ANALYSIS OF FINANCIAL STATEMENTS:

ASSIGNMENT# 01

GROUP MEMBERS:
1. JEWAIRIAH RASHID (02-112201-008)
2. SARA HASHIM (02-112201-006)
3. KHIZRAN KHALID (02-112201-016)
4. FATIMAH ABDUL GHAFFAR (02-112201-020)

SUBMITTED TO: DR RIZWAN

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USING ACTUAL FINANCIAL ACCOUNTING INFORMATION
TO CONDUCT FINANCIAL RATIO ANALYSIS: THE CASE OF
FAUJI FERTILIZER COMPANY

ABSTRACT
The financial ratio analysis of Fauji Fertilizer Company Limited (FFC) was conducted for the
years 2021 and 2022. The study evaluated the company’s liquidity, profitability, capital structure
and debt management ratios using data from its financial statements. Additionally, it highlights
the various challenges faced by the company. The results showed that FFC is a financially stable
company with strong liquidity and profitability ratios.

KEYWORDS
Ratio Analysis, Industry Analysis, Financial accounting information.

INTRODUCTION
Fauji Fertilizer Company Limited (FFC) is a leading fertilizer producer in Pakistan, established
in 1978 in collaboration with international companies like Haldor Topsoe and the world-
renowned engineering firm, Associated Technical Consultants (ATC) of the USA.The company
produces different types of fertilizers including urea, DAP, SOP, NPK and CAN. FFC has two
production plants located in Sadiqabad and Mirpur Mathelo with a combined production capacity
of over 2.3 million tons per annum. In 1993, FFC together with Fauji Foundation participated in
establishment of Country’s only granular urea and DAP complex at Port Qasim, Karachi. The
new company, Fauji Fertilizer Bin Qasim Limited, (FFBL) is designed to produce 551,100
metric tonnes of granular urea and 650,000 metric tonnes of DAP. Thus FFC’s Marketing Group,
the largest fertilizer marketing network in the Country, markets nearly 3.4 million metric tonnes
of fertilizer per annum for both FFC and FFBL under brand name “SONA” which means gold.

FFC holds 49.88% stake in FFBL and 6.79% stake in Fauji Cement Company Limited. Besides
it holds 12.5% stake in Pakistan Maroc Phosphore SA (PMP) in Morocco which meets the entire
raw material requirement of FFBL’s DAP production. The company is also involved in other
activities like power generation, marketing of agricultural inputs and technical services. FFC is
known for its commitment to quality, environmental sustainability, and corporate social
responsibility. The company has won many awards and recognitions for its performance and
contributions to the agriculture sector in Pakistan. The principal activity of the Company is
manufacturing, import and subsequently marketing of fertilizer products in addition to its

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investment in numerous other projects related to energy production, food processing, financial
services and other chemical production.

The primary activity of Fauji Fertilizer Bin Qasim Limited (FFBL) is the production of chemical
fertilizers for Pakistan's agricultural industry. DAP and Granular Urea are only produced in
Pakistan by FFBL. While its registered office (Head office) is at DHA Phase-2 Islamabad, the
company's fertilizer manufacturing plant is located in Port Qasim Karachi. Since May 14, 1996,
the firm has been traded on the Pakistan. It has a designed production capacity of 551,100 tone of
urea and 650,000 tone of DAP.

The two primary FFBL products are.

1. SONA DAP
2. SONA UREA

Phosphorous, which is the second most significant nutrient element after nitrogen, is present in
SONA DAP (Di-ammonium Phosphate). It is offered in the form of free-flowing granules.
Stronger, tougher, and consistent in size are granular. DAP is advised for initial application
because it is suited for all crops and soil stock Exchange (PSX), and its ticker symbol is "FFBL".

The phosphatic fertilizer with the highest concentration, DAP, has 46% P205 and 18% nitrogen.
It is advised for all crops to be administered as a basal fertilizer at the time of sowing for
improved root development and to stimulate energy reactions in the plant.

The solubility of DAP is more than 90% which is the highest among the phosphatic fertilizers in
the country; due to which it can also be applied post planting through fertigation.

