A REPORT ON CEMENT COMPANIES IN BANGLADESH

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This report is aimed at finding the relationship between the net income and the current asset, current liability, working capital, debt ratio, current ratio, quick ratio, taking cement companies of Bangladesh into consideration. It overviews some theoretical literature on these financial factors and presents the regression outputs and their interpretation.
The findings of the study are:
1. Position of the various financial performances of these companies.
2. The regression output has components:
o Regression statistics table
o Correlation table
o Model summery
o ANOVA table
o Regression coefficients table
o Excluded Variables table.
3. And their interpretation.
Quantitative data is taken from company’s annual reports, business research companies’ archives and financial websites. The findings from the study can either have a positive or negative impact on financial performance.


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A REPORT ON CEMENT COMPANIES IN BANGLADESH

  1. 1.   2012       JAHANGIRNAGAR UNIVERSITY     Khairuzzaman Mamun    A REPORT ON CEMENT COMPANIES IN BANGLADESH  
  2. 2. A Report On Cement Companies in BangladeshPrepared for Prepared by 1. Khairuzzaman Mamun ID No :20113137Md. Tarikul Islam Contact no : 01761808592Assistant Professor, Email : knpmmamun@gmail.comChireman, 2. Md. Keramat AliDepartment of Finance & Banking ID No: 20113207Jahangirnagar University 3. Md. Mojibur RahmanSavar, Daka-1342 ID No: 20113238 4. Narayan Chandra Sarker ID No: 20113180 5. Kazi Hossain Ansary ID No: 20113149Submission Date: December 22,2012
  3. 3. December 21, 2012Md. Tarikul IslamChairman Department of Finance & BankingJahangirnagar University,Savar,Dhaka.Dear Md. Tarikul IslamHere is the report that you asked us to conduct on November 10, 2012 on A ReportStudy On Cement Companies in BangladeshThis study focused on different types of discussion and result about the HistoricalPerformance of Cement Companies in Bangladesh. We will be pleased if you haveany further query for this you can call us at your convenient time and place.Sincerely yours, 1. Khairuzzaman Mamun ID No :20113137 Contact no : 01761808592 Email : knpmmamun@gmail.com 2. Md. Keramat Ali ID No: 20113207 3. Md. Mojibur Rahman ID No: 20113238 4. Narayan Chandra Sarker ID No: 20113180 5. Kazi Hossain Ansary ID No: 20113149   
  4. 4. ABSTRACTThis report is aimed at finding the relationship between the net income and thecurrent asset, current liability, working capital, debt ratio, current ratio, quick ratio,taking cement companies of Bangladesh into consideration. It overviews sometheoretical literature on these financial factors and presents the regression outputsand their interpretation.The findings of the study are: 1. Position of the various financial performances of these companies. 2. The regression output has components: o Regression statistics table o Correlation table o Model summery o ANOVA table o Regression coefficients table o Excluded Variables table. 3. And their interpretation.Quantitative data is taken from company’s annual reports, business researchcompanies’ archives and financial websites. The findings from the study can eitherhave a positive or negative impact on financial performance. 
  5. 5. Sequence of contents    Introduction o Current asset o Current liabilities o Working capital o Debt Ratio o Quick ratio o Current ratio o Net income Analysis and Interpretation regression output o Regression statistics table o Correlation table o Model summery o ANOVA table o Regression coefficients table o Excluded Variables table. Recommendations & suggestions Conclusions References
  6. 6. IntroductionThis study focuses on current asset, current liability, working capital debt ratio,quick ratio and current ratio. The study also focuses on their impact on net incomeof the cement factories in Bangladesh.A current asset current asset is an asset which can either be converted to cash orused to pay current liabilities within 12 months. Typical current assets includecash, cash equivalents, short-term investments, accounts receivable, inventory andthe portion of prepaid liabilities which will be paid within a year.On a balance sheet, assets will typically be classified into current assets and long-term assets.Current liabilities are often understood as all liabilities of the business that are tobe settled in cash within the fiscal year or the operating cycle of a given firm,whichever period is longer. A more complete definition is that current