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FINANCIAL MANAGEMENT FAUJI FERTILIZER COMPANY (PVT) LTD.

ANALYSIS OF RATIOS
For the analysis of the financial statements of the Fauji Fertilizer Company private
limited we use the ratio analysis in order to get a clear vision about the financial
position with simple interpretation. For this purpose we can analysis the financial
statements through the followings ratios:
1 LIQUIDITY RATIOS
2 DEBT RATIOS
3 ACTIVITY RATIOS
4 MARKETABILITY RATIONS
5 PROFITABILITY RATIOS

LIQUIDITY RATIOS
The liquidity of a business firm is measured by its ability to satisfy its short-term
obligations as they came due. Liquidity refers to the solvency of the firm’s overall
financial position__ the ease with which it can pay its bills. Basic measures of
liquidity are:
(1) Net working capital
(2) Current ratio
(3) Quick ratio
(4) Cash ratio
By putting the values taken from the annual report of “Fauji Fertilizer
Company Limited” in the formulas of above ratios the results are shown in the
following table.
LIQUIDITY RATIOS 2002 2001
Net working capital 395860 5585658
Current ratio (times) 1.04 2.34
Quick ratio (times) 0.79 1.90
Cash ratio (% age) 6.73% 16.25%

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FINANCIAL MANAGEMENT FAUJI FERTILIZER COMPANY (PVT) LTD.

INTERPRETATION OF THE RESULTS


NET WORKING CAPITAL

Net working capital, although not actually a ratio, is commonly used to measure a
firm’s overall liquidity. This requirement is intended to force the firm to maintain
sufficient operating liquidity and helps to protect the creditor. Fauji Fertilizer
Company shows a sufficient amount of working capital in all the years of its
performance. NWC has been gradually increasing by the year 2001.But it has
decreased from 5585658 in the year 2001 to 395860 in the year 2002. This
positive NWC shows good liquidity position of the firm.

CURRENT RATIO

A current ratio of 2.0 is occasionally cited as acceptable, but a value’s


acceptability depends on the industry in which the firm operates. A current ratio of
1.0 would be considered acceptable for a utility but might be unacceptable for a
manufacturing firm. The more predictable a firm’s cash flows, the lower the
acceptable current ratio. Current ratio of the company has been successfully up till
year2001 but it is 1.04 times in the year 2002 and it is 2.34 in the year 2001.
Although there is a decrease in CR but it is still acceptable because it is more than
one.

QUICK RATIO

The quick ratio is similar to the current ratio except that it excludes
inventory, which is generally the least liquid current asset. Quick ratio is an
extended version of current ratio in which only very quick assets (which can be
quickly liquidated) are considered. A rule of thumb is that figure of
2222Hh228222€h2242he short-term liquidity position of the firm is very
healthy because of the following points:

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FINANCIAL MANAGEMENT FAUJI FERTILIZER COMPANY (PVT) LTD.

1. Current ratio of the firm is 1.08 times which shows that the firm has more
current assets as compared to the current liabilities.
2. Net Working capital of the firm is positive
3. Quick ratio of the company is .79 times which is also good.
4. Cash ratio of the company is also very good which is 6.73% of total assets

ACTIVITY RATIOS
Activity ratios are used to measure the speed with which various accounts are
converted into sales or cash. With regard to current accounts, measures of liquidity
are generally inadequate Basic measures of activity are:
(1) Inventory turnover
(2) Fixed assets turnover
(3) Total asset turnover
(4) Average age of inventory
(5) Average collection period
(6) Accounts receivable turnover
(7) Operating cycle
(8) Account payable turnover
(9) Average payment period.
Activity ratios 2002 2001
Inventory turnover 4.49 3.35
Average age of inventory 80.10 104.33
Account receivable turnover 11.98 13.61
Average collection period 30.04 26.45
A/c payable turnover 6.40 5.26
Avg.payment period 56 68
Operating cycle 92 118
Fix asset turnover 1.76 7.85
Total asset turnover .60 .86

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FINANCIAL MANAGEMENT FAUJI FERTILIZER COMPANY (PVT) LTD.

