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Project on Ratio Analysis of Engro and Fauji

Qaiser Mehmood
Session (Jan 2007–Dec 2008)

Submitted in Partial fulfillment of the requirements For the degree of Master of Business Administration at

National University of Modern Languages Islamabad, Pakistan May 2009

© Copyright by Qaiser Mehmood, 2009

National University of Modern Languages
Faculty of Information Technology and Management Sciences

It is hereby certified that the report has been thoroughly and carefully read and recommended to the faculty of Management Sciences for acceptance of Final Project Report by Qaiser mehmood, Roll 7241, Session (Jan 2007 to Dec 2008) Evening, in partial fulfillment of the requirements for the degree of Master in Business Administration of National University of Modern Languages, Islamabad.

Date: June20, 2009

Supervisor: _________________________

Observer: __________________________

Head of Department: _______________

ACKNOWLEDGEMENT
By the Grace of Almighty Allah, the most Merciful, the most Beneficial, I'm today submitting my internship report; I have the pearls of my eyes to admire the blessings of the compassionate, omnipotent, the Merciful and the beneficent Allah who is the entire source of knowledge and wisdom Due to his bounteous blessings, I become able to contribute this comprehensive assignment toward the deep ocean of knowledge already exists. Heart is warm with love and thoughts have turned to the city of knowledge – The Holy Profit (P.B.U.H) His saying “Learn from to Cradle to Grave” inspired the strong desire in me to under take this course of valuable studies. It would obviously be injustice not to mention the name of the people involved to make this assignment possible and helped their utmost to make me understand the overall operation of the company as of their best knowledge. Despite of the most hectic schedule, Maa'm saher helped me so much. I'm really grateful to maa'm for clarifying my concepts and making me learn from her experience. Whatever I learnt from you will definitely help me in my upcoming study and the professional life ahead. Thank you so much for being so cooperative and so helpful every time. I hope maa'm I have been up to your expectations. In the end, I'll like to thank all my other colleagues, Mr. Ishtiq, Mr. Qaiser, and all my other fellow internees, here and in branch, for their unconditional support and help in making I learn in a good environment.

Dedication
I want to dadicate my this project to following persons • • • • • • Hazrat Muhammad (PBUH) Qauid-E-Azam Muhammad Ali Janah My Teachers My Parents My Best Friend Qaiser Mehmood Khan And All Those Who Are Struggling And Fighting For Islam In Right Directions.

Engro Chemicals Ltd & Fauji Fertilizer Co

FOREWORD

 
United we stayed right from the word “go”. Devotion and coordination is what made this task happen. Though it was tiresome sometimes but it was our eagerness to prove something which kept us going on and on. And finally we have been able to reach at a point where we can say with all our enthusiasm that “yes, we did it!”

For a blessed soil like ours, the worth of a fertilizer company became a motive behind our selection of Engro Chemicals Pvt. Ltd. and Fauji Fertilizer Company for comparison COMPANY NAME YEARS CURRENT RATIOS ACID TEST RATIO DEBT EQUITY RATIO (%) DEBT RATIO TIME INTEREST EARNED INVENTORY TURN OVER RATIO INVENTORY HOLDING PERIOD NET FIXED ASSETS TURNOVER RATIO TOTAL ASSET Turnover RATIO RECEIVABLES TURNOVER RATIO Average Collection Period Gross Profit Margin (%) Operating Profit MARGIN (%) Net Profit Margin (%) Earning per share (Rs./Share) Engro Chemicals Ltd. 2005 1.79 1.10 108.33 .48 12.5 11.1 32 1.4437 1.30 34.3 11 14.45 19.15 12.69 14.37 2006 1.56 1.31 31.58 .25 7.18 9.4 38 1.5148 1.1 30.2 12 24.07 21.63 14.47 15.47 2007 3.11 0.26 38.9 .18 8.92 10.1 36 1.9397 1.45 22.8 16 21.22 20.58 13.61 17.17 Fauji Fertilizer Co. 2005 1.094 1.01 20.48 0.76 11.92 16.41 21.93 1.44 1.30 44.62 8.1 34.6 17.6 16.09 12.96 2006 .897 0.81 8.70 0.53 14.94 16.1 22.36 1.7 1.1 25.57 14.41 32.42 25 15.48 9.39 2007 0.942 0.89 7.53 0.57 12.22 22.95 15.7 1.54 1.45 19 18.95 35.6 29.93 18.86 10.86

purposes. Our research revealed to us that Engro Chemicals Ltd. holds a stronger position as compared to its counterpart. And ratio analysis also supports the fact discussed earlier. Tables and graphs are also included to make this comparison more clear and to enhance the understanding of the numerical figures attained from ratio analysis. We have put our heart and soul to hold a fair comparison but there is always a room for improvement. So we are quite right to adopt an optimistic approach to believe that Mrs. Labiba Sheikh will ignore our mere mistakes, if found, because “to err is human”.

Group Members

Abstract
  From the whole ratio analysis of Engro chemicals Ltd. And its major rival Fauji Fertilizer Company, we conclude following results as shown in table below FOREWORD I Abstract II THE ORGANIZATION CONCERNED 6 Engro Chemical Pakistan Ltd. 6 An Overview 6 Vision 7

Our Businesses 8 Engro Chemical Pakistan Limited 8 Engro Vopak Terminal Limited 9 Engro Polymer and Chemicals Ltd. 9 Avanceon 9 Engro Foods Limited (EFL) 10 Engro Energy Limited (EEL) 10 Engro Eximp (Pvt.) Limited 10 Products & Services 11 Fertilizers 11 Nitrogenous Fertilizers 11 Phosphatic Fertilizers 12 Blended Fertilizers 12 PVC Resin 13 Chemical handling & Storage 13 Industrial Automation 13 Industrial Automation 13 Foods 14 Power Generation 14 Quality 15 Packing & Loading: 15 Business practice 16 Principal Operations Committee 16

Corporate Governance 17 Core Values 19 SAFETY, HEALTH & ENVIRONMENT 19 LEADERSHIP 19 QUALITY &CONTINUOUS IMPROVEMENT 20 ENTHUSIASTIC PURSUIT OF PROFIT 20 EXTERNAL & COMMUNITY INVOLVEMENT 20 CANDID & OPEN COMMUNICATIONS 20 ENJOYMENT & FUN 20 INNOVATION 20 INDIVIDUAL GROWTH & DEVELOPMENT 20 TEAMWORK & PARTNERSHIP 21 DIVERSITY & INTERNATIONAL FOCUS 21 Our People 21 The Organization of Comparison 21 Fauji Fertilizer Company 21 An Overview 22 Mission Statement 23 RATIO ANALYSIS 24 (Engro Chemical Pakistan Ltd.) 24 Advantages 24 Types of Ratios Analysis 24 Liquidity Ratios: 25

Leverage ratios: 26 Activity Ratios 29 RATIO ANALYSIS 36 Fauji Fertilizer Company Ltd. 36 INDUSTRY ANALYSIS 48 Activity Ratios 48 Conclusion 57 References 58

 

THE ORGANIZATION CONCERNED

Engro Chemical Pakistan Ltd.
 

Engro Chemical Pakistan Limited is a fertilizer company which is of their concern that has been introduced right below. They are going to make a full-fledge financial analysis of this fertilizer company in order to check its financial situation in the market. The analysis of each and every major ratio has been involved in this financial analysis. Then furthermore the interpretation of each and every ratio has been given to elaborate it.

