Profitability Ratio Analysis Of Fertilizer Companies

By Muhammad Mohsin
SP13-RBA-48

MBA Project Report

In
MBA 1.5 years

COMSATS Institute of Information Technology

Virtual Campus - Pakistan

3rd Semester Spring-2014

COMSATS Institute of Information Technology

PROFITABILITY RATIO ANALYSIS OF FERTILIZER
COMPANIES

A Project Report Presented to

COMSATS Institute of Information Technology, Virtual Campus
In partial fulfillment of the requirement for the degree of

MBA (1.5 years)

By
Muhammad Mohsin
CIIT/SP13-RBA-048

Semester 3rd Spring-2014

PROFITABILITY RATIO ANALYSIS OF FERTILIZER

COMPANIES

__________________________________________
A Post Graduate Project Report submitted to the Department of Business
Administration as partial fulfillment of the requirement for the award of Degree
of MBA (1.5).

Name
MUHAMMAD MOHSIN

Registration
SP13-RBA-048

Supervisor
Mr Tanveer Ahmed
Lecturer
COMSATS Institute of Information Technology (CIIT)
Virtual Campus, Islamabad.
July, 2014

Final Approval
_______________________________________________

This Project Report titled

PROFITABILITY

RATIO

ANALYSIS

FERTILIZER COMPANIES
By

Muhammad Mohsin
SP13-RBA-048
Has been approved
For the COMSATS Institute of Information Technology,
Virtual Campus, Islamabad
Supervisor: Mr Tanveer Ahmed
Lecturer
Business Administration/ CIIT Virtual Campus

HoD : Shazia Bilal

Lecturer
Business Administration/ CIIT Virtual Campus

Declaration

OF

I Muhammad Mohsin SP13-RBA-048 hereby declare that I have produced

the work presented in this Project Report, during the scheduled period of
study. I also declare that I have not taken any material from any source
except referred to wherever due that amount of plagiarism is within
acceptable range. If a violation of HEC rules on research has occurred in
this Project Report, I shall be liable to punishable action under the
plagiarism rules of the HEC.

Date: 30-July-2014

Signature of Student:
_____________________
Muhammad Mohsin
SP13-RBA-048

Certificate

It is certified that Muhammad Mohsin (SP13-RBA-048) has carried out all the work
related to this Project Report under my supervision at the Department of Business
Administration, COMSATS Institute of Information Technology, Virtual Campus
Islamabad and the work fulfills the requirement for award of MS degree.

Date: 30-Jul-2014
Supervisor:
____________________

Mr Tanveer Ahmed
Head of Department:
______________________

Shazia Bilal
Lecturer
Business Administration

DEDICATION
Dedicated to my parents who always encouraged me in every turn of life and taught me to live
with patience and blessed with her prayers my friends and my colleagues at SBP who remained
very help full to me to accomplish the work in a short period of time to submit this project.

ACKNOWLEDGEMENTS

I am very thankful to my almighty Allah. Who blessed me a lot and bestowed me the
strength, hope and patience that keep me motivated to complete the project in a very short
period of time. Without his blessing it was impossible for me to complete this project
timely. I am very thankful to my Allah.
I would also like express my sincere and deep thankfulness to my parents, brother as well
as my friends and my colleagues at SBP. They all supported me a lot in moral sense and
technical aspects.
I am very thankful to virtual university who encouraged me to restart the project specially
Mr Tanveer Ahmed Lecturer CIIT, who encouraged me through emails and telephone and
gave a prompt response to my queries. Such personalities of the university are really the
asset of vu. I am very thankful to him again.

Contents
PROJECT SUMMARY..........................................................................................................11
2. Introduction of the Project:...............................................................................................12
3. Introduction of the Companies:..........................................................................................14
3.1 Fauji Fertilizer Co. Ltd.................................................................................................14
3.2 Pak Arab Fertilizers......................................................................................................15
3.3 Wah Nobel Chemicals..................................................................................................15
4. Description of the Project....................................................................................................16
6. Objectives:..........................................................................................................................17
7. Significance:.......................................................................................................................17
8. Literature View:...................................................................................................................17
9. Project Proceedings...........................................................................................................19
10. Data Collection Sources...................................................................................................19
11. Data Processing and Analysis Tools.................................................................................19
12. Ratio Analysis...................................................................................................................20
13.C O N C L U S I O N:.......................................................................................................50
14.RECOMMENDATIONS...................................................................................................50

PROJECT SUMMARY
This Project is to analyze Profitability ratio of the three companies listed in the stock
exchange in fertilizers sector. The companies which will be under study in this project of
Profitability ratio analysis for the financial period of 2010, 2011 and 2012 are as under.

Fauji Fertilizer Co. Ltd.

Pak Arab Fertilizers Co .Ltd.

Wah Nobel Chemicals

The core objective of the project is to analyze the Profitability position of the companies and
to identify the company which is effectively managing and efficiently utilize its assets. To
analyze companies is compulsory requirement of MBA Finance for me and also for the
stakeholders, general readers and students as well.

Project is being planned to produce in tabular and graphical forms and will be supported by
essential working and interpretations. Various site, books and journals have been consulted
to accomplish the work of this project. References have been mentioned at the end of the
project in the shape of bibliography.

2. Introduction of the Project:

The Economy of Pakistan is based on Agriculture, agriculture plays very important role in
the

growth of the economy of Pakistan, it is very helpful to generating revenues, foreign

10

exchanges as well as development of the industrial sector of Pakistan, with the help of this
sector it provides raw material to the concerned industries, like food, cotton, sugar etc, it
plays as backbone of the Pakistans economy.
The fertilizers are to help the agriculture to growth and development, with the help of
Fertilizers agricultures will meet the demand of the food and to achieve to sufficiency.
According to the importance of the fertilizer I have to choose to work on the fertilizer
companies and I have selected three (3) companies for my project to analyze the
Profitability ratios of companies which are shown below.

Fauji Fertilizer Co. Ltd.