INTERPRETATION OF THE RESULTS


INVENTORY TURNOVER

Inventory turnover commonly measure the activity, or liquidity, of a firm’s


inventory. An inventory turnover of 20.0 would not be unusual for a grocery store,
whereas a common inventory turnover for a manufacturer would be 4.0. Inventory
turnover of the company is 4.49 times in the year 2002 and it has increased from
the last year figure of 3.45 times. Though there is a decrease in inventory turnover
yet it is acceptable.

TOTAL ASSETS TURNOVER

Total assets turnover indicates the efficiency with which the firm uses all its assets
to generate sales. Generally, the higher a firm’s total asset turnover, the more
efficiently its assets have been used. This measure is probably of greatest interest
to management, because it indicates whether the firm’s operations have been
financially efficient. Fauji Fertilizer Company turns its asset over in 2002 by .6
times and it was .86 times in the year 2001 This shows that the total assets
turnover has been very low. Thus it shows inefficiency of the management of the
firm to use assets to generate revenuers.

NET FIXED ASSETS TURNOVER

Net fixed assets turnover of the company is 1.76 times in the year 2002 which has
significantly decreased as compared to the last year’ s turnover of 7.85 times. This
is not a good sign for the company..

GROSS FIXED ASSETS TURNOVER

Gross fixed assets turnover of the company 0.8 times has decreased from the last
year figure of 1.02 times that is not in the favor of the company.

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FINANCIAL MANAGEMENT FAUJI FERTILIZER COMPANY (PVT) LTD.

AVERAGE AGE OF INVENTORY

Average age of inventory tells that for how many days on average the inventory is
held .The greater the number of days, the inefficient will be the management.
Average age of inventory of the company has reduced to 80 days in the year 2002
from 104 days in 2001 This shows inventory is kept for less number of days as
compared to the last year.

AVERAGE COLLECTION PERIOD

Average collection period indicates that how many days are required to collect
amount from the trade debts. The earlier the cash is received from the debtors; the
better will be for the company. Average collection period of the company has
increased to 30 days in the year 2002 from the year 2001 figure of 27 days. This
shows inefficiency in the collection of Accounts receivable

ACCOUNTS RECEIVABLE TURNOVER

Account receivable turnover indicates that how many times accounts receivable is
converted into cash a high turnover indicates the efficiency of the management.
Accounts receivable turnover has decreased to 11.98 times in 2002 from 13.61
times in the year 2001. This is not a good sign for the company.

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FINANCIAL MANAGEMENT FAUJI FERTILIZER COMPANY (PVT) LTD.

OPERATION CYCLE

Operating cycle of any company shows the number of days lapsed from the
acquisition of raw material till the receipt of cash from the sale of finished goods.
Operating cycle of the company is 92.08 days in 2002 and is 117.94 in 2001.This
is a good sign for the company.

ACCUOUTS PAYABLE TURNOVER

Accounts payable turnover indicates that how many times accounts payable
converted into cash payments. It should be maximum one. Accounts payable has
increased to 6.4 times in 2002 from 5.26 times in 2001 that is not a good sign for
the company.

AVERAGE PAYMENT PERIOD

Average payment period indicates that after how many days the payment to
creditors is made. This time period should be maximum one. Average payment
period of the company has decreased to 56 days from 68 days in 2001. This is not
good sign for the company.

DECISION
Activity ratio shows that the management of the firm is quite active in utilizing its
assets to generate sales for the business. Thus we can say that operating efficiency
of the business is very good due to the following reasons:
1. Inventory turnover of the company is good
2. Average age of inventory of the company is also acceptable
3. Accounts receivable turnover of the company has been excellent

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FINANCIAL MANAGEMENT FAUJI FERTILIZER COMPANY (PVT) LTD.

