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“Fauji Fertilizer Bin Qasim Limited”

Financial Analysis Report

Supervised by:
Miss Ayesha Riaz

Submitted by:
Zakia Abid Roll# 06-54 BBA (Hons) 8th semester Department of Management Sciences

University of Education Okara Campus

DEDICATION
I dedicate it to my respected and beloved parents. Without their patience, understanding support, and most of love all, the completion of this work is not possible. I dedicate it to my respected and honorable teacher Miss Ayesha Riaz, who helps me very much in finding data.

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ACKNOWLEDGEMENT
I bow my head to Almighty Allah with gratitude. I would like to express gratitude to all those who gave me the possibility to complete this assignment. I am greatly thankful and show the sincere respect to our respected teacher Miss Ayesha Riaz. Without their guidance, I was not able to understand it and achieve its basic goal. Our teacher provides us the real guideline to accomplish this task. Her spiritual personality and kindness gave us courage to do this assignment. I am also greatly thankful to my respected parents, who pray for me. Without the support of our parents, I am nothing. With the guidance of my parents, I accomplish this task easily.

Zakia Abid

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FINAL APPROVAL
This is to certify that we have read project submitted by Zakia Abid and it is our judgement that this report is of sufficient standard to warrant its acceptance by University of Education Okara Campus for BBA (Hons) degree. Professor Dr. Shafiq Khan Director UE Okara Campus. Mr. Rai Imtiaz Hussain Head of Department UE Okara Campus. Miss Ayesha Riaz Supervisor UE Okara Campus. Signature

Signature

Signature

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Table of Contents
1. Introduction

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1.1 Agriculture Sector 1.2 Economic Environment

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4 1.3 Types of Fertilizer 1.4 Global Scenario 7 1.5 Pakistan Fertilizer Industry 10 1.5.1 Fertilizer Industry Brief 1.5.2 Market Situation Future Outlook and Growth
2. Company Profile

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11 12 14 16 16 17 19 19 20 20 21 24

2.1 Company Information 2.2 Fauji Fertilizer Bin Qasim Limited 2.2.1 Vision 2.2.2 Mission 2.2.3 Core Values 2.2.4 Products 2.2.5 ISO Certification
3. Industry Analysis

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3.1 Porter’s Five Forces 3.1.1 Supplier Power 3.1.2 Buyer Power 3.1.3 Potential Entrants 3.1.4 Threat of Substitutes 3.1.5 Degree of Competitive Rivalry
4. External Environment

24 25 25 26 26 27 29 29 30 30 31 32 34 34 35 36 36 37 39 39 40 42 42 45 51 51 52
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4.1 PEST Analysis 4.1.1 Political/Legal Factors 4.1.2 Economic Factor 4.1.3 Social Factor 4.1.4 Technological Factor
5. Internal Environment

5.1 SWOT Analysis 5.1.1 Strengths 5.1.2 Weaknesses 5.1.3 Opportunities 5.1.4 Threats
6. Boston Consulting Group Matrix

6.1 BCG Matrix 6.2 Strategies under BCG Matrix
7. Summarized Financial Statements

7.1 Income Statement 7.2 Balance Sheet 8. Common Size/Component Percentage Analysis 8.1 Introduction 8.2 Income Statement

8.2.1 CGS, GP and Net Profit 8.3 Balance Sheet 8.3.1 Total Assets 8.3.2 Total Equity and Liabilities 8.4 Conclusion 9. Trend Percentage Analysis 68 9.1 Introduction 9.2 Income Statement 9.2.1 Net Sales 9.2.2 Cost of Sales 9.2.3 Gross Profit 9.2.4 Net Profit 9.3 Balance Sheet 9.3.1 Total Assets 9.3.2 Total Liabilities 9.4 Conclusion
10. Dollar and Percentage Changes

55 57 62 64 66

68 69 72 74 76 78 80 85 87 89

91 10.1 Introduction 10.2 Income Statement 10.3 Balance Sheet 10.4 Conclusion 11.Ratio Analysis 102 11.1 Analysis of Short Term Financial Position 11.1.1 Net Working Capital
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91 92 95 100

102 103

11.1.2 Current Ratio 11.1.3 Acid Test Ratio 11.1.4 Absolute Liquid Ratio 11.1.5 Conclusion 11.2 Analysis of Efficiency 11.2.1 Inventory Efficiency 11.2.2 Debtor Efficiency 11.2.3 Creditor Efficiency 11.2.4 Cycle Efficiency 11.2.5 Assets Efficiency 11.2.6 Working Capital Turnover Ratio 11.2.7 Conclusion 11.3 Analysis of Long Term Risk 11.3.1 Proprietory Ratio 11.3.2 Capital Gearing Ratio 11.3.3 Solvency Ratio 11.3.4 Conclusion 11.4Analysis of Profitability 11.4.1Percentage Change Ratio 11.4.2 Gross Profit Ratio 11.4.3 Net Profit Ratio 11.4.4 Operating Profit Ratio 11.4.5 Expense Ratio 11.4.6 Operating Ratio 11.4.7 Conclusion 11.5 Analysis of Return 11.5.1 Return on Assets
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104 105 107 108 109 109 111 113 115 117 119 120 121 121 122 124 125 126 126 128 130 131 133 135 136 137 137

11.5.2 Return on Investment 11.5.3 Return on Equity 11.5.4 Conclusion
12. Cross Sectional Analysis

138 140 141

143 12.1 Introduction 12.2 Income Statement 12.3 Balance Sheet 12.4 Short Term Financial Position Analysis 12.5 Profitability Analysis 12.6 Return Analysis 12.7 Efficiency Analysis 12.8 Long Term Financial Position Analysis 12.9 Conclusion 13. Conclusion 14.Future Projections 161 15. Recommendations 163 16. Annexure 165 143 144 146 148 150 152 154 156 157 159

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1. Introduction
Pakistan is agriculture country. Pakistan has moved from an economy heavily dependent on the agriculture to a relatively balanced economy based on services, industry and agriculture. Fertilizer usage in Pakistan is low. The greater demand is expected to continue in the future as economic growth continues. Due to excess demand, it is expected to keep reserves in the next years after which manufactures will be forced to fight for market share. Pakistan’s fertilizer manufactures have low resource costs due to feed stock gas subsidy advanced by Government. Through this subsidy manufactures are able to get feed stock gas at lower rates than the market which improves their profitability. The current excess demand situation has promoted capacity expansions which gave profits in 2014. The surplus amount is exported to neighboring countries. Stock presents an attractive opportunity to take exposure in high growth stocks at low costs.

1.1 Agriculture Sector
Pakistan is agriculture country and agriculture is the larger part of Pakistan economy. The undeniable importance of the agriculture sector to the economy of Pakistan is reflected in its contribution to national output, employment and export earnings. This sector contributes 20.8% to the country's Gross Domestic Product (GDP) and employs 43% of total labor force. As per experts estimation the share of agriculture cannot go down further, as many industrial sector such textile, sugar and fertilizer are also depend on agriculture. These industries provide input, as well as derived input from agriculture. However, in the future, the share of agriculture in overall GDP is estimated to start rising as the population demand for food rises.

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AGRICULTURAL AS A % OF GDP

Source: Economic Survey of Pakistan

Growth in this area of Economy is vital for poverty alleviation, as about 66 percent of rural population is directly or indirectly dependent on the agriculture sector for sustenance. Pakistan’s major source of foreign exchange earnings is the textile sector which also relies on agricultural performance. The major crops of Pakistan are wheat, cotton, rice and sugarcane, which make up 7% of the country’s GDP.
AGRICULTURAL GROWTH VERSUS GDP GROWTH

Source: Economic Survey of Pakistan

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Fertilizer has a significant contribution in increasing crop yields and productivity. Proper application of nutrients helps in efficient utilization of limited natural resources such as land and water. Fertilizers improve crop yield by removing the deficiency of chemical elements taken from the soil by harvesting, grazing, leaching or erosion. Coupled with improved seeds, better insecticides and more effective fungicides, chemical fertilizers play a vital role in boosting agricultural output. With proper farmer education and increased awareness, the fertilizer off-take can improve substantially. Nutrient application in suitable quantities can further improve farm productivity, thereby helping in eradicating poverty.

1.2 Economic Environment
Fertilizer consumption world wide is highly correlated with macroeconomic growth of the country. Likewise, Pakistan has witnessed robust economic growth in the last few years. The strong economic performance has been accompanied by an increase in agriculture growth, per acre yield and resultant demand. So, Pakistan’s economy is expected to grow. Pakistan’s agriculture output has suffered in the recent past due to adverse weather conditions and crop spoilage. The government is committed to improve agriculture performance through the following measures: i. Irrigation system improvement ii. Subsidy to farmer iii. Encouraging use of fertilizer iv. Above average credit disbursement As a result of these policies, yield per hectare of Pakistan is showing gradual improvement although it is low as compared to the other countries. So, Agriculture is expected to grow because of government policies and better irrigation.

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YIELD PER HECTARE (SELECTED COUNTRIES)

Source: IFA

The low yield can be explained in a large part by the low fertilizer use in Pakistan. Fertilizer consumption in Pakistan stands at 165.2kg/hectare.
CONSUMPTION KG/HECTARE

Source: IFA

The fertilizer policy aimed at providing low cost fertilizers to the farmer so as to enable them to improve yields. It encourages manufacturers to invest in the

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country and subsidizes their most important feed stock gas rates. In the future these measures are expected to results in great use of fertilizers and thereby create demand for it. Generally, fertilizer consumption closely follows production in a country subject to the availability of raw materials and also because of the relation between fertilizers consumption and economic growth.

1.3 Types of Fertilizer
Urea, which represents 65% of total fertilizer consumed and di-ammonium phosphate (DAP), which accounts for 18%, are the main types of fertilizer used in Pakistan, but there is a total of eight different fertilizer products which fall into three categories. Urea, along with calcium ammonium nitrate (CAN) and ammonium sulphate (AS) together make up almost three fourths of total fertilizer consumption and come under the nitrogenous category. Under the phosphatic category which makes up about 27%, is DAP, triple super phosphate (TSP), single super phosphate (SSP) and nitro phosphate (NP). And under the last category, potassic is sulphate of potash which makes up only 1%. Since the soil in Pakistan generally tends to be deficient in nitrogen, urea is the most used fertilizer. DAP is used, as most phosphatic fertilizers are to counter the effect of the acidic urea and maintain levels of fertility in the soil.

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1.4 Global Scenario
The world grain consumption has outpaced production in six of the last seven years, in which production superseded supply due to favorable weather in almost all the major grain producing countries. With the growing demand of food and rapid increase in demand for biofuels, the grain consumption growth has witnessed an increase of 5% in 2009 from the historical average rate of 1.5% p.a. This has led to a widening gap between consumption and production resulting in sharp increase in food prices in the global market.
CONSUMPTION OF EACH SECTOR

Source: State Bank of Pakistan

This growth was spurred by the rise in food demand by the burgeoning world population. Attaining higher production given the same amount of land can be done through three ways: i. ii. iii. Turning more land into arable land through better irrigation Using High Yielding Seeds (HYS) Using fertilizers to improve soil content Improvement in soil content is the most convenient and frequently followed method. Moreover, it has gained widespread use as food demand rises.

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WORLD FERTILIZER CONSUMPTION

10 8

10 6
Source: FAO, IFA

Demand of grains from this sector has grown rapidly over the past few years on account of higher consumption of dairy products and meat by the developing countries especially China, India and Brazil. The amount of grain stored by governments, a good measure of the global cushion against poor harvests and rising prices continues to decline.
WORLD GRAIN PRODUCTION vs CONSUMPTION

10 4

llion Tons

10 2

10 0
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Source: FAO, IFA

The international Fertilizer Association (IFA) produces forecast of world fertilizer usage and production. Following estimates are taken from IFA. Till the year 2030, the increasing world population and higher standards of living in developing countries will demand a substantial increase in global cereal production. Problem in supply-demand are likely to occur because agricultural production in developing countries is not keeping pace with this increase in demand.
DEMAND FOR FOOD FOR HUMANS AND ANIMALS

Source: IFPRI

The increase in demand can be met through increase in cultivated area; however, this appears only as a possibility in Africa and Latin America. In most other parts of the world the increase in demand must be met through greater yield, which will most certainly require increased use of fertilizers. Growth in production is expected to outpace fertilizer consumption. According to IFA estimates world urea supply is expected to reach 180.8mntpa in 2011 from 148.2mntpa in 2010. Most of the forecasted increase in fertilizer capacity is expected to arise from China and Saudi Arabia.

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1.4 Pakistan Fertilizer Industry
Pakistan’s economy is agriculture based country; however our cultivable land is deficient in nutrient contents. This deficiency can only be overcome through the balanced use of fertilizer. Presently, there are ten manufacturing units in Pakistan. Out of these, four units are located in the public sector and six are operating in the private sector. The province-wise distribution of units confirms that 5 units are located in Punjab, 3 in Sindh and 2 in the NWFP. Fertilizer production is concentrated in nitrogenous fertilizers, which comprises 85% of all fertilizers produced in the country. Although other types of fertilizers are also produced in Pakistan, the bulk of whose demand is imported. The main reason for this concentration on nitrogenous fertilizers is that its main raw material i.e. natural gas is cheaply available in the country. The raw material for other fertilizers such as potassium and phosphate has to be imported. The local fertilizer companies meet almost 80% of Pakistan’s Fertilizer requirement. The total installed capacity is over 5,124 million tones per annum. It mainly comprises of 4,180 million tones for urea and remaining for NP, DAP, CAN and SSP.
FERTILIZER COMPANIES

20%

80% Local manufactures Import

Source: Economic Survey of Pakistan

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1.4.1 Fertilizer Industry Brief
PARTICULARS
Sector Sector Life Cycle Type of Industry GDP Fertilizer Industry Expansion stage Growth Industry 20.8% Fertilizer industry is fast growing industry, being aided by Government of Pakistan, as it is associated with agriculture. Historical Performance Pakistan, being an agriculture country will have to support all industries which are directly related to Agriculture to ensure maximum benefits as well as maximum production. Current the sector is growing with almost 35% rate. • Market Player • • • Threats Risks & mitigation Dawood Hercules Company Ltd, Fauji Fertilizers Company Ltd, Fauji Fertilizers Bin Qasim Company Ltd, Engro Chemicals Pakistan Ltd,

DESCRIPTIONS

Supplier (Raw material), Consumer (Less purchasing power) Inflation rate, Interest rate, Environmental problems, Political instability • Overall profitability of fertilizer sector increased 45% Increased in fertilizer demand by 20% Fertilizer sector is the 2nd largest consumer of gas • •

Financial Indicators

1.4.2 Market Situation
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The fertilizer industry in Pakistan has an oligopoly structure. The products are differentiated and there are 9 firms in the industry. Four of them are listed and other is unlisted. The entry or exit of a single player can affect pricing. There is no single dominant industry leader. Urea demand showed the growth approximately 5% in fiscal year 2009. The characteristics of fertilizer are such that the farmers cannot do without it. It dissipates quickly in the soil and is removed in large quantities by the crops that they need it. So, demand of urea will increase in the following years, if we showed the focus on agriculture to achieve the desired food.
UREA GROWTH

Source: NFDC, IGI Research

DAP GROWTH

(mn MT)

DAP demand showed the growth approximately 35% in fiscal year 2009. In fiscal year 2008, DAP growth is low due to soaring of international DAP prices and after that in 2009 it stabilized the demand of DAP in local market. So, demand of DAP will decrease in the following years according to NFDC and IGI research.

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Source: NFDC, IGI Research

The four largest firms are deemed to be price setters. These are called market players. These include: i. Fauji Fertilizers Company Limited ii. Engro Chemical Pakistan Limited iii. Fauji Fertilizers Bin Qasim Limited iv. Dawood Hercules Company Limited
PRODUCTION OF 4 COMPANIES

Source: Company Reports and NFDC

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Market share are shown. Through this analysis, it is expected that the manufactures will grow through expansion.
MARKET SHARE

Source: NFDC, IGI Research

1.4.3 Future Outlook and Growth
The industry’s future outlook of the fertilizer sector is very strong because of supportive government policies, favorable climatic conditions and gas pricing. Short term outlook appears encouraging with significant projections for strong demand for our fertilizers. In the long term, the Company is committed to achieve sustained levels of operations at demonstrated operating efficiencies through focus on their fundamental strengths. Customs duty of 5% was withdrawn from imported urea. A similar withdrawal was done on imported DAP fertilizer last year this will not affect local manufacturers The medium to long term projected demand supply gap situation together with commissioning of their BMR projects with enhanced urea production capacities would further consolidate their market presence and allow improved returns to the Company and its stakeholders.

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2. Company Profile 2.1 Company Information

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Company Name Nature of Business Share in Market Date of Formation GDP Products

Fauji Fertilizer Bin Qasim limited Manufacturing & Purchasing & Marketing Third highest share in market 17th November, 1993 20.8% • • • Granular Urea (Sona Urea) Di Ammonium Phosphate (Sona DAP) Lahore Stock Exchange Karachi Stock Exchange Islamabad Stock Exchange

Listed in

• •

Registered Office Location of Factory Chairman Chief Executive Company Secretary

73-Harley Street, Rawalpindi, Pakistan Plot # EZ/1/P-1, Eastern Zone, Bin Qasim, Karachi, Pakistan Lt Gen Hamid Rab Nawaz, HI(M), (Retired) Lt Gen Anis Ahmed Abbasi, HI(M), (Retired) Brig Javed Nasir Khan, SI(M), (Retired)

• Lt Gen Malik Arif Hayat, HI(M), (Retired) • Mr Qaiser Javed • Brig Arif Rasul Qureshi, SI(M), (Retired) • Brig Rahat Khan, SI(M), (Retired) • Dr Nadeem Inayat • Brig Liaqat Ali, TI(M), (Retired) • Brig Jawaid Rashid Dar, SI(M), (Retired)

Board of Directors

Chief Financial Officer

Syed Aamir Ahsan KPMG Taseer Hadi & Co Chartered

Auditors

Accountants, 6th Floor, State Life Building, Jinnah Avenue, Islamabad. Orr Dignam & Co Advocates, 17

Legal Advisors

3-A, Street 32, Sector F-8/1,

2.2 Fauji Fertilizer Bin Qasim Limited
Fauji Fertilizer Bin Qasim Limited Plantsite is a modern Granular Urea and Di-Ammonium Phosphate (DAP) fertilizers manufacturing complex, built at a cost of US$ 468 Million and located in Eastern Zone of Bin Qasim, Karachi, with Head Office at Harley Street, Rawalpindi. Initially named as FFC-Jordan Fertilizer Company (FJFC), wef 17th Nov 1993, with FFC (30%), FF (10%) and JPMC (10%) as main sponsors. The company was formally listed with stock exchanges in May 1996 and commercial production commenced wef Jan 2000. However, it continued to run in crises due to technical, financial and managerial reasons till 2001. DAP Plant brought to suspension in 2001 due to accumulated loss of Rs. 6.5 Billion. It resumed production in Sep 2003, after a lapse of 2 years.

Renamed as Fauji Fertilizer Bin Qasim Ltd. (FFBL) in 2003, as such Jordan Phosphate Mines Co. (JPMC) had sold its entire equity in the company. Accordingly Phosphoric acid supply agreement with Jordan was terminated.

Performance & Production:
FFBL fertilizer complex is state of the art manufacturing facility with advanced Distributed Control System for safe and efficient operation. The phosphoric acid being raw material for DAP plant is imported from Morocco and
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initially stored in tanks at Port Qasim. Design capacity viz-a-viz actual production of Plants is as under:

Manufacturing Plants

Production (Metric Ton / Day)
Original Actual (Approx) 1920 2230 (After Revamp) 1570 (After Revamp)

Urea Granular DAP Ammonia

1670 1350 1270

Our Distinction
FFBL is the only fertilizer complex in Pakistan producing DAP fertilizer and Granular Urea thus making significant contribution towards agricultural growth of the country by meeting 45% of the demand of DAP and 13% of Urea in domestic market.

2.2.1 Vision

Be a leading fertilizer company with a diverse product base progressive, flexible and viable

• Keep exploring other project investment opportunities to remain • Continue to excel in operations • Commitment to business ethics, safety, health, environment and involvement in the community • Remain a good corporate citizen • Be one of the best corporate employers

2.2.2 Mission

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Pursue as a team, the progressive strategy based on the principle of maintaining the spirit of excellence to remain among the best companies for delivering competitively priced quality products, achieving sustainable growth rate in all activities and generating optimum profits to the satisfaction of all stakeholders.

2.2.3 Core Values
Our business success is dependent on trusting relationships. Our reputation is founded on the integrity of the Company’s personnel and our commitment to our principles of:
 Quality assurance  Integrity and honesty  Confidentiality  Respect for people and team work  Safety and health  Corporate image

2.2.4 Products
1. Granular Urea (Sona Urea)
With its state of the art Fertilizer Plant, Fauji Fertilizer Bin Qasim Limited is the only Granular Urea manufacturer in Pakistan.  Urea is a synthetic organic compound containing 46 % nitrogen in amide form

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 Available in the form of white solid prills. free flowing for easy application  Being hygroscopic, urea is packed in moisture proof high density Polythene bags.

2. Di Ammonium Phosphate (Sona DAP)
Fauji Fertilizer Bin Qasim Limited is the pioneer of premium quality DAP fertilizer manufacturing in Pakistan. Our DAP plant is the only facility of its kind in the country. Our product meets international quality standards.  DAP contains the second most important nutrient element, phosphorous besides nitrogen  Available in free flowing granular form  Granules are stronger, harder and of uniform size

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2.2.5 ISO Certification
The company has developed and implemented following three international standards to improve in quality, environment, health & safety. Certification
ISO 9001 - 2000 ISO 14001 - 2004

Description
Quality Management System Environmental Management System

Audit Company

Occupational Health & Safety Assessment OHSAS 18001 - 1999 Series

Bureau of Veritas Quality International (BVQI)

Our work practices, emissions and safety procedures at the Head Office and Plant Site were verified by the world renowned International Certification Agent, Ms BVQI during Mar 2006. We achieved this honor for all three standards in the first attempt.

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3. Industry Analysis 3.1 Porter’s Five Forces
Fauji Foundation is taken from the company logo "Increasing our outreach through sustainable growth". Fauji Fertilizer Bin Qasim Limited (FFBL) is a Pakistani fertilizer manufacturing; purchasing and marketing company is a primary target for an analysis using Michael Porter’s 5-Forces Model (“5Forces”). We have applied the 5-Forces Analysis into the respective divisions: 1. Supplier Power 2. Barriers to Entry 3. Threat of Substitutes
4. Buyer Power

5. Competitive rivalry

Graphical Representation

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3.1.1 Supplier Power
The term 'suppliers' comprises all sources for inputs that are needed in order to provide goods or services. Supplier Power is analyzed though supplier concentration, importance of volume to supplier, differentiation of inputs, switching costs of firms in the industry.
 In this industry supplier has a high bargaining power, as most of them are

Foreign Groups.
 Concentration is low. They act as separate groups competing for the same

project.
 High Switching cost because it is difficult to contract with other groups and

deal with them.
 No threat of forward integration.  Suppliers are powerful if there are only a few suppliers, a large number of

purchasers, and significant costs of switching suppliers.

