KOHAT CEMENT COMPANY LIMITED
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10
FINANCIAL STATEMENT ANALYSIS
Project Of
“KOHAT CEMENT COMPANY LIMITED” FOR THE PERIOD 2006-2010
SUBMITTED BY: Shahid Rasheed
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10
INTRODUCTION TO KOHAT CEMENT COMPANY KOHAT Cement Company Limited (incorporated in 1980) is an ISO 9001-2000 certified company, listed on Stock Exchanges of Pakistan and engaged in manufacturing of Grey and White Cements. Quality of our products is better than approved British and Pakistan Standards. The plant is located in Kohat about 60 kilometers from Peshawar. Capacity:
Line I - in operation Line II - in operation Line III - completion 2007 Total Capacity
Grey Cement Tons/Anum 567,000 2,110,000 2,677,000
REGISTERED OFFICE AND WORKS Kohat Cement Factory. Rawalpindi Road, Kohat. Pakistan HEAD OFFICE 37-P, Gulberg II, Lahore. Pakistan REGIONAL SALES OFFICES KOHAT PESHAWAR RAWALPIND KARACH MULTAN Chairman
Mr. Atta Mohammad Sheikh
Board of Directors: Chief Executive Director Director Director Director Director Director Company Secretary
Mr. Aizaz Mansoor Sheikh Mr. Nadeem Atta Sheikh Mr. Tariq Atta Sheikh Mr. Omer Aizaz Sheikh Mr. Ibrahim Tanseer Sheikh Mrs. Ghazala Amjad Mrs. Hafsa Nadeem Mr. Mohammad Hashim Khan
White Cement Tons/Anum 142,000 142,000
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10 KOHAT Cement Company Limited engaged in manufacturing of Grey and White Cements. GREY CEMENT KOHAT ORDINARY PORTLAND CEMENT is manufactured under strict quality control on state of the art plant with latest technology. Our Cements comply with following standards: 1. 2.
PS 232-1983 (R) ENV 197- 1 & 2 CEM I, CLASS 42.5 N
Available in 50 Kg paper or polypropylene bags (20 bags to a metric ton). Bulk cement can be delivered in N.W.F.P areas. WHITE CEMENT A state of the art plant with technology from Babcock-Grenzebach Germany is installed at Kohat. KOHAT SUPER WHITE CEMENT is the product of unique decolourizing process, which prevents oxidation of iron in the clinker and maximizes whiteness. High refractive index and opacity of KOHAT SUPER WHITE CEMENT impart a brilliant luster and smooth finish, even when mixed with pigments. It also mixes easily with inorganic pigments which do not fade in sunshine and alkaline attack. The comprehensive strength of KOHAT SUPER WHITE CEMENT is at par or more than the strength of Ordinary Portland Cement. Therefore it can conveniently be used in place of grey cement in all kinds of concrete and mortar mix. KOHAT SUPER WHITE CEMENT complies with following standards: 1. 2.
PS 1630- 1984 ENV 1 97-1 &2CEM I, CLASS 42.5 N
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10
FINANCIAL STATEMENTS OF KOHAT CEMENT
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10
Evaluation of Financial Performance and Position of KOHAT Cement Company To evaluate the performance of KOHAT Cement Company in terms of its financial position and performance, I have performed following analysis for the given period year 2006 to 2010 which are as under; I. II. III. IV. V.
i.
Financial Statement Analysis Auditor’s Reports Analysis Management Review Analysis Notes to the Accounts Analysis Ratio Analysis
Financial Statement Analysis:
The financial statements have been prepared in accordance with approved accounting standards as applicable in Pakistan. Approved accounting standards companies International Financial Reporting Standards (IFRS) issued by International Accounting Standards Board on notified under Companies Ordinance 1984. The Balance sheet, Income statement, Cash flow statement and Statement of change in equity all were well prepared under the accounting rules and polices consistently applied for the year 2006 to 2010 except for the change of accounting police in year 2010, stated in Note 2.2. International Financial Reporting Standards follow as applicable in Pakistan, for the preparation of financial statements to ensure the true and fair view of company’s financial position. I have examined all the attached financial statements and found that there is no extra ordinary account found to rewrite the financial statements. Next step in financial statement analysis is common size statements analysis, in this regards following Common size statements have been made as under;
COMMON SIZE FINANCIAL STATEMENT ANALYSIS OF KOHAT CEMENT LTD “Vertical Analysis” Common Size Balance Sheet of KOHAT CEMENT:
Year 2006-2007 Accounts ASSETS:
2006 Value in Rupees
2007 %
Value in Rupees
%
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10
FIXED ASSETS: Property, plant and equipment: operating fixed assets capital work in progress long term loans &advances long term deposits Total fixed assets
1,095,105,981 984,287,376 49,565,634 4,969,240 2,133,928,231
35.6 32 1.61 0.16 69.37
1,023,528,041 4,234,731,837 45,731,201 3,879,440 5,307,870,519
17.45 72.21 0.78 0.07 90.51
117,594,905 87,869,995 21,642,079 51,589,010
3.82 2.86 0.7 1.68
157,436,002 125,147,740 21,381,453 120,072,947
2.69 2.13 0.36 2.05
6,600,000 656,886,230 942,182,219
0.22 21.35 30.63
132,401,943 556,440,085
2.26 9.49
3,076,110,450
100
5,864,310,604
100
CURRENT ASSETS: Store, spares &loose tools stock in trade trade debtors advances, deposits, prepayments and other receivables Short term investment cash and bank balances Total current assets
TOTAL ASSETS Accounts LIABILITIES SHARE CAPITAL AND RESERVES Issue, subscribed & paid-up capital reserves Accumulated profits NON CURRENT LIABILITIES Long term finances- secured liabilities against assets subject to finance lease long term security deposits and retention money deferred liabilities Total noncurrent liabilities CURRENT LIABILITIES Trade and other payables markup payable on secured loans Short term finances - secured current portion of long term liabilities: long term finances liabilities against assets subject to finance lease provision for taxation Total current liabilities
2006
2007
Value in Rupees
%
Value in Rupees
%
925,312,540 389,397,905 969,229,248 2,283,939,693
30.0806 12.65878 31.50827 74.24765
1,017,843,800 396,306,773 925,505,570 2,339,656,143
17.35658 6.757943 15.782 39.89652
237,500,000 2,358,098
7.720789 0.076658
2,703,308,354 -
46.09763
5,451,100
0.177208
106,808,320
1.821328
161,267,836 406,577,034
5.242589 13.21724
158,739,583 2,968,856,257
2.706875 50.62584
215,249,060 1,973,686 57,397,506
6.997443 0.064162 1.865912
178,982,959 12,260,606 146,434,421
3.052072 0.209072 2.497044
44,148,330 34,064,784
1.4352 1.107398
218,120,218 -
3.719452
32,760,357 385,593,723
1.064993 12.53511
555,798,204
9.477639
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10 TOTAL LIABILITIES & EQUITY
3,076,110,450
100
5,864,310,604
100
Year 2008-2009 Accounts ASSETS:
2008 Value in Rupees
2009 %
Value in Rupees
%
FIXED ASSETS: Property, plant and equipment: operating fixed assets capital work in progress Intangible assets long term loans &advances long term deposits Total fixed assets
941,431,201 5,307,288,753 38,142,100 4,429,440 6,291,291,494
12.35 69.61 0.50 0.058 82.52
6,352,852,944 584,965,206 2,689,912 33,313,347 5,397,440 6,979,218,849
73.66 6.782 0.031 0.386 0.062 80.92
699,954,682 174,317,806 15,341,081
9.18 2.29 0.201
841,844,312 139,293,693 17,792,165
9.76 1.615 0.206
406,020,470 36,994,967 1,332,629,006 7,623,920,500
5.325 0.485 17.48
612,373,810 34,371,413 1,645,675,393
7.10 0.399 19.08
100
8,624,894,242
100
CURRENT ASSETS: Store, spares &loose tools stock in trade trade debtors advances, deposits, prepayments and other receivables cash and bank balances Total current assets
TOTAL ASSETS Accounts LIABILITIES SHARE CAPITAL AND RESERVES Issue, subscribed & paid-up capital Reserves Accumulated profits NON CURRENT LIABILITIES Long term finances- secured Liabilities against assets subject to finance lease Long term security deposits and Deferred liabilities Derivative financial liabilities Total noncurrent liabilities CURRENT LIABILITIES Trade and other payables Markup payable on secured loans
2008 Value in Rupees
2009 %
Value in Rupees
%
1,170,520,370 235,805,586 922,803,191 2,329,129,147
15.353 3.092 12.10 30.55
1,287,572,410 34,078,,866 949,895,889 2,271,547,165
14.928 0.3951 11.013 26.33
2,981,785,715 3,686,712
39.111 0.0483
2,989,387,373 2,040,148
34.66 0.0236
135,837,621 155,732,831 1,250,573 3,278,293,452
1.782 2.0432 0.0164 43.00
154,209,127 101,197,782 160,120,433 3,406,954,843
1.780 1.173 1.856 39.50
243,214,560 50,719,344
3.190 0.6652
554,458,612 312,801,576
6.428 3.627
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10 Short term borrowing - secured Current portion of long term liabilities: long term finances liabilities against assets subject to finance lease Contingencies and commitments Total current liabilities TOTAL LIABILITIES & EQUITY
1,096,066,075
14.376
1,398,198,921
16.211
625,022,321 1,475,601
8.198 0.0193
679,233,946 1,699,179
7.875 0.0197
2,016,497,901 7,623,920,500
26.45 100
2,946,392,234 8,624,894,242
34.17 100
Year 2010 Accounts ASSETS: FIXED ASSETS: Property, plant and equipment: operating fixed assets capital work in progress Intangible assets long term loans &advances long term deposits Total fixed assets
2010 Value in Rupees
%
6,368,030,446 861,363,339 2,587,653 28,832,286 5,397,440 7,266,211,164
73.42 9.93 0.03 0.33 0.06 83.78
638,000,427 290,433,057 20,010,133 430,703,292
7.36 3.35 0.23 4.96
28,021,733 1,407,168,642
0.32 16.22
8,673,379,806
100
CURRENT ASSETS: Store, spares &loose tools stock in trade trade debtors advances, deposits, prepayments and other receivables cash and bank balances Total current assets
TOTAL ASSETS Accounts LIABILITIES SHARE CAPITAL AND RESERVES Issue, subscribed &paid-up capital Reserves Accumulated profits NON CURRENT LIABILITIES Long term finances- secured Liabilities against assets subject to
2010 Value in Rupees
%
1,287,572,410 51,278,714 622,118,747 1,960,969,871
14.85 0.59 7.17 22.61
3,049,320,000 -
35.16
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10 finance lease Long term security deposits and retention money Deferred liabilities Derivative financial liabilities Total non-current liabilities CURRENT LIABILITIES Trade and other payables Interest and markup accrued Short term borrowings - secured current portion of non-current liabilities Total current liabilities TOTAL LIABILITIES & EQUITY
155,923,337
1.80
62,669,613 202,024,046 3,469,936,996
0.72 2.33 40.01
734,312,487 504,895,065 1,406,895,249 596,370,138 3,242,472,939 8,673,379,806
8.47 5.82 16.22 6.87 37.38 100
Common Size Income Statement of KOHAT CEMENT: Year 2006-2007 Sales-net Cost of goods sold Gross profit Distribution cost Adm. & general expenses Operating profit Other operating expenses Other operating income Profit from operation Finance cost Profit before taxation Taxation Profit after taxation
2006 2,327,237,579 1,127,575,661 1,199,661,918 15,533,247 38,279,574
% 100 48.45125 51.54875 0.667454 1.64485
2007 1,553,733,256 1,210,466,340 343,266,916 18,701,815 46,338,529
% 100 77.90696 22.09304 1.20367 2.982399
1,145,849,097 71,433,971
49.23645 3.069475
278,226,572 7,640,715
17.90697 0.491765
19,106,540 1,093,521,666 54,097,507 1,039,424,159 249,557,198 789,866,961
0.820997 46.98797 2.324537 44.66343 10.72332 33.94011
75,624,748 346,210,605 18,370,018 327,840,587 79,472,319 248,368,268
4.867293 22.2825 1.182315 21.10018 5.114927 15.98526
Year 2008 Sales-net Cost of goods sold Gross profit Distribution cost Adm. & general expenses Operating profit
2008 1,375,972,754 1,288,570,903 87,401,851 24,878,363 40,894,043 21,629,445
% 100 93.648 6.352004 1.808056 2.97201 1.571938
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10 Other operating expenses Other operating income Profit from operation Finance cost Voluntary Separation scheme (VSS) Profit before taxation/ (Loss) Taxation Profit after taxation/ (Loss)
20,958,970 35,978,456 36,648,971 48,935,320 279,572,750
1.523211 2.614765 2.663495 3.556416 20.31819
-279,572,750 -57,133,384 -222,439,366
-20.3182 -4.15222 -16.166
Year 2009-2010 Sales-net Cost of goods sold Gross profit Distribution cost Adm. & general expenses Operating profit Other operating expenses Other operating income Profit from operation Finance cost Loss on derivative Financial Instruments Profit before taxation/ (Loss) Taxation Profit after taxation/ (Loss)
