Profitability Ratio Analysis Of Fertilizer Companies

Table of contents

Profitability Ratio Analysis Of Fertilizer Companies

By Muhammad Mohsin

SP13-RBA-48

MBA Project Report

In MBA 1.5 yearsCOMSATS Institute of Information Technology

Virtual Campus - Pakistan

3rd Semester Spring-2014 COMSATS Institute of Information TechnologyPROFITABILITY RATIO ANALYSIS OF FERTILIZER COMPANIES

A Project Report Presented to

COMSATS Institute of Information Technology, Virtual CampusIn partial fulfillment of the requirement for the degree of

MBA (1.5 years)By

Muhammad Mohsin

CIIT/SP13-RBA-048

Semester 3rd Spring-2014

PROFITABILITY RATIO ANALYSIS OF FERTILIZER COMPANIES

__________________________________________A Post Graduate Project Report submitted to the Department of Business Administration as partial fulfillment of the requirement for the award of Degree of MBA (1.5).NameRegistration

MUHAMMAD MOHSINSP13-RBA-048

Supervisor

Mr Tanveer Ahmed

LecturerCOMSATS Institute of Information Technology (CIIT)

Virtual Campus, Islamabad.

July, 2014Final Approval_______________________________________________This Project Report titledPROFITABILITY RATIO ANALYSIS OF FERTILIZER COMPANIES

By

Muhammad MohsinSP13-RBA-048Has been approved

For the COMSATS Institute of Information Technology,

Virtual Campus, IslamabadSupervisor: Mr Tanveer AhmedLecturerBusiness Administration/ CIIT Virtual Campus

HoD : Shazia BilalLecturer

Business Administration/ CIIT Virtual Campus

DeclarationI Muhammad Mohsin SP13-RBA-048 hereby declare that I have produced the work presented in this Project Report, during the scheduled period of study. I also declare that I have not taken any material from any source except referred to wherever due that amount of plagiarism is within acceptable range. If a violation of HEC rules on research has occurred in this Project Report, I shall be liable to punishable action under the plagiarism rules of the HEC.

Date: 30-July-2014

Signature of Student:

_____________________

Muhammad Mohsin

SP13-RBA-048

Certificate

It is certified that Muhammad Mohsin (SP13-RBA-048) has carried out all the work related to this Project Report under my supervision at the Department of Business Administration, COMSATS Institute of Information Technology, Virtual Campus Islamabad and the work fulfills the requirement for award of MS degree.Date: 30-Jul-2014

Supervisor:

____________________

Mr Tanveer AhmedHead of Department:

______________________

Shazia Bilal

Lecturer

Business Administration

DEDICATIONDedicated to my parents who always encouraged me in every turn of life and taught me to live with patience and blessed with her prayers my friends and my colleagues at SBP who remained very help full to me to accomplish the work in a short period of time to submit this project.

ACKNOWLEDGEMENTS I am very thankful to my almighty Allah. Who blessed me a lot and bestowed me the strength, hope and patience that keep me motivated to complete the project in a very short period of time. Without his blessing it was impossible for me to complete this project timely. I am very thankful to my Allah.I would also like express my sincere and deep thankfulness to my parents, brother as well as my friends and my colleagues at SBP. They all supported me a lot in moral sense and technical aspects. I am very thankful to virtual university who encouraged me to restart the project specially Mr Tanveer Ahmed Lecturer CIIT, who encouraged me through emails and telephone and gave a prompt response to my queries. Such personalities of the university are really the asset of vu. I am very thankful to him again.Contents

11PROJECT summary

122. Introduction of the Project:

143. Introduction of the Companies:

143.1 Fauji Fertilizer Co. Ltd.

153.2 Pak Arab Fertilizers.

153.3 Wah Nobel Chemicals

164. Description of the Project.

176. Objectives:

177. Significance:

178. Literature View:

199. Project Proceedings

1910. Data Collection Sources.

1911. Data Processing and Analysis Tools

2012. Ratio Analysis

5013.C O N C L U S I O N:

5014.RECOMMENDATIONS

PROJECT summary

This Project is to analyze Profitability ratio of the three companies listed in the stock exchange in fertilizers sector. The companies which will be under study in this project of Profitability ratio analysis for the financial period of 2010, 2011 and 2012 are as under.

Fauji Fertilizer Co. Ltd.

Pak Arab Fertilizers Co .Ltd.

Wah Nobel Chemicals

The core objective of the project is to analyze the Profitability position of the companies and to identify the company which is effectively managing and efficiently utilize its assets. To analyze companies is compulsory requirement of MBA Finance for me and also for the stakeholders, general readers and students as well.

Project is being planned to produce in tabular and graphical forms and will be supported by essential working and interpretations. Various site, books and journals have been consulted to accomplish the work of this project. References have been mentioned at the end of the project in the shape of bibliography.

2. Introduction of the Project:The Economy of Pakistan is based on Agriculture, agriculture plays very important role in the growth of the economy of Pakistan, it is very helpful to generating revenues, foreign exchanges as well as development of the industrial sector of Pakistan, with the help of this sector it provides raw material to the concerned industries, like food, cotton, sugar etc, it plays as backbone of the Pakistans economy.

The fertilizers are to help the agriculture to growth and development, with the help of Fertilizers agricultures will meet the demand of the food and to achieve to sufficiency. According to the importance of the fertilizer I have to choose to work on the fertilizer companies and I have selected three (3) companies for my project to analyze the Profitability ratios of companies which are shown below.

Fauji Fertilizer Co. Ltd.

Pak Arab Fertilizers Co.Ltd.