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3.1.2 Buyer Power
Fauji Fertilizer Bin Qasim Limited (FFBL) ensures sellout production to Pakistani and international customers, due to flexible demand delivery and low down payments.
 Buyers have power over when they are concentrated, purchase a significant

portion of new production, and pose a credible threat to purchases from competitors.
 Although Buyers are large in numbers and purchases a large quantity as

well, but buyers do not have a bargaining power.
 Customers have low margins and are price sensitive.

3.1.3 Potential Entrants
Economies of scale, product differentiation, capital requirements, switching costs and government policy all affect the industry. There are number of barriers to entry such, as capital requirements, government policies, reputation of existing firms and ecological surveys.
 Huge capital requirement is one of the greatest barriers for entry.  Government Policies and regulation are also act as barriers; because

Natural Gas which is the main raw material of the industry, and the prices and supply of it is completely depend upon the Government. Government does not easily give permission for manufacturing plant due to shortage of Natural gas and harmful environmental effects, this also act as a barrier.
 Brand reputation of existing companies is also one of the barriers because

customers do not easily get ready to switch.  Brand loyalty of customers

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3.1.4 Threat of Substitutes
The threat of substitutes entails a consideration of such things as switching costs, buyer inclination to substitute and the price-performance trade-off of substitutes. Many organizations do realize that substitutes are there but they must develop such a product that satisfies their customer. Some threats are such that:  Brand loyalty of customers,  Close customer relationships,  Switching costs for customers,
 The relative price for performance of substitutes,  Current trends

3.1.5 Degree of Competitive Rivalry
This force describes the intensity of competition between existing players (companies) in an industry. High competitive pressure results in pressure on prices, margins, and hence, on profitability for every single company in the industry.
 Fixed Costs are too high, which is not easily possible to tolerate. It reduces

the competition.
 Fertilizer industry is at maturity stage so; competition on the basis of

growth is low.
 Prices are fixed for every season so no competition on the basis of pricing

behavior.
 Competition is only on the basis of Quality.

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4. External Environment 4.1 PEST Analysis
Fauji Foundation is taken from the company logo "Increasing our outreach through sustainable growth". PEST analysis stands for" Political, Economic, Social, and Technological analysis" and describes a framework of macro-environmental factors used in the environmental scanning component of strategic management. So, we have applied the PEST Analysis into the respective divisions:
1. Political / Legal Factor 2. Economic Factor 3. Social Factor 4. Technological Factor

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Graphical Representation

4.1.1

Political/Legal Factor
Political factors include government regulations and legal issues and define both formal and informal rules under which the firms operate.  Political trends are always in favor of this industry.

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 To fulfill local demand of fertilizers at affordable prices, the Government is providing subsidy on production and import of fertilizers.  Investors will be allowed to relocate second hand plant, equipment and machinery, with the same concession/exemption as applicable to new plants.  The Government is providing concessionary feed stock gas to the fertilizer plants for production of urea.  Tax relaxation has also been offered by the Government.  Export benefit to suppliers of capital goods for new/modernization projects of fertilizer.
 Gas price has been fixed for 8 years for new investments.

4.1.2 Economic Factor
Economic factors affect the purchasing power of potential customers and the firm’s cost of capital. Economic factors can not be excluded for operating any business including fertilizers.  One of the main sectors of economy is Agricultural as it contributes 22% to the GDP and without Fertilizer industry this sector would not able to work. Due to that Government always gives support to the fertilizer industry.
 Tax relaxation has been offered in order to attract new entrants.  Export benefit to suppliers of capital goods for new/modernization projects

of fertilizer. To reduce the dependence on imported fertilizers by enhancing the local production capacity.
 The Government is providing subsidy on production and import of

fertilizers. A massive subsidy of Rs.27 billion in the supply of urea and DAP in 2009.
 Ban on export of fertilizer is also imposed so that economic stability would

be gain.

4.1.3 Social Factor
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Health consciousness among the people of Pakistan has been increasing day by day. The citizens of Pakistan are getting aware of their duties in order to maintain the healthy environment. Government is taking several steps in order to educate, how important it is for the people to live in the healthy environment. Although the adverse effects of this industry is very high because of the improper handling of the waste. Due to this, many diseases like asthma, kidney diseases, hepatitis etc. are caused. Still, the usage of the fertilizers cannot be stopped because it gives farmers so much ease in terms of saving time and actually, using it. The government discourages the operation of the industries with in the city by charging these factories with environmental charges. In spite of this discouragement, there are many factories that are running inside the city, discharging poisonous gases and chemicals. By the passage of time, the people as well along with the government are discouraging such activities and demand for clean environment. Urea manufacturing site has got ISO 9001:2000 & ISO 14001:2004, OHSAS 18001:1999, ISO 14000 certifications.

4.1.4 Technological Factor
To meet the demand of fertilizers in the country through indigenous production, self-reliance in design engineering and execution of fertilizer projects is very crucial. This requires a strong indigenous technological base in planning, development of process know-how, detailed engineering and expertise in project management and execution of projects.
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The fertilizer plant operators have now fully absorbed and assimilated the latest technological developments, incorporating environmental friendly process technologies, and are in a position to operate and maintain the plants at their optimum levels and on international standards in terms of capacity utilization, specific energy consumption & pollution standards. The average performance of gas-based plants in the country today is amongst the best in the world. The fertilizer industry is also carrying out de-bottlenecking and energy saving scheme in their existing plants and to enhance the capacity and reduce the specific energy consumption per ton of product. Companies are also planning to convert to Liquefied Natural Gas (LNG).

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5. Internal Environment 5.1 SWOT Analysis
SWOT analysis is a tool for auditing an organization and its environment. It is the stage of planning and helps marketers to focus on key issues. SWOT stands for Strengths, Weaknesses, Opportunities and Threats. Strengths and weaknesses are internal factors. Opportunities and Threats are external factors.
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The SWOT analysis provides information that is helpful in matching the firm's resources and capabilities to the competitive environment in which it operates. As such, it is instrumental in strategy formulation and selection. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieve that objective.

Graphical Representation

5.1.1 Strengths
A firm's strengths are its resources and capabilities that can be used as a basis for developing a competitive advantage. Some are:
 The persons operating in this sector are financially strong and they can start

production of new product line. Adding some new unit can enhance the production capacity of the plants.

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 It provides the good quality products to its customers to get the better advantages and maximizes their profits.  Demand is heavy because, being an agriculture country and due to increasing awareness about the balanced use of fertilizer, demand for the fertilizer will increase.  Industry has well distribution centers.  High quality and skilled professionals are there helping the industry to achieve their target.
 Fertilizer industry peruses an innovative education oriented advertising

policy utilizing electronic/ print media and road side advertisement.
 All companies in the industry have developed a well planned network field

warehouses to ensure that fertilizers are available to the farmers uninterrupted.
 FFBL has new technological devices to seeking and using the natural

resources in the fertilizer industry.

5.1.2 Weaknesses
The absence of certain strengths may be viewed as a weakness. Some weaknesses are:  Due to the existence of black market and heavy demand, farmers have to pay above then the stated price.
 Demand is more and capacity of plants to produce fertilizers is less. 36

 Fertilizer sector is backward in technology and also lack in resources.
 Low advertising campaigns as growers and farmers are not educated and

lives in villages, so they don’t exactly know the balanced use of fertilizer.
 There is wastage of raw material.  Delay in capacity expansion.  Large investment needed for business expansion.  Disputes between Middle level and Lower management.  Dependence on supply and price of international market raw material and

natural gas.

5.1.3 Opportunities
The external environmental analysis may reveal certain new opportunities for profit and growth. Some of them are:  If the quality is good customer will buy your product. By improving the quality of products, industry can attract more customers and can retain customers by satisfying their needs.  There is no quota restriction by WTO since 2005, so there are more chances of export.  Availability of gas from Iran can increase the production of plants and industry can fulfill the demands.  Government is giving support to fertilizer sector. It means that Government has decided to increase fertilizer industry funding.  As demand is high comparing to supply, fertilizer sector has an opportunity to expand the capacity to fulfill the local demand.  As Pakistan is an agricultural country and farmers are getting awareness about the balanced use of fertilizer, demand of fertilizer has increased.

37

 Government programs and excess demand of fertilizers in Pakistan aware the farmer in Pakistan. So it is a golden opportunity for firms to provide better services to potential customers.

5.1.4 Threats
Changes in the external environmental also may present threats to the firm. Potential unfavorable conditions for an FFBL face such threats:  As natural gas is the main raw material, load shedding of natural gas is big threat.  Imported fertilizer is available at cheap prices than local fertilizer.  Unstable political condition in the country is also a big threat to fertilizer industry.
 Prices of fuel and gas have increased enormously.

 Scarce water resources.
 Global prices of fertilizer products are also increasing which is causing

increase in fertilizer prices in the country.
 Bio fertilizer is the main threat to the industry because it is cheap and also

environment friendly.  Government policies are not consistent regarding fertilizer industry.  Competition may pose a threat because the company will have to maintain its leadership in an expanding market.

38

6. Boston Consulting Group Matrix 6.1 BCG Matrix

39

For more effective planning and operations, a multi-business or multiproduct organization should be divided according to its major markets o products. Each such entity is called a strategic business unit (SBU). Using this matrix, an organization classified each of such SBU according to the factor like i. ii. Market Share Industry Growth Rate

Representation
The BCG matrix is shown below:

Under the light of BCG matrix, I can examine that Fauji Fertilizer Bin Qasim Limited is existing in the category of Question Mark because of low market share and medium business growth rate as compared to others. In order to be the
40

market leader, Fauji Fertilizer Bin Qasim Limited has to improve its market position.

6.2 Strategies under BCG Matrix
This is the exact time for Fauji Fertilizer Bin Qasim Limited to grow more rapidly with the showing of its internal strength to the market to make the market favorable. Following are the main strategies that will be helpful for Fauji Fertilizer Bin Qasim Limited to get a better market position.

6.2.1 Differentiation Strategy
Fauji Fertilizer Bin Qasim Limited has to provide good quality products and more values to its consumers, so that it will be beneficial to become the market leader.

6.2.2 Cost Leadership Strategy
Fauji Fertilizer Bin Qasim Limited has to consider its cost to improve its profitability ratio.

6.2.3 Focused Strategy
Focus strategy refers to the focus on the customer, focus on the target market, identify them and serve them better.

41

7. Summarized Financial Statements 7.1 Income Statement
42

FAUJI FERTILIZER BIN QASIM LIMITED Summarized Profit & Loss Account
As At December 31, 2009. (Rupees '000)
2005
SALES Gross sales Less: ale tax Trade discount Commission to holding company
15,277,23 2 884,662 116,181 21,625 1,022,468 14,254,76 4 6,621,531 270,870 982,669 63,836 332,650 20,481 44,338 28,423 206,917 37,570 45 925,152 4,297 4,482 -1,504 0 9,541,757 39,403 -398,724 9,182,436 4,751 508,264 -3,215 509,800 9,692,236 4,562,528 15,777,64 0 921,803 125,724 22,825 1,070,352 14,707,28 8 7,098,429 304,025 1,230,819 72,643 332,360 21,577 47,909 30,969 257,294 46,895 0 986,363 0 1,504 -4,801 -1,322,110 9,103,876 398,724 -99,322 9,403,278 3,215 756,436 -139,885 619,766 10,023,04 4 4,684,244 13,167,13 5 716,918 190,443 16,886 924,247 12,242,88 8 6,526,801 256,652 1,100,224 83,729 434,734 22,575 45,252 33,839 605,995 30,323 0 1,051,381 29,686 4,801 -13,472 -2,797,017 7,415,503 99,322 -252,267 7,262,558 139,885 19,113 -1,246 157,752 7,420,310 4,822,578 27,410,756 339,847 230,017 20,080 589,944 26,820,812 37,270,515 0 518,878 26,717 545,595 36,724,920

2006

2007

2008

2009

NET SALES
LESS: COST OF SALES Raw materials consumed Packing materials consumed Fuel and power Chemicals and supplies consumed Salaries, wages and benefits Rent, rates and taxes Insurance Travel and conveyance Repairs and maintenance Communication and other expenses Provision for doubtful advances Depreciation Provision for inventory obsolescence Opening stock - work in process Closing stock - work in process Subsidy on DAP fertilizer from Pak Govt. Cost of goods manufactured Opening stock - own manufactured fertilizers Closing stock - own manufactured fertilizers Cost of sale - own manufactured fertilizer Opening stock - purchased fertilizers Purchase of fertilizers Closing stock - purchased fertilizers Cost of sales - purchased fertilizers TOTAL COST OF SALES

34,409,318 492,509 1,713,011 135,274 616,825 23,606 46,710 42,062 482,904 57,061 0 1,186,433 113,545 13,472 -3,602 -15,522,573 23,806,555 252,267 -5,583,460 18,475,362 1,246 118,144 0 119,390 18,594,752 8,226,060

15,518,409 470,472 1,990,504 158,370 1,074,527 28,359 69,671 55,145 979,294 35,483 0 1,212,073 56,263 3,602 -5,140 0 21,647,032 5,583,460 -170,926 27,059,566 0 0 0 0 27,059,566 9,665,354

GROSS PROFIT

2005
LESS: OPERATING EXPENSES Selling and distribution expenses

2006

2007

2008

2009

43

Product transportation Expenses charged by holding company Salaries, wages and benefits Rent, rates, and taxes Technical services Insurance expenses Travel and conveyance Sale promotion and advertising Communication and other expenses Warehousing expenses Depreciation Total expenses Total selling and distribution expenses Administrative expenses Salaries, wages and benefits Travel and conveyance Utilities Printing and stationery Repairs and maintenance Communication, advertisement and other Rent, rates and taxes Listing fee Donation to President relief fund Legal and professional Depreciation Miscellaneous Total administrative expenses TOTAL OPERATING EXPENSES

1,044,439 128,540 19,886 1,243 0 24,510 11,482 11,134 12,275 4,189 213,259 1,257,698 51,952 7,025 1,024 1,617 1,836 9,232 2,085 208 18,215 3,612 14,286 3,378 114,470 1,372,168 3,190,360

1,169,597 156,085 20,462 1,733 0 29,176 8,916 15,106 14,033 5,293 250,804 1,420,401 70,195 6,097 1,435 2,308 1,122 8,941 2,755 212 500 2,432 3,775 3,871 103,643 1,524,044 3,160,200

829,047 149,319 19,438 1,515 0 27,951 8,581 12,808 15,022 4,948 239,582 1,068,629 88,232 12,143 1,658 2,596 2,870 8,652 2,594 215 600 2,483 4,607 4,719 131,369 1,199,998 3,622,580

1,440,265 213,145 25,716 2,280 0 36,491 9,715 19,010 23,019 7,223 336,599 1,776,864 137,482 33,491 2,123 2,207 3,754 11,435 2,828 221 1,363 2,622 3,639 6,218 207,383 1,984,247 6,241,813

1,680,782 353,109 33,410 3,616 14688 49,597 17,260 36,495 38,070 9,096 555,341 2,236,123 262,580 30,297 3,397 8,575 6,019 16,928 5,807 328 33,915 8,582 4,686 20,090 401,204 2,637,327 7,028,027

OPERATING PROFIT
LESS: OTHER OPERATING COSTS Finance cost Mark-up on long term financing Banking companies & financial institution PKIC, an associated undertaking Finance charge on leased plant, equipment Mark-up on long term murabaha Mark-up on short term borrowings Interest on WPPF Bank charges Exchange loss Total finance cost

149,438 18,402 167,840 1,051 15,570 73,845 100 1,103 308 259,817

159,912 19,692 179,604 461 16,661 204,817 180 1,391 9,256 412,370

131,465 16,189 147,654 206 13,697 429,735 246 2,554 36,421 630,513

114,439 14,092 128,531 29 11,921 1,434,171 283 3,204 1,213,832 2,791,971

96,708 0 96,708 0 8,971 1,212,803 454 4,669 136,187 1,459,792

2005
Other operating expenses Workers' Profit Participation Fund
169,206

2006
164,973

2007
177,786

2008
218,437

2009
312,302

44

Worker's Welfare Fund Property, plant and equipment written off Loss on sale of property, plant & equipment Auditor's remuneration Fees - annual audit Fees - half yearly review Other certification & services Out of pocket expenses Total other operating expenses TOTAL OTHER OPERATING COSTS

0 0 0 400 100 0 40 540 169,746 429,563 2,760,797

77,561 0 0 400 100 0 40 540 243,074 655,444 2,504,756

77,998 0 87,293 440 100 146 50 736 343,813 974,326 2,648,254

88,097 257,332 0 440 100 60 50 650 564,516 3,356,487 2,885,326

125,430 4,200 0 550 100 60 50 760 442,692 1,902,484 5,125,543

NET PROFIT AFTER INTEREST
PLUS: OTHER INCOMES Share of profit of associate & joint venture Compensation from GOP Others Income from financial assets Profit on bank balances and term deposits Surplus of investment at fair value Dividend received on investment in MMF Gain on sale of investment Income on payments made on behalf of FF Income from asset other the financial asset Scrap sales and miscellaneous receipts Gain on sale of property & equipment Total others TOTAL OTHER INCOMES

0 700,000

0 700,000

0 600,000

133,221 600,000

-314908 0

425,333 0 0 0 425,333 105 25,834 2,851 28,685 454,123 1,154,123 3,914,920 1,465,811 2,449,109

518,198 2,387 0 0 520,585 0 28,533 3,040 31,573 552,158 1,252,158 3,756,914 1,312,056 2,444,858

519,152 88,907 0 5,691 613,750 0 37,925 0 37,925 651,675 1,251,675 3,899,929 1,359,896 2,540,033

591,844 0 127,356 12,686 731,886 0 50,710 3,732 54,442 786,328 1,519,549 4,404,875 1,505,254 2,899,621

583,976 0 156,267 219,425 959,668 0 36,636 1,364 38,000 997,668 682,760 5,808,303 2,023,938 3,784,365

PROFIT BEFORE TAXATION
Less: Taxation

PROFIT AFTER TAXATION

7.2 Balance Sheet

FAUJI FERTILIZER BIN QASIM LIMITED

Summarized Balance Sheet
45

As At December 31, 2009.
(Rupees '000)
2005
EQUITY AND LIABILITIES SHARE CAPITAL AND RESERVES Share capital Capital reserves Statutory reserves Translation reserves Accumulated profit / (loss)

2006

2007

2008

2009

9,341,100 228,350 0 0 -1,841,919 7,727,531

9,341,100 228,350 0 0 -1,031,754 8,537,696

9,341,100 228,350 0 0 -1,060,523 8,508,927

9,341,100 228,350 0 572,399 344,522 10,486,37 1

9,341,100 228,350 6,380 698,005 386,066 10,659,901

TOTAL SHARE CAPITAL AND RESERVES
NON-CURRENT LIABILITIES Long-term financing From banks and financial institutions Habib Bank Limited Standard Chartered Bank Muslim Commercial Bank Limited Askari Commercial Bank Limited Saudi Pak Agricultural & Investment Company From associated undertaking Pak Kuwait Investment Company Limited Less: Current portion under current liabilities Total long-term financing Liabilities against asset subject to lease Gross lease payments payable in future Less: Finance charge Total liabilities against asset subject to lease Long term murabaha Faysal Bank Limited (FBL) Less: Current portion under current liabilities Total long term murabaha Deferred tax liability Compensated leave absences Deferred tax Total deferred tax liability

713,875 408,210 703,727 157,143 58,808 2,041,763 251,429 2,293,192 416,944 1,876,248 6,553 259 6,294 212,730 38,679 174,051 0 1,322,283 1,322,283

584,080 333,990 575,777 128,571 48,116 1,670,534 205,714 1,876,248 416,944 1,459,304 3,338 28 3,310 174,052 38,679 135,373 0 2634339 2,634,339

454,284 259,770 447,827 100,000 37,423 1,299,304 160,000 1,459,304 416,944 1,042,360 0 0 0 135,373 38,679 96,694 0 3994235 3,994,235

324,488 185,550 319,876 71,429 26,731 928,074 114,286 1,042,360 416,944 625,416 0 0 0 96,696 38,679 58,017 116,510 4,080,283 4,196,793

194,694 111,329 191,926 42,857 16,039 556,845 68,571 625,416 416,944 208,472 0 0 0 58,017 38,679 19,338 143,808 3,909,006 4,052,814

2005
Long term loan Government of Pakistan (GOP) loan Deferred Government Assistance

2006

2007

2008

2009

5,148,455 2,629,954 7,778,409

4,860,646 2,269,562 7,130,208

4,552,690 1,929,317 6,482,007

4,223,180 1,610,626 5,833,806

3,870,599 1,315,006 5,185,605

46

Less: Current portion under current liabilities Total long term loan

648,201 7,130,208 10,509,08 4

648,201 6,482,007 10,714,33 3

648,201 5,833,806 10,967,09 5

648,201 5,185,605 10,065,83 1

648,201 4,537,404 8,818,028

TOTAL NON-CURRENT LIABILITIES
CURRENT LIABILITIES AND PROVISIONS Trade and other payable Creditors Accrued liabilities Advances from customers Workers' Profit Participation Fund Payable to gratuity fund Worker's welfare fund Unclaimed dividend Tax deducted at source Other payables Total trade and other payable Mark-up accrued On long term financing From banks and financial institutions From PKIC, an associated undertaking On long term murabaha On short term borrowings Total mark-up accrued Short term running finance Current portion of: Long term financing Liabilities against assets subject to lease Long term murabaha Long term loan Sales tax payable Provision for income tax - net Total of current portion

1,615,935 330,542 605,000 9,206 0 0 321,950 2,667 20,695 2,905,995

1,497,540 397,603 472,353 14,973 0 77,561 183,327 2,002 29,544 2,674,903

1,048,909 495,602 351,393 17,786 0 155,560 295,461 1,958 97,577 2,464,246

4,748,957 707,751 364,990 18,437 8,417 243,657 39,466 5,713 127,281 6,264,669

2,949,346 1,381,721 837,375 52,302 14,473 280,989 386,635 3,275 809,723 6,715,839

45,240 5,571 50,811 4,714 38,823 94,348 2,236,649 416,944 4,015 38,679 648,201 0 0 1,107,839 6,344,831 24,581,44 6

38,036 4,669 42,705 3,830 58,417 104,952 4,531,836 416,944 2,586 38,679 648,201 11,226 0 1,117,636 8,429,327 27,681,35 6

