Financial Statement Analysis Of Cherat Cement Company Limited Nowshera Pakistan 5s5j1d
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FINANCIAL ANALYSIS OF CHERAT CEMENT COMPANY LIMITED KPK
BY: BIBI SARA REGESTRATION # BBA HONS (2009-2013) TO: MR. SAEED AKBAR
NORTHERN UNIVERSITY NOWSHERA (Main Campus) Wattar Walai Ziarat, Kaka Sahib Road, Nowshera, KPK Ph: 0923-210641-42 1
APPROVAL SHEET FINANCIAL ANALYSIS OF CHERAT CEMENT COMPANY LIMITED KPK
Supervisor:
_________________________________________________ Mr. Saeed Akbar Lecturer. Deptt of Mgt Sciences Northern University Nowshera
Member Research Committee:
__________________________________
Mr. Abdul Waheed HOD. Deptt of Management Sciences Northern University Nowshera
Member Research Committee:
_________________________________
Mr. Junaid Iqbal Lecturer. Deptt of Mgt Sciences Northern University Nowshera
2
CHAPTER # 1 1.0
INTRODUCTION
The progress of any country depends on the industrial development of the country. To gain a power in the world country needs to be industrially advanced and developed. To get success, every country needs to be respected for what it produces and contributes to the world market. Any economic activity which deals with manufacturing of goods by processing raw material is called industry. It is the form of economic and commercial activity in a country. An industry helps to contribute to the national income. Even for the improvement of most modernized production of cement, industrialization is necessary. Cement industry is indeed a highly important segment of industrial sector that plays an important role in the socio-economic development of a country. Throughout the world the top most producers of cement are China, India and USA. As the most populated state of the world their combined total makes half of the world total. According to research China constantly has produced more cement than any other country from last 18 years. Approximately 3.3 billion tons of cement is consumed globally of which 1.8 billion tons is manufactured by china. Since independence of Pakistan a country production capacity had less than half a million tons per annum but by now it has exceeded 10 million tons per annum due to establishment of new manufacturing facilities. Pakistan was net importer of cement but due to privatization new owner ed by financial help pushed the industry to a point where a country had reached to an oversupply situation. Pakistan’ cement market is divided in to two regions the one is northern region and the other is southern region. Northern region contain areas of Punjab, KPK, Azad Kashmir and upper parts of Baluchistan whereas the southern region contains the entire province of Sindh and lower part of Baluchistan. In fact southern region of a country always produced surplus cement but now due to new plants opened in northern region has become almost self-sufficient in supply of cement.
3
Pakistan has one of the highest population growth rate in the world this has prompted a sizable demand for housing facilities in the country. Urban areas have demanded 0.6 million units per annum and due to greater urbanization demand of cement is predicted to grow up to 7% per annum. Demand for cement will go high for infrastructure units due to commencement of work on motor ways, power plants, Islamabad new city, Karachi package and Ghazi Brotha dam. This will cause demand of cement to grow at high rate. Recently there were 24 cement manufacturing units in the country but due to closure of National cement Karachi unit it is reached to 23 units. Out of these 23 units, 20 units produce ordinary Portland cement, 2 units produce white cement and remaining one unit produce slag cement. Cherat cement located in KPK has capacity of 0.72 million per annum. Cherat was the first cement plant in the private sector. The company is owned by Ghulam Faruque group who are the owner of Cherat paper sack as well. The main target market of Cherat cement is upper Punjab and KPK. Recently the company has increased its capacity and has expended their business. Due to expansion they are in a position to take advantage to provide cement to northern areas that have high demand for it. Expansion had helped them to achieve economies of scale. As Afghanistan is in need of reconstruction after devastation of a long war it will be beneficial for Cherat to export cement to Afghanistan.
Cement industry is indeed a highly important segment of industrial sector that plays an important role in the socio-economic development of a country. The first name in the field of cement manufacturing was listed in 1981 in Karachi stock exchange. The factory is built on Cherat Hills and manufacture high quality grey Portland cement. The cement is made on the most computerized system. There is upgraded quality control system and modern production system. CCCL is the largest producer and supplier in Pakistan. Production capacity of CCCL is 2500tons/day
This research report makes us to know about financial strength of Cherat cement industry and its performance. Financial statement analysis is a method used by interested parties such as shareholders, creditors and management to evaluate the conditions and 4
performance of the firm. Ratio analysis, trend analysis and common size analysis are used in this research which is the most common forms of financial analysis. Financial ratio analysis is an important topic and is covered in all mainstream management sciences textbooks. It is widely used to summarize the financial health of a company. This research report will be of great use for investors, creditors as well as the students of, management sciences and for those who are interested in finance particularly.
1.1
PURPOSE OF THE STUDY
The main purpose of this research study will be examining financial position, analyzing profitability, analyzing market strength and drawing conclusion about overall performane of CCCL over a period of 2007-2011. The main objectives will be: 1. To examine the financial position of Cherat Cement Company Limited. 2. To analyze the profatibility of Cherat Cement Company Limited. 3. To analyze the market strength of Cherat Cemnet Company Limited. 4. To draw conclusions about the overall performance of the company from 20072011. 5. 1.2
SIGNIFICANCE OF THE STUDY
This research is important for investors and management as well. It is an anlayst’ microscope and let them to get a better view of financial health of a company. The relationship between the two items of fiancial data express in the form of ratio and then interpreted with the view to evaluating the financial and performance of the firm ,from the basis of the financial ratio analysis. Ratio anaylsis is the fact that allow the company to compare its performance with that of other companies in the same industry .it gives the potential investors a quick snap shot of the financial condition of a business .
5
Ratios analysis are important both internally and externally. On internal basis we do planning and evaluate management through financial ratio analysis and externally we become able to make policies, monitor performance, take investment decisions and manage credit grantings etc.
6
CHAPTER # 2 2.0
LITERATURE REVIEW
Doron Nissim,Stephen H.Penman(2003) made research on Financial Statement Analysis of leverage and how it informs about profitability and Price-to-Book Ratios. This research present financial statement analysis that distinguishes leverage arises in financing activities from leverage that arises in operations. This study yields two leveraging equations, one for borrowing to finance operations and one for borrowing in the course of operations. This research concludes that balance sheet line items for operating liabilities are priced differently than those dealing with financing liabilities. Doron Nissim, Stephen H.Penman (2001) do research on ratio analysis and equity valuation. The researcher research that standard portability analysis is integrated and unlimited and is complemented with an analysis of growth and analysis of operating activities is well-known from the analysis of financing activities. This study present a matter of pro forma analysis of the future, with forecasted ratios viewed as building blocks of forecasts of payoffs. The analysis of current financial statements is seen as a matter of identifying current ratios as predictors of the future ratios that determine equity payoffs. Jane A. Ou and Stephen H. Penman(1989) have did research on ratio analysis and equity the researcher did work on financial statement analysis that combines a huge position of financial statement things into one summary calculate which indicates the way of oneyear-ahead earnings changes. Positions are taken in stock on the basis of this calculation during the period of 1973-1983 which engage canceling long and short location with zero net investment. The two-year investment-period return to the long and short location in the order of 12.5%.and after adjustment for size effects the return is about 7.0% and these returns can’t be explained by nominated firm risk characteristics. E. Eldon Eversull and Beverly L. Rotan (1997) have done research on Analysis of Financial Statements Local Farm Supply, Marketing Cooperatives. In this report they examined the balance sheet and income statement of a local firm supply and marketing cooperatives, they compared 1995 and 1994 and trend above the past 10 years. The facts in this research stand for four cooperatives size and types’ .general size of income 7
statement and balance sheet evaluate dissimilar cooperative size and type. For this comparison balance sheet and income statement items and ratios are used.
Mary Fischer, Teresa P. Gordon, Janet Greenlee, & Elizabeth K. Keating (2003) did research on An Analysis of the Financial Statements of U.S private colleges and universities. This study analyzed the private organizations that provide permanent contribution in higher education of US. They wanted to find out that whether the discretions provided to them by auditing and ing standards were advantageous to them or not .As these standards provide an operating way to them. They found that about 60% of the institutions report an operating measure but difference lies in their inclusion and exclusion of items.
Mabwe kumbirai and Robert Webb (2010) did research on a Financial Ratio Analysis of commercial bank performance in South Africa. They investigate the performance of south Africa’s commercial banking sector from the period 2005-2009.financial ratio are used to measure the profitability, liquidity and credit quality performance of five large south Africa based on commercial banks. Their study is based on generally bank performance increased considerably in the first two years of the analysis. A significant change in the trend is notice at the onset of the global financing crisis in 2007, getting its peak period from 2008-2009. Chunhui (Maggie).Grace O’Farrell Kwok-Kee Wei and Lee.J.Yee (2007) did research on ratio analysis comparability between Chinese and Japanese firm. The main purpose of their search was Firms in different countries operate in different business environments and prepare financial statements. Benchmarks for assessing financial ratio of a firm in different countries are likely to be different .during conducting the financial ratio analysis each country having its unique cultural, business, and financial have to be taken into financial data. The methodology of their search is to study and compares ten main financial ratios of 75 Chinese firms with financial ratio of 75 matched samples Japanese firms to determine if the common benchmark of each of the financial ratio can be applied
8
in both countries .their findings during the search shows an important difference in liquidity, solvency and activity ratio between firms from these two countries.
