DGK Cement Company Limited: DGKC is a unit of Nishat group, which is a one of the leading and diversified business

group with a strong presence in three important sectors in Pakistan, textiles, cement, and financial services. The group also has a considerable stake in power generation, paper products and aviation sectors. It is listed in all the three stock exchanges of Pakistan. Currently it s debt structure is 50% debt and 50% equity. DGKC is producer and seller of two products: cement. Ordinary Portland and Sulphate-resistant

Share Price Rs. Year 2005 High 113.80 Low 47.00 Average 80.40 Number of share holders: 7294 Registered Office

2006 158.00 57.90 107.95

2007 121.90 60.65 91.28

2008 121.65 21.27 71.46

Nishat House, 53-A, Lawrence Road, Lahore-Pakistan Phone: 92-42-6367812-20 UAN: 111 11 33 33 Email: info@dgcement.com web site: www.dgcement.com 1. Khofli Sattai, Distt. Dera Ghazi Khan-Pakistan Phone: 92-641-460025-7 Email: dgsite@dgcement.com 2. 12, K.M. Choa Saidan Shah Road, Khairpur, Tehsil Kallar Kahar, Distt. Chakwal-Pakistan Phone: 92-543-650215-8

Factory:

Capacity Utilization: Actual Productivity:

installed capacity= 4,020,000 M. tons actual productivity= 4,142,764 M. tons

ISO CERTIFICATIONS: ISO 14001 & ISO 9001:2000

Write up for the horizontal common size of balance sheet

Issued, subscribed and paid up capital is exactly the same as last year but comparing to last year it is 0.02% lower because total assets increased by about 0.5% in 2008. Reserves are about 53% of total assets and it decreased by 4% from last year because loss of a little more than 3.4 billion rupees in fair value reserve. Long term finance is 16% of the assets; it consists of 16 kinds of long term loans from 8 different banks including European Investment Bank and security. Rs 2 billion are also borrowed under musharika arrangement. Long term deposits consist of free security deposits from stockiest and suppliers, these are repayable on ending of dealership or business. They make up only 0.14 of the assets. Retirement and other benefits include staff gratuity and leave encashment, it is only 0.1% of total assets and deferred taxation is 2.545 of the total assets. In current liabilities trade and other payables are 2.64% of total assets and major chunk of trade and other payables are consist of trade creditors, customers balances, accrued liabilities and derivative financial instruments. Most of the accrued markup is made up of long term loans and short term borrowing, short term borrowing is about 1/3 of long term loans and more than doubled comparing to last year. Short term borrowing is about 14.6% of total assets, it is almost doubled of last year, it comprises of short term running finances and import finances. Current portion of non-current liability is 5.17% of assets and about 30% more than last year. Property plant and equipment holds around 44% of total assets. Capital in progress is about 4.8% of total assets, increased by around 25% comparing to last year and consists of civil works, plant, machinery and advances. Investments make up about 13% of the total assets and it decreased by around 17% from last year. Long term loans, advances and deposits are only 1% of total assets and they are up by 2.5 times that of last year. Stores, spares and loose tools are a little less than 4.5% of total assets and stores makes up 83% of this 4.5%. Stock in trade is less then 1% of the total assets and it consist of raw materials, packing materials, work in process and finished goods, all of these things increased comparing to last year except work in process. Trade debt is less than 1% of assets and increased by 2.5 times that of last year. Investments make up the 29% of the total assets and decreased by about 1% comparing to last year. Advances, deposits, prepayments and other receivables are 1.5% of total assets and increased by 3.4 times or 340% from last year. Cash and bank balances are less than .5% of total assets and it doubled from that of last year.

