Project Report 20 Dec 09

LETTER OF TRANSMITTAL
FINANCE FOR
DEC 26, 2009 TECHNICAL MANAGERS
Course Instructor, Professor Bilal Rasool
Finance for Technical Managers
CASE ISLAMABAD
PROJECT REPORT
Sir :
FINANCIAL STATEMENT
We herewith present our “Project Report” authorized by you as a
ANALYSIS OF
requirement for this course. In this report, we have tried to provide
analysis of financial statements and financial ratios of Lucky
Cement Ltd. We hope we have covered all that was required for the
LUCKY CEMENT
report. If there be any clarification demanded, we would appreciate
a call from you to our group members.
Sincerely,
SP-09-138 Mehad Azeem
F–09–CE–151 Asim Qayyum
Submitted by Submitted to
Sp-09-ce-101 khurrum waheed Prof. bilal rasool
F-08-113 Mansoor Ahmed
FINANCE FOR TECHNICAL MANAGERS PROJECT REPORT
2
ACKNOWLEDGEMENT
THE REPORT HAS BEEN HIGHLY BENEFICIAL IN MAKING US

UNDERSTAND THE TECHNIQUES ALONGWITH PROS AND CONS
OF FINANCIAL MANAGEMENT. THE EFFORTS OF PROF BILAL
RASOOL AND TA ADI ABDURAB ARE HIGHLY COMMENDABLE
WHO HAS NOT ONLY PROVIDED THE NECESSARY GUIDANCE
BUT AN OPPORTUNITY OF RECEIVING FIRST HAND KNOWLEDGE
OF PRACTICAL NATURE. THE EFFORT PUTT IN BY THE TEAM IS A
CONCERTED AND WHOLE HEARTED ATTEMPT WHICH CAN BE
TERMED AS A FIRST ENDEAVOR TO ACHIEVE PROFICIENCY IN
THE FIELD.
FINANCIAL STATEMENT ANALYSIS OF LUCKY CEMENT

3
VISION STATEMENT
AND
MISSION STATEMENT
VISION
Our vision is to supply cement globally at ease, simultaneously publicizing our
brand worldwide and identifying our social responsibility by engaging in a
number of social welfare activities, for the benefit of poor and needy people.
MISSION
We are an industrial organization with a big capital base, using state of the art
technology in manufacturing and marketing of cement globally. Our strength
lies in the continuous value addition of the Company through sound
investments in sustainable areas for customers, employees and shareholders.
With no compromise on quality and a vital role to play in social responsibilities
we seek innovative answers to complex problems.

4
COMPANY PROFILE
1. Sponsored by well known “Yunus Brothers Group – one of the largest
export houses of Pakistan”, Lucky Cement Limited is presently a 21,000 Tons
Per Day, dry process Cement Plant. Lucky Cement came into existence in 1996
with a daily production capacity of 4200 Tons par day, currently is an
omnipotent cement plant of Pakistan, and rated amongst the few best Plants in
Asia With production facilities in Pezu (Production capacity: 13,000 Tons per
day) as well as in Karachi (Production capacity: 8000 Tons per day) it has the
tendency to become the hub of cement production in Asia.
2. In addition, Lucky Cement is aggressively pursuing to develop export
markets for cement to export bulk loose cement from Pakistan to the Gulf
Countries, African Markets, and Far East Region including Nepal & Sri Lanka.
Considering sizeable exports potential, Lucky Cement has decided to increase
the capacity of its Karachi Plant by addition of two more Production lines,
having capacity of 2.5 Million Tons per Annum. The expansion program is
likely to be completed by end 2008.
3. It is the desire of Lucky Cement to put Pakistan on world map as a
leading producer & exporter of loose cement in international market. Lucky
cement has made an investment of over US$ 8 Million to develop the
infrastructure & logistics and is further developing a fleet of cement bulkers to
carry loose cement from its Karachi Plant to the Ports. For loading cement form
the bulkers to vessels, Lucky Cement has a dedicated system for discharging
cement directly from the bulkers to the vessels; at very fast discharge rates,
reducing the vessels idle time in turn making the shipments timely as per the
customer requirements.
4. Lucky Cement has also installed Jumbo Packers at its Karachi Plant to
dispatch cement in one ton packing requirement. All this and much more have
made Lucky Cement the largest cement producer, with major emphasis on
supply of superior quality cement to its consumers.

