AFS Final Project UPDATED 22-01-2011

8/4/2019 AFS Final Project UPDATED 22-01-2011

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Analysis of Financial Statements LuckyCement

2011

Analysis of Financial StatementsProject Final Report

MBA 16 (B)

Lucky CementSubmitted

To

Sir Waqar Akbar

SubmittedBy

Unity Group

Dated: 22-Jan-2011

Group Members:

Muhammad Karim Khan 1600076

Saiqa Zummard 1600090

Ishrat Amir 1600067

Muhammad Umer Alam 1600068

Submitted to: Mr. Waqar Akbar Page 1


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Analysis of Financial Statement

LIQUIDITY RATIOS

WORKING CAPITAL RATIO:

WC = CA C L

C L

Year 2007

WC = -0.15

Year 2008

WC = 0.09

Year 2009

WC = -0.14

Interpretation:

The working capital ratio indicates that companys fixed assets are being financed by short

term financing. As working capital ratio shows negative figures in 2007 and 2009 whichindicates companys fixed assets are financed by short term financing. But slight

improvement had shown in year 2008.

Recommendation:

Company needs to do some arrangements that current assets sufficiently financed by current

liabilities. By doing this company can save its long term financing cost which incurred to

support current assets.

CURRENT RATIO:

CR = CA_ CL

Year 2007

CR = 0.85

Year 2008

CR = 1.09

Year 2009

CR = 0.86



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2011

Interpretation: The current ratio of the company reflects that companys fixed assets are

being financed by short term financing which increases the risk unavailability of short term

financing in future. As current ratio shows figures in 2007 and 2009 companys fixed assets

are financed by short term financing. But in 2008 current assets matched up with current

liabilities.

Recommendation: The Company is required to balance its current assets and current

liabilities. It will leads to save companys long term financing cost, used to finance short

term assets.

QUICK RATIO:

QR = CA- InventoryCL

Year 2007

QR = 0.74

Year 2008

QR = 1.00

Year 2009

QR = 0.73

Interpretation: Quick ratio can indicate the problem in current asset level due to inventory.

If current assets are inflated due to inventory, it can be identified through quick ratio. As per

current ratio the company does not have surplus assets which mean inventory is also low. In

further dimension we observe that the inventory contribution in total current assets in 2007,

2008 and 2009 is 0.11, 0.09 and 0.13 respectively, company is maintaining different

inventory levels in three years.

Recommendation: If an average is taken the optimum level of inventory is 0.11 that

company needs to be maintained. It will leads to save company from out of stock conditions

i.e 0.09 in 2008 as well as unnecessary warehousing costs i.e 0.13 in 2009.

ABSOLUTE QUICK RATIO:

AQR = Cash + Marketable Securities

CL

Year 2007

AQR = 0.20



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2011

Year 2008

AQR = 0.04

Year 2009

AQR = 0.12

Interpretation: AQR tells us how much liability has taken to make investment in cash and

marketable securities. We can see that investment in cash and marketable securities is highest

in the year 2007 and lowest in 2008. The ratio is moderate in 2009.

Recommendation: Company should maintain only that certain level of cash and marketablesecurities which are essentially required. So it is recommended that company should maintain

the ratio which it maintained in 2009. Which is a medium level of cash and marketable

securities.

CASH RATIO:

Cash Ratio = Cash & Bank

CL

Year 2007

CR = 0.20

Year 2008

CR = 0.04

Year 2009

CR = 0.16

Interpretation: Ratio shows that cash level is highest in 2007, lowest in 2008. This ratio

show the amount of cash retained in business. Lower the ratio can cause liquidity problem

and higher the ratio shows unnecessary investment in cash.

Recommendation: In year 2009 there is a medium level amount invested in cash which is

most beneficial for the business.

ACTIVITY RATIOS

INVENTORY TURNOVER:



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2011

= COGS __

Inventory

Year 2007

IT = 15.97 times

Year 2008

IT = 18.18 times

Year 2009

IT = 17.33 times

Interpretation: Through this ratio we can examine that how many times a certain level of

inventory sold during the year. Most frequent selling of inventory gives the higher ratio

results. In the company ratio is highest in year 2008 and lowest in 2007.

