RESEARCH AND ANALYSIS PROJECT

“An Analysis & Evaluation ofFinancialand Business
Performance of FAUJI CEMENTCOMPANY LIMITED
from 1st July 2011 to 30th June 2014”(Topic 8)
OXFORD BROOKS UNIVERSITY
RESEARCH AND ANALYSIS PROJECT
NAME:MUHAMMAD ARQAM DAR
ACCA REGISTRATION# 2190238
WORDS COUNT:7474

OXFORDBROOKSUNIVERSITY
1Overall ResearchApproachand ProjectObjectives:
Contents
1. Over all Research Approach and Project Objectives:......................................................................3
1.1. Introduction:.......................................................................................................................3
1.2. Reasons for choosing Topic and Industry: ..................................................................................3
1.3. Research Objectives:............................................................................................................3
1.4. Research Questions: ............................................................................................................4
1.5. Research Approach:.............................................................................................................4
2. Information gathering and accounting/business techniques used:..................................................5
2.1. Methods and sources used to collect information: .....................................................................5
2.2. Limitations of Information gathering:........................................................................................6
2.3. Ethical Issues involved duringinformation gathering:.............................................................6
2.4. Accounting and business techniques used and their limitations:.............................................6
2.4.1. Financial Ratio analysis: ................................................................................................6
2.4.2. SWOT ANALYSIS:..........................................................................................................7
2.4.3. Porter’s five forces model: ............................................................................................7
3. Analysis, Conclusion and Recommendations:................................................................................8
3.1. Pakistan’s Cement industry profile: ...........................................................................................8
3.2. Fuji Cement Companylimited (FCCL) History and Profile:............................................................8
3.3. Competitor’s Profile:............................................................................................................8
3.4. Financial ratio analysis:........................................................................................................9
3.4.1. Production and sales analysis:.......................................................................................9
3.4.2. ProfitabilityAnalysis: ..................................................................................................10
3.4.3. Liquidity Analysis:.......................................................................................................12
3.4.4. Efficiency Analysis:......................................................................................................13
3.4.5. GearingAnalysis:........................................................................................................15
3.4.6. Investor’s ratio analysis:..............................................................................................16
3.5. Business analysis: ..................................................................................................................18
3.5.1. SWOT Analysis:..............................................................................................................18
3.5.2. Five forces model:..........................................................................................................19
Bargaining power of customers:.................................................................................................19
Bargaining power of Supplier:....................................................................................................19
Threat of substitute:..................................................................................................................19
Threat of new Entrant:...............................................................................................................19

Rivalry amongexisting players: ..................................................................................................19
3.6. Conclusions & Recommendations:..........................................................................................20

1. Over all Research Approach and Project Objectives:
1.1. Introduction:
The research& analysisprojectprovidesanevaluationandanalysisof financialperformance overathree
period of time of FAUJI CEMENT COMPANY (FCCL).
1.2. Reasons for choosing Topic and Industry:
Firstof all,before startingResearch&AnalysisProject(RAP);IhadtoselectatopiconwhichIcan provide
my workings. I have an interest in equity markets so I selected the topic number eight; Analysis and
evaluationof financial andbusinessperformance of an organization. Inthisway by selectingthistopic,I
could also improve my investment skills in equity and share markets.
There are many industries in Pakistan but major industries are textile industry, fertilizer industry and
CementIndustry.Ihave chosenCementindustryof Pakistanasthe topic of RAP.The Cementindustryof
Pakistan have a huge media coverage and information regarding cement industry is easily available on
internet.The cementindustryof Pakistanisalsocontributingalottowardseconomy(GDP) of the country
(Ameen, 2014) and I also wanted to know that how this industry is contributing its part towards
development of the economy of Pakistan.
Afterdecidingindustry,thistimeIhadto selectacompanyforthe workingsof RAP.Afterassessingsome
majorplayersinthe cementindustryof Pakistan,Ihave chosenFauji CementCompany Limited.The Fauji
CementCompany Limited(FCCL) isthe fourth largestcompanyin the cementindustryof Pakistan (Jafri,
2013). The information required for the financial and business analysis of FCCL was easily available on
internet, newspapers and on business magazines e.g. Express Tribune, Business Recorder, The NATION
etc. As FCCL is listedonLahore stock exchange;itsfinancial statementswere notdifficulttoobtainfrom
Lahore stock exchange.
I also have to select a suitable competitor of FCCL for the meaningful and realistic financial analysis. For
this purpose, I have selected ATTOCK CEMENT COMPANY LIMITED which is also playing a major role in
the cement industry of Pakistan. ACPL is operating more than hundred percent of its rated production
capacity(ACPL,2014).The informationof ACPLrequiredforthe financialanalysiswasalsoeasilyavailable
from different sources as well.
1.3. Research Objectives:
The objectives of research and analysis project are as follows:
 The mainobjective isthe evaluationandanalysisof financial performance of FCCLwith the help
of Ratio Analysis; Ratio analysis includes profitability analysis, liquidity analysis, gearing and
investor ratio analysis etc.
 Nextobjectiveincludesdeterminationof strengths,weaknesses,opportunitiesandthreatsof
FCCL to meetitsprimaryand othercore objectives withthe helpof SWOTanalysis.
Analysisof competitiveenvironmentandcompetitivepositionof FCCLinthe cementindustryby
implementingPorter’sfive forcesmodel.
 The researchobjectivesalsoincludesenhancementandimprovementof mycommunication
skills,analytical skillsandinterpersonal skills.
 Atthe endof RAP,drawaconclusionaboutthe financialperformanceof FCCL andmakingsuitable
recommendations to FCCL to improve its financial performance.

