5/27/2015

Financial Statement
Analysis
Submitted to: Dr Atif

Ali Rafique 12-4960

BS-A
 Acknowledgement

In the name of Allah, the most gracious and most merciful.

First of all I would thank to Allah that I have been able to complete this project
with the best of knowledge and support from my institute.
This project consumed huge amount of work, research and dedication. Still,
implementation would not have been possible if I did not have a support of many
individuals and specially my Financial Statement Analysis course instructor.
Therefore I would like to extend my sincere gratitude to all of them. I am thankful
to my course instructor Dr Atif for his overall support and for providing necessary
guidance concerning projects implementation. I am also grateful to my class mates
and friends for their provision of expertise, and technical support in the
implementation. Without their superior knowledge and experience, the Project
might have lacked in quality of outcomes, and thus their support has been essential.
Contents

Executive Summary: ..................................................................................................................................... 3

Industry Overview: ....................................................................................................................................... 4
Challenges:.................................................................................................................................................... 5
SWOT ANALYSIS ...................................................................................................................................... 6
Legal Framework: ......................................................................................................................................... 8
Outlook: ........................................................................................................................................................ 8
Science and technology: ............................................................................................................................... 8
Economical: .................................................................................................................................................. 8
Industry Trend Analysis:............................................................................................................................... 9
About the Companies.................................................................................................................................. 11
Company Standards: ................................................................................................................................... 12
LIQUIDITY RATIOS: ...................................................................................................................................... 13
Current Ratio:.......................................................................................................................................... 14
Acid Test: ................................................................................................................................................ 15
Cash Ratio: .............................................................................................................................................. 16
PROFTABILTY ......................................................................................................................................... 17
Gross Profit Margin: ............................................................................................................................... 18
Net Profit Margin: ................................................................................................................................... 19
Return on Assets: .................................................................................................................................... 20
DuPont 5 factor decomposition of ROE: ................................................................................................ 21
Interest Coverage Ratio........................................................................................................................... 22
ACTIVITY RATIOS .................................................................................................................................. 23
Inventory Turn over ................................................................................................................................ 24
Average collection Period ....................................................................................................................... 25
Average payment Period ......................................................................................................................... 26
Asset Turnover ........................................................................................................................................ 26
SOLVENCY ............................................................................................................................................... 28
INVESTOR RATIO.................................................................................................................................... 30
FORECASTING ......................................................................................................................................... 31
RECOMMENDATIONS AND CONCLUSIONS: .................................................................................... 34
Executive Summary:

The chemical industry of the next few years will be shaped by a number of emerging global
mega trends, such as population growth, water and food scarcity, sustainability, including energy
use and climate change. The chemical industry leaders of the future will be those companies who
successfully innovate to develop products that make life better and our planet healthier. This
financial analysis report examines three high profile competitors, Sitara, Nimir and Ittehad
chemicals within the Chemical Industry of Pakistan in order to evaluate company performance
and financial health. Overall company strategies were reviewed and considered along with the
financial analysis to come to a conclusion for recommendation of investment. The reports
introduction gives an overview to the chemical industry and expands on the strategies executed
by Nimir, Ittehad and Sitara chemicals. The financial analysis covers all three companies’
common-size income statements and balance sheets, comparative income statements and balance
sheets, and various financial statement ratios such as liquidity, capital structure and solvency,
return on investment, operating performance, asset utilization and market measures from year
2009 to year 2013. Conclusions are drawn from the financial analysis as well as areas for
improvement and investment recommendations. Firstly the report includes the overall analysis of
the Chemical Industry of Pakistan which includes SWOT and PEST analysis as well as the
outlook of the industry in the current economic situation of Pakistan. The report further incudes
the comparative analysis of the accounting standards adopted by the 3 chemical companies and
how they have actually implemented these accounting standards when preparing their statements
of financial performance and position. The trend analysis of the industry is also included which
tells about how much the chemical industry of Pakistan has grown over the 5 years and what
impact this growth has made on the economy of Pakistan and its GDP over these years. Other
than this, this report highlights the key financial performance and position indicators of the 3
companies and the evaluation helps us to understand that how the management of each company
has performed to make these results to deviate from those in the previous years. And in the end,
the report highlights that which company has been the most dominant one and how much each of
them have contributed to the chemical industry and what is to be expected in the FY14 in terms
of their financial results.
Industry Overview:

The chemical industry is a key contributor in the economic development of any country.
Pakistan’s chemical industry has by and large developed on a fragmented and ad-hoc basis,
motivated by a combination of the existence of a small local market and traditionally high tariffs.
As a result it suffers from the lack of economies of scale, national integration and consequent un-
competitiveness. Resultantly, the country is highly dependent on imported chemicals to cater for
the needs of its agriculture as well as industrial sectors. Since Pakistan is an agricultural
economy, major part of the chemical industry provides agricultural inputs, i.e. fertilizer and
pesticides. Chemical sector plays a fundamental role in the economic development of any nation.
The global business of chemical forms the structure of the modern world. It converts essential
raw materials into more than 70,000 various products, for industry as well as the goods of
consumers that people depend on in their daily life. The modern chemical industry can be
divided into four wide categories, including basic chemicals, specialty chemicals, life sciences,
and consumer products. If we talk about the overall industrial performance, In 2010, the overall
rate of medicine, drugs and over-the-counter medicines has been calculated up to PKR 159.2bn
(US$1.79bn). It was observed that the medicine sector faced huge losses in FY10/11.This was
the result of uncertainty in the industry.
All the way through to 2014, the value of market at consumer prices was expected to be at a
compound annual growth rate (CAGR) of 7.13%. However, growth could only be 3.50% in US
dollar terms, which would also proceed as prevention to foreign participation. The situation can
improve over the ten-year forecast period, with CAGR rates as 8.84% and 6.98%, respectively.
Medicated drugs are expected to account at around 76- 78% for the five- and ten-year spans.
Besides, other business activities such as different Chemicals are being imported and exported
from Pakistan. Pakistan’s market for industrial chemicals is expanding gradually though it has a
less-well developed commercial chemical industry. As was stated in the Pakistan trade policy
2010, “In order to address our strategic objective of product diversification for Pakistan’s exports
our government aims to provide a clear policy framework on the development of chemical
sector.” Chemical industry in Pakistan is widespread, in organized & unorganized sector. It has
approximation of investment in chemical sectors between Rs.550-600 billion. The chemical
related imports constitute about 17% of the total import bill. Chemicals are important as they
play the role of a building block to produce products in order to fulfill the basic needs like,
shelter, food and health. They also are central to the world of technology, telecommunications
and of course biotechnology. These are used to make a large variety of consumer goods and have
inputs in agriculture, manufacturing, construction and services industries. Chemicals in
particular, are a keystone of world manufacturing, as they are an integral component of all the
manufacturing sub-sectors, including pharmaceuticals, automobiles, textiles, furniture,
electronics, construction and appliances.
Economically the market of chemicals is divided into four main categories.

