Lucky Cement Comparative Financial Statments Analysis

Final Project: Corporate
Finance
Financial Statement Analysis
SUBMITTED TO:
Sir Moen Shehzad
SUBMITTED BY:
Ifzal Ahmed MBA1-FA09-003
SUBMITTION DATE:
December 31,
2009
COMSATS Institute of Information Technology,

Lahore
Financial Statement Analysis |
Table of Contents
Chapter 1 Introduction of the Company
History 2
Organization Structure 2
Export Overview 3
Key Financial Figures 5
Financial Performance 8
Chapter 2 Data Collection & Methodology
Data Collection 12
Methodology 12
Users of Financial Statements analysis 12
Tools of Analysis 14
Percentage Analysis 14
Ratio Analysis 18
Liquidity Ratios 19
Solvency Ratios 21
Efficiency/Activity Ratios 24
Profitability Ratios 27
Chapter 3 Financial Statement Analysis
Percentage Analysis 34
Vertical and Horizontal Analysis of Profit and Loss 34
Trend Analysis of Profit & Loss Account 36
Balance Sheet Analysis: Vertical Analysis 39
Balance Sheet Analysis: Horizontal Analysis: 40
Trend Analysis 41
Risk (Beta) Estimation of Lucky Cement 43
Ratio Analysis 44
Liquidity Ratios 44
Debt Ratios 46
Activity Ratios 49
Profitability Ratios 54
Conclusion 59
References 61

Chapter 1
Introduction of the Company

History
Lucky Cement Limited was founded in 1996 by Abdul Razzak Tabba. The company initially
started with factories one at Pezu district of the North West Frontier Province (N.W.F.P).
Now they also have a plant in Karachi. Lucky Cement Limited was sponsored by Yunus
Brothers Group (YB Group) which is one of the largest business groups of the Country based
in Karachi and has grown up remarkably over the last 50 years. The YB Group is engaged in
diversified manufacturing activities including Textile, Spinning, Weaving, Processing,
Finishing, Stitching and Power Generation. The Group consists of a number of industrial
establishments other than Lucky Cement Limited, they include
• Lucky Textile Mills - established in 1983

• Fazal Textile Mills Limited - established in 1987
• Gadoon Textile Mills Limited - established in 1988
• Lucky Energy (PVT) Limited - established in 1993
• Yunus Textile Mills Limited - established in 1998
Organization Structure
Lucky Cement Limited is managed by the team of professionals, who are committed and
dedicated to fulfill the mission and vision of the organization. Two production plants and five
marketing offices are managed by the staff strength of then 1800 permanent employees
throughout Pakistan.

Export Overview
This diagram exhibits the countries which

are engage in business with lucky cement.
The reason for selecting these countries is
the low transportation cost. This is the
main advantage of lucky cement over other
cement manufactures of cement as export
to India are concern.
This graph shows the top regions for Lucky cement
In FY 01 - 08
This graph shows the overall export share of Lucky

as compare to other industry.
This in the map of Pakistan and exhibits the location

of plants of lucky cement. One factory is in Northern
and one in southern region. These two plants are
strategically very important based on following reasons.
Northern Plant
• Availability High quality and much quantity limestone.

• Capacity of 4.0 million tons
• Next to Indus highway
• Access to Indian and central Asian markets.
• Serve demand in northern region and also in Afghanistan.
Southern Plant
• Availability High quality and much quantity limestone

• Capacity of 2.5 million tons
• Access to Karachi port and National Highway.
• The only manufacture with loading capacity at Karachi seaport .
• Serve the need of Southern region and Middle east, East Africa, and Sri
Lanka.
This is the only cement manufacture in country which is strategically placed in this region in
order to capture the domestic as well as export market. This is competitive edge over pears.
Key Financial Figures
Production & Sales Volume Performance:
During this year lucky cement has achieved all time high volume of production and sales as
enumerated in the table below:

A comparative analysis of sales volume of the industry with lucky cement

Market share of lucky cement

Year wise Market share
The overall comparative growth of industry can be seen from following graph

Financial Performance
A comparison of the key financial results of Our Company for the year ended June 30, 2008
with the same period last year is as under:

Sale performance
Lucky cement has achieved an overall net sales revenue growth of 35.43% as compared to
same period last year. Increase in revenue was attributed due to both increases in volume by
19.75% and net retention by 15.68%.Our Company continued to focus more on exports
because of strong establishment of its brand in international market market.. The domestic
sales registered a negative growth of 6.38% because of higher exports made by the company
which registered a growth of 116.29%. The ratio of sales revenue from exports was 54.43%
whereas the local sales accounted for 45.57% during the financial year under review. The
average combined net retention prices per ton improved by 13.10% over the comparative
period last year. The prices in the international markets remained robust whereas the prices in
the domestic market were under pressure, however in the last quarter the prices started
increasing because of substantial increase in production cost coupled with duties and taxes
increased by the Government in federal budget
Cost of Sales
The major cost of production for cement manufacturing is the energy cost which constitutes
68.77% of the total cost of production. The energy cost is further divided into heat energy and
power energy which constitutes 44.12% and 24.65% respectively of the total cost of
production. As a matter of fact, the international prices of coal and oil have increased
manifold during the last year which have badly affected the cost of production both in
Pakistan and abroad. The international prices of coal were approximately US$ 80 per ton by
end of last year which has now increased to US$ 210 per ton by the year ended June 30,
2008. The prices of furnace oil have also increased tremendously which have also affected
the cost of production.
Beside decline in the sale of cement, the cement is packed either in paper bags or
polypropylene bags. The increase in the prices of paper and the polypropylene in the
international markets have also increased the cost of cement bags substantially. Similarly, the
other cost factors have been increased either because of inflation, oil prices and depreciation
of Pak Rupee for imported items.
Resultantly, the production cost per ton of our Company was only increased by 18.89%.
Gross Profit
Our Company achieved a gross profit rate of 25.73% for the year ended June 30, 2008
compared to 29.35% gross profit rate achieved same period last year. However, the gross
profit in term of absolute value was increased by 18.71% because of the volumetric growth.
Finance Costs
The finance costs was reduced substantially from Rs.186 per ton last year to Rs.23 per ton
during the year ended June 30, 2008 mainly because of interest rates hedging executed by the
Company by entering into cross currency swaps agreements with the banks. These hedging
transactions allowed the company to offset positive interest differential between KIBOR and

LIBOR against the total financing cost of the Company. On the other hand, these swaps
exposed the Company to currency risk for depreciation of Pak Rupee but at the same time
ever increasing exports of the Company provided a natural hedge against these swaps
transactions to mitigate the currency risk.
As you know the economic and political scenario of the Country started deteriorating from
November 2007 resultantly the Pak Rupee lost almost 12% of its value by June 30, 2008 as
compared to June 30, 2007. Due to the depreciation of Pak Rupee our Company on the one
hand incurred exchange loss of Rs.800.359 million on cross currency swap but on the other
hand realized exchange gain of Rs.277.816 million on realization of GDR proceeds and
export sales.
Distribution Costs
Distribution costs incurred by the Company were in-line with the increase in the volume of
export sales. The percentage of distribution costs to net export sales was 12.51% for the year
ended June 30, 2008 compared to 11.66% last year.
Deferred Taxation
During the year under review, the deferred tax provision amounted to Rs.456.53 million was
reversed out of the total provision of Rs.1,515.54 million created in prior years due to higher
ratio of local sales. Since the ratio of exports has increased which are covered under
presumptive tax regime on which no deferred tax provision is required, therefore to that
extent deferred tax was reversed.
Contribution to The National Exchequer
Our Company contributed a total amount of Rs.3.907 billion (2007: Rs.4.137 billion) to the
Government Treasury in shape of taxes, levies, excise duty and sales tax. In addition to that
our Company earned precious foreign exchange of approximate US$ 150 million during the
year under review from exports besides bringing foreign investment of US$ 109 million
against the issuance of GDRs in the international market.

Chapter 2
Data Collection & Methodology

Data Collection and Methodology
Data Collection
The overall objective of financial statement analysis is the examination of a firm’s
financial position and returns in relation to risk. This must be done with a view to
forecasting the firm’s future prospective. Our project was regarding the analysis of
financial statements of lucky cement with its close competitors i.e. maple leaf cement and
cherat cement company. We will build relationship between items of financial statements
among themselves so that a clear idea about the real picture can be revealed. We will use
different tools and techniques which will help us in doing so. However in doing so we will
take the help of financial statements and general market perception about the figures which
will be subjective in nature. In our analysis we relied mostly on secondary form of data and
consult many text books while analyzing the financial performance indicators. All of the
financial statements of lucky cement, maple leaf and cherat cement were collected from their
respective websites. In addition some help from the website of Karachi stock exchange and
Lahore stock exchange was also taken. We analyzed the financial statements of six years
starting from 2005 to most recent financial statements of year ended June 2009. Some of the
graph representing the overall performance of our main company was taken from lucky
cement website and their financial statements in the introduction section only. Main problem
was with the industry averages and market price of their stocks because of the unavailability
of historical data for market price of stocks in calculating of the profitability ratios. We also
compared the ratios with their predetermined calculated ratios for the purpose of accuracy
and found our results very correct. While calculating some of the ratios we also took help
from our text book written by Van Horne and from some other reference books such as
Corporate Finance by Ross westerfield Jeff and Business Finance by Gitmen.
Methodology
Users of Financial Statements analysis

This analysis will help all of the stakeholders of the company. As it is an academic project the
particular use of this analysis will be for students, teachers, and general public however in
general it will benefit the investor, debtors, employees and the management of company in
their respective ways. As a standard way we list down the users of this analysis as:
• Investors: To help them determine whether they should buy shares in the
business, hold on to the shares they already own or sell the shares they already own.
They also want to assess the ability of the business to pay dividends
• Creditors: To determine whether their loans and interest will be paid when
due
• Debtors: businesses supplying goods and materials to other businesses will
read their accounts to see that they don't have problems: after all, any supplier wants
to know if his customers are going to pay their bills
• Employees and management : information about the stability and
profitability of their employers to assess the ability of the business to provide
remuneration, retirement benefits and employment opportunities
• Students and researchers: researchers' demands cover a very wide range of
lines of enquiry ranging from detailed statistical analysis of the income statement and
balance sheet data extending over many years to the qualitative analysis of the
wording of the statement
• Financial advisors: they need to know, for example, the accounting concepts
employed for inventories, depreciation, bad debts and so on
• General Public(potential investors)
Interest Group Ratios Considered

Investors Return on Capital Employed
Creditors Liquidity
Debtors Gearing ratios
Employees and management Profitability ratios + Return on Capital Employed
Students and researchers Depends on the nature of their study
Financial advisors Possibly all ratios
General Public(potential investors) Profitability and maybe Return on Capital Employed
Tools of Analysis
Two broad techniques will be applied for this analysis. They are:
• Percentage Analysis
• Ratio Analysis
These are the two main techniques mostly used for analyzing financial statements. First we
will discuss percentage analysis, its uses, and benefits and then we will explain ratio analysis
in detail later in this section.
Percentage Analysis
Percentage analysis as name suggest is techniques used to describe items of financial

statements as percentage of either time or any other item in financial statements. Like we can
find that how much increase or decrease occurred in financial statements’ items through the
years both in percentage terms and Rs terms. This helps in identifying a relationship between
different items of financial statements in time series.
1. Horizontal analysis (Index Analysis)

