Chapter 1

INTRODUCTION OF THE REPORT

1.1 Background of the study:

It is the requirement of Financial Management subject to undergo
assignment of any financial institution. The purpose of this project is to give the
practical exposure to analyze the ratios of any organization. The students are
then required to write a report on what they have learned in their assignment. My
report is about Kohat Cement Company Limited,
Rawalpindi Road Kohat.

1.2 Objectives of The Study:

This study is conducted to fulfill the requirements of Financial Management
Teacher.
The other objectives are as under:

1. To analyze the different financial ratios of different years of KCCL.

2. To know about the cement industry in Pakistan.
3. To know about the financial position of Kohat Cement Company Limited.

1.3 SCHEME OF THE STUDY:

The scheme of my report is as follows:

includes only one chapter, which is about the background, Objectives.
of the report consists of two chapters; Chapter two defines brief Review of the
cement industry in Pakistan, per capita consumption, import & Export of Pakistan
Cement Industry.
Identifies background of KCCL, Privatization of KCCL, present status and role of
KCCL in cement industry and cement industry in the N.W.F.P.
consists of one chapter and is about interpretation of different financial
ratios of the KCCL.

1
1.4 REVIEW OF THE CEMENT INDUSTRY IN PAKISTAN
Cement Industry in Pakistan:
Pakistan is rich in the deposit of the limestone, clay and gypsum, which
are the basic raw materials in the manufacturing of the cement. Although a large
number of cement verities are being produced in different countries of the world,
Pakistan is producing the following types of cement:

• Ordinary Portland Cement

• Slag Cement
• Sulphate Resisting Cement
• White Cement
At the time of Independence in 1947, Pakistan inherited four cement plants
having installed capacity of 0.5 million tons all of which were controlled from
India. These plants were however closed after operating for more than 50 year.
During the thirty years of independence five cement factories were established,
with the aggregated capacity of 3.2 million tones, these factories includes the
following:
• Zeal-Pak Cement 1956
• Maple Leaf Cement 1956
• Javedan Cement 1965
• Gharibwal Cement 1965
• Mustehkam Cement 1966
In 1972 the cement industries were nationalized in the Bhutto’s Government
and only public sector was allowed to establish the cement factories. Cement
industry was remained under the control of the Government till late seventies.
During this period the growth in demand was about 7% per annum whereas new
capacities were not coming to catch the rising demand, consequently Pakistan
had to import cement from 1976-77, figure of the cement import are given in that
Table:

2
 DIAGRAM

IMPORT OF CEMENT

1400

1200

1000
Millions of Tonnes

After change in government in 1977, private sector was allowed to establish

800 projects were installed in the private sector
cement plants. As a result, seven
having installed capacity of 2.54 million tons, namely Cherat Cement, Pakland
Cement, Attock Cement, Dadabhoy Cement, ESSA Cement, Facto Cement,
Anwarzeb Cement simultaneously, State Cement Corporation of Pakistan
600
(SCCP) also put up four plants having a capacity of 1.6 million tons, namely
Kohat Cement, Thatta Cement, Dandot Cement, and D.G. Khan Cement,
enhancing the total capacity to over 8.5 million tons by the end of 1990.Since
SCCP was the marked leaders
400until early nineties, private sector had to peruse
the policies of the SCCP in fixing the prices of the cement. With the privatization
of the cement industries in 1990 SCCP loose its control over the supply of the

200 3
cement. At that time there was a shortage of cement in the northern area of the
country. In the first half of the nineties Pakistan has to import the cement given in
the previous Table and Diagram. Therefore the cement prices increased making
cement companies to earn very high profits companies this

forced the existing cement manufacturing companies like Kohat, Cherat,

Dadabhoy, Askari, D.G.Khan, and Maple Leaf to go for expansion and five new
projects with the aggregate capacity of 5.00 million tons by the end of 2000.
Presently in the year 2004 the total capacity of cement is 17.00 million tons.

1.5 EXPORT POTENTIAL:

Pakistan cement industry is with 6.0 million tons surplus capacity. Pakistan has
been exporting cement whenever it had surplus capacity. Before separation of
the Eastern part of the country in 1971, West Pakistan use to meet entire
demand of cement of the East Pakistan. Following are the figures of export of
cement from Pakistan during sixties and seventies:
Attacks on World Trade Center in September 11, 2001 had effect on all
businesses and industries. In this context American attack on Afghanistan and its
reconstruction has given boost to the cement industry in Pakistan. Pakistan is
exporting cement to Afghanistan to see that the exports to Afghanistan from July
2002 to May 2003 were 98,619 tons where the export growth which is a great
achievement for the Pakistan cement industry and result in needed foreign
exchange.

