Chapter 1

INTRODUCTION OF THE REPORT

1.1 Background of the study:

It is the requirement of Financial Management subject to undergo

assignment of any financial institution. The purpose of this project is to give the

practical exposure to analyze the ratios of any organization. The students are

then required to write a report on what they have learned in their assignment. My

report is about Kohat Cement Company Limited,

Rawalpindi Road Kohat.

1.2 Objectives of The Study:

This study is conducted to fulfill the requirements of Financial Management

Teacher.

The other objectives are as under:

1. To analyze the different financial ratios of different years of KCCL.

2. To know about the cement industry in Pakistan.

3. To know about the financial position of Kohat Cement Company Limited.

1.3 SCHEME OF THE STUDY:

The scheme of my report is as follows:

includes only one chapter, which is about the background, Objectives.

of the report consists of two chapters; Chapter two defines brief Review of the

cement industry in Pakistan, per capita consumption, import & Export of Pakistan

Cement Industry.

Identifies background of KCCL, Privatization of KCCL, present status and role of

KCCL in cement industry and cement industry in the N.W.F.P.

consists of one chapter and is about interpretation of different financial

ratios of the KCCL.

1

1.4 REVIEW OF THE CEMENT INDUSTRY IN PAKISTAN

Cement Industry in Pakistan:

Pakistan is rich in the deposit of the limestone, clay and gypsum, which

are the basic raw materials in the manufacturing of the cement. Although a large

number of cement verities are being produced in different countries of the world,

Pakistan is producing the following types of cement:

Ordinary Portland Cement

Slag Cement

Sulphate Resisting Cement

White Cement

At the time of Independence in 1947, Pakistan inherited four cement plants

having installed capacity of 0.5 million tons all of which were controlled from

India. These plants were however closed after operating for more than 50 year.

During the thirty years of independence five cement factories were established,

with the aggregated capacity of 3.2 million tones, these factories includes the

following:

Zeal-Pak Cement 1956

Maple Leaf Cement 1956

Javedan Cement 1965

Gharibwal Cement 1965

Mustehkam Cement 1966

In 1972 the cement industries were nationalized in the Bhutto’s Government

and only public sector was allowed to establish the cement factories. Cement

industry was remained under the control of the Government till late seventies.

During this period the growth in demand was about 7% per annum whereas new

capacities were not coming to catch the rising demand, consequently Pakistan

had to import cement from 1976-77, figure of the cement import are given in that

Table:

2

DIAGRAM

IMPORT OF CEMENT

After change in government in 1977, private sector was allowed to establish

cement plants. As a result, seven projects were installed in the private sector

having installed capacity of 2.54 million tons, namely Cherat Cement, Pakland

Cement, Attock Cement, Dadabhoy Cement, ESSA Cement, Facto Cement,

Anwarzeb Cement simultaneously, State Cement Corporation of Pakistan

(SCCP) also put up four plants having a capacity of 1.6 million tons, namely

Kohat Cement, Thatta Cement, Dandot Cement, and D.G. Khan Cement,

enhancing the total capacity to over 8.5 million tons by the end of 1990.Since

SCCP was the marked leaders until early nineties, private sector had to peruse

the policies of the SCCP in fixing the prices of the cement. With the privatization

of the cement industries in 1990 SCCP loose its control over the supply of the

cement. At that time there was a shortage of cement in the northern area of the

3

0

200

400

600

800

1000

1200

1400

Mil

lio

ns o

f T

on

nes

1976-7

7

1977-7

8

1978-7

9

1979-8

0

1980-8

1

1981-8

2

1983-8

4

1984-8

5

1985-8

6

1986-8

7

1992-9

3

1993-9

4

1994-9

5

Financial Years

Imports of Cement

country. In the first half of the nineties Pakistan has to import the cement given in

the previous Table and Diagram. Therefore the cement prices increased making

cement companies to earn very high profits companies this

forced the existing cement manufacturing companies like Kohat, Cherat,

Dadabhoy, Askari, D.G.Khan, and Maple Leaf to go for expansion and five new

projects with the aggregate capacity of 5.00 million tons by the end of 2000.

Presently in the year 2004 the total capacity of cement is 17.00 million tons.

1.5 EXPORT POTENTIAL:

Pakistan cement industry is with 6.0 million tons surplus capacity. Pakistan has

been exporting cement whenever it had surplus capacity. Before separation of

the Eastern part of the country in 1971, West Pakistan use to meet entire

demand of cement of the East Pakistan. Following are the figures of export of

cement from Pakistan during sixties and seventies:

Attacks on World Trade Center in September 11, 2001 had effect on all

businesses and industries. In this context American attack on Afghanistan and its

reconstruction has given boost to the cement industry in Pakistan. Pakistan is

exporting cement to Afghanistan to see that the exports to Afghanistan from July

2002 to May 2003 were 98,619 tons where the export growth which is a great

achievement for the Pakistan cement industry and result in needed foreign

exchange.