Pak Arab Fertilizers Co.Ltd.

Wah Nobel Chemicals.

11

3. Introduction of the Companies:

3.1 Fauji Fertilizer Co. Ltd.
With a vision to acquire self - sufficiency in fertilizer production in the country, 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.
FFC participated as major shareholders in a new DAP/Urea manufacturing complex with
participation of major international/national institutions. The new company Fauji Fertilizer
Bin Qasim Limited (formerly FFC-Jordan Fertilizer Company Limited) commenced
commercial production with effect from January 01, 2000. The facility is designed with an
annual capacity of 551,000 metric tons of urea and 445,500 metric tons of DAP, revamped
to

670,000 metric tons of DAP.

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.
This acquisition at Rs. 8,151 million represented the largest industrial sector
transactions in Pakistan at that time.

12

3.2 Pak Arab Fertilizers.

Pak Arab Fertilizers Limited was established as a result of protocol concluded and signed on
November 15, 1972 by the Government of Pakistan to further strengthen and develop
fraternal ties between Islamic Republic of Pakistan and State of Abu Dhabi.
A Memorandum of Understanding was concluded between Pakistan Industrial Development
Corporation (PIDC) and Abu Dhabi National Oil Company Limited (ADNOC) on
March 7, 1973. A participation agreement emerged on November 1, 1973 to establish a joint
venture for the expansion and modernization of the old Natural Gas Fertilizer Factory
(NGFF) at

Multan.

The Company was incorporated on November 12, 1973. Subsequently, PIDC assigned 52%
of its shares to National Fertilizer Corporation (NFC) of Pakistan and ADNOC assigned
48% of its shares to International Petroleum Investment Company, with a paid-up capital of
PKR743.061 million.
Under the privatization policy of Government of Pakistan, Pak Arab Fertilizers Limited was
privatized on July 14, 2005 at a cost of Rs.14.125 billion. It was acquired by a consortium of
Fatima Group and Arif Habib Group.
Under the new management, Pak Arab Fertilizers Limited has undergone extensive
modernization and new improved processes have been introduced to maximize the output
while minimizing the negative impacts on the environment. For this a Clean Development
Mechanism (CDM) plant was installed, which is the first project of this kind in Pakistan.
Basic aim of this project is the abatement of N2O and NOX emissions from the stack gases
of Nitric Acid plant. The reduction of green house effect of these gases shows the new
management's commitment towards a cleaner environment.
Pak Arab Fertilizers Limited is located at Khanewal Road, Multan. The site area comprises
302 acres,

which includes area for the factory and the housing colony with all amenities

including medical centre, school, management and staff clubs for recreation of employees
and their families, etc.
3.3 Wah Nobel Chemicals

13

Founded in 1962, Wah Nobel is a joint venture between Saab Sweden, Almisehal Saudi
Arabia and the Pakistan Ordnance Factories.
For more than five decades Wah Nobel has stood as a symbol of safety, reliability,
service and commitment, Wah Nobel's products enjoy the highest reputation in Pakistan
and abroad. This has been achieved through innovation, experience, state-of-the-art
technology and a vision for the future.
Wah Nobel is fully committed to a policy that ensures a consistent supply of quality
products and services at competitive prices.

4. Description of the Project.

Executive Summary
Table of Contents
Section I
1) Introduction
2) Introduction of the Project
3) Introduction to the company
4) Financial Period Under-Consideration for analysis 2010 , 2011 & 2012
5) Objective
6) Significance

5. Financial Period Under-Consideration for Analysis:

The financial years for ratio analysis under consideration are
2010, 2011 and 2012.

14

6. Objectives:

i.

To examine the ability of selected companies to earn profit over a period of time

ii.

To examine the selected companies efficiency in managing their resource for

generating profit

iii.

To find out the reasons for generating profit over the years for selected companies

iv.

If in any year, any of the three selected companies is facing loss, then to find out the
reasons of losses

v.

To find out that how effectively selected companies are maximizing their profits by
controlling their costs/expenses

7. Significance:

It is significant for me as I have to perform the activities for this project to submit the research
work assigned to me. After research on the project I will be able to solve the problems
regarding the profitability of the companies. and it is significant for other stakeholders
according to my

view that the project will be helpful for the Investors, creditors and

debtors as well as management and I will inform with the help of this project that profitability
of the companies and the financial position, I selected this topic because many debtors have
concern regarding

full information of the companys profitability. With the help of this

project I will briefly convey the information to them.

8. Literature View:
Operating cash flows generate by assets will affect continuing firm liquidity. It is not only
because of the value of liquidation (Soenen, 1993). Firms with fewer current assets will having
problem in continuing their operations while if the current assets are too much, it shows the
return on investment is not in perfect condition. (Horne and Wachowicz, 2000). Since optimum
cash levels are influenced by the factors outside the preventive concept of treasury, the
company must think broad and take serious operational decisions on how to the profit
opportunities that is available in cash flow process.
15

Organization to concern on this because, if they need to sell inventory, they also need a
customer to buy that inventory. (Chinmoy Gosh 2009).
The economics and finance literature analyze four possible reasons for firms to hold liquid
assets; the transaction motive Miller and Orr 1966, the precautionary motive Opler, Pinkowitz,
Stulz, and Williamson 1999, the tax motive Foley, Hartzell, Titman, and Twite 2007 and finally
the agency motive Jensen 1986. Analysts use liquidity ratios to make judgments about a firm,
but there are limitations to these ratios. The liquidity of a firm's receivables and inventories can
be misleading if the firm's sales are seasonal and or the firm uses a natural business year
(Gibson, Charles H. 1991 Financial Statement Analysis p.261 Cincinnati, OH: South-Western
College Publishing).
According to many university researchers (Basno & Dardac, 2004), the required liquidity for
each business depends on the balance sheet situation of the business. In order to evaluate the
liquidity state, special importance is held by the way in which there are classified
organizational assets and liabilities (Basno & Dardac, 2004). Liquidity risk is seen as a major
risk, but it is the object of: extreme liquidity, "security cushion" or the specialty of mobilizing
capital at a "normal" cost (Dedu, 2003)

16

9. Project Proceedings

1. Data Analysis
Ratio Analysis
1.

Net Profit Margin

2.

