report on d.g. khan cement

D.G. Khan Cement Company Limited

CORPORATE PROFILE

Board of Directors

Mrs. Naz Mansha ChairpersonMian Raza Mansha Chief ExecutiveMr. Manzar MushtaqMr. Khalid Qadeer QureshiMr. Zaka-ud-DinMr. Muhammad AzamMr. Inayat Ullah Niazi Chief Financial Officer

Audit CommitteeMr. Manzar Mushtaq Member/ChairmanMr. Khalid Qadeer Qureshi MemberMr. Muhammad Azam Member

Company Secretary

Mr. Khalid Mahmood Chohan

Bankers

Royal Bank of Sot land (ABN AMRO Bank (Pakistan) Limited) Allied Bank Limited

Askari Bank LimitedBank Alfalah LimitedCitibank N.A.Habib Bank LimitedMCB Bank LimitedNational Bank of PakistanStandard Chartered Bank (Pakistan) LimitedThe Bank of PunjabUnited Bank Limited

Auditors

KPMG Taseer Hadi & Co, Chartered AccountantsLegal Advisors

Mr. Shahid Hamid, Bar-at-Law

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Registered Office

Nishat House, 53-A, Lawrence Road,Lahore-PakistanPhone: 92-42-6367812-20 UAN: 111 11 33 33Fax: 92-42-6367414Email: [email protected] site: www.dgcement.com

Factory 1. Khofli Sattai, Distt. Dera Ghazi Khan-Pakistan

Phone: 92-641-460025-7Fax: 92-641-462392Email: [email protected]

2. 12, K.M. Choa Saidan Shah Road,Khairpur, Tehsil Kallar Kahar,Distt. Chakwal-PakistanPhone: 92-543-650215-8Fax: 92-543-650231

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To provide quality products to customers and explore new markets to promote/expand sales of the Company through good governance and foster a sound and dynamic team, so as to achieve optimum prices of products of the Company for sustainable and equitable growth and prosperity of the Company.

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To transform the Company into modern and dynamic cement manufacturing company with qualified professionals and fully equipped to play a meaningful role on sustainable basis in the economy of Pakistan.

DIRECTORS’ REPORT

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I, on behalf of the Board of Directors’ of D.G. Khan Cement Company Limited, feel pleasure to put before you the 30thAnnual Report of D.G. Khan Cement Company Limited, along with financial statements and auditors report thereon for the year ended June 30, 2008.

INDUSTRY REVIEW

The cement industry of Pakistan again set a new record and sold30.112M tons during FY 2008 against 24.222M tons last year, with a growth of over 24%. During the period under report the capacity utilization of the industry was 81% against 79% last year. The slight increase in capacity utilization is due to the fact that during the year industry added another 6.5M tons of new capacity.

Pakistani Cement industry fully tapped the export prospects of cement and managed to export hefty 6.610M tons against 2.797M tons last year. The cement manufacturers fully poised to explore new export markets. Contrary to past, now the cement is being exported not only to regional neighbouring countries, rather Pakistani cement is finding its place in South East Asian countries, Russia and in African countries as well.

Clouds of recession are hovering over the economy of Pakistan and having achieved consecutive growth of over 6% in real GDP during last four years, economic growth

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slowed down to 5.8% in FY 2008 against 6.8% recorded last year. Demand of cement is directly related with prevailing economic conditions. During FY 2008 cement sales in the country remained bleak due to uncertainty in political and economic front coupled with fading law and order situation. Total sales in the country were 22.395M tons against 21.034M tons last year, witnessing an increase of only over 6%.

Dilemma of price war among the cement manufacturers to find out the market share has badly affected the financial health of the cement sector. In addition, all time high oil and coal prices coupled with expanding inflationary trend in the country hit badly the cost of production. Going forward, monetary tightening stance of the State Bank of Pakistan to curb inflation in the country posed additional burden in the form of increased lending rates.