2. Trend Analysis
3. Vertical Analysis (Common Size Analysis)
In this part we will discuss each part in separate and then we will combine them for overall
analysis.
Horizontal analysis (Index

Percentage Analysis
(Analysis
Vertical Analysis (Common

(Size
Trend Analysis
1. Horizontal analysis (Index Analysis)

This technique is also known as comparative analysis. It is conducted by setting
consecutive financial statements side-by-side and reviewing changes in individual items
on a year-to-year or multiyear basis. The most important item revealed by comparative
financial statement analysis is trend. A comparison of statements over several years
reveals direction, speed and extent of a trend(s). The horizontal financial statements
analysis is done by restating amount of each item or group of items as a percentage.
Such percentages are calculated by selecting a base year and assign a weight of 100 to
the amount of each item in the base year statement. Thereafter, the amounts of similar
items or groups of items in prior or subsequent financial statements are expressed as a
percentage of the base year amount. The resulting figures are called index numbers or
trend ratios. In our analysis we selected 2008 as base year and determined horizontal
analysis only for two years both in Rs and percentage terms. This method is useful when
identifying an increase/decrease relationship among the individual items through years.
As basis of Analysis, the analyst may seek variables which seem to improve or
deteriorate and bring a challenge to the stakeholders in their various decisions
Like in the following figure we have selected 2008 as base year and increase/decrease in
2009 is calculated both in
Rs and percentage terms.
For example take stores
and spares we see that
there is a decrease in the
percentage as well as Rs
terms. While there is huge
increase in trade debts
which is almost 76% as
compare to the previous
year. Similarly more
relationships can be found
from the given table which
makes our analysis more
clear.
Calculate Change in Dollar

Amount
Rupee change= Current year amount- Base year amount
Percentage change=Rupee change/Base year amount
Or
Percentage change= Current year amount- Base year amount /Base year
amount
2. Trend Analysis

Trend analysis is more like horizontal analysis. It reveals patterns in data covering successive
periods. The difference is that trend gives us a more clear time series analysis of financial
statements. This gives us an increase/decrease trend throughout the years or we can take even
take decades for our analysis. In this method one year is taken as base year and
increase/decrease trend is found for each year. The current year item is taken as percentage of
the base year and similarly relationship between individual items throughout years can be
seen. In addition trend does not give us change only depicts a pattern of data in various
successive years. Formula for calculating trend is given as:
Trend Percentage= Current period amount/Base period amount*100
We calculated trend in MS Excel. We took 2005 as base year and trends for successive
periods are found until year end June 2009. A glimpse of our findings can be seen in the
figure below.
We can see the trend of individual items in balance sheet in above figure.
3. Vertical Analysis (Common Size Analysis)

This method is defined as analysis of financial statements that reveals the relationship of each
item to the total, which is 100 %. Vertical/Cross-sectional/Common size statements came
from the problems in comparing the financial statements of firms that differ in size.
In this tool each item in balance sheet is calculated as percentage of total assets on the asset
side while on liability side each item is expressed as percentage of total liabilities and
equities. While in income statement each item is expressed as percentage of total sales or
revenue. This is helpful when we want to find how much an contributed in total sales (let say)
comparing to last year’s contribution of the item to total sales or revenue.
For example in this figure

we can see that stock in
trade in 2008 comprised
2.07% of total assets
while in 2009 it increased to
3.12% of total assets.
Similarly relationship
between many of the
items can be found using
this analysis
Formula for calculating Common size percentage:
Common size %age=Analysis amount/base Amount
For balance sheet we take total assets as base amount while for income statement we take
total sales/revenues/turnover as base amount.
A graphical illustration of above data is given in above chart.
Ratio Analysis

An integral aspect of financial statement analysis involves performing “Ratio Analysis”. This
involves calculating a number of different industry standard ratios and comparing them to
various benchmarks. The benchmarks can be the ratios of other competitors, industry average
ratios. There’s no set procedure for performing ratio analysis because it all depends on the
type of company you’re analyzing – certain industries have industry specific ratios. This
complex data could seem confusing sometimes. Therefore there are many well-tested ratios
out there that make the task a bit less perplexed. Comparative ratio analysis helps you
identify and quantify your company's strengths and weaknesses, evaluate its financial
position, and understand the risks you may be taking.
In other words The Balance Sheet and the Statement of Income are essential, but they are
only the starting point for successful financial management. Apply Ratio Analysis to
Financial Statements to analyze the success, failure, and progress of any business. Not
everyone needs to use all of the ratios we can put in these categories so the table that we
present at the start of each section is in two columns: basic and additional.
The basic ratios are those that everyone should use in these categories whenever we are asked
a question about them. We can use the additional ratios when we have to analyze a business
in more detail or when we want to show someone that we have really thought carefully about
a problem
We have discussed percentage analysis above now in this section we will explain ratio
analysis. These are calculated between two individual items of financial statements. Broadly
we can divide these ratios into four categories and then we will discuss each of them
separately. The four broad categories are given as:
Liquidity Ratios
Ratio Analysis
Solvency Ratios
Efficiency/Activity
Ratios
Profitability
Ratios
These categories have their own significance and advantages as their name suggests. Now we
will discuss each of them in detail.
Liquidity Ratios

These ratios indicate the ease of turning assets into cash. They include the Current Ratio,
Quick Ratio, and Working Capital. These ratios are important for short term creditors who
are normally interested in short term liquidity of the company. In doing so they want to
analyze whether the firm will able to pay the receipts in due time or not or.
There are three current ratios that we have calculated in our project and that are widely used
and acceptable for short term creditors.
1. Current Ratio
The Current Ratio is one of the best known measures of financial strength. Formula for
current ratio is given below:
Current Ratio = Total Current Assets / Total Current Liabilities
The main question this ratio addresses is: "Does your business have enough current assets to
meet the payment schedule of its current debts with a margin of safety for possible losses in
current assets, such as inventory shrinkage or doubtful collectable accounts?" A generally
acceptable current ratio is 2 to 1. But whether or not a specific ratio is satisfactory depends on
the nature of the business and the characteristics of its current assets and liabilities. The
minimum acceptable current ratio is obviously 1:1, but it’s not necessary to be so because it
depends on nature of business and attitude of suppliers or vendors.
For example in our analysis we have found the current ratio of our main company i.e. lucky
cement company and its competitors and the results are given in the following graph.
2. Quick Ratio

The Quick Ratio is sometimes called the "acid-test" ratio and is one of the best measures of
liquidity. It is figured as shown below:
Quick Ratio = Cash + Government Securities + Receivables / Total Current Liabilities
The Quick Ratio is a much more exacting measure than the Current Ratio. By excluding
inventories, it concentrates on the really liquid assets, with value that is fairly certain. It helps
answer the question: "If all sales revenues should disappear, could my business meet its
current obligations with the readily convertible `quick' funds on hand?"
A short illustration of our findings can be seen in order to better understand the concept of
quick ratio given below.
In our example we have taken Stock in

trade, Trade Debt, other receivables,
cash & bank, Loans and
advancements as quick assets
because they are considered to be
most liquid.
3. Net Working Capital
Working Capital is more a measure of cash flow than a ratio. The result of this calculation
must be a positive number. It is calculated as shown below:
Working Capital = Total Current Assets - Total Current Liabilities
Bankers look at Net Working Capital over time to determine a company's ability to weather
financial crises. It determines a company’s attitude towards risk. If high Net working capital
it means company is conservative in terms of investing and is interested in keeping cash with
themselves while a low or sometimes negative net working capital may mean that company
invest more and does not keep cash with themselves.
An illustration of working capital trend among the three companies can be seen in below
graph.
A general observation about these three Liquidity Ratios is that the higher they are the better,
especially if you are relying to any significant extent on creditor money to finance assets.
Solvency Ratios

One of many ratios used to measure a company's ability to meet long-term obligations. The
solvency ratio measures the size of a company's after-tax income, excluding non-cash
depreciation expenses, as compared to the firm's total debt obligations. It provides a
measurement of how likely a company will be to continue meeting its debt obligations.
Acceptable solvency ratios will vary from industry to industry, but as a general rule of thumb,
a solvency ratio of greater than 20% is considered financially healthy. Generally speaking,
the lower a company's solvency ratio, the greater the probability that the company will
default on its debt obligation.
This can be divided into four sub parts which are given as:
• Debt Ratio: The debt to asset ratio is the percentage of total debt financing the
firm uses as compared to the percentage of the firm's total assets. It helps you see how
much of your assets are financed using debt financing
• Equity Ratio: A measure of a company's financial leverage calculated by
dividing its total liabilities by stockholders' equity. It indicates what proportion of equity
and debt the company is using to finance its assets.
• Debt to Equity Ratio: Indicates what proportion of equity and debt that the company is
using to finance its assets. Sometimes investors only use long term debt instead of total liabilities
for a more stringent test.
• Capitalization Ratio: A ratio showing the financial leverage of a firm, calculated
by dividing long-term debt by the amount of capital available
Now we explain these ratios in more detail in this section.
1. Debt Ratio
A ratio that indicates what proportion of debt a company has relative to its assets. The
measure gives an idea to the leverage of the company along with the potential risks the
company faces in terms of its debt-load.
A debt ratio of greater than 1 indicates that a company has more debt than assets, meanwhile,
a debt ratio of less than 1 indicates that a company has more assets than debt. Used in
conjunction with other measures of financial health, the debt ratio can help investors
determine a company's level of risk.
Formula for debt ratio calculation:
Debt ratio= Total Debt/Total Assets
This ratio explains the stricture of total assets i.e. how much of assets comprise of debt and
how much of equity. Generally the lower the ratio the better it is. How ever on other side if it
is low it means company will have to share more profit with shareholder on the positive side
they will have low risk of default. This ratio is generally important for long term debt holder.
An example of lucky cement can be seen in the graph on the next page. Here we can see a
trend of this ratio for lucky cement company.
Here we can see how much variation occurred in Lucky cement’s debt ratio

2. Equity Ratio
The Equity Ratio is a good indicator of the level of leverage used by a company. The Equity
ratio measures the proportion of the total assets that are financed by stockholders and not
creditors.
The calculation of equity ratio is:
Equity Ratio=Total Owner's Equity / Total Assets
A low equity ratio will produce good results for stockholders as long as the company earns a
rate of return on assets that is greater than the interest rate paid to creditors. This ratio is vice
versa of debt ratio it shows how much of total assets is financed by shareholders equity.
There is also a tradeoff between this ratio, if management wants to lower their shareholders
they can choose to lower this ratio and finance major part of their assets from debt which in
turn will increase their default risk and will have to pay more interest. In contrast if they
increase this ratio they can minimize the default risk so its company’s choice to go on either
side. A simple table showing shareholders part in assets can be seen in below table. Here we
can see that in 2005 65% of assets are financed by debt while 35% are financed by common
stock equity.
3. Debt to Equity Ratio
A measure of a company's financial leverage calculated by dividing its total liabilities by

stockholders' equity. It indicates what proportion of equity and debt the company is using to
finance its assets

• A ratio greater than one means assets are mainly financed with debt, less than one
means equity provides a majority of the financing.
• If the ratio is high (financed more with debt) then the company is in a risky position -
especially if interest rates are on the rise
Formula for calculating debt to equity ratio:
Debt to Equity Ratio=Total Debt / Total Equity
The debt/equity ratio also depends on the industry in which the company operates. For
example, capital-intensive industries such as auto manufacturing tend to have a debt/equity
ratio above 2, while personal computer companies have a debt/equity of under 0.5.
An example of debt to equity ratio is cherat cement is that in 2005 this ratio is 0.84 which
means for every one unit of debt they have issued 0.84 unit of shareholders equity. As shown
in the table below:
4. Capitalization Ratio
A ratio showing the financial leverage of a firm, calculated by dividing long-term debt by the
amount of capital available:
Formula for calculating capitalization ratio is:
Capitalization ratio= Long term debt/Long term debt+ Common Equity
By using this ratio, investors can identify the amount of leverage utilized by a specific
company and compare it to others to help analyze the company's risk exposure. Generally,
companies that finance a greater portion of their capital via debt are considered riskier than
those with lower leverage ratios. This ratio deals with company’s long term debt.

