IBF Term Report

INTRODUCTION TO BUSINESS FINANCE
A financial analysis on Cement Industry

A report on Pioneer Cement, Kohat Cement, Power Cement,
Lucky Cement
SUBMITTED TO: Sir Kamran Rabbani
GROUP MEMBERS:
Sneha Mandhan 20181-24592

Tisha 20191-26189
Munesh Kumar 20191-26454
Sai fur Rehman 20191-25846
Page | 1
CONTRIBUTION TABLE:-
Munesh Kumar:
Pioneer Cement
➢ Starting from page# 06 till page# 16
➢ Comparative Analysis (Page# 42)
Tisha:
Kohat Cement
Saif Ur Rehman:
Power Cement
➢ Starting from page 26 till page 33
➢ Overview (page# 05)
Sneha Mandhan:
Lucky Cement
Page | 2
Table of Contents:
❖ Executive Summary 04
❖ Overview 05
❖ Pioneer Cement
▪ Introduction 06
▪ Financial Statements 07
▪ Financial Ratios 09
▪ Analysis of Financial Ratios 10
▪ Creditor’s Point of View 15
▪ Lender’s Point of View 15
▪ Shareholder’s Point of View 16
❖ Kohat Cement
▪ Introduction 17
▪ Financial Statements 18
▪ Investor’s Point of View 25
❖ Power Cement
▪ Introduction 26
❖ Lucky Cement
▪ Introduction 34
❖ Comparative Analysis 42
Page | 3
EXECUTIVE SUMMARY
The report deals with the analysis of the companies that belong to cement industry of
Pakistan, are working over the decades and contributes to the economy of the country.
The main purpose of the report to see the analysis of the company’s financial position over
the period of three years, 2017, 2018, 2019. With the help of financial statements, we have
analyzed and computed Activity ratios, Profitability Ratio, Solvency Ratios and
liquidity Ratios to gain insights regarding a company's stability and to see whether the
companies are solvent, liquid or profitable enough to secure its monetary investment.
We have learned that interpretation of the financial statement with the help of these ratios
are beneficial for all stack-holders, creditors, and lenders of the firms. As these ratios help
them to make realistic decision, and assure them whether to block their money in the
company or not. The analysis of the financial ratios over time is checked and investigated
to whether the firm’s performance has enhanced or declined, and also to see what is the
current trend in the company.
The Four companies analyzed by our group in this report are;
Pioneer Cement, Kohat Cement, Power Cement, and Lucky Cement, respectively.
Page | 4
OVERVIEW
Cement is one of the basic ingredients. It has a direct relation with economic growth
and brings improvement in the living standards. Pakistan has a well-developed
cement industry with abundant raw material already available in the country.
Pakistan positions among the main 5 exporters and is the fourteenth biggest concrete
maker on the planet. The concrete business of the nation can be partitioned into two
separate districts; North and South Zone. On the moment, 24 industrial entities are
functioning in the country with a total installed yearly capability of 49.4 million tons.
Which is reported by All Pakistan Cement Manufacturers Association, (APCMA).
The producers in the South Sector sort more different profit because they have advantages
of sea routes. Even exports to Afghanistan are under pressure due to worsening relations
with the country, and slowdown in construction activities.
COMPANIES
1. Pioneer Cement Limited (PCL) is located in Lahore, Pakistan and is one of the
cement companies of the cement and concrete product manufacturing Industry. It
was incorporated in Pakistan on February 9th, 1986 as the Public Company limited.
The company deals in two products. First is the Ordinary Portland Cement (OPC).
And second is Sulphate Resistant Cement (SRC).
2. Power Cement Limited was established as Private Limited Company on 01st
December, 1981 and was converted into Public Limited Company on 09 July 1987
and is listed on Karachi and Lahore Stock Exchanges. The company deals in three
product, Ordinary Portland Cement (OPC), Sulphate Resistant Cement (SRC), Blast
furnace Cement.
3. Lucky Cement is considered as one of the largest producers. They export quality
cement all over the Pakistan. The Lucky cement is set down on the Pakistan Stock
Exchange. The company has also originated Global Depository Receipts (GDRs),
registered and promoted on the Professional Securities Market of the London Stock
Exchange. The lucky cement is a pioneer which install WHR, RDF, and (TDF)
Plants in the whole country.
4. State Cement Corporation of Pakistan (SCPP) established a Romanian cement line
at Kohat in 1984 And the company was privatized in 1992, the CEO of company
undertook BMR program in 1995 funded by proceeds of public offering and
commercial Debt and the Kohat cement company limited has been in expansion
mode Since then. The company's products include gray cement which the
companies sell with the name of Kohat cement And White Cement Which the
company sells with the name of Kohat Super White.
Page | 5
Pioneer Cement Limited
Introduction:
Pioneer Cement Limited (PCL) is located in Lahore, Pakistan and is one of the cement
companies of the cement and concrete product manufacturing Industry. It was incorporated
in Pakistan on February 9th, 1986 as the Public Company limited. PCL has a Paid-up capital
of 227.1 million shares of Rs. 10 each. The company’s shares are quoted in Pakistan Stock
Exchange (PSE). The principal activity of the Pioneer Cement Limited is manufacturing
and sale of cement. The company’s vision and mission are to give their best efforts in
utilizing the resources with good corporate management in order to serve the interest of all
their investors. PCL is very committed to provide their customers with the best quality of
cement according to international and Pakistani standards. The company is also certified
with ISO 9001: 2008, which shows the management of the company is quality management
and to ensure the customers that they will get the best quality of the product as per their
prospects. Though the main market of Pioneer cement is in Punjab and Khyber
Pakhtunkhwa but it is available all over Pakistan. PCL plant is located at Chenki, District
Khushab, in Punjab province.
The company deals in two products;
1. Ordinary Portland Cement (OPC) is commonly and widely used type cement. This type of
cement is ideal and best for any structural work.
2. Sulphate Resistant Cement (SRC), this product is used to avoid the sulphate and is
commonly used where sulphate salts are present. This product is basically used for
foundation purpose because it has the potential to counter the destructive sulphate.
Page | 6
UNCONSOLIDATED BALANCE SHEET
PIONEER CEMENT Limited
2019 2018 2017 2016
Rupees in thousand
EQUITY & LIABILITIES
Share capital and reserves
Issued, subscribed and paid-up share capital 2,271,489 2,271,489 2,271,489 2,271,489
Share premium 197,517 197,517 197,517 197,517
Surplus on revaluation of fixed assets - net of tax 2,816,077 3,111,554 2,728,420 2,849,469
Accumulated profits 8,036,260 8,048,399 7,050,106 5,351,691
13,321,343 13,628,959 12,247,532 10,670,166
Liabilities
NON-CURRENT LIABILITIES
Long term financing - secured 14,856,329 7,890,631 1,387,500 -
Long term deposits 4,272 4,262 4,202 4,177
Deferred liabilities 2,509,565 2,265,998 2,399,820 2,341,138
Retention money 1,898,307 870,890 34,045 10,131
19,268,473 11,031,781 3,825,567 2,355,446
Current liabilities
Trade and other payables 2,275,190 1,380,197 667,428 889,127
Contract liability 88,682 - - -
Accrued interest / profit on financing 659,433 183,641 47,101 442
Short term borrowings - secured 4,830,550 2,439,751 806,855 644,597
Current portion of long term financing - secured 1,765,116 375,000 112,500 -
Unclaimed dividend 68,624 72,039 53,185 40,019
Provision for taxation - net - - - 71,316
Sales tax payable - net - - - 96,586
9,687,595 4,450,628 1,687,069 1,742,087
TOTAL EQUITY & LIABILITIES 42,277,411 29,111,368 17,760,168 14,767,699
ASSETS
Non- Current Assets
Property, plant and equipment 36,106,515 22,920,019 12,237,399 10,384,030
Investment property 83,605 78,690 70,836 68,910
Intangible asset - 1,690 4,480 7,799
Long term deposits 57,247 40,086 39,531 39,449
36,247,367 23,040,485 12,352,246 10,500,188
Current Assets
Stores, spares and loose tools 1,889,241 1,697,712 1,500,779 922,941
Stock in trade 325,812 470,397 235,743 181,319
Trade debts - unsecured 482,724 433,814 224,828 108,481
Loans and advances 306,458 127,239 62,512 35,254
Trade deposits and short term prepayments 8,263 4,188 1,937 1,991
Advance taxes - net 2,077,938 1,136,794 359,748
Other receivables 325 45 - 549
Short term investments 728,359 1,006,904 2,623,180 2,356,497
Cash and bank balances 210,924 493,261 309,019 660,479
Sales tax receivable - net - 700,529 90,176 -
6,030,044 6,070,883 5,407,922 4,267,511
TOTAL ASSETS 42,277,411 29,111,368 17,760,168 14,767,699
Page | 7
UNCONSOLIDATED INCOME STATEMENT
PIONEER CEMENT Limited
2019 2018 2017 2016
Rupees in thousand
Revenue from contracts with customers 9,733,653 10,121,320 10,630,994 9,366,533
Cost of goods sold (7,598,967) (7,310,647) (6,202,685) (5,361,331)
Gross (loss)/ profit 2,134,686 2,810,673 4,428,309 4,005,202
Distribution cost (182,383) (166,913) (94,064) (59,982)

