By analyzing financial statements of ECL, a risk analyst would draw following conclusions i.e.:

Risk: In year 2010, company is exposed to liquidity risk. Balance sheet structure of ECL tells us that company has illiquid assets which won’t be able to generate immediate cash funds.

Solution: Liquidity condition can be improved by appreciating “cash sales” and discouraging “credit sales”.

Risk: Doubled finance cost, and high leverage are resulting negative cash flow; causing ECL to end up in danger zone with potential problems of liquidity and shortage of cash when required.

Solution: Engro should emphasize more on equity financing, and lower debt financing in its capital structure. Long term debt should be replaced with equity shares. A wise strategy would be to issue convertible bonds, which would raise debt as required by organization; and later should be converted in shares.

Risk: ECL is stuck with its inventory and has been unable to process it efficiently. Inventories represent investment with zero rate of return. If current condition prevails, then it will exert pressure on management to force prices down in order to lower inventory levels. This condition falls in operating risk category. If these conditions are profoundly explored; one can infer that inefficient production processes, lack of demand, or maybe inferior quality production. These all factors will sum up to be the risk of survival for ECL.

Solution: By undergoing extensive research, Engro should determine the amount optimum production so that inventories do not accumulate. Another option would be to lower the prices, so that sales increase and inventory level falls (Cost – Benefit Analysis to be done). Quality should be improved to attract customers; packages should be introduced with help of strategic planning.

Risk: Extreme example of operational