naveed IBF

BY NAVEED SHERAZ IBF SEC-B FALL 2009

COURSE: - INTRODUCTION TO BUSINESS FINANCE

SECTION: B

COMPANY: FEROZSONS LABORATORIES LIMITED

REPORT ON: FINANCIAL RATIO ANALYSIS

SUBMMITTED TO: - ASIF SAEED NAJI

SUBMMITTED BY: NAVEED SHERAZ

STUDENT ID: SP09-MM-0054

SUBMMTION DATE: - 10TH NOVEMBER, 2009


TABLE OF CONTENTSDESCRIPTION PAGE NUMBER

01 Letter of acknowledgement 5

02 Company profile 6

03 Calculation of ratios 8

04 Cross sectional analysis table 12

05 Graphical presentation on cross sectional analysis 18

06 Time series analysis 28

07 Graphical presentation on time series analysis 39

08 Common size balance sheet 50

09 Common size income statement 54

10 Internal growth rate 55

11 Sustainable growth rate 56

12 Pro forma balance sheet 57

13 Pro forma income statement 60

14 Plug variable 61

15 Recommendations 62


LETTER OF ACKNOWLEDGEMENT

November 10, 2009

Firstly we would like to thank ALLAH (almighty) for giving us the opportunity and recourses to be able to do something productive with our lives. Without his blessings we would not have been able to come as far as we have.

Then our sincere thanks to Sir Asif Saeed Naji of (Introduction to Business Finance) for helping us throughout this report. The report helped us find new ways of being innovative and creative. This report would not have been possible without his motivation & cooperation and continuous direction.

Last but not the least we would like to thank our families for their incessant support and approval.

COMPANY’S PROFILE


In 1894, Maulvi Ferozuddin Khan established the business House of Ferozsons through the creation of a publishing House - Ferozsons Limited. From the beginning, Ferozuddin Khan's vision of business extended beyond wealth creation, and firmly incorporated the enrichment of human life in the under-developed South Asian region.

Thus the publishing house was created not only as a means of creating wealth, but as one of spreading literacy and education among the masses of the sub-continent.

In the same spirit, Ferozsons Laboratories Limited was created in 1956 as one of the first pharmaceutical manufacturing facilities in the fledgling state of Pakistan, to ensure a constant and reliable source of quality medicines for the people of the nation as experienced its birth pangs.

The Company possesses strong brands in cardiology, gastroenterology, oncology and dermatology. We also have a long history of contract manufacture for Multinational Corporations, and a successful track record of in-licensing of products. Among other principals, Ferozsons currently represents the Boston Scientific Corporation, USA, for its range of interventional products and devices in the Pakistan market.

Though now an independent entity and a public limited company listed on the country's three stock exchanges, the founder's spirit still courses through the company's veins.

BOARD OF DIRECTORS

MRS. AKHTAR KHALID WAHEED

CHAIRPERSON &CHIEF EXECUTIVE

EXECUTIVE DIRECTOR

MR. OSMAN KHALID WAHEED PRESIDENT EXECUTIVE DIRECTORMR. OMAR KHALID WAHEED GENERAL MANAGER EXECUTIVE DIRECTORMRS. MUNIZE AZHAR NON-EXECUTIVE

DIRECTORMR. FAROOQ MAZHAR NON-EXECUTIVE

DIRECTORMR. NIHAL CASSIM NON-EXECUTIVE

DIRECTORMR. M.M. ISPAHANI NON-EXECUTIVE

DIRECTORMR. DOST M. KHAN SHERPAO NON-EXECUTIVE

DIRECTORMR. M. KHALIL MAIN NON-EXECUTIVE

DIRECTOR


Mission Statement

We aim to improve the Quality of Life

through the ethical promotion and sales of

world class medicines at locally relevant prices.

In doing so we will:

Strive to provide best-in-industry

returns to our shareholders.

Be the Second to None in Employee Training,

Reward and Motivation.

Maintain the Highest Levels of Ethics

while focusing on building our portfolio

of Prescription Brands.


