ABASYN UNIVERSITY

Engineering Management Summer 2012

Maj Babar Ali 94 EME South Waziristan Agency

Company chosen for financial ratios

Atlas battery is chosen for ratio analysis . The pdf file of annual report is attached as Anx A to this assignment. Three years comparison is calculated in this statement 2005,2006 and 2007.

Why Atlas battery was chosen

a. Complete financial reports are available on the net. b. Comparison ratios are available to justify my ans.
c. Atlas battery is not a very big company as compared to OGDC ,FFC and

DG khan cement. d. AGS battery is also available for bench mark or as a standard to follow.

Problems faced during the assignment and learning s

a. The basic problems was to identify the figures in the financial

statements. E.g accounts receivables was a familiar term to me because I had studied it during my lecture while in this particular case Stock in trade is used instead of accounts receivables. Similarly there were many terms which were not familiar to me like Trade and other payables, markup accurd on borrowing and provision on taxation are entirely new terminologies which are being used in balance sheet under current liabilities section. b. One thing is very important while fiddling with financial statements and that is to read out notes. Every statement is elaborated with notes and where ever there is difficulty notes give u exact hint what u want. In simple words notes are basic keys which will give u ideal identification of terminologies. c. Horizontal and vertical analysis is very important and to find out these aspects YouTube videos gave me great help the link of these videos are given in references.

Categories of financial ratios

a. Liquidity Ratios shows the extent to which the firm can meet its financial

obligations b. Asset Management Ratios shows that how effectively the firm is managing its assets. c. Debt Management Ratios shows the extent to which a firm uses debt financing or financial leverages. d. Profitability Ratios relates profits to sales and assets. e. Market Value Ratios are a measure of the return on investment

F
Current ratio

LIQUIDITY RATIOS

a. Current ratio= Current assets/current liabilities. b. Quick ratio= (Current assets-Inventories)/current liabilities. 2005 1.99 0.63 2006 1.53 0.37 2007 1.24 0.25

Quick ratio

2 1.5 1 0.5 0 c urrent ra tio Quic ra k to

2005

2006

2007

Quick Ratio
There is no marketable security in the concerning years except 2005. Cash has also decreased over the years. Therefore quick ratio is decreasing in years.

Current ratio
In start we see a decreasing trend in current ratio but in 2009 there is littlie rise in ratio. This is due to decrease in current assets like cash and trade debts but cash has decreased significantly during the all years except in 2009.Over all we can say its a good snapshot and company can pay off its liabilities easily.

Inventory Turnover Ratio Formula

a.

Inventory turnover ratio= Sales/Inventory

2005 2006 5.55 2007 5.2

Inventory turn over

6.2

6.2 6 5.8 5.6 5.4 5.2 5 4.8 4.6 2005 2006 2007 Es at

Analysis

The inventory turnover ratio in the year 2006 was 5.55 which indicate that 5.55 times in a year theinventory of the firm is converted into receivables or cash. However, in 2007, the inventory turnoverratio slightly decreased to 5.2. This was due to the fact that the company, in 2007, invested more then1.4 times the inventory in 2006.

Days Sales Outstanding

DSO= recvables/(Annual sale/365)

2005 DSO 20.44 2006 13.96 2007 11.9

25 20 15 10 5 0 DO S

2005

2006

2007

Analysis
DSO in year 2006 was 13.96 days which has now decreased to 11.9 days which shows that the company is more effective in collecting receivables now in comparison of previous year, even the sales has increased by 376 million on the other hand receivables decreased which resulted lower DSO.

Fixed Asset Turnover

Fixed asset turnover= Sales/Fixed asset 2005 Fixed asset turnover 4.978 2006 5.04 2007 5.1

7 6 5 4 3 2 1 0 2 5 00 20 6 0 20 07 F ed asset turn over ix

Analysis according to the calculations above the productivity of fixed assets in year
2007 is better than it was in previous years. In 2006, it was 5.04 times and now it has been slightly increased to 5.1 times. This change was brought about by increase in total sales by 31%, where as the fixed assets increased only by29.7%.

Total Asset Turnover

TATO= Sales/Total asset 2005 Total asset turnover 1.879 2006 2.15 2007 2.1

2.2 2.1 2 1.9 1.8 1.7 2005 2006 2007 Total asset tu rn over

Analysis
According to the calculations above the productivity of assets in year 2007 is not as good as it was in previous years. In 2006, it was 2.15 times and now it has been

decreased to 2.1 times. This change was brought about by increase of 34% in the total assets, where as the total sales only increased by 31%.

DEBT MANAGEMENT RATIO

Debt ratio=Total debt/Total asset 2005 Debt ratio 51 2006 53 2007 55

55 54 53 52 51 50 49 2005 200 6 2 007 Deb ratio t

Analysis
The debt ratio in 2006 was 0.53 which shows that 53% of the firms assets are debt financed and 47% are by equity finance. In 2007 the debt ratio increased to 0.55 which means that 55% of the firms assets are debt financed and 45% are equity financed. The company assets are already in more debt finance however the ratio of debt financing has increased in 2007.

