Cherat-Cement-Company Final Report 2

COMSATS Institute of Information Technology Department of Management Sciences

FINANCIAL MANAGEMENT Final Project Report

Submitted To: Sir Khalid Sohail Submitted By: UBAID ULLAH JAN

FA09-

MBE-021 Mian Murtaza Shahid Salleha Satti Umer Naseh Inam Ullah DATE: 10.01.11

FA09-MBE-011 FA09-MBE-020 FA09-MBE-014 FA09-MBE-006

The Exordium “In the Name of Allah the compassionate the Merciful” All the acclamation and admiration is for Almighty Allah the most merciful, gracious and beneficent who is entire source of all the knowledge and wisdom endowed to mankind. We offer our humblest thank from the core of our heart to Holy Prophet Muhammad (Peace Be Upon Him), who is forever source of guidance and knowledge for the humanity. “Praise to Allah, Lord of the creation, the Compassionate, the Merciful, the King of the Judgment day! Alone.” (Al Quran)

ACKNOWLEDGEMENT First of all we are thankful to Almighty ALLAH for giving us much cooperation and supporting parents who have given us this opportunity to study in COMSATS. I would like

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to thanks Sir Khalid Sohail for giving us the confidence and opportunity to prove ourselves.

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The Business policy of the company is based on the principles of honesty, integrity and professionalism at every stage. Product Quality: Regularly update ourselves with technological advancements in the solid of cement production to produced cement under highest standards and maintain all relevant technical and professional standards. Dealing with Employees: Provide congenial work atmosphere where all employees are treated with respect and dignity. Recognize and reward employees based on their performance and their ability to meet goals and objectives. Responsibility to interested parties: To be objective, fair and transparent in our dealings with people who have reposed their confidence in U.S. Financial Reporting & Internal Controls: To implement an effective and transparent system of financial reporting and internal controls to safeguard the interest of our shareholders and fulfill the regulatory requirements. Procurement of Goods & Services: Only purchase goods and services that are tailored to our requirements and are priced appropriately. Before taking decision about procurement of any good or service, obtain quotation from various sources. Conflict of Interest: All the ads and decisions of the management to be motivated by the interest of the company and activities and involvements of the directors and employees in no way conflict with the interest of the company. Adherence to laws of the land: To fulfill all statutory requirement of the Government and its regulator bodies and follow relevant and applicable laws of the country. Environmental Protection: To protect environment and ensure health and safety of the work force and well- being of the people living in the adjoining areas of our plant. We recognize the need for working with optimum efficiency to attain desired levels of performance. We endeavor to conduct our business with honesty and integrity and produced

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and supply cement with care and competence, so that that customer receive the quality they truly deserve.

Board Of Directors

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-:Different Competitors of Charat Cement:-

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THCCL

Thatta Cement

PIOC

Pioneer Cement

MUCL

Mustehkam Cement

MLCF

Maple Leaf Cement

KOHC

Kohat Cement

JVDC

Javedan Cement

GWLC

Gharibwal Cement

FLYNG

Flying Cement

FECTC

Fecto Cement

FCCL

Fauji Cement

DNCC

Dandot Cement

DGKC

D.G.K.Cement

DCL

Dewan Cement

DBCI

Dadabhoy Cement

BWCL

Bestway Cement

ACPL

Attock Cement

AACIL

Al-Abbas Cement

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Financial Information & Decision Making: Financial statement is about the company’s account, which they produce at the end of every trading year. The balance sheet and income statement (profit and loss accounts) are the main part of financial statements. Financial information provides invaluable statistics and evidence on which company can make decisions and plans for future. The stakeholders have great concern about these financial statements (Stakeholders are all those who are directly or indirectly related to the operations of the organization).These stake holders are tax authority, management, customers, employees, bank, competitors etc. Tax Authority: They are interested in the income of the organization (after payment of interest) in order to charge tax accordingly. Management: The management uses the financial statements for financial assessment of the company. A management responsibility requires to cut costs or to make other finance related decisions. The Employees: The employees are interested in the financial statement of the company to know about the real profit, so that they may claim for their bonuses and fringe benefits etc from the company. Share Holders: Shareholders are also interested to know about the real earnings from the study of financial statement of the company for their claims of dividends. The Creditors: The Creditors are interested in the financial statements of the company to know about the financial position of the company for their re-payment of loans. A financial statement provides information that is otherwise not available from the

