Liquidity & leverage ratio analyses

1

Final Project

Liquidity & Leverage Ratio Analyses of Ittehad Chemicals Limited,

Nimir Industrial Chemicals Limited, Sitara Chemicals Industries

Limited for Financial Year 2014, 2013, 2012

SUBMITTED TO THE DEPARTMENT OF MANAGEMENT SCIENCES,

VIRTUAL UNIVERSITY OF PAKISTAN

IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR

THE DEGREE OF MASTERS IN BUSINESS ADMINISTRATION

Submitted By:

Rakhshanda Saeed

Department of Management Science

Virtual University of Pakistan

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Executive Summary

Through this project of Liquidity & Leverage Ratios Analysis, I critically examine and analyze

each item of financial statements of three companies existing in the Chemical industries. These

companies are Ittehad Chemicals Ltd., Nimir Chemicals Ltd. & Sitara Chemicals Ltd. These

companies are working in Pakistan under joint venture agreement. I will critically observe and

evaluate the financial statements of three years that are 2012, 2013 and 2014 in the project work.

I will analyze these three companies of Chemical Industry & Calculate the Liquidity & Leverage

Ratios in this project to find out the actual position of liquidity ratios through analyzing assets

and liabilities which exist in the companies, leverage ratios by analyzing debts and equity of the

companies.

The trend analysis of these companies will be made to check out the financial position of all

companies. These analysis are use to compare the company past year performance and evaluate

the company over all position in these years. After the making this project I conduct that Nimir

Chemicals performance is better to other companies his liquidity position is good in the market

and his ability to pay the obligation in time 2013 also good position in market. After the making

this project I analyze many points in liquidity and leverage position in these companies I suggest

that the companies increase its current assets as compare current liabilities to improve the

company liquidity position in the firm. Company increases the equity and minimizes the debt

and control the leverage risk in the company because when the debt position is high in the

company than risk is very high and creditors and investors avoided to invest the money in these

companies

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Table of Content

Chapter # 1: .............................................................................................................. 4

1.1 Introduction of The Project. ....................................................................................... 4

1.2 Introduction to Ittehad Chemicals Limited: .................................................................. 5

Basic Chemicals ......................................................................................................... 6

1.3 Introduction to Nimir Industrial Chemicals Limited: ..................................................... 7

Basic Chemicals ......................................................................................................... 7

Oleo Chemical Products .................................................................................................. 7

Chlor Alkali Products ..................................................................................................... 7

Basic Chemicals ......................................................................................................... 8

1.6 SIGNIFICANCE: .................................................................................................. 10

Chapter # 2: Methodology .................................................................................... 11

Chapter # 3: Ratio Analysis .................................................................................. 14

Working capital .................................................................................................. 14

Long term Assets versus Long term Debt .............................................................. 14

Graphical Presentation of Ratio/Trend Analysis.......................................................... 15

Trend Analysis: ............................................................................................................ 43

Chapter # 4: Conclusion and Recommendations ................................................ 53

BIBLIOGRAPHY: ................................................................................................. 54

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SECTION I

Chapter # 1:

1.1 Introduction of The Project.

Main purpose of this project is to analyze the financial

statement of our chemical industry. In Financial statements balance sheet, income statement,

cash flows and owner’s equity statement are included. This will shows the details of all profit or

loss, net cash and position of capital of the organizations respectively.

The reason behind selecting this industry is because its take important part in our daily life.

Everything is made of chemicals; many of the changes you observe in the world around you are

caused by chemical reactions. Examples include changing color of leaves, cooking food, getting

clean.

Knowing some chemistry can help you make day to day decisions that affect your life. Chemical

industry complex of processes, operations, and organizations engaged in the manufacture of

chemicals and their derivatives. The Standard International Trade Classification, published by

the United Nations, includes explosives and pyrotechnic products as part of its chemicals section.

The chemical industry basically relates completely to Chemistry subject, which is the study of

the principles governing the various forms of matter and how they inter-convert between one

another. Chemical engineering applies these principles to convert raw materials into useful

products. Without a working knowledge of chemical principles, we would not be able to produce

anything that was not already available among the Earth's resources.

In other words, no steel, glass, plastics, pharmaceuticals, fuels, soap, paper, no semiconductors,

and so forth. The chemical industry comprises the companies that produce industrial

chemicals. Central to the modern world economy, it converts raw materials (oil, natural gas, air,

water, metals, and minerals) into more than 70,000 different products.

The chemical industry is one of the main reasons that people live so much longer today that’s

why I choose this industry to examine its financial statements.

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Being a student of FINANCE, I will analyze and compare the financial statements of the three

listed companies present in the Chemical Industry. These are Ittehad Chemicals Limited,

Nimir Industrial Chemicals Limited & Sitara Chemicals Limited.

1.2 Introduction to Ittehad Chemicals Limited:

Ittehad Chemicals Limited is a publicly listed chemical

manufacturing company in Pakistan. The company was commissioned in 1964 as United

Chemicals and started production with an initial installed capacity of 60 MT/day of caustic

soda and 54 MT/day of chlorine. Rising demand facilitated the first expansion, carried out in

1969, which increased capacity to 90 MT/day of caustic soda and 81 MT/day of chlorine.

At the same time, United Chemicals was nationalized by the Pakistani Government, renamed

Ittehad Chemicals and put under the control of the Federal Chemical and Ceramics

Corporation Limited (FPCCL). Another company, Insecticide Pakistan Ltd., was

nationalized and renamed Ittehad Pesticides Ltd. in 1973. Later, the two companies were

merged to form Ittehad Chemicals Limited. In 1983, the production capacity of Ittehad

Chemicals was further increased to 150 MT/day of caustic soda and 135 MT/day of chlorine.

Later, through another expansion, capacity was enhanced to 250 MT/day. By the year 2006

overall capacity had reached 380 MT/day.

After encountering turbulence throughout the years of nationalization, Ittehad Chemicals was

ultimately privatized in July 1995, and taken over by the Ittehad Group. This transition brought

with it a new set of challenges, a bold vision and a transformational proactive behavior that set

new era of economic growth and in stability motion.

The vision of the directors is taking the company in new horizon and the whole group is under

process of revitalization. There is no doubt that if things will go with this pace, Ittehad Group

will be a big name in industry of Pakistan. The factory is strategically located on the 19th/20th

Kilometer of GT Road and spread over an area of 106 acres. It is approachable from the Lahore-

Islamabad Motorway as well as from the main city of Lahore, being less than an hour drive.

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The place is known as Kala Shah Kaku, an industrial site which has seen the growth of

industries over the past decades stretching up and beyond Gujranwala along the G.T Road.

Apparently, Kala Shah Kaku and its neighboring vicinities have both gained tremendous

importance and become a hub of commercial, economic and educational activities. As

industrialization flourished over the years, a large number of small townships also mushroomed

in and around the vicinity due to availability of livelihood to the local residents at their

doorsteps.

