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Project Report
MBA-2 (Weekend)
Table of Contents
1 INTRODUCTION ..................................................................................................................................... 4
1.1 Vision............................................................................................................................................. 5
1.2 Mission .......................................................................................................................................... 5
2 LIQUIDITY RATIOS ................................................................................................................................. 6
2.1 Current Ratio ................................................................................................................................. 6
2.1.1 Analysis................................................................................................................................. 6
2.1.2 Reasons ................................................................................................................................. 6
2.1.3 Solution ................................................................................................................................. 7
2.2 Quick Ratio .................................................................................................................................... 7
2.2.1 Analysis................................................................................................................................. 7
2.2.2 Reasons ................................................................................................................................. 7
2.2.3 Solution ................................................................................................................................. 8
3 ASSET MANAGEMENT RATIOS (EFFICIENCY OR ACTIVITY RATIOS) ...................................................... 8
3.1 Receivable Activities ..................................................................................................................... 8
3.1.1 Analysis................................................................................................................................. 9
3.1.2 Reasons ................................................................................................................................. 9
3.1.3 Solution ................................................................................................................................. 9
3.2 Days Sale Outstanding (Receivable Turnover in Days) ................................................................. 9
3.2.1 Analysis............................................................................................................................... 10
3.2.2 Reasons ............................................................................................................................... 10
3.2.3 Solution ............................................................................................................................... 10
3.3 Payable Turnover in Days............................................................................................................ 10
3.3.1 Analysis............................................................................................................................... 11
3.3.2 Reasons ............................................................................................................................... 11
3.4 Inventory Turnover in Days......................................................................................................... 11
3.4.1 Analysis............................................................................................................................... 11
3.4.2 Reasons ............................................................................................................................... 11
3.4.3 Solution ............................................................................................................................... 12
3.5 Cash Conversion Cycle ................................................................................................................ 12
3.6 Fixed Asset Turnover................................................................................................................... 13
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Project Report Ratio Analysis of Engro Fertilizers
3.6.1 Analysis............................................................................................................................... 13
3.6.2 Reasons ............................................................................................................................... 13
3.6.3 Solution ............................................................................................................................... 13
3.7 Total Asset Turnover ................................................................................................................... 14
3.7.1 Analysis............................................................................................................................... 14
3.7.2 Reasons ............................................................................................................................... 14
3.7.3 Solution ............................................................................................................................... 14
4 PROFITABILTIY RATOS ......................................................................................................................... 15
4.1 Net Profit Margins on Sales ........................................................................................................ 15
4.1.1 Analysis............................................................................................................................... 15
4.1.2 Reasons ............................................................................................................................... 15
4.1.3 Solution ............................................................................................................................... 15
4.2 Gross Profit Margin ..................................................................................................................... 16
4.2.1 Analysis............................................................................................................................... 16
4.2.2 Reasons ............................................................................................................................... 16
4.2.3 Solution ............................................................................................................................... 16
4.3 Return on Investment (ROI) or Return on Assets (ROA) ............................................................. 16
4.3.1 Analysis............................................................................................................................... 17
4.3.2 Reasons ............................................................................................................................... 17
4.3.3 Solution ............................................................................................................................... 17
4.4 Return on Equity (ROE) ............................................................................................................... 17
4.4.1 DuPont Analysis ................................................................................................................. 18
4.4.2 Analysis............................................................................................................................... 18
4.4.3 Reasons ............................................................................................................................... 18
4.4.4 Solution ............................................................................................................................... 18
5 DEBT MANAGEMENT OR FINANCIAL LEVERAGE RATIOS .................................................................... 19
5.1 Debt to Equity Ratio .................................................................................................................... 19
5.1.1 Analysis............................................................................................................................... 19
5.1.2 Reasons ............................................................................................................................... 19
5.1.3 Solution ............................................................................................................................... 19
5.2 Debt to Total Assets Ratio ........................................................................................................... 20
5.2.1 Analysis............................................................................................................................... 20
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Project Report Ratio Analysis of Engro Fertilizers
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Project Report Ratio Analysis of Engro Fertilizers
1 INTRODUCTION
Pakistan’s fertilizer industry. It is traded on the stock market under the symbol ‘EFERT. Engro
holds a vast, nationwide production and marketing infrastructure and produces leading fertilizer
brands optimized for local cultivation needs and demand. Engro is also a leading importer and
seller of Phosphate products, which are marketed extensively across Pakistan as phospatic
fertilizers.Our extensive market development activities have ensured a sustained pull for our
primary and secondary fertilizer products and sellout productions since launch. Engro Fertilizers
Limited enjoys loyal customer base across Pakistan owing to its trusted fertilizer brands and
Engro Fertilizers Limited was incorporated in June 2009, following a decision to demerge
fertilizer concern from its parent company Engro Chemical Pakistan Limited. The continual
Chemical operations and management. To facilitate better oversight, Engro Chemical Pakistan
was converted into a holding company named Engro Corporation, and its fertilizer business was
fertilizer manufacturing facility at Daharki has been experiencing ongoing expansion. This,
coupled with distinct dynamics of highly nuanced fertilizer industry warranted an independent
and dedicated business entity and approach. The demerger of fertilizer concern was approved by
High Court of Sind on December 9th, 2009, making it effective as of January 1st 2010.