30,781 3,791 34,572 3,207 86,108 123,887 5,875,341 416,944 2,651 38,679 648,201 0 0 1,106,475 9,569,949 29,045,97 1

27,695 3,410 31,105 2,886 559,595 593,586 18,257,08 2 416,944 0 38,679 648,201 0 308 1,104,132 26,219,46 9 46,771,67 1

19,765 0 19,765 1,834 88,725 110,324 7,730,450 416,944 0 38,679 648,201 0 1,086,816 2,190,640 16,747,253

TOTAL CURRENT LIABILITIES

TOTAL EQUITY AND LIABILITIES

36,225,182

2005
ASSETS NON-CURRENT ASSETS

2006

2007

2008

2009

47

Property, plant and equipment Owned assets Leasehold land Free hold land Buildings on leasehold land Plant and machinery Catalyst Furniture and fittings Vehicles Office and other equipment Computer and ancillary equipment Library books Capital work in progress Assets subject to finance lease Vehicles Total property, plant and equipment Long term investments Pakistan Maroc Phosphore S.A, Morocco Cost of investment Share of profit / loss Dividend Gain on translation of net assets Balance Investment in associate Fauji Cement Company Limited Cost of investment Share of post acquisition profits Balance Investment – available for sale Arabian Sea Country Club Limited 300,000 ordinary shares of Rs. 10 each Less: Impairment in value of investment Total long term investments Long term deposits Security deposit Lease key money Less: Current portion of long term deposits Total long term deposits TOTAL NON-CURRENT ASSETS

158,733 120,000 1,202,185 12,120,83 5 39,288 1,952 17,844 5,981 4,180 369 884,602 14,555,96 9 7,134 14,563,10 3

154,205 120,000 1,160,692 12,036,55 1 38,990 1,660 33,294 6,598 3,816 241 1,371,566 14,927,61 3 2,726 14,930,33 9

149,566 120,000 1,120,936 13,470,38 5 59,118 3,869 40,786 1,164 6,477 270 1,485,694 16,458,26 5 0 16,458,26 5

144,927 120,000 1,080,963 14,182,53 2 40,741 4,192 47,027 9,351 9,387 176 207,808 15,847,10 4 0 15,847,10 4

144,155 120,000 1,112,498 13,236,931 113,858 3,826 97,517 24,299 17,284 1029 705,502 15,576,899 0 15,576,899

734,275 0 0 0 734,275

1,411,150 0 0 0 1,411,150

1,411,150 0 0 0 1,411,150

1,411,150 122,345 0 572,399 2,105,894

2,105,894 -336,015 -99,496 125,606 1,795,989

0 0 0

0 0 0

0 0 0

300,000 10,876 310,876

310,876 21,107 331,983

3,000 3,000 0 734,275 15,208 2,966 18,174 779 17,395 15,314,77 3

3,000 3,000 0 1,411,150 15,228 2,045 17,273 0 17,273 16,358,76 2

3,000 3,000 0 1,411,150 15,228 1,623 16,851 1623 15,228 17,884,64 3

3,000 3,000 0 2,416,770 15,228 0 15,228 0 15,228 18,279,10 2

3,000 3,000 0 2,127,972 76,546 0 76,546 0 76,546 17,781,417

2005

2006

2007

2008

2009

48

CURRENT ASSETS Short term investments Loans and receivables Term deposits with bank & financial institution Investments at fair value through profit or loss Fixed income / Money market funds Surplus on re measurement Total short term investments Bank balances Deposit accounts Current accounts Cash in hand Total bank balances Trade debts Considered good Due from FF, unsecured, considered good Total trade debts Other receivables Due from holding company - considered good Other receivables Considered good (net) Considered doubtful Less: Provision for doubtful receivables Insurance claims Total other receivables Stores and spares Stores Spares Items in transit Less: Provision for obsolescence Total stores and spares Stock in trade Packing materials Raw materials Raw material in transit Work in process Finished goods Total stock in trade Income and sales tax refundable Interest accrued Due from GOP on account of DAP subsidy

0 0 0 0 0 6,608,287 323,328 0 6,931,615 115,059 22 115,081 267,744 67,244 53,482 120,726 53,482 67,244 1,278 336,266 34,514 496,027 50,838 581,379 4,297 577,082 9,632 341,653 268,229 1,504 401,939 1,022,957 157,005 85,545 0

0 500,000 2,387 502,387 502,387 7,047,562 188,187 0 7,235,749 230,874 398 231,272 375,022 969,891 53,482 1,023,373 53,482 969,891 1,954 1,346,867 31,258 656,379 113,974 801,611 4,297 797,314 13,936 206,424 336,167 4,801 239,207 800,535 251,034 91,218 0

2,150,000 1,655,755 88,907 1,744,662 3,894,662 3,499,683 300,777 109 3,800,569 243,269 482 243,751 67,540 750,752 53,482 804,234 53,482 750,752 0 818,292 22,943 1,149,427 128,183 1,300,553 33,983 1,266,570 31,152 289,809 0 13,472 253,513 587,946 365,026 96,526 0

0 0 0 0 0 6,755,864 1,185,477 183 7,941,524 283,612 1,842 285,454 413,529 57,984 53,482 111,466 53,482 57,984 0 471,513 47,342 1,276,757 241,700 1,565,799 143,232 1,422,567 62,848 26,829 0 3,602 5,583,460 5,676,739 119,530 65,669 12,440,06 0

4,400,000 251,376 7,560 258,936 4,658,936 7,977,897 1,669,919 215 9,648,031 476,728 0 476,728 161,203 69,594 53,482 123,076 53,482 69,594 0 230,797 70,769 1,848,846 129,674 2,049,289 199,495 1,849,794 17,072 1,033,875 0 5,140 170,926 1,227,013 119,487 116,819 0

2005

2006

2007

2008

2009

49

Advances Advances to: Executives, unsecured considered good Other employees, considered good Advances to suppliers and contractors Considered good Considered doubtful Less:Provision for doubtful advances Total advances Trade deposits & short term prepayments Current portion of long term deposits Security deposits Prepayments Total trade deposits and prepayments

378 3,318 34,120 45 34,165 45 34,120 37,816 779 622 1,905 3,306 9,266,673 24,581,44 6

795 4,935 55,430 45 55,475 45 55,430 61,160 0 1,387 3,671 5,058 11,322,59 4 27,681,35 6

2,982 3,747 72,790 45 72,835 45 72,790 79,519 1,623 4,582 2,262 8,467 11,161,32 8 29,045,97 1

1,479 8,104 55,054 45 55,099 45 55,054 64,637 0 1,969 2,907 4,876 28,492,56 9 46,771,67 1

3,546 13,813 93,994 45 94,039 45 93,994 111,353 0 1,047 3,760 4,807 18,443,765

TOTAL CURRENT ASSETS

TOTAL ASSETS

36,225,182

50

51

8. Common Size/Component Percentage Analysis 8.1 Introduction
Component percentage indicates the relative size of each item included in the total known as component percentage analysis. It is also known as vertical or static analysis, which refers to the review of financial information for only one accounting period. Financial statement item that is used as a base value. Vertical analysis discloses the internal structure of the firm. It compared with the prior years to determine whether the company's financial condition is improving or deteriorating over time. All other accounts on the financial statement are compared to it.
 In the balance sheet, for example, total assets equal 100%. Each

asset is stated as a percentage of total assets.
 Similarly, total liabilities and stockholders' equity are assigned 100%

with a given liability or equity account stated as a percentage of the total liabilities and stockholders' equity.
 For the income statement, 100% is assigned to net sales with all

revenue and expense accounts related to it.

Component percentage analyses of FAUJI FERTILIZER BIN

QASIM LIMITED are given on next pages.

52

8.2 Income Statement

FAUJI FERTILIZER BIN QASIM LIMITED Vertical Analysis of Summarized Profit & Loss Account
As At December 31, 2009.
2005
SALES Gross sales Less: Sale tax Trade discount Commission to holding company
100.00% 46.45% 1.90% 6.89% 0.45% 2.33% 0.14% 0.31% 0.20% 1.45% 0.26% 0.00% 6.49% 0.03% 0.03% -0.01% 0.00% 66.94% 0.28% -2.80% 64.42% 0.03% 3.57% -0.02% 3.58% 67.99% 32.01%

2006
100.00% 48.26% 2.07% 8.37% 0.49% 2.26% 0.15% 0.33% 0.21% 1.75% 0.32% 0.00% 6.71% 0.00% 0.01% -0.03% -8.99% 61.90% 2.71% -0.68% 63.94% 0.02% 5.14% -0.95% 4.21% 68.15% 31.85%

2007
100.00% 53.31% 2.10% 8.99% 0.68% 3.55% 0.18% 0.37% 0.28% 4.95% 0.25% 0.00% 8.59% 0.24% 0.04% -0.11% -22.85% 60.57% 0.81% -2.06% 59.32% 1.14% 0.16% -0.01% 1.29% 60.61% 39.39%

2008
100.00% 128.29% 1.84% 6.39% 0.50% 2.30% 0.09% 0.17% 0.16% 1.80% 0.21% 0.00% 4.42% 0.42% 0.05% -0.01% -57.88% 88.76% 0.94% -20.82% 68.88% 0.00% 0.44% 0.00% 0.45% 69.33% 30.67%

2009
100.00% 42.26% 1.28% 5.42% 0.43% 2.93% 0.08% 0.19% 0.15% 2.67% 0.10% 0.00% 3.30% 0.15% 0.01% -0.01% 0.00% 58.94% 15.20% -0.47% 73.68% 0.00% 0.00% 0.00% 0.00% 73.68% 26.32%

NET SALES
LESS: COST OF SALES Raw materials consumed Packing materials consumed Fuel and power Chemicals and supplies consumed Salaries, wages and benefits Rent, rates and taxes Insurance Travel and conveyance Repairs and maintenance Communication and other expenses Provision for doubtful advances Depreciation Provision for inventory obsolescence Opening stock - work in process Closing stock - work in process Subsidy on DAP fertilizer from Pak Govt. Cost of goods manufactured Opening stock - own manufactured fertilizers Closing stock - own manufactured fertilizers Cost of sale - own manufactured fertilizer Opening stock - purchased fertilizers Purchase of fertilizers Closing stock - purchased fertilizers Cost of sales - purchased fertilizers TOTAL COST OF SALES

GROSS PROFIT

53

2005
LESS: OPERATING EXPENSES Selling and distribution expenses Product transportation Expenses charged by holding company Salaries, wages and benefits Rent, rates, and taxes Technical services Insurance expenses Travel and conveyance Sale promotion and advertising Communication and other expenses Warehousing expenses Depreciation Total expenses Total selling and distribution expenses Administrative expenses Salaries, wages and benefits Travel and conveyance Utilities Printing and stationery Repairs and maintenance Communication, advertisement and other Rent, rates and taxes Listing fee Donation to President relief fund Legal and professional Depreciation Miscellaneous Total administrative expenses TOTAL OPERATING EXPENSES

2006

2007

2008

2009

7.33% 0.90% 0.14% 0.01% 0.00% 0.17% 0.08% 0.08% 0.09% 0.03% 1.50% 8.82% 0.36% 0.05% 0.01% 0.01% 0.01% 0.06% 0.01% 0.00% 0.13% 0.03% 0.10% 0.02% 0.80% 9.63% 22.38%

7.95% 1.06% 0.14% 0.01% 0.00% 0.20% 0.06% 0.10% 0.10% 0.04% 1.71% 9.66% 0.48% 0.04% 0.01% 0.02% 0.01% 0.06% 0.02% 0.00% 0.00% 0.02% 0.03% 0.03% 0.70% 10.36% 21.49%

6.77% 1.22% 0.16% 0.01% 0.00% 0.23% 0.07% 0.10% 0.12% 0.04% 1.96% 8.73% 0.72% 0.10% 0.01% 0.02% 0.02% 0.07% 0.02% 0.00% 0.00% 0.02% 0.04% 0.04% 1.07% 9.80% 29.59%

5.37% 0.79% 0.10% 0.01% 0.00% 0.14% 0.04% 0.07% 0.09% 0.03% 1.25% 6.62% 0.51% 0.12% 0.01% 0.01% 0.01% 0.04% 0.01% 0.00% 0.01% 0.01% 0.01% 0.02% 0.77% 7.40% 23.27%

4.58% 0.96% 0.09% 0.01% 0.04% 0.14% 0.05% 0.10% 0.10% 0.02% 1.51% 6.09% 0.71% 0.08% 0.01% 0.02% 0.02% 0.05% 0.02% 0.00% 0.09% 0.02% 0.01% 0.05% 1.09% 7.18% 19.14%

OPERATING PROFIT
LESS: OTHER OPERATING COSTS Finance cost Mark-up on long term financing Banking companies & financial institution PKIC, an associated undertaking Finance charge on leased plant, equipment Mark-up on long term murabaha Mark-up on short term borrowings Interest on WPPF Bank charges Exchange loss Total finance cost

1.05% 0.13% 1.18% 0.01% 0.11% 0.52% 0.00% 0.01% 0.00% 1.82%

1.09% 0.13% 1.22% 0.00% 0.11% 1.39% 0.00% 0.01% 0.06% 2.80%

1.07% 0.13% 1.21% 0.00% 0.11% 3.51% 0.00% 0.02% 0.30% 5.15%

0.43% 0.05% 0.48% 0.00% 0.04% 5.35% 0.00% 0.01% 4.53% 10.41%

0.26% 0.00% 0.26% 0.00% 0.02% 3.30% 0.00% 0.01% 0.37% 3.97%

54

2005
Other operating expenses Workers' Profit Participation Fund Worker's Welfare Fund Property, plant and equipment written off Loss on sale of property, plant & equipment Auditor's remuneration Fees - annual audit Fees - half yearly review Other certification & services Out of pocket expenses Total other operating expenses TOTAL OTHER OPERATING COSTS

2006

2007

2008

2009

1.19% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 1.19% 3.01% 19.37%

1.12% 0.53% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 1.65% 4.46% 17.03%

1.45% 0.64% 0.00% 0.71% 0.00% 0.00% 0.00% 0.00% 0.01% 2.81% 7.96% 21.63%

0.81% 0.33% 0.96% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 2.10% 12.51% 10.76%

0.85% 0.34% 0.01% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 1.21% 5.18% 13.96%

NET PROFIT AFTER INTEREST
PLUS: OTHER INCOMES Share of profit of associate & joint venture Compensation from GOP Others Income from financial assets Profit on bank balances and term deposits Surplus of investment at fair value Dividend received on investment in MMF Gain on sale of investment Income on payments made on behalf of FF Income from asset other the financial asset Scrap sales and miscellaneous receipts Gain on sale of property, plant & equipment Total others TOTAL OTHER INCOMES

0.00% 4.91%

0.00% 4.76%

0.00% 4.90%

0.50% 2.24%

-0.86% 0.00%

2.98% 0.00% 0.00% 0.00% 2.98% 0.00% 0.18% 0.02% 0.20% 3.19% 8.10% 27.46% 10.28% 17.18%

3.52% 0.02% 0.00% 0.00% 3.54% 0.00% 0.19% 0.02% 0.21% 3.75% 8.51% 25.54% 8.92% 16.62%

4.24% 0.73% 0.00% 0.05% 5.01% 0.00% 0.31% 0.00% 0.31% 5.32% 10.22% 31.85% 11.11% 20.75%

2.21% 0.00% 0.47% 0.05% 2.73% 0.00% 0.19% 0.01% 0.20% 2.93% 5.67% 16.42% 5.61% 10.81%

1.59% 0.00% 0.43% 0.60% 2.61% 0.00% 0.10% 0.00% 0.10% 2.72% 1.86% 15.82% 5.51% 10.30%

PROFIT BEFORE TAXATION
Less: Taxation

PROFIT AFTER TAXATION

8.2.1 CGS, GP and Net Profit
55

The Cost of Sales involves the identification of the expenses that are related to the manufacturing process. It is determined by adding beginning inventory of material and net purchases with the deduction of ending inventory from both. Gross Profit is determined by deduction of Cost of good sold from net sales. Net Profit is amount of money earned after all expenses, including overhead, employee salaries, manufacturing costs, and advertising costs, have been deducted from the total revenue. Amounts are given below:

Amounts:
2005
Cost of Sales Gross Profit Net Profit 67.99% 32.01% 17.18%

2006
68.15% 31.85% 16.62%

2007
60.61% 39.39% 20.75%

2008
69.33% 30.67% 10.81%

2009
73.68% 26.32% 10.30%

Graphical Representation
CGS, GP, NET PROFIT

80.00% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% 2005 2006 2007 2008 2009 NET PROFIT

COST OF SALES

GROSS PROFIT

Source: FFBL Annual Report

Interpretation:
56

Cost of goods sold contribution has been decreasing over the year which is a good sign for the company as it is able to control its cost and it is good for the future sales growth the profits. But in 2007-2009 cost of goods sold contribution has been increasing over the year which is not a good sign for the company. The company also improved year after year in the gross profit section as well which better tells the company how much they improved over the past few years and the big reason for that in not only better sales but also a decline in cost of sales percentage. The company maintained its distribution cost over all the past years which were around 8 to 9 percent. As the company improved in increasing sales and decreasing their cost of sales and maintain their distribution cost they also made a healthier operating profit over the last few years. So because all these reason the company improved in maintain their before tax and after tax profit to a much better position.

8.3 Balance Sheet

57

FAUJI FERTILIZER BIN QASIM LIMITED Vertical Analysis of Summarized Balance Sheet
As At December 31, 2009.
2005
EQUITY AND LIABILITIES SHARE CAPITAL AND RESERVES Share capital Capital reserves Statutory reserves Translation reserves Accumulated profit / (loss)

2006

2007

2008

2009

38.00% 0.93% 0.00% 0.00% -7.49% 31.44%

33.75% 0.82% 0.00% 0.00% -3.73% 30.84%

32.16% 0.79% 0.00% 0.00% -3.65% 29.29%

19.97% 0.49% 0.00% 1.22% 0.74% 22.42%

25.79% 0.63% 0.02% 1.93% 1.07% 29.43%

TOTAL SHARE CAPITAL AND RESERVES
NON-CURRENT LIABILITIES Long-term financing From banks and financial institutions Habib Bank Limited Standard Chartered Bank Muslim Commercial Bank Limited Askari Commercial Bank Limited Saudi Pak Agricultural Investment Company From associated undertaking Pak Kuwait Investment Company Limited Less: Current portion under current liabilities Total long-term financing Liabilities against asset subject to lease Gross lease payments payable in future Less: Finance charge Total liabilities against asset subject to lease Long term murabaha Faysal Bank Limited (FBL) Less: Current portion under current liabilities Total long term murabaha Deferred tax liability Compensated leave absences Deferred tax Total deferred tax liability

2.90% 1.66% 2.86% 0.64% 0.24% 8.31% 1.02% 9.33% 1.70% 7.63% 0.03% 0.00% 0.03% 0.87% 0.16% 0.71% 0.00% 5.38% 5.38%

2.11% 1.21% 2.08% 0.46% 0.17% 6.03% 0.74% 6.78% 1.51% 5.27% 0.01% 0.00% 0.01% 0.63% 0.14% 0.49% 0.00% 9.52% 9.52%

1.56% 0.89% 1.54% 0.34% 0.13% 4.47% 0.55% 5.02% 1.44% 3.59% 0.00% 0.00% 0.00% 0.47% 0.13% 0.33% 0.00% 13.75% 13.75%

0.69% 0.40% 0.68% 0.15% 0.06% 1.98% 0.24% 2.23% 0.89% 1.34% 0.00% 0.00% 0.00% 0.21% 0.08% 0.12% 0.25% 8.72% 8.97%

0.54% 0.31% 0.53% 0.12% 0.04% 1.54% 0.19% 1.73% 1.15% 0.58% 0.00% 0.00% 0.00% 0.16% 0.11% 0.05% 0.40% 10.79% 11.19%

2005
Long term loan

2006

2007

2008

2009

58

Government of Pakistan (GOP) loan Deferred Government Assistance Less: Current portion under current liabilities Total long term loan

20.94% 10.70% 31.64% 2.64% 29.01% 42.75%

17.56% 8.20% 25.76% 2.34% 23.42% 38.71%

15.67% 6.64% 22.32% 2.23% 20.08% 37.76%

9.03% 3.44% 12.47% 1.39% 11.09% 21.52%

10.68% 3.63% 14.31% 1.79% 12.53% 24.34%

TOTAL NON-CURRENT LIABILITIES
CURRENT LIABILITIES AND PROVISIONS Trade and other payable Creditors Accrued liabilities Advances from customers Workers' Profit Participation Fund Payable to gratuity fund Worker's welfare fund Unclaimed dividend Tax deducted at source Other payables Total trade and other payable Mark-up accrued On long term financing From banks and financial institutions From PKIC, an associated undertaking On long term murabaha On short term borrowings Total mark-up accrued Short term running finance Current portion of: Long term financing Liabilities against assets subject to lease Long term murabaha Long term loan Sales tax payable Provision for income tax – net Total of current portion

6.57% 1.34% 2.46% 0.04% 0.00% 0.00% 1.31% 0.01% 0.08% 11.82%

5.41% 1.44% 1.71% 0.05% 0.00% 0.28% 0.66% 0.01% 0.11% 9.66%

3.61% 1.71% 1.21% 0.06% 0.00% 0.54% 1.02% 0.01% 0.34% 8.48%

10.15% 1.51% 0.78% 0.04% 0.02% 0.52% 0.08% 0.01% 0.27% 13.39%

8.14% 3.81% 2.31% 0.14% 0.04% 0.78% 1.07% 0.01% 2.24% 18.54%

0.18% 0.02% 0.21% 0.02% 0.16% 0.38% 9.10% 1.70% 0.02% 0.16% 2.64% 0.00% 0.00% 4.51% 25.81% 100.00%

0.14% 0.02% 0.15% 0.01% 0.21% 0.38% 16.37% 1.51% 0.01% 0.14% 2.34% 0.04% 0.00% 4.04% 30.45% 100.00%

0.11% 0.01% 0.12% 0.01% 0.30% 0.43% 20.23% 1.44% 0.01% 0.13% 2.23% 0.00% 0.00% 3.81% 32.95% 100.00%

0.06% 0.01% 0.07% 0.01% 1.20% 1.27% 39.03% 0.89% 0.00% 0.08% 1.39% 0.00% 0.00% 2.36% 56.06% 100.00%

0.05% 0.00% 0.05% 0.01% 0.24% 0.30% 21.34% 1.15% 0.00% 0.11% 1.79% 0.00% 3.00% 6.05% 46.23% 100.00%