Wah Nobel Chemicals.

3. Introduction of the Companies:

3.1 Fauji Fertilizer Co. Ltd.

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 share capital of the company was 813.9 Million Rupees. The present share capital of the company stands above Rs. 8.48 Billion. Additionally, FFC has more than Rs. 8.3 Billion as long term investments which include stakes in the subsidiaries FFBL, FFCEL and associate FCCL.

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 major shareholders in a new DAP/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 with an annual capacity of 551,000 metric tons of urea and 445,500 metric tons of DAP, revamped to 670,000 metric tons of DAP.

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. It has annual production capacity of 574,000 metric tons urea which has been revamped to 718,000 metric tons urea in 2009.

This acquisition at Rs. 8,151 million represented the largest industrial sector transactions in Pakistan at that time.

3.2 Pak Arab Fertilizers.Pak Arab Fertilizers Limited was established as a result of protocol concluded and signed on November 15, 1972 by the Government of Pakistan to further strengthen and develop fraternal ties between Islamic Republic of Pakistan and State of Abu Dhabi.

A Memorandum of Understanding was concluded between Pakistan Industrial Development Corporation (PIDC) and Abu Dhabi National Oil Company Limited (ADNOC) on March 7, 1973. A participation agreement emerged on November 1, 1973 to establish a joint venture for the expansion and modernization of the old Natural Gas Fertilizer Factory (NGFF) at Multan.

The Company was incorporated on November 12, 1973. Subsequently, PIDC assigned 52% of its shares to National Fertilizer Corporation (NFC) of Pakistan and ADNOC assigned 48% of its shares to International Petroleum Investment Company, with a paid-up capital of PKR743.061 million.

Under the privatization policy of Government of Pakistan, Pak Arab Fertilizers Limited was privatized on July 14, 2005 at a cost of Rs.14.125 billion. It was acquired by a consortium of Fatima Group and Arif Habib Group.

Under the new management, Pak Arab Fertilizers Limited has undergone extensive modernization and new improved processes have been introduced to maximize the output while minimizing the negative impacts on the environment. For this a Clean Development Mechanism (CDM) plant was installed, which is the first project of this kind in Pakistan. Basic aim of this project is the abatement of N2O and NOXemissions from the stack gases of Nitric Acid plant. The reduction of green house effect of these gases shows the new management's commitment towards a cleaner environment.

Pak Arab Fertilizers Limited is located at Khanewal Road, Multan. The site area comprises 302 acres, which includes area for the factory and the housing colony with all amenities including medical centre, school, management and staff clubs for recreation of employees and their families, etc.

3.3 Wah Nobel Chemicals

Founded in 1962, Wah Nobel is a joint venture between Saab Sweden, Almisehal Saudi Arabia and the Pakistan Ordnance Factories.For more than five decades Wah Nobel has stood as a symbol of safety, reliability, service and commitment, Wah Nobel's products enjoy the highest reputation in Pakistan and abroad. This has been achieved through innovation, experience, state-of-the-art technology and a vision for the future.Wah Nobel is fully committed to a policy that ensures a consistent supply of quality products and services at competitive prices.4. Description of the Project.

Executive Summary

Table of Contents

Section I

1) Introduction

2) Introduction of the Project

3) Introduction to the company

4) Financial Period Under-Consideration for analysis 2010 , 2011 & 2012

5) Objective

6) Significance5. Financial Period Under-Consideration for Analysis: The financial years for ratio analysis under consideration are

2010, 2011 and 2012.

6. Objectives: i. To examine the ability of selected companies to earn profit over a period of timeii. To examine the selected companies efficiency in managing their resource for generating profit

iii. To find out the reasons for generating profit over the years for selected companies

iv. If in any year, any of the three selected companies is facing loss, then to find out the reasons of losses

v. To find out that how effectively selected companies are maximizing their profits by controlling their costs/expenses 7. Significance:

It is significant for me as I have to perform the activities for this project to submit the research work assigned to me. After research on the project I will be able to solve the problems regarding the profitability of the companies. and it is significant for other stakeholders according to my view that the project will be helpful for the Investors, creditors and debtors as well as management and I will inform with the help of this project that profitability of the companies and the financial position, I selected this topic because many debtors have concern regarding full information of the companys profitability. With the help of this project I will briefly convey the information to them.

8. Literature View:

Operating cash flows generate by assets will affect continuing firm liquidity. It is not only because of the value of liquidation (Soenen, 1993). Firms with fewer current assets will having problem in continuing their operations while if the current assets are too much, it shows the return on investment is not in perfect condition. (Horne and Wachowicz, 2000). Since optimum cash levels are influenced by the factors outside the preventive concept of treasury, the company must think broad and take serious operational decisions on how to the profit opportunities that is available in cash flow process.

Organization to concern on this because, if they need to sell inventory, they also need a customer to buy that inventory. (Chinmoy Gosh 2009).

The economics and finance literature analyze four possible reasons for firms to hold liquid assets; the transaction motive Miller and Orr 1966, the precautionary motive Opler, Pinkowitz, Stulz, and Williamson 1999, the tax motive Foley, Hartzell, Titman, and Twite 2007 and finally the agency motive Jensen 1986. Analysts use liquidity ratios to make judgments about a firm, but there are limitations to these ratios. The liquidity of a firm's receivables and inventories can be misleading if the firm's sales are seasonal and or the firm uses a natural business year (Gibson, Charles H. 1991 Financial Statement Analysis p.261 Cincinnati, OH: South-Western College Publishing).

