financial analysis final thesis fauji-cement-pioneer cement-1

Zahoor Ahmad 09-04-2023

INDUS INSTITUTE OF HIGHER EDUCATION KARACHI.

Financial Analysis of Cement Industry of Pakistan

Fauji Cement & Pioneer Cement (Comparison With Kohat & Cherat

Cement)

(This thesis is submitted in partial fulfillment of requirements for the MBA. Degree in Finance).

SUPERVISED BY:SIR. TARIQ MEHMOOD.

FACULTY MEMBER.Email:[email protected]

SUBMITTED BY:Zahoor AhmedIIHE/08E/2008

Email:[email protected] MBA (Finance)

A PROJECT SUBMITTED TOTHE FACULTY OF BUSINESS ADMINISTRATION.


JUNE, 2011.

INDUS INSTITUTE OF HIGHER EDUCATION KARACHI.

Financial Analysis of Cement Industry of Pakistan

(This thesis is submitted in partial fulfillment of requirements for the MBA. Degree in Finance).

SUPERVISED BY:SIR. TARIQ MEHMOOD.

FACULTY MEMBER.Email:[email protected]

SUBMITTED BY:Zahoor AhmedIIHE/08E/2008

Email:[email protected] MBA (Finance)

A PROJECT SUBMITTED TOTHE FACULTY OF BUSINESS ADMINISTRATION.

JUNE, 2011.


ABSTRACT SUBMITTED BY: ZAHOOR AHMAD.

DISCIPLINE: MBA (FINANCE).

TITLE OF PROJECT REPORT: FINANCIAL ANALYSIS OF CEMENT INDUSTRY OF PAKISTAN.

(Fauji Cement & Pioneer Cement Compare with Kohat & Cherat)

MONTH OF SUBMISSION: JUNE , 2011.

NAME OF PROJECT SUPERVISOR: SIR. TARIQ MEHMOOD.


Faculty of Business AdministrationINDUS INSTITUTE OF HIGHER EDUCATION

Karachi.

Certificate

I am pleased to certify that Mr. Zahoor Ahmed s/o Muhammad Maroof has satisfactorily carried out a research work, under my supervision on the topic of “Financial Analysis of Cement Industry of Pakistan. (Surway of two units): (2004 to 2008)”

I further certify that his distinctive original research and his thesis is worthy of presentation to the Faculty of Business Administration, INDUS INSTITUTE OF HIGHER EDUCATION Karachi for the degree of MBA(Finance).

Dean Business Administration: ---------------------------

HOD Business Administration: ----------------------------

Supervisor: ------------------------------


1. ACKNOWLEDGEMENT

God Almighty is worthy of all acknowledgments…………..

No one can say that I am perfect, everyone should admit that without the

help of ALLAH and His people a man can’t get anything so I bow my head before

almighty Allah with gratitude. I am also very much thankful and presents salute to many

individuals who have helped me in shaping this research paper

I am gratitude to Almighty ALLAH, Who has given me strength and mentor to

accomplish this mammoth task.

I extend my thanks to SIR. TARIQ MEHMOOD for his candid guidance and

continuous support and encouragement during the accomplishment of my Project

Report on “Financial Analysis of Cement Industry of Pakistan (Survey of Two Units)”,

which is compulsory for my degree of M.B.A (Finance).

I am thankful to my teacher for giving me this opportunity and build up

confidence. I hope this effort on my part will come up to your expectations.

The last but not least, I would feel incomplete without thanking to my

parents who pray for my brilliant success and bright future.

By: Zahoor Ahmad.

INDUS INSTITUTE OF HIGHER EDUCATION KARACHI.DATED: 10TH JUNE 2011.


2. Dedication

I dedicate this research to our parents

and teachers, who taught us to think,

understand and express. I earnestly feel

that without their inspiration, able guidance

and dedication, I would not be able to pass

through the tiring process of this research.


3. ABSTRACT

The purpose of this research report is to evaluate, analyze and compare the financial

statements of M/S Fauji Cement Company Limited & (Pioneer Cement Comparison with

Kohat & Cherat Cement comparative analysis. I have chosen these two companies on the basis

of their financial performance, they are also listed on all major stock exchanges of the country.

After researching, surveying, observing, collection of data, I have arrived at the written

analysis follows hereafter. As the requirement of the report, I have conducted a detailed study

of the analysis the financial statements and ratios.

On the basis of above information, I have arrived on specific recommendations from

strategic management’s viewpoint. I have supported suggestions through strategic theories,

matrices and exhibits, present in the report.

The report includes the whole financial status of both the companies through which a

reader can get the financial strengths & weakness of both the organizations.

The fundamentals of the research is to build the reader’s capability to evaluate the

financial data & information into projective manner as to compare the financial stability &

growth with each other in consequence either for enhancement & for decrement.

Pakistan currently has a per capita consumption of 120kg of cement, which is

comparable to that for India at 135kg per capita but substantially below the World Average

270kg and the regional average of over 400kg for peers in Asia and over 600kg in the Middle

East. Over the years a number of tax policy and administrative measures have been introduced

to attract investment and facilitate growth of the cement industry. The Government has reduced

central excise duty (CED) on cement in the budget for 2007-08 in order to boost construction

activity.


In Pakistan APCMA plays a significant role in projecting the cement industry to the

Government and coordinating various activities in respect of formulation of Government

policies for the cement industry. Cement demand is significantly affected by the Public Sector

Development Program (PSDP), construction of dams, elevated and concrete roadways,

residential construction as well as exports.

Table Of Contents

S.# Chapter Title Page

1 Acknowledgement 1

2 Dedication 2

3 Abstract 3

4 Chap-1 - 1.1 Introduction 7

5 1.2 Data 9

6 1.3 Problem Statement 10

7 1.4 Purpose of Study 10

8 1.5 Research objective 11

9 1.6 Limitation of research 12

10 Chap-2 - 2.1 Literature review 12

11 2.2 Growth of Cement Industry 13

12 2.3 Export & International Market 14

13 2.4 National Scenario 15

14 2.4.1 Production 15

15 Chap-3 – 3.1 Methodology (Theories) 17

16 3.2 Financial Analysis Procedure 17

17 3.2.1 Percentage Analysis 17

18 3.2.2 Trend Analysis (Horizontal Analysis) 17


19 3.2.3 Common Size Statement – Vertical Analysis 17

20 3.2.4 Ratio Analysis 17

21 3.3 Data Collection Procedure 18

22 3.4 Analysis Procedure 18

23 3.5 Sample 20

24 3.6 Test of Analysis 21

25 Chap-4 – 4.1 Data analysis, results / findings and Discussion. 22

26 (1) - 4.2 Fauji Cement Company Limited. 22

27 4.3 Financial Analysis M/S Fauji Cement (Balance Sheet) 22

28 4.4 Income Statement 25

29 4.5 Balance Sheet Trend Analysis(Horizontal Analysis) 26

30 4.6 Balance Sheet Vertical Analysis 30

31 4.7 Income Statement Trend Analysis(Horizontal Analysis) 33

32 4.8 Income Statement (Vertical Analysis) 35

33 4.9 Ratio Analysis 37

34 4.9.1 Liquidity Ratio 37

35 4.9.2 Longterm Liquidity / Long Term Debt Paying Ability 42

36 4.9.3 Activity Ratio / Asset Turnover Ratio/ efficiency Ratio

45

37 4.9.4 Profitability Ratio 50

38 4.9.5 Financial Leverage Ratio. 60

39 4.9.6 Dividend Policy Ratio 61

40 4.9.7 Ratio Analysis Chart 63

41 4.9.8 Conclusion (Fauji Cement) 64

42 (2) - 4.2.1 Pioneer Cement Limited (Comparative Analysis with Kohat & Cherat Cement)

65

43 4.2.2 Five Years Horizental Analysis of Income Statement 65


44 4.2.3 Five Years Horizental Analysis of Balance Sheet 67

45 4.2.4 Vertical Analysis of Income Statement 71

46 4.2.5 Vertical Analysis of Balance Sheet 73

47 4.2.6 Trend Analysis (Balance Sheet) 77

48 4.2.7 Trend Analysis (Income Statement) 80

49 4.3 Ratio Analysis 81

50 4.3.1 Liquidity Ratios 81

51 4.3.2 Current Ratio 81

52 4.3.3 Quick Ratio 84

53 4.3.4 Turnover /Activity Ratio 86

54 4.3.5 Debtors Turnover Ratio or Receivable Turnover 87

55 4.3.6 Total assets Turnover Ratio 89

56 4.3.7 Fixed Assets Turnover Ratio 91

57 4.4.1 Profitability Ratio 92

58 4.4.2 Gross Profit (GP) Ratio 93

59 4.4.3 Operating Profit ratio 94

60 4.4.4 Return on Assets 95

61 4.4.5 Return on Equity (ROE) Ratio 96

62 4.4.6 Debt Ratio 98

63 4.4.7 Debt Service Ratio Interest Coverage Ratio 100

64 4.5 General Ratio analysis 101

65 4.6 Company Analysis 103

66 Chap-5 - 5.1 Conclusion 104

67 Chap-6 – 6.1 Recommendation 105

68 6.2 Future Outlook 106

69 6.3 Bibliography (References) 107


Chapter.1

1.1 Introduction

The research report is carried out as the analysis of cement industry of Pakistan by comparing

the financial performance of two units (Fauji Cement Co. Ltd. & Pioneer Cement Ltd.)

Analysis will be made for Profit and Loss A/c, Balance Sheet and Cash flow statement; the

following financial ratios will also be analyzed.

Balance Sheet Trend Analysis (Horizontal Analysis / Vertical Analysis).

Income Statement Trend Analysis (Horizontal Analysis / Vertical Analysis).

Ratio Analysis.

FINANCIAL ANALYSIS

Financial Analysis is the summary of all transactions that have occurred over a particular period.Financial Analysis refers to the assessment of a business to deal with the planning, budgeting, monitoring, forecasting, and improving of all financial details within an organization.These indicate a firm's financial health and stability.

Two key financial statements are:

BALANCE SHEET

A balance sheet or statement of financial position is a summary of the financial balances of a sole proprietorship, a business partnership or a company. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year. A balance sheet is often described as a "snapshot of a company's financial condition”. Of the four basic financial statements, the balance sheet is the only statement which applies to a single point in time of a business' calendar year.


A standard company balance sheet has three parts: assets, liabilities and ownership equity. The main categories of assets are usually listed first and typically in order of liquidity. Assets are followed by the liabilities. The difference between the assets and the liabilities is known as equity or the net assets or the net worth or capital of the company and according to the accounting equation, net worth must equal assets minus liabilities.

INCOME STATEMENT

Income statement (also referred as profit and loss statement (P&L), statement of financial performance, earnings statement, operating statement or statement of operations)

Is a company's financial statement that indicates how the revenue (money received from the sale of products and services before expenses are taken out, also known as the "top line") is transformed into the net income (the result after all revenues and expenses have been accounted for, also known as the "bottom line"). It displays the revenues recognized for a specific period, and the cost and expenses charged against these revenues, including write-offs (e.g., depreciation and amortization of various assets) and taxes.

The purpose of the income statement is to show managers and investors whether the company made or lost money during the period being reported.

The important thing to remember about an income statement is that it represents a period of time. This contrasts with the balance sheet, which represents a single moment in time

Horizontal Analysis

The analysis is based on a year-to-year comparison of a firm's ratios,

Vertical Analysis

The comparison of Balance Sheet accounts either using ratios or not, to get useful information

and draw useful conclusions

RATIO ANALYSIS:

A comparison of relationship among account balances.

FINANCIAL RATIOS

Financial Rations are helpful in analyzing the actual performance of the company compared to its financial objectives. They also provide insights into the firm’s performance compared to


other firms in the industry. Ratio simply means one number expressed in term of another. A ratio is a statistical yardstick by means of which relationship between two or various figures can be compared or measured. The term accounting ratio is used to describe significant relationship between figures shown on a balance sheet, profit and loss account or in any other part of accounting organization. Accounting ratio thus shows the relationship between the accounting data.

ACCOUNTING RATIOS

The term "accounting ratios" is used to describe significant relationship between figures shown on a balance sheet, in a profit and loss account, in a budgetary control system or in any other part of accounting organization. Accounting ratios thus shows the relationship between accounting data. Ratios can be found out by dividing one number by another number. Ratios show how one number is related to another. It may be expressed in the form of co-efficient, percentage, proportion, or rate.

ADVANTAGES OF RATIOS ANALYSIS

Ratio analysis is an important and age-old technique of financial analysis. The following are some of the advantages of ratio analysis:

SIMPLIFIES FINANCIAL STATEMENTS

It simplifies the comprehension of financial statements. Ratios tell the whole story of changes in the financial condition of the business.

INTER PERIOD COMPARISON

It provide data for inter period comparison.

FACILITATES INTER-FIRM COMPARISON

It provides data for inter-firm comparison. Ratios highlight the factors associated with successful and unsuccessful firm. They also reveal strong firms and weak firms, overvalued and undervalued firms.

HELPS IN PLANNING

It helps in planning and forecasting. Ratios can assist management, in its basic functions of forecasting. Planning, co-ordination, control and communications.

MAKES INTER-FIRM COMPARISON POSSIBLE

Ratios analysis also makes possible comparison of the performance of different divisions of the firm. The ratios are helpful in deciding about their efficiency or otherwise in the past and likely performance in the future.


HELP IN INVESTMENT DECISIONS

It helps in investment decisions in the case of investors and lending decisions in the case of bankers etc

1.2. DATA.

1) I chose the cement sector of Fauji Cement for inter period analysis from 2004 to 2008

2) Three cement industries for their comparative financial analysis(Inter firm & inter period Analysis). We have collected the annual reports of our respective companies for five years (2004-2008) .The companies are as follows:

Pioneer Cement Ltd. Kohat Cement Ltd. Cherat Cement Ltd.

1.3 .Problem Statement

Analysis will be made for Balance Sheet and Profit & loss A/c .the following financial

statement analysis and ratio analysis will also be analyze.

Trend analysis (Horizontal Analysis).

Common size statement (Vertical Analysis)

Ratio Analysis

Liquidity ratios.

Long term Liquidity / Long term Debt paying ability.

Activity ratios / Asset turnover ratios / Efficiency ratios.

Profitability ratios.

Financial leverage ratios.

Dividend policy ratios

Comparison will be made on the entire above ratio to find how good the business of the

company is going.

1.4 Purpose of Study


The purpose of the this research report is to extract the most out of the financial performance of

the Cement Industry by comparing the performance of the surveying units (Fauji Cement Co.

& Pioneer Cement Co. Ltd.Comparison with Kohat & Cherat).

Fauji Cement analysis will be made by inter period analysis from 2004 to 2008 and the other

same unit / sector is Pioneer Cement comparative analysis will be made by both inter period

and inter firm analysis is comparison with kohat Cement & Cherat Cement.

The main objective of this research is to find out the financially analysis of cement Industry of

Pakistan and also the current position of the cement industry in comparison of highly

developed and automated cement industry of the world and suggest the improvements needed

to reach at the same level, in term of trading process, trading volume and automation as well in

term of recognition as other the cement Industry have. Financial literacy for the business

students is the secondary purpose of this report especially for those students who don’t select

course related to the finance.

1.5. Research Objectives

The objective of this study is to analyze the financial performance of the companies based on

the financial ratio during the period of 2004 to 2008.

Other objectives of this research report is to give the better investment opportunities to the

investors as well as to give the opportunity to the students to learn and have some knowledge

about the financial & comparative analysis of the industries.

1.6. Limitations of Report

There are many performance measurements using financial ratio analysis. There might be

difficult to use all the measure. This study will select a certain financial ratio only. So, different

performance measurement will give different result.

This study based on the data collected through annual report, there could be some error in the

data sources, which could make the result not accurate.


This study limited to Five years research period from 2004 to 2008 for the ratio analysis in

order to determine the analysis and conclusion.

This research report is only the comparison of financial performance of two units of the

Cement Industry (i.e. Fauji Cement Co. Ltd. & Pioneer Cement compare with Kohat &

Cherat.) and not the analysis of Cement Industry as a whole.

Chapter .2

2.1 LITERATURE REVIEW

Business Recorder reported that Pakistan’s cement exports witnessed a healthy growth of 65%,

to over 6 million tons during 7 months of the current fiscal year mainly due to rise in

international demand. The exports may reach to 11 million tons and earn approx $ 700 million

during 2008-09 (PCMA, 2010).

The statistics of All Pakistan Cement Manufacturers Association also showed that cement

exports had mounted to over 6 million tons in 7 months as compared to 3.62 million tons of

same period of last fiscal year, depicting an increase of 2.38 million tons (PCMA, 2010).

Cement exports during January 2009 went up by 30% to 0.81 million tons as compared to

0.623 million tons in January 2008.

However, slow construction activities in the country during the period badly upset domestic

sale of cement, which depicted decline of 15%, to 10.77 million tons as compared to 12.59

million tons of last fiscal year (FCCL, 2010).

On MoM basis, local dispatches of cement during January 2009 showed a decline of 8%, to

1.51 million tons from 1.65 million tons of January 2008. Overall dispatches, including export

and local sales, reached 16.77 million tons during July to January of 2008-09 as against 16.20

million tons of last fiscal year, depicting an increase of 3%.

By September 2009, after witnessing substantial growth in all three quarters of fiscal year

(FY) 2008-09, cement sector concluded the fourth quarter with a handsome growth of 1,492


http://www.dailytimes.com.pk/default.asp?page=20099%5C30%5Cstory_30-9-2009_pg5_14

percent on yearly basis (PCCL, 2010). All Pakistan Cement Manufacturers Association’s

report revealed on 29th September 2009.

Higher retention prices (up 59 percent) and high rupee based export sales amid rupee

depreciation (20 percent) drove profits up north. However, this growth is magnified, as

FY2007-08 was an abnormally low profit period for the sector.

Moreover, the performance is skewed towards large players with export potential as profitable

companies in both years posted increase of just 109 percent, said analyst at JS Research Atif

Zafar.

He said that cumulative profitability of companies in FY09 stood at Rs 6.2 billion or $78.2

million as compared to Rs 386 million or $6.2 million depicting a massive growth of 1,492

percent (FCCL, 2010). Companies with profits in both the years posted 109 percent earnings

improvement.

Though total dispatches were down 2 percent, net sales grew by 55 percent to Rs 101.4 billion

or $1.3 billion on the back of higher net retention prices (up 59 percent) and improved export

based revenues. Cost of sales/tonne also rose by 33 percent on yearly basis amid higher

realised coal prices and inflationary pressures, the analyst maintained.

2.2. Growth of Cement Industry


Growth of cement industry is rightly considered a barometer for economic activity. In 1947,

Pakistan had inherited 4 cement plants with a total capacity of 0.5 million tons. Some

expansion took place in 1956-66 but could not keep pace with the economic development and

the country had to resort to imports of cement in 1976-77 and continued to do so till 1994-95

(PCCA, 2010). The industry was privatized in 1990 which led to setting up of new plants.

