Project Report FM

FINANCIAL MANAGEMENT
Project Report
Ratio Analysis of Engro Fertilizers
Submitted to: Mr. Abdullah Hafeez
MBA-2 (Weekend)
Sheikh Shahrukh 01-222152-057
Abdullah Ishtiaq 01-222152-041
Haris Hafeez 01-222152-049
Hamza Bhatti 01-222152-048
Date of Submission: 14-May-2016

Project Report Ratio Analysis of Engro Fertilizers
Table of Contents
1 INTRODUCTION ..................................................................................................................................... 4
1.1 Vision............................................................................................................................................. 5
1.2 Mission .......................................................................................................................................... 5
2 LIQUIDITY RATIOS ................................................................................................................................. 6
2.1 Current Ratio ................................................................................................................................. 6
2.1.1 Analysis................................................................................................................................. 6
2.1.2 Reasons ................................................................................................................................. 6
2.1.3 Solution ................................................................................................................................. 7
2.2 Quick Ratio .................................................................................................................................... 7
2.2.1 Analysis................................................................................................................................. 7
2.2.2 Reasons ................................................................................................................................. 7
2.2.3 Solution ................................................................................................................................. 8
3 ASSET MANAGEMENT RATIOS (EFFICIENCY OR ACTIVITY RATIOS) ...................................................... 8
3.1 Receivable Activities ..................................................................................................................... 8
3.1.1 Analysis................................................................................................................................. 9
3.1.2 Reasons ................................................................................................................................. 9
3.1.3 Solution ................................................................................................................................. 9
3.2 Days Sale Outstanding (Receivable Turnover in Days) ................................................................. 9
3.2.1 Analysis............................................................................................................................... 10
3.2.2 Reasons ............................................................................................................................... 10
3.2.3 Solution ............................................................................................................................... 10
3.3 Payable Turnover in Days............................................................................................................ 10
3.3.1 Analysis............................................................................................................................... 11
3.3.2 Reasons ............................................................................................................................... 11
3.4 Inventory Turnover in Days......................................................................................................... 11
3.4.1 Analysis............................................................................................................................... 11
3.4.2 Reasons ............................................................................................................................... 11
3.4.3 Solution ............................................................................................................................... 12
3.5 Cash Conversion Cycle ................................................................................................................ 12
3.6 Fixed Asset Turnover................................................................................................................... 13
Page 1 of 26
3.6.1 Analysis............................................................................................................................... 13
3.6.2 Reasons ............................................................................................................................... 13
3.6.3 Solution ............................................................................................................................... 13
3.7 Total Asset Turnover ................................................................................................................... 14
3.7.1 Analysis............................................................................................................................... 14
3.7.2 Reasons ............................................................................................................................... 14
3.7.3 Solution ............................................................................................................................... 14
4 PROFITABILTIY RATOS ......................................................................................................................... 15
4.1 Net Profit Margins on Sales ........................................................................................................ 15
4.1.1 Analysis............................................................................................................................... 15
4.1.2 Reasons ............................................................................................................................... 15
4.1.3 Solution ............................................................................................................................... 15
4.2 Gross Profit Margin ..................................................................................................................... 16
4.2.1 Analysis............................................................................................................................... 16
4.2.2 Reasons ............................................................................................................................... 16
4.2.3 Solution ............................................................................................................................... 16
4.3 Return on Investment (ROI) or Return on Assets (ROA) ............................................................. 16
4.3.1 Analysis............................................................................................................................... 17
4.3.2 Reasons ............................................................................................................................... 17
4.3.3 Solution ............................................................................................................................... 17
4.4 Return on Equity (ROE) ............................................................................................................... 17
4.4.1 DuPont Analysis ................................................................................................................. 18
4.4.2 Analysis............................................................................................................................... 18
4.4.3 Reasons ............................................................................................................................... 18
4.4.4 Solution ............................................................................................................................... 18
5 DEBT MANAGEMENT OR FINANCIAL LEVERAGE RATIOS .................................................................... 19
5.1 Debt to Equity Ratio .................................................................................................................... 19
5.1.1 Analysis............................................................................................................................... 19
5.1.2 Reasons ............................................................................................................................... 19
5.1.3 Solution ............................................................................................................................... 19
5.2 Debt to Total Assets Ratio ........................................................................................................... 20
5.2.1 Analysis............................................................................................................................... 20
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5.2.2 Reasons ............................................................................................................................... 20

