afs final project

8/6/2019 Afs Final Project

1/35

1

Acknowledgment I am grateful to Almighty Allah, Lord of universe, and source of wisdom whose guidance enables me to complete this report. All respect

to his Holy Prophet HAZART MUHAMMAD (Peace Be Upon Him)

who brought the light of knowledge when the humanity was wandering

in the desert of ignorance.I acknowledge my heartily thanks and gratitude to MR. BURHAN

SHAH for his guidance in all possible ways.I am also very grateful to

my dearest parents who very generously provided me every facility at

every stage of my life and made it possible for me to complete this

report.


2/35

2

INTRODUCTION OF THE ASSIGNMENT:

Along with theory, practical work is very important for experience and handling all types of

situations. For this purpose, we are assigned a project of Analysis of Financial Statements.

For this purpose, we have to select a company and prepare a report on its financial statements.

I have selected PAKISTAN TOBAACO COMPANY as because it is a leading company in

its sector. First we have to introduce the company with respect to its nature of work and

according to its products. Secondly, compare it with competitors in accordance with their

volume, assets, liabilities, capital, and earnings per share and dividend per share. Thirdly,

construct consolidated income statement as well as balance sheet of at least five years of its

operation. In this part of Analysis of Financial Statement we have to calculate differentfinancial ratios and conduct various analysis as horizontal and vertical analysis. After this, we

have to summarize the findings from analysis. As we complete this portion we have to define

the future vision, in accordance with chairmans report and auditor report as well. After

completing this, we have to suggest the recommendations for the company.

OBJECTIVE OF THE ASSIGNMENT:

y To apply the knowledge learns during the semester.y To create understanding of the practical work.y To develop a sense of critical thinking.y In order to judge the ability of the students.y Build up a students mind for real work scenario.y Construct a bridge over the bookish knowledge and practical requirements.y To make relationship between theory and practical exposure of the subject.y To build a way of interest in a company in which we want to start our career.y To know about the company in which we are interested as well.y To learn how to fulfill the task assigned during the course.y D evelop the sense of analyzing the various financial statements.y To complete and get remarks and learn from it.


3/35

3

W HY I HAVE CHOOSEN THIS COMPANY?

Pakistan Tobacco Company is the first multinational company who started its operations in

Pakistan. Its history is started from a very small production plant in warehouse in Karachi

Port. Now it is producing cigarettes at AKORA KHATTAK and Jhelum Factories as well. Only

two companies Pakistan Tobacco Company and Lakson Tobacco Company is the major

player in this sector. Their survival is merely due to the payment of excise duties and taxes

which are paid up to 50% of their gross turnovers. Among the two, major player I have

selected PTC because its here from 1947 and its existence without long term debt for its

survival. In order to know the reason that how a multinational company is working without

long term debt, I have chosen Pakistan Tobacco Company.

COMPANY HISTORY:Pakistan Tobacco Company Limited is part of the worlds most international group,

BRITISH AMERICAN TOBACCO with 180 brands, sold in the market around the world.

The BAG possesses the 95% share of Pakistan Tobacco Company. In 1947, Pakistan Tobacco

Company Limited was established immediately after the partition. It took over the business of

the Indian Imperial Tobacco Company which had been operational in subcontinent since

1905. PTC was the first foreign investment in Pakistan. The parental company of the PTC,

British American Tobacco has been in business over 100 years and with working position

present in 180 countries.

We produced different products from seed to smoke according to the diverse preferences of

the millions of consumers. Our brands are our values and having a diverse portfolio to the

different taste and preferences. Our standards are transparency, continuous improvement and

decisions according to all stakeholders. The main and big thing is that our words matched

with our actions.

PAKISTAN TOBACCO COMPANY LIMITED IN PAKISTAN:

In 1947, first multinational company made investment in Pakistan and started business with

warehouse near to the port of Karachi. As for the expansion requirements, in 1955 a factory

was established at Jehlum and during the same year PTC become the Public Limited


4/35

4

Company. After few years, in 1975 a new cigarette factory was set up at Akora Khattakto in

order to meet the increasing demand for PTC brands in Pakistan.

Companys operations depend upon the single factory and produced all products of cigarette

in that. It also has a good impact on the overall development of the country. In Pakistan, we

started campaign for modern agriculture and industrial practices for the development of these

sectors. We also started to work in public interests, educating the people with latest techniques

used in agriculture.

In the 62 years, we earn profit by investing in the people, brands, technology and innovations.

The standards of the environmental, health and safety are the inspirations for the other

companies. Our managers are highly valued because of the world base training and exposure

that we give in the very early stage of their career in the PTC.

PTC has a very limited history but its corporate practices, investments, advancement intechniques. D istribution and marketing always make benchmarks for other companies and

against those others measures its performances in the market.

PTC is also famous for its CSR activities as it sponsoring the various sports events, tree

plantation activities and free mobile dispensaries in rural areas.

