Strategic Planning

IFE Matrix and Financial

Ratio Analysis
Submitted By:
Muhammad Haroon Khan
L1S18BSAF0005
Syed Sabtain Haider
L1S18BSAF0020
Hafiz Muhammad Usman
Farooq
L1S18BSAF0044

Lucky Cement Limited

 Internal Factor Evaluation Matrix (IFE)
Strengths Weight Rating Weighted Score
Employee Development 0.09 4 0.36
High Pay Scale 0.1 3 0.3
Export Share 0.18 3 0.54
High Product Quality 0.12 4 0.48
Larger Dealer Network 0.08 4 0.32
Increased Revenue 0.11 4 0.44
Weaknesses
Increased Cost Production 0.1 2 0.2
High Transportation Cost 0.08 3 0.24
Low advertising 0.07 2 0.14
Highly regionalized and localized market 0.07 1 0.07
Total 1 3.09

Interpretation:
The above IFE (Internal Factor Evaluation Matrix) is for Lucky Cement Limited
(Pakistan). In the portion of strengths the highest weightage is for Export Share
and Product Quality. Due to its high export share the company revenue is increased
and the other factor that is product quality. The company did not compromise on
its product quality as if the quality is reduced it will result in decreased market
share. Going on to the weaknesses portion, major weakness the company is facing
is increased production cost and transportation cost. Distribution plays an
important role in success of a product and enhanced distribution channels make
product available to the customers. Low advertising is also causing trouble for the
company and through improved advertising and promotional tools company can
attract more customers.

Overall the weighted Score is 3.09 that is above average but still there are areas
that needs attention and by improving those areas company can increase the market
share and can be able to attract more customers.

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 Financial Ratio Analysis
Lucky Cement Limited
For the Year 2013-2018
Key Performance Indicators
Source: State Bank of Pakistan

Net Profit Margin/Net Profit to Sales

2013 2014 2015 2016 2017 2018
Cement Industry 22.06 16.68 19.38 21.55 20.44 18.8
Lucky Cement Company 21.2 15.49 17.85 19.49 19.9 16.58

Interpretation:
Formula:

(Total Revenue – Total Expenses)/Total Revenue = Net Profit/Total Revenue =

After tax Profit Margin

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Net Profit Margin is the amount left after paying all the expenses (operating), taxes
and interest etc. If see the graph, in 2013 the Net Profit Margin of Industry
(Cement) was 22.06 Million PKR and that of Lucky Cement was 21.2. There is a
very slight difference between both amounts. But in 2014 there is a sharp decline
in Net Profit Margin for both (Industry and Company) that may be due to increase
in some expenditures or taxes. From 2015 to 2017 we see gradual increase in the
margin that is favorable for both Cement Industry and Lucky Cement limited. In
year 2018 there is a difference of 2.22. Industry Net Profit Margin is greater than
Company’s by 2.22 figure.

Asset Turnover
2013 2014 2015 2016 2017 2018
Cement Industry 0.58 0.67 0.61 0.61 0.57 0.52
Lucky Cement Company 0.76 0.8 0.84 0.71 0.66 0.64

Interpretation:

Formula:

Total Assets Turnover = Net Sales / Total Sales

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Asset Turnover ratio gives the information about who the company or firm utilizes
the assets it have to make the sales or revenues. If we look at the data given from
2013 to 2018 the date for company (lucky cement) is higher than the industry. In
every year the asset turnover for the company is higher as compared to the
industry. Therefore we can conclude that the company is using its assets better than
the industry to increase its sales or revenues in other words we can market share.

Return on Asset
2013 2014 2015 2016 2017 2018
Cement Industry 14.01 11.14 11.91 13.19 11.65 9.75
Lucky Cement Company 20.69 15.5 15.07 13.91 13.15 10.57

Interpretation:
Formula:
Return on assets = Net Income / Total assets
As from the name of ratio (Return on assets) it gives clear sense that what actually
company gets in return by investment in the assets. Return on asset for lucky
cement is higher for each year i-e; from 2013 to 2018. In 2013 the company ratio

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was 20.69 and that of industry was 14.01, a huge difference between both amounts.
But if we look for next year’s we can see there is a sharp decline that is from 2013-
2014 and from 2014 onwards there is gradually decrease and in the 2018 the
amounts for cement industry and Lucky Cement were 9.75 and 10.57 respectively
that is not a good sign for the company as both company and industry are losing
their respective returns on their assets. The management of the company should
have to take it seriously and develop suitable measures to increase their returns.

