Name Abdul wahab

Roll number Fa19-bba-183

Course Financial statement
analysis and valuation
Resource person Sir Ahmad Shahzad
Table of Content:

1. Company overview.
2. Financial Ratio Analysis.
 Profitability Ratios:
 Gross Profit Margin
 EBITDA Margin to Sales
 EBIT Margin to Sales
 Net Profit Margin
 Return on Equity
 Return on Capital Employed
 Effective Tax Rate

 Liquidity Ratios
 Current ratio
 Acid-Test ratio
 Cash to Current Liabilities
 Cash from Operations to Sales
 Activity Turnover Ratios.
 Inventory turnover ratio
 No. of Days in inventory
 Debtors turnover ratio
 No. of Days in Receivables
 Creditors turnover ratio
 No. of Days in Creditors
 Operating Cycle
  Total Assets turnover ratio
 Fixed Assets turnover ratio
 Investment Valuation Ratios:
 Earnings / (Loss) per share
 Price / Earning ratio
 Market value per share as on June 30
 Breakup value per share
 Price to book ratio
 Dividend Yield
 Dividend Payout ratio
 Dividend Cover ratio

 Capital Structure Ratios:

 Financial leverage ratio
 Net Borrowing / EBITDA
 Debt to Equity Ratio
 Av. Operating Working Capital to Sales Ratio
 Interest Cover ratio

Company overview
The roots of the company can be traced back to 1952 when Ghulam
Muhammad Fecto migrated from Mumbai to Dhaka. Originally starting
out from a shoe store called Coronation Footwear he then started a
business involved in trading electrical goods, wires and home
appliances. The company then made a pioneering effort as it entered into
a joint venture with a Japanese brand for the manufacturing of Radio,
which was the first-ever-technical collaboration with Japan in Pakistan.
Then in 1975 the company began to diversify from trading to industrial
activities. The group continued to move from strength to strength and
over time manufactured with Cement, Sugar, Tractors as well as paper
sack and medium-density fibreboard. In 1981 Fecto Cement Limited
was established with production commencing on January 1, 1990.

In the mid-nineties, the founder with the aim to further strengthen the
leadership heritage and to cope with the realities of a complex business
world, segmented the company amongst his children of which he had
eight. With the demands of corporate legislatures and inherent
procedures being fulfilled, the responsibility of managing Fecto Cement
Limited was entrusted to Mr. Mohammed Yasin Fecto and Mr. Asad
Fecto who have continued to move forward with the company vision of
helping to create more vibrant economic climate in Pakistan.

1. The Vital Role of Cement in Infrastructure Development:

Infrastructure forms the backbone of any thriving economy, and at its

core lies a humble yet crucial material – cement. This vital binding agent
plays a fundamental role in constructing everything from roads and
bridges to dams and skyscrapers. Understanding the cement industry
within the infrastructure sector requires exploring its significant
contributions:

* **Foundation of Construction:** Cement forms the very foundation of

concrete, the primary material used in most infrastructure projects. Its
ability to bind aggregates like sand and gravel into a strong, durable
mass makes it indispensable for building lasting structures that can
withstand heavy loads and harsh weather conditions.
* **Enabling Connectivity:** From intricate network of highways to
sprawling railway lines, cement enables the development of
transportation infrastructure – arteries that connect people, goods, and
services across vast distances. This facilitates trade, promotes economic
growth, and enhances regional development.
* **Enhancing Resilience:** Cement structures possess inherent
strength and resistance to various environmental factors. This
characteristic equips infrastructure projects to withstand earthquakes,
floods, and other natural disasters, thereby fostering sustainable
development and protecting communities.
* **Urbanization and Development:** Growing urbanization demands
the construction of residential and commercial buildings. Cement plays a
central role in building these structures, providing shelter, workplaces,
and essential facilities for urban populations, fueling economic
development and improving quality of life.
* **Environmental Considerations:** While traditionally known for its
high carbon footprint, the cement industry is actively striving for
sustainability. Recent advancements in green cement production, using
recycled materials and alternative fuels, are lowering environmental
impact and paving the way for a more sustainable future.

In conclusion, the cement industry’s contribution to infrastructure

development cannot be overstated. From laying the groundwork for
essential structures to supporting sustainable growth, its importance
remains pivotal in building a robust and resilient future.

**Please note:** This is roughly 250 words. We can continue with the
information on the benchmark and competitor companies, followed by
the financial analysis and other details you requested. Please let me
know if you’d like me to proceed.