5
COMPANY’S PRODUCTS
5. Lucky Cement aims at producing cement to suit every user. The following
types of cement are available:
a. Ordinary Portland Cement. Ordinary Portland cement is available
in darker shade as well as in light shades in Lucky Star with
different brand names to suit the requirement of users.It is used in
all general constructions especially in major prestigious projects
where cement is to meet stringent quality requirements; it can be
used in concrete mortars and grouts etc. Ordinary Portland cement
is compatible/consumable with admixture/ retarders etc.
b. Sulphate Resistant Cement. Sulphate resistant Cement’s best
quality is to provide effective and long lasting strength against
sulphate attacks and is very suitable for constructions near sea
shores as well as for canals linings. It provides very effective
protection against alkali attacks
c. Slag Cement. Slag cement is also available for specific user
requirements. Slag cement, has been incorporated into concrete
projects for over a century to improve durability and reduce life
cycle costs. Among its measurable benefits in concrete are better
workability and finish ability, higher compressive and flexural
strengths, and improved resistance to aggressive chemicals.

6
CORE VALUES & OUR BUSINESS STRATEGY

6. At Lucky Cement we comprehend our core values to be the most
significant factor leading to the existence and growth of this prestigious
organization.
7. How we accomplish our mission is as vital as the mission itself. Thus
these values are not only on paper and pen but lounge deep in the heart of
each individual working or associated with lucky cement.
These values are reflected within the name of LUCKY itself: They are as follows.
a. L = LEADERSHIP - We don't just innovate industry practices - we
are defining the way business will be done in the future. We are
pioneers.
b. U = UNDERSTANDING - Whereby we understand the demands of
cement industry at a global level, parallel to the needs of people,
associated with us in one way or the other.
c. C = COMMITMENT - One word that sums it all at Lucky Cement is
the commitment of people to quality, relationship and most
importantly our customers, who can never be disappointed at any
cost.
d. K = KONSTANT - The most important element to balance any
equation worldwide, at Lucky Cement we assign the value of
Konstant with consistency of profits, as profits are required to
sustain and grow any organization. They are in-turn the ultimate
measure of efficiency.
e. Y = YOU - This attitude is a built-in character. At lucky cement we
always maintain, ‘You first, Me last’ approach, not only to please
but to delight our employees, shareholders, customers, and all the
other people who expect a result from Lucky Cement.

7
BUSINESS PERFORMANCE
8. Production & Sales Volume Performance. During the year under review, your
Company achieved all

8
RATIO ANALYSIS
9. A statistic has little value in isolation. Hence, a profit figure of Rs.100
million is meaningless unless it is related to either the firm’s turnover (sales
revenue) or the value of its assets. Accounting ratios attempt to highlight the
relationships between significant items in the accounts of a firm. Financial
ratios are the analyst’s microscope; they allow them to get a better view of the
firm’s financial health than just looking at the raw financial statements Ratios
are used by both internal and external analysts
a. Internal Uses
(1) Planning
(2) Evaluation of management
b. External Uses
(1) Credit granting
(2) Performance monitoring
(3) Investment decisions
(4) Making of policies
CATEGORIES OF FINANCIAL RATIOS
10. The accounting ratios can be grouped in to six categories:

a. Liquidity Ratios shows the extent to which the firm can meet its
financial obligations.
b. Asset Management Ratios shows how effectively the firm manages
its assets.
c. Debt Management Ratios examine the degree to which a firm uses
debt financing or financial leverages.
d. Profitability Ratios relates profits to sales and assets.

9
FINANCIAL STATEMENTS
11. Since this report is an analysis report about the performance of Engro
Chemicals, therefore let us first review the company’s financial reports for the
year 2007 and 2008.
a. YEAR 2008

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11

12

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b. YEAR 2009

14

15
lll

16

17

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i
LIQUIDITY RATIOS
12. A fully liquidity analysis requires the use of cash budgets, but by relating
the amount of cash and other current assess to current obligations, ratio
analysis provides a quick, easy-to- use measure of liquidity.
a. Current Ratio
(1) 2008
Current Ratio = Current Asset
Current Liabilities
= 8, 407, 379
7, 686, 897
Current Ratio = 1.093 times
(2) 2009
Current ratio = Current Asset

Current Liabilities
= 7, 857, 942
9, 098, 678
Current ratio = 0.86 times
(3) Analysis. Although in both years the position of the

company to pay off its short term debt is not very good. It is
necessary for the company that it’s current rations remains
above 1 time to meet its short term obligations and in the
case of lucky cement the current of year 2009 is declining
because the short obligations (liabilities) are increasing at a
faster pace than its current assets.

