Fundamentals of Finance

Century paper and board

mills.

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Table of Contents
Fundamentals of Finance.....................................................................................................1

Introduction..........................................................................................................................5

Vision...............................................................................................................................6

Mission............................................................................................................................6

Business performance review..............................................................................................6

Profit Analysis.................................................................................................................7

FINANCE COST.............................................................................................................8

EARNINGS PER SHARE...............................................................................................8

Ratio Analysis of Century Paper and Board mills...............................................................9

Ratio Analysis..................................................................................................................9

Calculation of Ratios.........................................................................................................13

Liquidity Ratios.............................................................................................................13

Current Ratio.............................................................................................................13

Quick Ratio................................................................................................................13

Asset Management Ratio...............................................................................................13

Receivable Activities.................................................................................................13

Day Sale Outstanding................................................................................................14

Payable turnover in days............................................................................................14

Inventory Turnover in days.......................................................................................14

Fixed Asset Turnover................................................................................................15

Total Asset Turnover.................................................................................................15

Profitability Ratio..........................................................................................................15

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 Net Profit Margin on Sales........................................................................................15

Gross Profit Margin...................................................................................................16

Return on investment.................................................................................................16

Return on Equity........................................................................................................16

Debt Management Ratios..............................................................................................17

Debt to Equity Ratio..................................................................................................17

Debt to total assets ratio.............................................................................................17

Market Value Ratios......................................................................................................17

Earnings per share Pre-Tax........................................................................................17

Earnings per share post-tax........................................................................................18

Price to Earnings ratio...............................................................................................18

Market to Book ratio..................................................................................................18

Market Value per share..............................................................................................19

Coverage Ratios.............................................................................................................19

TIE or Interest Coverage ratio...................................................................................19

Analysis and interpretation of Company’s Ratios.............................................................20

Liquidity Ratios:..........................................................................................................20

Current Ratio:................................................................................................................20

Quick Ratio:...................................................................................................................21

Asset Management Ratio...................................................................................................23

Receivable activities......................................................................................................23

Days Sale Outstanding...................................................................................................24

Payable Turnover in days..............................................................................................25

Inventory Turnover in days...........................................................................................26

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 Fixed Asset Turnover....................................................................................................27

Total Asset Turnover.....................................................................................................28

Profitability Ratios.............................................................................................................29

Net Profit Margin on sales.............................................................................................29

Gross Profit Margin.......................................................................................................30

Return on Investment.....................................................................................................31

Return on equity............................................................................................................32

Debt management Ratios...................................................................................................33

Debt to equity ratio........................................................................................................33

Debt to total assets ratio.................................................................................................34

Market Value Ratios..........................................................................................................35

Earnings per share..........................................................................................................35

Price Earnings ratio........................................................................................................36

Market Value per share..................................................................................................38

Coverage Ratios.................................................................................................................39

Interest Coverage Ratio.................................................................................................39

Conclusion.........................................................................................................................40

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Introduction
Century Paper & Board Mills Limited (CPBM), established in 1984, is Flagship
Company of the Lakson Group of Companies – Pakistan. The Company started
commercial production in 1990 and established its name as major producer of quality
Packaging boards in the country. It has attained a position of Market Leader in Packaging
Boards in particular and is considered as most Preferred Supplier to Printing and
Packaging Industry. The Company serves many of the prestigious clientele and
maintaining Strategic Business Relationships with leading Packaging and Converting
units as well as end users, which include national and multinational companies. The
Company is also in export business and its Packaging Boards are successfully competing
in the international market.

The company entered into Corrugated Cartons Manufacturing Business in 2003 by

installing “Agnati” Italian corrugators, renowned name in the industry. The plant is
capable to cater large continuous orders for different types of boxes to serve multifarious
sectors including Soaps & Detergents, Home Appliances, Dairy Products, Ice Cream,
Food and Beverages, Cigarettes and Tobacco and Lubricants etc. Being vertically
integrated corrugation unit with companies own Liner and Fluting supplies the plant has
an edge to ensure consistency in supplies and quality.

The company is managed by a competent team of professionals in all the relevant fields
like Process, Paper Technology, Engineering, Finance, Business Management and
Human Resource. The Company assigns great importance to its Human Capital
Development and has been managing Trainings of its professionals by sending them to
Foreign and Local Training Programs / Exhibitions / Courses.

The plant comprising of Seven Paper Machines (PMs), a Complete Corrugated Cartons
Manufacturing Plant, Integrated Pulp Mills (Major Inputs Wheat Straw), in house
Engineering Workshop, Captive Power Generation Plant, and Chemical House etc. is
situated on 162 Acres close to major business city (Lahore) of the country.
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Vision
To be the market leader and an enduring force in the paper, board and packaging
industry, positively influencing and providing value to our stakeholders, society and our
nation.

