SUBMITTED TO: ABDUL SAMAD

GROUP MEMBERS:
1. Osama Farooq Rasheed
2. Muhammad Musab Rasheed Khan
3. Umer Ali Khan
RATIO ANALYSIS:
Ratio analysis is a quantitative method of gaining insight into a company's liquidity, operational
efficiency, and profitability by studying its financial statements such as the balance sheet and
income statement.

PROFITABILITY RATIOS:
A profitability ratio is a measure of profitability, which is a way to measure a company's
performance. Profitability is simply the capacity to make a profit, and a profit is what is left over
from income earned after you have deducted all costs and expenses related to earning the
income.

1. Gross Profit Rate:

Gross margin measures a company's manufacturing and distribution efficiency during the
production process, how efficiently a company uses its resources, materials, and labor.
Gross profit rate = Gross profit/Net sales * 100
Year Gross Profit Revenue Ratio
2018 51,108,472 171,568,238 29.78

2019 68,686,088 225,919,576 30.4

INTERPRETATION: The gross profit ratio increased by 0.62% in 2019. This is mainly because
of increasing revenue by 54,351,338. Generally, the higher the gross profit margin the better.
The higher gross profit means that the company did very well in managing their revenue. They
have more money to cover their operating, financing, and other costs. The gross profit margin
would be relatively stable if there is a change in there model.

2. Net Profit Ratio/Operating profit ratio:

The profit margin is a ratio of a company's profit (sales minus all expenses) divided by its
revenue. The profit margin ratio compares profit to sales and tells you how well the company is
handling its finances overall. It's always expressed as a percentage.
Net profit margin= Net Profit/ Revenue *100
 Year Net Profit Revenue Ratio

2018 23,631,733 171,568,238 13.77%

2019 30,288,091 225,919,576 13.4%

INTERPRETATION: There has been a slight decrease in net profit ratio by 0.37% in 2019. This
is mainly because of the increase in net profit by 6,656,358 rupees.

3. Return on equity:
It reveals how much profit a company earned in comparison to the total amount of shareholder
equity found on the balance sheet. It measures how profitable a company is for the owner of the
investment, and how profitably a company employs its equity.
Rate of return on Equity = Net Income/Shareholder’s Equity
Year Ratio

2018 9%

2019 12%

INTERPRETATION:

4. Return on capital employed:

A measurement of financial performance of a company's operating division that is not
responsible for its financing and income taxes. The calculation is likely to be 1) the division's
operating income before interest and income taxes divided by 2) the division's assets employed.

Year Ratio
 2018 10%

2019 13%

INTERPRETATION:

Liquidity Ratio:
1. Current Ratio:
The current ratio is a liquidity ratio that measures whether a firm has enough resources to meet
its short-term obligations. It compares a firm's current assets to its current liabilities, and is
expressed as follows: The current ratio is an indication of a firm's liquidity.

Year Ratio

2018 2.26

2019 1.59

INTERPRETATION:
In 2018, the ratio was 2.26, which is considered to be very good for the business. However, there
was a drastic decrease in 2019, which means that the liabilities of the company increased by a
large amount. As it is above the ratio of 1, this means that the company has adequate assets to
balance out the current liabilities.

2. Quick Ratio:
The quick ratio is a financial ratio used to gauge a company's liquidity. The quick ratio is also
known as the acid test ratio. The quick ratio compares the total amount of cash and cash
equivalents + marketable securities + accounts receivable to the amount of current liabilities.
Year Ratio

2018 2.00
 2019 1.43

INTERPRETATION: A quick ratio that is greater than one means that the company has enough
quick assets to overcome the liability. Quick assets are current assets that can be easily converted
into cash. In 2018, the quick ratio was 2.00, which decreased in 2019 by 0.57, this is due to the
liability increasing.

Solvency Ratio:
1. Debt Equity Ratio:
The ratio of total liabilities to stockholders' equity. The higher the proportion of debt to equity,
the more risky the company appears to be. An indicator of the amount of financial leverage at a
company. It indicates the proportion of the company's assets provided by creditors versus
owners.
Year Ratio

2018 0.71

2019 0.81

INTERPRETATION: As the debt equity ratio is less than 1 in both years, we can say that the
company has less leverage and lower risk of bankruptcy.