With a rich and illustrious history, ICL is the founding company in Pakistan for the Chlor-alkali

industry. It has paved the way for other organizations competing in the local market. 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.

Basic Chemicals

Caustic soda sodium hydroxide (solid, liquid and flakes)

Liquid chlorine

Hydrochloric acid

Sodium hypochlorite (Liquid Bleach)

Zinc sulfate mono,

Bleaching earth (Shaffaf)

Sulfuric acid

Calcium chloride

Chlorinated paraffin

Wax

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1.3 Introduction to Nimir Industrial Chemicals Limited:

Nimir Chemicals Pakistan Limited was

incorporated as an unquoted public limited company on November 30, 1989 under the

Companies Ordinance, 1984 by Ravi Group as Ravi Chemicals Limited.

The name of the company was later changed to Hoechst Ravi Chemicals Limited on August 7,

1994 as a result of a joint venture with Hoechst. The name was further changed to Celanese

Pakistan Limited on November 18, 1997.

In 1998 Hoechst divested all its shareholding to Nimir due to its global restructuring. Resultantly

the name of the company was changed to Nimir Chemicals Pakistan Limited on August 2, 1999.

Nimir Chemicals Pakistan Limited is a chemical manufacturing company. Its main strength is to

produce petro-chemical intermediate products.

Nimir Industrial Chemicals Limited is the pioneer in establishing oleo chemicals business in

Pakistan. A lot of effort was expended by the management of the Company for the development

of the downstream market of their products in the country. Over a period of time the products of

the company are well established in the market and are considered to be the best in quality and

meeting all international standards. The company’s ability of providing matchless after sales

technical services at consumers’ end has made it the first choice for all customers to buy the

products from NICL.

Basic Chemicals

Oleo Chemical Products

Palm Bright (Pure white 80:20 Soap Noodles)

Stearic Acid (Triple Pressed)

Stearic Acid (Double Pressed)

Glycerin

Chlor Alkali Products

Caustic Soda

Sodium Hypochlorite

Hydrochloric Acid

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1.4 Introduction to Sitara Chemicals Industries Limited:

Sitara Chemicals Industries Limited was

incorporated in 1981 and began producing Caustic Soda in 1985, initially at a rate of 30 metric

tons Caustic a day. The plant’s capacity was gradually increased over years to current level of

610 metric tons a day. In addition, various by-product facilities have been added and expanded

from time to time to cope with growing demand. Company entered into Textile Spinning

Business in 1995. Its specialty chemicals and export division was established in 2001 and

agricultural chemicals division in 2003.

Sitara Chemical Industry limited. A unit of Sitara group founded by Haji Abdul Ghafoor (late)

and Haji Bashir Ahmed was established in 1981.

SCIL began producing caustic soda in 1985, initially at a rate of 30 MT per day. The plant’s

production capacity was gradually increased over the years to current level of 400MT per day.

SCIL produces caustic soda, liquid chlorine and allied products at a chemical complex, situated

at 32KM Faisalabad Sheikhupura Road. Sitara Chemical Industry being the largest producer of

chlor-alkali products in Pakistan is a reference in employing the world’s latest technology at all

times.

Sitara Chemical Industries Limited is committed to continual improvement of its environmental

management system (EMS) by adoption of appropriate pollution prevention measures and

complying with all relevant environmental legislation/ regulations through training, team work

and procedures as implemented from time to time.

Basic Chemicals

Ammonium Chloride

Bleaching Powder

Caustic Soda Flakes

Caustic Soda Liquid (32-50 %)

Caustic Soda Solid

Hydrated Lime

Hydrochloric Acid

Liquid Chlorine

Sodium Hypochlorite

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1.5 OBJECTIVES

Which of the selected companies is able to pay its short term obligations effectively?

The composition of capital structure of all three selected companies.

Which of the selected companies is able to provide protection of long-term funds for

suppliers?

Which of the selected companies is in better position to meet the interest payments on its

debt?

Which of the selected companies is able to pay off its long-term liabilities on time?

How much of the company’s assets are financed through external and internal debt.

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1.6 SIGNIFICANCE:

After research of this project I got much knowledge

regarding chemical industry that how its work and what can we achieve with their products

which they make. In our country less people know about the chemical industry, we use the

chemicals in our daily life but mostly know less about the chemicals and its benefits. The

Financial Statement comparison of these companies show the financial position

The significance of this project is to give the true and actual position of the company within the

past three financial years to the people inside and outside the firm. Make the comparison of three

chemical industries through financial statements.

Through this project I personally know the importance of chemical industry in our life and know

how the products work in our benefits.

Yes, the result of this research contributes to the solution or development of anything related to

it. Because all researches and data which I personally gather for my project relates to the main

purpose of project. I feel grateful that I took part in knowing the chemical industry of Pakistan.

As a result of the proposed research we should seriously think about the chemical industry &

Government should take it seriously because it can make our country progressive and successful.

Many other people who have the finance but these guys don’t have interest in this line or many

of them just avoid it because of lack of knowledge.

The results of the study make me passionate and I personally raise my point with many more that

we should know about this industry and take it seriously as other developing countries work. If

our country makes more chemical industries then in economic way we can boost ourselves and

many chemicals which we import we can get it by our own plants. Innovation is needed in every

field of life we all should think about it.

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Chapter # 2: Methodology

Profiling a project requires input from several types

of specialists like samplers, data-processing specialists, statistical analysts, and expert’s views in

particular field which has been chosen for project. For this reason, it is very important that

preparations are exhaustive and cover all of the steps which took part in making it & also Plot the

calculated ratio results on graph.

2.1 Data Collection Sources:

I. Primary Sources

As researcher I consider that primary source is the base of

collecting the info about topic is basic of project. Primary data is the data collected by the

researcher themselves; I collect this data from following ways,

1. Interview

2. Observation

3. Action research

4. Case studies

5. Life histories

6. Questionnaires

7. Ethnographic research

8. Longitudinal studies

It’s helpful source for me to accomplish my project in perfect way these sources give me a lot of

knowledge and clear my aspects which will I all share.

II. Secondary Sources

Secondary sources are data that already exists, in my research

topic it’s really helping me a lot in making it complete. I gather secondary data from these ways

which are as follows.

1. Previous research

2. Official statistics

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3. Mass media products

4. Diaries

5. Letters

6. Government reports

7. Web information

8. Historical data and information

Its very benefiters to use these secondary sources it’s save time and money, provide me

information and access to historical data. Its give me general background information of all

selected companies & set the scene of the research and its findings perfectly. As researchers I

always carefully consider the reliability and validity of secondary sources.

2.2 Data Processing & Analysis:

I. Data collection & preparation

I get chemical industries data gather from surveys and existing data which I get

from different web links its help me out in making my project, after data

collection I prepare my file and create a structure in which I explore the details

of all chemical industries and check their statistics and calculation thoroughly and

deeply.

I do read all the tabs of the related companies and their details in heading tabs and

sub heading tabs.

