Assignment 1

Muhammad Arif 9/27/17 Financial Management

Abstract

This report is comprised with the financial analysis of two organizations which are directly belongs
to fertilizer sector of Pakistan. In this report, we are going to present their financial conditions by
showing their ratios analysis and trend analysis. The whole research is made by using secondary data
which has been public by these organizations. I am thankful to Mr. Qasim Raza Khan Lecturer,
Department of Management Science COMSATS Lahore for his help in this report.

Information about Fertilizer Sect or

Pakistan is an agricultural country and most of its
revenues is belongs from its agriculture. According to
government of Pakistan 62% of its people are directly
or indirectly depend upon agriculture and it is
obvious that agriculture yield is depending upon the
fertilizer sector. This sector is providing more than 10
billion revenues to our country and paying 30% of its
revenue in form of Tax not only that they are also
providing jobs to thousands of people.
The fertilizer items are varieties of three essential
soil supplements, to be specific nitrogen (N), phosphorous (P) and potassium (K). It is the
reasonableness of a supplement for trim that decides the utilization of a specific manure item.
Pakistan's dirt is inadequate in nitrogen and phosphate; accordingly, an ideal blend of these
supplements is important to accomplish higher yield levels. Be that as it may, the accessibility and
cost of an item at a given point in time impacts the request design. For example, bring down costs
of Urea and DAP on supplement premise, being fractional substitutes of CAN and NP separately,
are probably going to influence the request of these items.
Besides, absence of mindfulness among ranchers additionally assumes a part in deciding the
utilization of manures. Not understanding the advantages of an ideal NP proportion, agriculturists
tend to support items accessible in the market at less expensive rates. Then again, extensive
development potential stays for the item which could be tapped by constant instruction of the
rancher group. Considering the significance of horticulture in Pakistan, government support to the
manure part stays basic in guaranteeing smooth accessibility of items at moderate costs. In such
manner, import of obligation free shake phosphate and endowment on flammable gas are
significant help measures with respect to the administration. Flammable gas is a fundamental
contribution to compost contributing around80% to the aggregate generation cost as fuel and
feedstock.
As the vitality emergency developed in mid-
2010 it represented some business hazard to the
manure division in the state of diminishing in
feedstock gas supply. In any case, organizations
kept their edges in place by passing on the effect
to customers through expanding the per pack cost
of compost items. The predominant financial
conditions alongside mounting spending
deficiencies have put weight on the administration
to diminish/end sponsorship to various segments.
In like manner, corrections in the manure segment
are likewise on the blacksmith's iron. Because of
moderately inelastic request of composts, makers
have valuing power through which they pass on the increasing expense of contribution to the
purchasers. As of late, the Competition Commission of Pakistan (CCP) has guided the business to
give clarification before any further increment in compost costs.
There are likewise propositioned to give guide appropriation to the rancher as a help measure as
opposed to directing it through compost organizations however in perspective of operational
challenges any material advance in such manner is by all accounts remote. While the endowment
plot on phosphate and potassium manures was deferred off from January 2009 ahead, another
plan on potassium compost at the rate of Rs.500/pack has been started since January 2010 and
are giving 600 per bag since July 2016. The predominant request and supply hole in the market
has activated setting up of new plants in the nation.

The reason to choose this sector is that the maximum this sector is one of the most profitable sector of
Pakistan and is very much important for the Pakistan. This sector has a significant impact on growth of
country and are getting a lot of subsidy from government but facing some issues due to gas crisis.
Information about Fuji Fertilizer
With a dream to procure self - adequacy in
manure generation in the nation, FFC was fused in
1978 as a private constrained organization. This
was a joint wander between Fauji Foundation (a
main beneficent trust in Pakistan) and Haldor
Topsoe A/S of Denmark.
The underlying offer capital of the organization
was 813.9 Million Rupees. The present offer
capital of the organization remains above Rs. 8.48
Billion. Moreover, FFC has more than Rs. 8.3
Billion as long-haul ventures which incorporate
stakes in the auxiliaries FFBL, FFCEL and partner
FCCL. They have 48% share in market of
fertilizers.
Information about Engro Fertilizer
Engro Fertilizers Limited is an auxiliary of Engro
Corporation and a famous name in Pakistan's manure
industry. It is exchanged on the share trading system under
the image 'EFERT. Engro holds an immense, across the
nation generation and promoting foundation and produces
driving manure brands enhanced for neighborhood
development needs and request. Engro is additionally a
main shipper and merchant of Phosphate items, which are
promoted broadly crosswise over Pakistan as phospatic
manures. They have 32 % share in their prospective market.