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general study of the accounts of a company. This statement must be supplemented with other information also, which includes company’s management, investment advisors and trade associations etc. The finance department of a company generates a variety of information that is very useful and help out company as well as stake holders to make decisions, it includes: • Profit and Loss accounts:

Profit and Loss of the company of the company, information is provided whether the business is making efficient use of financial resources or not. • Balance Sheet information:

Balance Sheet of the company provide details of business assets and liabilities, as well as the liquidity of the business. • Sales and purchases information:

Sales and purchases information provides details about particular type of trading and accounts with particular customers and suppliers. • Information about the purchase of assets and liabilities. • Information about the wages paid out by a business. • Information about costs.

By providing a steady and up-to-date flow of information, a business organization is able to make appropriate decisions about how to reduce costs and increase sales, when to raise profitability and purchase new capital assets and which is the best sources of finance and duration etc. and the same is true for stakeholders also. Financial is an important process to help you determine the efficiency, effectiveness, and stability of your organization.

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MAJOR CONTENTS OF BALANE SHEET AND INCOME STATEMENT IN 2009 & 2010 Balance Sheet Current Assets Inventory Quick Assets Accounts Receivable Total Assets Current Liabilities Total Debt Shareholder’s Equity Net Worth / Capitalization

2010 (Rs. “000”) 1,239,483 201,186 1,038,297 25,467 4,857,419 1,622,417 2,611,454 2,245,965 3,235,002

2009 (Rs. “000”) 1,343,431 280,588 1,062,483 16,437 4,743,510 1,070,994 2,475,106 2,268,404 3,672,516

Income Statement Net Sales Cost of Goods Sold Gross Profit Net Profit & Loss

2010 (Rs. “000”) 3,469,111 3,379,937 89,174 (13,755)

2009 (Rs. “000”) 4,567,409 3,896,647 670,762 159,287

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Classification of Ratios Different ratios are used for different purposes; these ratios can be grouped into various classes according to the financial activity. Ratios are classified into four broad categories. •

Liquidity Ratio

•

Leverage Ratio

•

Profitability Ratio

•

Activity Ratio

•

Market Value Ratio

Liquidity Ratio Liquidity ratio measures the firm’s ability to meet its current obligations i.e. ability to pay its obligations and when they become due. Commonly used ratios are: •

Current Ratio

•

Acid Test Ratio or Quick Ratio

•

Working Capital

1. Current

Ratio:

These are most widely used measure of short term debt paying ability is the current ratio. This ratio is computed by dividing current assets by total current liabilities. The higher the current ratio, the more liquid the company appears to be. It is believed that a current ratio of at least two or greater quality as a good credit risk. Current Assets Current Ratio = Current Liabilities

Year

2010

2009

Current Assets

1,239,483

1,343,431

Current Liabilities

1,622,417

1,070,994

0.77

1.25

Current Ratio 1. Quick

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Inventories and prepaid expenses are least liquid assets. It take many month to convert inventory into cash. Quick ratio include cash, accounts receivables, marketable securities i.e. short term investments that can be converted quickly into cash. It is believed that a quick ratio of at least one or greater qualify as a good credit risk. Quick Assets Quick Ratio = Current Liabilities

Year Quick Assets Current Liabilities Quick Ratio

2010 1,038,297 1,622,417 .6399

2009 1,062,483 1,070,994 .9924

Leverage Ratio/Debt Ratio If a business fails and must be liquidated, the claim of creditors takes priority over those of owners, but if the owner has great deal of debt, there may not be enough assets even to make full payment to all its creditors. A basic measure of creditors claim is the debt ratio, which states total liability as a percentage of total assets.

