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University of Wah Analysis

of financial statements

Pioneer Cement Limited


COMPANY PROFILE:

Pioneer cement is a name identical with quality since the


inception of the project. First unit was commissioned in
November 1994, the state of art European (FLS) plant is
equipped with special feature of quality controls. 2nd unit
commissioned in January 2006. Due to is superior quality,
Pioneer Cement has on the confidence of its customer.
The Company's principal activities are to manufacture and market cement. The
products include Ordinary Portland Cement and Sulphate Resistant Cement.
The Company's factory is located at Khushab. The Company operates only in
Pakistan.
The plant is located at Chenki, District Khusshab, in the heart of Punjab
Province, 250 km away from Lahore and 120km away from Motorway
(M2).

PRODUCTION
I am pleased to report that clinker production has risen from 1,238,168
tons in 2006-07 1,640,092 tons in 2007-08 registering an impressive
growth of 32% as compared to last year, mainly on account of smooth
running of the plant. Cement production, for the same period increased
significantly by 18% from 1,263,626 tons to 1,492,353 tons. Capacity
utilization of the plant on account of clinker and cement was 82% and
71% which is higher than last year’s capacity utilization by 22% and
11% respectively, of Clinker and Cement.

Sir Zahoor 01 BBA (Hons)


University of Wah Analysis
of financial statements

COMPANY INFORMATION

BOARD OF DIRECTORS

Mr. Manzoor Hayat Noon (Chairman)


Mr. Javed Ali Khan (Managing Director & CEO)
Mr. K. Iqbal Talib
Mr. Adnan Hayat Noon
Mr. Salman Hayat Noon
Mr. Wajahat A. Baqai
Mr. Rafique Dawood
Mr. Cevdet DAL
Mr. Etrat Hussain Rizvi
Mr. Saleem Shahzada

AUDIT COMMITTEE
Mr. Rafique Dawood
Mr. Salman Hayat Noon
Mr. Adnan Hayat Noon
Mr. Etrat Hussain Rizvi
Mr. Wajahat A. Baqai
CHIEF FINANCIAL OFFICER
Mr. Muhammed Saleem
COMPANY SECRETARY
Syed Anwar Ali
MANAGER INTERNAL AUDIT
Mr. Muhammad Zafar Qidwai
AUDITORS
Ford Rhodes Sidat Hyder & Co.
Siddiqui & Co.
Legal Advisors
Hassan & Hassan
Sayeed & Sayeed

BANKERS
The Bank of Punjab
National Bank of Pakistan
Bank Islami Pakistan Limited
Hong Kong Shanghai Banking Corporation
The Royal Bank of Scotland
Askari Commercial Bank Limited
Bank Al-Habib Limited
Habib Bank Limited
United Bank Limited
MCB Bank Limited
FACTORY
Chenki, District Khushab, Punjab
Telephone (0454) 720832-3
Fax (0454) 720832
Email: factory@pioneercement.com

Sir Zahoor 01 BBA (Hons)


University of Wah Analysis
of financial statements

HEAD OFFICE
7th Floor, Lakson Square Building
No.3, Sarwar Shaheed Road,
Karachi, Pakistan.
Telephone (021) 5685052-55
Fax (021) 5685051
Email: pioneer@pioneercement.com

Vision & Mission


Pioneer Cement Limited is committed to make sustained
efforts towards optimum utilization of its resources through
good corporate governance for serving the interests of all its
stakeholders.

INTRODUCTION OF FINANCIAL STATEMENT


Analysis of financial statements is a major area of concern that has developed
over several years. This continues today to meet the needs of the changing society. The
analysis of financial statements is important for its users that benefit from this work the
most Users of financial statements include company’s management, stockholders,
bondholders, security analysts, supplier, employees, labor unions, regulatory authorities
and public.
Financial ratio analysis is the calculation and comparison of ratios which are
derived from the information in a Company’s financial statements. The level and
historical trends of these ratios can be used to make inference about a company’s
financial condition its operation and attractiveness as an investment.
Financial ratio analysis is also frequently used to measure the performance of
various sectors of a business. If properly used its limitations understood it can be very
useful management aid. The reason why ratio analysis is Being used so extensively are
because ratios are easy to calculate they allow easy comparison, ratios can be easily
understood, ratios effectively communicate a firm’s financial position to interested
parties outside of management.
Financial ratios are calculated from one or more pieced of information from a
company’s financial statements. For example, the “gross margin” is the gross profit from
operations divided by the total sales or revenues of company, expressed in percentage
terms. In isolation a financial ratio is a useless piece of information. In context, however
a financial ratio can give a financial analyst an excellent picture of a company’s situation
and the trends that are developing. Financial ratios analysis groups the ratios into
categories that tell us about different facts of a company’s finance and operations. An
overview of some of the categories of ratios is given below.
1) Leverage Ratio:
Leverage Ratio show the extent that debt is used in a company’s capital structure.
(2) Liquidity Ratios:
Liquidity Ratios give a picture of a company’s short-term financial situation or
solvency.
(3) Operational Ratios:
Operational Ratios use turnover measures to show how efficient a company is in
its operation and use of assets.

