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Presented To:

Mr. Hamza
Mukhtar

Presented By:
 Qamar Shahzad
 Sultan Rubbani
Financial Statements Analysis
Analysis could be performed in three ways,

Economic Analysis

Industry Analysis

Firm Analysis
1.Economic Analysis

Economic indicators:
GDP growth
Inflation

Per Capita Income ($1085,Rs.7142)


Real GDP Growth
The real GDP growth in financial year 2008 is found to be 5.8
percent that was expected at 7.2 percent.
This deficiency is due to:
 Unexpected weakness in commodity producing sectors,

leads to the revival of inflationary pressure.


 High energy cost.

 Large external current account deficit.

Trade balance $1.96 bn


Exports $1.53 bn

Imports $2.72 bn
Inflation
The inflation rate in the economy in financial
year 2008 is 10.3 percent that is very high as
compared to the last year 7.8 percent.
 Low Demand

 Inability to reduce prices of petroleum

products.
 High international commodity prices

 Domestic demand for construction inputs (e.g.

metal, copper,etc.)
 Oil prices changes
 Inflationary pressures by stimulating the
demand.
 Higher interest rates.
 High international commodity prices (e.g steel,
wheat etc.)
Prevailing inflation rates

INFLATION RATE

20

15
2005-06H
10 2006-07H
2007-08H
5

0
CPI Food Group Non Food
Group
Affect on Industry and Firm
 GDP growth decreased the growth of per
capita cement consumption from 22.2% in
FY07 to 2.9% in FY08.
 Pakistan’s Cement sector is correlated to GDP
growth.
 In the past years, Pakistan’s cement sector
witnessed a robust growth due to the country’s
strong economic growth.
 However, in FY08, lower GDP growth has
affected the construction activity in the
country and thus affected the demand for
cement in local market.
 Sales volume achieved during the first quarter
was 749,492 mt of grey cement, 18,664 mt
white cement.(FY08-373,830..FY07-15003)
 Despite these high sales volume, the company
suffered losses.
Reasons of losses
 Higher production costs.
 Due to inflationary spiral afflicting our
economy.
 Huge input cost of coal.
 Rapid depreciation in exchange rate and
mounting interest rate.
 Which adversely affected operating margins of
company.
Industry
Analysis
Learning Objective in Industry
Analysis
 To determine the opportunities and threats that exists for
firms within a competitive environment.

 When analyzing an industry, taking all factors into


account, should we as a corporation, enter this industry?
The end result will be an understanding of what it takes
to compete successfully.

 Model of porter’s five forces:


Porter’s Five Forces

 Threat of New Entrants

 Suppliers

 Buyers

 Substitute Products

 Rivalry
Definition of
Industry
The people or companies engaged in a
particular kind of commercial
enterprise; "each industry has its own
trade publications"

Concerns primarily engaged in the


same kind of economic activity are
classified in the same industry
regardless of their types of ownership
(such as sole proprietorship,
partnership or corporation).
Definition of
Chemical
Industry
Companies that
manufacture and/or
distribute chemicals,
including basic,
intermediate, and
specialty chemicals;
petrochemicals;
Nature of the
Business
The nature of the
chemical industry is of
manufacturing
concern.

It means the industry


Customers of the chemical
industry
 Textile industry

 Oil manufacturer

 Ghee manufacturer

 Soap industry

 Foreign buyers
Major Products
 Caustic Soda

 Sodium Hypo chloride

 Bleaching Powder

 Liquid Chlorine

 Agri. Chemicals

 Hydcloric Acid

 Ammonium Chloride
Chemical Product Development

 Coordination of customer’s needs with the


capabilities of technology
 Establishment of market potential to justify
investments.
 Analyzing the special chemical industry
 Recommendations for strategic direction of
the industry
How this objective can be
achieved?

 Idea Generation
 Technology search
 Evaluation
 Market development
 Licensing and negotiating
 Team efforts
Changing chemical industry
 Decline of Multinationals

 The rise of chemical contractors

 Flexibility in productions

 Globalization of chemical industry

 Advances in process technology and techniques


Organizational change in industry

 Large chemical complex has become


“technology parks”

 Transferring of chemicals through large


distribution facilities.
New Production Technology

 Reduce the size and increase the capability


of standard configurations within facilities.

