Financial managment project on financial ratio analysis on engro corp ltd

FINANCIAL ANALYSIS ON ENGRO CORP. LTD.

I n s t i t u t e o f B u s i n e s s A d m i n i s t r a t i o n ( I B A ) P a g e 1 | 42

Financial Management Project on Financial Analysis on

ENGRO CORP LTD.

1. Acknowledgment

With the special blessing of Allah Almighty This project consumed huge amount of work,

research and dedication. Still, implementation would not have been possible if we did not have a

support of many individuals and organizations. Therefore we would like to extend our sincere

gratitude to all of them.

First of all we are thankful to Engro Corporation for their financial and logistical support and for

providing necessary guidance.

Nevertheless, we express our gratitude toward our honorable instructor of Financial

Management, Mrs. Labiba Sheikh.

We would like to express our sincere thanks towards Students of Institute of Business

Administration (IBA)

BBA (Afternoon)

2013-2017

HAFIZ DABEER 005

HAFIZ ZUBAIR 054

HASSAN HABIB 015

ALI HAMZA 012

MUHAMMAD USMAN 032

BILAWAL PUNNEL 056 (Afternoon 2011-2015)



Table of Contents 1. Acknowledgment ...................................................................................................................................................... 1

2. Engro Pakistan Ltd ................................................................................................................................................... 5

2.1. An Overview ................................................................................................................................................... 5

2.2. Mission ........................................................................................................................................................... 6

2.3. Vision .............................................................................................................................................................. 6

3. Our Businesses ......................................................................................................................................................... 6

3.1. Engro Chemical Pakistan Limited................................................................................................................... 6

3.2. Engro Vopak Terminal Limited ...................................................................................................................... 6

3.3. Engro Polymer and Chemicals Ltd ................................................................................................................. 6

3.4. Engro Foods Limited (EFL) ............................................................................................................................ 7

3.5. Engro Energy Limited (ECL) .......................................................................................................................... 7

3.6. Engro Eximp (Pvt.) Limited ............................................................................................................................ 7

4. Products & Services .................................................................................................................................................. 7

4.1. Fertilizers by Engro Chemical Pakistan Limited ............................................................................................. 7

4.1.1. Nitrogenous Fertilizers .............................................................................................................................. 7

4.1.2. Phosphatic Fertilizers ................................................................................................................................. 7

4.1.3. Blended Fertilizers ..................................................................................................................................... 8

4.1.4. Micro Nutrients .......................................................................................................................................... 8

5. Quality ...................................................................................................................................................................... 8

5.1. Packing & Loading: ........................................................................................................................................ 8

6. Core Values .............................................................................................................................................................. 8

7. Financial Analysis .................................................................................................................................................. 10

7.1. Types of Financial Analysis .......................................................................................................................... 10

8. Ratio Analysis (Engro Chemical Pakistan Ltd.) ..................................................................................................... 10

8.1. Advantages: .................................................................................................................................................. 10

8.2. Types of Ratios Analysis .............................................................................................................................. 10

8.3. Liquidity Ratios: ........................................................................................................................................... 11

8.3.1. Current Ratio: .......................................................................................................................................... 11



8.3.2. Acid Test (Quick) Ratio:.......................................................................................................................... 11

8.4. Leverage / Debt ratios: .................................................................................................................................. 12

8.4.1. Degree of indebtedness ............................................................................................................................ 12

8.4.2. Debt servicing ability ............................................................................................................................... 12

8.5. Activity Ratios .............................................................................................................................................. 13

8.5.1. Inventory Turnover Ratio: ....................................................................................................................... 13

8.5.2. Total Asset Turnover: .............................................................................................................................. 14

8.5.3. Payable Turnover Ratio: .......................................................................................................................... 14

8.5.4. Receivables Turnover Ratio:.................................................................................................................... 15

8.6. Profitability Ratios: ....................................................................................................................................... 16

8.6.1. Gross Profit Margin: ................................................................................................................................ 16

8.6.2. Operating Profit Margin: ......................................................................................................................... 16

8.6.3. Net Profit Margin:.................................................................................................................................... 17

8.6.4. Return on Asset: ...................................................................................................................................... 17

8.6.5. Return on Equity: ..................................................................................................................................... 18

8.6.6. Earnings per Share: .................................................................................................................................. 18

9. Common size & Trend Analysis of Financial Statements of Engro Pakistan Ltd. .................................................. 20

10. Financial Statements .......................................................................................................................................... 23

11. Fauji Fertilizer Company ................................................................................................................................... 27

11.1. An Overview ................................................................................................................................................. 27

11.2. Mission ......................................................................................................................................................... 27

11.3. Vision ............................................................................................................................................................ 27

12. Ratio Analysis Fauji Fertilizer Company Ltd. ................................................................................................... 27

12.1. Liquidity Ratios: ........................................................................................................................................... 27

12.1.1. Current Ratio: ........................................................................................................................................ 27

12.1.2. Acid Test (Quick) Ratio: ........................................................................................................................ 28

12.2. Leverage / Debt ratios: .................................................................................................................................. 28

12.2.1. Degree of indebtedness .......................................................................................................................... 28

12.2.2. Debt servicing ability ............................................................................................................................. 29

12.3. Activity Ratios: ............................................................................................................................................. 29



12.3.1. Inventory Turnover Ratio: ..................................................................................................................... 29

12.3.2. Receivables Turnover Ratio: .................................................................................................................. 30

12.3.3. Payable Turnover Ratio: ........................................................................................................................ 31

12.3.4. Total Asset Turnover: ............................................................................................................................ 31

12.4. Profitability Ratios: ....................................................................................................................................... 32

12.4.1. Gross Profit Margin: .............................................................................................................................. 32

12.4.2. Operating Profit Margin: ........................................................................................................................ 32

12.4.3. Net Profit Margin: .................................................................................................................................. 32

12.4.4. Return on Asset: ..................................................................................................................................... 33

12.4.5. Return on Equity: ................................................................................................................................... 33

12.4.6. Earnings per share: ................................................................................................................................. 33

13. Financial Statements with Common size & Trend Analysis of Fauji Fertilizers Ltd. ........................................ 35

14. INDUSTRY ANALYSIS................................................................................................................................... 41

15. References ......................................................................................................................................................... 42



THE ORGANIZATION CONCERNED

2. Engro Pakistan Ltd

Engro Corporation continued to exhibit a strong underlying performance, despite major challenges faced due to sharp commodity

price declines and Rupee appreciation. The company registered record revenue of PKR 175,958 million vs. PKR 155,360 million in 2013, on a

consolidated basis, achieving a 13% YoY top line growth. The consolidated profit-after-tax (attributable to owners) was PKR 7,007 million as

opposed to PKR 7,818 million during 2013. Profitability was led by Engro Fertilizers, which benefited from improved capacity utilization with

both plants operating throughout the year. Engro Eximp achieved healthy trading margins in DAP fertilizer, despite the volatility in the

international commodity price, due to correctly timing the purchases when international market prices were low. Engro Foods during the year

continued to build on its growth story by achieving highest ever UHT market share. Engro Powered and Engro Vopak continued to perform in

line with expectation, given their stable business models. The overall profitability, however, was negatively impacted by losses in rice business

owing to lower international prices, coupled with an unprecedented Rupee appreciation earlier in 2014.

Our petrochemicals business, in line with the bearish global commodity prices, also suffered losses due to declining Ethylene-PVC

price delta and was further adversely affected by the imposition of 5% regulatory duty on its imports of Ethylene and EDC, after mid-year, which

increased its raw materials costs.

Engro Corporation’s newest venture – the fast-track LNG terminal made tremendous progress against a very tight deadline and is on

schedule to achieve commissioning by the due date of March 31, 2015. During the year, Engro also successfully commissioned its Nigerian

venture, a 72MW captive power plant thereby laying the foundations for its international aspirations in the power sector.

Engro Corporation has again out-performed the KSE Index by posting an annual adjusted return of 46% as compared to the KSE

index return of 27%. During the year, IFC has fully exercised its option and accordingly 12.5 million shares were issued to IFC.

The PVC market remained well supplied throughout the year with China leading the world in terms of capacity growth.

2014 Consolidated Revenue (Rs. in million) 175,958

2014 Consolidated Profit after Tax* (Rs. in million) 7,007

*attributable to the owners of the holding company business overview

Engro Corporation continued to exhibit a strong underlying performance, despite major challenges faced due to sharp commodity

price declines and Rupee appreciation.

