financial statements dm (8)

Term Paper Financial Accounting II Financial Analysis of Engro Foods and National Foods Ltd

2015

Syed Hamza,

3/26/2015

Contents

Introduction .......................................................................................................................................2

Abstract .............................................................................................................................................5

Financial Statements ...........................................................................................................................6

Engro-Foods Ltd. Financial Statements: ...........................................................................................6

Engro-Foods 2014 Financial Statements: ......................................................................................6

Engro-Foods 2013 Financial Statements: ......................................................................................9

Engro-Foods 2012 Financial Statements: .................................................................................... 12

Engro-Foods Horizontal Balance Sheet Comparative Analysis: .................................................... 15

Engro-Foods Horizontal Income Statement Comparative Analysis: .............................................. 17

Engro-Foods Vertical Balance Sheet:.......................................................................................... 20

Engro-Foods Vertical Income Statement: .................................................................................... 22

National Foods Ltd.: ..................................................................................................................... 24

National Foods 2014 Financial Statement: .................................................................................. 24

National Foods 2013 Financial Statement: .................................................................................. 27

National Foods 2012 Financial Statements: ................................................................................. 30

National Foods Horizontal Comparative Balance Sheet:............................................................... 33

National Foods Horizontal Comparative Income Statement: ......................................................... 36

National Foods Vertical Balance Sheet: ...................................................................................... 38

National Foods Vertical Income Statement:................................................................................. 40

National-Foods & Engro-Foods Condensed Common Size: ............................................................. 41

Income Statement: ..................................................................................................................... 41

Balance Sheet: .......................................................................................................................... 42

Conclusion of Common Sized Financial Records:........................................................................ 43

Financial Ratios ................................................................................................................................ 44

Engro-Foods:................................................................................................................................ 45

Solvency Analysis: .................................................................................................................... 45

Profitability Analysis: ................................................................................................................ 45

National Foods: ............................................................................................................................ 48

Solvency Analysis: .................................................................................................................... 49

Profitability Analysis: ................................................................................................................ 49

Introduction

HISTORY OF BOTH COMPANIES

Engro foods:

Engro Corporation is a Pakistani public multinational corporation based in Karachi with subsidiaries involved in production of fertilizers, foods, chemicals, energy and petrochemicals.

Its major subsidiaries include Engro Fertilizers - which is one of the largest fertilizer

manufacturers of the world, Engro Foods which manufactures processes and markets dairy products, frozen desserts and fruit drinks including the ice cream brand of OMORÉ. Other major

subsides include Sindh Engro Coal Mining Company, Engro Powergen Limited and Engro Polymer & Chemicals Limited.

As a holding company its subsidiaries include:

Engro Fertilizers Limited Engro Foods Limited

Engro Eximp Private Limited Engro PowerGen Limited

Engro Polymers and Chemicals Limited Engro Vopak Limited Elengy Terminal Pakistan Limited

It was 1957 when in search for oil by Pak Stanvac, an Esso/Mobil joint venture led to the

discovery of the Mari Gas field near Daharki Pakistan. Esso proposed the establishment of a urea plant in that area which led to a fertilizer plant agreement signed in 1964. In the subsequent year,

Esso Pakistan Fertilizer Company Limited was incorporated, with 75% of the shares owned by Esso and 25% by the general public. The construction of a urea plant commenced at Daharki in 1966 and production began in 1968. At US $43 million with an annual production capacity of

173,000 tons, it was the single largest foreign investment by a multinational corporation in Pakistan at the time.

In 1978, it was decided to rename the company from Esso Fertilizer Company Limited to Exxon

Chemical Pakistan Limited.

In 1991, Exxon decided to divest its fertilizer business on a global basis. The employees of Exxon Chemical Pakistan Limited, in partnership with leading international and local financial

institutions, bought out Exxon’s 75% equity. This was at the time and perhaps still is the most successful employee buy-out in the corporate history of Pakistan. Renamed as Engro Chemical

http://en.wikipedia.org/wiki/Daharki

Pakistan Limited, the Company has gone from strength to strength, reflected in its consistent financial performance, growth of the core fertilizer business, and diversification into other

businesses.

It was year 1997 when Engro Chemical Pakistan limited decided to establish Engro Vopak

Terminal Limited on 50/50 partnership basis between Engro and Royal Vopack of Netherlands,

for handling bulk liquid chemical storage at Port Qasim Karachi. In that same year Engro Asahi polymer Chemicals limited was established in a result of joint venture between Mitsubishi Corporation and Asahi for the manufacturing and marketing of PVC resin.

Engro EXIMP was established in 2003, after which in 2005 Engro decided to diversify their business more by venturing into the food business by establishing Engro Foods Limited.

Engro also ventured into the power generation business by setting up Engro Energy Limited in 2006, which later on was renamed as "Engro Powergen Limited" in 2008. It was established with

the basic aim to play Engro's part to tackle the energy crisis in the country.

