Final Report First Draft2

8/3/2019 Final Report First Draft2

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CONTENTSPart 1I INVESTMENT FUNDAMENTALS1 SECURITIES AND ANALYSIS1.1 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1.2 FINANCIAL INVESTMENT . . . . . . . . . . . . . . . . . . . . . . . . .1.3 INVESTMENT ANALYSIS . . . . . . . . . . . . . . . . . . . . . . . . .1.4 SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1.5 NON-MARKETABLE SECURITIES . . . . . . . . . . . . . . . . . . . . . .1.6 MARKETABLE SECURITIES . . . . . . . . . . . . . . . . . . . . . . . .1.6.1 MONEY MARKET SECURITIES . . . . . . . . . . . . . . . . . .1.6.2 CAPITAL MARKET SECURITIES . . . . . . . . . . . . . . . . . .1.6.3 DERIVATIVES . . . . . . . . . . . . . . . . . . . . . . . . . .1.6.4 INDIRECT INVESTMENTS . . . . . . . . . . . . . . . . . . . . .

1.7 SECURITIES AND RISK . . . . . . . . . . . . . . . . . . . . . . . . . .1.8 THE INVESTMENT PROCESS . . . . . . . . . . . . . . . . . . . . . . .

2 BUYING AND SELLING2.1 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2.2 MARKETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2.2.1 PRIMARY AND SECONDARY . . . . . . . . . . . . . . . . . . .2.2.2 CALL AND CONTINUOUS . . . . . . . . . . . . . . . . . . . . .2.2.3 AUCTION AND OVER-THE-COUNTER . . . . . . . . . . . . . . .2.2.4 MONEY AND CAPITAL . . . . . . . . . . . . . . . . . . . . . .2.3 BROKERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2.4 TRADING STOCKS . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2.4.1 TIME LIMIT . . . . . . . . . . . . . . . . . . . . . . . . . .2.4.2 TYPE OF ORDER . . . . . . . . . . . . . . . . . . . . . . . .2.5 SHORT INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3FINANCIAL STATEMENT3.1 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3.2 CASH FLOW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3.2.1 CASH FLOW METHODS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3.3INCOME STATEMENT . . . . . . . . . . . . . . . . . . .3.4BALANCE SHEET . . . . . . . . . . . . . . . . . . .

4FINANCIAL STATEMENT ANALYSIS

4.1 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4.2 HORIZONTAL ANALYSIS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4.3VERTICAL ANALYSIS. . . . . . . . . . . . . . . . . . .4.4RATIO ANALYSIS. . . . . . . . . . . . . . . . . . .PART 2

1PAKISTAN ECONOMICS

1 SECURITIES AND ANALYSIS1.1 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1.2FIRST FIVE DECADES. . . . . . . . . . . . . . . . . . . . . . . . .1.3DEMOGRAPHICS . . . . . . . . . . . . . . . . . . . . . . . . .

1.4STRUCTURE OF ECONOMY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1.5THE ECONOMY TODAY . . . . . . . . . . . . . . . . . . . . . .
http://en.wikipedia.org/wiki/Economy_of_Pakistan#First_five_decadeshttp://en.wikipedia.org/wiki/Economy_of_Pakistan#First_five_decades


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2 TWO IMPORTANT SECTORS2.1 AGRICULTURE IN PAKISTAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2.2 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2.1.2DEFINITION. . . . . . . . . . . . . . . . . . .2.1.3CROP SITUATION IN PAKISTAN. . . . . . . . . . . . . . . . . . . . .

2.1.4OVER LAST 5-YEAR AGRICULTURE GROWTH. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2.1.5AGRICULTURAL MECHANIZATION IN PAKISTAN. . . . . . . . . . . . . . . . . . . . . . . . . . .2.2 INDUSTRIES IN PAKISTAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2.2 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2.2.2DEFINITION. . . . . . . . . . . . . . . . . . .2.2.3INDUSTRY SITUATION IN PAKISTAN. . . . . . . . . . . . . . . . . . . . .2.2.4 MAJOR INDUSTRIES IN PAKISTAN..Part 33SECTOR OF INDUSTRY UNDER REVIEW FOR ANALYSIS

1ABOUT FERTILIZER. . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.1.1DEFINITION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1.1.22BACK GROUND. . . . . . . . . . . . . . . . . . .1.1.3 HISTORY. . . . . . . . . . . . . . . . . . . . .1.2THE MANUFACTURING PROCESS NITROGEN FERTILIZER COMPONENT. . . . . . . .2RELATIONSHIPS OF AGRICULTURE AND FERTILIZER AND THE ECONOMIC . .

2.1 INTRODUCTION AND CORRELATION DEVELOPMENT . . . . . . . . . . . . .2.2IRRIGATION AND FERTILIZER USE. . . . . . . . . . . . . . . . . . .2.3FACTORS AFFECTING WATER AND FERTILIZER USE. . . . . . . . . . . . . . .2.4THE INDUS RIVER BASIN IRRIGATION SYSTEM3CURRENT WORLD FERTILIZER TRENDS AND OUTLOOK TO 2011/123.1 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.2 WORLD FERTILIZER OUTLOOK. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3.3MACRO FACTORS AFFECTING GLOBAL AGRICULTURE AND FERTILIZERDEMAND. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3.4OUTLOOK FOR WORLD AGRICULTURE . . . . . . . . . . . . . . . . . . .3.5SUPPLY AND DEMAND BALANCES. . . . . . . . . . . . . . . . . . .3.6THE REGIONAL FERTILIZER SITUATION. . . . . . . . . . . . . . . . . . . . . . . . . .4 MARKET DYNAMICS PAKISTAN FERTILIZER4.1 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4.2 DEMAND-SUPPLY SITUATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . .4.3INDUSTRY OUTLOOK. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4.4MARKET PLAYERS. . . . . . . . . . . . . . . . . . .

4.5PRODUCT LINE OF FERTILIZER IN PAKISTAN. . . . . . . . . . . . . . . . . . .4.6 FERTILIZER POLICY. . . . . . . . . . . . . . . . . . . . . . . . . .4.7 FUTURES . . . . . . . . . . . . . . . . . . . . . . .PART 4COMPANY ANALYSIS1.1 ENGRO COMPANY ANALYSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1.2ENGRO RATIO ANALYSIS . . . . . . . . . . . . . . . . . . . . . . . . .2.1FFC COMPANY ANALYSIS . . . . . . . . . . . . . . . . . . . . . . . . .2.2FFC RATIO ANALYSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3.1FFC BIN QUSAIM COMPANY ANALYSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3.2 FFC BIN QUSAIM RATIO ANALYSIS... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .


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Preface

This research has developed from the lectures we have taken in MBA banking and finance. We havelearned essential elements of investment analysis as a practical tool with a firm theoretical foundation. Thisfoundation made us good enough to work on investment, banking and finance so we took investmentanalysis of a Fertilizer sector. This research will make a good impact on the people who are wishing toinvest in the Fertilizer sector of Pakistan it would also accessible to anyone like undergraduates, studentsof economics, mathematics statistics, finance , corporate finance and investment analysis this will helpthem to understand the core concept of the courses ..


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REASON FOR THE RESEARCH

All individuals have wealth of some kind if any thing else, this wealth may consist of the value oftheir services in the market place. Most individuals must make investment decision some time intheir lifes.some people may wish to improve the return from their saving a/cs funds byinvesting in alternatives to insure saving account. Many employees can decide whether their

provident funds are to be invested in stocks or bonds.There is wide range of securities in market place where a investor can maximize the expectedreturns from these opportunities.

The first part of the investment decision process involves the evaluation and analysis of individualsecurities which is referred to as securities analysis. Professional security analyst is usuallyemployed by institutional investor so our research is not only for them but also for individual andsmall investor. Of course, there is also millions of amateur security analyst in the form ofindividual investor.

Among lot of sectors of economy in Pakistan we have chosen urea under the head of fertilizersector because Pakistans GDP is largely based on agri sector. it is the most important input, thereis a short fall in the supply side of urea there is huge opportunity for investor to invest.


