RATIO ANALYSIS

D.G. Khan Cement Company Ltd

PRESENTED BY
▪ Rizwan Ahmad BC15238
▪ Awais BC15255
▪ Noman Zulfqar BC15232
▪ Jalees Mushtaq Bc15220
▪ Hamza Iqbal Bc15252

Presented to: Sir. Tanvir Yasin

 D.G. KHAN CEMENT COMPANY LTD

▪ D.G. Khan Cement Company Limited, (DGKCC) is amongst largest

cement manufacturers of Pakistan .
▪ Production capacity is14,000 tons per day (4.200 million tons/annum).
▪ DGKCC has three cement plants, two plants located at Dera Ghazi Khan
and one at Khairpur Distt. Chakwal.
▪ The Company is listed on Pakistan Stock Exchange.(PSX)
OBJECTIVES OF RATIO ANALYSIS
• Standardize financial information for comparisons
• Evaluate current operations
• Compare performance with past performance
• Compare performance against other firms or
industry standards
• Study the efficiency of operations
• Study the risk of operations
 TYPES OF RATIOS
• Financial Ratios:
– Liquidity Ratios
• Assess ability to cover current obligations
– Leverage Ratios
• Assess ability to cover long term debt obligations
• Operational Ratios:
– Activity (Turnover) Ratios
• Assess amount of activity relative to amount of resources used
– Profitability Ratios
• Assess profits relative to amount of resources used
• Valuation Ratios:
• Assess market price relative to assets or earnings
 LIQUIDITY RATIO

These ratios measure the capacity of the business to pay its short term
debts.
 Current ratio
 Liquid ratio
 Absolute liquid ratio
 CURRENT RATIO

▪ Current ratio, also known as liquidity ratio and working capital ratio,
shows the proportion of current assets of a business in relation to its
current liabilities
▪ Formula :

Current Assets
Current Ratio :
Current Liabilities
 CURRENT RATIO

▪ Current ratio 2016 = 30835521/10056634

= 3.07
▪ Current ratio 2015 = 31426342/6583476
= 4.77
In 2015 its currents ratio is 4.77 and in 2016 it decrease to 3.07. It means
company is still in good position to pay its current liability from its current
assets. Because general benchmark 2:1
 Liquid/Quick/Acid test ratio

▪ Quick Ratio, also known as Acid Test Ratio, shows the ratio of cash and
other liquid resources of an organization in comparison to its current
liabilities.

Current Assets - Inventory

Quick Ratio :
Current Liabilities
 Liquid/Quick/Acid test ratio

▪ Quick ratio 2015 = 31426342 – 1188376/6583476

= 4.6

▪ Quick ratio 2016 = 30835521 – 766633/10056634

= 2.9
According to definition, Acid Test Ratio Company should have ability to
pay its short term debts from liquid asset. In 2015 quick ratio is 4.6 and in
2016 it decrease to 2.9. But company is still in good position to pay short
term debts from liquid assets. Because general benchmark is 1:1
 ABSOLUTE LIQUID RATIO

▪ In addition to computing current and quick ratio, some analysts also

compute absolute liquid ratio to test the liquidity of the business.
Absolute liquid ratio is computed by dividing the absolute liquid assets by
current liabilities.

𝑎𝑏𝑠𝑜𝑙𝑢𝑡𝑒 𝑙𝑖𝑞𝑢𝑖𝑑 𝑎𝑠𝑠𝑠𝑒𝑡

Absolute liquid ratio =
𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

▪ here absolute liquid assets = Cash + Bank + marketable securities

 ABSOLUTE LIQUID RATIO

▪ in 2015
Absolute liquid ratio = 257723/6583476
= 0.04:1
▪ In 2016
Absolute liquid ratio = 7009844/10056634
= 0.7
▪ In both years company is in position to pay its current liabilities from
absolute liquid assets.
▪ General benchmark is 0.5:1
 Liquidity ratios

4.77
4.6

3.07
2.9

0.7
0.04

CURRENT RATIO QUICK RATIO ABOLUTE LIQUID RATIO

20152 2016 Column1
 ACTIVITY RATIO OR EFFICIENCY RATIO

▪ Purpose of these ratios is to measure the how efficiently business is

utilizing his reserves for generating revenues.
 Inventory turnover ratio
 Creditor turnover ratio
 Debtor turnover ratio
 Working capital turnover ratio.
 Total asset turnover ratio
 INVENTORY TURNOVER RATIO

