A Financial Model for Economic Analysis of Cement Factory

In this paper, a method is presented to combine financial data and financial statements for economic analysis, which consequently introduces a software application for determining the economic structure of a cement factory. This software converts nearly 300 items of raw data of a cement factory to almost 4 times more economic-analytic information. The software analyzes the quantity and quality of production activities in addition to the cost structure of the concerned cement factory. It provides more than 80 descriptive figures, which have been defined previously and are applied to illustrate the economic structure of the cement factory. The calculated tables and figures are able to guide decision makers of the cement factory with regard to inefficiencies, obstacles, and various problems in the factory. In the end, a set of policies for increasing production efficiency and reducing costs are expressed briefly, which can be considered as the primary plans to operationalize the analytical information of the software. It is worth to mention that the presented structure of the software has been designed for Abyek Cement Factory. However, it can be employed as a guiding project for other cement factories as well. In other words, the software can be rebuilt with consideration of their specific information by revising and adjusting the software structure to cover their specific features.


Introduction
There are often particular disagreements among accountants and economists with respect to the common definitions and concepts in both fields. These differences have prevented both groups from benefiting from the findings of one another. In order to develop common analytical concepts, a set of information containing about 300 items was collected. These items are mostly published in financial reports and statements of any cement factory. Afterward, by adding other supportive information, benchmarks, and several mathematic formulas, the number of items was extended into about 1,000 and used by Fars & Khuzestan Cement Company (FKCCO), which is called the Analytical Information Software for Abyek Cement Factory. Considering the significant similarities of cement factories in terms of their economic structure, this set of information can be employed by other analysts in similar cement companies. Undoubtedly, the software structure of these pieces of information should be adjusted to the particular specifications of companies. However, it can be stated that the analysis can be generalized to similar cement factories.
Most often, the presented views are provided along with economic insights. Hence, it can be said that the definitions and concepts of financial statements have been converted into economic concepts. The available analyses show the past and present trends from an economic perspective, and they do not seek the reasons other than the issues related to economic subjects. This software can depict the economic perception of a cement company. The Cement Analytical Information Software was designed with the aid of Excel software with the following features. obtained by subtracting non-absorbed costs of production from actual overhead costs. This value calculates markup price of finished goods by considering the product in the process of production at the beginning of the period, the transferring inventories to subsidiary and affiliated companies, and the products in the process of production at the end of the period. The mentioned value provides markup price of finished goods (ready for sale), by considering finished goods at the beginning of period, transferring inventories to subsidiary and affiliated companies, consumption of finished goods, and production wastes and regarding the finished goods at the end of the period, the markup price of the sold goods is obtained.
Part 40. Administrative and general costs: Including employees' wages, salaries, and benefits, water, electricity, fuel, gas, consuming goods, repair and maintenance, depreciation, the share of services costs, management fees of head office and other items. The mentioned items by considering the transferring costs to other departments, selling of agricultural products, and transferring to subordinates and superiors, constitute the overall administrative and general costs.
Part 41. Distribution and sales costs: Including personnel's wages, salaries, and benefits, the share of distribution and sales cost from service costs, other items, and adjustments.
Part 42. Other revenues and costs: Including profit resulting from selling properties, machinery, equipment, interests of bank deposits, profit from selling wastes, salvage, and unused items, other net revenues and costs, and financial and unabsorbed costs.
Part 43. Profit (loss): Including calculations of operational and net profit (loss), the ratio of profit (loss) to Rial and quantitative sales of cement, ratios of profit elements including sales, total costs of sold goods, administrative, general and distribution costs, sales revenues and other costs.
Part 44. Contra accounts: Including guaranteed documents of the company, in the hands of others and vice versa, and other documents.

Calculation of short-term costs:
Part 45. Short-term actual cost: Including salaries, mineral raw materials, packing materials, fuel, electricity, depreciation, abrasive materials, refractory materials, oil, other items, and their shares.
Part 46. Accounting of a ton of cement produced (short-term): Including selling price of a ton of cement produced, profit (loss), and cost of a ton of cement produced in the short term according to the cost items, the share of cost items, and the profit out of sales.
Part 47. Short-term actual cost with actual depreciation: Including calculation of short-term cost based on different elements and by considering actual depreciation (not booked depreciation) and share of short-term cost items.
Part 48. Accounting of a ton of cement produced with actual depreciation: Including short-term sales and profit (loss) and short-term cost of each ton of cement produced based on its components and their shares.
Part 49. Accounting of a ton of cement produced with actual depreciation (exponential fitness): Including fitted information by exponential regressions, in order to find the past and future trends of sales, profit, and costs of its components in short time, and their shares.

