North South University
Dhaka, Bangladesh
Financial Ratio Analysis
Of
Aramit Cement & Confidence Cement
Course: FIN254
Course title: Introduction to Managerial Finance
Submitted by Nurul Samnan Rafeed
ID: 1611333030
Sheikh Istiaque
ID: 1610074030
Mashiwiyat Tabassum
ID: 1610567030
Chowdhury Wafee Daraiat
ID: 1631068030
Samiul Islam
ID: 1631244030
Submitted to –
Muhammad Nasiruddin (MN)
Lecturer
Department of Accounting & Finance
School of Business & Economics
North South University
29th of October, 2017
Letter of Transmittal
29th of Octover, 2017
Muhammad Nassiruddin
Lecturer,
Department of Accounting & Finance,
School of Business & Economics
North South University
Dhaka – 1215.
Subject: Submission of the report on Financial Ratios Analysis.
Dear Sir,
As per your instructions, we formed a group and worked on the ratio analysis of the
two companies – Aramit Cement & Confidence Cement that were assigned to us few weeks back
as a requirement of the course completion of FIN254. To present you the report, is a matter of
great contentment and quite the cachet for us.
We had to research a lot throughout the whole assignment which helped us to gain an in depth
knowledge on the analyzing of financial ratios. We have tried our best to accommodate as much
as information and facts as possible following the guidelines you have provided -trying our best to
make this report as relevant as we could.
We are grateful to you for your kind cooperation most sincere concern at every step of our journey
in making this report. Hope you find this report useful and find our hard work and dedication while
evaluating the report.
Sincerely,
Nurul Samnan Rafeed
ID: 1611333030
Sheikh Istiaque
ID: 1610074030
Mashiwiyat Tabassum
ID: 1610567030
Chowdhury Wafee Daraiat
ID: 1631068030
Samiul Islam
ID: 1631244030
Table of Contents
Content
Page(s)
Executive Summary ------------------------------------------------- 04
Introduction ----------------------------------------------------------- 05
Analysis of Financial Ratios ---------------------------------------- 06 - 26






Liquidity Ratios:
 Current Ratio
 Quick Ratio
Asset Management Ratio
 Inventory Turnover
 Total Asset Turnover
 fixed asset Turnover
 Accounts receivable turnover
 Average Collection Period
 Average Payment Period
Profitability Ratios
 Gross Profit Margin
 Operating Profit Margin
 Net Profit Margin
 Basic Earning Power(BEP ratio)
 Return On Asset(ROA)
 Return On Equity(ROE)
 Earnings Per Share(EPS)
Debt Management Ratios
 Debt Ratio
 Times Interest Earned
Market Ratios
 P/E Ratio
 M/B Ratio
Du-Pont Analysis
06 - 07
06
07
08 - 14
08
09
10
11
12-13
14
15 - 21
15
16
17
18
19
20
21
22 - 23
22
23
24 - 25
24
25
26
Summary ------------------------------------------------------------- 27- 28
Recommendation ----------------------------------------------------- 29
Conclusion ------------------------------------------------------------- 30
Bibliography ----------------------------------------------------------- 31
Executive Summary
In this report, we analyzed and compared a number financial ratios between Aramit Cement
and Confidence Cement for the years between 2011 and 2015. In doing so, we have been able to
identify and comprehend a significant amount of information involving the financial position for
both the given companies.
In doing the report, we have found how Aramit Cement has better and improving liquidity position,
with the current and quick ratios being favorable over time. Aramit Cement had also succeeded in
marinating higher gross profit margin, operating profit margin and a greater basic earning power
(BEP), despite having a relatively lower net profit available for shareholders. In addition, Aramit
Cement is highly dependent on debts to finance its assets, and therefore have very high debt ratios
and lower interest coverage ratios. It also seems to have a poor credit control policy with its average
payment and collection ratios being significantly higher than the industry average.
On the contrary, Confidence Cement has been succeeded in maintaining favorable asset turnover
ratios, accounts receivable turnover and inventory turnover. It also has very impressive and quick
collection and payment periods, proving is prowess in efficiently managing its assets. Even if its
gross and operating profit margins are low, it offers a higher net profit margin and thereby greater
opportunities for its shareholders. In addition, it often is not burdened by debts, and a greater
portion of its financing is generated internally from its shareholders.
All in all, we have attempted to provide true information verified from a number of sources, besides
analyzing the ratios perfectly. However, there has been limitations in getting hold of data required
for calculations which have not been published. Although, the ratios provide a true comparison
between the companies, it fails to consider factors such as size and scale of operations, skill of
workforce and management, efficiency of machineries, other than major external changes in the
industry and economy of operation. We hope this report meets its objective of providing in depth
analysis of the financial ratios and a better idea regarding the financial position of the two
companies in context.