Administrative expenses (143,060) (97,538) (84,581) (81,545)
Other expenses (288,071) (297,690) (521,500) (285,518)
Other income 72,766 59,049 376,035 285,922
(Loss)/ Profit from operations 1,593,938 2,307,581 4,104,199 3,864,079
Finance costs (270,704) (94,896) (34,694) (17,471)

(loss)/ Profit before taxation 1,323,234 2,212,685 4,069,505 3,846,608
Income tax (expense) / credit (532,857) (568,665) (1,151,960) (1,327,830)
(Loss)/Profit after taxation 790,377 1,644,020 2,917,545 2,518,778
(Loss) / earnings per share - basic and diluted (Rupees) 3.48 7.24 12.84 11.09
Page | 8
FINANCIAL RATIOS
2017 2018 2019 Industry
Liquidity Ratios Benchmark
Current Ratio 3.21 1.36 0.62 0.93
Quick Ratio times 2.18 0.88 0.39 0.62
Efficiency Ratios
Receivable Turnover times 63.79 30.73 21.24 18.52
Days of receivable Turnover Days 6 12 17 20
Inventory Turnover times 4.37 3.74 3.47 4.11
Days of Inventory Turnover Days 84 97 105 89
Payable Turnover times 7.97 7.14 4.16 6.13
Days of Payables Turnover Days 46 51 88 60
Operating Cycle Days 44 58 35 49
Total Asset Turnover 59.86 34.77 23.02 30.26
Fixed Asset Turnover % 86.87 44.16 26.96 79.49
Profitability Ratios
Gross Profit Margin 41.65 27.77 21.93 20.43
Operating Profit Margin 38.61 22.80 16.38 15.60
Net Profit Margin after Tax % 27.44 16.24 8.12 15.19
Return on Assets after Tax 17.94 7.02 2.21 5.02
Return on Equity after Tax 128.44 72.38 34.80 15.88
Solvency Ratios
Interest Coverage Ratio 118.30 24.32 5.89 122.14
Debt-to-Asset 0.13:1 0.37:1 0.51:1 0.48:1
Debt-to-Equity times 0.19:1 0.79:1 1.61:1 1.19:1
Debt-to-Capital 0.16:1 0.44:1 0.62:1 0.63:1
Financial Leverage 6.66 2.51 1.85 1.39
Page | 9
ANALYSIS OF THE FINANCIAL RATIOS
❖ Liquidity Ratios
▪ Current Ratio:
Trend: It shows the declining trend over the past year, the ratio has fallen from 3.62 to
0.62 and it is also less than the industry benchmark.
Problem: The potential problem behind the declining trend is that the company’s current
liabilities are increasing high as compared to current assets, or the company has acquired
fixed assets with the short-term financing.
Solution: The possible solution to overcome this situation is that the company should pay
the liabilities and use the matching principle in the business, such as short-term financing
should be used in acquiring current assets and fixed assets should be financed through long-
term liabilities.
▪ Quick Ratio:
0.39 and it is also less than the industry benchmark.
Problem: The potential problem behind the declining trend is that the company’s current
liabilities are increasing high as compared to current assets, the company has acquired fixed
assets with the short-term financing, or companies have acquired more inventory than the
requirement.
Solution: The possible action to overcome this situation is that the company should pay its
current liabilities and use the matching principle in the business, and reduce the inventory
that is on hand.
❖ Efficiency Ratio
▪ Receivable Turnover:
21.24 but it is greater than the industry benchmark.
Problem: Debtors have increased over the recent year, company’s credit control is also
getting poorer as they are unable to recover their payment soon, but it is greater than
industry, which shows that company’s credit control is good than the other companies in
the industry and also the sales of company has also decreased over the previous year.
Page | 10
Solution: The possible action that company can take to overcome this situation is to reduce
its debtors means they should deal mainly in cash, management should work on its credit
control so that they can recover payments earlier, and also management should also think
about increasing the sales.
▪ Inventory Turnover:
3.47 and it is less than the industry benchmark.
Problem: Company has invested a lot in inventory, and they are holding it for a very long
time which has blocked its cash, or the management is not using the better mix of the
product. The COGS have also increased over the past few years. Since, the company’s
inventory turnover is less than the industry it shows that company’s management is not
working effectively and efficiently, and they have poor productive machinery.
Solution: The possible action that company can take is that they should decrease their
inventory and should use a better product mix. They should also decrease their COGS so
that they can have better inventory turnover.
▪ Payable Turnover:
Trend: It shows the declining trend over the past year, the ratio has fallen from to 7.97 but
4.16 and it is less than the industry benchmark.
Problem: There is not such any problem with the company’s Payable turnover.
Solution: They are taking advantage of credit control and clearing their debt in a longer
time period but they can still take advantage of credit because the industry has a credit limit
of 100 days but the company is clearing their debts in 88 days.
▪ Total Asset Turnover:

Trend: It shows the declining trend over the past year, the ratio has fallen from 59.86% to
23.02% and it is also less than the industry benchmark.
Problem: The possible problem for the declining trend is that the company has acquired
so much assets but the sales of the company have increased initially and then it started
decreasing. They have less productive machinery than the companies in industry.
Solution: The company should work on its production unit rather than just acquiring assets
only. The management should invest in productive machinery.
Page | 11
▪ Fixed Asset Turnover:
26.96% and it is also less than the industry benchmark.
Problem: The possible problem for the declining trend is that the company has acquired
so much fixed asset but the sales have been decreasing. They have less productive
machinery than the companies in the industry.
Solution: The management should invest in productive machinery, which provides the
company with higher sales so that it can match the industry benchmark.
❖ Profitability Ratios
▪ Gross Profit Margin:

21.93% but it is greater than the industry benchmark.
Problem: The potential problem behind the declining trend is that the company’s sales
increased initially but then it started decreasing and also the cost of good sales have
increased a lot as compared to its sales.
Solution: The possible solution to overcome this situation is that the company should
decrease its cost of sales and increase its sales.
▪ Operating Profit Margin:

