1.

CURRENT RATIO

Years Dynea Descon Industry

Pakistan Oxychem average
2015 3.22 1.61 0.80
2016 3.54 0.77 0.86
2017 4.28 1,21 0.86
2018 2.73 2.22 0.93
2019 2.56 1.58 1.00

Current Ratio
5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
2015 2016 2017 2018 2019
Dynea Pakistan Desscon Oxychem
Industry Average

Current ratio is a liquidity ratio that measures the company’s ability to pay its short-term debt
obligations or those due within one year. It tells investors and analysts how a company can
maximize the current assets on its balance sheet to satisfy its current debt and other payables.
TREND ANALYSIS
The graph of Dynea shows an overall trend of increase till 2017 after which the current ratio
starts falling, with a major change only from 2017-2018. This can be attributed to the fact that
the current assets over this year increased relatively slowly (1.6 times) while the current
liabilities increased faster (2.7 times), hence bring the ratio down to almost half. The increase in
current liabilities is due to the fact that the company obtained running financing facilities from
various banks in 2018, this also meant that the markup payable on these financing facilities
(with an increase of 209.2%) also caused the current liabilities to increase significantly. The loan
consisted of Rs500 million, out of which Rs 250 million were utilized for the expansion of
production capacity, as we can see a 98% increase in the non-current assets in 2018.
We can also see that the current ratio of the company for all the years is well above 1, which
means that the company can pay off its short-term debts comfortably. This however does signify
that the company is investing more in its current assets than its non-current assets which is
useful in the short-term but no so much in the long-run since current assets generally generate
lower rates of return than non-current assets.
The graph of Descon shows a trend of somewhat volatility. The current ratio decreases from
the year 2015-2016 after which it increases till 2018, following which it falls again. The main
differences can be seen in the years 2016 and 2018. In 2016, the current liabilities of the
company rose by almost 3 times while the current assets increased only approximately 1 time.
The increase in current liabilities is due to the huge increase in accrued finance cost (which
rose by almost 2200%) This increase was seen because the company converted its long-term
loans taken from various companies into preference shares, which means that the entire
amount of the accrued finance cost was now payable on demand. The ratio here is below 1,
which means that the company might have faced problems with paying its short-term debts. The
increase in the current ratio from 2017-2018 is because the current liabilities almost halved over
the year. The reason is that there was a very significant decrease in the accrued finance cost as
the company repaid all its long-term debt last year, and the stringent controls over working
capital resulted in a steady stream of cash (hence little effect on current assets).

INDUSTRY ANALYSIS
The industry shows an almost constant trend with little deviation over the 5 years. The averages
from 2015-2018 are under 1, this might suggest that the rest of the companies in the chemical
sector are struggling to pay their short-term debts.
Dynea Pakistan’s current ratio is constantly well-above the industry averages, while this may
be a good thing, however it also suggests that too much money is being invested into current
assets, some of which might not give great returns.
Descon Oxychem’s ratios experience some volatility compared to the industry’s stable
pattern. Its current ratio was mostly above that of the industry except for 2017, this suggests
that the company might indeed be struggling in terms of payment of its short-term debts through
its current assets in 2017. Overall, Descon’s current ratio shows a similar pattern to the industry
with not much difference as opposed to Dynea’s major differences.
COMPARISON BETWEEN THE TWO COMPANIES
We can clearly see that Dynea’s current ratios are above that of Descon’s for all of the 5 years.
This is because from the financial statements, it’s clear that Dynea’s investment in current
assets is notably greater than that of Descon for all five years. The difference in all the years is
substantial except for 2018, when Descon’s current liabilities fell by a notable amount due to the
reduction of accrued finance cost as mentioned above. This improved Descon’s current ratio in
2018, narrowing the gap between two companies.
The current ratios give an impression that Descon’s ratios are better than that of Dynea’s
because Dynea might have excessive current assets even though both the companies have
ratios above 1(except for 2016 for Descon).