Calculation of long-term costs:
Part 50. Total long-term costs: Including wages, mineral raw materials, packing materials, fuel, electricity, depreciation (mineral, abrasive, refractory materials, and oil), and other items, increase of properties, machinery, equipment, and their shares from the long-term costs.
Part 51. Accounting of a ton of cement produced (long-term): Including selling price of each ton of cement produced, profit (loss) and cost of each ton of cement produced in the long term based on the cost components and percentages of cost components and profits from the sale.
Part 52. Total long-term cost with actual depreciation: Including calculation of long term cost based on different elements and by considering actual depreciation (not booked depreciation) and proportions of components of long term costs.
Part 53. Accounting of a ton of cement produced with actual depreciation (long term): Including long term sales and profit (loss), and long term cost of each ton of cement produced based on its components and their shares.

Structure of Cement Analytical Information Software
There exists a very large amount of performed calculations in the Cement Analytical Information software. To clarify more indepth, for Abyek Cement Factory, approximately 20,000 computational cells containing numbers, statistics, and formulas are responsible for the numerical arrangement of information. Nearly 85 various diagrams have been defined relating to these cells, illustrating the trends of quantitative data. In the following table, the column on the left indicates the row number in the software, and the next column shows the subject name in the software. Due to a large number of mathematical formulas and detailed items, they have not been provided in this section.  Explanations and analyses of this part are primarily based on the Cement Analytical Information Software. In order to simply become well-aware of the general state of a cement factory, some diagrams have been designed in Cement Analytical Information Software showing the events occurred during the study period. They are mostly clear and do not require further explanation. In general, the diagrams and tables analyze and study the following topics: Topic 1. Actual depreciation and losses Topic 2.
Capital rate of return Topic 3.
Inefficiency of production Topic 4.
Planning for production and sales Topic 5.
The current value of the cement factory Topic 6.
The general trend of developments and changes Topic 7.
Price of production factors Topic 8.
Cost components Topic 9.
Salary and wage Topic 10. Cement price Topic 11. Personnel of different departments Topic 12. Slowness of workflow Topic 13. Insufficiency of information Graph 37. It shows the price of refractory and abrasive materials. Graph 38. It compares discrepancy between the account of increasing properties, machinery, and equipment with an annual difference of assets. The account of adjustments and transfers of assets shows the untimeliness of the accounting procedure. Graph 39. It shows the discrepancy between two accounts of increasing properties, machinery, and equipment with the difference of assets items, and the two accounts of the difference of financial year depreciation with the difference of accumulated depreciation. Graph 40. It compares the book value of properties, machinery, and equipment with their current values. Graph 41. It displays the ratio of investment to depreciation. Graph 42. It reflects the ratio of gross investment to gross capital stock. The mentioned items have been beforehand converted into the present values of that year. Graph 43. It shows the capital depreciation to the gross capital stock, which has been beforehand converted into the present value of that year. Graph 44. It displays production value to gross capital stock at constant prices. This figure indicates the capital efficiency during the period under study. Graph 45. It exhibits the proportion of profit to quantitative, and Rial sells. Graph 46. It presents the ratio of other revenues and costs, sales and distribution costs, administrative and general cost, the actual cost of sold goods, and sales to profit. Graph 47. It demonstrates the previous figure in a different way that the profit domain for each year has been presumed as 100 percent. Graph 48. The share of different cost components, including wage, mineral raw materials, fuel, electricity, depreciation, packaging materials, consuming materials (abrasive, refractory, and oil) and other items in the short term. Graph 49. It reveals the percentage of using grinders of raw materials. It should be noted that this figure has been obtained by assuming 20 hours of working per day. Graph 50. It shows the percentage of using cement grinders. It indicates that grinders are still working below their capacities.
In addition, it should be noticed that their working capacity has been calculated based on 20 hours of working per day. Graph 51. It presents the percentage of using furnaces. Graph 52. The summary of the three above figures shows how furnaces and grinders of raw materials and cement have been exploited in the factory. This figure again verifies this fact that the available capacity of the factory has not been fully utilized. Graph 53. This presents the lost profit due to the disusing total production capacity of the factory. This figure provides information about the amount of lost profit due to not utilizing the factory's total capacity because of various reasons. Graph 54. It calculates the ratios of profit to gross investment in two states. In the first state, the net profit rate to capital is shown. In the second state, the profit rate when the additional capacity of the factory is utilized is presented. Graph 55. It examines the sale, profit, and cost of a ton of cement produced. In this figure, revenue and cost of a ton of cement have been provided, and the difference has been assumed as profit. Graph 56. It shows profit and cost components, which altogether present the sale value of a ton of cement. Graph 57. It reflects the percentages of cost and profit out of sales for a ton of cement. Graph 58. It has been tried to find acceptable and stable ratios for depreciation. In Cement Analytical Information Software, three figures have been inserted for depreciation during the concerned years. The first figure is the depreciation of the financial year. The second one is the calculated depreciation of financial year from the actual cost. The last one is the difference obtained from annual accumulated depreciation. In order to find the depreciation trend, the above-mentioned ratios of depreciation to total properties, machinery, and equipment in the same year have been calculated. The trend of these ratios has been illustrated in this figure. Considering various fluctuations in this three depreciation, these three series have been fitted by three second-order polynomial regressions. The achieved fitnesses have been drawn on the same figure. Graph 59. It shows the estimated actual depreciation in comparison with the booked depreciation. Actual depreciation can be gained by obtaining the present value of capital stock in each year and by considering price indices, the capital stock of the year before, and the calculated ratio of depreciation to capital stock value. Graph 60. It presents the ratio of actual and booked accumulated depreciation to actual and booked gross capital stock. This figure confirms the unrealistic nature of booked depreciation figures and booked capital value. The depreciation trend is shown by third-order polynomial regression. Regression formulas and some of the required statistics are inserted in this figure, which helps to recheck its significance.
items need to be examined, and the reason for the inefficiency of each should be explored separately in order to become enabled to reduce the costs related to different items. A solution for this issue can be to determine standards for essential and nonessential costs, which requires expert examination in every single cost item. Categorization of costs into the following components can be a cornerstone to start: CRP 1. Studying personnel costs, including salary, wage, overtime working, employer insurance share, shifts, night working, missions, and other similar costs. CRP 2. Reducing costs of raw materials, including extraction costs, rights, and duties of mines, explosive materials, and other costs related to extraction of mineral raw materials. CRP 3. Reducing fuel costs; including purchase prices and costs of fuel oil and gas. CRP 4. Reducing electricity costs. CRP 5. Reducing the costs of abrasive materials; including the purchase prices and transportation costs of ball, armor, and segments in grinders and stone crushers. CRP 6. Reducing the costs of refractory materials; including purchase and transportation costs of fire brick, refractory concrete, and mortar. CRP 7. Reducing the costs of consuming oils; including their purchase and transportation costs. CRP 8. Reducing maintenance and depreciation costs. CRP 9. Examining administrative and general costs, including salaries of staff of office units, guards, costs of building repairs, transportation, water, electricity, training of personnel, etc. CRP 10. Studying the distribution and sale cost, such as salaries of sale department personnel and other related costs. CRP 11. Financial costs, including interest and charges for loans, purchase of demand notes, bank bills, etc. CRP 12. Research projects costs. CRP 13. Bags, sacks, and packaging costs. CRP 14. Other costs not cited above.