 Basic Chemicals: which are the commodity materials including flexible material, Polymers,
Petrochemicals and other derivatives and inorganic chemicals which makes.10 35-37% of
the chemical market.
 Life Sciences: Include differentiated chemical and biological substances, pharmaceuticals,
health products, and crop protection chemicals makes 30% of the chemical market.
 Specialty Chemicals: These are high value-added chemicals with diverse end-product
market. Products include electronic chemicals, industrial gases, adhesives, sealants and
catalysts. Specialty Chemicals are sometimes referred to as “fine chemicals” make 11 20-
25% of the chemical market.
 Consumer Products: include soap, detergents, and cosmetics are only 10% of the chemical
market.

Challenges:
Even then there are some challenges to be countered. The chemical industry of Pakistan is
lagging behind due to some challenges. The main challenge is that it has to rely on its imports
and foreign materials. It does not benefit the economy and results in production of expensive
products.

Secondly lack of industrial infrastructure and technology in Pakistan results in low quality
products which do not mark the standard. Moreover the discriminatory approach of international
community does not integrate the Pakistan market into the international economy and Pakistani
products are not given access to the international market. Moreover the lack of resources and
weak trade policies of the ministries also result in the weakening of chemical industry.

In order to enhance the chemical industry Pakistan must adopt the policy of “self-reliance”.
Instead of relying on foreign designs and engineering it must improve its own production and
ensure high quality of chemical products.

Pakistan must work towards integrated approach. It must bring four worlds of a society together
which are traders, universities, research and development and production partners. This will
bring innovation and must utilize its youth which has fresh minds and great ideas to enhance the
chemical industry resulting in qualitative and quantitative perfection in the chemical products.
Pakistan is capable of producing high technological products all it needs is a little bit of effort in
improvement of administrative capabilities and induction of new technology and support from
government to put things in order.

SWOT ANALYSIS

Strengths:
 A diversified manufacturing base.
 Vibrant downstream industries in different segments.
 Competitive core industries.
 Capability to produce world class end products.
 Large domestic market.
 Good R&D base and quality human resources.
 Strong presence in some export market segments.

Weaknesses:
 Cost of power: very high cost and poor quality of power.
 Cost of finance: chemical industry is highly capital-intensive, cost of finance is very high.
 Infrastructure: infrastructure facilities are not of world class
 Sophisticated technologies involved
 Export market limitations
 Insufficient current tariff spread

Opportunities:

 Pakistan has a well-organized system for imports and exports of chemical materials
which are then converted into more than 70,000 various products for industry as well as
the goods of consumers. This shows that it has potential of developing as an industry
which could provide momentum for the other existing industries.

 Chemical industry including plastic and rubber is still a relatively undeveloped industry
compared to the traditional industries of Pakistan, such as cotton textiles, leather, carpet,
sugar, cement, building material etc.

 The country’s Large Scale Manufacturing (LSM) has registered positive growth of 1.85
percent during the July-Sep first quarter of the current FY14 over the corresponding
period of the last FY13. The manufacturing items witnessed growth during the first
 quarter over the same period of last year included chemicals (6.15%).Chemicals sector
was also amongst the few sectors to attract Foreign Direct Investment in 4 months of
FY13.

 This industry has a lot of room for expansion and utilizing its potential to its maximum,
considering Pakistan has sufficient amount of raw material required.

 Consumer Products account for 10% of the chemical products market. Consumer
products show some hopeful prospects for the chemical industry.

 The overall increase in the imports of chemicals has been at an average rate of 33 percent
per annum. This figure points at the immense potential for Pakistan’s chemical industry.

 Petro-chemicals remain an unexplored area for the Industry. This could possibly take the
sector to a next level by opening new opportunities and likewise attracting investors,
domestic and international.

THREATS

Some other factors of note for the industry are;

 Most of the operations of this industry have pollution causing affects. This keeps creating
problems for them every time a regulatory body takes charge. Also, this again can be a
cost that they incur and can be discouraging if it out-weights the benefits.

 Adequate coverage against import duties needs to be provided, being a very complex and
diverse set of core input materials that currently are purchased from the global market.

 A major back drop is the obsolescence of technology. This has not only made the
production process inefficient, but erodes margins.
Legal Framework:
A comprehensive and dedicated legislative framework is essential for the sound management of
chemicals. There are 53 Acts and regulations, which are considered relevant for the management
of chemicals in Pakistan. However, in reality, most of these acts have just some sort of relevance
with chemicals. Few examples of these acts are Hazardous Substances Rules- 2007, The
Agricultural Pesticides Ordinance, 1971 & Rules, 1973, Chemical Weapons Convention
Implementation Ordinance- 2000, The Railways Act, 1890, The Baluchistan Local Government
Ordinance, 2001, Import and Export Policy Order, 2013and Labor Policy, 2006 etc. All chemical
companies present in Pakistan have to follow these acts for save production of chemicals.

Outlook:
The industry should continue to grow at a marginal pace with enhanced downward pressures
over sales and margins due to the negative economic outlook.

Science and technology:

In a rapidly changing international economic environment, science and technology is vital for
sustaining the development momentum. Unfortunately, the state of science and technology has
been far less satisfactory in Pakistan as compared with other emerging economies. Pakistan lacks
strong engineering foundations and the loss of qualified personnel has further hindered the
development of the country’s technological base. The poor state of science and technology may
also be attributed to the relatively low awareness of technological needs and capacity of the
domestic industries, the weak link between industry, academia, and research institutions, and a
lack of resources for scientific research and technological development. To prepare the country
to face emerging challenges, the development of science and technology and its interface with
industry has to be brought to the forefront of the industrial vision for the future. While some
work has been initiated recently, it is just the tip of the iceberg.

Economical:
The chemical industry of Pakistan is greatly affected by the economic factors in the country. The
industrial policies of the government have influenced the market for chemicals on a larger scale
and would continue to affect the overall industry. Since the chemical industry relies a lot on its
imports and exports, the economic situation of the country is very vital factor that directly affects
the revenues and costs to the chemical companies. The currency exchange rate is also a major
factor effecting the industry and as FY10-11 faced economic instability, the exchange rate also
deteriorated resulting on poor financial performance of the industry as reflected by their
statements. The FY2013-14 had been politically tumultuous for Pakistan, adversely affecting its
economic growth. Pakistan's economy is still facing pressures from uncertain security
environment, severe energy crisis, political instability and intensive inflationary pressure. Along
with this the electricity, fuel and gas shortages have greatly influenced the overall progress of the
chemical industry in Pakistan and these factors are still contributing to difficult survival for many
chemical companies. Year 2014, proved to be a challenging year as well. Acute energy, natural
gas shortages along with its historic upward price hike, deteriorating law & order situation, the
political scenario of the country together with higher general inflation and significant
depreciation of the Pakistani rupee played a major role in slowing down of business growth and
has also adversely impacted the purchasing power of the consumer. Geopolitical situation
remained under pressure and put unconstructive impact on Exports to India. All these factors
together resulted in higher input costs and has impacted the business adversely. Pakistan's recent
worst ever floods have affected all its provinces at large. Along with this, every year Pakistan is
hit by heavy floods resulting in a huge loss to the agricultural sector. Due to this loss all the
industries linked with agriculture are affected adversely and so is the chemical industry. So the
economic factors have been affecting the chemical industry of Pakistan for the last 50-60 years
and they will continue to affect as long as the floods continue to erode the agricultural land.

