NORTH SOUTH UNIVERSITY

FIN - 254
Introduction to Financial Management
Sec: 13

Financial Ratio Analysis of Premier Cement and Heidelberg Cement

Submitted To:
Shegofta Shabnom
Lecturer
Department of Finance & Accounting
School of Business & Economics (SBE)

Submitted By:
1. Imrul Farhan Pritom 1620326030
2. Ashrafee Papia 1721134630
3. Md. Samin Khan 1712649630
4. Ajouwad Khandoker 1620001030

Submission Date: 16th of April, 2019

Table of Contents
Executive Summary .................................................................................................................................... 3
Company Profile ......................................................................................................................................... 3
Financial Ratio Analysis ............................................................................................................................. 4
Liquidity Ratios: ......................................................................................................................................... 4
Current ratio: ................................................................................................................................. 4
Quick ratio: ..................................................................................................................................... 5
Activity Ratios: ............................................................................................................................................ 6
Inventory Turnover ....................................................................................................................... 7
Average Age of Inventory ............................................................................................................. 8
Average collection period: ............................................................................................................. 9
Debt Ratio:................................................................................................................................................. 12
Times Interest Earned: ................................................................................................................ 14
Debt to Equity Ratio: ................................................................................................................... 15
Profitability Ratio: .................................................................................................................................... 16
Gross Profit:.................................................................................................................................. 16
Operating profit: .......................................................................................................................... 17
Net profit Margin: ........................................................................................................................ 18
Earnings per share: ...................................................................................................................... 19
Dividends per share ...................................................................................................................... 20
Return on Assets: ......................................................................................................................... 21
Return on Equity (ROE): ............................................................................................................ 22
Market Ratios ............................................................................................................................................ 23
Price earnings Ratio ..................................................................................................................... 23
Book Value per Share of Common Stock .................................................................................. 23
Market/Book Ratio ...................................................................................................................... 24
Conclusion ................................................................................................................................................. 25
Reference ................................................................................................................................................... 27
Appendix..................................................................................................................................................... 28
Market Price per share of common stock .................................................................................... 28

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 Executive Summary

The prime motto of this project is to evaluate the performance of, two giant Cement industries of
Bangladesh, Premier Cement & Heidelberg cement. Performance evaluation of a company
mainly depends on its usage of asset, liabilities, shareholders’ equity, revenue, expense etc.
Financial ratio analysis is the best way to evaluate company’s performance and to determine its
financial position.
Liquidity Ratios, Asset management ratios, Debt ratios, Profitability ratios, and Market ratios are
used to conduct the ratios of previous years and appraise the efficiency of these two companies.

Company Profile

Premier Cement
Premier Cement Introduced itself as a private limited company in 2001. Later in 2010, it
listed as a Public limited company under the company act 1994 with an authorized capital
of 5000 million. Initially, premier cement’s production capacity was 0.6 million Metric
Tons per annum but in April 2017, it signed an agreement with FL Smith Denmark in order
to increase its production 5 million tons per year. Its first and foremost objective is to
manufacture European standard product using best raw material combined with state of
art and technology. It has three core products: Portland Cement (PC), Portland Composite
Cement (PCC) and Portland Pozzalana Cement (PPC).

Heidelberg Cement
In 1998, Heidelberg Cement Group established its presence in Bangladesh by setting up a
floating terminal with onboard packing facilities in the port of Chittagong. In 1999, the Group
further strengthened its position in Bangladesh and built a greenfield plant in Kanchpur, near
Dhaka, under the name Scan Cement International Limited. In 2000, Heidelberg Cement bought
a minority position in Chittagong Cement Clinker Grinding Co. Limited (CCCGCL), followed

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soon thereafter by acquisition of a controlling stake. In 2003, the two companies were merged,
and the name changed to Heidelberg Cement Bangladesh Limited. Since 2004, the company has
diversified its product range by introducing Portland Composite Cement (PCC) into the market.
The company also produces Ordinary Portland Cement (OPC).Heidelberg Cement further
increased the capacity of its Kanchpur plant by setting up another grinding unit able to process
0.45 million tons per year, which was commissioned in 2008. The company also increased the
capacity of its Chittagong plant by installing another cement mill of 0.75 million tons per year,
which has been in operation since the end of 2011. The total production capacity now stands at
2.4 million tons per year. Both plants are certified according to the globally applicable ISO
14001 environmental management system standards. In 2013, Heidelberg Cement installed
another cement silo with a capacity of 8,000 tons at its Kanchpur plant as part of its silo project,
which will help to increase the productivity.

Financial Ratio Analysis

Liquidity Ratios:

Liquidity Ratio shows the liquidity position of the company. Liquidity means the ability to
pay current the debt.

Current ratio:

The current ratio is calculated by dividing current assets by current liabilities. Current assets
include inventory, trade debtors, advances, deposits and repayment, investment in marketable
securities in a short-term loan, cash, and cash equivalents, and current liabilities are comprised
short term banks loan, long-term loans-current portion, trade creditors liabilities for other
finance etc. Generally, the current ratio is acceptable of short-term creditors for any company. In
general, Current ratio within 1 to 2.5 is good for a company.

