PPT BSBA Final project Finance

ABDUL MAJIDBS120402838

BS (BUSINESS ADMINISTRATION) FINANCE

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Profitability Ratio Analysis of

Cherat Cement, DG Khan Cement &

Fauji Cement

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Introduction of the ProjectFinancial ratios express the relationship between one data points to another data point. Financial ratios are like financial temperature, which gives state of health of business and provide useful information, financial ratio analysis conduct on the base of company’s financial reports.

Management, investors, creditors, shareholders always wants to seek up-to-date status of companies. So for this reason different type of ratios like profitability, liquidity, activity & leverage help to evaluate the company’s performance. Mostly investors takes interest how the performance of company in terms of profit & net earnings, and how company can increase their wealth in forms of profits, and dividend.

Profitability ratio is most popular ratio, which express the ability of company to generate revenue and profits. Profitability ratio tells us how much a company earns its profits as compare to its sales, assets and expenses etc.

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Profitability ratio tells us the strength/ weakness of a company itself and comparison in same industry

Profitability ratios tell us which company’s income is exceeding to its expenses and these results helps management, investors, shareholders & creditors to access overall performance.

Pakistani Cement industryPakistani cement industry is playing vital role in economic development sector. Pakistani cement industry is now recognizing as a major player in regional market. Government is taking concrete steps to revive the national economy & it has positive effects on the cement sector.

Project is about profitability ratio analysis of three important cement companies of Pakistan I.Cherat Cement Company LimitedII.DG Khan Cement Company Limited III.Fauji Cement Company Limited For The FY 2013, FY 2014 & FY 2015

Objectives

• Objectives of this project is to analyze how cement companies works, what are their strength, weakness, threats & opportunities and which company is more reliable and reasonable than others. Profitability ratio analysis is the key evaluating measure of efficiency and financial strength.

• How effectively, selected companies are maximizing their profits by controlling their cost, selling and Interest expenses & to make ratio comparisons of different periods.

• To study financial health of Major Players & analyze the capital structure of the companies with the help of ratios.

• To offer appropriate suggestions for the better performance & educate to its shareholders.

• Making a comparisons of company s financial performance against past years’ performance and with other companies in same industry.

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Significance of Project• Accurate Results of financial ratio analysis has great significance

and provides more benefits to various stakeholders whom directly or indirectly linked with the company, like investors, creditors, shareholders, tax department, banks and Govt. etc.

• Helpful to administration of the business by providing sparkler clear picture regarding important aspects like, financial health, net profit margins, gross profit margins, expense ratio, ROA, ROE, Total shareholder equity, EPS, DPS, and P/E ratio etc.

• Research study is also beneficial to employees and offers motivation by showing how actively they are contributing for company’s growth and profitability.

• Investors who are interested in investing in the company’s shares, will also get benefited by going through the study and can easily take a decision whether to invest or not to invest in the company’s shares.

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Data CollectionSourcesSecondary• Accounting and finance Books• website• Newspapers • Companies Annual Financial Reports.

For collection of data it is used different types of tools according to the project and research method.

Company assessment Reports Read out company profile Companies’ annual financial reports Stock exchange Internet past reports and articles 7

Data Processing• For preparing of project or report we use different types of

tools, tools helps to evaluate a company’s performance. I use most important and valuable tool that is “financial ratios“. Different types of ratios help to analyze and also provide useful information about financial health and current status of company. Financial reports (Balance sheet, Income statement & cash flow statement) are use to calculate Ratios. Financial ratios provide complete & clear picture to management for decision making and also useful for Government, shareholders and general public.