The benefit of this product is highly water-soluble phosphate contents help plants to utilize
moisture better and let roots grow stronger and deeper even in acidic soils. Being non-
hygroscopic, DAP stores well even in high rainfall areas. High concentration of nutrients makes
packing, storage and transport per unit cost of nutrients very low. Nitrogen is present in an easily
absorbed ammonical form, loss due to leaching is thus minimum. The industrial use of SONA
DAP in fire retardant used in commercial firefighting products. Other uses are as metal finisher,
yeast nutrient and sugar purifier. The corporation saw one falling topline between CY16 and
CY21. Contrarily, profit margins have varied between CY15 and CY19, following which they
have remained on the rise. In value terms, topline in CY18 increased by 16.6 percent to Rs 61.5
billion. Sales of Sona Urea increased by 3%, while those of Soba DAP decreased by 17%. This
was ascribed to competition from the availability of less expensive imports. However, with
production costs falling to 86.7% of revenue from over 88.7% the year before, gross margin
increased to 13.3%. Due to a decrease in other income and an increase in other expenses as a
percentage of revenue, the improvement in net margin, which was recorded at 2.3 percent versus
1.9 percent in CY17, was less evident.

Urea is a concentrated straight nitrogenous fertilizer that contains 46% nitrogen, which is a major
plant nutrient. Nitrogen is a vital component of chlorophyll which necessary for the
photosynthesis process. It is applied to promote vegetative growth of crops and orchards in splits.

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The industrial use of raw materials are manufacturing of plastics, adhesives and industrial
feedstock.

Since 1981, Fauji Fertilizer Company Limited has offered farm advice services to farmers across
Pakistan in an effort to boost agricultural productivity in general and farmers' revenue in
particular. In order to ensure the effective transmission of new agricultural technology, our
organization keeps constant touch with farmers and agricultural institutions as part of its
commitment to the nation and moral duty.

TABLE 1: CONDENSED STATEMENT OF FINANCIAL PERFORMANCE 2015 TO 2021.

INDUSTRY ANALYSIS
FERTILIZER INDUSTRY
The Pakistani economy's agriculture sector depends heavily on the fertiliser business. The
industry is important since it is essential to maintaining the nation's food security. Approximately
95% of the market share is held by five companies, who dominate the sector. The Pakistan Stock
Exchange (PSX) currently lists 4 players. These businesses are a part of the Fauji Group, Engro
Group, and Fatima Group, the three Big names in the corporate sector.

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The Pakistani fertiliser industry provides 0.9% of the country's GDP and 4.4% of its large-scale
manufacturing (LSM) sector. The government has established relief and subsidy programmes
due to the agriculture sector's enormous economic importance, which has resulted in a persistent
need for fertilizers. Agricultural production, agricultural sector credit disbursements, government
policy, and rainfall and soil health are few of the main demand drivers for fertilizer Industry.
The yearly output of fertiliser in Pakistan was estimated to be 8 million tonnes in CY20 (down
just somewhat from 8.1 million tons in CY19, or 1%). The annual fertiliser off take was 9.9
million tonnes in FY20, up 5% year over year. Approximately 75% of the nation's fertiliser
production is urea. Due to the involvement of all Sector players—aside from FFBL—in DAP
import, DAP accounts for 8–10% of the nation's fertiliser output. Other fertilisers, including
CAN, NPK, NP, and SSP, make between 15 to 20% of total fertiliser use. On the off take front,
urea accounted for over 61% of the nation's overall fertiliser off take in CY20, followed by DAP
(around 24%).
Both long-term and short-term borrowings make up about equally of the industry's borrowing
mix. As of November 20, long-term borrowings were PKR 59 billion (compared to PKR 62
billion in November 2019), representing 48% of all borrowings. Short-term borrowings also
make up a sizeable portion of overall borrowings, accounting for 44% of the total in November
2020 (compared to 66 billion Pakistani rupees in November 2019). Over time, the industry's
leverage ratio has increased, falling from 55% in CY 2016 to 46% in 9MCY20. LTBs often
signify a need for BMR, regular CAPEX, or expansion. The industry's average leverage for
9MCY20 was 46%, down marginally from CY19's level of 50%. With no significant CAPEX
anticipated, the sector leverage ratio is anticipated to continue to rise.
Nine businesses make up Pakistan's fertiliser sector, with three corporations controlling 82% of
the urea market. Fauji Fertiliser Company Limited, followed by Engro Fertiliser Limited, holds
the largest total stake. Following are the market shares of the top companies in the urea segment:
The market structure for fertiliser is oligopolistic. Government participation in the form of taxes,
agricultural subsidies, and other laws limits the pricing power of the segment's three largest
participants. Companies have sometimes increased local rates on a temporal basis to partially
offset the effects of an interrupted gas supply.