Industry Trend Analysis:

The growth rate of chemical industry can be determined by following table and graph.
Chemical 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13
industry
Growth 5.90% 3.10% 3.80% -0.21% 3% 2.20% 1.90
rate

growth rate

6.00%
5.00%
4.00%
3.00% 5.90%
2.00% 3.10% 3.80%
3%
1.00% 2.20% 1.90%
0.00% -0.21%
-1.00%

growth rate

The above graph shows a fluctuating growth trend. The main reason being the energy
crisis (electricity and gas) and poor economic policies implemented by the government of
Pakistan. Moreover, imposition of new taxes, high inflation rate and floods almost every
year has aggravated the situation. Along with this the continuously deteriorating
exchange rate of Pakistan has also played a vital role in causing such a trend in the
chemical industry. The government should review their policies and provide chemical
manufacturers subsidies to stabilize the growth rate. To succeed in this shifting
landscape, chemicals companies need to focus their strategic thinking on three areas: (1)
adapting and refining their business models and manufacturing footprints; (2) identifying
growth opportunities in emerging markets which will require a new mind-set and (3)
harnessing the potential of digital technologies to capitalize on the next wave of value
creation. This industry has a lot of room for expansion and utilizing its potential to its
maximum, considering Pakistan has sufficient amount of raw material required. Although
markets and requirements for success have changed dramatically in recent years, many
companies in the chemicals sector continue to falter under the weight of antiquated
business models and go-to-market approaches. For some chemicals firms, the problem is
manifested in overinvestments in specialty chemicals businesses that have offered
differentiation and higher margins in the past but that are rapidly commoditizing. Other
companies have been too myopic, cutting costs in specialty lines that would actually
benefit from more nurturing, innovation, and focused investment. In some cases,
chemicals companies have been late in recognizing the credible threat from lower-cost
 capacity built in Asia over the last decade, rendering themselves uncompetitive in these
regions, often after they have installed costly assets in commoditized marketplaces.

About the Companies

There are 3 companies which have been selected for the purpose of this project namely; Nimir
Chemicals, Ittehad Chemicals and Sitara Chemicals. All these 3 companies are limited
companies and are listed in Karachi Stock exchange. Firstly, Nimir Industrial Chemicals Limited
was incorporated in Pakistan on February 6, 1994 as a public limited Company under the
Companies Ordinance, 1984. The shares of the Company are quoted on Karachi and Lahore
Stock Exchanges. The Company started its commercial operation on January 1, 2000. The
registered office of the Company is situated in Sheikhupura, Pakistan. The Company is engaged
in manufacturing and sale of industrial chemical products. Secondly, Sitara Chemical Industries
Limited was incorporated in Pakistan on September 08, 1981 as a public limited company under
Companies Act, 1913 (now Companies Ordinance, 1984). The Company is currently listed on
Karachi, Lahore and Islamabad stock exchanges. The principal activities of the Company are
operation of Chlor Alkali plant and yarn spinning unit. The registered office of the Company is
situated in Karachi, in the province of Sindh and the manufacturing facilities are located in
Faisalabad, in the province of Punjab. Ittehad Chemicals Limited was incorporated on September
28, 1991 to take over the assets of Ittehad Chemicals and Ittehad Pesticides under a Scheme of
Arrangement dated June 18, 1992 as a result of which the Company became a wholly owned
subsidiary of Federal Chemical and Ceramics Corporation (Private) Limited. The Company was
privatized on July 03, 1995. The Company was listed on Karachi Stock Exchange on April 14,
2003 when Sponsors of the Company offered 25% of the issued, subscribed and paid up shares
of the Company to the general public. The registered office of the Company is situated at in
Lahore. The Company is engaged in the business of manufacturing and selling caustic soda and
other allied chemicals.
Comparative Analysis of Company Standards:

The financial statements prepared by the management of all 3 companies present fairly its state
of affairs, the result of its operations, cash flows, and changes in equity. Appropriate accounting
policies have been consistently applied in preparation of these financial statements and
accounting estimates are based on reasonable and prudent judgment. International Accounting
Standards, as applicable in Pakistan, have been followed in preparation of financial statements
and any departure there from has been adequately disclosed. These financial statements have
been prepared under the “historical cost convention”, modified by revaluation of certain
property, plant and equipment, investments in associate valued on equity method, financial
instruments at fair value, and recognition of certain employee retirement benefits at present
value. The companies have accounting standards such as IAS 16 classification of Property plant
and equipment, IAS 32 Financial instruments, IAS 27 Separate financial statements, IAS 19
employee benefits and IAS 36 Impairment of Assets are the examples of some accounting
standards which have been observed by all the 3 companies discussed in this report. Any
amendments in these standards have been reflected properly in the financial statements and have
been carefully analyzed for the evaluation of their performances. Along with this the Companies
have changed their estimated economic useful lives of some items of plant and machinery. This
change in accounting estimate have been accounted for as per the requirements of the
International Accounting Standard (IAS) 8, “Accounting policies, change in accounting
estimates and errors”. The preparation of financial statements in conformity with approved
accounting standards, as applicable in Pakistan, requires the use of certain critical accounting
estimates. It also requires management to exercise its judgment in the process of applying the
Company's accounting policies. Estimates and judgments are continually evaluated and are based
on the historical experience by the 3 companies, including expectations of future events that are
believed to be reasonable under the circumstances. These estimates and underlying assumptions
were reviewed on an ongoing basis by the management of the companies. To conclude, all the 3
companies used implemented almost similar accounting standards which made it possible to
easily compare the 3 companies on the basis of their financial performances and positions over
the 5 years period.
Liquidity Ratios:

Current Ratio
1.5

0.5

0
2009 2010 2011 2012 2013

Sitara Ittehad Nimir Industry

Acid Test Ratio

0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
2009 2010 2011 2012 2013

Sitara Ittehad Nimir Industry

Cash Ratio
1

0.8

0.6

0.4

0.2

0
2009 2010 2011 2012 2013

Sitara Ittehad Nimir Industry

Current Ratio:
2009 2010 2011 2012 2013
Sitara 0.91 0.84 0.88 0.63 0.75
Ittehad 1.3 1.08 0.96 0.94 1.14
Nimir 1.14 1.08 1.21 1.26 1.4
Industry 1.25 1.04 1.03 1.11 1.09

