Financial Statement Analysis of Kohat

Cement Company Limited.

Presented By:
Mansoor Roll # E11
Abdul Qadeer Roll # E44
Ali Nawaz Roll # E43
M. Abdullah Roll # E37 1
 INTRODUCTION TO KOHAT CEMENT
COMPANY

Kohat Cement Company Limited is a public

limited company incorporated in Pakistan
under the Companies Act, 1913 (incorporated
in 1980) and is an ISO 9001-2008 certified
company, listed on Karachi, Lahore and
Islamabad Stock exchanges. The Company is
engaged in the Manufacturing and sale of
cement. The registered office is situated at
Rawalpindi Road, Kohat, Pakistan. The plant
is located in Kohat about 60 kilometers from
Peshawar
2
 VISION
Be the best in the eyes of all stakeholders

OUR MISSION IS TO PROVIDE

Our Customers with quality cement at competitive pricing
Our Shareholders with good returns and sustainable growth
Our Employees with care and career development opportunities

CORPORATE STRATEGY
Stay ahead of competition by adopting latest technology with
efficient and progressive teamwork in an environment of
good governance and professionalism

3
 OTHER INFORMATION
• Symbol of Company assigned by Stock
Exchanges KOHC

• Free Float of the Shares of Company is 22,828,967

number of shares as on 30/06/2011.

• Based on Annual Audited Accounts of 30.06.2011 &

share price on 30.06.2011
– i. EPS = 0.49
– ii. P/E ratio = 12.46
– iii. Breakup value =16.33

4
 PRODUCT
KOHAT Cement Company Limited engaged in
manufacturing of Grey and White Cements.
• GREY CEMENT
Kohat Ordinary Portland Cement is manufactured under
strict quality Control on state of the art plant with latest
technology
• Available in 50 Kg paper or polypropylene bags (20 bags
to a metric ton).
• Bulk cement can be delivered in Khyber Pakhtoonkhwa
areas.

5
 PRODUCT

WHITE CEMENT
A state of the art plant with technology from Babcock-
Grenzebach Germany is installed at Kohat. Kohat Super
White Cement is the product of unique decolorizing
process, which prevents oxidation of iron in the clinker
and maximizes whiteness. High refractive index and
opacity of Kohat Super White Cement impart a brilliant
luster and smooth finish, even when mixed with pigments.
It also mixes easily with inorganic pigments which do not
fade in sunshine and alkaline attack. The comprehensive
strength of Kohat Super White Cement is at par or more
than the strength of Ordinary Portland Cement. Therefore
it can conveniently be used in place of grey cement in all
kinds of concrete and mortar mix. 6
 CAPACITY

Grey Cement White Cement

Tons/Anum Tons/Anum
Line I 594,000

Line II - 148,500

Line III 2,211,000

Total Capacity 2,805,000 148,500

7
 Overview
In the year 2011 The economic slowdown coupled
with high inflation severely affected the cement
industry in the country. There was a negative growth
of 8% in the cement sector where by domestic
consumption of cement declined by 6.6% to 22 million
tons and Exports declined by 11.7% to 9.4 million
tons. And in the same year the Kohat Cement
Company managed the highest ever sales volume of
1,494,955 tons of grey cement during the current
financial year compared to 1,191,833 tons in the
previous year showing an increase of 25.4% in sales
volume.
8
Production and Sale Volumes

9
 10

Financial results
 Kohat Cement Company Limited
Balance Sheet
As on December 31st ,2006,2007,2008,2009,2010,2011
2006 2007 2008 2009 2010 2011
Assets: (Amounts in Rupees)
Current Assets
Stores, Spares And Loose Tools 117,594,905 157,436,002 699,954,682 841,844,312 638,000,427 850,571,198
Stock In Trade 87,869,995 125,147,740 174,317,806 139,293,693 290,433,057 507,527,333
Trade Debts 21,642,079 21,381,453 15,341,081 17,792,165 20,010,133 12,567,298
Investments 6,600,000 - - - - 36,156,000
Advances, Deposits, Repayments
& Other Receivables 98,589,010 120,072,947 406,020,470 612,373,810 430,703,292 506,114,913
Cash And Bank Balances 656,886,230 132,401,943 36,994,967 34,371,413 28,021,733 40,681,734

Total Current Assets 989,182,219 556,440,085 1,332,629,006 1,645,675,393 1,407,168,642 1,953,618,476

Non Current Assets

Property, Plant And Equipment

Operating Fixed Assets 1,095,105,981 1,023,528,041 941,431,201 6,352,852,944 6,368,030,446 7,140,840,908

Capital Work-In-Progress 984,287,376 4,234,731,837 5,307,288,753 584,965,206 861,363,339 -

Total Property, Plant And Equipment 2,079,393,357 5,258,259,878 6,248,719,954 6,937,818,150 7,229,393,785 7,140,840,908
Intangible Assets - - - 2,689,912 2,587,653 2,355,963
Long Term Loans And Advances 2,565,634 45,731,201 38,142,100 33,313,347 28,832,286 23,706,054
Long Term Deposits 4,969,240 3,879,440 4,429,440 5,397,440 5,397,440 3,879,440

Total Non Current Assets 2,086,928,231 5,307,870,519 6,291,291,494 6,979,218,849 7,266,211,164 7,170,782,365

Total Assets 11
3,076,110,450 5,864,310,604 7,623,920,500 8,624,894,242 8,673,379,806 9,124,400,841
Equity And Liabilities:
Current Liabilities
Trade And Other Payables 215,249,060 178,982,959 244,465,133 554,458,612 734,312,487 973,628,527
Interest And Markup Accrued 1,973,686 12,260,606 50,719,344 312,801,576 504,895,065 433,182,170

Short Term Running Finances Secured 57,397,506 146,434,421 1,096,066,075 1,398,198,921 1,406,895,249 1,363,678,773
Current Portion Of Non-Current Liabilities
Long Term Finances 44,148,330 - - 680,933,125 596,370,138 40,050,000
Long term finances secured - 218,120,218 625,022,321 - - -
Liabilities Against Assets Subject To
Finance Lease 34,064,784 - 1,475,601 - - -
Provision For Taxation 32,760,357 - - - - -

Total Current Liabilities 385,593,723 555,798,204 2,017,748,474 2,946,392,234 3,242,472,939 2,810,539,470

Non Current Liabilities

Long Term Finances-Secured 237,500,000 2,703,308,354 2,981,785,715 2,989,387,373 3,049,320,000 3,536,870,000

Liabilities Against Assets Subject
To Finance Lease 2,358,098 - 3,686,712 2,040,128 - -
Long Term Security Deposits 5,451,100 106,808,320 135,837,621 154,209,127 155,923,337 163,656,829
Deferred Liabilities 161,267,836 158,739,583 155,732,831 101,197,782 62,669,613 323,097,976
Derivative Financial Liabilities - - - 160,120,433 202,024,046 187,420,429

Total Non Current Liabilities 406,577,034 2,968,856,257 3,277,042,879 3,406,954,843 3,469,936,996 4,211,045,234

Share Capital And Reserves

Authorized Capital 150,000,000 Ordinary Shares Of Rs. 10 Each

Issued, Subscribed & Paid-Up Capital 925,312,540 1,017,843,800 1,170,520,370 1,287,572,410 1,287,572,410 1,287,572,410
General Reserve 389,397,905 396,306,773 235,805,586 34,078,866 51,278,714 129,409,009
Accumulated Profit 969,229,248 925,505,570 922,803,191 949,895,889 622,118,747 685,834,718

Total Equities 2,283,939,693 2,339,656,143 2,329,129,147 2,271,547,165 1,960,969,871 2,102,816,137

