FSA Project

1
Flnunclul Stutement Anulysls of Fuu|l

Cement Compuny llmlted

Submltted to: Slr Umur SufdurKlyunl
Submltted by: Mehvlsh Ghufoor
BB07014
BBA 7
th
(M)

University of the Punjab
Gujranwala Campus

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Acknowledgement

We have no words at our command to express our deepest gratitude and
innumerous thanks to The Most Beneficent, The Most Merciful, The Most
Compassionate, The Most Gracious ALMIGHTY ALLAH, Whose Bounteous
Blessing and Exaltation flourished our thoughts and thrive our ambition to have the
cherish fruit of our modest efforts in form of this manuscript from the blooming
spring of blossoming knowledge.
We also offer our humble thanks to HOLY PROPHET MUHAMMAD (PBUH),
who is forever a source of guidance and beacon of knowledge for the mankind.

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Dedicated to.

Holy prophet Hazrat Muhammad (PBUH)
&
Our loving, parents and teachers,
Whom greatness we just cant describe in
Words, by whom only, we have been able to,
Touch this stage of life

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Letter of Transmittal

Respected Sir,
Punjab University Gujranwala Campus

Its my honor to present you the report related to the study of Financial Analysis of Fauji Cement
Company Limited of the subject of Financial Statement Analysis. This report is made according
to your defined instructions and guidance. I have tried to explain every possible aspect of
Financial Statement Analysis of Fauji Cement Company Limited.

Formation of this report has helped me a lot in increasing my knowledge and experience. I hope
that findings of this report shall also guide those students who will study this report.

Thank you.

Yours obedient student;

Mehvish Ghafoor BB07014

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Table of Contents

Serial no. Contents Page No.
1
Overview of report 7
2
Fauji Cement Companys profile 8
3
Pakistans economy overview 14
4
Cement sectors overview 26
5
Vertical Analysis of Balance Sheet 34
6
Horizontal Analysis of Balance Sheet 36
7
Vertical Analysis of Income Statement 40
8
Horizontal Analysis of Income Statement 41
9
Graphs 42
10
Ratio Analysis 43
11
Activity ratios 43
12
Debt ratios 68
13
Profitability ratios 74
14
Market Ratios 92
15
Cash flow ratios 102
16
Ratio analysis as a loan officer 109
17
Ratio analysis as corporate controller 111
18
Ratio analysis as an investor 113
19
Conclusion & recommendations 115

7
Overview of the Report

A longtime leader in the cement manufacturing industry, Fauji Cement Company, headquartered
in Islamabad, 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 11 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 needing speedy strengthening bond, fundamental to Pakistan's
economic vitality and quality of life.
In this project analysis of Fauji Cement Company Limited is done in very detail to check out
current position, performance and progress of the company. To measure these activities balance
sheet (trend analysis), balance sheet (vertical analysis), income statement (trend analysis),
income statement (vertical analysis) and ratio analysis are performed that has explored the real
picture. At the end conclusion is made on the basis of these analysis. Then future
recommendations are made to improve company in every aspect.
All the ratios have decreasing trend from 2006 to 2008, because in this time period profitability
of the company is decreasing due to decrease in cement prices and increasing manufacturing
costs. In 2009, almost all profitability ratios are increasing because of increase in cement prices
as well as demand. In 2010, again ratios are decreasing because profitability is decreasing due to
decrease in cement prices.
Company is not giving any dividend to its investors and liabilities of company are also
increasing. All this is because of heavy investment in fixed assets for the purpose of expansion.
Company is growth oriented and expanding its operations, which will increase the profitability of
the company in near future.

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History of Fauji Cement Company Limited

Fauji Cement Company Limited was sponsored by Fauji Foundation and incorporated as
a public limited company on 23 November 1992. It obtained the Certificate of
Commencement of Business on 22 May 1993. The Company has been setup with primary
objective of producing and selling Ordinary Portland Cement (OPC). For the purpose of
selection of sound process technology, state of the art equipment, civil design and project
monitoring, local and foreign consultants were engaged.

The Company entered into a contract with World renowned cement plant manufacturers
M/s F.L. Smidth to carry out design, engineering, procurement, manufacturing, delivery,
erection, installation, testing and commissioning at site of a new, state of the art, cement
plant including all auxiliary and ancillary equipment, complete in all respects for the
purpose of manufacturing a minimum of 3,000 tpd clinker and corresponding quantity of
Ordinary Portland Cement as per Pakistan/ British Standard Specifications.
The contract came into force on 1 January 1994. Physical work on the project started in
August 1994.

Commissioning activities started in May 1997 generally remained smooth and trouble
free, which enabled first batch of clinker production on 26 September 1997 followed by
cement production in November 1997.

Subsequently in 2005, the Plant capacity was increased to 3,700 tons of clinker per day
i.e. 3,885 tons of cement per day.

In line with the Cement Industry, Fauji Cement has signed a contract with Polysius, a
German cement plant manufacturing firm for installation of state of the art, the largest
single line (7200 tons per day of clinker) ever commissioned in Pakistan. Meaningful

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expansion will help the Company to expand its market share. The project will be
Inshallah commissioned in the 1st quarter of 2011.

Introduction of Company

A longtime leader in the cement manufacturing industry, Fauji Cement Company, headquartered
in Islamabad, operates a cement plant at Jhang Bahtar, Tehsil Fateh Jang, 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 11 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 needing speedy strengthening bond, fundamental to Pakistan's
economic vitality and quality of life.

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Mission

FCCL while maintaining its leading position in quality of cement and through greater
market outreach will build up and improve its value addition with a view to ensuring
optimum returns to the shareholders.

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Vision

To transform FCCL into a role model cement manufacturing Company fully aware of
generally accepted principles of corporate social responsibilities engaged in nation
building through most efficient utilization of resources and optimally benefiting all stake
holders while enjoying public respect and goodwill.

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BUSINESS PATTERN:
The Company has been set up with the primary objective of producing and selling
ordinary Portland cement. The finest quality of cement is available for all types of
customers whether for dams, canals, industrial structures, highways, commercial or
residential needs using latest state of the art dry process cement manufacturing process.

COMPANYS STRATEGIES:
We shall achieve our vision by maintaining high quality product, relentless pursuit of
customer satisfaction, empowering FCCL employees to lead cement industry and
achieve manufacturing excellence, producing superior returns to our shareholders.
Companys Values:

CUSTOMERS

We listen to our customers and improve our product to
Meet their present and future needs.

PEOPLE

Our success depends upon high performing people working together in a safe
and healthy work place where diversity, development and team work are
valued and recognized.

ACCOUNTABILITY

We expect superior performance and results. Our leaders set clear goals and
expectations, are supportive and provide and seek frequent feed back.

SOCIAL
RESPONSIBILITY

We support the communities where we do business, hold ourselves to the
highest standards of ethical conduct and environment responsibility, and
communicate openly with public and FCCL employees.

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Corporate Structure

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Pakistans Economy
Pakistan was established in 1947 with per capita income of 100$ and had a population of just
30 million people. By that time there was no industrial production because all industries were
located in India and the country had to rely totally on agriculture to feed its population.
After that economic growth gradually started in Pakistan and now its economy is the 27th
largest economy in the world, its population is increased to 170 million people and the per capita
income is also increased to 1000$. It is the third largest exporter of rice, the third largest milk
producer and Pakistan is also among the five major textile producing countries on the world.
Political and other instabilities:
Despite these factors Pakistan is still a developing country. Its economical conditions keeps on
fluctuating due to internal crisis like political disturbance, terrorism, energy crisis, low foreign
investments and sometimes due to national calamities. The recent flood that hits Pakistan had
caused a huge damage to its agriculture sector which has a major contribution to both national
income and GDP.
The main hindrance to the smooth economic growth is the political violence which is
significant in the past few years. Although in between 2004-07 development in different
industries and services took place which raises the GDP from 5% to 8%. In 2009 the industrial
growth rate was -3.6%.But again in 2007 great political instability took place as a result of
lawlessness in the tribal areas and assassination of former Prime Minister Benazir Bhutto. This
leads to high violence in Karachi which is one of the largest cities of Pakistan due to its ports
from where 80% of the countrys exports took place.
All these issues pose a great threat to Pakistans economy and cost the government in billions of
rupees because the industrial and commercial sector was fully damaged in Karachi. Pakistani
currency was also depreciated in this period due to the political and economical instabilities.
The global economic recession of 2008 also causes a great set back to the economic growth of
Pakistan. So all these instabilities shows a major influence on various economic indicators which

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keeps on fluctuating from time to time. A brief overview of some economic indicators for the
last five years (2006-2010) is given below:
Pakistan GDP Growth Rate:
Gross domestic product means the market value of all goods and services produced in a country
The yearly GDP growth rate describes all the economic activities in a year and according to this
the economy of Pakistan had expanded 2% in previous year and according to the measures taken
by the world bank the GDP of Pakistan is worth 167 billion which constitutes 0.27% of the
worlds economy.

According to the above chart in last five years the average GDP growth is 5.54% , reaching a
maximum historical height of 9% in December 2005 which was due to industrial growth and
now the GDP has decreased to a record minimum level of 2% in 2010.
GDP - composition by sector:
Agriculture: 20.8%
Industry: 24.3%
Services: 54.9% (2009 est.)

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Inflation Rate in Pakistan:
Inflation rate refers to a general rise in prices measured against a standard level of purchasing
power.
Among different factors which contribute to uneven economic growth, the leading factor is
inflation which stands to be a major problem ever. Two important measures of inflation are
consumer price index and GDP deflator.

It is evident from the above graph that inflation jumped from 7.7% in 2007 to 20.8% in 2008,
this was the result of increase in the prices of oil and other commodities across the world.
Recent rate of inflation in Pakistan is 12.69% as reported on June 2010.
From 2006 to 2010 the average rate is 11.86%. The highest inflation was recorded in august
2008 which were 25.33%. And the least rate of inflation was 1.14% in July 2003.

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Balance of Trade:
As reported in July 2010 Pakistan is suffering from trade deficit equivalent to 1450.9 Million
USD. Pakistan trade with different countries its main partners are: European Union, China,
United Arab Emirates, United States and Afghanistan.
Following chart shows the trend in the balance of trade for the last 5 years:

Exports of Pakistan:
Pakistan exports rice, furniture, cotton fiber, cement, tiles, marble, textiles, clothing, leather
goods, sports goods, surgical instruments, electrical appliances, software, carpets and rugs and
food products. Apart from these goods Pakistan is also a renowned exporter of cement to Asia
and Middle East and third biggest exporter of rise in world.

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According to the statistics provided in July 2010 Pakistan exports were of worth 1787.9 Million
USD. Maximum exports of worth 2053.6 million USD were recorded in the mid of 2008.
Imports:
Pakistan imports mainly petroleum, petroleum products, machinery, plastics, transportation
equipment, edible oils, paper and paperboard, iron and steel and tea its major import partners are:
European Union, China, Saudi Arabia, United Arab Emirates and United States.

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Imports in Pakistan as recorded in July 2010, were of worth 3238.8 million USD and maximum
imports were of 4100 million USD recorded in 2008.
During last five years the average imports worth 2877.04 million USD.
Balance of payments:
Pakistan reported a current account deficit equivalent to 1548.0 Million USD in September of
2010 the BOP trend in the last 5 years is shown in the following graph:

Exchange Rate:
Exchange rate means how much one currency, the USD, is currently worth in terms of the
other, the PKR.
The exchange rate is influenced by different factors e.g. the value of Pakistani currency has
depreciated in previous years due to political instability in the country.

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During last 12 months Pakistan rupee exchange rate has appreciated by 3.77% and in last 5 years
the average USDPKR is 70.87 reaching a historical height of 86.2 in September 2010.
The least exchange rate was 18.60 recorded in December of 1988.
Unemployment rate:
Unemployment refers to the share of the labor force that is without work but available for and
seeking employment
The labor force is defined as the number of people employed plus the number unemployed but
seeking work.
The non labor force includes those who are not looking for work, those who are
institutionalized and those serving in the military.
According to unemployment rate Pakistan is ranked on 33
rd
numbers in the world. However now
the government is making polices to overcome the problem of unemployment in the country.

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The unemployment rate in Pakistan has a decreasing trend since last few years.
In December 2009 the unemployment rate was reported to be 5.50%.
During past few years the average unemployment rate was 5.57%.
The maximum rate is recorded to be 8.27% in December 2002 and minimum rate was 2.6% in
1990.
Population of Pakistan:
The last reported population growth was 2.14% in 2008.this figure was given by the World
Bank.

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Although the rate of population growth has decreased in past few years especially after 2006 but
still the total population in the country has increased at an alarming rate after 2005. Currently the
population is of 170 million people. This is giving rise to high unemployment, more illiteracy
rate more corruption and crime and it is influencing the economic growth. To overcome the
problem of ever increasing population the government has taken many steps in the previous
years.
Literacy rate:
Adult literacy rate is the percentage of people ages 15 and above who can, with understanding,
read and write a short, simple statement on their everyday life. Pakistan's economy has suffered
a lot in past due to high illiteracy rate. Soon after 2000 the literacy rate gradually begins to
increase due to the setting up of many schools and universities by government.

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The above chart shows the literacy rate of adult population of ages 15 and above in Pakistan. The
last reported literacy rate was 53.70 in 2009.
Foreign direct investment:
Foreign direct investment is net inflows of investment to acquire a lasting management interest
(10 percent or more of voting stock) in an enterprise operating in an economy other than that of
the investor.

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The above table shows the trends in foreign direct investment in last few years according to the
World Banks report FDI was 5389000000.00 in 2008 and the least was 1062000000 US dollars
in 2005.

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Conclusion and Recommendations
It is concluded from the above data that Pakistan has gone through a noteworthy economic
growth in past few years. This economic growth has also resulted in increased level of income
which has triggered the domestic demand.
But still there are some core problems like political instability, less foreign investment, lack of
controls, terrorism, inflation, illiteracy and many other which are needed to be solved at national
level.
The last five years were highly inflationary. The reason was increase in the prices of oil all over
the world which further causes the transportation charges to increase and in overall it increases
the factors of production and the producers passes the high costs to the consumers. In this way
the imports became expensive and overall inflation was increased.
In such a way one uncontrolled factor influences many other factors of the economy. So the
government should take sufficient actions to bring all uncontrolled factors in controlled
condition.
Instead of importing commodities government should encourage domestic production because
Pakistan is already facing budget deficit from past many years.
Government should also make investment in fruitful projects and spend on the infrastructure of
the country. According to the figures of 2009 the govt. revenue was $23.21 billion whereas the
expenditures stood $30.05 billion. Special attention should be given to the agriculture sector
especially after the current disaster.
Government should make arrangements to attract foreign investment and also request the
developed countries to provide financial and, managerial assistance.
At last it is strongly recommended that there should be a strong monitoring and governing
system. This system should be established in the country at different levels to ensure the smooth
running of the economy.