1.4. Research Questions:
Followingresearchquestionsare relevantforResearch&Analysisproject:
 What will be the topicof RAP & whichindustryshall Iselectforanalysispurpose?
 Whichtype of informationisrequiredforthe topicchosen?
 Whichbusinessandfinancial tools/methods shall be usedforthe researchanalysis project?
 What will be the source to obtaininformationwhichshouldalsorelevantforthe researchand
analysisproject?
 How FCCL isperformingcurrentlyandwhatiscurrentfinancial position/performance of FCCLin
comparisonwiththe cementindustry?
 Accordingto SWOT analysisandPorter’sfive forcesmodel;whatisthe business performance of
FCCL?
 In comparisonwithitscompetitorAttockCementPakistanLtd; whatisthe (financial)
performance of FCCL?
 In the endhowto make a conclusionaboutthe businessandfinancial performance of FCCLby
usingdifferentaccountingandbusinessmodels?
1.5. Research Approach:
For the meaningful andthe useful results,Ihave usedQuantitativeandQualitative methodsforfinancial
and businessanalysisof FCCLovera three periodsof time.Firstof all,I studiedBSC Infopack in detail in
order to meet all the mandatory requirementsof research and analysis project (RAP).I have to select
qualifiedandskilledofficial mentorregardingmyresearchandanalysisprojectforthe bestresults.After
choosing mentor the next task was to select suitable topic from the list of topics provided by Oxford
BrookesUniversity.Iselected8th
topic;AnAnalysisandevaluationof businessandfinancial performance
of the company. I selected cement industry and Fauji Cement Company Limited (FCCL) for the workings
of my Project, as cement industry is one of the major industry of Pakistan and relevant information
regarding financial analysis was easily available on different sources. I have selected financial ratio
analysis, SWOT analysis and Porter’s five forces model for the financial and business analysis. After
selecting topic, industry and business models to be used for the project, this time I identified relevant
sources (websites, books, articles) from where I could get authentic and relevant information. I also
discussed about my project workings with my mentor in all the three meetings.
IalsousedFCCL&ACPLofficial websitestounderstandtheirstrengths,weaknessesandmarketdynamics,
at the end I reviewed my project to correct possible errors and mistakes.

5Informationgatheringandaccounting/businesstechniquesused:
2. Information gathering and accounting/business techniques used:
2.1. Methods and sources used to collect information:
Information can be gathered from many sources but there are two major sources
1> Primary Sources:These are the sourceswhichgivesfirsthandinformation/evidenceregardingany
object, event or person. And firsthand information is also known as direct information. Audio,
Video recordings, Statistical Data and art objects are the examples of primary sources (Ithaca
College, n.d.).
2> Secondary Sources: These are the sources which summarizes, interpret and processes primary
sourcesinformation.Secondarysourcesdoesnotprovide directevidence/informationregarding
any object. Magazines, books & different articles in newspapers etc. are the examples of the
secondary sources. (Ithaca College, n.d.).
I have used secondary sources to obtain relevant information regarding my project workings and these
sources includes:
Annual reports:
Ihave gatheredmostof thefinancialinformationof FCCL&ACPLrequiredfortheRAPfromtheirpublished
annual reports. The published annual reports/statementsof both (FCCL &ACPL) were available on their
official websites.I have used official websites of FCCL & ACPL many times to obtain the most reliable &
authentic information and official websites of the both companies also helped me to understand the
nature of business and market dynamics of cement industry.
Study texts & ACCA Articles:
I took help from study texts of ACCA & CAT to recall my concepts regarding businessand financial tools
whichI wasgoingto applyfor the analysisof FCCL (e.g.financial RatioAnalysis,SWOTanalysis&Porter’s
Five ForcesModel).Forthispurpose,Ivisitedmycollege’slibrarymanytimes.Ialsogothelpfromarticles
published by ACCA and Oxford Brooks University regarding BSC degree program to gather relevant
information for RAP.
Information from Newspapers and Business magazines:
Newspapersandbusinessmagazinescontainsinformationregardingvariousmarketupdates.Information
about the economic statuses/positions of different markets are also available on different newspapers
and magazines.Ireviewednational newspapers andbusinessmagazinesvarioustimestounderstandthe
cement industry dynamics, economic position of Pakistan and also for reliable updates of FCCL &ACPL.
There are manynational newspapersof PakistanbutIhave consultedThe Dawn,The Nation,andExpress
Tribune most of the time to obtain evidences/references to support my workings.
Information from internet and different search engines:
I have used internet mostly for obtaining relevant information and also to gather evidences/references
for the research & analysis project. I also tried my level best to ensure that the information gathered is
reliable andauthentic.Ihave usedgoogle searchengine mostof the time during the preparationof RAP
to find out solutions for my problems. Other search engines includes Ask.com, Yahoo! and Bing which I
used during the preparation of RAP.

2.2. Limitations of Information gathering:
Collecting reliable and useful information for the workings of RAP was very difficult task. I faced many
limitations while collecting useful information. First of all, the identification of the sources to gather
reliable and relevant information was very difficult task. Collecting required information from the
newspapersandbusinessmagazine wasverytimeconsuming.Ihave facedinternetconnectivityproblem
many times while working, which was also a hurdle for information gathering. The collection of
information about related cement industries was also a challenging task.
2.3. Ethical Issues involved during information gathering:
I was obliged to follow the fundamental ethics principlesof ACCA during my research work. I have tried
my level best to avoid plagiarism throughout the workings of RAP. I have applied Harvard Referencing
systemto provide evidencesforthe workingsandalsoto avoid plagiarism.Inthe process of information
gathering, I tried to follow the professional ethics and also made sure the authenticity of gathered
information by double checking it with other dependable sources, as assuring that the authenticity of
gatheredinformation wasalsoanethical issuefacedbyme. Ihave alsofacedconfidentialityissuesduring
the preparation of research analysis project. I tried my level best to maintain the confidentiality of my
workingsof RAPand have notdisclosedtoanyone else except than my project mentor for final review.
2.4. Accounting and business techniques used and their limitations:
2.4.1. Financial Ratio analysis:
Ratioanalysisusesquantitativeanalysisapproachtoanalyzethe financial positionof the company.Italso
uses the line items of financial statements, combine them in different manners to extract ratios which
evaluated the efficiency, profitability,solvency,liquidity and gearingof the company. The company can
use benchmark of other competitive companies in the relevant industry. (Investopedia, n.d.)
Limitations of ratio analysis:
Normallydifferentmultinational firmsoperatesindifferentregionsanddifferentdivisionsof the industry
for them it’s difficult to choose a balanced industry average ratio. (Investopedia, n.d.)
Ratio analysis use past data and information, while stakeholdersneeds and concernedabout the future
and present positions. (Jan, n.d.)
Inflation plays a key role in numbers of financial statements. If the rate of inflation changes during the
periods of consideration than number of financial statements becomes incomparable. (Bragg, 2011)
Company’s policies also effect the conclusion and for the better comparison the policies of both
comparative mustbe same.If one companyisusing accelerated depreciation method and other company
is using straight line method of depreciation then the results will be different in both cases which also
impairs comparability. (Bragg, 2011)