12
Total Liabilities & Equities 3,076,110,450 5,864,310,604 7,623,920,500 8,624,894,242 8,673,379,806 9,124,400,841
 Kohat Cement Company Limited
Income Statement
For the year ended Dec 31st, 2006, 07, 08,09,10,11
2006 2007 2008 2009 2010 2011
(Amount in Rupees)

Sales Net 2,327,237,579 1,553,733,256 1,375,972,754 3,395,580,759 3,692,038,418 6,085,434,517

Cost of Goods Sold 1,127,575,661 1,210,466,340 1,288,570,903 2,591,021,469 3,341,872,196 5,158,302,614

Gross Profit 1,199,661,918 343,266,916 87,401,851 804,559,290 350,166,222 927,131,903

Selling & Distribution Expanses 15,533,247 18,701,815 24,878,363 111,490,601 56,245,683 41,199,134
Administrative And General Expanses 38,279,574 46,338,529 40,894,043 30,094,507 35,943,591 48,845,016
Total Operating Expanses 53,812,821 65,040,344 65,772,406 141,585,108 92,189,274 90,044,150

Operating Income 1,145,849,097 278,226,572 21,629,445 662,974,182 257,976,948 837,087,753

Other Operating Expanses 71,433,971 7,640,715 20,958,970 3,291,944 4,835,758 16,484,515

Sub total 1,074,415,126 270,585,857 670,475 659,682,238 253,141,190 820,603,238

Other Operating Income 19,106,540 75,624,748 35,978,496 34,218,809 23,210,906 20,424,475

Income From Operations 1,093,521,666 346,210,605 36,648,971 693,901,047 276,352,096 841,027,713

Finance Cost 54,097,507 18,370,018 48,935,320 549,902,638 658,589,707 715,246,906
Loss On Derivative Financial Instrument - - - 122,813,948 - -
Voluntary Separation Scheme - - 267,286,401 - - -
Total Other Expanses 54,097,507 18,370,018 316,221,721 672,716,586 658,589,707 715,246,906

Profit /(Loss) Before Taxation 1,039,424,159 327,840,587 (279,572,750) 21,184,461 (382,237,611) 125,780,807
Taxation 249,557,198 79,472,319 (57,133,384) (5,908,237) (54,460,469) 62,064,836

Profit / (Loss) After Taxation 789,866,961 248,368,268 (222,439,366) 27,092,698 (327,777,142) 63,715,971
Earning / (Loss) Per Share - Basic & 13
Diluted 9.06 2.12 (1.73) 0.21 (2.55) 0.49
 Kohat Cement Company Limited
Analysis of Balance Sheet
As on December 31st , 2006,07,08,09,10,11

Vertical Analysis
2006 2007 2008 2009 2010 2011
Assets:
Current Assets
Stores, Spares & Loose Tools 3.82 % 2.68 % 9.18 % 9.76 % 7.36 % 9.32 %
Stock In Trade 2.86 % 2.13 % 2.29 % 1.62 % 3.35 % 5.56 %
Trade Debts 0.70 % 0.36 % 0.20 % 0.21 % 0.23 % 0.14 %
Investments 0.21 % - % - % - % - % 0.40 %
Advances, Deposits,
Repayments & Other Receivables 3.20 % 2.05 % 5.33 % 7.10 % 4.97 % 5.55 %
Cash And Bank Balances 21.35 % 2.26 % 0.49 % 0.40 % 0.32 % 0.45 %
Total Current Assets 32.16 % 9.49 % 17.48 % 19.08 % 16.22 % 21.41 %
Non Current Assets
Property, Plant And Equipment
Operating Fixed Assets 35.60 % 17.45 % 12.35 % 73.66 % 73.42 % 78.26 %
Capital Work-In-Progress 32.00 % 72.21 % 69.61 % 6.78 % 9.93 % - %
Total Property Plant & Equipment 67.60 % 89.67 % 81.96 % 80.44 % 83.35 % 78.26 %
Intangible Assets - % - % - % 0.03 % 0.03 % 0.03 %
Long Term Loans And Advances 0.08 % 0.78 % 0.50 % 0.39 % 0.33 % 0.26 %
Long Term Deposits 0.16 % 0.07 % 0.06 % 0.06 % 0.06 % 0.04 %
Total Non Current Assets 67.84 % 90.51 % 82.52 % 80.92 % 83.78 % 78.59 %
14
Total Assets 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 %
Equity and Liabilities:
Current Liabilities
Trade And Other Payables 7.00 % 3.05 % 3.21 % 6.43 % 8.47 % 10.67 %
Interest And Markup Accrued 0.06 % 0.21 % 0.67 % 3.63 % 5.82 % 4.75 %
Short Term Running Finances Secured 1.87 % 2.50 % 14.38 % 16.21 % 16.22 % 14.95 %
Current Portion Of Non-Current Liabilities
Long Term Finances 1.44 % - % - % 7.89 % 6.88 % 0.44 %
Long term finances secured - % 3.72 % 8.20 % - % - % - %
Liabilities Against Assets
Subject To Finance Lease 1.11 % - % 0.02 % - % - % - %
Provision For Taxation 1.06 % - % - % - % - % - %
Total Current Liabilities 12.54 % 9.48 % 26.47 % 34.16 % 37.38 % 30.80 %

Non Current Liabilities

Long Term Finances-Secured 7.72 % 46.10 % 39.11 % 34.66 % 35.16 % 38.76 %
Liabilities Against Assets
Subject To Finance Lease 0.08 % - % 0.05 % 0.02 % - % - %
Long Term Security Deposits 0.18 % 1.82 % 1.78 % 1.79 % 1.80 % 1.79 %
Differed Liabilities 5.24 % 2.71 % 2.04 % 1.17 % 0.72 % 3.54 %
Derivative Financial Liabilities - % - % - % 1.86 % 2.33 % 2.05 %
Total Non Current Liabilities 13.22 % 50.63 % 42.98 % 39.50 % 40.01 % 46.15 %
Share Capital & Reserves
Authorized Capital 150,000,000 Ordinary Shares Of Rs. 10 Each
Issued, Subscribed & Paid-Up Capital 30.08 % 17.36 % 15.35 % 14.93 % 14.85 % 14.11 %
General Reserve 12.66 % 6.76 % 3.09 % 0.40 % 0.59 % 1.42 %
Accumulated Profit 31.51 % 15.78 % 12.10 % 11.01 % 7.17 % 7.52 %
Total Equity 74.25 % 39.90 % 30.55 % 26.34 % 22.61 % 23.05 %
15
Total Liabilities & Equities 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 %
 Kohat Cement Company Limited
Analysis of Income Statement
For the year ended Dec 31st, 2006, 7,8,9,10,11
Vertical Analysis
2006 2007 2008 2009 2010 2011

Sales net 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

Cost of goods sold 48.45% 77.91% 93.65% 76.31% 90.52% 84.76%
Gross profit 51.55% 22.09% 6.35% 23.69% 9.48% 15.24%
Selling & distribution expanses 0.67% 1.20% 1.81% 3.28% 1.52% 0.68%
Administrative and general expanses 1.64% 2.98% 2.97% 0.89% 0.97% 0.80%
Total Operating expanses 2.31% 4.19% 4.78% 4.17% 2.50% 1.48%
Operating income 49.24% 17.91% 1.57% 19.52% 6.99% 13.76%
Other operating expanses 3.07% 0.49% 1.52% 0.10% 0.13% 0.27%
Sub total 46.17% 17.42% 0.05% 19.43% 6.86% 13.48%
Other operating income 0.82% 4.87% 2.61% 1.01% 0.63% 0.34%
Profit from operations 46.99% 22.28% 2.66% 20.44% 7.49% 13.82%
Finance cost 2.32% 1.18% 3.56% 16.19% 17.84% 11.75%

