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financial analysis of fauji cement comapany ltd

financial analysis of fauji cement comapany ltd

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06/15/2013

Graduate School of Management

INTERNATIONAL ISLAMIC UNIVERSITY ISLAMABAD

Presented To: Sir Wasim Ullah
MBA (LUMS)

Project:
Financial Analysis of Fouji Cement Company Ltd

Presented By: Muhammad Farooq
Reg#3440-FMS/MBA/S08 (19B) +92 333 6836340

Muhammad Khalil Hussain
Reg#3443-FMS/MBA/S08 (19B) +92 333 9835303

Muhammad Ahsan
Reg#3427-FMS/MBA/S08 (19B) +92 333 5023773

LIQUIDITY RATIOS: (Rs. ‘000)
CURRENT RATIO:
Year Rati o Ind.Av. 1.83 2008 2.16 2007 1.35 2006 1.25 2005 0.97 2004 1.54

There is a decrease in ratio from 2004 to 2005. The liabilities are increased by 224.35% while the current assets have increased by only 104.15% i.e. less increase. Further scrutiny reveals that the “Current Portion of Long Term Financing” has increased from Rs. 86,509 to Rs. 552,995 i.e. an increase of 539.23%, and “Short Term BorrowingsSecured” were taken amounting to Rs. 308,876 in year 2005 on liabilities side, and in assets the major increase is found in “Cash and Bank Balances’ which are increased from Rs. 197,088 to Rs. 603,110 i.e. an increase of 206.01% and “Trade Debts” have increased by 139.42%. So due to these reasons its Current Ratio was dropped down in 2005. From 2005 to 2006 there is an increase in Ratio, because its liabilities were increased by 4.99% and assets were increased by 34.67% so an increasing trend is found. From 2006-07 the ratio is increased from 1.25 to 1.35 because the liabilities are increased by 13.82% but the assets were increased by 23.69% so an increase in ration is found. From year 2007-08, the ratio was increased from 1.35 to 2.16, i.e. a major increase. In year 2008 the company has issued new shares to the general public, due to the more investment in business operations the ratio was increased because it increased its liabilities by 70.20% but on the other side the current asset level was increased by 171.00% by increasing its stock in trade by 25.52% and the Trade Debts by 37.68%. While comparing to industry average it is better than others. CROSS SECTIONAL
2.5
2.16

TREND ANALYSIS
CURRENT RATIO=

2 1 .5 1 0.5 0 2004 2005 2006 2007 2008
1.54 1.25 0.97 1.35

2004 2005 2006 2007 2008

QUICK RATIO:
Year Ratio 2008 2.06 2007 1.23 2006 1.13 2005 0.93 2004 1.38

There is a decrease in ratio from 2004 to 2005. The liabilities are increased by 224.35% while the current assets have increased by only 104.15% i.e. less increase. Further scrutiny reveals inventory was decreased by 9.20% so the ratio was decreased more than Current Ratio in 2004. From 2005 to 2006 there is an increase in Ratio, due to the reason discussed in Current Ratio and also the inventory was substantially increased by 159.41% so the ratio was increased but less than current ratio. From 2006-07 the ratio is increased from 1.13 to 1.23 because the reason discussed in Current Ratio, the inventory level 26.34%. From 2007-08 the ratio was increased very large due the reasons prescribed in current ratio, it has increased its inventory level 25.52%. CROSS SECTIONAL

CASH RATIO:
Year Ratio 2008 1.54 2007 0.29 2006 0.67 2005 0.50 2004 0.53

There is a normal increase or decrease in ratio up to 2006 but in 2007, the ratio was dropped down to 0.29 from 0.67 in 2007 because Cash and Bank Balances level was decreased by 50.08%. in 2008 there is a major increase in ratio, some reasons were

explained in current ratio and other reason is that it has increased its cash and bank balance level by 794.26%. NET WORKING CAPITAL TO TOTAL ASSETS RATIO:
Year Ratio 2008 0.23 2007 0.08 2006 0.05 2005 -0.01 2004 0.03

From 2004 to 2005 the ratio was decreased by 0.04, some reasons were explained in current ratio and other are; it increased its assets by 5.30% and the net working capital was also decreased by Rs. 236,525 so the ratio was dropped. After that there is normal increase/ decrease upto 2007 but enormous increase is found in 2008 due to the reasons discussed in current assets and it increased its total assets by 94.58% and less increase in current ration of 2.16: 1.

PROFITABILITY RATIO:
GROSS PROFIT MARGIN RATIO:
Year Ratio 2008 18.56% 2007 31.52% 2006 51.12% 2005 38.01% 2004 32.26%

From 2004 to 2006 the ratio is gradually increasing, but in 2007 it was decreased from 51.12% to 31.52% the reason is, sales were decreased by 19.20% but the Cost of Sales was increased by 13.21%. It has less control on Cost of Sales along with the decrease in sales and gross profit was dropped down by 50.19%. In 2008, the sales were increased only by 2.39% while the cost of sales was increased by 21.76% and gross profit was dropped down by 39.71%.

