25519731 analysis of financial statements of fauji fertilizers

7/30/2019 25519731 Analysis of Financial Statements of Fauji Fertilizers

1/18

3

ANALYSISOF

FINANCIAL

STATEMENTS

OF


2/18

CURRENT RATIO

0

0.2

0.4

0.6

0.8

1

1.2

2004

2005

2006

2007

2008

CURRENT

RATIO

ACID TEST RATIO

0

0.2

0.4

0.6

0.8

1

2004

2005

2006

2007

2008

ACID TEST

RATIO

1. RATIO ANALYSIS:

With Ratio analysis, we analyze financial statements with following types of ratios.

LIQUIDITY RATIOS

SR.

NORATIO TYPE

YEAR

2004 2005 2006 2007 2008

1CURRENT

RATIOTIMES 1.09 0.91 0.90 0.94 0.82

ANALYSIS: The current ratio is decreasing

continuously over the period; from 2004 to 2008.The

liquidity of the company is decreasing. The ability to

meet short term obligation has declined in 2008 withrespect to prior years. Some corrective action should

be taken by management to overcome the liquidity

problem.

SR.

NORATIO TYPE

YEAR

2004 2005 2006 2007 2008

2ACID TEST

RATIOTIMES 0.87 0.69 0.61 0.68 0.54

ANALYSIS: Acid test ratio, which shows the ability to

pay current obligation more quickly without

considering inventory and prepaid expenses as liquid

assets has decreased. Its shows that there is trouble

to firm to meet its current obligation. This negative


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CASH RATIO

0.32

0.33

0.34

0.35

0.36

0.37

0.38

0.39

2004 2005 2006 2007 2008

CASH

RATIO

NET WORKING CAPITAL

-2500

-2000

-1500

-1000

-500

0

500

1000

2004

2005

2006

2007

2008 NET

WORKING

CAPITAL

trend demands some corrective action from the

management.

SR.

NORATIO TYPE

YEAR

2004 2005 2006 2007 2008

3 CASH RATIO TIMES 0.34 0.36 0.37 0.38 0.38

ANALYSIS: cash ratio is increasing slightly over the

time period. The cash available to pay current

liabilities is almost same from 2004 to 2008. So this

ratio is satisfactory.

SR.

NORATIO TYPE

YEAR

2004 2005 2006 2007 2008

4

NET

WORKING

CAPITAL

Rs 775 (1162) (1119) (666) (2114)

ANALYSIS: The net working capital is also decliningover the time period. The net working capital is

negative except 2004. The situation is alarming. The

ability to meet expenses for day to day operation

shows constraints. The organization is in problem to

meet its current obligations.


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ACCOUNT RECEIVABLE TURNOVER

0

5

10

15

20

25

30

35

40

2004

2005

2006

2007

2008

ACCOUNT

RECEIVABLETURNOVER

AVERAGE COLLECTION PERIOD

0

5

10

15

20

25

30

35

2004

2005

2006

2007

2008

AVERAGE

COLLECTION PERIOD

ACTIVITY RATIOS

SR.

NORATIO TYPE

YEAR

2004 2005 2006 2007 2008

1

ACCOUNT

RECEIVABLE

TURNOVER

TIMES 12.81 24.65 36.95 21.19 27.58

ANALYSIS: The number of times receivables are

converted into cash has showed continuous increased

from 2004 to 2006. In 2007 the accounts receivables

turnover showed decline but again in 2008 it has

showed increased. So improvement has been made in 2008

in collection of accounts receivables. So overall

situation is quite satisfactory.

SR.

NORATIO TYPE

YEAR

2004 2005 2006 2007 2008

2

AVERAGE

COLLECTION

PERIOD

DAYS 29 15 10 17 13


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DAY SALES IN RECEIVABLES

0

5

10

15

20

25

30

35

2004 2005 2006 2007 2008

DAY SALESIN

RECEIVABLE

INVENTORY TURNOVER

0

10

20

30

40

50

60

2004

2005

2006

2007

2008

INVENTOR

Y

TURNOVER

ANALYSIS: The number of days requires to collect

receivables have decreased over the time; it shows the

effective management of the credit department. So this

ratio shows the positive trend as efficiency has

improved.

SR.

NORATIO TYPE

YEAR

2004 2005 2006 2007 2008

3

DAY SALES

IN

RECEIVABLE

DAYS 29 15 10 17 13

ANALYSIS: The number of days requires to collect

receivables have decreased over the time; it shows the

effective management of the credit department. So this

ratio shows the positive trend as efficiency hasimproved.

SR.