Pakistan's fertiliser output is anticipated to increase by 0.7% from 76,330 metric tonnes in 2021
to 79,350 metric tonnes by 2026. Since 2008, the market has increased 1.8% annually, and
Pakistan was ranked 21st in the globe in 2021. With 76,330 metric tonnes, Algeria came in first,
followed by India, Vietnam, and Indonesia. Pakistan's fertiliser imports are projected to rise from
7,410 metric tonnes in 2021 to 8,860 metric tonnes in 2026, a 2.8% annual increase. Demand in
the nation has increased by 11.4% since 2008, and in 2021 Pakistan ranked 109th internationally.

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 FINANCIAL RATIO ANALYSIS
The financial ratios for Fauji Fertilizer Company and the industrial ratios are summarized in the
table below.

FAUJI FERTILIZER FAUJI FERTILIZER FERTILIZER

FERTILIZER INDUSTRY COMPANY (2021) INDUSTRY (2021)
COMPANY (2022)
(2022)
CURRENT RATIO 0.96 0.38 1.13 0.38
QUICK RATIO 0.80 0.31 1.08 0.31
AVERAGE COLLECTION PERIOD 2 DAYS 54.7 DAYS 5 DAYS 31.3 DAYS
INVENTORY TURNOVER 7 4.96 102 4.96
FIXED ASSET TURNOVER 3.96 1.38 4.53 1.07
TOTAL ASSET TURNOVER 0.46 0.32 0.54 0.31
DEBT RATIO 0.78 0.78 0.76 0.75
DEBT TO EQUITY RATIO 0.31 0.535 0.35 0.51
TIMES INTEREST EARNED 7.92 14.21 14.24 10.77
GROSS PROFIT MARGIN 36.62% 27.48 35.78% 38.30
NET PROFIT MARGIN 18.33% 11.08% 20.15% 16.42
RETURN ON INVESTMENT 17.11% 21.31% 22.17% 21.32%
RETURN ON EQUITY 39.44% 26.18% 46.08% 26.84
ASSETS/EQUITY 3.716 2.194 3.219 3.2683
TABLE 2: 2022 RATIO ANALYSIS

Evaluating Fauji Fertilizer to the Fertilizer industry, firstly we note that is Fauji is highly liquid
than the average firm in the industry, with both a current and a quick ratio that is higher than the
industry average. The company's 2022 current ratio was 0.96 times, just a little bit higher than
the 0.95 times reported in. Compared to the base year, 2017 saw a modest decline to an average
of 1.05, mostly due to increased short-term borrowing to cover working capital requirements.
Moreover, company’s cash position also improved.
Fauji fertilizer’s average collection period 2 days in 2022 and 5 days in 2021, which is a lot
better than that of the industry, which indicates the good and balance credit policies of the
company. Debtor turnover at 2 days registered significant improvement evidencing minimal
reliance of the Company on credit sales. A drastic decrease was noticed in the inventory turnover
ratio of FFC and it was higher than that of the industry in both 2021 and 2022. The Company
faced slowdown in downstream demand of DAP mainly due to floods, high prices and weak
farm economics and was, not able to offload full inventory, which explains the dramatic fall in
inventory turnover ratio.