Loss on derivative financial instrument 0.00% 0.00% 0.00% 3.62% 0.00% 0.00%
Voluntary separation scheme 0.00% 0.00% 19.43% 0.00% 0.00% 0.00%
Total Other expanses 2.32% 1.18% 22.98% 19.81% 17.84% 11.75%
Profit /(Loss) before taxation 44.66% 21.10% (20.32%) 0.62% (10.35%) 2.07%
Taxation 10.72% 5.11% (4.15%) (0.17%) (1.48%) 1.02%
Profit / (loss) after taxation 33.94% 15.99% (16.17%) 0.80% (8.88%) 1.05%
16
Earning / (loss) per share - basic and diluted 9.06 2.12 (1.90) 0.21 (2.55) 0.49
 Kohat Cement Company Limited
Analysis of Balance Sheet
As on December 31st , 2006,07,08,09,10,11
Horizontal Analysis
2006 2007 2008 2009 2010 2011
Assets:
Current Assets
Stores, Spares And Loose Tools 100.00 % 133.88 % 595.23 % 715.89 % 542.54 % 723.31 %
Stock In Trade 100.00 % 142.42 % 198.38 % 158.52 % 330.53 % 577.59 %
Trade Debts 100.00 % 98.80 % 70.89 % 82.21 % 92.46 % 58.07 %
Investments 100.00 % - % - % - % - % 547.82 %
Advances, Deposits,
Repayments & Other Receivables 100.00 % 121.79 % 411.83 % 621.14 % 436.87 % 513.36 %
Cash And Bank Balances 100.00 % 20.16 % 5.63 % 5.23 % 4.27 % 6.19 %
Total Current Assets 100.00 % 56.25 % 134.72 % 166.37 % 142.26 % 197.50 %

Non Current Assets

Property, Plant And Equipment
Operating Fixed Assets 100.00 % 93.46 % 85.97 % 580.11 % 581.50 % 652.07 %
Capital Work-In-Progress 100.00 % 430.23 % 539.20 % 59.43 % 87.51 % - %
Total Property, Plant And Equipment 100.00 % 252.87 % 300.51 % 333.65 % 347.67 % 343.41 %
Intangible Assets - % - % - % 2,689,912 % 2,587,653 % 2,355,963 %
Long Term Loans And Advances 100.00 % 1,782.45 % 1,486.65 % 1,298.45 % 1,123.79 % 923.98 %
Long Term Deposits 100.00 % 78.07 % 89.14 % 108.62 % 108.62 % 78.07 %
Total Non Current Assets 100.00 % 254.34 % 301.46 % 334.43 % 348.18 % 343.60 %

17
Total Assets 100.00 % 190.64 % 247.84 % 280.38 % 281.96 % 296.62 %
Equity And Liabilities:
Current Liabilities
Trade And Other Payables 100.00 % 83.15 % 113.57 % 257.59 % 341.15 % 452.33 %
Interest And Markup Accrued 100.00 % 621.20 % 2,569.78 % 15,848.60 % 25,581.33 % 21,947.88 %
Short Term Running Finances Secured 100.00 % 255.12 % 1,909.61 % 2,435.99 % 2,451.14 % 2,375.85 %
Current Portion Of Non-Current
Liabilities
Long Term Finances 100.00 % - % - % 1,542.38 % 1,350.83 % 90.72 %
Long term finances secured - % 218,120,218 625,022,321 - % - % - %
Liabilities Against Assets
Subject To Finance Lease 100.00 % - % 4.33 % - % - % - %
Provision For Taxation 100.00 % - % - % - % - % - %
Total Current Liabilities 100.00 % 144.14 % 523.28 % 764.12 % 840.90 % 728.89 %

Non Current Liabilities

Long Term Finances-Secured 100.00 % 1,138.24 % 1,255.49 % 1,258.69 % 1,283.92 % 1,489.21 %
Liabilities Against Assets
Subject To Finance Lease 100.00 % - % 156.34 % 86.52 % - % - %
Long Term Security Deposits 100.00 % 1,959.39 % 2,491.93 % 2,828.95 % 2,860.40 % 3,002.27 %
Differed Liabilities 100.00 % 98.43 % 96.57 % 62.75 % 38.86 % 200.35 %
Derivative Financial Liabilities - % - % - % 160,120,433% 202,024,046% 187,420,429%
Total Non Current Liabilities 100.00 % 730.21 % 806.01 % 837.96 % 853.45 % 1,035.73 %

Share Capital And Reserves

Authorized Capital 150,000,000 OrdinaryShares Of Rs. 10 Each
Issued, Subscribed And Paid-Up
Capital 100.00 % 101.77 % 126.50 % 139.15 % 139.15 % 139.15 %
General Reserve 100.00 % 95.49 % 60.56 % 8.75 % 13.17 % 33.23 %
Accumulated Profit 100.00 % 102.44 % 95.21 % 98.01 % 64.19 % 70.76 %
Total Equities 100.00 % 110.00 % 101.98 % 99.46 % 85.86 % 92.07 %
18
Total Liabilities & Equities 100.00 % 190.64 % 247.84 % 280.38 % 281.96 % 296.62 %
 Kohat Cement Company Limited
Analysis of Income Statement
For the year ended Dec 31st, 2006, 7,8,9,10,11
Horizontal Analysis
2006 2007 2008 2009 2010 2011

Sales net 100.00% 66.76% 59.12% 145.91% 158.64% 261.49%

Cost of goods sold 100.00% 107.35% 114.28% 229.79% 296.38% 457.47%
Gross profit 100.00% 28.61% 7.29% 67.07% 29.19% 77.28%
Selling & distribution expanses 100.00% 120.40% 160.16% 717.75% 362.10% 265.23%
Administrative and general expanses 100.00% 121.05% 106.83% 78.62% 93.90% 127.60%
Total Operating expanses 100.00% 120.86% 122.22% 263.11% 171.31% 167.33%
Operating income 100.00% 24.28% 1.89% 57.86% 22.51% 73.05%
Other operating expanses 100.00% 10.70% 29.34% 4.61% 6.77% 23.08%
Sub total 100.00% 25.18% 0.06% 61.40% 23.56% 76.38%
Other operating income 100.00% 395.81% 188.30% 179.09% 121.48% 106.90%
Profit from operations 100.00% 31.66% 3.35% 63.46% 25.27% 76.91%
Finance cost 100.00% 33.96% 90.46% 1,016.50% 1,217.41% 1,322.14%
Loss on derivative financial instrument 100.00% 100.00% 100.00% 1,228,139 % 100.00% 100.00%
Voluntary separation scheme 100.00% 100.00% 2,672,864 % 100.00% 100.00% 100.00%
Total Other expanses 100.00% 33.96% 584.54% 1,243.53% 1,217.41% 1,322.14%
Profit /(Loss) before taxation 100.00% 31.54% (26.90%) 2.04% (36.77%) 12.10%
Taxation 100.00% 31.85% (22.89%) (2.37%) (21.82%) 24.87%
Profit / (loss) after taxation 100.00% 31.44% (28.16%) 3.43% (41.50%) 8.07%
19
Earning / (loss) per share - basic and diluted 9.06 2.12 (1.90) 0.21 (2.55) 0.49
 RATIO ANALYSIS
Financial ratios are usually expressed as a percentage or as times per
period. There are five main types of ratios:
• Liquidity ratios
• Activity test ratios
• Solvency Ratio
• Profitability Ratio
• Investor specific ratio
The Time-series analysis is method of comparing company present
performance with their past performances. Here we analyze
“KOHAT Cement Company Limited” performance by comparing its
present ratios with past 6 years.
• 1. Liquidity Ratio:
The liquidity of firm is measured by its ability to satisfy its short-term
obligations. Liquidity refers to solvency of firms overall financial
position-the ease with which it can pay its bills. They may include
ratios that measure the efficiency of the use of current assets. We
measure liquidity of “KOHAT Cement Company Limited” by
calculating following ratios:
20
a) Current ratio:
Current ratio is the measure of short term debt paying ability of the firm calculated as:
Rule of thumb is 2:1
Current ratio = Current assets
Current liabilities