OPERATING PROFIT MARGIN RATIO:
Year Ratio 2008 16.96% 2007 28.74% 2006 47.64% 2005 34.75% 2004 31.49%

The ratio is increased progressively upto 2006. In 2007 and 2008 it was decreased by 18.90%, due to the reasons prescribed in Gross Profit Margin ratio. NET PROFIT MARGIN RATIO:
Year Ratio 2008 11.66% 2007 18.66% 2006 28.08% 2005 17.94% 2004 13.68%

Upto 2006 the ratio is increasing gradually and after that the ratio has decreased because of the reasons described in Gross Profit Margin Ratio and after that it has controlled the operating expenses and earned huge income from other sources so the major reason for decrease is sales and increase in cost of sales.

RETURN ON ASSETS:
Year Ratio 2008 4.83% 2007 15.55% 2006 32.95% 2005 15.89% 2004 12.23%

In 2004 to 2005 the ratio has increased normally but in 2006, a major increase has been seen, the reason for this is its net income was increased considerably but there was a minor decrease in total assets. Further analysis tells that in 2006 the company made a huge unprecedented sales and controlled cost of sales and operating expenses so increase in income leaded to increase in ROA. In 2007 the ratio was decreased due to the major decrease in sales. In 2008 the ROA dropped down very deficiently because its EBIT was decreased and its assets were increased by 95%, so ratio dropped down.

FINANCIAL CHARGE:
Year Ratio 2008 6.30% 2007 11.22% 2006 11.71% 2005 5.73% 2004 1.92%

The ratio is increased/decreased normally upto 2007, in 2008 the ratio was decreased very large. The reason for this is paid less interest expense on debts. RETURN ON EQUITY:
Year Ratio 2008 4.45% 2007 17.30% 2006 36.67% 2005 20.84% 2004 16.20%

The ratio was increased normally upto 2006, in 2007 the ratio was decreased to 17.30% from 36.67%. Net income was reduced due to the reasons of decrease in sales and deficient control on cost of sales. In 2008 the equity was increased by offering more shares on premium to the general public and also its net income was also declined so the ratio was decreased tremendously.

ACTIVITY RATIO:
ASSET TURNOVER RATIO:
Year Ratio 2008 0.28 2007 0.54 2006 0.69 2005 0.46 2004 .039

The ratio was increased normally in 2004 & 2005 but in 2006 it was increased due to enormous increase in sales. In 2007 it was normally decreased but in 2008 there were large decreases because its assets were doubled by means of launching investment by offering new ordinary shares to the general public. AVERAGE SALES PER DAY:
Year Ratio 2008 9,714.80 2007 9,488.45 2006 11,742.84 2005 7,794.91 2004 6,291.04

This ratio is normally increased/ decreased in all years except in 2006 where company made significant sales not found in the history of the company. ACCOUNT RECIEVABLE TURNOVER:
Year 2008 35.57 2007 90.51 2006 5.99 2005 5.91 2004 11.70

A cyclic trend is found in ratio in all years because on one hand there is a variation in account receivable and the average sales per day so this trend is found.

INVENTORY TURNOVER:
Year Ratio 2008 12.55 2007 12.94 2006 14.44 2005 31.53 2004 25.25

Upto 2005 the ratio was increased but in 2006 a declining trend was started because it is increasing its inventory level more than increase in cost of sales.

FIXED ASSET TURNOVER:
Year Ratio 2008 0.50 2007 0.79 2006 0.94 2005 0.61 2004 0.49

The ratio was increased normally in all years but in 2006 it was decreased very large because the company had made unprecedented sales along with the normal increase in Net Fixed Assets.

LEVERAGE RATIOS:
DEBT RATIO:
Year Ratio 2008 0.25 2007 0.42 2006 0.47 2005 0.61 2004 0.67

The debt ratio was increased or decreased normally due to normal increase/ decrease in Total liabilities and Total Assets. In 2008, the liabilities were increased very small but the Total Assets were increased by investing more capital through offering new shares to the general public so ratio was decreased very large.

DEBT/ EQUITY RATIO:
Year Ratio 2008 0.34 2007 0.71 2006 0.89 2005 1.54 2004 2.05

This ratio is constantly decreasing due to the following reasons:  Very small increase/ decrease in Total Liabilities.  Constantly increase in equity by increasing the share holders’ wealth through increasing income and also in 2008 by introducing more capital. TIE RATIO:
Year Ratio 2008 4.23 2007 4.93 2006 7.88 2005 5.10 2004 10.36

This ratio is constantly decreasing due to the following reasons:  In 2004-05 a normal increase in EBIT but a major increase in Interest Expense.  In 2006, there is a tremendous increase in EBIT due to huge increase in sales and a normal increase in interest expense.  In 2007 the ratio was dropped down by 62.56% due to lesser sales in EBIT and a normal reeducation in interest expense.  In 2008 the EBIT was further reduced along with a major decrease in Interest Expense.

Z- Score Model of Fauji Cement Company Limited Z = 0.012x1 + 0.014x2 + 0.033x3 + 0.006x4 + 0.999x5

2008 0.320

2007 0.574

2006 0.722

2005 0.467

2004 0.397

The company was with enormous retained losses instead of profits in its history so second factor of its Z score model was reduced and its impact was so large that it trickled down its whole values not even less than 1.80 but 1.00. Now as there is an increasing trend of profitability and the company has also increased its investment by issuing new ordinary shares to the general public so we expect that the retained losses will be vanished in next year and we hope that this increasing trend of profitability will continue and company will prosper, in the absence of any force majour.

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