Corporate Finance

Name:Ali Raza
S2019021013
 a) Introduction of company

Pioneer Cement Limited (the Company) was incorporated in Pakistan as a public company
limited by shares on February 09, 1986. Its shares are quoted on Pakistan Stock Exchange. The
principal activity of the Company is manufacturing and sale of cement.

The registered office of the Company is situated at 135, Ferozepur Road, Lahore. The
Company’s production facility is situated at Chenki, District Khushab in Punjab Province with
the land area of 2,429 kanals and 9 marlas.

The Company commenced its operations with an installed clinker production capacity of 2,000
tons per day. During 2005, the capacity was optimized to 2,350 tons clinker per day.

In financial year 2006, another production line of 4,300 tons per day capacity was completed
which started commercial operations from April 2006. The Company is in process of installing a
new brown field cement plant having production capacity of approximately 8,000 tons per day
clinker supported by a 12 MW Waste Heat Recovery Power Plant.

In addition, a 24 MW Coal Fired Power Plant is also being installed at the existing plant site.
During the year ended June 30, 2018, the Company signed a non-binding memorandum of
understanding (MoU) with the sponsors of Galadari Cement (Gulf) Limited (the target company)
to acquire the controlling interest of the target company. However, during the current year, the
said MoU was terminated, and it is of no further force and effect.

b) Opinion on Financial Statements

Financial Statements for the year ended 30 June 2019 of Pioneer Cement Ltd were audited by
EY Fords Rhodes. They have given an unqualified opinion on the audit report which means that
the financial statements present a true and fair view.

c) Corporate Social Responsibility initiatives

Following are some of the corporate social responsibility initatives taken by Pioneer Cement Ltd;

— Company has successfully achieved ISO 9001:2015 and ISO 14001:2015 certification for
health & safety.
— Electrostatic precipitator and dust collectors have been installed at the production facility of
the Company. Further, efficient coal firing burners have been installed that help in reducing
environment pollution from nitrogen oxide and carbon monoxide. A Waste Heat Recovery
Power Plant (WHRPP) has also been installed which produces electricity using the gases
emitted during production process

— Employees are always equipped with protective gears.

— Company is playing an active role in various community development and maintenance

programs including a mosque, medical dispensaries, ambulance service and primary schools
at Chenki (the production facility) and financial support to Divisional Public School at
Jauharabad.

— The Company contributed an amount of Rs. 4,883.42 million into the Government Treasury
on account of income taxes, levies, sales tax and excise duty.

d) Governance Mechanism

Pioneer Cement Ltd is controlled by the following Board of Directors;

Mr. Aly Khan (Chairman)

Mr. Rafique Mr. Arif Hamid

Dawood Dar (CEO)

Mr. Mirza Ali

Board of Directors Ms. Aleeya Khan
Hassan Askari

Mr. Jamal Nasim Mr. Shafiuddin Ghani Khan

Mr. Mohammad
Aftab Alam
The incentives of the management personnel are as follows;

Particulars CEO Executives

Basic Salary 12,803,000 67,953,000
Contribution to provident fund 1,280,000 1,280,000
House rent 5,761,000 30,579,000
Utilities 1,280,000 6,795,000
Others 5,433,000 41,270,000

In addition to this CEO, executive director & executives of the Company have been provided
with Company cars. Directors of the company are paid Rs. 15,000 per meeting attended.

e) Acquisition of new assets

Particulars Amount Depreciation Method

Plant and machinery line-I 17,858 Units of production method

Plant and machinery line-II 105,790 Units of production method
Coal firing system 14,674 Units of production method
Power generation plant 8,973 4% reducing balance
Furniture and fixture 4,067 10% reducing balance
Office equipment 7,292 10% reducing balance
Computers and accessories 5,466 33% reducing balance
Vehicles 49,397 20% reducing balance

f) Beta for the firm

The beta of Pioneer Cement Ltd is 1.07

g) Comment of Deferred Tax Account

Pioneer Cement Ltd recognized deferred tax liability on taxable/deductible temporary differences
as follows;
— accelerated tax depreciation (charged to P&L)

— surplus on revaluation of fixed assets (charged to OCI)

— employee benefits (charged to P&L)

— provision for slow moving stores and spare parts (charged to P&L)

— allowance for expected credit losses (charged to P&L)

— others (charged to P&L)

The deferred tax expense includes Rs. 159,263,000 relating to change in tax rate.

h) Ratio Analysis

 Cash Ratio

Cash ratio is the measure of the company’s ability to pay off its current liabilities with only cash
& cash equivalents.