Note: The reason to choose these companies is that they are the major player of their field and are
close competitors.
Financial Analysis
(Ratio Analysis)
Financial Analysis (Ratio Analysis) of Engro Fertilizer 2014-2016
Liquidity Ratios
Liquidity proportions measure an organization's capacity to pay obligation commitments and
its edge of security through the computation of measurements including the present proportion,
quick proportion and working income proportion. Current liabilities are investigated in
connection to fluid advantages for assess the scope of here and now obligations in a crisis.

Current Ratio
The current ratio is the liquidity ratio that calculates a business's ability to compensation
short-term and long-term commitments.
Formula
𝑪𝒖𝒓𝒓𝒆𝒏𝒕𝒔 𝑨𝒔𝒔𝒆𝒕𝒔
Current ratio = 𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝑳𝒊𝒂𝒃𝒊𝒍𝒊𝒕𝒊𝒆𝒔
Engro Current ratio 2016

Above values are in thousands

𝑪𝒖𝒓𝒓𝒆𝒏𝒕𝒔 𝑨𝒔𝒔𝒆𝒕𝒔
Current ratio = 𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝑳𝒊𝒂𝒃𝒊𝒍𝒊𝒕𝒊𝒆𝒔
𝟐𝟕,𝟏𝟐𝟕,𝟕𝟔𝟗
Current ratio = 𝟐𝟒,𝟎𝟒𝟕,𝟎𝟐𝟐=1.13
Engro Current ratio 2015

𝑪𝒖𝒓𝒓𝒆𝒏𝒕𝒔 𝑨𝒔𝒔𝒆𝒕𝒔
Current ratio = 𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝑳𝒊𝒂𝒃𝒊𝒍𝒊𝒕𝒊𝒆𝒔
𝟐𝟖,𝟓𝟒𝟎,𝟑𝟎𝟖
Current ratio = =0.92
𝟑𝟎,𝟗𝟒𝟖,𝟕𝟖𝟕
Engro Current ratio 2014

𝑪𝒖𝒓𝒓𝒆𝒏𝒕𝒔 𝑨𝒔𝒔𝒆𝒕𝒔
Current ratio =
𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝑳𝒊𝒂𝒃𝒊𝒍𝒊𝒕𝒊𝒆𝒔
𝟑𝟔,𝟐𝟗𝟔,𝟓𝟒𝟏
Current ratio = 𝟑𝟓,𝟓𝟓𝟔,𝟐𝟐𝟖 =1.02
Time line Analysis Current Ratio

Current ratio of Engro

1.2
1
0.8
0.6
0.4
0.2
0
2014 2015 2016

Current ratio

Financial Analysis (Ratio Analysis) of Fuji Fertilizer 2014-2016

 𝑪𝒖𝒓𝒓𝒆𝒏𝒕𝒔 𝑨𝒔𝒔𝒆𝒕𝒔
Current ratio = 𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝑳𝒊𝒂𝒃𝒊𝒍𝒊𝒕𝒊𝒆𝒔

Years Current Assets Current Liability Current Ratio

2014 35,883,228 53,818,103 0.66
2015 27,214,693 32,325,501 0.84
2016 37,286,733 41,032,611 0.90

Current Ratio
1
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
2014 2015 2016

Current Ratio
 Comparison in between Engro and FFC Current Ratio

Chart Title
1.2

0.8

0.6

0.4

0.2

0
2014 2015 2016

Engro FFC

Interpretation
The above information is showing that the current ratio of both organization is not in good state
especially in cause of FFC the value is less than 1 which means that the company liabilities are
far less than its assets this is because both companies are taking loan for their expansion
projects.
Quick Ratio of Engro and FFC
Quick Ratio
The quick ratio is a financial ratio used to gauge a company's liquidity. The quick ratio is also
known as the acid test ratio. The quick ratio compares the total amount of cash + marketable
securities + accounts receivable to the amount of current liabilities.
𝑪𝒖𝒓𝒓𝒆𝒏𝒕𝒔 𝑨𝒔𝒔𝒆𝒕𝒔− 𝑰𝒏𝒗
Quick ratio = 𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝑳𝒊𝒂𝒃𝒊𝒍𝒊𝒕𝒊𝒆𝒔
FFC
Year Current Assets Current Liability Quick Ratio
2014 35883228 53818103 0.66
2015 27214693 32325501 0.84
2016 37286733 41032611 0.90
Engro Fertilizer`s
Year Current Assets Current Liability Quick Ratio
2014 38297 35558 1.0
2015 28540308 30948787 0.9
2016 27127769 24047022 1.1

Chart Title
1.2

0.8

0.6

0.4

0.2

0
2015 2016

FFC Engro

Interpretation
The above information is showing that the quick ratio of both organization is not in good state
especially in cause of FFC the value is less than 1 which means that the company liabilities are
far less than its assets this is because both companies are taking loan for their expansion projects
but it’s also shows that liabilities of both organizations are very less too.
Debt to Equity Ratio
The debt to equity ratio is calculated by dividing total liabilities by total equity. The debt to
equity ratio is considered a balance sheet ratio because all of the elements are reported on the
balance sheet.

