Fin 254 – Project

Company Name: Meghna Cement Mills Limited

Submitted to : Amed Ameya Prapan (PPN)

Lecturer, Dept. of Accounting and Finance, NSU

Submitted by : Abu noman - 1420238030

Aniruddha Sen - 1231174630

Md. Rakib Hasan - 1420015030

Date of submission : 18.08.15

PART A: INTRODUCTION

In 1992 Bashundhara Group introduced another enterprise Meghna Cement Mills

Ltd. In January 1996 they commercially produced cement called King Brand
Cement. From then this brand get a strong position in the market with very good
corporate image. The factory of King Brand Cement is situated beside the river of
Pashur at Mongla, Bagerhat. The production capacity is 15 Lac MT per year. The
weight of each marketed bag is always perfect of 50 kg due to the adoption of an
automated packaging system.

At present MCML is producing three types of cement. One is Ordinary Portland

Cement (OPC) and another two types are Portland Composite Cement (PCC) {
CEM-II/B-M (S-V-L) and CEM-II/A-M(S-V-L) }. In Bangladesh many high-rise
building, road, bridge, culvert, hospital, shopping mall etc. have made by King
Brand Cement. The Company has been awarded the coveted ISO-9001-2000
Certification in the year 2000 by the National Quality Assurance (NQA), registered
by the National Accreditation of Certificate Boards, UK. The factory’s
environmental standards are high.

Our major achievement is that we came to know the marketing mix analysis of
King Brand Cement. As we had continuous touch with the management,
customers, dealers and other personnel in the organization and record their sales,
collection etc. We learned the total distribution and selling process of this company
and very closely observed the working style and decision making process of
different executives.

Any company is not fully independent and can not 100% to their customers.
Meghna Cement Mills Limited is not different from them. They have some
limitations in production, distribution, promotion and others. But King Brand
Cement has very good image in the market for their quality and already captured
9% share of the market (3rd position). Now it can not capture more market share
because of some constraints inside and out side of the organization. They should be
suited with the out side constraints of the organization. But it can be remove the
inside constraints. For this I tried to give some recommendations to the
organization.

The promotional activities must be increase and proper way like TV commercial
need to moderate for gaining attention of customers. On the other hand print media
should be attractive toward customer. Consumer scheme is more attractive other
than other promotional activities. The quality of King Brand Cement is so good but
price is high. It should be price competitive and reasonable. To provide well
advantage toward the dealers for fulfilled their objectives and will be created
smooth distribution Mechanism.

Since the starting of the operation King Brand Cement confident that they are quite
capable of challenging others and positioning themselves in the highest rank by
increasing the sales per day, introduction of the consistence quality blended
cement, with integrating supply and distribution chains and logistics, securing an
exclusive distribution network and buildings strong relationship all over the
country segmented on the basis of consumers use. Though King Brand Cement is
in good position in the market, it should think critically to generate new ideas for
existing and potential consumers to hold the consistent growth in the market.
Part B: Time Series Analysis:

Liquidity ratio:
2010 2011 2012 2013 2014
1. Current ratio 1.2 1.19 1.24 1.24 1.19

1. Current ratio
1.26
1.24
1.22
1.2 1. Current ratio
1.18
1.16
2010 2011 2012 2013 2014

In the year 2014 current asset of the company was 1.19 times higher than the current
liability. If we look at the 2012 and 2013 ratio we can see that it was stable. But in 2014
the current asset is less than by 119141036 TK compare to 2013 and 2012 asset.
That’s why the current ratio slope of 2014 has fall from 2013.

2010 2011 2012 2013 2014

2. Quick ratio 0.8 0.86 1.06 0.96 0.9
In the year 2014, current asset except inventories is .8 times comparing to its current
liability. In 2013 and 2014, total inventories increased by almost double compare to
2012’s inventories. That’s why the quick ratio slope started to fall in 2013 and 2014.

