Ratio Analysis of Century Paper

8/3/2019 Ratio Analysis of Century Paper

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PROFILE

Century Paper & Board Mills Limited (CPBM), established in 1984, is Flagship Company of the

Lakson Group of Companies Pakistan. The Company started commercial production in 1990

and established its name as major producer of quality Packaging boards in the country. It has

attained a position of Market Leader in Packaging Boards in particular and is considered as most

Preferred Supplier to Printing and Packaging Industry. The Company serves many of the

prestigious clientele and maintaining Strategic Business Relationships with leading Packaging

and Converting units as well as end users, which include national and multinational companies.

The Company is also in export business and its Packaging Boards are successfully competing inthe international market.

The company entered into Corrugated Cartons Manufacturing Business in 2003 by installing

Agnati Italian corrugators, renowned name in the industry. The plant is capable to cater large

continuous orders for different types of boxes to serve multifarious sectors including Soaps &


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Detergents, Home Appliances, Dairy Products, Ice Cream, Food and Beverages, Cigarettes and

Tobacco and Lubricants etc. Being vertically integrated corrugation unit with companies own

Liner and Fluting supplies the plant has an edge to ensure consistency in supplies and quality.

The company is managed by a competent team of professionals in all the relevant fields like

Process, Paper Technology, Engineering, Finance, Business Management and Human Resource.

The Company assigns great importance to its Human Capital Development and has been

managing Trainings of its professionals by sending them to Foreign and Local Training

Programs / Exhibitions / Courses.

The plant comprising of Seven Paper Machines (PMs), a Complete Corrugated Cartons

Manufacturing Plant, Integrated Pulp Mills (Major Inputs Wheat Straw), in house Engineering

Workshop, Captive Power Generation Plant, and Chemical House etc. is situated on 162 Acres

close to major business city (Lahore) of the country.

BUSINESS LINES:

y Paper & Paperboard Businessy Corrugated Cartons Business


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Paper & Paperboard Business:

Products Categories

Category BriefDescription Substance

Range

(g/m2)

Brands

Packaging

Boards

One Side Clay Coated Boards with 100% virgin Fibers 205 - 350 Brands

One Side Clay Coated Boards with recycled fiber in middleply

230 400 Brands

Un-Coated Multi layer Boards 125 350 Brands

Papers Machine Finished Writing Printing Papers 55 150 Brands

Machine Glazed Papers 22 70 Brands

OPERATIONS:

Century is a leading manufacturer of quality Paper and Paperboard with a total installed capacity

of 230,000 M. Tons per annum. The plant comprises of some seven Paper & Paperboard Making


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Machines with integrated Pulp Mills and a Captive Power Generation plant produces a vast range

of products to meet the market requirements for various Paper & Paperboard types.

The product mix includes a wide range of multi ply One Side Clay Coated Packaging Boards and

un-coated boards to meet Folding Cartons needs of various consumer and industrial products.

Machine Finished (MF) Writing & Printing Papers range cover the needs of Publishing,

Exercise Books, Computer Stationery, Photo Copying, Ink Jet / Laser Printing and general

printing market segments. Machine Glazed Papers range meets the needs of foil / poly

lamination as well as wrapping etc.

The latest addition at Century Paper & Board Mills Limited being the state of the art,

environment friendly machine (PM-7) is a multilayer board machine with multilayer on-line

coating facility. The Machine is capable of producing 130,000 M. Tons / annum of premium

quality Coated Duplex Board in substance range 200 400 g /m 2. The product of this machine

is being used very successfully by leading off-set printing houses on Hi-Tech and Hi-Speed

multicolorOff Set Printing and Hi-speed Die-Cutting Machines.

The company also includes a Box Plant having a corrugation facility capable of an output in

excess of 30 million M sheets and 60 Million of corrugated containers of various sizes and

weights, with up to 3-colour printing. The Plant is capable to meet the special and large size

cartons for Home Appliances (Refrigerators, Air conditioners etc.) Moreover, this is the only

plant in the country which is producing and selling Tobacco Storage Cartons (C-48).