II. Exploration of Data

Explore the chemical industries data in statistical way and also through graph.

Statically data show the figures of all financial year their values and costs which

help in making comparison of each company in financial way and also tell the

how that industry took part in development of Pakistan.

Through graphical form its show the clear picture of my data of these industries

and graph reflect the view of these industries ups and downs and their growth as

well.

III. Analysis

Finally, I analyze my gathered data of all chemical industries which I select for

my project and I check the financial year reports of each company and then check

the errors and flaws if it’s left behind.

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For the purpose of data processing, analysis and Interpretation: I used the

Microsoft excel tool which is very attractive analytical tool which helps to

presents data in the form of graphs and charts and apply some test to further

elaborate the data.

So my tool for this in Microsoft Excel by using it I make my graph &

calculations.

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Chapter # 3: Ratio Analysis

LIQUIDITY & LEVERAGE RATIO ANALYSES

This project would proceed in a logical way with

all the financial statements which are to be used here. Once that is done the task of financial

statement analysis would begin in earnest. This would comprise of calculating all the following

items which would later help the analysis part of the project:

Liquidity Ratios

Liquidity ratios measure a firm’s ability to meet its current obligations. These include:

Current Ratio

Acid Test Ratio

Sales to Working Capital

Working capital

Leverage Ratios

Leverage ratios measure the degree of protection of suppliers of long term funds. These include:

Time Interest Earned

Debt Ratio

Debt / Equity Ratio

Debt to Tangible Net worth Ratio

Current Worth / Net worth Ratio

Total Capitalization Ratio

Long term Assets versus Long term Debt

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Graphical Presentation of Ratio/Trend Analysis

Trend analysis studies the financial history of a firm for comparison. It is the comparative

analysis of a company's financial ratios over time. This helps to detect problems or observe good

management. Ratios are plotted on graph to see whether the ratios are falling, rising, or

remaining relatively constant.

Liquidity Ratios

1. Current Ratio:

Current Ratio always shows the relationship between current assets and current liabilities. It

shows the company’s ability to pay its current obligation. More than 1 time current ratio shows

the current assets are sufficiently large enough to pay current liabilities of the business. This ratio

is vital for suppliers, financial institutes and investors. Because everyone interested in company’s

position to pay its obligation. The most favorable current ratio is considered as 2:1. It is

calculated as:

Ratio Results are shown in “Times”.

Current Ratio

Current Assets / Current Liabilities

Company name 2012 2013 2014

Rupees in million Rupees in million Rupees in million

1) Ittehad Chemicals Ltd. 1,336,151/ 1,390,728

1,618,656 /

1,721,526 1,704,334/ 1,490,650

Current ratios 0.96 time 0.94 time 1.14 time

Current ratios 0.96 :1 0.94 :1 1.14 :1

2) Nimir Chemicals Ltd. 752,140.000/

596,840,438

1,042,515,076/

746,957,530

1,039,708,986/

846,191,422

Current ratios 1.26 : 1 time 1.40 :1 time 1.23 :1 time

Current ratios 1.26 : 1 1.40 :1 1.23 :1

3) Sitara Chemicals Ltd. 2,475,186,819 /

4,039,282,096

3,008,549,505 /

4,135,006,266

3,601,755,335/

4,160,633,648

Current ratios 0.61time 0.73time 0.87 time

Current ratios 0.61:1 0.73:1 0.87:1

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Working:-

Current asset = (provided in the financial statements)

Current Liabilities = (provided in the financial statements)

Graph:

Interpretation:

By comparing all three companies it can be seen that comparatively Nimir Chemicals Ltd. is

leading in current ratio as compare to Ittehad Chemicals Ltd & Sitara Chemicals Ltd. Because its

current assets are more than its liabilities, in fact we can see in the balance sheet its accounts

receivable has been increasing since 2012, so sales are increasing in 2014 as compare to 2013.

The Sitara Chemicals don’t have sufficient current assets last three years and not in position to

pay its short term debts out of its current assets because its take a debt in every year but its sale is

not increase by the company and its situation is too much risky .The other side Ittehad Chemicals

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

2012 2013 2014

Ittehad Chemicals Ltd.

Nimir Chemicals Ltd.

Sitara Chemicals Ltd.

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Ltd. is looking strong as compare to Sitara Chemicals at this point and is in a position to pay its

short term obligations through its current assets which are more than its current liabilities. This

can be seen through table and graph that in previous three years Sitara Chemicals Ltd. current

ratio is more than one although prudent ratio should be 2:1 (Means Current Assets Should be 2

times of the Current Liabilities) in this all scenario Nimir Chemicals Ltd. & Ittehad Chemicals

Ltd. are in a strong position to payback its short term obligation as compare to Sitara Chemicals

because they have more current assets and through that cash it can pay its current debts and

liabilities.

2. Acid Test Ratio:

This Ratio measures the firm ability to pay its short term obligation immediately. And that’s why

inventory and prepaid Expenses are deducted from current assets and divided it with current

liabilities Reason is that inventory and prepaid expenses are considered least liquid and can take

more time to convert into cash and most favorable acid test ratio is 1:1. Acid test ratios are

calculated as:


Acid test Ratio

Liquid Assets (Current Assets – Stock in trade(Inventory)-Prepaid Expense) /

Current Liabilities

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Company’s Name 2012 2013 2014 Rupees in million Rupees in million Rupees in million

1) Ittehad Chemicals Ltd.

1,336,151- 143,286-1,005 /

1,390,728

1,618,656 - 273,876- 2,609/

1,721,526

1,704,334- 283,871 -3,024/

1,490,650

Acid test Ratios 0.85 0.77 0.60

Acid test Ratios 0.85 :1 0.77:1 0.60 :1

2) Nimir Chemicals Ltd.

752,140,000 – 163,176,498-

4,938,093/

596,840,438

1,042,515,076 –312,288,492-

3,108,731/

746,957,530

1,039,708,986 –517,668,865-

5,353,108/

846,191,422


Acid test Ratios 0.97 :1 0.97:1 0.55 :1

3) Sitara Chemicals Ltd.

2,475,186,819- 902,720,830-

407,622/

4,039,282,096

3,008,549,505– 1,010,809,125-

684,781/

4,135,006,266

3,601,755,335 -881,710,696-

858,987/

4,160,633,648


Acid test Ratios 0.38 :1 0.48 :1 0.65 :1

Working:

Ittehad Chemical Ltd.

Quick assets = current assets – Inventory – Prepaid Expenses

2012 = 1,336,151- 143,286- 1,005 =1191860

2013 = 1,618,656- 273,876- 2,609 =1342171

2014 = 1,704,334- 283,871- 3,024 =1417439



2012 = 752,140,000 - 163,176,498- 4,938,093 = 584025409

2013 = 1,042,515,076 -312,288,492- 3,108,731 =727117853

2014 = 1,039,708,986 -517,668,865- 5,353,108 =516687013



2012 =2,475,186,819- 902,720,830- 407,622 =1572058367

2013 =3,008,549,505- 1,010,809,125- 684,781 =1997055599

2014 =3,601,755,335- 881,710,696- 858,987 =2719185652

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Graph:

Interpretation:

It can be seen that Ittehad Chemicals Ltd. acid test ratio has been

dropping significantly over the last three years. Its Assets are less than his liabilities because this

company take a loan but not generate the assets and that’s why it is very difficult for the

company to pay its short term obligations to all the creditors in every year.

