Finance Project On Ratio Analysis On ENGRO: The Organization Concerned Engro Chemical Pakistan LTD

Tuesday, 16 August 2011
Tuesday, 16 August 2011
Finance Project on Ratio Analysis on ENGRO

THE ORGANIZATION CONCERNED
Engro Chemical Pakistan Ltd.
Engro Chemical Pakistan Limited is a fertilizer company which is of their concern that
has been introduced right below. They are going to make a full-fledge financial analysis
of this fertilizer company in order to check its financial situation in the market. The
analysis of each and every major ratio has been involved in this financial analysis. Then
furthermore the interpretation of each and every ratio has been given to elaborate it.
An Overview
Search for oil by Pak Stanvac, an Esso/Mobil joint venture in 1957, led to the discovery
Of Mari gas field situated near Daharki -- a small town in upper Sindh province. Esso
was the first to study this development in detail and propose the establishment of a urea
plant in that area.
The proposal was approved by the government in 1964, which led to a fertilizer plant
agreement signed in December that year. Subsequently in 1965, the Esso Pakistan
Fertilizer Company Limited was incorporated, with 75% of the shares owned by Esso
and 25% by the general public. The construction of a urea plant commenced at Daharki
the following year with the annual capacity of 173,000 tons and production commenced
in 1968. At US $ 43 million, it was the single largest foreign investment by an MNC in
the country.
A full-fledged marketing organization was established which undertook agronomic
programs to educate the farmers of Pakistan. As the nations first fertilizer brand, Engro
(then Esso) helped modernize traditional farming practices to boost farm yields, directly
impacting the quality of life not only for farmers and their families, but for the
community at large. As a result of these efforts, consumption of fertilizers increased in
Pakistan, paving the way for the Companys branded urea called "Engro", an acronym
for "Energy for Growth".
As part of an international name change program, Esso became Exxon in 1978 and the
company was renamed Exxon Chemical Pakistan Limited. The company continued to
prosper as it relentlessly pursued productivity gains and strived to attain professional
excellence.
In 1991, Exxon decided to divest its fertilizer business on a global basis. The employees
of Exxon Chemical Pakistan Limited, in partnership with leading international and local
financial institutions bought out Exxons 75 percent equity. This was at the time and
perhaps still is the most successful employee buy-out in the corporate history of
Pakistan. Renamed as Engro Chemical Pakistan Limited, the Company has gone from
strength to strength, reflected in its consistent financial performance, growth of the core
fertilizer business and diversification into other fields.
Investment in people, process solutions and resource conservation initiatives has
reduced energy use per ton of urea by a third, whilst increasing urea production nearly
six-fold since 1968. Not only does this save money, it stretches non-renewable energy
sources and mitigates the impact of waste. Along the way, a major milestone in plant
capacity upgrade coincided with the employee led buy-out; innovatively optimizing our
resources, Engro re-located fertilizer manufacturing plants from the UK and US to its
Daharki plant site an international first. Our pioneering spirit continues in our social
investments, exemplified by the only snake-bite treatment facility in the Ghotki region
and the first telemedicine intervention in the country.
WVision
"To be the premier Pakistani enterprise with a global reach, passionately pursuing value
creation for all stakeholders."
Our Diverse Colors of Excellence
Our Businesses
The years since Exxon became Engro have been both exciting and rewarding for the
Organization and its people. Challenges have been overcome, goals achieved and new
goals set. Engro today stands recognized as a successful business operation and a role
model for doing business in Pakistan.
Engro Chemical Pakistan Limited
The Companys current manufacturing base includes urea name plate capacity of
975,000 tons per annum and blended fertilizer (NPK) capacity of 160,000 tons per year.
A premier brand and nationwide presence ensure sellout production. Additionally, the
company imports and sells phosphatic fertilizers for balanced fertility and improved
farm yields. Engros share of Pakistans phosphates market mirrors or exceeds its urea
market share.
Expansion plans include a new urea plant of 1.3 million tons annual capacity, also at
Daharki. The US$ 1 billion project is well underway and on track for commercial
production in mid 2010. This addition will increase Engros urea market share to 35%
from 19% at present.
Engro Vopak Terminal Limited
50:50 Joint Ventures with Royal Vopak - a Netherlands based global leader in terminal
operations. EVTL operates a bulk liquid chemical terminal at Port Qasim, Karachi. It
has an impeccable safety record of handling a range of chemicals and LPG for over 10
years.
EVTL is building Pakistans first cryogenic Ethylene storage facility and expects to be
ready by early 2009. Given its experience with gasses, cryogenics, a brown field location
and international operating standards, EVTL is well-positioned to build a LNG terminal,

being pursued by the Government of Pakistan.
Engro Polymer and Chemicals Ltd.
EPCL is undergoing expansion involving PVC production increase of 50,000 tones
(current capacity: 100,000 tons p.a. and back integration through setting up of an
EDC/VCM plant and a Chlor alkali plant. These initiatives are expected to conclude in
phases by first half of 2009. At Port Qasim, this 56% Engro owned Company is involved
in manufacturing, marketing and selling Polyvinyl Chloride (PVC).
Avanceon
A 63% owned subsidiary of Engro, EIAL is the leading global automation business,
providing process & control solutions. It also offers Power & Energy Management
software solutions as well as High-End software that integrate production and business
applications. Previously operating in Pakistan and UAE, they have now penetrated in
the USA market with the merger of ENGRO Innovative and Advance Automation.
Advance Automation is an award winning technology solutions provider to
manufacturers in North American and has been awarded as the System Integrator of the
Year 2007 by Control Engineering.
Synchronizing to a single brand worldwide with all the engineering Standards,
processes, brand identity and global brand recognition was a huge task and due to
various different cultural factors it was even complex then perceived.
After days of hard work AVANCEON emerged as the new name and the true Global
Automation Player. The new company name will help to reinforce the single brand
identity that has emerged over the last 16 days as the two formerly separate companies
have successfully worked to become a single global enterprise.
Engro Foods Limited (EFL)
Engro Foods, a wholly owned subsidiary had its first full year of operations in 2007. The
Company continued expanding with additions to brand portfolio, milk production and
distribution capacities.
The portfolio now includes four impressive brands; Olper's milk, Olpers
cream, Olwell andTarang. Olpers market share peaked at 17% during 2007.
EFL operates two dairy processing factories located in Sukkur, and Sahiwal. The
companys milk collection network now boasts over 700 village milk collectors and 400
milk collection centers. Covering 2400 villages across Pakistan, the activities of the
Company touch the lives of almost 51,000 farmers.
An exciting new venture is the diversification of dairy portfolio into ice cream. Work has
commenced full throttle for detailed engineering and market study with a view to launch
of first ice cream in 2009. Also on EFL slate is the establishment of a dairy farm with
milking expected to start in second quarter 2009.
Engro Energy Limited (EEL)

This wholly owned subsidiary is setting up an Independent Power Plant near Qadirpur
in Sindh; Targeting 2009 for commercial operations, the power project will have a net
output of 217 MW. The plant will utilize low heating value permeate gas from Qadirpur
gas field which is currently being flared.
Engro Eximp (Pvt.) Limited
Engro Eximp (Pvt.) Limited is a wholly owned subsidiary in the trading business of
fertilizer imports.
Spectrum of our products & services products & services
Products & Services
Our wide spectrum of products and services clearly shows the diversity in our
Businesses, each one designed to make life better for our customers
Fertilizers
by Engro Chemical Pakistan Limited
duct line that focuses on balanced crop nutrition and higher yield for the farm
Nitrogenous Fertilizers
ENGRO UREA is a trusted high grade fertilizer containing 46% Nitrogen (N), with
moderate hydroscopicity. It has a pH value of 6.8 (organic molecule) and is suitable for
all crops on all soils. Engro Urea is an excellent source of Nitrogen for the vast majority
of cultivated soils of Pakistan.
Phosphatic Fertilizers
Engro DAP: contains 46% P2O5 and 18% N. More than 90% of Phosphate (P) is water
soluble. It has a pH value of 7.33 and is a good source of P fertilizer for all crops. It is an
equally good source on problem soils (saline sodic) with coarse texture. On an overall
basis it suits to about 90% soils of the country.
Engro Zorawar: is one of the highest grade phosphatic fertilizers. It is acidic in
reaction (pH >= 3.5) and contains 52% P2O5 of which more than 90% is water soluble,
while the rest is citrate soluble. In addition to P, it contains 12% N, 2% sulphur and 1%
calcium. It is a beneficial fertilizer for all crops on all soils of Pakistan and produces
excellent results on alkaline soils, due to its acidic
the acidic pH of Engro Zorawar also tends to slow down the rapid conversion of soluble
P to water insoluble compounds, keeping it plant available for a longer period of time.
Engro Phosphate: is brown colored mono ammonium phosphate with 11% nitrogen
and 52% phosphorus. It is being marketed as relatively cheaper alternate of DAP.
Blended Fertilizers
Engro Zarkhez: is homogenously granulated fertilizer which maximizes crop yield by

providing balanced nutrition for a wide variety of crops through the uniform availability
of Nitrogen, Phosphorous and Potassium. Engro Zarkhez grades are specially produced
to suit the requirements of individual crops and soils, and provide convenience to the
farmer through ready availability of precise quantities of primary nutrients.
Engro Zarkhez fertilizers have low moisture content, high crush strength; 2mm-4mm
granule size and free flowing nature - attributes which ensure excellent handling and
application characteristics.
Engro NP: it provides 22% nitrogen, and 20% phosphorus. ECPL entered into NP
business in 2005 to cater the need of its customers for this established category. Primary
focus area for ENP marketing is South Zone (Sindh).
Micro Nutrients
Zingro: Zinc Sulphate, a highly effective and potent fertilizer which primarily targets
Zinc deficiency in crops like Rice, Potato, Maize, Sugar cane, Wheat, Cotton, vegetables
and fruits. Zingro increases crop yield and enhances crop appearance.
PVC Resin
a synthetic resin composed of repeating units of vinyl chloride. It is very versatile and is
used in a wide variety of products
Chemical handling & Storage

By Engro Vopak Terminal Limited
A state of the art jetty and terminal at Port Qasim, Karachi for handling and storage of
LPG and bulk liquid chemicals
Industrial Automation
by Avanceon (formerly known as Engro Innovative Automation Pvt.
Limited)
Providing process control solutions to your industrial units
Market leader in industrial automation business providing process control solutions to
Industrial units. It offers Power & Energy Management Software solutions as well as
High end Software that integrate production and business application. Providing
process control solutions to your industrial units
Market leader in industrial automation business providing process control solutions to
High end Software that integrate production and business application.
Providing process control solutions to industrial units and management software
solutions
Foods by Engro Foods Limited

