project report 20 dec 09

8/7/2019 project report 20 dec 09

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LETTER OF TRANSMITTAL

DEC 26, 2009

Course Instructor, Professor Bilal Rasool

Finance for Technical Managers

CASE ISLAMABAD

Sir :

We herewith present our Project Report authorized by you as arequirement for this course. In this report, we have tried to provide

analysis of financial statements and financial ratios of Lucky

Cement Ltd. We hope we have covered all that was required for the

report. If there be any clarification demanded, we would appreciate

a call from you to our group members.

Sincerely,

SP-09-138 MehadAzeem

F09CE151 AsimQayyum


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FINANCE FOR TECHNICAL MANAGERSPROJECT REPORT

2

FINANCIAL STATEMENT ANALYSIS OF LUCKY CEMENT

Submitted by Submitted to

Sp-09-ce-101 khurrumwaheed Prof. bilalrasool

F-08-113 Mansoor Ahmed

FINANCE FOR TECHNICALMANAGERS

PROJECT REPORT

FINANCIAL STATEMENTANALYSIS OF

LUCKY CEMENT

2009

UBMITTED BY SUBMITTED TO

P 09-138 MEHAD AZEEM PROF. BILAL RASOOL

09 CE 151ASIM QAYYUM


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ACKNOWLEDGEMENT

THE REPORT HAS BEEN HIGHLY BENEFICIAL IN MAKING US

UNDERSTAND THE TECHNIQUES ALONGWITH PROS AND CONSOF FINANCIAL MANAGEMENT. THE EFFORTS OF PROF BILAL

RASOOL AND TA ADI ABDURAB ARE HIGHLY COMMENDABLE

WHO HAS NOT ONLY PROVIDED THE NECESSARY GUIDANCE

BUT AN OPPORTUNITY OF RECEIVING FIRST HAND KNOWLEDGE

OF PRACTICAL NATURE. THE EFFORT PUTT IN BY THE TEAM IS A

CONCERTED AND WHOLE HEARTED ATTEMPT WHICH CAN BE

TERMED AS A FIRST ENDEAVOR TO ACHIEVE PROFICIENCY IN

THE FIELD.


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VISION STATEMENT

ANDMISSION STATEMENT

VISION

Our vision is to supply cement globally at ease, simultaneously publicizing our

brand worldwide and identifying our social responsibility by engaging in a

number of social welfare activities, for the benefit of poor and needy people.

MISSION

We are an industrial organization with a big capital base, using state of the art

technology in manufacturing and marketing of cement globally. Our strength

lies in the continuous value addition of the Company through sound

investments in sustainable areas for customers, employees and shareholders.

With no compromise on quality and a vital role to play in social responsibilities

we seek innovative answers to complex problems.


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COMPANY PROFILE

1. Sponsored by well known Yunus Brothers Group one of the largestexport houses of Pakistan, Lucky Cement Limited is presently a 21,000 Tons

Per Day, dry process Cement Plant. Lucky Cement came into existence in 1996

with a daily production capacity of 4200 Tons par day, currently is an

omnipotent cement plant of Pakistan, and rated amongst the few best Plantsin

Asia With production facilities in Pezu (Production capacity: 13,000 Tons per

day) as well as in Karachi (Production capacity: 8000 Tons per day) it has the

tendency to become the hub of cement production in Asia.

2. In addition, Lucky Cement is aggressively pursuing to develop exportmarkets for cement to export bulk loose cement from Pakistan to the Gulf

Countries, African Markets, and Far East Region including Nepal & Sri Lanka.

Considering sizeable exports potential, Lucky Cement has decided to increase

the capacity of its Karachi Plant by addition of two more Production lines,

having capacity of 2.5 Million Tons per Annum. The expansion program is

likely to be completed by end 2008.

3. It is the desire of Lucky Cement to put Pakistan on world map as aleading producer & exporter of loose cement in international market. Luckycement has made an investment of over US$ 8 Million to develop the

infrastructure & logistics and is further developing a fleet of cement bulkers to

carry loose cement from its Karachi Plant to the Ports. For loading cement form

the bulkers to vessels, Lucky Cement has a dedicated system for discharging

cement directly from the bulkers to the vessels; at very fast discharge rates,

reducing the vessels idle time in turn making the shipments timely as per the

customer requirements.

4. Lucky Cement has also installed Jumbo Packers at its Karachi Plant todispatch cement in one ton packing requirement. All this and much more have

made Lucky Cement the largest cement producer, with major emphasis on

supply of superior quality cement to its consumers.