Although an oligopoly market, there exists fierce competition between members of the cartel

today.

The industry comprises of 29 firms (19 units in the north and 10 units in the south), with the

installed production capacity of 44.09 million tons. The north with installed production

capacity of 35.18 million tons (80 percent) whiles the south with installed production capacity

of 8.89 million tons (20 percent), compete for the domestic market of over 19 million tons.

There are four foreign companies, three armed forces companies and 16 private companies

listed in the stock exchanges (PCCL, 2010). The industry is divided into two broad regions, the

northern region and the southern region. The northern region has around 80 percent share in

total cement dispatches while the units based in the southern region contributes 20 percent to

the annual cement sales.

Cement industry is indeed a highly important segment of industrial sector that plays a pivotal

role in the socio-economic development. Since cement is a specialized product, requiring

sophisticated infrastructure and production location. Mostly of the cement industries in

Pakistan are located near/within mountainous regions that are rich in clay, iron and mineral

capacity. Cement industries in Pakistan are currently operating at their maximum capacity due

to the boom in commercial and industrial construction within Pakistan.

The cement sector is contributing above Rs 30 billion to the national exchequer in the form of

taxes (KCC, 2010).

Cement industry is also serving the nation by providing job opportunities and presently more

than 150,000 persons are employed directly or indirectly by the industry.

The industry had exported 7.716 million tons cement during the year 2007-08 and had earned

$450 million, while is expected to export 11.00 million tons of cement during 2008-09 and

earn approximately $700 million.


2.3. Exports & International Markets

The cement industry of Pakistan entered the export markets a few years back, and has

established its reputation as a good quality product. Deregulation after accession of Pakistan to

WTO is expected to open the window of competition from cheaper markets (Baughn, Bodie,

and McIntosh, 2007). The recent acquisition of Chakwal Cement by an Egyptian giant,

Orascom may be a beginning of such an entry in Pakistan by multinationals (Adekoya, 2003).

New avenues for export of cement are opening up for the indigenous industry as Sri Lanka has

recently shown interest to import 30,000 tons cement from Pakistan every month. If the

industry is able to avail the opportunity offered, it may secure a significant share of Sri Lanka

market by supplying 360,000 tons of cement annually (Adewuyi, 2002).

In 2007, 130,000 tons cement was exported to India. In 2007, the exports to Afghanistan, UAE

and Iraq touched 2.13 million tons.

At present, the economies of major countries are facing recession, but Pakistan’s cement sector

is still maintaining a healthy growth (Aigbedion, and Iyanyi, 2007). Cement export to India has

already slowed after imposition of duty by Indian authorities.

Export of Clinker and Cement (Qty/Tonnes)

|------------------Cement-------------------| |---Clinker---|

Years Afghanistan India Other Countries Other Countries Total %age

Via Land Via Sea & Land Via Sea Via Sea Incr/(Decr)

2001-2002 106,620 - - - 106,620 100.00%

2002-2003 430,322 - - 41,500 471,822 342.53%

2003-2004 1,118,293 - - - 1,118,29

3 137.02%

2004-2005 1,407,900 - 157,270 - 1,565,17

0 39.96%

2005-2006 1,413,994 - 91,165 - 1,505,15

9 -3.83%

2006-2007 1,725,526 - 1,071,928 390,973 3,188,42

7 111.83%

2007-2008 2,777,826 786,672 3,045,995 1,106,127 7,716,62

0 142.02%

2008-2009 3,201,953 669,700 6,567,042 942,137 11,380,83

0 47.48%


2.4. National Scenario.

CEMENT INDUSTRY IN PAKISTAN

2.4.1 Production

In Pakistan, there are 29 cement manufacturers that are playing a vital role in the building up

the country’s economy and contribution towards growth and prosperity. After 2002-3, most of

the cement manufacturers expanded their operations, and increased production. This sector has

invested about $1.5 billion in capacity expansion over the last six years.

The operating capacity of cement in 1991 was 7 million tons, which increased to become 18

million tons by 2005-06 and by end of 2007 rose to above 37 million tones, and currently the

production capacity is 44.07 million tons.

Cement production capacity in the north is 35.18 million tons (80 percent) while in the south it

is only 8.89 million tons (20 percent).

The cement manufacturers in 2007-08 added above eight million tons to the capacity and the

total production was expected to exceed 45 million tons by the end of 2010. It may result in a

supply glut of seven million tons in 2009 and 2010.


CHAPTER .3

3.1. Methodology:

This study used a comparative analysis (horizontal analysis) as a methodology because it is

most suitable and easy to interpret and compare the performance of this companion’s. I will

begin by looking at the comparative ratios of the company for a Five -Years period by using

trend analysis.

Trend Analysis (Horizental) & ( Common size statement or Vertical)

Ratio Analysis


3.2. FINANCIAL ANALYSIS PROCEDURE

3.2.1. PERCENTAGE ANALYSIS

3.2.2. TREND ANALYSIS - HORIZONTAL ANALYSIS

For this purpose comparative financial statements are prepared horizontally.

3.2.3.COMON SIZE STATEMENT - VERTICAL ANALYSIS

For this purpose comparative financial statements are prepared vertically.

3.2.4. RATIO ANALYSIS

A comparison of relationship among account balances. The term accounting ratio is used to describe significant relationship between figures shown on a balance sheet, profit and loss account or in any other part of accounting organization.

1. Profitability

its ability to earn income and sustain growth in both short-term and long-term. A company's degree of profitability is usually based on the income statement, which reports on the company's results of operations;

2. Solvency

Its ability to pay its obligation to creditors and other third parties in the long-term;

3. Liquidity

Its ability to maintain positive cash flow, while satisfying immediate obligations;

4. Stability

The firm's ability to remain in business in the long run, without having to sustain significant losses in the conduct of its business. Assessing a company's stability requires the use of both the income statement and the balance sheet, as well as other financial and non-financial indicators

3.3. Data Collection Procedures

The data has been collected from the annual report of selected company from the web site of

the respective company. Financial statement in the annual report will be used as a main source


for financial ratio analysis. For this study, the financial statement for three years (2004 to 2008)

will be used to get the result.

I choose one industry of Fauji Cement for their financial analysis by inter period. And choose

Pioneer Cement comparative analysis with kohat & Cherat Cement.

Data has been collected from annual report (Balance Sheet & Income Statement) of five years

2004 to 2008 will be used to get the result.

3.4. Analysis Procedures

The financial ratio will be used in the analysis of the performance for the companies. The

selected company will be tested on the Trend Analysis / Vertical Analysis , profitability,

liquidity and solvency; certain financial ratio will be used such as;

Test of profitability

Return on Assets (ROA)

Return on Equity (ROE)

Profit margin

Earnings per share (EPS)

The test profitability ratios as its self described which include that how a company or an

organization can get its profitability factor enhance which influenced by its return on assets;

equity; margin & earning per share. The whole mechanism directly proportional to the

capability of firm or organization.

Test of liquidity

Current ratio

Quick/ acid test ratio

The test liquidity ratio defines that how quickly a firm or an organization transform its assets

i.e. cash securities; inventory & others into the form of cash its also enable the decision maker

to make corrective & proactive decisions which impact as increment in profitability of the

organization or firm.


Assets Turnover Ratio / Efficiency Ratio

Receivable Turn Over

Inventory Turn Over

The asset turnover ratio also known as efficiency ratio, the main emphasize in both the ratio on

the capability of how the company receivable convert quickly from the suppliers & the

inventory in similar way.

Financial Leverage Ratio

Debt-equity ratio

Debt-assets ratio

Times Interest Earned

The financial leverage ratios including debt-equity to asset & to time interest earned as a part

from those it’s essential to conclude the financial stability of the organization which might be

essential for the company’s whole structure including production, overhauling; forecasting &

utilizing the parameters into growth & corrective measures.

Dividend Policy Ratio

Dividend Yield

Payout Ratio

3.5. S a m p l e

For this study, two companies, which are randomly selected, will be used as a sample for the

test. Both companies are selected from the same sector. The names of the companies are as

follows;

a.Fauji Cement Company Ltd.(Inter Period Analysis).

b.Pioneer Cement Comparative Analysis with Kohat Cement &

Cherat Cement Company Ltd.(Inter Period & Inter firm Analysis).


3.6. TOOLS OF ANALYSIS


.

PERCENTAGE ANALYSIS:

RATIO ANALYSIS:

Chapter .4 4.1 Data Analysis , Results / Findings and Discussions.


4.2 Fauji Cement Company Ltd

A longtime leader in the cement manufacturing industry, Fauji Cement Company,

headquartered in Islamabad, operates a cement plant at Jhang Bahtar, Tehsil Fateh Jang,

District Attock in the province of Punjab. The Company has a strong and longstanding

tradition of service, reliability, and quality that reaches back more than 11 years. Sponsored by

Fauji Foundation, the Company was incorporated in Rawalpindi in 1992.

4.3. Financial Analysis M/S Fauji Cement (Balance Sheet)

Balance Sheet

Fauji Cement Company LimitedBalance Sheet

As on December….. RS(000)2004 2005 2006 2007 2008

CURRENT ASSETS 574460 1172765 1579382 1953527 5294083Cash and bank balances 197088 603110 847590 423133 3783909

Deposit accounts 137433 560177 798122 402907 3756611Current accounts 21326 25840 49253 20048 27039

Collection accounts 38275 16831 0 0 0Cash in hand 54 262 215 178 259

Advances, Deposits, prepayments and other receivables: 73583 46041 70340 858758 345567

To suppliers 34044 18148 31523 815588 15521To employees 449 783 1639 621 2473

Due from associated undertaking - unsecured 1127 1125 3190 0 0Deposits 1313 1486 1865 1795 5737

Prepayments 10606 4314 9937 3125 3966Excise duty 9911 3057 0 0 0

Advance tax –net 0 7891 13874 13104 23302Sales tax refundable -net 3774 0 0 0 82719

Derivative foreign currency options used as hedging instrument 0 0 0 0 84364

Interest accrued 2175 1002 5476 5077 14828Prepaid arrangement fee for loans 0 0 0 11000 74670

Margin on letters of credit 0 0 0 0 29369Other receivables- Considered goods 645 8235 2836 2084 7179

Others 9539 0 0 6364 1439TRADE DEBTS 44789 107231 25475 19558 26927

Unsecured 23833 25021 27042 16117 4848Considered goods 22266 23454 25475 7769 0

Considered doubtful 1567 1567 1567 8348 4848


Secure-considered goods 22523 83777 0 11789 26927Less: Provision for doubtful debts -1567 -1567 -1567 -8348 -4848

STOCK IN TRADE 61600 55931 145090 183309 230089Raw and packing material 15224 18469 28012 23931 31271

Work in process 27761 11624 93671 115221 152529Finished goods 18615 25838 23407 44157 46289

STORES, SPARES AND LOOSE TOOLS 197400 360452 490887 468769 907591Stores 71837 107633 198485 61997 415358Spares 118324 244514 280183 394046 478579

Loose tools 7239 8305 12219 12726 13654DEFERRED TAX ASSETS - NET 570039 337140 0 0 0

LONG TERM DEPOSITS 36600 46611 46611 46611 46611Islamabad Electric Supply Company Limited 21600 21600 21600 21600 21600

Sui Northern Gas Pipelines Limited 15000 25011 25011 25011 25011LONG TERM ADVANCES - Considered

goods 0 9000 9000 8100 7200Sui Northern Gas Pipelines Limited 0 0 0 9000 8100

Less: Amount receivables within 12 months shown under current assets 0 0 0 -900 -900

FIXED ASSETS - Tangible: 4729254 4658272 4563115 4392450 7106599Property, Plant and equipment 4729254 4658272 4563115 4392450 7106599

Total Assets 5910353 6223788 6198108 6400688 12454493

CURRENT LIABILITIES 372116 1206946 1267198 1442287 2454761Current portion of long term financing: 86508 552995 550000 550000 550000

Short term borrowings - secured: 0 308876 236353 375510 1378365Markup accrued: 13132 69357 59771 48330 33186

Trade and other payables: 272476 275718 421074 468447 493210Creditors 45651 45969 59763 81766 65997

Accrued liabilities 63425 67119 63470 118828 174692Retention money 10819 10533 12843 11986 15517Security deposits 25462 28982 37986 39051 36916

Advances from customers 23121 42444 58744 67770 41344Workers' (Profit) Participation Fund 0 39949 93562 41483 24413

Workers' Welfare fund 0 0 0 16085 25362Sales tax payable- net 22304 31300 39235 32599 0Excise duty payable 58 3537 10264 8582 57629

Other liabilities 81636 5885 9052 40708 45323Compensated absences 0 0 33990 3626 3686

Unclaimed dividend 0 0 2165 5963 2331NON - CURRENT LIABILITIES 3599103 2567218 1648294 1223195 715751

Retention money payables: 0 0 0 0 18129


Deferred tax liability - net: 0 0 215381 339918 363154Deferred liability 40264 45213 7912 8277 9468

Long term financing: 3558839 2522005 1425001 875000 325000Loans from banking companies - Secured:

Habib Bank Limited 916667 598485 431818 265152MCB Bank Limited 916667 598485 431818 265152United Bank Limited 458333 299243 215909 132576

Bank Al Falah Limited 458333 299243 215909 132576NIB Bank Limited 0 0 129546 79544

PICIC Commercial Bank Limited 275000 179545 0 0Loan from related party:

Fauji Foundation- Unsecured 50000 0 0 0Total Liabilities 3971219 3774164 2915492 2665482 3170512

Less: amount payable within 12 months shown under current liabilities -552995 -550000 -550000 -550000

SHARE CAPITAL AND RESERVES 1939134 2449624 3282616 3735206 9283981Reserves: 0 0 0 -459216 1864094

Accumulated loss-

2255288-

1744798 -911806 0 0Share capital: 4194422 4194422 4194422 4194422 7419887

Total Liabilities + Owner's Equity 5910353 6223788 6198108 6400688 12454493

4.4. Income Statement


Fauji Cement Company LimitedIncome Statement

For the Year Ended June…… RS(000)2004 2005 2006 2007 2008

Sales 3247262 3921362 5683455 4780036 4749217

Less: Government Levies -951031-

1076219-

1397317-

1316753-

1203315Net Sales 2296231 2845143 4286138 3463283 3545902

Less: Cost of sales 1555407 1763567 2095027 2371788 2887790Raw material Consumed 115164 136819 205751 235379 227413

Packing material consumed 155487 147994 182873 221116 281916Stores and spares consumed 5285 6573 6052 11171 10914

Spares written off 0 0 18528 931 0Salaries, wages and benefits 91289 87091 142070 133780 133451

Rent, rates and taxes 952 1378 2562 2213 5284Insurance 14920 18078 12689 12363 12221

Fuel consumed 564591 699818 843909 979044 1441919Power consumed 310041 332383 393785 431609 451419

Depreciation 243056 251981 261566 276244 290477Others 63185 72538 104859 110238 85730

1563970 1754653 2174644 2414088 2940744Add: Opening work-in-

process 5817 27761 11624 93671 115221Less: Closing work-in-

process -27761 -11624 -93671 -115221 -152529Cost of goods manufactured 1542026 1770790 2092597 2392538 2903436

Add: Opening finished goods 31996 18615 25838 23407 44157Less: Closing finished goods -18615 -25838 -23408 -44157 -46289

1555407 1763567 2095027 2371788 2901304Less: Own consumption

capitalized 0 0 0 0 -135141555407 1763567 2095027 2371788 2887790

Gross profit 740824 1081576 2191111 1091495 658112Other income 42744 11216 43323 73835 107574

Distribution cost: 20416 21333 31694 40645 53383Salaries, wages and benefits 12011 11085 21388 20651 18791

Export freight and other charges 0 0 0 0 24482

Traveling and entertainment 1034 1857 1488 705 1127Vehicle running and

maintenance expenses 0 0 0 2745 1641Rent, rates and taxes 1144 1172 1112 1353 1468

Repairs and maintenance 411 872 625 173 288


Printing and stationery 509 640 403 416 545Depreciation 781 734 1083 1746 2704

Others 4526 4973 5595 12856 2337Administrative expenses: 39535 42292 66627 71302 76495

Salaries, wages and benefits 21817 21835 35663 42439 41153Traveling and entertainment 2053 3319 4769 3487 7483

Vehicle running and maintenance expenses 0 0 0 2385 2145

Insurance 312 356 532 594 602Rent, rates and taxes 1064 1250 4302 5934 6465

Repairs and maintenance 711 1110 2304 960 590Printing and stationery 856 868 1463 1941 1318

Depreciation 1969 3568 3883 5464 9475Others 10753 9986 13711 8098 7264

Other Operating expenses: 533 40493 94127 58098 34290Audits' remuneration 533 544 565 530 600

Workers' (Profit) Participation Fund 0 39949 93562 41483 24413

Workers' Welfare Fund 0 0 0 16085 9277Finance Cost: 204222 229633 264296 207105 146954

Fee and charges on loans 11615 10564 500 500 500Interest/mark-up on long

term finance 57324 175784 254030 200642 129928Interest/mark-up on long

term loan from related party 873 3185 456 0 0Interest on short term borrowings and other

charges 0 4352 1095 779 11609Interest on Workers' Profit

Participation Fund 0 0 2972 93 0Guarantee commission 111947 32201 483 972 665

Bank charges and commission 4557 3547 4760 4119 4252

Foreign exchange risk insurance(FERI) contract 17906 0 0 0 0

Amortization of deferred cost 762152 0 0 0 0

Net profit before taxation -243290 759041 1777690 788180 454564Less: Taxation 557439 -248548 -573951 -141857 -40966

Net profit after taxation 314149 510493 1203739 646323 413598

4.5 . Balance Sheet (Trend Analysis)

Formula


Trend Analysis (Horizontally)=

Trend Analysis (Horizontally=

Fauji Cement Company LimitedBalance Sheet (Trend Analysis) As on December….. RS(000)