Year 2006 2007 2008 2009 2010 2011

Total Current
942,182,219 556,440,085 1,332,629,006 1,645,675,393 1,407,168,642 1,953,618,476
Assets

Total Current
385,593,723 555,798,204 2,017,748,474 2,946,392,234 3,242,472,939 2,810,539,470
Liabilities

Current ratio 2.44:1 1.00:1 0.66:1 0.56:1 0.43:1 0.70:1

Current Ratio

3
2.44
2.5
2
Ratio

1.5 1
1 0.66 0.56 0.7
0.43
0.5
0
2006 2007 2008 2009 2010 2011
21
b) Quick ratio / acid test ratio:
At a time it is desirable to access a more immediate position than that indicated by the current ratio.
The acid test or quick ratio relates to most liquid assets to current liabilities. Measures assets that
are quickly converted into cash and they are compared with current liabilities. Calculated as:
Quick ratio = current asset – inventory
Current liabilities
Rule of thumb is 1:1
Year 2006 2007 2008 2009 2010 2011
Total Current
942,182,219 556,440,085 1,332,629,006 1,645,675,393 1,407,168,642 1,953,618,476
Assets
Total Current
385,593,723 555,798,204 2,017,748,474 2,946,392,234 3,242,472,939 2,810,539,470
Liabilities

Stock in trade 87,869,995 125,147,740 174,317,806 139,293,693 290,433,057 507,527,333

Acid test ratio 2.22:1 0.78:1 0.57 :1 0.51 :1 0.34:1 0.51:1

Acid Test Ratio

2.5 2.22
2

1.5
Ratio

1 0.78
0.57 0.51 0.51
0.5 0.34

0
2006 2007 2008 2009 2010 2011
22
c) Cash ratio :
Sometimes the analysts need to view the ability of a firm from an extremely conservative point
of view. For example the company may have pledged and its inventory or the analyst suspects
severe liquidity problem with inventory & receivables. The best indicator to the company’s
short-run liquidity may be the cash ratio. Calculated as:
Cash ratio = Cash + marketable securities
Current liabilities
Year 2006 2007 2008 2009 2010 2011
Cash & Bank
Balances 656,886,230 132,401,943 36,994,967 34,371,413 28,021,733 40,681,734
Investments 6,600,000 0 0 0 0 36,156,000
Total Current
Liabilities 385,593,723 555,798,204 2,017,748,474 2,946,392,234 3,242,472,939 2,810,539,470
Cash ratio 172.07 % 23.82 % 1.83 % 1.17 % 0.86 % 2.73 %
Cash Ratio

200 % 172.07 %
180 %
160 %
140 %
Ratios

120 %
100 %
80 %
60 %
40 % 23.82 %
20 % 1.83 % 1.17 % 0.86 % 2.73 %
-%
2006 2007 2008 2009 2010 2011
23
Year
 d) Networking capital :
The working capital of a business is an indication of the short-run solvency of
the business. Reveal the portion of current assets that have been financed by
the long term liabilities calculated as:

Networking capital= Current assets – current liabilities

Year 2006 2007 2008 2009 2010 2011

Total
Current Assets 942,182,219 556,440,085 1,332,629,006 1,645,675,393 1,407,168,642 1,953,618,476

Total
Current Liabilities 385,593,723 555,798,204 2,017,748,474 2,946,392,234 3,242,472,939 2,810,539,470

Networking capital 556,588,496 641,881 (685,119,468) (1,300,716,841) 1,835,304,297 (856,920,995)

24
e) Defensive interval:
For how long cash resources are sufficient for operating expenditure without taking financial support
calculated as:
Defensive interval = Cash + Marketable Securities + Accounts Receivables
Projected expenditures x 365 days
Projected expenditures = Cost of Goods Sold + Other Operating Expanses except depreciation
Year 2006 2007 2008 2009 2010 2011
Cost of Goods
Sold 1,127,575,661 1,210,466,340 1,288,570,903 2,591,021,469 3,341,872,196 5,158,302,614
Other Operating
Expanses 71,433,971 7,640,715 20,958,970 3,291,944 4,835,758 16,484,515
Total operating
Expanses 53,812,821 65,040,344 65,772,406 141,585,108 92,189,274 90,044,150
Depreciation
Expanse 930,133 1,127,077 1,069,070 1,922,723 2,868,981 2,608,756
Projected
expenditures 1,251,892,320 1,282,020,322 1,374,233,209 2,733,975,798 3,436,028,247 5,262,222,523
Cash & Bank
Balances 656,886,230 132,401,943 36,994,967 34,371,413 28,021,733 40,681,734
Investments 6,600,000 0 0 0 0 36,156,000
Trade Debts 21,642,079 21,381,453 15,341,081 17,792,165 20,010,133 12,567,298
Defensive
Interval days 197 43 14 7 5 6
Defensive Interval

250
197
200
Time In Days

150

100
43
50
14 7 5 6
0 25
2006 2007 2008 2009 2010 2011
f) Length of operation cycle:
Operating cycle represents the period of time elapsing between the acquisition of goods and the final
cash realization resulting from sales and subsequent collection calculated as:
Length of operation cycle = average # of days account average # of days
Receivables outstanding + inventory in stock

Year 2006 2007 2008 2009 2010 2011

Average # of days accounts
Receivable outstanding 4 5 5 2 2 1
Average # of days
inventory in stock 18 32 42 22 23 28
Length of Operating
cycle days 22 37 47 24 25 29

Length of Operating Cycle

50 47
45
37
Time in Days

40
35 29
30 24 25
25 22
20
15
10
5
0
2006 2007 2008 2009 2010 2011
26
Year
g) Length of cash cycle:
Cash cycle is the period of time for which firm have cash resources to run their
operations. Calculated as:

Length of cash cycle = operating cycle – average # of days account payables outstanding

Year 2006 2007 2008 2009 2010 2011

Average # of days accounts
payable outstanding 28 46 55 42 63 50

Operating cycle 22 37 47 24 25 29

Length of Cash cycle days (6) (9) (8) (18) (38) (21)

Length of Cash Cycle

0
-5 2006 2007 2008 2009 2010 2011
Time in Days

-10 -6
-9 -8
-15
-20 -18
-25 -21
-30
-35
-40 -38
Year 27
2. Activity Ratio
Activity ratio is the measure of the management’s efficiency in utilizing the assets
of the organization. Activity ratios measure the sped with which various accounts
are converted into sales or cash –inflows or outflows.
a) Inventory turnover ratio:
Inventory turnover indicates the liquidity of the inventory. Calculated as:
Inventory turnover ratio = Cost of goods sold
Average inventory
Year 2006 2007 2008 2009 2010 2011
Stock In
Trade 22,336,658 87,869,995 125,147,740 174,317,806 139,293,693 290,433,057 507,527,333

Average Stock in trade 55,103,327 106,508,868 149,732,773 156,805,750 214,863,375 398,980,195

Cost of Goods Sold 1,127,575,661 1,210,466,340 1,288,570,903 2,591,021,469 3,341,872,196 5,158,302,614

Inventory turnover 20.46 11.36 8.61 16.52 15.55 12.93

Inventory Turnover Ratio

25
20
Times a year

20 17 16
15 11 13
10 9
5
0
2006 2007 2008 2009 2010 2011
28
Year
b) Average # of day’s inventory in stock:
The inventory turnover figures are also can expressed in number of days instead of times
per year. This is comparable to the computation that expressed accounts receivables
turn over in days calculate as:

