PROJECT REPORT

FINANCE FOR TECHNICAL MANAGERS RATIOS ANALYSIS ATTOCK CEMENT PAKISTAN LIMITTED

Prepared By Lt Col Ashfaq hussain Bhatti SP-11/MSc-EM/040

Instrutor Mr. Bilal rasul

Table of Contents
Part-1
Introduction, anagement, Vision, Mission and Corporate Objectives 3-6

Part-2
Financial Data 6-8

Part-3
Analysis / Conclusion 9-16

Part-4 (Annextures)
Key Financial Data Analysis Financial Summary Balance Sheet Profit and Loss Account Comprehensive Income

17-25

Attock Cement Pakistan Limited Financial Analysis Review of Annual Report-2010/2011 Part-1
Introduction
1. Attock Cement Pakistan Limited (ACPL) is a public limited company, listed

on the Karachi Stock Exchange since June 2002. Main business of the company is manufacturing and sales of cement. ACPL, is part of the Pharaon Group, which in addition to investment in cement industry has diversified stakes in Pakistan mainly in the oil and gas sector, power and real estate sector. ACPL's project was conceived in 1981. The project is a Pak-Saudi venture and has involved an initial capital outlay of around Rs.1.5 billion with a foreign exchange component of around US$ 45 million. 2. ACPL's manufacturing plant is located in Tehseel Hub, District Lasbella,

Baluchistan, at a distance of about 45 kilometers north west of Karachi. ACPL has attained ISO 9001:2000 and ISO 14000 certifications from Lloyds Register Quality Assurance (LRQA) in 2002 and 2006. ACPL is making substantial contribution to the country's economy and deposited over Rs.2,646 million (US$ 31.5 million) in the form of Excise Duty , Sales Tax, Royalty and Income Tax during the year 2008-2009. 3. The Plant's original capacity was 2000 TPD of Clinker and it was the first

plant in the country to be based on the latest SUSPENSION, PRE-HEATER/PRE-

CALCINATION, dry process technology which results in substantial savings in fuel and energy costs besides balanced plant operations. With continuous growth in cement demand both in local and regional markets, the company put up another line of 3,300 TPD of clinker in 2006-2007 at a total investment of US $ 61 million. With this additional line the total clinker capacity of the company has reached 1,710,000 MT of clinker per annum. The cement manufactured and being marketed under the FALCON brand is of the highest standard and truly the market leader. Aim 4. To analyze the Annual Financial Report 2010 of Attock Cement Pakistan Limited (ACPL). Management 5. Senior management of ACPL Comprises: a. b. c. d. e. f. g. Dr. Ghaith R. Pharaon Laith G. Pharaon Wael G. Pharaon Shuaib A. Malik Abdus Sattar Babar Bashir Nawaz Fakhrul Islam Baig Chief Executive (Chairman)

Audit Committee of the Board 6. Audit committee of the company comprises:a. Abdus Sattar Chairman

b. c.
7.

Shuaib A. Malik Fakhrul Islam Baig

Member Member

Auditors.
A.F. Ferguson & Co. Chartered Accountants

8.

Cost Auditors.
Siddiqi & Co Cost & Management Accountants

9. Budget Committee.

The Budget Committee reviews and approves

the annual budget proposals prior to being presented for the approval of the Board. The Committee also monitors utilization of the approved budget.

Vision of ACPL
10. To be the leading organization continuously providing high quality cement, excelling in every aspect of its business and to remain market leader in Cement Industry. Mission. 11. To be a premier and reputable cement manufacturing company dedicated to become an industry leader by producing quality products, providing excellent services, enhancing customer satisfaction and maximizing shareholders' value through professionalism and dedicated teamwork. Corporate Objectives 9. The Company follows a duly approved Corporate Strategy, which consists of the following main points. To maintain its position as a leading manufacturer of quality products that surpass both national and international standards. Growth, expansion and sustained profitability are the guiding principles of ACPL's business

model. Focusing on the strategic plans to grow the business beyond the borders, while enhancing the market share locally in South. To retain its lines of processes at highest level of operational efficiency. To achieve competitive operating margins with continuous growth both in productivity and profitability. To provide competitive rate of return to its shareholders on their investments. To remain committed in delivering quality and value to its customers and providing high quality cement products suitable for all construction purposes. To embrace consistency in high standards of service delivery. To continue with the commitment to provide a secure and innovative workplace for all its human resources. To remain committed by producing products in an environmentally and socially responsible manner. To achieve these strategic corporate objectives, the Company generally follows the following broad and approved strategy.