Nimir Chemicals Ltd. has the same condition of liquidity in the years of 2012 and 2013. It has

also less generation of cash as compare to its short term debts and liabilities. In 2014, the

company got good condition to repay its short term liabilities from its short term assets this

reason is that this company decrease the sale this year. Sitara Chemicals Ltd., liquidity position

increased from 2012 to 2014 .Its means this company generates new assets in 2013 & 2014.

0

0.2

0.4

0.6

0.8

1

1.2

2012 2013 2014




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After the analysis f three companies we see that Sitara Position increased its ratio much than

Ittehad and Nimir Chemicals.

3. Sales to Working Capital Ratio:

A Sale to Working Capital Ratio is used to calculate the company’s ability to generate additional

sales without acquiring additional debt.


Company’s Name 2012 2013 2014

Rupees in '000 Rupees in '000 Rupees in '000

1) Ittehad Chemicals Ltd. 3,751,801/

(-54577)

4,278,107/

(-102870)

4,103,853 /

213684

Sales to Working Capital -68.74 times -41.58 times 19.20 times

2) Nimir Chemicals Ltd. 2,677,604,626/

155299562

3,002,335,145/

295557546

3,331,794,080/

193517564

Sales to Working Capital 17.24 times 10.16 times 17.21 times

3)Sitara Chemicals Ltd. 7,463,926,517

-1564095277

8,099,794,812/

-1126456761

8,807,482,117

/-558878313

Sales to Working Capital -4.77 times -7.19 times - 15.75 times

Sales to Working Capital

Annual Sales / Working Capital

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Working:


Working Capital = Current Assets-Current Liabilities

2012 =1,336,151- 1,390,728 = -54577

2013 =1,618,656 - 1,721,526 = -102870

2014 =1,704,334 -1,490,650 = 213684


Working Capital= Current Assets-Current Liabilities

2012 = 752,140,095 - 596,840,438 = 155299657

2013 = 1,042,515,076- 746,957,530 = 295557546

2014 = 1,039,708,986 - 846,191,422 = 193517564


Working Capital= Current Assets-Current Liabilities

2012 = 2,475,186,819- 4,039,282,096 = -1564095277

2013 = 3,008,549,505- 4,135,006,266 = -1126456761

2014 = 3,601,755,335- 4,160,633,648 = -558878313

Graph:

-80

-70

-60

-50

-40

-30

-20

-10

0

10

20

30

2012 2013 2014




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Interpretation:

The Sales to Working Capital ratio measures how well the company’s cash is being used to

generate sales. Working Capital represents the major items typically closely tied to sales, and

each item will directly affect this ratio.

Increasing Sales to Working Capital ratio is usually a positive sign, indicating the company is

more able to use its working capital to generate sales. Although measuring the performance of a

company for just one period reveals how well it is using its cash for that single period, this ratio

is much more effectively used over a number of periods.

This ratio can help uncover questionable management decisions such as relaxing credit

requirements to potential customers to increase sales, increasing inventory levels to reduce order

fulfillment cycle times, and slowing payment to vendors and suppliers in an effort to hold on to

its cash.

It can be seen that Nimir Chemicals Ltd. Sales to working capital ratio has been in better

condition as comparing to two others industries. As comparatively Ittehad chemicals Ltd., was in

negative condition and its ratio was very low in 2012 & 2013. But Sitara Chemical Ltd., Is

totally in inverse condition in whole three years its ratios are in negative signs. According to

graph Nimir Chemicals is in better condition of Sales working capital.

4. Working Capital:

Working Capital

Current Assets-Current Liabilities

Ratio Results are shown in “Times”

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1) Ittehad Chemicals

Ltd.

1,336,151- 1,390,728 1,618,656- 1,721,526 1,704,334- 1,490,650

Working Capital -54577 -102870 213684

2) Nimir Chemicals

Ltd.

752,140,095- 596,840,438 1,042,515,076- 746,957,530 1,039,708,986- 846,191,422

Working Capital 155,299,657 295,557,546 193,517,564

3)Sitara Chemicals

Ltd.

2,475,186,819- 4,039,282,096 3,008,549,505- 4,135,006,266 3,601,755,335- 4,160,633,648

Working Capital -1,564,095,277 -1,126,456,761 -558,878,313

Graph:

-2E+09

-1.5E+09

-1E+09

-5E+08

0

500000000

2012 2013 2014




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Interpretation:

Positive working capital means that the business is able to pay off its short-term liabilities.

Also, a high working capital can be a signal that the company might be able to expand its

operations.

Negative working capital means that the business currently is unable to meet its short-term

liabilities with its current assets. Therefore, an immediate increase in sales or additional capital

into the company is necessary in order to continue its operations.

Working capital also gives an idea of company's efficiency. Money tied up in inventory or

accounts receivable cannot pay off any of the company's short term financial obligations.

Therefore, working capital analysis is very important, but very complex too. For example, an

increase in working capital can be explained by sales increase, but can also be explained by slow

collection or inadequate increase in inventory.

It can be seen that Ittehad Chemicals Ltd. working capital amount is providing us negative values

-54577, -102870, 213684 which shows the company has unable to meet its short-term liabilities with

its current assets. However in other two company’s ratio which we calculated and analyzed

shows that only Nimir Chemicals Ltd. 155,299,657, 295,557,546, 193,517,564 has positive working

capital but Sitara Chemicals Ltd. chart shows that its working capital is continuously in negative

position. 1n 2012, it has little sufficient cash to increase the sale. In 2014, sales are increased but

on the other side working capital are increased as compare to 2012, 2013 and over all Nimir

Chemicals condition is very good as compare to others.

Leverage Ratios:

Leverage means the amount of debt that is used by the company to fulfill the business

requirement .Leverage ratio calculation tells the percentage of debt and equity used in the

company. Leverage brings more money as well as more risk. If the leverage ratio increased too

much, the suppliers, investors and financial institutions think that the company may not be able

to return the amount of debt in future and may be declared insolvent.

