Al Ghaazi Tractors

7/31/2019 Al Ghaazi Tractors

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2011

Created By:

M. Hamza

Ali Gillani

12/12/2011

Al-Ghazi Tractors Report


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Contents

INTRODUCTION .......................................................................................................................... 2

Principal products .................................................................................................................... 3

Auditors Report .......................................................................................................................... 3

Future plans ................................................................................................................................. 4

Financial Performance Result ......................................................................................................... 4

Basic Accounting Equation ......................................................................................................... 4

Analysis of Financial Statement ..................................................................................................... 5

Liquidity Ratio ......................................................................................................................... 5

Profitability Ratio .................................................................................................................... 6

Performance Ratios for shareholders ....................................................................................... 6

Accounting Policies ........................................................................................................................ 7

Revenue Recognition .................................................................................................................. 7

Cash ............................................................................................................................................. 7

Merchandise Inventory ................................................................................................................ 7

Property and Equipment .............................................................................................................. 7

How the Financial Statement Relate to Each Other........................................................................ 9

Balance Sheet ................................................................................................................................ 10


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INTRODUCTION

Al-ghazi tractors incorporated in 1983, it was the under the government control but later inDecember 1991 it was privatized. It is the subsidiary company of AL-FUTTAIM group of

Dubai. With consistent corporate achievements the company is recognized for corporate

excellence and Best corporate performance. Success has developed naturally as the cultural

personality of the Company; continuous improvement has become the Company's primary

motivator. With sustained justified pride in its achievements since privatization and take over by

AI- Futtaim in December 1991, the Company benchmark itself for competition. As the first

automobile manufacturing company in Pakistan to be certified for ISO-9002 and with the highest

local content in the automobile industry of Pakistan, product containment, process control,

quality assurance and quality leadership are the Company's most enduring competitive edge.

Using the collective knowledge of its ordinary worker combined with the quality of its

management, the key factors that have influenced the Company's growth this year, once again,

were sales, costs, and effectiveness.

Chief Executive Officer and Managing Director

Mr. Pervez Ali

An engineer by profession, Mr. Pervez, Ali did his Master In Engineering Administration from

the George Washington University U.S.A. He has been appointed as CEO of Al-Ghazi Tractors

in January 20, 1992.

Location of Head Office

The head office of Al-Ghazi Tractor is located in 11 th floor NICL building Abbasi Shaheed

Road, Karachi, Pakistan.

Ending date of latest fiscal Year

Dec 31st, 2010.


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Principal products

It manufactures new Holland fiat tractors in technical collaboration with CNH-case new Holland,

the number one manufacturers of agricultural tractors in the world.

Auditors

A. F. Ferguson & Co. Chartered Accountants. Karachi

Auditors Report

The auditors audit the annexed financial statement of the company as at December, 31, 2010.and

they obtained all the important information that was necessary for the purpose of audit. The

auditors issued the following report in regards to the financial statement. The auditors conducted

audit in accordance with the auditing standard applicable in Pakistan. An audit includes

examining, on a test basis, evidence supporting the amounts and disclosures in the above said

statements. An audit also includes assessing the accounting policies and significant estimates

made by management as well as, evaluating the overall presentation of the statement. In report

the auditors said that:

1. Proper books of accounts have been kept by the company as required by the companysordinance;

2. The balance sheet and Income statement together with the notes thereon been drawn up inthe conformity and are in agreement with books of account and are further in accordance

with accounting policies consistently applied.

The expenditure incurred during the year was for the purpose of the companys business and the

business conducted, investments made and the expenditure incurred during the year were in

accordance with the objects of the company.

The financial statements together with the notes forming part thereof conform with approved

accounting standards as applicable in Pakistan. So this give a true and fair view of the stamen of

the companys affairs as at December 31, 2010 and off the profit, its cash flows and changes in

the equity for the year

Zakat deductible at source under the zakat and usher ordinance, 1980 was deducted by the

company and deposited in the central zakat fund established under section 7 of that ordinance.


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Future plans

The companys management plans some additional points in order to increase the production as

well as for the quality of the management. They ensure the future extension of engine testing

facility with latest dynometers coupled with digital electronic panels to enhance the production

of engines. They also plan the fabrication of new paint shop to further improve the quality of

paint to sheet metal parts. Keeping in view the customer preferences the plant has upgraded its

product by converting the higher HP models to disc brakes replacing the band type brakes.

Power steering system has been introduced on the lower HP tractors.

Financial Performance Result

2010(Rupees 000) 2009(Rupees 000)

Gross Profit 2,948.5 2.645.8

Operating Income2,548.8 2,264.2

Net income1,908.9 1,743.5

From 2009 to 2010, gross profit increased by 12.7%. From 2009 to 2010, income from operating activities increased by 11.2%. From 2009 to 2010, net income increased by 9.4 %.

Basic Accounting Equation

The basic accounting equation is as follows:

Assets = Liabilities + Owners Equity

(in million dollars) 2010 2009

Assets 7,666,154 7,380,671

Liabilities 1,303,433 1,960,752

Owners Equity 6,362,721 5,419,919


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The data on assets, liabilities and owners equity, for 2009 and 2010, is given below in the table.

