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Submitted To:
Miss. Tasneem Zahir

Submitted By:
Zeeshan Saeed (9961) Syed Maaz Asad Ali Ahsen Mazher Sameer Saifuddin Nayan Ahmed

First and foremost, we would like to thank ALMIGHTY Allah for His help and granting us the ability to undertake this subject. It is by His Will that we have been able to complete our term report.

We are truly indebted to Miss Tasneem Zahir for giving us this incredible opportunity to gain tremendous understanding of RATIO ANALYSIS. She showed commendable gesture of believing in our potentials and guided us throughout the completion of this term report.

Table of Content

Executive Summary _________________________________________________ 5


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REFRENCES________________________________________________________________________ 24

Executive Summary
This report provides a brief overview about the company FAUJI FERTILIZER, its internal and external environment and analysis of its ratios. This report is basically based on the analysis of the LIQUIDITY ratios, LEVERAGE ratios, EFFICIENCY ratios, PROFITABILITY ratios and EQUITY ratios of the company. It further elaborates the company position with regards to these ratios and according to the data the company is very aggressive in nature and not having a good Liquidity and Leverage ratios, the working capital of the company is in negative, the inventory level of the company is very low the company having not enough inventory for any future emergency requirement and also the company has taken more debt which shows in its Balance sheet but company is very accurate and excellent in the Profitability ratios, efficiency ratios and equity ratios. They may have a strict and rigid credit policy which reflects in their collection period but the Company really effectively utilized its assets and money of the share holders and shareholders also getting the good returns. The return on assets and equity is excellent. The company has tremendous position and reputation in the market and the evidence is that the market value of its share keeps on increasing from Rs 59 to Rs 126 in the years from 2008 to 2010, So overall the company is doing well and rightly so the market leader.

Company Profile:
Corporate Vision
FFC's vision for the 21st Century remains focused on harmonizing the Company with fresh challenges and encompasses diversification and embarking on ventures within and beyond the territorial limits of the Country in collaboration with leading business partners.

Mission Statement
FFC is committed to play its leading role in industrial and agricultural advancement in Pakistan by providing quality fertilizers and allied services to its customers and given the passion to excel, take on fresh challenges, set new goals and take initiatives for development of profitable business ventures.

About Company:
FFC was incorporated in 1978 as a private limited company. This was a joint venture between Fauji Foundation (a leading charitable trust in Pakistan) and Haldor Topsoe A/S of Denmark. The initial share capital of the company was 813.9 Million Rupees. The present share capital of the company stands above Rs. 8.48 Billion. Additionally, FFC has more than Rs. 8.3 Billion as long term investments which include stakes in the subsidiaries FFBL, FFCEL and associate FCCL.FFC commenced commercial production of urea in 1982 with annual capacity of 570,000 metric tons. Through De-Bottle Necking (DBN) program, the production capacity of the existing plant increased to 695,000 metric tons per year. Production capacity was enhanced by establishing a second plant in 1993 with annual capacity of 635,000 metric tons of urea. In the year 2002, FFC acquired ex Pak Saudi Fertilizers Limited (PSFL) Urea Plant situated at Mirpur Mathelo, District Ghotki from National Fertilizer Corporation (NFC) through privatization process of the Government of Pakistan. It has annual production capacity of 574,000 metric tons urea which has been revamped to 718,000 metric tons urea in 2009. The largest urea manufacturing facility of Pakistan consisting of two ammonia/urea units owned by FFC is built at Goth Machhi in district Rahim Yar Khan. Goth Machhi is situated at a distance of 2 km from the main Lahore-Karachi highway and is adjacent to the main railway line. The two plants are based on natural gas from Mari Gas Fields and have an annual designed production capacity of 1.3 million tons of urea

Karachi Stock Exchange, Top 25 companies awards:

The company was listed on the Karachi Stock Exchange in 1991; FFC has consistently remained in the list of top 25 best performing companies of Pakistan consecutively for 14 years since 1994. As a result of excellent performance over the years, the company's ranking in the Karachi Stock Exchange list of 25 companies improved from fifth position in 1995 to second in 1996, it was awarded the first position in 1997 and again second prize in 1998. As of 2010, the company is at the 5th position.

