WORKING CAPITAL

MANAGEMENT OF
CONFIDENCE
CEMENT LIMITED
 Working Capital Management of Confidence Cement Limited

Submitted By:

Name ID

Fairuz Sadaf 111141152

Nur Alam Sabbir 111133136

Tanzila Tasnim 111141284

Asma Saqi 111133163

Khadizatul Kubra 111143147

Section C

Course Code FIN-4322

Course Name Working Capital Management

Submitted To:

Nusrat Farzana

Assistant Professor- Finance

School of Business and Economics, UIU

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Contents
1. Introduction........................................................................................................................1
2. About the Company............................................................................................................2
Company Profile.....................................................................................................................2
Mission...................................................................................................................................2
Vision......................................................................................................................................2
Products..................................................................................................................................2
3. Working Capital Management............................................................................................3
Definition................................................................................................................................3
Nature and importance of good working capital management.............................................3
Problems with inadequate working capital............................................................................4
Working Capital Cycle.............................................................................................................5
4. Policies in working capital management............................................................................5
5. Cash Management Process.................................................................................................6
6. Receivables Management...................................................................................................7
Credit Granting Decision.........................................................................................................7
Terms of sales.........................................................................................................................8
Default Rate in Account Receivables......................................................................................8
Turnover method and Payment pattern method..................................................................8
7. Inventory Management......................................................................................................9
Overall Inventory management condition.............................................................................9
Composition of Inventory.....................................................................................................10
Economic Order Quantity.....................................................................................................10
8. Analyzing Performance.....................................................................................................11
Liquidity Ratio.......................................................................................................................11
Debt Management and Coverage........................................................................................14
Performance.........................................................................................................................16
Reference...................................................................................................................................a
Appendix....................................................................................................................................b

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 1. Introduction
Working Capital simply refers to the total amount of current asset. Now-a-days working
capital has become a really important part of day to day activities of a business. A company
incur their day to day expenditure from the working capital. The important particular of
working capital is cash, account receivables and inventory. Cash is the most liquid one. It is
not good for a company to have too much current asset or too low of current asset. A
company has to find a middle way to maintain the good position in the industry. When a
company has too much current asset it indicates that the company can’t manage their
current asset and their investment decision is really poor. If the company has too much
liquid asset financial manager/ analyst will recommend them to invest more in their
business or other businesses to make their portfolio strong which ultimately make their
position strong in the market. So we can conclude that for a company to manage working
capital is really important and it ensures stability in the market.
We know that only manufacturing companies have inventory and we can calculate the
turnover and understand the importance of working capital. Manufacturing is the
production of merchandise for use or sale using labor and machines, tools, chemical and
biological processing, or formulation. The term may refer to a range of human activity, from
handicraft to high tech, but is most commonly applied to industrial production, in which raw
materials are transformed into finished goods on a large scale. Such finished goods may be
sold to other manufacturers for the production of other, more complex products, such as
aircraft, household appliances, furniture, sports equipment or automobiles, or sold to
wholesalers, who in turn sell them to retailers, who then sell them to end users and
consumers. We are doing this assignment on Confidence Cement limited which is a
manufacturing company listed in Dhaka Stock Exchange of Bangladesh. Confidence Cement
Limited (CCL) is the first private sector cement manufacturing company in Bangladesh
established in 1994 with having 4,80,000 M/T annual production capacity at Chittagong.
Confidence Cement Ltd. is the first ISO-9002 certified Cement Manufacturer in Bangladesh.
It has a unique management system in Quality Assurance, Marketing, Sales and
Procurements. It Manufactures Portland Cement and Portland Composite Cement. CCL aims
to be the number one cement manufacturing company in Bangladesh, through continuous
development and by producing high and consistent quality Cement to meet all customers
requirement at all time.