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LITERATURE REVIEW

SUMMARY 1

Pakistans economy is agro based however our cultivated land is deficient in nutrientcontents. This deficiency can only be overcome through balanced use of fertilizer. Presently thereare ten manufacturing unit in Pakistan. Out of these, four units are located in the public sector andsix are operating private sector. The province wise distributions confirm that 5 units are located inPunjab, 3 in sindh and 2 in NWFP.The economic boom in the country has brought about an impressive agricultural growth, putting

pressure on domestic suppliers of fertilizers with demand outstripping supply, whereas localproducers scramble to maximize their production to meet the rising demand.Engro chemical Pakistan is the second largest producer of urea fertilizer in Pakistan. Thecompany was incorporated in 1965 n was formerly known as Exxon chemical Pakistan limiteduntil 1991, when Exxon divest their fertilizer business on global basis and solid off its equity of

75% shares in our company. Shareholder pattern of engro are 25% of individual, 10% ofinvestment companies, 39% of joint stock companies, 12% of financial institutions, 8% ofinsurance companies and 6% of others.Engros core business includes manufacturing and marketing of chemical fertilizers. Engro isPakistans one of the largest producers of urea fertilizer which is manufactured at Daharki andmarketed under brand name Engro. They also produce crop specific NPK fertilizers at the plant atPort Qasim Karachi and these are marketed under the brand name ofZARKHEZ. Engro alsomarkets imported MAP fertilizer under the brand name of ZORAWARand imported Dapfertilizer. The company also markets micronutrients zinc sulhpahte branded as ZINGRO andBoron branded as ZORON.The overall financial position of the company is stable, over the yearwhich is one of thereason of high efficiency and profitability of Engro. All the profitability ratiosare also showing increasing trend on the back of increasing Sales as well as Gross profit which is

because of good utilization of assets and as well as capital employed by the company. Itisexpected that the company will be able to perform well because of its future expansion plan whichwill increase the market share from current 13% to 35%. EPS is also showingthe increasingtrend. One more thing which is favorable for company is itsdiversification projects andinvestment horizon. If the company would be able to continueits current stability and investmentsin profitable projects then the company would beable to increase its market share as well asProfitability.

Market PositionCurrently, Engro market share is 13% and it expected to grow in future because of two mainreasons, which includes Urea expansion plan and the other reason is that the agricultural sector inPakistan is growing at a rate 5-6%. Therefore, being one of the largest fertilizer companies ofPakistan, Engro would be able to increase its market share in the coming years.

DIVIDEND POLICY

The dividend per share of the company is showing an increasing trend till 2005 and it isexpectedto increase in the coming years because of good performance of the Agriculturalsector ofPakistan and high demand of both type of fertilizer. On the other DividendPayout is showing

bearish trend and it is expected to remain same till 2010 and the reasonbehind it is ureaexpansion plan which will start its working in 1st quarter of 2010.If we go throw their income


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statement for 2009 the sales are 21,364,079 Rs. The expenses are 2,116,513 Rs. And profit is2,888,226 and their basic and Diluted EPS 17.17.

THE KEY RATIOS

The Key ratios that they are using are liquidity ratios that includes current & quick ratio. If weanalyze these ratios in 2006, 2007, 2008, 2009 the current ratios are 1.56, 1.92, 1.96 and 1.86respectively, whereas the quick ratios for the same years are 0.61, 1.63, 1.65, and 1.52respectively. The share is trading at around 0.93% discount to our DCF based fair value of Rs.248.05 per share and PE multiple of 16.24. We recommend a Hold.

FAUJI FERTILIZER

Pakistans economy is agro-based; however our cultivable land is deficient in nutrient

Contents. This deficiency can only be overcome through the balanced use of fertilizer.Presently, there are ten manufacturing units in Pakistan. Out of these, four units areLocated in the public sector and six are operating in the private sector. The province-wiseDistribution of units confirms that 5 units are located in Punjab, 3 in Sindh and 2 in the NWFP.

The economic boom in the country has brought about an impressive agricultural growth,Putting pressure on domestic suppliers of fertilizers with demand outstripping supply,Whereas local producers scramble to maximize their production to meet the risingDemand.

Fertilizer demand likely to raise by 5 percent in Pakistan this trend in fertilizer demand

Push to the increased availability of cultivation area and farm loans besides the income ofThe peasants. Despite rise in demand, local production of fertilizers was expected toRemain raging between 4.7-5.2 million tons, which might spur the import of 1 millionTons of fertilizers in the next fiscal year for meeting the shortfall.

FFC was incorporated in 1978 as a private limited company. This was a joint ventureBetween Fauji Foundation (a leading charitable trust in Pakistan) and Haldor Topsoe A/SOf Denmark.

The initial authorized capital of the company was 813.9 Million Rupees. Additionally,FFC has Rs. 1.0 Billion stakes in the subsidiary Fauji Fertilizer Bin Qasim Limited

(Formerly FFC-Jordan Fertilizer Company Limited).FFC commenced commercial production of urea in 1982 with annual capacity of 570,000Metric tons.

The shareholding pattern of FFC is 48% of charitable trust, 10% of Insurance companies, 13% ofindividuals, 12% of others and 10% of investment companies.

The overall financial position of the company is stable, over the year which is one of theReason of high efficiency and profitability of FFC. All the profitability ratios are alsoShowing increasing trend on the back of increasing Sales as well as Gross profit which is becauseof good investments by the company in high yielding projects. Leverage and Liquidity ratios

related to FFC are also improving from past to present. If the company would be able to continue


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its current stability and investments in profitable projects then the company would be able toincrease its market share as well as Profitability.

The dividend per share is expected to increase in the year to come because of followingPoints, BMR projects, Capacity expansion plans and equity investment in Local as well

As Overseas, high yielding projects (FFBL, PMP). The DPS is also expected to increaseBecause Sales and PAT are also showing increasing trend on year on year basis

If we see the income statement of the company for the year 2009 the sales are 44,349,456 Rs. theexpense are 905,876 Rs. The profit after taxation is 7,073,088 Rs. The basic &Diluted and EPS is 14.33 and the weighted avg. # of shares 493,747.The Key ratios that the company is using is liquidity ratios , if we analyze the past years 2006,2007, 2008, 2009, the current ratio are 0.90, 0.85, 0.82 and 0.69 respectively and quick ratio forthe same years are 0.61, 0.76, 0.74 and 0.66 respectively.

The share is trading at around 6.73% discounts to our DCF based fair value of

Rs. 125.82 per share and PE multiple of 12.50. We recommend a buy.\


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SUMMARY 2

In this report the researcher has given his point of view the he foresee growth in earrings ofFertilizer companies in the years to come. Similarly they said position will be with ENGRO. Weexpect positive earnings of ENGRO in the coming years. And looking into the future of ENGRO

is also bright and having lots of potation to earns profits.

Now ENGRO was EXXON and was incorporated in 1965 and was formerly Exxon ChemicalPakistan until 1991, when Exxon decided to divest their fertilizer business on a global basis andsold off its equity of 75% shares in our company. The Employees of Exxon, in partnership withleading international and local financial institutions bought out Exxons equity and the companywas renamed as ENGRO Chemical Pakistan Limited

The current market position of ENGRO is 13% when this research was done and the growth of theagriculture market was growing at 5 to6% and so there is a scope to increase the market share as

the demand will rise as the growth rate of agriculture

But the sale was 6% down due to lower industry demand. The urea market share (19%) remainedthe same as last year. The plant produced 692,000 tons against 738,000 tons in the same periodlast year due to unplanned shutdowns in June and August

ENGRO manufactured at Daharki and marketed under brand name ENGRO. They also producecrop specific NPK fertilizers at the plant at Port Qasim Karachi and these are marketed under the

brand name of Zarkhez". ENGRO also markets imported MAP fertilizer under the brand name of"Zorawar" and imported DAP fertilizer. The company also markets micronutrients Zinc Sulphate

branded as "Zingro" and Boron branded as Zoron

The report also contain the ratio analysis and the result of that shows that Estimate a Fair ValueWe estimate the companys stock fair value range to be Rs. 300- Rs. 315.We expect handsomeearning growth as we saw in second quarter of 2007. We recommend a BUY for ENGRO atcurrent price. The highest price of the ENGRO stock witnessed Rs307.45 on Oct 5 2007.Currently, the stock price of ENGRO limited moving around to Rs270 to Rs280

It is expected that the company will be able to perform well because of its future expansion planWhich will increase the market share from current 13% to 35%? EPS is also showing theincreasing trend. One more thing which is favorable for company are its diversification projectsand investment If the company would be able to continue its current stability and investments in

profitable projects then the company would be able to increase its market share as well asProfitability. We recommend BUY for the scrip, and according to our fair valuation we dig outto the fair value of Rs 300

Publish 0n 30th November 2007 by Noman Abid & Co Ltd: 2nd Floor, PCG Plaza, SarwarShaheed Road, Saddar, Karachi researched by Muhammad Abdul Sami [Research Analyst]


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SUMMARY 3

This article is by an outsider point of view and look in the world reception towards our economyand political situation and there effects on the economy and the outlook of the investing inPakistan and how the new government deal with it

In this article his has ask some question like what are the major issues in Pakistans economy.How stable is it today? Have the previous governments, since the military takeover, managed theeconomy better? What are the challenges facing the PPP government? To answers these questionhe has looked in the economic year 2007-8 the year of great importance many big event happenwhich wither are interlinked with each other .the first and the most important was the murder ofBenazir Bhutto and the equally important was the act of gen musharraf on November 3 and thePCO and removal of Chief Justice Iftikhar Choudhary, Pakistan has faced crisis after crisis,including the lawyers movement, violence in Karachi, the Lal Masjid debacle, militancy inFATA and NWFP and the power shortage .this all lead up to

During the previous fiscal year 2006-07, Pakistans economic growth rate was 6.8 per cent and itwas expected that during 2007-08, it would touch 7.2 per cent. Unfortunately, the growth ratedeclined to 5.8 per cent during this period.

