Financial Analysis of DG Khan Cement Factory, Ratio Analysis

Financial Analysis of DG Khan Cement Company Ltd.

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PrefaceAs the world is growing rapidly, the businesses are also moving to become the huge one. And by that result, more and more people want to become a master in these businesses. The main purpose in the finance field is to know how the financial analysis is done. We all know that finance is the blood of any business and without it no business can run. Financial analysis of a company is very difficult and the most important task and by doing this I am able to know the whole financial position and financial structure of the company.Simply by looking at how much cash a company has does not provide enough information. The financial statements need to be analyzed to measure a company’s performance and to compare it with other firm’s in the same industry. The resulting information is intended to be useful to owners, potential investors, creditors, analysts, and others as the analysis evaluates the past performance, future potential and financial position of the firm.This report is an analysis of financial statements of D.G. Khan Cement Company Ltd. This report has been prepared with an objective to develop analytical skills required to interpret the information (explicit as well as implicit) provided by the financial statements and to measure the company’s performance during the past few years. The financial statements are analyzed using traditional evaluation techniques such as horizontal analysis, vertical analysis and trend analysis. Ratios are an important tool in analyzing the financial statements & the company’s profitability, solvency & liquidity. Sincere attempts have been made to make this report error free but if any errors and omissions are found then I apologize for that.

Rabia Chaudhary

PrefaceAs the world is growing rapidly, the businesses are also moving to become the huge one. And by that result, more and more people want to become a master in these businesses. The main purpose in the finance field is to know how the financial analysis is done. We all know that finance is the blood of any business and without it no business can run. Financial analysis of a company is very difficult and the most important task and by doing this I am able to know the whole financial position and financial structure of the company.Simply by looking at how much cash a company has does not provide enough information. The financial statements need to be analyzed to measure a company’s performance and to compare it with other firm’s in the same industry. The resulting information is intended to be useful to owners, potential investors, creditors, analysts, and others as the analysis evaluates the past performance, future potential and financial position of the firm.This report is an analysis of financial statements of D.G. Khan Cement Company Ltd. This report has been prepared with an objective to develop analytical skills required to interpret the information (explicit as well as implicit) provided by the financial statements and to measure the company’s performance during the past few years. The financial statements are analyzed using traditional evaluation techniques such as horizontal analysis, vertical analysis and trend analysis. Ratios are an important tool in analyzing the financial statements & the company’s profitability, solvency & liquidity. Sincere attempts have been made to make this report error free but if any errors and omissions are found then I apologize for that.

Rabia Chaudhary


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Acknowledgement In the name of “Allah”, the most beneficent and merciful who gave us strength and knowledge to complete this report. This report is a part of our course “Financial Statement Analysis”. This has proved to be a great experience. I would like to express our gratitude to our Finance teacher Mr. Waseem Rabani who gave us this opportunity to fulfill this report. We would also like to thank our colleagues who participated in a focus group session. They gave us many helpful comments which helped us a lot in preparing our report.

Acknowledgement In the name of “Allah”, the most beneficent and merciful who gave us strength and knowledge to complete this report. This report is a part of our course “Financial Statement Analysis”. This has proved to be a great experience. I would like to express our gratitude to our Finance teacher Mr. Waseem Rabani who gave us this opportunity to fulfill this report. We would also like to thank our colleagues who participated in a focus group session. They gave us many helpful comments which helped us a lot in preparing our report.


Table of ContentsPreface...................................................................................................................................1Acknowledgement..................................................................................................................2Table of Contents...................................................................................................................3Introduction.............................................................................................................................5

Mission Statement..............................................................................................................5Vision Statement.................................................................................................................5D.G. Khan Cement Company Limited.................................................................................5

NISHAT GROUP.............................................................................................................5D.G. Khan Cement Company..........................................................................................6Acquisition of DGKCC by Nishat Group..........................................................................6Capacity Addition............................................................................................................6Expansion -Khairpur Project............................................................................................6Power Generation...........................................................................................................7Environmental Management...........................................................................................7BOARD OF DIRECTORS...............................................................................................7

Why cement sector for our project......................................................................................7INDUSTRY REVIEW............................................................................................................10Overview of income statement.............................................................................................11Overview of Balance sheet...................................................................................................11Liquidity Position with Graphical Presentation......................................................................12

Liquidity Position...............................................................................................................12Activity Ratios...................................................................................................................13Operating Cycle................................................................................................................14Debt Ratios.......................................................................................................................15Profitability Ratios.............................................................................................................16

PROFITABILITY - FINANCIAL YEAR 2002 TO FINANCIAL YEAR 2008....................17Assets Utilization...............................................................................................................18Return on Investment........................................................................................................19

Return on total equity....................................................................................................19Investment Ratios.............................................................................................................20Investment Ratios.............................................................................................................21

Univariate Model...................................................................................................................23Multivariate Model................................................................................................................24DuPont Analysis...................................................................................................................26SWOT ANALYSIS................................................................................................................27

Strengths...........................................................................................................................27Weaknesses.....................................................................................................................30Threats..............................................................................................................................31Opportunities.....................................................................................................................33

Recommendations................................................................................................................36International Trend............................................................................................................37FUTURE OUTLOOK.........................................................................................................38

Annexure..............................................................................................................................40Summarized Income Statement........................................................................................40Summarized Balance Sheet.............................................................................................44Horizontal Analysis of Income Statements.......................................................................45Vertical Analysis of Income Statements............................................................................45

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Table of Contents

Horizontal Analysis of Balance Sheet...............................................................................46Vertical analysis of balance sheet.....................................................................................47Liquidity Ratios..................................................................................................................49Long Term Debt Paying Ability.........................................................................................51Profitability Ratios.............................................................................................................52Assets Utilization...............................................................................................................52Investment Ratios.............................................................................................................54

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Introduction

Mission StatementTo provide quality products to customers and explore new markets to promote/expand sales of the Company through good governance and foster a sound and dynamic team, so as to achieve optimum prices of products of the Company for sustainable and equitable growth and prosperity of the Company.

Vision StatementTo transform the Company into modern and dynamic cement manufacturing company with qualified professionals and fully equipped to play a meaningful role on sustainable basis in the economy of Pakistan.

D.G. Khan Cement Company Limited

NISHAT GROUPNishat Group is one of the leading and most diversified business groups in South East Asia. With assets over PRs.300 billion, it ranks amongst the top five business houses of Pakistan. The group has strong presence in three most important business sectors of the region namely Textiles, Cement and Financial Services. In addition, the Group has also interest in Insurance, Power Generation, Paper products and Aviation. It also has the distinction of being one of the largest players in each sector. The Group is considered at par with multinationals operating locally in terms of its quality of products & services and management skills.

Mian Mohammad Mansha, the chairman of Nishat Group continues the spirit of entrepreneurship and has led the Group successfully to make it the premier business group of the region. The group has become a multidimensional corporation and has played an important role in the industrial development of the country. In recognition of his unparallel

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contribution, the Government of Pakistan has also conferred him with “Sitara-e-Imtiaz”, one of the most prestigious civil awards of the country.

D.G. Khan Cement CompanyD.G. Khan Cement Company Limited (DGKCC), a unit of Nishat group, is the largest cement-manufacturing unit in Pakistan with a production capacity of 5,500 tons clinker per day. It has a countrywide distribution network and its products are preferred on projects of national repute both locally and internationally due to the unparallel and consistent quality. It is list on all the Stock Exchanges of Pakistan.

DGKCC was established under the management control of State Cement Corporation of Pakistan Limited (SCCP) in 1978. DGKCC started its commercial production in April 1986 with 2000 tons per day (TPD) clinker based on dry process technology. Plant & Machinery was supplied by UBE Industries of Japan.

Acquisition of DGKCC by Nishat GroupNishat Group acquired DGKCC in 1992 under the privatization initiative of the government. Starting from the privatization, the focus of the management has been on increasing capacity as well as utilization level of the plant. The company undertook the optimization by raising the capacity immediately after the privatization by 200tpd to 2200tpd in 1993.

Capacity AdditionTo meet the increasing demand and to capitalize on its geographic location, the management further expanded the capacity by adding another production line with a capacity of 3,300 tons per day in year 1998. Design of the new plant is based on latest dry process technology, energy efficient and environmental protection from particulate pollution according to the international standards. The plant and machinery was supplied by M/s F.L. Smidth of Denmark. As a result, DGKCC emerged as the largest cement production plant in Pakistan with annual production capacity of 1,650,000 M tons of clinker (1,732,000 M.Tons Cement) constituting about 10% share of the total cement production capacity of the country. The optimization plan is still underway to increase the total capacity of the two units to 6700 TPD by mid of 2005 from 5500 TPD at present.

Expansion -Khairpur ProjectFurthermore, the Group is also setting up a new cement production line of 6,700 TPD clinker near Kalar Kahar, Distt. Chakwal, the single largest production line in the country. First of its kind in cement industry of Pakistan, the new plant will have two strings of pre-heater towers, the advantage of twin strings lies in the operational flexibility whereby production may be adjusted according to market conditions. The project will be equipped with two vertical cement grinding mills. The cement grinding mills are first vertical Mills in Pakistan. The new plant would not only increase the capacity but would also provide proximity to the untapped market of Northern Punjab and NWFP besides making it more convenient to export to Afghanistan from northern borders.

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Power GenerationFor continuous and smooth operations of the plant uninterrupted power supply is very crucial. The company has its own power generation plant along with WAPDA supply. The installed generation capacity is 23.84 MW.

Environmental ManagementDG Khan Cement Co. Ltd., production processes are environment friendly and comply with the World Bank’s environmental standards. It has been certified for “Environment Management System” ISO 14001 by Quality Assurance Services, Australia. The company was also certified for ISO-9002 (Quality Management System) in 1998. By achieving this landmark, DG Khan Cement became the first and only cement factory in Pakistan certified for both ISO 9002 & ISO 14001...

