CC2 PROFIT AND LOSS ACCOUNT

Sales have increased over the years, but the rate of this increase is not steady. The highest sales
point was in 2006. Cost of sales and expenses with the exception of other expenses have
increased at a steady rate. Other operating expenses have fluctuated over the years; the lowest
point was in the first year with the highest being in 2006. Finance cost seems to have reached a
peak in 2006 and the fallen by 2008. Net Profit after Tax follows a similar pattern to sales.

CC3 CONSOLIDATED BALANCE SHEET

Share capital has grown over the years and spiked in 2008. Long-term financing shows a peak in
2006. The deferred tax liabilities have remained more or less the same. Trade and other payables
show a sudden increase in 2006. Markup accrued reaches a peak in 2005. The current portion of
long term financing shows a peak in the first year, declines in the second and then reaches a
constant level. Total liabilities increase and reach a peak at 2008. There is an increase in
property, plant and equipment owing to expansion in 2008. Long-term advance declines over the
years. Long-term deposits remain constant. Stocks, spares and loose tools show a sudden rise in
2006 and 2008 both. Stock in trade increases rapidly in 2006 and continues to grow at a rapid
rate until 2008. Trade debts reach a peak in 2005 and then fluctuate around a value in following
years. Current assets double in 2005 and 2008 both.

CC4 STATEMENTS OF CASH FLOWS

Depreciation has increased at a steady rate over the years. Operating cash flow before working
capital changes has largely fluctuated, increasing to a peak in 2006 and falling again. The highest
point can be observed in 2008. Finance costs have decreased in 2008 by almost half. Stores and
stocks increase at a steady rate but show a spike in 2008. Trade debts reach a peak in 2006 and
then fluctuate. Other receivables, however, show an increase. Net cash from operating activities
shows a peak in 2006. The greatest addition to plant, property and equipment is witnessed in
2008. Net cash used in investing activities reaches a peak t 2008. Net cash used in financing
activities shows an upward trend with a peak in 2008. Cash and cash equivalents show a peak in
2008, with a smaller peak in 2006.

*CC5 FIVE-YEAR GROWTH RATES

Sales and net-income have increased over the years but the per-share results are different because
the number of shares goes up considerably in 2008, reducing per-share values and making
growth rates negative. No dividends were paid in the first two years and as a result, the growth in
dividends per share has been 100%. Equity per share has shown a growth over the years. Issuing
more shares has resulted in lower sales and net income per share. The negative effect is
especially felt on net income per share. This is not a good sign for the company, as it will
negatively affect share prices financial markets. Financing the expansion in 2008 with a growth
in equity seems to have been an unreasonable step.
CC6 COMMON SIZE PROFIT AND LOSS ACCOUNTS

Government levies reach an all time low in 2006, resulting in higher net sales for the same year.
Cost of sales is lowest in 2006 and reaches peaks in 2008, with the result that gross profit is
lowest in 2008 and highest in 2006. Other operating incomes dip and then increase. Distribution
costs and administrative costs both follow a similar trend, dipping in 2005 and then rising
steadily. Accordingly, in 2006, there is a peak in profit from operations of 36% of sales and the
dip in 2008 to 10%, attributable to the movement in cost of sales. Net profit after taxation shows
a peak of 21% of sales in 2006. This can directly be attributed to the low cost of goods sold in
the same year. 2006 has been the most profitable year in the period.

CC7 COMMON SIZE BALANCE SHEETS

Share capital as a percentage of assets has declined over the years. The company goes from
reporting an accumulated loss of a considerable 38%, to a reserve of 15%. This is a good sign.
Long-term financing has decreased significantly from being 60% of total assets to only 2.61%.
Trade and other payables reach a peak in 2007, of 7% of total assets. Short-term financing
reaches a peak in 2008. The trend suggests that the company made a shift from long-term
financing to short-term borrowing. Property, plant and equipment have slowly decreased over the
years to 57% of total assets. Stocks, spares and loose tools show a spike in 2006 and then level
off. Cash and bank balances reach a peak in 2007. Current assets as a percentage of total assets
show a peak of 42.5% in 2008, which suggests an improved liquidity position for the year.

CC8 TREND INDEX OF SELECTED ACCOUNTS

Cash and bank balances show a large dip in 2006 and rise to peak in 2007. Trade debts show a
decrease over the years. Inventories show a steady increase, peaking in 2008. Current assets have
a general upward trend but rise suddenly in 2008. Current liabilities follow a similar pattern.
Working capital shows a negative value in 2005, owing to the low current assets in that year.
Working capital is however highest in 2008 by a large amount, owing to the large increase in
current assets. Plant assets dip and then show an increase. Other assets show a similar trend.
Total liabilities are stable, but rise in 2008. Share capital increases only in 2008 and remains the
same for the preceding years. Net sales peak in 2006. The cost of sales are lowest in 2006 and
highest in 2008, however net sales do not decrease by much in 2008, suggesting that the
fluctuations in CGS had a dampened effect on sales. Administrative expenses have been highest
in 2008. Distribution cost has risen notably in 2008. Finance cost falls over the years and is
highest in 2006. Total costs and expenses are lowest in 2005 and highest in 2008. Accordingly,
earnings before taxes are highest in 2006 and dip in 2008. Net income follows a similar pattern,
but the fluctuations are less pronounced.