▪ It measures how many times a company has sold and replaced its
inventory during a certain period of time. Higher the ratio more
favorable for the business.
▪ Inventory turnover ratio = CGS/Avg.stock
▪ Avg.Stock = opening stock + closing stock/2
▪ Inventory conversion period = days in year/inventory turnover ratio
 INVENTORY TURNOVER RATIO

▪ In 2015
▪ Avg.Stock = 1348742 + 1188376/2
= 1268559

▪ Inventory turnover ratio = 16649411/1268559

= 13 times
▪ Inventory converision period = 365/13
= 28 days
 INVENTORY TURNOVER RATIO

▪ In 2016
▪ Avg.Stock = 1188376 + 766633/2
= 977505

▪ Inventory turnover ratio = 17035566/977505

= 17.4 times
▪ Inventory conversion period = 365/17.4
= 21 days

▪ In 2015 company sold its avg.stock 13 times and in 2016 company sold
its avg.stock 17.4 times. DGK took 28 days in 2015 and 21 days in 2016
to sold its stock
 CREDITOR TURNOVER RATIO

▪ It means how many times a company can pays off to its creditors
during a year
Formula

▪ Creditor turnover ratio = net credit purchase/Avg.payable

▪ Creditor conversion period = days in year/creditor turnover ratio
 CREDITOR TURNOVER RATIO

▪ In 2015

▪ Creditor turnover ratio =16489045/4018079

= 4 times
▪ Creditor conversion period = 365/4
= 91 days

▪ In 2016
▪ Creditor turnover ratio = 16613823/4707209.5
= 3.5 times
▪ Creditor conversion period = 365/3.5
= 104 days

▪ Company can pays off its creditors 4 times in 2015 and 3.5 times in 2016. we can conclude
that
▪ DGK paid its trade creditors after an average period of 97.5 days from its credit purchases
 DEBTOR TURNOVER RATIO

▪ it shows how many times and how long it takes for a business to recover
the revenue receipts from its trade receivables.
Formula :
▪ Debtor turnover ratio = net credit sales/avg.recievable

▪ Avg.collection period = days in year / debetor turnover ratio

 DEBTOR TURNOVER RATIO

▪ In 2015
Debtor turnover ratio = 26104611/804909
= 32.43 times.
▪ Receivable conversion period = 365/32.43
= 11 days
▪ In 2016
▪ Debtor turnover ratio = 29703558/795465
= 37.3 times
▪ Receivable conversion period = 365/37.3
= 10 days
DGK receives its average debtors 32.43 times in 2015 and 37.3 times in
2016. it took DGK an average of 10.5 days to collect revenue receipts from its
trade debtors
 WORKING CAPITAL TURNOVER RATIO

▪ It provides useful idea of how efficiently working capital is used to

generate revenue .The higher the ratio, the better is the utilization.

Formula :
▪ Working capital turnover ratio = CGS/AVG.working capital
▪ Working capital = Current asset - current liability
In 2015
▪ Working capital = 31426342 – 6583476
= 24842866
▪ Working capital turnover ratio = 16649411/24842866
= 0.67 times
 WORKING CAPITAL TURNOVER RATIO

In 2016
▪ Working capital = 30835521 – 10056634
= 20778887
▪ Average working capital = 24842866 + 20778887/2
= 22810877
▪ Working capital turnover ratio = 17035566/22810877
= 0.74 times.

▪ It means each 1 PRs invested in working capital has contributed only .74 in
2016 and .67 in 2015 towards total sales revenue.
▪ Working capital turnover ratio of the company is below 1 in both years. It
indicates that company is not using efficiently its working capital.
 TOTAL ASSET TURNOVER RATIO

▪ Asset turnover ratio is the ratio of the value of a company's sales or

revenues generated relative to the value of its assets. The higher the
asset turnover ratio, the better the company is performing
Formula:
▪ Total asset turnover ratio = sale/total asset

In 2015
▪ Total asset turnover ratio = 26104611/74391443
= 0.35
 TOTAL ASSET TURNOVER RATIO

In 2016
▪ Total asset turnover ratio = 29703758/83418265
= 0.35

▪ Results indicates that 1PRs invested in fixed asset give .35 towards the
total sales revenue.
▪ In both years ratio is blow 1 which shows that company is not
efficiently deploying its assets in generating revenues
 Activity ratios
2015 2016
40

35

30

25

20

15

10

0
inventory turn over creditor turnover ratio debtor turnover ratio working capital turnovr total asset turnover
ratio ratio ratio
 PROFITABILITY RATIOS

▪ These ratios measure the ability of a business to generate earnings

compare to its expenses and other relevant costs incurred during a
specific period of time.
Types of Profitability Ratio
▪ GP ratio
▪ NP ratio
▪ Operating profit ratio
▪ Operating ratio
 GP RATIO