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History & Introduction of Cement Industry
Growth of cement industry is rightly considered a barometer for economic activity. The
history of cement industry dates back to 1921when the first plant was established at Wah. In
1947, Pakistan had four inherited cement plants with a total capacity of 0.5 million tons. These
plants were located at Karachi, Rohri, Dandot and Wah. Some expansions took place in 1956-66
but could not keep pace with the economic development and country had to resort to imports of
cement in 1976-77 and continued to do so till 1994-95. The industry was privatized in
1990which led to setting up of new plants.
The industry comprises of 29 firms (19 units in the north and 10 units in the south), with the
installed production capacity of 44.09 million tons. The north with installed production capacity
of 35.18 million tons (80 percent) whiles the south with installed production capacity of 8.89
million tons (20 percent); compete for the domestic market of over 19 million tons. There are
four foreign companies, three armed forces companies and 16 private companies listed in the
stock exchanges. The industry is divided into two broad regions, the northern region and the
southern region. The northern region has around 80 percent share in total cement dispatches
while the units based in the southern region contributes 20 percent to the annual cement sales.
Overview of Cement sector:
Cement is one of major industries of Pakistan. Pakistan is rich in cement raw materials.
Currently many cement plants are operating in private sector. The cement industry has huge
potential for export to neighboring countries like India, Afghanistan & African countries.
Exports of cement industry:
Pakistan cement factories continue to make significant progress in cement exports. Now Pakistan
is ranked 5th in the worlds cement exports after a huge increase of 47 percent in exports during
last fiscal year. According to the Global cement report, China maintained first position with 26
million tones in exports, while Japan got second position by exporting 12.6 million tones of

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cement. Third largest cement exporter in world is Thailand with around 12 million tones,
followed by Turkey which exported 11.6 million tones of cement. Pakistan now at 5th position
has left Germany behind by exporting 11 million tones of cement during last fiscal year.
Germany now stands at 6th position with 9 million tones exports.
The cement industry of Pakistan entered the export markets a few years back, and has established
its reputation as a good quality product. The latest information is that India will import more
cement from Pakistan. So far 130,000 tones cement has been exported to the neighboring
country.
In 2007, 130,000 tons cement was exported to India.
In 2007, the exports to Afghanistan, UAE and Iraq touched 2.13 million tons.
Pakistans cement exports
Year Exports
(Million Tones)
Value
US$
2006-07 3.2 185 million
2007-08 7.7 450 million
2008-09 8.9 534 million
2009-10(Jul-Mar) 6.7 356 million

New avenues for export of cement are opening up for the indigenous industry as Sri Lanka has
recently shown interest to import 30,000 tons cement from Pakistan every month. If the industry
is able to avail the opportunity offered, it may secure a significant share of Sri Lankan market by
supplying 360,000 tons of cement annually.

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A reason of increase in exports is that, depreciation of rupee has rendered Pakistani cement as a
highly attractive option.
Sales of cement industry:
Million Tones 9MFY08 9MFY07 % change
Local Sales 16,610,096 15,380,297 8.0
Export Sales 6,819,964 2,145,951 217.8
Total Sales 23,430,060 17,526,248 33.7

During the financial year-07, cement sales registered a growth of 31 percent to 17.53 million
tones as against 13.5 million tones sold last year. The cement sales during July-February-08
showed an increase, both in domestic and regional markets to 18.17 million tones. The domestic
sales registered an increase of 7.2 percent to 14.4 million tones in the current period as compared
to 13.5 million tones last year whereas exports stood at 3.7 million tones as against 1.8 million
tones in the corresponding period last year, showing an increase of 110 percent.
Contribution of cement sector towards country:
The cement sector is contributing above Rs 30 billion to the national exchequer in the form of
taxes.
Cement industry is also serving the nation by providing job opportunities and presently more
than 150,000 persons are employed directly or indirectly by the industry.
Profitability of cement sector:
Cumulative profitability of companies in FY09 stood at Rs 6.2 billion or $78.2 million as
compared to Rs 386 million or $6.2 million depicting a massive growth of 1,492 percent.
Companies with profits in both the years posted 109 percent earnings improvement.

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Production capacity:
In Pakistan, there are 29 cement manufacturers that are playing a vital role in the building up the
countrys economy and contribution towards growth and prosperity. After 2002-3, most of the
cement manufacturers expanded their operations, and increased production. This sector has
invested about $1.5 billion in capacity expansion over the last six years.
The operating capacity of cement in 1991 was 7 million tons, which increased to become 18
million tons by 2005-06 and by end of 2007 rose to above 37 million tones, and currently the
production capacity is 44.07 million tones. Cement production capacity in the north is 35.18
million tons (80 percent) while in the south it is only 8.89 million tons (20 percent).
The cement manufacturers in 2007-08 added above eight million tons to the capacity and the
total production was expected to exceed 45 million tons by the end of 2010. It may result in a
supply glut of seven million tons in 2009 and 2010.
Despite an excess supply of 11 million tones in 2008, it is estimated that the price would increase
in domestic as well in regional markets that may surely boost the profitability and give relief to
the industry on its new investment.

Demand & Production of Cement (Million Tones)
Installed Capacity 39
No. of units 29
Local Demand(2007-08) 22.6
Production(2008-09) 19.2
Projected Capacity(2010-11) 48

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According to Government Board of Investment
Actual Cement Production (in million tones)
2001-02 9.83
2002-03 10.85
2003-04 12.86
2004-05 16.09
2005-06 18.48
2006-07 22.73
2007-08 26.75
2008-09 20.28
Pricing:
Another problem faced earlier by the Industry was the high taxation. The general sales tax (GST)
was 186% higher than India. The impact of this tax and duty structure resulted in almost 40%
increase in the cost of a cement bag (50 Kg). A bag in India earlier cost Rs. 160 as compared to
Rs. 220 in Pakistan. In the budget of 2003-04, a duty cut of 25% was permitted to the cement
sector with assurance from the cartel to pass on this benefit to the consumers. In 2006, the price
of a bag went up to Rs. 430 however in 2007 it has stabilized at Rs. 315 per bag. In mid 2008,
cement prices stabilized further at Rs. 220 per bag.
Average industry cost of cement bag/50Kg = Rs.193
Average industry price of cement bag/50Kg = Rs.235
Demand:
The cement demand grew 19 percent and 13 percent during FY05 and FY06 respectively. During
the first nine months of FY07-08, production increased by 30 percent as compared to last year.
The demand for cement was forecasted to grow by 26 percent during FY07 and 17 percent in
FY08. The per capita consumption of cement has risen from 117 kg in FY06 to 131 kg in FY07.

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The main factors behind increase in demand of cement were: 60 percent higher Public Sector
Development Projects (PSDP) allocation, seven percent GDP growth, increasing number of real
estate development projects for commercial and residential use, developing export market and
expected construction of mega dams.
The cement demand would increase in future due to government policies as the Pakistan
Peoples Partys (PPPs) slogan has always been roti, kapra aur makan (bread, clothing and
housing). In this regard a statement of the new government confirmed that it would encourage
industries and construct small dams.
Growth:
The cement sector posted a growth rate of 4.71 percent during July-March 2008-09. Pakistan is
not only meeting its domestic needs but also exporting the surplus. The cement sector is
contributing Rs 30 billion to the national exchequer in the form of taxes. This sector has invested
about Rs 100 billion in capacity expansion over the last four years.
Per capita Cement consumption:
Pakistan currently has a per capita consumption of 131kg of cement, which is comparable to that
for India at 135kg per capita but substantially below the World Average 270kg and the regional
average of over 400kg for peers in Asia and over 600kg in the Middle East.
Cement demand remained stagnated during 90s owing to lack of development activities. In
1997, per capita consumption was 73 kg in both Pakistan and India. By 2005-06, consumption in
India rose to become 115 kg/capita whereas ours rose to 117 kg/capita.

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A comparison of few countries in 2005:
Bangladesh 50 kg/capita
Pakistan 117 kg/capita
India 115 kg/capita
USA 375 kg/capita
Iran 470 kg/capita
Malaysia 530 kg/capita
EU 560 kg/capita
China 625 kg/capita
UAE 1095 kg/capita

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Recommendations & Conclusion
The above data shows the continuous growth of cement sector. The main factor of the growth is
accelerating exports of cement. Pakistan is ranked 5
th
largest cement exporter.
Demand for cement has been increasing at domestic level as well as international level. When
demand will increase, the production will also increase. At the same time to meet the demand,
people are being hired and unemployment will decrease. Presently Cement sector employs
150,000 people directly or indirectly. Accelerating exports will also lead to increase n forex
reserves.
The last five years were highly inflationary. The reason was increase in the prices of oil all over
the world which further leads to increase in transportation charges. And overall it increases the
costs of factors of production and ultimately increases in the prices of final product.
In Pakistan electricity charges, tax charges and interest charges etc are very high which leads to
increase in prices. In Pakistan, all taxes come to around Rs 96 per bag which is the highest in the
world. Our govt should give some compensation to industries so that our country can go towards
development.
Investors also reluctant to invest due to high inflation. Because at this time, the whole world is
facing recession. If investors would not invest then companies will effect. Because one
uncontrolled factor influences the many other factors of the economy.
In Pakistan, almost all the operating plants are based on furnace oil and use coal. In the market
oil and coal prices are increasing sharply which is troublesome for industries.
The major problems are political instability and terror attacks due to which investors hesitate to
invest. Currently Pakistan is facing the tragedy of flood due to which it loses a lot.

34

Fauji Cement Company Limited
Vertical Analysis of Balance Sheet
For the Year ended 30 June, 2006 to 2010

Items
Vertical Analysis

Vert 10 Vert 09 Vert 08 Vert 07 Vert 06
Share Capital & Reserves

Share capital
27.71% 34.60% 59.58% 65.53% 67.67%
Reserves
8.18% 10.59% 14.97% -7.17% -14.71%
Total Equity
35.89% 45.19% 74.54% 58.36% 52.96%
Subordinated loan - unsecured
1.49% 0.00% 0.00% 0.00% 0.00%
Non-Current Liabilities
0.00% 0.00% 0.00% 0.00% 0.00%
Long term financing-secured
44.47% 29.02% 2.61% 13.67% 22.99%
Fair value of deprivative
0.27% 0.00% 0.00% 0.00% 0.00%
Deferred liability
0.05% 0.05% 0.08% 0.13% 0.13%
Deferred tax liability-net
2.94% 3.40% 2.92% 5.31% 3.47%
Retention money payable
0.00% 0.67% 0.15% 0.00% 0.00%
Liability against shipment in transit
0.00% 9.42% 0.00% 0.00% 0.00%
Total Non-Current Liabilities
47.74% 42.56% 5.75% 19.11% 26.59%
Current Liabilities
0.00% 0.00% 0.00% 0.00% 0.00%
Trade and other payables
6.34% 6.72% 3.96% 7.32% 6.79%
Markup accrued
1.30% 0.44% 0.27% 0.76% 0.96%
Short term borrowings-secured
3.23% 3.57% 11.07% 5.87% 3.81%
Current portion of long term financing
4.00% 1.52% 4.42% 8.59% 8.87%
Total Current Liabilities
14.88% 12.25% 19.71% 22.53% 20.44%

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Total Equity & Liabilities
100.00% 100.00% 100.00% 100.00% 100.00%
Non-Current Assets
0.00% 0.00% 0.00% 0.00% 0.00%
Property, plant & equipment
88.94% 87.55% 57.06% 68.62% 73.62%
Long term advance
0.02% 0.03% 0.06% 0.13% 0.15%
Long term deposits & prepayments
3.30% 4.70% 0.37% 0.73% 0.75%
Deferred tax asset-net
0.00% 0.00% 0.00% 0.00% 0.00%
Total Non-Current Assets
92.27% 92.29% 57.49% 69.48% 74.52%
Current Assets
0.00% 0.00% 0.00% 0.00% 0.00%
Stores, spares & loose tools
3.96% 4.84% 7.29% 7.32% 7.92%
Stock in trade
0.36% 0.64% 1.85% 2.86% 2.34%
Trade debts
0.09% 0.25% 0.22% 0.31% 0.41%
Advances, deposits, prepayments, other
receivables
2.60% 1.15% 2.66% 13.34% 1.05%
Interest accrued
0.00% 0.00% 0.12% 0.08% 0.09%
Cash & bank balances
0.72% 0.82% 30.38% 6.61% 13.67%
Total Current Assets
7.73% 7.71% 42.51% 30.52% 25.48%
Total Assets
100.00% 100.00% 100.00% 100.00% 100.00%

36

Horizontal Analysis of Balance Sheet

Items
Horizontal Analysis

H 10-09 H 09- 08 H 08-07 H 07-06 H 06-05
- - - - -
Share capital
0.00% 0.00% 76.90% 0.00% 0.00%
Reserves
-3.52% 21.82%
-
505.93% -49.64% -47.74%
Total Equity
-0.83% 4.38% 148.55% 13.79% 34.00%
- - - - -
- - - - -
91.33% 1815.15% -62.86% -38.60% -43.50%
- - - - -
Deferred liability
36.61% 13.71% 14.39% 4.61% -82.50%
8.31% 100.51% 6.84% 57.82% -
-
100.00% 692.87% - - -
-
100.00% - - - -
40.06% 1175.28% -41.49% -25.79% -35.79%
Current Liabilities
- - - - -
17.81% 192.33% 5.29% 11.25% 52.72%
Markup accrued
265.94% 187.49% -31.33% -19.14% -13.82%

37
13.05% -44.44% 267.06% 58.88% -23.48%
229.66% -40.91% 0.00% 0.00% -0.54%
51.63% 7.06% 70.20% 13.82% 4.99%
24.87% 72.20% 94.58% 3.27% -0.41%
Non-Current Assets
- - - - -
26.85% 164.22% 61.79% -3.74% -2.04%
Long term advance
-14.29% -12.50% -11.11% -10.00% 0.00%
-12.30% 2064.69% 0.00% 0.00% 0.00%
- - - -
-
100.00%
24.84% 176.42% 61.01% -3.71% -8.56%
Current Assets
- - - - -
2.16% 14.38% 93.61% -4.51% 36.19%
Stock in trade
-29.66% -40.26% 25.52% 26.34% 159.41%
Trade debts
-55.14% 102.92% 37.68% -23.23% -76.24%
receivables
181.66% -25.26% -61.26% 1216.11% 44.02%
Interest accrued
-20.92% -95.16% 192.06% -7.27% 446.41%
9.25% -95.35% 794.26% -50.08% 40.54%
25.19% -68.76% 171.00% 23.69% 34.67%
Total Assets
24.87% 72.20% 94.58% 3.27% -0.41%