An Overview

Search for oil by Pak Stanvac, an Esso/Mobil joint venture in 1957, led to the discovery Of Mari gas field situated near Daharki -- a small town in upper Sindh province. Esso was the first to study this development in detail and propose the establishment of a urea plant in that area. The proposal was approved by the government in 1964, which led to a fertilizer plant agreement signed in December that year. Subsequently in 1965, the Esso Pakistan Fertilizer Company Limited was incorporated, with 75% of the shares owned by Esso and 25% by the general public. The construction of a urea plant commenced at Daharki the following year with the annual capacity of 173,000 tons and production commenced in 1968. At US $ 43 million, it was the single largest foreign investment by an MNC in the country. A full-fledged marketing organization was established which undertook agronomic programs to educate the farmers of Pakistan. As the nation’s first fertilizer brand, Engro (then Esso) helped modernize traditional farming practices to boost farm yields, directly impacting the quality of life not only for farmers and their families, but for the community at large. As a result of these efforts, consumption of fertilizers increased in Pakistan, paving the way for the Company’s branded urea called "Engro", an acronym for "Energy for Growth". As part of an international name change program, Esso became Exxon in 1978 and the company was renamed Exxon Chemical Pakistan Limited. The company continued to prosper as it relentlessly pursued productivity gains and strived to attain professional excellence. In 1991, Exxon decided to divest its fertilizer business on a global basis. The employees of Exxon Chemical Pakistan Limited, in partnership with leading international and local financial institutions bought out Exxon’s 75 percent equity. This was at the time and perhaps still is the most successful employee buy-out in the corporate history of Pakistan. Renamed as Engro Chemical Pakistan Limited, the Company has gone from strength to strength, reflected in its consistent financial performance, growth of the core fertilizer business and diversification into other fields. Investment in people, process solutions and resource conservation initiatives has reduced energy use per ton of urea by a third, whilst increasing urea production nearly six-fold since 1968. Not only does this save money, it stretches non-renewable energy sources and mitigates the impact of waste. Along the way, a major milestone in plant capacity upgrade coincided with the employee led buy-out; innovatively optimizing our resources, Engro re-located fertilizer manufacturing plants from the UK and US to its Daharki plant site – an international first. Our pioneering spirit continues in our social investments, exemplified by the only snake-bite treatment facility in the Ghotki region and the first telemedicine intervention in the country.

 

 
Wing

Vision
"To be the premier Pakistani enterprise with a global reach, passionately pursuing value creation for all stakeholders."

 
  Our Diverse Colors of Excellence

Our Businesses
The years since Exxon became Engro have been both exciting and rewarding for the Organization and its people. Challenges have been overcome, goals achieved and new goals set. Engro today stands recognized as a successful business operation and a role model for doing business in Pakistan.

Engro Chemical Pakistan Limited

The Company’s current manufacturing base includes urea name plate capacity of 975,000 tons per annum and blended fertilizer (NPK) capacity of 160,000 tons per year. A premier brand and nationwide presence ensure sellout production. Additionally, the company imports and sells phosphatic fertilizers for balanced fertility and improved farm yields. Engro’s share of Pakistan’s phosphates market mirrors or exceeds its urea market share. Expansion plans include a new urea plant of 1.3 million tons annual capacity, also at Daharki. The US$ 1 billion project is well underway and on track for commercial

production in mid 2010. This addition will increase Engro’s urea market share to 35% from 19% at present.      
 

Engro Vopak Terminal Limited
50:50 Joint Ventures with Royal Vopak - a Netherlands based global leader in terminal operations. EVTL operates a bulk liquid chemical terminal at Port Qasim, Karachi. It has an impeccable safety record of handling a range of chemicals and LPG for over 10 years. EVTL is building Pakistan’s first cryogenic Ethylene storage facility and expects to be ready by early 2009. Given its experience with gasses, cryogenics, a brown field location and international operating standards, EVTL is well-positioned to build a LNG terminal, being pursued by the Government of Pakistan.

Engro Polymer and Chemicals Ltd.
EPCL is undergoing expansion involving PVC production increase of 50,000 tones (current capacity: 100,000 tons p.a. and back integration through setting up of an EDC/VCM plant and a Chlor alkali plant. These initiatives are expected to conclude in phases by first half of 2009. At Port Qasim, this 56% Engro owned Company is involved in manufacturing, marketing and selling Polyvinyl Chloride (PVC).  

Avanceon
A 63% owned subsidiary of Engro, EIAL is the leading global automation business, providing process & control solutions. It also offers Power & Energy Management software solutions as well as High-End software that integrate production and business applications. Previously operating in Pakistan and UAE, they have now penetrated in the USA market with the merger of ENGRO Innovative and Advance Automation. Advance Automation is an award winning technology solutions provider to manufacturers in North

American and has been awarded as the System Integrator of the Year 2007 by Control Engineering.

Synchronizing to a single brand worldwide with all the engineering Standards, processes, brand identity and global brand recognition was a huge task and due to various different cultural factors it was even complex then perceived. After days of hard work AVANCEON emerged as the new name and the true Global Automation Player. The new company name will help to reinforce the single brand identity that has emerged over the last 16 days as the two formerly separate companies have successfully worked to become a single global enterprise.  

Engro Foods Limited (EFL)
  Engro Foods, a wholly owned subsidiary had its first full year of operations in 2007. The Company continued expanding with additions to brand portfolio, milk production and distribution capacities. The portfolio now includes four impressive brands; Olper's milk, Olper’s cream, Olwell and Tarang. Olper’s market share peaked at 17% during 2007. EFL operates two dairy processing factories located in Sukkur, and Sahiwal. The company’s milk collection network now boasts over 700 village milk collectors and 400 milk collection centers. Covering 2400 villages across Pakistan, the activities of the Company touch the lives of almost 51,000 farmers. An exciting new venture is the diversification of dairy portfolio into ice cream. Work has commenced full throttle for detailed engineering and market study with a view to launch of first ice cream in 2009. Also on EFL slate is the establishment of a dairy farm with milking expected to start in second quarter 2009.

Engro Energy Limited (EEL)
     

This wholly owned subsidiary is setting up an Independent Power Plant near Qadirpur in Sindh; Targeting 2009 for commercial operations, the power project will have a net output of 217 MW. The plant will utilize low heating value permeate gas from Qadirpur gas field which is currently being flared.  

Engro Eximp (Pvt.) Limited
Engro Eximp (Pvt.) Limited is a wholly owned subsidiary in the trading business of fertilizer imports.
Spectrum of our products & services products & services

Products & Services
Our wide spectrum of products and services clearly shows the diversity in our Businesses, each one designed to make life better for our customers

Fertilizers
by Engro Chemical Pakistan Limited

Aduct line that focuses on balanced crop nutrition and higher yield for the farmer

Nitrogenous Fertilizers
ENGRO UREA is a trusted high grade fertilizer containing 46% Nitrogen (N), with moderate hydroscopicity. It has a pH value of 6.8 (organic molecule) and is suitable for all crops on all soils. Engro Urea is an excellent source of Nitrogen for the vast majority of cultivated soils of Pakistan.