▪ GP Ratio is profitability ratio that shows the relationship between gross

profit and total net sales. It evaluate the operational performance of
the business. Generally, a higher ratio is considered better.
▪ Formula:
▪ GP ratio = GP/net sales x 100
 GP RATIO

In 2015
▪ GP ratio = 9455200/26104611x100
= 36.22%
In 2016
▪ GP ratio = 12668192/29703758x100
= 42.46%
▪ This means DGK earns 36.22% in 2015 and 42.465 in 2016 on the one
hundred in gross margin.
 OPERATING PROFIT RATIO

▪ Operating Profit Ratio is the percentage of operating profit (i.e. profit

before interest and tax) relative to the revenue earned during a period.

▪ Formula:

▪ Operating profit ratio = operating profit/net sales x 100

 OPERATING PROFIT RATIO

In 2015
▪ Operating profit ratio = 9828681/26104611 x 100
= 37.65%
In 2016
▪ Operating profit ratio = 12611195/29703758 x 100
= 42.25%
OP Margin of 37.65% and 42.25% means that every 100 PRs of sale earns
a profit of 37.65 % in 2015 and 42.25% in 2016 for the business before
taking into account taxation, interest expense and other income.
 NET PROFIT RATIO

▪ Net Profit Ratio is the percentage of net profit relative to the revenue
earned during a period.Net Profit Ratio is also known as Net Profit
Margin Percentage and NP Margin.

Formula :

▪ Net profit ratio = net profit/net sales x 100

 NET PROFIT RATIO

In 2015
▪ Net profit ratio = 7624680/26104611x100
=29.21%
In 2016
▪ Net profit ratio = 8789672/29703758x100
= 29.59%
▪ A net profit margin of 29.59 means that every 100 PRs sale contributes
PRs29 towards the net profits of the business
 OPERATING RATIO

▪ Operating ratio (also known as operating cost ratio or operating

expense ratio) is computed by dividing operating expenses of a
particular period by net sales made during that period. Like expense
ratio, it is expressed in percentage. Less the ratio more favorable for the
business.
Formula :

▪ Operating ratio = CGS + operating expenses/net sale x 100

 OPERATING RATIO

In 2015
▪ Operating ratio = 16649411+1946854/26104611
= 71.23%
In 2016
▪ Operating ratio = 17035566+2436050/29703758
= 65.6%
▪ The operating ratio is 71% and 65.6% it means 71% and 65.6% of the
sales revenue would be used to cover cost of goods sold and operating
expenses of DGK cement in both years respectively
 PROFITABILITY RATIOS
2015 2016

71.23

65.6
42.46

42.25
37.65
36.22

29.59

29.59
GP RATIO OPERATING PROFIT RATIO NP RATIO OPERATING RATIO
 SOLVENCY RATIO

▪ Purpose of this ratio is to measure the long term debt paying capacity of
a company.
Types of solvency ratio
▪ Debt To equity Ratio
▪ Interest Coverage Ratio
▪ Debt Ratio
 DEBT TO EQUITY RATIO

▪ Debt-to-Equity Ratio, often referred to as Gearing Ratio, is the

proportion of debt financing in an organization relative to its equity.
Formula :

▪ Debt to equity ratio = long term debt/equity

 DEBT TO EQUITY RATIO

In 2015

▪ Debt to equity ratio = 5511896/62296071

= 0.09

In 2016

▪ Debt to equity ratio = 7578202/65783429

= 0.12
▪ The debt to equity ratio of DGK Company is .12 and .09. It means the liabilities are
12% and 9% of stockholders equity or we can say that the creditors provide only 12 and 9
PRs for each 100 PRs provided by stockholders to finance the assets
 DEBT RATIO

▪ It can be interpreted as portion of company’s assets that are finance by

debt.

Formula :

▪ Debt ratio = total debt/total asset

 DEBT RATIO

In 2015
▪ Debt ratio = 12095372/74391443
= 0.16
In 2016
▪ Debt ratio = 17634836/83418267
= 0.21
▪ This is a relatively low ratio and implies that DGK will be able to pay
back his loan.
▪ DGK shouldn't have a problem getting approved for loan.
 INTEREST COVERAGE RATIO

▪ Interest Coverage Ratio, also known as Times Interest Earned Ratio

(TIE), states the number of times a company is capable of bearing its
interest expense obligation out of the operating profits earned during a
period

Formula :
▪ Interest coverage ratio = EBIT/interest expense
 INTEREST COVERAGE RATIO

In 2015
▪ Interest coverage ratio = 9828681/281504
= 34.9 times
In 2016
▪ Interest coverage ratio = 12611195/130451