Introduction
This report provides information obtained through ratio analysis, regarding the profitability,
liquidity, activity, debt and financial stability of X and Y for the years from 2011-2014. This report
pays particular attention to the earning power, liquidity and credit management, inventory
management and debt management, and will highlight major strengths and weaknesses while
offering some explanation for observed changes. A brief description of all the ratios divided in
time series analysis and cross section analysis compared to industry average is given in this report.
Aramit Cement Limited, as a part of the conglomerate Aramit Group, was incorporated on the
August 19, 1995 as a public limited company and established with technical collaboration of a
Chinese company for producing Ordinary Portland Cement (OPC) to commence with its
production from November 10, 1999. Aramit Cement has since marketed its product with a brand
name of Camel, tried to focus on improving its quality, creating exports and expanding its
production to include OPC - 43 N Grade Cement and Portland Slag Cement. Existing capacity of
the plant is 700 metric tons per day which is going to be enhanced by 1000 metric tons per day
production capacity through setting up of another expansion unit.
Confidence Cement, on the other hand, is the first private sector cement manufacturing company
in Bangladesh, being established in 1994 with having 4,80,000 M/T annual production capacity at
Chittagong. It attempts to focus in Quality Assurance, Marketing, Sales and Procurements. It
Manufactures Portland Cement and Portland Composite Cement and 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.
Analysis of Financial Ratios
Liquidity Ratios
Current Ratio
1,6
1,4
1,2
1
0,8
0,6
0,4
0,2
0
2011
2012
2013
2014
2015
Aramit
0,69
0,68
0,67
0,92
1,19
Confidence
1,24
1,3
1,41
1,39
0,7
Aramit
Confidence
Time Series Analysis of Aramit Cement
As seen in the graph below, Aramit Cement had a relatively similar Current Ratio values from
2011 to 2013, between 0.69 and 0.67, before gradually increasing to 0.92 in 2014 and 1.19 in
2015. Despite owing higher short term debts compared to its current assets, from 2011 to 2014,
Aramit Cement finally in 2015 managed to get its current ratio over 1. The upward movement of
the curve exhibits an improving liquidity position for Aramit Cement, with trends suggesting
greater improvements over time.
Time Series Analysis of Confidence Cement
The ratio had been increasing steadily to reach its peak in 2013, where Confidence Cement
owned 1.41 current assets compared to 1 current liabilities. However, 2015 saw a drastic decline
in Confidence Cement’s current ratio, as the value fell from 1.39 in 2014 to 0.7 in 2015.
Cross Section Analysis
Confidence Cement held a better off liquidity position compared to the Aramit, with its current
ratio remaining well above that of Aramit Cement till 2014. Despite having a better current ratio
over Aramit Cement in the previous years, Confidence Cement were in worse position, with
greater current liabilities to meet with existing current assets, compared to Aramit Cement’s
growing solvency.
Acid Test Ratio
1,4
1,22
1,2
1,16
1,07
0,99
1
0,88
0,79
0,8
0,6
0,57
0,58
0,6
0,55
0,4
0,2
0
2011
2012
2013
2014
2015
Aramit
0,57
0,58
0,6
0,79
1,07
Confidence
0,88
0,99
1,22
1,16
0,55
Aramit
Confidence
Time Series Analysis of Aramit Cement
Similar, to the previous ratio, the above graph shows a low, yet steady Acid Test Ratio for
Aramit Cement between 2011 and 2013, before the ratio starts increasing in 2014 to reach at a
value of 1.07 in 2015. Thus, Aramit in 2015, had 1.07 units of liquid assets to pay off short term
debts equivalent to 1 unit.
Time Series Analysis of Confidence Cement
Confidence Cement had a better liquidity position in comparison to Aramit Cement from 2011 to
2014. Its ratio had been increasing till 2013, when Confidence Cement had 1.22 units of current
assets other than Inventory to satisfy 1 unit of its current liabilities. Despite the value declining to
1.16 in 2014, the ratio rapidly fell to 0.55 in 2015.
Cross Section Analysis
Confidence Cement had maintained a better quick ratio compared to Aramit Cement till 2014.
However, Aramit Cement had shown quick ratio over time, and therefore in 2015 its value of
1.07 was well ahead of Confidence Cement’s ratio that had abruptly declined to 0.55 almost half
of the former’s value.
Asset Management Ratios
Inventory Turnover
14,00
11,85
12,00
9,23
10,00
8,00
6,00
6,45
7,31
5,93
7,64
7,43
6,30
5,08
3,18
4,00
2,00
0,00
2011
2012
2013
2014
2015
Aramit
6,45
6,30
7,43
3,18
5,08
Confidence
5,93
7,31
11,85
7,64
9,23
Aramit
Confidence
Time Series Analysis of Aramit Cement
Aramit Cement had an inventory turnover of 6.45 times in 2011, which gradually had increased
to 7.43 times in 2013, indicating greater sales being made earlier, causing more inventory to be
replaced. However, the turnover drastically declined by over 57% to 3.18 times in 2014, before
increasing to 5.08 times in 2015.