2.4.2. SWOT ANALYSIS:
SWOT analysis takes informationfrom the environment analysis & identifiesthe strengths, weaknesses,
opportunities and threats of an organization. SWOT analysis also identifies which opportunities
organization can avail and which obstacles must be overwhelmed to meet organization’s primary
objectives. (Investopedia, n.d.)
SWOT analysis includesinternal and external factors. For example,strengths& weaknessesare internal
factorsandopportunities&threatsare externalfactors.The mainobjectiveof SWOTanalysisistoidentify
the internal and external factors which are critical for organization’s to achieve its desired objectives.
(Investopedia, n.d.)
Limitations of SWOT Analysis:
SWOT analysisprovidesequal weighttoall pointsanddoesnotgive weighttothe pointswhichare more
relevant for the situation. (Firth, n.d.)
SWOT analysis only highlights the problems but does not provide any solution to solve the highlighted
problem. (Queensland Government, 2014)
SWOT analysis does not priorities the relevant issues. (Queensland Government, 2014)
2.4.3. Porter’s five forces model:
Porter’sfive forcesmodel providesaframeworkwhichclassifies&analyzesthe competitiveenvironment
intensity and profitability of an industry. (Jurevicius, 2013)
These five factors includes:
1. Threat of new entrant
2. Bargaining power of supplier
3. Bargaining power of buyer/customer
4. Threat of substitute
5. Rivalry among existing competitors
Limitations of Five Forces Model:
Five forcesmodel issuitable forthe simple andstatic marketstructuresbut not for the rapidlychanging
environment (Free-Management-eBooks, n.d.)
This model assumes that there is no collusion in industry and it ignores the possibility of creating new
market. (Wilkinson, 2013)
Five forces model assumes that there is low uncertaintyin the markets and always competitors actions
can be countered by better planning. (Martin, 2014)
Five forcesmodel considers&basedonthe ideaof competition.Itignoresthe virtualenterprise-networks,
strategic alliances and electric linking of information systems. (Recklies, 2001)

8Analysis,ConclusionandRecommendations:
3. Analysis, Conclusion and Recommendations:
3.1. Pakistan’s Cement industry profile:
At the beginnings of the history of Pakistan, there were four cement plants which had total production
capacity of 0.5milion tons. Afterwards, because of many extensions the production capacity of Pakistan
cement industry was increased to 44 million tons along with 25 units in 2011. (SABIR, 2011)
In the cement industry of Pakistan, twenty four major companies are playing their role. Currently, the
total operational capacity of all these players is 43,446k of clinker & 45,618k of Cement. (APCMA, n.d.)
The cement produced by Pakistan is exported to many different countries (like Sri Lanka, Afghanistan,
South Africa and India etc.) because of its premium quality (The Nation, 2013). At this time, the cement
of Pakistan has shown growth of 2.7% in the local markets as compare to previous FY2013. The cement
dispatches were also increased to 3.21 million tons during FY 2014 and capacity utilization attained by
cement industry of Pakistan was 75.21 per cent in current fiscal year (2014) (Imaduddin, 2014)
3.2. Fuji Cement Company limited (FCCL) History and Profile:
The headquarter of FCCL is in Rawalpindi and operates its cement plants at Jhang Bahtar, tehsil Fateh
Jang, District Attock in the province of Punjab. (Fauji Cement Company Limited, n.d.)
The plantsof FCCL are producinghighqualityproducts(cement& clinker).The cementof FCCLis usedin
the building of Dams, bridges, Roads,industrial complexes etc. FCCL is also ISO certifiedcompany. FCCL
exports cement to different countries like India, Afghanistan, and South Africa etc. (Fauji Cement
Company Limited, n.d.) FCCL manufactures Portland cement & it was incorporated as Public limited
companyon23rd
November1992.The installedproductioncapacityof FCCLis3.27milliontonesforclicker
and3.43 milliontonsforPortlandcement,asreportedby ALLPakistanCementManufacturesAssociation.
Fauji foundation owned 39.9% cumulative ordinary and preference shares of FCCL. (Business Recorder,
2013)
3.3. Competitor’s Profile:
The ACPL (ATTOCK CEMENT PAKISTAN LIMITED) is the one of the major cement manufacturer in the
cementindustryof Pakistanwhoispayingwelltowardsthe cementindustryof Pakistan.ACPLislistedon
Karachi exchange & islocatedin tehsil hub,districtLasbela,Baluchistan.ACPLhas introducedfirstlatest
pre-heaterdrytechnologyplantinthe historyof cementindustryof Pakistan. (Business Recorder, 2012)
ACPL is the part of the Pharaon group and also mostly owned by it. The brand Falconcement of ACPL is
famousbecause of its superiorquality& highstandard. ATTOCKCementPakistanLimitedisalso playing
importantrole towardsthe economyof Pakistanthroughpayinghigh taxes,excise duties&royaltiesetc
(ACPL, 2014).
ACPL current operational capacity is 1.7 million tons of clinker and also 1.7 million tons for cement.
(Business Recorder, 2012)