Current ratio = Current assets /Current liabilities

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 Company’s Name 2013-2014 2014-2015 2015-2016 2016-2017

Premier Cement 0.77 0.87 1.06 0.88

Heidelberg Cement 2.32 1.96 1.73 1.59

Time Series Interpretation:

Current Ratio
In 2013-14 the Current Ratio of Premier Cement is 0.77.
It further increased to 0.87 in 2014-15 and then the 2.5

current ratio increased to 1.06 in 2015-16. However, 2

Premier Cement’s rise in the current ratio came to an end 1.5

as it fell to 0.88 in the year 2016-17. In 2013-14 1

0.5
Heidelberg Cement had a current ratio of 2.32. In 2014-15
0
the ratio decreased to 1.96. It decreased to 1.73 and then
2014 2015 2016 2017
to 1.59 in 2015-16 and 2016-17.
Premier Cement Hiedelberg Cement

Cross Sectional Interpretation:

From 2013-14 to 2016-17, the overall current ratio for Heidelberg Cement shows that it has
sufficient amount of assets to repay its liabilities as its current ratio is above 1. But its current
ratio is decreasing consistently in every year which is not a good sign. The management of
Heidelberg Cement might face some problems if the trend continues like this. It will be difficult
to operate the business if the ratio decreases further. Since the ratio is still above 1 so they can
repay their current liability by selling just current asset, stockholders would still be happy and
more likely to invest in the business in near future.
On the other hand, for Premier Cement, in 2013-14, 2014-15 and 2016-17 its current ratio is
below 1. It means the company is not in good health. The management will find it difficult to
maintain the working capital for the company. To say the least it will affect their business
operation as their current liabilities is higher than current asset

Heidelberg Cement is in much better position than Premier Cement as it has a higher ratio in all
the four years.

Recommendation:
Premier Cement needs to increase their current assets so that they can have sufficient amount of
current assets to pay their short-term debts. This can be done by keeping cash in hand by taking
bank loans.
On the other hand, Heidelberg Cement needs to improve their current ratio rate either by
reducing short term liabilities or by increasing current assets. A ratio over 1 will make them
stronger to meet their short-term debts.

Quick ratio:
The quick ratio is estimating the current assets minus inventories then divide by current liabilities.

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It is easily converted into cash at turns to their book values and it also indicates the ability of a
company to use its near cash. A quick ratio above 1 is good for a company. It refers that if the
company is able to repay their current liability without depending on inventory.

Quick ratio = (Current asset- Inventories)/Current liabilities

Company's Name 2013-2014 2014-2015 2015-2016 2016-2017
Premier Cement 0.51 0.59 0.83 0.72
Heidelberg Cement 1.96 1.65 1.34 1.23

Time series Analysis: Quick Ratio of Premier Cement was 0.51, 0.59, 0.83 and 0.73 in 2014,
2015, 2016 and 2017 respectively.
Quick Ratio of Heidelberg was 1.96, 1.65,
1.34 and 1.23 in 2014, 2015, 2016 and 2017 Quick Ratio
respectively. 2.5
2
Cross- Sectional Analysis: Since Premier 1.5
Cement has a quick ratio of less than 1 1
during this period, they may not be able to 0.5
fully pay off its current liabilities in the short 0
term, while Heidelberg having a quick ratio 2014 2015 2016 2017
higher than 1 during this period can instantly Premier Cement Hiedelberg Cement
get rid of its current liabilities.
Recommendation: Premier Cement needs to increase their liquid assets to improve their Quick
ratio. This can be done if they take a good amount of loan which will increase their cash. This
cash can be used to invest in the business projects that will give them higher returns and at the
same time they will be able to make their ratio look strong. All Heidelberg needs to do is
maintain its current Quick ratio of more than 1.

Activity Ratios:

Activity ratios measure a firm's ability to convert different accounts within its balance sheets
into cash or sales. Activity ratios measure the relative efficiency of a firm based on its use of
its assets, leverage or other such balance sheet items and are important in determining whether
a company's management is doing a good enough job of generating revenues and cash from
its resources.

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Inventory Turnover

The Inventory turnover is a measure of the number of times inventory is sold or used in a time
period such as a year. It is calculated to see if a business has an excessive inventory in comparison
to its sales level.

Company's Name 2013-2014 2014-2015 2015-2016 2016-2017

Premier Cement 4.86 5.26 7.47 7.79
Inventory Turnover = Cost
Heidelberg Cement 8.27 8.08 5.25 6.69 of Goods sold/ Inventory

Inventory Turnover
Time Series Analysis 10
8.27 8.08
Premier Cement’s inventory turnover in the year 8
7.47 7.79
6.69
2013-14 was just 4.86. It means that their inventory 6
4.86 5.26 5.25
was sold off and new inventories were ordered 4

almost 5 times in that year. In the following year, 2

that is year 2014-15 the inventory turnover ratio 0

2014 2015 2016 2017
increased to 5.26 times. The ratio improved further
as it increased to 7.47 times in 2015-16 and then to Premier Cement Hiedelberg Cement

7.79 in the year 2016-17.

Heidelberg Cement’s inventory turnover in the year 2013-14 was 8.27. It decreased to 8.08 in
2014-15. The inventory turnover value decreased to 5.25 in 2015-16 and then increased to 6.69 in
2016-17.
Cross Sectional Analysis
The higher the Inventory Turnover is, the more capable the firm is to turn its least liquid asset
into liquid asset. Premier Cement has shown significant improvement in their Inventory
Turnover Rate and is advised to keep continuing this performance. The management will now
find it easier to maintain their working capital since their sales are increasing and therefore, they
would be able to turn these inventories into cash as quick as possible. The business operation
will become easier. Premier Cement are now ordering more inventories for which the
relationship with the supplier is also getting strong.
On the other hand, Heidelberg Cement had a much better rate in 2013-14 and 2014-15. Though
the rate decreased in 2014-15 but it still higher than Premier Cement. But the rate gradually
decreased to lower rate than Premier Cement’s rate in 2015-16 and 2016-17. Though the rate
increase in 2016-17 than 2015-16 but it is still lower than Premier Cement. It seems like the
business operation is not going well in Heidelberg Cement. The low rates of inventory turnover
suggest that their sales have dropped.