Time Series Analysis of Confidence Cement
Confidence Cement turned over its inventory into sales 5.93 times in 2011, which significantly
increased over two years to 11.85 times in 2013, well exceeding Aramit Cement’s 7.43.
Confidence Cement in 2013, held highest inventory turnover in the given period. However 2014
saw a decline to 7.64 times, before again increasing in 2015.
Cross Section Analysis
While 2013 saw the highest inventory turnover for both the companies, 2014 saw massive
decline in turnover for both. However, Confidence cement’s turnover had remained higher than
Aramit cement’s in 2014. Thus, it can be understood, both companies held excess stock in 2014
with lower value of sales compared to previous years. Aramit Cement’s sales had declined from
Tk. 871,405,186 to Tk. 623,698,928 while its inventory held increased to worth Tk. 149,365,619
from Tk. 91,035,394, explaining the change in its ratio. On the other side, Confidence Cement’s
sales had increased from Tk. 3,481,284,388 to Tk. 3,634,989,180, it inventory had increased at a
greater rate from Tk. 233,412,271 to Tk. 396,303,714, hence resulting in excess inventory, which
thereby reduced the inventory turner over. 2015, again saw a general improvement in inventory
turnover for both the respective companies.
Total Asset Turnover
0,9
0,8
0,7
0,77
0,8
0,71
0,76
0,72
0,65
0,6
0,55
0,6
0,5
0,4
0,33
0,4
0,3
0,2
0,1
0
2011
2012
2013
2014
Aramit
0,77
0,71
0,55
0,33
0,4
Confidence
0,6
0,8
0,76
0,72
0,65
Aramit
2015
Confidence
Time Series Analysis of Aramit Cement
As seen in the diagram above, Aramit cement’s total asset turnover has declined gradually over
time from 0.77 to 0.33 between 2011 and 2014, indicating a subsequent fall in its ability to
generate sales from every dollar of asset it owns. Though the asset turnover increases to 0.4 in
2015, it still is well below in relation to the performance of Confidence cement.
Time Series Analysis of Confidence Cement
Confidence Cement, however did not have the best of performance in 2011, when it had a Total
Asset Turnover of 0.6. However, it improved in its efficiency in using assets in converting them
into sales in the following years, and despite a slight decrease in its values lately, it is still in a
significantly better position than Aramit cement.
Cross Section Analysis
Aramit Cement held a better Total Asset turnover ratio of 0.77, in 2011, compared to Confidence
Cement’s 0.6. However, since 2012, Confidence Cement had been performing more efficiently
in using its assets to generate sales, and therefore, unlike 2011, had been well ahead of Aramit
Cement, despite the latter’s recent improvement in asset turnover.
Fixed Asset Turnover
2,00
1,80
1,60
1,40
1,20
1,00
0,80
0,60
0,40
0,20
0,00
2011
2012
2013
2014
2015
Aramit
1,75
1,67
1,20
0,75
0,98
Confidence
0,86
1,29
1,23
1,39
0,90
Aramit
Confidence
Time Series Analysis of Aramit Cement
Aramit cement’s fixed asset turnover had remained significantly high between 2011 and 2012,
before declining to 0.75 times in 2014. Thus in 2014, Aramit Cement had been using $1 of its
fixed assets to gain sales valued at 0.75. 2015, on the contrary, saw an opposite trend, as the
fixed asset turnover increased to almost 1, ahead of its competitor, while Confidence cement had
been more efficient in generating 1.39 sales using $1 of its fixed asset.
Time Series Analysis of Confidence Cement
Confidence Cement’s fixed asset turnover had been poor compared to Aramit Cement’s at 0.86
in 2011, before significantly improving to 1.29 in the following year. The figures remained
stable before reaching Confidence Cement’s highest turnover in 2013, where Confidence Cement
had been more efficient in generating 1.39 sales using $1 of its fixed asset. Despite the
improvement, the turnover again fell to 0.90 times in 2015.
Cross Section Analysis
Aramit cement’s fixed asset turnover had remained significantly higher at 1.75, more than
double of Confidence Cement’s value of 0.86 in 2011, before falling in the subsequent years.
Confidence Cement’s Fixed Asset turnover, on the other hand, had remained consistent between
1.20 and 1.40 times. However, in 2015, both companies saw opposite trends in its fixed asset
turnover, as Aramit cement’s declining turnover reversed positively to go ahead of Confidence
cement’s turnover, which rapidly declined to 0.90 from 1.39 in 2014.