TOTAL CURRENT LIABILITIES

TOTAL EQUITY AND LIABILITIES

2005
ASSETS

2006

2007

2008

2009

59

NON-CURRENT ASSETS Property, plant and equipment Owned assets Leasehold land Free hold land Buildings on leasehold land Plant and machinery Catalyst Furniture and fittings Vehicles Office and other equipment Computer and ancillary equipment Library books Capital work in progress Assets subject to finance lease Vehicles Total property, plant and equipment Long term investments Pakistan Maroc Phosphore S.A, Morocco Cost of investment Share of profit / loss Dividend Gain on translation of net assets Balance Investment in associate Fauji Cement Company Limited Cost of investment Share of post acquisition profits Balance Investment - available for sale Arabian Sea Country Club Limited 300,000 ordinary shares of Rs. 10 each Less: Impairment in value of investment Total long term investments Long term deposits Security deposit Lease key money Less: Current portion of long term deposits Total long term deposits

0.65% 0.49% 4.89% 49.31% 0.16% 0.01% 0.07% 0.02% 0.02% 0.00% 3.60% 59.22% 0.03% 59.24%

0.56% 0.43% 4.19% 43.48% 0.14% 0.01% 0.12% 0.02% 0.01% 0.00% 4.95% 53.93% 0.01% 53.94%

0.51% 0.41% 3.86% 46.38% 0.20% 0.01% 0.14% 0.00% 0.02% 0.00% 5.11% 56.66% 0.00% 56.66%

0.31% 0.26% 2.31% 30.32% 0.09% 0.01% 0.10% 0.02% 0.02% 0.00% 0.44% 33.88% 0.00% 33.88%

0.40% 0.33% 3.07% 36.54% 0.31% 0.01% 0.27% 0.07% 0.05% 0.00% 1.95% 43.00% 0.00% 43.00%

2.99% 0.00% 0.00% 0.00% 2.99%

5.10% 0.00% 0.00% 0.00% 5.10%

4.86% 0.00% 0.00% 0.00% 4.86%

3.02% 0.26% 0.00% 1.22% 4.50%

5.81% -0.93% -0.27% 0.35% 4.96%

0.00% 0.00% 0.00%

0.00% 0.00% 0.00%

0.00% 0.00% 0.00%

0.64% 0.02% 0.66%

0.86% 0.06% 0.92%

0.01% 0.01% 0.00% 2.99% 0.06% 0.01% 0.07% 0.00% 0.07% 62.30%

0.01% 0.01% 0.00% 5.10% 0.06% 0.01% 0.06% 0.00% 0.06% 59.10%

0.01% 0.01% 0.00% 4.86% 0.05% 0.01% 0.06% 0.01% 0.05% 61.57%

0.01% 0.01% 0.00% 5.17% 0.03% 0.00% 0.03% 0.00% 0.03% 39.08%

0.01% 0.01% 0.00% 5.87% 0.21% 0.00% 0.21% 0.00% 0.21% 49.09%

TOTAL NON-CURRENT ASSETS

2005
CURRENT ASSETS Short term investments

2006

2007

2008

2009

60

Loans and receivables Term deposits with bank & financial institution Investments at fair value through profit or loss Fixed income / Money market funds Surplus on re measurement Total short term investments Bank balances Deposit accounts Current accounts Cash in hand Total bank balances Trade debts Considered good Due from FF, unsecured, considered good Total trade debts Other receivables Due from holding company - considered good Other receivables Considered good (net) Considered doubtful Less: Provision for doubtful receivables Insurance claims Total other receivables Stores and spares Stores Spares Items in transit Less: Provision for obsolescence Total stores and spares Stock in trade Packing materials Raw materials Raw material in transit Work in process Finished goods Total stock in trade Income and sales tax refundable Interest accrued Due from GOP on account of DAP subsidy

0.00% 0.00% 0.00% 0.00% 0.00% 26.88% 1.32% 0.00% 28.20% 0.47% 0.00% 0.47% 1.09% 0.27% 0.22% 0.49% 0.22% 0.27% 0.01% 1.37% 0.14% 2.02% 0.21% 2.37% 0.02% 2.35% 0.04% 1.39% 1.09% 0.01% 1.64% 4.16% 0.64% 0.35% 0.00%

0.00% 1.81% 0.01% 1.81% 1.81% 25.46% 0.68% 0.00% 26.14% 0.83% 0.00% 0.84% 1.35% 3.50% 0.19% 3.70% 0.19% 3.50% 0.01% 4.87% 0.11% 2.37% 0.41% 2.90% 0.02% 2.88% 0.05% 0.75% 1.21% 0.02% 0.86% 2.89% 0.91% 0.33% 0.00%

7.40% 5.70% 0.31% 6.01% 13.41% 12.05% 1.04% 0.00% 13.08% 0.84% 0.00% 0.84% 0.23% 2.58% 0.18% 2.77% 0.18% 2.58% 0.00% 2.82% 0.08% 3.96% 0.44% 4.48% 0.12% 4.36% 0.11% 1.00% 0.00% 0.05% 0.87% 2.02% 1.26% 0.33% 0.00%

0.00% 0.00% 0.00% 0.00% 0.00% 14.44% 2.53% 0.00% 16.98% 0.61% 0.00% 0.61% 0.88% 0.12% 0.11% 0.24% 0.11% 0.12% 0.00% 1.01% 0.10% 2.73% 0.52% 3.35% 0.31% 3.04% 0.13% 0.06% 0.00% 0.01% 11.94% 12.14% 0.26% 0.14% 26.60%

12.15% 0.69% 0.02% 0.71% 12.86% 22.02% 4.61% 0.00% 26.63% 1.32% 0.00% 1.32% 0.45% 0.19% 0.15% 0.34% 0.15% 0.19% 0.00% 0.64% 0.20% 5.10% 0.36% 5.66% 0.55% 5.11% 0.05% 2.85% 0.00% 0.01% 0.47% 3.39% 0.33% 0.32% 0.00%

2005
Advances Advances to: Executives, unsecured considered good

2006

2007

2008

2009

0.00%

0.00%

0.01%

0.00%

0.01%

61

Other employees, considered good Advances to suppliers and contractors Considered good Considered doubtful Less: Provision for doubtful advances Total advances Trade deposits & short term prepayments Current portion of long term deposits Security deposits Prepayments Total trade deposits and prepayments

0.01% 0.14% 0.00% 0.14% 0.00% 0.14% 0.15% 0.00% 0.00% 0.01% 0.01% 37.70% 100.00%

0.02% 0.20% 0.00% 0.20% 0.00% 0.20% 0.22% 0.00% 0.01% 0.01% 0.02% 40.90% 100.00%

0.01% 0.25% 0.00% 0.25% 0.00% 0.25% 0.27% 0.01% 0.02% 0.01% 0.03% 38.43% 100.00%

0.02% 0.12% 0.00% 0.12% 0.00% 0.12% 0.14% 0.00% 0.00% 0.01% 0.01% 60.92% 100.00%

0.04% 0.26% 0.00% 0.26% 0.00% 0.26% 0.31% 0.00% 0.00% 0.01% 0.01% 50.91% 100.00%

TOTAL CURRENT ASSETS

TOTAL ASSETS

8.3.1 Total Assets

62

All the valuables possessed by the Fauji Fertilizer Bin Qasim Limited are called its assets. It includes all Current Assets, Non-Current Assets, and Fixed Assets. Amounts are given below:

Amounts:
2005
Total Non-Current Assets Total Current Assets 62.30% 37.70%

2006
59.10% 40.90%

2007
61.57% 38.43%

2008
39.08% 60.92%

2009
49.09% 50.91%

Graphical Representation
TOTAL ASSETS

70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% 2005 2006 2007 2008 2009

NON-CURRENT ASSETS

CURRENT ASSETS

Source: FFBL Annual Report

Interpretation:

63

Non-Current Assets has decreased year by year and dropped to 25% in 2008 as compared to 2007 which tells that the company was not in good position. So, these are increased in fiscal year 2009 which shows the relative good position of the company. Fixed assets of the company has deteriorated year by year and dropped to 34% in 2008 as compared to other years which tells that the company was not interested in buying plants and equipment. The Fixed assets section increased in huge amount in 2009 which tells us that the company really invested in the buying of the fixed assets for much better capacity and storage so they can improve and increase their production. The current assets section as it is clear that the stores, spares and loose tools and stock in trade were almost just enough as much they needed. It seems that the company is utilizing their inventory as much they needed. The current assets section was in the greater proportion as compared to rest of assets that how well the company not in the long term but also in short term is keeping it better in the market and improved their position over the last few years.

8.3.2 Total Equity and Liabilities
64

The claim of outsiders against the assets of the firm is called liability. It includes current and non current liabilities for the particular year, and the claim of the owner against the assets of the firm are called shareholder equity. Amounts are given below:

Amounts:
2005
Total Equity Total Non-Current Liabilities Total Current Liabilities 31.44% 42.75% 25.81%

2006
30.84% 38.71% 30.45%

2007
29.29% 37.76% 32.95%

2008
22.42% 21.52% 56.06%

2009
29.43% 24.34% 46.23%

Graphical Representation
TOTAL EQUITY AND LIABILITIES

60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% 2005 2006 2007 2008 2009

TOTAL EQUITY TOTAL CURRENT LIABILITIES

TOTAL NON-CURRENT LIABILITIES

Source: FFBL Annual Report

Interpretation:
65

As the number of shares issued in 2001 was 3,341,100 shares and they have increased it to 9,341,100 shares in 2008. The reason for increasing shares is to raise funds for the company. The number of shares issued till 2005-2009 are same. The company after 2008 raised some share capital to raise fund as their value was Going Up, while 2005-2008 it shows the declining. As the share holder equity section is increasing year by year but in terms of percentage it is going down and it are about 30% of the assets. There is no redeemable capital which tells us that the company position is getting good and strong that they were not in the need of urgent funds by issuing some temporary shares. Non-Current Liabilities shows the negative trend. The reason is that Long term financing is also falling down which means that the company has increased its capital to overcome its business. In the year 2009, it becomes 0.58% which is the best in comparison of the previous years. The Current Liabilities shows the positive trend. The Current Liabilities are around 25 to 30% which means that the company is paying off its liabilities within one year.

8.4 Conclusion
66

The company mainly manufactures and market fertilizers. The analysis of Fauji Fertilizer Bin Qasim Limited has shown a modest growth over the past few years showing healthy increases in the profit of the company.

According to the Component Percentage Analysis,
The company’s numbers of share are going to increase from 2004 to 2009. The reason for increasing shares is to raise funds for the company. The Current Liabilities shows the positive trend and Non-Current Liabilities shows the negative trend, which shows that the company’s financial position is healthy. Company has the good quantity of assets, which leads the company upward. But there is problem in Fixed Assets, which shows the negative trend. This is due to that company is not interested in buying the new assets. Cost of goods sold contribution has been decreasing over the year which is a good sign for the company as it is able to control its cost. Selling and administrative expenses contribution has remained which is a positive sign as the firm is able to control its expenses. An important development in 2008 is the amount spent on interest charges which has increased by around 5% due to high debt. The company’s profit is good and in the remaining years it show the good result if the company control their cost of sales.

67

9. Trend Percentage Analysis 9.1 Introduction
The process of dividing each expense item of a given year by the same expense item in the base year is known as Trend Percentage Analysis. This allows for the exploration of changes in the relative importance of expense items over time and the behavior of expense items as sales change. Comparing analytical data for a current period with similar computation for prior years afford some basis for judging whether the condition of the business is improving or worsening. This comparison of data over time is sometimes called
68

horizontal or trend analysis. The changes in financial statement items from a base year to following years are expressed as trend percentages to show the extent and direction of change.  First, a base year is selected and each item in financial statement for the base year is given a weight of 100%.
 Second step is the express each item in the financial statement for

following years as a percentage of its base year amount.

Trend percentage analyses of FAUJI FERTILIZER BIN QASIM

LIMITED are given on next pages.

9.2 Income Statement

FAUJI FERTILIZER BIN QASIM LIMITED
Horizontal Analysis of Summarized Profit & Loss Account
As At December 31, 2009.
2005
SALES Gross sales Less: Sale tax Trade discount Commission to holding company
100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

2006
103.28% 104.20% 108.21% 105.55% 104.68% 103.17%

2007
86.19% 81.04% 163.92% 78.09% 90.39% 85.89%

2008
179.42% 38.42% 197.98% 92.86% 57.70% 188.15%

2009
243.96% 0.00% 446.61% 123.55% 53.36% 257.63%

NET SALES
LESS: COST OF SALES

69

Raw materials consumed Packing materials consumed Fuel and power Chemicals and supplies consumed Salaries, wages and benefits Rent, rates and taxes Insurance Travel and conveyance Repairs and maintenance Communication and other expenses Provision for doubtful advances Depreciation Provision for inventory obsolescence Opening stock - work in process Closing stock - work in process Subsidy on DAP fertilizer from Pak Govt. Cost of goods manufactured Opening stock - own manufactured fertilizers Closing stock - own manufactured fertilizers Cost of sale - own manufactured fertilizer Opening stock - purchased fertilizers Purchase of fertilizers Closing stock - purchased fertilizers Cost of sales - purchased fertilizers TOTAL COST OF SALES

100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 0.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

107.20% 112.24% 125.25% 113.80% 99.91% 105.35% 108.05% 108.96% 124.35% 124.82% 0.00% 106.62% 0.00% 33.56% 319.22% 100.00% 95.41% 1011.91% 24.91% 102.41% 67.67% 148.83% 4351.01% 121.57% 103.41% 102.67%

98.57% 94.75% 111.96% 131.16% 130.69% 110.22% 102.06% 119.05% 292.87% 80.71% 0.00% 113.64% 690.85% 107.12% 895.74% 211.56% 77.72% 252.07% 63.27% 79.09% 2944.33% 3.76% 38.76% 30.94% 76.56% 105.70%

519.66% 181.82% 174.32% 211.91% 185.43% 115.26% 105.35% 147.99% 233.38% 151.88% 0.00% 128.24% 2642.42% 300.58% 239.49% 1174.08% 249.50% 640.22% 1400.33% 201.20% 26.23% 23.24% 0.00% 23.42% 191.85% 180.30%

234.36% 173.69% 202.56% 248.09% 323.02% 138.46% 157.14% 194.02% 473.28% 94.45% 0.00% 131.01% 1309.36% 80.37% 341.76% 0.00% 226.87% 14170.14% 42.87% 294.69% 0.00% 0.00% 0.00% 0.00% 279.19% 211.84%

GROSS PROFIT

2005
LESS: OPERATING EXPENSES Selling and distribution expenses Product transportation Expenses charged by holding company Salaries, wages and benefits Rent, rates, and taxes Technical services Insurance expenses Travel and conveyance Sale promotion and advertising Communication and other expenses Warehousing expenses Depreciation Total expenses Total selling and distribution expenses Administrative expenses Salaries, wages and benefits Travel and conveyance

2006

2007

2008

2009

100.00% 100.00% 100.00% 100.00% 0.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

111.98% 121.43% 102.90% 139.42% 0.00% 119.04% 77.65% 135.67% 114.32% 126.35% 117.61% 112.94% 135.12% 86.79%

79.38% 116.17% 97.75% 121.88% 0.00% 114.04% 74.73% 115.04% 122.38% 118.12% 112.34% 84.97% 169.83% 172.85%

137.90% 165.82% 129.32% 183.43% 0.00% 148.88% 84.61% 170.74% 187.53% 172.43% 157.84% 141.28% 264.63% 476.74%

160.93% 274.71% 168.01% 290.91% 100.00% 202.35% 150.32% 327.78% 310.14% 217.14% 260.41% 177.79% 505.43% 431.27%

70

Utilities Printing and stationery Repairs and maintenance Communication, advertisement and other Rent, rates and taxes Listing fee Donation to President relief fund Legal and professional Depreciation Miscellaneous Total administrative expenses TOTAL OPERATING EXPENSES

100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

140.14% 142.73% 61.11% 96.85% 132.13% 101.92% 2.74% 67.33% 26.42% 114.59% 90.54% 111.07% 99.05%

161.91% 160.54% 156.32% 93.72% 124.41% 103.37% 3.29% 68.74% 32.25% 139.70% 114.76% 87.45% 113.55%

207.32% 136.49% 204.47% 123.86% 135.64% 106.25% 7.48% 72.59% 25.47% 184.07% 181.17% 144.61% 195.65%

331.74% 530.30% 327.83% 183.36% 278.51% 157.69% 186.19% 237.60% 32.80% 594.73% 350.49% 192.20% 220.29%

OPERATING PROFIT
LESS: OTHER OPERATING COSTS Finance cost Mark-up on long term financing Banking companies & financial institution PKIC, an associated undertaking Finance charge on leased plant, equipment Mark-up on long term murabaha Mark-up on short term borrowings Interest on WPPF Bank charges Exchange loss Total finance cost

100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

107.01% 107.01% 107.01% 43.86% 107.01% 277.36% 180.00% 126.11% 3005.19% 158.72%

87.97% 87.97% 87.97% 19.60% 87.97% 581.94% 246.00% 231.55% 11825.00 % 242.68%

76.58% 76.58% 76.58% 2.76% 76.56% 1942.14% 283.00% 290.48% 394101.30 % 1074.59%

64.71% 0.00% 57.62% 0.00% 57.62% 1642.36% 454.00% 423.30% 44216.56% 561.85%

2005
Other operating expenses Workers' Profit Participation Fund Worker's Welfare Fund Property, plant and equipment written off Loss on sale of property, plant & equipment Auditor's remuneration Fees - annual audit Fees - half yearly review Other certification & services Out of pocket expenses Total other operating expenses TOTAL OTHER OPERATING COSTS
100.00% 0.00% 0.00% 0.00% 100.00% 100.00% 0.00% 100.00% 100.00% 100.00% 100.00% 100.00%

2006
97.50% 100.00% 0.00% 0.00% 100.00% 100.00% 0.00% 100.00% 100.00% 143.20% 152.58% 90.73%

2007
105.07% 100.56% 0.00% 100.00% 110.00% 100.00% 100.00% 125.00% 136.30% 202.55% 226.82% 95.92%

2008
129.10% 113.58% 100.00% 0.00% 110.00% 100.00% 41.10% 125.00% 120.37% 332.57% 781.37% 104.51%

2009
184.57% 161.72% 1.63% 0.00% 137.50% 100.00% 41.10% 125.00% 140.74% 260.80% 442.89% 185.65%

NET PROFIT AFTER INTEREST
PLUS: OTHER INCOMES

71

Share of profit of associate & joint venture Compensation from GOP Others Income from financial assets Profit on bank balances and term deposits Surplus of investment at fair value Dividend received on investment in MMF Gain on sale of investment Income on payments made on behalf of FF Income from asset other the financial asset Scrap sales and miscellaneous receipts Gain on sale of property & equipment Total others TOTAL OTHER INCOMES

0.00% 100.00%

0.00% 100.00%

0.00% 85.71%

100.00% 85.71%

-236.38% 0.00%

100.00% 0.00% 0.00% 0.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

121.83% 100.00% 0.00% 0.00% 122.39% 0.00% 110.45% 106.63% 110.07% 121.59% 108.49% 95.96% 89.51% 99.83%

122.06% 3724.63% 0.00% 100.00% 144.30% 0.00% 146.80% 0.00% 132.21% 143.50% 108.45% 99.62% 92.77% 103.71%

139.15% 0.00% 100.00% 222.91% 172.07% 0.00% 196.29% 130.90% 189.79% 173.15% 131.66% 112.52% 102.69% 118.39%

137.30% 0.00% 122.70% 3855.65% 225.63% 0.00% 141.81% 47.84% 132.47% 219.69% 59.16% 148.36% 138.08% 154.52%

PROFIT BEFORE TAXATION
Less: Taxation

PROFIT AFTER TAXATION

9.2.1 Net Sales
This is the amount of net revenues earned from sales of goods during the particular period. It is determined by deducting sales tax from own manufactured and purchased products or services rendered of that period. Amounts are given below:
NET SALES

Amounts:
2005
Net Sales 100.00%

2006
103.17%

2007
85.89%

2008
188.15%

2009
257.63%

Graphical Representation

72
Source: FFBL Annual Report

300.00% 250.00% 200.00% 150.00% 100.00% 50.00% 0.00% 2005 2006 2007 NET SALES 2008 2009

Interpretation:
Net Sales are showing positive optimistic trend. It’s increasing year by year but shows the decline in fiscal year 2007 and then reaches to the 257.63% in fiscal year 2009 as compared to the fiscal year 2005. Further explanations are given as under:

FY2005: Company's sales in 2005 are 24% higher than the year 2004. This is
mainly due to increase in volumes and higher prices of both Granular Urea and DAP, coupled with un-interrupted availability of Phos acid from Morocco throughout the year. The Company achieved the highest Ammonia, Urea and DAP production during the year with a significant increase over 2004.

FY2006: During the year, sales net of DAP subsidy increased by 3% that is given
to farmers by the GOP through fertilizer company that is deducted from the cost of

73

production. It decrease the net sales price, thereby the sale of the company were reduced by the amount of subsidy. But the Company achieved the highest Ammonia and Urea production during the year.

FY2007: DAP sales has been decreased by 16%. During the year the Company
achieved ever-highest daily Ammonia production in September 2007. But the required level is not achieved till the end of year. So, Ammonium, Sona DAP and Granular Urea production was lower than last year 2006.

FY2008: The Company achieved the ever-highest Ammonia, Urea and DAP
production during the year with a significant increase over 2004. Ammonia, Urea and DAP production during the year was better than the last year 2007 by 35%, 37% and 32%, respectively. For the better production, FFBL imported the Urea.

FY2009: With the DAP achieving the record yearly production, the overall
performance of all the plants remained satisfactory. Ammonium and Urea production were lower as compared to the year 2008. No sale tax has been paid during this year.

9.2.2 Cost of Sales
The Cost of Sales involves the identification of the expenses that are related to the manufacturing process. It is determined by adding beginning inventory of material and net purchases with the deduction of ending inventory
COST OF SALES

from both. Amounts are given below:

Amounts:
2005
Cost of Sales 100.00%

2006
103.41%

2007
76.56%

2008
191.85%

2009
279.19%

Graphical Representation:

74
Source: FFBL Annual Report

300.00% 250.00% 200.00% 150.00% 100.00% 50.00% 0.00%

2005

2006

2007

2008

2009

COST OF SALES

Interpretation:
Cost of sales are showing positive optimistic trend. It’s increasing year by year but shows the decline in 2007 and then reaches to the 279.19% in fiscal year 2009 as compared to the fiscal year 2005. Further explanations are given as under:

FY2005: Cost of sales, net of DAP subsidy has been increased over the last year.
Cost of sales has been increased due to increase in purchase prices of raw material consumed in process, and increase in fuel gases prices.

FY2006: Cost of sales, net of DAP subsidy has been increased by 3% over the
last year. However, the cost of sales has been increased 16% due to mainly on account of increase in phosphoric acid and fuel gases also increased by 25%.