Write up for the horizontal common size of income statement

Local sales almost doubled compare to last year, but COGS more than doubled due to which gross profit decreased by about 16% comparing to last year. The major reasons for increase I cost was due to increase in electricity, gas, furnace oil and coal prices. Other reasons were, stores and spares consumed almost doubled, repair and maintenance almost increased by 4.3 times, insurance more than doubled, depreciation of property, plant and equipment almost rose by 300%. Admin expenses are almost the same as last year but selling and distribution expenses increased by more than 8.5 times. This is due to increase in local freight charges and freight and handling charges for exports. Operating expenses expanded by 5 times because DG Cement had to take Rs 567 million of exchange loss. Other operating income is 6.8 % of sales and almost doubled that of last year because dividend income form Nishat Mills Limited increase from about Rs 27 million to Rs 50 million and from MCB Bank dividend income rose from Rs 420 million to Rs 750 million. Finance cost swell by 370% to Rs 1749 million because long term loans expanded by more than 3 times and short term borrowing rose by 4 times.

Liquidity Ratios Analysis Current Ratio: Current Ratio = Current Assets / Current Liabilities =19202591/12054718 =1.59 This ratio shows that for every 1 rupee of liability we have 1.59 rupee of current assets. Quick Ratio: Quick Ratio = (Current Assets Inventory) / Current Liabilities = (19202591-445856)/ 12054718 =1.56 Since there isnt much difference between quick ratio and current ratio, this shows inventory isnt a big part of current assets, we dont have to worry about inventory building up or becoming obsolete. Cash Flow Liquidity Ratio: Cash Flow Liquidity Ratio = (Cash + Mkt Sec + Cash from Operations) / Current Liabilities = (226372+15082582+(-609928))/12054718 =1.22 This ratio shows for every 1 rupee of liability we have 1 rupee and 22 paisa of cash, mkt securities, and cash from operations Cash Ratio: Cash Ratio = Cash / Current Liabilities = 226372/12054718 =0.019 For every 1 rupee of liability we have 0.019 paisa of cash, DGK has very low cash in hand. A/C Rec. in days: A/C Rec. in days= A/C Rec./(Net sales/360) = 782358/(12445996/360) =22.63 This ratio shows the receivable are outstanding for 23 days, meaning the DGK Cement is able to collect its receivable in 23 days which suggest company is receiving cash after sale relatively quickly. Inventory in days: Inventory in days = Inventory/(C.G.S./360) = 445856/(10530723/360) =15.24 This ratio shows on average it takes 16 days for the inventory to be out of the warehouse, from the quick ratio above we know that inventory is not a big part of current assets so it seems that inventory is turning over rather quickly, this might cause stock-out and lost sales. Payable in Days:

Payable in Days = Payable/(C.G.S./360) = 1370336/(10530723/360) =46.85 DGK Cement is taking almost 47 days to clear its payable, or taking 47 days to make payments to suppliers.

Operating Cycle: Operating Cycle = Inventory in days + A/C Rec. in days = 15.24+22.63 =37.87 This is a quite fast operating cycle, if DGK Cement can increase the sales further by selling its products on credit for longer times then it should because I think it can afford to make its operating cycle longer.

Cash Cycle: Cash Cycle = Operating Cycle - Payable in Days = 37.87-46.85 =8.98

Solvency Ratio Analysis

Debt Ratio:

Total Liability Debt ratio = Total Assets = 42% This means that 42% of Total Assets are financed through debt. For every Re. 1 invested in company, Paisa 42 comes through debt or one can say that 42% of assets are financed by debt and 58% are financed by shareholders equity.

Debt to Equity:

Total Debt Debt to Equity = Stock holders equity = 72.8% This ratio shows that creditors are providing 72 paisa of financing for each 1 rupee being provided by shareholders.

Long term debt to Capitalization:

Long term debt Long term debt to Capitalization = Long term debt + Equity

= 24.7%

Due to increasing of the cost of finance, DGK Cement is shifting towards short term borrowing rather then long term loans from the banks. Most of the other companies in cement industry are also adopting this policy. Some of the previous loans were repaid by taking more short term loans or by issuing more common shares. This resulted into an increase of current liabilities and decrease of long term liabilities. This also resulted in an increase of debt to assets ratio. So currently debt to equity ratio is increasing but long term debt to equity ratio is declining.