DG KHAN CEMENT COMPANY

ANALYSIS (2018- 2019)

REPORT BY: SHEZIL WAQAR

(24805)
HIRA KHAN
(24806)

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S.NO CONTENT PAGE#
1. ACKNOWLEDGE 3
2. Vision and mission statement 3

3. DG KHAN CEMENT COMPANY 3-5

LIMITED
. Nishat group
. Dg khan cement
. Acquisition of DG khan cement
with Nishat group
. Power generation
. Environment management
. Board of directors

4. INDUSTRY OVEREVIEW 6-7

. Market share in the local market
. Market share in foreign markets

PAKISTAN ECONOMIC SURVEY

5. BRIEF ANALYSIS 2018 7-9
. Inflation
. GDP
. Investment
. Trade
. Energy
. Population, labor force,
employment

PAKISTAN ECONOMIC SURVEY

6. BRIEF ANALYSIS 2017 9-10
. Inflation
. GDP
. Investment
. Trade
. Energy
. Population,labor force,
employment.

PAKISTAN ECONOMIC SURVEY

7. BRIEF ANALYSIS 2016 10-11
. Inflation
. GDP
. Investment
. Trade
. Energy

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 . Population, labor force and
employment

DG KHAN CEMENT FINANCIAL

8. STATEMENT 11-16
. Profit and loss account
2016,2017 and 2018
. Horizontal profit and loss
account analysis
. Vertical profit and loss account
. Balance sheet 2016,107,2018
. Horizontal analysis of the
balance sheet
. Vertical analysis of the balance
sheet
RATIO ANALYSIS 2016-2018
9. . Liquid ratio 16-20
. Profitability ratio
. Activity ratio
. Solvency ratio

Conclusion
10 20

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 ACKNOWLEDGEMENT

I would like to express my deepest appreciation to all those

who provided me and my team the possibility to complete this
report.
First and foremost, I give a special gratitude to Sir Khurram Ali
(Finance Teacher), who with her proficiency in accounting and
finance and prolong experience in teaching made me and my
fellow group member capable enough to not only understand
the rudimentary concepts of finance, but also apply those
concepts to have a better grip on the subject .Also, his
suggestions and encouragement helped me and my fellow
member to coordinate our project especially in writing this
report.

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

MISSION STATEMENT
To provide quality products to customers and explore new markets to promote/expand sales of
the Company through good governance and foster a sound and dynamic team, so as to achieve
optimum prices of products of the Company for sustainable and equitable growth and
prosperity of the Company.

DG KHAN CEMENT COMPANY LIMITED

NISHAT GROUP
Nishat Group is one of the leading and most diversified business groups in South East Asia. With
assets over PRs.300 billion, it ranks amongst the top five business houses of Pakistan. The group
has strong presence in three most important business sectors of the region namely Textiles,
Cement and Financial Services. In addition, the Group has also interest in Insurance, Power
Generation, Paper products and Aviation. It also has the distinction of being one of the largest
players in each sector. The Group is considered at par with multinationals operating locally in
terms of its quality of products & services and management skills.

Mian Mohammad Mansha, the chairman of Nishat Group continues the spirit of
entrepreneurship and has led the Group successfully to make it the premier business group of
the region. The group has become a multidimensional corporation and has played an important
role in the industrial development of the country. In recognition of his unparallel contribution,
the Government of Pakistan has also conferred him with “Sitara-e-Imtiaz”, one of the most
prestigious civil awards of the country.

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D.G. Khan Cement Company
Next to market leaders Lucky and Bestway Cement is DG Khan Cement Company Limited (PSX:
DGKC) which is third largest manufacturer of cement in Pakistan. Before its latest expansion,
the company had the capacity of 4.22 million tons-capturing nearly 9 percent of the domestic
industry capacity, but adding another 2 million tons only a few months ago, the company
boasts a market share of 12 percent.

According to the company's official website, it has 2200 dealers spread out and 10 exporting
destinations including Afghanistan, India, Kenya and other African countries with majority of
exports going to India by road. The company manufactures clinker, Portland cement and
sulphate resistant cement.

