FINANCE FOR MANAGERS

Financial analysis report on cement industry of Pakistan

(Comparison of Dewan Cement and Power Cement)

• Prepared by:
AAZMEEN ANWER 10337
• NAIMA 9472
• SADIA KHAN 10338
• SOBAN AHMED KHAN 9752
• YUSRA ISHRAT 10320

Submitted to: Syed Asif

Date: 21-12-2015
Contents
Acknolegement:………………………………………………………………………………………………………………………………………3

Introduction:……………………………………………………………………………………………………………………………………………4

Objective: ...................................................................................................................................................... 5
Analysis: ........................................................................................................................................................ 5
Liquidity Ratios:............................................................................................................................................. 5
Debt Management Ratios: ............................................................................................................................ 6
Profitability Ratios:........................................................................................................................................ 6
Market Value Ratios:..................................................................................................................................... 7
Conclusion: .................................................................................................................................................... 7
ACKNOWLEDGEMENT
God Almighty is worthy of all acknowledgments….No one can say that I am
perfect, everyone should admit that without the help of Allah and His people a
man can’t get anything so I bow my head before almighty Allah with gratitude. I
am also very much thankful and presents salute too many individuals who have
helped me in shaping this research paper I am gratitude to Almighty
Allah, who has given me strength and mentor to complete this task. I extend my
thanks to Sir. Syed Asif, whose candid guidance and continuous support and
encouragement during the accomplishment of my Project Report on “Financial
Analysis of Cement Industry of Pakistan.
I am thankful to my teacher for given me this opportunity and build up
confidence. I hope this effort on my part will come up to your expectations.
INTRODUCTION
The research report is carried out as the analysis of cement industry of Pakistan by comparing
the financial performance of two units. Power cement Ltd and Dewan cement Ltd.

POWER CEMENT LIMITED

A longtime leader in the cement manufacturing industry, Power Cement Company,
headquartered in Arif Habib Center MT Khan Road Karachi, operates a cement plant in the
province of Sindh. The Company has a strong and longstanding tradition of service, reliability.

DEWAN CEMENT LIMITED

Dewan cement limited is Pakistan based company engaged I the manufacture and sales of
cement. The company has two production facilities at Deh Dhando, Dhabeji Karachi.it is an ISO
9001:2008 certified company, and a name of trust in the production of high quality cement.

Analysis will be made for profit and loss A/c, Balance Sheet and Cash flow statement; the
following financial ratio will also be analyzed. Balance sheet trend analysis, income statement
trend analysis and Ratio analysis.
Objective:
The Purpose of this report is to evaluate, compare and analyze financial statement of Power
cement Ltd and Dewan cement Ltdcomparative analysis. . I have chosen these two companies
on the basis of their financial performance, they are also listed on all major stock exchanges of
the country. As the requirement of the report, I have conducted a detailed study of the analysis
the financial statements and ratios. On the basis of above information, the report includes the
whole financial status of both the companies through which reader can get the financial
strengths & weakness of both the organizations. Pakistan currently has a per capita
consumption of 120kg of cement, which is comparable to that for India at 135kg per capital.
Over the years a number of tax policy and administrative measures have been introduced to
attract investment and facilitate growth of the cement industry.

The Government has reduced Central excise duty (CED) on cement in the Budget for 2007-08in
order to boost constructionactivity.In Pakistan APCMA plays a significant role in protecting
the cement industry to the Government and coordinating various activities in respect of
formulation of Government policies for the cement industry.

Analysis:
Here we have analyzed 2015 financial report of Power Cement and of Dewan cement. We’ll
start the analysis by liquidity, debt, market value, profitability ratios.

Liquidity Ratios:
Quick ratio of Dewan cement is 0.44 while the quick ratio of Power cement is 0.8 which implies
Dewan cement is not very stable in terms of paying of short term debts and liabilities as
compared to Power cement which is comparatively stable and can pay off short term debts and
liabilities without facing any major difficulty.

Cash ratio of Dewan cement is 0.026 and the cash ratio of Power Cement is 0.31 which means
Dewan cement is not very liquid and can face difficulty in paying short term debts and liabilities
while Power cement is relatively liquid and can pay short term debts and liabilities better than
Dewan Cement.