Mission
To strive incessantly for excellence and sustain our position as a preferred supplier of
quality paper, board and packaging material within a team environment and with a
customer focused strategy.

Business performance review

The outgoing financial year stared with the challenge of rising fiscal and current account
deficits. To address these imbalances, incumbent Government has introduced certain
economic and structural reform measures including Exchange rate adjustment, monetary
tightening and imposition of regulatory duties on imported items. Resultantly, economic
growth decelerated to 3.3% during the year from 5% witnessed in previous year. Decline
in Industrial sector growth was even higher as it stood at 1.4% as compared to 5.02% for
the last year. The Paper & paperboard sector was not an exception and its market size
contracted by more than 3%. However, local industry stood resilient and able to
withstand the challenging economic conditions and maintained its market share.
Reduction was mainly witnessed in influx of imported products which lost
competitiveness because of significant depreciation of Pak Rupees and certain anti-
import measures taken by the Government. Nevertheless, Company was able to improve
sales volume from 214,347 metric tons in last years to 216,771 metric tons during the
year under review.

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Even though, production volumes stood at 227,602 metric tons as compared to last year
volumes of 229,384 metric tons with resultant capacity utilization of 95% (L.Y. 96%). In
terms of value, the net sales of the Company registered growth of 17% which stood at Rs.
22.24 billion as compared to Rs. 18.96 billion of the last year. The management of your
Company made a concerted effort to achieve the best sales mix at selling prices necessary
to maintain adequate margins, partially recovering the cost escalations occurred during
the year as costs of raw material and fuel items have gone up by 15% and 30%
respectively.

Profit Analysis
Gross Profit has registered an increase of 6% and stood at Rs. 2,663 million as compared
to Gross Profit of Rs. 2,506 million during Last year. Likewise, operating profit (EBIT)
also improved to Rs. 2,001 million in year under review as compared to last year figure
of Rs. 1,891 million. Your Company posted profit before tax (PBT) of Rs. 1,239 million
while it was Rs. 1,431 million during last year. Profit after tax (PAT) stayed at Rs. 884
million as compared to Rs. 992 million during last year. Tax expense for the year stood at
Rs. 355 million as compared to Rs. 439 million for last year. Tax expense also included
prior year tax adjustment of Rs. 73 million. Company has been providing for normal tax
liability since previous financial year as all available tax depreciation allowances stand
fully adjusted during that year.

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FINANCE COST
During the year, State Bank of Pakistan vigorously followed the tightening of monetary
policy to curb domestic demand in order to control inflation. Resultantly Policy rates
almost doubled from 6.50% at last year to 13.25% by the close of year under review.
Besides that, additional long-term financing have been arranged to finance capital
expenditure and utilization of short term borrowing also remained higher during the year.
Resultantly, finance cost of the Company has increased to Rs. 762 million during the year
under review from Rs. 460 million of last year. Company strived to utilize the optimal
mix of different type of short-term borrowings facilities to lessen the impact of rising
interest rates. For this purpose, Company has also taken recourse to short term hedged
offshore loan with effective cost less than prevailing KIBOR.

EARNINGS PER SHARE

Profit attributable to the ordinary shareholders stood at Rs. 853 million (L.Y. Rs. 919
million). On this basis, the earnings per share for the year is worked out at Rs. 5.80 as
compared to last year’s earnings per share of Rs.6.25. The proportionate dividend
attributable to the cumulative preference shares for the year under review decreased to
Rs. 32 million (L.Y. Rs. 72 million) as preference shares were fully redeemed during 1st
half of the year.

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Ratio Analysis of Century Paper and Board mills
Ratio Analysis
This enables the firm to spot the trends in a business and to compare its performance and
condition with the average performance of a similar business in the same industry; it helps to
estimate the strengths and weaknesses of a company. A ratio analysis is a quantitative analysis of
information contained in a company’s operating and financial performance such as its efficiency,
liquidity; profitability and solvency ratio analysis do hold great importance for each and every
organization a ratio analysis evaluates the health and performance of a company by using the
current year data as well as historical data from the previous year.

Why ratio analysis?

Financial ratios are a great way to quickly assess a company’s health before digging
deeper into its financial statements. Price-earnings ratios can provide insights into
valuation, while debt-coverage ratios can tell investors about potential liquidity risks.

In this report we will calculate 19 Ratios and interpret them.