Accounts Receivables Turnover
7,34
8,00
7,00
5,97
6,00
5,00
4,00
4,35
3,75
4,92
4,77
1,86
1,68
3,68
2,92
3,00
2,00
1,00
0,00
2011
2012
2013
2014
2015
Aramit
3,75
3,68
2,92
1,86
1,68
Confidence
4,35
7,34
5,97
4,92
4,77
Aramit
Confidence
Time Series Analysis of Aramit Cement
Aramit Cement had an overall poor Accounts receivables turn over, which in addition was also
declining since 2011. The ratio fell to 1.68 times in 2015, indicating it had only collected all of
its owing debts, only 1.68 times, suggesting a very inefficient management of credit, especially
in comparison to Confidence Cement
Time Series Analysis of Confidence Cement
Confidence Cement’s Accounts Receivables turnover increased from 4.35 times in 2011 to its
peak at 7.34 times in 2012. Thus, in 2012, Confidence Cement had collected its debts a total of
7.34 times, the quickest in terms of the given values. The values, however, gradually fell over the
subsequent years to 4.77 in 2015. Despite that, its overall turnover had remained fruitful.
Cross Section Analysis
Confidence Cement throughout the period had a better accounts receivable turnover than Aramit
Cement, that is, it was more effective with its credit policy and in collecting debts from accounts
receivables. Though the ratios had seen a falling trend, Confidence cement was well ahead of
Aramit Cement with its inventory turning over 4.77 times, in comparison to the former’s 1.68.
Average Collection Period
250,00
216,68
196,57
200,00
150,00
100,00
125,03
97,39
83,96
99,07
49,74
61,14
74,21
76,52
50,00
0,00
2011
2012
2013
2014
2015
Aramit
97,39
99,07
125,03
196,57
216,68
Confidence
83,96
49,74
61,14
74,21
76,52
Aramit
Confidence
Time Series Analysis of Aramit Cement
Aramit Cement, as seen above, had greater collection period in comparison to Confidence
Cement, with the days significantly increasing from 97.39 days in 2011, to 216.68 days in 2015.
The longer and increasing collection period suggests poor credit management as stated earlier,
such that it is requiring Aramit Cement, almost 2/3 of a year to collect its debts in 2015.
Time Series Analysis of Confidence Cement
Confidence Cement, in comparison, has much better Average Collection Period. Though the
difference between its values against that of Aramit Cement was relatively low in 2011, the chart
above shows how drastically Confidence Cement has reduced its collection period. Though its
effectiveness in collecting debts has slightly declined in 2015, it however is much more efficient
and quicker.
Cross Section Analysis
Aramit Cement held a longer collection period in comparison to Confidence Cement throughout
the period, with the difference in their values significantly getting larger over time. In 2015, the
collection period for Confidence Cement was almost 3 times quicker than Aramit Cement’s.
Greater efficiency in collecting debts means that a smaller sum of money is tied up with the
accounts receivable, and a firm therefore has more cash to use. As per the time value of money
principle, a firm would be losing more money if it had been taking a longer period to collect its
debts; Aramit Cement in this case.
Average Payment Period
350,00
300,00
250,00
200,00
150,00
100,00
57,35
0,00
36,37
34,62
50,00
28,89
36,34
2011
2012
2013
2014
2015
Aramit
200,29
277,86
327,48
292,42
123,61
Confidence
57,35
34,62
36,37
28,89
36,34
Aramit
Confidence
Time Series Analysis of Aramit Cement
Aramit Cement, as shown above, has significantly higher average payment period in comparison
to Confidence Cement. The period increased from around 200 days in 2011 to 327 days in 2013.
Though the payment period had reduced in 2015, it still was very high, compared to Confidence
Cement. Such substantial payment periods could exist as a result of the previously discussed
high Average Collection period of Aramit Cement. Given that Aramit Cement had not been able
to collect its debts properly, it lacked liquidity, and thereby transferred the crisis on accounts
payable, by taking very long periods to time to pay them.
Time Series Analysis of Confidence Cement
On the contrary, Confidence much shorter and stable average payment periods. 2011 saw the
longest payment period for Confidence Cement. However, since 2012, it maintained a payment
period around one month. Making quicker payments might also have been possible for
Confidence Cement for having a better credit policy on collection of debts. It might also be able
to gain of discounts from suppliers for early payments.
Cross Section Analysis
Aramit Cement’s payment period was much larger in comparison to Confidence Cement’s
period. The payment period for Aramit Cement was such high that, in 2013, it would have
required almost an entire year to pay off its accounts payable, which was about 9 times that of
Confidence Cement in that period.
Profitability Ratios
Gross Profit Margin
30,00
27,10
25,00
20,00
15,00
19,22
19,4719,53
22,37
20,57
23,96
16,68
14,03
15,68
10,00
5,00
0,00
2011
2012
2013
2014
2015
Aramit
19,22
19,47
22,37
23,96
27,10
Confidence
14,03
19,53
20,57
16,68
15,68
Aramit
Confidence
Time Series Analysis of Aramit Cement: As the times series analysis indicates, Aramit Cement
generated tk.19.22taka gross profit from every tk.100 of sale in 2011. The company maintained a
stable growth of gross profit margin in the following years and ended up with 27.10% gross profit
margin, which is a very good sign for the company.