DEBT RATIOS
The debt position of a firm indicates the amount of other people’s money being
used in attempting to generate profits. In general, the financial analyst is most
concerned with long-term benefits, because these commit the firm to paying
interest over the long rum as well as eventually repaying the principally borrowed.
Because the creditors claims must be satisfied before, the distribution of earnings
to share holders. Basic measures of debt are:
(1) Debt ratio
(2) Debt-equity ratio
(3) Interest coverage ratio
(4) Fixed assets to long term debts
(5) Operating cash flow/total debts

Debt ratios 2002 2001


Debt ratio 61.79% 32%
Debt equity ratio 161.69% 47.05%
Interest coverage ratio 8.24 19.14
Fix asset to long term debts 2.24 13.64
Operating cash flow/TD 27.15% 41.09%

INTERPRETATION OF THE RESULTS


DEBT RATIO

The debt ratio measures the proportion of total assets financed by the firm’s
creditors. The higher this ratio, the greater the amount of other people’s money
being used in an attempt to generate profits. FFC’s debt ratio has increased to
61.79% in the year 2002 from 32% in the year 2001. This shows that the company
has increased its dependence on the outsider’s sources of finances. This ratio is

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FINANCIAL MANAGEMENT FAUJI FERTILIZER COMPANY (PVT) LTD.

slightly high than the acceptable limit of 60%. This shows that there is a
significant increase in the debts of the company.

DEBT EQUITY RATIO

The debt-equity ratio indicates the relationship between the long-term funds
provided by creditors and those provided by the firm’s owners. It is commonly
used to measure the degree of financial leverage of the firm. FFC’s debt equity
ratio is 161.69% in the year 2002 and has increased significantly from 47.05% in
the year 2001. This shows that debts are more as compared to shareholders equity
So this shows risk for the investors.

INTEREST COVERAGE RATIO

Interest coverage ration tells that how many times the firm is able to pay its
financial charges out of its profit .A high ratio is desirable. This ratio for the
company is 8.24 times in the year 2002 and has significantly decreased from 19.14
times in the year 2001. This shows not good sign for the company. It shows that
due to high debts financial charges of the company has increased.

FIXED ASSETS TO LONG TERM DEBT

Fixed assets of the firm are almost 2.24 times its long-term debts in the year 2002.
There is a significantly decrease 11.44 times in this ratio in this year This shows
that the firm has got more LTD in this year.

OPERATING CASH FLOW/TOTAL DEBTS

Operating cash flow of the company is 27.51% of the amount of total debts of the
company. This shows good sign for the firm. This ratio has decreased as compared
to the ratio of 41.09% in the year 2001.This shows that the firm has earned less
from its operations in this year as compared to the pervious year.

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FINANCIAL MANAGEMENT FAUJI FERTILIZER COMPANY (PVT) LTD.

Long-term solvency of the company is also very good because their profitability
ratios are very high and the firm is using debts. Interest coverage of the company
is also very good. And fixed assets to net worth is 1.74 times.

PROFITABILITY RATIOS
There are many measures of profitability. Each related the return of the firm to its
sales, assets, equity, or share value. As a group, these measures allow the analyst
to evaluate the firm’s earnings with respect to a given level of sales a certain level
of assets, the owners’ investment, or share value. With out profit, a firm could not
attract outside capital. Basic measures of profitability are:
(1) Gross profit margin
(2) Operating profit margin
(3) Net profit margin
(4) Return on shareholders investment
(5) Return on total assets
(6) Earning per share
Profitability ratios 2002 2001
Gross profit margin 39.78% 46.90%
Operating profit margin 31.09% 38.37%
Net profit margin 18.31% 26.74%
Return on total asset 10.91% 22.93%
Return on SH investment 28.56% 33.72%
Earning per share 11.98 12.49

INTERPRETATION OF THE RESULTS


GROSS PROFIT MARGIN

The gross profit margin measures the percentage of each sales dollar remaining
after the firm has paid for its goods. The higher the gross profit margin, the better
and the lower the relative cost of merchandise sold. Gross profit margin of the

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FINANCIAL MANAGEMENT FAUJI FERTILIZER COMPANY (PVT) LTD.

company has decreased in the year 2002 as compared to last year, which has gross
profit margin of 47%. This decrease is due to increased cost of goods sold.