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Calculation of Ratios
Liquidity Ratios
Current Ratio
a B a/b
Year Current Assets Current Liability Current Ratio
PKR PKR PKR
2018 7691000000 6730000000 1.142
2019 9058000000 7454000000 1.215

Quick Ratio
a B a/b
Year Current Assets- Current Liability Quick Ratio PKR
Inventory PKR PKR
2018 2759300000 6730000000 0.41
2019 5574000000 7454000000 0.45

Asset Management Ratio

Receivable Activities
a B a/b
Year Annual Sales PKR Receivables PKR Receivable
Activities PKR
2018 26,570,185,000 2,366,000,000 11.23
2019 29,744,718,000 3,046,320,000 9.7

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 Day Sale Outstanding
a B a/b
Year Receivables X Annual Sales PKR Day Sale
Days in a year Outstanding
PKR
2018 2,366,324,000 X 26,570,185,000 32 days
365
2019 3,046,320,000 X 29,744,718,000 38 days
365

Payable turnover in days

a B (a/b) X 365
Year Trade payables Annual Purchases Payable Turnover
PKR PKR in days
2018 2215766000 16832428000 48 days
2019 2528063000 19621185000 47 days

Inventory Turnover in days

a B a/b
Year Average COGS/Days in Inventory
inventory PKR year PKR turnover in days
2018 2430000000 45093150.68 54 days
2019 3190500000 53638356.16 59 days

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 Fixed Asset Turnover
a B a/b
Year Sales PKR Net Fixed Assets Fixed Asset
PKR Turnover PKR
2018 18965000000 9122000000 2.079
2019 22241000000 9131000000 2.43

Total Asset Turnover

a B a/b
Year Annual Sales PKR Total Asset PKR Total Asset
Turnover PKR
2018 18965000000 17304000000 1.095
2019 22241000000 18454000000 1.205

Profitability Ratio

Net Profit Margin on Sales

a B (a/b)x100
Year Net Income PKR Sales PKR Net Profit Margin
on Sales %
2018 992000000 18965000000 0.052x100=5.2
2019 884000000 22241000000 0.039x100=4

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 Gross Profit Margin
a B (a/b) x100
Year Gross Profit PKR Net Sales PKR Gross Profit
Margin%
2018 2506000000 18965000000 0.1321X100=13.21
2019 2662000000 33341000000 0.1196X100=11.96

Return on investment
a B (a/b) x100
Year Net profit after tax Total Asset PKR Return on
PKR investment%
2018 992000000 17304000000 0.0573X100=5.73
2019 884000000 18454000000 0.0479X100=4.79

Return on Equity
a B (a/b) x100
Year Net Profit after tax Common equity Return on equity
PKR PKR %
2018 992000000 6442000000 0.1539X100=15.39
2019 884000000 6189000000 0.1428X100=14.28

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Debt Management Ratios
Debt to Equity Ratio
a B a/b
Year Total Debt PKR Share Holders Debt to equity
Equity PKR Ratio PKR
2018 3723177000 5570184000 0.67
2019 3511434000 5570184000 0.63

Debt to total assets ratio

a B a/b
Year Total Debt PKR Total Assets PKR Debt to total assets
ratio %
2018 10861322000 17304195000 0.627
2019 12264808000 18453742000 0.664

Market Value Ratios

Earnings per share Pre-Tax

a B a/b
Year PBIT PKR Weighted avg share Earnings per
PKR share Pre-Tax
PKR
2018 1431216000 147018400 9.73
2019 1238977000 147018400 8.427

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 Earnings per share post-tax
A B a/b
Year PAIT PKR Weighted avg Earnings per
share PKR share Pre-Tax
PKR
2018 9920000000 147018400 6.7
2019 8840000000 147018400 6.01

Price to Earnings ratio

a B a/b
Year Market Price PKR EPS post tax PKR Price to Earnings
ratio Post Tax
PKR
2018 63.50 6.25 10.15
2019 31.15 5.80 5.37

Market to Book ratio

a B a/b
Year Market Price PKR Breakup value Market to book
PKR ratio PKR
2018 63.50 37.69 1.66
2019 31.15 42.10 0.74

Market Value per share

Year Market Value per

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 share PKR
2018 63.10
2019 31.15

Coverage Ratios
TIE or Interest Coverage ratio
a B a/b
Year EBIT PKR Interest charges Coverage Ratio
PKR PKR
2018 1891570000 460354000 4.11
2019 2001142000 762165000 2.625

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Analysis and interpretation of Company’s Ratios
Liquidity Ratios:
A liquidity ratio is a financial ratio that indicates whether a company’s current assets will
be sufficient to meet the company’s obligations when they become due.