Efficiency/Activity Ratios
These ratios are used to find how much efficient a company is in converting their assets into
sales or revenue or in simple words identify the efficiency of the firm.
Activity ratios measure company sales per another asset account—the most common asset
accounts used are accounts receivable, inventory, and total assets. Activity ratios measure the
efficiency of the company in using its resources. Since most companies invest heavily in
accounts receivable or inventory, these accounts are used in the denominator of the most
popular activity ratios
These ratios can be divided into four major parts given as:
• Accounts receivable turnover

• Inventory turnover ratio
• Total asset turnover
• Times interest earned ratio
We will explain these ratios separately and briefly.
1. Accounts receivable turnover
Accounts receivable is the total amount of money due to a company for products or services
sold on an open credit account. The accounts receivable turnover shows how quickly a
company collects what is owed to it.
Accounts Receivable Turnover = Total Credit Sales or only Sales/ Accounts Receivable
This ratio tells the credit policy of the company the greater this ratio the better but however
company should not tighten this policy so much as it affects the sales. The greater this ratio
means company receives accounts receivables more frequently and if policy is loose then this
ratio might be low. This ratio is calculated in days and in times separately the difference is in
understanding otherwise the concept is same. A graphical illustration of lucky cement’s
accounts receivables turnover can be seen in below graph.
2. Inventory turnover ratio
For a company to be profitable, it must be able to manage its inventory, because it is money
invested that does not earn a return. The best measure of inventory utilization is the

inventory turnover ratio (sometimes called inventory utilization ratio), which is the total
annual sales or the cost of goods sold divided by the cost of inventory.
It’s calculated as:
Inventory Turnover Ratio = Total Credit Sales or only Sales/ Cost of Goods sold
Using the cost of goods sold in the numerator is a more accurate indicator of inventory
turnover, and allows a more direct comparison with other companies, since different
companies would have different markups to the sale price, which would overstate the actual
inventory turnover.
In seasonal businesses, where the amount of inventory can vary widely throughout the year,
the average inventory cost is used in the denominator. For example an Inventory turnover
ratio of 21 means that company converts its inventory into sales 21 times in a year.
3. Total asset turnover
The total asset turnover measures the return on each dollar invested in assets and is equal to
the net sales, which is total sales minus returns and allowances, divided by the average total
assets.
Formula for calculating this ratio:
Average Total Assets = Assets at Beginning of Year + Assets at End of Year/2
Total Asset Turnover = Net Sales/Average Total Assets
It shows how much revenue is generated for each dollar invested in assets. This ratio tells
how much efficient is the firm in converting its total assets into sales the higher this ratio the
better is for the firm. For example a turnover ratio of 0.81 means firm utilizes 81% of its total
assets into sales it means they have a margin to increase this ratio.
4. Times interest earned ratio
The times interest earned ratio indicates the extent of which earnings are available to meet
interest payments. A lower times interest earned ratio means less earnings are available to
meet interest payments and that the business is more vulnerable to increases in interest rates.
A company must have enough earnings to pay its interest expense; otherwise it will
eventually fail. Because earnings rise and fall depending on market and economic conditions,
it would be preferable if the company’s earnings were much higher than interest expense in
most years; otherwise, investing in the company would incur significant risk when the
economy falters, as it always does eventually. The amount of safety desired depends on the
stability of the company’s earnings, and how cyclical the company’s sector is. A company
whose earnings rise and fall significantly with economic cycles should have a greater margin
of earnings over interest payments.
Formula for calculating this Ratio:
Interest Coverage Ratio=Earnings before Interest and Taxes / Interest Expense of

Long-Term Debt

An example of this ratio can be seen in the table below:
This means that lucky cement company paid interest 55 times in 2005 an it decreased to 30
times in 2006 and to almost 5 times in 2009. This maybe due to the decrease in finance cost
and less earning in 2009.
Profitability Ratios
These ratios deals with the performance related to income statement in major. These ratios
will be of interest to investor. Some examples of profitability ratios are profit margin, return
on assets and return on equity. It is important to note that a little bit of background knowledge
is necessary in order to make relevant comparisons when analyzing these ratios.
For instances, some industries experience seasonality in their operations. The retail industry,
for example, typically experiences higher revenues and earnings for the Christmas season.
Therefore, it would not be too useful to compare a retailer's fourth-quarter profit margin with
its first-quarter profit margin. On the other hand, comparing a retailer's fourth-quarter profit
margin with the profit margin from the same period a year before would be far more
informative. Some of the widely profitability ratios are listed below:
1. Gross Margin Ratio
This ratio is the percentage of sales dollars left after subtracting the cost of goods sold from
net sales. It measures the percentage of sales dollars remaining (after obtaining or
manufacturing the goods sold) available to pay the overhead expenses of the company.
Comparison of your business ratios to those of similar businesses will reveal the relative
strengths or weaknesses in your business. The Gross Margin Ratio is calculated as below:
Gross Margin Ratio = Gross Profit / Net Sales
*Gross Profit = Net Sales - Cost of Goods Sold

The greater his ratio
the better the firm’s
performance is. This
ratio will mainly be
affected by cost of
goods sold or the
level of sales. A
graphical illustration of
Maple leaf Cement
Company’s gross
profit in relation to its
Competitors is given
below.
2. Operating Profit Ratio
Operating profits are arrived at by deducting marketing, administration, depreciation and

R&D costs from the gross margin. Companies seek to maximize operating costs through
efficient operations and effective marketing.
Operating profit is the profit earned from a firm's normal core business operations. This value
does not include any profit earned from the firm's investments (such as earnings from firms in
which the company has partial interest) and the effects of interest and taxes.
Calculated as:
Operating Profit Ratio= EBIT (Excluding any non Operating Income)/Net Sales.
The higher the ratio the better it is for the company. This ratio is effected by any
administrative costs and marketing cost or depreciation cost. In our example lucky cement
company has an operating ratio of 15% in 2008 which increased to 23% in 2009. The
increase is normally attributed to high level of sales in 2009 and comparatively low
administrative and marketing expenses.
3. Net Profit Ratio
Net profits are the profits that remain after tax. It is this final profit that is available for
distribution as dividend or for adding to shareholder equity as retained earnings. Here we use
net profit margin or ratio to analyze the final performance of any firm.
This ratio is the percentage of sales dollars left after subtracting the Cost of Goods sold and
all expenses, except income taxes. It provides a good opportunity to compare your company's
"return on sales" with the performance of other companies in your industry. Sometimes it is
better to calculate it before income tax because tax rates and tax liabilities vary from
company to company for a wide variety of reasons, making comparisons after taxes much
more difficult. The Net Profit Margin Ratio is calculated as follows:
Net Profit Margin = Net Profit/Net Sales or Revenue
A practical illustration
can be found in this
graph.
4. Return on Equity
The ROE is perhaps the most important ratio of all. It is the percentage of return on funds
invested in the business by its owners. In short, this ratio tells the owner whether or not all the
effort put into the business has been worthwhile. If the ROE is less than the rate of return on
an alternative, risk-free investment such as a bank savings account, the owner may be wiser
to sell the company, put the money in such a savings instrument, and avoid the daily struggles
of small business management. The ROE is calculated as follows:
Return on Equity = Net Profit /Average Shareholders' Equity
Net income is for the full fiscal year (before dividends paid to common stock holders but
after dividends to preferred stock.) Shareholder's equity does not include preferred shares.
The greater this ratio the better the firm’s position is. And this shows how much company is
earning on the shareholders equity. A comparison of three firms’ ROE is shown in below
graph.

5. Return on Assets
The Return on Assets of a company determines its ability to utilize the Assets employed in
the company efficiently and effectively to earn a good return. The ratio measures the
percentage of profits earned per Rs of an Asset and thus is a measure of efficiency of the
company in generating profits on its Assets.
Formula for calculating ROA is:
Return on Assets = (Net Profit / Total Assets) x 100
A low ratio in comparison with industry averages indicates an inefficient use of business
assets. This ratio will be of importance for investor who wants to see the company’s ability to
generate sales using its total assets efficiently. For instance lucky cement has ROA of 10% in
2007 which decreased to 9 % in 2008 thus causing a slight decrease in their efficiency.
6. Earnings per Share
The portion of a company's profit allocated to each outstanding share of common

stock. Earnings per share serve as an indicator of a company's profitability.
Calculated as:
EPS= Net Income-Dividends on preferred stock/ Average Number of Shares

outstanding
When calculating, it is more accurate to use a weighted average number of shares outstanding
over the reporting term, because the number of shares outstanding can change over time.
However, data sources sometimes simplify the calculation by using the number of shares
outstanding at the end of the period. An earnings per share is generally considered to be the
single most important variable in determining a share's price. It is also a major component
used to calculate the price-to-earnings valuation ratio.
This ratio will also be of our prime concern.
7. Dividend Payout Ratio
The percentage of earnings paid to shareholders in dividends.
Calculated as:
DPO= Dividends / Earning Per Share
The payout ratio provides an idea of how well earnings support the dividend payments. More
mature companies tend to have a higher payout ratio. This ratio is an indicator of how much
of Earning the firm is giving in dividend to the common shareholder.
8. Price Earnings Ratio
A valuation ratio of a company's current share price compared to its per-share earnings.
Calculated as:
P/E Ratio= Market Price per share/Earning per Share
EPS is usually from the last four quarters (trailing P/E), but sometimes it can be taken from
the estimates of earnings expected in the next four quarters (projected or forward P/E). A
third variation uses the sum of the last two actual quarters and the estimates of the next two
quarters. It is an important ratio for investors. This shows how much an investor is willing to
pay for one unit of earning. It should be carefully examined it should not be too high or not
too low. A high ratio may sometimes depict that no one is willing to pay for the stock. In our
observation it was difficult to find historical data on market prices so ratios for some years
were not calculated.
9. Earning Yield
The earnings yield (which is the inverse of the P/E ratio) shows the percentage of each dollar
invested in the stock that was earned by the company. The earnings yield is used by many
investment managers to determine optimal asset allocations.
Formula for earning yield is computed as follows:
Earning yield Ratio=Earnings per Share / Market Price per share
So a share that cost RS 200 and had an EPS of RS 10 would be on a P/E of Rs 20 and would
have an earnings yield of 5%.
PE is more widely used and discussed and it is therefore what most investors prefer to use out
of sheer familiarity. Earnings yield is more consistent with other measures that are used such
as dividend yield, bond yields and interest rates
10. Dividend Yield
A financial ratio that shows how much a company pays out in dividends each year relative to
its share price. In the absence of any capital gains, the dividend yield is the return on
investment for a stock. Dividend yield is calculated as follows:
Dividend Yield= Dividend per share/ Market Price per share
In our analysis we couldn’t find data for some years that’s because of unavailability of
historical data for market prices of shares.