Fertilizer Industries:

Fertilizers Limited Dawood Hercules Fauji Fertilizer Company Limited ICI Pakistan

History of Pakistan Fertilizer Industry:

The fertilizer sector in Pakistan currently comprises of 10 companies 4 of which are in the public sector (Hazara Phosphate Fertilizer (Pvt) Limited, Lyallpur Chemical & Fertilizer Limited, Pak Arab Fertilizer Limited, and Pak American Fertilizers Limited) while 6 are in the private sector (Engro Chemicals Pakistan Limited, Dawood Hercules Chemicals Limited, Fauji Fertilizer Company Limited and FFC-Jordan Fertilizer Company Limited, Pak China Fertilizer and Pak Saudi Fertilizer Company Limited now owned by FFC). Fauji Fertilizer Company Limited (FFC) is the largest fertilizer manufacturer in the country with a designed production capacity of 1,887 thousand tons of urea (including the production capacity of Pak Saudi Fertilizer). Fertilizer production is concentrated in nitrogenous fertilizers, which comprise 85% of all fertilizers produced in the country. The bulk of whose demand is imported. The main reason for this concentration on nitrogenous fertilizers is that its main raw materials i.e. natural gas, is cheaply available in the country. The raw material for other fertilizers such as potassium and phosphate has to be imported and thus local manufacturing is not economically viable as demonstrated by Fauji Jordan's problems.

The Fertilizer Sector before Privatization:

At the time of independence there were no fertilizer plants in Pakistan in spite of the fact that this country was largely agrarian. Recognizing the importance of proper use of fertilizer on agricultural production various governments in the past have made conscious efforts to attract foreign investment in this sector.

Fertilizer Sector after 1990's:

The first plant to be privatized was Pak-China Fertilizer, which was bought by the Schon Group in 1992. After this the process of privatization became very slow largely due to the political instability, which plagued the 1990s.Another factor that affected the fertilizer sector in the 1990's was the shift of the GOPs emphasis towards the energy sector. It started with the Fertilizer Policy of 1989, which fixed prices for new plants for 10 years and subjected old plants to rising feed stock prices. Also the 1990's saw the gradual decrease in the fuel gas subsidy provided to the sector.

Recent Regulatory Changes in Fertilizer Industry:

SECP has developed a Cost Accounting Draft:

The Securities and Exchange Commission of Pakistan has developed and issued notification for draft of Fertilizer Industry (Cost Accounting Records) Order, 2011, vide SRO 852/I/2011, for the chemical fertilizer industry to facilitate maintenance of records by the companies engaged in production and manufacture of fertilizer. Fertilizer companies are required to maintain such cost accounting records including all particulars relating to utilization of material, labor or other inputs of items of cost as would be necessary. The aforesaid draft is issued in exercise of powers conferred by clause (e) of sub-section (1) of section 230 read with section 246 of the Companies Ordinance, 1984, and section 43 of the Securities and Exchange Commission of Pakistan Act, 1997. It has been emphasized that regulatory apparatus at the SECP intends to foster efficiency and investment by eliminating outdated restrictions and promoting sustainable growth. The SECP strives to make right regulations in the interest of the industry, as a whole and also in the interest of the other stakeholders. Cost audit can provide relevant and credible cost and revenue data to the stakeholders to support their decisions. Cost audit mechanism acts as a measure of efficiency and performance. It can serve as an important tool for effective enterprise governance, competitiveness and strengthening the regulatory mechanism.