Current Ratio:
The current ratio is a financial ratio that shows the proportion of a company’s current
assets to its current liabilities. The current ratio is often classified as a liquidity ratio and a
larger current ratio is better than a smaller one.

Year 2018 2019

Current Ratio PKR 1.142 1.215

In both years Century Paper Mills has managed to get its ratio greater than 1, which
indicates that it is well positioned to cover its short-term liabilities. This ratio is not the
best representation of the firm’s liquidity because in the current assets, how quickly those
assets are able to turn in to cash matters as well. Even though we will not ignore the fact
that the ratio increased from the prior year, but besides that it is still above 1 but if the
year 2018 is taken in to account then it has increased from that year making it not one of
CPM’s major concerns for dipping rates.

Micro factors
The current ratio of CPM improved since last year because of the decrease in liabilities
and increase in current assets. Liquidity of money was improved in 2nd and 3rd quarter of
the year so it made a positive difference in increase of liquidity in company.

Liquidity risk was managed by ensuring availability of sufficient funds to meet the
company’s financial obligations and commitments in any business condition. Risk was
inherent in the Company’s activities, but it was managed through a process of ongoing

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identification, measurement and monitoring, subject to risk limits and other controls. The
process of risk management was critical to the Company’s continuing profitability. The
Company is exposed to credit risk, liquidity risk and market risk (which includes interest
rate risk and price risk) arising from the financial instruments it holds.

Credit risk relates to the risk that a Company may encounter as result of failure of the
counter parties to satisfy their debts or obligation in accordance with the agreed terms of
credit. All the Financial assets of the Company have credit risk other than “Cash in
Hand”. Company has effectively managed the Credit risk with a well devised credit
policy in place.

Macro factors:
Country went through a minor economic depression where pak rupee was highly
depreciated in a short term period where company was not able to do any planning about
managing its assets and liabilities to keep the ratio improved. But at the same time KSE
touched the highest mark and company’s value increased which helped company to
decrease the liabilities during the 2nd and 3rd quarter of the financial year.

Increased dollar rate and imports duty made it difficult for company to manage its
liabilities and it affected the liquidity of the company while importing stuff for the
production.

Quick Ratio:
The quick ratio is a financial ratio used to gauge a company’s liquidity. The quick ratio is
also known as the acid test ratio. The quick ratio compares the total amount of cash and
cash equivalents + marketable securities + accounts receivable to the amount of current
liabilities.

Year 2018 2019

Quick Ratio PKR 0.41 0.45

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Analysis:
The quick ratio of the company improved since last year and it is favorable for the
company but not enough for the company to be able to pay its short term liabilities and
obligations.

Micro factors:
The current liabilities of the company overall increased but the current assets increased
that much, that it overcame the current liabilities factor and it improved overall ability of
the company to pay its current liabilities. The company had raw materials which it
imported last year before the depreciation of Pak Rupee and now the value of that assets
increased a lot. Company was able to improve sales volume from 214,347 metric tons in
last years to 216,771 metric tons during the year under review. Even though, production
volumes stood at 227,602 metric tons as compared to last year volumes of 229,384 metric
tons with resultant capacity utilization of 95%.

Macro factors:
The appreciated dollar rate helped company to raise its revenue through exports.
Liquidity increased and thus it increased exports of the company and CPM was able to
raise the current assets of the company. Exchange rate adjustment, monetary tightening
and imposition of regulatory duties on imported items. Resultantly, economic growth
decelerated to 3.3% during the year from 5% witnessed in previous year. Decline in
Industrial sector growth was even higher as it stood at 1.4% as compared to 5.02% for the
last year. The Paper & paperboard sector was not an exception and its market size
contracted by more than 3%. However, local industry stood resilient and able to
withstand the challenging economic conditions and maintained its market share.

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Asset Management Ratio
Asset management ratios indicate how successfully a company is utilizing its assets to
generate revenues. Analysis of asset management ratios tells how efficiently and
effectively a company is using its assets in the generation of revenues. They indicate the
ability of a company to translate its assets into the sales.

Receivable activities
The accounts receivable turnover ratio is an accounting measure used to quantify a
company’s effectiveness in collecting its receivables or money owed by clients.

Year 2018 2019

Receivable activities PKR 11.23 9.6

Analysis
In 2019 the company’s position in collecting receivables was improved. Total receivables
collecting ratio was improved compared to last year. It is favorable for the company.