4
 DIAGRAM
EXPORT OF CEMENT

800

700

600

CEMENT CONSUMPTION IN Kg/HEAD PER

500

Millions of Tonnes 400

1200

300

1000
200

ANNUM 800
100

5
0
-66

-67

-68

Million Tonnes 600

Chapter 2
Review of Kohat
Cement Company limited
BREIF ABOUT KOHAT CEMENT COMPANY LIMITED

Registration Name: Kohat Cement Company Limited

Objectives: Manufacturer of Gray Cement

Plant erection & Installation M/S UZINEXPORTIMPORT

Contractor (1978): Romania

Plant Capacity: 1800 tons per day

Date of incorporation: 30th April 1980

Inauguration: 16th June 1983 by Lt. Gen. Saeed

Qadir Minister for Production.
Commencement of 1st October, 1983

Commercial Production:
Privatization: 31st October, 1992

Present Ownership: A public Ltd Company listed on

Karachi, Lahore & Islamabad
Stock Exchange with 90% shares
held by Atta Holding.

6
2.1 HISTORY OF KOHAT CEMENT LIMITED
One of the leading manufacturing units of the cement Industry of Pakistan, Kohat
Cement Company Limited incorporated as a State Cement unit with an installed
capacity of 1000 tons per day. It is situated 12 km in the south west of Kohat on
Rawalpindi road near Babri Banda. The distance of Kohat Cement Company
Limited from other important cities is 165 km from Islamabad, 77 km from
Peshawar, and 142 km from Bannu. The total height of Kohat Cement Company
Limited from the sea level is 451 meters. The total area of the Kohat Cement
Company Limited is 222 acre, including factory colony and main approach roads.
The contract for the supply of equipment, errection and commission was
awarded to a Romanian Firm M/S UZINEXPROTIMPORT in April 1980under
companies act 1913 (now Companies ordinance 198) and inauguration
ceremony was performed by Lt. General Saeed Qadir Minister for Production on
30th June 1983 and its commercial production started on 1st October 1983. The
total capital outlay of the company was 716,90 million. The Company was
registered with the authorized capital of 200 million. State Cement Corporation of
Pakistan (SCCP) float share worth 188, million and take a debt of 75.2 million.
The first Board of Directors of the Kohat Cement Company Limited consists of
Mr. Zaheer Sajjid (Chairman/Director), Mr. M.K Saleem (GM/Director), Mr.
Mushtaq Hussain (Director), Mr. M.N.H.Ansari (Director), Mr. Ghulam Murtaza
(Director), Mr. Fida Hussain (Director/Dy. Sectary). The First Sectary of the
Company was Mr. Fazal Karim Khattak (Dy. General Manager Finance). During
the first nine month of inauguration Kohat Cement Company Limited made a net
profit of 3.01 million (30 lakes).
Many problems faced by the Kohat Cement Company Limited such as delay in
the supply of the equipment, technical services and defective supply of
equipment by the contractor whom the contract for these services was given, but

7
the credit goes to Pakistani engineers and management of the newly born Kohat
Cement Company Limited who overcome the entire problems effectively.

2.2 PRIVITIZATION OF KOHAT CEMENT COMPANY

LIMITED:
After successful operation of the nine years under State Cement Corporation of
Pakistan (SCCP), Privatization Commission of Government of Pakistan
privatized Kohat Cement Company Limited in an open auction on 30th October
1992, in Nawaz Sharif Government.
The main causes of the privatization of the Kohat Cement Company Limited were
embezzlements and frauds, less profits, and mismanagement.
Atta Holding one of the prominent name in the business society made the highest
bid whereby purchased 90% shares of Kohat Cement Company Limited and paid
out debt of 300 million which was payable by Kohat Cement Company to State
Cement Corporation of Pakistan (SCCP) so the total bid by the Atta Holding was
820 million.
After privatization the company changed it year end from June 30, to December
31 in order to reflect the true financial health and performance of the Company
under new management and to fulfill the condition of the Government of that
time. The companies begin operation under the new management sometime in
late 1992 and immediately showed a market improvement in overall operating,
effectively and performance. Company suffered net loss in 1992 and 1993 due to
large amount of tax provision made in these years. This had adverse effect on
the equity of the company, as retained earnings of the company were eaten
away by the net losses in 1992-93. On the other hand the company made
astounding net profit taxes of 94.787 million in the six months of till December
1993 after privatization, which showed that under new management company
has made tremendous progress. Financial position of the Company substantially
improved as an enlargement in the equity, put the company’s net worth in the
better shape. Compared to this, the performance of the Kohat Cement Company
Limited was not satisfactory before privatization.