Cash ratio of Pioneer Cement Ltd is calculated as follows;

Cash Ratio = Cash + Cash Equivalents

Total Current Liabilities
Cash Ratio = 210,924,000+728,359,000
9,687,595,000
Cash Ratio = 0.10

 Quick Ratio

Quick ratio is the measure of the company’s ability to pay off its current liabilities by readily
available cash and cash equivalents.

Quick ratio of Pioneer Cement Ltd is calculated as follows;

Quick Ratio = Cash + Cash equivalents - Short term investments + Current receivables
Current Liabilities
Quick Ratio = 210,924,000+325,000+482,724,000
 9,687,595,000
Quick Ratio = 0.07

 Current Ratio

Current ratio is the measure of the company’s ability to pay off its current liabilities with current
assets.

Current ratio of Pioneer Cement Ltd is calculated as follows;

Current Ratio = Current Assets

Current Liabilities
Current Ratio = 6,030,044,000
9,687,595,000
Current Ratio = 0.62

 Account Receivable Turnover

Account Receivable turnover measures how long do a company takes to convert its receivables
into cash.

Asset Receivable Turnover of Pioneer Cement Ltd is calculated as follows;

Asset Receivable Turnover Ratio = Net credit sales

Average accounts receivable
Asset Receivable Turnover Ratio = 9,733,653,000
(482,724,000+433,814,000+325,000+45,000)/2
Asset Receivable Turnover Ratio = 21.23

 Days sale outstanding

Days sale outstanding measures the average number of days of collection from receivables.
Days sale outstanding of Pioneer Cement Ltd is calculated as follows;

Days sale outstanding = Accounts receivable x 365

Net Credit Sales
482,724,000+325,00
Days sale outstanding = x 365
0
9,733,653,000
Days sale outstanding = 18.11

 Inventory turnover

Inventory turnover depicts how well inventory is managed in a company by comparing cost of
goods sold with average inventory for a period.

Inventory turnover of Pioneer Cement Ltd is calculated as follows;

Inventory turnover = Cost of Goods Sold

Average inventory
Inventory turnover = 7,598,967,000
325,812,000
Inventory turnover = 23.32

 Days sale in inventory

Number of days the company will take to sell its entire inventory is termed as Days sale in
inventory

Days sale in inventory of Pioneer Cement Ltd is calculated as follows;

Days sale in inventory = Inventory x 365

Cost of goods sold
Days sale in inventory = 325,812,000 x 365
7,598,967,000
Days sale in inventory = 15.64 days

 A/C payable turnover

Ability of the company to pay off its Accounts Payables is termed as A/C Payable Turnover

A/C Payable turnover of Pioneer Cement Ltd is calculated as follows;

A/C Payable Turnover = Total purchases

Accounts payable
A/C Payable Turnover = 554,300,000
2,275,190,000
A/C Payable Turnover = 0.24

 Days payable

Average time taken by company to settle of its bills and invoices to other company and vendors
is termed as Days Payable.

Days payable of Pioneer Cement Ltd is calculated as follows;

Days Payable = 365

Accounts Payable Turnover
Days Payable = 365
0.24
Days Payable = 0.00067

 Cash conversion cycle

Time taken by company to convert its investment in assets into cash is termed as Cash
Conversion Cycle.

Cash conversion cycle of Pioneer Cement Ltd is calculated as follows;

Cash conversion cycle = Days inventory outstanding + Days sale outstanding – Days Payable
outstanding

Days inventory outstanding + Days sale outstanding – Days Payable

Cash conversion cycle =
outstanding
Cash conversion cycle = 18.11+15.64 -0.00067
Cash conversion cycle = 33.8

 Asset turnover ratio

Company’s ability to generate sales from its assets is termed as Asset turnover ratio.