CALCULATION AND INTERPRETATION ON

CROSS SECTIONAL ANALYSIS


CALCULATION OF RATIOS

S.NO

RATIOS FORMULA 2006 2007 2008

1. CURRENT RATIO Current assets__ 317,048,714

442,376,988 509,539,106

Current liabilities 110,712,695

154,258,234 196,169,663

2.86 2.86 2.592. QUICK RATIO Quick assets___ 111,562,54

5 260,587,911 254,736,226


154,258,234 196,169,663

1.00 1.68 1.293. CASH RATIO Cash_______ 12,301,864 41,680,940 35,807,461


154,258,234 196,169,663

0.11 0.27 0.184. WORKING CAPITAL Current assets -

Current liabilities

317,048,714

- 110,712,69

5 206,336,01

9

442,376,988 -

154,258,234 288,118,754

509,539,106-

196,169,663 313,369,443

5. DEBT RATIO Total liabilities/Debts Total assets

162,944,46 8

942,466,081

0.17

278,772,474 _

1,218,361,366

0.22

403,380,232 _

1,481,628,536

0.276. DEBT TO EQUITY RATIO Total liabilities/Debs

Total S.H.E162,944,46

8517,083,61

30.31

278,772,474682,604,607

0.40

403,380,232826,236,891

0.48

7. TIME INTEREST EARNED

Operating profit/EBIT Interest expense

318,137,394

2,268,56097.15

258,513,1121,663,208

156.43

294,149,4611,487,228

197.78

8. A/R TURNOVER Net credit salesAverage A/R

752,221,631

12,611,93159.64 times

922,368,54222,274,32241.40 times

932,297,99428,195,987

33.06 times


9. AVG.COLLECTION PERIOD

360____A/R turnover

360_59.646 days

360_41.409 days

360_33.06

10.88 days10. INVENTORY TURNOVER COGS_________

Avg. inventory322,838,32

8145,341,20

92.22 times

415,507,467139,578,6992.97 times

391,559,432157,301,9872.48 times

11. FIXED ASSETS TURNOVER

Net sales__Fixed assets

752,221,631

625,417,367

1.20 times

922,368,542775,984,3781.18 times

932,297,994972,089,4300.95 times

12. TOTAL ASSETS TURNOVER

Net sales_Total assets

752,221,631

942,466,081

0.79 times

922,368,5421,218,361,3

660.75 times

932,297,9941,481,628,5

360.62 times

13. GROSS PROFIT MARGIN Gross profitNet sales

429,383,303

752,221,631

0.57*10057%

506,861,075922,368,542 0.54*100 54%

540,738,562932,297,994

0.58*10058%

S.NO

RATIOS FORMULA 2006 2007 2008

14. OPERATING PROFIT MARGIN

Operating profitNet sales

220,405,954752,221,631

360,176,320922,368,542

294,149,461932,297,994

0.29*100 29%

0.28*10028%

0.31*10031%

15. NET PROFIT MARGIN Net profit 175,868,71 5

200,254,160 217,023,829

Net sales 752,221,6310.23*100

922,368,5420.21*100

932,297,9940.23*100

23% 21% 23%


16. RETURN ON ASSETS Net profit 175,868,715

200,254,160 217,023,829

Total assets 942,466,0810.19*100

1,218,361,366

0.16*100

1,481,628,536

0.15*10019% 16% 15%

17. RETURN ON EQUITY Net profit T.S.H.E

175,868,71 5

517,083,613

0.342*10034.2%

200,254,160682,604,6070.293*100

29.3%

217,023,829826,236,8910.262*100

26.2%

CROSS SECTIONAL ANALYSIS (RESULTS)

S.NO

RATIOS COMPANY’S RESULT

INDUSTRY’S RESULT DECISION

1. CURRENT RATIO 2.59 1.6 BETTER

2. QUICK RATIO 1.29 1.2 BETTER

3. CASH RATIO 0.18 0.8 WORSE

4. WORKING CAPITAL 313,369,443 5,000,000 BETTER


5. DEBT RATIO 0.27 0.45 BETTER

6. DEBT TO EQUITY RATIO 0.48 0.55 BETTER

7.

8.

9.

10.

11.

12.

13.

14.

15.

16.

17.

TIME INTEREST EARNED

A/R TURNOVER

AVERAGE COLLECTION PERIOD

INVENTORY TURNOVER

FIXED ASSETS TURNOVER

TOTAL ASSETS TURNOVER

GROSS PROFIT MARGIN

OPERATING PROFIT MARGIN

NET PROFIT MARGIN

RETURN ON ASSETS

RETURN ON EQUITY

197.78 TIMES

33.06 TIMES

10.88 DAYS

2.48 TIMES

0.95 TIMES

0.62 TIMES

58%

31%

23%

15%

26.2%

18 TIMES

18 TIMES

20 DAYS

25 TIMES

10 TIMES

6 TIMES

25%

20%

15%

10%

12%

BETTER

BETTER

BETTER

WORSE

WORSE

WORSE

BETTER

BETTER

BETTER

BETTER

BETTER

CROSS SECTIONAL ANALYSIS INTERPRETATION FOR 2008

CURRENT RATIO:

Current ratio measures a firm’s ability to meet its short term obligations. It shows the relationship between current assets and current liabilities.

In this company current ratio is 2.59 times. It means that the company’s current assets are 2.59 times more than that of its current liabilities.


If we compare the results of the company with the results of industry, company’s results are showing BETTER position, because company’s current ratio is more than that of industry’s current ratio.

QUICK RATIO:

Quick ratio measures a firm’s ability to meet its short term obligations. It shows the relationship between quick assets and current liabilities.

In this company quick ratio is 1.29 times. It means that the company’s quick assets are 1.29 times more than that of its current liabilities.

If we compare the results of the company with the results of industry, company’s results are showing BETTER position, because company’s quick ratio is more than industry’s quick ratio.

CASH RATIO:

Cash ratio measures a firm’s ability to meet its short term obligations. It shows the relationship between cash and current liabilities.

In this company cash ratio is 0.18 times. It means that the company’s cash ratio is 0.18 times more than that of its current liabilities.

If we compare the results of the company with the results of industry, company’s results are showing WORSE position, because company’s cash ratio is less than industry’s cash ratio.

