Professional Documents
Culture Documents
Ratio Analysis
DGK Cement
SUBMITTED TO
SIR. TANVIR YASIN
SUBMITTED BY
RIZWAN AHMAD BC15238
AWAIS BC15255
JALEES MUSHTAQ BC15220
NOMAN AHMAD BC15232
HAMZA IQBAL BC15252
D.G. Khan Cement Company Ltd
Acknowledgment
Am extremely thankful to Allah Almighty who has
enabled us to complete this report on time and in the
manner it was required. He provided menthe resources to
capture the knowledge and avail the opportunities in the
world. It is also a matter of immense pleasure for me to
express my gratitude to my Teacher Sir. Tanvir Yasin
who has been a source of real inspiration for us. His
experiences formed an important part in this report. His
guidance and encouragement provided us a mean to step
ahead towards my objective in a proper way. I also wish
to acknowledge the support of all my friends, who helped
in completing this report. Without their support and
cooperation it was not possible for me to complete this
report.
D.G. Khan Cement Company Ltd
Table of Contents
Introduction ............................................................................................................................................ 1
Financial statements ............................................................................................................................... 3
Liquidity Ratio ......................................................................................................................................... 6
Current Ratio ....................................................................................................................................... 6
Liquid/Quick/Acid test ratio ................................................................................................................ 6
Absolute liquid ratio............................................................................................................................ 7
Activity Ratio OR Efficiency Ratio............................................................................................................ 8
Inventory turnover ratio ..................................................................................................................... 8
Creditor turnover ratio ....................................................................................................................... 9
Debtor Turnover Ratio ........................................................................................................................ 9
Debtor Turnover Ratio ...................................................................................................................... 10
Working Capital Turnover Ratio........................................................................................................ 10
Total asset turnover ratio ................................................................................................................. 11
Profitability Ratios................................................................................................................................. 11
GP Ratio............................................................................................................................................. 11
Operating Profit Ratio ....................................................................................................................... 12
Net Profit Ratio ................................................................................................................................. 12
Operating ratio.................................................................................................................................. 13
Solvency Ratio ....................................................................................................................................... 13
Debt To equity Ratio ......................................................................................................................... 13
Debt Ratio ......................................................................................................................................... 14
Interest Coverage Ratio .................................................................................................................... 15
Proprietary Ratio ............................................................................................................................... 15
Return on investment ratios ................................................................................................................. 16
EPS (Earning per share) ratio ............................................................................................................ 16
Earnings Ratio ................................................................................................................................... 16
Capital employed ratio...................................................................................................................... 17
Return on shareholder fund ............................................................................................................. 18
Conclusion ............................................................................................................................................. 18
D.G. Khan Cement Company Ltd
Introduction
VISION STATEMENT
To transform the Company into a modern and dynamic cement manufacturing company with
qualified professionals and fully equipped to play a meaningful role on sustainable basis in
the economy of Pakistan.
MISSION STATEMENT
To provide quality products to customers and explore new markets to promote/expand sales of
the Company through good governance and foster a sound and dynamic team, so as to achieve
optimum prices of products of the Company for sustainable and equitable growth and
prosperity of the Company.
Establishment
DGKhan Cement Company Limited (DGKCC) was established under the management
control of State Cement Corporation of Pakistan Limited (SCCP) in 1978 as private limited
company. DGKCC started its commercial production in April 1986 with 2000 tons per day
(TPD) clinker based on dry process technology.
Acquisition by Nishat
Nishat acquired DGKCC in 1992 under the privatization initiative of the government. After
privatization the company was listed on Stock Exchanges in September 1992.
The Company is principally engaged in the manufacturing and sale of Cement. The Company
is member of All Pakistan Cement Manufacturers Association (APCMA) and Lahore Chamber
of Commerce and Industry (LCCI).
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D.G. Khan Cement Company Ltd
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D.G. Khan Cement Company Ltd
Financial statements
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D.G. Khan Cement Company Ltd
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D.G. Khan Cement Company Ltd
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D.G. Khan Cement Company Ltd
Liquidity Ratio
These ratios measure the capacity of the business to pay its short term debts.
