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Internal Variance Analysis of Fauji fertilizer ....................................................................................................1 Internal Variance Analysis of Fatima fertilizer .................................................................................................4 External Variance Analysis for 2010.................................................................................................................7 External Varience Analysis for 2009.................................................................................................................8 Working Capital.................................................................................................................................................9 Current Ratio....................................................................................................................................................10 Quick Ratio (Acid Test Ratio) .........................................................................................................................11 Cash Ratio........................................................................................................................................................12 Gross Profit Margin .........................................................................................................................................13 Operating Profit Margin (return on sales)........................................................................................................14 Net profit margin (net return on sale) ..............................................................................................................15 Return on Total Assets.....................................................................................................................................16 Return on Stockholders Equity.......................................................................................................................17 Debt to Assets Ratio.........................................................................................................................................18 Debt to Equity Ratio ........................................................................................................................................19 Long term Debt to Equity ratio........................................................................................................................20 Times interest earned (coverage ratio).............................................................................................................21 Days of Inventory ............................................................................................................................................22 Inventory turnover ...........................................................................................................................................23 Average collection period ................................................................................................................................24 Conclusion .......................................................................................................................................................25
Variance Analysis Fauji Fertilizer Company Balance Sheet for the year ended December 31, 2010
(Rupees 000)
Variance %
27.817 15.311
Financial Analysis
Page 1
Variance Analysis Fauji Fertilizer Company Balance Sheet for the year ended December 31, 2010
(Rupees 000)
Variance %
CURRENT ASSETS Stores, spares and loose tools Stock in trade Trade debts Loans and advances Deposits and prepayments Other receivables Short term investments Cash and bank balances 2,440,201 211,720 357,956 336,269 50,188 617,664 12,020,581 1,189,063 17,223,642 43,060,856 2,996,633 144,087 256,886 130,219 37,653 734,062 6,768,568 3,849,348 14,917,456 38,551,582 (556,432) 67,633 101,070 206,050 12,535 (116,398) 5,252,013 (2,660,285) 2,306,186 4,509,274 (22.803) 31.945 28.235 61.275 24.976 (18.845) 43.692 (223.730) 13.390 10.472
Financial Analysis
Page 2
Variance Analysis Fauji Fertilizer Company Income Statement for the year ended December 31, 2010
(Rupees 000)
Variance %
Sales Cost of sales GROSS PROFIT Distribution cost Finance cost Other expenses Other income NET PROFIT BEFORE TAXATION Provision for taxation NET PROFIT AFTER TAXATION
Earnings per share basic and diluted (Rs)
44,874,359 25,310,406 19,563,953 3,944,473 15,619,480 1,086,741 1,376,000 13,156,739 3,153,110 16,309,849 5,281,000 11,028,849
16.25
19.412 18.946 20.015 19.520 20.141 13.048 7.526 22.046 11.167 19.943 19.824 20.000 20.000
Financial Analysis
Page 3
Variance Analysis Fatima Fertilizer Company Balance Sheet for the year ended December 31, 2010
Benchmark Year 2010