In year 2007, Engro Asahi polymer divested its share in joint venture with Mitsubishi and the company renamed as Engro Polymer and Chemicals Limited.

In 2010, keeping in view the immense diversification of Engro Chemical Pakistan Limited, it

was decided to rename the company as Engro Corporation as the holding company.

In the year 2011, Engro Corporation had a major global diversification with the acquisition of US-based Company, Al Safa Halal.[1] This new business venture comes under Engro Foods

Canada Ltd and its subsidiary Engro Foods USA, LLC. Al Safa Halal targets 7 million populations of Muslims in North America.

National Foods:

http://en.wikipedia.org/wiki/Engro_Corporation#cite_note-Al_Safa_Halal-1

National Foods Limited is a Pakistani company founded in 1970, which started out as a spice

company. In 1988, National Foods became the certified vendor of McCormick, USA. In the same year, National Foods, then a Private Limited company was converted into a Public Limited,

listed in all the three stock exchanges of Pakistan.

With a range of over 110 products in 13 major categories, National Foods is one of the largest food companies.

The company was incorporated in Pakistan on February 19, 1970 as a private limited company

under the Companies Act, 1913 and subsequently converted into a public limited company under the Companies Ordinance, 1984 by special resolution passed in the extra ordinary general

meeting held on March 30, 1988. The company is principally engaged in the manufacture and sale of convenience based food products. It is listed on Karachi, Lahore and Islamabad Stock Exchanges

Abstract

In this report, analysis of financial statements of Engro Foods Ltd and

National Foods Ltd is done to evaluate their current financial

performance. Horizontal analysis and vertical analysis over the years

2013 and 2014 is also done to see the trend of the performance of the

two companies using the data from their annual reports of 2013-2014.

Moreover intercompany, profitability and solvency analysis have also

been carried out to get a clearer picture of the true position of both the

companies.

Financial Statements

Engro-Foods Ltd. Financial Statements:

Engro-Foods 2014 Financial Statements:

ENGRO FOODS

PAKISTAN LIMITED

Balance Sheet

As at June 30, 2014

CURRENT ASSETS: Rs.

Stores And Spares 1157

Stock In Trade 1527032

Trade Debts-Unsecured 22325

Advances Unsecured 13259

Deposits Short Term Prepayments And Other Receivables 410517

Mark-Up Accrued 489

Short Term Investment 500000

Tax Refund Due From Government 445479

Cash And Bank Balances 539039

3459297

NON CURRENT ASSETS

Property Plant And Equipment 630754

Intangible Assets 9960

Long Term Investments 37823

Long Term Deposits And Prepayments 39216

717753

TOTAL ASSETS 4177050

CURRENT LIABILITIES

Trade And Other Payables 988890

Short Term Borrowings – Secured -

Provision For Taxation 311977

1300867

NON CURRENT LIABILITIES

Long Term Deposits 37823

Deferred Liability Employee Benefit 74211

Deferred Taxation 22849

134883

SHARE CAPITAL AND RESERVES

Authorized Share Capital 100000

Issued Subscribed And Paid Up Capital 75600

Reserves

Capital Reserves 483

Revenue Reserves 2665217

2665700

2741300

TOTAL EQUITY AND LIABILITIES 4177050

ENGRO-FOODS

PAKISTAN LIMITED

INCOME STATEMENT

For the Years Ended December 31, 2014

Rs'000

Sales 8329829

Less Cost Of Sales 4997901

GROSS PROFIT 3331928

Distribution Cost 1597220

Administration Expenses 468339

Other Operating Expenses 92660

2158219

Other Operating Income 55047

OPERATING PROFIT 1228756

Finance Cost (Interest Expense) 39735

Profit Before Taxation 1189021

Taxation 317728

PROFIT AFTER TAXATION 871293

Other Comprehensive Income -

TOTAL COMPREHENSIVE INCOME FOR THE YEAR 871293

Earnings Per Share- Basic And Diluted Rs. 115.25


ENGRO FOODS PAKISTAN LIMITED

Balance Sheet

As at June 30, 2013

CURRENT ASSETS: Rs.






Mark-Up Accrued 3851




2577448

NON CURRENT ASSETS


Intangible Assets -



652739


CURRENT LIABILITIES




1147336





122124




Reserves



1885127

1960727


ENGRO-FOODS

PAKISTAN LIMITED

INCOME STATEMENT


Rs'000

Sales 6428490






1836646





Taxation 227510


Other Comprehensive Income


Earnings Per Share- Basic And Diluted Rs77.45


ENGRO-FOODS

PAKISTAN LIMITED

Balance Sheet

As at June 30, 2012

CURRENT ASSETS: Rs.






