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Liquidity Ratios

Current ratio: current assets / current liabilities


Quick ratio: current assets - inventory prepaid / current liabilities

Fauji Cement
2014

Current ratio:

5188357 / 4482506 = 1.15

Quick ratio:

5188357 (2016336+1409107) (50414+268545) / 4482506 = 0.32


2013

Current ratio:

5039090 / 4409430 = 1.14

Quick ratio:

5039090 (1869919+981092) (12920+179119) / 4409430 = 0.45


The liquidity position of the company has insignificantly improved in FY14 as the current ratio
raised from 1.14 in FY13 to 1.15 in FY14. This was due to 1% decreased in current assets and
1% increase in current liabilities. The stores, spares and inventory of the company declined by
less than 1 %. However, the major reason behind decline in current assets was a 289% decrease
in cash and bank balance of Lucky Cement. Cash is the most liquid asset and such a substantial
decline could make it difficult for the company to meet its obligations. The Quick ratio has
improved slightly from 0.32 to 0.45 however this still shows that the real liquidity of the
company is still not up to the mark as it is below the 1 mark. The company however is showing
signs of improvement in its quick ratio
Fauji Cement has shown a stagnant trend in FY14-15. The current assets were raised by sales tax
refundable by the company and by the increase in stock in trade, mainly stock in transit in the
range of 1-1.5 %.

Lucky Cement
2014

Current ratio:

19599883 / 4484250 = 4.37

Quick ratio:

19599883 (6078915+1638984) (161625+57699) / 4484250 = 2.6


2013

Current ratio:

13006592 / 3845844 = 3.38

Quick ratio:

13006592 (5179055+1431157) (253266+41814) / 3845844 = 1.5

The liquidity position of the company became more favorable during FY13 as the current ratio
fell from 3.38 in FY13 to 4.37 in FY14. This was due to 6.88% Increased in current assets and .
16 % decrease in current liabilities. The stores, spares and inventory of the company raised by
0.41%. However, the major reason behind increase in current assets was a 9% increase in cash
and bank balance of Lucky Cement. Cash is the most liquid asset and such a substantial increase
could make it easy for the company to meet its obligations and thats why we can see that the
quick ratio has moved from 1.5 to 2.6.
Lucky Cement had shown a positive trend in FY14- 15. The current assets were raised by sales
tax refundable by the company and by the increase in stock in trade, mainly stock in transit. On
the other hand, current liabilities were less, but still there were quite a few short-term borrowings
done by the company as financing facilities, along with many bills payables. Liquidity position
may remain weak until the company reduces its bills payables and short-term borrowings.

DG Cement
2014

Current ratio:

32068626 / 5940563 = 5.3

Quick ratio:

32068626 (3688795+1348742) (764140) / 5940563 = 4.42


2013

Current ratio:

25789989 / 9307593 = 2.7

Quick ratio:

25789989 (3912998+1661721) (611777) / 9307593 = 2.10

The liquidity position of DGKC improved in FY'14 due to a 3% increase in current assets and a
7% decrease in current liabilities of the company causing a current ratio of 5.3. The current
liabilities of the company decreased mainly due to 35% decrease in provision for taxation as the
profit before tax had reduced in FY'14 plus exports also fell and a 35% decrease in outstanding
finances. On the other hand, current assets of the company increased due to small increase in
advances and other receivables and increase short-term investments as they were revaluated also
the 7% decline in the short term borrowing impacted the current ratio.
DGKC's liquidity stance had been strengthening since FY'04 and in FY'07 and FY14 its
liquidity position was the most favorable. The increase in current assets had brought about this
change. There was a 20% increase in short term investments. Furthermore, the cash and bank
balances had also risen considerably. In FY'14 the current assets of the company declined
slightly. The quick ratio also increased because the inventory went down by 3% and there were
very small changes in other current assets and liabilities that cumulatively left a large impact.

