financial statement analysis( report fccl vertical/horizontal and ratio analysis)

1 By The Eagles Department of Management of Sciences

Report on Financial Analysis of “Fuaji Cement Company

Limited”.

Submitted to

Mr. Waseem Khan

Submitted in requirement of the course of

“Financial Statement Reporting and Analysis”

By

The Eagles

BBA 7th M2

Muhammad Javed Roll no 75

Ayesha Mureed Roll no 57

Department of Management Sciences


Acknowledgement

God Almighty is worthy of all acknowledgement………………

No one can say that I am perfect, everyone should admit that without the help of Allah

and His people a man can’t get anything so we bow our head before Almighty Allah with

gratitude. We are also very thankful and present salute to individuals who have helped us in

shaping this project.

We are gratitude to Almighty ALLAH, who has given us strength and mentor to

accomplish this mammoth task.

First and foremost we would like to appreciate our course Instructor Mr. Waseem Khan

for asking us this report so we could better learn the course of Financial Statement Reporting and

Analysis offered to us. His guidance and encouragement supported us throughout this project. He

has been very compensating and helping to us. Especially he had time for us to talk about the

project anytime during the whole semester.

We are thank full to our teacher for giving this opportunity and build up confidence

thorough theatrical knowledge implementation. I hope this effort on our part will come up to

your expectations.

The last but not least, we would feel incomplete without thanking to our parents who

pray for our brilliant success and bright future.

By:

Muhammad Javed

Ayesha Mureed


Dedication

We dedicate this assignment to our parents, elder brother and teacher, who taught us to think,

understand and express. We earnestly feel that without their inspiration, able guidance and

dedication, we would not be able to pass through the tiring proses of this assignment.

Special thanks to my group member, “Ayesha Mureed” due to her hard work and complicated

attention toward completing this assignment before time but unfortunately we’ve completed

assignment in last week but not last night.


Table of Contents History & Profile........................................................................................................................................... 6

Director Report ............................................................................................................................................. 7

Audit Report.................................................................................................................................................. 9

Chapter #2: Vertical Analysis ..................................................................................................................... 10

1. Profit and loss account: ................................................................................................................... 10

2. Balance Sheet: ................................................................................................................................. 14

Chapter# 3: Horizontal Analysis ................................................................................................................. 18

1. Profit and loss Account ................................................................................................................... 18

2. Balance Sheet .................................................................................................................................. 23

Chapter# 4: Ratio Analysis ......................................................................................................................... 27

4.1 Liquidity Ratio: ..................................................................................................................................... 27

1. Current Ratio: .................................................................................................................................. 27

2. Quick ratio/ Acid Test Ratio: .......................................................................................................... 28

3. Net Working Capital ........................................................................................................................ 28

4.2 Management Efficiency Ratio .............................................................................................................. 29

1. Account Receivable Turnover: ....................................................................................................... 29

2. Accounts Receivable Turnover in Days:......................................................................................... 29

3. Inventory Turnover: ........................................................................................................................ 30

4. Inventory Turnover in days: ............................................................................................................ 30

5. Accounts Payable Turnover: ........................................................................................................... 30

6. Accounts Payable Turnover in Days: .............................................................................................. 31

4.3 Long Term Ratios ................................................................................................................................. 32

1. Interest Coverage Ratio:.................................................................................................................. 32

2. Fixed Charge Coverage Ratio: ........................................................................................................ 32

3. Debt Ratio: ...................................................................................................................................... 32

4. Debt/Equity Ratio: .......................................................................................................................... 33

5. Debt-to-tangible Net worth Ratio: .................................................................................................. 33

6. Total Capitalization: ........................................................................................................................ 34

7. Fixed Assets Ratio: ......................................................................................................................... 34

4.4 Profitability Ratios: ............................................................................................................................... 36


1. Gross Profit Margin: ................................................................................................................... 36

2. Operating Profit Margin: ............................................................................................................. 36

3. Net Profit Margin: ....................................................................................................................... 37

4. Total Assets Turnover: ................................................................................................................ 37

5. Return on total assets: ................................................................................................................. 37

6. Operating Assets Turnover: ........................................................................................................ 38

7. Return on Equity: ........................................................................................................................ 38

8. Return on Assets: ........................................................................................................................ 39

4.5 Analysis for Investors ........................................................................................................................... 40

1. Earnings per Share: ......................................................................................................................... 40

2. Price Earnings Ratio: ...................................................................................................................... 40

3. Percentage of Earning Retained: ..................................................................................................... 41

4.6 Cash Flow ratio ..................................................................................................................................... 42

1. Operating Cash flow to total debt: .................................................................................................. 42

2. Operating Cash Flow Per Share: ..................................................................................................... 42

3. Operating Cash Flow To Dividend: ................................................................................................ 42

Reference: ................................................................................................................................................... 43


History & Profile

A longtime leader in the cement manufacturing industry, Fauji Cement Company,

headquartered in Rawalpindi, operates a cement plant at Jhang Bahtar, Tehsil Fateh

Jang, and District Attock in the province of Punjab. The Company has a strong and

longstanding tradition of service, reliability, and quality that reaches back more than 15

years. Sponsored by Fauji Foundation, the Company was incorporated in Rawalpindi in

1992.

The cement plant operating in the Fauji Cement is one of the most efficient and

best maintained in the Country and has an annual production capacity of 1.165 million

tons of cement. The quality portland cement produced at this plant is the best in the

Country and is preferred in the construction of highways, bridges, commercial and

industrial complexes, residential homes, and a myriad of other structures, fundamental to

Pakistan's economic vitality and quality of life.

Erection & Commissioning of New Line with a Production capacity of 7200 TPD

has been completed and Plant has started its production. The Plant is equipped with latest

and state of the art equipment and is a great value addition in Pakistan Cement Industry.

In pursuance of its commitment to produce cement under stringent environment

friendly conditions, the Company has taken the lead by installing first ever Refuse

Derived Fuel (RDF) Processing Plant at a cost of Rs. 320 Million. This project acts as a

beacon to the entire industrial sector of the Country towards an environment friendly

production, RDF is not only providing economical fuel to the Company but also

contributing towards solving the problem of Municipal Garbage Disposal. Minimum 300-

400 tons of garbage is being lifted from each garbage dump located at Rawalpindi and

Islamabad. In addition, the other important advantages include reduced use of fossil fuel,

lowering of greenhouse gases in the atmosphere and availability of compost fertilizer as a

byproduct.

Fauji Cement is ISO certified for its Quality & Environment Management Systems and

has won number of awards in its category.


Director Report

The Director of Fauji Cement Company Limited(FCCL) are please to present the 20th

Annual report together with audit financial statement of the firm for the year ended 30th Jun 2014

and Audit Report thereon.