Phosphatic Fertilizers
Engro DAP: contains 46% P2O5 and 18% N. More than 90% of Phosphate (P) is water soluble. It has a pH value of 7.33 and is a good source of P fertilizer for all crops. It is an equally good source on problem soils (saline sodic) with coarse texture. On an overall basis it suits to about 90% soils of the country. Engro Zorawar: is one of the highest grade phosphatic fertilizers. It is acidic in reaction (pH >= 3.5) and contains 52% P2O5 of which more than 90% is water soluble, while the rest is citrate soluble. In addition to P, it contains 12% N, 2% sulphur and 1% calcium. It is a beneficial fertilizer for all crops on all soils of Pakistan and produces excellent results on alkaline soils, due to its acidic the acidic pH of Engro Zorawar also tends to slow down the rapid conversion of soluble P to water insoluble compounds, keeping it plant available for a longer period of time. Engro Phosphate: is brown colored mono ammonium phosphate with 11% nitrogen and 52% phosphorus. It is being marketed as relatively cheaper alternate of DAP.

Blended Fertilizers
Engro Zarkhez: is homogenously granulated fertilizer which maximizes crop yield by providing balanced nutrition for a wide variety of crops through the uniform availability of Nitrogen, Phosphorous and Potassium. Engro Zarkhez grades are specially produced to suit the requirements of individual crops and soils, and provide convenience to the farmer through ready availability of precise quantities of primary nutrients. Engro Zarkhez fertilizers have low moisture content, high crush strength; 2mm-4mm granule size and free flowing nature - attributes which ensure excellent handling and application characteristics.

Engro NP: it provides 22% nitrogen, and 20% phosphorus. ECPL entered into NP business in 2005 to cater the need of its customers for this established category. Primary focus area for ENP marketing is South Zone (Sindh).

Micro Nutrients Zingro: Zinc Sulphate, a highly effective and potent fertilizer which primarily targets Zinc deficiency in crops like Rice, Potato, Maize, Sugar cane, Wheat, Cotton, vegetables and fruits. Zingro increases crop yield and enhances crop appearance.

PVC Resin
a synthetic resin composed of repeating units of vinyl chloride. It is very versatile and is used in a wide variety of products

Chemical handling & Storage
By Engro Vopak Terminal Limited

A state of the art jetty and terminal at Port Qasim, Karachi for handling and storage of LPG and bulk liquid chemicals

Industrial Automation
by Avanceon (formerly known as Engro Innovative Automation Pvt. Limited)

Providing process control solutions to your industrial units Market leader in industrial automation business providing process control solutions to Industrial units. It offers Power & Energy Management Software solutions as well as High end Software that integrate production and business application. Providing process control solutions to your industrial units

Industrial Automation
Market leader in industrial automation business providing process control solutions to Industrial units. It offers Power & Energy Management Software solutions as well as High end Software that integrate production and business application. Providing process control solutions to industrial units and management software solutions

Foods by Engro Foods Limited
Olper’s: Standardized at 3.5% fat, Olper’s is a premium, UHT all-purpose milk. Olwell HCLF: (High Calcium, Low Fat) Olwell is a premium quality milk for the health conscience. Olper’s Cream: UHT Cream standardized at 40% fat

Tarang: Liquid tea whitener State of the art dairy processing plant

Our 217 MW Power Plant.

Power Generation

by Engro Energy Limited

Engro identified a Power Project based on low BTU, high H2S gas from
Qadirpur gas Field. The project is unique as it will convert low BTU high sulphur content permeate gas, which is currently being wasted and flared, into 217 MW electric power Converting wasted flare gas into energy at the 217 MW Power Plants

Quality Improvisation through Six Sigma: the legend leads again Employee development is one of the pivotal areas for Organizational development. To Organizational competence levels, new training programs encompassing Performance Management, Leadership, and Competency Development are introduced. Engro is among the first Pakistani companies implementing six sigma across all areas and utilizing it as a management system to execute its strategic objectives. Among the focus areas, employee development is the most

critical and six sigma is leveraged to help bring out the best in our people. Employees will drive improvements in other areas; speed, innovation, perfection and in becoming world class professionals. Six Sigma’s robust problem solving methodology and statistical toolkit allows the company to benchmark processes against global standards in a language that is comparable across any industry or function. It helps ensure that Engro sustains its promise of delivering high quality products and services to its customers – on time, every time.

Packing & Loading: The finished product is packed with the utmost care by trained personnel, and loaded directly in to containers for export purposes. All packing and loading is done under strict supervision, while maintaining maximum quality and safety standards. To facilitate their customers, they provide yarn packed in 100Lbs and 50Lbs sea-worthy export cartons. They also have facility to provide customers with polythene film shrink wrapped Pallet packing to specially accommodate customers in Europe/USA and help them reduce the labor handling costs. Business practice Our Advisory Capacity

Principal Operations Committee The following committees act at the operation level in an advisory capacity to the Chief Executive Officer, providing recommendations relating to business and employee Matters:

Management Committee is responsible for review and endorsement of long term strategic plans, capital and expense budgets, development and stewardship of business plans and reviewing the effectiveness of risk management processes and internal control. Corporate HSE Committee is responsible for providing leadership and strategic guidance on all Health, Safety and Environment (HSE) improvement initiatives and has stewardship responsibility for monitoring compliance against regulatory standards and selected international benchmarks.

COED Committee is responsible for the review of Compensation, Organization and Employee Development (COED) matters of all people excluding employee Directors and Senior Executives. Throughout the 40 plus years of Engro’s history, our people have come up with ideas and determination that drove the company forward in all sorts of times.

Corporate Governance Engro’s governance structure responds to the industry’s best practices demands Ensuring that all aspects with respect to economic, environmental and social obligations are fully considered and business decisions are taken after evaluating their impact on The Company’s triple bottom line - People, Planet and Profits.

Compliance Statement The Board of Directors has throughout the year 2007 complied with the ‘Code of Corporate Governance’ contained in the listing requirements of the stock exchanges and the ‘Corporate and Financial Reporting framework’ of the Securities and Exchange Commission of Pakistan.

Risk Management Process In 2007, the Management Committee undertook a review of major financial and operating risks faced by the business.

Internal Control Framework Responsibility: The Board is ultimately responsible for Engro’s system of internal control and for reviewing its effectiveness. However, such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives, and can provide only reasonable and not absolute assurance against material misstatement or loss.

The Board, whilst maintaining its overall responsibility for managing risk within the Company, has delegated the detailed design and operation of the system of internal controls to the Chief Executive .

Framework: The Company maintains an established control framework comprising clear structures, authority limits, and accountabilities, well-understood policies and procedures and budgeting and review processes.

The Board establishes corporate strategy and the Company’s business objectives. Divisional management integrates these objectives into divisional business strategies with supporting financial objectives. All policies and control procedures are documented in manuals

Review: The Board meets quarterly to consider Engro’s financial performance, financial and operating budgets and forecasts, business growth and development plans, capital expenditure proposals and other key performance indicators. The Board Audit Committee receives reports on the system of internal financial controls from the external and internal auditors and reviews the process for monitoring the effectiveness of internal controls.

There is a company wide policy governing appraisal and approval of investment expenditure and asset disposals. Post completion reviews are performed on all material investment expenditure.

Audit: Engro has an Internal Audit function. The Board Audit Committee annually reviews the appropriateness of resources and authority of this function. The Head of Internal Audit reports directly to the Audit Committee on the results of its work.

The Internal Audit function carries out reviews on the financial, operational and compliance controls, and reports on findings to the Chief Executive and the divisional management. All material issues are reported to the Board Audit Committee which approves the audit program, based on an annual risk assessment of the operating areas. To underpin the effectiveness of controls, it is Engro’s policy to attract, retain and develop staff of high caliber and integrity in appropriate disciplines. There is an annual appraisal process, which assesses employee performance against agreed objectives and identifies necessary training to maintain and enhance standards of performance.