PRODUCTS OF PAKISTAN TOBACCO COMPANY:

PAKISTAN TOBACCO COMPANY LIMITTE D is affianced in the manufacturing and saleof cigarettes in Pakistan. Its major Products are categories into three types as Global D rive

Brands ( D unhill Pall Mall) International Brands (Benson & Hedges) and Local Regional

Brands (Gold Leaf, Gold Flake, Wills, Embassy, Three Castle and Capstan International).

These all brands are available in different packaging and sizes as well.

COMPARISON W ITH LAKSON TOBACCO COMPANY :

Market share of Lakson Tobacco Company is 51% while Pakistan Tobacco Company having

33% of the total market share and remaining is distributed among small cigarettes company

i.e. MAR D ANWALLAS all over the Pakistan.


5/35

5

COMPARISON IN TERM OF PRODUCTS:

Almost all the products of Lakson Tobacco Company are local except one or two brands but

the brands of Pakistan Tobacco Company both global and International and their Prices are

higher than the prices of Lakson Tobacco Company in Pakistan as the best and expensive

brand of LTC is Red & White which has the price tag of Rs. 26 while the price of Gold Leaf

is more than Rs.60 same is the case with other international products as well.

PAKISTAN TOCACCO COMAPNY LAKSON TOBACCO COMPANY

GOLD LEAF PREMIER CLASSIC 20HL

GOLD LEAF LGHTS RED & WHITE 20HL

CAPSTON INTERNATIONAL RED & WHITE 10HL

CAPSTON FILTER MORVEN GOLD 10 HL

GOL D FLAKE MORVEN GOLD 20 HL

WILLS KINGS MORVEN GOLD 40 BOX

WILLS NAVY CUT PRINCETON 20SC

EMBASSY FILETR DIPLOMAT 20HL

EMBASSY KINGS DIPLOMAT40HL

BENSON & HE D GES K-2 FILTER 20SC


6/35

6

COMPARISON IN TERM OF FINANCAIL STATEMENTS (2010):

PARTICULARS PTC

(Rs.000)

LTC.

(Rs.000)

% OF PTC

Assets 12,378,400 12807263 103.46

Liabilities 8776313 5170442 58.91

Owners Equity 3,602,087 7164821 198.91

PROFITABILITY (Net) 9 25,100 572562 61.89

Earnings Per Share 3.62 9.30 256.9

The total assets of both companies are almost same just the difference is 3.46% which is very

minimal as compare to their totality. On the other hand, the total liabilities of the Lakson

tobacco company are very low as compare to Pakistan tobacco company as 38% which shows

that the minimum liabilities on the shoulders of Lakson tobacco company as to Pakistantobacco company but on the other side the equity portion of Lakson tobacco company is very

high as198.91% which shows that the Lakson tobacco company uses equity portion for its

financing needs of the business. The overall profitability of the Lakson tobacco company is

low as compare to Pakistan Tobacco Company which is 38% more than the profitability of

Lakson Tobacco Company. Earnings per share of Lakson Tobacco Company are 256.9% of

the earnings per shares of Pakistan Tobacco Company during the period of 2010.


7/35

7

HORIZONTAL ANALYSIS:

Comparison of two or more year's financial data is known as horizontal analysis. It shows the

percentage change in values over the year data. This analysis helps out the analyst to know the

changes in values in a glance and make them clear. For this 2004 is base year.

HORIZONTAL ANALYSIS OF BALANCE SHEET

Fixed Assets: (figures in %) 2010 200 9 2008 2007 2006 2005 2004

Property, Plant and Equi pment 163 167 157 145 127 107 100%

Investment In Sub sid iary Company 100 100 100 100 100 100 100%

Long Term Loans 21 45 57 77 114 109 100%

Long Term Depos its & Prepayments 347 449 929 294 190 256 100%

TOTAL FIXED ASSETS 163 167 158 144 127 107 100%

Current Assets:Stocks 195 188 132 130 123 123 100%

Stores and spares 164 180 157 116 115 103 100%

Trade de b ts 13 13 21 19 19 23 100%

Loans and advances 150 151 204 72 38 101 100%

Prepayments 329 201 294 223 201 89 100%

Other rece iva b les 79 74 207 193 78 88 100%

Cash and bank balances 133 122 176 425 160 147 100%

Income tax pa id in advance 100%

TOTALCURRENT ASSETS 210 201 152 149 134 133 100%

TOTAL ASSETS: 176 174 148 140 124 113 100%

Current Liabilities:Trade and other paya b les 260 245 210 173 108 122 100%

Interest accr ued 928 549 205 167 220 216 100%

Short term f inance 226 131 57 104 130 40 100%

Income tax paya b le 617 381 286 294 851 100%

TOTAL CURRENT LIABILITIES : 243 219 166 154 120 115 100%

OWNERS EQUITY :Author ized cap ital 300 ,000 ,000 @10 each 100 100 100 100 100 100 100%

Iss ued, sub scr ibed and pa id- up cap ital 100 100 100 100 100 100 100%

Reven ue Reserves 148 241 149 162 224 153 100%

Shareholders' Equi ty 110 131 111 114 127 112 100%

De f erred Taxat ion 182 178 134 130 135 116 100%


8/35

8

INTERPRETATION FOR HORIZONTAL ANALYSIS OF BALANCE SHEET:

FIXED ASSETS:

There is an increasing trend in property, plant and equipment values. In 2005-10 the ups and

downs are due to the increase and decrease in operating fixed assets and work in progress

values as compare to the base year 2004. The same trend is in investment in subsidiary

companies. The starting trend in long term loans is increasing but after 2006 its decreasing

trend up till now its because of the receipts from executives and other employees. The long

term deposits and prepayments have a trend of both ups and downs from 2004 to 2010. But

the abnormal increase during the year 2008 is due to abnormal increase in prepayments which

were Rs.722000 in 2007 but Rs.27985000 in 2008.