Current ratio
Liquid ratio
Absolute liquid ratio
Current Ratio
Current ratio, also known as liquidity ratio and working capital ratio, shows the proportion
of current assets of a business in relation to its current liabilities.
current asset
Current ratio = current liability
31426342
Current ratio 2015 = 6583476
= 4.77:1
30835521
Current ratio 2016 = 10056634
= 3.07:1
In 2015 its currents ratio is 4.77 and in 2016 it decrease to 3.07. It means company is still in good
position to pay its current liability from its current assets. Because general benchmark 2:1.
30835521 – 766633
Quick ratio 2016 = 10056634
= 2.9
According to definition, Acid Test Ratio Company should have ability to pay its short term debts
from liquid asset. In 2015 quick ratio is 4.6 and in 2016 it decrease to 2.9. But company is still in
good position to pay short term debts from liquid assets. Because general benchmark is 1:1.
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D.G. Khan Cement Company Ltd
= 0.04:1
In 2016
7009844
Absolute liquid ratio = 10056634
= 0.7
In both years company is in position to pay its current liabilities from absolute liquid assets. General
benchmark is 0.5:1
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D.G. Khan Cement Company Ltd
1348742 + 1188376
Avg.Stock = 2
= 1268559
16649411
Inventory turnover ratio = 1268559
= 13 times
365
Inventory conversion period =
13
= 28 days
In 2016
1188376 + 766633
Avg.Stock =
2
= 977505
365
Inventory conversion period = 17.4
= 21 days
In 2015 company sold its avg.stock 13 times and in 2016 company sold its avg.stock 17.4 times.
DGK took 28 days in 2015 and 21 days in 2016 to sold its stock.
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D.G. Khan Cement Company Ltd
16489045
Creditor turnover ratio = 4018079
= 4 times
365
Creditor conversion period = 4
= 91 days
In 2016
16613823
Creditor turnover ratio = 4707209.5
= 3.5 times
365
Creditor conversion period =
3.5
= 104 days
Company can pays off its creditors 4 times in 2015 and 3.5 times in 2016. We can conclude
that
DGK paid its trade creditors after an average period of 97.5 days from its credit purchases
365
Receivable conversion period = 32.43
= 11 days
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D.G. Khan Cement Company Ltd
In 2016
29703558
Receivable turnover ratio = 795465
= 37.3 times
365
Receivable conversion period = 37.3
= 10 days
DGK receives its average debtors 32.43 times in 2015 and 37.3 times in 2016. It took DGK an
average of 10.5 days to collect revenue receipts from its trade debtors.
CGS
Working capital turnover ratio = AVG.working capital
In 2015
In 2016
24842866 + 20778887
Average working capital = 2
= 22810877
17035566
Working capital turnover ratio =
22810877
= 0.74 times.
It means each 1 PRs invested in working capital has contributed only .74 in 2016 and .67 in
2015 towards total sales revenue. Working capital turnover ratio of the company is below 1 in
both years. It indicates that company is not using efficiently its working capital.
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D.G. Khan Cement Company Ltd
sale
Total asset turnover ratio = total asset
In 2015
26104611
Total asset turnover ratio =
74391443
= 0.35
In 2016
29703758
Total asset turnover ratio = 83418265
= 0.35
Results indicates that 1PRs invested in fixed asset give .35 towards the total sales revenue. In
both years ratio is blow 1 which shows that company is not efficiently deploying its assets in
generating revenues.
Profitability Ratios
These ratios measure the ability of a business to generate earnings compare to its expenses and
other relevant costs incurred during a specific period of time.
GP Ratio
GP Ratio is profitability ratio that shows the relationship between gross profit and total net
sales. It evaluate the operational performance of the business. Generally, a higher ratio is
considered better.
GP
GP ratio = net sales x 100
In 2015
9455200
GP ratio = 26104611 x 100
= 36.22%
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D.G. Khan Cement Company Ltd
GP Ratio
In 2016
12668192
GP ratio = 29703758 x 100
= 42.46%
This means DGK earns 36.22% in 2015 and 42.465 in 2016 on the one hundred in gross margin.
operating profit
Operating profit ratio = x 100
net sales
In 2015
7508346
Operating profit ratio = x 100
26104611
= 28.76%
In 2016
10232142
Operating profit ratio = x 100
29703758
= 34.44%
OP Margin of 28.76% and 34.44% means that every 100 PRs of sale earns a profit of 28.76% in 2015
and 34.44% in 2016 for the business before taking into account taxation, interest expense and other
income.