Sir Zahoor 01 BBA (Hons)


University of Wah Analysis
of financial statements

(4) Profitability ratios:


Profitability ratios use margin analysis and show the return on sales and capital
employed.
Mostly the financial statements are used to make decisions. For example,
investors use the financial reports as an aid in deciding whether or not to buy the stock.
Suppliers use the reports to decide whether or not to sell goods on credit. Labor unions
use them to help determine their demands when they negotiate for employees.
Management could use to determine the company’s profitability.

So to understand the financial statements different sort of analysis are carried out,
which is known as financial statement analysis. This financial statement analysis involves
different ratios on the basis of which the statements are analyzed. This analysis is also
known as financial ratio analysis, and is used to measure the performance of the
businesses.
This ratio analysis is used to determine the positions of business the reason behind
this is that these can be calculated, evaluated and compared easily. Furthermore it can be
said that these ratios communicate any business’s financial position to all the
stakeholders or these ratios give an excellent picture of company’s situation to the
analyst. These are calculated from the information present in the financial statements of
the company.

Purpose of the study


• The purpose of financial statement analysis is to examine past and current
financial data.
• So that performance and financial position of the Kohinoor Textile Mills can be
evaluated.
• This ratio analysis is used to determine the positions of business the reason
behind this is that these can be calculated, evaluated and compared easily.
• Furthermore it can be said that these ratios communicate any business’s
financial position to all the stakeholders or these ratios give an excellent picture
of company’s situation to the analyst.
• These are calculated from the information present in the financial statements of
the company.

Sir Zahoor 01 BBA (Hons)


University of Wah Analysis
of financial statements

Objective
This study has been conducted in order to find the financial performance of
Kohinoor Textile Mills using ratio analysis. And provide this information to different
types of users who might be interested in knowing the financial strength of the company
in terms of their profitability, efficiency and liquidity.

Sir Zahoor 01 BBA (Hons)


University of Wah Analysis
of financial statements

COMMON SIZE ANALYSIS

(VERTICAL ANALYSIS)
COMMON SIZE ANALYSIS:

An analysis of percentage financial statements where all balance sheet items are
divided by total assets and all income statements items are divided by net sales or
revenues.
Horizontal analysis of balance sheet:

Items Horizontal Analysis


Items 2001 2002 2003 2004 2005 2006
A. Capital Structure:
100.0 100.0 120.0 132.0 181.5
1.Ordinary Share Capital % % % % % 181.5%
100.0 141.8 704.1 393.5 629.6
2.Surplus % % % % % 380.7%
100.0 122.4 433.3 272.2 421.8
3.Shareholder's Equity (A1+A2) % % % % % 288.3%
4.Prefrence Shares 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
100.0
5.Debentures % 73.3% 68.9% 26.7% 0.0% 0.0%
100.0 123.3 559.5 381.7 385.8
6.Other Fixed Liabilities % % % % % 438.2%
100.0 109.4 423.2 283.1 278.7
7.Total Fixed Liabilities (A4+A5+A6) % % % % % 316.5%
100.0 117.8 429.7 276.1 370.6
8.Total Capital Employed (A3+A7) % % % % % 298.4%
B. Liquidity:
100.0 101.9 354.6 498.9
1.Liquid Assets: % % 73.0% % % 318.6%
100.0 117.6 391.3 329.9
(i)Cash % % % % 47.9% 56.9%
100.0 100.0 357.7 554.7
(ii)Investments % % 33.6% % % 350.9%
100.0 129.2 136.4 197.3
2.Other Current Assets % % 99.9% % % 288.9%
100.0 307.2 172.7 188.5
3.Inventories % 92.3% % % % 179.7%
100.0 110.2 145.4 220.3 297.7
4.Current Assets (B1+B2+B3) % % % % % 270.2%
100.0 163.4 135.9 156.8
5.Current Liabilities % 97.3% % % % 190.7%
100.0 100.3 228.5 172.8 187.3
6.Total Liabilities(A7+B5) % % % % % 222.2%
100.0 166.8 590.6 916.5
7.Net Current Assets(B4-B5) % % 66.4% % % 619.4%
100.0 234.5 172.1 165.9
8.Contractual Liabilities % 92.3% % % % 214.0%
100.0 228.4
9.Net liquid assets (B1-B5) % 94.0% % -21.3% -89.1% 98.8%
C. Fixed Assets:

