Tuesday, 16 August 2011Tuesday, 16 August 2011Finance Project on
Ratio Analysis on ENGRO
THE ORGANIZATION CONCERNED
Engro Chemical Pakistan Ltd.
Engro Chemical Pakistan Limited is a fertilizer company which is
of their concern that has been introduced right below. They are
going to make a full-fledge financial analysis of this fertilizer
company in order to check its financial situation in the market.
The analysis of each and every major ratio has been involved in
this financial analysis. Then furthermore the interpretation of
each and every ratio has been given to elaborate it.
An Overview
Search for oil by Pak Stanvac, an Esso/Mobil joint venture in
1957, led to the discovery Of Mari gas field situated near Daharki
-- a small town in upper Sindh province. Esso was the first to
study this development in detail and propose the establishment of a
urea plant in that area.The proposal was approved by the government
in 1964, which led to a fertilizer plant agreement signed in
December that year. Subsequently in 1965, the Esso Pakistan
Fertilizer Company Limited was incorporated, with 75% of the shares
owned by Esso and 25% by the general public. The construction of a
urea plant commenced at Daharki the following year with the annual
capacity of 173,000 tons and production commenced in 1968. At US $
43 million, it was the single largest foreign investment by an MNC
in the country.
A full-fledged marketing organization was established which
undertook agronomic programs to educate the farmers of Pakistan. As
the nations first fertilizer brand, Engro (then Esso) helped
modernize traditional farming practices to boost farm yields,
directly impacting the quality of life not only for farmers and
their families, but for the community at large. As a result of
these efforts, consumption of fertilizers increased in Pakistan,
paving the way for the Companys branded urea called "Engro", an
acronym for "Energy for Growth".As part of an international name
change program, Esso became Exxon in 1978 and the company was
renamed Exxon Chemical Pakistan Limited. The company continued to
prosper as it relentlessly pursued productivity gains and strived
to attain professional excellence.
In 1991, Exxon decided to divest its fertilizer business on a
global basis. The employees of Exxon Chemical Pakistan Limited, in
partnership with leading international and local financial
institutions bought out Exxons 75 percent equity. This was at the
time and perhaps still is the most successful employee buy-out in
the corporate history of Pakistan. Renamed as Engro Chemical
Pakistan Limited, the Company has gone from strength to strength,
reflected in its consistent financial performance, growth of the
core fertilizer business and diversification into other
fields.Investment in people, process solutions and resource
conservation initiatives has reduced energy use per ton of urea by
a third, whilst increasing urea production nearly six-fold since
1968. Not only does this save money, it stretches non-renewable
energy sources and mitigates the impact of waste. Along the way, a
major milestone in plant capacity upgrade coincided with the
employee led buy-out; innovatively optimizing our resources, Engro
re-located fertilizer manufacturing plants from the UK and US to
its Daharki plant site an international first. Our pioneering
spirit continues in our social investments, exemplified by the only
snake-bite treatment facility in the Ghotki region and the first
telemedicine intervention in the country.
WVision"To be the premier Pakistani enterprise with a global
reach, passionately pursuing value creation for all
stakeholders."
Our Diverse Colors of Excellence
Our Businesses
The years since Exxon became Engro have been both exciting and
rewarding for the Organization and its people. Challenges have been
overcome, goals achieved and new goals set. Engro today stands
recognized as a successful business operation and a role model for
doing business in Pakistan.
Engro Chemical Pakistan LimitedThe Companys current
manufacturing base includes urea name plate capacity of 975,000
tons per annum and blended fertilizer (NPK) capacity of 160,000
tons per year. A premier brand and nationwide presence ensure
sellout production. Additionally, the company imports and sells
phosphatic fertilizers for balanced fertility and improved farm
yields. Engros share of Pakistans phosphates market mirrors or
exceeds its urea market share.Expansion plans include a new urea
plant of 1.3 million tons annual capacity, also at Daharki. The US$
1 billion project is well underway and on track for commercial
production in mid 2010. This addition will increase Engros urea
market share to 35% from 19% at present.
Engro Vopak Terminal Limited
50:50 Joint Ventures with Royal Vopak - a Netherlands based
global leader in terminal operations. EVTL operates a bulk liquid
chemical terminal at Port Qasim, Karachi. It has an impeccable
safety record of handling a range of chemicals and LPG for over 10
years.EVTL is building Pakistans first cryogenic Ethylene storage
facility and expects to be ready by early 2009. Given its
experience with gasses, cryogenics, a brown field location and
international operating standards, EVTL is well-positioned to build
a LNG terminal, being pursued by the Government of Pakistan.
Engro Polymer and Chemicals Ltd.
EPCL is undergoing expansion involving PVC production increase
of 50,000 tones (current capacity: 100,000 tons p.a. and back
integration through setting up of an EDC/VCM plant and a Chlor
alkali plant. These initiatives are expected to conclude in phases
by first half of 2009. At Port Qasim, this 56% Engro owned Company
is involved in manufacturing, marketing and selling Polyvinyl
Chloride (PVC).
Avanceon
A 63% owned subsidiary of Engro, EIAL is the leading global
automation business, providing process & control solutions. It
also offers Power & Energy Management software solutions as
well as High-End software that integrate production and business
applications. Previously operating in Pakistan and UAE, they have
now penetrated in the USA market with the merger of ENGRO
Innovative and Advance Automation. Advance Automation is an award
winning technology solutions provider to manufacturers in North
American and has been awarded as the System Integrator of the Year
2007 by Control Engineering.
Synchronizing to a single brand worldwide with all the
engineering Standards, processes, brand identity and global brand
recognition was a huge task and due to various different cultural
factors it was even complex then perceived.
After days of hard work AVANCEON emerged as the new name and the
true Global Automation Player. The new company name will help to
reinforce the single brand identity that has emerged over the last
16 days as the two formerly separate companies have successfully
worked to become a single global enterprise.
Engro Foods Limited (EFL)
Engro Foods, a wholly owned subsidiary had its first full year
of operations in 2007. The Company continued expanding with
additions to brand portfolio, milk production and distribution
capacities.The portfolio now includes four impressive brands;
Olper's milk,Olpers cream,OlwellandTarang.Olpers market share
peaked at 17%during 2007. EFL operates two dairy processing
factories located in Sukkur, and Sahiwal. The companys milk
collection network now boasts over 700 village milk collectors and
400 milk collection centers. Covering 2400 villages across
Pakistan, the activities of the Company touch the lives of almost
51,000 farmers.
An exciting new venture is the diversification of dairy
portfolio into ice cream. Work has commenced full throttle for
detailed engineering and market study with a view to launch of
first ice cream in 2009. Also on EFL slate is the establishment of
a dairy farm with milking expected to start in second quarter
2009.Engro Energy Limited (EEL)
This wholly owned subsidiary is setting up an Independent Power
Plant near Qadirpur in Sindh; Targeting 2009 for commercial
operations, the power project will have a net output of 217 MW. The
plant will utilize low heating value permeate gas from Qadirpur gas
field which is currently being flared.Engro Eximp (Pvt.)
Limited
Engro Eximp (Pvt.) Limited is a wholly owned subsidiary in the
trading business of fertilizer imports.Spectrum of our products
& services products & services
Products & Services
Our wide spectrum of products and services clearly shows the
diversity in our Businesses, each one designed to make life better
for our customers
Fertilizersby Engro Chemical Pakistan Limitedduct line that
focuses on balanced crop nutrition and higher yield for the
farmNitrogenous Fertilizers
ENGRO UREA is a trusted high grade fertilizer containing 46%
Nitrogen (N), with moderate hydroscopicity. It has a pH value of
6.8 (organic molecule) and is suitable for all crops on all soils.
Engro Urea is an excellent source of Nitrogen for the vast majority
of cultivated soils of Pakistan.
Phosphatic Fertilizers
Engro DAP:contains 46% P2O5 and 18% N. More than 90% of
Phosphate (P) is water soluble. It has a pH value of 7.33 and is a
good source of P fertilizer for all crops. It is an equally good
source on problem soils (saline sodic) with coarse texture. On an
overall basis it suits to about 90% soils of the country.
Engro Zorawar:is one of the highest grade phosphatic
fertilizers. It is acidic in reaction (pH >= 3.5) and contains
52% P2O5 of which more than 90% is water soluble, while the rest is
citrate soluble. In addition to P, it contains 12% N, 2% sulphur
and 1% calcium. It is a beneficial fertilizer for all crops on all
soils of Pakistan and produces excellent results on alkaline soils,
due to its acidic
the acidic pH of Engro Zorawar also tends to slow down the rapid
conversion of soluble P to water insoluble compounds, keeping it
plant available for a longer period of time.Engro Phosphate:is
brown colored mono ammonium phosphate with 11% nitrogen and 52%
phosphorus. It is being marketed as relatively cheaper alternate of
DAP.
Blended Fertilizers
Engro Zarkhez:is homogenously granulated fertilizer which
maximizes crop yield by providing balanced nutrition for a wide
variety of crops through the uniform availability of Nitrogen,
Phosphorous and Potassium. Engro Zarkhez grades are specially
produced to suit the requirements of individual crops and soils,
and provide convenience to the farmer through ready availability of
precise quantities of primary nutrients.Engro Zarkhez fertilizers
have low moisture content, high crush strength; 2mm-4mm granule
size and free flowing nature - attributes which ensure excellent
handling and application characteristics.
Engro NP:it provides 22% nitrogen, and 20% phosphorus. ECPL
entered into NP business in 2005 to cater the need of its customers
for this established category. Primary focus area for ENP marketing
is South Zone (Sindh).
Micro NutrientsZingro:Zinc Sulphate, a highly effective and
potent fertilizer which primarily targets Zinc deficiency in crops
like Rice, Potato, Maize, Sugar cane, Wheat, Cotton, vegetables and
fruits. Zingro increases crop yield and enhances crop
appearance.