2009 3,395,580,759 2,591,021,469 804,559,290 111,490,601 30,094,507 662,974,182 3,291,944 34,218,809 693,901,047 549,902,638 122,813,948
% 100 76.30569 23.69431 3.283403 0.886285 19.52462 0.096948 1.007745 20.43542 16.19466 3.616876
2010 3,692,038,418 3,341,872,196 350,166,222 56,245,683 35,943,591 257,976,948 4,835,758 23,210,906 276,352,096 658,589,707 -
21,184,467 -5,908,237 27,092,698
0.623883 -382,237,611 -0.174 -54,460,469 0.797881 -327,777,142
% 100 90.51564 9.48436 1.523432 0.973543 6.987385 0.130978 0.628675 7.485082 17.83811 -10.353 -1.47508 -8.87795
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10
“Horizontal Analysis” Common Size Balance Sheet of KOHAT CEMENT:
Base in 2006, Rs. ASSETS: FIXED ASSETS: Property, plant and equipment: operating fixed assets 1,095,105,981 capital work in progress 984,287,376 Intangible assets long term loans 49,565,634 &advances long term deposits 4,969,240 Total fixed assets 2,133,928,231 CURRENT ASSETS: Store, spares &loose 117,594,905 tools stock in trade 87,869,995 trade debtors 21,642,079 advances, deposits, 52,589,010 prepayments and other receivables Short term investment 6,600,000 cash and bank balances 656,886,230 Total current assets 942,128,219 TOTAL ASSETS 3,076,056,450 LIABILITIES, SHARE CAPITAL AND RESERVES Issue, subscribed &paid925,312,540 up capital Reserves 389,397,905 Accumulated profits 969,229,248 Total Equity 2,283,939,693
%
2007
%
100 1,023,528,041 93.46383 100 4,234,731,837 430.2333 100 45,731,201 92.26393
2008
%
2009
%
2010
%
941,431,201 85.96713 6,352,852,944 580.1131 6,368,030,446 581.499 5,307,288,753 539.2011 584,965,206 59.43033 861,363,339 87.51137 2,689,912 2,587,653 38,142,100 76.95271 33,313,347 67.21057 28,832,286 58.16991
100 3,879,440 78.06908 4,429,440 89.13717 5,397,440 108.617 5,397,440 108.617 100 5,307,870,519 248.7371 6,291,291,494 294.8221 6,979,218,849 327.0597 7,266,211,164 340.5087 100 157,436,002
133.88
699,954,682
595.2253 841,844,312
715.885
100 125,147,740 100 21,381,453 100 120,072,947
142.4237 174,317,806 98.79574 15,341,081 228.3233 406,020,470
198.3815 139,293,693 70.88543 17,792,165 772.0633 612,373,810
158.5225 290,433,057 82.21098 20,010,133 1164.452 430,703,292
330.5259 92.45938 818.9987
100 100 100 100
0 20.15599 59.06203 190.6438
0 5.631868 141.4488 247.8472
0 5.232476 174.6764 280.388
0 4.265843 149.3606 281.9643
132,401,943 556,440,085 5,864,310,604
100 1,017,843,800 110
36,994,967 1,332,629,006 7,623,920,500
1,170,520,370 126.5
34,371,413 1,645,675,393 8,624,894,242
1,287,572,410 139.15
100 396,306,773 101.7742 235,805,586 60.55646 34,078,866 100 925,505,570 95.48882 922,803,191 95.21 949,895,889 100 2,339,656,143 102.4395 2,329,129,147 101.9786 2,271,547,165
63,800,427
28,021,733 1,407,168,642 8,673,379,806
54
1,287,572,410 139.15
8.751682 51,278,714 13.16872 98.00529 622,118,747 64.18696 99.45741 1,960,969,871 85.85909
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10 NON CURRENT LIABILITIES Long term financessecured liabilities against assets subject to finance lease long term security deposits and retention money deferred liabilities Derivative financial liabilities Total noncurrent liabilities CURRENT LIABILITIES Trade and other payables markup payable on secured loans Short term finances secured Current portion of long term liabilities: long term finances liabilities against assets subject to finance lease provision for taxation Total current liabilities TOTAL LIABILITIES & EQUITY
237,500,000
100 2,703,308,354 1138.235 2,981,785,715 1255.489 2,989,387,373 1258.689 3,049,320,000 1283.924
2,358,098
100
5,451,100
-
0
3,686,712
156.3426 2,040,148
86.51668 -
0
100 106,808,320
1959.39
135,837,621
2491.93
154,209,127
2828.954 155,923,337
2860.401
161,267,836 -
100 158,739,583 -
98.43226 155,732,831 1,250,573
96.56782 101,197,782 160,120,433
62.75137 62,669,613 202,024,046
38.86058
406,577,034
100 2,968,856,257 730.2076 3,278,293,452 806.3155 3,406,954,843
837.9605 3,469,936,996 853.4513
215,249,060 1,973,686
100 178,982,959 100 12,260,606
83.15156 243,214,560 621.2035 50,719,344
257.5893 734,312,487 15848.6 504,895,065
57,397,506
100 146,434,421
255.1233 1,096,066,075 1909.606 1,398,198,921 2435.992 1,406,895,249 2451.144
44,148,330 34,064,784
100 218,120,218 100 -
494.0622 625,022,321 1,475,601
112.9922 554,458,612 2569.778 312,801,576
1415.733 679,233,946 1,699,179
1538.527 596,370,138 -
341.1455 25581.33
1350.833
32,760,357 100 385,593,723 100 555,798,204 144.1409 2,016,497,901 522.9592 2,946,392,234 764.1183 3,242,472,939 840.904 3,076,110,450 100 5,864,310,604 190.6404 7,623,920,500 247.8429 8,624,894,242 280.3831 8,673,379,806 281.9593
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10 Common Size Income Statement of KOHAT CEMENT:
Sales Cost of goods sold Gross profit Distribution cost Adm. & general expenses Operating profit Other operating expenses Other operating income Profit from operation Finance cost Voluntary Separation scheme Loss on derivative Financial Instruments Profit before taxation/ (Loss) Taxation Profit after taxation/ (Loss)
Base in 2006, Rs. 2,327,237,579 1,127,575,661 1,199,661,918 15,533,247 38,279,574
% 100 100 100 100 100
2007 1,553,733,256 1,210,466,340 343,266,916 18,701,815 46,338,529
% 66.76298 107.3512 28.61364 120.3986 121.0529
2008 1,375,972,754 1,288,570,903 87,401,851 24,878,363 40,894,043
% 59.12472 114.278 7.28554 160.162 106.8299
2009 3,395,580,759 2,591,021,469 804,559,290 111,490,601 30,094,507
% 145.9061 229.7869 67.0655 717.7546 78.61766
2010 3,692,038,418 3,341,872,196 350,166,222 56,245,683 35,943,591
% 158.6447 296.3768 29.18874 362.0987 93.89757
1,145,849,097 71,433,971
100 100
278,226,572 7,640,715
24.28126 10.69619
21,629,445 20,958,970
1.887635 29.34034
662,974,182 3,291,944
57.85877 17.22941
257,976,948 4,835,758
22.51404 6.769549
19,106,540 1,093,521,666 54,097,507 -
100 100 100
75,624,748 346,210,605 18,370,018
395.8056 31.66015 33.95724
35,978,456 36,648,971 48,935,320 279,572,750
188.3044 3.351463 90.45762
34,218,809 693,901,047 549,902,638 -
179.0947 63.45563 1016.503
23,210,906 276,352,096 658,589,707 -
121.4815 25.27175 1217.412
-
-
122,813,948
-
1,039,424,159
100
327,840,587
31.5406
-279,572,750
-26.8969
21,184,467
2.038096
-382,237,611
-36.774
249,557,198 789,866,961
100 100
79,472,319 248,368,268
31.84533 31.44432
-57,133,384 -222,439,366
-22.8939 -28.1616
-5,908,237 27,092,698
-2.36749 3.430033
-54,460,469 -327,777,142
-21.8228 -41.4978
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10
ii.
Auditor’s Reports Analysis:
I have examined all the Auditor’s Reports for the given period 2006-2010, and found that all reports were clear and represents the true and fair view of company except the Audit report of year 2010. All reports were declared Un-qualifies that without qualifying any issue or problem except for the year 2010, which in my opinion has some issues, refers to note 2.2 and 6.4, which can leads to qualifying auditors opinion but yet they have declared all of them Un-qualified. According to the auditor’s opinion, proper books of accounts have been kept as required by Companies Ordinance 1984. The balance sheet and profit and loss account together with the notes thereon have been drawn up in conformity with Companies Ordinance 1984, and further in accordance with the accounting polices consistently applied except for the change refers to Note 2.2 in 2010. According to auditor’s opinion and with the best of their knowledge, the balance sheet, income statement, cash flow and change in equity statements give a true and fair view of the state of company’s affairs as at June, 2010. Without qualifying our opinion, we draw attention to note 6.4 of financial statement which explains that company during year could not fulfill certain principal repayments of Rs.190 Million and markup of 184 Million in respect of finance obtained from certain financial institution. The company is in process of negotiations with the banks for the restructuring of these loans. Banks represent 56% of outstanding amount, have agreed in principal to company restructuring proposal and the company hope that agreement will signed. Note 2.2 Revised IAS 1-presentations of financial statements include non-mandatory changes of titles of financial statements. This standard also introduced statement of comprehensive income. The note 6.4 that company could not repay the installments due in December, 2009, March 2010 and June 2010 amounting Rs. 80, 55 and 55 Million respectively and aggregate markup of 184 Million. Auditors have un-qualified this report (2010) although refer to the note 2.2 and 6.4, but In my opinion; auditors view is not an independent view because in my opinion it could be qualified opinion with accordance to the Note 2.2 and 6.4. Because these are serious issues, together amounting Rs. 374 Million liabilities. This can turn profit into losses and could also create contingent liabilities inform of penalties against late interest and principal payments. Refer to note 2.2 “Accounting standard change” is not mandatory but note 6.4 “liabilities of principal and markup payments” is a serious issue. So, the liabilities must be paid on time otherwise can turn profit into losses which can leads to the qualified opinion.
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10 Corrective Measures; Company management has to take corrective measures against these liabilities which have negatively impact on company’s financial health. Company management has to look for different alternatives for financing of the required capital (e.g. issuance of more shares) in order to decrease their cost of financing or can have to correctly evaluate and plan the loan taken as debt finances, so they could easily payback and no penalties and extra cost bear by the company. The above corrective actions have to be taken in such a manner that generates more profit and in accordance to achieve the goal of maximization of wealth of owners.
iii.
Management Review Analysis:
The management is fully aware of the company’s obligations with the code of incorporated (corporate Governance) and taking steps for effective implementation within the allowed time frame. The financial statements prepared by the management present fairly the company’s state of affairs, the result of its operation, cash flows and change equity. The company has maintained proper books of accounts and appropriate accounting polices consistently applied. The system of internal control is sound in design and affectively implemented. Company has ability to continue on going concern. During the year four meetings of BODs were held. The company has earned a 789,867,000 , 48,807,000 , 222,439,366 and 27,092,698 profit aftertax for the years 2006, 2007, 2008, and 2009 respectively. The company has a ability to produce 777992 tons of cement during a year. In 2007 company’s operations suffered because of “War on Terror” as it is located near Indus Highway, Dare Adam Khel located on north side of tunnel. In particular irregular power supply because of blowing up main power transmission by militants. Moreover nationwide power shortage affected the company’s operations. Company exports depend on its production the more produce the more export, as huge demand from outside country. In future consumption of cement increases but in short-term local demand remains low due to over all law and order. For the year 2009-10, company has reschedule its debt obligation, where by its principal amount differed for one year, as stated in note 2.6 that company could not mange to repay the installments. Corrective Measures; Although the volume of sales increase with passage of time and also company’s capacity of production also raises but yet there is a negative impact on profitability and so company could not declare dividend. Company management has to take corrective measures to decrease their
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10 expenses in order to increase profitability and to be in a position to declare the dividend to achieve the goal of maximization of wealth of owners. In this regard company has to look at its financing structure and decrease the debt ratio in order to decrease financing cost.
iv.