BOARD OF DIRECTORS Mrs. Naz Mansha Chairperson/Director

Mian Raza Mansha Chief Executive/Director

Saqib Elahi Director

Khalid Qadeer Qureshi Director

Mohammad Azam Director

Zaka ud din Director

Inayat Ullah Niazi Director & Chief Financial Officer

Why cement sector for our projectAt the time of independence in 1947, only one or two units were producing grey cement in the country. During the decade of 1948-58, the number of cement units increased to six. During the Ayub era the economy started to grow and the construction activities underwent a boom. To meet the growing demand of cement new units were set up. During the decade of 1958-68, the number of cement units increased from 6 to 9. During the following period of Zulfiqar Ali Bhutto all the industrial units, including cement industry, were nationalized, therefore, no new unit was set up during 1971-77. During the period of General Zia-ul-Haq, 1977-88, denationalization of industrial units boosted the investments. Housing and construction industries picked up and the demand for cement increased. Thus, the number of cement units increased from 9 to 23 and finally 24.The cement industry in Pakistan has become a long way since independence when country had less than half a million tones per annum production capacity. By now it has exceeded 10 million tones per annum as a result of establishment of new manufacturing facilities and expansion by existing units. Privatization and effective price decontrol in 1991-92 heralded a new era in which the industry has reached a level where surplus production after meeting local demand is expected in 1997.

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The cement industry is needed a highly important segment of industrial sector that plays a pivotal role in the socio-economic development. Through the cement industry in Pakistan has witnessed its lows and high in recent past, it has recovered during the last couple of years and is buoyant once again.

There are total number of units are 23, from which 4 units are in the public sector while the remaining 19 units are owned by the private sector. Two of the four units in the public sector had to close down their operations due to stiff competition and heavy cost of production. The cement plants are located in every province of Pakistan.

The province-wise distribution of cement plant is as under.

Providence Units Capacity (Million Tons)Punjab 8 7.488Sindh 8 3.851NWFP 6 4.945Baluchistan 1 0.758Total 23 17.040

Three additional cement plants with installed capacity of over 2.1 million tons are in the final stage of completion despite the available excess capacity in this sector. The following table shows installation of new cement factories and expansion of the existing facilities during the current decade.

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The industry is divided into two broad regions, the northern region and the southern region. The northern region has over 87 percent share in total cement dispatches while the units based in the southern region contributes 13 percent to the annual cement sales.

Name of company New/ Expansion Year of Commission

New Capacity Created(Tons)

Northern RegionAskari Cement Expansion 1964 945,000Askari cement New 1996 630,000Bestway cement New 1988 1,039,500D.G Khan cement Expansion 1988 1,039,500Fauji cement New 1997 945,000Lucky cement New 1996 1,260,000Maple Leaf cement Expansion 1998 1,039,500Pioneer cement New 1994 630,000Sub-Total 7,528,500Southern RegionEssa cement Expansion 1988 315,000

Total 7,843,500

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INDUSTRY REVIEWThe cement industry of Pakistan again set a new record and sold 30.112M tons during FY 2008 against 24.222M tons last year, with a growth of over 24%. During the period under report the capacity utilization of the industry was 81% against 79% last year. The slight increase in capacity utilization is due to the fact that during the year industry added another 6.5M tons of new capacity.Pakistani Cement industry fully tapped the export prospects of cement and managed to export hefty 6.610M tons against 2.797M tons last year. The cement manufacturers fully poised to explore new export markets. Contrary to past, now the cement is being exported not only to regional neighboring countries, rather Pakistani cement is finding its place in South East Asian countries, Russia and in African countries as well.Clouds of recession are hovering over the economy of Pakistan and having achieved consecutive growth of over 6% in real GDP during last four years, economic growth slowed down to 5.8% in FY 2008 against 6.8% recorded last year. Demand of cement is directly related with prevailing economic conditions. During FY 2008 cement sales in the country remained bleak due to uncertainty in political and economic front coupled with fading law and order situation. Total sales in the country were 22.395M tons against 21.034M tons last year, witnessing an increase of only over 6%. Dilemma of price war among the cement manufacturers to find out the market share has badly affected the financial health of the

cement sector. In addition, all time high oil and coal prices coupled with expanding inflationary trend in the country hit badly the cost of production. Going forward, monetary tightening stance of the State Bank of Pakistan to curb inflation in the country posed additional burden in the form of increased lending rates.

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Overview of income statement

Overview of Income statement 2008 2007 2006 2005 2004Sales 12,445,996 6,419,625 7,955,665 5,279,560 3,882,756

Cost of sales -10,530,723-

4,387,640-

3,992,822-

3,330,769-

2,497,262Gross profit 1,915,273 2,031,985 3,962,843 1,948,791 1,385,494

Administrative expenses -111,658 -104,169 -121,953 -76,480 -68,645Selling and distribution expenses -561,465 -65,122 -34,352 -60,905 -38,560

Other operating expenses -581,913 (139,721 -191,850 -93,786 -61,735Other operating income 847,344 479,420 294,114 707,692 128,462Profit from operations 1,507,581 2,202,393 3,908,802 2,425,312 1,345,016

Finance cost -1,749,837 -467,759 -450,696 -304,041 -224,601Share of loss of associated companies -8,674 -14,163 -9,573

Profit\ Loss before tax -250,930 1,720,471 3,448,533 2,121,271 1,120,415

Taxation 197,700 -98,000-

1,030,078-439,193 -325,922

Profit\ Loss for the year -53,230 1,622,471 2,418,455 1,682,078 794,493Basic earnings per share Rupees -0.21 6.43 10.37 9.12 4.31

Diluted earnings per share 6.43 9.14 7.82 3.78

Overview of Balance sheet

Overview of Balance sheet 2008 2007 2006 2005 2004

Capital and Reserve30528440 33923185 19268200 9317998 6317055

Non-current Liabilities 10250352 10430917 9020740 5642649 3020575

Current Liabilities 12899306 7390229 6015436 3055858 2376989

Assets

Non-current Assets 33835927 32529377 24394481 13819736 8833476

Current Assets 19842171 19214954 9909895 4196769 2881143

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Liquidity Position with Graphical Presentation

Liquidity Position

Liquidity Position 2008 2007 2006 2005 2004

Current Ratio 1.54 2.60 1.65 1.37 1.21Acid Test Ratio 1.22 2.33 1.44 0.96 0.64Cash Ratio 1.18 2.31 1.43 0.94 0.62

The liquidity position of DGKC deteriorated during the first nine months of FY'09. This was due to a 40% decrease in current assets and a 14% increase in current liabilities if the company. The current liabilities of the company increased due to 14% rise in trade payables, 61% increase in accrued markup and around 7% increase in short term borrowing by the company.On the other hand, current assets of the company declined due to decrease in investments from Rs 15 billion at the end of FY08 to Rs 7 billion at the end of March FY09. Also the cash and bank balance of the company decreased by 22%. Thus, decrease in current assets and a corresponding increase in current liabilities resulted in a less favorable liquidity position as compared to that in FY08.DGKC's liquidity stance had been strengthening since FY04 and in FY07 its liquidity position was the most favorable. The increase in current assets had brought about this change. There was a 98% increase in short term investments. Furthermore, the cash and bank balances had also risen considerably. In FY08 the current assets of the company declined slightly but a 63% rise in current liabilities caused a decrease in the liquidity of the company. Investments constitute nearly 79% of the company's total current assets and they declined by 11% in FY08. The investments decreased further from Rs 15 billion at year-end FY08 to Rs 10.9 billion by end of 1Q09.

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Activity Ratios

Activity Ratios 2008 2007 2006 2005 2004

Days Sales in Receivables

13.57 days 8.20 days 3.40 days 5.27 days 4.95 days

Account Receivables Turnover

41.02 times58.78 times

105.79 times 81.94 times73.78 times

Account Receivables Turnover in Days


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Activity Ratio

2008 2007 2006 2005 2004

Inventory Turnover in days


Inventory Turnover

13.19 times 16.83 times 24.40 times 16.67 times 8.36 times

Days Sales in Inventory


Operating Cycle

Activity Ratio

2008 2007 2006 2005 2004

Operating Cycle

36.55days 27.89 days 18.41 days 26.34 days 48.58 days

Debt Ratios

Debt Ratios 2008 2007 2006 2005 2004

Debt to Tangible net worth 77 52 78 93 85

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Debt To Equity Ratio 76 53 78 93 85

Debt Ratio 43 34 44 48 46

The debt management ratios of DGKC showed a positive trend during FY07. The debt to asset and equity ratios as well as the long-term debt ratio all receded during the period and this reflected a reduction in the company's dependence on debt financing. However, during FY08 the debt ratios of the company rose because the total debt increased in FY08 mainly due to a 63% increase in the current liabilities which form 55% of the total debt.

Long term debt however decreased. The long term debt to equity increased because of a decline in the equity base due to fall in reserves. The TIE ratio continued to fall in FY08 against a positive trend that prevailed before FY07. The reason is substantial rise in finance charges due to high interest rates in the economy.Also the operating income in FY08 decreased, thus reducing the extent to which operating income can decline before the firm is rendered unable to meet its interest costs. Due to the losses that DGKC experienced in FY08 and the decrease in profitability during July-March FY09, its Earning per Share (EPS) and Price to Earning (P/E) Ratio have been negative. During July-May 2009 the share price averaged around Rs 31.1.This shows that the dismal profits of the company have started reflecting in the low investor confidence and falling share price. The average share price of DGKC had hovered around Rs 100/share except during the fourth quarter of FY08 when share price fell well below the average. The management did not recommend any dividend for FY08 due to the dismal profitability situation in the period.

Profitability Ratios

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Profitability Ratios 2008 2007 2006 2005 2004Gross Profit Margin 15 32 49 37 36Operating Profit Margin 12 34 49 46 35

Net Profit Margin 7.84 25 31 31 20

After experiencing declining profitability during FY08, the cement sector came back strongly to post a growth of 167% in earnings during first quarter (July-September) of fiscal year 2009. The cement sector posted profit after taxation of Rs 1.3 billion in first quarter of FY09 as compared to Rs 500 million in the corresponding period of a year earlier.This growth was mainly due to higher local retention prices and depreciation of the rupee against the dollar that resulted in an increase of rupee-based export sales. The net sales of the cement sector in the period July-March FY09 was 58% higher than the net sales generated during the corresponding period of FY08. It is believed that the profits of cement companies increased due to an arrangement among them to keep prices high in the local market.However, higher sales revenue could not be translated into an increase in profits during the period. Increased costs of sales, operating expenses and finance expenses caused the profitability of DGKC to remain low during July-March FY09. The cost of sales of the company increased by 30% during the period and resulted in a gross profit of Rs 3,733 million.The furnace oil/coal costs for the period July-March FY09 was Rs 5,258.6 million as compared to Rs 3,095.7 million during the corresponding period of FY08. The electricity and gas costs were lower, however, the cost of raw material and packing material consumed increased by 12%. The administration expenses increased by 31% while the selling & distribution expenses increased drastically by 456% (from Rs 246 million in July-March FY08 to Rs 1,370 million in July-March FY09).Selling expenses may have increased due to higher transportation costs involved with exports and higher fuel costs. Also, the finance costs increased substantially by 77% as interest rates rose owing to tight monetary policy and liquidity crunch in the market.