PVC Resina synthetic resin composed of repeating units of vinyl
chloride. It is very versatile and is used in a wide variety of
products
Chemical handling & StorageBy Engro Vopak Terminal
Limited
A state of the art jetty and terminal at Port Qasim, Karachi for
handling and storage of LPG and bulk liquid chemicals
Industrial Automationby Avanceon (formerly known as Engro
Innovative Automation Pvt. Limited)
Providing process control solutions to your industrial
unitsMarket leader in industrial automation business providing
process control solutions to Industrial units. It offers Power
& Energy Management Software solutions as well as High end
Software that integrate production and business application.
Providing process control solutions to your industrial units
Industrial Automation
Market leader in industrial automation business providing
process control solutions toIndustrial units. It offers Power &
Energy Management Software solutions as well asHigh end Software
that integrate production and business application.
Providing process control solutions to industrial units and
management software solutions
Foodsby Engro Foods Limited
Olpers:Standardized at 3.5% fat, Olpers is a premium, UHT
all-purpose milk.Olwell HCLF:(High Calcium, Low Fat) Olwell is a
premium quality milk for the health conscience.Olpers Cream: UHT
Cream standardized at 40% fat
Tarang:Liquid tea whitenerState of the art dairy processing
plant
Our 217 MW Power Plant.
Power Generationby Engro Energy Limited
Engro identified a Power Project based on low BTU, high H2S gas
from Qadirpur gas Field. The project is unique as it will convert
low BTU high sulphur content permeate gas, which is currently being
wasted and flared, into 217 MW electric powerConverting wasted
flare gas into energy at the 217 MW Power Plants
Quality
Improvisation through Six Sigma: the legend leads againEmployee
development is one of the pivotal areas for Organizational
development. To Organizational competence levels, new training
programs encompassing Performance Management, Leadership, and
Competency Development are introduced.Engro is among the first
Pakistani companies implementing six sigma across all areas and
utilizing it as a management system to execute its strategic
objectives. Among the focus areas, employee development is the most
critical and six sigma is leveraged to help bring out the best in
our people. Employees will drive improvements in other areas;
speed, innovation, perfection and in becoming world class
professionals.Six Sigmas robust problem solving methodology and
statistical toolkit allows the company to benchmark processes
against global standards in a language that is comparable across
any industry or function. It helps ensure that Engro sustains its
promise of delivering high quality products and services to its
customers on time, every time.
Packing & Loading:The finished product is packed with the
utmost care by trained personnel, and loaded directly in to
containers for export purposes. All packing and loading is done
under strict supervision, while maintaining maximum quality and
safety standards. To facilitate their customers, they provide yarn
packed in 100Lbs and 50Lbs sea-worthy export cartons. They also
have facility to provide customers with polythene film shrink
wrapped Pallet packing to specially accommodate customers in
Europe/USA and help them reduce the labor handling costs.Business
practiceOur Advisory Capacity
Principal Operations Committee
The following committees act at the operation level in an
advisory capacity to the Chief Executive Officer, providing
recommendations relating to business and employee Matters:
Management Committeeis responsible for review and endorsement of
long term strategic plans, capital and expense budgets, development
and stewardship of business plans and reviewing the effectiveness
of risk management processes and internal control.Corporate HSE
Committeeis responsible for providing leadership and strategic
guidance on all Health, Safety and Environment (HSE) improvement
initiatives and has stewardship responsibility for monitoring
compliance against regulatory standards and selected international
benchmarks.COED Committeeis responsible for the review of
Compensation, Organization and Employee Development (COED) matters
of all people excluding employee Directors and Senior
Executives.Throughout the 40 plus years of Engros history, our
people have come up with ideas and determination that drove the
company forward in all sorts of times.
Corporate GovernanceEngros governance structure responds to the
industrys best practices demands Ensuring that all aspects with
respect to economic, environmental and social obligations are fully
considered and business decisions are taken after evaluating their
impact on The Companys triple bottom line - People, Planet and
Profits.
Compliance Statement
The Board of Directors has throughout the year 2007 complied
with the Code of Corporate Governance contained in the listing
requirements of the stock exchanges and the Corporate and Financial
Reporting framework of the Securities and Exchange Commission of
Pakistan.
Risk Management Process
In 2007, the Management Committee undertook a review of major
financial and operating risks faced by the business.
Internal Control Framework
Responsibility: The Board is ultimately responsible for Engros
system of internal control and for reviewing its effectiveness.
However, such a system is designed to manage rather than eliminate
the risk of failure to achieve business objectives, and can provide
only reasonable and not absolute assurance against material
misstatement or loss.
The Board, whilst maintaining its overall responsibility for
managing risk within the Company, has delegated the detailed design
and operation of the system of internal controls to the Chief
Executive.
Framework:The Company maintains an established control framework
comprising clear structures, authority limits, and
accountabilities, well-understood policies and procedures and
budgeting and review processes.
The Board establishes corporate strategy and the Companys
business objectives. Divisional management integrates these
objectives into divisional business strategies with supporting
financial objectives. All policies and control procedures are
documented in manuals
Review:The Board meets quarterly to consider Engros financial
performance, financial and operating budgets and forecasts,
business growth and development plans, capital expenditure
proposals and other key performance indicators.The Board Audit
Committee receives reports on the system of internal financial
controls from the external and internal auditors and reviews the
process for monitoring the effectiveness of internal controls.
There is a company wide policy governing appraisal and approval
of investment expenditure and asset disposals. Post completion
reviews are performed on all material investment expenditure.
Audit: Engro has an Internal Audit function. The Board Audit
Committee annually reviews the appropriateness of resources and
authority of this function. The Head of Internal Audit reports
directly to the Audit Committee on the results of its work.
The Internal Audit function carries out reviews on the
financial, operational and compliance controls, and reports on
findings to the Chief Executive and the divisional management. All
material issues are reported to the Board Audit Committee which
approves the audit program, based on an annual risk assessment of
the operating areas. To underpin the effectiveness of controls, it
is Engros policy to attract, retain and develop staff of high
caliber and integrity in appropriate disciplines. There is an
annual appraisal process, which assesses employee performance
against agreed objectives and identifies necessary training to
maintain and enhance standards of performance.
Values that we live by
Core Values
Our employees' performance can only flourish in a sound work
environment. That is why ENGRO is committed to supporting its
leadership culture through systems and policies that foster open
communication, maintain employee and partner privacy, and
assureEmployee health and safety.
SAFETY, HEALTH & ENVIRONMENTWe will manage and utilize
resources and operations in such a way that the safety and health
of our people, our neighbors. Our customers and our visitors are
ensured. We believe our safety, health and environmental
responsibilities extend beyond protection and enhancement of our
own facilities, and we are concerned about the distribution, use
and after use disposal of our products.
ETHICS AND INTEGRITYwe do care how results are achieved and will
demonstrate honest and ethical behavior in all our activities.
Choosing the course of highest integrity is our intent and we will
establish and maintain the highest professional and personal
standards. A well-founded reputation for scrupulous dealing is
itself a priceless asset.LEADERSHIPwe have leaders of high
integrity. Energy and enthusiasm that have the necessary
managerial, professional and people skills to inspire a group or an
organization to set high goals and achieve them willingly. We
believe that leadership skills need to be strengthened at all
levels within our organization and that managerial and professional
competence is a necessary foundation.
QUALITY &CONTINUOUS IMPROVEMENTwe believe that quality and a
relentless commitment to continuous improvement are essential to
our ongoing success. To this end, we define quality as
understanding the customer's expectations, agreeing on performance
and value, and providing products and services that meet
expectations 100 percent of the time. Our motto is, "Quality in all
we do."
ENTHUSIASTIC PURSUIT OF PROFITsuccessfully discharging our
responsibilities to our shareholders to enhance the long-term
profitability and growth of our company provides the best basis for
our career security and meaningful personal growth. We can best
accomplish this by consistently meeting the expectations of our
customers and providing them with value.
EXTERNAL & COMMUNITY INVOLVEMENTWe believe that society must
have industrial organizations that it can trust. Trust and
Confidence are earned by our performance, by open and direct
communication, and by active involvement in the communities in
which we live and conduct our business."
CANDID & OPEN COMMUNICATIONSWe value communications that are
courteous, candid and open and that enable each of us to do our
jobs more effectively by providing information that contributes to
the quality of our judgment and decision making. Effective
communication should also provide the means for gaining
understanding of the company's overall objectives and plans and of
the thinking behind them.
ENJOYMENT & FUNWe believe that excitement, satisfaction and
recognition are essential elements of a healthy, creative and
high-performing work environment. Having fun in our work should be
a normal experience for everyone.
INNOVATIONSuccess requires us to continually strive to produce
break through ideas that result in improved solutions and services
to customers. We encourage challenges to the status quo and seek
organizational environments in which ideas are generated, nurtured
and developed.
INDIVIDUAL GROWTH & DEVELOPMENTwe strongly believe in the
dignity and value of people. We must consistently treat each other
with respect and strive to create an organizational environment in
which individuals are encouraged and empowered to contribute, grow
and develop themselves and help to develop each other.
TEAMWORK & PARTNERSHIPwe believe that high-performing teams
containing appropriate diversity can achieve what individuals alone
cannot. Consciously using the diversity of style. Approach and
skills afforded by teams is strength we must continue building into
our organization.
DIVERSITY & INTERNATIONAL FOCUSWe value differences in
gender, race, nationality, culture, personality and style because
diverse solutions, approaches and structures are more likely to
meet the needs of customers and achieve our business
goals.Corporate Responsibility ReportOur employees bring expertise
and dedication to the workplace
Our People
More than 700 employees bring expertise and dedication to the
workplace. We value each employee, value their input and views.