Since the agricultural sector continues to be the major provider of employment to nearly two-thirds of Pakistans population living in rural areas, the importance of agriculture needs to beunderlined. Since water is a major issue, both droughts and floods are likely to become majorcauses for concern. Construction or the lack of major dams across the Indus, and the quantity ofwater flow on the main river and its tributaries is likely to become a matter of life and death forthe majority in Pakistan

The manufacturing sector will improve if the policies and the credit and the most important theybecome politically stable and improve its law and order situation. Much will depend on how thenew government resolves vital issues at the national and provincial levels. This will improveindustry and investment in Pakistan

Energy sector is the back bone if Pakistan has to go head and many new plant is been out and fasttrack work is been done on it and import energy from Iran and a big project the Iran PakistanIndia gas pipe line

PPP and PML-N. Join hand on the great charter of democracy and judiciary are likely to be two

crucial issues, towards reaching an understanding amongst the leading political parties PPP andPML-N. If Sharif and Zardari fail to reconcile their differences on these issues, Pakistan is likelyto remain politically unstable.

Besides, the new government needs to formulate a coherent policy towards dealing withBaluchistan, violence in NWFP and FATA, and taking concrete measures in terms of cross-borderterrorism across the Durand line. Failure to address the latter is only likely to heighten theincidence of cross-border strikes by the US-led allies, based in Afghanistan, as happened duringthe second week of June. This was not the first cross-border strike and is unlikely to be the last.

Thus, politically, Pakistans economy is inter-twined with not only political stability at the

national level, but also with regional security. Much will depend on how the PPP led governmentreformulate Pakistans economic priorities and policies and link it with external relations.


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An economically weak Pakistan is not in the interest of the region as well. For the investor and forforeran direct investment and for the world also Pakistans Economy Pangs of Political InstabilityArticle written by D. Suba Chandran Assistant Director, IPCS, and New Delhi publish on June2008.


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SUMMARY 4

In this article he is doing a sector analysis Fertilizers - a theme with a bright future .the worldeconomy and population is growing steadily and we have to meet the entire thing like housing,

plants, roads or other infrastructure. To improvement of the standard of living of the population

we have to give then food with its all nutritional value. As the demand for the good is going andthe changes in the. Ecological, gasoline, which decreases the quantity available for humans andthe animals. This context reinforces the necessity to use fertilizers to produce food. Theyconstitute the vital element for the fertilization of the soil and are, in addition to goodWeather conditions, the essential ingredient to obtain abundant crops.

As the time has passed the farmer has also realize the importance of the mixing of ingredientsused to fertilize grounds. The three main types of fertilizer are nitrogen result from ammoniaAnd its by-product the urea. The phosphate is obtained from rocks containing an ore of calciumof phosphor. Finally, the potash is produced from mineral reserves, mainly under the shape of

chlorides of potassium hydroxide (KCI).

The nitrogen (N) is the nourishing element the most important for plants it is 80 %gas in theatmosphere it is very good for plants. And fertilizers based on N are the urea and the nitrates ofammonia which represent each approximately half of the market which is made from natural gasand the nitrogen contained in the air itself. About 34.400 cubic feet of natural gases are needed to

produce one ton of nitrogen. Natural gas represents 70 to 90 % of the production cost of theammonia which is a gas that can be stored in the liquid state under pressure or refrigerated.Contrary to the ammonia which is a product that requires a consequent investment for its storingand transport, the urea is a solid that is easy to store.

The market of urea will come up new places like China and in the Middle East (abundance of gas)are planned. The lack of engineering capabilities and the development of new and moresophisticated technologies of production limit the number of investments; the producers are moreand more disciplined in the Middle East to avoid a price collapse; the closure of capacities,

particularly very polluting factories in China is not to be excluded. Besides, the Chineseauthorities introduced taxes to discourage the exports. As are salt the supply will progress onaverage by 5 to 6 % until2012, what should enable to balance the market.

The supply of phosphate is at present sharply insufficient. So it is effecting the production of dapand this article also tell the most major production company like Potash Corporation, Agrium Inc,Mosaic Co , CF Industries , Yara International are almost 25 % of production of fertilizer

And they are most performing company in the stock exchange and fertilizer sector offered aglittering performance to the investors, for example the price of Potash was multiplied by 6 overthe last 3 years. The perspectives remain brilliant, because, except for an unexpected increase inthe supply, the only danger could result from the introduction of seeds with lesser intensity offertilizer, a risk which is not for the immediate.

The supply of fertilizers is lagging, particularly as regards potash. A chronic deficiencyOf fertilizers is foreseen at least for the next two years. This opens interesting opportunities forthe investors. We recommend either the purchase of an individual stock (Potash or Mosaic) or thatof a diversified basket


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Sector analysis Fertilizers - a theme with a bright future article by Roland Duss March on2008publish by Gonet & Cie. This publication is for your information only and is not intended asan offer, or a solicitation of an offer, to buy or sell any investment or specific product.


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SUMMARY 5

In this article they are thronging light on the Indian fertilizer sector and telling it is the mostenergy intensive sectors within the Indian and it has both national and international valve becauseas the agriculture increase both fertilizer and energy will be required. So the fertilizer industry

has to have energy saving and high productivity.

In India Aluminum, cement, fertilizer, iron and steel, glass, and paper this industry is energyintensive industries Together they account for 16.8% of manufacturing value of output (VO) andconsume 38.8% of all fuels consumed in the manufacturing sector The fertilizer sector holds aconsiderable share within these energy intensive industries. In 1993, it accounted for 23% ofvalue of output within the six industries and for 3.8% in the manufacturing sector

Then he describe who different type of fertilizer is produce and then the tell the year by year howmany tons of fertilizer is produce and hoe much energy was used. 80% of the energy consumption

for nitrogenous fertilizer since new capacity in the form of gas based fertilizer plants was added inthe 1980s the share of gas has increased substantially. In 1992-93, the shares of feedstocks inammonia production were: 54.2% natural gas, 26.1% naphtha, 18.2% fuel oil, and 1.5% coal(TERI, 1996) while, in 1981- 82, it was: 52% naphtha, 19% fuel oil, 19% coke oven gas and 10%coal (Kalra, 1989). The shift towards the increased use of natural/associated gas and naphtha is

beneficial in that these feedstocks are more efficient and less polluting than heavy fuels like fueloil and coal. Furthermore, capacity utilization in gas based plants is generally higher than in other

plants. Therefore, gas and naphtha present the preferred feedstocks for nitrogenous

Then the tell about the demand of the fertilizers year to come in(million tones of nutrients)

Demand projections for fertilizer consumption up to the year 2001-02 are presented in. Due tocontinued increase in population and food requirements, demand for fertilizer is expected tofurther grow at an optimistically stable mix of nutrients NPK). This will help to substantiate

agricultural growth.

Then we give Overview of Policies Regarding the Fertilizer Industry from 1957 to 1994 and howit shifts and turns by governmental the policy .Energy policies in general and price-based policiesin particular can help overcome these barriers in giving proper incentives and correcting distorted

prices. Appropriate provisions should be made in the retention pricing scheme to furtherencourage investment in energy conservation projects. Originally, normative consumption ofvarious inputs was taken into account under the retention price system which encouraged theimplementation of energy efficiency measures. These and other fiscal incentives need to bereinstated under the current scheme.

Through the removal of subsidies energy prices would come to reflect their true costs. In aderegulated market, firms would adjust their behavior in order to minimize costs of production.


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Therefore, in the short term, energy price increases would push less productive and inefficientmostly smaller units out of the market or force these units to take immediate initiatives to improve

productivity and efficiency. On a long term basis, substantial further investments in energyefficiency technologies for existing and new plants have to be made. Therefore, sectoral policiesshould be devoted to the promotion of such investments. A stable foreseeable policy environment

would substantially help firms to reduce the risk of taking large investments. Our economicresults pointed out that technological change has been biased3 towards the use of energy inputs.This implies that price-based policies albeit effective in reducing energy use could have anegative long run effect on productivity, and thus welfare. An optimal policy strategy wouldtherefore consist of a mix of regulatory and price based incentives within a set political aeconomic framework.

Article Indias Fertilizer Industry: Productivity and Energy Efficiency written by KatjaSchumacher and Jayant Sathaye Environmental Energy Technologies Division July 1999Thiswork was supported by the Environmental Science Division, Office of Biological andEnvironmental Research (OBER), Office of Energy Research, U.S. Department of Energy, under

Contract No. DE-AC03- 76SF00098.