8
2.3 List of Group Companies:

The group companies can be classified in two categories i.e. manufacturing

concerns and trading concerns. Their names and main highlights are given
below:

MANUFACTURING CONCERNS
Nature of Group
Name of concern Year of est.
business Ownership
Kohat Cement
Cement 90% 1983
Company Ltd.
Ravi glass Ltd. Bottles+jars 100% 1982
Rachana glass pvt. Ltd Bottles+jars 100% 1983
Atta buksh textile Ltd Knitwear 100% 1983

TRADING CONCERNS
Name of Nature of Group
Year of est.
concern Business Ownership
Palace Enterprise Property
100% 1978
Pvt Ltd. Developments
Palace Hotel Lahore Hoteling 100% 1999
Motor House Pvt. Vehicles Import &
100% 1957
Ltd. Sale

9
2.4 GROUP OBJECTIVES:

The group has the following objectives:

• Provide maximum return to the stockholders and protect

their interests.

• Provide customer with best quality products and services at

comparatively

low prices.

• To participate fully in the Socio economic activities of the

country.

• To induct employees in the professional activities and tap

the full potential

of every employee based on the philosophy that the human resources of

the group are its most valuable assets.

• To make healthy profits and achieve continuous growth,

keeping in view the global business challenges.

10
2.5 ACHIEVEMENTS OF KOHAT CEMENT AFTER
PRIVATIZATION:

Since Privatization, under the new management Kohat Cement Company Limited
has achieved tremendous growth, at present the total authorized capital of the
company is 500million. The mission of the company is “Widening the Spectrum
of Cement Usage in Pakistan”. It is difficult to elaborated all the improvement that
has been made by Kohat Cement Company Limited since privatization, but the
major improvement are summed up as follows:

2.6 EXTENSION OF PLANT CAPACITY:

At the time of privatization the total capacity of plant was 1000 tons of cement
per day this capacity was extended after privatization under new management in
1996 from 1000 tons of cement per day to 1800 tons of cement per day keeping
in view the increasing demand of cement in and outside the country and to
achieve economies of scale. Total cost of extension was 587.639 million, which
was arranged in the following way;

Debt ………………..64.67%

Equity……………….35.33%
2.7 COAL CONVERSION:
Furnace oil is the major element of cost of production of cement. Continuous
increase in the prices of furnace oil forced the Company to look for alternatives.
Coal was identified as the best option and accordingly investments has been
made so that coal could be used instead of the furnace oil by coal, which had cut
down the cost of production to a large extent.

11
2.8 EXPORTS:
Due to favorable geographical location and opening of Kohat Tunnel, Kohat
Cement Company Limited is in well position to supply cement to Afghanistan,
where the construction activity is booming day by day. During the year 2002
exports to Afghanistan were only 5549 tons, but during the first quarter of the
financial year 33556 tons of cement, which result in a precious foreign exchange
for the country.
2.9 Quality of the Cement:
The quality of the Kohat Cement is approved by independent authorities, such as
National high Authority, Taisee Japan (contractors of the Kohat Tunnel Project)
and Pakistan Railway, and priority has been given to Kohat Cement Company’s
brand over the others. Kohat Cement Company Limited obtained ISO 9002
certificate.
2.10 WHITE CEMENT PLANT:
In Pakistan there are only two cement units engaged in manufacturing of white
cement i.e. Anwar Zeb White cement, and Maple Leaf white Cement. Keeping in
view the improving standards of living of the people in country, Kohat Cement
Company Limited has decided to enter in this field also. The civil works for the
white cement plant are well on the way and major machinery has reached at the
factory, the white cement plant will start production at the end of 2004, which will
be second white cement plant in the country. Total cost of installing the white
cement is about 420 millions.

12
Chapter 3
INVENTORY MANAGEMENT SYSTEM

3.1 PROCEDURE FOR ROUTINE PURCHASE OF STORES

AND SPARES ITEMS:

• DEFINITION:
Routine purchase means the stores and spares purchased for the maintenance and
running of the machinery. It does not however include the additional cost to be incurred
in improvement in the production technology / methodology and increase in the
production capacity etc.

3.2 THE INVENTORY SYSTEM OF KOHAT CEMENT IS

DISCUSSED BELOW:

3.3 DEMAND PROCEDURE:

 The demand is raised from the relevant department head and he is authenticated
by the GM of the respective unit. The respected authorities signed the duplicate
and send to store department to determined that it is available in the stock or not.
If it is available the store staff issue the quantity, otherwise it will be send to
Purchase Department for purchase. Store officer role would be future expended.
GM of the respective unit will be responsible for determining reorder level for the
major items. Store officer will raise the purchase indent as soon as reorder level
comes. He will future insures that last buying rates and last specification bought is
mentioned on the purchase indent.

