National University of Computer and Emerging Sciences, Lahore Campus

MG228 – BUSINESS FINANCE PROJECT REPORT (SPRING 2021)

Dawood Hercules Corporation

Submitted to:
Sir Muzammil Iqbal

Submitted by:
Ahsan Imran
BBA – 4A

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Executive Summary
We wanted to observe companies’ performance of same sector based on various financial
ratios over the past five years. In order to observe the performance, we chose Dawood
Hercules, Fatima fertilizers, Fauji fertilizer, and Engro corporation and calculated the ratios
with the help of financial reports from 2016 to 2019. Based on the calculations, a detailed
analysis about companies’ performance is presented in this report.

Introduction

Financial ratios are created with the use of figures taken form financial statement of a
company and these ratios are used to gain information about the company’s performance over
the year. Those figures can be found from balance sheet, income statement and cash slow
statement of the company. Also, these ratios help the managers to make comparative
judgements regarding their company’s performance. By comparing the ratios of the company
to that of its competitors or the industry average, one manager can note if their company is at
better edge or not. These ratios are not only used by the managers but financial analysts,
investors, competitors, and tax authorities. Ratio analysis can show how a company is
performing over the time period, by comparing ratios with the industrial average (same
sector) or its competing firms.

This report is based on performance level of four different companies of same sector
(Fertilizer Industry). The performance level of each company is observed by the analysis of
their financial ratios of last three years (2017 to 2019). Annual reports of the companies
starting from the financial year 2016 to 2019 were taken and figures for each year were
drawn for the ratio analysis. To observe the performance level of both companies’ important
ratios like Liquidity Ratios, Debt Management Ratios, Asset Management Ratios,
Profitability Ratios and Market Value Ratios were calculated.

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Company Overview

Dawood Hercules Corporation Limited (DH Corp) is a publicly listed company, and is the
investment holding platform for the Dawood Hercules Group; a business family with an
entrepreneurial history spanning over a century. DH Corp deploys and manages investments
across a diverse range of sectors, including in its subsidiaries and associated companies. Our
subsidiary, Engro Corporation Limited, is one of the largest industrial conglomerates in
Pakistan, and has leveraged joint ventures to scale up businesses and enhance capabilities for
handling complex greenfield projects. Apart from the capital deployed in our subsidiaries,
we actively invest in local public equities and money markets and are currently evaluating
investment opportunities in the private space. Stewarded by Mr. Hussain Dawood since
2002, the Group has deployed over $7bn expanding into energy & related infrastructure,
foods & agriculture, petrochemicals, chemical storage & handling, renewables, industrial IoT
and digital solutions. Family members drive group vision and corporate governance;
Sons, Shahzada Dawood and Abdul Samad Dawood serve in leadership roles on the boards
of the public listed concerns; Daughter Sabrina Dawood develops social impact initiatives for
the family’s trust. We believe in the global exchange of ideas aspiring to learn and extend
knowledge to map a future for generations. As a responsible concern, we endeavor to
consistently take care of our people with humility that is integral to our spirit and strive to
make our environment better by investing in ideas for transformation. This, we believe, is
what drives us to prosperity.

Industry Overview
The fertilizer industry of Pakistan has enormous potential and is well on its way to becoming
one of the biggest fertilizer exporters in the region in the coming years. Factors that are

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directly contributing to these forecasts are the recent issuance of LNG regasification licenses
and the establishment of new fertilizer plants by prominent organizations within the country.