• Microsoft Word, Microsoft Excel work sheets & Calculator are used to calculate the different ratios analysis and for Bar Charts

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Data/ Ratio AnalysisAll these profitability ratios are calculated in this projectand used to make financial ratio analysis:• Gross Profit Margin• Operating income Margin• Net profit Margin• Return on assets• DuPont Return on assets• Operating assets turnover• Return on operating assets• Return on total equity• Sales to fixed asset

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Gross Profit MarginGross profit Margin = Gross Profit / Net sale * 100

PKR In Millions

FY 2013 FY 2014 FY 2015

Cherat

Cement

2190/6294*100

=34.79 %

2102.650/6451.330

*100

=32.59%

1983.545/6565.41

6*100

=30.21%

DG Khan

Cement

9326.007/24915.924

*100

=37.42%

9257.568/26542.50

9*100

=34.87%

9455.2/26104.611

*100

=36.22%

Fauji

Cement

5080/15968*100

=31.82%

6084/17532*100

=34.70 %

7027/18642*100

=37.69%10

Graphical Analysis of Ratio

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Operating profit MarginOperating profit Margin=Operating Profit / Net sale * 100

PKR In Millions

FY 2013 FY 2014 FY 2015

Cherat

Cement

1585/6294*100

= 25.18 %

1716/6451.33*100

=26.60 %

1709/6565.42*100

=26.03%

DG

Khan

Cement

8090.737/24915.924*

100

=32.47 %

8460.256/26542.509*

100

=31.87 %

9828.681/26104.611*

100

=37.65 %

Fauji

Cement

4598/15968*100

=28.79 %

5552/17532*100

=31.67 %

6386/18642*100

=34.25 %

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Net Profit Margin Net Profit Margin = Net Profit/ sales *100

PKR In Millions

FY 2013 FY 2014 FY 2015

Cherat

Cement

1228/6294*100

=19.51 %

1316/6451.33*100

=20 %

1288/6565.42*100

=19.61%

DG

Khan

Cement

5502.169/24915*1

00

=22.08 %

5965.498/26542*100

=22.48 %

7624.68/26104*100

=29.21 %

Fauji

Cement

2097/15968*100

=13.13 %

2626/17532*100

=14.97 %

4116/18642*100

=22.07 %

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Return on AssetsReturn on Asset = Net income / Average Total Assets *100

PKR In Millions

FY 2013 FY 2014 FY 2015

Cherat

Cement

1228/4888*100

=25.12%

1316/4978.5*100

=26.44%

1288/7947.5*100

=16.20%

DG Khan

Cement

5502.16/57105*100

=9.64%

5965.498/68404.394

*100=8.72%

7624.68/73836.756

*100=10.33%

Fauji

Cement

2097/30504.257*10

0=6.88%

2626/29843.1905*1

00=8.94%

4116/29954.5*100

=13.74%

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DuPont Return on AssetsROE = Profit margin * Total Asset turnover *Financial

LeverageProfit margin =Net profit/sales)

(Total asset Turnover= Net Sales/Average Total Assets)(Equity Multiplier= Total Assets/Total equity)

PKR In Millions

Companie

s

FY 2013 FY 2014 FY 2015

Cherat

Cement

19.51*128.76*1

.3/100=32.65

20*129.59*1.32/

100=34.21%

19.61*82.80*1.179/10

0=29.4%

DG Khan

Cement

22.08*43.63*1.

32/100=12.71%

22.48*38.801*1.

193/100=10.40%

29.21*35.35*1.19/100

=12.28%

Fauji

Cement

13.13*52.34*1.

90/100=13.06%

14.97*58.7*1.94

/100=17.04%

22.07*62.23*1.75/100

=24.03%18


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Operating Assets Turn overOperating Assets Turn over = Operating Assets/ Total Non-Cash Assets.

PKR In Millions

FY 2013 FY 2014 FY 2015

Cherat Cement 3244178/94640

00-18354

= 34.34%

3320210/643100

0-17116

= 51.77%

3061855/5065000-

25548

=60.76%

DG Khan

Cement

29958970/7439

1443-257723

= 40.42%

29,832,625/7328

2069- 1309026

= 41.45%

28951966/74391443-

468881

= 39.17%

Fauji Cement 23880553/3052

8290-2296603

=84.85%

23881426/29381

332-842983

= 83.49%

24734325/30305049-

1702171

=86.47%

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Operating ROAOperating ROA = EBIT/ Average total Asset

