In the financial analysis of any organization whether its a sole proprietorship,partnership or corporation Balance Sheet is one of the most important statement, it summarizes the company's assets, liabilities and owners equity on a specific time, it gives an overview of organization's financial position; what it owes and what it owns also the amount invested by creditors and investors to its users like investors, creditors and managers, it says much more than just amounts it shows the liquidity, solvency and riskiness of any organization hence, it is the snapshot of an organization's financial condition.
Here i am presenting the analysis of Pakistan's Cement giant +Lucky Cement Limited's 2013th balance sheet, its horizontal and vertical analysis as well as liquidity, solvency analysis and capital structure of this company. Horizontal analysis of Balance Sheet taking 2008 as base year.
Vertical analysis of Balance Sheet.
ASSETS
LCL’s assets are showing a trend of continuous increase
in assets from 2008 till 2013 i.e. 12% in 2009, 11.89% in 2010, 20.36% in
2011,18.67% in 2012 and 46.6% in 2013 this is due to capital expenditures on
alternative energy, WHR and ventometic packing. There is a significant increase
in assets in 2013 which is 47% that is Rs. 15,957,101,000 increase as compared to
2008 which is because of significant increase in Non-current assets due to huge
investment in ICI Pakistan through Lucky Holdings Limited that is Rs.5,619,000,000
(75% holdings in ICI).
While common size analysis reveals that non-current and
current assets contribution in total assets have mixed trend of up and down.
These fluctuations are due to capital expenditures as discussed above and
short-term investment in securities, increase in other receivables (receivable
from HESCO and rebates) and increase in cash and bank balances.
EQUITY
LCL’s equity is increasing from 2008 to 2013 as shown in
the above table that is a increase of 24.64% in 2009, 34.52% in 2010, 48.87% in
2011, 78.30% in 2012 and 119.97% increase in 2013 which is showing LCL’s policy
of equity based financing. This increase is due to the issue of new shares in
London Stock Exchange through GDR and increase in the reserves over the period,
the significant increase of 119.97% in 2013 is because of huge increase of
Rs.7.8 million in reserves due increase in unappropriated profit.
LIABILITIES
Current liabilities shown a mixed trend a gradual
increase of 18.37% in 2009 then 25.43% increase in 2010, 39.16% increase in
2011, in 2012 it takes a declining trend that is 52.62% decline in 2012 and
49.97% decline in 2013 which is due to low short-term borrowings.
We can confirm LCL’s capital structure policies from the
following common size analysis of its equity and liabilities, which is showing
its equity based financing policy as said above.
We can see the mix of
equity and debt here which is demonstrating the increasing trend in equity and
decline in long-term liabilities while current liabilities are also declining.
Share capital and reserves have increased from
54% of total financing in 2008 to 82% of total financing in 2013 simultaneously
long-term liabilities are declined from 23% of total financing in 2008 to 11%
of total financing in 2013, same is the case with current liabilities which are
declined from 22% of total financing in 2008 to 8% of total financing in 2013.
LIQUIDITY ANALYSIS
ACTIVITY BASED RATIOS
- Inventory Turnover Ratio LCL’s inventory turnover in 2008 is 3.34 times which is increasing showing a good trend in 2009 and 2010 that is 3.49 and 3.54 times respectively then a significant dip in 2011 has shown in inventory turnover which is 2.84 times. This is due to serious decline in sales and increased costs in 2010 and 2012, in 2012 it increased a bit to 2.89 times then a significant increase in 2013 to 3.18 times.
Inventory
turnover in days is also showing the same trend that is positively decrease in
turnover days which is 109 days in 2008, 104 days in 2009 and 101.96 days in
2010 then inventory turnover days increased to 128.52 days in 2011, this is
mainly due to decrease in sales and increase in fuel costs then it starts
gradual recovery in 2012 with a small decrease in inventory turnover days to
126 days then 47 days in 2013 due to increase in dispatches.
- Receivable Turnover Ratio LCL’s ability to recover receivables is also showing a mixed trend as shown in this table, it was collecting receivables in 28 times in 2008 then the receivable turnover decreased to 26.5 times and 23.95 times in 2009 and 2010 respectively, this decrease is due to decline in sales. In 2011 this turnover increased to 37.16 which shows LCL’s efforts to manage receivables, it further increase till 39.87 times in 2012 then it decline to 27.81 times in 2013 due to increase in sales.
Receivables
turnover in days is 12.88 days in 2008 but this collecting period expands to
13.77 days, 15.24 days in 2009 and 2010 respectively it shrinks to 9.82 days,
9.15 days in 2011 and 2012 then it increase to 13.77 days in 2013 due to increase
in sales.
- Payable Turnover Ratio LCL’s payable turnover ratio is 4.95 times in 2008 then it increased to 5.31 and 5.78 times in 2009 and 2010 then it decrease to 4.88 times in 2011 then a increase to 5.58 times, 6.1 times in 2012 and 2013.
LCL has delayed
its Payable till 73.74 days in 2008 to hold its cash to utilize in
opportunities, it shows a mixed trend 68.74 days, 63.15 days, 74.80 days and
59.84 days in 2009, 2010, 2011, 201, 2012 and 2013 respectively.
- Fixed Assets Turnover Ratio
LCL’s fixed asset turnover ratio has
increased over the period due to increase in sales and increase in fixed assets
which is 0.66 in 2008, 0.86 in 2010, 0.78 times has LCL generated revenue over
its fixed assets in 2010 and 0.82, 1.07, 1.22 in 2011, 2012 and 2013
respectively that is showing LCL’s efficient utilization of assets.
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