Micro factors
Company’s topline (Gross Sales Value) has crossed the landmark of Rs. 25 billion and
recorded an increase of 17% as compared to last year. However, significant increase in
the financial cost took heavy toll on the bottom line (Profit after tax) which reduced to
Rs. 884 million for the year as compared to Rs. 992 million recorded last year.

The receivables on the other hand also increased but the percentage of it was too low
compared to last year. So overall the company’s activities improved its position in
collecting receivables.

Macro factors
The outgoing financial year stared with the challenge of rising fiscal and current account
deficits. To address these imbalances, incumbent Government has introduced certain

22
economic and structural reform measures including Exchange rate adjustment, monetary
tightening and imposition of regulatory duties on imported items. Resultantly, economic
growth decelerated to 3.3% during the year from 5% witnessed in previous year. Decline
in Industrial sector growth was even higher as it stood at 1.4% as compared to 5.02% for
the last year. Company was able to improve sales volume from 214,347 metric tons in
last years to 216,771 metric tons during the year under review. Even though, production
volumes stood at 227,602 metric tons as compared to last year volumes of 229,384 metric
tons with resultant capacity utilization of 95% (L.Y. 96%). In terms of value, the net sales
of the Company registered growth of 17% which stood at Rs. 22.24 billion as compared
to Rs. 18.96 billion of the last year.

Days Sale Outstanding

It is an activity ratio measuring how many days per year averagely needed by a company
to collect its receivables.

Year 2018 2019

Days Sale outstanding 32 days 38 days

Analysis
The number shows that company’s ability to collect its credit sales in timely manner has
not been good and the days to collect the credits have increased which is not favorable for
company.

Micro factors
The company’s history to collect the receivables has been poor. The reason behind this is
that company doesn’t have a proper receivable collecting process. Which is the reason
company taking much time in collecting receivables.

Macro factors
The inflation, interest rate and depreciation of currency are one of the main factors which
affect this ratio.

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Payable Turnover in days
The accounts payable turnover ratio is a short-term liquidity measure used to quantify the
rate at which a company pays off its suppliers. Accounts payable turnover shows how
many times a company pays off its accounts payable during a period.

Year 2018 2019

Payable turnover In days 48 days 47 days

Analysis
The history of company shows that company has been taking more days to pay off its
payables every year. In 2019 it has decreased by only 1 day which is un-favorable.

Micro factors
Liquidity in the company slightly improved which is the reason company could improve
its payable turnover in days ratio. Company faced problems in the 1st and 4th quarter of
year because of the sales margin and liquidity decreased. Annual purchases increased and
thus company had to pay its payables in decreased time compared to last year.

Macro factors
Due to inflation and exchange rate the company’s annual purchases increased due to
increased dollar rate. This caused an increase in accounts payable and annual purchases.
Which is the reason payable turnover in days decreased.

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Inventory Turnover in days
Inventory turnover is a ratio showing how many times a company has sold and replaced
inventory during a given period.

Year 2018 2019

Inventory turnover in 54 days 59 days
days

Analysis
This ratio shows that company in 2019 was 4 days slower than last year to sale its
inventory and replace it with new one. It is unfavorable for the company.

Micro factors
Due to increase in cost of manufacturing the price of inventory increased which caused a
slow trend in purchasing and replacing it with new inventory. Company had to go
through repairs and an increase in wages and salaries. Production volumes stood at
227,602 metric tons as compared to last year volumes of 229,384 metric tons with
resultant capacity utilization of 95%. Which was less than last year.

Macro factors
Decline in Industrial sector growth was even higher as it stood at 1.4% as compared to
5.02% for the last year. The Paper & paperboard sector was not an exception and its
market size contracted by more than 3%. However, local industry stood resilient and able
to withstand the challenging economic conditions and maintained its market share.
Reduction was mainly witnessed in influx of imported products which lost
competitiveness because of significant depreciation of Pak Rupees and certain anti-
import measures taken by the Government. Increase in inflation and all these factors
resulted in an increase in inventory turnover in days.

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Fixed Asset Turnover
The fixed asset turnover ratio is an efficiency ratio that measures a company’s return on
their investment in property, plant, and equipment by comparing net sales with fixed
assets.

Year 2018 2019

Fixed asset turnover PKR 2.079 2.43

Analysis
Company improved its asset turnover and it was able to improve it sales with an increase
in fixed assets which is favorable for the company.

Micro factors
Company purchased machinery, vehicles, Furnitures and other equipment which
increased he fixed asset compared to 2018. The overall sales increased by 17% which
resulted in an increase in fixed asset turnover. It shows that the new assets somehow
increased the company’s sales.