FCCL has increase in 3.5% of total dispatches (Sales both domestic and export) in 2014.

FCCL increase domestic dispatches by 4.33% and decrees in export is 2.83%.

FCCL gross profit has 35% as compared to 32%, earned EBIT 2626 million as compared

to 2097 million as compared to last year. FCCL successful manage debt servicing Rs. 3.5 billion

during financial year from operational cash.

Fauji Cement Company Limited has the ability and strength to operate it business

operation as long. So we can say that FCCL has on going concern.

FCCL Rs .75/- recommended final cash dividend per ordinary share and .75 interim

dividend has already paid during FY 2013-14. FCCL has no any statutory dues.

FCCL fulfil every aspect for corporate governance such as presentation of financial

statement, preparing book of account, accounting policies that applicable in Pakistan, IAS &

IFRS, disclose best knowledge of management and their children have not undertaking any

share.

FCCL fulfil also corporate their social responsibilities because during the year FCCL

donate to Thar Affectees and IDPs, wining CSR award in 2014, annual environmental

excellence award 2013. FCCL also educational facilities for fccl’s employee. For education

FCCL run a school in which 553 students enrolled.

FCCL also conduct employee welfare activities such as sports gala, health and safety etc.

FCCL has medical facilities for his employee.


Graphical Representation of Profit and Loss Account by Director,

02000000400000060000008000000

100000001200000014000000160000001800000020000000

Sum of 2014

Sum of 2013


Audit Report Audit of financial statement is independent for the business issuing these. Auditor

express his opinion on financial statement that prepared by firm management. Auditor provide

assurance to outsider user about the completeness and reliability of firms financial. During audit

auditor obtained every necessary information about the firm financial for giving opinion.

Opinion of an auditor is termed as unqualified when the auditor concludes that that the financial

statements give a true and fair view in accordance with the identified financial reporting

framework.

There is no statuary definition of the words “true and fair”. However, true and fair has

been taken to mean the following: (I) free from prejudice or bias, (II) presentation of an objective

picture, (III) in accordance with generally accepted accounting principles, (IV) consistent and

having clarity,(V) not misleading and understandable by the reader of financial statements,. (V)

Presented fairly, in all material respects.

According to the company’s ordinance 1984, in an unqualified audit report the auditor is

required to make some statutory affirmations without reservations, as prescribed in section

255(3).

According to FCCL auditor KPMG Taseer Hadi & Co. describes follow the audit:

FCCL financial accounts, profit and loss account, balance sheet, cash flow statement,

statement of changing in owner equity and statement of comprehensive income are in format that

approved accounting standard that applicable in Pakistan and also giving required information by

Companies Ordinance 1984.

According to auditor FCCL financial give true and fair views at the end of 30-June-

2014. We personally feel that FCCL give true and fair views because in annual report 2014 every

information that effect stock and stockholder given in report. Even though FCCL describe that

loan from different bank also in report and contingencies liabilities of FCCL has over the year

also in annual report that are off balance sheet activates. So, we can say that its true and fair vies.


Chapter #2: Vertical Analysis

1. Profit and loss account:

Fauji Cement Firm Limited

Profit and Loss Account

For the year Ended on December 31, 2015 Vertical Analysis Thousands

Description 2014 2013 2014 2013

PKR % %

Net sales 17532277 15967900 100 100

Cost of production

Raw Material 1756737 1549574 10 10

Labour 788964 715956 5 4

Deprication/ Amortization 1257196 1261532 7 8

Factory Overhead 8063038 7316552 46 46

Cost of Production 11865935 10843614 68 68

Inventory Adjustment 417793 43813 2 0

Cost of Goods Sold 11448142 10887427 65 68

Gross Profit 6084135 5080473 35 32

Operating Expenses

General Administrative

Expenses 225957 205074 1 1

Selling Expenses 125106 143866 1 1

Total Operating Expenses 351063 348940 2 2

Operating Profit 5733072 4731533 33 30

Less: other Operating Expense/finance charges or interest expenses

Other operating expenses 333504 228579 2 1

Financial Charges 1042144 1512148 6 9

Net Operating Profit 4357424 2990806 25 19

Add: Other Income

Other Income 152081 94719 1 1

Profit Before Taxes 4509505 3085525 26 19

Tax 1883511 988458 11 6

Net Profit 2625994 2097067 15 13

Preferred stock dividend 486,992 486,992 3 3

Net Profit Available for Common Stockholder 2,139,002 1,610,075

12 10


Income statement vertical analysis interpretation:

Vertical analysis also known as common size analysis is a popular measure of financial

statement analysis that show each item on statement as percentage of base item with in the

statement. Conducting a vertical analysis for Profit and loss account, sales used a base item and

all other item of profit and loss account show as a percentage of sales.

Net Sales:

Sales consider 100% every year because base this is a base item.

Cost of Goods Sold:

Raw material consumed:

FCCL consumed 10% raw material of sales. This percentage is equal to increase in sales

current year as compared to last year. In last year also raw material equal to 10% of sales. It’s a

good sign for FCCL because raw material consumption increase same as increase sales.

Labor Cost:

FCCL labor cost 5% in 2014 but in 2013 was 4% of sales. Increase in 1% in labor cost is

alarming situation for FCCL. This increase is not favor in FCCL. This increase may be due to

increase in wages.

Factory Overhead:

FOH 46% of sales in 2014. FOH same as in 2013. The only difference in amount but not

difference in % over the year in 2013 and 2014. We cannot say either good or bad.

Total Cost of Goods Sold:

Cost of goods sold 65% of sales in 2014. In last year cost of goods sold was 68%. The

decrease 3% due to decrease in depreciation/amortization. This is good for FCCL because due to

decrease in CGS increase the gross profit.

Gross Profit:

FCCL gross profit in 2014 is 35% of sales but in last year it was a 32% of sales. The 3%

decrease in CGS lead toward increase in gross profit by 3%. Another reason for increasing gross

profit increase price of cement (Director Report as reference). This increase is good sign for

FCCL.

Operating Expenses:


Administrative expenses of FCCL is 1.29% of sales in 2014 and 1.28% was in 2013.

Difference is not significantly as compared to last year. We can’t say either good or bad because

we have only two year data. But we can say increasing trend consider not good.

Selling expenses of FCCL is .71% of sales in 2014 and .90% was in 2013. The decrease

in selling expense after increasing sales showing good sign for FCCL. This decrease due to

decrease in export freight charges.

Operating Profit:

FCCL operating profit 32.70% of sales in 2014 and 29.63% in 2013. Increase in

operating profit is a good sign for FCCL. This increase is due to increase in gross profit and

decreasing operating expense.