Financial Ratios Chart
Financial statement analysis
Ratio analysis Percentage analysis
Liquidity Ratios
Horizontal analysis
Trend analysis
Current ratio
Quick Ratio
Net Working Capital Vertical analysis
Gross Profit Ratio. 1

Solvency Ratios Profitability Ratios
Operating Profit. 2
Ratio
Debt ratio. 1 Net Profit Ratio. 3
Equity Ratio. 2 Return on Equity. 4
Debt to Equity. 3 Return on Assets. 5
Capitalization ratio. 4 Earnings per Share. 6

Efficiency/Activity
Dividend Payout. 7
Ratios
Ratio
Receivables Turnover. 1 Price Earnings Ratio. 8
Inventory Turnover. 2 Earning Yield. 9
Assets Turnover. 3 Dividend Yield. 10
Interest Earned Ratio. 4

Chapter 3
Financial Statement Analysis

Percentage Analysis
This type of analysis is further divided into three categories as explained earlier. Main focus
of all percentage analysis will be on profit and loss account because it tell us how company
revenue and cost structure is in last year and how relative increase or decrease effects
profitability. However balance sheet will be analyzed side by side to see how assets are
allocated and financed over 6 years period.
Vertical and Horizontal Analysis of Profit and Loss
Income Statement 2008 2009 Vertical Analysis Horizontal Analysis

Rupee Percentage
2008 2009 Differences Differences
Net Sales 16957879 26330404 100 100 9372525 55.26944
Cost of Sales 12600706 16519138 74.30591 62.73788 3918432 31.09692
4357173 9811266 25.69409 37.26212 5454093 125.175
Distribution Cost 1155054 2427837 6.811312 9.22066 1272783 110.1925
Administrative expense 125752 165936 0.741555 0.630207 40184 31.95496
1280806 2593773 7.552867 9.850867 1312967 102.511
Operating Profit 3076367 7217493 18.14123 27.41125 4141126 134.6109
Finance Cost 126743 1236971 0.747399 4.697881 1110228 875.9679
Other Operating
Income -1293 -23255 -0.00762 -0.08832 -21962 1698.531
Other Charges 644388 826776 3.799933 3.140005 182388 28.30407
769838 2040492 4.539707 7.749566 1270654 165.0547
Profit Before Taxation 2306529 5177001 13.60152 19.66168 2870472 124.4499
Taxation -371141 580452 -2.18861 2.204493 951593 256.397
Profit After Taxation 2677670 4596549 15.79012 17.45719 1918879 71.66227
Total Cost * 14281502 21757110
* Total cost includes all expenses (CGS, Distribution and administration expenses,
Financing Cost, and taxation)
Here we are doing vertical and horizontal analysis side by side because there is a strong link
between both. In short it is clear that year 2009 was more profitable for lucky cement as
compared to previous year, starting from CGS we see that this year CGS is only 62% as
compared to 74% in 2008. This tells that relative increase in our sales is more than that in
CGS as shown in next columns increase in sales is 55% (Note: this increase is of Rupee sales,
this means it takes in to account both price increase and volume of sales increase) in actual
company volume sales increased by 6.25% although domestic demand decreased by 14% and
so is the reason that many of competing firm suffered losses or reduce performance, but lucky
cement focused on export market and got benefited with increased international demand and
thus was successful to achieve 6.25% volume increase and 55% rupee increase in sales, but
when we look to CGS increase in it is only 31%. Looking at rupee differences column we can
simply say that for every 1 rupee increase in sales company was able to keep CGS increase
only to the level of 42 paisa, which means giving 58 paisa increase to gross profit and finally

resulting in 125% increase in gross profit from lass year GP. Looking at note 27 of annual
report it is very clear that raw material consumption cost increase only by 17%, which is
great success of company that it maintained bargaining power over suppliers and kept raw
material cost controlled only abnormal increase of 39% (which is higher than 31% increase in
CGS) shown in note 20 is in fuel and power cost due to increase in government prices of
petroleum and electricity, otherwise all other items of CGS increased in line with overall
increase of CGS, so we can say that increased cost of fuel and energy was compensated by
control on raw material consumption cost. Thus in total company this year earned 37 paisa
GP out of each rupee sale as compared to 25 paisa in last year.
Distribution cost is clearly increasing at higher pace as compared to our sales. It is very clear
in vertical analysis that in 2008 it costs only 6.8 rupee in every 100 rupee sale however in
2009 it is costing 9 rupees for every 100 rupee sales. If we look in horizontal analysis its
rapid increase of 110% greater than 55% increase in sales is obvious due to rise in petroleum
(fuel) prices. Going to note 28 it becomes very clear that dramatic increase is only in items
that includes fuel consumption (Logistics and related charges 126%; travelling and
conveyance 38%; vehicle running 38%), company tried to minimize all other components of
distribution cost and also went successful in reducing rupee value of few items like
entertainment -28%; advertisement -52% and loading -17%, despite of increase in sales
(rupee & volume). Instead of this great effort company failed to compensate for increased
fuel cost and it is being reflected in income statement analysis.
Next, we see that administration cost was also controlled and increase in it is less as
compared to increase in sales, here is one noticeable point that company efficiency in
controlling administration cost was same as was in CGS, this clearly tell us that to boost
profitability company controlled cost at each level and tried best to increase sales. 31%
increase in all cost structure was maintained against 55% increase in revenues, except factors
of inflation in fuel prices which is uncontrollable.
Hence total effect of company operations is visible with increase in operating income by
134%. This year company is successful to have 9 rupee additional in its operating profit for
each 100 rupee sale as compared to last year.
A material percentage change apparent in finance cost is only because of small absolute Rs.
896 million gain due to currency swap in year 2008. This gain was subtracted in computation
of year 2008 finance cost. This gain if neglected then increase in financial cost is only 20%.
However this difference created is being slightly diluted in title of other operating income
because this year company reported gain of 21.36 millions on forward contracts in other
operating income (Note 30&31). This is reason of incredible percentage difference of other
operating income of two years. Finally we cannot make comment on taxation because no
reconciliation is given in annual reports. It is stated in Note 33 (and in every year taxation
note) ‘Since the Company is not liable to any tax under the Normal Tax Regime, therefore,
no numerical tax reconciliation is given’
As far as this analysis of two year is concerned we can conclude that company went
successful to reduce it costs and in profitability in 2009 net profit is 17.4 rupee on every 100
rupee sale which is 1.66 rupee higher as compared to last year and company achieved profit
growth of 71.6 % by increasing sales by 55%.
At this point we can also go for calculation of DOL in 2008

EBIT= profit before taxes + finance cost
And then calculate percentage change in EBIT. I.e. in our case 163.6% so our DOL comes
out to be 2.96, which means 1% change in 2008 sales caused 3% change in EBIT.
Trend Analysis of Profit & Loss Account

Income Statement Trend Analysis (base year 2004) 1 equals to 100
2004 2005 2006 2007 2008 2009
Net Sales 1 1.368767 2.745894 4.30629 5.831845 9.055073
Cost of Sales 1 1.438894 2.807308 4.894842 6.971912 9.139962
1 1.253592 2.645028 3.33967 3.959432 8.915653
Distribution Cost 1 1.165329 1.659507 24.35312 56.51502 118.7903
Administrative expense 1 1.336361 2.324882 2.424442 2.738979 3.614219
1 1.283677 2.119925 9.179201 19.30378 39.09228
Operating Profit 1 1.251661 2.67872 2.964995 2.974911 6.979465
Finance Cost 1 2.000646 76.53652 79.58375 11.69 114.0907
Other Operating
Income 1 0.742839 0.132161 409.6934 0.841797 15.13997
Other Charges 1 1.189024 2.504665 2.648267 12.00045 15.39706
1 1.339571 3.445852 5.964192 12.21907 32.38722
Profit Before Taxation 1 1.245958 2.62895 2.770413 2.375169 5.331063
Taxation 1 1.343539 2.162431 0.501365 -1.3007 2.034254
Profit After Taxation 1 1.205356 2.823064 3.714542 3.904664 6.702834

Total Cost * 1 1.418731 3.056233 4.76882 6.422749 9.784717
* Total cost includes all expenses (CGS, Distribution and administration expenses,
Financing Cost, and taxation)
First we will have an over look of all of the components of income statement and link them
with profitability ratios also and in second step we will compare few important items
graphically to reach at conclusion.
Here firstly we compare net sales with CGS we can simply conclude that year 2004 is most
profitable as compared to all successive years. We see in all years increase in our Sales is
more than increase in CGS. In year 2009 we see our sales is 9.05 times as compared to 2004
but our CGS is 9.13 times so it means that our gross profit margin will be less in 2009 as
compared to gross profit margin of 2004, and this is proved in gross profit ratio in 2004 is
37.8% and is higher than any other year, however in year 2006 we see that increase in CGS is
very slightly greater then that in sales so GPM in 2006 (37%) is close to that of 2004.
Now before moving further I like to discuss shaded areas of table. In year 2006-2007
company changed its reporting policy just to show rapid increase in their net sales. There is
difference in amount of net sales of year 2006 between two annual reports (i.e. 2005-2006
and 2006-2007) this difference is due to the factor of logistics expense, upto 2005-2006
company used to deduct these expenses from gross sales to calculate net sales, but in year
2006-2007 when fuel prices seems to rise continually company decided to make this factor
part of distribution cost, in 2006 this factor amounted 69,572 thousand and is accounted in
calculation of net sales however in 2007 it further increased to 438,522 thousands which is
part of distribution cost this year so it can be see clearly that distribution cost index suddenly
raised to extreme level 2.3 and in successive years it continued to rise to level 118 times in