3.4. Financial ratio analysis:
3.4.1. Production and sales analysis:
The cement and the clinker production volumesof Fauji cement company limitedwere 2.14 million ton
and 1.16 million ton respectively in the FY2012 which (cement and clinker production volumes of FCCL)
were further increased to 2.49 million ton and 2.12 million ton (respectively) in the FY2013.
The domestic demand of cement was also increased by 23% in the financial year 2013 as compare the
previous financial year 2012. (FCCL, 2012:2013)
FCCL’s sales revenue was also increased by 38.5% to RS 15967 million in the financial year 2013 due to
increase inthe domesticcementdemand.SellingpriceswerealsoincreasedinFY2013 withthe increase
of demand of cement. (Jafri, 2013)
1,800,135
2,353,668
2,125,693
1,167,067
1,912,921
2,490,851
2,497,529
2,145,050
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
FY2014 FY2014 FY2013 FY2012
ACPL FCCL
Production
(Source: FCCL, 2012:2014;ACPL, 2014)
Production Analysis
Clinker Production (Tons) Cement Production (Tons)
12,547,251
17,532,277
15,967,900
11,523,050
0
5,000,000
10,000,000
15,000,000
20,000,000
Sales Revenue (Rs’000)
(Source:FCCL, 2012:2014;ACPL, 2014)
Sales Revenue(RS'000
ACPL FY2014 FCCL FY2014 FCCL FY2013 FCCL FY2012

The domestic consumption of cement rushed to 10.10% in Pakistan in FY2013 which also affected
productionof FCCLto increase ( PakistanConstruction&Quarry,2013).In the FY2013 due tothe increase
in spending in PSDP (Public Sector Development Program) the domestic demand of cement was also
improved by19% ( Pakistan Construction&Quarry,2013) .FCCLexportswere declinedduringFY2013, as
cheaper cement was available to Afghanistan from Iran. (Ahmed, 2013)
The sellingpricesof cementwerealsoincreasedduringFY2014whichincreased the salesrevenue of FCCL
by 9.8% (FCCL, 2013:2014). Such huge increase in the sales revenue was mainly because of reasonable
increase in selling prices of cement. (KHAN, 2014)
In the FY2014, the domesticdemandof cementwas onincreasingside.The domesticdemandof cement
was increased by 3%, as present government of Pakistan believes in modernization of infrastructure.
(PML-N, 2013)
On the other side,exports of FCCLwere decreasedby 16% during financial year 2014 (FCCL, 2013:2014).
In the FY2014, NATO forces leaved Afghanistan which had a great influence on the demand of Pakistani
Cement in Afghanistan (BAIG, 2014) and therefore exports of FCCL were decreased by 16%.
Competitor: In the FY2014, the clinker production of FCCL was 2.35million tons & cementproduction of
FCCL was2.49 milliontons (FCCL,2014).Ascompare toFCCL, the clinkerandcementproductionsof ACPL
were 1.8 million tons and 1.9million tons respectively (ACPL, 2014) which depicts the lower production
capacity of ACPL as compare to FCCL. Eventhough ACPL’sproductioncapacity was loweras compare to
FCCL but ACPL was performing at more than hundred percent of its rated capacity in the FY2014 (ACPL,
2014; FCCL, 2014). Furthermore in the FY2014 ACPL was also able to sell its whole production in the
country and also in the foreign cement markets as compare to FCCL (ACPL, 2014; FCCL, 2014). The
performance of ACPLwasgoodenoughinsteadof the powerissuesinPakistan.( BusinessRecorder,2013)
3.4.2. Profitability Analysis:
The profit margins of FCCL were on increasing side during all the three years of analysis (FCCL,
2012:2014).In the financial year 2013, the gross profit margin of FCCL was 31.82% which was increased
by 19.5% as compare to gross profitmargin of 2012 (FCCL,2012:2013).The mainreasonbehindincrease
in grossprofitmargin of FCCL inthe FY2013 was increase insellingpricesof cement (Shoaib-ur-Rehman,
2013) and also reductioninthe productioncost of cementdue to cheap availabilityof importedcoal,as
importedcoal isthe majorsource of fuel inthe manufacturingof cementinPakistan (Zaheer,2013).The
reduction in the imported coal price helped FCCL in increasing profit margins. The gross profit margin
was further increased by 9% in the financial year 2014 as compare to FY2013 (FCCL, 2013:2014) .Such
increase inthe gross profitmargininFY2014 was causedbyhigh domestic demandof cementaspresent
government of Pakistanfocusesand pay attention to infrastructure development (PML-N, 2013) which
also increased domestic consumption of cement in Pakistan (Baig, 2014).
Increasingsellingpricesof cementand decrease inthe coal pricesof cementwere the maincontributors
in increasing gross profit margin in the FY2014. (Business Recorder, 2014)

Reductioninthe finance costof FCCL and increase inotherincome inthe FY2014 were the mainreasons
of such increase in operating profit margin of FCCL in the FY2014. (Business Recorder, 2014)
In the FY2013, the netprofitmargin of FCCL was 13.13% whichwas 174% higherthan the netmargin of
FY2012 (FCCL,2012:2013). The reasonbehindthisincreaseinthe netprofitmarginof FCCLwasthe 257%
increase in the other income of FCCL (earned by deposits accounts & financial assets held by the FCCL)
(Business Recorder, 2013).Increase in the gross profit margin, reduction in finance cost of FCCL were
another core reasons behind increase in net profit margin of FCCL of FY2013 (FCCL, 2012:2013). In the
FY2014, 61% increase in other income, 31% reduction in the finance cost and 9% increase in the gross
profitmargin (FCCL,2013:2014) as compared topreviousFY2013 collectivelyimprovednetprofitmargin
of FCCL to 14.98%. (Business Recorder, 2014)
The return on capital employed(ROCE) was 17.76% in the FY2013 which was 60% higherthan the ROCE
of FY2012 (FCCL, 2012:2013). Such development/improvement in ROCE of FCCL was mainly because of
significant increase in the operating profit (BusinessRecorder, 2013) by 18.83% and slight increase in
capital employed of FCCL. (FCCL, 2012:2013)
In the FY2014, reduction in the long term finance (Business Recorder, 2013) caused reduction in capital
employed.Onthe otherside,operatingprofitof FCCLwasalsoonincreasingsideintheFY2014.Boththese
reasons(reductionincapital employed&increase inoperatingprofitof FCCL) furtherincreasedROCEof
FCCL to 22.21%. (FCCL, 2013:2014)
Competitor:Inthe FY2014, AttockCementPakistanLimited(ACPL) attainedgrossprofitmargin,netprofit
margin and ROCE 29.5%, 16% & 27.46% respectively (ACPL, 2014). The gross profit margin of ACPL was
17.6% lowerthanthe gross profit marginof FCCL,as FCCL has acquiredGermanplantwhichhelpedFCCL
to reduce itsproductioncostof cementandimprove grossprofitmarginaswell (ACPL,2014;FCCL, 2014).
On the other hand, ACPL’s nets profit margin & ROCE were higher as compare to FCCL, as ACPL is pure
equityfinancedcompanyandthe financecostof ACPLwasalsoverylow ascompare toFCCL (ACPL, 2014;
29.52
16.05
27.47
34.70
14.98
22.30
31.82
13.13
17.75
26.63
4.80
11.07
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.00
Gross Profit Margin (%) Net Profit Margin (%) ROCE (%)
(Source: FCCL, 2012:2014;ACPL, 2014)
Profitability Analysis