 Capabilities for “Just In Time” production

 Increase in firms using batch processing


Sales and Distribution channel

Sales and distribution channel consists of this


industry may be of following types:
 Chemical industry wholesaler
Retailers End customers
 Chemical industry Retailers
 Chemical industry End customers
Obstacles of Growth of Local
industry
 Expensive New Technology

 Lack of Trained Teachers

 Lack of skilled Personnel

 Government Regulations

 Economic Situations
Attract New Firm in Industry
 Government Rules & Regulations

 Policy must be set for the investors in the


industry in case of taxation.

 Availability of skilled Labor

 Cheaper new technology


Competition
Firms are under not much high competition because
the already the number of firms which are producing
chemicals are low in numbers.
However companies uses three types of strategy to
compete within industry with some other firms.

 Differentiation
 Cost Leadership
 Focus
Elements of Cost

 Direct Material

 Direct Labor

 Factory over head


Business Cycle

The business cycle of chemical


industry is at the stage of “Recovery”.
Due to:

Good economic situations


Firm
Analysis
Learning Objective of Firm
Analysis

The learning objective for the firm analysis is to


determine the strength and weaknesses of a firm
and to determine core competence that can be built
on to establish a competitive advantage. The final
step is to develop a business plan that will align the
capabilities of the firm with the requirements of
the competitive environment. How a firm’s
performance is defined is left to the students.
Firm Analysis Method

Firm analysis and development of an


abbreviated business plan to ensure long
term survival within the competitive
environment. Compare your firm to a
better performing firm within the same
industry or to the industry trends.
Outline that should be for Firm
Analysis
 Current Situation
 Brief firm history
 Strategic Posture
 External Environment (Opportunities and Threats)
 Socio Culture
 Task Environment
 Internal Environment (Strength and Weaknesses)
 Management
 Marketing
 Operations/ Productions
 Finance
 Human Resource Management
 Management Information System
Firm Analysis
 Forecasting Of Earnings

 Dividends and Discount rates

 Balance Sheet and Income Statement Analysis

 Flow of Funds

 Analysis of accounting policies and footnotes

 Risks
Balance Sheet
SHARE CAPITAL AND 2006 2005
RESERVE
Authorized share capital 300,000,000 300,000,000

Issued subscribed and paid up 185,535,990 185,535,990


capital
Capital Reserve 100,294,195 97,490,410

Revenue Reserve 1,322,061,882 1,140,153,348

Takaful Reserve 50,000,000 50,000,000

Total 1,657,892,067 1,473,179,748


Cont.
NON CURRENT LIABILITES 2006 2005
Redeemable capital - 122,400,000
Term finance certificates 8,873,824 13,657,657
Contribution to Takaful reserve by TFC 1,100,000,000 -
holders
Islamic Sukuk Certificates

Long Term financing 296,392,795 416,005,019


- 14,353,699
Liability against subject to 58,314,131 97,190,215
finance lease 16,125,543 13,961,574
Long term modaraba
Long term deposits

Total 1,479,706,293 677,568,164

DEFERRED LIABILITIES Cont.


CURRENT LIABILITES 2006 2005
Trade and other payables 542,663,204 588,666,530
Profit/Financial Charges Payable 34,562,748 43,840,211
Short term financing 666,890,558 35,956,565
Current Portion of
Non current liabilities 232,581,402 184,328,037
Long term morabaha 38,876,084 19,438,042
Taxation
Income Tax 331,862,829 330,869,151
Sales tax 25,213,360 -

Total 1,872,650,185 1,203,098,536


CONTENGIES AND - -
COMMITEMENTS
TOTAL LIABILITES AND 5,370,475,494 3,622,208,655
SHARE HOLDER’S EQUITY
Assets Side

Non Current Assets 2006 2005


Property, Plant & Equipment 2,740,956,338 1,729,807,527

Non-Operating Land at cost 713,786,152 712,880,794

Long Term Investment 11,203,932 15,405,407

Long Term Loans and 761,397 1,133,515


Advances
Long Term Deposits 20,363,050 20,456,199

Total 3,487,070,869 2,479,683,442

Cont.
Current Assets 2006 2005
Stores, spares and loose tools 210,104,864 182,406,368