Continuously striving to become employer of choice, we provide a
workplace where people feel confident, valued and inspired.
The Organization of ComparisonFauji Fertilizer Company
The organization with whom the comparison of Engro Chemical
Pakistan Limited is to be done is FFC Limited. The comparison can
only be done by making the financial analysis of this particular
Fertilizer Companies in a similar way in which the analysis of
Engro Chemical Pakistan Limited is to be done by first of all
calculating all the major five ratios and interpreting them one by
one thereby gaining a position to make a comparison become their
financial situation.
An Overview
With a vision to acquire self - sufficiency in fertilizer
production in the country, FFC was incorporated in 1978 as a
private limited company. This was a joint venture between Fauji
Foundation (a leading charitable trust in Pakistan) and Haldor
Topsoe A/S of Denmark.The initial authorized capital of the company
was 813.9 Million Rupees. The present share capital of the company
stands at Rs. 3.0 Billion. Additionally, FFC has Rs. 1.0 Billion
stakes in the subsidiary Fauji Fertilizer Bin Qasim Limited
(formerly FFC-Jordan Fertilizer Company Limited).FFC commenced
commercial production of urea in 1982 with annual capacity of
570,000 metric tons.Through De-Bottle Necking (DBN) program, the
production capacity of the existing plant increased to 695,000
metric tons per year.Production capacity was enhanced by
establishing a second plant in 1993 with annual capacity of 635,000
metric tons of urea.FFC participated as a major shareholder in a
new DAPS/Urea manufacturing complex with participation of major
international/national institutions. The new company Fauji
Fertilizer Bin Qasim Limited (formerly FFC-Jordan Fertilizer
Company Limited) commenced commercial production with effect from
January 01, 2000. The facility is designed to produce 551,000
metric tons of urea and 445,500 metric tons of DAP.This excellent
performance was due to hard work and dedication of all employees
and the progressive approach and support from the top management.In
the year 2002, FFC acquired ex Pak Saudi Fertilizers Limited (PSFL)
Urea Plant situated at Mirpur Mathelo, District Ghotki from
National Fertilizer Corporation (NFC) through privatization process
of the Government of Pakistan.This acquisition at Rs. 8,151 million
represents one of the largest industrial sector transactions in
PakistanMissionStatementFFC's mission is to sustain its role as the
leader in industrial and agricultural advancement of Pakistan by
setting and achieving new and higher goals and taking initiatives.
The Company is committed to ensuring safe and conducive work
environment, providing high quality products and allied services to
its customers and profitable returns to itsshareholders.
RATIO ANALYSIS(Engro Chemical Pakistan Ltd.)
Ratios simply mean a number expressed in terms of another. A
ratio is a statistical yardstick by mean of which relationship
between two or various figures can be compared or measured. Thus
Ratio Analysis shows the relationship between accounting data.
Ratio can be found out by dividing on number by another number.
Ratio analysis is an important and age old technique of financial
analysis. Following are some of the advantages of ratio
analysis.Advantages:It simplifies the comprehension of financial
statements.Ratios tell the whole story of changes in the financial
condition of the business.It provides data for inter-company
comparison. Makes inter-company comparison possibleRatio analysis
also makes possible comparison of the performance of different
divisions of the company. The ratios are helpful in deciding about
their efficiency or otherwise in the past and likely performance in
the future.Ratios highlight the factors associated with successful
and unsuccessful company. They also reveal strong companies and
weak companys, over-valued under-valued companies.It helps in
planning and forecasting. Ratios can assist management, in its
function of forecasting, planning, co-ordination, control and
communications.It helps in investment decisions in the case of
investors and lending decisions in the case of investors and
lending decisions in the case of bankers etc.
Types of Ratios Analysis
Let us now have a detailed analysis of all the following four
ratios for Engro chemicals Pakistan Ltd:Liquidity RatiosLeverage
RatiosActivity RatiosProfitability Ratios
Liquidity Ratios:Current Ratio:Current Ratio is equal to current
assets divided by current liabilitiesCurrent Ratio =Current
AssetsCurrent Liabilities
2006 2007:Current Ratio =163971980005264674000Current Ratio =
3.112005 - 2006:Current Ratio =56844460003642415000Current Ratio =
1.562004 - 2005:Current Ratio =50115550002800094000Current Ratio =
1.79Comparison over the years / Interpretation:
Current ratio is a general and quick measured of liquidity of
company. It represents the margin of safety or cushion available to
the auditor. It is the index of the companys financial stability.
It is also an index of the financial solvency and index of strength
of working capital.The current ratio of the company is increasing
over the years right from 2004-07 constantly, that is, it was 1.79
in 2004-05 and it is 3.11 in 2006-07.
Acid Test (Quick) Ratio:Acid Test (Quick) ratio is equal to
Current assets fewer inventories divided by current liabilities. It
gives more liquid amount of assets to cover your liabilities.
Quick Ratio =Current assets InventoriesCurrent liabilities2006
2007:Quick Ratio =1639719800026901530005264674000Quick Ratio =
0.26
2005 - 2006:Quick Ratio =5684446000 9234480003642415000Quick
Ratio = 1.312004 - 2005:Quick Ratio =5011555000
19229820002800094000Quick Ratio = 1.10
Comparison over the years / Interpretation:
The quick test ratio is a very useful measuring of the liquidity
position of the company. It means that companys ability to pay its
short-term obligations or current liabilities immediately and is a
more rigorous test of liquidity than the current ratio.The quick
ratio of the company as is shown by the above calculations is not
consistent, and decreasing with large percentage that is, the
company is getting lesser and lesser liquid current assets to cover
its current liabilities.
Leverage ratios:Debt Equity Ratio:Debt equity ratio is equal to
long term debts divided by stockholders equity.Debt Equity ratio
=Long Term DebtsStockholders equity2006 2007:Debt equity ratio
=174100600001934692000Debt equity ratio = 1.53482005 - 2006:Debt
equity ratio =370,501,304233,187,729Debt equity ratio = 1.5882004 -
2005:Debt equity ratio =316,314,578000190,255,511000Debt equity
ratio = 1.6625
Comparison over the years / Interpretation:
This ratio indicates the proprietors claims of owners and
outsiders against the companys assets. The purpose is to get an
idea of the cushion available to outsiders and the liquidity of the
company. The interpretation of the ratio depends upon the financial
and business policy of the company.The debt ratio of the company
has decreased gradually over the years right from 2004-07 which is
actually a positive sign for the company.Debt Equity ratio
increment is a negative point to management that the more of their
business is financed by debts this will increase their financial
charges or interest expense and companys liquidity and hence
decreasing the companys profit. The lower the ratio the higher the
companys financing that is provided by the shareholders and larger
the creditors cushion (margin of protection) in the extent of
shrinkage of assets values or outright loss.Debt Ratio:Debt ratio
is equal to total liabilities divided by total assets.Debt Ratio
=Total LiabilitiesTotal Assets2006 2007:Debt Ratio
=700573400038156651000Debt Ratio = 0.182005 - 2006Debt Ratio
=393934900015980816000Debt Ratio = 0.252004 - 2005Debt Ratio
=673606400014111630000Debt Ratio = 0.48
Comparison over the years / Interpretation:
It can be defined as how much sufficient our assets are in
retrieving the total debts. The debt ratio of the company has been
decreasing quite intensively almost over the last three years as
shown clearly by the above calculations.
Times Interest Earned (Coverage Ratio):
It briefs that how many times the company has earned the
interest. Or how many times the company has user it's earning
before interest and taxes to cover the interest expense.Times
Interest Earned =Profit before Interest and TaxesInterest
Expense2006 2007:Interest coverage Ratio
=4770535000535023000Interest Coverage Ratio = 8.92 times2005 -
2006:Interest coverage Ratio =2602207000362551000Interest Coverage
Ratio = 7.18 times2004 - 2005:Interest coverage Ratio
=34996421000280070000Interest Coverage Ratio = 12.5 times
Comparison over the years / Interpretation:
The interest coverage ratio is a very important from the lender
point of view. It indicates the number of times interest is covered
by the profit available to pay interest charges. It is an index of
the financial strength of the enterprise. A high ratio assures the
lender a regular and periodic interest income. But weakness of the
ratio may create some problems for the companys financial manager
in raising funds from the debts sources.The no. of times the
company earns interest has fluctuated dramatically, that is, it was
12.5 in 2005, decreased down to 7.18 in 2006 and to rise up to 8.92
in 2007.
Activity RatiosInventory Turnover Ratio:Inventory Turnover Ratio
is equal to Cost of Goods Sold divided by Average
Inventory.Inventory Turnover ratio =Cost of Goods SoldAvg.
Inventory2006-2007Inventory Turnover Ratio
=182627930001808192327Inventory Turnover Ratio = 10.1 times2005
2006Inventory Turnover Ratio =133645240001421757872Inventory
Turnover Ratio = 9.4 times2004 - 2005:Inventory Turnover Ratio
=143328240001291245405Inventory Turnover Ratio = 11.1 times
Comparison over the years / Interpretation:
Inventory turn over ratio measures the velocity of conversion of
stock into sales. In other words how rapidly inventory is turning
into receivables through sales.In 2006 it was 9.4 times and in 2007
it was 10.1 times. In 2006 the ratio was low because of over
investment in inventories. In year 2007 it is better that is 10.1
times in the year, which is quite good because of good
management.
