Group Project 1

Analysis on Financial Ratios

Lucky Cement

Shafqat Sehar Mughal – 25802

Salman Jahangir - 25767

Founded in 1993, Lucky Cement is one of the largest producers and exporters of cement in
Pakistan. It started from the Khyber Pakhtunkhwa region and now also caters to the southern
region by expanding its operations to Sindh. In May 2017, Lucky Cement saw its highest ever
share price; PKR 1043.5.

Financial Ratios Analysis: 

Liquidity Ratio: 
As per our calculations, we see that the current and quick ratios, both, have increased
significantly from 2011 to 2016. This is because the current assets have grown by approximately
449%, while the current liabilities have increased by approximately 107% only. Although the
inventory has grown by almost 453%, its proportion to the amount of total current assets has
changed by only 0.2%. From 2016 to 2021, the current and quick ratios have both dropped. This
change can be attributed to the fact that that the current assets have grown by approximately
113% while the current liabilities have grown by approximately 310%. The inventory has grown
by 425%, however, now it comprises of 32.8% of total current assets. This fall in quick ratio
shows that Lucky Cement’s ability to pay off short term liabilities with cash and its equivalents,
has gone down by 52%.

If we look at our competitor’s, Bestway Cement’s liquidity ratios in 2021, we can say that their
current ratio of 1.41 is better than ours, however, their quick ratio is extremely low, showing
that their capacity to pay off short term liabilities against cash and its equivalents, stands at 9%
only.

As per the industry, Lucky stands just slightly above the industry average of 1.20 for current and
0.90 for quick ratio.

Debt Management Ratio: 

If we now observe the trend for debt management ratios, we see that they have increased
constantly over the given periods. This is because the current liabilities have grown by 107%
from 2011 to 2016, to 310% from 2016 to 2021, making up 54% and 44% of total liabilities
respectively. The TIE ratio has also grown from 2011 to 2016, and fallen slightly from 2016 to
2021, however, it is still towards the higher side, showing that the company has low chances of
defaulting. The debt to equity ratio is also growing during these periods, however, it still
remains under 1. Given the debt management ratios, it is safe to say that Lucky Cement is
actively using debts to finance its growth, however, it is not close to solvency or default.

In comparison to Bestway, Lucky has a higher debt ratio and debt to equity ratio, while Bestway
has a higher market debt ratio. This means that Bestway’s debt is approximately equivalent to
23% of its market value. Bestway also has a good TIE of 13.2, however, Lucky stands much
higher than that.

As per the industry mean, Lucky Cement’s debt and debt to equity ratio are higher, while the
market debt value is much lower.

Asset Efficiency Ratio: 

We can see that most asset efficiency ratios have grown for Lucky Cement from 2011 to 2016,
however, we can also see a slight drop in these ratio for from 2016 to 2021. This is because the
COGS has increased by 303% from 2011 to 2016, and then increased by 194% from 2016 to
2021. Also, as discussed earlier, the trade inventory has also increased by a sizeable amount of
453% from 2011 to 2016 and 425% from 2016 to 2021. The DPO has also grown significantly for
both periods, whereas the DSO increased from 2011 to 2016, and then fell from 2016 to 2021.
This is pertinent to an increase in Trade Debtors throughout, however, the increase in debtors
from 2020 to 2021 is miniscule, reflecting a very small change in values when taking the
average. A lower DSO is favorable for the company, hence the drop in 2021 means that Lucky is
able to collect money from its debtor in a shorter while.

As compared to Bestway Cement, their DSI and DSO are lower than Lucky Cement’s while the
same applies to DPO. Therefore, in case of the Cash Conversion cycle, Lucky Cement is in a
better place.

As per the industry, Lucky’s DSI, DSO and Operating Cycle are much higher than the average,
while the DPO and cash conversion cycle are much better in comparison.

Market Value: 
From 2011 to 2016, there is an increase in market ratios, however, from 2016 to 2021, there is
a drop. The earnings per share have however increased throughout. The drop in book to market
value from 2011 to 2016 shows that investors have faith in the company. The increase in the
ratio, although not too monumental can be attributed to a fall in share prices.
As compared to Bestway, Lucky has a much better market to book value. Its P/E is greater than
Lucky Cement’s, which means that the investors are expecting higher growth rates in the
future.
As per the industry, our book value per share and P/E are much lower than the average, while
our market to book value is much higher.
Profitability Analysis: 
All of Lucky Cement’s profitability ratios have increased from 2011 to 2016, and decreased from
2016 to 2021, apart from the ROA, which has increased by .01 in 2021. The increase in total
assets during this period is 195%, while the increase in average total assets is approximately
43%. The increase in net income during this time is 68.5%. The decline in operating profit
margin, net profit margin and gross margin can be attributed to increasing expenses, although
the company has been seeing growing sales.
If we look at Bestway’s profitability ratios, Lucky has higher percentages for all except net
operating margin. However, the differences between the two are not too large, and show good
functionality for both. Lucky’s return on assets however is much better than its competitors,
showing it to be more profitable against its assets.
As per the industry Lucky Cement’s performance is either above or close to the averages,
depicting a positive or true image of the industry.