Engro Chemical Pakistan Limited is a fertilizer company which is of their concern that has been introduced right below. They are

going to make a full-fledge financial analysis of this fertilizer company in order to check its financial situation in the market. The analysis of each

and every major ratio has been involved in this financial analysis. Then furthermore the interpretation of each and every ratio has been given to

elaborate it.

2.1. An Overview

Search for oil by Pak Stanvac, an Esso/Mobil joint venture in 1957, led to the discovery Of Mari gas field situated near Daharki -- a

small town in upper Sindh province. Esso was the first to study this development in detail and propose the establishment of a urea plant in that

area.

The proposal was approved by the government in 1964, which led to a fertilizer plant agreement signed in December that year.

Subsequently in 1965, the Esso Pakistan Fertilizer Company Limited was incorporated, with 75% of the shares owned by Esso and 25% by the

general public. The construction of a urea plant commenced at Daharki the following year with the annual capacity of 173,000 tons and

production commenced in 1968. At US $ 43 million, it was the single largest foreign investment by an MNC in the country.

A full-fledged marketing organization was established which undertook agronomic programs to educate the farmers of Pakistan. As

the nation’s first fertilizer brand, Engro (then Esso) helped modernize traditional farming practices to boost farm yields, directly impacting the

quality of life not only for farmers and their families, but for the community at large. As a result of these efforts, consumption of fertilizers

increased in Pakistan, paving the way for the Company’s branded urea called "Engro", an acronym for "Energy for Growth".



As part of an international name change program, Esso became Exxon in 1978 and the company was renamed Exxon Chemical

Pakistan Limited. The company continued to prosper as it relentlessly pursued productivity gains and strived to attain professional excellence.

In 1991, Exxon decided to divest its fertilizer business on a global basis. The employees of Exxon Chemical Pakistan Limited, in partnership with

leading international and local financial institutions bought out Exxon’s 75 percent equity. This was at the time and perhaps still is the most

successful employee buy-out in the corporate history of Pakistan. Renamed as Engro Chemical Pakistan Limited, the Company has gone from

strength to strength, reflected in its consistent financial performance, growth of the core fertilizer business and diversification into other fields.

Investment in people, process solutions and resource conservation initiatives has reduced energy use per ton of urea by a third, whilst

increasing urea production nearly six-fold since 1968. Not only does this save money, it stretches non-renewable energy sources and mitigates the

impact of waste. Along the way, a major milestone in plant capacity upgrade coincided with the employee led buy-out; innovatively optimizing

our resources, Engro re-located fertilizer manufacturing plants from the UK and US to its Daharki plant site – an international first. Our

pioneering spirit continues in our social investments, exemplified by the only snake-bite treatment facility in the Ghotki region and the first

telemedicine intervention in the country.

2.2. Mission

“Engro Foundation is committed to make a positive impact in the lives of those living in communities around its supply chain through

the provision of improved basic services (health, infrastructure, water and sanitation); education and skill development; environment and

livelihood training. In addition, it works with partner organizations to provide financial and technical support in response to natural calamities.”

2.3. Vision

"To be the premier Pakistani enterprise with a global reach, passionately pursuing value creation for all stakeholders."

3. Our Businesses

The years since Exxon became Engro have been both exciting and rewarding for the Organization and its people. Challenges have

been overcome, goals achieved and new goals set. Engro today stands recognized as a successful business operation and a role model for doing

business in Pakistan.

3.1. Engro Chemical Pakistan Limited

The Company’s current manufacturing base includes urea name plate capacity of 975,000 tons per annum and blended fertilizer

(NPK) capacity of 160,000 tons per year. A premier brand and nationwide presence ensure sellout production. Additionally, the company imports

and sells phosphatic fertilizers for balanced fertility and improved farm yields. Engro’s share of Pakistan’s phosphates market mirrors or exceeds

its urea market share.

Expansion plans include a new urea plant of 1.3 million tons annual capacity, also at Daharki. The US$ 1 billion project is well

underway and on track for commercial production in mid-2010. This addition will increase Engro’s urea market share to 35% from 19% at

present.

3.2. Engro Vopak Terminal Limited

50:50 Joint Ventures with Royal Vopak - a Netherlands based global leader in terminal operations. EVTL operates a bulk liquid

chemical terminal at Port Qasim, Karachi. It has an impeccable safety record of handling a range of chemicals and LPG for over 10 years.

EVTL is building Pakistan’s first cryogenic Ethylene storage facility and expects to be ready by early 2009. Given its experience with

gasses, cryogenics, a brown field location and international operating standards, EVTL is well-positioned to build a LNG terminal, being pursued

by the Government of Pakistan.

3.3. Engro Polymer and Chemicals Ltd

EPCL is undergoing expansion involving PVC production increase of 50,000 tones (current capacity: 100,000 tons p.a. and back

integration through setting up of an EDC/VCM plant and a Chlor alkali plant. These initiatives are expected to conclude in phases by first half of

2009. At Port Qasim, this 56% Engro owned Company is involved in manufacturing, marketing and selling Polyvinyl Chloride (PVC).



3.4. Engro Foods Limited (EFL)

Engro Foods, a wholly owned subsidiary had its first full year of operations in 2014. The Company continued expanding with

additions to brand portfolio, milk production and distribution capacities.

The portfolio now includes four impressive brands; Olper's milk, Olper’s cream, Olwell andTarang. Olper’s market share peaked

at 17% during 2014. EFL operates two dairy processing factories located in Sukkur, and Sahiwal. The company’s milk collection network now

boasts over 700 village milk collectors and 400 milk collection centers. Covering 2400 villages across Pakistan, the activities of the Company

touch the lives of almost 51,000 farmers.

An exciting new venture is the diversification of dairy portfolio into ice cream. Work has commenced full throttle for detailed engineering and

market study with a view to launch of first ice cream in 2009. Also on EFL slate is the establishment of a dairy farm with milking expected to

start in second quarter 2009.

3.5. Engro Energy Limited (ECL)

This wholly owned subsidiary is setting up an Independent Power Plant near Qadirpur in Sindh; Targeting 2009 for commercial

operations, the power project will have a net output of 217 MW. The plant will utilize low heating value permeate gas from Qadirpur gas field

which is currently being flared.

3.6. Engro Eximp (Pvt.) Limited

Engro Eximp (Pvt.) Limited is a wholly owned subsidiary in the trading business of fertilizer imports.

Spectrum of our products & services products & services

4. Products & Services

Our wide spectrum of products and services clearly shows the diversity in our Businesses, each one designed to make life better for

our customers

4.1. Fertilizers by Engro Chemical Pakistan Limited

Duct line that focuses on balanced crop nutrition and higher yield for the farm

4.1.1. Nitrogenous Fertilizers

ENGRO UREA is a trusted high grade fertilizer containing 46% Nitrogen (N), with moderate hydroscopicity. It has a pH value of 6.8

(organic molecule) and is suitable for all crops on all soils. Engro Urea is an excellent source of Nitrogen for the vast majority of cultivated soils

of Pakistan.

4.1.2. Phosphatic Fertilizers

1. Engro DAP: contains 46% P2O5 and 18% N. More than 90% of Phosphate (P) is water soluble. It has a pH value of 7.33 and is a

good source of P fertilizer for all crops. It is an equally good source on problem soils (saline sodic) with coarse texture. On an overall

basis it suits to about 90% soils of the country.

2. Engro Zorawar: is one of the highest grade phosphatic fertilizers. It is acidic in reaction (pH >= 3.5) and contains 52% P2O5 of

which more than 90% is water soluble, while the rest is citrate soluble. In addition to P, it contains 12% N, 2% Sulphur and 1%

calcium. It is a beneficial fertilizer for all crops on all soils of Pakistan and produces excellent results on alkaline soils, due to its acidic

the acidic pH of Engro Zorawar also tends to slow down the rapid conversion of soluble P to water insoluble compounds, keeping it

plant available for a longer period of time.

3. Engro Phosphate: is brown colored mono ammonium phosphate with 11% nitrogen and 52% phosphorus. It is being marketed as

relatively cheaper alternate of DAP.



4.1.3. Blended Fertilizers

1. Engro Zarkhez: is homogenously granulated fertilizer which maximizes crop yield by providing balanced nutrition for a wide variety

of crops through the uniform availability of Nitrogen, Phosphorous and Potassium. Engro Zarkhez grades are specially produced to

suit the requirements of individual crops and soils, and provide convenience to the farmer through ready availability of precise

quantities of primary nutrients. Engro Zarkhez fertilizers have low moisture content, high crush strength; 2mm-4mm granule size and

free flowing nature - attributes which ensure excellent handling and application characteristics.