Enekwe Chinedu Innocent, Okwo Ifeoma Mary and Monday Matthew (2013) have did search on financial ratio analysis of profitability in Nigerian Pharmaceutical Industry. The main purpose of their search is to examine the relationship between the financial ratio analysis and profitability of the Nigerian pharmaceutical over the last past eleven years from the period 2001-2011. These financial ratio analyses have immense potentials to help organizations in improving their revenue generation ability as well as minimization of costs. The researcher used five variables for the analysis that are Inventory turnover ratio, debtor’s turnover ratio and creditors velocity, total assets turnover ratio and gross profit margin. Dependent variables are represented by gross profit margin while independent variables are inventory turnover, debtor’s turnover, and creditor’s velocity and total assets turnover. The secondary data were obtained from the financial statements of the selected pharmaceutical companies selected statements the data have been analyzed using Descriptive research method and multiple regressions to find out the relationship between the variables. So the result shows that there is negative relationship between all independent variables with profitability in the Nigerian pharmaceutical industries. The results further suggested that only 17.8% of the independent variables are determinant factors of profitability in the enterprises sampled while 82.2% of the major factors are determine from other factors outside the independent variables.
Florenz C. Tugas (2012) did research on Comparative Analysis of the Financial Ratio of listed firms belonging to the Education Subsector in the Philippines’. The main aim behind this research is to analyze the financial condition of the three firms for the period of (2009-2011) using liquidity ratios, activity ratio, leverage ratios, profitability ratios, and market value ratios. For the liquidity ratios were used: current ratio; quick ratio; acid test ratio; cash flow liquidity ratio; average collection period; and day’s payable outstanding. For activity, the following ratios were used: s receivable turnover; s payable turnover; fixed assets turnover; and total assets turnover. For leverage, the following debt ratio; debt to equity ratio; and times interest earned. For profitability, the 9
following ratios were used: operating profit margin; net profit margin; return on total assets; return on equity; and basic earning power ratio. For market value, the following ratios were used: price-earnings ratio; market-book ratio; and dividend yield. Ratios were used: debt ratio; debt to equity ratio; and times interest earned. For profitability, the following ratios were used: operating profit margin; net profit margin; return on total assets; return on equity; and basic earning power ratio. For market value, the following ratios were used: price-earnings ratio; market-book ratio; and dividend yield. . Necessary information derived from these financial statements were summarized and used to compute the financial ratios for the three-year period. To provide a basis for analysis, for each financial ratio, the firm adjudged as the best one (using rule of thumb and ratio trends) was given three points, the next one, two points, and the last one, one point. The total points for each ratio category were then computed to arrive at an overall basis for analysis. Results showed that in of liquidity, FEU ranked first, followed by Malayan, then CEU; in of activity, FEU ranked first, followed by CEU, then Malayan; in of leverage, Malayan ranked first, followed by CEU, then FEU; in of profitability, FEU ranked first, followed by Malayan, then CEU; and in of market value, CEU and FEU tied for first and then Malayan followed. Overall, FEU (44 points) ranked first, followed by Malayan (40 points), then CEU (36 points).
Jane Frecknall-Hughes, Mike Simpson# and Jo Pad more (2007) have done research on Inherent limitations in using financial ratio analysis to assess small and medium sized company performance in their research they critically evaluates the limitation of using financial ratios to judge the performance of large and medium size enterprise(SMSE) .the main objective of their research is to notify the small business research community of the shortcomings of the such an approach to measuring the performance of (SMSE).Their findings shows that Return on Capital Employed (ROCE) was found to be a particularly poor indicator of performance in SMEs and may be defined in many different ways giving rise to widely differing values of ROCE. In addition, the value of ROCE is open to some manipulation by management and analysts.
10
CHAPTER # 3 3.0 RESEARCH METHODOLOGY 3.1
RESEARCH TYPE
Research are made of different reasons.the different procedure are used by researcher for achievement of their research.some of the procedure are field work,applied research,action research and bookish research .this research is applied research on CCCL.Therefore the type of this research is applied research.
3.2
VARIABLES
Variables used in this research are profitability.leverage and liquidity. 3.3
DATA COLLECTION
The balance sheet and income statement of CCCL from 2007 to 2011 will be used for analysis. For this purpose, annual reports of CCCL will be taken from the official website of CCCL. 3.4
TOOLS FOR DATA ANALYSIS
In order to assess the performance of Cherat Cement Company, ratio analysis would be used first. In ratio analysis, profitability ratios, liquidity ratios, asset activity ratios, debt ratios and market strength ratios will be calculated to assess the profitability, liquidity, assets utilization efficiency, leverage position and market strength of the company. Secondly, trend analysis will be used to see the trend in all the entries of balance sheet and income statement over five years. Then lastly, common-size analysis will be used to check 11
the weight of each and every entry of balance sheet out of total assets and in income statements, out of total sales. Microsoft Excel will be used for calculation purpose.
12
CHAPTER # 4 4.0
FINANCIAL STATEMENT ANALYSIS:
4.1 RATIO ANALYSIS: Ratio analysis is an expression of a mathematical relationship between one to another. This analysis discloses such conditions which cannot be noted by analyzing individual components of the ratio. A) LIQUIDITY RATIOS: CURRENT RATIO: Current Ratio = Current assets / current liabilities
YEARS:
2007
2008
2009
2010
2011
Q.R:
1.55
1.01
1.26
0.77
0.95
The current assets are also called liquid assets or working capital. Organizations maintain working capital to finance their current liabilities. So in current ratio, we assess the liquidity position of the company. The current ratio of CCCL does not seem to be good enough. As we can see that in 2007, it is 1.55 and we can say that the current assets of CCCL are sufficient to pay its current liabilities. Since it has no issue of liquidity in 2007 but in the succeeding years, the ratio is decreasing especially in 2010 and 2011, the ratio is 0.77 and 0.95 respectively. Hence CCCL cannot pay its current liabilities through its current assets. So it has prominent liquidity issues in the years 2008, 2009, 2010 and 2011. 13
current ratio 1.8 1.6 1.4 1.2 1 current ratio
0.8 0.6 0.4 0.2 0 2007
2008
2009
2010
2011
QUICK RATIO: Quick ratio= current assets – Inventory Current Liabilities YEARS:
2007
2008
2009
2010
2011
Q.R:
0.64
0.09
0.07
0.03
0.04
Quick ratio tells us about the more accurate liquidity because it subtracts the inventory from current assets. As we saw that the current ratio of CCCL was not satisfactory so it is obvious that quick ratio will also be discouraging. So we can see that quick ratio is less than 1 throughout the period and even it is close to zero in succeeding years after 2007. 14
Which means that after subtracting the inventory from its current assets, CCCL is not able to finance its current liabilities and hence faces a big problem of liquidity in the period?
Quick ratio 0.7 0.6 0.5 0.4 Quick ratio
0.3 0.2 0.1 0 2007
2008
2009
2010
2011
B) LEVERAGE RATIO: DEBT-TO-TOTAL ASSETS RATIO: Debt-to-Total assets ratio = Total debt/total assets YEARS:
2007
2008
2009
2010
2011
D.T.A.R
0.96
0.75
0.817
0.602
0.708
This ratio tells us about how much debt financing is there in total assets of the firm. By calculating the debt ratio of CCCL, it can be seen that it has a huge debt financing in its total assets especially in 2007. This much high debt ratio is not a good sign for the
15
company because it can lead the company to bankruptcy. So it should try to minimize debt financing as much as possible.
Debt to total assets ratio 1.2 1 0.8 0.6
Debt to total assets ratio
0.4 0.2 0 2007
2008
2009
2010
2011
DEBT TO EQUITY RATIO: Debt to equity ratio: total debt/total shareholder’s equity. YEARS:
2007
2008
2009
2010
2011
D.T.E.R:
0.57
1.03
1.09
1.16
1.30
The ratio has decreased due to increase in debt and decrease in equity .it shows that most of the CCCL financing provided by debt not by shareholders. 16
Debt to equity ratio 1.4 1.2 1 0.8 Debt to equity ratio
0.6 0.4 0.2 0 2007
2008
2009
2010
2011
TIMES INTEREST EARNED RATIO: TIME INTEREST EARNED: EBIT / total interest charged YEARS:
2007
2008
2009
2010
2011
T.I.E.R:
10.57
101.33
22.15
22.03
134.26
It is used to asses a company ability to service the interest on its debt with operating income from the current period. In this ratio we have to specify how much EBIT Company has so to pay down the interest.
17
Time interest earned ratio 120 100 80 60
Time interest earned ratio
40 20 0 2007
2008
2009
2010
2011
C) PROFITABILITY RATIO: GROSS PROFIT MARGIN Gross profit margin= Sales – CGS / Sales YEARS:
2007
2008
2009
2010
2011
GPM:
10.9%
4.62%
14.68%
2.57%
13.35%
There is decreased in gross profit margin in 2008 and 2010 due to increase in cost of goods sold which is unfavorable .however in 2009 and 2011 it is favorable.
18
Gross profit margin 16.00% 14.00% 12.00% 10.00% 8.00%
Gross profit margin
6.00% 4.00% 2.00% 0.00% 2007
2008
2009
2010
2011
OPERATING EXPENSES: Operating Expenses = EBIT / Sales * 100
YEARS
2007
2008
2009
2010
2011
OE
2.19
2.101
2.503
4.63
6.749
Operating Eepenses 8 7 6 5 4
Operating Eepenses
3 2 1 0 2007
2008
2009
2010
2011
19
NET PROFIT MARGIN: Net Profit Margin= Net profit/ Sales * 100 YEARS:
2007
2008
2009
2010
2011
NPM:
4.92%
1.06%
5.25%
7.83%
0.2 5%
Net profit margin increase in 2009 and 2010 which shows favorable condition. However in 2008 and 2011 it is decrease.