Activity ratio
2010 2011 2012 2013 2014
1. Inventory turnover 6.93 6.96 13.41 6.36 4.36

In the year 2014, the company sold out and restocks their inventories 4.36 times. From
2012, company’s inventory started to increase and its cost of goods sold started to
decrease. From 2013, it sold out its product less. That’s why inventory started to
increase. As a result inventory turnover rate started to fall from 2012 drastically and this
is bad for the company.

2010 2011 2012 2013 2014

2. Average age of inventory 52.67 52.44 27.21 57.38 83.71

It takes 83.71 days for the company to take inventory in hand and sell it to the market.
In inventory turnover ratio we saw that inventory turnover rate started to fall from 2012.
As inventory turnover rate is becoming low in later year that’s why average age of
inventory started to rise up from 2012. In 2014 it says that the company takes 83.71
days to sell the product in the market.

2010 2011 2012 2013 2014

3.Average collection period 27.65 47.55 61.66 66.16 75.03

3.Average collection period

80
60
40 3.Average collection
20 period

0
2010 2011 2012 2013 2014

In the year 2014, on an average the company takes 75.03 days to collect their account
receivables. From 2010, the slope for average collection period of the company is
upward. From 2010 to 2014, company’s annual sales and account receivable are
decreasing or increasing in the same direction. That’s why the slope is keeping rising.

2010 2011 2012 2013 2014

4.Average payment period 26.5 18.16 22.07 7.93 6.55

In the year 2014, on an average the company took 6.55 days to pay its loan. From
2012, the annual purchase of the company is drastically reduced. Though the annual
purchase also reduces that time, but the amount is not as high as annual purchase.
That’s why the slope started to fall from 2012 and still in 2014 it keeps falling. Now if we
compare average collection period with average payment period of the company in
terms of 2014’s ratio result, it might be a bad thing for the company. Because get their
receivable within 75.03 days but they have to pay their payable within 6.55 days.

2010 2011 2012 2013 2014

5.Total asset turnover 1.58 1.48 1.58 1.2 0.95

5.Total asset turnover

1.8
1.6
1.4
1.2
1
0.8 5.Total asset turnover
0.6
0.4
0.2
0
2010 2011 2012 2013 2014

In the year 2014, by using 1 dollar worth of total assets the company generated sales of
.95 dollar. We already see in above ratio analysis that company’s sales has been
started to decrease since 2012. That’s why the slope started to fall down from 2012
because total asset almost remain same but total sales has decreased.
 Debt management ratio:

2010 2011 2012 2013 2014

1.Debt ratio 0.81 0.83 0.81 0.82 0.79

1.Debt ratio
0.84
0.83
0.82
0.81
0.8 1.Debt ratio

0.79
0.78
0.77
2010 2011 2012 2013 2014

In the year 2014, to finance its total assets the company used .79 percent of others
money. Debt ratio good or bad basically depends on company’s profitability. If company
has good profitability, it is good for the company to use others money. Meghna cement’s
debt ratio has not so much difference from year to year. But in 2013, we see that the
slope is falling, because its total liabilities have decreased in 2014.

2010 2011 2012 2013 2014

2. Times interest earned 0.46 0.93 1.72 0.74 0.75
 2. Times interest earned
2

1.5

1 2. Times interest
earned
0.5

0
2010 2011 2012 2013 2014

In the year 2014, the company had EBIT .75 times higher than interest expense. Higher
the times interest rate ratio than it is better for the company. Higher EBIT help the
company to pay its interest expense. From 2010 to 2012 interest earned ratio increased
constantly. But from 2012, the slope falls because at that Time Company took too much
loan. That is why its interest expense also rises as well as its EBIT started to fall.

Profitability ratio:

2010 2011 2012 2013 2014

1. Gross profit margin 0.089 0.088 0.1 0.1 0.11

1. Gross profit margin

0.12
0.1
0.08
0.06 1. Gross profit
0.04 margin

0.02
0
2010 2011 2012 2013 2014
In the year 2014, for every 100 dollar of sales the company generated gross profit of 11
dollar. High gross profit ratio is better for the company. If we look at the graph we can
see that gross profit slope has been increasing year to year. But at the same time its
sales also decrease time to time. Then we can assume that it maintain a healthy gross
profit by reducing its cost of goods sold.