2. Engro NP: it provides 22% nitrogen, and 20% phosphorus. ECPL entered into NP business in 2012 to cater the need of its customers

for this established category. Primary focus area for ENP marketing is South Zone (Sindh).

4.1.4. Micro Nutrients

1. Zingro: Zinc Sulphate, a highly effective and potent fertilizer which primarily targets Zinc deficiency in crops like Rice, Potato,

Maize, Sugar cane, Wheat, Cotton, vegetables and fruits. Zingro increases crop yield and enhances crop appearance.

2. PVC Resin a synthetic resin composed of repeating units of vinyl chloride. It is very versatile and is used in a wide variety of

products. Foods by Engro Foods Limited

3. Olper’s: Standardized at 3.5% fat, Olper’s is a premium, UHT all-purpose milk.

4. Olwell HCLF: (High Calcium, Low Fat) Olwell is a premium quality milk for the health conscience.

5. Olper’s Cream: UHT Cream standardized at 40% fat

6. Tarang: Liquid tea whitener

State of the art dairy processing plant

5. Quality

Improvisation through Six Sigma: the legend leads again

Employee development is one of the pivotal areas for Organizational development. To Organizational competence levels, new training

programs encompassing Performance Management, Leadership, and Competency Development are introduced.

Engro is among the first Pakistani companies implementing six sigma across all areas and utilizing it as a management system to

execute its strategic objectives. Among the focus areas, employee development is the most critical and six sigma is leveraged to help bring out the

best in our people. Employees will drive improvements in other areas; speed, innovation, perfection and in becoming world class professionals.

Six Sigma’s robust problem solving methodology and statistical toolkit allows the company to benchmark processes against global

standards in a language that is comparable across any industry or function. It helps ensure that Engro sustains its promise of delivering high

quality products and services to its customers – on time, every time.

5.1. Packing & Loading:

The finished product is packed with the utmost care by trained personnel, and loaded directly in to containers for export purposes. All

packing and loading is done under strict supervision, while maintaining maximum quality and safety standards. To facilitate their customers, they

provide yarn packed in 100Lbs and 50Lbs sea-worthy export cartons. They also have facility to provide customers with polythene film shrink

wrapped Pallet packing to specially accommodate customers in Europe/USA and help them reduce the labor handling costs...

Values that we live by

6. Core Values

Our employees' performance can only flourish in a sound work environment. That is why ENGRO is committed to supporting its

leadership culture through systems and policies that foster open communication, maintain employee and partner privacy, and assure



Employee health and safety.

1. SAFETY, HEALTH & ENVIRONMENT

We will manage and utilize resources and operations in such a way that the safety and health of our people, our neighbors. Our

customers and our visitors are ensured. We believe our safety, health and environmental responsibilities extend beyond protection and

enhancement of our own facilities, and we are concerned about the distribution, use and after use disposal of our products.

2. ETHICS AND INTEGRITY

We do care how results are achieved and will demonstrate honest and ethical behavior in all our activities. Choosing the course of

highest integrity is our intent and we will establish and maintain the highest professional and personal standards. A well-founded reputation for

scrupulous dealing is itself a priceless asset.

3. LEADERSHIP

We have leaders of high integrity. Energy and enthusiasm that have the necessary managerial, professional and people skills to inspire

a group or an organization to set high goals and achieve them willingly. We believe that leadership skills need to be strengthened at all levels

within our organization and that managerial and professional competence is a necessary foundation.

4. QUALITY &CONTINUOUS IMPROVEMENT

We believe that quality and a relentless commitment to continuous improvement are essential to our ongoing success. To this end, we

define quality as understanding the customer's expectations, agreeing on performance and value, and providing products and services that meet

expectations 100 percent of the time. Our motto is, "Quality in all we do."

5. ENTHUSIASTIC PURSUIT OF PROFIT

Successfully discharging our responsibilities to our shareholders to enhance the long-term profitability and growth of our company

provides the best basis for our career security and meaningful personal growth. We can best accomplish this by consistently meeting the

expectations of our customers and providing them with value.

6. EXTERNAL & COMMUNITY INVOLVEMENT

We believe that society must have industrial organizations that it can trust. Trust and Confidence are earned by our performance, by

open and direct communication, and by active involvement in the communities in which we live and conduct our business."

7. CANDID & OPEN COMMUNICATIONS

We value communications that are courteous, candid and open and that enable each of us to do our jobs more effectively by providing

information that contributes to the quality of our judgment and decision making. Effective communication should also provide the means for

gaining understanding of the company's overall objectives and plans and of the thinking behind them.

8. ENJOYMENT & FUN

We believe that excitement, satisfaction and recognition are essential elements of a healthy, creative and high-performing work

environment. Having fun in our work should be a normal experience for everyone.

9. INNOVATION

Success requires us to continually strive to produce break through ideas that result in improved solutions and services to customers.

We encourage challenges to the status quo and seek organizational environments in which ideas are generated, nurtured and developed.

10. INDIVIDUAL GROWTH & DEVELOPMENT

We strongly believe in the dignity and value of people. We must consistently treat each other with respect and strive to create an

organizational environment in which individuals are encouraged and empowered to contribute, grow and develop themselves and help to develop

each other.

11. TEAMWORK & PARTNERSHIP

We believe that high-performing teams containing appropriate diversity can achieve what individuals alone cannot. Consciously using

the diversity of style. Approach and skills afforded by teams is strength we must continue building into our organization.

12. DIVERSITY & INTERNATIONAL FOCUS



We value differences in gender, race, nationality, culture, personality and style because diverse solutions, approaches and structures

are more likely to meet the needs of customers and achieve our business goals.

Corporate Responsibility Report

Our employees bring expertise and dedication to the workplace

13. Our People

More than 700 employees bring expertise and dedication to the workplace. We value each employee, value their input and views.

Continuously striving to become employer of choice, we provide a workplace where people fecal confident, valued and inspired.

7. Financial Analysis

The process of evaluating businesses, projects, budgets and other finance-related entities to determine their suitability for investment.

Typically, financial analysis is used to analyze whether an entity is stable, solvent, liquid, or profitable enough to be invested in. When looking at

a specific company, the financial analyst will often focus on the income statement, balance sheet, and cash flow statement. In addition, one key

area of financial analysis involves extrapolating the company's past performance into an estimate of the company's future performance.

7.1. Types of Financial Analysis

Here, we shall discuss three types of financial analysis, namely:

i. Common Size Analysis

ii. Trend Analysis

iii. Ratio Analysis

8. Ratio Analysis (Engro Chemical Pakistan Ltd.)

Ratios simply mean a number expressed in terms of another. A ratio is a statistical yardstick by mean of which relationship between

two or various figures can be compared or measured. Thus Ratio Analysis shows the relationship between accounting data. Ratio can be found

out by dividing on number by another number. Ratio analysis is an important and age old technique of financial analysis. Following are some of

the advantages of ratio analysis.

8.1. Advantages:

· It simplifies the comprehension of financial statements.

· Ratios tell the whole story of changes in the financial condition of the business.

· It provides data for inter-company comparison. Makes inter-company comparison possible

· Ratio analysis also makes possible comparison of the performance of different divisions of the company. The ratios are helpful in

deciding about their efficiency or otherwise in the past and likely performance in the future.

· Ratios highlight the factors associated with successful and unsuccessful company. They also reveal strong companies and weak

company’s, over-valued under-valued companies.

· It helps in planning and forecasting. Ratios can assist management, in its function of forecasting, planning, co-ordination, control and

communications.

· It helps in investment decisions in the case of investors and lending decisions in the case of investors and lending decisions in the

case of bankers’ etc.

8.2. Types of Ratios Analysis

Let us now have a detailed analysis of all the following four ratios for Engro chemicals Pakistan Ltd:

1. Liquidity Ratios

2. Leverage Ratios

3. Activity Ratios

4. Profitability Ratios



8.3. Liquidity Ratios:

8.3.1. Current Ratio:

Current Ratio is equal to current assets divided by current liabilities

Current Ratio = Current Assets

Current Liabilities

2011 – 2012:

Current Ratio =

𝟓𝟐,𝟔𝟏𝟒,𝟔𝟒𝟏

𝟔𝟕,𝟎𝟔𝟑,𝟎𝟗𝟒

Current Ratio = 0.785

2012 - 2013:

Current Ratio = 𝟔𝟖,𝟔𝟓𝟖,𝟐𝟒𝟏

𝟔𝟒,𝟏𝟎𝟗,𝟗𝟔𝟑


2013 - 2014:

Current Ratio =

𝟕𝟔,𝟐𝟗𝟎,𝟒𝟔𝟕

𝟖𝟔,𝟖𝟕𝟓,𝟏𝟖𝟎


Comparison over the years / Interpretation:

Current ratio is a general and quick measured of liquidity of company. It represents the margin of safety or cushion available to the

auditor. It is the index of the company’s financial stability. It is also an index of the financial solvency and index of strength of working capital.