38

Averages of Balance Sheet

Items
Averages

2010-2009 2009-2008
2008-
2007
2007-
2006
2006-
2005

Share capital
7419887 7419887 5807154.5 4194422 4194422
Reserves
2230800 2067448 702439 -685511 -1328302
Total Equity
9650687 9487335 6509593.5 3508911 2866120
200000 0 0 0 0
0 0 0 0 0
9066628.5 3274613.5 600000 1150000 1973502.5
36013 0 0 0 0
Deferred liability
12736.5 10117 8872.5 8094.5 26562.5
758395 545654 351536 277649.5 107690.5
71869.5 80934 9064.5 0 0
1010458 1010458 0 0 0
10956100.5 4921776.5 969473 1435744 2107755.5
Current Liabilities
0 0 0 0 0
1570249.5 967517.5 480828.5 444760.5 348396
Markup accrued
222268.5 64296.5 40758 54050.5 64564
815752.5 1072071.5 876937.5 305931.5 272614.5
698192 437500 550000 550000 551497.5

39
3306462.5 2541385.5 1948524 1354742.5 1237072
24113250 16950497 9427590.5 6299397.5 6210947.5
Non-Current Assets
0 0 0 0 0
21298122 12941901.5 5749524.5 4477782.5 4610693
Long term advance
5850 6750 7650 8550 9000
946912 527797 46611 46611 46611
0 0 0 0 168570
22250884 13476448.5 5803785.5 4532943.5 4834874
Current Assets
0 0 0 0 0
1049305.5 972834.5 688180 479828 425670
Stock in trade
117067.5 183770 206699 164199.5 100510.5
Trade debts
39577.5 40784 23242.5 22516.5 66353
receivables
471691.5 288959.5 592210 459272.5 54951.5
Interest accrued
642 7772.5 9952.5 5276 3238.5
184082 1979928 2103521 635361.5 725350
1862366 3474048.5 3623805 1766454 1376073.5
Total Assets
24113250 16950497 9427590.5 6299397.5 6210947.5

40

Fauji cement Company Limited
Vertical Analysis of Income Statement

Items
Vertical Analysis

Vert10 Vert09 Vert08 Vert07 Vert06
Sales
128.72% 130.84% 133.94% 138.02% 132.60%
Less: Government levies
28.72% 30.84% 33.94% 38.02% 32.60%
Net Sales
100.00% 100.00% 100.00% 100.00% 100.00%
Less: Cost of sales
86.46% 68.25% 81.44% 68.48% 48.88%
Gross Profit
13.54% 31.75% 18.56% 31.52% 51.12%
Other income
0.71% 3.58% 3.03% 2.13% 1.01%
Distribution cost
1.25% 0.95% 1.51% 1.17% 0.74%
Administrative expenses
2.72% 1.94% 2.16% 2.06% 1.55%
Other operating expenses
0.67% 1.47% 0.97% 1.68% 2.20%
Net Profit Before Interest & Tax
Taxation
9.61% 30.98% 16.96% 28.74% 47.64%
Finance cost
1.08% 4.23% 4.14% 5.98% 6.17%
Net Profit Before Taxation
8.53% 26.75% 12.82% 22.76% 41.48%
Taxation
1.96% 7.79% 1.16% 4.10% 13.39%
Net Profit After Taxation
6.57% 18.96% 11.66% 18.66% 28.08%
Earning per share-basic
0.00% 0.00% 0.00% 0.00% 0.00%
Earning per share-diluted
0.00% 0.00% 0.00% 0.00% 0.00%

41

Horizontal Analysis of Income Statement

Items
Horizontal Analysis

H 10-09 H 09-08 H 08-07 H 07-06 H 06-05
Sales
-29.50% 46.41% -0.64% -15.90% 44.94%
Less: Government levies
-33.25% 36.19% -8.61% -5.77% 29.84%
Net Sales
-28.34% 49.88% 2.39% -19.20% 50.65%
Less: Cost of sales
-9.22% 25.60% 21.76% 13.21% 18.79%
Gross Profit
-69.45% 156.40% -39.71% -50.19% 102.59%
Other income
-85.71% 77.02% 45.70% 70.43% 286.27%
Distribution cost
-5.02% -5.85% 31.34% 28.24% 48.57%
Administrative expenses
0.29% 34.89% 7.28% 7.01% 57.54%
Other operating expenses
-67.43% 127.98% -40.98% -38.28% 132.45%
Net Profit Before Interest & Tax
Taxation
-77.76% 173.68% -39.56% -51.26% 106.54%
Finance cost
-81.66% 52.92% -29.04% -21.64% 15.09%
Net Profit Before Taxation
-77.14% 212.72% -42.33% -55.66% 134.20%
Taxation
-81.94% 910.34% -71.12% -75.28% 130.92%
Net Profit After Taxation
-75.17% 143.62% -36.01% -46.31% 135.80%
Earning per share-basic
-78.32% 68.24% -50.87% -46.77% 135.51%
Earning per share-diluted
-77.94% 76.62% -49.67% -46.69% 135.25%

42
Graphs of Balance Sheet and Income Statement

-100.00%
-50.00%
0.00%
50.00%
100.00%
150.00%
200.00%
2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Balance Sheet
Total Assets Current Assets Current Liabilities Owner's Equity
-100.00%
-50.00%
0.00%
50.00%
100.00%
150.00%
200.00%
250.00%
2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Income Statement
Sales Gross profit Earning before tax Net income

43

Ratio Analysis:
Activity Ratios:
This ratio measures the efficiency with which various accounts are converted into sales or cash.
This ratio shows the efficiency with which assets are being utilized by the firm.
1. Accounts Receivable Turnover:
This ratio measures the liquidity of the firms receivables. It means how many times accounts
receivables have been generated from the sales. The higher turnover is considered as favorable.
Accounts Receivable Turnover =
Net Sales
Average Gross Receivables

Year 2006 2007 2008 2009 2010
Ratios
(Times per year)
63.11 126.06 118.83 116.47 87.27

Time-series Analysis 2006 to 2010:
2006:
FCCLs accounts receivable turnover for 2006 is 63.11 times per year. It means that FCCL is
generating its accounts receivables 63 times in 2006 from its sales. In 2006, total sales are 133%
A tool used by individuals to conduct a quantitative analysis of information in a company's
financial statements. Ratios are calculated from current year numbers and are then compared to
previous years, other companies, the industry, or even the economy to judge the performance of
the company.

44

of the net sales. FCCLs sales are increasing in 2006 as compare to 2005. This increase in sales is
due to increase in local demand, and increase in local demand is due to increase in construction
activities in the country and Governments focus towards infrastructure development. Company
meets the demand because performance of the Plant remained highly satisfactory with overall
efficiency exceeding 91.5%.
2007:
FCCLs account receivable turnover for 2007 is 126.06 times per year. It means company is
generating its receivables 126 times in 2007 from its sales. It is better than 2006s ratio. Capacity
utilization of FCCL stood at 98.00 %, which was higher by 6.6% over last year. Capacity of
utilization is increasing but sales are not increasing relatively.
Sales are increasing in 2006 as compare to 2007 but accounts receivable turnover ratio in 2007is
better than 2006. The reason of fewer ratios is, we are using average gross receivables as
denominator. In 2005 value of receivables is high as compare to 2006 which affect the ratio. In
2007 this ratio is increasing but sales are not increasing because most of our production is in
godown as inventory. Decrease in sales in 2007 can also be due to strict credit policy of
company.
2008:
FCCLs accounts receivable turnover for 2008 is 118.83 times per year. This ratio is slightly
decreasing as compare to last year. In 2008, performance of the plant remained above
satisfactory level with an overall production level exceeding 100.83%, which is the highest ever
achieved in the history of Fauji Cement. Due to increase in production level, inventory and sales
are also increasing as compare to last year. Cash and accounts receivables, both are increasing. It
means some sales are on cash basis and some are on credit basis. As demand of cement is
increasing day by day so sales are also increasing and company is trying to meet the demand.

45

2009:
FCCLs accounts receivable turnover for 2009 is 116.47 times per year. There is slightly
decreasing trend in as compare to last year. But the difference is not material. As demand of
cement is increasing day by day not only at national level but also at international level, so sales
are also increasing. Sales are increasing in 2009 as compare to last years because performance of
the plant remained above satisfactory level with 100% capacity utilization. In 2009, with the
increase of sales accounts receivables are also increasing but cash is decreasing. It means that in
2009, most of the sales are on credit basis rather than cash basis.
2010:
FCCLs accounts receivable turnover for 2010 is 87.27 times per year, which means company is
generating its receivables 87 times per year from sales. There is decreasing trend in this ratio
from 2008 to 2010. In 2010, sales of company are decreasing and accounts receivables are also
decreasing. Decrease in sales can be due to decrease in capacity utilization of plant. Capacity
utilization of FCCL in FY2008-09 was 100.09% and in FY2009-10 has been 96.06%.
Company domestic sale is decreasing while exports are increasing as compare to last year.
Increase in exports is favorable because in this way companys forex reserves will increase.
Overall, Company's performance is good from 2006 to onward. It means that companys
management is running the company in an efficient way and it builds its good repute in the mind
of its customers.
2. Days Sales in Receivables:
This ratio determines the time in days, the receivables are outstanding. It indicates how
efficiently the firm manages its receivables. Lesser answer will reduce the chances of bad debts.
Days Sales in Receivables =
Gross Receivables
Net Sales / 365

46

Year 2006 2007 2008 2009 2010
Ratios (Days) 2.27 2.90 3.23 4.03 2.63

Time-series analysis 2006 to 2010:
2006:
FCCLs days sales in inventory for 2006 is 2.3 days and it is quiet favorable for company.
Companys sales are increasing in 2006 as compare to 2005 but its accounts receivables are
decreasing and cash is increasing in 2006 as compare to 2005. It means that company strict its
credit policy, Means Company is reviewing its credit policy and efficiently managing its cash
and receivables. Efficient cash and credit management means fewer chances of bad debts.
2007:
FCCLs days sales in inventory for 2007 are 2.9 days which is close to previous year's ratio. In
2007, companys sales are decreasing. Decrease in sales can be due to strict credit policy of
company. It means that company is strictly following its credit policy. Net receivables are
decreasing but gross receivables are increasing as compare to last year. Decrease in net
receivables in 2007 can be due to more provision for bad debts made by the company. May be
company has more chances of bad debts, thats why it made more provision as compare to last
year.
2008:
FCCLs days sales in inventory for 2008 are 3.2 days, which is slightly greater than the previous
year. Sales of company are increasing and gross receivables are also increasing. The reason in
accounts receivables is that company is selling its product on credit basis. It means that company
loose its credit policy up to some extent to increase its sales volume.

47

2009:
FCCLs days sales in receivables for 2009 are 4.0 days. There is an increasing trend in this ratio
from 2006 to 2009 because accounts receivables are continuously increasing from 2006 to 2009.
In 2009, with the increase of sales accounts receivables are also increasing but cash is
decreasing. It means that in 2009, most of the sales are on credit basis rather than cash basis. It
can be due to leniency in credit policy by the company or it can be due to increase in sales.
2010:
FCCLs days sales in receivables for 2010 are 2.6 days. There is decreasing trend which is
favorable for company. In 2010, company sales are decreasing as well as accounts receivables
are also decreasing but cash is increasing. It means that some sales are on cash basis and some on
cash basis. It reflects strict credit policy and credit terms.
Overall, company is managing its receivables efficiently. Company has strict credit policy and
credit terms. Company is consistently and strictly following its rules and regulations.
3. Accounts Receivable Turnover in Days:
This ratio indicates the amount of time needed to collect accounts receivables. Lesser answer
shows companys efficient management of receivables.
Accounts Receivable Turnover in Days =
Average Gross Receivables
Net Sales / 365

Year 2006 2007 2008 2009 2010
Ratios (Days) 5.70 2.86 3.03 3.09 4.13

48

2006:
FCCLs accounts receivables turnover in days in 2006 is 5.7 days, it means that company is
collecting its receivables in 6 days. Companys sales are increasing in 2006 as compare to 2005.
In 2006, FCCLs accounts receivables are decreasing and cash is increasing as compare to 2005.
It means that company strict its credit policy, Means Company is reviewing its credit policy and
efficiently managing its cash and receivables.
2007:
FCCLs accounts receivable turnover in days for 2007 is 2.9 days, means company is collecting
its receivables in approximately 3 days which is better than last year. Companys average gross
receivables are decreasing as compare to last year. Decrease in receivables mean companys
management is very efficient. Company stricts its credit policy more than previous year and
applying its credit policy consistently. Demand for cement is increasing at national level as well
as international level, so company tightened its policy.
2008:
FCCLs accounts receivable turnover in days for 2008 is 3.0 days. It means company is
collecting its receivables in 3 days, which is almost equal to the last year. As this ratio is
increasing from year to year so we can say that company is loosing its credit policy to increase
its sales volume. As demand of cement is increasing day by day at national level and
international level. So, company is providing leniency to its customers.
2009:

49
FCCLs accounts receivable turnover in days for 2009 is 3.1 days. It means that company is
collecting its receivables in 3 days. There is slightly increasing trend in this ratio from 2006 to
2009 but difference is not material. Increase in ratio does not mean that company is loosing its

credit policy. Ratio is increasing because sales are increasing. It means that company is
consistently and strictly following its credit policy.
2010:
FCCLs accounts receivable turnover in days for 2010 is 4.1 days. Company's ales are
decreasing but receivables are not decreasing with the same ratio. It means that companys sales
are on credit basis as well as cash basis because cash is also increasing.
Overall, somewhere ratio is increasing and somewhere decreasing but the difference is not
material. It means that company has efficient credit policy and following its policy. Company is
conscious about its bad debts. Company is managing its receivables very well.
4. Days Sales in Inventory:
This ratio shows the ending inventory is equivalent to how many days. It means the estimated
number of days that it will take to sell the current inventory. This ratio measures the length of
time it takes to acquire, sell and replace the inventory.
Days Sales in Inventory =
Ending Inventory
Cost of Goods sold / 365

Year 2006 2007 2008 2009 2010
Ratios (Days) 25 28 29 14 11

2006:

50
FCCLs days a sale in inventory for 2006 is 25 days. It means that ending inventory is selling in
25 days. In 2006, inventory is increasing as well as sales are increasing as compare to last year.
Increase in inventory is not favorable because company has to pay its holding cast and some

other charges. Here inventory is increasing, it means poor inventory control. Increase in
inventory is favorable too on the other hand, because it is beneficial to hold inventory in case of
inflation and high demand. You can easily meet with demand of people.
2007:
FCCLs days a sale in inventory for 2007 is 28 days, which is greater than last year and it is
unfavorable. The ratio is increasing in 2007, because the inventory is increasing as compare to
last year. Increase in inventory means increase in cost, because company has to pay its holding
cost and quality also effect in case of long inventory holding. In this way cost of goods sold will
also increase. Increase of ratio reflects poor inventory control management of the company.
2008:
FCCLs days sales in inventory for 2008 is 29 days, which is also greater than last year but not
material. It means that companys inventory is equivalent to 29 days almost one month and it is
not favorable for company. In 2008, inventory has been increased by 26%. When inventory will
increase replacement cost will increase, hence cost of goods sold will increase. It will affect the
sales and ultimately will affect the profitability of the company. It reflects companys poor
management.
2009:
FCCLs days sales in inventory for 2009 are 14 days, which is less than last three years. It is
favorable for company. Decrease in ratio is due to decrease in inventory by 40%. Decrease in
inventory is due to increase in sales by 50%. Decrease in inventory leads to decrease in
inventorys holding cost and increase in profitability of the company. It means that company is
efficiently controlling its inventory.

