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FINANCIAL STATEMENT ANALYSIS OF D.G.
KHAN CEMECT COMPANY
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Economy AnalysisGDP
GDP in Pakistan economy from 2006 to 2008 was2006 6.4%2007 5.8%2008 5.8% Contribution to GDP by different sectors in 2008 was:
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Instead of providing any relief in the budget, the sector wasfurther penalized with a 3% increase in sale tax to 18%.
Tax structure
Excise dutyFederal excise duty on cement has been to Rs900per tonnes from the existing base of Rs 750 pertonnes.
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InflationInflation rates in economy of Pakistan from 2006 to 2008wereYears Rates(%)2006 82007 7
2008 11.45
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Comparison of GDP and inflation
Exchange ratesValues of US Dollar in Pak Rs. :2008 70.642007 66.2952006 60.35Current value 83.66
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Industry analysisOverview
Cement industry set a new record & sold 30.112 Mwith growth of 24% in 2008.
In 1947 only two companies were producing cement
From 1948-58 and from 1958-68 companies wereincreased to 6 and 9 respectively.
Nationalized by Z.A Bhutto stop the growth in 70s. Denationalization boosted industry and companies
increase from 9 to 24.
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SWOTAnalysis
Availability of Raw Material
Imported Machinery and plants in most of companies, which providebetter quality to over all process.
During fiscal year 2007-08, country exports stood at 7.712 million tones($435 million) and Pakistan has already established its position as anexporter of cement and clinker in the region.
Availability of foreign investment and loans has also played animportant role in softening the demand for bank credit.
Cement industries in Pakistan are currently operating at their maximumcapacity due to the boom in commercial and industrial constructionwithin Pakistan.
Strength
s
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Weaknesses:
The stage of industrial development, in most of the segments, is still at a very lowlevel of technology and the existing industrial base is very narrow and consists ofvery basic industries such as cement, sugar,textile, cigarette, edible oil, fertilizer,soda ash, caustic soda, PVC etc.
Most of the cement industries in Pakistan are located near/within mountainous
regions that are rich in clay, iron and mineral capacity. Structure of Cement industry
in Pakistan is as such that there is not much substitutability to buyers Which showsthat the Cross elasticity of demand is negligible.
The freight charges are a massive 20% of the retail prices. The plants located veryclose to each other and tapping the same market thats why they are facing serious
competiton from each other.
SWOTAnalysis
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SWOTAnalysis Unanticipated increase in interest rates or less than expected demand growth
might create severe crises for the sector couple of years
A price war was witnessed which ended up with no conqueror. Similarapprehensions exist for the future when there will be plenty of excesscapacity. Any hurdle in the growth of cement demand may force the sectorinto the price war.
Main component of the cost is fuel. Pakistan's cement industry has convertedtheir plants to coal considering it to be the cheapest fuel, but its price ininternational markets has gone up by more than 300 per cent in the last oneyear, which directly relate increasing the cost of production.
The demand of cement falls heavily during rainy weather in the country,which directly affects the running cost of a unit. It is only the rising levels ofcement exports, which are sustaining the industry
IMF Package in Future can cause to decrease GDP and economicaldevelopment in Pakistan. Which will also be cause to stop development of
infrastructure. So it will have huge effect on cement industry also.
Threats
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SWOTAnalysisOpportunities
The local cement industry faces high upfront fuel costs. In order to facilitatetheir conversion to coal, which is widely available in the country, thegovernment has given incentives for imported plant and equipment for coalfiring units.
The demand of Pakistani cement is expected to continue to grow at the rateof 20 per cent for about four years to come. It may then follow traditionalgrowth rate of seven per cent per year. Announcement of major dams willdramatically increase this demand.
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Competition There is perfect competition in cement industry in
PakistanName of Company New / Expansion Year Commission New capacity createdNorthern region
Askari cement Expansion 1964 945,000
Askari Cement New 1996 630,000
Bestway cement New 1988 1,039,500
D. G Khan cement Expansion 1988 1,039,500
Fauji cement New 1997 945,000
Lucky cement New 1996 1,260,000
Mapel Leaf cement Expansion 1998 1,039,500Pioneer cement New 1994 630,000
Sub-Total 7,528,500
Southern Region
Essa Cement Expansion 1988 315,000
Total 7,843,500
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The province-wise distributionof cement plant
Punjab 8 7.488
Sindh 8 3.851
N.W.F.P 6 4.945
Balochistan 1 0.758
Total 23 17.040
Province Units Capacity (MillionTons)
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Production output of major players
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GDP Higher GDP has positive impact on cement demand Cement demand growth rate was doubled to the GDP in last
three yearsExport Export opportunities are expected to increase at rate
of 20%in four years to come
Government is considering to remove all restrictionson export and to provide new market for export In 7 months of current fiscal year there was 65%
increase in exports
Effect of earth quake Cement industry was boosted after earthquake of 8
Oct. 2005 Exports were increased materially after earthquake
in china
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Contribution to National Economy by Cement SectorThe cement is contributing Rs 30 billion to the national economyin the form of tax. This sector has invested about Rs 100 billion incapacity expansion over the last four years. There are fourforeign companies, three armed force companies and 16 private
companies listed in the stock exchanges. The industry is dividedinto two broad regions. The northern region has over 87% sharein total cement dispatches while the units base in the southernregion contributes 13% to the annual cement sale.