SECP issues industry-specific cost orders with specialized guidelines:

The SECP had issued the Cost Order 2008 requiring five sectors, .i.e. fertilizer, thermal, energy,

petroleum refining, natural gas and polyester fiber to maintain the cost accounting records and have said accounts duly audited. However, the said order was devoid of specific reporting formats/guidelines, therefore the industries each having unique nature of cost components and reporting structure, were facing practical difficulties in complying with the requirement of said order. It may be noted that these sectors were in addition to the three sectors .i.e. sugar, cement, vegetable ghee and cooking oil which are already complying with statutory requirements of maintaining and auditing the cost records.


Political Trend:
Political trend is always in favor of this industry. The government has always provided following incentives under Fertilizer Policy 2001 to encourage fertilizer production in the country.

1) To fulfill local demand of fertilizers at affordable prices, the government is providing subsidy on production and import of fertilizers. 2) Investors will be allowed to relocate second hand plant, equipment and machinery, with the same concession as applicable to new plants. 3) The government is providing concessionary feed stock gas to the fertilizer plants for production of urea. 4) Import of manufacturers of Rock Phosphate and Phosphate of fertilizer free of customs duty. 5) Tax relaxation has been offered by the Government.

Economical Trend:
One of the main sectors of economy is Agricultural as it contributes 22% to the GDP and without Fertilizer industry this sector would not able to work. Due to that Government always gives support to the fertilizer industry.

Export Benefit: To reduce the dependence on imported fertilizers by enhancing the local production capacity. The Government is providing subsidy on production and import of fertilizers, a massive subsidy so RS: 27 BILLION in the supply of UREA.

Technological Trend:
To meet the demand of fertilizers in the country through indigenous production, self reliance in design engineering and execution of fertilizer projects is very crucial. This requires a strong indigenous technological base in planning, development of process know how, detailed engineering and expertise in project management and execution of projects.

The fertilizer plant operators have now fully absorbed and assimilated the latest technological developments, incorporating and friendly process technologies and are in a position to operate and maintain the plants on International standards in terms of capacity utilization, specific energy consumption and pollution standards.

Environmental Trend:
Chemical fertilizer in the form of salts, when added to soils gets converted into ionic forms after dissolving in the soil solution. They are relatively safer than pesticides which exhibit toxic properties on living systems, however all the quantities of Fertilizers applied to the soil are not fully utilized by plants. About 50 % of fertilizers applied to crops are left behind as residues. Though, inorganic fertilizers are not directly toxic to man and other life forms, they have been found to upset the existing ecological balance.

Demographical Trend:

At present, eight children are born every minute in PAKISTAN. As Pakistan is a developing country with limited ability to feed their growing populations or import food. Application of chemical fertilizer to soil systems for increasing production and maintaining soil fertility has been essential to increase food production and will be essential in future.

FFC Business Environment:

Sustainability of environment has always been the prime concern of FFC.

Internal Environment:
The FFC Management, acknowledging the importance of human resources has always placed personnel management at the top of its priority list. The Human Resources Department, therefore, right from the inception of the Company has played a vital role in steering the Company through all its phases, operations and progress. Hiring quality manpower, keeping them happy, satisfied and motivated are the pillars of the Human Resources Department; justice, fair play and merit oriented treatment are some of the ingredients of processing cases by the Human Resources Department.

External Environment:
There are several factors of external environment that directly and indirectly effects the production.

Political Factor:
The political trends are always in favor of this industry. To fulfill local demands of fertilizers at affordable prices, the government is providing subsidy on production and import of fertilizers. The government is providing concessionary feed stock gas to the fertilizers plants for production urea. Tax relaxation has also been offered by the Government. Export benefit to suppliers of capital goods for new projects of fertilizers.

Economic Factor:
Economic factors affect the purchasing power of potential customers and the firms cost of capital. One of the main sectors of the economy is agricultural as it contributes 22% of the GDP and without fertilizer industry this sector would not able to work. Due to that government always gives support to the fertilizer industry. Export benefit has been given to reduce the dependence on imported fertilizers by enhancing the local production capacity. Ban on export of fertilizer is also imposed so that economic stability would be gain.