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b. Quick Ratio
(1) 2008
Quick ratio = Current Asset – Inventory

Current Liabilities
= 8, 407, 379, 372

7, 686, 897
Quick ratio = 1.001 times
(2) 2009
Quick ratio = Current Asset – Inventory

Current Liabilities
= 7, 857, 942 – 1, 196, 608

9, 098, 678
Quick ratio = 0.732 times
(3) Analysis. Here the Quick Ratio of year 2009 is declining

because company is holding huge amount of inventory as
compared previous year. The quantitative sales of company
in year 2009 is 5.9 mpta against the last year sale of 5.5
mpta because there is a growth in Pakistani cement industry
and there is overall an increase in sale of the cement so

20
that’s why there is a need to hold much bigger amount of

inventory as compared to year 2008.
ASSET MANAGEMENT RATIOS

13. Asset Management Ratio tells us how efficient company utilizes its total
assets for generating sales.
a. Inventory Turnover
(1) 2008
Inventory turnover = Sales

Avg inventory
= 16, 957, 879
709, 372
Inventory turnover = 23.90 times
(2) 2009
Inventory turnover = Sales

Avg inventory
= 30, 915, 035

1, 196, 608
Inventory turnover = 25.84 times
(3) Analysis. Inventory Turnover Ratio indicates the

effectiveness of the inventory management practices of the
firm. The inventory turnover of year 2009 is more than the
inventory turnover of year 2008 which shows that cement
industry is growing and the company is maintaining a big
amount of inventory. The inventory turnover ratio of year
2008 was 23.90 which indicate that 23.90 times in a year

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the inventory of the firm is converted into receivables or

cash. However, in 2009 the inventory turnover ratio
increased to 25.84.
b. Average Collection Period
(1) 2008
Average collection period Account Receivable * 365

Sales
Account Receivables = Trade debts + other
receivables
= 720, 314 + 890, 204 * 365

16, 957, 879
Average collection period = 1, 610, 518 * 365

16, 957, 879
Average collection period = 34.66 days
(2) 2009
Average collection period = Account Receivable * 365

Sales
Account Receivables = Trade debts + other
receivables
= 1, 267,248 + 59, 251* 365

30, 915, 035
Average collection period = 15.66 days
(3) Analysis. Credit policy is defined as the maximum time

period allowed to the customer to pay back. The average
collection period in the year 2008 was 34.66 days which
means that the firm is able to collect its receivables within
approximately 35 days. However, in 2009 the average
collection period decreased to 15.66 days, thus now the

22
company is collecting its receivable within approximately

16 days. There could be many reasons for this decrease in
average collection period such as, improvement in
management, increase of incentive given to its customers or
dependable customer.
c. Fixed Asset Turnover
(1) 2008
Fixed Asset turnover = Sales

Fixed Asset
= 16, 957, 879

25, 829, 520
Fixed Asset turnover = 0.656 times
(2) 2009
Fixed Asset turnover = Sales

Fixed Asset
= 30, 915, 0315

30, 476, 872
Fixed Asset turnover = 1.014 times
(3) Analysis. The fixed turnover ratio measures how effective

the firm uses plant and equipment. The role of fixed asset is
to support the sales. The fixed Asset turnover ratio of year
2009 is 1.014 times and in year 2008 was 0.656 this shows
that as the fixed asset increases there is also an increase in
the sales.

23
d. Total Asset Turnover

(1) 2008
Total Asset turnover = Sales
Fixed Asset
= 16, 957, 879

34, 239, 07
Total Asset turnover = 0.49 times
(2) 2009
Total Asset turnover = Sales

Fixed Asset
= 30, 915, 0315

38, 392, 362
Total Asset turnover = 0.805 times
(3) Analysis. The total asset turnover ratio measures the

turnover of all the firm assets and help us to identify when
problem occur that is a problem in fixed assets or in current
assets. In 2008, it was 0.49 times and in year 2009 is 0.805
this change was brought about by an increase of 6.25% in
the sales. Whereas the total assets only increased by 10.8%

24
DEBT MANAGEMENT RATIO

14. Shows the extent to which the firm is financed by debt.
a. Debt Ratio
(1) 2008
Debt ratio = Total Debt/Liabilities

Total Asset
= Non current liabilities + Current liabilities

Total Asset
7,896, 754 + 7,686,897

34,239, 074
Debt ratio = 45.5 %
(2) 2009
Debt ratio = Total Debt/Liabilities

Total Asset
= 6, 041, 712 + 9, 098, 678

34,239, 074
Debt ratio = 44.2 %
(3) Analysis. The debt to equity ratio in 2008 was 45.5%

which shows that 45.5% of financing through debt. However
in 2009 the debt to equity ratio decreased to 44.2 % which
shows that the company curtails its financing through debts
although there is a decline in the risk the company facing.