The current ratio of the company is increasing over the years right from 2011-14 constantly, that is, it was 0.78 in 2011-12 and it is

0.878 in 2013-14.

8.3.2. Acid Test (Quick) Ratio:

Acid Test (Quick) ratio is equal to Current assets fewer inventories divided by current liabilities. It gives more liquid amount of assets

to cover your liabilities.

Quick Ratio = 𝐂𝐮𝐫𝐫𝐞𝐧𝐭 𝐚𝐬𝐬𝐞𝐭𝐬 – 𝐈𝐧𝐯𝐞𝐧𝐭𝐨𝐫𝐢𝐞𝐬

𝐂𝐮𝐫𝐫𝐞𝐧𝐭 𝐥𝐢𝐚𝐛𝐢𝐥𝐢𝐭𝐢𝐞𝐬

2011 – 2012:

Quick Ratio =

𝟓𝟐,𝟔𝟏𝟒,𝟔𝟒𝟏−𝟏𝟔,𝟓𝟗𝟏,𝟒𝟕𝟓

𝟔𝟕,𝟎𝟔𝟑,𝟎𝟗𝟒

Quick Ratio = 0.537

2012 - 2013:

Quick Ratio = 𝟔𝟖,𝟔𝟓𝟖,𝟐𝟒𝟏−𝟐𝟎,𝟔𝟗𝟗,𝟕𝟕𝟏

𝟔𝟒,𝟏𝟎𝟗,𝟗𝟔𝟑

Quick Ratio = 0.748

2013 - 2014:

Quick Ratio =

𝟕𝟔,𝟐𝟗𝟎,𝟒𝟔𝟕−𝟏𝟏,𝟓𝟔𝟕,𝟏𝟕𝟒

𝟖𝟔,𝟖𝟕𝟓,𝟏𝟖𝟎

Quick Ratio = 0.745


The quick test ratio is a very useful measuring of the liquidity position of the company. It means that company’s ability to pay its

short-term obligations or current liabilities immediately and is a more rigorous test of liquidity than the current ratio.

The quick ratio of the company as is shown by the above calculations is not consistent, and decreasing with large percentage that is,

the company is getting lesser and lesser liquid current assets to cover its current liabilities.



8.4. Leverage / Debt ratios:

8.4.1. Degree of indebtedness

8.4.1.1. Debt Ratio:

Debt ratio is equal to total liabilities divided by total assets.

Debt Ratio = 𝐓𝐨𝐭𝐚𝐥 𝐋𝐢𝐚𝐛𝐢𝐥𝐢𝐭𝐢𝐞𝐬

𝐓𝐨𝐭𝐚𝐥 𝐀𝐬𝐬𝐞𝐭𝐬

2011 – 2012:

Debt Ratio = 146,339,416

189,586,702

Debt Ratio = 77.19%

2012 - 2013:

Debt Ratio = 150,565,242

205,927,306

Debt Ratio = 73.12%

2013 - 2014:

Debt Ratio = 149,062,100

217,086,612

Debt Ratio = 68.66%


It can be defined as how much sufficient our assets are in retrieving the total debts. The debt ratio of the company has been decreasing

quite intensively almost over the last three years as shown clearly by the above calculations.

8.4.1.2. Debt Equity Ratio:

Debt equity ratio is equal to long term debts divided by stockholder’s equity.

Debt Equity ratio = 𝐋𝐨𝐧𝐠 𝐓𝐞𝐫𝐦 𝐃𝐞𝐛𝐭𝐬

𝐒𝐭𝐨𝐜𝐤𝐡𝐨𝐥𝐝𝐞𝐫’𝐬 𝐞𝐪𝐮𝐢𝐭𝐲

2011 – 2012:

Debt equity ratio = 79,276,322

43,274,286

Debt equity ratio = 183.31%

2012 - 2013:


56,203,150


2013 - 2014:


68,024,512



This ratio indicates the proprietor’s claims of owners and outsiders against the company’s assets. The purpose is to get an idea of the

cushion available to outsiders and the liquidity of the company. The interpretation of the ratio depends upon the financial and business policy of

the company.

The debt ratio of the company has decreased gradually over the years right from 2011-14 which is actually a positive sign for the

company.

Debt Equity ratio increment is a negative point to management that the more of their business is financed by debts this will increase

their financial charges or interest expense and company’s liquidity and hence decreasing the company’s profit. The lower the ratio the higher the

company’s financing that is provided by the shareholders and larger the creditors cushion (margin of protection) in the extent of shrinkage of

assets values or outright loss.

8.4.2. Debt servicing ability



8.4.2.1. Times Interest Earned (Coverage Ratio):

It briefs that how many times the company has earned the interest. Or how many times the company has user it's earnings before

interest and taxes to cover the interest expense.

Times Interest Earned = 𝐄𝐚𝐫𝐧𝐢𝐧𝐠 𝐛𝐞𝐟𝐨𝐫𝐞 𝐈𝐧𝐭𝐞𝐫𝐞𝐬𝐭 𝐚𝐧𝐝 𝐓𝐚𝐱𝐞𝐬

𝐈𝐧𝐭𝐞𝐫𝐞𝐬𝐭 𝐄𝐱𝐩𝐞𝐧𝐬𝐞

2011 – 2012:

Interest Coverage Ratio = 0.00 times

2012 - 2013:


2013 - 2014:



The interest coverage ratio is a very important from the lender point of view. It indicates the number of times interest is covered by the

profit available to pay interest charges. It is an index of the financial strength of the enterprise. A high ratio assures the lender a regular and

periodic interest income. But weakness of the ratio may create some problems for the company’s financial manager in raising funds from the

debts sources.

The no. of times the company earns interest has fluctuated dramatically, that is, it was 0.00 in 2012, 0.00 in 2013 and 0.00 in 2014 due

to no interest expense.

8.5. Activity Ratios

8.5.1. Inventory Turnover Ratio:

Inventory Turnover Ratio is equal to Cost of Goods Sold divided by Average Inventory.

Inventory Turnover ratio = 𝐂𝐨𝐬𝐭 𝐨𝐟 𝐆𝐨𝐨𝐝𝐬 𝐒𝐨𝐥𝐝

𝐀𝐯𝐠.𝐈𝐧𝐯𝐞𝐧𝐭𝐨𝐫𝐲

2011-2012:

Inventory Turnover Ratio = 96,631,324

16,591,475

Inventory Turnover Ratio = 5.82 times

2012–2013:


20,699,771


2013-2014:


11,567,174



Inventory turnover ratio measures the velocity of conversion of stock into sales. In other words how rapidly inventory is turning into

receivables through sales.

In 2013 it was 12.08 times and in 2014 it was 5.54 times. In 2013 the ratio was low because of over investment in inventories. In year

2014 it is better that is 12.08 times in the year, which is quite good because of good management.

8.5.1.1. Inventory Holding Period in days:

Inventory holding period in days is equal to number of days in a year divided by inventory turnover ratio.

Inventory Holding Period in Days =

𝐍𝐨.𝐨𝐟 𝐝𝐚𝐲𝐬 𝐢𝐧 𝐚 𝐲𝐞𝐚𝐫

𝐈𝐧𝐯𝐞𝐧𝐭𝐨𝐫𝐲 𝐓𝐮𝐫𝐧𝐨𝐯𝐞𝐫 𝐫𝐚𝐭𝐢𝐨

2011–2012:

Inventory turnover in days = 365

5.82



Inventory turnover in days = 36 days

2012-2013:


5.54


2013-2014:


12.08





In 2013 it was 38 days times and in 2014 it was 36 days. In year 2013 it was quite good and in 2014 it is better that is 36 days in a year

to move inventory through sales, which is quite good because of good management and polices.

8.5.2. Total Asset Turnover:

Total asset turnover ratio measures that how much sales are generated through the total assets of the organization.

Total Asset Turnover Ratio =

𝐒𝐚𝐥𝐞𝐬

𝐓𝐨𝐭𝐚𝐥 𝐚𝐬𝐬𝐞𝐭𝐬

2011 – 2012:

Total asset turnover ratio= 125,151,272

16,591,475

Total asset turnover ratio = 0.660 times

2012 - 2013:

Total asset turnover ratio = 155,359,928

20,699,771


2013 - 2014:

Total asset turnover ratio = 175,958,342

11,567,174



It shows that company must manage its total assets efficiently and should generate maximum sales through their proper utilization. As

the ratio, increases there are more revenue generated per rupee of total investment in asset. The company ability to produce a large volume of

sales on a small total asset based is an important part of the company’s overall performance in terms of profits. In 2014, 2013. The ratio was

0.811, 0.754 times respectively. In 2014, the ratio indicates that it is producing RS 0.81 sales per

Rupees of investment in total assets. So as time is going by this ratio is increasing which means company performance is up to mark in

terms of profits.