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 2. About the Company
Company Profile
Confidence Cement Limited is the pioneer cement manufacturing company in private
cement sector in Bangladesh under the Government industrial policy of 1991. The company
was established in May 02, 1991 is a form of public limited company.
Confidence Cement Limited, the flagship company of Confidence Group of Companies is one
of the largest manufacturer of cement in the country. It is also a leading Blue Chip company
in both the Dhaka & Chittagong Stock Exchange and there it is among the top 20 performing
companies for the last 10 years. It is also the first ISO 9002 certified cement manufacturing
company in Bangladesh. Confidence Cement Ltd. Itself and its sister Concerns are present in
cement, paint, steel fabrication, forging & galvanizing, power generation, Battery,
Transformer, electrical item manufacturing and concrete products manufacturing sector.
Mission
The company's mission is to manufacture and sells cement to people with no compromise
to quality and by relentlessly upholding the code of business principles. It's overall strategic
vision is to endure and prosper in the market, tackling the internal and external challenges
along the way.
In the early 2000's the cement industry of Bangladesh faced a staring boom in growth. New
competitors started to arrive in large number and continued to come till the market got
saturated and the whole industry became stagnant. A recession and political unrest, few
natural calamities added to this depression and many of the competitors were forced to
wind up. But Confidence Cement Limited held strong in its position still continuing to offer
high quality cement to the customers.
Vision
Let’s Believe in our Brand
Confidence Group has to be among the top 3 (three) most valued and revered
conglomerates in Bangladesh. All of the brands under Confidence Group has to be most
respected in their respective market sphere in Bangladesh.
Let’s Believe in our Business
Confidence Group has to be a conglomerate of BDT 10,000 crore within 2020.
Let’s Believe in our Business
Confidence Group has to be among the top 3 (three) most socially and environmentally
compliant conglomerates in Bangladesh.
Let’s Believe in our Self
Every member of Confidence Group is chosen because of their uniqueness and competence.
So be proud being part of Confidence. Confidence has to be a preferred brand of
employment.

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Products
Today the company has a production capacity of 7, 50,000 Metric Tons annually and it has
seven members in its Board of Directors (including two members of Independent Directors).
The company aims to be the number one cement manufacturing company in Bangladesh,
through continuous development and by consistently producing high quality.
Confidence Group consists wit11 the following companies:
• Confidence Steel Limited
• Confidence Power Limited
• Electropac Industries Limited
• Energypac Confidence Power VentL1re Ltd.
• Digicon Telecommunication Limited
• Confidence Steel Export Limited
• ECPV Chittagong Limited
• Confidence Infrastructure Limited
• Confidence Electric Limited
• Asian Paints (BO) Limited
• Confidence Concrete Engineering Limited

3. Working Capital Management

Definition
Working capital management refers to a company's managerial accounting strategy
designed to monitor and utilize the two components of working capital, current assets and
current liabilities, to ensure the most financially efficient operation of the company. The
primary purpose of working capital management is to make sure the company always
maintains sufficient cash flow to meet its short-term operating costs and short-term debt
obligations.

Working capital management commonly involves monitoring cash flow, assets and liabilities
through ratio analysis of key elements of operating expenses, including the working capital
ratio, collection ratio and the inventory turnover ratio. Efficient working capital
management helps with a company's smooth financial operation, and can also help to
improve the company's earnings and profitability. Management of working capital includes
inventory management and management of accounts receivables and accounts payables.