75

FY2007: Cost of sales has been decreased by 26% as the company is able to
control its cost. It is attributable to the continuity of DAP subsidy. Lesser production during the year has resulted in lower raw material consumption.

FY2008: Cost of sales, net of DAP subsidy has been increased by 115% over the
last year. Cost of good sold grow much because of increase in raw material consumed in business process and in manufacturing cost -through offset by prices driven by change in demand and demand of food grains.

FY2009: Cost of sales, net of DAP subsidy has been increased by 87% over the
last year. Cost of sales has been increased because company did not purchase any fertilizer. It consumed all the fertilizer and shows the good production. No subsidy on DAP fertilizer from the compensation of GOP is paid out. So cost of sales has been increased during this year.

9.2.3 Gross Profit
Gross Profit is determined by deduction of Cost of good sold from net sales. It helps to determine the net profit by deducting the operating expenses and addingGROSS PROFIT the operative income. Amounts are given below:

Amounts:
2005
Gross Profit 100.00%

2006
102.67%

2007
105.70%

2008
180.30%

2009
211.84%

Graphical Representation

76
Source: FFBL Annual Report

250.00% 200.00% 150.00% 100.00% 50.00% 0.00%

2005

2006

2007 GROSS PROFIT

2008

2009

Interpretation:
Gross Profits are showing positive trend. It’s increasing year by year and reaches to the 211.84% in 2009 as compared to the 2005. Gross Profits are higher due to higher unit selling price of Urea, Ammonium and DAP. This was mainly attributed to shifting of plant turnaround to the year 2006 and overall increased plant load. Further explanations are given as under:

FY2005: Gross profit for the year is 32% of the sales, higher by 40% compared to
2004. This is mainly due to higher production, better plant efficiency and improved selling price of Urea and DAP.

77

FY2006: Gross Profit (32% of sales) remained the same as that of last year.
Consistent gross profit margin as of the last year are mainly due to better plant efficiency, 5% increase in sale volume and improved selling price of Urea.

FY2007: Company’s cost of sales has been decreased 26%. By decreasing the
cost of sale, gross profit has been increased by 3% showing the better plant efficiency.

FY2008: Company’s gross profit has been increased by 74% during this year.
Because of increase in raw material consumed in business process and in manufacturing cost -through offset by prices driven by change in demand and demand of food grains.

FY2009: Company’s gross profit has been increased by 32% during this year. But
the gross profit margin is decreased by 5% due to mainly completion of gas feed subsidy during the year 2008.

9.2.4 Net Profit
Net Profit is amount of money earned after all expenses, including overhead, employee salaries, manufacturing costs, and advertising costs, have been deducted from the total revenue. Amounts are given below:

Amounts:
2005
Net Profit 100.00%

2006
99.83%

2007
103.71%

2008
118.39%

2009
154.52%

78

Graphical Representation
NET PROFIT

160.00% 140.00% 120.00% 100.00% 80.00% 60.00% 40.00% 20.00% 0.00% 2005 2006 2007 NET PROFIT 2008 2009

Source: FFBL Annual Report

Interpretation:
Cost of sales are showing positive optimistic trend. It’s increasing year by year but shows the decline in 2007 and then reaches to the 279.19% in fiscal year 2009 as compared to the fiscal year 2005. Further explanations are given as under:

FY2005: The net profit for the year shows an improvement of 34% over 2004.
Other incomes like as compensation of GOP and that of bank deposits improved the profit rates and better liquidity position of the business as compared to the last year.

FY2006: Net profit for the year is marginally the same as compared to the last
year. Other incomes like as compensation of GOP and that of bank deposits

79

improved the profit rates and better liquidity position of the business as compared to the last year.

FY2007: Net profit shows the improvement means it is higher as compared to the
last year. Other incomes like as compensation of GOP has been decreased, but the other income resources of FFBL has been increased that results the improved profits and better liquidity position of the company.

FY2008: Net profit has been increased by 14% during this year. Company’s
finance cost is higher that shows the greater utilization of borrowed funds. But the company’s other income resources are higher as it gets the share of profit on joint venture has gained. That shows the improvement in net profit.

FY2009: Net profit has been increased by 37% during this year. Total finance
cost has been decreased that shows the reduced utilization of borrowed funds. Other income resources are high made on the account of bank deposits and mutual funds with the loss on share of joint venture. But the net profit after interest has been increased during this year as compared to last year. Overall in 2009, it shows the improved profits and better liquidity position of company.

9.3 Balance Sheet

FAUJI FERTILIZER BIN QASIM LIMITED Horizontal Analysis of Summarized Balance Sheet
As At December 31, 2009.

2005
EQUITY AND LIABILITIES SHARE CAPITAL AND RESERVES Share capital Capital reserves Statutory reserves Translation reserves

2006

2007

2008

2009

100.00% 100.00% 0.00% 0.00%

100.00% 100.00% 0.00% 0.00%

100.00% 100.00% 0.00% 0.00%

100.00% 100.00% 0.00% 100.00%

100.00% 100.00% 100.00% 121.94%

80

Accumulated profit / (loss)

100.00% 100.00%

56.02% 110.48%

57.58% 110.11%

-18.70% 135.70%

-20.96% 137.95%

TOTAL SHARE CAPITAL AND RESERVES
NON-CURRENT LIABILITIES Long-term financing From banks and financial institutions Habib Bank Limited Standard Chartered Bank Muslim Commercial Bank Limited Askari Commercial Bank Limited Saudi Pak Agricultural Investment Company From associated undertaking Pak Kuwait Investment Company Limited Less: Current portion under current liabilities Total long-term financing Liabilities against asset subject to lease Gross lease payments payable in future Less: Finance charge Total liabilities against asset subject to lease Long term murabaha Faysal Bank Limited (FBL) Less: Current portion under current liabilities Total long term murabaha Deferred tax liability Compensated leave absences Deferred tax Total deferred tax liability

100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 0.00% 100.00% 100.00%

81.82% 81.82% 81.82% 81.82% 81.82% 81.82% 81.82% 81.82% 100.00% 77.78% 50.94% 10.81% 52.59% 81.82% 100.00% 77.78% 0.00% 199.23% 199.23%

63.64% 63.64% 63.64% 63.64% 63.64% 63.64% 63.64% 63.64% 100.00% 55.56% 0.00% 0.00% 0.00% 63.64% 100.00% 55.55% 0.00% 302.07% 302.07%

45.45% 45.45% 45.45% 45.45% 45.45% 45.45% 45.45% 45.45% 100.00% 33.33% 0.00% 0.00% 0.00% 45.45% 100.00% 33.33% 100.00% 308.58% 317.39%

27.27% 27.27% 27.27% 27.27% 27.27% 27.27% 27.27% 27.27% 100.00% 11.11% 0.00% 0.00% 0.00% 27.27% 100.00% 11.11% 123.43% 295.63% 306.50%

2005
Long term loan Government of Pakistan (GOP) loan Deferred Government Assistance Less: Current portion under current liabilities Total long term loan

2006

2007

2008

2009

100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

94.41% 86.30% 91.67% 100.00% 90.91% 101.95%

88.43% 73.36% 83.33% 100.00% 81.82% 104.36%

82.03% 61.24% 75.00% 100.00% 72.73% 95.78%

75.18% 50.00% 66.67% 100.00% 63.64% 83.91%

TOTAL NON-CURRENT LIABILITIES
CURRENT LIABILITIES AND PROVISIONS Trade and other payable Creditors Accrued liabilities Advances from customers Workers' Profit Participation Fund Payable to gratuity fund

100.00% 100.00% 100.00% 100.00% 0.00%

92.67% 120.29% 78.07% 162.64% 0.00%

64.91% 149.94% 58.08% 193.20% 0.00%

293.88% 214.12% 60.33% 200.27% 100.00%

182.52% 418.02% 138.41% 568.13% 171.95%

81

Worker's welfare fund Unclaimed dividend Tax deducted at source Other payables Total trade and other payable Mark-up accrued On long term financing From banks and financial institutions From PKIC, an associated undertaking On long term murabaha On short term borrowings Total mark-up accrued Short term running finance Current portion of: Long term financing Liabilities against assets subject to lease Long term murabaha Long term loan Sales tax payable Provision for income tax - net Total of current portion

0.00% 100.00% 100.00% 100.00% 100.00%

100.00% 56.94% 75.07% 142.76% 92.05%

200.56% 91.77% 73.42% 471.50% 84.80%

314.15% 12.26% 214.21% 615.03% 215.58%

362.28% 120.09% 122.80% 3912.65% 231.10%

100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 0.00% 0.00% 100.00% 100.00% 100.00%

84.08% 83.81% 84.05% 81.25% 150.47% 111.24% 202.62% 100.00% 64.41% 100.00% 100.00% 100.00% 0.00% 100.88% 132.85% 112.61%

68.04% 68.05% 68.04% 68.03% 221.80% 131.31% 262.68% 100.00% 66.03% 100.00% 100.00% 0.00% 0.00% 99.88% 150.83% 118.16%

61.22% 61.21% 61.22% 61.22% 1441.40 % 629.15% 816.27% 100.00% 0.00% 100.00% 100.00% 0.00% 100.00% 99.67% 413.24% 190.27%

43.69% 0.00% 38.90% 38.91% 228.54% 116.93% 345.63% 100.00% 0.00% 100.00% 100.00% 0.00% 352862.34% 197.74% 263.95% 147.37%

TOTAL CURRENT LIABILITIES

TOTAL EQUITY AND LIABILITIES

2005
ASSETS NON-CURRENT ASSETS Property, plant and equipment Owned assets Leasehold land Free hold land Buildings on leasehold land Plant and machinery Catalyst Furniture and fittings Vehicles Office and other equipment Computer and ancillary equipment Library books Capital work in progress

2006

2007

2008

2009

100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

97.15% 100.00% 96.55% 99.30% 99.24% 85.04% 186.58% 110.32% 91.29% 65.31% 155.05%

94.22% 100.00% 93.24% 111.13% 150.47% 198.21% 228.57% 19.46% 154.95% 73.17% 167.95%

91.30% 100.00% 89.92% 117.01% 103.70% 214.75% 263.55% 156.35% 224.57% 47.70% 23.49%

90.82% 100.00% 92.54% 109.21% 289.80% 196.00% 546.50% 406.27% 413.49% 278.86% 79.75%

82

100.00%

102.55% 38.21% 102.52%

113.07% 0.00% 113.01%

108.87% 0.00% 108.82%

107.01% 0.00% 106.96%

Assets subject to finance lease Vehicles Total property, plant and equipment Long term investments Pakistan Maroc Phosphore S.A, Morocco Cost of investment Share of profit / loss Dividend Gain on translation of net assets Balance Investment in associate Fauji Cement Company Limited Cost of investment Share of post acquisition profits Balance Investment - available for sale Arabian Sea Country Club Limited 300,000 ordinary shares of Rs 10 each Less: Impairment in value of investment Total long term investments Long term deposits Security deposit Lease key money Less: Current portion of long term deposits Total long term deposits

100.00% 100.00%

100.00% 0.00% 0.00% 0.00% 100.00%

192.18% 0.00% 0.00% 0.00% 192.18%

192.18% 0.00% 0.00% 0.00% 192.18%

192.18% 100.00% 0.00% 100.00% 286.80%

286.80% -274.65% 100.00% 21.94% 244.59%

0.00% 0.00% 0.00%

0.00% 0.00% 0.00%

0.00% 0.00% 0.00%

100.00% 100.00% 100.00%

103.63% 194.07% 106.79%

100.00% 100.00% 0.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

100.00% 100.00% 0.00% 192.18% 100.13% 68.95% 95.04% 0.00% 99.30% 106.82%

100.00% 100.00% 0.00% 192.18% 100.13% 54.72% 92.72% 208.34% 87.54% 116.78%

100.00% 100.00% 0.00% 329.14% 100.13% 0.00% 83.79% 0.00% 87.54% 119.36%

100.00% 100.00% 0.00% 289.81% 503.33% 0.00% 421.18% 0.00% 440.05% 116.11%

TOTAL NON-CURRENT ASSETS

2005
CURRENT ASSETS Short term investments Loans and receivables Term deposits with bank & financial institution Investments at fair value through profit or loss Fixed income / Money market funds Surplus on re measurement Total short term investments Bank balances Deposit accounts Current accounts Cash in hand Total bank balances Trade debts Considered good

2006

2007

2008

2009

0.00% 0.00% 0.00% 0.00% 0.00% 100.00% 100.00% 0.00% 100.00% 100.00%

0.00% 100.00% 100.00% 100.00% 100.00% 106.65% 58.20% 0.00% 104.39% 200.66%

100.00% 331.15% 3724.63% 347.27% 775.23% 52.96% 93.03% 100.00% 54.83% 211.43%

0.00% 0.00% 0.00% 0.00% 0.00% 102.23% 366.65% 167.89% 114.57% 246.49%

204.65% 50.28% 316.72% 51.54% 927.36% 120.73% 516.48% 197.25% 139.19% 414.33%

83

Due from FF, unsecured, considered good Total trade debts Other receivables Due from holding company - considered good Other receivables Considered good (net) Considered doubtful Less: Provision for doubtful receivables Insurance claims Total other receivables Stores and spares Stores Spares Items in transit Less: Provision for obsolescence Total stores and spares Stock in trade Packing materials Raw materials Raw material in transit Work in process Finished goods Total stock in trade Income and sales tax refundable Interest accrued Due from GOP on account of DAP subsidy

100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 0.00%

1809.09 % 200.96% 140.07% 1442.35 % 100.00% 847.68% 100.00% 1442.35 % 152.90% 400.54% 90.57% 132.33% 224.19% 137.88% 100.00% 138.16% 144.68% 60.42% 125.33% 319.22% 59.51% 78.26% 159.89% 106.63% 0.00%

2190.91% 211.81% 25.23% 1116.46% 100.00% 666.16% 100.00% 1116.46% 0.00% 243.35% 66.47% 231.73% 252.14% 223.70% 790.85% 219.48% 323.42% 84.83% 0.00% 895.74% 63.07% 57.48% 232.49% 112.84% 0.00%

8372.73 % 248.05% 154.45% 86.23% 100.00% 92.33% 100.00% 86.23% 0.00% 140.22% 137.17% 257.40% 475.43% 269.33% 3333.30 % 246.51% 652.49% 7.85% 0.00% 239.49% 1389.13 % 554.93% 76.13% 76.77% 100.00%

0.00% 414.25% 60.21% 103.49% 100.00% 101.95% 100.00% 103.49% 0.00% 68.64% 205.04% 372.73% 255.07% 352.49% 4642.66% 320.54% 177.24% 302.61% 0.00% 341.76% 42.53% 119.95% 76.10% 136.56% 0.00%

2005
Advances Advances to: Executives, unsecured considered good Other employees, considered good Advances to suppliers and contractors Considered good Considered doubtful Less: Provision for doubtful advances Total advances Trade deposits & short term prepayments Current portion of long term deposits Security deposits

2006

2007

2008

2009

100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

210.32% 148.73% 162.46% 100.00% 162.37% 100.00% 162.46% 161.73% 0.00% 222.99%

788.89% 112.93% 213.34% 100.00% 213.19% 100.00% 213.34% 210.28% 208.34% 736.66%

391.27% 244.24% 161.35% 100.00% 161.27% 100.00% 161.35% 170.93% 0.00% 316.56%

938.10% 416.31% 275.48% 100.00% 275.25% 100.00% 275.48% 294.46% 0.00% 168.33%

84

Prepayments Total trade deposits and prepayments

100.00% 100.00% 100.00% 100.00%

192.70% 152.99% 122.19% 112.61%

118.74% 256.11% 120.45% 118.16%

152.60% 147.49% 307.47% 190.27%

197.38% 145.40% 199.03% 147.37%

TOTAL CURRENT ASSETS

TOTAL ASSETS

9.3.1 Total Assets
All the valuables possessed by the Fauji Fertilizer Bin Qasim Limited are called its assets. It includes all Current Assets, Non-Current Assets, and Fixed Assets. Amounts are given below:

Amounts:
2005
Total Non Current Assets Total Current Assets 100.00% 100.00%

2006
106.82% 122.19%

2007
116.78% 120.45%

2008
119.36% 307.47%

2009
116.11% 199.03%

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Total Assets

100.00%

112.61%

118.16%

190.27%

147.37%

Graphical Representation
TOTAL ASSETS

450.00% 400.00% 350.00% 300.00% 250.00% 200.00% 150.00% 100.00% 50.00% 0.00% 2005 2006 2007 2008 2009

NON-CURRENT ASSETS

CURRENT ASSETS

Source: FFBL Annual Report

Interpretation:
From 2005 to 2008, it shows the positive trend. But in 2009, it is going to decrease. From 2005 to 2009, the percentage increase in the fixed assets was high which tells how much the company has invested to buy more fixed assets to increase their production and sales. But in 2009, company did not purchase the new machines. That’s why in 2009, company’s total assets has been decreased as compared to the last 4 years.

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The company also invested a lot in the long term investments from year 2005 which was also by a greater proportion which tells how much the company is trying to make money from greater long term projects. But in 2009, company’s long term investments has been decreased that shows that the company is not interested to make money from greater long term projects. Company’s long term deposits have been also decreased in 2009. The company’s stock-in trade and trade debts has been increased smoothly but it arises in 2008 at a huge percentage and then in 2009 it declined by a huge percentage. This tells how better the company is managing their inventory and their decline in the account receivables section. So, overall total assets rose over the last 4 years but it rose much more in 2008 by around 74% which tells that from year 2005 the company’s position was getting very strong in Pakistan.

9.3.2 Total Liabilities
The claim of outsiders against the assets of the firm is called liability. It includes current and non current liabilities for the particular year. Amounts are given below:

Amounts:
2005 2006 2007 2008 2009

87

Total Non-Current Liabilities Total Current Liabilities Total Liabilities

100.00% 100.00% 100.00%

101.95% 132.85% 112.61%

104.36% 150.83% 118.16%

95.78% 413.24% 190.27%

83.91% 263.95% 147.37%

Graphical Representation
TOTAL LIABILITIES

600.00% 500.00% 400.00% 300.00% 200.00% 100.00% 0.00% 2005 2006 2007 2008 2009

NON-CURRENT LIABILITIES

CURRENT LIABILITIES

Source: FFBL Annual Report

Interpretation:
From 2005 to 2008, it shows the positive trend. But in 2009, it is going to decrease. The company’s non-current liabilities increased in year 2005 to 2007 but in 2008 and 2009 it has deteriorated. Deferred taxation also increased by a huge amount in percentage over the last two to three years. The trade and other payable section have fallen down in 2006 and 2007 but it has increased almost doubled in 2008 and from here, it shows the little increase

88

in year 2009. The company also increased the short term borrowing amount by a much greater percentage from year 2005 to 2008 which tells the company really increased most of their liabilities in this particular section. But in 2009, it shows the dramatically change in short term borrowings, it declined double in 2009. So the current liabilities have been increased smoothly from 2005 to 2006 and it doubled in 2007 and then it declined double in 2009. So, overall total liabilities rose over the last 4 years but it rose much more in 2008 by around 94% which tells that from year 2004 the company’s position was getting very strong in Pakistan.

9.4 Conclusion
The company mainly manufactures and market fertilizers. The analysis of Fauji Fertilizer Bin Qasim Limited has shown a modest growth over the past few years showing healthy increases in the profit of the company.

According to the Trend Percentage Analysis,

89

FFBL’s financial positions started getting stronger and stronger from year 2005 as they improved in almost all kinds of sections in which they can earn profit by increasing their sales and make more money by buying assets, short term investments and long term investment and huge amount of loans. The FFBL’s net profit after taxation also rose too much in greater proportion over all the last five years but raised much in year 2009 as compare to the last few years due to the increased in demand and supply. Since the company bought fixed assets that definitely have improved their production capacity and this was definitely due to much bigger demand and supply. So the company really improved in much greater proportion in increasing their sales from year 2005 and continued their progress until now. The company also invested a lot in the long term investments from year 2005 which was also by a greater proportion which tells how much the company is trying to make money from greater long term projects. The company’s non-current liabilities increased in year 2006 and 2007 but in 2008 it has deteriorated. Deferred taxation also increased by a huge amount in percentage over the last two to three years. So over the three years we see how much the FFBL has improved in perspective of all kinds of non-current and especially current assets and how better they are managing it.

90

10. Dollar and Percentage Changes 10.1 Introduction
The dollar amount of any change is the difference between the amounts for a comparison year and for a base year. The percentage change is computed by dividing the amount of the change between years by the amount for the base year. Percentage Changes
= (currentyea r − lastyear ) * 100 lastyear

91

To calculate the percentage change between two periods: 1. Select the base year.
2. For each line item, divide the amount in each non base year by the

amount in the base year and multiply by 100.

The base year trend percentage is always 100.0%. A trend percentage of less than 100.0% means the balance has decreased below the base year level in that particular year. A trend percentage greater than 100.0% means the balance in that year has increased over the base year. A negative trend percentage represents a negative number. If the base year is zero or negative, the trend percentage calculated will not be meaningful.

Percentage change analyses of FAUJI FERTILIZER BIN QASIM

LIMITED are given on next pages.

