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Presented By: Muhammad Usman Ishaq GillMBA-II-Evening

Presented to: Prof. Imad-ud-Din NUML University Lahore

Financial Statement Analysis2015

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Lucky Cement Limited is the flagship company of YBG, which has a solid history of exceptional growth performance since its inception in 1993.LCL have two manufacturing plants in Pakistan Darra Pezu-KPK and Indus Highway, Karachi with 7.7 matric tons production capacity.The shares of LCL are quoted on all three stock exchanges in Pakistan. LCL has also issued Global Depository Receipts(GDRs) which are listed and traded on the professional securities market of the London Stock Exchange.

About Company

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• The industry comprises of 19 firms with 29 production units (19 units in the north and 10 units in the south),with the production capacity of 45.6 million tons during the 9-months of 2016.  While local sales volume registered a growth of 7.9% to register historically highest, but exports respectively decrease at a rate of 11.6% from last five years.

• The North's with production capacity of 36.48 million tons (80 percent) while the south with production capacity of 9.12 million tons (20 percent). There are four foreign companies, three armed forces companies and16 private companies listed in the stock exchanges. The industry is divided into two broad regions, the northern region and the southern region.

Industry Overview

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Production History of Pakistan Cement Industry

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Cement Industry Production CapacityMarch-2016

Sr. No. Name of Unit LocationCement Capacity

(Metric Tons)

1 Lucky Cement Pezu & Karachi

7,712,000

2 Bestway Cement Hattar & Chakwal

5,915,250

3 D.G. CementD.G. Khan &

Chakwal

4,221,000

4 Fauji Cement Fateh Jang

3,433,500

5 Maple Leaf Cement Daudkhel

3,370,500

6 Askari CementWah &

Nizampur

2,677,500

7 Kohat Cement Kohat

2,677,500

8 Gharib Wal Cement Jehlum

2,110,500

9 Lafarge Pakistan Chakwal

2,047,500

10 Pioneer Cement Khushab

2,030,250

11 Dewan CementHattar & Dhabeji

1,921,500

12 Attock Cement Lasbela

1,795,500

13 Flying Cement Lilla

1,197,000

14 Cherat Cement Nowshera

1,102,500

15 Al-Abbas Cement Dadu 945,000

16 Fecto Cement Sangjani 819,000

17 Dandot Cement Jehlum 504,000

18 Thatta Cement Thatta 488,250

Total 45,618,750

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Market Share

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Cement Exports(as per APCMA)

Year Total Exports % Inc. /(Dec)Qty. (MT)2008-2009   10,752,486 39.34%2009-2010 10,649,156 -0.96%2010-2011 9,427,943 -11.47%2011-2012 8,567,830 -9.12%2012-2013 8,374,103 -2.26%2013-2014 8,136,528 -2.84%2014-2015 7,195,069 -11.57%2015-2016 4,406,545 -19.02%(9 Month)

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Vertical Analysis-Balance Sheet

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Horizontal Analysis-Balance Sheet

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Ratio

Liquidity Ratio

Financial

Leverage Ratio

Activity Ratio

Profitability Ratio

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Liquidity ratios determine a company's ability to pay  off its short-terms debts obligations. Generally, the higher the value of the ratio, the larger the margin of safety that the company possesses to cover short-term debts.

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•Current Ratio •Quick/Acid Test Ratio

Types of Liquidity Ratio

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Current Ratio(CR)

Year 2015 2014

Calculation 27,017,949

19,671,598

  7,430,703 4,555,965

Ratio 3.64

4.32

The current ratio is a liquidity and efficiency ratio that measures a firm's ability to pay off its short-term liabilities with its current assets. The current ratio is an important measure of liquidity because short-term liabilities are due within the next year. The Current Ratio shows that Current Assets are 3.64 and 4.32 times in year 2014 and 2015 respectively which sufficient to pay current liabilities.

𝐶𝑅=𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

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Year 2015 2014Calculation

20,441,781 11,953,699

  7,430,703 7,430,703

Ratio

2.75

1.61

𝑄 /𝐴𝑇𝑅=𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠− 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

Quick/Acid Test Ratio(Q/ATR)

The quick ratio is a financial ratio used to measure a company's liquidity. The quick ratio is also known as the acid test ratio. The quick ratio compares the total amount of cash + marketable securities + accounts receivable to the amount of current liabilities. . The Quick Ratio of 2.75 and 1.61 in year 2014 and 2015 shows that Liquid current assets (i.e. Excluding inventory) are sufficient to cover current liabilities by 2.75 and 1.61 times.