PLANT PERFORMANCE

Plant performance during the year under review was excellent. Kiln-2 at DG Khan Site operated for record 343 days which is a record in the cement industry. Kiln-1 at DGK and kiln-1 at KHP operated 325 and 287 days respectively. It was only possible by adopting sound and prudent production management and preventive maintenance techniques. Your management believes in the policy of using the best available equipments to achieve both efficiency and effectiveness. This is evident for the fact that overall capacity utilization of the plants was above 103% during FY 2008 which is unprecedented in the cement industry of Pakistan.

Expansion plant in Khairpur (KHP) Dist. Chakwal, beingin its first year of operation, operated remarkably well during the period under review. Detailed operational parameters are well within the range of guarantees given by the plant supplier.

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State of the art duel fuel power generation plant placed at Khairpur cement plant also started its commercial operations successfully.

Cement production during the period under report was good and posted an increase of 76% compared with last year. Vertical Cement Grinding mill placed at Khairpur plant proved to be energy efficient and entails low maintenance compared with traditional cement mills.

SALES

The following table portrays the sales summary:

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Your company, after the start of production from new cement plant at Khairpur, fully paced to tap the local and export markets. Local Cement sales during FY 2008 ballooned by 52% compared with last year.

Whereas, export of cement posted a decent hike and augmented by 331%.Your Company is now exporting not only to traditional market of Afghanistan, rather has entered into

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most of the countries of Middle East. In addition, your company is also trying to tap new export avenues and started exporting to Russia, India and some African countries.

Your company is making all out efforts to utilize the optimum level of its available capacity, and have also started selling clinker both locally and in the markets.

2008 2007(Rupees in thousand)

OPERATING RESULTSNet Sales 12,445,996 6,419,625Cost of Sales 10,530,723 4,387,640Gross Profit 1,915,273 2,031,985After tax (loss) / profit (53,230) 1,622,471(Loss)/earning per share (Rs. /Share) (0.21) 6.43

Volumetric growth in cement sales during the period contributed in getting the sale revenue doubled from last year. Despite the growth of 94% in sale revenue, gross profit during the period witnessed a decline of about 6% compared with previous period.

Major contributors to the decline in gross profit are the price war among the cement manufacturers which squeezed the profit margins sharply. The position further aggravated due to sky rocketing fuel prices in international markets and severe inflation in the country. Prices of coal, used in cement industry, increased by nearly 50% during the period under report compared to last year. Likewise, since July 2007, OGRA increased Gas Tariff by over 40% for cement sector and over 38% for power generation. Similar trends were also witnessed in other input costs which badly affected the profitability of the company.

Insufficient cash flows which rest to rely more on running finances and increasing lending benchmark rates, on the back of stringent monetary policy of the State Bank of Pakistan to curb mounting inflation in the country, put unmatched pressure on the finance cost. Going forward, worsening economic conditions and huge trade imbalances led to weak the Pakistani Rupees in relation to major international currencies.

Higher production cost and devaluation of the rupee cast serious burden on the profitability of the company during the year, which was somehow bailed out by dividend income from investments. Total dividend stream during FY 2008 stood at Rs. 820.446 million against Rs. 465.774 million last year.

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After accounting for all charges including deprecation/ amortization of Rs. 1,363.037 million, financial charges of Rs. 1,749.837 million and Rs. (197.70) million for provision for taxation (including deferred tax of Rs. (305.0) million) etc. your Company suffered a net loss of Rs. 53.230 million.

DIVIDEND

Your management keeping in view profitability and liquidity position of the company decided not to recommend any dividend for the period under review.

ONGOING PROJECTS

The new world’s largest Vertical Cement Grinding Mill at D.G. Khan Site is under commissioning. The mill is expected to start commercial production in second quarter of FY 2009. After the start of grinding mill additional quantities of cement will be available, this will help boost revenue.Project of power generation from waste heat at DGK Site is in full swing. Civil work has already been started. Shipments from plant supplier would start by the end of this calendar year. The project is expected to generate substantially cheap electricity of about

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10.4MW without using any fuel. This would help to cut down the cost of production. The project is expected to start in first quarter of next financial year.