FCCL,2014). Inthe FY2014, ACPLalsosoldall of itsproductionindomesticandforeignmarkets whichalso
enhanced the profitability of ACPL (ACPL, 2014)
3.4.3. Liquidity Analysis:
Liquidity ratio analysis shows the ability of the company to pay off its short term debt liabilities
(Investopedia,n.d.).The currentratiocan be calculatedsimplybytaking currentassets and dividingitby
current liabilities. The quick ratio can be calculated by adding cash & cash equivalents, trade debts,
marketable investments and dividing that sum by current liabilities. (Folger, n.d.)
Inthe FY2013, the currentratioof FCCLwasimprovedto1.14timesascompare topreviousyears(FY2012)
current ratio of 0.76 times (FCCL, 2012:2013). The improvement in current ratio of FY2013 was because
of reductionincurrentliabilities&increaseincurrentassetsof FCCL.The reductioninthecurrentliabilities
of FCCL in FY2013 was because of reductioninpayable days and reductioninpayable days alsoreduced
payables(trade creditors)of FCCLbyearlypaymentstocreditors (aspayablesdaysweredecreasedby27
days in the FY2013) (FCCL, 2012:2013).
On the otherside inthe FY 2013, the currentassetsof FCCL were increasedmainlydue tothe increase in
receivables(trade debts)andthe mainreasonbehindincreaseinreceivablewasincreaseinsales revenue
due to increaseddomesticconsumptionanddemandof cementinthe FY2013 ( PakistanConstruction&
Quarry, 2013).
The quick ratio of FCCL was also improved to 0.92times in the FY2013 as compare to 0.58times of
FY2012.In the FY2013, due to the construction industry boom ( Pakistan Construction & Quarry, 2013)
domesticdemandof cementwasincreasedwhichalsoincreasedthesellingpricesofcementintheFY2013
(Shoaib-ur-Rehman,2013).The productioncost of cementwas also decreasedduringFY2013 because of
cheaper cement availability of importedcoal (which is the major source of fuel in the manufacturing of
cement) (Zaheer, 2013). All these factors had positive affect on the cash balance of FCCL and improved
cash balance of FCCLmainlycontributedtowardsthe improvementinthe quickandcurrentratiosof FCCL
in the FY2013. (FCCL, 2012:2013)
2.57
1.70
1.16
0.84
1.14
0.92
0.76
0.58
0.00
0.50
1.00
1.50
2.00
2.50
3.00
Current Ratio Quick Ratio
(Source: FCCL, 2012:2014;ACPL, 2014)
Liquidity Analysis

The current ratioof FCCL was furtherincreased to 1.16 times in the FY2014 as compare to 1.14 timesof
FY2013 andquickratioof FCCLwasreducedto0.84timesascompare to0.92 times(quickratio)of FY2013.
(FCCL, 2013:2014)
In the FY2014, the inventoryof FCCLwassignificantlyincreased(by43.6% as comparedto previousyear)
due to the decrease in export sales of cement industry and also FCCL (BAIG, 2014).
Onthe otherhand inthe FY2014 cash balance of FCCLwas reduced toRS 842 millionascomparedtoRS
1702 million of FY2013. Such reductionincash balance of FCCL was because of repayment of shortterm
borrowingsinthe FY2014 (Recorder,2014). The currentliabilitiesof FCCLwere alsoincreasedby1.65%in
the FY2014 (ascompare to FY2013) butoverall currentassetswere greaterthancurrentliabilitiesof FCCL
which further increased the current ratio of FCCL to 1.16 times in the FY2014.(FCCL, 2013:2014)
The reductioninthe quickratio inthe FY2014 was mainlycausedbythe reductionincashbalance of FCCL
in FY2014. (FCCL, 2013:2014)
Competitor:Inthe FY2014, the current& quickratioof ACPL were 2.57 timesand1.67 timesrespectively
(ACPL, 2014). Both liquidity ratios of ACPL were above than acceptable level & also higher than liquidity
ratiosof FCCL(FCCL,2014; ACPL,2014). ACPLis pure equitybasedfinancedcompanyascompare toFCCL
which depend on debt as well as on equity. The main reason behind lower liquidity ratios of FCCL (as
compare to ACPL) was the highercurrentliabilities of FCCLdue to the additionof currentportionof long
term finance in current liabilities of FCCL. (FCCL, 2014; ACPL, 2014)
3.4.4. Efficiency Analysis:
Efficiency analysis includes receivable turnover (receivable days), repaymentof liabilities (payable days)
and inventory turnover (inventory conversion days) etc. ( Investopedia, n.d.)
The receivable daysare the daysthata companyneedstocollectpaymentsagainstthe issuedinvoicesto
creditcustomers. (WallStreetOasis,n.d.)The receivable daysof FCCLinthe FY2012were 2dayswhichwere
more increasedto5daysinthe FY2013.Such increase indebtorsdaysof FCCLwerelargelyduetoincrease
inthe salesrevenueof FCCLinthe FY2013 and alsodue to the outstandingbalance of RS.45 millionfrom
FCCL’s one of the major customer but FCCL secured this amount by letter of guarantee to avoid any
discrepancy which illustrates the better debtors management of FCCL (FCCL, 2012:2013).

