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BY NAVEED SHERAZ IBF SEC-B FALL 2009
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BY NAVEED SHERAZ IBF SEC-B FALL 2009
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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
BY NAVEED SHERAZ IBF SEC-B FALL 2009
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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
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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
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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
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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.
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CALCULATION AND INTERPRETATION ON
CROSS SECTIONAL ANALYSIS
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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
Current liabilities 110,712,695
154,258,234 196,169,663
1.00 1.68 1.293. CASH RATIO Cash_______ 12,301,864 41,680,940 35,807,461
Current liabilities 110,712,695
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
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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%
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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
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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.
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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.
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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.
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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.
If we compare the results of the company with the results of the industry, company’s results are
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.
If we compare the results of the company with the results of the industry, company’s results are
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.
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If we compare the results of the company with the results of the industry, company’s results are
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.
If we compare the results of the company with the results of the industry, company’s results are
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.
If we compare the results of the company with the results of the industry, company’s results are
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.
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If we compare the results of the company with the results of the industry, company’s results are
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.
If we compare the results of the company with the results of the industry, company’s results are
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.
If we compare the results of the company with the results of the industry, company’s results are
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.
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If we compare the results of the company with the results of the industry, company’s results are
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.
If we compare the results of the company with the results of the industry, company’s results are
showing BETTER position because company’s return on equity is more than that of an industry
return on equity.
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GRAPHICAL PRESENTATION ON CROSS SECTIONAL
ANALYSIS
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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
BY NAVEED SHERAZ IBF SEC-B FALL 2009
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
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BY NAVEED SHERAZ IBF SEC-B FALL 2009
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
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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
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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
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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
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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
TOTAL ASSETS TURNOVER
FERO
ZSO
NS
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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
OPERATING PROFIT MARGIN
FERO
ZSO
NS
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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
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COMPANY INDUSTRY
2006 34.2 NaN
2007 29.3 NaN
2008 26.2 12
51525354555657585
RETURN ON EQUITYFE
ROZS
ON
S
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TIME SERIES ANALYSIS FOR 2008
SHORT TERM SOLVENCY RATIOS:
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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.
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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.
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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.
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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.
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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.
BY NAVEED SHERAZ IBF SEC-B FALL 2009
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FIXED ASSETS TURNOVER:
2006 2007 2008 DECISION1.20 times 1.18 times 0.95 times WORSE
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:
2006 2007 2008 DECISION0.79 times 0.75 times 0.62 times WORSE
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.
BY NAVEED SHERAZ IBF SEC-B FALL 2009
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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.
BY NAVEED SHERAZ IBF SEC-B FALL 2009
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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.
BY NAVEED SHERAZ IBF SEC-B FALL 2009
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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.
BY NAVEED SHERAZ IBF SEC-B FALL 2009
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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.
BY NAVEED SHERAZ IBF SEC-B FALL 2009
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GRAPHICAL PRESENTATION ON TIME SERIES ANALYSIS
BY NAVEED SHERAZ IBF SEC-B FALL 2009
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41
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
BY NAVEED SHERAZ IBF SEC-B FALL 2009
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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
BY NAVEED SHERAZ IBF SEC-B FALL 2009
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43
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
BY NAVEED SHERAZ IBF SEC-B FALL 2009
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44
25
75
125
175
2006
2007
2008
TIME INTEREST EARNEDFE
ROZS
ON
S
51525354555
2006
2007
2008
ACCOUNT RECEIVABLE TURNOVER
FERO
ZSO
NS
BY NAVEED SHERAZ IBF SEC-B FALL 2009
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45
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
BY NAVEED SHERAZ IBF SEC-B FALL 2009
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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
TOTAL ASSETS TURNOVER
FERO
ZSO
NS
BY NAVEED SHERAZ IBF SEC-B FALL 2009
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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
OPERATING PROFIT MARGIN
FERO
ZSO
NS
BY NAVEED SHERAZ IBF SEC-B FALL 2009
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48
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
BY NAVEED SHERAZ IBF SEC-B FALL 2009
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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
BY NAVEED SHERAZ IBF SEC-B FALL 2009
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0.51.52.53.54.55.5
2006
2007
2008
DIVIDEND PER SHAREFE
ROZS
ON
S
BY NAVEED SHERAZ IBF SEC-B FALL 2009
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COMMON SIZE BALANCE SHEET AND INCOME STATEMENT
FOR 2007-2008
BY NAVEED SHERAZ IBF SEC-B FALL 2009
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52
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 % %
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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%
Ferozsons laboratories limited Pakistan
Common size income statement
BY NAVEED SHERAZ IBF SEC-B FALL 2009
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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%
BY NAVEED SHERAZ IBF SEC-B FALL 2009
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INTERNAL GROWTH RATE AND
SUSTAINABLE GROWTH RATE
INTERNAL GROWTH RATE
BY NAVEED SHERAZ IBF SEC-B FALL 2009
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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
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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%
BY NAVEED SHERAZ IBF SEC-B FALL 2009
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PROFORMA BALANCE SHEET AND
PROFORMA INCOME STATEMENT
Ferozsons laboratories limited Pakistan
Pro forma balance sheet
As at June 30 th , 2008-2009
2008 2009
BY NAVEED SHERAZ IBF SEC-B FALL 2009
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59
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
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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
Ferozsons laboratories limited Pakistan
Pro forma income statement
As at June 30 th , 2008-2009
BY NAVEED SHERAZ IBF SEC-B FALL 2009
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61
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
Ferozsons laboratories limited Pakistan
Plug variable
BY NAVEED SHERAZ IBF SEC-B FALL 2009
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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.
BY NAVEED SHERAZ IBF SEC-B FALL 2009
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63
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.
BY NAVEED SHERAZ IBF SEC-B FALL 2009