Time Series Analysis of Confidence Cement: As the times series analysis indicates, Confidence
Cement generated tk.14.03 gross profit from every tk.100 of sale in 2011. The company
maintained a stable gross profit margin in the following 3 years but in the year 2014 their gross
profit margin reduced to 16.68% and it decreased even more in 2015 which is 15.68%, which is
not a good sign for the company’s management and operational excellence.
Cross Sectional Analysis: Aramit Cement has higher gross profit margin than Confidence
Cement. Though Gross profit margin do not indicate the overall performance of the company, it is
just the first step to earning profit. A higher gross profit margin indicates lower cost of goods sold
and it lead a company to earn higher net profit margin. According to graph, Aramit Cement’s
performance is better than Confidence Cement in gross profit margin.
Operating Profit Margin
25,00
19,59
20,00
15,00
14,14
14,8014,23
19,32
17,12
16,07
12,20
10,01
11,31
10,00
5,00
0,00
2011
2012
2013
2014
2015
Aramit
14,14
14,80
16,07
19,59
19,32
Confidence
10,01
14,23
17,12
12,20
11,31
Aramit
Confidence
Time Series Analysis of Aramit Cement: From the view of time series analysis, in 2011,
Aramit Cement generated tk.14.14 operating profit from every tk100 of sales. Afterwards, the
company gradually increased their operating profit. In 2015, Aramit Cement earned 19.32%
operating profit margin. Increased operating profit margin indicates that Aramit Cement could
manage operational expenses properly.
Time Series Analysis of Confidence Cement: From the view of time series analysis, in 2011,
Confidence Cement generated tk.10.01 taka operating profit from every tk100 of sales.
Afterwards, the company gradually increased their operating profit. In 2014, Confidence Cement
started losing their operating profit margin. Reduced operating profit margin indicates that
Confidence Cement could not manage operational expenses properly.
Cross Sectional Analysis: Aramit Cement’s operating profit margin is higher than Confidence
Cement. Confidence Cement had a higher gross profit margin but they could not manage their
operational expenses properly which reduced their operating profit margin. The graph indicates
that Confidence Cement will get a lower net operating profit margin which is not a good sign for
the company.
Net Profit Margin
12,00
10,46
10,00
8,85
8,97
8,57
8,00
6,00
6,58
5,19
4,99
4,65
4,00
2,44
2,00
0,00
2011
2012
Aramit
5,19
Confidence
8,85
1,91
2013
2014
2015
4,65
4,99
2,44
1,91
8,57
10,46
6,58
8,97
Aramit
Confidence
Time Series Analysis of Aramit Cement: In 2011, Aramit Cement generated tk.5.19% net profit
from every tk.100 of sales. From 2012 to 2015, their net profit margin decreased. In the fiscal year
2015, the company earned their lowest net profit margin of 1.91%. Deceasing net profit margin is
not a good sign for the company.
Time Series Analysis of Confidence Cement: From the view of time series analysis, Confidence
Cement’s net profit margin has fluctuated from 2011 to 2015, which is not a good sign for a
company.
Cross Sectional Analysis: Confidence Cement is earning higher net profit margin than Aramit
Cement. Confidence Cement showed higher operational excellence in gaining good gross,
operational, and net profit margin. Profit is the ultimate success of a company. Higher profit margin
helps a company to grow its business. Here, Confidence Cement had showed a great skill in earning
higher profit than Aramit Cement.
Basic Earning Power
14,00
12,00
12,99
11,40
10,57
10,83
10,00
8,82
8,00
8,76
6,54
6,01
7,72 7,39
6,00
4,00
2,00
0,00
2011
2012
2013
2014
2015
Aramit
10,83
10,57
8,82
6,54
7,72
Confidence
6,01
11,40
12,99
8,76
7,39
Aramit
Confidence
Time Series Analysis of Aramit Cement: The basic earning power ratio for Aramit Cement
shows that, in the year 2011 Aramit Cement is earning 10.83tk of profit before interest and taxes
against 100tk worth of total assets. Till 2014 it decreased to 6.54. Then it again increased to 7.72
Time Series Analysis of Confidence Cement: The basic earning power ratio for Confidence
Cement shows that, in the year 2011 Confidence Cement is earning 6.01tk of profit before interest
and taxes against 100tk worth of total assets. In 2012 & 2013 the basic earning power ratio for
Confidence Cement increased to 12.99%, then from 2014 the basic earning power ratio started
decreasing to 7.39.