liabilitiesare obligations that will be settled by current assets or by the creation of newcurrent liabilities. Accounts payable are due within 30 days, and are paid within 30days, but do often run past 30 days or 60 days in some situations. The lawsregarding late payment and claims for unpaid accounts payable is related to theissue of accounts payable. An operating cycle for a firm is the average time that isrequired to go from cash to cash in producing revenues.Working capital (abbreviated WC) is a financial metric which representsoperating liquidity available to a business, organization or other entity, includinggovernmental entity. Along with fixed assets such as plant and equipment, workingcapital is considered a part of operating capital. Net working capital is calculatedas current assets minus current liabilities.WC = Current Assets – Current LiabilitiesIt is a derivation of working capital that is commonly used in valuation techniquessuch as DCFs (Discounted cash flows). If current assets are less than currentliabilities, an entity has a working capital deficiency, also called a workingcapital deficit.A company can be endowed with assets and profitability but short of liquidity if itsassets cannot readily be converted into cash. Positive working capital is required toensure that a firm is able to continue its operations and that it has sufficient funds
  7. 7. to satisfy both maturing short-term debt and upcoming operational expenses. Themanagement of working capital involves managing inventories, accountsreceivable and payable, and cash.Debt Ratio is a financial ratio that indicates the percentage of a companys assetsthat are provided via debt. It is the ratio of total debt (the sum of current liabilitiesand long-term liabilities) and total assets (the sum of current assets, fixed assets,and other assets such as goodwill).or alternatively:The Acid-test or quick ratio or liquid ratio measures the ability of a company touse its near cash or quick assets to extinguish or retire its current liabilitiesimmediately. Quick assets include those current assets that presumably can bequickly converted to cash at close to their book values. A company with a QuickRatio of less than 1 cannot currently pay back its current liabilities.Note that Inventory is excluded from the sum of assets in the Quick Ratio, butincluded in the Current Ratio. Ratios are tests of viability for business entities butdo not give a complete picture of the business health. If a business has largeamounts in Accounts Receivable which are due for payment after a long period(say 120 days), and essential business expenses and Accounts Payable due forimmediate payment, the Quick Ratio may look healthy when the business isactually about to run out of cash. In contrast, if the business has negotiated fastpayment or cash from customers, and long terms from suppliers, it may have avery low Quick Ratio and yet be very healthy.Notice that very often Acid test refers instead of Quick ratio to Cash ratio:
  8. 8. The current ratio is a financial ratio that measures whether or not a firm hasenough resources to pay its debts over the next 12 months. It compares a firmscurrent assets to its current liabilities. The current ratio is calculated by dividingtotal current assets by total current liabilities. It is frequently used as an indicator ofa companys liquidity, its ability to meet short-term obligations. It is expressed as follows:The current ratio is an indication of a firms market liquidity and ability to meetcreditors demands. Acceptable current ratios vary from industry to industry andare generally between 1.5 and 3 for healthy businesses. If a companys current ratiois in this range, then it generally indicates good short-term financial strength. Ifcurrent liabilities exceed current assets (the current ratio is below 1), then thecompany may have problems meeting its short-term obligations. If the current ratiois too high, then the company may not be efficiently using its current assets or itsshort-term financing facilities. This may also indicate problems in working capitalmanagement.Net income also referred to as the bottom line, net profit, or net earnings is anentitys income minus expenses for an accounting period. It is computed as theresidual of all revenues and gains over all expenses and losses for the period, andhas also been defined as the net increase in stockholders equity that results from acompanys operations. In the context of the presentation of financial statements, theIFRS Foundation defines net income as synonymous with profit and loss.   
