discounts. Tough In 2015 premier’s inventory turnover fall, but then it again started
increasing from 2015. But for Lafarge the turnover increased gradually over years.

Average age of Inventory: The average age of inventory is the average number of days it takes
for a firm to sell off inventory. It is also referred to as days' sale in inventory (DSI). The average
age of inventory is a metric that analysts use to determine the efficiency of sales. It indicates how
fast inventory is turning over at one company compared to another.

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 Average age of Inventory
Premier Cement Lafarge Cement
91.96
74.96 80.23
69.38 74.02
65.30
54.75
48.86

2013 2014 2015 2016

The graph illustrated a comparative representation of Average Age of Inventory between Premier
and Lafarge Cement.

Here we see Lafarge has a higher ratio than Premier. The faster a company can sell inventory for
a profit, the more profitable it is. So we can say primer was in a more profitable situation than
Lafarge. However, a company could employ a strategy of maintaining higher levels of inventory
for discounts or long-term planning efforts. Where throw-out the years Lafarge average age of
investor decreased, there it was more up and down for primer over years.

Total Asset Turnover: The asset turnover ratio is an efficiency ratio that measures a company’s
ability to generate sales from its total assets by comparing net sales with average total assets. this
ratio shows how efficiently a company can use its assets to generate sales. The total asset
turnover ratio calculates net sales as a percentage of assets to show how many sales are generated
from each dollar of company assets.

[AUTHOR NAME] 8
 Total Asset Turnover
Premier Cement Lafarge Cement

0.86
0.76 0.77 0.80
0.60 0.58 0.53 0.51

2013 2014 2015 2016

The graph illustrated a comparative representation of Total Asset Turnover between Premier and
Lafarge Cement.

Here we see Premier has a higher ratio which is more favorable. it indicates that the company is
using its assets more efficiently. Lafarge’s Lower ratios mean that the company isn’t using its
assets efficiently and most likely have management or production problems. Primer’s ratio is
constantly increasing; it indicates that the company is getting efficient in turning their asset into
profit every year. Lafarge’s ratio kept decreasing over year.

Profitability Ratio

Profitability ratio is a standard of financial measurement that are used to measure the ability of a
firm to generate earnings compared to their expenses and other related costs sustained during a
specific period of time.

Gross Profit Margin: To access a company’s financial health and business, we use Gross Profit
Margin. It reveals the proportion of left over money from revenues after accounting for the cost
of sales.

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 Gross Profit Margin
Premier Cement Lafarge Cement

41.51%
38.56%
35.73% 35.14%

21.24%
17.98% 17.19% 15.30%

2013 2014 2015 2016

The graph above illustrated the comparative representation of Gross Profit Margin between
Premier and Lafarge Surma.

Lafarge is making remarkably high amount of Gross Profit Margin which is a good sign.
Comparatively, Premier has low Gross Profit Margin. The reason for low gross profit margin of
premier is they are unable to control their production cost. So, they need to improve and find out
the ways to deduct their production as soon as possible.

Operating Profit Margin: This ratio is used to measure a company’s pricing strategy and
operating efficiency. It is also a measurement of what proportion of a company’s revenue is left
over after paying for variable costs of production.

Operating Profit Margin

Premier Cement Lafarge Cement

32.62%
28.38% 26.36% 26.88%

17.55%
14.67% 14.68%
11.21%

2013 2014 2015 2016

[AUTHOR NAME] 10
The graph is illustrated a comparative representation of Operating Profit Margin between
Premier and Lafarge Surma Cement over four years.

Here, it is seen that Lafarge is making remarkably high Operating Profit Margin compared to
Premier Cement. But the margin is decreasing over the year which is a concerning issue. And
here Premier’s condition is not so good. For this reason, Premier may not be able to satisfy their
creditors and create enough value for their shareholders.

Profit Margin: Profit Margin is used to measure the net income earned with each BDT of sales
generated comparing the net income and net sales of a company. It determines the percentages of
sales are left over after all expenses are paid by the company.

Profit Margin
Premier Cement Lafarge Cement

24.34%
22.47% 20.87% 20.75%

7.78% 6.75% 7.38%

5.05%

2013 2014 2015 2016

The Graph illustrated a comparative representation of Profit Margin between Premier Cement
and Lafarge Cement over four years.

Here, Lafarge has significantly higher profit margin than Premier. But it is decreasing over the
year. On the other hand, premier is making profit undoubtedly. But their profit margin may not
be satisfying enough to attract investors.

EPS: Earning Per Shares measures a company’s profitability. It is the section of a firm’s profit
which is allocated to each outstanding share of common stock.

[AUTHOR NAME] 11
 EPS
Premier Cement Lafarge Cement

6.48
4.78
4.13 3.83
2.19 2.43 1.97 1.92

2013 2014 2015 2016

The graph illustrated a comparative representation of Earning per Shares between Premier
Cement and Lafarge Cement over four years.

