FINANCIAL STATEMENT ANALYSIS OF D.G.

KHAN CEMECT COMPANY

 Economy Analysis
GDP
• GDP in Pakistan economy from 2006 to 2008 was
2006 6.4%
2007 5.8%
2008 5.8%
• Contribution to GDP by different sectors in 2008 was:
Tax structure
Instead of providing any relief in the budget, the sector was
further penalized with a 3% increase in sale tax to 18%.

Excise duty
Federal excise duty on cement has been to Rs
900
per tonnes from the existing base of Rs 750 per
tonnes.
Inflation
Inflation rates in economy of Pakistan from 2006 to 2008
were
Years Rates(%)
2006 8
2007 7
2008 11.45
Comparison of GDP and inflation

Exchange rates
Values of US Dollar in Pak Rs. :
2008 70.64
2007 66.295
2006 60.35
Current value 83.66
 Industry analysis
Overview
• Cement industry set a new record & sold 30.112 M
with growth of 24% in 2008.
• In 1947 only two companies were producing cement
• From 1948-58 and from 1958-68 companies were
increased to 6 and 9 respectively.
• Nationalized by Z.A Bhutto stop the growth in 70s.
• Denationalization boosted industry and companies
increase from 9 to 24.
 SWOT Analysis
Strength
s
• Availability of Raw Material

• Imported Machinery and plants in most of companies, which provide

better quality to over all process.

• During fiscal year 2007-08, country exports stood at 7.712 million tones
($435 million) and Pakistan has already established its position as an
exporter of cement and clinker in the region.

• Availability of foreign investment and loans has also played an

important role in softening the demand for bank credit.

• Cement industries in Pakistan are currently operating at their maximum

capacity due to the boom in commercial and industrial construction
within Pakistan.
 SWOT Analysis
Weaknesses:
• The stage of industrial development, in most of the segments, is still at a very low
level of technology and the existing industrial base is very narrow and consists of
very basic industries such as cement, sugar,textile, cigarette, edible oil, fertilizer,
soda ash, caustic soda, PVC etc.

• Most of the cement industries in Pakistan are located near/within mountainous

regions that are rich in clay, iron and mineral capacity. Structure of Cement
industry

• in Pakistan is as such that there is not much substitutability to buyers Which shows
that the Cross elasticity of demand is negligible.

• The freight charges are a massive 20% of the retail prices. The plants located very
close to each other and tapping the same market that’s why they are facing serious
competiton from each other.
 Threats SWOT Analysis
• Unanticipated increase in interest rates or less than expected demand growth
might create severe crises for the sector couple of years

• A price war was witnessed which ended up with no conqueror. Similar

apprehensions exist for the future when there will be plenty of excess
capacity. Any hurdle in the growth of cement demand may force the sector
into the price war.

• Main component of the cost is fuel. Pakistan's cement industry has converted
their plants to coal considering it to be the cheapest fuel, but its price in
international markets has gone up by more than 300 per cent in the last one
year, which directly relate increasing the cost of production.

• The demand of cement falls heavily during rainy weather in the country,
which directly affects the running cost of a unit. It is only the rising levels of
cement exports, which are sustaining the industry

• IMF Package in Future can cause to decrease GDP and economical

development in Pakistan. Which will also be cause to stop development of
infrastructure. So it will have huge effect on cement industry also.
 SWOT Analysis
Opportunities

• The local cement industry faces high upfront fuel costs. In order to facilitate
their conversion to coal, which is widely available in the country, the
government has given incentives for imported plant and equipment for coal
firing units.