OPERATING PROFIT MARGIN

The operating profit margin measures the percentage of each sales dollar
remaining after all costs and expenses other than interest and taxes are deducted. It
represents the pure profits earned on each sales dollar. A high operating profit
margin is preferred. Operating profit margin of the company has decreased to
31.09% in 2002 as compared to the year 2001(38.37%).
This has increased due to increased selling and administrative expenses.

NET PROFIT MARGIN

The net profit margin measures the percentage of each sales dollar remaining after
all costs and expenses, including interest and taxes, have been deducted. The
higher the firm’s net profit margin, the better. The net profit margin is commonly
cited measure of the firm’s success with respect to earnings. Net profit margin of
the company has decreased to 18.31% in the year 2002 against 26.74% in the year
2001. This has just reduced due to the industry crisis.

RETURN ON SHAREHOLDERS INVESTMENT

Return on shareholders investment (ROI) measures the overall effectiveness of


management in generating profits with its available assets. The higher the firm’s
return on investment, the better. For the year 2002 it is 28.56%, which is less than
that of 2001(33.72%). So it is not a good sign for the company.

RETURN ON TOTAL ASSETS

Return on Total asset of the company has decreased to 10.91% in the year 2002 from
22.93% in the year 2001. It shows inefficiency of the company management to generate
profit on the total assets.

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FINANCIAL MANAGEMENT FAUJI FERTILIZER COMPANY (PVT) LTD.

EARNING PER SHARE

The firm’s earnings per share (EPS) are generally of interest to present or
prospective stockholders and management. The earnings per share represent the
number of dollars earned on behalf of each outstanding share of common stock.
They are closely watched by the investing public and considered am important
indicator of corporate success. Earning per share of the company has decreased to
11.98 per share in the year 2002 against 12.49 per share in the year 2001. This is
just because of industry crisis.

DECISION
Profitability position of the firm is very good though it has decreased yet it is very
good due to the following points:
1. Gross profit of the company is very good which is 32.59%
2. Operating profit of the company is also good which is 22.04%
3. Net profit, Return on investment, Return on total assets, all are very good
and are 10.40%, 21.26%, 7.93% respectively.

MARKETABILITY RATIOS
Equity investor is more interested in the dividends of the company. It is also
concerned about the profitability positing of the firm. For the purpose of equity
investor we calculated the following ratios:
1. Dividend per share
2. Dividend payout ratio
3. Dividend yield ratio
4. Book value per share
5. Price earning ratio
6. %age of earnings retained
7. Degree of financial leverage

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FINANCIAL MANAGEMENT FAUJI FERTILIZER COMPANY (PVT) LTD.

Marketable ratios 2002 2001


Dividend per share 9.00 8.50
Dividend payout ratio 75.11% 68.05%
Dividend yield ratio 11.25% 10.63%
Price earning ratio 6.68$ 6.41$
Degree of financial ratio 1.14 1.00
%Age of earnings retained 24.89% 31.95%
Book value per share 41.96 37.04

INTERPRETATION OF THE RESULTS


DIVIDEND PER SHARE

Dividend per share of the company of the company is 9 per share in the year 2002
and it was 8.5 in the year 2001. Company has increased its dividend to a little bit
extent. Dividend per share of 9 is ideally good.

DIVIDEND PAYOUT RATIO

Company is giving maximum dividend to its shareholders. This ratio has increased
to 75.11% in the year 2002 from 68.05% in 2001. It is a good thing for the equity
y investor because he is interested in dividend.