2010 2011 2012 2013 2014

2. Operating profit margin 0.056 0.048 0.063 0.076 0.09

2. Operating profit margin

0.1
0.08
0.06
2. Operating profit
0.04 margin
0.02
0
2010 2011 2012 2013 2014

In the year 2014, for every hundred dollar of sales the company generates operating
profit of 9 dollar. Like gross profit margin, company’s operating margin also constantly
increasing. So we can say that company’s selling and admin cost is also reduced years
to years from 2012.

2010 2011 2012 2013 2014

3. Net profit margin 0.02 0.01 0.021 0.023 0.026
 3. Net profit margin
0.03
0.02
3. Net profit
0.01 margin
0
2010 2011 2012 2013 2014

In the year 2014, for every hundred dollar of sales the company generated net profit of
2.6 dollar. In two other profitability ratios we have seen that their slopes are constantly
increasing from year to year. Net profit margin is also constantly increasing from 2012.
Because we know that from 2012 company takes more loans and that’s why its tax
expenses reduced which helps the company to raise its net profit margin.

2010 2011 2012 2013 2014

4. Return on asset 0.032 0.0161 0.0338 0.028 0.025

4. Return on asset
0.04
0.03
0.02
4. Return on asset
0.01
0
2010 2011 2012 2013 2014

In the year 2014, by utilizing 100 dollar of total asset the company generated net profit
of 2.5 dollar. If we look at the graph we can see that from 2012 the slope is downward
because from 2012 company’s total amount of net profit started to decrease at that
time.

2010 2011 2012 2013 2014

5. Return on equity 0.178 0.098 0.185 0.157 0.124
 5. Return on equity
0.2
0.15
0.1
5. Return on equity
0.05
0
2010 2011 2012 2013 2014

In the year 2012, for every 100 dollar of stockholder investment company is generated
profit of 12.4 dollar. As from 2012 net profit started to decrease, company’s return on
equity slope also going downward.

2010 2011 2012 2013 2014

1. Earnings per share 2.23 2.96 6.28 5.23 4.47

1. Earning per share

8

4
1. Earning per share
2

0
2010 2011 2012 2013 2014

In the year 2014, for each common stock outstanding the company generates net profit
of 4.47 dollar. Higher EPS is better for the company. From 2010 to 2014 company’s
common stock outstanding were remain same. But as we already know that from 2012
company’s net profit falls. As a result the slope is going downward from 2012.

2010 2011 2012 2013 2014

2. Price earnings ratio 155.15 47.16 16.69 27.3 27.03
 2. Price earning ratio
200

150

100
2. Price earning ratio
50

0
2010 2011 2012 2013 2014

In the year 2014, for each dollar of earning the investors were ready to pay 27.03
dollars. We know price earnings ratio high is good, but too high is bad. From 2011 the
slope is started to go downward, because the market price of the share has been
decreased. It falls 346.00 dollar to 139.60 dollar.

2010 2011 2012 2013 2014

book value per common share 2.98 3.02 3.38 3.36 3.61

book value per common share

4
3.5
3
2.5
2 book value per
common share
1.5
1
0.5
0
2010 2011 2012 2013 2014
In the year of 2014, for each dollar of book value the investors are ready to pay 3.61
dollar. That means the share which par value is 1; investors are ready to buy that share
by paying much higher that its book value. From 2010 to 2014 common stock
outstanding or meghna cement were remain same. But from 2011, common stock
equity for meghna cement had increased. That is why from 2011 the slope is upward
and which is good for the meghna cement.

PART C: CROSS-SECTIONAL ANALYSIS

Liquid ratio Meghna cement(2014) Crown cement(2014)

Current ratio 1.19 1.66
Quick ratio .90 1.5

Liquidity basically is dealing with the short term obligation. If we compare the liquidity
between the two cement companies we can see that crown Cement Company is more
liquid than meghna Cement Company which is good. But two much liquidity is not good
because that means company does not use its asset properly.