Average # of days inventory in stock = 360 days

Inventory Turnover

Year 2006 2007 2008 2009 2010 2011

Inventory turnover 20.46 11.36 8.61 16.52 15.55 12.93
Average # of days inventory in
stock 18 32 42 22 23 28
Average No of Days Inventory In Stock

45 42
40
Time in Days

35 32
30 28
25 22 23
20 18
15
10
5
-
2006 2007 2008 2009 2010 2011
29
Year
c) Accounts receivable turnover:
Account receivable turnover indicates the liquidity of the receivables. Calculated as:
Accounts receivable turnover = Net sales
Average accounts receivable

Year 2005 2006 2007 2008 2009 2010 2011

Sales Net 2,327,237,579 1,553,733,256 1,375,972,754 3,395,580,759 3,692,038,418 6,085,434,517

Trade
Debts 23,799,056 21,642,079 21,381,453 15,341,081 17,792,165 20,010,133 12,567,298
Average
Trade debts 22,720,568 21,511,766 18,361,267 16,566,623 18,901,149 16,288,716

Accounts
Receivable turnover 102.43 72.23 74.94 204.97 195.33 373.60

Accounts Receivable Turnover

400 374
Times a year

350
300
250 205 195
200
150 102
100 72 75
50
0
2006 2007 2008 2009 2010 2011
30
Year
d) Average number of days accounts receivables outstanding:
The accounts receivable turn over can be expressed in term of days instead of times per
year. Turnover in number of days can also give a comparison with number of day’s
sales in the ending receivables.
Average # of days account receivables outstanding = 360
Accounts receivable turnover

Year 2006 2007 2008 2009 2010 2011

Accounts receivable turnover 102.43 72.23 74.94 204.97 195.33 373.60

Average # of days accounts
receivable outstanding 4 5 5 2 2 1
Average No of Days Account Receivable Outstanding

6 5 5
Time in Days

5 4
4
3 2 2
2 1
1
0
2006 2007 2008 2009 2010 2011
Year 31
e) Account payable turn over:
Number of time accounts payables comes due within a year.
Account payable turn over = Net sale
Average accounts payables
Year 2005 2006 2007 2008 2009 2010 2011
Sales Net 2,327,237,579 1,553,733,256 1,375,972,754 3,395,580,759 3,692,038,418 6,085,434,517
Trade &
Other
Payables 149,394,418 215,249,060 178,982,959 244,465,133 554,458,612 734,312,487 973,628,527
Average
account payables 182,321,739 197,116,010 211,724,046 399,461,873 644,385,550 853,970,507
Accounts
payable turnover 12.76 7.88 6.50 8.50 5.73 7.13
Accounts Payable Turnover

14 12.76
Times a year

12
10 7.88 8.5
8 6.5 7.13
5.73
6
4
2
0
2006 2007 2008 2009 2010 2011
Year 32
f) Average # of days accounts payables outstanding:
The number of day’s firm can retain accounts payables.
Average # of days accounts payables outstanding = 360
Account payable turn over
Year 2006 2007 2008 2009 2010 2011

Accounts payable turnover 12.76 7.88 6.50 8.50 5.73 7.13

Average # of days accounts
payable outstanding 28 46 55 42 63 50

Average No of Days Account Payable Outstanding

70 63
60 55
Time in Days

50
50 46 42
40
28
30
20
10
-
2006 2007 2008 2009 2010 2011

Year
33
g) Fix asset turnover ratio:
The ratio measures the firm’s ability to make productive use of is property, plant,
& equipment by generating sales dollars. Since construction in progresses does
not contribute to current sales it should be excluded from net fixed assets calculated as:

Fix asset turn over = Net sales

Average fix assets
Year 2005 2006 2007 2008 2009 2010 2011
Operating
Fixed
Assets 581,007,037 1,095,105,981 1,023,528,041 941,431,201 6,352,852,944 6,368,030,446 7,140,840,908

Sales Net 2,327,237,579 1,553,733,256 1,375,972,754 3,395,580,759 3,692,038,418 6,085,434,517

Average fix assets 838,056,509 1,059,317,011 982,479,621 3,647,142,073 6,360,441,695 6,754,435,677

Fix asset turn over 2.78 1.47 1.40 0.93 0.58 0.90
Fix Asset Turnover

3 2.78
2.5
Times

2 1.47 1.4
1.5 0.93 0.9
1 0.58
0.5
0
2006 2007 2008 2009 2010 2011
34
Year
h) Total asset turn over ratio:
Return on assets measures the firm’s ability to utilize its assets to create profits by
comparing profits with the assets that generate the profits. Calculated as:
Total asset turnover = Net sales
Average total asset
Year 2005 2006 2007 2008 2009 2010 2011
Total
Assets 1,651,887,427 3,076,110,450 5,864,310,604 7,623,920,500 8,624,894,242 8,673,379,806 9,124,400,841

Net sales 2,327,237,579 1,553,733,256 1,375,972,754 3,395,580,759 3,692,038,418 6,085,434,517

Average
total assets 2,363,998,939 4,470,210,527 6,888,648,730 8,124,407,371 8,649,137,024 8,898,890,324
Total
asset turnover 0.98 0.34 0.19 0.42 0.43 0.68

Total Asset Turnover

1.2
0.98
1
0.8 0.68
Times

0.6 0.42 0.43

0.4 0.34
0.19
0.2
0
2006 2007 2008 2009 2010 2011
35
Year
 3. Solvency Ratio
Is the ability to pay the debts mostly long term as indicated by the income statement and the
others considered the firms ability to carry debts as indicated by the balance sheet. Creditors
and mostly banks and lending institutions are interested because they have to ascertain
about to recoup their finance ….
a) Debt to equity ratio:
Debt to equity is a computation that determines the entity’s long run debt paying ability
This computation compares the total debts with the total share holder’s equity. The debt to
equity ratio also helps to determine how well creditors are protected In case of insolvency.
Debt to equity ratio = Total debts x 100
Total stock holder’s equity

Year 2006 2007 2008 2009 2010 2011

Total Current
Liabilities 385,593,723 555,798,204 2,017,748,474 2,946,392,234 3,242,472,939 2,810,539,470
Total Non Current
Liabilities 406,577,034 2,968,856,257 3,277,042,879 3,406,954,843 3,469,936,996 4,211,045,234

Total Equities 2,283,939,693 2,339,656,143 2,329,129,147 2,271,547,165 1,960,969,871 2,102,816,137

Debt to equity ratio 34.68 % 150.64 % 227.33 % 279.69 % 342.30 % 333.91 %

Debt To Equity Ratio

400 % 342 % 334 %

350 % 280 %
300 % 227 %
250 %
%age

200 % 151 %
150 %
100 % 35 %
50 %
0%
2006 2007 2008 2009 2010 2011 36
Year
b) Debt to capital ratio:
Companies can finance their operations through either debt or equity. The debt-to-capital ratio gives users an
idea of a company's financial structure, or how it is financing its operations, along with some insight into
its financial strength. The higher the debt-to-capital ratio, the more debt the company has compared to its
equity. This tells investors whether a company is more prone to using debt financing or equity financing.
A company with high debt-to-capital ratios, compared to a general or industry average, may show weak
financial strength because the cost of these debts may weigh on the company and increase its default
risk... .
Debt to Capital Ratio = Total Debts X 100
Total Capital (long term debts + stock holder’s equity)

Year 2006 2007 2008 2009 2010 2011

Total Current
Liabilities 385,593,723 555,798,204 2,017,748,474 2,946,392,234 3,242,472,939 2,810,539,470
Total Non Current
Liabilities 406,577,034 2,968,856,257 3,277,042,879 3,406,954,843 3,469,936,996 4,211,045,234
Total Equities 2,283,939,693 2,339,656,143 2,329,129,147 2,271,547,165 1,960,969,871 2,102,816,137
Debt to capital ratio 29.44 % 66.40 % 94.45 % 111.88 % 123.60 % 111.21 %
Debt To Equity Ratio