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1. Time Interest Earned Ratio:

When the company raises its capital by introducing more debt into the business then it increases

the financial risk .This ratio is very important for lenders (Banks, financial institutions) because

it shows that how many times company can pay interest charges from its Earnings before Interest

and Taxes. Larger the ratio shows larger the company’s ability to pay its interest charges. It is

calculated as:

Time Interest Earned

EBIT (Earnings before interest and tax) /

Interest


Working:


EBIT= EBT (Profit Before tax) + Finance Cost

2012 =192,019+ 192,529 =384548

2013 = 333,315+ 121,899 =455214

2014 =281,150+ 133,222 =414372



1) Ittehad Chemicals Ltd. 384548/

192,529 455214 / 121,899

414372 / 133,222

Time Interest Earned 1.99 time 3.73 time 3.11 time

2) Nimir Chemicals Ltd. 227290076/

114,363,699

329387036/

96,854,212

339850999/

80,566,752

Time Interest Earned 1.98 times 3.40 times 4.21 times

3)Sitara Chemicals Ltd. 1666922635/

682,871,270

1862819464/

486,828,528

1550764791/

404,951,571

Time Interest Earned 2.44 times 3.82 times 3.82 times

26



2012 = 112,926,377+ 114,363,699 =227290076

2013 =232,532,824+ 96,854,212 =329387036

2014 =259,284,247+ 80,566,752 =339850999



2012 =984,051,365+ 682,871,270 =1666922635

2013 =1,375,990,936+ 486,828,528 =1862819464

2014 =1,145,813,220+ 404,951,571 =1550764791

Graph:

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

2012 2013 2014




27

Interpretation:

Both of these figures can be found on the income statement. Interest expense and income taxes

are often reported separately from the normal operating expenses for solvency analysis purposes.

This also makes it easier to find the earnings before interest and taxes or EBIT. The times

interest ratio is stated in numbers as opposed to a percentage. The ratio indicates how many

times a company could pay the interest with it’s before tax income, so obviously the larger ratios

are considered more favorable than smaller ratios.

In other words, a ratio of 4 means that a company makes enough income to pay for its total

interest expense 4 times over. Said another way, this company's income is 4 times higher than its

interest expense for the year. As you can see, creditors would favor a company with a much

higher time’s interest ratio because it shows the company can afford to pay its interest payments

when they come due. Higher ratios are less risky while lower ratios indicate credit risk.

In 2012 and 2013 Sitara ratio was more than both other industries 2.44 , 3.82 but in 2014 Nimir

ratio is on highest position comparatively others industries 1.98 , 3.40 & 4.21. Ittehad Chemicals

ratio shown with color blue also in better position in 2013 but again fall in 2014like as 1.99, 3.73

& 3.11.

Nimir has 4.21 times in 2014 this means that its income is 4 times greater than his annual interest

expense. In other words, Nimir can afford to pay additional interest expenses. In this respect,

Nimir’s business is less risky and the bank shouldn't have a problem accepting his loan.

In other words, EBIT is all profits before taking into account interest payments and income

taxes. An important factor contributing to the widespread use of EBIT is the way in which it

nulls the effects of the different capital structures and tax rates used by different companies. By

excluding both taxes and interest expenses, the figure hones in on the company's ability to profit

and thus makes for easier cross-company comparisons.

28

2. Debt Ratio:

Debt Ratio is calculation of the percentage of total debts and total assets in a company within a

financial year. If this ratio increases, it indicates that company has more assets than its liabilities.

It is good symbol for the company.

The debt ratio is calculated by dividing total liabilities by total assets. Both of these numbers can

easily be found the balance sheet.

Total debts = non-current debts + current debts


Working:

Note: 1


Total debts = current debts + non-current debts

Debt Ratio

Total debt (Current Liabilities + Long Term Liabilities)/

Total Assets(Current Assets + Long Term Assets)

Company name 2012 2013 2014



Ltd.

2029103 /

3,960,097

2132613/

4269658

2399903/

4701324

Debt Ratios 0.51 time 0.50 time 0.51 time

2) Nimir Chemicals

Ltd.

827681106/

1,964,045,174

920734557/

2,185,370,720

1163723527/

2,622,750,542


3)Sitara Chemicals Ltd.

4042016045/

12,640,558,761

4137053577/

12,958,987,191

4162409926/

13,386,410,636


29

2012 =1,390,728+ 638,375 =2029103

2013 =1,721,526+ 411,087 =2132613

2014 =1,490,650+ 909,253 =2399903

Nimir Chemical Ltd.


2012 =596,840,438+ 230840668 =827681106

2013 =746,957,530+ 173,777,027 =920734557

2014 =846,191,422+ 317,532,105 =1163723527



2012 =4,039,282,096+ 2,733,949 =4042016045

2013 =4,135,006,266+ 2,047,311 =4137053577

2014 =4,160,633,648+ 1,776,278 =4162409926

Note: 2


Total Assets (Current Assets + Long Term Assets)

2012 =1,336,151+ 2623946 =3,960,097

2013 =1,618,656+ 2,651,002 =4269658

2014 =1,704,334+ 2,996,990 =4701324

Nimir Chemical Ltd


2012 =752,140,095+ 1211905079 =1,964,045,174

2013 =1,042,515,076+ 1,142,855,644 =2185370720

2014 =1,039,708,986+ 1,583,041,556 =2622750542



2012 =2,475,186,819+ 10,165,371,942 =12640558761

2013 =3,008,549,505+ 9,950,437,686 =12958987191

2014 =3,601,755,335+ 9,784,655,301 =13386410636

30

Graph:

Interpretation:

Above ratios indicates that Ittehad Debt Ratios is increasing in all three years 2012 0.51, 2013

0.50, 2014 0.51 which show that company has more debts than its assets and it is risky from

investors point of view and they may feel insecure due to risk of insolvency of the company

.Nimir Chemicals Ltd. chart show that the debt ratio increase in every year but it is safe for

investments point of view.

The other side the Sitara Chemicals Ltd. condition is good in 2012 that time its debt ratio is 0.31

and this ratios is same in 2013 and its 0.31 and 2014 is 0.31 in this year’s liabilities are increased

and assets are low. We compare all three companies than we see that the Ittehad & Sitara is safe

for investor for investment.

The debt ratio is shown in decimal format because it calculates total liabilities as a percentage of

total assets. As with many solvency ratios, a lower ratio is more favorable than a higher ratio.

0

0.1

0.2

0.3

0.4

0.5

0.6

2012 2013 2014




31

A lower debt ratio usually implies a more stable business with the potential of longevity because

a company with lower ratio also has lower overall debt. Each industry has its own benchmarks

for debt, but .5 is reasonable ratio.

A debt ratio of .5 is often considered to be less risky. This means that the company has twice as

many assets as liabilities. Or said a different way, this company's liabilities are only 50 percent

of its total assets. Essentially, only its creditors own half of the company's assets and the

shareholders own the remainder of the assets.

A ratio of 1 means that total liabilities equals total assets. In other words, the company would

have to sell off all of its assets in order to pay off its liabilities. Obviously, this is a highly

leverage firm. Once its assets are sold off, the business no longer can operate.

The debt ratio is a fundamental solvency ratio because creditors are always concerned about

being repaid. When companies borrow more money, their ratio increases creditors will no longer

loan them money. Companies with higher debt ratios are better off looking to equity financing to

grow their operations.

3. Debt to Equity Ratio:

This ratio is used to calculate the relation between company’s total debts and total equity. It point

out that how much percentage of debt and equity used in the company to run the business.