Return on Assets

3.

DuPont Return on Assets

4.

Operating Income Margin

5.

Operating Assets Turnover

6.

Return on Operating Assets

7.

Sales to Fixed Assets

8.

Return on Total Equity

9.

Gross Profit Margin

10. Data Collection Sources.

Primary Source annual reports collected from their official web sites.

11. Data Processing and Analysis Tools

In this project I will use the following Software for analyzing data.
1. Calculator
2. MS Office
3. Internet

17

12. Ratio Analysis

Net Profit Margin

NET INCOME / NET SALES*100

A ratio of profitability calculated as net income divided by revenues, or net profits divided
by sales.

It measures how much out of every rupee of sales a company actually keeps

in earnings.
Tabular Representation
Company Name
FFC

Year 2010
Year 2011
Year 2012
11,028,849,000.00 / 22,492,053,000.00 / 20,839,723,000.00
44,874,359,000.00

55,221,168,000.00 * 74,322,612,000.00

*100 = 24.58
100 = 40.73
3,231,962,000.00/ 4,590,139,000.00
Pak Arab

Wah Nobel

*100 = 28.04
/ (239,788,000.00)

/
*

18,247,829,000.00

16,700,794,000.00

8,136,158,000.00

*100 = 17.71
75,991,071.00

*100 = 27.48
64,294,152.00

100 = (2.95)
73,733,383.00

/ 712,677,204.00

/ 698,678,000.00

/ 1,147,501,226.00

*100 = 10.66

*100 = 9.20

*100 = 6.43

GRAPHICAL REPRESENTATION/TREND ANALYSIS

18

INTERPRETATION.
The net profit margin for 2010 of Fauji Fertilizers is 24.58; this is

good sign for the

company. If this ratio increased then the strength of the companys profit will be increased.
It shows that company is out of risk of declined sale.
Having 40.73 net profit margin for the year 2011 Fauji Fertilizers company has increased
the ratio from the 24.40 to 40.73, it shows the company is in good earning position in
comparison to last year.
In the year 2012 Fauji Fertilizers has 28.04, net profit margin though company seems good
in this year but sales of the company are not better than the last year and the earning
position of the company in comparison to last year is not good.

The net profit margin for the year 2010 of Pak Arab Fertilizers is 17.71 it shows that the
sales of the

company are not suitable /up to the mark.

19

In the year 2011 net profit margin of Pak Arab Fertilizers is 27.48, in this year the company
has

improved its net profit margin, it means the company is in good position of earning.

The net profit margin for the year 2012 of Pak Arab Fertilizers is 27.79, in this year the
company has slightly increased its net profit margin in comparison to last year which is
better for earning, as the ratio is better than last year.
The net profit margin for the year 2010 of Wah Nobel Chemicals is 10.66, in this year the
company fall the ratio indicates that net income of the company is not better in comparison
to the net sale though net sales were more than net income so being net sales in denominator
decreased the net income. This shows that the expenses remained on high side which
declined the net income.
The net profit margin for the year 2011 of Wah Nobel Chemicals is 09.20; accordingly the
company has decreased the net income, so that the ratio is decreased from 10.66 to 9.20.
Same trend of net income and net sales remained intact means the net income declined in
comparison to net sales.
The net profit margin for the year 2012 of Wah Nobel Chemicals is 06.43; accordingly the
company has decreased the net income, so that the ratio fallen from 10.66 to 06.43 in three
years. Same declining trend of net income remained intact whereas net sales also increased
this year too. It reveals that the company has costs that have increased at a greater rate than
sales, which leads to a lower profit margin. This is an indicator that costs need to be under
better control.
As the higher the net profit margin ratio is known better. From the above calculations and
graphs it can be determined that the net profit margin of the FFC remained better in
comparison to other companies.

Return on Assets

20

Return on Assets = Net Income Before Tax *100/TOTAL ASSETS

An indicator of how profitable a company is relative to its total assets. ROA gives an idea as
to how efficient management is at using its assets to generate earnings. Calculated by
dividing a company's annual earnings by its total assets, ROA is displayed as a percentage.
Sometimes this is referred to as "return on investment".
Tabular Representation.
Company Name

Year 2010
16,309,849,000.00
*100

FFC

Pak-Arab

/ *100

Year 2012
31,020,723,000.00
/ *100

43,060,856,000.00

55,530,916,000.00

60,886,853,000.00

=37.88

=59.73

=50.95

4,695,722,000.00

6,310,681,000.00

(895,536,000.00)

*100 /

*100

50,637,407,000.00

65,340,926,000.00

54,636,251,000.00

= 9.27

=9.66

= (1.64)

117,002,505.00

97,843,544.00

116,967,604.00

*100
Wah Nobel

Year 2011
33,166,053,000.00

/ *100

/ *100

/ *100

496,725,611.00

521,530,808.00

620,790,964.00

=23.55

=18.76

= 18.84

GRAPHICAL REPRESENTATION/TREND ANALYSIS

21

INTERPRETATION.
Return on assets for the year 2010 of Fauji Fertilizers is 37.88, this shows the efficient usage
of assets to generate profit.
59.73 Return on assets for the year 2011 of Fauji Fertilizers show that the company has
managed very best in comparison to last year ROA such increase in the ratio indicates that
management has very efficiently used the assets of company.
50.95 Return on assets for the year 2012 of Fauji Fertilizers show that the company has
managed better but has declined the ratio in comparison to last year. Though ROA has
declined in comparison to last year but it is better than the same of 2010. We can say it the
efficient usage of the assets of company.
The return on assets for the year 2010 of Pak-Arab Fertilizers is 9.27, the company has low
ratio than the other companies it indicates that the management of the company does not
utilize the assets of the company to generate the profit efficiently.
22

The return on assets for the year 2011of Pak-Arab Fertilizers is 9.66, in this year the
company has slightly increased the ratio from the last year i.e. 2010, but trend of not
utilizing the assets for generating the profit of the company management does not shows
any significant change this year.
The return on assets for the year 2012 of Pak-Arab Fertilizers is (1.64), in this year the
company has worsen the ratio. Trend of not utilizing the assets for generating the profit of
the company management has been raised up to the dangerous level .In such state of affairs
the investors would not like to invest in the company. The companys trend of the
inefficient use of

company assets was increasing in each subsequent year.