Olpers: Standardized at 3.5% fat, Olpers is a premium, UHT all-purpose milk.
Olwell HCLF: (High Calcium, Low Fat) Olwell is a premium quality milk for the health
conscience.
Olpers Cream: UHT Cream standardized at 40% fat
Tarang: Liquid tea whitener
State of the art dairy processing plant
Our 217 MW Power Plant.
Power Generation by Engro Energy Limited
Engro identified a Power Project based on low BTU, high H 2S gas from Qadirpur gas Field. The project is
unique as it will convert low BTU high sulphur content permeate gas, which is currently being wasted and flared, into 217 MW electric power
Converting wasted flare gas into energy at the 217 MW Power Plants
Quality
Improvisation through Six Sigma: the legend leads again
Employee development is one of the pivotal areas for Organizational development. To Organizational competence levels, new training programs
encompassing Performance Management, Leadership, and Competency Development are introduced.
Engro is among the first Pakistani companies implementing six sigma across all areas and utilizing it as a management system to execute its strategic
objectives. Among the focus areas, employee development is the most critical and six sigma is leveraged to help bring out the best in our people.
Employees will drive improvements in other areas; speed, innovation, perfection and in becoming world class professionals.
Six Sigmas robust problem solving methodology and statistical toolkit allows the company to benchmark processes against global standards in a
language that is comparable across any industry or function. It helps ensure that Engro sustains its promise of delivering high quality products and
services to its customers on time, every time.
Packing & Loading:
The finished product is packed with the utmost care by trained personnel, and loaded directly in to containers for export purposes. All packing and
loading is done under strict supervision, while maintaining maximum quality and safety standards. To facilitate their customers, they provide yarn
packed in 100Lbs and 50Lbs sea-worthy export cartons. They also have facility to provide customers with polythene film shrink wrapped Pallet packing
to specially accommodate customers in Europe/USA and help them reduce the labor handling costs.
Business practice
Our Advisory Capacity
Principal Operations Committee
The following committees act at the operation level in an advisory capacity to the Chief Executive Officer, providing recommendations relating to
business and employee Matters:
Management Committee is responsible for review and endorsement of long term strategic plans, capital and expense budgets, development and
stewardship of business plans and reviewing the effectiveness of risk management processes and internal control.
Corporate HSE Committee is responsible for providing leadership and strategic guidance on all Health, Safety and Environment (HSE)
improvement initiatives and has stewardship responsibility for monitoring compliance against regulatory standards and selected international
benchmarks.
COED Committee is responsible for the review of Compensation, Organization and Employee Development (COED) matters of all people excluding
employee Directors and Senior Executives.
Throughout the 40 plus years of Engros history, our people have come up with ideas and determination that drove the company forward in all sorts of
times.
Corporate Governance
Engros governance structure responds to the industrys best practices demands Ensuring that all aspects with respect to economic, environmental and
social obligations are fully considered and business decisions are taken after evaluating their impact on The Companys triple bottom line - People,
Planet and Profits.
Compliance Statement
The Board of Directors has throughout the year 2007 complied with the Code of Corporate Governance contained in the listing requirements of the
stock exchanges and the Corporate and Financial Reporting framework of the Securities and Exchange Commission of Pakistan.
Risk Management Process
In 2007, the Management Committee undertook a review of major financial and operating risks faced by the business.
Internal Control Framework
Responsibility: The Board is ultimately responsible for Engros system of internal control and for reviewing its effectiveness. However, such a system is
designed to manage rather than eliminate the risk of failure to achieve business objectives, and can provide only reasonable and not absolute assurance
against material misstatement or loss.
The Board, whilst maintaining its overall responsibility for managing risk within the Company, has delegated the detailed design and operation of the
system of internal controls to the Chief Executive
.
Framework: The Company maintains an established control framework comprising clear structures, authority limits, and accountabilities, wellunderstood policies and procedures and budgeting and review processes.
The Board establishes corporate strategy and the Companys business objectives. Divisional management integrates these objectives into divisional
business strategies with supporting financial objectives. All policies and control procedures are documented in manuals
Review: The Board meets quarterly to consider Engros financial performance, financial and operating budgets and forecasts, business growth and
development plans, capital expenditure proposals and other key performance indicators.
The Board Audit Committee receives reports on the system of internal financial controls from the external and internal auditors and reviews the process
for monitoring the effectiveness of internal controls.
There is a company wide policy governing appraisal and approval of investment expenditure and asset disposals. Post completion reviews are performed
on all material investment expenditure.
Audit: Engro has an Internal Audit function. The Board Audit Committee annually reviews the appropriateness of resources and authority of this
function. The Head of Internal Audit reports directly to the Audit Committee on the results of its work.
The Internal Audit function carries out reviews on the financial, operational and compliance controls, and reports on findings to the Chief Executive and
the divisional management. All material issues are reported to the Board Audit Committee which approves the audit program, based on an annual risk
assessment of the operating areas. To underpin the effectiveness of controls, it is Engros policy to attract, retain and develop staff of high caliber and
integrity in appropriate disciplines. There is an annual appraisal process, which assesses employee performance against agreed objectives and identifies
necessary training to maintain and enhance standards of performance.
Values that we live by

Core Values
Our employees' performance can only flourish in a sound work environment. That is why ENGRO is committed to supporting its leadership culture
through systems and policies that foster open communication, maintain employee and partner privacy, and assure
Employee health and safety.
SAFETY, HEALTH & ENVIRONMENT
We will manage and utilize resources and operations in such a way that the safety and health of our people, our neighbors. Our customers and our
visitors are ensured. We believe our safety, health and environmental responsibilities extend beyond protection and enhancement of our own facilities,
and we are concerned about the distribution, use and after use disposal of our products.
ETHICS AND INTEGRITY
we do care how results are achieved and will demonstrate honest and ethical behavior in all our activities. Choosing the course of highest integrity is our
intent and we will establish and maintain the highest professional and personal standards. A well-founded reputation for scrupulous dealing is itself a
priceless asset.
LEADERSHIP
we have leaders of high integrity. Energy and enthusiasm that have the necessary managerial, professional and people skills to inspire a group or an
organization to set high goals and achieve them willingly. We believe that leadership skills need to be strengthened at all levels within our organization
and that managerial and professional competence is a necessary foundation.
QUALITY &CONTINUOUS IMPROVEMENT
we believe that quality and a relentless commitment to continuous improvement are essential to our ongoing success. To this end, we define quality as
understanding the customer's expectations, agreeing on performance and value, and providing products and services that meet expectations 100 percent
of the time. Our motto is, "Quality in all we do."
ENTHUSIASTIC PURSUIT OF PROFIT
successfully discharging our responsibilities to our shareholders to enhance the long-term profitability and growth of our company provides the best
basis for our career security and meaningful personal growth. We can best accomplish this by consistently meeting the expectations of our customers
and providing them with value.
EXTERNAL & COMMUNITY INVOLVEMENT
We believe that society must have industrial organizations that it can trust. Trust and Confidence are earned by our performance, by open and direct
communication, and by active involvement in the communities in which we live and conduct our business."
CANDID & OPEN COMMUNICATIONS
We value communications that are courteous, candid and open and that enable each of us to do our jobs more effectively by providing information that
contributes to the quality of our judgment and decision making. Effective communication should also provide the means for gaining understanding of
the company's overall objectives and plans and of the thinking behind them.
ENJOYMENT & FUN
We believe that excitement, satisfaction and recognition are essential elements of a healthy, creative and high-performing work environment. Having
fun in our work should be a normal experience for everyone.
INNOVATION
Success requires us to continually strive to produce break through ideas that result in improved solutions and services to customers. We encourage
challenges to the status quo and seek organizational environments in which ideas are generated, nurtured and developed.
INDIVIDUAL GROWTH & DEVELOPMENT
we strongly believe in the dignity and value of people. We must consistently treat each other with respect and strive to create an organizational
environment in which individuals are encouraged and empowered to contribute, grow and develop themselves and help to develop each other.
TEAMWORK & PARTNERSHIP
we believe that high-performing teams containing appropriate diversity can achieve what individuals alone cannot. Consciously using the diversity of
style. Approach and skills afforded by teams is strength we must continue building into our organization.
DIVERSITY & INTERNATIONAL FOCUS
We value differences in gender, race, nationality, culture, personality and style because diverse solutions, approaches and structures are more likely to
meet the needs of customers and achieve our business goals.
Corporate Responsibility Report
Our employees bring expertise and dedication to the workplace
Our People
More than 700 employees bring expertise and dedication to the workplace. We value each employee, value their input and views. Continuously striving
to become employer of choice, we provide a workplace where people feel confident, valued and inspired.
The Organization of Comparison
Fauji Fertilizer Company
The organization with whom the comparison of Engro Chemical Pakistan Limited is to be done is FFC Limited. The comparison can only be done by
making the financial analysis of this particular Fertilizer Companies in a similar way in which the analysis of Engro Chemical Pakistan Limited is to be
done by first of all calculating all the major five ratios and interpreting them one by one thereby gaining a position to make a comparison become their
financial situation.
An Overview
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 authorized capital of the company was 813.9 Million Rupees. The present share capital of the company stands at Rs. 3.0 Billion. Additionally,
FFC has Rs. 1.0 Billion stakes in the subsidiary Fauji Fertilizer Bin Qasim Limited (formerly FFC-Jordan Fertilizer Company Limited).
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 a major shareholder in a new DAPS/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 to produce 551,000 metric tons of urea and 445,500 metric tons of DAP.
This excellent performance was due to hard work and dedication of all employees and the progressive approach and support from the top management.
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.
This acquisition at Rs. 8,151 million represents one of the largest industrial sector transactions in Pakistan
Mission Statement
FFC's mission is to sustain its role as the leader in industrial and agricultural advancement of Pakistan by setting and achieving
new and higher goals and taking initiatives. The Company is committed to ensuring safe and conducive work environment,
providing high quality products and allied services to its customers and profitable returns to its shareholders.
RATIO ANALYSIS
(Engro Chemical Pakistan Ltd.)
Ratios simply mean a number expressed in terms of another. A ratio is a statistical yardstick by mean of which relationship between two or various
figures can be compared or measured. Thus Ratio Analysis shows the relationship between accounting data. Ratio can be found out by dividing on
number by another number. Ratio analysis is an important and age old technique of financial analysis. Following are some of the advantages of ratio
analysis.
Advantages:
It simplifies the comprehension of financial statements.
Ratios tell the whole story of changes in the financial condition of the business.
It provides data for inter-company comparison. Makes inter-company comparison possible
Ratio analysis also makes possible comparison of the performance of different divisions of the company. The ratios are helpful in deciding about their
efficiency or otherwise in the past and likely performance in the future.
Ratios highlight the factors associated with successful and unsuccessful company. They also reveal strong companies and weak companys, over-valued
under-valued companies.
It helps in planning and forecasting. Ratios can assist management, in its function of forecasting, planning, co-ordination, control and
communications.
It helps in investment decisions in the case of investors and lending decisions in the case of investors and lending decisions in the case of bankers etc.
Types of Ratios Analysis

