Financial analysis of ittehad chemical

Financial Analysis of Ittehad Chemical

Presented by: Tayyaba Ijaz (F14-011)BBA 4th semester

Presented to:Pro. Zohaib Mehmood

Superior University Gujrat

Introduction ICL was established in 1962 under the name of United Chemicals by a

chemical entrepreneur.

The factory is strategically located on the 19/20 Kilometer of GT Road and

spread over an area of 106 acres.

Under the economic Reforms order, United Chemical was nationalized in

1971 along with other industries of the country and renamed as Ittehad

Chemical.

It was initially managed by the Board of Industrial Management and

thereafter the Federal Chemicals & ceramics Corporation Ltd under the

ministry of production, Govt. of Pakistan.

Introduction

The factory was ultimately denationalized in 1995 by the privatization Commission Govt. of Pakistan.

Accordingly, the company established its own state-0f-art Power Plant of 30 MW capacity in the year 2005.

With a growing interest For ICL products in the international market, the organization has made the necessary arrangements (and will continue to do so in the future) to cater for the growing demand.

Mission

• Create an environment to attract and retain the best talent

• Serving the Customers to their satisfaction levels

• Ensuring that we are environment friendly

Vision

• An "Ittehad”of Pakistan's best talent & technology that serves as a catalyst to deliver sustainable chemical products to its customers thus optimizing returns for investors.

Products• Caustic Soda (Liquid / Solid /

Flakes)• Sodium Hypochlorite• Liquid Chlorine• Hydrochloric Acid• Shaffaf (Bleaching Earth)• CP (Chlorinated Paraffin)• Zinc Sulphate

Liquidity Ratios

Current RatioQuick Ratio

Current Ratioyear Current Assets Current Liabilities Ratio

2014 1,704,334,000 1,490,650,000 1.142015 1,437,172,000 2,045,134,000 0.70

2014 20150

0.2

0.4

0.6

0.8

1

1.2 1.14

0.7

Current Ratio

Interpretation:The current ratio of 2014 was better than 2015 because the Cash in hand & trade debts were more than the inventory. Although, Cash in hand & bank and Trade debts are quick liquidate assets therefore the liquidate position of 2014 was better than the 2015.In 2015, Trade debts and cash in hand & bank was less than 2014. While trade creditors & short term borrowing was more than the trade creditors & short term borrowing of 2014. Therefore its current ratio is low.

Quick RatioYears Quick Assets Current Liabilities Ratio2014 1,417,439,000 1,490,650,000 0.602015 1,263,502,000 2,045,134,000 0.39

2014 20150

0.1

0.2

0.3

0.4

0.5

0.6

0.70.6

0.39

Quick Ratio

Interpretation:The Quick Ratio of 2014 was better than the

2015 because the Cash in hand & trade debts

were more than the inventory. because the

Cash in hand & trade debts were more than

the inventory. Although, Cash in hand & bank

and Trade debts are quick liquidate assets

therefore the liquidate position of 2014 was

better than the 2015.

Activity Ratios

Inventory Turnover RatioAverage Collection PeriodTotal Asset Turnover Ratio

Inventory Turnover:Years Cost of Good Sold Inventory Ratio2014 3,290,826,000 810,548,000 4.062015 3,622,599,000 640,035,000 5.66

2014 20150.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

4.06%

5.66%

Inventory Turnover

Interpretation:The Inventory turnover ratio of 2014 is 4.06 and 2015

is 5.66. The inventory turnover ratio of 2015 is better

than 2014 because it shows the efficient managing the

inventory by comparing cost of goods sold. The ratio of

2015 represent that managing inventory by comparing

sale is 1.60 time more efficient than the ratio of 2014

which shows the efficient use of inventory as

compared to 2014.

Average Collection Period:Years Account Receivable Average Sale per day Ratio2014 609505 11241.789041 54.21 days2015 461589 11083.669014 41.65 days

2014 20150.00%

1000.00%

2000.00%

3000.00%

4000.00%

5000.00%

6000.00%5421.00%

4165.00%

Average Collection Period

Interpretation:If the firm had extended 60 days credit terms, the average collection period of 2014 was 54.21 days and average collection period of 2015 was 41.65 days would be quite acceptable. Clearly, additional information is needed to evaluate the effectiveness of the firm’s credit and collection policies.

The average collection period of 2015 is better than 2014.

Total Asset TurnoverYears Sale Total Assets Ratio2014 4,103,853,000 4,701,324,000 0.872015 4,045,537,000 5,351,302,000 0.76

2014 201570.00%

72.00%

74.00%

76.00%

78.00%

80.00%

82.00%

84.00%

86.00%

88.00%87.00%

76.00%

Total Asset Turnover

Interpretation: The total asset turnover ratio of 2014 is 0.87 and

2015 is 0.76. The total asset turnover ratio of 2014 is

better than 2015, this ratio shows the decreasing return.

In 2014 company generate 87 cent by using 1 dollar of

assets and 76 cent by using 1 dollar in 2015. It means

that this company uses their assets more efficiently in

2014 to generate sale as compared to 2015.

