Professional Documents
Culture Documents
2 Information Gathering
2.1 Sources of information (Primary and secondary) 5.
2.2 Description of methods used to collect information 5.
1
2.3 Limitations of information gathered 6.
2.4 Ethical issues during information gathering 7.
2.5 Accounting/business tech. used and their limitations 8.
3 Analysis
3.1 Over view of the economy
3.2 Company history 9.
3.3 Company products 9.
3.4 Cement industry 9.
3.5 Ratio analysis and competitor analysis 10.
Sales analysis and profitability analysis
Liquidity and working capital analysis
Capital and debt structure analysis
Valuation ratios
3.6 Porters five forces analysis 18.
3.7 SWOT analysis 19.
1. INTRODUCTION
1.1 Reasons for choosing the topic and company
2
and gave me real insight of the work of this field that how things
happen practically.
One of the very strong reasons of choosing the topic was that is
related to my studies.
Reason for choosing the cement industry was that this industry is
one of the biggest contributors to the economy of Pakistan.
3
SWOT analysis of the company will be done to analyze the
strengths, weaknesses in the company and opportunities and
threats that company faces in the environment in which it
operates. P3 Business analysis BPP 2008
Research questions
Firstly I did some background research about the project and got the
information about the options on which I can prepare my project. For
this first of all I arranged a meeting with my mentor who helped me a
4
lot in deciding me the topic. After selecting the topic I figured out the
industry and the company I will use in my project.
Then I selected the tools that I used during analysis. They include both
financial and non-financial. I used ratio analysis for the financial
analysis and SWOT and Porters five forces as non-financial tools. I
gathered information about a competitor so that the analysis can be
comparable.
5
2. INFORMATION GATHERING
2.1 Sources of information - Primary and secondary
6
archive to refer the back issues of student accountant
magazine. Other business and accountancy related books
were also used for this purpose.
Interviews
Books and newspapers and other literary sources
Internet
One of main issues was the meeting with the required person. The
issue of non-availability of the personnel wasted a lot of my time.
Another issue was that while interviewing, company managers were
very reluctant to provide the information. At times the personnel used
to window dress the companys positions so I was very conscious about
sorting out true picture of company. Permission of senior manager to
fill the questionnaires was also an issue.
7
2.5 Accounting/Business techniques used and their
limitations
Ratio analysis
A tool used by individuals to conduct a quantitative analysis of
information in a companys financial statements. Ratios are calculated
for current year numbers and are then compared to previous years,
other companies, the industry or even the economy to judge the
performance of the company. Ratio analysis is predominantly used bye
proponents of fundamental analysis. (www.investopedia.com)
Limitations of ratios
Most ratios by them selves are not highly meaningful. They
should be viewed as indicators, with several of them combined to
paint a picture of the firms situation. (www.netmba.com)
Ratios dont capture significant off-balance sheet items
(www.financialmodelingguide.com)
The difference of accounting policies used different companies
can distort the inter company comparison.
Ratios are not definitive measure and must be used carefully.
They can just provide clues about position of the company.
Ratios don't always tell about changes that are coming - looking
at historical data does not predict the future. (www.college-
cram.com)
Many large firms operate different divisions in different
industries. For these companies it is difficult to find a meaningful
set of industry-average ratios. (www.investopedia.com)
8
In the economic sense, the model assumes a classic perfect
market. The more an industry is regulated, the less meaningful
insights the model can deliver.
