Financial Statements CEMEX
CEMEX is one of the largest building materials suppliers and cement producers in the world. The company produces, distributes and sells cement, mix-concrete, aggregates, and related building materials in more than 50 countries in all over the world. CEMEX has a rich history of improving the well-being of those it serves through its efforts to pursue innovative industry solutions and efficiency advances and to promote a sustainable future. CEMEX is recovering from the global economic recession and the loss that the company had in the last couple of years. The year 2011 compared with the year 2010, the company had a good impact.
Introduction Financial Statements
CEMEX is one of the largest building materials suppliers and cement producers in the world. The company produces, distributes and sells cement, mix-concrete, aggregates, and related building materials in more than 50 countries in all over the world. CEMEX has a rich history of improving the wellbeing of those it serves through its efforts to pursue innovative industry solutions and efficiency advances and to promote a sustainable future.
The aim of this paper is to evaluate the performance of CEMEX through a critical analysis of the financial statements of the last two years, the analysis of five aspects of performance evaluation which are profitability, efficiency, short and long term Solvency and market based ratios. In this analysis will include the information of the company CEMEX, and the analysis of the financial information.
CEMEX is one of the largest cement companies in the world, was founded in Mexico in 1906, the company is based in Monterrey, Nuevo Leon, Mexico and has operations throughout the world with production facilities in 50 countries in North America, Caribbean, South America, Europe, Asia and Africa (Cemex, 2012).
CEMEX had an annual cement production of production capability of 82 million tons. One third of the sales come from Mexico operations, one quarter comes from the plants in USA, 15% from Spain operations and other small percentages from the other plants in the world (Cemex, 2012). The main competitors of CEMEX are Holcim, Lafarge and Heidelberg Cement. CEMEX is constantly evolving to become more flexible in their operations, more creative in the commercial offerings, more sustainable in the use of the resources, more innovative in their global business and more efficient in their capital allocation.
Interpretation of accounts: ratio analysis
In this analysis we review the financial statements (Balance Sheet, Cash flow and income statement) of the company CEMEX. These to evaluate the performance of the company in the different aspects.
- Profitability ratios. An expectation on making more income from sales of the good or service than they spend performing the services or making the goods.
- Efficiency ratios. A level of performance that describes a process that uses the lowest amount of inputs to create the greatest amount of outputs.
- Short-term solvency ratios. Measure a company’s ability to pay its current bills and operating costs – obligations coming due in the next fiscal year.
- Long-term solvency ratios. Measure a company’s ability to meet it’s long term obligations, such as it long term debts (bank loans) and to survive over a long period of time.
- Market indicators. These ratios relate the current market price of the company’s stock to earnings or dividends (Reimers, JL, 2008).
Analysis of Financial Statements
The year 2011 was an important year for CEMEX, after the global economic recession the company is facing a difficult situation with some of the markets, nevertheless CEMEX launched an accurate transformation designed to make the company more efficient, more agile and more customer focused. The changes made in the company, designed to position the company for a future of beneficial growth, are already showing results. The results of the ratios of the 2011 financial statements are the next ones:
|Gross profit margin||28.5%||28%|
|Net profit margin||-10.24%||-9%|
|Return on assets||-3.5%||-3.1%|
|Return on equity||-10%||-8.2%|
Table 4.1 Profitability ratios
Table 4.2 Liquidity ratios
Table 4.3 Efficiency ratios
|Debt to equity||65%||62%|
|Total debt/total equity||1.25||1.04|
|Total debt / total capital||55.59%||51%|
Table 4.4 Solvency ratios
After the global economic recession CEMEX is facing difficult situations, in table 4.1 the gross profit shows that the company has 28.5% in 2011, compared with 2010 is almost the same; in the table 4.1 shows the gross margin in 2010 was 28%, there was an increase of 0.5%. In the table 4.1 shows that the company had a loss in the net profit, the ROA and the ROE in the last two years but an increase on the operating margin compared with the year 2010, in year 2010 was 2.5% and the year 2011 increase to 6.3%. That means that the company is profitable, there were some difficult situations the last couple of years nevertheless the company is making a profit.
