afs final project updated 22-01-2011
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Analysis of Financial Statements LuckyCement
2011
Analysis of Financial StatementsProject Final Report
MBA 16 (B)
Lucky CementSubmitted
To
Sir Waqar Akbar
SubmittedBy
Unity Group
Dated: 22-Jan-2011
Group Members:
Muhammad Karim Khan 1600076
Saiqa Zummard 1600090
Ishrat Amir 1600067
Muhammad Umer Alam 1600068
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Analysis of Financial Statement
LIQUIDITY RATIOS
WORKING CAPITAL RATIO:
WC = CA C L
C L
Year 2007
WC = -0.15
Year 2008
WC = 0.09
Year 2009
WC = -0.14
Interpretation:
The working capital ratio indicates that companys fixed assets are being financed by short
term financing. As working capital ratio shows negative figures in 2007 and 2009 whichindicates companys fixed assets are financed by short term financing. But slight
improvement had shown in year 2008.
Recommendation:
Company needs to do some arrangements that current assets sufficiently financed by current
liabilities. By doing this company can save its long term financing cost which incurred to
support current assets.
CURRENT RATIO:
CR = CA_ CL
Year 2007
CR = 0.85
Year 2008
CR = 1.09
Year 2009
CR = 0.86
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Analysis of Financial Statements LuckyCement
2011
Interpretation: The current ratio of the company reflects that companys fixed assets are
being financed by short term financing which increases the risk unavailability of short term
financing in future. As current ratio shows figures in 2007 and 2009 companys fixed assets
are financed by short term financing. But in 2008 current assets matched up with current
liabilities.
Recommendation: The Company is required to balance its current assets and current
liabilities. It will leads to save companys long term financing cost, used to finance short
term assets.
QUICK RATIO:
QR = CA- InventoryCL
Year 2007
QR = 0.74
Year 2008
QR = 1.00
Year 2009
QR = 0.73
Interpretation: Quick ratio can indicate the problem in current asset level due to inventory.
If current assets are inflated due to inventory, it can be identified through quick ratio. As per
current ratio the company does not have surplus assets which mean inventory is also low. In
further dimension we observe that the inventory contribution in total current assets in 2007,
2008 and 2009 is 0.11, 0.09 and 0.13 respectively, company is maintaining different
inventory levels in three years.
Recommendation: If an average is taken the optimum level of inventory is 0.11 that
company needs to be maintained. It will leads to save company from out of stock conditions
i.e 0.09 in 2008 as well as unnecessary warehousing costs i.e 0.13 in 2009.
ABSOLUTE QUICK RATIO:
AQR = Cash + Marketable Securities
CL
Year 2007
AQR = 0.20
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Year 2008
AQR = 0.04
Year 2009
AQR = 0.12
Interpretation: AQR tells us how much liability has taken to make investment in cash and
marketable securities. We can see that investment in cash and marketable securities is highest
in the year 2007 and lowest in 2008. The ratio is moderate in 2009.
Recommendation: Company should maintain only that certain level of cash and marketablesecurities which are essentially required. So it is recommended that company should maintain
the ratio which it maintained in 2009. Which is a medium level of cash and marketable
securities.
CASH RATIO:
Cash Ratio = Cash & Bank
CL
Year 2007
CR = 0.20
Year 2008
CR = 0.04
Year 2009
CR = 0.16
Interpretation: Ratio shows that cash level is highest in 2007, lowest in 2008. This ratio
show the amount of cash retained in business. Lower the ratio can cause liquidity problem
and higher the ratio shows unnecessary investment in cash.
Recommendation: In year 2009 there is a medium level amount invested in cash which is
most beneficial for the business.
ACTIVITY RATIOS
INVENTORY TURNOVER:
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= COGS __
Inventory
Year 2007
IT = 15.97 times
Year 2008
IT = 18.18 times
Year 2009
IT = 17.33 times
Interpretation: Through this ratio we can examine that how many times a certain level of
inventory sold during the year. Most frequent selling of inventory gives the higher ratio
results. In the company ratio is highest in year 2008 and lowest in 2007.
Recommendation: The ratio drop down in the year 2009 so there is need to improve sales
and maintain only the level of inventory which is essentially required.