Going forward, your company has also decided to use municipal solid waste as fuel for heating purposes. In this regard, negotiations with equipment suppliers are in process, which is expected to be finalized soon. In addition, your company is also in contact with different city governments to enter into agreements for acquiring the solid waste. This project entail multi dimensional benefits, like it would bring down the costs of production, help resolve the environmental issues related with disposal of solid waste and most important, it would save huge foreign exchange spent on importing fossil fuels.

FUTURE OUTLOOK

Despite severe fiscal pressure on the Govt. of Pakistan due to economic turn down and mounting trade and budget deficit, the Federal budget came up with incremental Public sector development plan (PSDP). The outlay budgeted for FY 2009 is Rs 550bn. against Rs. 520bn. last year which is 5.7% higher and 20% higher than the revised budget of Rs. 458bn for FY 2008; this bodes well for the cement industry of the country.

The Govt. has already announced after the meeting of NEC in June 2008 allocation of Rs. 166bn for infrastructural projects out of which Rs. 54bn. would be spent on 314 small new dams countrywide. In the budget 2009, an allocation of Rs. 75bn. has also been made for construction and improvement of dams and water reservoirs in the country. In addition, an amount of Rs. 37bn. has also been allocated for roads and highways. Pakistan is short of housing compared with regional countries. To address the issue the Govt. has announced to add 1000K units of low cost houses. All these steps announced if followed will increase the cement demand in the country during FY 2009.

Cement industry of the country since the last few years had been demanding gradual slash in central excise duty (CED) which is the highest among the regional countries, but as a surprise the Govt. has rather increased the CED in the Federal budget from Rs.750/ton to Rs.900/ton. In addition, Govt. also increased general sales tax by 1%. Both these indirect tax measures would bode negatively on cement demand in the country.

Exports have touched almost 7.0 million tons mark during FY 2008. The cement players in the country are trying to find new markets in the world. Demand of cement manufacturers to allow export of cement to India via land route is not yet resolved. If allowed a sizeable quantity of cement could be exported through land route which is the cheapest and most convenient.

Growth in exports is continuing and cement has emerged as a valuable commodity for the country as it is earning precious foreign exchange. Impediments to the exports like lack of bulk handling facilities at ports and insufficient export rebate is hindering the exports potentials of the country. Cement industry is demanding from Govt. of Pakistan to set up bulk handling facilities for cement, clinker and coal at Karachi ports but nothing has turned out yet.

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RELATED PARTIES

The transactions between the related parties were made at arm’s length prices determined in accordance with the comparable uncontrolled prices method. The Company has fully complied with the best practices on Transfer Pricing as contained in the Listing Regulations of Stock Exchanges in Pakistan.

CORPORATE & FINANCIAL REPORTING FRAME WORK

In compliance with the Code of Corporate Governance, we give below statements on Corporate and Financial Reporting Frame Work:

The financial statements, prepared by the management of the Company, present fairly its state of affairs, the results of its operations, cash flows and changes in equity.

Proper books of account of the Company have been maintained.

Appropriate accounting policies have been consistently applied in preparation of financial statements and accounting estimates are based on reasonable and prudent judgment.

International Accounting Standards, as applicable in Pakistan, have been followed in preparation of financial statements and any departure there from has been adequately disclosed.

The system of internal control is sound in design and has been effectively implemented and monitored. There are no significant doubts upon the Company’s ability to continue as a going concern.

There has been no material departure from the best practices of corporate governance, as detailed in the listing regulations.

Value of investments of Provident Fund as on June 30, 2008 is Rs. 235.022 million.

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Board Meetings:

During the year under review, five meetings were held. Attendance by each director is as follow:

S. No. Name of Director Attendance

1. Mrs. Naz Mansha Chairperson 42. Mian Raza Mansha Chief Executive 53. Mr. Manzar Mushtaq 44. Khalid Qadeer Qureshi 55. Zaka ud din 56. Muhammad Azam 57. Inayat Ullah Niazi 5

AUDIT COMMITEE

The Board of Directors in compliance with the Code of Corporate Governance has established an audit committee. The names of its members are given in the company profile.

AUDITORS

M/s. KPMG Taseer Hadi and Khalid, Chartered Accountants, Lahore, retire and being eligible, offer themselves for the reappointment.