25
PROFITABILITY RATIOS
15. This ratio shows the combined effect of liquidity, asset management and
debt management ratios.
a. Profit Margin
(1) 2008
Profit margin = Net income

Sales
= 2, 677, 670
16, 957, 879
Profit margin = 15 %
(2) 2009
Profit margin = Net income

Sales
= 4, 596, 549
30, 915, 035
Profit margin = 14.8%
(3) Analysis. Profit margin of year 2009 declined because of

the high cost which occurs because of inefficient operations
and heavy use of debt.

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b. Basic Earning Power

(1) 2008
Basic Earning Power = EBIT

Total Asset
= 3, 076, 367
34, 239, 074
Basic Earning Power = 9.8 %
(2) 2009
Basic Earning Power = EBIT

Total Asset
= 7,217, 493
38, 392, 362
Basic Earning Power = 18.7%
(3) Analysis. This ratio shows the raw earning power of the
firm asset before the influence of taxes and leverage and it is
useful for comparing firm with difference tax situations and
different degrees of financial leverage. The BEP of year 2008
was 9.8% which increased little bit in 2009 to 18.7 % the
result shows that operating profit of year 2009 is growing by
100%

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c. Return on Asset
(1) 2008
Return on Asset = Net income

Total Asset
= 2,677,670
34, 239, 074
Return on Asset = 0.078 = 8%
(2) 2009
Return on Asset = Net income

Total Asset
= 4, 596, 549
38, 392, 362
Return on Asset = 11.9%
(3) Analysis. The Return on Assets gradually rose in year

2009, to 11.9 from 8 % in year 2008. Total asset increased
by 6.25%. This shows that the company uses its total assets
more efficiently over these years which also increased net
income over the years. This ratio shows that how much
company has earned on its assets.

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d. Return on Equity
(1) 2008
Return on equity = Net income

Common equity
= 2,677,670
18, 655, 423
Return on equity = 14.3%
(2) 2009
Return on equity = Net income

Common equity
= 4,596,549
23,251,972
Return on equity = 19.7%
(3) Analysis. This ratio is the most important ratio for

investor point of view. His ratio shows that how much
investors get return on their money that they have invested
in company stocks. If we compare the ROE of 2008 to 2009
there is a increase on ROE by 5.4% and this is not a good
sign for the investors to invest in company shares and this is
also steps towards good reputation of Lucky cement because
it is the goal of every company to maximize it shareholders
wealth.

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MARKET VALUE RATIOS

16. It relates the firm’s stock price to its earning, cash flow, and book value
per share. These ratios given management an identification of what investors
think of the company’s past performance and further prospects.
a. Price Per Share/EPS
(1) 2008
Price per share/EPS = Price per share

EPS
= 73.25
9.84
Price per share/EPS = 7.44 times
(2) 2009
Price per share/EPS = Price per share

EPS
= 62.50
14.21
Price per share/EPS = 4.39 times
(3) Analysis. (P/E) ratio shows how much investor are willing
to pay per Rupees of reported profits. In comparison of 2008
and 2009 (P/E) ratio there is a decline in (P/E) ratio by 3.05
times in 2009. This shows that there is a weak growth
prospect of the company and the company is much riskier
then other companies in the industry and the investors are
not willing to take risk.

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b. Price Per Share/Cash Flow

(1) 2008
Price per share/Cash flow = Price per share
Cash flow
#of shares = Net income

EPS
= 2, 677, 670
9.84
#of shares = 272, 120935
Cash flow = Net income + Non cash

expense Depreciation
# of share
= 2, 677670 + 978, 969, 000
272, 120, 935
Cash flow = 13.4
Price per share/Cash flow = 73.25

13.4
Price per share/Cash flow = 5.45 times
(2) 2009
Price per share/Cash flow = Price per share

Cash flow
#of shares = Net income

EPS
= 4, 596, 549
14.21
#of shares = 323, 472, 836
Cash flow = Net income + Non cash

expense
# of share
= 4,596, 549000 + 1, 148,
128000
323, 472, 836

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Cash flow = 17.7
Price per share/Cash flow = 62.50