2. Interest Coverage Ratio:

The interest coverage ratio is a financial ratio used to measure a company's ability to pay the
interest on its debt. (The required principal payments are not included in the calculation.) The
interest coverage ratio is also known as the times interest earned ratio.
Year Ratio

2018 7.66
2019 4.12
INTERPRETATION: In 2018, the company had a higher ratio which meant that it is more than
capable of sufficiency even after paying the interest. In 2019, although the ratio went down but it
is still more than capable. Organization has high interest coverage rate.

Earnings Ratio:
1. Price Earnings Ratio: The price-earnings ratio, also known as P/E ratio, P/E, or PER, is
the ratio of a company's share price to the company's earnings per share. The ratio is used for
valuing companies and to find out whether they are overvalued or undervalued.
Year Ratio

2018 13.20

2019 12.03

INTERPRETATION: Both years have high P/E ratio which makes it more reliable for the
investors. This indicates positive response from organization. In 2019, there is a decrease of
price earnings ratio by 1.17.

2. Earnings per share: The earnings per share ratio, or simply earnings per share, or EPS, is
a corporation's net income after tax that is available to its common stockholders divided by the
weighted average number of shares of common stock that are outstanding during the period of
the earnings.
Year Ratio

2018 22.06

2019 28.69

Balance Sheet Analysis

Assets
These are stated at historical cost less accumulated depreciation and impairment losses, if any,
except capital work-in-progress which is stated at cost less impairment losses, if any. Historical
cost includes expenditure that is directly attributable to the acquisition of the items including
borrowing costs (note 2.18). The cost of self-constructed assets includes the cost of materials and
direct labour, any other costs directly attributable to bringing the asset to a working condition for
its intended use, and the costs of dismantling and removing the items and restoring the site on
which they are located. Purchased software that is integral to the functionality of the related
equipment is capitalized as part of that equipment. The Company had recognised an internally
generated intangible asset of Rs. 177,274 in prior years in respect of cost incurred in
development of digital software and other solutions. This amount has been written-off during the
year as the management does not foresee that this asset will result in inflow of future economic
benefits to the Company.
The carrying amounts of non-financial assets are assessed at each reporting date to ascertain
whether there is any indication of impairment. If such an indication exists, the asset’s
recoverable amount is estimated to determine the extent of impairment loss, if any. An
impairment loss is recognized as an expense in the profit or loss. The recoverable amount is the
higher of an asset’s fair value less cost of disposal and value-in-use. Value-in-use is ascertained
through discounting of the estimated future cash flows using a discount rate that reflects current
market assessments of the time value of money and the risk specific to the assets. For the
purpose of assessing impairment, assets are grouped at the lowest levels for which there are
separately identifiable cash flows (cash-generating units).
During the year, the Company has made investment in Engro Infiniti (Private) Limited, a wholly
owned subsidiary, through subscription of 18,460,000 ordinary shares of Rs.10 each at par.
Further, during the year, Engro Infiniti (Private) Limited has issued 40,000,000 shares of Rs.10
each in respect of the advance against subscription of shares paid by the Company for
investments made during the year ended December 31, 2018.
During the year, the shareholders of the Company in its Extraordinary General Meeting held on
May 28, 2019, authorised the Company to acquire 100% of the issued and paid-up share capital
of Engro Eximp FZE (UAE) from Engro Fertilizers Limited, a subsidiary Company, against an
amount of Rs. 1,757,280 (subject to adjustments at the date of closing of the transaction). On
July 17, 2019, the Company acquired Engro Eximp FZE for a consideration of Rs. 1,972,505.
Provision for the year amounting to Rs. 372,175 represents impairment recognised in
Company’s investment in Engro Infiniti (Private) Limited (EInfiniti). This is primarily due to
loss recognised by EInfiniti’s subsidiary company Engro Digital Limited (E-Digital) on its
internally generated intangible relating to development of digital and other related solution /
products for various industries resulting in decline in net assets value of E-Digital.
Investment in subsidiary, associates and joint venture companies are initially recognized at cost.
At subsequent reporting dates, the recoverable amounts are estimated to determine the extent of
impairment losses, if any, and carrying amounts of investments are adjusted accordingly.
Impairment losses are recognized as an expense. Where impairment losses subsequently reverse,
the carrying amounts of the investments are increased to the revised recoverable amounts but
limited to the extent of initial cost of investments. A reversal of impairment loss is recognized in
the profit or loss. Represents subordinated loan availed during the year by Engro Energy
Limited, a subsidiary company, pursuant to agreement entered into on December 28, 2018. The
total facility available under this agreement amounts to USD 21,400 (PKR equivalent). The loan
carries mark-up at the rate of 6 months KIBOR plus 2.00% per annum payable on quarterly
basis. The loan is repayable on December 28, 2023. 9.3 The maximum amount outstanding at the
end of any month during the year ended December 31, 2019 from executives aggregated to Rs.
111,172 (2018: Rs. 93,588).
Trade and other payables are recognized initially at fair value and subsequently measured at
amortized cost using the effective interest method. These are classified as current liabilities if
payment is due within one year or less or in the normal operating cycle of the business, if longer.
If not, they are presented as non-current liabilities. These carry return ranging from 8.0% to
11.25% (2018: 5.0% to 8.0%) per annum. These are shariah compliant bank balances and carry
profit at rates ranging from 6.0% to 8.5% (2018: 4.5% to 6.0%) per annum.