8.5.3. Payable Turnover Ratio:

Payable Turnover Ratio =

𝐂𝐨𝐬𝐭 𝐨𝐟 𝐆𝐨𝐨𝐝𝐬 𝐒𝐨𝐥𝐝

𝐀𝐯𝐠.𝐏𝐚𝐲𝐚𝐛𝐥𝐞

2011 – 2012:

Payable Turnover Ratio = 1.67 times

2012 - 2013:




2013 - 2014:



Payable turnover ratio measures the average length of time it takes a company to collect credit sales in percentage terms. So

Receivables is better in 2013 is 1.77 times as compare to 2014, which is 1.98 times

8.5.3.1. Average Collection Period in days:

Payable Collection Period in days = 𝐍𝐨 𝐨𝐟 𝐝𝐚𝐲𝐬 𝐢𝐧 𝐚 𝐲𝐞𝐚𝐫

𝐑𝐞𝐜𝐞𝐢𝐯𝐚𝐛𝐥𝐞𝐬 𝐭𝐮𝐫𝐧𝐨𝐯𝐞𝐫 𝐫𝐚𝐭𝐢𝐨

2011 – 2012:

Payable turnover ratio in days = 365

1.67

Payable turnover ratio in days = 218.56 days

2012 - 2013:

Average Payment Period = 365

1.77

Average Payment Period = 206.22 days

2013 - 2014:


1.98



Average collection period shows the average length of time it takes a company to collect credit sales in days. From above analysis it is

clear that average collection period was 206 days in2013. But it was best in 2012 which is 2018 days. So these ratios show that company is doing

well in this particular case.

8.5.4. Receivables Turnover Ratio:

Receivables turnover ratio is equal to net credit sales divided by average receivables.

Receivables Turnover Ratio =

𝐍𝐞𝐭 𝐜𝐫𝐞𝐝𝐢𝐭 𝐒𝐚𝐥𝐞𝐬

𝐀𝐯𝐠.𝐑𝐞𝐜𝐞𝐢𝐯𝐚𝐛𝐥𝐞𝐬

2011 – 2012:

Receivables Turnover Ratio = 22.8 times

2012 - 2013:


2013 - 2014:



Receivables turnover ratio measures the average length of time it takes a company to collect credit sales in percentage terms. So

Receivables turnover ratio is becoming worse as it was 30.2 in 2013 as compare to 2014 which is 22.8 times. So the company is not performing

well and showing not good management.


Average collection period in days is equal to days in year divided by Receivables turnover ratio.

Average Collection Period in days =𝐍𝐨 𝐨𝐟 𝐝𝐚𝐲𝐬 𝐢𝐧 𝐚 𝐲𝐞𝐚𝐫


2011 – 2012:

Receivables turnover ratio in days = 365

22.8

Receivables turnover ratio in days = 16 days

2012 - 2013:



Receivables turnover ratio = 365

30.2

Receivables turnover ratio = 12 days

2013 - 2014:

Receivables turnover ratio = 365

34.3

Receivables turnover ratio = 11 days



clear that average collection period is 16 days respectively in year an2013. But it is best was in 2012 which is 11 days.

8.6. Profitability Ratios:

8.6.1. Gross Profit Margin:

Gross profit margin is equal to the ratio of gross profit to sales.

Gross Profit Margin =𝐆𝐫𝐨𝐬𝐬 𝐏𝐫𝐨𝐟𝐢𝐭

𝐒𝐚𝐥𝐞𝐬× 100

2011 – 2012:

Gross profit margin = 28,519,918

125,151,272× 100

Gross profit margin = 22.79 %

2012 - 2013:


155,359,928× 100


2013 - 2014:


175,958,342× 100



Gross profit margin or gross profit ratio is the ratio of gross profit to net sales expressed as percentage. From Gross profit the company

adjusts its operating and administrative expenses. In 2013 it increased heavily but in 2014 it decreased to 20.57 %. The gross profit is sufficient to

recover all operating expenses and to build up reserve after paying all fixed interest charges and all dividends.

8.6.2. Operating Profit Margin:

Operating Profit Margin is equal to earnings before interest and tax divided by sales.

Operating Profit Margin =

𝐄𝐁𝐈𝐓/𝐎𝐩𝐞𝐫𝐚𝐭𝐢𝐧𝐠 𝐏𝐫𝐨𝐟𝐢𝐭


2011 – 2012:

Operating Profit Margin = 16,836,814

125,151,272× 100

Operating Profit Margin = 13.45 %

2012 - 2013:


155,359,928× 100


2013 - 2014:


175,958,342× 100





This used to show the profitability without concern for taxes and interest. In 2013 the operating profit ratio was 17.26% and in 2014

the net profit ratio is 12.15 %. In 2013 operating profit ratio increased by 4.4 % and decreased by 4.8% in 2014, relative to 2013 ratio Shows

Company’s inability to with stand adverse economic condition without caring taxes and interest.

8.6.3. Net Profit Margin:

Net Profit Margin is equal to net profit divided by sales.

Net Profit Margin =

𝐍𝐞𝐭 𝐏𝐫𝐨𝐟𝐢𝐭


2011 – 2012:

Net Profit Margin = 1,333,273

125,151,272× 100

Net Profit Margin = 1.07 %

2012 - 2013:


155,359,928× 100


2013 - 2014:


175,958,342× 100



This used to show the overall profitability and hence it useful to the proprietors. Higher the ratio betters for the organization .It shows

the company’s ability to turn each rupee of sale into profit. In 2013 the net profit ratio was 5.27 % and in 2014 the net profit ratio is 4.43%. In

2013 net profit ratio increased by 1.7 % relative to 2012. But in 2014 it decreased slightly and remained 1.61 %.

8.6.4. Return on Asset:

Return on Asset is equal to net profit divided by sales.

Return on Asset =

𝐍𝐞𝐭 𝐏𝐫𝐨𝐟𝐢𝐭 𝐚𝐟𝐭𝐞𝐫 𝐓𝐚𝐱

𝐓𝐨𝐭𝐚𝐥 𝐀𝐬𝐬𝐞𝐭𝐬× 100

2011 – 2012:

Return on Asset = 1,333,273

189,586,702× 100

Return on Asset = 0.70%

2012 - 2013:


205,927,306× 100


2013 - 2014:


217,086,612× 100




the company’s ability to turn each rupee of sale into profit. In 2013 the net profit ratio was 3.97% and in 2014 the net profit ratio is 3.59%. In




8.6.5. Return on Equity:

Return on Equity is equal to net profit divided by sales.

Return on Equity =


𝐒𝐡𝐚𝐫𝐞𝐡𝐨𝐥𝐝𝐞𝐫 𝑬𝒒𝒖𝒊𝒕𝒚× 100

2011 – 2012:

Return on Equity = 1,333,273

43,247,286× 100

Return on Equity = 3.08%

2012 - 2013:


56,203,150× 100


2013 - 2014:


68,024,512× 100




the company’s ability to turn each rupee of sale into profit. In 2013 the net profit ratio was 14.56 % and in 2014 the net profit ratio is 11.47%. In


8.6.6. Earnings per Share:

This ratio shows that how much amount per share does a common stock holder attains.

Earnings per share =

𝐄𝐚𝐫𝐧𝐢𝐧𝐠 𝐀𝐯𝐚𝐢𝐥𝐚𝐛𝐥𝐞 𝐟𝐨𝐫 𝐂𝐨𝐦𝐦𝐨𝐧 𝐒𝐭𝐨𝐜𝐤 𝐇𝐨𝐥𝐝𝐞𝐫𝐬

𝐍𝐨.𝐎𝐟 𝐂𝐨𝐦𝐦𝐨𝐧 𝐒𝐭𝐨𝐜𝐤 𝐒𝐡𝐚𝐫𝐞𝐬× 100

2011 – 2012:

Earnings per share = Rs. 2.610. / share

2012 - 2013:

Earnings per share = Rs.16.010 /share

2013 - 2014:

Earnings per share = Rs. 14.890 /share


This ratio shows the worth of the share. As we can see that the worth of the shares of Engro Chemical has increased. EPS is increasing

at a constant rate, which are good signs for the investors.