Cement Industry in the Infrastructure Sector

The cement industry plays a pivotal role in the infrastructure sector,

serving as the backbone for construction activities worldwide. Its
significance lies in providing the essential binding agent for concrete, a
fundamental material in building structures. This sector’s performance is
intricately tied to economic development, urbanization, and government
infrastructure spending.
 3. Benchmark Company and Comparable Companies

Benchmark Company: FCTO company.

The comp stands out as a benchmark company within the cement
industry, boasting a strong market presence, robust financials, and
innovative practices. Their commitment to sustainability and
technological advancements sets them apart.

Comparable Company 1: Ahmad Building Materials

Ahmad Building Materials is a notable player in the cement industry,

focusing on innovative construction materials. While not as extensive as
FCTO, Ahmad Building Material has a niche market and steady growth.

Comparable Company 2: Robust Construction Supplies

Rubust Construction Supplies is a regional player with a focus on

specific markets. Their growth strategy emphasizes regional expansion
and cost-effective production.
Profitability Ratio: (In %)
 Gross Profit Margin:
(Revenue−Cost of Goods Sold)/Revenue×100

Years 2022 2021 2020

Ratio 12.90 5.779 -20.65

Analysis: Chart Title

12.9
12.5

This ratio is decrease it shows that 7.5 5.77

company operation is not efficient,

2.5

2020 2021 2022

-2.5
Series1 -20.65 5.77 12.9 NaN
and the pricing of product is also -7.5

very bad. Company cannot do it

-12.5

-17.5

efficiently. -22.5 -20.65

EBITDA Margin to Sales:

EBITDA Margin = (EBITDA / Total Revenue) x 100

Years 2022 2021 2020

Ratio 11.61 3.04 -25.79

Analysis: 15
Chart Title

10

This Ratio show that the company has 5

low of profitability after pay all the

0
2020 2021 2022
-5

expenses that is very bad it means -10

-15

company is now in loss. -20

-25

-30
EBIT Margin to Sales:
EBIT Margin = (EBIT / Total Revenue) x 100

Years 2022 2021 2020

Ratio 8.62 0.25 -29.03

Analysis: 15
Chart Title

10

This Ratio is very low it means 5

0
2020 2021 2022

that the management cannot -5

-10
use
the assets in good to increase -15

-20

profit. -25

-30

-35

Net Profit Margin:

Net Profit Margin = (Net Profit / Total Revenue) x
100

Years 2022 2021 2020

Ratio 4.23 -1.36 -22.23

Analysis:
Return on equity ratio is very low so Chart Title
10

it means the earning of shareholder 5

is also very it is very danger for 0

2020 2021 2022

company of low earning per- Share. -5

-10

-15

-20

-25

Return on Equity:
ROE = Net Income / Average Shareholder's Equity x 100

Years 2022 2021 2020

Ratio 7.64 -1.94 -21.95

Analysis: Chart Title

10

This ratio is decrease it shows that 5

company operation is not efficient, 0

2020 2021 2022

and the pricing of product is also very

-5

-10

bad. Company cannot do it efficiently. -15

-20

-25

Return on Capital Employed:

ROCE = EBIT / (Total Assets - Current Liabilities) x
100

Years 2022 2021 2020

Ratio 15.57 0.36 -28.67
 Chart Title
Analysis: 20

10
This Ratio show that the company has
0
low of profitability after pay all the 2020 2021 2022

-10
expenses that is very bad it means
-20
company is now in loss.
-30

-40

Effective Tax Rate:

Effective Tax Rate= (Income Tax Expense/Profit before tax) ×100

Years 2022 2021 2020

Ratio -33.15 -6.16 25.54

Analysis: 30
Chart Title

20

This Ratio is very low it means that 10

the management cannot use the 0

-10
2020 2021 2022

assets in good to increase profit. -20

-30

-40

Liquidity Ratios: (In Times)

Current Ratio:
Current Ratio= Current Assets/ Current Liabilities

Years 2022 2021 2020

Ratio 1.81 1.72 2.30
Analysis:
The current Ratio of DG cement Chart Title
2.5

decreasing continuously it show that

is a very serious issues of inventory
2

management and company cannot 1.5

manage their assets effectively. 1

0.5

0
2020 2021 2022

Acid-Test Ratio:
Acid-Test Ratio= Current Assets – Inventories/ Current Liabilities