Return on Equity
2013 2014 2015 2016 2017 2018
Cement Industry 26.16 19.01 19.59 21.18 18.26 16.05
Lucky Cement Company 29.75 24.37 23.43 21.33 19.58 15.72

Interpretation:
Formula:

Return on Equity = Net Income/Shareholder’s Equity

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It is basically the return that shareholders receive after investing in a particular
company of firm. The above table shows data related to return on equity from 2013
to 2018. From 2013 to until 2017 the return of equity for lucky cement is higher
than cement industry of Pakistan as shown below:

29.75 > 26.16

24.37 > 19.01
23.43 > 19.59
19.58 > 18.26
But the important factor that needs consideration is that the return on equity is
gradually decreasing, it has decreased from 29.75 to 19.58 for Lucy Cement and
from 26.16 to 18.26 which is not a favorable sign for both company and industry.
In 2018 there is a large decline in both return on equities. The company needs to
take such measures to increase the equity ratio or if not able to increase try to keep
it stable so that investors’ confidence can get stronger.

Earning Per Share

2013 2014 2015 2016 2017 2018
Cement Industry 6.28 5.75 6.96 8.99 10.96 9.65
Lucky Cement Company 35.07 38.88 45.32 49.45 53.78 50.01

Interpretation:
Formula:

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 =Total Earning/Outstanding Shares
Earnings per share (EPS) basically is the number that describes the company’s
profit per share. The more the EPS the more the company is considered to be
profitable. The above graph shows the EPS of lucky cement and rest of the cement
industry. The results show that lucky cement has much higher EPS than rest of the
cement industry which is a good sign for the company as the highest amount of
EPS is Rs 53.78 in 2017 and the lowest is Rs 35.07 in 2013. From 2013 to 2017 the
EPS is constantly increasing but in 2018 it decreases by Rs 3.77. Other than that
rest of the cement industry is also having fluctuations in the EPS but are not nearly
competitive to lucky cement as the highest amount of EPS for rest of cement
industry is Rs 10.96 and the lowest is Rs 5.75. If lucky cement maintains such
profitability, it’s too good for the company’s growth.

Current Ratio
2013 2014 2015 2016 2017 2018
Cement Industry 1.29 1.58 1.53 1.84 1.70 1.33
Lucky Cement Company 3.38 4.32 3.64 4.1 4.48 2.82

Interpretation:
Formula:

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 =Current Assets/Current Liabilities
Current ratio is calculated to compare the current assets with current liabilities and
to get an idea about the payoff time of the debts and liabilities that are short term.
It’s the best way to know about the liquidity of a company. As we know that a
good current ratio is between 1.2 and 2 which means that the business has 2 times
more current assets than current liabilities to cover up its debts. Higher current
ratio is not a good sign for the company as well because it indicates that the
company is not utilizing its assets or its short term financing facilities. As the
above results show that lucky cement is having a current ratio higher than 2 from
2013 to 2018 constantly so that it seems that the company needs to pay much more
attention towards this aspect but on the other hand results in 2018 show that the
company had made an effort towards the better utilization as the ratio is 2.82 which
is much better than the prior year that shows the highest rate 4.48. On the other
hand when we compare the company with the rest of the cement industry it is to be
noticed that its having way better current ratio throughout the years 2013-2018 as
the highest figure is 1.84 and the lowest is 1.33 that shows that at this point the rest
of the industry beats lucky cement.

Quick Ratio
2013 2014 2015 2016 2017 2018
Cement Industry 0.96 1.32 1.30 1.64 1.48 1.13
Lucky Cement 1.66 2.62 2.75 3.31 3.67 2.12
Company

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Interpretation:
Formula:
=Current Assets- Inventory-Prepaid Expenses/Current Liabilities
Quick is used to know about company’s short term liquidity position. It indicates
that the company can meet with its short term liabilities with its most liquid assets
or not. Most liquid assets mean cash or assets that can be quickly converted into
cash. The above results show that lucky cement is doing good at the utilization of
its short term obligations as it is known that higher quick ratio is better for a
company’s financial health and above results shows that lucky cement’s quick ratio
is increasing every year except the year 2018 that shows a decline. The highest
figure in the table from the year 2013- 2018 is 3.67 that is in the year 2017 and the
lowest figure is 1.66 in the year 2016. On the other hand, rest of the cement
industry couldn’t beat lucky cement at this point as well as the highest figure for
them is 1.64 in 2016 and the lowest is in 2013 that is 0.96. It would be beneficial
for lucky cement to maintain this trend for further profits.
Debt to Total Assets
2013 2014 2015 2016 2017 2018
Cement Industry 0.443 0.387 0.396 0.360 0.364 0.416
Lucky Cement 0.182 0.168 0.189 0.193 0.180 0.208