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Ratios analysis
LiquidityanalysisLiquidityposition
2008 2007 2006
Current ratio 1.54 2.6 1.66
Acid test ratio 1.22 2.33 1.44
Cash ratio 1.87 1.57 1.28
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Interpretation
In FY2007 liquidity increases due to 98%increase in investment & 94% increase in
trade debts on liability side trade payabledecrease by 27 %. In FY2008 decreases due to 93% increase
in short term borrowings.
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Activity Ratios
Activity Ratios 2008 2007 2006
Account receivable turnover 12.19 14.69 18.2
Account receivable turnover indays
30 25 20
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Activity Ratios
Activity Ratios 2008 2007 2006
Inventory turnover 23.62 14.86 17.6
Inventory turnover in days 15 25 21
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Interpretation
In 2007 Inventory turnover decreasedue to increase in inventory, there was
minor increase in C.G.S. In 2008 Inventory turn over increased
immensely due to major increase
(140%) in C.G.S .
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Operating cycle
Activity Ratios 2008 2007 2006
Operating cycle 45 50 41
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Debt RatioDebt ratios 2008 2007 2006
Debt to net worth ratio 73 53 78
Long term debt to equity ratio 0.24 0.23 0.17
Debt to total assets ratio 42 34 44
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Interpretation
In 2006 proportion of debt in companywas high and in 2007 it declined but in
2008 debt again increased showinghigh leverage of company.
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Profitability Ratio
Profitability ratio 2008 2007 2006
G.P Margin 15.4 31.6 49.8
Operating profit margin 12.1 34.3 49.1
Net profit margin (0.4) 25.27 30.4
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Interpretation
In 2006 company earned high profit due tohigh demand.
In 2007 profitability decrease due to decreasein sales up to 19% and CGS increased due toincreased prices of oil & high cost of rawmaterial.
Major causes of loss in 2008 were CGSincreased up to 140% although there wasincrease in sales 94%but not enough &increase in period cost and finance cost alsocontributed.
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Asset Utilization RatioAsset utilization ratio 2008 2007 2006
Sales to fixed assets 54.15 28.8 102
Return on operating assets 6.5 9.5 50
Return on assets -0.1 3.13 7
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Interpretation
In 2006 assets were using efficiently bycompany.
In 2007 asset efficiency decrease dueto installation of new plant.
Asset efficiency was also less in 2008
due to energy crises in Pakistan.
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Return on investment
Return ratios 2008 2007 2006
Return on equity (0.001) 0.047 0.125
Return on totalequity
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Du pont Return on equityDu pont ROE= ROA*N.P margin*Total asset turn over
2008 2007 2006
ROA (0.1) 3.13 7
N.P/L margin (0.4) 25.27 30.4
T.A turn over 0.23 0.12 0.24
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I
nterpretation In 2007 ROE decrease due to major
decrease in ROA & T.A turnover,N.P
margin also decline but minorly. In 2008 company suffered loss due to
immense decrease in ROA and N.P
margin although there was increase inT.A turnover but not enough to savecompany from loss.
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Du pont ROA
Years Calculations(in rupees 000)
Du pont return onassets
2008 (.4)*.23 (.092)
2007 25.27*.12 3.03
2006 30.4*.24 7.3
Du pont ROA decreased materially in 2008 due to lowprofit
because of high CGS. In 2006 company was utilizing its assets properly and
ROA was good.