51
2010:
FCCLs days sales in inventory for 2010 are 11 days. The ratio is less than last four years. In
2010, inventory has been decreased by 30%. Decrease in inventory reduces holding cost of

inventory which ultimately increases the profitability of the company. It means that company is
reviewing its inventory on regular basis and controlling it efficiently.
5. Inventory Turnover:
This ratio indicates the liquidity of the inventory. It determines, how many times inventory is
converting into CGS. The higher the answer, the efficient inventory control. The ratio also
measures the relationship between volume of goods sold and amount of inventory carried during
the year.
Inventory Turnover =
Cost of goods Sold
Average Inventory
Year 2006 2007 2008 2009 2010
Ratios
(Times per year)
20.84 14.44 13.97 19.74 28.13

Time-series analysis 2006 to 2010:
2006:
FCCLs inventory turnover for 2006 is 21 times per year. It means that company is selling its
inventory 21 times per year. In 2006, companys sales are more than last year. As much as
inventory turnover will increase profitability of company will increase. As many time as
inventory will being converted into cash, either company receive cash or generate its account
receivable.

52
2007:
FCCLs inventory turnover for 2007 is 14 times per year, which is less than last year. It means
that companys inventory control management is not efficient. Ratio is decreasing because
inventory is increasing and due to increase in inventory sales are decreasing and cost of goods
sold is increasing. It ultimately will affect the profitability of the company.
2008:
FCCLs inventory turnover for 2008 is 13.97 times per year. The ratio is further decreasing but
not material. Ratio is decreasing because inventory is increasing on continuous basis. On
inventory company has to bear holding cost and some other costs. In this way cost of inventory
will increase and cost of goods sold will increase. And ultimately profitability of company will
effect.
2009:
FCCLs inventory turnover for 2009 is 18 times per year, which is greater than last two years. It
means that companys inventory control management has become conscious. Ratio is increasing
as compare to last two years which is favorable for company. In this year, sales are increasing
due to which inventory is decreasing. Last year inventory was high so cost of goods sold is
increasing. Decrease in inventory means companys management is taking steps to control its
inventory.
2010:
FCCLs inventory turnover for 2010 is 28 times per year, which is greater than last four years.
Ratio is decreasing because inventory is decreasing; it means that companys management is
efficiently controlling its inventory.
Overall, reason for increase in cost of goods sold is that electricity charges and fuel charges are
increasing day by day. Due to high inflation, prices of all goods are increasing which results in
increase in cost of goods sold.
6. Inventory turnover in Days:

53
This ratio indicates, time required from purchase to sale. This ratio shows in how many days
companys stock has been sold. Fewer days means that less time for inventory to turn into sales.

Inventory Turnover in Days =
Average Inventory
Cost of Goods Sold / 365

Year 2006 2007 2008 2009 2010
Ratios (Days) 17.27 24.92 25.77 18.24 12.80

2006:
FCCLs inventory turnover in days for 2006 is 17 days. As demand of cement is increasing day
by day. So inventory is converting into sales in 17 days, which is favorable for company. It
means that companys inventory control management is efficient. More days means more
holding cost.
2007:
FCCLs inventory turnover in days for 2007 is 25 days. Ratio is increasing as compare to last
year and material. Ratio is increasing because inventory is increasing. Company has to pay
inventorys holding cost, repair and maintenance charges and due to increase of these charges
cost of goods sold will also increase. It ultimately will affect the profits of the company.
2008:
FCCLs inventory turnover in days for 2008 is 26 days. Ratio is increasing as compare to last
year because inventory is increasing as compare to 2006 and 2007. Company has to pay
inventorys holding cost and other charges and due to increase of these charges cost of goods

54
sold will also increase. It ultimately will affect the profits of the company. It reflects poor
inventory control management.

2009:
FCCLs inventory turnover in days for 2009 is 18 days. Ratio is decreasing as compare to last
two years. Ratio is decreasing because inventory is decreasing and inventory is converting into
sales. It means inventorys holding cost and other charges are decreasing. It means that
companys management is taking steps to control its inventory.
2010:
FCCLs inventory turnover in days for 2010 is 13 days. Ratio is decreasing as compare to last
four years. Ratio is decreasing because inventory is decreasing and inventory is converting into
sales. It means inventorys holding cost and other charges are decreasing. It means that inventory
control management is efficiently managing its inventory.
Over all, inventory is decreasing. It means that companys management is conscious about its
financial position and efficiently managing its inventory. Company is reviewing its policies on
regular basis.
7. Operating Cycle:
It means the period of time elapsing between the acquisition of goods and the final cash
realization from sales and subsequent collections. The lesser the answer, the more efficient the
company. This ratio indicates how long it will take to realize cash from the ending inventory.
Operating Cycle =
Accounts Receivable Turnover in Days + Inventory Turnover in Days
Year 2006 2007 2008 2009 2010

55
Ratios (Days) 22.98 27.78 28.80 21.33 16.92


2006:
In 2006 FCCLs operating cycle completes in 23 days. It means that in 23 days company
realizes its cash from ending inventory. In 2006, company collects its receivables in 6 days and
turns its inventory into sales in 17 days. It means that companys cash management and
inventory management is efficient and efficiently performing its functions.
2007:
In 2007, FCCL completes its operating cycle in 28 days. ratio is increasing which is unfavorable
for company. In 2007, company is collecting its receivables in 3 days and converting its
receivables into sales in 25 days. It means that cash management is efficiently managing its
receivables and reducing chances of bad debts through strict credit policy. While inventory
control management is not efficiently managing the companys inventory.
2008:
In 2008, FCCL is completing its operating cycle in 29 days. Ratio is increasing as compare to
last two tears. In 2008, company is collecting its receivables in 3 days and converting its
inventory into sales in 26 days. It means that cash management is efficiently managing its
receivables and reducing chances of bad debts through strict credit policy. While inventory
control management is not efficiently managing the companys inventory. As in 2008, inventory
is very high and more inventories mean more holding cost and less profit.
2009:
In 2009, FCCL completes its operating cycle in 21 days. Ratio is decreasing as compare to last
year. In 2009, company is collecting its receivables in 3 days and converting its inventory into

56
sales in 18 days. It means that cash management is efficiently managing its receivables and
reducing chances of bad debts through strict credit policy. While inventory control management
is improving its performance as inventory is decreasing as compare to last three years.

2010:
In 2010, FCCL completes its operating cycle in 17 days, which is less than last four years and it
is favorable for company. Company is collecting its receivables in 4 days and converting its
inventory into sales in 13 days. It means that cash management is efficiently managing its
receivables and reducing chances of bad debts through strict credit policy. Inventory control
management is also efficiently managing the inventory.
8. Net Working Capital:
This ratio is an indication of the short-term solvency of the business. The higher the answer, the
more the firms ability to fulfill its financial obligations.
Net Working Capital =
Current Assets Current Liabilities
Year 2006 2007 2008 2009 2010
Ratios
(Rs. 000)
312,183

511,240

2,839,322

-973,996

-973,996

2006:
In 2006, FCCLs net working capital is 312,183 thousand rupees. It means that company has
enough working capital to fulfill its current obligations. In 2006, current assets are 25.48% of

57
total assets while current liabilities are 20.44% of total assets. It means that company has enough
current assets to fulfill its current liabilities.
In 2006, inventory is increasing as compare to last year. This is unfavorable for company
because company has to bear some cost on holding of inventory. Quality of cement is being
affected by long holding of inventory. But it is beneficial to hold inventory in case of inflation.
In 2006, trade debts are decreasing as compare to last year which is favorable for company.

Reducing trade debts mean reducing chances of bad debts. In 2006, other current assets are also
increasing as compare to last year. Companys cash and bank balance is also increasing as
compare to last year. Increase in cash is due to increase in companys other income and
receivables. In current liabilities, markup accrued is decreasing, which means company is paying
its interest liability from its cash. Remaining all liabilities are decreasing except trade and other
payables.
2007:
In 2007, FCCLs net working capital is 511,240 thousand rupees. Company is in a position to
fulfill its short-term obligations. In 2007, current assets are 30.52% of total assets and current
liabilities are 22.53% of total assets.
Reducing trade debts mean reducing chances of bad debts. Trade debts are also decreasing due to
decrease in sales. In 2007, companys cash and bank balance is decreasing as compare to last
year. Liability of markup accrued is decreasing; it means that company is paying its markup
accrued with cash. Other current liabilities are increasing. But current assets are more than
current liabilities
2008:

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In 2008, FCCLs net working capital is 2,839,322 thousand rupees. Company has enough
working capital to fulfill its short-term liabilities. In 2008, current assets are 42.51% of total
assets and current liabilities are 19.71% of total assets. It means that in 2008, company
performed very well.
In 2008, inventory is increasing as compare to last year. It is unfavorable for company because
company has to pay its holding cost. Sales can also effect due to large inventory because quality

of product can be affected. In 2008, trade debts are also increasing as compare to last year. It
can be due to increase in sales or lenient credit policy. In 2008, there is an immense increase in
cash and bank balance. As it is 30.38% of total assets. Increase in cash is due to increase in
interest income and other income. It means company is recovering its previous receivables in
2008 due to which cash is increasing. In current liabilities, all liabilities are increasing except
markup accrued. As in 2008, company is recovering its receivables so it is paying its interest
liability from cash.
2009:
In 2009, FCCLs net working capital is -973,996 thousand rupees. Companys current liabilities
are greater than current assets. In 2009, current assets are 7.71% of total assets and current
liabilities are 12.25% of total assets. It is an alarming situation for company.
In 2009, inventory is decreasing as compare to last year. Which means inventory is turning into
sales. In 2009, trade debts are increasing as compare to last three years. Trade debts are
increasing because sales are increasing and most of the sales are on credit basis, which reflects
lenient credit policy. In 2009, cash and bank balance is decreasing because other income is also
decreasing. Another reason of decrease in cash is that company is paying its liability with cash.
In 2009, current liabilities are increasing because markup accrued and payables are increasing.
2010:
In 2010, FCCLs net working capital is -1,914,197 thousand rupees. It means that companys
current liabilities are increasing as compare to current assets. In 2010, current assets are 7.73% of

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total assets and current liabilities are 14.88% of total assets. Current liabilities are double of
current assets.
In 2010, inventory is decreasing as compare to last year. It means that inventory is converting
into sale but sales are less than previous year. In 2010, trade debts are also decreasing because
most of the sales are on cash basis. It means that company strict its credit policy. In 2010, cash
and bank balance is increasing as compare to last year because prepayments are increasing and

most of the sales are on cash basis. All the current liabilities are increasing in this year as
compare to last four years.
Liquidity Ratios:
This ratio measures the firms ability to pay its short- term obligations as they come due.
Liquidity refers to the solvency of the firms overall financial position-the case with which it can
pay its bills or dues.
1. Current Ratio:
This ratio determines the short-term debt paying ability of the firm. The current ratio is
considered to be more indicative of the short-term debt paying ability of a firm than working
capital. A general standard for the current ratio is 2 to 1 (or 2:1 or 2/1)
Current Ratio =
Current Assets
Current Liabilities

Year 2006 2007 2008 2009 2010
Ratios 1.25 1.35 2.16 0.63 0.52

Tim-series Analysis 2006 to 2010:

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2006:
FCCLs current ratio for 2006 is 1.25. In 2006, companys current assets are more than current
liabilities which is favorable for company. In 2006, current assets are 25.48% of total assets
while current liabilities are 20.44% of total assets. It means that company has enough current
assets to fulfill its current liabilities.

compare to last year. Increase in cash is due to increase in companys other income and
payables.
2007:
FCCLs current ratio for 2007 is 1.35, which means current assets are more than current
liabilities and company is in a position to fulfill its short-term obligations with its current assets.
In 2007, current assets are 30.52% of total assets and current liabilities are 22.53% of total assets.

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accrued with cash. Other current liabilities are increasing. But current assets are more than
current liabilities.
2008:
FCCLs current ratio for 2008 is 2.16, which is greater than last two years. It means that
company has enough current assets to fulfill its current liabilities. In 2008, current assets are
42.51% of total assets and current liabilities are 19.71% of total assets. It means that in 2008,
company performed very well.
In 2008, inventory is increasing as compare to last year. It is unfavorable for company because
company has to pay its holding cost. Sales can also effect due to large inventory because quality
of product can be affected. In 2008, trade debts are also increasing as compare to last year. It
can be due to increase in sales or lenient credit policy. In 2008, there is an immense increase in
cash and bank balance. As it is 30.38% of total assets. Increase in cash is due to increase in
interest income and other income. It means company is recovering its previous receivables in
2008 due to which cash is increasing. In current liabilities, all liabilities are increasing except
markup accrued. As in 2008, company is recovering its receivables so it is paying its interest
liability from cash.
2009:
FCCLs current ratio for 2009 is 0.63, which is less than last three years. Companys current
liabilities are increasing as compare to current assets. In 2009, current assets are 7.71% of total
assets and current liabilities are 12.25% of total assets. It is an alarming situation for company.
In 2009, inventory is decreasing as compare to last year. Which means inventory is turning into
sales. In 2009, trade debts are increasing as compare to last three years. Trade debts are
increasing because sales are increasing and most of the sales are on credit basis, which reflects
lenient credit policy. In 2009, cash and bank balance is decreasing because other income is also
decreasing. Another reason of decrease in cash is that company is paying its liability with cash.
In 2009, current liabilities are increasing because markup accrued and payables are increasing.

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2010:
FCCL current ratio for 2010 is 0.52, which is less than last four years. It means that companys
current liabilities are increasing as compare to current assets. In 2010, current assets are 7.73% of
total assets and current liabilities are 14.88% of total assets. Current liabilities are double of
current assets.