Acquisition of DGKCC by Nishat Group

The company was established in Dera Ghazi Khan under the control of State Cement
Corporation of Pakistan Limited (SCCP) in 1978, started operations in 1986 with a production
capacity of 2,000 tons per day, about 0.6 million tons annually. The company was acquired by
Nishat group in 1992 after the government's privatization scheme where many other cement
companies were deregulated and privatized.

At that time, the company became the larger of two cement producers. More capacity was
added to the plan through the years. Capacity of the existing plant was raised to 6700 tons per
day or 2 million tons annually and another plant in Khairpur was added with an equal capacity.
Together the company had 4.22 million tons annually to work with. The company went public
after privatization.

Power Generation
For continuous and smooth operations of the plant uninterrupted power supply is very crucial.
The company has its own power generation plant along with WAPDA supply. The installed
generation capacity is 23.84 MW.

Environmental Management

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DG Khan Cement Co. Ltd., production processes are environment friendly and
comply with the World Bank’s environmental standards. It has been certified for
“Environment Management System” ISO 14001 by Quality Assurance Services, Australia. The
company was also certified for ISO-9002 (Quality Management System) in 1998. By achieving
this landmark, DG Khan Cement became the first and only cement factory in Pakistan certified
for both ISO 9002 & ISO 14001...

BOARD OF DIRECTORS
• Mrs. Naz Mansha Chairperson/Director
• Mian Raza Mansha Chief Executive/Director
• Saqib Elahi Director
• Khalid Qadeer Qureshi Director

• Mohammad Azam Director

• Zaka ud din Director
• Inayat Ullah Niazi Director & Chief Financial Officer

INDUSTRY OVERVIEW
The cement industry is needed a highly important segment of industrial sector that plays a
pivotal role in the socio-economic development. The industry is divided into two broad regions,
the northern region and the southern region. During the FY 2018, the total production capacity
stood at 51.3 mln tpa. The local dispatches were inched down by 5.4 % in 2018 compared with
previous year. The revenue has increased from 262,007 to 287,496 pkr mln (2016-2018). The
net margin decreases from 25% to 20% (2016-18). The EBITDA margin witnessed declining
trend for majority players including lucky, fauji and DG khan as well. This is because of
fluctuating cement prices and currency devaluation of Pakistan. South and Indonesian coal is
imported by majority Pakistani cement players to be used as major fuel components. From
2016-18, the prices of coal increases from $76 to $96. However, the upcoming trend shows a
slight decrease in coal prices which is not sufficient enough to control the cost of production.
Due to greater competition in North region, the prices are lower than the South. The cement
industry leveraging has greatly increased from 16% to 27%.

MARKET SHARE OF CEMENT PLAYERS IN NORTH REGION

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MARKET SHARE OF CEMENT PLAYERS IN SOUTH REGION

PAKISTAN ECONOMIC SURVEY BRIEF ANALYSIS

(FY2018)
INFLATION:

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CPI inflation was contained to 3.9 percent, with an end period of inflation of 5.2
percent, compared with 4.2 percent during FY 2017. The main reason for
increase in an inflation rate was an increase in prices of non-food items which increase by 5.4
percent. The increase in non-food items was due to higher energy prices and strong overall
domestic demand. The aggregate demand increases rapidly because there had been a fiscal
deficit during the last two years. During FY18, development expenditures declined, while
growth in current expenditures accelerated. Food inflation was only 1.8 percent, due to only a
moderate increase in international prices of food items. Low food inflation helped in keeping
overall inflation relatively low.

GDP:
According to the economic survey of Pakistan, the economic growth rate was 5.5% which was
very low. The growth rate became unsustainable due to rising macroeconomic imbalances i.e.
high and increasing fiscal and current account deficits. In FY2018 trade deficit was historically
high in monetary value ($ 32 billion). On August 18, 2018, the present government took office
and started tackling the challenge of stabilizing the economy primarily by managing the
aggregate demand and addressing the deep-rooted structural problems. The government took
positive measures such as the current account deficit reduces greatly. However, the GDP
growth in FY2018-19 remains subdued.