13
 The demand duly approved by the respective GM will be submitted to the
procurement manager on his weekly visit at Kohat cement project. The store
officer is responsible to report to the procurement manager for each and every
kind of queries raised from the purchase department. So in this situation store
officer his additional responsibilities of maintaining re-order level and raising
purchase indent. In case of emergency demand can be raised any time.

 GM must be responsible to raise the indent keeping in mind the expected delivery
time of the items otherwise the system can,t work smoothly.

 ED (T) or respective GM will ensure that the quantity demanded and specification
provided according to the need

 The procurement manager will finalized supplier and he will ensure that the
supplier are properly evaluated as per standard of the ISO 9000

 The store officer at the end of each quarter will prepare a list of the dead items or
the items those have not been used during the last three month and submitted the
list to the procurement manager and the respective GM for future utilization or
disposal considered necessary. Respective GM will responsible to give response
with in 10 days positively on the receipt of dead items. Final approval for disposal
will be obtained from HEAD.

 Maintained of Re-Order level is very important task and coordination of all the
technical staff is very needed for the purpose. In this connection whenever the
store officer feels any difficulty he will contact the respective General Manager
for immediate solution of the problem.

14
3.4 PURCAHSE PROCEDURE:

 For local purchase project purchase officer will first get approval from the
procurement manager but in case of emergency purchases, where there is a risk of
machine stoppage, the purchase officer in project will be responsible to buy it
from the local market and will get the approval after purchase, after weekly visit
of the procurement manager he will verify the emergency purchases. Purchase
officer at project will remain in contact with the procurement manager to get
necessary instruction when needed at all project.

 Procurement manager will call quotation and prepare comparison statement along
with last purchase rate and get it finalized with in three working days from the
receipt of demand. The procurement manager is responsible to have close watch
over the rates and the quantity of the product being purchased and gives his feed
back on weekly basis to the Chief Executive in the head office.

 For major purchase we should go for import to get very competitive rates and
quality. And for import the project manager must indicate about the demand two
month before the required date. Procurement manager with the help of technical
staff will prepare list of every six month for the items to be imported.

 It is also suggest that email system should be used at all three end to the deliver
and receive the purchase rate verification formats and other necessary
communication needed to be facilitated through MSN messenger service. It will
save company communication cost.

 Order will be placed to the selected supplier and the order will include following
details.

1. Name of supplier

15
2. Sales tax number
3. National tax number
4. Contact person and complete address
5. complete description of items required
6. Quantity order
7. Unit price
8. Total amount
9. GST
10. Total price including GST
11. Delivery Date / Time Period
12. Terms of payment
13. Warranty Period
14. Delivery terms ( Freight paid / To be paid
15. Other terms if any.

 Purchase department in head office will follow up for the timely delivery of
the goods and if he foresees any delay he will immediately inform GM/ED ( T )
well in time to make alternative arrangement ,otherwise the procurement manager
will be responsible for the delay.

3.5 GOODS RECEIVING REPORT:

 At the time of receipt of goods, Gate inward pass will be prepared and goods will
be sending to store for Inspection along with gate pass. Inspection will finalized
with in two days for general items and with five days for manufactured items.
 On making inspection, the concerned person will ensure the following step:
1. Goods are as per description of the order placed
2. Time of delivery is being followed or not
3. Goods are in satisfactory condition technically.
4. Any other test or procedure GM or ED (T) advised should be followed
accordingly.

16
 Inspection report of goods accepted or rejected will be forwarded to the store
officer should inform the procurement manager for his future necessary action.
 Upon receipt of inspection report of accepted goods, the store officer will prepare
goods receiving note and submit a copy along with inspection reports to the
account Department at project with in two days after approval of the items

3.6 GOODS RECEIPT NOTE:

 The store officer must ensure before preparing goods receipt note and entering the
item in the bin card the duly verified bill to the items are available or not. To
avoid problem inventory reconciliation this is very necessary that purchase
department must requisition bill from the party along with goods
 The account department will get the invoice from purchase department and after
making reconciliation of complete trail of documents, submitted to the relevant
accounts head for final approval.
 The inventory management of Kohat cement in material ledger card he maintain
moving average method when they valuate the inventory.
 Upon approval, the account department will complete the transaction by entering
into purchase / payable register / module
 In the head office , on due date, payment will be proceed and include in the
monthly payment summery, unless a written intimation from the project has been
received about stopping or delaying the payment along with reason therof. This
report will will be sent to ED(T) finance, Finance Mananger and he will forward
it to chairman / Chief Executive for final approval.
 Upon final approval of the payment summery from the chairmen / Chief
Executive checque will be prepared and submitted to he Chairman / CE for
payment upon successful implementation of this procedure the Chairman and
Chief Executive may authorized, one person from finance department and one
from any other department to sign the check below certain limits