WORKING CAPITAL:

Working capital measures a firm’s ability to meet its short term obligations. It shows the difference between current assets and current liabilities.

In this company working capital is Rs. 313,369,443. It means that the company’s working capital is Rs.313,369,443 times more than that of its current liabilities.

If we compare the results of the company with the results of industry, company’s results are showing BETTER position, because company’s working capital is more than industry’s working capital.


DEBT RATIO:

Debt ratio measures a firm’s ability to meet its long term obligations. It shows the relationship between total debts and total assets.

In this company debt ratio is 0.27 times. It means that the company’s total debts are 0.27 times of its total assets.

If we compare the results of the company with the results of industry, company’s results are showing BETTER position, because company’s debt ratio is less than that of industry’s debt ratio.

DEBT TO EQUITY RATIO:

Debt to equity ratio measures a firm’s ability to meet its long term obligations. It shows the relationship between total debts and total share holder’s equity.

In this company debt to equity ratio is 0.48 times. It means the company’s total liability is 0.48 of its total share holder equity.

If we compare the results of the company with the results of industry, company’s results are showing BETTER position than industry’s results, because company’s debt to equity ratio is less than that of industry’s debt to equity ratio.

TIME INTEREST EARNED:

Time interest earned indicates that how many times a company can pay its interest expense from its operating profit.

In this company time interest earned ratio is 197.78 times. It means that a company can pay it

interest expense 197.78 times from its operating profit.


If we compare the results of the company with the results of the industry, company’s results are

showing BETTER position, because time interest earned ratio is more than that of industry’s

time interest earned ratio.

ACCOUNT RECEIVABLE TURNOVER:

Account receivable turnover ratio indicates that how many times a company converts its

receivable into cash during a year.

In this company account receivable turnover ratio is 33.06 times. It means that a company

converts its receivables into cash 33.06 times during a year.


showing BETTER position because company’s account receivable turnover ratio is more than

that of industry’s account receivable turnover ratio.

AVERAGE COLLECTION PERIOD:

Average collection period indicates that how many days a company converts it’s receivable into

cash during a year.

In this company average collection period is 10.88 days. It means that a company converts its

receivables into cash after every 10.88 days during a year.


showing BETTER position because company’s average collection period is less than that of

industry average collection period.

INVENTORY TURNOVER:

Inventory turnover ratio indicates that how many times a company converts its inventory into

cash or sales during a year.

In this company inventory turnover ratio is 2.48 times. It means that a company converts its

inventory into cash or sales 2.48 times during a year.



showing WORSE position because company’s inventory turnover ratio is less than that of

industry inventory turnover ratio.

FIXED ASSETS TURNOVER:

Fixed assets turnover ratio indicates that how many times a company generated revenue from its

fixed assets of its own worth.

In this company fixed assets turnover ratio is 0.95 times. It means that a company fixed assets

generate total revenue 0.95 times of its own worth.


showing WORSE position because company’s fixed assets turnover ratio is less than that of an

industry fixed assets turnover ratio.

TOTAL ASSETS TURNOVER:

Total assets turnover ratio indicates that how many times a company generated revenue from its

total assets of its own worth.

In this company total assets turnover ratio is 0.62 times. It means that company total assets

generate total revenue 0.62 times of its own worth.


showing WORSE position because company’s total assets turnover ratio is less than that of an

industry total assets turnover ratio.

GROSS PROFIT MARGIN:

Gross profit margin shows the relationship between gross profit and net sales. It is a percentage

of gross profit based on the value of net sales.

In this company gross profit margin is 0.58 or 58%. It means that a company generates gross

profit of 0.58 or 58% based on the value of net sales.



showing BETTER position because company’s gross profit margin is more than that of an

industry gross profit margin.

OPERATING PROFIT MARGIN:

Operating profit margin shows the relationship between operating profit and net sales. It is a

percentage of operating profit based on the value of net sales.

In this company operating profit margin is 0.31 or 31%. It means that a company generates

operating profit of 0.31 or 31% based on the value of net sales.


showing BETTER position because company’s operating profit margin is more than that of an

industry operating profit margin.

NET PROFIT MARGIN:

Net profit margin shows the relationship between net profit and net sales. It is a percentage of net

profit based on the value of net sales.

In this company net profit margin is 0.23 or 23%. It means that a company generates net profit of

0.23 or 23% based on the value of net sales.


showing BETTER position because company’s net profit margin is less than that of an industry

net profit margin.

RETURN ON ASSETS:

Return on assets shows the relationship between net profit and total assets. It is a percentage of

net profit based on the value of total assets.

In this company return on assets is 0.14 or 14%. It means that a company generates net profit of

0.14 or 14% based on the value of total assets.



showing BETTER position because company’s return on assets is more than that of an industry

return on assets.

RETURN ON EQUITY:

Return on equity shows the relationship between net profit and total shareholders’ equity. It is a

percentage of net profit based on the value of total shareholders’ equity.

In this company return on equity is 0.262 or 26.2%. It means that a company generates net profit

of 0.262 or 26.2% based on the value of total shareholders’ equity.


showing BETTER position because company’s return on equity is more than that of an industry

return on equity.