  9. 9. Analysis and InterpretationFor analyzing and interpretation we have selected four cement company’s data.The companies are HEIDEBERG CEMENT, ARMIT CEMENT, CONFIDENCECEMENT, MEGNA CEMENT. Then we have run regression by SPSS takingNETINCOME as dependent variable and CA, CL, WC, DR, QT, CR asindependent variable.WC = WORKING CAPITAL CA = CURRENT ASSETDR = DEFT RATIO CL = CURRENT LIABITYQT = QUICK TESTCR = CURRENTRATIOYEAR CA CL WC DR QT CR NET INCOMEHEIDEBERGCEMENT 1995 291776135 232312702 59463433 0.42 0.63 1.26 49063770 1996 283936620 280331281 3605339 0.35 0.45 1.01 87222766 1997 487728422 466639344 21089078 0.23 1.02 1.43 90162723 1998 656544310 483855466 172688844 0.186 1.09 1.36 137490404 1999 662942602 500088523 162854079 0.166 1.11 1.33 190134844 2000 1090451 590807 499644 0.307 1.8 2.12 203966 2001 1049119 496514 552605 0.368 2.09 2.5 209023 2002 814110 402845 411265 0 2.06 2.3 46570 2003 958958 1659205 -700247 0 2.1 2.12 55373ARMIT CEMENT 1999 69982997 133915884 -63932887 0.489 0.2 0.52 12584566 2000 95485808 113300823 -17815015 0.391 0.16 0.84 63728613 2001 106532929 1168944862 -1062411933 0.374 0.22 0.63 22605647 2002 92676487 193194810 -100518323 0.336 0.25 0.48 45325802 2003 82506088 170931414 -88425326 0.292 0.17 0.48 -56047924 2004 58364763 158144182 -99779419 0.292 0.17 0.37 -63145695 2005 118037786 274693852 -156656066 0.186 0.18 0.43 -26640998 2006 150168808 343833723 -193664915 0.121 0.17 0.44 6971807CONFIDENCECEMENT 1996 140230667 147230786 -7000119 0.411 0.21 0.95 5596310 1997 374423669 70780203 303643466 0.167 4.02 5.29 18563667 1998 170259858 86527911 83731947 0.297 1.03 1.97 70458069MEGNA CEMENT 1996 205110279 251268787 -46158508 0.566 0.811 0.811 22792205 1997 342103994 335576756 6527238 0.583 0.979 1.019 32144414
  10. 10. 1998 452766064 437159410 15606654 0.576 0.958 1.036 31311683 1999 393683728 364468510 29215218 0.703 1.012 1.08 49641627 2000 744257833 670755663 73502170 0.644 0.988 1.11 110573729 2001 1018622921 990863219 27759702 0.597 0.965 1.028 132743297 2002 1253123650 1229932887 23190763 0.577 0.884 1.019 51939193 2003 1003252653 952991742 50260911 0.597 1.035 1.053 26021799 2004 952008134 943392659 8615475 0.559 0.987 1.009 34311762 2005 1180027914 1188086536 -8058622 0.517 0.941 0.993 75106875 2006 1001283610 1064853393 -63569783 0.452 0.881 0.94 56437753The regression output has components: • Regression statistics table • Correlation table • Model summery • ANOVA table • Regression coefficients table • Excluded Variables table.INTERPRET REGRESSION STATISTICS TABLE Descriptive Statistics Mean Std. Deviation NNETINCOME 41213343.2258 54399845.30082 31CA 399733915.0645 390685882.39495 31CL 427652409.6452 394522244.70347 31WC -27918494.5806 214100614.82741 31DR .3792 .18861 31QR .9539 .80888 31CR 1.2557 .93617 31This table presents mean and deviation of dependent variable net income andindependent variables CA, CL, WC, DR, QR, CR. Correlations NETINCOME CA CL WC DR QR CRPearson NETINCOMECorrelation 1.000 .545 .381 .292 .165 .040 .022 CA .545 1.000 .851 .256 .507 .046 -.080 CL .381 .851 1.000 -.289 .501 -.197 -.311 WC .292 .256 -.289 1.000 .001 .447 .426
  11. 11. DR .165 .507 .501 .001 1.000 -.270 -.345 QR .040 .046 -.197 .447 -.270 1.000 .952 CR .022 -.080 -.311 .426 -.345 .952 1.000Sig. (1-tailed) NETINCOME . .001 .017 .055 .187 .414 .452 CA .001 . .000 .082 .002 .403 .334 CL .017 .000 . .057 .002 .143 .045 WC .055 .082 .057 . .498 .006 .008 DR .187 .002 .002 .498 . .071 .029 QR .414 .403 .143 .006 .071 . .000 CR .452 .334 .045 .008 .029 .000 .N NETINCOME 31 31 31 31 31 31 31 CA 31 31 31 31 31 31 31 CL 31 31 31 31 31 31 31 WC 31 31 31 31 31 31 31 DR 31 31 31 31 31 31 31 QR 31 31 31 31 31 31 31 CR 31 31 31 31 31 31 31This table presents the correlation and significance between the variables netincome, CA, CL, WC, DR, QR, CR by matrix representation. Model SummaryThis is the following output of greatest interest is R Square. ExplanationMultiple R .605(a) R = square root of R2R Square .366 R2Adjusted R Square .239 Adjusted R2 used if more than one x variable This is the sample estimate of the standard deviation of theStandard Error 47452486.75859 error uObservations 31 Number of observations used in the regression (n)The above gives the overall goodness-of-fit measures: R2 = 0.366 Correlation between y and y-hat is 0.366 (when squared gives 0.366). Adjusted R2 = R2 - (1-R2 )*(k-1)/(n-k) =0.239R2 = 0.366 means that 36.6% of the variation of NETINCOME can be explained by theregressors CA, WC, DR, QR, and CR.