140 % 124 %
120 % 112 % 111 %
100 % 94 %
%age

80 % 66 %
60 %
40 % 29 %
20 %
0%
2006 2007 2008 2009 2010 2011 37
Time Interest Earn Ratio:
Indicate a firm’s long term debt paying ability from the income statement view. If the time interest
earn is adequate little danger exist that the firm will not be able to meet its interest obligation.
Time Interest Earn Ratio = EBIT X 100
Interest Expanse

Year 2006 2007 2008 2009 2010 2011

Profit /(Loss)
Before Taxation 1,039,424,159 327,840,587 (279,572,750) 21,184,461 (382,237,611) 125,780,807

Finance Cost 54,097,507 18,370,018 48,935,320 549,902,638 658,589,707 715,246,906

EBIT 1,093,521,666 346,210,605 (230,637,430) 571,087,099 276,352,096 841,027,713

Time interest earn 20.21 18.85 (4.71) 1.04 0.42 1.18

Time Interest Earn Ratio

25
20.21 18.85
20
Times a year

15
10
5 1.04 1.18
0.42
-
5 - 2006 2007 2008 2009 2010 2011
10 - 5.00 - 38
4. Profitability Ratio
Profitability ratio is a barometer of organization’s profit & loss. Using this ratio they
quantify which would be the best mode of financing that would yield the higher
profitability. Profitability is the ability of a business to earn profit over a period of time.
There are various measure of profitability which indicates the efficiency of operations
and generating of revenues and profits. They include following
a) Gross Margin:
It determines the management’s expertise in managing the cost of goods sold. If cost of
Goods sold is higher the gross margin would be lower or vice versa.
Gross margin = Gross profit x 100
Net sales
Year 2006 2007 2008 2009 2010 2011
Gross Profit 1,199,661,918 343,266,916 87,401,851 804,559,290 357,020,526 927,131,903

Sales Net 2,327,237,579 1,553,733,256 1,375,972,754 3,395,580,759 3,692,038,418 6,085,434,517

Gross margin 52 % 22 % 6% 24 % 10 % 15 %
Gross Margine Ratio

60 % 52 %
50 %
40 %
30 % 22 % 24 %
20 % 15 %
10 %
10 % 6%
-%
2006 2007 2008 2009 2010 2011 39
Year
b) Operating Income to Sale:
Measure of firm’s income they are generating from operations. Recognize the effect
and the magnitude of operating expanses.
Operating income margin = Operating income x 100
Net sales
Year 2006 2007 2008 2009 2010 2011
Income From
Operations 1,093,521,666 346,210,605 36,648,971 693,901,047 276,352,096 841,027,713

Sales net 2,327,237,579 1,553,733,256 1,375,972,754 3,395,580,759 3,692,038,418 6,085,434,517

Operating
income To sale 46.99 % 22.28 % 2.66 % 20.44 % 7.49 % 13.82 %
Operating Income Margine

50 % 47 %
45 %
40 %
35 %
30 %
25 % 22 % 20 %
20 % 14 %
15 % 7%
10 % 3%
5%
-%
2006 2007 2008 2009 2010 2011
40
Year
c) Margin before Interest & Taxes:

Margin before Interest & Taxes = EBIT x 100

Net sales
Year 2006 2007 2008 2009 2010 2011

EBIT 1,093,521,666 346,210,605 (230,637,430) 571,087,099 283,206,400 841,027,713

Sales Net 2,327,237,579 1,553,733,256 1,375,972,754 3,395,580,759 3,692,038,418 6,085,434,517

Margin before
interest & taxes 46.99 % 22.28 % ( 16.76 ) % 16.82 % 7.67 % 13.82 %

Margine before Interest and Taxes

60 %
50 % 47 %
40 %
30 %
%ages

22 %
20 % 17 % 14 %
10 % 8%
-%
10 %- 2006 2007 2008 2009 2010 2011
20 %- 17 %-
Year
41
d) Margin before Taxes:
Margin before Taxes = EBT x 100
Net sales

Year 2006 2007 2008 2009 2010 2011

Profit /(Loss)
Before
Taxation 1,039,424,159 327,840,587 (279,572,750) 21,184,461 (382,237,611) 125,780,807

Sales Net 2,327,237,579 1,553,733,256 1,375,972,754 3,395,580,759 3,692,038,418 6,085,434,517

Margin before
taxes 44.66 % 21.10 % (20.32 %) 0.62 % (10.35 %) 2.07 %

Margine before Taxes

50 % 45 %
40 %
30 % 21 %
20 %
%ages

10 % 1% 2%
-%
10 %- 2006 2007 2008 2009 2010 2011
20 %- 10 %-
30 %- 20 %-
42
Year
e) Net Profit Margin, Return on sale ratio:
Commonly used profit measure is return on sales, often termed net profit margin.
This ratio gives measure of net income dollars generated by each dollar of sales.
Net Profit Margin, Return on sale ratio = Net income x 100
Net sales

Year 2006 2007 2008 2009 2010 2011

Net income 789,866,961 248,368,268 (222,439,366) 27,092,698 (327,777,142) 63,715,971

Sales Net 2,327,237,579 1,553,733,256 1,375,972,754 3,395,580,759 3,692,038,418 6,085,434,517

Net profit margin 33.94 % 15.99 % (16.17 %) 0.80 % (8.88 %) 1.05 %

Net Profit Margine

40 % 33.94 %
30 %
20 % 15.99 %
%ages

10 %
0.80 % 1.05 %
-%
2006 2007 2008 2009 2010 2011
10 %-
20 %- 16.17 %- 8.88 %-
43
Year
f) Return on Asset:
The rate of return on total assets indicates the degree of efficiency with which
management has used the assets of the enterprise during an accounting period.
Calculated as:
Return on assets = EBIT x 100
Average total assets

Year 2005 2006 2007 2008 2009 2010 2011

EBIT 1,093,521,666 346,210,605 (230,637,430) 571,087,099 283,206,400 841,027,713

Total
assets 1,651,887,427 3,076,110,450 5,864,310,604 7,623,920,500 8,624,894,242 8,673,379,806 9,124,400,841
Average
total assets 2,363,998,939 4,470,210,527 6,744,115,552 8,124,407,371 8,649,137,024 8,898,890,324
Return
on assets 46.26 % 7.74 % (3.42 %) 7.03 % 3.27 % 9.45 %
Return on Assets

50 % 46.26 %
40 %
30 %
%ages

20 %
3.27 % 9.45 %
10 % 7.74 % 7.03 %
-%
10 %- 2006 2007 2008 2009 2010 2011
3.42 %- 44
Year
g) Return on total asset:
Income is earned by using the assets of a business productively. The more efficient the
production, the more profitable the business. This is an important ratio for all users of
financial statements. Calculated as:
Return on total asset = Net income
Avg. total assets
Year 2005 2006 2007 2008 2009 2010 2011

Net income 789,866,961 248,368,268 (222,439,366) 27,092,698 (327,777,142) 63,715,971

Total
assets 1,651,887,427 3,076,110,450 5,864,310,604 7,623,920,500 8,624,894,242 8,673,379,806 9,124,400,841
Average
total assets 2,363,998,939 4,470,210,527 6,744,115,552 8,124,407,371 8,649,137,024 8,898,890,324
Return
On total assets 33.41 % 5.56 % 3.30 %- 0.33 % 3.79 %- 0.72 %
Return on total Assets

35 % 33.00 %
30 %
25 %
20 %
%ages

15 %
10 % 6.00 %
5% 0.33 % 0.72 %
-%
5 %- 2006 2007 2008 2009 2010 2011
10 %- 45
-3.3 -3.79
h) Return on total capital:
This ratio measures the ability of the firm to reward those who provide long term funds
and to attract to providers of future funds. Calculated as below for reporting purpose:
Return on total capital = EBIT x 100
Total capital
Year 2006 2007 2008 2009 2010 2011