Notes to the Accounts Analysis:
The company has maintained proper details of accounts for the better understanding and proving true and fair view of financial statements. I have examined all the Notes to the Accounts for the given period 2006-2010, and found that all notes were clear and represents the true and fair view of statements. There is no such an issue found in maintaining of Notes to the accounts, detail notes to the accounts has been prepared against every account and change in account or accounting standards. Like in year 2010 there is a change in accounting standards against this company have maintained note refers to 2.2. This explains Revised IAS 1-presentations of financial statements include non-mandatory changes of titles of financial statements and also introduced statement of comprehensive income but allowed presenting a two statement approaches, income statement and statement of comprehensive income which is optional and company had chosen. Similarly Note 6.4 clearly in detail explains about the liabilities generated because of due payments 190 and 184 Million of principal repayments and aggregate markup respectively, charged rate of 6 months KIBOR+1.8% for the period from December, 20, 2008 to December, 20, 2009.
v.
RATIO ANALYSIS:
Financial ratios are usually expressed as a percentage or as times per period. There are five main types of ratios: 1. Liquidity ratios 2. Financial leverage (debt) ratios 3. Activity test ratios 4. Profitability ratios 5. Investor specific ratios The Time-series analysis is method of comparing company present performance with their past performances. Here we analyze KOHAT Cement performance by comparing its present ratios with past 5 years.
1. Liquidity Ratio: The liquidity of firm is measured by its ability to satisfy its short-term obligations. Liquidity refers to solvency of firms overall financial position-the ease with which it can pay its bills. We measure KOHAT’s liquidity by calculating following ratios:
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10
Liquidity Ratios
2006
2007
Networking Capital
556534496
641881
Current Ratio
2.44
1.00
0.66
0.56
91.55
Quick Ratio
2.22
0.78
0.57
0.51
72.65
Cash Ratio
1.70
0.24
0.02
0.01
1.82
2008
2009
2010
-683868895 -1300716841 1391798176
Networking Capital Ratio: Networking capital ratio measure, capital works in progress by subtracting current liabilities form current assets.
NETWORKING CAPITAL 2E+09 1391798176
1.5E+09 1E+09
556534496
500000000
641881
0 -5E+08 -1E+09 -1.5E+09
2006
2007
Series1
2008
2009
2010
-683868895 1300716841
In 2006, the company only had 556534496 rupees worth of networking capital, which then decreases in 2007 and goes into negative value in 2008 and 2009 and then increased to 1391798176 values, which the company had maximum in previous 5 years. Current Ratio: Current ratio measure, in what time current assets converts into cash, and company have short term resources to fulfill short term liabilities.
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10 CURRENT RATIO 100.00 90.00 80.00 70.00 60.00 50.00 40.00 30.00 20.00 10.00 0.00
91.55
Series1
2.44
1.00
0.66
0.56
2006
2007
2008
2009
2010
In 2006, the company only had 2.44 rupees worth of current assets for every rupee of liabilities. This decrease to 1.00 rupee in 2007 indicating decreasing trend on liquidity consistently to 0.56 in 2009. So, the company is not efficiently converting current assets into cash and then increased to 91.55 in 2010 which also not good sign for company because it can be due to under utilization of resources. Due to current assets decrease in 2007 by 385,742,134 and current liabilities increase by170,305,481 because of this risk increase and current ratio decrease. Quick (Assets-test) Ratio: Quick ratio measure, in what time current assets converts into cash including inventory. Measures assets that are quickly converted into cash and they are compared with current liabilities.
QUICK RATIO 80.00
72.65
70.00 60.00 50.00 40.00
Series1
30.00 20.00 10.00
2.22
0.78
0.57
0.51
2006
2007
2008
2009
0.00
2010
This ratio realizes that some of current assets are not easily convertible to cash as we can see from the figures that it has shown decrease from 2.22 in 2006 to 0.78 in 2007 and then goes to 0.51 in 2009 .So we conclude company have less quick assets to meets its emergency payments.
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10 Due to increase in liabilities and decrease in current assets. Although inventory increases in 2007 by 43,277,745 but this deceases the current assets and because of this quick ratio decreases. In 2010 this ratio increased to 72.65 which is more than enough and can be due to under utilization of resources or over increase in liabilities . Cash Ratio: Cash ratio measure, the actual cash in hands of company. Measures assets that are cash and cash equivalents they are compared with current liabilities.
CASH RATIO 2.00 1.80 1.60 1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00
1.82
1.70
Series1
0.24
2006
2007
0.02
0.01
2008
2009
2010
This ratio realizes that some of current assets which are cash & cash equivalents as we can see from the figures that it has shown decrease from 1.70 in 2006 to 0.24 in 2007 and then decreases to 0.01 in 2009. So we conclude company have less cash to meets its emergency payments. Where in 2010 it raises to 1.82 which is good but not enough as can be due to company cash miss management and not efficiently utilization of cash.
2. Financial leverage (debt) ratios The company would therefore find it relatively easier to raise additional financial support from external sources if it wished to take that route. We measure KOHAT’s borrowing and long-term paying ability by calculating following ratios:
Leverage (Debt) Ratio
2006
2007
2008
2009
2010
Debt Ratio
0.26
0.60
0.69
0.74
0.40
Debt to equity Ratio
0.35
1.51
2.27
2.80
1.78
20.21
18.85
0.75
1.26
0.42
Time interest earned Ratio
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10 Debt Ratio: The lower the debt ratio the more easily it becomes for the firm to raise debt. It seems that company has almost improved its debt ratio by lowering its debt.
DEBT RATIO 0.80
0.69
0.70
0.74
0.60
0.60 0.50
0.40
0.40 0.30
Series1
0.26
0.20 0.10 0.00 2006
2007
2008
2009
2010
The ratio increase to 0.60 in 2007 from 0.26 in 2006 and consistently increasing to 0.74 in 2009. The debt ratio is increase due to increase in total liabilities by 273,248,704 in 2007, although total assets increase but less as compare to total liabilities. Where in 2010 it decreases to 0.40 which shows company ability to raise debt improved. Debt-to-equity Ratio: Debt to equity ratio measures the portion or percentage of debt over the equity. The lower the ratio the more good for the firm.
DEBT TO EQUITY RATIO 2.80
3.00 2.50
2.27 1.78
2.00
1.51
1.50
Series1
1.00 0.50
0.35
0.00 2006
2007
2008
2009
2010
The ratio increase to 1.51 in 2007 from 0.35 in 2006 and consistently increasing to 2.80 in 2009. The ratio is increase due to either increase in total liabilities or decrease in equity. Where in 2010 it decreases to 1.70 which shows company ability to raise debt improved.
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10 Time Interest Earned Ratio: This ratio measure the extent to which earnings can decline without causing financial losses to the firm and creating an inability to meet the interest cost. • The times interest earned shows how many times the business can pay its interest bills from profit earned. • Present and prospective loan creditors such as bondholders, are vitally interested to know how adequate the interest payments on their loans are covered by the earnings available for such payments. • Owners, managers and directors are also interested in the ability of the business to service the fixed interest charges on outstanding debt.
Time Interest Earned 25.00 20.00
20.21
18.85
15.00 Series1
10.00 5.00 0.75
1.26
0.42
2008
2009
2010
0.00 2006
2007
In 2006 the company could pay their interest bill 20.21 times from earnings before interest and tax. Which decreases to 18.85 in 2007, However there is a massive decrease to 0.75 in 2008 and then remains low as 1.26 and 0.42 in 2009 and 2010 respectively. The coverage ratio for in year 2008 is decrease due to decrease in E.B.I.T by 477,311,031 in 2007 and huge increase in interest by 226,524,546 in 2007, Which results massive decrease in ratio.
3. Activity Ratios Activity ratios measure the sped with which various accounts are converted into sales or cash – inflows or outflows. We measure KOHAT’s activity test by calculating following ratios:
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10
Activity Ratios
2006
2007
2008
2009
2010
Days Sale in Inventory
28.4
37.7
49.4
19.6
31.7
Inventory Turnover
12.8
11.4
8.6
16.5
15.6
Days Sale in Receivable
11.6
33.2
111.8
67.7
44.6
Account Receivable Turnover
31.4
14.4
4.9
6.5
6.8
Days sale in inventory: It measures the number of days to be taken in sale of inventory. Market value or historical value whichever is lower use for inventory evaluation. The more less the raio the better for the company.
DAYS SALE IN INVENTORY 60.0 49.4
50.0 37.7
40.0 30.0
31.7
28.4
Series1
19.6
20.0 10.0 0.0 2006
2007
2008
2009
2010
In 2006 the company days sale in inventory is 28.4 days which increases to 37.7 days in 2007, and goes to maximum of 49.4 days in 2008. However there is some decrease in 2009 and then again rises to 31.7 days in 2010. Inventory turnover Ratio: This ratio measures the stock in relation to turnover in order to determine how often the stock turns over in the business. It indicates the efficiency of the firm in converting inventory into its product and sale. It is calculated by dividing the cost of goods sold by the average inventory.
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10
INVENTORY TURNOVER 18.0
16.5
16.0 14.0 12.0
12.8
15.6
11.4
10.0
8.6
8.0
Series1
6.0 4.0 2.0 0.0 2006
2007
2008
2009
2010
The inventory turnover has decrease from 12.22 in 2006 to 11.36 in 2007 and 8.6 in 2008. Where in 2009 it increased to16.5 and slightly decrease in 2010 to 15.6. This shows that company efficiency has been improved in converting its inventory into finished good sale. The decrease in 2007-8 is due to C.G.S increase by 82,890,679 in 2007. Although inventory increases in 2007, but increase in inventory is less w.r.t to C.G.S. Days sale in Receivable Ratio: It measures the number of days to be taken in receivable. The more less the raio the better for the company. It measures the collection period by the quality of debtors since it indicates the speed of their collection. • The shorter the period, the better the quality of debtors, as a short collection period implies the prompt payment by debtors. • The average collection period should be compared against the firm’s credit terms and policy to judge its credit and collection efficiency. • An excessively long collection period implies a very liberal and inefficient credit and collection performance.
DAYS SALE IN RECIVAIBLE 111.8
120.0 100.0 80.0
67.7
60.0
44.6 33.2
40.0 20.0
11.6
0.0 2006
2007
2008
2009
2010
Series1
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10 As we can see in this case Kohat collection period has increase in 2007, and then there is a massive increase in ratio in 2008 to 111.8 days. so we can say company has decreased its efficiency in collections. So, the company is getting its receivable after a longer period of time as compared to previous year. Where in 2009-10 company improves its collections efficiency and the ratio decreases to 67.7 and 44.6 days respectively. Account Receivable Ratio: This ratio measures the relation to turnover in order to determine how often the receivable turns over in the business. It indicates the efficiency of the firm in collecting receivable against the sale. It is calculated by dividing the Receivable by the sale per day.
RECIVEABLE TURNOVER 35.0
31.4
30.0 25.0 20.0
14.4
15.0 10.0
Series1
4.9
5.0
6.5
6.8
2009
2010
0.0 2006
2007
2008
Due to decease in A.R in 2007 by 2,06,026, although Average sale per day decrease by 773,504,232 but this decrease is more as compared to A.R. because of which receivable turnover decreases. Where in 2008 decreased to 4.9 and then remain low and slightly increase to 6.8 in 2010.
4. Profitability Ratios Profitability is the ability of a business to earn profit over a period of time. There are many measure of profitability which indicates the efficiency of operations and generating of revenues and profits. They include following
Profitability Ratios
2006
2007
2008
2009
2010
51.5%
22.1%
6.4%
23.7%
9.5%
Operating Profit Margin
49.24%
17.91%
1.57%
19.52%
6.99%
Net Profit Margin
33.94%
15.99%
-16.17%
0.80%
-8.88%
Return on Total Asset
33.79%
7.33%
-4.15%
0.26%
-4.42%
Assets Turnover
75.66%
34.76%
20.40%
41.79%
42.69%
Gross Profit Margin
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10 Gross Profit Margin: It measures the portion or the percentage or the contribution of gross profit in net sales.