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•Debt to Equity Ratio•Debt to Assets Ratio•Capitalization Ratio• Interest Coverage Ratio

Financial Leverage Ratio

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Year 2015 2014

Calculation

69,246,000

67,971

59,258,770,000

49,792,183

Ratio 0.001 0.001

Debt to Equity Ratio (DER)

𝐷𝑇𝐸𝑅=𝑇𝑜𝑡𝑎𝑙 𝐷𝑒𝑏𝑡(𝐿𝑇 +𝑆𝑡 )𝑂𝑤𝑛𝑒𝑟 ′ 𝑠𝐸𝑞𝑢𝑖𝑡𝑦

• Debt/Equity Ratio is a debt ratio used to measure a company's financial leverage, calculated by dividing a company's total liabilities by its stockholders' equity. The D/E ratio indicates how much debt a company is using to finance its assets relative to the amount of value represented in shareholders' equity.

• The ratio shows the company’s total liabilities are 0.001 % of owner’s equity and the total debt showing almost zero % leverage.

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Debt to Asset Ratio (DAR)

𝐷 𝐴𝑅=𝑇𝑜𝑡𝑎𝑙𝐷𝑒𝑏𝑡𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠

Year 2015 2014

Cal. 69,246,000

67,971,000

73,085,865,000

59,869,631,000

Ratio 0.001

0.001 • Total liabilities divided by total assets ratio shows the proportion

of a company's assets which are financed through debt. If the ratio is less than 0.5, most of the company's assets are financed through equity. If the ratio is greater than 0.5, most of the company's assets are financed through debt.

• The ratio express that the total debt of the company is 0.001 of total Assets showing that almost zero % assets are financed by debt.

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Capitalization Ratio (CR)

𝐶 𝑅=𝑇𝑜𝑡𝑎𝑙𝐷𝑒𝑏𝑡𝐿𝑇𝐷+𝑂 .𝐸

Year 2015 2014

Calculation

69,246,000

67,971,000

73,155,111,000

59,937,602,000

Ratio 0.001 0.001 The capitalization ratio measures the debt component of a

company's capital structure, or capitalization (i.e., the sum of long-term debt liabilities and shareholders' equity) to support a company's operations and growth. The capitalization ratio of the company is almost zero due to negligible Total Debt.

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Year 2015 2014

Calculation

15,911,819,750

14,490,590,00

0 25,750 34,225

Ratio 618

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Interest Coverage Ratio (ICR)

𝐼 𝐶𝑅=𝐸𝐵𝐼𝑇

𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 h𝐶 𝑎𝑟𝑔𝑒𝑠

• The interest coverage ratio is used to determine how easily a company can pay interest expenses on outstanding debt. The ratio is calculated by dividing a company's earnings before interest and taxes (EBIT) by the company's interest expenses for the same period.

• The ratio shows that the EBIT of the company is sufficient to cover the interest/financial charges by 618 times.

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Activity Ratio

• Activity ratios explain the level of efficiency of a business. Key activity ratios include inventory turnover, days sales in inventory, accounts receivable turnover, days sales in receivables and assets turnover etc.

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Types of Activity Ratio

• Receivable Turnover • Average Collection Period • Payable Turnover• Average Payable Period• Inventory Turnover Ratio• Total Assets Turnover

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Year 2015 2014

Calculation 44,761,307 43,083,169

2,042,199 2,077,714

Turnover

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Receivable Turnover (RT)

𝑅𝑇=𝐴𝑛𝑛𝑢𝑎𝑙𝑁𝑒𝑡𝐶𝑟𝑒𝑑𝑖𝑡 𝑆𝑎𝑙𝑒𝐴𝑣𝑒𝑟𝑎𝑔𝑒𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒𝑠

• Accounts receivable turnover is the number of times per year that a business collects its average accounts receivable. The ratio is intended to evaluate the ability of a company to efficiently issue credit to its customers and collect funds from them in a timely manner. 

• The turnover is 23 times and 21 times for the year 2014 and 2015 respectively.

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Year 2015 2014

Calculation

365 365

21

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Days 16.80

15.87

Average Collection

Period (ACP)

ACP • The average collection period is the approximate amount of

time that it takes for a business to receive payments owed, in terms of receivables, from its customers and clients.

• The company took on average 15.87 days and 16.80 days for the collection of receivables in year 2014 and 2015.

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Payable Turnover (PT)

𝑃𝑇=𝐴𝑛𝑛𝑢𝑎𝑙𝐶𝑟𝑒𝑑𝑖𝑡 h𝑃𝑢𝑟𝑐 𝑎𝑠𝑒𝑠

𝑇𝑜𝑡𝑎𝑙 𝑃𝑎𝑦𝑎𝑏𝑙𝑒𝑠

• The accounts payable turnover ratio is a short-term liquidity measure used to quantify the rate at which a company pays off its suppliers. Accounts payable turnover ratio is calculated by taking the total purchases made from suppliers and dividing it by the average accounts payable amount during the same period.

• The turnover shows that the company pay 4.69 times.