Times Interest Earned Ratio

Times-intrest ratio= EBIT/total assets 2005 Debt ratio 4.2 2006 4.7 2007 6.5

7 6 5 4 3 2 1 0 2005 2006 2007 TIE

Analysis Times Interest Earned ratio was 4.7 in 2006 which have increased to 6.5
in 2007 therefore the company is able to cover the interest expense at a higher margin of safety. This was due to the fact the company increased the short term borrowing and decreased its long term borrowing from 40 million to zero. As a result the net profit increased by 46 million whereas the interest charges only increased by 4.2 million. Thus it shows an intelligent move made by the company to borrow less and depend more on the investment through other financing techniques.

Profit margin ratios

Profit margin=net income/sales 2005 Profit margin 4.3 2006 3.42 2007 5.5

7 6 5 4 3 2 1 0 2005 2006 2007 profit m rg a in

Analysis

The over all increase in profit can be seen from 2005 to 2007. According to the figures, company has been successful in raising their Sales by 31%

in 2007 but the increases in net income available common stock holders was 111% which leaded to a increase in the profit margin.

Basic earning power

Basic earning power=BEP= EBIT/Total assets 2005 BEP 12.5 2006 14.94 2007 19.1

20 15 10 5 0 2005 2006 2007 BP E

Analysis
There is a gradual increase in BEP which can be seen through fraph and calculation chart.. This increase was due to increase in EBIT by 71.6% and the total assets increased by just 34.17% which leaded to increase in the BEP.

Return on asset
ROA=NI/Total assets. 2005 ROA 8.07 2006 7.34 2007 11.5

12 10 8 6 4 2 0 2005 2006 2007 R A O

Analysis

The Return on Assets gradually rose in year 2007, to 11.5% from 7.34%, in year 2006. This was due tothe fact as the Net income by 111.7% whereas total asset only increased by 34.17%. Atlas Batteries has been able to use its total assets more efficiently over these years and have been successful in raising net profit as well.

ROE
ROE=NI/Total equity

2005 ROA 8.0

2006 15.62

2007 26

30 25 20 15 10 5 0 2005 2006 2007 R E O

Analysis
According to the figures, Atlas Batteries shows a favorable trend to the shareholders, initially being at15.62% and then rising by 10.38% to 26%. This again has been due to 111.7% increase in Net income. Though shareholders equity has also increased as the company is increase debt financing, but the increase in shareholders equity is lower relative to the increase in net profit.

Price earning ratio

Price earning ratio= Price per share/earning per share 2005 Price earning ratio 7.76 2006 9.5 2007 11.7

12 10 8 6 4 2 0 2 005 2 006 2007 P /E

Analysis
The ratio shows how much the investors are willing to pay per Rupee of reported profits. It can be seen from calculations that in year 2007 the ratio has increased from 9.5 to 11.7. This was due to the fact that the earnings per share over the year is increased with great difference due to which the market price increased as a result of demand of shares. However a higher Price Earning ratio shows high growth prospects due to which the income has therefore increased in the year 2007.

Market per book ratio

M/B= Market price/BVPS

2005 M/B 0.61

2006 0.72

2007 1.46

1 .6 1 .4 1 .2 1 0 .8 0 .6 0 .4 0 .2 0 2 5 00 20 6 0 20 07 M/B

Analysis
It can be seen from calculations that in year 2007 the ratio is more than doubled from 0.72 to 1.46. This was due to the fact that the price per share over the year has increased with great difference of 93.9 per share where as book value per share increased by just 11.7%.

The DuPont Equation

ROE=Profit margin x TATO x Equity multiplier PM 2005 2006 2007 4.3 3.42 5.5 TATO 1.879 2.15 2.17 EM 2.01 2.12 2.22 ROE 8.0 15.62 26

30 25 20 15 10 5 0 2005 2006 2007 P M TA TO EM RO E

Bal sheet at 30 june 2007 Horizontal analysis 2007 vs 2006

Particulars Fixed assets Property plant Long term deposit and payments Total non current assets Current assets Store spare and tool Stock in trade Trade debt Loan and advances 10730 306171 51834 2622 8659 218012 45864 4081 23.9 40.4 13 (35.8) 310955 4012 315007 239712 4012 243724 29.7 -29.2 2007 2006 % age

Trade deposits and payments Investment at fair value Account mark up Other receivables Cash and bank balance Total current assets Total assets Equity and liabilities Share capital and reserves Share capital Reserves Inappropriate profit Total equity Surplus on plant and equpt Deferred liabilities Long term loans

2826 278 175 28098 37501 440235 775242

1224 254 121 10639 30309 319163 562887

130.9 9.4 44.6 164.1 23.7 37.9 34.2

60805 186500 88639 335998 -62881 --

52874 169500 41976 264350 -50517 40000

15 10 111.3 27.1

24.5 (100)

Current liabilities Trade and other payables Accurd markup Short term borrowing Provision of taxation Current profit of LLT Proposed dividend Total current liabilities 156154 2469 171200 26540 --356363 93250 1726 90974 6070 16000 -208020 71.3 67.5 43 88.2 337.2 (100)

TOTAL EQUITY AND LAIBLITIES

755242

562887

34.2

Analysis
a. Total non current assets are increased which is healthy sign. b. Total assets are increased by 34.2% which shows that current and

fixed assets are improved in 2007.

c.