2004 2005 2006 2007 2008CURRENT ASSETS 100.00% 204.15% 274.93% 340.06% 921.58%Cash and bank balances 100.00% 306.01% 430.06% 214.69% 1919.91%Deposit accounts 100.00% 407.60% 580.74% 293.17% 2733.41%Current accounts 100.00% 121.17% 230.95% 94.01% 126.79%Collection accounts 100.00% 43.97% 0.00% 0.00% 0.00%Cash in hand 100.00% 485.19% 398.15% 329.63% 479.63%Advances, Deposits, prepayments and other receivables: 100.00% 62.57% 95.59% 1167.06% 469.63%To suppliers 100.00% 53.31% 92.59% 2395.69% 45.59%To employees 100.00% 174.39% 365.03% 138.31% 550.78%Due from associated undertaking – unsecured 100.00% 99.82% 283.05% 0.00% 0.00%Deposits 100.00% 113.18% 142.04% 136.71% 436.94%Prepayments 100.00% 40.68% 93.69% 29.46% 37.39%Excise duty 100.00% 30.84% 0.00% 0.00% 0.00%Advance tax –net 100.00% 175.82% 166.06% 295.30%Sales tax refundable –net 100.00% 0.00% 0.00% 0.00% 2191.81%Derivative foreign currency options used as hedging instrument 100.00%Interest accrued 100.00% 46.07% 251.77% 233.43% 681.75%Prepaid arrangement fee for loans 100.00% 678.82%Margin on letters of credit 100.00%Other receivables- Considered goods 100.00% 1276.74% 439.69% 323.10% 1113.02%Others 100.00% 0.00% 0.00% 66.72% 15.09%TRADE DEBTS 100.00% 239.41% 56.88% 43.67% 60.12%Unsecured 100.00% 104.98% 113.46% 67.62% 20.34%Considered goods 100.00% 105.34% 114.41% 34.89% 0.00%Considered doubtful 100.00% 100.00% 100.00% 532.74% 309.38%Secure-considered goods 100.00% 371.96% 0.00% 52.34% 119.55%Less: Provision for doubtful debts 100.00% 100.00% 100.00% 532.74% 309.38%STOCK IN TRADE 100.00% 90.80% 235.54% 297.58% 373.52%Raw and packing material 100.00% 121.32% 184.00% 157.19% 205.41%Work in process 100.00% 41.87% 337.42% 415.05% 549.44%


Finished goods 100.00% 138.80% 125.74% 237.21% 248.67%STORES, SPARES AND LOOSE TOOLS 100.00% 182.60% 248.68% 237.47% 459.77%Stores 100.00% 149.83% 276.30% 86.30% 578.20%Spares 100.00% 206.65% 236.79% 333.02% 404.46%Loose tools 100.00% 114.73% 168.79% 175.80% 188.62%DEFERRED TAX ASSETS – NET 100.00% 59.14% 0.00% 0.00% 0.00%LONG TERM DEPOSITS 100.00% 127.35% 127.35% 127.35% 127.35%Islamabad Electric Supply Company Limited 100.00% 100.00% 100.00% 100.00% 100.00%Sui Northern Gas Pipelines Limited 100.00% 166.74% 166.74% 166.74% 166.74%LONG TERM ADVANCES – Considered goods 100.00% 100.00% 90.00% 80.00%Sui Northern Gas Pipelines Limited 100.00% 90.00%Less: Amount receivables within 12 months shown under current assets 100.00% 100.00%FIXED ASSETS – Tangible: 100.00% 98.50% 96.49% 92.88% 150.27%Property, Plant and equipment 100.00% 98.50% 96.49% 92.88% 150.27%Total Assets 100.00% 105.30% 104.87% 108.30% 210.72%

CURRENT LIABILITIES 100.00% 324.35% 340.54% 387.59% 659.68%Current portion of long term financing: 100.00% 639.24% 635.78% 635.78% 635.78%Short term borrowings – secured: 100.00% 76.52% 121.57% 446.25%Markup accrued: 100.00% 528.15% 455.16% 368.03% 252.71%Trade and other payables: 100.00% 101.19% 154.54% 171.92% 181.01%Creditors 100.00% 100.70% 130.91% 179.11% 144.57%Accrued liabilities 100.00% 105.82% 100.07% 187.35% 275.43%Retention money 100.00% 97.36% 118.71% 110.79% 143.42%Security deposits 100.00% 113.82% 149.19% 153.37% 144.98%Advances from customers 100.00% 183.57% 254.07% 293.11% 178.82%Workers’ (Profit) Participation Fund 100.00% 234.20% 103.84% 61.11%Workers’ Welfare fund 100.00% 157.67%Sales tax payable- net 100.00% 140.33% 175.91% 146.16% 0.00%Excise duty payable 100.00% 6098.28% 17696.55% 14796.55% 99360.34%Other liabilities 100.00% 7.21% 11.09% 49.87% 55.52%Compensated absences 100.00% 10.67% 10.84%Unclaimed dividend 100.00% 275.43% 107.67%NON – CURRENT LIABILITIES 100.00% 71.33% 45.80% 33.99% 19.89%Retention money payables: 100.00%Deferred tax liability – net: 100.00% 157.82% 168.61%Deferred liability 100.00% 112.29% 19.65% 20.56% 23.51%Long term financing: 100.00% 70.87% 40.04% 24.59% 9.13%Loans from banking companies – Secured:


Habib Bank Limited 100.00% 65.29% 47.11% 28.93%MCB Bank Limited 100.00% 65.29% 47.11% 28.93%United Bank Limited 100.00% 65.29% 47.11% 28.93%Bank Al Falah Limited 100.00% 65.29% 47.11% 28.93%NIB Bank Limited 100.00% 61.40%PICIC Commercial Bank Limited 100.00% 65.29% 0.00% 0.00%Loan from related party:Fauji Foundation- Unsecured 100.00% 0.00% 0.00% 0.00%Less: amount payable within 12 months shown under current liabilities 100.00% 99.46% 99.46% 99.46%SHARE CAPITAL AND RESERVES 100.00% 126.33% 169.28% 192.62% 478.77%Reserves: 100.00% -405.93%Accumulated loss 100.00% 77.36% 40.43% 0.00% 0.00%Share capital: 100.00% 100.00% 100.00% 100.00% 176.90%

Total Liabilities + Owner’s Equity 100.00% 105.30% 104.87% 108.30% 210.72%

4.6. Balance Sheet (Vertical Analysis)

Formula


Common Size Statement(Vertically)=

Example:- Vertical Analysis =

Fauji Cement Company LimitedBalance Sheet (Vertical Analysis)

As on December….. RS(000)2004 2005 2006 2007 2008

CURRENT ASSETS 9.72% 18.84% 25.48% 30.52% 42.51%Cash and bank balances 3.33% 9.69% 13.67% 6.61% 30.38%Deposit accounts 2.33% 9.00% 12.88% 6.29% 30.16%Current accounts 0.36% 0.42% 0.79% 0.31% 0.22%Collection accounts 0.65% 0.27% 0.00% 0.00% 0.00%Cash in hand 0.00% 0.00% 0.00% 0.00% 0.00%Advances, Deposits, prepayments and other receivables: 1.24% 0.74% 1.13% 13.42% 2.77%To suppliers 0.58% 0.29% 0.51% 12.74% 0.12%To employees 0.01% 0.01% 0.03% 0.01% 0.02%Due from associated undertaking – unsecured 0.02% 0.02% 0.05% 0.00% 0.00%Deposits 0.02% 0.02% 0.03% 0.03% 0.05%Prepayments 0.18% 0.07% 0.16% 0.05% 0.03%Excise duty 0.17% 0.05% 0.00% 0.00% 0.00%Advance tax -net 0.00% 0.13% 0.22% 0.20% 0.19%Sales tax refundable -net 0.06% 0.00% 0.00% 0.00% 0.66%Derivative foreign currency options used as hedging instrument 0.00% 0.00% 0.00% 0.00% 0.68%Interest accrued 0.04% 0.02% 0.09% 0.08% 0.12%Prepaid arrangement fee for loans 0.00% 0.00% 0.00% 0.17% 0.60%Margin on letters of credit 0.00% 0.00% 0.00% 0.00% 0.24%Other receivables- Considered goods 0.01% 0.13% 0.05% 0.03% 0.06%Others 0.16% 0.00% 0.00% 0.10% 0.01%TRADE DEBTS 0.76% 1.72% 0.41% 0.31% 0.22%Unsecured 0.40% 0.40% 0.44% 0.25% 0.04%Considered goods 0.38% 0.38% 0.41% 0.12% 0.00%Considered doubtful 0.03% 0.03% 0.03% 0.13% 0.04%Secure-considered goods 0.38% 1.35% 0.00% 0.18% 0.22%Less: Provision for doubtful debts -0.03% -0.03% -0.03% -0.13% -0.04%STOCK IN TRADE 1.04% 0.90% 2.34% 2.86% 1.85%Raw and packing material 0.26% 0.30% 0.45% 0.37% 0.25%Work in process 0.47% 0.19% 1.51% 1.80% 1.22%


Finished goods 0.31% 0.42% 0.38% 0.69% 0.37%STORES, SPARES AND LOOSE TOOLS 3.34% 5.79% 7.92% 7.32% 7.29%Stores 1.22% 1.73% 3.20% 0.97% 3.34%Spares 2.00% 3.93% 4.52% 6.16% 3.84%Loose tools 0.12% 0.13% 0.20% 0.20% 0.11%DEFERRED TAX ASSETS - NET 9.64% 5.42% 0.00% 0.00% 0.00%LONG TERM DEPOSITS 0.62% 0.75% 0.75% 0.73% 0.37%Islamabad Electric Supply Company Limited 0.37% 0.35% 0.35% 0.34% 0.17%Sui Northern Gas Pipelines Limited 0.25% 0.40% 0.40% 0.39% 0.20%LONG TERM ADVANCES - Considered goods 0.00% 0.14% 0.15% 0.13% 0.06%Sui Northern Gas Pipelines Limited 0.00% 0.00% 0.00% 0.14% 0.07%Less: Amount receivables within 12 months shown under current assets 0.00% 0.00% 0.00% -0.01% -0.01%FIXED ASSETS - Tangible: 80.02% 74.85% 73.62% 68.62% 57.06%Property, Plant and equipment 80.02% 74.85% 73.62% 68.62% 57.06%Total Assets 100.00% 100.00% 100.00% 100.00% 100.00%

CURRENT LIABILITIES 6.30% 19.39% 20.44% 22.53% 19.71%Current portion of long term financing: 1.46% 8.89% 8.87% 8.59% 4.42%Short term borrowings - secured: 0.00% 4.96% 3.81% 5.87% 11.07%Markup accrued: 0.22% 1.11% 0.96% 0.76% 0.27%Trade and other payables: 4.61% 4.43% 6.79% 7.32% 3.96%Creditors 0.77% 0.74% 0.96% 1.28% 0.53%Accrued liabilities 1.07% 1.08% 1.02% 1.86% 1.40%Retention money 0.18% 0.17% 0.21% 0.19% 0.12%Security deposits 0.43% 0.47% 0.61% 0.61% 0.30%Advances from customers 0.39% 0.68% 0.95% 1.06% 0.33%Workers' (Profit) Participation Fund 0.00% 0.64% 1.51% 0.65% 0.20%Workers' Welfare fund 0.00% 0.00% 0.00% 0.25% 0.20%Sales tax payable- net 0.38% 0.50% 0.63% 0.51% 0.00%Excise duty payable 0.00% 0.06% 0.17% 0.13% 0.46%Other liabilities 1.38% 0.09% 0.15% 0.64% 0.36%Compensated absences 0.00% 0.00% 0.55% 0.06% 0.03%Unclaimed dividend 0.00% 0.00% 0.03% 0.09% 0.02%NON - CURRENT LIABILITIES 60.89% 41.25% 26.59% 19.11% 5.75%Retention money payables: 0.00% 0.00% 0.00% 0.00% 0.15%Deferred tax liability - net: 0.00% 0.00% 3.47% 5.31% 2.92%Deferred liability 0.68% 0.73% 0.13% 0.13% 0.08%Long term financing: 60.21% 40.52% 22.99% 13.67% 2.61%Loans from banking companies -


Secured:Habib Bank Limited 0.00% 14.73% 9.66% 6.75% 2.13%MCB Bank Limited 0.00% 14.73% 9.66% 6.75% 2.13%United Bank Limited 0.00% 7.36% 4.83% 3.37% 1.06%Bank Al Falah Limited 0.00% 7.36% 4.83% 3.37% 1.06%NIB Bank Limited 0.00% 0.00% 0.00% 2.02% 0.64%PICIC Commercial Bank Limited 0.00% 4.42% 2.90% 0.00% 0.00%Loan from related party:Fauji Foundation- Unsecured 0.00% 0.80% 0.00% 0.00% 0.00%Less: amount payable within 12 months shown under current liabilities 0.00% -8.89% -8.87% -8.59% -4.42%SHARE CAPITAL AND RESERVES 32.81% 39.36% 52.96% 58.36% 74.54%Reserves: 0.00% 0.00% 0.00% -7.17% 14.97%Accumulated loss -38.16% -28.03% -14.71% 0.00% 0.00%Share capital: 70.97% 67.39% 67.67% 65.53% 59.58%

Total Liabilities + Owner's Equity 100.00% 100.00% 100.00% 100.00% 100.00%

4.7. Income Statement (Trend Analysis)


Fauji Cement Company LimitedIncome Statement (Trend Analysis)


Sales 100.00% 120.76% 175.02% 147.20% 146.25%Less: Government Levies 100.00% 113.16% 146.93% 138.46% 126.53%Net Sales 100.00% 123.90% 186.66% 150.82% 154.42% Cost of sales 100.00% 113.38% 134.69% 152.49% 185.66%Raw material Consumed 100.00% 118.80% 178.66% 204.39% 197.47%Packing material consumed 100.00% 95.18% 117.61% 142.21% 181.31%Stores and spares consumed 100.00% 124.37% 114.51% 211.37% 206.51%Spares written off 100.00% 5.02% 0.00%Salaries, wages and benefits 100.00% 95.40% 155.63% 146.55% 146.19%Rent, rates and taxes 100.00% 144.75% 269.12% 232.46% 555.04%Insurance 100.00% 121.17% 85.05% 82.86% 81.91%Fuel consumed 100.00% 123.95% 149.47% 173.41% 255.39%Power consumed 100.00% 107.21% 127.01% 139.21% 145.60%Depreciation 100.00% 103.67% 107.62% 113.65% 119.51%Others 100.00% 114.80% 165.96% 174.47% 135.68%

100.00% 112.19% 139.05% 154.36% 188.03%Add: Opening work-in-process 100.00% 477.24% 199.83% 1610.30% 1980.76%Less: Closing work-in-process 100.00% 41.87% 337.42% 415.05% 549.44%Cost of goods manufactured 100.00% 114.84% 135.70% 155.16% 188.29%Add: Opening finished goods 100.00% 58.18% 80.75% 73.16% 138.01%Less: Closing finished goods 100.00% 138.80% 125.75% 237.21% 248.67%

100.00% 113.38% 134.69% 152.49% 186.53%Less: Own consumption capitalized 100.00%

100.00% 113.38% 134.69% 152.49% 185.66%Gross profit 100.00% 146.00% 295.77% 147.34% 88.84%Other income 100.00% 26.24% 101.35% 172.74% 251.67%Distribution cost: 100.00% 104.49% 155.24% 199.08% 261.48%Salaries, wages and benefits 100.00% 92.29% 178.07% 171.93% 156.45%Export freight and other charges 100.00%Traveling and entertainment 100.00% 179.59% 143.91% 68.18% 108.99%Vehicle running and maintenance expenses 100.00% 59.78%Rent, rates and taxes 100.00% 102.45% 97.20% 118.27% 128.32%Repairs and maintenance 100.00% 212.17% 152.07% 42.09% 70.07%Printing and stationery 100.00% 125.74% 79.17% 81.73% 107.07%Depreciation 100.00% 93.98% 138.67% 223.56% 346.22%Others 100.00% 109.88% 123.62% 284.05% 51.63%Administrative expenses: 100.00% 106.97% 168.53% 180.35% 193.49%


Salaries, wages and benefits 100.00% 100.08% 163.46% 194.52% 188.63%Traveling and entertainment 100.00% 161.67% 232.29% 169.85% 364.49%Vehicle running and maintenance expenses 100.00% 89.94%Insurance 100.00% 114.10% 170.51% 190.38% 192.95%Rent, rates and taxes 100.00% 117.48% 404.32% 557.71% 607.61%Repairs and maintenance 100.00% 156.12% 324.05% 135.02% 82.98%Printing and stationery 100.00% 101.40% 170.91% 226.75% 153.97%Depreciation 100.00% 181.21% 197.21% 277.50% 481.21%Others 100.00% 92.87% 127.51% 75.31% 67.55%Other Operating expenses: 100.00% 7597.19% 17659.85% 10900.19% 6433.40%Audits' remuneration 100.00% 102.06% 106.00% 99.44% 112.57%Workers' (Profit) Participation Fund 100.00% 234.20% 103.84% 61.11%Workers' Welfare Fund 100.00% 57.67%Finance Cost: 100.00% 112.44% 129.42% 101.41% 71.96%Fee and charges on loans 100.00% 90.95% 4.30% 4.30% 4.30%Interest/mark-up on long term finance 100.00% 306.65% 443.15% 350.01% 226.66%Interest/mark-up on long term loan from related party 100.00% 364.83% 52.23% 0.00% 0.00%Interest on short term borrowings and other charges 100.00% 25.16% 17.90% 266.75%Interest on Workers' Profit Participation Fund 100.00% 3.13% 0.00%Guarantee commission 100.00% 28.76% 0.43% 0.87% 0.59%Bank charges and commission 100.00% 77.84% 104.45% 90.39% 93.31%Foreign exchange risk insurance(FERI) contract 100.00% 0.00% 0.00% 0.00% 0.00%Amortization of deferred cost 100.00% 0.00% 0.00% 0.00% 0.00%Net profit before taxation 100.00% -311.99% -730.69% -323.97% -186.84%Less: Taxation 100.00% -44.59% -102.96% -25.45% -7.35%Net profit after taxation 100.00% 162.50% 383.17% 205.74% 131.66%

4.8. Income Statement (Vertical Analysis)


Fauji Cement Company LimitedIncome Statement (Vertical Analysis)


Sales 100.00% 100.00% 100.00% 100.00% 100.00%Less: Government Levies -29.29% -27.45% -24.59% -27.55% -25.34%Net Sales 70.71% 72.55% 75.41% 72.45% 74.66%Less: Cost of sales 47.90% 44.97% 36.86% 49.62% 60.81%Raw material Consumed 3.55% 3.49% 3.62% 4.92% 4.79%Packing material consumed 4.79% 3.77% 3.22% 4.63% 5.94%Stores and spares consumed 0.16% 0.17% 0.11% 0.23% 0.23%Spares written off 0.00% 0.00% 0.33% 0.02% 0.00%Salaries, wages and benefits 2.81% 2.22% 2.50% 2.80% 2.81%Rent, rates and taxes 0.03% 0.04% 0.05% 0.05% 0.11%Insurance 0.46% 0.46% 0.22% 0.26% 0.26%Fuel consumed 17.39% 17.85% 14.85% 20.48% 30.36%Power consumed 9.55% 8.48% 6.93% 9.03% 9.51%Depreciation 7.48% 6.43% 4.60% 5.78% 6.12%Others 1.95% 1.85% 1.84% 2.31% 1.81%