INVENTORY TURNOVER IN DAYS:
= Inventory x 360
COGS
Year 2007
IT = 27.5 days
Year 2008
IT = 20.28 days
Year 2009
IT = 26.08 days
Interpretation: In how many days a certain level of inventory sold during the year, this is
called Inventory Turnover in days. Less turnover reflects efficient sales. In year 2007 there is
highest and in year 2008 lowest inventory turnover in days.
Recommendation: The policy of sales and inventory proved best and should be implemented
in coming years for better performance of business.
ACCOUNTS PAYABLE TURNOVER RATIO:
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Analysis of Financial Statements LuckyCement
2011
= Net Credit Purchase
Accounts Payable
Net Credit Purchases includes:
Raw Material
Packing Material
Accounts Payable includes
Creditors
Year 2007
A/P Turnover = 5.88 times
Year 2008
A/P Turnover = 3.56 times
Year 2009
A/P Turnover = 5.46 times
Interpretation: this ratio states that how many times a certain level of material purchase
from creditors and payment made to them. If ratio is higher it means that frequent payments
made to creditors. If ratio is lower it means company is managing its payments. We can see
that turnover is highest in 2007 and lowest in 2008.
Recommendation: Reference to the ratio of the year 2008 payments are managed in the
batter way. And payment pattern of 2008 is more beneficial as compare to other years so it is
recommended that the company should again implement the same policy in the coming year.
ACCOUNTS PAYABLE TURNOVER IN DAYS:
= Accounts Payable x 360
Net Credit Purchase
Year 2007
A/P Turnover = 61.25 days
Year 2008
A/P Turnover = 101.19 days
Year 2009
A/P Turnover = 56.70 days
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Analysis of Financial Statements LuckyCement
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Interpretation: This ratio shows after how many days the company is making payments to
creditors for inventory purchased. Higher the ratio shows efficient management of payments
and so on. The ratio is highest in the year 2008 and lowest in the year 2009. Company shows
better performance in the In the year 2008 whereas payments making pattern was not enough
supportive in the year 2009.
Recommendation: Delaying the payments more beneficial for company and as per ratio
calculated in the year 2008 shows best management of payments can be a bench mark for
subsequent years.
TOTAL ASSET TURNOVER:
= Net Sales
Total Assets
Year 2007
T/A Turnover = 48.67 times
Year 2008
T/A Turnover = 49.52 times
Year 2009
T/A Turnover = 68.58 times
Interpretation: it states that how much sales are generated by utilizing the companys assets.
Higher the ratio shows higher the output. Data shows sales are highest in the year 2009.
Company must consider its capacity of production before planning of its sales. A very high
ratio shows that plant is producing much of its capacity. In 2008 turnover is medium.
Recommendation: The production of plant is moderate in the year 2008 which is compatible
with its capacity and production level maintained in 2008 should be continue to maintain in
the coming years.
PROFITABILITY RATIOS
GROSS PROFIT RATIO:
GPR = Gross Profit x 100
Sales
Year 2007
GPR = 29.34 %
Year 2008
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Analysis of Financial Statements LuckyCement
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GPR = 25.73 %
Year 2009
GPR = 37.26%
Interpretation: This ratio expresses the portion of COGS in total sales. It shows the leverage
of the company to pay its remaining expenses. The year 2009 gave the best result of gross
profit but the result of 2008 is not satisfactory.
Recommendation: In the year 2009 Company generated maximum gross profit which is due
to lower cost of goods sold. So the recommendation is that the company should control its
production cost likewise in the year 2009.
NET PROFIT RATIO:
NPR = Net Income x 100
Sales
Year 2007
NPR = 20.34%
Year 2008
NPR = 15.79%
Year 2009
NPR = 17.45%
Interpretation:NPR shows that the income generated by the business after paying its all
obligations. The data shows that in year 2007 the net profit is highest and the same is lowest
in the year 2008. If we analyze the GP ratio it is evident that the year 2009 gave best GP
ratio. But the same year is unable to give best result in regard of NPR. It means company
facing operating problems.
Recommendation:In the year 2007 company is managing its operating and all other expenses efficiently. The
practices of the same year should use in future.