GROSS PROFIT MARGIN 60.0%
51.5%
50.0% 40.0% 30.0%
23.7%
22.1%
Series1
20.0% 9.5%
6.4%
10.0% 0.0% 2006
2007
2008
2009
2010
If we see the gross profit margin ratio a decrease to 22.1 in 2007 from 51.5 in 2006. This is due to increase in cost of goods sold in 2007. The ratio above shows the decreasing trend in the gross profit since the ratio has decreased to 6.4 in 2008. Where in 2008 it increases to 23.7 and then decrease to 9.5 in 2010, indicates that gross profit decrease by huge amount as compared to sales. Operating Profit Margin: It measures the portion or the percentage or the contribution of operating profit in net sales.
OPERATING PROFIT MARGIN 60.00% 50.00%
49.24%
40.00% 30.00%
10.00%
Series1
19.52%
17.91%
20.00%
6.99%
1.57%
0.00% 2006
2007
2008
2009
2010
The operating profit margin ratio shows the decrease to 17.91% in 2007 from 49.24% in 2006 and then decrease to 1.57% in 2008. The operating profit margin decrease due to high decrease
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10 in operating profit w.r.t to sales. Where in 2009 this ratio raises to 19.52% and then again goes down to 6.99% in 2010. Net Profit Margin: It measures the portion or the percentage or the contribution of net profit profit in net sales.
NET PROFIT MARGIN 40.00%
33.94%
30.00% 15.99%
20.00% 10.00%
-10.00%
Series1
0.80%
0.00% 2006
2007
2008
2009
2010 -8.88%
-20.00%
-16.17%
The net margin ratio shows that the margin is not stable over time with decrease to 15399% in 2007 from 33.94% in 2006 and then goes into negative (16.17%) in 2008. The ratio decrease due to massive decrease in E.A.C.S, which is greater than the decrease in sales. Where in 2009 comes back into positive of just 0.80% and then again goes down to -8.88% in 2010. Return on Total Assets: Income is earned by using the assets of a business productively. The more efficient the production, the more profitable the business. The rate of return on total assets indicates the degree of efficiency with which management has used the assets of the enterprise during an accounting period. This is an important ratio for all readers of financial statements.
RETURN ON TOTAL ASSET 40.00% 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% -5.00% -10.00%
33.79%
Series1
7.33% 0.26% 2006
2007
2008 -4.15%
2009
2010 -4.42%
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10 The ratio indicates that there is decrease in the ROA from 33.79% in 2006 to 7.33% in 2007 and goes down to negative (4.15%) in 2008, which means there is no return on assets. As the return on assets is decreases due to massive decrees in E.A.C.S and also total assets increase, which results very high decrease in ratio. Where in 2009 increase to 0.26% and again goes back to 4.47% in 2010. Assets Turnover: Asset turnover is the relationship between sales and assets.
The firm should manage its assets efficiently to maximize sales.
The total asset turnover indicates the efficiency has increased means the firm has used all its assets to generate sales.
ASSET TURNOVER 80.00%
75.66%
70.00% 60.00% 50.00%
41.79% 42.69%
34.76%
40.00% 30.00%
Series1
20.40%
20.00% 10.00% 0.00% 2006
2007
2008
2009
2010
The total asset turnover in 2007 is decrease to 34.76% from 75.66% in 2006 and then decreases to 20.40% in 2008. So the company is not utilizing its assets efficiently in order to generate high returns. Due to sales decrease in 2007 by 773,504,323 and total assets increase by 2,788,200,154 in 2007. So, investment in assets is seen in 2007 which results decrease in total assets turnover. Where in 2009 it increases to 41.79% and remains stable in 2010 to 41.69%.
5. Investor specific ratios Investor specific ratios measure the various accounts for which investors have specific concerns. These ratios are also called Market ratios because of their nature. We measure KOHAT’s marketability test by calculating following market ratios:
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10
Investor specific Ratios
2006
2007
2008
2009
2010
Earnings per share (EPS)
7.76
2.12
-1.73
0.21
-2.55
Return on Equity
5.27
1.66
-1.48
0.18
-2.19
Price/Earnings Ratio (P/E)
4.10
25.45
-21.20
34.60
-2.59
Dividend Payout
0.00
0.00
0.00
0.00
0.00
Dividend Yield
0.00
0.00
0.00
0.00
0.00
22.44
19.99
18.09
17.64
15.23
Book Value per Share
Earnings Per Share: Whatever income remains in the business after all prior claims, other than owners claims (i.e. ordinary dividends) have been paid, will belong to the ordinary shareholders who can then make a decision as to how much of this income they wish to remove from the business in the form of a dividend, and how much they wish to retain in the business. The shareholders are particularly interested in knowing how much has been earned during the financial year on each of the shares held by them.
EARNING PER SHARE (EPS) RATIO 10.00 8.00
7.76
6.00 4.00
2.12
2.00
Series1
0.21
0.00 -2.00 -4.00
2006
2007
2008 -1.73
2009
2010 -2.55
Figures show that EPS has decreased to 2.12 from 7.76 in 2007 form 2006 and then goes -1.73 in 2008 and then 0.21 for the year 2009 and then -2.55 in the year 2010.The trend shows that company faces loss in 2008 and 2010 so its EPS decreases over a period of time. Return on Equity: This ratio shows the profit attributable to the amount invested by the owners of the business. It also shows potential investors into the business what they might hope to receive as a
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10 return. The stockholders’ equity includes share capital, share premium, distributable and nondistributable reserves.
RETURN ON EQUITY RATIO 6.00
5.27
5.00 4.00 3.00
1.66
2.00 1.00
Series1
0.18
0.00 -1.00
2006
2007
-2.00
2008
2009
-1.48
-3.00
2010 -2.19
This showing a massive downward trend. Note that the return in 2006 is 5.27% as in all the years is after tax and the shareholders should be extremely comfortable with these returns but this decrease to 1.66% in 2007 and then consistently decreases to -1.48 in 2008 and goes to -2.19 in 2009 . Return on equity for Kohat cement decreases over a period of time from 5.27% to 2.19% due to massive decrease in E.A.C.S. Price per Earning Ratio: (P\E):
P/E ratio is a useful indicator of what premium or discount investors are prepared to pay or receive for the investment.
The higher the price in relation to earnings, the higher the P/E ratio which indicates the higher the premium an investor is prepared to pay for the share. This occurs because the investor is extremely confident of the potential growth and earnings of the share.
High P/E of KOHAT reflects lower risk & higher growth prospects for earnings.
PRICE EARNING(P/E) RATIO 40.00
34.60 25.45
30.00 20.00 10.00
4.10 Series1
0.00 -10.00
2006
2007
2008
-20.00 -30.00
-21.20
2009
2010 -2.59
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10 The above ratio shows that the shares were traded at a higher premium in 2007 than were in 2006. In 2007 the price was 54 which are 26 times higher than earnings (2.12) while in 2006, the price was only 31.80 which are 4.1 times higher than earnings (7.76). where in 2008 this ratio goes to negative (21.20), which shows shares are traded at discount then increase to 34.60 in 2009 which shows traded at premium of 165 times higher than earrings (0.21) in 2009. Where in 2010 this ratio decreases to (2.59). Dividend payout ratio: This ratio indicates the percentage of each dollar earned that is distributed to the owners inform of cash. It is calculated by dividing the firm’s cash dividend per share by its EPS. Dividend payout ratio is zero for the previous five years because company didn’t declare any dividend in these years. Dividend yield ratio: This ratio is the percentage return provided by the dividends paid on common stock. Dividend payout ratio is zero for the previous five years because company didn’t declare any dividend in these years. Book value per share: This ratio shows the book value per share, which is the amount invested by the owners of the business by holding stocks. It also shows potential investors into the business what they might hope to receive as a return on the basis of its book value comparable with its market value.
BOOK VALUE PER SHARE RATIO 25.00
22.44 19.99
20.00
18.09
17.64 15.23
15.00
Series1
10.00 5.00 0.00 2006
2007
2008
2009
2010
The ratio shows that the shares book value was in decreasing trend during the previous five years, as in 2006 22.44 then decrease to 19.99 in 2007. Similarly consistently decrease to 18.09, 17.64 and 15.23 in year 2008, 2009 and 2010 respectively. The ratio decreases with the passage of time due to decrease in share holder equity.
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10
Du pont Analysis Kohat’s net profit margin is 15.99% in 2007 which is greater than average of industry that is 2.584%. This shows that Kohat Cement Company’s progress is better than other companies in cement industry in Pakistan till 2007. But after that kohat cement net profit turn into negative (losses) for year 2008 and 2010 and remains too below than the average of industry which shows kohat poor performance during the past three years. Kohat’s total assets turn over is 34.66 in 2007 which is above than average of industry that is 28.8% and then decreases to 20.40% which is less then industry average. This shows that kohat cement company faces some problems in assets efficiently contribution to sales. In the year 2009-10 kohat cement improve this ratio to 41.79% and 42.69% by improving in utilization of assets. Kohat company’s equity multiplier is greater then the industry average which sows a good sign for company in 2007. But after that remains under the average of industry. Kohat’s ROA is 7.33% in 2007 which is above then average of industry that is 1.778. This shows that kohat Cement Company is generating Net Profit by utilizing its total assets as other companies in cement industry in Pakistan till 2007. Where from after it deceases massively and goes into negative, this may be decrease due to massive decrees in E.A.C.S and also total assets increase or investment in assets. Kohat company’s return on equity decreases to 1.66% in 2007 and remains under 0.18% from 5.27% in 2006, which is less than the average of industry in 2007 that is 3.702% because of massive decrease in E.A.C.S. 2006
Net profit margin Total asset turn over Equity multiplier Return on asset Return on equity For 2007:
2007
33.94%
15.99%
75.66%
34.76%
2.050
2008
2009
2010
-16.17%
0.80%
-8.88%
20.40%
41.79%
42.69%
3.909
2.080
2.88
1.942
33.79%
7.33%
-4.15%
0.26%
-4.42%
5.27%
1.66%
-1.48%
0.18%
-2.19%
Avg of industry 2007 2.584% 28.8% 3.18 1.778% 3.702%
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10
ROE= ROA * FLM (financial leverage multiplier) 0.0325(given) = Net Profit Margin * Total Assets Turnover * FLM = E.A.C.S * Sales * Total Assets Sales Total Assets C.S equity = _48,807,582_ * 1,553,733,256 * 5,864,310,604 1,553,733,256 5,864,310,604 1,500,000,000 = 0.0325
48,807,582 1,500,000,000 = 0.0325
Limitations There are many limitations occur while performing this study but few of them which are most important are listed below; One of the most important limitations in the study is “the availability of data”. The second most important limitation is “the reliability of data”. While calculating Account receivable Turnover “Net Credit Sales” data not available in financial statements. Due to this limitation I have use Net sales in replace of Net credit sales. Similarly, for calculating Average total assets and Average gross receivables for the year 2006 there is a limitation of data unavailability of 2005 required for calculating average of 2006. In this regard I have taken data of the specific year i.e. 2006 for calculating the ratios for that year. Another limitation seen is the problem regarding inventory valuation, which is inventory should be value either market or historical basis whichever is lower. The limitation is that we don’t know whether the inventory valuation fair or not, i.e. the data given is reliable or not.
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10
CONCLUSIONS Liquidity The overall liquidity of Kohat Cement seems to exhibit reasonable trend, having being maintain the level which is prevailing in whole industry. The company liquidity seems to be satisfactory. Financial Leverage/Debt Company debt ratio is higher but we see same trend is prevailing in the industry. All firms have same high level of debts and most of company asset are financed by debts. So we can say regarding debt Ratio Company is not in good position. Activity Kohat Cement Inventory management system is not looking smart. The company may be experiencing some problems with account receivables. In 2006 its collection period is above industry average. In 2007 it is brought down but not competing industry average. The total utilization of company asset is less than that of industry which shows efficiency has not yet achieved. Profitability Though company has high cost good sold received, yet it face loss .There may be many reason for it. High interest charges The high dumping rate. Tariff and Quota effects. Investor specific/Market Kohat market ratio also good as compare to other companies in the industries because its market price per share increases although its earning per share decreases and must have to focus on this.
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10
RECOMMENDATIONS Company should improve its inventory management system for efficient use of resources There should be an improvement in receivables collection as company have large amount of receivables yet to collect. Company should focus on increasing profit instead of innovation. Company has to focus those countries for import where there is less tariff and no quota implications. Company should efficiently utilize assets to generate sales. Company should look for different alternatives for financing its operations rather than creating huge liabilities though debt financing, which eventually leads to increased finance cost and penalties of due payments. There should be increase in promotion to increase in sales worldwide. There should be efficient management which is fully aware with industry trends.