4

DIAGRAM

EXPORT OF CEMENT

0

100

200

300

400

500

600

700

800

Millions of Tonnes

1965-6

6

1966-6

7

1967-6

8

1968-6

9

1969-7

0

1970-7

1

1971-7

2

1972-7

3

1973-7

4

1974-7

5

1975-7

6

1976-7

7

Financial Years

Export of Cement

CEMENT CONSUMPTION IN Kg/HEAD PER

ANNUM

5

0

200

400

600

800

1000

1200

Million Tonnes

Pakis

tan

India

Sri L

anka

Zim

babve

Indonesia

Vie

tnam

Turk

menis

tan

Phili

ppin

s

Mexic

o

Iran

Syria

Chin

a

Turk

ey

Thaila

nd

Mala

ysia

Taiw

an

Different Countries

Per Capita Consumption kgs.

Chapter 2

Review of Kohat

Cement Company limited

BREIF ABOUT KOHAT CEMENT COMPANY LIMITED

Registration Name: Kohat Cement Company Limited

Objectives: Manufacturer of Gray Cement

Plant erection & Installation M/S UZINEXPORTIMPORT

Contractor (1978): Romania

Plant Capacity: 1800 tons per day

Date of incorporation: 30th April 1980

Inauguration: 16th June 1983 by Lt. Gen. Saeed

Qadir Minister for Production.

Commencement of 1st October, 1983

Commercial Production:

Privatization: 31st October, 1992

Present Ownership: A public Ltd Company listed on

Karachi, Lahore & Islamabad

Stock Exchange with 90% shares

held by Atta Holding.

6

2.1 HISTORY OF KOHAT CEMENT LIMITED

One of the leading manufacturing units of the cement Industry of Pakistan, Kohat

Cement Company Limited incorporated as a State Cement unit with an installed

capacity of 1000 tons per day. It is situated 12 km in the south west of Kohat on

Rawalpindi road near Babri Banda. The distance of Kohat Cement Company

Limited from other important cities is 165 km from Islamabad, 77 km from

Peshawar, and 142 km from Bannu. The total height of Kohat Cement Company

Limited from the sea level is 451 meters. The total area of the Kohat Cement

Company Limited is 222 acre, including factory colony and main approach roads.

The contract for the supply of equipment, errection and commission was

awarded to a Romanian Firm M/S UZINEXPROTIMPORT in April 1980under

companies act 1913 (now Companies ordinance 198) and inauguration

ceremony was performed by Lt. General Saeed Qadir Minister for Production on

30th June 1983 and its commercial production started on 1st October 1983. The

total capital outlay of the company was 716,90 million. The Company was

registered with the authorized capital of 200 million. State Cement Corporation of

Pakistan (SCCP) float share worth 188, million and take a debt of 75.2 million.

The first Board of Directors of the Kohat Cement Company Limited consists of

Mr. Zaheer Sajjid (Chairman/Director), Mr. M.K Saleem (GM/Director), Mr.

Mushtaq Hussain (Director), Mr. M.N.H.Ansari (Director), Mr. Ghulam Murtaza

(Director), Mr. Fida Hussain (Director/Dy. Sectary). The First Sectary of the

Company was Mr. Fazal Karim Khattak (Dy. General Manager Finance). During

the first nine month of inauguration Kohat Cement Company Limited made a net

profit of 3.01 million (30 lakes).

Many problems faced by the Kohat Cement Company Limited such as delay in

the supply of the equipment, technical services and defective supply of

equipment by the contractor whom the contract for these services was given, but

the credit goes to Pakistani engineers and management of the newly born Kohat

Cement Company Limited who overcome the entire problems effectively.

7

2.2 PRIVITIZATION OF KOHAT CEMENT COMPANY

LIMITED:

After successful operation of the nine years under State Cement Corporation of

Pakistan (SCCP), Privatization Commission of Government of Pakistan

privatized Kohat Cement Company Limited in an open auction on 30th October

1992, in Nawaz Sharif Government.

The main causes of the privatization of the Kohat Cement Company Limited were

embezzlements and frauds, less profits, and mismanagement.

Atta Holding one of the prominent name in the business society made the highest

bid whereby purchased 90% shares of Kohat Cement Company Limited and paid

out debt of 300 million which was payable by Kohat Cement Company to State

Cement Corporation of Pakistan (SCCP) so the total bid by the Atta Holding was

820 million.