Inthe FY2014, in ordertoimprove marketshare &salesinAfghanistanFCCLhasofferedeasycreditterms
to its potential customersthroughextensive dealer’s networkwhichFCCLhasin approximately eachcity
of Afghanistan (Fauji CementCompanyLimited,n.d.).Inthe FY2014, salesrevenue of FCCLwere also on
increasingside. (FCCL,2014) Both these factorsincreased debtor’s daysof FCCLto 12 days as compare to
5 days of FY2013.
The Payables days of FCCL were 50days in the FY2013 as compare to the 77 creditors/payables days of
FY2012. There was also reduction in the creditor’s days in FY2013 due to the cost saving to FCCL by
acquiringcosteffectiveGermanplant.(BusinessRecorder,2013) Inthe FY2013, FCCL haspaiditscreditors
27 daysearlierascompare topreviousfinancial year(FCCL,2013).Inthe FY2014, inputcostsof FCCLwere
increased (BusinessRecorder,2014) because of whichcostof goodssoldof FCCL were alsoincreasedand
due to the increase incostof goodssoldthere wasa minorincrease increditorsdays.The creditor’s days
were reached to 55 days in the FY2014 (FCCL, 2014).
The inventory conversion days are the days that a company takes to converts its inventory into sales
(Bragg,2013). In the FY2012, inventoryconversiondayswere 152 dayswhichwere decreasedto96 days
in the FY2013 (FCCL, 2012:2013). In the FY2013, due to the construction industry boom (Haq, 2013) the
domestic sales demandof cement was increased & due to increase in the domestic demand of cement
FCCL has reduced its inventory conversion days in FY2013 (FCCL, 2012:2013). The inventory conversion
daysof FCCL were 109 days inthe FY2014 (whichwere increasedby13 days) as compare to 96 inventory
conversion days of FY2013 (FCCL, 2013:2014). The main reason behind this increase in inventory
conversion days was the decline in export sales of FCCL in the FY2014.
Competitor: In the FY2014, ACPL has performed well enough in terms of efficiency ratio analysis. The
debtors days of ACPL were 8 days ,creditors days were 83 days and inventory conversion days were 69
daysas compare to 12, 55 and109 daysof FCCLrespectively (ACPL,2014). Inthe FY2014, ACPL’sdebtor’s
managementanddebtorsdayswere notonlybetterthanFCCL but ACPLalso soldall of its productionby
givingsensible creditterms&days to the customers.Because of workingat more than100% of itsrated
capacity ACPL’s inventory conversion days were also less than FCCL’s inventory conversion days (ACPL,
2014; FCCL,2014). The creditor’s daysare consideredfreesource of financeandACPLhasusedthissource
8
83
69
12
55
109
5
50
96
2
77
152
0
20
40
60
80
100
120
140
160
Debtor Days Creditor Days Inventory Days
(Source: FCCL, 2012:2014;ACPL, 2014)
Efficiency Analysis

of fiancé more time as compare to FCCL, as creditors days of ACPL were 83 days in the FY2014. (ACPL,
2014; FCCL, 2014)
3.4.5. Gearing Analysis:
Gearing measures financial leverage & also demonstrate the proportion of debtversus equityon which
company’s activities are based/funded. The high level of gearing indicates high risk and low level of
gearing indicates low risk & financial strength of the company (Accounting Tools, n.d.).
The debtto equityratios/Gearingratios of FCCL were 0.73:1, 0.50:1, and 0.34:1 in the FY2012, FY2013 &
FY2014 respectively (FCCL,2012:2014). The debtto equityratiosof FCCLdeclinedinthe FY2013 to 0.50:1
& the twomainreasonsbehindthisreduction ingearingratios were increase in retainedearnings due to
highprofitsearnedbyFCCL& alsoreductionindebtfinancinginthe FY2013 as compare to FY2012(FCCL,
2012:2013).Both these reasons reduced gearing ratio of FCCL in the FY2013.
In the financial year 2014, the gearing ratio of FCCL was further decreased to 0.34:1 because of the
reduction in the long term debt finance of FCCL (FCCL, 2013:2014).
In the FY2013, interestcoverratioof FCCLwas increasedto3 timesas compare to interestcoverratioof
1.5 times of FY2012. It was further increased to 5 times in the FY2014. The reason behind increase in
interestcoverratiosof FCCLinFY2013& inFY2014 wasincreasingprofitsduetoincreaseinsalesrevenue,
other operating income and also due to the reduction in the finance cost of FCCL. (Business Recorder,
2014)
0.00
0.20
0.40
0.60
0.80
Gearing Ratio
0.00
0.34
0.50
0.73
(Source: FCCL, 2012:2014;ACPL, 2014)
Gearing Analysis

Competitor: The gearing and interest cover ratios of ACPL were decent as compare to FCCL, as ACPL is
purely equitybasedcompanyanddonotuse debtfinanceasasource of finance (ACPL,2014).The gearing
ratioof ACPLwasnil inthe FY2014 andthe interestcoverratioof ACPLwasalsoveryhighdue toverylow
finance cost as compare to FCCL. The finance cost of ACPL was mostly related to the assets subject to
finance lease (ACPL, 2014; FCCL, 2014).
3.4.6. Investor’s ratio analysis:
The EPS (earningper share) of FCCL was on increasingside inall the three yearsunder consideration.In
the FY2013 due to the construction industry boom ( Pakistan Construction & Quarry, 2013) the
profitabilityof FCCLwasalsoincreasedascompare to FY2012. Inthe FY2013, regardlessof highnumbers
of outstandingsharesof FCCLdue to rightshare issue (HUSSAIN,2012); the highprofitabilityof FCCLhas
increased its EPS to RS 1.42 (The Express Tribune, 2013)as compare to RS 0.29 EPS of FY2012 (FCCL,
2012:2013).
The EPS of FCCL was more improved toRS 1.8 in the FY2014. As in the FY2014, there was no increase in
outstandingnumbersof shares&profitabilityofFCCLalsoincreasedduetothe increaseinother operating
income, improvement in the gross profit and also due to decline in finance cost of FCCL. (Business
Recorder, 2014).
89.44
5.33 3.04 1.53
0.00
20.00
40.00
60.00
80.00
100.00
Interest Cover Ratio
(Source: FCCL, 2012:2014;ACPL, 2014)
InterestCover Ratio