2009 as compared to 2004. no other index rises so sharply, think if company kept it as part of
net sales then it could never show impressive growth of its net sales year by year.
Now in end there arises another question of noticeable increase in 2009 gross profit,
operating profit and net profit index this can be explained from last row. We can have better
understanding of reason behind this from graphs
10.00
8.00
6.00 Sales
INDEX
CGS
4.00
GP
2.00
0.00
2004 2005 2006 2007 2008 2009
Now it become clear that upto 2006 company increase in sales was almost in line with CGS
increase so GP increases also in same pace, we can compare it with results in GP ration that
in these 3 years ratio remained stable between 34-37%, but in next two years (2007 & 2008)
graph depicts that company efficiency to increase sales declined however CGS kept on rising
with same pace (probably prices of outputs not increase against inflation of inputs, better
evaluation can be done if unit sales data is available for each year ) as a result gross profits
suffered and raised (rupee amount) at lower rate (line getting flatter) and it can be compared
with GP ratio of these two years fallen in range of 20s, but in 2009 company boosted it sales
drastically keeping CGS to rise with same previous pace thus Gross profit drastically raised
and its index increased by 4.96 times in 2009. This again is comparable with GP ratio that in
2009 it increased to 32% from 21% in 2008. Here it become clears how different angle of
analysis are related with each other and show similar results.
12.00
10.00
8.00 Sales
indexs
6.00 Total Cost

4.00 Net Profit
2.00
0.00
05
07
08
04
06
09
20
20
20
20
20
20

Now this graph gives a wider look and considers overall cost structure including Distribution
and administration costs. Here we see that in year 2009 although sales are sharply increased
but unlike CGS total cost also raised with higher pace. And that’s why net profits could not
boost up as much as our gross profit was boosting up. Net profits only raised by 2.8 times as
compared to 4.96 times increase in gross profits. Here we see that this burden was created by
distribution cost whose index increased by 62 times. We can compare this result with NPM in
next part where we see our NPM rises by only 1 % in 2009. This is only because of rising
distribution cost in 2009, we can see it raised to level of 9.2 % from 6.8% of sales. If it would
have remained 6.8% then our Net Profit margin would have increased to 19.86% instead of
17% and net profit index would be 7.63 times which means 3.72 times increase which is
closer to 4.96 increases in Gross profits. Thus our end of net profit line would be steeper as
was gross profit line in 2009.

Balance Sheet Analysis:
Vertical Analysis
Balance sheet at June 2009 Vertical Analysis
2008 2009 2008 2009
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment 25881375 30476872 75.5902 79.3826
Long term advance 0 55373 0.0000 0.1442
Long term deposits 2175 2175 0.0064 0.0057
25883550 30534420 75.5965 79.5325
CURRENT ASSETS
Stores and spares 4160146 3411549 12.1503 8.8860
Stock-in-trade 709372 1196608 2.0718 3.1168
Trade debts – considered good 720314 1267248 2.1038 3.3008
Loans and advances 111989 108876 0.3271 0.2836
Trade deposits and short term prepayments 189641 9761 0.5539 0.0254
Other receivables 890204 59251 2.6000 0.1543
Tax refunds due from the government 538812 538812 1.5737 1.4034
Taxation-net 130899 176584 0.3823 0.4599
Sales tax refundable 634136 40162 1.8521 0.1046
Cash and bank balances 270011 1049091 0.7886 2.7326
8355524 7857942 24.4035 20.4675
TOTAL ASSETS 34239094 38392362 100.0001 100.0000
EQUITY AND LIABILITIES
Share capital 3233750 3233750 9.4446 8.4229

Reserves 15421673 20018222 45.0412 52.1412
18655423 23251972 54.4858 60.5641
Non-Current Liabilities
Long term finance 6633333 4300000 19.3736 11.2001
Long term deposits 30252 28589 0.0884 0.0745
Deferred liabilities 174171 234633 0.5087 0.6111
Deferred taxation 1058998 1478490 3.0930 3.8510
7896754 6041712 23.0636 15.7368
CURRENT LIABILITIES
Trade and other payables 3549543 2677356 10.3669 6.9737
Accrued mark-up 288977 233381 0.8440 0.6079
Short term borrowings 3606710 6187941 10.5339 16.1176
Current portion of long term finance 241667 0 0.7058 0.0000
Sales tax payable
7686897 9098678 22.4507 23.6992
34239074 38392362 100.0000 100.0000
Only one noticeable change in balance sheet is that company is doing capital expenditure to
increase fixed assets and going for extension but company is not financing its expansion from
fixed liabilities instead is going toward equity and current liabilities, in next session of trend
analysis it will become further clear about aggressive strategy of company, noncurrent
liability is not only decreasing in percentage but also in absolute amount. Notice that
company raised equity from retained earnings in this year it has not issued any shares and
thus not diluted it EPS. One more important point that will strengthen our discussion is that
increase in current liabilities is solely due to raise of short term borrowing from 10% to 16%
because we also see that company successfully reduce its trade payables (account payables)
also. So up to some extent company is using short term financing instead of long term
(probably due to high interest rates).
Horizontal Analysis:
Balance sheet at June 2009 Horizontal Analysis
Dollar Percentage
difference Difference
ASSETS
Non Current Assets
Property, plant and equipment 4595497.00 0.1776
Long term advance 55373.00 MATH ERROR
Long term deposits 0.00 0.0000
4650870.00 0.1797
CURRENT ASSETS
Stores and spares (748597.00) (0.1799)
Stock-in-trade 487236.00 0.6869
Trade debts – considered good 546934.00 0.7593
Loans and advances (3113.00) (0.0278)
Trade deposits and short term prepayments (179880.00) (0.9485)
Other receivables (830953.00) (0.9334)
Tax refunds due from the government 0.00 0.0000
Taxation-net 45685.00 0.3490
Sales tax refundable (593974.00) (0.9367)
Cash and bank balances 779080.00 2.8854
(497582.00) (0.0596)
TOTAL ASSETS 4153267.53 0.1213
Equity and Liabilities

Share capital 0.00 0.0000
Reserves 4596549.00 0.2981
4596549.00 0.2464
Non Current Liabilities
Long term finance (2333333.00) (0.3518)
Long term deposits (1663.00) (0.0550)
Deferred liabilities 60462.00 0.3471
Deferred taxation 419492.00 0.3961
(1855042.00) (0.2349)
Current Liabilities
Trade and other payables (872187.00) (0.2457)
Accrued mark-up (55596.00) (0.1924)
Short term borrowings 2581231.00 0.7157
Current portion of long term finance (241667.00) (1.0000)
1411781.00 0.1837
4153288.00 0.1213
Here we see that total company assets are increasing by 12% approx and that is only because
of 17% increase in plant and equipment for expansion. Current assets as total are reducing
and only two items of noticeable increase in current assets are stock-in-trade (inventory) and
Trade debts (account receivables) and increase in both of them is obvious because of
increasing sales by 55% as mentioned earlier. As no share issued during the year so share
capital do not increased but reserves increased and that increase is only because of
inappropriate profits and again it becomes clear that company is paying its long term finance

and reducing it by 35%. It is also efficient in paying its trade debts a and reduced them by
24%, more light on this will be thrown in activity/efficiency ratios
Trend Analysis:
Tend Analysis (base year 2004) (1equals 100 percent)
Balance Sheet 2004 2005 2006 2007 2008 2009
ASSETS
Non Current Assets

Property, plant and equipment 1 2.675331 3.808679 4.037973 5.143401 6.056664
Long term advance
Long term deposits 1 0.956044 0.956044 0.956044 0.956044 0.956044
1 2.674554 3.80739 4.036581 5.141509 6.065358
Current Assets
Stores and spares 1 1.365671 2.002719 3.151197 6.57585 5.39256
Stock-in-trade 1 0.671989 2.504153 3.925308 4.117529 6.945676
Trade debts – considered good 1 1.394473 6.015468 29.14325 44.03974 77.47909
Loans and advances 1 4.189172 6.285173 7.515337 3.480405 3.383659
Trade deposits and short term prepayments 1 1.275897 36.01832 1.22044 23.95667 1.233072
Other receivables 1 0.251349 1.057945 2.308967 11.22351 0.747025
Tax refunds due from the government
Taxation-net 1 0.902381 0.633681 1.340609 3.505691 4.729211
Sales tax refundable
Cash and bank balances 1 0.14142 2.063617 1.239075 0.269993 1.049021
1 0.67869 2.25242 2.734525 4.224032 3.972486
TOTAL ASSETS 1 2.111545 3.368752 3.669287 4.882703 5.474984
Equity and Liability
Share Capital
Share capital 1 1.075 1.075 1.075 1.319898 1.319898
Reserves 1 1.346152 2.388613 3.618445 8.304187 10.77931
1 1.191913 1.641392 2.17166 4.331323 5.398527
Non Current Liabilities

Long term finance 1 5.678403 8.831822 7.248351 5.768116 3.73913
Long term deposits 1 1.248253 1.34211 1.272911 1.488926 1.407077
Deferred liabilities 1 1.093262 1.706646 1.383608 1.636622 2.204762
Deferred taxation 1 1.725295 2.885052 3.045646 2.128181 2.9712
1 4.244037 6.650963 5.649545 4.450515 3.405036
Current Liabilities
Trade and other payables 1 1.691909 4.106537 4.37712 10.04512 7.576851
Accrued mark-up 1 13.78249 20.9602 35.95866 31.85724 25.72825
Short term borrowings 1 1.38366 1.136196 5.038951 6.344804 10.88562
Current portion of long term finance
Sales tax payable
1 2.301863 5.104874 6.824097 8.257649 9.774255
Total Assets 1 2.111545 3.368752 3.669287 4.8827 5.474984

Non-Current
12 Assets
10 Current Assets
8
Index
6 Non Current
4 liabilites
2 Current liabilites
0
Equity
04
05
09
06
07
08
20
20
20
20
20
20
Now we can build very strong links between 6 years profit and loss and balance sheets.
Notice that in year 2004-05-06 company heavily financed its expansions from debt and raised
level of long term financing to its peak as red point in table shows in 2006 it is 8.8 times of
that in 2004. now come to profit and loss side of the picture, we see that finance cost in 2006
increased tremendously as shown by yellow mark in trend analysis of income statement in
2006 finance cost index raised to 76.53 times as compared to 2 times in last year, we see from
income statements that in 2006 finance cost raised by 281.76%, this is because of double
cause 1. Increase in long term financing and 2. Increase in interest rates (external factor). So
company started settlement of debt and in note 14 of 2007 statement it becomes clear that
company settled finance taken from MCB, UBL and NBP. This is the reason of sharp drop of
noncurrent liabilities in 2006 and then later company continued to decrease long term
financing, but fixed assets expansion is not constrained and this is reflected by issuance of
equity in 2007 raising index from 1.075 to 1.32 (graph shows total equity index) and also
small increase in short term financing. So here we may can say that 2006 is the turning point
of lucky cement when benefits of financial leverage were being overcome by its costs so
management worked accordingly.
Increase in interest rates of long term assets is clearly proved by following notes of year
2004-05 and 2008-09
Note 18.1 The long-term finances carry floating mark-up rates ranging between 11.82% to
16.18% (2008: 9.41% to 14.55%) per annum. (2009 annual report)
Note 11.1 The long-term finances carry floating mark-up rates ranging between 2.83% to
9.76%(2004: 2.65% to 3.95%) per annum. (2005 annual report)
From here we can see that upper limit of range in 2005 is much less then lower range in 2009, that’s the reason of
moving toward equity from debt.

