The Gross Profit Percentage Finance Essay

The lessening in net incomes in FY10 was due to the diminution in cement monetary values as mentioned earlier. The cement monetary values rose in the following twelvemonth, and the company successfully took advantage from that addition and recovered its gross net income. In FY11, there was crisp addition in the fuel consumed cost from the last twelvemonth 2010 Rs 1,338 million to Rs 1,917 million in FY11, which was an addition of 43 % . The lifting electricity duty and addition in monetary values of coal in international market have affected the net income borders of the Company. Due to fragile market status, most of the clip company was unable to go through on the impact of raising monetary values to stop user. FCCL is besides continuously worsening its production degree due to shortage of electric power supply and gas curtailment, made the company unable to accomplish economic systems of graduated table. There was an add-on of new cement works during the twelvemonth 2011 with a production capacity 7560 TPD in order to accomplish the economic systems of graduated table. Through this works incorporating province of the art engineering, company will be able to accomplish greater net income borders. ( Director Report, Financial Statements )

During FY10, the inauspicious impact of bead in gross revenues turnover affected the entire gross net income of the sector by lessening of 49 % year-on-year ( YoY ) . This diminution besides affected the gross border which became 17 % compared to the last twelvemonth ‘s 29 % . On per-tone-basis, in FY10 keeping monetary values were lowered by 21 % YoY and gross net income lowered by 53 % YoY.

A prima cement manufacturer, Tariq Saigol said that most of the industry is bearing losingss due to monolithic addition in costs. The monetary values of the fuels were at their historic highs and doing record. The addition in electricity rates are besides acquiring intolerable for all the industries.

( Ahmed, 2011 )

The tendency of gross net income of the rival company, Attock Cement is besides worsening continuously, apparent from the tabular array below. This diminution is non every bit crisp as FCCL has during the three old ages. Over the three periods, the gross net income per centum of Attock Cement Pakistan Limited has decreased by 36 % , from 31.83 % in FY09 to 20.23 % in FY11, whereas this per centum of Fauji Cement Company Limited has declined from 31.75 % in FY09 to 17.35 % in FY11, down by 45 % . The chief ground was that Attock Cement has an ability to absorb the lifting monetary values of the natural stuff efficaciously due to high production capacity and by accomplishing economic systems of graduated table.

Gross Net income

Fixed Asset Turnover ( Times )

The fixed assets turnover of FCCL is sing worsening tendency. The company ‘s belongings, works and equipment in FY10 were increased by 27 % from Rs 18,777 million in FY09 to Rs 23,819 million but net gross revenues in the same twelvemonth were decreased by 28 % from Rs 5,314 million in FY09 to Rs 3,808 million in FY10. This lessening was due to diminish in the cement monetary values of the cement, locally every bit good as globally. Therefore the merchandising monetary value per bag has decreased. In order to win the clients the gross net income borders was declined from 31.75 % in FY09 to 13.54 % in FY10. However, FCCL did n’t acquire the expected response from the market, hence the production despatches has decreased to 96.06 % as compared to old twelvemonth 100.09 % . In FY 11, the fixed assets turnover has increased a spot from 0.16 times in FY10 to 0.18 times in FY11, due to the addition in net gross revenues by 24.6 % from Rs 3,808 million in FY10 to Rs 4,743 million, in FY11 by increasing the belongings, works and equipment by 12 % , from Rs 23,819 million in FY10 to Rs 26,658 million in FY11. The addition in net gross revenues was due to betterment in cement monetary value degrees.

( Annual Reports, FCCL, 2010, 2011 )

Tariq Saigol, a competent cement manufacturer said in his interview that chief job for the cement industry is that its cost of production is higher than the gross revenues in the domestic market. He farther added that it is non possible to increase cement monetary values under current economic scenario.

( Ahmed, 2011 )

From the tabular array given below, fixed plus turnover of Attock Company is much high as compared to FCCL, but they are besides sing the worsening tendency continuously. Attock Cement Pakistan Limited has earned high turnover by utilizing the fixed assets Rs 5,396 million as compared to Fauji Cement Company Limited ‘s fixed assets Rs 26,658 million, which were 5 times greater. Through an effectual gross revenues mix, the rival company, maximise its gross revenues gross greater than the FCCL by utilizing relatively less fixed assets.