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So, we can say that Heidelberg Cement’s Inventory Turnover was better than Premier Cement
until 2015-16.
However, in 2016-17 Premier Cement’s inventory turnover increased and now they are in a good
position compared to Heidelberg Cement.

Recommendation
The recommendation to both Heidelberg Cement and Premier Cement is that they should focus
on increasing their sales. If sales increase, the inventory turnover rate will also increase as sales
reduce inventory.

Average Age of Inventory

The average amount of time it takes for a company to sell its inventory. One calculates the average
age of inventory by dividing the value of average inventory by the cost of goods sold and
multiplying the result by 365 days.

Company's Name 2013-2014 2014-2015 2015-2016 2016-2017

Premier Cement 74.96 69.37 48.86 46.85
Average Age of Inventory =
Heidelberg Cement 44.09 45.15 69.45 54.51 365 days/Inventory
Turnover

Time Series Analysis

Average Age of Turnover
Premier Cement’s average age of inventory rate in 80
2013-14 was 75 days. The rate decreased to 69 days 74.96
69.37 69.45
in the following year of 2014-15. The rate decreased 60
54.51
more sharply in 2015-16 to 49 days and stayed same 45.15 48.86 46.85
40 44.09
in 2016-17.
Heidelberg Cement’s average age of inventory rate 20

kept rising since 2013-2015. The rate in 2013-14 0

was 44 days. It increased to 45 days in 2014-15. 2014 2015 2016 2017
Then in 2015-16 the rate increased to 69 days. In Premier Cement Hiedelberg Cement
2016-17 the rate was 54 days.

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Cross Sectional Analysis
The lower the average age of inventory ratio the better it is for the firm as it means the firm is
taking less time to sell its inventory.
Heidelberg Cement’s average age of inventory was lower than Premier Cement for 2013-14 and
2014-15. So the were holding their inventory less than Premier Cement. It shows Heidelberg
Cement is able to sell their inventory quicker than
Premier Cement. However, Premier Cement’s average age of inventory rate has improved over
the years of 2015-16 and 2016-17. Currently they take 48 days to sell off their existing inventory
and to order new inventory. Also, increasing number of days to sell off the inventory would
increase the storage cost and warehouse cost for the business. It will get difficult to efficiently run
the business operations for both the companies.

Recommendation
The management of both the companies should try to bring the rate low so that the inventories
don’t get damaged or backdated. The faster they can sell their inventories the better products they
will be able to give to their customers. Also, they should try to bring the rate low so that they can
reduce the warehouse cost.

Average collection period:

The average collection period is the approximate amount of time that it takes for a business to
receive payments owed in terms of accounts receivable. The average collection period is
calculated by dividing the average balance of accounts receivable by net credit sales per day.
The lower the better always works for avg. collection period as there is no benchmark.

Company's Name 2013-2014 2014-2015 2015-2016 2016-2017

Average collection period =
Premier Cement 9.11 9.70 10.32 11.05 Accounts receivable /
Heidelberg Cement 34.54 35.66 39.42 42.47 (Annual Sales/365)

Time Series Analysis

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The average collection period of Premier cement in 2013-
14 was 9 days. It got worsen and increased to almost 10
Average Collection Period
days in 2014-15. In 2015-16 it did not change that much. 50
40 42.47
However, it increased again in the year 2016-17 to 11 39.42
34.54 35.66
days. 30
20
10 9.11 9.70 10.32 11.05
The average collection period of Heidelberg Cement was 0
34 days in 2013-14. The rate change slightly in the year 2014 2015 2016 2017

2014-15 to 35 days.. In 2015-16, Heidelberg Cement took Premier Cement Hiedelberg Cement
39 days to collect its payments from its debtors in 2015-
16. However, the rate increased sharply to 42 days in 2016-17 making it worst rate of the past
four years.

Cross Sectional Analysis

Since 2013-14 to 2016-17 in every year premier cement’s average collection period is lower
than Heidelberg Cement that means premier cement's management can able to collect money
from their debtors and also Premier cement's collection days has been increased in every year
which is not too big as an amount. But Heidelberg Cement’s average collection period has
increased in every year apart that means Heidelberg Cement has faced some difficulties in
collecting money from debtors.

Recommendation
The management Heidelberg Cement need to reduce their average collection period time. The
quicker they collect money from the debtors the more cash they will have in hand to fund their
day to day expenses also they can reduce net credit sales. This will make the business operation
efficient. Though Premier Cement has low average collection period time it still can analyse how
to reduce it more.

Average payment period:

Average payment period means the average period taken by the company in making payments to
its creditors.
It is computed by dividing accounts payable by net daily purchase.

Average payment period = Accounts payable / (Annual Purchases/365)

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 Company's Name 2013-2014 2014-2015 2015-2016 2016-2017
Premier Cement 13.50 10.93 19.74 16.38
Heidelberg Cement 107.51 125.17 162.64 140.87

Time Series Analysis

Average Payment Period
The payment period of Premier cement is 13 days 200
in 201-314. It decreased to 11 days in 2014-15. The 162.64
150 140.87
rate then sharply increased to almost 20 days in 125.17
100 107.51
2015-16 and then decreased to 16 Days in 2016-17.
Heidelberg Cement’s average payment period was 50
13.50 19.74 16.38
107 days in 2013-14 which increased to 125 days 0 10.93.
in 2014-15. There was a sharp increase in 2015-16 2014 2015 2016 2017
to 162 days but decreased in the following year to Premier Cement Heidelberg Cement
140 days in 2016-17.
Cross Sectional Analysis
Premier Cement is paying their creditors as early as possible. The reason for keeping such a low
payment period is keep a good relation with their suppliers. Keeping low current liability also
helps manager to take key decisions regarding cash or major investment. Suppliers will always
be encouraged to supply them good on time.