The current ratio of a company tells about its ability to pay its short term obligations by using its
short term or current assets. These three are identical companies working in the same industry at
same stage of production however they all differ from each other in terms of their liquidity. All
the companies have faced a fluctuating trend from the FY 2009-13. Firstly, the Sitara chemicals
have poor liquidity performance as compared to the other two companies and this is due to the
reason that it has not been able to control its current liabilities whereas the current assets have
not increased by a greater percentage than the short term liabilities. Specifically the management
has made a large amount of short term borrowings over the period as well as it has made
purchases of its raw materials on credit leading to increasing amount of accounts payables and
has large amounts of tax payable to the government. The company should have a current ratio of
at least 1 so that it is able to pay its liabilities at least once. Secondly, Ittehad chemicals also has
a fluctuating trend over the 5 years however its liquidity is somehow close to industry average.
The reason for the current ratio to rise above the industry average over the period is that the
company’s current assets have increased by a greater percentage (41%) as compared to its
current liabilities(37%) from 2009-2013. Along with this, if we evaluate company’s financial
statements we can clearly see that the company’s trade debts and cash and bank balances have
increased more as compared to the other elements of the current assets whereas the management
has been able to control its short term borrowings and reduce them over time due to which the
overall short term obligations have decreased resulting in better current ratio as compared to the
Sitara chemicals. Thirdly, Nimir chemicals ltd has performed well as compared to the other two
companies in terms of its liquidity. The company’s current ratio is close to but higher than what
the industry holds on average. The company has a higher current ratio than the other two because
of the fact that the management has been able to keep control its current liabilities. Over the 5
year period the company’s current assets have increased by 46.4% as compared to its current
liabilities which have increased by just 31%. The increase in current assets is mainly due to the
company’s cash position. The management has been able to collect more cash from its customers
over the financial years resulting in higher cash and bank balances and thus higher liquidity as
compared to the other two companies. To sum up, Nimir chemicals ltd has performed better
when it comes to the current ratio and therefore it has a more impact in increasing the overall
industry average as compared to the other two companies that have a lower ratio.
Acid Test:
2009 2010 2011 2012 2013
Sitara 0.47 0.46 0.59 0.34 0.46
Ittehad 0.66 0.58 0.58 0.52 0.6
Nimir 0.49 0.39 0.48 0.64 0.76
Industry 0.73 0.56 0.52 0.6 0.58

The acid test ratio tells about company’s ability to pay its short term obligation using the most
liquid resources. This is a better aspect to measure company’s liquidity other than the current
ratio as it includes only those elements of the current assets that are most liquid or easily
converted to cash. The Sitara chemicals ltd has not only the lowest acid test or quick ratio as
compared to the other two companies but its quick ratio also falls below the industry averages.
This means that even the most liquid assets of the company cannot be used to pay the short term
obligations at least once. Furthermore, since the acid-test ratio is much lower than the working
capital ratio, it means current assets are highly dependent on inventory of the company and this
is the case with Sitara chemicals ltd. This is because the company has more than 35% of the
current assets which are not considered to be liquid or might take too much time to be converted
into cash. Along with this, the remaining 65% of the liquid assets include cash and bank balances
which have decreased from 16% in FY09 to 9% in FY13 as a percentage total liquid assets. This
means that the company has been running out too much cash and at the same time the short term
obligations have increased resulting in lower quick ratio. Ittehad chemicals is somehow very
close to the industry average of the quick ratio which means that it might have performed well
over the 5years as compared to the other two companies. This is because the management has
been able to increase the quick assets of the company over the 5 years from 16% in FY09 to 19%
in FY13 as a percentage of total assets. Despite of increase in quick assets the management has
been unable to control the current liabilities due to which the quick ratio has not increased over
the years but has followed a fluctuating trend. However in FY12-13 the company’s quick assets
have fallen by just 0.61% whereas the company’s management has been able to reduce its trade
and other payables by almost 40% leading to a fall in total current liabilities of 13.46%. Since the
fall in current liabilities is more than the fall in quick assets the company has been able to
increase the quick ratio in FY13. Nimir chemicals quick ratio is also falling behind the industry
averages up to FY 2011 however in FY12-13 the company’s quick ratio has risen above the
industry due to the reason that its cash receipts have increased or the management might have
delayed payments to suppliers leading to an increase in cash and bank balances by 89% along
with other assets during this period and so has the overall quick assets increased by almost
110%. To conclude, Ittehad chemicals is better in performance when it comes to the liquidity
based on quick ratio however it has been following a fluctuating trend unlike Nimir which has
increased its liquidity form FY10-13.
Cash Ratio:
2009 2010 2011 2012 2013
Sitara 0.8 0.7 0.81 0.55 0.68
Ittehad 0.83 0.74 0.69 0.68 0.79
Nimir 0.01 0.01 0.08 0.12 0.08
Industry 0.4 0.3 0.18 0.29 0.31

The cash ratio is the most stringent and conservative of the three short-term liquidity ratios. It
only looks at the most liquid short-term assets of the company, which are those that can be most
easily used to pay off current obligations. Firstly, Sitara chemicals ltd has higher of cash ratio as
compared to the other two companies. This might be because of the fact that Sitara has high
levels of cash and bank balances over the FY’s 09-13. This means that the company can pay a
major portion of its short term obligations by using its cash resources. The cash and cash
equivalents of the company have increased by almost 71% in FY13 as compared to FY09 and
this is because the management has been able to collect more cash from its accounts receivables
and might have delayed the payments to credit suppliers. On the other hand, Ittehad chemicals
also have a strong cash ratio which means that it can also pay most of its current obligations
using only cash resources. The management of Ittehad chemicals has been able to increase its
cash and cash equivalents but at same time its current liabilities have also increased due to which
the cash ratio has fallen up to the FY12 but in FY13 the cash ratio has increased again due to the
fact that company’s cash balance continued to increase but current liabilities fell. However
having too much of cash might also mean that the management has not been able to invest it
back into the company for improving its operations or this idle cash would be used by the
managers or directors for their own bonuses or other fringe benefits. Besides this, Nimir
chemicals has very low cash ratio and this is because of the reason that the company holds very
low levels of cash. By looking at the cash ratio it can be easily understood that the management
of Nimir would be unable to pay its current liabilities by using cash resources as the company
holds less than 10% cash out of total current assets which might be very low for a company. It is
not realistic for a company to purposefully maintain high levels of cash assets to cover current
liabilities. The reason being that it's often seen as poor asset utilization for a company to hold
large amounts of cash on its balance sheet, as this money could be returned to shareholders or
used elsewhere to generate higher returns. While providing an interesting liquidity perspective,
the usefulness of this ratio is limited. The overall chemical industry does not has a higher cash
ratio and this might be because that most of the companies would be holding lower levels of cash
as their liquid assets. Except Nimir chemicals, Ittehad and Sitara hold higher levels of cash as
reflected by their balance sheets hence leading to above industry average cash ratios and a better
liquidity position.
 PROFTABILTY

Return on Assets Gross Profit Margin

50.00% 35.00%
40.00% 30.00%
30.00% 25.00%
20.00% 20.00%
10.00% 15.00%
0.00% 10.00%
-10.00% 2009 2010 2011 2012 2013
5.00%
-20.00% 0.00%
-30.00% 2009 2010 2011 2012 2013
Sitara Ittehad Nimir Industry Sitara Ittehad Nimir Industry

Net Profit Margin Return on Equity

30.00% 200.00%
25.00%
20.00% 100.00%
15.00%
10.00% 0.00%
2009 2010 2011 2012 2013
5.00%
-100.00%
0.00%
-5.00% 2009 2010 2011 2012 2013 -200.00%
-10.00%
-15.00% -300.00%
Sitara Ittehad Nimir Industry Sitara Ittehad Nimir Industry