According to many university researchers (Basno & Dardac, 2004), the required liquidity for each business depends on the balance sheet situation of the business. In order to evaluate the liquidity state, special importance is held by the way in which there are classified organizational assets and liabilities (Basno & Dardac, 2004). Liquidity risk is seen as a major risk, but it is the object of: extreme liquidity, "security cushion" or the specialty of mobilizing capital at a "normal" cost (Dedu, 2003)

9. Project Proceedings1. Data Analysis

Ratio Analysis

1. Net Profit Margin

2. Return on Assets

3. DuPont Return on Assets

4. Operating Income Margin

5. Operating Assets Turnover

6. Return on Operating Assets

7. Sales to Fixed Assets

8. Return on Total Equity

9. Gross Profit Margin

10. Data Collection Sources.

Primary Source annual reports collected from their official web sites.

11. Data Processing and Analysis Tools In this project I will use the following Software for analyzing data.

1. Calculator

2. MS Office

3. Internet

12. Ratio Analysis

Net Profit MarginNET INCOME / NET SALES*100

A ratio of profitability calculated as net income divided by revenues, or net profits divided by sales. It measures how much out of every rupee of sales a company actually keeps in earnings.

Tabular Representation

Company NameYear 2010Year 2011Year 2012

FFC11,028,849,000.00 / 44,874,359,000.00 *100 = 24.5822,492,053,000.00 / 55,221,168,000.00 * 100 = 40.7320,839,723,000.00 / 74,322,612,000.00

*100 = 28.04

Pak Arab 3,231,962,000.00/ 18,247,829,000.00

*100 = 17.71 4,590,139,000.00 / 16,700,794,000.00 *100 = 27.48(239,788,000.00) / 8,136,158,000.00 * 100 = (2.95)

Wah Nobel75,991,071.00 / 712,677,204.00

*100 = 10.66 64,294,152.00 / 698,678,000.00

*100 = 9.20 73,733,383.00

/ 1,147,501,226.00

*100 = 6.43

Graphical Representation/Trend Analysis

INTERPRETATION.

the net profit margin for 2010 of Fauji Fertilizers is 24.58; this is good sign for the company. If this ratio increased then the strength of the companys profit will be increased. It shows that company is out of risk of declined sale.

Having 40.73 net profit margin for the year 2011 Fauji Fertilizers company has increased the ratio from the 24.40 to 40.73, it shows the company is in good earning position in comparison to last year.

In the year 2012 Fauji Fertilizers has 28.04, net profit margin though company seems good in this year but sales of the company are not better than the last year and the earning position of the company in comparison to last year is not good.

the net profit margin for the year 2010 of Pak Arab Fertilizers is 17.71 it shows that the sales of the company are not suitable /up to the mark.

In the year 2011 net profit margin of Pak Arab Fertilizers is 27.48, in this year the company has improved its net profit margin, it means the company is in good position of earning.

the net profit margin for the year 2012 of Pak Arab Fertilizers is 27.79, in this year the company has slightly increased its net profit margin in comparison to last year which is better for earning, as the ratio is better than last year.

the net profit margin for the year 2010 of Wah Nobel Chemicals is 10.66, in this year the company fall the ratio indicates that net income of the company is not better in comparison to the net sale though net sales were more than net income so being net sales in denominator decreased the net income. This shows that the expenses remained on high side which declined the net income.

the net profit margin for the year 2011 of Wah Nobel Chemicals is 09.20; accordingly the company has decreased the net income, so that the ratio is decreased from 10.66 to 9.20. Same trend of net income and net sales remained intact means the net income declined in comparison to net sales.

the net profit margin for the year 2012 of Wah Nobel Chemicals is 06.43; accordingly the company has decreased the net income, so that the ratio fallen from 10.66 to 06.43 in three years. Same declining trend of net income remained intact whereas net sales also increased this year too. It reveals that the company has costs that have increased at a greater rate than sales, which leads to a lower profit margin. This is an indicator that costs need to be under better control.

As the higher the net profit margin ratio is known better. From the above calculations and graphs it can be determined that the net profit margin of the FFC remained better in comparison to other companies.Return on Assets Return on Assets = Net Income Before Tax *100/TOTAL ASSETS

An indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings. Calculated by dividing a company's annual earnings by its total assets, ROA is displayed as a percentage. Sometimes this is referred to as "return on investment".

Tabular Representation.


FFC16,309,849,000.00

*100 / 43,060,856,000.00

=37.88

33,166,053,000.00

*100 / 55,530,916,000.00

=59.73

31,020,723,000.00

*100 / 60,886,853,000.00

=50.95

Pak-Arab4,695,722,000.00

*100 /

50,637,407,000.00

= 9.27

6,310,681,000.00 *100 / 65,340,926,000.00

=9.66

(895,536,000.00)

*100 / 54,636,251,000.00

= (1.64)

Wah Nobel117,002,505.00

*100 / 496,725,611.00

=23.55

97,843,544.00 *100 / 521,530,808.00

=18.76

116,967,604.00 *100 / 620,790,964.00

= 18.84


INTERPRETATION. Return on assets for the year 2010 of Fauji Fertilizers is 37.88, this shows the efficient usage of assets to generate profit. 59.73 Return on assets for the year 2011 of Fauji Fertilizers show that the company has managed very best in comparison to last year ROA such increase in the ratio indicates that management has very efficiently used the assets of company.

