Analysis of Financial Statements Lucky 201 Cement 1

Analysis of Financial Statements

Project Final Report MBA 16 (B)

Lucky Cement
Submitted To

Sir Waqar Akbar

Submitted By

Unity Group Dated: Group Members:

Muhammad Karim Khan Saiqa Zummard Ishrat Amir Muhammad Umer Alam 1600076 1600090 1600067 1600068

22-Jan-2011

Submitted to: Mr. Waqar Akbar

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Analysis of Financial Statements Lucky 201 Cement 1

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Analysis of Financial Statements Lucky 201 Cement 1

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Analysis of Financial Statements Lucky 201 Cement 1

Analysis of Financial Statement LIQUIDITY RATIOS
WORKING CAPITAL RATIO: WC = CA C L CL Year 2007 WC = -0.15 Year 2008 WC = 0.09 Year 2009 WC = -0.14 Interpretation: The working capital ratio indicates that companys fixed assets are being financed by short term financing. As working capital ratio shows negative figures in 2007 and 2009 which indicates companys fixed assets are financed by short term financing. But slight improvement had shown in year 2008. Recommendation: Company needs to do some arrangements that current assets sufficiently financed by current liabilities. By doing this company can save its long term financing cost which incurred to support current assets. CURRENT RATIO: CR = CA_ CL

Year 2007 CR = 0.85 Year 2008 CR = 1.09 Year 2009 CR = 0.86 Submitted to: Mr. Waqar Akbar Page 8

Analysis of Financial Statements Lucky 201 Cement 1

Interpretation: The current ratio of the company reflects that companys fixed assets are being financed by short term financing which increases the risk unavailability of short term financing in future. As current ratio shows figures in 2007 and 2009 companys fixed assets are financed by short term financing. But in 2008 current assets matched up with current liabilities. Recommendation: The Company is required to balance its current assets and current liabilities. It will leads to save companys long term financing cost, used to finance short term assets. QUICK RATIO: QR = CA- Inventory CL

Year 2007 QR = 0.74 Year 2008 QR = 1.00 Year 2009 QR = 0.73 Interpretation: Quick ratio can indicate the problem in current asset level due to inventory. If current assets are inflated due to inventory, it can be identified through quick ratio. As per current ratio the company does not have surplus assets which mean inventory is also low. In further dimension we observe that the inventory contribution in total current assets in 2007, 2008 and 2009 is 0.11, 0.09 and 0.13 respectively, company is maintaining different inventory levels in three years. Recommendation: If an average is taken the optimum level of inventory is 0.11 that company needs to be maintained. It will leads to save company from out of stock conditions i.e 0.09 in 2008 as well as unnecessary warehousing costs i.e 0.13 in 2009. ABSOLUTE QUICK RATIO: AQR = Year 2007 AQR = 0.20 Submitted to: Mr. Waqar Akbar Page 9 Cash + Marketable Securities CL

Analysis of Financial Statements Lucky 201 Cement 1

Year 2008 AQR = 0.04 Year 2009 AQR = 0.12 Interpretation: AQR tells us how much liability has taken to make investment in cash and marketable securities. We can see that investment in cash and marketable securities is highest in the year 2007 and lowest in 2008. The ratio is moderate in 2009. Recommendation: Company should maintain only that certain level of cash and marketable securities which are essentially required. So it is recommended that company should maintain the ratio which it maintained in 2009. Which is a medium level of cash and marketable securities. CASH RATIO: Cash Ratio Year 2007 CR = 0.20 Year 2008 CR = 0.04 Year 2009 CR = 0.16 Interpretation: Ratio shows that cash level is highest in 2007, lowest in 2008. This ratio show the amount of cash retained in business. Lower the ratio can cause liquidity problem and higher the ratio shows unnecessary investment in cash. Recommendation: In year 2009 there is a medium level amount invested in cash which is most beneficial for the business. = Cash & Bank CL

ACTIVITY RATIOS
INVENTORY TURNOVER: Submitted to: Mr. Waqar Akbar Page 10

Analysis of Financial Statements Lucky 201 Cement 1

= COGS __ Inventory

Year 2007 IT = 15.97 times Year 2008 IT = 18.18 times Year 2009 IT = 17.33 times Interpretation: Through this ratio we can examine that how many times a certain level of inventory sold during the year. Most frequent selling of inventory gives the higher ratio results. In the company ratio is highest in year 2008 and lowest in 2007. Recommendation: The ratio drop down in the year 2009 so there is need to improve sales and maintain only the level of inventory which is essentially required. INVENTORY TURNOVER IN DAYS: = Inventory x 360 COGS