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These rising costs greatly hampered the profitability of the company and resulted in a profit after taxation of Rs 321 million in the period July-March FY09, which is 34% lower than the profit (Rs 487 million) during July-March FY08. Therefore, the earning per share (EPS) of the company declined from Rs 1.92 in July-March FY08 to Rs 1.27.

Profitability - Financial Year 2002 to Financial Year 2008

The profitability ratios of the company have shown a declining trend since after FY05. The gross profit margin increased in FY06 only to fall in FY07 and FY08. The profit margin of the company has decreased continuously along with return on assets (ROA) and return on equity (ROE).The profit after taxation had declined by 33% in FY07 due to lower net retention prices caused by a supply overhang in the overall industry. Also the problem of rising input costs had begun in FY07. This rise in cost of production and raw material have continued into FY08 and further aggravated, causing the declining trend of the profitability of DGKC.Despite a strong growth in cement dispatches, the cement sector experienced declining profitability during FY08. The profitability of the sector fell by 73.6% to Rs 562 million till March 2008 from Rs 2,133 million in the corresponding period of FY07. Although the sales volume of the cement companies increased, the net sales revenue did not increase to an equal extent due to decrease in net retention prices in the sector.Over the years all cement manufacturers undertook huge capacity expansion plans. This created a situation of excess supply in the market. Companies resorted to price wars leading to a fall in prices and reduced the profit margins for the companies. The average cement price during the period July-March FY08 was Rs 128.3 per bag as compared to Rs 133.6 per bag in the same period in FY07.Similar was the case with DGKCC. Increased production facilitated higher sales volume which in turn translated into almost doubling of sales revenue in FY08. The company had earned the highest sales revenue of Rs 12.445 billion in FY08. However, despite this, the gross profit of DGKC in FY08 (amounting to Rs 1.9 billion) was around 6% lower than the gross profit posted in FY07 (Rs 2.0 billion).The reason for lower gross profit was a 140% increase in the cost of sales during the fiscal year. Major input costs increased and dampened the profitability of DGKC and resulted in a loss after taxation of Rs 53.230 million in FY08 against a profit after taxation of Rs 1.622 billion in FY07. The cement manufacturers in the industry were faced with rising fuel and power costs during FY08.The cost of production for the cement companies went up due to rise in the prices of imported coal. The cement companies in Pakistan have shifted from oil to coal or gas during the past few years. Coal is now used as a basic fuel by all cement manufacturers. Pakistan has huge reserves of coal, but cement companies are compelled to import it, as local coal has high sulphur content.Crude oil prices shot up during FY08 and had its impact on prices of coal and natural gas. The rise in the costs of international coal prices has been one of the biggest reasons behind the dampening of gross margins of cement companies during FY08. There was a nearly 50% rise in the coal prices in FY08Along with the hike in the international coal prices, the depreciation of the rupee against the dollar also added to the cost of importing coal. Finance charges rose due to higher interest rates, long term finances, short term borrowing and inclusion of workers' profit participation fund in FY08.

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Assets Utilization

Asset Utilization 2008 2007 2006 2005 2004Sales to Fixed Assets 54 43 108 80 62Return on Operating Assets

24 33 10 13 11

Operating Asset turnover

20 9.6 20 28 33

Return on Assets 18.5 3.8 23 11 6.60

The performance of DGKC in terms of asset management was weak during FY07. During the year, the inventory turnover (days) of the company more than doubled compared to FY06 when the management of inventory seemed most efficient (evident from the lowest inventory turnover in days). This could be traced back to lower sales revenue for the period, coupled with a higher stock of inventory.

At the same time, the average time taken by the company to recover cash from sales also increased. The increase in inventory turnover in days and Days sales outstanding (DSO) prolonged the operating cycle of the company in FY07.

However, in FY08 the asset management of DGKC improved as the inventory turnover rate increased because the company earned sales revenue more in proportion to the increase in inventory. Thus the days to convert inventory into sales became less (from approx. 100 days in FY07 to 79 days in FY08).

Although the days to convert sales into cash (DSO) increased slightly, the substantial decrease in ITO (days) led to the shortening of the operating cycle in FY08. The days sales outstanding was higher because the trade debt increased substantially (by 153%) during FY08 as against sales.

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Besides this the sales to equity and total asset turnover of the company which had a declining trend till FY07 increased in FY08. The sales to equity ratio had been decreasing because of an increase in the paid up capital. But the trend was reversed in FY08 because the paid up capital remained same while the reserves fell, causing a decrease in the equity base of the company.

Also higher growth in sales increased the sales/equity ratio. Total asset turnover also improved because the management of the company's assets was effective in generating higher sales revenue. The company's performance in the area has improved as full-scale production from the newly inaugurated Khairpur plant has augmented the sales.

Return on Investment

Return on total equity

Return Ratios

2008 2007 2006 2005 2004

Return on Investment

2.92 5.34 12.58 15.47 10.07

Return on Total Equity

0.30 0.37 17 22 13

One of the most important profitability metrics is return on equity [or ROE for short]. Return on equity reveals how much profit a company earned in comparison to the total amount of shareholder equity found on the balance sheet. If you think back to lesson three, you will remember that shareholder equity is equal to total assets minus total liabilities. It's what the shareholders "own". Shareholder equity is a creation of accounting that represents the assets created by the retained earnings of the business and the paid-in capital of the owners. The return on Equity has decreased drastically and there is quite a hell of decrement in ROE, which is not very much encouraging for the investors in shares.

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Investment Ratios

Degree of financial leverage Earning per common shares Price earning ratio

Investment ratios2008 2007 2006 2005 2004

Degree of financial leverage15.48 1.27 1.13 1.14 1.20

Earning per common shares0.017 0.60 0.10 0.76 0.35

Price earning ratio258.08 4.81 3.38 3.96 8.19

A leverage ratio summarizing the affect a particular amount of financial leverage has on a company's earnings per share (EPS). Financial leverage involves using fixed costs to finance the firm, and will include higher expenses before interest and taxes (EBIT). The higher the degree of financial leverage, the more volatile EPS will be, all other things remaining the same. Most likely, the firm under evaluation will be trying to optimize EPS, and this ratio can be used to help determine the most appropriate level of financial leverage to use to achieve that goal. The company’s ratio ha increased dramatically in the year 2008 by 15 times. So there is quite a margin for company to get leveraged.The portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serve as an indicator of a company's profitability.

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Earnings per share are generally considered to be the single most important variable in determining a share's price. It is also a major component used to calculate the price-to-earnings valuation ratio. The EPS of company is fluctuating but in current year it has decreed drastically which is not a good sign for share holders. An important aspect of EPS that's often ignored is the capital that is required to generate the earnings (net income) in the calculation. Two companies could generate the same EPS number, but one could do so with less equity (investment) - that company would be more efficient at using its capital to generate income and, all other things being equal would be a "better" company. Investors also need to be aware of earnings manipulation that will affect the quality of the earnings number. It is important not to rely on any one financial measure, but to use it in conjunction with statement analysis and other measures. A valuation ratio of a company's current share price compared to its per-share earnings is Price Earning ratio. In general, a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. However, the P/E ratio doesn't tell us the whole story by itself. It's usually more useful to compare the P/E ratios of one company to other companies in the same industry, to the market in general or against the company's own historical P/E. It would not be useful for investors using the P/E ratio as a basis for their investment to compare the P/E of a technology company (high P/E) to a utility company (low P/E) as each industry has much different growth prospects. The P/E is sometimes referred to as the "multiple", because it shows how much investors are willing to pay per dollar of earnings. It is important that investors note an important problem that arises with the P/E measure, and to avoid basing a decision on this measure alone. The denominator (earnings) is based on an accounting measure of earnings that is susceptible to forms of manipulation, making the quality of the P/E only as good as the quality of the underlying earnings number.

Investment Ratios

Dividend payout ratio Dividend yield ratio Book value per share

Investment ratios2008 2007 2006 2005 2004

Dividend payout ratio19.83 23.62 48.31 28.37 27.74

Dividend yield ratio7.68 4.90 14.23 7.17 3.38

Book value per share18.74 20.87 16.62 7.80 5.29

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Indicates the proportion of earnings that are used to pay dividends to shareholders.A reduction in dividends paid is looked poorly upon by investors, and the stock price usually depreciates as investors seek other dividend paying stocks.A stable dividend payout ratio indicates a solid dividend policy by the company's board of directors. The situation of DG Khan Cement Co. Ltd. Shows increment in 2006 but from there is consistent decrement in this ratio by more than two times so company is trying to build there retained earnings instead of giving dividend.During bull markets the stock price is more likely to trade significantly higher than book

value, and in a bear market the two values may be close to equal. The dividend yield or the dividend-price ratio on a company stock is the company's annual dividend payments divided by its market cap, or the dividend per share divided by the price per share. It is often expressed as a percentage. There is quite fluctuations in this ratio which shows there is lack of stability in the company policy towards this section.Now if we look at the book value per share, as we know that somewhat similar to the earnings per share, but it relates the stockholder's equity to the number of shares outstanding, giving the shares a raw value. Comparing the market value to the book value can indicate whether or not the stock in overvalued or undervalued. During bull markets the stock price is more likely to trade significantly higher than book value, and in a bear market the two values may be close to equal.