In 2010, inventory is decreasing as compare to last year. It means that inventory is converting
into sale but sales are less than previous year. In 2010, trade debts are also decreasing because
most of the sales are on cash basis. It means that company strict its credit policy. In 2010, cash
and bank balance is increasing as compare to last year because prepayments are increasing and
most of the sales are on cash basis. All the current liabilities are increasing in this year as
compare to last four years.
2. Acid-Test Ratio:
Quick ratio focuses on immediate liquidity (i.e., cash, accounts receivable, etc.) but specifically
ignores inventory. It indicates the extent to which you could pay current liabilities without
relying on the sale of inventory. Quick assets are highly liquid and are immediately convertible
into cash.
Acid-Test Ratio =
Cash Equivalents + Marketable Securities + Net Receivables
Current Liabilities

Year 2006 2007 2008 2009 2010
Ratios 0.69 0.31 1.55 0.09 0.05


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2006:
FCCLs acid-test ratio for 2006 is 0.69. It means that company has not enough near to cash
assets to fulfill its current obligations. It means that companys liquidity position is not good.
compare to last year. Increase in cash is due to increase in company's other income and

payables.
2007:
FCCLs acid-test ratio for 2007 is 0.31, which is less than last year. It means that companys
current liabilities are more than its liquid assets.
accrued with cash. Other current liabilities are increasing. Current liabilities are more than quick
assets.
2008:
FCCLs acid-test ratio for 2008 is 1.55, which is greater than last two years. It means that
company is improving its performance. Company is conscious about its liquidity.
In 2008, trade debts are also increasing as compare to last year. It can be due to increase in sales
or lenient credit policy. In 2008, there is an immense increase in cash and bank balance. As it is
30.38% of total assets. Increase in cash is due to increase in interest income and other income. It

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means company is recovering its previous receivables in 2008 due to which cash is increasing. In
current liabilities, all liabilities are increasing except markup accrued. As in 2008, company is
recovering its receivables so it is paying its interest liability from cash.
2009:
FCCLs acid-test ratio for 2009 is 0.09, which is less than last year. It means that companys
performance is going downward. Companys quick assets are decreasing; it can be due to poor
cash and credit management.

In 2009, trade debts are increasing as compare to last three years. Trade debts are increasing
because sales are increasing and most of the sales are on credit basis, which reflects lenient credit
policy. In 2009, cash and bank balance is decreasing because other income is also decreasing.
Another reason of decrease in cash is that company is paying its liability with cash. In 2009,
current liabilities are increasing because markup accrued and payables are increasing. Current
liabilities are increasing with great proportion as compare to quick assets.
2010:
FCCL acid-test ratio for 2010 is 0.05, which means companys liquidity is going downward
since last years except 2008. Companys liquidity is worsening, which is an alarming sign for the
company.
In 2010, trade debts are decreasing because most of the sales are on cash basis. It means that
company strict its credit policy. In 2010, cash and bank balance is increasing as compare to
last year because prepayments are increasing and most of the sales are on cash basis. All the
current liabilities are increasing in this year as compare to last four years.
3. Cash Ratio:
The cash ratio shows the immediate liquidity of the firm. A high cash ratio indicates that the firm
is not using its cash to its best advantage. A cash ratio which is too low could indicate an
immediate problem with paying bill. This ratio is most relevant for companies in financial
distress.

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Cash Ratio =
Cash Equivalents + Marketable Securities
Current Liabilities

Year 2006 2007 2008 2009 2010
Ratios 0.67 0.29 1.54 0.07 0.05

2006:
FCCLs cash ratio for 2006 is 0.67, which indicates less cash as compared to liabilities. Less
cash ratio is favorable on the one hand, means company is using most of its cash on its
operations.
In 2006, companys cash and bank balance is also increasing as compare to last year. Increase
in cash is due to increase in company's other income and receivables. In current liabilities,
markup accrued is decreasing, which means company is paying its interest liability from its cash.
Remaining all liabilities are decreasing except trade and other payables.
2007:
FCCLs cash ratio for 2007 is 0.29. The ratio is decreasing as compare to last year. It is
favorable and unfavorable too. Favorable means cash is being used for the companys operations
and unfavorable means company has an immediate problem with paying its bills.
In 2007, companys cash and bank balance is decreasing as compare to last year. Liability of
markup accrued is decreasing; it means that company is paying its markup accrued with cash.
Other current liabilities are increasing. It means that company is using its cash to pay its
liabilities.
2008:

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FCCLs cash ratio for 2008 is 1.54. The ratio is increasing as compare to last two years; it means
that company is not using its cash on its operations.
In 2008, there is an immense increase in cash and bank balance. As it is 30.38% of total assets.
Increase in cash is due to increase in interest income and other income. It means company is
recovering its previous receivables in 2008 due to which cash is increasing. In current liabilities,
all liabilities are increasing except markup accrued. As in 2008, company is recovering its
receivables so it is paying its interest liability from cash.

2009:
FCCLs cash ratio for 2009 is 0.07. The ratio is decreasing in this year. It means that company
has not enough cash to fulfill its current obligations.
In 2009, cash and bank balance is decreasing because other income is also decreasing. Another
reason of decrease in cash is that company is paying its liability with cash. In 2009, current
liabilities are increasing because markup accrued and payables are increasing. Current liabilities
are increasing with great proportion as compare to cash.
2010:
FCCLs cash ratio for 2010 is 0.05. The ratio is decreasing as compare to last year. It is an
alarming situation for company that current liabilities are increasing but cash is decreasing. It can
also effect the companys reputation.
In 2010, cash and bank balance is increasing as compare to last year because prepayments are
increasing and most of the sales are on cash basis. All the current liabilities are increasing in this
year as compare to last four years.
4. Sales to Working Capital:
Relating sales to working capital gives an indication of the turnover in working capital per year.
A low working capital turnover ratio indicates an unprofitable use to the available working
capital. A high working capital turnover ratio indicates the firm is over trading.

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Sales to Working Capital =
Sales
Average Working Capital

Year 2006 2007 2008 2009 2010
Ratios 3.11 1.96 1.69 1.53 2.04

2006:
FCCLs sale to working capital ratio for 2006 is 3.11. It means that company is efficiently using
its working capital (current assets) to increase its sales.
In 2006, there is an increase of 34.67% in current assets and 50.65% in sales. In this year current
assets are increasing as well as sales are increasing. It means that company is generating its sales
by using its current assets.
2007:
FCCLs sale to working capital ratio for 2007 is 1.96. The ratio is decreasing as compare to last
year.
In 2007, current assets are increasing by 23.69%, which is less than previous year. Sales are
decreasing by 19%. Current assets are decreasing and sales are also decreasing. It means that
current assets are not being used for the purpose of increasing sale. Decrease in ratio is due to
decrease in sales.
2008:
FCCLs sale to working capital ratio for 2008 is 1.69. The ratio is less than last two years.
In 2008, current assets are increasing by 171%, due to which average working capital is
increasing. Sales have been increased by 2.39%. Increase of sales can be due to increase in

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demand for the product. Sales are not increasing with the same proportion as current assets are
increasing.
2009:
FCCLs sale to working capital ratio for 2009 is 1.53. The ratio is continuously decreasing. In
2009, Sales has been increased by 49.88%. Increase in sales can be due to increase in demand
and efficient sales management. Current assets have been decreased by 69%, due to which

average working capital is decreasing. It means that working capital is less contributing towards
sales.
2010:
FCCLs sale to working capital ratio for 2010 is 2.04, which is greater than last three years. In
2010, current assets have been increased by 25% and sales have been decreased by 28%. It
means that working capital is contributing towards sales. Decrease in sales can be due to other
factors e.g.; increase in cements prices due to inflation which results in less demand.
Long Term Debt-Paying Ability:
1. Times Interest Earned Ratio:
This ratio indicates the firms long-term debt paying ability from income statement view.
Measures the ability of the entity to meet its interest payments out of current profits. If the times
interest earned is adequate, little danger exists that the firm will not be able to meet its interest
obligations.
Times Interest Earned Ratio =
Earning before Interest & Tax
Interest Expense, Including Capitalized Interest
Year 2006 2007 2008 2009 2010

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Ratios
(Times per year)
7.73 4.81 4.09 7.33 8.89
2006:
FCCL times interest earned ratio for 2006 is 7.73. The ratio is adequate. In 2006, there is an
increase of 107% in EBIT. It means that company has enough profit to meet its long-term
obligations including interest obligations.

2007:
FCCL times interest earned ratio for 2007 is 4.81.The ratio has decreased as compared to last
year. The decrease in the ratio is due to decrease in EBIT by 51%. The profitability of the
company is decreasing due to decrease in cement prices.
2008:
FCCL times interest earned ratio for 2008 is 4.09. Practically, there is no change in the ratio
compare to last year. In this year, EBIT has decreased by 40%. The profitability of the company
is decreasing due to decrease in cement prices.
2009:
FCCL times interest earned ratio for 2009 is 7.33. The ratio has increased as compared to last
two years. The ratio is increasing because EBIT is increasing by 174%. The profitability is
increasing due to increase in cement prices as well as demand.
2010:
FCCL times interest earned ratio for 2010 is 8.89. The ratio has increased as compared to last
four years. The increase in ratio is due to decrease in interest expense. As interest expense is
decreasing by 82%. It means that company can fulfill its fixed charges.
2. Fixed Charge Coverage Ratio:

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This ratio indicates the firms long-term debt paying ability from income statement view. It also
indicates the firms ability to cover fixed charges.
Fixed charge coverage ratio =
Earning before Interest & Tax + Interest Portion of Rentals
Interest Expense, Including Capitalized Interest
+ Interest Portion of Rentals

NOTE: I did not find any rentals in the statements of FCCL. Thats why I didi not calculate this
ratio.
3. Debt Ratio:
The debt ratio indicates the firms long term debt paying ability. This ratio also indicates the
percentage of assets financed by creditors, and it helps to determine how well creditors are
protected in case of insolvency.
Debt Ratio =
Total Liabilities
Total Assets
Year 2006 2007 2008 2009 2010
Ratios 0.47 0.42 0.25 0.55 0.64

Time-Series Analysis 2006 to 2010:
2006:
FCCLs debt ratio for 2006 is 0.47. This ratio is less than 1, which indicates that company has
more assets than debts. In 2006, total liabilities are 47% of the total assets. Company is

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preferring equity financing over debt financing. As companys assets are more than its liabilities,
so company is in a position to protect its creditors in case of insolvency.
2007:
FCCLs debt ratio for 2007 is 0.42. This ratio is less than 1, which indicates that companys
assets are more than its liabilities. In 2007 total liabilities are decreasing as compare to last year
and this decrease is due to the decrease in long-term liabilities. There is a slight increase in

current liabilities as compare to last year. But still companys assets are more than its liabilities
and it is in a position to protect its creditors.
2008:
FCCLs debt ratio for 2008 is 0.25. The ratio is decreasing as compare to last two years. The
decrease in the ratio is due to the decrease in long-term liabilities and increase in current assets
as well as non-current assets. After analyzing the debt ratio, we can say that company can protect
its creditors in case of insolvency.
2009:
FCCLs debt ratio for 2009 is 0.55. The ratio is increasing as compare to last three years. The
increase in ratio is due to the increase in long-term liabilities. In 2009 long-term liabilities are
increasing as well as non-current assets are increasing. It means that company has acquired fixed
assets on credit and expanding its operations. Starting new projects will benefit company in long
run, so it can fulfill its long-term obligations.
2010:
FCCLs debt ratio for 2010 is 0.64. The ratio is increasing as compare to last four years. The
increase in ratio is due to the increase in total liabilities. In 2010 total liabilities are increasing as
well as total assets are increasing. It means that company has acquired some assets on credit and
expanding its operations. Starting new projects will benefit company in long run, so it can fulfill
its long-term obligations.

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4. Debt/Equity Ratio:
The debt/equity ratio determines the long-term debt paying ability of the firm. This ratio
compares the total debt with the total shareholders equity. It also determines how well creditors
are protected in case of insolvency. It indicates the relationship between external equities and
internal equities.

Debt/Equity Ratio =
Total Liabilities
Shareholders Equity
Year 2006 2007 2008 2009 2010
Ratios(Times) 0.89 0.71 0.34 1.21 1.79

2006:
FCCLs debt/equity ratio for 2006 is 0.89. In 2006, total liabilities and total equity is 47% and
53% of total assets respectively. In this year equity is increasing as well as profitability is
increasing, so preferring equity financing is a right decision. The ratio shows that company is in
a position to fulfill its long-term as well as sort-term obligations.
2007:
FCCLs debt/equity ratio for 2007 is 0.71. In 2007, total liabilities are 42% of total assets while
equity is 58% of the total assets. In this year liabilities are decreasing and equity is increasing as
compare to last year. It means company is in apposition to protect its creditors.
2008:

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FCCLs debt/equity ratio for 2008 is 0.34. In 2008, ratio is less as compare to last two years. The
ratio is less than 1, which means equity provides the majority of financing. A low ratio of 0.34
means that the company is exposing itself to a large amount of equity. In 2008, liabilities are
25% of total assets while total equity is 75% of total assets.
2009:
FCCLs debt/equity ratio for 2009 is 1.21. In 2009, total liabilities are 55% of the total assets and
45% of the total assets is equity. The ratio is increasing as compare to last three years because

company has acquired some assets on credit to expand its operations, which can be profitable in
long run.
2010:
FCCLs debt/equity ratio for 2010 is 1.79. In this year, the ratio is very high as compare to last
four years. The higher ratio exposes company to risk such as interest rate increase and credit
nervousness. In 2010, total liabilities are 64% of total assets while total equity is 36% of total
assets. The ratio is increasing because company has acquired some assets on credit to expand its
operations, which can be profitable in long run.
5. Debt To Tangible Net Worth:
Debt to Tangible Net Worth =
Total Liabilities
Shareholders Equity Intangible Assets

Year 2006 2007 2008 2009 2010
Ratios 0.89 0.71 0.34 1.21 1.79


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As FCCL has no intangible assets, so this ratio is same as debt/equity ratio.