Cross Sectional Analysis: Aramit Cement generated higher return on basic earning power ratio
than Confidence Cement. It means Aramit Cement is earning more in EBIT than Confidence
Cement. Confidence Cement is using more assets to earn than Aramit Cement which is not a good
sign for the company. On the other hand, Aramit Cement should continue their BEP ratio like this
to get preference from the stockholders.
Return On Asset
9,00
7,94
8,00
6,87
7,00
6,00
5,00
5,86
5,31
4,73
3,98
4,00
3,32
2,74
3,00
2,00
0,81
1,00
0,00
0,76
2011
2012
2013
2014
2015
Aramit
3,98
3,32
2,74
0,81
0,76
Confidence
5,31
6,87
7,94
4,73
5,86
Aramit
Confidence
Time Series Analysis of Aramit Cement: In 2011, Aramit Cement made tk.3.98-taka profit from
every tk.100 taka worth assets. As the time series analysis indicates, the ROA was lowest 0.76%
in 2015 and highest 3.98% in 2011.
Time Series Analysis of Confidence Cement: In 2011, Confidence Cement made tk.5.31-taka
profit from every tk.100 taka worth assets. As the time series analysis indicates, the ROA was
lowest 4.73% in 2014 and highest 7.94% in 2013.
Cross Sectional Analysis: Aramit Cement had lower ROA than Confidence Cement in all the
years. It means that Aramit Cement is using more assets to generate revenues than Confidence
Cement. Using more assets for less revenue is not a good sign for the company because assets
increases depreciation costs and decrease net income. On the other hand, Confidence Cement is
generating net income by using less assets which shows their operational excellence.
Return On Equity
30,00
27,96
25,00
22,16
20,00
15,81
15,00
10,98
10,00
12,43
10,51
8,26
7,88
5,00
0,00
2,90
3,25
2011
2012
2013
2014
Aramit
27,96
22,16
15,81
2,90
3,25
Confidence
7,88
10,98
12,43
8,26
10,51
Aramit
2015
Confidence
Time Series Analysis of Aramit Cement: As the time series analysis indicates, Aramit Cement
had tk.27.96 taka profit worth every tk.100 of stockholders equity in 2011. The company generated
lower ROE in each following year. In 2011, Aramit Cement’s ROE was lowest 2.90% which was
not a good sign as it indicates the company is earning more profit for its stockholders.
Time Series Analysis of Confidence Cement: As the time series analysis indicates, Confidence
Cement had tk.7.88 profit worth every tk.100 of stockholders equity in 2011. The company
generated fluctuating ROE in each following year. In 2013, Confidence Cement’s ROE was
highest 12.43%.
Cross Sectional Analysis: Confidence Cement generated higher return on equity than Aramit
Cement. It means Confidence Cement is earning more for their stockholders than Aramit Cement.
Higher net income lead Confidence Cement to get higher ROE. Lower return stockholders equity
discourage stockholders to invest and it increases the risk of investment. As the industry standard,
Confidence Cement is performing better than Aramit Cement in Return on Equity ratio.
Earning Per Share
9,00
8,10
7,50
8,00
7,00
7,20
6,10
6,00
5,30
5,00
4,00
3,30
3,03
2,56
3,00
2,00
0,45
1,00
0,00
2011
2012
2013
2014
Aramit
3,30
3,03
2,56
0,45
Confidence
6,10
7,50
8,10
5,30
Aramit
2015
7,20
Confidence
Time Series Analysis of Aramit Cement: From the view of time series analysis, Aramit Cement
allocated tk.3.30 per share for their stockholders in 2011. Earnings per share started decreasing
from 2012. The value of 2015 could not be found, so that space is left vacant.
Time Series Analysis of Confidence Cement: Confidence Cement allocated tk.6.10 per share for
their stockholders in 2011. EPS increased drastically in the following years. In the fiscal year of
2013, Confidence Cement’s EPS was highest tk.8.10 per share.
Cross Sectional Analysis: Confidence Cement had greater earning per share than Aramit Cement
which indicates that Confidence Cement is making satisfactory profit for their stockholders.
Higher EPS ensures higher share price for a company. The EPS of Aramit Cement is not good
enough to attract shareholders to make investment in that company. As the industry standard, the
earning per share for Aramit Cement is not good. On the other hand, Confidence Cement is doing
well in this case.
Debt Management Ratios (Capital Structure Ratio)
Debt Ratio
100%
90%
86%
85%
83%
80%
77%
72%
70%
60%
50%
40%
33%
37%
43%
44%
36%
30%
20%
10%
0%
2011
2012
2013
2014
2015
Aramit
86%
85%
83%
72%
77%
Confidence
33%
37%
36%
43%
44%
Aramit
Confidence
Time Series Analysis of Aramit Cement
Aramit had a debt ratio stable at around at 83 to 86% between 2011 and 2013, before slightly
declining to 72% and 77% in 2014 and 2015 respectively. A 77% debt ratio in 2015, suggested
almost 3/4th of Aramit’s assets were financed by debts, while the shareholder’s equity was only
responsible for 23% of the funding.