INVESTMENT:
In FY2018, there was rise in consumption both by private sector and general government
because of contained inflation and maintained exchange rate. Considering both goods and
services, imports increased to US$ 68 billion in FY2018, whereas the exports remained US$ 30
billion. Saving-Investment gap increase to US$ 19.9billion in FY2018 thus leading to an outflow
of US$ 8 billion from SBP reserves. The government made a sizeable adjustment in the interest
and exchange rates to contain the aggregate demand and ease the pressure on the balance of
payments. These efforts helped in reducing Saving-Investment gap.

TRADE:
In FY2018, global economic changes like increased oil prices (60.06 $/brl), trade protectionism
and regional frictions affected many developed and developing economies including Pakistan.
During the FY2018, Pakistan’s exports picked up and reached to US$ 24.7 billion; showing a
growth of 12.57 percent over previous year FY 2017. Imports on the other hand also increased
by 16.25 percent and touched the highest figure of US$ 56.6 billion. As a result the trade deficit
widened to US$ 31.8billion which was the highest since last ten years. However, the present
government is taking measures to reduce the gap.

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ENERGY:
Pakistan has successfully removed bottlenecks on the generation side of electricity during
previous government. However, congestion, inefficiency and lack of infrastructure on the
transmission and distribution side of the supply chain has hampered sustained delivery of
electricity and energy services. For the FY2018, oil reliance has reduced to 31.2 percent.
However, this FY2018 has recorded a high of 12.7 percent coal consumption in the energy mix.
Pakistan energy requirements are increasing rapidly.

POPULATION, LABOR FORCE AND EMPLOYMENT:

The population of Pakistan has increased to 212.82 million in 2018. Moreover, the population
growth rate has increased to 2.4%. During the year 2017-18, the labor force population is 65.50
% out of which only 61.71 % are employed. The unemployment rate is 5.8% which has slightly
reduced as compared with the survey of year 2014-15.

PAKISTAN ECONOMIC SURVEY (FY2017)

INFLATION:
Inflation during July-April FY2016 has been further contained at 2.79 percent, which is the
lowest in 13 years. The slower increase in food inflation over the last year is due to moderate
increase in prices of major consumable food items. Core inflation during July-April FY 2016
recorded at 4.1 percent as against 6.9 percent during the same period last year.

GROWTH:
Pakistan’s economy during FY2016 recorded a growth of 4.71 percent which is the highest
growth achieved since 2008- 09. Industrial sector recorded the growth of 6.80 percent and
Services sector accelerated at the rate of 5.71 percent. The share of the services sector has
increased from 56.6 percent of GDP FY 2009 to 59.16 percent in FY 2016.

TRADE AND PAYMENTS:

The current account balance shrank by 17.7 percent during July-April FY2016 as compared to
last year (US$ 1.519 billion in FY2016 against US$ 1.846 billion). Services trade deficit fell by
16.6 percent during the first ten months of FY2016 supported by lower imports. The country’s
total foreign exchange reserves reached to highest level to US$ 21.4 billion by May18, 2016,
compared to US$ 18.6 billion in end June 2015 Exchange rate remained at Rs.104.75 per US$ in
May FY2016, compared to Rs 101.78 per US$ at end June 2015.

POPULATION, LABOR FORCE AND ENVIRONMENT:

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Pakistan continues to be the sixth most populated country in the world with an
estimated population of 195.4 million. According to the Labor Force Survey
2014-15, Pakistan has 61.04 million labor forces. Out of this labor force only 57.42 million
people got employment and 3.62 million people are unemployed.

ENERGY:
Almost 12 percent growth has been observed in real value addition of electricity generation &
distribution and Gas distribution during FY 2015 and FY 2016 which in turn helped the real GDP
growth of 4.7 percent during FY 2016. The China Pakistan Economic Corridor (CPEC) is expected
to add 10,400 MW to the grid by the year 2018.