Stock in trade 407,042,247 319,145,699

Trade Debts 353,050,222 247,078,255

Loans and advances 495,779,205 300,679,979

Trade deposits and short term 5,022,304 3,985,279


prepayments
Other Receivables 7,243,685 4,325,693
Cont.
Current Assets 2006 2005
Investments 4,180,475 2,313,814

Sales tax refundable - 1,142,837

Cash and bank balances 400,981,623 81,447,289

Total Current Assets 1,883,404,625 1,142,525,213

Total Assets 5,370,475,4 3,622,208,6


94 55
Profit & Loss Account
2006 2005
Sales 3,811,890,043 3,942,390,774
Less: Cost of goods sold 3,106,772,480 3,042,004,182

Gross profit 705,117,563 900,386,592


Add: Other operating income 9,488,098 6,755,207
714,605,661 907,141,799
Total
Distribution cost (54,522,873) (63,080,491)
Administrative expenses (140,981,544) (129,744,989)
(123,453,412) (95,813,400)
Other operating expenses
(137,785,602) (129,373,612)
Finance cost
Share of profit/(loss) of associated 359,465 (1,961,925)
company
358,221,695 487,167,382
2006 2005
Profit Before Taxation 358,221,695 487,167,382
91,709,031 141,551,583
Less: provision for taxation
Profit After Taxation 266,512,664 345,615,799

Loss on disposal of assets of - (50,067,798)


discontinued operations
Profit for the year 266,512,664 295,548,001

Earnings Per Share-Basic 14.36 15.93


Liquidity Ratios
Ratios 2006 2005

Current Ratio 1.18:1 1.16:1

The increase in ratio is resulting due to the increase in


different current assets.i.e the major change in the
current assets (cash) and trade Receivables and
inventory is also increased.
Cash Flow from operation Ratio

2006
2005
Cash from operations/Current
Liabilities 0.03 0.623

The ratio is decreasing due to increase


payment of finance cost, income tax
and gratuity, which results in
Analysis of
Profitability
Profitability can be analyzed by
using different ratios:

Gross profit Margin Ratio


2006 2005
Gross Profit/Sales
18.50 22.84

The ratio of Gross profit is


decreasing due to the following
reasons:
Net Margin Ratio 2006
2005
Net profit/Sales 7.00%
7.50%

The decrease in net margin ratio is


due to decrease in sales and ultimately
low profits.
But if we look at the operating
expenses, we have come to know that
one expense named as “EXCHANGE
Operating Margin 2006
2005
Operating Profit/Sales 13.36
17.94

One reason of decreasing in the ratio


of operating profit is already
discussed that sales are decreasing
and cost of goods sold is increasing.
Other reason is that administrative
expenses are also increasing. The
Assets Turnover Ratio 2006
2005
Net Sales/Average Total Assets 0.87
1.46

The main reason in decreasing the


ratio is an increase in the value of
assets and decrease in sales of the
company for the year 2006
Long Term Debt
Paying Ability
The Long term debt paying
ability of the company can
be checked by using
different ratios:

Debt To Equity 2006


2005
51:49
Common Size Analysis
Balance Sheet
SHARE CAPITAL AND 2006 (%) 2005(%)
RESERVE
Authorized share capital 5.58 8.28

Issued subscribed and paid up 3.45 5.12


capital
Capital Reserve 1.87 2.72

Revenue Reserve 24.61 31.45

Takaful Reserve 0.93 1.38

Total 30.87 40.67


Cont.
NON CURRENT LIABILITES 2006 (%) 2005 (%)
Redeemable capital
Term finance certificates - 3.38
Contribution to Takaful reserve by TFC 0.17 0.38
holders 20.48 -
Islamic Sukuk Certificates

Long Term financing 5.52 11.48


Liability against subject to - 0.40
finance lease 1.08 2.68
Long term modaraba 0.30 0.39
Long term deposits

Total 27.55 18.70


CURRENT LIABILITES 2006 (%) 2005 (%)
Trade and other payables 10.10 16.25
Profit/Financial Charges Payable 0.64 1.21
Short term financing 12.42 0.99
Current Portion of
Non current liabilities 4.33 5.09
Long term morabaha 0.72 5.37
Taxation
Income Tax 6.18 9.13
Sales tax 0.47 -

Total 34.87 33.21


CONTENGIES AND - -
COMMITEMENTS
TOTAL LIABILITES AND 100 100
Assets Side
Non Current Assets 2006 (%) 2005 (%)
Property, Plant & Equipment 51.04 47.76