Equity
Ordinary shares are classified as equity and recognized at their face value. Incremental costs
directly attributable to the issue of new shares or options are shown in equity as a deduction, net
of tax, from the proceeds. During the year, the Company increased its authorized share capital
from Rs. 5,500,000 to Rs. 7,000,000. During the year, the Company issued bonus shares in the
ratio of 1 share for every 10 shares held. Accordingly, 52,378,476 shares were issued. As at
December 31, 2019, Dawood Hercules Corporation Limited and associated companies held
214,469,810 and 39,438,015 (2018: 194,972,555 and 33,825,286) ordinary shares in the
Company, respectively.

Liabilities
Deferred tax is recognized using the liability method, on all temporary differences arising at the
reporting date between the tax base of assets and liabilities and their carrying amounts for
financial reporting purposes. Deferred tax liabilities are recognized for all taxable temporary
differences. Deferred tax assets are recognized for all deductible temporary difference
recognized to the extent it is probable that future taxable profits will be available against which
the assets may be utilized. Deferred tax assets are reviewed at each reporting date and are
reduced to the extent that it is no longer probable that the related tax benefit will be realized.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the
period when the asset is realized or the liability is settled, based on the tax rates and tax laws that
have been enacted or substantively enacted at the reporting date.
The Company faces the following risks on account of its gratuity plan:
Final salary risk - The risk that the final salary at the time of cessation of service is greater than
what the Company has assumed.
Since the benefit is calculated on the final salary, the benefit amount would also increase
proportionately.
Asset volatility - Most assets are invested in risk free investments of 3, 5 or 10 year Special
Savings Certificates, Regular Income Certificates, Defence Savings Certificates or Government
Bonds. However, investments in equity instruments is subject to adverse fluctuations as a result
of change in the market price.
Discount rate fluctuation - The plan liabilities are calculated using a discount rate set with
reference to corporate bond yields. A decrease in corporate bond yields will increase plan
liabilities, although this will be partially offset by an increase in the value of the current plans’
bond holdings.
Investment risks - The risk of the investment underperforming and not being sufficient to meet
the liabilities. This risk is mitigated by closely monitoring the performance of investment.
Risk of insufficiency of assets - This is managed by making regular contribution to the Fund as
advised by the actuary. In addition to above, the gratuity plan exposes the Company to longevity
risk i.e. the members survive longer than the expectation used in determining the obligation.
Trade and other payables are recognized initially at fair value and subsequently measured at
amortized cost using the effective interest method. Includes liability towards defined benefit
gratuity fund amounting to Rs. 43,406 (2018: Rs. 22,952).

Dividend and appropriation to reserves are recognized in the financial statements in the period in
which these are approved. Includes unclaimed dividend amounting to Rs. 215,179 (2018: Rs.
157,589) outstanding for more than 3 years from the date of declaration. Such unclaimed
dividend is payable to the Federal Government as per the Act, subject to fulfilment / clarification
on certain pre-conditions specified in the Act.

Future Business Outlook

Investing today for a better tomorrow for Pakistan is at the cornerstone of every Engro business.
Engro Corporation is well placed to make a major contribution in helping solve some of the the
country’s pressing issues and improves the lives of the people of Pakistan. Keeping value
creation for stakeholders at the forefront, we have developed Pakistan’s largest hydrocarbon
reserves – Thar Coal, through an integrated mining and power generation plant, in partnership
with the Government of Sindh. We have built the first LNG terminal of Pakistan in the shortest
possible time which is playing its crucial role in reducing the energy shortage of the country. We
continue to grow our presence in the agri/food vertical by providing significant farm input and
procuring farm produce. We look forward to developing our four verticals and explore new
avenues of growth to create long-term shareholder value.