Being primarily an agrarian state, Pakistan's growth is heavily dependent on the fertilizer
industry. According to reports, Pakistan's fertilizer demand has always remained higher than
its supply. However, with the advancement of technology and increased number of players in
the industry, production capacity has increased to over 6 million tons per year, which has
consistently been surpassing the national demand over the last few years. Furthermore, the
consumption of fertilizer has increased manifold due to heightened awareness among farmers
that its usage in good quantity is fruitful for higher yields and a significant increase in their
income as the commodity is provided them on subsidized rates. Currently, in Pakistan, there
are six major producers of fertilizers which include Fauji Fertilizer, Engro Fertilizer
Company, Dawood Hercules, and Fatima Fertilizers. In order to compare the companies, we
added the financials of all the companies from 2016 to 2019. Thus, after adding all of the
companies’ financials we were able to get the financial statements of the whole industry. The
point to be noted here is that we only added the financials of the companies we were assigned
as these companies dominate over all the fertilizer industry.

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Company and its position within the Industry

Liquidity Ratios Analysis (Company vs Industry)

Current Ratio
Current ratio is a liquidity ratio which is used to measure whether a company can pay
its short-term debts (current liabilities) within a year. Now looking between both the
companies for the fiscal years 2017 to 2019 we can say that Dawood Hercules
current ratio values are much higher as compared to the industry. This means
Dawood Hercules had been performing greatly, even better than industry. However,
since both the company and industry’s values are above 1, we can say that both are
performing at a good level. Thus, they have enough current assets to pay off their
current liabilities

Liquidity Ratio

Quick ratio or Acid Test ratio is used to measure whether a company can pay its
short-term debts within a year with its liquid assets. Now comparing the ratio for the
fiscal years 2017 to 2019 we can see that Dawood Hercules quick ratio values are
much higher as compared to the industry. From the ratio values, we can also
conclude that both the industry and the company had a very good financial position
because in all of the years the quick ratio value was greater than 1. This means that
both the company and industry has enough liquid assets to help them pay off their
current liabilities. Although, the industry ratio values are lower than the company, we
can still say that the industry is managing their cash and liquid assets in a profitable
way.

Asset Management Ratio (Company vs Industry)

Fixed Asset Turnover

Fixed asset turnover is an asset management ratio which is used to measure the
company’s operating performance in which we tend to analyze a company’s net
sales from its fixed assets. Now a good asset turnover depends on industry to

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industry but comparing from the table above we can see that Dawood Hercules ratio
value was fairly above the industry’s performance indicating better management of
assets. Moreover, we see Dawood Hercules was fairly better than the industry in
terms of asset management as over the years (2017 to 2019), Dawood Hercules had
performed better asset management (1.26 to 1.04) however, it was still very close to
the industry’s performance. Nevertheless, if the ratio value had fallen below 1 over
the years this would have indicated poor performance and overall loses.

Total Asset Turnover

Total asset turnover is another asset management ratio used to check whether the
company is generating good amount of revenues from all its assets. Now in terms of
comparison we can see that only in 2019, Dawood Hercules has been suffering in
the asset management area as they have generated a ratio slightly below the
industry performance this meant that they were not able to fully utilize their assets in
a more efficient way in order to earn revenues from them but keeping in mind that
because they were are under debt would suggest why they were suffering in this
area but in 2017 and 2018, Dawood Hercules bounced back stronger because in
both of these years their ratio values were higher than that of the industry and hence,
one can say they have been performing way better than the industry’s performance
indicating a good management but also this means that they are using their assets a
lot for revenue generating and this could eventually lead to a downfall too if not
planned properly.

Inventory Turnover
Inventory turnover is an asset management ratio which focuses on how many times
it took a company to sell and replace stock in each period. Now calculating this ratio
helps the company to chalk out more improved decisions on the purchasing as well
as pricing of new inventory. Now being in the Fertilizer industry the supply is
normally sent once with another order being demanded later we can say that the
lesser the value the more efficient the business is in terms of being prepared to sell
and resupply themselves so the Industry has been worse in this scenario as they
took more inventory while keeping steady sales as they knew that assets such as
inventories were the key and should be kept ready in case an order was placed but
resulted in less number of restocking while Dawood Hercules showed that they took

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a lot of demand and also supply ( 6.89 in 2018 to 9.20 in 2019 ) so this meant that
Dawood Hercules was supplying more goods than the Industry. However, only in
2017, we see that the industry value was greater than Dawood Hercules, this meant
that in the year 2017 the industry was supplying more goods than Dawood Hercules.