Values that we live by

Core Values Our employees' performance can only flourish in a sound work environment. That is why ENGRO is committed to supporting its leadership culture through systems and policies that foster open communication, maintain employee and partner privacy, and assure Employee health and safety.

SAFETY, HEALTH & ENVIRONMENT We will manage and utilize resources and operations in such a way that the safety and health of our people, our neighbors. Our customers and our visitors are ensured. We believe our safety, health and environmental responsibilities extend beyond protection and enhancement of our own facilities, and we are concerned about the distribution, use and after use disposal of our products.

ETHICS AND INTEGRITY we do care how results are achieved and will demonstrate honest and ethical behavior in all our activities. Choosing the course of highest integrity is our intent and we will establish and maintain the highest professional and personal standards. A well-founded reputation for scrupulous dealing is itself a priceless asset.

LEADERSHIP we have leaders of high integrity. Energy and enthusiasm that have the necessary managerial, professional and people skills to inspire a group or an organization to set high goals and achieve them willingly. We believe that leadership skills need to be strengthened at all levels within our organization and that managerial and professional competence is a necessary foundation. QUALITY &CONTINUOUS IMPROVEMENT we believe that quality and a relentless commitment to continuous improvement are essential to our ongoing success. To this end, we define quality as understanding the customer's expectations, agreeing on performance and value, and providing products and services that meet expectations 100 percent of the time. Our motto is, "Quality in all we do." ENTHUSIASTIC PURSUIT OF PROFIT successfully discharging our responsibilities to our shareholders to enhance the long-term profitability and growth of our company provides the best basis for our career security and meaningful personal growth. We can best accomplish this by consistently meeting the expectations of our customers and providing them with value. EXTERNAL & COMMUNITY INVOLVEMENT We believe that society must have industrial organizations that it can trust. Trust and Confidence are earned by our performance, by open and direct communication, and by active involvement in the communities in which we live and conduct our business." CANDID & OPEN COMMUNICATIONS We value communications that are courteous, candid and open and that enable each of us to do our jobs more effectively by providing information that contributes to the quality of our judgment and decision making. Effective communication should also provide the means for gaining understanding of the company's overall objectives and plans and of the thinking behind them. ENJOYMENT & FUN We believe that excitement, satisfaction and recognition are essential elements of a healthy, creative and highperforming work environment. Having fun in our work should be a normal experience for everyone. INNOVATION Success requires us to continually strive to produce break through ideas that result in improved solutions and services to customers. We encourage challenges to the status quo and seek organizational environments in which ideas are generated, nurtured and developed.

INDIVIDUAL GROWTH & DEVELOPMENT we strongly believe in the dignity and value of people. We must consistently treat each other with respect and strive to create an organizational environment in which individuals are encouraged and empowered to contribute, grow and develop themselves and help to develop each other. TEAMWORK & PARTNERSHIP we believe that high-performing teams containing appropriate diversity can achieve what individuals alone cannot. Consciously using the diversity of style. Approach and skills afforded by teams is strength we must continue building into our organization. DIVERSITY & INTERNATIONAL FOCUS We value differences in gender, race, nationality, culture, personality and style because diverse solutions, approaches and structures are more likely to meet the needs of customers and achieve our business goals. Corporate Responsibility Report Our employees bring expertise and dedication to the workplace Our People More than 700 employees bring expertise and dedication to the workplace. We value each employee, value their input and views. Continuously striving to become employer of choice, we provide a workplace where people feel confident, valued and inspired.

The Organization of Comparison Fauji Fertilizer Company The organization with whom the comparison of Engro Chemical Pakistan Limited is to be done is FFC Limited. The comparison can only be done by making the financial analysis of this particular Fertilizer Companies in a similar way in which the analysis of Engro Chemical Pakistan Limited is to be done by first of all calculating all the major five ratios and interpreting them one by one thereby gaining a position to make a comparison become their financial situation.

An Overview With a vision to acquire self - sufficiency in fertilizer production in the country, FFC was incorporated in 1978 as a private limited company. This was a joint venture between Fauji Foundation (a leading charitable trust in Pakistan) and Haldor Topsoe A/S of Denmark. The initial authorized capital of the company was 813.9 Million Rupees. The present share capital of the company stands at Rs. 3.0 Billion. Additionally, FFC has Rs. 1.0 Billion stakes in the subsidiary Fauji Fertilizer Bin Qasim Limited (formerly FFC-Jordan Fertilizer Company Limited). FFC commenced commercial production of urea in 1982 with annual capacity of 570,000 metric tons. Through De-Bottle Necking (DBN) program, the production capacity of the existing plant increased to 695,000 metric tons per year. Production capacity was enhanced by establishing a second plant in 1993 with annual capacity of 635,000 metric tons of urea. FFC participated as a major shareholder in a new DAPS/Urea manufacturing complex with participation of major international/national institutions. The new company Fauji Fertilizer Bin Qasim Limited (formerly FFC-Jordan Fertilizer Company Limited) commenced commercial production with effect from January 01, 2000. The facility is designed to produce 551,000 metric tons of urea and 445,500 metric tons of DAP. This excellent performance was due to hard work and dedication of all employees and the progressive approach and support from the top management. In the year 2002, FFC acquired ex Pak Saudi Fertilizers Limited (PSFL) Urea Plant situated at Mirpur Mathelo, District Ghotki from National Fertilizer Corporation (NFC) through privatization process of the Government of Pakistan. This acquisition at Rs. 8,151 million represents one of the largest industrial sector transactions in Pakistan

Mission Statement

FFC's mission is to sustain its role as the leader in industrial and agricultural advancement of Pakistan by setting and achieving new and higher goals and taking initiatives. The Company is committed to ensuring safe and conducive work environment, providing high quality products and allied services to its customers and profitable returns to its shareholders.

RATIO ANALYSIS (Engro Chemical Pakistan Ltd.) Ratios simply mean a number expressed in terms of another. A ratio is a statistical yardstick by mean of which relationship between two or various figures can be compared or measured. Thus Ratio Analysis shows the relationship between accounting data. Ratio can be found out by dividing on number by another number. Ratio analysis is an important and age old technique of financial analysis. Following are some of the advantages of ratio analysis. Advantages: • It simplifies the comprehension of financial statements. • Ratios tell the whole story of changes in the financial condition of the business. • It provides data for inter-company comparison. Makes inter-company comparison possible • Ratio analysis also makes possible comparison of the performance of different divisions of the company. The ratios are helpful in deciding about their efficiency or otherwise in the past and likely performance in the future. • Ratios highlight the factors associated with successful and unsuccessful company. They also reveal strong companies and weak company’s, over-valued under-valued companies.

• It helps in planning and forecasting. Ratios can assist management, in its function of forecasting, planning, co-ordination, control and communications. • It helps in investment decisions in the case of investors and lending decisions in the case of investors and lending decisions in the case of bankers’ etc. Types of Ratios Analysis Let us now have a detailed analysis of all the following four ratios for Engro chemicals Pakistan Ltd: • Liquidity Ratios • Leverage Ratios • Activity Ratios • Profitability Ratios

Liquidity Ratios: Current Ratio: Current Ratio is equal to current assets divided by current liabilities Current Ratio = Current Assets Current Liabilities

2006 – 2007: Current Ratio = 16397198000 5264674000 Current Ratio = 3.11 2005 - 2006:

Current Ratio = 5684446000 3642415000 Current Ratio = 1.56 2004 - 2005: Current Ratio = 5011555000 2800094000 Current Ratio = 1.79 Comparison over the years / Interpretation: Current ratio is a general and quick measured of liquidity of company. It represents the margin of safety or cushion available to the auditor. It is the index of the company’s financial stability. It is also an index of the financial solvency and index of strength of working capital. The current ratio of the company is increasing over the years right from 2004-07 constantly, that is, it was 1.79 in 2004-05 and it is 3.11 in 2006-07.