Nature and importance of good working capital management

A business needs certain amount of cash for meeting routine payments, providing
unforeseen events or purchasing raw materials for its production. Managing working capital
includes managing cash, inventories, accounts receivables and accounts payable in an
effective manner. In this way, a working capital is equal to the raw materials, work in
progress, finished goods inventories and accounts receivables less accounts payable.
The concept of working capital should be understandable easily, as it is very much
connected with our personal lives as well. In the sense, sufficient money is needed for our
cost of living. We would like to collect the money owed to us, at the same time, we would
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like to pay whom we owe. If the ready money is not maintained properly or we fail to do so,
the situation is called as bankruptcy or insolvency. The same applies to a business and the
task of financial management in terms of working capital is to maintain sufficient funds for
its day-to-day requirements, while safeguarding the business against the possibility of
insolvency. Thus, the term working capital refers to the excess of the current assets over the
current liabilities.
The aim of good working capital management is to maintain balance in having sufficient
working capital to ensure that the business is liquid to meet its current requirements. A this
stage, it must be noted that being liquid does not mean to be in such a way that it affect or
reduce the profitability of the business. Rather, it means to maintain balance by finding
ways to smooth out cash payments in order to keep working capital stable. Thus, the
importance of managing good working capital emerges due to the fact a business that
manages its working capital effectively can survive while meeting its day-to-day operations
successfully which in turn leads to the long term success.
It is important for a business to manage good working capital by undertaking each
component relating to working capital effectively and efficiently. It must be noted that while
the amount of working capital that a company carries can be used to protect it against
possible insolvency, it can also affect its profitability as well. So, it is essential for a business
management to maintain the balance between liquidity and profitability while managing
working capital. Thus, a well-managed working capital is crucial for running a healthy and
successful business.

Problems with inadequate working capital

Inadequate working capital means shortage of working capital to meet the day to day
operating activities of the business concern. In other words, the quantum of inadequate
working capital is the difference between actual working capital and adequate working
capital

The following are the dangers, limitations or disadvantages of inadequate working

1. The growth of the business concern will be stagnated. The reason is that the
business concern is not in a position to take up a profitable venture due to
unavailability of working capital funds.
2. It affects the goodwill of the company.
3. The objectives of the business concern cannot be achieved. Moreover, average rate
of return cannot be earned by the company.
4. The short term liabilities cannot be met in time.
5.  Fixed assets cannot be used properly due to inadequate working capital.
6. The market opportunities like cash discount and trade discount cannot be availed by
the business concern.
7. Sometimes, business opportunities are not utilized due to non-availability of
adequate working capital.

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 8. Production capacity is not used fully. It results in the low level of production. This
leads to failure to meet the regular demands. Hence, the customers may switch over
to some other products.
9. It directly affects the liquidity position of the business firm.
10. Whenever the goodwill of the company is affected, the credit worthiness of the
company is decreased to some extent among the banks and financial institutions.

Collect on
Credit CASH
Sales

Sell
Goods, Working Capital Order
Send Cycle Inventory
Invoice

Pay for Receive

Inventory Inventory

Working Capital Cycle

The working capital cycle (WCC) is the amount of time it takes to turn the net current assets
and current liabilities into cash. The longer the cycle is, the longer a business is tying up
capital in its working capital without earning a return on it. Therefore, companies strive to
reduce its working capital cycle by collecting receivables quicker or sometimes stretching
accounts payable. 

Like any other firms Confidence Cement also has a working capital cycle. According to
working cycle when we have cash in hand we will order inventory for production. After
certain time we will receive inventory and make payment to the suppliers. Then we will
begin production and sell the finished goods to customers. It can be either on cash or credit.
If we sale on credit then we will have to collect receivables. From receivables we will get
cash and the process will continue. This continuous process can be called working capital
cycle.

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 4. Policies in working capital management
There are 3 kinds of policies regarding working capital management. They are- Maturity
matching approach, Aggressive approach and Conservative approach. All these approaches
are guideline on how to finance the assets.

We know there are 3 kinds of assets- Fixed Assets, Permanent Assets and Temporary assets.
In Maturity matching fixed and permanent assets are financed by long-term debt and
temporary assets are financed by shot term debt. When a portion of permanent asset is
financed by short term debt it is known as Aggressive approach. When portion of temporary
asset is financed by long term debt it is referred as Conservative approach.

Our company, confidence cement limited has been using Conservative approach. We can
understand that from Net Working Capital and Current ratio. In conservative approach NWC
is usually positive as their assets are higher than their liabilities. In 2015-16 financial year we
can observe that for every 1 tk debt they have 1.03 tk of investment. In 2014 it was for
every 1 tk debt there was approximately 1.40 tk of investment. The NWC in both financial
year is positive. The amount is decreasing. So, we can conclude that Confidence Cement
Limited is gradually approaching to Aggressive Approach of working capital management.