5.3 Gearing Ratio .............................................................................................................................. 20
5.3.1 Analysis............................................................................................................................... 21
5.3.2 Reasons ............................................................................................................................... 21
6 INVESTMENT RATIOS .......................................................................................................................... 21
6.1 Earnings per share (EPS) ............................................................................................................. 21
6.1.1 Analysis............................................................................................................................... 21
6.1.2 Reasons ............................................................................................................................... 21
6.1.3 Solution ............................................................................................................................... 22
6.2 Price Earnings Ratio .................................................................................................................... 22
6.2.1 Analysis............................................................................................................................... 22
6.2.2 Reasons ............................................................................................................................... 22
6.2.3 Solution ............................................................................................................................... 22
6.3 Breakup Value per Share ............................................................................................................ 23
6.3.1 Analysis............................................................................................................................... 23
6.3.2 Reasons ............................................................................................................................... 23
6.4 Market/Breakup Ratio ................................................................................................................ 23
6.4.1 Analysis............................................................................................................................... 24
6.4.2 Solution ............................................................................................................................... 24
7 COVERAGE RATIOS .............................................................................................................................. 24
7.1 Interest Coverage Ratio .............................................................................................................. 24
7.1.1 Analysis............................................................................................................................... 24
7.2 Reasons ....................................................................................................................................... 24
7.3 Solution ....................................................................................................................................... 25
8 References .......................................................................................................................................... 26
Word Count: 3628
Page 3 of 26
1 INTRODUCTION
Engro Fertilizers Limited is a subsidiary of Engro Corporation and a renowned name in
Pakistan’s fertilizer industry. It is traded on the stock market under the symbol ‘EFERT. Engro
holds a vast, nationwide production and marketing infrastructure and produces leading fertilizer
brands optimized for local cultivation needs and demand. Engro is also a leading importer and
seller of Phosphate products, which are marketed extensively across Pakistan as phospatic
fertilizers.Our extensive market development activities have ensured a sustained pull for our
primary and secondary fertilizer products and sellout productions since launch. Engro Fertilizers
Limited enjoys loyal customer base across Pakistan owing to its trusted fertilizer brands and
continual farmer assistance in training and education.
Engro Fertilizers Limited was incorporated in June 2009, following a decision to demerge
fertilizer concern from its parent company Engro Chemical Pakistan Limited. The continual
expansions and diversifications in its enterprises necessitated a broad restructuring in Engro
Chemical operations and management. To facilitate better oversight, Engro Chemical Pakistan
was converted into a holding company named Engro Corporation, and its fertilizer business was
subsequently demerged to a newly formed Engro subsidiary –Engro Fertilizers Limited.Engro’s
fertilizer manufacturing facility at Daharki has been experiencing ongoing expansion. This,
coupled with distinct dynamics of highly nuanced fertilizer industry warranted an independent
and dedicated business entity and approach. The demerger of fertilizer concern was approved by
High Court of Sind on December 9th, 2009, making it effective as of January 1st 2010.
Engro Fertilizers is poised to become the leading urea manufacturer in the country following
major upgrading of its manufacturing capabilities. ENVEN 1.3–a tremendous expansion in
Engro’s urea manufacturing facility went into production in November 2010 and looks set to end
Page 4 of 26
Pakistan’s near-term urea imports, leading to benefits of an expanded local urea base and savings
in national exchequer.
Engro is a dynamic company driven by a vision to improve productivity and lifestyle for
thousands of farmers across Pakistan. Engro Fertilizers Limited has earned itself a distinguished
name by continually striving to uphold its tradition and trust of its loyal consumer base.
1.1 Vision
Promoting the growth of communities around Engro’s supply chain and giving people equal
access to choices, opportunities and the ability to exercise their rights. Engro Foundation is
constantly striving to further develop our strategy and move our work towards greater
sustainable impact. Our objective going forward is to improve livelihoods in our value chains
and empower communities towards identifying goals and priorities for better local outcomes.
Engro Foundation aims to realize the dreams of our people to make a difference in the lives of
those around us and in our value chain. At Engro, we believe in the power of Pakistan’s human
capital to change the face of communities and economies and make them agents of a wider
change.
1.2 Mission
Engro Foundation is committed to make a positive impact in the lives of those living in
communities around its supply chain through the provision of improved basic services (health,
infrastructure, water and sanitation); education and skill development; environment and
livelihood training. In addition, it works with partner organizations to provide financial and
technical support in response to natural calamities.
Page 5 of 26
Through its network of facilities across Pakistan, Engro aims to make a difference in
communities where average household income borders on or is below the poverty benchmark.
Engro Foundation works across rural and suburban Pakistan in partnership with development
organizations to create a trickledown effect of resource development, enabling indigenous
communities to sustain economies, employ their human resources, and learn the critical skills
they need to be part of the mainstream economy.
2 LIQUIDITY RATIOS
2.1 Current Ratio
The Current Ratio = Current Assets / Current liabilities
Engro Fert Fauji Fert