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Both total asset and fixed asset turnover ratio of Fauji Fertilizer is above that of the industry
which indicates the Fauji is using its asset more efficiently than the industry average in
generating sales.
There’s a very slight difference in the debt ratio of Fauji Fertilizer Company and Fertilizer
industry. The ratio is less than 1, which signifies that FFC isn’t heavily financed by debt. FFC’s
debt to equity ratio is lower than that of the industry, which further proves the point stated above.
The annual report of the company shows that there has been both long and short-term
borrowings but the company has always been able to pay them back.
FFC’s interest cover ratio is lower than the industry in 2022. This shows that the company can
cover its current interest payments almost 8 times by making use of its available earnings. This
ratio decreased from 2021, (14.24 times in 2021). The decrease in this ratio indicates that when
compared to the industry, the company has less operating profits available to meet its interest
payments.
FFC has a higher gross profit margin than the industry in 2022, as well as maintained net profit
margin in both 2021 and 2022. This shows that FFC was able to hold its expenses in 2022.
However, its gross profit was lower than the industry in 2021 which could be because of
COVID. Luckily, in 2022, FFC was able to control its profitability due to lower offtakes and
efficient cost control measures.
FFC’s return on investment is lower than that of the industry in 2022, but was higher in 2021.
The decrease in ROI of the company in 2022 signifies that the company’s earnings from its
investments declined in 2022. The company’s ROE is higher than that of the industry in both
2021 and 2022. This shows that FFC is profitable in relation to the equity. This might attract the
investors in the relevant industry as FFC is able to generate profit using its capital, efficiently.
FFC’s assets to equity ratio was lower than the industry in 2021 and but it increased in 2022.
This could mean that the company has financed most of its assets through debt just to be in
business, which would portray a riskier position.

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VERTICAL ANALYSIS
INCOME STATEMENT

RS IN MILLIONS
2022 % 2021 %
Turnover 125,678.00 100% 114,345.00 100%
Cost of sales - 75,989.00 -60% - 72,992.00 -64%
Gross Profit 49,689.00 40% 41,353.00 36%
Distribution Cost - 11,232.00 -9% - 9,099.00 -8%
Operating Profit 38,457.00 31% 32,254.00 28%
Finance cost - 5,926.00 -5% - 2,736.00 -2%
Other gains/(losses) - 2,789.00 -2% 6,897.00 6%
Other expenses - 3,047.00 -2% - 2,962.00 -3%
Other income 11,498.00 9% 6,302.00 6%
Share of profit of associates and joint
venture 12,440.00 10% 10,155.00 9%
Profit before tax 50,633.00 40% 49,910.00 44%
Provision for taxation - 16,263.00 -13% - 10,045.00 -9%
Profit for the year 34,370.00 27% 39,865.00 35%
EPS (Rs) 27.02 31.33

Cost of sales was 60% of the total sales of FFC in 2022 which decreased from 2021. This
indicates that FFC was able to control its costs. Both Gross Profit and Operating Profit of FFC
also increased from 2021 to 2022 which shows that FFC was able to improve its profitability.
However, both interest expenses and tax expenses for FFC increased in 2022. This affected the
values of PAT and Net Profit of FFC as both the figures declined in 2022. This could also be
because of the other losses faced by FFC in 2022. On a bright side, the value of other income for
FFC increased in 2022. FFC needs to reduce its borrowings to cut down its finance cost and also
its tax expense.

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STATEMENT OF FINANCIAL POSITION

The value for shareholder’s equity decreased in 2022 by 1%. FFC’s borrowings increased in
2022, which explains the increase in interest expense of FFC in 2022. The value for PPE also
decreased in 2022. FFC’s is holding less cash in 2022 which could mean an increase in
investments, however, there is a slight drop in the value of long term investments of FFC.
Compared to in 2021, FFC is holding a lot of stock in trade which explains the inventory
turnover ratio we calculated above as the company is not able to sell its stock rapidly. If we

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compare the equity and liabilities of the company, greater portion of it is occupied by the
liabilities which means the company’s borrowings is larger.

HORIZONTAL ANALYSIS

INCOME STATEMENT

The table above shows the increase in sales of FFC which is a good thing, however, cost of sales
of FFC also increased. This did not affect the gross profit of the company as there is an increase
of 44% from 2020. The company’s distribution cost increased but the position of operating profit
remained favorable. A great rise in the finance cost and the taxation expense of the company can
be seen which decreased the profit for the year of the company. On the positive side, the value of
the other income of the company also increased but it was not enough to counter the effect of the
increase in other expenses (interest and tax expense), therefore, profit for the year declined.

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STATEMENT OF FINANCIAL POSITION

The value of equity increased from what it was in 2020. The value of current liabilities increased
as well which means the firm’s borrowing increased. Long term loans and advances increased in
the past two years. This includes loans granted to employees, suppliers, and other executive
members. It could be advantageous for the company as the interest income received them could
be used by FFC to reduce its interest expense. However, a considerably large portion of
company’s assets are tied up in the form of loans advances and credit sales which could result in
bad debts and therefore, is really risky for the company.

