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LETTER OF TRANSMITTAL
Dec 22, 2008

Ms. Zeb Un Nisa

Course Instructor, Financial Management
City University
Peshawar.

Madam:
We herewith present our “Major Assignment” authorized by
you as a requirement for this course. In this report, we have
tried to provide analysis of financial statements of Cherat
Cement Ltd.
We hope we have covered all that was required for the report.
If there be any clarification demanded, we would appreciate a
call from you to our group members.

Sincerely,
Muhammad Mustafa Muqaddis
Sikandar Hayat
Wajid Sultan
Mohammad Ishtiaq
Faheem Ullah khan
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ACKNOWLEDGEMENT
In the name of “Allah”, the most beneficent and
merciful who gave us strength and knowledge to
complete this report. This report is a part of our course
“Financial Management”. This has proved to be a great
experience. This report is a combine effort of
Muhammad Mustafa Muqaddis, Sikandar Hayat,
Mohammad Ishtiaq, Faheem Ullah Khan, Wajid Sultan.

We would like to express our gratitude to Ms. Zeb Un

Nisa; who gave us this opportunity to fulfill this report.
We would also like to thank our colleagues who
participated in a focus group session. They gave us
many helpful comments which helped us a lot in
preparing our report.
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Cherat Cement Company

Limited Vision & Mission
Statement

Vision
Growth through the best value creation for the
benefit of all stakeholders.

Mission
Invest in projects that will optimize the risk-
return profile of the Company. Achieve
excellence in business. Maintain competitiveness
by leveraging technology. Continuously develop
our human resource. To be regarded by investors
as amongst the best blue-chip stocks in the
country.
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History
A premier name in the field of cement manufacturing, was
incorporated in 1981 and is listed on the Karachi, Lahore and
Islamabad stock exchanges. The plant is located about 52
kilometers from Peshawar (NWFP) near Nowshera. The factory
is built on land bordering the Cherat Hills, the factory's source
of high quality limestone. It is estimated that the limestone
reserves are in excess of 400 million tons with more than
sufficient quantity of slate.

Cherat Cement is manufacturing high quality grey portland

cement on the most modem and computerized production
facilities. It is equipped with the most updated production and
quality control systems.
Cherat Cement is one of the largest producers and suppliers of
cement in the province of NWFP. The production capacity of
Cherat Cement is 2500 tons/ day.

The shareholders' equity of the company as at June 30, 2002

was Rs. 916 million and it has total assets of Rs.1,631 million,
with turnover exceeding Rs.1,422 million.
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STATEMENT OF ETHICS & BUSINESS

PRACTICES
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 sold
of cement production to produce 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 US.

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 requirement
and are priced appropriately. Before taking decision about procurement
of any good or service, obtain quotations from various sources.

Conflict of Interest
All the ads and decisions of the management 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.

Environmental Protection
To protect the 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 produce and supply cement with care and
competence, so that customers receive the quality they truly deserve.
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RATIO ANALYSIS
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
Internal uses
· Planning
· Evaluation of management
External uses
· Credit granting
· Performance monitoring
· Investment decisions
· Making of policies

CATEGORIES OF FINANCIAL RATIOS

The accounting ratios can be grouped in to six categories:
1. Liquidity Ratios shows the extent to which the firm can meet its
financial obligations.
2. Asset Management Ratios shows how effectively the firm manages its
assets.
3. Debt Management Ratios examine the degree to which a firm uses
debt financing or
financial leverages.
4. Profitability Ratios relates profits to sales and assets.
5. Market Value Measures are a measure of the return on investment.
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Liquidity ratio

A full 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

1. Current ratio = Current assets

Current liabilities
2004 913,913,000 = 2.47
3.5
369,844,000
3
2005 1,384,495,000 =3.07 2004
2.5
2005
449,823,000 2
2006
2006 1,267,950,000 1.5
=2.45 2007
1
516,444,000 0.5
2008

2007 1,240,430,000 =2.28

0
2004 2005 2006 2007 2008
524,025,000
2008 1,719,948,000 =1.07
1,597,703,000

Analysis:
The current ratio shows how a firm is able to cover its current liabilities
with its current assets it shows the liquidity of the company.
The ratio signifies variant pattern with rising and falling observations.
The ratio shows that Cherat Cement has managed to create a good
combination of the current assets and liabilities making it financially
sound and liquid enough to cover its liabilities.
There is however a substantial fall in the year 2008 as compare to the
industry average. This phenomenon may be attributed to the large sum
of short term running finance taken to feed its growing operational costs
during the year
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Quick Ratio