With the information of the financial statements we can determine that the company is facing some problems with the ability of paying current bills and operating costs, in the table 4.2 the current ratio of the year 2011 is 1.04 on the year 2010 was 0.98, there was an increase this year, although the ideal ratio is 2:1, this year the current and quick ratio were below the ideal ratio. In the table 4.2 the quick ratio in 2011 was 0.73 and in the year 2010 was 0.71, the ideal for the quick ratio is 1:1. Table 4.5 shows that the company has a debt to total capital of 55.59%.
The table 4.3 shows that the company is turning over the inventory 11 times in the year 2011, the year 2010 the turning over of the inventory was 12 times in a year. The average is 12 times. The assets turnover in the year 2011 is of 34%, this value is the same than the year 2010, and this means that the company is efficient.
The market indicators for CEMEX for the year 2011 are book value per share is 17.54 and the tangible book value per share is 2.94. The earning per share in 2011 is -11.13, that means that there were losses; the earnings per share excluding extraordinary items dropped 13.71% (Financial Times, 2012).
Comparing CEMEX in the last 4 years there was a significant deterioration on the operating margin and the EBITDA margin, from the year 2008 to the year 2011 year. Now the company is increasing the operating margin, this year have an improvement compared to year 2010, this deterioration was in the time of the global economic recession.
Conclusion and recommendations
CEMEX is recovering from the global economic recession and the loss that the company had in the last couple of years. The year 2011 compared with the year 2010, the company had a good impact on the operating margin and the gross profit margin it increases a 6.3% on operating margin. That means that the company is profitable but has some losses in the return on Assets and the return on equity, on the solvency part the current ratio and quick ratio are below the ideal, the company needs to keep an eye on the solvency of the company, the company has a little improvement on the efficiency on the inventory turnover, nevertheless the company has a debt of 55.59%. The company is doing better than last year and has some projects to increase the sales, improve operation, be more creative in the commercial offerings, more sustainable in the use of the resources, more innovative in their global business and more efficient in their capital allocation, the recommendations are to keep those projects and further expand them.
CEMEX, “CEMEX annual report” 2011 3. Financial Times “Strong sales boost CEMEX recovery”
Financial Times “CEMEX to meet all debt covenants”
Financial Times “Losses put CEMEX under pressure”
Financial Times “CEMEX to cut debt in stake sales”
Merrill lynch, “How to read a financial report” 2000
Pratt, J, “Financial accounting in an economic context” 2000, 4th edition, southwestern Thomson learning.
Reimers, JL, “Financial accounting a business approach” 2008, 2nd edition, Pearson education.
GPM (2010) = GP/sales = 49953/178260 = 0.280 = 28%
GPM (2011) = 53871/188938= 0.285 = 28.5%
NPM (2010) = NIAT/sales = -16099/178260 = 0.090 = -9%
NPM (2011) = -19163/188938 = -.1014 = -10.14%
OM (2010) = OI/net sales = 4561/178260 = 0.025 = 2.5%
OM (2011) = 11984/188938 = 0.063 = 6.3%
ROA (2010) = net income/ total assets = -16126/515097 = -0.031 = –3.1%
ROA (2011) = -19127/548299 = -0.035 = -3.5%
ROE (2010) = IAT/SE = -16099/19176 = -0.082 = -8.2%
ROE (2011) = -19163/191016 = -0.10 = -10%
CR (2010) = CA/CL = 54567/85119 = 0.98 = 0.98:1 ideal 2:1
CR (2011) = 58947/56670 = 1.04 = 1.04:1 ideal 2:1
QR (2010) = (CA-I)/CL = 39469/55119 = 0.71 = 0.71:1 ideal 1:1
QR (2011) = 41408/56670 = 0.73 = 0.73:1 ideal 1:1
TD/TE (2010) = 202819/194176 = 1.04
TD/TE (2011) = 239116/191016 = 1.25
Inventory Turnover (2010) = Sales/stock = 178260/15098 = 11.80 = 12 times/year
Inventory Turnover (2011) = 188938/17539 = 10.77 = 11 times/year
Assets Turnover (2010) = sales/total assets = 178260/515097 = 0.34 = 34%
Assets Turnover (2011) = 188938/548299 = 0.34 = 34%