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COMPANYS PRODUCTS

5. Lucky Cement aims at producing cement to suit every user. The followingtypes of cement areavailable:

a. Ordinary Portland Cement. Ordinary Portland cement is availablein darker shade as well as in light shades in Lucky Star with

different brand names to suit the requirement of users.It is used in

all general constructions especially in major prestigious projects

where cement is to meet stringent quality requirements; it can be

used in concrete mortars and grouts etc. Ordinary Portland cement

is compatible/consumable with admixture/ retarders etc.

b. Sulphate Resistant Cement.Sulphate resistant Cements bestquality is to provide effective and long lasting strength against

sulphate attacks and is very suitable for constructions near sea

shores as well as for canals linings. It provides very effective

protection against alkali attacks

c. Slag Cement. Slag cement is also available for specific userrequirements. Slag cement, has been incorporated into concrete

projects for over a century to improve durability and reduce lifecycle costs. Among its measurable benefits in concrete are better

workability and finish ability, higher compressive and flexural

strengths, and improved resistance to aggressive chemicals.


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CORE VALUES & OUR BUSINESS STRATEGY6. At Lucky Cement we comprehend our core values to be the mostsignificant factor leading to theexistence and growth of this prestigious

organization.7. How we accomplishour mission is as vital as the mission itself. Thusthese values are not onlyon paper and pen but lounge deep in the heart of each

individual working or associated withlucky cement.

These values are reflected within the name ofLUCKY itself: They are as follows.

a. L = LEADERSHIP - We don't just innovate industry practices - weare defining the waybusiness will be done in the future. We are

pioneers.b. U = UNDERSTANDING - Whereby we understand the demands of

cement industry at a globallevel, parallel to the needs of people,

associated with us in one way or the other.

c. C = COMMITMENT - One word that sums it all at Lucky Cement isthe commitment of peopleto quality, relationship and most

importantly our customers, who can never be disappointed atany

cost.

d. K = KONSTANT - The most important element to balance anyequation worldwide, at LuckyCement we assign the value of

Konstant with consistency of profits, as profits are required

tosustain and grow any organization. They are in-turn the ultimate

measure of efficiency.

e. Y = YOU - This attitude is a built-in character. At lucky cement wealways maintain, You first,Me last approach, not only to please

but to delight our employees, shareholders, customers, andall the

other people who expect a result from Lucky Cement.


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BUSINESS PERFORMANCE

8. Production & Sales Volume Performance. During the year under review, yourCompanyachieved all


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RATIO ANALYSIS

9. A statistic has little value in isolation. Hence, a profit figure of Rs.100million is meaningless unless it is related to either the firms turnover (sales

revenue) or the value of its assets. Accounting ratios attempt to highlight the

relationships between significant items in the accounts of a firm. Financial

ratios are the analysts microscope; they allow them to get a better view of the

firms financial health than just looking at the raw financial statements Ratios

are used by both internal and external analysts

a. Internal Uses(1) Planning(2) Evaluation of management

b. External Uses(1) Credit granting(2) Performance monitoring(3) Investment decisions(4) Making of policies

CATEGORIES OF FINANCIAL RATIOS

10. The accounting ratios can be grouped in to six categories:a. Liquidity Ratios shows the extent to which the firm can meet its

financial obligations.

b. Asset Management Ratios shows how effectively the firm managesits assets.

c. Debt Management Ratios examine the degree to which a firm usesdebt financing or financial leverages.

d. Profitability Ratios relates profits to sales and assets.


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FINANCIAL STATEMENTS

11. Since this report is an analysis report about the performance of EngroChemicals, therefore let us first review the companys financial reports for the

year 2007 and 2008.

a. YEAR 2008


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b. YEAR 2009


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lll


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i


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LIQUIDITY RATIOS

12. A fully liquidity analysis requires the use of cash budgets, but by relatingthe amount of cash and other current assess to current obligations, ratio

analysis provides a quick, easy-to- use measure of liquidity.

a. Current Ratio(1) 2008

Current Ratio = Current AssetCurrent Liabilities

= 8, 407, 379

7, 686, 897Current Ratio = 1.093 times

(2) 2009Current ratio = Current Asset

Current Liabilities

= 7, 857, 9429, 098, 678

Current ratio = 0.86 times

(3) Analysis.Although in both years the position of the companyto pay off its short term debt is not very good. It is necessary

for the company that its current rations remains above 1

time to meet its short term obligations and in the case of

lucky cement the current of year 2009 is declining because

the short obligations (liabilities) are increasing at a faster

pace than its current assets.


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b. Quick Ratio(1) 2008

Quick ratio = Current Asset InventoryCurrent Liabilities

= 8, 407, 379, 3727, 686, 897

Quick ratio = 1.001 times

(2) 2009

Quick ratio = Current Asset InventoryCurrent Liabilities

= 7, 857, 942 1, 196, 608

9, 098, 678

Quick ratio = 0.732 times

(3) Analysis. Here the Quick Ratio of year 2009is decliningbecause company is holding huge amount of inventory as

compared previous year. The quantitative sales of company

in year 2009 is 5.9mpta against the last year sale of 5.5mpta

because there is a growth in Pakistani cement industry and

there is overall an increase in sale of the cement so thats

why there is a need to hold much bigger amount of inventory

as compared to year 2008.


