DG Khan Cement Company

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. Nishat acquired DGKCC in 1992 under the privatization initiative of the government. After privatization the company was listed on Stock Exchanges in September 1992.

Ratio Analysis
A tool used by individuals to conduct a quantitative analysis of information in a company's financial statements. Ratios are calculated from 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 predominately used by proponents of fundamental analysis. There are many ratios that can be calculated from the financial statements pertaining to a company's performance, activity, financing and liquidity.

Performance ratio
Cash flow to revenue ratio This ratio is use to measure the amount of operating cash flow generated for each dollar of revenue. Cash flow to revenue = CFO / net revenue 2009 1,147,994/18,038,209 6.36% 2010 842,005/16,275,354 5.17% 2011 340,188/18,577,198 1.83%

By dividing, the equation gives us an operating cash flow/sales ratio of 6.36% in 2009 which reduces to 1.83% in 2011 or approximately 2 cents of operating cash flow in every sales dollar. The main reason of the reduction in the ratio is because of massive reduction in the cash from operating activities, on the other hand the sale volume during 2009-11 almost remain the same. Cash return on asset ratio This ratio is use to measure the return of the operating cash flow attributed to all providers of capital.

Cash return on asset = CFO / total asset 2009 1,147,994/42,723,041 2.69% 2010 842,005/47,046,043 1.79% 2011 340,188/49,673,050 0.68%

A high cash return on assets ratio can indicate that a higher return is to be expected. This is because the higher the ratio, the more cash the company has available for reintegration into the company, whether it is in upgrades, replacements or other areas. In this case the companys cash return on asset ratio during 2009 to 2011 reduces from 2.69% to 0.68%, which shows lower returns and availability of cash with respect to companys total assets. Cash return on equity ratio This ratio is use to measure the return of the operating cash flow attributed to all shareholders. Cash return on equity = CFO / total equity 2009 1,147,994/20,918,442 5.48% 2010 842,005/26,519,220 3.17% 2011 340,188/30,217,285 1.125%

This is a measure of how much cash can be paid to the equity shareholders of the company. In this the cash return on equity in 2009 5.48% which is reduces to 1.125% in 2011, due to the decrease in the cash from the operating activities. This also means that the shareholder will also get less amount of dividend out of that cash which the company will get after paying all the financial expenses.

Cash to income ratio This ratio is use to measure the ability to generate cash from firm operations. Cash to income = CFO / operating income 2009 1,147,994/3,383,258 33.93% 2010 842,005/2,261,163 37.23% 2011 340,188/2,652,870 12.823%

The gradual decrease in the operating income as well as in the CFO causes the cash to income ratio to decline from 33.93% in 2009 to 12.823% in 2011. It also indicate that the company is losing its ability to generate cash from its operation, and also facing shortage of cash for the payment of its investing and financing activities and also for the payment of dividend to its shareholders.

 Cash flow per share This ratio is a variation of basic earnings per share measured by using CFO instead of net income. Cash flow per share = CFO preferred dividend / # of common share 2009 1,147,994/304,249,388 0.377% 2010 842,005/365,099,266 0.230% 2011 340,188/438,119,119 0.0776%

Many analysts, as well as some of the greatest investors of all time, place more weight on cash flow per share than earnings per share. Because EPS is more easily manipulated, its reliability can at times be questionable. Cash, on the other hand, is difficult - if not impossible - to fake. You either have cash or you don't. Therefore, cash flow per share is a useful measure for the strength of a firm and the sustainability of its business model. According to this ratio the companys sustainability is reducing during 2009-11 from 0.377% to 0.0776%, which will also affect the number of its shareholders.

Coverage ratio
A measure of a company's ability to meet its financial obligations. In broad terms, the higher the coverage ratio, the better the ability of the enterprise to fulfill its obligations to its lenders. The trend of coverage ratios over time is also studied by analysts and investors to ascertain the change in a company's financial position. Common coverage ratios include the interest coverage ratio, debt service coverage ratio and the asset coverage ratio. Debt coverage ratio This ratio is use to measure financial risk and leverage. Debt coverage = CFO / total debt 2009 1,147,994/21804599 5.265% 2010 842,005/20526823 4.10% 2011 340,188/19455765 1.7%

This ratio shows that the firm ability to generate cash for the payment of the total debt is very low. In 2009 it was 5.265% which reduces to only 1.7% in the year 2011. The main reason in this decline is in the reduction of cash flow from operating activities during the last three years. In this way the creditors of the company will also have to face difficulties while claiming their money back, and also the company has to face a lot of problems while getting more loans with this ratio.

