Corporate Finance Report
Corporate Finance Report
Corporate Finance Report
FINANCIAL ANALYSIS OF
DG KHAN CEMENT
COMPANY LTD.
FINAL PROJECT CORPORATE FINANCE
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Financial Analysis of DG Khan Cement Company Ltd.
Preface
As the world is growing rapidly, the businesses are also moving to
become the huge one. And by that result, more and more people want to
become a master in these businesses. The main purpose in the finance
field is to know how the financial analysis is done. We all know that
finance is the blood of any business and without it no business can run.
Financial analysis of a company is very difficult and the most important
task and by doing this I am able to know the whole financial position and
financial structure of the company.
Simply by looking at how much cash a company has does not provide
enough information. The financial statements need to be analyzed to
measure a company’s performance and to compare it with other firm’s in
the same industry. The resulting information is intended to be useful to
owners, potential investors, creditors, analysts, and others as the
analysis evaluates the past performance, future potential and financial
position of the firm.
This report is an analysis of financial statements of D.G. Khan Cement
Company Ltd. This report has been prepared with an objective to develop
analytical skills required to interpret the information (explicit as well as
implicit) provided by the financial statements and to measure the
company’s performance during the past few years. The financial
statements are analyzed using traditional evaluation techniques such as
horizontal analysis, vertical analysis and trend analysis. Ratios are an
important tool in analyzing the financial statements & the company’s
profitability, solvency & liquidity. Sincere attempts have been made to
make this report error free but if any errors and omissions are found then
I apologize for that.
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Financial Analysis of DG Khan Cement Company Ltd.
Acknowledgement
In the name of “Allah”, the most beneficent and merciful who gave us
strength and knowledge to complete this report. This report is a part of
our course “Corporate Finance”. This has proved to be a great
experience. I would like to express our gratitude to our Finance teacher
Mr. Sadir Zaidi who gave us this opportunity to fulfill this report. We would
also like to thank our colleagues who participated in a focus group
session. They gave us many helpful comments which helped us a lot in
preparing our report.
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Financial Analysis of DG Khan Cement Company Ltd.
Table of Contents
Preface................................................................................................................................. 1
Acknowledgement................................................................................................................ 2
Table of Contents.................................................................................................................. 3
Introduction........................................................................................................................... 5
Mission Statement............................................................................................................. 5
Vision Statement...............................................................................................................5
D.G. Khan Cement Company Limited...............................................................................5
NISHAT GROUP............................................................................................................ 5
D.G. Khan Cement Company........................................................................................6
Acquisition of DGKCC by Nishat Group.........................................................................6
Capacity Addition........................................................................................................... 6
Expansion -Khairpur Project..........................................................................................6
Power Generation..........................................................................................................7
Environmental Management..........................................................................................7
BOARD OF DIRECTORS..............................................................................................7
Why cement sector for our project.....................................................................................7
INDUSTRY REVIEW............................................................................................................9
Overview of income statement............................................................................................10
Overview of Balance sheet.................................................................................................10
Liquidity Position with Graphical Presentation.....................................................................11
Liquidity Position.............................................................................................................11
Activity Ratios.................................................................................................................. 12
Operating Cycle.............................................................................................................. 13
Debt Ratios..................................................................................................................... 14
Profitability Ratios........................................................................................................... 15
Profitability - Financial Year 2002 to Financial Year 2008.............................................16
Assets Utilization............................................................................................................. 17
Return on Investment......................................................................................................18
Return on total equity...................................................................................................18
Investment Ratios........................................................................................................... 19
Investment Ratios........................................................................................................... 20
Univariate Model................................................................................................................. 22
Multivariate Model............................................................................................................... 23
Annexure............................................................................................................................ 25
Summarized Income Statement......................................................................................25
Summarized Balance Sheet............................................................................................29
Horizontal Analysis of Income Statements......................................................................30
Vertical Analysis of Income Statements...........................................................................30
Horizontal Analysis of Balance Sheet..............................................................................31
Vertical analysis of balance sheet...................................................................................32
Liquidity Ratios................................................................................................................ 34
Long Term Debt Paying Ability.........................................................................................36
Profitability Ratios........................................................................................................... 37
Assets Utilization............................................................................................................. 37
Investment Ratios........................................................................................................... 39
Strengths......................................................................................................................... 41
Weaknesses.................................................................................................................... 42
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Financial Analysis of DG Khan Cement Company Ltd.
Recommendations.............................................................................................................. 44
International Trend.......................................................................................................... 44
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Financial Analysis of DG Khan Cement Company Ltd.
Introduction
Mission Statement
To provide quality products to customers and explore new markets to promote/expand sales
of the Company through good governance and foster a sound and dynamic team, so as to
achieve optimum prices of products of the Company for sustainable and equitable growth
and prosperity of the Company.
Vision Statement
To transform the Company into modern and dynamic cement manufacturing company with
qualified professionals and fully equipped to play a meaningful role on sustainable basis in
the economy of Pakistan.
