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The compilation of this report could not have been realized without the blessings of Almighty
Allah. We are highly indebted to quite a few people who have been there from the beginning till
the completion of our research. Their undue support has been the source of inspiration for us to
complete it efficiently within time.
We would deeply like to thank our teacher for his guidance during the project. His excessive
support has been the source of motivation to perform our best, regarding the report.
We would also like to thank Mr. Mian Amin Rasool, Leasing Officer, Saudi Pak Leasing
Company and Mr. Adnan Ali Fateh, Senior Accountant, FFBL who provided us the supporting
material and all kinds of information required for the research.
Contents
Acknowledgement...................................................................................................... b
Contents..................................................................................................................... 3
Introduction................................................................................................................ 1
Fertilizer Sector in Pakistan.....................................................................................1
Urea Industry in Pakistan: an Overview...................................................................2
Fauji Fertilizer Company Ltd....................................................................................2
Vision................................................................................................................... 2
Engro Chemicals Ltd................................................................................................4
Vision................................................................................................................... 4
Internal Analysis of Financial Ratios...........................................................................5
Short Term Liquidity Ratios and their Risk Analysis................................................6
Operating Cycle and their Risk Analysis..................................................................7
Long Term Solvency Ratios and their Risk Analysis.................................................7
Performance Ratios and their Risk Analysis.............................................................8
The Efficiency of Leverage and their Risk Analysis..................................................8
External Analysis of Financial Ratios........................................................................10
Short Term Liquidity Ratios and their Risk Analysis..............................................11
Operating Cycle and their Risk Analysis................................................................12
Long Term Solvency Ratios and their Risk Analysis...............................................15
Performance Ratios and their Risk Analysis...........................................................16
The Efficiency of Leverage and their Risk Analysis................................................17
Conclusion................................................................................................................ 23
Recommendation..................................................................................................... 24
References................................................................................................................25
Appendix.................................................................................................................. 26
Balance Sheet of Fauji Fertilizers...........................................................................26
Income Statement of Fauji Fertilizers....................................................................27
Balance Sheet of Engro.........................................................................................28
Income Statement of Engro Fertilizers..................................................................29
Introduction
FFC was incorporated in 1978 as a private limited company. This was a joint venture
between Fauji Foundation (a leading charitable trust in Pakistan) and Haldor Topsoe A/S of
Denmark.
The initial authorized capital of the company was 813.9 Million Rupees. Additionally, FFC
has Rs. 1.0 Billion stakes in the subsidiary Fauji Fertilizer Bin Qasim Limited (formerly
FFC-Jordan Fertilizer Company Limited). FFC commenced commercial production of urea
in 1982 with annual capacity of 570,000 metric tons.
Through De-Bottle Necking (DBN) program, the production capacity of the existing plant
increased to 695,000 metric tons per year.
Production capacity was enhanced by establishing a second plant in 1993 with annual
capacity of 635,000 metric tons of urea.
In the year 2002, FFC acquired ex Pak Saudi Fertilizers Limited (PSFL) Urea Plant situated
at Mirpur Mathelo. This acquisition at Rs. 8,151 million represents one of the largest
industrial sector transactions in Pakistan
The overall financial position of the company is stable, over the year which is one of the
reason of high efficiency and profitability of FFC. All the profitability ratios are also
showing increasing trend on the back of increasing Sales as well as Gross profit which is
because of good investments by the company in high yielding projects. Leverage and
Liquidity ratios related to FFC are also improving from past to present. If the company would
be able to continue its current stability and investments in profitable projects then the
company would be able to increase its market share as well as Profitability.
"To be the premier Pakistani enterprise with a global reach, passionately pursuing value
creation for all stakeholders.”
The Company’s current manufacturing base includes urea name plate capacity of 975,000
tons per annum and blended fertilizer (NPK) capacity of 160,000 tons per year. A premier
brand and nationwide presence ensure sellout production. Additionally, the company imports
and sells phosphatic fertilizers for balanced fertility and improved farm yields. Engro’s share
of Pakistan’s phosphates market mirrors or exceeds its urea market share.