CURRENT ASSETS:There was a normal increasing trend in stock of the company during 2004-2008 but during the

year 2009-10 there is an abnormal increase due to raw material purchase and direct expenses

of purchases. Stocks and spare parts have normal trend up till 2007 but during 2008 it goes to

157% and in 2009 up to 180%. In 2008 the machine spare parts were purchase 36% greater

than 2007 and in 2009 14% increase in remaining increase in other spare parts. The trade debt

trends over the period of time have very minimal ups and downs as their values are lower as

compare to other accounts as stocks in trade. The loans and advance of short term nature also

have ups and downs in their trend but in year 2006-07 as compare to 2004 is abnormal

decrease because of the advances from other than executives and employees decreases but in

2008 increase in due to increase in advances due from other parties. Prepayments balances

show ups and downs during the period of time up till 2010. Its because of the increase in

prepayments in 2008 and 2010. The trend of other receivables is abnormal is due increase in

claims against guarantee and sales tax adjustable. The balances of cash and bank have ups and

downs normally but noticeable during 2007 because of the increase in both security deposits

at banks and both currency accounts. Income tax paid in advance is only payment during 2010which is Rs. 15206 000.

LIABILITIES & OWNERS EQUITY:

Trade and other payables values have increase in 2005 but decrease in 2006 and after that

have increasing trend because the Pakistan tobacco company uses its current debt for meets its


9/35

9

needs. Interest accrued balances have a normal s increasing trend up to 2008 but after that

there is an abnormal increase as the Increase in creditors and federal excise duty. Short term

financing values have the mix trend of ups and downs because the company mostly uses short

term financing for its needs. Income tax payable increases during the year 2005 drastically but

after that decreases and remain the same trend for few year than increases its because of the

increase in tax by the Government of Pakistan. Issued, subscribe and paid up capital remain

the same over the period of time. Revenue reserve has ups and downs as per income after

distribution. D eferred taxation value shows the increasing trend as the changing environment

of taxes over the period of time.

HORIZONTAL ANALYSIS OF P&L ACCOUNT2010 200 9 2008 2007 2006 2005 2004

G ross turnover 237 226 193 161 140 120 100

Excise duties 130 118 100 100

Sales tax 257 241 200 162 142 120 100

NET SALES 95 98 86 160 140 120 100

Cost of sales 79 72 62 155 137 118 100

G ross profit 178 236 209 187 159 130 100

Market . & d ist . Exp. 227 156 134 125 126 109 100

Adm inistrat ive Exp. 215 192 162 129 113 100 100

total operat ing Exp. 221 164 140 125 121 106 100

Operating profit 117 338 306 275 213 165 100

Other income 319 1 ,552 824 703 467 236 100

Other expenses 57 140 160 85 62 78 100

PBIT 140 420 361 344 267 195 100

finance income 36 100

Finance cost 410 120 146 138 140 124 100

PBI 134 440 369 352 271 197 100

Taxat ion 126 416 348 333 245 195 100

Profit for the year 139 454 381 363 286 199 100

EPS (Rs.) 139 455 381 363 287 199 100


10/35

10

INTERPRETATION FOR HORIZONTAL ANALYSIS OF P & L ACCOUNT:

G ROSS TURNOVER:

The gross turnover has the increasing trend over the period and company is growing and its

products are popularizing with the passage of time.

EXCISE DUTIES:

Excise duties are levied by the government after 2007 and their trend is increasing over the

period of time.

SALES TAX:

The calculated percentages shows the increasing trend in sales tax as increasing rapidly and

having Pakistan tobacco company is paying more than 50% of its sales in shape of

government levies .

NET SALES:

Net sales have almost same trend as above item because of the increase in other particulars, its

value also going side by side but are affected a lot due to the increase in Govt. levies. The

decreasing trend is due to increase in taxes and gross sale as compare to the base year 2004.

COST OF SALES:

Starting its trend is increasing but after 2007 its decreasing .

G ROSS PROFIT:

Gross profit has mix trend of increase and decrease over the period of time .

MARKETIN G & DISTRIBUTION EXPENSES:

The starting trend is normally increasing but during the year 2009-10 its high because of the

increase of selling expenses .

ADMINISTRATIVE EXPENSES:

The administrative expenses show the increasing trend because of the increase in information

technology and salaries and wages expenses.

OPERATIN G PROFIT:

Operating profit shows the increasing trend normally but during the year 2007-09 its trend is

as follow the above trends .