(Average total asset = Opening +Ending Assets/2) PKR In Millions

FY 2013 FY 2014 FY 2015

Cherat

Cement1585/4888*100

=32.42%

1688/4978.51*100

=33.90%

1671/7947.5*100

=21.02%

DG

Khan

Cement

7095.86/57102*100

=12.42%

7851.39/68404.39*10

0

=11.47%

9545.18/73836.75*100

=12.92%

Fauji

Cement3085.52/30504.25*10

0=10.11%

4509.50/29843.19*10

0=15.10%

5679.89/29954.50*100

=18.96%

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Return on EquityReturn on Equity = Net income / shareholder Investment *100

PKR In Millions

FY 2013 FY 2014 FY 2015

Cherat

Cement

1228/3709*100

=33.10%

1316/4864*100

=27.05%

1288/8026*100

=16.04%

DG Khan

Cement

5508.16/47956.79

*100=11.48%

5965.49/61516.53

5*100=9.639%

7624.68/62296.07

*100=12.24%

Fauji

Cement

2097/15936.36*1

00=13.16%

2626/15788.187*1

00=16.64%

4116/17418.984*

100=23.63%

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Sales to Fixed AssetsSales to Fixed Assets = Sales Revenue/ Average Fixed Assets

(Net sales= Gross sales- returns) (Fixed Assets= Property, Plant and Machinery etc.)

PKR In Millions

FY 2013 FY 2014 FY 2015

Cherat

Cement

6294/2473.4325

=2.54Times

6451.33/3220.21

0=2.0Times

6565.42/3244.178=

2.02Times

DG

Khan

Cement

24915.924/2893

4.979=0.8611

Times

26542.509/29832

.625=0.889Times

26104.611/29958.9

70=0.871Times

Fauji

Cement

15968/24734.32

5=0.64 Times

17532.277/23881

.426=0.74Times

18642.358/23880.5

53=0.77 Times

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Conclusion/Findings• Overall profitability analysis shows DG Khan Cements the best company with highest level of operating

net profit margins. It is showing their best performance in industry and creditworthiness. DG khan cement over all finance cost decreased due to Effective financial management.ROE increase with high profit margin. Operating assets turnover ratio declined because of low exports. ROE has increasing trend. DG Khan exports are low due to peace conditions is not good in Afghanistan. They have capacity to produce more profits which is their strength.

• Fauji Cement large in the size and has increasing trend in net sales. Operating & net profit margin increasing.ROE has increasing trend continuously. Showing best performance in ROA with best utilizing of its Assets. Fauji cement is declining operating assets turnover but maximum utilizing its assets, which is good sign of performance. Sales to fixed assets is showing little increasing in FY 2015. Fauji cement is performing well.

• Cherat cement is smaller in size. Although it is facing low gross profit margin & net profit margins due to primarily expansion of new line which are under process but their timely decisions and change according to demand is well. Pak China economic corridor will increase demand. Cherat Cement increases its sales as compare to previous years. The negative variances are primarily due to ongoing expansion projects are in line and low export to Afghanistan due to peace condition is not good. Overall results are productive and expected to grow in future.

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Recommendations•Cherat Cement and Fauji should complete project in time for increasing their sales & profit margins.

•DG Khan Cement and Fauji Cement should increase their domestic sales to cover the sales losses due to low export in Afghanistan and other countries for peace problem.

•Cherat Cement face negative operating assets turnover ratio, it completes all lines immediately, and DG khan also increase domestic sale for better utilization of its assets or converted into cash for stronger health.

•DG khan Cement and Cherat Cement improve their ROA ratio with increase of net sales and, use cost & expenses control strategies.

•DG Khan Cement and Fauji Cement increase more domestics sales to increase net income for shareholder point of view, in this way they can increase dividend for investors

•DG khan Cement and Fauji Cement search new exports markets or increase domestic supply and utilize their all plants for increasing sales to fixed assets ratio and Cherat Cement complete all line for better sales to fixed assets ratio.

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Thank You

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Business

PPT BSBA Final project Finance