Mark-Up Accrued 385




2325060

NON CURRENT ASSETS


Intangible Assets -



568808


CURRENT LIABILITIES




1137410





123026




Reserves



1963994


ENGRO-FOODS

PAKISTAN LIMITED

INCOME STATEMENT


Rs'000

Sales 5128490






1600100





Taxation 2275




Earnings Per Share- Basic And Diluted Rs65.55

Engro-Foods Horizontal Balance

Sheet Comparative Analysis:

ENGRO FOODS

PAKISTAN LIMITED

Comparative

Horizontal

Balance Sheet

As at June 30, 2014 &

2013

Increase/ (Decrease)

2014(000) 2013(000) Amount Percentage

CURRENT ASSETS

Stores And Spares 1157 768 389 50.651

Stock In Trade 1527032 1281862 245170 19.126

Trade Debts-Unsecured 22325 23735 -1410 (5.940)

Advances Unsecured 13259 3191 10068 315.512

Deposits Short Term Prepayments And Other

Receivables 410517 233399 177118 75.886

Mark-Up Accrued 489 3851 -3362 (87.3019)

Short Term Investment 500000 350000 150000 42.857

Tax Refund Due From Government 445479 219393 226086 103.050

Cash And Bank Balances 539039 461249 77790 16.865

3459297 2577448 881849 34.214

NON CURRENT ASSETS

Property Plant And Equipment 630754 582411 48343 8.3

Intangible Assets 9960 - 9960

Long Term Investments 37823 35830 1993 5.562

Long Term Deposits And Prepayments 39216 34498 4718 13.676

717753 652739 65014 9.96

TOTAL ASSETS 4177050 3230187 946863 29.312

CURRENT LIABILITIES

Trade And Other Payables 988890 924020 64870 7.020

Short Term Borrowings – Secured - -

Provision For Taxation 311977 223316 88661 39.702

1300867 1147336 153531 13.381


Long Term Deposits 37823 35830 1993 5.562

Deferred Liability Employee Benefit 74211 69196 5015 7.247

Deferred Taxation 22849 17098 5751 33.635

134883 122124 12759 10.447


Authorized Share Capital 100000 100000

0

Issued Subscribed And Paid Up Capital 75600 75600

0

Reserves

0

Capital Reserves 483 483

Revenue Reserves 2665217 1884644 780573 41.417

2665700 1885127

2741300 1960727

TOTAL EQUITY AND LIABILITIES 4177050 3230187 946863 29.312

Interpretation: Comparative Balance Sheet Engro Foods

National-Foods Company's current assets have increased from 8% to 15% of total assets. This

change is because of increase in supplies, merchandise inventory and cash as percentage of total

assets. Noncurrent assets have decreased on the other hand from 92% to 85% due to decrease in

long term investment and fixed assets percentage of the total assets. Current liabilities have also

increased from 15% to 17% of total stockholders' equity and liabilities. While long term

liabilities have decreased from 63% to 56% mostly due to decrease in long term financing. Stock

holders' equity has increased as well from 37% to 44% of total stockholders' equity and

liabilities. This shows that the company has more cushions now especially in case of current

liabilities than in 2010 as current assets increased in greater percentage. Hence it is in a better

condition to get more short term loans in 2011. However, long term assets and liabilities are still

in the same position as both decreased by the same amount. Though, the company's position

looks better than in 2010 as stockholders' equity has increased as well.

Engro-Foods Horizontal Income Statement Comparative Analysis:

ENGRO-FOODS

PAKISTAN LIMITED

Comparative Horizontal

Income Statement

For the Years Ended December 31, 2014 and 2013

2014 2013 Increase/ (Decrease)

Rs'000 Rs'000 Amount Percentage

Sales 8329829 6428490 1901339 29.57675908

Less Cost Of Sales 4997901 3756277 1241624 33.05464427

GROSS PROFIT 3331928 2672213 659715 24.68796462

Distribution Cost 1597220 1367249 229971 16.81997939

Administration Expenses 468339 403640 64699 16.02888713

Other Operating Expenses 92660 65757 26903 40.91275454

2158219 1836646 321573 17.50870881

Other Operating Income 55047 12638 42409 335.5673366

OPERATING PROFIT 1228756 848205 380551 44.86545116

Finance Cost (Interest Expense) 39735 35183 4552 12.93806668

Profit Before Taxation 1189021 813022 375999 46.24708802

Taxation 317728 227510 90218 39.65452068

PROFIT AFTER TAXATION 871293 585512 285781 48.80873492

Other Comprehensive Income -

Total Comprehensive Income For The Year 871293 585512 285781 48.80873492

EARNINGS PER SHARE- BASIC AND

DILUTED RS. 115.25 RS77.45 37.8 48.80568108

Interpretation: Comparative Income Statement Engro Foods

Income statement shows that the company's sales have increased by 18% hence supporting that

the increase in current assets such as merchandise inventory was favorable to the company.

