University of Wah of financial statements

Analysis

Pioneer Cement Limited
COMPANY PROFILE:

Pioneer cement is a name identical with quality since the inception of the project. First unit was commissioned in November 1994, the state of art European (FLS) plant is equipped with special feature of quality controls. 2nd unit commissioned in January 2006. Due to is superior quality, Pioneer Cement has on the confidence of its customer. The Company's principal activities are to manufacture and market cement. The products include Ordinary Portland Cement and Sulphate Resistant Cement. The Company's factory is located at Khushab. The Company operates only in Pakistan. The plant is located at Chenki, District Khusshab, in the heart of Punjab Province, 250 km away from Lahore and 120km away from Motorway (M2). PRODUCTION I am pleased to report that clinker production has risen from 1,238,168 tons in 2006-07 1,640,092 tons in 2007-08 registering an impressive growth of 32% as compared to last year, mainly on account of smooth running of the plant. Cement production, for the same period increased significantly by 18% from 1,263,626 tons to 1,492,353 tons. Capacity utilization of the plant on account of clinker and cement was 82% and 71% which is higher than last year’s capacity utilization by 22% and 11% respectively, of Clinker and Cement.

Sir Zahoor

01 BBA (Hons)

University of Wah of financial statements COMPANY INFORMATION BOARD OF DIRECTORS
Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Manzoor Hayat Noon (Chairman) Javed Ali Khan (Managing Director & CEO) K. Iqbal Talib Adnan Hayat Noon Salman Hayat Noon Wajahat A. Baqai Rafique Dawood Cevdet DAL Etrat Hussain Rizvi Saleem Shahzada

Analysis

AUDIT COMMITTEE
Mr. Mr. Mr. Mr. Mr. Rafique Dawood Salman Hayat Noon Adnan Hayat Noon Etrat Hussain Rizvi Wajahat A. Baqai

CHIEF FINANCIAL OFFICER
Mr. Muhammed Saleem

COMPANY SECRETARY
Syed Anwar Ali

MANAGER INTERNAL AUDIT
Mr. Muhammad Zafar Qidwai

AUDITORS
Ford Rhodes Sidat Hyder & Co. Siddiqui & Co. Hassan & Hassan Sayeed & Sayeed

Legal Advisors

BANKERS
The Bank of Punjab National Bank of Pakistan Bank Islami Pakistan Limited Hong Kong Shanghai Banking Corporation The Royal Bank of Scotland Askari Commercial Bank Limited Bank Al-Habib Limited Habib Bank Limited United Bank Limited MCB Bank Limited
FACTORY Chenki, District Khushab, Punjab Telephone (0454) 720832-3 Fax (0454) 720832 Email: factory@pioneercement.com

Sir Zahoor

01 BBA (Hons)

University of Wah of financial statements
HEAD OFFICE 7th Floor, Lakson Square Building No.3, Sarwar Shaheed Road, Karachi, Pakistan. Telephone (021) 5685052-55 Fax (021) 5685051 Email: pioneer@pioneercement.com

Analysis

Vision & Mission Pioneer Cement Limited is committed to make sustained efforts towards optimum utilization of its resources through good corporate governance for serving the interests of all its stakeholders.
INTRODUCTION OF FINANCIAL STATEMENT Analysis of financial statements is a major area of concern that has developed over several years. This continues today to meet the needs of the changing society. The analysis of financial statements is important for its users that benefit from this work the most Users of financial statements include company’s management, stockholders, bondholders, security analysts, supplier, employees, labor unions, regulatory authorities and public. Financial ratio analysis is the calculation and comparison of ratios which are derived from the information in a Company’s financial statements. The level and historical trends of these ratios can be used to make inference about a company’s financial condition its operation and attractiveness as an investment. Financial ratio analysis is also frequently used to measure the performance of various sectors of a business. If properly used its limitations understood it can be very useful management aid. The reason why ratio analysis is Being used so extensively are because ratios are easy to calculate they allow easy comparison, ratios can be easily understood, ratios effectively communicate a firm’s financial position to interested parties outside of management. Financial ratios are calculated from one or more pieced of information from a company’s financial statements. For example, the “gross margin” is the gross profit from operations divided by the total sales or revenues of company, expressed in percentage terms. In isolation a financial ratio is a useless piece of information. In context, however a financial ratio can give a financial analyst an excellent picture of a company’s situation and the trends that are developing. Financial ratios analysis groups the ratios into categories that tell us about different facts of a company’s finance and operations. An overview of some of the categories of ratios is given below. 1) Leverage Ratio: Leverage Ratio show the extent that debt is used in a company’s capital structure. (2) Liquidity Ratios: Liquidity Ratios give a picture of a company’s short-term financial situation or solvency. (3) Operational Ratios: Operational Ratios use turnover measures to show how efficient a company is in its operation and use of assets.