Recommendation: The ratio drop down in the year 2009 so there is need to improve sales

and maintain only the level of inventory which is essentially required.

INVENTORY TURNOVER IN DAYS:

= Inventory x 360

COGS

Year 2007

IT = 27.5 days

Year 2008

IT = 20.28 days

Year 2009

IT = 26.08 days

Interpretation: In how many days a certain level of inventory sold during the year, this is

called Inventory Turnover in days. Less turnover reflects efficient sales. In year 2007 there is

highest and in year 2008 lowest inventory turnover in days.

Recommendation: The policy of sales and inventory proved best and should be implemented

in coming years for better performance of business.

ACCOUNTS PAYABLE TURNOVER RATIO:



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= Net Credit Purchase

Accounts Payable

Net Credit Purchases includes:

Raw Material

Packing Material

Accounts Payable includes

Creditors

Year 2007

A/P Turnover = 5.88 times

Year 2008


Year 2009


Interpretation: this ratio states that how many times a certain level of material purchase

from creditors and payment made to them. If ratio is higher it means that frequent payments

made to creditors. If ratio is lower it means company is managing its payments. We can see

that turnover is highest in 2007 and lowest in 2008.

Recommendation: Reference to the ratio of the year 2008 payments are managed in the

batter way. And payment pattern of 2008 is more beneficial as compare to other years so it is

recommended that the company should again implement the same policy in the coming year.

ACCOUNTS PAYABLE TURNOVER IN DAYS:

= Accounts Payable x 360

Net Credit Purchase

Year 2007

A/P Turnover = 61.25 days

Year 2008


Year 2009




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Interpretation: This ratio shows after how many days the company is making payments to

creditors for inventory purchased. Higher the ratio shows efficient management of payments

and so on. The ratio is highest in the year 2008 and lowest in the year 2009. Company shows

better performance in the In the year 2008 whereas payments making pattern was not enough

supportive in the year 2009.

Recommendation: Delaying the payments more beneficial for company and as per ratio

calculated in the year 2008 shows best management of payments can be a bench mark for

subsequent years.

TOTAL ASSET TURNOVER:

= Net Sales

Total Assets

Year 2007

T/A Turnover = 48.67 times

Year 2008


Year 2009


Interpretation: it states that how much sales are generated by utilizing the companys assets.

Higher the ratio shows higher the output. Data shows sales are highest in the year 2009.

Company must consider its capacity of production before planning of its sales. A very high

ratio shows that plant is producing much of its capacity. In 2008 turnover is medium.

Recommendation: The production of plant is moderate in the year 2008 which is compatible

with its capacity and production level maintained in 2008 should be continue to maintain in

the coming years.

PROFITABILITY RATIOS

GROSS PROFIT RATIO:

GPR = Gross Profit x 100

Sales

Year 2007

GPR = 29.34 %

Year 2008



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GPR = 25.73 %

Year 2009

GPR = 37.26%

Interpretation: This ratio expresses the portion of COGS in total sales. It shows the leverage

of the company to pay its remaining expenses. The year 2009 gave the best result of gross

profit but the result of 2008 is not satisfactory.

Recommendation: In the year 2009 Company generated maximum gross profit which is due

to lower cost of goods sold. So the recommendation is that the company should control its

production cost likewise in the year 2009.

NET PROFIT RATIO:

NPR = Net Income x 100

Sales

Year 2007

NPR = 20.34%

Year 2008

NPR = 15.79%

Year 2009

NPR = 17.45%

Interpretation:NPR shows that the income generated by the business after paying its all

obligations. The data shows that in year 2007 the net profit is highest and the same is lowest

in the year 2008. If we analyze the GP ratio it is evident that the year 2009 gave best GP

ratio. But the same year is unable to give best result in regard of NPR. It means company

facing operating problems.

Recommendation:In the year 2007 company is managing its operating and all other expenses efficiently. The

practices of the same year should use in future.