FINANCIAL STATEMENT ANALYSIS
Project Of
“KOHAT CEMENT COMPANY LIMITED” FOR THE PERIOD 2006-2010
SUBMITTED BY: Shahid Rasheed
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10
INTRODUCTION TO KOHAT CEMENT COMPANY KOHAT Cement Company Limited (incorporated in 1980) is an ISO 9001-2000 certified company, listed on Stock Exchanges of Pakistan and engaged in manufacturing of Grey and White Cements. Quality of our products is better than approved British and Pakistan Standards. The plant is located in Kohat about 60 kilometers from Peshawar. Capacity:
Line I - in operation Line II - in operation Line III - completion 2007 Total Capacity
Grey Cement Tons/Anum 567,000 2,110,000 2,677,000
REGISTERED OFFICE AND WORKS Kohat Cement Factory. Rawalpindi Road, Kohat. Pakistan HEAD OFFICE 37-P, Gulberg II, Lahore. Pakistan REGIONAL SALES OFFICES KOHAT PESHAWAR RAWALPIND KARACH MULTAN Chairman
Mr. Atta Mohammad Sheikh
Board of Directors: Chief Executive Director Director Director Director Director Director Company Secretary
Mr. Aizaz Mansoor Sheikh Mr. Nadeem Atta Sheikh Mr. Tariq Atta Sheikh Mr. Omer Aizaz Sheikh Mr. Ibrahim Tanseer Sheikh Mrs. Ghazala Amjad Mrs. Hafsa Nadeem Mr. Mohammad Hashim Khan
White Cement Tons/Anum 142,000 142,000
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10 KOHAT Cement Company Limited engaged in manufacturing of Grey and White Cements. GREY CEMENT KOHAT ORDINARY PORTLAND CEMENT is manufactured under strict quality control on state of the art plant with latest technology. Our Cements comply with following standards: 1. 2.
PS 232-1983 (R) ENV 197- 1 & 2 CEM I, CLASS 42.5 N
Available in 50 Kg paper or polypropylene bags (20 bags to a metric ton). Bulk cement can be delivered in N.W.F.P areas. WHITE CEMENT A state of the art plant with technology from Babcock-Grenzebach Germany is installed at Kohat. KOHAT SUPER WHITE CEMENT is the product of unique decolourizing process, which prevents oxidation of iron in the clinker and maximizes whiteness. High refractive index and opacity of KOHAT SUPER WHITE CEMENT impart a brilliant luster and smooth finish, even when mixed with pigments. It also mixes easily with inorganic pigments which do not fade in sunshine and alkaline attack. The comprehensive strength of KOHAT SUPER WHITE CEMENT is at par or more than the strength of Ordinary Portland Cement. Therefore it can conveniently be used in place of grey cement in all kinds of concrete and mortar mix. KOHAT SUPER WHITE CEMENT complies with following standards: 1. 2.
PS 1630- 1984 ENV 1 97-1 &2CEM I, CLASS 42.5 N
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10
FINANCIAL STATEMENTS OF KOHAT CEMENT
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10
Evaluation of Financial Performance and Position of KOHAT Cement Company To evaluate the performance of KOHAT Cement Company in terms of its financial position and performance, I have performed following analysis for the given period year 2006 to 2010 which are as under; I. II. III. IV. V.
i.
Financial Statement Analysis Auditor’s Reports Analysis Management Review Analysis Notes to the Accounts Analysis Ratio Analysis
Financial Statement Analysis:
The financial statements have been prepared in accordance with approved accounting standards as applicable in Pakistan. Approved accounting standards companies International Financial Reporting Standards (IFRS) issued by International Accounting Standards Board on notified under Companies Ordinance 1984. The Balance sheet, Income statement, Cash flow statement and Statement of change in equity all were well prepared under the accounting rules and polices consistently applied for the year 2006 to 2010 except for the change of accounting police in year 2010, stated in Note 2.2. International Financial Reporting Standards follow as applicable in Pakistan, for the preparation of financial statements to ensure the true and fair view of company’s financial position. I have examined all the attached financial statements and found that there is no extra ordinary account found to rewrite the financial statements. Next step in financial statement analysis is common size statements analysis, in this regards following Common size statements have been made as under;
COMMON SIZE FINANCIAL STATEMENT ANALYSIS OF KOHAT CEMENT LTD “Vertical Analysis” Common Size Balance Sheet of KOHAT CEMENT:
Year 2006-2007 Accounts ASSETS:
2006 Value in Rupees
2007 %
Value in Rupees
%
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10
FIXED ASSETS: Property, plant and equipment: operating fixed assets capital work in progress long term loans &advances long term deposits Total fixed assets
1,095,105,981 984,287,376 49,565,634 4,969,240 2,133,928,231
35.6 32 1.61 0.16 69.37
1,023,528,041 4,234,731,837 45,731,201 3,879,440 5,307,870,519
17.45 72.21 0.78 0.07 90.51
117,594,905 87,869,995 21,642,079 51,589,010
3.82 2.86 0.7 1.68
157,436,002 125,147,740 21,381,453 120,072,947
2.69 2.13 0.36 2.05
6,600,000 656,886,230 942,182,219
0.22 21.35 30.63
132,401,943 556,440,085
2.26 9.49
3,076,110,450
100
5,864,310,604
100
CURRENT ASSETS: Store, spares &loose tools stock in trade trade debtors advances, deposits, prepayments and other receivables Short term investment cash and bank balances Total current assets
TOTAL ASSETS Accounts LIABILITIES SHARE CAPITAL AND RESERVES Issue, subscribed & paid-up capital reserves Accumulated profits NON CURRENT LIABILITIES Long term finances- secured liabilities against assets subject to finance lease long term security deposits and retention money deferred liabilities Total noncurrent liabilities CURRENT LIABILITIES Trade and other payables markup payable on secured loans Short term finances - secured current portion of long term liabilities: long term finances liabilities against assets subject to finance lease provision for taxation Total current liabilities
2006
2007
Value in Rupees
%
Value in Rupees
%
925,312,540 389,397,905 969,229,248 2,283,939,693
30.0806 12.65878 31.50827 74.24765
1,017,843,800 396,306,773 925,505,570 2,339,656,143
17.35658 6.757943 15.782 39.89652
237,500,000 2,358,098
7.720789 0.076658
2,703,308,354 -
46.09763
5,451,100
0.177208
106,808,320
1.821328
161,267,836 406,577,034
5.242589 13.21724
158,739,583 2,968,856,257
2.706875 50.62584
215,249,060 1,973,686 57,397,506
6.997443 0.064162 1.865912
178,982,959 12,260,606 146,434,421
3.052072 0.209072 2.497044
44,148,330 34,064,784
1.4352 1.107398
218,120,218 -
3.719452
32,760,357 385,593,723
1.064993 12.53511
555,798,204
9.477639
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10 TOTAL LIABILITIES & EQUITY
3,076,110,450
100
5,864,310,604
100
Year 2008-2009 Accounts ASSETS:
2008 Value in Rupees
2009 %
Value in Rupees
%
FIXED ASSETS: Property, plant and equipment: operating fixed assets capital work in progress Intangible assets long term loans &advances long term deposits Total fixed assets
941,431,201 5,307,288,753 38,142,100 4,429,440 6,291,291,494
12.35 69.61 0.50 0.058 82.52
6,352,852,944 584,965,206 2,689,912 33,313,347 5,397,440 6,979,218,849
73.66 6.782 0.031 0.386 0.062 80.92
699,954,682 174,317,806 15,341,081
9.18 2.29 0.201
841,844,312 139,293,693 17,792,165
9.76 1.615 0.206
406,020,470 36,994,967 1,332,629,006 7,623,920,500
5.325 0.485 17.48
612,373,810 34,371,413 1,645,675,393
7.10 0.399 19.08
100
8,624,894,242
100
CURRENT ASSETS: Store, spares &loose tools stock in trade trade debtors advances, deposits, prepayments and other receivables cash and bank balances Total current assets
TOTAL ASSETS Accounts LIABILITIES SHARE CAPITAL AND RESERVES Issue, subscribed & paid-up capital Reserves Accumulated profits NON CURRENT LIABILITIES Long term finances- secured Liabilities against assets subject to finance lease Long term security deposits and Deferred liabilities Derivative financial liabilities Total noncurrent liabilities CURRENT LIABILITIES Trade and other payables Markup payable on secured loans
2008 Value in Rupees
2009 %
Value in Rupees
%
1,170,520,370 235,805,586 922,803,191 2,329,129,147
15.353 3.092 12.10 30.55
1,287,572,410 34,078,,866 949,895,889 2,271,547,165
14.928 0.3951 11.013 26.33
2,981,785,715 3,686,712
39.111 0.0483
2,989,387,373 2,040,148
34.66 0.0236
135,837,621 155,732,831 1,250,573 3,278,293,452
1.782 2.0432 0.0164 43.00
154,209,127 101,197,782 160,120,433 3,406,954,843
1.780 1.173 1.856 39.50
243,214,560 50,719,344
3.190 0.6652
554,458,612 312,801,576
6.428 3.627
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10 Short term borrowing - secured Current portion of long term liabilities: long term finances liabilities against assets subject to finance lease Contingencies and commitments Total current liabilities TOTAL LIABILITIES & EQUITY
1,096,066,075
14.376
1,398,198,921
16.211
625,022,321 1,475,601
8.198 0.0193
679,233,946 1,699,179
7.875 0.0197
2,016,497,901 7,623,920,500
26.45 100
2,946,392,234 8,624,894,242
34.17 100
Year 2010 Accounts ASSETS: FIXED ASSETS: Property, plant and equipment: operating fixed assets capital work in progress Intangible assets long term loans &advances long term deposits Total fixed assets
2010 Value in Rupees
%
6,368,030,446 861,363,339 2,587,653 28,832,286 5,397,440 7,266,211,164
73.42 9.93 0.03 0.33 0.06 83.78
638,000,427 290,433,057 20,010,133 430,703,292
7.36 3.35 0.23 4.96
28,021,733 1,407,168,642
0.32 16.22
8,673,379,806
100
CURRENT ASSETS: Store, spares &loose tools stock in trade trade debtors advances, deposits, prepayments and other receivables cash and bank balances Total current assets
TOTAL ASSETS Accounts LIABILITIES SHARE CAPITAL AND RESERVES Issue, subscribed &paid-up capital Reserves Accumulated profits NON CURRENT LIABILITIES Long term finances- secured Liabilities against assets subject to
2010 Value in Rupees
%
1,287,572,410 51,278,714 622,118,747 1,960,969,871
14.85 0.59 7.17 22.61
3,049,320,000 -
35.16
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10 finance lease Long term security deposits and retention money Deferred liabilities Derivative financial liabilities Total non-current liabilities CURRENT LIABILITIES Trade and other payables Interest and markup accrued Short term borrowings - secured current portion of non-current liabilities Total current liabilities TOTAL LIABILITIES & EQUITY
155,923,337
1.80
62,669,613 202,024,046 3,469,936,996
0.72 2.33 40.01
734,312,487 504,895,065 1,406,895,249 596,370,138 3,242,472,939 8,673,379,806
8.47 5.82 16.22 6.87 37.38 100
Common Size Income Statement of KOHAT CEMENT: Year 2006-2007 Sales-net Cost of goods sold Gross profit Distribution cost Adm. & general expenses Operating profit Other operating expenses Other operating income Profit from operation Finance cost Profit before taxation Taxation Profit after taxation
2006 2,327,237,579 1,127,575,661 1,199,661,918 15,533,247 38,279,574
% 100 48.45125 51.54875 0.667454 1.64485
2007 1,553,733,256 1,210,466,340 343,266,916 18,701,815 46,338,529
% 100 77.90696 22.09304 1.20367 2.982399
1,145,849,097 71,433,971
49.23645 3.069475
278,226,572 7,640,715
17.90697 0.491765
19,106,540 1,093,521,666 54,097,507 1,039,424,159 249,557,198 789,866,961
0.820997 46.98797 2.324537 44.66343 10.72332 33.94011
75,624,748 346,210,605 18,370,018 327,840,587 79,472,319 248,368,268
4.867293 22.2825 1.182315 21.10018 5.114927 15.98526
Year 2008 Sales-net Cost of goods sold Gross profit Distribution cost Adm. & general expenses Operating profit
2008 1,375,972,754 1,288,570,903 87,401,851 24,878,363 40,894,043 21,629,445
% 100 93.648 6.352004 1.808056 2.97201 1.571938
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10 Other operating expenses Other operating income Profit from operation Finance cost Voluntary Separation scheme (VSS) Profit before taxation/ (Loss) Taxation Profit after taxation/ (Loss)
20,958,970 35,978,456 36,648,971 48,935,320 279,572,750
1.523211 2.614765 2.663495 3.556416 20.31819
-279,572,750 -57,133,384 -222,439,366
-20.3182 -4.15222 -16.166
Year 2009-2010 Sales-net Cost of goods sold Gross profit Distribution cost Adm. & general expenses Operating profit Other operating expenses Other operating income Profit from operation Finance cost Loss on derivative Financial Instruments Profit before taxation/ (Loss) Taxation Profit after taxation/ (Loss)