5. Cash Management Process

Every company has cash management process. Cash Management is the corporate process
of collecting and managing cash, as well as, using it for investing. It is a key component of
ensuring a company’s financial stability and solvency. Successful cash management involves
not only avoiding insolvency, but also reducing the length of accounts receivables,
increasing collection rates, selecting appropriate short-term investment and increasing cash
on hand to improve a company’s cash position and profitability.

If we look at the cash flow statement of Confidence Cement limited, they have dived the
cash flow in 3 categories- cash flow from operating activities, cash flow from investing
activities and cash flow from financing activities.

Cash flow from operating activities

Operating activities means day-to-day activity or activity that has to be done within one
year. In operating activities they mainly receive cash from customers and others and use it
to repay the suppliers, employees, income tax and interest of loans.

Cash flow from investing activities

Cash flow from investing provides an account of cash used in the purchase of assets that will
deliver value in the future. These assets are referred to as investments. If we look at the
cash flow statement of confidence cement limited they gathered money from the sale of
assets, investments in quoted shares and dividend received. They spend the money for
acquisition of new property, plant and equipment, short term investments and other
investments.

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Cash flow from financing activities

Cash flow from financing gives an account of cash used in financing activities such as
dividend payments, stock repurchases or bond offerings. Confidence Cement limited
received short-term loans and repaid the long-term loans of the company and dividends to
the shareholders

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 6. Receivables Management
Credit Granting Decision
Credit evaluation helps to judge the credit worthiness of a prospective customer. Credit
granting decision is a procedure of final decision whether to grant credit to the prospective
customer or not. The decision to grant credit or not depends upon the cost benefit analysis.
The manager can form a subjective opinion based on credit evaluation about the chance of
getting payment and the chance of not getting payment. The relative chances of getting the
payment or not getting the payment are at the back of his mind while taking such a decision.

There are so many ways to evaluate if the company is worth for credit. One of the most
easiest and useful method is calculating the Z score of the company. The Z-score formula for
predicting bankruptcy was published in 1968 by Edward I. Altman, who was, at the time, an
Assistant Professor of Finance at New York University. The formula may be used to predict
the probability that a firm will go into bankruptcy within two years. Z-scores are used to
predict corporate defaults and an easy-to-calculate control measure for the financial
distress status of companies in academic studies. The Z-score uses multiple corporate
income and balance sheet values to measure the financial health of a company.

The formula is given below-

Z = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + 1.0X5.

X1 = working capital / total assets. Measures liquid assets in relation to the size of the
company.
X2 = retained earnings / total assets. Measures profitability that reflects the
company's age and earning power.
X3 = earnings before interest and taxes / total assets. Measures operating efficiency
apart from tax and leveraging factors. It recognizes operating earnings as being
important to long-term viability.
X4 = market value of equity / book value of total liabilities. Adds market dimension
that can show up security price fluctuation as a possible red flag.
X5 = sales / total assets. Standard measure for total asset turnover (varies greatly
from industry to industry).
The standard Z score for a good company is 2.7 or higher. The higher the score, the higher is
the probability of repaying the loan. We also calculated the Z score for Confidence Cement
Limited; in 2015-16 the Z score for the company is 4.13 and in 2014 the score is 4.33 which
is higher than the given standard score. So it is a good sign for the company. Creditors are
now assured that if they give loan to this company it will not default as the probability of
going bankrupt next year is very low. It is safe to grant credit to this company. We can
observe that there is a decline in z score from last year to this year. Though there is .10
reduction in z score the company is still in the safe zone.

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Terms of sales
Terms of sale refers to the delivery and payment terms agreed between a buyer and a
seller. In international trade, terms of sale also set out the rights and obligations of buyers
and sellers as applicable in the transportation of goods. There are thirteen major terms of
sale (called Incoterms) which have been standardized by the International Chamber Of
Commerce (ICC) for world-wide use. In any sales agreement, it is important to have a
common understanding of the delivery terms because confusion over their meaning may
result in a lost sale or a loss on a sale.