Sir Zahoor

01 BBA (Hons)

University of Wah of financial statements

Analysis

(4) Profitability ratios: Profitability ratios use margin analysis and show the return on sales and capital employed. Mostly the financial statements are used to make decisions. For example, investors use the financial reports as an aid in deciding whether or not to buy the stock. Suppliers use the reports to decide whether or not to sell goods on credit. Labor unions use them to help determine their demands when they negotiate for employees. Management could use to determine the company’s profitability. So to understand the financial statements different sort of analysis are carried out, which is known as financial statement analysis. This financial statement analysis involves different ratios on the basis of which the statements are analyzed. This analysis is also known as financial ratio analysis, and is used to measure the performance of the businesses. This ratio analysis is used to determine the positions of business the reason behind this is that these can be calculated, evaluated and compared easily. Furthermore it can be said that these ratios communicate any business’s financial position to all the stakeholders or these ratios give an excellent picture of company’s situation to the analyst. These are calculated from the information present in the financial statements of the company.

Purpose of the study The purpose of financial statement analysis is to examine past and current financial data. • So that performance and financial position of the Kohinoor Textile Mills can be evaluated. • This ratio analysis is used to determine the positions of business the reason behind this is that these can be calculated, evaluated and compared easily. • Furthermore it can be said that these ratios communicate any business’s financial position to all the stakeholders or these ratios give an excellent picture of company’s situation to the analyst. • These are calculated from the information present in the financial statements of the company. •

Sir Zahoor

01 BBA (Hons)

University of Wah of financial statements

Analysis

Objective This study has been conducted in order to find the financial performance of Kohinoor Textile Mills using ratio analysis. And provide this information to different types of users who might be interested in knowing the financial strength of the company in terms of their profitability, efficiency and liquidity.

Sir Zahoor

01 BBA (Hons)

University of Wah of financial statements

Analysis

COMMON SIZE ANALYSIS
(VERTICAL ANALYSIS)
COMMON SIZE ANALYSIS: An analysis of percentage financial statements where all balance sheet items are divided by total assets and all income statements items are divided by net sales or revenues.

Horizontal analysis of balance sheet:
Items
Items A. Capital Structure: 1.Ordinary Share Capital 2.Surplus 3.Shareholder's Equity (A1+A2) 4.Prefrence Shares 5.Debentures 6.Other Fixed Liabilities 7.Total Fixed Liabilities (A4+A5+A6) 8.Total Capital Employed (A3+A7) B. Liquidity: 1.Liquid Assets: (i)Cash (ii)Investments 2.Other Current Assets 3.Inventories 4.Current Assets (B1+B2+B3) 5.Current Liabilities 6.Total Liabilities(A7+B5) 7.Net Current Assets(B4-B5) 8.Contractual Liabilities 9.Net liquid assets (B1-B5) C. Fixed Assets: 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 101.9 % 117.6 % 100.0 % 129.2 % 92.3% 110.2 % 97.3% 100.3 % 166.8 % 92.3% 94.0% 354.6 498.9 73.0% % % 318.6% 391.3 329.9 % % 47.9% 56.9% 357.7 554.7 33.6% % % 350.9% 136.4 197.3 99.9% % % 288.9% 307.2 172.7 188.5 % % % 179.7% 145.4 220.3 297.7 % % % 270.2% 163.4 135.9 156.8 % % % 190.7% 228.5 172.8 187.3 % % % 222.2% 590.6 916.5 66.4% % % 619.4% 234.5 172.1 165.9 % % % 214.0% 228.4 % -21.3% -89.1% 98.8% 100.0 100.0 120.0 132.0 181.5 % % % % % 181.5% 100.0 141.8 704.1 393.5 629.6 % % % % % 380.7% 100.0 122.4 433.3 272.2 421.8 % % % % % 288.3% 0.0% 100.0 % 100.0 % 100.0 % 100.0 % 0.0% 73.3% 123.3 % 109.4 % 117.8 % 0.0% 68.9% 559.5 % 423.2 % 429.7 % 0.0% 0.0% 0.0% 2001