Total current laiblities are improved due to short term borrowing accord markup and accounts payables however over all increase in equity and liability section is 34.2 %.

INCOME STATEMENT HORIZANTAL ANALYSIS

Particulars Sales COGS Gross profit Distr cost Adm expenses Other Op income Other Op expenses Profit for operations Financial cost Profit before tax Taxation Profit after tax 2007 1585648 (1294026) 291622 (96481) (42661) 1296 9477 144299 (22042) 122257 (34747) 87510 2006 1209033 (109970) 189063 (77515) (33505) 10135 4077 84100 (17877) 66224 (24901) 41323 %age 312 26.9 54.2 24.5 27.3 (87.2) 132.5 71.6 23.3 84.6 39.5 111.8

Analysis
Income statement reflects overall improvement of profit profile of 111.8% which is healthy sign. We can see major improvements in sale.

Cash Flow statement Horizontal analysis

Particulars Cash flow from operating activities Cash flow from investing activities Cash flow from financing activities 2007 103149 (104515) 8558 2006 77070 (64738) 14630 (2298) %age 33.8 61.4 (158.5) (413.0)

Increase or decrease in cah/ cash 7192 equivilents

Vertical Analysis of Balance sheet

Particulars Fixed assets Property plant Long term deposit and payments Total non current assets Current assets Store spare and tool Stock in trade Trade debt Loan and advances Trade deposits and payments Investment at fair value Account mark up Other receivables Cash and bank balance Total current assets Total assets Equity and liabilities Share capital and reserves Share capital Reserves Inappropriate profit 60805 186500 88639 52874 169500 41976 8.1 24.7 11.7 9.4 30.1 7.5 10730 306171 51834 2622 2826 278 175 28098 37501 440235 775242 8659 218012 45864 4081 1224 254 121 10639 30309 319163 562887 1.4 40.5 6.9 0.3 0.4 0.0 0.0 3.7 5.0 58.3 100 1.5 38.7 8.1 0.7 0.2 0.0 0.0 1.9 5.4 56.7 100 310955 4012 315007 239712 4012 243724 41.2 0.5 41.7 42.6 0.7 43.3 2007 2006 % 2007 % 2006

Total equity Surplus on plant and equpt Deferred liabilities Long term loans

335998 -62881 --

264350 -50517 40000

44.5 -83 --

47.6 -90 7.1

Current liabilities Trade and other payables Accurd markup Short term borrowing Provision of taxation Current profit of LLT Proposed dividend Total current liabilities TOTAL EQUITY AND LAIBLITIES 156154 2469 171200 26540 --356363 755242 93250 1726 90974 6070 16000 -208020 562887 20.7 0.3 22.7 3.5 --47.2 100 16.6 0.3 16.2 1.1 2.8 -37.6 100

Vertical Analysis
a. Property , plant and stock in trade are major asset we can see a comparison improvement of about 1.6 % in 2007.
b. Current liabilities are 47.2 % of total liabilities in 2007 while in 2006 those

were 37.6 % so we can conclude that our liabilities has improved. c. Short term borrowing is increased.
d.

In the light of above mention facts its recommended that company must have to give special attentions to its liabilities.

Income statement Vertical Analysis

Particulars Sales COGS Gross profit Distr cost Adm expenses Other Op income Other Op expenses Profit for operations Financial cost Profit before tax Taxation Profit after tax

2007 1585648 (1294026) 291622 (96481) (42661) 1296 9477 144299 (22042) 122257 (34747) 87510

2006 1209033 (109970) 189063 (77515) (33505) 10135 4077 84100 (17877) 66224 (24901) 41323

2007 %age 100 (81.6) 18.4 (6.1) (2.7) 0.1 (0.6) 9.1 (1.4) 7.7 (2.2) 5.5

2006 % age 100 (84.4) 15.6 (6.4) (2.8) 0.8 (0.3) 7.0 (1.5) 5.5 (2.1) 3.4

Analysis Profit of company in 2007 is just increased as compare to 2006.

Refrences
d. YouTubeComparison ratios in financial statement

Part1,2 and 3.
e. You tube horizontal and vertical analysis. Part 1and 2. f. http://www.scribd.com/doc/3153806/FM-Report-Ratio-analysis g. http://www.google.com.pk/webhp?

source=search_app#hl=en&site=webhp&q=vertical+and+hori zontal+analysis+of+financial+statements+of+atlas+battery& oq=vertical+and+horizontal+analysis+of+financial+statement s+of+atlas+battery&gs_l=serp.3...2322996.2349629.2.235052 1.47.36.0.11.11.1.282.6439.6j4j24.36.0...0.0...1c.JNBz29C1hsM &bav=on.2,or.r_gc.r_pw.&fp=44c46d733279c638&biw=1366& bih=624

h. http://www.scribd.com/doc/3153806/FM-Report-Ratio-analysis i. j.

http://www.scribd.com/archive/plans?doc=17708299 www.atlasbattery.com