Now- a-days every company must provide an incentive to buy on credit. Without this
opportunity it will be hard to build a long lasting relationship with the customers. For this
reason Confidence Cement limited also provide credit opportunity to the dealers, individuals
and corporate buyers. Dealers enjoy credit facility for maximum 30—90 days. Besides, the
company has both corporate and individual buyer. For corporate buyer, it allows credit for a
network period of 45 days. If we look at the day’s sales outstanding we find out that within
1 year they collect their receivables. There is no discount facility mentioned in the credit
rating report or annual report. Directors assume that all the receivables are good and they
will be able to collect the full amount. They don’t keep any provision against their
receivables.

Default Rate in Account Receivables

As we have said earlier every company now operates on credit. Accounts receivables arise
from the credit sale. Receivables sometimes for some reasons will not be able to pay the
required amount. Creditors usually offers discount to collect some portion of the credit sales
so that they don’t incur a full loss. The probability of not receiving a portion of a credit sale
is known as default rate.

Confidence Cement Limited is not outside of this situation. Directors consider their
receivables as good and do not keep any provision against them. By analyzing the annual
report we have found out that there is 35.49% probability of default in receivables.

Turnover method and Payment pattern method

We have discussed before that account receivables arise from credit sales. It is not a wise
decision for a firm to sell all the products on credit. They will soon face shortage of cash, in
other words “Liquidity Risk”. To avoid this situation firm has to monitor account receivables.
They can monitor the situation by 2 methods- Turnover and Payment Pattern method.

Turnover method is simply the Receivable’s Turnover Ratio. This ratio can be calculated by
dividing credit sales by average account receivables. If ratio is greater than the previous year
then it is a good sign for the company which means they can manage their receivables very
efficiently. Payment pattern is also a method to monitor receivables. It mainly focuses on
the payment behavior of clients.

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The company’s approach to managing liquidity (cash and cash equivalents) is to ensure, as
far as possible, that it will always have sufficient liquidity to meet its liabilities when due,
under both normal and stressed conditions, without incurring unacceptable losses or risk of
damage to the company's reputation. Typically, the company ensures that it has sufficient
cash and cash equivalents to meet expected operational expenses, including financial
obligations through preparation of the cash flow forecast, based on timeline of payment of
financial obligations and accordingly arrange for sufficient liquidity/ fond to make the
expected payments within due dates. Moreover, the company seeks to maintain short term
lines of credit with scheduled commercial banks to ensure payment of obligation in the
event that there is insufficient cash to make the required payment. The requirement is
determined in advance through cash flow projections and credit lines with banks are
negotiated accordingly.
In extreme stressed conditions, the company may get support from the associate company
in the form of inter-company loan.
The following are the contractual maturities of financial liabilities:

Carrying Within 6
Nominal Contractual Within 6-
Category of amount As on months or
Interest cash flows 12 months
Liabilities 30 June 2016 less
rate
Taka Taka Taka Taka
Trade and
other 448,086,825 N/A 448,086,825 448,086,825 -
liabilities
Short term 8.25% to
1,962,552,995 1,962,552,995 1,962,552,995 -
bank loan 8.95%
Current
portion of 17,280.000 10.50% 17,280,000 17,280,000 -
long term loan
Contribution
28,775,767 N/A 28,775,767 28,775,767 -
to WPPF & WF

7. Inventory Management
Overall Inventory management condition
Traditionally inventory was viewed by financial analysts and firms alike as a beneficial asset
and a store of liquidity. But now over the few decades it began to be viewed as an expense
and therefore as an item to reduce or even eliminate. Inventory management is the practice
overseeing and controlling of the ordering, storage and use of components that a company
uses in the production of the items it sells. Inventory management is also the practice of

10 | P a g e
overseeing and controlling of quantities of finished products for sale. A business's inventory
is one of its major assets and represents an investment that is tied up until the item sells.