EQUITY AND LIABILITIES SHARE CAPITAL AND RESERVES Authorized 2,100,000,000 (2009: 2,100,000,000) ordinary shares of Rs 10 each 400,000,000 (2009: 400,000,000) preference shares of Rs 10 each Issued, subscribed and paid up 2,000,000,000 (2009: 1,800,000,000) ordinary shares of Rs 10 each 400,000,000 (2009: Nil) preference shares of Rs 10 each Share premium Accumulated loss 2,010 2009
(Rupees 000)
Variance Variance
21,000,000 4,000,000
21,000,000 4,000,000
NON CURRENT LIABILITIES Advance against preference shares Long term finance Dividend payable on preference shares Employee retirement benefits 37,446,530 603,672 73,796 38,123,998 3,898,250 30,846,063 54,493 34,798,806 (3,898,250) 6,600,467 603,672 19,303 3,325,192 17.626 100.000 26.157 8.722
CURRENT LIABILITIES Current portion of long term finance Short term finance secured Trade and other payables Accrued finance cost Provision for taxation 316,208 3,704,173 2,989,396 64,483 7,074,260 402,796 1,662,141 2,596,001 4,660,938 (402,796) 316,208 2,042,032 393,395 64,483 2,413,322 100.000 55.128 13.160 100.000 34.114
Financial Analysis
Page 4
Variance Analysis Fatima Fertilizer Company Balance Sheet for the year ended December 31, 2010
Benchmark Year 2010
ASSETS NON CURRENT ASSETS Property, plant and equipment Capital work in progress Deferred tax asset Long term loans and deposits 2010 2009 Variance
(Rupees 000)
% Variance
CURRENT ASSETS Stores and spares Stock in trade Trade debts Loans, advances, deposits, prepayments and other receivables Cash and bank balances
Financial Analysis
Page 5
Variance Analysis Fatima Fertilizer Company Profit and Loss Account for the year ended December 31, 2010
Benchmark Year 2010
2010 2009 (96,205) (7,494) 6,578 (97,121) (97,121) (0.08) (0.08) Variance (17,661) (1,456) (4,832) (23,949) (42,569) (66,518) 0.01
(Rupees 000)
% Variance 15.510 16.268 (276.747) 19.781 100.000 40.649 (14.286)
Administrative expenses Finance cost Other income Loss before taxation Taxation Loss for the year Loss per share basic (rupees) diluted (rupees)
Financial Analysis
Page 6
EXTERNAL VARIANCE ANALYSIS OF FAUJI FERTILIZER VS FATIMA FERTILIZER FOR THE YEAR ENDED DECEMBER 31, 2010
BALANCE SHEET EQUITY AND LIABILITIES EQUITY Issued, subscribed and paid up share capital NON CURRENT LIABILITIES Long term borrowings CURRENT LIABILITIES Trade and other payables Interest and mark up accrued Short term borrowings Current portion of long term borrowings Taxation ASSETS NON CURRENT ASSETS Property, plant and equipment Long term Loans, Deposits and Prepayments CURRENT ASSETS Stores, spares and loose tools Stock in trade Trade debts Loans, advances, deposits, prepayments and other receivables Cash and bank balances PROFIT AND LOSS ACCOUNT Finance cost Other expenses Other income NET PROFIT BEFORE TAXATION Provision for taxation NET PROFIT AFTER TAXATION
Benchmark FFC
FATIMA
6,785,271
20,000,000
(13,214,729)
(194.76)
3,819,405
37,446,530
(33,627,125)
(880.43)
15,933,588 464,365
875,984 16,330
15,057,604 448,035
94.50 96.48
Financial Analysis
Page 7
EXTERNAL VARIANCE ANALYSIS OF FAUJI FERTILIZER VS FATIMA FERTILIZER FOR THE YEAR ENDED DECEMBER 31, 2009
BALANCE SHEET EQUITY AND LIABILITIES EQUITY Issued, subscribed and paid up share capital NON CURRENT LIABILITIES Long term borrowings CURRENT LIABILITIES Trade and other payables Interest and mark up accrued Short term borrowings Current portion of long term borrowings Taxation ASSETS NON CURRENT ASSETS Property, plant and equipment Long term Loans, Deposits and Prepayments CURRENT ASSETS Stores, spares and loose tools Stock in trade Trade debts Loans, advances, deposits, prepayments and other receivables Cash and bank balances PROFIT AND LOSS ACCOUNT Finance cost Other expenses Other income NET PROFIT BEFORE TAXATION Provision for taxation NET PROFIT AFTER TAXATION
Benchmark FFC
FATIMA
6,785,271
21,000,000
(14,214,729)
(209.49)
4,578,809
30,846,063
(26,267,254)
(573.67)
13,993,518 343,846
684,940 8,150
13,308,578 335,696
95.11 97.63
Financial Analysis
Page 8
Working Capital
A measure of both a company's efficiency and its short-term financial health. It is also known as net working capital", or the "working capital ratio. The working capital ratio is calculated as Working Capital = Current Assets Current Libalities Current Ratio Fauji Fertilizer Fatima Fertilizer
Working Capital for Fauji Fertilizer
-2,700,000 -2,800,000 -2,900,000 -3,000,000 -3,100,000 -3,200,000 -3,300,000 -3,400,000 2010 2009
Analysis Negative working capital means that a company currently is unable to meet its short-term liabilities with its current assets (cash, accounts receivable and inventory). If a company's current assets do not exceed its current liabilities, then it may run into trouble paying back creditors in the short term. The worst-case scenario is bankruptcy. Working capitals for both companies i.e. Fauji and Fatima Fertilizer have declining working capital ratio and it is increased in 2010 than previous year 2009. Both Firms has been facing problems in paying the dues.