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ASSET MANAGEMENT RATIOS

13. Asset Management Ratio tells us how efficient company utilizes its totalassets for generating sales.

a. Inventory Turnover(1) 2008

Inventory turnover = SalesAvg inventory

= 16, 957, 879709, 372

Inventory turnover = 23.90 times

(2) 2009Inventory turnover = Sales

Avg inventory

= 30, 915, 0351, 196, 608

Inventory turnover = 25.84 times

(3) Analysis. Inventory Turnover Ratio indicates theeffectiveness of the inventory management practices of the

firm. The inventory turnover of year 2009 is more than the

inventory turnover of year 2008 which shows that cement

industry is growing and the company is maintaining a big

amount of inventory. The inventory turnover ratio of year

2008was 23.90which indicate that 23.90times in a year the

inventory of the firm is converted into receivables or cash.

However, in 2009 the inventory turnover ratio increased to

25.84.


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b. Average Collection Period(1) 2008

Average collection period Account Receivable * 365Sales

Account Receivables = Trade debts + otherreceivables

= 720, 314 + 890, 204 * 36516, 957, 879

Average collection period = 1, 610, 518 * 36516, 957, 879

Average collection period = 34.66 days

(2) 2009

Average collection period = Account Receivable * 365Sales

Account Receivables = Trade debts + otherreceivables

=1, 26

7

,24

8 + 59, 251* 365

30, 915, 035

Average collection period = 15.66 days

(3) Analysis. Credit policy is defined as the maximum timeperiod allowed to the customer to pay back. The average

collection period in the year 2008was 34.66 days which

means that the firm is able to collect its receivables within

approximately 35 days. However, in 2009 the average

collection period decreased to 15.66 days, thus now the

company is collecting its receivable within approximately

16 days. There could be many reasons for this decrease in

average collection period such as, improvement in


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management, increase of incentive given to its customers or

dependable customer.

c. Fixed Asset Turnover(1) 2008

Fixed Asset turnover = SalesFixed Asset

= 16, 957, 87925, 829, 520

Fixed Asset turnover = 0.656 times

(2) 2009Fixed Asset turnover = Sales

Fixed Asset

= 30, 915, 031530, 476, 872

Fixed Asset turnover = 1.014 times

(3) Analysis. The fixed turnover ratio measures how effectivethe firm uses plant and equipment. The role of fixed asset is

to support the sales. The fixed Asset turnover ratio of year

2009 is 1.014times and in year 2008 was 0.656this shows

that as the fixed asset increases there is also an increase in

the sales.


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d. Total Asset Turnover(1) 2008

Total Asset turnover = SalesFixed Asset

= 16, 957, 87934, 239, 07

Total Asset turnover = 0.49 times

(2) 2009Total Asset turnover = Sales

Fixed Asset

= 30, 915, 031538, 392, 362

Total Asset turnover = 0.805 times

(3) Analysis. The total asset turnover ratio measures theturnover of all the firm assets and help us to identify when

problem occur that is a problem in fixed assets or in current

assets. In2008, it was 0.49 times and in year 2009is 0.805

this change was brought about by an increase of 6.25% in

the sales. Whereas the total assets only increased by 10.8%


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DEBT MANAGEMENT RATIO

14. Shows the extent to which the firm is financed by debt.a. Debt Ratio

(1) 2008Debt ratio = Total Debt/Liabilities

Total Asset

= Non current liabilities + Current liabilitiesTotal Asset

7,896,

754

+7,686,89

734,239, 074

Debt ratio = 45.5 %

(2) 2009

Debt ratio = Total Debt/LiabilitiesTotal Asset

= 6, 041, 712 + 9, 098, 67834,239, 074

Debt ratio = 44.2 %

(3) Analysis. The debt to equity ratio in 2008was 45.5%whichshows that 45.5%of financing through debt. However in

2009 the debt to equity ratio decreased to 44.2 % which

shows that the company curtails its financing through debtsalthough there is a decline in the risk the company facing.


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PROFITABILITY RATIOS

15. This ratio shows the combined effect of liquidity, asset management anddebt management ratios.

a. Profit Margin(1) 2008

Profit margin = Net incomeSales

= 2, 677, 67016, 957, 879

Profit margin = 15 %

(2) 2009

Profit margin = Net incomeSales

= 4, 596, 54930, 915, 035

Profit margin = 14.8%

(3) Analysis. Profit margin of year 2009declined because ofthe high cost which occurs because of inefficient operations

and heavy use of debt.