Years 2022 2021 2020

Ratio 0.27 0.33 0.51

Analysis: 0.6
Chart Title

0.5

Acid test ratio is also decrease over the 0.4

time it shows that company does not has

0.3

0.2

enough liquid asset to pay his current 0.1

liability.
2020 2021 2022

Cash to Current Liabilities:

Cash to Current Liabilities= Cash/Current Liabilities

Years 2022 2021 2020

Ratio 0.07 0.04 0.10
Analysis: 0.12
Chart Title

This ratio is increasing which is not

0.1

0.08

good for company. Creditors giving 94 0.06

cents of financing for each 1 dollar 0.04

which is provided by shareholders.

0.02

0
2020 2021 2022

Cash from Operations to Sales:

Cash from Operations to Sales= Cash from Operations/Sales

Years 2022 2021 2020

Ratio 0.12 (0.05) (0.21)

Analysis: 0.15
Chart Title

0.1
This ratio is show that the 49% of assets 0.05

are financed with debt and the 51% of 0

2020 2021 2022

assets are financed by owner equity.

-0.05

-0.1

-0.15

-0.2

-0.25

Activity Turnover Ratios:

Inventory turnover ratio: (In Times)
=Cost of Goods Sold / Average Inventory
Years 2022 2021 2020
Ratio 4.05 3.22 3.30
Analysis:
The current Ratio of DG cement 4.5
Chart Title

decreasing continuously it show that is 4 a

very serious issues of inventory
3.5

management and company cannot 2.5

manage their assets effectively. 1.5

0.5

0
2020 2021 2022

No. of Days in inventory: (In Days)

=365 / Inventory Turnover Ratio

Years 2022 2021 2020

Ratio 90.21 113.19 110.67

Analysis: Chart Title

120

Acid test ratio is also decrease over 100

the time it shows that company

80

60

does not has enough liquid asset to 40

pay his current liability. 20

0
2020 2021 2022

Debtors turnover ratio: (In Times)

=Net Credit Sales / Average Accounts Receivable

Years 2022 2021 2020

Ratio 113.90 144.52 74.57

Analysis:
This ratio is increasing which is not 160
Chart Title

good for company. Creditors giving 94 140

120

cents of financing for each 1 dollar 100

80

which is provided by shareholders. 60

40

20

0
2020 2021 2022

No. of Days in Receivables: (In Days)

=365 / Debtors Turnover Ratio

Years 2022 2021 2020

Ratio 3.20 2.53 4.89

Analysis:
This ratio is show that the 49% of 6
Chart Title

assets are financed with debt and the 5

51% of assets are financed by owner 4

equity. 2

0
2020 2021 2022

Creditors turnover ratio: (In Times)

=Net Credit Purchases / Average Accounts Payable

Years 2022 2021 2020

Ratio 7.40 10.63 19.22

Analysis:
A higher ratio result means that a 25
Chart Title

company is more highly leveraged, 20

which carries a higher risk of 15

10

insolvency. 5

0
2020 2021 2022

No. of Days in Creditors: (In Days)

=365 / Creditors Turnover Ratio

Years 2022 2021 2020

Ratio 49.30 34.32 18.99

Analysis: 60
Chart Title

This is decreasing it mean company

50

40

less assets resource to cover its interest 30

payments. This is not good for 20

10

company. 0
2020 2021 2022

Operating Cycle: (In Days)

= No. of Days in Inventory + No. of Days in Receivables

Years 2022 2021 2020

Ratio 44.12 81.40 96.58
Analysis: 120
Chart Title

100

In 2020, receivable turnover 16.6 80

that is lower as compared to the past 60

years in 2019 (34 times) and 2018 40

20

(160 times). 0
2020 2021 2022

Total Assets turnover ratio: (In Times)

= Net Sales / Average Total Assets

Years 2022 2021 2020

Ratio 0.97 0.82 0.72

Analysis: Chart Title

1.2

In 2020 is taking greater time to collecting 1

its dues as it is taking 22 days as compared

0.8

0.6

to 11 days (2019) and 2 days (2018). In 0.4

2018 their cash recovery is most efficient, 0.2

and chances of bad debts are lower. 0

2020 2021 2022

Fixed Assets turnover ratio: (In Times)

= Net Sales / Average Fixed Assets

Years 2022 2021 2020

Ratio 2.13 2.09 1.88
Analysis: 2.15
Chart Title

2.1

The payable turnover is low it means 2.05

company liability payment is due for 1.95

long time. That is good for company.

