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[Year]

Ratio Analysis
DGK Cement

SUBMITTED TO
SIR. TANVIR YASIN
SUBMITTED BY
RIZWAN AHMAD BC15238
AWAIS BC15255
JALEES MUSHTAQ BC15220
NOMAN AHMAD BC15232
HAMZA IQBAL BC15252
D.G. Khan Cement Company Ltd

Acknowledgment
Am extremely thankful to Allah Almighty who has
enabled us to complete this report on time and in the
manner it was required. He provided menthe resources to
capture the knowledge and avail the opportunities in the
world. It is also a matter of immense pleasure for me to
express my gratitude to my Teacher Sir. Tanvir Yasin
who has been a source of real inspiration for us. His
experiences formed an important part in this report. His
guidance and encouragement provided us a mean to step
ahead towards my objective in a proper way. I also wish
to acknowledge the support of all my friends, who helped
in completing this report. Without their support and
cooperation it was not possible for me to complete this
report.
D.G. Khan Cement Company Ltd

Table of Contents
Introduction ............................................................................................................................................ 1
Financial statements ............................................................................................................................... 3
Liquidity Ratio ......................................................................................................................................... 6
Current Ratio ....................................................................................................................................... 6
Liquid/Quick/Acid test ratio ................................................................................................................ 6
Absolute liquid ratio............................................................................................................................ 7
Activity Ratio OR Efficiency Ratio............................................................................................................ 8
Inventory turnover ratio ..................................................................................................................... 8
Creditor turnover ratio ....................................................................................................................... 9
Debtor Turnover Ratio ........................................................................................................................ 9
Debtor Turnover Ratio ...................................................................................................................... 10
Working Capital Turnover Ratio........................................................................................................ 10
Total asset turnover ratio ................................................................................................................. 11
Profitability Ratios................................................................................................................................. 11
GP Ratio............................................................................................................................................. 11
Operating Profit Ratio ....................................................................................................................... 12
Net Profit Ratio ................................................................................................................................. 12
Operating ratio.................................................................................................................................. 13
Solvency Ratio ....................................................................................................................................... 13
Debt To equity Ratio ......................................................................................................................... 13
Debt Ratio ......................................................................................................................................... 14
Interest Coverage Ratio .................................................................................................................... 15
Proprietary Ratio ............................................................................................................................... 15
Return on investment ratios ................................................................................................................. 16
EPS (Earning per share) ratio ............................................................................................................ 16
Earnings Ratio ................................................................................................................................... 16
Capital employed ratio...................................................................................................................... 17
Return on shareholder fund ............................................................................................................. 18
Conclusion ............................................................................................................................................. 18
D.G. Khan Cement Company Ltd

Introduction
VISION STATEMENT
To transform the Company into a modern and dynamic cement manufacturing company with
qualified professionals and fully equipped to play a meaningful role on sustainable basis in
the economy of Pakistan.

MISSION STATEMENT
To provide quality products to customers and explore new markets to promote/expand sales of
the Company through good governance and foster a sound and dynamic team, so as to achieve
optimum prices of products of the Company for sustainable and equitable growth and
prosperity of the Company.
Establishment
DGKhan Cement Company Limited (DGKCC) was established under the management
control of State Cement Corporation of Pakistan Limited (SCCP) in 1978 as private limited
company. DGKCC started its commercial production in April 1986 with 2000 tons per day
(TPD) clinker based on dry process technology.

Acquisition by Nishat
Nishat acquired DGKCC in 1992 under the privatization initiative of the government. After
privatization the company was listed on Stock Exchanges in September 1992.

The Company is principally engaged in the manufacturing and sale of Cement. The Company
is member of All Pakistan Cement Manufacturers Association (APCMA) and Lahore Chamber
of Commerce and Industry (LCCI).