2. Quick Ratio

Quick Ratio
2.50

2.00
Years Dynea Descon Industry
1.50 Pakistan Oxychem average
2015 1.00 0.84 0.50
1.00
2016 2.00 0.51 0.60
0.50 2017 2.00 0.64 0.58
0.00 2018 1.00 1.32 0.75
2015 2016 2017 2018 2019 2019 1.00 0.82 0.57
Dynea Pakistan
Descon Oxychem
Industry Average

The quick ratio is an indicator of a company’s short-term liquidity position and measures a

company’s ability to meet its short-term obligations with its most liquid assets. 
TREND ANALYSIS
Dynea Pakistan’s graph of the quick ratio shows a trend of relative stability except for the years
2016 and 2017 when the ratio seemed higher than the rest of the years.
This rise in the quick ratio is due to the fact that in 2016 the amount of inventory fell, hence
bringing up the quick ratio. The ratio remained the same as 2016 in 2017 due to the falling
current liabilities, hence cancelling out the effect of an increase in inventory. The reason for
these changes in inventory is not specified in the annual report however the fall in the current
liabilities in 2017 is due to the fact that the company repaid its entire liability during the year
hence waiving off the current portion of the long-term financing (Note 19)
Overall, Dynea’s quick ratio is satisfactory throughout because it has the ability to pay-off its
short term debts without relying on the sale of inventories, as the quick ratio for all the years is
either 1 or greater.
Descon’s quick ratio is more or less the same in all the years except for 2018 when a
noticeable change was seen. The quick ratio increased in 2018 because we see a major fall in
the current liabilities along with a fall in stock-in-trade which in turn impacts the quick ratio; there
is a decrease in amount of finished goods which means that they have been sold off.
Overall, we can notice that Descon’s quick ratio is mostly below 1 which means that it has a
poor liquidity position and it might not be able to pay all of its current liabilities without relying on
its inventory.
COMPARISON BETWEEN THE TWO COMPANIES
We can notice that Dynea’s quick ratio is greater than Descon’s for all the years except for
2018(this is when Descon had a significant decrease in the accrued finance cost as the
company repaid all its long-term debt last year). This implies that Dynea’s liquidity position is
better than Descon’s as Dynea can afford to pay off its short-term debts without depending upon
the sale of inventory.

INDUSTRY ANALYSIS
As we can see from the graphs, the industry average is almost consistent throughout with only
minor differences from year to year. Although it should be noted that for all the years, the
industry average for the quick ratio is below 1 which means that the other companies might be
facing liquidity issues as they might be struggling to pay their short term debts without the sale
of inventory.
Dynea’s quick ratio for all the years is greater than that of the industry which means that it might
be performing well compared to the other companies in terms of being liquid enough.
Descon’s quick ratio is overall similar to that of the industry which might suggest that it is
performing similar to the other companies. However, in one particular year (2016) its quick ratio
was even below the industry average suggesting that it exceptionally underperformed that year
in terms of liquidity because not only the ratio in 2016 is less than 1 (0.51) it is also below the
industry average (0.6)
 3. Inventory Turnover/ Day sales of inventory

Inventory turnover
14
12
Years Dynea Descon Industry
10
Pakistan Oxychem average
8
2015 9.35 4.03 5.22
6
2016 11.06 4.57 5.33
4
2017 11.44 5.94 5.64
2
2018 11.6 6.02 5.84
0
2015 2016 2017 2018 2019 2019 12.44 6.45 5.54
Dynea Pakistan
Descon Oxychem
Industry Average
 Day sales of inventory
100
90
80 Years Dynea Descon Industry
70 Pakistan Oxychem average
60 2015 39.04 90.56 69.86
50
2016 33.01 79.95 68.46
40
30
2017 31.91 61.41 64.70
20 2018 31.46 60.59 62.30
10 2019 29.33 56.62 65.88
0
2015 2016 2017 2018 2019

Dynea Pakistan
Descon Oxychem
Industry Average

Inventory turnover is a ratio showing how many times a company has sold and replaced
inventory during a given period.
The days’ sales of inventory (DSI) is a financial ratio that indicates the average time in days that
a company takes to turn its inventory, including goods that are a work in progress, into sales.