Mian Mohammad Mansha, the chairman of Nishat Group continues the spirit of
entrepreneurship and has led the Group successfully to make it the premier business group
of the region. The group has become a multidimensional corporation and has played an
important role in the industrial development of the country. In recognition of his unparallel
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Financial Analysis of DG Khan Cement Company Ltd.
contribution, the Government of Pakistan has also conferred him with “ Sitara-e-Imtiaz”, one
of the most prestigious civil awards of the country.
DGKCC was established under the management control of State Cement Corporation of
Pakistan Limited (SCCP) in 1978. DGKCC started its commercial production in April 1986
with 2000 tons per day (TPD) clinker based on dry process technology. Plant & Machinery
was supplied by UBE Industries of Japan.
Capacity Addition
To meet the increasing demand and to capitalize on its geographic location, the
management further expanded the capacity by adding another production line with a
capacity of 3,300 tons per day in year 1998. Design of the new plant is based on latest dry
process technology, energy efficient and environmental protection from particulate pollution
according to the international standards. The plant and machinery was supplied by M/s F.L.
Smidth of Denmark. As a result, DGKCC emerged as the largest cement production plant in
Pakistan with annual production capacity of 1,650,000 M tons of clinker (1,732,000 M.Tons
Cement) constituting about 10% share of the total cement production capacity of the
country. The optimization plan is still underway to increase the total capacity of the two units
to 6700 TPD by mid of 2005 from 5500 TPD at present.
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Financial Analysis of DG Khan Cement Company Ltd.
Power Generation
For continuous and smooth operations of the plant uninterrupted power supply is very
crucial. The company has its own power generation plant along with WAPDA supply. The
installed generation capacity is 23.84 MW.
Environmental Management
DG Khan Cement Co. Ltd., production processes are environment friendly and comply with
the World Bank’s environmental standards. It has been certified for “Environment
Management System” ISO 14001 by Quality Assurance Services, Australia. The company
was also certified for ISO-9002 (Quality Management System) in 1998. By achieving this
landmark, DG Khan Cement became the first and only cement factory in Pakistan certified
for both ISO 9002 & ISO 14001...
BOARD OF DIRECTORS
Mrs. Naz Mansha Chairperson/Director
Mian Raza Mansha Chief Executive/Director
Saqib Elahi Director
Khalid Qadeer Qureshi Director
Mohammad Azam Director
Zaka ud din Director
Inayat Ullah Niazi Director & Chief Financial Officer
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Financial Analysis of DG Khan Cement Company Ltd.
The cement industry is needed a highly important segment of industrial sector that plays a
pivotal role in the socio-economic development. Through the cement industry in Pakistan
has witnessed its lows and high in recent past, it has recovered during the last couple of
years and is buoyant once again.
There are total number of units are 23, from which 4 units are in the public sector while the
remaining 19 units are owned by the private sector. Two of the four units in the public sector
had to close down their operations due to stiff competition and heavy cost of production.
The cement plants are located in every province of Pakistan.
Three additional cement plants with installed capacity of over 2.1 million tons are in the final
stage of completion despite the available excess capacity in this sector. The following table
shows installation of new cement factories and expansion of the existing facilities during the
current decade.
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Financial Analysis of DG Khan Cement Company Ltd.
The industry is divided into two broad regions, the northern region and the southern region.
The northern region has over 87 percent share in total cement dispatches while the units
based in the southern region contributes 13 percent to the annual cement sales.
INDUSTRY REVIEW
The cement industry of Pakistan again set a new record and sold 30.112M tons during FY
2017 against 54.222M tons last year, with a growth of over 24%. During the period under
report the capacity utilization of the industry was 81% against 79% last year. The slight
increase in capacity utilization is due to the fact that during the year industry added another
6.5M tons of new capacity.
Pakistani Cement industry fully tapped the export prospects of cement and managed to
export hefty 12.610M tons against 4.797M tons last year. The cement manufacturers fully
poised to explore new export markets. Contrary to past, now the cement is being exported
not only to regional neighboring countries, rather Pakistani cement is finding its place in
South East Asian countries, Russia and in African countries as well.
Clouds of recession are hovering over the economy of Pakistan and having achieved
consecutive growth of over 6% in real GDP during last four years, economic growth slowed
down to 5.8% in FY 2008 against 6.8% recorded last year. Demand of cement is directly
related with prevailing economic conditions. During FY 2008 cement sales in the country
remained bleak due to uncertainty in political and economic front coupled with fading law
and order situation. Total sales in the country were 22.395M tons against 21.034M tons last
year, witnessing an increase of only over 6%. Dilemma of price war among the cement
manufacturers to find out the market share has badly affected the financial health of the
cement sector. In addition, all time high oil and coal prices coupled with expanding
inflationary trend in the country hit badly the cost of production. Going forward, monetary
tightening stance of the State Bank of Pakistan to curb inflation in the country posed
additional burden in the form of increased lending rates.
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Financial Analysis of DG Khan Cement Company Ltd.
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Financial Analysis of DG Khan Cement Company Ltd.
The liquidity position of DGKC deteriorated during the first nine months of FY'09. This was
due to a 40% decrease in current assets and a 14% increase in current liabilities if the
company. The current liabilities of the company increased due to 14% rise in trade
payables, 61% increase in accrued markup and around 7% increase in short term
borrowing by the company.