Asset turnover ratio of Pioneer Cement Ltd is calculated as follows;

Asset turnover ratio = Net Sales

Average total assets
Asset turnover ratio = 9,733,653,000
(42,277,411,000+29,111,368)/2
Asset turnover ratio = 0.23

 Gross Margin

Gross margin ratio compares gross margin and net sales of the company.

Gross Margin Ratio of Pioneer Cement Ltd is calculated as follows;

Gross Margin Ratio = Gross profit

Net sales
Gross Margin Ratio = 2,134,686,000
9,733,653,000
Gross Margin Ratio = 0.23

 Net Profit Margin

Amount of income earned with each sale is termed as net profit margin ratio
Net Margin Ratio of Pioneer Cement Ltd is calculated as follows;

Net Margin Ratio = Net Income

Net sales
Net Margin Ratio = 790,377,000
9,733,653,000
Net Margin Ratio = 0.08

 Return on Assets

Net income produced by total assets is termed as return on assets.

Return on assets ratio of Pioneer Cement Ltd is calculated as follows;

Return on assets Ratio = Net Income

Average Total Assets
Return on assets Ratio = 790,377,000
(42,277,411,000+29,111,368)/2
Return on assets Ratio = 0.018

 Return on Capital Employed

Efficiency of a company to generate profits from capital employed.

Return on capital employed ratio of Pioneer Cement Ltd is calculated as follows;

Return on capital employed ratio = Net Operating profit

Total assets-Current Liabilities
Return on capital employed ratio = 1,593,938,000
42,277,411,000-9,687,595,000
Return on capital employed ratio = 0.048

 Return on Equity
 Ability of the company to generate profits from investment of shareholders.

Return on equity ratio of Pioneer Cement Ltd is calculated as follows;

Return on equity ratio = Net income

Shareholder’s equity
Return on equity ratio = 790,377,000
2,271,489,000
Return on equity ratio = 0.34

 Debt Ratio

The measure of total liabilities as a percentage of its total assets.

Debt ratio of Pioneer Cement Ltd is calculated as follows;

Debt ratio = Total liabilities

Total assets
Debt ratio = 28,956,068,000
42,277,411,000
Debt ratio = 0.69

 Debt/Equity Ratio

Comparison of a company’s total equity to its debts is debt to equity ratio.

Debt ratio of Pioneer Cement Ltd is calculated as follows;

Debt/Equity ratio = Total liabilities

Total equity
Debt/Equity ratio = 28,956,068,000
13,321,343,000
Debt/Equity ratio = 2.17
 Earnings Per Share

Amount of income earned per share is termed as EPS

EPS of Pioneer Cement Ltd is calculated as follows;

EPS = Net Income-preferred dividends

Weighted average common shares outstanding
EPS = 790,377,000
227,149,000
EPS = 3.48

 Price / Earnings Ratio

Market value of a stock relative to its earnings is called price/earnings ratio.

Price earnings ratio of Pioneer Cement Ltd is calculated as follows;

Price earnings ratio = Market value price per share

EPS
Price earnings ratio = 22.65
3.48
Price earnings ratio = 6.50

 Dividend Payout Ratio

Percentage of net income distributed among shareholders in the form of dividends.

Dividend payout ratio of Pioneer Cement Ltd is calculated as follows;

Dividend payout ratio = Total dividends

Net income
Dividend payout ratio = 0
790,377,000
Dividend payout ratio = 0
 Dividend Yield

Amount of cash dividend distributed among shareholders relative to market value per share.

Dividend yield of Pioneer Cement Ltd is calculated as follows;

Dividend yield = Cash dividends per share

Market value per share
Dividend yield = 0
22.65
Dividend yield = 0

i) Conclusion

Company has poor liquidity ratios and doesn’t have enough assets to cover up its liabilities.
However, turnover ratios are satisfactory and as per the market norms. Company is enjoying
satisfactory profit ratios, and this enables company to provide high ROCE and ROE. However,
Pioneer Cement Ltd is highly geared as indicated by the debt ratio. Company has not distributed
any dividends during the current period which has reduced its dividend ratios to zero.