Finalreportibf

4/14/2010
PROJECT
INTRODUCTION TO BUSINESS FINANCE
Afroze Charania | 0926124

Introduction to Business Finance
Table of Contents
Table of Contents ...................................................................................................... 2

Introduction ............................................................................................................... 4
Current Ratio...........................................................................................................4
Quick Ratio.............................................................................................................. 4
Leverage Ratio........................................................................................................ 4
Gross Margin Ratio.................................................................................................. 4
Net Margin Ratio......................................................................................................4
Inventory Turnover Ratio.........................................................................................5
Accounts Receivable Turnover Ratio.......................................................................5
Return on Assets Ratio............................................................................................5
Return on Investment Ratio.....................................................................................5
Lucky Cement.............................................................................................................6
Financial Ratios for the year 2008 and 2009...........................................................6
Current Ratio........................................................................................................6
Quick Ratio........................................................................................................... 8
Leverage Ratio..................................................................................................... 9
Gross Margin Ratio.............................................................................................10
Net Profit Margin Ratio.......................................................................................12
Inventory Turnover Ratio....................................................................................13
Accounts Receivable Turnover Ratio..................................................................15
Return on Assets Ratio.......................................................................................16
Return on Investment Ratio...............................................................................18
Attock Cement Pakistan Limited...............................................................................19
Financial Ratios for the year 2008 and 2009.........................................................20
Current Ratio......................................................................................................20
Quick Ratio......................................................................................................... 21
Leverage Ratio................................................................................................... 23
2

Graphical Comparison of Lucky Cement and Attock Cement...................................33
Year 2008..............................................................................................................33
Current Ratio......................................................................................................33
Quick Ratio......................................................................................................... 34
Leverage Ratio................................................................................................... 35
Year 2009..............................................................................................................42
Current Ratio......................................................................................................42
Quick Ratio......................................................................................................... 44
Leverage Ratio................................................................................................... 45
Conclusion............................................................................................................. 52
References................................................................................................................54
Appendix.................................................................................................................. 55
3
Introduction
Current Ratio
An indication of a company's ability to meet short-term debt obligations; the higher the ratio,
the more liquid the company is. Current ratio is equal to current assets divided by current
liabilities. If the current assets of a company are more than twice the current liabilities, then
that company is generally considered to have good short-term financial strength. If current
liabilities exceed current assets, then the company may have problems meeting its short-term
obligations. For example, if XYZ Company's total current assets are $10,000,000, and its
total current liabilities are $8,000,000, then its current ratio would be $10,000,000 divided by
$8,000,000, which is equal to 1.25. XYZ Company would be in relatively good short-term
financial standing. [1]
Quick Ratio
An indicator of a company's short-term liquidity. The quick ratio measures a
company's ability to meet its short-term obligations with its most liquid assets. The higher the
quick ratio, the better the position of the company. [2]
Leverage Ratio
Any ratio used to calculate the financial leverage of a company to get an idea of the
company's methods of financing or to measure its ability to meet financial obligations. There
are several different ratios, but the main factors looked at include debt, equity, assets and
interest expenses.[3]
Gross Margin Ratio

The gross margin is not an exact estimate of the company's pricing strategy but it does give a
good indication of financial health. Without an adequate gross margin, a company will be
unable to pay its operating and other expenses and build for the future. In general, a
company's gross profit margin should be stable. It should not fluctuate much from one period
to another, unless the industry it is in has been undergoing drastic changes which will affect
the costs of goods sold or pricing policies. [4]
Net Margin Ratio

The profit margin is mostly used for internal comparison. It is difficult to accurately compare
the net profit ratio for different entities. Individual businesses' operating and financing
arrangements vary so much that different entities are bound to have different levels of
expenditure, so that comparison of one with another can have little meaning. A low profit
4
margin indicates a low margin of safety: higher risk that a decline in sales will erase profits
and result in a net loss. [5]
Inventory Turnover Ratio

In accounting, the Inventory turnover is an equation that measures the number of times
inventory is sold or used over in a period such as a year. The equation equals the cost of
goods sold divided by the average inventory. Inventory turnover is also known as inventory
turns, stock turn, stock turns, turns, and stock turnover. [6]
Accounts Receivable Turnover Ratio

Receivable Turnover Ratio is one of the accounting activity ratios, a financial ratio. This ratio
measures the number of times, on average; receivables (e.g. Accounts Receivable) are
collected during the period. A popular variant of the receivables turnover ratio is to convert it
into an Average Collection Period in terms of days. Remember that the Receivable turnover
ratio is figured as "turnover times" and the Average collection period is in "days".[7]
Return on Assets Ratio

An indicator of how profitable a company is relative to its total assets. ROA gives an idea as
to how efficient management is at using its assets to generate earnings. Calculated by
dividing a company's annual earnings by its total assets, ROA is displayed as a percentage.
Sometimes this is referred to as "return on investment".[8]
Return on Investment Ratio