Macro factors
Company managed to maintain its market share and was able to surpass last year volume.
Company’s topline (Gross Sales Value) has also crossed the landmark of Rs. 25 billion
and recorded an increase of 17% as compared to last year. However, significant increase
in the financial cost took heavy toll on the bottom line (Profit after tax) which reduced to
Rs. 884 million for the year as compared to Rs. 992 million recorded last year. Due to
company’s consistency in market it was able to improve its sale and fixed asset turnover
ratio.

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Total Asset Turnover
The asset turnover ratio measures the value of a company’s sales or revenues relative to
the value of its assets.

Year 2018 2019

Total asset turnover PKR 1.095 1.205

Analysis
This ratio shows that in 2019 company improved its sales while investing in assets. This
is favorable for company.

Micro factors
Company invested in assets and which grew at 9.3%. At the end of the year the overall
sales of the country grew at 17% which shows that company increased it sales. Company
used its machinery and equipment efficiently and affectively to increase the sales and use
the assets for the increase in sales.

Macro factors
With an indication of depreciation of local currency company decided to buy equipment
and import machines before it becomes expensive according to exchange rate, so the
assets of company increased. The sales grew because of the market share which company
retained and through efficiently use of assets in which company invested its money.
Company’s sales grew by 17% which is an indication of company’s efficient use of
assets.

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Profitability Ratios
Profitability is the net result of the number of policies and decisions. Ratios that relates
profits to sales and investment.

Net Profit Margin on sales

It is a profitability ratio that measures the amount of net income earned with each dollar
of sales generated by comparing the net income and net sales of a company.

Year 2018 2019

Net Profit Margin on 5.2% 4%
sales %

Analysis
The net profit margin on sales inn 2019 is less than what it was in 2018. It means that
company is earning less profit dollar as compared to last year. Company is earning 1.2
dollars less than last year in 2019. It is unfavorable for the company.

Micro factors
Even though sales in 2019 were 17% higher than last year but still net Income of
company was less than last year. It was because of the increase in cost of production,
administrative and distribution expenses, operating charges and finance cost. Company
also bought equipment and machines for the company and these investments were done
through money earned by sales. Company had to payback its loans to Banks. Company’s
salary expense also increased this year.

These whole factors resulted in a less income even though a gradual increase in the sales.

Macro factors
Due to economical issues faced by Pakistan, country faced inflation and a high interest
rate. This resulted in depreciation of money and a high exchange rate which raise the cost
of whole production. The import tariffs imposed by government also increased the cost of
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production. Even though the sales of company were more than last year but all these
macro factors resulted in decrease in Net Profit Margin ratio of the company.

Gross Profit Margin

Gross profit margin is a metric used to assess a company’s financial health and business
model by revealing the amount of money left over from sales after deducting the cost of
goods sold.

Year 2018 2019

Gross Profit Margin % 13.21 11.96

Analysis
The gross profit margin of 2019 is less than 2018 which shows that it is relatively less
effective at producing and selling products above cost. So this is unfavorable for the
company and ratio should be improved through effective company’s operations.

Micro factors
Company saw an increase in the cost of its production. Even though the sales of the
company gradually increased from last year but the margin was very less that it’d show
less net profit margin. Company invested in new machines and equipment which added
cost into the company’s production.

Macro factors
Due to the inflation and high exchange rate, and fiscal policy by government which
raised taxes, raised the prices of raw materials and imports which are used in the
production in company. Due to increased cost of production the goods were sold at a
relatively high price and it gave relatively more sales but less profit margin.

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Return on Investment
It measures the gain or loss generated on an investment relative to the amount of money
invested.

Year 2018 2019

Return on investment % 5.73 4.79

Analysis
This ratio shows that company is getting less percentage of return on investment in 2019
than 2018. It means that company is investing more on assets to generate a dollar of sales
than does the typical firm in industry.

Micro factors
CPM invested a lot this year on equipment and machines which increased overall current
assets. Company also took loans. Cost of production increased due to different factors,
and shared cost into the production. Net sales of company increased due to increased
prices but net income was lower than last year because of cost of production. Less
income and increased assets resulted in less return on investment than last year.

Macro factors
Net income of company decreased due to the increased cost of production and less profit
margin due to changed fiscal policies by government. Company invested in assets which
were imported from other countries. Payments of these investments were high because of
high exchange rate and devalued pkr. Which is the reason the total assets increased but
net income decreased, which decreased the return on investment.

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Return on equity
It is a profitability ratio that measures the ability of a firm to generate profits from its
shareholders investments in the company.

Year 2018 2019

Return on Equity % 15.39 14.28

Analysis
There was a decreased return on equity in 2019. Lesser than 2018, which is unfavorable
because people will look into the trend of the return and will not invest in the company’s
shares.