PAKISTAN ECONOMIC SURVEY (FY2016)

INFLATION:
Inflation rate measured through Consumer Price Index (CPI) averaged at 4.8 percent during
July-April 2014-15 against 8.7 percent in the same period of last year. The slower increase in
food inflation over the last year is due to moderate increase in prices of major consumable food
items.

GROWTH:
For the fiscal year 2014-15, the GDP growth target was set at 5.1 percent on the back of growth
of 3.3 percent from agriculture, 6.8 percent from industry 5.2 percent from services sector. The
industrial sector showed moderate growth of 3.62 percent during first three quarters of the
current fiscal year. The services sector registered a growth of 5 percent against the target of 5.2
percent but remained higher compared to the last year growth of 4.4 percent

TRADE AND PAYMENTS:

The current account deficit stood at US$ 1.4 billion in Jul-Apr 2014-15, which was 53.5 percent
less than the deficit of US$ 2.9 billion in Jul-Apr 2013-14 showing marked improvement.
Pakistan’s foreign exchange reserves improved by US$ 3.6 billion since July, 2014 and remained
around US$ 17.8 billion at end April, 2015, a change of more than 25 percent. Services account
deficit remained lower and stood at $1,632 million during July-April 2014- 15 as compared to $
2,349 million during the same period last year.

POPULATION, LABOR FORCE AND EMPLOYMENT:

Pakistan is currently the sixth most populous country in the world with an estimated population
of 191.71 million in 2015 and the population growth rate is 1.92 percent. According to the

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Labor Force Survey 2013-14, Pakistan has 60.09 million labor forces. Out of this
labor force, only 56.52 million people got employment and 3.58 million people
are unemployed.

ENERGY:
The government retired the circular debt (Rs. 480 billion) immediately after taking oath which
added 1700 MW of electricity into the system. In FY 15, the current level of circular debt is
around Rs. 250 billion including Current Payable.

DG KHAN CEMENT FINANCIAL STATEMENTS

STATEMENT OF PROFIT AND LOSS

2,018 2,017 2,016

Sales 30,668,428 30,136,165 29,703,758
Cost of sales (21,928,207) (18,291,600) (17,035,566)
Gross profit 8,740,221 11,844,565 12,668,192

Administrative expenses (624,725) (551,221) (572,870)

Selling and distribution expenses (898,156) (979,045) (949,628)
Other expenses (2,354,656) (891,513) (913,642)
Other income 3,026,661 2,118,216 2,379,053
Finance cost (519,267) (382,895) (281,504)
Profit before taxation 7,370,078 11,158,107 12,,480,744
Taxation (1,467,530) (3,182,766) 3,691,072

Profit for the year 8,837,608 7,975,341 8,789,672

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 BALANCE SHEET
2018 2017 2016

ASSESTS
Non-current Assets
Property, plant and equipment 76,493,984.00 62,447,737.00 39,576,830.00
invesments 16,259,564.00 18,564,054.00 12,947,976.00
long term loan 574.00 1,008.00 57,938.00
Long term deposits 59,269.00 57,836.00
92,813,391.00 81,070,635.00 52,582,744.00

Current Assets
Stores,spares and loose tools 5,114,227.00 4,939,420.00 4,006,181.00
Stock in trade 1,377,596.00 1,162,914.00 766,633.00
Trade debts 188,293.00 220,182.00 201,574.00
investments 16,018,594.00 17,044,084.00 17,819,005.00
Trade deposits and prepayments 2,637,675.00 1,987,849.00 584,447.00
loan to related party 1,000,000.00 1,000,000.00
income tax recievales 2,270,137.00 524,355.00 433,136.00
Cash and bank balances 469,104.00 421,880.00 7,009,844.00
29,075,626.00 27,300,684.00 30,835,521.00

EQUITY AND LIABILITIES

SHARE CAPITAL AND RESERVES

Authorized share capital

950,000,000 Ordinary shares of Rs.10 9,500,000.00 9,500,000.00 9,500,000.00
50,000,000 Ordinary shares of Rs.10 500,000.00 500,000.00 500,000.00