M/s. Avais Hyder Liaquat Nauman Rizwan, Chartered Accountants, Lahore have been appointed as Cost Auditors.

ACKNOWLEDGEMENT

The management applauds the efforts of dedicated engineers, technicians and staff of D.G. Khan Site for their hard work and commitment which turned to set a record run factor of Kiln-2. In addition, management also acknowledges the role of all the financial institutions, dealers, customers, suppliers and other stakeholders for their continued support.

For and on behalf of the Board

Lahore MIAN RAZA MANSH September 19, 2008 Chief Executive

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AUDITORS' REPORT TO THE MEMBERS

We have audited the annexed balance sheet of D. G. Khan Cement Company Limited (“the Company”) as at 30 June 2008 and the related profit and loss account, cash flow statement and statement of changes in equity together with the notes forming part thereof, for the year then ended and we state that we have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the purposes of our audit.

It is the responsibility of the Company’s management to establish and maintain a system of internal control, and prepare and present the above said statements in conformity with the approved accounting standards and the requirements of the Companies Ordinance, 1984. Our responsibility is to express an opinion on these statements based on our audit.

We conducted our audit in accordance with the auditing standards as applicable in Pakistan. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the above said statements are free of any material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the above said statements. An audit also includes assessing the accounting policies and significant estimates made by management, as well as, evaluating the overall presentation of the above said statements. We believe that our audit provides a reasonable basis for our opinion and, after due verification, we report that:

a) In our opinion, proper books of account have been kept by the Company as required by the Companies Ordinance, 1984;

b) In our opinion:i) the balance sheet and profit and loss account together with the notes thereon have been drawn up in conformity with the Companies Ordinance, 1984, and are in agreement with the books of account and are further in accordance with accounting policies consistently applied;ii) the expenditure incurred during the year was for the purpose of the Company’s business; andiii) the business conducted, investments made and the expenditure incurred during the year were in accordance with the objects of the Company;

c) In our opinion and to the best of our information and according to the explanations given to us, the balance sheet, profit and loss account, cash flow statement and statement of changes in equity together with the notes forming part thereof conform with approved accounting standards as applicable in Pakistan, and, give the information required by the Companies Ordinance, 1984, in the manner so required and respectively give a true and fair view of the state of the Company’s affairs as at 30 June 2008 and of the profit, its cash nflows and changes in equity for the year then ended; and

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d) In our opinion Zakat deductible at source under the Zakat and Ushr Ordinance, 1980 (XVIII of 1980), was deducted by the Company and deposited in the Central Zakat Fund established under section 7 of that Ordinance.

Lahore KPMG Taseer Hadi & Co.September 19,2008 Chartered Accountants

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BALANCE SHEET

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D.G. Khan Cement Company Ltd.Balance Sheet

As On June 30, 20082008 2007

Rupees in thousandASSETSCURRENT ASSETSStores, spares and tools 2,299,250 1,496,291Stoke-in-trade 455,856 295,140Trade debts 366,173 144,245Investment 15,082,582 16,933,790Advances, deposits, payments and other receivables 782,358 229,315Cash and bank balance 226,372 116,173Total Current Assets 19,202,591 19,214,954NON-CURRENT ASSETSProperty, plant and equipment 22,977,894 22,117,551Assets subject to finance lease 5,135 133,376Investments 2,488,307 1,907,063Long term loans, advances and deposits 523,046 196,913Total Non-Current Assets 32,790343 32,529,377TOTAL ASSETS 51,992,934 51,744,331LIABILITIES AND EQUITYCURRENT LIABILITIESTrade and other payables 1,370,336 1,027,274Accrued markup 364,664 342,612Short term borrowing-secured 7,597,020 3,942,972Current portion of non-current liabilities 2,687,608 2,042,281Provision for taxation 35,090 35,090Total Current Liabilities 12,054,718 7,390,229NON-CURRENT LIABILITIESLong term finances 8,411,051 8,686,447Liabilities against assets subject to finance lease - 1,141Long term deposits 73,890 79,467Retirement and other benefits 54,018 39,862Deferred 1,319,000 1,624,000Total Non-Current Liabilities 9,857,959 10,430,917EQUITY CAPITAL AND RESERVESAuthorized Capital1,000,000,000 shares @ Rs 10 10,000,000 10,000,000Issued subscribed and paid up capital 2,535,412 2,535,412Reserves 27,595,698 27,630084Accumulated (loss)/profit (50,853) 1,757,689Total Equity 30,080,257 33,923,185

TOTAL LIABILITIES AND EQUITY 51,992,934 51,744,331

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INCOME STATEMENT

D.G. Khan Cement Company Ltd.