CC9 PER SHARE RESULTS

Per share sales drop in 2008 because of an increase in the number of shares. Net income follows
a similar pattern but the drop in 2008 is more definite. Dividends per share reach a peak 2006,
the most profitable year and drop in 2008. Book value per share stays steady and increases in
2008 because of an increase in the number of shares.

CC10 SHORT TERM LIQUIDITY ANALYSIS

The current ratio shows that current assets have always been sufficient to cover current liabilities
with the exception of 2005 where the ratio falls to 0.92*. The last year shows a ratio of 2.16,
which is a good liquidity position. However, it remains to be seen if such a trend can be
continued. Overall, the liquidity could do with improvement as it is below the benchmark rate of
2 (no definite conclusions can be made without industry averages). The company is mildly risky
as the ratio fluctuates. So with it do the reserves of liquid funds, current liability coverage and
buffers against abnormal loss. The numerator increases in 2008 because of an increase in cash
and cash equivalents. The denominator decreases because not all the decrease in long-term
liabilities was transferred to short-term liabilities. The quick ratio is lowest in 2005 and highest
in 2008. There seems to have been a liquidity crisis in 2005, from which the company has
managed to recover. Whereas such recovery is commendable, it is also important to note that
both liquidity ratios have shown a volatility that does not favorably reflect upon the company.
Accounts receivable turnover has increased suddenly in 2007. The turnover is high which means
that receivables are collected frequently during the year. The inventory has shown a decrease
over the years, peaking in 2005 and then falling. This is not a positive trend for the company as it
means that inventory takes more time to sell. Accordingly, the days sales in receivables decline
favorably (it takes less days to collect receivables) whereas the days sales in inventory increase
unfavorably. The decrease in days sales in receivables suggest that the company has improved its
collections, there are little delays in customer payments and customers are not in financial
distress. The approximate conversion period increases over time. This means that the time it
takes to convert inventories to cash has increased. Despite the decrease in the receivable
collection period. The cash to current assets ratio displays a general improvement in the liquidity
of the company. The cash to current liabilities ratio displays a similar trend. The short-term
liquidity of the company according to these two ratios is excellent. However, such high ratios of
cash, for example 168% in 2008, also suggest that the company could invest somewhere and
earn a return. The liquidity index also shows a general trend of improvement. 2007 seems to
have been a problematic year as all ratios suggest deterioration in liquidity in this year. Working
capital was largely negative in 2005, but seems to have improved after that. Days purchases in
accounts payable suggest a very long period to pay back, implying that suppliers have relaxed
collection policies. The average net trade cycle is negative solely because of this ratio*. Cash
provided by operations to average current liabilities has fallen drastically over the years. In
particular, the ratio in the last year is alarmingly low. Previous static measure ratios of liquidity
have suggested an overall improvement in liquidity in 2008. This ratio seems to suggest
otherwise as it falls below the benchmark of 40% by a large amount. This is largely due to a
steady increase in current liabilities and a sudden doubling in 2008 and a decrease in operating
cash flows in the same year. Liquidity improved largely because of a large cash inflow from
financing activities*.

CC11 COMMON SIZE ANALYSIS OF CURRENT ASSETS AND LIABILITIES

Cash and bank balances and stocks, spares and loose tools form the largest part of current assets,
with trade debts forming the second largest portion. Trade payables and current portion of long-
term financing form the largest part of current liabilities. In addition, short term financing as a
portion of total liabilities has also increased. In 2008, advances and prepayments reach up to
71.4% of current assets.

CC14 ANALYSIS OF CASH FROM OPERATIONS

Net cash from operations has reached an all time low in 2008, implying that cash from
operations as a source of cash has fallen over the years. The downturn can be associated to a rise
in expenses and an increase in stocks and stores and other receivables. Cash used in investing
activities also increases largely in 2008, forming a large cash outflow. Cash from financing
activities, however, presents a positive value in 2008 because of an inflow from proceeds of new
shares. The pattern of net profit after taxation is visible in cash flows from operations, implying
that the decrease can be attributed to lower profit hence high expenses have reflected badly upon
the company.

CC15 COMMON SIZE STATEMENTS OF CASH FLOWS

Net profit after taxation as a percentage of cash inflows is highest in 2007 and lowest in 2008.
Net cash from operating activities represents all cash inflows for the company with the exception
of 2008, when the major cash inflow was from an issuance of new shares. Dividends as a
percentage of cash inflows are highest in 2007. The higher dividend payout can be attributed to a
rise in expectations of profitability as 2006 was the most profitable year for the company.
Overall, a shift can be seen from long-term financing to more equity financing. This is a sensible
decision in an economy with fluctuating and high interest rates.