Higher the debt/equity ratio shows higher the leverage and vice versa.

Debt-to-Equity ratio is the ratio of total liabilities of a business to its shareholders' equity. It is a

leverage ratio and it measures the degree to which the assets of the business are financed by the

debts and the shareholders' equity of a business.


32




Ltd.

2029103 /

1,170,975

2132613/

1,376,226

2399903/

1,540,602

Debt/Equity Ratios 1.73 time 1.55 time 1.56 time


827681106/

1,137,364, 068

920734557/

1,264,636,163

1163723527/

1,459,027,015



4042016045/

4,346,131,414

4137053577/

5,347,168,856

4162409926/

6,102,089,608


Working:



2012 =1,390,728+ 638,375 =2029103

2013 =1,721,526+ 411,087 =2132613

2014 =1,490,650+ 909,253 =2399903

Nimir Chemical Ltd.


2012 =596,840,438+ 230840668 =827681106

2013 =746,957,530+ 173,777,027 =920734557

2014 =846,191,422+ 317,532,105 =1163723527



2012 =4,039,282,096+ 2,733,949 =4042016045

Debt to Equity Ratio

Total Debt /

Total shareholders’ equity

33

2013 =4,135,006,266+ 2,047,311 =4137053577

2014 =4,160,633,648+ 1,776,278 =4162409926

Graph:

Interpretation:

Capital structure of the company consists of debt and equity. As discussed earlier that debt is

not bad thing if companies’ takes debts to take the advantage of the tax deduction. But up to

some extent debts gives the tax advantage. In capital structure a company should always take

the debt up to the extent where WACC is minimum.

Debt to equity ratio is the proportion of debt to the shareholders funds. Higher the ratio

indicates higher the risk and lower the ratio indicates better it is for investors because low ratio

indicates that the firm is using its equity more as compared to borrowed money and there is less

risk of nonpayment of interest amount.

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

2012 2013 2014




34

It is clear from above table and graph that Sitara Debt to Equity ratio increasing in 2012 0.93 and

2012 0.77 and 2014 0.68. This indicates that the Sitara is risky from investor’s point of view but

favorable from creditor’s view point, Whereas Nimir Chemicals Ltd. ratio is 0. 73, 0.73 and 0.79

to the year of 2012, 2013 and 2014 that is less depending upon debt and showing its strong

position relative to Sitara. Nimir Chemicals Ltd. is in ideal condition 1:1 which is very attractive

situation. On the Other side, Ittehad position is over all good 1.73, 1.55, and 1.56 in 2012, 2013

and 2014 respectively.

Lower values of debt-to-equity ratio are favorable indicating less risk. Higher debt-to-equity

ratio is unfavorable because it means business rely more on external lenders thus it is at higher

risk, especially at higher interest rates.

1.00 debt-to-equity ratio describe half of the assets of a business are financed by debts and half

by shareholders' equity. A value higher than 1.00 means that more assets are financed by debt

that those financed by money of shareholders' and vice versa.

An increasing trend in of debt-to-equity ratio is also alarming because it means that the

percentage of assets of a business which are financed by the debts is increasing.

4. Debt to Tangible Net worth Ratio:

This ratio is used to calculate how many amounts of debt and outside financing relates to the

amount of owner’s equity. If this ratio increases, the risk of company will also increase.

Physical worth of a company, which does not include any value derived from intangible assets

such as copyrights, patents and intellectual property. Tangible net worth is calculated by taking a

firm's total assets and subtracting the value of all liabilities and intangible assets. This ratio is

calculated as:


Calculation:

35

Debt to Tangible Net Worth Ratio

Total Debt /

(Owner’s Equity – Intangible Assets)




Ltd.

2029103 /

(1,170,975- 121=

1170854)

2132613/

(1,376,226- 22,133=

1354093)

2399903/

(1,540,602- 16,904=

1523698)

Debt to Tangible Net

worth Ratios 1.73 time 1.55 time 1.56 time


827681106/

(1,137,364, 068-0=

1,137,364, 068)

920734557/

(1,264,636,163- 1,841,525=

1,262,794,638)

1163723527/

(1,459,027,015- 1,408,462=

1,457,618,553)




4042016045/

(4,346,131,414-0=

4,346,131,414)

4137053577/

(5,347,168,856-19,950,000=

5,327,218,856)

4162409926/

(6,102,089,608-17,955,000=

6,084,134,608)



Working:



2012 =1,390,728+ 638,375 =2029103

2013 =1,721,526+ 411,087 =2132613

2014 =1,490,650+ 909,253 =2399903

Nimir Chemical Ltd.


2012 =596,840,438+ 230840668 =827681106

2013 =746,957,530+ 173,777,027 =920734557

2014 =846,191,422+ 317,532,105 =1163723527



36

2012 =4,039,282,096+ 2,733,949 =4042016045

2013 =4,135,006,266+ 2,047,311 =4137053577

2014 =4,160,633,648+ 1,776,278 =4162409926

Graph:

Interpretation:

As the above calculation and chart show that Nimir is more depend on its debt as debt to total

assets ratios indicate its major portion of assets is financed by creditors by Nimir Chemicals

that’s why the net worth is low which shows its good position. Other side Sitara Chemicals Ltd.,

ratios increase but it is less than Ittehad and its position is better in the market.

Sitara Industries debt ratios are increased in 2012 and 2013 net worth is decreased but it is much

better position in 2014 which are 0.93, 0.77 & 0.68. Ittehad Chemicals is in bad condition and it’s

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

2012 2013 2014




37

in risk because its ratio is 1.73, 1.56 & 1.55 in years of 2012, 2013 & 2014 which are very much

high comparatively other both industries.

In terms of a consumer, tangible net worth is the sum of all your tangible assets (cash, home,

cars, etc) less any liabilities you may have. In the financial markets, tangible net worth represents

the amount of physical assets a company has net of its liabilities. Thus, it represents the supposed

liquidation proceeds a company would fetch if its operations were to cease immediately and the

firm was sold off.

5. Current Worth to Net worth Ratio:

This ratio shows the amount that shareholder could receive on their investment in a company, if

all the working capital were to be passed through directly to them.

Higher the ratio more favorable it would be and lower the ratio will be considered unfavorable

reason is that if there is low ratio then it will create burden on future cash flows.

Current Worth to Net Worth Ratio

Current Worth(Current Assets – Current Liabilities)/

Net Worth(Owner’s Equity)


Current Worth & Net Worth Calculation is above




-54577/

1,170,975

-102870/

1,376,226

213684 /

1,540,602

Current Worth/Net Worth - 0.046 time - 0.074 time 0.13 time


155299562/

1,137,364,068

295557546/

1,264,636,163

193517564/

1,459,027,015

Current Worth/Net Worth 0.136 time 0.24 time 0.132 time

38

Graph:

Interpretation:

A business must possess enough funds to pay current financial obligations at all times to ensure

continuity of business operations. Fixed-assets-to-net-worth ratio is an accounting tool that

shows you what percentages of your company’s total assets can and can’t be used for current

-1

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

2012 2013 2014





-1564095277/

4,346,131,414

-1126456761/

5,347,168,856

-558878313/

6,102,089,608

Current Worth/Net Worth - 0.35 time - 0.21 time - 0.91 time

39

financial obligations. Failure to understand this tool can leave your company vulnerable to

solvency problems caused by unexpected events and sudden changes in business climate.