The model is best applicable for analysis of simple market
structures. A comprehensive description and analysis of all five
forces gets very difficult in complex industries with multiple
interrelations, product groups, byproducts and segments. A too
narrow focus on particular segments of such industries, however,
bears the risk of missing important elements.(FTC, 2008)
SWOT analysis
SWOT analysis can be used to gauge the degree of fit between the
organizations strategies and its environment, and to suggest ways in
which the organization can profit from strengths and opportunities and
shield itself against weaknesses and threats. (Adams, 2005)
9
3. ANALYSIS, RESULTS AND CONCLUSIONS
3.1 Overview of the economy
The year 2008-2009 was a difficult year for global economies as well as
Pakistan. The worst-ever global financial crisis has had extremely
serious repercussions for both developed and developing economies all
over the Globe. This fall out created serious credit crunch through out
the world as all the global financial markets are closely interlinked. In
the emerging markets like Pakistan the financial melt down resulted in
flight of capital and corresponding steep fall in the local currency
against US$. Pakistans economy is not only affected due to this global
meltdown but also due to the countrys active involvement in war on
terror and therefore registered GDP growth of only 2%. (The Dawn,
2009)
10
exports after a huge increase of 47% in exports during FY09. (Daily
Times, 2009)
PROFITABILITY ANALYSIS
SALES ANALYSIS
11
of increase in volume was as a result of exports to other countries that
provided better retention as compared to the domestic market. The
cement selling prices increased significantly in the domestic market as
a result of cartelization between cement manufacturers during FY09.
(Irfan Malik, 2008)
N ET SALES
9000
8000
7000
6000
MILLION
5000
4000
3000
2000
1000
0
2005 2006 2007 2008 2009
YEAR
The local currency rupee was highly depreciated against other major
currencies that contributed substantially towards the rise in net
retention as a consequence of exports. The domestic sales volume of
ACPL reduced by 1% because of lower demand owing to less
construction activities in the country. (Daily Times, 2009)
On the other hand, the export sales of ACPL increased by 412% and it
contributed 27% of total sales volume compared to 7% in FY08. The
domestic sales percentage was 73% of total volume in comparison
with 93% in FY08 that was a good sign as international prices are
higher as compared to local cement prices.
12
BWCL also showed a remarkable growth in sales during FY09 even
more than its rival company due to increased quantity sold and higher
percentage growth was attributable to incredible increase in cement
prices both at local and international level as BWCL also exports
cement to other countries.
The gross profit ratio of ACPL declined by 34.69% from 34.10% in FY07
to 22.27% during FY08. The main reason behind the drop in margin
despite the growth in sales revenue was the higher cost of goods sold
mainly as a result of increased fuel costs in the year that increased by
57.68% during FY08 compared to FY07, as the international prices of
coal were on a peak. (Monem Farooqi, 2008)
The gross margin of BWCL was more or less same in FY09 as compared
to ACPL again due to higher selling prices despite escalating fuel and
energy costs.
NET MARGIN
13
PROFIT BEFORE TAX
2009
2008
YEAR
2007
2006
2005
The net margin of BWCL was lower than ACPL due to higher finance
costs as a result of short-term borrowings to meet the working capital
requirements in FY08.
ROCE
14
result of higher profits earned during FY09, though the equity of the
company also increased due to retained profits in the year.
The ROCE of BWCL was also lesser than ACPL during FY09 primarily
because BWCL issued shares during the year for cash which led to
increase in equity.
LIQUIDITY ANALYSIS
CURRENT RATIO
The liquidity ratio of ACPL is quite good at 2.43 even above than ideal
level of 2:1. The reason behind such positive results was incredible
increase in current assets by 86% during FY09 on account of huge
short-term investments made by the company. ACPL had capitalized
on high interest rates and have earned in short-term, getting both
profits and liquidity. This was a good strategy of a company as
currently money market is the safest investment with such high
interest rates. ACPL invested Rs.100million in a certificate of
investment that would offer 13.35% on maturity in FY09. Likewise
ACPL also invested Rs.206 million in income funds, which allowed them
to let their income grow along with receiving of periodic cash flows.
The current liabilities also showed a nominal growth of 15% on account
of increase in accrued liabilities compared to FY08.
15
CU RRENT ASSETS
3000
2762
2500
2000
MILLION
1500 1480
1285
1000
837
500 575
0
2005 2006 2007 2008 2009
YEAR
QUICK RATIO
The quick ratio during FY09 was 1.36 which improved from 0.45 in
FY08. The illiquid assets like stock-in-trade and stores, spares and
loose tools comprised 43% of the total current assets near to its half,
but the cash and bank balances along with the other short-term
investments made the quick ratio constructive as compared to the last
year.