11/35

11

OTHER INCOME:

Other income shows the percentages increase over the year but during the year 2009 its

abnormal increases are due to increase in the value of insurance claims for evacuee trust

damages and insurance refund and material claim.

OTHER EXPENSES:

Other expenses have shown the balance of normal mix trend of increase and decrease up to

2007 and then rapid increase during 2008-09 due to increase in the value of Operating fixed

assets and capital work in progress written off, Head Office relocation expenses and Workers

Profit Participation Fund .

PROFIT BEFORE INTEREST AND TAXES:

The profit before interest and taxes shows the same trends as the above fashion of the valuesin term of percentages are showing .

FINANCE INCOME:

The finance cost is collected only during the year 2009 -10.

FINANCE COST:

The finance cost percentage trend shows the normal trend but during the year 2010 its

abnormal trend is due to the increase in the interest amount.

PROFIT BEFORE INTEREST:The trend of profit before interest shows same as the trend of profit before interest and taxes.

TAXATION:

The taxation value is increasing over the year but during the year 2010 it is very low because

of the low income .

PROFIT FOR THE YEAR:

The trend of the profit for the year or net profit show the same trend as shown above

profitability percentages.

EARNIN G PER SHARE:

Earnings per share shows the increasing trend up to 2009 but during the year 2010 its value is

low because less income is available for share holders of Pakistan tobacco company.


12/35

12

VERTICAL ANALYSIS:A method of financial statement analysis in which each entry for each of the three major

categories of accounts (assets, liabilities and equities) in a balance sheet is represented as a

proportion of the total account. The main advantages of vertical analysis are that the balance

sheets of businesses of all sizes can easily be compared. It also makes it easy to see relative

annual changes within one business.

VERTICAL ANALYSIS OF BALANCE SHEET2010 200 9 2008 2007 2006 2005 2004

Fixed Assets: % % % % % % %

Property, Plant and Equi pment 99.59 99.46 99.02 99.41 99.30 99.11 99.28

Investment In Sub sid iary Company 0.09 0.08 0.09 0.10 0.11 0.13 0.14

Long Term Loans 0.06 0.12 0.16 0.24 0.41 0.46 0.45Long Term Depos its & Prepayments 0.26 0.33 0.73 0.25 0.18 0.30 0.12

TOTAL FIXED ASSETS 100 100 100 100 100 100 100

Stocks 91.91 92.36 85.64 86.14 90.84 91.41 89.50

Stores and spares 3.05 3.50 4.02 3.03 3.36 3.03 3.54

Trade de b ts 0.02 0.03 0.06 0.05 0.06 0.07 0.36

Loans and advances 0.74 0.78 1.39 0.50 0.29 0.79 0.94

Prepayments 1.81 1.16 2.23 1.73 1.73 0.77 1.05

Other rece iva b les 1.43 1.41 5.20 4.95 2.21 2.53 3.47

Cash and bank balances 0.80 0.77 1.46 3.59 1.51 1.39 1.14

Income tax pa id in advance 0.23 0.00 0.00 0.00 0.00 0.00 0.00

TOTAL CURRENT ASSETS 100 100 100 100 100 100 100

Trade and other paya b les 69.90 73.47 83.00 73.57 58.99 69.80 65.54

Interest accr ued 0.61 0.40 0.20 0.17 0.30 0.30 0.16

Short term f inance 29.48 18.97 10.99 21.53 34.48 11.12 31.76

Income tax paya b le 0.00 7.16 5.82 4.72 6.23 18.78 2.54

TOTAL CURRENT LIABILITIES : 100 100 100 100 100 100 100

OWNERS EQUITY :

Author ized cap ital 300 ,000 ,000 @10 each

Issued, sub scr ibed and pa id-up cap ital 70.93 59.97 70.81 68.97 61.73 70.20 78.30

Reven ue Reserves 29.07 40.03 29.19 31.03 38.27 29.80 21.70

Shareholders' Equi ty 100 100 100 100 100 100 100


13/35

13

INTERPRETATION OF VERTICAL ANALYSIS OF BALANCE SHEET:

FIXED ASSETS:

Property, Plant and Equipment almost have same trend of percentage of total fixed assets over

the period of time of the company. Investment In Subsidiary Company is showing the normal

same trend as to total assets in term of fixed assets but the value in figure remain the same

over the time. Long Term Loans are showing a greater percentage as to total assets in early

year as to 2004-06 but after that its trend is decreasing because of the receipts form executives

and other employees. The long term deposits and prepayments have a trend of both ups and

downs from 2004 to 2010. But the abnormal increase during the year 2008 is due to abnormal

increase in prepayments which were Rs.722000 in 2007 but Rs.27985000 in 2008.

CURRENT ASSETS:

Pakistan Tobacco Company has invested most of its current assets in stock which shows the

major portion of its current assets. Stores and spares almost have the same percentages of total

current assets. Trade debts is decreasing percentage trend as of the total assets from 2004 to

up till now because of the decrease in trade debt. Loans and advances as of the receipts of

loans from executives and employees and reissue of it make the percentage increase and

decrease over the time period. Prepayments and other receivables show the same trend of ups

and downs as the percentage of total current assets of the company. Cash and bank balances

are very minimum percentage of the current assets as the company uses the short term debt for

its current needs at the time of its dealing in tobacco.