Let us now have a detailed analysis of all the following four ratios for Engro chemicals Pakistan Ltd:
Liquidity Ratios
Leverage Ratios
Activity Ratios
Profitability Ratios
Liquidity Ratios:
Current Ratio:
Current Ratio is equal to current assets divided by current liabilities
Current Ratio = Current Assets
Current Liabilities
2006 2007:
Current Ratio = 16397198000
5264674000
Current Ratio = 3.11
2005 - 2006:
3642415000
2004 - 2005:
2800094000
Comparison over the years / Interpretation:
Current ratio is a general and quick measured of liquidity of company. It represents the margin of safety or cushion available to the auditor. It is the
index of the companys financial stability. It is also an index of the financial solvency and index of strength of working capital.
The current ratio of the company is increasing over the years right from 2004-07 constantly, that is, it was 1.79 in 2004-05 and it is 3.11 in 2006-07.
Acid Test (Quick) Ratio:
Acid Test (Quick) ratio is equal to Current assets fewer inventories divided by current liabilities. It gives more liquid amount of assets to cover your
liabilities.
Quick Ratio = Current assets Inventories
Current liabilities
2006 2007:
Quick Ratio = 163971980002690153000
5264674000
Quick Ratio = 0.26
2005 - 2006:
Quick Ratio = 5684446000 923448000
3642415000
Quick Ratio = 1.31
2004 - 2005:
Quick Ratio = 5011555000 1922982000

2800094000
Quick Ratio = 1.10
The quick test ratio is a very useful measuring of the liquidity position of the company. It means that companys ability to pay its short-term obligations
or current liabilities immediately and is a more rigorous test of liquidity than the current ratio.
The quick ratio of the company as is shown by the above calculations is not consistent, and decreasing with large percentage that is, the company is
getting lesser and lesser liquid current assets to cover its current liabilities.
Leverage ratios:
Debt Equity Ratio:
Debt equity ratio is equal to long term debts divided by stockholders equity.
Debt Equity ratio = Long Term Debts
Stockholders equity
2006 2007:
Debt equity ratio = 17410060000
1934692000
Debt equity ratio = 1.5348
2005 - 2006:
Debt equity ratio = 370,501,304
233,187,729
2004 - 2005:
190,255,511000
This ratio indicates the proprietors claims of owners and outsiders against the companys assets. The purpose is to get an idea of the cushion available to
outsiders and the liquidity of the company. The interpretation of the ratio depends upon the financial and business policy of the company.
The debt ratio of the company has decreased gradually over the years right from 2004-07 which is actually a positive sign for the company.
Debt Equity ratio increment is a negative point to management that the more of their business is financed by debts this will increase their financial
charges or interest expense and companys liquidity and hence decreasing the companys profit. The lower the ratio the higher the companys financing
that is provided by the shareholders and larger the creditors cushion (margin of protection) in the extent of shrinkage of assets values or outright loss.
Debt Ratio:
Debt ratio is equal to total liabilities divided by total assets.
Debt Ratio = Total Liabilities
Total Assets
2006 2007:
Debt Ratio = 7005734000
38156651000
Debt Ratio = 0.18
2005 - 2006
Debt Ratio = 3939349000
15980816000
Debt Ratio = 0.25

2004 - 2005
Debt Ratio = 6736064000
14111630000
Debt Ratio = 0.48
It can be defined as how much sufficient our assets are in retrieving the total debts. The debt ratio of the company has been decreasing quite intensively
almost over the last three years as shown clearly by the above calculations.
Times Interest Earned (Coverage Ratio):
It briefs that how many times the company has earned the interest. Or how many times the company has user it's earning before interest and taxes to
cover the interest expense.
Times Interest Earned = Profit before Interest and Taxes
Interest Expense
2006 2007:
Interest coverage Ratio = 4770535000
535023000
Interest Coverage Ratio = 8.92 times
2005 - 2006:
362551000
2004 - 2005:
280070000
The interest coverage ratio is a very important from the lender point of view. It indicates the number of times interest is covered by the profit available to
pay interest charges. It is an index of the financial strength of the enterprise. A high ratio assures the lender a regular and periodic interest income. But
weakness of the ratio may create some problems for the companys financial manager in raising funds from the debts sources.
The no. of times the company earns interest has fluctuated dramatically, that is, it was 12.5 in 2005, decreased down to 7.18 in 2006 and to rise up to
8.92 in 2007.
Activity Ratios
Inventory Turnover Ratio:
Inventory Turnover Ratio is equal to Cost of Goods Sold divided by Average Inventory.
Inventory Turnover ratio = Cost of Goods Sold Avg. Inventory
2006-2007
Inventory Turnover Ratio = 18262793000 1808192327
Inventory Turnover Ratio = 10.1 times
2005 2006
Inventory Turnover Ratio = 13364524000
1421757872

2004 - 2005:
1291245405
Inventory turn over ratio measures the velocity of conversion of stock into sales. In other words how rapidly inventory is turning into receivables
through sales.
In 2006 it was 9.4 times and in 2007 it was 10.1 times. In 2006 the ratio was low because of over investment in inventories. In year 2007 it is better that
is 10.1 times in the year, which is quite good because of good management.
Inventory Holding Period in days:
Inventory holding period in days is equal to number of days in a year divided by inventory turnover ratio.
Inventory Holding Period in Days = No. of days in a year
Inventory Turnover ratio
2006 2007:
Inventory turnover in days = 360
10.1
Inventory turnover in days = 36 days
2005 - 2006:
9.4
2004 - 2005:
11.1
through sales.
In 2006 it was 38 days times and in 2007 it was 36 days. In year 2006 it was quite good and in 2007 it is better that is 36 days in a year to move
inventory through sales, which is quite good because of good management and polices.
Net Fixed Assets Turnover Ratio:
Net Fixed assts turnover ratio is obtained by dividing sales with net fixed assets, where,
(Net fixed assets = Total fixed Assets Accumulated Depreciation)
Net Fixed Asset Turnover Ratio = Sales
Net Fixed assets
2006 2007:
Fixed asset turnover ratio= 23183222000
21759453000
Fixed asset turnover ratio = 1.939 times

2005 - 2006:
Fixed asset turnover ratio = 17601783000
600,565,280
2004 - 2005:
480,566,483
Fixed asset turnover ratio measures sales productivity and plant and equipment utilization. It is clear that this ratio is rising from 2006 which is 1.5 to
1.93 in 2007
Total Asset Turnover:
Total asset turnover ratio measures that how much sales are generated through the total assets of the organization.
Total Asset Turnover Ratio = Sales
Total assets
2006 2007:
Total asset turnover ratio= 23183222000
15980816000
Total asset turnover ratio = 1.45 times
2005 - 2006:
Total asset turnover ratio = 17601783000
15980816000
2004 - 2005:
14111630000
It shows that company must manage its total assets efficiently and should generate maximum sales through their proper utilization. As the ratio,
increases there are more revenue generated per rupee of total investment in asset. The company ability to produce a large volume of sales on a small
total asset based is an important part of the companys overall performance in terms of profits. In 2007, 2006. The ratio was 1.1, 1.45 times respectively.
In 2007, the ratio indicates that it is producing RS 1.45 sales per
Rupees of investment in total assets. So as time is going by this ratio is increasing which means company performance is up to mark in terms of profits.
Receivables Turnover Ratio:
Receivables turnover ratio is equal to net credit sales divided by average receivables.
Receivables Turnover Ratio = Net credit Sales
Avg. Receivables
2006 2007:
Receivables Turnover Ratio = 23183222000
1016807982
Receivables Turnover Ratio = 22.8 times
2005 - 2006:
5828404967
2004 - 2005:
532836064
Receivables turnover ratio measures the average length of time it takes a company to collect credit sales in percentage terms. So Receivables turn over
ratio is becoming worse as it was 30.2 in 2006 as compare to 2007 which is 22.8 times. So the company is not performing well and showing not good
management.
Average Collection Period in days:

Average collection period in days is equal to days in year divided by Receivables turnover ratio.
Average Collection Period in days = No of days in a year
Receivables turnover ratio
2006 2007:
Receivables turnover ratio in days = 360
22.8
Receivables turnover ratio in days = 16 days
2005 - 2006:
Receivables turnover ratio = 360
30.2
Receivables turnover ratio = 12 days
2004 - 2005:
34.3
Average collection period shows the average length of time it takes a company to collect credit sales in days. From above analysis it is clear that average
collection period is 16 days respectively in year an2006. But it is best was in 2005 which is 11 days.
Profitability Ratios:
Gross Profit Margin:
Gross profit margin is equal to the ratio of gross profit to sales.
Gross Profit Margin = Gross Profit
Sales
2006 2007:
Gross profit margin = 4920429000 X 100
23183222000
Gross profit margin = 21.22 %
2005 - 2006:
17601783000