16
Debtor collection days 2days 3days 2days 14days
Creditor payment days 24days 40days 18days 11days
Inventory holding days 33days 38days 38days 26days
17
DEBT TO CAPITAL STRUCTURE
Debt to capital ratio 22:78 18:82 11:89 58:42
12.65tim 5.41time 17.71tim 1.52time
Interest cover
es s es s
DEBT-TO-CAPITAL RATIO
ACPL financed its activities through both equity and debts sources as
depicted from its long-term debt-to-equity ratio. But the debt portion
constituted a little amount in total capital of the company. The
company retained much of its profits earned during FY09 that boosted
its overall equity, though its share capital remained the same. The
company acquired long-term loans for the capacity expansion project
in FY06 and now repaying its debts over the years. So the
disbursement of long-term loans and significant increase in equity
during the period reduced its reliance on debt and the ratio decreased
to 11:89 as compared to FY08.
INTEREST COVER
VALUATION ANALYSIS
18
ACPL ACPL ACPL BWCL
FY07 FY08 FY09 FY09
VALUATION ANALYSIS
Earnings per share Rs.11.04 Rs.6.03 Rs.20.69 Rs.3.17
Dividend per share Rs.4.50 Rs.1.50 Rs.3.25 0
Rs.118.2 Rs.69.25 Rs.70.36 Rs.28.00
Share value
5
10.71tim 11.48tim 3.40time 8.83time
Price to earnings
es es s s
Dividend yield 3.80% 2.17% 4.61% 0
The dividend per share was Rs.4.50 in FY07 that reduced to Rs.1.50 in
FY08 due to lower profitability owing to lower margins but just to
satisfy the shareholders company provided the dividends when the
local cement industry was in a difficult phase due to lower domestic
demand with oversupply and lower prices resulted in poor liquidity
position and losses incurred. BWCL had not provided any dividends in
FY09.
SHARE VALUE
19
almost all sectors; similarly the market vale of ACPLs share was also
constant despite the increase in earnings during FY09. However, during
FY08 the share price fell drastically to Rs.69.25 from Rs.118.25 during
FY07. The share price of BWCL was mush lesser than ACPL.
The price earning ratio of the company has been very volatile with the
changes in market value and does not depict a true picture regarding
the investor confidence on the company.
DIVIDEND YIELD
8% 1%
7%
Cost of sales
Operating expenses
17% Retained profit
Corporate taxes
67%
Financial charges
THREAT OF SUBSTITUTE
20
power of the suppliers of power and fuel is low as they cannot exert
too much pressure upon ACPL because it uses coal as an alternate
resource of fuel. As coal is traded in an open market so its suppliers
have a low bargaining power they have to sell according to
international prices.
The barriers of entry in the cement industry are high because there are
27 listed companies at stock exchange that are already engaged and
have developed a strong brand loyalty and well-established distribution
networks. The cement industry has benefited a lot by shifting towards
dry process, installation of electrostatic precipitators and pre-heaters,
automation of processes and installation of online analyzer which has
resulted in environmentally better and energy-efficient industry on the
other hand high capital is required to enter in such situation.
STRENGHTS
21
It is one of the most cost efficient companies in the industry.
Cost efficiencies due to fuel-efficient plants and economies of
scale are the major reasons for this trend.
The company holds a strong position in the northern region,
which caters to 80% of the total demand.
The sound market reputation of the company
ACL claims pioneer status in bringing the pre-calcinations/pre-heating
dry process technology to Pakistan
Decreasing level of debt every year
Maximum returns to shareholders (www.kse.com.pk)
ACPL has managed to develop brand loyalty among its
customers
Superior quality (Saad Hassan, 2010)
Management quality remains its core strength
WEAKNESSES
OPPORTUNITIES
THREATS
22
Severe energy shortages (Hussain, 2010)
The declining GDP and volatile economic situation may restrict
the construction activities and may hit the demand for cement.
(Jang, 2009)
Though the Government has announced a very ambitious PSDP
but because of poor law and order situation and the current
financial constraints of the government, the spending may not be
materialized to its fullest extent. (Arif Ahmad, 2009)
Higher coal prices
Depreciation of Pakistani Rupee against dollar
THE INDUSTRY
The marginal growth in cement industry during FY09 was achieved due
to higher exports. The local demand registered negative growth of 14%
due to less construction activities, however, the cement prices both at
local and international level increased during the year.