48.16% 44.75% 38.26% 50.50% 61.92%Add: Opening work-in-process 0.18% 0.71% 0.20% 1.96% 2.43%Less: Closing work-in-process -0.85% -0.30% -1.65% -2.41% -3.21%Cost of goods manufactured 47.49% 45.16% 36.82% 50.05% 61.14%Add: Opening finished goods 0.99% 0.47% 0.45% 0.49% 0.93%Less: Closing finished goods -0.57% -0.66% -0.41% -0.92% -0.97%

47.90% 44.97% 36.86% 49.62% 61.09%Less: Own consumption capitalized 0.00% 0.00% 0.00% 0.00% -0.28%

47.90% 44.97% 36.86% 49.62% 60.81%Gross profit 22.81% 27.58% 38.55% 22.83% 13.86%Other income 1.32% 0.29% 0.76% 1.54% 2.27%Distribution cost: 0.63% 0.54% 0.56% 0.85% 1.12%Salaries, wages and benefits 0.37% 0.28% 0.38% 0.43% 0.40%Export freight and other charges 0.00% 0.00% 0.00% 0.00% 0.52%Traveling and entertainment 0.03% 0.05% 0.03% 0.01% 0.02%Vehicle running and maintenance expenses 0.00% 0.00% 0.00% 0.06% 0.03%Rent, rates and taxes 0.04% 0.03% 0.02% 0.03% 0.03%Repairs and maintenance 0.01% 0.02% 0.01% 0.00% 0.01%Printing and stationery 0.02% 0.02% 0.01% 0.01% 0.01%Depreciation 0.02% 0.02% 0.02% 0.04% 0.06%Others 0.14% 0.13% 0.10% 0.27% 0.05%Administrative expenses: 1.22% 1.08% 1.17% 1.49% 1.61%Salaries, wages and benefits 0.67% 0.56% 0.63% 0.89% 0.87%


Traveling and entertainment 0.06% 0.08% 0.08% 0.07% 0.16%Vehicle running and maintenance expenses 0.00% 0.00% 0.00% 0.05% 0.05%Insurance 0.01% 0.01% 0.01% 0.01% 0.01%Rent, rates and taxes 0.03% 0.03% 0.08% 0.12% 0.14%Repairs and maintenance 0.02% 0.03% 0.04% 0.02% 0.01%Printing and stationery 0.03% 0.02% 0.03% 0.04% 0.03%Depreciation 0.06% 0.09% 0.07% 0.11% 0.20%Others 0.33% 0.25% 0.24% 0.17% 0.15%Other Operating expenses: 0.02% 1.03% 1.66% 1.22% 0.72%Audits' remuneration 0.02% 0.01% 0.01% 0.01% 0.01%Workers' (Profit) Participation Fund 0.00% 1.02% 1.65% 0.87% 0.51%Workers' Welfare Fund 0.00% 0.00% 0.00% 0.34% 0.20%Finance Cost: 6.29% 5.86% 4.65% 4.33% 3.09%Fee and charges on loans 0.36% 0.27% 0.01% 0.01% 0.01%Interest/mark-up on long term finance 1.77% 4.48% 4.47% 4.20% 2.74%Interest/mark-up on long term loan from related party 0.03% 0.08% 0.01% 0.00% 0.00%Interest on short term borrowings and other charges 0.00% 0.11% 0.02% 0.02% 0.24%Interest on Workers' Profit Participation Fund 0.00% 0.00% 0.05% 0.00% 0.00%Guarantee commission 3.45% 0.82% 0.01% 0.02% 0.01%Bank charges and commission 0.14% 0.09% 0.08% 0.09% 0.09%Foreign exchange risk insurance(FERI) contract 0.55% 0.00% 0.00% 0.00% 0.00%Amortization of deferred cost 23.47% 0.00% 0.00% 0.00% 0.00%Net profit before taxation -7.49% 19.36% 31.28% 16.49% 9.57%Less: Taxation 17.17% -6.34% -10.10% -2.97% -0.86%Net profit after taxation 9.67% 13.02% 21.18% 13.52% 8.71%

4.9. Ratio Analysis


4.9.1. Liquidity Ratio

Current ratio =

Fauji Cement Company LimitedLiquidity Ratio Analysis

2004 2005 2006 2007 2008CURRENT RATIO 1.54 0.97 1.25 1.35 2.16CURRENT ASSETS 574460 1172765 1579382 1953527 5294083CURRENT LIABILITIES 372116 1206946 1267198 1442287 2454761

liquidity Ratio

1.54

0.97

1.251.35

2.16

0.00

0.50

1.00

1.50

2.00

2.50

2004 2005 2006 2007 2008

Years

Rat

ios

Current Ratio

The amount of Current Assets in the year 2004 was Rs.574460 and the amount of current

liabilities in the first year 2004 was Rs.372116 and current ratio was 1.54 in the year 2004.

And the amount current assets increases to Rs.1172765 in the year 2005 with an increment of

Rs.598305 and the amount of current liabilities becomes Rs.1206946 in the year 2005 with

increment of Rs.834830 and current ratio becomes 0.97 in the year 2005.

And the amount of current assets increases to Rs.1579382 in the year 2006 with an increment

of Rs.406617 and the amount current liabilities becomes Rs.1267198 in the year 2006 with

increment of Rs.60252 and the current ratio becomes 1.25 in the year 2006.


The amount of current assets increases to Rs.1953527 in the year 2007 with an increment of


increment of Rs.175089 and current ratio becomes 1.35 in the year 2007.


of Rs.3340556 and the amount of current liabilities becomes Rs.2454761 in the year 2008 with

increment of Rs.1012474 and the current ratio becomes 2.16 in the year 2008.

Net Working Capital = current assets – current liabilities

Fauji Cement Company Limited

Liquidity Ratios Analysis

2004 2005 2006 2007 2008

Net Working Capital 202344 -34181 312184 511240 2839322CURRENT ASSETS 574460 1172765 1579382 1953527 5294083CURRENT LIABILITIES 372116 1206946 1267198 1442287 2454761

Liquidity Ratio

202344

-34181

312184511240

2839322

-500000

0

500000

1000000

1500000

2000000

2500000

3000000

2004 2005 2006 2007 2008

Years

Net

Wo

rkin

g C

apti

cal

Net Working Capital



liabilities in the first year 2004 was Rs.372116 and Net Working Capital was 202344 in the

year 2004.



increment of Rs.834830 and Net Working Capital becomes -34181 in the year 2005.



increment of Rs.60252 and the Net Working Capital becomes 312184 in the year 2006.



increment of Rs.175089 and Net Working Capital becomes 511240 in the year 2007.



increment of Rs.1012474 and the Net Working Capital becomes 2839322 in the year 2008.

Acid ratio =

Fauji Cement Company LimitedLiquidity Ratios Analysis

2004 2005 2006 2007 2008Acid Ratio 1.38 0.93 1.13 1.23 2.06CURRENT ASSETS 574460 1172765 1579382 1953527 5294083STOCK IN TRADE 61600 55931 145090 183309 230089CURRENT IABILITIES 372116 1206946 1267198 1442287 2454761


Liquidity Ratio

1.38

0.931.13

1.23

2.06

0.00

0.50

1.00

1.50

2.00

2.50

2004 2005 2006 2007 2008

Years

Rat

io Acid Ratio


liabilities in the first year 2004 was Rs.372116 and the amount of Stock In Trade in the first

year 2004 was Rs.61600 due to witch the Acid Ratio becomes 1.38 in the year 2004



increment of Rs.834830 and the amount of Stock In Trade decreases to Rs.55931 in the year

2005 with decrement of Rs.5669 and the Acid Ratio becomes 0.93 in 2005.



increment of Rs.60252 and the amount of Stock In Trade increases to Rs.145090 in the year

2006 with increment of Rs.55931 and the Acid Ratio becomes 1.13 in 2006.

The amount of current assets increases to Rs.1953527 in the year 2007 with an increment of


increment of Rs.175089 and the amount of Stock In Trade becomes Rs.183309 in the year

2007 with increment of Rs.38219 and the Acid Ratio becomes 1.23 in 2007.



increment of Rs.1012474 and the amount of Stock In Trade becomes Rs.230089 in the year

2008 with increment of Rs.46780 and Acid Ratio becomes 2.06 in 2008.


Cash ratio =


2004 2005 2006 2007 2008

Cash Ratio 0.53 0.50 0.67 0.29 1.54Cash and bank balances 197088 603110 847590 423133 3783909CURRENT LIABILITIES 372116 1206946 1267198 1442287 2454761

Liquidity Ratio

0.53 0.500.67

0.29

1.54

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

2004 2005 2006 2007 2008

Years

Rat

io Cash Ratio

The amount of Cash and bank balances in the year 2004 was Rs.197088 and the amount of

current liabilities in the first year 2004 was Rs.372116 due to which the Cash Ratio becomes

0.53 in the year 2004.

And the amount of Cash and bank balances increases to Rs.603110 in the year 2005 with an

increment of Rs.406022 and the amount of current liabilities becomes Rs.1206946 in the year

2005 with increment of Rs.834830 and Cash Ratio becomes 0.50 in the year 2005.


increment of Rs.244480 and the amount current liabilities becomes Rs.1267198 in the year

2006 with an increment of Rs.60252 and the Cash Ratio becomes 0.67 in the year 2006.


The amount of Cash and bank balances decreases to Rs.423133 in the year 2007 with

decrement of Rs.424457 and the amount of current liabilities becomes Rs.1442287 in the year

2007 with an increment of Rs.175089 and Cash Ratio becomes 0.29 in the year 2007.


increment of Rs.3360776 and the amount of current liabilities becomes Rs.2454761 in the year

2008 with an increment of Rs.1012474 and the Cash Ratio becomes 1.54 in the year 2008.

4.9.2. Long Term Liquidity / Long Term Debt Paying Ability

Debt/equity ratio =


2004 2005 2006 2007 2008

Debt/Equity Ratio 3.05 2.54 1.89 1.71 1.34Total Liabilities 5910353 6223788 6198108 6400688 12454493SHARE CAPITAL AND RESERVES 1939134 2449624 3282616 3735206 9283981

Debt Ratio

3.05

2.54

1.891.71

1.34

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

2004 2005 2006 2007 2008

Years

Rat

ios

Debt/Equity Ratio


The amount of Total liabilities in the first year 2004 was Rs.5910353 and the amount of

SHARE CAPITAL AND RESERVES was Rs.1939134 due to which Debt/Equity Ratio

becomes 3.05 in the year 2004.

And the amount of Total liabilities becomes Rs.6223788 in the year 2005 with an increment of

Rs.313435 and the amount of SHARE CAPITAL AND RESERVES becomes Rs.2449624 in

the year 2005 with an increment of Rs.510490 and the Debt/Equity Ratio becomes 2.54 in the

year 2005.

And the amount of Total liabilities becomes Rs.6198108 in the year 2006 with decrement of



year 2006.




year 2007.

And the amount of Total liabilities becomes Rs.12454493 in the year 2008 with an increment

of Rs.6053805 and the amount of SHARE CAPITAL AND RESERVES becomes Rs.9283981

in the year 2008 with an increment of Rs.5548775 and the Debt/Equity Ratio becomes 1.34 in

the year 2008.

Debt to tangible net worth =


2004 2005 2006 2007 2008

Debt to tangible net worth 3.05 2.54 1.89 1.71 1.34Total Liabilities 5910353 6223788 6198108 6400688 12454493SHARE CAPITALAND RESERVES 1939134 2449624 3282616 3735206 9283981Intangible assets 0 0 0 0 0


Debt Ratio

3.05

2.54

1.891.71

1.34

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

2004 2005 2006 2007 2008

Years

Rat

ios

Debt to tangible net worth

The amount of Total liabilities in the first year 2004 was Rs.5910353 and the amount of

SHARE CAPITAL AND RESERVES was Rs.1939134 due to which Debt/Equity Ratio

becomes 3.05 in the year 2004.




year 2005.

And the amount of Total liabilities becomes Rs.6198108 in the year 2006 with decrement of



year 2006.




year 2007.

And the amount of Total liabilities becomes Rs.12454493 in the year 2008 with an increment

of Rs.6053805 and the amount of SHARE CAPITAL AND RESERVES becomes Rs.9283981

in the year 2008 with an increment of Rs.5548775 and the Debt/Equity Ratio becomes 1.34 in

the year 2008.


4.9.3. Activity Ratio

Day’s Sales in account receivable =


2004 2005 2006 2007 2008Day's Sales in account receivable 7.12 13.76 2.17 2.06 2.77TRADE DEBTS 44789 107231 25475 19558 26927Net Sales 2296231 2845143 4286138 3463283 3545902

Activity Ratio

7.12

13.76

2.17 2.062.77

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

2004 2005 2006 2007 2008

Years

Rat

ios

Day's Sales in account receivable

The amount of Trade debts in the year 2004 was Rs.44789 and the amount of Net Sales in the

first year 2004 was Rs.2296231 and the Day's Sales in account receivable becomes 7.12 in the

year 2004.

And the amount Trade debts increases to Rs.107231 in the year 2005 with an increment of

Rs.62442 and the amount of Net Sales becomes Rs.2845143 in the year 2005 with increment

of Rs.548912 and the Day's Sales in account receivable becomes 13.76 in the year 2005.

And the amount Trade debts decreases to Rs.25475 in the year 2006 with decrement of

Rs.81756 and the amount of Net Sales becomes Rs.4286138 in the year 2006 with increment of

Rs.1440995 and the Day's Sales in account receivable becomes 2.17 in the year 2006.



Rs.5917 and the amount of Net Sales becomes Rs.3463283 in the year 2007 with decrement of

Rs.8228885 and the Day's Sales in account receivable becomes 2.06 in the year 2007.

And the amount Trade debts increases to Rs.26927 in the year 2008 with increment of Rs.7369

and the amount of Net Sales becomes Rs.3545902 in the year 2008 with increment of Rs.82619

and the Day's Sales in account receivable becomes 2.77 in the year 2008.

Account receivable turn over=


2004 2005 2006 2007 2008Account Receivable Turn Over 51.27 26.53 168.25 177.08 131.69Net Sales 2296231 2845143 4286138 3463283 3545902TRADE DEBTS 44789 107231 25475 19558 26927

Activity Ratio

51.27

26.53

168.25177.08

131.69

0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

160.00

180.00

200.00

2004 2005 2006 2007 2008

Years

Rati

os

Account Receivable Turn Over

The amount of Trade debts in the year 2004 was Rs.44789 and the amount of Net Sales in the

first year 2004 was Rs.2296231 and the Account Receivable Turn Over becomes 5.27 in the

year 2004.

And the amount Trade debts increases to Rs.107231 in the year 2005 with an increment of


of Rs.548912 and the Account Receivable Turn Over becomes 26.53 in the year 2005.



Rs.81756 and the amount of Net Sales becomes Rs.4286138 in the year 2006 with increment of

Rs.1440995 and the Account Receivable Turn Over becomes 168.25 in the year 2006.


Rs.5917 and the amount of Net Sales becomes Rs.3463283 in the year 2007 with decrement of

Rs.8228885 and the Account Receivable Turn Over becomes 177.08 in the year 2007.

And the amount Trade debts increases to Rs.26927 in the year 2008 with increment of Rs.7369

and the amount of Net Sales becomes Rs.3545902 in the year 2008 with increment of Rs.82619

and the Account Receivable Turn Over becomes 131.69 in the year 2008.

Day’s sales in inventory =


2004 2005 2006 2007 2008Day's sales in inventory 14.46 11.58 25.28 28.21 29.08STOCK IN TRADE 61600 55931 145090 183309 230089Cost of sales 1555407 1763567 2095027 2371788 2887790

Activity Ratio

14.4611.58

25.2828.21 29.08

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

2004 2005 2006 2007 2008

Years

Rat

ios

Day's sales in inventory

The amount of Stock In trade in the year 2004 was Rzs.61600 and the amount of Cost of sales

in the first year 2004 was Rs.1555407 and the Day's sale in inventory was 14.46 in the year

2004.


And the amount Stock in trade decreases to Rs.55931 in the year 2005 with decrement of

Rs.5669 and the amount of Cost of sales becomes Rs.1763567 in the year 2005 with an

increment of Rs.208160 and the Day's sale in inventory becomes 11.58 in the year 2005.

And the amount Stock in trade increases to Rs.145090 in the year 2006 with an increment of









Inventory turn over =


2004 2005 2006 2007 2008Inventory turnover 61.46 79.34 85.08 70.21 63.86Cost of sales 1555407 1763567 2095027 2371788 2887790STOCK IN TRADE 61600 55931 145090 183309 230089

Activity Ratio

61.46

79.3485.08

70.2163.86

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

90.00

2004 2005 2006 2007 2008

Years

Rati

os

Inventory turnover

The amount of Stock In trade in the year 2004 was Rs.61600 and the amount of Cost of sales in

the first year 2004 was Rs.1555407 and the Inventory turnover was 61.46 in the year 2004.


And the amount Stock in trade decreases to Rs.55931 in the year 2005 with decrement of


increment of Rs.208160 and the Inventory turnover becomes 79.34 in the year 2005.









increment of Rs.516002 and the Inventory turnover becomes 63.86 in the year 2008

Total asset turn over =


2004 2005 2006 2007 2008Total asset turnover 0.39 0.46 0.69 0.54 0.28Net Sales 2296231 2845143 4286138 3463283 3545902Total Assets 5910353 6223788 6198108 6400688 12454493

Activity Ratio

0.390.46

0.69

0.54

0.28

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

2004 2005 2006 2007 2008

Years

Rati

os

Total asset turnover

The amount of Net Sales in the year 2004 was Rs.2296231 and the amount of Total Assets in

the first year 2004 was Rs.5910353 and Total asset turnover was 0.39 in the year 2004.


And the amount Net Sales increases to Rs.2845143 in the year 2005 with an increment of

Rs.548912 and the amount of Total Assets becomes Rs.6223788 in the year 2005 with

increment of Rs.313435 and Total asset turnover becomes 0.46 in the year 2005.



decrement of Rs.25680 and Total asset turnover becomes 0.69 in the year 2006.

And the amount Net Sales decreases to Rs.3463283 in the year 2007 with decrement of






4.9.4. Profitability

Gross profit margin =

Fauji Cement Company LimitedLiquidity Ratios Analysis2004 2005 2006 2007 2008

Gross profit margin (%) 32.26% 38.01% 51.12% 31.52% 18.56%Gross profit 740824 1081576 2191111 1091495 658112Net Sales 2296231 2845143 4286138 3463283 3545902


Profitability Ratio

32.26%38.01%

51.12%

31.52%

18.56%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

2004 2005 2006 2007 2008

Years

Rati

os

Gross profit margin

The amount of Gross Profit in the year 2004 was Rs.740824 and the amount of Net Sales in the

first year 2004 was Rs.2296231 and Gross Profit Margin was 32.26% in the year 2004.

And the amount of Gross Profit increases to Rs.1081576 in the year 2005 with an increment of


of Rs.548912 and the Gross Profit Margin becomes 38.01% in the year 2005.