Profitability Ratios:
Profitability is the ability of the firm to generate earnings. Analysis of profit is a vital concern to
stockholders since they derive revenue in the form of dividend. Further, increased profits can
cause a rise in market price, leading to capital gains. Profits are also important to creditors
because profits are one source of funds for debt coverage. Management uses profit as a
performance measure.
1. Net Profit Margin:
Net profit margin tells you exactly how the managers and operations of a business are
performing. Net profit margin compares the net income of a firm with total sales achieved. It
indicates how efficient a company is and how well it controls its costs. The higher the margin is,
the more efficient the company is in converting revenue into actual profit.
Net Profit Margin =
Net Income Before Minority Share
of Earning and Nonrecurring Items
Net Sales

Year 2006 2007 2008 2009 2010

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Ratios % 28.08% 18.66% 11.66% 18.96% 6.57%

2006:
FCCLs net profit margin for 2006 is 28.08%. It means that net profit is 28% of sales. In this
year, sales revenue as well as net profit is increasing as compare to last year. With increase in net
profit, gross profit and operating profit is also increasing as compared to last year. This is

because of stable market environment and reduction in operating costs resulting from conversion
to coal firing system.
2007:
FCCLs net profit margin for 2007 is 18.66%. The ratio is decreasing as compared to last year
because sales revenue, gross profit, operating profit as well as net profit is decreasing. Net profit
is decreasing by 46% as compared to last year. The decrease in profit is due to decrease in
cement prices and higher manufacturing cost.
2008:
FCCLs net profit margin for 2008 is 11.66%. The ratio is decreasing as compared to last two
years. Companys sales revenue, gross profit, operating profit as well as net profit is decreasing
whereas cost of goods sold is increasing. The ratio is decreasing due to reduction in cement
prices and higher manufacturing cost due to increase in prices of fuel, power and packing
material.
2009:
FCCLs net profit margin for 2009 is 18.96%. The ratio is increasing in this year. Companys
sales revenue, gross profit, operating profit as well as net profit is increasing. The increase in
ratio is due to the increase in demand of cement as well as cement prices.

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2010:
FCCLs net profit margin for 2010 is 6.57%. The ratio is decreasing as compared to last four
years. There is 75% decrease in net profit. The decrease in ratio is due to decrease in cement
prices. As cement prices are decreasing so sales revenue is decreasing which ultimately reduce
the profitability of the company.

2. Total Assets Turnover:
Total asset turnover measures the activity of the assets and the ability of the firm to generate
sales through the use of the assets.
Total Assets Turnover =
Net Sales
Average Total Assets
Year 2006 2007 2008 2009 2010
Ratios
(Times per year)
0.69 0.55 0.38 0.31 0.16

2006:
FCCLs total assets turnover ratio for 2006 is 0.69. It means that for every 1 Rs. of asset, the
turnover is 0.69. Companys fixed assets and current assets are increasing as well as sales
revenue is also increasing. It means that company is efficiently utilizing its assets to generate
sales.

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2007:
FCCLs total assets turnover for 2007 is 0.55. The ratio is decreasing as compared to last year. In
2007, sales have decreased by 19%, fixed assets also decreased by 4% while current assets are
increasing by 24%. It means that company is maintaining inventory, which can be risky. Because
maintaining inventory does not generate any revenue.
2008:
FCCLs total assets turnover for 2008 is 0.38. The ratio is decreasing as compared to last two
years. Sales are increasing by 2%, fixed assets and current assets are increasing by 62% and

171% respectively. Current assets are increasing with great proportion. Company has idle cash
and not using its current assets to generate sales.
2009:
FCCLs total assets turnover for 2009 is 0.31. The ratio is decreasing as compared to last three
years. Sales are increasing by 50% and fixed assets are increasing by 164%, while current assets
are decreasing. It means that company is utilizing its assets to generate sales.
2010:
FCCLs total assets turnover for 2010 is 0.16. The ratio is decreasing as compared to last four
years. Sales are decreasing by 28%. Fixed assets and current assets are increasing by 27% and
25% respectively. There can be many reasons for decreasing sales revenue e.g. decrease in
prices, increase in manufacturing costs etc.
3. Return on Assets:
This ratio measures the firms ability to utilize its assets to create profits by comparing profits
with the assets that generate the profits.
Return on Assets =

78
Net Income Before Minority Share
of Earning and Nonrecurring Items
Average Total Assets
Year 2006 2007 2008 2009 2010
Ratios % 19.38% 10.26% 4.39% 5.94% 1.04%

4. DuPont Return on Assets:
When net profit margin and the total assets turnover are reviewed together, it is called the
DuPont return on assets. This ratio determines the causes for increase or decrease in the
percentage of return on assets.
DuPont Return on Assets =
Net Profit Margin * Total Assets Turnover
Year 2006 2007 2008 2009 2010
Ratios % 19.38% 10.26% 4.39% 5.94% 1.04%

NOTE: Return on assets and DuPont return on assets are same.
Time-series Analysis 2006 t0 2010:
2006:
FCCLs return on assets ratio for 2006 is 19.38%. In 2006, net profit margin is 28% and total
assets turnover is o.69. It means that company is efficiently controlling its expenses as it reduced

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its operating costs from conversion to coal firing system. On the other hand, company is not as
efficiently using its total assets to generate sales as it should be.
2007:
FCCLs return on assets ratio for 2007 is 10.26%. The ratio has decreased as compared to last
year. In 2007, net profit margin and total assets turnover are 19% and 0.55 respectively. The
reason for decrease in profit margin is increase in expense due to increase in manufacturing
costs. Assets turnover is decreasing because cement prices are decreasing due to which sales
revenue is decreasing.

2008:
FCCLs return on assets ratio for 2008 is 4.39%. The ratio is further decreasing significantly. In
2008, net profit margin is 12% and total assets turnover is 0.38. Profit margin is decreasing
because of reduction in cement prices and higher manufacturing cost due to increase in prices of
fuel, power and packing material. Assets turnover is decreasing because cement prices are
decreasing due to which sales revenue is decreasing.
2009:
FCCLs return on assets ratio for 2009 is 5.94%. There is a slight increase in the ratio as
compared to last year. In 2009, net profit margin is 19% and total assets turnover is 0.31. The
increase in ratio is due to the increase in profit margin. The increase in profitability is due to
increase in cement prices as well as cements demand. On the other hand, company investing in
fixed assets, which will increase the productivity in long-run.
2010:

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FCCLs return on assets ratio for 2010 is 1.04%. The ratio has decreased as compared to last four
years. In 2010, net profit margin and total assets turnover are 7% and 0.16 respectively. The
profitability is decreasing because sales revenue is decreasing due to decrease in cement prices.
Company is controlling its operating expenses as it has decreased by 67%. It means that
company is not utilizing its assets efficiently.
5. Operating Profit Margin:
Operating margin is a measurement of what proportion of a company's revenue is left over after
paying for variable costs of production such as wages, raw materials, etc. A healthy operating
margin is required for a company to be able to pay for its fixed costs, such as interest on debt.

Operating profit Margin =
Net Sales
Average Operating Assets

Year 2006 2007 2008 2009 2010
Ratios 47.64% 28.74% 16.96% 30.98% 9.61%

2006:
FCCLs operating profit margin for 2006 is 48%. It means that company is generating 48% of its
operating profit from sales. In this year, sales revenue as well as operating profit is increasing as
compare to last year. With increase in gross profit, operating profit is also increasing as
compared to last year. This is because of stable market environment and reduction in operating
costs resulting from conversion to coal firing system.
2007:
FCCLs operating profit margin for 2007 is 29%. The ratio is decreasing as compared to last year
because sales revenue, gross profit, as well as operating profit are decreasing. Net profit is

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decreasing by 46% as compared to last year. The decrease in profit is due to decrease in cement
prices and higher manufacturing cost.
2008:
FCCLs operating profit margin for 2008 is 17%. The ratio is decreasing as compared to last two
years. Companys sales revenue, gross profit, as well as operating profit are decreasing whereas
cost of goods sold is increasing. The ratio is decreasing due to reduction in cement prices and
higher manufacturing cost due to increase in prices of fuel, power and packing material.
2009:
FCCLs operating profit margin for 2009 is 31%. The ratio is increasing in this year. Companys
sales revenue, gross profit, operating profit as well as net profit is increasing. The increase in
ratio is due to the increase in demand of cement as well as cement prices.

2010:
FCCLs operating profit margin for 2010 is 10%. The ratio is decreasing as compared to last four
years. There is 75% decrease in net profit. The decrease in ratio is due to decrease in cement
prices. As cement prices are decreasing so sales revenue is decreasing which ultimately reduce
the profitability of the company.
6. Operating Asset Turnover:
This ratio indicates the ability of operating assets to generate sales revenue. It indicates how
efficiently company is using its operating assets to generate sales.
Operating Asset Turnover =
Net Sales

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Year 2006 2007 2008 2009 2010
Ratios
(Times per year)
0.96 0.78 0.84 1.27 0.79

2006:
FCCLs operating assets turnover ratio for 2006 is 0.96. Operating assets turnover ratio is greater
than total assets turnover. It means that company is efficiently utilizing its operating assets to
generate sales.
2007:
FCCLs operating assets turnover ratio for 2007 is 0.78. There is a slight decrease in the ratio
still it is greater than total assets turnover. It means the companys capacity to utilize its
operating assets is good as compared to total assets.

2008:
FCCLs operating assets turnover ratio for 2008 is 0.84 while total assets turnover ratio is 0.38.
In 2008, operating assets are decreasing by 2% while sales are increasing by 2%. It means that
the company is efficiently utilizing its operating assets to generate sales.
2009:
FCCLs operating assets turnover ratio for 2009 is 1.27. The ratio has increased as compared to
last three years. In 2009, total assets turnover is 0.31. Sales are increasing by 50% and operating
assets are increasing by 2%. It means that the company is efficiently utilizing its operating assets
to generate sales.
2010:

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FCCLs operating assets turnover for 2010 is 0.79.tere is slight decrease in the ratio but it is
greater than total assets turnover. The ratio is decreasing because sales are decreasing by 28%.
Sales revenue is decreasing due to decrease in cement prices.
7. Return on Operating assets:
This ratio measures the firms ability to utilize its operating assets to create profits by comparing
profits with the operating assets that generate the profits.
Return on Operating Assets =
Operating Income
Year 2006 2007 2008 2009 2010
Ratios 45.81% 22.93% 14.29% 39.22% 7.61%

8. DuPont Return on Operating Assets:
When operating profit margin and the operating assets turnover are reviewed together, it is called
the DuPont return on operating assets. This ratio determines the causes for increase or decrease
in the percentage of return on operating assets.
DuPont Return on Operating Assets =
Operating Income Margin * Operating Assets Turnover
Year 2006 2007 2008 2009 2010
Ratios % 45.81% 22.93% 14.29% 39.22% 7.61%

NOTE: Return on assets and DuPont return on assets are same.

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2006:
FCCLs return on operating assets ratio for 2006 is 46%. In 2006, operating profit margin is 48%
and operating assets turnover is o.96. It means that company is efficiently controlling its
expenses as it reduced its operating costs from conversion to coal firing system. It means that
company is efficiently using its operating assets to generate sales.
2007:
FCCLs return on operating assets ratio for 2007 is 23%. The ratio has decreased as compared to
last year. In 2007, operating profit margin and operating assets turnover are 29% and 0.78
respectively. The reason for decrease in profit margin is increase in expenses due to increase in
manufacturing costs. Assets turnover is decreasing because cement prices are decreasing due to
which sales revenue is decreasing.

2008:
FCCLs return on operating assets ratio for 2008 is 14%. The ratio is further decreasing
significantly. In 2008, operating profit margin is 17% and operating assets turnover is 0.84.
Profit margin is decreasing because of reduction in cement prices and higher manufacturing cost
due to increase in prices of fuel, power and packing material. As turnover is increasing, it means
that company is efficiently utilizing its operating assets.
2009:
FCCLs return on operating assets ratio for 2009 is 39%. There is a slight increase in the ratio as
compared to last year. In 2009, operating profit margin is 31% and operating assets turnover is
1.27. The increase in ratio is due to the increase in profit margin as well as turnover. The
increase in profitability is due to increase in cement prices as well as cements demand. On the
other hand, company is efficiently utilizing its operating assets to generate sales.

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2010:
FCCLs return on operating assets ratio for 2010 is 8%. The ratio has decreased as compared to
last four years. In 2010, operating profit margin and operating assets turnover are 10% and 0.79
respectively. The profitability is decreasing because sales revenue is decreasing due to decrease
in cement prices. Company is controlling its operating expenses as it has decreased by 67% as
well as utilizing its operating assets efficiently.
9. Sales to Fixed assets:
This ratio measures the firms ability to make productive use of its property, plant and equipment
by generating sales revenue. A higher fixed-asset turnover ratio shows that the company has
been more effective in using the investment in fixed assets to generate revenues.
Sales to Fixed Assets:
Net Sales
Average Fixed Assets
(Excluding Construction in Progress)

Year 2006 2007 2008 2009 2010
Ratios
(Times per year)
0.93 0.77 0.62 0.41 0.18

2006:
FCCLs sale to fixed assets ratio for 2006 is 0.93. The ratio is favorable. Sales have increased by
51%. It means that company is efficiently using its fixed assets to generate sales.
2007:
FCCLs sale to fixed assets ratio for 2007 is 0.77. The ratio is slightly decreasing as compare to
last year. Sales as well as fixed assets are decreasing by 19% and 4% respectively. Sales revenue

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is decreasing due to decrease in cement prices. It means utilization of fixed assets is still
efficient.
2008:
FCCLs sale to fixed assets ratio for 2008 is 0.62. The ratio has decreased as compared to last
two years. Sales have increased by 2%. Company is efficiently utilizing its fixed assets to
generate sales revenue.
2009:
FCCLs sale to fixed assets ratio for 2009 is 0.41. The ratio is further decreasing. Sales are
increasing by 50% and fixed assets are increasing by 164%. It means company is not efficiently
utilizing its assets to generate sales.
2010:
FCCLs sale to fixed assets ratio for 2010 is o.18. The ratio is decreasing as compare to last four
years. The reason for decrease in the ratio is due to decrease in sales revenue by 28%. Sales
revenue is decreasing due to decrease in cement prices.

Note: The ratio has decreasing trend because company is heavily investing in fixed assets. Large
capital investment purchases may not immediately yield higher sales. It may take a year or more
for the company to fully utilize those investments.
10. Return on investment:
The return on investment applies to ratios measuring the income earned on the invested capital.
This ratio measures the ability of the firm to reward those who provide long-term funds and to
attract providers of future funds.
Return on investment =
Net Income Before Minority Share of Earning and
Nonrecurring Items + (Interest Expense) * (1 Tax Rate)

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Average (Long-Term Liabilities + Equity)
Year 2006 2007 2008 2009 2010
Ratios 28.29% 16.04% 7.32% 8.27% 1.35%

2006:
FCCLs return on investment for 2006 is 28%. It means that company is getting sufficient return
on its investment. The ratio is healthy because profitability of the company is increasing by
136%.
2007:
FCCLs return on investment for 2007 is 16%. There is significant decrease in the ratio as
compare to last year. The ratio is decreasing because the profitability of the company is
decreasing by 46%.