Social Factor:
Although the adverse effects of this industry is very high because of the improper handling of the waste. Due to this, many diseases like asthma, kidney diseases, hepatitis etc are caused. The Government discourages the operation within the city by charging these factories with environmental charges.

Technological Factors:
To meet the demand of the fertilizers in the country through indigenous production, self-reliance in design engineering and execution of fertilizer projects is very difficult. This requires a strong indigenous technological base in planning development of process know-how, detailed engineering and expertise in project management and execution of projects.





Current Ratio Quick Ratio Total Debts to Total Assets Times Interest Earned Funded Debts to Net Working Capital Average Collection Period (Days) Inventory Turnover (Days) Total Assets Turnover Net Worth Turnover Net Work Cap Turnover Net Profit Margin Return on Total Assets Return on Net Worth Return on Net Working capital Price to earning Dividend yield Dividend payout

0.84 0.71 61.00% 14.20 -114% 3 2 1.04 2.9 24.57% 25.61% 71.40% 7.75 10.32% 58.45%

0.84 0.66 66.06% 13.20 -156% 3 1.5 0.94 2.8 24.39% 22.89% 67.44% 7.92 12.77% 73.13%

0.82 0.54 61.51% 14.00 -254% 6 3 0.96 2. 5 21.38% 20.44% 53.11% 6.10 23.41% 79.11%

Book value per share





Liquidity ratios:
Current Ratio:

If we look at the current ratio of the company from 2008 to 2009 its increase from 0.82 to 0.84 times, this shows that Fauji fertilizer in 2008 did not have the current assets to pay off its current liabilities and in 2009 although its ratio increases but it still under 1 which shows that they could not increase their current assets because their short term financing increases, then from 2009 t0 2010 its ratio remain same that is 0.84 times because the inventories and receivables both decreases but simultaneously they decreases their short term financing which kept the ratio same. The ratio is under 1 throughout the year is because of they are using very aggressive approach, their inventories are decreasing, short term financing increasing, payables increasing, cash is decreasing. Quick Ratio:

If we talk about the quick ratio, from 2008 to 2009 its increases from 0.54 to 0.66 times although the ratio increases but its under 1 and that shows that company is not in a good position as far as liquidity ratio concern, then from 2009 to 2010 its ratio again increases from 0.66 to 0.71 times but again its remain under 1 because throughout the years companys current assets are lower that its current liabilities. in quick ratio company exclude the inventory from current assets because many firms face difficulty to turn them into cash, but as the companys current assets are lower than the companys current liabilities so quick ratio remain under 1 for the three years.

Leverage Ratios:

Total Debt to Total Asset Ratio:

In this ratio, from 2008 to 2009 the ratio increases from 61.51% to 66.06%, this ratio basically tells us that how much companys assets are debt financed as the companys debt in 2008 is Rs 19634 million that increased in 2009 to Rs 25469 million due to which the ratio increases but the higher the leverage the higher the risk and 66.06% means that company has taken too much debt yet remember that they did not have enough current assets to pay off their short term or current liabilities so thats a great risk for the company so in 2010 they pay off certain liabilities like they decreased long term debt as well as reduced the short term financing so the ratio transform to 61% thats why in 2010 the companys cash decreased from Rs 3849 million to Rs 1189 million. Time Interest Earned:

In this ratio from 2008 to 2009 the ratio decreases from 14 to 13.2 times because in 2009 their EBIT (Earnings before Interest and Tax) shoot up from Rs 9690 million to Rs 12474 million which reduces the ratio but in 2010 the ratio again increased from 13.2 times to 14.4 times because although the EBIT increases but from 2008 to 2010 the interest expense increases from Rs.685 million to Rs 1087 million which is because of they have taken a lot of debt. Funded Debt to Net Working Capital:

In this ratio company is in the worst position because the net working capital is in negative that is Rs 2114 million so in 2008 the ratio is 254% that means their net working capital is not enough to pay the long term then in 2009 the company reduced its long term debt so ratio becomes 156% still company is not able to pay the funded debt by the net working capital then in 2010 company reduced more long term debt which decreased the ratio to 114% but throughout the years the ratio remains in negative that shows that they do not have enough current assets to pay out the current liabilities so how they can pay out the long term debt.