Comparative analysis:
The weakest link in three company is Fauji cement, the liquidity ratio suggest that the company
is not well off as its ratios are significantly lower than the industry, the quick ratio even though
has increased is still below par and isnt reflecting very positively. Lucky Cement and DG.Khan
cement are both very well off in the light of the ratio however in comparison to the industry the
DG khan is extremely liquid which shows that the investment of funds hasnt been effective the
industry norm is a lot lower than them and that may suggest that the available liquidity hasnt

been effectively used, Lucky Cement is not only well off but is in accordance to the industry
trends and is not only maintaining good liquidity but seems to be effectively maintaining the

The Asset Management Ratios

Lucky Cement
2013

2014

1. Total Asset Turnover: Net Sales/Total Assets


37810456/50196175

43083169/59797916
= 0.72

2. Fixed Asset Turnover: Net Sales/Fixed Assets


37810456/31008392

43083169/31937211
= 1.34

3. Inventory Turnover: Net Sales/Inventory


37810456/6322212

= 0.75

= 1.21

43083169/7717899
= 5.58

= 5.98

4. Account Receivable Turnover: Account Receivable*360/Net Sales


2662464*360/43083169
2402304*360/37810456
= 22.24

= 22.87

The company's performance in terms of asset management insignificantly declined during FY13
as compared to in FY14. The operating cycle of Lucky Cement reduced to 22 days during FY14
as against 23 days in FY13. This was due to shortening of the time period taken to convert
inventory into sales and the sales into cash. This is because the sales of the company increased
while the stock of the company reduced.
The Total Asset Turnover ratio of the company had a declined slightly in FY14. The total asset
turnover ratio has been increasing due to slightly higher growth in sales revenue as compared to
the growth in assets over the years. There is a very slight increase in fixed assets turnover due to
a slight expansion by LCL. All ratio almost remained stagnant as the asset management process
for lucky cement didnt see any massive changes.

Fauji Cement

2014

1. Total Asset Turnover: Net Sales/Total Assets


15967900/30305049

17532277/29381332
= 0.59

2. Fixed Asset Turnover: Net Sales/Fixed Assets


15967900/24734325

= 0.52

17532277/23881426
= 0.73

3. Inventory Turnover: Net Sales/Inventory


15967900/2851011

2013

= 0.64

17532277/3425443
= 5.11

= 5.60

4. Account Receivable Turnover: Account Receivable*360/Net Sales


651213*360/17532277
240923*360/15967900
= 13.37

= 5.43

The company's performance in terms of asset management fairly improved during FY14 as
compared to in FY13. The operating cycle of Fauji Cement reduced to 80 days during FY09 as
against 119 days in FY08. This was due to shortening of the time period taken to convert
inventory into sales and the sales into cash. This is because the sales of the company increased
while the stock of the company reduced. Account receivable turnover increased from 5.43 to
13.37. The Total Asset Turnover ratio of the company had an increased slightly. The total asset
turnover ratio has been increasing due to growth in sales revenue however when compared to the
growth in assets over is less.

DG Khan Cement

2014

1. Total Asset Turnover: Net Sales/Total Assets


24915924/63526719

26542509/73282069
= 0.36

2. Fixed Asset Turnover: Net Sales/Fixed Assets


24915924/28934979

= 0.39

26542509/29832625
= 0.88

3. Inventory Turnover: Net Sales/Inventory


24915924/5574719

2013

= 0.86

26542509/5037537
= 5.26

= 4.47

4. Account Receivable Turnover: Account Receivable*360/Net Sales


1148141*360/26542509
1608299*360/24915924
= 15.57

= 23.23

The performance of DGKC in terms of asset management was weak during FY13. During the
year, the inventory turnover (days) of the company was significantly high compared to FY14
when the management of inventory seemed to be efficient in 2014 (evident from the lowest
inventory turnover in days). In FY'14 the account receivable turnover decreased significantly,

from 23.3 to 15.57. In FY'14, the inventory turnover increased slightly from 4.47 to 5.26. This
was due to a better use of capacity of their plant; hence lower production and extreme price
competition within cement sellers. Hence the asset management of DGKC slightly improved as
the company earned sales revenue more in proportion to the increase in inventory.
Besides this the sales to equity and total asset turnover of the company which has a rising trend
till FY'14 sales to equity ratio increased due to increase in sales revenue from exports sales.
Critical Analysis
Fauji Cement yet again is proving to be the weakest link with many of its ratios lower then the
industry. The fixed asset turn over and total assets turnover for both DGKC and Fauji Cement are
lower than 1 however it is not far away from the industry norm and both have been moving
positively in terms of their ratios, Lucky Cement remains the most stable in terms of Asset
management and has gained momentum based on their use of existing fixed assets in terms of
production capacity. All three of the companies have moved their account receivable that was
done because the cement utilization had increased as multiple construction projects were put on
and people were looking for longer periods of credit and almost everyone in the cement industry
moved their account receivable policies to capitalize on that opportunity.