2008:
FCCLs return on investment for 2008 is 7%. The ratio has further decreased. It means that
earning on investment is decreasing. The ratio is decreasing because profitability of the company
is decreasing by 30%.
2009:
FCCLs return on investment for 2009 is 8%. There is minute increase in the ratio as compare to
last year. The ratio is increasing because profit is increasing by 144%. The increase in the profit
is due to increase in cement prices, which leads to increase in return on investment.
2010:

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FCCLs return on investment for 2010 is 1%. The ratio is decreasing significantly because
profitability of the company is decreasing by 71%. Due to decrease in profitability and increase
in liabilities, return on investment is decreasing.
11. Return on Total Equity:
Sometimes ROE is referred to as Stockholder's return on investment, it tells the rate that
shareholders are earning on their shares. Return on equity measures a corporation's
profitability by revealing how much profit a company generates with the money shareholders
have invested.
Return on Total Equity =
Net Income Before Nonrecurring Items
Dividends on Redeemable Preferred Stock
Average Total Equity

Year 2006 2007 2008 2009 2010
Ratios % 42% 18.42% 6.35% 10.62% 2.59%

2006:
FCCLs return on total equity for 2006 is 42%. As the ratio is greater than 10%, it indicates that
company is paying a sufficient amount to its common shareholders. In 2006, there is no increase
in the equity but net income has increased due to which ratio is increasing.
2007:
FCCLs return on total equity for 2007 is 18.42%. The ratio has decreased as compared to last
year. Return on equity is reducing. The reason for decrease in the ratio is decrease in profitability
of the company.

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2008:
FCCLs return on total equity for 2008 is 6.35%. The ratio is decreasing as compared to last two
years. The ratio is further decreasing because share capital of company is increasing by 77%
while profitability of the company is decreasing. The ratio is still adequate.
2009:
FCCLs return on total equity for 2009 is 10.62%. The ratio is increasing as compared to last
year. The increase in ratio is due to the increase in profitability, as it increases by 144% while
share capital remains the same.
2010:
FCCLs return on total equity for 2010 is 2.59%. There is significant decrease in the ratio as
compare to last four years. The ratio is decreasing because profitability of the company is
decreasing by 75% while share capital remains the same.

12. Return on Common Equity:
The return on common equity ratio shows the return to common stockholders after factoring
out preferred shares. A return of over 10% indicates enough to pay common share dividends
and retain funds for business growth.
Return on Common Equity =
Net Income Before Nonrecurring Items
Preferred Dividends
Average Common Equity

Year 2006 2007 2008 2009 2010

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Ratios % 32.47% 17.21% 7.62% 14.41% 3.37%

2006;
FCCLs return on common equity for 2006 is 32.5%. As the ratio is greater than 10%, it
indicates that company is paying a sufficient amount to its common shareholders. In 2006, there
is no increase in the equity but net income has increased due to which ratio is increasing.
2007:
FCCLs return on common equity for 2007 is 17.21%. The ratio is decreasing as compared to
last year but still it is greater than 10%, it indicates that company is paying a sufficient amount to
its common shareholders. The decrease in the ratio is due to decrease in profitability of the
company.

2008:
FCCLs return on common equity for 2008 is 7.62%. The ratio is further decreasing because
share capital of company is increasing by 77% while profitability of the company is decreasing.
The ratio is still adequate.
2009:
FCCLs return on common equity for 2009 is 14.41%. The ratio is increasing as compared to last
year. The increase in ratio is due to the increase in profitability, as it increases by 144% while
share capital remains the same.
2010:

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FCCLs return on common equity for 2010 is 3.37%. The ratio has decreased as compared to last
four years. The ratio is decreasing because profitability of the company is decreasing by 75%
while share capital remains the same.
13. Gross Profit Margin:
A financial metric used to assess a firm's financial health by revealing the proportion of money
left over from revenues after accounting for the cost of goods sold. Gross profit margin serves as
the source for paying additional expenses and future savings.

Gross Profit Margin =
Gross Profit
Net Sales

Year 2006 2007 2008 2009 2010
Ratios % 51.12% 31.52% 18.56% 31.75% 13.54%

2006:
FCCLs gross profit margin for 2006 is 51.12%. The ratio is adequate; it means that company is
generating sufficient profit from its sales. This is because of stable market environment and
reduction in operating costs resulting from conversion to coal firing system.
2007:
FCCLs gross profit margin for 2007 is 31.52%. The ratio is decreasing as compared to last year
because gross profit is decreasing by 50%. The decrease in profit is due to decrease in cement
prices and higher manufacturing cost.

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2008:
FCCLs gross profit margin for 2008 is 18.56%. The ratio is further decreasing because gross
profit is decreasing by 40%. The ratio is decreasing due to reduction in cement prices and higher
manufacturing cost due to increase in prices of fuel, power and packing material.
2009:
FCCLs gross profit margin for 2009 is 31.75%. The ratio is increasing as compared to last year
because gross profit is increasing by 156%. The increase in gross profit is due to the increase in
demand of cement as well as cement prices.
2010:
FCCLs gross profit margin for 2010 is 13.54%. The ratio is decreasing as compared to last four
years because gross profit is decreasing by 69%. The decrease in ratio is due to decrease in
cement prices. As cement prices are decreasing so sales revenue is decreasing which ultimately
reduce the profitability of the company.

Analysis for Investors:
1. Degree of financial Leverage:
The use of debt called financial leverage. Financial leverage is successful if the firm earns more
on the borrowed funds than it pays to use them. Financial leverage tries to estimate the
percentage change in net income for a one percent change in operating income.
Degree of financial Leverage =
Earnings before Interest and Tax
Earnings before Tax

Year 2006 2007 2008 2009 2010

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Ratios
(Times per year)
1.15 1.26 1.32 1.16 1.13

20006:
FCCLs degree of financial leverage for 2006 is 1.15. The ratio is greater than 1 means it is
supportive. In 2006, interest expense is increasing by 15% while earning before interest & tax
and earning before tax are increasing by 107% and 134% respectively. It means that company
can fulfill its interest obligations from its earnings.
2007:
FCCLs degree of financial leverage for 2007 is 1.26. The ratio is increasing as compared to last
year because interest expense is decreasing by 22% and earning of the company is also
decreasing. But still company has enough earning to meet its interest obligations.

2008:
FCCLs degree of financial leverage for 2008 is 1.32. The ratio has increased as compared to last
two years because interest expense is decreasing. It means that company has enough earning to
meet its interest obligations.
2009:
FCCLs degree of financial leverage for 2009 is 1.16. The ratio is slightly decreasing because
interest expense is increasing by 53%. On the other hand, earning before interest & tax and
earning before tax are increasing by 174% and 213% respectively. It means that company can
fulfill its interest obligations from its earnings.

2010:

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FCCLs degree of financial leverage for 2010 is 1.13. There is a slight decrease in the ratio as
compared to last three years. The ratio is decreasing because earning of the company is
decreasing. Interest expense is also decreasing. Earning of the company is decreasing because
income from other sources is increasing. The ratio is still favorable. Company has enough
earning to meet its interest obligations.
2. Basic Earnings per Common share:
Earning per share indicates the amount of income earned on a share of common stock during an
accounting period. But it does not represent the amount of earnings actually distributed to
shareholders.
Basic Earnings per Common share =
Net Income Preferred Dividends
Weighted Average Number of Common Shares Outstanding

Year 2006 2007 2008 2009 2010
Ratios (Rs.) 3.25 1.72 0.83 1.44 0.34

2006:
FCCLs earning per share for 2006 is 3.25. It means that company is earning Rs. 3 against every
common share. The ratio is reflecting the earning power of the company. There in no increase in
the share capital of company, it means that company has not issue new shares in this year.
2007:
FCCLs earning per share for 2007 is 1.72. The ratio is decreasing as compared to last year. The
decrease in the ratio is due to decrease in profitability of the company as company has not issued
new shares.
2008:

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FCCLs earning per share for 2008 is 0.83. The ratio is decreasing as compared to last two years.
The decrease in the ratio is due to decrease in profitability and increase in share capital. It means
that company has issued some shares due to which profitability as well as earning per share is
decreasing.
2009:
FCCLs earning per share for 2009 is 1.44. The ratio is increasing as compared to last year. The
increase in the ratio is due to increase in profitability of the company as share capital remains
same. It means that companys earning capacity is increasing.
2010:
FCCLs earning per share for 2010 is 0.34. The ratio is decreasing as compared to last four years.
The decrease in the ratio is due to decrease in profitability of the company as there is no change
in share capital. The decrease in profitability is due to decrease in cement prices.
3. Price/Earnings Ratio:
The price/earning ratio expresses the relationship between the market price of a share of common
stock and that stocks current earnings per share. The P/E is sometimes referred to as the

"multiple", because it shows how much investors are willing to pay per dollar of earnings. The
higher the price earning ratio, the greater the investors confidence.
Price/Earnings Ratio =
Market Price per Share
Diluted Earnings per share

Year 2006 2007 2008 2009 2010
Ratios 6.69 12.88 13.14 4.85 15.17


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2006:
FCCLs price/earning ratio for 2006 is 6.69. It means that the investors are willing to pay Rs. 7
for every Rs. 1 of current earnings. The ratio is significant and showing the investors
confidence.
2007:
FCCLs price/earning ratio for 2007 is 12.88. The ratio is significantly increasing as compared to
last year. It means that investors are willing to pay Rs.13 for every Rs. 1 of current earnings. The
ratio is increasing because market price of shares is increasing.
2008:
FCCLs price/earning ratio for 2008 is 13.14. There is no significant change in the ratio. The
ratio is showing that investors are willing to pay Rs. 13 for every Rs. 1 of current earnings. The
ratio is showing the confidence of investors.

2009:
FCCLs price/earning ratio for 2009 is 4.85. There is significant decrease in the ratio as
compared to last three years. Market price of the shares is also decreasing. It means that
company is losing its investors confidence.
2010:
FCCLs price/earning ratio for 2010 is 15.17. There is a significant increase in the ratio as
compared to last four years. The ratio is showing that investors are willing to pay Rs.15 for every
Rs. 1 of current earnings. The ratio reflects that the investors are viewing the future earning
power and high growth opportunities.

97
4. Percentage of Earnings Retained:
The percentage of net earnings not paid out as dividends, but retained by the company to be
reinvested in its core business or to pay debt. It is recorded under shareholders' equity on the
balance sheet.
Percentage of Earnings Retained =
Net Income All Dividends
Net Income
Year 2006 2007 2008 2009 2010
Ratios % 69.38% 70.61% 97.10% 99.16% 93.31%

2006:
FCCLs retained earning for 2006 is 69.38%. It means that company is retaining 69% of its total
earnings. The company has retained a substantial portion of its profit for internal use. The
company has enough earning to meet its obligations.

2007:
FCCLs retained earning for 2007 is 70.61%. The ratio has increasing trend as compared to last
year. It means company is retaining 71% of its total earnings. Company is planning to expand its
operation and for this purpose it needs substantial earning.
2008:
FCCLs retained earning for 2008 is 97.10%. Company is retaining 97% of its earning. Company
is planning to expand its operation and for this purpose it needs substantial earning.
2009:

98
FCCLs retained earning for 2009 is 99.16%. There is substantial increase in the ratio as
compared to last three years. Companies retain their earnings in order to invest them into areas
where the company can create growth opportunities, such as buying new machinery or spending
the money on more research and development.
2010:
FCCLs retained earning for 2010 is 93.31%. There is a slight decrease in the ratio. Company is
retaining more profit because it is expanding its operations and creating growth opportunities,
which will increase the profitability of the company in future.
5. Dividend Payout:
Dividend payout ratio is calculated to find the extent to which earnings per share have been
used for paying dividend and to know what portion of earnings has been retained in the business.
It is an important ratio because ploughing back of profits enables a company to grow and pay
more dividends in future.
Dividend Payout =
Dividends per Common Share
Diluted Earnings per Share

Year 2006 2007 2008 2009 2010
Ratios 3.46% 3.20% 0.07% 0.00% 0.00%

2006:
FCCLs dividend payout ratio for 2006 is 3.46%. It means that company is paying 3% dividend
to its shareholders out of its profits. Low ratios indicate that company is reinvesting its profit in
business activities.

99
2007:
FCCLs dividend payout ratio for 2007 is 3.20%. There is a slight decrease in the ratio. The ratio
is showing that company is paying low dividend and reinvesting most of its earning to expand its
operations. Company is creating growth opportunities.
2008:
FCCLs dividend payout ratio for 2008 is 0.07%. The ratio is decreasing as compared to last two
years, because company has invested in different projects and expanding its operations.
2009:
FCCLs dividend payout ratio for 2009 is 0%. The company is not giving any dividend to its
shareholders due to heavy investment in construction of its new line. Company is reinvesting its
earning and creating growth opportunities, which will maximize its profits in future.
2010:
FCCLs dividend payout ratio for 2009 is 0%. The company is not giving any dividend to its

6. Dividend Yield:
The dividend yield indicates the relationship between the dividend per common share and the
market price per common share.
Dividend Yield =
Dividends per Common Share
Market Price per Common Share
Year 2006 2007 2008 2009 2010
Ratios 0.52% 0.25% 0.01% 0.00% 0.00%

100

2006:
FCCLs dividend yield for 2006 is o.52%. The company is not giving any dividend to its
2007:
FCCLs dividend yield for 2007 is 0.25%. The company is not giving any dividend to its
2008:
FCCLs dividend yield for 2008 is 0.01%. The company is not giving any dividend to its

2009:
FCCLs dividend yield ratio for 2009 is 0%. The company is not giving any dividend to its
2010:
FCCLs dividend yield ratio for 2009 is 0%. The company is not giving any dividend to its

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7. Book Value per Share:
A figure frequently published in annual reports is book value per share, which indicates the
amount of stockholders equity that relates to each share of outstanding common stock.
Book Value per Share =
Total Shareholders Equity Preferred Stock Equity
Number of Common Shares Outstanding
Year 2006 2007 2008 2009 2010
Ratios (Rs.) 0.75 0.88 1.27 1 1.32

2006:
FCCLs book value for 2006 is Rs. 0.75 per share. Book value is considered to be the accounting
value of each share. Book value is based on costs and retained earning. In 2006, market value is
greater than book value, which is beneficial for investors.

2007:
FCCLs book value for 2007 is Rs. 0.88 per share. In this year, market value is increasing
accordingly book value is also increasing as compared to last year. It is beneficial for investors.
2008:
FCCLs book value for 2008 is Rs. 1.27 per share. The ratio is increasing as compared to last
two years. Increase in ratio is due to the increase in total equity. Increase in book value is
beneficial for investors.
2009:

102
FCCLs book value for 2009 is Rs. 1 per share. There is a slight decrease in the ratio as
compared to last year. Book value of the shares is decreasing as well as market value is
decreasing.
2010:
FCCLs book value for 2010 is Rs. 1.32. There is slight increase in the ratio as compared to last
year. The increase in book value is beneficial for the investors.