Dynea’s graph of inventory turnover shows a consistent trend of increase in the inventory
turnover; the only major difference that can be noticed is in 2015 when the inventory turnover
ratio is notably lesser than that of the other years. This increase in the turnover might suggest
that the company is selling out its inventory faster each year which is a positive thing since it
means that Dynea is not holding excess stock (implying unproductivity) While the reason for the
increasing trend is not given in the annual report, one might speculate that Dynea’s products
might be in demand or that it increased its advertisements/sales promotion hence boosting
sales. This can be noticed through the company’s advertisement expenses. The advertisement
expenses decreased by 24% in 2015 while in 2016 there was a 102% increase in the
advertisement budget, this budget was more or less similar in all the other years. There was
also the introduction of market research hence allowing the company to adjust their products
according to market demand. Dynea’s DSI shows a decreasing trend meaning that it requires
fewer and fewer days to sell off its inventory. This is a good sign because the quicker the
inventory is sold, the higher the sales and the gross profit margin.
Descon’s graph of inventory turnover shows a stable increase in its inventory turnover, which
again is a positive outlook as it means that Descon is able to sell off its inventory quicker each
year—hence improving management. Descon’s DSI is very high in the initial years although it
keeps on falling. A significant increase can be noted in 2016 which can be attributed to the fact
that the company increased its advertising budget by almost 130%, hence an increasing
inventory turnover and falling DSI.
COMPARISON BETWEEN THE TWO COMPANIES
As it is quite evident, the inventory turnover of Dynea is significantly higher than that of
Descon’s. This means that Dynea is able to sell off its inventory at almost twice the rate of
Descon. Apparently, Dynea has better management of its inventory and sales. As can be seen
from the notes to the financial statements, Dynea has a higher spending on advertising than
Descon and this might be one factor influencing the greater number of times inventory is sold off
and replaced by Dynea.
The DSI of Dynea over the 5 years is significantly lower, hence better than Descon’s. This is
due to their respective inventory turnovers with the reasons listed above.
INDUSTRY ANALYSIS
Overall, the industry shows a stable trend of inventory turnover with little variation. On average,
the inventory is turned around 5.5 times. This shows that there is little/no seasonal demand in
the chemical industry which might cause fluctuations in any year.
The industry averages of DSI show little variation as do the inventory turnovers. The companies
in the industry on average take 66.46 days to sell off their inventories.
Dynea’s inventory turnover is above that of the industry for all the years, implying that Dynea
does not hold too much stock and is able to turn around its inventory at a greater rate than the
other companies. Dynea’s DSI is considerably lower than that of the other companies in the
industry which gives an impression that it is performing well in terms of selling off its inventory in
a lot lesser time.
Descon’s inventory turnover ratio is lower than that of the industry for 2015 and 2016 which
reinforces the fact that Descon needed to find better ways of managing its inventory to sell it off
at a faster rate as it was underperforming. However, the turnover exceeds that of the industry
after 2016 which shows improvement in management of the stock as the turnover became
slightly better than the other companies in the industry. Descon’s DSI was also better than the
industry after 2016, as it took Descon lesser days to sell its inventory than the other companies.
4. Receivables Turnover/ Day sales outstanding
 Receivables turnover
50.00
45.00
40.00 Years Dynea Descon Industry
35.00 Pakistan Oxychem average
30.00
25.00
2015 7.69 16.62 14.24
20.00 2016 6.93 22.41 13.77
15.00 2017 6.03 32.39 12.78
10.00
2018 6.57 39.12 13.62
5.00
0.00 2019 6.20 45.01 13.50
2015 2016 2017 2018 2019

Dynea Pakistan
Descon Oxychem
Industry Average

Day sales outstanding

70.00
60.00 Years Dynea Descon Industry
50.00 Pakistan Oxychem average
40.00 2015 47.46 21.96 25.63
30.00 2016 52.67 16.29 26.51
20.00 2017 60.53 11.27 28.56
10.00 2018 55.56 9.33 26.80
0.00
2019 58.87 8.11 27.04
2015 2016 2017 2018 2019