CURRENT LIABILITIES:

Trade debt and other payables of the company and short term financing have the major share

of the companys total current liabilities as the company uses the short term funds for its

needs but the more up and down is in short term financing percentages. The income tax

payable trend shows the abnormal increase during the year 2005 but after that its trend is

normal and in 2010 its 0.


14/35

14

OWNERS EQUITY:

The two major elements of owners equity account of the Pakistan tobacco company are

issued and subscribed capital and revenue reserves. The issued and subscribed capital in term

of figure value is same over the year but in terms of percentage of the total owners equity isdiffer up to some extent.

VERTICAL ANALYSIS OF P&L ACCOUNT2010 200 9 2008 2007 2006 2005 2004

G ross turnover 100 100 100 100 100 100 100

Excise duties 50.63 48.06 47.66

Sales tax 14.56 14.29 13.92 13.54 13.53 13.40 13.41

NET SALES 34 .81 37 .65 38 .42 86 .46 86 .47 86 .60 86 .59

Cost of sales 24.50 23.36 23.58 70.54 70.97 71.80 72.91

G ross profit 10 .31 14 .29 14 .83 15 .9 2 15 .49 14 .80 13 .68

Market . & d ist . Exp. 5.45 3.90 3.94 4.40 5.09 5.16 5.67

Adm inistrat ive Exp. 2.05 1.91 1.89 1.81 1.81 1.87 2.25

total operat ing Exp. 7 .50 5 .82 5 .83 6 . 21 6 . 89 7 .03 8 .01

Operating profit 2 .81 8 .48 9. 00 9. 72 8 . 60 7 .77 5 .68

Other income 0.08 0.39 0.24 0.25 0.19 0.11 0.06

Other expenses 0.35 0.89 1.20 0.76 0.64 0.93 1.44

PBIT 2 .54 7 .9 8 8 .05 9. 21 8 . 15 6 .9 5 4 .29

finance income 0.06 0.18 0.00 0.00 0.00 0.00 0.00

Finance cost 0.25 0.08 0.11 0.12 0.14 0.15 0.14

PBI 2 .36 8 .08 7 .9 4 9. 08 8 . 01 6 .80 4 .15

Taxat ion 0.82 2.83 2.78 3.18 2.68 2.48 1.54

Profit for the year 1 .54 5 .25 5 .16 5 .9 0 5 . 33 4 .32 2 .61


15/35

15

INTERPRETATION OF VERTICAL ANALYSIS OF P & L ACCOUNT:

For vertical analysis of P & L account gross turnover is considered as 100% and remaining.

The excise duty has the major percentage of the gross turnover over the year 2008-10 and if

we add sales tax in excise duty it becomes 62%, 62% and 65% respectively up to 2010. Thenet sales have almost the same percentage but in two ways up to 2007 it are about 86 % and

after 2007 it is about 38% 37% and 34% respectively. Its because up to 2007 there is no

excise duty. The cost of sales shows the beginning increase and then decreasing percentages

as their value decreases over the time. The profitability percentage almost shows the same

percentages as compare to their respective heads above. The operating expense shows the

normal trend of percentages as of the gross turnover up till now as of 8% or minimum changes

but its decreases in 2010 as its cost decreased. Finance income is received only during the

year 2009-10 which is .18 and .06 % of the gross turnover. On the other hand, the finance cost

is the same percentage almost 14% and 15% but in 2009 and 2010 is low percentage as of the

remaining. The other incomes of the company and expenses also show the same trend of

normal ups and downs in their percentages as above. The taxation for the years has the

percentages of 2% to 3% but in 2010 its low as its income is low. The net profit for the year

has the trend of ups and downs with minimum changes in percentages over the year and

minimum in 2010 as its trend.


16/35

16

LIQUIDITY RATIO: LONG TERN DEBT PAYING ABILITY PROFITABILITY RATIOS: ACTIVITY RATIOS M

ARKET AND OTHER RATIOS:


17/35

17

LIQUIDITY RATIO:

CURRENT RATIO:FORMULA TOTAL CURRENT ASSETSTOTAL CURRENT LIABILITIES

2010 2009 2008 2007 2006 2005 20040.85 0.91 0.91 0.96 1.11 1.15 0.99

Interpretation:Current ratio is calculated in order to calculate the short term paying ability of the company.

The current ratio measure the short term solvency of the company. In normal cases the

current ratio is almost greater than one but in case of tobacco industry no long term debt isused so for the current needs the current debt is used. The abnormal increase in current ratio

in 2005-2006 is due to stocks and prepayments increases which are 123% of the year 2004.

ACID TEST RATIO:FORMULA CURRENT ASSETS-STOCKS AND PREPAYMENTS CURRENT LIABILITIES

2010 2009 2008 2007 2006 2005 2004

0.05 0.06 0.11 0.12 0.08 0.09 0.001018

0.00 0.20 0.40 0.60 0.80 1.00 1.20

2010

2008

2006

2004

CURRENT RATIOS


18/35

18

INTERPRETATION:

The term current assets refer to the assets which can be converted into cash immediately.