Return on investment (ROI) ratio is calculated to ascertain the efficiency of an investment. It
is also used to make a comparison between different investment options like gold, real estate
and stock market investments, in a given period of time. Return on Investment ratio for a
company shows how much profit a company is making against the investments made by the
shareholders and the investors. [9]
5
Lucky Cement
Financial Ratios for the year 2008 and 2009
Current Ratio
= Total Current Asset/ Total Current Liabilities
Year 2008:
= 8355524 Rs. / 7686897 Rs.
= Rs. 1.086x
Year 2009:
= 7857942 Rs. / 9098678 Rs.
= Rs 0.86x
6
Analysis
By looking at the total current liabilities of both the years it can be evident that the position of a
company to pay off its short term debt is optimum. Especially, if we consider the year 2009;
where the current liabilities have increased and the assets have decreased phenomenally. It is
necessary for a company that the current ratio should remain above one and the generally
acceptable current ratio is above two. This target was achieved by lucky cement in the year 2008.
However, it couldn’t maintain it in the following year i.e. 2009. This is necessary for a company
to meet its short term obligations. In this case for lucky cement it is evident that the year 2009 is
declining. As current liabilities are increasing at a very high rate and the current assets are also
decreasing at a high rate too! Finding current asset ratio is important to analyze financial strength
of a company. But in this case the decreasing pattern shows the financial strength of Lucky
cement is weak.
This means that Lucky cement can increase its business current ratio by:
• Paying some debts.