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SUMMARY 6

This article talks about the tools of analysis and it throws light on the focal points for the analysisof leveraged buyouts. It contains leveraged buyout's (LBO) introduction, risks involved with it itscredit quality and the best method to get control over it. This article is written by the Merton

Miller who is awarded the Nobel Prize in Economics in 1990 on the research which pertains theusage of debt financing. The point he raised is that the financial markets are self correcting andthis term is applies particularly to the market for leveraged buyouts. He tells us the big cause offailure which is that when there is too much money chasing a limited number of good deals thenthe market will overheat which will lead to an increase in the number of failures. He examines theLBO marketplace and also matches this thing with the current market condition.

Now this portion of article tells us the cause that why leveraged buyout occurs thereason is given when a large amount of debt capital is used to replace equity capital because thereis no standard definition for an LBO the advantage of an LBO is that is can be used as anmanagement tool which can control on the activities

RISK THAT THE BOOM WILL TURN INTO A BUST

LBOs tend to be structured with three layers of funding. There is usually a bank layer. Banks areusually collateralized and can further reduce risk by diversifying into several industries andgeographic areas through the use of loan participations and swaps. Banks have tightened theirlending standards during 2000. The mezzanine layer is often referred to as the junk bond layer;this is a high risk bond that usually pays a relatively high interest rate to investors. Finally, there isan equity layer; the equity layer tends to range from 10% to 30% of the total LBO funding.

Kohlberg Kravis Roberts & Co. (KKR) is the best known equity layer participant. However, thereare as many as 750 private equity limited partnerships that invest as little as $250,000 into equityinvestment pools. The fee income is excellent; however, the credit quality of the investment poolsis sometimes suspected.

Junk bonds are bonds with a rating of Baa or below. The leading junk bond experts have issuedwarnings concerning turmoil in the marketplace during the year 2000. Moodys the leading bondrating agency, has indicated that defaults are up. Donaldson Luftkin & Jenrette (DLJ) is theleading underwriter of junk bonds; DLJ has also increased its estimate of the defaults on junk

bonds. Finally, Professor Edward I. Altman, the leading academic researcher of junk bonds, hasindicated that a significant number of junk bonds are now trading at distressed prices in themarketplace.


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SUMMARY 7

In this article writer has emphasized on the importance of financial ratios as he says that financialratios are the snapshot of company's financial health it tells us where organization is standing. Hedid not throw light on all the ratios but he gave an overview on some of the important ones and he

has also told us the way to us them for different purposes.

He says that financial ratios are relatively easy and simple way to get the basic understanding ofthe financial health of an organization which also depends of the nature of the organization. Thisdocument is divided into three sections first section tells us that ratios falls in two categoriesliquidity and financial performance, the second section is explaining some Ratios those are usefulonly in particular circumstances and the final section is an introduction to the Concept ofshareholder value added. He has also explained the liquidity that it refers to the ability to producecash. He has also elaborated liquid ratios like quick ratio, current ratio and interest coverage ratio.Where quick ratio reveals whether an organization can cover its immediate liabilities without

selling any inventory it might have, for companies which have large and liquid inventories it maynot be the most appropriate. The Current liquidity; Ratio is similar to the Quick Ratio, except thatit includes all short term assets. The current ratio is the most commonly used measure of it givesan indication of the Efficiency of a companys operating cycle and how well it turns products intocash and The Interest Coverage Ratio indicates the ease with which an organization can meet itsinterest payment obligations from cash flows. This ratio is commonly found in debt covenants andis a good indication of the likelihood of financial distress.

He also mentioned some other ratios as well which includes return on assets, return on equityand price/earnings ratio some other ratios include inventory turnover and collection ratios. Withthe formulas he has supported his documents with the purpose and use as well. Writer also gave

us the knowledge of cost of capital and its importance for individual investor and for company aswell. He tells us that investors expect a certain percentage return. Anything below this return isunacceptable, and anything above it is good. The return that investors expect for a given level ofrisk is known as the cost of capital and for companies the cost of capital will depend on thefinancial structure of the company (debt vs. equity), the industry in which it operates, and somefunction of the risk of the average project the company invests in. Because costs of capital arevery hard to measure.


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SUMMARY 8

There are three parts in this vary article in which the first part relates to the introduction throwslights on the importance and usage of financial ratios, second part relates to the analysis of

balance sheet ratios includes liquidity and leverage ratios and the third part belongs to the analysis

of income statement ratios.

In the introduction portion writer gives us the knowledge that The Balance Sheet and the IncomeStatement are essential, but they are only the starting point for successful financial management.Ratio Analysis enables the business owner/manager to spot trends in a business and to compare its

performance and condition with the average performance of similar businesses in the sameindustry. To do this compare your ratios with the average of businesses similar to yours andcompare your own ratios for several successive years, watching especially for any unfavorabletrends that may be starting. Ratio analysis may provide the all-important early warning indicationsthat allow you to solve your business problems before they destroy your business.

In the balance sheet ratio analysis writer tells us that Important Balance Sheet Ratios measureliquidity and solvency (a business's ability to pay its bills as they come due) and leverage (theextent to which the business is dependent on creditors' funding). He also tells us about the ratiocomes under the head of liquid ratios these ratios indicate the ease of turning assets into cash.They include the Current Ratio, Quick Ratio, and Working Capital.

Where

Current Ratio = Total Current (S/T) Assets / Total Current (S/T) Liabilities

Quick Ratio = (Cash + Short term financial investments + Receivables) / TotalCurrent (S/T) Liabilities

Working Capital = Total Current Assets - Total Current Liabilities

He tells that the Leverage Ratio indicates the extent to which the business is reliant on debtfinancing (creditor money versus owner's equity):

Leverage Ratio = Total Liabilities / Net Worth (Total Assets-Total Liabilities)In the third part which relates to the income statement ratio analysis which measure profitability

includes

Gross Profit = Net Sales - Cost of Goods Sold

Net Profit Margin Ratio = Net Profit before Tax / Net Sales

In this document he also threw light on some management ratios derived from Balance Sheet andIncome Statement information like account receivable ratio which indicates how well accountsreceivable are being collected. If receivables are not collected reasonably in accordance with theirterms, management should rethink its

Collection policy. If receivables are excessively slow in being converted to cash,Liquidity could be severely impaired. Getting the Accounts Receivable Turnover Ratio


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Is a two-step process and is calculated as follows:

Daily Credit Sales = Net Credit Sales per Year / 365 (Days)

Accounts Receivable Turnover (in days) = Accounts Receivable / Daily Credit

Where return on assets measures how efficiently profits are being generated from the assetsemployed in the business when compared with the ratios of firms in a similar business. A lowratio in comparison with industry averages indicates an inefficient use of business assets. TheReturn on Assets Ratio is calculated as follows:

Return on Assets = Net Profit before Tax / Total Assets


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SUMMARY 9

Article tell us about a whole scenario of banking and finance which includes its overview itsresourses,FAQS and advertising .The author says that investment banking is a broad term used

interchangeably. He tells us that why finance is used in the corporate firms and in multinationals.It is just because it actually controls and manages the overall internal as well as external financialfunctions.It teaches the companies how to deal with financial markets, institutions and the glitz of strategic

planning. It is beneficial for financial and non financial institutions especially for banks andmoney management firms in the areas of corporate finance, investment analysis, and portfolioManagement, trading, mergers and acquisitions, private equity investing, and institutional andretail sales. In this particular article he also gave lot of links and resources from where we can getmore wisdom about finance these resources includes some web sites as well as the name of some

books.

In FAQ portions some questions and their answers are given which gave a lasting effect on thecontest. The questions which are given in the end are following what do firms look for when theyare selecting candidates? If I'm not an economics major, what classes should I take? How can Idemonstrate my interest in financial services? How can I show my interest in a specific company?How can I get a summer internship in finance? What should I do to prepare for the interview? Isthere lifestyle issues associated with working in finance? Answers of these questions are quiteshort and simple he didnt quote too much but only the valid points. These questions are basicallymade for those people who are interested in doing their studies in some finance subjects soapproximately all the questions which arise in the mind of a student before starting something in

finance are versed with their proper answers.For example in the question that Are there lifestyle issues associated with working in finance?he says that Investment banking involves long hours, stress and often great uncertainty hourshunched behind computers, poring over financial statements and churning out spreadsheet afterspreadsheet" and that you "shouldn't go into banking only for the money...to survive, much less todo well, in I-banking, you'll need to like the work itself and about the salary package he says thatit vary depending on geographic location, the size of the company, and other factors, so keep thatin mind when you think about offers.