However, this has caused a greater increase in the cost of goods sold of 19% hence the sales may

not have a favorable effect on the operating performance. On the other hand net income shows a

70% increase since 2013, hence supporting that the company is doing better than in 2013.

However, administrative expense, operating expense and financing costs have increased by 16%,

16% and 40% respectively which does not bode well about the future of the company especially

as most of the increase is due to increase in salaries, wages and benefits in case of operating and

administrative expenses. Though, large amounts of donations are also included in administrative

expenses. Hence, further study is needed to assess whether Fauji Cement Company is doing well

or not.

Engro-Foods Vertical Balance Sheet:

ENGRO-FOODS

PAKISTAN LIMITED

Vertical Balance Sheet

December 31, 2014, and 2013

2014

(Percent)

2013

(Percent)

Current Assets

Stores And Spares 0.027698974 0.023775713

Stock In Trade 36.5576663 39.68383255

Trade Debts-Unsecured 0.534468105 0.734787181

Advances Unsecured 0.317424977 0.09878685

Deposits Short Term Prepayments And Other

Receivables 9.827916831 7.22555691

Mark-Up Accrued 0.011706827 0.119219104

Short Term Investment 11.97017034 10.83528601

Tax Refund Due From Government 10.66491902 6.791959722

Cash And Bank Balances 12.90477729 14.2793281

82.81674866 79.79253214

Non-Current Assets

Property Plant And Equipment 15.10046564 18.03025645

Intangible Assets 0.238445793

Long Term Investments 0.905495505 1.109223707

Long Term Deposits And Prepayments 0.9388444 1.067987705

17.18325134 20.20746786

Total Assets 100 100

Current Liabilities

Trade And Other Payables 23.67436349 28.60577422

Short Term Borrowings – Secured

Provision For Taxation 7.468835662 6.9134078

31.14319915 35.51918202

Non-Current Liabilities

Long Term Deposits 0.905495505 1.109223707

Deferred Liability Employee Benefit 1.776636622 2.142167001

Deferred Taxation 0.547012844 0.5293192

3.229144971 3.780709909

Share Capital And Reserves

Authorized Share Capital 2.394034067 3.095796002

Issued Subscribed And Paid Up Capital 1.809889755 2.340421777

Reserves

Capital Reserves 0.011563185 0.014952695

Revenue Reserves 63.80620294 58.3447336

65.62765588 60.70010807

Total Equity And Liabilities 100 100

Interpretation: Comparison Balance Sheet Engro Foods

The above illustration of the balance sheet depicts that the current assets as a percentage of total

assets have decreased from 40 percent in 2013 to 30 percent in 2014. Cause of this fall, as visible

from the calculations can be largely attributed to the 16 percent reduction in the investments

(stated in terms of the total assets). 3 percent contraction in the cash balances also contributes to

one of the factors, apart from the other components that only changed by minute amounts.

Noncurrent assets on the other hand experienced a rise, when stated in terms of the total assets.

However, the total liabilities as a percentage of the total liabilities and stockholders’ equity

increased by 1 percent, whereas the stockholder’s equity suffered a reduction of the same amount

from 2013-2014.

Even though, it might appear from the outlook, that the liabilities have increased, which goes

against the company, and the stockholders equity has also reduced, adding to it further, and even

a 1 percent change matters a lot, but, coming to a conclusion based on these results is not

practical, other statements need to be considered too. Some accountants might take the above

change positively too, depending upon how well the company is doing in terms of its profits, so

that is what needs to be taken in to account.

Engro-Foods Vertical Income Statement:

ENGRO-FOODS

PAKISTAN LIMITED

Vertical Income Statement


2014 2013

Sales 100 100

Less Cost Of Sales -60.000 -58.432

GROSS PROFIT 40.000 41.568

Distribution Cost 19.175 21.269

Administration Expenses 5.622 6.279

Other Operating Expenses 1.112 1.023

25.910 28.570

Other Operating Income 0.661 0.197

OPERATING PROFIT 14.751 13.194

Finance Cost (Interest Expense) 0.477 0.547

PROFIT BEFORE TAXATION 14.274 12.647

Taxation 3.814 3.539

PROFIT AFTER TAXATION 10.460 9.108

Other Comprehensive Income TOTAL COMPREHENSIVE INCOME FOR THE

YEAR 10.460 9.108

Interpretation: Comparative Income Statement Engro

The above comparative income statement for Engro-Foods indicates that the net income as a

percentage of the net sales of the company has decreased by 5 percent (from 13 percent in 2013

to 8 percent on 2014), even though the company is still incurring profits. This decrease has

mainly occurred because of the rise in the costs of merchandise sold which has brought about a 6

percent reduction in the gross profit (as a % of net sales), the expenses deducted later. The

expenses also take up a large portion of the net sales, leaving the company with lower profits.