Profitability Ratio/Return on Investment

Gross MarginOperating MarginNet Profit Margin

Return on Total AssetReturn on Common Equity

Gross Margin RatioYears Sale Gross Income Ratio2014 4,103,853,000 813,027,000 19.81%2015 4,045,537,000 422,938,000 10.45%

2014 20150.00%2.00%4.00%6.00%8.00%

10.00%12.00%14.00%16.00%18.00%20.00%

19.81%

10.45%

Gross Margin Ratio

Interpretation:In 2014 the gross margin ratio was 19.81% and 1n

2015 the gross margin ratio was 10.45%. In 2014, the

gross margin ratio was higher than 2015 because of cost

of goods sold. Although, in 2014, net sales is increased

than previous year but the cost of goods is increased

too. Therefore, gross profit of 2015 is low. Its mean

Ittehad chemical Company has less money to pay its

operating expenses like salaries, utilities, advertisement

and rent etc.

Operating Margin RatioYear Sale Operating Income Ratio2014 4,103,853,000 405,372,000 9.88%2015 4,045,537,000 30,769,000 0.76%

2014 20150.00%1.00%2.00%3.00%4.00%5.00%6.00%7.00%8.00%9.00%

10.00%9.88%

0.76%

Operating Margin Ratio

Interpretation:In 2014, the Operating Margin ratio was higher than 2015. In

2014 operating profit was 9.88% while in 2015 was 0.76%. .

Its mean company have 9.88% amount to pay off its non-

operating expenses. While in 2015 this ratio is decreased at

higher rate. In 2015, the operating profit margin ratio is 0.76%.

This ratio is decreased by 9.12%. Its mean company has only

0.76% amount remaining for pay off its non-operational

expenses after paying its operational expenses. Its mean in

2015 company’s efficiency to pay its non-operational expenses

is decreased.

Net profit MarginYear Sale E.C.S Ratio2014 4,103,853,000 200,376,000 4.88%2015 4,045,537,000 84,487,000 2.09%

2014 20150.00%0.50%1.00%1.50%2.00%2.50%3.00%3.50%4.00%4.50%5.00%

4.88%

2.09%

Net profit Margin

Interpretation:The net profit margin ratio of 2014 was 4.88%, in

2015 was 2.09%. In 2015 only 2.09% sale is

converted into profit. It means company paid less

finance cost. It shows the firms better position of

profitability in 2015 as compared to 2014.

Return on Total AssetsYear E.A.C.S Total Asset Ratio2014 200,376,000 4,701,324,000 4.26%2015 84,487,000 5,351,302,000 1.58%

2014 20150.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%4.26%

1.58%

ROA

Interpretation:In 2014 the ROA ratio was 4.26%, while its total assets were less and net earnings were high as compared to 2015. Its mean company used its assets to generate 4.26% net profit which better than years 2015.In 2015, company’s total assets increased against net income. It can cause only generate 1.58% earning because of inefficient use of assets. Company has invested more in fixed assets as compared to 2014.

Return on Common EquityYear E.C.S C.S.E Ratio2014 200,376,000 1,458,220,000 13.74%2015 84,487,000 1,558,800,000 5.42%

2014 20150.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%13.74%

5.42%

ROE

Interpretation:In 2014, the equity was used to generate earning by company approximately 13.74%. Whereas the company, in 2015, is generated approximately 5.42% earnings by using its equity. In 2015, cost of goods sold was high so that company earned less income. Therefore company’s ROE is less than 2014.

Debt to Total AssetsYears Total Debt Total Assets Debt to Total Assets2014 2,399,903,000 4,701,324,000 0.51%2015 2,978,265,000 5,351,302,000 0.56%

2014 20150.48

0.49

0.50

0.51

0.52

0.53

0.54

0.55

0.56

0.51

0.56

Debt to Total Asset

Interpretation:Company’s debt to total equity, in 2014, is 0.51times. Its mean company financial leverage position is good. Company has more assets to pay its debts. In 2015, the company has ratio approximately 0.56 times. It shows Company has ability to pay off its debts against assets is moderate. Company will pay off Rs.0.56 of its debts against Rs.1 of its assets. This is due to increase in trade debts and short borrowings. Because in 2015, company collect finance from trade debts and short term borrowings as compared to previous years. Overall company’s financial leverage position is decreasing. That shows not a good symbol for the financial position.

Conclusion• Ittehad chemicals is a competing company.• Ittehad Chemical facing many issues. They have no short

term plans, they only deals with big plans and therefore they don’t lease it.

• There is also a problem in their inventory that is they have excess of unnecessary inventory which is not beneficial for them as they have to bear maintenance cost on it.

• Another issue they face is of their competitors, Engro chemical is a huge competitor of Ittehad chemicals, the market share is high and also competitive advantage is towards Engro due to the product.

Recommendations

• They should gives wages to their employees, give more incentives to them and divide their duties in shifts.

• Market needs more and rapid production of products and gives preference to those companies which follows these tips, so I recommended ICL to makes their new plant for rapid production.

• If they give space to their employees and gives high preference to their customers need, make order according to the demand , they will definitely reach towards success and have a good market place.