Other operating expense:

Other operating expense of FCCL is 1.90% of sales and 1.43% in last year. This increase

due increase in production, sales and other related expense. We can’t say either good or bad for

FCCL.

Financial charges has reduced from last year but we can clearly see that financial charge

is not major expenses therefore do not much beneficial for FCCL performance. This indicate that

firm has low borrowing as compare to last year. Financial charges has significantly decrease by

almost 5%.

Other Income:

FCCL other income remain same over the year of sales. So, it difficult for me to say

either good or bad.

Profit before Taxes:

Profit before taxes is 25.72% of sales in 2014 and 19.32% in 2013. In 2014 FCCL profit

before taxes has increased 6% as compared to last year. It’s a good sign for FCCL. This increase

due to increase in operating profit.

Taxes:

Tax amount is 10.74% of sales in 2014 and in 2013 was 6.19%. Increase in taxes amount

in 2014 is due to increase income before taxes. We can’t say it’s a bad for FCCL because its due

to increase in EBIT.

Net Profit:


Net profit is 15 % of sales in 2014 and 13.13% in 2013. FCCL has increase 2% net profit as

compared to last year of sales. This increase is good for FCCL. FCCL manage efficiency over

process and reduced expenses.

Net profit available for common stockholders:

Net profit available for common stockholders 13.68% of sales in 2014 and 11.81% was in

2013. FCCL has increase 2% income for common stockholders in 2014. Its best for FCCL

common stockholders. That is best for investors.


2. Balance Sheet:


Balance Sheet

As on December, 31

(Rupees in Thousands) Vertical Analysis

2015 2014

Assets

Current Asset

Cash and Bank balance

842,983

1,702,171

3

6

Derivative financial instruments

55,394

0

Trade in debts

580,214

205,802

2

1

stock in trade

1,409,107

981,092

5

3

Advance

50,414

12,920

0

0

Store, spares and loose tools

2,016,336

1,869,919

7

6

Interest accrued

173

10,472

0

0

Trade deposit, short term prepayment and balance

with statutory authority

268,545

179,119

1

1

Other receivable

20,585

22,201

0

0

Total current assets

5,188,357

5,039,090

18

17

Non-Current Assets

Property, Plant and Equipment

23,881,426

24,734,325

81

82

Long term advance

1,800

2,700

0

0

Long term deposits and prepayments

309,749

528,934

1

2

Total Non-Current Assets

24,192,975

25,265,959

82

83

Total assets

29,381,332

30,305,049

100

100


Liabilities and Equity

Liabilities

Current Liabilities

Trade and other payables

1,725,648

1,483,438

6

5

Interest Payable/ Markup

163,457

206,362

1

1

Short term borrowing

42,232

159,685

0

1

Current portion of long term financing

2,551,169

2,559,945

9

8

Total Current Liability

4,482,506

4,409,430

15

15

Non-current liabilities

long term financing secured

5,362,998

7,924,264

18

26

Deferred liabilities

3,747,641

2,034,994

13

7

Total Non-Current Liabilities

9,110,639

9,959,258

31

33

Total Liabilities

13,593,145

14,368,688

46

47

Equity

Reserve

1,990,037

2,138,211

7

7

Common Stock

13,311,158

13,311,158

45

44

Preferred Stock

486,992

486,992

Total Equity

15,788,187

15,936,361

54

53

Total Liabilities and Equity

29,381,332

30,305,049

100

100


Balance Sheet vertical analysis interpretation:

Current Assets:

Cash and bank balance decrees by 3% in 2015 of total assets. It’s not good for FCCL

because this reduced liquidity. FCCL has reduced cash in deposit account and cash in hand half

as compare to last more than 50%. Fccl management take an immediate action on this issue.

FCCL has increase .02% of total assets as compared to last year. An increase may due to

decrease in cash and bank balance. FCCL paid supplies advances as compare last year advances

to supplier and giving advances to employee as compared to last years.

Trade in debts means account receivable increase 1.3% as compared to last year. In 2014

account receivable 2% of total assets and last year was only .7%. As AR increase also a chance

increase bad debts that not good for FCCL. FCCL management take an immediate action. A

significantly increase in AR in “consider goods” reason for increasing. At the same time we can

say that this increase is good for FCCL because its lead to increase liquidity.

Stock in trade also known as inventory. Inventory include raw material, work in process

and finished goods inventory. FCCL has increased 1.6% as compared to last year of total assets.

This increase due to increase in purchase that ultimate result ending raw material, work in

process and finished goods. Increasing in inventory main cause due to significantly increase in

work in process (Reference as Annual Report 2014, financial notes). This is not good for FCCL

because its show that fccl process management has not efficient. We can say that its increase

FCCL liquidity.

Interest accrued has decline .o3% in 2014 as compared to last year of total assets. This

decline we mention that FCCL has withdrawal more than half amount from deposit account so

that result effect the interest accrued. We can say that it’s a good, may be fccl used this amount

for expanding their operation.

Overall current assets increase by 1% of total assets, its means FCCL mange efficiently

liquidity as compare to last year. Over all FCCL increase liquidity. It’s a good thing for fccl

creditors.

Non-Current Assets:

Property, plant and equipment has reduced 1% of total assets as compared to last year.

This decrease due annual depreciation of fixed assets. We cannot say either good or bad.

Long term advances has decreased almost same % of total assets as compare to last year.

We can’t say either good or bad because % remain same as total assets as last year.

Long term deposit and prepayment has decreased 1% of total assets as compared to last

year. This decreased due to expire prepaid guarantee fee. So, we can’t say either good or bad.


Overall non-current assets has decreed also 1% of total assets as compared to last year.

As we can see that FCCL has not manage his fixed assets?

Liabilities and Equity:

Liabilities:

Current Liabilities:

FCCL has increase trade and other payable 6% of total liabilities in 2014 but in last year

it was a 5% of total liabilities. It difficult for me to say either good or bad. But we can say that

increasing liabilities never favor anyone.

FCCL has decrees Interest payable remain same % of total liabilities in both year. It’s

difficult for me to say either good or bad for this firm.

Short term secured borrowing had decreased by .4%of total liabilities as compared to last

year. It’s a good sign for fccl because firm has enough fund to pay off its short term obligation.

FCCL increase 2% current liabilities and current assets increased by 3%. So it’s a good sign for

fccl because fccl has more current assets as compared to current liabilities.

Non-Current Liabilities:

Long term financing secured has decreased by 8% of total liabilities and equity. It’s a

good sign for FCCL. FCCL payoff Royal bank of Scotland loan. So this is main reason for

decreasing long term liabilities.

`FCCL has increased deferred liabilities 6% of total liabilities and equity as compared to

last year. This increase due to increase in “provision for compensated absences and deferred

taxation”. It’s a good sign for FCCL because use its amount further in business and then payoff

late through generating this deferred liabilities.