50.95 Return on assets for the year 2012 of Fauji Fertilizers show that the company has managed better but has declined the ratio in comparison to last year. Though ROA has declined in comparison to last year but it is better than the same of 2010. We can say it the efficient usage of the assets of company.

the return on assets for the year 2010 of Pak-Arab Fertilizers is 9.27, the company has low ratio than the other companies it indicates that the management of the company does not utilize the assets of the company to generate the profit efficiently.

the return on assets for the year 2011of Pak-Arab Fertilizers is 9.66, in this year the company has slightly increased the ratio from the last year i.e. 2010, but trend of not utilizing the assets for generating the profit of the company management does not shows any significant change this year.

the return on assets for the year 2012 of Pak-Arab Fertilizers is (1.64), in this year the company has worsen the ratio. Trend of not utilizing the assets for generating the profit of the company management has been raised up to the dangerous level .In such state of affairs the investors would not like to invest in the company. The companys trend of the inefficient use of company assets was increasing in each subsequent year.

Return on assets for the year 2010 of Wah Nobel Chemicals is 23.55 the management of the company position is good and indicates the efficient usage of the assets by the management of the company.

Return on assets for the year 2011 of Wah Nobel Chemicals is 18.76, in this year the companys ratio declined and shows the least interest of the management of the company regarding efficient usage of the assets of the company.

Return on assets for the year 2012 of Wah Nobel Chemicals is 18.84, in this year the companys ratio slightly increased which is not a significant change in comparison to the last year. Still company requires the attention of management regarding its efficient usage of the assets.

From the above calculations and graphs it is obvious that the return on assets of Fauji Fertilizers remained best of the other companies i.e. 37.88 to 59.73& 50.95 for the year 2010,2011&2012 respectively. Normal ROA should be between 10 to 15 percent. If companies are not based upon the assets ROA can be much higher. If ROA goes very high side, it is the indicator to the company, if it Worth to receive more investments in to the assets if there is potential to increase market share and maintain the same profitability. The position of the Pak Arab Fertilizers remained below the normal ROA during all the years under review. This shows that the company s management does not utilize the assets efficiently to generate the earnings. Fauji Fertilizers Company also remained over the normal values during the whole period. DuPont Return on Assets (NET INCOME/SALES)X(SALES/TOTAL ASSETS)X100

Return on assets (ROA) is a percentage of the after-tax income as compared to the total assets of the company. Management at Du Pont came up with Return on Assets (Du Pont), an approach that determines the impact of asset turnover and profit margin on profits. This interactive tutorial explains the concept by walking you through the calculations, including where to find the numbers on the financial statements.



FFC(11,028,849,000.00/ 44,874,359,000.00)* (44,874,359,000.00/

43,060,856,000.00) *100 = 25.61 (22,492,053,000.00 /55,221,168,000.00) *(55,221,168,000.00 /55,530,916,000.00)

*100 = 40.50(20,839,723,000.00 /74,322,612,000.00) *(74,322,612,000.00 /60,886,853,000.00)

*100 = 34.23

Pak-Arab (3,231,962,000.00 / 18,247,829,000.00)* (18,247,829,000.00/ 50,637,407,000.00 ) *100 = 6.38(4,590,139,000.00/ 16,700,794,000.00) *(16,700,794,000.00/ 65,340,926,000.00)

*100 = 7.2 ((239,788,000.00)

/8,136,158,000.00) *(8,136,158,000.00 / 54,636,251,000.00)*100 = (0.44)

Wah Nobel(75,991,071.00 / 712,677,204.00) * (712,677,204.00 / 496,725,611.00)

*100 = 15.30 (64,294,152.00 / 698,678,000.00) * (698,678,000.00 / 521,530,808.00)

*100 = 12.33(73,733,383.00 / 1,147,501,226.00) * (1,147,501,226.00 / 620,790,964.00)

*100 = 11.88


InterpretationDuPont Return on Assets for the year 2010 of Fauji Fertilizers is 25.61, the company has satisfactory ratio. DuPont Return on Assets for the year 2011 of Fauji Fertilizers is 40.50, in this year the company has increased the ratio very efficiently this shows that the company position is powerful and company has invested more than assets. DuPont Return on Assets for the year 2012 of Fauji Fertilizers is 34.23, in this year though company has decreased the ratio slightly however it shows that the company position is still powerful and company has invested more than assets. . DuPont Return on Assets for the year 2010 Pak-Arab Fertilizers is 6.38, it reveals that in this year the company has decreased the ratio and has not invested more than its assets.

DuPont Return on Assets for the year 2011 of Pak-Arab Fertilizers 7.02, in this year the ratio of the company is slightly increased in comparison to 2010 but still not satisfactory.

DuPont Return on Assets for the year 2012 of Pak-Arab Fertilizers 0.44, in this year the ratio of the company worsen and show that the management has not invested efficiently in comparison to their assets. This indicates the alarming position of the company.

DuPont Return on Assets for the year 2010 of Wah Nobel Chemicals is 15.30 we can say it satisfactory ratio, however it shows the inefficient usage of assets.DuPont Return on Assets for the year 2011 of Wah Nobel Chemicals is 12.33, in this year the company has decreased the ratio. This indicates the in efficient usage of assets.

DuPont Return on Assets for the year 2012 of Wah Nobel Chemicals is 11.88, in this year the company has decreased the ratio in comparison to last two years. This indicates the inefficient usage of assets.

On going through the above tables and graphs it is obvious that the FFC has the greater DuPont return on assets during all the years under review which reveals that FFC management is constantly using their assets though it vary from year to year. Whereas the Wah Nobel has slightly greater DuPont Return on Assets and the Pak Arab is at bottom line in comparison to other companies. Operating Income MarginEBIT/NET SALES X 100

The operating income margin is a financial indicator of the health of a company and is derived directly from the operating income. Basically, the operating income is divided by sales in order to produce the operating income margin figure, which is expressed as a percentage. A company with a 10% operating income margin makes $.10 of profit on each dollar of sales; thus, the higher the operating income margin, the more profitable the company is likely to be. The operating income margin is a good indicator of the companys efficiency and profitability, but fails to take into consideration one-time losses or gains from legal actions or other singular events.