NO RATIO TYPEYEAR

2004 2005 2006 2007 2008

4INVENTORY

TURNOVERTIMES 31.93 47.47 29.31 25.54 55.20


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INVENTORY TURNOVER IN DAYS

0

2

4

6

8

10

12

14

16

2004

2005

2006

2007

2008

INVENTORY

TURNOVER

IN DAYS

DAY SALES IN INVENTORY

0

2

4

6

8

10

12

14

16

18

20042005200620072008

DAY SALES

IN

INVENTORY

ANALYSIS: Inventory turnover ratio is fluctuating over

the years. It was increased during 2005 and once again

showed decline in 2006 and 2007. However it has

increased considerably in 2008. So improvement has

been made regarding converting inventory into sale in

2008.

SR.

NORATIO TYPE

YEAR

2004 2005 2006 2007 2008

5

INVENTORY

TURNOVER

IN DAYS

DAYS 11 8 12 14 7

ANALYSIS: The number of days required to convert

inventory in ACCOUNTS RECEIVABLES or cash were

increased in 2006 and 2007. This was indication of

negative trend. However improvement has been made in

2008.

SR.

NO RATIO TYPE

YEAR

2004 2005 2006 2007 2008

6

DAY SALES

IN

INVENTORY

DAYS 12 9 17 13 5


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DEBT RATIO

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

2004

2005

2006

2007

2008

DEBT

RATIO

DEBT TO SHAREHOLDERS WEALTH

0

0.2

0.4

0.6

0.8

1

1.2

2004

2005

2006

2007

2008

DEBT TO

SHAREHOLD

ERSWEALTH

ANALYSIS: The number of days required to convert

inventory in ACCOUNTS RECEIVABLES or cash was

increased in 2006.however, from 2006 to 2008

improvement has been made by the management. The day

sales in inventory has improved as it is only 5 days

in 2008. Improvement has been made and overall trendis positive.

DEBT MANAGEMENT RATIOS

SR.

NORATIO TYPE

YEAR

2004 2005 2006 2007 2008

1 DEBT RATIO TIMES 0.30 0.22 0.50 0.56 0.62

ANALYSIS: The amount of funds provided by creditors in

relation to total assets has been increasing from 2005

to 2008. It is obvious that amount of funds provided

by creditors to purchase total assets are continuously

increasing. As in last 3 years the more than 50% of

the total assts are being financed by creditors, so

the current situation is quite alarming.

SR. RATIO TYPE YEAR


8/18

TIME INTEREST EARNED

0

5

10

15

20

25

2004

2005

2006

2007

2008

TIME

INTEREST

EARNED

NO 2004 2005 2006 2007 2008

2

DEBT TO

SHAREHOLD-

-RS WEALTH

TIMES 0.72 0.77 0.84 0.90 0.96

ANALYSIS: The amount of funds provided by creditors inrelation to shareholders equity has been increasing

from 2005 to 2008. It is obvious that amount of funds

provided by the shareholders is more than creditors.

Organization still has capacity to raise loans.

SR.

NORATIO TYPE

YEAR

2004 2005 2006 2007 2008

3

TIME

INTEREST

EARNED

TIMES 17.36 23.13 14.94 12.10 15.44

ANALYSIS: The times interest earned ratio analysis

showed fluctuation over the time period. The overall

ability to pay interest on loan was better in 2005

which was increased from 2004 ratio of 17.36.

Afterwards in 2008, it indicates increase in the

interest paying ability in 2008. Some improvement has

occurred in 2008.

SR.

NORATIO TYPE

CAUSE OF NOT FINDING

4 FIXED

COVERAGE

TIMES AS OPERATING LEASE IS MUST FOR

FIXED COVERAGE RATIO, IN FAUJI


9/18

GROSS PROFIT MARGIN

0

5

10

15

20

25

30

35

40

45

20042005 200620072008

GROSS

PROFIT

MARGIN

NET PROFIT MARGIN

0

5

10

15

20

25

2004 20052006 2007 2008

NET PROFIT

MARGIN

RATIO

FERTILIZER CASE, THERE IS NO

OPERATING LEASE, SO WE CANT FIND

FIXED COVERAGE RATIO.

PROFITABILITY RATIOS

SR.

NORATIO TYPE

YEAR

2004 2005 2006 2007 2008

1

GROSS

PROFIT

MARGIN% 37.42 36.06 32.42 35.59 40.40

ANALYSIS: The gross profit margin of the organization

has showed a continuous increased from 2006 to 2008.

Although there was slight decline in 2005 from 2004

gross profit margin. But the above time serious

analysis clearly implicit, that the ability of the

organization to generate profit is improving. The

management has taken reasonable as well as tremendous

efforts to improve profitability.

SR.