The marketvalue pershare of FCCLwas alsoonincreasingside underall the three yearsof consideration.
The marketvaluesper share of FCCL were RS 4.53, RS 7.9 & RS 15.41 in the FY2012, FY2013 and FY2014
respectively (FCCL,2012:2014). Such improvements/increase in the market value of shares of FCCL was
due toimprovedconfidence of shareholdersandthe confidence of shareholderswasimprovedduetothe
annual increase in dividend per share (FCCL, 2012:2014) and expansion of German plant made by FCCL
(Business Recorder, 2013).
The dividendpershare was RS1.25 pershare inthe FY2013 whichwas88% of itsEPS of thisfinancial year
and dividend per share was further improved to RS 1.5 per share in the FY2014. (FCCL, 2014)
Competitor:The finance costof ACPL wasverylow as compare to FCCL, as ACPLis equitybasedfinanced
company.Due to the lowerfinance costand lowernumbersof ordinaryshares;the profit attributableto
the ordinarysharesholders of ACPLwasalsohigh. The EPSof ACPLwasRS. 17.59 Andshare price of ACPL
was RS 157.7 per share in the FY2014 (ACPL, 2014; FCCL, 2014). Both the EPS and market share price of
0.00
5.00
10.00
15.00
20.00
FY2014 FY2014 FY2013 FY2012
ACPL FCCL
17.59
1.80 1.42 0.29
13.00
1.50 1.25
0.00
(Source: FCCL, 2012:2014;ACPL, 2014)
Investor's Analysis
Earning per Share Dividend per Share
0.00
50.00
100.00
150.00
200.00
Market Value per Share
157.70
15.41 7.90 4.53
(Source: FCCL, 2012:2014;ACPL, 2014)
Market Value Analysis

18Businessanalysis:
ACPL were high as compare to FCCL.ACPL has obtained equity investor’s confidence by giving higher
returnsinthe formof dividendpershare andACPLis alsoungearedcompanywhichhasalsocontributed
a lot in obtaining shareholders confidence. (ACPL, 2014; FCCL, 2014).
3.5. Business analysis:
3.5.1. SWOT Analysis:
Strengths:
FCCLhasinstalledfirstlargestsingleline GermancementproductionplantinPakistan (BusinessRecorder,
2013). ThisGerman plant is cost effective.IthelpedFCCLto not only reduce its productioncost but also
in increasing profitability (Ahmed, 2013).
FCCL hasbecome the fourthlargestcementmanufacturerinthe cementindustryof Pakistanwithhelpof
2.3mntinsexpansionplan.FCCL’smarketshare wasalso improvedto8% afterthisexpansion.(Jafri,2013)
FCCL is mostly owned by the Fauji foundation (Business Rcorder, 2013) and Fauji foundation has well
diversified investment portfolio to improve the profitability of its investments (including investment in
FCCL) (Fauji Cement Company Limited, n.d.).
Weaknesses:
FCCL isexportingcementdifferentcountries butFCCLtotal exports contains97% towardsAfghanistan. In
Afghanistan, Pakistani cement has been challenged by cheaper Iranian cement already but FCCL is over
depending on Afghan cement market for the export of cement. (Ahmed, 2013)
FCCL’s performance during the FY2014 was improving as compare to FY2013 in terms of profitability &
market share but FCCL was unable to utilize its available maximum production capacity as compare to
ACPL (FCCL, 2014; ACPL, 2014). In the FY2014, ACPL was operating at more than hundred percent of its
rated capacity (as compare to FCCL’s sixty nine percent capacity utilization) (FCCL, 2014; ACPL, 2014).
Opportunities
The present government of Pakistan is focusing on the infrastructure development of Pakistan & has
approved many projects like metro bus, motor way, bridges and conduction of railway link etc. These
projectsare alsoimprovingdemandof cementinPakistan.FCCLcan utilize itsspare capacityto fulfil the
demandof cementwhichwillalsohelpFCCLtoimprove itscapacityutilization (BusinessRecorder,2014).
FCCL can consider the Qatar’s cement market, as cement market of Qatar is expecting severe
deficit/shortfall due tothe upcomingmajoreventsinQatar like FIFA etc.Qatar is alsounable to increase
its cement production capacity due to lack of capacity addition. (Bhatia, 2013)
Threats:
The power and energy crisis are one of the major problem of all the industries of Pakistan including
cement industry. In the cement industry of Pakistan, due to the energy crisis more than half of cement
producers of Pakistan are unable to operate at full production capacity. (The Nation, 2013)
FCCL exports cement 97% towards Afghanistan (Ahmed, 2013) & Pakistan’s overall cement exports
comprises50% towards Afghanistan (Global cement,2013) but inAfghanistan Pakistani cementisfacing
tough competition (due to high prices of cement of Pakistan) with the cheaper Iranian cement.