DIVIDEND YIELD RATIO

Dividend yield ratio the company is 10.59% in the year 2002 and last year this
ratio was 10%. For those investors who want to earn current profit ,for them this
ratio is good but for those investors who want to earn capital gain low dividend
yield ratio is acceptable.

%AGE OF EARNING RETAINED

Company‘s %age of earnings retained are just 31.95% and 24.89 % in both the
current years of 2001 and 2002 respectively. This shows more attractiveness for
the equity investor. There is a decreased in this ratio due to the more distribution
of the dividend as compared to the last year.

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FINANCIAL MANAGEMENT FAUJI FERTILIZER COMPANY (PVT) LTD.

OPERATING CASH FLOW/CASH DIVIDEND

Operating cash flow to cash dividend compares operations cash flow to cash
dividend paid by the firm. A high ratio is desirable .The company is generating
sufficient cash from its operations to declare cash divided This ratio has improved
to 2.17 times in the year 2002 against the last year figure of .76 times. It shows
that the firm has sufficient cash available for the distribution of dividend.

PRICE EARNING RATIO

The stocks of the company are being traded 7.1 times its earnings. This shows
investor’s confidence on the firm’s ability to generate earnings and growth
opportunities for the firm. Price earning ratio of 7.1 times shows that to earn one
rupees the investor is willing to invest 7.1 rupees in business.

DEGREE OF FINANCIAL LEVERAGE

Degree of financial leverage is defined as the percentage change in EBIT over


percentage change in EBT. This leverage results from the presence of fixed cost
within the expenses of the firm. Degree of financial leverage of the firm is 1.14
times and it has increased from 1.06 times in year 2001.This shows that if EBIT
increase by 100% EBT will increased by 106%.

BOOK VALUE PER SHARE

Book value per share is good one if it is below the market price of its shares. Book
value per share of the company is 41.96 per share, which shows investor’s
confidence on the firm’s ability to generate profits.

DECISION
From the point of view of equity investor the firm is very much attractive because
of the following s points:

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FINANCIAL MANAGEMENT FAUJI FERTILIZER COMPANY (PVT) LTD.

1. Dividend per share of the company is 9 per share, which is very much
attractive for the investor.
2. Dividend payout ratio of the company is also very high i.e. 75% of the
earning per share
3. Earring per share of the company is also very high whichsi11.98 per share.
4. operating cash flow /cash dividend of the firm is 2.17 times of the cash
dividend.

CONCLUSION
From our analysis we might conclude that the liquidity position of the firm is
good, operating performance is also well as compared to the past year. The firm is
operating in a good manner, but from the last year the firm has obtained loans
from the outside sources. As the firm is a levered firm so this debt will increase the
profits of the firm very much.

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FINANCIAL MANAGEMENT FAUJI FERTILIZER COMPANY (PVT) LTD.

Common Statement Analysis


(Vertical Analysis)
INCOME STATEMENT
FAUJI FERTILIZER COMPANY LIMITED
For the year ended December 31,2002.
Description /Items Year 2002 % Age Year 2001 %Age
Sales 16786699 100% 11982414 100%
-CGS 10109117 60.22% 6362616 53.10%
Gross profit 6677582 39.78% 5619798 46.90%
- Selling & Dist.Exp 1457797 8.68% 1022139 8.53%
Operating Profit 5219785 31.09% 4597659 38.37%
+ Other incomes 783922 4.67% 1061844 8.86%
- Other charges 496073 2.96% 390520 3.26%
Profit before I. & T 5507634 32.81% 5268983 43.97%
- Financial charges 668213 3.98% 275271 2.3%
Profit before Tax 4839421 28.83% 4993712 41.68%
Taxation 1766000 10.52% 1790000 14.94%
Profit after Tax 3073421 18.31% 3203712 26.74%

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FINANCIAL MANAGEMENT FAUJI FERTILIZER COMPANY (PVT) LTD.