Inventory Holding Period in days:
Inventory holding period in days is equal to number of days in a
year divided by inventory turnover ratio.Inventory Holding Period
in Days =No. of days in a yearInventory Turnover ratio2006
2007:Inventory turnover indays=36010.1Inventory turnover indays=
36days2005 - 2006:Inventory turnover indays=3609.4Inventory
turnover indays= 38days2004 - 2005:Inventory turnover
indays=36011.1Inventory turnover indays= 32days
Comparison over the years / Interpretation:
Inventory turn over ratio measures the velocity of conversion of
stock into sales. In other words how rapidly inventory is turning
into receivables through sales.In 2006 it was 38 days times and in
2007 it was 36 days. In year 2006 it was quite good and in 2007 it
is better that is 36 days in a year to move inventory through
sales, which is quite good because of good management and
polices.
Net Fixed Assets Turnover Ratio:
Net Fixed assts turnover ratio is obtained by dividing sales
with net fixed assets, where,(Net fixed assets = Total fixed Assets
Accumulated Depreciation)
Net Fixed Asset Turnover Ratio =SalesNet Fixed assets
2006 2007:Fixed asset turnover ratio=2318322200021759453000Fixed
asset turnover ratio = 1.939 times2005 - 2006:Fixed asset turnover
ratio =17601783000600,565,280Fixed asset turnover ratio = 1.5148
times2004 - 2005:Fixed asset turnover ratio
=18276277000480,566,483Fixed asset turnover ratio = 1.4437
times
Comparison over the years / Interpretation:
Fixed asset turnover ratio measures sales productivity and plant
and equipment utilization. It is clear that this ratio is rising
from 2006 which is 1.5 to 1.93 in 2007
Total Asset Turnover:Total asset turnover ratio measures that
how much sales are generated through the total assets of the
organization.Total Asset Turnover Ratio =SalesTotal assets2006
2007:Total asset turnover ratio=2318322200015980816000Total asset
turnover ratio = 1.45 times2005 - 2006:Total asset turnover ratio
=1760178300015980816000Total asset turnover ratio = 1.1 times2004 -
2005:Total asset turnover ratio =1827627700014111630000Total asset
turnover ratio = 1.30 times
Comparison over the years / Interpretation:
It shows that company must manage its total assets efficiently
and should generate maximum sales through their proper utilization.
As the ratio, increases there are more revenue generated per rupee
of total investment in asset. The company ability to produce a
large volume of sales on a small total asset based is an important
part of the companys overall performance in terms of profits. In
2007, 2006. The ratio was 1.1, 1.45 times respectively. In 2007,
the ratio indicates that it is producing RS 1.45 sales perRupees of
investment in total assets. So as time is going by this ratio is
increasing which means company performance is up to mark in terms
of profits.
Receivables Turnover Ratio:Receivables turnover ratio is equal
to net credit sales divided by average receivables.Receivables
Turnover Ratio =Net credit SalesAvg. Receivables2006
2007:Receivables Turnover Ratio =231832220001016807982Receivables
Turnover Ratio = 22.8 times2005 - 2006:Receivables Turnover Ratio
=176017830005828404967Receivables Turnover Ratio = 30.2 times2004 -
2005:Receivables Turnover Ratio =18276277000532836064Receivables
Turnover Ratio = 34.3 timesComparison over the years /
Interpretation:Receivables turnover ratio measures the average
length of time it takes a company to collect credit sales in
percentage terms. So Receivables turn over ratio is becoming worse
as it was 30.2 in 2006 as compare to 2007 which is 22.8 times. So
the company is not performing well and showing not good
management.Average Collection Period in days:Average collection
period in days is equal to days in year divided by Receivables
turnover ratio.Average Collection Period in days =No of days in a
yearReceivables turnover ratio2006 2007:Receivables turnover ratio
in days =36022.8Receivables turnover ratio in days = 16 days2005 -
2006:Receivables turnover ratio =36030.2Receivables turnover ratio
= 12 days2004 - 2005:Receivables turnover ratio =36034.3Receivables
turnover ratio = 11 days
Comparison over the years / Interpretation:
Average collection period shows the average length of time it
takes a company to collect credit sales in days. From above
analysis it is clear that average collection period is 16 days
respectively in year an2006. But it is best was in 2005 which is 11
days.
Profitability Ratios:Gross Profit Margin:Gross profit margin is
equal to the ratio of gross profit to sales.Gross Profit Margin
=Gross ProfitSales2006 2007:Gross profit margin =4920429000X
10023183222000Gross profit margin = 21.22 %2005 - 2006:Gross profit
margin =4237259000X 10017601783000Gross profit margin = 24.07 %2004
- 2005:Gross profit margin =2641286000X 10018276277000Gross profit
margin = 14.45 %Comparison over the years / Interpretation:
Gross profit margin or gross profit ratio is the ratio of gross
profit to net sales expressed as percentage. From Gross profit the
company adjusts its operating and administrative expenses. In 2006
it increased heavily but in 2007 it decreased to 21.22 %. The gross
profit is sufficient to recover all operating expenses and to build
up reserve after paying all fixed interest charges and all
dividends.
Operating Profit Margin:Operating Profit Margin is equal to
earning before interest and tax divided by sales.Operating Profit
Margin =EBIT/Operating ProfitSales2006 2007:Operating Profit Margin
=4770535000X 10023183222000Operating Profit Margin = 20.58 %2005 -
2006:Operating Profit Margin =3807207000X 10017601783000Operating
Profit Margin = 21.63 %2004 - 2005:Operating Profit Margin
=3499621X 10018276277000Operating Profit Margin = 19.15 %
Comparison over the years / Interpretation:
This used to show the profitability without concern for taxes
and interest. In 2006 the operating profit ratio was 21.63% and in
2007 the net profit ratio is 20.58 %. In 2006 operating profit
ratio increased by 2.4 % and decreased by 0.8% in 2007, relative to
2006 ratio Shows Companys inability to with stand adverse economic
condition without caring taxes and interest.
Net Profit Margin:Net Profit Margin is equal to net profit
divided by sales.Net Profit Margin =Net ProfitSales2006 2007:Net
Profit Margin =3154583000X 10023183222000Net Profit Margin = 13.61
%2005 - 2006:Net Profit Margin =2547326000X 10017601783000Net
Profit Margin = 14.47 %2004 - 2005:Net Profit Margin =2319082000X
10018276277000Net Profit Margin = 12.69 %
Comparison over the years / Interpretation:
This used to show the overall profitability and hence it useful
to the proprietors. Higher the ratio betters for the organization
.It shows the companys ability to turn each rupee of sale into
profit. In 2006 the net profit ratio was 14.47 % and in 2007 the
net profit ratio is 13.61%. In 2006 net profit ratio increased by
1.7 % relative to 2005. But in 2007 it decreased slightly and
remained 13.61 %.
Earning per share:This ratio shows that how much amount per
share does a common stock holder attains.Earning per share =Earning
Available for Common Stock HoldersNo. Of Common Stock Shares2006
2007:Earning per share =3154583000183737000Earning per share = Rs.
17.17 / share2005 - 2006:Earning per share
=2547326000164650000Earning per share = Rs.15.47 /share2004 -
2005:Earning per share =23190820001161350000Earning per share = Rs.
14.37 /share
Comparison over the years / Interpretation:
This ratio shows the worth of the share. As we can see that the
worth of the shares of Engro Chemical has increased. EPS is
increasing at a constant rate, which are good signs for the
investors.Price earning ratio:It equals to the ratio of market
price per share divided by earning per share.Price Earning Ratio
=Market price per shareEarning per share2006 2007:Price Earning
Ratio =265.7917.17Price Earning Ratio = Rs. 15.482005 - 2006:Price
Earning Ratio =170.4815.47Price Earning Ratio = Rs. 11.022004 -
2005:Price Earning Ratio =155.9214.37Price Earning Ratio = Rs.
10.85Comparison over the years / Interpretation:In 2006 the
situation, slightly become worse as compared to 2005. But in 2007,
these ratios results Rs.15.48 were to be spent in order to earn
Rs.1 profit.
RATIO ANALYSISFauji Fertilizer Company Ltd.Types of Ratios
Analysis:
Let us now have a detailed analysis of all the following four
ratios forFauji Fertilizer Company LimitedLiquidity RatiosLeverage
RatiosActivity RatiosProfitability RatiosLiquidity Ratios:Current
Ratio:Current Ratio =Current AssetsCurrent liabilities2006
2007:Current Ratio =10,811,43500011,476,393000Current Ratio =
0.9422005 - 2006:Current Ratio =9,764,58700010,883,988000Current
Ratio = .8972004 - 2005:Current Ratio
=20,463,50600018,707,783000Current Ratio = 1.094
Comparison over the years / Interpretation:
Current ratio is a general and quick measured of liquidity of
company. It represents the margin of safety or cushion available to
the auditor. It is the index of the companys financial stability.
It is also an index of the financial solvency and index of strength
of working capital.Company's Current ratio has been decreasing
gradually over the years right from the 2005 to 2007.
Acid Test (Quick) Ratio:
QuickRatio =Current assets InventoriesCurrent liabilities
2006 2007:Quick Ratio =10, 811, 435000-642,
83600011,476,393000Quick Ratio = 0.89
2005 - 2006:Quick Ratio =9, 764, 587000-952,
90500010,883,988000Quick Ratio = 0 .812004 - 2005:Quick Ratio =20,
463, 506000- 1,583,42900018,707,783000Quick Ratio = 1.01
Comparison over the years / Interpretation:
The quick test ratio is a very useful measuring of the liquidity
position of the company. It means that companys ability to pay its
short-term obligations or current liabilities immediately and is a
more rigorous test of liquidity than the current ratio.The
calculations above clearly show that the quick ratio of the company
has been not constant over the years due to the changes in pre
paids and inventories. But it increased in 2007 as compared to
2006, which is positive point for the company.