𝑻𝒐𝒕𝒂𝒍 𝑫𝒆𝒃𝒕
Debt to Equity Ratio= 𝑺𝒉𝒂𝒓𝒆𝒉𝒐𝒍𝒅𝒆𝒓𝒔’ 𝑬𝒒𝒖𝒊𝒕𝒚
FFC

Year Total Debt Total Shareholder`s Debt to Equity

Equity Ratio
2014 60892131 26669531 2.37
2015 52818424 27311465 1.93
2016 62497789 28211295 2.21

Engro Fertilizer`s
Year Total Debt Total Shareholder`s Debt to Equity
Equity Ratio
2014 76996 34478 2.23
2015 62855842 42562020 1.4
2016 61144694 41282899 1.4

Chart Title
3

2.5

1.5

0.5

0
2014 2015 2016

Engro FFC

Interpretation
A debt-to-equity ratio of 1.00 means that half of the assets of a business are financed by debts
and half by shareholders' equity. A value higher than 1.00 means that more assets are financed
by debt. The above information is showing that the quick ratio of both organization is not in
good state especially in cause of FFC the value is less than 1 which means that the company
liabilities are far less than its assets this is because both companies are taking loan for their
expansion projects bt it’s also shows that liabilities of both organizations are very less too.
Debt to Assets Ratio
The debt to total assets ratio is an indicator of financial leverage. It tells you the percentage of
total assets that were financed by creditors, liabilities, debt. The debt to total assets ratio is
calculated by dividing a corporation's total liabilities by its total assets.
𝑻𝒐𝒕𝒂𝒍 𝑫𝒆𝒃𝒕
Debt to Assets Ratio= 𝑻𝒐𝒕𝒂𝒍 𝑨𝒔𝒔𝒆𝒕𝒔

FFC
Year Total Liabilities Total Assets Debt to Assets Ratio
2014 60892131 86561662 0.70
2015 52818424 80129889 0.65
2016 62497789 90709084 0.68

Engro Fertilizer`s
Year Total Liabilities Total Assets Debt to Assets
Ratio
2014 76996 111472 0.69
2015 62855842 105381862 0.59
2016 61144694 102803512 0.59

Chart Title
4

3.5

2.5

1.5

0.5

0
2014 2015 2016

FfC Engro
Interpretation
t is calculated by dividing total liabilities by total assets, with higher debt ratios indicating
higher degrees of debt financing. Whether or not a debt ratio is good depends on the context
within which it is being analyzed. From a pure risk perspective, lower ratios (0.4 or lower) are
considered better debt ratios. Here the ratio is quite high which is not good for organizations.
Capitalization Ratio
The debt-to-capital ratio is calculated by taking the company's debt, including both short- and
long-term liabilities and dividing it by the total capital. Total capital is all debt plus
shareholders' equity, which may include items such as common stock, preferred stock and
minority interest.
𝑳𝒐𝒏𝒈−𝒕𝒆𝒓𝒎 𝑫𝒆𝒃𝒕
Capitalization Ratio = 𝑻𝒐𝒕𝒂𝒍 𝑪𝒂𝒑𝒊𝒕𝒂𝒍𝒊𝒛𝒂𝒕𝒊𝒐𝒏

FFC

Year Long Term Debt Total Capitalization Capitalization Ratio

2014 2500000 28169531 0.08
2015 15892599 43204064 0.36
2016 16653294 44864589 0.37

Engro Fertilizer`s
Year Long Term Debt Total Capitalization Capitalization Ratio
2014 36091 70569 0.51
2015 25289658 67815678 0.37
2016 29379946 71028330 0.41

Chart Title
2

1.5

0.5

0
2014 2015 2016

FFC Engro
Interpretation
These companies show exceptionally low capitalization ratios which leads to face a different
problem. Underutilization of available equity can create a stagnant economic environment and
prevent needed investments, damaging the potential for future earnings for their shareholders.
By failing to responsibly leverage equity into investment, companies can miss valuable
opportunities for growth and expansion. This translates into lower dividends for shareholders
over the long run.
Receivable Turnover
The receivables turnover ratio is an activity ratio measuring how efficiently a firm uses its
assets. Receivables turnover ratio can be calculated by dividing the net value of credit sales
during a given period by the average accounts receivable during the same period.
𝑨𝒏𝒏𝒖𝒂𝒍 𝑵𝒆𝒕 𝑪𝒓𝒆𝒅𝒊𝒕 𝑺𝒂𝒍𝒆𝒔
Receivable Turnover= 𝑹𝒆𝒄𝒆𝒊𝒗𝒂𝒃𝒍𝒆𝒔