Net profit margin 9.00% 8.00% 7.00% 6.00% 5.00% Net profit margin
4.00% 3.00% 2.00% 1.00% 0.00% 2007
2008
2009
2010
2011
RETURN ON EQUITY:
20
Return on equity: Net profit/ shareholders’ equity YEARS:
2007
2008
2009
2010
2011
ROE:
11.36
-2.57
11.61
-13.18
2.41
IT measures a firm's efficiency at generating profits from every unit of shareholders' equity. It shows how well a company uses its resources to generate earnings growth. The ROE is useful for comparing the profitability of a company to that of other firms in the same industry. So there is increased in ratio of return on equity in 2009 which shows that increased in net income as well as sales. However the value is decreased in 2008, 2010 and 2011.
Return on equity 15 10 5 0
Return on equity 2007
2008
2009
2010
2011
-5 -10 -15
RETURN ON ASSETS: Return on Assets= Net profit/ total assets YEARS:
2007
2008
2009
2010
2011
R.O.A:
6.91
-1.43
5.63
6.20
1.08
21
This is an indicator that reflects how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings. This is calculated by dividing a company's annual earnings by its total assets. The higher the ROA, the better, because the company earns more money on less investment. So there is increased in ratio in 2009 and 2010 that shows that the CCCL will manage its resources efficiently and effectively, however in 2008 and 2011 it is decreased.
Return on assets 8 7 6 5 4 3
Return on assets
2 1 0 -1
2007
2008
2009
2010
2011
-2
D) ACTIVITY RATIO: TOTAL ASSETS TURNOVER Total assets turnover: Sales/Total assets YEARS:
2007
2008
2009
2010
2011
TATO:
0.98
0.89
0.96
0.71
0.79
22
The ratio decreased because of decreased in sales in relation to assets this shows that the company is not efficient in using its assets to generate sales.
Total assets turn-over 1.2 1 0.8 0.6
Total assets turn-over
0.4 0.2 0 2007
2008
2009
2010
2011
FIXED ASSETS TURNOVER Fixed assets turnover= Sales/ Fixed assets YEARS:
2007
2008
2009
2010
2011
F.A.T
1.56
1.53
1.34
0.95
0.06
The ratio is continuously decreasing from 2007-2011 it shows that fixed assets are increasing while sales are decreasing. The decrease in ratio is either due to increase in fixed assets or due to decrease in sales which is not favorable condition for CCCL.
23
Fixed assets turnover 1.8 1.6 1.4 1.2 1 Fixed assets turnover
0.8 0.6 0.4 0.2 0 2007
2008
2009
2010
2011
INVENTORY TURNOVER Inventory turnover= sales / Inventory of finished goods YEARS:
2007
2008
2009
2010
2011
ITO:
29.40
18.70
16.28
17.24
11.23
A ratio showing how many times a company's inventory is sold and replaced over a period. This ratio is decreased due to increase in inventory which has higher the cost of goods sold there is slightly decreased in value which shows that the CCCL is not effective towards the liquidity. 24
Inventory turnover 35 30 25 20 Inventory turnover
15 10 5 0 2007
2008
2009
2010
2011
E.MARKET VALUE RATIO: EARNING PER SHARE: Earning per share = Net profit / Number of Share YEARS:
2007
2008
2009
2010
2011
EPS:
1.78
-0.75
2.51
-3.38
0.12
The earnings per share is increased in 2009 because the income is increased .This increased in earning per share and also increased the return on common equity ,however in 2008 ,2010,2011 there is decreased in earning per share which positively affect the trust of the investors towards the CCCL.
25
Earning per share 3 2 1 0 2007
2008
2009
2010
2011
Earning per share
-1 -2 -3 -4
TREND ANALYSIS
Trend analysis indicates in which direction a company is headed. Trend percentages are computed by taking a base year and asg its figures as a value of 100. Figures Generated in subsequent years are expressed as percentages of base-year numbers. Trend percentages show horizontally the degree of increase or decrease, but they do not Indicate the reason for the changes. They do serve to indicate unfavorable developments 26
That will require further investigation and analysis. A significant change may have been caused by a change in the application of an ing principle.
TREND ANALYSIS OF BALANCE SHEET 2007
A.Non-Current Assets (A1+A3+A5+A6+A7)
100
2008
2009
2010
114.7966 134.8146 106.4074
2011
100.8243
1.43901 1.Capital work in progress
100
0
0
3
655.2914
2.Operating fixed assets at cost
100
110.8719
98.0526
128.374
101.7338
3.Operating fixed assets after D.A.D
100
114.7975 88.63043 153.5018
95.93687
4.Depreciation for the year
100
74.72357 110.8617 111.8402
119.3228
340.357 5.Intangible assets
100
0
0
1
105.7663
106.961 6.Long term investments
100
0
0
5
130.1915
137.781 7.Other non-current assets
100
B.Current Assets (B1+B2+B3+B4+B5)
0
0
9
265.908
100
139.1988 72.21843
92.2625
138.5703
1.Cash & bank balance
100
86.82673 92.61396 88.40482
131.7528
2.Inventories
100
176.9073
187.8133
3.Trade Debt
100
0
27
135.229 71.70157 0
0
0
4.Short term investments
100
21.90541 0.147159
74.5098
0
5.Other current assets
100
222.4214
67.5547 98.25649
128.8952
C.Current Liabilities (C1+C2)
100
214.565 58.09043 151.4864
110.9409
1.Short term Secured loans
100
218.7325
100.828 166.1008
114.2546
2.Other current liabilities
100
212.2464 33.58588 126.3321
103.4399
D.Non-Current Liabilities (D1+D2+D3+D4+D5)
100
86.97143 369.0176 70.43861
124.7308
89.7839 1.Long term secured loans
100
0
0
1
125.0352
2.Long term unsecured loans
100
0
0
0
0
3.Debentures/TFCs
100
0
0
0
0
4.Employees benefit obligations
100
0
0
0
0
5.Other non-current liabilities
100
801.0526 83.20946 3.991321
101.2107
E.Shareholders Equity (E1+E2+E3)
100
96.49082 105.1109
99.0108
103.8201
1.Issued, Subscribed & Paid up capital
100
100
100
100
100
i).Ordinary Shares
100
100
100
100
100
ii).Preference shares
100
0
0
0
0
93.87207 109.1739
98.2905
106.6502
2 Reserves
100
i).Capital Reserve
100
ii).Revenue Reserve
100
3.Surplus on revaluation of fixed assets
0 O
100
0
0
0
0
0
98.2905
106.6502
0
0
0
2010
2011
TREND ANALYSIS OF INCOME STATEMENT
2007
28
2008
2009
1.Sales
100
11.25334 1176.855 75.95359
122.3371
i).Local sales (Net)
100
104.0475 109.6989 61.32944
135.8449
ii).Export Sales (Net)
100
140.1967 137.0074 104.2821
106.9485
100
120.53 105.2688 86.73963
108.7937
2.Cost of sales i).Cost of material
100
0
0 96.07394
112.9917
other input cost
100
0 11.21023 757.9792
107.8945
3.Gross Profit
100
47.50678 377.2027 13.17657
635.6673
4.General, istrative and other expenses
100
101.3322 177.1601 78.91208
1002.408
i).Selling & distribution expenses
100
0
0 135.7224
96.95304
ii).istrative and other expenses
100
101.3322
122.517 53.57445
103.9557
103.383 5.Salaries, wages and employee benefits
100
6.Financial expenses
100
0
0
7
328.1108
108.0033 140.1846 140.7146
178.0228
140.714 of which: (i) Interest expenses
100
0
0
6
178.0228
7.Net profit before tax
100
22.87118 454.7648 115.7492
18.55964
8.Tax expense (current year)
100
19.56705
173.0994
9.Total amount of dividend
100
0
0
0
0
10.Total value of bonus shares issued
100
0
0
0
0
11.Cash flows from operations
100
0
0 56.54878
122.4556
G.Miscellaneous
100
0
0
0
0
1.Total capital employed (E+D)
100
94.93338 144.6666
88.0868
110.2132
29
111.845 151.2231
89.7839 2.Total fixed liabilities (D1+D3)
100
3.Retention in business (F7-F8-F9) 4.Contractual Liabilities (G2+C1)
0
0
1
125.0352
100
96.35407 335.2981 134.5257
3.406941
100
218.7325 262.6887 119.0767
119.2632
MNMN Non-current assets shows downward trend in 2008, 2010 and 2011 however it slightly shows upward trend in 2009 which shows increase in non-current assets. Current-assets shows decrease in 2009 and 2010 however it slightly increase in 2011 but it shows upward trend in 2008 as compared to other years. Current liabilities are greater in 2008 the value lowered down in 2009 and 2010 however in 2011 it shows slightly increase. Current assets increase due to increase in short term investments, inventories and other current assets. Non-current liabilities shows upward trend in 2009. It is on its minimum point in 2008 however in 2010 and 2011 it decreases as compared to 2009. Increase in non-current liabilities is due increase in long-term loan and vice versa. Shareholders equity shows upward trend in 2010 and 2011 it is minimum in 2009 which shows greater contribution of shareholders. Sales of CCL are at zero in 2008 however in 2009 there appears greater increase in 2009. In 2010 the sales decreases as compared to 2009 but in 2011 sales shows slight increase as compared to that of 2010. Cost of sales is greater 2008 however it is on its minimum point 2010. In 2009 and 2011 it is greater as compared to 2010 while lower as compared to 2008. Increase in cost of sales is due to increase in cost of material. Gross profit increases in 2009, it decreases in 2008 and 2010 however it is on its peak point in 2011. The increase in gross profit is due to decrease in cost of goods sold or we can say general and istrative expenses. It is on its peak in 2011 but in 2008, 2009 and 2011 the value is lower as compared to 2011. The increase is due to in selling and istrative expenses.