Like any other manufacturing companies Confidence Cement Limited also has some
inventory. Their inventory consists of Raw materials and some work-in-process products.
For smooth production during financial period they purchase raw materials in a large stock
and produce their product. They also keep some work-in-process inventory. Finished goods
were sold during the period. Confidence cement usually import the raw materials. It’s one of
the reason why their inventory cost is too high.

Composition of Inventory
Inventory has so many benefits. It helps to produce the product smoothly and meet the
sudden demand in market. It also helps to absorbs shocks from the market. Every company
in spite of the cost maintain a minimum level of inventory to be in the safe zone.

Confidence Cement Limited’s inventory comprise of raw materials, packing materials and
consumable stores and so on. They also maintain work-in-process. Finished goods were sold
during the fiscal year. The percentage composition of each goods is given below-

30-Jun-16 31-Dec-14
Inventory Percentag
Taka Taka percentage
e
Raw materials 194,264,144 50.8969% 212,403,058 53.5960301%
Raw materials in transit - Cement plant 3,792,305 0.9936% 2,038,289 0.51432498%
Raw materials in transit - Ready-mix plant 32,533 0.0085% - -
Work-in-process 4,567,181 1.1966% 26,340,434 6.64652716%
Stores, spares and louse tools 172,880,433 45.2944% 138,979,345 35.0688979%
Packing materials 6,144,871 1.6099% 16,542,588 4.17421978%
381,681,46 396,303,71
Total
7 4
In July 2016, approximately 51% of the total inventory is Raw Materials which was almost
54% in December 2014. If we observe the table we will be able to identify that Confidence
Cement limited has successfully cut down inventory cost. They are trying their best to
eliminate extra cost.

Economic Order Quantity

In inventory management, economic order quantity (EOQ) is the order quantity that
minimizes the total holding costs and ordering costs. It is one of the oldest classical
production scheduling models. The model was developed by Ford W. Harris in 1913, but R.
H. Wilson, a consultant who applied it extensively, and K. Andler are given credit for their in-
depth analysis.

EOQ model is the simplest way to calculate at which level cost will be lowest. The formula of
EOQ model is-

EOQ= √ (2*O*T)/H

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Where, O = Ordering cost; T= Total Demand; H= Holding Cost

The following 2 tables shows the particulars used to determine order cost, holding cost,
total demand and EOQ level-

Stores 56,576,006
Per unit cost (holding) 68

Quantity Value
Foreign Local Foreign Local
Clinker 576,899 2,534,518,460
Gypsum 29,600 77,329,403
Lime stone 84,450 20,494 167,470,889 40,143,535
Fly ash 0 118,342 0 192,864,332
Total 829,785 2,779,318,752 233,007,867
per unit cost (ordering) 3630 3,012,326,619
total demand 814,792

EOQ 9315
Confidence cement purchased raw material from abroad and local. Confidence cement has
2 plants- cement and ready-mix plant. Here we calculated with cement plant as the units of
all the raw materials is same and easily calculated. From above table we can observe that
throughout the year company purchased 829785 metric ton of raw materials using
3012326619 tk. By dividing the units we got ordering cost which is 3630 tk. The holding cost
is 68 tk per metric ton which is calculated from the stores particular in the notes and total
money spend on purchase. By applying the EOQ formula we got the optimal quantity of
inventory which is 9315 metric ton. Company will incur minimum loss at the EOQ level of
inventory.