FFC17,396,590,000.00/ 44,874,359,000.00

*100 = 38.7733,951,878,000.00/ 55,221,168,000.00

*100 = 61.4832,020,180,000.00/ 74,322,612,000.00 *100 = 43.08

Pak-Arab 8,285,541,000.00/

18,247,829,000.00

*100 = 45.419,783,086,000.00/

16,700,794,000.00 *100= 58.58(3,505,579,000.00)/ 8,136,158,000.00 *100 = (43.09)

Wah Nobel124,200,704.00/ 712,677,204.00

*100 = 17.43102,214,495.00/ 698,678,000.00

* 100 = 14.63116,398,519.00/ 1,147,501,226.00 *100 = 10.14

Working

EBIT = PROFIT BEFORE TAX + FINANCE COST.

FAUJI FERTILIZERS

YEARPROFIT BEFORE TAXFINANCE COSTEBIT

201016,309,849,000.00 1,086,741,000.00 17,396,590,000.00

201133,166,053,000.00 785,825,000.00 33,951,878,000.00

201231,020,723,000.00 999,457,000.00 32,020,180,000.00

PAK-ARAB FERTILIZERS

YEARProfit Before TaxInterest ExpensesEBIT

20104,695,722,000 3,589,819,000.00 8,285,541,000.00

2011 6,310,681,000.00 3,472,405,000.00 9,783,086,000.00

2012 (895,536,000.00) (2,610,043,000.00)(3,505,579,000.00)

WAH NOBEL CHEMICALS

YEARProfit Before TaxFinance CostEBIT

2010117,002,505.00 7,198,199.00 124,200,704.00

2011 97,843,544.00 4,370,951.00 102,214,495.00

2012 116,967,604.00 (569,085.00) 116,398,519.00


Interpretation

The higher the operating income margin, the more profitable the company is likely to be. The operating income margin is a good indicator of the companys efficiency and profitability, but fails to take into consideration one-time losses or gains from legal actions or other singular events. Year wise operating income margins of each company are as under

Operating Income Margin for the year 2010 of FFC Company is 38.77, in this year the company is profitable.

Operating Income Margin for the year 2011 of FFC Company is 61.48, in this year the company has the top position and the companys strength is highly growing. Because the higher the operating income margin, the more profitable the companyOperating Income Margin for the year 2012 of FFC Company is 43.08, in this year though the company has declined the position in comparison to last year but is still stable.

Operating Income Margin for the year 2010 of Pak Arab Company is 45.41, in this year the companys ratio is better.

Operating Income Margin for the year 2011 of Pak Arab Company is 58.58, in this year the company has increased the ratio it means the strength of the company is increased and it will help the company to invest more.

Operating Income Margin for the year 2012 of Pak Arab Company is -43.09, in this year the company has abnormally decreased the ratio it means the company weekend it strength. This inverse to the rule that the higher the operating income margin, the more profitable the company. Such state of affairs is not in favor of financial health of the company.Operating Income Margin for the year 2010 of Wah Nobel Company is 17.43, in this year the company has satisfactory ratio.

Operating Income Margin for the year 2011 of Wah Nobel Company is 14.63, in this year the company has decrease the ratio in comparison to 2010 it shows that the company profitability is decreased.

Operating Income Margin for the year 2012 of Wah Nobel Company is 10.14, in this year the company has decrease the ratio in comparison to 2010 &2011 it shows that the company profitability is decreased and financial health of the company is going to be deteriorate.

On going through the above calculations and graph of the companies it is clear that the FFC Company remained on the top for all the three years. Whereas the Pak Arab remained on 2nd number during early two years but in the year 2012 it fall down up to the abnormal position. However the Wah Noble maintained its position on 3rd number during all the years. Operating Assets TurnoverEBIT/OPERATING ASSETS x 100A Financial Ratio that indicates the effectiveness with which a firms management uses its operating assets to generate sales.

Operating asset turnover is the ratio of net sales divided by operating assets.



FFC17,396,590,000.00/

17,692,327,000.00 * 100 = 98.33 33,951,878,000.00/

19,068,317,000.00 * 100 = 178.05 32,020,180,000.00 /25,621,002,000.00 * 100 =124.98

Pak-Arab 8,285,541,000.00 /

26,899,757,000.00 *100 = 30.80 9,783,086,000.00/

41,681,526,000.00 *100 = 23.47 (3,505,579,000.00)/

40,589,076,000.00 * 100 =(8.64)

Wah Nobel124,200,704.00/ 422,504,720.00

* 100 = 29.40

102,214,495.00 /

439,479,856.00

* 100 =23.26116,398,519.00 /

526,581,129.00

* 100 =22.10

Working

Operating Assets = Cash and Bank Balance + Inventories + Bills ReceivablesFAUJI FERTILIZERS

YEARTRADE DEBTSCASH AND BANK

BALANCESTOCK IN TRADEPROPERTY PLANT EQUIPMENTOPERATING ASSETS

2010357,956,000.001,189,063,000.00211,720,000.0015,933,588,000.0017,692,327,000.00

201186,669,000.001,293,774,000.00636,923,000.0017,050,951,000.0019,068,317,000.00