30
Financial expense increases from 2009 to 2011.financial expense consist of interest expense as well as general expenses therefore financial expenses increase due to increase in interest expenses. Net profit before tax is greater in 2009, 2010 however it decrease in 2008 and 2011 due to increase in other expenses without tax. The tax expense is lower in 2008 however it increases from 2009 ton 2011. Cash flow from operation due to at zero in 2008, 2009 however it increases from 2010 to 2011.
31
32
A.Non-Current Assets (A1+A3+A5+A6+A7) 1.Capital work in progress 2.Operating fixed assets at cost 3.Operating fixed assets after D.A.D 4.Depreciation for the year 5.Intangible assets 6.Long term investments 7.Other non-current assets B.Current Assets (B1+B2+B3+B4+B5) 1.Cash & bank balance 2.Inventories 3.Trade Debt 4.Short term investments 5.Other current assets C.Current Liabilities (C1+C2) 1.Short term Secured loans 2.Other current liabilities D.Non-Current Liabilities (D1+D2+D3+D4+D5) 1.Long term secured loans 2.Long term unsecured loans 3.Debentures/TFCs 4.Employees benefit obligations 5.Other non-current liabilities E.Shareholders Equity (E1+E2+E3) 1.Issued, Subscribed & Paid up capital i).Ordinary Shares ii).Preference shares 2 Reserves i).Capital Reserve ii).Revenue Reserve 3.Surplus on revaluation of fixed assets Total assets 1.Sales i).Local sales (Net) ii).Export Sales (Net) 2.Cost of sales i).Cost of material other input cost 3.Gross Profit 4.General, istrative and other expenses i).Selling & distribution expenses ii).istrative and other expenses 5.Salaries, wages and employee benefits 6.Financial expenses of which: (i) Interest expenses 7.Net profit before tax 8.Tax expense (current year) 9.Total amount of dividend 10.Total value of bonus shares issued 11.Cash flows from operations G.Miscellaneous 1.Total capital employed (E+D) 2.Total fixed liabilities (D1+D3) 3.Retention in business (F7-F8-F9) 4.Contractual Liabilities (G2+C1)
62.17793 0 129.3816 62.17742 6.693393 0 0 0 37.82207 2.135962 3.319456 0.060509 13.43278 18.87336 24.31851 8.693365 15.62514 12.38202 0 0 0 0 1.344333 63.29948 27.05084 27.05084 0 36.24863 0 0 0 100 100 76.52516 23.47484 89.04935 0 0 10.95065 4.962593 0 4.962593 0 2.190078 0 7.162732 2.236877 2.771413 0 0
96.2282 28.95445 140.6543 63.26277 5.544795 0.166414 3.230843 0.613724 38.02145 1.717605 7.941132 0 0.00433 28.35839 30.31101 19.17265 11.13835 39.73883 30.77816 0 0 0 8.960675 64.19981 27.05084 27.05084 0 37.14897 0 37.14897 0 100 100 65.95288 34.04712 85.31417 85.31417 8.040598 14.8172 6.726943 2.074853 4.65209 3.099416 3.796287 2.503761 5.625356 0.369641 0 0 6.779117
102.3939 0.416658 180.5635 97.10946 6.201307 0.566403 3.455755 0.845599 35.07952 1.518445 5.693913 0 0.003226 27.86394 45.91702 31.84591 14.07131 27.99147 27.63382 0 0 0 0.357649 63.56471 27.05083 27.05083 0 36.51388 0 36.51388 0 100 100 53.25428 97.42949 97.42949 17.18829 80.24119 2.570514 6.988966 3.707578 3.281388 4.218747 4.638566 4.638566 8.572744 0.735952 0 0 5.047172
103.2379 2.730325 183.6942 93.16377 7.399574 0.599063 4.499099 2.248516 48.60979 2.000593 10.69392 0 0 35.91527 50.94078 36.38542 14.55536 34.91399 34.55201 0 0 0 0.361979 65.99297 27.05083 27.05083 0 38.94214 0 38.94214 0
77.53729 654.1063 80.40699 0 0 23.81 2.154442 18.44691 23.81 8.906536 173.1174 38.64197
93.25161 28.14554 9.308696 60.58117
84.01014 28.76629 0.259236 59.05899
33
71.37815 0 143.4478 71.37815 5.001542 0 0 0 52.64786 1.854586 5.872359 0 2.942505 41.97841 52.17901 19.01521 33.1638 10.76882 0 0 0 0 10.76882 61.07818 27.05084 27.05084 0 34.02734 0 0 0 100 100 707.5457 292.4551 953.7718 0 844.1056 46.22896 44.68633 0 44.68633 0 21.01916 0 14.55748 3.889431 0 0 0
100 100 59.13435 40.86565 86.64353 15.87527 70.76825 13.35647 57.26635 2.938283 2.788354 11.31477 6.749962 6.749962 1.300563 1.041327 0 0 5.052063
Common size analysis tells us how much percentage every item in balance sheet is of total assets and in income statement we take every element as percentage of sales. In our common size balance sheet non-current assets increase from previous period and most definitely this increase occur due to increase in operating fixed assets at cost, operating fixes assets after DAD depreciation for the year and other long term investment. While our current assets increase in 2008 and 2011.It decrease in 2007, 2009 and in 2010 .The decrease had occurred due to decrease in cash and bank balance short term investment and other current assets. On the equity and liabilities sections we see that our current liabilities increases due to increase in short term loans and other current liabilities. Non-current liabilities had increases due to increase in long term loans and other noncurrent liabilities. Common size income statement shows increases trend in shareholder equity. In common size income statement gross profit increases in 2008, 2011 and the decrease in 2007, 2009 and 2010. Net profit before tax is on peak in 2008 but in 2010 there is a very small. However in 2009 and 2011 it decreases. The decrease is due to increase in net expenses. The tax expenses decrease from 2009 to 2011 it increases in 2009 which effect net profit.
CHAPTER 5 34
CONCLUSIONS AND RECOMMENDATIONS CONCLUSION: Liquidity: It is very important for any company to have optimal level of current assets so that it can finance its current liabilities with its current assets. If it does not have enough current assets, the company may suffer from liquidity problem. As we can see from the calculations of current ratio and quick ratio, Cherat Cement Company is suffering from severe liquidity problems. If it does not control the problem, it may suffer financially as it would not be able to finance its current liabilities. Profitability: In order to stay in the market and perform safely and with growth, a company must maintain a sound profitability position. But in the case of CCCL, the gross profit margin ratio of the company is quite low in the years 2008 and 2010 which is alarming for the company. Similarly, the net profit margin of CCCL is pretty low in the years 2008 and 2011 which is again critical situation and if not controlled the problem permanently, it may result in reduced share price and low growth of the company. Return on assets of CCCL shows increase in 2009 and 2010 which shows efficiency of a company but in 2008 and 2011 in decreases unfavorably thus showing fluctuation in this ratio. In case of return on equity there decrease in 2009 which shows increase in net profit but the value decreases in 2008, 2009 and 2011. ROE is useful to show how well a company uses its resources to earning. Leverage ratio measure the degree of protection of suppliers of long-term funds. In case of CCCL the debt to total assets ratio shows a huge debt financing in its total assets especially in 2007 which is an alarming level of debt financing for the company but if we look at the times interest earned ration, the company can easily pay its interest expense through its operating profit. But still CCCL management should consider this thing because it can create problem in the future. Debt to equity ratio is increased from 2007 to 2011 which means that CCCL has increased debt financing and reduced equity financing over the period.
35
In case of activity ratio, the company is not bad but the efficiency in asset utilization is decreasing since 2008 and onwards. It should try to regain its efficiency in asset utilization in order to be successful. RECOMMENDATION: 1. Working capital management area is quite critical for a company and if not handled with care, could lead to severe issues. So CCCL should strictly consider its liquidity problems and hence, should try to increase its level of current assets which could at least finance current liabilities. 2. There are prominent fluctuations in profitability ratios which is not good for the market reputation of a company. So CCCL should try to bring consistency to its profitability. 3. In case of leverage ratios, we saw that the company has heavily relied on debt financing rather than equity financing through the sample period which can be very harmful for the company in several ways. Heavy debt financing can lead to bankruptcy costs. It is not welcomed by the shareholders also because increased debt financing diluted their earnings. So it is recommended that the CCCL should reduce debt financing and increase reliance on equity financing. 4. In case of activity ratios, CCCL was really good in utilizing its assets but it could not maintain its performance and the ratios dropped quickly from 2007 to 2011. So it is recommended that it should try to regain the efficiency of asset utilization and consistency in activity ratios. 5. Regarding the market strength, CCCL in not been impressive over the sample period. The Earning per Share ratio is quite low and even negative in 2008 and 2010. It is strongly recommended that the management should work on their weaknesses, as discussed earlier, so that the Earnings Per Share ratio could be increased and ultimately the confidence of investors can be build.
36
REFRENCE C.Tugas, f. (2012). comparative analysis of financial ratio. philippines. Enekwe chinedu innocent, o. i. (2013). financial ratio analusis of profitibility in nigerian pharmaceutical industry. nigeria. jane frecknall-huges, m. s. (2007). inherent limitation in using financial ratio analysis to assess small and medium sized company. japan. Mary Fischer, T. P. (US). analysis of financial statement of US private colleges and universities. nissim, d. (2003). financial analysis of leverage. columbia. nissim, d. (2003). financial analysis of leverage. new york. Nissim, D. (2003). financial analysis of leverage. penmen, J. A. (1989). ratio analysis and euity. penmen, s. H. (2003). financial analysis and equity evaluation. roton, E. E. (1997). financial statement on local firms supply marketing. webb, M. k. (2010). financial rato analysis of commercial bank performance. south africa. Yee, C. (.-k. (2007). ratio analysis comparability between chinese and japanese firm. china.