Activity ratio Meghna cement(2014) Crown cement(2014)

Inventory turnover 4.36 10.7
Average age of inventory 83.7 33.97
Average collection period 75.03 53.42
Average payment period 6.55 63.4
Total asset turnover .95 .70

In activity ratio comparison, crown cement is doing well than meghna cement. Crown
cement has higher inventory turnover than meghna cement. That means it’s sold out its
inventory more proportionally. On the other hand the difference between average
collection period and average payment of meghna cement is pretty much higher than
crown Cement Company, Which is a good thing for meghna cement. But meghna
cement is more efficient in using its assets compare to crown Cement Company.
 Debt ratio Meghna cement(2014) Crown cement(2014)
Debt ratio .79 .50
Times interest earned .75 .65

Meghna Cement Company has more debt in its total asset than crown cement. But
meghna times interest earned ratio is lower than debt ratio which is bad. That means
meghna cement has lower EBIT to repay its interest expense. On the other hand, crown
cement’s times interest ratio is higher than its debt ratio which is good. So it has more
EBIT compare to its interest rate.

Profitability ratio Meghna cement(2014) Crown cement(2014)

Gross profit margin 11% 18.7%
Operating margin 9% 13.9%
Net profit margin 2.6% 10%
Return on assets 2.5% 5.9%
Return on equity 12.4% 27%

If I compare gross profit and operating profit of meghna cement and crown cement, I
think meghna cement has less operating expense than crown cement, because the
difference between gross profit and operating of crown cement is higher than meghna
cement. On the contrary, as meghna cement use more debt that is why its interest
expense is so high and it has a huge difference between operating profit and net profit.
Opposite things happened to crown Cement Company. In terms of return on asset and
return on equity ratio, as crown cement has better ratio compare to meghna cement,
that thing is better for crown cement.

Market ratio Meghna cement(2014) Crown cement(2014)

Earnings per share 4.47 4.54
Price earnings ratio 27.03 17.8
Book value 3.61 3.82
Crown cement has better earning per share than meghna cement which is good. As
these things effect on later ratio like in book value ratio investor are ready to pay higher
for crown cement share rather than meghna cement. But price earnings ratio is higher
of meghna cement than crown cement which is good. But we know that too much high
ratio cause of market falls.

PART D: OTHER MEASURES

Calculation of free cash flow (2014):

FCF= OCF-NFAI-NCAI

= 212508256 – 4545803 - (-110625508)

= 318587961

DuPont and Extended DuPont system (2014):

= (100,760,062÷3,738,883,315) × (3,738,883,315÷3,933,033,938)

= .025 or 2.5%
 = (100,760,062÷3,933,033,938) × (3,933,033,938÷812,236,849)

= .124 or 12.4%

In ROA, by using 100 dollar of company’s asset, company can generate 2.5% profit and
in ROE, by using 100 dollar of investors’ money company generate 12.4% profit. That
means higher portion of the profit has come from investor’s money. Company is utilizing
investor’s money properly.

Part D: Conclusion

As a cement company meghna cement is still doing so much good. But if we analysis its
overall performance from 2010 to 2014, I think its performance is degrading. From 2010
to 2011 the performance of the company was stable but from 2012 it is doing really bad.
It took more loans and its EBIT is becoming less. Its current ratio is going downward. It
has more inventories in stock and its total sales are decreasing from 2012. Though its
profitability is upward margin but its return on asset is downward sloping. In cross
sectional analysis we have seen that crown cement is doing far better than meghna
cement though they are in the same industry. Meghna cement earning per share is also
going downward. As a result investors are having less chance to invest in meghna
Cement Company. So meghna cement can face capital shortfall in future. But the good
thing for meghna Cement Company is it has a very less operating expense which might
cause for a very good operating profit for the company. To overcome this situation, I
think meghna cement needs more capital as well as they has to increase their total
sales. Their average collection period is too much high compare to its average payment
period. As a result, it cannot use its capital or asset properly. So they have to decrease
their average collection period.