As the above calculations shows Sitara Chemicals is in worst condition as it has been showing

negative values for last three years. On the other hand, Nimir Chemicals Ltd. has high ratios in

2012 & 2013. 0.136 & 0.24 Ittehad Chemicals Ltd has a minor difference between the ratios with

Nimir Chemicals in 2014 which are as Nimir (0.132) & Ittehad (0.13). There is a big difference in

ratios of Sitara Chemicals in all three years 2012, 2013 & 2014 which are - 0.35, -0.21 & -0.91. It

can be seen that Sitara’s position is too much critical in year by year.

A low ratio is indicative of greater solvency because the lower the ratio becomes, the more funds

are available to meet current obligations. The higher the ratio becomes the lower your solvency,

since more funds are tied up with fixed assets. A ratio 0.75 or higher is usually undesirable

because it indicates that the firm is vulnerable to solvency problems. Comparing your fixed-

assets-to-net-worth ratio against industry-average ratios can tell you whether your ratio is better

or worse than your competitors. High ratios can be interpreted as liquidity problems, because it

means the company does not have immediate access to cash.

6. Total Capitalization Ratio:

Capitalization Ratio is used to measure how much company has finance or amount of long term

debt in total capital structure. Basically it is the measure of leverage in the company so higher the

ratio is the indication of high risk and lower the ratio is the indication of less risk. The ratio is

calculated as:



Long term Debt /

Capital (Long term Debt + Owner’s Equity)

40

Calculation




638,375/

(638,375+1,170,975=

1,809,350)

411,087/

(411,087+1,376,226=

1,787,313)

909,253/

(909,253+1,540,602=

2,449,855) Total Capitalization

Ratios 0.35 times 0.23 times 0.37 times


230,840,668/

(173,777,027+1,137,364,068=

1,311,141,095)

173,777,027/

(173,777,027+1,264,636,163=

1,438,413,190)

317,532,105/

(317,532,105+1,459,027,015=

1,776,559,120) Total Capitalization



2,733,949,441/

(2,733,949,441+4,346,131,414=

7,080,080,855)

2,047,311,132/

(2,047,311,132+5,347,168,856=

7,394,479,988)

1,776,277,772/

(1,776,277,772+6,102,089,608=

7,878,367,380) Total Capitalization


Graph:

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

2012 2013 2014




41

Interpretation:

In these ratios Ittehad Chemicals is in a bad position because this company borrowed a high debt

as compare to equity and its capital structure are construct with high debt. Its situation is too

much critical for investors. On the other hand Nimir & Sitara Chemicals Ltd. has a better

position than Ittehad because these companies capital structure are built with high equity ratios

and low debt ratios. .On the average Nimir has better condition than the others. This all Show

that Ittehad is not in a strong position and Sitara is also improve his condition year by year but

the other side Nimir has a strong position in the market.

The acceptable level of capitalization ratios for a company depends on the industry in which it

operates. Companies will have lower levels of debt and therefore lower capitalization ratios.

The acceptable level of debt for a company is dependent on its whether its cash flows are

adequate to service such debt. The interest coverage ratio, another popular leverage ratio,

measures the ratio of a company’s earnings before interest and taxes (EBIT) to its interest

expense. A ratio of 2, for instance, indicates the company generates $2 for every dollar in interest

expense. As with all ratios, a company’s capitalization ratios should be tracked over time to

identify if they are stable. They should also be compared with similar ratios of peer companies,

to ascertain the company’s leverage position relative to its peers.

7. Long Term asset Verses Long Term Debt:

This ratio answers that up to what extent fixed assets are purchased through equity. Usually in

this scenario lower the ratio is the indication of less debt used to finance fixed assets and if this

ratio is greater than one then it will be considered that company has financed it fixed assets

through debt.

The ratio provides a general measure of the financial position of a company, including its ability

to meet financial requirements for outstanding loans. A year-over-year decrease in this metric

would suggest the company is progressively becoming less dependent on debt to grow their

business.

Calculation:

42

Long Term asset Verses Long Term Debt

Long term assets /

Long term debt





2,623,946/

638,375

2,651,002/

411,087

2,996,990/

909,253

Long Term asset Verses Long

Term Debt 4.11 times 6.44 times 3.29 times


1,212,905,079 /

230,840,668

1,142,855,644 /

173,777,027

1,583,041,556/

317,532,105




10,165,371,942/

2,733,949,441

9,950,437,686/

2,047,311,132

9,784,655,301/

1,776,277,772



Graph:

0

1

2

3

4

5

6

7

2012 2013 2014




43

Interpretation:

As we discussed earlier that less than one answer of the ratio indicates that the fixed assets are

purchased with equity so it is clear from above calculations that Nimir Chemicals Ltd, Sitara

Chemicals Ltd. & Ittehad Chemicals have not financed its fixed assets through equity in all three

years 2012, 2013 and 2014 because they all improve its financial situation & decrease the ratios

year by year. On the other side all these have financed its fixed assets from debt in 2012, 2013

and 2014. Nimir is better than both others its ratios are 5.25, 6.57 & 4.98. Sitara ratios were 3.72,

4.86 & 5.51 in years 2012, 2013 and 2014 which increase year by year and bad indication show.

Ittehad ratios are as 4.11, 6.44 & 3.29 which increase in 2013 but then came fall in 2014.

In order to compare the overall leverage position of the company, investors should look at

comparable firms and the historical changes in this ratio.

Trend Analysis:

Trend analysis is the method to analyze the trend and comparison of the same type of ratios in

the company .It is especially used to measure the historical data mathematically. The ratios are

compared with previous year and the already calculated above.

a) Liquidity Ratios


2012

Liquidity Ratios Ittehad Nimir Sitara

Current Ratio 0.96 1.26 0.61

Acid Test Ratio 0.85 0.97 0.38

Sales to working Capital -68.47 17.24 -4.77

44

Graph:

Interpretation:

As the graph shows that Ittehad and Sitara Ratios are too much close to each other. And these

firms are not in well position sales to working capital ratio but in this ratio Nimir is in a good

position. In overall Nimir Chemicals Ltd. has better position in the year 2012 as per liquidity

ratio.

Ratio results in “times”

2013




Sales to working Capital -41.58 10.16 -7.19

-80

-70

-60

-50

-40

-30

-20

-10

0

10

20

30

Ittehad Nimir Sitara

Current Ratio

Acid Test Ratio

Sales to working Capital

45

Graph:

Interpretation:

As the graph shows that Ittehad Chemicals Ltd. & Sitara Chemicals Ltd. ratios are much closed

to each other they are not maintain the sales to working capital ratio in 2012 it is decreased and

the other side Nimir Chemicals Ltd has a better position in year 2013 in all ratios.