37
BY: BIBI SARA REGESTRATION # BBA HONS (2009-2013) TO: MR. SAEED AKBAR
NORTHERN UNIVERSITY NOWSHERA (Main Campus) Wattar Walai Ziarat, Kaka Sahib Road, Nowshera, KPK Ph: 0923-210641-42 1
APPROVAL SHEET FINANCIAL ANALYSIS OF CHERAT CEMENT COMPANY LIMITED KPK
Supervisor:
_________________________________________________ Mr. Saeed Akbar Lecturer. Deptt of Mgt Sciences Northern University Nowshera
Member Research Committee:
__________________________________
Mr. Abdul Waheed HOD. Deptt of Management Sciences Northern University Nowshera
Member Research Committee:
_________________________________
Mr. Junaid Iqbal Lecturer. Deptt of Mgt Sciences Northern University Nowshera
2
CHAPTER # 1 1.0
INTRODUCTION
The progress of any country depends on the industrial development of the country. To gain a power in the world country needs to be industrially advanced and developed. To get success, every country needs to be respected for what it produces and contributes to the world market. Any economic activity which deals with manufacturing of goods by processing raw material is called industry. It is the form of economic and commercial activity in a country. An industry helps to contribute to the national income. Even for the improvement of most modernized production of cement, industrialization is necessary. Cement industry is indeed a highly important segment of industrial sector that plays an important role in the socio-economic development of a country. Throughout the world the top most producers of cement are China, India and USA. As the most populated state of the world their combined total makes half of the world total. According to research China constantly has produced more cement than any other country from last 18 years. Approximately 3.3 billion tons of cement is consumed globally of which 1.8 billion tons is manufactured by china. Since independence of Pakistan a country production capacity had less than half a million tons per annum but by now it has exceeded 10 million tons per annum due to establishment of new manufacturing facilities. Pakistan was net importer of cement but due to privatization new owner ed by financial help pushed the industry to a point where a country had reached to an oversupply situation. Pakistan’ cement market is divided in to two regions the one is northern region and the other is southern region. Northern region contain areas of Punjab, KPK, Azad Kashmir and upper parts of Baluchistan whereas the southern region contains the entire province of Sindh and lower part of Baluchistan. In fact southern region of a country always produced surplus cement but now due to new plants opened in northern region has become almost self-sufficient in supply of cement.
3
Pakistan has one of the highest population growth rate in the world this has prompted a sizable demand for housing facilities in the country. Urban areas have demanded 0.6 million units per annum and due to greater urbanization demand of cement is predicted to grow up to 7% per annum. Demand for cement will go high for infrastructure units due to commencement of work on motor ways, power plants, Islamabad new city, Karachi package and Ghazi Brotha dam. This will cause demand of cement to grow at high rate. Recently there were 24 cement manufacturing units in the country but due to closure of National cement Karachi unit it is reached to 23 units. Out of these 23 units, 20 units produce ordinary Portland cement, 2 units produce white cement and remaining one unit produce slag cement. Cherat cement located in KPK has capacity of 0.72 million per annum. Cherat was the first cement plant in the private sector. The company is owned by Ghulam Faruque group who are the owner of Cherat paper sack as well. The main target market of Cherat cement is upper Punjab and KPK. Recently the company has increased its capacity and has expended their business. Due to expansion they are in a position to take advantage to provide cement to northern areas that have high demand for it. Expansion had helped them to achieve economies of scale. As Afghanistan is in need of reconstruction after devastation of a long war it will be beneficial for Cherat to export cement to Afghanistan.
Cement industry is indeed a highly important segment of industrial sector that plays an important role in the socio-economic development of a country. The first name in the field of cement manufacturing was listed in 1981 in Karachi stock exchange. The factory is built on Cherat Hills and manufacture high quality grey Portland cement. The cement is made on the most computerized system. There is upgraded quality control system and modern production system. CCCL is the largest producer and supplier in Pakistan. Production capacity of CCCL is 2500tons/day
This research report makes us to know about financial strength of Cherat cement industry and its performance. Financial statement analysis is a method used by interested parties such as shareholders, creditors and management to evaluate the conditions and 4
performance of the firm. Ratio analysis, trend analysis and common size analysis are used in this research which is the most common forms of financial analysis. Financial ratio analysis is an important topic and is covered in all mainstream management sciences textbooks. It is widely used to summarize the financial health of a company. This research report will be of great use for investors, creditors as well as the students of, management sciences and for those who are interested in finance particularly.
1.1
PURPOSE OF THE STUDY
The main purpose of this research study will be examining financial position, analyzing profitability, analyzing market strength and drawing conclusion about overall performane of CCCL over a period of 2007-2011. The main objectives will be: 1. To examine the financial position of Cherat Cement Company Limited. 2. To analyze the profatibility of Cherat Cement Company Limited. 3. To analyze the market strength of Cherat Cemnet Company Limited. 4. To draw conclusions about the overall performance of the company from 20072011. 5. 1.2
SIGNIFICANCE OF THE STUDY
This research is important for investors and management as well. It is an anlayst’ microscope and let them to get a better view of financial health of a company. The relationship between the two items of fiancial data express in the form of ratio and then interpreted with the view to evaluating the financial and performance of the firm ,from the basis of the financial ratio analysis. Ratio anaylsis is the fact that allow the company to compare its performance with that of other companies in the same industry .it gives the potential investors a quick snap shot of the financial condition of a business .
5
Ratios analysis are important both internally and externally. On internal basis we do planning and evaluate management through financial ratio analysis and externally we become able to make policies, monitor performance, take investment decisions and manage credit grantings etc.
6
CHAPTER # 2 2.0
LITERATURE REVIEW
Doron Nissim,Stephen H.Penman(2003) made research on Financial Statement Analysis of leverage and how it informs about profitability and Price-to-Book Ratios. This research present financial statement analysis that distinguishes leverage arises in financing activities from leverage that arises in operations. This study yields two leveraging equations, one for borrowing to finance operations and one for borrowing in the course of operations. This research concludes that balance sheet line items for operating liabilities are priced differently than those dealing with financing liabilities. Doron Nissim, Stephen H.Penman (2001) do research on ratio analysis and equity valuation. The researcher research that standard portability analysis is integrated and unlimited and is complemented with an analysis of growth and analysis of operating activities is well-known from the analysis of financing activities. This study present a matter of pro forma analysis of the future, with forecasted ratios viewed as building blocks of forecasts of payoffs. The analysis of current financial statements is seen as a matter of identifying current ratios as predictors of the future ratios that determine equity payoffs. Jane A. Ou and Stephen H. Penman(1989) have did research on ratio analysis and equity the researcher did work on financial statement analysis that combines a huge position of financial statement things into one summary calculate which indicates the way of oneyear-ahead earnings changes. Positions are taken in stock on the basis of this calculation during the period of 1973-1983 which engage canceling long and short location with zero net investment. The two-year investment-period return to the long and short location in the order of 12.5%.and after adjustment for size effects the return is about 7.0% and these returns can’t be explained by nominated firm risk characteristics. E. Eldon Eversull and Beverly L. Rotan (1997) have done research on Analysis of Financial Statements Local Farm Supply, Marketing Cooperatives. In this report they examined the balance sheet and income statement of a local firm supply and marketing cooperatives, they compared 1995 and 1994 and trend above the past 10 years. The facts in this research stand for four cooperatives size and types’ .general size of income 7
statement and balance sheet evaluate dissimilar cooperative size and type. For this comparison balance sheet and income statement items and ratios are used.
Mary Fischer, Teresa P. Gordon, Janet Greenlee, & Elizabeth K. Keating (2003) did research on An Analysis of the Financial Statements of U.S private colleges and universities. This study analyzed the private organizations that provide permanent contribution in higher education of US. They wanted to find out that whether the discretions provided to them by auditing and ing standards were advantageous to them or not .As these standards provide an operating way to them. They found that about 60% of the institutions report an operating measure but difference lies in their inclusion and exclusion of items.
Mabwe kumbirai and Robert Webb (2010) did research on a Financial Ratio Analysis of commercial bank performance in South Africa. They investigate the performance of south Africa’s commercial banking sector from the period 2005-2009.financial ratio are used to measure the profitability, liquidity and credit quality performance of five large south Africa based on commercial banks. Their study is based on generally bank performance increased considerably in the first two years of the analysis. A significant change in the trend is notice at the onset of the global financing crisis in 2007, getting its peak period from 2008-2009. Chunhui (Maggie).Grace O’Farrell Kwok-Kee Wei and Lee.J.Yee (2007) did research on ratio analysis comparability between Chinese and Japanese firm. The main purpose of their search was Firms in different countries operate in different business environments and prepare financial statements. Benchmarks for assessing financial ratio of a firm in different countries are likely to be different .during conducting the financial ratio analysis each country having its unique cultural, business, and financial have to be taken into financial data. The methodology of their search is to study and compares ten main financial ratios of 75 Chinese firms with financial ratio of 75 matched samples Japanese firms to determine if the common benchmark of each of the financial ratio can be applied
8
in both countries .their findings during the search shows an important difference in liquidity, solvency and activity ratio between firms from these two countries.