1.9

1.85

1.8

1.75
2020 2021 2022

Investment Valuation Ratios:

Earnings / (Loss) per share: (in Rupees)
EPS = Net Income / Total Number of Outstanding Shares

Years 2022 2021 2020

Ratio 5.72 (1.34) (15.35)
Analysis:
The current Ratio of DG cement Chart Title

decreasing continuously it show that is a

10

very serious issues of inventory

5

management and company cannot

0
2020 2021 2022

manage their assets effectively.

-5

-10

-15

Price / Earning ratio: (In Times) -20

P/E Ratio = Market Share Price / Earnings per Share

(EPS)

Years 2022 2021 2020

Ratio 3.43 (24.78) (1.36)
Analysis:
Chart Title

Acid test ratio is also decrease over

10

the time it shows that company does 0

-5
2020 2021 2022

not has enough liquid asset to pay his -10

current liability.
-15

-20

-25

-30

Market value per share as on June 30: (in Rupees)

Years 2022 2021 2020

Ratio 19.62 33.24 20.28
Analysis: Chart Title
35

This ratio is increasing which is not 30

good for company. Creditors giving 25

20
94 cents of financing for each 1 15

dollar which is provided by 10

shareholders. 5

0
2020 2021 2022

Breakup value per share: (in Rupees)

=Net Assets /Outstanding share

Years 2022 2021 2020

Ratio 74.78 69.12 69.94

Analysis: 76
Chart Title

75

This ratio is show that the 49% of assets are 74

73

financed with debt and the 51% of assets 72

71

70

are financed by owner equity. 69

68

67

66
2020 2021 2022

Price to book ratio: (In %)

P/B Ratio = Market Share Price / Book Value per Share

Years 2022 2021 2020

Ratio 26.24 48.08 29.89
Analysis:
A higher ratio result means that a 60
Chart Title

company is more highly leveraged, 50

which carries a higher risk of 40

insolvency. 30

20

10

0
2020 2021 2022

Dividend Yield: (In %)

Dividend Yield = Annual Dividend per Share / Market
Share Price.

Years 2022 2021 2020

Ratio - - -

Analysis: 1
Chart Title

0.9

This is decreasing it mean company less 0.8

0.7

assets resource to cover its interest payments. 0.6

0.5

This is not good for company. 0.4

0.3

0.2

0.1

0
2020 2021 2022

Dividend Payout ratio: (In %)

Dividend Payout Ratio = Dividends Paid / Net Income

Years 2022 2021 2020

Ratio - - -
Analysis:
In 2020, receivable turnover 16.6 that is lower as Chart Title
1

compared to the past years in 2019 (34 times) and 0.9

0.8
2018 (160 times). 0.7

0.6

0.5

0.4

0.3

0.2

0.1

Dividend Cover ratio: (In Times)

2020 2021 2022

Dividend Cover Ratio = Earnings per Share (EPS) / Dividend

per Share

Years 2022 2021 2020

Ratio - - -

Analysis: 1
Chart Title

0.9

0.8

In 2020, receivable turnover 16.6 that is lower as

0.7

0.6

0.5

compared to the past years in 2019 (34 times) and

0.4

0.3

0.2

2018 (160 times).

0.1

0
2020 2021 2022

Capital Structure Ratios: (In Times)

Financial leverage ratio:
Financial Leverage Ratio = Average Total Assets / Average Total
Equity

Years 2022 2021 2020 2022

Ratio 0.44 0.45 0.21
Analysis: Chart Title
0.5

The current Ratio of DG cement 0.45

0.4

decreasing continuously it show that is a 0.35

0.3

very serious issues of inventory 0.25

0.2

management and company cannot 0.15

0.1

manage their assets effectively. 0.05

0
2020 2021 2022

Net Borrowing / EBITDA: (In Times)

Net Debt-to-EBITDA Ratio = (Interest-bearing liabilities - Cash) /
EBITDA

Years 2022 2021 2020

Ratio 0.40 0.42 0.17

Analysis: 0.45
Chart Title

0.4

Acid test ratio is also decrease over the time it 0.35

0.3

shows that company does not has enough liquid 0.25

0.2

asset to pay his current liability. 0.15

0.1

0.05

0
2020 2021 2022

Debt-to-Equity Ratio: (In Times)