Return on assets for the year 2010 of Wah Nobel Chemicals is 23.55 the management of the
company position is good and indicates the efficient usage of the assets by the management
of the company.
Return on assets for the year 2011 of Wah Nobel Chemicals is 18.76, in this year the
companys ratio declined and shows the least interest of the management of the company
regarding efficient usage of the assets of the company.
Return on assets for the year 2012 of Wah Nobel Chemicals is 18.84, in this year the
companys ratio slightly increased which is not a significant change in comparison to the
last year. Still company requires the attention of management regarding its efficient usage of
the assets.
From the above calculations and graphs it is obvious that the return on assets of Fauji
Fertilizers remained best of the other companies i.e. 37.88 to 59.73& 50.95 for the year
2010,2011&2012 respectively.

Normal ROA should be between 10 to 15 percent. If

companies are not based upon the assets ROA can be much higher. If ROA goes very high
side, it is the indicator to the company, if it Worth to receive more investments in to the
assets if there is potential to increase market share and maintain the same profitability. The
23

position of the Pak Arab Fertilizers remained below the normal ROA during all the years
under review. This shows that the company s management does not utilize the assets
efficiently to generate the earnings. Fauji Fertilizers Company also remained over the
normal values during the whole period.

DuPont Return on Assets

(NET INCOME/SALES)X(SALES/TOTAL ASSETS)X100
Return on assets (ROA) is a percentage of the after-tax income as compared to the total
assets of the company. Management at Du Pont came up with Return on Assets (Du Pont),
an approach that determines the impact of asset turnover and profit margin on profits. This
interactive tutorial explains the concept by walking you through the calculations, including
where to find the numbers on the financial statements.
Tabular Representation
Company Name

FFC

Year 2010
(11,028,849,000.00/

Year 2011
(22,492,053,000.00

Year 2012
/ (20,839,723,000.00

44,874,359,000.00)* 55,221,168,000.00)

74,322,612,000.00)

(44,874,359,000.00/

*(55,221,168,000.00 / *(74,322,612,000.00 /

43,060,856,000.00) 55,530,916,000.00)

Pak-Arab

60,886,853,000.00)

*100 = 25.61
*100 = 40.50
(3,231,962,000.00 / (4,590,139,000.00/

*100 = 34.23
((239,788,000.00)

18,247,829,000.00)* 16,700,794,000.00)

/8,136,158,000.00)

(18,247,829,000.00/

*(8,136,158,000.00

*(16,700,794,000.00/

50,637,407,000.00 ) 65,340,926,000.00)

Wah Nobel

54,636,251,000.00)

*100 = 6.38
(75,991,071.00

*100 = 7.2
/ (64,294,152.00

*100 = (0.44)
/ (73,733,383.00

712,677,204.00)

* 698,678,000.00)

* 1,147,501,226.00)

(712,677,204.00

/ (698,678,000.00

/ (1,147,501,226.00

496,725,611.00)

521,530,808.00)

620,790,964.00)

*100 = 15.30

*100 = 12.33

*100 = 11.88
24

25

GRAPHICAL REPRESENTATION/TREND ANALYSIS

INTERPRETATION
DuPont Return on Assets for the year 2010 of Fauji Fertilizers is 25.61, the company has
satisfactory ratio.
DuPont Return on Assets for the year 2011 of Fauji Fertilizers is 40.50, in this year the
company has increased the ratio very efficiently this shows that the company position is
powerful and company has invested more than assets.
DuPont Return on Assets for the year 2012 of Fauji Fertilizers is 34.23, in this year though
company has decreased the ratio slightly however it shows that the company position is still
powerful and company has invested more than assets.
26

.
DuPont Return on Assets for the year 2010 Pak-Arab Fertilizers is 6.38, it reveals that in this
year the company has decreased the ratio and has not invested more than its assets.
DuPont Return on Assets for the year 2011 of Pak-Arab Fertilizers 7.02, in this year the ratio
of the company is slightly increased in comparison to 2010 but still not satisfactory.
DuPont Return on Assets for the year 2012 of Pak-Arab Fertilizers 0.44, in this year the
ratio of the company worsen and show that the management has not invested efficiently in
comparison to their assets. This indicates the alarming position of the company.
DuPont Return on Assets for the year 2010 of Wah Nobel Chemicals is 15.30 we can say it
satisfactory ratio, however it shows the inefficient usage of assets.
DuPont Return on Assets for the year 2011 of Wah Nobel Chemicals is 12.33, in this year
the company has decreased the ratio. This indicates the in efficient usage of assets.
DuPont Return on Assets for the year 2012 of Wah Nobel Chemicals is 11.88, in this year
the company has decreased the ratio in comparison to last two years. This indicates the
inefficient usage of assets.
On going through the above tables and graphs it is obvious that the FFC has the greater
DuPont return on assets during all

the years under review which reveals that FFC

management is constantly using their assets though it vary from year to year. Whereas the
Wah Nobel has

slightly greater DuPont Return on Assets and the Pak Arab is at

bottom line in comparison to other companies.