Sir Zahoor 01 BBA (Hons)


University of Wah Analysis
of financial statements

100.0 124.5 454.8 174.5 185.7


1.Fixed Asset At Cost % % % % % 205.2%
2.Fixed assets after deducting accumulated 100.0 102.0 546.5 174.9 195.0
depreciation % % % % % 195.1%
100.0 137.2 340.9 159.9 206.6
3.Depreciation for the year % % % % % 229.6%
100.0 107.2 292.1 203.7 260.1
4.Total assets (B4+C2) % % % % % 242.7%

Sir Zahoor 01 BBA (Hons)


University of Wah Analysis
of financial statements

Horizontal analysis of income statement:

D. Operation:
100.0 106.9 174.9 133.3 137.8 145.9
1.Gross sales % % % % % %
100.0 115.3 337.0 170.1 154.3 195.8
(i)Local sales % % % % % %
100.0 102.1 112.2 128.4 117.3
(ii)Export sales % % 82.1% % % %
100.0 107.2 159.5 130.8 135.5 142.2
2.Cost of Sales % % % % % %
100.0 104.9 276.7 149.8 153.3 170.5
3.Gross profit % % % % % %
100.0 107.5 158.4 134.4 138.5 145.3
4.Overhead and Other Expenses % % % % % %
100.0 133.1 357.4 179.1 128.4 226.0
5.Operating profit % % % % % %
100.0 134.6 159.2 214.6 313.5
6.Financial expenses % 53.9% % % % %
100.0 266.3 732.8 212.5 -
7.Net profit before tax (D5-D6) % % % % 16.9% 78.4%
100.0 156.5 - 104.0 129.5 119.3
8.Tax provision % % 27.3% % % %
100.0
9.Total amount of dividend % 0.0% 0.0% 0.0% 0.0% 0.0%
100.0 131.9
10.Total value of bonus shares issued 0.0% 0.0% % % 0.0% 0.0%

Sir Zahoor 01 BBA (Hons)


University of Wah Analysis
of financial statements

Vertical analysis of Balance Sheet

Items Vertical Analysis


Items 2001 2002 2003 2004 2005 2006
A. Capital Structure:
1.Ordinary Share Capital 14.4% 13.4% 5.9% 9.3% 10.0% 10.8%
2.Surplus 16.7% 22.0% 40.1% 32.2% 40.3% 26.1%
3.Shareholder's Equity (A1+A2) 31.1% 35.5% 46.1% 41.5% 50.4% 36.9%
4.Prefrence Shares 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
5.Debentures 4.8% 3.3% 1.1% 0.6% 0.0% 0.0%
6.Other Fixed Liabilities 12.5% 14.4% 23.9% 23.4% 18.5% 22.5%
7.Total Fixed Liabilities (A4+A5+A6) 17.3% 17.6% 25.0% 24.0% 18.5% 22.5%
8.Total Capital Employed (A3+A7) 48.3% 53.1% 71.1% 65.5% 68.9% 59.4%
B. Liquidity:
1.Liquid Assets: 21.6% 20.5% 5.4% 37.6% 41.4% 28.4%
(i)Cash 2.4% 2.6% 3.2% 3.9% 0.4% 0.6%
(ii)Investments 19.2% 17.9% 2.2% 33.8% 41.0% 27.8%
2.Other Current Assets 25.1% 30.3% 8.6% 16.8% 19.0% 29.9%
3.Inventories 16.7% 14.4% 17.6% 14.2% 12.1% 12.4%
4.Current Assets (B1+B2+B3) 63.4% 65.2% 31.6% 68.6% 72.6% 70.6%
5.Current Liabilities 51.7% 46.9% 28.9% 34.5% 31.1% 40.6%
6.Total Liabilities(A7+B5) 68.9% 64.5% 53.9% 58.5% 49.6% 63.1%
7.Net Current Assets(B4-B5) 11.8% 18.3% 2.7% 34.1% 41.5% 30.0%
8.Contractual Liabilities 59.1% 50.9% 47.4% 49.9% 37.7% 52.1%
9.Net liquid assets (B1-B5) -30.1% -26.3% -23.5% 3.1% 10.3% -12.2%
C. Fixed Assets:
1.Fixed Asset At Cost 52.9% 61.5% 82.4% 45.4% 37.8% 44.8%
2.Fixed assets after deducting accumulated
depreciation 36.6% 34.8% 68.4% 31.4% 27.4% 29.4%
3.Depreciation for the year 2.8% 3.6% 3.3% 2.2% 2.3% 2.7%
4.Total assets (B4+C2) 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Sir Zahoor 01 BBA (Hons)