• The demand of Pakistani cement is expected to continue to grow at the rate

of 20 per cent for about four years to come. It may then follow traditional
growth rate of seven per cent per year. Announcement of major dams will
dramatically increase this demand.
Competition
• There is perfect competition in cement industry in
Pakistan
Name of Company New / Expansion Year Commission New capacity created
Northern region
Askari cement Expansion 1964 945,000
Askari Cement New 1996 630,000

Bestway cement New 1988 1,039,500

D. G Khan cement Expansion 1988 1,039,500

Fauji cement New 1997 945,000

Lucky cement New 1996 1,260,000
Mapel Leaf cement Expansion 1998 1,039,500
Pioneer cement New 1994 630,000
Sub-Total 7,528,500
Southern Region
Essa Cement Expansion 1988 315,000
Total 7,843,500
 The province-wise distribution
of cement plant

Province Units Capacity (Million

Tons)
Punjab 8 7.488
Sindh 8 3.851
N.W.F.P 6 4.945
Balochistan 1 0.758
Total 23 17.040
Production output of major players
GDP
• Higher GDP has positive impact on cement demand
• Cement demand growth rate was doubled to the GDP in last
three years
Export
• Export opportunities are expected to increase at rate
of 20%in four years to come
• Government is considering to remove all restrictions
on export and to provide new market for export
• In 7 months of current fiscal year there was 65%
increase in exports

Effect of earth quake

• Cement industry was boosted after earthquake of 8
Oct. 2005
• Exports were increased materially after earthquake
in china
Contribution to National Economy by Cement Sector
The cement is contributing Rs 30 billion to the national economy
in the form of tax. This sector has invested about Rs 100 billion
in capacity expansion over the last four years. There are four
foreign companies, three armed force companies and 16 private
companies listed in the stock exchanges. The industry is divided
into two broad regions. The northern region has over 87% share
in total cement dispatches while the units base in the southern
region contributes 13% to the annual cement sale.
Ratios analysis
Liquidity
analysis
Liquidity 2008 2007 2006
position
Current ratio 1.54 2.6 1.66

Acid test ratio 1.22 2.33 1.44

Cash ratio 1.87 1.57 1.28

 Interpretation
• In FY2007 liquidity increases due to 98%
increase in investment & 94% increase in
trade debts on liability side trade payable
decrease by 27 %.
• In FY2008 decreases due to 93% increase
in short term borrowings.
Activity Ratios
Activity Ratios 2008 2007 2006
Account receivable turnover 12.19 14.69 18.2

Account receivable turnover in 30 25 20

days
 Interpretation
• Receivable turnover decrease in 2007
because trade debts immensely
increase(94%) then sales.
• In 2008 receivable turnover decrease
due to 93% increase in sales. & 153%
increase in trade debts.
Activity Ratios
Activity Ratios 2008 2007 2006
Inventory turnover 23.62 14.86 17.6

Inventory turnover in days 15 25 21

 Interpretation
• In 2007 Inventory turnover decrease
due to increase in inventory, there was
minor increase in C.G.S.
• In 2008 Inventory turn over increased
immensely due to major increase
(140%) in C.G.S .
Operating cycle
Activity Ratios 2008 2007 2006
Operating cycle 45 50 41
Debt Ratio
Debt ratios 2008 2007 2006

Debt to net worth ratio 73 53 78

Long term debt to equity ratio 0.24 0.23 0.17

Debt to total assets ratio 42 34 44
 Interpretation
• In 2006 proportion of debt in company
was high and in 2007 it declined but in
2008 debt again increased showing
high leverage of company.
Profitability Ratio
Profitability ratio 2008 2007 2006
G.P Margin 15.4 31.6 49.8

Operating profit margin 12.1 34.3 49.1

Net profit margin (0.4) 25.27 30.4

 Interpretation
• In 2006 company earned high profit due to
high demand.
• In 2007 profitability decrease due to decrease
in sales up to 19% and CGS increased due to
increased prices of oil & high cost of raw
material.
• Major causes of loss in 2008 were CGS
increased up to 140% although there was
increase in sales 94%but not enough &
increase in period cost and finance cost also
contributed.
 Asset Utilization Ratio
Asset utilization ratio 2008 2007 2006
Sales to fixed assets 54.15 28.8 102