Day sales Outstanding

Days sales outstanding (DSO) is a measure of the average number of days that it takes a
company to collect payment for a sale. DSO is often determined on a monthly, quarterly, or
annual basis. A high DSO number shows that a company is selling its product to customers
on credit and waiting a long time to collect the money. This can lead to cash flow problems.
A low DSO value means that it takes a company fewer days to collect its accounts receivable.
That company is promptly getting the money it needs to create new business. From the table
we can see that that DSO ratio values of Dawood Hercules are much lower than that of the
industry. This means that the company is getting cash on time as compared to the industry
who are most likely selling their goods on credit period of probably 2 months. However, in
the case of the company we see that it is getting the payment in almost within a month which
means that the company is more efficient in collecting the payment as compared to the
industry.

Debt Management Ratio (Company vs Industry)

Debt to capital ratio

The debt to capital ratio is a measurement of a company’s financial leverage. The debt to
capital ratio is calculated by taking the company’s interest-bearing debt, both short term and
long-term liabilities and dividing it by the total capital. The debt to capital ratio gives the
analysts and investors a better idea of a company’s financial structure and whether or not the
company is suitable investment. All else being equal, the higher the debt to capital ratio, the
riskier the company. This is because if the ratio is higher this means that the company is
funded more by debt as compared to equity. From the table (in excel) we see that Dawood
Hercules debt to capital ratio values are lower than the industry this means that most of its
assets and operations are funded by equity as compared to debt. This is good for the company
because if most of the assets are funded by equity, this means that there is a lower liability to

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repay the debt and a lower risk of forfeiture on the loan if the debt cannot be paid timely.
However, the debt ratio of the industry is higher than the company. This means company can
acquire more debt in the near future to fund its operations.

Times Interest Earned (TIE)

The Times Interest Earned (TIE) ratio measures a company’s ability to meet its debt
obligations on a periodic basis. The ratio shows the number of times that a company could,
theoretically, pay its periodic interest expenses should it devote all of its EBIT to debt
repayment. From the table we can see that the ratios values have increases from 2017 to 2018
for both the industry and the company this means that both the industry and company have
been able to manage their creditworthiness. This probably means that they took less debt in
2017 and 2018 because they had enough equity fund their operations. However, the ratio
values of both the industry fell in 2019, this meant they acquire huge amount of loan for their
operations or for a certain project. The ratio values are almost the same for both the industry
and company. Nevertheless, in 2019 the ratio value of the company is slightly lower than the
industry this indicates that the company is having trouble managing their creditworthiness.

Dupont Ratios (Company vs Industry)

Total Assets to Total Equity ratio

The assets to equity ratio describe the proportion of a company’s assets that has
been funded by the shareholders. From the values above, we can see that both the
company and the industry ratios are almost equivalent to one another from 2017 to
2019. Since the ratio values of both the company and industry are low, we can
conclude that the business activities have been funded more by equity as compared
to debt. This is good because this means the company and the industry still has an
option to acquire additional debt for their business operations.

ROE

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ROE is a ratio that shows how well a company is managing the capital that
shareholders have invested in it. Normally, higher the ratio the more efficient a
company’s management is at generating profit from equity. However, we have to
compare the ratio values of the company with the industry. As we can see from the
table above, the ratio values of the company are slightly lower than the industry from
2017 to 2018. This means, the company is providing excellent returns to its
investors. Moreover, the value in 2017 (16.43%) for the company is almost equal to
that of the industry in 2017 (16.44%). Hence, we can conclude by saying that the
ROE values of the company when comparing it with industry are showing trends of
profitability and good returns overall. Thus, investing in this company will give the
investor handsome returns, based on the ROE values from 2017 to 2019.