17
  The internal audit department will ensure that the whole procedure of purchase
and payment is being followed or not.
3.7 GENERAL RECOMMENDATIONS:
1. Reputed supplier should be selected for supplies and direct
manufacturing should be preferred wherever possible. List of the
approved vendors must be reviewed after every six months.
2. Terms of purchase must be discussed thoroughly before placing
the order so future ambiguities could be avoided.
3. Payment should be made on due date in order to give impression
to the supplier that by supplying us they are not going to invest
fund for long. It will reduce the profit margins applied by them on
supplies to our companies.
4. The GM or the ED (T) should conduct re-inspection of inspected
goods in order to keep psychological pressure on the foreman
deputed on inspection.
5. In case of items valuing above Rs. 500/- per unit appropriate
record should be maintained by the technical staff to assess
whether the expected life of the items has been completed
before its replacement or not. It will create responsibility factor
while inspecting the goods received from the supplier.
3.8 NON RECURRING EXPENDITURE:
In case of non- routine items, like additional expenses on production
side or improvement in the machinery the following procedure will be
followed.
Demand will be raised from the concerned department or the GM / ED
(T) of the project may also raise such demand after discussing with
technical subordinate. A cost and benefit analysis will be prepared
after setting tentative price of the items involved and submitted to the
chair man / Chief Executive for approval. After approval by Chair man /
Chief Executive Purchase order will be placed on the supplier.

18
Technical staff will be responsible for submitting the cost benefit
analysis.

Chapter 4
Ratio Analysis of KCCL

4.1 Liquidity Ratio:

These ratios which measures a firm ability to meet short term obligations.
4.1.1 Current Ratio:
Current Ratio = Current assets/ current liabilities
Definition: It shows the firm’s ability to cover its current liabilities with its
current asset.
Current Ratio for the year 2000 = 0.79
Current Ratio for the year 2001 = 0.96

Graph

1.5
1
Values

S eries1
0.5
0
2000 2001
Ye a rs

Interpretation:
The ratio of 2001 id 0.96 is above the ratio of 2000 that’s 0.79. The higher the current
ratio shows the greater the ability of the firm to pay its bill. The 2001 year being analyzed
may be too liquid, relative to the year 2000. With the result that it forgoes additional
profit ability whenever a financial “Red Flag “is raised.

19
 4.1.2 Quick Ratio:
Quick Ratio = (Current Asset – Inventory)/Current Liabilities
Definition:
It is also known as Acid test Ratio. It shows the firm’s ability to meet current
liabilities with its most liquid asset.
Quick Ratio for the year 2000 = 0.29
Quick Ratio for the year 2001 = 0.39

Graph

0.6
Values

0.4
Series1
0.2
0
2000 2001
Years

Interpretation:
The ratio in 2001 is 0.39 is greater than the ratio of 2000 that’s .29 it shows a
firm’s ability to meet current liabilities with its most liquid asset. It also shows the more
penetrating measures of liquidity than does the current ratio.

4.1.3Cash Ratio:
Cash Ratio = (Cash/current Liabilities)*100

20
 Definition:
It shows the firm’s ability to meet the current liabilities with its cash in hand.
Cash Ratio for the year 2000 = 0.035%
Cash Ratio for the year 2001 = 0.33%

Graph

0.40%
0.30%
Values 0.20% Series1
0.10%
0.00%
2000 2001
Years

Interpretation:
The cash ratio in2001 is 0.33% whish is higher than the 2000. Cash ratio is
0.035% which shows that in 2001 the unusable cash is higher then the 2000. It’s also a
negative aspect of the investment and profitability

4.2 Leverage Ratio:

These ratio measures the extent of the firm total debt burden.

21
 4.2.1 Debt to Equity Ratio:
Debt to Equity Ratio = Total Debt/ stock holder’s equity
. Definition:
It shows the extent to which the firm is financed by debt.
Debt to equity ratio for the year 2000 = 84.34%
Debt to equity ratio for the year 2001 = 68%

Graph

100.00%
Values

50.00% Series1

0.00%
2000 2001
Years

Interpretation:
In the year 2001 the ratio is 68% which is less than the year 2000 ratio which is
84.34%. This ratio tells us that creditors are providing 68 percent of financing for each $1
being provided by shareholders. Lower the ratio higher the financing that is provided by
the shareholders.