Page 22


Univariate Model

1. Cash flow/Total debt

2. Net Income/Total Assets (Return on Assets)

3. Total debt/Total Assets (debt ratio)

Year Calculation in (Rupees’ 000) Values2008 23149658/53678098 43.13%2007 17821146/51744331 34.44

2006 15036176/34304376 43.832005 8698507/18016505 48.282004 5397564/11714619 46.07s

Page 23

Year Calculation in (Rupees’ 000) Values2008 (641970)/23149658 -2.773%2007 475661/17821146 2.672006 4190452/15036176 27.8692005 2484759/8698507 28.572004 945521/8698507 10.8

Year Calculation in (Rupees’ 000) Values2008 25685/53678098 0.047%2007 1622471/51744331 3.132006 2418455/34304376 7.052005 1682078/18016505 9.342004 794493/11714619 6.78


Multivariate ModelX1= Working Capital/Total Assets

Year Calculation in (Rupees’ 000) X12008 6942865/53678098 12.934%2007 11824725/51744331 22.852006 3894459/34304376 11.352005 1140911/18016505 6.33

2004 504154/11714619 4.30

X2=Retained Earning/Total Assets

Year Calculation in (Rupees’ 000) X22008 30202533/53678098 56.27%2007 33923185/51744331 65.562006 19259849/34304376 56.1442005 9317998/18016505 51.722004 6317055/11714619 53.9

X3=EBIT/Total assets


X4= Market value of equity/Book value of total debt

Year Calculation in (Rupees’ 000) X42008 253541157*30.97/23149658 339.19%2007 253541157*30.97/17821146 440.602006 184393569*30.97/1503176 379.792005 184393569*30.97/8698507 656.512004 167630518*30.97/5397564 961.82s

X5=Sales/Total Assets

Page 24


Page 25



DuPont Analysis

1. Dupont Return on Assets=Net profit margin*Total assets turnover

Year Calculation in (Rupees,000)Dupont Return on

Assets2008 7.84*0.24 1.882007 0.25*0.15 3.752006 0.31*0.74 22.942005 0.31*0.35 10.852004 0.20*0.33 6.60s

DuPont return on Assets has a decreasing trend. In 2008 net profit of co decrease due to high cost of goods sold. Co does not utilize its assets properly in 2008. In 2007 trend of this ratio is good. But in last 3 years it also has increasing trend.

2. DuPont returns on Operating Assets

Year Calculation in (Rupees,000)Dupont Return on operating Assets

20082007200620052004

DuPont return on Operating Assets decrease in 2008 as compare to 2007. Co utilizes its operating assets in 2007 as compare to 2008. Co invests in more long term investments. It is necessary for the co to change its policy.

Page 26


SWOT ANALYSIS

Strengths

1. Availability of Raw Material.

2. Imported Machinery and plants in most of companies, which provide better quality to over all process.

3. During fiscal year 2007-08, country exports stood at 7.712 million tones ($435 million) and Pakistan has already established its position as an exporter of cement and clinker in the region, Sources said the industry projections suggested that the cement industry exports would reach to $735 million by the end of 2008-09 and it would touch $1.043 billion by the end of 2009-10.

4. Availability of foreign investment and loans has also played an important role in softening the demand for bank credit. The moderation in fixed investment demand in cement, construction and textile is more of a reflection of the fact that these industries had already expanded their capacities in recent years and floatation of debt instruments (e.g., chemical, cement, real estate and ship yard) in the domestic market cement, real estate and ship yard) in the domestic market

5. The compressive strength is a very important factor of cement. The Portland cement achieves its maximum strength in 28 days. The Pakistan standard PSS 232-1883 (R) & British Standard BS 12: 1978 provides for 28 days strength of 5000Psi and 5950Psi respectively for mortar cubes.

6. Cement industries in Pakistan are currently operating at their maximum capacity due to the boom in commercial and industrial construction within Pakistan.

7. Effect of GDPFollowing effects of GDP will govern the growth of cement industry in

Pakistan1. Higher GDP growth has positive impact on cement demand2. Cement demand growth rate was double the GDP growth rate in last

three years3. GDP growth is expected to continue to have same positive impact on

demand growth

8. Housing demand to grow:Following indications have showed a considerable demand of cement in

Pakistan: Housing projects consume roughly 40% of cement demand Currently 0.3mn houses are built annually against demand of 0.5mn Low interest rates, post 9/11 remittances’ inflow, and real estate boom have

helped housing sector growth Easy mortgage availability and announcement of low cost housing schemes will

determine housing sector growth in the long-run.9. Government’s development spending shall continue to rise due to:

Government development expenditures count for one third of total cement consumption

Page 27


Increase in development expenditures has helped cement demand to grow at very high rates

Increase in PSDP- as announced in Medium Term Development Framework 2005-10 will help cement demand to grow in the country

Infrastructure development in a region triggers private development projects having even positive impact on cement demand

10. Pakistan cement industry is one the largest exporter in Asia, major markets are of Afghanistan and Iraq will be after peace. It’s increased GDP by exports, providing cements in Large Dams Project and earthquake rehabilitations projects.

11. Laboratory testing facilities meeting all American and European standards and Vertical cement grinding mills.

12. Cement industry called major Performance Blue Chip in current economic survey 2007-08 because during the first three quarters of the fiscal year 2007-08, the combined paid-up capital of ten big companies was Rs. 91 billion, which constituted 13.17 percent of the total listed capital at KSE in which Fauji Fertilizer, DG Khan Cement, Lucky Cement played major role.

13. Today, we find a relatively better scenario as compare to past. Most of the cement plants, that used to operate on furnace oil, have now been converted into coal system, which has substantially reduced cost of production.

14. The most modern selection of production equipment possible in every major department of the plant.

15. Cement export to India through railway

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Most of the cement export to India is through railway. In order to facilitate cement export to India, the railways has doubled its cement capacity and increase its frequency of trains to India from Pakistan. This step has been taken by Pakistan Railways in order to increase cement export to India. Which is regarded as a highly profitable market?

16. Use of Coal

Coal is found in all the four provinces of Pakistan. The country has huge coal resources, about 185 billion tones, out of which 3.3 billion tones are in proven/measured category and about 11 billions are indicated reserves, the bulk of it is found in Sindh.

At present most of the cement companies have switch to coal or gas as their basic fuel; the process has been completed in the last 6 to 7 years. According to the data of the All Pakistan Cement Manufacturing Association of mid-2007, the cost of cement production per tone by furnace oil was around Rs2, 083 whereas the cost of production per tone by coal was Rs8, 68, saving Rs1, 215 per tone. Similarly, the saving per bag was Rs60.75, which is a huge difference. Reserves of coal can become strength for Pakistani cement industry if Pakistan import sulphur washing plant from European country than Pakistan cement industry is able to utilize local coal to meet its energy requirement

17. Cheaper labor

The labor of Pakistan is very cheap. This is the important strength of the cement industry as the cement companies of Pakistan has to pay less to there labor which result in saving of there income which later on can be utilized in the expansion of cement plant. Which will increase the cement production?

18. Good Domestic and Foreign Market

The export may reach to $ 500 million increase during 2008. Data for the first quarter of FY08 shows that Afghanistan is Pakistan’s largest cement export market. The prospects for cement exports seem bright in the medium term due to rising domestic as well as regional cement demand.

19. Good Government Policies

Government policies are in the favor of cement sector. Due to the government favorable policies the cement sector gets the highest growth rate of 21.11% among all the industries of Pakistan in year 2006-07. The total industry installed capacity is expected to reach 49.1 million tons per annum by FY10

20. High Quality of Cement

Page 29


Pakistan produces good quality of cement. This is the main reason due to which recently Russia is offering high price for Pakistani cement. Globally Pakistan is recognized for producing good quality of cement due to which countries like Afghanistan, India, Middle East and some African countries prefer to import cement from Pakistan.

Weaknesses1. The stage of industrial development, in most of the segments, is still at a very low

level of technology and the existing industrial base is very narrow and consists of very basic industries such as cement, sugar, textile, cigarette, edible oil, fertilizer, soda ash, caustic soda, PVC etc.

2. Since cement is a specialized product, requiring sophisticated infrastructure and production location. So, most of the cement industries in Pakistan are located near/within mountainous regions that are rich in clay, iron and mineral capacity. Structure of Cement industry in Pakistan is as such that there is not much substitutability to buyers. Which shows that the Cross elasticity of demand is negligible.

3. The customer has no choice at all to switch between two brands of cement due to cartel of all of the cement manufacturers in Pakistan.

4. The freight charges are a massive 20% of the retail prices. The plants located very close to each other and tapping the same market will have to expand their markets which will increase their freight expenses. Dandot, Pioneer, Maple Leaf and Garibwal are all located within a radius of 100 kilometers and are selling bulk of their production in the same areas and will thus face serious competition from each other.

5. Consumers face a tough decision with regards to prefer which brand over which because of the similar pricing of cement industry. The formation of cartel by the cement manufacturers have exploited local consumers a lot and this has led to the concentrated degree of oligopoly, where the firms are acting as a single unit to perform their monopoly. Their combined market power is simply a diluted version of the dominance that a single firm with a monopoly market share can exert.

6. Increase freight charges

Exporters of the cement often complain that railways freight charges for carrying cement from Lahore city to the border of India are Rs500 per ton ($8 per ton) while it covers only 35 km. Against this, they say on the Indian side, the freight is only $3 per ton for bringing goods from Chundrigar to the border area. Cement exports have been badly hit by high fee that is being charged by trucks and also by foreign shipping companies for the haulage of cement from Pakistan to India. This increase in freight charges effect our exports due to which our exports is declining

7. Logistic Problem

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Some of the cement companies of Pakistan have received orders from Russia with a price tag of Rs 860 per bag. But our logistics is the biggest hurdle in the way as our transportation system is not good enough to transport cement to Russia due to which our cement companies might lose the chance to capture the Russian market which is a highly profitable market.

8. Usage of Paper bag

Pakistani cement companies export there cement in paper bags because paper bags are cheap as compared to plastic bags. But the Cement exported in paper bags is against the International standards and companies have to pack the cement in plastic bag. The cement export to India could be affected by the shortage of plastic bags used for transporting the commodity. Although there are two companies that are manufacturing plastic bags for cement but they are not able meet the demand. So that’s why Pakistan cement companies export cement in paper bags.

9. Idle capacity of various players:

The biggest problem of cement industry is the idle capacity of various players. As many cement players are not operating at there full capacity.