In 2008 the Mills embarked on an ambitious program of adopting the Oracle based Enterprise

Resource Planning (ERP) system for its operations such as Production, Supply Chain, Finance

and Engineering. This is now in operation and started yielding results.

Paper & paperboard manufacturing, being a continuous process, essentially requires an

uninterrupted supply of Electric Power and steam. This is being met by two Captive Power


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Plants, CoGen-1 (12.3 MW) and CoGen-2 (22 MW), with a 5MW LESCO connection as stand-

by.

Vision:

To be the market leader and an enduring force in the paper, board and packaging industry,

positively influencing and providing value to our stakeholders, society and our nation.

Mission Statement:

To strive incessantly for excellence and sustain our position as a preferred supplier of quality

paper, board and packaging material within a team environment and with a customer focused

strategy.

Core Values:

We Strive For Excellence.

We Deliver Customer Satisfaction.

We are Ethical in All our Actions.


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Ratio Analysis OF Century PaperCompany

Ratio Analysis is a form of Financial Statement Analysis that is used to obtain a quick indication

of a firm's financial performance in several key areas. The ratios are categorized as Short-term

Solvency Ratios, Debt Management Ratios, Asset Management Ratios, Profitability Ratios, and

Market Value Ratios.

Ratio Analysis as a tool possesses several important features. The data, which are provided by

financial statements, are readily available. The computation of ratios facilitates the comparison

of firms which differ in size. Ratios can be used to compare a firm's financial performance with

industry averages. In addition, ratios can be used in a form of trend analysis to identify areas

where performance has improved or deteriorated over time.

Liquidity Ratios:

Liquidity ratio, expresses a company's ability to repay short-term creditors out of its total cash.

The liquidity ratio is the result of dividing the total cash by short-term borrowings. It shows the

number of times short-term liabilities are covered by cash.

Two commonly used liquidityratios are calculated as following:

1. Current Ratio:Current ratio is a financial ratio that measures whether or not a company has enough resources to

pay its debt over the next business cycle (usually 12 months) by comparing firm's current assetsto its current liabilities. The current ratio is calculated by dividing current assets by current

liabilities.


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Current Ratio (2007) =

=

= 1.00


=

= 1.01


=

=

1.02


=

= 0.99

Interpretation:

The current ratio less than one means that company has negative working capital and may be

facing liquidity crisis. The Century paper Companys Current ratio in 2007, 2.8 and 2.9 are 1.00,

1.01 and 1.02 respectively; which shows that they have positive working capital and they have

enough resources to pay their debts. In 2010 there Current Ratio is 0.99 which indicates that


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Century paper have negative working capital and they do not have enough resources to pay their

debts. This shows that for every $1 liability they have 1.00 assets in 2007, 1.01 assets in 2..8,

1.02 assets in 2..9 and 0.99 assets to cover their liabilities.

2. QuickRatio:

Quick Ratio is an indicator of company's short-term liquidity. It measures the ability to use

its quick assets to pay its current liabilities. Quick ratio specifies whether the assets that can

be quickly converted into cash are sufficient to cover current liabilities. Ideally, quick ratioshould be 1.1. Quick ratios lower than 1.1 indicates that company relies too much on

inventory or other assets to pay its short-term liabilities.

Quick ratio formula is:

QuickRatio (2007) =

=

= 0.77

QuickRatio (2008) =

=

= 0.86

QuickRatio (2009) =

=

= 0.82


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QuickRatio (2010) =

=

= 0.80

Interpretation:

According to our calculation we can see that the Quick Ratio of Century paper in 2007, 2008,

2009 and 2010 are 0.77, 0.86, 0.82 and 0.80 respectively. This means that in overall these four

years the Company Century paper relies on their inventory or other assets to pay their short- term

liabilities than on their quick assets.

AssetManagement Ratio:

Asset management ratios are the key to analyzing how effectively and efficiency your small

business is managing its assets to produce sales. Asset management ratios are also called

turnover ratios or efficiency ratios. It tells us that how effectively your company is managing the

assets. If the company have excessive investments in assets, then its operating assets and capital

will be unduly high, this will reduce its free cash flow and its stock price. On the other hand if

the company doesnt have enough assets; it will lose sales, which will hurt profitability, free cash

flow and its stock price.