Interest coverage ratio This ratio is use to measure the firm ability to meet interest obligation. Interest coverage ratio = CFO + interest paid + taxes paid / interest paid 2009 1,147,994+2606358+251319/ 2606358 1.5368 times 2010 842,005+1902760+125381/ 1902760 1.508 2011 340,188+2051678+430231/2051678 1.3755

This ratio shows how much the company has the capacity to pay the amount of interest out of its cash available from the CFO. In this the company has the ability to pay 1.5 times the interest expense out of the CFO which falls to 1.3 times in the year 2011 due to decline in the amount of cash flow from operating activities. Reinvestment ratio This ratio is use to measure the firm ability to acquire long term assets with operating cash flow. Reinvestment = CFO / cash paid long term asset 2009 1,147,994/1,995,630 57.52% 2010 842,005/1,079,494 78% 2011 340,188/1,672,612 20.34%

This ratio shows that how much the company has the ability to acquire or purchase the long term asset with the operating cash flow. In 2009 it was 57.52% but in 2010 it rises to 78% which show a good sign that the company has the good position to purchase or acquire its long term assets but in 2011 its reinvestment ratio falls to 20.34% due to massive decrease in the CFO and increase in cash paid long term asset which will create hurdles for the company for acquiring the long term assets. Debt payment ratio This ratio is use to measure the firm ability to satisfied long term debt with operating cash flow. Debt payment = CFO / cash long term debt repayment 2009 1,147,994/2,989,690 38.40% 2010 842,005/5,104,383 16.5% 2011 340,188/2,204,042 15.43%

This ration show that who much the company has the ability to generate cash for its long term debts payments. In 2009 it was 38.40% but due to reduction in CFO and increase in long term debt the debt ratio has reduced to 16.5% in 2010 and 15.43% in 2011. Which show that with this ratio the company will not be able to generate enough cash to meet its long term debt repayment expenses. Dividend payment ratio This ratio is use to measure the firm ability to make dividend payment from operating cash flow. Dividend payment = CFO / dividend payment 2009 1,147,994/533 2154 times 2010 842,005/25 33680 times 2011 340,188/1 340188 times

According to this the dividend payment ratio of the company is increasing form 2154 times to 340188 times during 2009-11. The main reason is the reduction in the amount of dividend payment to shareholder of the company. Although the company CFO is reducing during three years but the company pay R.s 533000 dividend in 2009 which fall massively to only 1000 in 2011. Less payment of dividend will not only reduce the number of shareholder but also the market value of the share of the company. Investing and financing ratio This ratio is use to measure the firm ability to purchase assets, satisfy debts, and pay dividend. Investing and finance = CFO / cash outflow from investing and financing activities 2009 1,147,994/924,879+1,677,200 0.44 times 2010 842,005/534,712+837,410 0.61 times 2011 340,188/616,033+1,106,355 0.19 times

This ratio show that how much the company has the capacity or ability to made the cash payment for the investing and financing activities out of its operating activities. In 2009 the ratio was 0.44 times which falls to 0.19 times in 2011. The major reason of this decline is due to decrease in the cash from operating activities. During 2009-11 the companys investing and financing ration remains below 1 which gives a negative impact on the company performance. It also shows that the company is not generating enough cash out of its operating activities to meet the demand or the payment of its investing and financing activities.

Assignment

Ratio Analysis (DG Khan Cement)

Submitted to: Prof. Hafiz Musaddiq Submitted by: Mubashir Ali Rao Nauman Butt Usman Ghani Abu Bakar Haseeb Iftikhar Hamza Ghalib Bilal Ijaz Abdur Rehman L1S12MBAM1143 L1S12MBAM1158 L1S12MBAM1195 L1S12MBAM1196 L1S12MBAM1157 L1S12MBAM1194 L1S12MBAM1121 L1S12MBAM1120

Faculty of Management Studies

University of Central Punjab