Year 2015 2014

Calculation

5240657

5240657

6,7337.583

6,7337.583

Times

4.69

6.36

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Average Payment Period

(APP)

𝐴𝑃𝑃=365

𝑃𝑎𝑦𝑎𝑏𝑙𝑒𝑠𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟

• Days payable outstanding (DPO) is a company's average payable period. Days payable outstanding tells how long it takes a company to pay its invoices from trade creditors, such as suppliers. DPO is typically looked at either quarterly or yearly.

• In 77.83 and 57.39 days are sufficient to pay off it’s creditors.

Year 2015 2014

Calculation

365 365 4.69 6.36

Days

77.83 57.39

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Inventory Turnover Ratio

(ITR)

ITR Year 2015 2014

Calculation

24,578,219

24,393,064

6,576,168

7,717,899

Times 3.737 3.161

• The Inventory turnover is a measure of the number of times inventory is sold or used in a time period such as a year. The equation for inventory turnover equals the cost of goods sold or net sales divided by the average inventory.

• The company maintaining the 3.737 times in 2015.

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Total Asset Turnover (TAT)

TAT

Year 2015 2014

Calculation

44,761,307

43,083,169

73,085,865

59,869,631

Times 0.612 0.720

• The asset turnover ratio is an efficiency ratio that measures a company's ability to generate sales from its assets by comparing net sales with average total assets. In other words, this ratio shows how efficiently a company can use its assets to generate sales.

• The company generating sale efficiency 0.612 in 2015.

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Profitability Ratio

•Gross Profit Margin •Net Profit Margin•Return on Investment •Return on Equity

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Gross Profit Margin (GPM)

GPM Year 2015 2014

Calculation

20,183,088

18,690,105

44,761,307

43,083,169

Ratio 45.09 43.38• A financial metric used to assess a firm's financial health by revealing

the proportion of money left over from revenues after accounting for the cost of goods sold. Gross profit margin serves as the source for paying additional expenses and future savings.

• The year 2015 the Gross profit is 45% of Net Sales

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Net Profit Margin (NPM)

NPM Year 2015 2014

Calculation 12,431,598

11,344,403

44,761,307

43,083,169

Ratio 27.77 26.33• Net profit margin is the percentage of revenue remaining after all

operating expenses, interest, taxes and preferred stock dividends (but not common stock dividends) have been deducted from a company's total revenue.

• The Net Profit Margin for the year 2014 and 2015 is 26.33% and 27.77% respectively..

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Return on Investment

(ROI)

ROI Year 2015 2014

Calculation 12,431,598

11,344,403

73,085,865

59,869,631

Ratio 17.01 18.95• Return on investment (ROI) measures the gain or loss generated on an

investment relative to the amount of money invested. ROI is usually expressed as a percentage and is typically used to compare a company's profitability or to compare the efficiency of different investments.

• The return on investment for the year 2014 and 2015 are 18.95% and 17.01% respectively.

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Return on Equity (ROE)

ROE Year 2015 2014

Calculation

12,431,598

11,344,403

59,258,770

49,792,183

Ratio 20.98 22.78• The amount of net income earned as a percentage of

shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates on the shareholders’ investment.

• The ROE for the year 2014 and 2015 are 22.78% and 20.98% respectively.

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• Lucky Cement Limited (Lucky Cement) is a market leader in cement industry. The company record sale in 2015 Rs. 53 Billion with 12.3 Billion net profit. Lucky Cement growth have extensive growth.

• It has a highest production capacity of 7.75 million tones per annum in cement industry.

• Total assets of the LCL recorded 73 Billion in 2015 with 36.97 % increased from previous year.

• Lucky Cement has cash based operations and strong group association. YBG is the most renowned business house in Pakistan.

• LCL also has good stock exchange repute and its shares quoted at PXS and London Stock exchanges.

Key Highlights

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Cement Industry Future Outlook At the current point cement manufacturers and the government have to take concrete steps even to keep units in production. On the input side, necessary steps are required to contain the energy cost. The following are the general recommendations that would help to improve the situation of the cement industry • The liberalization policy Pakistan is so willing to adopt will work both for and against

the local industries. Unrestricted trade will allow free entry of low priced cement into the country and reduce existing market shares of all domestic players.

• Growing emphasis on low prices may reduce the qualitative aspect of production and give way to inferior products. Companies have to maintain quality standards and at the same time try and reduce costs via economies of scale.

• Too much expansion by a few players will lead to the development of a monopolistic environment in the sector. At present the industry is oligopolistic in market structure with a few sellers in the market who compete on the basis of price and technology and resort to means to increase their relative shares in the market.

• The wet process technology is outdated and all manufacturers using this method will stay far behind if they do not take measures to improve and update their production facilities.

• Focus in the future will be on cost competitiveness and product differentiation so that producers of cement can enhance margins and increase earnings by capturing a wider market base. Players specializing in different varieties can develop to various market segments and increase customer base.

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