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PROJECT REPORT OF

FINANCIAL REPORTING & ANALYSIS ON

“FAUJI CEMENT COMPANY”

Submitted to:

Mr. Farrukh Naveed

Submitted By:

Hasan Qureshi (29)


Jawaad ul Hassan (08)
Rahiqa Fatima (21)
Humaira Akram (04)

MSc. (Accounting and Finance)


2nd Semester.

Department Of
Commerce

1
FAUJI CEMENT COMPANY
LIMITED
Company Introduction
A longtime leader in the cement manufacturing industry, Fauji Cement Company,
headquartered in Islamabad, operates a cement plant at Jhang Bahtar, Tehsil Fateh
Jang, District Attock in the province of Punjab. The company has a strong and
longstanding tradition of service, reliability, and quality that reaches back more than
10 years. Sponsored by Fauji Foundation the Company was incorporated in
Rawalpindi in 1992.

The cement plant operating in the Fauji Cement is one of the most efficient and best
maintained in the country and has an annual production capacity of 1.165 million tons
of cement. The quality portland cement produced at this plant is the best in the
Country and is preferred the construction of highways, bridges, commercial and
industrial complexes, residential homes, and a myriad of other structures needing
speedy strengthening bond, fundamental to Pakistan's economic vitality and quality of
life.

Company History

Fauji Cement Company Limited was sponsored by Fauji Foundation and incorporated
as a public limited company on 23 November 1992. It obtained the Certificate of
Commencement of Business on 22 May 1993. The company has been setup with
primary objective of producing and selling Ordinary Portland Cement. For the
purpose of selection of sound process technology, state of the art equipment, civil
design and project monitoring, Local and Foreign Consultants were engaged.

The company entered into a contract with World renowned cement plant
manufacturers M/s F.L. Smith to carry out design , engineering, procurement,
manufacturing, delivery, erection, installation, testing and commissioning at site of a
new, state of the art, cement plant including all auxiliary and ancillary equipment,
complete in all respects for the purpose of manufacturing a minimum of 3,000 tdp
clinker and corresponding quantity of Ordinary Portland Cement as per
Pakistan/British Standard Specifications.
The contract came into force on January, 1, 1994. Physical work on the project started
in August 1994. Commissioning activities started in May 1997 generally remained
smooth and trouble free, which enabled first batch of clinker production on 26
September 1997 followed by cement production in November 1997. Subsequently in
2005, the Plant Capacity has been raised to 3,700 tons of clinker per day i.e. 3,885
tons of cement per day.

2
Corporate Profile
Board of Directors
Lt Gen Syed Arif Hasan, HI (M) (Retd) Chairman
Lt Gen Javed Alam Khan, HI (M) (Retd) Chief Executive
Mr. Qaiser Javed Director
Mr. Riyaz H. Bokhari, IFU Director
Brig Arif Rasul SI (M) (Retd) Qureshi, Director
Brig Rahat Khan, SI (M) (Retd) Director
Dr. Nadeem Inayat Director
Brig Liaqat Ali (Retd) Director
Brig Munawar Ahmed Rana (Retd) Director
Brig Shabbir Ahmed (Retd) Secretary

Human Resources Committee


Dr. Nadeem Inayat President
Mr. Qaiser Javed Member
Brig Liaqat Ali (Retd) Member
Brig Shabbir Ahmed (Retd) Secretary

Audit Committee

Mr. Qaiser Javed President


Mr. Riyaz H. Bokhari Member
Brig Rahat Khan (Retd) Member
Dr. Nadeem Inayat Member
Brig Shabbir Ahmed (Retd) Secretary

Technical Committee

Brig Rahat Khan (Retd) President


Brig Arif Rasul Qureshi (Retd) Member
Brig Liaqat Ali (Retd) Member
Mir Khawar Saleem, Director (Project) Secretary

3
Mission Statement

FCCL while maintaining its leading position in quality of cement and through greater
market outreach will build up and improve its value addition with a view to ensuring
optimum returns to the shareholders.

Our Vision
To transform FCCL into a role model cement manufacturing Company fully aware of
generally accepted principles of corporate social responsibilities engaged in nation
building through most efficient utilization of resources and optimally benefiting all
stake holders while enjoying public respect and goodwill.

Our Objective
The company has been set up with the primary objective of producing and selling
ordinary Portland cement. The finest quality of Cement is available for all type of
customers whether for Dams, Canals, industrial structures, highways, commercial or
residential needs using latest state of the art dry process Cement manufacturing
process.

Our Values
Customers: We listen to our customers and improve our product to meet their present
and future needs.

People: Our success depends upon high performing people working together in a safe
and healthy work place where diversity, development and team work are valued and
recognized.

Accountability: We expect superior performance and results. Our leaders set clear
goals and expectations, are supportive and provide and seek frequent feed back.

Citizen Ship: We support the communities where we do business, hold ourselves to


the highest standards of ethical conduct and environment responsibility, and
communicate openly with FCCL people and the public.

4
Financial Responsibility: We are prudent and effective in the use of the resources
entrusted to us.

Product
Ordinary Portland Cement

Clinker 94-95%
Gypsum 5-6%

28 days strength up to 8000 P.S.I


Fineness up to 3100 cm2/gm

Quality Policy
• EMPHASIS ON 100% CUSTOMER SATISFACTION.
• 100 % EFFECTIVE UTILIZATION OF PLANT CAPACITIES.
• EMPHASIS ON 100% TOP QUALITY HUMAN RESOURCES.
• EMPHASIS ON 100% QUALITY CULTURE.