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D.G. Khan Cement Company Ltd

DG Khan Cement Company


D.G. Khan Cement Company Limited, (DGKCC) is amongst largest cement manufacturers of Pakistan
with a production capacity of 14,000 tons per day (4.200 million tons/annum). DGKCC has three
cement plants, two plants located at Dera Ghazi Khan and one at Khairpur Distt. Chakwal. All the plants
are based on latest Dry Process Technology.
The Company operates through a countrywide distribution network managed by different Regional
Sales offices. The Company’s products are preferred on projects of national repute both locally and
internationally due to the un-parallel and consistent quality. The Company is listed on all the Stock
Exchanges of Pakistan.
CONTRIBUTION TO ENVIRONMENT
DGKCC production processes are environment friendly and comply with the World Bank’s
environmental standards. It has been certified for “Environment Management System” ISO 14001 by
Quality Assurance Services, Australia. The company was also certified for ISO-9002 Quality
Management System) in 1998. By achieving this landmark, DG Khan Cement became the first and only
cement factory in Pakistan certified for both ISO 9002 & ISO 14001...
ALTERNATIVE FUELS
Fuel, being one of the major inputs in cement manufacturing cost and ever increasing prices has forced
DGKCC to look for alternate cheaper fuels in order to maintain its results positive. Study was carried
to find out suitable fuels available in the market, DGKCC started with local coal having calorific value
ranging 5000-6000 Kcal/ton. After continuous efforts and search, number of alternate fuels are in use
e.g. rice husk, poultry waste, corn cob, corn stick, cotton dust, cotton sticks etc. Study is underway to
explore availability and usage of different other alternate fuels. By using alternate fuels DGKCC is also
contributing its share towards environment control.

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D.G. Khan Cement Company Ltd

Financial statements

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D.G. Khan Cement Company Ltd

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D.G. Khan Cement Company Ltd

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D.G. Khan Cement Company Ltd

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

Current Ratio
Current ratio, also known as liquidity ratio and working capital ratio, shows the proportion
of current assets of a business in relation to its current liabilities.
current asset
Current ratio = current liability

31426342
Current ratio 2015 = 6583476

= 4.77:1
30835521
Current ratio 2016 = 10056634

= 3.07:1
In 2015 its currents ratio is 4.77 and in 2016 it decrease to 3.07. It means company is still in good
position to pay its current liability from its current assets. Because general benchmark 2:1.

Liquid/Quick/Acid test ratio


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

Current Asset – inventory


Quick ratio = current liability
31426342 – 1188376
Quick ratio 2015 = 6583476
= 4.6

30835521 – 766633
Quick ratio 2016 = 10056634
= 2.9

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

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D.G. Khan Cement Company Ltd

Absolute liquid ratio


In addition to computing current and quick ratio, some analysts also compute absolute liquid ratio to
test the liquidity of the business. Absolute liquid ratio is computed by dividing the absolute liquid
assets by current liabilities.
Absolute liquid assets
Absolute liquid ratio = Current liabilities
here absolute liquid assets = Cash + Bank + marketable securities
In 2015
257723
Absolute ratio = 6583476

= 0.04:1
In 2016
7009844
Absolute liquid ratio = 10056634

= 0.7

In both years company is in position to pay its current liabilities from absolute liquid assets. General
benchmark is 0.5:1

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D.G. Khan Cement Company Ltd

Activity Ratio OR Efficiency Ratio


Purpose of these ratios is to measure the how efficiently business is utilizing his reserves for generating
revenues.
 Inventory turnover ratio
 Creditor turnover ratio
 Debtor turnover ratio
 Working capital turnover ratio.

Inventory turnover ratio


It measures how many times a company has sold and replaced its inventory during a certain
period of time. Higher the ratio more favorable for the business
CGS
Inventory turnover ratio = Avg.stock

opening stock + closing stock


Avg.Stock = 2
In 2015

1348742 + 1188376
Avg.Stock =
2
= 1268559

16649411
Inventory turnover ratio =
1268559
= 13 times

365
Inventory conversion period = 13
= 28 days

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

Inventory turnover ratio = 17035566/977505


= 17.4 times

365
Inventory conversion period = 17.4
= 21 days

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

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D.G. Khan Cement Company Ltd

Creditor turnover ratio


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

net credit purchase


Creditor turnover ratio = Avg.payable
In 2015

16489045
Creditor turnover ratio = 4018079
= 4 times

365
Creditor conversion period = 4
= 91 days

In 2016

16613823
Creditor turnover ratio = 4707209.5
= 3.5 times

365
Creditor conversion period =
3.5
= 104 days

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

Debtor Turnover Ratio


it shows how many times and how long it takes for a business to recover the revenue receipts
from its trade receivables.
In 2015

net credit sales


Debtor turnover ratio = avg.recievable
26104611
=
804909
= 32.43 times.