2004 - 2005:
18276277000
Gross profit margin or gross profit ratio is the ratio of gross profit to net sales expressed as percentage. From Gross profit the company adjusts its
operating and administrative expenses. In 2006 it increased heavily but in 2007 it decreased to 21.22 %. The gross profit is sufficient to recover all
operating expenses and to build up reserve after paying all fixed interest charges and all dividends.
Operating Profit Margin:
Operating Profit Margin is equal to earning before interest and tax divided by sales.
Operating Profit Margin = EBIT/Operating Profit
Sales
2006 2007:
Operating Profit Margin = 4770535000 X 100
23183222000
Operating Profit Margin = 20.58 %
2005 - 2006:
17601783000
2004 - 2005:
18276277000
This used to show the profitability without concern for taxes and interest. In 2006 the operating profit ratio was 21.63% and in 2007 the net profit ratio
is 20.58 %. In 2006 operating profit ratio increased by 2.4 % and decreased by 0.8% in 2007, relative to 2006 ratio Shows Companys inability to with
stand adverse economic condition without caring taxes and interest.
Net Profit Margin:
Net Profit Margin is equal to net profit divided by sales.
Net Profit Margin = Net Profit
Sales
2006 2007:
Net Profit Margin = 3154583000 X 100
23183222000
Net Profit Margin = 13.61 %
2005 - 2006:
17601783000
2004 - 2005:
18276277000
This used to show the overall profitability and hence it useful to the proprietors. Higher the ratio betters for the organization .It shows the companys
ability to turn each rupee of sale into profit. In 2006 the net profit ratio was 14.47 % and in 2007 the net profit ratio is 13.61%. In 2006 net profit ratio
increased by 1.7 % relative to 2005. But in 2007 it decreased slightly and remained 13.61 %.
Earning per share:
This ratio shows that how much amount per share does a common stock holder attains.
Earning per share = Earning Available for Common Stock Holders
No. Of Common Stock Shares
2006 2007:
Earning per share = 3154583000
183737000
Earning per share = Rs. 17.17 / share
2005 - 2006:
164650000
Earning per share = Rs.15.47 /share
2004 - 2005:
1161350000
Earning per share = Rs. 14.37 /share
This ratio shows the worth of the share. As we can see that the worth of the shares of Engro Chemical has increased. EPS is increasing at a constant rate,
which are good signs for the investors.
Price earning ratio:
It equals to the ratio of market price per share divided by earning per share.
Price Earning Ratio = Market price per share
Earning per share
2006 2007:
Price Earning Ratio = 265.79
17.17
Price Earning Ratio = Rs. 15.48
2005 - 2006:
15.47
2004 - 2005:
14.37
In 2006 the situation, slightly become worse as compared to 2005. But in 2007, these ratios results Rs.15.48 were to be spent in order to earn Rs.1 profit.
RATIO ANALYSIS
Fauji Fertilizer Company Ltd.
Types of Ratios Analysis:
Let us now have a detailed analysis of all the following four ratios for Fauji Fertilizer Company Limited
Liquidity Ratios
Leverage Ratios
Activity Ratios
Liquidity Ratios:
Current Ratio:
Current liabilities
2006 2007:
Current Ratio = 10,811,435000
11,476,393000
2005 - 2006:
10,883,988000
Current Ratio = .897
2004 - 2005:
18,707,783000
Current ratio is a general and quick measured of liquidity of company. It represents the margin of safety or cushion available to the auditor. It is the
index of the companys financial stability. It is also an index of the financial solvency and index of strength of working capital.
Company's Current ratio has been decreasing gradually over the years right from the 2005 to 2007.
Current liabilities
2006 2007:
Quick Ratio = 10, 811, 435000-642, 836000
11,476,393000
Quick Ratio = 0.89
2005 - 2006:
Quick Ratio = 9, 764, 587000-952, 905000
10,883,988000
Quick Ratio = 0 .81
2004 - 2005:
Quick Ratio = 20, 463, 506000- 1,583,429000
18,707,783000
Quick Ratio = 1.01
The quick test ratio is a very useful measuring of the liquidity position of the company. It means that companys ability to pay its short-term obligations
or current liabilities immediately and is a more rigorous test of liquidity than the current ratio.
The calculations above clearly show that the quick ratio of the company has been not constant over the years due to the changes in pre paids and
inventories. But it increased in 2007 as compared to 2006, which is positive point for the company.
Leverage / Debt ratios:
Debt Equity Ratio:
Stockholders equity
2006 2007:
Debt Equity ratio = 216,171,622
51,741,235
Debt Equity ratio = 108.33
2005 - 2006:
62,565,620
2004 - 2005:
53,055,841
This ratio indicates the proprietors claims of owners and outsiders against the companys assets. The purpose is to get an idea of the cushion available to
outsiders and the liquidity of the company. The interpretation of the ratio depends upon the financial and business policy of the company.
Debt Equity shows the relationship between the external equities or outside funds and internal equities and shareholders funds. The debt equity ratio of
the company has been decreasing over the years from 2005 to 2006 but in 2007 it increased, with maximum in the year 2004-05 thereby decreasing in
the next year and increasing finally.
Debt Equity ratio increment is a negative point to management that the more of their business is financed by debts this will increase their financial
charges or interest expense and companys liquidity and hence decreasing the companys profit. The lower the ratio the higher the companys financing
that is provided by the shareholders and larger the creditors cushion (margin of protection) in the extent of shrinkage of assets values or outright loss.
Debt Ratio:
Debt Ratio = Total liabilities
Total assets
2006 2007:
Debt Ratio= 16511169000
29,241,214000
Debt Ratio= 0.57
2005 - 2006
Debt Ratio= 14473738000
27,430,281000
Debt Ratio= 0.53
2004 - 2005
Debt Ratio= 36392141000
48,010,511000
Debt Ratio= 0.76
It can be defined as how much sufficient our assets are in retrieving the total debts. We can observe in our analysis that the debt ratio of the company is
decreasing over the year which is a good sign for the company, that is, the company uses less of its total liabilities for its current assets.
Interest expense
2006 2007:
696,407000
2005 - 2006:
501,241000
2004 - 2005:
585,816000
The interest coverage ratio is a very important from the lender point of view. It indicates the number of times interest is covered by the profit available to
pay interest charges. It is an index of the financial strength of the enterprise. A high ratio assures the lender a regular and periodic interest income. But
weakness of the ratio may create some problems for the companys financial manager in raising funds from the debts sources.
The no. of times the company earns its interest fluctuates from over the years right from 2005 to 2007. The times interest earned by the company in
2007 returned a lot to the level where it was in 2005.
Activity Ratios:
Inventory Turnover ratio = Cost of Goods Sold
Avg. Inventory
2006 2007:
Inventory Turnover Ratio = 18,311,525000
797870500
2005 - 2006:
126817000

2004 - 2005:
1,583,429000
through sales.
In 2006 it was 16.1 times and in 2007 it was 22.95 times. In 2006 the ratio was low because of over investment in inventories. In year 2007 it is better
that is 22.95 times in the year, which is quite good because of good management and polices.
Inventory Holding Period in days = No of days in a year
Inventory turnover ratio
2006 2007:
22.95
Inventory turnover in days = 15.7 days
2005 - 2006:
16.1
2004 - 2005:
16.41
through sales.
In 2005 it was 21.93 days and in 2007 it was 15.7 days. In year 2007 it is quite good and in 2006 it was better that is 22.36 days in a year to move
Net Fixed assets
2006 2007:
Fixed asset turnover ratio= 28,429,005000
18429779000
2005 - 2006:
Fixed asset turnover ratio = 29,950,873000
17665694000
2004 - 2005:

27547005000
Fixed asset turnover ratio measures sales productivity and plant and equipment utilization. It is clear that this ratio is increasing from 1.44 times in 2005
to 2006 which is 1.7and decreased to 1.54 in 2007
Total assets
2006 2007:
Total asset turnover ratio= 28,429,005000
29,241,214000
Total asset turnover ratio = .97 times
2005 - 2006:
Total asset turnover ratio = 29,950,873000
27,430,281000
2004 - 2005:
48,010,511000
It shows that companies must manage its total assets efficiently and should generate maximum sales through their proper utilization. As the ratio,
increases there are more revenue generated per rupee of total investment in asset. The company ability to produce a large volume of sales on a small
total asset based is an important part of the companys overall performance in terms of profits. In 2007, & 2006 the ratio was 0.97, 1.10 times
respectively. In 2007, the ratio indicates that it is producing RS .97 sales per
Rupees of investment in total assets. So as time is going by this ratio is fluctuating which means company performance is not up to mark in terms of
profits.
Avg. Receivables
2006 2007:
Receivables Turnover Ratio = 28,429,005000
1497076500
Receivables Turnover Ratio = 19 times
2005 - 2006:
1171132000 Receivables Turnover Ratio = 25.57 times
2004 - 2005:
890,874000

Receivables turnover ratio measures the average length of time it takes a company to collect credit sales in percentage terms. So Receivables is better in
2006 is 25.57 times as compare to 2007, which is 19 times
Average Collection Period in days = Days in a year
2006 2007:
19 Receivables turnover ratio in days = 18.95 days
2005 - 2006:
25.57 Receivables turnover ratio = 14.41 days
2004 - 2005:
Average collection period shows the average length of time it takes a company to collect credit sales in days. From above analysis it is clear that average
collection period was 14.41 days in2006. But it was best in 2005 which is 8.1 days. So these ratios show that company is doing well in this particular case.
Sales
2006 2007:
Gross profit margin = 10,117,480000X 100
28,429,005000
2005 - 2006:
Gross profit margin = 9,708,679000 X 100
29,950,873000
2004 - 2005:
39,757,510000
Gross profit margin or gross profit ratio is the ratio of gross profit to net sales expressed as percentage. In 2006 it increased slightly to 7.73 % and in
2007 it increased to 10.22 %. The gross profit is sufficient to recover all operating expenses and to build up reserve after paying all fixed interest charges
and all dividends.
Sales
2006 2007:
Operating Profit Margin = 8511360000X 100

28,429,005000
2005 - 2006:
29,950,873000
Operating Profit Margin = 25 %
2004 - 2005:
39,757,510000
This used to show the profitability without concern for taxes and interest. In 2006 the operating profit ratio was 25%, and in 2007 the operating profit
ratio is 29.93 %. In 2006 operating profit ratio was increased by 7.4 % and increased by 5% in 2007. The operating profit is increasing gradually at a
decreasing rate but it shows companys capacity to with stand adverse economic condition without caring taxes and interest.
Net Profit Margin:
Sales
2006 2007:
Net Profit Margin = 5,360,953000 X 100
28,429,005000
Net Profit Margin = 18.86
2005 - 2006:
Net Profit Margin = 4,636,144000X 100
29,950,873000
2004 - 2005:
39,757,510000
This used to show the overall profitability and hence it useful to the proprietors. Higher the ratio betters for the organization .It shows the companys
ability to turn each rupee of sale into profit. In 2006 the net profit ratio is 15.48 % and in 2007 the net profit ratio is 18.9%. In 2006 net profit ratio
decreased by .61 % relative but increased in 2007 by 3 %.
Earning per share:
2006 2007:
Earning per share = 5,360,953000
493,474000
Earning per share = Rs. 10.86/share
2005 - 2006:
493,474000
2004 - 2005:
493,474000
This ratio shows the worth of the share. As we can see that the worth of the shares of Fauji fertilizer Company has decreased. The EPS is almost
fluctuating but still in favorable condition.
Earning per share
2006 2007:
10.86
2005 - 2006:
9.39
Price Earning Ratio = Rs.11.24
2004 - 2005:
Price Earning Ratio = 137
12.96
These ratios results show that in 2007 Rs.10.93 were to be spent in order to earn Rs.1 profit. But in year 2006 the position was comparatively good as
shown that Rs.11.24 has to be spent in order to earn Rs.1 of profit.
INDUSTRY ANALYSIS
(Comparison through graphical interpretation)
Activity Ratios
Current Ratio:
Quick Ratio:
2004-05
2005-06
2006-07
ECL
1.79
1.56
3.11
FFC
1.094
.897
0.942
2004-05
2005-06
2006-07
ECL
1.10
1.31
0.26
FFC
1.01
0.81
0.89
2004-05
2005-06
2006-07
ECL
11.1
9.4
10.1
FFC
16.41
16.1
22.95
Inventory Holding Period:
2004-05
2005-06
2006-07
ECL
32
38
36
FFC
21.93
22.36
15.7
2004-05
2005-06
2006-07
ECL
34.3
30.2
22.8
FFC
44.62
25.57
19
2004-05
2005-06
2006-07
ECL
11
12
16
FFC
8.1
14.41
18.95
2004-05
2005-06
2006-07
1.4437
1.5148
1.9397
Average Collection Period:
ECL
FFC
1.44
1.7
1.54
Net Fixed Assets

Total Assets Turnover:
2004-05
2005-06
2006-07
ECL
1.30
1.1
1.45
FFC
0.833
1.1
0.97
2004-05
2005-06
2006-07
ECL
.48
.25
.18
FFC
0.76
0.53
0.57
2004-05
2005-06
2006-07
ECL
1.6625
1.5888
1.5348
FFC
5.1316
4.0654
4.177
2004-05
2005-06
2006-07
ECL
12.5
7.18
8.92
FFC
11.92
14.94
12.22
2004-05
2005-06
2006-07
ECL
14.45
24.07
21.22
FFC
34.6
32.42
35.6
Debt Ratio:
Debt Equity Ratio:
Times Interest Earned:
G.P. Margin:
2004-05
2005-06
2006-07
ECL
19.15
21.63
20.58
FFC
17.6
25
29.93
2004-05
2005-06
2006-07
ECL
12.69
14.47
13.61
FFC
16.09
15.48
18.86
2004-05
2005-06
2006-07
ECL
10.85
11.02
15.48
FFC
10.57
11.24
10.93
N.P. Margin:
Price Earning Ratio:
2004-05
2005-06
2006-07
ECL
14.37
15.47
17.17
FFC
12.96
9.39
10.86
Earning Per Share