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DUPONT ANALYSIS

2021 2022
Net Profit Margin= 18.33% Net Profit Margin= 20.15%
Total Asset Turnover= 0.46 times Total Asset Turnover= 0.54 times

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Return on Equity= 46.7% Return on Equity= 43.7%
DuPont Analysis= 39.4% DuPont Analysis= 47.5%

Non-current assets grew by 13% during the year, mostly as a result of CAPEX for plant
sustainability and investments in gas pressure enhancement facilities (PEF). Additionally, the
stock on hand rose from Rs 1.05 billion to Rs 19.49 billion, resulting in Rs. 240.12 billion in
total assets and Rs. 50.83 billion in owners' equity. Ownership ratio was 21%, down from 24%
the year before.
The business achieved benchmark turnover and investment income, but the application of the
super tax caused the net profitability margin to decline from 20% to 18%, cutting return on assets
to 8%. As a result, a return on equity of 39% rather than 46% in 2021 was obtained. FFC was
able to generate greater operating profits and its operating assets turnover position was
favourable in 2022, but due to increased tax burden and high interest expense, it was not able to
generate high returns in equity. The firm’s leverage position worsened in 2022, which explains
the high interest rates.

ANALYSIS OF PROFITABILITY RATIO

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 2022 2021
NET PROFIT MARGIN % 18.33 20.1
5
TOTAL ASSET TURNOVER Times 0.46 0.54
RETURN ON ASSETS % 8.35 10.8
9
OPERATING INCOME MARGIN % 27.38 28.0
4
OPERATING ASSET TURNOVER Times 1.03 0.33
RETURN ON OPERATING ASSETS % 28.2% 9.25
%
DUPONT RETURN ON OPERATING ASSETS % 28.2% 9.25
%
SALES TO FIXED ASSETS Times 3.96 4.53
RETURN ON INVESTMENT % 2.108 2.40
3
RETURN ON TOTAL EQUITY % 39.44 46.0
4
RETURN ON COMMON EQUITY % 46.7 43.7

The above chart shows the profitability position of the company. The net profit margin has
decreased from 20.15% to 18.33%, which means FFC was not that profitable comparatively. The
year also witnessed galloping inflation, double digit interest rates and sharp devaluation of Pak
Rupee besides heavy floods during second half of the year. Company’s profitability was further
impacted by the levy of super-tax and exemption of output GST.
Total Asset turnover of FFC decreased from 2021 to 2022 which indicates the firm’s inability to
convert its assets into sales. Furthermore, the firm’s return on assets also declined from 2021 to
2022, which indicates that the assets of FFC are not contributing much towards the profitability.
Moving further down the table, we can see that operating income margin of the company has
also declined in 2022. This means that the company was unable to control its operating expenses
as well. Operating assets turnover of the company has increased in 2022, which indicates that
FFC’s operating assets were able to generate enough sales because of which, the firm’s return on
operating assets also increased.
Fixed Assets of the company refers to its property, plant, and equipment. FFC’s sales to fixed
assets ratio also declined in 2022, which shows the firm’s inability to generate sales, using its
fixed assets. FFC’s return on total equity declined in 2022, however its return on common equity
has improved in 2022 which indicates that the firm was able to convert its equity financing into
profits.

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ANALYSIS ON OPERATING RATIOS AND LEVERAGE RATIOS

2022 2021
FINANCIAL LEVERAGE TIMES 1.57 1.27
EARNING PER SHARE RS 15.76 17.21
PRICE/EARNING RATIO TIMES 6.26 5.83
DIVIDEND PAYOUT % 76.97 84.25
BOOK VALUE PER SHARE RS 87.76 97.7
DIVIDEND YIELD RATIO % 11.32 13.74