ROA

ROA is a ratio that describe how well a company is utilizing its assets in terms of
profitability. Higher ROA values indicate better asset efficiency. However, we have to
compare the ROA values of the company with the industry to get a better idea if our
ROA values are considered in the higher range or the lower range. If we compare
the ratio values of the company with the industry, we can see that the ROA values of
the company are almost equal from 2017 to 2018. However, only in 2019 we can see
that the ROA value of the industry was slightly higher than the company.
Nevertheless, since the ROA values are almost equal, we can say that the company
is efficiently managing its assets and earning profit over them.

Profitability Ratios (Company vs Industry)

Operating Margin

The operating profit margin of the company is almost equivalent with that of the
industry in 2017 and 2019. Moreover, in 2018 the operating margin of the company
was greater that the industry. This means that the company really outdid itself or
performed greatly which lead to an increase in operating margin. To further prove
this, we can see that in 2018 the sales and the EBIT value of Dawood Hercules was
greater than the industry.
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Profit Margin

This is similar to operating margin. From the data, we can see that in 2017 and 2019
the profit margin is almost equivalent. However, in 2018, the profit margin is higher
than the industry. Again, the reason being that the company’s sales had increased
and their operating costs might have decreased, thus contributing to an increase.

Basic Earning Power (BEP)

BEP tells us whether a firm can fully utilize its assets in order to generate profits or
not. Thus, higher the value is the better the firm is earning. From the data, we can
see that the company’s BEP values are almost similar to that of the industry or we
can say that the values lie within the same range. This means firm is fully utilizing its
assets to generate profits. Moreover, in 2018 the BEP value is higher than the
industry. The reason is since operating margin and profit margin values in 2018 are
also higher thus this causes an increase in the BEP as well.

Return on total assets

The return on total assets of the industry are almost same as the company, with just
very little difference. This means that the company had been profitable le and were
properly utilizing its assets from 2017 to 2019. This also makes sense because basic
earning power ratio was almost equivalent to that of the industry hence that is why
return on total assets value also lies within the same range as the industry.

Return on common equity

The return on common equity was low for the company in 2017 and 2019. The
reason is that the shareholders were not pleased with the company performance and
the return they were getting. However, in 2018, which was the most profitable year
for the company we see that return that return on equity was equal to that of the
industry. This means the company was performing much better as compared to the
previous years and the shareholders were pleased with the return they were getting.

Return on invested capital

From the data we can see that return on invested capital of the company is much
lower as compared to the industry from 2017 to 2019. This means that the company

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is not very efficient in allocating its capital. Thus, it has a hard time generating profits
from the invested capital. However, it is not completely destroying its capital because
in ideal cases, if ROIC is less than 2% then we can say the company is destroying its
capital. Nevertheless, comparing it with the industry it is certainly having a hard time
managing its capital.

Market Measure Ratio (Company vs Industry)

Price/earnings ratio

The ratio is a market value indicator which is used to determine whether a company
is undervalued or overvalued in term of its share price to the company’s earnings per
share. Dawood Hercules clearly has been performing much better in terms of its P/E
ratio which is above the industry’s performance in 2017 and 2019. However, in 2018
the P/E ratio was lower than the industry. The reason for this fall was maybe due to
bad asset management or avoiding tax.

Market to Book ratio

Since the ratio value is below 1 this indicates that the stock is undervalued. This
usually means that investing in this company might be a bad investment for you.
However, since the industry ratio values are also below zero, this certainly doesn’t
mean that investing in either of the company will give you bad returns, it actually can
be the opposite. If we compare the ratios of the company and the industry, we see
that Dawood Hercules market/book ratio is lower than the industry. This means
investing in the company can be dangerous because its value is lower than the
industry. However, if it would have been higher than industry then it would have been
beneficial.