2015 2014 2015
= Rs.28,540m/ Rs.30,949m = Rs.36,551m/ Rs.35,810m = Rs. 27,215m/ Rs. 32,326m
= 0.922 = 1.02 =0.842
2.1.1 Analysis
The Ratio has declined from 1.02 to 0.92. The trend is negative, however the ratio is still higher
than Fauji fertilizer’s ratio i: e 0.842 which shows the company is in a better position to pay off
current liabilities as compared to other major players in the industry.
Current assets have declined at a higher rate of 21.2% as compared to decline in current
liabilities which is 13.6%.
2.1.2 Reasons
 Short-term investments have decreased from Rs. 25,084m to Rs. 10,985m.
 Cash and bank balances have decreased from Rs. 4443m to Rs. 865m.
 Derivative financial instruments have decreased from Rs. 1090m to Rs. 366m.
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 Trade and Other payables have decreased from Rs. 24727m to Rs. 16887m.
 Cash conversion cycle is negative.
2.1.3 Solution
 Generating more cash.
 Delay payments to creditors to acceptable extent.
 Improve CCC.
 Increase current assets
 Reduce current liabilities.
2.2 Quick Ratio
Quick Ratio = (Current Assets- Inventory) /Current liabilities

2015 2014 2015
= (Rs. 28,540m- Rs. = (Rs. 36,551m - Rs. = (Rs. 27,215 - Rs. 8,496m)/
11,581m)/ Rs. 30,949m 5,815m)/ Rs. 35,810m Rs. 32,326m
= 0.55 = 0.86 =0.58
2.2.1 Analysis
The ratio has declined from 0.86 to 0.55. The trend is negative but still the ratio is comparable to
Fauji fertilizer’s ratio.
Quick Ratio has declined at a higher rate as compared to Current Ratio because of the impact of
increased amount of inventory which offsets the decline in short term investment and cash in the
case of current ratio.
2.2.2 Reasons
 Short-term investments have decreased from Rs. 25,084m to Rs. 10,985m.
Page 7 of 26
 Cash and bank balances have decreased from Rs. 4443m to Rs. 865m.
 Derivative financial instruments have decreased from Rs. 1090m to Rs. 366m.
 Trade and Other payables have decreased from Rs. 24727m to Rs. 16887m.
 Cash conversion cycle is negative.
 Company is paying dues too quickly and not holding money.
 Company is slow in collecting account receivables.
 Inventory has increased from Rs. 5815m to Rs. 11581.
2.2.3 Solution
 Generating more cash.
 Delay payments to creditors to acceptable extent.
 Increase current assets
 Reduce current liabilities.
 Increase sales to reduce inventory
3 ASSET MANAGEMENT RATIOS (EFFICIENCY OR ACTIVITY RATIOS)
3.1 Receivable Activities
Receivable Activities = Annual Sales / Receivables