Engro Fertilizers is poised to become the leading urea manufacturer in the country following
Engro’s urea manufacturing facility went into production in November 2010 and looks set to end
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Project Report Ratio Analysis of Engro Fertilizers
Pakistan’s near-term urea imports, leading to benefits of an expanded local urea base and savings
in national exchequer.
Engro is a dynamic company driven by a vision to improve productivity and lifestyle for
thousands of farmers across Pakistan. Engro Fertilizers Limited has earned itself a distinguished
name by continually striving to uphold its tradition and trust of its loyal consumer base.
1.1 Vision
Promoting the growth of communities around Engro’s supply chain and giving people equal
access to choices, opportunities and the ability to exercise their rights. Engro Foundation is
constantly striving to further develop our strategy and move our work towards greater
sustainable impact. Our objective going forward is to improve livelihoods in our value chains
and empower communities towards identifying goals and priorities for better local outcomes.
Engro Foundation aims to realize the dreams of our people to make a difference in the lives of
those around us and in our value chain. At Engro, we believe in the power of Pakistan’s human
capital to change the face of communities and economies and make them agents of a wider
change.
1.2 Mission
Engro Foundation is committed to make a positive impact in the lives of those living in
communities around its supply chain through the provision of improved basic services (health,
infrastructure, water and sanitation); education and skill development; environment and
livelihood training. In addition, it works with partner organizations to provide financial and
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Project Report Ratio Analysis of Engro Fertilizers
Through its network of facilities across Pakistan, Engro aims to make a difference in
communities where average household income borders on or is below the poverty benchmark.
Engro Foundation works across rural and suburban Pakistan in partnership with development
communities to sustain economies, employ their human resources, and learn the critical skills
2 LIQUIDITY RATIOS
2.1.1 Analysis
The Ratio has declined from 1.02 to 0.92. The trend is negative, however the ratio is still higher
than Fauji fertilizer’s ratio i: e 0.842 which shows the company is in a better position to pay off
Current assets have declined at a higher rate of 21.2% as compared to decline in current
2.1.2 Reasons
Cash and bank balances have decreased from Rs. 4443m to Rs. 865m.
Derivative financial instruments have decreased from Rs. 1090m to Rs. 366m.
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Project Report Ratio Analysis of Engro Fertilizers
Trade and Other payables have decreased from Rs. 24727m to Rs. 16887m.
2.1.3 Solution
Improve CCC.
2.2.1 Analysis
The ratio has declined from 0.86 to 0.55. The trend is negative but still the ratio is comparable to
Quick Ratio has declined at a higher rate as compared to Current Ratio because of the impact of
increased amount of inventory which offsets the decline in short term investment and cash in the
2.2.2 Reasons
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Project Report Ratio Analysis of Engro Fertilizers
Cash and bank balances have decreased from Rs. 4443m to Rs. 865m.
Derivative financial instruments have decreased from Rs. 1090m to Rs. 366m.
Trade and Other payables have decreased from Rs. 24727m to Rs. 16887m.
2.2.3 Solution
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Project Report Ratio Analysis of Engro Fertilizers
3.1.1 Analysis
Ratio has declined from 135.896 to 45.68. The sales have increased along with receivables than
last year. However the ratio is still better than Fauji Fert’s ratio which is 21.914. Hence Engro
3.1.2 Reasons
Account receivables duration has increased as compared to the last year due to which
Bad debt customers might have increased causing the ratio to decrease.