GRAPHICAL PRESENTATION ON CROSS SECTIONAL

ANALYSIS


COMPANY INDUSTRY

2006 1 NaN

2007 1.68 NaN

2008 1.29 1.2

0.250.751.251.752.252.753.253.75

QUICK RATIO

FERO

ZSON

S


COMPANY INDUSTRY

2006 2.86 NaN

2007 2.86 NaN

2008 2.59 1.6

0.51.52.53.54.55.56.57.58.5

CURRENT RATIOFE

ROZS

ON

S


COMPANY INDUSTRY

2006 0.11 NaN

2007 0.27 NaN

2008 0.18 0.8

0.050.150.250.350.450.550.650.75

CASH RATIO

FERO

ZSO

NS

COMPANY INDUSTRY

2006 206336019 NaN

2007 288118754 NaN

2008 313369443 5000000

50000000150000000250000000350000000450000000550000000650000000750000000850000000

WORKING CAPITAL

FERO

ZSO

NS

COMPANY INDUSTRY

2006 0.17 NaN

2007 0.22 NaN

2008 0.27 0.45

0.050.150.250.350.450.550.65

DEBT RATIOFE

ROZS

ON

S

COMPANY INDUSTRY

2006 0.310000000000001 NaN

2007 0.4 NaN

2008 0.48 0.55

0.1

0.3

0.5

0.7

0.9

1.1

DEBT TO EQUITY RATIO

FERO

ZSON

S


COMPANY INDUSTRY

2006 97.15 NaN

2007 156.43 NaN

2008 197.78 18

2575

125175225275325375425475

TIME INTEREST EARNEDFE

ROZS

ON

S

COMPANY INDUSTRY

2006 59.64 NaN

2007 41.4 NaN

2008 33.06 18

1030507090

110130

ACCOUNT RECEIVABLE TURNOVER

FERO

ZSO

NS


COMPANY INDUSTRY

2006 6 NaN

2007 8.69 NaN

2008 10.88 20

2.5

7.5

12.5

17.5

22.5

27.5

AVERAGE COLLECTION PERIODFE

ROZS

ON

S

COMPANY INDUSTRY

2006 2.22 NaN

2007 2.97 NaN

2008 2.48 25

2.5

7.5

12.5

17.5

22.5

INVENTORY TURNOVER

FERO

ZSO

NS


COMPANY INDUSTRY

2006 1.2 NaN

2007 1.18 NaN

2008 0.950000000000001 10

0.51.52.53.54.55.56.57.58.59.5

FIXED ASSETS TURNOVERFE

ROZS

ON

S

COMPANY INDUSTRY

2006 0.79 NaN

2007 0.750000000000001 NaN

2008 0.620000000000001 6

0.5

1.5

2.5

3.5

4.5

5.5


FERO

ZSO

NS


COMPANY INDUSTRY

2006 57 NaN

2007 54 NaN

2008 58 25

1030507090

110130150170

GROSS PROFIT MARGINFE

ROZS

ON

S

COMPANY INDUSTRY

2006 29 NaN

2007 28 NaN

2008 31 20

51525354555657585


FERO

ZSO

NS


COMPANY INDUSTRY

2006 23 NaN

2007 21 NaN

2008 23 15

5152535455565

NET PROFIT MARGINFE

ROZS

ON

S

COMPANY INDUSTRY

2006 18.7 NaN

2007 16.43 NaN

2008 14.64 10

2.57.5

12.517.522.527.532.537.542.547.5

RETURN ON ASSETS

FERO

ZSO

NS


COMPANY INDUSTRY

2006 34.2 NaN

2007 29.3 NaN

2008 26.2 12

51525354555657585

RETURN ON EQUITYFE

ROZS

ON

S


TIME SERIES ANALYSIS FOR 2008

SHORT TERM SOLVENCY RATIOS:


CURRENT RATIO:

2006 2007 2008 DECISION2.86 2.86 2.59 WORSE

INTERPRETATION:

Current ratio measures the firm's ability to meet its short term obligations. It shows the relationship between current assets and current liabilities.

In year 2006 current ratio was 2.86 times. It means current assets were 2.86 times more than that of its current liabilities. In year 2007 the current ratio was also 2.86 times, and in 2008 it is decreased to 2.59 times.

If we evaluate the performance of the firm over the period of time, company’s results are showing WORSE position because company's current ratio is showing decreasing trend.

QUICK RATIO:

2006 2007 2008 DECISION1.00 1.68 1.29 BETTER

INTERPRETATION:

Quick ratio measures the firm's ability to meet its short term obligations. It shows the relationship between quick assets and current liabilities.

In year 2006 quick ratio was 1.00 times. It means quick assets were 1.00 times more than that of its current liabilities. In year 2007 the quick ratio was 1.68 times, and in 2008 it is reached to 1.29 times (the result shows mixed trend).

If we evaluate the performance of the firm over the period of time, company’s results are showing BETTER position because company's current ratio is showing increasing trend.


CASH RATIO:

2006 2007 2008 DECISION0.11 0.27 0.18 BETTER

INTERPRETATION:

Cash ratio measures the firm's ability to meet its short term obligations. It shows the relationship between cash and current liabilities.