2009 3,395,580,759 2,591,021,469 804,559,290 111,490,601 30,094,507 662,974,182 3,291,944 34,218,809 693,901,047 549,902,638 122,813,948
% 100 76.30569 23.69431 3.283403 0.886285 19.52462 0.096948 1.007745 20.43542 16.19466 3.616876
2010 3,692,038,418 3,341,872,196 350,166,222 56,245,683 35,943,591 257,976,948 4,835,758 23,210,906 276,352,096 658,589,707 -
21,184,467 -5,908,237 27,092,698
0.623883 -382,237,611 -0.174 -54,460,469 0.797881 -327,777,142
% 100 90.51564 9.48436 1.523432 0.973543 6.987385 0.130978 0.628675 7.485082 17.83811 -10.353 -1.47508 -8.87795
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10
“Horizontal Analysis” Common Size Balance Sheet of KOHAT CEMENT:
Base in 2006, Rs. ASSETS: FIXED ASSETS: Property, plant and equipment: operating fixed assets 1,095,105,981 capital work in progress 984,287,376 Intangible assets long term loans 49,565,634 &advances long term deposits 4,969,240 Total fixed assets 2,133,928,231 CURRENT ASSETS: Store, spares &loose 117,594,905 tools stock in trade 87,869,995 trade debtors 21,642,079 advances, deposits, 52,589,010 prepayments and other receivables Short term investment 6,600,000 cash and bank balances 656,886,230 Total current assets 942,128,219 TOTAL ASSETS 3,076,056,450 LIABILITIES, SHARE CAPITAL AND RESERVES Issue, subscribed &paid925,312,540 up capital Reserves 389,397,905 Accumulated profits 969,229,248 Total Equity 2,283,939,693
%
2007
%
100 1,023,528,041 93.46383 100 4,234,731,837 430.2333 100 45,731,201 92.26393
2008
%
2009
%
2010
%
941,431,201 85.96713 6,352,852,944 580.1131 6,368,030,446 581.499 5,307,288,753 539.2011 584,965,206 59.43033 861,363,339 87.51137 2,689,912 2,587,653 38,142,100 76.95271 33,313,347 67.21057 28,832,286 58.16991
100 3,879,440 78.06908 4,429,440 89.13717 5,397,440 108.617 5,397,440 108.617 100 5,307,870,519 248.7371 6,291,291,494 294.8221 6,979,218,849 327.0597 7,266,211,164 340.5087 100 157,436,002
133.88
699,954,682
595.2253 841,844,312
715.885
100 125,147,740 100 21,381,453 100 120,072,947
142.4237 174,317,806 98.79574 15,341,081 228.3233 406,020,470
198.3815 139,293,693 70.88543 17,792,165 772.0633 612,373,810
158.5225 290,433,057 82.21098 20,010,133 1164.452 430,703,292
330.5259 92.45938 818.9987
100 100 100 100
0 20.15599 59.06203 190.6438
0 5.631868 141.4488 247.8472
0 5.232476 174.6764 280.388
0 4.265843 149.3606 281.9643
132,401,943 556,440,085 5,864,310,604
100 1,017,843,800 110
36,994,967 1,332,629,006 7,623,920,500
1,170,520,370 126.5
34,371,413 1,645,675,393 8,624,894,242
1,287,572,410 139.15
100 396,306,773 101.7742 235,805,586 60.55646 34,078,866 100 925,505,570 95.48882 922,803,191 95.21 949,895,889 100 2,339,656,143 102.4395 2,329,129,147 101.9786 2,271,547,165
63,800,427
28,021,733 1,407,168,642 8,673,379,806
54
1,287,572,410 139.15
8.751682 51,278,714 13.16872 98.00529 622,118,747 64.18696 99.45741 1,960,969,871 85.85909
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10 NON CURRENT LIABILITIES Long term financessecured liabilities against assets subject to finance lease long term security deposits and retention money deferred liabilities Derivative financial liabilities Total noncurrent liabilities CURRENT LIABILITIES Trade and other payables markup payable on secured loans Short term finances secured Current portion of long term liabilities: long term finances liabilities against assets subject to finance lease provision for taxation Total current liabilities TOTAL LIABILITIES & EQUITY
237,500,000
100 2,703,308,354 1138.235 2,981,785,715 1255.489 2,989,387,373 1258.689 3,049,320,000 1283.924
2,358,098
100
5,451,100
-
0
3,686,712
156.3426 2,040,148
86.51668 -
0
100 106,808,320
1959.39
135,837,621
2491.93
154,209,127
2828.954 155,923,337
2860.401
161,267,836 -
100 158,739,583 -
98.43226 155,732,831 1,250,573
96.56782 101,197,782 160,120,433
62.75137 62,669,613 202,024,046
38.86058
406,577,034
100 2,968,856,257 730.2076 3,278,293,452 806.3155 3,406,954,843
837.9605 3,469,936,996 853.4513
215,249,060 1,973,686
100 178,982,959 100 12,260,606
83.15156 243,214,560 621.2035 50,719,344
257.5893 734,312,487 15848.6 504,895,065
57,397,506
100 146,434,421
255.1233 1,096,066,075 1909.606 1,398,198,921 2435.992 1,406,895,249 2451.144
44,148,330 34,064,784
100 218,120,218 100 -
494.0622 625,022,321 1,475,601
112.9922 554,458,612 2569.778 312,801,576
1415.733 679,233,946 1,699,179
1538.527 596,370,138 -
341.1455 25581.33
1350.833
32,760,357 100 385,593,723 100 555,798,204 144.1409 2,016,497,901 522.9592 2,946,392,234 764.1183 3,242,472,939 840.904 3,076,110,450 100 5,864,310,604 190.6404 7,623,920,500 247.8429 8,624,894,242 280.3831 8,673,379,806 281.9593
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10 Common Size Income Statement of KOHAT CEMENT:
Sales Cost of goods sold Gross profit Distribution cost Adm. & general expenses Operating profit Other operating expenses Other operating income Profit from operation Finance cost Voluntary Separation scheme Loss on derivative Financial Instruments Profit before taxation/ (Loss) Taxation Profit after taxation/ (Loss)
Base in 2006, Rs. 2,327,237,579 1,127,575,661 1,199,661,918 15,533,247 38,279,574
% 100 100 100 100 100
2007 1,553,733,256 1,210,466,340 343,266,916 18,701,815 46,338,529
% 66.76298 107.3512 28.61364 120.3986 121.0529
2008 1,375,972,754 1,288,570,903 87,401,851 24,878,363 40,894,043
% 59.12472 114.278 7.28554 160.162 106.8299
2009 3,395,580,759 2,591,021,469 804,559,290 111,490,601 30,094,507
% 145.9061 229.7869 67.0655 717.7546 78.61766
2010 3,692,038,418 3,341,872,196 350,166,222 56,245,683 35,943,591
% 158.6447 296.3768 29.18874 362.0987 93.89757
1,145,849,097 71,433,971
100 100
278,226,572 7,640,715
24.28126 10.69619
21,629,445 20,958,970
1.887635 29.34034
662,974,182 3,291,944
57.85877 17.22941
257,976,948 4,835,758
22.51404 6.769549
19,106,540 1,093,521,666 54,097,507 -
100 100 100
75,624,748 346,210,605 18,370,018
395.8056 31.66015 33.95724
35,978,456 36,648,971 48,935,320 279,572,750
188.3044 3.351463 90.45762
34,218,809 693,901,047 549,902,638 -
179.0947 63.45563 1016.503
23,210,906 276,352,096 658,589,707 -
121.4815 25.27175 1217.412
-
-
122,813,948
-
1,039,424,159
100
327,840,587
31.5406
-279,572,750
-26.8969
21,184,467
2.038096
-382,237,611
-36.774
249,557,198 789,866,961
100 100
79,472,319 248,368,268
31.84533 31.44432
-57,133,384 -222,439,366
-22.8939 -28.1616
-5,908,237 27,092,698
-2.36749 3.430033
-54,460,469 -327,777,142
-21.8228 -41.4978
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10
ii.
Auditor’s Reports Analysis:
I have examined all the Auditor’s Reports for the given period 2006-2010, and found that all reports were clear and represents the true and fair view of company except the Audit report of year 2010. All reports were declared Un-qualifies that without qualifying any issue or problem except for the year 2010, which in my opinion has some issues, refers to note 2.2 and 6.4, which can leads to qualifying auditors opinion but yet they have declared all of them Un-qualified. According to the auditor’s opinion, proper books of accounts have been kept as required by Companies Ordinance 1984. The balance sheet and profit and loss account together with the notes thereon have been drawn up in conformity with Companies Ordinance 1984, and further in accordance with the accounting polices consistently applied except for the change refers to Note 2.2 in 2010. According to auditor’s opinion and with the best of their knowledge, the balance sheet, income statement, cash flow and change in equity statements give a true and fair view of the state of company’s affairs as at June, 2010. Without qualifying our opinion, we draw attention to note 6.4 of financial statement which explains that company during year could not fulfill certain principal repayments of Rs.190 Million and markup of 184 Million in respect of finance obtained from certain financial institution. The company is in process of negotiations with the banks for the restructuring of these loans. Banks represent 56% of outstanding amount, have agreed in principal to company restructuring proposal and the company hope that agreement will signed. Note 2.2 Revised IAS 1-presentations of financial statements include non-mandatory changes of titles of financial statements. This standard also introduced statement of comprehensive income. The note 6.4 that company could not repay the installments due in December, 2009, March 2010 and June 2010 amounting Rs. 80, 55 and 55 Million respectively and aggregate markup of 184 Million. Auditors have un-qualified this report (2010) although refer to the note 2.2 and 6.4, but In my opinion; auditors view is not an independent view because in my opinion it could be qualified opinion with accordance to the Note 2.2 and 6.4. Because these are serious issues, together amounting Rs. 374 Million liabilities. This can turn profit into losses and could also create contingent liabilities inform of penalties against late interest and principal payments. Refer to note 2.2 “Accounting standard change” is not mandatory but note 6.4 “liabilities of principal and markup payments” is a serious issue. So, the liabilities must be paid on time otherwise can turn profit into losses which can leads to the qualified opinion.
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10 Corrective Measures; Company management has to take corrective measures against these liabilities which have negatively impact on company’s financial health. Company management has to look for different alternatives for financing of the required capital (e.g. issuance of more shares) in order to decrease their cost of financing or can have to correctly evaluate and plan the loan taken as debt finances, so they could easily payback and no penalties and extra cost bear by the company. The above corrective actions have to be taken in such a manner that generates more profit and in accordance to achieve the goal of maximization of wealth of owners.
iii.
Management Review Analysis:
The management is fully aware of the company’s obligations with the code of incorporated (corporate Governance) and taking steps for effective implementation within the allowed time frame. The financial statements prepared by the management present fairly the company’s state of affairs, the result of its operation, cash flows and change equity. The company has maintained proper books of accounts and appropriate accounting polices consistently applied. The system of internal control is sound in design and affectively implemented. Company has ability to continue on going concern. During the year four meetings of BODs were held. The company has earned a 789,867,000 , 48,807,000 , 222,439,366 and 27,092,698 profit aftertax for the years 2006, 2007, 2008, and 2009 respectively. The company has a ability to produce 777992 tons of cement during a year. In 2007 company’s operations suffered because of “War on Terror” as it is located near Indus Highway, Dare Adam Khel located on north side of tunnel. In particular irregular power supply because of blowing up main power transmission by militants. Moreover nationwide power shortage affected the company’s operations. Company exports depend on its production the more produce the more export, as huge demand from outside country. In future consumption of cement increases but in short-term local demand remains low due to over all law and order. For the year 2009-10, company has reschedule its debt obligation, where by its principal amount differed for one year, as stated in note 2.6 that company could not mange to repay the installments. Corrective Measures; Although the volume of sales increase with passage of time and also company’s capacity of production also raises but yet there is a negative impact on profitability and so company could not declare dividend. Company management has to take corrective measures to decrease their
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10 expenses in order to increase profitability and to be in a position to declare the dividend to achieve the goal of maximization of wealth of owners. In this regard company has to look at its financing structure and decrease the debt ratio in order to decrease financing cost.
iv.