Income Statement

For the Year Ended on June 30, 2008

2008 2007

Rupees in thousand

Sales - net 12,445,996 6,419,625

Cost of sales (10,530,723) (4,387,640)

Gross profit 1,915,273 2,031,985

Administrative expenses (111,658) (104,169)Selling and distribution expenses (561,465) (65,122)Other operating expenses (581,913) (139,721)Other operating income 847,344 479,420Profit from operations 1,507,581 2,202,393

Finance cost (1,749,837) (467,759)Share of loss of associated companies (8,674) (14,163)(Loss) / profit before tax (250,930) 1,720,471

Taxation 197,700 (98,000)(Loss) / profit for the year (53,230) 1,622,471

(Loss) / earnings per share - basic and diluted (0.21) 6.43

CASH FLOW STATEMENT

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D.G. Khan Cement Company Ltd.Cash Flow Statement

For the Year Ended on June 30, 20082008 2007Rupees in thousand

CASH FLOWS FROM OPERATING ACTIVITIESCash generated from operations 1,263,660 996,605Finance cost paid (1,727,177) (465,771)Retirement and other benefits paid (5,054) (43,067)Taxes paid (135,780) (57,759)Net (decrease) / increase in long term deposits (5,577) 45,653Net cash (used in)/generated from operating activities (609,928) 475,661

CASH FLOWS FROM INVESTING ACTIVITIESPurchase of property, plant and equipment (2,698,370) (5,095,269)Purchase of investments (188,339) (320,955)Sale proceeds of investments - 90Net (increase)/decrease in long term loans, advances and deposits

(325,502) 138,897

Sales proceeds of property, plant and equipment 26,655 18,608Dividend received 820,435 465,779Interest received 8,333 3,681Net cash used in investing activities (2,356,788) (4,789,169)

CASH FLOWS FROM FINANCING ACTIVITIESProceeds from issuance of share capital - 1,602,666Proceeds from long term finances 3,000,000 3,332,548Repayment of long term finances (3,178,083) (1,481,302)Repayment of liabilities against assets subject to finance lease

(19,957) (85,932)

Dividend paid (379,093) (344,743)Net cash (used in)/generated from financing activities (577,133) 3,023,237

Net decrease in cash and cash equivalents (3,543,849) (1,290,271)

Cash and cash equivalents at the beginning of year (3,826,799) (2,536,528)

Cash and cash equivalents at the end of year (7,370,648) (3,826,799)

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FINANCIAL RATIOS ANALYSIS

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The information contained in the four basic financial statements is of major significance

to the various interested parties who regularly need to have relatives measure of the

company operating activities efficiency. Relative is a key word here, because the analysis

of financial statements is based on the use of ratio or relative values.

What is ratio analysis? What type of ratio analysis?

Ratio analysis involves method of calculating and interpreting financial ratio to analyze

and monitor the firm’s performance.

Type of ratio analysis

Ratio analysis is not merely the calculation of a given ratio. More important is the

interpretation of the ratio value.

There are two types of ratio analysis

Cross-sectional analysis

Time series analysis

Cross-sectional analysis

Cross-sectional analysis involves the comparison of different firms’ financial ratios at the

same point in time.

The major types of comparison that are made in cross-sectional analysis are:

Benchmarking Industry average

Benchmarking

Benchmarking is frequently use by different firms. In this a firm compares its ratio values

to those of a key competitor or a group of competitors that it wishes to emulate.

Industry average

Industry averages are not particularly useful for analyze with firms with multiproduct

lines. In the case of multiproduct firms, it is difficult to select the appropriate benchmark

industry.