Interest Coverage Ratio

30 28 28
24
25
19.32
20
15 12.76

10
4.74 5.56 5.51 5.27 5.49
5 1.04 0.74 2.13
0.77 1.01 0.61 0.98 1.01 0.57
0
2009 2010 2011 2012 2013
-5 -2.56

Sitara Ittehad Nimir Industry

Gross Profit Margin:
2009 2010 2011 2012 2013
Sitara 31.75% 26.83% 24.99% 27.73% 30.91%
Ittehad 19.84% 20.05% 17.85% 20.23% 19.81%
Nimir 7.30% 10.30% 10% 12.90% 16.70%
Industry 13.00% 13.00% 15.00% 13.67% 14.00%

Gross profit margin serves as the source for paying additional expenses and future savings. The
gross margin is not an exact estimate of the company's pricing strategy but it does give a good
indication of financial health. Without an adequate gross margin, a company will be unable to
pay its operating and other expenses and build for the future. According to the table above, Sitara
chemicals has faced a downward trend in its GP margin however the management has been able
to take control of it after the FY11 where it was at its lowest in 5 years. Over the 5 years, Sitara’s
total sales revenue has increased by approximately 31% whereas it’s cost of sales have increased
by 32% to what was in FY09. An increase in cost of goods sold means that the company is
getting the raw materials at higher prices. In general, this portion of the company is not directly
controllable by the management such as the prices of raw materials and so the management has
performed well to bring the GP margin back to where it was in the FY09 however a fluctuating
GP margin would have lead the management to rephrase or restate the prices of its products due
to falling profit margins. As the industry has not experienced a large change in the margin over
the five years, Sitara’s management has also followed an almost similar pattern resulting in the
highest GP margin among the 3 companies. On the other hand, Ittehad chemicals have also faced
a fluctuating trend. Although the sales for the company have increased throughout 5 years,
however the company has not been able to control its cost of sales just as Sitara chemicals.
However Ittehad has also been able to maintain its GP margin and has not let it to deviate by
much, still it is above the industry average. Lastly Nimir chemicals have followed an increasing
trend over the 5 years. Nimir has performed exceptionally well to increase its sales and this is the
reason that it has been able to recover its GP margin. It has experienced an increase of 117% in
its sales as compared to what was in FY09 whereas the cost of sales have only increased by 59%
therefore leading to an increasing trend in the margin. This increase might be the result of good
pricing strategy adopted by the company attracting new or large amount of customers as well as
large amount of closing inventory. Nimir’s GP margin has stayed below the industry average
unlike the other two companies which means that it might be difficult for the company to pay its
operating and other expences and would end up with small net income after taxes., as well as
Nimir has contributed towards pulling down the industry average whereas Ittehad and Sitara
have pulled it the other way.
Net Profit Margin:
2009 2010 2011 2012 2013
Sitara 8.07% 6.88% 9.22% 12.79% 9.78%
Ittehad 4.75% 3.78% 3.43% 6.89% 4.88%
Nimir -10.60% 0.30% 25% 8.60% 4.20%
Industry 13.40% 14.50% 18.50% 15.45% 15%

The net profit margin measures how much out of every dollar of sales a company actually keeps
in earnings. All the three companies have a below industry profit margin which means that all of
them have either have not been able to control their expenses or they might have paid too much
in taxes to the government. Talking about Sitara chemicals, the profit margin has been below
10% in 4 out of 5 years which means that the company is able to generate only 10% profits from
its overall sales. This has happened because the company has been unable to control its selling
and administrative expenses due to which the company has been left with less profit margin. In
FY12, company had the highest NP margin because the sales of the company increased by
8.72% which were the highest figures in FY09-13 and its expenses increased by 3.75% (the
lowest). The FY12 was a good year for Sitara ltd as it was able to generate higher profits,
increased sales and had an overall good performance in other related departments as well. On the
other hand, Ittehad chemicals had a low profit margin as compared to Sitara ltd. This is
because Sitara had better control over its costs as compared to its competitors. Ittehad had a
falling profit margin up to FY11 because company’s total revenues increased by 21.6% whereas
its expenses accounted an increase of 23.25% which meant that the company was not able to
control its expenses quite efficiently resulting in lower profit margins. The similarity with Ittehad
and Sitara was in the FY12 where both the companies experienced their highest NP margins
among the 5 years. Like Sitara ltd, Nimir also experienced a large increase in its revenues as
compared to its expenses. Specifically, the revenues increased by 13.9% whereas the expenses
increased by 9% in the FY11-12 therefore resulting in the highest profit margin. Besides these
two companies, Nimir started of poor in FY09 with a negative profit margin which means that it
was not even able to generate profits in 2009 however it was not up till FY11 where Nimir
dominated the other two companies in the industry with 25% profit margin. This happened
because the management of Nimir was able to increase its overall revenues by almost 40% in
FY10-11 whereas its expenses were well controlled and were decreased by 5.3%. Hence, Nimir’s
management performed very well to pull its self out of huge losses to the highest profit margin in
5 years however the performance was very short lifted and this time the total revenues increased
by just 10.13% whereas the expenses increased by just below 50% which means that the
management failed to control the expenses as well as the cost of sales due to which the company
continued to experience a huge decline in its profit margin, going well below the industry
average.
Return on Assets:
2009 2010 2011 2012 2013
Sitara 5.98% 5.83% 6.13% 5.30% 3.64%
Ittehad 4.02% 5.47% 4.75% 3.25% 1.61%
Nimir -17.50% 0.30% 45% 12.40% 6.10%
Industry 12.50% 12.00% 16.30% 13.58% 12.00%

ROA gives an idea as to how efficient management is at using its assets to generate earnings.
According to the table above, Sitara chemicals has a below industry return on assets which
means that the company is not able to generate higher results against its investment. According
to the financial performance of the company, the management has not been using its assets as
efficiently as it could to generate maximum return from its assets. This is because, the financial
statements of the company reflects that although the total assets or the total investment made by
the owners have increased over the 5 years by almost 32% from FY09-13, but the management
has not been able to control its expenses and cost of sales due to which the company has not been
able to generate an equal amount of revenue. Although the company has not been able to
generate more out of its assets, still Sitara has performed well as compared the Ittehad chemicals.
On the other hand Ittehad chemicals has experienced a declining trend after the FY10. The
company has experienced such trend because of the reason that the management has not been
able to control its operating expenses which have increased over the 5 years resulting in a decline
in operating profit and therefore a decrease in ROA. If we compare Ittehad chemicals with the
industry averages, the company has also followed a similar pattern however the ratio is way
below that of the industry which means the management really needs to think on ways to reduce
their operating expenses so that the company generates maximum profit per rupee spent on its
total assets. Besides this, Nimir chemicals started of poor in FY09 with negative ROA, however
this was short lifted as the company came up strong in FY11 where it had it was able to “milk”
its assets well and generate a ROA above the other two companies as well as the industry. Now
this rapid increase was pretty odd as compared to the other companies because the company was
able to increase its sales by a large percentage in FY11 and it also well controlled its operating
expenses and utilized its current and non-current assets well enough resulting in the highest
operating profit in 5 years and therefore the highest ROA. However the company was not able to
retain this up till the coming years and again experienced a very rapid decline in this ratio.
DuPont 5 factor decomposition of ROE:

2009 2010 2011 2012 2013

Sitara 15.90% 10.70% 9.10% 11.70% 15.30%
Ittehad 8.16% 6.57% 6.66% 13.79% 8.71%
Nimir -254.00% 4.00% 154% 23.00% 11.00%
Industry 31.90% 33.80% 45.80% 37.14% 35.00%

The amount of net income returned as a percentage of shareholders equity. Return on equity
measures a corporation's profitability by revealing how much profit a company generates with
the money shareholders have invested. Usually the companies that have a higher growth rate
tend to have a higher ROE, however since all these companies have not grown by much in the
past 5-10 years, their return on equity does not reflect any major changes expect Nimir. Sitara
has a positive ROE with which the management might be satisfied but not the investors who
have risked their money into the company. The company has experienced such results because
company’s total equity has increased over the period but at the same time company has
experienced fluctuating profits. On the other hand, when it comes to Ittehad chemicals, the
company has stayed below the industry average due to the reason that the company has not
generated enough net profits and therefore the company has paid less to the equity holders. The
equity holders of Ittehad chemicals might not be satisfied with the company’s performance as
they expect the company to earn them higher returns in terms of higher profits. Nimir chemicals
started of very poor with a negative ROE which means that it was not retuning anything to its
equity holders/ owners as it was not able to generate profits in the FY09. However the
management of the company bounced back and was able to generate profits with the help of
which its ROE also increased. Along with this in FY12, the ROE was the highest as compared to
the other two companies as well as the industry average due to the reason that the company was
able to increase its overall profits by more than 170%. By looking at the ROE of all the
companies, we can assume that how much each company grew over the past 5 years when
comparing them to the industry averages and therefore it can be concluded that all the 3
companies performed well but were below the overall growth of the industry.
Interest Coverage Ratio

2009 2010 2011 2012 2013

Sitara 1.04 0.77 0.61 1.01 2.13
Ittehad 0.74 1.01 0.98 -2.56 0.57
Nimir 12.76 28 28 19.32 24
Industry 4.74 5.56 5.51 5.27 5.49

The interest coverage ratio is the one used to determine how easily a company can pay interest
on outstanding debt. Any company having this ratio below 1.5 or 1 is questionable as it indicates
that the company is not generating enough revenue to pay its interest or debt. Sitara chemicals,
has experienced a wave starting with declining trend in interest coverage ratio and then an
increase by the end. The reason for this is somehow related to companies operating expenses and
gross profit. Although the interest expenses of the company have decreased over the 5 years, still
the management has not been able to control its operating expenses due to which it has
experienced declining operating profits and finally resulting in declining ratio. When compared
to industry, Sitara chemicals performance might not be considered desirable by the management
as well as the creditors or the lenders might not be willing to grant more credit or loan to the
company by looking at its interest coverage ratio specially in the FY's10-11. On the other hand,
Ittehad chemicals has experienced a fluctuating trend when it comes to this ratio. This is because
the interest expenses have also increased and decreased both over the 5 years. Along with this
company’s operating expenses have also increased over time as compared to the percentage
increase in sales and due to this the company has experienced lower and even negative interest
coverage ratio. Besides these two companies, Nimir chemicals have a very high interest coverage
ratio as well as rising above the industry average over the 5 years and has somehow remained
almost stable. The reason for such a higher ratio is that firstly the company has small amounts of
interest expenses to pay and lower operating expenses resulting in higher operating profit and a
higher interest coverage ratio. However having a ratio too high as compared to the industry
might be questionable by the company’s management as the company has the capacity to take
leverage or pay for debts.
 ACTIVITY RATIOS:

Inventory Turnover Average Collection Period

25.00 70
60
60 55 57
20.00 52 50 50
50 42 42
15.00 38 37
40 32 32
28 30
30 25 25 27
10.00 24 24
21
20
5.00
10
0.00 0
2009 2010 2011 2012 2013 2009 2010 2011 2012 2013
Sitara Ittehad Nimir Industry Sitara Ittehad Nimir Industry

Average Payment Period Asset turnover

140 2
113 116 113 1.8
120
1.6
96 93
100 90 1.4
78 1.2
80 73
68 68 68 67
1
60 50 54
0.8
40 0.6
26 22 24 22 21
16 0.4
20
0.2
0 0
2009 2010 2011 2012 2013 2009 2010 2011 2012 2013

Sitara Ittehad Nimir Industry Sitara Ittehad Nimir Industry

Inventory Turn over

2009 2010 2011 2012 2013

Sitara 12 12 10 9 7
Ittehad 14 15 15 12 23
Nimir 14 8 9 11 11
Industry 17 14 15 15 15

Inventory turnover is a ratio showing how many times a company's inventory is sold and replaced
over a period. The higher this ratio better is a company’s performance. According to the table above,
Sitara chemicals have experienced a declining trend in this ratio. This is because company’s
inventory has increased over the period resulting in a higher cost of sales but at the same time a
higher average inventory. As all these companies deal in chemical manufacturing, it is better for all
of these to have a higher inventory turnover otherwise they might end up with expired chemicals or
products having a shorter life time. Although Sitara’s turnover ratio is below the industry average
still it might be better for the company but the declining trend might not look favorable to the
management. On the other hand, Ittehad chemicals have a ratio that is very close to the industry
average as compared to the other two companies and the management might be satisfied with the
results of this ratio. Company’s inventory ratio has somehow remained stable but had experienced a
very rapid increase by the end of the 5th year. This has happened because there has been an increase
of almost 49% in company’s average inventory whereas the cost of sales have fallen by just 3.57%
resulting in such a high turnover ratio. This might be because the company have decided to reduce its
stock just to cut down on costs of holding a large amount of expensive inventory or this might be the
result of ineffective inventory buying by the management. Talking about Nimir, company’s ratio has
fallen over the period as compared to the FY09 but the company was able to manage the inventory
well enough so that to make sure that this ratio does not fall by much. Although all the 3 companies
have below industry inventory turnover ratio, the management might not be worried by much as their
results are closer to what prevails in the industry. However if we talk about the overall evaluation,
Nimir has performed well out of these and might be the one that as dominated the industry averages
over the 5 years.
Average collection Period

2009 2010 2011 2012 2013

Sitara 32 30 38 42 50
Ittehad 55 60 57 52 27
Nimir 28 42 32 37 50
Industry 21 25 25 24 24