16.38% but it is greater than the industry benchmark.
Problem: The potential problem behind the declining trend is that the company’s sales
increased initially but then it started decreasing and also the cost of good sales have
increased a lot as compared to its sales, and other operating expenses have been increased
over the past years and the other income has decreased.
decrease its cost of sales, increase its sales, operating expenses should be decreased and
other sources of income such as return on short term investment should be increased.
▪ Net Profit Margin:

8.12% and it is less than the industry benchmark.
Problem: The potential problem behind the declining trend is that the company has
Page | 12
acquired more loans and in return they are paying high charges against the borrowing,
however, the taxation has been decreasing over the period.
decrease its operating expenses and also, they should decrease their charges that are being
paid against the borrowing which have been acquired by the company.
▪ Return on Assets:
2.21% and it is less than the industry benchmark.
Problem: The potential problem behind the declining trend is that the company has
acquired more loans to fund its assets, and they are paying high charges against the
borrowing. The company’s income is also decreasing. Company has less productive
machinery.
decrease its operating expenses and other expenses such as charges in return for borrowing.
The company should acquire productive machinery, which helps the company to generate
high income.
▪ Return on Equity:
Trend: It shows the declining trend over the past year, the ratio has fallen from 128.44%
to 34.80% but it is greater than the industry benchmark.
Problem: The potential problem behind the declining trend is that the company has issued
a high number of shares and they are producing less income. Due to less income,
shareholders are getting lesser return.
decrease its shares. If a company has less shareholders, then they can get higher returns.
❖ Solvency Ratios
▪ Interest Coverage Ratio:

5.89 and is also less than the industry benchmark.
Problem: The potential problem behind the declining trend is that the company is relying
more on external debt than its own equity hence, the company’s profitability is getting low
because operating expenses and other expenses. The company has acquired loans with
Page | 13
higher coupon rates.
decrease its operating and other expenses so that they can have profitability, and they
should decrease its debt. Company should increase its capital with company’s equity so
that they can have less reliance on external debt. The company should acquire loans of less
coupon rate.
▪ Debt to Asset:
Trend: It shows the inclining trend over the past year, the ratio has increased from 0.13:1
to 0.51:1 and is also greater than the industry benchmark.
Problem: The potential problem is that the company has started funding their assets by
using the external sources which shows the company’s degree of leverage is increasing.
Solution: Management should decrease its debt. Equity of the company should be used to
acquire the assets rather than relying on external funding.
▪ Debt to Equity:
to 1.61:1 and is also greater than the industry benchmark.
Problem: The potential problem is that the company is relying more on external sources
than its equity. For every Rs.1 invested by the owner, external funding is committed of Rs.
1.61. Higher the debt, higher the interest payment. Company has to earn more to just break
even.
Solution: Management should decrease its debt and equity of the company should be
increased. Because it shows that the company is more leveraged as its ratio is above than
the industry.
▪ Debt to Capital:
to 0.62:1 and is nearly the same as the industry benchmark.
Problem: The potential problem is that the company is relying more on external sources
than its equity. The Company is getting highly leveraged, due to high debt, they have to
pay high interest and which lowers the profitability. Company has to earn more to just
break even. Company is issuing dividends. The operating costs are very high.
Solution: Management should decrease its debt and capital of the company should be
increased by its equity than the external funding. The Company should retain the capital
for short term investments. The operating costs of the company should be decreased.
Page | 14
DECISION MAKING
FROM CREDITORS POINT OF VIEW
As a Creditor of the company, we will look into liquidity ratios, activity ratios, and
solvency ratios. If we have a look at liquidity ratios then it has a declining trend and also
is less than the industry benchmark, which shows that the company has high current
liabilities than the current assets and also the company has blocked more money in
inventories. If we look at efficiency ratios, then these are also showing declining trends.
Company has invested a lot in the inventory, and the company’s credit control is also
getting poorer as they are taking more time in recovering their money which probably
affects the company cash system. Industry average of paying its liabilities is 60 days but
company is taking time of 88 days to pay back, which shows that company takes longer
period to make payment of their creditors than the other companies in the industry does.
The solvency ratios have an increasing trend and are above than the industry averages
which shows that the company is relying more on external funding than its equity. For
every Rs.1 invested by the owner, external funding of Rs. 1.61 is committed. However,
which shows the vulnerability of the company. Due to high reliance on external debt, the
company has to pay a high interest rate and due to this company’s profitability also gets
affected, and interest coverage ratio has a declining trend.
As per the financial statements, the company’s ability to pay back its liability are getting
low as company’s liquidity is getting low, company has blocked its cash and since company
has more reliance over the external debt than its own equity which makes the company
position vulnerable. The company management is inefficient as they are unable to utilize
their assets effectively. Hence, to finance the Pioneer Cement is riskier.
FROM LENDERS POINT OF VIEW

As a Lender, we look into profitability ratios, efficiency ratios and solvency ratios of the
company. If we look at the profitability ratios then it shows the declining trend over the
years which shows that companies are unable to generate enough profit from its operations,
and the operating expenses and other expenses are very high. If we look at efficiency ratios,
then these are also showing declining trends. Company has invested a lot in the inventory,
and the company’s credit control is also getting poorer as they are taking more time in
recovering their money which probably affects the company cash system. The solvency
ratios have an increasing trend and are above than the industry averages which shows that
the company is relying more on external funding than its equity. For every Rs.1 invested
Page | 15
by the owner, external funding of Rs. 1.61 is committed. However, which shows the
vulnerability of the company. Due to high reliance on external debt, the company has to
pay a high interest rate and due to this company’s profitability also gets affected, and
interest coverage ratio has a declining trend.
As per the financial statements, the company has more reliance over the external debt than
its own equity which makes the company position vulnerable. Due to over reliance on
external funding the company has to pay more coupon rate which affects the company’s
profitability. Since, the company's ability to pay back the debt is low, so, to lend the debt
to Pioneer Cement is riskier.
FROM SHAREHOLDERS POINT OF VIEW

As a Shareholder, we look into the company's Profitability ratios and efficiency ratios. The
profitability ratios have shown a declining trend, it shows that company’s profitability is
getting decreasing. The cost of sales and the operating expenditures have increased over
the past years, also due to reliance on external funding the company has borne all the other
expenses which led the company to have lesser profitability. Due to this return on equity
has also decreased which shows that the company has issued more shares in the recent
years. If we look at efficiency ratios, then these are also showing declining trends.
Company has invested a lot in the inventory, and the company’s credit control is also
getting poorer as they are taking more time in recovering their money which probably
affects the company cash system.
Due to over reliance on external funding and increase in operating expense, the profitability
of the company has been affected a lot and the return is also decreasing as the company
has larger shareholders. So, to invest money/ buy shares in the Pioneer Cement is riskier.
References:
Pioneer Cement Limited Annual Report 2017,2018, and 2019.
https://pioneercement.com
Page | 16
KOHAT CEMENT COMPANY LIMITED
State Cement Corporation of Pakistan (SCPP) established a Romanian cement line at Kohat
in 1984 And the company was privatized in 1992, the CEO of company undertook BMR
program in 1995 funded by proceeds of public offering and commercial Debt and the Kohat
cement company limited has been in expansion mode Since then. In 2002 the company
entered into export market, in 2013 The Kohat cement limited company has been honored
with the KSE top 25 companies AWARD 2013. The company's products include gray
cement which the companies sell with the name of Kohat cement And White Cement
Which the company sells with the name of Kohat Super White. The Vision and mission of
the company is to be the best in the price of stakeholder, and to provide customer with
Quality cement at competitive Pricing, shareholders with good return and sustainable
growth and Employees with care and career development opportunities.
Page | 17
INCOME STATEMENT OF KOHAT
CEMENT(UNCONSOLIDATED)
2019 2018 2017