27

Operating Income Margin

EBIT/NET SALES X 100
The operating income margin is a financial indicator of the health of a company and is
derived directly from the operating income. Basically, the operating income is divided by
sales in order to produce the operating income margin figure, which is expressed as a
percentage. A company with a 10% operating income margin makes $.10 of profit on each
dollar of sales; thus, the higher the operating income margin, the more profitable the
company is likely to be. The operating income margin is a good indicator of the companys
efficiency and profitability, but fails to take into consideration one-time losses or gains from
legal actions or other singular events.
Tabular Representation
Company Name

Year 2010
17,396,590,000.00/

Year 2011
33,951,878,000.00/

Year 2012
32,020,180,000.00/

FFC

44,874,359,000.00

55,221,168,000.00

74,322,612,000.00

*100 = 38.77
8,285,541,000.00/

*100 = 61.48
9,783,086,000.00/

*100 = 43.08
(3,505,579,000.00)/

18,247,829,000.00

16,700,794,000.00

8,136,158,000.00

*100 = 45.41
124,200,704.00/

*100= 58.58
102,214,495.00/

*100 = (43.09)
116,398,519.00/

712,677,204.00

698,678,000.00

1,147,501,226.00

*100 = 17.43

* 100 = 14.63

*100 = 10.14

Pak-Arab

Wah Nobel

28

WORKING
EBIT = PROFIT BEFORE TAX + FINANCE COST.

FAUJI FERTILIZERS

YEAR
2010
2011
2012

PROFIT BEFORE TAX

16,309,849,000.00
33,166,053,000.00
31,020,723,000.00

FINANCE COST
1,086,741,000.00
785,825,000.00
999,457,000.00

EBIT
17,396,590,000.00
33,951,878,000.00
32,020,180,000.00

PAK-ARAB FERTILIZERS

YEAR

2010
2011
2012

Profit Before Tax

4,695,722,000
6,310,681,000.00
(895,536,000.00)

Interest Expenses
3,589,819,000.00
3,472,405,000.00
(2,610,043,000.00)

EBIT
8,285,541,000.00
9,783,086,000.00
(3,505,579,000.00)

WAH NOBEL CHEMICALS

YEAR

2010
2011
2012

Profit Before Tax

117,002,505.00
97,843,544.00
116,967,604.00

Finance Cost
7,198,199.00
4,370,951.00
(569,085.00)

EBIT
124,200,704.00
102,214,495.00
116,398,519.00

29

GRAPHICAL REPRESENTATION/TREND ANALYSIS

INTERPRETATION
The higher the operating income margin, the more profitable the company is likely to be.
The

operating income margin is a good indicator of the companys efficiency and

profitability, but fails to take into consideration one-time losses or gains from legal actions
or other singular events. Year wise operating income margins of each company are as under
Operating Income Margin for the year 2010 of FFC Company is 38.77, in this year the
company is profitable.

30

Operating Income Margin for the year 2011 of FFC Company is 61.48, in this year the
company has the top position and the companys strength is highly growing. Because the
higher the operating income margin, the more profitable the company
Operating Income Margin for the year 2012 of FFC Company is 43.08, in this year though
the company has declined the position in comparison to last year but is still stable.
Operating Income Margin for the year 2010 of Pak Arab Company is 45.41, in this year the
companys ratio is better.
Operating Income Margin for the year 2011 of Pak Arab Company is 58.58, in this year the
company has increased the ratio it means the strength of the company is increased and it will
help the company to invest more.
Operating Income Margin for the year 2012 of Pak Arab Company is -43.09, in this year the
company has abnormally decreased the ratio it means the company weekend it strength.
This inverse to the rule that the higher the operating income margin, the more profitable the
company. Such state of affairs is not in favor of financial health of the company.
Operating Income Margin for the year 2010 of Wah Nobel Company is 17.43, in this year
the company has satisfactory ratio.
Operating Income Margin for the year 2011 of Wah Nobel Company is 14.63, in this year
the company has decrease the ratio in comparison to 2010 it shows that the company
profitability is decreased.
Operating Income Margin for the year 2012 of Wah Nobel Company is 10.14, in this year
the company has decrease the ratio in comparison to 2010 &2011 it shows that the company
profitability is decreased and financial health of the company is going to be deteriorate.

31

On going through the above calculations and graph of the companies it is clear that the FFC
Company remained on the top for all the three years. Whereas the Pak Arab remained on 2 nd
number during early two years but in the year 2012 it fall down up to the abnormal position.
However the Wah Noble maintained its position on 3rd number during all the years.

Operating Assets Turnover

EBIT/OPERATING ASSETS x 100
A Financial Ratio that indicates the effectiveness with which a firms management uses its
operating assets to generate sales.
Operating asset turnover is the ratio of net sales divided by operating assets.
Tabular Representation
Company Name

Year 2010
17,396,590,000.00/

FFC

17,692,327,000.00 * 19,068,317,000.00 * 25,621,002,000.00 *

Pak-Arab

Wah Nobel

Year 2011
33,951,878,000.00/

Year 2012
32,020,180,000.00 /

100 = 98.33
8,285,541,000.00 /

100 = 178.05
9,783,086,000.00/

100 =124.98
(3,505,579,000.00)/

26,899,757,000.00

41,681,526,000.00

40,589,076,000.00 *

*100 = 30.80
124,200,704.00/

*100 = 23.47
102,214,495.00 /

100 =(8.64)
116,398,519.00 /

422,504,720.00

439,479,856.00

526,581,129.00

* 100 = 29.40

* 100 =23.26

* 100 =22.10

WORKING
Operating Assets = Cash and Bank Balance + Inventories + Bills Receivables
32