And the amount of Gross Profit increases to Rs.2191111 in the year 2006 with an increment of



And the amount of Gross Profit decreases to Rs.1091495 in the year 2007 with decrement of

Rs.1099616 and the amount of Net Sales becomes Rs.3463283 in the year 2007 with

decrement of Rs.822855 and the Gross Profit Margin becomes 31.52% in the year 2007.

And the amount of Gross Profit decreases to Rs.658112 in the year 2008 with decrement of



Operating income margin =


2004 2005 2006 2007 2008Operating income margin (%) 1.70% 34.75% 47.64% 28.74% 16.96%Operating Profit 39068 988673 2041984 995285 601518

Net Sales 2296231 2845143 4286138 3463283 3545902


Profitability ratio

1.70%

34.75%

47.64%

28.74%

16.96%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

2004 2005 2006 2007 2008

Years

Rat

ios

Operating income margin

The amount of Operating Profit in the year 2004 was Rs.39068 and the amount of Net Sales in

the first year 2004 was Rs.2296231 and Operating Income Margin was 1.70% in the year 2004.

And the amount of Operating Profit increases to Rs.988673 in the year 2005 with an increment

of Rs.949605 and the amount of Net Sales becomes Rs.2845143 in the year 2005 with

increment of Rs.548912 and the Operating Income Margin becomes 34.75% in the year 2005.

And the amount of Operating Profit increases to Rs.2041984 in the year 2006 with an

increment of Rs.1053311 and the amount of Net Sales becomes Rs.4286138 in the year 2006

with increment of Rs.1440995 and the Operating Income Margin becomes 47.64% in the year

2006.

And the amount of Operating Profit decreases to Rs.995285 in the year 2007 with decrement of

Rs.1046699 and the amount of Net Sales becomes Rs.3463283 in the year 2007 with

decrement of Rs.822855 and the Operating Income Margin becomes 28.74% in the year 2007.

And the amount of Operating Profit decreases to Rs.601518 in the year 2008 with decrement of


of Rs.82619 and the Operating Income Margin becomes 16.96% in the year 2008


Net profit margin =


2004 2005 2006 2007 2008Net profit margin 13.68% 17.94% 28.08% 18.66% 11.66%Net profit after taxation 314149 510493 1203739 646323 413598Net Sales 2296231 2845143 4286138 3463283 3545902

Profitability Ratio

13.68%

17.94%

28.08%

18.66%

11.66%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

2004 2005 2006 2007 2008

Years

Rat

ios

Net profit margin

The amount of Net Profit after taxation in the year 2004 was Rs.314149 and the amount of Net

Sales in the first year 2004 was Rs.2296231 and Net Profit Margin was 13.68% in the year

2004.

And the amount of Net profit after taxation increases to Rs.510493 in the year 2005 with an


with increment of Rs.548912 and the Net Profit Margin becomes 17.94% in the year 2005.



with increment of Rs.1440995 and the Net Profit Margin becomes 28.08% in the year 2006.


And the amount of Net profit after taxation decreases to Rs.646323 in the year 2007 with

decrement of Rs.557416 and the amount of Net Sales becomes Rs.3463283 in the year 2007

with decrement of Rs.822855 and the Net Profit Margin becomes 18.66% in the year 2007.


decrement of Rs.232725 and the amount of Net Sales becomes Rs.3545902 in the year 2008

with increment of Rs.82619 and the Net Profit Margin becomes 11.66% in the year 2008

Return on asset =

Fauji Cement Company LimitedRatio Analysis

2004 2005 2006 2007 2008Return on asset (%) 5.32% 8.20% 19.42% 10.10% 3.32%Net profit after taxation 314149 510493 1203739 646323 413598Total Assets 5910353 6223788 6198108 6400688 12454493

Profitability Ratio

5.32%

8.20%

19.42%

10.10%

3.32%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

2004 2005 2006 2007 2008

Years

Rat

ios

Return on asset

The amount of Net Profit after taxation in the year 2004 was Rs.314149 and the amount of

Total Assets in the first year 2004 was Rs.5910353 and the Return on asset was 5.32% in the

year 2004.



increment of Rs.196344 and the amount of Total Assets becomes Rs.6223788 in the year 2005

with increment of Rs.313435 and the Return on asset becomes 8.20% in the year 2005.


increment of Rs.693246 and the amount of Total Assets becomes Rs.6198108 in the year 2006

with decrement of Rs.25680 and the Return on asset becomes 19.42% in the year 2006.


decrement of Rs.557416 and the amount of Total Assets becomes Rs.6400688 in the year 2007

with increment of Rs.202580 and the Return on asset becomes 10.10% in the year 2007.


decrement of Rs.232725 and the amount of Total Assets becomes Rs.12454493 in the year

2008 with increment of Rs.6053805 and the Return on asset becomes 3.32% in the year 2008

Return on sales to fixed assets =


2004 2005 2006 2007 2008Return on Sales to fixed assets 0.49 0.61 0.94 0.79 0.50Net Sales 2296231 2845143 4286138 3463283 3545902FIXED ASSETS - Tangible 4729254 4658272 4563115 4392450 7106599

Profitability Ratio

0.49

0.61

0.94

0.79

0.50

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00

2004 2005 2006 2007 2008

Years

Rat

ios

Return on Sales to fixed assets


The amount of Net Sales in the year 2004 was Rs.2296231 and the amount of Fixed Assets in

the first year 2004 was Rs.4729254 and the Return on Sales to fixed assets was 0.49 in the year

2004.


Rs.548912 and the amount of Fixed Assets becomes Rs.4658272 in the year 2005 with

decrement of Rs.70982 and the Return on Sales to fixed assets becomes 0.61 in the year 2005.




And the amount Net Sales decreases to Rs.3463283 in the year 2007 with decrement of





increment of Rs.2714149 and the Return on Sales to fixed assets becomes 0.50 in the year

2008

Return on total equity =


2004 2005 2006 2007 2008Return on total equity 16.20% 20.84% 36.67% 17.30% 4.45%Net profit after taxation 314149 510493 1203739 646323 413598SHARE CAPITAL AND RESERVES 1939134 2449624 3282616 3735206 9283981


Profitability Ratio

16.20%

20.84%

36.67%

17.30%

4.45%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

2004 2005 2006 2007 2008

Years

Rat

ios

Return on total equity

The amount of Net Profit after taxation in the year 2004 was Rs.314149 and the amount of

Share Capital and Reserves in the first year 2004 was Rs.1939134 and the Return on total

equity was 16.20% in the year 2004.


increment of Rs.196344 and the amount of Share Capital and Reserves becomes Rs.2449624 in

the year 2005 with increment of Rs.510490 and the Return on total equity becomes 20.84% in

the year 2005.


increment of Rs.693246 and the amount of Share Capital and Reserves becomes Rs.3282616 in

the year 2006 with increment of Rs.832992 and the Return on total equity becomes 36.67% in

the year 2006.


decrement of Rs.557416 and the amount of Share Capital and Reserves becomes Rs.3735206

in the year 2007 with increment of Rs.452590 and the Return on total equity becomes 17.30%

in the year 2007.


decrement of Rs.232725 and the amount of Share Capital and Reserves becomes Rs.9283981

in the year 2008 with increment of Rs.5548775 and the Return on total equity becomes 4.45%

in the year 2008

Earning Per Common Share =


Fuji Cement Company LimitedRatio Analysis

2004 2005 2006 2007 2008Earning per common share 0.85 1.38 3.25 1.73 0.85Net profit after taxation 314149 510493 1203739 646323 413598No. of common shares 370743 370743 370743 374473 489456

Profitability Ratio

0.85

1.38

3.25

1.73

0.85

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

2004 2005 2006 2007 2008

Years

Rat

ios

Earning per common share

The amount of Net Profit after taxation in the year 2004 was Rs.314149 and the Number of

common shares in the first year 2004 was 370743 and the Earning per common share was

0.85 in the year 2004.


increment of Rs.196344 and the Number of common shares becomes 370743 in the year 2005

and the Earning per common share becomes 1.38 in the year 2005.


increment of Rs.693246 and the Number of common shares becomes 370743 in the year 2006

and the Earning per common share becomes 3.25 in the year 2006.


decrement of Rs.557416 and the Number of common shares becomes 374473 in the year 2007

with increment of 3730 and the Earning per common share becomes 1.73 in the year 2007.


decrement of Rs.232725 and the Number of common shares becomes 489456 in the year 2008

with increment of 114983 and the Earning per common share becomes 0.85 in the year 2008


Price/earning ratio =


2004 2005 2006 2007 2008Price/earning ratio 18.89 10.48 6.75 13.17 20.91Market price 14.15 12.76 19.38 20.09 16.06Earning per share - Diluted 0.75 1.22 2.87 1.53 0.77

Profitability Ratio

18.89

10.48

6.75

13.17

20.91

0.00

5.00

10.00

15.00

20.00

25.00

2004 2005 2006 2007 2008

Years

Rat

ios

Price/earning ratio

The market price in the year 2004 was Rs.14.15 and the Earning per share in the first year 2004

was 0.75 and Price/earning ratio was 18.89 in the year 2004.

And the market price decreases to 12.76 in the year 2005 with decrement of 1.39 and the

Earning per share becomes 1.22 in the year 2005 with increment of 0.47 and the Price/earning

ratio becomes 10.48 in the year 2005.

And the market price increases to 19.38 in the year 2006 with increment of 6.62 and the

Earning per share becomes 2.87 in the year 2006 with increment of 1.65 and the Price/earning


And the market price increases to 20.09 in the year 2007 with increment of 0.71 and the

Earning per share becomes 1.53 in the year 2007 with decrement of 1.34 and the Price/earning



And the market price decreases to 16.06 in the year 2008 with decrement of 4.03 and the

Earning per share becomes 0.77 in the year 2008 with decrement of 0.76 and the Price/earning


4.9.5. Finencial Leverage Ratio - Analysis for Investor

Degree of financial leverage =


2004 2005 2006 2007 2008Degree of financial leverage 0.20 0.68 0.56 0.70Net profit after taxation 314149 510493 1203739 646323 413598Net profit before taxation -243290 759041 1777690 788180 454564

Ratio Analysis

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

2004 2005 2006 2007 2008

Years

Ra

tio

s

Degree of financial leverage

Percentage of earnings Retained

Percentage of earnings retained = Net income –All dividends / Net income

It is better for trend analysis if non recurring items are remove.


4.9.6. Dividend Policy Ratio

Dividend payout RatioThe dividend payout ratio measures the portion of current earnings per common share being paid out in dividends.

Dividend payout = Dividend per common share / Diluted earnings per share

Dividend yieldThe dividend yield indicates the relationship between the dividends per common share and the market price per common share.Dividend yield = Dividend per common share / market price per common share

Book Value per Share

It indicates the amount of shareholder’s equity that relates to each share of outstanding common stock.

Book value per share= Total shareholder’s equity-preferred stock equity/Number of common share outstandingBook value is of limited use to the investment analyst since it is based on Historical cost. When market value is below book value, investors view the company as lacking potential. A market value above book value indicates that investors view the company as having enough potential to be worth more than the un recovered cost.

Book Value Per Share (Amounts in Rs. “000”)2003 2004 2005 2006 2007

Total Shareholder's Equity 1,624,986 1,939,134 2,449,624 3,282,616 3,735,206Preferred Stock Equity 486,992 486,992 486,992 486,992 486,992No. of Common Stock O/S 370743 370743 370743 370743 370743Book Value Per Share 3.07 3.92 5.29 7.54 8.76


3.073.92

5.29

7.548.76

0.00

2.00

4.00

6.00

8.00

10.00

2003 2004 2005 2006 2007

Years

Bo

ok V

alu

r P

er

Sh

are

Series1

The book value per share is increasing in the coming years. The reason of that rise is that the total common shareholder’s equity is increasing in the coming years. That is very good for the investors to earn more on their investments. The owners of the cement company are increasing as compared to the base year


4.9.7. Ratio Analysis charts.

2004 2005 2006 2007 2008Net Working Capital 202344 -34181 312184 511240 2839322Current Ratio 1.54 0.97 1.25 1.35 2.16Acid Ratio 1.38 0.93 1.13 1.23 2.06Cash Ratio 0.53 0.50 0.67 0.29 1.54 Debt/Equity Ratio 3.05 2.54 1.89 1.71 1.34Debt to tangible net worth 3.05 2.54 1.89 1.71 1.34Day's Sales in account receivable 7.119486236 13.75653702 2.169406351 2.061243623 2.771750319Account Receivable Turn Over 51.26774431 26.53284032 168.2487929 177.0775642 131.6857429Day's sales in inventory 14.45538049 11.57586584 25.27788425 28.20985054 29.08192251Inventory turnover 61.46396112 79.34345616 85.08414897 70.20863182 63.85666586Net profit margin 13.68% 17.94% 28.08% 18.66% 11.66%Total asset turnover 0.39 0.46 0.69 0.54 0.28Return on asset 5.32% 8.20% 19.42% 10.10% 3.32%Operating income margin 1.70% 34.75% 47.64% 28.74% 16.96%Return on Sales to fixed assets 0.485537677 0.610772192 0.939300894 0.788462703 0.498959066Return on total equity 16.20% 20.84% 36.67% 17.30% 4.45%Gross profit margin 32.26% 38.01% 51.12% 31.52% 18.56%Degree of financial leverage 0.20 0.68 0.56 0.70Earning per common share 0.85 1.38 3.25 1.73 0.85Price/earning ratio 18.89 10.48 6.75 13.17 20.91


4.9.8. Conclusion

From the above information we conclude that cement sector in one of the prosperous sector in the Pakistan’s economy. The potential investors should take their chances investing in the cement sector through stock exchanges. The Fauji cement country has proved itself as one of the leading cement factories of the country. The trade mark of Fauji Foundation gives a sign of credibility in the minds of the investors.

Since Pakistan is a developing country and for expanding infrastructure and developmental projects, the need of the cement is very obvious. Fauji cement has been providing 63% of the cement in the country as well as exporting to countries like Afghanistan and Bangladesh.

I foresee growth in earrings of cement companies in the years to come. Similarly the said

position will be with FCC. I expect positive earnings of FCCL in the coming years; currently

we maintain our stance by recommend “BUY” on FCCL.


4.2.1. Pioneer Cement Comparative Analysis (Compare with Kohat & Cherat Cement)

PIONEER CEMENT LIMITED

4.2.2. FIVE YEARS HORIZONTAL ANALYSIS OF INCOME STATEMENT

PIONEER CEMENT COMPANY LIMITED

FIVE YEAR POSITION OF INCOME SATEMENT

For the year ended June 30 2008 2007 2006 2005 2004

Net Sales 55% 2% 50% 55% 40%

Cost of goods sold 54% 52% 34% 47% 31%

Gross Profit 61% -74% 83% 74% 73%

Administrative And Selling expenses 293% 25% -15% 55% 19%

Operating Operating/Loss -124%

-84% 107%

80% 91%

Other operating expenses 1997%

-88% 13% 123% -5%

Other operating income 162% -84% 162% -65% 19%

Profit/loss from operations -189%

-84% 120%

45% 84%

Financial & Other Voluntary separation scheme charges

13% -286% 63% 3% 28%

Profit/loss before taxation 211% -120% 137%

65% 56%

Taxation 333% -135% 316% -133% -44%


Profit/loss after taxation 92% -114% 104%

-22% 87%

ANALYSIS:

Sales of the Company has shown increasing trend and has increased up to 40% in 2004,55% in 2005 and 50% in 2006 and 2% in 2007 and 55% in 2008 and respective from previous yearsCost of sales has also shown an increasing trend. In 2004 it is 31%, 2005 it increased 47%, in 2006 in increased 34%, 52% increase in 2007 and 54% in 2008 from respective years cost of sale increase more than increase in sales which result there is loss in 2007. The major reason of this increase in cost was the plant shutdown due to irregular power supply of WAPDA and increase in prices of diesel and empty bags.

Gross profit of the company has also shown a increasing trend in from 2004 to 2005 up to 2006 respectively and then decrease and got loss in 2007 and then gross profit increase 61% in 2008 company cost of sale increases but sale decrease, in 2007 gross profit decreases -74% and it was 61% in 2008.Selling and distribution expenses also increases in 2008 as 293% and 25% in 2007 respectively. This decrease in gross profit was due to the increase in cost of goods sold and also administrative and selling expenses which cause company got loss.Operating profit showing increasing trend from 2004 to 2006 as 91%, 80% and 107% respectively and then it decrease in 2007 and 2008 as -84% and -124% which show big loss in the year of 2008.

Finance cost Decrease in 2007 as 286% and increased in 2008 as 13% which is not at higher side but it is at higher side in 2004 to 2006 as 63% for expansion of new grey and white cement plants. There is a great increase in 2008 which cause the loss of the company. Profit before tax shows decrease in 2007 as 120% and increase in 2008 as 211% and company got loss in 2008. Profit after tax decreased in 2007 by 114% and it was increase 92% in 2008. Company management tries to expand its operations so it needs more finds that were got from short and long term financing. Due to economic crises and dispute with unionized permanent workers, company faces losses. Company is good for long term benefits, because it had declared bonus shares for last five years. It had a great capacity to produce cement and they are improving technology. They had implemented Enterprise Resource Planning software to increase the efficiency and for better management planning.