Ratios that described different types of assets are described as following:

1. The Inventory Turnover Ratio:Inventory Turnover Ratio measures company's efficiency in turning its inventory into sales. Its

purpose is to measure the liquidity of the inventory. Inventory Turnover Ratio measures


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company's efficiency in turning its inventory into sales. Its purpose is to measure the liquidity of

the inventory.

A lowinventoryturnoverratio is a signal of inefficiency, since inventory usually has a

rate of return of zero. It also implies either poor sales or excess inventory. A low turnover rate

can indicate poor liquidity, possible overstocking, and obsolescence, but it may also reflect a

planned inventory buildup in the case of material shortages or in anticipation of rapidly rising

prices.

A high inventory turnover ratio implies either strong sales or ineffective buying (the

company buys too often in small quantities, therefore the buying price is higher).A high

inventory turnover ratio can indicate better liquidity, but it can also indicate a shortage or

inadequate inventory levels, which may lead to a loss in business.

The Inventory Turnover Ratio (2007) =

=

= 16.66


=

= 12.04


=


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= 11.71


=

= 13.13

Interpretation:

That number signifies the number of times inventory is sold and restocked each year. According

to our calculation, the Inventory Turnover Ratio of Century paper in 2007, 2008, 2009 and 2010

are 16.66, 12.04, 11.71 and 13.13. This shows a good/high inventory turnover ratio. It means that

every year they are efficient in turning their inventory into sales. They have high sales and

efficient liquidity but it is not increasing with time. According to our calculations, it is gradually

decreasing up till 2010.

2. AverageageofInventory Turnover:Average age of inventory is another way of looking at inventory turnover. This ratio takes

inventory turnover ratio and divides it into 365 days. The formula for average age of inventory

is:

AverageageofInventoryturnover (2007) =

=

= 22days


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=

= 30 days


=

= 31 days


=

= 27 days

Interpretation:

This shows that in 2007 the average age of our inventory was 22, 30, 31, 27 in 2008, 2009 and

2010 respectively. Which tells us that our inventory was kept for this much days before their

sales.

3. Fixed Asset Turnover Ratio:The Fixed Asset Turnover Ratio measures how effectively the firm uses its plant and equipment,

to generate sales. If you can't use your fixed assets to generate sales, you are losing money

because you have those fixed assets. Property, plant, and equipment are expensive to buy and


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maintain. In order to be effective and efficient, those assets must be used as well as possible to

generate sales. The fixed asset turnover ratio is an important asset management ratio because it

helps the business owner measure that efficiency.

Fixed Asset Turnover Ratio (2007) =

=

= 1.67


=

= 1.13


=

= 0.704


=

= 0.984


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Interpretation:

According to above calculation, we can see that our Fixed Asset Turnover ratio in four years was

1.67, 1.13, 0.704, and 0.984 respectively. This means that that in 2007, they have 1.67 times the

ratio that shows their investment in plant and equipment which are generating revenue for them,

1.13 times the ratio in 2008, 0.70 times the ratio in 2..9 and 0.984 times the ratio in 2010.

According to these calculations, we are also getting to know that there fixed asset turnover ratio

was also gradually decreasing in four years which is not a good sign.

4. Total Assets Turnover Ratio:The total asset turnover ratio is the asset management ratio that is the summary ratio for all the

other asset management ratios. If there is a problem with inventory, receivables, working capital,

or fixed assets, it will show up in the total asset turnover ratio. The total asset turnover ratio

shows how efficiently your assets generate sales. The higher the total asset turnover ratio, the

better and the more efficiently you use your asset base to generate your sales.

Total Assets Turnover Ratio (2007) =

=

= 0.39


=

= 0.32


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=

= 0.51


=

= 0.68

Interpretation:

Our Total Asset Turnover ratio in four years was 0.39, 0.32, 0.51, and 0.68. According to these

we are getting to know that they are increasing every year which is a good sign. We can also say

it as they have 0.39 times the ratio for every $1 worth asset to generate sales in 2007, 0.32 times

the ratio in 2008, 0.51 times the ratio in 2..9 and 0.68 times the ratio in 2010.