Expansion plans include a new urea plant of 1.3 million tons annual capacity, also at
Daharki. The US$ 1 billion project is well underway and on track for commercial production
in mid 2010. This addition will increase Engro’s urea market share to 35% from 19% at
present.
Operating Cycle
Receivable Turnover (Times) Sales/Average Accounts 21.789 27.579
Receivable
Receivable Turnover in Days 365/Receivable Turnover 16.752 13.235
Inventory Turnover (Times) COGS/Average 22.950 40.480
Inventory
Inventory Turnover in Days 365/Inventory Turnover 15.904 9.017
Operating Cycle RTD + ITD 32.655 22.251
Performance Ratios
Return on Assets(Times) Net Income/Total Assets 0.183 0.204
Return on Equity(Times) Net Income/Total Equity 0.421 0.531
2007 2008
2007 2008
2007 2008
2007 2008
2007 2008
2007 2008
Total Debt to Total Assets (Times) Total Debt/Total Assets 0.565 0.615
2007 2008
2007 2008
2007 2008
Degree of Financial Leverage(Times) Sales-VC-FC/Sales-VC-FC- 1.10 1.08
Finance Cost
2007 2008
2007 2008
2007 2008
2007 2008
Ke 14.07% 18.58%
2007 2008
Kd 7.82% 8.32%
2007 2008
Ki 11.40% 12.80%
2007 2008
2007 2008
2007 2008
Operating Cycle
Receivable Turnover(Times) 21.789 27.579 22.816 27.918
Receivable Turnover in Days 16.752 13.235 15.998 13.074
Inventory Turnover(Times) 22.950 40.480 10.108 4.645
Inventory Turnover in Days 15.904 9.017 36.111 78.573
Operating Cycle 32.655 22.251 52.109 91.647
Performance Ratios
Return on Assets(Times) 0.183 0.204 0.082 0.070
Return on Equity(Times) 0.421 0.531 0.200 0.184
• http://www.ffc.com.pk/contents/annualrep.htm
• http://www.engro.com/
• http://www.igisecurities.com.pk/pdf/Pakistan_Fertilizer_Sector_Review.pdf
• http://www.kse.com.pk
2008 2007
(Rupees (Rupees
'000) '000)
Sales 30,592,806 28,429,005
Cost of sales 18,234,692 18,311,525
GROSS PROFIT 12,358,114 10,117,480
Distribution cost 2,668,571 2,418,793
9,689,543 7,698,687
Finance cost 695,371 703,612
Other expenses 895,647 845,327
8,098,525 6,149,748
Other income 1,942,558 1,665,205
NET PROFIT BEFORE TAXATION 10,041,083 7,814,953
Provision for taxation 3,516,000 2,454,000
NET PROFIT AFTER TAXATION 6,525,083 5,360,953
Earnings per share - basic and diluted 13.22 10.86
Balance Sheet of Engro
Balance Sheet as at December 31, 2008
2008 2007
(Rupees (Rupees
'000) '000)
SHARE CAPITAL AND RESERVES
Share capital 4,934,742 4,934,742
Capital reserve 160,000 160,000
Revenue reserves 7,190,471 7,635,303
12,285,213 12,730,045
NON CURRENT LIABILITIES 5,378,214 2,671,250
DEFERRED TAXATION 2,431,895 2,363,526
CURRENT LIABILITIES
Trade and other payables 5,993,674 5,815,276
Interest and mark - up accrued 194,570 184,430
Short term borrowings 3,114,000 3,141,081
Current portion of long term financing 743,036 1,022,500
Taxation 1,778,361 1,313,106
11,823,641 11,476,393
Total Liabilities and Shareholder Equity 31,918,963 29,241,214