The high payment period does not necessarily mean bad for a company if the company is
using the money elsewhere. So, in 2015-16 Heidelberg cement might have used the money
for other purposes. However, Heidelberg Cement’s management may face problem to keep a
good relationship with the suppliers as they might not want to do business with a firm that
keeps debt for such a long time. If the suppliers do not want to supply Heidelberg Cement, it
will be difficult for Primer Cement to continue their business operation

Recommendation
The recommendation to Heidelberg Cement is that they should reduce the payment period by a
significant number of days. Paying the debtor so late would discourage them to continue business
with Heidelberg Cement.
However, Premier Cement may increase the payment period by some days if they need to use the
cash in hand elsewhere. If they can earn more profit by investing elsewhere then then should take
this risk.
Total Asset Turnover

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The asset turnover ratio is an efficiency ratio that measures a company’s ability to generate sales
from its assets by comparing net sales with average total assets. In other words, this ratio shows
how efficiently a company can use its assets to generate sales.

Company's Name 2013-2014 2014-2015 2015-2016 2016-2017

Premier Cement 1.43 1.41 1.29 1.34
Total Asset Turnover = Net
Heidelberg Cement 0.96 0.93 0.96 0.88 Sales/Total Assets

Time Series Analysis

Total Asset Turnover
The total asset turnover ratio for Premier Cement 1.6
in the year 2013-14 was 143%. It means the firm 1.4 1.43 1.41
1.29 1.34
is able to generate 143% of sales using all of their 1.2
1 0.96 0.96
assets. The ratio decreased to 141% in 2014-15 0.93 0.88
0.8
and then to 129% in 2015-16. In 2016-17 the rate 0.6
was 134%. 0.4
0.2
0
Heidelberg Cement’s had a ratio of 96% in 2013- 2014 2015 2016 2017

14 which fell by 93% in 2014-15. The ratio in Premier Cement Hiedelberg Cement
2015-16 fell to 96% and then to 88% in 2016-17.
Cross Sectional Analysis
If we compare the ratios of the two companies then we can see that Premier Cement uses up their
assets better to generate maximum amount of sales. Whereas, Heidelberg Cement only gets 96%
of sales using their all the assets compared to Premier Cement’s 143% in 2016-17.
Compared to Premier Cement Stockholders might ask questions Heidelberg to the management
about their inefficiency of using the assets.

Recommendation
Both companies should maintain this rate and of their total asset turnover.

Debt Ratio:

The debt ratio is a part of solvency ratio that measures the extent of company’s leverage. It is
calculated by dividing firm’s total debt by its total assets that refer the percentage of firm’s

12
assets that are financed by its debt. A firm that has debt ratio less than 1 or 100 % is in a
favourable position to pay back its creditors.

Debt Ratio = Total

Company's Name 2013-2014 2014-2015 2015-2016 2016-2017
Premier Cement 66% 66% 60% 63% Liabilities/ Total Assets
Heidelberg Cement 36% 41% 45% 46%

Debt Ratio
Time Series Analysis 70%
66% 66% 63%
60%
The debt ratio of Premier Cement in 2013-14 was 66% 60%
45% 46%
50% 41%
and stayed same in 2014-15. The debt ratio decreased 40%
36%
to 60% in 2015-16 and then again increased to 30%
63% in 2016-17. 20%
10%
0%
2014 2015 2016 2017
The debt ratio of Heidelberg Cement in 2013-14 was
36% which increased to 41% in 2014-15. The debt Premier Cement Hiedelberg Cement

ratio further increased to 45% in 2015-16 and then

again increased to 46% in
2016-17.
Cross Sectional Analysis
For Premier cement the debt ratio had been gradually decreased and less than 1 from 2013-14 to
2015-16 which is a good thing but in 2016-17 its debt ratio has slightly increased that means its
assets on debt has increased. For
Heidelberg cement, the ratio has increased in all years from 2014 to 2016-17 which is not a
good sign in terms of risk. But in comparison to the two companies Heidelberg Cement is in
the better position as its debt ratio is much lower than Premier Cement in all years from 2013-14
to 2016-17.

Recommendation
Both the companies should maintain their current percentage rate. They should not let it increase
anymore and if possible premier cement should decrease it as it always better to keep that ratio
50% or bellow because it refers the determination of the owner towards the company, creditor
will be more interested if they find it with in the benchmark.

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Times Interest Earned:

Times interest earned ratio also known as interest coverage ratio measures firms’ ability to pay
back its interest from its earning. The ratio is calculated by dividing firm’s EBIT by its interest
expense. It defines how many times a company pays interest on its operating profit. Higher ratio
means the Company is in a better position to pay back its interest.

Company's Name 2013-2014 2014-2015 2015-2016 2016-2017

Premier Cement 2.92 2.00 3.33 3.05 Times Interest Earned

Heidelberg Cement 3.00 5.45 8.07 5.29 Ratio = EBIT/ Interest

Time Series Analysis

The Times Interest Earned Ratio of Premier
Cement in 2013-14 was 2.92 times. It
decreased to 2.00 times in 2014-15. In 2015-
16 it increased to 3.33 times and finally in
2016-17 the Times Interest Earned Ratio of
Premier Cement was
3.05 times. So, it means Premier Cement can
pay the interest 3 times through their
earnings.