Net Sales 15,645,649 13,438,843 13,540,305
Less: Cost of Goods Sold -11,472,502 -9,085,616 -7,712,937
Gross Loss/ Profit 4,173,146 4,353,227 5,827,368
LESS/ add OPERATIONS
Selling And Distribution Expenses -85,342 -124,745 -129,666
Administrative And General expenses -254,163 -203,150 -163,009
other income 348,620 361,697 393,104
Other Expenses -460,124 -310,146 -407,911
-451,009 -276,344 -307,482
OPERATING loss/Profit 3,722,136 4,076,883 5,519,886

Finance cost -46,065 -106,531 -84,962
Loss/ Profit Before Taxation 3,676,071 3,970,352 5,434,924
Taxation -1,207,416 -990,357 -1,890,110
LOSS/ Profit After Taxation 2,468,656 2,979,995 3,544,815
Page | 18
BALANCE SHEET OF KOHAT
CEMENT(UNCONSOLIDATED)
2019 2018 2017
EQUITY AND LIABILITIES
Authorised Share Capital 3,000,000 3,000,000 3,000,000
issued, Subscribed And Paid up Capital 2,008,613 1545087 1,545,087
Reserves 119,822 120,034 120,531
Accumulated Profit 17,544,203 16,311,617 13,640,639
TOTAL EQUITY 19,672,639 17,976,738 15,306,258
NON CURRENT LIABILITIES

long Term Financing- Secured 4,399,930 142,105,256 426,316
long Term Deposits and retention Money 106,894 2,036 2,036
Deferred Liabilities
-Deffered taxation 1,596,244 1,499,928 1,660,261
- Compensated Absences 15,256 16,495 13,617
Total NON-Current Liabilities 6,118,326 1,660,565 2,102,230
CURRENT LIABILITIES
Current portion of long term financing 1,004,221 284,211 284,211
Trade and other payables 3,800,459 3,351,466 2,177,574
Contract Liability 99,319 - -
Unclaimed Dividend 9,417 9,919 8,027
Dividend Payable 35,734 29,604 29,083
Short Term Borrowing- Secured 243,000 - 200,000
Provisions For Taxation- NET 228,925 - 78,471
Mark Up Accrued on Borrowings 102,829 3,831 6,337
TOTAL CURRENT LIABILITIES 5,523,905 3,679,030 2,783,703
TOTAL LIABILITIES AND EQUITIES 31,314,869 23,316,333 20,192,191
ASSETS
NON CURRENT ASSETS
Property, Plant and Equipment 21,873,959 9,113,062 8,060,485
intangibles 13,879 15,259 14,742
Long Term loans and Advances 90,603 446 39,827
Long term Deposits 38,327 125,327 125,327
Investment Property 3,691,840 3,655,623 3,062,824
TOTAL NON CURRENT ASSETS 25,708,607 12,909,271 11,263,417
CURRENT ASSETS
Stores, Spares and Loose Tools 1,410,928 2,119,531 1,333,177
stock in Trade 709,232 658,729 949,142
trade Debts- Unsecured, considered good 714,061 645,524 343,776
short Term investment 1,947,139 5,159,792 5,219,113
Advance Deposit- Prepaid and other Receivables 391,017 887,837 587,907
Advance Tax- Net - 111,222 -
Cash And Bank Balances 433,886 824,428 495,659
TOTAL CURRENT ASSETS 5,606,262 10,407,062 8,928,774
TOTAL ASSETS 31,314,869 23,316,333 20,192,191
Page | 19
FINANCIAL RATIOS OF KOHAT CEMENT FOR THREE YEARS
S.No RATIOS 2019 2018 2017 Industry
benchmark
A) PROFITABILITY
RATIOS
1 Gross Profit Margin 26.67% 32.19% 43.04% 20.43%
2 Net profit Margin 15.78% 22.17% 26.18% 15.19%
3 Return on Equity 12.55% 16.58% 23.16% 15.88%
4 Operating Profit ratio 27.56% 34.25% 44.44% 15.60%
5 return on assets 7.9% 12.8% 17.9% 5.02%
6 return On Capital 14.43% 20.76% 31.71%
B) LIQUIDITY RATIOS
7 current Ratio 1.01 2.83 3.21 0.93

8 Quick Ratio 0.63 2.07 2.39 0.62
C) SOLVENCY RATIOS
9 Debt to equity ratio 0.970 0.151 0.315 1.19

10 Financial Leverage 1.45 1.30 0.62 1.39
11 interest Coverage 80.80 38.27 64.97 122.14
D) ACTIVITY RATIOS
12 Inventory Turnover 7.38 4.84 5.93 4.11

13 NO. of days in 49.46 75.46 61.52 89
inventory
14 receivable turnover 21.91 20.82 39.39 18.52
15 NO. of days in 16.66 17.53 9.27 20
Receivable
16 Total Asset Turnover 0.50 0.58 0.67 30.26%
17 Fixed Asset Turnover 1.95 1.69 1.84 79.49%
18 payable turnover 3.21 3.18 3.27 6.13
19 No.of Days of Payable 112.05 113.17 110.05 60
Page | 20
Analysis for Financial Ratios
❖ PROFITABILITY RATIO
▪ Gross Profit Margin

Trend: It shows the declining Trend over the past year, the gross profit margin of the
company has decreased from 43.04% to 26.67% in last years, but still as comapred to the
other companies' average (industry benchmark) the gross profit margin is greater
Problem: The Problem is that the company’s sales has been reduced since past years and
the cost has been increased resulting in less gross profit Margin.
Solution: The solution of this potential Problem is the company should try to cut off it’s
Cost in order to achieve greater gross Profit Margin.
▪ Net Profit Margin

Trend: There’s Declining Trend in the net profit margin of kohat cement since past years,
the net profit margin has been decreased from 26.18% to 15.78%, and it is somewhat equal
to the industry benchmark so the other companies net profit margin is also almost same.
Problem: There is not such a potential Problem of this Trend because the ratio is equal to
the industry average but to get back on the same track i.e., 2017, only Problem is that the
operating expenses of the company has been increased, and also the company has borrowed
loans and has high interest charged on it
Solution: The solution of this potential Problem is that the company should decrease their
operating expenses and reduce its borrowing or try to opt for the sources to achieve more
operating income.
▪ Return on Equity
Trend: The Return on the equity has been decreasing over past three years from 23.16%
to 12.55% but is still greater than the industry benchmark
Problem: The potential Problem of this declining Trend is that the company is generating
less income and are issuing higher number of shares
Solution: The solution of this potential Problem is the company should decrease it’s
number of shares.
Page | 21
▪ Operating Profit Ratio
Trend: There is declining Trend in the operating profit ratio margin from 44.44% too
27.56% but it is greater than the industry benchmark
Problem: The Problem in this Trend is that there is increase in operating expenses but the
operating income of the company is good as well to balance
Solution: The solution for this potential Problem is that the company should decrease it’s
operating expenses as well as cut of its costs.
▪ Return on Assets
Trend: There is declining Trend of return on assets from 17.9% to 7.9% but it is
comparatively high than the industry bench mark
Problem: The Problem in this Trend is that the companies’ Assets aren’t productive
enough, And the companies is not generating enough income from it’s Assets
Solution: The company should boost its profit margin or make its assets efficient.
❖ LIQUIDITY RATIO
▪ Current Ratio:
Trend: There is declining Trend on current ratio in past years which is decreasing from
3.21 to 1.01 and is greater than industry benchmark and the current assets are exactly equal
to the current liabilities
Problem: The Problem is that the company depend on short term finances and operating
cash flow to meet its short-term obligation.
Solution: The company should make its Assets liquid in order to generate cash for further
use.
▪ Quick Ratio:
Trend: There’s Declining Trend from 2.39 to 0.63 and is equal to the industry benchmark
Problem: The potential Problem in this declining Trend is the fixed Assets of the
companies are too high (MORE THAN NEEDED) and liabilities of the company is high
Solution: The solution of this Problem is to pay off liabilities and invest in liquidate Assets.
Page | 22
❖ LEVERAGE RATIO:
▪ Debt to Equity Ratio:
Trend: it shows the increasing Trend from past three years from 0.31 to 0.97 and is greater
than the industry benchmark
Problem: The Problem in this Trend is that there is risk that company can’t pay it’s
financial obligation and use debt to fulfill it
Solution: The solution to this Problem is the company should use equity to finance not
debt.
▪ Financial Leverage Ratio:

Trend: there’s inclining Trend in the financial leverage ratio of the Kohat Cement
increasing from 0.62 to 1.45
Problem: The Problem in this Trend is that the company uses debts for its payments, asset
valuation and further use
Solution: the solution to this Problem is that the company shouldn’t use debts for
payments.
❖ ACTIVITY RATIO
Trend: There’s inclining Trend in inventory turnover of kohat cement limited increasing
from 5.93 to 7.38 and is also greater than the industry benchmark.
Problem: The potential Problem in this Trend is company has invested so much in assets
although it is trying to improve but there’s not effective machinery
Solution: The solution to this Problem is the company should invest less in assets and be
more focused on increasing sales.
Page | 23
▪ Receivable Turnover
Trend: The receivable turnover has decreased from 39.39 to 21.91, so there is declining
Trend but it is greater than the industry benchmark
Problem: The Problem in this Trend is debtors are too high and company has poor credit
control, the company is not getting the payments on time
Solution: the solution for this potential Problem is that the company should try to reduce
debtors and improve its credit control and increase its sales.
▪ Total Assets Turnover:

Trend: - There’s Declining Trend in the company’s total Asset turnover ratio which is
decreasing from 0.67 to 0.35 and is very less compared to the industry benchmark
Problem: it means the company either has non-productive fixed assets or the current assets
aren’t liquidated enough
Solution: - The solution for this Problem is the company should work on its production
and should get productive machinery and focus on liquidity of the current Assets.
▪ Fixed Assets Turnover:

Trend: There’s inclining Trend in fixed assets turnover from 1.84 to 1.95 but is very less
compare to the industry Benchmark
Problem: The Problem in this Trend is that the company has so much fixed assets even
though they are trying to increase its sales the the COGS is high
Solution: The solution of this Problem is that the company should less invest on fixed
assets and cut off its production cost in order to generate enough profit.
▪ Payable Turnover
Trend: The payable turnover of company is nearly the same from three years but is less
than industry bench mark as the payable turnover of kohat cement limited as in 2019 is
3.21 but the industry benchmark is 6.13 so there’s declining Trend
Problem: There’s no such potential Problem in payable turnover, they are making full use
of available credit facility, and try to make payments on time as well.
Page | 24
DECISION MAKING
FROM CREDITOR’S POINT OF VIEW:
From the creditor’s point of view, there’s risk in financing with Kohat Limited company
because as a creditor we will look their ability to pay through liquidity Ratios and risk
through their solvency ratios. the company has high current liabilities and is not able to
liquidate its assets, they have invested heavily in the fixed assets but aren’t getting enough
return on its assets, they have poor credit control and many debtors and they aren’t able to
receive the payments from its debtors on time. and by seeing leverage ratios which says
that the company uses its debts for finances and paying off other obligations so it will not
be the good decision and is quite Risky as a creditor to finance with the KOHAT CEMENT
LIMITED COMPANY.
FROM LENDOR’S POINT OF VIEW:

Also From the lender’s point of view, there’s risk in financing with the Kohat Cement
Limited company the points will be the same, they often use debts rather than equity for
their business use and have high liabilities, they aren’t generating enough profit and their
cost of sales has increased because of heavily investment on non-productive machinery
and aren’t generating enough cash from their assets as well so we can’t rely on such
company to pay off debts very easily, so as the lender’s point of view, the money should
not be lended to the Kohat Cement Limited company because the risk is very high.
FROM INVESTORS POINT OF VIEW:

As an investor what I would expect from the company is good return but Kohat Cement
company limited is not beneficial enough to be invested in because it has high debt to
equity ratio, they depends on External funding and debts to pay off their obligation, the
company has poor credit control and isn’t generating cash from the assets, they have
invested in poor and inefficient machinery which is increasing their cost and they are not
even generating enough profit even after increasing their sale from past three years, there
are low returns on equity as well because they have issued higher no.of shares and the
return for the shareholders are very low, so from the investors point of view, The KOHAT
CEMENT LIMITED COMPANY is not beneficial to invest in.
REFERENCE:
http://www.kohatcement.com/Home.aspx
http://www.kohatcement.com/financial_reports.aspx
Page | 25
Power Cement Company
Introduction
Power Cement Limited was established as Private Limited Company on 01st December,
1981 and was converted into Public Limited Company on 09 July 1987 and is listed on
Karachi and Lahore Stock Exchanges. The Company’s principal activity is manufacturing,
sell and marketing of cement. The registered office of the Company is situated at 23, Arif
Habib Centre, M. T. Khan Road, Karachi and its undertaking is situated at DehKaloKohar,
Noori Abad Industrial Estate, District Dadu (Sindh). Their mission is to become a
profitable organization and exceeds the expectations of our customers and stockholders by
producing and marketing competitive and high-quality products through concentration on
quality, business values and fair play. To promote best use and development of human
talent in a safe environment, as an equal opportunity employer and use advance technology
for efficient and cost-effective operation. The Vision of Power Cement Company is that
Power Cement Limited aims to be recognized nationally and internationally as a successful
cement producer.
Page | 26
POWER CEMENT COMPANY
Financial Ratios 2019 2018 2017 Industry
Benchmark
Profitability Ratios
Gross Profit Margin 4% 16% 22% 20.43%
Operating profit Margin -7% 8% 18% 15.60%
Return on Equity 5% 3% 6% 15.88%
Net Operating Margin 15% 7% 10% 15.19%
Return on Assets 1% 4% 8% 5.02%
Solvency Ratio
Debt to Equity Ratio 2.17 1.0 0.15 1.19
Interest Coverage Ratio -1.3 3.9 3.3 122.14
Debt to Capital Ratio 148% 85% 4% 0.63
Debt to Asset Ratio 45% 39% 3% 0.48
Liquidity Ratios
Current Ratios 0.68 1.43 2.56 0.93
Quick Ratio 0.52 1.01 2.05 0.62
Activity Ratios
Inventory Turnover 2.45 2.71 3.25 4.11
No. of Days of Inventory 149 135 112 89
Receivable Turnover 9.52 13.52 15.26 18.52
No. of Days of sales 37 38 27 20
outstanding
Payable Turnover 15.04 13.23 14.36 6.13
No. of Days of Payable 24 28 25 60
Operating Cycle 162 145 114 49
Fixed Asset Turnover 12% 22% 85% 79.49%
Total Asset Turnover 10% 18% 39% 30.26%
Page | 27
ANALYSIS OF FINANCIAL RATIOS
❖ Liquidity Ratio
▪ Current Ratio
Trend: Current ratio is declined over the years from 2.56 to 0.68 and it is less than the
industry
Problem: Either Liabilities are too high or short-term loan are obtained for purchase of
fixed Asset
Solution: The expected solution is that the company payoff it’s liabilities as soon as
possible.
▪ Quick Ratio
Trend: the trend of quick ratios indicate that it has decreased from 2017 to 2019 from 2.05
to 0.52 and it is also below the industry benchmark
Problem: The potential problems are that either liabilities are too high or inventories are
too high or both
Solution: The company should payoff liabilities or reduce the purchase of inventories
❖ Activity Ratios
▪ Receivable Turnover
Trend: The trend shows decrease from 2017 to 2019 as it decreases from 15.26 to 9.52
and it is lesser than industry Benchmark
Problem: Debtors are too high and the company would have a poor credit control
Solution: Company should reduce debtors and have proper credit control. The company
should increase their sales and decrease their average receivables.
Page | 28
▪ Inventory Turnover
Trend: It shows a declining trend over the years from 3.25 to 2.46. And it is below the
industry benchmark
Problem: Company has paid no attention on the purchase or investment on the inventories
and it has increased significantly. The COGS have also increased and they have poor
productive machineries
Solution: The possible solution is that the company should reduce the inventories and use
better product mix. They should also decrease their cost of goods sales
▪ Payable Turnover
Trend: it shows an increasing trend as it increases from 14.36 to 15.04 and is also above
industry benchmark
Problem: the company is making payments very quickly and credit control is not used for
the advantage which makes the cash to decrease
Solution: Make payments near to deadlines in last which will help in using cash for short
term investments.
▪ Total Asset Turnover