4.2.3. HORIZONTAL ANALYSIS OF BALANCE SHEET


BALANCE SHEETAs at June 30 2008 2007 2006 2005 2004EQUITY AND LIABILITIESSHARE CAPITAL AND RESERVEAuthorized Share Capital 0% 0% 0% 0% 0%

Issue Subscribed & Paid Up Capital 18% 5% 5% 62% 26%Reserves -22% -43% 847% -118% -28%

10% -10% 43% 197% -2%

Surplus on Revaluation of fixed assets-net of tax

290% -5% -4% - -

NON-CURRENT LIABILITIESRedeemable capital - - -100% -8% 9.61%Long term financing-secured 6% -83% - - 10.44

%Long term loans-secured -26% 27% -8% 3% -Long term Musharaka finance -100% - - - -Liabilities against assets subject to finance lease

-51% 7% 65% 2780% 4.41%

Long term deposits -65% -7% -15% 187% 0.145%

Long term creditor-unsecured -30% -26% - - -Deferred liabilities -10% 17% -12% -21% 8.28%Deferred tax liabilities - -100% 122% - -

-25% -3% 12% 9% 32.8%CURRENT LIABILITIESCreditors against expansion project -90% -5% -39% - Trade and other payables 120% 7% 27% 251% 10.98

%Interest/ Mark up accrued 54% 70% -44% -25% 0.11%Short term Murabah-secured -73% - - - Short term Musharaka secured - - - - Short term finances - - - - 4.90%Short term borrowings - - -100% - -Current maturity of redeemable capital - - -100% 93% -Current maturity of long term loan - -100% -36% -64%

3.24%Current portion of long term loan - -100% - - Current portion of liabilities against assets subject to finance lease

39% 761% 919% 112% 2.11%

Current portion of deferred liability -100% -99% - - - -Sales tax payable - -100% 62% 340% -


BALANCE SHEET

49% 43% 41% 158% 21.34%

22% 2% 22% 61% 11.46%

ASSETS

NON CURRENT ASSETSFIXED CAPITAL EXPENDITUREProperty, plant and equipment 27% -2% 20% 74% 52.31

%Long term loans -11% 43% -25% 13% 0.10%Long term deposits -15% 28% 169% 55% 0.105

%Deferred tax assets - - - -100% -

27% -2% 21% 66% 52.52%

CURRENT ASSETSStock in trade -54% 55% 70% 12% 2.55%Store, spare and loose tools 3% 11% 31% 13% 8.01%Assets held for disposal -100% - - - -Trade Debts 35% 138% -34% -23%Loan & advances 156% 80% -78% 939% 0.21%Deposits & prepayments -59% -33% -16% -32% 1.03%Other receivables 8471% -87% -73% 22% -Current portion of long term deposits 838% - - - -Sales tax net -100% - - - -Taxation-net - -100% -11% -8% -Cash & bank balance -54% 325% 310% -53% 0.72%

-19% 56% 34% 17% 12.52%

22% 2% 22% 61% 23.83%

ANALYSIS:

1) NON-CURRENT ASSETS:As we can see from the horizontal balance sheet analysis of five years, the total non-current assets have shown increasing trend. In 2004 it is 52.52%, 2005 it is 66% than it increase 21% in 2006, 21% in 2006 and then it decrease in 2007 by 2% and then again increase in 2008 by 27% as compare to 2007. This shows heavy investment in fixed assets by the management.Operating fixed assets showed increasing trend in from 2004 to 2006 by 74%, 20% respectively it decreases 2% in 2007 and then again increase in 2008 from 2007 by 27%. Long


term loans showing mix trend it increased by 13% in 2005 and then it decreased 25% in 2006 and increased by 43% in year 2007 and decrease 11% respectively. Lon-term deposit has shown an increasing trend from 2005 to 2007 by 55%, 169% and 28% from respective years, and it decrease in 2008 by 15% from 2007. Deferred tax assets just in 2005 than no more 2006, 2007, 2008 so it decrease almost 100%

2) CURRENT ASSETS:Store, spare and tools has shown increasing trend from 2004 to 2008 by 13%, 31%, 11%,and 3% from their respective years, which shows that company is in good position as liquidity point of view. Stock in trade shows increasing trend from 2005 to 2007 by 12% in 2005, 70% in 2006, 55% in 2007 and decrease 54% in 2008.This higher inventory is indication of weak inventory management. Trade debts has shown decreasing trend in 2005 from 2004 by 23% and then decrease by 34% from 2005 an it increased by 138% in 2007 which is at higher side and then it increase by 35% in 2008 from 2007.Receivable management is inefficient in 2007 and 2008 by showing increasing trend as compare it with 2005 and 2006.Loan and advances shown increasing trend in 2005 in huge amount it increase 939% from 2004 which means company made advances and loans to the employees in huge amounts than it decrease in 2006 by 78% and in 2007 again increase by 80% and also increase in 2008 by 156%.deposits and prepayment showing decreasing trend from 2005 to 2008 by 32%, 16%, 33% and 59% by respective years. Other receivables also showing decreasing trend from 2006 to 2008 just increased in 2005 from 2004 by 22%. Cash and bank balance first decreased in 2005 by 53% from 2004 than it showing increasing trend from 2006 to 2007 by 310% and 325% from respective years and then again it decreased in 2008 54% from 2007.Over all current assets showing increasing from 2004 to 2007 by 17%, 34% and 56% from respective years and it decrease in 2008 by 19% from 2007 which means current assets are decreased in 2008.

3) EQUITY AND LIABILITIES:Share capital show an increasing trend it increases in 2004 by 42% ,2005 in 62% and 5% in 2006 and 2007 respectively and 18% in 2008 which means that issued subscribed and paid up capital increased throughout all the years. Reserves have decreased in year 2005 by 118% and increased in 2006 by 847%, after that it decreased in next two years in 2007 and 2008 by 43% and 22% respectively which shows that company has utilized all its reserves for expansion of project. Due to expansion of project company has not sufficient reserves and company has not paid any dividend after 2004.

4) NON-CURRENT LIABILITIES:Non-current liabilities have also shown an increasing trend from 2004 to 2006 by 32.8%, 9% and 12% and decreased in 2007 and 2008 by 3% and 25% from respective years. Capital showing decreasing trend in 2005 and 2006 by 8% and 100%. Long term loans secured increase by 3% in 2005 and then it decreased 8% in 2006 it again increased in 2007 by 27% and decreased in 2008 by 26%. Liabilities against assets subject to finance lease increased from 2005 to 2007 by 2870%, 65% and 7% respectively and it decreased by 51% in 2008 from 2007. Long term deposits increased 187% in 2005 and then it decreased in 2006 to 2008 by 15%, 7% and 65% from respective years. Deferred liabilities decreased in 2005 and 2006 by 21% and 12% and increased 17% in 2007 and decreased 10% in 2008 from respective years.


5) CURRENT LIABILITIES:Total current liabilities have also shown an increasing trend. This is also in line with increase in current assets of the company. Short term financing is taken to meet the working capital requirements. Company is meeting its obligation on regular basis which is evident from an increase in the current portion of long term debts under current liabilities head of the balance sheet.

Trade payables decreased in 2005 by 251% which is at higher side and increased 27%, 7%, and 120% in 2006, 2007 and 2008 where as 10.98% in 2004 which is unfavorable for the company. Interest and mark up accrued decrease in 2005 by 25% and 44% in 2006 and increase in 2007 and 2008 by 40% and 54% respectively. Sales tax payable increase 340% in 2005 from 2004 which is huge change in 2006 it also increases 62% from 2005 and decrease 100% in 2007.Finally, size of the company has increased during the last five years. More investment is made in capital assets. Company is in expansion phase since the base year. Investment in new expansion project and technology is being made in order to keep pace with changing business environment.

4.2.4 VERTICAL ANALYSIS OF INCOME STATEMENT


Vertical Analysis of Pioneer Cement Company Limited

2.11.1

Five Year Position Of Income Statement

For the year ended June 30 2008 2007 2006 2005 2004

Sales- Net -2697% -3349% 455% 616% 312%

Cost of goods sold -2412% -3009% 273% 413% 221%

Gross Profit -285% -340% 182% 203% 91%

Administrative And Selling expenses

-309% -151% 17% 40% 20%

Operating Operating/Loss 24% -189% 165% 162% 71%

Other operating expenses 83% 8% -9% -16% -5%

Other operating income -17% -13% 11% 8% 19%

Profit/loss from operations 89% -194% 167% 155% 84%

Financial & Other Voluntary separation scheme charges

230% 391% 29% 36% 28%

Profit/loss before taxation 319% 197% 138% 119% 56%

Taxation 219% 97% 38% 19% -44%

Profit/loss after taxation 100% 100% 100% 100% 100%

ANALYSIS:As we can see from the vertical income statement the sales revenue increased from 2004 to 2006 by 312%, 6165 and 455% respectively and decreased by 3349% and 2697% in 2007 and 2008 respectively. Cost of sales also increased in 2004 by 221% in 2005 by 413% and in 2006 by 273% and in next two years it decrease in 2007 by 3009% and in 2008 by 2412%. Grossprofit increase in 2004 by 91% 203% increase in 2005, 182% increase in 2006 and in 2007 and 2008 it decreased 340% and 285% respectively.Administrative and Selling expense also increase in 2004 to 2006 by 20%, 40% and 17% respectively and it decreases in 2007 by 151% and in 2008 by 309% from respective years. Other operating expense decreases from 2004 to 2006 by 5% in 2004, 16% in 2005 and 9% in 2006; it increased in 2007 by 8% from 2006 and increase in 2008 by 83% from 2007. Other


operating income increased from 2004 to 2006 by 19%, 8% and 11% and decreased in 2007 by 13% and 17% in 2008. Financial and other voluntary separation charges showing increasing trend all five years it increased by 28% in 2004 36% in 2005, 29% in 2006, 391% in 2007 and 230% in 2008 from their respective years. .Profit before taxation has increased by 56% in 2004 119% in 2005, 138% in 2006, 197% in 2007 and 219% in 2008.

Profit after taxation the company recorded loss in 2007 and in 2008 from their respective years.Finally the company is improving with the passage of time. Although the profits are not very adequate but the management is very confident that they are working hard and the company will prosper in coming years as most of the capital work has been completed.

4.2.5. VERTICAL ANALYSIS OF BALANCE SHEET

VERTICAL ANALYSISFOR LAST FIVE YEARS

BALANCE SHEET


VERTICAL ANALYSIS FOR PAST FIVE YEARS OF PIONEER CEMENT

As at June 30 2008 2007 2006 2005 2004

EQUITY AND LIABILITIES

SHARE CAPITAL AND RESERVE

Authorized Share Capital 0% 0% 0% 0% 0%

Issue Subscribed & Paid Up Capital 19% 20% 19% 22% 22%

Reserves 3% 5% 8% 1% -10%

22% 24% 28% 24% 13%


26% 7% 9% 15% 0%

NON-CURRENT LIABILITIES

Redeemable capital 0% 0% 0% 2% 4%

Long term financing-secured 1% 1% 5% 0% 0%

Long term loans-secured 16% 27% 22% 29% 45%

Long term Musharaka finance 0% 1% 1% 1% 0%Liabilities against assets subject to finance lease

2% 6% 5% 4% 0%

Long term deposits 0% 0% 0% 0% 0%Long term creditor-unsecured 0% 0% 0% 0% 0%

Deferred liabilities 9% 12% 10% 14% 29%

Deferred tax liabilities 0% 0% 5% 3% 0%

28% 46% 49% 53% 78%

CURRENT LIABILITIES

Creditors against expansion project 0% 3% 4% 7% 0%

Trade and other payables 8% 5% 4% 4% 2%

Interest/ Mark up accrued 1% 1% 1% 1% 2%

Short term Murabah-secured 0% 1% 0% 0% 0%Short term Musharaka secured 0% 0% 0% 0% 0%Short term finances 3% 0% 0% 0% 0%Short term borrowings 0% 0% 0% 0% 0%


Current maturity of redeemable capital

0% 0% 0% 0% 0%

Current maturity of long term loan 0% 0% 0% 1% 4%

Current portion of long term loan 0% 0% 4% 0% 0%

Current portion of liabilities against assets subject to finance lease

15% 13% 2% 0% 0%

Current portion of deferred liability 0% 0% 2% 0% 0%

Sales tax payable 0% 0% 0% 0% 0%

29% 23% 17% 14% 9%

105% 100% 102% 106% 100%

ASSETS

NON CURRENT ASSETS Property, plant and equipment 91% 87% 91% 93% 86%

Long term loans 0% 0% 0% 0% 0%

Long term deposits 1% 1% 1% 1% 1%

Deferred tax assets 0% 0% 0% 0% 5%

92% 89% 93% 93% 91%

CURRENT ASSETS Stock in trade 1% 2% 1% 1% 1%

Store, spare and loose tools 4% 5% 4% 4% 6%

Assets held for disposal 0% 0% 0% 0% 0%

Trade Debts 0% 0% 0% 0% 1%

Loan & advances 1% 0% 0% 1% 0%

Deposits & prepayments 0% 0% 0% 0% 0%

Other receivables 0% 0% 0% 0% 0%


Current portion of long term deposits 0% 0% 0% 0% 0%

Sales tax net 0% 0% 0% 0% 0%

Taxation-net 0% 0% 0% 0% 0%

Cash & bank balance 1% 4% 1% 0% 1%

8% 11% 7% 7% 9%

100% 100% 100% 100% 100%

ANALYSIS:

NON-CURRENT ASSETS:

As we can see from the vertical balance sheet of the company total fixed assets are constant in relation to total assets with little variations. The management is more focusing on working capital management than on fixed asset in last two years as shown by the vertical balance sheet.Property, plant and equipment have shown an increasing trend it increased in 2004 by 86% in 2005 by 93% in 2006 by 91% 87% in 2007 and 91% in 2008.

CURRENT ASSETS:

Total current assets have shown an increasing trend over the last five year period. Stores and spares decreased in year 2008, 2005 and 2006 by 4% and increased in 2004 by 6% and 2007 by 5%.Stock in trade has shown an increasing with a same sequence at the rate of 1% all the years except 2007 which is 2%. Stock in trade is about 1% of the total current assets in 2004, 2005, 2006 and 2008 and it was 2% of total assets in 2007. Stores and spares have the largest portion than stock of the total current assets.

Trade debts 1% of total assets in 2004 and then no other year has significant effect on total current Asset affected by trade debts. Cash and bank balance were 1% in 2005, 1% in 2006 and 2008 and 4% in 2007. This trend shows that more funds are tied in receivable, inventories and in stores & spares.

EQUITY AND LIABILITIES:

Issued Subscribed and paid up capital showing mix trend in increase 22% in 2004 and 2005 contribute in total liabilities and then it decrease in 2006 by 19% contribution and in 2007 by 20% and in 2008 19% in total liabilities. Currently company is not paying dividends to shareholders. Reserves also decreased in 2004 by 10% and no major contribution in total liabilities in coming years.

NON-CURRENT LIABILITIES:

Total long-term liabilities of the company have shown decreasing trend in relation to total liabilities. It contributes in total liabilities by 78% in 2004, 53% in 2005, 49% in 2006, 46% in 2007 and 28% in 2008.


CURRENT LIABILITIES:

Current liabilities have shown an increasing trend during the last five years from 2004 to 2008 as shown in the vertical balance sheet of the company they contribute in total liabilities by 9% in 2004, 14% in 2005, 17% in 2006, 23% in 2007 and 29% in 2008 which is maximum and company got loss in 2007 and 2008. Trade and other payables have shown an increasing trend with a marginal increase in last five years. Trade and other payables increase in 2008 by 8% and 2007 by 5% than their respective years, in 2006 and 2005 they were 4% and 2%in 2004.

4.2.6. TREND ANALYSIS

Trend Analysis is a comparative analysis of a company's financial ratios over time.

SIGNIFICANCE:It is an aspect of technical analysis that tries to predict the future movement of a stock based on past data. Trend analysis is based on the idea that what has happened in the past gives traders an idea of what will happen in the future.


http://www.businessdictionary.com/definition/time.html

http://www.businessdictionary.com/definition/financial-ratios.html

http://www.investorwords.com/992/company.html

http://www.businessdictionary.com/definition/comparative-analysis.html

BALANCE SHEETAs at June 30 2008 2007 2006 2005 2004EQUITY AND LIABILITIESSHARE CAPITAL AND RESERVEAuthorized Share Capital 100% 100% 100% 100% 100%

Issue Subscribed & Paid Up Capital 209% 177.9% 170.3% 162.1% 100%Reserves -75.8% -97.3% -170.4% -17.9% 100%

422.8% 384.5% 425.9% 297.3% 100%


0% 0% 0% 0% 0%

NON-CURRENT LIABILITIESRedeemable capital 0% 0% 0% 92.1% 100%Long term financing-secured 0% 39.1% 231.6% 0% 0%Long term loans-secured 89.02% 0% 0% 0% 0%Long term Musharaka finance 0% 0% 0% 0% 0%Liabilities against assets subject to finance lease

2493.6% 5102.5% 165.3% 2880.07% 100%

Long term deposits 79.4% 226.1% 242.5% 286.5% 100%Long term creditor-unsecured 0% 0% 0% 0% 0%Deferred liabilities 73.2% 81.7% 69.8% 78.87% 100%Deferred tax liabilities 0% 0% 0% 0% 0%

87.8% 108.01% 121.9% 109.01% 100%CURRENT LIABILITIESCreditors against expansion project 0% 0% 0% 0%

0%Trade and other payables 1046.2% 476.1% 446.5% 351.04% 100%Interest/ Mark up accrued 109.7% 71.38% 41.9% 75% 100%Short term Murabah-secured 0% 0% 0% 0% 0%Short term Musharaka secured 0% 0% 0% 0% 0%Short term finances 0% 0% 0% 0% 100%Short term borrowings 0% 0% 0% 0% 0%Current maturity of redeemable capital 0% 0% 0% 192.9% 0%Current maturity of long term loan 0% 0% 0% 35.6%

100%Current portion of long term loan 0% 0% 0% 0% 0%Current portion of liabilities against assets subject to finance lease

0% 0% 2158.4% 211.9% 100%

Current portion of deferred liability 0% 0% 0% 0% 0%Sales tax payable 0% 0% 710.9% 440.2% 0%

779.8% 521.9% 287.1% 130.7% 100%- - 364.9% 258.3% 100%


BALANCE SHEET

ASSETS

NON CURRENT ASSETSFIXED CAPITAL EXPENDITUREProperty, plant and equipment 261.6% 205.3% 210.1% 174.5% 100%Long term loans 107.7% 121.7% 75.37% 112.8% 100%Long term deposits 456.5% 343.4% 268.6% 155.4% 100%Deferred tax assets - - - - -

249.6% 197.03% 121.2% 165.6% 100%CURRENT ASSETSStock in trade 135.2% 295.8% 170.3% 111.8% 100%Store, spare and loose tools 167.6% 163.4% 130.9% 112.6% 100%Assets held for disposal - - - - -Trade Debts 162.3% 120% 50.5% 76.7% 100%Loan & advances 1062.1% 414.9% 230.3% 1038.6% 100%Deposits & prepayments 15.9% 38.8% 57.8% 68.4% 100%Other receivables 366.1% 4.27% 65.5% 121.8%

100%Current portion of long term deposits - - - - -Sales tax net - - - - -Taxation-net 80.8% 0% 82.16% 92.3% 100%Cash & bank balance 372.4% 817.4% 192.4% 46.9% 100%

199.3% 244.6% 156.4% 117.1% 100%244.9% 201.4% 196.6% 161.1% 100%

ANALYSIS:

NON-CURRENT ASSETS:

As we can see from the balance sheet of the company total fixed assets are constant in relation

to total assets with little deviations. The management is more focusing on fixed asset in past

years. As property, plant and equipment have shown an increasing trend.


CURRENT ASSETS:

Total current assets have shown an increasing trend over the last five year period. Stores and spares increased consistently over the years. Stock in trade has shown an increasing with a same sequence. Loans and advances have the largest portion than stock of the total current assets. This trend shows that more funds are needed.

EQUITY AND LIABILITIES:

Issued Subscribed and paid up capital showing mix trend in increase that there is increase in 2005 andin2006 where as there is a decrease in 2007 and in increase in 2008 in total liabilities as currently company is not paying dividends to shareholders

NON-CURRENT LIABILITIES:

Total long-term liabilities of the company have shown decreasing trend in relation to total liabilities.

CURRENT LIABILITIES:Current liabilities have shown an substantially mix trend during the last five years from 2004 to 2008 as shown in the balance sheet of the company they contribute in total liabilities.