2015 2014 2015
= Rs. 87,615m/ Rs. 1,918m = Rs. 61,425m/ Rs. 452m =Rs. 84,831m/Rs. 3871m
= 45.68 = 135.896 = 21.914
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3.1.1 Analysis
Ratio has declined from 135.896 to 45.68. The sales have increased along with receivables than
last year. However the ratio is still better than Fauji Fert’s ratio which is 21.914. Hence Engro
Fert’s AR to cash conversion is still better than Fauji Fert.
3.1.2 Reasons
 Company might be pursuing market share increase strategy.
 Account receivables duration has increased as compared to the last year due to which
pending amount has increased.
 Bad debt customers might have increased causing the ratio to decrease.
3.1.3 Solution
 Receivables need to be collected more efficiently.
 New policies for account receivables collection need to be devised.
 Customers not paying amount need to be visited in case of any issue found in the product.
 Company needs to be decrease reliance on credit sales.
3.2 Days Sale Outstanding (Receivable Turnover in Days)
Receivable Turnover in Days = (Receivable * Days in year) / Annual Sales

2015 2014 2015
= (Rs. 1,918m *360 days)/ Rs. = (Rs. 452m *360 days)/ Rs. =( Rs. 3871m *360
87,615m 61,425m days)/ Rs. 84,831m
= 7.88 days = 2.649 days = 16.43 days
Page 9 of 26
3.2.1 Analysis
The number of days has increased from 2.65 to 7.88. The sales have increased along with
receivable. However the numbers of days are still better than Fauji Fert’s which is 16.43 days.
Hence Engro Fert’s AR to cash conversion is still better than Fauji Fert.
3.2.2 Reasons
 Company might be pursuing market share increase strategy.
 Account receivables duration has increased as compared to the last year due to which
pending amount has increased.
 Bad debt customers might have increased causing the ratio to decrease.
3.2.3 Solution
 Receivables need to be collected more efficiently.
 New policies for account receivables collection need to be devised.
 Customers not paying amount need to be visited in case of any issue found in the product.
 Company needs to be decrease reliance on credit sales.
3.3 Payable Turnover in Days
Payable Turnover in Days = (Accounts Payable * Days in year) / CGS

2015 2014 2015
= (Rs.16,887m*360 = (Rs.24,727m*360 = (Rs. 8,114 m*360 days)/Rs.
days)/ Rs. 55,435m days)/Rs. 38,822m 55,949m
= 109.67 days = 229.30 days = 52.21 days
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3.3.1 Analysis
The number of days has decreased from 229.30 to 109.67. Cost of goods sold has increased
however the accounts payable amount has decreased w.r.t previous year which is good from
creditor’s perspective. However Fauji Fert’s PTD is much less than Engro this year i: e. 52.21
days.
The trend is positive however the contribution of decrease in accounts payable is less than that of
increase in CGS, in overall decline.
3.3.2 Reasons
 Accounts payable amount has decreased which could be due to efficient payment
processes.
3.4 Inventory Turnover in Days
Inventory Turnover in Days = (Inventory * Days in year) / CGS

2015 2014 2015
= (Rs.11581m*360 days)/ Rs. = (5,815m *360 days)/Rs. = (Rs. 8,496m *360
55,435m 38,822m days)/Rs. 55,949m
= 74.77 days = 53.92 days = 54.67 days
3.4.1 Analysis
The number of days has increased from 53.92 to 74.77. Inventory has increased a lot from last
year whereas CGS has also increased. The trend is negative and worse as compared to Fauji
Fert’s turnover days.
3.4.2 Reasons
 Sales have not increased as compared to the increase in inventory.
Page 11 of 26
 Production have been increased which is higher than the market demand.
 Wrong marketing policy have been adopted which resulted in lower sales as forecast.
 Distribution channel has been disturbed which resulted in increased inventory in
warehouses.
 Government policy might has affected the sale of product.
3.4.3 Solution
 Improved distribution channel.
 Better marketing policy.
 Revised pricing if necessary
 Product improvement for better sales.
3.5 Cash Conversion Cycle
CCC = Days Inventory Outstanding (DIO) + Days Sales Outstanding (DSO) - Days Payable
Outstanding (DPO)