FAUJI FERTILIZERS
YEAR

TRADE DEBTS

CASH

AND

BANK

STOCK

IN

PROPERTY

PLANT

OPERATING

TRADE

EQUIPMENT

ASSETS

BALANCE
2010

357,956,000.00

1,189,063,000.00

211,720,000.00

15,933,588,000.00

17,692,327,000.00

2011

86,669,000.00

1,293,774,000.00

636,923,000.00

17,050,951,000.00

19,068,317,000.00

2012

3,611,476,000.00

3,748,632,000.00

442,139,000.00

17,818,755,000.00

25,621,002,000.00

PAK-ARAB FERTILIZERS

YEAR

TRADE DEBTS

CASH

AND

BANK

STOCK

IN

PROPERTY PLANT

OPERATING

TRADE

EQUIPMENT

ASSETS

BALANCE
2010

1,850,695,000.00

185,675,000.00

2,946,995,000.00

21,916,392,000.00

26,899,757,000.00

2011

890,573,000.00

796,323,000.00

2,057,363,000.00

37,937,267,000.00

41,681,526,000.00

2012

570,992,000.00

993,957,000.00

1,733,871,000.00

37,290,256,000.00

40,589,076,000.00

WAH NOBEL CHEMICALS

YEAR

2010
2011
2012

TRADE DEBTS

241,500,249.00
230,110,597.00
218,068,260.00

CASH

AND

STOCK IN TRADE

PROPERTY

OPERATING

BANK

PLANT

ASSETS

BALANCE
24,373,129.00
71,904,392.00
103,738,762.00

EQUIPMENT
105,208,665.00
100,181,035.00
92,989,329.00

422,504,720.00
439,479,856.00
526,581,129.00

51,422,677.00
37,283,832.00
111,784,778.00

GRAPHICAL REPRESENTATION/TREND ANALYSIS

33

INTERPRETATION
A Financial Ratio that indicates the effectiveness with which a firms management uses its
operating assets to generate sales.
Operating Assets Turnover for the year 2010 of FFC is = 98.33, in this year the company
ratio is in sound condition .it shows that the company has used its operating assets to
generate sales which results in better performance of the company.
Operating Assets Turnover for the year 2011 of FFC is = 178.05, in this year the company
has increased the ratio up to very high level and the position of the company is best in
respect of use its operating assets to generate sales.

34

Operating Assets Turnover for the year 2012 of FFC is = 124.98, in this year though the
company has decreased the ratio but the position of the company remained best in this year.
Operating Assets Turnover for the year 2010 of Pak Arab is 30.80, in this year the position
of the company remained good.
Operating Assets Turnover for the year 2011 of Pak Arab is = 23.47, in this year though
company has decreased but the position of the company remained good.
Operating Assets Turnover for the year 2012 of Pak Arab is 08.64, in this year it is clear that
the company has decreased in comparison to last two year which is not in favor of the
company and requires improvement.
Operating Assets Turnover for the year 2010 of Wah Nobel Company is 29.40, in this year
the position of the company remained.
Operating Assets Turnover for the year 2011 of Wah Nobel Company is 23.26, in this year
the company has decreased the ratio this shows the week position of the company.
Operating Assets Turnover for the year 2012 of Wah Nobel Company is 22.10, in this year
the decreasing trend remained intact, this shows the week position of the company.
As the ratio calculates the net sale over the operating assets from the calculations graphs it is
obvious that all companies under considerations have the sufficient net sale in comparison to
the operating assets. This shows the profitability of the companies. From the graph as well
as calculations the Fauji Fertilizers Company is the more profitable in comparison to other
companies. However the Pak Arab remained 2nd and the Wah Nobel on 3Rd number.

35

Return on Operating Assets

PROFIT BEFORE TAX / OPERATING ASSETS X 100
The return on operating assets measure only includes in the denominator those assets
actively used to create revenue. This focuses management attention on the amount of assets
actually required to run the business, so that it has a theoretical targeted asset level to
achieve. A typical result of this measurement is an ongoing campaign to eliminate
unnecessary assets.

Tabular Representation
Company Name

Year 2010
17,396,590,000.00/

FFC

17,692,327,000.00 * 19,068,317,000.00 * 25,621,002,000.00 *

Pak-Arab

Wah Nobel

Year 2011
33,951,878,000.00/

Year 2012
32,020,180,000.00 /

100 = 98.33
8,285,541,000.00 /

100 = 178.05
9,783,086,000.00/

100 =124.98
(3,505,579,000.00)/

26,899,757,000.00

41,681,526,000.00

40,589,076,000.00 *

*100 = 30.80
124,200,704.00/

*100 = 23.47
102,214,495.00 /

100 =(8.64)
116,398,519.00 /

422,504,720.00

439,479,856.00

526,581,129.00

* 100 = 29.40

* 100 =23.26

* 100 =22.10

GRAPHICAL REPRESENTATION/TREND ANALYSIS

36

INTERPRETATION

Return on Operating Assets for the year 2010 of FFC is 98.33; in this year the management
of the company has efficiently used its operating assets to generate earnings.
Return on Operating Assets for the year 2011 of FFC is = 178.05, in this year the ratio has
been increased in comparison to last year. This shows that management of the company has
very efficiently used its operating assets to generate earnings.
Return on Operating Assets for the year 2012 of FFC is 124.98, though the ratio has been
declined in comparison to last year but the company remained sound this shows that
management of the company has efficiently used its operating assets to generate earnings in
this year also.
37

Return on Operating Assets for the year 2010 of Pak Arab is 30.80; the strength of the
company is good. The management of the company has efficiently used its operating assets
to generate earnings.
Return on Operating Assets for the year 2011 of Pak Arab is 23.47; the company has
decreased than last year however management of the company has not efficiently used its
operating assets to generate earnings in comparison to last year and the profitability of the
company is decreased.
Return on Operating Assets for the year 2012 of Pak Arab is 8.64; in this year the company
has decreased than last year however management of the company has not efficiently used
its operating assets to generate earnings in comparison to last year and the profitability of
the company is decreased
Return on Operating Assets for the year 2010 of Wah Nobel Company is 29.40; the
management of the company has efficiently used its operating assets to generate earnings.
Return on Operating Assets for the year 2011 of Wah Nobel Company is 23.26 companies
has decreased slightly the ratio in comparison to last year this shows that the management of
the company could not use its operating assets to generate earnings in comparison to last
year and the profitability of the company is decreased.
Return on Operating Assets for the year 2012 of Wah Nobel Company is 22.10. Company
has decreased slightly the ratio in comparison to last year this shows that the management of
the company could not use its operating assets to generate earnings in comparison to last
year and the profitability of the company is decreased
As the return on Operating Assets indicate that how profitable a company is relative to its
operating assets. The returns on operating assets provide investors an idea as how efficient

38

management is at using its operating assets to generate earnings. The higher the ROA figure
the better, as the company earns more money on less investment.
From the above calculations and the graphs it is obvious that the management of FFC is
earning more on less investment in comparison to other companies Pak Arab and Wah Noble
remained on 2nd & 3rd respectively.