19Businessanalysis:
3.5.2. Five forces model:
Bargaining power of customers:
There are twotypesof markets for the Pakistani cementdue to its high quality.One isdomesticmarket
andsecondisforeignmarket. Inthe domesticcementmarketof Pakistan, thereexistsaprice cartel inthe
market (HUSSAIN, 2013)and due to the presence of price cartel the bargaining power of the domestic
customersis verylow,as in the price cartel same price is decidedandcharged by the membersof cartel
to the customers.
On the other hand, the bargaining power of the foreign/international customers is very high. The main
reasonbehindthis isthebroadermarketavailable tointernational customersandinternationalcustomers
always have more opportunities as compare to the domestic customers. The decrease in the cement
exportsof Pakistanto Afghanistandue tocheaperIraniancement (Ahmed,2013) isthe bestexample of
the high bargaining power of international customers.
Bargaining power of Supplier:
The bargaining power of domestic cement supplier of Pakistan is very low,as raw material required for
the manufacturing of cement is available abundantly in Pakistan (Hasan, 2014) and the raw material
requiredforthe cement production ismostlyprovidedtothe companiesbysmallindividualsuppliers.The
small individual suppliers have low bargaining power in terms of price.
In the production of cement, imported coal is the main ingredient and main source of fuel which
constitutesalmost60%of productionscost. (Zaheer,2013) The bargainingpowerof foreign/international
suppliers are very highdue to the more opportunities available (because of wider international market)
and high level of demand of coal.
Threat of substitute:
The cementhas no substitute.Insome casesgypsumisrequiredto the nature of work but gypsumdoes
not replaces cement completely.
Threat of new Entrant:
In the cementindustryof Pakistanthe threat of new entrant islow because of many barriers.Firstof all,
the energycost isthe keychallenge tothe cementindustryof Pakistan whichconstitutes more than50%
of the productioncostof cement.(The PakistanCreditRating AgencyLimited,2014) Andalsoenergycrisis
is the main barrierfor the newentrant to enterin the cementindustry of Pakistan,as more than 50% of
existingplayersof the cementindustryof Pakistan are unable tooperate attheirfullproduction capacities
due to energy crisis (The Nation, 2013).
The increasingcompetitioninthe global market of cementis alsoa barriersfor new entrantto investin
the cement industry .For example in Afghanistan, Pakistani cement already has been facing tough
competition because of the cheaper Iranian cement. (Ahmed, 2013)
The terrorist attacks and losses due to the terrorist activities in Pakistan also discourages new
investor/entrant to invest in Pakistan. (Defence, 2014)
Rivalry among existing players:
There exists a price cartel in the cement industry of Pakistan. In price cartel same prices are charged by
all the players of the cement industry and all players of cement industry also have their own different

20Conclusions&Recommendations:
market shares so rivalry among existing players in the cement industry of Pakistan is not a big problem.
But in the future, price war is expected (Business Rcorder, 2014) in the cement industry of Pakistan
because of the capacity additions bythe existingplayersof cementindustry. Due to expectedprice war
the competitionwill alsoincreaseamongthe existingplayersof cementindustry(inordertoobtainmore
market share).
3.6. Conclusions & Recommendations:
The performance of FCCL was quite reasonable in all the three years of analysis. The profit margins of
FCCL were alsoremainedonincreasingside inall the threeyearsof analysis,asinthe financial year2012,
FCCL has facedsubstantial exchange losses butoverall profitmarginswere quite reasonable inthisyear.
The profitmarginswere further increasedinthe FY2013because of the boominthe constructionindustry
andalsodue tothe highdomesticdemandof cement.Increase inthe PublicSectorDevelopmentProgram
spendingwasthe keyreasonof highdomesticdemandof cementinthe FY2013. The performance of FCCL
inthe FY2014 wasalsoimpressiveintermsof profitmarginsbut the exportsof FCCLremaineddecreasing
in all the three years of analysis due to the availability of cheaper Iranian Cement to Afghanistan. The
liquidityratiosof FCCLwere improvinginall the three years butthe liquiditypositionof FCCLwasnot too
impressive as compare to its competitor (ACPL). The efficiency of FCCL was also sensible in all the three
years of concern because of the better management of cash operating cycle & better creditor’s day’s
management. Due tothe reductioninthe long termdebtfinancing&improvementinthe profitabilityof
FCCL,the interestcoverratio &alsogearingof the companywasimprovinginallthe yearsof analysis.The
finance cost of FCCL wasreducingin all the concerningyearsof analysis due tothe reductioninthe long
term finance. The earning per share (EPS) of FCCL was improving in all the three years of consideration.
The increase in profitabilityof FCCLwasduetoincreaseinsellingprice ofcement, increaseinotherincome
and also due to the reductioninfinance cost of FCCL duringall the three yearsof analysis.FCCLalso has
improvedthe confidenceof itsshareholdersbygivingthemreasonabledividend pershare inall the three
years. In all the concerned years of analysis, the share price of FCCL remainedon increasing side which
depicts the improved confidence of the shareholders of FCCL.
Althoughthe performanceof FCCLwaswell enoughinall the threeyearsof analysisbutthe performance
of FCCL was notquite reasonable ascompare toACPL. The ACPL has soldall of itsproductionindomestic
and also in foreign markets in all the three years of analysis. ACPL was also performing at more than
hundred percent of its rated capacity. As compare to ACPL, the FCCL has still operational spare capacity
and was not able to work at 100% of its production capacity.
Alike financial performance the businessperformance of FCCLwasalsowell enough inall the three years
of analysis. The FCCL has acquired the first German cement production plant in the history of cement
industryof Pakistanwhichisalsocosteffective.Thereare 24keycementproducersinthe cementindustry
of Pakistan and FCCL is ranked on 4rth number among these players. FCCL also have strong competitive
position in the cement industry of Pakistan. FCCL has also installed a Re fuse De rived Fue l (RDF)
processing plant w hich put FCCL distinct FCCL from the other players of the ce ment industry of
Pakistan.

21Conclusions&Recommendations:
Followings are some recommendations for FCCL:
 The FCCL exports cement to different countries but its main focus for the cement exports is
Afghanistan. FCCL’s exports constitutes 97% towards Afghanistan where Pakistani cement is
facingtoughcompetitionduetothe cheaperIraniancement.Inordertoimproveitsexports,FCCL
should pay attention to some other international cement markets along with Afghanistan.
 The present government of Pakistan is giving more attention to the infrastructure development
whichisincreasingthe domesticdemandof cement.FCCLisnotperformingatitsfull production
capacity and has spare capacity. FCCL shouldutilize itsspare capacityto obtainfull advantage of
increasing domestic demand.
 FCCL should take into account the expected shortfall in the cement industry of Qatar. FCCL can
improve its exports by selling cement to Qatar.
 FCCL can improve its sales by giving more consideration in the marketing of cement in the
domestic/local markets,asdemand of cementisincreasinginthe domesticmarketsof Pakistan.

RESEARCH AND ANALYSIS PROJECT

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