TO REMAIN A LEADING MANUFACTURER OF PORTL

Income Statement Analysis

Fauji Cement Co Ltd


5
Summarized Income Statement
For the Year Ended 30 June, 2003 To 2007 (in 000)
2003 2004 2005 2006 2007
Rupees Rupees Rupees Rupees Rupees
SALES 2,488,992 3,247,262 3,921,363 5,683,456 4,780,036
Less : Sales tax and excise duty 978,254 951,031 1,076,219 1,397,317 1,316,753
NET SALES 1,510,738 2,296,231 2,845,144 4,286,139 3,463,283
Less: Cost of sales
Raw Material 75,725 115,164 136,819 205,751 235,379
Direct Labor 65,299 91,289 87,091 142,070 133,780
Factory Overhead
Rent Rate & Taxes 882 952 1,378 2,562 2,213
Fuel Consumed 472,772 564,591 699,818 843,909 979,044
Power Consumed 246,489 310,041 332,383 393,785 431,609
Depreciation 245,737 243,056 251,981 261,566 276,244
Other F.OH 192,730 238,876 245,183 325,001 355,819
Total F.OH 1,158,610 1,357,516 1,530,743 1,826,823 2,044,929
Total Manufacturing Cost 1,299,634 1,563,969 1,754,653 2,174,644 2,414,088
Work in Process 37,601 -21,944 16,137 -82,047 -21,550
Cost of goods manufactured 1,337,235 1,542,025 1,770,790 2,092,597 2,392,538
Finished goods -2,104 13,381 -7,223 2,430 -20,750
Cost of Sales 1,335,131 1,555,406 1,763,567 2,095,027 2,371,788
Gross Profit 175,607 740,825 1,081,577 2,191,112 1,091,495
Less Operating Expenses
General & Admin Expenses
Salary, wages and benefits 15,408 21,817 21,835 35,663 42,439
Traveling and entertainment 2,933 2,053 3,320 4,769 3,487
Legal and Professional charges 12,117 1,655 3,148 3,490 2,281
Other General and Admin Expenses 7,917 14,542 13,991 22,706 23,095
Total 38,375 40,067 42,294 66,628 71,302
Selling and Distribution Expenses
Salary, wages and benefits 7,992 12,011 11,085 21,388 20,651
Rent Rate & Taxes 1,209 1,144 1,172 1,112 1,353
Communication Expenses 1,149 1,850 2,590 2,376 2,871
Advertisement and sales Promotion 1,737 2,296 2,101 2,866 2,029
Other selling expenses 2,930 3,116 4,386 3,953 13,741
Total 15,017 20,417 21,334 31,695 40,645
Other Operating Expenses 0 0 40,493 94,127 58,098
Operating Profit(EBIT) 122,215 680,341 977,456 1,998,662 921,450

Add Other income


Interest on Bank Accounts 6,795 9,517 3,821 34,600 68,079
Interest on Long Term Advances 79 119 34 135 135
Gain on Disposal of Fixed Assets 1,259 378 4,750 1,301 100
Others 394 32,730 2,611 7,288 5,521
Total 8,527 42,744 11,216 43,324 73,835
Less Financial charges
Fee and charges on Loans 3,347 11,615 10,564 500 500
6
Interest on Long term loans 307,050 57,324 175,784 254,030 200,642
Mark up on Short term loans from
Associations 0 873 3,185 456 0
Interest on short term loans 4,246 0 4,353 1,095 779
Others 148,763 134,410 35,748 8,215 5,184
Total 463,406 204,222 229,634 264,296 207,105
Less Amortization of Differed Cost 191,061 762,152 0 0 0
Profit/ Loss Before Taxation -523,725 -243,289 759,038 1,777,690 788,180
Less Taxation 7,650 557,439 248,548 573,951 141,857
Profit/loss after Taxation -516,075 314,150 510,490 1,203,739 646,323
Earning/ (Loss) per share - Basic -1.43 0.85 1.38 3.25 1.74
Earning/ (Loss) per share - Diluted -1.27 0.75 1.22 2.87 1.54

Horizontal Analysis

Fauji Cement Co Ltd


Income Statement (Horizontal Analysis)
For the Year Ended 30 June, 2003 To 2007
2003 2004 2005 2006 2007
SALES 100.00% 130.46 157.55 228.34 192.05
Less: Sales tax and excise duty 100.00% 97.22 110.01 142.84 134.60
NET SALES 100.00% 151.99 188.33 283.71 229.24
Less: Cost of sales
Raw Material 100.00% 152.08 180.68 271.71 310.83
Direct Labor 100.00% 139.80 133.37 217.57 204.87
Factory Overhead
Rent Rate & Taxes 100.00% 107.94 156.24 290.48 250.91
Fuel Consumed 100.00% 119.42 148.02 178.50 207.09
Power Consumed 100.00% 125.78 134.85 159.76 175.10
Depreciation 100.00% 98.91 102.54 106.44 112.41
Other F.OH 100.00% 123.94 127.22 168.63 184.62
Total F.OH 100.00% 117.17 132.12 157.67 176.50
Total Manufacturing Cost 100.00% 120.34 135.01 167.33 185.75
Work in Process 100.00% -58.36 42.92 -218.20 -57.31
Cost of goods manufactured 100.00% 115.31 132.42 156.49 178.92
Finished goods 100.00% -635.98 343.30 -115.49 986.22
Cost of Sales 100.00% 116.50 132.09 156.92 177.64
Gross Profit 100.00% 421.87 615.91 1247.74 621.56
Less Operating Expenses
General & Admin Expenses
Salary, wages and benefits 100.00% 141.60 141.71 231.46 275.43
Traveling and entertainment 100.00% 70.00 113.19 162.60 118.89
Legal and Professional charges 100.00% 13.66 25.98 28.80 18.82
Other General and Admin Expenses 100.00% 183.68 176.72 286.80 291.71
Total 100.00% 104.41 110.21 173.62 185.80

7
Selling and Distribution Expenses
Salary, wages and benefits 100.00% 150.29 138.70 267.62 258.40
Rent Rate & Taxes 100.00% 94.62 96.94 91.98 111.91
Communication Expenses 100.00% 161.01 225.41 206.79 249.87
Advertisement and sales Promotion 100.00% 132.18 120.96 165.00 116.81
Other selling expenses 100.00% 106.35 149.69 134.91 468.98
Total 100.00% 135.96 142.07 211.06 270.66
Operating Profit 100.00% 556.68 799.78 1635.37 753.96
Add Other income
Interest on Bank Accounts 100.00% 140.06 56.23 509.20 1001.90
Interest on Long Term Advances 100.00% 150.63 43.04 170.89 170.89
Gain on Disposal of Fixed Assets 100.00% 30.02 377.28 103.34 7.94
Others 100.00% 8307.11 662.69 1849.75 1401.27
Total 100.00% 501.28 131.54 508.08 865.90
Less Financial charges
Fee and charges on Loans 100.00% 347.03 315.63 14.94 14.94
Interest on Long term loans 100.00% 18.67 57.25 82.73 65.35
Interest on short term loans 100.00% 0.00 102.52 25.79 18.35
Others 100.00% 90.35 24.03 5.52 3.48
Total 100.00% 44.07 49.55 57.03 44.69
Less Amortization of Differed Cost 100.00% 398.91 0.00 0.00 0.00
Profit/ Loss Before Taxation 100.00% 46.45 -144.93 -339.43 -150.50
Less Taxation 100.00% 7286.78 3248.99 7502.63 1854.34
Profit/loss after Taxation 100.00% -60.87 -98.92 -233.25 -125.24

8
Vertical Analysis

Fauji Cement Co Ltd


Income Statement ( Vertical Analysis)
For the Year Ended 30 June, 200…
2003 2004 2005 2006 2007
SALES 100.00% 100.00% 100.00% 100.00% 100.00%
Less : Sales tax and excise duty 39.30 29.29 27.45 24.59 27.55
NET SALES 60.70 70.71 72.55 75.41 72.45
Raw Material 3.04 3.55 3.49 3.62 4.92
Direct Labor 2.62 2.81 2.22 2.50 2.80
Factory Overhead
Rent Rate & Taxes 0.04 0.03 0.04 0.05 0.05
Fuel Consumed 18.99 17.39 17.85 14.85 20.48
Power Consumed 9.90 9.55 8.48 6.93 9.03
Depreciation 9.87 7.48 6.43 4.60 5.78
Other F.OH 7.74 7.36 6.25 5.72 7.44
Total F.OH 46.55 41.80 39.04 32.14 42.78