Heidelberg Cement’s ratio of Times Interest Earned in 2013-14 was 3.00times. It increased to
5.45 times in 2014-15. The Times Interest Earned Ratio in 2015-16 was 8.07 times and in 2016-
17 it decreased to 5.29 times.
It means in 2016-17 Heidelberg Cement has the ability to pay the interest through their earnings
only 5 times.
Cross Sectional Analysis
Times interest ratio for Premier Cement is not that good. It raised from 2013-14 and then decreased
in 2014-15 then increased from 2014-15 to 2015-16 and again decreased in 2016-17. So Premier
Cement’s management might have been facing a difficulty with paying interest. Also,
stockholders would not want to invest in such a company that don’t make sufficient amount of
profit to totally avoid the risk of paying an expense. But in recent times they are doing good than
before.

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For Heidelberg cement, the ratio is drastically increasing. In 2013-14 the company was in good
position in terms of interest repayment and since then it has been increasing at a moderate rate.
So, Heidelberg Cement is not facing issues with paying interest.

In comparison, Heidelberg Cement is better than Premier Cement as they paid interest number of
times more, in terms of EBIT.

Recommendation
Heidelberg Cement should maintain this rate. They should earn more profit to reduce the risk of
paying the interest regularly. On the other hand, Premier Cement should be increasing their profit
to have sufficient amount of profit to pay the interest. The management of Premier Cement need
to reduce their unwanted expenses or to boost up their sales so that the ratio can improve.

Debt to Equity Ratio:

Company's Name 2013-2014 2014-2015 2015-2016 2016-2017

Premier Cement 240% 242% 193% 213%

Heidelberg Cement 56% 69% 82% 86%

Debt to equity ratio is another major ratio that is used to measure firms financial leverage in
terms of debt and the value of shareholders’ equity. It is calculated by dividing firm’s total
liability by its total assets. It refers the usage of debt in order to finance its asset relative to
the value of shareholders’ equity. For most of the companies, the Standard range for debt to
equity ratio is 2 or 200%.
Debt Equity Ratio = Total Liabilities /
Shareholders’ equity

Time Series Analysis

Here we see, In 2013-14 the Debt to debt ratio was
240% and it increased to 242% in 2014-15 but
decreased in 2015-16 to 193% but again increased in
2016-17 to 213%
In case of Heidelberg Cement the Equity to Debt Ratio
increasing drastically. In 2013-14 the rate was 56% and following to the years of 2014-15,
2015-16, 2016-17 it increases to 69%, 82% and 86%.

15
Cross Sectional Analysis

In general, a high debt-to-equity ratio indicates that a company may not be able to generate
enough cash to satisfy its debt obligations. However, a low debt-to-equity ratio may also
indicate that a company is not taking advantage of the increased profits that financial leverage
may bring. Though the standard range for debt to equity ratio is 2 or 200% but for big
companies it can be higher than 200%. In that case Premier Cement can able to make enough
cash to satisfy debt obligation. In 2015-16 they have the best rate because it is within 200%.
On the other hand, Heidelberg Cement the rates are less than 1.5 so it may not be able to
taking the advantage of the increased profits that financial leverage may bring.
In comparison, Premier cement shareholder's growth depends on debt financing more than
Heidelberg Cement and also at high-level risk.

Recommendation
Premier Cement should find a way to improve their debt to equity ratio by increasing their
revenue and find other ways to pay their liabilities.

Profitability Ratio:
Profitability Ratio show firm's ability to gain profit compared to its expense and other relevant
costs. Earning profit from sales, assets and shareholders’ equity are measured by profitability
Ratios. In most cases, it is better to have higher profitability Ratios.
Gross profit margin, Net profit margin, ROA, ROE, EPS, DPS are considered to measure the
condition of profit of premier cement and Hiedelberg cement.

Gross Profit:
Gross profit margin simply represents the portion of company’s revenue after deducting the
cost of goods sold. It measures for each dollar of revenue how much profit is generated by its
sales and other revenues. It's better to have higher gross profit as mostly firm's with higher
gross profit have sufficient amount of money to bear their operating expenses.
Time series Interpretation:

The Gross profit of Premier Cement in2013- 14 was 19%. The ratio dropped to 17% in 2014-
15. However, in 2015-16 the Gross profit margin increased to 24% and then again decreased
to 18% in 2016-17.

The Gross profit margin of Heidelberg Cement in 2013-14 was 19% which increased to 24%
in 2014- 15 and then to 26% in 2015-16. However, the rate fall to 20% in 2016-17.

16
 Company's Name 2013-2014 2014-2015 2015-2016 2016-2017

Premier Cement 19% 15% 24% 18%

Heidelberg Cement 19% 24% 26% 20%

Cross sectional Interpretation: Premier Cement

is not in good position in terms of Gross profit Gross Profit
margin. From 2014-15 the Gross profit margin 30% 24% 26%
24%
falls. In 2015-16 it increased at a high rate but 19% 17%
20%
18%
20%
again falls at 2016-17. The management is not able
to boost up the sales. It will be difficult to attract 10%
potential stockholders to invest in the business.
0%
On the other hand, in 2013-14 Gross profit 2014 2015 2016 2017
margin for Premier cement and Heidelberg are Premier Cement Hiedelberg Cement
same. But in all years from 2014-15 to 2016-17
Gross profit Margin for Heidelberg Cement is higher than the Premier Cement. But in all years
from 2013-14 it changes in my life a more balanced way which is good sign for Premier Cement.
Stockholders like balanced profit margin as it seems less risky to invest a company that
has a constant profit in comparison to which that fluctuates more often.
Recommendation: Both the company should reduce their cost of sales and boost up their sales to
increase the Gross profit which will increase the Gross profit margin to attract existing
stockholders and potential stockholders.