Enekwe Chinedu Innocent, Okwo Ifeoma Mary and Monday Matthew (2013) have did search on financial ratio analysis of profitability in Nigerian Pharmaceutical Industry. The main purpose of their search is to examine the relationship between the financial ratio analysis and profitability of the Nigerian pharmaceutical over the last past eleven years from the period 2001-2011. These financial ratio analyses have immense potentials to help organizations in improving their revenue generation ability as well as minimization of costs. The researcher used five variables for the analysis that are Inventory turnover ratio, debtor’s turnover ratio and creditors velocity, total assets turnover ratio and gross profit margin. Dependent variables are represented by gross profit margin while independent variables are inventory turnover, debtor’s turnover, and creditor’s velocity and total assets turnover. The secondary data were obtained from the financial statements of the selected pharmaceutical companies selected statements the data have been analyzed using Descriptive research method and multiple regressions to find out the relationship between the variables. So the result shows that there is negative relationship between all independent variables with profitability in the Nigerian pharmaceutical industries. The results further suggested that only 17.8% of the independent variables are determinant factors of profitability in the enterprises sampled while 82.2% of the major factors are determine from other factors outside the independent variables.
Florenz C. Tugas (2012) did research on Comparative Analysis of the Financial Ratio of listed firms belonging to the Education Subsector in the Philippines’. The main aim behind this research is to analyze the financial condition of the three firms for the period of (2009-2011) using liquidity ratios, activity ratio, leverage ratios, profitability ratios, and market value ratios. For the liquidity ratios were used: current ratio; quick ratio; acid test ratio; cash flow liquidity ratio; average collection period; and day’s payable outstanding. For activity, the following ratios were used: s receivable turnover; s payable turnover; fixed assets turnover; and total assets turnover. For leverage, the following debt ratio; debt to equity ratio; and times interest earned. For profitability, the 9
following ratios were used: operating profit margin; net profit margin; return on total assets; return on equity; and basic earning power ratio. For market value, the following ratios were used: price-earnings ratio; market-book ratio; and dividend yield. Ratios were used: debt ratio; debt to equity ratio; and times interest earned. For profitability, the following ratios were used: operating profit margin; net profit margin; return on total assets; return on equity; and basic earning power ratio. For market value, the following ratios were used: price-earnings ratio; market-book ratio; and dividend yield. . Necessary information derived from these financial statements were summarized and used to compute the financial ratios for the three-year period. To provide a basis for analysis, for each financial ratio, the firm adjudged as the best one (using rule of thumb and ratio trends) was given three points, the next one, two points, and the last one, one point. The total points for each ratio category were then computed to arrive at an overall basis for analysis. Results showed that in of liquidity, FEU ranked first, followed by Malayan, then CEU; in of activity, FEU ranked first, followed by CEU, then Malayan; in of leverage, Malayan ranked first, followed by CEU, then FEU; in of profitability, FEU ranked first, followed by Malayan, then CEU; and in of market value, CEU and FEU tied for first and then Malayan followed. Overall, FEU (44 points) ranked first, followed by Malayan (40 points), then CEU (36 points).
Jane Frecknall-Hughes, Mike Simpson# and Jo Pad more (2007) have done research on Inherent limitations in using financial ratio analysis to assess small and medium sized company performance in their research they critically evaluates the limitation of using financial ratios to judge the performance of large and medium size enterprise(SMSE) .the main objective of their research is to notify the small business research community of the shortcomings of the such an approach to measuring the performance of (SMSE).Their findings shows that Return on Capital Employed (ROCE) was found to be a particularly poor indicator of performance in SMEs and may be defined in many different ways giving rise to widely differing values of ROCE. In addition, the value of ROCE is open to some manipulation by management and analysts.
10
CHAPTER # 3 3.0 RESEARCH METHODOLOGY 3.1
RESEARCH TYPE
Research are made of different reasons.the different procedure are used by researcher for achievement of their research.some of the procedure are field work,applied research,action research and bookish research .this research is applied research on CCCL.Therefore the type of this research is applied research.
3.2
VARIABLES
Variables used in this research are profitability.leverage and liquidity. 3.3
DATA COLLECTION
The balance sheet and income statement of CCCL from 2007 to 2011 will be used for analysis. For this purpose, annual reports of CCCL will be taken from the official website of CCCL. 3.4
TOOLS FOR DATA ANALYSIS
In order to assess the performance of Cherat Cement Company, ratio analysis would be used first. In ratio analysis, profitability ratios, liquidity ratios, asset activity ratios, debt ratios and market strength ratios will be calculated to assess the profitability, liquidity, assets utilization efficiency, leverage position and market strength of the company. Secondly, trend analysis will be used to see the trend in all the entries of balance sheet and income statement over five years. Then lastly, common-size analysis will be used to check 11
the weight of each and every entry of balance sheet out of total assets and in income statements, out of total sales. Microsoft Excel will be used for calculation purpose.
12
CHAPTER # 4 4.0
FINANCIAL STATEMENT ANALYSIS:
4.1 RATIO ANALYSIS: Ratio analysis is an expression of a mathematical relationship between one to another. This analysis discloses such conditions which cannot be noted by analyzing individual components of the ratio. A) LIQUIDITY RATIOS: CURRENT RATIO: Current Ratio = Current assets / current liabilities
YEARS:
2007
2008
2009
2010
2011
Q.R:
1.55
1.01
1.26
0.77
0.95
The current assets are also called liquid assets or working capital. Organizations maintain working capital to finance their current liabilities. So in current ratio, we assess the liquidity position of the company. The current ratio of CCCL does not seem to be good enough. As we can see that in 2007, it is 1.55 and we can say that the current assets of CCCL are sufficient to pay its current liabilities. Since it has no issue of liquidity in 2007 but in the succeeding years, the ratio is decreasing especially in 2010 and 2011, the ratio is 0.77 and 0.95 respectively. Hence CCCL cannot pay its current liabilities through its current assets. So it has prominent liquidity issues in the years 2008, 2009, 2010 and 2011. 13
current ratio 1.8 1.6 1.4 1.2 1 current ratio
0.8 0.6 0.4 0.2 0 2007
2008
2009
2010
2011
QUICK RATIO: Quick ratio= current assets – Inventory Current Liabilities YEARS:
2007
2008
2009
2010
2011
Q.R:
0.64
0.09
0.07
0.03
0.04
Quick ratio tells us about the more accurate liquidity because it subtracts the inventory from current assets. As we saw that the current ratio of CCCL was not satisfactory so it is obvious that quick ratio will also be discouraging. So we can see that quick ratio is less than 1 throughout the period and even it is close to zero in succeeding years after 2007. 14
Which means that after subtracting the inventory from its current assets, CCCL is not able to finance its current liabilities and hence faces a big problem of liquidity in the period?
Quick ratio 0.7 0.6 0.5 0.4 Quick ratio
0.3 0.2 0.1 0 2007
2008
2009
2010
2011
B) LEVERAGE RATIO: DEBT-TO-TOTAL ASSETS RATIO: Debt-to-Total assets ratio = Total debt/total assets YEARS:
2007
2008
2009
2010
2011
D.T.A.R
0.96
0.75
0.817
0.602
0.708
This ratio tells us about how much debt financing is there in total assets of the firm. By calculating the debt ratio of CCCL, it can be seen that it has a huge debt financing in its total assets especially in 2007. This much high debt ratio is not a good sign for the
15
company because it can lead the company to bankruptcy. So it should try to minimize debt financing as much as possible.
Debt to total assets ratio 1.2 1 0.8 0.6
Debt to total assets ratio
0.4 0.2 0 2007
2008
2009
2010
2011
DEBT TO EQUITY RATIO: Debt to equity ratio: total debt/total shareholder’s equity. YEARS:
2007
2008
2009
2010
2011
D.T.E.R:
0.57
1.03
1.09
1.16
1.30
The ratio has decreased due to increase in debt and decrease in equity .it shows that most of the CCCL financing provided by debt not by shareholders. 16
Debt to equity ratio 1.4 1.2 1 0.8 Debt to equity ratio
0.6 0.4 0.2 0 2007
2008
2009
2010
2011
TIMES INTEREST EARNED RATIO: TIME INTEREST EARNED: EBIT / total interest charged YEARS:
2007
2008
2009
2010
2011
T.I.E.R:
10.57
101.33
22.15
22.03
134.26
It is used to asses a company ability to service the interest on its debt with operating income from the current period. In this ratio we have to specify how much EBIT Company has so to pay down the interest.
17
Time interest earned ratio 120 100 80 60
Time interest earned ratio
40 20 0 2007
2008
2009
2010
2011
C) PROFITABILITY RATIO: GROSS PROFIT MARGIN Gross profit margin= Sales – CGS / Sales YEARS:
2007
2008
2009
2010
2011
GPM:
10.9%
4.62%
14.68%
2.57%
13.35%
There is decreased in gross profit margin in 2008 and 2010 due to increase in cost of goods sold which is unfavorable .however in 2009 and 2011 it is favorable.
18
Gross profit margin 16.00% 14.00% 12.00% 10.00% 8.00%
Gross profit margin
6.00% 4.00% 2.00% 0.00% 2007
2008
2009
2010
2011
OPERATING EXPENSES: Operating Expenses = EBIT / Sales * 100
YEARS
2007
2008
2009
2010
2011
OE
2.19
2.101
2.503
4.63
6.749
Operating Eepenses 8 7 6 5 4
Operating Eepenses
3 2 1 0 2007
2008
2009
2010
2011
19
NET PROFIT MARGIN: Net Profit Margin= Net profit/ Sales * 100 YEARS:
2007
2008
2009
2010
2011
NPM:
4.92%
1.06%
5.25%
7.83%
0.2 5%
Net profit margin increase in 2009 and 2010 which shows favorable condition. However in 2008 and 2011 it is decrease.
