Project Proposal

LIQUIDITY AND LEVERAGE RATIOS ANALYSIS

D.G. KHAN CEMENT COMPANY LIMITED

AND

LUCKY CEMENT LIMITED Submitted by Bilal Anwar mc090405486

To

Virtual University of Pakistan on 15th of April, 2011

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TABLE OF CONTENT

Chapter 1:
1.1 Introduction of cement industry in Pakistan.3 1.1.1 Introduction of D.G. Khan Cement Company Limited.......3 1.1.2 Introduction of Lucky Cement Limited ......3 1.2 Background.......4 1.3 Objective of the Project ...4 1.4 Significance of the Project ......4

Chapter 2:
2. Project Proceedings...5

Chapter 3:
3. Methodology.............6 3.1 Data Collection Tools ....6 3.2 Data Processing & Analysis....6

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1.1 Introduction
The cement industry of Pakistan entered in the export markets a few years back, and has established its reputation as a good quality product. The last few years have been golden period for cement manufacturers, when the government increased spending on infrastructure development. In financial year 2007, the cement sales registered a growth of 31 percent to 17.53 million tones as against 13.5 million tones sold in 2006. This project is about the liquidity and leverage of the cement sector industries in Pakistan. In current scenario there is large competition among the companies in the field, we have to know about these firm that which one of them will be most progressive in future.

1.1.1 Introduction of D.G. Khan Cement Company Limited

Nishat Group is one of the leading and most diversified business groups in South Asia having assets over Rupees 300 billion. The group has strong presence in three most important sectors of region namely textiles, cement and financial services. D.G. Khan Cement is on the unit of Nishat group, is the largest cement manufacturer in Pakistan with a production capacity of 5,500 tons clinker per day. It was established in 1986 and acquired by Nishat group in 1992 under privatization initiative of the government of Pakistan.

1.1.2 Introduction of Lucky Cement Limited

Lucky Cement Limited is sponsored by Yunus Brothers Group (YB Group) which is one of the largest groups of the county having a history of more than 50 years. This group is engaged in diversified manufacturing activities including textile, weaving, processing, finishing, stitching and power generation. Lucky Cement Limited is the largest Portland cement producer in Pakistan with a capacity of 7.75 mtpa. It has Captive power generation capacity of 140 mw.

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1.2 Background
Ratio analysis is used by the investor, creditors and the management to predict the future of the company. It provides the measure to firm conditions and performance. Liquidity ratios are used to provide information about the firms ability to meet its short term financial obligations. Current ratio, quick ratio and cash ratio are the most common types of liquidity ratio. Leverage ratios are used to provide indication of the long term solvency of the firm. Debt ratio, debts to equity ratio, interest coverage are used to for leverage ratios.

1.3 Objective of the project

The main objective of the project is to provide insight into the cement industry, there weakness and strengths. This ratio analysis will compare the both cement industries and compare there strengths and weaknesses. It will provide stock holders, creditors and investors about the short and long term ability of solvency. It will help to know the actual financial position of the firms.

1.4 Significance
Financial statement tells about the company short and long term solvency in an easy manner to understand. Ratio analysis can reveal much about the company and its operations. These ratios are flat indications and some of them may lead towards wrong understanding of company image and financial position. The significance of this project is that financial statements are too lengthy and not easy to understand, ratio analysis may interrupt the representative facts about the firms. It will tell exact figures about the firms financial position.

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2 Project Proceedings
Liquidity Ratios measure a firms ability to meet it current obligations. They include Current Ratio: Current Ratio = Current Assets / Current Liabilities Current ratio indicate the extent to which current liabilities are covered by those expected to be convert in cash in the future, current assets normally includes cash, marketable securities, accounts receivables and inventories. Current liabilities consist of accounts payable, short term notes payable, current maturities of long term debt, accrued taxes, and other accrued expenses.

Quick Ratio: Quick Ratio = Current asset Inventory /Current liabilities Cash Ratio: Cash Ratio = Cash + Marketable Securities/ Current liabilities

Leverage Ratios provide indication of the long term solvency of the firms. Unlike liquidity ratios that are concerned with short term assets and liabilities, financial leverage ratios measure the extent to which the firm is using long term debt. It includes Interest Coverage: Interest coverage = EBIT/ Interest Charges It tells how easily a company is able to pay interest expenses to debt. Debt Ratio: Debt Ratio = Total Debt/ Total Assets Debt ratio provides the percentage of funds provided by the creditors.

Debt to Equity Ratio: Debt to Equity Ratio = Total Debt/ Total Equity

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It is the most popular leverage ratio and provides the amount of leverage that a company has in relation to the shareholders money.

3. Methodology Trend analysis of companys last three years ratios, comparisons with competitors and industry comparisons

3.1 Data Collection Sources

There are many sources to collect data, such as article of scientific researcher, books of different authors like vu book on finance, companies profiles form, company comparison form, stock exchange, internet past articles and company websites.

3.2 Data Processing & Analysis

Ratios analysis is useful for the company internally and externally. Internally we can process data for the purpose of making and designing future plans and policies and external analysts use ratio to decide whether to invest in the company or not, to monitor financial performance of the firms. I will use Microsoft Word and Microsoft Excel spreadsheet to compute different ratios and analysis.

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