Equity:

Reserve remain same % over the year of total liabilities and equity.

Common stock remain same in amount but increase 1% of total liabilities and equity. Preferred

stock remain same over the year. FCCL has no change in equity. So we can’t say either good or

bad.


Chapter# 3: Horizontal Analysis

1. Profit and loss Account


Profit and Loss Account

For the year Ended on December 31, 2015 Horizontal

Analysis Thousands

Description 2014 2013 2014

PKR %

Change

Net sales 17532277 15967900 10

Cost of production

Raw Material 1756737 1549574 13

Labor 788964 715956 10

Depreciation/Amortization 1257196 1261532 0

Factory Overhead 8063038 7316552 10

Cost of Production 11865935 10843614 9

Inventory Adjustment 417793 43813 854

Cost of Goods Sold 11448142 10887427 5

Gross Profit 6084135 5080473 20

Operating Expenses

General Administrative

Expenses 225957 205074 10

Selling Expenses 125106 143866 -13

Total Operating Expenses 351063 348940 1

Operating Profit 5733072 4731533 21

Less: other Operating Expense/finance charges or interest expenses

Other operating expenses 333504 228579 46

Financial Charges 1042144 1512148 -31

Net Operating Profit 4357424 2990806 46

Add: Other Income

Other Income 152081 94719 61

Profit Before Taxes 4509505 3085525 46

Tax 1883511 988458 91

Net Profit 2625994 2097067 25

Prefferd stock dividend 486,992 486,992 0

Net Profit Available for Common Stockholder 2,139,002 1,610,075

33


Income statement horizontal analysis interpretation:

Analyst when compare financial statement of a single company for two are or more

years, they want to measure the change from year to year. Measure year to year change of single

item called horizontal analysis. In other wards analyst compare amount of single item change for

evaluation either this change good or bad. Comparing financial statement for no. of years, this

measure analyst refer to use variation over the time period that also called trend analysis.

Net Sales:

FCCL has net sales increase 10% over the year. It’s a good sign for FCCL because its

show utilization of business operation capacity. Cause of increasing sales according to annual

director report 2014, director mention that this increase due to increase domestic consumption.

Cost of Goods Sold:

Raw material consumed:

FCCL sale increase 10% but raw material consumed 13%. Raw material consumed 3%

this show FCCL has increase wastage of material. FCCL procurement department not enough

efficient to control over the material quality. This increase due to increase either increase

wastage due to low quality material or increase quality with increasing using material.

Labor Cost:

Increase in labor cost and sales over the years same. Labor cost mostly associated with

sales so increase in sales neither good nor bad. But at the same time we can say that, it is a good

sign for FCCL because exist economy inflation over the year labor cost still remain same

percentage as sales compared to last year.

Factory Overhead:

FOH change in amount but remain same as sales compare to last year. We can’t say

either good or bad. Its fastidious for any argument.

Total Cost of Goods Sold:

Cost of goods sold increase 5% of sales as compare to last year. Sales increase 10% and

CGS increase 5% this show efficiency FCCL management. After increase raw material

consumed fccl manage and control other CGS controllable expenses.

Gross Profit:

FCCL increase 20% gross profit as compared to last year. FCCL gross profit increase

20%, sales increase by only 10% but this increase show management efficiency. This increase


may due to increase profit margin of per unit and cost of goods sold remain same per unit as

compared to last year this reason mention in director report.

Operating Expenses:

Administrative expenses increased 10% from last year. This increase due to increase in

salaries, wages benefits by 10%, communication and establishment expenses almost 50% and

donation expenses by almost more than 100% but overall increase is 10% because some other

expense include are reduced this years. We can say, this increase is a good sign for FCCL

because this increase equal to increase in sale revenue.

Selling expenses reduced by 13% that a good things for FCCL. This reduced by due to

export freight charges, travelling and entertainment expenses more than by 50%. Decrease export

freight charges due to decrease export with vide reference director report 2014. But average

selling expenses decrease by 13% and other expense increase.

Operating Profit:

FCCL operating profit increase by 21% from last year. This increase by decrease in

controllable operating expenses and increase in gross profit that result ultimate effect on

operating profit. Increase operating profit show FCCL efficiency in term of fccl focus on

operational income form business operation. This increase show good sign for FCCL.

Other operating expense:

Other operating expense increase by 46% from last year. It not good sign for FCCL

because these expense are controllable expenses but FCCL can’t control. Reason behind increase

other operating expense is workers participation fund and workers’ welfare fund increase by

more than 40% and other expense increase but not significantly. We can say that its good sign

for workers.

Financial charges decrease by 31%. It good sign for FCCL and efficient assets and

liabilities management. The main reason decreasing by decrease >200% exchange loss on

revaluation of loan. Other financial charges increase but overall 31% decrease by financial

charges.

Other Income:

FCCL other income increase by 61%. This increase due to increase in profit on deposit

account and gain on disposal of property, plant and equipment respectively almost 50% and

1000%. Other income generating source decrease but overall increase as compared to last year

by 61%.

Profit before Taxes:


Profit before taxes increase by 46% as compared to last 2013. Reason for increase profit

before taxes in 2014 due to increase in net operating profit and increase in other income.

Taxes:

Tax amount increase by 91% over the year from 2013 to 2014. This increase due to

increase amount profit before taxes. Taxes always a percentage on profit before taxes so this tax

amount vary increase/decrease in PBT.

Net Profit:

Net profit increase by 25% as compared to last year. It’s a good sign for FCCL because operating

profit increase by 21% but net profit increase more than operating profit. Net profit increase due

to increase in sales, gross profit and operating profit.

Net profit available for common stockholders:

Net profit available for common stockholders increase by 27% as compared to last years.

This increase due increase in net profit.