On the other hand, current assets of the company declined due to decrease in investments
from Rs 15 billion at the end of FY08 to Rs 7 billion at the end of March FY09. Also the cash
and bank balance of the company decreased by 22%. Thus, decrease in current assets and
a corresponding increase in current liabilities resulted in a less favorable liquidity position as
compared to that in FY08.
DGKC's liquidity stance had been strengthening since FY04 and in FY07 its liquidity
position was the most favorable. The increase in current assets had brought about this
change. There was a 98% increase in short term investments. Furthermore, the cash and
bank balances had also risen considerably.
In FY08 the current assets of the company declined slightly but a 63% rise in current
liabilities caused a decrease in the liquidity of the company. Investments constitute nearly
79% of the company's total current assets and they declined by 11% in FY08. The
investments decreased further from Rs 15 billion at year-end FY08 to Rs 10.9 billion by end
of 1Q09.
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Financial Analysis of DG Khan Cement Company Ltd.
Activity Ratios
Activity
2008 2007 2006 2005 2004
Ratio
Inventory
Turnover in 27.66 days 21.69 days 14.96 days 21.89 days 43.63 days
days
Inventory
13.19 times 16.83 times 24.40 times 16.67 times 8.36 times
Turnover
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Financial Analysis of DG Khan Cement Company Ltd.
Days Sales
45.08 days 24.55 days 20.68 days 11.07 days 43.63 days
in Inventory
Operating Cycle
Activity
2008 2007 2006 2005 2004
Ratio
Operating
36.55days 27.89 days 18.41 days 26.34 days 48.58 days
Cycle
Debt Ratios
Debt Ratios 2008 2007 2006 2005 2004
Debt to Tangible net worth 77 52 78 93 85
Debt To Equity Ratio 76 53 78 93 85
Debt Ratio 43 34 44 48 46
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Financial Analysis of DG Khan Cement Company Ltd.
The debt management ratios of DGKC showed a positive trend during FY07. The debt to
asset and equity ratios as well as the long-term debt ratio all receded during the period and
this reflected a reduction in the company's dependence on debt financing. However, during
FY08 the debt ratios of the company rose because the total debt increased in FY08 mainly
due to a 63% increase in the current liabilities which form 55% of the total debt.
Long term debt however decreased. The long term debt to equity increased because of a
decline in the equity base due to fall in reserves. The TIE ratio continued to fall in FY08
against a positive trend that prevailed before FY07. The reason is substantial rise in finance
charges due to high interest rates in the economy.
Also the operating income in FY08 decreased, thus reducing the extent to which operating
income can decline before the firm is rendered unable to meet its interest costs. Due to the
losses that DGKC experienced in FY08 and the decrease in profitability during July-March
FY09, its Earning per Share (EPS) and Price to Earning (P/E) Ratio have been negative.
During July-May 2009 the share price averaged around Rs 31.1.
This shows that the dismal profits of the company have started reflecting in the low investor
confidence and falling share price. The average share price of DGKC had hovered around
Rs 100/share except during the fourth quarter of FY08 when share price fell well below the
average. The management did not recommend any dividend for FY08 due to the dismal
profitability situation in the period.
Profitability Ratios
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Financial Analysis of DG Khan Cement Company Ltd.
After experiencing declining profitability during FY08, the cement sector came back strongly
to post a growth of 167% in earnings during first quarter (July-September) of fiscal year
2009. The cement sector posted profit after taxation of Rs 1.3 billion in first quarter of FY09
as compared to Rs 500 million in the corresponding period of a year earlier.
This growth was mainly due to higher local retention prices and depreciation of the rupee
against the dollar that resulted in an increase of rupee-based export sales. The net sales of
the cement sector in the period July-March FY09 was 58% higher than the net sales
generated during the corresponding period of FY08. It is believed that the profits of cement
companies increased due to an arrangement among them to keep prices high in the local
market.
However, higher sales revenue could not be translated into an increase in profits during the
period. Increased costs of sales, operating expenses and finance expenses caused the
profitability of DGKC to remain low during July-March FY09. The cost of sales of the
company increased by 30% during the period and resulted in a gross profit of Rs 3,733
million.
The furnace oil/coal costs for the period July-March FY09 was Rs 5,258.6 million as
compared to Rs 3,095.7 million during the corresponding period of FY08. The electricity
and gas costs were lower, however, the cost of raw material and packing material
consumed increased by 12%. The administration expenses increased by 31% while the
selling & distribution expenses increased drastically by 456% (from Rs 246 million in July-
March FY08 to Rs 1,370 million in July-March FY09).
Selling expenses may have increased due to higher transportation costs involved with
exports and higher fuel costs. Also, the finance costs increased substantially by 77% as
interest rates rose owing to tight monetary policy and liquidity crunch in the market.
These rising costs greatly hampered the profitability of the company and resulted in a profit
after taxation of Rs 321 million in the period July-March FY09, which is 34% lower than the
profit (Rs 487 million) during July-March FY08. Therefore, the earning per share (EPS) of
the company declined from Rs 1.92 in July-March FY08 to Rs 1.27.