Horizontal Analysis
2002 2003 2004 2005 2006

26.7% 0.0% 0.0% 381.7 385.8 % % 438.2% 283.1 278.7 % % 316.5% 276.1 370.6 % % 298.4%

Sir Zahoor

01 BBA (Hons)

University of Wah of financial statements
1.Fixed Asset At Cost 2.Fixed assets after deducting accumulated depreciation 3.Depreciation for the year 4.Total assets (B4+C2) 100.0 % 100.0 % 100.0 % 100.0 % 124.5 % 102.0 % 137.2 % 107.2 % 454.8 % 546.5 % 340.9 % 292.1 % 174.5 % 174.9 % 159.9 % 203.7 %

Analysis
185.7 % 205.2% 195.0 % 195.1% 206.6 % 229.6% 260.1 % 242.7%

Sir Zahoor

01 BBA (Hons)

University of Wah of financial statements

Analysis

Horizontal analysis of income statement:
D. Operation: 1.Gross sales (i)Local sales (ii)Export sales 2.Cost of Sales 3.Gross profit 4.Overhead and Other Expenses 5.Operating profit 6.Financial expenses 7.Net profit before tax (D5-D6) 8.Tax provision 9.Total amount of dividend 10.Total value of bonus shares issued 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 0.0% 106.9 % 115.3 % 102.1 % 107.2 % 104.9 % 107.5 % 133.1 % 53.9% 266.3 % 156.5 % 0.0% 0.0% 174.9 % 337.0 % 82.1% 159.5 % 276.7 % 158.4 % 357.4 % 134.6 % 732.8 % 27.3% 0.0% 100.0 % 133.3 % 170.1 % 112.2 % 130.8 % 149.8 % 134.4 % 179.1 % 159.2 % 212.5 % 104.0 % 0.0% 131.9 % 137.8 % 154.3 % 128.4 % 135.5 % 153.3 % 138.5 % 128.4 % 214.6 % 16.9% 129.5 % 0.0% 0.0% 145.9 % 195.8 % 117.3 % 142.2 % 170.5 % 145.3 % 226.0 % 313.5 % 78.4% 119.3 % 0.0% 0.0%

Sir Zahoor

01 BBA (Hons)

University of Wah of financial statements

Analysis

Vertical analysis of Balance Sheet
Items
Items A. Capital Structure: 1.Ordinary Share Capital 2.Surplus 3.Shareholder's Equity (A1+A2) 4.Prefrence Shares 5.Debentures 6.Other Fixed Liabilities 7.Total Fixed Liabilities (A4+A5+A6) 8.Total Capital Employed (A3+A7) B. Liquidity: 1.Liquid Assets: (i)Cash (ii)Investments 2.Other Current Assets 3.Inventories 4.Current Assets (B1+B2+B3) 5.Current Liabilities 6.Total Liabilities(A7+B5) 7.Net Current Assets(B4-B5) 8.Contractual Liabilities 9.Net liquid assets (B1-B5) C. Fixed Assets: 1.Fixed Asset At Cost 2.Fixed assets after deducting accumulated depreciation 3.Depreciation for the year 4.Total assets (B4+C2) 52.9% 36.6% 2.8% 100.0% 61.5% 34.8% 3.6% 100.0% 82.4% 68.4% 3.3% 100.0% 45.4% 31.4% 2.2% 100.0% 37.8% 27.4% 2.3% 100.0% 44.8% 29.4% 2.7% 100.0% 21.6% 2.4% 19.2% 25.1% 16.7% 63.4% 51.7% 68.9% 11.8% 59.1% -30.1% 20.5% 2.6% 17.9% 30.3% 14.4% 65.2% 46.9% 64.5% 18.3% 50.9% -26.3% 5.4% 3.2% 2.2% 8.6% 17.6% 31.6% 28.9% 53.9% 2.7% 47.4% -23.5% 37.6% 3.9% 33.8% 16.8% 14.2% 68.6% 34.5% 58.5% 34.1% 49.9% 3.1% 41.4% 0.4% 41.0% 19.0% 12.1% 72.6% 31.1% 49.6% 41.5% 37.7% 10.3% 28.4% 0.6% 27.8% 29.9% 12.4% 70.6% 40.6% 63.1% 30.0% 52.1% -12.2% 14.4% 16.7% 31.1% 0.0% 4.8% 12.5% 17.3% 48.3% 13.4% 22.0% 35.5% 0.0% 3.3% 14.4% 17.6% 53.1% 5.9% 40.1% 46.1% 0.0% 1.1% 23.9% 25.0% 71.1% 9.3% 32.2% 41.5% 0.0% 0.6% 23.4% 24.0% 65.5% 10.0% 40.3% 50.4% 0.0% 0.0% 18.5% 18.5% 68.9% 10.8% 26.1% 36.9% 0.0% 0.0% 22.5% 22.5% 59.4% 2001