Year 2007 IT = 27.5 days Year 2008 IT = 20.28 days Year 2009 IT = 26.08 days Interpretation: In how many days a certain level of inventory sold during the year, this is called Inventory Turnover in days. Less turnover reflects efficient sales. In year 2007 there is highest and in year 2008 lowest inventory turnover in days. Recommendation: The policy of sales and inventory proved best and should be implemented in coming years for better performance of business. ACCOUNTS PAYABLE TURNOVER RATIO: Submitted to: Mr. Waqar Akbar Page 11

Analysis of Financial Statements Lucky 201 Cement 1

= Net Credit Purchase Accounts Payable Net Credit Purchases includes: Raw Material Packing Material Accounts Payable includes Creditors Year 2007 A/P Turnover = 5.88 times Year 2008 A/P Turnover = 3.56 times Year 2009 A/P Turnover = 5.46 times Interpretation: this ratio states that how many times a certain level of material purchase from creditors and payment made to them. If ratio is higher it means that frequent payments made to creditors. If ratio is lower it means company is managing its payments. We can see that turnover is highest in 2007 and lowest in 2008. Recommendation: Reference to the ratio of the year 2008 payments are managed in the batter way. And payment pattern of 2008 is more beneficial as compare to other years so it is recommended that the company should again implement the same policy in the coming year. ACCOUNTS PAYABLE TURNOVER IN DAYS: = Accounts Payable x 360 Net Credit Purchase

Year 2007 A/P Turnover = 61.25 days Year 2008 A/P Turnover = 101.19 days Year 2009 A/P Turnover = 56.70 days

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Analysis of Financial Statements Lucky 201 Cement 1

Interpretation: This ratio shows after how many days the company is making payments to creditors for inventory purchased. Higher the ratio shows efficient management of payments and so on. The ratio is highest in the year 2008 and lowest in the year 2009. Company shows better performance in the In the year 2008 whereas payments making pattern was not enough supportive in the year 2009. Recommendation: Delaying the payments more beneficial for company and as per ratio calculated in the year 2008 shows best management of payments can be a bench mark for subsequent years. TOTAL ASSET TURNOVER: = Net Sales Total Assets

Year 2007 T/A Turnover = 48.67 times Year 2008 T/A Turnover = 49.52 times Year 2009 T/A Turnover = 68.58 times Interpretation: it states that how much sales are generated by utilizing the companys assets. Higher the ratio shows higher the output. Data shows sales are highest in the year 2009. Company must consider its capacity of production before planning of its sales. A very high ratio shows that plant is producing much of its capacity. In 2008 turnover is medium. Recommendation: The production of plant is moderate in the year 2008 which is compatible with its capacity and production level maintained in 2008 should be continue to maintain in the coming years.

PROFITABILITY RATIOS
GROSS PROFIT RATIO: GPR = Gross Profit x 100 Sales

Year 2007 GPR = 29.34 % Year 2008

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Analysis of Financial Statements Lucky 201 Cement 1

GPR = 25.73 % Year 2009 GPR = 37.26% Interpretation: This ratio expresses the portion of COGS in total sales. It shows the leverage of the company to pay its remaining expenses. The year 2009 gave the best result of gross profit but the result of 2008 is not satisfactory. Recommendation: In the year 2009 Company generated maximum gross profit which is due to lower cost of goods sold. So the recommendation is that the company should control its production cost likewise in the year 2009. NET PROFIT RATIO: NPR Year 2007 NPR = 20.34% Year 2008 NPR = 15.79% Year 2009 NPR = 17.45% Interpretation: NPR shows that the income generated by the business after paying its all obligations. The data shows that in year 2007 the net profit is highest and the same is lowest in the year 2008. If we analyze the GP ratio it is evident that the year 2009 gave best GP ratio. But the same year is unable to give best result in regard of NPR. It means company facing operating problems. Recommendation: In the year 2007 company is managing its operating and all other expenses efficiently. The practices of the same year should use in future. RETURN ON INVESTMENT/ASSETS: ROI = Net Income/Total Assets = Net Income Sales x 100