The profitability ratios of the company have shown a declining trend since after FY05. The
gross profit margin increased in FY06 only to fall in FY07 and FY08. The profit margin of
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Financial Analysis of DG Khan Cement Company Ltd.
the company has decreased continuously along with return on assets (ROA) and return on
equity (ROE).
The profit after taxation had declined by 33% in FY07 due to lower net retention prices
caused by a supply overhang in the overall industry. Also the problem of rising input costs
had begun in FY07. This rise in cost of production and raw material have continued into
FY08 and further aggravated, causing the declining trend of the profitability of DGKC.
Despite a strong growth in cement dispatches, the cement sector experienced declining
profitability during FY08. The profitability of the sector fell by 73.6% to Rs 562 million till
March 2008 from Rs 2,133 million in the corresponding period of FY07. Although the sales
volume of the cement companies increased, the net sales revenue did not increase to an
equal extent due to decrease in net retention prices in the sector.
Over the years all cement manufacturers undertook huge capacity expansion plans. This
created a situation of excess supply in the market. Companies resorted to price wars
leading to a fall in prices and reduced the profit margins for the companies. The average
cement price during the period July-March FY08 was Rs 128.3 per bag as compared to Rs
133.6 per bag in the same period in FY07.
Similar was the case with DGKCC. Increased production facilitated higher sales volume
which in turn translated into almost doubling of sales revenue in FY08. The company had
earned the highest sales revenue of Rs 12.445 billion in FY08. However, despite this, the
gross profit of DGKC in FY08 (amounting to Rs 1.9 billion) was around 6% lower than the
gross profit posted in FY07 (Rs 2.0 billion).
The reason for lower gross profit was a 140% increase in the cost of sales during the fiscal
year. Major input costs increased and dampened the profitability of DGKC and resulted in a
loss after taxation of Rs 53.230 million in FY08 against a profit after taxation of Rs 1.622
billion in FY07. The cement manufacturers in the industry were faced with rising fuel and
power costs during FY08.
The cost of production for the cement companies went up due to rise in the prices of
imported coal. The cement companies in Pakistan have shifted from oil to coal or gas
during the past few years. Coal is now used as a basic fuel by all cement manufacturers.
Pakistan has huge reserves of coal, but cement companies are compelled to import it, as
local coal has high sulphur content.
Crude oil prices shot up during FY08 and had its impact on prices of coal and natural gas.
The rise in the costs of international coal prices has been one of the biggest reasons behind
the dampening of gross margins of cement companies during FY08. There was a nearly
50% rise in the coal prices in FY08
Along with the hike in the international coal prices, the depreciation of the rupee against the
dollar also added to the cost of importing coal. Finance charges rose due to higher interest
rates, long term finances, short term borrowing and inclusion of workers' profit participation
fund in FY08.
Assets Utilization
Asset Utilization 2008 2007 2006 2005 2004
Sales to Fixed Assets 54 43 108 80 62
Return on Operating
24 33 10 13 11
Assets
Operating Asset
20 9.6 20 28 33
turnover
Return on Assets 18.5 3.8 23 11 6.60
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Financial Analysis of DG Khan Cement Company Ltd.
The performance of DGKC in terms of asset management was weak during FY07. During
the year, the inventory turnover (days) of the company more than doubled compared to
FY06 when the management of inventory seemed most efficient (evident from the lowest
inventory turnover in days). This could be traced back to lower sales revenue for the period,
coupled with a higher stock of inventory.
At the same time, the average time taken by the company to recover cash from sales also
increased. The increase in inventory turnover in days and Days sales outstanding (DSO)
prolonged the operating cycle of the company in FY07.
However, in FY08 the asset management of DGKC improved as the inventory turnover rate
increased because the company earned sales revenue more in proportion to the increase in
inventory. Thus the days to convert inventory into sales became less (from approx. 100
days in FY07 to 79 days in FY08).
Although the days to convert sales into cash (DSO) increased slightly, the substantial
decrease in ITO (days) led to the shortening of the operating cycle in FY08. The days sales
outstanding was higher because the trade debt increased substantially (by 153%) during
FY08 as against sales.
Besides this the sales to equity and total asset turnover of the company which had a
declining trend till FY07 increased in FY08. The sales to equity ratio had been decreasing
because of an increase in the paid up capital. But the trend was reversed in FY08 because
the paid up capital remained same while the reserves fell, causing a decrease in the equity
base of the company.
Also higher growth in sales increased the sales/equity ratio. Total asset turnover also
improved because the management of the company's assets was effective in generating
higher sales revenue. The company's performance in the area has improved as full-scale
production from the newly inaugurated Khairpur plant has augmented the sales.
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Financial Analysis of DG Khan Cement Company Ltd.