• Increasing your current assets from loans or other borrowings with a maturity of more
than one year.
• Converting non-current assets into current assets.
• Increasing your current assets from new equity contributions.
• Putting profits back into the business.
7
Quick Ratio
= (Cash + Government Securities + Receivables)/ Total Current Liabilities
Year 2008:
= (270011+4331790+3085096) Rs. / 7686897 Rs.
= Rs. 0.96x
Year 2009:
= (1049091+3568834+2024110) Rs. / 9098678 Rs.
= Rs. 0.73x
Analysis
Again the Quick Ratio from the year 2008 and year 2009 is declining. This is because the
company seems to have held a large amount of inventory in the year 2009 as compare to the
previous year. The Pakistan cement industry concluded the financial year ended June 30, 2009
with an overall meager growth of 2% with total sales volume of 30.77 million tons against last
year’s sales volume of 30.286 million tons. The demand in the domestic market witnessed a
dismal negative growth of 14% due to adverse economic, financial as well as law and order
situation prevailed in the country. On the export front, the industry witnessed a hefty growth of
47% with sales volume of 11.381 million tons against last year’s sales volume of 7.716 million
8
tons per annum. The shortfall in domestic sales was compensated by exports which ended with a
proportion of 37% of the total sales of the industry. The quick ratio in both the years is less than
one. An acid-test of 1:1 is considered satisfactory unless the majority of your "quick assets" are
in accounts receivable, and the pattern of accounts receivable collection lags behind the schedule
for paying current liabilities.
Leverage Ratio
= Total Liabilities/ Net Worth
Year 2008:
= 15583651 Rs. / 18655423 Rs.
=Rs. 0.08x
Year 2009:
= 15140390 Rs. / 23251972 Rs.
=Rs. 0.65x
9
Analysis
From the above calculations it is evident that the leverage ratio of the year 2008 is higher than
year 2009 for lucky cement. A high debt/equity ratio means that in the year 2008 the company
has been aggressive in financing its growth with debt as compare to the year 2009. This can
result in volatile earnings as a result of the additional interest expense.
If a lot of debt is used to finance increased operations (high debt to equity), the company could
potentially generate more earnings than it would have without this outside financing. If this were
to increase earnings by a greater amount than the debt cost (interest), then the shareholders
benefit as more earnings are being spread among the same amount of shareholders. However, the
cost of this debt financing may outweigh the return that the company generates on the debt
through investment and business activities and become too much for the company to handle.
This can lead to bankruptcy, which would leave shareholders with nothing.
Therefore, the creditors must have considered great risk exposure for the year 2008 as compare
to the following year of 2009.
Gross Margin Ratio
= Gross Profit/Net Sales
Year 2008:
= 4357173 Rs. / 16957879 Rs.
=Rs. 0.256x
Year 2009:
= 9811266 Rs. / 26330404 Rs.
=Rs. 0.376x
10
Analysis
The gross profit margin ratios are representing the proportion of the amount of revenues that the
company retains as gross profit each year. From the above chart it is revealed that Lucky cement
retained a higher gross profit margin in the year 2009 as compare to the year 2008. From each
amount of revenue generated, the company has used to be put towards paying off selling, general
and administrative expenses, interest expenses and distributions to shareholders. The levels of
gross margin have not varied drastically from one year to another.
The gross profit margin ratio tells us the profit a business makes on its cost of sales, or cost of
goods sold. It is a very simple idea and it tells us how much gross profit per amount of turnover
our business is earning.
11
Net Profit Margin Ratio
= Net Profit/Net Sales
Year 2008:
= 2677670 Rs. / 16957879 Rs.
=Rs. 0.157x
Year 2009:
= 4596549 Rs. / 26330404 Rs.
=Rs. 0.174x
12
Analysis
The net profit margin ratio tells us the amount of net profit of turnover a business has earned.
That is, after taking account of the cost of sales, the administration costs, the selling and
distributions costs and all other costs, the net profit is the profit that is left, out of which they will
pay interest, tax, dividends and so on.
For the year 2008 the profit margin is of approximately 15.7%. This means that for each rupee of
sales that Lucky Cement generates it is contributing 0.157 Rupees to its bottom line (net
income).
For the year 2009 the profit margin has increased to approximately of 17.4% this means that for
each rupee of sales that Lucky Cement has generated in the year 2009 it is contributing 0.174
rupees to its bottom line (net income). This tie in with gross profit margin, Lucky Cement has a
healthy pricing strategy which is evident in both ratios; especially in the year 2009.
= Cost of Goods Sold/Average Cost of Inventory
Year 2008:
= 12600706 Rs. / 709372 Rs.
=Rs. 17.76x
Year 2009:
= 16519138 Rs. / 1196608 Rs.
=Rs. 13.80x
13
Analysis
The inventory turnover ratio reveals the effectiveness of the inventory management practices that
are adopted by Lucky Cement. The graphs reveal that inventory turnover ratio for the year 2008
was higher than the year 2009. But as the entire cement industry is growing phenomenally. The
company is maintaining a big amount of inventory as compare to the inventory of the year 2008.
Therefore, the inventory turnover is decreasing from PKR 17.76 to PKR 13.8. This also reveals
that the inventory of the firm is being converted into receivables or cash. However the inventory
in the year 2008 decreased from PKR 12600706 to PKR 16519138. This is because Lucky
cement invested more in the year 2009 as compare to the previous year.
14
= Credit Sales/365
Year 2008:
= 720314 Rs. / 365
=Rs. 1973.46x
Year 2009:
= 1267248 Rs. / 365 Rs.
=Rs. 3471.91x