Risk (Beta) Estimation of Lucky Cement
Few assumptions made in this analysis area follow:
1. LSE 25 index return is considered as market return

2. Lucky cement return is based only on capital gain
3. Dividend gain is not considered because our data is based on 1 year stock
prices and index values only.
Following is the Data and Computation of Returns
last working Stock Index

day Price Values
January 29.2 1,435.75
February 36.56 1,676.56
March 45.61 2,068.44
April 58.19 2,151.50
May 57.13 2,160.60
June 60.61 2,128.00
July 71.21 2,313.20
August 71.36 2,737.28
September 77.92 2,915.51
October 67.74 2,846.33
November 63.81 2,827.88
December 66.87 2,912.77
Stock Market
return return
(RM) (RM)
February 25.20548 16.77242
March 24.75383 23.37405
April 27.58167 4.015587
May -1.82162 0.422961
June 6.091371 -1.50884
July 17.48886 8.703008
August 0.210645 18.33305
September 9.192825 6.511208
October -13.0647 -2.37283
November -5.80159 -0.6482
December 4.795487 0.030019
Now we calculate Covar (RM,RL) = 65.4119

And standard deviation of RM= 8.6
So Variance RM= 73.96
So beta of lucky cement share = 65.4119/73.96= 0.8844

Figure proves our results beta. Beta is always slope of characteristics line with market return
on x-axis and stock returns on y-axis
y = 0.8843x + 2.6834
30
20
Stock Return
10 Series1
0 Linear (Series1)
-10 0 10 20 30
-10
-20
Market Return
Interpretation: keeping all assumptions a side beta of lucky cement stock tells us that if
Market return falls by 1% return 0.88% only and if we talk considering assumptions we ban
say that if LSE25 falls or rises by 1 % lucky cement share price will fall/rise by only 0.88%
so lucky cement is average beta stock.
Ratio Analysis
Our main focus in this part of analysis will be on comparison of Lucky cements performance
over 6 years with elected competitors, because up to some extent we already have discussed
lucky cements individual performance and analyzed directions in which it is going, of course
few o aspects that are not touched in upper portion will be enlightened here.
Liquidity Ratios:
1. Current ratio
Lucky Maple Leaf Cherat
Current Current Current Current Current
Current Current
Current Current
Year Assets Liabilities Ratio Year Year
Assets Assets
Liabilties Liabilties
Ratio Ratio
1,342,5 2,142,76 1,940, 1,384,4
1,595,4 449,82
1.22
2005 11 3 0.63 2005 0592005 95 99 3 3.08
4,455,4 4,752,03 2,664, 1,267,9
2,649,5 516,44
1.01
2006 94 5 0.94 2006 4622006 50 19 4 2.46
5,402,6 6,352,55 4,051, 1,240,4
3,756,4 542,02
1.08
2007 78 6 0.85 2007 9572007 30 87 5 2.29
8,355,5 7,686,89 5,994, 1,719,9
7,382,4 1,597,70
0.81
2008 24 7 1.09 2008 8962008 48 64 3 1.08
7,857,9 9,098,67 5,214, 1,343,4
9,962,8 1,070,99
0.52
2009 42 8 0.86 2009 8772009 31 84 4 1.25
In current ratio we see that Lucky's current ratio is increasing in 2006 means that increase in
current assets over the year is greater then increase in current liabilities. In 2008-09
horizontal analysis we see that investment in current assets is falling from 24% to 20%
however current liabilities are increasing from 22% to 23% so that’s why liquidity o company
is falling in this year lucky cement have only 86 paisa in current assets to pay for its current
liability. We already know that lucky cement is operating with aggressive strategy and
minimization of long term financing is leading to increase in short term financing. But we can
not say that it is dangerous for lucky cement because with major share in export market it do
have guarantee of having payments in time to settle its short term obligation, it is proved by
having profitable operations over years with negative working capital.
In comparison with maple leaf and cherat cement; lucky cement liquidity is very week but if
we notice it is stable over 6 years, both of competitors current ratio fall rapidly in later years
and this is due to very low profits and losses in later years as explained later. Lack of
profitability leads to nonpayment of short term obligations thus increasing current liabilities
in comparison with current assets.
Little more analytical thinking tell us that lucky cement current asset to total asset ratio is
continually higher then competitors but still it have lower current ratio which indicates that it
have comparative high percentage of non-current liabilities which indicates that probably
suppliers have more trust in them. Following table shows current asset comparison of lucky
cement with Maple leaf cement.
CA to TA (%) 2006 2007 2008 2009

maple leaf 14 16 22 20
Lucky cement 18 21 24 20
2. Quick Ratio:
Lucky
Quick Current Quick
Year Assets Liabilities Ratio
434,7 2,142,7
2005 39 63 0.20
2,879,7 4,752,0
2006 12 35 0.61
2,810,5 6,352,5
2007 75 56 0.44
2,701,8 7,686,8
2008 90 97 0.35
3,681,0 9,098,6
2009 74 78 0.40
Cherat
Current Quick
Year Quick Assets Liabilities Ratio
44
2005 764,943 9,823 1.70
51
2006 697,046 6,444 1.35
54
2007 500,385 2,025 0.92
1,59
2008 145,993 7,703 0.09
1,07
Maple Leaf 2009 89,546 0,994 0.08
Quick Current Quick
Year Assets Liabilities Ratio Now let's analyze quick ratio keeping aspect of
200 499,2 1,595,4 current ratio in mind. We see here that cherat
5 92 99 0.31 have very high liquidity in year 2005 and 2006
200 573,1 2,649,5
and were also as profitable in these two years as
6 06 19 0.22
200 1,349, 3,756,4
7 357 87 0.36
200 1,701, 7,382,4
8 713 64 0.23
200 1,296, 9,962,8
9 441 84 0.13
was lucky cement. But later on there was very sharp fall in liquidity of cherat, apparently
very high liquidity of cherat in 2009 was just because of highly stocked inventories in their
shelves because of less then expected sales, inventory of cherat cement in 2009 accounts
87.8% of all of its current assets whereas that of lucky cement for the same year accounts
only for 58.64% of current so we can conclude that in 2008 and 2009 lucky cement liquidity
is better than both of competitors because quick ratio is better measure as we know inventory
can never be turned into cash in shorter time span first it must be turned into finished goods
then must be sold and then receivables must be converted into cash, and this specially is not a
rapid process in times of lower demand and suppressed economic conditions when receivable
turnover is lower. we see in 2008 and 2009 lucky cement have more liquid assets to pay shot
term obligations, i.e. 0.4 rupee in quick assets to pay entire short term liabilities. A better
conclusion on liquidity can be made after studying activity ratios also.
Debt Ratios
1. Debt ratio
Lucky
Total Debt
Year Liabilities Total Assets Ratio
9,673,1 14,806,8
2005 53 36 0.65
16,553,1 23,622,7
2006 44 77 0.70
16,370,2 25,723,7
2007 11 61 0.64
15,583,6 34,239,0
2008 51 74 0.46
15,140,3 38,392,3
2009 90 62 0.39

Cherat
Total Total Debt
Year Liabilities Assets Ratio
1,460, 3,202,
2005 329 800 0.46
1,498, 3,611,
2006 963 889 0.42
1,296, 3,533,
2007 758 350 0.37
2,224, 4,382,
Maple Leaf We see in 2008 167 273 0.51
Total Total Debt year 2005 2,475, 4,743,
Year Liabilities Assets Ratio lucky cement 2009 106 510 0.52
200 4,138 10,428
debt ratio was highest of all and it further increased
5 ,511 ,973 0.40
200 11,493 18,793 to .70 in next year which means that 70 % of our
6 ,675 ,412 0.61 assets are financed by other people money, but in
200 14,443 23,436 2006 as shown in graph earlier company realized
7 ,937 ,974 0.62 rising finance cost and economic down turn with high
200 17,790 26,151
interest rate, it lessened long term financing and
8 ,672 ,561 0.68
200 18,943 26,660 issued shared in 2007 thus reducing debt ratio, in
9 ,037 ,838 0.71 contrast maple leaf is increasing debt financing in
later years so as a result it finance cost raised to level
of 22% sales in 2009 as compared to only 4.6% of Lucky cement in 2009, this high cost of
financing is the main reason of losses incurred by maple leaf in last two years. Cherat cement
got very small amount of total assets as compared to our main company but still after
reaching to level of 50% of outsiders money in 2007 cherat reached to the level of zero NPM
due to finance cost burden but however next year they boosted sales and kept CGS in control
to achieve small profits.
Equity ratios are just reciprocal image of Debt ratios (i.e. 1-debt ratio) so we now move to
debt to equity ratios.
2. Debt to Equity ratio:
Lucky
Total Shareholders Debt to
Year Liabilities Equity Equity
9,673,1 5,133
2005 53 ,683 1.88
16,553,1 7,069
2006 44 ,633 2.34
16,370,2 9,353
2007 11 ,550 1.75
15,583,6 18,655
2008 51 ,423 0.84

15,140,3 23,251
2009 90 ,972 0.65
Cherat
Total Shareholders Debt to
Year Liabilities Equity Equity
1,460, 1,74
2005 329 2,471 0.84
1,498, 2,11
2006 963 2,926 0.71
1,296, 2,23
2007 758 6,592 0.58
2,224, 2,15
2008 167 8,106 1.03
1,175, 2,26
2009 106 8,404 0.52
Maple Leaf Debt to equity ratio is of special interest for

Total Shareholders Debt to creditors it tells them that how much equity
Year Liabilities Equity Equity (owners money) is their behind the money
200 4,138,5 6,290,4
they invested to provide them a secure side.
5 11 62 0.66
200 11,493,6 7,299,7 An other interpretation of sudden fall in
6 75 37 1.57 debt level of lucky cement is that it may
200 14,443,9 8,993,0 reached threshold level of debt to equity
7 37 37 1.61 and faced difficulty in arranging debt
200 17,790,6 8,360,8
financing, value of 2.34 in 2006 means that
8 72 89 2.13
200 18,943,0 6,717,8 there is only 1 rupee invested by owners
9 37 01 2.82 against 2.83 rupee investment of creditors,
this interpretation comes in mind because
when we see case of maple leaf which is under ownership of a strong reputable saigol group
easily reached to level of 2.82 in 2009 and kept their equity in limits just to keep ownership
and management undiluted. As cherat is a small asset firm with small amount of owners
investment their maximum level is 1.03 which means that there is only 1.03 rupee of debt
against each rupee of owners.
Going toward equity side of financing is not at all always beneficial because main objective
is owners wealth maximization and effect of dilution in shares cause denominator of EPS to
rise and reduces our EPS, but if selecting debt financing is so costly that it reduces nominator
to the level that even if denominator remain constant we get reduced EPS then selecting
issuance instead of debt is beneficial so it’s a game of tradeoff and picture becomes more
clear in profitability ratios that Lucky cement despite of diluting equity by issuance of shares
achieved very high EPS as compared to competitors, but this rational approach is no always
the case because dilution do have other effects like loss of control in management and
ownership.