Part-2
8. Key Financial Data. It is observed that the trends are good especially in

Assets, reserves, gross profit margin. Assets have increased from previous year to this year, G.P is also increasing. Details are at Annex A. 9. 10. 11. Verticle and Horizontal Analysis. Financial Summary at Glance. Directors Report. a. Annex B Graphical representation of last four

years Financial Summary is at Annex C The Directors report together with Audited Financial statement year ended June 30, 2010 is as under:Financial Highlights Rs in 000 Profit for the year Un-appropriated profit B/F Available for Appropriation Transfer to Statutory Reserve @50% of profit Proposed cash dividend@22.5% Un-appropriated profit C/F Net Profit margin Return on Equity Earning per certtificate. Break-up value per Certificate 277,973 3,738 281,711 138,986 135,000 7,725 32% 26% Rs:4.63 Rs:19.16

b.

Business Review. The year under review being the 4th year of operation, the modaraba made new records in terms of volume and profits. The gross revenue soared to Rs: 829M as against 633M, an increase of 31% over last year.

c. d.

Dividend.

The company to announce a cash dividend of 22.5% i.e JCR-VIS assigned a rating of A- (Single A

Rs.2.25 in current financial year. Credit Rating. outlook as stable. e. Future outlook. The ARM Management is continuously investing in the power generation equipment to retain its leadership position in the power generation rental segment. Presently is slow due to lack of funding on infrastructure development, but is expected to grow projects come on stream and contractors look for quality rental equipment to meet completion deadlines. f. 12. 13 14. 15 Auditors. M/S KPMG Taseer Hadi & Co. chartered Accountants Annex D Annex E Annex F are auditors for the year ending June 30, 2011. Balance Sheet. Profit and Loss Account. Comprehensive Income .
a.

minus) as long term and A-2 (Single A minus 2) as short term with

Auditors Report. Following are the salient of the Audit Report:Proper books of accounts have been kept by the company in respect of Allied Rental Modaraba as required by modaraba companies as Ordinance 1980. b. The findings are as under:-

9 (1)

The balance sheet, profit & loss together with the notes thereon have been drawn up in conformity with the Modaraba Companies ordinance 1980.

(2)

The expenditure incurred during the year was for the purpose of modarabas business; and

(3)

The business conducted, investments made and the expenditure incurred during the year were in accordance with the objects, terms & conditions of Modaraba.

c.

The balance sheet, profit and loss account, cash flow with the notes forming part thereof conforms to the approved according standards as applicable in Pakistan.

d.

Zakat deductible at source under the Zakat and Usher Ordinance1980 was deducted by the Modaraba and deposited in the central Zakat fund under sec 7 of that ordinance.

10

Part-3 Analysis
16. Examination of Financial Statement a. Balance Sheet-An Overview (1) Asset (2) Assets. In terms of %age, there has been no change in

current and non current assets in Years 2009 and 2010. growth reduced from 30% in 2009 to 19% in 2010. Equity and Liabilities. Current Liabilities increased from 16% in Year 2009 to 21% in Year 2010. While long term liabilities reduced from 8% to 3%. However, Certificate holders equity remained unchanged i.e. 76%. Moreover, Equity growth reduced from 111% to 20%. (3) Net Profit. An increase of Rs 102 M was seen in the net profit of Year 2010 i.e. 58% as compared to 38% in Year 2009. (4) Earning Per Certificate. healthy sign. Analysis ARM has Rs 4.63 EPC in Year

2010. It has an increasing trend since Year 2008 which is a

11

17.