Fixed Asset Turnover

FY11

FY10

FY09

Fauji Cement Company limited

0.18

0.16

0.28

Attock Cement Pakistan limited

1.60

1.82

2.05

( Figures are taken from Financial Statements )

Fixed Asset Turnover

Current Ratio

In order to run into its short term liabilities the current ratio should be at least 1. FCCL ‘s current ratio throughout the period was less than 1. In FY10, the lessening in current ratio by 22 % , from 0.81 % last twelvemonth to 0.63 % in FY10, was chiefly due to the addition in current liability by Rs 1357 million, up by 52 % as compared to the addition in current assets by Rs 417 million, up by 25 % . On farther probe the rise in current liabilities was due to the rise in the accrued markup by RS 254 million, up by 267 % and current part of long term liabilities by Rs 746 million, up by 230 % . The addition in markup accrued and current part of long term funding was due to the addition in long term funding from Rs 6,224 million in FY09 to Rs 11,909 million was due to the finance required for the building of the new works. In the following FY11, company improved its current ratio by 41 % . This addition was chiefly due to the addition in current assets by Rs 2,721 million, up by 131 % as compared to the current liabilities by Rs 1,400 million up by 35 % . The sudden addition in current assets was caused by the addition in stocks by Rs 397 million, which was a important addition of 413 % . The stock in trade is considered to be the least liquid plus. The addition in stock was due to worsen in local demand as authorities has non passing on the public development plans, consequences in stacking up of stocks. The addition in hard currency and bank balance to Rs 979 million as compared to old twelvemonth balance Rs 192 million, which is a positive mark for the company to run into its short-run liabilities.

( Annual Reports, FCCL, 2010, 2011 )

As compared to its rival Attock Cement Pakistan Limited, FCCL is non at safe border. Attock cement Pakistan Limited has been maintained its liquidness rather expeditiously above 1. The lessening in current ratio in FY11 was due to the lessening in hard currency and bank balances and short term investings. The rival company has invested in waste heat recovery system and other fuel bring forthing undertakings, which helped Attock Cement Pakistan Limited to equilibrate its energy.

Fauji Cement Company limited ( Rs )

FY11 ( 000 )

FY10 ( 000 )

FY09 ( 000 )

Current Assetss

4,792,126

2,070,718

1,654,014

Current Liabilitiess

5,384,740

3,984,915

2,628,010

Stock

493,922

96,684

137,451

Receivabless

36,960

24,514

54,641

Creditors

207,636

315,661

197,703

( Annual Reports )

Current Ratio

FY11

FY10

FY09

Fauji Cement Company limited

0.89

0.63

0.81

Attock Cement Pakistan limited

1.70

2.62

2.43

( Annual Reports )

Current Ratio

Debt: Equity Ratio

FCCL has increased its geartrain continuously over the last three old ages. In the FY10, the addition of long term finance by 91 % , from Rs 6,224 million last twelvemonth to Rs 11,909 million in FY10, was the chief cause of the addition in the proportion of debt. This addition in debt was due to the finance required for the building of a new line 7560 TPD cement works. In the FY11, the debt to equity ratio is at stable place. The stockholders might be dissatisfied from the public presentation of the company and feel loath to put farther in the company.

( Annual Reports, FCCL, 2010, 2011 )

Harmonizing to spokesman of APCMA, the uninterrupted losingss to cement industry are intolerable and might jeopardize the service of Rs 132 billion in loans the cement sector owes to the banking sector.

( Today, 2011 )

From the tabular array given below, Attock Cement Pakistan Limited has wholly depending on the equity from the last two old ages. Attock Cement Pakistan Limited has reduced its dependance on debt in those conditions where cement sector were facing losingss. FCCL should benchmark its debt dependance with the Attock Cement Pakistan Limited.