4.2.7. INCOME STATEMENT

PIONEER CEMENT COMPANY LIMITED

FIVE YEAR POSITION OF INCOME STATEMENT

For the year ended June 30

2008 2007 2006 2005 2004

Gross Turnover 337.4% 237.3% 212.0% 142.9% 100%

Excise Duty 288.8% 238.6% 210.9% 115.6% 100%


Sales Tax 261.8% 218.9% 192.2% 125.03% 100%

Commission 226.2% 227.1% 104.8% 98.18% 100%

275.9% 23.78% 169.5% 118.78% 100%

Net turnover 367% 236.7% 232.5% 154.6% 100%

Cost of sales 463.6% 300.5% 197.1% 146.57% 100%

Gross Profit 132.8% 82.3% 318.2% 174.08% 100%

Distribution Cost 1649.1% 192.7% 138.8% 241.90% 100%

Administrative And Selling expenses

155.2% 149.8% 127.6% 112.69% 100%

- - 131.2% 155.03% 100%

Other operating income-net

39% 14.8% 90.63% 34.63% 100%

- - 313.65% 149.5% 100%

Finance Cost 351.8% 311.5% 167.7% 102.8% 100%

Other Charges 639.3% 30.49% 25.12% 222.8% 100%

- - 181.55% 122.7% 100%

Profit before taxation -240.9% -77.4% 391.6% 165.3% 100%

Taxation -211.7% -48.8% -138.18% -33.23% 100%

Profit after taxation -42.41% 22.03% 159.3% 78.27% 100%

ANALYSIS:

As we can see from the income statement the gross turnover has increased from 2004 to 2008 as excise duty and sales tax has increased in these years where as there is a 1%decrease in commission in 2008.There is a substantial increase in net turnover as trend of cost of sales has increased. There was a increase in 2005 and 2006 in gross profit then company start facing losses in 2007 and 2008 because there distribution cost and administrative expenses increases which was due to the flaw in the management of the company. The finance cost and other charges have also increased which assist the losses of the company. Finally the company is improving with the passage of time. Although the profits are not very adequate but the


management is very confident that they are working hard and the company will prosper in coming years as most of the capital work has been completed.

4.3. RATIO ANALYSIS

4.3.1. LIQUIDITY RATIOS

Liquidity ratios are the ratios for testing short term solvency or financial position of a business. These are designed to test the ability of the business to meet its short term obligation promptly, a class of financial metrics that IS used to determine a company's ability to pay off its short-terms debts obligations. Generally, the higher the value of the ratio, the larger the margin of safety that the company possesses to cover its short-term debts

4.3.2. CURRENT RATIO:

Current ratio may be defined as the relationship between current assets and current liabilities. This ratio is also known as "working capital ratio". It is a measure of general liquidity and is most widely used to make the analysis for short term financial position or liquidity of a firm. It is calculated by dividing the total of the current assets by total of the current liabilities.

COMPONENTS:

The two basic components of this ratio are current assets and current liabilities. Current assets include cash and those assets which can be easily converted into cash within a short period of time, generally, one year, such as marketable securities or readily realizable investments, bills receivables, sundry debtors, (excluding bad debts or provisions), inventories, work in progress, etc. Prepaid paid expenses should also be included in current assets because they represent payments made in advance which will not have to be paid in near future. Current liabilities are those obligations which are payable within a short period of tie generally one year and include outstanding expenses, bills payable, sundry creditors, bank overdraft, accrued expenses, short term advances, income tax payable, dividend payable, etc. However, sometimes a controversy arises that whether overdraft should be regarded as current liability or not. Often an arrangement with a bank may be regarded as permanent and therefore, it may be treated as long term liability. At the same time the fact remains that the overdraft facility may be cancelled at any time. Accordingly, because of this reason and the need for conversion in interpreting a situation, it seems advisable to include overdrafts in current liabilities.

LIMITATIONS OF CURRENT RATIO:

This ratio is measure of liquidity and should be used very carefully because it suffers from many limitations. It is, therefore, suggested that it should not be used as the sole index of short term solvency


1. It is crude ratio because it measures only the quantity and not the quality of the current assets.

2. Even if the ratio is favorable, the firm may be in financial trouble, because of more stock and work in process which is not easily convertible into cash, and, therefore firm may have less cash to pay off current liabilities.

3. Valuation of current assets and window dressing is another problem. This ratio can be very easily manipulated by overvaluing the current assets. An equal increase in both current assets and current liabilities would decrease the ratio and similarly equal decrease in current assets and current liabilities would increase current ratio.

SIGNIFICANCE:

This ratio is a general and quick measure of liquidity of a firm. It represents the margin of safety or cushion available to the creditors. It is an index of the firm’s financial stability. It is also an index of technical solvency and an index of the strength of working capital.

A relatively high current ratio is an indication that the firm is liquid and has the ability to pay its current obligations in time and when they become due. On the other hand, a relatively low current ratio represents that the liquidity position of the firm is not good and the firm shall not be able to pay its current liabilities in time without facing difficulties. An increase in the current ratio represents improvement in the liquidity position of the firm while a decrease in the current ratio represents that there has been deterioration in the liquidity position of the firm. A ratio equal to or near 2: 1 is considered as a standard or normal or satisfactory. The idea of having double current assets as compared to current liabilities is to provide for the delays and losses in the realization of current assets. However, the rule of 2:1 should not be blindly used while making interpretation of the ratio. Firms having less than 2 : 1 ratio may be having a better liquidity than even firms having more than 2 : 1 ratio. This is because of the reason that current ratio measures the quantity of the current assets and not the quality of the current assets. If a firm's current assets include debtors which are not recoverable or stocks which are slow-moving or obsolete, the current ratio may be high but it does not represent a good liquidity position.

Current Ratio.

Formula Current Assets/Current Liabilities

Years 2008 2007 2006 2005 2004

Pioneer Cement 0.26 0.48 0.56 0.92 1.03


4.3.2. CURRENT RATIO

Cherat Cement 1.07 2.28 2.45 3.07 2.47

Kohat Cement 0.66 1.00 2.56 1.47 1.24

ANALYSIS:

Current Ratio clears the extent to which the claim of short term creditors can be met by assets that are to become cash within a year. The best standard ratio is 2:1 so, the Pioneer Cement has current ratio below standard. There is a decrease in 2004 to 2008. Current Ratio of Kohat Cement is more than Pioneer and Cherat cement. Current ratio shows that how many times current assets are available to meet its current liabilities. Pioneer cement current ratio shows decreasing trend and it has less than 1:1 but only in 2004 it is more than 1:1. Cherat cement also shows decreasing trend in current ratio. Kohat cement current ratio shows increasing trend in 2004, 2005 and in 2006 but decreases in 2007 and 2008 which shows that it has less current assets or current liabilities increases.

4.3.3. QUICK RATIO:

Liquid ratio is also termed as "Liquidity Ratio”,” Acid Test Ratio" or "Quick Ratio". It is the ratio of liquid assets to current liabilities. The true liquidity refers to the ability of a firm to pay its short term obligations as and when they become due


COMPONENTS:

The two components of liquid ratio (acid test ratio or quick ratio) are liquid assets and liquid liabilities. Liquid assets normally include cash, bank, sundry debtors, bills receivable and marketable securities or temporary investments. In other words they are current assets minus inventories (stock) and prepaid expenses. Inventories cannot be termed as liquid assets because it cannot be converted into cash immediately without a loss of value. In the same manner, prepaid expenses are also excluded from the list of liquid assets because they are not expected to be converted into cash. Similarly, Liquid liabilities means current liabilities i.e., sundry creditors, bills payable, outstanding expenses, short term advances, income tax payable, dividends payable, and bank overdraft (only if payable on demand). Some time bank overdraft is not included in current liabilities, on the argument that bank overdraft is generally permanent way of financing and is not subject to be called on demand. In such cases overdraft will be excluded from current liabilities

SIGNIFICANCE:

The quick ratio/acid test ratio is very useful in measuring the liquidity position of a firm. It measures the firm's capacity to pay off current obligations immediately and is more rigorous test of liquidity than the current ratio. It is used as a complementary ratio to the current ratio. Liquid ratio is more rigorous test of liquidity than the current ratio because it eliminates inventories and prepaid expenses as a part of current assets. Usually a high liquid ratio an indication that the firm is liquid and has the ability to meet its current or liquid liabilities in time and on the other hand a low liquidity ratio represents that the firm's liquidity position is not good. As a convention, generally, a quick ratio of "one to one" (1:1) is considered to be satisfactory.

Although liquidity ratio is more rigorous test of liquidity than the current ratio, yet it should be used cautiously and 1:1 standard should not be used blindly. A liquid ratio of 1:1 does not necessarily mean satisfactory liquidity position of the firm if all the debtors cannot be realized and cash is needed immediately to meet the current obligations. In the same manner, a low liquid ratio does not necessarily mean a bad liquidity position as inventories are not absolutely non-liquid. Hence, a firm having a high liquidity ratio may not have a satisfactory liquidity position if it has slow-paying debtors. On the other hand, a firm having a low liquid ratio may have a good liquidity position if it has a fast moving inventory. Though this ratio is definitely an improvement over current ratio, the interpretation of this ratio also suffers from the same limitations as of current ratio

Quick Ratio.

Formula Current Asset-stock/current liabilities

Years 2008 2007 2006 2005 2004

Pioneer Cement 0.24 0.41 0.47 0.81 0.9


QUICK RATIO

Cherat cement 0.94 2.07 2.17 2.88 2.25

Kohat Cement 0.57 0.78 2.34 1.41 1.18

ANALYSIS:

The acid test ratio is also below standard due to heavy short term borrowings. Pioneer acid test ratio decreased in year 2005, 2006, 2007 and in 2008. The quick ratio of Kohat cement shows that sufficient liquid asset is available to discharge and settle its current obligation. The rise in current liabilities is due to the expansion of project and short and long term financing. Pioneer Cement liquidity is less than standard. Kohat and Cherat cement liquidity is on considerable point. Kohat cement liquid ratio is more than pioneer and Cherat which shows that it has more liquidity. Cherat liquidity position is considerable because it is near to 1 which shows that it has liquid assets to meet its current liabilities. Pioneer position is not at considerable point. It shows decreasing trend and less than 1:1.

4.3.4. TURNOVER/ACTIVITY RATIOS:

Activity ratios are measures of how well assets are used. Activity ratios -- which are, for the most part, turnover ratios can be used to evaluate the benefits produced by specific assets, such as inventory or accounts receivable. Or they can be use to evaluate the benefits produced by all a company's assets collectively.


These measures help us gauge how effectively the company is at putting its investment to work. A company will invest in assets – e.g., inventory or plant and equipment – and then use these assets to generate revenues. The greater the turnover, the more effectively the company is at producing a benefit from its investment in assets

INVENTORY DAYS:

The number of day’s inventory is also known as average inventory period and inventory holding period. A high number of days inventory indicates that there is a lack of demand for the product being sold. A low days inventory ratio (inventory holding period) may indicate that the company is not keeping enough stock on hand to meet demands. The number of day’s inventory and inventory turnover ratios are included in the financial statement ratio analysis spreadsheets highlighted in the left column, which provide formulas, definitions, calculation, charts and explanations of each ratio.

Inventory Days

Formula Inventory Days = Inventory / Cost of Sales*365

Years 2008 2007 2006 2005 2004

Pioneer Cement 6 20 19 15 20

Cherat Cement 24 40 21 23 6.67

Kohat Cement 49 38 28 8 6


INVENTORY DAYS

ANALYSIS:

Pioneer inventory days decreased in 2005 as compare to 2004 and increased in 2006 and in 2007 and show decreasing in 2008 which shows that management is efficient for managing inventory period.

The above diagram shows that in 2004 and 2005 Kohat cement has less inventory days required to convert stock in sale which shows that Kohat management is efficient but it decreases with the passage of times and Pioneer trend is opposite to Kohat. It was low in beginning and it increases in 2008, but Cherat Cement shows mixed trend.

4.3.5. DEBTORS TURNOVER RATIO OR RECEIVABLES TURNOVER RATIO:

Debtor’s turnover ratio indicates the velocity of debt collection of a firm. In simple words it indicates the number of times average debtors (receivable) are turned over during a year.


SIGNIFICANCE OF THE RATIO:

This ratio indicates the number of times the debtors are turned over a year. The higher the value of debtors, turnover the more efficient is the management of debtors or more liquid the debtors are. Similarly, low debtors turnover ratio implies inefficient management of debtors or less liquid debtors. It is the reliable measure of the time of cash flow from credit sales. There is no rule of thumb which may be used as a norm to interpret the ratio as it may be different from

firm to firm.


Formula Trade debtors/Credit sales*365

Years 2008 2007 2006 2005 2004

Pioneer Cement 3 3 1 3 7

Cherat Cement 35 19 10 8 9

Kohat Cement 4 5 3 5 7

DEBTOR DAYS

ANALYSIS:

Graph shows that Pioneer cement has good debtor management to receive the debt or collect the receivables and shows positive trend and debtor’s collection period is less than creditor’s period. Kohat position is also considerable but Cherat management has more time to collect their receivables whish shows inefficient debtor management and in 2008 it is at highest point which indicates unfavorable situation regarding to debtor collection period.

4.3.6. TOTAL ASSETS TURNOVER RATIO:

The total assets turnover ratio measures the use of all assets in terms of sales, by comparing sales with net total assets. This interactive tutorial walks you through the calculations as well as where on the financial statements to find the numbers.


Total Asset Turnover

Formula Sales/ Total Assets

Years 2008 2007 2006 2005 2004

Pioneer Cement 0.46 0.36 0.37 0.30 0.31

Cherat Cement 0.68 0.74 0.67 0.74 0.95

Kohat Cement 0.18 0.26 0.76 1.04 1.10


TOTAL ASSET TURNOVER

ANALYSIS:In the above graph we can see that total asset turnover ratio of Pioneer cement company showing mix trend in the year 2008 total asset total asset turnover ratio is at highest level and as it compare it with Cherat and Kohat cement it is better in the last two year 2007,2008 so we can say it is using its assets for generating the revenue in a better way than Kohat and Cherat cement in 2004,2005 and 2006 Kohat cement total asset turnover ratio at top so they use much of it for generating revenue.But pioneer overall situation regarding to total asset turnover ratio is better than other two competitors.

4.3.7. FIXED ASSETS TURNOVER RATIO:

Fixed assets turnover ratio is also known as sales to fixed assets ratio. This ratio measures the efficiency and profit earning capacity of the concern. Higher the ratio, greater is the intensive utilization of fixed assets. Lower ratio means under-utilization of fixed assets

Fixed Asset Turnover Ratio

Formula Cost of sales / Fixed Assets

Years 2008 2007 2006 2005 2004

Pioneer Cement 0.51 0.42 0.41 0.32 0.36

Cherat Cement 0.39 0.2 0.35 0.51 0.61

Kohat Cement 1.46 1.52 2.12 2.95 2.32


FIXED ASSETS TURNOVER RATIO

ANALYSIS:

It shows the utilization of fixed assets, Pioneer increasing the utilization of its fixed assets but it has lower times than Kohat cement which has more utilization of fixed assets and at highest level in 2005. Cherat Cement shows the mixed trend and has less utilization than Kohat and Pioneer cement.

4.4.1. PROFITABLITY RATIOS:

Profitability ratios (also referred to as profit margin ratios) compare components of income with sales. They give us an idea of what makes up a company's income and are usually expressed as a portion of each dollar of sales. The profit margin ratios we discuss here differ only by the numerator. It's in the numerator that we reflect and thus evaluate performance for different aspects of the business: The gross profit margin is the ratio of gross income or profit to sales. This ratio indicates how much of every dollar of sales is left after costs of goods sold.


4.4.2. GROSS PROFIT (GP) RATIO:

Gross profit ratio (GP ratio) is the ratio of gross profit to net sales expressed as a percentage. It expresses the relationship between gross profit and sales.

COMPONENTS:

The basic components of the calculation of gross profit ratio are gross profit and net sales. Net sales means sales minus sales returns. Gross profit would be the difference between net sales and cost of goods sold. Cost of goods sold in the case of a trading concern would be equal to opening stock plus purchases, minus closing stock plus all direct expenses relating to purchases. In the case of manufacturing concern, it would be equal to the sum of the cost of raw materials, wages, direct expenses and all manufacturing expenses. In other words, generally the expenses charged to profit and loss account or operating expenses are excluded from the calculation of cost of goods sold.

SIGNIFICANCE:

Gross profit ratio may be indicated to what extent the selling prices of goods per unit may be reduced without incurring losses on operations. It reflects efficiency with which a firm produces its products. As the gross profit is found by deducting cost of goods sold from net sales, higher the gross profit better it is. There is no standard GP ratio for evaluation. It may vary from business to business. However, the gross profit earned should be sufficient to recover all operating expenses and to build up reserves after paying all fixed interest charges and dividends.

Gross profit to Sales:Formula Gross profit/Sales*100

Years 2008 2007 2006 2005 2004

Pioneer Cement 10.58% 10.16% 40.00% 32.91% 29.23%

Cherat Cement 5.95% 14.41% 40.68% 35.67% 34.33%

Kohat Cement 6.35% 22.09% 51.55% 38.72% 35.45%


GROSS PROFIT TO SALES

Analysis:

Gross profit of Pioneer cement company increasing in 2004 to 2006 but decrease in 2007 to 2008. Due to inflation and economic instability in Pakistan and irregular power supply of WAPDA in 2007 and 2008. Gross Profit ratio of three competitors show increasing trend in 2004 to 2006 due to good economic and financial situation of world and good market situation in Pakistan. Kohat position is more considerable up to 2006 but shows decreasing trend in 2007 and 2008, and Cherat Cement also has same situation.

4.4.3. OPERATING PROFIT RATIO:

Operating ratio is the ratio of cost of goods sold plus operating expenses to net sales. It is generally expressed in percentage. It measures the cost of operations per dollar of sales. This is closely related to the ratio of operating profit to net sales.

COMPONENTS:The two basic components for the calculation of operating ratio are operating cost (cost of goods sold plus operating expenses) and net sales. Operating expenses normally include (a) administrative and office expenses and (b) selling and distribution expenses. Financial charges such as interest, provision for taxation etc. are generally excluded from operating expenses.

SIGNIFICANCE:Operating ratio shows the operational efficiency of the business. Lower operating ratio shows higher operating profit and vice versa. An operating ratio ranging between 75% and 80% is generally considered as standard for manufacturing concerns. This ratio is considered to be a yardstick of operating efficiency but it should be used cautiously because it may be affected by a number of uncontrollable factors beyond the control of the firm. Moreover, in some firms, non-operating expenses from a substantial part of the total expenses and in such cases operating ratio may give misleading results


ANALYSIS:Pioneer cement company operating profit increasing in 2004 to 2006 and decreasing in 2007 and 2008 and in 2008 they suffer loss by 3.13% due to increase in prices of coal, diesel and empty bag in 2007-2008 Operating profit of all three organization show increasing trend in 2004, 2005, and 2006 but decreases in 2007 and 2008due to increase in operating expenses.