Cost of Sales 53.64 47.90 44.97 36.86 49.62


Gross Profit 7.06 22.81 27.58 38.55 22.83
General & Admin Expenses
Salary, wages and benefits 0.62 0.67 0.56 0.63 0.89
Traveling and entertainment 0.12 0.06 0.08 0.08 0.07
Legal and Professional charges 0.49 0.05 0.08 0.06 0.05
Other General and Admin 0.32 0.45 0.36 0.40 0.48
Expenses
Total 1.54 1.23 1.08 1.17 1.49
Selling and Distribution
Expenses
Salary, wages and benefits 0.32 0.37 0.28 0.38 0.43
Rent Rate & Taxes 0.05 0.04 0.03 0.02 0.03
Communication Expenses 0.05 0.06 0.07 0.04 0.06
Advertisement and sales 0.07 0.07 0.05 0.05 0.04
Promotion
Other selling expenses 0.12 0.10 0.11 0.07 0.29
Total 0.60 0.63 0.54 0.56 0.85
Operating Profit 4.91 20.95 24.93 35.17 19.28
Less Financial charges
Fee and charges on Loans 0.13 0.36 0.27 0.01 0.01
Interest on Long term loans 12.34 1.77 4.48 4.47 4.20
Mark up on Short term loans 0.00 0.03 0.08 0.01 0.00
from Associations
Interest on short term loans 0.17 0.00 0.11 0.02 0.02
Others 5.98 4.14 0.91 0.14 0.11
Total 18.62 6.29 5.86 4.65 4.33

FAUJI CEMENT COMPANY


9
BALANCE SHEET

FAUJI CEMENT COMPANY LIMITED


BALANCE SHEET
As On 2003 To 2007
2003 2004 2005 2006 2007
CURRENT
ASSETS: 721,338,365 574,461,034 1,113,721,603 1,579,381,610 1,953,527
Cash and Bank
Balance 193,992,231 19,708,814 603,109,660 847,590,378 423,133
Receivables 60,721,925 73,584,212 8,235,163 2,836,409 858,758
Stock in Trade: 47,962,326 61,599,838 55,931,122 145,090,210 183,309
Raw Material 10,149,401 15,223,951 18,468,968 28,011,800 23,931
Work in process 5,816,672 27,760,995 11,624,101 93,670,852 115,221
Finished goods: 31,996,253 18,614,892 2,588,053 23,407,558 44,157
NON CURRENT
ASSETS: 5,591,918,365 5,335,892,506 5,110,066,731 4,576,776,382 4,447,161
Fixed assets 4,581,054,157 4,386,945,532 4,717,315,487 4,563,115,282 4,392,450
Long term Deposits,
Prepayments and
Deferred cost 21,600,000 36,600,000 46,611,000 46,611,000 46,611
Long Term Loans
and Advances 40,000,000 - 9,000,000 9,000,000 8,100
CURRENT
LIABILITIES 472,332,789 372,116,351 1,137,589,149 1,207,427,336 1,393,957
Current portion of
long term loan 137,390,439 86,508,407 552,995,000 550,000,000 550,000
Short term loans 15,914,497 308,876,433 236,353,099 375,510
Other liabilities 319,027,853 285,607,944 275,717,716 421,074,237 468,447
Non Current
LIABILITIES 421,593,774 3,599,103,166 2,567,217,891 1,648,292,490 1,223,195
Long term loans 4,188,487,125 3,558,839,081 2,522,005,000 1,425,000,000 875,000
Provisions for staff 27,450,649 40,264,085 45,212,891 7,911,808 8,277
Share Holders
Equity 1,624,986,187 1,939,134,023 2,449,624,461 3,282,616,746 3,735,206
Paid up capital 1,624,986,187 1,939,134,023 2,449,624,461 3,282,616,746 3,735,206
Total Assets 6313256750 5910353540 6223788334 6198107892 6400688
Total Liabilities 4688270563 3971219517 3774163873 2915491146 2665482
Total Liabilities &
Owner's Equity 6313256750 5910353540 6223788334 6198107892 6400688

10
FAUJI CEMENT COMPANY
BALANCE SHEET HORIZONTAL ANALYSIS
As On 2003 To 2007

FAUJI CEMENT COMPANY LIMITED


Balance Sheet Trend Analysis
2003 2004 2005 2006 2007
CURRENT
ASSETS: 100.00% 80.00% 154.00% 219.00% 0.27%
Cash and Bank
Balance 100.00% 102.00% 310.00% 437.00% 0.22%
Receivables 100.00% 121.00% 14.00% 5.00% 1.4%
Stock in Trade: 100.00% 128.00% 116.00% 302.00% 0.38%
Raw Material 100.00% 150.00% 182.00% 276.00% 0.24%
Work in process 100.00% 477.00% 200.00% 1610.00% 2%
Finished goods: 100.00% 58.00% 81.00% 73.00% 14%
NON CURRENT
ASSETS: 100.00% 95.00% 91.00% 82.00% 0.08%
Fixed assets 100.00% 95.00% 103.00% 99.60% 0.09%
Long Term deposits 100.00% 169.00% 215.80% 215.80% 0.02%
Long Term Loans and
Advances 100.00% 0.00% 22.50% 22.50% 0.02%
CURRENT
LIABILITIES 100.00% 78.00% 255.00% 268.00% 0.31%
Current portion of
long term loan 100.00% 63.00% 402.00% 400.00% 0.40%
Short term loans 100.00% 0.00% 1941.00% 148.00% 2.4%
Other liabilities 100.00% 89.50% 86.40% 132.00% 0.15%
Non Current
LIABILITIES 100.00% 85.40% 61.00% 39.00% 0.03%
Long term loans 100.00% 85.00% 60.00% 34.00% 0.02%
Provisions for staff 100.00% 147.00% 164.70% 28.00% 0.03%
Share Holders
Equity 100.00% 119.30% 150.74% 202.00% 0.23%
Paid up capital 100.00% 119.30% 150.74% 202.00% 0.23%
Total Assets 100.00% 93.60% 98.58% 98.17% 0.1013%
Total Liabilities 100.00% 84.70% 80.50% 62.00% 0.05%
Total Liabilities &
Owner's Equity 100.00% 93.60% 98.58% 98.17% 0.1013%

11
Ratio Analysis
Short Term Liquidity/ Short Term Debt Paying
Ability

Short term liquidity ratios measure the short term debt paying ability of a company. If
the entity cannot maintain debt paying ability it will not be able to maintain a long
term debt paying ability nor it will be able to satisfy its stockholders. When analyzing
the short term debt paying ability of the firm, we find a close relationship between the
current assets and the current liabilities. Generally, the current liabilities will be paid
with cash generated from the current assets. The profitability of the firm does not
determine the short term debt paying ability.
• Day’s Sales in Receivable