3.1.3 Solution
Customers not paying amount need to be visited in case of any issue found in the product.
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Project Report Ratio Analysis of Engro Fertilizers
3.2.1 Analysis
The number of days has increased from 2.65 to 7.88. The sales have increased along with
receivable. However the numbers of days are still better than Fauji Fert’s which is 16.43 days.
Hence Engro Fert’s AR to cash conversion is still better than Fauji Fert.
3.2.2 Reasons
Account receivables duration has increased as compared to the last year due to which
Bad debt customers might have increased causing the ratio to decrease.
3.2.3 Solution
Customers not paying amount need to be visited in case of any issue found in the product.
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Project Report Ratio Analysis of Engro Fertilizers
3.3.1 Analysis
The number of days has decreased from 229.30 to 109.67. Cost of goods sold has increased
however the accounts payable amount has decreased w.r.t previous year which is good from
creditor’s perspective. However Fauji Fert’s PTD is much less than Engro this year i: e. 52.21
days.
The trend is positive however the contribution of decrease in accounts payable is less than that of
3.3.2 Reasons
Accounts payable amount has decreased which could be due to efficient payment
processes.
3.4.1 Analysis
The number of days has increased from 53.92 to 74.77. Inventory has increased a lot from last
year whereas CGS has also increased. The trend is negative and worse as compared to Fauji
3.4.2 Reasons
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Project Report Ratio Analysis of Engro Fertilizers
Production have been increased which is higher than the market demand.
Wrong marketing policy have been adopted which resulted in lower sales as forecast.
warehouses.
3.4.3 Solution
CCC = Days Inventory Outstanding (DIO) + Days Sales Outstanding (DSO) - Days Payable
Outstanding (DPO)
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Project Report Ratio Analysis of Engro Fertilizers
= Rs. 87,615m / Rs. 72,193m = Rs. 61,425m /Rs. 74,963m = Rs. 84,831m/Rs. 21,382m
3.6.1 Analysis
The ratio has increased from 0.819 to 1.21 which means better utilization of fixed assets for
conversion to sales. Fixed assets have slightly decreased however Sales have increased.
Engro Fert’s ratio is much less than that of Fauji Ferts ratio which means improvement is
3.6.2 Reasons
3.6.3 Solution
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Project Report Ratio Analysis of Engro Fertilizers
= Rs. 87,615m / Rs. 105,382m = Rs. 61,425m /Rs. 111,726m = Rs. 84,831m/Rs. 80,130m
3.7.1 Analysis
The ratio has increased from 0.55 to 0.831 which means better utilization of total assets for
conversion to sales. Total assets have slightly decreased however Sales have increased.
Engro Fert’s ratio is less than that of Fauji Ferts ratio which means improvement is required in
this area.
3.7.2 Reasons
3.7.3 Solution
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Project Report Ratio Analysis of Engro Fertilizers
4 PROFITABILTIY RATOS
4.1.1 Analysis
The percentage has increased from 13.36% to 17.15%. Net sales have increased in comparison to
last year along with net income. However the percentage is less than that of Fauji Fert.
4.1.2 Reasons
Finance cost of Engro i: e Rs. 4,588m is much higher than that of Fauji Rs. 1,475m
Alternate is available in market which resulted in reduced price hence lower profit.
4.1.3 Solution
Increase Equity
Reduce liabilities.
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Project Report Ratio Analysis of Engro Fertilizers
4.2.1 Analysis
The ratio has slightly decreased as of last year. Gross profit and sales both have increased
slightly from last year. However this percentage is better than that of Fauji Fert’s percentage.
4.2.2 Reasons
4.2.3 Solution
Improve productivity.
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Project Report Ratio Analysis of Engro Fertilizers
4.3.1 Analysis
The percentage has increased from 7.347 to 14.26 which show an increase in utilization of assets.
This is good from creditor’s point of view as it is a significant ratio for creditors. However the
4.3.2 Reasons
4.3.3 Solution
= Rs. 15027m * 100% / Rs. = Rs. 8208m * 100% / Rs. = Rs. 16,766 m * 100% /
42,526m 34,478m Rs. 27,311m
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Project Report Ratio Analysis of Engro Fertilizers
4.4.2 Analysis
The percentage has increased from 23.81% to 35.34%. Shareholder’s equity has increased
slightly and net income has also increased. The trend is positive however it is much less than that
of Fauji Ferts.