Operating profit:
Operating profit margin simply represents the portion of company’s revenue after deducting the
cost of goods sold and all the operating expenses. It measures for each dollar of revenue how
much profit is generated by its sales and other revenues. It's better to have higher operating profit
as mostly firm's with higher operating profits have sufficient amount of money to pay dividends
to their shareholders.
Company's Name 2013-2014 2014-2015 2015-2016 2016-2017
Premier Cement 16% 13% 16% 11%
Heidelberg Cement 12% 16% 18% 10%

17
Time series Interpretation:
Operating Profit
The operating profit margin of premier cement in
20%
2013-14 was 16%. The rate decreased by 3% in
2014-15 and then increased to 16% in 2015-16. 15%

However, in 2016-17 the company's operating 10%

profit margin dropped to 11%. 5%

The operating profit margin of Heidelberg Cement 0%

2014 2015 2016 2017
2013-14 was 12%. The rate increased to 16% in
2014-15. In 2015-16 the rate increased to 18% and Premier Cement Heidelberg Cement

then dropped to 10% in 2016-17.

Cross sectional Interpretation:
The operating profit margin at premier Cement have fluctuated a lot in recent years in
comparison to a constant rate of Heidelberg Cement. Only in the regular 2016-17 Heidelberg
Cement have been such a drastic fall in their operating profit margin. The reason could be that
expenses are increasing in comparison to sales. If things continue to be the same in future then
the company will not have sufficient profit to pay dividends to its stockholders.
Recommendation: The recommendation to both the companies would be to increase their
operating profit by boosting up their sales or by reducing their operating expenses as much as
they can.

Net profit Margin:

The net profit margin measures the percentage of each sales dollar remaining after all costs and
expenses, including interest, taxes and preferred stock dividends have been deducted. The higher
the firms net profit margin, the better.
Company's Name 2013-2014 2014-2015 2015-2016 2016-2017

Premier Cement 7% 5% 8% 5%

Heidelberg Cement 11% 13% 14% 8%

Time series Interpretation:

The net profit margin of premier cement was 7% in 2013-14. It decreased to 2% in 2014-15. The
ratio then increased to 8% in 2015-16 and then again dropped to 5% in the year 2016-17.
The net profit margin of Heidelberg Cement in 2013-14 was 11%. It increased to 13% in 2014-
15 and then increased to 14% in 2015-16. The ratio of 2016-17 was 8%.

18
Cross sectional Interpretation:
Net Profit Margin
Here we can see that Heidelberg Cement's Net 14%
15% 13%
profit Margin increased from 2013-14 to 2014- 11%
15 from 11% to 13%. Whereas in case of 10% 8% 8%
7%
Premier Cement it decreased from 7% to 5%. 5% 5%
However, both the companies faced high Net 5%
profit margin 2015-16, but it decreased again
during 2016-17. From the chart we can clearly 0%
2014 2015 2016 2017
see that Heidelberg Cement's net profit margin is
higher than the Premier Cement. Premier Cement Hiedelberg Cement

Recommendation:
The recommendation to both the companies is to increase their net profit as they can by
decreasing their expenses and boosting up their sales. The managers should take decision that
will increase their revenue and profit and ultimately shareholders wealth. To attract stockholders
higher net profit margin will pay a pivotal role.

Earnings per share:

Earnings per share (EPS) is the portion of a company's profit allocated to each outstanding share
of common stock. Earnings per share serves as an indicator of a company's profitability.
Company's Name 2013-2014 2014-2015 2015-2016 2016-2017

Premier Cement $28.47 $21.38 $36.12 $28.06

Heidelberg Cement $20.88 $24.81 $26.69 $14.21

EPS
Time series Interpretation: 40

Premier Cement's earnings per share was 30

28.47 in 2013-14. The value decreased to
21.38 in 2014-15 and then increased by a 20

good amount to 36.12 in 2015-16. The 10

value of EPS in 2016-17 decreased to TK
0
28.06.
2014 2015 2016 2017
Heidelberg Cement's earnings per share Premier Cement Hiedelberg Cement
was 20.88 in 2013-14. The value increased
to 24.81 in 2014-15. The value then increased to TK 26.69 in 2015-16 and then decreased to TK
14.21 in 2016-17.

19
Cross sectional Interpretation:
Premier Cement had a higher EPS in 2013-14 in comparison to Heidelberg cement. Only in the
year 2014-15 Heidelberg Cement had better EPS compared to premier cement. This EPS can
help to attract stockholders by new shares.
Recommendation:
Both the companies need to improve their EPS so that they can give higher return to their
stockholders.

Dividends per share

Dividend per Share (DPS) is the total amount of dividend attributed to each individual share
outstanding of a company. Calculating the dividend per share allows an investor to determine the
amount of cash he or she will receive on a per share basis. Dividends are usually a cash payment
paid to the investors in a company, although there are other types of payment that can be
received (discussed below).

Dividend per Share = Total Dividends Paid / Shares Outstanding

Company's Name 2013-2014 2014-2015 2015-2016 2016-2017

Premier Cement $24.1 $18 $12 $9
Heidelberg Cement $37.2 $37.1 $29.6 $29.2

Time Series Analysis: The Dividend per

Share value of Premier Cement in 2013-14 DPS
was Tk.24.1. It decreased to Tk.18 in 2014- 40
15 and then to Tk.12 in 2015-16. The 30
dividend per share of Premier Cement in
20
2016-17 was Tk.9. The stockholders in
10
2016-17 only received Tk.9 dividend on
0
every share they held.
2014 2015 2016 2017
The DPS of Heidelberg Cement was 37.2 Premier Cement Hiedelberg Cement
and 37.1 in 2014 and 2015 respectively and
decreased to 29.6 and 29.2 in 2016 and 2017 respectively

Cross-Sectional Analysis: The dividend per share of Premier Cement was lower than the
dividend per share of Heidelberg Cement during the period. The dividend per share ratio is

20
declining for both the companies as their profits are declining. Stockholders might get
discouraged to invest in these companies if the ratios keep falling. They would most likely to
find an alternate source of investment that gives them higher return.

