Sajid Rasheed Khan

mc080407563
MBA
Finance
Financial Statement Analysis of
Two Fertilizer Industries
Fauji Fertilizer Bin Qasim Ltd.
&
Dawood Hercules Chemicals Ltd.
 Introduction of the Project

• Financial Statement Analysis of DHCL & FFBL

• Fertilizer Industries Producing Urea & DAP
• DHCL’s brand name Babbur Sher Urea
• FFBL’s brand name Sona Urea
• Market Share of Urea for DHCL 8%, FFBL 13%
• Competitors: FFC 50%, Engro 21%, Others 8%
• The Financial statements of the last three years will be under
study.
• Analysis including ratio analysis, vertical, horizontal & industry
analysis
• Conclusion & recommendations.
 Objectives and Significance
 Profitability of Fertilizer sector 2007 to 2009
 Financial structure and strategies of both of these
companies
 Progress of each industry while keeping distinctive
approach towards financing the business
 Learn financial analysis by exploiting the opportunity
provided by this subject
 Help me overcome the hesitation that normally students
face when look into big numbers in financial statements
or vast details in notes to the financial statements
 Data Collection
Primary sources
 Live stock updates
Secondary sources
 Financial Statements of the companies
 Director’s Report
 Official websites of the companies under study
 Reviews by third parties
 Online encyclopedia
 Data Processing

• Microsoft Excel
• Microsoft Word
Financial Statements of DHCL
Financial Statements of FFBL
Financial Analysis

 Ratio Analysis
 Horizontal Analysis
 Vertical Analysis
 Industry Analysis
Ratio Analysis
Horizontal Analysis of DHCL
Horizontal Analysis of FFBL
Vertical Analysis of DHCL
Vertical Analysis of FFBL
Industry Analysis of DHCL & FFBL
 Pakistan’s Fertilizer Industry comprises of 9 Urea
and one DAP plant
 Total production capacity of 4,922 thousand metric
tons per annum
 Few plants of Single Super Phosphate (SSP) fertilizer
have commenced their production
 All urea plants are running over their designed
capacities but still there is a shortage, to fill this gap
between supply and demand Government had to
import
 DHCL and FFBL are medium sized companies
keeping in view their Urea share. The major share
holders are ENGRO and FFC.
 The never ending demand of Urea makes this
industry a regular cash generating investment.
 DHCL that is relying on its equity has a major
portion of its investments in ENGRO and SNGPL.
Whereas FFC has its investments in FFBL.
 Conclusion
 DHCL has better current ratio & quick ratio than FFBL
 DHCL has got stronger working capital hence using

conservative working capital policy whereas FFBL with

a smaller working capital employing aggressive
working capital policy especially during the year 2009
FFBL experienced a rise in this ratio
 DHCL had immense working capital during 2007 but

during later years they reduced it to a relatively

moderate number. FFBL had relatively a smaller
working capital than DHCL
 FFBL managing various risks that may keep the

share holders on edges. They should move to a bit

moderate side
 Conclusion
 On SECP instructions, DHCL has taken the amount of
impairment loss on profit & loss during the year 2008
and 2009. That caused a loss to the share holders.
FFBL on the other side adopted a steady and
consistent pace.
 FFBL’s fixed assets are purchased on debt as the

ratio is well above 1. Whereas DHCL’s ratio is far below

the 1 and are financed by equity.
 Both of the companies have more long term assets

than liabilities. However DHCL possess more long term

assets over long term liabilities than FFBL.
 Conclusion
 DHCL earns income from its investment in the
operations of associates. This income of Rs.8,658,697 &
Rs.1,330,767 has been added to P&L statement caused a
higher net profit margin. During 2007 and 2008 DHCL
earned more profit than FFBL but in 2009 due to the
adjustment of impairment loss company had to face 10%
loss
 FFBL earned lower returns than DHCL but still remained
as steady investment
 FFBL relying on heavy asset turnover contrary to DHCL
 DHCL earned a huge return on investment during 2007,
next year it was well below the last year but still higher
than FFBL but in 2009 DHCL had to bourn 3.84% loss
 DHCL earns comparatively higher operating income
margins
 DHCL has better operating assets turnover ratio than
FFBL
 Conclusion
 Due to the income from the other investment of DHCL
income statement shows a very healthy gain that must
be revealed in the ratio analysis hence included in all of
previous calculations. Similarly an impairment loss may
as well be seen.
 DHCL has better sales to fixed asset ratios.

 DHCL has more Gross Profit Margin.

 DHCL gets payments quickly and converts them into

new business very fast.

 Similarly DHCL has short collection period than FFBL.

 FFBL pays quickly to creditor than DHCL.

 DHCL pushed to lower the age of inventory FFBL

showed mixed trend.

 DHCL shrinks their operating cycle but FFBL’s trend

was mixed.
 Conclusion
 FFBL seems so efficient in utilizing assets in
terms of operations but on the other hand DHCL
has a big part of their money in its associate’s
operations.
 People who need regular income can see that
FFBL yields better regular income than DHCL.
 DHCL has tons of equity so book value is very
high than FFBL.
 DHCL being heavily relying on its investing
activities does not show any positive cash flow
from its operations. Whereas FFBL is generating a
lot of cash from its operations, however in 2008
they faced decline.
 FFBL paid dividend from financing or investing
sources during 2008, while DHCL did the same
during 2007.
 Recommendations for FFBL
 FFBL managing heavy credit & liquidity risks while
depending on debt immensely. They should
employ moderate financial policies to cope with
the aggregate risk of the business.
 The Gross profit margin proved to be lower than
DHCL over last two years, they must figure out
the reasons causing this extra expense.
 They also need to work on their operating cycle
to shorten the overall cycle.
 FFBL should not rely on debt when it comes to
fixed assets as they are financing a part of fixed
assets from Debts that subjects the company on
credit risk.
 FFBL should develop measures to shorten the
collection period from trade debtor.
 Recommendations for DHCL
 In the case of DHCL a conservative working capital
policy is being employed by them. They should adopt
a moderate working capital policy to get efficient
results as equity is an expensive option.
 DHCL has got a very strong equity with heavy
investments in the associates business; and they
have only 8% of market shares. They should go for
expansion of Urea plant while Urea is being imported
by the government.
 They may start producing DAP while there is only a
single manufacturer FFBL that produces DAP locally
and has 40% of total market share and 60%
remaining part is being imported.
 DHCL also needs to yield more dividends and avoid
retained earnings when they don’t need extra cash in
the business.
 The company has taken 6.5 billions of long term
loans that show their changing tendency towards
debts.
Thank You