Debt: Equity Ratio

FY11

FY10

FY09

Fauji Cement Company Limited

0.55

0.57

0.40

Attock Cement Pakistan Limited

_

_

0.13

( Annual Reports )

Debt Equity Ratio

SWOT Analysis

Strengths:

Fauji cement has installed a German engineering works that ameliorates its cinder production by 7200 dozenss per twenty-four hours raising the entire capacity from 1.1 billion dozenss to 2.2 billion dozenss. Furthermore, the works is coal efficient as it replaces 170 dozenss coal per twenty-four hours.

( State, 2011 )

United Nations Environment Program ( UNEP ) has certified Fauji cement Ltd under part to “ Plant the Planet: Billion Tree Campaign ” , as the company stands house over environmental issues. Moody International has awarded the company, for care of up to day of the month and effectual environmental systems, ISO 14001 position.

( hypertext transfer protocol: //www.fccl.com.pk/main/index-7.html, n.d. )

In the cement industry major volume leaders, in stock market Karachi, harmonizing to topline sector analyst are three companies including Fauji cement with 31.2 million portions deriving Rs 0.3.

( Timess, 2012 )

The company has installed a garbage derived fuel system at a cost of Rs 320 million, cut downing 300-400 dozenss of refuse to bring forth inexpensive power for the company ‘s production demands.

( Recorder, 2011 )

The company despite high debt sums has sound hard currency flows to back up its purchase, with better involvement coverage ratios.

( IGI, 2008 )

Failings:

Fauji cement has high fiscal hazard involved as it is to a great extent geared with debt lifting from Rs 325 million to Rs 1 billion in one twelvemonth.

( Recorder, 2011 )

The company has failed spread out its local demand base while certain rivals like Lucky cement have maintained domestic volume wellness.

( Annual Reports, FCCL, 2010 )

Opportunities:

APCMA has estimated that if in land cargo subsidy of 50 % is provided by the authorities exports would raise by 36 % .

( Times, n.d. )

In the 2011-2012 financial budgets the federal excise responsibility was reduced from Rs 700 per ton to Rs 500 per ton, particular excise responsibility was abolished and general gross revenues revenue enhancement reduced by 1 % . Such amendments reduced force per unit areas on monetary value by Rs 30 per bag.

( Shahzad, 2012 )

Cement exports to Afghanistan comprise for 50 % of entire cement exports for the state. Furthermore, the monetary values of cement exports to Afghanistan hold increased by 25 % guaranting sustainability of manufacturers.

( APP, 2012 )

Local cement despatchs have escalated by 8 % for 9MFY12 with betterment in north part demand. In Mar-12 the despatchs increased to 2.55 m dozenss a growing of 15 % .

( Markets, 2012 )

Menaces:

The cement makers in north zone face the jobs of high transit costs. The costs of export cargo are intensifying due to lifting Diesel costs and locational distance from sea port in the South.

( Tribune, 2012 )

India is an attractive market for Pakistani cement makers but the infliction of non-tariff barriers by the rival authorities deprives the sector of prospective chances.

( Rizvi, 2012 )

Inflationary force per unit areas on the building stuffs discourage building and development sector growing, holding dire effects for the cement industry. For case, monetary value of 1000 bricks is Rs 7000 lifting from Rs 4200 in 10/11.

( Tribune, 2012 )

Presently the cement sector operates at 70 % of capacity use unable to go through high production costs to consumers or harvest the benefits economic systems of graduated table.

( Timess, 2012 )

Porter Five Forces Analysis

Menace of New Entrants/Barrier to Entry:

High capital Requirements:

Cement sector requires immense investing for workss, for which purchase injection of hard currency is needed. Resultantly new entrants will be dissuaded.

Economies of Scale:

By bring forthing on big graduated tables with new and big capacity production lines has made the new entry much hard in this sector. Like acquisition of new works with largest capacity by FCCL which is the first German works in Pakistan which created a barrier for new entrants.

Distribution Channelss:

Massive inundations which disrupted all the distribution channels including supply of cardinal natural stuffs such as coal and limestone and the cement which could non be transported over to the market topographic point for gross revenues.