RETURN ON INVESTMENT/ASSETS:
ROI = Net Income/Total Assets
Year 2007
ROI = 9.90%
Year 2008
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Analysis of Financial Statements LuckyCement
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ROI = 7.82%
Year 2009
ROI = 11.97%
Interpretation: It is the ratio express what income is earned on investment made in
business. Higher income reflects efficient operations or better utilization of assets. In year
2009 company performed very well that gave it highest ROI as compering to other years.
Recommendation:
Company utilized its assets in the best way in year 2009. So the utilization policies should
continue in next years.
RETURN ON EQUITY:
ROE = Net Income
Total Equity
Year 2007
ROE = 27.23%
Year 2008
ROE = 14.35%
Year 2009
ROE= 19.77%
Interpretation: Through this ratio shareholders can judge that how much income generated
on their investment. The higher ratio is more attractive for shareholders. In the year 2007
ROE is the highest as compare to others years.
Recommendation: As per results of 2007 it is recommended that company should not
increase its number of shareholders to maintain its ROE ratio.
LEVERAGE RATIOS
Fixed Cost Includes:
Salaries, wages and benefits
Electricity and Water
Repairs and maintenance
Insurance
Traveling and entertainment
Communication Printing & stationary
Security expenses
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Analysis of Financial Statements LuckyCement
2011
Depreciation
Other Expenses
Variable Cost Includes:
Raw materials consumed
Packing material consumed
Cement packaging and loading charges
Fuel
Stores and spares consumed
Vehicle running and maintenance
Provision for slow moving and obsolete stores, spares and loose tools
Year 2009 2008 200Amount ,000 Amount ,000 Amount ,000
Sales 26,330,404 16,957,879 12,521,861
Variable cost** 17,188,836 11,900,119 7,960,715
Contribution Margin 9,141,568 5,057,760 4,561,146
Fixed Cost* 2,361,402 1,940,455 1,618,696
EBIT* 6,780,166 3,117,305 2,942,450
Interest 1,236,971 126,743 862,847
Earning before tax 5,543,195 2,990,562 2,079,603
Tax 580,452 (371,141) 143,059
Net Income 4,962,743 3,361,703 1,936,544
Leverage
DOL (S-VC)/(S-V-FC) 1.3483 1.6225 1.5501
DFL (S-VC-FC)/(S-V-FC-I) 1.2232 1.0424 1.4149
DTL (S-VC)/(S-V-FC-I) 1.6492 1.6912 2.1933
Fixed Cost*
Fixed-1 117,828 101,257 50,292
Fixed-2 2,110,780 1,731,629 1,481,974
Fixed-3 132,794 107,569 86,430
Total 2,361,402 1,940,455 1,618,696
Variable Cost**
Variable-1 2,310,009 1,053,797 447,437
Variable-2 14,845,685 10,828,139 7,488,397
Variable-3 33,142 18,183 24,881
Total 17,188,836 11,900,119 7,960,715
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30,000,000
DEGREE OF OPERATING LEVERAGE (DOL):
Year 2007
DOL = 1.5501
Year 2008
DOL = 1.6225
Year 2009
DOL = 1.3483
Interpretation: As per analysis it is apparent that DOL is highest in the year 2008. DOL is
the degree of operating leverage, the company is getting due to its fixed cost.
Recommendation: As per data we conclude that there is more fixed cost are incorporated in
the year 2008 which have significant impact on its DOL. It is recommended that company
should increase its sales to maximize its DOL in the coming years likewise it did in 2008.
DEGREE OF FIXED LEVERAGE (DFL):
Year 2007
DFL = 1.4149
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Analysis of Financial Statements LuckyCement
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Year 2008
DFL = 1.0424
Year 2009
DFL = 1.2232
Interpretation: As data shows that DFL is highest in the year 2007. DFL is the degree of
financial leverage, the company is getting due to its fixed cost.
Recommendation: As per data we conclude that there is more fixed cost are incorporated in
the year 2007 which have significant impact on its DFL. It is recommended that company
should increase its sales to maximize its DFL in the coming years likewise it did in 2007.
DEGREE OF TOTAL LEVERAGE (DTL):
Year 2007
DTL = 2.1933
Year 2008
DTL = 1.6912
Year 2009
DTL = 1.6492
Interpretation: DTL is the degree of total leverage which is combination of DOL and DFL.
