FINANCE

ASSIGNMENT
Submitted by:

Fa20-bba-243 Hassan Maroof

Fa20-bba-167 Afnan Naveed

SP20-BBA-027 Muhammad Ibrahim

Fa19-bba-033 Ahad iqbal

Fa20-bba-252 (Rizwan Haider)

Submitted to:

Mam Nayla Yousaf

Section : D
 Acknowledgment
First of all we are thankful to Almighty Allah who has always been helping
throughout our lives and while working on the project.

We would like to express the deepest appreciation to our co-workers, who

has the attitude and the substance of a genius.

And most importantly we thank to our respected Mam, Nayla Yousaf in

regard to teaching. Without his guidance and help this dissertation would
not have been possible.

This is the final report for the' Business Finance Course' containing two
firms' ratio study ENGRO FERTILIZERS and FAUJI FERTILIZERS. The
evaluation involves an comparison of the financial position of both firms.
Topic chosen is the related to the Chemical Sector. This topic is really
interesting and a very good learning activity. I had always been interested
in financial analysis and wanted to continue to use it in my career.
Companies selected are listed companies so its information is easily
available through Financial Statements, Internet and other sources which
are reliable, appropriate and valuable.
We chose to make FAUJI FERTILIZERS as Benchmark company
whereas we than chose ENGRO FERTILIZERS as are own company for
financial analysis. Therefore you can choose to see the complete
comparison between both companies which are mentioned above.

Both the selected companies are top level companies of Pakistan, and
both of these prestigious companies are enlisted in the Pakistan Stock
Exchange (PSX).
ENGRO INCOME STATEMENT
ENGRO STATEMENT OF FINANCIAL POSITION
FAUJI FERTILIZER INCOME STATEMENT
FAUJI STATEMENT OF FINANCIAL POSITION
RATIO ANALYSIS
1. Liquidity Ratios:

• Current Ratio: This ratio measure the firm’s ability to meet short term
obligations. A higher current ratio indicates a greater degree of liquidity. It is
expressed as

Current Ratio = Current Assets ÷ Current Liabilities

CURRENT RATIO ENGRO FAUJI

54,424,686÷58,807,563= 144,796,014÷119,148,210=
1.21
0.92

The ratio indicates that FAUJI have greater liquidity in terms of assets than
ENGRO to meet is short term obigations.

Quick Ratio: This ratio is similar to current ratio except that it excludes inventory,
which is generally the least current asset. The quick ratio level that a firm should
strive to achieve depends largely on the nature of the business in which it
operates.

Quick Ratio= Current Assets-Inventory

Current Liabilities

QUICK RATIO ENGRO FAUJI

54,424,686-13,489,961 144,796,014-1,353,901
119,148,210
58,807,563

0.69
1.20

The ratio Indicates that the ENGRO Current Liabilities is greater than FAUJI so it
means that they manage their inventories from creditors as their Current asset is
low.

2. Activity Ratios:
 • Inventory Turnover: Commonly measure the activity or liquidity of a firm’s
inventory. The result turnover is meaningful only when it is compared with that of
other firms in the same industry.

Inventory turnover = Cost of Goods Sold ÷Inventory

Inventory 88,288,978÷13,489,961 72,985,477÷1,353,901

Turnover
6.54 53.0

The ratio Indicates that the FAUJI have managed their inventory
well and turned their inventory into receivables through sales and
ENGRO have not.

• Total Asset Turnover: The total asset turnover indicates the efficiency with
which the firm uses its assets to generate sales. It is calculated as

Total Asset turnover = Sales÷Total Assets

Total Asset Turnover 132,363,138÷132,818,383 144,796,014÷270,541,258

0.99 0.53

The ratio indicate that the ENGRO higher ratio that they are more efficient in
generating revenue from its assets than FAUJI.

• Average Collection Period: This average collection period of accounts

receivable, is useful in evaluating credit and collection policies.

Average Collection Period = Average Accounts Per Day Average Credit Sales Per Day

Average Collection Period 365÷132,363,138 365÷114,345,150

34 days 77 days

The ratio indicates that ENGRO collection period is less so they might not face cashflow
problems whereas FAUJI have high collection period means that they might face
cashflow problems in future.
3. Profitability Ratio :
• Gross Profit Margin: The gross profit margin measures the percentage of each
sales dollar remaining after the firm has paid for its goods. The higher the gross
profit margin the better. This ratio is calculated as

Sales− Cost of Goods Sold

Gross Profit Margin = Sales

Gross Profit Margin 44,074,160÷132,363,138 41,359,673÷114,345,150

0.33 0.36

The ratio indicates that the ENGRO have less Gross Profit than FAUJI
• Operating Profit Margin: The operating profit margin measures the percentage
of each sales dollar remaining after all costs and expenses other than interest,
taxes, and preferred stock dividends are deducted. It represents the “pure profits”
earned on each sales dollar.