After privatization the company changed it year end from June 30, to December

31 in order to reflect the true financial health and performance of the Company

under new management and to fulfill the condition of the Government of that

time. The companies begin operation under the new management sometime in

late 1992 and immediately showed a market improvement in overall operating,

effectively and performance. Company suffered net loss in 1992 and 1993 due to

large amount of tax provision made in these years. This had adverse effect on

the equity of the company, as retained earnings of the company were eaten

away by the net losses in 1992-93. On the other hand the company made

astounding net profit taxes of 94.787 million in the six months of till December

1993 after privatization, which showed that under new management company

has made tremendous progress. Financial position of the Company substantially

improved as an enlargement in the equity, put the company’s net worth in the

better shape. Compared to this, the performance of the Kohat Cement Company

Limited was not satisfactory before privatization.

8

2.3 List of Group Companies:

The group companies can be classified in two categories i.e. manufacturing

concerns and trading concerns. Their names and main highlights are given

below:

MANUFACTURING CONCERNS

Name of concernNature of

business

Group

OwnershipYear of est.

Kohat Cement

Company Ltd.Cement 90% 1983

Ravi glass Ltd. Bottles+jars 100% 1982

Rachana glass pvt. Ltd Bottles+jars 100% 1983

Atta buksh textile Ltd Knitwear 100% 1983

TRADING CONCERNS

Name of

concern

Nature of

Business

Group

OwnershipYear of est.

Palace Enterprise

Pvt Ltd.

Property

Developments100% 1978

Palace Hotel Lahore Hoteling 100% 1999

Motor House Pvt.

Ltd.

Vehicles Import &

Sale100% 1957

9

2.4 GROUP OBJECTIVES:

The group has the following objectives:

Provide maximum return to the stockholders and protect

their interests.

Provide customer with best quality products and services at

comparatively

low prices.

To participate fully in the Socio economic activities of the

country.

To induct employees in the professional activities and tap

the full potential

of every employee based on the philosophy that the human resources of

the group are its most valuable assets.

To make healthy profits and achieve continuous growth,

keeping in view the global business challenges.

10

2.5 ACHIEVEMENTS OF KOHAT CEMENT AFTER

PRIVATIZATION:

Since Privatization, under the new management Kohat Cement Company Limited

has achieved tremendous growth, at present the total authorized capital of the

company is 500million. The mission of the company is “Widening the Spectrum

of Cement Usage in Pakistan”. It is difficult to elaborated all the improvement that

has been made by Kohat Cement Company Limited since privatization, but the

major improvement are summed up as follows:

2.6 EXTENSION OF PLANT CAPACITY:

At the time of privatization the total capacity of plant was 1000 tons of cement

per day this capacity was extended after privatization under new management in

1996 from 1000 tons of cement per day to 1800 tons of cement per day keeping

in view the increasing demand of cement in and outside the country and to

achieve economies of scale. Total cost of extension was 587.639 million, which

was arranged in the following way;

Debt ………………..64.67%

Equity……………….35.33%

2.7 COAL CONVERSION:

Furnace oil is the major element of cost of production of cement. Continuous

increase in the prices of furnace oil forced the Company to look for alternatives.

Coal was identified as the best option and accordingly investments has been

made so that coal could be used instead of the furnace oil by coal, which had cut

11

down the cost of production to a large extent.

2.8 EXPORTS:

Due to favorable geographical location and opening of Kohat Tunnel, Kohat

Cement Company Limited is in well position to supply cement to Afghanistan,

where the construction activity is booming day by day. During the year 2002

exports to Afghanistan were only 5549 tons, but during the first quarter of the

financial year 33556 tons of cement, which result in a precious foreign exchange

for the country.

2.9 Quality of the Cement:

The quality of the Kohat Cement is approved by independent authorities, such as

National high Authority, Taisee Japan (contractors of the Kohat Tunnel Project)

and Pakistan Railway, and priority has been given to Kohat Cement Company’s

brand over the others. Kohat Cement Company Limited obtained ISO 9002

certificate.

2.10 WHITE CEMENT PLANT:

In Pakistan there are only two cement units engaged in manufacturing of white

cement i.e. Anwar Zeb White cement, and Maple Leaf white Cement. Keeping in

view the improving standards of living of the people in country, Kohat Cement

Company Limited has decided to enter in this field also. The civil works for the

white cement plant are well on the way and major machinery has reached at the

factory, the white cement plant will start production at the end of 2004, which will

be second white cement plant in the country. Total cost of installing the white

cement is about 420 millions.