This clearly shows that the company’s financial position is worse off compared to the previous

year, and if this trend continues, losses might be incurred too.

National Foods Ltd.:

National Foods 2014 Financial Statement:

NATIONAL FOODS

PAKISTAN LIMITED

Balance Sheet

As at June 30, 2014

NON-CURRENT ASSETS Rs.

Property, Plant And Equipment 1425169

Long Term Loans 1450


TOTAL NON-CURRENT ASSETS 1439494

CURRENT ASSETS

Stores, Spares And Loose Tools 50972


Trade Debts 897675

Loans And Advances 317585

Trade Deposits And Prepayments 6105

Other Receivables 224949


TOTAL CURRENT ASSETS 3103365


EQUITY AND LIABILITES

Share Capital And Reserves 0

Share Capital 120288

Reserves 1579538

1699826

NON-CURRENT LIABILITIES

Long Term Financing-Secured 214263

Liabilities Against Assets Subject To

Finance Lease 26262


Deferred Liabilities 225641

TOTAL NON CURRENT LIABILITES 467046

CURRENT LIABILITIES


Interest And Mark Up Accrued 40362

Short Term Borrowings Secured 1119143

Long Term Financing Secured 78762


Finance Lease 10070


TOTAL CURRENT LIABILITES 2375987

TOTAL EQUITY AND LIABILITES 4542859

NATIONAL-FOODS

PAKISTAN LIMITED

INCOME STATEMENT


Rs.

Sales 9421408

Cost Of Sales 8127972

Gross Profit 1293436

Less Operating Expenses


Administrative Expenses 329829



Other Operating Income -19648

805504


Taxation 159827

Profit After Taxation 328105

Earnings Per Share (Eps) 2.72

Profit For The Year 328105

National Foods 2013 Financial Statement:

NATIONAL FOODS

PAKISTAN LIMITED

Balance Sheet

As at June 30, 2013

Rs.

NON CURRENT ASSETS




TOTAL NON CURRENT ASSETS 1034220

CURRENT ASSETS



Trade Debts 793032










Reserves 1401796

1522084




Finance Lease 36344




CURRENT LIABILITES






Finance Lease 8962


TOTAL CURRENT LIABILITES 1797360

NATIONAL-FOODS

PAKISTAN LIMITED

INCOME STATEMENT


2013

Rs (000)

Sales 7680237



LESS OPERATING

EXPENSES





Other Operating Income -18239

657636

PROFIT BEFORE

TAXATION 935988

Taxation 275162


EARNINGS PER SHARE

(EPS) 5.49

National Foods 2012 Financial Statements:

NATIONAL FOODS

PAKISTAN LIMITED

Balance Sheet

As at June 30, 2012

Rs.

NON CURRENT ASSETS




TOTAL NON CURRENT ASSETS 1019370

CURRENT ASSETS



Trade Debts 793032










Reserves 1401796

1522084




Finance Lease 35000




CURRENT LIABILITES






Finance Lease 8962


TOTAL EQUITY AND LIABILITES 3651368

NATIONAL-FOODS

PAKISTAN LIMITED

INCOME STATEMENT


Rs (000)

Sales 7155237



LESS OPERATING

EXPENSES






637557

PROFIT BEFORE

TAXATION 1452175

Taxation 275162


EARNINGS PER SHARE

(EPS) 3.99

National Foods Horizontal

Comparative Balance Sheet:

NATIONAL FOODS

PAKISTAN LIMITED

Comparative

Horizontal

Balance Sheet

As at June 30, 2014 &

2013

2014 2013

Rs (000) Rs (000) Rs. Change %

NON CURRENT ASSETS

Property, Plant And Equipment 1425169 1023725 401444 39.21404674

Long Term Loans 1450 2270 -820 -(36.12334802)


TOTAL NON CURRENT ASSETS 1439494 1034220 405274 39.18644002

CURRENT ASSETS

Stores, Spares And Loose Tools 50972 27826 23146 83.18119744

Stock In Trade 1358128 1253241 104887 8.369260182

Trade Debts 897675 793032 104643 13.19530612

Loans And Advances 317585 189053 128532 67.98728399

Trade Deposits And Prepayments 6105 4863 1242 25.53979025

Other Receivables 224949 140688 84261 59.89210167

Cash And Bank Balances 247951 208445 39506 18.95272134

TOTAL CURRENT ASSETS 3103365 2617148 486217 18.57812397

TOTAL ASSETS 4542859 3651368 891491 24.41526025



Share Capital 120288 120288 0 0

Reserves 1579538 1401796 177742 12.67959104

1699826 1522084 177742 11.67754211


Long Term Financing-Secured 214263 142073 72190 50.81190656

Liabilities Against Assets Subject To Finance

Lease 26262 36344 -10082 -27.74047986


Deferred Liabilities 225641 152767 72874 47.70271066

Total Non-Current Liabilities 467046 331924 135122 40.70871645

CURRENT LIABILITIES

Trade And Other Payables 1033217 787250 245967 31.24382344

Interest And Mark Up Accrued 40362 15703 24659 157.0336878

Short Term Borrowings Secured 1119143 703174 415969 59.15591305

Long Term Financing Secured 78762 60000 18762 31.27

Liabilities Against Assets Subject To Finance

Lease 10070 8962 1108 12.36331176

Provision For Taxation 94433 222271 -127838 (57.51447557)