Return on Investment
Return on total equity
Return
2008 2007 2006 2005 2004
Ratios
Return on
2.92 5.34 12.58 15.47 10.07
Investment
Return on
0.30 0.37 17 22 13
Total Equity
One of the most important profitability metrics is return on equity [or ROE for short]. Return
on equity reveals how much profit a company earned in comparison to the total amount of
shareholder equity found on the balance sheet. If you think back to lesson three, you will
remember that shareholder equity is equal to total assets minus total liabilities. It's what the
shareholders "own". Shareholder equity is a creation of accounting that represents the
assets created by the retained earnings of the business and the paid-in capital of the
owners. The return on Equity has decreased drastically and there is quite a hell of
decrement in ROE, which is not very much encouraging for the investors in shares.
Investment Ratios
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Financial Analysis of DG Khan Cement Company Ltd.
A leverage ratio summarizing the affect a particular amount of financial leverage has on a
company's earnings per share (EPS). Financial leverage involves using fixed costs to
finance the firm, and will include higher expenses before interest and taxes (EBIT). The
higher the degree of financial leverage, the more volatile EPS will be, all other things
remaining the same. Most likely, the firm under evaluation will be trying to optimize EPS,
and this ratio can be used to help determine the most appropriate level of financial leverage
to use to achieve that goal.
The company’s ratio ha increased dramatically in the year 2008 by 15 times. So there is
quite a margin for company to get leveraged.
The portion of a company's profit allocated to each outstanding share of common
stock. Earnings per share serve as an indicator of a company's profitability.
Earnings per share are generally considered to be the single most important variable in
determining a share's price. It is also a major component used to calculate the price-to-
earnings valuation ratio. The EPS of company is fluctuating but in current year it has
decreed drastically which is not a good sign for share holders. An important aspect of EPS
that's often ignored is the capital that is required to generate the earnings (net income) in
the calculation. Two companies could generate the same EPS number, but one could do
so with less equity (investment) - that company would be more efficient at using its capital
to generate income and, all other things being equal would be a "better" company. Investors
also need to be aware of earnings manipulation that will affect the quality of the earnings
number. It is important not to rely on any one financial measure, but to use it in conjunction
with statement analysis and other measures.
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Financial Analysis of DG Khan Cement Company Ltd.
A valuation ratio of a company's current share price compared to its per-share earnings is
Price Earning ratio. In general, a high P/E suggests that investors are expecting higher
earnings growth in the future compared to companies with a lower P/E. However, the P/E
ratio doesn't tell us the whole story by itself. It's usually more useful to compare the P/E
ratios of one company to other companies in the same industry, to the market in general or
against the company's own historical P/E. It would not be useful for investors using the P/E
ratio as a basis for their investment to compare the P/E of a technology company (high P/E)
to a utility company (low P/E) as each industry has much different growth prospects.
The P/E is sometimes referred to as the "multiple", because it shows how much investors
are willing to pay per dollar of earnings. It is important that investors note an
important problem that arises with the P/E measure, and to avoid basing a decision on this
measure alone. The denominator (earnings) is based on an accounting measure of
earnings that is susceptible to forms of manipulation, making the quality of the P/E only as
good as the quality of the underlying earnings number.
Investment Ratios
Dividend payout ratio
Dividend yield ratio
Book value per share
Indicates the proportion of earnings that are used to pay dividends to shareholders.
A reduction in dividends paid is looked poorly upon by investors, and the stock price usually
depreciates as investors seek other dividend paying stocks
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Financial Analysis of DG Khan Cement Company Ltd.
.
A stable dividend payout ratio indicates a solid dividend policy by the company's board of
directors. The situation of DG Khan Cement Co. Ltd. Shows increment in 2006 but from
there is consistent decrement in this ratio by more than two times so company is trying to
build there retained earnings instead of giving dividend.
During bull markets the stock price is more likely to trade significantly higher than book
value, and in a bear market the two values may be close to equal. The dividend yield or the
dividend-price ratio on a company stock is the company's annual dividend payments
divided by its market cap, or the dividend per share divided by the price per share. It is
often expressed as a percentage. There is quite fluctuations in this ratio which shows there
is lack of stability in the company policy towards this section.
Now if we look at the book value per share, as we know that somewhat similar to the earnings per
share, but it relates the stockholder's equity to the number of shares outstanding, giving the
shares a raw value. Comparing the market value to the book value can indicate whether or
not the stock in overvalued or undervalued. During bull markets the stock price is more
likely to trade significantly higher than book value, and in a bear market the two values may
be close to equal.
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Financial Analysis of DG Khan Cement Company Ltd.
Univariate Model
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Financial Analysis of DG Khan Cement Company Ltd.
Multivariate Model
X1= Working Capital/Total Assets
X3=EBIT/Total assets
X5=Sales/Total Assets
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Financial Analysis of DG Khan Cement Company Ltd.
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Financial Analysis of DG Khan Cement Company Ltd.
Annexure
Summarized Income Statement
Summarized Income 2007
2008 2006 2005 2004
Statement Rs.
Rs. Rs. Rs. Rs.
In’000
In’000 in’000 In’000 In 000
Sales Net
Local Sales 14732445 8887306 10348119 6730756 5392393
Export Sales 2741111 511826 607817 641351 305191
Less.