Trend: It shows a declining trend as it decreases to 10% and also lesser than industry
Benchmark
Problem: The possible problem that has caused this is that the company has acquired large
number of assets but the sales has decreased eventually after it increased initially. Also, it
has low quality machines.
Solution: The management should invest in good production machinery.
▪ Fixed Asset Turnover

Trend: It shows a declining trend from 85% in 2017 to 12% in 2019 and it is lower than
the industry benchmark
Problem: the potential problem can be that the company has acquired fixed asset in a large
number and the sales are reducing. Also, it may have less productive machinery as
compared to other companies in the cement industry
Solution: The possible solution can be that the company invest in buying productive
machineries
Page | 29
❖ Profitability Ratio
▪ Gross Profit Margin
Trend: It has a declining trend as it decreases from 22% to 4% from 2017 to 2019 and is
lesser than industry benchmark
Problem: Potential problems is that cost of goods sales has increased a lot as compared to
the sales
Solution: The possible solution is that the company should decrease its cost of goods sold
and increase its sales.
▪ Operating Profit Margin

Trend: it has a declining trend as it decreases from 18% to -7% over the years and it is
below the industry benchmark
Problem: Operating expenses of the company has increased rapidly and income has just
reduced and sales has also reduced whereas cost of goods sold has increased
Solution: The possible solution that the company may come up to overcome this problem
is to reduce its operating expenses and reduce cost of goods sold and increase its sales.
▪ Net profit Margin

Trend: The net profit margin decreased from 2017 to 2018 from 10% to 7% but then it
increased from 7% to 15% in 2019, but still, it is below the industry benchmark
There is no potential problem that exists
▪ Return on Equity
Trend: It has a declining trend as it decreases from 6% to 5% over the period of time and
it is also below the industry benchmark
Problem: The problem behind this declining trend is that the company has shared high
number of shares but are generating less amount of income
Solution: The company should issue less number of shares and decrease their share as less
shareholder means higher return for the company.
Page | 30
▪ Return on Assets
Trend: It shows a declining trend as it decreases from 8% to 1% from 2017 to 2019 and it
also is below the industry benchmark
Problem: The problem behind the declining trend is that the company has acquired more
loans and they are paying high charges against the borrowing and the company’s income
is also decreasing
Solution: The possible solution of this problem is that the company should decrease its
operating expense and other expenses. The company should acquire productive machinery
too.
❖ Solvency ratios
▪ Interest Coverage ratio

Trend: It shows a declining trend as it decreases from 3.3 to -1.3 and it is well below the
industry benchmark
Problem: The potential problems behind the declining trend is that the company relies on
external debt too much as compared to its own equity. The company’s profitability is also
decreasing as operating expenses and other expenses are increasing
decrease their operating expense so that their profitability increases. Company should
increase its capital too.
▪ Debt to Asset
Trend: It shows an inclining trend over the period of time. The ratio increased from 3% to
45% and it is also above industry benchmark.
Problem: The potential problem is that the company has started funding its own assets by
external sources
Solution: Company should decrease their debts. The company should use their equity to
purchase assets rather than relying on external funding
Page | 31
▪ Debt to Equity
Trend: it has an increasing trend as it increases from 0.15 to 2.17 in 2019. Also, it is above
industry benchmark
Problems: Company is relying more on external sources rather than its own equity. It has
also increased its debts
Solution: Company should decrease their debt and increase their equity.
▪ Debt to Capital Ratio

Trend: The trend shows that it is increasing over the period of time.
Problem: The Company is getting highly leveraged due to high debt. Furthermore, they
need to pay high interest too which lowers their profitability
Solution: Company should decrease its debt and equity of the company should be
increased. The company should retain the capital for short term investment.
DECISION MAKING
FROM CREDITOR’S POINT OF VIEW
From a creditors point of view, it’s important that they are paid on time. The creditors want
a secured payment in as quick time as possible thus they would be interested in the solvency
ratio. The solvency ratios of Power Cement show the debt ratios. In 2019 The overall debt
ratios has been the lowest compare to the previous year’s however having such low ratios
is also alarming for the creditors as it shows the business isn’t willing to make investments
in future and is facing financial struggle thus the creditors won’t be interested in lending
the company whose future isn’t strong. However, it’s to be seen that the financial leverage
ratio is the lowest in 2019 which means shareholders own a minority of the assets, thus the
company is said to be high leveraged. Overall, this shows that the company is not using
appropriate methods of financing i.e., taking loans rather than issuing shares which makes
it financially unstable business.
Page | 32
FROM INVESTORS POINT OF VIEW
It is not doing well as a perspective from investor this is because most ratios that indicate
performance, profitability, liquidity. The Company is not doing well. The main focus of
investors is on how profitable that investment will be, by analyzing the profit trend of the
company. This is noticeable that profitability of the company is decreasing or unstable over
the years. The gross profit margin, net profit margin all are decreasing by greater margin.
Furthermore, other return on Investment ratios like return on equity which show how good
the company in rewarding its shareholders. Another important ratio that is return on assets
which shows how much profitable a company is relative to its assets and it has dropped in
last two years. As for quick ratio which measure the ability to pay back its short-term debts
is also not in a stable form. Therefore, the liquidity position of the company does not seem
too satisfactory from an investor point of view. Overall analysis state that further
Investment in this company will be risky for investor since the profitability and stability of
the company is questionable.
FROM LENDER’S POINT OF VIEW