Operating Profit Margin = Operating profit ÷ Sales

Operating Profit Margin 31002726÷13071434 32312769÷114345150

2.37 0.28

The ratio indicate that the ENGRO have high operating profit than FAUJI.

• Net profit Margin: The nest profit margin measures the percentage of each
sales dollar remaining after all costs and expenses, including interest, taxes, and
preferred stock dividends have been deducted. The higher the firm’s net profit
margin, the better. It is calculated as

Net profit margin = Net Profit after tax ÷ Sales

Net Profit Margin 21,092,657÷132,363,138 35,693,495÷114,345,150

0.15 0.31

• Return on Total Assets (ROA): the return on total assets (ROA), often call the

• return on investment (ROI), measures the overall effectiveness of management

in generating profits with its available assets. The higher the firm’s return on total
assets, the better. ROA is calculated as

ROA = Earnings available for common stock ÷ Total assets

 ROA 21,092,657÷132,818,383 35,693,495÷270,541,258

0.15 1.29

The ratio indicate that the FAUJI ROA is greater than ENGRO means FAUJI is making
good profit.

• Return on Equity (ROE): The return on equity measures the return on the
common stockholder’s investment in the firm. Generally the owners are better off
the higher is this return. Return on equity is calculated as

ROE = Earnings available for common stockholder’s ÷ Common stock equity

ROE 21,092,657÷47,086,808 35,693,495÷96,421,394

0.44 0.37

The ratio indicates that the ENGRO have higher equity than FAUJI means that the firm
can pay dividends to their shareholder.

• Earnings per Share (EPS): The firm’s earing per share (EPS) is generally of
interest to present or perspective stockholders and management. EPS
represents the number of dollars earned during the period on behalf of each
outstanding share of common stock.

Earnings Available for common stockholders

EPS=
Number of shares of common stock outstanding

EPS 15.80 28.6

The ratio indicate that FAUJI have higher than ENGRO it means FAUJI is making good
profit on shareholders shares
 4. Debt ratios:

• Debt ratio: The debt ratio measures the proportion of total assets financed by
the firm’s creditors. The higher this ratio, the greater the amount of other people’s
money being used to generate the profits. The ratio is calculates as

Debt ratio = Total liabilities ÷ Total assets

Debt Ratio 85,731,575÷132,818,383 170,777,378÷270,541,258

0.64 6.20

This ratio indicate that FAUJI ratio is greater than ENGRO means they have more debts
than assets to run business.

• Debt-To-Equity Ratio: The debt-to-equity ratio measures the relative proportion

of total liabilities to common stock equity used to finance the firm’s assets. As
with debt ratio, the higher this ratio, the greater the firm’s use of financial
leverage.
Debt-to-equity ratio = Total Liabilities ÷ Common stock equity

Debt to Equity 85,731,575÷33,733,815 170,777,378÷98,421,394

ratio

2.54 1.73

The ratio indicate that the ENGRO is financed by creditor and FAUJI
don’t rely much on creditor.

5. Market Ratios:
 • Price-Earnings (P/E) Ratio: The price-earnings ratio is commonly used to
assess the owners; appraisal of share value. The P/E ratio measures the amount
that investors are willing to pay for each dollar of a firm’s earnings. The level of
this ratio indicates the degree of confidence that investors have in the firm’s
future performance.

P/E ratio = market price per share of common stock ÷ Earnings per share

P/E ratio 5.42 ÷15.80 3.40÷28.6

0.31 0.11

The ratio indicate that the ENGRO have great price than FAUJI.

• Market / Book (M/B) Ratio: the market/book ratio provides an assessment of

how investors view the firm’s performance. It relates the market value of the
firm’s shares to its book strict accounting value.

M/B = Market Capitalization % Total Book Value

M/B ratio 48.5÷436.41 28.5÷79,51

0.11 0.35

The ratio Indicate that the ENGRO have low price share than FAUJI means investor
will be willing to buy ENGRO share.