Excise Duty 2729046 1679829 1509449 1141756 990124
Special Excised Duty 99556
Sales tax 1929858 1159214 1349755 877924 766497
Commission to stockiest 250749 140464 141067 72867 58207
Sales Net 12464347 6419625 7955665 5279560 3882756
-.Cost of Sales
Raw and Packing material 1368488 580717 464080 374287 330535
used 480352 293929 230854 185914 161919
Salaries and Wages 1644759 605335 470625 322979 217911
Electricity and Gas 4597486 1902567 2114667 1493514 1123716
Furnace oil 764204 383159 388113 357762 338970
Stores and Spares used 98530 22913 18233 9997 9637
Repair and maintenance 43904 21840 20542 23642 42235
Insurance 1354192 469367 341940 330100 317155
Deprecation on property
plant and Equipment 3331 13108 13203 11311 6923
Deprecation on assets
subjects to finance lease 83731 45349 43678 31652 30284
Royalty 25962 15373 16884 10450 5909
Excise Duty 15541 7159 6980 5724 5881
Vehicle Running 5389 1784 1774 1831 1374
Postage Telephone ,Telegram 3480 945 1492 1581 1276
Printing and Stationery 1499 499 884 548 507
Legal and Professional 9639 6227 4678 3930 3179
Charges 6982 4113 3879 3091 6150
Estate Development 5753 3396 5680 4139 4573
Rent, Rates and taxes 2079 9449 7651 4896 6742
Freight Charges 10534013 4387229 4155837 3177348 2614113
Other Expenses 142686 161989 50205 210983 88603
- 50462 - - -
Opening W.I.P (118292) (142686) (161989) (50205) (210983)
Transfer from Trail run 10558407 4456994 4044053 3338126 2491733
Closing W.I.P 107804 5058 19468 38616 44145
Cost of Goods Manufactured
Opening stock of finished 39300 - - -
goods (118863) (69728) (5058) (19468) (38616)
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Financial Analysis of DG Khan Cement Company Ltd.
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Financial Analysis of DG Khan Cement Company Ltd.
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Financial Analysis of DG Khan Cement Company Ltd.
Total
Horizontal analysis of income statement shows that net sales of the Co has increasing
trend. But on the other hand Cost of goods sold jump quickly. This is not a good trend. Cost
of goods sold of the Co increases due to expensive raw materials. Gross profit of the co
decreases from last years due to high cost of goods sold. Administrative and selling
expense of the Co has decreasing trend. Other operating expenses of the Company are
increasing quickly. Company is also increasing trend in other operating income. Profit from
operations also decreases. Co also has high finance cost from last years. Income before
taxes has decreasing trend due to high cost of goods sold and finance cost. Net profit of the
Company is Very small as compare to last years.
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Financial Analysis of DG Khan Cement Company Ltd.
income
profit from operation 12.14 34.31 49.13 45.94 34.64
finance cost (14.17) (7.28) (5.66) (5.76) (5.78)
Excess of acquires 0.69
interest in the net assets - - - -
of acquire
share of loss of (0.66) (0.22) (0.12)
associated company
income before taxes 1.41 26.80 43.34 40.18 28.86
Provision for taxation (1.61) (1.53) (12.95) (8.32) (8.39)
Net profit 20.20 25.27 30.40 31.86 20.46
In vertical analysis of income statement shows that has high cost of goods sold from last
years. Gross Profit of the Co has decreasing trend. This is decrease due to high cost of
goods sold. Operative expense of the co has minimum portion in the income statement.
Profit from operations also has decreasing trend. Share of loss of associated co also
increases Income before taxes also decreases from last years. Provision for income taxes
also has decreasing trend.
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Financial Analysis of DG Khan Cement Company Ltd.
non-current assets
property plant &
395.29 360.92 122.74 108.31 100
equipment
assets subject to
4.10 80.06 177.12 190.45 100
finance lease
capital work in
220.96 169.35 1044.28 353.71 100
progress
investment 475.06 589.07 323 188.13 100
long-term loans
2094.94 99 1342.11 1084.80 100
&deposits
current assets 100 115.7 116.10 121.51 123
stores spares and loose
247.53 159.37 89.05 110.25 100
tools
stock in trade 435.56 98.86 75.79 33.83 100
trade debts 880.71 274.11 140.94 144.88 100
investment 1087.57 11221.05 616.07 199.67 100
advanced deposits 355.55 190.57 126.71 100.96 100
cash and bank balance 290.60 138.32 91.88 111.72 100
Liabilities and owner equity of the balance sheet shows that issued and paid up capital of
the company is increasing. And reserves of the co also jump 343% to 675% in the year of
2006 to 2007. Accumulated profits of the co have decreasing trend. And it is dangerous for
the co.
Non current liabilities of the co increases from 2004 to 2007 but there is a decline in 2008.
Current liabilities of the co also have increasing trend.
This horizontal analysis of balance sheet shows that Fixed Assets of the Co increase from
last years. It means Co have much productive assets. It shows a good trend of fixed assets.
On other side trend of assets subjects to finance lease going to decrease. Co also have
asset that are work in progress but trend of these assets also going to decrease. Co also
invests in long term investment and this asset also has increasing trend from 2004 to 2008.
Co also has long term deposits and these also have increasing trend.