Notes to the Accounts Analysis:
The company has maintained proper details of accounts for the better understanding and proving true and fair view of financial statements. I have examined all the Notes to the Accounts for the given period 2006-2010, and found that all notes were clear and represents the true and fair view of statements. There is no such an issue found in maintaining of Notes to the accounts, detail notes to the accounts has been prepared against every account and change in account or accounting standards. Like in year 2010 there is a change in accounting standards against this company have maintained note refers to 2.2. This explains Revised IAS 1-presentations of financial statements include non-mandatory changes of titles of financial statements and also introduced statement of comprehensive income but allowed presenting a two statement approaches, income statement and statement of comprehensive income which is optional and company had chosen. Similarly Note 6.4 clearly in detail explains about the liabilities generated because of due payments 190 and 184 Million of principal repayments and aggregate markup respectively, charged rate of 6 months KIBOR+1.8% for the period from December, 20, 2008 to December, 20, 2009.
v.
RATIO ANALYSIS:
Financial ratios are usually expressed as a percentage or as times per period. There are five main types of ratios: 1. Liquidity ratios 2. Financial leverage (debt) ratios 3. Activity test ratios 4. Profitability ratios 5. Investor specific ratios The Time-series analysis is method of comparing company present performance with their past performances. Here we analyze KOHAT Cement performance by comparing its present ratios with past 5 years.
1. Liquidity Ratio: The liquidity of firm is measured by its ability to satisfy its short-term obligations. Liquidity refers to solvency of firms overall financial position-the ease with which it can pay its bills. We measure KOHAT’s liquidity by calculating following ratios:
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10
Liquidity Ratios
2006
2007
Networking Capital
556534496
641881
Current Ratio
2.44
1.00
0.66
0.56
91.55
Quick Ratio
2.22
0.78
0.57
0.51
72.65
Cash Ratio
1.70
0.24
0.02
0.01
1.82
2008
2009
2010
-683868895 -1300716841 1391798176
Networking Capital Ratio: Networking capital ratio measure, capital works in progress by subtracting current liabilities form current assets.
NETWORKING CAPITAL 2E+09 1391798176
1.5E+09 1E+09
556534496
500000000
641881
0 -5E+08 -1E+09 -1.5E+09
2006
2007
Series1
2008
2009
2010
-683868895 1300716841
In 2006, the company only had 556534496 rupees worth of networking capital, which then decreases in 2007 and goes into negative value in 2008 and 2009 and then increased to 1391798176 values, which the company had maximum in previous 5 years. Current Ratio: Current ratio measure, in what time current assets converts into cash, and company have short term resources to fulfill short term liabilities.
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10 CURRENT RATIO 100.00 90.00 80.00 70.00 60.00 50.00 40.00 30.00 20.00 10.00 0.00
91.55
Series1
2.44
1.00
0.66
0.56
2006
2007
2008
2009
2010
In 2006, the company only had 2.44 rupees worth of current assets for every rupee of liabilities. This decrease to 1.00 rupee in 2007 indicating decreasing trend on liquidity consistently to 0.56 in 2009. So, the company is not efficiently converting current assets into cash and then increased to 91.55 in 2010 which also not good sign for company because it can be due to under utilization of resources. Due to current assets decrease in 2007 by 385,742,134 and current liabilities increase by170,305,481 because of this risk increase and current ratio decrease. Quick (Assets-test) Ratio: Quick ratio measure, in what time current assets converts into cash including inventory. Measures assets that are quickly converted into cash and they are compared with current liabilities.
QUICK RATIO 80.00
72.65
70.00 60.00 50.00 40.00
Series1
30.00 20.00 10.00
2.22
0.78
0.57
0.51
2006
2007
2008
2009
0.00
2010
This ratio realizes that some of current assets are not easily convertible to cash as we can see from the figures that it has shown decrease from 2.22 in 2006 to 0.78 in 2007 and then goes to 0.51 in 2009 .So we conclude company have less quick assets to meets its emergency payments.
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10 Due to increase in liabilities and decrease in current assets. Although inventory increases in 2007 by 43,277,745 but this deceases the current assets and because of this quick ratio decreases. In 2010 this ratio increased to 72.65 which is more than enough and can be due to under utilization of resources or over increase in liabilities . Cash Ratio: Cash ratio measure, the actual cash in hands of company. Measures assets that are cash and cash equivalents they are compared with current liabilities.
CASH RATIO 2.00 1.80 1.60 1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00
1.82
1.70
Series1
0.24
2006
2007
0.02
0.01
2008
2009
2010
This ratio realizes that some of current assets which are cash & cash equivalents as we can see from the figures that it has shown decrease from 1.70 in 2006 to 0.24 in 2007 and then decreases to 0.01 in 2009. So we conclude company have less cash to meets its emergency payments. Where in 2010 it raises to 1.82 which is good but not enough as can be due to company cash miss management and not efficiently utilization of cash.
2. Financial leverage (debt) ratios The company would therefore find it relatively easier to raise additional financial support from external sources if it wished to take that route. We measure KOHAT’s borrowing and long-term paying ability by calculating following ratios:
Leverage (Debt) Ratio
2006
2007
2008
2009
2010
Debt Ratio
0.26
0.60
0.69
0.74
0.40
Debt to equity Ratio
0.35
1.51
2.27
2.80
1.78
20.21
18.85
0.75
1.26
0.42
Time interest earned Ratio
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10 Debt Ratio: The lower the debt ratio the more easily it becomes for the firm to raise debt. It seems that company has almost improved its debt ratio by lowering its debt.
DEBT RATIO 0.80
0.69
0.70
0.74
0.60
0.60 0.50
0.40
0.40 0.30
Series1
0.26
0.20 0.10 0.00 2006
2007
2008
2009
2010
The ratio increase to 0.60 in 2007 from 0.26 in 2006 and consistently increasing to 0.74 in 2009. The debt ratio is increase due to increase in total liabilities by 273,248,704 in 2007, although total assets increase but less as compare to total liabilities. Where in 2010 it decreases to 0.40 which shows company ability to raise debt improved. Debt-to-equity Ratio: Debt to equity ratio measures the portion or percentage of debt over the equity. The lower the ratio the more good for the firm.
DEBT TO EQUITY RATIO 2.80
3.00 2.50
2.27 1.78
2.00
1.51
1.50
Series1
1.00 0.50
0.35
0.00 2006
2007
2008
2009
2010
The ratio increase to 1.51 in 2007 from 0.35 in 2006 and consistently increasing to 2.80 in 2009. The ratio is increase due to either increase in total liabilities or decrease in equity. Where in 2010 it decreases to 1.70 which shows company ability to raise debt improved.
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10 Time Interest Earned Ratio: This ratio measure the extent to which earnings can decline without causing financial losses to the firm and creating an inability to meet the interest cost. • The times interest earned shows how many times the business can pay its interest bills from profit earned. • Present and prospective loan creditors such as bondholders, are vitally interested to know how adequate the interest payments on their loans are covered by the earnings available for such payments. • Owners, managers and directors are also interested in the ability of the business to service the fixed interest charges on outstanding debt.
Time Interest Earned 25.00 20.00
20.21
18.85
15.00 Series1
10.00 5.00 0.75
1.26
0.42
2008
2009
2010
0.00 2006
2007
In 2006 the company could pay their interest bill 20.21 times from earnings before interest and tax. Which decreases to 18.85 in 2007, However there is a massive decrease to 0.75 in 2008 and then remains low as 1.26 and 0.42 in 2009 and 2010 respectively. The coverage ratio for in year 2008 is decrease due to decrease in E.B.I.T by 477,311,031 in 2007 and huge increase in interest by 226,524,546 in 2007, Which results massive decrease in ratio.
3. Activity Ratios Activity ratios measure the sped with which various accounts are converted into sales or cash – inflows or outflows. We measure KOHAT’s activity test by calculating following ratios:
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10
Activity Ratios
2006
2007
2008
2009
2010
Days Sale in Inventory
28.4
37.7
49.4
19.6
31.7
Inventory Turnover
12.8
11.4
8.6
16.5
15.6
Days Sale in Receivable
11.6
33.2
111.8
67.7
44.6
Account Receivable Turnover
31.4
14.4
4.9
6.5
6.8
Days sale in inventory: It measures the number of days to be taken in sale of inventory. Market value or historical value whichever is lower use for inventory evaluation. The more less the raio the better for the company.
DAYS SALE IN INVENTORY 60.0 49.4
50.0 37.7
40.0 30.0
31.7
28.4
Series1
19.6
20.0 10.0 0.0 2006
2007
2008
2009
2010
In 2006 the company days sale in inventory is 28.4 days which increases to 37.7 days in 2007, and goes to maximum of 49.4 days in 2008. However there is some decrease in 2009 and then again rises to 31.7 days in 2010. Inventory turnover Ratio: This ratio measures the stock in relation to turnover in order to determine how often the stock turns over in the business. It indicates the efficiency of the firm in converting inventory into its product and sale. It is calculated by dividing the cost of goods sold by the average inventory.
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10
INVENTORY TURNOVER 18.0
16.5
16.0 14.0 12.0
12.8
15.6
11.4
10.0
8.6
8.0
Series1
6.0 4.0 2.0 0.0 2006
2007
2008
2009
2010
The inventory turnover has decrease from 12.22 in 2006 to 11.36 in 2007 and 8.6 in 2008. Where in 2009 it increased to16.5 and slightly decrease in 2010 to 15.6. This shows that company efficiency has been improved in converting its inventory into finished good sale. The decrease in 2007-8 is due to C.G.S increase by 82,890,679 in 2007. Although inventory increases in 2007, but increase in inventory is less w.r.t to C.G.S. Days sale in Receivable Ratio: It measures the number of days to be taken in receivable. The more less the raio the better for the company. It measures the collection period by the quality of debtors since it indicates the speed of their collection. • The shorter the period, the better the quality of debtors, as a short collection period implies the prompt payment by debtors. • The average collection period should be compared against the firm’s credit terms and policy to judge its credit and collection efficiency. • An excessively long collection period implies a very liberal and inefficient credit and collection performance.
DAYS SALE IN RECIVAIBLE 111.8
120.0 100.0 80.0
67.7
60.0
44.6 33.2
40.0 20.0
11.6
0.0 2006
2007
2008
2009
2010
Series1
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10 As we can see in this case Kohat collection period has increase in 2007, and then there is a massive increase in ratio in 2008 to 111.8 days. so we can say company has decreased its efficiency in collections. So, the company is getting its receivable after a longer period of time as compared to previous year. Where in 2009-10 company improves its collections efficiency and the ratio decreases to 67.7 and 44.6 days respectively. Account Receivable Ratio: This ratio measures the relation to turnover in order to determine how often the receivable turns over in the business. It indicates the efficiency of the firm in collecting receivable against the sale. It is calculated by dividing the Receivable by the sale per day.
RECIVEABLE TURNOVER 35.0
31.4
30.0 25.0 20.0
14.4
15.0 10.0
Series1
4.9
5.0
6.5
6.8
2009
2010
0.0 2006
2007
2008
Due to decease in A.R in 2007 by 2,06,026, although Average sale per day decrease by 773,504,232 but this decrease is more as compared to A.R. because of which receivable turnover decreases. Where in 2008 decreased to 4.9 and then remain low and slightly increase to 6.8 in 2010.
4. Profitability Ratios Profitability is the ability of a business to earn profit over a period of time. There are many measure of profitability which indicates the efficiency of operations and generating of revenues and profits. They include following
Profitability Ratios
2006
2007
2008
2009
2010
51.5%
22.1%
6.4%
23.7%
9.5%
Operating Profit Margin
49.24%
17.91%
1.57%
19.52%
6.99%
Net Profit Margin
33.94%
15.99%
-16.17%
0.80%
-8.88%
Return on Total Asset
33.79%
7.33%
-4.15%
0.26%
-4.42%
Assets Turnover
75.66%
34.76%
20.40%
41.79%
42.69%
Gross Profit Margin
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10 Gross Profit Margin: It measures the portion or the percentage or the contribution of gross profit in net sales.