Dynea Pakistan
Descon Oxychem
Industry Average

TREND ANALYSIS
The accounts receivable turnover ratio is an accounting measure used to quantify a company's
effectiveness in collecting its receivables or money owed by clients.
Days sales outstanding (DSO) is a measure of the average number of days that it takes a
company to collect payment after a sale has been made.
As we can see, Dynea has a pretty stable trend for its receivables turnover, but we can also
notice that the receivables turnover ratio is falling (even if slightly) over the years which is
generally not a very good sign of an efficient money collection system. One possible reason I
could come up with was that over the years “The analysis of trade debts” of the company
showed very large increases in the “over 121 days” trade debts which are the least secure form
of trade receivables; this could be a contributor to the falling turnover ratio hence rising DSO.
The company may choose to introduce some stricter credit policies, even though the variation is
not that great, only to ensure that the company is able to receive its receivables on time to
ensure a smooth inflow of cash to carry out day to day activities. The only odd year (in which
receivables turnover was increasing) was 2018. In this year, we can see that the net sales
increased in a greater proportion with respect to average trade receivables as compared to
other years, hence bringing the ratio slightly up. Dynea’s DSO ratio also shows a similar and
stable trend with little variation, however a general increase in the number of days might be a
little alarming because of the time value of money principle, money that a company spends time
waiting to receive is money lost. By quickly turning sales into cash, a company has a chance to
put the cash to use again more quickly. It is better if the duration of time that a company takes to
recover its receivables is short and not showing an increasing trend.
Descon’s receivables turnover ratio shows a consistent increasing trend which is a good
indication that its collection of accounts receivable is becoming efficient throughout the years,
showing that Descon has an increasing proportion of quality customers who pay their debts on
time. While the annual report does not mention anything to reflect the change, the most
significant change we can notice is from 2016-2017, this is when we see a 24% increase in the
net sales while the average receivables actually fall by around 14%. The sales figure improved
due to improved selling prices, changes in marketing strategy, and productivity improvements. A
better geographical mix that is migrating sales to areas with superior profitability, also
contributed to an increase in profitability. Subsequently, a similar pattern is seen in Descon’s
DSO which seems to be falling over the years hence giving Descon a steady flow of cash so
that the company has a chance to put the cash to use again quickly.
COMPARISON BETWEEN THE TWO COMPANIES
We can see that Descon clearly has better Trade receivable turnover and subsequently DSO
than Dynea. This is because we can see that the trade receivable turnover is higher each year
in Descon meaning that its collection of money is more efficient, similarly a lower DSO signifies
that Descon is able to use the cash it receives more quickly than Dynea.
INDUSTRY ANALYSIS
The industry shows a very stable trend for both trade receivables turnover and DSO. This
shows that other companies in the industry face little volatility when it comes to receiving money
back from their respective trade receivables.
When compared to the industry, Dynea’s receivable turnover is notably lower than the industry
for all the years which points out that Dynea needs to work on its credit collection because it is
underperforming as compared to the other companies. Similarly, Dynea’s DSO is higher than
the industry hence longer collection periods than the industry average signaling that the time it
takes to recover money is significantly higher which can later potentially hinder the cash flow
and production in the future periods.
Descon, on the other hand, is performing well in terms of trade receivables turnover and DSO. It
implies that its credit collection policy is actually better than the other companies in the industry.
This gives it an edge over the others as the fast collection period means ability to fluently carry
out its day to day operations, increase its production and hence expand its stake in the industry.
 5. PAYABLES TURNOVER/ DAYS OF PAYABLE OUTSTANDING

Payables turnover
18
16
14
Years Dynea Descon Industr
12
Pakista Oxyche y
10
n m averag
8
e
6
2015 9.96 8.67 6.61
4
2016 9.16 7.22 6.45
2
2017 9.10 7.87 7.62
0
2015 2016 2017 2018 2019 2018 13.88 6.93 8.4
2019 15.09 7.56 N/A
Dynea Pakistan
Descon Oxychem
Industry Average

Days Payable outstanding

90.00
80.00 Years Dynea Descon Industry
70.00 Pakistan Oxychem average
60.00 2015 36.65 42.10 83.81
50.00 2016 39.85 50.53 81.82
40.00
30.00 2017 40.11 46.40 75.19
20.00 2018 26.30 52.67 55.88
10.00 2019 24.19 48.26 N/A
0.00
2015 2016 2017 2018 2019

Dynea Pakistan
Descon Oxychem
Industry Average

The accounts payable turnover ratio is a short-term liquidity measure used to quantify the
rate at which a company pays off its suppliers. It shows how many times a company pays off
its accounts payable during a period.
Days payable outstanding (DPO) is a financial ratio that indicates the average time (in days)
that a company takes to pay its bills and invoices to its trade creditors.