Return on operating assets 6.5 9.5 50

Return on assets -0.1 3.13 7

 Interpretation
• In 2006 assets were using efficiently by
company.
• In 2007 asset efficiency decrease due
to installation of new plant.
• Asset efficiency was also less in 2008
due to energy crises in Pakistan.
Return on investment
Return on total
equity
Return ratios 2008 2007 2006

Return on equity (0.001) 0.047 0.125

 Du pont Return on equity
Du pont ROE= ROA*N.P margin*Total asset turn over

2008 2007 2006

ROA (0.1) 3.13 7

N.P/L margin (0.4) 25.27 30.4

T.A turn over 0.23 0.12 0.24

 Interpretation
• In 2007 ROE decrease due to major
decrease in ROA & T.A turnover,N.P
margin also decline but minorly.
• In 2008 company suffered loss due to
immense decrease in ROA and N.P
margin although there was increase in
T.A turnover but not enough to save
company from loss.
 Du pont ROA
Du pont ROA=N.P margin*Total Asset turn over

Years Calculations Du pont return on

(in rupees “000”) assets
2008 (.4)*.23 (.092)
2007 25.27*.12 3.03
2006 30.4*.24 7.3
• Du pont ROA decreased materially in 2008 due to low
profit
because of high CGS.
• In 2006 company was utilizing its assets properly and
ROA was good.
 Coverage ratios
Coverage 2008 2007 2006
ratios
Interest 0.86 4.7 8.67
coverage ratio
Fixed charge 0.26 1.11 9.5
ratio
 Interpretation
• As coverage ratios are showing
downward trend it means that
company’s short term as well
as long term debt paying ability
is deteriorating
 Common Size Analysis
Income statement

2008 2007 2006

Sales(net) 100% 100% 100%
C.G.S -84.6113 -68.3473 -50.1884
G.P 15.38867 31.65271 49.81159
Admn. expenses -0.89714 -1.62266 -1.53291
Selling & Distribution expenses -4.51121 -1.01442 0.431793
Other Operating Expenses -4.6755 -2.17647 -2.41149
Other Operating Income 6.808165 7.468037 3.696913
Profit from operations 12.11298 34.30719 49.13231
Finance Cost -14.0594 -7.28639 -5.6651
Share of loss of associated companies -0.06969 -0.22062 -0.12033
Loss/Profit before tax -2.01615 26.80018 43.34689
taxation 1.588463 -1.52657 -12.9477
Loss/Profit for year -0.42769 25.27361 30.40293
 Interpretation
In 2006 CGS was only 50% of sales and
company was also controlling its period cost that
was the reason of high profit
In 2007 CGS and period cost was increased so it
effected profitability
In 2008 CGS was too much high(85%) of sales
and period cost and finance cost was also high
as compared to last year so company incurred
loss
 Common Size Analysis
BALANCE SHEET 2008 2007 2006

Assets

Non- current Assets

Property plant & equipment 44.194263 42.743911 21.926424
Asset subject to finance lease 0.0098763 0.2577596 0.8601177
Capital work in progress 4.7858561 3.6855496 34.280399
Investment 13.070932 15.797816 13.066009
Long term loans & deposits 1.0059944 0.3805499 0.978913
Total 63.066922 62.865586 71.111863