Financial Ratios related to Cash Flow Statement

1. Operating Cash Flow/Current Maturities of Long-Term Debt and Current Notes
Payable:

103
This ratio indicates the firms ability to meet its current maturities of debt. The higher the ratio,
the better the firms ability to meet its current maturities of debt. The higher the ratio, the better
the firms liquidity. A measure of how well current liabilities are covered by the cash flow
generated from a company's operations.
Operating Cash Flow
Current Maturities of Long-Term Debt
And Current Notes Payable

Year 2006 2007 2008 2009 2010
Ratios
(times per year)
2.29 0.42 0.14 1.13 0.14

2006:
FCCLs operating Cash Flow/Current Maturities of Long-Term Debt and Current Notes Payable
ratio for 2006 is 2.29 times per year. Operating cash flow better indicates the liquidity of the

firm. The ratio is showing that company is in a better position to fulfill its short-term obligations
with operating cash flows.
2007:
ratio for 2007 is 0.42. There is a significant decrease in the ratio as compared to last year. The
ratio is decreeing because operating cash flow is decreasing and notes payables are increasing by
11%. It means companys outflows are greater than its inflows.
2008:

104
ratio for 2008 is 0.14. The ratio has decreased as compared to last two years. The ratio is
decreasing because operating cash flow is decreasing, means outflows are greater than inflows.
There is 5% increase in the notes payable. There is problem with the liquidity of the company.
2009:
for 2009 is 1.13. The ratio is increasing s compared to last two years. The increase in the ratio is
due to the increase in operating cash flows. It means that companys outflows are decreasing and
inflows are increasing. Company has enough operating cash to fulfill its obligations.
2010:
ratio for 2010 is 0.14. The ratio has decreased as compared to last year. Because operating cash
is decreasing and notes payables are increasing by 18%. As company is heavily investing to
expand its operations, thats why cash is decreasing.

2. Operating Cash Flow/Total Debt:
This ratio indicates the firms ability to cover total debt with yearly cash flow. The higher the
ratio, the better the firms ability to carry its total debts.
Operating Cash Flow/Total Debt =
Operating Cash Flow
Total debt

Year 2006 2007 2008 2009 2010

105
Ratios % 76.24% 16.16% 4.75% 16.98% 2.21%

2006:
FCCLs operating cash flow/total debt ratio for 2006 is 76.24%. The ratio is favorable. The long-
term liabilities are decreasing by 35% while current liabilities are increasing by 55%. The ratio
sows that company has enough operating cash to cover its total debts.
2007:
FCCLs operating cash flow/total debt ratio for 2007 is 16.16%. There is significant decrease in
the ratio as compared to last year. The decrease in the ratio is due to reduction of operating cash
follow because outflows are increasing s compared to inflows. Current liabilities are also
increasing.
2008:
FCCLs operating cash flow/total debt ratio for 2008 is 4.75%. There is immense decrease in the
ratio as compared to last two years. The ratio is decreasing because operating cash flow is

decreasing and current liabilities are increasing by 70%. It means that company has not sufficient
operating cash to fulfill its total debts.
2009:
FCCLs operating cash flow/total debt ratio for 2009 is 16.98%. The ratio is increasing as
compared to last year. The ratio is increasing because current liabilities are decreasing while
long-term liabilities are increasing. On the other hand, operating cash flow is also increasing. It
means company can fulfill its total debts with its operating cash flows.

106
2010:
FCCLs operating cash flow/total debt ratio for 2010 is 2.21%. The ratio is significantly
increasing as compared to last four years. The ratio is decreasing because companys operating
cash flow is decreasing while total liabilities are increasing. Liabilities are increasing because

company is working on some projects for which it needs credit. This will increase the future
earning of the company.
3. Operating Cash Flow per Share:
Operating cash flow per share indicates the funds flow per common share outstanding.
A measure of a company's financial strength. Some analysts prefer to look at cash per share
rather than Earnings, because cash flow per share is more likely to be accurate, as earnings data
can be manipulated more easily than cash flow can.

Operating Cash Flow per Share =

Operating Cash Flow Preferred Dividends
Common Shares Outstanding

Year 2006 2007 2008 2009 2010
Ratios (Rs.) 0.60 0.11 0.02 0.20 0.05

2006:
FCCLs operating cash flow for 2006 is Rs. 0.60 per share. It means that company is generating
Rs. 0.6 of operating cash flow against t every share.

107
2007:
FCCLs operating cash flow for 2007 is Rs. 0.11. It means that company is generating Rs. 0.11
of operating cash flow against every share. The ratio is decreasing as compared to last year
because operating cash is decreasing.
2008:
FCCLs operating cash flow for 2008 is 0.02. The ratio is further decreasing because operating
cash flow is decreasing. It means that company is earning Rs. 0.02 of operating cash flow against
every share.
2009:
FCCLs operating cash flow for 2009 is Rs. 020. It means that company is generating Rs. 0.20 of
operating cash flow against every share. The ratio is increasing as compared to last two years
because operating cash is increasing.
2010:
FCCLs operating cash flow for 2010is Rs. 0.05. It means that company is generating Rs. 0.05 of
operating cash flow against every share. The ratio is decreasing as compared to last year because
operating cash is decreasing.

4. Operating Cash Flow/Cash Dividends:
The operating cash flow/cash dividend ratio indicates the firms ability to cover cash dividends
with the yearly operating cash flows. The higher the ratio, the better the firms ability to cover
cash dividends.
Operating Cash Flow/Cash Dividends =
Operating Cash Flow

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Cash Dividends

Year 2006 2007 2008 2009 2010
Ratios
(times per year)
6.03 2.27 12.56 237.13 22.65

2006:
FCCLs operating cash flow/cash dividend for 2006 is 6.03.It indicates the high coverage of cash
dividend.
2007:
FCCLs operating cash flow/cash dividend for 2007 is 2.27. The ratio is decreasing because
operating cash flow is decreasing.
2008:
FCCLs operating cash flow/cash dividend for 2008 is 12.56. The ratio is increasing as compared
to last two years. Operating cash flow is decreasing as well as total dividends are decreasing, but
ratio is not decreasing because operating cash flow is still sufficient.
2009:
FCCLs operating cash flow/cash dividend for 2009 is 237.13. There is a significant increase in
the ratio, because operating cash flow is increasing with great proportion while dividend is
decreasing.
2010:
FCCLs operating cash flow/cash dividend for 2010 is 22.65. The ratio is decreasing as well as
operating cash is decreasing as compared to last year. But the coverage is still very high.

109

Ratio Analysis being a Loan Officer

Ratios
2006 2007 2008 2009 2010
Debt/Equity Ratio 0.89 0.71 0.34 1.21 1.79
Current ratio 1.25 1.35 2.16 0.63 0.52
Cash flow/Current maturities of
long-term debt
2.29 0.42 0.14 1.13 0.14
Times interest earned 7.73 4.81 4.09 7.33 8.89
Degree of Financial Leverage 1.15 1.26 1.32 1.16 1.13
Cash flow/Total Debts 76.24% 16.16% 4.75% 16.98% 2.21%
Quick ratio 0.69 0.31 1.55 0.09 0.05

Analysis:
The debt/equity ratio of FCCL is increasing continuously from 2006 to 2010. The ratio is
increasing because liabilities of the company are increasing. Company is heavily investing in
fixed assets to expand their operation, thats why liabilities are increasing.
Current ratio of the company is decreasing continuously except in 2008. Current ratio is
increasing due to continuous increase in liabilities. Company is heavily investing in fixed assets
to expand their operation, thats why liabilities are increasing.
The cash flow ratio has somewhere increasing and somewhere decreasing trend. After decrease
in 2007 and 2008, ratio is increasing in 2009 because of decrease in liabilities and increase in
operating profit. In 2010, it is again decreasing because of increase in liabilities.
Times interest earned ratio has increasing trend. Company can fulfill its fixed charges. Company
can fulfill its debt obligations from its profit.
Degree of financial leverage ratio is favorable. There is smooth movement in ratio. The ratio is
showing that the company can fulfill its debt obligations with its profit.

110

Cash flow/total debt ratio is also decreasing. The ratio is decreasing because total debts of firm
are increasing as compare to its profitability.
Quick ratio also has decreasing trend from 2006 to 2010 except 2008. The ratio is decreasing
because current liabilities of the company are increasing as compare to its near to cash assets.
After analyzing all the above ratios deeply, I will grant the short-term loan as well as long-term.
Because it is profitable to grant loan to the company, as company is going towards growth.
Company is very conscious about its growth. As company is heavily investing in fixed assets,
which will increase the productivity of the company in long- run. As a result profitability of the
company will increase.
It is not risky to grant the loan to FCCL because I am seeing the potential growth in company. In
future, companys profitability will increase because demand of cement is increasing day by day
with the increase in construction projects.
Companys short-term liquidity position is not so good due to increase in liabilities. And
liabilities are increasing because company is heavily investing in fixed assets.
Company is expanding its operations, so that it can fulfill the increasing demand of people easily
and timely. So, it will be a wise decision to grant the loan to the FCCL. Company will be in a
situation to cover its fixed charges as well as principal amount.

111

Ratio Analysis being a Corporate Controller

Ratios
2006 2007 2008 2009 2010
Earning per Share 3.25 1.72 0.83 1.44 0.34
Return on Equity 42% 18.42% 6.35% 10.62% 2.59%
Net Profit Margin 28.08% 18.66% 11.66% 18.96% 6.57%
Return on investment 28.29% 16.04% 7.32% 8.27% 1.35%
Return on Total Assets 19.38% 10.26% 4.39% 5.94% 1.04%
Dividend payout ratio 3.46% 3.20% 0.07% 0.00% 0.00%
Price/Earning ratio 6.69 12.88 13.14 4.85 15.17
Current Ratio 1.25 1.35 2.16 0.63 0.52

Analysis:
Earning per share ratio has somewhere increasing and somewhere decreasing trend. In 2009, the
ratio is increasing because profitability of the company is increasing. The reason for decrease in
the ratio is decrease in profitability of the company.
Return on equity has also decreasing trend. The decreasing trend is due to decrease in
profitability of the company. Profitability of the company is decreasing because liabilities are
increasing, and company is paying the cost of liabilities.
Net profit margin ratio has also decreasing trend. The decrease trend is due to decrease in cement
prices and increased manufacturing costs. The decreasing trend also is due to decrease in
Return on investment ratio is decreasing because profitability of the company is decreasing and
liabilities are increasing due to heavy investment in fixed assets.

112

Return on total assets ratio is also decreasing from 2006 to 2010. The decrease trend is due to
decrease in cement prices and increased manufacturing costs. The decreasing trend also is due to
decrease in profitability of the company. Profitability of the company is decreasing because
liabilities are increasing, and company is paying the cost of liabilities.
Dividend payout ratio is also decreasing. Company is not giving any dividend to its investors due
to heavy investment in capital assets.
Price/earning ratio has somewhere increasing and somewhere decreasing trend. It is due to the
market fluctuations.
The basic objective of the controller is; to maximize shareholders wealth and increase the
profitability of the company. Thats why; he gives more importance to the profitability ratios.
Being a controller, I will suggest that the companys profitability is improving and it will more
improve in near future. Company is very conscious about its growth. As company is heavily
investing in fixed assets, which will increase the productivity of the company in long- run. As a
result profitability of the company will increase.

113

Ratio Analysis being an investor

Ratios
2006 2007 2008 2009 2010
Earnings per share 3.25 1.72 0.83 1.44 0.34
Debt/Equity Ratio 0.89 0.71 0.34 1.21 1.79
Return on equity 42% 18.42% 6.35% 10.62% 2.59%
Current Ratio 1.25 1.35 2.16 0.63 0.52
Net Profit Margin 28.08% 18.66% 11.66% 18.96% 6.57%
Dividend payout ratio 3.46% 3.20% 0.07% 0.00% 0.00%
Return on Investment 28.29% 16.04% 7.32% 8.27% 1.35%
Operating profit Margin 47.64% 28.74% 16.96% 30.98% 9.61%
Accounts Receivable
Turnover in days
5.70 2.86 3.03 3.09 4.13
Return on Total Assets 19.38% 10.26% 4.39% 5.94% 1.04%

Analysis:
Earning per share ratio has somewhere increasing and somewhere decreasing trend. In 2009, the
ratio is increasing because profitability of the company is increasing. The reason for decrease in
the ratio is decrease in profitability of the company.
The debt/equity ratio of FCCL is increasing continuously from 2006 to 2010. The ratio is
increasing because liabilities of the company are increasing. Company is heavily investing in
fixed assets to expand their operation, thats why liabilities are increasing.
Return on equity has also decreasing trend. The decreasing trend is due to decrease in

114

Net profit margin ratio has also decreasing trend. The decrease trend is due to decrease in cement
Dividend payout ratio is also decreasing. Company is not giving any dividend to its investors due
to heavy investment in capital assets.
Return on investment ratio is decreasing because profitability of the company is decreasing and
liabilities are increasing due to heavy investment in fixed assets.
Operating
profit margin ratio has also decreasing trend. The decrease trend is due to decrease in cement
Accounts receivable turnover in days ratio is stable. It means that firms liquidity position is
good; there are fewer chances of bad debts. Company is collecting its receivables quickly.
As a long term investor, it will be profitable to invest in company. Company is very conscious
about its growth. As company is heavily investing in fixed assets, which will increase the
productivity of the company in long- run. As a result profitability of the company will increase.
Investors basic aim is to earn profit on its investment and I am seeing the potential profits of
company in near future. Companys growth will lead to increase in profitability. As a result, my
earning will increase due to increase in share price and smart dividends

115

Conclusion & Recommendations

The above data shows the continuous growth of cement sector. The main factor of the growth is
accelerating exports of cement. Pakistan is ranked 5
th
largest cement exporter. Demand for
cement has been increasing at domestic level as well as international level. When demand will
increase, the production will also increase. At the same time to meet the demand, people are
being hired and unemployment will decrease. . Accelerating exports will also lead to increase n
forex reserves.
From the above information we conclude that cement sector in one of the prosperous
sector in the Pakistans economy. The potential investors should take their chances
investing in the cement sector through stock exchanges. The Fauji cement country has
proved itself as one of the leading cement factories of the country. The trade mark of
Fauji Foundation gives a sign of credibility in the minds of the investors.
Since Pakistan is a developing country and for expanding infrastructure and
developmental projects, the need of the cement is very obvious. Fauji cement has
been providing 63% of the cement in the country as well as exporting to countries like
Afghanistan and Bangladesh.
It is recommended that Fauji cement should continue its expansion and should formulate
strategies of being global. As Fauji cement is recently expanding its operations, it will be very
profitable for the company. Fauji should maintain its growth level.

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