Financial Analysis Fauji fertilizer vs Fatima fertilizer
Page 9
Current Ratio
This ration indicates that for every one rupee of current assets there should be one rupee of current liability. A low current ratio indicates tied up assets not being put into use so therefore lack of liquidity. Current Ratio = Current Assets Current Liabiltites 2010 0.84 0.61 2009 0.83 0.48
2010 2009
2010
2009
Analysis The Current ratio is the measure of general liquidity in the firm. For both companies i.e. Fauji Fertilizer and Fatima Fertilizer, The current ratio of 2010 is slightly higher than that of 2009 which means that in 2010 the company will be much more in good position to pay the debt in the next coming year. In above comparative graph, you can easily judge that Fauji Fertilizer is in better position than Fatima Fertilizer.
Financial Analysis
Page 10
2010 2009
2010
2009
Analysis Quick Ratio is an indicator of a company's short-term liquidity. The quick ratio measures a company's ability to meet its short-term obligations with its most liquid assets. The higher the quick ratio, the better the position of the company. In above calculation you can observe that Quick Ratio of Fauji Fertilizer is same 0.82 but for Fatima Fertilizer, it is increased from 0.47 to 0.52 which is shows good sign or improvement and shows ability to meet its short-term obligations with most its liquid assets.
Financial Analysis
Page 11
Cash Ratio
This ratio indicates serve Liquidity problems with Inventory and Receivables. Cash Ratio = Cash Equivelent + Marketable Security Current Liability Cash Ratio Fauji Fertilizer Fatima Fertilizer 2010 0.64 0.17 2009 0.60 0.23
2010 2009
2010
2009
Analysis The ratio of a company's total cash and cash equivalents to its current liabilities. The cash ratio is most commonly used as a measure of company liquidity. It can therefore determine if, and how quickly, the company can repay its short-term debt. A strong cash ratio is useful to creditors when deciding how much debt, if any, they would be willing to extend to the asking party. Cash Ratio for Fauji Fertilizer is slightly increased from 2009 and for Fatima Fertilizer is decreased from 0.23 to 0.17. Fauji Fertilizer is more stable as you can see from above graphs and values.
Financial Analysis
Page 12
Analysis This shows the percentage of available revenues according with respect to its sales. Gross Profit Margin for Fauji fertilizer is same for year 2010 and 2009 i.e. 0.43. If Fauji fertilizer wants to increase its profit margin then it should decrease the value of cost of goods sold, or increase the value of Sales. This Shows that company's profitability is low and cost of goods sold is very high. Gross Profit Margin for Fatima Fertilizer is not possible due to the fact that values of sales and Cost of goods sold is not given in Financial Statement.
Financial Analysis
Page 13
Analysis This ratio shows the profitability without including any types of charges or any type of expense. It is the ration between Operating Income and Sales. For Fauji fertilizer the value of Operating Profit Margin is very low i.e. 0.36 and it is constant between two years for 2010 and 2009. If Fauji fertilizer wants to increase Return on Sale then it should increase its Operating Income by having less Operating Expense. Return on Sale for Fauji fertilizer is very low. Operating Profit Margin for Fatima Fertilizer is not possible due to the fact that values of sales and Cost of goods sold is not given in Financial Statement.
Financial Analysis
Page 14
Analysis This ratio shows the profit margin including charges and expense. It is the ration between Profit after Taxes and Sales. For Fauji fertilizer the value of Operating Profit Margin is very low i.e. 0.25 but it is increase a very little from 0.24 (Year 2009) to 0.25 (Year 2010). If Fauji fertilizer wants to increase Net Return on Sale then it should decrease its Operating Expense. Net Return on Sale for Fauji fertilizer is very low but having positive value is the sign that company is making profits through operations. Net Profit Margin for Fatima Fertilizer is not possible due to the fact that values of sales and Cost of goods sold is not given in Financial Statement.
Financial Analysis
Page 15
ROTA for Fauji Fertilizer 0.27 0.26 0.25 0.24 0.23 0.22 0.21 2010 2009 2010 2009
0 -0.0005 -0.001 -0.0015 -0.002 -0.0025
2010 2009
Analysis Return on assets is a measure of how effectively the firm's assets are being used to generate profits. By having positive value means that company's assets are greater than its profit. For Fauji fertilizer the value of Return on Total Assets increased from 0.23 (Year 2009) to 0.26 (Year 2010). It shows a little improvement but higher value is better for company and trend should be upward. For Fatima fertilizer Negative ratio shows that company is in loss. Company has to pay interest cost from its assets.