4.2.2 Debt to Total Asset ratio:

Debt to total asset ratio = (Total debt/total asset)*100

22
 Definition:
This ratio highlights the relative importance of debt financing to the firm.
Debt to Total Asset for the year 2000 = 45.7%
Debt to Total Asset for the year 2001 = 40.5%

Graph

Values 50.00%
45.00%
Series1
40.00%
35.00%
2000 2001
Years

Interpretation:
In 2001 the ratio is 40.5% which is less then the 2000 year that’s 45.7%. This
ratio shows that in 2001 the 40.5% is debt financing and the remaining 59.5% is from
shareholders financing. The higher the debt to total asset ratio the greater the financial
risk and vice versa.

4.2.3 Time interest Earned:

Time Interest Earned = EBIT/Interest expense

23
 Definition:
It reflects the firm ability to pay interest out of earnings.
Time Interest Earned for the year 2000 = 6.04
Time Interest Earned for the year 2001 = 6.01

Graph

6.06
6.04
Values

6.02 Series1
6
5.98
2000 2001
Years

Interpretation:
In the year 2001 the ratio is 6.01 which are slightly less than the 2000 which is
6.04. This ratio shows the firm ability to pay interest out of earnings. This ratio satisfies
the creditors, who can feel confident that the interest will be paid, since interest is simply
covered by EBIT.

4.2.4 Long Term Debt To Total Capitalization:

(Long Term Debt/ Total Capitalization)*100

24
 Definition:
It shows relative importance of long term debt to the capital structure of the firm.
Long term debt to total capitalization for the year 2000 = 0.59%
Long term debt to total capitalization for the year 2001 = 0.48%

Graph

0.80%
0.60%
Values

0.40% Series1
0.20%
0.00%
2000 2001
Years

Interpretation:
In 2001 the ratio is 0.48% which is less then the 2000 that is 0.59%. This ratio shows
us the relative importance of long term debt to the capital structure (Long term financing
of the Kohat Cement Factory).

3 Activity Ratio:
4.3.1 Receivable Turnover = Net Sales/Receivables

25
 Definition:
Receivables Turnover provides insight into the quality of the firm’s
receivables how successful the firm is in its collection.
Receivables Turnover for the year 2000 = 29.50
Receivables Turnover for the year 2001 = 24.86

Graph

30
28
Values

26 Series1
24
22
2000 2001
years

Interpretation:
The receivable turnover in 2000 is 29.50. While in 2001 are 24.86. This ratio tells us
that the receivable are considerably slower in turning over. This might be an indication of
a poor collection policy and a number of past-due accounts still on the books.
Receivables are liquid only in so far as they can be collected in a reasonable amount of
time.

4.3.2 Average collection period:

Average collection period for the year 2000 = 365/29.50 = 12.37 days

26
 Average collection period for the year 2001 = 365/24.86 = 14.68 days

Graph

15
14

Values
13 Series1
12
11
2000 2001
years

Interpretation:
The RT In days in the year of 2001 is 14.48 days which is greater than the year of
2001 which is 12.20 days. This figure tells us that average number of days that
receivables are outstanding before being collected. Too high an average collection period
is usually bad which shows the loss credit policy. But a very low average collection
period may not necessarily be good. This shows the symptoms of a credit policy that is
excessively restrictive.

4.3.3 Inventory Turnover:

Inventory Turnover = cost of goods sold/inventory

27
 Definition:
It shows that the how effectively the firm is managing the inventory and
how many times inventory is turnover into receivables through sales during the
year.
Inventory Turnover for the year 2000 = 13.66 times
Inventory Turnover for the year 2001 = 36.55 times

Graph

40
30
Values

20 Series1
10
0
2000 2001
years

Interpretation:
In 2001 the inventory turnover is 36.55 times which is greater than the 13.66
times which is in the year of 2000. The higher the inventory turnover the most efficient
the inventory management of the firm and the fresher more liquid the inventory. It shows
that in 2001 the KCCL is efficient in inventory management than the previous year. The
liquidity of the KCCL is increased than the previous year.

4.3.4 Inventory Turnover In days:

Inventory turnover in days for the year 2000 = 365/13.66 = 26.72 days

28
 Inventory turnover in days for the year 2001 = 365/36.55 = 9.99 days

Graph

30
Values
20
Series1
10
0
2000 2001
years

Interpretation:
In the year 2001 the inventory turnover in days was 9.99 days which is less than
the 26.72 days in 2000. In the 2001 the 9.99 days inventory turnover days which is 16.73
days less than the year 2000. It means that the inventory turnover process is so fats than
the previous year. It means the fresh inventory is fastly come to the process.