Efficiency Ratios:

Inventory Turnover:

If we talk about the Inventory turnover ratio, so from 2008 to 2009 its ratio decreases from 3 days to 1.5 days, and then in 2010 they continue their efficiency and the ratio just becomes 2 so they take just 2 days to convert their inventory into sales, this shows that company is very efficiently converting its inventory into sales. The ratio is very low because the company has very low percentage of inventory in assets that is 0.008% so thats why they take minimum time in converting them into sales. Total Asset Turnover: In asset turnover ratio, from 2008 to 2009 it decreases from 0.96 to 0.94 times, its bad that the company ratio decreases. In 2008 the company could not able to convert their asset into sales effectively and they continued the same performance and ratio further decreased But then the ratio went above 1 in 2010 that is 1.04 times now the company took certain actions which caused the assets turnover ratio positively, which shows that the company effectively converting its assets in to sales. Collection Period: The collection period is so strict, because in 2008 the ratio is 6 days thats mean within 6 days they collect their money from their customers and then in 2009 the ratio became 3 days, this conclude they further more limited their collection period and reduced the collection period. They strict and rigid their credit policies and that can affect the company in a negative sense but they continue with their same policies which maintain the company ratio in 2010 that is 3 days. The company is happily doing with this credit policies but that an bring the negative aspects that may be this affect on sales and profits. Net Working Capital Turnover:

The company having the negative working capital so since they do not have the working capital so how they can convert them into sales, they do not have working capital funds to generate sales, throughout the years, from 2008 to 2010, the company having working capital in minus.

Equity Turnover:

If we look at the equity turnover ratio, in 2008 it is 2.5 times that means they are utilizing their stock holder equity efficiently. Then in 2009 company continue its good performance and the ratio increases to 2.8 times which shows that the company is really doing well in converting their stock holder money into sales and similar case in 2010 the ratio increases to 2.9 times so over the three years the equity ratio increases from 2.5 times to 2.9 times that gives the evidence that how effectively company utilizing its stock holder equity.

Profitability Ratios:
Profit Margin: If we look at profitability ratios, in 2008 the ratio is 21.38% and its a good profit margin and then in 2009 the ratio increases to 24.39% this shows that company really controlled its cost and expenses which leads to higher profit margin in 2009, as we can see that the rate of increment of gross profit is 44% and the rate of increment of expenses and cost is 34% in 2009 so what they did, they minimized the rate of increment of expenses and maximized the rate of increment of gross profit and with the help of this strategy the companys ratio in 2010 increases to 24.57%.

Return on Assets: (ROA)

In 2008 the ratio is 20.44% which is a healthy return in nature, as we move further to 2009 the ratio increases from 20.44% to 22.89% which shows that the company really effectively using their assets. The return the company is getting on their total assets has increased in 2009 because of the effective utilization of the assets and they continue their remarkable performance and in 2010 the ratio increased to 25.61% that shows the company getting the higher returns on their total assets. Return on Equity: (ROE)

In this ratio, we will see whether the company generating profit from the money of shareholder or not, so if we look at the ratio of 2008 it is 53.11% thats a very healthy return so the company is very smart in using its shareholder money. In 2009 the companys best performance continues, the ratio in 2009 increased to 67.44% and same performance in 2010 the ratio increased to 71.40% so the company taking a great care of its shareholders money, the company is really getting the higher returns of its equity.