12

Chapter 3

INVENTORY MANAGEMENT SYSTEM

3.1 PROCEDURE FOR ROUTINE PURCHASE OF STORES

AND SPARES ITEMS:

DEFINITION:

Routine purchase means the stores and spares purchased for the maintenance and

running of the machinery. It does not however include the additional cost to be incurred

in improvement in the production technology / methodology and increase in the

production capacity etc.

3.2 THE INVENTORY SYSTEM OF KOHAT CEMENT IS

DISCUSSED BELOW:

3.3 DEMAND PROCEDURE:

The demand is raised from the relevant department head and he is authenticated

by the GM of the respective unit. The respected authorities signed the duplicate

and send to store department to determined that it is available in the stock or not.

If it is available the store staff issue the quantity, otherwise it will be send to

Purchase Department for purchase. Store officer role would be future expended.

GM of the respective unit will be responsible for determining reorder level for the

major items. Store officer will raise the purchase indent as soon as reorder level

13

comes. He will future insures that last buying rates and last specification bought is

mentioned on the purchase indent.

The demand duly approved by the respective GM will be submitted to the

procurement manager on his weekly visit at Kohat cement project. The store

officer is responsible to report to the procurement manager for each and every

kind of queries raised from the purchase department. So in this situation store

officer his additional responsibilities of maintaining re-order level and raising

purchase indent. In case of emergency demand can be raised any time.

GM must be responsible to raise the indent keeping in mind the expected delivery

time of the items otherwise the system can,t work smoothly.

ED (T) or respective GM will ensure that the quantity demanded and specification

provided according to the need

The procurement manager will finalized supplier and he will ensure that the

supplier are properly evaluated as per standard of the ISO 9000

The store officer at the end of each quarter will prepare a list of the dead items or

the items those have not been used during the last three month and submitted the

list to the procurement manager and the respective GM for future utilization or

disposal considered necessary. Respective GM will responsible to give response

with in 10 days positively on the receipt of dead items. Final approval for disposal

will be obtained from HEAD.

Maintained of Re-Order level is very important task and coordination of all the

technical staff is very needed for the purpose. In this connection whenever the

store officer feels any difficulty he will contact the respective General Manager

for immediate solution of the problem.

14

3.4 PURCAHSE PROCEDURE:

For local purchase project purchase officer will first get approval from the

procurement manager but in case of emergency purchases, where there is a risk of

machine stoppage, the purchase officer in project will be responsible to buy it

from the local market and will get the approval after purchase, after weekly visit

of the procurement manager he will verify the emergency purchases. Purchase

officer at project will remain in contact with the procurement manager to get

necessary instruction when needed at all project.

Procurement manager will call quotation and prepare comparison statement along

with last purchase rate and get it finalized with in three working days from the

receipt of demand. The procurement manager is responsible to have close watch

over the rates and the quantity of the product being purchased and gives his feed

back on weekly basis to the Chief Executive in the head office.

For major purchase we should go for import to get very competitive rates and

quality. And for import the project manager must indicate about the demand two

month before the required date. Procurement manager with the help of technical

staff will prepare list of every six month for the items to be imported.

It is also suggest that email system should be used at all three end to the deliver

and receive the purchase rate verification formats and other necessary

communication needed to be facilitated through MSN messenger service. It will

save company communication cost.

Order will be placed to the selected supplier and the order will include following

details.

15

1. Name of supplier

2. Sales tax number

3. National tax number

4. Contact person and complete address

5. complete description of items required

6. Quantity order

7. Unit price

8. Total amount

9. GST

10. Total price including GST

11. Delivery Date / Time Period

12. Terms of payment

13. Warranty Period

14. Delivery terms ( Freight paid / To be paid

15. Other terms if any.

Purchase department in head office will follow up for the timely delivery of

the goods and if he foresees any delay he will immediately inform GM/ED ( T )

well in time to make alternative arrangement ,otherwise the procurement manager

will be responsible for the delay.

3.5 GOODS RECEIVING REPORT:

At the time of receipt of goods, Gate inward pass will be prepared and goods will

be sending to store for Inspection along with gate pass. Inspection will finalized

with in two days for general items and with five days for manufactured items.

On making inspection, the concerned person will ensure the following step:

1. Goods are as per description of the order placed

2. Time of delivery is being followed or not

3. Goods are in satisfactory condition technically.

16

4. Any other test or procedure GM or ED (T) advised should be followed

accordingly.

Inspection report of goods accepted or rejected will be forwarded to the store

officer should inform the procurement manager for his future necessary action.