PROFITABILITY ANALYSIS
23
LIQUIDITY ANALYSIS
DEBT-TO-CAPITAL STRUCTURE
VALUATION ANALYSIS
SWOT ANALYSIS
SUGGESTIONS
24
The company is performing well for the financial point of view. ACPLs
distribution channels are also effective, but it should pay great
attention towards the transportation and loading side for exporting
cement and also take some steps to reduce its costs so that better
margins can be achieved. The cement industry is in a dire need of
government support in the development of local coal mines and
thereby reduces the dependence on imported coal.
25
APPENDIX A: REFERENCING AND
BIBLIOGRAPHY
Anon. (n.d.) Project objectives, [Online]
http://www.mariosalexandrou.com/definition/project-
objective.asp
Anon. (n.d.) Profitability ratios, [Online]
http://kbr.dnb.com/help/Ratios/Profitability_Ratios.htm
Lester E. Heitger, Serge Matulich. (1987) Managerial Accounting,
2nd Edition, McGraw Hill.
BPP (2008) P3 Business analysis, ACCA syllabus UK: BPP
publications.
Shane Johnson (06 Jun 2005), How not to rap, Student
Accountant, ACCA publications, UK
Anon. (n.d.) Primary sources, [Online]
http://www.graphic.org/resources.html
Anon. (n.d.) Ratios, [Online]
http://www.investopedia.com/terms/r/ratioanalysis.asp
Anon. (n.d.) Limitations of ratios, [Online]
http://www.netmba.com/finance/financial/ratios/
Anon. (n.d.) Limitations of ratios, [Online]
http://www.financialmodelingguide.com/financial-ratios/financial-
ratio-limitations
Anon. (n.d.) Limitations of ratios, [Online] http://www.college-
cram.com/study/help/weblog/ratio-analysis-concept-and-
limitations
Anon. (n.d.) Limitations of ratios, [Online]
http://www.investopedia.com/exam-guide/cfa-level-1/financial-
ratios/uses-limitations-ratios.asp
Michael E. Porter (1980), How Competition Forces Shape
Strategy, Harvard Business Review, SepOct 1980, USA
FTC (2008) P3 Business analysis, ACCA syllabus UK: Kaplan
publications.
Adams, J. (2005), Analyze Your Company Using SWOTs, Supply
House Times, Vol. 48 Issue 7, pg. 26-28.
Anthony Henry. (2008) Understanding Strategic Management,
pg. 120, Oxford University Press, New York, USA.
The Dawn (2009) Business: Pakistans economic growth weak,
The Dawn, Monday, 10th August, Karachi.
Staff reporter (2009) Business news: brief recordings, Business
Recorder, 09the June, Karachi.
ACPL (2009) Company products, [online]
http://www.attockcement.com/
26
Daily Times (2009) Pakistan ranked 5th in cement exports,
surpasses Germany, Daily Times, 01st August, Karachi.
All Pakistan Cement Manufacturers Association (2009) Cement
industry, [online]
http://www.apcma.com/pages/data_monthly.html
Muhammad Rehan Khan (2009) Analyst report: Cement industry
of Pakistan, First Capital Equities Limited, 11th July Karachi.
Irfan Malik. (2008) Cartel increases cement prices, The Nation,
22nd November, Lahore.
Daily Times (2009) Local cement demand fell 13 percent in
FY09, Daily Times, 11th July, 2009, Karachi.
Monem Farooqi. (2008) Cement sector to face rising costs,
slowdown in demand in FY09, The Nation, 10th July, Lahore.
KSE (2009) Strengths, [online] http://www.kse.com.pk/listing-
companies/docs/comp_annual_rep/2009
Saad Hassan (2010) Business news: Attock cement, The News
International, 31st March, Karachi.
Ijaz Kakakhel (10th Jan 2010) Business: Government projects
Rs.300billion PSDP utilisation for FY 2009-10. Sunday Daily
Times.
Babar Farooq. (2010) Analyst report: Domestic cement demand
will grow IGI Securities.