Threats1. Unanticipated increase in interest rates or less than expected demand growth might

create severe crises for the sector couple of years forward2. Lack of demand or depressed demand in future will prove to be lethal for the sector

that has just started to recover from the miseries of 90s. Lack of demand forced cement units to operate at very low capacity utilization in nineties. There was a fierce competition among cement manufacturers.

3. A price war was witnessed which ended up with no conqueror. Similar apprehensions exist for the future when there will be plenty of excess capacity. Any hurdle in the growth of cement demand may force the sector into the price war. Yet,

Page 31


we expect cement manufacturers to act prudent and learn lesson from the history. Any mistake, similar to the one made in the last decade, will again coerce the sector into the era where all are losers with no winner.

4. Main component of the cost is fuel. Pakistan's cement industry has converted their plants to coal considering it to be the cheapest fuel, but its price in international markets has gone up by more than 300 per cent in the last one year, which directly relate increasing the cost of production.

5. The demand of cement falls heavily during rainy weather in the country, which directly affects the running cost of a unit. It is only the rising levels of cement exports, which are sustaining the industry.

6. Instead of appreciating the marketing skills of cement entrepreneurs to explore new markets for cement, the industry is being pressurized constantly without realizing that any reduction in cement exports from Pakistan will not only deprive the country of foreign exchange ($2 billion this year), but will also result in losses to the industry.

7. The burden of increased input costs has to be borne by the consumers. It is only the government, which can provide relief to the consumers by cutting down or abolishing the central excise duty.

8. Problems of oversupply situation:

Following problems might arise with the oversupply situation in cement industry:

Lower capacity utilization will reduce benefits of economies of scale. High leverage will also adversely affect profitability of new plants.

New plants will gain market share at the cost of older players, which are not undergoing expansion. Large idle capacity is will create panic in players and this may result in price wars in the coming years.

9. IMF Package in Future can cause to decrease GDP and economical development in Pakistan. Which will also be cause to stop development of infrastructure? So it will have huge effect on cement industry also.

10. Indian and Iran industry is also expanding its cement capacity

Presently, India faces an acute cement shortage in its Southern states of Tamilnado and Madras and in north Punjab. However, reports indicated that the Indian industry is also working on a fast track to expand their capacity in these regions to off-set the shortfall Major capacities of countries like India and Iran are expected to come online by FY10 and onwards which are likely to convert these countries from dependent importers to potential exporters.

11. High energy prices

Recently cement industry of Pakistan is facing high energy prices due to increase in the international prices of coal and oil. As our coal contain high percentage of sulphur. Due to which Pakistan cement industry is not able to use local coal as a source of energy. Due to which Pakistan cement industry has to import coal from different countries at high prices. High finance and depreciation cost as Pakistan cement industry is expanding its capacity to

Page 32


get the proper advantage of strong demand of cement in different countries. The total industry installed capacity is expected to reach 49.1 million tons per annum by FY10 and because of higher expansion finance and depreciation cost is also going to rise by the FY10.

12. Decrease profitability due to competition in cement industry

The sharp decline in cement prices has been witnessed due to domestic competition among producers has dampened the profitability of the industry. This increase in competition among the players has further decreased the prices of cement in the local market. The cement manufacturers decrease the prices of there products in order to get high market as compared to its competitor.

13. High level of taxation

Presently, the cement industry of Pakistan is heavily burdened due to levy of Federal Excise Duty @ Rs. 750 per ton and General Sales Tax @ 15% on duty paid value. In addition to Federal Excise Duty and General Sales Tax, cement industry is also paying the provincial levies (Royalty and Excise Duty) on acquiring of raw material for production of cement i.e. lime stone and shall clay.

Opportunities

1. The local cement industry faces high upfront fuel costs. In order to facilitate their conversion to coal, which is widely available in the country, the government has given incentives for imported plant and equipment for coal firing units.

2. The demand of Pakistani cement is expected to continue to grow at the rate of 20 per cent for about four years to come. It may then follow traditional growth rate of seven per cent per year. Announcement of major dams will dramatically increase this demand.

3. Deregulation after accession of Pakistan to WTO is expected to open the window of competition from cheaper markets. There may be no tariff after this deregulation on import of cement allowing its entry into Pakistan from cheaper market at lower rate. Cement from cheaper markets may also block Pakistan’s export of cement to its neighboring countries. Global market has vigorously taken up the advantage of economy of scales and multinational giants now control more than 40 per cent of world production (China not included). The recent acquisition of Chakwal Cement by an Egyptian giant, Orascom may be a beginning of such an entry in Pakistan by multinationals. New avenues for export of cement are opening up for the indigenous industry as Sri Lanka has recently shown interest to import 30,000 tons cement from Pakistan every month. If the industry is able for avail the opportunity offered, it may

Page 33


secure a significant share of Sri Lanka market by supplying 360,000 tons of cement annually.

4. Government Development Expenditure

Government development expenditures count for one third of total cement consumption. Increase in development expenditures has helped cement demand to grow at very high rates. Increase in PSDP- as announced in Medium Term Development Framework 2005-10 – made the cement demand to grow in the country. Infrastructure development in a region triggers private development projects having even positive impact on cement demand.

5. Construction of large dams

Construction of four large dams will generate demand of 3.7mn tons as construction activities start. Our estimate does not include demand generation from Skardu-Katzarah dam as its feasibility study in not yet completed. Extent of demand generation will depend on size of dam, type of dam, and extent of relocation/resettlement activities required. Bhasha dam will generate maximum demand as it is RCC concrete dam whereas other

dams being Earth fill/Rock fill dams will require less cement for their construction. Resettlement activities for Kalabagh dam will generate maximum demand as it is located in a highly populated area.

6. Improved access to regional market

Afghanistan is Pakistan’s largest cement export market. The prospects for cement exports seem bright in the medium term due to rising domestic as well as regional cement demand. Pakistan also achieved improved access to

Page 34


India after the complete removal of the 12.5 percent custom duty on Portland cement imports in this country from January 2007, showing improved export opportunities for Pakistan. India is planning to import more cement from Pakistan to stabilize prices in the market and the government wants a balance in demand and supply of cement in the current fiscal year. The import of cement from Pakistan has increased manifold during last four months. India has registered a number of Pakistani cement manufacturers, a requirement to facilitate import of cement. Pakistan has already increased the frequency of trains from one to three in a week to carry cement from Pakistan to Wagah border. Due to boom in the construction industry, India needs cement in bulk to meet its growing needs.

7. Demand of Pakistani cement by Russia

Fresh enquiries have been received from Russia and buyers are quoting very attractive prices as Pakistani cement quality is of very high standard and holds good strength.

8. Earthquake in China

In the month of May china is hit by severe earthquake having the magnitude of 7.8 this earthquake has cause the serious destruction in china. This disaster is also an opportunity for Pakistan cement industry to export cement to china.

9. High prices of cement in the international market

Cement exports are expected to soar by a massive 107 per cent due to the primary source of overall cement growth in FY08, the high exports owing to the cement supply shortage in India and Middle East which lead to rocketing cement prices in the region.

10. Increase in demand of cement due to the up coming sports event

South Africa is schedule to host the football world cup of 2010 due to which they need to make the football stadiums for the World Cup and Sri Lanka are also expected to approach Pakistani companies for cement imports because Sri Lanka to co-host the cricket world cup of 2011.

Page 35


Recommendations

We would like to conclude this report by ranking overall sector as “Neutral”. We remain neutral on the sector because on hand expansion is the need of hour. Due to expected growth in demand, current capacity appears inadequate. On the other hand, expansion plans set up by the various players of cement sector to grab demand expansion might cause sector to overflow. Along with risk of being oversupplied, unanticipated increase in interest rates or less than expected demand growth might create severe crises for the sector couple of years forward. Weighing risks and rewards, we remain “NEUTRAL” on the sector.To break-up cement manufacturers cartel the Competition Commission of Pakistan raided offices of Association of Cement Manufacturers of Pakistan and confiscated official record. The association condemned this action and said it is against business norms. They accused Commission for blaming cement manufacturers for making a cartel for the last 10 years but could not able to prove it. The capital structure of cement companies may change, as most of the expansions during last two to three years have been debt financed and companies are expected to retire these debts rapidly during next three to five years. Moreover, the slow down in economy may occur due to political uncertainty, which might result in reducing cement demand in future.However, in case of construction of hydro-powered dams, there will be a sudden jump in the local sales of those companies located near these dams.

Consolidation is needed for industry stability because of following observations.1. Cartels are unstable by their nature.2. Industry needs one or two dominant players for long-term sustainability in prices and profits3. Top four players command 35% of market share in the industry that will be increased to 46% in FY08.4. World norm is that top four players have more than 60% market share5. Consolidation process will be needed to increase market share of larger players rather than going for capacity expansions6. We may see acquisitions in the industry as the industry goes through overcapacity cycle.

Page 36


International TrendAlthough international energy prices have declined recently, any beneficial impact on margins has largely been negated by substantial depreciation of Pak Rupee. PACRA, therefore, believes that the performance of cement companies could weaken further impacting their financial profile. Pakistan's cement industry is poised to face a tough challenge as the regional markets, mainly China and India, are likely to emerge as competitors in the export market, following a slowdown in their domestic economies and enhanced production capacity.

Page 37


FUTURE OUTLOOKIn the budget FY09 the central excise duty on cement was increased to Rs 900 per ton from current Rs 750 per ton. On each bag the CED increased by Rs 7.50 per bag (from Rs 37.5 per bag to Rs 45 per bag). This increase was not expected to impact the profits of the cement sector because this increment in CED was expected to be passed on to the consumers. However, the rise in the GST by 1% was anticipated to cause an increase in the local cement prices and dampen the demand for cement. Local cement dispatches are expected to remain depressed due to slow down in economy led construction activity in the country and also due to inflation. The government had allocated Rs 550 billion for PSDP in the budget FY09, however owing to budgetary deficit; the government later cut the PSDP expenditure.Cement consumption is correlated to the GDP growth and as the economic condition now stands, we can predict a slowdown in the GDP growth of the country. Thus the per capita cement consumption will also fall during FY09. Exports have so far shown a strong growth and supported the total cement dispatches. Cement manufacturers have been focusing on the international markets to achieve growth in sales

Pakistan has been exporting to Afghanistan. Regional shortage of cement had presented a favorable opportunity for our cement manufacturers. Cement demand in Afghanistan is expected to be 1.5m-2.0m tons per annum for the next few years. Cement manufacturers have growing opportunities in Middle East and African countries. New export markets like Russia and European countries have been identified.