20123,611,476,000.003,748,632,000.00442,139,000.0017,818,755,000.0025,621,002,000.00

PAK-ARAB FERTILIZERS

YEARTRADE DEBTSCASH AND BANK BALANCESTOCK IN TRADEPROPERTY PLANT EQUIPMENTOPERATING ASSETS

20101,850,695,000.00185,675,000.002,946,995,000.0021,916,392,000.0026,899,757,000.00

2011890,573,000.00796,323,000.002,057,363,000.0037,937,267,000.0041,681,526,000.00

2012570,992,000.00993,957,000.001,733,871,000.0037,290,256,000.0040,589,076,000.00

WAH NOBEL CHEMICALS

YEARTRADE DEBTSCASH AND BANK BALANCESTOCK IN TRADEPROPERTY PLANT EQUIPMENTOPERATING ASSETS

2010241,500,249.00 24,373,129.00 51,422,677.00 105,208,665.00 422,504,720.00

2011230,110,597.00 71,904,392.00 37,283,832.00 100,181,035.00 439,479,856.00

2012218,068,260.00 103,738,762.00 111,784,778.00 92,989,329.00 526,581,129.00


Interpretation

A Financial Ratio that indicates the effectiveness with which a firms management uses its operating assets to generate sales.

Operating Assets Turnover for the year 2010 of FFC is = 98.33, in this year the company ratio is in sound condition .it shows that the company has used its operating assets to generate sales which results in better performance of the company.

Operating Assets Turnover for the year 2011 of FFC is = 178.05, in this year the company has increased the ratio up to very high level and the position of the company is best in respect of use its operating assets to generate sales.

Operating Assets Turnover for the year 2012 of FFC is = 124.98, in this year though the company has decreased the ratio but the position of the company remained best in this year.

Operating Assets Turnover for the year 2010 of Pak Arab is 30.80, in this year the position of the company remained good.

Operating Assets Turnover for the year 2011 of Pak Arab is = 23.47, in this year though company has decreased but the position of the company remained good.

Operating Assets Turnover for the year 2012 of Pak Arab is 08.64, in this year it is clear that the company has decreased in comparison to last two year which is not in favor of the company and requires improvement.

Operating Assets Turnover for the year 2010 of Wah Nobel Company is 29.40, in this year the position of the company remained.

Operating Assets Turnover for the year 2011 of Wah Nobel Company is 23.26, in this year the company has decreased the ratio this shows the week position of the company.Operating Assets Turnover for the year 2012 of Wah Nobel Company is 22.10, in this year the decreasing trend remained intact, this shows the week position of the company.As the ratio calculates the net sale over the operating assets from the calculations graphs it is obvious that all companies under considerations have the sufficient net sale in comparison to the operating assets. This shows the profitability of the companies. From the graph as well as calculations the Fauji Fertilizers Company is the more profitable in comparison to other companies. However the Pak Arab remained 2nd and the Wah Nobel on 3Rd number.

Return on Operating Assets PROFIT BEFORE TAX / OPERATING ASSETS X 100The return on operating assets measure only includes in the denominator those assets actively used to create revenue. This focuses management attention on the amount of assets actually required to run the business, so that it has a theoretical targeted asset level to achieve. A typical result of this measurement is an ongoing campaign to eliminate unnecessary assets.



FFC17,396,590,000.00/

17,692,327,000.00 * 100 = 98.33 33,951,878,000.00/

19,068,317,000.00 * 100 = 178.05 32,020,180,000.00 /25,621,002,000.00 * 100 =124.98

Pak-Arab 8,285,541,000.00 /

26,899,757,000.00 *100 = 30.80 9,783,086,000.00/

41,681,526,000.00 *100 = 23.47 (3,505,579,000.00)/

40,589,076,000.00 * 100 =(8.64)

Wah Nobel124,200,704.00/ 422,504,720.00

* 100 = 29.40

102,214,495.00 /

439,479,856.00

* 100 =23.26116,398,519.00 /

526,581,129.00

* 100 =22.10


Interpretation

Return on Operating Assets for the year 2010 of FFC is 98.33; in this year the management of the company has efficiently used its operating assets to generate earnings.

Return on Operating Assets for the year 2011 of FFC is = 178.05, in this year the ratio has been increased in comparison to last year. This shows that management of the company has very efficiently used its operating assets to generate earnings.

Return on Operating Assets for the year 2012 of FFC is 124.98, though the ratio has been declined in comparison to last year but the company remained sound this shows that management of the company has efficiently used its operating assets to generate earnings in this year also.

Return on Operating Assets for the year 2010 of Pak Arab is 30.80; the strength of the company is good. The management of the company has efficiently used its operating assets to generate earnings.

Return on Operating Assets for the year 2011 of Pak Arab is 23.47; the company has decreased than last year however management of the company has not efficiently used its operating assets to generate earnings in comparison to last year and the profitability of the company is decreased.

Return on Operating Assets for the year 2012 of Pak Arab is 8.64; in this year the company has decreased than last year however management of the company has not efficiently used its operating assets to generate earnings in comparison to last year and the profitability of the company is decreasedReturn on Operating Assets for the year 2010 of Wah Nobel Company is 29.40; the management of the company has efficiently used its operating assets to generate earnings.

Return on Operating Assets for the year 2011 of Wah Nobel Company is 23.26 companies has decreased slightly the ratio in comparison to last year this shows that the management of the company could not use its operating assets to generate earnings in comparison to last year and the profitability of the company is decreased.