( Khan, 2011 )

Consequently new entrants of cement sector are deterred.

Government Regulations:

Government policies besides play a critical function for making barriers in cement sector. Two old ages back Government of Pakistan ( GOP ) agreed to portion transit cost from mils to sea port. Which boosted the exports but it is too bad that promised support was non provided. Owing to this state of affairs menace go much less from new reachings in this sector.

The overall menace of new entrants is low.

Menace of Substitute:

At present, there is no replacement for cement.

Dickering Power of Customer:

Cement purchasers possesses high dickering power as most of them purchase in majority by availing price reductions. Small distinction of merchandise besides increases their power to act upon as they can easy exchange from one provider to another. While the family users of the cement has no bargaining power as rates are fixed and controlled by industry cartelization. This force is of medium strength in this sector.

Dickering Power of Supplier:

Dickering power of providers chiefly depends upon the natural stuff handiness in any sector. FCCL ‘s chief natural stuffs are lime rock and clay which are used in dry procedure. These are easy available in Pakistan, hence providers are unable to exercise force per unit areas.FCCL has shifted to jump fuel system called Refused derived fuel ( RDF ) along with other market leaders which made the providers of fuel less influential.

Rivalry and Competition:

FCCL is a trust member with other leaders under the umbrella of APCMA ( All Pakistan Cement Manufacturers Association ) .Cartelization resulted in monetary value hiking and has limited the competition in cement sector ( The Nation.com ) . Although GOP is taking some steps to interrupt it but these are non significant. Which is forestalling competition but the presence of strong and efficient units have kept the degree of competition high, among the cement industry. Furthermore, the lessening in overall demand and an addition in fuel costs will farther escalate the competition through curtailment of industry borders.

( Timess, 2009 )

( Khan, 2011 )

Decision and Recommendations

The reported place of the current ratio remained less than 1 in back-to-back three fiscal old ages. Low current ratio means that company ‘s current assets have non increased in the proportion of current liabilities. Therefore, Fauji Cement Company limited should put more in current assets ; increase hard currency and bank balance, increase liquid plus so that company would be able to pay its current liabilities when it would be required. Furthermore, company should every bit good seek to cut down the stock turnover yearss and take other appropriate measurings to better its current place.

Fauji cement has maintained its pitching place to acceptable degree. Therefore, this would be good for the company ‘s future chances. As the company is neither committed with any high finance cost nor any long term liabilities concern. Company has every bit good the advantage to raise debt from the fiscal establishment if required for the future investing. Above all new investor would besides pull by detecting debt-equity ratio because investors are risk averse, and company has the low hazard for the hereafter.

The turnover reported by the Fauji Cement Company limited has fluctuated tendency. As turnover of the company well reduced in FY10 as comparison to FY09 and in FY11, company reported recovery but still non matched with the turnover reported in FY09. The ground of decrease in turnover is the decrease in capacity use, deficit of electricity and the monetary values. Therefore, Fauji Cement Company limited should better the efficiency of its selling staff, better the quality of its cement produced and increase the budget of advertizement so that company makes its place in the tough competitory market.

The overall profitableness of Fauji Cement Company limited has faced a diminution tendency. In FY10, Company ‘s net income well decreased as comparison to FY09. However, in FY11, company has improved its public presentation and reported an addition in net incomes but is still unable to counterbalance the ruin faced in profitableness. The grounds behind the decrease of profitableness are the distribution cost, going and amusement disbursal, which has significantly increased the cost. Furthermore, lessening on sale volume has negative impact on the profitableness endangering the company ‘s market standing and rivals deriving border over the Fauji Cement Company limited. Therefore, it is of import for the Fauji Cement Company limited to increase its market portion and increase its distribution web to derive the marketability and competitory place in the industry. Fauji cement should every bit good seek to cut down the operating expenses ‘ cost which is straight or indirectly attributable to the merchandise, farther implement cost cut downing techniques on its concern which finally good for the sweetening of the company ‘s profitableness.