Graphical representation of horizontal analysis:

02000000400000060000008000000

100000001200000014000000160000001800000020000000

Sum of 2014

Sum of 2013

05

101520253035404550

Total

Total


2. Balance Sheet


Balance Sheet As on December, 31 (Rupees in Thousands) Horizontal

Analysis 2015 2014

Assets

Current Asset

Cash and Bank balance

842,983

1,702,171

(50)

Derivative financial instruments

55,394

Trade in debts

580,214

205,802

182

Stock in trade 1,409,107

981,092

44

Advance

50,414

12,920

290

Store, spares and loose tools 2,016,336

1,869,919

8

Interest accrued

173

10,472

(98)

Trade deposit, short term prepayment and

balance with statutory authority

268,545

179,119

50

Other receivable

20,585

22,201

(7)

Total current assets 5,188,357

5,039,090

3

Non-Current Assets

Property, Plant and Equipment

23,881,426

24,734,325

(3)

Long term advance

1,800

2,700

(33)

Long term deposits and prepayments

309,749

528,934

(41)

Total Non-Current Assets

24,192,975

25,265,959

(4)

Total assets

29,381,332

30,305,049

(3)


Liabilities and Equity

Liabilities

Current Liabilities

Trade and other payables 1,725,648

1,483,438

16

Interest Payable/ Markup

163,457

206,362

(21)

Short term borrowing

42,232

159,685

(74)

Current portion of long term financing 2,551,169

2,559,945

(0)

Total Current Liability 4,482,506 4,409,430

2

Non-current liabilities

long term financing secured 5,362,998

7,924,264

(32)

Deferred liabilities 3,747,641

2,034,994

84

Total Non Current Liabilities 9,110,639 9,959,258

(9)

Total Liabilities

13,593,145 14,368,688

(5)

Equity

Reserve 1,990,037 2,138,211

(7)

Common Stock

13,311,158

13,311,158

-

Preferred Stock 486,992 486,992

Total Equity

15,788,187

15,936,361

(1)

Total Liabilities and Equity

29,381,332

30,305,049

(3)


Balance Sheet horizontal analysis interpretation:

Current Assets:

Cash and bank balance decrees by 50% in 2015. It’s not good for FCCL because this

reduced liquidity. FCCL has reduced deposit account and cash in hand more than 50%. Fccl

management take an immediate action on this issue.

FCCL has increase advances amount by 290%. A significantly increase may due to

decrease in cash and bank balance. FCCL paid supplies advances as compare to last year

advances to supplier and giving advances to employee as compared to last years.

Trade in debts means account receivable increase 182% as compared to last year. As AR

increase also a chance increase bad debts that not good for FCCL. FCCL management take an

immediate action because this increase more than increase in sale % and as well current assets

and total assets. A significantly increase in AR in “consider goods” reason for increasing. At

the same time we can say that this increase is good for FCCL because its lead to increase

liquidity.

Stock in trade also known as inventory. Inventory include raw material, work in process

and finished goods inventory. FCCL has increased 44% as compared to last year. This increase

due to increase in purchase that ultimate result ending raw material, work in process and

finished goods. Increasing in inventory main cause due to significantly increase in work in

process. This is not good for FCCL because its show that fccl process management has not

efficient. We can say that its increase FCCL liquidity.

Interest accrued has decline 98% in 2014 as compared to last year. This decline we

mention that FCCL has withdrawal more than half amount from deposit account so that result

effect the interest accrued. We can say that it’s a good, may be fccl used this amount in

expanding their operation. But it’s bad if we talk in term of current year liquidity.

Overall current assets increase by 3% its means FCCL mange efficiently liquidity. Over

all FCCL increase liquidity. It’s a good thing for fccl creditors.

Non-Current Assets:

Property, plant and equipment has reduced 3% as compared to last year. This decrease

due annual depreciation of fixed assets. we cannot say either good or bad. \

Long term advances has decreased 33% as compared to last year. FCCL not good for that

because its effect overall firm liquidity.

Long term deposit and prepayment has decreased 41%. This decreased due to expire

prepaid guarantee fee. So, we can’t say either good or bad.


Overall non-current assets has decrees as compared to last year. As we can see that FCCL

has not manage his fixed assets it’s not good sign for fccl.

FCCL decrease total assets by 3%. It is a good sign because liabilities decrease d by mere

than assets %. But over the year fccl not increase as compared to last year. If we conservative

analysis then good thing because assets still more than liabilities.

Liabilities and Equity:

Liabilities:

Current Liabilities:

FCCL has increase trade and other payable by 16% in 2014 as compared to last year.

Accrued liabilities has increased 100% as compared to last year accrued liabilities but other

liabilities decrease. It difficult for me to say either good or bad. But we can say that increasing

liabilities never favor anyone.

FCCL has decrees Interest payable by 21%. Decrease interest payable is good sign for

FCCL. Decreasing interest payable trend because interest payment on remaining principle

payment, every year principle payment decrease this also lead decrease in interest payment.

Short term secured borrowing had decreased by 74% as compared to last year. It’s a good

sign for fccl because firm has enough fund to pay off its short term obligation.

FCCL increase 2% current liabilities and current assets increased by 3%. So it’s a good sign for

fccl because fccl has more current assets as compared to current liabilities.

Non-Current Liabilities:

Long term financing secured has decreased by 32%. It’s a good sign for FCCL. FCCL

payoff Royal bank of Scotland loan. So this is main reason for decreasing long term liabilities.

`FCCL has increased deferred liabilities 84% as compared to last year. This increase due

to increase in “provision for compensated absences and deferred taxation”. It’s a good sign for

FCCL because use its amount further in business and then payoff late through generating this

deferred liabilities.

Equity:

Reserve has decrees 7% from last year. This decrees due decrees in un-appropriated

profit.

Common stock and preferred stock remain same over the year. FCCL has no change in equity.

So we can’t say either good or bad.


Chapter# 4: Ratio Analysis

Ratios are typically used to analyze how well a firm uses its assets and liabilities

internally. Efficiency Ratios can calculate the turnover of receivables, the repayment of

liabilities, the quantity and usage of equity and the general use of inventory and machinery.

4.1 Liquidity Ratio:

Liquidity ratio measure short-term debt paying ability of the firm, firm unearth a relationship

between the current assets and the current liabilities. From these ratios, much insight can be

obtained into the present cash solvency of the firm and the firm’s ability to remain solvent in the

event of adversity. Profitability of the firm does not determine the short term debt-paying ability.

Almost every firm use accrual accounting policy, the entity may report very high profits but may

not have the ability to pay its current bills because it lacks available funds. May be if any entity

reports a loss, it may still be able to pay short-term obligations.

1. Current Ratio:

= Current Assets

Current Liabilities

2014 2013

Current Assets 5,188,357 5,039,090

Current Liabilities 4,482,506 4,409,430

Ratio 1.157 1.142

Normal current ratio is 2:1 but it differs from industry to industry. Within industry

comparison, individual firm can comparison with industry average current ratio. Current assets

should be twice the current liabilities. It should however be noted that too high ratio may indicate

that capital is not being used productively and efficiently. Such a situation calls for financial

reorganization.

FCCL has downward current ratio trend. It’s a good for a FCCL because his management

managing efficient capital. FCCL has below industry average current ratio likewise in industry

had extreme value on both end high and low. If the average >1 and <2; consider is good for the

firm. Current ratio is increase in 2014, due to increase in current assets is more as compare to

increase in current liabilities.