365
Receivable conversion period = 32.43
= 11 days

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D.G. Khan Cement Company Ltd

Debtor Turnover Ratio

In 2016

29703558
Receivable turnover ratio = 795465
= 37.3 times

365
Receivable conversion period = 37.3
= 10 days

DGK receives its average debtors 32.43 times in 2015 and 37.3 times in 2016. It took DGK an
average of 10.5 days to collect revenue receipts from its trade debtors.

Working Capital Turnover Ratio


It provides useful idea of how efficiently working capital is used to generate revenue .The
higher the ratio, the better is the utilization.

CGS
Working capital turnover ratio = AVG.working capital

In 2015

Working capital = Current asset – current liability


= 31426342 – 6583476
= 24842866
16649411
Working capital turnover ratio = 24842866
= 0.67 times

In 2016

Working capital = 30835521 – 10056634


= 20778887

24842866 + 20778887
Average working capital = 2
= 22810877

17035566
Working capital turnover ratio =
22810877
= 0.74 times.

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

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D.G. Khan Cement Company Ltd

Total asset turnover ratio


Asset turnover ratio is the ratio of the value of a company’s sales or revenues generated relative
to the value of its assets. The higher the asset turnover ratio, the better the company is
performing

sale
Total asset turnover ratio = total asset

In 2015
26104611
Total asset turnover ratio =
74391443
= 0.35

In 2016
29703758
Total asset turnover ratio = 83418265
= 0.35
Results indicates that 1PRs invested in fixed asset give .35 towards the total sales revenue. In
both years ratio is blow 1 which shows that company is not efficiently deploying its assets in
generating revenues.

Profitability Ratios
These ratios measure the ability of a business to generate earnings compare to its expenses and
other relevant costs incurred during a specific period of time.

Types of Profitability Ratio


 GP ratio
 NP ratio
 Operating profit ratio
 Operating ratio

GP Ratio
GP Ratio is profitability ratio that shows the relationship between gross profit and total net
sales. It evaluate the operational performance of the business. Generally, a higher ratio is
considered better.

GP
GP ratio = net sales x 100
In 2015

9455200
GP ratio = 26104611 x 100
= 36.22%

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D.G. Khan Cement Company Ltd

GP Ratio
In 2016
12668192
GP ratio = 29703758 x 100

= 42.46%

This means DGK earns 36.22% in 2015 and 42.465 in 2016 on the one hundred in gross margin.

Operating Profit Ratio


Ratio is the percentage of operating profit (i.e. profit before interest and tax) relative to the
revenue earned during a period.

operating profit
Operating profit ratio = x 100
net sales

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

Net Profit Ratio


Net Profit Ratio is the percentage of net profit relative to the revenue earned during a
period.Net Profit Ratio is also known as Net Profit Margin Percentage and NP Margin.
net profit
Net profit ratio = x 10
net sales
In 2015
7624680
Net profit ratio = 26104611 x100

=29.21%

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D.G. Khan Cement Company Ltd

Net Profit Ratio


In 2016
8789672
Net profit ratio = x100
29703758
= 29.59%
A net profit margin of 29.59 means that every 100 PRs sale contributes PRs29.59 towards the net
profits of the business.

Operating ratio
Operating ratio (also known as operating cost ratio or operating expense ratio) is computed by dividing
operating expenses of a particular period by net sales made during that period. Like expense ratio, it is
expressed in percentage. Less the ratio more favorable for the business.
CGS + operating expenses
Operating ratio = net sale x 100

In 2015
16649411+1946854
Operating ratio = 26104611 x 100

= 71.23%

In 2016
17035566+2436050
Operating ratio = x 100
29703758
= 65.6%
The operating ratio is 71% and 65.6% it means 71% and 65.6% of the sales revenue would be used to
cover cost of goods sold and operating expenses of DGK cement in both years respectively

Solvency Ratio
Purpose of this ratio is to measure the long term debt paying capacity of a company.