Vertical Analysis
2002 2003 2004 2005 2006

Sir Zahoor

01 BBA (Hons)

University of Wah of financial statements

Analysis

Vertical analysis of income statement:
D. Operation: 1.Gross sales (i)Local sales (ii)Export sales 2.Cost of Sales 3.Gross profit 4.Overhead and Other Expenses 5.Operating profit 6.Financial expenses 7.Net profit before tax (D5-D6) 8.Tax provision 9.Total amount of dividend 10.Total value of bonus shares issued 2001 100.0% 36.4% 63.6% 86.8% 13.2% 92.2% 8.7% 5.4% 3.2% 0.6% 1.5% 0.0% 2002 100.0% 39.3% 60.7% 87.1% 12.9% 92.7% 10.8% 2.7% 8.0% 0.9% 0.0% 0.0% 2003 100.0% 70.2% 29.8% 79.2% 20.8% 83.5% 17.7% 4.2% 13.5% -0.1% 0.0% 0.9% 2004 100.0% 46.5% 53.5% 85.2% 14.8% 93.0% 11.6% 6.5% 5.1% 0.5% 0.0% 1.5% 2005 100.0% 40.8% 59.2% 85.4% 14.6% 92.6% 8.1% 8.5% -0.4% 0.6% 0.0% 0.0% 2006 100.0% 48.9% 51.1% 84.6% 15.4% 91.8% 13.4% 11.7% 1.7% 0.5% 0.0% 0.0%

Sir Zahoor

01 BBA (Hons)

University of Wah of financial statements

Analysis

RATIO ANALYSIS: Ratio analysis is one of the important tools that help in getting a deep understanding of the financial statements because it helps us to compare information of financial statement for one period with the other financial statement for another period. Basically financial ratios establish a relationship between different accounts of financial statements. For the purpose of ratio analyses following ratios have been calculated in order to determine the financial performance of the Kohinoor Textile Mills Ltd. Current Ratio = Current assets/Current liabilities It describes the current situation of the company that whether the company is able to pay its current liabilities with its current assets or not.
Current Ratio 2008 5,328,979 5,477,572 97%

years Current Assets Current Liabilities Current Ratio %

2007 4,547,065 4,231,049 107%

Current ratio measures the ability to meet current debts with current assets. The above ratios shows that the company has no working capital to meet the current liabilities in the year 2008 but in year 2007 the company has the ability to meet the current liabilities with current assets. Quick Acid Test Ratio = (Current Assets–Inventories) / Current Liabilities
Acid Test Ratio years Current Assets - Inventory Current Liability Acid Test Ratio % 2008 3,364,970
5,477,572

61%

2007 2,507,740 4231049 59%

Quick Acid Test Ratio measures the ability to meet current debts with most liquid (quick) current assets. The ratio shows that the company is not able to cover all current liabilities if we deduct inventory from the current assets in both years. Cash Ratio: = cash equivalent + marketable securities / current liabilities

Sir Zahoor

01 BBA (Hons)

University of Wah of financial statements

Analysis

Cash Ratio years cash + marketable securities Current Liability Cash Ratio % 2008 1,091,864
5,477,572

20%

2007 968,058 4231049 23%

Cash ratio indicates the immediate liquidity of the firm. Cash ratio is low so it’s mean that the company is fully utilizing the cash and taking the best advantage. Sales to Working Capital Ratio:
Sales to Working Capital Ratio years 2008 Sales 7,558,322 Avg. Working Capital 10,806,551 Sales to Working Capital Ratio % 70%

2007 7,140,167 8,778,114 81%

Relating sales to working capital gives an indication of the turnover in working capital per year. Low working capital ratio indicates an unprofitable use of working capita. Working capital ratio decreases in 2008 as compared to 2007. Accounts Receivable Turnover: Accounts receivable turnover indicates the liquidity of receivables and shows how much time we are receiving the accounts receivable in a year. It is calculated as = Net Sales / Avg. Receivables.
Accounts Receivable Turnover years 2008 Net Sales 7,558,322 Avg. Receivable 289,820 Accounts Receivable Turnover Ratio % 2608% Accounts Receivable Turnover In Days years 2008 365 365 Accounts Receivable Turnover 2608 A/C Receivable Turnover In Days 14

2007 7,140,167
285,382

2502%

2007 365 2502 15

By the accounts receivable turnover ratio we find that the liquidity is high and improve in 2008.