= 96.6 times
▪ Interest coverage ratio of DGK Company is 96.6 times. It means that the
interest expenses of the company are 96.6 times covered by its net operating
income (income before interest and tax).
 PROPRIETARY RATIO

▪ . The proprietary ratio (also known as net worth ratio or equity ratio) is
used to evaluate the soundness of the capital structure of a company. It is
computed by dividing the stockholders’ equity by total assets

Formula :

▪ Proprietary ratio = equity/total assets

 PROPRIETARY RATIO

In 2015
▪ Proprietary ratio = 62296071/74391443
= 0.83
In 2016
▪ Proprietary ratio = 65783429/83418265
= 0.79

▪ The proprietary ratio is 79%. It means stockholders’ has contributed 79% of the
total tangible assets. The remaining 21% have been contributed by creditors
 Solvency ratio
2015 2016
120

100

80

60

40

20

0
debt to equity ratio interst coverage ratio debt ratio proprietry ratio
 RETURN ON INVESTMENT RATIOS

▪ EPS (Earning per share) ratio

▪ Earnings Ratio
▪ Capital employed ratio
▪ Return on shareholder fund
 EPS (EARNING PER SHARE) RATIO

▪ Earnings per share (EPS) ratio measures how many dollars of net
income have been earned by each share of common stock.

Formula :
▪ EPS = PAT/No.of share
▪ PAT = profit after tax
 EPS (EARNING PER SHARE) RATIO

In 2015
▪ EPS = 7624680/438119
= 17.40
In 2016
▪ EPS = 8789672/438119

▪ The EPS ratio is 20.06 PRs It means every share of the common stock
earns 20.06 PRs of net income
 EARNINGS RATIO

▪ Price earnings ratios (P/E ratio) measures how many times the earnings
per share (EPS) has been covered by current market price of an ordinary
share. It is computed by dividing the current market price of an ordinary
share by earnings per share.

Formula :

▪ Earnings ratio = market price per share /earning per share

 EARNINGS RATIO

In 2015
▪ Earnings ratio = 144.7/17.40
= 8.3
In 2016
▪ Earning ratio = 215.08/20.06
= 10.72
The price earnings ratio of the company is 10. 72It means the earnings per
share of the company is covered 10.72 times by the market price of its
share. In other words, PRs1 of earnings has a market value of PRs10.
 CAPITAL EMPLOYED RATIO

▪ It measures the success of a business in generating satisfactory profit on

capital invested. The ratio is expressed in percentage

Formula :
▪ Capital employed ratio = EBIT/capital implied x 100
▪ Capital employed = current asset – current liability + fixed asset – non
operating asset
 CAPITAL EMPLOYED RATIO

In 2015
▪ Capital implied = 31426342 – 6583476 + 42965101 – 12918182 –
24855796
= 30033989
▪ Capital implied ratio = 9828681/30033989 x 100
= 32.73%
 CAPITAL EMPLOYED RATIO

In 2016
▪ Capital implied = 30835521 – 10056634 + 52582744 – 17819005 –
57938 = 55484688
Capital implied ratio = 12611195/55484688 x 100
= 22.73%
▪ DGK has a return of 22.72. In other words, every PRs100 invested in
employed capital, DGK earns PRs 22.72.
 RETURN ON SHAREHOLDER FUND

▪ Return on shareholders’ fund ratio is a measure of overall profitability

of the business and is computed by dividing the net income after
interest and tax by average stockholders’ equity. It is also known as
return on total equity (ROTE) ratio and return on net worth ratio. The
ratio is usually expressed in percentage.

Formula :
▪ Return on shareholder fund = EAT/equity x 100
▪ EAT = earnings after tax
RETURN ON SHAREHOLDER FUND

In 2015
▪ Return shareholder fund = 7624680/62296071 x 100
= 12.24%
In 2016
▪ Return on shareholder fund = 8789672/65783429 x 100
= 13.36%
▪ The return on shareholders’ fund or return on equity (ROE) ratio of DGK
limited is 13.36%. It means for every PRs100 invested by shareholders’,
the company earns PRs13.36 after interest and tax
RETURN ON INVESTMENT RATIOS

35

30

25

20

15

10

0
EPS earning ratio capital employed ratio return on equity
2015 2016 Series 3
 CONCLUSION
▪ After applying all the ratios we got an idea that the
DGK cement Company is a profitable firm. Because
through out the analysis of two years, we found that
the company is getting profitable return on short
term and long term investment, their profit margin
has been increased as well and they are in the
position to pay their debts with in their resources.