2015 2014 2015
= 74.77 days + 7.88 days - = 53.92 days + 2.649 days = 54.67 days +16.43 days -
109.67 days - 229.30 days 52.21 days
= -27.02 = -172.731 = 18.89
Page 12 of 26
3.6 Fixed Asset Turnover
Fixed Asset Turnover = Sales / Net Fixed Assets

2015 2014 2015
= Rs. 87,615m / Rs. 72,193m = Rs. 61,425m /Rs. 74,963m = Rs. 84,831m/Rs. 21,382m
= 1.21 = 0.819 = 3.97
3.6.1 Analysis
The ratio has increased from 0.819 to 1.21 which means better utilization of fixed assets for
conversion to sales. Fixed assets have slightly decreased however Sales have increased.
Engro Fert’s ratio is much less than that of Fauji Ferts ratio which means improvement is
required in this area.
3.6.2 Reasons
 Company might have written off some fixed asset.
 Sales have improved.
 Underutilized fixed assets in comparison to Fauji Fert.
 Operation at much less production capacity as compared to Fauji Fert.
3.6.3 Solution
 Revised pricing if necessary.
Page 13 of 26
 Improve Equipment utilization
3.7 Total Asset Turnover
Total Asset Turnover = Sales / Total Assets

2015 2014 2015
= Rs. 87,615m / Rs. 105,382m = Rs. 61,425m /Rs. 111,726m = Rs. 84,831m/Rs. 80,130m
= 0.831 = 0.55 = 1.06
3.7.1 Analysis
The ratio has increased from 0.55 to 0.831 which means better utilization of total assets for
conversion to sales. Total assets have slightly decreased however Sales have increased.
Engro Fert’s ratio is less than that of Fauji Ferts ratio which means improvement is required in
this area.
3.7.2 Reasons
3.7.3 Solution
Page 14 of 26
4 PROFITABILTIY RATOS
4.1 Net Profit Margins on Sales
Profit Margins on Sales = Net income * 100% / Net Sales

2015 2014 2015
= Rs. 15027m * 100% / Rs. = Rs. 8208m * 100% / Rs. = Rs. 16,766 m * 100% / Rs.
87,615m 61,425m 84,831m
= 17.15% = 13.36% = 19.76%
4.1.1 Analysis
The percentage has increased from 13.36% to 17.15%. Net sales have increased in comparison to
last year along with net income. However the percentage is less than that of Fauji Fert.
4.1.2 Reasons
 Finance cost of Engro i: e Rs. 4,588m is much higher than that of Fauji Rs. 1,475m
which results in decreased net income despite higher sales.
 Alternate is available in market which resulted in reduced price hence lower profit.
4.1.3 Solution
 Reduce Finance cost.
 Increase Equity
 Reduce liabilities.
Page 15 of 26
4.2 Gross Profit Margin
Gross Profit Margins = Gross Profit * 100% / Net Sales

2015 2014 2015
= Rs. 32180m * 100% / Rs. = Rs. 22603m * 100% / Rs. = Rs. 28,882m * 100% / Rs.
87,615m 61,425m 84,831m
= 36.73% = 36.80% = 34.05%
4.2.1 Analysis
The ratio has slightly decreased as of last year. Gross profit and sales both have increased
slightly from last year. However this percentage is better than that of Fauji Fert’s percentage.
4.2.2 Reasons
 Production has been increased which increased sales and profit
4.2.3 Solution
 Improve efficiency and effectiveness.
 Improve productivity.
 Control cost by using better technology.
4.3 Return on Investment (ROI) or Return on Assets (ROA)
Return on Assets = Net Income * 100% / Total Assets