Time series analysis

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Time series analysis evaluates performance over time. Comparison of current to past

performance, using ratios, enables analysts to asses the firm’s progress.

Categories of ratio analysis:

Financial ratios can be divided for convenience into five basic categories:

Liquidity ratios

Activity ratios

Debt ratios

Profitability ratios

Market ratios

A) Liquidity Ratios:

A firm’s ability to satisfy its short-term obligations as they come due is called liquidity.

Liquidity refers to the solvency of the firm’s overall financial position the ease with

which it can pay its bill. These ratios are viewed as a good indicator of cash flow

problems. The two basic measures of liquidity are:

a) Current ratio

b) Quick (acid test) ratio

a) Current Ratio

A measure of liquidity calculated by dividing the firm’s current assets by its current

liabilities. It measures the firm’s ability to meet its short-term obligations. It is expressed

as follow:

Current assetsCurrent ratio =

Current liabilities

` 19,202,591,000=

12,054,934,000 = 1.59 Times

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CURRENT RATIO ANALYSIS

YEAR 2008 2007 2006 2005 2004CURRENT RATIO 1.59

2.60 1.65 1.37 1.21

b) Quick (acid test) ratio

The quick ratio measures the liquidity and is calculated by dividing the firm’s current

assets minus inventory by its current liabilities. It is calculated as follows:

Current assets – InventoryQuick ratio =

Current liabilities

19,202,591,000 – 445,856,000 =

12,054,934,000

= 1.56 Times

QUICK RATIO ANALYSIS

YEAR 2008 2007 2006 2005 2004QUICK RATIO 1.56 2.56 1.61 1.32 1.17

TIME-SERIES ANALYSIS OF LIQUIDITY RATIOS

YEAR 2008 2007 2006 2005 2004

CURRENT RATIO 1.59

2.60 1.65 1.37 1.21

QUICK RATIO 1.56 2.56 1.61 1.32 1.17

B) Activity ratios:

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It measures the speed with which various accounts are converted into sales or cash

inflows or outflows.

A number of ratios are available for measuring the activity of the most important current

accounts, which includes inventory, account receivable, and account payable.

It includes following ratios:

a) Inventory turnover

b) Average collection period

c) Average payment period

d) Total assets turnover

a) Inventory turnover:

It commonly measures the activity, or liquidity, of a firm’s inventory. It is calculated as

follows.

Cost of goods soldInventory turnover =

Inventory

10,530.723,000=

445,856,000

= 23.62 Times

INVENTORY TURNOVER

YEAR 2008 2007 2006 2005 2004I.T.O 23.62 14.86 17.64 27.86 19.93

b) Average collection period:

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The average collection period, or average age of account receivable, useful in evaluating

credit and collection policies. It is calculated by dividing the average daily sales into the

account receivable balance:

Account receivableAverage collection period =

Average sales per day

Account receivable =

Annual sales/360

366,173,000 =

12,455,996,000/ 360

= 10.58 Days

AVERAGE COLLECTION PERIOD

YEAR 2008 2007 2006 2005 2004A.C.P 10.58 8.09 3.36 4.88 5.20

c) Average payment period:

Average payment period or average age of account payable, is calculated by dividing the

account payable to average purchases per day.

Account payableAverage payment period =

Average purchase per day

Account payable =

Annual purchases / 360

1,370,336,000 =

29,698,442 / 360

= 46.142 Days

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AVERAGE PAYMENT PERIOD

YEAR 2008 2007 2006 2005 2004A.P.P 46.142 82.984 64.365 56.966 78.598

d) Total assets turnover:

It indicates the efficiency with which the firm uses its assets to generate sales. It is

calculated as follows:

SalesTotal assets turnover =

Total assets

12,455,996,000 =

51,992,934,000

= 0.239 Times

TOTAL ASSET TURNOVER

YEAR 2008 2007 2006 2005 2004T.A.T 0.239 0.124 0.232 0.214 0.195

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TIME-SERIES ANALYSIS OF ACTIVITY RATIOS

YEAR 2008 2007 2006 2005 2004

Inventory Turnover (Times)

23.62 14.86 17.64 27.86 19.93

Average Collection Period(Days)