Conclusion
So, in the light of all the details given above about the financial analysis of both the industries, i.e. debt, activity, liquidity, & profitability of Engro
chemicals ltd. And Fauji fertilizer company , we come to know that in this situation of agriculture recession and down fall in the economy the ECL has
performed well and it maintained its fianancial position and faced the tough competitors
Finance Project on Ratio Analysis on ENGRO
THE ORGANIZATION CONCERNED
Engro Chemical Pakistan Ltd.
Engro Chemical Pakistan Limited is a fertilizer company which is of their concern

that has been introduced right below. They are going to make a full-fledge financial
analysis of this fertilizer company in order to check its financial situation in the
market. The analysis of each and every major ratio has been involved in this
financial analysis. Then furthermore the interpretation of each and every ratio has
been given to elaborate it.
An Overview
Search for oil by Pak Stanvac, an Esso/Mobil joint venture in 1957, led to the
discovery Of Mari gas field situated near Daharki -- a small town in upper Sindh
province. Esso was the first to study this development in detail and propose the
establishment of a urea plant in that area.
The proposal was approved by the government in 1964, which led to a fertilizer
plant agreement signed in December that year. Subsequently in 1965, the Esso
Pakistan Fertilizer Company Limited was incorporated, with 75% of the shares
owned by Esso and 25% by the general public. The construction of a urea plant
commenced at Daharki the following year with the annual capacity of 173,000 tons
and production commenced in 1968. At US $ 43 million, it was the single largest
foreign investment by an MNC in the country.
A full-fledged marketing organization was established which undertook agronomic
programs to educate the farmers of Pakistan. As the nations first fertilizer brand,
Engro (then Esso) helped modernize traditional farming practices to boost farm
yields, directly impacting the quality of life not only for farmers and their families,
but for the community at large. As a result of these efforts, consumption of
fertilizers increased in Pakistan, paving the way for the Companys branded urea
called "Engro", an acronym for "Energy for Growth".
As part of an international name change program, Esso became Exxon in 1978 and
the company was renamed Exxon Chemical Pakistan Limited. The company
continued to prosper as it relentlessly pursued productivity gains and strived to
attain professional excellence.
In 1991, Exxon decided to divest its fertilizer business on a global basis. The
employees of Exxon Chemical Pakistan Limited, in partnership with leading
international and local financial institutions bought out Exxons 75 percent equity.
This was at the time and perhaps still is the most successful employee buy-out in
the corporate history of Pakistan. Renamed as Engro Chemical Pakistan Limited, the
Company has gone from strength to strength, reflected in its consistent financial
performance, growth of the core fertilizer business and diversification into other
fields.
Investment in people, process solutions and resource conservation initiatives has
reduced energy use per ton of urea by a third, whilst increasing urea production
nearly six-fold since 1968. Not only does this save money, it stretches nonrenewable energy sources and mitigates the impact of waste. Along the way, a
major milestone in plant capacity upgrade coincided with the employee led buy-out;
innovatively optimizing our resources, Engro re-located fertilizer manufacturing
plants from the UK and US to its Daharki plant site an international first. Our
pioneering spirit continues in our social investments, exemplified by the only snakebite treatment facility in the Ghotki region and the first telemedicine intervention in
the country.
WVision
"To be the premier Pakistani enterprise with a global reach, passionately pursuing
value creation for all stakeholders."
Our Diverse Colors of Excellence
Our Businesses
The years since Exxon became Engro have been both exciting and rewarding for the
Organization and its people. Challenges have been overcome, goals achieved and
new goals set. Engro today stands recognized as a successful business operation
and a role model for doing business in Pakistan.
Engro Chemical Pakistan Limited
The Companys current manufacturing base includes urea name plate capacity of
975,000 tons per annum and blended fertilizer (NPK) capacity of 160,000 tons per
year. A premier brand and nationwide presence ensure sellout production.
Additionally, the company imports and sells phosphatic fertilizers for balanced
fertility and improved farm yields. Engros share of Pakistans phosphates market
mirrors or exceeds its urea market share.
Expansion plans include a new urea plant of 1.3 million tons annual capacity, also at
Daharki. The US$ 1 billion project is well underway and on track for commercial
production in mid 2010. This addition will increase Engros urea market share to
35% from 19% at present.
Engro Vopak Terminal Limited
50:50 Joint Ventures with Royal Vopak - a Netherlands based global leader in
terminal operations. EVTL operates a bulk liquid chemical terminal at Port Qasim,
Karachi. It has an impeccable safety record of handling a range of chemicals and
LPG for over 10 years.
EVTL is building Pakistans first cryogenic Ethylene storage facility and expects to be
ready by early 2009. Given its experience with gasses, cryogenics, a brown field
location and international operating standards, EVTL is well-positioned to build a
LNG terminal, being pursued by the Government of Pakistan.
Engro Polymer and Chemicals Ltd.
EPCL is undergoing expansion involving PVC production increase of 50,000 tones

(current capacity: 100,000 tons p.a. and back integration through setting up of an
EDC/VCM plant and a Chlor alkali plant. These initiatives are expected to conclude in
phases by first half of 2009. At Port Qasim, this 56% Engro owned Company is
involved in manufacturing, marketing and selling Polyvinyl Chloride (PVC).
Avanceon
A 63% owned subsidiary of Engro, EIAL is the leading global automation business,
providing process & control solutions. It also offers Power & Energy Management
software solutions as well as High-End software that integrate production and
business applications. Previously operating in Pakistan and UAE, they have now
penetrated in the USA market with the merger of ENGRO Innovative and Advance
Automation. Advance Automation is an award winning technology solutions provider
to manufacturers in North American and has been awarded as the System
Integrator of the Year 2007 by Control Engineering.
Synchronizing to a single brand worldwide with all the engineering Standards,

processes, brand identity and global brand recognition was a huge task and due to
various different cultural factors it was even complex then perceived.
After days of hard work AVANCEON emerged as the new name and the true Global
Automation Player. The new company name will help to reinforce the single brand
identity that has emerged over the last 16 days as the two formerly separate
companies have successfully worked to become a single global enterprise.
Engro Foods Limited (EFL)
Engro Foods, a wholly owned subsidiary had its first full year of operations in 2007.
The Company continued expanding with additions to brand portfolio, milk
production and distribution capacities.
The portfolio now includes four impressive brands; Olper's milk, Olpers
cream, Olwell andTarang. Olpers market share peaked at 17% during 2007.
EFL operates two dairy processing factories located in Sukkur, and Sahiwal. The
companys milk collection network now boasts over 700 village milk collectors and
400 milk collection centers. Covering 2400 villages across Pakistan, the activities of
the Company touch the lives of almost 51,000 farmers.
An exciting new venture is the diversification of dairy portfolio into ice cream. Work
has commenced full throttle for detailed engineering and market study with a view
to launch of first ice cream in 2009. Also on EFL slate is the establishment of a dairy
farm with milking expected to start in second quarter 2009.
Engro Energy Limited (EEL)
This wholly owned subsidiary is setting up an Independent Power Plant near

Qadirpur in Sindh; Targeting 2009 for commercial operations, the power project will
have a net output of 217 MW. The plant will utilize low heating value permeate gas
from Qadirpur gas field which is currently being flared.
Engro Eximp (Pvt.) Limited
Engro Eximp (Pvt.) Limited is a wholly owned subsidiary in the trading business of
fertilizer imports.
Spectrum of our products & services products & services
Products & Services
Our wide spectrum of products and services clearly shows the diversity in our
Businesses, each one designed to make life better for our customers
Fertilizers
by Engro Chemical Pakistan Limited
duct line that focuses on balanced crop nutrition and higher yield for the farm
Nitrogenous Fertilizers
ENGRO UREA is a trusted high grade fertilizer containing 46% Nitrogen (N), with
moderate hydroscopicity. It has a pH value of 6.8 (organic molecule) and is suitable
for all crops on all soils. Engro Urea is an excellent source of Nitrogen for the vast
majority of cultivated soils of Pakistan.
Phosphatic Fertilizers
Engro DAP: contains 46% P2O5 and 18% N. More than 90% of Phosphate (P) is
water soluble. It has a pH value of 7.33 and is a good source of P fertilizer for all
crops. It is an equally good source on problem soils (saline sodic) with coarse
texture. On an overall basis it suits to about 90% soils of the country.
Engro Zorawar: is one of the highest grade phosphatic fertilizers. It is acidic in
reaction (pH >= 3.5) and contains 52% P2O5 of which more than 90% is water
soluble, while the rest is citrate soluble. In addition to P, it contains 12% N, 2%
sulphur and 1% calcium. It is a beneficial fertilizer for all crops on all soils of
Pakistan and produces excellent results on alkaline soils, due to its acidic
the acidic pH of Engro Zorawar also tends to slow down the rapid conversion of
soluble P to water insoluble compounds, keeping it plant available for a longer
period of time.
Engro Phosphate: is brown colored mono ammonium phosphate with 11%
nitrogen and 52% phosphorus. It is being marketed as relatively cheaper alternate
of DAP.
Blended Fertilizers
Engro Zarkhez: is homogenously granulated fertilizer which maximizes crop yield

by providing balanced nutrition for a wide variety of crops through the uniform
availability of Nitrogen, Phosphorous and Potassium. Engro Zarkhez grades are
specially produced to suit the requirements of individual crops and soils, and
provide convenience to the farmer through ready availability of precise quantities of

primary nutrients.
Engro Zarkhez fertilizers have low moisture content, high crush strength; 2mm4mm granule size and free flowing nature - attributes which ensure excellent
handling and application characteristics.
Engro NP: it provides 22% nitrogen, and 20% phosphorus. ECPL entered into NP
business in 2005 to cater the need of its customers for this established category.
Primary focus area for ENP marketing is South Zone (Sindh).
Micro Nutrients
Zingro: Zinc Sulphate, a highly effective and potent fertilizer which primarily
targets Zinc deficiency in crops like Rice, Potato, Maize, Sugar cane, Wheat, Cotton,
vegetables and fruits. Zingro increases crop yield and enhances crop appearance.
PVC Resin
a synthetic resin composed of repeating units of vinyl chloride. It is very versatile
and is used in a wide variety of products
Chemical handling & Storage

By Engro Vopak Terminal Limited
A state of the art jetty and terminal at Port Qasim, Karachi for handling and storage
of LPG and bulk liquid chemicals
by Avanceon (formerly known as Engro Innovative Automation Pvt.
Limited)
Providing process control solutions to your industrial units

Market leader in industrial automation business providing process control solutions
to Industrial units. It offers Power & Energy Management Software solutions as well
as High end Software that integrate production and business application. Providing
process control solutions to your industrial units
Market leader in industrial automation business providing process control solutions

to
High end Software that integrate production and business application.
Providing process control solutions to industrial units and management software
solutions
Foods by Engro Foods Limited
Olpers: Standardized at 3.5% fat, Olpers is a premium, UHT all-purpose milk.