Micro factors
Company faced different issues regarding Gross profit margin and return on investment
which made company unfavorable for investors to invest in company. Company had
lesser common equity and lesser net profit income than 2018. Which was the reason
being lesser return on investment in 2019. The market price of the company’s shares
continuously declined most of the year. In 2nd quarter company was successful to attract
investors but due to uncertain and unfavorable financial activities company faced a turn
down in common equity.

Macro factors
Uncertain economic and political conditions seriously affected the investor confidence on
the stock market. Resultantly KSE 100 Index plummeted to 33,902 points by the year end
from 41,911 points at beginning of the year. This trend also impacted market price of
Company’s shares which has been continuously declining for most of the year. Share
price had touched the peak at Rs. 74.46 in early months of the year and nosedived to
bottom of Rs. 30. Closing share price stood at Rs. 31.15 per share at the current year end
from Rs. 63.5 at the last year ended June 30, 2018.

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Debt management Ratios
The debt management ratio measures how much of a company’s operations comes from
debt instead of other forms of financing, such as stock or personal savings.

Debt to equity ratio

It is a measure of the degree to which a company is financing its operations through debt
versus wholly-owned funds.

Year 2018 2019

Debt to equity ratio PKR 0.67 0.63

Analysis
The company’s debt to equity ratio in 2019 is less than last year then it means that
company is being invested lesser by debt and more on shareholder’s equity. Investors
usually prefer lesser debt to equity ratio because their interests are better protected
through this ratio. So this ratio is favorable for this kind of business.

Micro factors
The Company’s has maintained a strong capital base so as to maintain investors, creditors
and market confidence to safeguard its ability to continue as a going concern. Due to the
strong capital base most of the company’s financing is through its own money and less on
debts. It means that company looks stable for its investors and has a low risk factor
involved and investor’s interests are better protected.\

Macro factors

The Company managed its capital structure and made appropriate adjustments to move
with the economic changes and the risk associated with the Company’s asset. Company’s
management tried to maintain an appropriate debt equity ratio to attract more investors
after a declining trend in stock market.

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Debt to total assets ratio
It defines the total amount of debt relative to assets. This metric enables comparisons of
leverage to be made across different companies.

Year 2018 2019

Debt to total assets ratio 62.7% 66.4%
%

Analysis
Debt to total assets ratio increased in 2019 which is more than. Which shows that assets
are more financed through creditors than last year. It is unfavorable for the company and
it does not attract investors as they prefer low debt ratios because the lower the ratio the
greater cushion against creditors losses in the event of liquidation.

Micro factors
Company invested in machinery and equipment which increased company’s assets.
During this the debt of company increased by a big margin which showed that the debt to
total assets ratio will increase more than last year. Which is the reason debt to total assets
ratio increased this year.

Macro factors
Credit risk relates to the risk that a Company may encounter as result of failure of the
counter parties to satisfy their debts or obligation in accordance with the agreed terms of
credit. All the Financial assets of the Company have credit risk other than “Cash in
Hand”. Interest rate risk arose due to fluctuation in interest rate resulting in adverse future
cash flows. Company’s exposure to interest rate is associated with the long-term loans
and short-term borrowings. Company monitors interest rate fluctuation and counters
interest rate risk by utilizing optimal mix of different types of borrowing arrangements.

The debt increased to that extant that it increased the debt to total assets ratio.

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Market Value Ratios
Market value ratios are used to evaluate the current share price of a publicly-held
company’s stock.

Earnings per share

Earnings per share is a measure of how much profit a company has generated. Companies
usually report their earnings per share on a quarterly or yearly basis.

Year 2018 2019

Earnings per share Pre 9.73 8.427
Tax PKR

Year 2018 2019

Earnings per share Post 6.7 6.01
Tax PKR

Analysis
The earning per share of the company has decreased which shows that it can be on of the
factor that investors are not attracted to invest in the company in future giving this
decrease in earning per share trend. It is unfavorable for the company.

Micro factors
In this financial year company invested in different machinery and equipment which
resulted in increase in assets. But due to increase in cost of production the net income of
company decreased with no change in number of common shares outstanding.

Even though company got leverage in income tax but still it was unable to increase its net
income which resulted in a decrease in earnings per share.