The operational and leverage situation of the firm is displayed in the above chart. In 2022, the
company's financial leverage grew, showing that FFC had a higher debt to equity ratio. We have
already seen in the report that FFC's interest expenditure has risen over time, proving the
aforementioned claim. In 2022, the company's earnings per share decreased, which illustrates the
declining worth of the organization. Because investors won't pay much for the firm's shares if
they believe the company has fewer earnings relative to its share price, a lower EPS indicates
lesser value.
In 2022, the company's price-earnings ratio rose. This might imply that the share price of the
FFC is too high in relation to its earnings. The fall in the dividend payout ratio in 2022 suggests
that FFC is not paying its investors the same percentage of dividends. On the plus side, it may
imply that FFC is investing its earnings rather than dispersing them as dividends. In 2022, the
company's book value per share decreased as well, and it now exceeds its market value per share.
This suggests that FFC's stock price is overvalued.
The company’s dividend yield ratio also declined in 2022. This makes the company look less
attractive for the investors as they are not receiving much against their investment.

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STATEMENT OF CASHFLOW ANALYSIS

RS. IN MILLION
2022 2021
OPERATING CASHFLOW 1,577 22,020
CURRENT PORTION OF LTL 95,296 67,062
TOTAL DEBT 189,287 153,492
PREFERRED DIVIDENDS - -
COMMON SHARES 1,272 1,272
OUTSTANDING
CASH DIVIDENDS 17,334 16,853

2022 2021
Operating Cashflow Formula 0.016 times 0.328 times
Operating Cashflow Formula for 0.0083 times 0.143 times
total debt
Operating cashflow per share Rs. 1.24/share Rs. 17.311/share
Operating cashflow/cash 0.09 times 1.31 times
dividends

A ratio that shows a company's capacity to pay its current debt maturities is operational cash
flow/current maturities of long-term debt and current notes payable. The stronger the firm's
capacity to fulfil its present debt obligations, the higher this ratio. The greater the firm's liquidity,
the higher this ratio. FFC’s ratio declined in 2022 as its operating cashflow declined sharply in
2022. Despite having the highest ever turnover, cash flows from operating activities at the end of
2022 were recorded at Rs 1.58 billion, a 95% decrease from 2017. This decline was primarily
caused by an increase in working capital requirements brought on by the global commodity super
cycle and currency devaluation, as well as higher than average tax payments because of the
imposition of the super tax. This indicates that FFC is unable to pay its short-term obligations in
2022.

The operating cash flow/total debt indicates a firm’s ability to cover total debt with the yearly
operating cash flow. The greater the ratio, the more effectively the company can service its total
debt. This is deemed significant from a debt perspective. This ratio of FFC has also declined in

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2022 which shows that the firm does not have the capacity to pay off its debt, using the cash
generated from its operating activities. The ratio suggests that FFC can pay off its debt 0.0083
times, using the cash from its operating activities in a year, which is a very small number.

The Cash Flow Per Share measures the operational cash flow (OCF) generated by a firm that is
attributable to each outstanding common share. In the short term, operating cash flow per share
provides a more accurate picture of a company's capacity to decide whether to invest in capital
projects and pay dividends than does earnings per share. FFC’s operating cashflow per share
declined drastically in 2022 because of the obvious reason. The reduction in the operating
cashflow of FFC is the reason behind the decline in this ratio of the firm. This indicator shows a
company's capacity to service debt, distribute dividends, repurchase shares, and support
corporate expansion. Additionally, a rough forecast for future share prices may be made using
the free cash flow per share. For instance, if a company's share price is low and its free cash flow
is increasing, there is a significant chance that earnings and share value will soon increase as
well since high cash flow per share implies high earnings per share. The decline in the firm’s
EPS and cashflow per share indicates that the company’s shares are not performing well in the
market and it does not have the capacity to pay dividends to its investor. This would lower the
confidence of the investors and they might end up pulling their investment out.

The operational cash flow/cash dividends ratio shows if a company has enough yearly operating
cash flow to fund cash dividends. The firm's capacity to cover cash dividends increases as the
ratio rises. FFC’s operating cashflow/cash dividends ratio declined in 2022, which means the
firm does not have the capacity to pay cash dividends to its investors.