2. Quick ratio/ Acid Test Ratio:

= Current Assets - Inventory

Current Liabilities

2014 2013

Current Assets 5,188,357 5,039,090 Inventory 1,409,107 981,092 Current Liabilities 4,482,506 4,409,430 Ratio 0.78 1.06

Quick ratio also knows as Acid Test ratio. These tools used to access a more immediate

liquidity position than that indicated by the current ratio. These tools provide best result where

inventory can’t convert easily into cash because this ratio include those items that are either

equal to cash or item next stage is cash. Prepayment and Inventory less from the current assets:

reasons for removing inventory are that inventory may be slow-moving or possibly obsolete, and

parts of the inventory may have been pledged to specific supplier/payable.

Normally quick ratio is 1:1 consider good sign for the firm but it can differ from industry

to industry likewise within industry. FCCL has also faced downward Quick ratio trend from last

five years. It’s a difficult for me to say either good or bad. FCCL has below the industry average,

we can say it’s a bad for FCCL. At the same time it’s good for managing efficient capital

because firm has paid all liabilities on time. Downward trend show that firm management has

realized capital viva efficient way firm.

3. Net Working Capital

= Current Assets – Current Liabilities

2014 2013

Current Assets 5,188,357 5,039,090 Current Liabilities 4,482,506 4,409,430 Amount 705,851 629,660

Working capital depends upon the size and nature of business. Net working Capital

can’t describe that anything about the firm. Net working capital gives some hint about firm, if we

compute the net working capital turnover. That result show how much working capital is

contributed toward generating sales.

Net working capital is upward slow growing trend of FCCL. But it’s a fastidious for me

to say either good or bad.


4.2 Management Efficiency Ratio

Businesses exist for the purpose of generating profit and satisfying the customer’s needs.

It is the role of the management to ensure such objectives are attained, and hence must gather

sufficient data to inform them how the business is doing.

As a financial manager, you must ask yourself questions such as whether the firm’s market

share has improved, or whether the assets are generating enough revenue relative to the amount

of money invested, these question answer show the management is either managing efficient and

effectively or not.

1. Account Receivable Turnover:

= Net Sales

Avg. Account Receivable

2014 2013

Net Sales 17532277 15967900 Avg. Account

Receivable 393008 393008 Times 45 40

The accounts receivable turnover is a tool that used to evaluate efficiency, firm credit policy.

Too low accounts receivable turnover may perhaps show that firm is either finding it hard to

collect debts from customers or that it is granting credit too easily. Other thing remains constant,

a high accounts receivable turnover is recommended.

FCCL account receivable turnover has been increased as compare to last year account

receivable turnover. It’s a good sign for a FCCL because as many as high account receivable

turnover reduce the collection period. Net sales has increased also increase account receivable

but firm has efficient management and increase account receivable turnover that show a good

thing for firm. FCCL has efficient management of credit policy.

2. Accounts Receivable Turnover in Days:

= 365

Account Receivable turnover ratio.

2014 2013

Account Receivable turnover

ratio 45 40 Days 8 9

Also known as the days’ sales in accounts receivable, this ratio refers to the average

number of days between when a credit transaction is processed to the date the customer pays for

the product obtained. It helps the firm manage its cash flows, so that it can meet its current

obligations as they fall due.


FCCL showing upward trend in account receivable in days. It’s a good for firm because

firm managing efficient debt recovery. As soon as FCCL reduce debt recovery period, it’s better

for the firm.

3. Inventory Turnover:

= Cost of Goods Sold

Avg. Inventory

2014 2013

CGS 11448142 10887427

Avg. Inventory 1195099.5 981,092 Times 9.57 11.10

This ratio, like other ratios, must be judged in relation to ratios of similar firms, the industry

average or both. Higher the inventory turn-over, the more efficient the inventory management of

the firm and the “fresher” more liquid, the inventory and vice versa.

FCCL Inventory T/O is decrease from 11.10 to 9.5 which is negative trend now firm

efficiency is reduce and that is alarming for firm. Firm should take immediate step for overcome

this situation.

4. Inventory Turnover in days:

= 365

Inventory Turnover

2014 2013

Inventory Turnover 9.57 11.10 Inventory Turnover in

Days 38 32

As inventory turnover ratio show the firm efficiency in times to convert the inventory into

CGS .This Ratio show in how many days a firm take to convert its inventory into CGS. FCCL

inventory turnover in days has significantly increase. It’s a not good for the firm and that is

alarming for the firm. FCCL should take immediate effective action to overcome the situation.

5. Accounts Payable Turnover:

= Cost of goods sold

Avg. Accounts Payable

2014 2013

CGS 11448142 10887427


Avg. Account

payable 1604543 1,483,438

Times 7.13 7.34

The account payable turnover ratio is how many times firm pay off its average account

payable during the accounting period. This ratio tells the vendors that firm is unable to pay off

their short term liabilities. Most of the times vendor used this ratio when they give credit to new

firm.

This means that FFCL pay it vendor on average 7.13 of year. This ratio is reduced from

previous years it’s not good for the FCCL because as many times extend better for the firm. We

can’t say anything overall about this ratio unknowing the industry average.

6. Accounts Payable Turnover in Days:

= 365

Account Payable Turnover.

2014 2013

Account Payable Turnover.

7.13 7.34

Days 51. 49.

Also known as the days’ purchase in accounts payable, this ratio refers to the average

number of days between when a credit transaction is processed to the date the firm pays for the

purchase raw material. It helps the firm manage its cash flows, so that it can managing the firm

cash from its current assets.

FCCL showing upward trend account payable in days. It’s a good sign for firm. FCCL

extend two days for repaying of account payable.


4.3 Long Term Ratios

1. Interest Coverage Ratio:

= EBIT

Interest Expenses including capitalization interest

2014 2013

Operating Income 5733072 4731533 Interest Expenses 1042144 1512148 Times 4.33 2.04

Interest coverage ratio measure firm’s ability to paying interest payment on debts.

Creditor and investor used this ratio measure the firm profitability and risk of firm. Investor want

to see that .their firm can pay its obligation on time without sacrifice its operation and profit.

Creditor want to seek firm either able to support additional debt or not. Creditor seek risk

involved in lending to firm.

FCCL has 4.33 times increase 50% from previous. Its means 4.33 times earnings available

for current interest payment. It is a good sign for FCCL lender and as well as investor who want

to invest in FCCL. Its increase means firm has low risk in business operation to generate enough

cash to pay obligation. Increase in ICR due to increase in Net operating profit and decrease in

Interest expenses.

2. Fixed Charge Coverage Ratio:

= Operating Income

Interest Expenses + lease Rental + Principal payment + Pension Payment

2014 2013

Operating Income 5733072 4731533 Interest Exp 1042144 1512148 Times 4.33 2.04

Fixed coverage ratio measure the firm ability to pay all of its fixed payment/expenses

through operating income/income before interest and taxes. All fixed payment like interest

expenses, lease rental, principal payment consider as fixed payment.