Sales to Fixed Assets

NET SALES/FIXED ASSETS

The sales to fixed assets ratio is often called the asset turnover ratio.
Low sales to fixed assets ratio means inefficient utilization or obsolescence of fixed assets,
which may be caused by excess capacity or interruptions in the supply of raw
materials.

Tabular Representation
Company Name

FFC

Pak-Arab

Wah Nobel

Year 2010
44,874,359,000.00/

Year 2011
55,221,168,000.00/

Year 2012
74,322,612,000.00 /

17,502,822,000

18,620,185,000.00 = 19,387,989,000.00 =

= 2.56

2.97

3.83

18,247,829,000.00/

16,700,794,000.00/

8,136,158,000.00 /

25,504,269,000

41,471,812,000.00 = 40,716,545,000.00 =

= 0.72

0.40

0.20

712,677,204.00 /

698,678,000.00/

1,147,501,226.00 /

105,208,665

100,181,035

92,989,329.00

= 6.80

= 7.11

= 7.51

39

GRAPHICAL REPRESENTATION/TREND ANALYSIS

INTERPRETATION
The sales to fixed assets ratio is often called the asset turnover ratio.
Low sales to fixed assets ratio means inefficient utilization or obsolescence of fixed
assets, which may be caused by excess capacity or interruptions in the supply of raw
materials.
Sales to Fixed Assets for the year 2010 of

FFC were 2.56; the company seems that the

Fixed Assets are utilized efficiently but are not too better. However the companys strength
is good.

40

Sales to Fixed Assets for the year 2011 of FFC were 2.97 though the ratio has been
increased slightly and the company seems that the Fixed Assets are utilized efficiently but
are not too better. However the companys strength is good.
Sales to Fixed Assets for the year 2012 of FFC were 2.37; this shows that the ratio has been
decreased in comparison to last year the company seems that the Fixed Assets are utilized
efficiently but are not too better. However the companys strength is good.
Sales to Fixed Assets for the year 2010 of Pak Arab are 0.72, it means the company has not
efficiently used the fixed assets and the company has not strength of return / turnover of
fixed assets.
Sales to Fixed Assets for the year 2011 of Pak Arab are 0.40, this year the company has
decreased the ratio company did not efficiently use the fixed assets and the strength of the
company is week.
Sales to Fixed Assets for the year 2012 of Pak Arab is 0.20, this year the company has
decreased the ratio this shows that the company did not efficiently use the fixed assets and
the strength of the company is week.
Sales to Fixed Assets for the year 2010 of Wah Nobel is 6.80, the company has efficiently
utilize the fixed Assets.
Sales to Fixed Assets for the year 2011 of Wah Nobel is 7.11, the ratio of the company is
Increased from the last year, it means in this year the company has utilize the Fixed Assets
more efficiently in comparison to last year.
Sales to Fixed Assets for the year 2012 of Wah Nobel is 7.51, the ratio of the company is
Increased from the last year, it means in this year the company has utilize the Fixed Assets
more efficiently in comparison to last year.

41

From the above calculations and graphical analysis it is obvious that the Wah Noble
Company has the highest sale to fixed assets ratio of the others whereas the FFC & Pak
Arab remained on the 2nd and 3rd number during the period under consideration.

Return on Total Equity

NET INCOME/TOTAL EQUITY x 100

The amount of net income returned as a percentage of shareholders equity. Return on equity
measures a corporation's profitability by revealing how much profit a company
generates with the money shareholders have invested.

Tabular Representation
Company Name

Year 2010
11,028,849,000.00/

Year 2011
22,492,053,000.00/

Year 2012
20,839,723,000.00 /

FFC

15,447,547,000.00

23,070,224,000.00

26,096,049,000.00

*100 = 71.40
3,231,962,000.00 /

*100 = 97.49
4,590,139,000.00 /

*100 = 79.86
(239,788,000.00)

12,248,456,000.00

10,414,040,000.00

7,932,253,000.00 *

*100 = 26.39
75,991,071.00 /

*100 = 44.08
64,294,152.00 /

100 = (3.02)
73,733,383.00

382,117,023.00

401,411,175.00

430,144,558.00

*100 = 19.89

*100 = 16.02

100 = 17.14

Pak-Arab

Wah Nobel

42

GRAPHICAL REPRESENTATION/TREND ANALYSIS

INTERPRETATION
Return on Total Equity for the year 2010 of FFC is 71.40 it shows that the total income is
greater than the total equity which reveals that the company generates with the money
shareholders have invested more efficiently.
Return on Total Equity for the year 2011 of FFC is 97.49 it shows that the total income is
greater that the total equity it means the company generated more in comparison to last year
with the money shareholders have invested efficiently.
Return on Total Equity for the year 2012 of FFC is 79.86 though it is less than that of the
last year but it shows that the total income is greater that the total equity it means the

43

company generated more in comparison to last year with the money shareholders have
invested efficiently.
Return on Total Equity for the year 2010 of Pak Arab is 26.39

it shows that the total

income is greater that the total equity which reveals that the company generates with the
money shareholders have invested.
Return on Total Equity for the year 2011 of Pak Arab is 44.08 which is greater than the last
year it shows that the total income is greater than the total equity. It reveals that the
company generates with the money shareholders have invested.
Return on Total Equity for the year 2012 of Pak Arab is -3.02 which is very less than the last
two year it shows that the total income is less than the total equity. It reveals that the
company did not generate with the money shareholders have invested. This shows the
inefficiency of the management.
Return on Total Equity for the year 2010 of Wah Noble is 19.89 it shows that the total
income is greater that the total equity it means the company generates with the money
shareholders have invested.
Return on Total Equity for the year 2011 of Wah Noble is 16.02 though this is less than last
year, but it shows that the total income is greater than the total equity it means the company
generates with the money shareholders have invested.
Return on Total Equity for the year 2012 of Wah Noble is 17.14 this is more than last year, it
shows that the total income is greater than the total equity it means the company generates
with the money shareholders have invested.
On going through the above calculations and graphs it is obvious that the return on equity of
FFC is greater than the other companies during the period 2010 to 2012. It means the

44

company generates with the money shareholders have invested. , therefore the FFC is on 1st
and the Pak Arab is at 2nd and the Wah Nobel on 3rd number.