3. Equity Multiplier/Capitalization Ratio:
Total Equity
Year Equity Total Assets multiplier
5,133,68
2005 3 14,806,836 2.88
7,069,63
2006 3 23,622,777 3.34
9,353,55
2007 0 25,723,761 2.75
18,655,42
2008 3 34,239,074 1.84
23,251,97
2009 2 38,392,362 1.65
Total Total Equity
Year Equity Assets Multiplier
1,742, 3,202,80
2005 471 0 1.84
2,112, 3,611,88
2006 926 9 1.71
2,236, 3,533,35
2007 592 0 1.58
2,158, 4,382,27
2008 106 3 2.03
2,268, 4,743,51
2009 404 0 2.09
Total Equity Equity multipliers is simply reciprocal of equity

Year Total Equity Assets Multiplier
ratio tells us how much management is able to
200 6,290,46 10,428,97 borrow on initial owners investment in other
5 2 3 1.66
200 7,299,73 18,793,41 words how many times management increased
6 7 2 2.57 owners investment. In case of maple leaf it is
200 8,993,03 23,436,97 continually increasing only because management
7 7 4 2.61 is not diluting shares and raising more debt to
200 8,360,88 26,151,56 finance assets expansion so for each single rupee
8 9 1 3.13
200 6,717,80 26,660,83
of owner’s investment they have assets of 3.97
9 1 8 3.97 rupees, but in case of Lucky cement dilution is
done to support asset increase and to pay back
high debt to reduce finance cost that’s why in 2009 they have only 1.65rupees of assets
against each rupees of owners this do not mean that they have less assets in fact this means
that owners have invested more of their own money in business rather than borrowing more
from outsiders, it is very clear that assets of lucky cement are more in absolute amount from
competitors taken into account in this report.
In my opinion most of the picture is clear on this stage but we will once again summarize all
in charts to see how over 3 companies are moving in different aspects of analysis.

Activity Ratios:
1. Receivable Turnover:
Lucky
Avg Account in in
Year Net Sales Receivables times days
3,980,1
2005 09 69,208.0 57.509 6.34
2006 8,054,101 112,222.5 71.769 5.01
2007 12,521,861 417,757.0 29.974 12

1,
2008 20,819,749 131,865.5 18.394 19.5
1,
2009 30,915,035 468,508.5 21.052 17
Maple Leaf
Avg
Account in in
Year Net Sales Receivables times days
200 4,290, 47.7
5 734 89,850.5 5 7.5
200 5,709, 41.6
6 792 137,057.0 6 8.6
200 3,711, 20.1
7 081 184,348.0 3 17.8
200 7,815, 16.2
8 829 480,465.5 7 22.43
200 15,251, 20.6
9 374 738,419.0 5 17.6
This ratio tells management efficiency in collecting its receivables. Usually if sales is high
then high receivable turnover is accepted because more sales are on credit then it takes more
time in collecting receivables. In year 2006 lucky cement showed high efficiency in
collecting its receivables, turnover is increasing instead of increase in credit sales by a
tremendous growth rate of 102%. Turnover of 71.769 means that company is turning its
account receivable into cash 71.769 times in year means that it takes just 5 days to collect it
average receivables from the market. But in successive years this efficiency reduced, there
can be two interpretations of this, firstly that increased credit sales reduced efficiency of
collection/credit department and it took more time to turn receivables in cash or it can be

management decision to loosen its credit policy just to motivate customers for increased
purchase, a marketing technique to boost sales.
Now looking at maple leaf we see that its efficiency in collecting receivable is just slightly
lower than that of lucky cement but on other hand it sales in each year are much less than
those of lucky cement so to be equally efficient it must have higher turnover then lucky
cement. Now notice another important point that in year 2005, 2006, 2007 lucky cement is far
more efficient in collection of receivables, so even if its current and quick ratio is less than
that of maple leaf it do not matters a lot because former is generating cash at a higher pace
from its receivables to pay for short upcoming liabilities in those periods.
But here we noticed a very positive point about our 3rd competitor cherat cement, it is making
all its sales on cash or advance payments throughout which is very positive point for high
liquidity of firm with small assets and sales level as of cherat cement.
2. Inventory Turnover:
Cherat
Lucky
Avg in in
Avg in in
Year CGS Inventory times days
Year CGS Inventory times days
1,544 84,214
200 2,600,5 144,02 18.0
2005 ,122 .5 18.34 20
5 89 6 6 21
1,488 116,862
200 5,073,7 273,594. 18.5
2006 ,882 .5 12.74 28
6 97 5 4 20
2,242 131,257
200 8,846,7 553,837. 15.9
2007 ,296 .5 17.08 21
7 08 0 7 23
2,834 162,389
200 12,600,7 692,814. 18.1
2008 ,336 .5 17.45 21
8 06 0 9 21
3,896 244,039
200 16,519,1 952,990. 17.3
2009 ,647 .5 15.97 23
9 38 0 3 21
Maple Leaf Inventory turn over is all about management

Avg in in effectiveness or better to say marketing
Year CGS Inventory times days department effort that how quickly they
200 962,8 141,681.
convert their inventory into sales. Because once
5 02 0 6.80 54
200 3,561,2 192,081. 18.5 inventor is sold only then we can convert it to
6 12 5 4 20 cash, so inventory turnover is major art of
200 3,401,1 195,327. 17.4 operating cycle of company (discussed later)
7 88 5 1 21 we see that lucky cement maintained stable
200 6,491,9 401,830. 16.1
inventory turnover in all 5 years. in 2009
8 99 5 6 23
200 10,296,8 542,433. 18.9
9 65 Financial 0Statement Analysis
8 20 |
inventory turnover of 21 means that it is 21 times converting its total inventory into sales or
better to say that inventory on average spend 21 days with Lucky cement, and this is almost
comparable with all other competitors so we will go a step further to come out with better
results, but before that look a at sharp drop in ratio of maple leaf in 2005-06 this is probably
sales growth was greater then compared to inventory growth which means company managed
to reach high level of sales without keeping bulk of stock in of stock in shelves thus applying
concept of JIT(just-in-time) now a step further is to break down inventory into parts and
compare turnover of finished goods, which willl tells us that how many days our finished
product waits in company before getting sold, because that tells actual efficiency of marketers
other two parts of inventory (raw material and wip) are dependent on manufacturing speed
also, finished goods turnover of our three companies for year 2009 are shown below
Now here we see that lucky cement in most efficient in
Finished goods
turnover Days Times
selling its finished goods in just 4.25 days however maple
Lucky Cement 4.25 84.6 leaf is very efficient in converting raw material to finished
Cherat cement 4.67 77 goods in less time but of no use because finished goods
Maple leaf 14.38 25 inventory is more illiquid as compared to lucky cement it
took 14 days approx for maple leaf to sale its finished
goods.
But if we conclude here that cherat is slow then lucky we will be wrong, at this step we will
do one more calculation that how quickly inventory is converted to cash that is addition of
inventory turnover days in receivable turnover days, it tell us in how many days company
generates cash its average inventory.
Finished inventory
goods turnover receivable operating finished goods to
Competitors turnover days turnover cycle cash cycle
Lucky Cement 4.25 21 17 38 21.25
Maple Leaf 14.38 20 17.6 37.6 31.98
Cherat cement 4.67 23 0 23 4.67
Here from above Cherat we easily conclude that best of all because it is selling its inventory
on cash/advance so need not to wait for collection of receivables after sale and it is so
efficient that once a bag of cement is manufactured it just take 4 days to convert it in cash
however Lucky cement takes 21.25 days to in cash its finally manufactured bag of cement,
now compare operating cycle of maple leaf with lucky cement, apparently both seems to be
quit similar means that both are converting their average inventory to cash in equal times, but
when we comes to finished goods to cash side we see that male leaf is taking approx 10
additional days to cash out its bag of cement.
3. Assets Turnover:
Lucky Cherat
Total Assets Total Assets Turnover
Year Net Sales Assets Turnover Ratio Year Net Sales Assets Ratio
200 3,980 14,806,83 2,400, 3,202,80
5 ,109 6 0.27 2005 530 0 0.75
200 23,622,77 2,434, 3,611,88
6 8,054,101 7 0.34 2006 513 9 0.67
200 12,521,86 25,723,76 2,619, 3,533,35
7 1 1 0.49 2007 960 0 0.74
200 20,819,74 34,239,07 3,013, 4,382,27
8 9 4 0.61 2008 752 3 0.69
200 30,915,03 38,392,36 0.81
4,567, 4,743,51
2009 409 0 0.96
9 5 2
Maple Leaf
Total Assets turnover simply tells us that how
Assets Turnover
Year Net Sales Assets Ratio much rupee of sale is generated from each
200 4,290,7 10,428,97 rupee of investment in assets. Or better to
5 34 3 0.41 say like that single rupee additional
200 5,709,7 18,793,41 investment in total assets will boost our
6 92 2 0.30
200 3,711,0 23,436,97
sales by how much, it is how efficiently
7 81 4 0.16 management is using assets in generating
200 7,815,8 26,151,56 sales. We see that in lucky cement
8 29 1 0.30 management’s efficiency is increasing
200 15,251,3 26,660,83 continually in 2005 they achieved only
9 74 8 0.57
0.27 rupee sales on each rupee of assets
but from gradual increase they reached to good level of 0.87 rupee sales from single rupee of
assets, however maple leaf experienced fall in 2006 and then again increased only to the level
of 0.57 rupee sales from each assets, decreasing local demand more badly effected maple leaf
then lucky cement because lucky cement boosted its sales in export market, but it’s a success
for cherat cement to reach high level of sales from small investment of assets in 2009 they
got 96% of their assets as sale revenue. Graph can be better representation for comparison:
1.20
1.00
0.80 Lucky
indexs
0.60 Mapple Leaf

0.40 Cherat
0.20
0.00
06
05
07
08
09
20
20
20
20
20
Figure clearly shows approximately linear growth of Lucky cement sales per rupee of assets,
but still cherat cement seems to be step further in this aspect than but not as consistent as
Lucky cement.