Olwell HCLF: (High Calcium, Low Fat) Olwell is a premium quality milk for the
health conscience.
Olpers Cream: UHT Cream standardized at 40% fat
Tarang: Liquid tea whitener

State of the art dairy processing plant
Our 217 MW Power Plant.
Power Generation by Engro Energy Limited
Engro identified a Power Project based on low BTU, high H 2S gas from Qadirpur gas Field. The project is
unique as it will convert low BTU high sulphur content permeate gas, which is currently being wasted and flared, into 217 MW electric power
Converting wasted flare gas into energy at the 217 MW Power Plants
Quality
Improvisation through Six Sigma: the legend leads again
Employee development is one of the pivotal areas for Organizational development. To Organizational competence levels, new training programs
encompassing Performance Management, Leadership, and Competency Development are introduced.
Engro is among the first Pakistani companies implementing six sigma across all areas and utilizing it as a management system to execute its
strategic objectives. Among the focus areas, employee development is the most critical and six sigma is leveraged to help bring out the best in
our people. Employees will drive improvements in other areas; speed, innovation, perfection and in becoming world class professionals.
Six Sigmas robust problem solving methodology and statistical toolkit allows the company to benchmark processes against global standards in a
language that is comparable across any industry or function. It helps ensure that Engro sustains its promise of delivering high quality products
and services to its customers on time, every time.
Packing & Loading:
The finished product is packed with the utmost care by trained personnel, and loaded directly in to containers for export purposes. All packing and
loading is done under strict supervision, while maintaining maximum quality and safety standards. To facilitate their customers, they provide yarn
packed in 100Lbs and 50Lbs sea-worthy export cartons. They also have facility to provide customers with polythene film shrink wrapped Pallet
packing to specially accommodate customers in Europe/USA and help them reduce the labor handling costs.
Business practice
Our Advisory Capacity
Principal Operations Committee
The following committees act at the operation level in an advisory capacity to the Chief Executive Officer, providing recommendations relating to
business and employee Matters:
Management Committee is responsible for review and endorsement of long term strategic plans, capital and expense budgets, development
and stewardship of business plans and reviewing the effectiveness of risk management processes and internal control.
Corporate HSE Committee is responsible for providing leadership and strategic guidance on all Health, Safety and Environment (HSE)
improvement initiatives and has stewardship responsibility for monitoring compliance against regulatory standards and selected international
benchmarks.
COED Committee is responsible for the review of Compensation, Organization and Employee Development (COED) matters of all people
excluding employee Directors and Senior Executives.
Throughout the 40 plus years of Engros history, our people have come up with ideas and determination that drove the company forward in all
sorts of times.
Corporate Governance
Engros governance structure responds to the industrys best practices demands Ensuring that all aspects with respect to economic,
environmental and social obligations are fully considered and business decisions are taken after evaluating their impact on The Companys triple
bottom line - People, Planet and Profits.
Compliance Statement
The Board of Directors has throughout the year 2007 complied with the Code of Corporate Governance contained in the listing requirements of
the stock exchanges and the Corporate and Financial Reporting framework of the Securities and Exchange Commission of Pakistan.
Risk Management Process
In 2007, the Management Committee undertook a review of major financial and operating risks faced by the business.
Internal Control Framework
Responsibility: The Board is ultimately responsible for Engros system of internal control and for reviewing its effectiveness. However, such a
system is designed to manage rather than eliminate the risk of failure to achieve business objectives, and can provide only reasonable and not
absolute assurance against material misstatement or loss.
The Board, whilst maintaining its overall responsibility for managing risk within the Company, has delegated the detailed design and operation of
the system of internal controls to the Chief Executive
.
Framework: The Company maintains an established control framework comprising clear structures, authority limits, and accountabilities, wellunderstood policies and procedures and budgeting and review processes.
The Board establishes corporate strategy and the Companys business objectives. Divisional management integrates these objectives into
divisional business strategies with supporting financial objectives. All policies and control procedures are documented in manuals
Review: The Board meets quarterly to consider Engros financial performance, financial and operating budgets and forecasts, business growth
and development plans, capital expenditure proposals and other key performance indicators.
The Board Audit Committee receives reports on the system of internal financial controls from the external and internal auditors and reviews the
process for monitoring the effectiveness of internal controls.
There is a company wide policy governing appraisal and approval of investment expenditure and asset disposals. Post completion reviews are
performed on all material investment expenditure.
Audit: Engro has an Internal Audit function. The Board Audit Committee annually reviews the appropriateness of resources and authority of this
function. The Head of Internal Audit reports directly to the Audit Committee on the results of its work.
The Internal Audit function carries out reviews on the financial, operational and compliance controls, and reports on findings to the Chief
Executive and the divisional management. All material issues are reported to the Board Audit Committee which approves the audit program,
based on an annual risk assessment of the operating areas. To underpin the effectiveness of controls, it is Engros policy to attract, retain and
develop staff of high caliber and integrity in appropriate disciplines. There is an annual appraisal process, which assesses employee performance
against agreed objectives and identifies necessary training to maintain and enhance standards of performance.
Values that we live by
Core Values
Our employees' performance can only flourish in a sound work environment. That is why ENGRO is committed to supporting its leadership culture
through systems and policies that foster open communication, maintain employee and partner privacy, and assure
Employee health and safety.
SAFETY, HEALTH & ENVIRONMENT
We will manage and utilize resources and operations in such a way that the safety and health of our people, our neighbors. Our customers and
our visitors are ensured. We believe our safety, health and environmental responsibilities extend beyond protection and enhancement of our own
facilities, and we are concerned about the distribution, use and after use disposal of our products.
ETHICS AND INTEGRITY
we do care how results are achieved and will demonstrate honest and ethical behavior in all our activities. Choosing the course of highest
integrity is our intent and we will establish and maintain the highest professional and personal standards. A well-founded reputation for
scrupulous dealing is itself a priceless asset.
LEADERSHIP
we have leaders of high integrity. Energy and enthusiasm that have the necessary managerial, professional and people skills to inspire a group or
an organization to set high goals and achieve them willingly. We believe that leadership skills need to be strengthened at all levels within our
organization and that managerial and professional competence is a necessary foundation.
QUALITY &CONTINUOUS IMPROVEMENT
we believe that quality and a relentless commitment to continuous improvement are essential to our ongoing success. To this end, we define
quality as understanding the customer's expectations, agreeing on performance and value, and providing products and services that meet
expectations 100 percent of the time. Our motto is, "Quality in all we do."
ENTHUSIASTIC PURSUIT OF PROFIT
successfully discharging our responsibilities to our shareholders to enhance the long-term profitability and growth of our company provides the
best basis for our career security and meaningful personal growth. We can best accomplish this by consistently meeting the expectations of our
customers and providing them with value.
EXTERNAL & COMMUNITY INVOLVEMENT
We believe that society must have industrial organizations that it can trust. Trust and Confidence are earned by our performance, by open and
direct communication, and by active involvement in the communities in which we live and conduct our business."
CANDID & OPEN COMMUNICATIONS
We value communications that are courteous, candid and open and that enable each of us to do our jobs more effectively by providing
information that contributes to the quality of our judgment and decision making. Effective communication should also provide the means for
gaining understanding of the company's overall objectives and plans and of the thinking behind them.
ENJOYMENT & FUN
We believe that excitement, satisfaction and recognition are essential elements of a healthy, creative and high-performing work environment.
Having fun in our work should be a normal experience for everyone.
INNOVATION
Success requires us to continually strive to produce break through ideas that result in improved solutions and services to customers. We
encourage challenges to the status quo and seek organizational environments in which ideas are generated, nurtured and developed.
INDIVIDUAL GROWTH & DEVELOPMENT
we strongly believe in the dignity and value of people. We must consistently treat each other with respect and strive to create an organizational
environment in which individuals are encouraged and empowered to contribute, grow and develop themselves and help to develop each other.
TEAMWORK & PARTNERSHIP
we believe that high-performing teams containing appropriate diversity can achieve what individuals alone cannot. Consciously using the
diversity of style. Approach and skills afforded by teams is strength we must continue building into our organization.
DIVERSITY & INTERNATIONAL FOCUS
We value differences in gender, race, nationality, culture, personality and style because diverse solutions, approaches and structures are more
likely to meet the needs of customers and achieve our business goals.
Corporate Responsibility Report
Our employees bring expertise and dedication to the workplace
Our People
More than 700 employees bring expertise and dedication to the workplace. We value each employee, value their input and views. Continuously
striving to become employer of choice, we provide a workplace where people feel confident, valued and inspired.
The Organization of Comparison

Fauji Fertilizer Company
The organization with whom the comparison of Engro Chemical Pakistan Limited is to be done is FFC Limited. The comparison can only be done by
making the financial analysis of this particular Fertilizer Companies in a similar way in which the analysis of Engro Chemical Pakistan Limited is to
be done by first of all calculating all the major five ratios and interpreting them one by one thereby gaining a position to make a comparison
become their financial situation.
An Overview
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 authorized capital of the company was 813.9 Million Rupees. The present share capital of the company stands at Rs. 3.0 Billion.
Additionally, FFC has Rs. 1.0 Billion stakes in the subsidiary Fauji Fertilizer Bin Qasim Limited (formerly FFC-Jordan Fertilizer Company Limited).
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 a major shareholder in a new DAPS/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 to produce 551,000 metric tons of urea and 445,500 metric tons of DAP.
This excellent performance was due to hard work and dedication of all employees and the progressive approach and support from the top
management.
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.
This acquisition at Rs. 8,151 million represents one of the largest industrial sector transactions in Pakistan
Mission Statement
FFC's mission is to sustain its role as the leader in industrial and agricultural advancement of Pakistan by setting and achieving
new and higher goals and taking initiatives. The Company is committed to ensuring safe and conducive work environment,
providing high quality products and allied services to its customers and profitable returns to its shareholders.
RATIO ANALYSIS
(Engro Chemical Pakistan Ltd.)
Ratios simply mean a number expressed in terms of another. A ratio is a statistical yardstick by mean of which relationship between two or
various figures can be compared or measured. Thus Ratio Analysis shows the relationship between accounting data. Ratio can be found out by
dividing on number by another number. Ratio analysis is an important and age old technique of financial analysis. Following are some of the
advantages of ratio analysis.
Advantages:
It simplifies the comprehension of financial statements.
Ratios tell the whole story of changes in the financial condition of the business.
It provides data for inter-company comparison. Makes inter-company comparison possible
Ratio analysis also makes possible comparison of the performance of different divisions of the company. The ratios are helpful in deciding about
their efficiency or otherwise in the past and likely performance in the future.
Ratios highlight the factors associated with successful and unsuccessful company. They also reveal strong companies and weak companys, overvalued under-valued companies.
It helps in planning and forecasting. Ratios can assist management, in its function of forecasting, planning, co-ordination, control and
communications.
It helps in investment decisions in the case of investors and lending decisions in the case of investors and lending decisions in the case of
bankers etc.
Types of Ratios Analysis
Let us now have a detailed analysis of all the following four ratios for Engro chemicals Pakistan Ltd:
Liquidity Ratios
Leverage Ratios
Activity Ratios
Liquidity Ratios:
Current Ratio:
Current Ratio is equal to current assets divided by current liabilities
Current Liabilities
2006 2007:
5264674000
2005 - 2006:
3642415000
2004 - 2005:
2800094000
Current ratio is a general and quick measured of liquidity of company. It represents the margin of safety or cushion available to the auditor. It is
the index of the companys financial stability. It is also an index of the financial solvency and index of strength of working capital.
The current ratio of the company is increasing over the years right from 2004-07 constantly, that is, it was 1.79 in 2004-05 and it is 3.11 in 200607.