Leverage / Debt ratios:Debt Equity Ratio:Debt Equity ratio =Long
Term DebtsStockholders equity2006 2007:Debt Equity ratio
=216,171,62251,741,235Debt Equity ratio =108.332005 - 2006:Debt
Equity ratio =254,355,26262,565,620Debt Equity ratio = 4.06542004 -
2005:Debt Equity ratio =272,265,54553,055,841Debt Equity ratio =
5.1316
Comparison over the years / Interpretation:
This ratio indicates the proprietors claims of owners and
outsiders against the companys assets. The purpose is to get an
idea of the cushion available to outsiders and the liquidity of the
company. The interpretation of the ratio depends upon the financial
and business policy of the company.Debt Equity shows the
relationship between the external equities or outside funds and
internal equities and shareholders funds. The debt equity ratio of
the company has been decreasing over the years from 2005 to 2006
but in 2007 it increased, with maximum in the year 2004-05 thereby
decreasing in the next year and increasing finally.Debt Equity
ratio increment is a negative point to management that the more of
their business is financed by debts this will increase their
financial charges or interest expense and companys liquidity and
hence decreasing the companys profit. The lower the ratio the
higher the companys financing that is provided by the shareholders
and larger the creditors cushion (margin of protection) in the
extent of shrinkage of assets values or outright loss.Debt
Ratio:Debt Ratio =Total liabilitiesTotal assets2006 2007:Debt
Ratio=1651116900029,241,214000Debt Ratio= 0.572005 - 2006Debt
Ratio=1447373800027,430,281000Debt Ratio= 0.532004 - 2005Debt
Ratio=3639214100048,010,511000Debt Ratio= 0.76
Comparison over the years / Interpretation:
It can be defined as how much sufficient our assets are in
retrieving the total debts. We can observe in our analysis that the
debt ratio of the company is decreasing over the year which is a
good sign for the company, that is, the company uses less of its
total liabilities for its current assets.
Times Interest Earned (Coverage Ratio):Times Interest Earned
=Profit before Interest and TaxesInterest expense2006 2007:Interest
coverage Ratio =8511360000696,407000Interest Coverage Ratio = 12.22
times2005 - 2006:Interest coverage Ratio
=7486385000501,241000Interest Coverage Ratio = 14.94 times2004 -
2005:Interest coverage Ratio =6981075000585,816000Interest Coverage
Ratio = 11.92 times
Comparison over the years / Interpretation:
The interest coverage ratio is a very important from the lender
point of view. It indicates the number of times interest is covered
by the profit available to pay interest charges. It is an index of
the financial strength of the enterprise. A high ratio assures the
lender a regular and periodic interest income. But weakness of the
ratio may create some problems for the companys financial manager
in raising funds from the debts sources.The no. of times the
company earns its interest fluctuates from over the years right
from 2005 to 2007. The times interest earned by the company in 2007
returned a lot to the level where it was in 2005.
Activity Ratios:Inventory Turnover Ratio:Inventory Turnover
ratio =Cost of Goods SoldAvg. Inventory
2006 2007:Inventory Turnover Ratio
=18,311,525000797870500Inventory Turnover Ratio = 22.95 times2005 -
2006:Inventory Turnover Ratio =20,242,194000126817000Inventory
Turnover Ratio = 16.1 times2004 - 2005:Inventory Turnover Ratio
=25,987,2000001,583,429000Inventory Turnover Ratio = 16.41
times
Comparison over the years / Interpretation:
Inventory turn over ratio measures the velocity of conversion of
stock into sales. In other words how rapidly inventory is turning
into receivables through sales.In 2006 it was 16.1 times and in
2007 it was 22.95 times. In 2006 the ratio was low because of over
investment in inventories. In year 2007 it is better that is 22.95
times in the year, which is quite good because of good management
and polices.
Inventory Holding Period in days:Inventory Holding Period in
days =No of days in a yearInventory turnover ratio2006
2007:Inventory turnover in days =36022.95Inventory turnover in days
= 15.7 days2005 - 2006:Inventory turnover in days =36016.1Inventory
turnover in days = 22.36 days2004 - 2005:Inventory turnover in days
=36016.41Inventory turnover in days = 21.93 days
Comparison over the years / Interpretation:
Inventory turn over ratio measures the velocity of conversion of
stock into sales. In other words how rapidly inventory is turning
into receivables through sales.In 2005 it was 21.93 days and in
2007 it was 15.7 days. In year 2007 it is quite good and in 2006 it
was better that is 22.36 days in a year to move inventory through
sales, which is quite good because of good management and
polices.
Net Fixed Assets Turnover Ratio:Net Fixed Asset Turnover Ratio
=SalesNet Fixed assets2006 2007:Fixed asset turnover
ratio=28,429,00500018429779000Fixed asset turnover ratio = 1.54
times2005 - 2006:Fixed asset turnover ratio
=29,950,87300017665694000Fixed asset turnover ratio = 1.7 times2004
- 2005:Fixed asset turnover ratio =39,757,51000027547005000Fixed
asset turnover ratio = 1.44 times
Comparison over the years / Interpretation:
Fixed asset turnover ratio measures sales productivity and plant
and equipment utilization. It is clear that this ratio is
increasing from 1.44 times in 2005 to 2006 which is 1.7and
decreased to 1.54 in 2007Total Asset Turnover:Total Asset Turnover
Ratio =SalesTotal assets2006 2007:Total asset turnover
ratio=28,429,00500029,241,214000Total asset turnover ratio = .97
times2005 - 2006:Total asset turnover ratio
=29,950,87300027,430,281000Total asset turnover ratio = 1.10
times2004 - 2005:Total asset turnover ratio
=39,757,51000048,010,511000Total asset turnover ratio = 0.833
times
Comparison over the years / Interpretation:
It shows that companies must manage its total assets efficiently
and should generate maximum sales through their proper utilization.
As the ratio, increases there are more revenue generated per rupee
of total investment in asset. The company ability to produce a
large volume of sales on a small total asset based is an important
part of the companys overall performance in terms of profits. In
2007, & 2006 the ratio was 0.97, 1.10 times respectively. In
2007, the ratio indicates that it is producing RS .97 sales
perRupees of investment in total assets. So as time is going by
this ratio is fluctuating which means company performance is not up
to mark in terms of profits.
Receivables Turnover Ratio:Receivables Turnover Ratio =Net
credit SalesAvg. Receivables2006 2007:Receivables Turnover Ratio
=28,429,0050001497076500Receivables Turnover Ratio = 19 times2005 -
2006:Receivables Turnover Ratio =29,950,8730001171132000
Receivables Turnover Ratio = 25.57 times2004 - 2005:Receivables
Turnover Ratio =39,757,510000890,874000Receivables Turnover Ratio =
44.62 times
Comparison over the years / Interpretation:
Receivables turnover ratio measures the average length of time
it takes a company to collect credit sales in percentage terms. So
Receivables is better in 2006 is 25.57 times as compare to 2007,
which is 19 times
Average Collection Period in days:Average Collection Period in
days =Days in a yearReceivables turnover ratio2006 2007:Receivables
turnover ratio in days =36019 Receivables turnover ratio in days =
18.95 days2005 - 2006:Receivables turnover ratio =36025.57
Receivables turnover ratio = 14.41 days2004 - 2005:Receivables
turnover ratio =36044.62 Receivables turnover ratio = 8.1 days
Comparison over the years / Interpretation:
Average collection period shows the average length of time it
takes a company to collect credit sales in days. From above
analysis it is clear that average collection period was 14.41 days
in2006. But it was best in 2005 which is 8.1 days. So these ratios
show that company is doing well in this particular
case.Profitability Ratios:Gross Profit Margin:Gross Profit Margin
=Gross ProfitSales2006 2007:Gross profit margin
=10,117,480000X10028,429,005000Gross profit margin = 35.6 %2005 -
2006:Gross profit margin =9,708,679000X 10029,950,873000Gross
profit margin = 32.42 %2004 - 2005:Gross profit margin
=13,770,310000X 10039,757,510000Gross profit margin = 34.6 %
Comparison over the years / Interpretation:
Gross profit margin or gross profit ratio is the ratio of gross
profit to net sales expressed as percentage. In 2006 it increased
slightly to 7.73 % and in 2007 it increased to 10.22 %. The gross
profit is sufficient to recover all operating expenses and to build
up reserve after paying all fixed interest charges and all
dividends.Operating Profit Margin:Operating Profit Margin
=EBIT/Operating ProfitSales2006 2007:Operating Profit Margin
=8511360000X 10028,429,005000Operating Profit Margin = 29.93 %2005
- 2006:Operating Profit Margin =7486385000X
10029,950,873000Operating Profit Margin = 25 %2004 - 2005:Operating
Profit Margin =6981075000X 10039,757,510000Operating Profit Margin
= 17.6 %
Comparison over the years / Interpretation:
This used to show the profitability without concern for taxes
and interest. In 2006 the operating profit ratio was 25%, and in
2007 the operating profit ratio is 29.93 %. In 2006 operating
profit ratio was increased by 7.4 % and increased by 5% in 2007.
The operating profit is increasing gradually at a decreasing rate
but it shows companys capacity to with stand adverse economic
condition without caring taxes and interest.Net Profit Margin:Net
Profit Margin =Net ProfitSales2006 2007:Net Profit Margin
=5,360,953000X 10028,429,005000Net Profit Margin = 18.862005 -
2006:Net Profit Margin =4,636,144000X10029,950,873000Net Profit
Margin = 15.48 %2004 - 2005:Net Profit Margin
=6,395,259000X10039,757,510000Net Profit Margin = 16.09 %
Comparison over the years / Interpretation:
This used to show the overall profitability and hence it useful
to the proprietors. Higher the ratio betters for the organization
.It shows the companys ability to turn each rupee of sale into
profit. In 2006 the net profit ratio is 15.48 % and in 2007 the net
profit ratio is 18.9%. In 2006 net profit ratio decreased by .61 %
relative but increased in 2007 by 3 %.