4. Interest Earned Ratio:
Lucky Cherat
Interest Maple Leaf Finance Interest Coverage
Finance Coverage Year
EBIT EBIT
Finance cost
Interest Ratio
Year EBIT cost Ratio Year 718,
cost 34, Ratio
Coverage
200 1,209 21, 2005
1,233, 037 205,6030 6.00 21.10
5 ,951 691 55.78 2005 255 77 799, 80,
200 2,552 82, 2006
1,975, 111 340,9364 5.79 9.94
6 ,976 809 30.83 2006 792 78 322, 75,
200 2,690 862, 2007
198,4 558 338,4531 0.59 4.27
7 ,351 847 3.12 2007 34 53 25, 81,
200 2,306 126, 2008
448,5 078 1,812, 576 0.25 0.31
8 ,529 743 18.20 2008 63 807371, 114,
200 5,177 1,236 2009
2,482, 290 3,400, 357 0.73 3.25
9 ,001 ,971 4.19 2009 590 241
A general decrease in interest coverage ratio is apparent in all of 3 company, it is clear
indicator of macro factor that is effecting all players, and this factor is tremendous increase in
interest rates on debt as mentioned in last chapter that interest rate range in 5 years increased
from 2.83%-9.76% to 11.82%-16.18%, so it is clear indicator that companies could not
increased their earning with pace of increase in finance cost. And this is the reason lucky
cement is reducing debt financing. Value of 4.19 of year 2009 means that company earning is
4.19 times of its interest cost and it is able to pay its interest obligation 4.19 times out of these
earnings. An extraordinary value of 18 in year 2008 is because gain on currency swaps and
forward contracts earned by company are adjusted with finance cost of that particular year
this is the reason due to which finance cost in 2008 appears to be small if this adjustment of
896.417 million rupee would not be done then interest coverage ratio of this year would be
2.25 times and in year 2009 company was able to earn more in relation to its finance cost and
reached level of 4.19. ratio of less then 1 means that company failed to earn from its
operation enough to settle its interest obligations and we se that in year 2007, 2008 and 2009
maple leaf failed to earn from operations to pay its obligation and same happened with cherat
in 2008.

Profitability Ratios
1. Gross Profit Ratio
The gross profit ratio throughout the years has been quite steady except a slight decrease in
2008 which is mainly attributed to large increase
in cost of goods sold however comparing this
ratio with competitor depicts a clear picture that
this may be due to economic downturn in 2008.
Overall looking both the competitors along with
the main company can be seen on the same line
with non abnormal profits/losses. However cherat
Cement Company was greatly affected by its high
cost of goods sold and sales almost unchanged
from previous years. Mainly this is because the overall growth in the cement industry
decreased to 4.7 % in 2008 from 17.9% in 2007. In previous 5 years this figure was near 20%
each year however in 2008 it decreased largely. (Source: Federal Bureau of Statistics). However we
saw in 2009 that it again increased by huge amount thus gaining their momentum again.
These trends can be seen in below graph along with their competitors' trends.

2. Operating Profit Ratio
This ratio is another indicator of company's

performance in terms of value to their customer.
Individual company performance followed the
same trend set by gross profit. More ever in 2008
company’s operating expenses has increased firm
their previous records this may be due to high
selling expenses and administrative expenses. A
prominent figure was that of logistics cost. It has
been seen that in those years company’s logistics costs increased by more than enough
amount and the reason was greater increase in exports that year however another main
increase was that of power and fuel charges. That’s because of increase in prices of oil in
international market. The same was the case with lucky cement's competitors but all those
years lucky cement company was more consistent and good performer than its competitors.
Below graph makes the story clearer.

3. Net Profit Ratio
This ratio gives the final big picture of lucky

cement company along with its competitors. If we
see individually it's clear that lucky cement
company was stable company all these years even
at time when overall industry was not in a good
condition. But one thing to notice is that in 2008
the difference in lucky cement company’s
operating profit margin and net profit margin is low
that’s because of low finance cost and taxes. In all of these companies maple leaf was in the
worst condition in the previous two years and that’s because of low sales, high cost of goods
sold, and high distribution and selling cost which can overall be attributed to the economic
downturn in these years.
4. Return on Equity

This ratio carries the same trend set by operating profit and net profit unless there is change
in the shareholders equity. In our
analysis we have seen that lucky
cement company’s ROE is better than
all other competitors. Maple leaf
cement company ratio in the recent
years is negative while cherat is going
through almost the same condition.
One more point to note here is that
despite the issuance of new shares,
Lucky's ROE has improved which is a good condition for investors. While Cherat and maple
leaf didn’t issued new shares and despite that their ROE didn’t improved in recent years. So
this indicates that even after economic downturn, political instability, and slump in real estate
lucky has benefited its investors. The following table summarizes our findings.
5. Return on Assets
This ratio also supports our previous findings. The worst figure was of the year ended June
2008 which was 9% and almost 10% more than
both of its competitors. This is due to effective
utilization of assets by Lucky Cement Company.
They utilized their assets to the best. The figures
of ROA for Lucky cement have been steady
through all these years. Average total assets of
Lucky Cement have increased by handsome
amount each year while the same entity for its
competitors has not been increased so much.
6. Earnings per Share
The EPS of Lucky Cement was on the

peak in last two years while their
competitors were going through worst

timings. In 2009 Maple leaf's EPS decreased to -2.64 lowest in previous 5 years along with
Cherat who's EPS reached to 0.1. Lucky cement company’s EPS increased even their average
share outstanding in 2008 and 2009. The reason behind EPS being high is increase in net
income. Even in 2008 market capitalization of ordinary shares of cement industry decreased
to Rs 117.1 Billion which was Rs 165.6 Billion in 2007 this means after such decrease in
market capitalization Lucky Cement Company has managed to arrange funds through capital
market. (Source: Federal Bureau of Statistics). This shows how interested investors are in Lucky
cement. Table given below shows the result of our findings.
7. Price Earnings Ratio
This ratio is very important regarding investors this shows how much an investor is willing to
pay for one unit of earning. In our findings only
the realistic figure are of Lucky Cement
Company. This ratio should be carefully
analyzed. Although this ratio for Lucky's
competitors are high but at that point it indicates
that investors are not willing to pa that much
high. Only realistic figures are that of Lucky. In
recent two years Lucky has P/E ratio of 9.9 and
4.1 respectively while at the same time Maple
leaf's P/E ratio has been in negative which is mainly because of loss in current years while
Cherat's Performance has been poor in all recent five years. So the best P/E ratio is that of
Lucky giving the best and realistic output to its investors. The following table summarizes
our findings.

Conclusion
Here instead of words it is better to compare 3 companies on three aspects of liquidity,
Profitability and Debtness to have bird eye view of company although some subjective and
company specific details for evaluation are applicable that have been discussed before in each
respective part and interrelated with each other before. Activity ratios are better explained in
words in this chapter.
Liquidity
1.8
1.6
1.4
1.2 Lucky
Quick
ratio
1
Cherat
0.8
0.6 Maple
0.4
0.2
0
2005 2006 2007 2008 2009
Debtness

0.8
0.7
0.6
DEBT RATIO
0.5 Lucky
0.4 Cherat
0.3 Maple
0.2
0.1
0
2005 2006 2007 2008 2009
Profitability
30 40
25
30
20
15 Luc k y 20 Lucky
10
C h e ra t 10 C h e ra t
net profit
ROE
5
0 M a p le 0 M a p le
-5 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2009 2005 2006 2007 2008 2009
-1 0
-1 0
-1 5 -2 0
Performance of all three companies must be clearly visible here LUCKY cement profitability
is in increasing trend and Debtness is reducing which is contributing towards profitability and
its ROE increased despite of dilution of shares twice in years. Maple leaf financed its assets
from Debtness and not used equity financing just to keep ownership concentrated and that’s
why suffering from high finance cost and pressure resulting in loss of profitability. Liquidity
of maple leaf falling due to reduced profitability and Lucky cement liquidity although less
apparently in start but its activity ratio analysis is a prove that low liquidity ratios are not bad
sign for them. Cherat cement although apparently have low quick ratio but it is acceptable for
them because their sales are on cash and major portion of quick assets are cash and bank
(most liquid) thus it can easily pay short term liabilities, Cherat also suffered from economic
down turn but started to recover slowly in 2009 by controlling its cost structure.

References:
• Federal Bureau of Statistics
• Economic Survey of Pakistan
• Financial Statements of Lucky Cement Company for the Year 2005-2009
• Financial Statements of Cherat Cement Company for the Year 2005-2009
• Financial Statements of Maple Leaf Cement Company for the Year 2005-2009
• Karachi Stock Exchange's Websites
• Lahore Stock Exchange's websites
• Investopedia.com
• Business Finance by Gitmen
• Financial Management by Van Horne & Wachovitz

Lucky Cement Comparative Financial Statments Analysis

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Final Project: Corporate

Sir Moen Shehzad

Ifzal Ahmed MBA1-FA09-003

COMSATS Institute of Information Technology,

Financial Statement Analysis |

Financial Statement Analysis |

• Lucky Textile Mills - established in 1983

Financial Statement Analysis |

This diagram exhibits the countries which

This graph shows the top regions for Lucky cement

This graph shows the overall export share of Lucky

This in the map of Pakistan and exhibits the location

• Availability High quality and much quantity limestone.

• Availability High quality and much quantity limestone

Key Financial Figures

Production & Sales Volume Performance:

Financial Statement Analysis |

Financial Statement Analysis |

Financial Statement Analysis |

Financial Statement Analysis |

Financial Statement Analysis |

Financial Statement Analysis |

Contribution to The National Exchequer

Financial Statement Analysis |

Financial Statement Analysis |

Users of Financial Statements analysis

Interest Group Ratios Considered

Percentage analysis as name suggest is techniques used to describe items of financial

1. Horizontal analysis (Index Analysis)

Horizontal analysis (Index

Vertical Analysis (Common

1. Horizontal analysis (Index Analysis)

Financial Statement Analysis |

Calculate Change in Dollar

Rupee change= Current year amount- Base year amount

Percentage change=Rupee change/Base year amount

Financial Statement Analysis |

Trend Percentage= Current period amount/Base period amount*100

3. Vertical Analysis (Common Size Analysis)

Financial Statement Analysis |

For example in this figure

Formula for calculating Common size percentage:

Common size %age=Analysis amount/base Amount

A graphical illustration of above data is given in above chart.

Financial Statement Analysis |

Financial Statement Analysis |

Current Ratio = Total Current Assets / Total Current Liabilities

Financial Statement Analysis |

Quick Ratio = Cash + Government Securities + Receivables / Total Current Liabilities

In our example we have taken Stock in

3. Net Working Capital

Working Capital = Total Current Assets - Total Current Liabilities

Financial Statement Analysis |

Now we explain these ratios in more detail in this section.

Debt ratio= Total Debt/Total Assets

Financial Statement Analysis |

The calculation of equity ratio is:

Equity Ratio=Total Owner's Equity / Total Assets

3. Debt to Equity Ratio

A measure of a company's financial leverage calculated by dividing its total liabilities by

Financial Statement Analysis |

Debt to Equity Ratio=Total Debt / Total Equity

Capitalization ratio= Long term debt/Long term debt+ Common Equity

Financial Statement Analysis |