Acid Test (Quick) ratio is equal to Current assets fewer inventories divided by current liabilities. It gives more liquid amount of assets to cover your
liabilities.

Current liabilities
2006 2007:
Quick Ratio = 163971980002690153000
5264674000
Quick Ratio = 0.26
2005 - 2006:
Quick Ratio = 5684446000 923448000
3642415000
Quick Ratio = 1.31
2004 - 2005:
Quick Ratio = 5011555000 1922982000
2800094000
Quick Ratio = 1.10
The quick test ratio is a very useful measuring of the liquidity position of the company. It means that companys ability to pay its short-term
obligations or current liabilities immediately and is a more rigorous test of liquidity than the current ratio.
The quick ratio of the company as is shown by the above calculations is not consistent, and decreasing with large percentage that is, the
company is getting lesser and lesser liquid current assets to cover its current liabilities.
Leverage ratios:
Debt Equity Ratio:
Debt equity ratio is equal to long term debts divided by stockholders equity.
Stockholders equity
2006 2007:
Debt equity ratio = 17410060000
1934692000
2005 - 2006:
233,187,729
2004 - 2005:
190,255,511000
This ratio indicates the proprietors claims of owners and outsiders against the companys assets. The purpose is to get an idea of the cushion
available to outsiders and the liquidity of the company. The interpretation of the ratio depends upon the financial and business policy of the
company.
The debt ratio of the company has decreased gradually over the years right from 2004-07 which is actually a positive sign for the company.
Debt Equity ratio increment is a negative point to management that the more of their business is financed by debts this will increase their
financial charges or interest expense and companys liquidity and hence decreasing the companys profit. The lower the ratio the higher the
companys financing that is provided by the shareholders and larger the creditors cushion (margin of protection) in the extent of shrinkage of
assets values or outright loss.
Debt Ratio:
Debt ratio is equal to total liabilities divided by total assets.
Debt Ratio = Total Liabilities
Total Assets
2006 2007:
Debt Ratio = 7005734000
38156651000
Debt Ratio = 0.18
2005 - 2006
Debt Ratio = 3939349000
15980816000
Debt Ratio = 0.25
2004 - 2005
Debt Ratio = 6736064000
14111630000
Debt Ratio = 0.48
It can be defined as how much sufficient our assets are in retrieving the total debts. The debt ratio of the company has been decreasing quite
intensively almost over the last three years as shown clearly by the above calculations.
It briefs that how many times the company has earned the interest. Or how many times the company has user it's earning before interest and
taxes to cover the interest expense.
Interest Expense
2006 2007:

535023000
2005 - 2006:
362551000
2004 - 2005:
280070000
The interest coverage ratio is a very important from the lender point of view. It indicates the number of times interest is covered by the profit
available to pay interest charges. It is an index of the financial strength of the enterprise. A high ratio assures the lender a regular and periodic
interest income. But weakness of the ratio may create some problems for the companys financial manager in raising funds from the debts
sources.
The no. of times the company earns interest has fluctuated dramatically, that is, it was 12.5 in 2005, decreased down to 7.18 in 2006 and to rise
up to 8.92 in 2007.
Activity Ratios
Inventory Turnover Ratio is equal to Cost of Goods Sold divided by Average Inventory.
Inventory Turnover ratio = Cost of Goods Sold Avg. Inventory
2006-2007
Inventory Turnover Ratio = 18262793000 1808192327
2005 2006
1421757872

2004 - 2005:
1291245405
through sales.
In 2006 it was 9.4 times and in 2007 it was 10.1 times. In 2006 the ratio was low because of over investment in inventories. In year 2007 it is
better that is 10.1 times in the year, which is quite good because of good management.
Inventory holding period in days is equal to number of days in a year divided by inventory turnover ratio.
Inventory Holding Period in Days = No. of days in a year
Inventory Turnover ratio
2006 2007:
10.1
2005 - 2006:
9.4
2004 - 2005:
11.1
through sales.
In 2006 it was 38 days times and in 2007 it was 36 days. In year 2006 it was quite good and in 2007 it is better that is 36 days in a year to move
Net Fixed assts turnover ratio is obtained by dividing sales with net fixed assets, where,
(Net fixed assets = Total fixed Assets Accumulated Depreciation)

Net Fixed assets
2006 2007:
Fixed asset turnover ratio= 23183222000
21759453000
2005 - 2006:
600,565,280
2004 - 2005:
480,566,483
Fixed asset turnover ratio measures sales productivity and plant and equipment utilization. It is clear that this ratio is rising from 2006 which is 1.5
to 1.93 in 2007

Total asset turnover ratio measures that how much sales are generated through the total assets of the organization.
Total assets
2006 2007:
Total asset turnover ratio= 23183222000
15980816000
2005 - 2006:
15980816000
2004 - 2005:
14111630000
It shows that company must manage its total assets efficiently and should generate maximum sales through their proper utilization. As the ratio,
increases there are more revenue generated per rupee of total investment in asset. The company ability to produce a large volume of sales on a
small total asset based is an important part of the companys overall performance in terms of profits. In 2007, 2006. The ratio was 1.1, 1.45 times
respectively. In 2007, the ratio indicates that it is producing RS 1.45 sales per
Rupees of investment in total assets. So as time is going by this ratio is increasing which means company performance is up to mark in terms of
profits.

Receivables turnover ratio is equal to net credit sales divided by average receivables.
Avg. Receivables
2006 2007:
1016807982
2005 - 2006:
5828404967
2004 - 2005:
532836064
Receivables turnover ratio measures the average length of time it takes a company to collect credit sales in percentage terms. So Receivables
turn over ratio is becoming worse as it was 30.2 in 2006 as compare to 2007 which is 22.8 times. So the company is not performing well and
showing not good management.

Average collection period in days is equal to days in year divided by Receivables turnover ratio.
Average Collection Period in days = No of days in a year
2006 2007:
22.8
Receivables turnover ratio in days = 16 days
2005 - 2006:
30.2
2004 - 2005:
34.3
Average collection period shows the average length of time it takes a company to collect credit sales in days. From above analysis it is clear that
average collection period is 16 days respectively in year an2006. But it is best was in 2005 which is 11 days.
Gross profit margin is equal to the ratio of gross profit to sales.
Sales
2006 2007:
23183222000
2005 - 2006:
17601783000
2004 - 2005:
18276277000
Gross profit margin or gross profit ratio is the ratio of gross profit to net sales expressed as percentage. From Gross profit the company adjusts its
operating and administrative expenses. In 2006 it increased heavily but in 2007 it decreased to 21.22 %. The gross profit is sufficient to recover
all operating expenses and to build up reserve after paying all fixed interest charges and all dividends.

Operating Profit Margin is equal to earning before interest and tax divided by sales.
Sales
2006 2007:
23183222000
2005 - 2006:
17601783000
2004 - 2005:
18276277000
This used to show the profitability without concern for taxes and interest. In 2006 the operating profit ratio was 21.63% and in 2007 the net profit
ratio is 20.58 %. In 2006 operating profit ratio increased by 2.4 % and decreased by 0.8% in 2007, relative to 2006 ratio Shows Companys
inability to with stand adverse economic condition without caring taxes and interest.
Net Profit Margin:

Net Profit Margin is equal to net profit divided by sales.
Sales
2006 2007:
23183222000
2005 - 2006:
17601783000
2004 - 2005:
18276277000
This used to show the overall profitability and hence it useful to the proprietors. Higher the ratio betters for the organization .It shows the
companys ability to turn each rupee of sale into profit. In 2006 the net profit ratio was 14.47 % and in 2007 the net profit ratio is 13.61%. In 2006
net profit ratio increased by 1.7 % relative to 2005. But in 2007 it decreased slightly and remained 13.61 %.
Earning per share:

This ratio shows that how much amount per share does a common stock holder attains.
2006 2007:
183737000
Earning per share = Rs. 17.17 / share
2005 - 2006:
164650000
Earning per share = Rs.15.47 /share
2004 - 2005:
1161350000
This ratio shows the worth of the share. As we can see that the worth of the shares of Engro Chemical has increased. EPS is increasing at a
constant rate, which are good signs for the investors.
It equals to the ratio of market price per share divided by earning per share.
Earning per share
2006 2007:
17.17
2005 - 2006:
15.47
2004 - 2005:
14.37
In 2006 the situation, slightly become worse as compared to 2005. But in 2007, these ratios results Rs.15.48 were to be spent in order to earn
Rs.1 profit.
RATIO ANALYSIS
Fauji Fertilizer Company Ltd.
Types of Ratios Analysis:
Let us now have a detailed analysis of all the following four ratios for Fauji Fertilizer Company Limited
Liquidity Ratios
Leverage Ratios
Activity Ratios
Liquidity Ratios:
Current Ratio:
Current liabilities
2006 2007:
11,476,393000
2005 - 2006:
10,883,988000
Current Ratio = .897
2004 - 2005:
18,707,783000
Current ratio is a general and quick measured of liquidity of company. It represents the margin of safety or cushion available to the auditor. It is
the index of the companys financial stability. It is also an index of the financial solvency and index of strength of working capital.
Company's Current ratio has been decreasing gradually over the years right from the 2005 to 2007.

Current liabilities
2006 2007:
Quick Ratio = 10, 811, 435000-642, 836000
11,476,393000
Quick Ratio = 0.89
2005 - 2006:
Quick Ratio = 9, 764, 587000-952, 905000
10,883,988000
Quick Ratio = 0 .81
2004 - 2005:
Quick Ratio = 20, 463, 506000- 1,583,429000
18,707,783000
Quick Ratio = 1.01
The quick test ratio is a very useful measuring of the liquidity position of the company. It means that companys ability to pay its short-term
obligations or current liabilities immediately and is a more rigorous test of liquidity than the current ratio.
The calculations above clearly show that the quick ratio of the company has been not constant over the years due to the changes in pre paids and
inventories. But it increased in 2007 as compared to 2006, which is positive point for the company.
Leverage / Debt ratios:

Debt Equity Ratio:
Stockholders equity
2006 2007:
51,741,235
2005 - 2006:
62,565,620
2004 - 2005:
53,055,841
This ratio indicates the proprietors claims of owners and outsiders against the companys assets. The purpose is to get an idea of the cushion
available to outsiders and the liquidity of the company. The interpretation of the ratio depends upon the financial and business policy of the
company.
Debt Equity shows the relationship between the external equities or outside funds and internal equities and shareholders funds. The debt equity
ratio of the company has been decreasing over the years from 2005 to 2006 but in 2007 it increased, with maximum in the year 2004-05 thereby
decreasing in the next year and increasing finally.
Debt Equity ratio increment is a negative point to management that the more of their business is financed by debts this will increase their
financial charges or interest expense and companys liquidity and hence decreasing the companys profit. The lower the ratio the higher the
companys financing that is provided by the shareholders and larger the creditors cushion (margin of protection) in the extent of shrinkage of
assets values or outright loss.
Debt Ratio:
Debt Ratio = Total liabilities
Total assets
2006 2007:
Debt Ratio= 16511169000
29,241,214000
Debt Ratio= 0.57
2005 - 2006
Debt Ratio= 14473738000
27,430,281000
Debt Ratio= 0.53
2004 - 2005
Debt Ratio= 36392141000
48,010,511000
Debt Ratio= 0.76
It can be defined as how much sufficient our assets are in retrieving the total debts. We can observe in our analysis that the debt ratio of the
company is decreasing over the year which is a good sign for the company, that is, the company uses less of its total liabilities for its current
assets.