Operating Profit Margin

Formula Operating Profit Margin = Operating profit /Sale*100

Years 2008 2007 2006 2005 2004

Pioneer Cement -3.13% 5.79% 36.74% 25.16% 26.89%

Cherat Cement 4.38% 4.18% 34.14% 29.57% 32.31%

Kohat Cement 1.57% 17.91% 49.24% 35.86% 32.25%

OPERATING PROFIT RATIO

4.4.4. RETURN ON ASSETS:

Where asset turnover tells an investor the total sales for each $1 of assets, return on assets tells an investor how much profit a company generated for each $1 in assets. The return on assets figure is also a sure-fire way to gauge the asset intensity of a business. Companies such as telecommunication providers, car manufacturers, and railroads are very asset-intensive, meaning they require big, expensive machinery or equipment to generate a profit. Advertising agencies and software companies, on the other hand, are generally very asset-light.

Return on Assets:Formula Net Income / Total Assets*100

Years 2008 2007 2006 2005 2004

Pioneer Cement -1.72% -1.10% 8.00% 4.80% 9.90%

Cherat Cement 0.23% 5.21% 14.88% 15.99% 19.50%

Kohat Cement -2.92% 0.83% 25.68% 23.40% 22.97%

ANALYSIS:This ratio measures the return of total investment of the business. Pioneer cement company show mix trend in 2004 it is at maximum point than decrease in 2005 and again increase in 2006 and then become negative in 2007 and 2008. Kohat cement company return on asset is much better than Cherat and pioneer it decreases in 2004 to 2006 and then decrease in 2007 and becomes negative in 2008, it is at highest point in 2006, Cherat also increase in 2004 to


RETURN ON ASSETS

2005 and then it little decrease in 2006 and at goes down in 2007 and becomes negative in 2008.

4.4.5. RETURN ON EQUITY (ROE) RATIO:

In real sense, ordinarily shareholders are the real owners of the company. They assume the highest risk in the company. (Preference share holders have a preference over ordinary shareholders in the payment of dividend as well as capital. Preference share holders get a fixed rate of dividend irrespective of the quantum of profits of the company). The rate of dividends varies with the availability of profits in case of ordinary shares only. Thus ordinary shareholders are more interested in the profitability of a company and the performance of a company should be judged on the basis of return on equity capital of the company. Return on equity capital which is the relationship between profits of a company and its equity, can be calculated as follows.

COMPONENTS:Equity share capital should be the total called-up value of equity shares. As the profit used for the calculations are the final profits available to equity shareholders as dividend, therefore the preference dividend and taxes are deducted in order to arrive at such profits.

SIGNIFICANCE:This ratio is more meaningful to the equity shareholders who are interested to know profits earned by the company and those profits which can be made available to pay dividends to them. Interpretation of the ratio is similar to the interpretation of return on shareholder's investments and higher the ratio better is.

RETURN ON EQUITY RATIO (ROE)

Formula[(Net profit after tax − Preference dividend) / Equity share

capital] × 100

Years 2008 2007 2006 2005 2004

Pioneer Cement -7.80% -4.46% 29.11% 20.48% 77.81%

Cherat Cement 1.08% 29.77% 54.70% 77.04% 80.08%

Kohat Cement -9.55% 2.09% 34.58% 35.73% 42.09%


ANALYSIS:In 2004 Pioneer cement company return on equity ratio is at highest point and better, in 2005 it decreases and in 2006 it is better than 2005 but in 2007 and 2008 it goes down and become negative. Kohat Cement Company also shows decreasing trend it is highest point in 2004 and then decrease in 2005 to 2007 and it becomes negative in 2008. Cherat cement company return on equity ratio has mix trend in 2004 it is at lower side and then it increase in 2005 and it decrease in 2006 and it goes down and become negative in 2007 and 2008.

4.4.6. DEBT RATIOS:

A company can finance its assets either with equity or debt. Financing through debt involves risk because debt legally obligates the company to pay interest and to repay the principal as promised. Equity financing does not obligate the company to pay anything -- dividends are paid at the discretion of the board of directors. There is always some risk, which we refer to as business risk, inherent in any operating segment of a business. Financial leverage ratios are used to assess how much financial risk the company has taken on. There are two types of financial leverage ratios: component percentages and coverage ratios. Component percentages compare a company's debt with either its total capital (debt plus equity) or its equity capital. Coverage ratios reflect a company's ability to satisfy fixed obligations, such as interest, principal repayment, or lease payments.


Debt to Equity Ratio:

Debt-to-Equity ratio indicates the relationship between the external equities or outsiders funds and the internal equities or shareholders funds. It is also known as external internal equity ratio. It is determined to ascertain soundness of the long term financial policies of the company.

FormulaTotal Long Term Debts / Shareholders Funds

Years 2008 2007 2006 2005 2004

Pioneer Cement 31:69 52:48 48:52 52:48 86:14

Cherat Cement 13:20 39:50 1:9:50 1:51:100 37:50

Kohat Cement 67:33 55:45 10:90 10:90 22:78


DEBT TO EQUITY RATIO:

ANALYSIS:

Pioneer cement debt to equity ratio is higher point in 2004 and after that it has improved its situation in next coming years and decreases, but Kohat shows increasing trend from 2004 to 2008 which shows that they increasing their debts for expansion of project and their short and long term debts increased. Cherat computation of the ratio brings to life the fact that Cherat cement has not been able to feed its financing through equity as its ratios are considerable higher than the favorable“ 1 or less”. The initial year shows that there was less dependency of debt but there has been a visible increase in the ratio ever since, the last year shows a phenomenal increase and highly unfavorable. The firm must by all means try and reduce its portions as the dependency on debt causes the firm to lose its control and will over the organization as it is then driven to feed the debt.

4.4.7. DEBT SERVICE RATIO OR INTEREST COVERAGE RATIO:

Interest coverage ratio is also known as debt service ratio or debt service coverage ratio. This ratio relates the fixed interest charges to the income earned by the business. It indicates whether the business has earned sufficient profits to pay periodically the interest charges.

SIGNIFICANCE OF DEBT SERVICE RATIO:The interest coverage ratio is very important from the lender's point of view. It indicates the number of times interest is covered by the profits available to pay interest charges.

Formula Net Profit Before Interest and Tax / Fixed Interest Charges]

Years 2008 2007 2006 2005 2004

Pioneer cement 0.39 0.31 5.73 4.26 3.03

Cherat 0.30 4.27 9.94 21.10 30.96

Kohat Cement -4.71 1.23 20.21 25.17 17.22


INTEREST COVERAGE RATIO

ANALYSIS:Interest Cover Ratio shows that how many times interest is earned by the company. Pioneer cement company shows increasing trend from 2004 to 2006 which indicates positive sign and beneficial for the company and it has availability of the funds to pay interest expense. In 2007 and 2008 it goes down which means it is not good sign for the company to pay the interest expense. Kohat Cement Company and Cherat Cement is in better position to Cherat and pioneer cement, In year 2005 Kohat Cement earned 17.22 times interest which is higher among all year and easy to pay the interest expense. In 2007 and 2008 Interest cover ration of all the company is not very healthy and it shows that the financial costs are very high and earnings are very low. Management must look into the matter and should improve this ratio. Cherat cement was able to very comfortably cover this cost in the early years but by its growth the inabilities started to show although revenues are rising but the interest charges to be paid by the enterprise are also rising as the revenues are only resulting due to the rising financing through debt. The debt, especially the short term financing, needs to be curtailed as they will not result in Cherat Cement’s well being.

4.5. GENERAL RATIO ANALYSIS

4.5.1. PROFITABILITY ANALYSIS:

According to the scenario, the cement sector is experiencing strong growth in cement dispatches, but at the same time, is facing decline in profitability during 2008. Although the sales volume in the sector increased, the net sales revenue did not increase as much due to decrease in net retention. Over the years all cement manufacturers undertook huge capacity expansion plans which have now created a situation of excess supply in the local market. Companies resorted to price wars and this led to a fall in prices. As per the industry trend of declining profitability, Pioneer Cement also posted an overall loss of 179 million in 2008. The Profitability ratios of Pioneer Cement indicate that Pioneer, like many other companies in the cement sector, has been plagued by lower earnings. The gross profit margin fell drastically in


2007 and fell slightly in 2008 as well. Pioneer's rising operating expenses and finance costs have led negative net profit margin. Similarly return on assets and return on equity have also fallen. The prices of imported coal had shot up during the last fiscal year and caused a major rise in the cost of production. Crude oil prices had also seen an extraordinary rise last fiscal year. As fuel costs are the largest portion of production costs of the Pioneer Cement, the price increase had deeply hit the profitability of the company in 2008. For Pioneer Cement, the prices of packaging material went up and formed 14% to total production costs. Fuel and electricity costs form 60% of the cost of sales and higher electricity tariffs and fuel costs affected the earnings of the company in 2008.The cost of production went up due to rise in the prices of imported coal. Company had an impact of Rs 149 million on earnings due to devaluation of rupee against the US dollar and Japanese yen in the form of exchange losses. Financial cost also increased due to higher interest rates in the economy. The profitability ratios indicate that Pioneer Cement, like many other companies in the cement sector, has been weighed down by lower earnings. Pioneer's rising operating expenses and financial costs have led to negative impact on the net profit margins. Similarly, return on assets and return on equity have also fallen.

4.5.2. LIQUIDITY ANALYSIS:

The liquidity position of the company has been weakening over the years, due to substantial rise in the current liabilities. Pioneer felt a liquidity crunch, like many other companies in the cement sector due to the price war and losses caused by that in 2008. The current liabilities of Pioneer have also increased to Rs 2.987 billion during 2008, backed mainly by increased short-term borrowings by the company. To solve the liquidity problem, Pioneer has initiated a process of restructuring its debt by issuing Sukuk of Rs 2.5 billion in 2008.This will help the company to liquidate its excessive current liabilities. It will also help to control company's finance costs. Also, Pioneer will issue shares to the National Bank of Pakistan due to its inability to pay its loans. This restructuring would give a breather to the company whose current ratio was steadily moving downhill.During 2008, the composition of current assets changed such that the most liquid assets: cash and bank balances constituted 18%, trade debts 5% and inventory 9% of total current assets. Stores, spares and tools are highly illiquid assets and they form a major portion of the company's current assets. Industry’s position, though not ideal, is at least much better than the Pioneer Cement. In fact, it is the only company in the cement sector, which has the liquidity ratio of below 0.5.

4.5.3. DEBT ANALYSIS:

The debt to assets ratio depicts how Pioneer Cement financed. Each year, the company is being increasingly financed by equity rather than debt. In 2004, debt financed 87% of assets while in 2008 debt only contributed to 56% of the total assets. The company's debt to asset ratio has not fluctuated much because over the years because assets and liabilities have grown more or less in the same proportions.

The debt to equity ratio fell during 2005 and 2006 indicating that the company was financing its growth by equity. In 2005, the equity of the company rose by 197% while liabilities increased only by 11%. In 2007 the equity fell as the reserves fell owing to the loss made


during that fiscal year. This caused a slight increase in Debt to Equity ratio in 2007. In 2008 the debt to equity ratio has declined owing largely to a fall in the debt. The company is trying to restructure its financing composition in favor of equity by issuing Sukuk financing and convertible loan into equity. This will reduce the current liabilities in the future. In the wake of rising interest rates in the economy, this strategy will prove to be beneficial for Pioneer in the future. The average price/share fell during 2007 to Rs 31.78 and in 2008, it remained around Rs 31.84. The share prices declined due to the losses incurred during both the fiscal years.

4.5.4. ASSETS:

The asset management of the company seems to be quite effective during 2008 as the operating cycle of Pioneer decreased to 9 days from 23 days in 2007. The operating cycle, however, has reduced due to faster sales turnover while days to collect trade debt remained the same in 2008. The days to sell the average inventory were 19 days in 2007 whereas in 2008 it took the company only 6 days to sell its inventory.

4.6. COMPANY ANALYSIS

Pioneer cement limited fulfills all its targets of supplies in the market and also expands its production with the needs of market. In these days company is in its growth stage. Now the company has three production lines including one line for white cement produce and also for grey cement. The growth in demand of cement in Asia, India and Middle East, particularly supply deficit in India and China has geared up export opportunities for Cement Industry of Pakistan. Supply deficit in India has resulted in significant demand for Pakistani Cement due to India's geographic proximity with Pakistan. Bureau of Indian standards have approved Pioneer Cement for import to India. This demand will also be supported by closing down of some cement units in Europe due to their strict laws governing pollution control and other environment hazards. Being one of the big cement units of Pakistan and due to its high quality Pioneer Cement is the prime of choice of the International buyers all over the world. Pioneer Cement is committed to provide high quality cement to its international customers and is being exported to Afghanistan, India, Middle East, Europe and Africa. Pioneer Cement conveniently meets all the International standards including American, British, and Indian and European standards. Pioneer cement is an ISO 9001-2000 and ISO 14001-2004 certified company and follows all rules and regulations of the government. Company’s social performance is also good. It has good cooperation with community and the environment. Company has a good relation with their workers and also trying for their welfare.


Chapter .5

5.1. CONCLUSION

The company underwent many expansion plans due to which its capacity was increased to 2350 tons per day in 2005 and in 2006 a new production line of 4300 tons per day clinker capacity started production. Its shares are quoted on all the three stock exchanges of the country. It is a part of the Noon group, which holds the majority stake of 60% in the company, followed by a leading brokerage house, First National Equity Limited (FNE) 9% shareholding. Financial institutions, insurance companies and the general public, hold the rest of the shareholding. Pioneer is involved in the manufacturing and marketing of cement. Its products include ordinary Portland cement, suitable for concrete construction and sulphate resistant cement, ideal for construction in or near sea. Thus, the company's sulphate resistant cement is highly preferred in important projects such as the Thai Greater Canal project. PIOC's products are sold under the brand name of 'Pioneer Cement' and it was the winner of "Brand of the Year Awards 2006" in cement sector in the national category.Pioneer Cement is ISO 9001:2000 QMS and ISO: 14001:2004 certified. It meets local as well as international quality standards. Pioneer Cement produces and sells used coal and cement domestically and internationally.The cement sector had shown an impressive growth of 24.3% in the cement dispatches during 2008, owing to a strong demand in the local market and supply deficits in the regional markets. The major boost had come from the export sales (a growth of 142%) while local cement dispatches grew nominally by 6.5%.exports showed a growth of 59.5% and export market share rose from 21.5% in 2008 to 34.1% .However, there is no reflective true performance of Cherat against its competitors; EPS remained above the industry average. Lower value of outstanding number of shares rather than a high net income is mainly responsible for the mentioned trend. The same argument holds true for the higher than average book value per share as well. It has a declining trend. This again can be attributed to shareholder pattern of the company. The outlook for local demand growth for Cherat remains positive as a number of mega housing projects are in their initial stages whereas the government has also started a lot of infrastructure developments projects and might even go for mega water reservoir projects in the future. This would keep the demand upbeat. Earthquake reconstruction in the Northern Areas further strengthens the demand growth. Whereas for the Kohat Cement Company, by going forward, with additional capacities coming on line, the gross margins are likely to decline. However, they are expected to sustain at a reasonable level, allowing a comfortable profitability and cash flow levels for the industry, even at low capacity utilization levels. As Kohat Cement Company is going under sustainable capacity expansion, relative to its existing size, its market share in the production sharing arrangement is expected to increase, signifying ability to achieve higher sales volumes even at low capacity utilization. They should increase the overall profitability of the company as compare to its competitors.


Chapter .6

6.1. Recommendations

Cement Industry is playing a vital role in the building up the Country's economy and contribution towards growth & prosperity.

My recommendation is fast construction of roads, building, Dams, bridges to increase the sale of Cement Industry.

Slow construction activities in the Country during the period badly upset domestic sale of Cement, which depicted decline of 15% to 10.77 million tons as compared to 12.59 million tons of last fiscal year.

Government should reduce their taxes on Cement Sector. Cement demand is significantly affected by the public sector Development Program (PSDP), construction as well as exports.

Foreign investment and transfer of Technology.

The reduction in the prices of coal will also be also helpful in reducing the costs of the company

Pioneer cement limited fulfills all its targets of supplies in the market and also expands its production with the needs of market.

We recommend “BUY” for the scrip, although we are bullish viewing that most of the cement

stock often trade below the sector PER and this is also true for Fauji Cement, but as far as

growth sector is concerned our stance for fauji cement is neutral, even though the stock market

is currently not at bullish, fauji cement is out of danger zone as they have reprofiled its debts

which ultimately reduce its cost of borrowings thus, moving towards sound fundamentals.

It is strongly recommended that Fauji Cement should expand its business and should establish the strategies of going global.


6.2. FUTURE OUTLOOK

Cement dispatches are expected to continue growing in the future as the demand for cement may increase in response to construction activities in the private sector. Despite this, the local cement dispatches may be depressed due to slowdown in the economy-led construction activities in the country and also due to inflation. But exports are expected to maintain their strong growth and support the total cement dispatches. Pioneer Cement is expected to have increased exports as it has received orders from new buyers such as Russia, Central Asia, Madagascar and Nigeria. In the budget 2009 the central excise duty on cement was increased to Rs 900 per ton from current Rs 750 per ton Expenses are expected to increase for cement manufacturers due to the hike in coal prices and higher interest rates in our economy.

This will negatively impact the gross margins of the cement sector. During the past, our cement manufacturers shifted production from oil to coal or gas. Pakistan has huge reserves of coal but manufacturers need to import coal due to high sulphur content. Coal prices more than doubled during 2008 with average coal prices being around US $176/ton during the fiscal year. Rising coal prices coupled with a depreciating rupee will increase the cost of production for the cement companies and hit their gross margins hard. From a wider perspective, the cement consumption in the domestic market is expected to fall because of the shocking economic situation in the country.

The company's lavish expenditure on the social benefit when all the profitability ratios are below the industry average is not a good decision at all. The good asset and debt management is the key to success in future. The current owners will also have to think about increasing the free float of the company, as there is a lot of room for equity in the capital structure. This will have a positive effect on the net profit of the company, as the interest costs will reduce a lot. The stock market recovery should boost this decision. The liquidity position should also be improving in the nest year owing to the dependency of the company in short term borrowings.

The impediments in the good future income are of course the power shortages and the fluctuating oil prices but these factors are faced by the industry as a whole. But the local demand will of course pick up due to the construction work in Swat and NWFP. The reduction in the prices of coal will also be also helpful in reducing the costs of the company. However, there is hope for cement sector on the international front. Presently, Pakistan is exporting to Afghanistan and India. Regional shortage of cement has presented a favorable opportunity for our cement manufacturers.


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