=29.21%
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D.G. Khan Cement Company Ltd
Operating ratio
Operating ratio (also known as operating cost ratio or operating expense ratio) is computed by dividing
operating expenses of a particular period by net sales made during that period. Like expense ratio, it is
expressed in percentage. Less the ratio more favorable for the business.
CGS + operating expenses
Operating ratio = net sale x 100
In 2015
16649411+1946854
Operating ratio = 26104611 x 100
= 71.23%
In 2016
17035566+2436050
Operating ratio = x 100
29703758
= 65.6%
The operating ratio is 71% and 65.6% it means 71% and 65.6% of the sales revenue would be used to
cover cost of goods sold and operating expenses of DGK cement in both years respectively
Solvency Ratio
Purpose of this ratio is to measure the long term debt paying capacity of a company.
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D.G. Khan Cement Company Ltd
= 0.09
In 2016
7578202
Debt to equity ratio = 65783429
= 0.12
The debt to equity ratio of DGK Company is .12 and .09. It means the liabilities are 12% and 9% of
stockholders equity or we can say that the creditors provide only 12 and 9 PRs for each 100 PRs
provided by stockholders to finance the assets
Debt Ratio
It can be interpreted as portion of company’s assets that are finance by debt.
total debt
Debt ratio =
total asset
In 2015
Debt ratio = 12095372/74391443
= 0.16
In 2016
17634836
Debt ratio = 83418267
= 0.21
This is a relatively low ratio and implies that DGK will be able to pay back his loan. DGK shouldn’t
have a problem getting approved for loan.
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D.G. Khan Cement Company Ltd
= 34.9 times
In 2016
12611195
Interest coverage ratio = 130451
= 96.6 times
Interest coverage ratio of DGK Company is 96.6 times. It means that the interest expenses of the
company are 96.6 times covered by its net operating income (income before interest and tax).
Proprietary Ratio
The proprietary ratio (also known as net worth ratio or equity ratio) is used to evaluate the soundness
of the capital structure of a company. It is computed by dividing the stockholders’ equity by total assets.
equity
Proprietary ratio = total assets x 100
In 2015
62296071
Proprietary ratio = 74391443 x 100
= 83 %
In 2016
65783429
Proprietary ratio = 83418265 x 100
= 79%
The proprietary ratio is 79%. It means stockholders’ has contributed 79% of the total tangible assets.
The remaining 21% have been contributed by creditors.
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D.G. Khan Cement Company Ltd
= 17.40
In 2016
8789672
EPS = 438119
= 20.06
The EPS ratio is 20.06 PRs It means every share of the common stock earns 20.06 PRs of net income
Earnings Ratio
Price earnings ratios (P/E ratio) measures how many times the earnings per share (EPS) has
been covered by current market price of an ordinary share. It is computed by dividing the
current market price of an ordinary share by earnings per share.
market price per share
Earnings ratio =
earning per share
In 2015
Earnings ratio = 144.7/17.40
= 8.3
In 2016
215.08
Earnings ratio = 20.06
= 10.72
The price earnings ratio of the company is 10. 72It means the earnings per share of the company is
covered 10.72 times by the market price of its share. In other words, PRs1 of earnings has a market
value of PRs10.
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D.G. Khan Cement Company Ltd
Capital employed = current asset – current liability + fixed asset – non operating asset
In 2015
Capital employed = 31426342 – 6583476 + 42965101 – 12918182 – 24855796
= 30033989
In 2016
Capital employed = 30835521 – 10056634 + 52582744 – 17819005 – 57938
= 55484688
In 2015
9828681
Capital employed ratio = x 100
30033989
= 32.73%
In 2016
12611195
Capital employed ratio = x 100
55484688
= 22.72%
DGK has a return of 22.72. In other words, every PRs100 invested in employed capital, DGK earns
PRs 22.72.
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D.G. Khan Cement Company Ltd
In 2015
7624680
Return on shareholder = 62296071 x 100
= 12.24%
In 2016
8789672
Return on shareholder = x 100
65783429
= 13.36%
The return on shareholders’ fund or return on equity (ROE) ratio of DGK limited is 13.36%. It means
for every PRs100 invested by shareholders’, the company earns PRs13.36 after interest and tax.
Conclusion
▪ After applying all the ratios we got an idea that the DGK cement Company is a profitable
firm. Because throughout the analysis of two years, we found that the company is getting
profitable return on short term and long term investment, their profit margin has been
increased as well and they are in the position to pay their debts with in their resources.
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