Earning per share:Earning per share =Earning Available for
Common Stock HoldersNo. Of Common Stock Shares2006 2007:Earning per
share =5,360,953000493,474000Earning per share = Rs.
10.86/share2005 - 2006:Earning per share
=4,636,144000493,474000Earning per share = Rs. 9.39/share2004 -
2005:Earning per share =6,395,259000493,474000Earning per share =
Rs. 12.96 /share
Comparison over the years / Interpretation:
This ratio shows the worth of the share. As we can see that the
worth of the shares of Fauji fertilizer Company has decreased. The
EPS is almost fluctuating but still in favorable condition.
Price earning ratio:Price Earning Ratio =Market price per
shareEarning per share2006 2007:Price Earning Ratio
=118.7510.86Price Earning Ratio = Rs. 10.932005 - 2006:Price
Earning Ratio =105.559.39Price Earning Ratio = Rs.11.242004 -
2005:Price Earning Ratio =13712.96Price Earning Ratio = Rs.
10.57
Comparison over the years / Interpretation:
These ratios results show that in 2007 Rs.10.93 were to be spent
in order to earn Rs.1 profit. But in year 2006 the position was
comparatively good as shown that Rs.11.24 has to be spent in order
to earn Rs.1 of profit.INDUSTRY ANALYSIS
(Comparison through graphical interpretation)
Activity RatiosCurrent Ratio:2004-052005-062006-07
ECL1.791.563.11
FFC1.094.8970.942
Quick Ratio:2004-052005-062006-07
ECL1.101.310.26
FFC1.010.810.89
Inventory Turnover Ratio:2004-052005-062006-07
ECL11.19.410.1
FFC16.4116.122.95
Inventory Holding Period:2004-052005-062006-07
ECL323836
FFC21.9322.3615.7
Receivables Turnover Ratio:2004-052005-062006-07
ECL34.330.222.8
FFC44.6225.5719
Average Collection Period:2004-052005-062006-07
ECL111216
FFC8.114.4118.95
2004-052005-062006-07
ECL1.44371.51481.9397
FFC1.441.71.54
Net Fixed Assets
Total Assets Turnover:2004-052005-062006-07
ECL1.301.11.45
FFC0.8331.10.97
Debt Ratio:2004-052005-062006-07
ECL.48.25.18
FFC0.760.530.57
Debt Equity Ratio:2004-052005-062006-07
ECL1.66251.58881.5348
FFC5.13164.06544.177
Times Interest Earned:2004-052005-062006-07
ECL12.57.188.92
FFC11.9214.9412.22
G.P. Margin:2004-052005-062006-07
ECL14.4524.0721.22
FFC34.632.4235.6
Operating Profit Margin:2004-052005-062006-07
ECL19.1521.6320.58
FFC17.62529.93
N.P. Margin:2004-052005-062006-07
ECL12.6914.4713.61
FFC16.0915.4818.86
Price Earning Ratio:2004-052005-062006-07
ECL10.8511.0215.48
FFC10.5711.2410.93
2004-052005-062006-07
ECL14.3715.4717.17
FFC12.969.3910.86
Earning Per ShareConclusion
So, in the light of all the details given above about the
financial analysis of both the industries, i.e. debt, activity,
liquidity, & profitability of Engro chemicals ltd. And Fauji
fertilizer company , we come to know that in this situation of
agriculture recession and down fall in the economy the ECL has
performed well and it maintained its fianancial position and faced
the tough competitors
Finance Project on Ratio Analysis on ENGRO
THE ORGANIZATION CONCERNED
Engro Chemical Pakistan Ltd.
Engro Chemical Pakistan Limited is a fertilizer company which is
of their concern that has been introduced right below. They are
going to make a full-fledge financial analysis of this fertilizer
company in order to check its financial situation in the market.
The analysis of each and every major ratio has been involved in
this financial analysis. Then furthermore the interpretation of
each and every ratio has been given to elaborate it.
An Overview
Search for oil by Pak Stanvac, an Esso/Mobil joint venture in
1957, led to the discovery Of Mari gas field situated near Daharki
-- a small town in upper Sindh province. Esso was the first to
study this development in detail and propose the establishment of a
urea plant in that area.The proposal was approved by the government
in 1964, which led to a fertilizer plant agreement signed in
December that year. Subsequently in 1965, the Esso Pakistan
Fertilizer Company Limited was incorporated, with 75% of the shares
owned by Esso and 25% by the general public. The construction of a
urea plant commenced at Daharki the following year with the annual
capacity of 173,000 tons and production commenced in 1968. At US $
43 million, it was the single largest foreign investment by an MNC
in the country.
A full-fledged marketing organization was established which
undertook agronomic programs to educate the farmers of Pakistan. As
the nations first fertilizer brand, Engro (then Esso) helped
modernize traditional farming practices to boost farm yields,
directly impacting the quality of life not only for farmers and
their families, but for the community at large. As a result of
these efforts, consumption of fertilizers increased in Pakistan,
paving the way for the Companys branded urea called "Engro", an
acronym for "Energy for Growth".As part of an international name
change program, Esso became Exxon in 1978 and the company was
renamed Exxon Chemical Pakistan Limited. The company continued to
prosper as it relentlessly pursued productivity gains and strived
to attain professional excellence.
In 1991, Exxon decided to divest its fertilizer business on a
global basis. The employees of Exxon Chemical Pakistan Limited, in
partnership with leading international and local financial
institutions bought out Exxons 75 percent equity. This was at the
time and perhaps still is the most successful employee buy-out in
the corporate history of Pakistan. Renamed as Engro Chemical
Pakistan Limited, the Company has gone from strength to strength,
reflected in its consistent financial performance, growth of the
core fertilizer business and diversification into other
fields.Investment in people, process solutions and resource
conservation initiatives has reduced energy use per ton of urea by
a third, whilst increasing urea production nearly six-fold since
1968. Not only does this save money, it stretches non-renewable
energy sources and mitigates the impact of waste. Along the way, a
major milestone in plant capacity upgrade coincided with the
employee led buy-out; innovatively optimizing our resources, Engro
re-located fertilizer manufacturing plants from the UK and US to
its Daharki plant site an international first. Our pioneering
spirit continues in our social investments, exemplified by the only
snake-bite treatment facility in the Ghotki region and the first
telemedicine intervention in the country.
WVision"To be the premier Pakistani enterprise with a global
reach, passionately pursuing value creation for all
stakeholders."
Our Diverse Colors of Excellence
Our Businesses
The years since Exxon became Engro have been both exciting and
rewarding for the Organization and its people. Challenges have been
overcome, goals achieved and new goals set. Engro today stands
recognized as a successful business operation and a role model for
doing business in Pakistan.
Engro Chemical Pakistan LimitedThe Companys current
manufacturing base includes urea name plate capacity of 975,000
tons per annum and blended fertilizer (NPK) capacity of 160,000
tons per year. A premier brand and nationwide presence ensure
sellout production. Additionally, the company imports and sells
phosphatic fertilizers for balanced fertility and improved farm
yields. Engros share of Pakistans phosphates market mirrors or
exceeds its urea market share.Expansion plans include a new urea
plant of 1.3 million tons annual capacity, also at Daharki. The US$
1 billion project is well underway and on track for commercial
production in mid 2010. This addition will increase Engros urea
market share to 35% from 19% at present.
Engro Vopak Terminal Limited
50:50 Joint Ventures with Royal Vopak - a Netherlands based
global leader in terminal operations. EVTL operates a bulk liquid
chemical terminal at Port Qasim, Karachi. It has an impeccable
safety record of handling a range of chemicals and LPG for over 10
years.EVTL is building Pakistans first cryogenic Ethylene storage
facility and expects to be ready by early 2009. Given its
experience with gasses, cryogenics, a brown field location and
international operating standards, EVTL is well-positioned to build
a LNG terminal, being pursued by the Government of Pakistan.
Engro Polymer and Chemicals Ltd.
EPCL is undergoing expansion involving PVC production increase
of 50,000 tones (current capacity: 100,000 tons p.a. and back
integration through setting up of an EDC/VCM plant and a Chlor
alkali plant. These initiatives are expected to conclude in phases
by first half of 2009. At Port Qasim, this 56% Engro owned Company
is involved in manufacturing, marketing and selling Polyvinyl
Chloride (PVC).
Avanceon
A 63% owned subsidiary of Engro, EIAL is the leading global
automation business, providing process & control solutions. It
also offers Power & Energy Management software solutions as
well as High-End software that integrate production and business
applications. Previously operating in Pakistan and UAE, they have
now penetrated in the USA market with the merger of ENGRO
Innovative and Advance Automation. Advance Automation is an award
winning technology solutions provider to manufacturers in North
American and has been awarded as the System Integrator of the Year
2007 by Control Engineering.
Synchronizing to a single brand worldwide with all the
engineering Standards, processes, brand identity and global brand
recognition was a huge task and due to various different cultural
factors it was even complex then perceived.
After days of hard work AVANCEON emerged as the new name and the
true Global Automation Player. The new company name will help to
reinforce the single brand identity that has emerged over the last
16 days as the two formerly separate companies have successfully
worked to become a single global enterprise.
Engro Foods Limited (EFL)
Engro Foods, a wholly owned subsidiary had its first full year
of operations in 2007. The Company continued expanding with
additions to brand portfolio, milk production and distribution
capacities.The portfolio now includes four impressive brands;
Olper's milk,Olpers cream,OlwellandTarang.Olpers market share
peaked at 17%during 2007. EFL operates two dairy processing
factories located in Sukkur, and Sahiwal. The companys milk
collection network now boasts over 700 village milk collectors and
400 milk collection centers. Covering 2400 villages across
Pakistan, the activities of the Company touch the lives of almost
51,000 farmers.