The number of day’s sales in receivables relates the amount of the accounts receivable
to the average daily sales on account. It is computed as follows,

Day’s Sales in Acc/ Receivable = Average Gross Receivables / (Net Sales/365)


Days

Days Sale in Account Receivable ( Amounts in Rs. “000”)


Years 2003 2004 2005 2006 2007
Gross Account Receivable 79,492 23,833 25,021 27,042 27,906
Net Sales 1,510,738 2,296,231 2,845,144 4,286,139 3,463,283
Days Sale in Account 19.21 3.79 3.21 2.30 2.94
Receivable(Days)

25.00
19.21
20.00
15.00
Series1
10.00
3.79 3.21 2.30 2.94
5.00
0.00
20032004200520062007
Years

12
Interpretation

This ratio gives an indication of the length of time that the receivables have been
outstanding at the end of the year. Shortening the credit terms indicates that there will
be less risk in the collection of future receivables and a lengthening of the credit terms
indicates a greater risk. In the above data we see that in year 2003 the days sales in
account receivable is very high and it was not good for the company but after 2003
there is a great decrease in the days sales in inventory which show the good
performance of the company’s management and it shows a less risk in the collection
of future receivables.
• Account Receivable Turnover

This ratio indicates the liquidity of the receivables. It is computed by as follows

Accounts Receivable Turnover = Net Sales / Average Gross Receivable


(Times/Year)

Account Receivable Turn Over( Amounts in Rs. “000”)


Years 2003 2004 2005 2006 2007
Net Sales 1,510,738 2,296,231 2,845,144 4,286,139 3,463,283
Gross Account Receivable 79,492 23,833 25,021 27,042 27,906
Account Receivable Turn 19.00 96.35 113.71 158.50 124.11
Over (Times/Year)
Turn Over (Time/Year)

200.00
Account Receivable

158.50
150.00 113.71 124.11
96.35
100.00 Series1

50.00 19.00
0.00
2003 2004 2005 2006 2007
Years

Interpretation

From the above calculation it is shown that account receivable turnover is increasing
with every year. It shows the liquidity of accounts receivable in terms of time per
year. We see that in 2003 the account receivable turnover is too low and in 2004 there
is a high increase in accounts receivable turnover and we see a gradual increase in the
accounts receivable up to year 2006. In 2007 we see a great decline in accounts
receivable turnover.

13
• Days Sales in Inventory

The number of day’s sales in inventory ratio relates the amount of the ending
inventory to the average daily cost of goods sold. It is computed as follows,

Days Sales in Inventory = Ending Inventory / (Cost of Goods Sold/365)


(Days)

Days Sales in Inventory ( Amounts in Rs. “000”)


Years 2003 2004 2005 2006 2007
Ending Inventory 236,602 259,000 353,806 635,978 652,078
Cost of Goods Sold 1,335,131 1,555,406 1,763,567 2,095,027 2,371,788
Days Sales in 64.68 60.78 73.23 110.80 100.35
Inventory(Days)
Days Sales in Inventory

120.00 110.80
100.35
100.00
73.23
80.00 64.68 60.78
(Days)

60.00 Series1
40.00
20.00
0.00
2003 2004 2005 2006 2007
Years

Interpretation

The day’s sales in inventory estimate the number of days that it will take to sell the
current inventory. The lower the number of day’s sales in inventory, the better the
inventory control. From the above data we see that there is a slight decrease in 2004
in day’s sales in inventory and it shows a good trend but after 2004 there is a high
increase in the day’s sales in inventory to year 2006 which shows a weak inventory
control of the management. In 2007 we see a little decrease in number of days in
day’s sales inventory which indicates that management is trying to improve the
inventory control system

14
• Inventory Turnover

This ratio indicates the liquidity of the inventory. The formula is as follow,

Inventory Turnover = Cost of Goods Sold / Average Inventory (Times/Year)

Inventory Turnover ( Amounts in Rs. “000”)


Years 2003 2004 2005 2006 2007
Cost of Goods Sold 1,335,131 1,555,406 1,763,567 2,095,027 2,371,788
Ending Inventory 236,602 259,000 353,806 635,978 652,078
Inventory Turnover (Times) 5.64 6.01 4.98 3.29 3.64

8.00
Inventory Turnover

5.64 6.01
6.00 4.98
(Times)

3.29 3.64
4.00 Series1

2.00
0.00
2003 2004 2005 2006 2007
Years

Interpretation
As shown in the table there is an increase in 2004 as compared to the base year.
Whereas there is a decline in the inventory turnover in the following two years. On
the other hand there is a slight rise in the ratio in last year. It is better for the company
to have a high inventory turnover ratio .

• Working Capital

The working capital of a business is an indication of the short term solvency of the
business. It is computed as follows

Working Capital = Current Assets – Current Liabilities

Net Working Capital ( Amounts in Rs. “000”)


Years 2003 2004 2005 2006 2007
Current Assets 721,338 574,461 1,113,721 1,579,382 1,953,527
Current Liabilities 472332 372116 1206946 1267199 1442287
Net Working 249006 202345 -93225 312183 511240
Capital

15
Capi
king
Wor
Net

Rs)
(in
tal
600000 511240
500000
400000 312183
300000 249006
202345
200000 Series1
100000
0

-100000 2003 2004 2005 2006 2007

-200000
Years

Interpretation
In the first year there is decrease in the working capital. And then in the second year
the working capital gone to the negative side. That decline is due to increase in the
current liabilities. That in turn affected the short term solvency of the company. But in
the coming years the working capital increase to a good extent. That on the other hand
increased the solvency of the company. Higher ratio is better for the organization to
get the short term loans from financial institutions.

• Current Ratio

The current ratio determines short term debt paying ability and is computed as follows

Current Ratio = Current Assets / Current Liabilities

Current Ratio ( Amounts in Rs. “000”)


Years 2003 2004 2005 2006 2007
Current Assets 721,338 574,461 1,113,721 1,579,382 1,953,527
Current Liabilities 472332 372116 1206946 1267199 1442287
Current Ratio in Times 1.53 1.54 0.92 1.25 1.35
Curr

Rati
o in
Tim
ent

es

1.80
1.53 1.54
1.60
1.25 1.35
1.40
1.20
0.92
1.00
Series1
0.80
0.60
0.40
0.20
0.00
2003 2004 2005 2006 2007
Years

16
Interpretation
In the above table the ratio is increasing in the first years that mean the company has
more funds to pay its current liabilities. But in the coming year there is a decrease in
the ratio. That affects the company’s debt paying ability. In the last two years the ratio
increased due to increase in the current assets. So that is the positive sign for the
company. It increases the short term, liquidity of the company and it attracts the short
term loan providers on the cost of profitability.