TREND ANALYSIS
Dynea’s payable turnover ratio is falling from 2015-2017, after which it started increasing.
The fall in the turnover ratio might suggest that initially the company was slightly delaying
paying off its creditors even though the difference is not that significant. Afterwards, the ratio
is seen rising. An increasing ratio usually means the company has plenty of cash available
to pay off its short-term debt in a timely manner and could be an indication that the company
managing its debts and cash flow effectively. Although, no substantial links could be found
from the annual reports, this trend could be the result of discount on prompt/early payments
to suppliers. However, in Dynea’s case the increasing ratio over a long period of time could
also be an indication that the company is not reinvesting back into the business, which could
eventually result in lower growth rate in the long run. We can see from Dynea’s financial
statements that from 2014-2016 the assets of the company are decreasing every year with
the only major investment taking place in 2018. This could be the reason of Dynea’s
receivables turnover falling over the years because the company did not need to recover the
money fast enough due to little investments hence little need of a fast cash inflow. As a
result, Dynea’s DPO shows a slight increasing trend till 2017, after which it starts falling
which means that it is able to pay its creditors in a shorter and shorter time span, this might
be a positive thing for the creditors who get their money back quickly but Dynea needs to
reconsider its investment policies. The investors might also be put-off due to lack of
substantial reinvestment.
Descon’s payables turnover ratio does not show a stable trend—constantly increasing and
decreasing over the years—even though the volatility is not that significant. Similarly,
Descon’s DPO turnover also shows an unsteady trend with the largest deviation being 8
days. This shows that Descon pays its creditors around the same time with little delays
hence it might be a positive sign for Descon’s creditors and potential creditors who would
not fear their money turning into bad debts. It is, however, noteworthy that even Descon is
not significantly reinvesting the money (2019 being the exception) hence little time lag while
paying its creditors back.
COMPARISON BETWEEN THE TWO COMPANIES
Not much difference can be seen between Descon and Dynea. The only major difference
can be seen in 2018 and 2019 where Dynea’s payable turnover ratio was higher and its
DPO significantly lesser than Descon. Dynea’s purchases in 2018 rose by almost 60%
while Descon’s purchases fell slightly by 0.57% instead of increasing; Dynea’s trade
payables rose by 15% while Descon’s trade payables rose only by around 1%.
In 2019, whereas, Dynea’s trade payables rose only by 17% compared to Descon’s 47.51%
increase; Dynea’s purchases rose by around 34% compared to Descon’s increase of around
36%.
From the differences in 2018 and 2019 ratios between the two companies we can only
deduce that Dynea was able to pay its creditors more quickly than Descon, implying that it
had a steadier cash balance than Descon and was able to pay back its creditors quickly
compared to Descon and also its own previous years.

INDUSTRY ANALYSIS
The industry averages show a stable trend of both payables turnover ratio and DPO up until
2017 meaning that the other companies generally paid their creditors around the same time
(approximately 81 days). Then, an increase in the trade payables turnover is seen from
2017-2018 subsequently, a sharp decline in DPO.
From 2015-2017, we can see that both Dynea and Descon have higher turnovers and hence
lower DPOs than the industry This either means that these companies had worse credit
terms than the competitors or that they didn’t fully utilize the credit period offered by the
creditors and hence lack of reinvestment back into the company. Both the companies should
take this point into consideration for the long-term expansion of their respective businesses
as they would be able to use the cash flow for better use for a long period of time. Having
said that, we can observe that Descon’s payable turnover and hence DPO was very similar
to the industry in 2018 which could imply that it must have negotiated better credit terms for
that year which is a positive thing for the cash flow of the company contrary to Dynea’s
constantly falling DPO.