Current ratio of Dewan cement is 0.4 and the current ratio of power cement is 0.8 which means
Power cement is more liquid compared to Dewan cement but both these firms lack satisfactory
current ratio. Current ratio varies industry to industry but the acceptable current ratio for most
creditors and investors is 2 and in some industries at least 1.5 is an acceptable current ratio
which both these companies lack. They are both below 1.5 but it also signifies one thing that
they are utilizing their existing current assets and their short term financing facilities efficiently.
Net working capital of Dewan cement is -3088449 and net working capital of Power cement is -
261614 which means both these companies don’t keep much cash at hand and they may be using the
cash to clear their accounts payable instead of keeping it at hand.

Inventory turnover ratio of Dewan cement is 13.34 while the inventory turnover ratio of power
cement is 11.12 which indicates that Dewan cement is better at inventory management and
they have effective sales and they have slight edge over Power cement which is relatively lower
in inventory turnover ratio as compared to Dewan cement.

The asset turnover of Dewan cement is 0.42 and the asset turnover of Power cement is 0.14
which means Dewan cement is generating more sales from its assets as compared to Power
cement. Dewan cement has deployed is assets better than Power cement.

Debt Management Ratios:

The debt ratio of Dewan cement is 0.78 and the debt ratio of Power cement is 0.67 and the
debt to equity ratio of Dewan cement is 4.6 and the debt to equity ratio of power cement is
3.07 which means Power cement has less financial leverage and it is using less debt to finance
its assets as compared to Dewan cement which has less financial leverage and using more debt
to finance its assets.

Equity multiplier of Dewan cement is 4.63 and the equity multiplier of Power cement is 3.07
which means Dewan cement has higher financial leverage as compared to Power cement and
Dewan cement relies more on debt to finance its assets.

Equity ratio of Dewan cement is 0.21 and the equity ratio of Power cement is 0.32 which
indicates that power cement has higher contribution of shareholders to its capital as compared
to Dewan cement and Power cement has better long term solvency position. Which is a good
thing for its creditors and the creditors of Dewan cement are at higher risk.

The noncurrent assets to net worth ratio of Dewan cement is 4.11 and Power cement is 2.24
which means Dewan cement has invested more in low liquid noncurrent assets as compared to
Power cement.

Profitability Ratios:
Operation margin of Dewan cement is 0.021% and the operating margin of Power cement is
14.5% which shows Power cement is earning more per rupee sales (before interest and tax).
EBITDA of Dewan cement is 4.85% and EBITDA of Power cement is 16.07%. Which means Power
cement is performing well financially.

Return on Investment of Dewan cement is 1.95% and return on investment of Power cement is
7.24% which indicates Investing in Power cement will give more return than Dewan cement.

Return on debt of Dewan cement is 7.20% and return on debt of Power cement is 6.29% which
means Dewan cement is making 0.29% more revenue per dollar held in debt.

Return on capital employed of Dewan cement is 46% and return on capital employed of Power
cement is 43% which means Dewan cement is achieving 3% more return on capital employed as
compared to Power cement.

Market Value Ratios:

Dewan and Power cement both do not pay dividends hence it was only possible to calculate
following Ratios:
Earnings per share of Dewan cement is 1.12 and Power cement is 1.19 which indicates power
cement is achieving 0.07 more return per share as compared to Dewan cement.

Price book value of Dewan cement is 500000 and Power cement is 400000 which indicates
Dewan cement’s shareholders are contributing more towards the company’s assets.

Price to earnings ratio of Dewan cement is 8.92 and Power cement is 8.40 which means the
ratio between earning per share and price per share of Power cement is 0.52 less than Dewan
cement.

Conclusion:
We conclude this analysis by pointing out that Power cement is much more stable and
financially sound organization as compared to Dewan cement. Dewan cement may have a
bigger noncurrent assets investment but it’s lagging in profit margins and return on investment.
It might also face liquidity issues and likely to face problems in paying off its short term debts.
Both organizations are not paying dividends but In terms of credit and investment we
recommend Power cement is a much better and safer option to invest or to give credit to.