10.58 8.09 3.36 4.88 5.20

Average Payment Period(Days)

46.142 82.984 64.365 56.966 78.598

Total Asset Turnover (Times)

0.239 0.124 0.232 0.214 0.195

C) Debt ratio:

It 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 profits. It is

calculated as follows:

Total liabilitiesDebt ratio =

Total assets

21,912,677,000 =

51,992,934,000

= 0.4215* 100

= 42.15 %

DEBT RATIO ANALYSIS

YEAR 2008 2007 2006 2005 2004

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DEBIT RATIO 42.15% 34.44% 43.83% 48.28% 46.08%

Time interest earned ratio

It is also called interest coverage ratio, measures the firm’s ability to make contractual

interest payments it is calculated as follows.

Earning before interest and taxesTime interest earned ratio =

Interest

1,507,581,000 =

1,749,837,000

= 0.86 Times

TIME INTREST EARNED RATIO ANALYSIS

YEAR 2008 2007 2006 2005 2004T.I.E.R 0.86 4.71 8.67 7.98 5.99

TIME-SERIES ANALYSIS DEBT OF RATIOS

YEAR 2006 2005 2004 2003 2002

DEBIT RATIO 42.15% 34.44% 43.83% 48.28% 46.08%

T.I.E.R 0.86 4.71 8.67 7.98 5.99

D) Profitability ratio:

There are many measures of profitability. As a group, these measures enable the analyst

to evaluate the firm’s profit s with respect to a given level of sales, a certain level of

assets, or the owners’ investment.

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It includes the following ratios:

a) Gross profit margin

b) Net profit margin

c) Earning per share

d) Return on total assets (ROA)

e) Return on equity (ROE)

a) Gross profit margin:

It measures the percentage of sales dollar remaining after the firm has paid for its goods.

It is calculating as follow:

Sale – CGSGross profit margin =

Sale

Gross profit =

Sales

1,915,273,000 =

12,445,996,000 =

= 15.39 %

GROSS PROFIT MARGIN ANALYSIS

YEAR 2008 2007 2006 2005 2004G.P.M 15.39% 31.65% 49.81% 36.91% 35.68%

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b) Operating profit margin:

It measures the percentage of each sales dollar remaining after all costs and expenses

other than interest, taxes, and preferred stock dividend are deducted.

It is also called “pure profit” earned on each sales dollar. It is calculating as follow:

Operating profitsOperating profit margin =

Sales

1,507,581,000 =

12,445,996,000

= 12.11%

OPERATING PROFIT MARGIN ANALYSIS

YEAR 2008 2007 2006 2005 2004O.P.M 12.11% 34.31% 49.13% 33.16% 32.09%

c) Net profit margin:

It measures the percentage of each sales dollar remaining after all costs, expenses,

including interest and taxes have been deducted.

It is calculating as follow:

Earnings available for common stockholdersNet profit margin =

Sales

(53,230,000)

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= 12,445,996,000

= (0.43) %

NET PROFIT MARGIN ANALYSIS

YEAR 2008 2007 2006 2005 2004N.P.M -0.43% 25.27% 30.40% 31.86% 20.46%

d) Earnings Per Share:

EPS represents the number of dollars earned during the period on behalf of each

outstanding share of common stock. It is calculating as follow:

Earning available for common stockholdersE.P.S =

No. Of shares of common stock outstanding

(53,230,000) =

253,541,157

= Rs. -0.21

EARNING PER SHARE ANALYSIS

YEAR 2008 2007 2006 2005 2004E.P.S Rs. -0.21 Rs. 6.40 Rs. 13.12 Rs. 9.12 Rs. 4.74

e) Return on Total Assets (ROA):

It is also called the return on investment measures the overall effectiveness of

management in generating profit with its available assets. The higher the firms return on

total assets the better the firm is.