6. OPERATING CYCLE
 Operating cycle
120
100
80 Years Dynea Descon Industry
Pakistan Oxychem average
60
2015 86.5 112.52 87.74
40 2016 85.65 96.23 96.60
20 2017 92.44 72.68 87.73
0 2018 87.02 69.92 82.90
2015 2016 2017 2018 2019 2019 88.17 64.72 N/A
Dynea Pakistan
Descon Oxychem
Industry Average

Operating cycle shows the time elapse between purchase of raw material and cash collection
from sales.
Dynea Pakistan’s operating cycle shows little to no variance throughout the 5 years with the
average length of the operating cycle being around 88 days. This means that the length of time
between the purchase of inventory and the cash collected from the sale of the inventory does
not differ too much for the company. The only eminent difference is seen in 2017 when the
operating cycle rose by around a week—owing to a rising DSO meaning that the company’s
receivables did not pay the company on time, hence affecting the company’s ability to invest
back into the cycle and slowing down the inflow of cash.
Descon’s operating cycle is constantly falling over the years which means that the company
was successful in fast production and sales of inventory and quick collection of accounts
receivable which made them efficient enough to invest in the cycle again with much lesser time
to complete it again. This was the result of decreasing DSO and DSI for all the years, meaning
that it was able to sell off its inventory more quickly and subsequently recovered money from its
debtors quickly too.
COMPARISON BETWEEN THE TWO COMPANIES
We can see from the graphs that initially, Descon’s operating cycle is greater than Dynea.
However, after 2016, Dynea exceeds Descon’s cycle. This is a positive sign for Descon as it
indicates that Descon is able to recover its inventory investment quicker than Dynea and hence
Descon possesses better cash flow to meet its obligations.
INDUSTRY ANALYSIS The industry shows a mostly stable trend for all the years, with the
exception of 2016. This might be the year in which most companies might have faced cash flow
issues due to certain market conditions.
When compared to the industry average, Dynea has more or less the same length of the
operating cycle, implying that its operating cycle is similar to that of the other companies in the
chemical sector. On the other hand, Descon was performing worse than the industry for 2015,
after which its operating cycle actually got better than the other companies meaning that it
worked on its cash flow situation and was able to repeat the cycle more times due to the fact
that Descon was able to sell off its inventory faster each year (due to advertising etc. as
mentioned earlier in DSI)
7. CASH CONVERSION CYCLE

Cash Conversion Cycle

70.00

60.00

50.00 Years Dynea Descon

Pakistan Oxychem
40.00 2015 49.85 70.42
30.00 2016 45.81 45.71
2017 52.35 26.28
20.00
2018 60.73 17.25
10.00 2019 63.99 16.46
0.00
2015 2016 2017 2018 2019

Dynea Pakistan
Descon Oxychem

The cash conversion cycle is a metric that expresses the time (measured in days) it takes for a
company to convert its investments in inventory and other resources into cash flows from sales.
It takes into account how much time the company needs to sell its inventory, how much time it
takes to collect receivables, and how much time it has to pay its bills without incurring penalties.
As we can see from Dynea’s graph, there is an initial decrease and then an upward trend in the
cash conversion cycle. The change from 2015-2016 could be mainly attributed to an increase in
DPO over the year by around 9%. The change from 2018-2019 is seen mainly because of a
decrease in DPO while the DSO and DSI did not show major changes for those years, the
company had been paying off its debtors quicker each year as compared to receiving money
from selling off inventory. This increasing trend is not a good sign for Dynea because this might
translate to insufficient cash flow for the company eventually. While its usually beneficial to pay
the suppliers quickly, the company’s cash in hand increases (causing less cash flow problems)
if the company chooses to pay out the accounts payable later. Even though the DSI of Dynea
was decreasing over the years, the change was little and the company might need to focus on
selling the inventory even faster so as to shorten its cash conversion cycle.
Descon’s graph shows a consistent decrease in the cash conversion cycle which is definitely a
positive thing for the company as this signifies better cash management. The most drastic
changes can be seen from the years 2015-2017 in these years, the company’s DSI and DSO
both consistently fell by notable amounts while the DPO rose in 2016 then fell slightly in 2017.
All of these contributed to the declining cash conversion cycle days.