1. Debt to Total Asset Ratio: The debt to total assets ratio is divided by total debts by total assets. The higher the debt to asset ratio, the greater the financing made by the creditors during any fiscal or financial period. Total debts Debt to total asset ratio:

X 100 Total assets

Year Total debts TOTAL ASSETS Debt to total assets

2010 2,611,454

2009 2,475,106

4,857,419 53.76%

7,743,510 31.96%

2. Debt to Equity Ratio: Shinning path

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To assess the extent to which uses borrowed money, we use debt to equity ratio. The higher the ratio the higher the level of firm’s contribution that is being provided by shareholders. The larger the creditor’s cushion in event of shrinking values or assets losses. Total debts Debt to equity ratio:

X 100 Equity

Year Total debts Total Shareholder’s equity Debt to equity ratio

2010 2,611,454 2,245,965 116.27%

2009 2,475,106 2,268,404 109.11%

3. Long term debt to capitalization: Year Long term debt

2010 989,037

2009 3,325,002

Total Capitalization

1,404,112

3,672,516

.3058

.3824

Profitability Ratio Profitability ratios are used to determine that how much company revenues is eaten up by expenses. How much a company earns relative to sale generated and the amount earned relative to firm’s total assets.

Types of Profitability Ratio: 1. Gross Profit Margin: The gross profit margin measures how much gross profit remains out of each sales dollar after the cost of goods sold is subtracted. The higher the gross profit margin ratio, the

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better the sales cost control compared to its sales revenue. This ratio shows how well a firm generates revenue compared to its sales revenue. Gross Profit Gross Profit Margin:

X 100 Sales

Year Gross profit Net sales or revenue Gross profit ratio

2010 89,174 3,469,111 2.57%

2009 670,762 4,567,409 14.69%

2. Net Profit Margin: Net profit margin measures how much net profit out of each sales dollar is left after all the expenses are subtracted i.e. operating expense, interest and taxation etc. Net Profit Net Profit Margin:

X 100 Sales

Year Net profit or loss Net sales or revenue Net profit/loss ratio

2010 (13,755) 3,469,111 (39.65%)

2009 159,287 4,567,409 34.9%

3. Return on Assets (ROA): Return on assets indicates or measures overall effectiveness in generating profits with available asset. Net Profit after Tax Return on Assets: Total Assets

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Net Profit After Tax or Loss Total Assets Return on assets

(13,755)

159,287

4,857,419 (.0028)

7,743,510 .0336

4. Return on Equity (ROE): Return on equity measures the average return on the firm’s capital contribution from its owners. Net Profit or Loss return on Equity: Shareholder’s Equity Year Net profit Total owner’s equity Return on equity

2010 (13,755) 2,245,965 (.0061)

2009 159,287 2,268,404 .0702

Asset Activity Ratios Asset activity ratios measures how effectively and efficiently the business has utilized the current assets.

Types of Activity Ratios: 1. Account Receivables Turnover Ratio: Account receivables turnover rate shows that how many times, the business has recovered the outstanding amount from its credit customers. Net credit Sales Account receivables turnover rate: Account receivables

Year Net Credit sales/ sales Accounts receivables Account Receivable Turnover Ratio

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2010 3,469,111 25,467 13.62

2009 4,567,409 16,437 27.77

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• Account Receivables Turnover Rate in days: It indicates the days taken to collect account receivables. Days in a Year (360 or 365) Account receivables turnover rate in days: Account Receivables Turnover Rate

Year Days in year Account Receivable Turnover Ratio Collection Period

2010 365 13.62 27 Days

2009 365 27.77 14 days

2. Inventory Turnover Rate: Inventory turnover rate measures the number of times inventory is being sold. Cost of goods sold Inventory turnover rate: Average inventory Year Cost of goods sold Inventory(stores and spares) Return on equity

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2010 3,379,937 201,186 16.80

2009 3,896,647 280,588 13.89

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