2015 2014 2015
= Rs. 15027m * 100% / = Rs. 8208m * 100% / = Rs. 16,766 m * 100% /
Rs. 105,382m Rs. 111,726m Rs. 80,130m
= 14.26% = 7.347% = 20.92%
Page 16 of 26
4.3.1 Analysis
The percentage has increased from 7.347 to 14.26 which show an increase in utilization of assets.
This is good from creditor’s point of view as it is a significant ratio for creditors. However the
percentage is less as compared to that of Fauji Fert’s percentage.
4.3.2 Reasons
4.3.3 Solution
4.4 Return on Equity (ROE)
Return on Equity = Net Income to common stock * 100% / Equity

2015 2014 2015
= Rs. 15027m * 100% / Rs. = Rs. 8208m * 100% / Rs. = Rs. 16,766 m * 100% /
42,526m 34,478m Rs. 27,311m
= 35.34% = 23.81% = 61.39%
Page 17 of 26
4.4.1 DuPont Analysis
ROE = Profit Margin * Total Asset Turnover * Equity Multiplier
Profit Margin = Net Income / Net Sales

Total Asset Turnover = Net Sales / Assets
Equity Multiplier = Assets / Equity

2015 2014 2015
= (Rs. 15027m / Rs. = (Rs. 8208m / Rs. = (Rs. 16,766 m /Rs.
87,615m) * (Rs. 87,615m / 61,425m) * (Rs. 61,425m / 84,831m) * (Rs. 84,831m
Rs. 105,382m) * (Rs. Rs. 111,726m) * (Rs. /Rs. 80,130m) * (Rs.
105,382 m/ Rs. 42,526m) 111,726m / Rs. 34,478m) 80,130m /Rs. 27,311m)
= 0.1715*0.8314*2.4781 = 0.1336*0.5498*3.2405 = 0.1976*1.0587*2.934
= 35.34% = 23.81% = 61.39%
4.4.2 Analysis
The percentage has increased from 23.81% to 35.34%. Shareholder’s equity has increased
slightly and net income has also increased. The trend is positive however it is much less than that
of Fauji Ferts.
4.4.3 Reasons
 Increase in net income is majorly dependent on debt financing which is indicated by the
current ratio.
4.4.4 Solution
 Reduce finance cost.
Page 18 of 26
5 DEBT MANAGEMENT OR FINANCIAL LEVERAGE RATIOS
5.1 Debt to Equity Ratio
Debt to Equity Ratio = Total Debt / Equity

2015 2014 2015
= Rs. 62856 m/ Rs. 42,526m = Rs. 77248m/ Rs. 34,478m = Rs. 52819m / Rs. 27,311m
= 1.478 = 2.241 = 1.934
5.1.1 Analysis
Company is financed through debt by 1.478 rupees for every rupee paid by shareholders. This
value is slightly lower than the value in the previous year where the debt to equity ratio was
2.241.
The company is moving towards less risk in order to finance its efforts to have increased sales.
The ratio for Fauji Fert is 1.934 which is slightly higher than Engro.
5.1.2 Reasons
 Total current liabilities decreased from Rs. 35810m to Rs. 30,949m
 Total non-current liabilities decreased from Rs. 41438m to Rs. 31,907m
 Total Equity has increased from Rs. 34478m to Rs. 42526m.
5.1.3 Solution
 As compared to Fauji, Engro has more room for debt financing.
Page 19 of 26
5.2 Debt to Total Assets Ratio
Debt to Total Assets Ratio = Total Debt / Total Assets

2015 2014 2015
= Rs. 62856 m/ Rs. 105,382m = Rs. 77248m/ Rs. 111,726m = Rs. 52819m / Rs. 80,130m
= 0.596 = 0.691 = 0.659
5.2.1 Analysis
The firm’s 59.6% assets are financed by the creditors as compared to 40.4% financed by the
shareholders. This is a lower percentage than that of the previous year which was 69.1% which is
good from company’s perspective however Engro has percentage lower than that of Fauji Fert
which is better for the company.
5.2.2 Reasons
 Total current liabilities decreased from Rs. 35810m to Rs. 30,949m
 Total non-current liabilities decreased from Rs. 41438m to Rs. 31,907m
 Total Equity has increased from Rs. 34478m to Rs. 42526m.
5.3 Gearing Ratio
Gearing Ratio = Long Term Debt / Long Term Debt + Share Holders Equity