Equity Ratios:
Price to Earnings Ratio: If we look at P\E ratio, in 2008 the ratio is 6.10 which shows that the investors are willing to pay a good price for companys share and in 2009 the ratio increased to 7.92 that indicates that the investors are willing to pay more for the companys share and in 2010 the ratio slightly decreased to 7.75 so overall investors found FFCs common stock a very attractive investment and they are willing to pay more may be because of the company reputation and ROE. Dividend Payout:

If we look at the dividend payout ratio in 2008 the ratio is 79.11%, which shows that the 79% of earning is able to pay out the dividends then in 2009 the ratio declines to 73.13% but still its a healthy ratio and in 2010 further it declines to 58.45% which shows that the ability of earnings to pay out the dividends is declining throughout the years but still the company has enough earning to pay out its dividend holders still 58.45% of earning is able to pay out the dividends. Dividend Yield:

In 2008 the ratio is 23.41% that shows the dividend holders are getting good return against the price that they have invested in the shares then in 2009 the ratio decreased to 12.77% this is because the market price has increased and in 2010 the ratio further declined to 10.32%, throughout the years the ratio is in a declining stage because throughout the years the market price of shares has increased from Rs 58.73 to Rs 125.86 Book Value per Share:

Book value per share basically determine the level of safety that what amount will common share holder get when all the assets are liquidated and all the debtors are paid so in 2008 the book value per share is Rs 18.11 and in 2009 it increased 1o Rs 19.27 so owners of common shareholder would be happy because of this increment and in 2010 it again increased to Rs 22.76 so the amount that shareholders will get keeps on increasing. Market Value per Book Value per Share:

In 2008 the ratio is 3.24 then in 2009 the ratio increased to 5.34 and the ratio further increased in2010 that is 5.53 so throughout the years the ratio keeps on increasing which shows that the companys shares are valued in the market. The company has an excellent reputation in the market.


In million

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In terms of liquidity ratio, the company is in a very bad position. Its liquidity position is not at acceptable level. Its current assets are lower than the current liabilities that mean company has to take more debt to pay off its current liabilities. They are using very aggressive approach; they are not maintaining their inventories for any emergency situation and really have lower current ratio with an increasing short term financing. The company in leverage terms is not good because they have taken 65% of assets on debt so company having moderately high risk secondly they do not have net working capital to pay out the funded debt and also they do not have current assets to pay put the current liablities so company is in a worst position. But 1 thing is positive that their TIE ratio is good because they have high EBIT because their COGS is low.

Overall average performance because inventory turnover is excellent, equity turnover also going well but no contribution of net working capital into sales and same as the case with the total assets. The company performance in profitability ratios is marvelous they are really getting higher returns on assets and equity and getting high profit margin. Because they are very efficiently using their stockholder money and companys assets. The company performance in Equity ratio is also good, P\E ratio is very good throughout the years its increasing but the Dividend payout ratio is not at a good track because its declining throughout the years. The company book value per share and Market value per share both are fantastic because the company has a excellent reputation in Market Overall company at its best, it terms of liquidity ratio they are very aggressive and same case with its leverage ratios but when it comes to efficiency ratios the company at its best and also company in profitable ratios also marvelous and also they have maintained the equity ratio portion. The company in the market is at its best because of their efficiency ratios, profitability ratios and equity ratios. The company having high reputation in the market this thing reflects in their Equity and Profitability ratios.


About Liquidity:
The company should increase its current assets against the current liabilities because for a good company assets should greater than the liabilities they can increase their assets by storing more inventory, increases receivables, increasing cash sales and can work on the marketable securities.

About Net Working Capital:

The company having working capital negative, so the company has to increase the current assets or decreases the liabilities. The company using a aggressive approach, the company has taken long term debt a lot and also short term financing, the company has to decrease that or try to increase the assets.

About Collection Period:

The company may having very strict credit policies which can affect the company in a negative way such as loss of customers and that should be avoided because as the data shows the collection period reduced to 3 days so it is a very little time period for the customers who purchases on credit so company should bring leniency in its credit terms and policies that will definitely attract more customers which increases the sales and receivables.

About Inventory:
Company is using very aggressive approach it is right the higher the risk then higher the returns but company is maintaining very low amount of inventory and company can suffer on any emergency period so company should increase the inventory level for just a safe side if any emergency or opportunity comes so company would able to tackle the situation or manage the emergency or grab the opportunity.