Year 2014 2013 2012

Liquidity Ratios

Current Ratio 0.878 1.071 0.785

Quick Ratio 0.745 0.748 0.537

Activity Ratios

Inventory Turnover Ratio 12.08 5.54 5.82

Receivable Turnover Ratio 34.3 30.2 22.8

Payable Turnover Ratio 1.98 1.77 1.66

Total Asset Turnover Ratio 0.811 0.754 0.660

Debt / Leverage Ratio

Degree of Indebtedness

Debt Ratio 68.66% 73.12% 77.19%

Debt Equity Ratio 91.42% 153.83% 183.31%

Debt Servicing Ability

Times Interest Earned N/A N/A N/A

Profitability Ratios

Gross Profit Margin 20.57% 26.13% 22.79%

Operating Profit Margin 12.15% 17.26% 13.45%

Net Profit Margin 4.43% 5.27% 1.07%

Return on Asset 3.59% 3.97% 0.70%

Return on Equity 11.47% 14.56% 3.08%

Earnings Per Share 14.890 16.010 2.610



9. Common size & Trend Analysis of Financial Statements of Engro Pakistan Ltd.



10. Financial Statements



(Annual Reports, 2013)



The Organization of Comparison

11. Fauji Fertilizer Company

The organization with whom the comparison of Engro Chemical Pakistan Limited is to be done is FFC Limited. The comparison can

only be done by making the financial analysis of this particular Fertilizer Companies in a similar way in which the analysis of Engro Chemical

Pakistan Limited is to be done by first of all calculating all the major five ratios and interpreting them one by one thereby gaining a position to

make a comparison become their financial situation.

11.1. An Overview

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 authorized capital of the company was 813.9 Million Rupees. The present share capital of the company stands at Rs. 3.0

Billion. Additionally, FFC has Rs. 1.0 Billion stakes in the subsidiary Fauji Fertilizer Bin Qasim Limited (formerly FFC-Jordan Fertilizer

Company Limited).

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 to produce 551,000 metric tons of urea and

445,500 metric tons of DAP.

This excellent performance was due to hard work and dedication of all employees and the progressive approach and support from the

top management.

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.

This acquisition at Rs. 8,151 million represents one of the largest industrial sector transactions in Pakistan

11.2. Mission

To provide their customers with premium quality products in a safe, reliable, efficient and environmentally sound manner, deliver

exceptional services and customer support, maximizing returns to the shareholders through core business and diversification, providing a

dynamic and challenging environment for their employees.

11.3. Vision

To be a leading national enterprise with global aspirations, effectively pursuing multiple growth opportunities, maximizing returns to

the stakeholders, remaining socially and ethically responsible.

12. Ratio Analysis Fauji Fertilizer Company Ltd.

Types of Ratios Analysis:

Let us now have a detailed analysis of all the following four ratios for Fauji Fertilizer Company Limited

1. Liquidity Ratios

2. Leverage Ratios

3. Activity Ratios

4. Profitability Ratios

12.1. Liquidity Ratios:

12.1.1. Current Ratio:



Current Ratio = Current Assets

Current Liabilities

2013 – 2014:


2012 - 2013:


2013 - 2012:



Current ratio is a general and quick measured of liquidity of company. It represents the margin of safety or cushion available to the

auditor. It is the index of the company’s financial stability. It is also an index of the financial solvency and index of strength of working capital.

Company's Current ratio has been decreasing gradually over the year’s right from the 2012 to 2014.

12.1.2. Acid Test (Quick) Ratio:

Quick Ratio = 𝐂𝐮𝐫𝐫𝐞𝐧𝐭 𝐚𝐬𝐬𝐞𝐭𝐬 – 𝐈𝐧𝐯𝐞𝐧𝐭𝐨𝐫𝐢𝐞𝐬

𝐂𝐮𝐫𝐫𝐞𝐧𝐭 𝐥𝐢𝐚𝐛𝐢𝐥𝐢𝐭𝐢𝐞𝐬

2011 – 2012:

Quick Ratio = 1.14

2012 - 2013:

Quick Ratio = 0.75

2013 - 2014:

Quick Ratio = 0.59


The quick test ratio is a very useful measuring of the liquidity position of the company. It means that company’s ability to pay its

short-term obligations or current liabilities immediately and is a more rigorous test of liquidity than the current ratio.

The calculations above clearly show that the quick ratio of the company has been not constant over the years due to the changes in

pre-paid and inventories. But it increased in 2014 as compared to 2013, which is positive point for the company.

12.2. Leverage / Debt ratios:

12.2.1. Degree of indebtedness

12.2.1.1. Debt Ratio:

Debt Ratio =𝐓𝐨𝐭𝐚𝐥 𝐋𝐢𝐚𝐛𝐢𝐥𝐢𝐭𝐢𝐞𝐬

𝐓𝐨𝐭𝐚𝐥 𝐀𝐬𝐬𝐞𝐭𝐬

2011 – 2012:

Debt Ratio = 0.57:0.43

2012 - 2013:


2013 - 2014:



It can be defined as how much sufficient our assets are in retrieving the total debts. We can observe in our analysis that the debt ratio

of the company is decreasing over the year which is a good sign for the company, that is, the company uses less of its total liabilities for its

current assets.

12.2.1.2. Debt Equity Ratio:

Debt Equity ratio =𝐋𝐨𝐧𝐠 𝐓𝐞𝐫𝐦 𝐃𝐞𝐛𝐭𝐬

𝐒𝐭𝐨𝐜𝐤𝐡𝐨𝐥𝐝𝐞𝐫’𝐬 𝐞𝐪𝐮𝐢𝐭𝐲

2011 – 2012:



Debt equity ratio = 0.15:1

2012 - 2013:

Debt equity ratio = -0.20:1

2013 - 2014:

Debt equity ratio = 0.97:1


This ratio indicates the proprietor’s claims of owners and outsiders against the company’s assets. The purpose is to get an idea of the

cushion available to outsiders and the liquidity of the company. The interpretation of the ratio depends upon the financial and business policy of

the company.

Debt Equity shows the relationship between the external equities or outside funds and internal equities and shareholder’s funds. The

debt equity ratio of the company has been decreasing over the years from 2012 to 2013 but in 2014 it increased, with maximum in the year 2011-

12 thereby decreasing in the next year and increasing finally.

Debt Equity ratio increment is a negative point to management that the more of their business is financed by debts this will increase

their financial charges or interest expense and company’s liquidity and hence decreasing the company’s profit. The lower the ratio the higher the

company’s financing that is provided by the shareholders and larger the creditors cushion (margin of protection) in the extent of shrinkage of

assets values or outright loss.

12.2.2. Debt servicing ability

12.2.2.1. Times Interest Earned (Coverage Ratio):

Times Interest Earned =𝐄𝐚𝐫𝐧𝐢𝐧𝐠 𝐛𝐞𝐟𝐨𝐫𝐞 𝐈𝐧𝐭𝐞𝐫𝐞𝐬𝐭 𝐚𝐧𝐝 𝐓𝐚𝐱𝐞𝐬

𝐈𝐧𝐭𝐞𝐫𝐞𝐬𝐭 𝐄𝐱𝐩𝐞𝐧𝐬𝐞

2011 – 2012:


2012 - 2013:

Interest Coverage Ratio = 37.5:1 times

2013 - 2014:



The interest coverage ratio is a very important from the lender point of view. It indicates the number of times interest is covered by the

profit available to pay interest charges. It is an index of the financial strength of the enterprise. A high ratio assures the lender a regular and

periodic interest income. But weakness of the ratio may create some problems for the company’s financial manager in raising funds from the

debts sources.

The no. of times the company earns its interest fluctuates from over the year’s right from 2012 to 2014. The times interest earned by

the company in 2014 returned a lot to the level where it was in 2012.

12.3. Activity Ratios:

12.3.1. Inventory Turnover Ratio:

Inventory Turnover ratio =𝐂𝐨𝐬𝐭 𝐨𝐟 𝐆𝐨𝐨𝐝𝐬 𝐒𝐨𝐥𝐝

𝐀𝐯𝐠.𝐈𝐧𝐯𝐞𝐧𝐭𝐨𝐫𝐲

2011-2012:


2012 – 2013


2013 - 2014:

Inventory Turnover Ratio = 148 times






In 2013 it was 86.7 times and in 2014 it was 132.3 times. In 2013 the ratio was low because of over investment in inventories. In year

2014 it is better that is 132.3 times in the year, which is quite good because of good management and polices.