4.3.5 Total Asset Turnover:

Total asset Turnover = Sales/Total asset

29
 Definition:
It reflects how well the company assets are being used to generate sales.
Total Asset Turnover for the year 2000 = 1.16
Total Asset Turnover for the year 2001 = 1.02

Graph

1.2
Values

1.1
Series1
1
0.9
2000 2001
years

Interpretation:
In the year of 2001 the value is 1.02 which is less than the 1.16 in year 2000.
Which shows that in 2001 the KCCL generates fewer sales per dollar of asset investment
than did in 2000? On average the receivables and inventory activates is good therefore
the KCCL is involved in new projects launching which detoriated the profitability
conditions.

4.3.6 Fixed Asset Turnover:

Definition:

30
 It indicates how intensively the fixed asset of the firm is being used.
Fixed Asset Turnover in 2000 = 1.53
Fixed Asset Turnover in 2001 = 1.36

Graph

1.6
1.5
Values

1.4 Series1
1.3
1.2
2000 2001
years

Interpretation:
In 2001 fix asset turnover is 1.36 which is less than the 1.53 in year 2000. The
low ratio implies excessive investment in plants, equipment and new projects relative to
the values of the output being produced. The KCCL might be better off to liquidate some
of those fixed asset and invest the proceed productively.

4.3.7 Current Asset Turnover:

Current Asset Turnover = sales/current asset

31
 Definition:
It shows that how much of current asset is continuously used in the
activity of a firm.
CAT for 2000 = 4.88
CAT for 2001 = 4.09

Graph

5
Values

4.5
Series1
4
3.5
2000 2001
years

Interpretation:
In 2001 CAT is 4.09 which is also less than 4.88 in 2000 year. Like the fixed asset
turnover it also shows that the KCCL is involved in the investment in new projects
(White Cement Plant). The sale has also decreased in 2001 and total therefore the
profitability is affected.

4.4 Profitability Ratio:

This ratio tells us the profit earning to sales and investment of the firm.

32
4.4.1 Net Profit Margin:
NPM = (Earning After Tax/Net sales)*100
Definition:
It provides us the information since it mixes the effectiveness of sales
and producing profits.
NPM for the year 2000 = 14.73%
NPM for the year 2001 = 6.61%

Graph

20.00%
15.00%
Values

10.00% Series1
5.00%
0.00%
2000 2001
Years

Interpretation:
In the 2001 the net profit margin is 6.61% which is twice less than the
14.73 % in the year of 2000. This ratio gave us the idea of the how much sales
produced the profit. The level management seeks given its current debt level.

4.4.2 Return On Investment:

33
 Return on Investment = (profit after tax/total asset)*100
Definition:
It shows the profitability of the firm in the form of how much the
profit is gained with the respect of total asset.
ROI for the year 2000 = 17.21%
ROI for the year 2001 = 6.76%

Graph

20.00%
15.00%
Values

10.00% Series1
5.00%
0.00%
2000 2001
Years

Interpretation:
In the 2001 the ROI is 6.76% which is less than the 17.21% of 2000 year.
It shows up major ups and downs in the ratio due to unfavorable conditions.
Higher profitability per dollar of sales but a slightly lower return on investment
confirm in 2001, require more assets to generate of sales then did typical year of
KCCL.

4.4.3 Return on Equity:

ROE = (profit after tax/stockholder’s equity)*100

34
 Definition: It shows the earning power of shareholder book values
investment and is frequently used in the company.
ROE for the year 2000 = 31.72%
ROE for the year 2001 = 11.36%

Graph

40.00%
30.00%
Values

20.00% Series1
10.00%
0.00%
2000 2001
Years

Interpretation:
In the 2001 the ROE is 11.36% which is less then 31.72% in the year of 2000. In
the 2001 the ROE is low it means that the KCCL has accepted the short investing
opportunities and did not expend on the management. In the coming year factory
management need much efforts and greater promotion of assets to produce sales.

4.4.4 Gross Profit Margin:

GPM = (Gross profit/sales)*100

35
 Definition:
The gross margin reflects the effectiveness of pricing policy and of
production efficiency.
GPM for the year 2000 = 32.49%
GPM for the year 2001 = 16.97%

Graph

40.00%
30.00%
Values

20.00% Series1
10.00%
0.00%
2000 2001
Years

Interpretation:
In the year of 2001 the GPM is 16.97% which is less then the 32.49% in the year
of 2000. This ratio shows is the effectiveness of pricing policy and production efficiency.
Gross Margin is decreased also the decreasing the price of the products. Sale is also
decreased but the profitability has increased relative to the 2000 year.