In year 2006 cash ratio was 0.11 times. It means cash were 0.11times more than that of its current liabilities. In year 2007 the cash was 0.27 times, and in 2008 it is decreased to 0.18 times.

If we evaluate the performance of the firm over the period of time, company’s results are showing BETTER position because company's current ratio is showing mixed trend (if we compare it with 2006 the result is showing increasing trend).

WORKING CAPITAL:

2006 2007 2008 DECISION203,336,019 288,118,754 313,369,443 BETTER

INTERPRETATION:

Working capital measures the firm's ability to meet its short term obligations. It shows the difference between current assets and current liabilities.

In year 2006 working capital was 206,336,019. It means working capital were 206,336,019 times more than that of its current liabilities. In year 2007 the working capital was also 288,118,754, and in 2008 it is increased to 313,369,443.

If we evaluate the performance of the firm over the period of time, company’s results are showing BETTER position because company's current ratio is showing increasing trend.


LONG TERM SOLVENCY RATIOS:

DEBT RATIO:

2006 2007 2008 DECISION0.17 0.22 0.27 WORSE

INTERPRETATION:

Debt ratio measures the firm's ability to meet its long term obligations. It shows the relationship between total debts and total liabilities.

In year 2006 debt ratio was 0.17 times. It means debts were 0.17 times more than that of its total assets. In year 2007 the debt ratio was also 0.22 times, and in 2008 it is increased to 0.27 times.

If we evaluate the performance of the firm over the period of time, company’s results are showing WORSE position because company's debt ratio is showing increasing trend.

DEBT TO EQUITY RATIO:

2006 2007 2008 DECISION0.31 0.40 0.48 WORSE

INTERPRETATION:

Debt to equity ratio measures the firm's ability to meet its long term obligations. It shows the relationship between total debts and total share holder’s equity.

In year 2006 debt to equity ratio was 0.31 times. It means debts to equity were 0.31 times more than that of its total share holder’s equity. In year 2007 the debt to equity ratio was also 0.40 times, and in 2008 it is increased to 0.48 times.

If we evaluate the performance of the firm over the period of time, company’s results are showing WORSE position because company's debt ratio is showing increasing trend.


TIME INTEREST EARNED:

2006 2007 2008 DECISION97.15 156.43 197.78 BETTER

INTERPRETATION:

Time interest earned ratio measures the firm's ability to meet its long term obligations. It shows the relationship between operating profit and interest expense.

In year 2006 debt to time interest earned ratio was 97.15 times. It means time interest earned ratio were 97.15 times more than that of its interest expense. In year 2007 the time interest earned ratio was also 156.43 times, and in 2008 it is increased to 197.78 times.

If we evaluate the performance of the firm over the period of time, company’s results are showing BETTER position because company's debt ratio is showing increasing trend.

ASSETS UTILIZATION RATIOS:

ACCOUNT RECEIVABLE TURNOVER:

2006 2007 2008 DECISION59.64 times 41.40 times 33.06 times WORSE

INTERPRETATION:

Account receivable turnover ratio indicates how efficiently management utilizes its assets in generating revenue by relating or comparing sales to different types of assets.

In year 2006 account receivable turnover ratio was 59.64 times. It means the firm can convert its account receivables into cash 59.64 times. In year 2007 the account receivable turnover ratio was 41.40 times, and in 2008 it is decreased to 33.06 times.

If we evaluate the performance of the firm over the period of time, company’s results are showing WORSE position because company's account receivable turnover ratio is showing decreasing trend.


AVERAGE COLLECTION PERIOD:

2006 2007 2008 DECISION6 DAYS 9 DAYS 11 DAYS WORSE

INTERPRETATION:

Average collection period indicates how efficiently management utilizes its assets in generating revenue by relating or comparing sales to different types of assets.

It shows the relationship between days and account receivable turnover.

In year 2006 average collection period was 6 days. It means the firm can collect its account receivables within 6 days. In year 2007 the average collection period was 9 days, and in 2008 it is increased to 11 days.

If we evaluate the performance of the firm over the period of time, company’s results are showing WORSE position because company's account receivable turnover ratio is showing increasing trend.

INVENORY TURNOVER:

2006 2007 2008 DECISION2.22 times 2.97 times 2.48 times BETTER

INTERPRETATION:

Inventory turnover ratio indicates how many times a company converts its inventory into cash or sales during a year.

It shows the relationship between costs of goods sold and average inventory.

In year 2006 inventory turnover ratio was 2.22 times. It means the firm can convert its inventory into cash or sales 2.22 times. In year 2007 the inventory turnover ratio was 2.97 times, and in 2008 it is decreased to 2.48 times.

If we evaluate the performance of the firm over the period of time, company’s results are showing BETTER position because company's inventory turnover ratio is showing increasing trend.


FIXED ASSETS TURNOVER:


INTERPRETATION:

Fixed assets turnover ratio indicates that how many times revenue can be generated by the fixed assets of its own worth.

In year 2006 fixed assets turnover ratio was 1.20 times. It means the firm’s fixed assets can generate total revenue 1.20 times. In year 2007 the fixed assets turnover ratio was 1.18 times, and in 2008 it is decreased to 0.95 times.

