Application of Valuation Methods in Pakistan Cement Sector

Abstract

The present study is conducted to understand the concept of valuation in Pakistan Cement Industry. Value of the firm is determined with constant and changing WACC for judging the impact of WACC on the value of stocks. The data taken consists of annual accounts of the companies, D.G Khan Cement Ltd. Lucky Cement Ltd, and Fauji Cement Ltd. The other sources of data are internet, reports of finance consultancy firms, and discussion with finance professionals. According to the major findings of the study, Value of the firm stocks are directly affected by the sales, cost of sales, taxes levied by government, and capital structure of the firm. The common problem which cement industry is facing is the high energy costs and their uncertain supply_ The other issue is uneven demand of cement products. The demand of the cement is related with the economic performance of the country and the government allocation of funds to the PS DP projects. Housing, dams' construction and exports are main demand drivers. Three of the firms are using equity as major portion in their capital structure which has raised their capital cost. The present study shows that firm having an optimum capital structure bears low cost of capital and this optimum capital structure keeps a positive effect on the value of the stocks.