Issued, subscribed and paid-up capital

Ordinary shares of Rs 10 4,381,191.00 4,381,191.00 4,381,191.00
reserves 34,761,625.00 38,014,337.00 34,238,885.00
revenue reserve 37,991,605.00 32,473,351.00 27,163,353.00
22,201,403.00 18,652,637.00 65,783,429.00

non current liabilities

long term finances 17,730,324.00 11,520,000.00 2,400,000.00
long term deposits 109,726.00 79,441.00 77,813.00
defferred liabilities 278,379.00 186,837.00 111,334.00
defferred taxation 4,082,974.00 5,866,359.00 4,989,055.00
22,201,403.00 18,652,637.00 7,578,202.00

current liabilities
trade and other payables 7,595,299.00 5,432,198.00 566,340.00
accured finance cost 347,880.00 217,121.00 52,931.00
short term borrowing 12,209,667.00 8,571,228.00 3,451,352.00
current portion of non current liaabilities 2,336,910.00 523,778.00 1,150,921.00
derivative financial instrument 48,056.00
unclaimed dividend 28,347.00 22,332.00
provision for taxation 35,090.00 35,090.00 35,090.00
22,553,193.00 14,849,803.00 10,056,634.00

121,889,017.00 108,371,319.00 83,418,265.00

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 HORIZONTAL ANALYSIS OF BALANCE SHEET (YoY) (%)

2,018.00 2,017.00 2,016.00

EQUITY AND LIABILITIES
CAPITAL AND RESERVES

Issued , subscribed and paid up capital 4,381,191.00 4,381,191.00 4,381,191.00

reserves 34,761,625.00 38,014,337.00 34,238,885.00
(8.56) 11.03 (8.42)
accumulated profit 37,991,605.00 32,473,351.00 27,163,353.00
16.99 19.55 32.33
77,134,421.00 74,868,879.00 65,783,429.00
3.03 13.81 5.60
NON-CURRENT LIABILITIES
long term finances 17,730,324.00 12,520,000.00 2,400,000.00
41.62 421.64 236.01
long term deposits 109,726.00 79,441.00 77,813.00
38.12 2.09 8.07
retirement and other benefits 278,379.00 186,837.00 111,334.00
49.00 67.32 (19.08)
deffered taxtion 4,082,974.00 5,866,359.00 4,989,055.00
(30.40) 17.58 8.74
22,201,403.00 18,652,637.00 7,578,202.00
19.03 146.14 37.49
CURRENT LIABILITIES
trade and other payables 7,623,464.00 5,454,447.00 5,366,340.00
39.77 1.64 32.57
accrued finance cost 347,880.00 317,204.00 52,931.00
60.16 310.35 93.86
short term borrowings 12,209,667.00 8,571,228.00 3,451,352.00
42.45 148.34 89.00
current portion of non current libilities 2,336,910.00 532,778.00 1,150,921.00
346.16 (54.49) 77.90
derivative financial instrument 48,056.00
provision for taxation 35,090.00 35,090.00 35,090.00
22,553,193.00 14,849,803.00 10,056,634.00
51.88 47.66 52.76
121,889,017.00 108,371,319.00 83,418,265.00
12.47 29.91 12.13

ASSETS
NON CURRENT ASSETS
property, plant and equipment 76,493,984.00 62,447,737.00 39,576,830.00
22.49 57.79 32.10
intangible assets
(100.00)
investments 16,259,564.00 18,564,054.00 12,947,976.00
(12.41) 43.37 0.23
long term loans and deposits 59,843.00 58,844.00 57,938.00
1.70 1.56 (16.63)
93,813,301.00 81,070,635.00 52,582,744.00
14.48 54.18 22.38