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Earning available for common stockholdersROA =

Total assets

(53,230,000) = 51,992,934,000

= -0.10 %

RETURN ON TOTAL ASSETS ANALYSIS

YEAR 2008 2007 2006 2005 2004ROA -0.10 % 3.14% 7.05% 9.34% 6.78%

f) Return on equity (ROE):

The return on common equity measures the return earned on common stockholders

investment in the firm. It is calculating as follow

Earning available for common stockholdersROE =

Common stock equity

(53,230,000) =

30,080,257,000

= -0.18%

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RETURN ON EQUITY ANALYSIS

YEAR 2008 2007 2006 2005 2004ROE -0.18% 4.78% 12.55% 18.05% 12.58%

TIME-SERIES ANALYSIS OF PROFITABILITY RATIOS

YEAR 2008 2007 2006 2005 2004

Gross Profit Margin

15.39% 31.65% 49.81% 36.91% 35.68%

Operating Profit Margin

12.11% 34.31% 49.13% 33.16% 32.09%

Net Profit Margin

-0.43% 25.27% 30.40% 31.86% 20.46%

Earnings Per Share

Rs. -0.21 Rs. 6.40 Rs. 13.12 Rs. 9.12 Rs. 4.74

Return on Total Assets

-0.10 % 3.14% 7.05% 9.34% 6.78%

Return on Common Equity

-0.18% 4.78% 12.55% 18.05% 12.58%

E) Market ratios:

Market ratio relate to the firm’s market value, as measured by its current share price, to

certain accounting values. It is measured in two ways

a) Price/Earning ratio

b) Market/Book ratio

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a) Price/Earning ratio:

It measures the amount that investors are willing to pay for each dollar of the firm’s

earning. The higher the price earning ratio the greater is investors’ confidence.

Market price per share of common stockP/E ratio =

EPS

37.73 =

-0.21

= -179.81Times

PRICE/EARNING RATIO ANALYSIS

YEAR 2008 2007 2006 2005 2004P/E RATIO -179.81 16.72 6.61 7.42 9.80

b) Market/Book ratio:

It provides an assessment of how investor views the firm’s performance. Firm expected

to earn high return relative to their risk typically sells at higher market/book multiples.

Common stock equityBook value per share of common stock =

Number of shares of common stock outstanding

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30,080,257,000 =

253,541,157

= Rs. 118.64/share

BOOK VALUE PER SHAREYEAR 2008 2007 2006 2005 2004BOOK VALUE 118.64 133.80 104.49 50.53 37.68

Market price per share of common stock

Market/Book (M/B) ratio =

Book value per share of common stock

37.73

=

118.64

= 0.32 Times

MARKET/BOOK RATIO ANALYSIS

YEAR 2008 2007 2006 2005 2004M/B RATIO 0.32 0.29 0.35 0.31 0.27

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CROSS-SECTIONAL ANALYSIS:

For the Year 2008

Liquidity ratiosD.G.Khan Cement Lucky Cement Remarks

Current ratio= 1.59 Times 1.09 Times Poor

Quick Ratio= 1.56 Times 1.00 Times Poor

Activity RatiosInventory Turnover= 23.62 Times 17.76 Times GreaterAverage Collection Period= 10.58 Days 15.50 Days Better

Average Payment Period= 46.14 Days 102.6 Days Better

Total Asset Turnover= 0.24 Times 0.50 Times PoorDebt Ratios

Debt Ratio= 42.85% 45.5% Ok

Time Interest Earned Ratio= 0.86 Times 24.27 Times PoorProfitability Ratios

Gross profit margin= 15.39% 25.73% Poor

Operating profit margin= 12.11% 18.14% Poor

Net profit margin= (0.43)% 15.79% Poor

Earning per share(EPS)= Rs. (0.21) Rs. 7.84 Poor

Return on total assets(ROA)= (0.10)% 7.82% Poor

Return on common equity(ROE)= (0.17)% 14.35% Poor

Market Ratio

Price/Earnings(P/E)Ratio= -179.81 11.18 Poor

Market/Book Ratio 0.318 1.60 Poor

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STRENGTH

Assets

Plant Capacity of Production

Employees

Collectivism

WEAKNESS

Weak Culture

Power distance

OPPORTUNITY

Export in Abroad Country

Expanding Business

THREATS

Competitor

Dynamic Environment

Recession in Economy

report on d.g. khan cement

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