COMPARISON BETWEEN THE TWO COMPANIES

From the respective trends and length of the cycles both, we can see that Descon’s cash
conversion cycle is better than Dynea’s. Descon might be able to experience growth at a greater
rate than Dynea because of better cash management and daily/long-term operations. The trend
can be observed by noticing the cash flow trend of both companies. In 2016, Dynea’s cash and
cash equivalents rose by 140% while Descon’s rose by almost 634%. Even in the years 2017-
2019, Descon’s cash flow statements show better management than Dynea. Regardless of the
deficits (years 2018-2019), there is a reduction in the deficit amount for Descon while an
increase in the deficit for Dynea.

8. Total asset turnover

Total asset turnover

2.50

2.00
Years Dynea Descon Industry
1.50
Pakistan Oxychem average
1.00
2015 1.76 0.53 0.93
2016 1.95 0.61 0.95
0.50 2017 2.01 0.83 0.97
2018 2.16 0.99 1.11
0.00 2019 2.22 1.26 N/A
2015 2016 2017 2018 2019

Dynea Pakistan Descon Oxychem

Industry Average
X

The asset turnover ratio measures the value of a company's sales or revenues relative to the
value of its assets. The asset turnover ratio can be used as an indicator of the efficiency with
which a company is using its assets to generate revenue.
Dynea’s asset turnover ratio shows a consistent trend of increase over the years. The most
significant change can be seen in 2016. This was due to an increase of 1.29% in the revenue of
the company while a decrease of 8.17% was seen in the average total assets
The increase in the sales amount was made possible due to improved production efficiencies
and increase in sales( according to the directors’ report) The decrease in the average total
assets was due to the fact that in 2016 there was a decrease in property, plant and equipment
by 23.5%( the main contributor was disposal of vehicles) stock-in-trade by 13.20% and a
decrease in advances given out to suppliers and contractors due to repayment—hence, bringing
the average total assets of 2016 down and the total asset turnover up. The turnover ratio, from
2017 onwards, keeps on increasing but at a slower rate.
Descon’s turnover ratio shows a consistent trend of increase over the years. This can be
attributed to the fact that the sales of the company were constantly increasing over the 5 years
while the total assets of the company were actually falling from 2015-2018.This increase in
sales over the years (according to the directors’ report) was due to improved product prices,
favorable realignment of geographical sales mix, controlled costs and increased productivity
throughout the years. However, we can also see that its assets from 2015-2018 are falling,
which also contributed to the rise in the total asset turnover. For example, in 2016, there was a
decrease in property, plant and equipment by around 6.5%, in 2017 there was a decrease of
8.3% and in 2018 by 8.3% again. This decrease was happening due to lack of new investment
in non-current assets combined with sale/disposal of PPE, hence contributing to a fall in
average total assets. Up until 2018, we cannot comment on Descon’s efficiency when it comes
to generating revenue from its total assets because a decrease in the total assets is what is
contributing to a rising asset turnover. However, in 2019 we can see that there was an increase
in investment in property, plant and equipment. The current assets of the company also rose by
22.6%( due to an increase in Stores, spare parts and loose tools, Stock-in-trade, trade debts)
but despite the increase in average total assets, we can see that the asset turnover of the
company rose at a greater rate than any of the other years which translates to better
performance of the company due to greater efficiency in using assets to generate revenue.
COMPARISON BETWEEN THE TWO COMPANIES
We can see from the graphs of the two companies that Dynea’s ratios for all the years are
greater than Descon. This implies that Dynea is better than Descon at utilization of its assets.
However, we should also keep in mind that Dynea’s net sales for all the years are notably
greater than Descon—around 40%-50% on average and all of the amount of sales cannot be
attributed to the efficient use of assets.
INDUSTRY ANALYSIS
The industry also shows a trend of consistent increase, which could imply that the other
companies in the industry were getting better at utilization of their assets to generate revenues.
From research, it was evident that up until 2018, the chemical industry’s revenues were
increasing due to enhanced sales in local and export market owing to growth of textile sector
(hence in the chemical sector), relative political stability, investment friendly government
policies, growth-oriented taxation policies etc.
The increase in 2019, however, could be attributed to overall depressed economic environment
of the country, leading to increased cost of production for most companies. The companies, as
a result, resorted to adding some component of increased cost of production in the selling price
of their products thus leading to increased revenues.
Dynea is following the same trend as the industry for the ratio. Infract, its asset turnover is
actually greater than the industry. This is a good thing for the company because it implies that
the company is better than the industry at utilizing its assets for revenue generation. This
could also mean better future prospects for the company in terms of market domination due to
higher sales resulting from efficient management.
Descon is also following the same trend as the industry for all 5 years. However, its ratios are
below that of the industry which refers to inefficient employment of its assets as it is
apparently underperforming than the other companies in the industry. The company should
focus on liquidating obsolete or unused assets. Since the company’s DSI and DSO are
actually decreasing over the years, Descon should improve efficiency so as to find ways to
increase the productivity of each asset without any significant increase in any other expenses.