Year 2007 ROI = 9.90% Year 2008 Submitted to: Mr. Waqar Akbar Page 14

Analysis of Financial Statements Lucky 201 Cement 1

ROI = 7.82% Year 2009 ROI = 11.97% Interpretation: It is the ratio express what income is earned on investment made in business. Higher income reflects efficient operations or better utilization of assets. In year 2009 company performed very well that gave it highest ROI as compering to other years. Recommendation: Company utilized its assets in the best way in year 2009. So the utilization policies should continue in next years. RETURN ON EQUITY: ROE = Year 2007 ROE = 27.23% Year 2008 ROE = 14.35% Year 2009 ROE= 19.77% Interpretation: Through this ratio shareholders can judge that how much income generated on their investment. The higher ratio is more attractive for shareholders. In the year 2007 ROE is the highest as compare to others years. Recommendation: As per results of 2007 it is recommended that company should not increase its number of shareholders to maintain its ROE ratio. Net Income Total Equity

LEVERAGE RATIOS
Fixed Cost Includes: Salaries, wages and benefits Electricity and Water Repairs and maintenance Insurance Traveling and entertainment Communication Printing & stationary Security expenses Submitted to: Mr. Waqar Akbar Page 15

Analysis of Financial Statements Lucky 201 Cement 1

Depreciation Other Expenses Variable Cost Includes: Raw materials consumed Packing material consumed Cement packaging and loading charges Fuel Stores and spares consumed Vehicle running and maintenance Provision for slow moving and obsolete stores, spares and loose tools

Year
Sales Variable cost** Contribution Margin Fixed Cost* EBIT* Interest Earning before tax Tax Net Income Leverage DOL (S-VC)/(S-V-FC) DFL (S-VC-FC)/(S-V-FC-I) DTL (S-VC)/(S-V-FC-I) Fixed Cost* Fixed-1 Fixed-2 Fixed-3 Total Variable Cost** Variable-1 Variable-2 Variable-3 Total

2009
Amount ,000 26,330,404 17,188,836 9,141,568 2,361,402 6,780,166 1,236,971 5,543,195 580,452 4,962,743

2008
Amount ,000 16,957,879 11,900,119 5,057,760 1,940,455 3,117,305 126,743 2,990,562 (371,141) 3,361,703

2007
Amount ,000 12,521,861 7,960,715 4,561,146 1,618,696 2,942,450 862,847 2,079,603 143,059 1,936,544

1.3483 1.2232 1.6492

1.6225 1.0424 1.6912

1.5501 1.4149 2.1933

117,828 2,110,780 132,794 2,361,402

101,257 1,731,629 107,569 1,940,455

50,292 1,481,974 86,430 1,618,696

2,310,009 14,845,685 33,142 17,188,836

1,053,797 10,828,139 18,183 11,900,119

447,437 7,488,397 24,881 7,960,715

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Analysis of Financial Statements Lucky 201 Cement 1

30,000,000

DEGREE OF OPERATING LEVERAGE (DOL): Year 2007 DOL = 1.5501 Year 2008 DOL = 1.6225 Year 2009 DOL = 1.3483

25,000,000

Interpretation: As per analysis it is apparent that DOL is highest in the year 2008. DOL is the degree of operating leverage, the company is getting due to its fixed cost. Recommendation: As per data we conclude that there is more fixed cost are incorporated in the year 2008 which have significant impact on its DOL. It is recommended that company should increase its sales to maximize its DOL in the coming years likewise it did in 2008. DEGREE OF FIXED LEVERAGE (DFL): Year 2007 DFL = 1.4149 Submitted to: Mr. Waqar Akbar Page 17

20,000,000

Analysis of Financial Statements Lucky 201 Cement 1

Year 2008 DFL = 1.0424 Year 2009 DFL = 1.2232 Interpretation: As data shows that DFL is highest in the year 2007. DFL is the degree of financial leverage, the company is getting due to its fixed cost. Recommendation: As per data we conclude that there is more fixed cost are incorporated in the year 2007 which have significant impact on its DFL. It is recommended that company should increase its sales to maximize its DFL in the coming years likewise it did in 2007. DEGREE OF TOTAL LEVERAGE (DTL): Year 2007 DTL = 2.1933 Year 2008 DTL = 1.6912 Year 2009 DTL = 1.6492 Interpretation: DTL is the degree of total leverage which is combination of DOL and DFL. As per data DTL is higher in year 2007 and lower in year 2009. This varies due to the incorporation of fixed cost in the business. So it is recommended that company should increase its sales for the significant impact of DTL in the coming years.