Efficiency Increasing Policy (EIP)
Considering this fact that production factors can be applied in an optimal way, operational solutions need to be maintained in order to gain the highest efficiency from the utilization of production factors. These are categorized as "Efficiency Increasing Policy (EIP)". Therefore, it is essential to constantly evaluate the indices that can examine the consumption level of each of the following items: EIP 1. The consumption level of mineral raw materials in terms of the following components: soil, limestone, iron ore, gypsum, and pozzolan per ton of production. EIP 2. The consumption level of electricity per ton of production. EIP 3. The consumption level of fuel per ton of production, based on the components of gas and fuel oil. EIP 4. The consumption level of abrasive materials per ton of production, based on components of the ball, segment, and armor. EIP 5. The consumption level of refractory materials (including fire brick and mortar) per ton of production. EIP 6. The consumption level of oils per ton of production EIP 7. The consumption level of bags and packaging materials per ton of production of packed cement. EIP 8. Practical working level of different production and non-production personnel.

Complementary Policies (CP)
CP 1. The policy of revising management information structure: This policy needs to be designed and implemented along with the two previous policies, i.e., Cost Reduction Policy and Efficiency Increasing Policy, in order to present the method of implementation of those two policies. CP 2. The policy of increasing workflow speed: Workflow and bureaucratic nature of the factory's activities may lead to many insufficiencies and inefficiencies and also may increase the factory's costs considerably. It seems that creating operational solutions and different policies, such as revising human resource management structure, can be beneficial in resolution of this problem. CP 3. Planning to reach nominal production capacity: Stoppages in different units of the factory, such as cement grinders and furnaces, can practically lead to a status in which the factory performs under its available nominal capacity. If the factory's management takes special plans for preservation and conservation, these stoppages are likely to be minimized. In other words, the policy of preventing production stoppages is more economical than restarting a stopped