4.4.5 Net Operating Margin:

Net Operating Margin = (Profit after taxes/sales)*100

36
 Definition:
It shows the profitability of the firm sales but before the taxes and interest
expense.
Net Operating Margin for the year 2000 = 24.38%
Net Operating Margin for the year 2001 = 8.92%

Graph

30.00%
Values

20.00%
Series1
10.00%
0.00%
2000 2001
Years

Interpretation:
In the 2001 the NOM was 8.92% which is less then the 24.38% in the 2000. It
shows the profitability of the sales before taxes and interest expense. These level of sales
the higher the net operating margin the better the position of factory.

4.4.6 Return On Total Asset:

37
 Return on Total Asset = (Earning Before interest and taxes/Total
Assets)*100
Definition:
It provides us the whole effectiveness of the total asset in term of
profit. It shows the earning power of firm.
ROA for the year 2000 = 28.48%
ROA for the year 2001 = 9.13%

Graph

30.00%
Values

20.00%
Series1
10.00%
0.00%
2000 2001
Years

Interpretation:
In the 2001 the return on total asset is 9.13% which is less than the 28.48% in
2000. This Ratio shows that return on total asset is the total after corporate tax return to
stock holders and lenders on the total investment that they have in the factory. It is the
rate of return earned by the factory as a whole for all its investors including lenders.

Chapter 5

38
 5.1 Common Size Analysis of Balance sheet of KCCL

FY2001 Percentages Percentages

FY2000 (Rupees)
(Rupees) of 2001 of 2000

Fixed capital Expense 608743318 661898400 74.5% 74.65%

Loan To employees 2602598 2716546 0.32% 0.31%

Long term deposit 977030 926030 0.12% 0.11%

Current Asset ---- ---- ---- ----

Stores and Spaces 88309024 51434353 10.8% 5.88%

Stock in trade 18977696 50515942 2.32% 5.77%

Trade debtor 13148085 28921924 1.61% 3.31%

Advances and Deposit 34200990 35195185 4.19% 4.02%

Cash 49841000 43369096 6.10% 4.96%

TOTAL Assets 816799741 874975476 100% 100%

Liabilities and Owner’s Equity

39
 Paid Up Share Capital 485970773 474632107 59.50% 54.25%

Liabilities and Against Asset 4006641 15057509 0.49% 1.72%

Deferred Liabilities 111828496 116594786 13.70% 13.33%

Long term Deposit 2354850 2806160 0.29% 0.32%

Current Liabilities ---- ---- ------ ----

Short Term Finance 10922808 69321124 1.32% 7.92%

Current Portion of Long term

11995445 33756486 1.47% 3.85%
Liabilities

Creditors Accruals 91779565 89420083 11.24% 10.22%

Provision For taxes 53228442 28845466 6.52% 3.29%

Dividends 44712721 44541761 5.47% 5.09%

TOTAL Liabilities and Equity 816799741 874975476 100% 100%

5.2 Index Analysis of Balance sheet of KCCL

40
 Index Analysis = (Current Year/Base Year)*100

Current Year = 2001 and Base Year = 2000

Index Analysis

FY2001 FY2000
(Rupees) (Rupees)

Fixed capital Expense 608743318 661898400 91.9%

Loan To employees 2602598 2716546 95.81%

Long term deposit 977030 926030 105.51%

Current Asset ---- ---- ------

Stores and Spaces 88309024 51434353 171.69%

Stock in trade 18977696 50515942 37.57%

Trade debtor 13148085 28921924 45.46%

Advances and Deposit 34200990 35195185 97.18%

Cash 49841000 43369096 114.92%

TOTAL Assets 816799741 874975476

Liabilities and Owner’s Equity

41
 Paid Up Share Capital 485970773 474632107 102.38%

Liabilities and Against Asset 4006641 15057509 26.61%

Deferred Liabilities 111828496 116594786 95.91%

Long term Deposit 2354850 2806160 83.92%

Current Liabilities ---- ---- ------

Short Term Finance 10922808 69321124 15.76%

Current Portion of Long term

11995445 33756486 35.54%
Liabilities

Creditors Accruals 91779565 89420083 102.64%%

Provision For taxes 53228442 28845466 184.53%

Dividends 44712721 44541761 100.38%

TOTAL Liabilities and

816799741 874975476
Equity

42