Gross Profit Margin

GROSS PROFIT/NET SALES X100

A financial metric used to assess a firm's financial health by revealing the proportion of
money left over from revenues after accounting for the cost of goods sold. Gross profit
margin serves as the source for paying additional expenses and future savings.

Tabular Representation

Company Name

Year 2010
19,563,953,000.00/

Year 2011
34,349,409,000.00/

Year 2012
35,998,251,000.00 /

FFC

44,874,359,000.00

55,221,168,000.00

74,322,612,000.00 *

*100 = 43.59
9,196,993,000.00 /

*100=62.20
9,512,647,000.00 /

100 = 48.43
1,914,849,000.00

18,247,829,000.00

16,700,794,000.00

8,136,158,000.00

*100 = 50.40
185,476,029.00 /

*100 = 56.95
151,912,126.00/

100 = 23.53
189,849,655.00 /

712,677,204.00

698,678,000.00

1,147,501,226.00

*100 = 26.02

*100 = 21.74

*100 = 16.54

Pak-Arab

Wah Nobel

45

GRAPHICAL REPRESENTATION/TREND ANALYSIS

INTERPRETATION

Gross Profit Margin for the year 2010 of FFC is 43.59 it shows that the company has paid
out the

cost of goods sold and the amount of gross profit is more than net sales

Gross Profit Margin for the year 2011 of FFC is 62.20 which is more than the ratio of last
year. It shows that the company has paid out the cost of goods sold and the amount of gross
profit is more than net sales.
Gross Profit Margin for the year 2012 of FFC is 48.43 which is less than the ratio of last
year. It shows that the company has paid out the cost of goods sold and the amount of gross
profit is more than net sales

46

Gross Profit Margin for the year 2010 of Pak Arab is 50.40 it shows that the company has
paid out the cost of goods sold and the amount of gross profit is more than net sales.
Gross Profit Margin for the year 2011 of Pak Arab is 56.95 which are more than last year it
shows that the company has paid out the cost of goods sold and the amount of gross profit is
more than net sales.
Gross Profit Margin for the year 2012 of Pak Arab is 23.53 which is less than last year but it
shows that the company has paid out the cost of goods sold and the amount of gross profit is
more than net sales.
Gross Profit Margin for the year 2010 of Wah Nobel is 26.02 it shows that the company
has paid out the cost of goods sold and the amount of gross profit is more than net sales.
Gross Profit Margin for the year 2011 of Wah Nobel is 21.74 which is less than last year
however it shows that the company has paid out the cost of goods sold and the amount of
gross profit is more than net sales.
Gross Profit Margin for the year 2012 of Wah Nobel is 16.54 which is less than last two
years however it shows that the company has paid out the cost of goods sold and the
amount of gross profit is more than net sales
Above calculations and graphical analysis show that the Pak Arab Company has the best
profit margin in 2010 it had paid out the cost of goods sold and showed the amount more
than other companies during 2010 whereas the FFC remained on top during subsequent two
years i.e. 2011 and 2012 whereas the Wah noble on the 3 rdnumbering all the years. It reveals
that all the companies have paid out the cost of goods sold and their amount of gross profit
is more than net sales.

47

13.C O N C L U S I O N:

On going through the calculations of all the ratios it is obvious that the FFC is the sound and
safe company to invest. It has the greater profitability ratio of other companies It remained
on top during all the years under consideration FFC was analyzed through calculating
various ratios of profitability and it proved that it was on top in the net profit margin, return
on assets, Du Pont return on assets, operating income margin, operating assets turnover,
return on operating assets and Return On Equity. The FFC has given best performance in
above ratios specially and other ratios normally it reveals that the management of the
company is vigilantly managing the financial activities for the profitability and they have no
compromise on the financial performance of the company.
During analyzing various ratios it revealed that the Wah Nobel has proved itself the best
competitor of the FFC as it has also the performed best on the 2 nd number and it has also
good profitability ratios.

14.RECOMMENDATIONS
Performance of FFC is satisfactory of the other companies under review. the management of
FFC has efficiently and effectively managed the assets and profit activities .whereas Pak
Arab and Wah Nobel are required to improve in all the fields such as profit activities and as
Fixed assets utilization as is obvious from the ratios.

48

References:
1. 2008 International Academy of Business and Economics ISSN: 1544-8037
2. European Journal of Economics, Finance and Administrative Sciences ISSN 1450-275
Issue 11 (2008)
3. Working Paper/Document de travail 2010-38 (The Impact of Liquidity on Bank
Profitability)
4. International Research Journal of Finance and Economics ISSN 1450-2887 Issue 19
(2008)
5. Manzler, D. (2004). Liquidity, liquidity risk and the closed-end fund discount. Working
paper, University of Cincinnati.
http://www.ffc.com.pk/
http://www.ffc.com.pk/annual-report.aspx
http://fatima-group.com/pakarabfertilizers/aboutus.php
http://fatima-group.com/pakarabfertilizers/financialresults.php
http://www.wahnobel.com/wnc.htm
http://www.wahnobel.com/wnc/Investor_info.htm
http://www.wahnobel.com/wnc/Financial.htm
http://www.wahnobel.com/wnc/Year_0910.htm

49