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METHODOLOGY

This methodology help us in the best manner to under stand balance sheet and income and

financials notes as we have to look into the secondary data publish by the company so to givemore purpose to that data we use this methodology and it leads us to the point where we cananalyses investment, economies of Pakistan and the sector under review and there ratios analysisand there interpretation of there results for better decision

METHODOLOGY

A. CAPITAL STRUCTURE

1.ORDINARY SHARE CAPITAL

This represents the total paid-up capital against issue of ordinary shares. These are amounts ofcapital actually paid by the shareholders to the institution for acquiring its shares. It includesshares paid in cash (subscribed/right issued), issued as bonus shares and shares issued forconsiderations other than cash (eg. for settlement of receivables/debts or debts redeemable intostock etc.).

2. RESERVES

It is evaluated by aggregating all kinds of reserves except depreciation reserve and reserve for badand doubtful debts plus the balance of profit and loss account and subtracting there from

intangible or fictitious assets (e.g., goodwill, patents, trade mark) and adverse balance of profitand loss figures.

The reserves entering into the calculation are: -

(i) General(ii) Capital(iii) Development(iv) Dividend equalization(v) Proposed issue of bonus shares(vi) Profit on re-issue of forfeited shares(vii) Premium on shares(viii) Capital profit arising from the sale of fixed assets(ix) Special reserves under relevant provision of Income Tax Act

3. SHAREHOLDERS EQUITY

This item purports to represent the total stake of the shareholders in the business and has beenobtained by adding the ordinary share capital to the surplus.


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4. PREFERENCE SHARES

As the name indicates these are ordinary shares of a company and pays a fixed dividend (whetherthe company is earning profit or making loss during operation), but its shareholders have novoting privilege. In case of liquidation of the company its status is normally considered prior to

the status of ordinary shareholders.The difference between ordinary shares and preference shares is as follows:a) Ordinary shareholder will receive dividend, which varies according to the prosperity ofthe company but preference shareholder will receive a fixed amount dividend every year.

b) Ordinary shareholder has a right of voting in the companys annual general meetingwhile the preference shareholder has no voting right.c) Ordinary shareholders have to claim on the net assets of the company in case ofliquidation, while the claim of the preference shareholders is paid earlier.

5. DEBENTURES / TFCS

These are bonds/certificates issued by a company to raise funds for long-term period (generallymore than one year) for a specific purpose, sometimes convertible into stock. At present,debentures have been replaced by TFCs (Term Finance Certificates).

6. OTHER FIXED LIABILITIES

The liabilities, which are required to be discharge after a period of more than one year from thedate of balance sheet, are termed as other fixed liabilities or loan capital. They may consist of thefollowing items:(i) Loans from financial institutions.(ii) Loans from non bank financial institutions.(iii) Loans from specialized financial institutions(iv) Foreign loans(v) Vendors account

7. TOTAL FIXED LIABILITIES

It is the sum of the preference shares, debentures and other fixed liabilities.

8. TOTAL CAPITAL EMPLOYED

It is the sum of shareholders equity and total fixed liabilities.

B. LIQUIDITY

1. CURRENT ASSETS

An asset is to be a current asset, which can be readily convertible into cash or equivalent withoutany significant loss in value. The current assets comprise of liquid assets, inventories and othercurrent assets.


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A) LIQUID ASSETS

Broadly speaking, liquid assets comprise of all assets like cash, bank balance, marketable security,etc., which are easily realizable almost at book value. While there can not be two opinionsregarding the status of cash, current accounts and government securities in this context, the

treatment of savings and fixed deposits and of shares of joint stock companies not quoted on stockexchange leaves the analyst in doubt. The classification of borderline cases had therefore, to bemade partly in keeping with the objective of the analysis and partly on ones own subjective

judgment. For this study, liquid assets that are also sometimes referred to as liquid capital havebeen bifurcated as cash and investments and comprise of the following items: -

(i) Cash in hand(ii) Cash in transit(iii) Current deposits(iv) Saving deposits(v) Call deposits

(vi) Fixed deposits(vii) Deposits held abroad(viii) Government and corporate securities(ix) Savings and Unit Trust Certificates(x) Debentures stock of local or foreign companies

B) INVENTORIES

It comprises of stocks of raw material in hand, work in progress and finished goods at the closingdate

C) OTHER CURRENT ASSETS

The following items are taken as other current assets:(i) Book debts including bad and doubtful debts(ii) Stores(iii) Work in progress(current)(iv) Advances, prepayments, etc.

2. CURRENT LIABILITIES

All liabilities, which are required to be discharge within one year, are termed as current liabilities.Alternatively, these cover those obligations whose liquidation is expected to be made out ofcurrent assets. They are usually incurred in the normal course of business and are required to be

paid at fairly definite dates. The current liability consists of the following items.

(A) SUNDRY CREDITORS

(i) Income tax payable(ii) For expenses(iii) For other finance

(iv) Bills payable(v) Advances from customers against orders


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(B) PAYMENT BECOME DUE BUT OUTSTANDING

(i) Income tax payable(ii) Proposed, unpaid and unclaimed dividends

(iii) Estimated liabilities in respect of outstanding claims whether due or intimated(iv) Gratuities becoming payable(v) Provident Fund becoming payable(vi) Current installment and interest payable on fixed liabilities(vii) Provision for taxation estimated on current profits(viii) Workers profit participation fund

(C) LOANS, DEPOSITS AND ADVANCES

(i) Loans secured by stock or other current assets(ii) Bank overdrafts and other unsecured loans

(iii) Short term loans acquired against the security of fixed assets(iv) Unsecured loan from directors, parent company, and subordinate loan(v) Due to managing agents(vi) Advances by directors(vii) Guarantee and security deposits of customers and staff

(D) NON-CURRENT LIABILITIES

These are liabilities, which are required to be discharged after one year. Usually their maturitytime period is more than one year, but less than five years.(i) Raw material price equalization(ii) Tax equalization(iii) Contingency(iv) Leave passage(v) Workmens compensation fund(vi) Gratuity, pension or provident fund(vii) Investment depreciation but not including provision for actual shortfall of market(viii) value as compared with book value(ix) Publicity(x) Employees housing and welfare fund

(xi) Charities(xii) Deferred liabilities(xiii) Taxation reserves including deferred taxation reserves, but not including provision(xiv) for assessed or estimated on actual or part of profits

3. TOTAL LIABILITIES

This item pertains to sum of total fixed liabilities and current liabilities except shareholdersequity.


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4. NET CURRENT ASSETS

It has been obtained by deducting the amount of current liabilities from current assets.

5. CONTRACTUAL LIABILITIESThis item pertains to all secured debentures, long-term loans, finance lease, short term securedloans and bank overdraft (Interest bearing secured loans).

6. NET LIQUID ASSETS

This is the difference of liquid assets and the current liabilities.

C. FIXED ASSETS

1. Fixed Assets at Cost

In contra distinction to current assets, fixed assets consist of items, which are not readilyconvertible into cash during the course of normal operations of an enterprise. These items are notsubject to periodical exchange through sales and purchases. Fixed assets are of permanent natureand are not normally liquidated or intended to be turns into cash except in the form ofdepreciation, which is added to the cost of goods sold. The following balance sheet items areincluded in the category of fixed assets: -

(A) REAL ESTATE

(i) Freehold and leasehold land(ii) Factory and office buildings(iii) Residential buildings(iv) Capital projects in progress at cost

(B) PLANT, MACHINERY AND ROLLING STOCK

(i) All types of plant and machinery used for production and not for sale(ii) Crockery, cutlery, silverware and enamelware in hotels(iii) Construction tools(iv) Livestock in farming company(v) Cars, lorries, trucks, ships, launches etc.(vi) Railway siding and trolley lines(vii) Computers and other electronic equipments.

(C) FURNITURE, FIXTURES, FITTINGS AND ALLIED EQUIPMENT

(i) Electric fans, refrigerators, air conditioners, electric heating, sanitary and other fittings(ii) Laboratory equipment(iii) All types of office furnitures and equipment

(iv) Advertising, fixtures and fittings


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2. FIXED ASSETS AFTER DEDUCTING ACCUMULATED

DEPRECIATION

Deducting the accumulated depreciation from the fixed assets of the company gives this item.

3. DEPRECIATION FOR THE YEAR

It includes all the depreciation charges to the profit and loss account. Owing to the absence ofuniform accounting standards, depreciation is a subjective item and very from company tocompany. It is important for the analyst to know what effect such variation could have on the net

profit.

4. TOTAL ASSETS

This item is sum of fixed assets at cost after deducting accumulated depreciation, and currentassets.

D. OPERATIONS

1. GROSS SALES

This item represents the sale proceeds of the company. Sales revenue is classified as local salesand export sales.

2. GROSS PROFIT

Subtracting cost of sales from sales revenue arrives at gross profit.