CURRENT ASSETS
stores, spare parts and loose tools 5,114,227.00 4,939,420.00 4,006,181.00
3.54 23.29 10.19
stock in trade 1,377,596.00 1,162,914.00 766,633.00
18.40 51.69 (35.49)
trade debts 188,293.00 220,182.00 201,574.00
(14.48) 9.23 28.47
investments 16,018,594.00 17,044,084.00 17,819,005.00
(6.02) (4.35) (28.31)
advances, deposits, prepayments and other receivables 2,637,675.00 1,987,849.00 584,447.00
32.69 240.12 (9.81)
loan to related party 1,000,000.00 1,000,000.00
100.00
income tax receivables 2,270,137.00 524,335.00 433,136.00
332.94 21.06 (35.72)
derivative financial instrument 14,701.00
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cash and bank balances 469,104.00 421,880.00 7,009,844.00
11.19 (93.98) 2,619.91
29,075,626.00 27,300,684.00 30,835,521.00
6.50 (11.46) (1.88)
121,889,017.00 108,371,319.00 83,418,265.00
VERTICAL ANALYSIS OF BALANCE SHEET (%)

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 VERTICAL ANALYSIS OF PROFIT AND LOSS ACCOUNT (%)
2018 2017 2016
Sales 100 100 100
cost of sales -71.5 -60.7 -57.35

gross profit 28.5 39.3 42.65

administrative expenses -2.04 -1.83 -1.93

sellig and distribution expenses -2.93 -3.25 -3.2
other operating expenses -7.68 -2.96 -3.08
other income 9.87 7.03 8.01

profit from operation 25.72 38.3 42.46

finance cost -1.69 -1.27 -0.44

profit before taxation 24.03 37.03 42.02

taxation 4.79 -10.56 -12.43

profit after taxation 28.82 26.46 29.59

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HORIZONTAL ANALYSIS OF PROFIT AND LOSS (%)

2018 2017 2016

Sales 30668428 30136165 29703758
1.77 1.46 13.79
cost of sales -21928207 -18291600 -17035566
19.88 7.37 2.32
gross profit 8740221 11844565 12668192
-26.21 -6.5 33.98
administrative expenses -624725 -551221 -572780
13.33 -3.76 21.27
selling and distribution expenses -898516 -979045 -949628
-8.26 3.1 27.17
other opearting expenses -2354656 -891513 -913642
164.12 -2.42 25.53
other income 3026661 2118216 2379053
42.89 -10.96 2.53
profit from operations 7889345 11541002 12611195
-31.64 -8.49 28.31
finance cost -519267 -382895 -130451
35.62 193.52 -53.66
profit beofre taxation 7370078 11158107 12480744
-33.95 -10.6 30.73
taxation 1467530 -3182766 -3691072
146.11 -13.77 91.89
profit after taxation 8837608 7975341 16 |8789672
Page
10.81 -9.26 15.28
 RATIO ANALYSIS

LIQUIDITY RATIOS
2018 2017 2016
current ratios 1.29 1.83 3.06
quick ratios 1.22 1.72 2.989
cash ratios 2.46 1.17 0.73

Liquidity ratios measures how quickly assts are converted into cash. Liquidity ratios also
measures the ability of a company to pay off its short-term obligations.
CURRENT RATIOS: This ratio expresses current assets in relation to current liabilities.
The current ratio has decrease from 3.06 in 2016 compared to 1.27 in 2018. There is a
significant change in the current ratios mainly because there is drastic increase in the current
liabilities of DG Khan cement. The trade payables have risen to a greater extent. This is due to

17 | P a g e
the company is taking more time in paying its suppliers such as its payable in
days are 108 days in 2018 compared with 65 days in 2016. Moreover, in 2017,
there had been unplanned borrowing by both private and public sector including DG Khan
cement company that launched two projects which add finance cost as well. This makes
company to take more time in paying up its creditors.