Financial statement analysis is the process of identifying financial

strengths and weaknesses of the firm by properly establishing relationship between the items of the balance sheet and the profit and loss account. There are various methods or techniques that are used in analyzing financial statements, such as comparative statements, schedule of changes in working capital, common size percentages, funds analysis, trend analysis, and ratios analysis. Following are the most important tools and techniques of financial statement analysis: 18. Using above mentioned tools and techniques, Financial Analysis of ARM

has been carried out. 21. Ratios Analysis. The ratios analysis is the most powerful tool of financial

statement analysis. Ratios simply mean one number expressed in terms of another. A ratio is a statistical yardstick by means of which relationship between two or various figures can be compared or measured. Ratios can be found out by dividing one number by another number. Ratios show how one number is related to another.
S.No Ratio Day's Sales in 1 Receivable Gross Receivables Net Sales / 365 ,772.00 8,553,921 / 365 2.17 Account Receivable 2 Turnover Net Sales Average Receivable ,921.00 53 ,069.00 161.18 78,609 97.55 8,553 668,133 7, Formula 2011 50 55,366 7,668,133 / 365 2.63 2010

12

Operating 6 Cycle

A/R Turnover in days + Inventory Turnover in Days

2.26 + 10.76 13.02

3.74 + 15.59 19.33 2,792,563 1,065,190 1,727,373 2,792,563 1,065,190 2.62 1,779,899 1,065,190 1.67 1,636,381 1,065,190 1.54 8,

Working 7 Capital

Total Current Assets - Total Current Liabilities

2,347,481 1,378,379

Current 8 Ratio Total Current Assets Total Current Liabilities

969,102.00 2, 347,481.00 1, 378,379.00 1.70

Acid Test 9 Ratio

Cash + Marketable Securities + Net Trade Receivables Total Current liablities 464,112.00 1, 378,379.00 0.34

10

Cash Ratio

Cash + Marketable Securities Total Current Liabilities

326,229.00 1, 378,379.00 0.24

Sales To working 11 capital Net Sales Average (Working Capital) 553,921.00 1, 348,237.50 6.34 7,668,133 1,677,079 4.57

13 Cash Flow / Cur. Mat. Of 12 Debt & NP Cash Flow From Operation Short Term Loans + Current Maturity of L.T Debt 305,498.00 1, 311,132.00 0.23 Time Intrest 13 Earned EBIT Total Intrest 1, 058,773.00 24,287.00 43.59 1, 14 Debt Ratio Total Liabilities Total Assets 944,737.00 7, 743,149.00 0.25 Debt/Equit 15 y= Total Liabilities Total Equity 1, 944,737.00 5, 798,412.00 0.34 Debt to Tangibal Net Worth 16 = Total Liabilities Total Equity-Intangibal Assets 1, 944,737.00 5, 798,412.00 0.34 1,663,490 5,395,419 0.31 1,663,490 5,395,419 0.31 1,663,490 7,058,909 0.24 1,465,945 77,628 18.88 1,362,311 1,015,724 1.34

14 Cash Flow/Total 17 Debt = Cash Flow from Operation Total Liabilities 305,498.00 1, 944,737.00 0.16 Profitability Net Profit 19 Margin= Net Income After Taxes Sales 684,429.00 8, 553,921.00 0.08 Total Assets 20 Turnover = Net Sales Avg (Total Assets) 8, 553,921.00 7, 401,029.00 7,668,133 7,015,855 1,016,685 7,668,133 0.13 1,362,311 1,663,490 0.82

1.16 1, 21 Net Return on Assets= Income before Tax 034,486.00 7, 401,029.00 0.14 Operation Income 22 Margin Operation Income Net Sales 773.00 8, 553,921.00 1,058,