RETURN ON INVESTMENT/ASSETS:

ROI = Net Income/Total Assets

Year 2007

ROI = 9.90%

Year 2008



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ROI = 7.82%

Year 2009

ROI = 11.97%

Interpretation: It is the ratio express what income is earned on investment made in

business. Higher income reflects efficient operations or better utilization of assets. In year

2009 company performed very well that gave it highest ROI as compering to other years.

Recommendation:

Company utilized its assets in the best way in year 2009. So the utilization policies should

continue in next years.

RETURN ON EQUITY:

ROE = Net Income

Total Equity

Year 2007

ROE = 27.23%

Year 2008

ROE = 14.35%

Year 2009

ROE= 19.77%

Interpretation: Through this ratio shareholders can judge that how much income generated

on their investment. The higher ratio is more attractive for shareholders. In the year 2007

ROE is the highest as compare to others years.

Recommendation: As per results of 2007 it is recommended that company should not

increase its number of shareholders to maintain its ROE ratio.

LEVERAGE RATIOS

Fixed Cost Includes:

Salaries, wages and benefits

Electricity and Water

Repairs and maintenance

Insurance

Traveling and entertainment

Communication Printing & stationary

Security expenses



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Depreciation

Other Expenses

Variable Cost Includes:

Raw materials consumed

Packing material consumed

Cement packaging and loading charges

Fuel

Stores and spares consumed

Vehicle running and maintenance

Provision for slow moving and obsolete stores, spares and loose tools

Year 2009 2008 200Amount ,000 Amount ,000 Amount ,000

Sales 26,330,404 16,957,879 12,521,861

Variable cost** 17,188,836 11,900,119 7,960,715

Contribution Margin 9,141,568 5,057,760 4,561,146

Fixed Cost* 2,361,402 1,940,455 1,618,696

EBIT* 6,780,166 3,117,305 2,942,450

Interest 1,236,971 126,743 862,847

Earning before tax 5,543,195 2,990,562 2,079,603

Tax 580,452 (371,141) 143,059

Net Income 4,962,743 3,361,703 1,936,544

Leverage

DOL (S-VC)/(S-V-FC) 1.3483 1.6225 1.5501

DFL (S-VC-FC)/(S-V-FC-I) 1.2232 1.0424 1.4149

DTL (S-VC)/(S-V-FC-I) 1.6492 1.6912 2.1933

Fixed Cost*

Fixed-1 117,828 101,257 50,292

Fixed-2 2,110,780 1,731,629 1,481,974

Fixed-3 132,794 107,569 86,430

Total 2,361,402 1,940,455 1,618,696

Variable Cost**

Variable-1 2,310,009 1,053,797 447,437

Variable-2 14,845,685 10,828,139 7,488,397

Variable-3 33,142 18,183 24,881

Total 17,188,836 11,900,119 7,960,715



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30,000,000

DEGREE OF OPERATING LEVERAGE (DOL):

Year 2007

DOL = 1.5501

Year 2008

DOL = 1.6225

Year 2009

DOL = 1.3483

Interpretation: As per analysis it is apparent that DOL is highest in the year 2008. DOL is

the degree of operating leverage, the company is getting due to its fixed cost.

Recommendation: As per data we conclude that there is more fixed cost are incorporated in

the year 2008 which have significant impact on its DOL. It is recommended that company

should increase its sales to maximize its DOL in the coming years likewise it did in 2008.

DEGREE OF FIXED LEVERAGE (DFL):

Year 2007

DFL = 1.4149



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Year 2008

DFL = 1.0424

Year 2009

DFL = 1.2232

Interpretation: As data shows that DFL is highest in the year 2007. DFL is the degree of

financial leverage, the company is getting due to its fixed cost.

Recommendation: As per data we conclude that there is more fixed cost are incorporated in

the year 2007 which have significant impact on its DFL. It is recommended that company

should increase its sales to maximize its DFL in the coming years likewise it did in 2007.

DEGREE OF TOTAL LEVERAGE (DTL):

Year 2007

DTL = 2.1933

Year 2008

DTL = 1.6912

Year 2009

DTL = 1.6492

Interpretation: DTL is the degree of total leverage which is combination of DOL and DFL.

As per data DTL is higher in year 2007 and lower in year 2009. This varies due to the

incorporation of fixed cost in the business. So it is recommended that company should

increase its sales for the significant impact of DTL in the coming years.

