2013

FINANCIAL MANAGMENT
TOPIC: PROJECT ON Fauji Fertilizer Company & Engro Corporation limited

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Contents

Acknowledgement .....................................................................................................2 Meaning of ratio analysis: ..........................................................................................4 FAUJI FERTILIZER CORPORATION (FFC) .........................................................6 History ........................................................................................................................6 Awards of FFC ...........................................................................................................6 Mission Statement ......................................................................................................7 Corporate Vision ........................................................................................................9

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Acknowledgement
We have the pearl of our eyes to admire blessing of the compassionate and omnipotent because the words are bound, knowledge is limited and time is short to express His dignity. It is one of the infinite blessings of almighty ALLAH that He bestowed us with potential and ability to complete the present training and make a material contribution towards the deep oceans of knowledge. First we avail this opportunity to bow our head before ALLAH almighty in humility who given us the wisdom and perseverance for completing this piece of report. We invoke peace for Holy Prophet Muhammad (S.A.W.) who is forever torch. We feel highly privilege to ascribe the most and ever burning flame of my gratitude and deep scene of devotion to the DR. Prof. A.R Zaki who taught us heart and also gave a guideline to this report.

Analysis of Financial Report with

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Financial reports are always concerned with taking important decisions about the businesses of their organization. They have to consider each and every transaction of their business in order to keep track of changes in the equity. They have to present such a picture of their organization as would facilitate investors to invest in the company. Ratio analysis is one of the facilitative tools making the actual state of affairs of the business more comprehensive and explicable for the investors and potential users of the books of accounts of the company. Throughout this semester, I am conducting the ratio analysis of Engro And Fauji Fertilizer. both are pronounced companies of Pakistan. It is considered as the benchmark in power industry. In this project, we will be focusing on a brief introduction of the company followed by its ratio analysis. In designing this project, the key source of information has been the financial statements of the company. I have put up all my efforts in bringing out the true picture of both companies and making this project a true replica of the actual state of affairs of the company.

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MEANING OF RATIO ANALYSIS: Ratio analysis is the method or process by which the relationship of items or group of items in the financial statement are computed, determined and presented. Ratio analysis is an attempt to derive quantitative measure or guides concerning the financial health and profitability of business enterprises. Ratio analysis can be used both in trend and static analysis. There are several ratios at the disposal of an analyst but their group of ratio he would prefer depends on the purpose and the objective of analysis. While a detailed explanation of ratio analysis is beyond the scope of this section, we will focus on a technique, which is easy to use. It can provide you with a valuable investment analysis tool. This technique is called cross-sectional analysis. Cross-sectional analysis compares financial ratios of several companies from the same industry. Ratio analysis can provide valuable information about a company's financial health. A financial ratio measures a company's performance in a specific area. For example, you could use a ratio of a company's debt to its equity to measure a company's leverage. By comparing the leverage ratios of two companies, you can determine which company uses greater debt in the conduct of its business. A company whose leverage ratio is higher than a competitor's has more debt per equity. You can use this information to make a judgment as to which company is a better investment risk. However, you must be careful not to place too much importance on one ratio. You obtain a better indication of the direction in which a company is moving when several ratios are taken as a group.

Types of ratio comparisons

There are two major types of ratio comparisons: Cross-sectional analysis Time series analysis

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Cross-sectional analysis
Cross-sectional analysis is the comparison of different firms financial ratios at the same point in time; comparing the firms ratio to those firms in its industry or to industry averages. Frequently, a firm will compare its ratio values to those of its key competitors of group of competitors that firm wishes to evaluate.

Time -series analysis

Time series analysis is applied when a financial analyst evaluates performance overtime. Comparison of current to past performance, using ratio analysis, allows the firm to determine whether it is progressing as planned. Developing trends can be seen by using multi year comparison and knowledge of these trends should assist the firm in planning future operations.

Groups of financial ratios

Liquidity ratios Activity ratios Debt analysis ratios Profitability ratios Marketability ratio

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FAUJI FERTILIZER CORPORATION (FFC)

AWARDS OF FFC

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With a vision to acquire self - sufficiency in fertilizer production in the country, FFC was incorporated in 1978 as a private limited company. This was a joint venture between Fauji Foundation (a leading charitable trust in Pakistan) and Haldor Topsoe A/S of Denmark. The initial share capital of the company was 813.9 Million Rupees. The present share capital of the company stands above Rs. 8.48 Billion. Additionally, FFC has more than Rs. 8.3 Billion as long term investments which include stakes in the subsidiaries FFBL, FFCEL and associate FCCL. FFC commenced commercial production of urea in 1982 with annual capacity of 570,000 metric tons.