• Acid Test Ratio / Quick Ratio

The acid test ratio relates the most liquid assets to current liabilities. Inventory is
removed from current assets when computing the acid test ratio. Reason for removing
inventory is that inventory may be slow moving or possibly obsolete and parts of the
inventory may have been pledged to specific creditors.

Acid Test Ratio / Quick Ratio = (Current Assets – Inventory) / Current


Liabilities

Acid Test Ratio ( Amounts in Rs. “000”)


Years 2003 2004 2005 2006 2007
Current Assets 721,338 574,461 1,113,721 1,579,382 1,953,527
Inventory 236,602 259,000 353,806 635,978 652,078
Current Liabilities 472332 372116 1206946 1267199 1442287
Acid Test Ratio 1.03 0.85 0.63 0.74 0.90
Acid

(Tim
Test
Rati

es)

1.20
o

1.03
1.00 0.90
0.85
0.74
0.80
0.63
0.60 Series1
0.40

0.20

0.00
2003 2004 2005 2006 2007
Years

Interpretation
In the above table we can see that there is a decreasing trend in the ratio. This ratio is
taken on the basis of quick assets (cash or cash equivalents). The main reason of the
decline is the increase in the current liabilities. The other reason is increase in the
inventory that decreases the required ratio.

17
• Cash Ratio

The best indicator for the company’s short term liquidity may be the cash ratio. It is
computed as follows,

Cash Ratio = (Cash & Cash Equivalent + Marketable Securities) / Current Liabilities

Cash Ratio ( Amounts in Rs. “000”)


Years 2003 2004 2005 2006 2007
Cash & Cash Equivalent & 193992 197088 603110 847590 423133
Marketable Securities
Current Liabilities 472332 372116 1206946 1267199 1442287
Cash Ratio 0.41 0.53 0.50 0.67 0.29

0.80
0.67
0.70
Cash Ratio ( Times)

0.60 0.53 0.50


0.50 0.41
Series1
0.40 0.29
0.30
0.20
0.10
0.00
2003 2004 2005 2006 2007
Years

Interpretation
A high cash ratio indicates that the firm is not using its cash to its best advantage. A
cash ratio that is too low could indicate an immediate problem with paying bills.

18
Long Term Liquidity / Long Term Debt Paying
Ability

• Debt Ratio

The debt ratio indicates the firm’s long term debt paying ability. It is computed
as follows

Debt Ratio = Total Liabilities/Total Assets

The debt ratio indicates the percentage of assets financed by creditors, and it
helps to determine how well creditors are protected in case of insolvency. If
creditors are not well protected, the company is not in a position to issues
additional long term debt. From the prospective of long term debt paying
ability, the lower the ratio, the better the company’s position.

Debt Ratio (Amounts in Rs. “000”)


2003 2004 2005 2006 2007
Total Liabilities 4,688,270 3,971,219 3,774,164 2,915,491 2,665,482
Total Assets 6313256 5910353 6223788 6198107 6400688
Debt Ratio 74.26% 67.19% 60.64% 47.04% 41.64%

80.00% 74.26%
67.19%
70.00%
60.64%
Debt Ratio (%age)

60.00%
47.04%
50.00% 41.64%
40.00% Series1
30.00%
20.00%
10.00%
0.00%
2003 2004 2005 2006 2007
Years

Interpretation

This table shows the current and past debt paying ratio of the company. The ratio in
2003 was 74.26% which was very high but after that till 2007 it is decreasing
continuously and in 2007 it is 41.64% this decreasing trend shows the company is in
better position as compare to 2003.
Major reason of that decreasing trend is liabilities were decreasing year to year and
liabilities decreasing due to increasing in the owner’s equity.
19
• Debt/Equity Ratio

It determines the entity’s long term debt paying ability. This computation
compares the total debt with total share holder’s equity. This ratio also helps
to determine how well creditors are protected in case of insolvency. From
the prospective of long term debt paying ability, the lower the ratio, the
better the company’s position.
It is computed as follows:

Debt/Equity Ratio =Total Liabilities/Shareholder’s Equity

Debt Equity Ratio (Amounts in Rs. “000”)


2003 2004 2005 2006 2007
Total Liabilities 4,688,270 3,971,219 3,774,164 2,915,491 2,665,482
Shareholder's Equity 1,624,98 1,939,13 2,449,62 3,282,61 3,735,20
6 4 4 6 6
Debt - Equty Ratio 288.51% 204.79% 154.07% 88.82% 71.36%

350.00%
Debt / Equity Ratio ( %age)

288.51%
300.00%
250.00%
204.79%
200.00%
154.07% Series1
150.00%
88.82%
100.00% 71.36%
50.00%
0.00%
2003 2004 2005 2006 2007
Years

Interpretation
This table shows the current and past debt/Equity ratio of the company. The ratio in
2003 was 288.51% which was very high but after that till 2007 it is decreasing
continuously and in 2007 it is 71.36% this decreasing trend shows that company is in
better position as compare to 2003.
Major reason of that decreasing trend is liabilities were decreasing year to year and
liabilities are decreasing due to increasing in the owner’s equity.

20
• Debt to Tangible Net worth Ratio

The Debt to Tangible Net worth Ratio determines the entity’s long term
debt paying ability. This ratio also helps to determine how well creditors are
protected in case of insolvency. From the prospective of long term debt
paying ability, the lower the ratio, the better the company’s position. The
Debt to tangible net worth ratio is a more conservative ratio than either the
Debt Ratio or the Debt/Equity Ratio. It eliminates Intangible assets, such as
good will, trade marks, patents and copy right because they do not provide
resources to pay creditors a very conservative position.
It is computed as follows:

Debt to Tangible Net worth Ratio = Total Liabilities/Shareholder’s Equity –


Intangible Assets

Debt To Tangible Net worth (Amounts in Rs. “000”)


2003 2004 2005 2006 2007
Total Liabilities 4,688,270 3,971,219 3,774,164 2,915,491 2,665,482
Shareholder's Equity 1,624,986 1,939,134 2,449,624 3,282,616 3,735,206
Intangible Assets 0 0 0 0 0
Debt To Tangible Net worth 288.51% 204.79% 154.07% 88.82% 71.36%

350.00%
Debt To Tangible Networth (

288.51%
300.00%
250.00% 204.79%
200.00%
%age)

154.07%
150.00% Series1
88.82%
100.00% 71.36%

50.00%
0.00%
2003 2004 2005 2006 2007
Years

Interpretation
This table shows the current and past Debt to Tangible Net worth of the company.
The ratio in 2003 was 288.51% which was very high but after that till 2007 it is
decreasing continuously and in 2007 it is 71.36% this decreasing trend shows that
company is in better position as compare to 2003.
Major reason of that decreasing trend is liabilities were decreasing year to year and
liabilities are decreasing due to increasing in the owner’s equity.