2015 2014 2015
= Rs. 25,290 m/ (Rs. 25,290 m = Rs. 36,091m / (Rs. 36,091m = Rs. 15,893m/ (Rs. 15,893
+ Rs. 42,526m) +Rs. 34,478m) m+ Rs. 27,311m)
= 0.3729 = 0.5114 = 0.3679
Page 20 of 26
5.3.1 Analysis
The decreasing trend indicates that the company is planning for less risk in long term as it has
increased stockholder’s equity thus making the ratio more favorable. The ratio is slightly higher
than that of Fauji Fert.
5.3.2 Reasons
 Issuance of new or additional shares thus increasing the owner’s equity
 Reduced debt.
6 INVESTMENT RATIOS
6.1 Earnings per share (EPS)
Earnings per Share = Net Income / Number of Common Share Outstanding

2015 2014 2015
= Rs. 15027m / Rs. 1330m = Rs. 8208m / Rs. 1305m = Rs. 16,766 m / Rs. 1272m
= 11.30 = 6.29 = 13.18
6.1.1 Analysis
The EPS value has increased as compared to previous year. The trend is positive however it is
less than that of Fauji Fert.
6.1.2 Reasons
 Finance cost of Engro is much higher than that of Fauji Fert.
 Net income has increased.
 Sales have increased.
Page 21 of 26
6.1.3 Solution
 Reduce finance cost.
 Reduce operating expense.
 Reduce CGS
 Improve Sales.
6.2 Price Earnings Ratio
Price Earnings Ratio = Market Price per share/ Earnings per Share

2015 2014 2015
= 70.06/ 11.3 = 58.26 / 6.29 = Rs. 117.961/ Rs. 13.18
= 6.20 = 9.262 = 8.95
6.2.1 Analysis
The value has decreased from 9.262 to 6.20 this year. Earnings per share have decreased. The
company has progressed and shareholders have benefited more as the market price as increased
as well as the EPS has increased however P/E ratio is lesser than Fauji Fert which is mainly
because of the market price.
The P/E ratio is less as the investor is willing to pay less for each rupee earned.
6.2.2 Reasons
 Increase in market price
 Increase in EPS.
6.2.3 Solution
 Company needs to increase its net income to pay higher dividends.
Page 22 of 26
 Improve market image.
 Improve consistency in growth.
6.3 Breakup Value per Share
Breakup Value per Share = Equity / Number of Common Share Outstanding

2015 2014 2015
= Rs. 42526m / Rs. 1330m = Rs. 34478m / Rs. 1305m = Rs. 27,311m / Rs. 1272m
= 31.95 = 26.15 = 21.47
6.3.1 Analysis
The Breakup value has increased as compared to previous year from 26.15 to 31.95 and it is
greater than that of Fauji Fert. The trend is positive.
6.3.2 Reasons
 Increase in equity
 Increase in common shares outstanding.
6.4 Market/Breakup Ratio
Market/Breakup Ratio = Market Price / Breakup Value per Share

2015 2014 2015
= Rs. 70.06/ Rs. 31.95 = Rs. 58.26 / Rs. 26.15 =Rs. 117.98/Rs. 21.47
= 2.19 = 2.23 = 5.5
Page 23 of 26
6.4.1 Analysis
The ratio indicates that the price of the stocks is higher in the market as compared to book value
and the stocks are overvalued. This value has decreased in comparison to last year which is a
negative indicator because the valuation of stock in market has decreased in relation to book
value. The value is very low in comparison to Fauji Fert.
6.4.2 Solution
 Company needs to increase its net income to pay higher dividends.
 Improve market image.
 Improve consistency in growth.
7 COVERAGE RATIOS
7.1 Interest Coverage Ratio
Interest Coverage Ratio = EBIT / Interest Charges