As per data DTL is higher in year 2007 and lower in year 2009. This varies due to the
incorporation of fixed cost in the business. So it is recommended that company should
increase its sales for the significant impact of DTL in the coming years.
MARKET VALUE RATIOS
EARNINGS PER SHARE (EPS):
EPS = Net Income
No: Common Stock Shares
Year 2007
EPS = 9.67%
Year 2008
EPS = 9.84%
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Year 2009
EPS = 14.21%
Interpretation: EPS states that earning on the share which will increase when net income
increases and vice versa. From the data analysis it reflects that there is significant increase in
EPS in year 2009 as compare to other years.
Recommendation: Company performance is much better in 2009 and it is recommended that
company should retain the practices in future as it implement in year 2009.
P/E (PRICE TO EARNING):
P/E = Market price of share
EPS
Year 2007
P/E = 12.72 times
Year 2008
P/E = 9.95 times
Year 2009
P/E = 4.12 times
Interpretation: This ratio shows that what is the market value of company shares on the
basis of its financial performance. The company shows significant performance in 2007 year
and did not retain the performance as it did in year 2007. Company is not performing well.
Recommendation: As P/E ratio depends upon the performance of the company. So company
needs to improve its performance to gain competitive edge in the market.
DIVIDEND PAYOUT RATIO (DPO):
DPO = Dividend per share
EPS
Year 2007
DPO = 12.92%
Year 2008
DPO = 0
Year 2009
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DPO = 28.15%
Interpretation: This ratio tells how much part of total income is distributed among the
shareholders and what amount is remaining as retained earnings. If more profits distributed
among the shareholders it will create attractiveness for them but company should maintain a
reasonable balance between DPO and RE. We observe DPO is highest in year 2009 and
lowest in year 2007 and no dividend has paid in 2008 year.
Recommendation: During analysis we observe that companies DPO policy is inconsistent.
Sometime it pays no dividend/ least dividend and sometimes pays highest dividend. It is
recommended that company should adopt consistent DPO policy.
DIVIDEND YIELD RATIO (DYR):
DYR = Dividend per shareMarket price per share
Year 2007
DYR = 0.01%
Year 2008
DYR = 0
Year 2009
DYR = 0.07%
Interpretation: This ratio gives idea to the investor that how much he will earned on
investment made in common stock of a particular company. From the data analysis DYR is
highest in year 2009 and lowest in 2007 and zero in 2008.
Recommendation: Consistent dividend policy is recommended to avoid abnormal
fluctuations in DYR.
BOOK VALUE PER SHARE:
BV/S = Share holders Equity
No: of Common Shares
Year 2007
BV/S = 35.51 times
Year 2008
BV/S = 94.68 times
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Analysis of Financial Statements LuckyCement
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Year 2009
BV/S = 71.90 times
Interpretation: This ratio interpret that what is net worth of the business and what is
shareholders right on the business against per share held. If ratio is high the shareholders
right on the business is also high. In lucky cement the BV/S of the year 2007 is lowest and
BV/S is highest in year 2008.
Recommendation: Book Value per share decrease due to decrease in cash inflows in the
business. So the company should improve its operation for smooth cash inflows that leads to
improve its BV/S.