Acid Test (Quick) Ratio: Acid Test (Quick) ratio is equal to Current assets fewer inventories divided by current liabilities. It gives more liquid amount of assets to cover your liabilities.

Quick Ratio = Current assets – Inventories Current liabilities 2006 – 2007: Quick Ratio = 16397198000–2690153000 5264674000

Quick Ratio = 0.26

2005 - 2006: Quick Ratio = 5684446000– 923448000 3642415000 Quick Ratio = 1.31 2004 - 2005: Quick Ratio = 5011555000– 1922982000 2800094000 Quick Ratio = 1.10 Comparison over the years / Interpretation: The quick test ratio is a very useful measuring of the liquidity position of the company. It means that company’s ability to pay its short-term obligations or current liabilities immediately and is a more rigorous test of liquidity than the current ratio. The quick ratio of the company as is shown by the above calculations is not consistent, and decreasing with large percentage that is, the company is getting lesser and lesser liquid current assets to cover its current liabilities.

Leverage ratios: Debt Equity Ratio: Debt equity ratio is equal to long term debts divided by stockholder’s equity. Debt Equity ratio = Long Term Debts Stockholder’s equity

2006 – 2007: Debt equity ratio = 17410060000 1934692000 Debt equity ratio = 1.5348 2005 - 2006: Debt equity ratio = 370,501,304 233,187,729 Debt equity ratio = 1.588 2004 - 2005: Debt equity ratio = 316,314,578000 190,255,511000 Debt equity ratio = 1.6625 Comparison over the years / Interpretation: This ratio indicates the proprietor’s claims of owners and outsiders against the company’s assets. The purpose is to get an idea of the cushion available to outsiders and the liquidity of the company. The interpretation of the ratio depends upon the financial and business policy of the company. The debt ratio of the company has decreased gradually over the years right from 2004-07 which is actually a positive sign for the company. Debt Equity ratio increment is a negative point to management that the more of their business is financed by debts this will increase their financial charges or interest expense and company’s liquidity and hence decreasing the company’s profit. The lower the ratio the higher the company’s financing that is provided by the shareholders and larger the creditors cushion (margin of protection) in the extent of shrinkage of assets values or outright loss.

Debt Ratio: Debt ratio is equal to total liabilities divided by total assets. Debt Ratio = Total Liabilities Total Assets 2006 – 2007: Debt Ratio = 7005734000 38156651000 Debt Ratio = 0.18 2005 - 2006 Debt Ratio = 3939349000 15980816000 Debt Ratio = 0.25

2004 - 2005 Debt Ratio = 6736064000 14111630000 Debt Ratio = 0.48

Comparison over the years / Interpretation:

It can be defined as how much sufficient our assets are in retrieving the total debts. The debt ratio of the company has been decreasing quite intensively almost over the last three years as shown clearly by the above calculations. Times Interest Earned (Coverage Ratio): It briefs that how many times the company has earned the interest. Or how many times the company has user it's earning before interest and taxes to cover the interest expense. Times Interest Earned = Profit before Interest and Taxes Interest Expense 2006 – 2007: Interest coverage Ratio = 4770535000 535023000 Interest Coverage Ratio = 8.92 times 2005 - 2006: Interest coverage Ratio = 2602207000 362551000 Interest Coverage Ratio = 7.18 times 2004 - 2005: Interest coverage Ratio = 34996421000 280070000 Interest Coverage Ratio = 12.5 times

Comparison over the years / Interpretation:

The interest coverage ratio is a very important from the lender point of view. It indicates the number of times interest is covered by the profit available to pay interest charges. It is an index of the financial strength of the enterprise. A high ratio assures the lender a regular and periodic interest income. But weakness of the ratio may create some problems for the company’s financial manager in raising funds from the debts sources. The no. of times the company earns interest has fluctuated dramatically, that is, it was 12.5 in 2005, decreased down to 7.18 in 2006 and to rise up to 8.92 in 2007. Activity Ratios Inventory Turnover Ratio: Inventory Turnover Ratio is equal to Cost of Goods Sold divided by Average Inventory. Inventory Turnover ratio = Cost of Goods Sold Avg. Inventory 2006-2007 Inventory Turnover Ratio = 18262793000 1808192327 Inventory Turnover Ratio = 10.1 times 2005 – 2006 Inventory Turnover Ratio = 13364524000 1421757872 Inventory Turnover Ratio = 9.4 times 2004 - 2005: Inventory Turnover Ratio = 14332824000 1291245405 Inventory Turnover Ratio = 11.1 times

Comparison over the years / Interpretation: Inventory turn over ratio measures the velocity of conversion of stock into sales. In other words how rapidly inventory is turning into receivables through sales. In 2006 it was 9.4 times and in 2007 it was 10.1 times. In 2006 the ratio was low because of over investment in inventories. In year 2007 it is better that is 10.1 times in the year, which is quite good because of good management. Inventory Holding Period in days: Inventory holding period in days is equal to number of days in a year divided by inventory turnover ratio. Inventory Holding Period in Days = No. of days in a year Inventory Turnover ratio 2006 – 2007: Inventory turnover in days = 360 10.1 Inventory turnover in days = 36 days 2005 - 2006: Inventory turnover in days = 360 9.4 Inventory turnover in days = 38 days 2004 - 2005: Inventory turnover in days = 360 11.1

Inventory turnover in days = 32 days Comparison over the years / Interpretation: Inventory turn over ratio measures the velocity of conversion of stock into sales. In other words how rapidly inventory is turning into receivables through sales. In 2006 it was 38 days times and in 2007 it was 36 days. In year 2006 it was quite good and in 2007 it is better that is 36 days in a year to move inventory through sales, which is quite good because of good management and polices. Net Fixed Assets Turnover Ratio: Net Fixed assts turnover ratio is obtained by dividing sales with net fixed assets, where, (Net fixed assets = Total fixed Assets – Accumulated Depreciation)

Net Fixed Asset Turnover Ratio = Sales Net Fixed assets

2006 – 2007: Fixed asset turnover ratio= 23183222000 21759453000 Fixed asset turnover ratio = 1.939 times 2005 - 2006: Fixed asset turnover ratio = 17601783000 600,565,280

Fixed asset turnover ratio = 1.5148 times 2004 - 2005: Fixed asset turnover ratio = 18276277000 480,566,483 Fixed asset turnover ratio = 1.4437 times Comparison over the years / Interpretation: Fixed asset turnover ratio measures sales productivity and plant and equipment utilization. It is clear that this ratio is rising from 2006 which is 1.5 to 1.93 in 2007 Total Asset Turnover: Total asset turnover ratio measures that how much sales are generated through the total assets of the organization. Total Asset Turnover Ratio = Sales Total assets 2006 – 2007: Total asset turnover ratio= 23183222000 15980816000 Total asset turnover ratio = 1.45 times 2005 - 2006: Total asset turnover ratio = 17601783000 15980816000 Total asset turnover ratio = 1.1 times