2. Quick ratio = current assets – inventories

current liabilities

2004 913913000 -79931000 = 2.25

369844000 3.5
2005 1384495000 - 88498000 3=2.88
2004
449823000 2.5
2005
2
2006 1267950000-145227000 = 2.17 2006
1.5
516444000 2007
1
2008
2007 1240430000-117288000 0.5 = 2.07
0
542025000 2004 2005 2006 2007 2008
2008 1719948000-207491000 = 0.94
159703000
Analysis:
The acid test ratio shows how a firm is able to cover its current
liabilities with the most liquid of its assets excluding the inventories
which are not so easily converted into cash. As it can be seen from the
ratios that although the ratios have have been a little higher than normal
which is favorable but a major decline is visible in 2008 where the ratio is
a lot less than normal
This can be due to the fact that current liabilities have risen but
the severity can also be attributed to the high levels of inventory held by
the enterprise.
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Financial leverage (debt) ratio

Shows the extent to which the firm is financed by debt.
1. Debt to equity ratio = total debts
Shareholder’s equity

2004 379,810,000 =0.74

531,942,000 1.6
2005 1,010,506,000 =1.51
1.4
1.2 2004
664,905,000 1 2005
2006 982,519000 =1.180.8 2006
0.6 2007
831,131,000 0.4
2008
2007 754,733,000 0.2
= 0.78
0
955,801,000 2004 2005 2006 2007 2008
2008 626,464,000 =0.65
905801000
Analysis:
The magnitude of debt contributed in the financing of the firm is
shown by debt to equity ratio. The computation of this ratio brings to life
the fact that Cherat cement has not been able to feed its financing
through equity as its ratios are considerable higher than the favorable “
1 or less”. The initial year shows that there was less dependency of debt
but there has been a visible increase in the ratio ever since, the last year
shows a phenomenal increase and highly unfavorable. The firm must by
all means try and reduce its portions as the dependency on debt causes
the firm to lose its control and will over the organization as it is then
driven to feed the debt.
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TOTAL CAPITALIZATION RATIO

2. Long term debt to total capitalization = long-term debt

Total capitalization
2004 1498963000 = 0.48
3095445000
2005 1460329000 = 0.53
1
2004
27529770000.8
2005
2006 1498963000 = 0.48
0.6 2006
3095445000 0.4 2007

2007 1296758000 = 0.2

0.43 2008

29913525 0
2008 2224167000 = 0.79
2004 2005 2006 2007 2008

2784570000
Analysis
The total debt to capitalization ratio show the proportion of the
debt to the amount of funds available to enterprise in order to undertake
long term business. The lower this proportion the better it is. As less
funds would be mature for payment in short run and funds can suitably
be capitalized.
Cherat cement exhibits a downward overall trend with the ratio
raising high in 2008 due to the large amount of short term financing
undertaken.
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3. Debt to total assets ratio = Total debts

Total assets

2004 749654000 =0.34

2182072000
0.6
2005 1460329000 =0.45
0.5
2004
3202800000 0.4 2005
2006 1498963000 =0.41
0.3 2006
3611889000 0.2 2007
0.1 2008
2007 1296758000 =0.36
0
3533350000
2004 2005 2006 2007 2008
2008 2224167000 =0.50
4382273s000

Analysis
Total debt to asset ratio gives us an estimate of total amount of
debt that is being used in asset or the proportion of an asset that can be
used to feed the debt. Cherat cement is in a favorable state in this regard
as its debt is covered by a larger base of asset although it does not
match the cement industry median of 0.30. it is none the less in a
respectable state but the situation may get worse if it keeps on funding it
self on debt. This phenomenon can be seen from the 2008 ratio where it
shows a tendency to grow unless the proportion is curtailed.
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Coverage ratio
1.Interest coverage ratio = earning before interest and taxes
( EBIT )
Interest expenses

2004 592,781,000 =30.96

19,113,000 300
2005 718,037,000 =21.10
250 2003
34,030,000 200 2004
2006 799,111,000 =9.94
150 2005
100 2006
80,364,000
50 2007
2006 322,558,000 =4.27
0
75,531,000 2003 2004 2005 2006 2007
2007 25,078,000 =0.30
81,576,000

Analysis
Interest coverage ratio shows how much revenue is being earned in
relation to its finance cost. Cherat cement was able to very comfortably
cover this cost in the early years but by its growth the inabilities started
to show. although revenues are rising but the interest charges to be paid
by the enterprise are also rising as the revenues are only resulting due to
the rising financing through debt.
The debt, especially the short term financing, needs to be curtailed
as they will not result in Cherat Cement’s well being.
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Activity ratio
Asset Management Ratio tells us how efficiently a company utilizes its
assets for generating sales.

Inventory activity
1.Inventory turnover ratio = cost of goods sold
Inventory
2004 4,369,785,000 = 17.13
79,931,000 25
2005 1,544,122,000 =
20 17.44 2004
88,498,000 15 2005
2006
2006 1,488,882,000 =1010.25
2007
145,227,000 5 2008
2007 2,242,296,000 = 19.11
0
117,288,000 2004 2005 2006 2007 2008
2008 2,834,336,000 =13.66
207,491,000

Analysis
Inventory turnover shows the activity of the inventory held by the
enterprise Cherat cement has been able to significantly mobilize
inventory through the year. The ratio shows prominent figures of sale
frequency there is a variable trend to it though.
But the favorable lines are that Cherat Cement Has been able to
capitalize on the market upsurge in 2007 and 2008 with high levels of
exports to Afghanistan. The median ratio has none the less been
significantly touched throughout the years.
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2. Inventory turnover in days = days in year