DebtManagement Ratio:

A measure of the extent to which a firm uses borrowed funds to finance its operations. Owners

and creditors are interested in debt management ratios because the ratios indicate the riskiness of

the firm's position. Debt can help or harm a company. It can help a company when the assets that

have been paid for by debt earn more than the cost of the debt. It harms a company when the

debt becomes too large. Debt management ratios are used to evaluate your debt level and

determine whether it is adding to or taking away from the company's bottom line.

Following are the ratios calculated in order to know ourDebt Management.


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1. HowtheCompanyis Financed: Debt Ratio:Debt ratio is a ratio that indicates proportion between company's debt and its total assets. It

shows how much the company relies on debt to finance assets. The debt ratio gives users a quick

measure of the amount of debt that the company has on its balance sheets compared to its assets.

The higher the ratio, the greater risk will be associated with the firm's operation. A low debt ratio

indicates conservative financing with an opportunity to borrow in the future at no significant

risk.

Debt Ratio (2007) =

=

*100

= 69.8 %

Debt Ratio (2008) =

=

*100

= 78.1%

Debt Ratio (2009) =

=

*100

= 86.3%


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Debt Ratio (2010) =

=

*100

= 65.2%

Interpretation:

According to our calculation, in the century paper 69.8% assets were being funded by the debts.

78.1% in 20008, 86.3% in 2009 and 65.2% in 2010. This is showing that with passing four years

they are relying on their debts more but in 2010 they reduced their debt ratio by 21.1% which is a

good sign as they are doing the conservative financing with an opportunity to borrow in the

future.This is the higher ratio in general, that shows greater risk associated with the Companys

operation.

2. Abilitytopay Interest: Times-Interest-Earned:

Times interest earned (TIE) ratio is an indication of the company's ability to handle interest costs

from earnings. The TIE ratio is calculated as Earnings before Interest and Taxes (EBIT)/Interest.

The high ratio is considered to be better. Ratios under 1.0 indicate a company with insufficient

earnings to pay interest payments.

The calculation of the times interest earned ratio is use the earnings before interest and taxes

(EBIT) figure off the income statement and divide it by the interest expense (I) figure off the

income statement.

Times-Interest-Earned (2007) =

=


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= 2.38times


=

= 1.37times


=

= 0.22times


=

= 1.06times

Interpretation:

In our calculations, we are getting know that the Century paper company have 2.38% interest

earned ration in 2007, 1.37%, 0.22% and 1.06% in the next following years respectively. This

means that in 2007, Century paper that the company is 2.38 times efficient to meet its interest

obligations and so on for the following years. But in 2009, the company is 0.22 times to meet the

interest obligations means that the company is not able to meet its total interest expense from its

debts.


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3. Debt-To-Equity Ratio:

The Debt to Equity Ratio measures how much money a company should safely be able to borrow

over long periods of time. It does this by comparing the company's total debt (including short

term and long term obligations) and dividing it by the amount of owner's equity.

Debt to equity is very industry specific; and it also really depends on the company at hand and

the way they chose about doing things. It must be noted that neither a company with a high debt

to equity ratio or a company will a low ratio is necessarily better than each other; it all depends

on how they operate. If a company has a high debt to equity ratio it simply means that they used

a lot of outside financing (such as business) to finance their company, meaning a lot of the

businesss expenses go towards repaying these loans.

Debt-To-Equity Ratio (2007) =

=

= 2.31times


=

= 3.57times


=

= 6.33 times


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=

= 1.87times

Interpretation:

Our debt to Equity ratio in the four years are 2.31, 3.57, 6.33 and 1.87 which means that the

company was using 2.31 times of equity and debt to finance its assets in 2007, 3.57 times in2008, 6.33 times in 2009 and 1.87 times in 2010. This also shows us the gradual decrease in

2010 which also a good sign for the company.

Profitability Ratios:

Every firm is most concerned with its profitability. One of the most frequently used tools of

financial ratio analysis is profitability ratios which are used to determine the company's bottom

line. Profitability measures are important to company managers and owners alike. If a small

business has outside investors who have put their own money into the company, the primary

owner certainly has to show profitability to those equity investors.