Non-Operating Land at cost 13.29 19.68

Long Term Investment 0.21 0.43

Long Term Loans and 0.01 0.03


Advances
Long Term Deposits 0.38 0.56

Total 64.93 68.46

Cont.
Current Assets 2006 (%) 2005 (%)
Stores, spares and loose tools 3.91 5.04

Stock in trade 7.58 8.81

Trade Debts 6.57 6.82

Loans and advances 9.23 8.30

Trade deposits and short term 0.09 0.11


prepayments
Other Receivables 0.13 0.12
Cont.
Current Assets 2006 (%) 2005 (%)
Investments 0.08 0.06

Sales tax refundable - 0.03

Cash and bank balances 7.47 2.25

Total Current Assets 35.07 31.54

Total Assets 100 100


Profit & Loss A/C

2006 (%) 2005 (%)


Sales 100 100
Less: Cost of goods sold 81.50 77.16

Gross profit 18.50 22.84


Add: Other operating income 0.25 0.17
18.75 23.01
Total
Distribution cost (1.43) (1.60)
Administrative expenses (3.70) (3.29)
Other operating expenses (0.62) (2.43)
Finance cost (3.61) (3.28)
Share of profit/(loss) of associated 0.009 (0.05)
company
2006 (%) 2005 (%)
Profit Before Taxation 9.40 12.35
Less: provision for taxation 2.41 3.59

Profit After Taxation 6.99 8.76

Loss on disposal of assets of - (1.27)


discontinued operations
Profit for the year 6.99 7.49
Index Analysis
Balance Sheet
SHARE CAPITAL AND 2006 (%) 2005
RESERVE
(Base
Year)
Authorized share capital 100 100

Issued subscribed and paid up 100 100


capital
Capital Reserve 101.71 100

Revenue Reserve 116.07 100

Takaful Reserve 100 100


NON CURRENT LIABILITES 2006 (%) 2005
Redeemable capital
Term finance certificates - 100
Contribution to Takaful reserve by TFC 64.97 100
holders - -
Islamic Sukuk Certificates

Long Term financing 71.25 100


Liability against subject to - 100
finance lease 60.00 100
Long term modaraba 115.50 100
Long term deposits

Total 218.38 100


CURRENT LIABILITES 2006 (%) 2005
Trade and other payables 92.19 100
Profit/Financial Charges Payable 78.84 100
Short term financing 1854.71 100
Current Portion of
Non current liabilities 126.18 100
Long term morabaha 200 100
Taxation
Income Tax 100.30 100
Sales tax - -

Total 155.65 100


CONTENGIES AND - -
COMMITEMENTS
TOTAL LIABILITES AND 148.27 100
SHARE HOLDER’S EQUITY
Assets Side

Non Current Assets 2006 (%) 2005


Property, Plant & Equipment 158.45 100

Non-Operating Land at cost 100.13 100

Long Term Investment 72.72 100

Long Term Loans and 67.17 100


Advances
Long Term Deposits 99.54 100

Total 140.63 100


Current Assets 2006 (%) 2005 (%)
Stores, spares and loose tools 115.19 100

Stock in trade 127.54 100

Trade Debts 142.89 100

Loans and advances 164.89 100

Trade deposits and short term 126.02 100


prepayments
Other Receivables 167.46 100
Current Assets 2006 (%) 2005 (%)
Investments 180.67 100

Sales tax refundable - 100

Cash and bank balances 492.32 100

Total Current Assets 164.85 100

Total Assets 148.27 100


Profit & Loss A/C

2006 (%) 2005


Sales 96.69 100
Less: Cost of goods sold 102.13 100

Gross profit 78.31 100


Add: Other operating income 140.45 100
78.78 100
Total
Distribution cost 86.43 100
Administrative expenses 108.66 100
Other operating expenses 24.48 100
Finance cost 106.50 100
Share of profit/(loss) of associated 645.79 100
company
2006 (%) 2005
Profit Before Taxation 73.53 100
Less: provision for taxation 64.79 100

Profit After Taxation 77.11 100

Loss on disposal of assets of - 100


discontinued operations
Profit for the year 90.18 100

Earnings Per Share 90.14 100


Thank You
Very Much