Here, Premier has higher amount of profit margin than Lafarge Cement. Lafarge’s EPS indicates
that their share price is not enough credible and they are not performing well.

Return on Assets (ROA):Return on assets (ROA) is an indicator of how profitable a company is

relative to its total assets. It illustrates the earnings that are generated from invested capital or
assets. It gives a manager, investor, or analyst an idea as to how efficient a company's
management is at using its assets to generate earnings.

ROA
Premier Cement Lafarge Cement
14.10%
13.38%
11.06% 10.61%

5.88% 6.37%
5.19%
4.05%

2013 2014 2015 2016

[AUTHOR NAME] 12
The Graph illustrated a comparative representation of Return on Assets among Premier and
Lafarge, Cement over four years.
Here, Lafarge have higher ROA than other industries which tells us that they are efficiently
managing their assets to generate earnings. Confidence’s ROA has increased overtime which
illustrates that they are becoming efficient in asset management. On the contrary, Premier is not
efficient in Asset Management. From 2013 to 2015 primer’s ROA decreased. In 2016 it
increased from the previous 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 corporation’s profitability by revealing how
much profit a company generates with the money shareholders have invested.

ROE
Premier Cement Lafarge Cement
23.05%
21.27%
16.87% 15.94% 16.23%
15.51% 14.48%
13.17%

2013 2014 2015 2016

The Graph above illustrated a comparative representation of Return on Equity among Premier
and Lafarge Cement over four years.
Although Lafarge was dominating till 2015, Premier caught Lafarge in 2016. This illustrates that
Lafarge is not efficient in using Shareholder’s equity at all. It is a poor sign for Lafarge.

[AUTHOR NAME] 13
 Market Value Ratio

It is used to measure the current share of a publicly-held company’s stock. These ratios are
utilized by investors who are current and potential to determine the company’s shares are
whether over-priced or under-priced.

P/E Ratio: P/E ratio tells us how much investor is willing to pay per dollar of earnings for a
given company. For this reason it's also often referred to as the multiple of a stock.

P/E Ratio
Premier Cement Lafarge Cement

33.43
28.05
22.17 21.09
18.85
15.13
12.44 12.22

2013 2014 2015 2016

The graph illustrated a comparative representation of Price Earnings Ratio between Premier and
Lafarge Surma.
We see here Lafarge has a higher P/E, which suggests that the investors are willing to pay more
for their stock the premier’s stock the Roe of premier went up and down over years. For Lafarge,
tough the value slightly fall on 2014, but it constantly increased from 2015.

M/B Ratio: The Market to Book ratio is used to evaluate a company’s current market value
relative to its book value. It is also called the Price to Book ratio. The market value is the current
stock price of all outstanding shares. The book value is the amount that would be left if the
company liquidated all of its assets and repaid all of its liabilities. The book value equals the net
assets of the company and comes from the balance sheet. In other words, the ratio is used to
compare a business’s net assets that are available in relation to the sales price of its stock.

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 M/B Ratio
Premier Cement Lafarge Cement

7.92
7.12 6.42
6.25 5.95 5.526
4.856 5.12

2013 2014 2015 2016

The graph illustrated a comparative representation of Market Book Ratio between Premier and
Lafarge Surma.

A low ratio (lower than 1) could indicate that the stock is undervalued, and a higher ratio
(usually greater than 1) could mean the stock is overvalued) we see both the companies have
ratio over 1, which means they do not have much bad investments. But over year Premiers M/B
was higher than Lafarge’s. The low ratio of Lafarge could also indicate that there is something
wrong with the company. This ration can also give the impression that you are paying too much
for what would be left if the company went bankrupt.

Conclusion

According to the ratios of these two companies we have analyzed that we can accommodate a
conclusion that will give us an ides of the company’s performance by their financial condition.
From liquidity ratio we understand that Lafarge Surma Cement is remarkably profitable work by
proper regulating their current assets and liabilities. For maintaining their position, they are
trying to maximize as possible usage of their current assets. In Debt ratio, Lafarge is using their
assets and equities. In Activity ratio, Lafarge has good performance than Premier Cement. In
Profitability ratio, Lafarge Surma is performing up to that mark to maximize their profit and they
should maintain this flow in future. on ther hand Premier should take steps to enlarge their profit.
In Market ratio, Lafarge Surma is not up to that level of efficiency.

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 Recommendation

From the Ratio analysis, the findings clearly expressed that Lafarge Surma Cement’s financial
position is better than Premier Cement. In the most of the ratio’s we understand that Lafarge
Surma Cement are ahead of Premier Cement. Therefore, if we invest in Lafarge Surma Cement
that will be a wise decision and good investment overall and Lafarge Surma Cement should more
concern about their market ratio.

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