2004 - 2005: Total asset turnover ratio = 18276277000 14111630000 Total asset turnover ratio = 1.30 times Comparison over the years / Interpretation: It shows that company must manage its total assets efficiently and should generate maximum sales through their proper utilization. As the ratio, increases there are more revenue generated per rupee of total investment in asset. The company ability to produce a large volume of sales on a small total asset based is an important part of the company’s overall performance in terms of profits. In 2007, 2006. The ratio was 1.1, 1.45 times respectively. In 2007, the ratio indicates that it is producing RS 1.45 sales per Rupees of investment in total assets. So as time is going by this ratio is increasing which means company performance is up to mark in terms of profits. Receivables Turnover Ratio: Receivables turnover ratio is equal to net credit sales divided by average receivables. Receivables Turnover Ratio = Net credit Sales Avg. Receivables 2006 – 2007: Receivables Turnover Ratio = 23183222000 1016807982 Receivables Turnover Ratio = 22.8 times 2005 - 2006: Receivables Turnover Ratio = 17601783000

5828404967 Receivables Turnover Ratio = 30.2 times 2004 - 2005: Receivables Turnover Ratio = 18276277000 532836064 Receivables Turnover Ratio = 34.3 times Comparison over the years / Interpretation: Receivables turnover ratio measures the average length of time it takes a company to collect credit sales in percentage terms. So Receivables turn over ratio is becoming worse as it was 30.2 in 2006 as compare to 2007 which is 22.8 times. So the company is not performing well and showing not good management.

Average Collection Period in days: Average collection period in days is equal to days in year divided by Receivables turnover ratio. Average Collection Period in days = No of days in a year Receivables turnover ratio 2006 – 2007: Receivables turnover ratio in days = 360 22.8 Receivables turnover ratio in days = 16 days

2005 - 2006:

Receivables turnover ratio = 360 30.2 Receivables turnover ratio = 12 days 2004 - 2005: Receivables turnover ratio = 360 34.3 Receivables turnover ratio = 11 days Comparison over the years / Interpretation: Average collection period shows the average length of time it takes a company to collect credit sales in days. From above analysis it is clear that average collection period is 16 days respectively in year an2006. But it is best was in 2005 which is 11 days.

Profitability Ratios: Gross Profit Margin: Gross profit margin is equal to the ratio of gross profit to sales. Gross Profit Margin = Gross Profit Sales 2006 – 2007: Gross profit margin = 4920429000 X 100 23183222000 Gross profit margin = 21.22 %

2005 - 2006: Gross profit margin = 4237259000 X 100 17601783000 Gross profit margin = 24.07 % 2004 - 2005: Gross profit margin = 2641286000 X 100 18276277000 Gross profit margin = 14.45 % Comparison over the years / Interpretation: Gross profit margin or gross profit ratio is the ratio of gross profit to net sales expressed as percentage. From Gross profit the company adjusts its operating and administrative expenses. In 2006 it increased heavily but in 2007 it decreased to 21.22 %. The gross profit is sufficient to recover all operating expenses and to build up reserve after paying all fixed interest charges and all dividends. Operating Profit Margin: Operating Profit Margin is equal to earning before interest and tax divided by sales. Operating Profit Margin = EBIT/Operating Profit Sales 2006 – 2007: Operating Profit Margin = 4770535000 X 100 23183222000 Operating Profit Margin = 20.58 %

2005 - 2006: Operating Profit Margin = 3807207000 X 100 17601783000 Operating Profit Margin = 21.63 % 2004 - 2005: Operating Profit Margin = 3499621 X 100 18276277000 Operating Profit Margin = 19.15 % Comparison over the years / Interpretation: This used to show the profitability without concern for taxes and interest. In 2006 the operating profit ratio was 21.63% and in 2007 the net profit ratio is 20.58 %. In 2006 operating profit ratio increased by 2.4 % and decreased by 0.8% in 2007, relative to 2006 ratio Shows Company’s inability to with stand adverse economic condition without caring taxes and interest. Net Profit Margin: Net Profit Margin is equal to net profit divided by sales. Net Profit Margin = Net Profit Sales 2006 – 2007: Net Profit Margin = 3154583000 X 100 23183222000 Net Profit Margin = 13.61 %

2005 - 2006: Net Profit Margin = 2547326000 X 100 17601783000 Net Profit Margin = 14.47 % 2004 - 2005: Net Profit Margin = 2319082000 X 100 18276277000 Net Profit Margin = 12.69 % Comparison over the years / Interpretation: This used to show the overall profitability and hence it useful to the proprietors. Higher the ratio betters for the organization .It shows the company’s ability to turn each rupee of sale into profit. In 2006 the net profit ratio was 14.47 % and in 2007 the net profit ratio is 13.61%. In 2006 net profit ratio increased by 1.7 % relative to 2005. But in 2007 it decreased slightly and remained 13.61 %.

Earning per share: This ratio shows that how much amount per share does a common stock holder attains. Earning per share = Earning Available for Common Stock Holders No. Of Common Stock Shares 2006 – 2007: Earning per share = 3154583000 183737000 Earning per share = Rs. 17.17 / share

2005 - 2006: Earning per share = 2547326000 164650000 Earning per share = Rs.15.47 /share 2004 - 2005: Earning per share = 2319082000 1161350000 Earning per share = Rs. 14.37 /share Comparison over the years / Interpretation: This ratio shows the worth of the share. As we can see that the worth of the shares of Engro Chemical has increased. EPS is increasing at a constant rate, which are good signs for the investors. Price earning ratio: It equals to the ratio of market price per share divided by earning per share. Price Earning Ratio = Market price per share Earning per share 2006 – 2007: Price Earning Ratio = 265.79 17.17 Price Earning Ratio = Rs. 15.48 2005 - 2006:

Price Earning Ratio = 170.48 15.47 Price Earning Ratio = Rs. 11.02 2004 - 2005: Price Earning Ratio = 155.92 14.37 Price Earning Ratio = Rs. 10.85 Comparison over the years / Interpretation: In 2006 the situation, slightly become worse as compared to 2005. But in 2007, these ratios results Rs.15.48 were to be spent in order to earn Rs.1 profit.

RATIO ANALYSIS Fauji Fertilizer Company Ltd. Types of Ratios Analysis:

Let us now have a detailed analysis of all the following four ratios for Fauji Fertilizer Company Limited

Liquidity Ratios

Leverage Ratios

Activity Ratios

Profitability Ratios

Liquidity Ratios: Current Ratio: Current Ratio = Current Assets Current liabilities 2006 – 2007: Current Ratio = 10,811,435000 11,476,393000 Current Ratio = 0.942 2005 - 2006: Current Ratio = 9,764,587000 10,883,988000 Current Ratio = .897 2004 - 2005: Current Ratio = 20,463,506000 18,707,783000 Current Ratio = 1.094 Comparison over the years / Interpretation: Current ratio is a general and quick measured of liquidity of company. It represents the margin of safety or cushion available to the auditor. It is the index of the company’s financial stability. It is also an index of the financial solvency and index of strength of working capital.

Company's Current ratio has been decreasing gradually over the year’s right from the 2005 to 2007. Acid Test (Quick) Ratio: Quick Ratio = Current assets – Inventories Current liabilities

2006 – 2007: Quick Ratio = 10, 811, 435000-642, 836000 11,476,393000 Quick Ratio = 0.89

2005 - 2006: Quick Ratio = 9, 764, 587000-952, 905000 10,883,988000 Quick Ratio = 0 .81 2004 - 2005: Quick Ratio = 20, 463, 506000- 1,583,429000 18,707,783000 Quick Ratio = 1.01 Comparison over the years / Interpretation: The quick test ratio is a very useful measuring of the liquidity position of the company. It means that company’s ability to pay its short-term obligations or current liabilities immediately and is a more rigorous test of liquidity than the current ratio.