Upon receipt of inspection report of accepted goods, the store officer will prepare

goods receiving note and submit a copy along with inspection reports to the

account Department at project with in two days after approval of the items

3.6 GOODS RECEIPT NOTE:

The store officer must ensure before preparing goods receipt note and entering the

item in the bin card the duly verified bill to the items are available or not. To

avoid problem inventory reconciliation this is very necessary that purchase

department must requisition bill from the party along with goods

The account department will get the invoice from purchase department and after

making reconciliation of complete trail of documents, submitted to the relevant

accounts head for final approval.

The inventory management of Kohat cement in material ledger card he maintain

moving average method when they valuate the inventory.

Upon approval, the account department will complete the transaction by entering

into purchase / payable register / module

In the head office , on due date, payment will be proceed and include in the

monthly payment summery, unless a written intimation from the project has been

received about stopping or delaying the payment along with reason therof. This

report will will be sent to ED(T) finance, Finance Mananger and he will forward

it to chairman / Chief Executive for final approval.

Upon final approval of the payment summery from the chairmen / Chief

Executive checque will be prepared and submitted to he Chairman / CE for

payment upon successful implementation of this procedure the Chairman and

17

Chief Executive may authorized, one person from finance department and one

from any other department to sign the check below certain limits

The internal audit department will ensure that the whole procedure of purchase

and payment is being followed or not.

3.7 GENERAL RECOMMENDATIONS:

1. Reputed supplier should be selected for supplies and direct

manufacturing should be preferred wherever possible. List of the

approved vendors must be reviewed after every six months.

2. Terms of purchase must be discussed thoroughly before placing

the order so future ambiguities could be avoided.

3. Payment should be made on due date in order to give impression

to the supplier that by supplying us they are not going to invest

fund for long. It will reduce the profit margins applied by them on

supplies to our companies.

4. The GM or the ED (T) should conduct re-inspection of inspected

goods in order to keep psychological pressure on the foreman

deputed on inspection.

5. In case of items valuing above Rs. 500/- per unit appropriate

record should be maintained by the technical staff to assess

whether the expected life of the items has been completed

before its replacement or not. It will create responsibility factor

while inspecting the goods received from the supplier.

3.8 NON RECURRING EXPENDITURE:

In case of non- routine items, like additional expenses on production

side or improvement in the machinery the following procedure will be

followed.

Demand will be raised from the concerned department or the GM / ED

(T) of the project may also raise such demand after discussing with

technical subordinate. A cost and benefit analysis will be prepared

after setting tentative price of the items involved and submitted to the

18

chair man / Chief Executive for approval. After approval by Chair man /

Chief Executive Purchase order will be placed on the supplier.

Technical staff will be responsible for submitting the cost benefit

analysis.

Chapter 4

Ratio Analysis of KCCL

4.1 Liquidity Ratio:

These ratios which measures a firm ability to meet short term obligations.

4.1.1 Current Ratio:

Current Ratio = Current assets/ current liabilities

Definition: It shows the firm’s ability to cover its current liabilities with its

current asset.

Current Ratio for the year 2000 = 0.79

Current Ratio for the year 2001 = 0.96

Interpretation:

The ratio of 2001 id 0.96 is above the ratio of 2000 that’s 0.79. The higher the current

ratio shows the greater the ability of the firm to pay its bill. The 2001 year being analyzed

19

Graph

0

0.5

1

1.5

2000 2001

Years

Val

ues

Series1

may be too liquid, relative to the year 2000. With the result that it forgoes additional

profit ability whenever a financial “Red Flag “is raised.

4.1.2 Quick Ratio:

Quick Ratio = (Current Asset – Inventory)/Current Liabilities

Definition:

It is also known as Acid test Ratio. It shows the firm’s ability to meet current

liabilities with its most liquid asset.

Quick Ratio for the year 2000 = 0.29

Quick Ratio for the year 2001 = 0.39

Interpretation:

The ratio in 2001 is 0.39 is greater than the ratio of 2000 that’s .29 it shows a

firm’s ability to meet current liabilities with its most liquid asset. It also shows the more

penetrating measures of liquidity than does the current ratio.

20

Graph

0

0.2

0.4

0.6

2000 2001

Years

Va

lue

s

Series1

Graph

0.00%0.10%0.20%0.30%0.40%

2000 2001

Years

Va

lue

s

Series1

4.1.3Cash Ratio:

Cash Ratio = (Cash/current Liabilities)*100

Definition:

It shows the firm’s ability to meet the current liabilities with its cash in hand.

Cash Ratio for the year 2000 = 0.035%

Cash Ratio for the year 2001 = 0.33%

Interpretation:

The cash ratio in2001 is 0.33% whish is higher than the 2000. Cash ratio is

0.035% which shows that in 2001 the unusable cash is higher then the 2000. It’s also a

negative aspect of the investment and profitability

21

4.2 Leverage Ratio:

These ratio measures the extent of the firm total debt burden.