Current Assets of the Co also have increasing trend. Trade debts of the Co also have
increasing trend and its debts are not in a good position. Short term investments of the co
also increase and Co use its idle cash in good manners.
.
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Financial Analysis of DG Khan Cement Company Ltd.
liabilities against
assets subject to 0.000732 0.0022 0.084 0.73 0.71
lease finance
Long term deposits 0.13 0.15 0.098 0.16 0.26
retirement and other
0.10 0.077 0.077 0.25 0.32
benefit
deffered taxation 2.33 3.14 4.54 2.98 1.18
Total 19.09 20.16 26.29 31.32 25.78
Current liabilities
Trade & other
2.70 1.98 4.10 6.41 4.22
payables
accrued mark up 0.73 0.66 0.99 5.33 11.61
Vertical Analysis of the balance sheets shows that in 2008 that Equity portion of Co have
large portion of equity .And there is minimum portion of non current liabilities. And it shows
a good trend. Co finances his assets through equity and pay minimum amount of interest.
Current liabilities of the co increase from last years. On current assets co do not pay
interest. Co pays his obligation timely and there is no chance of insolvency.
On the other side of balance sheet are assets of the Co. Co have more productive assets.
Analysis show that Company Finance minimum assets at lease. Current assets of the Co
slightly decrease from last year.
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Financial Analysis of DG Khan Cement Company Ltd.
Liquidity Ratios
1. Days, Sales in Receivables = Gross Receivables/Net Sales/365
Days, Sales in
Year Calculation in (Rupees,000)
Receivables
2008 463446/12464347/365 13.57days
2007 144245/6419625/365 8.20
2006 74165/7955665/365 3.40
2005 76238/5279560/365 5.27
2004 52622/3882756/365 4.95
Account Receivables
Year Calculation in (Rupees,000)
Turnover
2008 12464347/30384550 41.02times
2007 6419625/109205 58.78
2006 7955665/75201.50 105.79
2005 5279560/64430 81.44
2004 3882756/52622 73.78
Account Receivables
Year Calculation in (Rupees’000)
turnover in days
2008 30384.50/12464347/365 8.89days
2007 109205/6419625/365 6.20
2006 75201.50/7955665/365 3.45
2005 64430/5279560/365 4.45
2004 52622/3882756/365 4.95
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Financial Analysis of DG Khan Cement Company Ltd.
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Financial Analysis of DG Khan Cement Company Ltd.
2. Fixed Charge Coverage= Recurring Earnings, excluding Interest Expense, Tax expense
Equity earnings and minority earnings + interest portion of
Rentals/Interest expense including Capitalized interest +
Interest portion of rentals
Year Calculation in (Rupees’000 ) Fixed Charge coverage
2008 153505+8194330/1766298+8194330 0.84times
2007 2202393+3942972/467759+3942972 1.39times
2006 3908802+2613695/4500616+620534+2613695 0.84times
2005 2425312+960620/304041+75437+960620 2.53times
2004 13450+1360677/22460+2945+1360677 1.95times
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Financial Analysis of DG Khan Cement Company Ltd.
2006 15036176/19268200 78
2005 8698507/9317998 93
2004 5397564/6317055 85
Profitability Ratios
1. Net Profit Margin= Net Income before minority share of Earnings and Non
Recurring Items /Net Sales
Year Calculation in (Rupees’ 000) Net Profit Margin
2008 97753/12464347 7.84%
2007 1636634/6419625 25
2006 2428028/7955665 31
2005 1682078/5279560 31
2004 794493/3882756 20
3. Return on Assets =Net Income before minority shares of earning and nonrecurring
items /Average total Assets
Year Calculation in (Rupees’ 000) Return on Assets
2008 97753/52711214.50 18.5%
2007 1636634/43024353.50 3.8
2006 2428028/10723490.50 23
2005 1682078/14865562 11
2004 794493/11714619 6.8
Assets Utilization
1. Operating Asset Turnover =Net Sales /Average Operating Assets
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Financial Analysis of DG Khan Cement Company Ltd.
Operating Asset
Year Calculation in (Rupees’ 000)
turnover
2008 12464347/5367098-(6592332+524176+15082605+427832) 0.20times
2007 6419625/51744331-(8174474+196913+16933790+229315) 0.096times
2006 7955665/34304376-(4482213+335810+152465+8543763) 0.20times
2005 5279560/18016505-(2610634+271428+2769134+121486) 0.28times
2004 3882756/11714619-(1387681+25021+1386816+120329) 0.33times
3. Sales to Fixed Assets =Net Sales /Average Net fixed Assets(Exclude construction in
progress)
Calculation in (Rupees’ 000) Sales to Fixed Assets
Year
2008 12464347/(24231112+22250927)/2 54%
2007 6419625/(7816781++22250927)/2 43
2006 7955665/(7816781+6954499)/2 108
2005 5279560/(6954499+6294666)/2 80
2004 3882756/6294666 62
4. 8.Return on Investment =Net Income before minority share of earning and non
recurring items + (Interest expense)*(1-tax rate)
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Financial Analysis of DG Khan Cement Company Ltd.