Inventory turnover
2004 365 = 21 days
17.13 40
35
2005 365 = 21 days30 2004
17.44 25 2005
20 2006
2006 365 = 36 days
15 2007
10.25 10
2008
5
2007 365 = 19days 0
19.11 2004 2005 2006 2007 2008

2008 365 = 27 days

13.66

ANALYSIS:
Inventory turnover in days also portray the company’s ability to
liquidate inventory. Cherat cement has been able to do so quite
efficiently. As the increase to high levels throughout the years show.
Cherat cement has shown that it is able to reach high turnovers
therefore the less than optional ratio should motivate them to take
measures in successfully reaching them the 2007 – 2008 period has none
the less been fruitful.
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3. Total asset turnover = net sales

Total asset

2004 2084955000 = 0.955

2182072000
1.2
2005 2400530000 = 0.749
1
3202800000 2004
0.8 2005
2006 2434513000 =0.6
0.674
2006
3611889000 0.4 2007
2007 2619960000 =0.2
0.741 2008

3533350000 0
2004 2005 2006 2007 2008
2008 3013752000 = 0.687
4382273000

ANALYSIS:
The total asset turnover shows how a firm is performing in terms of
economic utilization of assets. It shows how a firm is using its assets to
earn revenues. The ratio should be high for profitability. In the case of
Cherat cement it has not been a favorable situation.
The company has been facing a low total asset turnover since the
periods under review. The totals revenues have never been able to cover
the assets used to earn them in any year. A regular decline can be seen
which can be improverd if the current asset can be liquidated in time.
The revenue generation as is evident should also be raised .
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Profitability ratio

1. Gross profit margin = net sales – cost of goods sold

Net sales
2004 2084955000 – 1369785000 = 34.33 %
2084955000 50
2005 2400530000 – 1544122000 = 35.67%
40 2004
240053000 2005
30
2006 2434513000–1488882000 = 40.68 % 2006
20
2434513000 2007
10 2008
2007 2619960000 –2242296000 = 14.41%
0
2619960000 2004 2005 2006 2007 2008
2008 3013752000 –2834336000 = 5.95 %
3013752000
Analysis
The gross profit margin gives us an estimate of the revenues
earned by the entity considering the direct cause incurred while earning
them.
Cherat Cement shows a period of growth in 2004,2005,2006 but
cumulative industrial down fall period of 2007 and 2008 and that did not
leave Cherat Cement un affected. Although there is a percentage growth
in sales but the cost attributed to them sky rocketed in these years
leaving cherat Cement worse off in the industry.
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2.Net profit margin = net profit after taxes

Net sales
2004 425695000 = 20.41%
25
2084955000
20 2004
2005 512300000 = 21.34 %
15 2005
2400530000
2006
2006 537785000 10
= 22.09% 2007
2434513000 5 2008

2007 184158000 = 7.02%

0
2004 2005 2006 2007 2008
2619960000
2008 10354000 = 0.34%
3013752000
Analysis the net profit margin shows what amount of pure revenues is
firm earning. The ratio for Cherat Cement shoe that it had been earning
high profit earlier but the ratio since then kept on declining. The 2008
horrific condition is nonetheless very regrettable but the situation is
attributed to the high operating cost during the year. The sales had risen
more then normal but the cost of earning them caused the downfall this
trend has been exhibited throughout the industry cherat has suffered
majorly
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3.Return on investment / assets = net profit after taxes

Total assets
2004 425695000 = 19.50 %
2182072000 25
2005 512300000 =15.99
20 % 2004
3202800000 15 2005
2006 537785000 = 14.88% 2006
10
2007
3611889000
5 2008
2007 184158000 = 5.21 %
0
3533350000 2004 2005 2006 2007 2008
2008 10354000 = 0.23 %
4382273000
Analysis
The benefits reaped from investments can be seen from this ratio
as it can be seen for Cherat that the ratio has kept on declining till the
decapitating state in 2008. this is also related to the cost factors
discussed above.
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4. Return on equity = net profit after taxes

Share holder’s equity

2004 425695000 = 80.02 %

100
531924000
80 2004
2005 512300000 = 77.04 %
60 2005
664905000
2006
2006 537785000 40
= 64.70 % 2007
8311311000 20 2008

2007 184158000 = 29.77%

0
2004 2005 2006 2007 2008
955801000
2008 10354000 = 1.08%
955831000

Analysis
The investors contributing in the firm suffered the most as is seen
by the return on equity ratios. The early 2000 was a very prized period in
terms of comparatives estimates as the figures are high but the
necessarily do not show a favorable situation. Because the amount of
equity was also in the proportion of the profits it gave way to a favorable
situation.
Later in the years it is clearly seen that with increasing equity
funds the profit margin could not be kept up especially in 2008 where the
ratio plunges into a pit of 1.08%. This was due to the high cost and low
prices in 2008.
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