3. Fixed asset turnover

Fixed asset turrnover

10.00
9.00
8.00
7.00 Years Dynea Descon Industry
6.00 Pakistan Oxychem average
5.00
2015 6.65 0.67 1.44
4.00
3.00 2016 8.42 0.82 1.51
2.00 2017 9.45 1.13 1.59
1.00 2018 9.35 1.36 1.92
0.00
2015 2016 2017 2018 2019 2019 9.71 1.81 N/A

Dynea Pakistan
Descon Oxychem
Industry Average

The fixed asset turnover ratio is, in general, used by analysts to measure operating
performance. This efficiency ratio compares net sales to fixed assets and measures a
company's ability to generate net sales from its fixed-asset investments.
Dynea’s fixed asset turnover ratio increases till 2017, after which it slightly falls and then rises
back up. The most significant change, however, can be noticed from 2015-2016. During 2016,
Dynea’s average fixed assets fell by around 19.9% while its sales actually went up by around
1.28% The fall in the average fixed assets was due to the fact that a significant amount of
property, plant and equipment was disposed off during the year combined with the depreciation
of the existing PPE with not enough additions to the non-current assets to cancel out the effect.
This could actually be a good thing for the company since getting rid of old equipment means
increased productivity because some of it might no longer remain useful/needed for the
company. Subsequently, there is a positive impact on the sales of the company due to better
manufacturing capabilities.
Descon’s fixed asset turnover shows a constant trend of increase over the years even though
the variation is quite low. This is due to no drastic changes in sales or the fixed assets. The ratio
however, is increasing due to the fact Descon’s investment on its fixed assets was quite low as
we can see from its balance sheets that 2014-2018 the fixed asset amounts were actually falling
due to disposals and depreciation except for 2019. These disposals were made to company
employees, outsiders as well as insurance companies through negotiations and insurance
claims. The most significant change in the ratio was seen in 2019. This is when an increase in
fixed asset (by 5.29%) is seen majorly because of an introduction of technical fee during the
year and then also an increase in plant and machinery by around 98.7% This increase in plant
and machinery could have been motivated by a new relaxation from the government’s side i.e.
plant and machinery was allowed zero percent customs duty intending to manufacture taxable
goods, during their construction and installation period. This increase in average fixed assets,
did not lower the turnover ratio because the company’s sales rose by 29% in 2019(which was
the highest percentage in the 5 years) This increase in sales was attributed to commercial
initiatives and Pakistani rupee devaluation--hence driving up the export sales of the company by
a greater amount than the average fixed assets and bringing the turnover ratio up.
COMPARISON BETWEEN THE TWO COMPANIES
Comparatively, we can see that Dynea’s fixed asset turnover ratio is significantly higher than
that of Descon. This is because Dynea’s investment in fixed assets is very less compared to
Descon—on average it is 5.5 times lesser. Adding to this, Dynea’s sales for the 5 years are
greater than that of Descon. Both these factors contribute to a higher turnover ratio for Dynea.
While this may signify efficient use by Dynea of its fixed assets to generate revenue, it might not
be a good thing in the long run because the company is not reinvesting into its fixed assets due
to which it might lose sales, profits, cash flow and stock price.

INDUSTRY ANALYSISX