The calculations above clearly show that the quick ratio of the company has been not constant over the years due to the changes in pre paids and inventories. But it increased in 2007 as compared to 2006, which is positive point for the company.

Leverage / Debt ratios: Debt Equity Ratio: Debt Equity ratio = Long Term Debts Stockholder’s equity 2006 – 2007: Debt Equity ratio = 216,171,622 51,741,235 Debt Equity ratio = 108.33 2005 - 2006: Debt Equity ratio = 254,355,262 62,565,620 Debt Equity ratio = 4.0654 2004 - 2005: Debt Equity ratio = 272,265,545 53,055,841 Debt Equity ratio = 5.1316 Comparison over the years / Interpretation:

This ratio indicates the proprietor’s claims of owners and outsiders against the company’s assets. The purpose is to get an idea of the cushion available to outsiders and the liquidity of the company. The interpretation of the ratio depends upon the financial and business policy of the company. Debt Equity shows the relationship between the external equities or outside funds and internal equities and shareholder’s funds. The debt equity ratio of the company has been decreasing over the years from 2005 to 2006 but in 2007 it increased, with maximum in the year 2004-05 thereby decreasing in the next year and increasing finally. Debt Equity ratio increment is a negative point to management that the more of their business is financed by debts this will increase their financial charges or interest expense and company’s liquidity and hence decreasing the company’s profit. The lower the ratio the higher the company’s financing that is provided by the shareholders and larger the creditors cushion (margin of protection) in the extent of shrinkage of assets values or outright loss. Debt Ratio: Debt Ratio = Total liabilities Total assets 2006 – 2007: Debt Ratio= 16511169000 29,241,214000 Debt Ratio= 0.57 2005 - 2006 Debt Ratio= 14473738000 27,430,281000 Debt Ratio= 0.53 2004 - 2005

Debt Ratio= 36392141000 48,010,511000 Debt Ratio= 0.76 Comparison over the years / Interpretation: It can be defined as how much sufficient our assets are in retrieving the total debts. We can observe in our analysis that the debt ratio of the company is decreasing over the year which is a good sign for the company, that is, the company uses less of its total liabilities for its current assets. Times Interest Earned (Coverage Ratio): Times Interest Earned = Profit before Interest and Taxes Interest expense 2006 – 2007: Interest coverage Ratio = 8511360000 696,407000 Interest Coverage Ratio = 12.22 times 2005 - 2006: Interest coverage Ratio = 7486385000 501,241000 Interest Coverage Ratio = 14.94 times 2004 - 2005: Interest coverage Ratio = 6981075000 585,816000

Interest Coverage Ratio = 11.92 times

Comparison over the years / Interpretation: The interest coverage ratio is a very important from the lender point of view. It indicates the number of times interest is covered by the profit available to pay interest charges. It is an index of the financial strength of the enterprise. A high ratio assures the lender a regular and periodic interest income. But weakness of the ratio may create some problems for the company’s financial manager in raising funds from the debts sources. The no. of times the company earns its interest fluctuates from over the year’s right from 2005 to 2007. The times interest earned by the company in 2007 returned a lot to the level where it was in 2005.

Activity Ratios: Inventory Turnover Ratio: Inventory Turnover ratio = Cost of Goods Sold Avg. Inventory

2006 – 2007: Inventory Turnover Ratio = 18,311,525000 797870500 Inventory Turnover Ratio = 22.95 times 2005 - 2006: Inventory Turnover Ratio = 20,242,194000 126817000 Inventory Turnover Ratio = 16.1 times

2004 - 2005: Inventory Turnover Ratio = 25,987,200000 1,583,429000 Inventory Turnover Ratio = 16.41 times Comparison over the years / Interpretation: Inventory turn over ratio measures the velocity of conversion of stock into sales. In other words how rapidly inventory is turning into receivables through sales. In 2006 it was 16.1 times and in 2007 it was 22.95 times. In 2006 the ratio was low because of over investment in inventories. In year 2007 it is better that is 22.95 times in the year, which is quite good because of good management and polices. Inventory Holding Period in days: Inventory Holding Period in days = No of days in a year Inventory turnover ratio 2006 – 2007: Inventory turnover in days = 360 22.95 Inventory turnover in days = 15.7 days 2005 - 2006: Inventory turnover in days = 360 16.1 Inventory turnover in days = 22.36 days

2004 - 2005: Inventory turnover in days = 360 16.41 Inventory turnover in days = 21.93 days Comparison over the years / Interpretation: Inventory turn over ratio measures the velocity of conversion of stock into sales. In other words how rapidly inventory is turning into receivables through sales. In 2005 it was 21.93 days and in 2007 it was 15.7 days. In year 2007 it is quite good and in 2006 it was better that is 22.36 days in a year to move inventory through sales, which is quite good because of good management and polices. Net Fixed Assets Turnover Ratio: Net Fixed Asset Turnover Ratio = Sales Net Fixed assets 2006 – 2007: Fixed asset turnover ratio= 28,429,005000 18429779000 Fixed asset turnover ratio = 1.54 times 2005 - 2006: Fixed asset turnover ratio = 29,950,873000 17665694000 Fixed asset turnover ratio = 1.7 times

2004 - 2005: Fixed asset turnover ratio = 39,757,510000 27547005000 Fixed asset turnover ratio = 1.44 times Comparison over the years / Interpretation: Fixed asset turnover ratio measures sales productivity and plant and equipment utilization. It is clear that this ratio is increasing from 1.44 times in 2005 to 2006 which is 1.7and decreased to 1.54 in 2007 Total Asset Turnover: Total Asset Turnover Ratio = Sales Total assets 2006 – 2007: Total asset turnover ratio= 28,429,005000 29,241,214000 Total asset turnover ratio = .97 times 2005 - 2006: Total asset turnover ratio = 29,950,873000 27,430,281000 Total asset turnover ratio = 1.10 times 2004 - 2005: Total asset turnover ratio = 39,757,510000

48,010,511000 Total asset turnover ratio = 0.833 times Comparison over the years / Interpretation: It shows that companies must manage its total assets efficiently and should generate maximum sales through their proper utilization. As the ratio, increases there are more revenue generated per rupee of total investment in asset. The company ability to produce a large volume of sales on a small total asset based is an important part of the company’s overall performance in terms of profits. In 2007, & 2006 the ratio was 0.97, 1.10 times respectively. In 2007, the ratio indicates that it is producing RS .97 sales per Rupees of investment in total assets. So as time is going by this ratio is fluctuating which means company performance is not up to mark in terms of profits. Receivables Turnover Ratio: Receivables Turnover Ratio = Net credit Sales Avg. Receivables 2006 – 2007: Receivables Turnover Ratio = 28,429,005000 1497076500 Receivables Turnover Ratio = 19 times 2005 - 2006: Receivables Turnover Ratio = 29,950,873000 1171132000 Receivables Turnover Ratio = 25.57 times 2004 - 2005:

Receivables Turnover Ratio = 39,757,510000 890,874000 Receivables Turnover Ratio = 44.62 times Comparison over the years / Interpretation: Receivables turnover ratio measures the average length of time it takes a company to collect credit sales in percentage terms. So Receivables is better in 2006 is 25.57 times as compare to 2007, which is 19 times

Average Collection Period in days: Average Collection Period in days = Days in a year Receivables turnover ratio 2006 – 2007: Receivables turnover ratio in days = 360 19 Receivables turnover ratio in days = 18.95 days