Investment Ratios
1. Degree of financial Leverage=EBIT/Earnings before tax
Degree of financial
Year Calculation in (Rupees’ 000)
leverage
2008 1513505/175273+8674-86194 15.48%
2007 2202807/1720471+14163 1.27
2006 3908802/3448533+9573 1.13
2005 2425312/2121271 1.14
2004 1345016/1120415 1.20
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Financial Analysis of DG Khan Cement Company Ltd.
6. Dividend yield= Dividend per common share/Market price per common share
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Financial Analysis of DG Khan Cement Company Ltd.
Strengths
1. Availability of foreign investment and loans has also played an important role in
softening the demand for bank credit. The moderation in fixed investment
demand in cement, construction and textile is more of a reflection of the fact that
these industries had already expanded their capacities in recent years and
floatation of debt instruments (e.g., chemical, cement, real estate and ship yard)
in the domestic market cement, real estate and ship yard) in the domestic
market
2. Cement industries in Pakistan are currently operating at their maximum capacity
due to the boom in commercial and industrial construction within Pakistan.
3. Effect of GDP
Following effects of GDP will govern the growth of cement industry in
Pakistan
1. Higher GDP growth has positive impact on cement demand
2. Cement demand growth rate was double the GDP growth rate in last
three years
3. GDP growth is expected to continue to have same positive impact on
demand growth
4. Housing demand to grow:
Following indications have showed a considerable demand of cement in
Pakistan:
Housing projects consume roughly 40% of cement demand
Currently 0.3mn houses are built annually against demand of 0.5mn
Low interest rates, post 9/11 remittances’ inflow, and real estate boom have
helped housing sector growth
Easy mortgage availability and announcement of low cost housing schemes will
determine housing sector growth in the long-run.
5. Government’s development spending shall continue to rise due to:
Government development expenditures count for one third of total
cement consumption
Increase in development expenditures has helped cement demand to
grow at very high rates
Increase in PSDP- as announced in Medium Term Development
Framework 2005-10 will help cement demand to grow in the country
Infrastructure development in a region triggers private development
projects having even positive impact on cement demand
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Financial Analysis of DG Khan Cement Company Ltd.
Weaknesses
1. Since cement is a specialized product, requiring sophisticated infrastructure and
production location. So, most of the cement industries in Pakistan are located
near/within mountainous regions that are rich in clay, iron and mineral capacity.
Structure of Cement industry in Pakistan is as such that there is not much
substitutability to buyers. Which shows that the Cross elasticity of demand is
negligible.
2. The customer has no choice at all to switch between two brands of cement due to
cartel of all of the cement manufacturers in Pakistan.
3. The freight charges are a massive 20% of the retail prices. The plants located very
close to each other and tapping the same market will have to expand their markets
which will increase their freight expenses. Dandot, Pioneer, Maple Leaf and
Garibwal are all located within a radius of 100 kilometers and are selling bulk of their
production in the same areas and will thus face serious competition from each other.
4. Increase freight charges
Exporters of the cement often complain that railways freight charges for
carrying cement from Lahore city to the border of India are Rs500 per ton
($8 per ton) while it covers only 35 km. Against this, they say on the Indian
side, the freight is only $3 per ton for bringing goods from Chundrigar to the
border area. Cement exports have been badly hit by high fee that is being
charged by trucks and also by foreign shipping companies for the haulage of
cement from Pakistan to India. This increase in freight charges effect our
exports due to which our exports is declining
5. Logistic Problem
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Financial Analysis of DG Khan Cement Company Ltd.
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Financial Analysis of DG Khan Cement Company Ltd.
Recommendations
We would like to conclude this report by ranking overall sector as “Neutral”. We remain
neutral on the sector because on hand expansion is the need of hour. Due to expected
growth in demand, current capacity appears inadequate. On the other hand, expansion
plans set up by the various players of cement sector to grab demand expansion might
cause sector to overflow. Along with risk of being oversupplied, unanticipated increase in
interest rates or less than expected demand growth might create severe crises for the
sector couple of years forward. Weighing risks and rewards, we remain “NEUTRAL” on the
sector.
To break-up cement manufacturers cartel the Competition Commission of Pakistan raided
offices of Association of Cement Manufacturers of Pakistan and confiscated official record.
The association condemned this action and said it is against business norms. They
accused Commission for blaming cement manufacturers for making a cartel for the last 10
years but could not able to prove it. The capital structure of cement companies may
change, as most of the expansions during last two to three years have been debt financed
and companies are expected to retire these debts rapidly during next three to five years.
Moreover, the slowdown in economy may occur due to political uncertainty, which might
result in reducing cement demand in future.
However, in case of construction of hydro-powered dams, there will be a sudden jump in
the local sales of those companies located near these dams.
International Trend
Although international energy prices have declined recently, any beneficial impact on
margins has largely been negated by substantial depreciation of Pak Rupee. PACRA,
therefore, believes that the performance of cement companies could weaken further
impacting their financial profile. Pakistan's cement industry is poised to face a tough
challenge as the regional markets, mainly China and India, are likely to emerge as
competitors in the export market, following a slowdown in their domestic economies
and enhanced production capacity.
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