21
• Times interest earned ratio

The times interest earned ratio indicates a firm’s long term debt paying
ability from the income statement view. if the times interest earned is
adequate, little danger exists that the firm will not be able to meet its
obligations. If the firm has good coverage of the interest obligation, it
should also be able to refinance the principle when it comes due.
A relatively high stable coverage of interest over the year indicates the good
record. A low fluctuation coverage from years to years indicates a poor
record.
It is computed as follows:

Times interest earned ratio = EBIT/Interest

Interest Earned Ratio (Amounts in Rs. “000”)


2003 2004 2005 2006 2007
EBIT 122,215 680,341 977,456 1,998,662 921,450
Interest Earned 6,874 9,636 3,855 34,735 68,214
Interest Earned Ratio 18 71 254 58 14
(Times)
Interset Earned Ratio

300 254

200
(Times)

Series1
100 71 58
18 14
0
2003 2004 2005 2006 2007
Years

Interpretation
The above table indicates the Time interest earned ratio which shows the
firm will able to meet his obligation or not in 2003 interest earned was 18
times of operating profit but in 2004 it was 71 times and it increase further
to 254 times in 2005 at that time company was strong in meeting its
obligation but after 2005 it was decreased to 58 times in 2006 and 14 times
in 2007 this shows company losing its position to meet the obligation.

• Fixed Charge Coverage Ratio

The Fixed charge coverage ratio indicates a firm’s long term debt paying
ability from the income statement view. The fixed charge ratio indicates a
firms ability to cover fixed charges.
It is computed as follows:

Fixed Charge Coverage Ratio = EBIT + Lease payment/Interest +


Lease payment + (Principle + preferred dividend) * 1/(1-T)

22
Analysis of Profitability

Profitability is the ability of the firm to generate earnings. Profits are important to
stockholders as derive revenue in the form of dividend and also important to creditors
because profits are one source of funds for debt coverage.

• Net Profit Margin

Net Profit Margin= Net Income before Minority shares of Earnings /Net Sale

Net Profit Margin (Amounts in Rs. “000”)


2003 2004 2005 2006 2007
Net Income -516,075 314,150 510,490 1,203,739 646,323
Net Sales 1,510,738 2,296,231 2,845,144 4,286,139 3,463,283
Net Profit Margin -34.16% 13.68% 17.94% 28.08% 18.66%
(%age)
Profi

Mar

(%a
Net

gin

ge)

40.00%
t

28.08%
17.94% 18.66%
20.00% 13.68%
2003
0.00% Series1
2004 2005 2006 2007
-20.00%

-40.00% -34.16%
Years

Interpretation
This ratio gives a measure of net income dollars generated by each dollar of sales.
While it is desirable for this ratio to be high, competitive forces within an industry,
economic conditions, use of debt financing, and operating characteristics such as high
fixed cost will cause the net profit margin to vary between and within industries.

• Total Asset Turnover

Total Assets Turnover= Net Sales/Average Total Assets

Total Assets Turnover (Amounts in Rs. “000”)


2003 2004 2005 2006 2007
Net Sales 1,510,738 2,296,231 2,845,144 4,286,139 3,463,283
Total Assets 6,313,256 5,910,353 6,223,788 6,198,107 6,400,688
Total Assets Turnover 0.24 0.39 0.46 0.69 0.54
(Times)

23
Total Assets Turnover
0.80 0.69
0.60 0.54
0.46

(Times)
0.39
0.40 Series1
0.24
0.20
0.00
2003 2004 2005 2006 2007
Years

Interpretation
It measures the activity of the assets and the ability of the firm to generate sales
through the use of assets. The ratio is increasing and we can conclude that the cement
company is efficiently using its assets to generate more sales and more profits.

• Return on Assets

Return on Assets= Net Income before Minority Share of Earning /Average Total
Assets
Return on Assets (Amounts in Rs. “000”)
2003 2004 2005 2006 2007
Net Income -516,075 314,150 510,490 1,203,739 646,323
Total Assets 6,313,256 5,910,353 6,223,788 6,198,107 6,400,688
Return on Assets
(%age) -8.17% 5.32% 8.20% 19.42% 10.10%
Retu

Ass
ets
on
rn

30.00%
19.42%
20.00%
5.32% 8.20% 10.10%
10.00% Series1
0.00%
20032004200520062007
-10.00%-8.17%
Years
Interpretation
It measures the firm’s ability to utilize its assets to create profits by comparing profits
With the assets which generate the profits. In the base year the ratio is negative that is
the bad sign for the company. But later wards it is increasing till the third year and it
slope downwards in the last year. The reason behind that increase is the effective use
of assets. The cement company is utilizing its assets in a better way to get more
earnings.

24
• Operating Income Margin

Operating Income Margin=Operating Income/Net Sales

Operating Income Margin (Amounts in Rs. “000”)


2003 2004 2005 2006 2007
Operating Income EBIT 122,215 680,341 977,456 1,998,662 921,450
Net Sales 1,510,738 2,296,231 2,845,144 4,286,139 3,463,283
Operating Income
Margin 8.09% 29.63% 34.36% 46.63% 26.61%

46.63%
50.00%
Operating Income

40.00% 34.36%
29.63%
26.61%
Margin

30.00%
Series1
20.00%
8.09%
10.00%
0.00%
2003 2004 2005 2006 2007
Years

Interpretation
It include only operating income in the numerator. After checking table we can say
that there is an increasing trend in operating profit margin the coming three years. But
it declined in the last year due to increase in the cost of sales. Management must
focus on the cost to control in order earn more profits.

• Operating Assets Turnover

Operating Assets Turnover=Net Sales/Average Operating Assets

Operating Assets Turnover (Amounts in Rs. “000”)


2003 2004 2005 2006 2007
Net Sales 1,510,738 2,296,231 2,845,144 4,286,139 3,463,283
Operating Assets 4,581,056 4,386,946 4,553,932 4,423,040 4,259,642
Operating Asets Turnover 0.33 0.52 0.62 0.97 0.81
(Times)

1.20
0.97
Operating Assets
Turnover(Times)

1.00 0.81
0.80 0.62
0.52
0.60 Series1
0.33
0.40
0.20
0.00
2003 2004 2005 2006 2007
Years

25
Interpretation
This ratio measures the ability of operating assets to generate sales dollars. In the
table there is increasing trend in the ratio that can be identified that the company is
using its assets in the best way it can utilize them. The best use of assets is giving the
higher return on them.

• Return on Operating Assets

Return on Operating Assets=Operating Income/Average Operating Assets

Return on Operating Assets (Amounts in Rs. “000”)


2003 2004 2005 2006 2007
Net Income -516,075 314,150 510,490 1,203,739 646,323
Operating Assets 4,581,056 4,386,946 4,553,932 4,423,040 4,259,642
Return on Operating Assets -11.27% 7.16% 11.21% 27.22% 15.17%

27.22%
30.00%
Return on Operating

20.00% 15.17%
11.21%
7.16%
Assets

10.00%
Series1
0.00%
-10.00% 2003 2004 2005 2006 2007
-11.27%
-20.00%
Years

Interpretation
The above table is showing that in the base year the operating assets are not utilizing
to the best they can be. That’s why the ratio is negative in the base year. On the other
the ratio is rising up there main reason behind that increase is the operating assets are
utilizing in the best way. So it is important for the company should use its assets in the
best manner it can.
• Sales to Fixed Assets

It is computed as follows

Sales to Fixed Assets = net sales / Average Total Fixed Assets


This ratio measure the firms ability to make productive use of its property, plant
and equipment by generating sales in Rupees..
When the fixed assets are low the ratio is substantially higher.