  12. 12. INTERPRET ANOVA TABLEAn ANOVA table is given. This is often skipped. df SS MS F Significance FRegression 5 32486832573223480 6497366514644690 2.885 0.034(a)Residual 25 56293462489355600 2251738499574224Total 30 88780295062579000The ANOVA (analysis of variance) table splits the sum of squares into its components.Total sums of squares= Residual (or error) sum of squares + Regression (or explained) sum of squares.The column labeled F gives the overall F-test of H0: βi = 0 versus Ha: at least one of βi does notequal zero. F = 2.885The column labeled significance F has the associated P-value. Since 0.034 < 0.05, we reject H0at significance level 0.05.INTERPRET REGRESSION COEFFICIENTS TABLEThe regression output of most interest is the following table of coefficients and associatedoutput: Coefficient St. error t Stat P-value Lower 95% Upper 95%Intercept 22270965.80 29952516.092 0.744 0.464 -39417395.839 83959327.447CA 0.090 0.029 3.142 0.004 0.031 0.149WC 0.044 0.047 0.938 0.357 -0.053 0.142DR -40844164.44 56981244.240 -0.717 0.480 -158199233.740 76510904.852QR -42245774.55 38256908.829 -1.104 0.280 -121037353.198 36545804.088CR 31910230.87 33546570.740 0.951 0.351 -37180224.878 101000686.625a Dependent Variable: NETINCOME.Let βj denote the population coefficient of the jth regressor (intercept, CA, WC, DR, QR andCR). Then • Column "Coefficient" gives the least squares estimates of βj. • Column "Standard error" gives the standard errors (i.e.the estimated standard deviation) of the least squares estimates bj of βj. • Column "t Stat" gives the computed t-statistic for H0: βj = 0 against Ha: βj ≠ 0.
  13. 13. This is the coefficient divided by the standard error. It is compared to a t with (n-k) degrees of freedom. • Column "P-value" gives the p-value for test of H0: βj = 0 against Ha: βj ≠ 0.. This equals the Pr{|t| > t-Stat}where t is a t-distributed random variable with n-k degrees of freedom and t-Stat is the computed value of the t-statistic given in the previous column. Note that this p-value is for a two-sided test. For a one-sided test divide this p-value by 2 (also checking the sign of the t-Stat). • Columns "Lower 95%" and "Upper 95%" values define a 95% confidence interval for βj.A simple summary of the above output is that the fitted line isNETINCOME = 22270965.80 + 0.090 CA + .044 WC - 40844164.44 DR - 42245774.55 QR + 31910230.87 CRCONFIDENCE INTERVALS FOR SLOPE COEFFICIENTS95% confidence interval for slope coefficient CA is from output (0.031, 0 .149).95% confidence interval for slope coefficient WC is from output (-0.053, 0.142).95% confidence interval for slope coefficient DR is from output (-158199233.740, 76510904.852).95% confidence interval for slope coefficient QR is from output (-121037353.198, 36545804.088).95% confidence interval for slope coefficient CR is from output (-37180224.878, 101000686.625). Excluded Variables(b) Partial Model Beta In t Sig. Correlation Collinearity Statistics Tolerance 1 CL .(a) . . . .000a Predictors in the Model: (Constant), CR, CA, WC, DR, QRb Dependent Variable: NETINCOME
  14. 14. Recommendations & suggestionsSince R2 = 0.366. It means that 36.6% of the variation of NETINCOME can beexplained by the regressors CA, WC, DR, QR, and CR. So, it should take intoconsideration.Again since, fitted line isNETINCOME = 22270965.80 + 0.090 CA + .044 WC - 40844164.44 DR -42245774.55 QR + 31910230.87 CR.So, we are recommending that current asset, working capital and current ratioshould be increased and debt ratio, quick ratio should be decreased to increase netincome in cement companies in Bangladesh.We know,And also coefficient of quick ratio is negative so inventories per unit liabilitiesmust be increased for increasing the value of net income of cement factories inBangladesh. ConclusionsBased on this study it can be said that if cement companies in Bangladesh follow the suggestion of this study then they will be more benefited and more successful in their business.  References Book Name: Principles of Financial Management Satish M. Inamdar Sixth Edition, 2009 Search engine: www.google.com Wikipedia Company’s Annual Report: Dhaka Stock Exchange

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