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Macro factors
Uncertain economic and political conditions have seriously affected the investor
confidence on the stock market. Resultantly KSE 100 Index plummeted to 33,902 points
by the year end from 41,911 points at beginning of the year. This trend also impacted
market price of Company’s shares which has been continuously declining for most of the
year. Share price had touched the peak at Rs. 74.46 in early months of the year and
nosedived to bottom of Rs. 30. Closing share price stood at Rs. 31.15 per share at the
current year end from Rs. 63.5 at the last year ended June 30, 2018. Accordingly, market
capitalization at close of the year was almost halved to Rs. 4,580 million than that of last
year ended June 30, 2018 market capitalization of Rs. 9,335 million.

Price Earnings ratio

It is the ratio for valuing a company that measures its current share price relative to its
per-share earnings.

Year 2018 2019

Price earnings ratio PKR 10.15 5.37

Analysis
This year company’s price earning ratio was almost half of what it was last year. It means
that company’s stock share price was lower than last year. It is unfavorable for the
company as this trend will not attract investors.

Micro factors
Due to debts and loans, and cost of production company’s net income was lower and thus
earning per share was decreased. Which was a micro factor which affected the Price
Earning ratio of the company. Company invested in making assets and that cost was
added to cost of production. Other than that company also took loans and there were

36
expenses which decreased net income of the company and earning per share of the
company.

Macro factors
Uncertain economic and political conditions have seriously affected the investor
confidence on the stock market. Resultantly KSE 100 Index plummeted to 33,902 points
by the year end from 41,911 points at beginning of the year. This trend also impacted
market price of Company’s shares which has been continuously declining for most of the
year. Share price had touched the peak at Rs. 74.46 in early months of the year and
nosedived to bottom of Rs. 30. Closing share price stood at Rs. 31.15 per share at the
current year end from Rs. 63.5 at the last year ended June 30, 2018. Accordingly, market
capitalization at close of the year was almost halved to Rs. 4,580 million than that of last
year ended June 30, 2018 market capitalization of Rs. 9,335 million.

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Market Value per share
The market value per share or fair market value of a stock is the price that a stock can be
readily bought or sold in the current market place.

Year Market Value per

share PKR
2018 63.10
2019 31.15

Analysis
Market value per share of company decreased to half this year because of the decline in
stock market and share price. This is unfavorable for the country as it does not attract
investors to invest in the company.

Micro factors
Investment in increasing the assets and an increase in overall debts, a decrease in net
income and a decrease in gross profit were the reasons in a declining trend of the
decreasing price of market value of the company.

Macro factors
Uncertain economic and political conditions have seriously affected the investor
confidence on the stock market. Resultantly KSE 100 Index plummeted to 33,902 points
by the year end from 41,911 points at beginning of the year. This trend also impacted
market price of Company’s shares which has been continuously declining for most of the
year. Share price had touched the peak at Rs. 74.46 in early months of the year and
nosedived to bottom of Rs. 30. Closing share price stood at Rs. 31.15 per share at the
current year end from Rs. 63.5 at the last year ended June 30, 2018. Accordingly, market
capitalization at close of the year was almost halved to Rs. 4,580 million than that of last
year ended June 30, 2018 market capitalization of Rs. 9,335 million.

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Coverage Ratios
A coverage ratio, broadly, is a group of measures of a company's ability to service its
debt and meet its financial obligations such as interests’ payments or dividends.

Interest Coverage Ratio

The interest coverage ratio (ICR) is a measure of a company's ability to meet its interest
payments.

Year 2018 2019

Interest coverage ratio 4.11 2.625
PKR

Analysis
The interest coverage ratio of the company has decreased this year which means that it
will face difficulties if it attempted to borrow additional funds which is unfavorable for
the company.

Micro factors
Company’s earnings before income tax increased but it was not enough to support the
interest charges which gradually increased this year. It made company’s ability to meet
its interest payments difficult.

Macro factors
Interest rate risk arises due to fluctuation in interest rate resulting in adverse future cash
flows. Company’s exposure to interest rate is associated with the long-term loans and
short-term borrowings. Company monitors interest rate fluctuation and counters interest
rate risk by utilizing optimal mix of different types of borrowing arrangements. Due to
government’s monetary and fiscal policies and exchange rate the company’s income was
affected and company’s debt were increased during this period. Due to the recession

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period in the economy interest charges increased and interest coverage ratio decreased
which means company will face difficulties if attempted to borrow funds.

Conclusion
For the financial year ended June 30, 2019, the Board’s overall performance and
effectiveness has been assessed as Satisfactory. Company went through different issues
and its share price decreased to half. Which shows that company’s management have to
responsible and take big steps to improve the status and value of company’s market
value. Debts and investments should be managed accordingly to economical situation.

There is a big room for improvements in the company which can lead to satisfy the
customers and stakeholders.

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