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Interpretation:
Formula:
=Total Liabilities/Total Assets
Debt to total assets ratio let us know about the percentage of total assets that are
owned by creditors or that are on credit. It is used to get knowledge about the
financial leverage of the company. A lower ratio is good for the company as it
indicates that not more assets are on credit but the higher the ratio the greater the
risk and liability of paying back. The above results show that lucky cement is
having a good debt to assets ratio because its low in all the years but on the other
hand its getting higher which is not a good sign for the company as in 2013 the
ratio was 0.182 which means that 18%of the assets are on credit and in 2018 the
figure is 0.208 which means this year the company owns 20.8% assets on credit
and if it remains increasing in the coming years the company would be at a very
high risk. Other than that it’s a good sign that lucky cement is still much better than
the rest of the cement industry as they have already reached at the risk line that is
0.40 or 40% and still the figure is increasing. From 2013 to 2017 the figure shows
a decline but in 2018 its again close to the figure in 2013, as in 2013 its 0.443
which means 44.3% of the assets are on credit but in 2014 its low as 0.387 (38.7%)
and remains to be less than 0.40 but in 2018 its again 0.416 which means 41.6%
that is a higher figure and leads towards higher risk for the industry.

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 Debt to Equity

2013 2014 2015 2016 2017 2018

Cement Industry 0.430 0.325 0.344 0.308 0.304 0.359
Lucky Cement 0.105 0.092 0.087 0.081 0.074 0.067
Company

Interpretation:
Formula:
=Total Liabilities/Total Shareholder’s Equity
Debt to equity ratio helps measuring the debt and equity proportions in a company.
It is used to know that what percentage of company’s debt liability or creditors can
be paid by company’s shareholder’s equity if the business face a crisis. A lower
debt to equity ratio is a sign that the company has more financing by its
shareholders and less by borrowing and the higher the ratio the higher the debt
percentage. The more the debt to equity ratio the greater the risk of business
decline or bankruptcy. The above results show that lucky cement has a lower debt
to equity ratio all over the years from 2013-2108. In 2013 it has Rs 0.105 for every
Rs 1 of equity which shows a good percentage of 10.5% of the company assets are
on debt than equity. It continues declining over the years and in 2018 its Rs 0.067
for every Rs 1 of equity. Lucky cement in this regard has very low risk of

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bankruptcy. On the other hand rest of the cement industry has it higher than lucky
cement for all the years (2013-2018). As in 2013 they have Rs 0.430 of debt for
every Rs 1 of equity and with constant decline over the years it ends up with Rs
0.359 for every Rs 1 in 2018.

Receivables Collection Period

2013 2014 2015 2016 2017 2018

Cement Industry 9.71 10.12 10.95 11.17 12.31 15.10
Lucky Cement 13.12 15.87 16.8 17.08 15.04 15.38
Company

Interpretation:
Formula:
=Accounts Receivables Balance for the year/Credit Sales Per Day
Account receivables collection period is known as per day sale on credit or on
account receivables. This ratio is important to get knowledge about the collection
performance of the company and for credit sales assessments as well. We usually
get to know that in how many days a customer makes payment of the credit sales
made to him by the company. The above results show that the maximum days of
payment from customers are 17 days as in year 2016 whereas in the prior years this

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period was short as in 2013 it was 13 days, in 2014 it was 15 days and in 2015 it
was 16 days. After the highest figure in 2016 in 2017 it declined to 15 days and
continued in 2018 as well. Now if we take a look at rest of the cement industry’s
results it is shown that they have way better collection ratio or account receivables
ratio. The highest number of days for payment for the years 2013-2018 is 15 days
for them in 2018 whereas the lowest is 9 days in the year 2013.

Return on Capital Employed

2013 2014 2015 2016 2017 2018

Cement Industry 0.193 0.198 0.196 0.228 0.194 0.132
Lucky Cement 0.253 0.261 0.242 0.241 0.216 0.161
Company

Interpretation:
Formula:
=Earnings Before Interest and Tax/Capital Employed
Return on capital, as explained by name is known as measure of company’s
profitability and how effectively and efficiently the capital is used. It states that
how much a company is generating profit by utilizing its capital. The higher the

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ratio the better the profitability is. The above results show that the ratio of lucky
cement is constantly decreasing from 2014 to 2018 and in 2018 it declines with a
heavy percentage as in 2013 the ratio was 0.253 which is 25.3% and it increased in
2014 26.1% but after 2014 it constantly decreased. The 2018 figure shows worst
results as it declined to 16.1% in 2018. On the other hand when we go through the
rest of the industry it shows even worst picture as it is lower than lucky cement and
is also lowest in the year 2018 with 13.2% and highest is 22.8% in 2016. It looks
like 2016 had been a favorable year for the cement industry and 2014 was for
lucky cement.