2015 2014 2015
= Rs. 25,757m/ Rs. 4,588m = Rs. 18,521 m/Rs. 6,626m = Rs. 25978m/Rs. 1,475m
= 5.61 = 2.80 = 17.61
7.1.1 Analysis
The Company’s interest coverage ratio has increased from 2.8 to 5.61 which is a good sign.
However it is much lower than that of Fauji Ferts.
Company has still a long way to go to manage its finance cost as compared to its competition.
7.2 Reasons
 Reduced finance cost from last year however it is still higher as compared to Fauji Fert.
Page 24 of 26
 EBIT has improved.
7.3 Solution
 Increase profits
 Reduce overheads.
 Reduce Operating expenses.
 Reduce CGS.
 Improve product efficiency
Page 25 of 26
8 References
 http://www.scstrade.com/StockScreening/SS_CompanySnapShot.aspx?symbol=EFERT
 http://engrofertilizers.com/wp-content/uploads/2014/05/Fert-AR-2015-AW-full.pdf
 http://ffc.com.pk/uploads/docs/ar_2015.pdf
 http://www.scstrade.com/StockScreening/SS_CompanySnapShotYF.aspx?symbol=EFE
RT
 http://www.scstrade.com/StockScreening/SS_CompanySnapShotYR.aspx?symbol=EFE
RT
 http://www.engro.com/integratedreview2014/financial-capital.php
Page 26 of 26

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FINANCIAL MANAGEMENT

Ratio Analysis of Engro Fertilizers

Submitted to: Mr. Abdullah Hafeez

Sheikh Shahrukh 01-222152-057

Abdullah Ishtiaq 01-222152-041

Haris Hafeez 01-222152-049

Hamza Bhatti 01-222152-048

Date of Submission: 14-May-2016

5.2.2 Reasons ............................................................................................................................... 20

Word Count: 3628

Engro Fertilizers Limited is a subsidiary of Engro Corporation and a renowned name in

continual farmer assistance in training and education.

expansions and diversifications in its enterprises necessitated a broad restructuring in Engro

subsequently demerged to a newly formed Engro subsidiary –Engro Fertilizers Limited.Engro’s

major upgrading of its manufacturing capabilities. ENVEN 1.3–a tremendous expansion in

technical support in response to natural calamities.

organizations to create a trickledown effect of resource development, enabling indigenous

they need to be part of the mainstream economy.

2.1 Current Ratio

The Current Ratio = Current Assets / Current liabilities

Engro Fert Fauji Fert

current liabilities as compared to other major players in the industry.

liabilities which is 13.6%.

 Short-term investments have decreased from Rs. 25,084m to Rs. 10,985m.

 Cash conversion cycle is negative.

 Generating more cash.

 Delay payments to creditors to acceptable extent.

 Increase current assets

 Reduce current liabilities.

2.2 Quick Ratio

Quick Ratio = (Current Assets- Inventory) /Current liabilities

Engro Fert Fauji Fert

Fauji fertilizer’s ratio.

case of current ratio.

 Short-term investments have decreased from Rs. 25,084m to Rs. 10,985m.

 Cash conversion cycle is negative.

 Company is paying dues too quickly and not holding money.

 Company is slow in collecting account receivables.

 Inventory has increased from Rs. 5815m to Rs. 11581.

 Generating more cash.

 Delay payments to creditors to acceptable extent.

 Increase current assets

 Reduce current liabilities.

 Increase sales to reduce inventory

3 ASSET MANAGEMENT RATIOS (EFFICIENCY OR ACTIVITY RATIOS)

3.1 Receivable Activities

Receivable Activities = Annual Sales / Receivables

Engro Fert Fauji Fert

Fert’s AR to cash conversion is still better than Fauji Fert.

 Company might be pursuing market share increase strategy.

pending amount has increased.

 Receivables need to be collected more efficiently.

 New policies for account receivables collection need to be devised.

 Company needs to be decrease reliance on credit sales.

3.2 Days Sale Outstanding (Receivable Turnover in Days)

Receivable Turnover in Days = (Receivable * Days in year) / Annual Sales

Engro Fert Fauji Fert

 Company might be pursuing market share increase strategy.

pending amount has increased.

 Receivables need to be collected more efficiently.

 New policies for account receivables collection need to be devised.

 Company needs to be decrease reliance on credit sales.

3.3 Payable Turnover in Days