Time Series Analysis of Confidence Cement
The debt ratio had remained low throughout the period, with its value gradually increasing from
33% in 2011 to 44% in 2015. A 44% debt ratio in 2015, meant a little less than half of
Confidence Cement’s funding had been done through debts, which was higher than previous
years. An increase in debts could be explained by Confidence Cement’s significant increase in
fixed assets from 2.6 billion Taka in 2014 to over 4 billion Taka in 2015, suggesting higher
investments, which required funding from debts, and not just the shareholders.
Cross Section Analysis
Confidence Cement’s debt ratio had remained significantly low compared to Aramit Cement’s
ratio. Aramit Cement therefore had raised greater proportion of its finance from debts rather than
from shareholder’s equity, which was quite opposite in the case of Confidence Cement. For
example in 2015, 77% of Aramit Cement’s assets were financed by liabilities, while only 44% of
Confidence Cement’s assets were financed in such manner.
Times Interest Earned
10,00
9,28
9,00
8,00
6,82
7,00
5,70
6,00
5,91
4,78
5,00
4,00
3,00
1,88
1,60
1,43
1,16
1,12
2011
2012
2013
2014
2015
Aramit
1,88
1,60
1,43
1,16
1,12
Confidence
9,28
5,70
5,91
6,82
4,78
2,00
1,00
0,00
Aramit
Confidence
Time Series Analysis of Aramit Cement
Aramit Cement’s ability to pay interest charges had remained low, and in addition was declining.
It had the ability to meet the interest payment 1.88 times in 2011, which gradually had reduced
by about 40% over 5 years to 1.12 times in 2015.
Time Series Analysis of Confidence Cement
Confidence Cement had a relatively high, yet fluctuating interest coverage ratio. A ratio of 9.28
times in 2011 had declined to 5.70 times in 2012, which increased to 6.81 in 2014, before again
falling in 2015. Moreover, it was always making enough operating profits to be able to pay its
interest charges.
Cross Section Analysis
Confidence Cement’s interest coverage ratio had throughout the five years remained in much
better position than Aramit Cement. In 2015, Confidence Cement was being able to pay its
interests about 5 times, while Aramit Cement had been struggling at a little more than 1 time.
The main reason behind such occurring was Aramit Cement’s high dependency on debts for its
finance. Since it had higher debts in comparison to Confidence Cement, it had to pay greater
interests. However, it had lower Earnings before Interest and Tax (EBIT), and thereby lower
coverage.
Market Ratios
P/E Ratio
100,00
87,42
90,00
80,00
70,00
60,00
50,00
40,00
35,43
30,00
20,00
32,87
21,19
11,03
10,68
11,06
10,00
0,00
6,22
2011
2012
2013
2014
Aramit
35,43
21,19
32,87
87,42
Confidence
11,03
10,68
11,06
6,22
Aramit
4,98
2015
4,98
Confidence
Time Series Analysis of Aramit Cement: In 2011, the common stockholders of Aramit Cement
were willing to pay tk.35.43 for each tk.1 of reported earnings. In the following years the amount
increased because of the increasing net profit margin and earning per share. It may increase the
reputation of the company among shareholders.
Time Series Analysis of Confidence Cement: In 2011, the common stockholders of Confidence
Cement were willing to pay tk.11.03 for each tk.1 of reported earnings. In the following years the
amount decreased which is a very disappointing sign for the company. In 2015, Confidence
Cement’s P/E Ratio was the lowest of 4.98.
Cross Sectional Analysis: In the Price Earnings ratio, Aramit Cement is doing better than
Confidence Cement. The market price for the both of the companies are same, because of the
greater earning per share, Confidence Cement got lower P/E ratio than Aramit Cement. If the net
income and EPS works positively for a company, lower P/E ratio is not a big problem for that.
M/B Ratio
12,00
10,00
9,91
8,00
6,00
5,20
4,70
4,00
2,00
0,00
2,54
0,87
1,41
1,37
0,51
2011
2012
2013
2014
Aramit
9,91
4,70
5,20
2,54
Confidence
0,87
1,41
1,37
0,51
Aramit
0,52
2015
0,52
Confidence
Time Series Analysis of Aramit Cement: From views of times series analysis, Aramit Cement’s
M/B ratio was 9.91 in 2011. Over the years, the M/B ratio of the company has decreased
significantly which is a bad sign as it indicates the unfavourable assessment in investors view
towards the company.
Time Series Analysis of Confidence Cement: Graph shows in times series analysis, Confidence
Cement’s M/B ratio was 0.87 in 2011. Over the years, the M/B ratio of the company has fluctuated
significantly which is not a good sign as it indicates the unfavourable assessment in investors view
towards the company.