GROSS PROFIT MARGIN 60.0%
51.5%
50.0% 40.0% 30.0%
23.7%
22.1%
Series1
20.0% 9.5%
6.4%
10.0% 0.0% 2006
2007
2008
2009
2010
If we see the gross profit margin ratio a decrease to 22.1 in 2007 from 51.5 in 2006. This is due to increase in cost of goods sold in 2007. The ratio above shows the decreasing trend in the gross profit since the ratio has decreased to 6.4 in 2008. Where in 2008 it increases to 23.7 and then decrease to 9.5 in 2010, indicates that gross profit decrease by huge amount as compared to sales. Operating Profit Margin: It measures the portion or the percentage or the contribution of operating profit in net sales.
OPERATING PROFIT MARGIN 60.00% 50.00%
49.24%
40.00% 30.00%
10.00%
Series1
19.52%
17.91%
20.00%
6.99%
1.57%
0.00% 2006
2007
2008
2009
2010
The operating profit margin ratio shows the decrease to 17.91% in 2007 from 49.24% in 2006 and then decrease to 1.57% in 2008. The operating profit margin decrease due to high decrease
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10 in operating profit w.r.t to sales. Where in 2009 this ratio raises to 19.52% and then again goes down to 6.99% in 2010. Net Profit Margin: It measures the portion or the percentage or the contribution of net profit profit in net sales.
NET PROFIT MARGIN 40.00%
33.94%
30.00% 15.99%
20.00% 10.00%
-10.00%
Series1
0.80%
0.00% 2006
2007
2008
2009
2010 -8.88%
-20.00%
-16.17%
The net margin ratio shows that the margin is not stable over time with decrease to 15399% in 2007 from 33.94% in 2006 and then goes into negative (16.17%) in 2008. The ratio decrease due to massive decrease in E.A.C.S, which is greater than the decrease in sales. Where in 2009 comes back into positive of just 0.80% and then again goes down to -8.88% in 2010. Return on Total Assets: Income is earned by using the assets of a business productively. The more efficient the production, the more profitable the business. The rate of return on total assets indicates the degree of efficiency with which management has used the assets of the enterprise during an accounting period. This is an important ratio for all readers of financial statements.
RETURN ON TOTAL ASSET 40.00% 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% -5.00% -10.00%
33.79%
Series1
7.33% 0.26% 2006
2007
2008 -4.15%
2009
2010 -4.42%
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10 The ratio indicates that there is decrease in the ROA from 33.79% in 2006 to 7.33% in 2007 and goes down to negative (4.15%) in 2008, which means there is no return on assets. As the return on assets is decreases due to massive decrees in E.A.C.S and also total assets increase, which results very high decrease in ratio. Where in 2009 increase to 0.26% and again goes back to 4.47% in 2010. Assets Turnover: Asset turnover is the relationship between sales and assets.
The firm should manage its assets efficiently to maximize sales.
The total asset turnover indicates the efficiency has increased means the firm has used all its assets to generate sales.
ASSET TURNOVER 80.00%
75.66%
70.00% 60.00% 50.00%
41.79% 42.69%
34.76%
40.00% 30.00%
Series1
20.40%
20.00% 10.00% 0.00% 2006
2007
2008
2009
2010
The total asset turnover in 2007 is decrease to 34.76% from 75.66% in 2006 and then decreases to 20.40% in 2008. So the company is not utilizing its assets efficiently in order to generate high returns. Due to sales decrease in 2007 by 773,504,323 and total assets increase by 2,788,200,154 in 2007. So, investment in assets is seen in 2007 which results decrease in total assets turnover. Where in 2009 it increases to 41.79% and remains stable in 2010 to 41.69%.
5. Investor specific ratios Investor specific ratios measure the various accounts for which investors have specific concerns. These ratios are also called Market ratios because of their nature. We measure KOHAT’s marketability test by calculating following market ratios:
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10
Investor specific Ratios
2006
2007
2008
2009
2010
Earnings per share (EPS)
7.76
2.12
-1.73
0.21
-2.55
Return on Equity
5.27
1.66
-1.48
0.18
-2.19
Price/Earnings Ratio (P/E)
4.10
25.45
-21.20
34.60
-2.59
Dividend Payout
0.00
0.00
0.00
0.00
0.00
Dividend Yield
0.00
0.00
0.00
0.00
0.00
22.44
19.99
18.09
17.64
15.23
Book Value per Share
Earnings Per Share: Whatever income remains in the business after all prior claims, other than owners claims (i.e. ordinary dividends) have been paid, will belong to the ordinary shareholders who can then make a decision as to how much of this income they wish to remove from the business in the form of a dividend, and how much they wish to retain in the business. The shareholders are particularly interested in knowing how much has been earned during the financial year on each of the shares held by them.
EARNING PER SHARE (EPS) RATIO 10.00 8.00
7.76
6.00 4.00
2.12
2.00
Series1
0.21
0.00 -2.00 -4.00
2006
2007
2008 -1.73
2009
2010 -2.55
Figures show that EPS has decreased to 2.12 from 7.76 in 2007 form 2006 and then goes -1.73 in 2008 and then 0.21 for the year 2009 and then -2.55 in the year 2010.The trend shows that company faces loss in 2008 and 2010 so its EPS decreases over a period of time. Return on Equity: This ratio shows the profit attributable to the amount invested by the owners of the business. It also shows potential investors into the business what they might hope to receive as a
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10 return. The stockholders’ equity includes share capital, share premium, distributable and nondistributable reserves.
RETURN ON EQUITY RATIO 6.00
5.27
5.00 4.00 3.00
1.66
2.00 1.00
Series1
0.18
0.00 -1.00
2006
2007
-2.00
2008
2009
-1.48
-3.00
2010 -2.19
This showing a massive downward trend. Note that the return in 2006 is 5.27% as in all the years is after tax and the shareholders should be extremely comfortable with these returns but this decrease to 1.66% in 2007 and then consistently decreases to -1.48 in 2008 and goes to -2.19 in 2009 . Return on equity for Kohat cement decreases over a period of time from 5.27% to 2.19% due to massive decrease in E.A.C.S. Price per Earning Ratio: (P\E):
P/E ratio is a useful indicator of what premium or discount investors are prepared to pay or receive for the investment.
The higher the price in relation to earnings, the higher the P/E ratio which indicates the higher the premium an investor is prepared to pay for the share. This occurs because the investor is extremely confident of the potential growth and earnings of the share.
High P/E of KOHAT reflects lower risk & higher growth prospects for earnings.
PRICE EARNING(P/E) RATIO 40.00
34.60 25.45
30.00 20.00 10.00
4.10 Series1
0.00 -10.00
2006
2007
2008
-20.00 -30.00
-21.20
2009
2010 -2.59
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10 The above ratio shows that the shares were traded at a higher premium in 2007 than were in 2006. In 2007 the price was 54 which are 26 times higher than earnings (2.12) while in 2006, the price was only 31.80 which are 4.1 times higher than earnings (7.76). where in 2008 this ratio goes to negative (21.20), which shows shares are traded at discount then increase to 34.60 in 2009 which shows traded at premium of 165 times higher than earrings (0.21) in 2009. Where in 2010 this ratio decreases to (2.59). Dividend payout ratio: This ratio indicates the percentage of each dollar earned that is distributed to the owners inform of cash. It is calculated by dividing the firm’s cash dividend per share by its EPS. Dividend payout ratio is zero for the previous five years because company didn’t declare any dividend in these years. Dividend yield ratio: This ratio is the percentage return provided by the dividends paid on common stock. Dividend payout ratio is zero for the previous five years because company didn’t declare any dividend in these years. Book value per share: This ratio shows the book value per share, which is the amount invested by the owners of the business by holding stocks. It also shows potential investors into the business what they might hope to receive as a return on the basis of its book value comparable with its market value.
BOOK VALUE PER SHARE RATIO 25.00
22.44 19.99
20.00
18.09
17.64 15.23
15.00
Series1
10.00 5.00 0.00 2006
2007
2008
2009
2010
The ratio shows that the shares book value was in decreasing trend during the previous five years, as in 2006 22.44 then decrease to 19.99 in 2007. Similarly consistently decrease to 18.09, 17.64 and 15.23 in year 2008, 2009 and 2010 respectively. The ratio decreases with the passage of time due to decrease in share holder equity.
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10
Du pont Analysis Kohat’s net profit margin is 15.99% in 2007 which is greater than average of industry that is 2.584%. This shows that Kohat Cement Company’s progress is better than other companies in cement industry in Pakistan till 2007. But after that kohat cement net profit turn into negative (losses) for year 2008 and 2010 and remains too below than the average of industry which shows kohat poor performance during the past three years. Kohat’s total assets turn over is 34.66 in 2007 which is above than average of industry that is 28.8% and then decreases to 20.40% which is less then industry average. This shows that kohat cement company faces some problems in assets efficiently contribution to sales. In the year 2009-10 kohat cement improve this ratio to 41.79% and 42.69% by improving in utilization of assets. Kohat company’s equity multiplier is greater then the industry average which sows a good sign for company in 2007. But after that remains under the average of industry. Kohat’s ROA is 7.33% in 2007 which is above then average of industry that is 1.778. This shows that kohat Cement Company is generating Net Profit by utilizing its total assets as other companies in cement industry in Pakistan till 2007. Where from after it deceases massively and goes into negative, this may be decrease due to massive decrees in E.A.C.S and also total assets increase or investment in assets. Kohat company’s return on equity decreases to 1.66% in 2007 and remains under 0.18% from 5.27% in 2006, which is less than the average of industry in 2007 that is 3.702% because of massive decrease in E.A.C.S. 2006
Net profit margin Total asset turn over Equity multiplier Return on asset Return on equity For 2007:
2007
33.94%
15.99%
75.66%
34.76%
2.050
2008
2009
2010
-16.17%
0.80%
-8.88%
20.40%
41.79%
42.69%
3.909
2.080
2.88
1.942
33.79%
7.33%
-4.15%
0.26%
-4.42%
5.27%
1.66%
-1.48%
0.18%
-2.19%
Avg of industry 2007 2.584% 28.8% 3.18 1.778% 3.702%
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10
ROE= ROA * FLM (financial leverage multiplier) 0.0325(given) = Net Profit Margin * Total Assets Turnover * FLM = E.A.C.S * Sales * Total Assets Sales Total Assets C.S equity = _48,807,582_ * 1,553,733,256 * 5,864,310,604 1,553,733,256 5,864,310,604 1,500,000,000 = 0.0325
48,807,582 1,500,000,000 = 0.0325
Limitations There are many limitations occur while performing this study but few of them which are most important are listed below; One of the most important limitations in the study is “the availability of data”. The second most important limitation is “the reliability of data”. While calculating Account receivable Turnover “Net Credit Sales” data not available in financial statements. Due to this limitation I have use Net sales in replace of Net credit sales. Similarly, for calculating Average total assets and Average gross receivables for the year 2006 there is a limitation of data unavailability of 2005 required for calculating average of 2006. In this regard I have taken data of the specific year i.e. 2006 for calculating the ratios for that year. Another limitation seen is the problem regarding inventory valuation, which is inventory should be value either market or historical basis whichever is lower. The limitation is that we don’t know whether the inventory valuation fair or not, i.e. the data given is reliable or not.
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10
CONCLUSIONS Liquidity The overall liquidity of Kohat Cement seems to exhibit reasonable trend, having being maintain the level which is prevailing in whole industry. The company liquidity seems to be satisfactory. Financial Leverage/Debt Company debt ratio is higher but we see same trend is prevailing in the industry. All firms have same high level of debts and most of company asset are financed by debts. So we can say regarding debt Ratio Company is not in good position. Activity Kohat Cement Inventory management system is not looking smart. The company may be experiencing some problems with account receivables. In 2006 its collection period is above industry average. In 2007 it is brought down but not competing industry average. The total utilization of company asset is less than that of industry which shows efficiency has not yet achieved. Profitability Though company has high cost good sold received, yet it face loss .There may be many reason for it. High interest charges The high dumping rate. Tariff and Quota effects. Investor specific/Market Kohat market ratio also good as compare to other companies in the industries because its market price per share increases although its earning per share decreases and must have to focus on this.
Financial Statements Analysis of KOHAT Cement Company Limited 2006-10
RECOMMENDATIONS Company should improve its inventory management system for efficient use of resources There should be an improvement in receivables collection as company have large amount of receivables yet to collect. Company should focus on increasing profit instead of innovation. Company has to focus those countries for import where there is less tariff and no quota implications. Company should efficiently utilize assets to generate sales. Company should look for different alternatives for financing its operations rather than creating huge liabilities though debt financing, which eventually leads to increased finance cost and penalties of due payments. There should be increase in promotion to increase in sales worldwide. There should be efficient management which is fully aware with industry trends.