4.2.1 Debt to Equity Ratio:

Debt to Equity Ratio = Total Debt/ stock holder’s equity

. Definition:

It shows the extent to which the firm is financed by debt.

Debt to equity ratio for the year 2000 = 84.34%

Debt to equity ratio for the year 2001 = 68%

Graph

0.00%

50.00%

100.00%

2000 2001

Years

Va

lue

s

Series1

Interpretation:

In the year 2001 the ratio is 68% which is less than the year 2000 ratio which is

84.34%. This ratio tells us that creditors are providing 68 percent of financing for each $1

being provided by shareholders. Lower the ratio higher the financing that is provided by

the shareholders.

22

Graph

35.00%

40.00%

45.00%

50.00%

2000 2001

Years

Va

lue

s

Series1

4.2.2 Debt to Total Asset ratio:

Debt to total asset ratio = (Total debt/total asset)*100

Definition:

This ratio highlights the relative importance of debt financing to the firm.

Debt to Total Asset for the year 2000 = 45.7%

Debt to Total Asset for the year 2001 = 40.5%

Interpretation:

In 2001 the ratio is 40.5% which is less then the 2000 year that’s 45.7%. This

ratio shows that in 2001 the 40.5% is debt financing and the remaining 59.5% is from

shareholders financing. The higher the debt to total asset ratio the greater the financial

risk and vice versa.

23

Graph

5.986

6.026.046.06

2000 2001

Years

Va

lue

s

Series1

4.2.3 Time interest Earned:

Time Interest Earned = EBIT/Interest expense

Definition:

It reflects the firm ability to pay interest out of earnings.

Time Interest Earned for the year 2000 = 6.04

Time Interest Earned for the year 2001 = 6.01

Interpretation:

In the year 2001 the ratio is 6.01 which are slightly less than the 2000 which is

6.04. This ratio shows the firm ability to pay interest out of earnings. This ratio satisfies

the creditors, who can feel confident that the interest will be paid, since interest is simply

covered by EBIT.

24

Graph

0.00%0.20%0.40%0.60%0.80%

2000 2001

Years

Va

lue

s

Series1

4.2.4 Long Term Debt To Total Capitalization:

(Long Term Debt/ Total Capitalization)*100

Definition:

It shows relative importance of long term debt to the capital structure of the firm.

Long term debt to total capitalization for the year 2000 = 0.59%

Long term debt to total capitalization for the year 2001 = 0.48%

Interpretation:

In 2001 the ratio is 0.48% which is less then the 2000 that is 0.59%. This ratio shows

us the relative importance of long term debt to the capital structure (Long term financing

of the Kohat Cement Factory).

25

Graph

2224262830

2000 2001

years

Va

lue

s

Series1

3 Activity Ratio:

4.3.1 Receivable Turnover = Net Sales/Receivables

Definition:

Receivables Turnover provides insight into the quality of the firm’s

receivables how successful the firm is in its collection.

Receivables Turnover for the year 2000 = 29.50

Receivables Turnover for the year 2001 = 24.86

Interpretation:

The receivable turnover in 2000 is 29.50. While in 2001 are 24.86. This ratio tells us

that the receivable are considerably slower in turning over. This might be an indication of

a poor collection policy and a number of past-due accounts still on the books.

Receivables are liquid only in so far as they can be collected in a reasonable amount of

time.

26

Graph

1112131415

2000 2001

years

Va

lue

s

Series1

4.3.2 Average collection period:

Average collection period for the year 2000 = 365/29.50 = 12.37 days

Average collection period for the year 2001 = 365/24.86 = 14.68 days

Interpretation:

The RT In days in the year of 2001 is 14.48 days which is greater than the year of

2001 which is 12.20 days. This figure tells us that average number of days that

receivables are outstanding before being collected. Too high an average collection period

is usually bad which shows the loss credit policy. But a very low average collection

period may not necessarily be good. This shows the symptoms of a credit policy that is

excessively restrictive.

27

Graph

010203040

2000 2001

years

Va

lue

s

Series1

4.3.3 Inventory Turnover:

Inventory Turnover = cost of goods sold/inventory

Definition:

It shows that the how effectively the firm is managing the inventory and

how many times inventory is turnover into receivables through sales during the

year.

Inventory Turnover for the year 2000 = 13.66 times

Inventory Turnover for the year 2001 = 36.55 times

Interpretation:

In 2001 the inventory turnover is 36.55 times which is greater than the 13.66

times which is in the year of 2000. The higher the inventory turnover the most efficient

the inventory management of the firm and the fresher more liquid the inventory. It shows

that in 2001 the KCCL is efficient in inventory management than the previous year. The

liquidity of the KCCL is increased than the previous year.