Average collection period is the approximate amount of time that it takes for a business to
receive payments owed, in terms of receivables, from its customers and clients. Every company
wishes to have a lower collection period ratio which means that it hopes to collect amount awed
by its credit customers as quick as possible however the results depend on the company’s credit
terms/ policy with its customers. Firstly, Sitara chemicals has experienced an increasing trend in
this ratio. This has happened as the company’s average receivables turnover ratio has declined
over the period. The reason for declining receivable turnover has been the result of company’s
habit of having a large amount of credit customers, which means that out of the total sales made
by the company over the 5 years, a large portion belongs to credit customers resulting in
company receiving cash later. A higher collection period might not be a problem for the
company if it is less than the average payment period or it results in a positive, small cash cycle.
Talking about Ittehad, the company has a decrease in this ratio over the period and this might be
a good indicator for the management if it has achieved this without the sacrifice of losing
customers. This has happened because the company now receives cash more frequently or it
makes most of its sales on cash basis. However this might not be positive indicator for the
company in future as the customers looking for better credit terms might switch to other
companies giving them more time to pay cash for their purchases. Nimir chemicals, like Sitara
has also experienced an increasing trend in this ratio over the 5 years. This has happened due to
the same reason that the company has a large portion of sales on credit basis and in order to
capture more customers, the company may be allowing its customers more time to pay aginst
company’s sales. To conclude, all the three companies have an average collection peiod above
the industry averages due to the major differences in their credit policies.
Average payment Period

2009 2010 2011 2012 2013

Sitara 96 93 113 116 113
Ittehad 50 68 90 68 22
Nimir 16 26 22 24 21
Industry 54 73 78 68 67

Average payment period means the average period taken by the company in making payments to its creditors. All
the 3 companies have experienced a fluctuating trend when it comes to this ratio. Sitara chemicals has a higher
average payment period as compared to the other two companies which means that it is the slowest to pay back to its
debtors or suppliers which is almost around 3-4 times. This is because the company might have decided to hold its
suppliers when it comes to paying them for supplies or might have delayed its debtors. This might look favorable to
the management as it will cash available for more days which can be used in other activities however this might lose
company its suppliers if they are not happy with the way company is paying them the amount it owes. On the other
hand, Ittehad chemicals has a lower ratio as compared to the Sitara chemicals. This is because the company has a
higher average payables turnover ratio because of the fact that the company has made increasing number of
purchases every year on credit and so the amount of average payables have increased by a larger portion as
compared to SItara chemicals. Nimir, has the lowest results when it comes to this ratio as compared to the other 2
companies. This means that that Nimir is the quickest when it comes to paying the amount owed to its suppliers.
This might be because Nimir wants to have strong relation with its suppliers in the phase of tough competition and
make sure that its supplies arrive on time when needed by the company and do not interrupt the production process.
Another reason for this results is that as compared to the other 2, Nimir makes most of its purchases on cash basis
and therefore has less to pay to its debtors.

Asset
Turnover
2009 2010 2011 2012 2013
Sitara 0.61 0.56 0.54 0.58 0.61
Ittehad 0.82 0.79 0.58 1 0.87
Nimir 1.66 1.04 1.81 1.44 1.45
Industry 0.83 0.73 0.73 0.76 0.77

The Asset Turnover ratio is the amount of sales or revenues generated per dollar of assets. It is an
indicator of the efficiency with which a company is deploying its assets. As shown by the table
above, the industry as whole as a low asset turnover ratio throughout 5 years ( less than 1) which
means that majority of the companies in this industry do not generate a higher sales or revenues per
dollar of its assets. Sirata chemicals has a ratio less than 1 and even below the industry average. The
reason being that the sales of the company have not increased by more than the percentage increase
in its total assets which means that the company has not been able to generate more sales by using its
total assets resulting in underutilization. On the other hand, Ittehad chemicals has asset turnover ratio
very close to the industry average over the 5 years except FY12 where it rose up to 1, the highest in 5
years period. The reason for this increase was that the company was able to increase its sales by
better utilization of its total assets therefore resulting in a better turnover ratio and more revenue
generated per dollar of assets. This might be a healthy sign for the company as it utilized its assets
more efficiently as compared to Sitara chemicals. Nimir chemicals have stood up in case of the
results of this ratio. Company has been able to generate a turnover of above 1 throughout 5 years
which means that it has remained above the industry averages for some reason. The reason for such
results is that the company has increased its total assets by almost 29% and by using these assets in a
more efficient way as compared to other companies in the industry, the management has been able to
generate an increase of 72.27% in the sales revenue over the period of 5 years. This clearly shows
how well the management has made use of its total assets and contributed a higher return on each
rupee spent on its assets. To conclude Nimir as outperformed the other two companies in the industry
however the results for the other two companies, being close to industry average cannot be ignored.
 Solvency

DEBT TO EQUITY
Sitara Ittehad Nimir Industry

292%
273%

189%

179%
176%
172%

172%
90%

70%
69%

64%

60%
50%

49%

49%
47%

40%
33%

30%
19%
2009 2010 2011 2012 2013

2009 2010 2011 2012 2013

Sitara 69% 90% 60% 47% 30%
Ittehad 64% 50% 33% 19% 40%
Nimir 273% 292% 70% 49% 49%
Industry 172% 189% 176% 179% 172%

A measure of a company's financial leverage as it indicates what proportion of equity and debt
the company is using to finance its assets. The industry results clearly show that most of the
companies in the industry have taken leverage and are mainly financed by Debt over equity.
However these three companies tell a different story as they are a part of the same industry but
have not taken leverage by more than the amount of its equity. A high debt/equity ratio generally
means that a company has been aggressive in financing its growth with debt. This can result in
volatile earnings as a result of the additional interest expense. Sitara chemicals is also financed
by debt however it has reduced the amount of debt financing over the period and so it has been
able to reduce the payments made as a result of interest expenses however its taxable profit has
also increased over the period resulting in lower profits after taxes. Similarly, Ittehad chemicals
has also reduced the amount of debt it holds over during 5 years and the reason could be the
same that the company might be looking to increase its liquidity as well as use its equity more
efficiently rather than relying more on debt financing and paying interests to outsiders. Nimir
was higly levered as compared to the other two companies in the FY09-10 however, it also
managed to reduce this and was able to do so by a large percentage. Nimir was actually financed
twice as much as its equity and this might be as a result of management attracting investors who
might be expecting higher returns as well as the company has paid more to its shareholders in
terms of dividends. However too much leverage might be a bad indicator for the company.
Although all the 3 companies have a Debt to equity less than the industry, this means that all of
them can use debt financing up to the industry average as it will reflect a better performance
while competing with the other companies. However, too high of this ratio might also not be a
good indicator as the cost of this debt financing may outweigh the return that the company
generates on the debt through investment and business activities and become too much for the
company to handle. This can lead to bankruptcy, which would leave shareholders with nothing
Investor ratio

EARNING PER SHARE

Sitara Ittehad Nimir Industry

48.4
32.05
31

19.98
22.7

8.18
7.44

5.54
5.43
4.85

4.01
3.99
3.91

3.57
3.56

1.05

0.57
3.3
0.02
-0.66

2009 2010 2011 2012 2013

2009 2010 2011 2012 2013

Sitara 31 22.7 19.98 32.05 48.4
Ittehad 4.70 3.91 3.57 8.18 4.01
Nimir -0.66 0.02 3.56 1.05 0.57
Industry 3.99 4.85 7.44 5.43 5.54