2005 - 2006: Receivables turnover ratio = 360 25.57 Receivables turnover ratio = 14.41 days 2004 - 2005: Receivables turnover ratio = 360 44.62 Receivables turnover ratio = 8.1 days Comparison over the years / Interpretation:

Average collection period shows the average length of time it takes a company to collect credit sales in days. From above analysis it is clear that average collection period was 14.41 days in2006. But it was best in 2005 which is 8.1 days. So these ratios show that company is doing well in this particular case. Profitability Ratios: Gross Profit Margin: Gross Profit Margin = Gross Profit Sales 2006 – 2007: Gross profit margin = 10,117,480000X 100 28,429,005000 Gross profit margin = 35.6 % 2005 - 2006: Gross profit margin = 9,708,679000 X 100 29,950,873000 Gross profit margin = 32.42 % 2004 - 2005: Gross profit margin = 13,770,310000 X 100 39,757,510000 Gross profit margin = 34.6 % Comparison over the years / Interpretation:

Gross profit margin or gross profit ratio is the ratio of gross profit to net sales expressed as percentage. In 2006 it increased slightly to 7.73 % and in 2007 it increased to 10.22 %. The gross profit is sufficient to recover all operating expenses and to build up reserve after paying all fixed interest charges and all dividends. Operating Profit Margin: Operating Profit Margin = EBIT/Operating Profit Sales 2006 – 2007: Operating Profit Margin = 8511360000X 100 28,429,005000 Operating Profit Margin = 29.93 %

2005 - 2006: Operating Profit Margin = 7486385000X 100 29,950,873000 Operating Profit Margin = 25 % 2004 - 2005: Operating Profit Margin = 6981075000X 100 39,757,510000 Operating Profit Margin = 17.6 % Comparison over the years / Interpretation:

This used to show the profitability without concern for taxes and interest. In 2006 the operating profit ratio was 25%, and in 2007 the operating profit ratio is 29.93 %. In 2006 operating profit ratio was increased by 7.4 % and increased by 5% in 2007. The operating profit is increasing gradually at a decreasing rate but it shows company’s capacity to with stand adverse economic condition without caring taxes and interest. Net Profit Margin: Net Profit Margin = Net Profit Sales 2006 – 2007: Net Profit Margin = 5,360,953000 X 100 28,429,005000 Net Profit Margin = 18.86 2005 - 2006: Net Profit Margin = 4,636,144000X 100 29,950,873000 Net Profit Margin = 15.48 % 2004 - 2005: Net Profit Margin = 6,395,259000X 100 39,757,510000 Net Profit Margin = 16.09 % Comparison over the years / Interpretation: This used to show the overall profitability and hence it useful to the proprietors. Higher the ratio betters for the organization .It shows the company’s ability to turn each rupee of sale into profit. In 2006 the net profit

ratio is 15.48 % and in 2007 the net profit ratio is 18.9%. In 2006 net profit ratio decreased by .61 % relative but increased in 2007 by 3 %.

Earning per share: Earning per share = Earning Available for Common Stock Holders No. Of Common Stock Shares 2006 – 2007: Earning per share = 5,360,953000 493,474000 Earning per share = Rs. 10.86/share 2005 - 2006: Earning per share = 4,636,144000 493,474000 Earning per share = Rs. 9.39/share 2004 - 2005: Earning per share = 6,395,259000 493,474000 Earning per share = Rs. 12.96 /share Comparison over the years / Interpretation: This ratio shows the worth of the share. As we can see that the worth of the shares of Fauji fertilizer Company has decreased. The EPS is almost fluctuating but still in favorable condition.

Price earning ratio: Price Earning Ratio = Market price per share Earning per share 2006 – 2007: Price Earning Ratio = 118.75 10.86 Price Earning Ratio = Rs. 10.93 2005 - 2006: Price Earning Ratio = 105.55 9.39 Price Earning Ratio = Rs.11.24 2004 - 2005: Price Earning Ratio = 137 12.96 Price Earning Ratio = Rs. 10.57 Comparison over the years / Interpretation: These ratios results show that in 2007 Rs.10.93 were to be spent in order to earn Rs.1 profit. But in year 2006 the position was comparatively good as shown that Rs.11.24 has to be spent in order to earn Rs.1 of profit. INDUSTRY ANALYSIS (Comparison through graphical interpretation)

Activity Ratios Current Ratio:

2004-05 ECL FFC 1.79 1.094

2005-06 1.56 .897

2006-07 3.11 0.942

Quick Ratio:

2004-05 ECL FFC 1.10 1.01

2005-06 1.31 0.81

2006-07 0.26 0.89

Inventory Turnover Ratio:

2004-05 ECL FFC 11.1 16.41

2005-06 9.4 16.1

2006-07 10.1 22.95

Inventory Holding Period:

2004-05 ECL 32

2005-06 38

2006-07 36

FFC

21.93

22.36

15.7

Receivables Turnover Ratio:

2004-05 ECL FFC 34.3 44.62

2005-06 30.2 25.57

2006-07 22.8 19

Average Collection Period:

2004-05 ECL FFC 11 8.1

2005-06 12 14.41

2006-07 16 18.95

2004-05 ECL FFC 1.4437 1.44

2005-06 1.5148 1.7

2006-07 1.9397 1.54

Net Fixed Assets

Total Assets Turnover:

2004-05 ECL FFC 1.30 0.833

2005-06 1.1 1.1

2006-07 1.45 0.97

Debt Ratio:

2004-05 ECL .48

2005-06 .25

2006-07 .18

FFC

0.76

0.53

0.57

Debt Equity Ratio:

2004-05 ECL FFC 1.6625 5.1316

2005-06 1.5888 4.0654

2006-07 1.5348 4.177

Times Interest Earned:

2004-05 ECL FFC 12.5 11.92

2005-06 7.18 14.94

2006-07 8.92 12.22

G.P. Margin:

2004-05 ECL FFC 14.45 34.6

2005-06 24.07 32.42

2006-07 21.22 35.6

Operating Profit Margin:

2004-05 ECL FFC 19.15 17.6

2005-06 21.63 25

2006-07 20.58 29.93

N.P. Margin:

2004-05

2005-06

2006-07

ECL FFC

12.69 16.09

14.47 15.48

13.61 18.86

Price Earning Ratio:

2004-05 ECL FFC 10.85 10.57

2005-06 11.02 11.24

2006-07 15.48 10.93

2004-05 ECL FFC 14.37 12.96

2005-06 15.47 9.39

2006-07 17.17 10.86

Earning Per Share

Conclusion So, in the light of all the details given above about the financial analysis of both the industries, i.e. debt, activity, liquidity, & profitability of Engro chemicals ltd. And Fauji fertilizer company , we come to know that in this situation of agriculture recession and down fall in the economy the ECL has performed well and it maintained its fianancial position and faced the tough competitors. Presented to: Mrs. Labiba Sheikh

Presented by: M Fahim Arshed Ammara Asghar Kanwal Munir Awais Ahmed Umer Daraz Hafiz Asad MBA2007-01 MBA2007-23 MBA2007-24 MBA2007-32 MBA2007-44 MBA2007-87

References

th edition • Gitman, J. Lawrence (2005), Managerial Finance, Addison Wesely, New York, 11 • Business Recorder, Lahore • Financial Reports, Engro Chemicals Pakistan Ltd., for years 2005, 2006 and 2007 • Financial Reports, FFC Ltd. for years 2005, 2006 and 2007 •

www.google.com

• www.ffc.com.pk • www.engrochemicals.com.pk • www.wikipedia .com

www.investopedia.com • www.parenhall.com • www.kse.com • www.lse.com