Common Statement Analysis


(Horizontal Analysis)
INCOME STATEMENT
FAUJI FERTILIZER COMPANY LIMITED
For the year ended December 31,2002.

Description /Items Year 2002 % Age Year 2001 %Age


Sales 16786699 140% 11982414 100%
-CGS 10109117 158.88% 6362616 100%
Gross profit 6677582 118.82% 5619798 100%
- Selling & Dist.Exp 1457797 142.62% 1022139 100%
Operating Profit 5219785 113.53% 4597659 100%
+ Other incomes 783922 73.82% 1061844 100%
- Other charges 496073 127.02% 390520 100%
Profit before I. & T 5507634 104.52% 5268983 100%
- Financial charges 668213 242.74% 275271 100%
Profit before Tax 4839421 96.91% 4993712 100%
Taxation 1766000 98.66% 1790000 100%
Profit after Tax 3073421 95.93% 3203712 100%

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FINANCIAL MANAGEMENT FAUJI FERTILIZER COMPANY (PVT) LTD.

Common Statement Analysis


(Vertical Analysis)
BALANCE SHEET
FAUJI FERTILIZER COMPANY LIMITED
For the year ended December 31,2002.

Asset side

Index analysis 2002 %Age 2001 %Age


Tangible fix assets
Operating fix assets 9378161 33.30% 1511310 10.82%
Capital work in process 138313 00.49% 15917 00.11%
Total tangible fix assets 9516474 33.79% 1527227 10.93%
Goodwill 1987694 0
Long term investment 7077892 25.13% 2491364 17.83%
Ltd prepayments & def.cost 128495 00.18% 161881 00.32%
Lt advances and loan 50137 00.46% 45369 01.16%
Total fix assets 18760622 66.61% 4225841 30.24%
Current assets
Stores and spares 1618373 05.75% 1229557 08.80%
Stock in trade 630808 02.24% 614327 04.40%
Trade debts 1400893 04.97% 880298 06.30%
Loans and adv.pre payments 1068419 03.79% 1025100 07.34%
Short term investments 2792279 09.91% 3726744 26.67%
Cash and bank balances 1894680 06.73% 2270358 16.25%
Total current assets 9405452 33.39% 9746384 69.76%
Total assets 28166144 100.0% 13972225 100.0%

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FINANCIAL MANAGEMENT FAUJI FERTILIZER COMPANY (PVT) LTD.

Common Statement Analysis


(Vertical Analysis)
BALANCE SHEET
FAUJI FERTILIZER COMPANY LIMITED
For the year ended December 31,2002.

LIABILITY SIDE

Index analysis 2002 %Age 2001 %Age


Authorized capital 3000000 106.51% 3000000 214.71%
Issued, subscribed and paid up 2564959 9.11% 2564959 18.36%
Capital reserve 160000 0.57% 160000 1.15%
Revenue reserve 8038098 28.54% 6776673 48.50%
Total stock holder equity 10763057 38.21% 9501632 68.00%
Long term liabilities
Redeemable capital 4420014 15.69% 0 0.00%
Long term loans 1283481 5.56% 223867 1.60%
Deferred taxation 2690000 9.55% 86000 0.62%
Total long term liabilities 8393495 29.80% 309867 2.22%
Current liabilities
Current maturities of redem.cap 379946 1.35% 0 0.00%
Current maturities of l.t loans 538045 1.91% 503151 3.66%
Short term running finance 3388897 12.03% 800000 5.73%
Creditors, accured. & Other liab. 2829008 10.04% 1561004 11.17%
Taxation 975960 3.47% 527083 3.77%
Dividend payable 641240 2.28% 512992 3.67%
Proposed dividend 256496 0.91% 256496 1.84%
Total current liabilities 9009592 31.99% 4160726 29.78%
Total liabilities and SHE 28166144 100% 13972225 100%

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FINANCIAL MANAGEMENT FAUJI FERTILIZER COMPANY (PVT) LTD.