FFC
Year Annual Sales Receivable Receivable
Turnover
2014 81240187 1072461 7.5
2015 84831024 2807262 3.2
2016 72876687 7691822 6.47

Engro Fertilizer`s
Year Annual Sales Receivable Receivable
Turnover
2014 61425 28556451 6.12
2015 87615258 1329998 6.87
2016 69537253 6986199 7.95

Chart Title
10
8
6
4
2
0
2014 2015 2016

Engro FFC
Interpretation
These organizations have good receivables turnover ratio which is an activity ratio measuring
how efficiently a firm uses its assets. Receivables turnover ratio can be calculated by dividing
the net value of credit sales during a given period by the average accounts receivable during
the same period.

Total Inventory Turnover

In accounting, the Inventory turnover is a measure of the number of times inventory is sold or
used in a time such as a year. The equation for inventory turnover equals the cost of goods sold
or net sales divided by the average inventory.
𝑪𝒐𝒔𝒕 𝒐𝒇 𝑮𝒐𝒐𝒅𝒔 𝑺𝒐𝒍𝒅
Total Inventory Turnover =
𝑰𝒏𝒗𝒆𝒏𝒕𝒐𝒓𝒚

FFC
Year CGS Inventory Inventory Turnover
2014 50136749 338761.8176 14.8
2015 55949370 2797468.5 20
2016 54827041 4568920.083 12

Engro Fertilizer`s
Year CGS Inventory Inventory Turnover
2014 1963712.72 61424934 12.28
2015 4022891.945 5543541 13.78
2016 6855011.316 52098086 7.6
 Chart Title
25

20

15

10

0
2014 2015 2016

FFC ENGRO

Interpretation
Inventory turnover is a ratio showing how many times a company's inventory is sold and
replaced over a period. The days in the period can then be divided by the inventory turnover
formula to calculate the days it takes to sell the inventory on hand. It is calculated as sales
divided by average inventory and for both companies its showing good results.

Gross Profit Margin

Gross profit margin is a financial metric used to assess a company's financial health and
business model by revealing the proportion of money left over from revenues after
accounting for the cost of goods sold (COGS). Gross profit margin, also known as gross
margin, is calculated by dividing gross profit by revenues
𝑮𝒓𝒐𝒔𝒔 𝑷𝒓𝒐𝒇𝒊𝒕
Gross Profit Margin = 𝑵𝒆𝒕 𝑺𝒂𝒍𝒆𝒔
FFC
Year Gross profit Net sales Gross Profit margin
2014 31103438 81240187 0.38
2015 28881654 84831024 0.34
2016 18049646 72876687 0.24

Engro Fertilizer`s
Year Gross profit Net sales Gross Profit margin
2014 22602511 61424934 0.36
2015 32179807 87615258 0.36
2016 17110649 69518729 0.24
 Chart Title
0.4

0.35

0.3

0.25

0.2

0.15

0.1

0.05

0
2014 2015 2016

FFC ENGRO

Interpretation
Gross margin, alone, indicates how much profit a company makes after paying off its
Cost of Goods sold. It is a measure of the efficiency of a company using its raw materials and
labor during the production process. The value of gross profit margin varies from company and
industry Here the gp ratio of both organizations are fare with context of organization.
Net Profit Margin
Net profit margin is the percentage of revenue left after all expenses have been deducted from
sales. The measurement reveals the amount of profit that a business can extract from its total
sales.
𝑵𝒆𝒕 𝑷𝒓𝒐𝒇𝒊𝒕
Net Profit Margin = 𝑵𝒆𝒕 𝑺𝒂𝒍𝒆𝒔

FFC
Year Net Profit after Net Sales Net Profit Margin
Taxes
2014 18170760 81240187 0.22
2015 16765869 86765869 0.18
2016 11781993 72876687 0.16
Engro Fertilizer`s
Year Net Profit after Net Sales Net Profit Margin
Taxes
2014 8207960 61424934 0.13
2015 15027481 55435451 0.27
2016 9024701 69518729 0.12

Chart Title
0.3

0.25

0.2

0.15

0.1

0.05

0
2014 2015 2016

FFC ENGRO

Interpretation
The GP of the both companies are less due to finance cost and high tariffs on sales.