EBIT 1,093,521,666 346,210,605 (230,637,430) 571,087,099 283,206,400 841,027,713

Total Equities 2,283,939,693 2,339,656,143 2,329,129,147 2,271,547,165 1,960,969,871 2,102,816,137

Total Non
Current
Liabilities 406,577,034 2,968,856,257 3,277,042,879 3,406,954,843 3,469,936,996 4,211,045,234
Return on
total capital 40.64 % 6.52 % (4.11 %) 10.06 % 5.21 % 13.32 %
Return on Capital

45 % 40.64 %
40 %
35 %
30 %
25 %
%ages

20 % 13.32 %
15 % 10.06 % 5.21 %
10 % 6.52 %
5%
-%
5 %- 2006 2007 2008 2009 2010 2011
10 %- 46
4.11 %-Year
i) Return on equity:
The return on total equity measures the return to both common and proffered
shareholders. Compute as follows:
Return on equity = EBT x 100
Average stock holder’s equity
Year 2005 2006 2007 2008 2009 2010 2011
Profit /(Loss)
Before Taxation 1,039,424,159 327,840,587 (279,572,750) 21,184,461 (382,237,611) 125,780,807

Stock-
holder’s
equity 1,081,732,345 2,283,939,693 2,339,656,143 2,329,129,147 2,271,547,165 1,960,969,871 2,102,816,137
Average stock-
holder’s equity 1,682,836,019 2,311,797,918 2,334,392,645 2,300,338,156 2,116,258,518 2,031,893,004

Return on equity 61.77 % 14.18 % (11.98 %) 0.92 % (18.06 %) 6.19 %

Return on Equity

70 %
60 % 61.77 %

50 %
40 %
%ages

30 %
20 % 14.18 %
10 % 6.19 %
0.92 %
-%
10 %- 2006 2007 2008 2009 2010 2011
20 %- 11.98 %-
30 %- 19.06 %-
47
Year
j) Return on equity:
Drill down return and fetch decisive return on equity it is for internal use for management
Decision making. So that management can effectively scrutinize their decision of
investment by visualizing more factual consequences.
Return on equity = Net income x 100
Average stock holder’s equity

Year 2006 2007 2008 2009 2010 2011

Net income 789,866,961 248,368,268 (222,439,366) 27,092,698 (327,777,142) 63,715,971

Average stock-
holder’s equity 1,682,836,019 2,311,797,918 2,334,392,645 2,300,338,156 2,116,258,518 2,031,893,004

Return on equity 46.94 % 10.74 % (9.53 %) 1.18 % (15.49 %) 3.14 %

Return on Equity

60 %

50 % 46.94 %

40 %

30 %
%ages

20 %
10.74 %
10 %
1.18 % 3.14 %
-%
2006 2007 2008 2009 2010 2011
10 %-

20 %- 48
9.53 %-
Year 15.49 %-
k) Return on common stock equity:
This ratio measures the return to the common stock holder, the residual owners.
The owner is retrieving by doing business.
Return on common stock equity = Net income – preferred stock dividend x 100
Average common stockholder’s equity

Year 2005 2006 2007 2008 2009 2010 2011

Net income 789,866,961 248,368,268 (222,439,366) 27,092,698 (327,777,142) 63,715,971

Issued,
Subscribed
& Paid-Up
Capital 493,500,020 925,312,540 1,017,843,800 1,170,520,370 1,287,572,410 1,287,572,410 1,287,572,410
Average common
stock holder’s equity 709406280 971578170 1094182085 1229046390 1287572410 1287572410
Return on common
Stock holder’s equity 111.34 % 25.56 % (20.33 %) 2.20 % (25.46 %) 4.95 %
Return on Common Stock Holder's Equity

120 % 111 %
100 %
80 %
60 %
%ages

40 % 26 %
20 % 5%
2%
-%
2,006 % 2,007 % 2,008 % 2,009 % 2,010 % 2,011 %
20 %-
40 %-
20 %- 25 %- 49
Year
5. Investor specific ratios
Investor specific ratios measure the various accounts for which
investors have specific concerns. These ratios are also called
Market ratios because of their nature. We measure KOHAT’s
marketability test by calculating following market ratios:

a) Earning per share:

Whatever income remains in the business after all prior claims,
other than owners claims (i.e. ordinary dividends) have been
paid, will belong to the ordinary shareholders who can then make
a decision as to how much of this income they wish to remove
from the business in the form of a dividend, and how much they
wish to retain in the business. The shareholders are particularly
interested in knowing how much has been earned during the
financial year on each of the shares held by them
50
a) Earning per share:
EPS = Net income – preferred stock dividend x 100
Out standing common stock
Year 2006 2007 2008 2009 2010 2011
Profit / (Loss)
After Taxation 789,866,961 248,368,268 (222,439,366) 27,092,698 (327,777,142) 63,715,971
Issued,
Subscribed
& Paid-Up
Capital 925,312,540 1,017,843,800 1,170,520,370 1,287,572,410 1,287,572,410 1,287,572,410
Outstanding
Common Shares 92,531,254 101,784,380 117,052,037 128,757,241 128,757,241 128,757,241
Earning / (Loss)
Per
Share - Basic &
Diluted 9.06 2.12 (1.73) 0.21 (2.55) 0.49
Earning/share

10 9.06
8
Amount in Rs

6
4
2.12
2 0.49
0.21
0
2006 2007 2008 2009 2010 2011
-2
-1.73
-4 -2.55
51
Year
b) %age of earning retained:
The portion of current earrings retained for internal growth or to maximize the
shareholder’s wealth.

Retained earning ratio = Net income – all dividends x 100

Net income
%age of earning retained is 100 % in all 6 years because no dividend is
declared or paid during the period.

c) Price earning ratio:

P/E ratio is a useful indicator of what premium or discount investors are
prepared to pay or receive for the investment.

Price earning ratio = Market price per share x 100

EPS
Market value is not available there fore it is not possible to calculate price
earning ratio.

52
d) Dividend payout ratio:
This ratio indicates the percentage of each dollar earned that is distributed
to the owners inform of cash. It is calculated by dividing the firm’s cash
dividend per share by its EPS.
Dividend payout ratio = Dividend/common share x 100
EPS
No dividend declared or paid during these periods there fore the ratio is zero.

e) Dividend Yield:
This ratio is the percentage return provided by the dividends paid on
common stock.
Dividend yield ratio = Dividend/common share x 100
Market price/share
No dividend declared or paid during these periods therefore dividend yield
is zero %.

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f) Book value per share:
This ratio shows the book value per share, which is the amount invested by the owners
of the business by holding stocks. It also shows potential investors into the business
what they might hope to receive as a return on the basis of its book value comparable
with its market value.
Book Total stock (preferred stock equity + preferred
Value = holder’s equity – stock dividend in arrears)
Out standing common stock
Year 2006 2007 2008 2009 2010 2011
Total Equities 2,283,939,693 2,339,656,143 2,329,129,147 2,271,547,165 1,960,969,871 2,102,816,137
# Outstanding
Common Shares 92,531,254 101,784,380 117,052,037 128,757,241 128,757,241 128,757,241

Book value per share 24.68 22.99 19.90 17.64 15.23 16.33
Book value per share

30
24.68 22.99
Amount in Rs

25
19.9
20 17.64 16.33
15.23
15
10
5
0
2006 2007 2008 2009 2010 2011
54
Year
DuPont analysis using return on total asset:
The rate of return on assets can be broken down on two component ratios: the net profit
Margin and the total assets turnover these ratios allow the improved analysis of
changes in the return on assets %age. “E.I DuPont De Nemours & Company”
developed this method of separating the rate of return ratios into its components parts.
Computed as follows:

Return on total asset = Net profit margin x Total asset turnover

Net income = Net income x Net sales
Avg. total assets Net sales Avg. total assets

Year 2006 2007 2008 2009 2010 2011

Net profit margin 33.94 % 15.99 % (16.17 %) 0.80 % (8.88 %) 1.05 %

Total asset turnover 0.98 0.34 0.19 0.42 0.43 0.68

Return
On total assets 33.41 % 5.56 % (3.30 %) 0.33 % (3.79 %) 0.72 %

55
DuPont analysis using return on operating assets:
DuPont analysis could also be done using return on operating assets i.e. a combination
of return on operating assets and operating asset turnover. Operating items provide
refined picture of management’s performance.