Interest expense
2006 2007:
696,407000
2005 - 2006:
501,241000
2004 - 2005:
585,816000
The interest coverage ratio is a very important from the lender point of view. It indicates the number of times interest is covered by the profit
available to pay interest charges. It is an index of the financial strength of the enterprise. A high ratio assures the lender a regular and periodic
interest income. But weakness of the ratio may create some problems for the companys financial manager in raising funds from the debts
sources.
The no. of times the company earns its interest fluctuates from over the years right from 2005 to 2007. The times interest earned by the
company in 2007 returned a lot to the level where it was in 2005.
Activity Ratios:
Inventory Turnover ratio = Cost of Goods Sold
Avg. Inventory
2006 2007:
797870500
2005 - 2006:
126817000
2004 - 2005:
1,583,429000
through sales.
In 2006 it was 16.1 times and in 2007 it was 22.95 times. In 2006 the ratio was low because of over investment in inventories. In year 2007 it is
better that is 22.95 times in the year, which is quite good because of good management and polices.

Inventory Holding Period in days = No of days in a year
Inventory turnover ratio
2006 2007:
22.95
2005 - 2006:
16.1
2004 - 2005:
16.41
through sales.
In 2005 it was 21.93 days and in 2007 it was 15.7 days. In year 2007 it is quite good and in 2006 it was better that is 22.36 days in a year to
move inventory through sales, which is quite good because of good management and polices.

Net Fixed assets
2006 2007:
Fixed asset turnover ratio= 28,429,005000
18429779000
2005 - 2006:
17665694000
2004 - 2005:
27547005000
Fixed asset turnover ratio measures sales productivity and plant and equipment utilization. It is clear that this ratio is increasing from 1.44 times
in 2005 to 2006 which is 1.7and decreased to 1.54 in 2007
Total assets
2006 2007:
Total asset turnover ratio= 28,429,005000
29,241,214000
Total asset turnover ratio = .97 times
2005 - 2006:
27,430,281000
2004 - 2005:
48,010,511000
It shows that companies must manage its total assets efficiently and should generate maximum sales through their proper utilization. As the ratio,
increases there are more revenue generated per rupee of total investment in asset. The company ability to produce a large volume of sales on a
small total asset based is an important part of the companys overall performance in terms of profits. In 2007, & 2006 the ratio was 0.97, 1.10
times respectively. In 2007, the ratio indicates that it is producing RS .97 sales per
Rupees of investment in total assets. So as time is going by this ratio is fluctuating which means company performance is not up to mark in terms
of profits.

Avg. Receivables
2006 2007:
1497076500
Receivables Turnover Ratio = 19 times
2005 - 2006:
1171132000 Receivables Turnover Ratio = 25.57 times
2004 - 2005:
890,874000
Receivables turnover ratio measures the average length of time it takes a company to collect credit sales in percentage terms. So Receivables is
better in 2006 is 25.57 times as compare to 2007, which is 19 times

Average Collection Period in days = Days in a year

2006 2007:
19 Receivables turnover ratio in days = 18.95 days
2005 - 2006:
2004 - 2005:
Average collection period shows the average length of time it takes a company to collect credit sales in days. From above analysis it is clear that
average collection period was 14.41 days in2006. But it was best in 2005 which is 8.1 days. So these ratios show that company is doing well in
this particular case.
Sales
2006 2007:
Gross profit margin = 10,117,480000X 100
28,429,005000
2005 - 2006:
29,950,873000
2004 - 2005:
39,757,510000
Gross profit margin or gross profit ratio is the ratio of gross profit to net sales expressed as percentage. In 2006 it increased slightly to 7.73 % and
in 2007 it increased to 10.22 %. The gross profit is sufficient to recover all operating expenses and to build up reserve after paying all fixed
interest charges and all dividends.
Sales
2006 2007:
28,429,005000
2005 - 2006:
29,950,873000
Operating Profit Margin = 25 %
2004 - 2005:
39,757,510000
This used to show the profitability without concern for taxes and interest. In 2006 the operating profit ratio was 25%, and in 2007 the operating
profit ratio is 29.93 %. In 2006 operating profit ratio was increased by 7.4 % and increased by 5% in 2007. The operating profit is increasing
gradually at a decreasing rate but it shows companys capacity to with stand adverse economic condition without caring taxes and interest.
Net Profit Margin:
Sales
2006 2007:
Net Profit Margin = 5,360,953000 X 100
28,429,005000
Net Profit Margin = 18.86
2005 - 2006:
29,950,873000
2004 - 2005:
39,757,510000
This used to show the overall profitability and hence it useful to the proprietors. Higher the ratio betters for the organization .It shows the
companys ability to turn each rupee of sale into profit. In 2006 the net profit ratio is 15.48 % and in 2007 the net profit ratio is 18.9%. In 2006 net
profit ratio decreased by .61 % relative but increased in 2007 by 3 %.
Earning per share:

2006 2007:
493,474000
2005 - 2006:
493,474000
2004 - 2005:

493,474000
This ratio shows the worth of the share. As we can see that the worth of the shares of Fauji fertilizer Company has decreased. The EPS is almost
fluctuating but still in favorable condition.

Earning per share
2006 2007:
10.86
2005 - 2006:
9.39
Price Earning Ratio = Rs.11.24
2004 - 2005:
Price Earning Ratio = 137
12.96
These ratios results show that in 2007 Rs.10.93 were to be spent in order to earn Rs.1 profit. But in year 2006 the position was comparatively
good as shown that Rs.11.24 has to be spent in order to earn Rs.1 of profit.
INDUSTRY ANALYSIS
(Comparison through graphical interpretation)
Activity Ratios
Current Ratio:
2004-05
2005-06
2006-07
ECL
1.79
1.56
3.11
FFC
1.094
.897
0.942
Quick Ratio:
2004-05
2005-06
2006-07
ECL
1.10
1.31
0.26
FFC
1.01
0.81
0.89
2004-05
2005-06
2006-07
ECL
11.1
9.4
10.1
FFC
16.41
16.1
22.95
Inventory Holding Period:
2004-05
2005-06
2006-07
ECL
32
38
36
FFC
21.93
22.36
15.7
2004-05
2005-06
2006-07
ECL
34.3
30.2
22.8
FFC
44.62
25.57
19
2004-05
2005-06
2006-07
ECL
11
12
16
FFC
8.1
14.41
18.95
Average Collection Period:
2004-05
2005-06
2006-07
ECL
1.4437
1.5148
1.9397
FFC
1.44
1.7
1.54
Net Fixed Assets
Total Assets Turnover:
2004-05
2005-06
2006-07
ECL
1.30
1.1
1.45
FFC
0.833
1.1
0.97
Debt Ratio:
2004-05
2005-06
2006-07
ECL
.48
.25
.18
FFC
0.76
0.53
0.57
Debt Equity Ratio:
2004-05
2005-06
2006-07
ECL
1.6625
1.5888
1.5348
FFC
5.1316
4.0654
4.177
Times Interest Earned:
2004-05
2005-06
2006-07
ECL
12.5
7.18
8.92
FFC
11.92
14.94
12.22
2004-05
2005-06
2006-07
ECL
14.45
24.07
21.22
FFC
34.6
32.42
35.6
2004-05
2005-06
2006-07
G.P. Margin:
ECL
19.15
21.63
20.58
FFC
17.6
25
29.93
2004-05
2005-06
2006-07
ECL
12.69
14.47
13.61
FFC
16.09
15.48
18.86
N.P. Margin:
Price Earning Ratio:
2004-05
2005-06
2006-07
ECL
10.85
11.02
15.48
FFC
10.57
11.24
10.93
2004-05
2005-06
2006-07
ECL
14.37
15.47
17.17
FFC
12.96
9.39
10.86
Earning Per Share

Conclusion
So, in the light of all the details given above about the financial analysis of both the industries, i.e. debt, activity, liquidity, & profitability of Engro
chemicals ltd. And Fauji fertilizer company , we come to know that in this situation of agriculture recession and down fall in the economy the ECL
has performed well and it maintained its fianancial position and faced the tough competitors

Finance Project On Ratio Analysis On ENGRO: The Organization Concerned Engro Chemical Pakistan LTD

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Tuesday, 16 August 2011

Tuesday, 16 August 2011

Finance Project on Ratio Analysis on ENGRO

and international operating standards, EVTL is well-positioned to build a LNG terminal,

Engro Energy Limited (EEL)

Engro Zarkhez: is homogenously granulated fertilizer which maximizes crop yield by

Chemical handling & Storage

Foods by Engro Foods Limited

Packing & Loading:

Values that we live by

ETHICS AND INTEGRITY

Types of Ratios Analysis

Quick Ratio = 5011555000 1922982000

Debt Ratio = 0.25

Inventory Turnover Ratio = 9.4 times

Fixed asset turnover ratio = 1.939 times

Average Collection Period in days:

Gross profit margin = 24.07 %

Inventory Turnover Ratio = 16.1 times

Fixed asset turnover ratio = 39,757,510000

Comparison over the years / Interpretation:

Operating Profit Margin = 8511360000X 100

Inventory Turnover Ratio:

Inventory Holding Period:

Receivables Turnover Ratio:

Average Collection Period:

Net Fixed Assets

Debt Equity Ratio:

Times Interest Earned:

Operating Profit Margin:

Price Earning Ratio:

Earning Per Share

Finance Project on Ratio Analysis on ENGRO

THE ORGANIZATION CONCERNED

Engro Chemical Pakistan Ltd.

Engro Chemical Pakistan Limited is a fertilizer company which is of their concern

Our Diverse Colors of Excellence

Engro Chemical Pakistan Limited

Engro Vopak Terminal Limited

Engro Polymer and Chemicals Ltd.

EPCL is undergoing expansion involving PVC production increase of 50,000 tones

Synchronizing to a single brand worldwide with all the engineering Standards,

Engro Foods Limited (EFL)

Engro Energy Limited (EEL)

This wholly owned subsidiary is setting up an Independent Power Plant near

Products & Services

Engro Zarkhez: is homogenously granulated fertilizer which maximizes crop yield

provide convenience to the farmer through ready availability of precise quantities of

Chemical handling & Storage

Providing process control solutions to your industrial units

Market leader in industrial automation business providing process control solutions

Foods by Engro Foods Limited

Olpers: Standardized at 3.5% fat, Olpers is a premium, UHT all-purpose milk.

Tarang: Liquid tea whitener

Our 217 MW Power Plant.

Power Generation by Engro Energy Limited

Improvisation through Six Sigma: the legend leads again

Packing & Loading:

Principal Operations Committee

Risk Management Process

Internal Control Framework

Values that we live by