TOTAL CURRENT LIABILITES 2375987 1797360 578627 32.19316108

TOTAL EQUITY AND LIABILITES 4542859 3651368 891491 24.41526025

Interpretation: Comparative Balance Sheet National Foods

From the balance sheet given above it can be seen that total assets of National Foods increased

by 20% while total liabilities have increased by only 7% and stock holders' equity increased by

42%. Assets have increased largely due to increase in fixed assets, merchandise inventory and

supplies in 2014. Cash has also increased by 40% which might be due to the fact that long term

notes receivables have decreased by 17%, this shows a positive sign to good collection

procedures of the company however notes receivable in the current assets have increased by

51%, the increase is in those that are considered secure hence company seems to have good

credit system. Liabilities have increased mostly due to increase in short term notes payable,

current portion of long term financing and increase in deferred vacation pay expense.

Stockholders equity has largely increased due to 69% increase in subordinated loans and total

reserves in 2014. Hence, company seems to be in better shape than in 2013 though further

analysis is needed to reach conclusions.

National Foods Horizontal Comparative Income Statement:

NATIONAL FOODS

PAKISTAN LIMITED

Comparative Horizontal

Income Statement

For the Years Ended December 31, 2014 and 2013

2014 2013

Rs (000) Rs (000) Rs Change %

Sales 9421408 7680237 1741171 22.67079779

Cost Of Sales 8127972 6086613 2041359 33.53850491

GROSS PROFIT 1293436 1593624 -300188 (18.8368147)

LESS

OPERATING

EXPENSES

Distribution Cost 269522 179308 90214 50.31231178

Administrative

Expenses 329829 270830 58999 21.78451427

Other Operating

Expenses 48074 65312 -17238 (26.3933121)

Finance Cost

(Interest Expense) 177727 160425 17302 10.78510207

Other Operating

Income -19648 -18239 -1409 7.725204233

805504 657636 147868 22.48477881

PROFIT BEFORE

TAXATION 487932 935988 -448056 (47.8698445)

Taxation 159827 275162 -115335 (41.9153081)

0

PROFIT AFTER

TAXATION

328105 660826 -332721 (50.3492599)

EARNINGS PER

SHARE (EPS) 2.72 5.49 -2.77 (50.4553734)

Interpretation: Comparative Income Statements National Foods

From the statement of National-Foods Company above it can be seen that in the year 2011 the

company's net income increased from 5% to 7% of the net sales. This increase is mainly owed to

decrease in selling expenses and income tax expense and gives a positive image to the company.

However, gross profit of the company has decreased by 1% of net sales which is a large amount.

This is due to increase in cost of goods sold as percentage of net sales from that of the last year.

Administrative expense and finance cost has increased in percentage of net sales as well, hence

this does not give a good image of the company's administration and more cost minimizing

strategies need to be pursued by the company in future to get higher returns.

National Foods Vertical Balance Sheet:

NATIONAL-FOODS

PAKISTAN LIMITED

Vertical Balance Sheet


ASSETS 2014 2013

CURRENT ASSETS

Cash And Bank Balances 5.458 5.709

Stores, Spares And Loose Tools 1.122 0.762

Stock In Trade 29.896 34.323

Trade Debts 19.760 21.719

Loans And Advances 6.991 5.178

Trade Deposits And Prepayments 0.134 0.133

Other Receivables 4.952 3.853

TOTAL CURRENT ASSETS 68.313 71.676

NON CURRENT ASSETS

Property, Plant And Equipment 31.372 28.037

Long Term Loans 0.032 0.062


TOTAL NON CURRENT ASSETS 31.687 28.324

TOTAL ASSETS 100 100

EQUITY AND LIABILITIES

CURRENT LIABILITIES

Trade And Other Payables 22.744 21.560

Interest And Mark Up Accrued 0.888 0.430

Short Term Borrowings Secured 24.635 19.258

Long Term Financing Secured 1.734 1.643

Liabilities Against Assets Subject To Finance Lease 0.222 0.245

Provision For Taxation 2.079 6.087

TOTAL CURRENT LIABILITES 52.302 49.224


Long Term Financing-Secured 4.716 3.891

Liabilities Against Assets Subject To Finance Lease 0.578 0.995


Deferred Liabilities 4.967 4.184

TOTAL NON-CURRENT LIABILITIES 10.281 9.090


Share Capital 2.648 3.294

Reserves 34.770 38.391

37.418 41.685

TOTAL EQUITY AND LIABILITES 100 100

National Foods Vertical Income Statement:

NATIONAL-FOODS

PAKISTAN LIMITED

Vertical Income Statement


2014 2013

Sales

100% 100%

Cost Of Sales

86% 79%

GROSS PROFIT

14% 21%

Distribution Cost

3% 2%

Admin And Other Expense 4% 4%

Financial Cost

2% 2%

Other Income

0% 0%

Total Net Expense

9% 9%

NET PROFIT BEFORE TAXATION 5% 12%

Provision For Taxation 2% 4%

NET PROFIT AFTER TAX

3% 9%

National-Foods & Engro-Foods Condensed Common Size:

Income Statement:

NATIONAL-FOODS AND ENGRO-FOODS

PAKISTAN LIMITED

CONDENSED COMMON-SIZE INCOME STATEMENT

FOR THE YEAR ENDED DECEMBER 31, 2014

Sales

ENGRO

100

NATIONAL

100

Less Cost Of Sales 60.000 86.27

GROSS PROFIT 40.000 13.73

Distribution Cost 19.175 2.86

Administration Expenses 5.622 4.015

Other Operating Expenses 1.112 -

Other Operating Income 0.661 2

Finance Cost (Interest Expense) 0.477 1.9

Profit Before Taxation 14.274 5.2

Taxation 3.814 1.7

Profit After Taxation 10.460 3.5


TOTAL COMPREHENSIVE INCOME FOR THE

YEAR 10.460 8.604

Balance Sheet:

NATIONAL-FOODS AND ENGRO-FOODS

PAKISTAN LIMITED

CONDENSED COMMON-SIZE BALANCE SHEET

FOR THE YEAR ENDED DECEMBER 31, 2014

CURRENT ASSETS

NATIONAL

68.313

ENGRO

82.816

TOTAL NON-CURRENT ASSETS 31.687 17.183

TOTAL ASSETS

100 100

EQUITY AND LIABILITIES

CURRENT LIABILITIES 52.302 31.143

NON-CURRENT LIABILITIES 10.281 3.229

SHARE CAPITAL AND RESERVES 37.418 65.627

TOTAL EQUITY AND LIABILITIES 100 100

Conclusion of Common Sized Financial Records:

The common-size analysis indicates that National-Foods and Engro-Foods are very different

food manufacturing companies. The gross profit for National-Foods was 40 percent of sales,

which is much better than the gross profit as a percentage of sales for Engro-Foods i.e. 13

percent. There is a difference of 27 points, which is present because of a greater cost of sales

percentage of Engro-Foods, since there is not much difference in their prices. National-Foods are

selling, general, and administrative expenses are at about 25 percent of sales, while Engro-

Foods’s is only seven percent of sales. National-Foods can be evaluated to be more efficient by

looking at its ratios, horizontal, and vertical analysis, and it operates on a low-cost structure.

However, it spends more in marketing and advertisement than Engro-Foods, therefore it has

greater expenses. The total comprehensive income for the year is also higher as a percentage of

sales for National-Foods than for Engro-Foods. This is another factor that proves National-Foods

to be more efficient.

The common-size balance sheet also shows that most of the total assets of National-Foods

comprise of current assets. Even though same is the case with Engro-Foods, the percentage of

National-Foods is higher by 14 points. This indicates that National-Foods have a higher liquidity

than Engro-Foods. Moreover, the current liabilities of Engro-Foods as the percentage of total

liabilities and equity are higher than that of National-Foods. This again points towards National-

Foods having higher solvency and liquidity, and being able to run its day to day transactions

more easily.

Financial Ratios

Financial ratios are ratios that express a relationship between two

countable variables of the company. A good analyst can deduce the

situation of the company through financial ratios, since they show a

wide range of aspects and enable us to see their evolution in time. All

users of a corporations information, whether internal or external, show

keen interest in its ability to cover up its obligations, known as solvency,

and its capability to ear positive net income (profits), also known as its

profitability.

Financial ratios can therefore, be broadly divided in to these categories.