Sir Zahoor

01 BBA (Hons)

University of Wah of financial statements Inventory Turnover:

Analysis

= Cost of goods sold / Inventory This ratio measures how many times the inventory has been turned over (sold) during the year; provides insight into liquidity of inventory and tendency to overstock.
Inventory Turnover years 2008 Cost Of Goods Sold 6,395,622 Inventory 2,001,667 Inventory Turnover Ratio % 320% Inventory Turnover In Days years 2008 365 365 Inventory Turnover 320 Inventory Turnover In Days 114

2007 6,094,641 2,039,325 299%

2007 365 299 122

Inventory turnover in 2008 is increases as compared to 2007 which means that sales of company increases and inventory turnover in days shows that they receive inventory after 114 days which is low as compared to 2007. INTEREST COVERAGE RATIO = Earning before int. & Tax / Interest Exp. Interest coverage ratio indicates the firm ability to pay its long term debt. Interest coverage ratio of Kohinoor in 2008 is 115 times and higher as compared to 2007, it shows that company is in good position to repay debt.
Interest Coverage Ratio 2008 1,013,140
882,335

years EBIT Interest Interest Coverage Ratio %

2007 575,658
603,951

115

95

Sir Zahoor

01 BBA (Hons)

University of Wah of financial statements
Fixed Charge Coverage Ratio:

Analysis

Fixed charge coverage ratio indicates the company ability to repay its long term loan including fix charges. It is computed as = EBIT+ Fixed charges / interest + fixed charges. Fixed Charge Coverage Ratio years 2008 EBIT+ Rent 1,016,424 Interest + Rent 885,619 Fixed Charge Coverage Ratio % 115

2007 579,815 608,108 95

Fixed charge coverage ratio of Kohinoor is also good and similar to interest coverage ratio because Kohinoor textile mill is not bearing huge fixed charges.
Debt Ratio: Debt Ratio years Total Liability Total Assets Debt Ratio % 2008 8,529,700 13,515,322 63% 2007 7,190,142
14,484,053

50%

Debt Equity Ratio In debt equity ratio, the total debt is compared with the shareholder’s equity; the lower the ratio the better the company’s solvency, the higher ratio is a risk to a present or future creditor.
Debt to Equity Ratio 2008 8,529,700
1,455,262

years Total Liability Shareholders Equity Debt to Equity Ratio %

2007 7,190,142
1,455,262

586%

494%

Sir Zahoor

01 BBA (Hons)

University of Wah of financial statements Net Profit Margin (%age) = Net profit after tax / Net sales This ratio measures profitability with respect to sales generated
Net Profit Margin Ratio years 2008 Net Profit after Tax -3520 Net Sales 7,558,322 Net Profit Margin Ratio % 0%

Analysis

2007 -39,822 7,140,167 -1%

Gross Profit Ratio (%age) =Gross profit/net sales Gross profit margin is the measure profitability with respect to sales generated gross income.
years Gross Profit Net Sales Gross Profit Margin Ratio % Gross Profit Margin Ratio 2008
1,013,140

2007
575,658

7,558,322 13%

7,140,167 8%

Total Assets Turn Over = Net Sales / Total Assets
Total Assets Turnover years 2008 Net Sales 7,558,322 Total Assets 13,515,322 Total Assets Turnover Ratio % 56%

2007 7,140,167
14,484,053

49%

Return on assets This ratio is considered a measure of how effectively assets are used to generate a return.
Return on Assets years Net Profit after Tax Total Assets Return on Assets Ratio % 2008 -3520 13,515,322 0% 2007 -39,822
14,484,053

0%

Return On Investment

Sir Zahoor

01 BBA (Hons)

University of Wah of financial statements
years Net Profit after Tax Long term Liability + Equity Return On Investment Ratio % 2008 -3520 6,774,158 0%

Analysis

2007 -39,822 8,989,412 0%

Sir Zahoor

01 BBA (Hons)

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