3. OVERHEAD AND OTHER EXPENSES

These are total expenses that are incurred on the operational activities of a company exceptfinancial expenses and include:

i) Cost of salesii) Administrative and general expensesiii) Selling and distribution expensesiv) Other expenses

4. OPERATING PROFIT

Subtracting overhead and other expenses from gross sales and adding thereto-non-operatingincome gives operating profit.

5. FINANCIAL EXPENSES

These are interest expense incurred on borrowing of long and short terms loans. It includes the

following items;


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(i) Mark-up and interest on long term loan(ii) Mark-up and interest on debentures and redeemable capital(iii) Mark-up and interest on short term loan(iv) Interest on private loan(iv) Financial charges against assets subject to finance lease

(v) Interest and mark-up on supplier credit(vi) Interest on workers profit participation fund.(vii) Bank charges and commission.(viii) Excise duty on long and short-term finance.(ix) Discounting charges on receivables.(x) Exchange losses.

6. NET PROFIT BEFORE TAX PROVISION

It is the profit earned by the company during the year before tax provision.

7. TAX PROVISION

It is provision of taxation made on current years profit.

8. TOTAL AMOUNT OF DIVIDEND

It is the total dividend including interim dividend distributed or proposed to be distribute out ofthe current years profit

9. TOTAL VALUE OF BONUS SHARES ISSUEDThis is the total amount of bonus shares issued to the shareholders as appropriation net profit aftertax of the company during the year.

E. SOURCE OF INCREASE IN CAPITAL EMPLOYED

1. INCREASE/ DECREASE IN CAPITAL EMPLOYED

The difference in value of total capital employed (i.e., share capital, surplus, preference capital,debentures and other fixed liabilities) at the beginning of the year and the corresponding figures atthe end of the year and shown as increase (+)/ decrease (-).

2. RETENTION IN BUSINESS

This item is obtained by deducting the provision for the tax and the total dividend distributed orproposed to be distributed from the net profit for the year.

3. FINANCE FROM OUTSIDE THE COMPANY

The difference between the increase in the capital employed and the retention in the business is

the finance from out side the company. It is possible for this item to be negative. Indeed in some


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circumstances it is also possible for the increase in the capital employed as well as the retention inbusiness to be negative, for instance where dividends are distributed not out of the currentearnings but out of the reserves.

F. CASH FLOW DATA

1. DEPRECIATION FOR THE YEAR PLUS RETENTION IN BUSINESS

The total funds that corporation generates internally for investment in the modernization andexpansion of plant and equipment.

2. DEPRECIATION FOR THE YEAR PLUS CHANGES IN CAPITAL EMPLOYED

Depreciation for the year is added in the difference of two successive years figures of totalcapital employed.

G. Operating Financial & Investment Ratios

1. GEARING RATIO

This item shows the proportion that the fixed loan capital bears to the total capital employed.Where there is preference capital, there is an item of Gearing i.e., the fixed loan capital plusthe

preference capital as the ratio of the total capital employed. The justification for taking thepreference capital together with the fixed liabilities is that, from the ordinary shareholders pointof view, both items represent a fixed charge on the profits. Total capital employed is shareholdersequity plus total fixed liabilities. Gearing becomes inapplicable when the shareholders equity

becomes zero or negative.

2. CURRENT RATIO

This item tells a lender about the liquidity of the assets and as a result its ability to pay the short-term debts.

3. ACID TESTS OR QUICK RATIO

The acid test or quick ratio is used to determine how quickly a company would be able to pay offits current liabilities if it needs to convert its quick assets into cash.

4. DEBT EQUITY RATIO

In debt equity ratio, the total debt is compared with the shareholders equity; the lower the ratiothe better the companys solvency, the higher ratio is a risk to a present or future creditor.

5. RETURN ON ASSETS

This ratio is considered a measure of how effectively assets are used to generate a return.


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6. SELF -FINANCING RATIO

The ratio expresses the amounts retained in business as percentage of increase/ decrease in thecapital employed.

7. CASH FLOW RATIO

This ratio has a purpose somewhat similar to the self-financing ratio described under F.3 the onlydifference being that it takes into account the amount of depreciation.

8. SHAREHOLDERS EQUITY AS % OF ORDINARY SHARE CAPITAL

It is the shareholders equity to the ordinary share capital, which means the stake of ordinaryshareholders in the total equity of the company.

9. OVERHEAD AND OTHER EXPENSES AS % OF GROSS SALES

It shows the ratio of overhead and other expenses to the gross sales. This is an important ratio,which indicates the contribution of operating expenses in the operating revenue through sales ofthe company. Lowering the percentage, the company is more viable and efficient.

10. FINANCIAL EXPENSES AS % OF OPERATING PROFIT

This shows the ratio of financial expenses to operating profit. It identifies how much weight thecompany will bear from its operating profit before reaching to the net profit before tax. Smallerratio is a good for a company.

11. FINANCIAL EXPENSES AS % OF GROSS SALES

It shows the ratio of financial expenses to gross sales. Lowering the ratio indicates the financialdiscipline of the company and the increasing ratio indicates that the company is facing financialexpense burden out of its gross sales revenue

12. FINANCIAL EXPENSES AS % OF CONTRACTUAL LIABILITIES

It shows cost incurred (interest/mark up paid) on contractual liabilities.

13. TAX PROVISION AS % OF NET PRE-TAX PROFIT

It shows the portion of net profit set aside for tax provisions.

14. SUNDRY DEBTORS AS % OF GROSS SALES

It is the ratio of outstanding credit (all sales receivables) to the total sale proceeds of the company.Higher the percentage, the company is increasing its debtors and credit risk and reducing itsliquidity

position.


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15. Net Profit as % of Shareholders Equity

It is worked out by dividing the net profit before tax by the shareholders equity, expressing theresult in percentage.

H. KEY PERFORMANCE INDICATORS

1. DIVIDEND COVER RATIO

The ratio of net profit after tax to total amount of dividend.

2. DIVIDEND RATIO TO EQUITY

This item has been worked out by dividing the total amount of dividend by the shareholdersequity, expressing the result in percentage

3. NET PROFIT MARGIN.

This ratio shows how much profit comes from every rupee of sales.

4. EARNING PER SHARE

It has been arrived by dividing the net profit (before/after tax) by the number of ordinary shares.

5. AVERAGE ANNUAL % DEPRECIATION ON WRITTEN DOWN FIXED ASSETS

This item is simple depreciation rate and is intended to give some idea of the companys practicewith regard to depreciation. Since there are so many items in the fixed assets schedule, it is not

practicable to calculate depreciation rate for all the items individually. Therefore, an aggregatedepreciation rate for all the item taken together has been worked out. The method is to take totaldepreciation provided during the financial year and dividing it by the written down value of thetotal fixed assets at the beginning of the financial year. The result is expressed in percentage .

6. SALES AS % OF TOTAL ASSETS:

This item indicates how efficiently the business of a company generates sales on each rupee ofassets.

7. SALES GROWTH (CURRENT YEARS SALES LAST YEARS SALES):

Sales growth is the percentage increase or decrease in sales between two time periods.

8. BREAK-UP VALUE OF ORDINARY SHARES

It is obtained by dividing the sum of ordinary share capital and the surplus by the number ofordinary shares


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DATA COLLECTION TECHNIQUES AND PROCEDURE

As your research is ofQualitative type in which data is categorizes data into patterns as theprimary basis for organizing, stakeholder and reporting results. Qualitative researchers, typicallyrelay on four methods for gathering information:

1. Participation in the setting2. Direct observation3. In depth interviews4. Analysis of documents and material

As your topic is an investment analysis so we have to use the method analysis of the documentsand materials. In this research we have to look into large volume of accounting informationwhich is summarized into simple financial measurements like which are balance sheet, incomestatement and cash flow statement known as the snapshot of all the financial information and useto audit by chartered accountants.

While determining the health (or illness) of a business for investment we use the most commonand complex Financial Ratios (or Financial Indexes). We use financial ratios to give an indicationof the viability of a business. Just as a doctor might take your pulse, temperature and blood

pressure to give them information on your health,

Financial ratios are a significant tool to analyze and compare the relationship between differentpieces of financial information and to understand the operations of the firm. That helps Investors,creditors and stakeholders so they must be able to compare financial information among firms andover time. Comparative financial statements enable users to compare year-to-year financial

position, results of operations, and cash flows. This comparison is enhanced by expressing each

item as a percentage of that same item in the financial statements of another year.