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Horizontal Analysis Balance Sheet

Horizontal analysis is used in the review of a company’s financial statements over

multiple periods. It is depicted as a percentage growth over the same line item in the
base year. Through horizontal analysis, we can spot trends and growth patterns.
Now for the sake of comparison, we have used 2017 as our base year for both the
company and the industry. The current assets of the company had increased from
38.04% to 75.05% (37.01% increase). The reason for this increase was because
there was a significant increase in trade debts, loans advances and prepayments
and in assets that were held for sale. Moving towards the industry, current assets
had also increased there from 33.33% to 68.35% (35.02%). The reason for this
increase in the current assets for the industry was that firstly, there was an increase
in loans, advances, prepayments and other receivables (16.68% in 2018 to 59.27%
in 2019). Secondly, there was also a significant increase in the trade debts
components, a stunning 240.9 % increase between 2018 and 2019. Lastly, there
was also an increase in the cash and bank balances component (28.05% in 2018
and 112.01% in 2019). Nevertheless, a greater % change is observed in the
company as compared to the industry when comparing current assets. The total
current liabilities of the industry had increased from 36.77% to 116.14% (79.37%).
The reason for this increase was because trade and other payables had increased
from 39.94% to 139.35% in 2019. Furthermore, a substantial increase in the current
portion of deferred liabilities also is a major contributor towards the increase in the
current liabilities. Moreover, the dividend payable had also increased from 87.63% to

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1004.07% in 2019 which was also a factor that led towards the increase in current
liabilities. The total current liabilities of the company had increased from 23.41% to
134.10% (110.69%). The reason for this increase was because there was a
significant increase in trade and other payables (132.95% increase in 2019), accrued
markup (70.47% increase in 2019) and deferred liabilities (306.59% increase in
2019). However, still, the company total current liabilities are higher than the
industry. The total equity of the company had increased from 13.68% to 17.23%,
while the total equity of the industry had increased from 11.04 % to 16.29%. Thus, a
greater change in industry as compared to the company.

Vertical Analysis Balance Sheet

The non-current assets of the company were highest in 2017 (127.06%) and lowest
in 2019 (95.80%). Thus, we see that the non-current liabilities have decreased from
2017 to 2019 (127.06% to 95.80%). Moving towards the current assets we see that
current assets had also decreased vertically from 2017 to 2019 (79.91% to 61.11%).
The non-current liabilities had increased from 2017 to 2018 (59.11% to 63.34%),
however, in 2019 it fell again (58.189%). The current liabilities had decreased from
2017 to 2018 (40.89% to 36.66%) but it rose again in 2019 (41.82%). The total
equity had decreased constantly from 2017 to 2019 (111.11% to 56.91%). Moving
towards the industry we see that non-current assets had decreased from 2017 to
2018 (132.68% to 125.08%) but rose again in 2019 (139.02%), however for the
company it had decreased constantly. The current assets had increased constantly
from 2017 to 2019, unlike the case in the company which was decreasing.
Furthermore, non-current liabilities had also increased constantly from 2017 to 2019,
however, for the company it increased then decreased again in 2019. The current
liabilities also increased constantly from 2017 to 2019, however, the case is different
for the company because the current liabilities had only increased in 2019. The total
equity had decreased constantly from 2017 to 2019, which is same the case for the
company.

Horizontal Analysis Income Statement

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The cost of sales for the company increased from 28.44% in 2018 to 67.65% in 2019
(39.21% increase). Furthermore, the cost of sales of the industry increased from
20.12% in 2018 to 51.89% in 2019 (31.77% increase). Hence, the cost of sales of
the company are higher than the industry. Gross profit of the company had increased
from 46.84% to 97.34%, meanwhile, the gross profit of the industry increased from
46.21% to 84.40%. Thus, the gross profit of the company is also higher than the
industry due to greater percentage difference. PBT of the company decreased from
67.04% to 64.98%, however, the industry’s PBT had increased from 50.36% to
61.56%. Moreover, sales of the company had increased from 33.42% to 75.69 %
(42.27% increase) while the industry’s sales also increased from 27.20% to 60.71%
(33.51% increase). Hence, sales of the company are much higher than the industry.