For 2009, the basic accounting equation is as follows:

7,666,154= 1,303,433+ 6,362,721

7,666,154= 7,666,154

It can be seen that the equation holds true for the year 2009.

For 2010, the basic accounting equation is as follows:

7,380,671=1,960,752+5,419,919

7,380,671=7,380,671

Gross Profit margin increases from 16.6% In 2009 to 19.7% in 2010 it is because the gross profit

rises from 2645814 to 2948515. It is due to decrease in the cost of goods sold between these two

years so thats the reasons for the companys increased gross profit ratio.

Operating income decreased from 2264.2 million to 2548.8 million, this reduction in net income

is due to the increase in companys operating expenses.

The total net income of the business has increased from 174305 to 1908.9. This might be due to

fall in total expenses of the business.

Analysis of Financial StatementLiquidity Ratio

Times 2010 2009

Current Ratio 5.85 3.74


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Quick Ratio 4.96 3.08

The current ratio has been significantly increased in last year which means company has become

more liquid in order to compete with Millat tractors

The quick ratio shows that company have increased its liquidity because of less inventories in

size or have high inventories of high moving merchandise.

Profitability Ratio

% 2010 2009

Gross profit margin 19.74 16.78

Net Profit margin 12.78 11.06

Gross Profit margin increases from 16.6% In 2009 to 19.7% in 2010 it is because the gross profit

rises from 2,645,814 to 2,948,515. It is due to decrease in the cost of goods sold between these

two years so thats the reasons for the companys increased gross profit ratio.

Net Profit margin has also increased from 12.78% to 11.06%.The reason is that the Al Ghazi

wants to be lowest cost producer of the highest quality tractor.

Performance Ratios for shareholders

2010 2009

Earnings per Share(Rs) 44.6 40.61

Price Earnings Ratio 5.12 5.86

Earnings per share have increased which might raise the stock price as it affects the market value

of companys share.

The price earnings ratio has been decreased due to fall in market value of share in market. This

might be due to optimistic investors expectation concerning the company future.


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Accounting Policies

Revenue Recognition

Al-ghazi Tractors recognizes revenue when persuasive evidence of an arrangement exists,

delivery of products has occurred, the sales price charged is fixed or determinable, and

collectability is reasonably assured. For the Company, this generally means that they recognize

revenue when title to their products is transferred to their retailers and wholesaler. In particular,

title usually transfers upon shipment to or receipt at their customers locations, as determined by

the specific sales terms of the transactions. Their sales terms do not allow for a right of return

except for matters related to any manufacturing defects on their part.

Cash

The company classifies time deposits and other investments that are highly liquid and have

maturities of three months or less at the date of purchase as cash equivalents. They manage their

exposure to counterparty credit risk through specific minimum credit standards, diversification of

counterparties and procedures to monitor their credit risk concentrations.

Merchandise Inventory

Inventories are valued at the lower of cost or net realizable market. Cost is determined on

moving average method except for the stock transit. Cost of finished goods include prime cost

and appropriate portion of manufacturing expenses.Net realizable value signifies the estimated

selling price in the ordinary course of business less the estimated cost of completion and the

estimated cost necessary to make the sale.

Property and Equipment

Fixed assets are stated at cost less accumulated depreciation/amortization expect free hold land

and capital work in progress which are stated at cost.

The cost of leasehold land is amortized over the period of lease. Depreciation of all other assists

are charged to profit and loss account applying straight line method where as the cost of an assets

less residual value is written of over its estimated life thought the useful life if the asset as

estimated by the management is as follow

Leasehold land 99 years Building 40 years


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Plant and machinery 10 years Furniture and Fixtures 4-10 years Office Equipment 10 years Computer Hardware 3 years Vehicles 4 years Factory equipments and tools 10 yearsThe assets residual values and useful life are reviewed, adjusted if the appropriate, at each

balance sheet date.

Maintenance and normal repairs are charged profit and loss account as and when incurred

.Majors renewal and improvement are capitalized and the assets so replaced, if any, are retired.

Gains and losses on disposal/retirement of fixed assets are included in profit and loss account

Certain events or changes in circumstances may indicate that the recoverability of the carrying

amount of property, plant and equipment should be assessed, including, among others, a

significant decrease in market value, a significant change in the business climate in a particular

market, or a current period operating or cash flow loss combined with historical losses or

projected future losses. When such events or changes in circumstances are present, we estimate

the future cash flows expected to result from the use of the asset (or asset group) and its eventual

disposition. These estimated future cash flows are consistent with those they use in their internal

planning. If the sum of the expected future cash flows (undiscounted and without interest

charges) is less than the carrying amount, they recognize an impairment loss. The impairment

loss recognized is the amount by which the carrying amount exceeds the fair value. They use a

variety of methodologies to determine the fair value of property, plant and equipment, including

appraisals and discounted cash flow models, which are consistent with the assumptions they

believe hypothetical marketplace participants would use.