University of Wah Analysis
of financial statements

Vertical analysis of income statement:


D. Operation: 2001 2002 2003 2004 2005 2006
1.Gross sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
(i)Local sales 36.4% 39.3% 70.2% 46.5% 40.8% 48.9%
(ii)Export sales 63.6% 60.7% 29.8% 53.5% 59.2% 51.1%
2.Cost of Sales 86.8% 87.1% 79.2% 85.2% 85.4% 84.6%
3.Gross profit 13.2% 12.9% 20.8% 14.8% 14.6% 15.4%
4.Overhead and Other Expenses 92.2% 92.7% 83.5% 93.0% 92.6% 91.8%
5.Operating profit 8.7% 10.8% 17.7% 11.6% 8.1% 13.4%
6.Financial expenses 5.4% 2.7% 4.2% 6.5% 8.5% 11.7%
7.Net profit before tax (D5-D6) 3.2% 8.0% 13.5% 5.1% -0.4% 1.7%
8.Tax provision 0.6% 0.9% -0.1% 0.5% 0.6% 0.5%
9.Total amount of dividend 1.5% 0.0% 0.0% 0.0% 0.0% 0.0%
10.Total value of bonus shares issued 0.0% 0.0% 0.9% 1.5% 0.0% 0.0%

Sir Zahoor 01 BBA (Hons)


University of Wah Analysis
of financial statements

RATIO ANALYSIS:
Ratio analysis is one of the important tools that help in getting a deep
understanding of the financial statements because it helps us to compare information of
financial statement for one period with the other financial statement for another period.
Basically financial ratios establish a relationship between different accounts of financial
statements. For the purpose of ratio analyses following ratios have been calculated in
order to determine the financial performance of the Kohinoor Textile Mills Ltd.
Current Ratio

= Current assets/Current liabilities


It describes the current situation of the company that whether the company is able
to pay its current liabilities with its current assets or not.

Current Ratio
years 2008 2007
Current Assets 5,328,979 4,547,065
Current Liabilities 5,477,572 4,231,049
Current Ratio % 97% 107%

Current ratio measures the ability to meet current debts with current assets. The
above ratios shows that the company has no working capital to meet the current liabilities
in the year 2008 but in year 2007 the company has the ability to meet the current
liabilities with current assets.

Quick Acid Test Ratio

= (Current Assets–Inventories) / Current Liabilities

Acid Test Ratio


years 2008 2007
Current Assets - Inventory 3,364,970 2,507,740
Current Liability 5,477,572 4231049
Acid Test Ratio % 61% 59%

Quick Acid Test Ratio measures the ability to meet current debts with most liquid
(quick) current assets. The ratio shows that the company is not able to cover all current
liabilities if we deduct inventory from the current assets in both years.

Cash Ratio:

= cash equivalent + marketable securities / current liabilities

Sir Zahoor 01 BBA (Hons)


University of Wah Analysis
of financial statements

Cash Ratio
years 2008 2007
cash + marketable securities 1,091,864 968,058
Current Liability 5,477,572 4231049
Cash Ratio % 20% 23%

Cash ratio indicates the immediate liquidity of the firm. Cash ratio is low so it’s
mean that the company is fully utilizing the cash and taking the best advantage.

Sales to Working Capital Ratio:

Sales to Working Capital Ratio


years 2008 2007
Sales 7,558,322 7,140,167
Avg. Working Capital 10,806,551 8,778,114
Sales to Working Capital Ratio % 70% 81%

Relating sales to working capital gives an indication of the turnover in working


capital per year. Low working capital ratio indicates an unprofitable use of working
capita. Working capital ratio decreases in 2008 as compared to 2007.

Accounts Receivable Turnover:

Accounts receivable turnover indicates the liquidity of receivables and shows how
much time we are receiving the accounts receivable in a year. It is calculated as
= Net Sales / Avg. Receivables.