ACID-TEST RATIO: This ratio compares the company’s most short-term liabilities with current
liabilities.
This acid-test ratio has decrease from 2.9 in 2016 to 1.22 in 2018. It has the same trend like in
current ratios. After subtracting the inventory, the current assets shrunken greatly. The
inventory turnover has reduced from 22 times to 17 times (2016-18) as DG Khan company’s
export has fallen from 31 % 2011-12 to 13% in 2017.This shows the increase inventory due to
lower demand from other countries. The reduction in quick ratios reflects that company is
becoming less liquid.
CASH RATIO: The cash ratio normally represents a reliable measure of an entity’s liquidity in a
crisis situation.
This ratio is also reducing as the ratio decreases from 2.26 in 2016 to 1.17 in 2017 and 0.73 in
2018. DG Khan cement company reduction in profitability and excessive expenses due to
expansion makes it left with little cash.

PROFITIBILITY RATIOS:

GROSS PROFIT: indicates the percentage of revenue available to cover operating and other
expenses and to generate profit. There has been a substantial decline in the gross profit margin.
The percentage decreases form 42% in 2016 to 28% in 2018.Hence this decrease was slightly
lower than the cement industry averages which 43.5% in 2018. The sales consist of local and

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foreign sales. It is reported that the foreign sales have greatly decreased as
exports reduces from 31% in 2011-12 to 13% in 2017. In addition to this, the
exports fall due to fluctuation in cement prices. On the other hand, there DG khan experienced
high cost of sales as coal prices increases rapidly from 52$ in 2016 to 96$ in 2018.
OPERATING PROFIT MARGIN: Operating profit is calculated as gross profit minus operating
costs.
The operating profit margin falls from 34% in 2016 to 31% in 2017 and then reach to 16%.
There is combination of factors that cause a decrease in operating profit margin. DG Khan
exports reduced due to tough competition in African markets and Afghanistan market is
captured by Iranian cement. Moreover, the cost of sales increases as there had been a supply of
LNG instead of gas which was comparatively expensive. in addition to this, the company was
undergoing expansions which also raise up expenses of the company.
PRE-TAX MARGIN: is the ratio of pretax income to revenue.

As other profitability ratios, the pre-tax margin has also decreased from 42% in 2016 to 24% in
2018. The finance cost has greatly risen up as the company launched two projects in 2017.
Previously, during the period of 2016-17, the government continued the expansionary fiscal
policy. Later, the new government introduces the contractionary fiscal policy which leads to an
increase in interest rates. As the company took loans from banks for these projects, it has to
bear the heavy finance cost.
NET PROFIT MARGIN: is calculated as revenues minus all expenses.
The net profit margin has slightly decrease from 29% to 28% (2016-18). However, it is still
higher than industry average i.e. 26% in 2018. The overall profitability of the company has
reduced because of high finance costs due to expansion projects and coal and LNG prices rise
up. However, surprisingly, there had been a significant reduction in taxation as the company is
granted a tax credit due to its further expansion in the country.
RETURN ON ASSETS: measures the return earned by a company on its assets.
The return on assets have also reduced from 11% to 7.6% (2016-18). If this ratio is compared
with the industry average then it is very low as the industry average has increased from 10% to
15%. The main reason for this decrease is the reduction in profitability of the company due to
many factors explained above such as high finance costs and cost of sales. The assets of the
company have increased as the two projects were launched.
RETURN ON EQUITY: This ratio indicates how much accompany has earned on its equity capital.
The return on equity has decreased from 13% to 11% (2016-18). However, the ROE of cement
industry has increase from 15% to 21% (2016 -2018). There is a reduction in profitability which
has caused great effects on other ratios as well. However, the return is also low due to

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expansion projects going on. So, the shareholders have to bear the high cost as
the company has taken loans and devaluation of currency.

SOLVENCY RATIO:

SOLVENCY RATIOS
2018 2017 2016
debt to capital 29.48 22.38 9.6
debt to equity 41.81 28.84 10.96
debt to asset 62.89 43.07 8.2
financial leverage 37 41.3 41.3
interest coverage 19.63 35.53 111.02

This tell us about company’s ability to fulfill its long-term debts(obligations) to make interest
and principal payments.
DEBT TO CAPTIAL: It measures the percentage of a company’s capital represented by debt.
In 2016 the company having 9.6% 2017 22.38% and in 2018 29.48% which indicates the higher
ratios means higher financial risk and weaker solvency.