NORATIO TYPE

YEAR

2004 2005 2006 2007 2008


10/18

OPERATING PROFIT MARGIN

0

5

10

15

20

25

30

35

2004 2005 2006 2007 2008

OPERATING

PROFIT

MARGIN

2NET PROFIT

MARGIN % 19.04 19.22 15.48 18.86 21.33

ANALYSIS: Although there was slight decline in 2005

from 2004 net profit margin. But the above time

serious analysis clearly implicit, that the ability ofthe organization to generate profit is improving. This

showed that the management is managing it selling and

admin expenses efficiently and effectively with

increasing sales profit to add more to net profits.

profit generation capability is showing positive trend

over the years

SR.

NORATIO TYPE

YEAR

2004 2005 2006 2007 2008

3

OPERATING

PROFIT

MARGIN% 29.59 30.79 23.24 27.08 31.67

ANALYSIS: operating profit was increased in 2005 from

2004. It was decreased in 2006 as compared to previous

year. However in 2008 a considerable increased has

occurred. Operating profit has increased considerably.

So the overall situation is quite satisfactory.

ASSET MANAGEMENT RATIOS

SR.

NORATIO TYPE

YEAR

2004 2005 2006 2007 2008


11/18

TOTAL ASSETS TURNOVER

0

0.2

0.4

0.6

0.8

1

1.2

2004

2005

2006

2007

2008

TOTAL

ASSETS

TURNOVER

OPERATING ASSETS TURNOVER

0

0.2

0.4

0.6

0.8

1

1.2

2004

2005

2006

2007

2008

OPERATIN

G ASSETS

TURNOVER

1

TOTAL

ASSETS

TURNOVER

TIMES 0.8 0.9 1.09 0.97 0.96

ANALYSIS: The utilization of assets to generate more

revenue is fluctuating over the time period. Thereutilization of asset was efficient from 2004 to 2006.

But in year 2007 and 2008 there is negative

indication. Its apparent from the above analysis that

management should take some corrective action to

improve the current situation.

SR.

NORATIO TYPE

YEAR

2004 2005 2006 2007 2008

2

OPERATING

ASSETS

TURNOVER

TIMES 0.91 0.95 1.10 1.06 1.05

ANALYSIS: Operating assets turnover has increased

consistently up to 2006. In 2007 and 2008 it has

decreased. It is apparent that operating assetsutilization to revenue generation has been decreased.

Some corrective actions should be taken.

SR.

NORATIO TYPE

YEAR

2004 2005 2006 2007 2008


12/18

RETURN ON ASSETS

0

5

10

15

20

25

30

35

20042005 200620072008

RETURN ON

ASSETS

RETURN ON FIXED ASSETS

0

0.5

1

1.5

2

2.5

3

3.5

2004

2005

2006

2007

2008

RETURN

ON FIXED

ASSETS

3RETURN ON

ASSETS % 23.08 25.36 25.47 26.73 31.49

ANALYSIS: The return on assets is increasing

continuously from 2004 to 2008. It showed that assets

are being used by the management effectively andefficiently to ad more to net profit of the

organization. So there is effective utilization of the

assets to generate more profit for the organization.

SR.

NORATIO TYPE

YEAR

2004 2005 2006 2007 2008

4

RETURN ON

FIXED

ASSETS% 2.29 2.77 3.12 2.74 2.40

ANALYSIS: Fixed assets utilization was efficient up to

year 2006. The return on fixed assets has decreased in

year 2007 and 2008. The above trend shows that fixed

assets are no utilizing optimal level. So, some

measures should be taken for effective utilization of

fixed assets.

SR. RATIO TYPE YEAR


13/18

RETURN ON OPERATING ASSETS

0

5

10

15

20

25

30

35

2004200520062007 2008

RETURN ON

OPERATING

ASSETS

RETURN ON INVESTMENT

0

5

10

15

20

25

30

35

40

2004

2005

2006

2007

2008

RETURN ON

INVESTMEN

T

NO 2004 2005 2006 2007 2008

5

RETURN ON

OPERATING

ASSETS% 23.20 25.50 26.91 28.76 33.33

ANALYSIS: return on operating assets has increasedconsistently over the 5 years. The above time series

analysis shows, operating assets are utilized

efficiently and effectively in the generation of the

operating profit. The overall trend is quite

satisfactory.

SR.

NORATIO TYPE

YEAR

2004 2005 2006 2007 2008

6RETURN ON

INVESTMENT % 26.41 36.49 32.76 34.81 36.94

ANALYSIS: The overall trend is positive over the time

period. The return on investment has increased

considerably from 2006 to 2008. It is 36.94 in 2008,

which indicates that funds are being utilized

effectively to generate revenue.


14/18

DEGREE OF FINANCIAL LEVERAGE

1.01

1.02

1.03

1.04

1.05

1.06

1.07

1.08

1.09

1.1

2004

2005

2006

2007

2008

DEGREE OF

FINANCIAL

LEVERAGE

EARNING PER SHARE

0

2

4

6

8

10

12

14

2004

2005

2006

2007

2008

EARNING

PER SHARE

INVESTOR ANALYSIS:

SR.