SOURCES OF COLLECTING DATA

There are generally three or four methods of data collecting which are being used. Simply peopleuse internet, questioners structured interviews journals or published articles etc. In our case wehad the choice to collect date from internet, from stock exchange because they got all the latestfinancial information or on the other way around we can simply ask to the particular company to

provide information included balance sheet and financial statement. and the world fertilizersection


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Introduction

In the early stages of mankind development investment was always on the priority list. In the erawhen there was no wheel, people used to invest not in monetary terms but they sow trees so theycan get food, energy, shelters and wood for making weapons. Now in the era where the mother of

inventions was invented, people invested in that particular field so they can explore new placesfor better livings, more over they explored the gifts of God like minerals they put their sweat &

blood so they could become able to provide better facilities to their upcoming generations. Afterthat the era comes which is known for its barter system where people invested in businesses land

Farming so they can produce more things for exchange and full fills their desires.The need of investment was always present but the modes of investment have changed &improved as well. Now investment means combinations of funds to one or more assets that will beheld for some future time. The field of investment there for involves the study of investment

process. The term investing can over a wide range of activities. It often refers to investing moneyon certificates of deposit .bonds common stocks and mutual funds, more knowledgeable investorwould include other paper assets such as warrants put and call future contracts and convertiblesecurities as well as tangible assets, such as gold, real estate and collectables. Investingencompasses very conservative positions as well as aggressive speculation.


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PART I

INVESTMENT FUNDAMENTALS

CHAPTER 1

SECURITIES AND ANALYSIS

Learning investment analysis is a journey into a wealth of knowledgeThat is an exciting mix of the practical and the analytical. It

Looks to technique to evaluate and to theory to explain. It is naturalTo feel a degree of trepidation at the start of such a journey. To helpOffset this we need to familiarize ourselves with the landscape and

Landmarks, to develop an overview of our route. Some of these landmarksMay be familiar others may be new or be seen from a different

Perspective. Armed with this we can map out our route.

1.1 INTRODUCTION

The investment of wealth in financial securities they ranges from bond, financial paper andgovernment securities and they can be traded in the formal and in formal market so fist we look in

to different types of market . It provides an introduction to the tools of investment analysis thatcan be used to guide informed investment decisions. These tools range from the knowledge of thesecurities that are available in the market and how they are traded, through the techniques forevaluating good investments decision.

Some investments can be very successful. An investor placing RS10, 000 in August 1998 in thestock of PSO, a PETROLUM company traded On KSE, would have stock worth RS107, 096 inSeptember 2003. Similarly, a Purchase of RS10, 000 in September 2001 of WORLD CALL stock,an internet Retailer traded on the LAHORE Stock Exchange, would be worth RS134, 143 inAugust 2003. PSO and WORLD CALL are far from being alone in offering these levels of gain.Many high technology companies match and can even outstrip their performance. On the down

side, losses in value can be even more spectacular. Anyone investing RS10, 000 in September2000 in dost steel. That falls like house of cards.


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The starting point for investment analysis is the market data on the values of securities whichdescribes how they have performed in the past this market data is taken as given and we studyhow we should invest on the basis of that data. This generates a set of tools which, even if aninvestor does not apply them literally, provide a powerful framework in which to think rationally

about investment. This framework continually emphasizes why many regretful investors havefound to their cost that the maxim there is no such thing as a free lunch is especially true infinancial markets. A serious investor will want to go beyond just accepting market data and

progress to an understanding of the forces that shape the data

1.2 FINANCIAL INVESTMENT

It is helpful to begin the analysis with a number of definitions that make precise the subject matterof financial investment. A standard definition is that investment is the sacrifice of current

consumption in order to obtain increased consumption at a later date from this perspective, aninvestment is undertaken with the expectation that it will lead, ultimately, to a preferred pattern ofconsumption for the investor

This definition makes consumption the major motivation for investment. In contrast, manyinvestors would argue that their motivation for investment is to Increase their wealth in terms of

both social and there size of volute. This observation can be related back to the definition bynoting that wealth permits consumption or, in more formal language, an increase in the stock ofwealth permits an increase in the flow of consumption. Wealth and consumption are, therefore,two sides of the same picture.

Two different forms of investment can be identified

REAL INVESTMENT is the purchase of physical capital such as land andMachinery to employ in a production process and earnIncreased profit.

FINANCIAL INVESTMENT is the purchase of paper securities such as stocksand

Bonds.

We do not discuss real investments because it out of you research boundary. Firms or investor(individual, venture capital, mutual fund) undertake real investment to generate the maximumprofit given the market conditions that they face. There are many interesting issues raised by thereal investment activities of investor including issues of research and development, capacityexpansion, and marketing. But consideration of these matters falls strictly outside the scope of aresearch focus is upon financial investment. It should be noted, though, that a real investment byan individual, such as the purchase of a house or a painting, must be considered as part of theoverall portfolio of assets held by that investor.

There are strong links between the two forms of investment. For example, the purchase of a firmsshares is a financial investment for those who buy them but the motive for the issue of the shares

is invariably that the firm wishes to raise funds for real investment. Similarly, the commitment of


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a householder to a mortgage, which is a financial investment, generates funds for a realinvestment in property.

The issues concerning financial investment that are addressed in the following

The forms of security available: where and how they are bought and sold;

The investment process: the decision about which securities to purchase, and how much ofeach;

Financial theory: the factors that determine the rewards from investment and the risks.

The first step is to introduce the most important forms of securities that are available to theinvestor and the ways in which they can be traded. The next step is to analyze the general issuesthat are involved determining the preferred choice of investment. This is undertaken advantageand disadvantage and particular features of different securities. Next, we consider the financialmarkets and which provide further insight into the investment decision. Finally, we return todetailed analysis of some special types of securities that raise especially interesting analyticalquestions.

1.3 INVESTMENT ANALYSIS

Investment analysis is the study of financial securities for the

Purpose of successful investing.

This definition contains within it a number of important points. Firstly, there are the institutionalfacts about financial securities: how to trade and what assets there are to trade. Secondly, there areanalytical issues involved in studying these securities: the calculation of risks and returns, and therelationship between the two. Then there is the question of what success means for an investor,and the investment strategies that ensure the choices made are successful. Finally, there are thefinancial theories that are necessary to try to understand how the markets work and how the pricesof assets are determined.

EXAMPLE

The website for Gins Global Index Funds puts it this way Very few professional fund managers

can beat the market. Since there is no reliable way to identify the fund managers who willoutperform the market, investors are best served by buying a broad spectrum of stocks at lowercost.

(www.ginsglobal.co.za/company_profile.htm).

Knowledge of investment analysis can be valuable in two different ways. It can be beneficial froma personal level. The modern economy is characterized by ever increasing financial complexityand extension of the range of available securities. Moreover, personal wealth is increasing,leading to more funds that private individuals must invest.

The study of investment analysis can also provide an entry into a rewarding professional career.

There are many different roles for which investment analysis is useful and the material covered inthis research h will be useful for us. The training to become a financial analyst requires
http://www.ginsglobal.co.za/company_profile.htmhttp://www.ginsglobal.co.za/company_profile.htm


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knowledge of much to his analysis. Further, there are positions for brokers, bankers andinvestment advisors for whom knowledge of investment analysis is a distinct advantage.

EXAMPLE

The Association for Investment Management and Research (AIMR) is an internationalorganization of over 50,000 investment practitioners and educators in more than 100 countries. Itwas founded in 1990 from the merger of the Financial Analysts Federation and the Institute ofChartered Financial Analysts. It oversees the Chartered Financial Analyst (CFA R) Programwhich is a globally-recognized standard for measuring the competence and integrity of financialanalysts. CFA exams are administered annually in more than 70 countries.

(For more information, see www.aimr.org).

1.4 SECURITIES

A legal contract representing the right to receive future benefits

Under a stated set of conditions.

The piece of paper (e.g. the share certificate or the bond) defining the property rights is thephysical form of the security. The terms security or asset can be used interchangeably. If adistinction is sought between them, it is that the term assets can be applied to both financial andreal investments whereas a security is simply a financial asset. For much of the analysis it is assetthat is used as the generic term.

From an investors perspective, the two most crucial characteristics of a security are the return itpromises and the risk inherent in the return. An informal description of return is that it is the gainmade from an investment and of risk that it is the variability in the return.

The return can be defined as the percentage increase in the value of the investment

Return = final value of investment initial value of investment 100.Initial value of investment

EXAMPLE

At the start of 2003 an investor purchased securities worth RS20000.These securities were worthRS25000 at the end of the year. The return on this investment is

Return = 25000 20000 100 = 25%.20000

The return on a security is the fundamental reason for investor to hold it. The return is determinedby the payments made during the lifetime of the security plus the increase in the securitys value.The importance of risk comes from the fact that the return on most securities is not known withcertainty when the security is purchased. This is because the future value of security is unknown

and its flow of payments may not be certain. The risk of a security is a measure of the size of thevariability or uncertainty of its return.
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It is a fundamental assumption of investment analysis that investors wish to have more return butdo not like risk. Therefore to be encouraged to invest in assets with higher risks they must becompensated with greater return. This fact, that increased return and increased risk go together, isone of the fundamental features of assets.