1.09 1,388,317 7,015,855 0.20

Average Assets for the period

1,465,945 7,668,133 .00 0.19

0.12

15 Operation Asset 23 Turnover Net Sales Avg (Total Assets-Construction in Progress-Intangible AssetsInvestment 8, 553,921.00 6, 244,782.00 5,602,555 1.37 1, Operating Income Avg (Total Assets-Construction in Progress-Intangible AssetsInvestment 058,773.00 6, 244,782.00 1,465,945 5,602,555 .00 0.26 8, Net sales Average(Net Tangible (Fixed) Assets(Other than construction in progress) 553,921.00 6, 244,782.00 7,668,133 5,602,555 .00 1.37 1, Net Profit before taxation Average Shareholders Equity 034,486.00 5, 596,915.50 0.18 Gross Profit 28 Margin Gross profit Net Sales 1, 730,575.00 8, 553,921.00 1,957,967 7,668,133 1,388,317 5,086,643 0.27 7,668,133

1.37 Return on Operating 24 Assets

0.17 sales to Fix 25 Assets

1.37 Return on Total 27 Equity

16

0.20 Investor Analysis Degree of Financial 30 leverage = percentage change in EPS percentage change in EBIT 67.29 74.51 74.51 0.90 Earning 31 Per Share Net Income - Dividend on preference stock average outstanding shares 865,955.00 1.19 5,798,412.0 Common Equity-Incl. Ret Ern Common Share Outstanding 0 384,045.00 15.10 Net Income not Including Opt Materiality 33 of Options exp - Net Income Including opt. exp Net Income not Including Opt exp 671,802.00 1, 730,575.00 0.39 Operation Cash Flow/Cash 34 Dividends Cash Flow from Operations Total Cash Dividends 305,498.00 1, 034,486.00

0.26

68.10 69.81 69.81 0.98 1,388,317 793,792.0 0 1.75 5,395,419 528,371 10.21

book Value 32 Per Share

492,022 1,957,967 0.25

1,362,311

17 432,978

22.

Also known as the number of days of receivables tells the average number of days it takes to collect an account receivable. Since the days sales in accounts receivable is an average.
Ratio Formula 2011 2010

The days sales in accounts receivable ratio.

Day's Sales in Receivable

Gross Receivables Net Sales / 365

50, 772.00 8,553,921 / 365 2.17

55,366 7,668,133 / 365 2.63

23.

Measures a companies effectiveness in terms of qualifying their credit borrowers and collecting monies owed from them. The A/R turnover ratio is an indication to how many times the accounts receivables are "turned over" throughout the year. The higher the value of the ratio, the better the company is in terms of collecting their accounts receivables. A lower accounts receivable turnover ratio indicates that the company is not making efficient use of their funds

The accounts receivable turnover ratio.

Ratio

Formula

2011

2010

Account Receivable Turnover =Net Sales/ Average Receivable

8, 553,921.00 53,069.00

7,668,133 78,609

18

161.18
24.

97.55 a companies

The accounts receivable turnover ratio. Measures

effectiveness in terms of qualifying their credit borrowers and collecting monies owed from them. The A/R turnover ratio is an indication to how many times the accounts receivables are "turned over" throughout the year. The higher the value of the ratio, the better the company is in terms of collecting their accounts receivables. A lower accounts receivable turnover ratio indicates that the company is not making efficient use of their funds Ratio Formula
Account Receivable Turn Over

2011
161.18

2010
97.55

2.26

3.74

It can be used to determine whether the company is having trouble collecting on sales it provided customers on credit.

Profitability Ratios.

Profitability ratios measure the results of business

operations or overall performance and effectiveness of the firm. Some of the profitability ratios given in report are as under:a. Profit after Tax Ratio
(1)

It is calculated by dividing net income after taxes by net sales. A company's after-tax profit margin is important because it tells investors the percentage of money a company actually earns per Rupee of sales. This ratio is interpreted in the same way as profit margin - the after-tax profit margin is simply more stringent because it takes taxes into account.

19

(2)

Profit after Tax Ratio of ARM increased from 27% in Year 2009 to 32% in Year 2010. Its a positive indicator.

b.