Thus, the acid test assets are most liquid which can be converted in cash within no longer time

span. These are calculated after subtracting the inventory and prepayments form current assets

as these two are considered less liquid as compare to other current assets. This ratio shows

how quickly the company can meet its current obligations with its most liquid assets. D uring

the period of 2007-08 the company has greater liquidity to meet its current liabilities with its

most liquid assets.

CASH RATIO:FORMULA CASH AND EQUILENTS TOTAL CURRENT LIABILITIES

2010 2009 2008 2007 2006 2005 2004

0.01 0.01 0.03 0.04 0.02 0.03 0.02

0.000.050.10

0.15

2010 2009 2008 2007 2006 2005 2004

ACID TEST RATIOS

0.00

0.02

0.04

0.06

2010 2009 2008 2007 2006 2005 2004

CASH RATIOS


19/35

19

INTERPRETATION:

Cash ratio is calculated as to know how much of our cash is available for our current

liabilities. Its normally calculated for some specific reasons as to know the ability of a

company to fulfill its current needs with its cash and bank balances. D uring 2007 the company

has 4% its cash to meet is current liabilities.

W ORKING CAPITALFORMULA CURRENT ASSETS CURRENT LIABILITIES

2010 2009 2008 2007 2006 2005 2004-1107812 -614252 -470771 -181572 422741 531750 -24218

INTERPRETATION:

Working capital shows the access amount of current assets over current liabilities of the company. It

varies from industry to industry as per their requirement of cash and other assets. It shows the

relationship between the current assets and currents liabilities. It also tells that how much of the

current assets are financed by current liabilities. In the case of PTC Its current assets are financed by

current liabilities and in recent years few of fixed assets are also financed by current liabilities.

-1500000

-1000000

-500000

0

500000

1000000

2010 2009 2008 2007 2006 2005 2004

WORKING CAPITAL


20/35

20

LONG TERN DEBT PAYING ABILITY

TI M ES INTEREST EARNED:

FORMULAEBIT FINANCE COST

2010 2009 2008 2007 2006 2005 2004

10.23 104.78 74.02 74.80 57.03 46.91 29.90

INTERPRETATION:

Time interest earned ratio measure the firm ability to make contractual interest payments;

sometime it calls interest coverage ratio. The increasing trend form the base year 2004-09

shows the performance of the company good but in the year of 2010 it go down abnormally

because the operating income is low as compare to 2009 due to increase in excise duty,

selling , distribution and admin expenses .DEBT RATIO:FORMULA TOTAL DEBT TOTAL ASSETS

2010 2009 2008 2007 2006 2005 2004

0.71 0.65 0.58 0.57 0.53 0.54 0.54

0.00

20.00

40.00

60.00

80.00

100.00

120.00

2010 2009 2008 2007 2006 2005 2004

TIME INTEREST EARNED


21/35

21

INTERPRETATION:

Debt ratio is calculated to check the outsiders claim against the business property. Here the

computed values shows the normal increasing trend in debt ratio because the computation of

the total debt included the larger portion of current debt thats why it is increasing trend as the

company uses current debt instead of long term debt for running the business.

LONG TER M DEBT TO EQUITY RATIO:

FORMULA LONG TERM DEBT OWNERS EQUITY2010 2009 2008 2007 2006 2005 2004

0.32 0.26 0.44 0.35 0.20 0.20 0.19

0.00

0.20

0.40

0.60

0.80

2010 2009 2008 2007 2006 2005 2004

DEBT RATIO

0.000.050.100.150.20

0.250.300.350.400.450.50

2010 2009 2008 2007 2006 2005 2004

LONG TERM DEBT TO EQUITY


22/35

22

INTERPRETATION:

D ebt to equity ratio is calculated to check the outsiders claim on the business as

compared to equity. In the case of PTC, long term debt is included only the

deferred taxation while during 2007-08 increase in the trend is due to the

presence of retirement benefits for the employees.

PROFITABILITY RATIOS:

FORMULA RELEVANT PROFIT

NET SALES*100 PARTICULAR/YEAR 2010 200 9 2008 2007 2006 2005 2004GROSS PROFIT 29.61 37.96 38.61 18.41 17.92 17.09 15.80

OPERATING PROFIT 8.08 22.51 23.43 11.24 9.95 8.97 6.55

NET PROFIT 4.42 13.95 13.44 6.83 6.17 4.99 3.02

INTERPRETATION:

Gross profit margin is measured the percentage of each sales rupee remaining

after the firm has paid for its goods. While the operating profit margin measures

0.00

5.00

10.00

15.00

20.00

25.0030.00

35.00

40.00

45.00

2010 2009 2008 2007 2006 2005 2004

GROSS PROFIT RATIO OPERATING PROFIT RATIO NET PROFIT RATIO


23/35

23

the percentage of each rupee remaining after all the costs and expenses other

than interest, taxes and preferred stock dividend are deducted and the net profit

margin measures the percentage of each rupee remaining after the firm has paid

its all expenses and all type of costs as well. Here in the calculated values, thereis a normal trend between all the profit margin calculated which are respectively

showing the trends. While during the year 2010 the abnormal trend is due to

increase in excise duty, operating expenses and finance cost.