Sales to Fixed Assets (Amounts in Rs. “000”)


2003 2004 2005 2006 2007
Net Sales 1,510,738 2,296,231 2,845,144 4,286,139 3,463,283
Total Fixed Assets 4,581,056 4,386,946 4,553,932 4,423,040 4,259,642
Sales to Fixed Assets (Times) 0.33 0.52 0.62 0.97 0.81

26
Sales to Fixed Assets
1.20 0.97
1.00 0.81
0.80 0.62

(Times)
0.52
0.60 Series1
0.33
0.40
0.20
0.00
2003 2004 2005 2006 2007
Years

Interpretation
This ratio shows the firms ability of productivity against the fixed assets and this
table indicates that the sales to fixed assets which was 0.33 times in 2003 and 0.52
in 2004, 0.62 in 2005, 0.97 in 2006 and 0.81 in 2007 these figures shows that firms
productivity against fixed assets increasing year to year but in 2007 it was
decreasing due to the decrease in the firms Net sales and this analysis also shows
that increase in sales have kept pace with net fixed asset increase

• Return on investment (ROI)


The return on investment measure the income earned on the invested capital. These
types of measures are widely used to evaluate the enterprise performance. Since
return on investment is a type of return on capital, this ratio measures the ability of
the firm to reward those who provide long term funds and to attract providers of
future funds. Compute the

Return on investment = net income + (interest) (1- Tax Rate)/Avg.


(Long Term Debt+ Equity)
It measures the earning on investment and indicates how well the firm utilizes its
assets base.

Return on Investment (Amounts in Rs. “000”)


2003 2004 2005 2006 2007
Net Income -516,075 314,150 510,490 1,203,739 646,323
Interest 463,406 204,222 229,634 264,296 207,105
Tax 185,362 81,689 91,854 105,718 82,842
Long Term Debts & Equity 5,840,924 5,538,237 5,016,842 4,930,908 4,958,401
Return on Investment -4.08% 7.88% 12.92% 27.63% 15.54%

27
27.63%
30.00%

Return on Investment
20.00% 15.54%
12.92%
7.88%
10.00% Series1

0.00%
2003 2004 2005 2006 2007
-10.00% -4.08%
Years

Interpretation
In the above the Return on investment in 2003 is -4.08% but in 2004 to 2006 there
is an increasing trend but after that in 2007 it again decreases to 15.54% from
27.63%. The reason behind this that company’s long term debt decreases over five
years. Also net income from 2003 to 2006.

• Return on Total Equity

This ratio measure the return to both common and preferred shareholders. It is
computed as

Return on Total Equity =Net income – Redeemable preferred stock


Dividend /
Avg. Total Equity

Return on Total Equity (Amounts in Rs. “000”)


2003 2004 2005 2006 2007
Net Income -516,075 314,150 510,490 1,203,739 646,323
Redeemable P/Stock Dividend 0 0 0 0 0
Total Equity 1,624,986 1,939,134 2,449,624 3,282,616 3,735,206
Return on Total Equity -31.76% 16.20% 20.84% 36.67% 17.30%

60.00%
Return on Total Equity

36.67%
40.00%
16.20%20.84% 17.30%
20.00%
Series1
0.00%
-20.00% 2003 2004 2005 2006 2007

-40.00% -31.76%
Years

Interpretation
In the above the Return on Total equity in 2003 is -31.76% but in 2004 to 2006
there is an increasing trend but after that in 2007 it again decreases to 17.30% from
36.67%. the reason behind this that company’s long term debt decreases over five
years. Also there is an increasing trend in Total equity in five years. Net income
also increases from 2003-06.

28
• Return on common Equity

This ratio measures the return to common shareholder, the residual owner.
Compute the return on common equity as follows

Return on common Equity = Net income –Preferred stock Dividend /


Avg. common equity

Return on Common Equity (Amounts in Rs. “000”)


2003 2004 2005 2006 2007
Net Income -516,075 314,150 510,490 1,203,739 646,323
P/Stock Dividend 0 0 0 0 8361
Common Equity 3707430 3707430 3707430 3707430 3707430
Return on Common Equity -13.92% 8.47% 13.77% 32.47% 17.21%

40.00% 32.47%
Return on Common

30.00%
17.21%
20.00% 13.77%
Equity

8.47%
10.00% Series1
0.00%
-10.00% 2003 2004 2005 2006 2007
-20.00% -13.92%
Years

Interpretation
In the above the Return on Common equity in 2003 is -13.92% but in 2004 to 2006
there is an increasing trend but after that in 2007 it again decreases to 17.21% from
32.47%. the reason behind this that company’s long term debt decreases over five
years. Also there is an increasing trend in Total equity in five years. Net income
also increases from 2003-06.

• Gross profit Margin


Gross profit equals the difference between net sales revenue and the cost of goods
sold.

Gross profit Margin = Gross profit / Net sales

Gross profit margin analysis helps a number of users. Manager’s budget gross
profit levels into their predictions of profitability. Gross profit margin is also use in
cost control. Gross profit margin can also be used to estimate inventory involved in
insured loses.

Gross Profit Margin (Amounts in Rs. “000”)


2003 2004 2005 2006 2007
Gross Profit 175,607 740,825 1,081,577 2,191,112 1,091,495
Net Sales 1,510,738 2,296,231 2,845,144 4,286,139 3,463,283
Gross Profit Margin 11.62% 32.26% 38.01% 51.12% 31.52%

29
Interpretation
In this table the gross profit margin has inclined substantially over the 1st four
years from 2003 to 2006 after that in 2007 the Gross profit Margin decreased by
31.52%.The increase in Gross profit margin is due to increase in Net sales and
Gross profit.
The increase in Gross profit is also due to
 The cost of buying inventory has decreased in 1st four years but
increased in last year (2007).
 Selling price has inclined.

Analysis for Investor

• Degree of Financial Leverage

Degree of financial leverage is the multiplication factor by which the net income
changes as compare to the change in EBIT.
Degree of Financial Leverage=%age change in Net income/%age change in
EBIT
The degree of financial leverage represents a particular base level of income. If
earning before interest increases the financial leverage will be favorable if earning
before interest decreases the financial leverage will be un favorable.