10.2 Income Statement

FAUJI FERTILIZER BIN QASIM LIMITED Percentage Change of Summarized Income Statement
As At December 31, 2009.
2005
SALES Gross sales Less: Sale tax

2006

2007

2008

2009

100.00% 100.00%

3.28% 4.20%

-16.55% -22.23%

108.18% -52.60%

35.97% -

92

Trade discount Commission to holding company

100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

8.21% 5.55% 4.68% 3.17% 7.20% 12.24% 25.25% 13.80% -0.09% 5.35% 8.05% 8.96% 24.35% 24.82% 6.62% -66.44% 219.22% 100.00% -4.59% 911.91% -75.09% 2.41% -32.33% 48.83% 4251.01 % 21.57% 3.41% 2.67%

51.48% -26.02% -13.65% -16.76% -8.05% -15.58% -10.61% 15.26% 30.80% 4.63% -5.55% 9.27% 135.53% -35.34% 6.59% 100.00% 219.22% 180.61% 111.56% -18.55% -75.09% 153.99% -22.77% 4251.01% -97.47% -99.11% -74.55% -25.97% 2.95%

20.78% 18.92% -36.17% 119.07% 427.20% 91.90% 55.70% 61.56% 41.89% 4.57% 3.22% 24.30% -20.31% 88.18% 12.85% 282.49% 180.61% -73.26% 454.97% 221.04% 153.99% 2113.31% 154.39% -99.11% 518.13% -24.32% 150.59% 70.57%

125.58% 33.05% -7.52% 36.93% -54.90% -4.47% 16.20% 17.07% 74.20% 20.13% 49.16% 31.10% 102.79% -37.82% 2.16% -50.45% -73.26% 42.70% -9.07% 2113.31% -96.94% 46.46% 45.52% 17.50%

NET SALES
LESS: COST OF SALES Raw materials consumed Packing materials consumed Fuel and power Chemicals and supplies consumed Salaries, wages and benefits Rent, rates and taxes Insurance Travel and conveyance Repairs and maintenance Communication and other expenses Provision for doubtful advances Depreciation Provision for inventory obsolescence Opening stock - work in process Closing stock - work in process Subsidy on DAP fertilizer from Pak Govt. Cost of goods manufactured Opening stock - own manufactured fertilizers Closing stock - own manufactured fertilizers Cost of sale - own manufactured fertilizer Opening stock - purchased fertilizers Purchase of fertilizers Closing stock - purchased fertilizers Cost of sales - purchased fertilizers TOTAL COST OF SALES

GROSS PROFIT

2005
LESS: OPERATING EXPENSES Selling and distribution expenses Product transportation Expenses charged by holding company Salaries, wages and benefits Rent, rates, and taxes Technical services Insurance expenses Travel and conveyance Sale promotion and advertising Communication and other expenses Warehousing expenses Depreciation

2006

2007

2008

2009

100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

11.98% 21.43% 2.90% 39.42% 19.04% -22.35% 35.67% 14.32% 26.35%

-29.12% -4.33% -5.00% -12.58% -4.20% -3.76% -15.21% 7.05% -6.52%

73.73% 42.74% 32.30% 50.50% 30.55% 13.22% 48.42% 53.24% 45.98%

16.70% 65.67% 29.92% 58.60% 100.00% 35.92% 77.66% 91.98% 65.39% 25.93%

93

Total expenses Total selling and distribution expenses Administrative expenses Salaries, wages and benefits Travel and conveyance Utilities Printing and stationery Repairs and maintenance Communication, advertisement and other Rent, rates and taxes Listing fee Donation to President relief fund Legal and professional Depreciation Miscellaneous Total administrative expenses TOTAL OPERATING EXPENSES

100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

17.61% 12.94% 35.12% -13.21% 40.14% 42.73% -38.89% -3.15% 32.13% 1.92% -97.26% -32.67% -73.58% 14.59% -9.46% 11.07% -0.95%

-4.47% -24.77% 25.70% 99.16% 15.54% 12.48% 155.79% -3.23% -5.84% 1.42% 20.00% 2.10% 22.04% 21.91% 26.75% -21.26% 14.63%

40.49% 66.28% 55.82% 175.80% 28.05% -14.98% 30.80% 32.17% 9.02% 2.79% 127.17% 5.60% -21.01% 31.77% 57.86% 65.35% 72.30%

64.99% 25.85% 90.99% -9.54% 60.01% 288.54% 60.34% 48.04% 105.34% 48.42% 2388.26% 227.31% 28.77% 223.09% 93.46% 32.91% 12.60%

OPERATING PROFIT
LESS: OTHER OPERATING COSTS Finance cost Mark-up on long term financing Banking companies & financial institution PKIC, an associated undertaking Finance charge on leased plant, equipment Mark-up on long term murabaha Mark-up on short term borrowings Interest on WPPF Bank charges Exchange loss Total finance cost

100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

7.01% 7.01% 7.01% -56.14% 7.01% 177.36% 80.00% 26.11% 2905.19 % 58.72%

-17.79% -17.79% -17.79% -55.31% -17.79% 109.81% 36.67% 83.61% 293.49% 52.90%

-12.95% -12.95% -12.95% -85.92% -12.97% 233.73% 15.04% 25.45% 3232.78% 342.81%

-15.49% -24.76% -24.75% -15.44% 60.42% 45.72% -88.78% -47.71%

2005
Other operating expenses Workers' Profit Participation Fund Worker's Welfare Fund Property, plant and equipment written off Loss on sale of property, plant & equipment Auditor's remuneration Fees - annual audit Fees - half yearly review Other certification & services Out of pocket expenses Total other operating expenses

2006

2007

2008

2009

100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

-2.50% 100.00% 0.00% 0.00% 0.00% 0.00% 43.20%

7.77% 0.56% 100.00% 10.00% 0.00% 100.00% 25.00% 36.30% 41.44%

22.87% 12.95% 100.00% 0.00% 0.00% -58.90% 0.00% -11.68% 64.19%

42.97% 42.38% -98.37% 25.00% 0.00% 0.00% 0.00% 16.92% -21.58%

94

TOTAL OTHER OPERATING COSTS

100.00% 100.00%

52.58% -9.27%

48.65% 5.73%

244.49% 8.95%

-43.32% 77.64%

NET PROFIT AFTER INTEREST
PLUS: OTHER INCOMES Share of profit of associate & joint venture Compensation from GOP Others Income from financial assets Profit on bank balances and term deposits Surplus of investment at fair value Dividend received on investment in MMF Gain on sale of investment Income on payments made on behalf of FF Income from asset other the financial asset Scrap sales and miscellaneous receipts Gain on sale of property & equipment Total others TOTAL OTHER INCOMES

100.00%

0.00%

-14.29%

100.00% 0.00%

-336.38% -

100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

21.83% 100.00% 22.39% 10.45% 6.63% 10.07% 21.59% 8.49% -4.04% -10.49% -0.17%

0.18% 3624.63% 100.00% 17.90% 32.92% 20.12% 18.02% -0.04% 3.81% 3.65% 3.89%

14.00% 100.00% 122.91% 19.25% 33.71% 100.00% 43.55% 20.66% 21.40% 12.95% 10.69% 14.16%

-1.33% 22.70% 1629.66% 31.12% -27.75% -63.45% -30.20% 26.88% -55.07% 31.86% 34.46% 30.51%

PROFIT BEFORE TAXATION
Less: Taxation

PROFIT AFTER TAXATION

10.3 Balance Sheet

FAUJI FERTILIZER BIN QASIM LIMITED Percentage Change of Summarized Balance Sheet
As At December 31, 2009.

2005
EQUITY AND LIABILITIES SHARE CAPITAL AND RESERVES Share capital Capital reserves

2006

2007

2008

2009

100.00% 100.00%

0.00% 0.00%

0.00% 0.00%

0.00% 0.00%

0.00% 0.00%

95

Statutory reserves Translation reserves Accumulated profit / (loss)

100.00% 100.00%

-43.98% 10.48%

2.79% -0.34%

100.00% -132.49% 23.24%

100.00% 21.94% 12.06% 1.65%

TOTAL SHARE CAPITAL AND RESERVES
NON-CURRENT LIABILITIES Long-term financing From banks and financial institutions Habib Bank Limited Standard Chartered Bank Muslim Commercial Bank Limited Askari Commercial Bank Limited Saudi Pak Agricultural Investment Company From associated undertaking Pak Kuwait Investment Company Limited Less: Current portion under current liabilities Total long-term financing Liabilities against asset subject to lease Gross lease payments payable in future Less: Finance charge Total liabilities against asset subject to lease Long term murabaha Faysal Bank Limited (FBL) Less: Current portion under current liabilities Total long term murabaha Deferred tax liability Compensated leave absences Deferred tax Total deferred tax liability

100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

-18.18% -18.18% -18.18% -18.18% -18.18% -18.18% -18.18% -18.18% 0.00% -22.22% -49.06% -89.19% -47.41% -18.18% 0.00% -22.22% 99.23% 99.23%

-22.22% -22.22% -22.22% -22.22% -22.22% -22.22% -22.22% -22.22% 0.00% -28.57% -22.22% 0.00% -28.57% 51.62% 51.62%

-28.57% -28.57% -28.57% -28.57% -28.57% -28.57% -28.57% -28.57% 0.00% -40.00% -28.57% 0.00% -40.00% 100.00% 2.15% 5.07%

-40.00% -40.00% -40.00% -40.00% -40.00% -40.00% -40.00% -40.00% 0.00% -66.67% -40.00% 0.00% -66.67% 23.43% -4.20% -3.43%

2005
Long term loan Government of Pakistan (GOP) loan Deferred Government Assistance Less:Current portion under current liabilities Total long term loan

2006

2007

2008

2009

100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

-5.59% -13.70% -8.33% 0.00% -9.09% 1.95%

-6.34% -14.99% -9.09% 0.00% -10.00% 2.36%

-7.24% -16.52% -10.00% 0.00% -11.11% -8.22%

-8.35% -18.35% -11.11% 0.00% -12.50% -12.40%

TOTAL NON-CURRENT LIABILITIES
CURRENT LIABILITIES AND PROVISIONS Trade and other payable Creditors Accrued liabilities Advances from customers

100.00% 100.00% 100.00%

-7.33% 20.29% -21.93%

-29.96% 24.65% -25.61%

352.75% 42.81% 3.87%

-37.89% 95.23% 129.42%

96

Workers' Profit Participation Fund Payable to gratuity fund Worker's welfare fund Unclaimed dividend Tax deducted at source Other payables Total trade and other payable Mark-up accrued On long term financing From banks and financial institutions From PKIC, an associated undertaking On long term murabaha On short term borrowings Total mark-up accrued Short term running finance Current portion of: Long term financing Liabilities against assets subject to lease Long term murabaha Long term loan Sales tax payable Provision for income tax - net Total of current portion

100.00% 100.00% 100.00% 100.00% 100.00%

62.64% 100.00% -43.06% -24.93% 42.76% -7.95%

18.79% 100.56% 61.17% -2.20% 230.28% -7.88%

3.66% 100.00% 56.63% -86.64% 191.78% 30.44% 154.22%

183.68% 71.95% 15.32% 879.67% -42.67% 536.17% 7.20%

100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

-15.92% -16.19% -15.95% -18.75% 50.47% 11.24% 102.62% 0.00% -35.59% 0.00% 0.00% 100.00% 0.88% 32.85% 12.61%

-19.07% -18.80% -19.04% -16.27% 47.40% 18.04% 29.65% 0.00% 2.51% 0.00% 0.00% -1.00% 13.53% 4.93%

-10.03% -10.05% -10.03% -10.01% 549.88% 379.14% 210.74% 0.00% 0.00% 0.00% 100.00% -0.21% 173.98% 61.03%

-28.63% -100.00% -36.46% -36.45% -84.14% -81.41% -57.66% 0.00% 0.00% 0.00% 352762.34% 98.40% -36.13% -22.55%

TOTAL CURRENT LIABILITIES TOTAL EQUITY AND LIABILITIES

2005
ASSETS NON-CURRENT ASSETS Property, plant and equipment Owned assets Leasehold land Free hold land Buildings on leasehold land Plant and machinery Catalyst Furniture and fittings Vehicles Office and other equipment Computer and ancillary equipment Library books

2006

2007

2008

2009

100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

-2.85% 0.00% -3.45% -0.70% -0.76% -14.96% 86.58% 10.32% -8.71% -34.69%

-3.01% 0.00% -3.43% 11.91% 51.62% 133.07% 22.50% -82.36% 69.73% 12.03%

-3.10% 0.00% -3.57% 5.29% -31.09% 8.35% 15.30% 703.35% 44.93% -34.81%

-0.53% 0.00% 2.92% -6.67% 179.47% -8.73% 107.36% 159.85% 84.13% 484.66%

97

Capital work in progress Assets subject to finance lease Vehicles Total property, plant and equipment Long term investments Pakistan Maroc Phosphore S.A, Morocco Cost of investment Share of profit / loss Dividend Gain on translation of net assets Balance Investment in associate Fauji Cement Company Limited Cost of investment Share of post acquisition profits Balance Investment - available for sale Arabian Sea Country Club Limited 300,000 ordinary shares of Rs 10 each Less: Impairment in value of investment Total long term investments Long term deposits Security deposit Lease key money Less: Current portion of long term deposits Total long term deposits

100.00% 100.00% 100.00% 100.00%

55.05% 2.55% -61.79% 2.52%

8.32% 10.25% 10.23%

-86.01% -3.71% -3.71%

239.50% -1.71% -1.71%

100.00% 100.00%

92.18% 92.18%

0.00% 0.00%

0.00% 100.00% 100.00% 49.23%

49.23% -374.65% 100.00% -78.06% -14.72%

-

-

-

100.00% 100.00% 100.00%

3.63% 94.07% 6.79%

100.00% 100.00% 0.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

0.00% 0.00% 0.00% 92.18% 0.13% -31.05% -4.96% -0.70% 6.82%

0.00% 0.00% 0.00% 0.00% 0.00% -20.64% -2.44% 100.00% -11.84% 9.33%

0.00% 0.00% 0.00% 71.26% 0.00% -9.63% 0.00% 2.21%

0.00% 0.00% 0.00% -11.95% 402.67% 402.67% 402.67% -2.72%

TOTAL NON-CURRENT ASSETS

2005
CURRENT ASSETS Short term investments Loans and receivables Term deposits with bank & financial institution Investments at fair value through profit or loss Fixed income / Money market funds Surplus on re measurement Total short term investments Bank balances Deposit accounts Current accounts Cash in hand Total bank balances Trade debts

2006

2007

2008

2009

100.00% 100.00% 100.00%

100.00% 100.00% 100.00% 100.00% 6.65% -41.80% 4.39%

100.00% 231.15% 3624.63 % 247.27% 675.23% -50.34% 59.83% 100.00% -47.48%

93.04% 294.14% 67.89% 108.96%

100.00% 100.00% 100.00% 100.00% 100.00% 18.09% 40.86% 17.49% 21.49%

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Considered good Due from FF, unsecured, considered good Total trade debts Other receivables Due from holding company - considered good Other receivables Considered good (net) Considered doubtful Less: Provision for doubtful receivables Insurance claims Total other receivables Stores and spares Stores Spares Items in transit Less: Provision for obsolescence Total stores and spares Stock in trade Packing materials Raw materials Raw material in transit Work in process Finished goods Total stock in trade Income and sales tax refundable Interest accrued Due from GOP on account of DAP subsidy

100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% -

100.66% 1709.09 % 100.96% 40.07% 1342.35 % 0.00% 747.68% 0.00% 1342.35 % 52.90% 300.54% -9.43% 32.33% 124.19% 37.88% 0.00% 38.16% 44.68% -39.58% 25.33% 219.22% -40.49% -21.74% 59.89% 6.63% -

5.37% 21.11% 5.40% -81.99% -22.59% 0.00% -21.41% 0.00% -22.59% -39.24% -26.60% 75.12% 12.47% 62.24% 690.85% 58.85% 123.54% 40.40% 180.61% 5.98% -26.56% 45.41% 5.82% -

16.58% 282.16% 17.11% 512.27% -92.28% 0.00% -86.14% 0.00% -92.28% -42.38% 106.35% 11.08% 88.56% 20.39% 321.48% 12.32% 101.75% -90.74% -73.26% 2102.44 % 865.52% -67.25% -31.97% 100.00%

68.09% 67.01% -61.02% 20.02% 0.00% 10.42% 0.00% 20.02% -51.05% 49.48% 44.81% -46.35% 30.88% 39.28% 30.03% -72.84% 3753.57% 42.70% -96.94% -78.39% -0.04% 77.89% -

2005
Advances Advances to: Executives, unsecured considered good Other employees, considered good Advances to suppliers and contractors Considered good Considered doubtful Less: Provision for doubtful advances Total advances Trade deposits & short term prepayments Current portion of long term deposits

2006

2007

2008

2009

100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

110.32% 48.73% 62.46% 0.00% 62.37% 0.00% 62.46% 61.73% -

275.09% -24.07% 31.32% 0.00% 31.29% 0.00% 31.32% 30.02% 100.00%

-50.40% 116.28% -24.37% 0.00% -24.35% 0.00% -24.37% -18.72% -

139.76% 70.45% 70.73% 0.00% 70.67% 0.00% 70.73% 72.27% -

99

Security deposits Prepayments Total trade deposits and prepayments

100.00% 100.00% 100.00% 100.00% 100.00%

122.99% 92.70% 52.99% 22.19% 12.61%

230.35% -38.38% 67.40% -1.42% 4.93%

-57.03% 28.51% -42.41% 155.28% 61.03%

-46.83% 29.34% -1.42% -35.27% -22.55%

TOTAL CURRENT ASSETS TOTAL ASSETS

10.4 Conclusion
The company mainly manufactures and market fertilizers. The analysis of Fauji Fertilizer Bin Qasim Limited has shown a modest growth over the past few years showing healthy increases in the profit of the company.

According to the Dollar Percentage Analysis,
The firm’s position is quiet visible which we can measure from its sales which is rising year after year especially from year 2005. The increase in sales the cost of sales also rise but the company did really well in reducing their cost of

100

sales in the year 2007 which tells that the company is really making efforts in order to increase the gross profit for the longer term. The company’s did well in reducing most of their expense and increased sales to get the improved profits and better liquidity position of the company. The company improved the profits in year 2009. The company’s position was getting better and better year after year because shareholder’s equity section did rise all the years. Overall total liabilities rose over the last 4 years but it rose much more in 2008 by around 94% which tells that from year 2004 the company’s position was getting very strong in Pakistan. The fixed asset portion of the company also rose from year to year and later on it increased at a slow proportion in percentage. So overall the company’s total assets rose over the last four years but they raised much in the year 2008 which tells that in year 2008 the firm’s position was getting very strong in Pakistan. But in 2009 there comes a dramatically change that declines the total assets as compared to 2008.

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11. Ratio Analysis
Ratio analysis involves the method of calculating and interpreting financial ratios to analyze and monitor the firm’s performance. The basic inputs to ratio analysis are the firm’s income statement and balance sheet. Ratio Analysis enables the business owner/manager to spot trends in a business and to compare its performance and condition with the average performance of similar businesses in the same industry. The analysis is used to provide indicators of past performance in terms of critical success factors of a
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business. This assistance in decision-making reduces reliance on guesswork and intuition and establishes a basis for sound judgment. Financial ratio analysis groups the ratios into categories which tell us about different facets of a company's finances and operations.

11.1 Analysis of Short Term Financial Position
A firm’s ability to satisfy its short term obligations as they become due is known as liquidity of the firm. Liquidity refers to the solvency of the firm’s overall financial position------ the ease with which it can pay its bills. Trade creditors; creditor for expenses; commercial banks; short term lenders are concerned with the short term financial position or liquidity of the unit. Management is also interested in knowing how efficiently working capital is being utilized by the business. Shareholders and long term creditors are also interested in studying the prospectus of dividend and interest payment. Liquidity ratios usually consist of: 1. 2. 3. 4. Net Working Capital Current Ratio or Working Capital Ratio Acid test Ratio or Quick Ratio or Liquid Ratio Absolute Liquid Ratio or Cash Position Ratio

11.1.1 Net Working Capital
The difference between the current assets and current liabilities of is known as net working capital. It may be positive or negative. Greater the net working capital lowers the risk of technically insolvency.

Formula:
Net Working Capital = currentass ets − currentlia bilities

Calculation:

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2005
Current Assets Current Liabilities Net Working Capital 9,266,673 6,344,831 2,921,842

2006
11,322,594 8,429,327 2,893,267

2007
11,161,328 9,569,949 1,591,379

2008
28,492,569 26,219,469 2,273,100

2009
18,443,765 16,747,253 1,696,512

Graphical Representation
NET WORKING CAPITAL

3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000 0 2005 2006 2007 2008 2009

NET WORKING CAPITAL

Source: FFBL Annual Report

Interpretation:
Net working capital showed the negative trend from 2005 to 2007 and then afterwards increases the net working capital in 2008 and in 2009 it again decreased. The current assets of the company registered a nominal decrease during 2008 as compared to 2007. The major portion of the current assets is attributed to subsidy due from GOP on account of DAP 44% of total current assets. Moreover, the stock in trade has been slowly increased as the finished goods in the 2008 have been increased.

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Current liabilities showed a high increase during 2008 as compared to 2007. The major portion of the current liabilities is attributed to the short term financing depicting an increase in 2008, by availing running finance facilities from different banks and financial institutions to meet the working capital requirements of company. The company has made a huge investment for expansion of fertilizer producing plants. Moreover, the company availed short-term loans from various banks to fulfill the requirements concerning purchase of raw material.

11.1.2 Current Ratio
Current ratio indicates the liquidity of current assets or the ability of the business to meet its maturing current liabilities. Current ratio is also known as Working capital ratio.

Formula
Current Ratio =
currentass ets currentlia bilities

Calculation:
2005
Current Assets Current Liabilities Current Ratio 9,266,673 6,344,831 1.46

2006
11,322,594 8,429,327 1.34

2007
11,161,328 9,569,949 1.17

2008
28,492,569 26,219,469 1.09

2009
18,443,765 16,747,253 1.10

CURRENT RATIO

Graphical Representation
1.60 1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00 2005 2006 2007 CURRENT RATIO 2008 2009

105

Source: FFBL Annual Report

Interpretation:
The business concern maintains current ratio of 1.10 times, which is equal to 1:1 indicating the concerns capability to meet its short-term obligations. The current ratio of FFBL has shown a decrease year by year as it was 1.46 times in 2005 and in 2009, it has become 1.10. This is due to increase in assets as it liabilities has also increased but there is a high change in assets as compare to liabilities. It also means that the FFBL will be able to pay off its current liabilities in full even if current assets realizable value is 1 of its book value.

11.1.3 Acid Test Ratio
It establishes a relationship between liquid assets and current liabilities. Liquid assets include all the assets minus inventory and prepaid expenses. Liquid ratio is also known as quick ratio or acid test ratio.

Formula
Liquid Ratio =
liquidasse ts currentlia bilities

Calculation:
2005
Quick Assets Current Liabilities Quick Ratio 7,663,328 6,344,831 1.21

2006
9,719,687 8,429,327 1.15

2007
9,298,345 9,569,949 0.97

2008
21,388,387 26,219,469 0.82

2009
15,362,151 16,747,253 0.92

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Graphical Representation
ACID TEST RATIO

1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00 2005 2006 2007 ACID TEST RATIO 2008 2009

Source: FFBL Annual Report

Interpretation:
The quick ratio has shown an effective decrease in 2005 as it was 1.21 times. From 2005 to 2008 it decreased due to the high stock in trade, this may be because of inflation. Then afterwards in 2009, there is an increase in quick ratio that shows the favorable position of FFBL.

11.1.4 Absolute Liquid Ratio
Absolute Liquid Ratio relates cash, bank and marketable securities to the current liabilities. It means absolute liquid assets worth one half of the value of current liabilities are sufficient for satisfactory liquid position of a business.