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b. Basic Earning Power(1) 2008

Basic Earning Power = EBITTotal Asset

= 3, 076, 36734, 239, 074

Basic Earning Power = 9.8 %

(2) 2009

Basic Earning Power = EBITTotal Asset

= 7,217, 49338, 392, 362

Basic Earning Power = 18.7%

(3) Analysis. This ratio shows the raw earning power of thefirm asset before the influence of taxes and leverage and it is

useful for comparing firm with difference tax situations and

different degrees of financial leverage. The BEP of year 2008

was 9.8% which increased little bit in 2009to18.7% the

result shows that operating profit of year 2009 is growing by

100%


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c. Return on Asset(1) 2008

Return on Asset = Net incomeTotal Asset

= 2,677,67034, 239, 074

Return on Asset = 0.078 = 8%

(2) 2009Return on Asset = Net income

Total Asset

= 4, 596, 54938, 392, 362

Return on Asset = 11.9%

(3) Analysis. The Return on Assets gradually rose in year2009, to 11.9 from 8 %in year 2008. Total asset increased

by6.25%.This shows that the company uses its total assets

more efficiently over these years which also increased net

income over the years. This ratio shows that how much

company has earned on its assets.


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d. Return on Equity(1) 2008

Return on equity = Net income

Common equity

= 2,677,67018, 655, 423

Return on equity = 14.3%

(2) 2009Return on equity = Net income

Common equity

= 4,596,54923,251,972

Return on equity = 19.7%

(3) Analysis. This ratio is the most important ratio forinvestor point of view. His ratio shows that how much

investors get return on their money that they have invested

in company stocks. If we compare the ROE of 2008to 2009

there is aincrease on ROE by 5.4%and this is not a good sign

for the investors to invest in company shares and this is also

steps towards good reputation of Lucky cement because it is

the goal of every company to maximize it shareholders

wealth.


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MARKET VALUE RATIOS

16. It relates the firms stock price to its earning, cash flow, and book valueper share. These ratios given management an identification of what investors

think of the companys past performance and further prospects.

a. Price Per Share/EPS(1) 2008

Price per share/EPS = Price per shareEPS

= 73.259.84

Price per share/EPS = 7.44 times

(2) 2009Price per share/EPS = Price per share

EPS

= 62.50

14.21

Price per share/EPS = 4.39 times

(3) Analysis. (P/E) ratio shows how much investor are willingto pay per Rupees of reported profits. In comparison of 2008

and 2009(P/E) ratio there is a decline in (P/E) ratio by

3.05times in2009. This shows that there is a weak growth

prospect of the company and the company is much riskier

then other companies in the industry and the investors are

not willing to take risk.


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b. Price Per Share/Cash Flow(1) 2008

Price per share/Cash flow = Price per shareCash flow

#of shares = Net incomeEPS

= 2, 677, 6709.84

#of shares = 272, 120935

Cash flow = Net income + Non cashexpense Depreciation

# of share= 2, 677670 + 978, 969, 000

272, 120, 935

Cash flow = 13.4

Price per share/Cash flow = 73.2513.4

Price per share/Cash flow = 5.45 times

(2) 2009Price per share/Cash flow = Price per share

Cash flow

#of shares = Net incomeEPS

= 4, 596, 54914.21

#of shares = 323, 472, 836

Cash flow = Net income + Non cashexpense

# of share= 4,596, 549000 + 1, 148,

128000


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323, 472, 836Cash flow = 17.7

Price per share/Cash flow = 62.50

17.7

Price per share/Cash flow = 3.53 timers

(3) Analysis. There is a decline in the Price/Cash Flow Ratioin year 2009this ratio show that the company growth

prospect is weak and the company is more risky.

c. Market/Book Value Ratio(1) 2008

Market/Book value ratio = Market value per shareBook value per share

Book value = Common equity# of share

= 18, 655,423, 000272, 120, 935

= 68.55

Market/Book value ratio = 73.2568.55

Market/Book value ratio = 1.07 timers


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(2) 2009Market/Book value ratio = Market value per share

Book value per share

Book value = Common equity# of share

= 23, 251, 972000272, 120, 935

= 85.44

Market/Book value ratio = 62.5085.44

Market/Book value ratio = 0.73 timers

(3) Analysis. This ratio of stocks market price to its bookvalue gives another indication of how investors regard the

company. This ratio shows that how much investor are

willing to pay more for the stocks than their accounting bookvalue. As the M/B ratio is decline in 2009 to 0.34times this

shows that investors willingness to buy the Lucky cement

share is decreasing and this also a bad sign for the Lucky

cement company.

Documents

project report 20 dec 09