Financial Analysis
Page 16
2010 2009
Analysis Return on equity is the bottom line measure for the shareholders, measuring the profits earned for each dollar invested in the firm's stock. Fauji fertilizer by having positive Return on Equity (ROE) shows that stockholders are getting profit from company, although it is very minimal but trend is going upward from 0.67 (Year 2009) to 0.71 (Year 2010). Fauji fertilizer must increase its net profit margin to have better ROE and to gain investor trust. Fatima fertilizer is in very bad situation, having negative ratio shows that company is in loss. Company has to pay interest cost from its assets.
Financial Analysis
Page 17
2010 2009
2010 2009
2010
2009
Analysis Financial leverage ratios provide an indication of the long-term solvency of the firm. It also measures the extent to which the firm is using long term debt. Both Fauji and Fatima fertilizer have near to same values. Fauji fertilizer have 0.64 for the year 2010 and 0.66 for the year 2009, whereas Fatima fertilizer have 0.65 and 0.69 for the year 2010 and 2009 respectively. This shows that company can incur more debt if it wants. But both companies are near to breaking point which is alarming situation.
Financial Analysis
Page 18
2010 2009
2010
2009
Analysis Debt ratio should be less than 1.0, but for Fauji fertilizer having high values 1.79 and 1.95 for the year 2010 and 2009 respectively is the signal of excessive debt. Although it is decreased a little but still it is alarming situation. Same is the case for Fatima fertilizer, its Debt to Equity ratio decreased from 2.22 to 1.86 which is still very high value.
Financial Analysis
Page 19
2010 2009
2010 2009
2010
2009
Analysis Long term Debt ratio indicates a capacity to borrow additional fund by having low value of Debt to Equity ratio. This is ideal situation for Fauji fertilizer because 0.25 and 0.35 for the year 2010 and 2009 respectively. Fauji fertilizer is also in better condition than Fatima fertilizer because value of Debt to Equity ratio is still very low as compared to Fatima fertilizer.
Financial Analysis
Page 20
2010 2009
Analysis The times interest earned ratio indicates how well the firm's earnings can cover the interest payments on its debt. This ratio also is known as the interest coverage. By having lower values it shows that company has very low capability to pay interest charges. Fauji fertilizer is in stable condition as compared to Fatima fertilizer, because it have much higher value of Times interest earned ration, whereas Fatima does not have any capability to pay interest charges by having negative value.
Financial Analysis
Page 21
Days of Inventory
Measures inventory management efficiency. Fewer days of inventory are usually better. Days of inventory = ______Inventory_______ Cost of goods sold / 365 Days of Inventory Fauji Fertilizer Fatima Fertilizer 2010 3.05 Not Possible 2009 2.56 Not Possible
Analysis The inventory turnover often is reported as the inventory period, which is the number of days worth of inventory on hand, calculated by dividing the inventory by the average daily cost of goods sold. Days of inventory for Fauji fertilizer is 3.05 for the year 2010 and 2.56 for the year 2009. Fauji fertilizer is in better condition because fewer days of inventory are usually better. Days of Inventory for Fatima Fertilizer is not possible due to the fact that values of sales and Cost of goods sold is not given in Financial Statement.
Financial Analysis
Page 22
Inventory turnover
Measures the number of inventory turns per year. Higher is better. Inventory turnover = Cost of goods sold Inventory Inventory Turnover Fauji Fertilizer Fatima Fertilizer 2010 119.56 Not Possible 2009 142.38 Not Possible
Analysis Inventory turnover ratio is the cost of goods sold in a time period divided by the average inventory level during that period. Fauji fertilizer have very high Inventory turnover ratio i.e. 119.56 for year 2010 and 142.38 for the year 2009. Inventory turnover for Fatima Fertilizer is not possible due to the fact that values of sales and Cost of goods sold is not given in Financial Statement.
Financial Analysis
Page 23
Analysis The receivables turnover often is reported in terms of the number of days that sales remain in accounts receivable before they are collected. This number is known as the collection period. It is the accounts receivable balance divided by the average daily sales. Fauji fertilizer is in very good situation having short collection period for 5 days for the year 2010 and around 7 days for the year 2009. This Shows that company has not to wait too long time to receive cash payment after making sale. Average collection period for Fatima Fertilizer is not possible due to the fact that values of sales and Cost of goods sold is not given in Financial Statement.
Financial Analysis
Page 24
Conclusion
Financial Analysis
Page 25