MARKET VALUE RATIOS

EARNINGS PER SHARE (EPS):

EPS = Net Income

No: Common Stock Shares

Year 2007

EPS = 9.67%

Year 2008

EPS = 9.84%



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Year 2009

EPS = 14.21%

Interpretation: EPS states that earning on the share which will increase when net income

increases and vice versa. From the data analysis it reflects that there is significant increase in

EPS in year 2009 as compare to other years.

Recommendation: Company performance is much better in 2009 and it is recommended that

company should retain the practices in future as it implement in year 2009.

P/E (PRICE TO EARNING):

P/E = Market price of share

EPS

Year 2007

P/E = 12.72 times

Year 2008

P/E = 9.95 times

Year 2009

P/E = 4.12 times

Interpretation: This ratio shows that what is the market value of company shares on the

basis of its financial performance. The company shows significant performance in 2007 year

and did not retain the performance as it did in year 2007. Company is not performing well.

Recommendation: As P/E ratio depends upon the performance of the company. So company

needs to improve its performance to gain competitive edge in the market.

DIVIDEND PAYOUT RATIO (DPO):

DPO = Dividend per share

EPS

Year 2007

DPO = 12.92%

Year 2008

DPO = 0

Year 2009



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DPO = 28.15%

Interpretation: This ratio tells how much part of total income is distributed among the

shareholders and what amount is remaining as retained earnings. If more profits distributed

among the shareholders it will create attractiveness for them but company should maintain a

reasonable balance between DPO and RE. We observe DPO is highest in year 2009 and

lowest in year 2007 and no dividend has paid in 2008 year.

Recommendation: During analysis we observe that companies DPO policy is inconsistent.

Sometime it pays no dividend/ least dividend and sometimes pays highest dividend. It is

recommended that company should adopt consistent DPO policy.

DIVIDEND YIELD RATIO (DYR):

DYR = Dividend per shareMarket price per share

Year 2007

DYR = 0.01%

Year 2008

DYR = 0

Year 2009

DYR = 0.07%

Interpretation: This ratio gives idea to the investor that how much he will earned on

investment made in common stock of a particular company. From the data analysis DYR is

highest in year 2009 and lowest in 2007 and zero in 2008.

Recommendation: Consistent dividend policy is recommended to avoid abnormal

fluctuations in DYR.

BOOK VALUE PER SHARE:

BV/S = Share holders Equity

No: of Common Shares

Year 2007

BV/S = 35.51 times

Year 2008

BV/S = 94.68 times



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Year 2009

BV/S = 71.90 times

Interpretation: This ratio interpret that what is net worth of the business and what is

shareholders right on the business against per share held. If ratio is high the shareholders

right on the business is also high. In lucky cement the BV/S of the year 2007 is lowest and

BV/S is highest in year 2008.

Recommendation: Book Value per share decrease due to decrease in cash inflows in the

business. So the company should improve its operation for smooth cash inflows that leads to

improve its BV/S.

WORKING CAPITAL MANAGEMENT

LUCKY CEMENTYears Current

Assets

Fixed

Assets

Total

Assets

Aggressive approach Conservative approach

Permanent Temporary Permanent Temporary

2007 5402678 2032108

3

2572376

1

25723761 - 38392362 (12668601)

2008 8407379 25831695

34239074

25723761 8515313 38392362 (4153288)

2009 7857942 3053442

0

3839236

2

25723761 12668601 38392362 -

Avg 7222666 2556239

9

3278506

6

25723761 7061305 38392362 (5607296)

Calculation of cost

Interest Rate:

Long term @ 11%

Short term @ 3%

Aggressive approach

Financing Interest expense

Long term 25723761 2829614

Short term 7061305 211839

Total 32785066 3041453

Conservative approach

Financing Interest expenseLong term 38392362 4223160

Short term - -



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Total 38392362 4223160



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TAX BENEFIT ANALYSIS

INCOME STATEMENT FFBL LUCKY

(FAUJI FERTILIZER BIN QASIM

LTD) CEMENT

# of Share holder =

934110 # of Share holder = 323,375

Debt = 40 % Debt = 65 %

owner's equity = 60

% owner's equity = 35 %

(Rs

'000) (Rs '000)