Earnings per share serves as an indicator of a company's profitability as it is the portion of a

company's profit allocated to each outstanding share of common stock. Sitara chemicals has the
highest EPS of all the 3 companies which might be a very good indicator for the investors and
the shareholders to invest in this company. The reason for Sitara’s high EPS is that the company
is more efficient at using its capital to generate income and due to higher net profits the company has
generated higher EPS. The company has the ability to issue more shares as this might help to attract
more investors and therefore higher investment in the company. Although the company has a high
EPS, it is way too higher than what prevails in the industry and so this might be questionable by
every investor before deciding to invest into Sitara chemicals as they might think of this as tool for
manipulation in the market. On the other hand, Ittehad chemicals also has a positive EPS and
therefore its investors might also be very satisfied with the company’s performance. The reason for
Ittehad’s EPS staying lower than Sitara chemicals is that the company’s profits are way too lower as
compared to that of Sitara over the 5 years as well as the number of issued shares are also less. This
is because Ittehad is a smaller company as compared to Sitara in terms of sales, production and
therefore overall profits, however, the investors and shareholders of Ittehad might be satisfied with
the overall performance as the company’s EPS is somehow near to the industry’s EPS. Lastly, Nimir
Chemicals started of poor in FY09 giving its investors a negative sign with a negative EPS however
the management somehow managed to increase company’s sales and net profits resulting in a
positive EPS from FY10-13. Despite of positive EPS, the investors might not be happy with
management’s performance as the results have stayed lower than those of the industry over the 5
years. Comparing it with the other two companies, Nimir has the lowest EPS in all the 5 years. The
reason for this is that the company has not issued any new shares in the FY11-13 and as well as the
company’s net income has decreased by almost 84% during this period resulting in an overall poor
performance and a very low EPS.
Forecasting

Sitara Chemicals 5 years at a glance:

The table above shows 5 years at a glance of Sitara Chemicals ltd. The company has per formed
well in the FY13 in terms of its financial performance and the trend might continue to be the
same in the FY14. The company can increase its sales by approximately 9% as in the previous
years the management has been able to increase it by around almost the same proportion. The
management seems consistent in managing its sales turnover along with the cost of sales and
therefore its Gross profit is also expected to increase by approximately 11% in the FY14 as
projected from its performance from FY11-13. The company has been able to increase its Gross
profit and margin by increasing its sales turnover and therefore this has helped the company to
attain an increasing trend in the gross profit. Other than this, despite an expected increase in
company’s overall sales, there is also chances that company’s operating expenses will also
increase. However the increase in expenses is less than the increase in sales and so this has led to
an increasing trend in operation profit over the last 3 years. So somehow it can be predicted that
the company will retain this increase for another year and its operating expenses will increase by
approximately 5%-7% which might not be an abnormal change and so the operating profits are
expected to increase up to 4%-5%.
Ittehad Chemicals 5 years at a Glance:

The management of Ittehad Chemicals has also performed well in terms of controlling its sales,
operating expenses, gross profit and its Operating profit. The company has shown good results as
compared to the other companies in the industry in FY13. This is because the management has
utilized its assets in a more efficient way and has made good use of its overall resources which
helped the company to increase its sales over the last 5 years. The company is at a totally
different and a better level than it used to be in FY09. By using the average out method, it can be
said that the company is expected to have a fall in its sales in FY14 by almost 3%-4% however
this is only an estimate based on the company’s average but actually there are chances that the
company might increase its sales revenue if analyze it by following the company’s trend. Other
than this, company’s gross profit is also expected to increase as the company has been able to
control its cost of sales over the last 2-3 years. As it is expected the sales of the company might
deviate by 3-4% there is a chance that its Gross profit might also fall by a minimal percentage in
the FY14 by almost 6% i.e around Rs 813million in 2014. However it depends on how the
management of the company manages its financial performance. Looking at the financial
performance indicators of the company, the management has not been consistent in minimizing
its operating expenses due to which there is a chance that company’s operating profit might fall
by up to 14% and reach an amount to Rs 281million in FY14.
Nimir Chemicals 5 years at a glance:

In FY13, the country’s economic environment continued to remain challenging, with the
escalation in power and gas outages further impacting the industry. In this difficult environment
Nimir chemicals strengthened its position and posted a double digit growth both at the top and
bottom line. This growth is expected to continue in the FY14 as the company hopes to continue
running its operations at the same pace with a better efficiency leading to better results. As result
of better utilization of resources and some changes in prices of company’s products, Nimir is
expected to have an increase of up to 10-12% in its sales turnover. This expected increase in
sales turnover will also result in an increase in gross profit and so the company is expected to
have an increase of around 2% and the expected gross profit is Rs 513million in the FY14. Other
than this, the trend analysis of the company tells us that there is expected to be an increase in
operating expenses as well in the FY14 and so these might result in up to Rs 145million. Along
with this, the management of the company has performed poor in controlling its operating
expenses in all the 5 years and so it is hard to state a good approximation of how much operating
profit the company might gain in the FY14. However by the analysis it can be concluded that the
company might generate an operating income of approximately Rs 368million reflecting an
increase of just less than 1%.
Recommendations and Conclusions:

The financial statement analysis of the overall Chemical industry in Pakistan and the 3
companies; Ittehad, Nimir and Sitara chemicals clearly show that how efficiently the
management of each company has performed over the 5 years period. Talking about Liquidity
ratios analysis, all the 3 companies have performed well over the period however Sitara
chemicals has dominated the other two in terms of this financial indicator as it has more liquid
assets then them. However Ittehad and Nimir have also performed well to keep themselves
competing with companies like Sitara and their management have somehow made sure that the
results remain close to what prevails in the industry. All the 3 companies should make sure that
they remain liquid as this might be the most important indicator that the investors and the
creditors will be looking at when deciding to invest or lend money to these companies. So
keeping liquidity ratio results close to the industry averages will be more appropriate for all these
companies. Along with this, when we analyze and evaluate the Profitability ratios of the
companies, all 3 companies have performed well in one area or the other however there is no one
company among these 3 who has actually dominated in all the indicators in terms of profitability.
The management of all these companies need to make sure that it reduces its operating expenses
as well as the cost of sales in order to increase their gross profit and net profit margins. It is
important for all these companies that they employee assets and utilize them in a more efficient
wa so that it results in a higher ROA. However what needs to be made sure is that the company
results donot deviate much from that of the industry. In terms of Solvency, Nimir chemicals has
dominated the other 2 companies in terms of a better performance. However, Nimir is way above
the industry averages and so this is still questionable. Being highly levered might not be an ideal
position for the company until unless it ensures better company profitability and the fact that the
debt is utilized to maximize shareholders wealth. Finally, the investor ratio (EPS) makes it easier
for the investors to evaluate a company’s performance as this is the most relevant financial
indicator they will be looking at when deciding to invest in a chemical company. Sitara
chemicals has again dominated in this case however it is way above the industry average. The
investors might be very satisfied with the overall performance of the company until unless the
management makes sure that is giving more to investors against their investment in the company.
To conclude, Sitara chemicals has been a better company in terms of overall financial position
and performance over the 5 financial years 2009-2013 and if it continues with the same pace it
might be difficult for the companies like Nimir and Ittehad to compete with Sitara chemicals.