Return on Asset(ROA) (1) ROA shows earnings that are generated from invested capital (assets). ROA for public companies can vary is industry-specific. Thus, when one is using comparative measure, it is best to compare it previous ROA numbers or the ROA of a company's assets consist of both debt the operations of the company. ROA of how effectively the company into net income. The higher the earns on a smaller investment.

substantially and ROA as a with a company's similar company. A and equity, which are gives investors some idea is converting the money it has ROA, the more a company (2)

ARM has 20% ROA in Year 2010 which was 16% in Year 2009. This higher ROA is a good sign for investors.

c.

Return on Equity(ROE) (1) One of the most important profitability metrics is return on equity (or ROE for short). Return on equity reveals how profit a company earned in comparison to the total shareholder equity found on the balance sheet.

much amount of

20

(2) which d.

ARM has 26% ROE in Year 2010 as compared to 25% in Year 2009. The company has been able to maintain its Equity is a good sign.

Return on Capital Employed (ROCE) (1) Return on capital employed (ROCE) is the rate of return a business is making on the total capital employed in the business. Capital will include all sources of

funding (2)

(shareholders funds + debt). ARM has 22% ROCE in Year 2010 as compared to 17% in Year 2009 which is a good indicator.

e.

Expense Ratio (1) It is the percentage of assets taken back by the management in order to run the fund. These are mostly management fees and operating expenses. (2) Expense ratio of ARM in Year 2010 is 68% as compared to 73% in Year 2009 which is positive sign.

g.

Current Ratio (1) It is the relationship between current assets and current liabilities. This ratio is also known as "working capital ratio". It is a measure of general liquidity and is most widely used to make the analysis for short term financial position or liquidity

21

of a firm. It is calculated by dividing the total of the current assets by total of the current liabilities. (2) Current ratio of ARM in Year 2010 remained 0.65:1 as compared to 0.90:1. The current ratio has been disturbed due shifting of Long term Ijarah Liabilities to Short Term. h. Price Earning Ratio (1) Price earnings ratio (P/E ratio) is the ratio between market price per equity share and earning per share. The ratio is estimate of appreciation in the value calculated to make an

of a share of a company and is widely used by investors to decide whether or not to buy shares in a particular company. (2) It has reduced to 3.24 times in Year 2010 as compared to 3.75 times in Year 2009 and 5.04 in Year 2008. Due to least trading in Modaraba Sector this has been the main cause. The management should look into the causes that have resulted into the fall of this ratio. j. Earning Per Certificate-Basic and Diluted (1) considered price shows would be entitled general, earnings calculated In a given fiscal year, a publicly-traded company's profit divided by the number of shares outstanding. This is the single most important aspect in determining a share's and value, because the calculation of earnings per share the amount of money to which a shareholder in the event of the company's liquidation. In per share apply only to common shares. It is thusly:

22

Earnings per share = (Net income - Preferred dividends) / Average shares outstanding. ( 2) ARM has Rs 4.63 Earning Per Certificate which shows a increasing trend in Year 2010 as compared to Year 2009. k. Dividend Yield Ratio
(1)

It is the relationship between dividends per share and the market value of the shares. ARM has 12% Dividend Yield ratio in Year 2010 as compared to 9% in Year 2009 which is a healthy sign.

(2) l.

Dividend Pay out Ratio

(1)

It is calculated to find the extent to which earnings per share have been used for paying dividend and to know what portion of earnings has been retained in the business. It is an important ratio because ploughing back of profits enables a company to grow and pay more dividends in future. The lower the payout ratio, the higher will be the amount of earnings ploughed back in the business and vice versa.

(2)

ARM has 49% Dividend Pay out Ratio in year 2010 which was 42% in Year 2009. It is a good sign for investors.

m.

Cash Dividend (1)

(2)

A cash dividend is a cash payment made to the shareholders of a corporation. ARM is paying 22.5% dividend to its shareholders in Year 2010 which was 15% in Year 2009. Positive indicator.

23 n.

Cash Dividend Per Certificate. 2009 which is a good sign.