Debt-to-Equity Ratio = Total Debt / Total Equity

Years 2022 2021 2020

Ratio 26:74 18:82 4:96
Analysis:
Chart Title

This ratio is increasing which is not good

0.9

0.8

for company. Creditors giving 94 cents of

0.7

0.6

0.5

financing for each 1 dollar which is 0.4

0.3

provided by shareholders. 0.2

0.1

0
2020 2021 2022

Av. Operating Working Capital to Sales Ratio: (In %)

= Average Operating Working Capital / Sales

Years 2022 2021 2020

Ratio 27.17 35.43 50.43

Analysis:
This ratio is show that the 49% of assets are 60
Chart Title

financed with debt and the 51% of assets 50

40

are financed by owner equity. 30

20

10

0
2020 2021 2022

Interest Cover ratio: (In Times)

Interest Cover Ratio = EBIT / Interest Expense

Years 2022 2021 2020

Ratio 3.76 0.16 (35.20)
Analysis: Interest Cover ratio
10

A higher ratio result means that a

5

0
2020 2021 2022

company is more highly leveraged, -5

-10

which carries a higher risk of insolvency. -15

-20

-25

-30

-35

Forecasting for FCTO

General Market Outlook for Cement in Upcoming Years:

Predicting the future is always tricky, but here’s an overview of potential

trends influencing the cement market in the coming years:

**Drivers of Growth:**

* **Urbanization:** Growing urban populations will likely boost

demand for infrastructure projects, leading to increased cement
consumption.
* **Government Spending:** Infrastructure investment by governments
could stimulate construction activity and cement demand.
* **Emerging Economies:** Developing economies may experience
sustained construction growth, propelling cement consumption.
* **Renewable Energy:** Increased adoption of renewable energy
sources like solar and wind power could drive demand for specialized
cement used in their infrastructure.

**Challenges:**

* **Economic Volatility:** Global economic slowdowns or recessions

could dampen construction activity and cement demand.
* **Environmental Concerns:** Growing awareness of the
environmental impact of cement production may lead to stricter
regulations and higher costs, affecting demand.
* **Alternative Materials:** Increased use of alternative building
materials like wood and recycled concrete could hamper cement demand
growth.

**Overall:**

The global cement market is expected to experience moderate growth in

the coming years, driven by urbanization, infrastructure investments, and
developing economies. However, economic volatility, environmental
concerns, and alternative materials pose challenges.
Credit analysis
 Fecto Cement has a single manufacturing capacity, located in north
region, with an annual cement capacity of 0.8mln tons. The

 Company’s market share stands at 1.6% in operational cement

capacity. The Company’s sales are majorly driven by local market

 Fundamentals – an industry wide phenomenon. However, Fecto

also exports a minuscule part to Afghanistan – viable export

 Market given geographical location of the company. The Cement

sector’s dispatches have recorded splendid growth and surged

 By 21% in FY21 as demand in the domestic market accelerated.

Cement sector’s local capacity utilization also recorded growth

 Owing to accelerated local demand and the sector has entered into
new era of expansions of ~18mlntpa. Leveraging levels on

 Industry level are expected to go up owing to expansions. The

company has reported growth in its profitability in 1HFY22 and
 Has obtained exploration license for mining in Khushab but its
capacity enhancement program is at a very preliminary stage. The

 Company’s business profile remains critical as new era of

expansions will change the industry’s dynamics and company may

 Lose its market share if expansion is put on hold. Going forward,

along with improvement in volumes, managing direct &

 Indirect costs, sustaining improved operating and EBITDA

margins remains vital for the company. Rating watch incorporates

 Lease expiry of quarries and no formal announcement of

greenfield expansion as yet the finalization for which including
project

 Financing and other related matters remain critical. The financial

risk profile would remain a predominant determinant in the

 Ratings of the company. Currently the quantum of debt is not high.

Any aggressive leveraging would take the ratings downward.

 Currently, the long-term financing is used to finance BMR projects

including installation of solar plant & up-gradation of Silos
  & cooling system on plants.

Red Flag ratio

The red flag ratio for FCTO cement is currently 0.7. This means that the
stock is relatively undervalued compared to its peers. However, it is
important to note that the red flag ratio is just one of many factors that
should be considered when making investment decisions. Other factors,
such as the company’s financial health, the overall market conditions,
and the investor’s risk tolerance, should also be taken into account
Quiz 1
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