Net profit margin 9.00% 8.00% 7.00% 6.00% 5.00% Net profit margin
4.00% 3.00% 2.00% 1.00% 0.00% 2007
2008
2009
2010
2011
RETURN ON EQUITY:
20
Return on equity: Net profit/ shareholders’ equity YEARS:
2007
2008
2009
2010
2011
ROE:
11.36
-2.57
11.61
-13.18
2.41
IT measures a firm's efficiency at generating profits from every unit of shareholders' equity. It shows how well a company uses its resources to generate earnings growth. The ROE is useful for comparing the profitability of a company to that of other firms in the same industry. So there is increased in ratio of return on equity in 2009 which shows that increased in net income as well as sales. However the value is decreased in 2008, 2010 and 2011.
Return on equity 15 10 5 0
Return on equity 2007
2008
2009
2010
2011
-5 -10 -15
RETURN ON ASSETS: Return on Assets= Net profit/ total assets YEARS:
2007
2008
2009
2010
2011
R.O.A:
6.91
-1.43
5.63
6.20
1.08
21
This is an indicator that reflects how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings. This is calculated by dividing a company's annual earnings by its total assets. The higher the ROA, the better, because the company earns more money on less investment. So there is increased in ratio in 2009 and 2010 that shows that the CCCL will manage its resources efficiently and effectively, however in 2008 and 2011 it is decreased.
Return on assets 8 7 6 5 4 3
Return on assets
2 1 0 -1
2007
2008
2009
2010
2011
-2
D) ACTIVITY RATIO: TOTAL ASSETS TURNOVER Total assets turnover: Sales/Total assets YEARS:
2007
2008
2009
2010
2011
TATO:
0.98
0.89
0.96
0.71
0.79
22
The ratio decreased because of decreased in sales in relation to assets this shows that the company is not efficient in using its assets to generate sales.
Total assets turn-over 1.2 1 0.8 0.6
Total assets turn-over
0.4 0.2 0 2007
2008
2009
2010
2011
FIXED ASSETS TURNOVER Fixed assets turnover= Sales/ Fixed assets YEARS:
2007
2008
2009
2010
2011
F.A.T
1.56
1.53
1.34
0.95
0.06
The ratio is continuously decreasing from 2007-2011 it shows that fixed assets are increasing while sales are decreasing. The decrease in ratio is either due to increase in fixed assets or due to decrease in sales which is not favorable condition for CCCL.
23
Fixed assets turnover 1.8 1.6 1.4 1.2 1 Fixed assets turnover
0.8 0.6 0.4 0.2 0 2007
2008
2009
2010
2011
INVENTORY TURNOVER Inventory turnover= sales / Inventory of finished goods YEARS:
2007
2008
2009
2010
2011
ITO:
29.40
18.70
16.28
17.24
11.23
A ratio showing how many times a company's inventory is sold and replaced over a period. This ratio is decreased due to increase in inventory which has higher the cost of goods sold there is slightly decreased in value which shows that the CCCL is not effective towards the liquidity. 24
Inventory turnover 35 30 25 20 Inventory turnover
15 10 5 0 2007
2008
2009
2010
2011
E.MARKET VALUE RATIO: EARNING PER SHARE: Earning per share = Net profit / Number of Share YEARS:
2007
2008
2009
2010
2011
EPS:
1.78
-0.75
2.51
-3.38
0.12
The earnings per share is increased in 2009 because the income is increased .This increased in earning per share and also increased the return on common equity ,however in 2008 ,2010,2011 there is decreased in earning per share which positively affect the trust of the investors towards the CCCL.
25
Earning per share 3 2 1 0 2007
2008
2009
2010
2011
Earning per share
-1 -2 -3 -4
TREND ANALYSIS
Trend analysis indicates in which direction a company is headed. Trend percentages are computed by taking a base year and asg its figures as a value of 100. Figures Generated in subsequent years are expressed as percentages of base-year numbers. Trend percentages show horizontally the degree of increase or decrease, but they do not Indicate the reason for the changes. They do serve to indicate unfavorable developments 26
That will require further investigation and analysis. A significant change may have been caused by a change in the application of an ing principle.
TREND ANALYSIS OF BALANCE SHEET 2007
A.Non-Current Assets (A1+A3+A5+A6+A7)
100
2008
2009
2010
114.7966 134.8146 106.4074
2011
100.8243
1.43901 1.Capital work in progress
100
0
0
3
655.2914
2.Operating fixed assets at cost
100
110.8719
98.0526
128.374
101.7338
3.Operating fixed assets after D.A.D
100
114.7975 88.63043 153.5018
95.93687
4.Depreciation for the year
100
74.72357 110.8617 111.8402
119.3228
340.357 5.Intangible assets
100
0
0
1
105.7663
106.961 6.Long term investments
100
0
0
5
130.1915
137.781 7.Other non-current assets
100
B.Current Assets (B1+B2+B3+B4+B5)
0
0
9
265.908
100
139.1988 72.21843
92.2625
138.5703
1.Cash & bank balance
100
86.82673 92.61396 88.40482
131.7528
2.Inventories
100
176.9073
187.8133
3.Trade Debt
100
0
27
135.229 71.70157 0
0
0
4.Short term investments
100
21.90541 0.147159
74.5098
0
5.Other current assets
100
222.4214
67.5547 98.25649
128.8952
C.Current Liabilities (C1+C2)
100
214.565 58.09043 151.4864
110.9409
1.Short term Secured loans
100
218.7325
100.828 166.1008
114.2546
2.Other current liabilities
100
212.2464 33.58588 126.3321
103.4399
D.Non-Current Liabilities (D1+D2+D3+D4+D5)
100
86.97143 369.0176 70.43861
124.7308
89.7839 1.Long term secured loans
100
0
0
1
125.0352
2.Long term unsecured loans
100
0
0
0
0
3.Debentures/TFCs
100
0
0
0
0
4.Employees benefit obligations
100
0
0
0
0
5.Other non-current liabilities
100
801.0526 83.20946 3.991321
101.2107
E.Shareholders Equity (E1+E2+E3)
100
96.49082 105.1109
99.0108
103.8201
1.Issued, Subscribed & Paid up capital
100
100
100
100
100
i).Ordinary Shares
100
100
100
100
100
ii).Preference shares
100
0
0
0
0
93.87207 109.1739
98.2905
106.6502
2 Reserves
100
i).Capital Reserve
100
ii).Revenue Reserve
100
3.Surplus on revaluation of fixed assets
0 O
100
0
0
0
0
0
98.2905
106.6502
0
0
0
2010
2011
TREND ANALYSIS OF INCOME STATEMENT
2007
28
2008
2009
1.Sales
100
11.25334 1176.855 75.95359
122.3371
i).Local sales (Net)
100
104.0475 109.6989 61.32944
135.8449
ii).Export Sales (Net)
100
140.1967 137.0074 104.2821
106.9485
100
120.53 105.2688 86.73963
108.7937
2.Cost of sales i).Cost of material
100
0
0 96.07394
112.9917
other input cost
100
0 11.21023 757.9792
107.8945
3.Gross Profit
100
47.50678 377.2027 13.17657
635.6673
4.General, istrative and other expenses
100
101.3322 177.1601 78.91208
1002.408
i).Selling & distribution expenses
100
0
0 135.7224
96.95304
ii).istrative and other expenses
100
101.3322
122.517 53.57445
103.9557
103.383 5.Salaries, wages and employee benefits
100
6.Financial expenses
100
0
0
7
328.1108
108.0033 140.1846 140.7146
178.0228
140.714 of which: (i) Interest expenses
100
0
0
6
178.0228
7.Net profit before tax
100
22.87118 454.7648 115.7492
18.55964
8.Tax expense (current year)
100
19.56705
173.0994
9.Total amount of dividend
100
0
0
0
0
10.Total value of bonus shares issued
100
0
0
0
0
11.Cash flows from operations
100
0
0 56.54878
122.4556
G.Miscellaneous
100
0
0
0
0
1.Total capital employed (E+D)
100
94.93338 144.6666
88.0868
110.2132
29
111.845 151.2231
89.7839 2.Total fixed liabilities (D1+D3)
100
3.Retention in business (F7-F8-F9) 4.Contractual Liabilities (G2+C1)
0
0
1
125.0352
100
96.35407 335.2981 134.5257
3.406941
100
218.7325 262.6887 119.0767
119.2632
MNMN Non-current assets shows downward trend in 2008, 2010 and 2011 however it slightly shows upward trend in 2009 which shows increase in non-current assets. Current-assets shows decrease in 2009 and 2010 however it slightly increase in 2011 but it shows upward trend in 2008 as compared to other years. Current liabilities are greater in 2008 the value lowered down in 2009 and 2010 however in 2011 it shows slightly increase. Current assets increase due to increase in short term investments, inventories and other current assets. Non-current liabilities shows upward trend in 2009. It is on its minimum point in 2008 however in 2010 and 2011 it decreases as compared to 2009. Increase in non-current liabilities is due increase in long-term loan and vice versa. Shareholders equity shows upward trend in 2010 and 2011 it is minimum in 2009 which shows greater contribution of shareholders. Sales of CCL are at zero in 2008 however in 2009 there appears greater increase in 2009. In 2010 the sales decreases as compared to 2009 but in 2011 sales shows slight increase as compared to that of 2010. Cost of sales is greater 2008 however it is on its minimum point 2010. In 2009 and 2011 it is greater as compared to 2010 while lower as compared to 2008. Increase in cost of sales is due to increase in cost of material. Gross profit increases in 2009, it decreases in 2008 and 2010 however it is on its peak point in 2011. The increase in gross profit is due to decrease in cost of goods sold or we can say general and istrative expenses. It is on its peak in 2011 but in 2008, 2009 and 2011 the value is lower as compared to 2011. The increase is due to in selling and istrative expenses.