Return on Operating asset = Operating profit margin x Operating asset turnover

Operating income = Operating income x Net sales
Avg. Operating assets Net sales Avg. Operating assets

Year 2006 2007 2008 2009 2010 2011

Operating
Profit margin 46.99 % 22.28 % 2.66 % 20.44 % 7.49 % 13.82 %
Operating
asset turnover 277.69 146.67 140.05 93.10 58.05 90.10
Return on
Operating asset 130.48 % 32.68 % 3.73 % 19.03 % 4.34 % 12.45 %

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Degree of financial leverage:

• The use of financing with a fix charge such as

interest is termed financial leverage. Financial
leverage is successful if the firm earns more
on the borrowed funds than it pays to use
them. Using financial leverage results in a
fixed financing charge that can materially
affect the earning available to the common
shareholders.

57
Degree of financial leverage:

Degree of financial leverage = EBIT

EBIT-I

Year 2006 2007 2008 2009 2010 2011

Income before
interest & taxes 1,093,521,666 346,210,605 36,648,971 693,901,047 276,352,096 841,027,713

Finance Cost 54,097,507 18,370,018 48,935,320 549,902,638 658,589,707 715,246,906

Degree of
financial leverage 1.05 % 1.06 % (2.98 %) 4.82 % (0.72 %) 6.69 %
Degree of Financial leverage

8% 6.69 %
6% 4.82 %
4%
%age

2% 1.05 % 1.06 %
0%
2 %- 2006 2007 2008 2009 2010
0.72 %- 2011

4 %- 2.98 %- 58
Year
 Degree of operating leverage:

• A type of leverage ratio summarizing the effect a particular amount

of operating leverage has on a company's earnings before interest
and taxes (EBIT). Operating leverage involves using a large
proportion of fixed costs to variable costs in the operations of the
firm. The higher the degree of operating leverage, the more volatile
the EBIT figure will be relative to a given change in sales, all other
things remaining the same. This ratio is useful as it helps the user in
determining the effects that a given level of operating leverage has
on the earnings potential of the firm. This ratio can also be used to
help the firm determine the most appropriate level of operating
leverage in order to maximize the company's EBIT.

59
 Degree of operating leverage:

Degree of operating leverage = DCL

DFL

Year 2006 2007 2008 2009 2010 2011

DCL 1.91 % (6.58 %) (17.23 %) 15.53 % 13.48 % 15.77 %
Degree of
financial leverage 1.05 % 1.06 % (2.98 %) 4.82 % (0.72 %) 6.69 %
Degree of
operating leverage 1.81 % (6.20 %) (5.78 %) 3.22 % (18.72 %) 2.35 %
Degree of Operating leverage

5% 3.22 % 2.35 %
1.81 %
0%
2006 2007 2008 2009 2010 2011
%age

5 %-
6.20 %- 5.78 %-
10 %-
15 %-
20 %- 18.72 %- 60
Year
Degree of combine leverage:
• The Degree of Combined Leverage (DCL) is the leverage ratio
that sums up the combined effect of the Degree of Operating
Leverage (DOL) and the Degree of Financial Leverage (DFL)
has on the Earning per share or EPS given a particular change
in shares. This ratio helps in ascertaining the best possible
financial and operational leverage that is to be used in any
firm or business.
• This ratio has been known to be very useful to a company or
firm as it helps a firm understand the effects of combining
financial and operating leverage on the total earnings of the
company. A high level of combined leverage shows the risk
involved in the company as there are more fixed costs in the
company, while a low combined leverage would mean better
for the company.

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Degree of combine leverage:

Degree of combine leverage = %age change in EPS

%age change in sale volume

Year 2005 2006 2007 2008 2009 2010 2011

EPS 4.50 9.06 2.12 (1.73) 0.21 (2.55) 0.49
volume 1,715,426,515 2,327,237,579 1,553,733,256 1,375,972,754 3,395,580,759 3,692,038,418 6,085,434,517

%age Change in EPS 50.33 % (327.36 %) (222.54 % ) 923.81 % (108.24 %) 620.41 %

%age change
in Sales volume 26.29 % (49.78 %) (12.92 %) 59.48 % 8.03 % 39.33 %

DCL 1.91 % (6.58 %) (17.23 %) 15.53 % (13.48 %) 15.77 %

Degree of Combine leverage

20 % 15.53 % 15.77 %
15 % 13.48 %
10 %
5% 1.91 %
%age

0%
5 %- 2006 2007 2008 2009 2010 2011
10 %- 6.58 %-
15 %-
20 %- 17.23 %- 62
Year
 CONCLUSIONS
• Liquidity
The overall liquidity of Kohat Cement seems to exhibit reasonable trend, having
being maintained the level which is prevailing in whole industry. The
company’s liquidity seems to be satisfactory.
• Financial Leverage/Debt
In the initial debt ratio is low and continuously increasing with the passage of time
as business is flourishing. In the year 2011Company debt ratio is higher we see
same trend is prevailing in the industry. All firms have same high level of debts
and most of company asset are financed by debts. So we can say regarding
debt Ratio Company is with the passage of time increasing this ratio which is
healthy sign, company is improving its business and creditors are willingly
providing debts to Kohat Cement.
• Activity
Kohat Cement Inventory management system is not looking smart. The company
may be experiencing some problems with account receivables. In 2006 its
collection period is above industry average. In 2007 it is brought down but not
competing industry average. The total utilization of company asset is less than
that of industry which shows efficiency is not yet achieved.
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 CONCLUSIONS…
• Profitability
Though company has high cost good sold received, yet it faces loss .There
may be various reasons for this.
– High interest charges.
– The high dumping rate.
– Tariff and Quota effects.
– High tax rate.
• Investor specific/Market
Kohat market ratio also good as compare to other companies in the
industries because its market price per share increases (the market price
per share is given of 2 year’s only) although it’s earning per share
decreases and must have to focus on this.

64
 RECOMMENDATIONS
• Company should improve its inventory management system for efficient
use of resources
• There should be an improvement in receivables collection as company
have large amount of receivables yet to collect.
• Company should focus on increasing profit instead of innovation. They
should outsource innovations from the research firms or advanced
companies indigenously or from abroad.
• Company has to focus those countries for import where there is less tariff
and no quota implications. It should increase its business in free trade
areas and common markets.
• Company should efficiently utilize assets to generate sales. Qualified new
talent should be hired for the managerial posts.
• Company should capture markets. Because we know that company have a
huge idle capacity creating fix costs it can be utilized in condition of
increase in sales.

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 RECOMMENDATIONS…
• There should be increase in promotion to increase in sales worldwide.
• There should be efficient management which is fully aware with industry
trends.
• Kohat Cement should maintain the degree of combined leverage so as to
minimize the risks involved in the business. Maintaining the risk and not
increasing it from where it is.
• The Company should try to lower or minimize the financial leverage in
order to balance the operating leverage and by minimizing the operating
leverage when the financial leverage is to be balances.
• The balanced degree of combined leverage (DCL) is likely to provide with
an increase in the earnings per share of the equity holders.

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THANK YOU

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