Growth in export sales may boost the margins of the industry and reduce the negative impact of rising costs on its profitability. However, the effects of global recession have started to impact international demand for cement. Indian market, which was a window of opportunity for Pakistani cement manufacturers, has been closed as India banned import of cement from Pakistan due to escalating tensions between the two countries.

Expenses are expected to increase for cement manufacturers. This will negatively impact the gross margins of the cement sector. During the past, our cement manufacturers shifted production from oil to coal or gas. Pakistan has huge reserves of coal but manufacturers need to import coal because the local coal has high sulphur content.

The coal prices in the international market have fallen during the 3rd quarter of FY09 and will result in lower cost of production in the future. However, the full positive effect of lower coal prices may not be achieved because of the depreciation of Pakistani rupee which will neutralize the impact of decreasing international coal prices. Also the government has raised the power tariff by nearly 50% with variable rates for peak and off peak hours.

The gas prices have also risen. This will increase the cement manufacturers' cost of production and impact their profitability in FY09. The recent cut of 100 basis points in the discount rate by the SBP is expected to lead to further expansionary monetary policy. Interest rates may go down and result in lower financial costs of debt for the company.

DGKC seems to be all set to tap new markets for cement exports. The company's largest Vertical Cement Grinding Mill at D.G. Khan Site has started operations. After the start of grinding mill additional quantities of cement will be available. Increased production will help

Page 38


DGKC to aggressively export to new markets and generate higher sales. Also, it will help DGKC in energy saving and reducing maintenance cost.

DGKC is trying to cut down on costs that have significantly and adversely impacted its profits in FY08. To reduce electricity cost, DGKC has started a project of power generation from waste heat at DGK site. The project is expected to generate substantially cheap electricity of about 10.4MW without using any fuel. This would help to cut down the cost of production.

DGKC has also decided to use municipal solid waste as fuel for heating purposes. Thus, negotiations with equipment suppliers are underway and expected to be finalized soon. Also, DGKC is in contact with different city governments to enter into agreements for acquiring solid waste.

This project will be beneficial, as it would bring down the company's costs of production, help resolve the environmental issues related with disposal of solid waste and most important, it would save huge foreign exchange spent on importing fossil fuels.

Page 39


Annexure

Summarized Income Statement

Summarized Income Statement

2008Rs. In’000

2007Rs.In’000

2006Rs. in’000

2005Rs.In’000

2004Rs.In 000

Sales NetLocal SalesExport SalesLess.Excise DutySpecial Excised DutySales taxCommission to stockiestSales Net-.Cost of SalesRaw and Packing material usedSalaries and WagesElectricity and GasFurnace oilStores and Spares usedRepair and maintenanceInsuranceDeprecation on property plant and EquipmentDeprecation on assets subjects to finance leaseRoyalty Excise DutyVehicle RunningPostage Telephone ,TelegramPrinting and StationeryLegal and Professional ChargesEstate DevelopmentRent, Rates and taxesFreight ChargesOther Expenses

Opening W.I.PTransfer from Trail runClosing W.I.PCost of Goods ManufacturedOpening stock of finished goodsTransfer from Trail runClosing Stock of finished goods

-)Own consumption

14732445 2741111

2729046 99556 1929858250749 12464347

1368488 48035216447594597486 764204 98530 439041354192

3331

837312596215541538934801499963969825753207910534013142686 -(118292)10558407107804

(118863)(11059)19302105280461936301

8887306 511826

1679829

1159214 1404646419625

580717 293929 6053351902567 383159 2291321840469367

13108

4534915373715917849454996227411333969449438722916198950462(142686)44569945058

39300(69728)(25370)4398443876402031985

10348119 607817

1509449

1349755 1410677955665

46408023085447062521146673881131823320542341940

13203

43678168846980177414928844678387956807651415583750205 -(161989)404405319468

-(5058)144106564139928223962843

6730756 641351

1141756

877924 728675279560

3742871859143229791493514357762999723642330100

11311

316521045057241831158154839303091413948963177348210983 -(50205)333812638616

-(19468)191482650533307691948791

5392393 305191

990124

766497 582073882756

3305351619192179111123716338970963742235317155

6923

3028459095881137412765073179615045736742261411388603 -(210983)249173344145

-(38616)5529 -24972621385494

Page 40


CapitalizedCost of Goods SoldGross Profit-) Administrative ExpensesSalaries Wages ElectricityRepair and MaintainanceInsuranceDeprecation on property plant and EquipmentDeprecation on assets subjects to finance leaseVehicle RunningPostage Telephone ,TelegramPrinting and StationeryLegal and Professional ChargesTraveling and conveyanceRent, Rates and taxesEntertainmentSchool expensesFees and subscriptionOther ExpensesAuditors Remuneration Total Administrative ExpensesSelling and Distribution ExpenseSalaries Wages ElectricityRepair and MaintenanceInsuranceDeprecation on property plant and EquipmentDeprecation on leased propertyVehicle RunningPostage Telephone ,TelegramPrinting and StationeryRent, Rates and taxesTraveling and conveyanceEntertainmentAdvertisement and Sales PromotionFreight Charges-localFreight and Handling Charges-ExportOther ExpensesTotal Selling and Distribution ExpensesOther Operating ExpensesWorkers’ profit participation fundBook Value of Asset written offDonation

5715029851620168511956

126

354534412210352267831761136900419823424 -110745

354318752994971342

-194012351553343837202963395

14135492219

2595562970

-

97345000 -580953 -

-

595687

489582678132412779027

1571

5353273818973369610426992780849129662937 -104169

297276708842351132

-160313611094231214061892643

5019637

217965122

93145

-1105035112414 -

-

139721

409502684121031477261

1213

406660934983639410377256132776975345817304 -121953

23997443225172324 -1225855891127215612941569

23 -

150134352

182006

-9844 - - -

-

191850

310562566124330999742

4945

2678310319131365241087279561771855192673576480

174743451211397895

-81485591398110453981919

31239 -

241960905

83058 -4530 - - -

6198

93786

2734231251461199212425

1382

17523841125624712448439766594493736070468645

1461638340306900

8876594464349514323582213

13572 -

180538560

60829

- - - - 206 -

61735

Page 41


Worker welfare fundExchange lossLoss on Disposal of Property Plant and EquipmentLoss on Sale and Lease back transactionsTotal Other Operating ExpensesOther Operating IncomeIncome from Financial AssetsIncome on Bank DepositsInterest on Loan to EmployeesGain on derecognizing of investmentDividend Income From -Related Parties -OthersTotal Income from financial AssetsIncome from non financial assetsRental Income Profit on sales of property plant and assetsScrap SalesMark up on loansProvisions and unclaimed balances returned backExchange gainOthersTotal other operating incomeProfit from operationsFinance CostLong term finances- Long term loans- Preferred dividend- Non participatory

redeemable capital - Finance under markup- Provident fund-Short term borrowings-Finance leaseworkers profit participation fundLoss on derivative financial instrumentsLoss on Foreign currency forwardGuarantee commissionBank chargesTotal finance CostExcess of Acquire Interest in the net assets of acquireShare of loss of Associated company

727128 -

820303143821301

15924488

1039469731858

- -8466061513505

1040737 - -

- - 499413584522

205308

-

416515569(1766298)86194

(8674)

(175273)

108214(309167)

(5) -

1659182 -

465656118467615

16344490

41701208303 - -4794202202393

32318328281 -

- - 103324656498 -

-

18134496468173 -

(14163)

1720471

33000312435

-(247435)

363181 -

265763120266427

28473567

760945622116

6986 -2941143908802

30502735351 -

- - 7377212543101

-

17229

16794994450696

(9573)

3448533

405001027000

(32422)(5000)

582276543173

15228426696341

20023207

29112002729

-5007076922425312

1862673294265535351

42655 - -1243983

-

7804

14056860304041

-

2121271

40000464000

193(65000)

535290 -

3446085730121015

1980 -

38271351289

- -1284621345016

141701200493535112341

37 -986090

-

- -8714235224601 -

-

1120415

28700297000

10222(10000)

Page 42


Profit before Taxation-)TaxationFor the year- current- DeferredPrior Year-Current -DeferredTotal taxation

(200958)98000 1030078 439193 325922

Net Income 25685 1622471 2418455 1682078 794493

Page 43


Summarized Balance SheetSummarized Balance Sheet 2008 2007 2006 2005 2004Equity and LiabilitiesCapital and ReservesAuthorized Capital-950000000@ ordinary share10-50000000@ preference share10

Issued subscribed and paid up capitalShare deposit moneyReservesUn-appropriated profitTotal capital and ReserveNon Current LiabilitiesLong term financeLiabilities against subject to finance leaseLong term depositsRetirement and other benefitsDeferred TaxationTotal Non-Current liabilitiesCurrent LiabilitiesTrade and other payablesAccrued markupShort term borrowingCurrent portion of non-current liabilitiesDerivative foreign currency forward optionsProvision for taxationTotal Current liabilitiesTotal LiabilitiesAssetsNon-Current AssetsProperty plant and equipmentAssets subject to finance leaseCapital work in progressInvestmentsLong term loans, advances and depositsTotal Non-Current AssetsCurrent AssetsStores spares and loose toolsStock in tradeTrade debtsInvestmentsAdvances, deposits, prepayments and other ReceivablesCash and bank balanceTotal Current AssetsTotal