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DEBT TO EQUITY: This ratio measures the amount of capital relative to equity
capital.
The ratio of DG KHAN CEMENT in 2016 was 10.963% in 2017 28.84% and in 2018 the ratio
becomes more higher 41.81% which shows higher ratio and weaker solvency.
DEBT TO ASSETS: This ratio tells the measure the percentage of total assets financed with debt.
In 2016 8.2% In 2017 43.07% and in 2018 62.89%. This means the company assets are financed
with the debt. So, in 2018 the debt is higher which indicates higher financial risk.
FINANCIAL LEVERAGE RATIO: This ratio measures the amount of total assets supported for
each one money unit of equity.
In 2016 the company carried 41.3% in 2017 the same ratio has been seen 41.3% in 2018 the
ratio decreased 3.7% which means the company equity has been decreased as they invested
much in their new project.
INTEREST COVERAGE: This ratio tells the story of numbers of time a company’s EBIT (earnings
before interest and taxes) could cover its interest payments.
In 2016 as we know the company was on the seventh sky as their interest coverage was
111.02% means strong solvency. In 2017 the company decreases their earnings by 35.53% and
in 2018 19.63%.

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ACTIVITY RATIO: It measures how efficiently the company utilizes
assets.

ACTIVITY RATIOS
2018 2017 2016
receivable turnover 150.1 142.9 147.35
receivable days 2.43 2.55 2.47
inventory turnover 17.26 18.95 22.22
inventory days 21.14 19.26 16.42
payable turnover 3.36 3.38 5.53
payable days 108.63 107.96 65.94
total asset turnover 26.60% 31.40% 27.40%
fixed asset turnover 35% 45% 56.48%

RECEIVABLE TURNOVER:
DG khan cement has increased their receivable turnover since past two decades in 2016
147.35%, in 2017 142.9% and in 2018 150.1%. Dg khan cement has not made their turnover
days to be decreased they kept that same since 2016 2.47%, 2017 2.55% and in 2018 2.43%
INVENTORY TURNOVER:
The company has 22.22% in 2016, 18.95% in 2017 and 17.26% in 2018 which means the
company has not kept their inventory for prolong in the warehouse they used their inventory in
producing the cement for their new project.

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PAYABLE TURNOVER:
The number of days of payables reflects the average number of days the company takes to pay
its suppliers and the payables. In 2016 the company took 5.53% in 2017 3.38% and in 2018 this
remains same the company did not take advantage of their loans and they return them back
3.36%.
TOTAL ASSETS TURNOVER: In 2016 the company have 27.40% in 2017 31.40% and in 2018 the
company had 26.60% this means they took the same step as they took in 2016, they have
invested at the normal rate from their capital for the business.
FIXED ASSETS TURNOVER:
The ratio measures how efficiently the company generates revenues from its investments in
fixed assets. In 2016 the company had 56.48% in 2017 45% and in 2018 35% the company
reduces their fixed assets.

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 CONCLUSION
According to the above calculated ratios, it can be concluded that DG Khan cement company’s
profits are narrowing due to currency depreciation, extensive depreciation of new capitalism,
high coal prices, lower cement prices, expansion projects etc. However, the company’s
profitability is still better than other competitors. From the investor’s perspective, profitability
and EPS is essential. Currently, the profitability is not satisfactory and EPS is 3.67 which is much
lower than rivals such as Bestway cement with EPS of 16.93. I would suggest the investors must
wait for the right time as the company is undergoing expansion and more importantly the
economic conditions are not stable as it might be possible that the cement sector may prosper
again if government launch the development projects such as construction of dams, roads, five
million housing units ,CPEC etc. The investors should see the long-term profitability as the
expansion projects would definitely help the company to be more efficient and explore new
markets.

REFERENCES:
https://www.brecorder.com/
http://www.finance.gov.pk/
http://www.dgcement.com/
http://www.scstrade.com/stockscreening/SS_CompanySnapShot.aspx?
symbol=DGKC
http://www.pakistaneconomist.com/

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