2014




Sales to working Capital 19.2 17.21 -15.75

-50

-40

-30

-20

-10

0

10

20


Current Ratio

Acid Test Ratio


46

Graph:

Interpretation:

From the above analysis we see that Ittehad ratios are increase and Nimir Chemicals Ltd

maintain and in some ratios improve its position but the other side Sitara not improve its position

in the market. And over all Nimir Chemicals Ltd. have a strong position in the market.

b) Leverage Ratios


-20

-15

-10

-5

0

5

10

15

20

25


Current Ratio

Acid Test Ratio


47

2012

Leverage Ratios Ittehad Nimir Sitara

Time Interest Earned Ratio 1.99 1.98 2.44

Debt Ratios 0.51 0.42 0.31

Debt/Equity Ratio 1.73 0.73 0.93

Debt To Tangible Net Worth Ratio 1.73 0.73 0.93

Current Worth Net Worth Ratio -0.046 0.136 -0.35

Total Capitalization Ratio 0.35 0.17 0.38

Long Term asset Verses Long Term Debt 4.11 5.25 3.72

Graph:

-1

0

1

2

3

4

5

6


Time Interest Earned Ratio

Debt Ratios

Debt/Equity Ratio

Debt To Tangible Net Worth Ratio

Current Worth Net Worth Ratio



48

Interpretation:

As the ratios indicates that all companies have different ratios in year 2012. Sitara position is not

good in all ratios and its situation is risky for investment. Sitara Chemicals Ltd. has a great value

of fixed charges coverage ratios and also Time interest earned ratios. Nimir Chemicals Ltd., debt

to equity ratio and debt to tangible net worth & debt ratio is less as compare Ittehad and Sitara

Chemicals Ltd. its means this company use equity and over all Nimir has a good position in this

year.


2013



Debt Ratios 0.5 0.19 0.31



Current Worth Net Worth Ratio -0.074 0.24 -0.21



49

Graph:

Interpretation:

All calculation analysis’s show that the Sitara company time interest ratios is highest value its

means it is in a position to pay a single time interest in this year . Its position is too much risky

for all investors. The other side Ittehad has good ratios values but it cannot maintain its Current

worth net worth ratio it’s in negative. The other side Nimir Chemicals Ltd. improves the position

as compare 2013. Its time interest ratios and fixed charge coverage ratios are increased and debt

ratios are decreased in this year 2013. And over all we see that Nimir in a good position in this

year.


-1

0

1

2

3

4

5

6

7



Debt Ratios

Debt/Equity Ratio





50

2014



Debt Ratios 0.51 0.25 0.31



Current Worth Net Worth Ratio 0.13 0.132 -0.91



Graph:

-2

-1

0

1

2

3

4

5

6



Debt Ratios

Debt/Equity Ratio





51

Interpretation:

All calculation analysis’s show that the Sitara company time interest ratios is highest value its

means it is in a position to pay a single time interest in this year . Its position is too much risky

for all investors. The other side Ittehad has good ratios values but it’s good that maintain its

Current worth net worth ratio it’s in positive. The other side Nimir Chemicals Ltd., improve the

position as compare 2013. Its time interest ratios and fixed charge coverage ratios are increased

and debt ratios are decreased in this year 2014. And over all we see that Nimir in a good position

in this year

52

Chapter # 4: Conclusion and Recommendations

4.1 Conclusion

The purpose of this project is to take attention towards our chemical industries &

analyze the strength & weakness of Financial Statement of these companies.

In Pakistan chemical industry growth is not so good only few is working over here. The

production of chemicals is very low that’s why the products in which that chemicals use

are expensive and not affordable for many persons. It can be clearly realize by our

Financial Ratios that Ittehad & Sitara are not in good as financial way.

Industries should focus on working capital its majors of financial statement & when

assets and liabilities work positively then industry move forward.

By doing this financial comparison we can predict a future view of this industry. If we

give some attention to this industry we can make it more progressive. Nimir is better in

this industry. I select this industry because I want that we should concentrate on our

major back bone of industrial line which is chemical industry and through graphical view

we can easily judge that how its suffering.

In capital structure a company should always take the debt up to the extent where WACC

is less.

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4.2 Recommendations

The Recommendations for these three chemical industries are as follow,

Ittehad Chemicals Ltd. & Sitara Chemicals Ltd. ratios are close to each other in Current

Ratio, Acid Test Ratio and Sales to working Capital these are not in well position

especially in sales to working capital ratio. But in these ratios Nimir Chemicals Ltd. has

better position as comparatively both of else.

Ittehad Chemicals Ltd. & Sitara Chemicals Ltd. Should focus on their current assets and

low their interest rate as well.

In Leverage Ratios Sitara position is not good in all ratios and its situation is risky for

investment. Ittehad and Sitara Chemicals Ltd. use equity and over all Nimir had a good

position in all Leverage Ratios in year 2013 & 2014.

Ittehad has good ratios values in 2013 but it cannot maintain its Current worth net worth

ratio it’s in negative. It needs to be focused on its current assets & liabilities.

Sitara company time interest ratios is highest value, its position is very risky for

investors. Sitara needs to less more its debt and should try to make its financial position

better in market.

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SECTION II

BIBLIOGRAPHY:

1. http://www.ittehadchemicals.com/index.php/icl/home

2. http://www.sitara.com.pk/

3. http://markets.ft.com/research/Markets/Tearsheets/Summary?s=SITC:KAR

4. http://www.nimir.com.pk/index.html

5. http://en.wikipedia.org/wiki/Ittehad_Chemicals

6. http://markets.ft.com/research/Markets/Tearsheets/Business-profile?s=NICL:KAR

7. http://sitarachemical.trustpass.alibaba.com/company_profile.html

8. http://en.wikipedia.org/wiki/Industry_of_Pakistan

9. http://www.investopedia.com/

10. http://www.ccdconsultants.com/

11. FIN621- Financial Statement Analysis

12. FIN622- Corporate Finance

13. FIN630- Investment Analysis & Portfolio Management

14. STA630- Research Methods

http://www.ittehadchemicals.com/index.php/icl/home

http://www.sitara.com.pk/

http://markets.ft.com/research/Markets/Tearsheets/Summary?s=SITC:KAR

http://www.nimir.com.pk/index.html

http://en.wikipedia.org/wiki/Ittehad_Chemicals

http://markets.ft.com/research/Markets/Tearsheets/Business-profile?s=NICL:KAR

http://sitarachemical.trustpass.alibaba.com/company_profile.html

http://en.wikipedia.org/wiki/Industry_of_Pakistan

http://www.investopedia.com/

http://www.ccdconsultants.com/

Liquidity & leverage ratio analyses

Economy & Finance

Transcript of Liquidity & leverage ratio analyses