4.4.3 Reasons
Increase in net income is majorly dependent on debt financing which is indicated by the
current ratio.
4.4.4 Solution
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Project Report Ratio Analysis of Engro Fertilizers
= Rs. 62856 m/ Rs. 42,526m = Rs. 77248m/ Rs. 34,478m = Rs. 52819m / Rs. 27,311m
5.1.1 Analysis
Company is financed through debt by 1.478 rupees for every rupee paid by shareholders. This
value is slightly lower than the value in the previous year where the debt to equity ratio was
2.241.
The company is moving towards less risk in order to finance its efforts to have increased sales.
The ratio for Fauji Fert is 1.934 which is slightly higher than Engro.
5.1.2 Reasons
5.1.3 Solution
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Project Report Ratio Analysis of Engro Fertilizers
= Rs. 62856 m/ Rs. 105,382m = Rs. 77248m/ Rs. 111,726m = Rs. 52819m / Rs. 80,130m
5.2.1 Analysis
The firm’s 59.6% assets are financed by the creditors as compared to 40.4% financed by the
shareholders. This is a lower percentage than that of the previous year which was 69.1% which is
good from company’s perspective however Engro has percentage lower than that of Fauji Fert
5.2.2 Reasons
Gearing Ratio = Long Term Debt / Long Term Debt + Share Holders Equity
= Rs. 25,290 m/ (Rs. 25,290 m = Rs. 36,091m / (Rs. 36,091m = Rs. 15,893m/ (Rs. 15,893
+ Rs. 42,526m) +Rs. 34,478m) m+ Rs. 27,311m)
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Project Report Ratio Analysis of Engro Fertilizers
5.3.1 Analysis
The decreasing trend indicates that the company is planning for less risk in long term as it has
increased stockholder’s equity thus making the ratio more favorable. The ratio is slightly higher
5.3.2 Reasons
Reduced debt.
6 INVESTMENT RATIOS
6.1.1 Analysis
The EPS value has increased as compared to previous year. The trend is positive however it is
6.1.2 Reasons
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Project Report Ratio Analysis of Engro Fertilizers
6.1.3 Solution
Reduce CGS
Improve Sales.
Price Earnings Ratio = Market Price per share/ Earnings per Share
6.2.1 Analysis
The value has decreased from 9.262 to 6.20 this year. Earnings per share have decreased. The
company has progressed and shareholders have benefited more as the market price as increased
as well as the EPS has increased however P/E ratio is lesser than Fauji Fert which is mainly
The P/E ratio is less as the investor is willing to pay less for each rupee earned.
6.2.2 Reasons
Increase in EPS.
6.2.3 Solution
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Project Report Ratio Analysis of Engro Fertilizers
6.3.1 Analysis
The Breakup value has increased as compared to previous year from 26.15 to 31.95 and it is
6.3.2 Reasons
Increase in equity
= Rs. 70.06/ Rs. 31.95 = Rs. 58.26 / Rs. 26.15 =Rs. 117.98/Rs. 21.47
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Project Report Ratio Analysis of Engro Fertilizers
6.4.1 Analysis
The ratio indicates that the price of the stocks is higher in the market as compared to book value
and the stocks are overvalued. This value has decreased in comparison to last year which is a
negative indicator because the valuation of stock in market has decreased in relation to book
6.4.2 Solution
7 COVERAGE RATIOS
7.1.1 Analysis
The Company’s interest coverage ratio has increased from 2.8 to 5.61 which is a good sign.
Company has still a long way to go to manage its finance cost as compared to its competition.
7.2 Reasons
Reduced finance cost from last year however it is still higher as compared to Fauji Fert.
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Project Report Ratio Analysis of Engro Fertilizers
7.3 Solution
Increase profits
Reduce overheads.
Reduce CGS.
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Project Report Ratio Analysis of Engro Fertilizers
8 References
http://www.scstrade.com/StockScreening/SS_CompanySnapShot.aspx?symbol=EFERT
http://engrofertilizers.com/wp-content/uploads/2014/05/Fert-AR-2015-AW-full.pdf
http://ffc.com.pk/uploads/docs/ar_2015.pdf
http://www.scstrade.com/StockScreening/SS_CompanySnapShotYF.aspx?symbol=EFE
RT
http://www.scstrade.com/StockScreening/SS_CompanySnapShotYR.aspx?symbol=EFE
RT
http://www.engro.com/integratedreview2014/financial-capital.php
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