Vertical Analysis Income Statement

The cost of sales for the company had decreased from 2017 to 2019 constantly
(72.93% to 69.60%). Meanwhile, the cost of sales of the industry decreased from
2017 to 2018 (72.89% to 68.83%), but rose again in 2019 (68.89%). Gross profit of
the company increased constantly from 2017 to 2019 (27.07% to 30.40%). As for the
industry, the GP increased from 2017 to 2018 then decreased again in 2019
(31.11%). The operating profit of the company increased from 2017 to 2018 (24.33%
to 31.23%) but decreased however in 2019 (27.36%). PAT increased constantly from
2017 to 2018 (12.63% to 19.32%), but decreased again in 2019 (13.18%). As for the
industry, PAT increased from 2017 to 2018 (13.46% to 16.90%), but decreased in
2019 ( 14.06%)

Benchmarking of the companies

The following is the benchmarking of the companies we were assigned. For liquidity
ratio our basis of ranking was both current ratio and quick ratio. For asset
management it was total asset turnover. For debt management it was total debt to
capital ratio. For profitability ratio we used profit margin ratio and for market value
ratio we used market to book ratio. The following is the table of benchmarking of our
companies:

Ratios Ranking 2017 2018 2019

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Liquidity ratio 1 Dawood Dawood Dawood
Hercules Hercules Hercules

2 Fauji Fauji Fauji

Fertilizers Fertilizers Fertilizers

3 Fatima Fatima Fatima

Fertilizers Fertilizers Fertilizers

Asset 1 Dawood Dawood Dawood

Management Hercules Hercules Hercules
ratio

2 Fauji Fauji Fauji

Fertilizers Fertilizers Fertilizers

3 Fatima Fatima Fatima

Fertilizers Fertilizers Fertilizers

Debt 1 Fauji Fauji Fauji

Management Fertilizers Fertilizers Fertilizers
ratio

2 Fatima Fatima Fatima

Fertilizer Fertilizer Fertilizer

3 Dawood Dawood Dawood

Hercules Hercules Hercules

Profitability 1 Fatima Fatima Fatima

ratio Fertilizers Fertilizers Fertilizers

2 Dawood Dawood Fauji

Hercules Hercules Fertilizers

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 3 Fauji Fauji Dawood
Fertilizers Fertilizers Hercules

Market 1 Fauji Fauji Fauji

Fertilizers Fertilizers Fertilizers
Value ratio

2 Fatima Fatima Fatima

Fertilizers Fertilizers Fertilizers

3 Dawood Dawood Dawood

Hercules Hercules Hercules

Liquidity Ratio

The reason my company ranks first because over the years (2017 to 2019) both the
current and quick ratio is higher than the other two competitors. The reason being
because assets value had gone up hence leading to a higher ratio. Moreover, the
company was also performing better than the industry’s situation. Thus, looking at
this ratio we can conclude that Dawood Hercules was managing their cash and liquid
assets in a profitable and efficient way as compared to the other two competitors.
Furthermore, Dawood Hercules have more current assets to pay off their current
liabilities as compared to the other two companies.

Asset Management ratio

In terms of comparison we see that Dawood Hercules ranks first yet again in the
asset management ratio. This makes sense because previously in liquidity ratio it
ranked first and that ratio is related to management of liquid assets. Moreover, in
2017 and 2019 the ratio values of the company is higher than industry. Now, this
means that the company was able to fully utilize its assets in a more efficient way in
order to earn revenues as compared to the other two competitors. This probably
means that the other two companies are under more debt as compared to Dawood

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Hercules, hence leading to inefficient asset management. This indicates a good
management of the total assets. However, using a lot of assets for revenue
generation can actually lead to downfall of the company, if not planned properly.