8. Analyzing Performance
For analyzing the performance of the firm we can calculate different ratios. The ratios are
divided into 3 sections- Liquidity, Debt Management and Performance. They are described
below-

Liquidity Ratio
Liquidity ratios help to determine if the firm will have shortage of liquid assets or not. The
ratios under this category is described below-
Current ratio
Current ratio is the most traditional way to determine if we have enough current asset with respect
to current liability. The formula of this ratio is-

Current Ratio= Current Asset/ Current Liability

01 July 2013 to 01-Jan-15

31-Dec-14 to 30 June 2016
Current Ratio 1.389746952 1.01376

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 Current Ratio (current asset/current
From above graph liability)
and table we can 1.6
identify that current 1.4
ratio is significantly 1.21
lower than the 0.8
previous year. The 0.6
0.4
firm is not in a good 0.2
position. They don’t 0
have enough
liquidity to cover payables.
Net working Capital
Net Working Capital is another most common ratio in this category. It helps to determine if
the firm has ability to pay off the operating liabilities. The formula to calculate this ratio is-
NWC= Current Asset- Current Liability

01 July 2013 to 01-Jan-15

31-Dec-14 to 30 June 2016
Net working
685,247,828.00 36,325,763.00
Capital

Net working Capital (current asset-

current liability)
From above table 800,000,000.00
700,000,000.00
and graph we can 600,000,000.00
identify that NWC is 500,000,000.00
400,000,000.00
significantly lower 300,000,000.00
than the previous 200,000,000.00
100,000,000.00
year. The firm don’t -
have the capacity to
cover current liabilities.
Quick ratio
The quick ratio is a measure of how well a company can meet its short-term financial
liabilities. The formula of quick ratio is-
Quick ratio= (Current Assets- Inventory)/ Current Liabilities

01 July 2013 to 01-Jan-15

31-Dec-14 to 30 June 2016
Quick Ratio
Quick Ratio 1.16(current asset-0.87
inventory/current liablity)
1.40
1.20
1.00
0.80
0.60
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0.40
0.20
-
1 2
From above graph and table we can understand the firm’s position is not good. The firm is
not able to meet the current liabilities.
Cash flow to total debt
The cash flow-to-debt ratio is a ratio of a company's cash flow from operations to its
total debt. The cash flow-to-debt ratio is a type of debt coverage ratio, and is an estimate of
the amount of time it would take a company to repay its debt if it devoted all of its cash flow
to debt repayment. The formula of this ratio is-
Cash flow to Total debt = (Net Income + Depreciation)/ (ST debt + LT debt)

01 July 2013 to 01-Jan-15

31-Dec-14 to 30 June 2016
Cash flow to Total Debt 0.214352718 0.34658736

Cash flow to Total Debt

(NI+Depr./STD+LTD)
0.4
Cash flow to total
debt ratio is 0.3

significantly higher 0.2

than previous year. It 0.1
is indicating that the 0
1 2
firm has the ability to
cover debt service
which is the principle and interest repayment.

Cash Conversion period

The cash conversion cycle is a metric used to gauge the effectiveness of a company's
management and, consequently, the overall health of that company. The calculation
measures how fast a company can convert cash on hand into inventory and accounts
payable, through sales and accounts receivable, and then back into cash. The formula is-
Cash conversion period = (365/Inventory Turnover) + (365/ receivables Turnover) – (365/Payables turnover)

01 July 2013 to 01-Jan-15

31-Dec-14 to 30 June 2016
cash conversion period 395.42 394.57

cash conversion period

According to table
and graph it takes
lesser time to
convert inventory,
receivables and

394.00 394.50 395.00 395.50

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payables into cash. Though the ratio is high it indicates the firm can’t manage their receivables
properly.

Debt Management and Coverage

Times Interest earned
Times interest earned (TIE) or interest coverage ratio is a measure of a company's ability to
honor its debt payments. The formula is-
Times Interest earned = EBIT/ Interest Expense

01 July 2013 to 01-Jan-15

31-Dec-14 to 30 June 2016
Times Interest Earned
5.496990327 5.508329811
(EBIT/Interest Expense)

Times Interest Earned (EBIT/Interest

Expense) The graph and table shows that the ratio is
increased with respect to the previous
year. It is a good sign for the company. The
percentage reduction in operating profits
that company could experience while
allowing to cover interest payment is
almost 82% (1-1/TIE). The ratio is
5.49 5.49 5.49 5.5 5.5 5.5 5.5 5.5 5.51 5.51 5.51
indicating higher flexibility.
Long term debt to Capital
From this ratio we are trying to measure the percent of long term financing that is
borrowed. The formula is-
Long term debt to capital = LTD/LTD+Equity

