Financial statements are formal records of the financial activities of a business,
person, or other entity and provide an overview of a business or person's financial condition in both short and long term. They give an accurate picture of a companys condition and operating results in condensed form. Financial statements are used as a management tool primarily by company executives and investors in assessing the overall position and operating results of the company. Analysis and interpretation of financial statements help in determining the liquidity position, long term solvency, financial viability and profitability of a firm. Ratio analysis shows whether the company is improving or deteriorating in past years. Moreover, Comparison of different aspects of all the firms can be done effectively with this. It helps the clients to decide in which firm the risk is less or in which one they should invest so that maximum benefit can be earned. OBJECTIVES: To understand, analyze and interpret the basic concepts of financial statements of different mining companies. Interpretation of financial ratios and their significance. INTRODUCTION: Thatta Cement Company Limited was incorporated in 1980 as a public limited company. It was a wholly owned subsidiary of the State Cement Corporation of Pakistan (Pvt.) Limited. The manufacturing facility was commissioned in 1982. The plant based on dry process technology, had a total installed capacity of 1,000 tons per day of clinker. The plant was supplied by M/s. Mitsubishi Corporation, Japan. In the year 2004 the consortium of Mr. Arif Habib and Al-Abbas Group acquired 100% shares of the Company from the Privatization Commission and took over its management control.
The Company is now a part of the Arif Habib Group. The Group enjoys a diversified blend of expertise and interests in various industrial and financial concerns, including fertilizer, steel, cement, real estate, commercial banking, asset management, securities brokerage, and private equity.Share of Thatta Cement Company Limited is quoted on Karachi Stock Exchange.
RATIOS AND ITS INTERPRETATION AND ANALYSIS:
Profitability Ratio 2013 2012 Return on asset 6.758366482 -2.148985278 Return on equity 13.41606444 -4.579437302 Gross profit to sales 20.56219909 10.80679333 Net profit to sales 6.288264571 -1.896197019
Return on Assets (ROA). Return on assets measures a company's ability to turn assets into profit. (This may sound similar to the total assets turnover ratio discussed earlier, but total assets turnover measures how effectively a company's assets generate revenue.) IN THIS REGARDS THE ABOVE TABLE INDICATES THE COMPANYS EXELLENT PERFORMANCE. Return on assets is generally stated in percentage terms, and higher is better, all else equal. Return on Equity (ROE). Return on equity is a straightforward ratio that measures a company's return on its investment by shareholders. it is usually stated in percentage terms, and higher is better. IN THIS REGARDS THE ABOVE TABLE INDICATES THE COMPANYS EXELLENT PERFORMANCE. Gross profit to sales & Net profit to sales is showing tremendous performance in 2013 when it is compared by its preceding year. Since its been increased by more than 100%. Liquidity Ratio 2013 2012 Current Ratio (times) 1.047210805 0.917118612 Quick Ratio (times) 0.211823068 0.165642657
A company's liquidity is its ability to meet its near-term obligations, and it is a major measure of financial health. Liquidity can be measured through several ratios. The above calculation made for Thatta cement company is showing better performance since Current ratio has been increased by 0.13 times and, Quick ratio is increased by 0.46 times. The current ratio shows the company's ability to meet its short-term liabilities with its short-term assets. Like the current ratio, having a quick ratio above one means a company should have little problem with liquidity. The higher the ratio, the more liquid it is, and the better able the company will be to ride out any downturn in its business. Efficiency Ratio 2013 2012 Accounts Receivable turnover Ratio 17.36975216 20.34882658 Asset Turnover 1.074758609 1.133313287 Inventory Turnover 11.98945949 14.42587422 Efficiency ratios measure how effectively the company utilizes these assets, as well as how well it manages its liabilities. Inventory Turnover: Inventory turnover illustrates how well a company manages its inventory levels. To me the above table suggests that a company may be overstocking or overbuilding its inventory or that it may be having issues selling products to customers. All else equal, higher inventory turnovers is better. Asset Turnover: Total asset turnover highlights how effective management is at using both short-term and long-term assets. All other thing remains the same, the higher the total asset turnover, the better here it has gone down slightly in the current year. Accounts Receivable Turnover: The accounts receivable turnover ratio measures how effective the company's credit policies are. The above table Indicates accounts receivable turnover is low, it may indicate the company is being too generous granting credit or is having difficulty collecting from its customers. All else equal, higher receivable turnover is better. Solvancy Ratio 2013 2012 Interest Coverage ratio -4.231198912 -0.740108603 Debt to Equity ratio 0.985104607 1.130976582 Debt ratio 0.496248209 0.530731586
A company's leverage relates to how much debt it has on its balance sheet, and it is another measure of financial health. The interest coverage ratio measures a company's ability to meet its interest obligations with income earned from the firm's primary source of business. Again, higher interest coverage ratios are typically better, the interest coverage of thatta cement company was close to 1 last year but it decreased furthermore it means the company has some serious difficulty paying off its interest. The debt/equity ratio measures how much of the company is financed by its debt holders compared with its owners. Assuming everything else is identical, thatta Cement Company is having lower debt/equity ratio and its shooing its less risky. Debt ratio is similar to debt-to-equity ratio which shows the same proportion but in different way. It indicates the proportion of a company's debt to its total assets. A low debt ratio of thatta Cement Company indicates conservative financing with an opportunity to borrow in the future at no significant risk.
Market Value 2013 2012 P/E Ratio 67.16018535 -227.2414657 Earnings per share 0.148897743 -0.044006053 Book value per share 1.109846658 0.960948915
P/E Ratio: As such, high P/E Ratios are associated with growth stocks. The P/E Ratio also indicates how expensive a particular stock is. Its showing the companys performance from negativity to positivity from the above table. Book Value Per Share: This ratio represents the equity of the firm on a per share basis and is sometimes used as a benchmark for comparison with the market price per share. The focus is on how close market value is to book value. Thus book value is viewed as a conservative estimate of the firms value. Earnings Per Share (EPS): Investors would like to know how much profit is generated by each share they hold and EPS provides this valuable information. Thatta Cement Company is showing high profits and is naturally showing attractive EPS.