FCCL has 4.33 times increase 50% from previous. Its means 4.33 times earnings available

for fixed payment. It is a good sign for FCCL lender giving debt to firm and as well as investor

who want to invest in FCCL. Its increase means firm has low risk in business operation to

generate enough cash to pay obligation. Increase in fixed coverage ratio due to increase in Net

operating profit and decrease in Interest expenses.

3. Debt Ratio:


= Total Liabilities

Total Assets

2014 2013

Total Liabilities 13,593,145 14,368,688 Total Assets 29,381,332 30,305,049 % 46 47

Debt ratio measure the firm’s total liabilities as percentages of its total assets. This ratio

evaluate the firm’s ability to pay off its liabilities as compared to assets. In other word this ratio

show how may assets sell in order to pay off all of its liabilities.

FCCL has debt ratio is 46% decrease only 1% from previous year. Its ratio means that FCCL

has more than 2 times assets as compared to liabilities. This decrease due to decrease to decrease

in total liabilities but this decrease is > decrease in total assets. It’s a good sign for FCCL.

4. Debt/Equity Ratio:

= Total Liabilities

Equity

2014 2013

Total Liabilities 13,593,145 14,368,688

Equity 13,311,158 13,311,158 % 1.02 1.08

This ratio compare to total debt to equity. The debt to equity ratio shows the percentage

of company financing that comes from creditors and investors. A higher debt to equity ratio

indicates that more creditor financing (loans) is used than investor financing (shareholders).

FCCL has 6% decrease debt to equity ratio from previous year. It good sign for FCCL

because its show more investment by investor. Overall according to my opinion not good

because FCCL still more than equity.

5. Debt-to-tangible Net worth Ratio:

= Total Liabilities

Shareholders Equity – Intangible Assets

2014 2013

Total

Liabilities 13,593,145 14,368,688

Equity 13,311,158 13,311,158


Intangible

Assets 0 0

% age 102 108

Debt to tangible net worth ratio measure how much tangible net worth of firm are

available against total liabilities. This ratio compare to total debt to tangible net worth of firm.

The debt to tangible net worth ratio shows the percentage of company financing that comes from

creditors and investors. A higher ratio indicates that more creditor financing (loans) is used than

investor financing (shareholders).

FCCL has 6% decrease debt to tangible net worth ratio from previous year. It good sign

for FCCL because its show more investment by investor. Overall according to my opinion not

good because FCCL still more than equity.

6. Total Capitalization:

= Long term Debt

Total Capitalization + Equity

2014 2013

Long term

Debt 5,362,998 7,924,264

Total

Capitalization 13,311,158 13,311,158

Equity 13,311,158 13,311,158

% age 0.29 0.37

7. Fixed Assets Ratio:

= Fixed Assets

Equity

2014 2013

Fixed Assets 13,593,145 14,368,688 Equity 13,311,158 13,311,158 % age 1.81 1.89

Fixed assets ratio show how much fixed assets are available against to equity. But one

thing keep in mind total equity not invested in fixed assets means that part of equity also invested

in working capital.


FCCL has decrease this ratio. Reason behind this is fixed assets are depreciation every

years and decrease nominator and denominator remain same. We can’t say either good or bad.


4.4 Profitability Ratios:

The income statement contains several figures that might be used in profitability analysis.

In general, the primary financial analysis of profit ratios should include only the types of income

arising from the normal operations of the business.

1. Gross Profit Margin:

= Gross Profit X 100

Net Sales

2014 2013

Gross Profit 17532277 15967900 Net Sales 6084135 5080473 % age 35 32

Gross profit margin ratio is a profitability ratio that describes the percentage of sales that

exceed the CGS. You can say that this ratio measure the firm efficient use of materials, labor to

produced product and profitability.

FCCL gross profit increase 3% as compared to last year. This increase is due to high

prices of FCCL product with reference to: Director Report of Annual Report 2014. The increase

in price may be due to high demand of cement in construction industry. It is a good for FCCL.

2. Operating Profit Margin:

= Operating Profit X 100

Net Sales

2014 2013

Operating Profit 5733072 4731533 Net Sales 17532277 15967900 % age 33 30

Operating profit ratio is important for investor, creditors and firm management use this

tool to evaluate the profitability of the firm. This ratio is consider important because this profit

from the core business activities. High operating income will be favor for the firm to pay off

firm debt.

FCCL operating profit increase by 3% from last year. Reason is that gross profit increase

that result also effect the operating profit. It is a good for FCCL because firm manage efficiently

controllable expense as last year.


3. Net Profit Margin:

= Net Profit X 100

Net Sales

2014 2013

Net Profit 2625994 2097067 Net Sales 17532277 15967900 s% age 15 13

Net profit is amount that left after deducting all expenses. High net profit is always

preferable. In case of high profit, firm reinvest their profit to expanding firm operation.

FCCL has increase 2% profit over the year. It is good sign of increasing overall net profit

but at the same time, we can say that it not good efficient management because operating profit

has been increase but firm can’t managed other expense that why net profit decreased by 1% as

compared to increase in operating profit.

4. Total Assets Turnover:

= Sales X 100

Avg. Total Assets

2014 2013

Sales 17532277 15967900 Avg. Total Assets 29,843,191 30,305,049 % age 59 53

Total asset turnover ratio describe how firm efficiently using both long term and short

term assets. We can say that each rupee of your firm’s assets generating sale. High assets

turnover always preferable. High turnover asset means firm uses its assets efficiently. This ratio

give creditor and investor idea for managing assets.

FCCL ratio is 59%, this means that for every rupee in assets. We can say that FCCL only

59 paisy of Rs.1/-.FCCL show upward trend of assets turnover as compared to last years. This

increase may be due to increase in sales percentage as compared to increase in total assets.

According to annual report data FCCL sales increase but total net assets is decreased from

previous year that main reason for increase in total assets turnover. It is a good sign for the

FCCL and showing efficient management of FCCL.

5. Return on total assets:

= Net profit+ Interest X 100

Avg. Total Assets


2014 2013

Net Profit 2625994 2097067 Avg. Total

Assets 29,843,191 30,305,049 Interest 1042144 1512148 % age 12 12

Return on assets also called return on total assets. This ratio measure the profitability

ratio that measure net profit generate during the firm period by total assets. Assets of a firm is

sole purpose to generate revenue. This ratio describes assets management efficiency of firm.

Management and investor want to see how well company can managing its assets towards the net

profit.

FCCL return on assets are same in both years. The reason behind remaining same total

assets return is: net profit increase in 2014, total assets decrease and also reduced financial

charges but in previous year net profit is less as compared to 2014, total assets is more than 2014

and financial charges more than 2014. It’s a neutral opinion about this ratio.