01 July 2013 to 01-Jan-15

31-Dec-14 to 30 June 2016
Long term debt to capital (LTD/Ltd+Equity) 0.022868529 0.000948459

Long term debt to capital

From the graph and (LTD/Ltd+Equity)
table we can identify 0.03
that the ratio is 0.02
significantly lower 0.02
than the previous 0.01
year. It is a better 0.01
condition for the 0
1 2
firm. It means the
firm has financial
flexibility.

15 | P a g e
Total Liabilities to Total Assets
Total liabilities divided by total assets or the debt/asset ratio shows the proportion of a
company's assets which are financed through debt.
Ratio= liabilities/Assets
total liabilities to total assets ( TL/TA)
0.48 01 July 2013 to 01-Jan-15
0.47 31-Dec-14 to 30 June 2016
0.46 total liabilities to total assets ( TL/TA) 0.43 0.47
0.45 From the above graph and table we can
0.44
identify that the ratio is higher than
0.43
0.42
previous year. As the ratio is less than .5
0.41 we can conclude that most of the asses are
1 2
financed through equity. But it is also
noticeable that the ratio is increasing. So maybe the firm is trying to finance most of their
borrowing through debt.

Performance
Return on Equity
The return on equity ratio or ROE is a profitability ratio that measures the ability of a firm to
generate profits from its shareholders investments in the company.
The formula is- Net Income/Total Equity
Return on Equity (NI/Equity)
0.25 01 July 2013 to 01-Jan-15
31-Dec-14 to 30 June 2016
0.2
Return on Equity (NI/Equity) 0.099264342 0.200681366
0.15
0.1
0.05 From the above graph and table we can
0 understand that the ratio is higher than
1 2 previous year and it is a good sign which
indicates the ability to generate profit from
stockholders perspective.
Profit Margin on sales
The profit margin ratio, also called the return on sales ratio or gross profit ratio, is a
profitability ratio that measures the amount of net income earned with each dollar of sales
generated by comparing the net income and net sales of a company. The formula is –
Profit Margin = NI/Revenues

01 July 2013 to 01-Jan-15

31-Dec-14 to 30 June 2016
Profit Margin on Sales (NI/Revenues) 0.055503179 0.120428852
Profit Margin on Sales

From the above

graph and table it is
observed that the
16 | P a g e

0 0.1
ratio is higher than
the previous year. Return on Total Assets (NI/TA)
We know that for 0.12

this ratio the higher 0.1

is better. It indicates 0.08

that we can 0.06

generate more 0.04

profit for every 1 tk 0.02

sale. 0
1 2

Return on Assets
Return on assets (ROA) is a financial ratio that shows the percentage of profit a company
earns in relation to its overall resources. The formula is-
ROA = NI/ Total Assets

01 July 2013 to 01-Jan-15

31-Dec-14 to 30 June 2016
Return on Total Assets (NI/TA) 0.056556456 0.10662586

From the above graph and table we can identify that the ratio is higher than previous year.
As this ratio is higher the better it is a good sign for the company. It refers that the company
can generate more profit from each 1 tk assets.

17 | P a g e
Reference
1. Terry S. Maness, John T. Zietlow, “Short term Financial Management”, 4 th edition
2. http://www.dsebd.org/day_end_archive.php
3. http://www.confidencecement.com/php_files/standard/user_home/user_home.php?
home=yes&tm=main
4. Annual Report 2015-16
5. http://confidencecement.com/documents/a/n/Annual%20Report%202014.pdf
6. http://confidencecement.com/documents/c/r/Credit%20Rating%20Report-2015.pdf
7. http://www.businessdictionary.com/definition/working-capital.html
8. http://www.investopedia.com
9. http://www.investinganswers.com/financial-dictionary/financial-statement-
analysis/working-capital-869
10. https://en.wikipedia.org

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