If we evaluate the performance of the firm over the period of time, company’s results are showing WORSE position because company's fixed asset turnover ratio is showing decreasing trend.

TOTAL ASSETS TURNOVER:


INTERPRETATION:

Total assets turnover ratio indicates that how many times revenue can be generated by the total assets of its own worth.

In year 2006 total assets turnover ratio was 0.79 times. It means the firm’s total assets can generate total revenue 0.79 times. In year 2007 the total assets turnover ratio was 0.75 times, and in 2008 it is decreased to 0.62 times.

If we evaluate the performance of the firm over the period of time, company’s results are showing WORSE position because company's total asset turnover ratio is showing decreasing trend.


PROFITABILITY RATIO:

GROSS PROFIT MARGIN:

2006 2007 2008 DECISION57% 54% 58% BETTER

INTERPRETATION:

Gross profit margin ratio measures the overall record of management in producing profit. It shows the relationship between gross profit and net sales.

In year 2006 gross profit margin ratio was 57%. It means the firm’s generate gross profit of 57% based on the value of net sales. In year 2007 the gross profit margin ratio was 54%, and in 2008 it is increased to 58%.

If we evaluate the performance of the firm over the period of time, company’s results are showing BETTER position because company's gross profit margin ratio is showing increasing trend.

OPERATING PROFIT MARGIN:

2006 2007 2008 DECISION29% 28% 31% BETTER

INTERPRETATION:

Operating profit margin ratio measures the overall record of management in producing profit. It shows the relationship between operating profit and net sales.

In year 2006 operating profit margin ratio was 29%. It means the firm’s generate operating profit of 29% based on the value of net sales. In year 2007 the operating profit margin ratio was 28%, and in 2008 it is increased to 31%.

If we evaluate the performance of the firm over the period of time, company’s results are showing BETTER position because company's operating profit margin ratio is showing increasing trend.


NET PROFIT MARGIN:

2006 2007 2008 DECISION23% 21% 23% BETTER

INTERPRETATION:

NET profit margin ratio measures the overall record of management in producing profit. It shows the relationship between net profit and net sales.

In year 2006 net profit margin ratio was 23%. It means the firm’s generate net profit of 23% based on the value of net sales. In year 2007 the net profit margin ratio was 21%, and in 2008 it is increased to 23%.

If we evaluate the performance of the firm over the period of time, company’s results are showing BETTER position because company's net profit margin ratio is showing increasing/consistence trend.

RETURN ON ASSETS:

2006 2007 2008 DECISION18.7% 16.43% 14.64% WORSE

INTERPRETATION:

Return on asset ratio measures the overall record of management in producing profit on the value on total assets. It shows the relationship between net profit and total assets.

In year 2006 return on asset ratio was 18.7%. It means the firm’s generate g profit of 18.7% based on the value of total assets. In year 2007 the return on asset ratio was 16.43%, and in 2008 it is decreased to 14.64%.

If we evaluate the performance of the firm over the period of time, company’s results are showing WORSE position because company's return on asset ratio is showing decreasing trend.


RETURN ON EQUITY:

2006 2007 2008 DECISION34.2% 29.3% 26.2% WORSE

INTERPRETATION:

Return on equity ratio measures the overall record of management in producing profit on the value of total share holder’s equity. It shows the relationship between profit and total share holder’s equity.

In year 2006 return on equity ratio was 34.2%. It means the firm’s generate profit of 34.2% based on the value of total share holder’s equity. In year 2007 the return on equity ratio was 29.3%, and in 2008 it is decreased to 26.2%.

If we evaluate the performance of the firm over the period of time, company’s results are showing WORSE position because company's return on equity ratio is showing decreasing trend.

EARNING PER SHARE:

2006 2007 2008 DECISION14.59 16.16 15 WORSE

INTERPRETATION:

Earnings per share are the earning of the company on each share. It shows relationship between net income and number of shares issued. It is generally more considerable by the shareholders.

In 2006 earnings per share was Rs.14.59. it means that company earns Rs.14.59. And in 2007 it was increased to Rs.16.16 and in 2008 it has reached to Rs.15.

If we evaluate the performance of the firm over the period of time company’s results are showing WORSE position because there is an increasing trend in company’s earnings per share.


DIVIDEND PER SHARE:

2006 2007 2008 DECISION4 3.22 5.22 BETTER

INTERPRETATION:

Dividend per share is linked with Earning per Share of the company. As dividend is eventually shareholder’s profit. It shows relationship between total dividend paid and number of shares issued.

In 2006 dividend per share was Rs.4. it means that company can paid dividend of Rs.4 on per share. And in 2007 it was decreased to Rs.3.22 and in 2008 it has reached to Rs.5.22.

If we evaluate the performance of the firm over the period of time company’s results are showing BETTER position because there is an increasing trend in company’s dividend per share.