15
Analysis
The accounts receivable turnover ratio for the year 2009 is much higher than the year 2008 for
Lucky cement. Accounts receivable Turnover ratio indicates how many times the accounts
receivable have been collected during an accounting period. It can be used to determine if a
company is having difficulties collecting sales made on credit. The high turnover of the year
2009 than the year 2008 indicates the faster the business is collecting its receivables. This also
reveals that in the year 2009 the company has operated more on cash basis and its extension of
credits and collection of account receivables is efficient. The low ratio of the year 2008 revealed
that the company needed reassessment in its credit policies in order to ensure the timely
collection of imparted credit that is not the earning interest of the firm.
= Net Profit/Total Assets
Year 2008:
= 2677670 Rs. / 34239074 Rs.
=Rs. 0.078x
Year 2009:
= 4596549 Rs. / 38392362 Rs.
= Rs. 0.119x
16
Analysis
This measures how efficiently profits are being generated from the assets employed in the
business when compared with the ratios of firms in a similar business. A low ratio in
comparison with industry averages indicates an inefficient use of business assets. The
return of asset ratio for the year 2009 for lucky cement is greater than the year of
2008. The total asset employed by the company in the year 2009 increased from PKR
34239074 to PKR 38392362. This gives us an idea of how efficient the management is
at using its assets to generate earnings.
The assets of Lucky Cement are comprised of both debt and equity. Both of these types of
financing are used to fund the operations of the company. The Return of investment
figure gives investors an idea of how effectively the company is converting the
money it has to invest into net income. The higher the Return of investment number,
the better, because the company is earning more money on less investment.
17
= Net Profit/Net Worth
Year 2008:
= 2677670 Rs. / 18655423 Rs.
=Rs. 0.14x
Year 2009:
= 4596549 Rs. / 23251972 Rs.
=Rs. 0.197x
Analysis
The Return on Investment ratio for the year 2009 is much higher than that of the year 2008 for
Lucky Cement. These ratios show the percentage of return on funds invested in the business by
its owners. In short, this ratio tells the owner whether or not all the effort put into the business
has been worthwhile. This means that more effort was added by the owners in the year 2009 as
compare to the year 2008. This is easily revealed from the total net worth. The net worth had a
boost in the year 2009 from PKR 18655423 to PKR 23251972.
18
Attock Cement Pakistan Limited
19
Financial Ratios for the year 2008 and 2009
Current Ratio
= Total Current Asset/ Total Current Liabilities
Year 2008:
= 1480329 Rs. / 980419 Rs.
=Rs. 1.50x
Year 2009:
= 2762349 Rs. / 1135564 Rs.
=Rs. 2.43x
20
Analysis
By looking at the total current liabilities of both the years it can be evident that the position of a company
to pay off its short term debt is optimum. Especially, if we consider the year 2009; where the current
liabilities have increased and the assets have decreased phenomenally. It is necessary for a company that
the current ratio should remain above one and the generally acceptable current ratio is above two. This
target has been achieved by Attock Cement both the years’ i.e. 2008 and 2009. Moreover, it is improving
its current ratio condition in a phenomenal rate. This is evident with the comparison between the two
graphs. As in the year 2009 the current ratio of the company has taken a boost from i.5 to 2.3. This shows
that the company has taken necessary measures to meet its short term obligations. Although current
liabilities are increasing at a very high rate but the current assets are also increasing at a high rate too!
Finding current asset ratio is important to analyze financial strength of a company. In this case the
increasing pattern shows the financial strength of Attock cement is strong Attock Cement should always
maintain that!
Quick Ratio
= (Cash + Government Securities + Receivables)/ Total Current Liabilities
Year 2008:
= (110957+280829+49403) Rs. / 980419 Rs.
=Rs. 0.45x
Year 2009:
= (871826+634197+26988) Rs. / 1135564 Rs.
=Rs. 1.34x
21
Analysis
Again the Quick Ratio from the year 2008 and year 2009 is increasing. This is because the company
seems to have held a large amount of inventory in the year 2008 as compare to the following year year.
The Pakistan cement industry concluded the financial year ended June 30, 2009 with an overall meager
growth of 2% with total sales volume of 30.77 million tons against last year’s sales volume of 30.286
million tons. The demand in the domestic market witnessed a dismal negative growth of 14% due to
adverse economic, financial as well as law and order situation prevailed in the country. On the export
front, the industry witnessed a hefty growth of 47% with sales volume of 11.381 million tons against last
year’s sales volume of 7.716 million tons per annum. The shortfall in domestic sales was compensated by
exports which ended with a proportion of 37% of the total sales of the industry. This means the quick
ratio should have been on a decline. But for Attock Cement the quick ratio for the year 2008 was less than
one. However, this was compensated with a high ratio of 1.34 in the year 2009. An acid-test of 1:1 is
considered satisfactory unless the majority of your "quick assets" are in accounts receivable, and the
pattern of accounts receivable collection lags behind the schedule for paying current liabilities.
22
Leverage Ratio
= Total Liabilities/ Net Worth
Year 2008:
= 2339368 Rs. / 3531579 Rs.
=Rs. 0.66x
Year 2009:
= 2194934 Rs. / 4777867 Rs.
=Rs. 0.459x
23
Analysis
From the above calculations it is evident that the leverage ratio of the year 2008 is higher than year 2009
for Attock Cement. A high debt/equity ratio means that in the year 2008 the company has been aggressive