WORKING CAPITAL MANAGEMENT
LUCKY CEMENTYears Current
Assets
Fixed
Assets
Total
Assets
Aggressive approach Conservative approach
Permanent Temporary Permanent Temporary
2007 5402678 2032108
3
2572376
1
25723761 - 38392362 (12668601)
2008 8407379 25831695
34239074
25723761 8515313 38392362 (4153288)
2009 7857942 3053442
0
3839236
2
25723761 12668601 38392362 -
Avg 7222666 2556239
9
3278506
6
25723761 7061305 38392362 (5607296)
Calculation of cost
Interest Rate:
Long term @ 11%
Short term @ 3%
Aggressive approach
Financing Interest expense
Long term 25723761 2829614
Short term 7061305 211839
Total 32785066 3041453
Conservative approach
Financing Interest expenseLong term 38392362 4223160
Short term - -
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Total 38392362 4223160
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TAX BENEFIT ANALYSIS
INCOME STATEMENT FFBL LUCKY
(FAUJI FERTILIZER BIN QASIM
LTD) CEMENT
# of Share holder =
934110 # of Share holder = 323,375
Debt = 40 % Debt = 65 %
owner's equity = 60
% owner's equity = 35 %
(Rs
'000) (Rs '000)
Sales 36,724,920 26,330,404
Cost of goods sold 27,059,566 16,519,138
GROSS PROFIT 9,665,354 9,811,266
Selling and distribution
expenses 2,637,327 2,593,773
PROFIT FROM
OPERATIONS ( EBIT ) 7,028,027 7,217,493
Financial charges 1,219,724
FFBL pays less
interest due to
less debt 2,040,492
NET PROFIT BEFORETAXATION ( EBT ) 5,808,303 5,177,001
Provision for taxation ( 35% ) 2,032,906 1,811,950
NET PROFIT AFTER
TAXATION ( NI ) 3,775,397 3,365,051
Dividend Paid 3,736,441 329,219
Retained Earnings 38,956
LC shift more
RE to Balance
Sheet 3,035,832
Earnings per share 4.04 10.41
Tax Saving 426903.4
LC save tax
due to debt
financing 714172.2
Debt to Equity Ratio 0.4:1 0.65:1
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Analysis of Financial Statements LuckyCement
2011
LUCKY CEMENT
Balance Sheet
Actual Forecasted
2009 2,010.00
ASSETS
Non-Current Assets
Property, plant and equipment 30476872 38,468,417.00
long term advance 55373 69,893.00
Long term deposits 2175 2,745.00
30534420 38,541,055.00Current Assets
Stores, spare parts and loose tools 3411549 4,306,114.00
Stock in trade 1196608 1,510,378.00
Trade debts 1267248 1,599,542.00
Loan and advances 108876 137,425.00
Trade deposits and prepayments 9761 12,320.00
Other receivables 59251 74,788.00
Tax refunds due frome the Govt 538812 680,098.00
Taxation-net 176584 22,887.00
Sales tax refundable 40162 50,693.00
Cash and bank balances 1049091 1,324,180.00
Total current assets 7857942 9,918,425.00
Total Asset 38392362 48,459,481.00
EQUITY AND LIABILITIES SHARE CAPITAL AND RESERVES
Share Capital 3233750 7,156,236.00
Reserve 20018222 20,018,222.00
23251972 27,174,458.00
NON-CURRENT LIABILITIES
Long term financing 4300000 4,300,000.00
Long term deposits 28589 1,353,022.00
Deferred Liabilities 234633 234,633.00Deferred Taxation 1478490 1,478,490.00
Total 6041712 21,285,072.00
CURRENT LIABILITIES
Trade and other payables 2677356 3,379,403.00
Accrued mark-up 233381 294,577.00
Short term borrowings 6187941 10,244,897.00
Current portion of long term finance -
9098678 13,918,877.00
Contingencies and Commitments
38392362 62,378,407.00
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Analysis of Financial Statements LuckyCement
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LUCKY CEMENT
Income Statement
Sales ForecastForecasted
2009 2,010
Sales 26,330,404 33,234,676
Cost of sales -16,519,138 -20,850,732
Gross profit 981,126 12,383,944
Distribution cost -2,427,837 -3,064,456
Administrative expenses -165,936 -209,447
2,593,773 3,273,903
Operating profit 7,217,493 9,110,041
Finance costs 1,236,971 1,561,325
Other operating income (23,255) -29,353
Other charges 826,776 1,043,570
2,040,492 2,575,542
Profit before taxation 5,177,001 6,534,499
Taxation-Current 156,744 197,845
Prior year 4216 5,322
deferred 419492 529,490
580452 732,657
Profit after taxation 4596549 5,801,842
Basic and diluted earning per share 14.21
Calculations
Sales Forecast Averarage of difference in 3 years
Draft of Income statement and balance sheet formula
Item divided by old sales multiply new sales
Additional Funds Needed(AFN) 7681294
Debt Ratio 0.39
Current Assets 9918426
Totel Assets 48459481
Current Ratio 0.86
Debt: 18899198 Forecasted Current Liabilities 11533053
Previous-17526215 Less Previous CL (9098678
Forecasted 1372983 STD 2434375
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Analysis of Financial Statements LuckyCement
2011
Equity 7681294-1372983=6308311
There are no Retained Earnings and we pay dividened from resevers