GRAPHICAL PRESENTATION ON TIME SERIES ANALYSIS


2.4752.5252.5752.6252.6752.7252.7752.8252.875

2006

2007

2008

CURRENT RATIOFE

ROZS

ON

S

0.10.30.50.70.91.11.31.51.7

2006

2007

2008

QUICK RATIO

FERO

ZSO

NS


0.0250.0750.1250.1750.2250.275

2006

2007

2008

CASH RATIOFE

ROZS

ON

S

2500000075000000

125000000175000000225000000275000000325000000

2006

2007

2008

WORKING CAPITAL

FERO

ZSO

NS


0.0250.0750.1250.1750.2250.275

2006

2007

2008

DEBT RATIOFE

ROZS

ON

S

0.05

0.15

0.25

0.35

0.45

2006

2007

2008

DEBT TO EQUITY RATIO

FERO

ZSO

NS


25

75

125

175

2006

2007

2008

TIME INTEREST EARNEDFE

ROZS

ON

S

51525354555

2006

2007

2008

ACCOUNT RECEIVABLE TURNOVER

FERO

ZSO

NS


13579

11

2006

2007

2008

AVERAGE COLLECTION PERIODFE

ROZS

ON

S

0.250.751.251.752.252.75

2006

2007

2008

INVENTORY TURNOVER

FERO

ZSO

NS


0.10.30.50.70.91.1

2006

2007

2008

FIXED ASSETS TURNOVERFE

ROZS

ON

S

0.050.150.250.350.450.550.650.75

2006

2007

2008


FERO

ZSO

NS


52.553.554.555.556.557.5

2006

2007

2008

GROSS PROFIT MARGINFE

ROZS

ON

S

26.7527.2527.7528.2528.7529.2529.7530.2530.75

2006

2007

2008


FERO

ZSO

NS


20.2520.7521.2521.7522.2522.75

2006

2007

2008

NET PROFIT MARGINFE

ROZS

ON

S

2.5

7.5

12.5

17.5

2006

2007

2008

RETURN ON ASSETS

FERO

ZSO

NS


2.57.5

12.517.522.527.532.5

2006

2007

2008

RETURN ON EQUITYFE

ROZS

ON

S

13.7514.2514.7515.2515.7516.25

2006

2007

2008

EARNING PER SHARE

FERO

ZSO

NS


0.51.52.53.54.55.5

2006

2007

2008

DIVIDEND PER SHAREFE

ROZS

ON

S


COMMON SIZE BALANCE SHEET AND INCOME STATEMENT

FOR 2007-2008


Ferozsons laboratories limited Pakistan

Common size balance sheet

As at June 30 th , 2007-2008

2007 2008

ASSETS % %

CURRENT ASSETS

Cash and bank balances 3.421 2.416

Loan and advances 0.2801 0.3077

Deposits and payments 0.247 0.392

Other receivables 1.063 0.102

Trade debts 2.621 1.650

Stock in trade 10.983 12.201

Advance income tax 0.276 ---------

Stores and spares 0.3513 0.276

Short term investment 15.345 13.125

Accrued interest 0.2983 0.0859

Current portion of long term loan 1.4209 3.830

TOTAL CURRENT ASSETS 36.30% 34.390%

FIXED ASSETSProperty, plant and equipment 45.190 41.2375

Long term investment 12.279 13.729

Long term loan 6.174 10.5331

Long term deposits 0.049 0.0533

Derivative Asset-Interest Rate Swap ------------- 0.055

TOTAL FIXED ASSETS 63.70% 65.609%

TOTAL ASSETS 100% 100%

2007 2008

EQUITIES AND LIABILITIES % %


CURRENT LIABILITIES

Trade and other payables 10.7541 7.8577

Accrued markup on long term financing 0.1321 0.3939

Current portion of long term liabilities 1.4209 3.8302

Current portion of liabilities against assets 0.3538 0.1619

Provision for tax - net ---------- 10.1297

TOTAL CURRENT LIABILITIES 12.661% 13.240%

NON CURRENT LIABILITIES

Long term financing - secured 6.171 10.533

Liabilities against assets subject to financing lease 0.0840 0.098

Deferred liability for taxation 3.964 3.353

TOTAL NON CURRENT LIABILITIES 10.218% 13.985%

CAPITAL AND RESERVES

Share capital 9.895 9.764

Capital reserves 0.026 0.021

Revenue reserves 46.104 45.979

TOTAL SHARE HOLDER’S EQUITY 56.026% 55.765%

SURPLUS ON ASSETS %22.5 %17.5

TOTAL EQUITIES 100% 100%


Common size income statement


For the year ended June 30 th , 2007-2008

2007 2008

Sales 100% 100%

Cost of goods sold (45%) (42%)

Gross profit 55% 58%

Other operating income 2.78% 2.23%

Administrative expenses (5.59%) (6.51%)

Selling and distribution cost (23.48%) (21.39%)

Finance cost (0.18%) (0.15%)

Other charges (1.91%) (2.26%)

Share in profit of Farmacia 98% owned partnership firm 1.22% 1.47%

Profit before taxation 28.02% 31.32%

Provision for taxation (6.31%) (8.11%)

Profit after taxation 23.27% 21.71%


INTERNAL GROWTH RATE AND

SUSTAINABLE GROWTH RATE

INTERNAL GROWTH RATE


FORMULA: IGR = ROA * b * 100

1- (ROA * b)