CC17 ANALYSIS OF CASH FLOW RATIOS

The cash flow adequacy ratio suggests no need for external financing, as cash generated from
operations is just more than enough to cover capital expenditures, inventory additions and pay
dividends. The most profitable year (2006) shows the highest reinvestment ratio, mainly due to
the surge in cash provided by operations. There has been an improvement in the cash
reinvestment ratio from a meager percentage in the first few years to satisfactory levels in
following years. This implies better management of cash at the company.

CC20 CAPITAL STRUCTURE AND SOLVENCY RATIOS

There is a shift in the company's capital structure from debt to equity financing. The total debt to
equity and total debt ratios have fallen over the years. Equity to total debt increases. Fixed assets
as a percentage of equity decrease steadily over the years*. Current liabilities to total liabilities
have increased suggesting that the company is increasingly relying on short term financing and
shifting away from long-term financing. Responsive to economic condts! The earnings to fixed
charges fluctuate along with profit. Cash flow to fixed charges also shows a similar pattern but
has shown decreases in recent years. The earnings coverage ratio has been adequate to cover
fixed charges and have been relatively stable. Cash flow however, has fluctuated over the years
but has been adequate*. The fluctuations in cash flow give a negative signal to potential
creditors, as cash flows were just enough to cover finance cost in the last year.

CC21 RETURN ON INVESTED CAPITAL RATIOS

Overall, profitability of the company has varied with its sales, suggesting a high susceptibility to
fluctuations in market demand. Profit ratios plunge to an all time low in 2008, which is largely a
reflection of adverse economic conditions. The peak at 2006 was because of favorable economic
conditions. A disaggregation of the ROA reveals that the asset turnover was 69%, which is a very
large value. Therefore, a large portion of the profitability is because of better asset management
on the company's part. In addition, a large part of the plunge is because of deterioration in the
asset turnover. The profit margin does not fluctuate as much. This reveals that there is room for
better asset management. The financial leverage index indicates that the positive effects of
financial leverage have been declining. In 2008, particularly the effect of leverage is almost
neutral. Equity growth rates have fluctuated but on average imply that the company can grow
about 20% before it needs further financing.

CC22 ASSET UTILISATION RATIOS

Sales to total assets have fluctuated over the years, peaking in 2006 and contributing greatly to
profitability. The total asset turnover declines in recent years. The fall can be attributed to
adverse economic conditions. The cash turnover is high not because of a cash shortage but
because of an upsurge in sales. The receivables turnover is high and implies a strict credit policy.
Inventory turnover has declined over the years, highlighting that inventory has become slow
moving. The sales to fixed assets shows a general improvement. Fixed assets have been managed
satisfactorily as the worsened economic condition has not had a very huge impact (the turnover
for 2008 is still above the 2004 value). Sales to short-term liabilities are moderately high and
indicative of a relaxed credit policy on the part of the company's suppliers.

CC3 ANALYSIS OF PROFIT MARGIN RATIOS

Gross profit margin had shot up in 2006, but declined extraordinarily in 2008, which was a bad
year. All ratios exhibit a similar trend. Gross profit in normal years (2004, 2005 and 2007) shows
that the company is profitable. The cost of sales has varied correspondingly. The gross profit in
2006 is a combination of reduced cost of sales and increased sales volume. Distribution expenses
increased along with CGS but administrative expenses have shown a relative stability. This
reflects the company's will to keep all controllable expenses at a minimum. In fact, other
operating expenses decline in 2008, strengthening the notion that the company is committed to
cost reduction.

CC24 ANALYSIS OF DEPRECIATION

Accumulated depreciation has moderately increased over the years. Such rates of depreciation
are normal for a manufacturing company. The annual depreciation charges as a percentage of
gross plant assets increase at a steadier rate as compared to sales. This is because of the inherent
volatility in the sales figure.

CC25 ANALYSIS OF DISCRETIONARY EXPENDITURES

Sales have generally increased over the years. Property, plant and equipment exhibit a sudden
increase in 2008, due to an expansion project financed by issuance of new shares. Maintenance
and repairs increase steadily over the years, but fall in 2008. Distribution cost increases over the
period. Maintenance as a ratio of sales and plant assets varies very little. Distribution cost,
however increases steadily. This is most likely because distribution costs are effected by inflation
to large degree.

CC26 MARKET MEASURES

The price per share for Fauji Cement has peaked in 2007, following its most profitable year. It
has fallen in 2008 which is its most unprofitable year. For 2006, the price to earnings ratio is
exceptionally low, showing that at this time the shares were, though not undervalued, but valued
at less than what was normal for the company. In 2008, the price to earnings ratio is highest
signaling that the shares were most highly valued in 2008. The price to book ratio peaks in 2007
but falls in 2008, due to a large increase in equity to finance expansion. Dividend yields have
decreased over the years because the company is financing its expansion through increasing
equity. The volatility and increase in the KIBOR rates, coupled with uncertain economic
conditions make this an unavoidable happening. The trend also suggests that the dividend yield is
highest when the company is most profitable. The removal of an inherent risk in the capital
structure by shifting from riskier debt financing to less risky equity financing should produce
positive effects on profitability and increase the dividend yield in coming years.