Sales 36,724,920 26,330,404

Cost of goods sold 27,059,566 16,519,138

GROSS PROFIT 9,665,354 9,811,266

Selling and distribution

expenses 2,637,327 2,593,773

PROFIT FROM

OPERATIONS ( EBIT ) 7,028,027 7,217,493

Financial charges 1,219,724

FFBL pays less

interest due to

less debt 2,040,492

NET PROFIT BEFORETAXATION ( EBT ) 5,808,303 5,177,001

Provision for taxation ( 35% ) 2,032,906 1,811,950

NET PROFIT AFTER

TAXATION ( NI ) 3,775,397 3,365,051

Dividend Paid 3,736,441 329,219

Retained Earnings 38,956

LC shift more

RE to Balance

Sheet 3,035,832

Earnings per share 4.04 10.41

Tax Saving 426903.4

LC save tax

due to debt

financing 714172.2

Debt to Equity Ratio 0.4:1 0.65:1



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LUCKY CEMENT

Balance Sheet

Actual Forecasted

2009 2,010.00

ASSETS

Non-Current Assets

Property, plant and equipment 30476872 38,468,417.00

long term advance 55373 69,893.00

Long term deposits 2175 2,745.00

30534420 38,541,055.00Current Assets

Stores, spare parts and loose tools 3411549 4,306,114.00

Stock in trade 1196608 1,510,378.00

Trade debts 1267248 1,599,542.00

Loan and advances 108876 137,425.00

Trade deposits and prepayments 9761 12,320.00

Other receivables 59251 74,788.00

Tax refunds due frome the Govt 538812 680,098.00

Taxation-net 176584 22,887.00

Sales tax refundable 40162 50,693.00

Cash and bank balances 1049091 1,324,180.00

Total current assets 7857942 9,918,425.00

Total Asset 38392362 48,459,481.00

EQUITY AND LIABILITIES SHARE CAPITAL AND RESERVES

Share Capital 3233750 7,156,236.00

Reserve 20018222 20,018,222.00

23251972 27,174,458.00

NON-CURRENT LIABILITIES

Long term financing 4300000 4,300,000.00

Long term deposits 28589 1,353,022.00

Deferred Liabilities 234633 234,633.00Deferred Taxation 1478490 1,478,490.00

Total 6041712 21,285,072.00

CURRENT LIABILITIES

Trade and other payables 2677356 3,379,403.00

Accrued mark-up 233381 294,577.00

Short term borrowings 6187941 10,244,897.00

Current portion of long term finance -

9098678 13,918,877.00

Contingencies and Commitments

38392362 62,378,407.00



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LUCKY CEMENT

Income Statement

Sales ForecastForecasted

2009 2,010

Sales 26,330,404 33,234,676

Cost of sales -16,519,138 -20,850,732

Gross profit 981,126 12,383,944

Distribution cost -2,427,837 -3,064,456

Administrative expenses -165,936 -209,447

2,593,773 3,273,903

Operating profit 7,217,493 9,110,041

Finance costs 1,236,971 1,561,325

Other operating income (23,255) -29,353

Other charges 826,776 1,043,570

2,040,492 2,575,542

Profit before taxation 5,177,001 6,534,499

Taxation-Current 156,744 197,845

Prior year 4216 5,322

deferred 419492 529,490

580452 732,657

Profit after taxation 4596549 5,801,842

Basic and diluted earning per share 14.21

Calculations

Sales Forecast Averarage of difference in 3 years

Draft of Income statement and balance sheet formula

Item divided by old sales multiply new sales

Additional Funds Needed(AFN) 7681294

Debt Ratio 0.39

Current Assets 9918426

Totel Assets 48459481

Current Ratio 0.86

Debt: 18899198 Forecasted Current Liabilities 11533053

Previous-17526215 Less Previous CL (9098678

Forecasted 1372983 STD 2434375



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Equity 7681294-1372983=6308311

There are no Retained Earnings and we pay dividened from resevers

AFS Final Project UPDATED 22-01-2011

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