MARKET VALUE RATIOS

EARNINGS PER SHARE (EPS): EPS = Net Income No: Common Stock Shares

Year 2007 EPS = 9.67% Year 2008 EPS = 9.84% Submitted to: Mr. Waqar Akbar Page 18

Analysis of Financial Statements Lucky 201 Cement 1

Year 2009 EPS = 14.21% Interpretation: EPS states that earning on the share which will increase when net income increases and vice versa. From the data analysis it reflects that there is significant increase in EPS in year 2009 as compare to other years. Recommendation: Company performance is much better in 2009 and it is recommended that company should retain the practices in future as it implement in year 2009. P/E (PRICE TO EARNING): P/E = Market price of share EPS

Year 2007 P/E = 12.72 times Year 2008 P/E = 9.95 times Year 2009 P/E = 4.12 times Interpretation: This ratio shows that what is the market value of company shares on the basis of its financial performance. The company shows significant performance in 2007 year and did not retain the performance as it did in year 2007. Company is not performing well. Recommendation: As P/E ratio depends upon the performance of the company. So company needs to improve its performance to gain competitive edge in the market. DIVIDEND PAYOUT RATIO (DPO): DPO = Dividend per share EPS

Year 2007 DPO = 12.92% Year 2008 DPO = 0 Year 2009 Submitted to: Mr. Waqar Akbar Page 19

Analysis of Financial Statements Lucky 201 Cement 1

DPO = 28.15% Interpretation: This ratio tells how much part of total income is distributed among the shareholders and what amount is remaining as retained earnings. If more profits distributed among the shareholders it will create attractiveness for them but company should maintain a reasonable balance between DPO and RE. We observe DPO is highest in year 2009 and lowest in year 2007 and no dividend has paid in 2008 year. Recommendation: During analysis we observe that companies DPO policy is inconsistent. Sometime it pays no dividend/ least dividend and sometimes pays highest dividend. It is recommended that company should adopt consistent DPO policy. DIVIDEND YIELD RATIO (DYR): DYR = Year 2007 DYR = 0.01% Year 2008 DYR = 0 Year 2009 DYR = 0.07% Interpretation: This ratio gives idea to the investor that how much he will earned on investment made in common stock of a particular company. From the data analysis DYR is highest in year 2009 and lowest in 2007 and zero in 2008. Recommendation: Consistent dividend policy is recommended to avoid abnormal fluctuations in DYR. BOOK VALUE PER SHARE: BV/S = Year 2007 BV/S = 35.51 times Year 2008 BV/S = 94.68 times Share holders Equity No: of Common Shares Dividend per share Market price per share

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Analysis of Financial Statements Lucky 201 Cement 1

Year 2009 BV/S = 71.90 times Interpretation: This ratio interpret that what is net worth of the business and what is shareholders right on the business against per share held. If ratio is high the shareholders right on the business is also high. In lucky cement the BV/S of the year 2007 is lowest and BV/S is highest in year 2008. Recommendation: Book Value per share decrease due to decrease in cash inflows in the business. So the company should improve its operation for smooth cash inflows that leads to improve its BV/S.

WORKING CAPITAL MANAGEMENT LUCKY CEMENT

Years 2007 2008 2009 Avg Current Assets 5402678 8407379 7857942 7222666 Fixed Assets 2032108 3 2583169 5 3053442 0 2556239 9 Total Assets 2572376 1 3423907 4 3839236 2 3278506 6 Aggressive approach Conservative approach Permanent Temporary Permanent Temporary 25723761 25723761 25723761 25723761 8515313 12668601 7061305 38392362 38392362 38392362 38392362 (12668601) (4153288) (5607296)

Calculation of cost Interest Rate: Long term @ 11% Short term @ 3% Aggressive approach Long term Short term Total Conservative approach Long term Short term Financing 38392362 Interest expense 4223160 Page 21 Financing 25723761 7061305 32785066 Interest expense 2829614 211839 3041453

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Analysis of Financial Statements Lucky 201 Cement 1

Total 38392362 4223160

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Analysis of Financial Statements Lucky 201 Cement 1