30
Financial expense increases from 2009 to 2011.financial expense consist of interest expense as well as general expenses therefore financial expenses increase due to increase in interest expenses. Net profit before tax is greater in 2009, 2010 however it decrease in 2008 and 2011 due to increase in other expenses without tax. The tax expense is lower in 2008 however it increases from 2009 ton 2011. Cash flow from operation due to at zero in 2008, 2009 however it increases from 2010 to 2011.
31
32
A.Non-Current Assets (A1+A3+A5+A6+A7) 1.Capital work in progress 2.Operating fixed assets at cost 3.Operating fixed assets after D.A.D 4.Depreciation for the year 5.Intangible assets 6.Long term investments 7.Other non-current assets B.Current Assets (B1+B2+B3+B4+B5) 1.Cash & bank balance 2.Inventories 3.Trade Debt 4.Short term investments 5.Other current assets C.Current Liabilities (C1+C2) 1.Short term Secured loans 2.Other current liabilities D.Non-Current Liabilities (D1+D2+D3+D4+D5) 1.Long term secured loans 2.Long term unsecured loans 3.Debentures/TFCs 4.Employees benefit obligations 5.Other non-current liabilities E.Shareholders Equity (E1+E2+E3) 1.Issued, Subscribed & Paid up capital i).Ordinary Shares ii).Preference shares 2 Reserves i).Capital Reserve ii).Revenue Reserve 3.Surplus on revaluation of fixed assets Total assets 1.Sales i).Local sales (Net) ii).Export Sales (Net) 2.Cost of sales i).Cost of material other input cost 3.Gross Profit 4.General, istrative and other expenses i).Selling & distribution expenses ii).istrative and other expenses 5.Salaries, wages and employee benefits 6.Financial expenses of which: (i) Interest expenses 7.Net profit before tax 8.Tax expense (current year) 9.Total amount of dividend 10.Total value of bonus shares issued 11.Cash flows from operations G.Miscellaneous 1.Total capital employed (E+D) 2.Total fixed liabilities (D1+D3) 3.Retention in business (F7-F8-F9) 4.Contractual Liabilities (G2+C1)
62.17793 0 129.3816 62.17742 6.693393 0 0 0 37.82207 2.135962 3.319456 0.060509 13.43278 18.87336 24.31851 8.693365 15.62514 12.38202 0 0 0 0 1.344333 63.29948 27.05084 27.05084 0 36.24863 0 0 0 100 100 76.52516 23.47484 89.04935 0 0 10.95065 4.962593 0 4.962593 0 2.190078 0 7.162732 2.236877 2.771413 0 0
96.2282 28.95445 140.6543 63.26277 5.544795 0.166414 3.230843 0.613724 38.02145 1.717605 7.941132 0 0.00433 28.35839 30.31101 19.17265 11.13835 39.73883 30.77816 0 0 0 8.960675 64.19981 27.05084 27.05084 0 37.14897 0 37.14897 0 100 100 65.95288 34.04712 85.31417 85.31417 8.040598 14.8172 6.726943 2.074853 4.65209 3.099416 3.796287 2.503761 5.625356 0.369641 0 0 6.779117
102.3939 0.416658 180.5635 97.10946 6.201307 0.566403 3.455755 0.845599 35.07952 1.518445 5.693913 0 0.003226 27.86394 45.91702 31.84591 14.07131 27.99147 27.63382 0 0 0 0.357649 63.56471 27.05083 27.05083 0 36.51388 0 36.51388 0 100 100 53.25428 97.42949 97.42949 17.18829 80.24119 2.570514 6.988966 3.707578 3.281388 4.218747 4.638566 4.638566 8.572744 0.735952 0 0 5.047172
103.2379 2.730325 183.6942 93.16377 7.399574 0.599063 4.499099 2.248516 48.60979 2.000593 10.69392 0 0 35.91527 50.94078 36.38542 14.55536 34.91399 34.55201 0 0 0 0.361979 65.99297 27.05083 27.05083 0 38.94214 0 38.94214 0
77.53729 654.1063 80.40699 0 0 23.81 2.154442 18.44691 23.81 8.906536 173.1174 38.64197
93.25161 28.14554 9.308696 60.58117
84.01014 28.76629 0.259236 59.05899
33
71.37815 0 143.4478 71.37815 5.001542 0 0 0 52.64786 1.854586 5.872359 0 2.942505 41.97841 52.17901 19.01521 33.1638 10.76882 0 0 0 0 10.76882 61.07818 27.05084 27.05084 0 34.02734 0 0 0 100 100 707.5457 292.4551 953.7718 0 844.1056 46.22896 44.68633 0 44.68633 0 21.01916 0 14.55748 3.889431 0 0 0
100 100 59.13435 40.86565 86.64353 15.87527 70.76825 13.35647 57.26635 2.938283 2.788354 11.31477 6.749962 6.749962 1.300563 1.041327 0 0 5.052063
Common size analysis tells us how much percentage every item in balance sheet is of total assets and in income statement we take every element as percentage of sales. In our common size balance sheet non-current assets increase from previous period and most definitely this increase occur due to increase in operating fixed assets at cost, operating fixes assets after DAD depreciation for the year and other long term investment. While our current assets increase in 2008 and 2011.It decrease in 2007, 2009 and in 2010 .The decrease had occurred due to decrease in cash and bank balance short term investment and other current assets. On the equity and liabilities sections we see that our current liabilities increases due to increase in short term loans and other current liabilities. Non-current liabilities had increases due to increase in long term loans and other noncurrent liabilities. Common size income statement shows increases trend in shareholder equity. In common size income statement gross profit increases in 2008, 2011 and the decrease in 2007, 2009 and 2010. Net profit before tax is on peak in 2008 but in 2010 there is a very small. However in 2009 and 2011 it decreases. The decrease is due to increase in net expenses. The tax expenses decrease from 2009 to 2011 it increases in 2009 which effect net profit.
CHAPTER 5 34
CONCLUSIONS AND RECOMMENDATIONS CONCLUSION: Liquidity: It is very important for any company to have optimal level of current assets so that it can finance its current liabilities with its current assets. If it does not have enough current assets, the company may suffer from liquidity problem. As we can see from the calculations of current ratio and quick ratio, Cherat Cement Company is suffering from severe liquidity problems. If it does not control the problem, it may suffer financially as it would not be able to finance its current liabilities. Profitability: In order to stay in the market and perform safely and with growth, a company must maintain a sound profitability position. But in the case of CCCL, the gross profit margin ratio of the company is quite low in the years 2008 and 2010 which is alarming for the company. Similarly, the net profit margin of CCCL is pretty low in the years 2008 and 2011 which is again critical situation and if not controlled the problem permanently, it may result in reduced share price and low growth of the company. Return on assets of CCCL shows increase in 2009 and 2010 which shows efficiency of a company but in 2008 and 2011 in decreases unfavorably thus showing fluctuation in this ratio. In case of return on equity there decrease in 2009 which shows increase in net profit but the value decreases in 2008, 2009 and 2011. ROE is useful to show how well a company uses its resources to earning. Leverage ratio measure the degree of protection of suppliers of long-term funds. In case of CCCL the debt to total assets ratio shows a huge debt financing in its total assets especially in 2007 which is an alarming level of debt financing for the company but if we look at the times interest earned ration, the company can easily pay its interest expense through its operating profit. But still CCCL management should consider this thing because it can create problem in the future. Debt to equity ratio is increased from 2007 to 2011 which means that CCCL has increased debt financing and reduced equity financing over the period.
35
In case of activity ratio, the company is not bad but the efficiency in asset utilization is decreasing since 2008 and onwards. It should try to regain its efficiency in asset utilization in order to be successful. RECOMMENDATION: 1. Working capital management area is quite critical for a company and if not handled with care, could lead to severe issues. So CCCL should strictly consider its liquidity problems and hence, should try to increase its level of current assets which could at least finance current liabilities. 2. There are prominent fluctuations in profitability ratios which is not good for the market reputation of a company. So CCCL should try to bring consistency to its profitability. 3. In case of leverage ratios, we saw that the company has heavily relied on debt financing rather than equity financing through the sample period which can be very harmful for the company in several ways. Heavy debt financing can lead to bankruptcy costs. It is not welcomed by the shareholders also because increased debt financing diluted their earnings. So it is recommended that the CCCL should reduce debt financing and increase reliance on equity financing. 4. In case of activity ratios, CCCL was really good in utilizing its assets but it could not maintain its performance and the ratios dropped quickly from 2007 to 2011. So it is recommended that it should try to regain the efficiency of asset utilization and consistency in activity ratios. 5. Regarding the market strength, CCCL in not been impressive over the sample period. The Earning per Share ratio is quite low and even negative in 2008 and 2010. It is strongly recommended that the management should work on their weaknesses, as discussed earlier, so that the Earnings Per Share ratio could be increased and ultimately the confidence of investors can be build.
36
REFRENCE C.Tugas, f. (2012). comparative analysis of financial ratio. philippines. Enekwe chinedu innocent, o. i. (2013). financial ratio analusis of profitibility in nigerian pharmaceutical industry. nigeria. jane frecknall-huges, m. s. (2007). inherent limitation in using financial ratio analysis to assess small and medium sized company. japan. Mary Fischer, T. P. (US). analysis of financial statement of US private colleges and universities. nissim, d. (2003). financial analysis of leverage. columbia. nissim, d. (2003). financial analysis of leverage. new york. Nissim, D. (2003). financial analysis of leverage. penmen, J. A. (1989). ratio analysis and euity. penmen, s. H. (2003). financial analysis and equity evaluation. roton, E. E. (1997). financial statement on local firms supply marketing. webb, M. k. (2010). financial rato analysis of commercial bank performance. south africa. Yee, C. (.-k. (2007). ratio analysis comparability between chinese and japanese firm. china.
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