An exciting new venture is the diversification of dairy
portfolio into ice cream. Work has commenced full throttle for
detailed engineering and market study with a view to launch of
first ice cream in 2009. Also on EFL slate is the establishment of
a dairy farm with milking expected to start in second quarter
2009.Engro Energy Limited (EEL)
This wholly owned subsidiary is setting up an Independent Power
Plant near Qadirpur in Sindh; Targeting 2009 for commercial
operations, the power project will have a net output of 217 MW. The
plant will utilize low heating value permeate gas from Qadirpur gas
field which is currently being flared.Engro Eximp (Pvt.)
Limited
Engro Eximp (Pvt.) Limited is a wholly owned subsidiary in the
trading business of fertilizer imports.Spectrum of our products
& services products & services
Products & Services
Our wide spectrum of products and services clearly shows the
diversity in our Businesses, each one designed to make life better
for our customers
Fertilizersby Engro Chemical Pakistan Limitedduct line that
focuses on balanced crop nutrition and higher yield for the
farmNitrogenous Fertilizers
ENGRO UREA is a trusted high grade fertilizer containing 46%
Nitrogen (N), with moderate hydroscopicity. It has a pH value of
6.8 (organic molecule) and is suitable for all crops on all soils.
Engro Urea is an excellent source of Nitrogen for the vast majority
of cultivated soils of Pakistan.
Phosphatic Fertilizers
Engro DAP:contains 46% P2O5 and 18% N. More than 90% of
Phosphate (P) is water soluble. It has a pH value of 7.33 and is a
good source of P fertilizer for all crops. It is an equally good
source on problem soils (saline sodic) with coarse texture. On an
overall basis it suits to about 90% soils of the country.
Engro Zorawar:is one of the highest grade phosphatic
fertilizers. It is acidic in reaction (pH >= 3.5) and contains
52% P2O5 of which more than 90% is water soluble, while the rest is
citrate soluble. In addition to P, it contains 12% N, 2% sulphur
and 1% calcium. It is a beneficial fertilizer for all crops on all
soils of Pakistan and produces excellent results on alkaline soils,
due to its acidic
the acidic pH of Engro Zorawar also tends to slow down the rapid
conversion of soluble P to water insoluble compounds, keeping it
plant available for a longer period of time.Engro Phosphate:is
brown colored mono ammonium phosphate with 11% nitrogen and 52%
phosphorus. It is being marketed as relatively cheaper alternate of
DAP.
Blended Fertilizers
Engro Zarkhez:is homogenously granulated fertilizer which
maximizes crop yield by providing balanced nutrition for a wide
variety of crops through the uniform availability of Nitrogen,
Phosphorous and Potassium. Engro Zarkhez grades are specially
produced to suit the requirements of individual crops and soils,
and provide convenience to the farmer through ready availability of
precise quantities of primary nutrients.Engro Zarkhez fertilizers
have low moisture content, high crush strength; 2mm-4mm granule
size and free flowing nature - attributes which ensure excellent
handling and application characteristics.
Engro NP:it provides 22% nitrogen, and 20% phosphorus. ECPL
entered into NP business in 2005 to cater the need of its customers
for this established category. Primary focus area for ENP marketing
is South Zone (Sindh).
Micro NutrientsZingro:Zinc Sulphate, a highly effective and
potent fertilizer which primarily targets Zinc deficiency in crops
like Rice, Potato, Maize, Sugar cane, Wheat, Cotton, vegetables and
fruits. Zingro increases crop yield and enhances crop
appearance.
PVC Resina synthetic resin composed of repeating units of vinyl
chloride. It is very versatile and is used in a wide variety of
products
Chemical handling & StorageBy Engro Vopak Terminal
Limited
A state of the art jetty and terminal at Port Qasim, Karachi for
handling and storage of LPG and bulk liquid chemicals
Industrial Automationby Avanceon (formerly known as Engro
Innovative Automation Pvt. Limited)
Providing process control solutions to your industrial
unitsMarket leader in industrial automation business providing
process control solutions to Industrial units. It offers Power
& Energy Management Software solutions as well as High end
Software that integrate production and business application.
Providing process control solutions to your industrial units
Industrial Automation
Market leader in industrial automation business providing
process control solutions toIndustrial units. It offers Power &
Energy Management Software solutions as well asHigh end Software
that integrate production and business application.
Providing process control solutions to industrial units and
management software solutions
Foodsby Engro Foods Limited
Olpers:Standardized at 3.5% fat, Olpers is a premium, UHT
all-purpose milk.Olwell HCLF:(High Calcium, Low Fat) Olwell is a
premium quality milk for the health conscience.Olpers Cream: UHT
Cream standardized at 40% fat
Tarang:Liquid tea whitenerState of the art dairy processing
plant
Our 217 MW Power Plant.
Power Generationby Engro Energy Limited
Engro identified a Power Project based on low BTU, high H2S gas
from Qadirpur gas Field. The project is unique as it will convert
low BTU high sulphur content permeate gas, which is currently being
wasted and flared, into 217 MW electric powerConverting wasted
flare gas into energy at the 217 MW Power Plants
Quality
Improvisation through Six Sigma: the legend leads againEmployee
development is one of the pivotal areas for Organizational
development. To Organizational competence levels, new training
programs encompassing Performance Management, Leadership, and
Competency Development are introduced.Engro is among the first
Pakistani companies implementing six sigma across all areas and
utilizing it as a management system to execute its strategic
objectives. Among the focus areas, employee development is the most
critical and six sigma is leveraged to help bring out the best in
our people. Employees will drive improvements in other areas;
speed, innovation, perfection and in becoming world class
professionals.Six Sigmas robust problem solving methodology and
statistical toolkit allows the company to benchmark processes
against global standards in a language that is comparable across
any industry or function. It helps ensure that Engro sustains its
promise of delivering high quality products and services to its
customers on time, every time.
Packing & Loading:The finished product is packed with the
utmost care by trained personnel, and loaded directly in to
containers for export purposes. All packing and loading is done
under strict supervision, while maintaining maximum quality and
safety standards. To facilitate their customers, they provide yarn
packed in 100Lbs and 50Lbs sea-worthy export cartons. They also
have facility to provide customers with polythene film shrink
wrapped Pallet packing to specially accommodate customers in
Europe/USA and help them reduce the labor handling costs.Business
practiceOur Advisory Capacity
Principal Operations Committee
The following committees act at the operation level in an
advisory capacity to the Chief Executive Officer, providing
recommendations relating to business and employee Matters:
Management Committeeis responsible for review and endorsement of
long term strategic plans, capital and expense budgets, development
and stewardship of business plans and reviewing the effectiveness
of risk management processes and internal control.Corporate HSE
Committeeis responsible for providing leadership and strategic
guidance on all Health, Safety and Environment (HSE) improvement
initiatives and has stewardship responsibility for monitoring
compliance against regulatory standards and selected international
benchmarks.COED Committeeis responsible for the review of
Compensation, Organization and Employee Development (COED) matters
of all people excluding employee Directors and Senior
Executives.Throughout the 40 plus years of Engros history, our
people have come up with ideas and determination that drove the
company forward in all sorts of times.
Corporate GovernanceEngros governance structure responds to the
industrys best practices demands Ensuring that all aspects with
respect to economic, environmental and social obligations are fully
considered and business decisions are taken after evaluating their
impact on The Companys triple bottom line - People, Planet and
Profits.
Compliance Statement
The Board of Directors has throughout the year 2007 complied
with the Code of Corporate Governance contained in the listing
requirements of the stock exchanges and the Corporate and Financial
Reporting framework of the Securities and Exchange Commission of
Pakistan.
Risk Management Process
In 2007, the Management Committee undertook a review of major
financial and operating risks faced by the business.
Internal Control Framework
Responsibility: The Board is ultimately responsible for Engros
system of internal control and for reviewing its effectiveness.
However, such a system is designed to manage rather than eliminate
the risk of failure to achieve business objectives, and can provide
only reasonable and not absolute assurance against material
misstatement or loss.
The Board, whilst maintaining its overall responsibility for
managing risk within the Company, has delegated the detailed design
and operation of the system of internal controls to the Chief
Executive.
Framework:The Company maintains an established control framework
comprising clear structures, authority limits, and
accountabilities, well-understood policies and procedures and
budgeting and review processes.
The Board establishes corporate strategy and the Companys
business objectives. Divisional management integrates these
objectives into divisional business strategies with supporting
financial objectives. All policies and control procedures are
documented in manuals
Review:The Board meets quarterly to consider Engros financial
performance, financial and operating budgets and forecasts,
business growth and development plans, capital expenditure
proposals and other key performance indicators.The Board Audit
Committee receives reports on the system of internal financial
controls from the external and internal auditors and reviews the
process for monitoring the effectiveness of internal controls.
There is a company wide policy governing appraisal and approval
of investment expenditure and asset disposals. Post completion
reviews are performed on all material investment expenditure.
Audit: Engro has an Internal Audit function. The Board Audit
Committee annually reviews the appropriateness of resources and
authority of this function. The Head of Internal Audit reports
directly to the Audit Committee on the results of its work.
The Internal Audit function carries out reviews on the
financial, operational and compliance controls, and reports on
findings to the Chief Executive and the divisional management. All
material issues are reported to the Board Audit Committee which
approves the audit program, based on an annual risk assessment of
the operating areas. To underpin the effectiveness of controls, it
is Engros policy to attract, retain and develop staff of high
caliber and integrity in appropriate disciplines. There is an
annual appraisal process, which assesses employee performance
against agreed objectives and identifies necessary training to
maintain and enhance standards of performance.
Values that we live by
Core Values
Our employees' performance can only flourish in a sound work
environment. That is why ENGRO is committed to supporting its
leadership culture through systems and policies that foster open
communication, maintain employee and partner privacy, and
assureEmployee health and safety.