Wasi Mehdi. (2010) Analyst report: ACPL eyeing Al Abbas, Invisor
Securities, 31st March.
Global cement (2009) High cement demand in Iraq and
Afghanistan, Global Cement magazine for the month of March,
2009.
Hussain Ahmed Siddiqui (May 03 2010) Business magazine
Economic and Business Review. Karachi.
Jang (2010) Trading news: stock market pressure and
investment declined. The daily Jang Lahore. 21st April.
Arif Ahmad (2009) Analyst report: PSDP in 2009-2010 budget,
Guardian Securities Pvt Limited, 11th August, Lahore.
Annual reports of Attock cement Pakistan Limited for the year
ending June 2007, 2008 and 2009.
Annual report of Bestway Cement Company Limited (Competitor
Company) for the year ending June 2009.
Andrew E. Schwartz (24th March, 2010) Ready set present, A.E.
Schwartz & Associates of Boston [online]
http://www.readysetpresent.com/products/articles/managingmee
tings.htm
Anon. (n.d.) Research questions,
http://geography.uoregon.edu/amarcus/geog620/Readings/hando
ut-researech.pdf
27
Anon. (17th August 2009) Interpersonal skills, [online]
http://www.cba.uni.edu/buscomm/Interpersonal/interpers.html
www.google.com.pk
http://www.accaglobal.com/students/bsc/rap/
28
APPENDIX B: QUESTIONNAIRE
1. Please provide a brief introduction of ACPL?
2. Name the products of company it manufactures?
3. What is the brand name of the company?
4. What are the reasons of lower demand in the country?
5. What are the future expectation regarding local cement
demand?
6. What are the future plans of ACPL?
7. Please provide production and sales figures of ACPL (in
Tons) for last five years?
RESPONSE
3. It markets its cement under the brand name of 'Falcon Cement.' The
company focuses on meeting the Pakistan and international quality
standards and in 2002 it achieved the ISO 9001: 2000 certification.
A visible slowdown has been observed in the local demand.
4. The main reasons behind this slowdown were the poor law and
order situation and political turmoil in the country. Another
significant reason for this slowdown is increase in overall
construction cost due to higher inflation and interest rates.
29
markets, in terms of prices, would remain sensitive because of stiff
competition from regional capacities. Given cement status as
commodity in the regional countries, it can be assumed that any
struggle for market share will have to be conducted in term of
prices.
7.
2009 2008 2007 2006 2005
Cement production 1,712,6 1,364,5 1,234,878 842,296 728,487
(Tons) 65 11
Cement sales (Tons) 1,719,1 1,359,4 1,228,793 843,137 730,704
62 87
30
APPENDIX C: RATIOS
31
APPENDIX D GRAPHS
DISTRIBUTION OF TOTAL REVENUE
8% 1%
7%
Cost of sales
Operating expenses
17% Retained profit
Corporate taxes
Financial charges
67%
NET SALES
9000
8000
7000
6000
MILLION
5000
4000
3000
2000
1000
0
2005 2006 2007 2008 2009
YEAR
2009
2008
YEAR
2007
2006
2005
CURRENT ASSETS
3000
2762
2500
2000
MILLION
1500 1480
1285
1000
837
500 575
0
2005 2006 2007 2008 2009
YEAR
32
APPENDIX E: FINANCIAL STATEMENTS
Balance Sheet
As at June 30,
33
NON CURRENT ASSETS
4,14 4,333 4,44
Fixed assets 3,534 ,363 3,222
4 4, 4
Long term investment ,500 500 ,500
19 9, 9
Long term loans and advances ,438 775 ,912
42 42 42
Long term deposits ,980 ,980 ,980
4,21 4,390 4,50
0,452 ,618 0,614
CURRENT ASSETS
34
Profit and Loss Account
For the year ended June 30,
2009 2008 2007
(Rupees
'000')
8,510, 5,001, 4,560,
Net Sales 071 350 402
35
Net Sales 8510071 5001350 4560402
Administrative
expenses 182420 133582 110701
Other operating
expenses 147402 54841 88465
Other operating
income 166533 27840 23299
36