9500000500000100000002535412

-276347223239930528440

8871051393

7389054018125100010250352

145007439161081943302828202

-

350901289930653678098

24224273683924883076592332524176

33835927

2323883130032546344615082605427832

2440801984217153678098

9500000500000100000002535412

-29630084175768933923185

86864471141

7946739862162400010430917

102727434261239429722042281

-

35090739022951744331

2211755113337619070638174474196913

32529377

149629129514014424516933790229315

1161731921495451744331

250000050000030000001843937

835115085354233055819268200

737246828886

338142657215590009020740

140686934075726136951619025

-

35090601543634304376

7521723295058117596774482213335810

24394481

836049226286741658543763152465

77167990989534304376

250000050000030000001843937

-71965682774939317998

4899225131985

28674457655370005642649

1154426960620 -599674

306048

35090305585818016505

663723731726239831752610634271428

13819736

1035081100994762382769134121486

93836419676918016505

2500000500003000001676306

-

43890882516616317055

273057383487

30365381501380003020575

4939681360677 -487254

-

35090237698911714619

61280831665831126108138768125021

8833476

938847298538526221386816120329

83991288114311714619

Page 44


Horizontal Analysis of Income Statements

2008 2007 2006 2005 2004Net sales 321.01 % 165.34 % 204.89 % 135.97 100 %Cost of sale (421.58) (175.7) (159.89) (133.38) 100Gross profit 139.75 146.66 286.02 140.66 100administrative expense

(61.33) (151.75) (177.66) (111.41) 100

selling &dist. expenses

(145.98) (168.88) (89.09) (157.95) 100

other operating expense

(964.90) (226.32) (310.76) (151.29) -100

other Operating income

659.03 373.20 228.95 550.89 100

profit from operation 112.53 163.74 290.61 180.32 100finance cost (786.41) (208.26) (200.66) (1345.25) 100share of loss of associated company

- - - - 100

income before taxes 15.64 153.56 307.79 189.33 100Provision for taxation (61.66) (30.06) (316.05) (134.75) 100Net profit 3.23 204.21 304.40 211.72 100

Horizontal analysis of income statement shows that net sales of the Co has increasing trend. But on the other hand Cost of goods sold jump quickly. This is not a good trend. Cost of goods sold of the Co increases due to expensive raw materials. Gross profit of the co decreases from last years due to high cost of goods sold. Administrative and selling expense of the Co has decreasing trend. Other operating expenses of the Company are increasing quickly. Company is also increasing trend in other operating income. Profit from operations also decreases. Co also has high finance cost from last years. Income before taxes has decreasing trend due to high cost of goods sold and finance cost. Net profit of the Company is Very small as compare to last years.

Vertical Analysis of Income Statements

2008 2007 2006 2005 2004Net sales 100% 100% 100% 100% 100 %

Cost of sale (84.46%) (68.35%) (50.18%) (63.09%) (64.32%)Gross profit 15.35 31.64 49.81 36.91 35.68

administrative expense (0.88) (1.62) (1.53) (1.45) (1.77)selling &dist. expenses (4.52) (1.01) (0.43) (1.15) (0.99)

other operating expense (4.78) (2.17) (2.41) (1.78) (1.59)

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other Operating income

6.79 7.47 3.70 13.40 3.37

profit from operation 12.14 34.31 49.13 45.94 34.64finance cost (14.17) (7.28) (5.66) (5.76) (5.78)

Excess of acquires interest in the net assets

of acquire

0.69 - - - -

share of loss of associated company

(0.66) (0.22) (0.12)

income before taxes 1.41 26.80 43.34 40.18 28.86Provision for taxation (1.61) (1.53) (12.95) (8.32) (8.39)

Net profit 20.20 25.27 30.40 31.86 20.46

In vertical analysis of income statement shows that has high cost of goods sold from last years. Gross Profit of the Co has decreasing trend. This is decrease due to high cost of goods sold. Operative expense of the co has minimum portion in the income statement. Profit from operations also has decreasing trend. Share of loss of associated co also increases Income before taxes also decreases from last years. Provision for income taxes also has decreasing trend.

Horizontal Analysis of Balance Sheet

Assets 2008 2007 2006 2005 2004

issued subscribed & paid up capital

151.25 151.25 110.00 110.00 100

reserves 629.62 675.08 343.70 163.96 100accumulated profit total

12.87 698.43 926.07 110.26 100

Total - 537.01 305.02 147.51 100non-current Liabilities long term finance 324.88 318.12 269.99 179.42 100liabilities against assets subject to lease finance

0.47 1.36 34.50 158.09 100

long-term deposits 243.34 261.71retirement and other benefit

141.59 104.40 69.65 119.96 100

deffered taxation 906.52 1176.81 1129.71 389.13 100current liabilitiestrade and other payables

293.56 207.96 284.81 233.70 100

accrued mark up 28.78 25.18 25.03 70.60 100current portion of long term liabilities

580.43 419.14 332.27 123.07 100

provision for taxes 100 100 100 100 100

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total 542.67 310.91 25.47 128.56 100assetsnon-current assetsproperty plant & equipment

395.29 360.92 122.74 108.31 100

assets subject to finance lease

4.10 80.06 177.12 190.45 100

capital work in progress

220.96 169.35 1044.28 353.71 100

investment 475.06 589.07 323 188.13 100long-term loans &deposits

2094.94 99 1342.11 1084.80 100

current assets 100 115.7 116.10 121.51 123stores spares and loose tools

247.53 159.37 89.05 110.25 100

stock in trade 435.56 98.86 75.79 33.83 100trade debts 880.71 274.11 140.94 144.88 100investment 1087.57 11221.05 616.07 199.67 100advanced deposits 355.55 190.57 126.71 100.96 100cash and bank balance 290.60 138.32 91.88 111.72 100

Liabilities and owner equity of the balance sheet shows that issued and paid up capital of the company is increasing. And reserves of the co also jump 343% to 675% in the year of 2006 to 2007. Accumulated profits of the co have decreasing trend. And it is dangerous for the co.Non current liabilities of the co increases from 2004 to 2007 but there is a decline in 2008. Current liabilities of the co also have increasing trend.This horizontal analysis of balance sheet shows that Fixed Assets of the Co increase from last years. It means Co have much productive assets. It shows a good trend of fixed assets. On other side trend of assets subjects to finance lease going to decrease. Co also have asset that are work in progress but trend of these assets also going to decrease. Co also invests in long term investment and this asset also has increasing trend from 2004 to 2008. Co also has long term deposits and these also have increasing trend.Current Assets of the Co also have increasing trend. Trade debts of the Co also have increasing trend and its debts are not in a good position. Short term investments of the co also increase and Co use its idle cash in good manners..

Vertical analysis of balance sheet

Assets 2008 2007 2006 2005 2004issued subscribed & paid up capital

4.72% 4.89% 5.37% 10.23% 14.31%

reserves 51.48 57.26 43.97 39.94 37.47accumulated profit total

0.06 3.39 6.79 1.54 2.15

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Total 56.26 65.55 56.16 51.72 53.92Non-current Liabilities long term finance 16.52 16.79 2.49 27.19 23.31liabilities against assets subject to lease finance

0.000732 0.0022 0.084 0.73 0.71

Long term deposits 0.13 0.15 0.098 0.16 0.26retirement and other benefit

0.10 0.077 0.077 0.25 0.32

deffered taxation 2.33 3.14 4.54 2.98 1.18Total 19.09 20.16 26.29 31.32 25.78Current liabilitiesTrade & other payables

2.70 1.98 4.10 6.41 4.22

accrued mark up 0.73 0.66 0.99 5.33 11.61

Short term borrowing secured

15.26 7.62 7.62

current portion of long term liabilities

5.27 3.95 4.72 3.33 4.16

provision for taxes 0.06 0.068 0.10 0.19 0.29total 24.03 14.28 17.54 16.96 20.29

assetsnon-current assets

property plant & equipment

45.13 42.74 21.92 36.83 52.31

assets subject to finance lease

0.012 0.26 0.86 1.76 1.42

capital work in progress

4.63 3.68 34.28 22.11 9.61

investment 12.28 15.79 13.06 14.49 11.85long-term loans

&deposits0.97 0.38 0.97 1.51 0.21

Total 63.03 62.86 71.11 76.71 75.41Current liabilities

stores spares and loose tools

4.32 2.89 2.44 5.75 8.01

stock in trade 2.42 0.57 0.66 0.56 2.55trade debts 0.86 0.27 0.22 0.42 0.45investment 28.09 32.72 24.90 15.37 11.84

advanced deposits 0.79 0.44 0.44 0.67 1.03cash and bank

balance0.45 0.22 0.22 0.52 0.72

Total 36.26 37.13 28.88 23.29 24.59

Vertical Analysis of the balance sheets shows that in 2008 that Equity portion of Co have large portion of equity .And there is minimum portion of non current liabilities. And it shows a good trend. Co finances his assets through equity and pay minimum amount of interest.

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Current liabilities of the co increase from last years. On current assets co do not pay interest. Co pays his obligation timely and there is no chance of insolvency. On the other side of balance sheet are assets of the Co. Co have more productive assets. Analysis show that Company Finance minimum assets at lease. Current assets of the Co slightly decrease from last year.

Page 49


Liquidity Ratios

1. Days, Sales in Receivables = Gross Receivables/Net Sales/365

Year Calculation in (Rupees,000)Days, Sales in Receivables

2008 463446/12464347/365 13.57days2007 144245/6419625/365 8.202006 74165/7955665/365 3.402005 76238/5279560/365 5.272004 52622/3882756/365 4.95

2. Account Receivables Turnover =Net Sales /Average Gross Receivables

Year Calculation in (Rupees,000)Account Receivables

Turnover2008 12464347/30384550 41.02times2007 6419625/109205 58.782006 7955665/75201.50 105.792005 5279560/64430 81.442004 3882756/52622 73.78

3. Account Receivables turnover in days =Average Gross Receivables/Net Sales/365

Year Calculation in (Rupees’000)Account Receivables

turnover in days2008 30384.50/12464347/365 8.89days2007 109205/6419625/365 6.202006 75201.50/7955665/365 3.452005 64430/5279560/365 4.452004 52622/3882756/365 4.95

4. Days Sales in Inventory =Ending Inventory/Cost of Goods sold /365

Year Calculation (Rupees’000) Days Sales in Inventory2008 1300325/10528046/365 45.08 days2007 295140/4387640/365 24.55 days2006 226286/3992822/365 20.68 days2005 100994/3330769/365 11.07 days2004 298538/2497262/365 43.63 days

4. Inventory turnover = Cost of Goods sold/Average Inventory

Year Calculation (Rupees’000) Inventory turnover2008 10528046/797732.5 13.19times