Accounts Receivable Turnover


years 2008 2007
Net Sales 7,558,322 7,140,167
Avg. Receivable 289,820 285,382
Accounts Receivable Turnover Ratio % 2608% 2502%

Accounts Receivable Turnover In Days


years 2008 2007
365 365 365
Accounts Receivable Turnover 2608 2502
A/C Receivable Turnover In Days 14 15

By the accounts receivable turnover ratio we find that the liquidity is high and
improve in 2008.

Sir Zahoor 01 BBA (Hons)


University of Wah Analysis
of financial statements

Inventory Turnover:

= Cost of goods sold / Inventory


This ratio measures how many times the inventory has been turned over (sold)
during the year; provides insight into liquidity of inventory and tendency to overstock.

Inventory Turnover
years 2008 2007
Cost Of Goods Sold 6,395,622 6,094,641
Inventory 2,001,667 2,039,325
Inventory Turnover Ratio % 320% 299%

Inventory Turnover In Days


years 2008 2007
365 365 365
Inventory Turnover 320 299
Inventory Turnover In Days 114 122

Inventory turnover in 2008 is increases as compared to 2007 which means that


sales of company increases and inventory turnover in days shows that they receive
inventory after 114 days which is low as compared to 2007.

INTEREST COVERAGE RATIO

= Earning before int. & Tax / Interest Exp.


Interest coverage ratio indicates the firm ability to pay its long term debt. Interest
coverage ratio of Kohinoor in 2008 is 115 times and higher as compared to 2007, it
shows that company is in good position to repay debt.

Interest Coverage Ratio


years 2008 2007
EBIT 1,013,140 575,658
Interest 882,335 603,951
Interest Coverage Ratio % 115 95

Sir Zahoor 01 BBA (Hons)


University of Wah Analysis
of financial statements

Fixed Charge Coverage Ratio:

Fixed charge coverage ratio indicates the company ability to repay its
long term loan including fix charges. It is computed as
= EBIT+ Fixed charges / interest + fixed charges.

Fixed Charge Coverage Ratio


years 2008 2007
EBIT+ Rent 1,016,424 579,815
Interest + Rent 885,619 608,108
Fixed Charge Coverage Ratio % 115 95

Fixed charge coverage ratio of Kohinoor is also good and similar to interest
coverage ratio because Kohinoor textile mill is not bearing huge fixed charges.

Debt Ratio:

Debt Ratio
years 2008 2007
Total Liability 8,529,700 7,190,142
Total Assets 13,515,322 14,484,053
Debt Ratio % 63% 50%

Debt Equity Ratio


In debt equity ratio, the total debt is compared with the shareholder’s equity; the
lower the ratio the better the company’s solvency, the higher ratio is a risk to a present or
future creditor.

Debt to Equity Ratio


years 2008 2007
Total Liability 8,529,700 7,190,142
Shareholders Equity 1,455,262 1,455,262
Debt to Equity Ratio % 586% 494%

Sir Zahoor 01 BBA (Hons)


University of Wah Analysis
of financial statements

Net Profit Margin (%age)

= Net profit after tax / Net sales


This ratio measures profitability with respect to sales generated

Net Profit Margin Ratio


years 2008 2007
Net Profit after Tax -3520 -39,822
Net Sales 7,558,322 7,140,167
Net Profit Margin Ratio % 0% -1%

Gross Profit Ratio (%age)

=Gross profit/net sales


Gross profit margin is the measure profitability with respect to sales generated
gross income.
Gross Profit Margin Ratio
years 2008 2007
Gross Profit 1,013,140 575,658
Net Sales 7,558,322 7,140,167
Gross Profit Margin Ratio % 13% 8%

Total Assets Turn Over

= Net Sales / Total Assets

Total Assets Turnover


years 2008 2007
Net Sales 7,558,322 7,140,167
Total Assets 13,515,322 14,484,053
Total Assets Turnover Ratio % 56% 49%

Return on assets
This ratio is considered a measure of how effectively assets are used to generate a
return.

Return on Assets
years 2008 2007
Net Profit after Tax -3520 -39,822
Total Assets 13,515,322 14,484,053
Return on Assets Ratio % 0% 0%

Return On Investment

Sir Zahoor 01 BBA (Hons)


University of Wah Analysis
of financial statements

years 2008 2007


Net Profit after Tax -3520 -39,822
Long term Liability + Equity 6,774,158 8,989,412
Return On Investment Ratio % 0% 0%

Sir Zahoor 01 BBA (Hons)