Recommendation: The recommendation to both the companies is to increase their profits. If

profit increases then the firms will be able to pay high dividends to their stockholders. Managers
are appointed to take decisions that increases the wealth of Stockholders. So management need
to think of increasing the DPS value. If it increases then both the companies can attract potent.

Return on Assets:
The return on total asset, often called the return on investment (ROI) measures the overall
effectiveness of management in generating profits with its available assets. The higher the firm's
return on total assets, the better.
Company's Name 2013-2014 2014-2015 2015-2016 2016-2017
Premier Cement 5% 4% 6% 4%
Heidelberg Cement 12% 14% 15% 9%

Time Series Analysis: The ROA of Premier

Cement in 2013-14 was 5%. The rate decreased to ROA
4. % in 2014-15. The rate increased to 6% in 2015- 20%

16 and then dropped to 4% in 2016-17. 15%

For Heidelberg Cement ROA was 12 %, 14 %, 15 10%

% and 9 % in 2014, 2015, 2016 and 2017
5%
respectively
0%
Cross sectional Interpretation: In case of 2014 2015 2016 2017
Heidelberg Cement, the ROA increased during Premier Cement Hiedelberg Cement
2013-14 to 2014-15. Even though they increased in
ROA in 2015-16, it again decreased in 2016-17 to 9%. On the other hand, even though Premier
Cement's ROA was less than the Heidelberg Cement in 2013-14 and 2014-15, it increased more
in 2015-16 and even though they also faced low ROA in 2016-17 it still less than the Heidelberg
Cement at present. It shows that the business operation is not fully utilizing their total assets to
generates enough sales. The rates are well below 10%. Both the companies are inefficient to use
their assets to generate high profit.

21
Recommendation: The recommendation to both the companies would be that they should
increase their profit so that ROA improves. If there are non-current assets that became obsolete
or are utilized, then they can change those assets with advanced assets so that the business
becomes more efficient in generating sales and ultimately increasing profits.

Return on Equity (ROE):

The return on equity measures the return earned on the common stockholders’ investment in the
firm. Generally, the owners are better off the higher is return.

Company's Name 2013-2014 2014-2015 2015-2016 2016-2017

Premier Cement 18% 14% 19% 13%
Heidelberg Cement 18% 24% 27% 17%

ROE
Time series Interpretation:
30%
The ROE of premier cement in the year 2013-14 25%
was 18% which dropped to 14% in 2014-15. The 20%
ROE again increased to 19% in 2015-16 and 15%
then again decreased to 13% in the year 2016-17. 10%
Heidelberg Cement's ROE in 2013-14 was 18%. 5%
It increased to 24% in 2014-15 then increased to 0%
27% in 2015-16. In 2016-17 the ROE of 2014 2015 2016 2017
Heidelberg cement dropped to 17% which is the Premier Cement Hiedelberg Cement
worst of all the previous four years.
Cross sectional Interpretation:
Here we can clearly see that Heidelberg Cement's ROE is in a better position than Premier
Cement. Even though both the companies faced declining ROE during 2016-17. Therefore, the
Heidelberg Cement has a higher return on the stockholder’s equity than Premier Cement. It
shows that premier cement managers are unable to use their overall equity to generate enough
returns.
Recommendation:
Premier Cement need to improve their ROE by increasing net profit. This can be done by
increasing sales and reducing expenses. And Heidelberg cement also try to improve their ROE
by increasing net profit.

22
Market Ratios
These ratios give understanding into how investors believe that the firm is doing in terms of risk
and return. These ratios also reflect common stockholders’ assessment of all aspects of the firm’s
past and expected future performance

Price earnings Ratio

The price-earnings ratio (P/E Ratio) is the ratio for valuing a company that measures its current
share price relative to its per-share earnings.
P/E Ratio = Market Price per Share / EPS
Company's Name 2013-2014 2014-2015 2015-2016 2016-2017
Premier Cement 2.7 2.52 2.42 3.17
Heidelberg Cement 23.63 22.55 20.19 29.7

Time Series Analysis: The P/E ratio of Premier Cement was 2.7 in 2014, reduced to 2.52 in 2015,
reduced again to 2.42 in 2016 and finally
increasing to its highest during this period P/E ratio
to 3.17 in 2017.
35
The P/E ratio for Heidelberg Cement 30
was 23.63 in 2014 and reducing to 25
20
22.55 and 20.19 in 2015 and 2016
15
respectively. In 2017 it increased to 10
29.7 5
0
2014 2015 2016 2017
Cross-Sectional Analysis: Generally,
Premier Cement Hiedelberg Cement
the lower P/E ratio is expected by the
investors. Premier Cement’s P/E was significantly lower than Heidelberg Cement’s for all the 4
years. So Premier Cement had better P/E than Heidelberg Cement. The stockholders might not
want to invest in Heidelberg Cement further if the ratio increases again.
Recommendation: Heidelberg should reduce their ratio as much as they can. This can be done
by increasing the EPS. High EPS can be achieved if the company can generate more profit.

Book Value per Share of Common Stock

Book value per common share is a measure used by owners of common shares in a firm to
determine the level of safety associated with each individual share after all debts are paid
accordingly.