SAFETY, HEALTH & ENVIRONMENTWe will manage and utilize
resources and operations in such a way that the safety and health
of our people, our neighbors. Our customers and our visitors are
ensured. We believe our safety, health and environmental
responsibilities extend beyond protection and enhancement of our
own facilities, and we are concerned about the distribution, use
and after use disposal of our products.
ETHICS AND INTEGRITYwe do care how results are achieved and will
demonstrate honest and ethical behavior in all our activities.
Choosing the course of highest integrity is our intent and we will
establish and maintain the highest professional and personal
standards. A well-founded reputation for scrupulous dealing is
itself a priceless asset.LEADERSHIPwe have leaders of high
integrity. Energy and enthusiasm that have the necessary
managerial, professional and people skills to inspire a group or an
organization to set high goals and achieve them willingly. We
believe that leadership skills need to be strengthened at all
levels within our organization and that managerial and professional
competence is a necessary foundation.
QUALITY &CONTINUOUS IMPROVEMENTwe believe that quality and a
relentless commitment to continuous improvement are essential to
our ongoing success. To this end, we define quality as
understanding the customer's expectations, agreeing on performance
and value, and providing products and services that meet
expectations 100 percent of the time. Our motto is, "Quality in all
we do."
ENTHUSIASTIC PURSUIT OF PROFITsuccessfully discharging our
responsibilities to our shareholders to enhance the long-term
profitability and growth of our company provides the best basis for
our career security and meaningful personal growth. We can best
accomplish this by consistently meeting the expectations of our
customers and providing them with value.
EXTERNAL & COMMUNITY INVOLVEMENTWe believe that society must
have industrial organizations that it can trust. Trust and
Confidence are earned by our performance, by open and direct
communication, and by active involvement in the communities in
which we live and conduct our business."
CANDID & OPEN COMMUNICATIONSWe value communications that are
courteous, candid and open and that enable each of us to do our
jobs more effectively by providing information that contributes to
the quality of our judgment and decision making. Effective
communication should also provide the means for gaining
understanding of the company's overall objectives and plans and of
the thinking behind them.
ENJOYMENT & FUNWe believe that excitement, satisfaction and
recognition are essential elements of a healthy, creative and
high-performing work environment. Having fun in our work should be
a normal experience for everyone.
INNOVATIONSuccess requires us to continually strive to produce
break through ideas that result in improved solutions and services
to customers. We encourage challenges to the status quo and seek
organizational environments in which ideas are generated, nurtured
and developed.
INDIVIDUAL GROWTH & DEVELOPMENTwe strongly believe in the
dignity and value of people. We must consistently treat each other
with respect and strive to create an organizational environment in
which individuals are encouraged and empowered to contribute, grow
and develop themselves and help to develop each other.
TEAMWORK & PARTNERSHIPwe believe that high-performing teams
containing appropriate diversity can achieve what individuals alone
cannot. Consciously using the diversity of style. Approach and
skills afforded by teams is strength we must continue building into
our organization.
DIVERSITY & INTERNATIONAL FOCUSWe value differences in
gender, race, nationality, culture, personality and style because
diverse solutions, approaches and structures are more likely to
meet the needs of customers and achieve our business
goals.Corporate Responsibility ReportOur employees bring expertise
and dedication to the workplace
Our People
More than 700 employees bring expertise and dedication to the
workplace. We value each employee, value their input and views.
Continuously striving to become employer of choice, we provide a
workplace where people feel confident, valued and inspired.
The Organization of ComparisonFauji Fertilizer Company
The organization with whom the comparison of Engro Chemical
Pakistan Limited is to be done is FFC Limited. The comparison can
only be done by making the financial analysis of this particular
Fertilizer Companies in a similar way in which the analysis of
Engro Chemical Pakistan Limited is to be done by first of all
calculating all the major five ratios and interpreting them one by
one thereby gaining a position to make a comparison become their
financial situation.
An Overview
With a vision to acquire self - sufficiency in fertilizer
production in the country, FFC was incorporated in 1978 as a
private limited company. This was a joint venture between Fauji
Foundation (a leading charitable trust in Pakistan) and Haldor
Topsoe A/S of Denmark.The initial authorized capital of the company
was 813.9 Million Rupees. The present share capital of the company
stands at Rs. 3.0 Billion. Additionally, FFC has Rs. 1.0 Billion
stakes in the subsidiary Fauji Fertilizer Bin Qasim Limited
(formerly FFC-Jordan Fertilizer Company Limited).FFC commenced
commercial production of urea in 1982 with annual capacity of
570,000 metric tons.Through De-Bottle Necking (DBN) program, the
production capacity of the existing plant increased to 695,000
metric tons per year.Production capacity was enhanced by
establishing a second plant in 1993 with annual capacity of 635,000
metric tons of urea.FFC participated as a major shareholder in a
new DAPS/Urea manufacturing complex with participation of major
international/national institutions. The new company Fauji
Fertilizer Bin Qasim Limited (formerly FFC-Jordan Fertilizer
Company Limited) commenced commercial production with effect from
January 01, 2000. The facility is designed to produce 551,000
metric tons of urea and 445,500 metric tons of DAP.This excellent
performance was due to hard work and dedication of all employees
and the progressive approach and support from the top management.In
the year 2002, FFC acquired ex Pak Saudi Fertilizers Limited (PSFL)
Urea Plant situated at Mirpur Mathelo, District Ghotki from
National Fertilizer Corporation (NFC) through privatization process
of the Government of Pakistan.This acquisition at Rs. 8,151 million
represents one of the largest industrial sector transactions in
PakistanMissionStatementFFC's mission is to sustain its role as the
leader in industrial and agricultural advancement of Pakistan by
setting and achieving new and higher goals and taking initiatives.
The Company is committed to ensuring safe and conducive work
environment, providing high quality products and allied services to
its customers and profitable returns to itsshareholders.
RATIO ANALYSIS(Engro Chemical Pakistan Ltd.)
Ratios simply mean a number expressed in terms of another. A
ratio is a statistical yardstick by mean of which relationship
between two or various figures can be compared or measured. Thus
Ratio Analysis shows the relationship between accounting data.
Ratio can be found out by dividing on number by another number.
Ratio analysis is an important and age old technique of financial
analysis. Following are some of the advantages of ratio
analysis.Advantages:It simplifies the comprehension of financial
statements.Ratios tell the whole story of changes in the financial
condition of the business.It provides data for inter-company
comparison. Makes inter-company comparison possibleRatio analysis
also makes possible comparison of the performance of different
divisions of the company. The ratios are helpful in deciding about
their efficiency or otherwise in the past and likely performance in
the future.Ratios highlight the factors associated with successful
and unsuccessful company. They also reveal strong companies and
weak companys, over-valued under-valued companies.It helps in
planning and forecasting. Ratios can assist management, in its
function of forecasting, planning, co-ordination, control and
communications.It helps in investment decisions in the case of
investors and lending decisions in the case of investors and
lending decisions in the case of bankers etc.
Types of Ratios Analysis
Let us now have a detailed analysis of all the following four
ratios for Engro chemicals Pakistan Ltd:Liquidity RatiosLeverage
RatiosActivity RatiosProfitability Ratios
Liquidity Ratios:Current Ratio:Current Ratio is equal to current
assets divided by current liabilitiesCurrent Ratio =Current
AssetsCurrent Liabilities
2006 2007:Current Ratio =163971980005264674000Current Ratio =
3.112005 - 2006:Current Ratio =56844460003642415000Current Ratio =
1.562004 - 2005:Current Ratio =50115550002800094000Current Ratio =
1.79Comparison over the years / Interpretation:
Current ratio is a general and quick measured of liquidity of
company. It represents the margin of safety or cushion available to
the auditor. It is the index of the companys financial stability.
It is also an index of the financial solvency and index of strength
of working capital.The current ratio of the company is increasing
over the years right from 2004-07 constantly, that is, it was 1.79
in 2004-05 and it is 3.11 in 2006-07.
Acid Test (Quick) Ratio:Acid Test (Quick) ratio is equal to
Current assets fewer inventories divided by current liabilities. It
gives more liquid amount of assets to cover your liabilities.
Quick Ratio =Current assets InventoriesCurrent liabilities2006
2007:Quick Ratio =1639719800026901530005264674000Quick Ratio =
0.26
2005 - 2006:Quick Ratio =5684446000 9234480003642415000Quick
Ratio = 1.312004 - 2005:Quick Ratio =5011555000
19229820002800094000Quick Ratio = 1.10
Comparison over the years / Interpretation:
The quick test ratio is a very useful measuring of the liquidity
position of the company. It means that companys ability to pay its
short-term obligations or current liabilities immediately and is a
more rigorous test of liquidity than the current ratio.The quick
ratio of the company as is shown by the above calculations is not
consistent, and decreasing with large percentage that is, the
company is getting lesser and lesser liquid current assets to cover
its current liabilities.
Leverage ratios:Debt Equity Ratio:Debt equity ratio is equal to
long term debts divided by stockholders equity.Debt Equity ratio
=Long Term DebtsStockholders equity2006 2007:Debt equity ratio
=174100600001934692000Debt equity ratio = 1.53482005 - 2006:Debt
equity ratio =370,501,304233,187,729Debt equity ratio = 1.5882004 -
2005:Debt equity ratio =316,314,578000190,255,511000Debt equity
ratio = 1.6625
Comparison over the years / Interpretation:
This ratio indicates the proprietors claims of owners and
outsiders against the companys assets. The purpose is to get an
idea of the cushion available to outsiders and the liquidity of the
company. The interpretation of the ratio depends upon the financial
and business policy of the company.The debt ratio of the company
has decreased gradually over the years right from 2004-07 which is
actually a positive sign for the company.Debt Equity ratio
increment is a negative point to management that the more of their
business is financed by debts this will increase their fina