Return on Operating Assets for the year 2012 of Wah Nobel Company is 22.10. Company has decreased slightly the ratio in comparison to last year this shows that the management of the company could not use its operating assets to generate earnings in comparison to last year and the profitability of the company is decreased

As the return on Operating Assets indicate that how profitable a company is relative to its operating assets. The returns on operating assets provide investors an idea as how efficient management is at using its operating assets to generate earnings. The higher the ROA figure the better, as the company earns more money on less investment.

From the above calculations and the graphs it is obvious that the management of FFC is earning more on less investment in comparison to other companies Pak Arab and Wah Noble remained on 2nd & 3rd respectively. Sales to Fixed AssetsNET SALES/FIXED ASSETS

The sales to fixed assets ratio is often called the asset turnover ratio.

Low sales to fixed assets ratio means inefficient utilization or obsolescence of fixed assets, which may be caused by excess capacity or interruptions in the supply of raw materials.



FFC44,874,359,000.00/

17,502,822,000

= 2.56

55,221,168,000.00/

18,620,185,000.00 = 2.97

74,322,612,000.00 /19,387,989,000.00 = 3.83

Pak-Arab 18,247,829,000.00/

25,504,269,000

= 0.72

16,700,794,000.00/

41,471,812,000.00 = 0.40

8,136,158,000.00 /

40,716,545,000.00 = 0.20

Wah Nobel712,677,204.00 /

105,208,665

= 6.80

698,678,000.00/

100,181,035

= 7.111,147,501,226.00 /

92,989,329.00

= 7.51


Interpretation

The sales to fixed assets ratio is often called the asset turnover ratio.

Low sales to fixed assets ratio means inefficient utilization or obsolescence of fixed assets, which may be caused by excess capacity or interruptions in the supply of raw materials.Sales to Fixed Assets for the year 2010 of FFC were 2.56; the company seems that the Fixed Assets are utilized efficiently but are not too better. However the companys strength is good. Sales to Fixed Assets for the year 2011 of FFC were 2.97 though the ratio has been increased slightly and the company seems that the Fixed Assets are utilized efficiently but are not too better. However the companys strength is good.

Sales to Fixed Assets for the year 2012 of FFC were 2.37; this shows that the ratio has been decreased in comparison to last year the company seems that the Fixed Assets are utilized efficiently but are not too better. However the companys strength is good. Sales to Fixed Assets for the year 2010 of Pak Arab are 0.72, it means the company has not efficiently used the fixed assets and the company has not strength of return / turnover of fixed assets.

Sales to Fixed Assets for the year 2011 of Pak Arab are 0.40, this year the company has decreased the ratio company did not efficiently use the fixed assets and the strength of the company is week.

Sales to Fixed Assets for the year 2012 of Pak Arab is 0.20, this year the company has decreased the ratio this shows that the company did not efficiently use the fixed assets and the strength of the company is week.

Sales to Fixed Assets for the year 2010 of Wah Nobel is 6.80, the company has efficiently utilize the fixed Assets.

Sales to Fixed Assets for the year 2011 of Wah Nobel is 7.11, the ratio of the company is Increased from the last year, it means in this year the company has utilize the Fixed Assets more efficiently in comparison to last year. Sales to Fixed Assets for the year 2012 of Wah Nobel is 7.51, the ratio of the company is Increased from the last year, it means in this year the company has utilize the Fixed Assets more efficiently in comparison to last year.

From the above calculations and graphical analysis it is obvious that the Wah Noble Company has the highest sale to fixed assets ratio of the others whereas the FFC & Pak Arab remained on the 2nd and 3rd number during the period under consideration. Return on Total EquityNET INCOME/TOTAL EQUITY x 100The amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested.



FFC11,028,849,000.00/

15,447,547,000.00

*100 = 71.4022,492,053,000.00/

23,070,224,000.00 *100 = 97.4920,839,723,000.00 /26,096,049,000.00 *100 = 79.86

Pak-Arab 3,231,962,000.00 /

12,248,456,000.00 *100 = 26.39 4,590,139,000.00 /

10,414,040,000.00 *100 = 44.08 (239,788,000.00) / 7,932,253,000.00 * 100 = (3.02)

Wah Nobel75,991,071.00 /

382,117,023.00

*100 = 19.89 64,294,152.00 /

401,411,175.00

*100 = 16.0273,733,383.00 / 430,144,558.00 * 100 = 17.14


Interpretation

Return on Total Equity for the year 2010 of FFC is 71.40 it shows that the total income is greater than the total equity which reveals that the company generates with the money shareholders have invested more efficiently.

Return on Total Equity for the year 2011 of FFC is 97.49 it shows that the total income is greater that the total equity it means the company generated more in comparison to last year with the money shareholders have invested efficiently.

Return on Total Equity for the year 2012 of FFC is 79.86 though it is less than that of the last year but it shows that the total income is greater that the total equity it means the company generated more in comparison to last year with the money shareholders have invested efficiently.

Return on Total Equity for the year 2010 of Pak Arab is 26.39 it shows that the total income is greater that the total equity which reveals that the company generates with the money shareholders have invested.

Return on Total Equity for the year 2011 of Pak Arab is 44.08 which is greater than the last year it shows that the total income is greater than the total equity. It reveals that the company generates with the money shareholders have invested.

Return on Total Equity for the year 2012 of Pak Arab is -3.02 which is very less than the last two year it shows that the total income is less than the total equity. It reveals that the company did not generate with the money shareholders have invested. This shows the inefficiency of the management.

Return on Total Equity for the year 2010 of Wah Noble is 19.89 it shows that the total income is greater that the total equity it means the company generates with the money shareholders have invested.