ROA = Net Profit / Loss

Total Assets

ROA = 217023829

1481628536

ROA = 14.64% or 0.1464

Dividend payout ratio = dividend paid

Net profit

Dividend payout ratio= 75538996

217023829

Dividend payout ratio = 34.80% or 0 .3480

Retention ratio = 1-0.3480

0.6520 Or 65.20%

IGR = 0.1464*0.6520 *100

1-(0.1464*0.6520)

INTERNAL GROWTH RATE = 10.55%

SUSTAINABLE GROWTH RATE

FORMULA: SGR = ROE* b * 100


1-(ROE* b)

ROE = Net Profit / Loss

Total S.H.E

ROE = 217023829

826236891

R0E = 26.26% Or 0.2626

Retention Ratio =1- dividend payout ratio

Dividend payout ratio = 75538996

217023829

Dividend payout ratio = 34.80% or 0 .3480

Retention ratio = 1-0.3480

0.6520 Or 65.20%

Sustainable growth rate = 0.2626*0.6520 *100

1-(0.2626 * 0.6520)

SUSTAINABLE GROWTH RATE = 20.65%


PROFORMA BALANCE SHEET AND

PROFORMA INCOME STATEMENT


Pro forma balance sheet

As at June 30 th , 2008-2009

2008 2009


ASSETS Increased by 20.65%CURRENT ASSETS

Cash and bank balances 35,807,461 43,201,701.7

Loan and advances 4,560,060 5,501,712.39

Deposits and payments 5,809,956 7,009,711.914

Other receivables 1,530,284 1,846,287.64

Trade debts 24,454,201 29,503,993.51

Stock in trade 180,787,784 218,120,461.4

Advance income tax ------------ ---------

Stores and spares 4,091,300 4,936,153.45

Short term investment 194,474,564 234,633,561.5

Accrued interest 1,273,496 1,536,472.924

Current portion of long term loan 56,750,000 68,468,875

TOTAL CURRENT ASSETS 509,539,461 614,758,931.4

FIXED ASSETSProperty, plant and equipment 610,987,413 737,156,313.8

Long term investment 203,425,956 278,008,915.9

Long term loan 156,062,500 188,289,406.3

Long term deposits 790,870 954,184.655

Derivative Asset-Interest Rate Swap 822,691 992,576.70

TOTAL FIXED ASSETS 972,089,430 1,172,825,897

TOTAL ASSETS 1,481,628,536

1,787,584,829

2008 2009

EQUITIES AND LIABILITIES CURRENT LIABILITIES

Trade and other payables 116,423,214 140,464,607.7

Accrued markup on long term financing 5,588,157 6,742,111.421


Current portion of long term liabilities 56,750,000 68,468,875

Current portion of liabilities against assets 2,399,815 2,895,376.79

Provision for tax – net 15,008,477 18,107,727.5

TOTAL CURRENT LIABILITIES 196,169,663 116,028,698.4

NON CURRENT LIABILITIES

Long term financing - secured 156,062,500 188289406.3

Liabilities against assets subject to financing lease 1,456,643 1757439.78

Deferred liability for taxation 49,691,426 59952705.47

TOTAL NON CURRENT LIABILITIES 207,210,569 249999551.5CAPITAL AND RESERVES

Share capital 144,672,768 174,547,694.6

Capital reserves 321,843 388,303.57

Revenue reserves 681,242,280 821,918,810.8

TOTAL EQUITIES 1,481,628,536

1,787,584,829


Pro forma income statement

As at June 30 th , 2008-2009


2008 2009

Sales 932,297,994 1,124,817,530

Cost of goods sold (391,559,432) (472,416,454.7)

Gross profit 540,738,562 652,401,075.3

Other operating income 20,809,630 25,106,094.7

Administrative expenses (60,719,276) (73,257,806.50)

Selling and distribution cost (199,424,660) (240,605,852.3)

Finance cost (1,487,228) (1,794,340.58)

Other charges (21,073,792) (25,425,530.05)

Share in profit of Farmacia 98% owned partnership firm 13,818,997 16,672,619.88

Profit before taxation 292,662,233 353,096,984.1

Provision for taxation (75,638,404) (91,257,734.4)

Profit after taxation 217,023,829

261,839,249.7


Plug variable


For the year ended June 30 th , 2008-2009

Profit from pro forma statement 261839249

Less: addition to retained earnings (170617918)

Possible dividend payment 91223131

RECOMMENDATIONS

1. The cash ratio of the company is showing worse position. To improve the condition of cash the company should pay less cash dividend and retain more.


To generate more revenue the company should increase its sales due to increase in the volume of sales the account receivable will automatically increase.

2. Before paying debts company should issue ordinary shares and bonds instead of borrowing from financial institutions, it will also help to increase in cash.

3. The condition of inventory is also worst; to improve in inventory the company should reduce the price to sale more inventory.

4. More fixed assets should be purchased, and also change outdated machines, which also help to maximize profit.

5. The company should move towards advance technology to reduce its cost, advance and latest technology will help to generate more revenue, same time, and also help to minimize the cost of production.

6. Overall performance of the company is better than industry.


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