Du pont ROA=N.P margin*Total Asset turn over
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Coverage ratiosCoverage
ratios
2008 2007 2006
Interestcoverage ratio
0.86 4.7 8.67
Fixed chargeratio 0.26 1.11 9.5
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I
nterpretation As coverage ratios are showing
downward trend it means thatcompanys short term as wellas long term debt paying abilityis deteriorating
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Common Size Analysis
Income statement
2008 2007 2006
Sales(net) 100% 100% 100%
C.G.S -84.6113 -68.3473 -50.1884
G.P 15.38867 31.65271 49.81159
Admn. expenses -0.89714 -1.62266 -1.53291
Selling & Distribution expenses -4.51121 -1.01442 0.431793
Other Operating Expenses -4.6755 -2.17647 -2.41149
Other Operating Income 6.808165 7.468037 3.696913
Profit from operations 12.11298 34.30719 49.13231
Finance Cost -14.0594 -7.28639 -5.6651
Share of loss of associated companies -0.06969 -0.22062 -0.12033
Loss/Profit before tax -2.01615 26.80018 43.34689
taxation 1.588463 -1.52657 -12.9477
Loss/Profit for year -0.42769 25.27361 30.40293
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I
nterpretationIn 2006 CGS was only 50% of sales andcompany was also controlling its period cost that
was the reason of high profitIn 2007 CGS and period cost was increased so iteffected profitabilityIn 2008 CGS was too much high(85%) of sales
and period cost and finance cost was also highas compared to last year so company incurredloss
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100100100TOTAL
28.88813737.13441436.933078Total
0.2249480.22451350.4353899Cash & bank balance
0.44444770.44316931.5047391Advanced deposit
24.90575332.72588529.008907Investment
0.21619690.27876480.7042745Trade debts
0.65964180.57038130.8575319Stock in trade
2.43714972.89170034.4222355stores spares & loose tools
Current Assets
71.11186362.86558663.066922Total
0.9789130.38054991.0059944Long term loans & deposits
13.06600915.79781613.070932Investment
34.2803993.68554964.7858561Capital work in progress
0.86011770.25775960.0098763Asset subject to finance lease
21.92642442.74391144.194263Property plant & equipment
Non- current Assets
Assets
200620072008BALANCE SHEET
Common Size Analysis
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Liabilities
Authorized capital
Issued, subscribed and paid-up capital 4.876454943 4.899883622 5.375223849
Share deposit money 0.024343833
Reserves 53.07586219 57.26247384 43.97501357Accumulated profit -0.097807521 3.396872597 6.793762988
Total 57.85450961 65.55923005 56.16834424
Non- Current liabilities
Long term finance 16.17729632 16.7872438 21.49133393
liabilities against assets subject to finance lease 0 0.002205072 0.084205001
Long term deposits 0.142115465 0.153576244 0.098570515
Retirement and other benefits 0.103894887 0.077036458 0.077459505
Deferred taxation 2.536883185 3.138508062 4.544609702
Total 18.96018986 20.15856964 26.29617866
Current liabilities
trade and other payable 2.635619679 1.985288012 4.101135669
accrued mark up 0.701372229 0.662124707 0.993333912
short term borrowing(secured) 14.61163934 7.620104316 7.619129991
current portion of long term borrowing 5.169179335 3.946869078 4.719587379
Provision for taxation 0.06748994 0.067814192 0.102290157
Total 23.18530053 14.28220031 17.53547711
TOTAL 100 100 100
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Index Analysis(BalanceSheet)Assets 2008 2007 2006
Non- current AssetsProperty plant & equipment 305.4871 294.049 100
Asset subject to finance lease 1.740336 45.20332 100
Capital work in progress 21.15965 16.21697 100
Investment 151.6207 182.3758 100
Long term loans & deposits 155.7565 58.63822 100
Total 134.4171 133.3473 100
Current Assets
stores spares & loose tools 275.0138 178.9717 100
Stock in trade 197.0321 130.4279 100
Trade debts 493.7275 194.492 100
Investment 176.5332 198.2006 100
Advanced deposit 513.1394 150.405 100
Cash & bank balance 293.3534 150.5475 100
Total 193.7719 193.8966 100
TOTAL 151.5636 150.8389 100
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100150.8389151.5636TOTAL
100122.8544200.3964Total
100100100Provision for taxation
100126.1426166.0016current portion of long term borrowing
100150.8582290.6621short term borrowing (secured)
100100.5444107.0159accrued mark up
10073.0184597.40324trade and other payable
Current liabilities
100115.6326109.281Total
100104.169384.60552Deferred taxation
100150.0151203.2892Retirement and other benefits
100235.0121218.519Long term deposits1003.95001liabilities against assets subject to finance lease
100117.8228114.0873Long term finance
Non- Current liabilities
100176.0579156.1135Total
10075.41923-2.18201Accumulated profit
100196.4162182.9304Reserves
100Share deposit money
100137.4999137.4999Issued, subscribed and paid-up capital
100333.3333333.3333Authorized capital
Liabilities
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Index Analysis(Income Statement)
Sales(net)C.G.SG.PAdmn. expensesSelling & Distribution expenses
Other Operating ExpensesOther Operating IncomeProfit from operationsFinance Cost
Share of loss of associatedcompaniesLoss/Profit before taxtaxationLoss/Profit for year
2006 2007 2008
100% 80.6925 156.4419
100% 109.8882 263.7414
100% 51.27594 48.33078
100% 85.41733 91.55822
100% -189.573 -1634.45
100% 72.82825 303.3167
100% 163.0048 288.1005
100% 56.34445 38.56888
100% 103.7859 388.2522
100% 147.9474 90.609100% 49.88994 -7.27643
100% 9.513843 -19.1927
100% 67.07877 -2.20072
100% 62.00579 -2.02507
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Interpretation
In 2008 company bears loss due tohigh CGS and Finance cost.
In 2007 sales decreased due to politicalinstability and increase in CGS,periodcosts and finance cost also effected theprofitability of company.
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Suggestions
Company should increase the efficiency of assets. Company should utilize its capacity properly. Company should use debt in suitable proportion to
control finance cost.
Company should try to get new international market. Company should increase its product quality in order
to meet up coming competition with regards toW.T.O.
Company should try to cut down its cost.
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