Degree of Financial Leverage (Amounts in Rs. “000”)


Years 2003 2004 2005 2006 2007
%age Change in Net Income -367.12 39.12 62.5 135.8 -46.23
%age Change in EBIT -61.5 456.67 43.67 104.5 -53.9
Degree of Financial Leverage 5.97 0.09 1.43 1.30 0.86

8.00
Degree of Financial

5.97
6.00
Leverage

4.00 Series1
1.43 1.30
2.00 0.86
0.09
0.00
2003 2004 2005 2006 2007
Years

Interpretation
In the above table we have seen that in 1st year the degree of financial leverage is
5.97 but in 2004 id decreases to 0.09 there is a very huge gap after that it
increases in 2005 to 1.43 and again there is a slight decrease by 0.13 in 2006 and
in last year it again decreases to 0.86. In 2004 EBIT is increases it means
financial leverage is favorable as compare to 2003 where EBIT is very less and
financial leverage is unfavorable then in last three years again financial leverage
is favorable.

• Earning per Common Share


30
The amount of income earned on a share of common stock during an accounting
period is called earning per common share. Earning per Common Share involves
net income p/s dividends declared accumulated and the weighted average number
of share outstanding.

Earning per Common Share=net income-preferred dividend/Weighted


average number of common shares outstanding
Earning Per Common Share (Amounts in Rs. “000”)
2003 2004 2005 2006 2007
Net Income -516,075 314,150 510,490 1,203,739 646,323
Preferred Dividend 0 0 0 0 8361
Weighted Avg. No. of Common Share O/S 370743 370743 370743 370743 370743
Earning Per Common Share -PKR 1.39 PKR 0.85 PKR 1.38 PKR 3.25 PKR 1.72
Earning Per Common

PKR4.00 PKR3.25
PKR3.00
Share

PKR1.72
PKR2.00 PKR1.38
PKR0.85
PKR1.00 Series1
PKR0.00
-PKR1.00 2003 2004 2005 2006 2007
-PKR2.00 -PKR1.39
Years

Interpretation
In the above in 2003 the earning per common share is negative and this is due to
loss on sales. The earning per share is rising in the coming three years. That
attracts the investors who want the profit maximization. There is decrease in the
EPS in the last year as compared to the subsequent years.

• Price/Earning Ratio
Price per Earning Ratio expresses the relationship between the market price of a
share of common stock and that stock’s current earning per share.

Price per earning ratio = Market price per common share /Diluted earning per
share

Where diluted earning per share is basic earning per share if company only
presents basic earning per share.
• Percentage of earnings Retained
Percentage of earnings retained = Net income –All dividends / Net income

It is better for trend analysis if non recurring items are remove.

• Dividend payout Ratio

31
The dividend payout ratio measures the portion of current earnings per common
share being paid out in dividends.

Dividend payout = Dividend per common share / Diluted earnings per share
Dividend yield
The dividend yield indicates the relationship between the dividends per common
share and the market price per common share.
Dividend yield = Dividend per common share / market price per
common share

• Book Value per Share

It indicates the amount of shareholder’s equity that relates to each share of


outstanding common stock.

Book value per share= Total shareholder’s equity-preferred stock


equity/Number of common share outstanding
Book value is of limited use to the investment analyst since it is based on
Historical cost. When market value is below book value, investors view the
company as lacking potential. A market value above book value indicates that
investors view the company as having enough potential to be worth more than the
un recovered cost.

Book Value Per Share (Amounts in Rs. “000”)


2003 2004 2005 2006 2007
Total Shareholder's Equity 1,624,986 1,939,134 2,449,624 3,282,616 3,735,206
Preferred Stock Equity 486,992 486,992 486,992 486,992 486,992
No. of Common Stock O/S 370743 370743 370743 370743 370743
Book Value Per Share 3.07 3.92 5.29 7.54 8.76
Book Valur Per Share

10.00 8.76
7.54
8.00
5.29
6.00
3.92 Series1
4.00 3.07
2.00
0.00
2003 2004 2005 2006 2007
Years

Interpretation
The book value per share is increasing in the coming years. The reason of that
rise is that the total common shareholder’s equity is increasing in the coming
years. That is very good for the investors to earn more on their investments. The
owners of the cement company are increasing as compared to the base year.

Multivariate Model

32
This model uses five financial ratios weighted in order to maximize the predictive
power of model. The model produces an overall discriminate score called a Z-Score.

Z= 0.012 X1+0.014X2+0.033X3+0.006X4+0.010X5

X1 = Working Capital/Total Assets


This computation is a measure of the net liquid assets of the firm relative to the total
capitalization.
X1

2003 2004 2005 2006 2007


Working capital 249006 202345 -93225 312183 511240
Total Assets 6,313,256 5,910,353 6,223,788 6,198,107 6,400,688
X1 0.04 0.03 -0.01 0.05 0.08

X2 = Retained earnings/total assets


This variable measures cumulative profitability over time.
X2

2003 2004 2005 2006 2007


Retain earning 0 0 0 0 0
Total Assets 6,313,256 5,910,353 6,223,788 6,198,107 6,400,688
X2 0 0 0 0 0

X3= Earning Before Interest & Taxes/Total Assets


This variable measure the productivity of the firm’s assets abstracting any tax or
leverage factors.
X3

2003 2004 2005 2006 2007


Operating Profit(EBIT) 122,215 680,341 977,456 1,998,662 921,450
Total Assets 6,313,256 5,910,353 6,223,788 6,198,107 6,400,688
X3 0.02 0.12 0.16 0.32 0.14

X4= Market Value of Equity/Book Value of Total Debt


This variable measures how much the firms assets can decline in value before the
liabilities exceeds the assets and the firm becomes insolvent.
X4

2003 2004 2005 2006 2007


Market value of equity
Book value of Total Debts 4,688,270 3,971,219 3,774,164 2,915,491 2,665,482

X5= Sales/Total Assets


This variable measure the sales generating ability of the firm’s assets.

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X5

2003 2004 2005 2006 2007


Sales 1510738 2296231 2845144 4286139 3463283
Total Assets 6,313,256 5,910,353 6,223,788 6,198,107 6,400,688
X5 0.24 0.39 0.46 0.69 0.54

0.0200 0.0182

0.0150
0.0111
Z-score

0.0096
0.0100 0.0081 Series1

0.0050 0.0035

0.0000
2003 2004 2005 2006 2007
Years

CONCLUSIONS AND
RECOMMENDATIONS
From the above information we conclude that cement sector in one of the prosperous
sector in the Pakistan’s economy. The potential investors should take their chances
investing in the cement sector through stock exchanges. The Fauji cement country has
proved itself as one of the leading cement factories of the country. The trade mark of
Fauji Foundation gives a sign of credibility in the minds of the investors.

Since Pakistan is a developing country and for expanding infrastructure and


developmental projects, the need of the cement is very obvious. Fauji cement has
been providing 63% of the cement in the country as well as exporting to countries like
Afghanistan and Bangladesh.

It is strongly recommended that Fauji Cement should expand its business and should
establish the strategies of going global.

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