in financing its growth with debt as compare to the year 2009. This can result in volatile earnings as a
result of the additional interest expense.
If a lot of debt is used to finance increased operations (high debt to equity), the company could potentially
generate more earnings than it would have without this outside financing. If this were to increase earnings
by a greater amount than the debt cost (interest), then the shareholders benefit as more earnings are being
spread among the same amount of shareholders. However, the cost of this debt financing may outweigh
the return that the company generates on the debt through investment and business activities and become
too much for the company to handle. This can lead to bankruptcy, which would leave shareholders with
nothing.
Therefore, the creditors must have considered great risk exposure for the year 2008 as compare to the
following year of 2009.
Gross Margin Ratio
= Gross Profit/Net Sales
Year 2008:
= 1114203 Rs. / 5001350 Rs.
=Rs. 0.222x
Year 2009:
= 2708972 Rs. / 8510071 Rs.
=Rs. 0.318x
24
Analysis
The gross profit margin ratios are representing the proportion of the amount of revenues that the
company retains as gross profit each year. From the above chart it is revealed that Attock Cement retained
a higher gross profit margin in the year 2009 as compare to the year 2008. From each amount of revenue
generated, the company has used to be put towards paying off selling, general and administrative
expenses, interest expenses and distributions to shareholders. The levels of gross margin have not varied
drastically from one year to another.
The gross profit margin ratio tells us the profit a business makes on its cost of sales, or cost of goods sold.
It is a very simple idea and it tells us how much gross profit per amount of turnover our business is
earning.
25
= Net Profit/Net Sales
Year 2008:
= 435025 Rs. / 5001350 Rs.
=Rs. 0.086x
Year 2009:
= 1492951 Rs. / 8510071 Rs.
=Rs. 0.175x
26
Analysis
For the year 2008 the profit margin is of approximately only 8.6%. This means that for each rupee of
sales that Attock Cement generates it is contributing 0.086 Rupees to its bottom line (net income).
For the year 2009 the profit margin has increased phenomenally to approximately of 17.5% this means
that for each rupee of sales that Attock Cement has generated in the year 2009 it is contributing 0.175
rupees to its bottom line (net income). This tie in with gross profit margin, Attock Cement ended up with
a healthy pricing strategy in the year 2009.
= Cost of Goods Sold/Average Cost of Inventory
Year 2008:
= 3887417 Rs. / 409498 Rs.
=Rs. 9.49x
Year 2009:
= 5801099 Rs. / 613934 Rs.
=Rs. 9.44x
27
Analysis
The inventory turnover ratio reveals the effectiveness of the inventory management practices that are
adopted by Attock Cement. The graphs reveal that inventory turnover ratio for the year 2008 was higher
than the year 2009. But as the entire cement industry is growing phenomenally. The company is
maintaining a big amount of inventory as compare to the inventory of the year 2008. Therefore, the
inventory turnover is decreasing from PKR 9.49 to PKR 9.44. This also reveals that the inventory of the
firm is being converted into receivables or cash. However the inventory in the year 2008 decreased from
PKR 409498 to PKR 613934. This is because Attock Cement invested more in the year 2009 as compare
to the previous year.
28
= Credit Sales/365
Year 2008:
= 49799 Rs. / 365
=Rs. 136.43x
Year 2009:
= 46485 Rs. / 365
=Rs. 127.35x
29
Analysis
The accounts receivable turnover ratio for the year 2008 is much higher than the year 2009 for Attock
cement. Accounts receivable Turnover ratio indicates how many times the accounts receivable have been
collected during an accounting period. It can be used to determine if a company is having difficulties
collecting sales made on credit. The high turnover of the year 2008 than the year 2009 indicates the
decline in the business is collecting its receivables. This also reveals that in the year 2008 the company
had operated more on cash basis and its extension of credits and collection of account receivables is
efficient. The low ratio of the year 2009 reveals that the company needs reassessment in its credit policies
in order to ensure the timely collection of imparted credit that is not the earning interest of the firm.
= Net Profit/Total Assets
Year 2008:
= 435025 Rs. / 5870947 Rs.
=Rs. 0.074x
Year 2009:
= 1492951 Rs. / 6972801 Rs.
=Rs. 0.214x
30
Analysis
return of asset ratio for the year 2009 for Attock Cement is greater than the year of
2008. The total asset employed by the company in the year 2009 increased from PKR
5870947 to PKR 6972801. This gives us an idea of how efficient the management is at
using its assets to generate earnings.
The assets of Attock Cement are comprised of both debt and equity. Both of these types of
financing are used to fund the operations of the company. The Return of investment
figure gives investors an idea of how effectively the company is converting the
money it has to invest into net income. The higher the Return of investment number,
the better, because the company is earning more money on less investment.
31
= Net Profit/Net Worth
Year 2008:
= 435025 Rs. / 3531579 Rs.
=Rs. 0.123x
Year 2009:
= 1492951 Rs. / 4777867 Rs.
=Rs. 0.312x
Analysis
The Return on Investment ratio for the year 2009 is much higher than that of the year 2008 for Attock
Cement. These ratios show the percentage of return on funds invested in the business by its owners. In
short, this ratio tells the owner whether or not all the effort put into the business has been worthwhile.
This means that more effort was added by the owners in the year 2009 as compare to the year 2008. This
is easily revealed from the total net worth. The net worth had a boost in the year 2009 from PKR 3531579
to PKR 4777867.
32
Graphical Comparison of Lucky Cement and Attock Cement