6. Operating Assets Turnover:

= Net Sales X 100

Total Operating Assets

2014 2013

Net Sales 17532277 15967900 Total

Operating

Assets

23,881,426 24,734,325

% age 73 65

Operating assets turnover ratio evaluate the firm’s ability to utilize its assets to generating

revenue. This ratio describe net sale generated per dollar by operating assets. High ratio

describes that firms firm generating more sale with few assets.

Operating assets turnover 5% more than last year. It’s showing firm efficiency of

managing operating assets. Its good sign for FCCL because that increase either directly or

indirectly increase net profit.

7. Return on Equity:

= Net Profit – Preferred Stock dividend X 100

Average No.Common Stock


2014 2013

Net Profit 2625994 2097067 Preferred

Dividend 486,992 486,992 Ave. Common

Stock 1,331,116 1,331,116 % age 180 121

Return on equity ratio shows how much profit each dollar of common stockholders'

equity generates. This is an important measurement for potential investors because they want to

see how efficiently a company will use their money to generate net income. ROE is also an

indicator of how effective management is at using equity financing to fund operations and grow

the company.

FCCL return on equity is 1.8 in 2014. This means that every dollar of common

stockholder’s equity earned this year is 1.8. In other words, we can say that stockholder’s saw a

180% return on their investment. This could indicate that FCCL's is a growing company. FCCL

has significant change of return on equity from last year. It’s a good sign for the FCCL for

seeking investor.

8. Return on Assets:

= Net Profit + Interest Expenses X 100

Equity + Long Term Assets

2014 2013

Net Profit 2625994 2097067 Interest Expenses 1042144 1512148 Equity 13,311,158 13,311,158 Long Term Assets 5,362,998 7,924,264 % age 7 2

Return on assets ratio also called ROA. This ratio measure how efficiently company

manage its assets to generate net profit during a period. Assets of a firm is sole purpose to

generate revenue. This ratio describes assets management efficiency of firm. Management and

investor want to see how well company can managing its assets towards the net profit.

FCCL assets turnover ratio is 7% of 2014. Its means every rupee that FCCL invested in

assets during the accounting year is Rs.7/- of net income. For FCCL is good change, return on

assets as compare to last year. This change occur due to efficient management of current assets

because current ratio reduce this year that means we manage assets. FCCL investor can compare

this ratio with other firm of cement industry.


4.5 Analysis for Investors

1. Earnings per Share:

= Net Income – Dividend on Preferred Stock

Avg. No. of Shares Outstanding

2014 2013

Net Income 2625994 2097067 No. of shares

outstanding 1,331,116 1,331,116 Rs. 1.61 1.21

Earnings per share same as any profitability or market prospect measurement ratio. High

earning per always prefer then lower earnings per share because high ratio means firm high

profitability or amount available to distribute to its shareholders. High earning per share often

make the price rise.

FCCL earning per share show increasing trend. FCCL EPS increase from 1.21 to 1.61.

It’s a good sign for FCCL because increase in net profit year to year, preferred stock dividend

and average no of common stock remain same. FCCL EPS for the year is RS.1.61/- means that

distributed to every rupee of income to its shareholder.

2. Price Earnings Ratio:

= Market Price per Share

Earnings per Share

2014 2013

Market Price

Per Share

15.41 7.9

EPS 1.61 1.21

Rs. 9.59 6.53

Price earnings ratio describe that the investor is willing to pay firm share based on its current

earnings. Investor used this ratio for evaluation stock market value should be predicating future

earnings per share. Higher future earning usually expecting to issue on higher dividend giving

by firm. This ratio help investor to how much pay for the stock at the current price earning. Low

price ratio means company has low future growth.

FCCL price earnings ratio is an upward trend means FCCL has a potential growth. FCCL’s

price earnings ratio is 10 times. This means that investor are willing to pay 10 rupees for every

rupee of earning. In other words we can say that stock will be traded at a multiple of ten. It is

good for the FCCL because as compared to previous year significantly increase. This increase


may be due to increase in market price from last year. And also may be other reason due to high

demand of cement that may be expand his operation, expansion lead toward high growth that

will also increase market price. May be also decreasing % of retain earning means highly

distributed profit to common stockholders.

3. Percentage of Earning Retained:

= Net Profit – All Dividend

Net Profit

2014 2013

Net Profit 2625994 2097067 All Dividend 2,865,398 210687 % age (0.11) 100

Percentage of earning retained describe that how much firm profit distributed to shareholders

of the firm. High ratio not favorable to stockholder because it means firm retain high amount in

retained earning amount and less distributed to shareholders.

FCCL retained all profit 2013 in retained earning account but in 2014 FCCL distributed all

profit to shareholders. Reason may be retain all earning in 2013 to reinvest for business operation

that ultimately beneficial of shareholders because reinvest increase profit in future. In 2014

FCCL distributed all profit as well amount from reserve account to shareholders. It’s good for

investor because they received highly benefit in term of dividend.


4.6 Cash Flow ratio

Ratio Formula 2014 2013

operating cash flow to total debt

operating cash flow/ total debts 1.08 .74

operating cash flow per share

operating cash flow-preferred dividend / common share outstanding

4.15 3.42

operating cash flow to dividend

operating cash flow/total cash dividend 1.99 22.24

1. Operating Cash flow to total debt:

Operating cash flow to total debt describe that how much cash generating operating cash

flow as compared to debt. FCCL has increase this ratio in 2014. It is a good for FCCL because

operating cash generating increase from business operation. This increase may be due to increase

in operating cash from sales. This show management efficiency. Its increase trend both for

investor and stockholders.

2. Operating Cash Flow Per Share:

Operating cash flow per share measure per share rupee available from operating cash

flow. This increase may be due to increase in operating cash from business operation and

preferred stock dividend amount remain same. It’s a good sign for FCCL. This is best for

Common stockholders.

3. Operating Cash Flow To Dividend:

Operating cash flow measure the firm ability to pay cash flow of total cash dividend from

operating cash from operation. A huge change in this ratio is due to paying out cash dividend in

2013 FCCL has paid only preferred stock cash dividend but in 2014 FCCL paid both equity

holder common stock and preferred stockholder dividend. It’s good for common stock because

current ratio preferable that show FCCL distributed cash dividend to common stockholders.


Reference:

Annual Report

Virtual University of Pakistan (Course related material and lecture: Financial Statement

reporting and Analysis)

Financial Reporting & Analysis by Charles H. Gibson, 11th edition.

FCCL website

Wikipedia

This report is completely produced by "Muhammad Javed and Ayesha Mureed". Any material or

concept similarity with some other project report or source is entirely coincidental.

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