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2007 4387640/260713 16.832006 3992822/163640 24.402005 3330769/199766 16.672004 2497262/298538 8.36

5. Inventory Turnover in Days =Average inventory /cost of goods sold /365

Year Calculation (Rupees’000) Inventory turnover in days2008 797732.5/10528046/365 27.66 days2007 260713/4387640/365 21.692006 163640/3992822/365 14.962005 199766/3330769/365 21.892004 298538/2497262/365 43.63

07. Operating cycle = Account Receivables turnover in days + inventory turnover in days

2008 =8.89+27.66 =36.55 days2007 =6.20+21.69 =27.892006 =3.45+14.96 =18.412005 =4.45+21.89 =26.342004 = 4.95+43.63=48.58

08. Working Capital = Current Assets – Current Liabilities (Amount in Rupees’000) 2008 19842171-12899306 =6942865 2007 19214954-7390229 =11824725 2006 9909895-6015436 =3894459 2005 4196769-3055858 =1140911 2004 2881143-2376989 =504154

09. Current Ratio= Current Assets/Current LiabilitiesYear Calculation in (Rupees’000) Current Ratio2008 19842171/12899306 1.54:12007 19214954/7390229 2.60:12006 9909895/6015436 1.65:12005 4196769/3055858 1.37:12004 2881143/2376989 1.21:1

10. Quick Ratio= (Cash Equivalent + Marketable Securities+ Net Receivables)/Current Liabilities

Year Calculation in (Rupees’000) Quick Ratio2008 (244080+15082605+463446)/12899306 1.22:12007 (116173+16933790+144245)/7390229 2.33:12006 (7235749+502387+969891)/8429327 1.44:12005 (6931615+67244)/6344831 0.96:12004 (5078613+5503)/4524698 0.64:1

11. Cash Ratio =Cash Equivalent +Marketable Securities /Current liabilitiesYear Calculation in (Rupees’000) Cash Ratio2008 (244080+185082605)/12899306 1.18

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2007 (116173+16933790)/7390229 2.312006 (77167+8543763)/6015436 1.432005 5279560/822532.50 6.422004 3882756/504154 7.70

12. Sales to Working Capital = Sales/Average Working CapitalYear Calculation in (Rupees’000) Sales to Working Capital2008 12464347/9383795 1.33times2007 6419625/7859592 0.822006 7955665/2517685 3.172005 5279560/82253.20 6.422004 3882756/504154 7.70

Long Term Debt Paying Ability1. Times Interest Earned =Recurring Earning, Excluding Interest Expenses, Tax expense, Equity Earnings and Minority Earnings / Interest Expense, Including Capitalized Interest

Year Calculation in (Rupees’000) Times Interest Earned2008 1513505/1766298 8.56times2007 2202393/467759 4.712006 3908802/(450696+620534) 3.652005 2425312/(304041+75437) 6.392004 1345016/(224601+2945) 52.94

2. Fixed Charge Coverage= Recurring Earnings, excluding Interest Expense, Tax expense Equity earnings and minority earnings + interest portion of

Rentals/Interest expense including Capitalized interest + Interest portion of rentals

Year Calculation in (Rupees’000 ) Fixed Charge coverage2008 153505+8194330/1766298+8194330 0.84times2007 2202393+3942972/467759+3942972 1.39times2006 3908802+2613695/4500616+620534+2613695 0.84times2005 2425312+960620/304041+75437+960620 2.53times2004 13450+1360677/22460+2945+1360677 1.95times

3. Debt Ratio =Total Liabilities/Total AssetsYear Calculation in (Rupees’000 ) Fixed Charge coverage2008 23149658/53678098 43%2007 17821146/51744331 34%2006 15036176/34304376 44%2005 8698507/9317998 93%2004 5397564/6317055 85%

4. Debt Equity Ratio=Total Liabilities/Shareholder’s EquityYear Calculation in (Rupees’000) Debt Equity Ratio2008 23149658/30528440 76%2007 17821146/33923185 53

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2006 15036176/19268200 782005 8698507/9317998 932004 5397564/6317055 85

Profitability Ratios1. Net Profit Margin= Net Income before minority share of Earnings and Non Recurring Items /Net Sales

Year Calculation in (Rupees’ 000) Net Profit Margin2008 97753/12464347 7.84%2007 1636634/6419625 252006 2428028/7955665 312005 1682078/5279560 312004 794493/3882756 20

2. Total Asset Turnover = Net Sales/Average total AssetsYear Calculation in (Rupees’ 000) Total Assets Turnover2008 12464347/52711214.50 24 Times2007 6419625/43024353.50 152006 7955665/10723490.50 742005 5279560/14865562 352004 3882756/11714619 33

3. Return on Assets =Net Income before minority shares of earning and nonrecurring items /Average total Assets

Year Calculation in (Rupees’ 000) Return on Assets2008 97753/52711214.50 18.5%2007 1636634/43024353.50 3.82006 2428028/10723490.50 232005 1682078/14865562 112004 794493/11714619 6.8

4. Operating income Margin = Operating Income/Net Sales

Year Calculation in (Rupees’ 000)Operating Income

Margin2008 1513505/12464347 12%2007 2202393/6419625 342006 3908802/7955665 492005 2425312/5279560 462004 1345016/3882756 35

Assets Utilization

1. Operating Asset Turnover =Net Sales /Average Operating Assets

Page 53


Year Calculation in (Rupees’ 000)Operating

Asset turnover2008 12464347/5367098-(6592332+524176+15082605+427832) 0.20times2007 6419625/51744331-(8174474+196913+16933790+229315) 0.096times2006 7955665/34304376-(4482213+335810+152465+8543763) 0.20times2005 5279560/18016505-(2610634+271428+2769134+121486) 0.28times2004 3882756/11714619-(1387681+25021+1386816+120329) 0.33times

2. Return on Operating Assets = operating income/Net sales

Year Calculation in (Rupees’ 000)Return on Operating

Assets2008 1513505/63120379 24%2007 22023 9 3/ 66879875 3.32006 3908802/38854201 102005 2425312/18567919 132004 13455016/11859104 11

3. Sales to Fixed Assets =Net Sales /Average Net fixed Assets(Exclude construction in progress)

YearCalculation in (Rupees’ 000) Sales to Fixed Assets

2008 12464347/(24231112+22250927)/2 54%2007 6419625/(7816781++22250927)/2 432006 7955665/(7816781+6954499)/2 1082005 5279560/(6954499+6294666)/2 802004 3882756/6294666 62

4. 8.Return on Investment =Net Income before minority share of earning and non recurring items + (Interest expense)*(1-tax rate)

Year Calculation in (Rupees’ 000) Return on Investment2008 97753+1766298*0.65/42566447 2.92%2007 1636634+468173*0.65/3632152 5.342006 2428028+450696*0.65/21624793.50 12.582005 1682078+304041*0.65/12149138.50 15.472004 794493+224601*0.65/9337630 10.07

5. 9.Return on total equity =Net Income before nonrecurring items-Dividend on redeemable preferred stock/Average total equity

Year Calculation in (Rupees’ 000) Return on total equity2008 97753/(30528440+33923185)/2 0.30%2007 1636634/(33923185+19268200)/2 0.372006 2428028/(19268200+9317998)/2 0.172005 1682078/(9317998+6317055)/2 0.222004 794493/6317055 0.13

Page 54


6. 10.Return on Common equity=Net income before Nonrecurring Items-Preferred dividend/Average common equity

Year Calculation in (Rupees’ 000) Return on common equity20082007200620052004

7. 11.Gross profit margin=Gross profit/Net sales

Year Calculation in (Rupees’ 000) Gross profit margin2008 1936301/12464347 15.53%2007 2031985/6419625 31.652006 3962843/7955665 49.812005 1948791/5279560 36.912004 1385494/3882756 35.68

Investment Ratios

1. Degree of financial Leverage=EBIT/Earnings before tax

Year Calculation in (Rupees’ 000)Degree of financial

leverage2008 1513505/175273+8674-86194 15.48%2007 2202807/1720471+14163 1.272006 3908802/3448533+9573 1.132005 2425312/2121271 1.142004 1345016/1120415 1.20

2. 2.Earnings per common share=Net income-preferred dividend/Weighted Average no. of common share outstanding

Year Calculation in (Rupees’ 000)Earnings per common

share2008 25685/252485315 0.017%2007 1622471-103324/252485315 0.602006 2418455-73772/2332578650 0.102005 1682078-329/219744584 0.762004 794493-20049/219744584 0.35

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3. Price/Earning ratio=Market price per share/Diluted earning per shareYear Calculation in (Rupees’ 000) Price/Earning ratio2008 30.97/0.12 258.082007 30.97/6.43 4.812006 30.97/9.14 3.382005 30.97/7.82 3.962004 30.97/3.78 8.19

4. Percentage of Retained earning=Net income-All dividend/Net income

Year Calculation in (Rupees’ 000)Percentage of retained

Earning2008 25685-379093/25685 -13.762007 1622471-344743/1622471 0.792006 2418455-275478/2418455 0.882005 1682078-250705/1682078 0.852004 794493-138374/794493 0.83

5. Dividend payout=Dividend per common share/Diluted earning per shareYear Calculation in (Rupees’ 000) Dividend payout2008 (379093000/158934068)/0.12 19.832007 (344743-103324/158934068)/6.43 23.622006 (275478-73772/112835676)/9.14 48.312005 (250705-329/112835676)/7.82 28.372004 (13874-20049/112835676)/3.78 27.74

6. Dividend yield= Dividend per common share/Market price per common share

Year Calculation in (Rupees’ 000) Dividend yield2008 (379093000/158934068)/30.97 7.68%2007 (344743-103324/158934068)/30.97 4.902006 (275478-73772/112835676)/30.97 14.232005 (250705-329/112835676)/30.97 7.172004 (13874-20049/112835676)/30.97 3.38

7. Book value per share=Total stockholders equity-preferred stock equity/Number of common share outstanding

Year Calculation in (Rupees’ 000) Book value per share2008 30528440-746071/158934068 18.74%2007 33923185-746071/158934068 20.872006 19268200-515580/112835676 16.622005 9317998-515580/112835676 7.802004 6317055-347949/112835676 5.29

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Documents

Financial Analysis of DG Khan Cement Factory, Ratio Analysis