23
Book Value per share of common stock = Common stock equity / No. of shares
of common stock outstanding
Company's Name 2013-2014 2014-2015 2015-2016 2016-2017

Premier Cement TK154.7 TK158 TK192 TK211.1

8
Heidelberg Cement TK115.4 Tk102.2 TK98.96 TK83.17

Time Series Analysis: Premier

Cement’s book value increased from Book value per share
154.7 in 2014 to 158, 192 and 211.11 in 250
2015, 2016 and 2017 respectively. 200

Heidelberg’s book value was 115.4 in 150

2014, 102.2 in 2015, 98.96 in 2016 100
and 83.17 in 2017 50

Cross Sectional Analysis: Value of 0

2014 2015 2016 2017
Premier cement increased over time
compared to Heidelberg and is higher Premier Cement Hiedelberg Cement
every year during this period. So, book
value of Premier Cement is better

Recommendation: The higher the Book Value per Share is the safer the business is. Both the company
needs to increase their Book Value per Share to attract common stockholders.

Market/Book Ratio
Market to book ratio is just a comparison of market value with the book value of the firm. In
other words, it suggests how much investors are paying against each dollar of book value in
the balance sheet. Also known as price to book value, this ratio tries to establish a relationship
between the book values expressed in the balance sheet and the actual market price of the
stock.

Market/Book Ratio = Market Price per share of common stock / Book

value per share of common stock

Company's Name 2013-2014 2014-2015 2015-2016 2016-2017

Premier Cement 2.49 1.63 2.10 2.00

M.I. Cement (Crown Cement) 2.16 1.83 1.58 1.88

24
 M/B ratio
Time Series Analysis: M/B ratio of Premier Cement
were 2.49, 1.63, 2.10 and 2 in 2014, 2015, 2016 and 2017 6
respectively
5
For Heidelberg it was 2.16, 1.83, 1.58 and 1.88 in 4
2014, 2015, 2016 and 2017 respectively
3
Cross-Sectional Analysis: Both Premier Cement’s 2
and Heidelberg’s ratios were greater than 1. It means
1
that their stock price was overvalued. It is not a good
sign for either of the company’s investors. 0
2014 2015 2016 2017
Management might get questioned for not working for Premier Cement Hiedelberg Cement
the stockholders’ benefit in this case. Having
overvalued stock price can bring danger for the firm. Stock values can fall all of a sudden and
that can discourage a lot of investors.
Recommendation: The managers should take steps to reduce the value below 1. It will attract
investors and give them a hope that they have invested in a good company that value their
investment. Both the companies now have to take decisions that will not let the stock price to fall
all of a sudden. They need to keep the ongoing stock price.

Conclusion
By figuring out the ratio amounts of two companies, it came to a conclusion that-
For Current Ratio and Quick Ratio, it was seen that Heidelberg Cement had the best ratio
and Premier Cement had the worst ratio.
For Inventory Turnover it was seen that Heidelberg Cement had the best ratios and Premier
Cement had worst ratios. For Average Collection Period it was seen that Premier Cement
were very expert in collecting their dues in comparison with Heidelberg Premier Cement.
For Debt Ratio Crown Cement showing promising figures while on the other hand Premier
Cement’s figure was way below Crown Cement’s ratio.
For Debt Ratio Premier Cement had more Liabilities issues than Asset while on the other
hand Heidelberg Cement’s condition was very good when comparing with Premier Cement.
For Gross Profit Margin it was seen that Heidelberg Cement had the best ratio in three years
in comparison to Premier Cement.
For Net Profit Margin it was seen that Heidelberg Cement had the best ratio and Premier
Cement had the worst ratio, when comparing to one another.

25
For Return on Total Asset it was seen that Heidelberg Cement had the best ratio and Premier
Cement had the worst ratio.
For Return on Total Equity it was seen that Heidelberg Cement had the best ratio in all the
four years and Premier Cement had the worst ratio, when comparing to one another. So,
Heidelberg Cement was using their Equities more efficiently than Premier Cement. So, they
can attract more Stockholders.
For Price Earnings ratio Heidelberg Cement always had the best ratio compared to Premier
Cement.
For DPS, Heidelberg Cement had higher DPS than Premier Cement. However, the DPS is
falling every year. Premier Cement’s DPS is worst of the two companies and is falling at
higher rate.
For EPS, Heidelberg Cement had higher EPS in two years out of four 2015 and 2016.
However, the ratios were fluctuating by good amounts. Heidelberg Cement’s EPS was okay
but comparatively is very low to Premier Cement.

All in all, it can be concluded that Heidelberg Cement have the best ratio compared to Premier
Cement. Any stockholder would like to invest in Heidelberg Cement seeing their profitability,
solvency and market ratios. Heidelberg Cement gives high returns on their stocks and is doing
well in the industry compared to Premier Cement

26
 Reference

• Principal of Managerial Finance by Lawrence J. Gitman and Chad J. Zutter

• Premier Cement Annual Report [online] Available at:
http://www.premiercement.com/yearly.html
• Heidelbergcement.com. (2018). Annual Report – Heidelberg Cement. [online] Available
at: https://www.heidelbergcementbd.com/financial_report.aspx
• LankaBangla Archive [online] Available at:
http://lankabd.com/portal/DSE/smartChart.html?&siteLanguagjge=en
• https://www.myaccountingcourse.com/financial-ratios

27
 Appendix

Market Price per share of common

stock
Company’s Name 30/06/2014 30/06/2015 30/06/2016 30/06/2017
Premier Cement $76.1 $53.9 $87.5 $89
Heidelberg Cement $493.3 $559.6 $538.9 $422.5
44 7

Available at: LankaBangla [online]

https://lankabd.com/Company/OverviewV2?symbol=PREMIERCEM

https://lankabd.com/Company/OverviewV2?symbol=HEIDELBCEM

28