Year 2008
Current Ratio
Analysis
By looking at the graphs of both the companies it is evident that the ability of both the companies
to pay its total current liabilities and its short term debt is optimum. The current ratio of Attock
Cement is higher than the Lucky Cement’s current ratio. Although the current assets and current
liabilies of Attock cement are less than that of Lucky cement but it can be judged that compare to
Lucky Cement; Attock Cement have more current assets to pay off in exchange to its liabilities.
It is necessary for both the companies that the current ratio should remain above one and the
generally acceptable current ratio is above two. This target was achieved by both the companies.
However, Attock Cement seemed to be more successful in it! This is necessary for a company to
meet its short term obligations.
Finding current asset ratio is important to analyze financial strength of a company. But in this
case the financial strength of Lucky cement seems to be weak.
33

than one year.
Quick Ratio
Analysis
The Quick Ratio of Lucky Cement is higher than Attock Cement. This is because the Attock
Cement seems to have held a large amount of inventory as compare to Lucky Cement. The
Pakistan cement industry concluded the financial year ended June 30, 2009 with an overall
meager growth of 2% with total sales volume of 30.77 million tons against last year’s sales
volume of 30.286 million tons. The demand in the domestic market witnessed a dismal negative
growth of 14% due to adverse economic, financial as well as law and order situation prevailed in
the country. On the export front, the industry witnessed a hefty growth of 47% with sales volume
of 11.381 million tons against last year’s sales volume of 7.716 million tons per annum. The
shortfall in domestic sales was compensated by exports which ended with a proportion of 37% of
the total sales of the industry. The quick ratio in both the companies is less than one. An acid-test
of 1:1 is considered satisfactory unless the majority of your "quick assets" are in accounts
receivable, and the pattern of accounts receivable collection lags behind the schedule for paying
current liabilities
34
Leverage Ratio
Analysis
From the above graphical comparison it is evident that the leverage ratio of the Attock Cement is
higher than Lucky cement. A high debt/equity ratio means that Attock Cement has been into
aggressive in financing its growth with debt as compare to Lucky Cement. This can result in
volatile earnings as a result of the additional interest expense for Attock Cement.
Therefore, the creditors must have considered great risk exposure for Attock Cement as compare
to Lucky Cement.
35
Gross Margin Ratio
Analysis
The gross profit margin ratios are representing the proportion of the amount of revenues that
both the companies have retained as gross profit each year. From the above chart it is revealed
that Lucky cement retained a higher gross profit margin as compare to Attock Cement. From
each amount of revenue generated, the companies have used to be put towards paying off selling,
general and administrative expenses, interest expenses and distributions to shareholders.
Although this should also be taken into account that the Net Sales of Attock Cement are way
lower than that of Lucky Cement. This is because the investment done by Attock Cement is
lower than Lucky Cement.
36
Analysis
For the year 2008 the profit margin is of Lucky Cement is approximately 15.7%. This means
that for each rupee of sales that Lucky Cement generates it is contributing 0.157 Rupees to
its bottom line (net income).
For the year 2008 the profit margin of Attock Cement is lower than Lucky Cement. That is, the
profit margin is approximately just 8.6% this means that for each rupee of sales that Attock
Cement has generated it is contributing 0086 rupees to its bottom line (net income).
This reveals that Lucky Cement has a healthy pricing strategy as compare to Attock Cement.
Moreover, the sales and investments done by Lucky Cement is much higher than Attock Cement.
37
Analysis
are adopted by both the companies. The graphs reveal that inventory turnover ratio for the Lucky
Cement was way higher than Attock Cement. But as the entire cement industry is growing
phenomenally. Therefore, Lucky Cement is maintaining a big amount of inventory as compare to
the inventory of the Attock Cement. This also reveals that the inventory of the Attock Cement is
being converted more into receivables or cash. However Lucky cement invested more in the
year 2008 as compare to Attock Cement. Otherwise considering the investments made by Attock
Cement their inventory turnover ratio seems satisfactory.
38
Analysis
The accounts receivable turnover ratio for the Lucky Cement is much higher than the Attock
cement. Accounts receivable Turnover ratio indicates how many times the accounts
company is having difficulties collecting sales made on credit.
The high turnover of Lucky Cement indicates the faster the business is collecting its receivables.
This also reveals that the company has operated more on cash basis and its extension of credits
and collection of account receivables is efficient as compare to Attock Cement. The low ratio of
Attock Cement revealed that the company needed reassessment in its credit policies in order to
ensure the timely collection of imparted credit that is not the earning interest of the firm.
39
Analysis
return of asset ratio of lucky cement is greater than Attock Cement. This gives us an
idea of how efficient the management of Lucky Cement is at using its assets to generate
earnings as compare to Attock Cement.
The assets of Lucky Cement and Attock Cement are comprised of both debt and equity. Both
of these types of financing are used to fund the operations of the company. The
Return of investment figure gives investors an idea of how effectively the company is
converting the money it has to invest into net income. The higher the Return of
investment number, the better, because the company is earning more money on less
investment.
40
Analysis
The Return on Investment ratio for Lucky Cement is much higher than that of the year 2008 than
that of Attock Cement. These ratios show the percentage of return on funds invested in the
business by its owners. In short, this ratio tells the owner whether or not all the effort put into the
business has been worthwhile. This means that more effort was added by the owners of Lucky
Cement as compare to Attock Cement. This is easily revealed from the total net worth.
41
Year 2009
Current Ratio
42
Analysis
By looking at the graphs of both the companies it is evident that the ability of both the companies
to pay its total current liabilities and its short term debt is optimum. The current ratio of Attock
Cement is higher than the Lucky Cement’s current ratio. Although the current assets and current
liabilities of Attock cement are less than that of Lucky cement but it can be judged that compare
to Lucky Cement; Attock Cement have more current assets to pay off in exchange to its
liabilities.
It is necessary for both the companies that the current ratio should remain above one and the
generally acceptable current ratio is above two. This target was achieved by Attock Cement.
Finding current asset ratio is important to analyze financial strength of a company. But in this
case the financial strength of Lucky cement seems to be weak.