28

Graph

0

10

20

30

2000 2001

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4.3.4 Inventory Turnover In days:

Inventory turnover in days for the year 2000 = 365/13.66 = 26.72 days

Inventory turnover in days for the year 2001 = 365/36.55 = 9.99 days

Interpretation:

In the year 2001 the inventory turnover in days was 9.99 days which is less than

the 26.72 days in 2000. In the 2001 the 9.99 days inventory turnover days which is 16.73

days less than the year 2000. It means that the inventory turnover process is so fats than

the previous year. It means the fresh inventory is fastly come to the process.

29

Graph

0.9

1

1.1

1.2

2000 2001

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4.3.5 Total Asset Turnover:

Total asset Turnover = Sales/Total asset

Definition:

It reflects how well the company assets are being used to generate sales.

Total Asset Turnover for the year 2000 = 1.16

Total Asset Turnover for the year 2001 = 1.02

Interpretation:

In the year of 2001 the value is 1.02 which is less than the 1.16 in year 2000.

Which shows that in 2001 the KCCL generates fewer sales per dollar of asset investment

than did in 2000? On average the receivables and inventory activates is good therefore

the KCCL is involved in new projects launching which detoriated the profitability

conditions.

30

Graph

1.21.31.41.51.6

2000 2001

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4.3.6 Fixed Asset Turnover:

Definition:

It indicates how intensively the fixed asset of the firm is being used.

Fixed Asset Turnover in 2000 = 1.53

Fixed Asset Turnover in 2001 = 1.36

Interpretation:

In 2001 fix asset turnover is 1.36 which is less than the 1.53 in year 2000. The

low ratio implies excessive investment in plants, equipment and new projects relative to

the values of the output being produced. The KCCL might be better off to liquidate some

of those fixed asset and invest the proceed productively.

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Graph

3.5

4

4.5

5

2000 2001

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4.3.7 Current Asset Turnover:

Current Asset Turnover = sales/current asset

Definition:

It shows that how much of current asset is continuously used in the

activity of a firm.

CAT for 2000 = 4.88

CAT for 2001 = 4.09

Interpretation:

In 2001 CAT is 4.09 which is also less than 4.88 in 2000 year. Like the fixed asset

turnover it also shows that the KCCL is involved in the investment in new projects

(White Cement Plant). The sale has also decreased in 2001 and total therefore the

profitability is affected.

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Graph

0.00%5.00%

10.00%15.00%20.00%

2000 2001

Years

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4.4 Profitability Ratio:

This ratio tells us the profit earning to sales and investment of the firm.

4.4.1 Net Profit Margin:

NPM = (Earning After Tax/Net sales)*100

Definition:

It provides us the information since it mixes the effectiveness of sales

and producing profits.

NPM for the year 2000 = 14.73%

NPM for the year 2001 = 6.61%

Interpretation:

In the 2001 the net profit margin is 6.61% which is twice less than the

14.73 % in the year of 2000. This ratio gave us the idea of the how much sales

produced the profit. The level management seeks given its current debt level.

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Graph

0.00%5.00%

10.00%15.00%20.00%

2000 2001

Years

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4.4.2 Return On Investment:

Return on Investment = (profit after tax/total asset)*100

Definition:

It shows the profitability of the firm in the form of how much the

profit is gained with the respect of total asset.

ROI for the year 2000 = 17.21%

ROI for the year 2001 = 6.76%

Interpretation:

In the 2001 the ROI is 6.76% which is less than the 17.21% of 2000 year.

It shows up major ups and downs in the ratio due to unfavorable conditions.

Higher profitability per dollar of sales but a slightly lower return on investment

confirm in 2001, require more assets to generate of sales then did typical year of

KCCL.

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Graph

0.00%10.00%20.00%30.00%40.00%

2000 2001

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4.4.3 Return on Equity:

ROE = (profit after tax/stockholder’s equity)*100

Definition: It shows the earning power of shareholder book values

investment and is frequently used in the company.

ROE for the year 2000 = 31.72%

ROE for the year 2001 = 11.36%

Interpretation:

In the 2001 the ROE is 11.36% which is less then 31.72% in the year of 2000. In

the 2001 the ROE is low it means that the KCCL has accepted the short investing

opportunities and did not expend on the management. In the coming year factory

management need much efforts and greater promotion of assets to produce sales.

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Graph

0.00%10.00%20.00%30.00%40.00%

2000 2001

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4.4.4 Gross Profit Margin:

GPM = (Gross profit/sales)*100

Definition:

The gross margin reflects the effectiveness of pricing policy and of

production efficiency.