12.3.1.1. Inventory Holding Period in days:

Inventory Holding Period in Days =

𝐍𝐨.𝐨𝐟 𝐝𝐚𝐲𝐬 𝐢𝐧 𝐚 𝐲𝐞𝐚𝐫

𝐈𝐧𝐯𝐞𝐧𝐭𝐨𝐫𝐲 𝐓𝐮𝐫𝐧𝐨𝐯𝐞𝐫 𝐫𝐚𝐭𝐢𝐨

2011 – 2012:


86.7

Inventory turnover in days = 4.21 days

2012 - 2013:


132.3


2013 - 2014:


148





In 2012 it was 4.21 days and in 2014 it was 2.47 days. In year 2014 it is quite good and in 2013 it was better that is 2.7 days in a year

to move inventory through sales, which is quite good because of good management and polices.

12.3.2. Receivables Turnover Ratio:

Receivables Turnover Ratio =

𝐍𝐞𝐭 𝐜𝐫𝐞𝐝𝐢𝐭 𝐒𝐚𝐥𝐞𝐬

𝐀𝐯𝐠.𝐑𝐞𝐜𝐞𝐢𝐯𝐚𝐛𝐥𝐞𝐬

2011 – 2012:


2012 - 2013:


2013 - 2014:



Receivables turnover ratio measures the average length of time it takes a company to collect credit sales in percentage terms. So



Average Collection Period in days =𝐍𝐨 𝐨𝐟 𝐝𝐚𝐲𝐬 𝐢𝐧 𝐚 𝐲𝐞𝐚𝐫


2011 – 2012:

Average Collection Period in days =365

126.3

Average Collection Period in days = 2.89 days

2012 - 2013:


94.2




2013 - 2014:


107




clear that average collection period was 3.8 days in 2013. But it was best in 2012 which is 2.98 days. So these ratios show that company is doing

well in this particular case.

12.3.3. Payable Turnover Ratio:

Payable Turnover Ratio =

𝐂𝐨𝐬𝐭 𝐨𝐟 𝐆𝐨𝐨𝐝𝐬 𝐒𝐨𝐥𝐝

𝐀𝐯𝐠.𝐏𝐚𝐲𝐚𝐛𝐥𝐞

2011 – 2012:


2012 - 2013:


2013 - 2014:



Payable turnover ratio measures the average length of time it takes a company to collect credit sales in percentage terms. So



Payable Collection Period in days =𝐍𝐨 𝐨𝐟 𝐝𝐚𝐲𝐬 𝐢𝐧 𝐚 𝐲𝐞𝐚𝐫


2011 – 2012:

Payable turnover ratio in days = 365

2.41

Payable turnover ratio in days = 151.45 days

2012 - 2013:


1.8


2013 - 2014:


1.32

Average Payment Period = 276 days



clear that average collection period was 202.7 days in 2013. But it was best in 2012 which is 151.45 days. So these ratios show that company is

doing well in this particular case.

12.3.4. Total Asset Turnover:

Total Asset Turnover Ratio =

𝐒𝐚𝐥𝐞𝐬

𝐓𝐨𝐭𝐚𝐥 𝐚𝐬𝐬𝐞𝐭𝐬

2011 – 2012:




2012 - 2013:


2013 - 2014:



It shows that companies must manage its total assets efficiently and should generate maximum sales through their proper utilization.

As the ratio, increases there are more revenue generated per rupee of total investment in asset. The company ability to produce a large volume of

sales on a small total asset based is an important part of the company’s overall performance in terms of profits. In 2014, & 2013 the ratio was

0.94, 1.09 times respectively. In 2014, the ratio indicates that it is producing RS .94 sales per

Rupees of investment in total assets. So as time is going by this ratio is fluctuating which means company performance is not up to

mark in terms of profits.

12.4. Profitability Ratios:

12.4.1. Gross Profit Margin:

Gross Profit Margin =𝐆𝐫𝐨𝐬𝐬 𝐏𝐫𝐨𝐟𝐢𝐭


2011 – 2012:


2012 - 2013:


2013 - 2014:



Gross profit margin or gross profit ratio is the ratio of gross profit to net sales expressed as percentage. In 2013 it increased slightly to

46 % and in 2014 it decreased to 38 %. The gross profit is sufficient to recover all operating expenses and to build up reserve after paying all

fixed interest charges and all dividends.

12.4.2. Operating Profit Margin:

Operating Profit Margin =

𝐄𝐁𝐈𝐓/𝐎𝐩𝐞𝐫𝐚𝐭𝐢𝐧𝐠 𝐏𝐫𝐨𝐟𝐢𝐭


2011 – 2012:


2012 - 2013:


2013 - 2014:

Operating Profit Margin = 32.0


This used to show the profitability without concern for taxes and interest. In 2013 the operating profit ratio was 38%, and in 2014 the

operating profit ratio is 32 %. In 2013 operating profit ratio was decreased by 4 % and decreased by 6% in 2014. The operating profit is

increasing gradually at a decreasing rate but it shows company’s capacity to with stand adverse economic condition without caring taxes and

interest.

12.4.3. Net Profit Margin:



Net Profit Margin=

𝐍𝐞𝐭 𝐏𝐫𝐨𝐟𝐢𝐭


2011 – 2012:


2012 – 2013:


2013 - 2014:




the company’s ability to turn each rupee of sale into profit. In 2013 the net profit ratio is 27 % and in 2014 the net profit ratio is 22%. In 2013 net

profit ratio decreased by 1 % relative but decreased in 2014 by 5 %.

12.4.4. Return on Asset:

Return on Asset is equal to net profit divided by sales.

Return on Asset =


𝐓𝐨𝐭𝐚𝐥 𝐀𝐬𝐬𝐞𝐭𝐬× 100

2011 – 2012:


2012 - 2013:


2013 - 2014:




the company’s ability to turn each rupee of sale into profit. In 2013 the Return on Asset was 29 % and in 2014 the Return on Asset is 21%. In

2013 Return on Asset decreased by 5 % relative to 2012. But in 2014 it decreased to 8 %.

12.4.5. Return on Equity:

Return on Equity is equal to net profit divided by sales.

Return on Equity =


𝐒𝐡𝐚𝐫𝐞𝐡𝐨𝐥𝐝𝐞𝐫 𝑬𝒒𝒖𝒊𝒕𝒚× 100

2011 – 2012:


2012 - 2013:


2013 - 2014:




the company’s ability to turn each rupee of sale into profit. In 2013 the Return on Equity was 80 % and in 2014 the Return on Equity is 71%. In

2013.In 2014 it decreased to 9 %.

12.4.6. Earnings per share:



Earnings per share =

𝐄𝐚𝐫𝐧𝐢𝐧𝐠 𝐀𝐯𝐚𝐢𝐥𝐚𝐛𝐥𝐞 𝐟𝐨𝐫 𝐂𝐨𝐦𝐦𝐨𝐧 𝐒𝐭𝐨𝐜𝐤 𝐇𝐨𝐥𝐝𝐞𝐫𝐬

𝐍𝐨.𝐎𝐟 𝐂𝐨𝐦𝐦𝐨𝐧 𝐒𝐭𝐨𝐜𝐤 𝐒𝐡𝐚𝐫𝐞𝐬× 100

2011 - 2012:

Earnings per share = Rs. 72.73 / share

2012 - 2013:

Earnings per share = Rs.75.83 /share

2013 - 2014:

Earnings per share = Rs. 74.28 /share


This ratio shows the worth of the share. As we can see that the worth of the shares of Fauji fertilizer Company has decreased. The EPS

is almost fluctuating but still in favorable condition.