TAX BENEFIT ANALYSIS INCOME STATEMENT FFBL LUCKY (FAUJI FERTILIZER BIN QASIM LTD) CEMENT # of Share holder = 934110 # of Share holder = 323,375 Debt = 40 % Debt = 65 % owner's equity = 60 % owner's equity = 35 % (Rs '000) (Rs '000) 36,724,920 26,330,404 27,059,566 16,519,138 9,665,354 9,811,266 2,593,773 7,217,493 FFBL pays less interest due to less debt 2,040,492 5,177,001 1,811,950 3,365,051 329,219 LC shift more RE to Balance Sheet 3,035,832 10.41 LC save tax due to debt financing 714172.2 0.65:1

Sales Cost of goods sold GROSS PROFIT Selling and distribution expenses 2,637,327 PROFIT FROM OPERATIONS ( EBIT ) 7,028,027 Financial charges NET PROFIT BEFORE TAXATION ( EBT ) Provision for taxation ( 35% ) NET PROFIT AFTER TAXATION ( NI ) Dividend Paid Retained Earnings Earnings per share 1,219,724 5,808,303 2,032,906 3,775,397 3,736,441 38,956 4.04

Tax Saving Debt to Equity Ratio

426903.4 0.4:1

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Analysis of Financial Statements Lucky 201 Cement 1

LUCKY CEMENT
Balance Sheet
Actual 2009 Forecasted 2,010.00

ASSETS Non-Current Assets Property, plant and equipment long term advance Long term deposits Current Assets Stores, spare parts and loose tools Stock in trade Trade debts Loan and advances Trade deposits and prepayments Other receivables Tax refunds due frome the Govt Taxation-net Sales tax refundable Cash and bank balances Total current assets Total Asset EQUITY AND LIABILITIES SHARE CAPITAL AND RESERVES Share Capital Reserve NON-CURRENT LIABILITIES Long term financing Long term deposits Deferred Liabilities Deferred Taxation Total CURRENT LIABILITIES Trade and other payables Accrued mark-up Short term borrowings Current portion of long term finance 30476872 55373 2175 30534420 3411549 1196608 1267248 108876 9761 59251 538812 176584 40162 1049091 7857942 38392362 38,468,417.00 69,893.00 2,745.00 38,541,055.00 4,306,114.00 1,510,378.00 1,599,542.00 137,425.00 12,320.00 74,788.00 680,098.00 22,887.00 50,693.00 1,324,180.00 9,918,425.00 48,459,481.00

3233750 20018222 23251972 4300000 28589 234633 1478490 6041712

7,156,236.00 20,018,222.00 27,174,458.00 4,300,000.00 1,353,022.00 234,633.00 1,478,490.00 21,285,072.00

2677356 233381 6187941

3,379,403.00 294,577.00 10,244,897.00 -

9098678 Contingencies and Commitments 38392362

13,918,877.00 62,378,407.00

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Analysis of Financial Statements Lucky 201 Cement 1

LUCKY CEMENT
Income Statement Sales Forecast
2009 Sales Cost of sales Gross profit Distribution cost Administrative expenses Operating profit Finance costs Other operating income Other charges 26,330,404 -16,519,138 981,126 -2,427,837 -165,936 2,593,773 7,217,493 1,236,971 (23,255) 826,776 2,040,492 Profit before taxation Taxation-Current Prior year deferred Profit after taxation Basic and diluted earning per share 5,177,001 156,744 4216 419492 580452 4596549 14.21 Forecasted 2,010 33,234,676 -20,850,732 12,383,944 -3,064,456 -209,447 3,273,903 9,110,041 1,561,325 -29,353 1,043,570 2,575,542 6,534,499 197,845 5,322 529,490 732,657 5,801,842

Calculations
Sales Forecast Averarage of difference in 3 years

Draft of Income statement and balance sheet formula Item divided by old sales multiply new sales Additional Funds Needed(AFN) Debt Ratio 0.39 Current Assets Totel Assets Current Ratio Debt: 18899198 Previous 17526215 Forecasted 1372983 7681294

9918426 48459481 0.86 Forecasted Current Liabilities Less Previous CL STD 11533053 (9098678 2434375

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Analysis of Financial Statements Lucky 201 Cement 1

Equity 7681294-1372983=6308311 There are no Retained Earnings and we pay dividened from resevers

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