GPM for the year 2000 = 32.49%

GPM for the year 2001 = 16.97%

Interpretation:

In the year of 2001 the GPM is 16.97% which is less then the 32.49% in the year

of 2000. This ratio shows is the effectiveness of pricing policy and production efficiency.

Gross Margin is decreased also the decreasing the price of the products. Sale is also

decreased but the profitability has increased relative to the 2000 year.

36

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30.00%

2000 2001

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4.4.5 Net Operating Margin:

Net Operating Margin = (Profit after taxes/sales)*100

Definition:

It shows the profitability of the firm sales but before the taxes and interest

expense.

Net Operating Margin for the year 2000 = 24.38%

Net Operating Margin for the year 2001 = 8.92%

Interpretation:

In the 2001 the NOM was 8.92% which is less then the 24.38% in the 2000. It

shows the profitability of the sales before taxes and interest expense. These level of sales

the higher the net operating margin the better the position of factory.

37

Graph

0.00%

10.00%

20.00%

30.00%

2000 2001

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4.4.6 Return On Total Asset:

Return on Total Asset = (Earning Before interest and taxes/Total

Assets)*100

Definition:

It provides us the whole effectiveness of the total asset in term of

profit. It shows the earning power of firm.

ROA for the year 2000 = 28.48%

ROA for the year 2001 = 9.13%

Interpretation:

In the 2001 the return on total asset is 9.13% which is less than the 28.48% in

2000. This Ratio shows that return on total asset is the total after corporate tax return to

stock holders and lenders on the total investment that they have in the factory. It is the

rate of return earned by the factory as a whole for all its investors including lenders.

38

Chapter 5

5.1 Common Size Analysis of Balance sheet of KCCL

FY2001 (Rupees)

FY2000 (Rupees)Percentages

of 2001Percentages

of 2000

Fixed capital Expense 608743318 661898400 74.5% 74.65%

Loan To employees 2602598 2716546 0.32% 0.31%

Long term deposit 977030 926030 0.12% 0.11%

Current Asset ---- ---- ---- ----

Stores and Spaces 88309024 51434353 10.8% 5.88%

Stock in trade 18977696 50515942 2.32% 5.77%

Trade debtor 13148085 28921924 1.61% 3.31%

Advances and Deposit 34200990 35195185 4.19% 4.02%

Cash 49841000 43369096 6.10% 4.96%

TOTAL Assets 816799741 874975476 100% 100%

39

Liabilities and Owner’s Equity

Paid Up Share Capital 485970773 474632107 59.50% 54.25%

Liabilities and Against Asset 4006641 15057509 0.49% 1.72%

Deferred Liabilities 111828496 116594786 13.70% 13.33%

Long term Deposit 2354850 2806160 0.29% 0.32%

Current Liabilities ---- ---- ------ ----

Short Term Finance 10922808 69321124 1.32% 7.92%

Current Portion of Long term Liabilities

11995445 33756486 1.47% 3.85%

Creditors Accruals 91779565 89420083 11.24% 10.22%

Provision For taxes 53228442 28845466 6.52% 3.29%

Dividends 44712721 44541761 5.47% 5.09%

TOTAL Liabilities and Equity 816799741 874975476 100% 100%

40

5.2 Index Analysis of Balance sheet of KCCL

Index Analysis = (Current Year/Base Year)*100

Current Year = 2001 and Base Year = 2000

Index Analysis

FY2001 (Rupees)

FY2000 (Rupees)

Fixed capital Expense 608743318 661898400 91.9%

Loan To employees 2602598 2716546 95.81%

Long term deposit 977030 926030 105.51%

Current Asset ---- ---- ------

Stores and Spaces 88309024 51434353 171.69%

Stock in trade 18977696 50515942 37.57%

Trade debtor 13148085 28921924 45.46%

Advances and Deposit 34200990 35195185 97.18%

Cash 49841000 43369096 114.92%

TOTAL Assets 816799741 874975476

41

Liabilities and Owner’s Equity

Paid Up Share Capital 485970773 474632107 102.38%

Liabilities and Against Asset 4006641 15057509 26.61%

Deferred Liabilities 111828496 116594786 95.91%

Long term Deposit 2354850 2806160 83.92%

Current Liabilities ---- ---- ------

Short Term Finance 10922808 69321124 15.76%

Current Portion of Long term Liabilities

11995445 33756486 35.54%

Creditors Accruals 91779565 89420083 102.64%%

Provision For taxes 53228442 28845466 184.53%

Dividends 44712721 44541761 100.38%

TOTAL Liabilities and Equity

816799741 874975476

42