TOTAL ASSETS TURNOVER RATIO:FORMULA NET SALES TOTAL ASSETS

2010 2009 2008 2007 2006 2005 2004

1.69 1.77 1.81 3.60 3.54 3.33 3.14

INTERPRETATION:

Total assets turnover measures the activity of assets and the ability of the firm to

generate sales through the use of the assets. This ratio tells that in how manytimes in a year total assets turns in to sales. As the computed ratios shows larger

trend of total assets turnover during the base year 2004-07 but after that it come

down and now going on the same pace. Its because of increase in total assets

and decrease in net sales after the year 2007

0.00

2.00

4.00

2010 20092008

20072006

20052004

TOTAL ASSETS TURNOVER


24/35

24

FIXED ASSETS TURNOVER :

FORMULA NET SALES AVG . FIXED ASSETS2010 2009 2008 2007 2006 2005 2004

3.54 3.72 3.48 7.26 7.36 7.14 6.27

INTERPRETATION:

This ratio measures the firms ability to make productive use of its fixed assets

to generate sales. High the ratio is favorable for the company than that of low

ratio. Here the above shown calculated ratio shows in the graph telling us the

higher trend during the year 2004-07 but after that its normal because of the

increase of the fixed assets and also the decrease in the sales over the period.

Whatever the case, even now the is also in better position as its ratios are greater

than one and are up to more than 3 times.

0.00

1.00

2.00

3.00

4.005.00

6.00

7.00

8.00

2010 2009 2008 2007 2006 2005 2004

FIXED ASSETS TURNOVER


25/35

25

RETURN ON TOTAL ASSETS:

FORMULA NET INCOME TOTAL ASSETS2010 2009 2008 2007 2006 2005 2004

7.47 24.72 24.36 24.56 21.81 16.59 9.47

INTERPRETATION:

Return on total assets measures the overall effectiveness of the management in

generating profits with its available assets also called the return on investment.

The above shown graph indicates the increasing trend in this ratio up to 2009 but

in the year 2010 is very low because of the low income available for commonshareholders for this year it is because of the high excise duty and increase in

operating expenses.

0.00

5.00

10.00

15.00

20.00

25.00

2010 2009 2008 2007 2006 2005 2004

RETURN ON TOTAL ASSETS


26/35

26

ACTIVITY RATIOS

ACCOUNT RECEIVABLE TURNOVER:

FORMULA NET SALES AV G . ACCOUNT RECEIVABLES2010 2009 2008 2007 2006 2005 2004

5233 4773.94 3887.33 7493.60 6211.22 2648.00 2573.20

INTERPRETATION:

This ratio shows that in how many times the account receivables are converted

in to sales of the company. The greater the period is better for the company. In

the above shown graph , the trend is mix as there are ups and down in the trends

which shows the high and low values in both net sales and average account

receivables over the period of time in the history of Pakistan tobacco company.

ACCOUNT RECEIVABLES IN DAYS:

FORMULA 365 ACCOUNT RECEIVABLES TURNOVER RATIO2010 2009 2008 2007 2006 2005 2004

0.07 0.08 0.09 0.05 0.06 0.14 0.14

0 1000 2000 3000 4000 5000 6000 7000 8000

2010

2009

2008

2007

2006

2005

ACCOUNT RECEIVABLE TURNOVER


27/35

27

INTERPRETATION:Account receivables in days shows that after how many days the account

receivables are converted into cash by the company or we may say that after

how many days the company collects payments from its customers or debtors.

The shorter period is better for the company. The above shown values in graph

indicate that the collection period during 2004-05 was greater as compare to the

after years of the company and the up and downs in this ratio shows thefluctuation in the values of the account receivables and net sales which are the

major components of this calculation.

INVENTORY TURNOVER RATIO:

FORMULA CGS AVG. STOCK

2010 2009 2008 2007 2006 2005 20042.88 3.76 3.26 8.47 8.04 7.73 6.65

0.00

0.05

0.10

0.15

2010 2009 20082007

20062005

2004

A/R IN DAYS


28/35

28

INTERPRETATION:

The operating cycle shows in how many days the companys inventory is

converted in sales and the collection of money from its debtors. Shorter the

period is beneficent for the company. the operating period is less in beginning

year as the sale volume high but in recent year its longer which is not good for

the company.

INVENTORY TURNOVER IN DAYS:

FORMULA 365 INVENTORY TURNOVER RATIO2010 2009 2008 2007 2006 2005 2004

0.07 0.08 0.09 0.05 0.06 0.14 0.14

0.00

2.00

4.00

6.00

8.00

10.00

2010 2009 2008 2007 2006 2005 2004

INVENTORY TURNOVER RATIO

0.00

50.00

100.00

150.00

2010 2009 2008 2007 2006 2005 2004

INVENTORY TURNOVER IN DAYS


29/35

29

INTERPRETATION:

Inventory turnover in days indicates that after how many days the stock is

converted in cost of goods sold. Lower the days higher the performance of the

company. the above calculated ratios and graph shows that the inventory

turnover in days is minimum during the early years of operations of Pakistan

tobacco company but the recent days this ratio is larger which indicates that the

time period increased over the period of time as well.

