Financial ratio analysis
Cement producers should use financial ratio analysis to compare their performance with others around the world. However, this must be combined with peer group analysis to account for differing operational circumstances.
Figure 1: EBITDA profit margin
Financial ratio analysis is used to assess the condition and performance of cement companies based on the performance published in their financial statements, such as their income statement (profit and loss), statement of financial position (balance sheet) and statement of cash flows. Two figures from the financial statements are divided by another to produce a ratio of one to the other. As it is a ratio, the gross profit margin can be compared from period to period, between business units or even between companies. The actual magnitude of the revenue or profit is normalised by the ratio, making such comparisons more meaningful.
Financial ratio analysis is of interest to investors in cement companies who will want to know whether their investments will generate an attractive return, and the owners and management of cement companies who will want to know whether they are managing efficiently and if the company will be attractive to investors.