Return on Total Equity for the year 2011 of Wah Noble is 16.02 though this is less than last year, but it shows that the total income is greater than the total equity it means the company generates with the money shareholders have invested.

Return on Total Equity for the year 2012 of Wah Noble is 17.14 this is more than last year, it shows that the total income is greater than the total equity it means the company generates with the money shareholders have invested.

On going through the above calculations and graphs it is obvious that the return on equity of FFC is greater than the other companies during the period 2010 to 2012. It means the company generates with the money shareholders have invested. , therefore the FFC is on 1st and the Pak Arab is at 2nd and the Wah Nobel on 3rd number.

Gross Profit MarginGROSS PROFIT/NET SALES X100A financial metric used to assess a firm's financial health by revealing the proportion of money left over from revenues after accounting for the cost of goods sold. Gross profit margin serves as the source for paying additional expenses and future savings.



FFC19,563,953,000.00/

44,874,359,000.00

*100 = 43.5934,349,409,000.00/

55,221,168,000.00 *100=62.2035,998,251,000.00 /74,322,612,000.00 * 100 = 48.43

Pak-Arab 9,196,993,000.00 /

18,247,829,000.00

*100 = 50.409,512,647,000.00 /

16,700,794,000.00

*100 = 56.951,914,849,000.00 / 8,136,158,000.00 * 100 = 23.53

Wah Nobel185,476,029.00 /

712,677,204.00

*100 = 26.02151,912,126.00/

698,678,000.00

*100 = 21.74189,849,655.00 /

1,147,501,226.00

*100 = 16.54


Interpretation

Gross Profit Margin for the year 2010 of FFC is 43.59 it shows that the company has paid out the cost of goods sold and the amount of gross profit is more than net sales

Gross Profit Margin for the year 2011 of FFC is 62.20 which is more than the ratio of last year. It shows that the company has paid out the cost of goods sold and the amount of gross profit is more than net sales.

Gross Profit Margin for the year 2012 of FFC is 48.43 which is less than the ratio of last year. It shows that the company has paid out the cost of goods sold and the amount of gross profit is more than net sales

Gross Profit Margin for the year 2010 of Pak Arab is 50.40 it shows that the company has paid out the cost of goods sold and the amount of gross profit is more than net sales.

Gross Profit Margin for the year 2011 of Pak Arab is 56.95 which are more than last year it shows that the company has paid out the cost of goods sold and the amount of gross profit is more than net sales.

Gross Profit Margin for the year 2012 of Pak Arab is 23.53 which is less than last year but it shows that the company has paid out the cost of goods sold and the amount of gross profit is more than net sales.

Gross Profit Margin for the year 2010 of Wah Nobel is 26.02 it shows that the company has paid out the cost of goods sold and the amount of gross profit is more than net sales.

Gross Profit Margin for the year 2011 of Wah Nobel is 21.74 which is less than last year however it shows that the company has paid out the cost of goods sold and the amount of gross profit is more than net sales.

Gross Profit Margin for the year 2012 of Wah Nobel is 16.54 which is less than last two years however it shows that the company has paid out the cost of goods sold and the amount of gross profit is more than net sales

Above calculations and graphical analysis show that the Pak Arab Company has the best profit margin in 2010 it had paid out the cost of goods sold and showed the amount more than other companies during 2010 whereas the FFC remained on top during subsequent two years i.e. 2011 and 2012 whereas the Wah noble on the 3rdnumbering all the years. It reveals that all the companies have paid out the cost of goods sold and their amount of gross profit is more than net sales.

13.C O N C L U S I O N:On going through the calculations of all the ratios it is obvious that the FFC is the sound and safe company to invest. It has the greater profitability ratio of other companies It remained on top during all the years under consideration FFC was analyzed through calculating various ratios of profitability and it proved that it was on top in the net profit margin, return on assets, Du Pont return on assets, operating income margin, operating assets turnover, return on operating assets and Return On Equity. The FFC has given best performance in above ratios specially and other ratios normally it reveals that the management of the company is vigilantly managing the financial activities for the profitability and they have no compromise on the financial performance of the company.

During analyzing various ratios it revealed that the Wah Nobel has proved itself the best competitor of the FFC as it has also the performed best on the 2nd number and it has also good profitability ratios.

14.RECOMMENDATIONS

Performance of FFC is satisfactory of the other companies under review. the management of FFC has efficiently and effectively managed the assets and profit activities .whereas Pak Arab and Wah Nobel are required to improve in all the fields such as profit activities and as Fixed assets utilization as is obvious from the ratios.

References:

1. 2008 International Academy of Business and Economics ISSN: 1544-8037 2. European Journal of Economics, Finance and Administrative Sciences ISSN 1450-275 Issue 11 (2008) 3. Working Paper/Document de travail 2010-38 (The Impact of Liquidity on Bank Profitability) 4. International Research Journal of Finance and Economics ISSN 1450-2887 Issue 19 (2008) 5. Manzler, D. (2004). Liquidity, liquidity risk and the closed-end fund discount. Working paper, University of Cincinnati.

http://www.ffc.com.pk/http://www.ffc.com.pk/annual-report.aspxhttp://fatima-group.com/pakarabfertilizers/aboutus.phphttp://fatima-group.com/pakarabfertilizers/financialresults.phphttp://www.wahnobel.com/wnc.htmhttp://www.wahnobel.com/wnc/Investor_info.htmhttp://www.wahnobel.com/wnc/Financial.htmhttp://www.wahnobel.com/wnc/Year_0910.htm_1435143106.xls

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Profitability Ratio Analysis Of Fertilizer Companies

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