Common Statement Analysis


(Horizontal Analysis)
BALANCE SHEET
FAUJI FERTILIZER COMPANY LIMITED
For the year ended December 31,2002.
ASSET SIDE

Index analysis 2002 %Age 2001 %Age


Tangible fix assets 100.0%
Operating fix assets 9378161 620.53% 1511310 100.0%
Capital work in process 138313 868% 15917 100.0%
Total tangible fix assets 9516474 623% 1527227 100.0%
Goodwill 1987694 0 100.0%
Long term investment 7077892 284% 2491364 100.0%
Ltd prepayments & def.cost 128495 79.37% 161881 100.0%
Lt advances and loan 50137 110.50% 45369 100.0%
Total fix assets 18760622 444% 4225841 100.0%
Current assets 100.0%
Stores and spares 1618373 131.62% 1229557 100.0%
Stock in trade 630808 122.64% 614327 100.0%
Trade debts 1400893 159% 880298 100.0%
Loans and adv.pre payments 1068419 104.22% 1025100 100.0%
Short term investments 2792279 75% 3726744 100.0%
Cash and bank balances 1894680 83.45% 2270358 100.0%
Total current assets 9405452 96.50% 9746384 100.0%
Total assets 28166144 201.58% 13972225 100.0%

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FINANCIAL MANAGEMENT FAUJI FERTILIZER COMPANY (PVT) LTD.

Common Statement Analysis


(Horizontal Analysis)
BALANCE SHEET
FAUJI FERTILIZER COMPANY LIMITED
For the year ended December 31,2002.

LIABILITY SIDE

INDEX ANALYSIS 2002 %AGE 2001 %AGE


Authorized capital 3000000 100% 3000000 100.0%
Issued,subscribed and paid up 2564959 100% 2564959 100.0%
Capital reserve 160000 100% 160000 100.0%
Revenue reserve 8038098 118.61% 6776673 100.0%
Total stock holder equity 10763057 113.27% 9501632 100.0%
Long term liabilities
Redeemable capital 4420014 0 100.0%
Long term loans 1283481 573.32% 223867 100.0%
Deferred taxation 2690000 312.79% 86000 100.0%
Total long term liabilities 8393495 2708% 309867 100.0%
Current liabilities
Current maturities of redem.cap 379946 0 100.0%
Current maturities of l.t loans 538045 106.93% 503151 100.0%
Short term running finance 3388897 424% 800000 100.0%
Creditors, accured. & Other liab. 2829008 187.34% 1561004 100.0%
Taxation 975960 185.16% 527083 100.0%
Dividend payable 641240 125% 512992 100.0%
Proposed dividend 256496 100% 256496 100.0%
Total current liabilities 9009592 216.53% 4160726 100.0%
Total liabilities and SHE 28166144 201.58% 13972225 100.0%

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FINANCIAL MANAGEMENT FAUJI FERTILIZER COMPANY (PVT) LTD.

FORMULAS OF RATIOS:
RATIO ANALYSIS:
Basically ratio analysis is the instruments used for evaluating and interpreting the
financial health/position of the company. Ratio analysis allows present and
prospective investor and lender along with the firm’s management to evaluate the
firm’s financial position or performance.

LIQUIDITY RATIOS:
Liquidity ratio’s refers the ability of firm to pay its short-term obligation on time.

Current ratio

Current assets
Current ratio = ------------------------
Current liabilities

Shrinkage Of Current Assets:


Current liabilities
Shrinkage Of Current Assets = 1- --------------------------- x 100
Current assets

Quick Ratio:
Current assets- inventories
Quick ratio= ---------------------------------
Current liabilities

Cash Ratio:
Cash + Marketable Securities (M/S)
Cash ratio = -------------------------------------------------- x 100
Total assets

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FINANCIAL MANAGEMENT FAUJI FERTILIZER COMPANY (PVT) LTD.