Current Assets
stores spares & loose tools 4.4222355 2.8917003 2.4371497
Stock in trade 0.8575319 0.5703813 0.6596418
Trade debts 0.7042745 0.2787648 0.2161969
Investment 29.008907 32.725885 24.905753
Advanced deposit 1.5047391 0.4431693 0.4444477
Cash & bank balance 0.4353899 0.2245135 0.224948
Total 36.933078 37.134414 28.888137
TOTAL 100 100 100
Liabilities
Authorized capital
Issued, subscribed and paid-up capital 4.876454943 4.899883622 5.375223849
Share deposit money 0.024343833
Reserves 53.07586219 57.26247384 43.97501357
Accumulated profit -0.097807521 3.396872597 6.793762988
Total 57.85450961 65.55923005 56.16834424
Non- Current liabilities
Long term finance 16.17729632 16.7872438 21.49133393
liabilities against assets subject to finance lease 0 0.002205072 0.084205001
Long term deposits 0.142115465 0.153576244 0.098570515
Retirement and other benefits 0.103894887 0.077036458 0.077459505
Deferred taxation 2.536883185 3.138508062 4.544609702
Total 18.96018986 20.15856964 26.29617866
Current liabilities
trade and other payable 2.635619679 1.985288012 4.101135669
accrued mark up 0.701372229 0.662124707 0.993333912
short term borrowing(secured) 14.61163934 7.620104316 7.619129991
current portion of long term borrowing 5.169179335 3.946869078 4.719587379
Provision for taxation 0.06748994 0.067814192 0.102290157
Total 23.18530053 14.28220031 17.53547711
TOTAL 100 100 100
 Index Analysis(Balance
Assets Sheet) 2008 2007 2006

Non- current Assets

Property plant & equipment 305.4871 294.049 100
Asset subject to finance lease 1.740336 45.20332 100
Capital work in progress 21.15965 16.21697 100
Investment 151.6207 182.3758 100
Long term loans & deposits 155.7565 58.63822 100
Total 134.4171 133.3473 100

Current Assets
stores spares & loose tools 275.0138 178.9717 100
Stock in trade 197.0321 130.4279 100
Trade debts 493.7275 194.492 100
Investment 176.5332 198.2006 100
Advanced deposit 513.1394 150.405 100
Cash & bank balance 293.3534 150.5475 100
Total 193.7719 193.8966 100
TOTAL 151.5636 150.8389 100
Liabilities
Authorized capital 333.3333 333.3333 100
Issued, subscribed and paid-up capital 137.4999 137.4999 100
Share deposit money 100
Reserves 182.9304 196.4162 100
Accumulated profit -2.18201 75.41923 100
Total 156.1135 176.0579 100
Non- Current liabilities
Long term finance 114.0873 117.8228 100
liabilities against assets subject to finance lease 3.95001 100
Long term deposits 218.519 235.0121 100
Retirement and other benefits 203.2892 150.0151 100
Deferred taxation 84.60552 104.1693 100
Total 109.281 115.6326 100
Current liabilities
trade and other payable 97.40324 73.01845 100
accrued mark up 107.0159 100.5444 100
short term borrowing (secured) 290.6621 150.8582 100
current portion of long term borrowing 166.0016 126.1426 100
Provision for taxation 100 100 100
Total 200.3964 122.8544 100
TOTAL 151.5636 150.8389 100
 Index Analysis(Income Statement)
2006 2007 2008
Sales(net) 100% 80.6925 156.4419
C.G.S 100% 109.8882 263.7414
G.P 100% 51.27594 48.33078
Admn. expenses 100% 85.41733 91.55822
Selling & Distribution expenses 100% -189.573 -1634.45
Other Operating Expenses 100% 72.82825 303.3167
Other Operating Income 100% 163.0048 288.1005
Profit from operations 100% 56.34445 38.56888
Finance Cost 100% 103.7859 388.2522
Share of loss of associated 100% 147.9474 90.609
companies 100% 49.88994 -7.27643
Loss/Profit before tax 100% 9.513843 -19.1927
taxation 100% 67.07877 -2.20072
Loss/Profit for year 100% 62.00579 -2.02507
 Interpretation
• In 2008 company bears loss due to
high CGS and Finance cost.
• In 2007 sales decreased due to political
instability and increase in CGS,period
costs and finance cost also effected the
profitability of company.
 Suggestions
• Company should increase the efficiency of assets.
• Company should utilize it’s capacity properly.
• Company should use debt in suitable proportion to
control finance cost.
• Company should try to get new international market.
• Company should increase it’s product quality in order
to meet up coming competition with regards to
W.T.O.
• Company should try to cut down it’s cost.