17.7
Price per share/Cash flow = 3.53 timers
(3) Analysis. There is a decline in the Price/Cash Flow Ratio

in year 2009 this ratio show that the company growth
prospect is weak and the company is more risky.
c. Market/Book Value Ratio
(1) 2008
Market/Book value ratio = Market value per share

Book value per share
Book value = Common equity

# of share
= 18, 655,423, 000

272, 120, 935
= 68.55
Market/Book value ratio = 73.25

68.55
Market/Book value ratio = 1.07 timers
(2) 2009

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Market/Book value ratio = Market value per share

Book value per share
Book value = Common equity

# of share
= 23, 251, 972000

272, 120, 935
= 85.44
Market/Book value ratio = 62.50

85.44
Market/Book value ratio = 0.73 timers
(3) Analysis. This ratio of stock’s market price to its book

value gives another indication of how investors regard the
company. This ratio shows that how much investor are
willing to pay more for the stocks than their accounting book
value. As the M/B ratio is decline in 2009 to 0.34 times this
shows that investors willingness to buy the Lucky cement
share is decreasing and this also a bad sign for the Lucky
cement company.

Project Report 20 Dec 09

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LETTER OF TRANSMITTAL

THE REPORT HAS BEEN HIGHLY BENEFICIAL IN MAKING US

FINANCIAL STATEMENT ANALYSIS OF LUCKY CEMENT

FINANCIAL STATEMENT ANALYSIS OF LUCKY CEMENT

FINANCIAL STATEMENT ANALYSIS OF LUCKY CEMENT

FINANCIAL STATEMENT ANALYSIS OF LUCKY CEMENT

CORE VALUES & OUR BUSINESS STRATEGY

FINANCIAL STATEMENT ANALYSIS OF LUCKY CEMENT

FINANCIAL STATEMENT ANALYSIS OF LUCKY CEMENT

10. The accounting ratios can be grouped in to six categories:

FINANCIAL STATEMENT ANALYSIS OF LUCKY CEMENT

FINANCIAL STATEMENT ANALYSIS OF LUCKY CEMENT

FINANCIAL STATEMENT ANALYSIS OF LUCKY CEMENT

FINANCIAL STATEMENT ANALYSIS OF LUCKY CEMENT

FINANCIAL STATEMENT ANALYSIS OF LUCKY CEMENT

FINANCIAL STATEMENT ANALYSIS OF LUCKY CEMENT

FINANCIAL STATEMENT ANALYSIS OF LUCKY CEMENT

FINANCIAL STATEMENT ANALYSIS OF LUCKY CEMENT

FINANCIAL STATEMENT ANALYSIS OF LUCKY CEMENT

FINANCIAL STATEMENT ANALYSIS OF LUCKY CEMENT

Current Ratio = 1.093 times

Current ratio = Current Asset

Current ratio = 0.86 times

(3) Analysis. Although in both years the position of the

FINANCIAL STATEMENT ANALYSIS OF LUCKY CEMENT

Quick ratio = Current Asset – Inventory

= 8, 407, 379, 372

Quick ratio = 1.001 times

Quick ratio = Current Asset – Inventory

= 7, 857, 942 – 1, 196, 608

Quick ratio = 0.732 times

(3) Analysis. Here the Quick Ratio of year 2009 is declining

FINANCIAL STATEMENT ANALYSIS OF LUCKY CEMENT

that’s why there is a need to hold much bigger amount of

ASSET MANAGEMENT RATIOS

Inventory turnover = Sales

Inventory turnover = 23.90 times

Inventory turnover = Sales

= 30, 915, 035

Inventory turnover = 25.84 times

(3) Analysis. Inventory Turnover Ratio indicates the

FINANCIAL STATEMENT ANALYSIS OF LUCKY CEMENT

the inventory of the firm is converted into receivables or

b. Average Collection Period

Average collection period Account Receivable * 365

= 720, 314 + 890, 204 * 365

Average collection period = 1, 610, 518 * 365

Average collection period = 34.66 days

Average collection period = Account Receivable * 365

= 1, 267,248 + 59, 251* 365

(3) Analysis. Credit policy is defined as the maximum time

FINANCIAL STATEMENT ANALYSIS OF LUCKY CEMENT

company is collecting its receivable within approximately

c. Fixed Asset Turnover

Fixed Asset turnover = Sales

= 16, 957, 879

Fixed Asset turnover = 0.656 times

Fixed Asset turnover = Sales

= 30, 915, 0315

Fixed Asset turnover = 1.014 times

(3) Analysis. The fixed turnover ratio measures how effective

FINANCIAL STATEMENT ANALYSIS OF LUCKY CEMENT