Through De-Bottle Necking (DBN) program, the production capacity of the existing plant increased to 695,000 metric tons per year. Production capacity was enhanced by establishing a second plant in 1993 with annual capacity of 635,000 metric tons of urea. FFC participated as a major shareholder in a new DAPS/Urea manufacturing complex with participation of major international/national institutions. The new company Fauji Fertilizer Bin Qasim Limited (formerly FFC-Jordan Fertilizer Company Limited) commenced commercial production with effect from January 01, 2000. The facility is designed with an annual capacity of 551,000 metric tons of urea and 445,500 metric tons of DAP, revamped to 670,000 metric tons of DAP. In the year 2002, FFC acquired ex Pak Saudi Fertilizers Limited (PSFL) Urea Plant situated at Mirpur Mathelo, District Ghotki from National Fertilizer Corporation (NFC) through privatization process of the Government of Pakistan. It has annual production capacity of 574,000 metric tons urea which has been revamped to 718,000 metric tons urea in 2009. This acquisition at Rs. 8,151 million represented the largest industrial sector transactions in Pakistan at that time.

Mission Statement

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FFC is committed to play its leading role in industrial and agricultural advancement in Pakistan by providing quality fertilizers and allied services to its customers and given the passion to excel, take on fresh challenges, set new goals and take initiatives for development of profitable business ventures.

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Corporate Vision
FFC's vision for the 21st Century remains focused on harmonizing the Company with fresh challenges and encompasses diversification and embarking on ventures within and beyond the territorial limits of the Country in collaboration with leading business partners.

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Periodicity:
To overcome this problem, the Accountants have developed Periodicity Concept for reporting the periodical or the interim progress of a business entity. Accounting period is defined as the interval of time at the end of which the profit and loss and the Balance Sheet are prepared to show the results of the operations (profit or loss) and the changes in resources which have occurred since the previous statements were prepared. The accounting period is normally for a year which is known as the Accounting year, financial year or the fiscal year as a result of the established business practices, traditions or legal requirements. FFC and Engro, both, report their annual results in December 31, and quarterly results in March 31, June 30 and September 30, every year.

Revenue principle:
An accounting principle under International Accounting Standards (IAS) that determines the specific conditions under which income becomes realized as revenue. Generally, revenue is recognized only when a specific critical event has occurred and the amount of revenue is measurable, or whenever the company delivers or performs its product or service and receives payment for it. FFC and Engro have been found to be in compliance with the revenue principle, as they account for transactions on accrual basis.

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Matching principle :
The principle that requires a company to match expenses with related revenues in order to report a company's profitability during a specified time interval. Ideally, the matching is based on a cause and effect relationship: sales causes the cost of goods sold expense and the sales commissions expense. If no cause and effect relationship exists, accountants will show an expense in the accounting period when a cost is used up or has expired. Lastly, if a cost cannot be linked to revenues or to an accounting period, the expense will be recorded immediately. As this principle is closely linked with the preceding principle, Engro and FFC comply with its requirements too.

Consistency:
The concept of consistency means that accounting methods once adopted must be applied consistently in future. Also same methods and techniques must be used for similar situations. It implies that a business must refrain from changing its accounting policy unless on reasonable grounds. If for any valid reasons the accounting policy is changed, a business must disclose the nature of change, the reasons for the change and its effects on the items of financial statements. Consistency concept is important because of the need for comparability, that is, it enables investors and other users of financial statements to easily and correctly compare the financial statements of a company.

Engro and FFC remain consistent in their application of accounting

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standards, and any major deviations, though rare, have been adequately disclosed to shareholders.

Historical cost:
Accounting is concerned with past events and it requires consistency and comparability that is why it requires the accounting transactions to be recorded at their historical costs. This is called historical cost concept. Historical cost is the value of a resource given up or a liability incurred to acquire an asset/service at the time when the resource was given up or the liability incurred. In subsequent periods when there is appreciation is value, the value is not recognized as an increase in assets value except where allowed or required by accounting standards.

In their financial statements, Engro and FFC have stated that the firms comply with the requirements of IAS 16: Property, Plant, and Equipment, which deals with this concept to a large extent.

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Disclosure principle:
Full disclosure principle is relevant to materiality concept. It requires that all material information has to be disclosed in the financial statements either on the face of the financial statements or in the notes to the financial statements. As can be determined by examining the accounts, both the firms attach a section Notes to the Financial Statements, in which material information is shared with the readers.

Business entity concept

In accounting we treat a business or an organization and its owners as two separately identifiable parties. This concept is called business entity concept. It means that personal transactions of owners are treated separately from those of the business. Businesses are organized either as a proprietorship, a partnership or a company. They differ on the level of control the ultimate owners exercise on the business, but in all forms the personal transactions of the owners are not mixed up with the transactions and accounts of the business. Engro and FFC are owned publicly, by their thousands of shareholders, and as such activities of shareholders are kept distinct from the operations of the businesses as a whole.