than one year.
43
Quick Ratio
Analysis
The Quick Ratio of Attock Cement is higher than Lucky Cement. This is because the Lucky
Cement seems to have held a large amount of inventory as compare to Attock Cement. The
Pakistan cement industry concluded the financial year ended June 30, 2009 with an overall
meager growth of 2% with total sales volume of 30.77 million tons against last year’s sales
volume of 30.286 million tons. The demand in the domestic market witnessed a dismal negative
growth of 14% due to adverse economic, financial as well as law and order situation prevailed in
the country. On the export front, the industry witnessed a hefty growth of 47% with sales volume
of 11.381 million tons against last year’s sales volume of 7.716 million tons per annum. The
shortfall in domestic sales was compensated by exports which ended with a proportion of 37% of
the total sales of the industry. The quick ratio of Lucky Cement is less than one. An acid-test of
1:1 is considered satisfactory unless the majority of your "quick assets" are in accounts
receivable, and the pattern of accounts receivable collection lags behind the schedule for paying
current liabilities.
44
Leverage Ratio
Analysis
From the above graphical comparison it is evident that the leverage ratio of the Lucky Cement is
higher than Attock cement. A high debt/equity ratio means that Lucky Cement has been into
aggressive in financing its growth with debt as compare to Attock Cement. This can result in
volatile earnings as a result of the additional interest expense for Lucky Cement.
Therefore, the creditors must have considered great risk exposure for Lucky Cement as compare
to Attock Cement.
45
Gross Margin Ratio
Analysis
The gross profit margin ratios are representing the proportion of the amount of revenues that
both the companies have retained as gross profit each year. From the above chart it is revealed
that Lucky cement retained a higher gross profit margin as compare to Attock Cement. From
each amount of revenue generated, the companies have used to be put towards paying off selling,
general and administrative expenses, interest expenses and distributions to shareholders.
Although this should also be taken into account that the Net Sales of Attock Cement are way
lower than that of Lucky Cement. This is because the investment done by Attock Cement is
lower than Lucky Cement.
46
Analysis
For the year 2009 the profit margin is of Attock Cement is approximately 17.5%. This means
that for each rupee of sales that Lucky Cement generates it is contributing 0.175 Rupees to
its bottom line (net income).
For the year 2009 the profit margin of Lucky Cement is slightly lower than Attock Cement. That
is, the profit margin is approximately 17.4% this means that for each rupee of sales that Attock
Cement has generated it is contributing 0.074 rupees to its bottom line (net income).
This reveals that both the companies have almost equal pricing strategies. However, Attock
Cement has slightly more healthy pricing strategy as compare to Lucky Cement.
47
Analysis
are adopted by both the companies. The graphs reveal that inventory turnover ratio for the Lucky
Cement was way higher than Attock Cement. But as the entire cement industry is growing
phenomenally. Therefore, Lucky Cement is maintaining a big amount of inventory as compare to
the inventory of the Attock Cement. This also reveals that the inventory of the Attock Cement is
being converted more into receivables or cash. However Lucky cement invested more in the
year 2008 as compare to Attock Cement. Otherwise considering the investments made by Attock
Cement their inventory turnover ratio seems satisfactory.
48
Analysis
The accounts receivable turnover ratio for the Lucky Cement is much higher than the Attock
cement. Accounts receivable Turnover ratio indicates how many times the accounts
company is having difficulties collecting sales made on credit.
The high turnover of Lucky Cement indicates the faster the business is collecting its receivables.
This also reveals that the company has operated more on cash basis and its extension of credits
and collection of account receivables is efficient as compare to Attock Cement. The low ratio of
Attock Cement revealed that the company needed reassessment in its credit policies in order to
ensure the timely collection of imparted credit that is not the earning interest of the firm.
49
Analysis
return of asset ratio of Attock Cement is greater than Lucky Cement. This gives us an
idea of how efficient the management of Attock Cement is at using its assets to generate
earnings as compare to Lucky Cement.
The assets of Attock Cement and Lucky Cement are comprised of both debt and equity. Both
of these types of financing are used to fund the operations of the company. The
Return of investment figure gives investors an idea of how effectively the company is
converting the money it has to invest into net income. The higher the Return of
investment number, the better, because the company is earning more money on less
investment.
50
Analysis
The Return on Investment ratio for Attock Cement is much higher than that of the year 2009 than
that of Lucky Cement. These ratios show the percentage of return on funds invested in the
business by its owners. In short, this ratio tells the owner whether or not all the effort put into the
business has been worthwhile. This means that more effort was added by the owners of Attock
Cement as compare to Lucky Cement. This is easily revealed from the total net worth.
51
Conclusion
Attock Cement Pakistan Limited (ACPL) is a public limited company. It is 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. The Attock Cement project
was conceived and the company was incorporated in 1981. ACPL's cement plant was designed
by Uzinexportimport (UEI) of Romania, all equipments, and ancillaries and steel structures were
supplied by UEI and limestone crusher and packing plant was manufactured by O&K and Havor
and Boecker of Germany. Thus, it is with a sense of pride that Attock Cement claims pioneer
status in bringing the pre-calcinations/pre-heating dry process technology to Pakistan.
Lucky Cement Limited is the largest cement producer in Pakistan. Its shares are traded on
the Karachi Stock Exchange, and are part of the KSE 100 Index. Its symbol in the Karachi Stock
Exchange (KSE) is 'LUCK'. The company's highest share price was PKR 147.00, on 18 April
2008. Lucky Cement Limited was founded in 1996 by Abdul Razzak Tabba. The company
initially started with factories in the Pezu district of the North West Frontier Province (N.W.F.P).
It now, also, owns a factory in Karachi.
Lucky Cement Limited has been sponsored by one of the largest business groups in Pakistan, the
Yunus Brothers Group (YB Group), based in Karachi and has grown remarkably over the last 50
years. The YB Group is engaged in diversified manufacturing activities including textiles,
spinning, weaving, processing, finishing, stitching and power generation. The Group consists of
a number of industrial establishments other than Lucky Cement Limited, including Lucky
Textile Mills, Fazal Textile Mills Limited, Gadoon Textile Mills Limited, Lucky Energy
(Private) Limited, Yunus Textile Mills and Lucky Textile Mills - established in 1983.
Discerning the situation in global market is not difficult, as the global financial crisis has caused
slow down in almost every economy. Pakistan also witnessed political turmoil and increased
inflation. This badly affected many sectors and cement sector is one of them. With increased
taxes and inflation coupled with less demand for the real-estate, this year had to prove difficult
for the cement sector.
The Competition Commission of Pakistan (CCP) also fined the cement companies for
cartelization, which has been challenged in the High Court by certain companies.
Despite all the odds, Attock Cement outperformed the market and there was PKR 1057926
increase in their profits from the year 2008 and 2009. Even Lucky Cement performed well in the
market as the increase in profit was of PKR 1918879 from the year 2008 and 2009. So if we
52
compare the two companies the profit margin of Lucky Cement is way higher than that of Attock
cement.
Sales of both the companies were increased between the year 2008 and 2009. The Net Sales
increment is of Lucky Cement PKR 9372525. Whereas, the Net Sales increment of Attock
Cement is of PKR 3508721.But this is evident that the sales of Lucky Cement was increased
more than Attock Cement.
The increase in profit margin is also fair for both the companies’ the Attock Cement’s Net Profit
rose to PKR1057926 from the year 2008 and the year 2009. Although the Net profit margin of
Lucky cement also raised considerably i.e. PKR 1918879. That is way more than that of Attock
Cement. The difference between the increments of Net Profit is approximately of PKR 860953.
This increment in ACPL profit is one of the highest in the industry preceded only by Lucky
Cement.
Assets of both the companies were increased between the year 2008 and 2009. The Asset
increment is of Lucky Cement is PKR 4153288. Whereas, the Asset increment of Attock Cement
is of PKR 1101854.But this is evident that the assets of Lucky Cement was increased more than
Attock Cement.
Liabilities of both the companies were also increased between the year 2008 and 2009. The
Liability increment is of Lucky Cement is PKR 1411781. Whereas, the Asset increment of
Attock Cement is of PKR 155145.But this is evident that the Liabilies of Lucky Cement was
increased more than Attock Cement.
The shared capital and reserves of Attock Cement is consistent for both the years’ i.e. PKR
1,250,000. Whereas, the shared capital and reserves of Lucky Cement increased between the
years 2008 and 2009 from PKR 18,655,423 to PKR 23,251,972.
This means that the shared capital, reserves and market share of Lucky Cement is more than that
of Attock cement. This means that Lucky Cement is higher industry than Attock Cement.
53
References
1. "Current Ratio Definition". Investor Words. 2010