Inventory Turnover

2013 2014 2015 2016 2017 2018

Cement Industry - 22.90 17.59 16.25 15.55 14.24
Lucky Cement 3.17 3.4 3.44 3.3 3.05 3.22
Company

Interpretation:
Formula:
=Sales/Inventory

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Inventory turnover means that how many times a company has restocked its
inventory after selling it during a period of time. Inventory turnover presents the
inner picture of the company that how it manages its cost and how effective its
sales are. Higher inventory turnover ratio shows higher sales whereas lower ratio
shows weaker sales and declining demand of the company’s products. The above
results show increasing trend of lucky cement over the years that means that with
passage of years demand for its products increased and the company is moving
forward as in 2013 the figure was 3.17 and in 2018 it was 3.22. If we take a look at
the rest of the cement industry it is shown that other than the year 2013( data is not
available) from 2014- 2018 it continuously declines that means the demand of their
products have been decreased badly. But when we compare it with lucky cement it
shows that they have much more in demand than lucky cement’s products as the
lowest figure is way higher than lucky cement’s highest figure. The highest figure
for the industry was 22.90 in the year 2014 but after constant decrease it ended up
with 14.24 in 2018.

Gross Profit Margin

2013 2014 2015 2016 2017 2018
Cement Industry 0.328 0.285 0.313 0.339 0.331 0.262
Lucky Cement Company 0.443 0.434 0.451 0.482 0.466 0.357

Interpretation:

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 Formula:
=Net Sales- Cost of Goods Sold/ Net Sales
Gross profit margin indicates the amount of profit that is left after selling a product
and subtracting its cost from the selling amount. It is calculated to have an idea
about the company’s financial health. Constant fluctuations in the gross profit
margin indicates about company’s poor management practices whereas such
fluctuations may be justified when a company is in continuous operational
changes. The above results show that there is not such huge fluctuation in the
margin from the year 2013-2017 as the figures are slightly different from one
another and are around 0.44 to 0.482 or 0.466 but in 2018 it had a wild decline
with 0.357 which is huge and is not a good sign for the company. When we take a
look at rest of the industry its worse than lucky cement with not one but more than
one abnormal changes in the figures. The highest figure is 0.339 in 2016 and the
lowest is 0.285 in the year 2014.

Asset to Equity
2013 2014 2015 2016 2017 2018
Cement Industry 8.80 4.44 4.81 3.57 3.67 5.95
Lucky Cement 1.22 1.20 1.23 1.24 1.22 1.26

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Interpretation:
Formula:
=Total Assets/ Shareholder’s Equity
The asset to equity ratio is measure for financial leverage and it shows the relation
between company’s total assets and the amount of capital over which the
shareholders have a claim. The higher means that the company has taken too much
debt and has no access to further debt and the assets are also in a heavy amount.
The above results show good ratio of lucky cements over the years 2013-2018. The
ratio figures fluctuates with minor changes over the years that means the company
has control over its assets and equity. The highest figure over here is 1.26 in 2018
and the lowest is 1.20 in 2014. On the other hand if we take a look on rest of the
industry it shows higher values in 2013 but gradually decreasing till 2018 as in
2013 the figure was 8.80 which is highest but it decreased to 3.57 and 3.67 in 2016
and 2017 respectively. In 2018 it ended up with the figure 5.95 which still is higher
than lucky cements highest figure over these years. It is favorable for lucky cement
and if it continues with this trend onwards it would be more beneficial for the
company.

Debtor Turnover

2013 2014 2015 2016 2017 2018

Cement Industry 37.58 36.08 33.32 32.67 29.66 24.18
Lucky Cement 27.81 27.81 21.73 21.37 24.27 23.73
Company

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Interpretation:
Formula:
=Net Credit Sales/Average Accounts Receivables
Debtors turnover ratio means that how well a company manages its credit and in
how many days it is collecting revenue from its clients with connection to how
effectively the assets are being utilized. The above results show that how many
times in a fiscal year lucky cement and the cement industry collects its debts. The
highest figure for lucky cement is 27.81 times in 2013 and 2014 and the lowest is
21.37 in 2016 whereas when we look at the rest of the cement industry it shows
that they are collecting more times in the fiscal year as the highest figure is 37.58
in 2013 but after the constant decline it ended up with lowest figure of 24.18 in
2018 which seems not to be a good sign.

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