Profitability ratios show a company's overall efficiency and performance. We can divide

profitability ratios into two types: margins and returns. Ratios that show margins represent the

firm's ability to translate sales dollars into profits at various stages of measurement. Ratios that

show returns represent the firm's ability to measure the overall efficiency of the firm in

generating returns for its shareholders.

1. Net Profit Margin:When doing a simple profitability ratio analysis, net profit margin is the most often margin ratio

used. The net profit margin shows how much of each sales dollar shows up as net income after


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all expenses are paid. For example, if the net profit margin is 5% that means that 5 cents of every

dollar is profit.The net profit margin measures profitability after consideration of all expenses

including taxes, interest, and depreciation.

Net Profit Margin (2007)=

*100

=

*100

= 2.17%


*100

=

*100

= 0.64%


*100

=

*100

= 14.7%


*100

=

*100

= 0.43%


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Interpretation:

Through our calculation we got to know that the Net Profit Margin of Century Paper in 2007 is

2.17%, 0.64% in 2008, and 14.7% in 2009 and in 2010 0.43%. But it is decreasing gradually.

This is a bad sign for the company. This means that they are having 2.17% profit for every $1 it

generates in revenues or sales. The higher ratio shows us the better performance. But right now,

for the current analysis it is a bad performance.

2. Gross Profit Margin:Gross profit margin is a key financial indicator used to asses the profitability of a company's core

activity, excluding fixed cost. Gross profit margin measures company's manufacturing and

distribution efficiency during the production process. It is a measurement of how much from

each dollar of a company's revenue is available to cover overhead, other expenses and profits.

The ideal level of gross profit margin depends on the industries, how long the business has been

established and other factors. Although, a high grossprofitmargin indicates that the company

can make a reasonable profit, as long as it keeps the overhead cost in control. A low

margin indicates that the business is unable to control its production cost.

Gross profit margin can be used to compare a company with its competitors. More efficient firms

will usually see a higher margin. Also, it provides clues about company's pricing, cost structure

and production efficiency. Therefore, gross profit margin can be used to compare company's

activity over time.

Gross Profit Margin (2007)=

=

*100

= 7.95%


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=

*100

= 7.30%


=

*100

= 1.03%


=

*100

= 1.59%

Interpretation:

Through our calculation, the Century Paper is having Gross Profit Margin of 7.95% in 2007,

7.30% in 2008, 1.03% in 2009 and 1.59% in 2010. This means that that for every $1 generated in

sales, the Century Paper Company have 0.75 cents, 0.01cents, 0.015 cents in 2010 at the end of

the day to cover basic operating costs and profit.

3. Returnon Assets:The Return on Assets ratio is an important profitability ratio because it measures the efficiency

with which the company is managing its investment in assets and using them to generate profit.


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It measures the amount of profit earned relative to the firm's level of investment in total assets.

The return on assets ratio is related to the asset management category of financial ratios.

Returnon Assets (2007)=

=

*100

= 0.86%


=

*100

= 0.21%


=

*100

= -7.65%


=

*100

= 0.30%


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Interpretation:

Through our calculation, in 2007 the Century Paper Company had 0.86% of Return on Assets

means that they got 0.86% for every $1 on assets, 0.21% in 2008, -7.65% in 2009, 0.30% in

2010. The ratios are gradually decreasing in the years especially in 2009. This means that the

company is not efficiently managing its investments on the assets to generate profit.

4. Returnon Equity:The Return on Equity ratio is perhaps the most important of all the financial ratios to investors in

the company. It measures the return on the money the investors have put into the company. This

is the ratio potential investors look at when deciding whether or not to invest in the company.

Returnon Equity (2007)=

=

*100

= 2.87%


=

*100

= 0.95%


=

*100


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= -0.56%


=

*100

= 0.86%

Interpretation:

Through our calculation we get to know that in 2007 the Century Company had 2.87% returns on

equity. This means that for every $1 investment done in the company, investors are earning

2.87% in 2007, 0.95% in 2008, -0.56% in 2009 and 0.86% in 2010. And this is also showing that

the ratio is gradually decreasing especially in 2009.


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Documents

Ratio Analysis of Century Paper