Formula
Absolute Liquid Ratio =
absoluteli quidassets currentlia bilities

Calculation:

107

2005
Absolute Liquid Assets Current Liabilities Absolute Liquid Ratio 7,211,981 6,344,831 1.14

2006
8,141,548 8,429,327 0.97

2007
8,236,302 9,569,949 0.86

2008
20,631,420 26,219,469 0.79

2009
14,654,626 16,747,253 0.88

Graphical Representation
ABSOLUTE LIQUID RATIO

1.20 1.00 0.80 0.60 0.40 0.20 0.00 2005 2006 2007 2008 2009

ABSOLUTE LIQUID RATIO

Source: FFBL Annual Report

Interpretation:
The absolute liquid ratio has shown an effective decrease in 2005 as it was 1.14 times. From 2005 to 2008 it decreased due to increase in trade debts. Then afterwards in 2009, there is an increase in quick ratio. But in spite of these this ratio shows the favorable position of FFBL, when compared to the rule of thumb standard which is 0.50 times.

11.1.5 Conclusion

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Liquidity of company has declined, illustrating that the firm may experience problems in financing its short term obligations. However overall liquidity position of the Fauji Fertilizer Bin Qasim Limited is “GOOD” because its Current growth is greater than the growth of Current Liability, which shows that company is not risky and may not be insolvent in short term.
LIQUIDITY RATIOS

1.60 1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00 2005 2006 2007
LIQUID RATIO

3500000.00 3000000.00 2500000.00 2000000.00 1500000.00 1000000.00 500000.00 0.00 2008 2009
NWC

CURRENT RATIO

ABSOLUTE LIQUID RATIO

Source: FFBL Annual Report

11.2 Analysis of Efficiency
Activity or efficiency or turnover ratios are concerned with measuring the efficiency in assets management. Efficiency implies effective utilization of available resources. The term turnover refers to the rotation or utilization of a resource or an asset in the process of business activity. Therefore the activity ratios are used to find out the effective utilization of assets by relating the same to sales

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or cost of goods sold. Activity ratios are therefore used to assess how active various assets are in the business. Efficiency ratios usually consist of: 1. 2. 3. 4. 5. Inventory Efficiency Debtor Efficiency Creditor Efficiency Assets Efficiency Cycle Efficiency

11.2.1 Inventory Efficiency
It consists of inventory turnover ratio and average age of inventory.

1. Inventory Turnover Ratio
Measure the activity, 0r liquidity of the firm’s inventory is called Stock Turnover Ratio.

Formula
Stock Turnover Ratio = averageinv
cos tofgoodsso ld entory

Calculation:
2005
Cost of Goods Sold Average Inventory Stock Turnover Ratio 9,692,236 1186345 8.2

2006
10,023,044 1598944 6.3

2007
7,420,310 1726182.5 4.3

2008
18,594,752 4476911 4.2

2009
27,059,566 5088056.5 5.3

2. Average Age of Inventory
It shows how many days were taken to disposal off average inventory. It is known as Average Age of Inventory (AAI).

Formula
Average Age of Inventory =
365 stockturno verrate

Calculation:
110

2005
Stock Turnover Ratio AAI 8.2 44.7

2006
6.3 58.2

2007
4.3 84.9

2008
4.2 87.9

2009
5.3 68.6

Graphical Representation
INVENTORY EFFICIENCY

9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 2005 2006 2007 2008 2009 AAI

100.0 90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0

STOCK TURNOVER

Source: FFBL Annual Report

Interpretation:
The level of inventory turnover was decreasing from the year 2005 till 2008 and afterwards it increased in 2009. The higher the inventory level, the more time it takes to come to an end. Inventory turnover days were increasing from the year 2005 till 2008. But it created the problems because they have increased their inventory level so it took more time to wipe out. And in 2009 it was decreased 20 days that there inventory finishes in 20 days.

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11.2.2 Debtor Efficiency
It consists of debtor turnover ratio and average collection period.

1. Debtor Turnover Ratio
Measure the activity, or liquidity of the firm’s credit sales is called Debtor Turnover Ratio.

Formula
Debtor Turnover Ratio = averagetra
netcredits ales dedebtor

Calculation:
2005
Net Sales Average Trade Debtor Debtor Turnover Ratio 14,254,764 602424.5 23.7

2006
14,707,288 1014743 14.5

2007
12,242,888 1320091 9.3

2008
26,820,812 909505 29.5

2009
36,724,920 732246 50.2

2. Average Collection Period
It shows how many days were taken to collect trade debt by the company. It is known as Average Collection Period (ACP).

Formula
Average Collection Period =
DEBTOR EFFICIENCY
365 debtorturn overratio

Calculation:
2005
Debtor Turnover Ratio ACP 23.7 15.4

2006
14.5 25.2

2007
9.3 39.4

2008
29.5 12.4

2009
50.2 7.3

Graphical Representation

112
Source: FFBL Annual Report

60.0 50.0 40.0 30.0 20.0 10.0 0.0 2005 2006 2007 2008 ACP 2009

45.0 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0

DEBTOR TURNOVER

Interpretation:
Receivable turnover has improved year by year as it was 24 times in 2005 and in 2008 it became 30 times, this is due to higher sales revenue. FFBL do speedy and effective collection of trade debts. In 2009 turnover is increased that indicates the sufficient collection of debts. Average collection period of trade debts also improved year by year as it was 15 days in 2005 and in 2009 it became 7 days. This shows that FFBL collects its bills in 7 days. FFBL also improved its position to collect its bills as soon.

11.2.3 Creditor Efficiency
It consists of creditor turnover ratio and average payment period.

1. Creditor Turnover Ratio
Measure the activity, or liquidity of the firm’s credit purchase is called Creditor Turnover Ratio. It indicates the speed with which the payments are made to the trade creditor.

Formula
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Creditor Turnover Ratio = averagetra

netcreditp urchase decreditor

Calculation:
2005
Net Credit Purchase Average Trade Credit Creditor Turnover Ratio 9,692,236 2534672 3.8

2006
10,023,044 2790449 3.6

2007
7,420,310 2569574.5 2.9

2008
18,594,752 4364457.5 4.3

2009
27,059,566 6490254 4.2

2. Average Payment Period
It shows how many days were taken to pay trade credit by the company, it is known as Average Payment Period (APP).

Formula
Average Payment Period =
365 creditortu rnoverrati o

Calculation:
2005
Creditor Turnover Ratio APP 3.8 91.3

2006
3.6 91.3

2007
2.9 121.7

2008
4.3 91.3

2009
4.2 91.3

CREDITOR EFFICIENCY

Graphical Representation
4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2005 2006 2007 2008 2009 APP 140.0 120.0 100.0 80.0 60.0 40.0 20.0 0.0

CREDITOR TURNOVER

114

Source: FFBL Annual Report

Interpretation:
Creditor turnover has not shown a significant change as it was same in all years from 2005 to 2009. Not many changes in average payable days as it was 91 days in 2005 and it was remained in its range till 2009. This shows that the company was in good position. In 2007, creditor turnover was low and average payment period is high as compared to previous years. This shows that the company is not in good position in 2007.

11.2.4 Cycle Efficiency
It consists of operating cycle and cash conversion cycle.

1. Operating Cycle
The time from the beginning of the production process to the collection of cash from the sale of finished good is called operating cycle.

Formula
Operating Cycle = AAI + ACP

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Calculation:
2005
AAI ACP Operating Cycle 44.7 15.4 60.1

2006
58.2 25.2 83.4

2007
84.9 39.4 124.3

2008
87.9 12.4 100.3

2009
68.6 7.3 75.9

2. Cash Conversion Cycle
The time from the beginning of the production process to the collection of cash from the sale of finished goods and payment made to its suppliers is called cash conversion cycle (CCC).

Formula
Cash Conversion Cycle = AAI + ACP − APP

Calculation:
2005
AAI ACP APP Cash Conversion Cycle 44.7 15.4 91.3 -31.1

2006
58.2 25.2 91.3 -7.8

2007
84.9 39.4 121.7 2.6

2008
87.9 12.4 91.3 9.0

2009
68.6 7.3 91.3 -15.3

CYCLE EFFICIENCY

Graphical Representation
140.0 120.0 100.0 80.0 60.0 40.0 20.0 0.0 -20.0 -40.0 O PER IN C LE AT G YC 2005 2006 2007 2008 2009

116

C C C

Source: FFBL Annual Report

Interpretation:
Operating cycle was increased from 2005 to 2007 and then it dramatically change in 2009. Cash conversion cycle was increasing from 2005 to 2008 and then it decreased in 2009. It decreased because the credit purchase of FFBL was decreasing. So the greater growth in APP than the growth of ACP and AAI may lead to the decrease of cash conversion cycle. This presents a good picture about company credit management.

11.2.5 Assets Efficiency
It consists of total asset turnover ratio and fixed asset turnover ratio.

1. Total Asset Turnover Ratio
The total assets turnover indicates that generate company turnover. Here all assets are compared with its turnover. Normally it calculates by dividing sales from its total assets.

Formula

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Total Assets Turnover Ratio =

sales totalasset s

Calculation:
2005
Net Sales Total Assets Total Assets Turnover 14,254,764 24,581,446 0.6

2006
14,707,288 27,681,356 0.5

2007
12,242,888 29,045,971 0.4

2008
26,820,812 46,771,671 0.6

2009
36,724,920 36,225,182 1.0

2. Fixed Asset Turnover Ratio
The fixed assets turnover indicates that generate company turnover. Here fixed assets are compared with its turnover. Normally it calculates by dividing sales from its total fixed assets.

Formula
Fixed Assets Turnover Ratio =
sales fixedasset s

Calculation:
2005
Net Sales Fixed Assets Fixed Asset Turnover 14,254,764 14,563,103 1.0

2006
14,707,288 14,930,339 1.0

2007
12,242,888 16,458,265 0.7

2008
26,820,812 15,847,104 1.7

2009
36,724,920 15,576,899 2.4

ASSETS EFFICIENCY

Graphical Representation
2.5 2.0 1.5 1.0 0.5 0.0 2005 2006 2007 2008 2009
FIXED ASSET TURNOVER TOTAL ASSET TURNOVER

1.2 1.0 0.8 0.6 0.4 0.2 0.0

118

Source: FFBL Annual Report

Interpretation:
The total asset turnover has been decreased from 2005 to 2007 due to combination of an increase in total assets and in sales a slight change occurs. Afterwards from 2008 to 2009 total asset turnover has been increased due to combination of an increase in sales and decrease in total assets. The fixed asset turnover has been decreased from 2005 to 2007 due to combination of an increase in fixed assets and in sales a slight change occurs. Afterwards from 2008 to 2009 fixed asset turnover has been increased due to combination of an increase in sales and decrease in fixed assets. However, FFBL has in good position.

11.2.6 Working Capital Turnover Ratio
It creates a relationship between cost of sales and net working capital. As working capital has direct and close relationship with cost of sales, therefore the ratio provide useful idea of how effectively and actively working capital is being used.

Formula
Working Capital Turnover Ratio = averagenet
cos tofsales workingcap ital

119

Calculation:
2005
Cost of Goods Sold Average NWC Working Capital Turnover 9,692,236 2652055.5 3.7

2006
10,023,044 2907554.5 3.4

2007
7,420,310 2242323 3.3

2008
18,594,752 1932239.5 9.6

2009
27,059,566 1984806 13.6

Graphical Representation
WORKING CAPITAL TURNOVER RATIO

14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 2005 2006 2007 2008 2009

WORKING CAPITAL TURNOVER

Source: FFBL Annual Report

Interpretation:
The working capital turnover shows the slight changes in 2005 to 2007 and afterwards it shows the positive trend from 2008 to 2009. From 2005 to 2007 net working capital has been decreased. In 2008 net working capital is higher as compared to previous year and then it decreased. But in spite of it, working capital turnover ratio increased due to increase in sales.

11.2.7 Conclusion

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Consequently the turnover ratios are in “GOOD” position. This shows that the FFBL has an efficient working capital cycle. The cash is not tied up for long period and collected as soon as possible. Hence firm will not face liquidity problem.
EFFICIENCY RATIOS

100.0 90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 2005 AAI 2006 2007 ACP 2008 APP 2009 WCT

140.0 120.0 100.0 80.0 60.0 40.0 20.0 0.0

Source: FFBL Annual Report

11.3 Analysis of Long Term Risk
Thus long-term financial soundness (or solvency) of any business is examined by calculating ratios popularly, known as leverage of capital structure ratios. These ratios help us the interpreting repays long-term debt as per installments stipulated in the contract. The long-term financial soundness of any business can be judged by its long-term creditors by testing its ability to pay interest charges regularly and its ability to repay the principal as per schedule. It usually consists of:
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1. 2. 3.

Proprietory Ratio Capital Gearing Ratio Solvency Ratio

11.3.1 Proprietory Ratio
Proprietary ratio establishes relationship between proprietor’s funds to total resources of the unit. Where proprietor’s funds refer to equity share capital and Reserves, surpluses and Total resources refer to total assets. It is also known as Equity Ratio or Net worth to total assets or shareholders equity to total equity.

Formula
Proprietory Ratio =
proprietor ' sfund totalasset s

Calculation:
2005
Proprietor’s Fund Total Assets Proprietory Ratio 7,727,531 24,581,446 0.31

2006
8,537,696 27,681,356 0.31

2007
8,508,927 29,045,971 0.29

2008
10,486,371 46,771,671 0.22

2009
10,659,901 36,225,182 0.29

Graphical Representation

PROPRIETORY RATIO

0.35 0.30 0.25 0.20 0.15 0.10 0.05 0.00 2005 2006 2007 2008 2009

PROPRIETORY RATIO

122

Source: FFBL Annual Report

Interpretation:
Proprietory ratio shows the negative trend from 2005 to 2008 and afterwards it increased. As this ratio is 0.31 times in 2005 and 2006 that indicates 69% of funds have been supplied by the outside creditors. In 2007 and 2009 this ratio was 0.29 times that indicates that 71% of funds have been supplied by the outside creditors. In 2008 this ratio was 0.29 times that indicates that 78% of funds have been supplied by the outside creditors.

11.3.2 Capital Gearing Ratio
It is the ratio between the capitals plus reserves i.e. equity and fixed cost bearing securities. Fixed cost bearing securities include debentures, long-term mortgage long etc.

Formula
Capital Gearing Ratio =
equity fixed int erestbeari ngdebts

Calculation:
2005
Equity Fixed Interest Debts Capital Gearing Ratio 7,727,531 10,509,084 0.74

2006
8,537,696 10,714,333 0.80

2007
8,508,927 10,967,095 0.78

2008
10,486,371 10,065,831 1.04

2009
10,659,901 8,818,028 1.21

Graphical Representation
123

CAPITAL GEARING RATIO

1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00 2005 2006 2007 2008 2009

CAPITAL GEARING RATIO

Source: FFBL Annual Report

Interpretation:
It shows the positive trend throughout the last five years. This ratio is favorable for the company because it involves the high degree of risk as well as the potential returns. And earnings are higher that indicates that FFBL can fulfill its interest obligations.

11.3.3 Solvency Ratio
Solvency is the term which is used to describe the financial position of any business which is capable to meet outside obligations in full out of its own assets. So this ratio establishes relationship between total liabilities and total assets.

Formula
Solvency Ratio =
totalliabi lities totalasset s

Calculation:
2005
Total Liabilities 16,853,915

2006
19,143,660

2007
20,537,044

2008
36,285,300

2009
25,565,281

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Total Assets Solvency Ratio

24,581,446 0.69

27,681,356 0.69

29,045,971 0.71

46,771,671 0.78

36,225,182 0.71

Graphical Representation
SOLVENCY RATIO

0.78 0.76 0.74 0.72 0.70 0.68 0.66 0.64 2005 2006 2007 2008 2009

SOLVENCY RATIO

Source: FFBL Annual Report

Interpretation:
Solvency ratio shows the positive trend from 2005 to 2008 and afterwards it shows the decrease. Positive trend is not beneficial for the company because it increase the degree of risk as well as potential returns. In 2008 it indicates that there are 22% total assets through which the financial obligations are met. In 2009 it indicates that there are 29% total assets through which financial obligations are met. In 2009 FFBL has in good position as compared to 2008.

11.3.4 Conclusion
Capital gearing ratio is favorable for the company because it involves the high degree of risk as well as the potential returns. Proprietory ratio shows the negative

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trend. In 2009 this ratio was 0.29 times that indicates that 71% of funds have been supplied by the outside creditors. Solvency ratio shows the positive trend that indicates the FFBL has not in good position. Overall, Solvency ratio analysis seems to be “GOOD”.
SOLVENCY RATIO ANALYSIS

1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00 2005 2006 2007 2008 2009

0.80 0.78 0.76 0.74 0.72 0.70 0.68 0.66 0.64

PROPRIETORY RATIO

CAPITAL GEARING RATIO

SOLVENCY RATIO

Source: FFBL Annual Report

11.4 Analysis of Profitability
The main objective of a business concern is to earn profit. In general terms, efficiency in business is measured by profitability. A low profitability may arise due to the lack of control over expanses. Banker’s financial institutions and other creditors look at the profitability ratios as an indicator whether or not the firm earns substantially more than it pays interest for the use of borrowed funds and whether the ultimate repayment of their debt appears reasonably certain. Owners are also interested to know the return which they can get on their investments. A profitability ratio usually consists of: 1. Percentage change ratio
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2. 3. 4. 5. 6.

Gross profit ratio Net profit ratio Operating profit ratio Expenses ratio Operating ratio

11.4.1 Percentage Change Ratio
The percentage change is the difference between the amount for a comparison year and for a base year. The two most important percentage changes are:  Net sales  Net income

1. Net Sales
The percentage change of net sales is the difference between the amount for a comparison year and for a base year.

Formula
Net Income Percentage Change
= amountofch ange amountinea rlieryear ×100

Calculation:
2005
NET SALES

2006
3%

2007
-17%

2008
119%

2009
37%

NET SALES

100%

Graphical Representation
37% 100%

119%

3% -17%

2005

2006

2007

2008

2009

NET SALES 127

Source: FFBL Annual Report

2. Net Income
The percentage change of net income is the difference between the amount for a comparison year and for a base year.

Formula
Net Income Percentage Change
= amountofch ange amountinea rlieryear ×100

Calculation:
2005
NET INCOME 100%

2006
0%

2007
4%

2008
14%

2009
31%

Graphical Representation
NET INCOME

31%

14% 4% 0% 100%

2005

2006

2007

2008

2009

NET INCOME

Source: FFBL Annual Report

128

Interpretation:
The percentage change in net sales and percentage change in net income shows a positive trend these changes occur due to the fluctuation in amounts.

11.4.2 Gross Profit Ratio
Gross profit ratio is the ratio of gross profit to net sales i.e. sales less sales returns. The ratio thus reflects the margin of profit that a concern is able to earn on its trading and manufacturing activity. It is the most commonly calculated ratio. It is employed for inter-firm and inter-firm comparison of trading results.

Formula
Gross Profit Ratio =
grossprofi t ×100 netsales

Calculation:
2005
Gross Profit Net Sales Gross Profit Ratio 4,562,528 14,254,764 32%

2006
4,684,244 14,707,288 32%

2007
4,822,578 12,242,888 39%

2008
8,226,060 26,820,812 31%

2009
9,665,354 36,724,920 26%

Graphical Representation
GROSS PROFIT RATIO

40% 35% 30% 25% 20% 15% 10% 5% 0% 2005 2006 2007 GROSS PROFIT 2008 2009

129
Source: FFBL Annual Report

Interpretation:
Gross profit ratio showed the positive trend from 2005 till 2007 and afterwards it declined. The increase in cost incurred during 2007 is mainly due to the increase in consumption of raw material. This improvement is mainly due to the increase in the production capacity of the plants for which the raw material was excessively used to utilize production facility and to meet the market demand. Due to this, gross profit margin of the company 2008 decreased. However, due to higher sales, the gross profit increased in 2009. So, in 2009 gross profit ratio is decreased.

11.4.3 Net Profit Ratio
Net profit ratio expresses the relationship between net profit after taxes and sales. This ratio is the measure of the overall profitability. Net profit is arrived at after taking into account both the operating and non-operating items of incomes and expenses. The ratio indicates what portion of the net sales is left for the owners after all expenses have been met.

Formula
Net Profit Ratio =
netprofit ×100 netsales

Calculation:
2005 2006 2007 2008 2009

130

Net Profit Net Sales Net Profit Ratio

2,449,109 14,254,764 17%

2,444,858 14,707,288 17%

2,540,033 12,242,888 21%

2,899,621 26,820,812 11%

3,784,365 36,724,920 10%

Graphical Representation
NET PROFIT RATIO

25% 20% 15% 10% 5% 0%

2005

2006

2007 NET PROFIT

2008

2009

Source: FFBL Annual Report

Interpretation:
Sales for the year 2009 as compared to the year 2008, depicts a growth by 211% due to sale of higher units in the market. Moreover, these sales do not include subsidies which are provided by the government. However, as the prices of DAP in the international market have been declined so it is expected that the prices in the local market will also decline. In this situation, the government will not provide any subsidy as the prices will be within the affordability of farmers. The decrease in prices will enhance the demand in the market and to give further boost to the sales of fertilizer’s manufacturers and influence the yield by the farmers. The profit margin of the company fluctuates in a range of 10-20%.

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Profitability of the company is dependent on its net income. The higher the income the better the profitability or there is an inverse relation of sales i.e. the lower the sales the higher the profit margin.

11.4.4 Operating Profit Ratio
Operating net profit ratio is calculated by dividing the operating net profit by sales. This ratio helps in determining the ability of the management in running the business.

Formula
Operating Profit Ratio =
operatingp rofit ×100 netsales

Calculation:
2005
Operating Profit Net Sales Operating Profit Ratio 3,190,360 14,254,764 22%

2006
3,160,200 14,707,288 21%

2007
3,622,580 12,242,888 30%

2008
6,241,813 26,820,812 23%

2009
7,028,027 36,724,920 19%

Graphical Representation
OPERATING PROFIT RATIO

30% 25% 20% 15% 10% 5% 0% 2005 2006 2007 2008 2009

OPERATING PROFIT

Source: FFBL Annual Report

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Interpretation:
The Operating profit ratio shows an increasing trend from 2005 to 2007. And from 2007 it shows the negative trend because the operating expenses were increased. It is expected that it will increase more in next future because of expansion plan and increasing demand of fertilizers in all over the world.

11.4.5 Expenses Ratio
Expense ratios are calculated to ascertain the relationship that exists between operating expenses and volume of assets. It indicates the portion of sales which is consumed by various operating expenses. It consists of selling and distribution expenses and administration expenses.