<http://www.investorwords.com/1258/current_ratio.html>.
2. "Quick Ratio". Investopedia. 2010

<http://www.investopedia.com/terms/q/quickratio.asp>.
3. "Leverage Ratio". Investopedia. 2010

<http://www.investopedia.com/terms/q/leverageratio.asp>.
4. "Gross Profit Margin". Investopedia. 2010

<http://www.investopedia.com/university/ratios/grossprofitmargin.asp>.
5. "Profit Margin". Wikipedia. 2010 <http://en.wikipedia.org/wiki/Profit_margin>.
6. "Inventory Turnover". Wikipedia. 2010

<http://en.wikipedia.org/wiki/Inventory_turnover>.
7. "Receivables Turnover Ratio". Wikipedia. 2010

<http://en.wikipedia.org/wiki/Receivables_turnover_ratio>.
8. "Return on Assets". Investopedia. 2010

<http://www.investopedia.com/terms/r/returnonassets.asp>.
9. "Return on Investment Ratio". Buzzle.com. 2010

<http://www.buzzle.com/articles/return-on-investment-ratio.html>.
10. Annual Financial Report of Lucky Cement.
11. Annual Financial Report of Attock Cement.
54
Appendix
Previous approved report drafts:
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Table of Contents ...................................................................................................... 2

Inventory Turnover Ratio....................................................................................27

Gross Margin Ratio

Net Margin Ratio

Inventory Turnover Ratio

Accounts Receivable Turnover Ratio

Return on Assets Ratio

Return on Investment Ratio

Financial Ratios for the year 2008 and 2009

= Total Current Asset/ Total Current Liabilities

= 8355524 Rs. / 7686897 Rs.

= 7857942 Rs. / 9098678 Rs.

• Paying some debts.

= (Cash + Government Securities + Receivables)/ Total Current Liabilities

= (270011+4331790+3085096) Rs. / 7686897 Rs.

= (1049091+3568834+2024110) Rs. / 9098678 Rs.

= Total Liabilities/ Net Worth

= 15583651 Rs. / 18655423 Rs.

= 15140390 Rs. / 23251972 Rs.

Gross Margin Ratio

= Gross Profit/Net Sales

= 4357173 Rs. / 16957879 Rs.

= 9811266 Rs. / 26330404 Rs.

Net Profit Margin Ratio

= Net Profit/Net Sales

= 2677670 Rs. / 16957879 Rs.

= 4596549 Rs. / 26330404 Rs.

Inventory Turnover Ratio

= Cost of Goods Sold/Average Cost of Inventory

= 12600706 Rs. / 709372 Rs.

= 16519138 Rs. / 1196608 Rs.

Accounts Receivable Turnover Ratio

= 720314 Rs. / 365

= 1267248 Rs. / 365 Rs.

Return on Assets Ratio

= Net Profit/Total Assets

= 2677670 Rs. / 34239074 Rs.

= 4596549 Rs. / 38392362 Rs.

Return on Investment Ratio

= Net Profit/Net Worth

= 2677670 Rs. / 18655423 Rs.

= 4596549 Rs. / 23251972 Rs.

Attock Cement Pakistan Limited

Financial Ratios for the year 2008 and 2009

= Total Current Asset/ Total Current Liabilities

= 1480329 Rs. / 980419 Rs.

= 2762349 Rs. / 1135564 Rs.

= (Cash + Government Securities + Receivables)/ Total Current Liabilities

= (110957+280829+49403) Rs. / 980419 Rs.

= (871826+634197+26988) Rs. / 1135564 Rs.

= Total Liabilities/ Net Worth

= 2339368 Rs. / 3531579 Rs.

= 2194934 Rs. / 4777867 Rs.

Gross Margin Ratio

= Gross Profit/Net Sales

= 1114203 Rs. / 5001350 Rs.

= 2708972 Rs. / 8510071 Rs.

Net Profit Margin Ratio

= Net Profit/Net Sales

= 435025 Rs. / 5001350 Rs.