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How the Financial Statement Relate to Each Other

If the revenues and expenses are incorrectly recorded in the income statement, then as a result of

the wrong figure it might lead to overstate or understate the net income. The value of net income

that is transferred to statement of change in owner equity as a result would lead to have wrongvalue of retained earnings. The wrong value of retained earning that is to be appeared in section

of owner equity would not fulfill the basic accounting equation which is Assets=Liabilities +

Owners equity. Hence this wont be satisfying our balance sheet. Therefore all the financial

statement is interrelated and together gives the correct financial position of the company.


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Balance Sheet

Currency inMillions of Pakistan Rupees

As of: Dec 312007

Reclassified

PKR

Dec 312008

Reclassified

PKR

Dec 312009

Reclassified

PKR

Dec 312010

PKR

Assets

Cash and Equivalents 4,384.6 3,349.0 3,522.5 3,112.8Short-Term Investments 500.0 200.0 145.0 60.0

Trading Asset Securities518.8 246.8 -- 1,271.5

TOTAL CASH AND SHORT TERM

INVESTMENTS

5,403.4 3,795.8 3,667.5 4,444.3

Accounts Receivable 24.3 7.1 20.3 264.1

Notes Receivable 1.2 8.5 8.0 3.4Other Receivables

413.5 1,029.7 2,119.3 1,417.6

TOTAL RECEIVABLES 438.9 1,045.3 2,147.6 1,685.0

Inventory 719.2 1,946.1 1,265.4 1,082.9

Prepaid Expenses 0.4 6.6 0.4 6.9Other Current Assets 19.2 46.2 43.9 37.5

TOTAL CURRENT ASSETS 6,581.0 6,840.1 7,124.8 7,256.6

Gross Property Plant and Equipment 448.6 457.8 499.3 614.4

Accumulated Depreciation-203.7 -222.3 -246.6 -245.8

NET PROPERTY PLANT AND

EQUIPMENT244.9 235.5 252.7 368.7

Long-Term Investments-- -- -- 40.0

Loans Receivable, Long Term 1.0 10.1 2.9 0.5

Other Intangibles 0.0 0.0 0.0 0.0

Other Long-Term Assets 0.4 0.4 0.4 0.4

TOTAL ASSETS 6,827.3 7,086.0 7,380.7 7,666.2


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LIABILITIES & EQUITY

Accounts Payable 5.8 868.5 1,364.1 813.7Accrued Expenses 430.2 185.9 366.8 249.4

Current Income Taxes Payable 26.1 -- -- --

Other Current Liabilities, Total 256.1 44.0 51.2 57.4Unearned Revenue, Current

2,220.0 1,513.3 125.4 120.8

TOTAL CURRENT LIABILITIES 2,938.2 2,611.7 1,907.4 1,241.3

Deferred Tax Liability Non-Current 19.5 27.2 31.5 37.7Other Non-Current Liabilities

18.4 19.4 21.9 24.4

TOTAL LIABILITIES 2,976.1 2,658.2 1,960.8 1,303.4

Common Stock 214.7 214.7 214.7 214.7

Retained Earnings 3,636.5 4,213.1 5,205.2 6,148.0

TOTAL COMMON EQUITY 3,851.2 4,427.8 5,419.9 6,362.7

TOTAL EQUITY 3,851.2 4,427.8 5,419.9 6,362.7

TOTAL LIABILITIES AND EQUITY 6,827.3 7,086.0 7,380.7 7,666.2


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Income Statement

Currency in

Millions of Pakistan Rupees

As of: Dec 31

2007

Dec 31

2008

Dec 31

2009

Dec 31

2010

Revenues9,081.3 10,107.9 15,764.8 14,936.0

TOTAL REVENUES 9,081.3 10,107.9 15,764.8 14,936.0

Cost of Goods Sold 7,427.8 8,530.8 13,120.1 11,988.2

GROSS PROFIT 1,653.5 1,577.1 2,644.7 2,947.8

Selling General & Admin Expenses,Total

153.0 166.2 394.8 428.0

Other Operating Expenses 127.3 109.5 -14.3 -29.0

OTHER OPERATING EXPENSESTOTAL 280.2 275.7 380.4 399.0

OPERATING INCOME 1,373.2 1,301.4 2,264.2 2,548.8

Interest Expense -0.1 -0.5 -- --

Interest and Investment Income 525.8 344.0 349.2 225.1

NET INTEREST EXPENSE 525.6 343.5 349.2 225.1

Other Non-Operating Income

(Expenses)-2.9 -2.3 -2.2 -1.3

1,896.0 1,642.7 2,611.3 2,772.6


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EBT, EXCLUDING UNUSUAL

ITEMS

Gain (Loss) on Sale of Investments 17.0 37.5 45.2 75.6

Gain (Loss) on Sale of Assets 1.4 2.7 2.4 4.1

Other Unusual Items, Total -- -- -- 47.8Insurance Settlements -- -- -- 47.8

EBT, INCLUDING UNUSUAL

ITEMS

1,914.5 1,682.9 2,658.8 2,900.1

Income Tax Expense 647.0 569.7 915.3 991.2

Earnings from Continuing Operations 1,267.4 1,113.3 1,743.5 1,908.9

NET INCOME 1,267.4 1,113.3 1,743.5 1,908.9


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Al Ghaazi Tractors

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