ARM is giving Rs 2.25 Cash

Dividend per certificate in Year 2010 as compared to Rs 1.5 in Year o. Book Value Per Certificate
(1)

It is a type of evaluation or measure of the worth of shares of stock issued by a specific company. ARM has Rs 19.06 book Value of certificate in Year 2010 which was Rs 16.03 in Year 2009. Increase in Book Value is a sign that the business is managing its debt efficiently and that in the event of a business sale and liquidation, investors would receive a higher amount per share.

(2)
(3)

23.

Conclusion.

Year over year, Attock Cement Pakistan Limited (ACPL)

has been able to grow revenues from Rs 3,473 M to 8,554 M. Most impressively, the company has been able to reduce the percentage of sales devoted to cost of goods sold from 62.46% to 60.37%. This was a driver that led to a bottom line growth from 176.1 M to 278.0 M. Moreover, ACPLs accounting policies are being implemented as per law applicable in Pakistan. The financial data as mentioned in Annual Report 2011 shows a good sign for future prospects. It also shows healthy progress in Assets, Reserves and profit margins etc. Total expenses of Year 2009 were 73% and in Year 2010, these have reduced to 67% which means controlling in expenses by the company. 24. The company has net-profit margin of 32%, return on capital is 26%, and dividend 22.5% i.e. Rs.2.25 per dividend, which shows doing good business.

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Annex A Key Financial Data 2010 Total Assets Current Assets Current Liab Paid up Capital Reserves Stock Holders Equity Gross profit Net Profit 1511 205 317 600 550 1150 338 278 2009 1273 183 203 600 362 962 250 176 2008 976 223 283 300 156 456 188 128 Million

25

Profit after Tax Return on Assets Return on Equity

32 20 26 22 68 0.65:1 3.24 4.63 12 49 22.5 2.25 19.16

27 16 25 17 73 0.90:1 3.75 3.60 9 42 15 1.50 16.03

28 15 31 18 72 0.79:1 5.04 3.37 13 59 20 2.00 15.18

Return on Capital Employed Expenses Ratio Current Ratio (Times) Price Earning Ratio Earning per Certificate Rs. Dividend Yield Ratio% Dividend Pay Out Ratio Cash Dividend% Cash Dividend per Cert. Book Value per Certificate

26

Annex B Balance Sheet Current Assets Bank Balances Trade Debts Advances Prepayments Other Current Portion of Invesment Ijarah Non Current Assets Investment Ijarah Finance Long term Security deposits Fixed Assets-Tangible 5% 1% 81% 86% 100% Liabilities and Equity Current Liabilities Trade and other Payable Borrowing from associated Companies Due to Management Company Current maturity Musharakah 9% 0% 1% 8% 6% 0% 0% 0% 8% 6% 0% 0% 7% 2% 77% 86% 100% 12% 12% 61% 77% 100% 6% 5% 1% 1% 14% 3% 6% 2% 4% 14% 12% 7% 1% 3% 23% 2010 2009 2008

27

Current maturity of Ijarah

4% 21%

10% 16%

15% 29%

Long Term and Deferred Liabilities Deferred Liabilities Security Deposits from Lessees Liabilities against assets sub to Ijarah Equity Certificate Capital Certificate premium Statutory Reserve Unappopriated profit Profit & Loss Account Operating lease rentals Operation & maintenance income Profit on Finance lease Other income Operating Expenses Admin & distribution exp Finance Exp Worker Welfare fund Total Expenses 77% 18% 2% 3% 100% 57% 6% 2% 1% 67% 74% 21% 3% 3% 100% 59% 7% 7% 0% 73% 71% 23% 5% 1% 100% 58% 7% 7% 0% 72% 40% 6% 21% 9% 76% 47% 7% 14% 7% 76% 31% 0% 9% 7% 47% 1% 0% 2% 3% 1% 0% 8% 8% 1% 1% 23% 24%

28

Modaraba Management fee Profit Margin

1% 32%

0% 27%

1% 28%

Annex C Financial Summary

29

Annex D Balance Sheet

30

Annex E Profit and Loss Account

31

Annex F Comprehensive Income

32