Debt To equity Ratio


Debt-to-Equity Ratio, often referred to as Gearing Ratio, is the proportion of debt financing in an
organization relative to its equity.

long term debt


Debt to equity ratio = equity
In 2015
5511896
Debt to equity ratio = 62296071

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D.G. Khan Cement Company Ltd

= 0.09

In 2016
7578202
Debt to equity ratio = 65783429

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

Debt Ratio
It can be interpreted as portion of company’s assets that are finance by debt.
total debt
Debt ratio =
total asset
In 2015
Debt ratio = 12095372/74391443
= 0.16
In 2016
17634836
Debt ratio = 83418267

= 0.21
This is a relatively low ratio and implies that DGK will be able to pay back his loan. DGK shouldn’t
have a problem getting approved for loan.

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D.G. Khan Cement Company Ltd

Interest Coverage Ratio


Interest Coverage Ratio, also known as Times Interest Earned Ratio (TIE), states the number of times
a company is capable of bearing its interest expense obligation out of the operating profits earned during
a period.
EBIT
Interest coverage ratio =
interest expense
In 2015
9828681
Interest coverage ratio = 281504

= 34.9 times
In 2016
12611195
Interest coverage ratio = 130451

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

Proprietary Ratio
The proprietary ratio (also known as net worth ratio or equity ratio) is used to evaluate the soundness
of the capital structure of a company. It is computed by dividing the stockholders’ equity by total assets.
equity
Proprietary ratio = total assets x 100

In 2015
62296071
Proprietary ratio = 74391443 x 100

= 83 %

In 2016
65783429
Proprietary ratio = 83418265 x 100

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

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D.G. Khan Cement Company Ltd

Return on investment ratios


EPS (Earning per share) ratio
Earnings per share (EPS) ratio measures how many dollars of net income have been earned by each
share of common stock.
PAT
EPS =
No.of share
In 2015
7624680
EPS = 438119

= 17.40
In 2016
8789672
EPS = 438119

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

Earnings Ratio
Price earnings ratios (P/E ratio) measures how many times the earnings per share (EPS) has
been covered by current market price of an ordinary share. It is computed by dividing the
current market price of an ordinary share by earnings per share.
market price per share
Earnings ratio =
earning per share
In 2015
Earnings ratio = 144.7/17.40
= 8.3
In 2016
215.08
Earnings ratio = 20.06

= 10.72
The price earnings ratio of the company is 10. 72It means the earnings per share of the company is
covered 10.72 times by the market price of its share. In other words, PRs1 of earnings has a market
value of PRs10.

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D.G. Khan Cement Company Ltd

Capital employed ratio


It measures the success of a business in generating satisfactory profit on capital invested. The ratio is
expressed in percentage.
EBIT
Capital employed ratio = capital employed x 100

Capital employed = current asset – current liability + fixed asset – non operating asset
In 2015
Capital employed = 31426342 – 6583476 + 42965101 – 12918182 – 24855796
= 30033989
In 2016
Capital employed = 30835521 – 10056634 + 52582744 – 17819005 – 57938
= 55484688
In 2015
9828681
Capital employed ratio = x 100
30033989
= 32.73%
In 2016
12611195
Capital employed ratio = x 100
55484688
= 22.72%
DGK has a return of 22.72. In other words, every PRs100 invested in employed capital, DGK earns
PRs 22.72.

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D.G. Khan Cement Company Ltd

Return on shareholder fund


Return on shareholders’ fund ratio is a measure of overall profitability of the business and is
computed by dividing the net income after interest and tax by average stockholders’ equity. It
is also known as return on total equity (ROTE) ratio and return on net worth ratio. The ratio is
usually expressed in percentage.
EAT
Return on shareholder fund = equity x 100

In 2015
7624680
Return on shareholder = 62296071 x 100

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

Conclusion
▪ After applying all the ratios we got an idea that the DGK cement Company is a profitable
firm. Because throughout the analysis of two years, we found that the company is getting
profitable return on short term and long term investment, their profit margin has been
increased as well and they are in the position to pay their debts with in their resources.

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