RECEIVABLES TO CURRENT ASSETS:FORMULA CASH AND EQUILENTS TOTAL CURRENT LIABILITIES

2010 2009 2008 2007 2006 2005 20040.06 0.07 0.10 0.10 0.12 0.24 0.28

INTERPRETATION:

This ratio shows the relationship between the current assets and account

receivable of the company. This ratio is normally calculated for some specific

purpose as to know the value of the account receivable over the current assets of the company. It may vary from company to company or industry to industry. As

the above graph shows the downward trend in the ratio which indicates that the

accounts receivables of the company are decreasing as compare to the early

years 2004-05.

0.00

0.10

0.20

0.30

2010 2009 2008 2007 2006 2005 2004

RECEIVABLES /CURRENT ASSETS


30/35

30

OPERATING CYCLE:

FORMULA ACCOUNT RECEIVABLES IN DAYS + INVENTORY T. IN DAYS2010 2009 2008 2007 2006 2005 2004

127 97 112 43 45 47 55

INTERPRETATION:

The operating cycle shows in how many days the companys inventory is

converted in sales and the collection of money from its debtors. Shorter the

period is beneficent for the company. The operating period is less in beginning

year as the sale volume high but in recent year its longer which is not good for

the company

M ARKET AND OTHER RATIOS:

PARTICULAR/YEAR 2010 200 9 2008 2007 2006 2005 2004

DIVIDEND PER SHARE 6.00 9.55 9.65 9.90 5.50 3.70 2.00

EARNING PER SHARE 3.62 11.83 9.91 9.44 7.46 5.17 2.60

BOOK VALUE PER SHARE 14.10 16.67 14.12 14.50 16.20 14.24 12.77

0

50

100

150

2010 2009 2008 2007 2006 2005 2004

OPERATING CYCLE


31/35

31

INTERPRETATION:

D ividend per share show the amount received by the share holder on their

investment in PAKISTAN TOBACCO COMPANY which have decreasing

trend like others The earning per share is generally of interest to present or

prospective stockholders and management. EPS represents the number of rupees

earned during the period on behalf of each outstanding share of common stock.

Book value is calculated as the total equity divided by number of common stock

shares outstanding during the period of time. EPS and dividend per share is

having the same trend almost as at the beginning and ending as well.

PRICE /EARNING RATIO:

FORMULA MARKET PRICE PER SHARE + EPS2010 2009 2008 2007 2006 2005 2004

30 9 11 16 10 13 24

0.00

5.00

10.00

15.00

20.0025.00

30.00

35.00

40.00

2010 2009 2008 2007 2006 2005 2004

BOOK VALUE PER SHARE

EPS

DIVIDEND PER SHARE


32/35

32

INTERPRETATION:

Price/earnings ratio is commonly used to assess the owners appraisal of share

value. The price/earnings ratio measures the amount that investors are willing to

pay for each dollar of a firms earnings. D uring the years 2004-09 a normal up

and down trend is found but during the year 2010 its abnormal because of the

low earning per share during this year.

DIVIDEND PAYOUT RATIO:

FORMULA DIVIDEND PER SHARE + EPS2010 2009 2008 2007 2006 2005 2004

30 9 11 16 10 13 24

0

5

10

15

20

25

30

35

2010 2009 2008 2007 2006 2005 2004

PRICE/EARNING RATIO


33/35

33

INTERPRETATION:

The dividend payout ratio measures the portion of current earnings per common

share being paid out in dividends. Normal ups and downs are in the graph up to

2009 but abnormal trend is because of the low earning per share during the year

2010.

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

2010 2009 2008 2007 2006 2005 2004

DIVIDEND PAYOUT RATIO


34/35

34

FINDIN G S AND SU GG ESTION FOR THE COMPANY:

As per the performance of the Pakistan tobacco company in Pakistan its

working very well as from its incorporation in 1947. I have found during my

analysis of the financial statements of the Pakistan tobacco company that the

company uses short term financing as per its requirements of limited period of

time as at the time of purchase of tobacco during the session so its the trend of

the tobacco industry that it does not use long term debt for their needs. I have

also found that the Pakistan tobacco company is paying more than 60% of its

gross turnover in shape of excise duty, sales tax and income tax and its the

bases for tobacco industry is operating in Pakistan.

According the future forecasting under the assumption of uncertainty, it may be

the case that the government may increase its duties up to great extent which can

be 80% to 90% as it is currently more than 60%, it is recommended that the

company should diversified in other products lines. The company can produce

soft gums which may remove the smell of smoking form the mouth of thesmoker and same for the tooth paste for smokers and lighters for the customer.

All these things will add value to the products of the company and may help the

company to increase its net profit which will maximize the wealth of the

companys owners.


35/35

REFERENCES :

afs final project

Documents