13. Financial Statements with Common size & Trend Analysis of Fauji Fertilizers Ltd.

Fauji Fertilizers

Balance Sheet

As at December 31st, 2012

Worth (in PKR) Common Size Analysis

ASSETS

NON – CURRENT ASSETS

Property, plant and equipment 14 17,818,755 29.3%

Intangible assets 15 1,678,639 2.75%

Long term investments 16 9,511,865 15.6%

Long term loans and advances 17 700,786 1.15%

Long term deposits and prepayments 18 222,313 0.36%

29,932,358 49.2%

CURRENT ASSETS

Stores, spares and loose tools 19 3,098,938 5.08%

Stock in trade 20 442,139 0.72%

Trade debts 21 3,611,476 5.93%

Loans and advances 22 677,977 1.11%

Deposits and prepayments 23 35,670 0.06%

Other receivables 24 588,667 0.97%

Short term investments 25 18,750,996 30.8%

Cash and bank balances 26 3,748,632 61.6%

30,954,495 50.8%

60,886,853

EQUITY AND LIABILITIES

EQUITY

Share capital 4 12,722,382 20.89%

Capital reserves 5 160,000

0.26%

Revenue reserves 6 13,213,667

21.07%

26,096,049 42.86%

NON - CURRENT LIABILITIES

Long term borrowings 7 3,870,000 6.36%

Deferred liabilities 8 4,103,315

6.74%

7,973,315

13.09%

CURRENT LIABILITIES

Trade and other payables 9 15,836,879 26.0%

Interest and mark-up accrued 11 24,921

0.04%

Short term borrowings 12 4,990,000

8.19%

Current portion of long term borrowings 7 1,433,750

2.35%

Taxation 4,531,939

7.44%

26,817,489

44.04%

60,886,853



Fauji Fertilizers

Income Statement



Sales 27 74,322,612

Cost of sales 28 38,324,361 51.6%

GROSS PROFIT 35,998,251 48.4%

Distribution cost 29 5,560,687 7.48%

30,437,564 40.95%

Finance cost 30 999,457 1.39%

Other expenses 31 2,685,236 3.61%

26,752,871 35.99%

Other income 32 4,267,852 5.74%

NET PROFIT BEFORE TAXATION 31,020,723 41.73%

Provision for taxation 33 10,181,000 13.69%

NET PROFIT AFTER TAXATION 20,839,723 28.04%

Earnings per share – basic and diluted (Rupees) 34 16.38

Net profit after taxation 20,839,723 28.04%

Other comprehensive income for the year

(Deficit) / surplus on remeasurement of investments

available for sale to fair value (1,356) 0.002%

Income tax relating to component of other comprehensive income (1,207) 0.002%

Other comprehensive income for the year - net of tax (2,563) 0.003%

Total comprehensive income for the year 20,837,160 28.04%



Fauji Fertilizers

Balance Sheet



ASSETS

NON - CURRENT ASSETS






41,501,374 61.02%

CURRENT ASSETS Stores, spares and loose tools 20 3,244,645 4.78%

Stock in trade 21 301,957 0.44%

Trade debts 22 700,541 1.03%

Loans and advances 23 921,460 1.35%


Other receivables 25 790,163 1.16%



26,327,696 38.8%

67,829,070


EQUITY

Share capital 5 12,722,382 18.7%

Capital reserves 6 160,000 0.23%

Revenue reserves 7 12,258,373 18.07%

Surplus on remeasurement of investments available for sale to fair value 10,508 0.015%

25,151,263 37.0%

NON - CURRENT LIABILITIES Long term borrowings 8 4,280,000 6.3%

Deferred liabilities 9 4,078,369 6.0%

8,358,369 12.3%

CURRENT LIABILITIES Trade and other payables 10 21,854,125 32.2%

Interest and mark-up accrued 12 22,098 0.032%

Short term borrowings 13 7,000,000 10.3%

Current portion of long term borrowings 8 1,460,000 2.1%

Taxation 3,983,215 5.8%

34,319,438 50.54%

67,829,070



Fauji Fertilizers

Income Statement



Sales 28 74,480,611

Cost of sales 29 39,948,572 53.6 %

GROSS PROFIT 34,532,039 46.6 %

Distribution cost 30 6,167,280 8.2 %

28,364,759 38.0 %

Finance cost 31 756,215 1.01%

Other expenses 32 2,557,937 3.4 %

25,050,607 33.59 %

Other income 33 4,367,941 5.8 %

NET PROFIT BEFORE TAXATION 29,418,548 39.49 %

Provision for taxation 34 9,284,000 12.46 %

NET PROFIT AFTER TAXATION 20,134,548 27.0 %

Earnings per share – basic and diluted (Rupees) 35 15.83


Other comprehensive income

Gain on remeasurement of staff retirement benefit plans 72,410 0.097%

Deferred tax (charge) relating to remeasurement of staff retirement benefit plans (24,619) 0.033%

47,791 0.064%

Surplus / (deficit) on remeasurement of investments available for sale to fair value 795 0.001%

Deferred tax credit / (charge) relating to remeasurement of investments

available for sale to fair value 2,018 0.003%

2,813 0.004%

Other comprehensive income - net of tax 50,604 0.068%




Fauji Fertilizers

Balance Sheet



ASSETS

NON - CURRENT ASSETS






50,678,434 68.55%

CURRENT ASSETS Stores, spares and loose tools 20 3,314,823 3.82%

Stock in trade 21 981,750 1.73%

Trade debts 22 822,460 0.95%

Loans and advances 23 1,058,754 1.22%


Other receivables 25 1,072,461 1.24%



35,883,228 41.45%

TOTAL ASSETS 86,561,662


EQUITY

Share capital 5 12,722,382 14.69%

Capital reserves 6 160,000 0.18%

Revenue reserves 7 12,483,585 14.42%

Surplus on remeasurement of investments available for sale to fair value 303,564 0.35%

25,669,531 29.65%

NON - CURRENT LIABILITIES Long term borrowings 8 2,500,000 2.89%

Deferred liabilities 9 4,574,028 5.28%

7,074,028 8.17%

CURRENT LIABILITIES Trade and other payables 10 37,904,434 43.79%

Interest and mark-up accrued 12 30,117 0.034%

Short term borrowings 13 11,602,443 13.40%

Current portion of long term borrowings 8 1,780,000 2.56%

Taxation 2,501,109 2.89%

53,818,103 62.17%

TOTAL EQUITY AND LIABILITIES 86,561,662



Fauji Fertilizers

Income Statement



Sales 28 81,240,187

Cost of sales 29 50,136,749 61.71%

GROSS PROFIT 31,103,438 38.29%

Distribution cost 30 6,431,667 7.29%

24,671,771 30.37%

Finance cost 31 848,940 1.04%

Other expenses 32 2,302,937 2.83%

21,519,894 26.49%

Other income 33 4,720,866 5.81%

NET PROFIT BEFORE TAXATION 26,240,760 32.30%

Provision for taxation 34 8,070,000 9.93%

NET PROFIT AFTER TAXATION 18,170,760 22.37%

Earnings per share - basic and diluted (Rupees) 35 14.28


Other comprehensive income

Gain on remeasurement of staff retirement benefit plans - net of tax 56,621 0.07%

Surplus on remeasurement of investments available for sale to fair value - net of tax 293,056 0.36%

Other comprehensive income - net of tax 349,677 0.43%




14. INDUSTRY ANALYSIS

(Comparison through graphical interpretation)

Company 2014 2013 2012

Liquidity Ratios

Current Ratio

ECL 0.878 1.071 0.785

FFC 0.670 0.770 1.150

Quick Ratio

ECL 0.745 0.748 0.537

FFC 1.140 0.750 0.590

Activity Ratios

Inventory Turnover Ratio

ECL 12.08 5.54 5.82

FFC 86.70 132.30 148

Receivables Turnover Ratio

ECL 34 30 23

FFC 126 94 34

Payable Turnover Ratio

ECL 1.980 1.770 1,67

FFC 1.320 1.800 2.410

ECL

Total Asset Turnover Ratio

ECL 0.811 0.754 0.660

FFC 0.940 1.090 1.220

Debt / Leverage Ratio

Degree of Indebtedness

Debt Ratio

ECL 68.66% 73.12% 77.19%

FFC 70.00% 62.00% 57.00%

Debt Equity Ratio

ECL 91.42% 153.83% 183.31%



FFC 97.00% 20.00% 15.00%

Debt Servicing Ability

Times Interest Earned

ECL N/A N/A N/A

FFC N/A 37.50 N/A

Profitability Ratios

Gross Profit Margin

ECL 20.57% 26.13% 22.79%

FFC 38.00% 46.00% 48.00%

Operating Profit Margin

ECL 12.15% 17.26% 13.45%

FFC 32.00% 38.00% 42.00%

Net Profit Margin

ECL 4.43% 5.27% 1.07%

FFC 22.00% 27.00% 28.00%

Return on Asset

ECL 3.59% 3.97% 0.70%

FFC 21.00% 29.00% 34.00%

Return on Equity

ECL 11.47% 14.56% 3.08%

FFC 71.00% 80.00% 80.00%

Earnings Per Share

ECL 14.890 16.010 2.610

FFC 74.280 75.830 72.230

(Engro, 2011)

15. References

Annual Reports. (2013, December 31). http://www.engro.com/downloads/. From http://www.engro.com/: http://engro.com/wp-

content/uploads/2015/04/02-ECorp-AR-2014-Full.pdf

Engro, F. o. (2011, August Tuesday, 16). Ratio Analysis. From MBA Zone: http://projectsinmba.blogspot.com/2011/08/finance-project-on-ratio-

analysis-on.html

Financial managment project on financial ratio analysis on engro corp ltd

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