As a Lender, we look into profitability ratios, Liquidity ratios and solvency ratios of the
company. If we look at the profitability ratios then it shows the declining trend over the
years which shows that companies are unable to generate enough profit from its operations,
and the operating expenses and other expenses are very high. If we look at Liquidity ratios,
then these are also showing declining trends. Company has invested a lot in the inventory,
and the company’s credit control is also getting poorer as they are taking more time in
recovering their money which probably affects the company cash system. Talking about
solvency ratios, there’s risk in financing with the Power Cement Limited Company the
points will be the same, they often use debts rather than equity for their business use and
have high liabilities.
Page | 33
LUCKY CEMENT COMPANY
Lucky Cement is considered as one of the largest producers. They export quality cement
all over the Pakistan. The Lucky cement is set down on the Pakistan Stock Exchange. The
company has also originated Global Depository Receipts (GDRs), registered and promoted
on the Professional Securities Market of the London Stock Exchange.
From some years, the Company is progressing considerably. It has enlarged its business
operations with many warehouses and laboratories in different locations and different cities
of the country. It is considered as a number one company of our country to sell considerable
quantities of loose cements. The lucky cement company is the only cement maker that has
its own packs and stuff and has its own strongbox inoperable in Karachi.
This company struggles to be a qualitative cement producer and has an aim to be a low-
cost producer. The lucky cement is a pioneer which install WHR, RDF, and (TDF) Plants
in the whole country.
Cement quality of this company has been tested very well. Quality of the cement has proven
up to the specifications explained in Pakistan, and other many countries.
Here I will be calculating the ratios of some recent years and will explain its trend analysis.
Page | 34
FINANCIAL RATIOS OF LUCKY CEMENT
Year 2019 2018 2017 Industry
Profitability Ratios Benchmark
Gross Profit Margin 29.12% 35.66% 46.62% 20.43
Operating Profit Margin 25.45% 31.80% 41.10% 15.60
Net Profit Margin 21.84% 25.66% 29.97% 15.19
ROCE 11.67% 14.54% 18.37% 15.88
Liquidity Ratios
Current Ratio 1.42: 1 2.82: 1 4.48: 1 0.93
Quick Ratio 0.95: 1 2.12: 1 3.67: 1 0.62
Solvency Ratios
Debt-to-asset 0 0 0 0.48
Debt-to-capital 0 0 0 0.63
Debt-to-equity 0.00: 1 0.00: 1 0.00:1 1.19
Financial Leverage 0.00: 1 0.00: 1 0.00: 1 1.39
Interest Coverage 403.16 0 0 122.14
Activity Ratios
Inventory Turnover (times) 3.15 3.22 3.05 4.11
Days of Inventory 115.87 113.35 119.67 89
Receivable Turnover (times) 21.42 23.73 24.27 18.52
Days of sale outstanding 17.04 15.38 15.04 20
Payable Turnover (times) 2.11 2.73 2.74 6.13
No. of days payable 172.99 133.7 133.21 60
Operating Cycle(days) -40.08 -4.97 1.5 49
Fixed Asset Turnover(times) 0.84 1.16 1.22 79.49
Total Assets Turnover(times) 0.38 0.44 0.47 30.26
Page | 35
Trend Analysis of Lucky Cement:
❖ Profitability Ratios:
▪ Gross Profit Margin:
Trend: The gross profit margin of the company Lucky cement is decreasing from 46.6 to
29.12 and is greater than the average industry benchmark.
Problem: The reason behind decreasing of the gross profit can be poor pricing, poor
buying, spoilage or shrinkage of the inventory. The company needs to maintain its gross
profit margin before it starts to be lower than the average industry benchmark.
Solution: The solution is that the lucky cement company should not offer so many
discounts. Product prices should be increased and reduce production costs and the most
important is that the inventory should be monitored more closely.
▪ Operating Profit Margin:

Trend: It is decreasing from recent 5 years from 35.55% to 25.45%. It increased from 2015
to 2017 but again from 2017 it has started to be decreased from 2017 to 2019 from 41.1 to
25.4.
Problems: As the operating profit margin is constantly decreasing from 2017 to 2019. The
reason behind it can be lower gross profit or else the overhead must be too high.
For instance, from the Profit and Loss statement, we could see that the distribution and
administrative costs have increased substantially.
On the other side, the operating profit margin is greater than the average industry
benchmark.
Solution: The solution of this problem is that if company doesn’t want its operating profit
margin to be decreased then the company should not offer so many discounts. Product
prices should be increased and reduce production costs. The inventory should be monitored
more closely and also company should reduce overhead. As there is a decline in this ratio.
It means that the operating costs are being increased.
Furthermore, it is recommended that the company should have control over their operating
expenses. They can create economies of scale by purchasing cement in bulk, and by
achieving economies of scale, Lucky Cement expenses would be decreased.
Page | 36
▪ Net Profit Margin:
Trend: The Net Profit Margin has also decreased over the last five years from 27.77% to
21.84%. It started to increase from 2015 to 2017 but again from 2017 to 2019 it started to
decreased from 29.9% to 21.8%
Problems: As the operating profit margin is constantly decreasing from 2017 to 2019. The
reason behind it can be lower gross profit or else the overhead must be too high.
Although the taxes were reduced, contradictory the profit before taxation amount decreased
– because of increased operating expenses – the Net Profit Margin decreased overall.
Solutions:
The solution of this problem is that if company doesn’t want its operating profit margin to
be decreased then the company should not offer so many discounts. Product prices should
be increased and reduce production costs. The inventory should be monitored more closely
and also company should reduce overhead. As there is a decline in this ratio. It means that
the operating costs are being increased.
Moreover, the Net Profit Margin of the company can be increased through heavy
advertising which can increase their sales. They should also control/monitor their operating
expenses accordingly.
▪ Return on Capital Employed:

Trend: Return on Capital Employed has been continuously decreasing from 2015 to 2019
from 22.70% to 11.67%.
Problem: The reason behind decreasing ROCE that keeps occurring is the higher range of
operating expenses that is the main reason of lowering the net profit and consequently,
return on capital employed.
Solution: To Manage ROCE, the company needs to cut their expenses which are not very
important and need to increase sales to increase ROCE.
❖ Liquidity Ratio
▪ Quick Ratio
Trend: The quick ratio of Lucky company has increased from 2015 to 2017 but started to
decrease from 2017 onwards till 2019 (2.75:1 to 0.95:1 times).
Page | 37
Problems: The reason behind the decreasing ratio is that the company has invested too
much in inventory and current liability of the company has also increased with comparison
to current assets which has consequently reduced quick ratio.
Solution: The solution for maintaining Quick ratio is that the company should reduce stock
and needs to pay suppliers on time. In other words, what Lucky Cement can do is to
increase their inventory turnover and pay off their current liabilities as soon as possible.
▪ Current Ratio:
Trend: The current ratio of Lucky cement Company has increased from 2015 to 2017 but
started to decrease from 2017 onwards till 2019.
Problem: The reason behind the decrease of current ratio is that current liability of the
company has increased very much and must have purchased long term assets with short
term funds or vice versa.
Solution: The solution for maintaining current ratio is that the company should reduce
stock and need to pay suppliers on time. In other words, what Lucky Cement can do is to
increase their inventory turnover and pay off their current liabilities as soon as possible.
Including this, the company need to match better loans and uses of loans meanwhile the
company should purchase short term funds with short term loans and long-term funds with
long term loans.
❖ Solvency Ratios:
▪ Debt to equity:
Trend: From the statistics provided of 2017 to 2019, the Company Lucky Cement had nil
amount of debt in the Financial Statements, therefore, ratio is not calculated.
▪ Interest Coverage:
Trend: From the statistics provided of 2017 to 2019, Lucky Cement has nil amount of
finance costs in the statements provided, therefore, ratio is not calculated.
Page | 38
❖ Activity Ratios:
Trend: From 2015 to 2017, the inventory turnover has been decreased but from 2017 to
2018, it increased (3.05 to 3.22times). After 2018, in the year 2019 it decreased again to
3.15 times.
Problem: This fluctuation of ratio shows that the company is holding back their inventory
for a longer time period than it actually should.
Furthermore, in 2019, cost of sales has increased.
Solution: Inventory turnover should be improved by selling the old stock first. Increase in
sales also increases stock turnover. Lucky Cement can ask for good discounts from their
suppliers when they are quoting prices of stock.
▪ Debtor Turnover:
Trend: Debtor turnover increased from 21.27 to 24.27 times from 2015 to 2017, however,
by the year 2017 to 2019, it decreased from 24.27 to 21.42 times.
Problems: Lucky Cement’s sales increased a little, they were unable to collect cash from
the debtors quickly.
Solutions: For increasing their collection period of debtors, Lucky Cement should lower
their collection period of cash from debtors.
▪ Creditor Turnover:
Trend: From the data it is seen that the creditor turnover has been decreasing throughout
the year from 4.69 to 2.11 times.
Problems: The lucky cement company is paying their debts off is less time which would
cause cash problems in the future.
Solutions: They should negotiate with the creditors to increase their payment time or to
find new ones.
Page | 39
LUCKY CEMENT FROM AN INVESTOR’S POINT OF VIEW
According to the investor, the thing that matters is the return they would be getting. If the
return would be higher, their investment will also be good that they are going to finance.
My perception for lucky cement company, as an investor, is that the company is not
advantageous and doesn’t look very beneficial and encouraging. The reason behind these
words is that if you look at the ratios (solvency, liquidity, profitability, and activity) that
are calculated throughout the five years 2015 to 2019, they don’t look intriguing.
For instance, if I tell you about the profitability ratios, the meaning of operating profit
margin (35.55% to 25.45%), is that the company’s operating expenses were increased from
2015 to 2019. In these years, they were unable to overcome their expenses. Similar thing
is applied to the net profit margin. Even though it increased in 2017 but then it started to
decrease by 2019 which shows that the company has potential to increase their sales in
order to increase their net profit margin but in 2019 they were unable to do that.
Furthermore, the Return on Capital Employed (ROCE) has decreased considerably. It
shows that how a company is able to generate profits. But unfortunately, it has been the
quite opposite for Lucky Cement because their ROCE kept decreasing which is not a good
sign for investing. It further shows that the net profit is decreasing which is a bad sign for
the eyes of the investor. Now if I tell you about the solvency ratios, this company had no
finance costs from 2015. This is a good sign for an investor because Company is not
borrowing any loans which would have caused debts. Investor would not need to worry
about the company being bankrupted or unable to pay off its debts.
Moreover, Investor don’t need to worry about the liquidity position of the company which
directly affects the interest coverage ratio that is nil since 2015. It is also a good site from
an investor but still, lucky cement has no finance costs, it has other operating expenses
which has lowered its profits.
Furthermore, let me tell you about quick ratio, it has worsened. The current assets are less
than the current liabilities which means that if the company goes bankrupt, it is almost
impossible to pay off its liabilities. Now let’s look at the fixed assets turnover, it also fell
throughout the year. Fixed asset turnover tells us that how a company is able to efficiently
use its fixed assets to create sales.
From 2015 till 2018, the fixed asset turnover was significant but in 2019 it declined this
raises a question for the investor that why it kept declining.
Page | 40
LUCKY CEMENT FROM A CREDITOR’S POINT OF VIEW
For a company, the thing that is very important is to know about the liquidity and
profitability ratios and given loans and debts that’s why, a creditor should go through the
financial statements, profit and loss accounts of the company for assuring themselves that
they can provide them all the loans and debts. For a good company, it is very important to
have a good history of paying off liabilities and debts throughout the years.
Furthermore, let’s look into the creditor turnover ratio analysis of the company, the
repayment days has been reduced over the years which means that the company is paying
back the cash it owed back to the creditors which is a good sign for the creditor because as
a creditor who has given large sums of money to a company would like to be paid as soon
as possible. If we further plunge into the profitability ratios of the company, they do not
look intriguing and promising. The gross profit margin, operating profit margin, and the
net profit margin are all declining and of these ratios were the lowest in the year 2019
which is not a good sign for a creditor because if a company’s net profit margin keeps
decreasing, a creditor is unwilling to give credit to the company.
Now let’s look at the liquidity ratios of the company, they are not promising either. The
current ratio in the year 2019 is good and the company has maintained it in a good manner
from the year 2015.
CONCLUSION:
According to investor, checking the profitability and liquidity ratios is quite questionable
and doubtful whether the investor should invest or not. Lucky Cement should control their
operating expenses and other expenses for attracting more investors. If the ratios will not
get better, investors will not be willing to invest in the company.
According to creditor, it is seen that the company is paying their creditors in less time over
the years which is a good sign for the creditor to give credit to a company. However, the
profitability and liquidity ratio tell us otherwise. They keep decreasing over the years which
is not a good sign to a creditor as they would be tensed whether the company would be able
to pay them or not. If Credit turnover is less meaning that lucky cement would have
financial distress and they would be having cash problems in the future.
References:
My financial report of Lucky Cement Company has been taken from:
https://www.lucky-cement.com/investor-relations/downloads/financial-reports/
Page | 41
COMPARATIVE ANALYSIS
Each company is showing decreasing trend over the past years. However, the Lucky
cement and Kohat cement are the companies whose liquidity ratio is above or nearly same
to the industry benchmark which states that the company have enough current assets that
they can easily waive off their current liabilities that company have incurred during the
year, company have blocked less amount in inventory than the rest of the companies. All
companies have approx. same days of collecting their receivables though initially their
policy to collect accounts receivable were high, the companies should work on their credit
policy because if they collect cash earlier then they can invest and earn income on it. If we
look at the Profitability ratios of the companies, then again Lucky cement has a good
profitability ratio followed by Kohat and Pioneer, but Power cement has not a good
profitability ratio, it has affected a lot. The possible reason for less profitability ratio can
be the Power cement have less sales during the year, and cost of sales and operating
expenses are greater than the other companies. Pioneer cement has a very good return on
equity which can be the good attraction to the shareholders, though lucky and Kohat
cements has also good return on equity. Power Cement is highly leveraged company in the
market as the company has Rs. 2.17 external funding committed for every Rs. 1 invested
by the owners, which makes the company’s position highly vulnerable and it can have bad
image for the investors as they always want to invest their money in such companies whose
vulnerability is low such as Lucky, Kohat cement. Though Pioneer cement is also a
leveraged company because for every Rs.1 invested by owner, Rs. 1.61 external funding is
committed, but in comparison to Power cement, Pioneer is less leveraged. Lucky Cement
is the best company in the market because it is not a leveraged company, most of the
funding in the company is made by their owners, Investors can invest their money in Lucky
cement as the company has very high interest coverage ratio.
Page | 42

IBF Term Report

Uploaded by

Copyright:

Available Formats

You might also like

IBF Term Report

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

IBF Term Report

Uploaded by

Copyright:

Available Formats

INTRODUCTION TO BUSINESS FINANCE

A financial analysis on Cement Industry

SUBMITTED TO: Sir Kamran Rabbani

Sneha Mandhan 20181-24592

Munesh Kumar 20191-26454

Sai fur Rehman 20191-25846

TOTAL EQUITY & LIABILITIES 42,277,411 29,111,368 17,760,168 14,767,699

TOTAL ASSETS 42,277,411 29,111,368 17,760,168 14,767,699

Distribution cost (182,383) (166,913) (94,064) (59,982)

Finance costs (270,704) (94,896) (34,694) (17,471)

▪ Total Asset Turnover:

▪ Gross Profit Margin:

▪ Operating Profit Margin:

▪ Net Profit Margin:

▪ Interest Coverage Ratio:

FROM LENDERS POINT OF VIEW

FROM SHAREHOLDERS POINT OF VIEW

2019 2018 2017

OPERATING loss/Profit 3,722,136 4,076,883 5,519,886

NON CURRENT LIABILITIES

TOTAL LIABILITIES AND EQUITIES 31,314,869 23,316,333 20,192,191

TOTAL ASSETS 31,314,869 23,316,333 20,192,191

7 current Ratio 1.01 2.83 3.21 0.93

9 Debt to equity ratio 0.970 0.151 0.315 1.19

12 Inventory Turnover 7.38 4.84 5.93 4.11

▪ Gross Profit Margin

▪ Net Profit Margin

▪ Financial Leverage Ratio:

▪ Total Assets Turnover:

▪ Fixed Assets Turnover:

FROM LENDOR’S POINT OF VIEW:

FROM INVESTORS POINT OF VIEW:

▪ Total Asset Turnover

▪ Fixed Asset Turnover

▪ Operating Profit Margin

▪ Net profit Margin

▪ Interest Coverage ratio

▪ Debt to Capital Ratio

FROM LENDER’S POINT OF VIEW

▪ Operating Profit Margin:

▪ Return on Capital Employed:

You might also like