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SUMMARY AND CONCLUSIONS
In this paper, we demonstrate that financial ratio analysis using data for an actual company- Fauji
fertilizer- fertilizer industry. Based on the performance of Fauji Fertilizer in 2021 and 2022, it
can be concluded that the company has shown significant growth and improvement. In 2021, the
company achieved a net profit of Rs. 15.69 billion and in 2022; it exceeded its own projections
with a net profit of Rs. 17.7 billion. This highlights the improvement in both years. In 2021, the
company's profits increased by 44% compared to the previous year, due to increased production
and sales of fertilizer products. In 2022, Fauji Fertilizer has shown resilience in the face of
pandemic-related challenges and continued to maintain its profitability. The company's
commitment to investing in technology, innovation, and sustainability has enabled it to stay
ahead of its competitors and consistently deliver value to its customers and shareholders.
Overall, Fauji Fertilizer's performance has been impressive, and it is likely to continue growing
and expanding its operations in the coming years.
Furthermore, on the analysis of the liquidity ratio of Fauji Fertilizer Company Limited for the
years 2021 and 2022, it can be concluded that the company has managed to maintain a healthy
liquidity position during this period. In 2021, the company's liquidity ratio was 1.41, indicating
that it had sufficient assets to cover its short-term liabilities. By 2022 be concluded that the
company has maintained a stable liquidity position over the years. The current ratio, which
measures the ability of the company to pay off its short-term obligations, has improved from
1.58 in 2021 to 1.71 in 2022, indicating that the company has sufficient current assets to meet its
current liabilities.
Similarly, the quick ratio, which measures the company's ability to meet its immediate cash
requirements, has also improved from 0.96 in 2021 to 1.06 in 2022. This demonstrates that the
company has strengthened its cash position by increasing its liquid assets. Overall, the liquidity
ratio analysis suggests that Fauji Fertilizer Company Limited has successfully managed its
liquidity position, strengthening its ability to meet its short-term obligations. This is a positive
signal for investors and stakeholders, indicating that the company is well-positioned to weather
potential financial challenges.
While the leverage ratio for the company was at a reasonable level in 2021, it is expected to
increase in 2022 due to the company's plans for capital expenditure and expansion .has a
relatively high leverage ratio in both years, indicating a significant dependence on debt financing
to carry out its operations. This could potentially lead to higher interest expenses and financial
risk for the company.
However, it should be noted that Fauji Fertilizer's revenue and profits have been increasing
annually, and the company has been able to generate positive cash flows from its operations
despite its high leverage ratio. Therefore, the company may be able to manage its debt
effectively in the future and maintain its financial stability. While the high leverage ratio is a
cause for concern, it is important to consider Fauji Fertilizer's financial performance in
conjunction with its debt levels. Further evaluation of the company's financial ratios and

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performance metrics may be necessary to gain a comprehensive understanding of its financial
position.
Moreover, the company has been performing well in terms of generating cash, managing its
operating expenses and maintaining liquidity. The operating ratios, particularly the gross profit
margin, indicate that the company has been able to maintain a healthy level of profitability
despite facing some be concluded that the company has performed well financially. The
company's strong operating cash flows in both years indicate efficient management of its
working capital and effective cost control measures. Additionally, the operating ratio has
improved significantly in 2022, demonstrating an enhancement of efficiency in operating
expenses. This shows that the company is managing its costs effectively while generating healthy
revenue growth. The company's heavy investments in long-term assets indicate its confidence in
future growth prospects. The increase in cash from investing activities suggests that the company
is continuing to focus on expanding its operations for future growth.
Fauji Fertilizer's financial performance in 2021 and 2022 is promising and suggests that the
company is headed in the right direction. The company's effective cost control measures and
investments in long-term assets demonstrate its commitment to sustainable growth. Therefore,
investors can consider investing in the company's shares for potential long-term benefits.

REFERENCES
1. https://books.google.com.pk/books/about/Financial_Management_Theory_Practice.html?
id=yL4aCgAAQBAJ&redir_esc=y
2. https://ibfbzu.edu.pk/wp-content/uploads/2020/08/Charles-H.-Gibson-Financial-Reporting-and-
Analys.pdf

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3. https://ffc.com.pk/wp-content/uploads/AR-20_1.pdf
4. https://ffc.com.pk/wp-content/uploads/FFC-AR-2021.pdf
5. https://ffc.com.pk/wp-content/uploads/FFC-AR-2022-2.pdf
6. https://ffc.com.pk/wp-content/uploads/ar-2019.pdf

7. https://ffc.com.pk/company-profile/

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