NORATIO TYPE

YEAR

2004 2005 2006 2007 2008

1DEGREE OFFINANCIAL

LEVERAGE

TIMES 1.06 1.04 1.07 1.09 1.06

ANALYSIS: The degree of financial leverage is

fluctuating over the time period. It was improved in

year 2006 and 2007 but, in 2008 once again it indicate

a negative trend. The loan is not being utilized

efficiently to made more earnings available to

shareholders. So the above trend needs corrective

action.

SR.

NORATIO TYPE

YEAR

2004 2005 2006 2007 2008


15/18

PAYOUT RATIO

0

20

40

60

80

100

120

140

2004

2005

2006

2007

2008

PAYOUT

RATIO

P/E RATIO

0

2

4

6

8

10

12

14

16

18

20

2004 2005 2006 2007 2008

P/E RATIO

2EARNING

PER SHARERs 8.11 9.92 9.39 10.86 13.12

ANALYSIS: Earning per share has been increased

continuously. It is apparent, that earning capacity of

the organization is improving continuously with the

passage of time. Earning made on each share of thestockholders equity is increasing. This shoed that

the shareholders fund is being used efficiently and

effectively to maximize the shareholders wealth.

SR.

NORATIO TYPE

YEAR

2004 2005 2006 2007 2008

3PAYOUT

RATIO %123.4

8133.12 106.45 101.25 122.89

ANALYSIS: Dividend payout ratio is fluctuating over

the years. Although it was decreased in year in 2006

and 2007 as compared to year 2005. But in 2008 this

ratio has increased, which indicates some improvement

has been made.

SR.

NORATIO TYPE

YEAR

2004 2005 2006 2007 2008


16/18

4 P/E RATIO % 17.19 13.80 11.23 10.93 4.44ANALYSIS: Price/earning ratio has been decreasing

continuously over the five years. It has decreased

considerably in 2008. It reflects a very badindication on the price of the share. It is quite

alarming for the marker price of the stock. Corrective

action should be taken immediately.

SR.

NORATIO TYPE

YEAR

2004 2005 2006 2007 2008

5DIVIDEND

YIELD

% 15.36 11.39 8.07 9.43 13.57

ANALYSIS: Dividend yield which shows dividend per

share in relation to market price per share. It was

decreasing from 2005 to 2007. Dividend yield showed

improvement in 2008 as compared to previous 3 years.

So the above analysis shows that some improvement has

been made.

DIVIDEND YIELD

0

5

10

15

20

2004 2005 2006 2007 2008

DIVIDEND

YIELD


17/18

VERTICAL COMMON SIZE ANALYSIS (INCOME STATEMENT)

2004 2005 2006 2007 2008

SALES 100 100 100 100 100

COST OF SALES 62.57 64.29 67.58 64.41 59.60GROSS PROFIT 37.42 35.71 32.42 35.59 40.40

DISTRIBUTION COST 8.40 9.30 9.17 8.51 8.72

OPERATING PROFIT 29.02 26.40 23.42 27.08 31.67

FINANCE COST 1.77 1.28 1.67 2.47 2.27

OTHER EXPENSES 2.66 2.46 2.46 2.97 2.93

OTHER INCOME 4.44 5.65 4.21 5.86 6.35

NET PROFIT BEFORE TAX 29.02 28.31 23.32 27.49 32.82

PROVISION FOR TAXATION 9.98 9.09 7.84 8.63 11.49

NET PROFIT AFTER TAX 19.04 19.21 15.48 18.86 21.33

INDEX ANALYSIS /HORIZONAL ANALSIS (INCOME STATEMENT)

2004 2005 2006 2007 2008

SALES 100 121.18 142.44 135.20 145.49

COST OF SALES 100 124.51 153.84 139.17 138.59

GROSS PROFIT 100 115.62 123.38 128.56 157.04

DISTRIBUTION COST 100 134.22 155.49 136.92 151.08

OPERATING PROFIT 100 110.23 114.08 126.16 158.78

FINANCE COST 100 87.44 134.33 188.77 186.35

OTHER EXPENSES 100 111.83 131.31 150.76 159.86

100 111.70 110.75 118.97 156.67

OTHER INCOME

(DIVIDEND/OTHERS)

100 154.21 134.94 178.31 208.08

NET PROFIT BEFORE TAX 100 118.21 114.45 128.05 164.52

PROVISION FOR TAX 100 110.38 111.91 116.91 167.51


18/18

NET PROFIT AFTER TAX 100 122.31 115.78 133.89 162.96

EPS 100 122.31 115.78 133.91 163.00

25519731 analysis of financial statements of fauji fertilizers

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