A further important feature of a security is its liquidity. This is the ease with which it can betraded and turned into cash. For some assets there are highly developed markets with considerablevolumes of trade. These assets will be highly liquid. Other assets are more specialized and mayrequire some effort to be made to find buyers and sellers who are agreed to do transition. All otherthings being equal, an investor will always prefer greater liquidity in their assets.

The major forms of security are now described which can be found in the market for buying andselling

1.5 NON-MARKETABLE SECURITIES

The first form of security to introduce are those which are non-marketable, meaning that theycannot be traded once purchased. Despite not being trade able, they are important because theycan compose significant parts of many investors portfolios.

The important characteristics of these securities are that they are personal the investor needs toreveal personal details in order to obtain them so that the parties on both sides know who isinvolved. They tend to be safe because they are usually held at institutions that are insured and arealso liquid although sometimes at a cost. Some of the non marketable securities are

Savings Account This is the standard form of deposit account which pays interest andCan be held at a range of institutions from commercial banks throughTo credit unions. The interest rate is typically variable over time. InAddition, higher interest will be paid as the size of deposit increasesAnd as the notice required for withdrawal increases. Withdrawals canSometimes be made within the notice period but will be subject toPenalties.

Government savings The bonds issued by government or the bong which is gerent by theBonds government of that country in the official gusset

Non-negotiable These are certificates issued by a bank, financial organization thatconfirm that a sum of money has beenreceived by the issuer with aOf deposit implied agreement that the issuer will repay thesum of money and

That they are not a negotiable (or trade able) instrument.CDs canHave a variety of maturities and penalties for withdrawal.

1.6 MARKETABLE SECURITIES

Marketable securities are those that can be traded between investors. Some are traded on highlydeveloped and regulated markets while others can be traded between individual investors with


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brokers acting as middle-men. This class of securities will be described under four headings. Theyare classified into

Money market securities which have short maturities

Capital market securities which have long maturities.

Derivatives whose values are determined by the values of other Assets.

Indirect Investments represent the purchase of assets via an investmentCompany.

1.6.1 MONEY MARKET SECURITIES

Money market securities are short-term debt instruments sold by governments, financialinstitutions and corporations. The important characteristic of these securities is that they havematurities when issued of one year or less

Money market securities tend to be highly liquid and safe assets. Because of the minimum size oftransactions, the market is dominated by financial institutions rather than private investors. Oneroute for investors to access this market is via money market mutual funds

TREASURY BILLS

Short-term treasury bills are sold by most governments as a way of obtaining revenues and forinfluencing the market. They sell at a discount (meaning a price different to, and usually less, thanface value) and pay no explicit interest payments. The benefit to the investor of holding the bill isthe difference between the price paid and the face value received at maturity. Treasury bills with3-month and 6-month maturities are sold when government want

An important component in some of the analysis of treasury bills is risk-free asset. This is definedas an asset which has a known return and no risk. Because Pakistan Treasury Bills (and those ofother governments with a similar default-free record) are considered to have no risk of default anda known return, they are the closest approximations that exist to the concept of a risk free

investment. For that reason, the return on Treasury Bills is taken as an approximation of the risk-free rate of return

COMMERCIAL PAPER

Commercial paper is a short term promissory note issued by a corporation, typically for financingaccounts for which payment is due to be received and for financing inventories. The maturity 270days or less. They are usually sold at a discount. These notes are rated by ratings agencies whoreport on the likelihood of default.

NEGOTIABLE CERTIFICATES OF DEPOSIT


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As for non-negotiable CDs, these are promissory notes on a bank issued in exchange for a depositheld in a bank until maturity. They entitle the bearer to receive interest. A CD bears a maturitydate (mostly 14 days to 1 year). A specified interest rate, and can be issued in any denomination.CDs are generally issued by commercial banks. And in Pakistan national saving center also issuedthat. These CDs are traceable with dealers making a market (meaning they buy and sell to give the

market liquidity).

BANKERS ACCEPTANCE

A bankers acceptance is a short-term credit investment created by a non-financial firm but whichis guaranteed by a bank. The acceptances can be traded at discounts from face value. Maturitiesrange from 30 - 180 days. Bankers Acceptance are very similar to treasury bills and are oftenused in money market funds.

REPURCHASE AGREEMENTS

A repurchase agreement involves a dealer selling government securities to an investor with acommitment to buy them back at an agreed time. The maturity is often very short with manyrepurchase agreements being overnight. They constitute a form of short term borrowing fordealers in government securities. The interest rate on the transaction is the difference between theselling and repurchases prices. They permit the dealer to attain a short position (a negativeholding) in bonds

1.6.2 CAPITAL MARKET SECURITIES

Capital market securities include instruments having maturities greater than one year and thosehaving no designated maturity at all. In the latter category can be included common stock and

bonds. The discussion of capital market securities divides them into fixed income securities andequities.

FIXED INCOME SECURITIES

Fixed income securities promise a payment schedule with specific dates for the payment ofinterest and the repayment of principal. Any failure to conform to the payment schedule puts thesecurity into default with all remaining payments. The holders of the securities can put the

defaulter into bankruptcy.

Fixed income securities differ in their promised returns because of differences involving thematurity of the bonds, the call ability, and the creditworthiness of the issuer and the taxable statusof the bond. Call ability refers to the possibility that the issuer of the security can call it in, that is

pay off the principal prior to Maturity. If a security is callable, it will have a lower price since theissuer will only call when it is in their advantage to do so (and hence against the interests of theholder). Creditworthiness refers to the predicted ability of the issuer to meet the payments.Income and capital gains are taxed differently in many countries, and securities are designed toexploit these differences.

BONDS


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Bonds are fixed income securities. Payments will be made at specified time intervals unless theissuer defaults. However, if an investor sells a bond before maturity the price that will be receivedis uncertain. The par or face value is usually $1000 in the US and 100 in the U k and in PakistanRS100. Almost all bonds have a term - the maturity date at which they will be redeemed.

Coupon bonds pay periodic interest. The standard situation is for payment every 6 months. Zerocoupon or discount bonds pay no coupon but receive the par value at maturity. The return on adiscount bond is determined by the difference between the purchase price and the face value.When the return is positive, the purchase price must be below the face value. Hence, these bondsare said to sell at a discount.

TREASURY NOTES AND BONDS

The government of Pakistan issues fixed income securities over a broad range of the maturityspectrum through the Treasury. These are considered safe with no practical risk of default.Treasury notes have a term of more than one year, but no more than 10 years. Treasury bonds

have maturities that generally lie in the range of 10 - 30 years. Notes and bonds are sold atcompetitive auctions. They sell at face value with bids based on returns. Both notes and bonds payinterest twice a year and repay principal on the maturity date.

MUNICIPAL BONDS

A variety of political entities such as states, province, Municipal Corporation, WADA authoritiesraise funds to finance projects through the issue of debt. The credit ratings of this debt vary fromvery good to very poor. Two types of bonds are provided. General obligation bonds are backed bythe full faith and credit whereas revenue bonds are financed through the revenue from a project.

CORPORATE BONDS

Corporate bonds are similar to treasury bonds in their payment patterns so they usually payinterest at twice yearly intervals. The major difference form government bonds are that corporate

bonds are issued by business entities and thus have a higher risk of default. This leads them to berated by rating agencies.

Corporate bonds are senior securities which mean that they have priority over stocks in the eventof bankruptcy. Secured bonds are backed by claims on specific collateral but unsecured are

backed only by the financial soundness of the corporation. Convertible bonds can be converted to

shares when the holder chooses.

COMMON STOCK (EQUITY)

Common stock represents an ownership claim on the earnings and assets of a corporation. Afterholders of debt claims are paid, the management of the company can either pay out the remainingearnings to stockholder in the form of dividends or reinvest part or all of the earnings. The holderof a common stock has limited liability. That is, they are not responsible for any of the debts of afailed firm.

There are two main types of stocks: common stock and preferred stock. The majority of stock

issued is common stock which represents a share of the ownership of a company and a claim on aportion of profits. This claim is paid in the form of dividends. Stockholders receive one vote per


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share owned in elections to the company board. If a company goes into liquidation, commonstockholders do not receive any payment until the creditors, bondholders, and preferredshareholders are paid.

PREFERRED STOCK

Preferred stock also represents a degree of ownership but usually doesnt carry the same votingrights. The distinction to common stock is that preferred stock has a fixed dividend and, in theevent of liquidation, preferred shareholders are paid before the common shareholder. However,they are still secondary to debt holders. Preferred stock can also be callable, so that a company hasthe option of purchasing the shares from shareholders at anytime. In many ways, preferred stockfalls between common stock and bonds.

1.6.3 DERIVATIVES

Derivatives are securities whose value derives from the value of an underlying security or a basketof securities. They are also known as contingent cl

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