1. Selling and Distribution Expenses
It is calculated by dividing the selling and distribution expenses to net sales.

Formula
Expense Ratio =
selling exp enses ×100 netsales

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Calculation:
2005
Selling Expenses Net Sales Expense Ratio 1,257,698 14,254,764 9%

2006
1,420,401 14,707,288 10%

2007
1,068,629 12,242,888 9%

2008
1,776,864 26,820,812 7%

2009
2,236,123 36,724,920 6%

2. Administration Expenses
It is calculated by dividing the administration expenses to net sales.

Formula
Expense Ratio =
ad min exp ense ×100 netsales

Calculation:
2005
Admin Expenses Net Sales Expense Ratio 114,470 14,254,764 1%

2006
103,643 14,707,288 1%

2007
131,369 12,242,888 1%

2008
207,383 26,820,812 1%

2009
401,204 36,724,920 1%

Graphical Representation
EXPENSES RATIO

12% 10% 8% 6% 4% 2% 0% 2005 2006 2007 2008 2009

ADMIN EXPENSES

SELLING EXPENSES

134
Source: FFBL Annual Report

Interpretation:
Expense ratio consists of the administrative expenses and selling and distribution expenses. This indicates the portion of sales which is consumed by various operating expenses. Admin expenses throughout all the years are equal that indicates that the FFBL spent less money on it. It saved the money and does the other expenses like as more spent on the selling and distribution expenses. Selling and distribution expenses throughout the years showed the negative trend. It indicates that lower this ratio results the lower operating ratio. It is expected that it will be decrease in near future because of better facilities provided by the Government.

11.4.6 Operating Ratio
The ratio is determined by comparing the cost of the goods and other operating expenses with net sales.

Formula
Operating Ratio =
operating cos t ×100 netsales

Calculation:
2005
Operating Cost Net Sales Operating Ratio 11,064,404 14,254,764 78%

2006
11,547,088 14,707,288 79%

2007
8,620,308 12,242,888 70%

2008
20,578,999 26,820,812 77%

2009
29,696,893 36,724,920 81%

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Graphical Representation
OPERATING RATIO

82% 80% 78% 76% 74% 72% 70% 68% 66% 64% 2005 2006 2007 2008 2009

OPERATING RATIO

Source: FFBL Annual Report

Interpretation:
Operating ratio throughout all the years showed the positive trend. This operating ratio is higher that showed that FFCL is not in good position because there was small margin of profit available for the purpose of payment of dividend and creation of reserves. But in 2007 dramatically change occurred that declined the operating ratio. This showed that the company is in good position in 2007 because there is greater profitability and management efficiency of the concern.

11.4.7 Conclusion
Overall the analysis of profitability of FFBL showed the “GOOD” position. Gross profit ratio throughout the years showed good position. This improvement is due to the increase in the production capacity of the plants for which the raw

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material was excessively used to utilize production facility and to meet the market demand. Net profit ratio throughout all the years showed the positive and negative trend. The higher the income the better the profitability or there is an inverse relation of sales i.e. the lower the sales the higher the profit margin. Operating profit ratio throughout all the years showed the negative trend. It is expected that operating profit ratio will increase more in next future because of expansion plan and increasing demand of fertilizers in all over the world. Operating ratio throughout all the years showed the positive trend. As lower this ratio, better is the position because there is greater profitability and management efficiency of the concern.

11.5 Analysis of Return
Basic purpose of this test is to assist decision maker in efficiently allocating and using economic resources. In deciding where to invest their money, equity investor wants to know how efficiently companies utilize resources. The most common method of evaluating with which financial resources are employed to compute the rate of return earned on the resources. It includes: 1. 2. 3. Return on assets Return on investment Return on equity

11.5.1 Return on Assets

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Return on assets is used to evaluate whether management has earned a reasonable return with the assets under the control. Return on assets measure the efficiency with which the management has utilized the assets under its control, regardless of whether these assets were financed with debt or equity capital. Return on assets is an indicator of how profitable a company is before leverage, and is compared with companies in the same industry.

Formula
Return on Assets
= netprofit totalavera geassets ×100

Calculation:
2005
Net Profit Average Total Assets ROA 2,449,109 23274195 8%

2006
2,444,858 26131401 7%

2007
2,540,033 28363663.5 7%

2008
2,899,621 37908821 6%

2009
3,784,365 41498426.5 9%

Graphical Representation
RETURN ON ASSETS

10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% 2005 2006 2007 2008 2009

RETURN ON ASSETS

Source: FFBL Annual Report

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Interpretation:
Return on assets shows the negative trend from 2005 to 2008. This decrease occurs due to the increase in total assets specially fixed assets while net income after subtracting the compensation from GOP is also low as compared to the average total assets. This is mainly due to the poor equipment and obsolete technological equipment used in process. In 2009 it showed the positive trend that indicates that the FFBL improved its position in the industry.

11.5.2 Return on Investment
Return on investment (ROI) indicates the percentage of return on the total capital employed in the business. It is also called overall profitability ratio.

Formula
Return on investment
= EBIT ×100 capitalemp loyed

Calculation:
2005 RETURN ON INVESTMENT
EBIT Capital Employed ROI
40%

2006
3,160,200 19,252,029 16%

2007
3,622,580 19,476,022 19%

2008
6,241,813 20,552,202 30%

2009
7,028,027 19,477,929 36%

3,190,360 18,236,615 17%

Graphical representation 35%
30% 25% 20% 15% 10% 5% 0% 2005 2006 2007 2008 2009

RETURN ON INVESTMENT

139

Source: FFBL Annual Report

Interpretation:
Return on investment showed the positive trend throughout all the years. It improved its position that indicates that the FFBL is in good position. It increased due to the lower interest rate. The whole situation concludes that ROI is increasing year by year due to the higher returns than the total capital employed in business.

11.5.3 Return on Equity
The Return on Equity ratio looks only at return earned by management on the shareholder investment. ROE measures a firm's efficiency at generating profits from every unit of shareholders' equity. The company’s ROE shows how well a company uses investment funds to generate earnings growth.

Formula
Return on Equity
= NPAIT equity ×100

Calculation:
2005 2006 2007 2008 2009

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Net Profit Equity ROE

2,449,109 7,727,531 32%

2,444,858 8,537,696 29%

2,540,033 8,508,927 30%

2,899,621 10,486,371 28%

3,784,365 10,659,901 36%

Graphical Representation
RETURN ON EQUITY

40% 35% 30% 25% 20% 15% 10% 5% 0% 2005 2006 2007 2008 2009

RETURN ON EQUITY

Source: FFBL Annual Report

Interpretation:
Return on equity showed the positive and negative trend throughout all the years. The company’s ROE shows how well a company uses investment funds to generate earnings growth. ROE decreased in 2006 and 2008. In 2009, it showed the growth in ROE due to increase in the net income and equity as compared to the last year.

11.5.4 Conclusion
Return on investment indicates the percentage of return on the total capital employed in the business. Return on assets is used to evaluate whether management has earned a reasonable return with the assets under the control. The Return on Equity ratio looks only at return earned by management on the

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shareholder investment. Overall the FFBL showed the “GOOD” position because its ROI is in good position that gives the higher return.
ANALYSIS OF RETURN
40% 35% 30% 25% 20% 15% 10% 5% 0% 2005 2006 ROI 2007 ROE 2008 ROA 2009 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0%

Source: FFBL Annual Report

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12. Cross Sectional Analysis 12.1 Introduction
Cross sectional analysis is used to compare the company’s financial performance to the industry’s average performance. It means the analysis of financial ratios of company with the same ratios of the different companies in the same industry. An analyst does this in order to find the company with its healthiest financial status. This is helpful in making informed investment decisions. Cross sectional analysis is done by using the some basic ratios of the industry in which the firm under analysis belongs to (and specifically, the average of all the firms of the industry) as benchmarks or the basis for our company’s overall performance evaluation. The benchmark usually chosen is the average ratio value for all the firms in an industry for the time period. In cross sectional analysis, ratios are used and compared between several firms of the same industry in order to draw conclusions about an entity's profitability and financial performance.

Criteria:
Comparison of different fertilizer firm as Fauji Fertilizer Bin Qasim Limited, Engro Chemical Pakistan Limited, and Fauji Fertilizer Company Limited
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financial ratios at the same point in time from 2005 to 2009, involves comparing the firm’s ratios to those of other firms in its industry or to industry averages.

Actual calculations are as under…..

12.2 Income Statement
Cross sectional analysis of sales, cost of goods sold, and net profit is as:

Amounts:
2005 Sales
FFCL FFBL ECPL 39,757,510 14,254,764 18,756,820 26,074,950 9,692,236 14,072,832 6,395,259 2,449,109 2,283,783 44,680,986 14,707,288 20,240,035 30,265,238 10,023,044 15,097,181 6,250,971 2,444,858 2,138,842 40,688,779 12,242,888 34,120,611 25,731,835 7,420,310 26,138,366 6,594,095 2,540,033 2,833,788 57,433,698 26,820,812 40,973,047 36,829,444 18,594,752 30,111,348 8,769,347 2,899,621 4,206,690 72,914,811 36,724,920 58,152,368 47,574,610 27,059,566 44,658,196 10,598,506 3,784,365 3,718,802 GOOD

2006

2007

2008

2009

CGS
FFCL FFBL ECPL GOOD

Net Profit
FFCL

SALES FFBL
ECPL

BETTER

Graphical Representation 70,000,000
60,000,000 50,000,000 40,000,000 30,000,000 20,000,000 10,000,000 0 2005 2006 FFCL 2007 FFBL 2008 ECPL 2009

80,000,000

144

Source: FFBL Annual Report

COST OF GOODS SOLD

50,000,000 45,000,000 40,000,000 35,000,000 30,000,000 25,000,000 20,000,000 15,000,000 10,000,000 5,000,000 0 2005 2006 FFCL 2007 FFBL 2008 ECPL 2009

NET PROFIT

Source: FFBL Annual Report

12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 0 2005 2006 FFCL 2007 FFBL 2008 ECPL 2009

145
Source: FFBL Annual Report

Interpretation:
Cross sectional analysis shows that FFBL has a good position in market on the basis of its income statement as compare to the other market players. It stands 3rd on the basis of sales and cost of goods sold and 2nd on the basis of profits.

12.3 Balance Sheet
Cross sectional analysis of current assets, current liabilities, and equity is as:

Amounts:
2005 Current Assets
FFCL FFBL ECPL 20,463,506 9,266,673 5,261,432 20,461,126 11,322,594 8,710,860 21,593,297 11,161,328 24,279,441 37,770,114 28,492,569 20,661,003 33,108,426 18,443,765 19,923,726 BETTER

2006

2007

2008

2009

Current Liabilities
FFCL FFBL ECPL FFCL FFBL ECPL
40,000,000 35,000,000 Graphical Representation 30,000,000 25,000,000 20,000,000 15,000,000 10,000,000 5,000,000 0 2005 2006 FFCL 2007 FFBL 2008 ECPL 2009

CURRENT ASSETS Equity

18,707,783 6,344,831 2,907,331 15,411,567 7,727,531 7,540,790

18,687,259 8,429,327 6,397,441 16,741,909 8,537,696 9,796,171

20,666,876 9,569,949 9,604,833 16,486,640 8,508,927 18,006,690

37,610,128 26,219,469 12,279,929 18,410,468 10,486,371 23,547,731

34,389,137 16,747,253 15,970,218 19,336,001 10,659,901 29,344,395

BETTER

GOOD

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Source: FFBL Annual Report

CURRENT LIABILITIES

40,000,000 35,000,000 30,000,000 25,000,000 20,000,000 15,000,000 10,000,000 5,000,000 0 2005 2006 FFCL 2007 FFBL 2008 ECPL 2009

EQUITY

Source: FFBL Annual Report

30,000,000 25,000,000 20,000,000 15,000,000 10,000,000 5,000,000 0 2005 2006 FFCL 2007 FFBL 2008 ECPL 2009

147
Source: FFBL Annual Report

Interpretation:
Cross sectional analysis shows that FFBL has a good position in market on the basis of its balance sheet as compare to the other market players. It stands 2nd on the basis of current assets and current liabilities and 3rd on the basis of equity.

12.4 Short Term Financial Position Analysis
Cross sectional analysis of short term financial position focuses on Current ratio and quick ratio.

Amounts:
2005 Current Ratio
FFCL FFBL ECPL 1.09 1.46 1.81 0.86 1.21 0.84 1.09 1.34 1.36 0.84 1.15 0.82 1.04 1.17 2.53 0.81 0.97 1.93 1 1.09 1.68 0.72 0.82 0.92 0.96 1.1 1.24 0.78 0.92 0.83 BETTER

2006

2007

2008

2009

Quick Ratio
FFCL FFBL ECPL BETTER

Absolute Liquid Ratio CURRENT RATIO FFCL
FFBL ECPL

0.77 1.14 0.52

0.64 0.97 0.42

0.59 0.86 1.36

0.33 0.79 0.55

0.73 0.88 0.54

GOOD

Graphical Representation
2.5 2 1.5 1 0.5 0

3

2005

2006 FFCL

2007 FFBL

2008

2009

148

ECPL

Source: FFBL Annual Report

QUICK RATIO

2 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2005 2006 FFCL 2007 FFBL 2008 ECPL 2009

Source: FFBL Annual Report

ABSOLUTE LIQUID RATIO

1.4 1.2 1 0.8 0.6 0.4 0.2 0 2005 2006 FFCL 2007 FFBL 2008 ECPL 2009

149
Source: FFBL Annual Report

Interpretation:
Cross sectional analysis shows that FFBL has a good position in market on the basis of its liquidity as compare to other market players. It stands 2 nd on the basis of current ratio and quick ratio and 3rd on the basis of absolute liquid ratio.

12.5 Profitability Analysis
Cross sectional analysis of profitability position focuses on gross profit margin, net profit margin and operating profit margin.

Amounts:
2005 Gross Profit Ratio
FFCL FFBL ECPL 34% 32% 25% 16% 17% 12% 32% 32% 25% 14% 17% 11% 37% 39% 23% 16% 21% 8% 36% 31% 27% 15% 11% 10% 35% 26% 23% 15% 10% 6% BETTER

2006

2007

2008

2009

Net Profit Ratio
FFCL FFBL ECPL BETTER

Operating Profit Ratio FFCL 25% GROSS PROFIT RATIO
FFBL ECPL 22% 18%

23% 21% 14%

28% 30% 13%

28% 23% 16%

27% 19% 13%

BETTER

Graphical Representation
35% 30% 25% 20% 15% 10% 5% 0% 2005 2006 FFCL 2007 FFBL 2008 2009

40%

150

ECPL

Source: FFBL Annual Report

NET PROFIT RATIO

25% 20% 15% 10% 5% 0%

2005

2006 FFCL

2007 FFBL

2008 ECPL

2009

Source: FFBL Annual Report

OPERATING PROFIT RATIO

30% 25% 20% 15% 10% 5% 0% 2005 2006 FFCL 2007 FFBL 2008 ECPL 2009

151
Source: FFBL Annual Report

Interpretation:
Cross sectional analysis shows that FFBL has a good position in market on the basis of its profitability as compared to other market players. It stands 2nd on the basis of gross profit ratio, net profit ratio and operating profit ratio.

12.6 Return Analysis
Cross sectional analysis of profitability focuses on gross profit margin, net profit margin and operating profit margin.

Amounts:
2005 ROI
FFCL FFBL ECPL 34% 17% 29% 41% 32% 30% 33% 16% 21% 37% 29% 22% 35% 19% 11% 40% 30% 16% 22% 7% 13% 44% 30% 9% 48% 28% 16% 25% 6% 10% 55% 36% 6% 55% 36% 13% 27% 9% 7% BETTER

2006

2007

2008

2009

ROE
FFCL FFBL ECPL BETTER

ROA
FFCL FFBL RETURN ON ECPL 22% 21% 8% 7% INVESTMENT 24% 16% GOOD

Graphical Representation
60% 50% 40% 30% 20% 10% 0%

2005

2006 FFCL

2007 FFBL

2008

2009

152

ECPL

Source: FFBL Annual Report

RETURN ON EQUITY

60% 50% 40% 30% 20% 10% 0%

2005

2006 FFCL

2007 FFBL

2008 ECPL

2009

Source: FFBL Annual Report

RETURN ON ASSETS

30% 25% 20% 15% 10% 5% 0%

2005

2006 FFCL

2007 FFBL

2008 ECPL

2009

153
Source: FFBL Annual Report

Interpretation:
Cross sectional analysis shows that FFBL has a good position in market on the basis of its returns as compared to other market players. It stands 2 nd on the basis of ROI and ROE and 3rd on the basis of ROA.

12.7 Efficiency Analysis
Cross sectional analysis of efficiency focuses on inventory turnover, debtor turnover and creditor turnover.

Amounts:
2005 Inventory Turnover
FFCL FFBL ECPL 7 8 8 7 6 5 5 4 7 5 4 5 6 5 7 GOOD

2006

2007

2008

2009

Debtor Turnover
FFCL FFBL ECPL 19 24 23 17 15 12 10 9 9 6 30 6 9 50 13 GOOD

Creditor Turnover INVENTORY TURNOVER
FFCL FFBL ECPL 3 4 9

4 4 6

4 3 5

4 4 4

4 4 6

GOOD

Graphical Representation 7
6 5 4 3 2 1 0 2005 2006 FFCL 2007 FFBL 2008 2009

8

154

ECPL

Source: FFBL Annual Report

DEBTOR TURNOVER

50 45 40 35 30 25 20 15 10 5 0 2005 2006 FFCL 2007 FFBL 2008 ECPL 2009

Source: FFBL Annual Report

CREDITOR TURNOVER

9 8 7 6 5 4 3 2 1 0 2005 2006 FFCL 2007 FFBL 2008 ECPL 2009

Source: FFBL Annual Report

155

Interpretation:
Cross sectional analysis shows that FFBL has a good position in market on the basis of its efficiency as compared to other market players. It stands 3rd on the basis of inventory turnover, debtor turnover and creditor turnover.

12.8 Long Term Financial Position Analysis
Cross sectional analysis of long term financial position focuses on solvency ratio.

Amounts:
2005 Solvency Ratio
FFCL FFBL ECPL 0.68 0.69 0.48 0.66 0.69 0.51 0.69 0.71 0.63 0.75 0.78 0.71 0.72 0.71 0.78 BETTER

2006

2007

2008

2009

Graphical Representation
SOLVENCY RATIO

0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 2005 2006 FFCL 2007 FFBL 2008 ECPL 2009

Source: FFBL Annual Report

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Interpretation:
Cross sectional analysis shows that FFBL has a good position in market on the basis of its long term financial position as compared to other market players. It stands 2nd on the basis of solvency ratio.

12.9 Conclusion
The company mainly manufactures and market fertilizers. The analysis of Fauji Fertilizer Bin Qasim Limited has shown a modest growth over the past few years showing healthy increases in the profit of the company.

According to the Cross Sectional Analysis,
Cross sectional analysis shows that FFBL has a good position in market on the basis of its returns as compare to the other market players. All the profits are increasing as per industry. But due to poor sales, low volume profits are also obtained. FFBL’s performance is also improving and gross profits is increased that capture industry average coupled with better relative increase in selling, general expenses. Returns are increasing. Return on Assets is decreased that may create problem in management. But company has sufficient finance to fulfill the liabilities hence firm will not face liquidity problems.

157

158

13. Conclusion
Overall the fertilizer industry showed the proper but sustainable growth with good profitability. The strength of this sector can be derived from the agriculture sector that is the most important contributor to Pakistan’s GDP. The government supports in agriculture and fertilizer industry are vital variables in the social development of the country. Therefore, the fertilizer industry offers the safe and good opportunities to the banks. The company mainly manufactures and market fertilizers. FFBL offered the good shareholder returns and demand is also rising so that the manufacturers expand its capacity to accommodate in the industry with its other market players. That’s why; we can say that the FFBL has sound fundamentals and significant potential for the future. FFBL opened the more opportunities for the investors related the capacity for the export of fertilizer. The government keep the input costs low for some time to come because it know that the local manufactures are determined to pass on all such increases to consumers. So, this preserves the industry’s growth and expansion and move towards the satisfied condition, the entry barriers for new firms arise. FFBL’s can lend to its short term debts to its lenders because its short term capacity is good. The company can pay its bills soon and its collects its receivable in good time period. So, it can open the great and sound opportunities for the lenders. We can say that the company achieved its goals and showed the customer satisfaction. It maintains its growth and shows the healthy increase in the profits in the five years.
159

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14. Future Projections
The Company is actively looking out for further diversification opportunities by either going for own projects or participating with other investors in opportunities like privatization, Liquefied Natural Gas (LNG) Terminal, Independent Power Projects, Cement Sector etc. If the company would be able to continue its current stability and investments in profitable projects then the company would be able to increase its market share as well as profitability. The company is also investing in Fauji Cement Company Limited (FCCL). Fauji Cement Company Limited (FCCL), an Associated Company of FFBL, is in the process of expanding its existing operating capacity from 1.17 MTPA to 3.51 MTPA (200% expansion). The Fauji Cement Brand carries a premium in the market and is perceived as a better quality product. This is why FCCL has been operating at a higher capacity than the industry over the last 5 years. Pakistan is having more than enough availability of both DAP and ‘lately imported’ Urea during the first quarter 2009. At current price levels, there does not seem any need of DAP subsidy. Timely disbursement of promised wheat support price to the farmers must be ensured, in order to improve their cash cycle. The FFBL continue to take proactive measure to mitigate potential risks and cope with challenges to company’s profitability arising from the current economic climate. However, despite challenges mentioned earlier, the company expects to have highest production and sales during 2009 and accordingly, good results by the end of Year 2009.

161

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15. Recommendations
On the basis of SOWT analysis and other firm analysis these recommendation are generated.
 Fauji Fertilizer Bin Qasim Ltd. is one of the top Fertilizer production plants

of Pakistan enjoying satisfactory reputation throughout the country.
 Fauji Fertilizer Bin Qasim Limited is a subsidiary of Fauji Fertilizer

Company Limited (existing client) and the only fertilizer complex in Pakistan producing DAP fertilizer and granular urea making significant contribution towards agricultural growth of the country.
 Investment in Pak-Marco Phosphore (PMP) by FFBL ensures uninterrupted

supply of phosphoric acid at a cheaper price, which is a major raw material for manufacturing DAP.
 Generally with Pakistan being a net importer for DAP (70% demand met

through imports), producers used to have a cost edge over importers owing to fixed cost throughout the year. Being a sole producer of DAP in Pakistan, FFBL avails scores of benefits as compared to other suppliers.
 FFBL enjoys an assured demand for its domestically manufactured product

as well as imports. Strong identity and recognition of brand “Sona” give an edge to FFBL over its competitors.
 Additionally, the augmented demand gives propensity to fertilizer plants to

capture more and more market share and to get leading position in the industry.

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 The level of training is lower and also lack of knowledge is available. That’s why FFBL must focus on hiring the new persons and provide the need and new technology to the employees.

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16. Annexure
All data and information are gathered from the annual reports of Fauji Fertilizer Bin Qasim Limited…………
 www.ffbl.com.pk  http://www.google.com.pk

 http://www.kse.com.pk/
 http://www.sbp.org.pk/  http://www.brecorder.com/

 http://www.investopedia.com

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