Cross Sectional Analysis: Confidence Cement had lower M/B ratio in 2011 than Aramit Cement
but in 2012 Aramit Cement got a higher M/B ratio than Confidence Cement. We all know that
book value of a share is always same in a country. So, the performance of a company depends on
the higher market price of the shares. Higher market price will help Confidence Cement to increase
its reputation and investors. On the other hand Aramit Cement should not lose their current M/B
ratio.
Du-Pont Analysis
M/B Ratio
10,00
9,00
8,00
7,00
6,00
5,00
4,00
3,00
2,00
1,00
0,00
8,97
4,34
1,91
1,79
0,40
0,67
Aramit
Confidence
Profitability
1,91
8,97
Efficiency
0,40
0,67
Equity Multiplier
4,34
1,79
Profitability
Efficiency
Equity Multiplier
Interpretation: Here, in the graph we can see that the profitability of Confidence Cement is much
higher than the Aramit Cement, which is 8.97% and 1.91%. The efficiency of Confidence Cement
is also higher. But the equity multiplier of Aramit Cement is higher than Confidence Cement,
which is 4.34 and 1.79. So we can say that Confidence Cement is doing better than Aramit Cement.
Summary Chart of Ratios
Aramit Cement
Confidence Cement
Recommendation
In this report we have found different scenarios for different ratios for both of the companies.
As the performance of the company, here are some recommendations and guidelines for both
companies to do well in their weak area.
There are some factors where both of the companies need to improve their performance to get
themselves in the industry standards. In the current ratio section Aramit Cement has higher ratio
than industry standard, it will lead Aramit Cement to capture more liquids in hand. Aramit Cement
can use their lazy liquids to grow their business. But still Aramit Cement’s goal should be profit
maximization if they want to continue in the current industry as their profit margins are very low.
Confidence Cement’s profit margins are very good and also in the inventory turnover and total
asset turnover, Aramit Cement has lower ratios than Confidence Cement. EPS is greater for Aramit
Cement and their P/E ratio is greater. Though they should follow asset maximization strategies to
increase the market price of their shares.
Overall, the performance of Aramit Cement is not that much well compared to Confidence
Cement’s. Aramit Cement should concentrate on current assets management to get better current
ratios and to decrease their debt. They should also manage their accounts receivable turnover fairly
to maintain a good relationship with their suppliers. Aramit Cement should gain operational
excellence for uplifting profit margin ratios.
Conclusion
Financial Statements, in the end of the day, are just numbers and if they are not analyzed, it will
provide no value in evaluating and comparing performance of businesses in an industry.
Similarly, ratios are calculated using values from the statements, and greater importance lies in
its interpretation and corresponding uses and decisions for different parties. Different
stakeholders shall be interested in different ratios. Moreover, ratios must be compared with one
another, with the industry averages, bench marks, and over time to identify and develop useful
trends. One must consider the differences between companies and the industries they belong to
before interpretation.
Ratios, extracted from the financial statements might be related to one another and thereby provide
users with useful information. Ratios can be divided into five general categories: liquidity, asset
management, debt, profitability and market ratios. Despite their use in measuring returns,
efficiency and risks, the ratios often lack sufficient information, may be made from distorted value,
may not show a proper trend due to inflation and for the use of different techniques in their
preparation, etc. This these factors have to be considered during interpretation.
On calculating and analyzing a set of important ratios, we have been able to evaluate the financial
performance of Aramit Cement and Confidence Cement. Aramit Cement, might have a good
liquidity and a higher profitability from operations, it has performed poorly in its asset
management and in managing its capital structure. Meanwhile, Confidence Cement is a larger
company and has performed more effectively in raising finance, generating turnover, managing its
assets, although it is not the most liquid firm in the market. However, both have been competing
over time, and trying to improve their performance in a growing cement market in Bangladesh.
Bibliography
http://confidencecement.com/documents/a/n/Annual%20Report%202010.pdf
http://confidencecement.com/documents/a/n/Annual%20Report%202011.pdf
http://confidencecement.com/documents/a/n/Annual%20Report%202012.pdf
http://confidencecement.com/documents/a/n/Annual%20Report%202013.pdf
http://confidencecement.com/documents/a/n/Annual%20Report%202014.pdf
http://confidencecement.com/documents/a/n/Annual%20Report%202015-16.pdf
http://lankabd.com/dse/stock-market/CONFIDCEM/confidence-cement-limited/financialstatements?companyId=3&goToHomePageParam=true&stockId=3
http://www.aramitgroup.com/financial-profile-details.php?profileid=3
http://lankabd.com/dse/stock-market/ARAMITCEM/aramit-cement/financialstatements?companyId=2&goToHomePageParam=true&stockId=2
http://www.aramitgroup.com/pdf_file/Annual_Audited_Account_2015.pdf