Debt Management ratio

The debt to capital ratio is a measurement of a company’s financial leverage. The debt to
capital ratio is calculated by taking the company’s interest-bearing debt, both short term and
long-term liabilities and dividing it by the total capital. The debt to capital ratio gives the
analysts and investors a better idea of a company’s financial structure and whether or not the
company is suitable investment. All else being equal, the higher the debt to capital ratio, the
riskier the company. Now from the table we can clearly see that my company ranks at last.
This means that Dawood Hercules has the lowest debt to equity ratio as compared to the
other two competitors. This also means that most operations and assets of Dawood Hercules
are funded by equity. Meanwhile, the other two companies, business activities are largely
funded by debt. Hence making it riskier to invest in them. To these ends, it will be more
profitable for an investor to invest in Dawood Hercules corporation as there is low chance of
defaults.

Profitability ratio

We used profit margin ratio to analyze our profitability ratio between the respective three
companies. Basically, profit margin ratio means that how of each rupee earned in revenue
trends to translate into profit. Now, from the table we can see that from 2017 to 2018, my
company ranks second and in 2019 it ranks at last. This clearly means that Dawood Hercules
profit ratio values are lower than Fatima fertilizers in 2017 and 2018, however, in 2019 it is
lower than both of the competitors, Fatima fertilizers and Fauji fertilizer. This means that net
income of Dawood Hercules has started to fall, perhaps due to increase in costs as well as
decreased sales too. Moreover, a fall in 2019 can also be contributed towards the fact that in
2019 some of the management in Dawood Hercules corporation changed which is evident in
their annual report of 2019. Thus, this may have disturbed the overall sales and revenue to be
generated in 2019.

Market Value ratio

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We used market to book ratio to analyze the market value ratio of the respective three
companies. Now, my company ranks at last. This means that Dawood Hercules stock is the
most undervalued as compared to others. Thus, investing in it may be bad for you as the
investor won’t be getting returns, he had hoped for. However, investing in either of the two
companies left can be profitable as their stock is overvalued as compared to Dawood
Hercules.

Areas of Issues within the company

 The company has an excess of assets and some of the assets are not used to generate
revenue. Thus, those assets that do not have any sort of use for the company must be
disposed of.
 Profit margin ratios is lower than the other two competitors. Operating costs need to
be cut down and sales should be increased. Furthermore, the company should avoid
buying new assets for time being, given the situation. First, allow the profit margins to
increase
 Market value should be increased. This can be done by maintaining physical assets
and intangible assets. Furthermore, the company can also increase their market value
ratio by forming strategic alliances.

Sustainability of Profits

Dawood Hercules main strategy for sustainability of profits is that they use their
assets to generate revenue. However, the only issue is that their operating costs are
very high. Even though they try to generate higher sales every year but since their
operating costs are higher, this causes the profit margin to squeeze. Nevertheless,
the company has enough assets to generate profits and revenue even higher than
Fatima fertilizers and Fauji fertilizers. However, if they really want to improve their
profits, they need to cut down their operating costs and dispose of assets that are no
use for them.

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Future way for the company to grow

 Dawood Hercules doesn’t have to improve their asset management situation if

they wish to compete in the market in such a way that they can suggest a new
deal to the creditors which would please them and the creditors for future
endeavors.
 Dawood Hercules has started showing potential, but keeping in mind their
previous record of performance they must maintain a good P/E ratio, market
to book ratio and a liquidity status in order to get investors to invest in the
company.
 Dawood Hercules ratios were at some point not able to perform up to the
industry’s performance like in the case of market measure ratio which might
be because the asset might be undervalued when bought and it has no
potential or perhaps the asset’s time has come ( has to be disposed of) so
either buy a new asset or maybe make better decisions regarding its
utilization.
 Dawood Hercules should try to restock only when needed in order to avoid
costs such as storage costs or security of inventory otherwise they will not be
able to generate profits from their sales made.
 Dawood Hercules was not able to generate a high operating margin ratio and
net profit margin ratio perhaps because of their costs which could’ve been like
storage or perhaps maintenance so try reducing costs and gain more sales so
that at least in comparison to the industry we would know that the company is
performing well.

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