Net Working Capital:


N.W.C = Current Assets – Current liabilities.

Working Capital Ratio:


Net working capital
Working Capital Ratio= --------------------------- x 100
Sale

Working capital to total assets:


NWC
Working capital to total assets = ----------------- x 100
Total Assets

Activity Ratio
Basically used to measured stream with which current account convert into cash/sale.
That how productivity management is utilizing the assets of business to generate the
desired rate.

Inventory Turnover:
Cost of good sold
Inventory turnover = -----------------------
Ending stock

Average age of inventory:


No working days
Average age of inventory = --------------------------
Inventory turnover

Average Collection Period:


Total credit sale
Average credit sale per day = ------------------------------------
360

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FINANCIAL MANAGEMENT FAUJI FERTILIZER COMPANY (PVT) LTD.

Account receivable
Average collection period = ------------------------------------
Average credit sale per day

Account Receivable Turnover:

No of working days
A.R.T.O = ---------------------------
ACP

Average payment period

Accounts payable
APP = --------------------------------------------
Average credit purchase per day

Accounts payable
APP = --------------------------------------------
Average credit purchase per day

Accounts Payable Turnover:

No of working days
Account Payable Turnover = ----------------------------
APP

Operating Cycle:

Operating Cycle = Average Age Of Inventory + Average Collection Period


OC = AAI + ACP

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FINANCIAL MANAGEMENT FAUJI FERTILIZER COMPANY (PVT) LTD.

Cash Conversion cycle:


C.C.C = AAI + ACP – AAP
OR
C.C.C = O.C – AAP
EFFICIENCY OF THE FIRM
Net sale
Fixed Assets Turnover = ---------------------
Net fixed Assets

Total Asset Turn Over:

Net sale
TA.T.O= -------------------
Total assets

Debt Ratio’s
Debt ratios for the sake of two purposes
 Measure the degree of indebt ness (how much we are in lose).
 Ability to pay the debts (to check that the company will pay the interest or lease
payment on time or not)

Debt Ratio:
Total debt
Debt ratio = --------------- x 100
Total assets

Debt Equity Ratio:


Total debt
D.E.R = ---------------------------x 100
Stockholder equity

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FINANCIAL MANAGEMENT FAUJI FERTILIZER COMPANY (PVT) LTD.

Time Interest Ratio


Earning before interest taxation
T.I.R = -------------------------------------------
Interest

Profitability Ratio:
With the help of this ratio’s the analyst can evaluate the firm earning with respect to
given level of sale at certain level of assets, the owner’s investment or share value.

Gross Profit Ratio


G.P
Gross Profit Margin = ---------- x 100
Sale

Operating Profit Margin:


O.P
O.P. margin = ----------- x 100
Net sale

Net Profit Margin


Net profit after taxation
N.P margin = ------------------------------------ x 100
Sales

Return On Assets
N.P.A.T
R.O.A = -----------------
Total Assets

Return On Equity:
N.P.A.T
R.O.E =------------ x 100
S.H.E

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FINANCIAL MANAGEMENT FAUJI FERTILIZER COMPANY (PVT) LTD.

Marketability Ratio’s :
These ratios refer to the market value of company’s stock towards profitability.

Earning per share :


N.P.A.T- dividend to P.S.H
EPS = --------------------------------------------- x 100
No of shares of common stock

Book value per share:


Assets – Liabilities
B.V = ------------------------------
Outstanding stock

Dividend Per Share :


Dividend
Dividend per share = -----------------------------------
Outstanding common stock

Dividend Pay Out Ratio:


Dividend per share
Dividend pay out ratio = --------------------------- x 100
Earning per share

Market to Book Ratio :


Market price of stock
M.B.R = -------------------------------
B .V per share

Dividend yield:
Dividend per share
Dividend yield = ------------------------------- x 100
Market price of share

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