Using them as main headings, we have also tried to further analyze both

the cement manufacturing companies’ situations, by calculating all ratios

that me under them, interpretations of which are briefed below:

Engro-Foods:

2014 2013

Solvency Analysis:

Current Position Analysis:

Working Capital 2,158,430 1,430,112

Current Ratio 2.65 2.46

Quick Ratio 1.48 1.15

Ratio of fixed Assets to long term liabilities 5.32 5.34

Ratio of Total liabilities to Total Stock holders'

Equity 0.53 0.56

Number of times Interest Charges Earned 30.92 24.11

Accounts Receivable Turnover 373.12 370.89

Number of Days' Sales in Receivables 0.99 1

Inventory Turnover 3.56 2.94

Number of Days' Sales in Inventory 102.7 124.19

Profitability Analysis:

Ratio of net sales to assets 2.27 2.35

Rate earned on total assets 33.20% 31%

Rate earned on Stock holders' Equity (%) 44.80% 34.48%

Rate earned on Common Stock holders' Equity (%) 37.06% 27.74%

Earnings per share on Common Stock 115.25 77.45

Price earnings ratio 5.73 12.64

Dividends per share 11.94RS 8RS

Dividends yield 1.81% 0.81%

Interpretation:

Solvency Analysis:

Starting from the solvency measures, which are listed separately under

its heading in the table on the previous page. The increase in the

working capital from 2013 to 2014 shows that the current assets of this

company exceed its current liabilities, but the gap between them is

significant, which means that the assets have increased, therefore the

company has more capital available to settle its short term debts.

Another form of expressing the relationship between current assets and

current liabilities is that of the current ratio (also known as the working

capital ratio), increase in which again indicates the same benefit as was

with the working capital. The quick ratio has also increased from 1.15 to

1.48, which supports the above stated statement that Engro Food’s

ability to retire its short term debts have been strengthened.

When, under the heading of solvency, it comes to analyzing the accounts

receivables, the increase in the accounts receivables (from 370 to 373 in

2014) turnover indicates that there has been slight improvement in the

credit department and collection procedures which is also backed up the

reduction in the accounts receivables on the balance sheet and the

decrease in the number of days’ sales in receivables (from 1 to 0.99).

The inventory turnover has also increased which is a result of the

increase in costs of merchandise sold mainly, along with the decrease in

the number of days’ sales in inventories which presents a positive

picture of the company. Furthermore, the ratio of fixed assets to long

term liabilities has also decreased, at the same time, the ratio of total

liabilities to total stockholders’ equity has decreased, which shows that

the claims of creditors are reduced as compared to the owners’ equity. It

is of immense importance because when, if ever, the company is unable

to meet its obligations, the creditors will not take it over. And, as the

number of times interest charges earned has increased significantly,

from 24.11 to 30.92, which clearly indicates that the company has

gained strength. Nevertheless, these measures are still not enough, so we

need to consider profitability ratios as well.


Now, considering Engro Foods profitability, the decrease in the ratio of

net sales to assets (from 2.35 to 2.27) points towards the company’s

decreased efficiency in utilizing its assets to their maximum , the rate

earned on total assets has increased which shows that the profitability of

the assets has improved. The rate earned on stockholders equity has

reduced which leaves the company with a leverage of 12.11 (as of

2011). The rate earned on common stockholder’s equity has risen

illustrating that higher rate of profits are earned by the common

stockholders, although preferred stocks are not present, supported by the

increased earnings per share in 2014 (77.45 to 115.25). A lower price

earnings ratio provides information about the lack of investors’

expectations about the future. Moreover, the higher dividends per share

and a higher dividend yield ratio specify that the market price of shares

has also increased. In short, the company’s ability to make profit and

progress has been enhanced during this year, also visible from the higher

net income, and this goes in favor of its reputation

National Foods:

2014 2013

Solvency Analysis:

Current Position Analysis:

Working Capital 727378 819788

Current Ratio 1.31 1.46

Quick Ratio 0.71 0.74

Ratio of fixed Assets to long term liabilities 3.08 3.115

Ratio of Total liabilities to Total Stock holders'

Equity 0.267 0.237

Number of times Interest Charges Earned 3.75 6.83

Accounts Receivable Turnover 238.0 212.0

Number of Days' Sales in Receivables 2.2 2.6

Inventory Turnover 4.09 5.04

Number of Days' Sales in Inventory 89.12 72.43


Ratio of net sales to assets 3.29 2.29

Rate earned on total assets 16.20% 25%

Rate earned on Stock holders' Equity (%) 19.30% 51.60%

Rate earned on Common Stock holders' Equity (%) 19.30% 51.60%

Earnings per share on Common Stock 27.27RS 54.95RS

Price earnings ratio 8.8 4.18

Dividends per share 12.51RS 14.75RS

Dividends yield 5.20% 6.40%

Interpretation:

Solvency Analysis:

Solvency analysis of a company shows a company's ability to satisfy its liabilities.

The ability of the company to satisfy its current liabilities can be seen from current

position analysis. National Foods current position analysis shows that its working

capital was positive both in 2013 and 2014 hence meaning that its current assets

were greater than its current liabilities. However, the working capital decreased

from 2013 to 2014. Current ratio has also decreased from 1.46 to 1.31 in

2014.While quick ratio has also fallen from 0.74 to 0.71. This shows that the

company is in an unfavorable position in 2014 to get short term credit than in 2013

and its instant debt paying ability has diminished. Also, as the company's quick

ratio is below 1 it does not provide a satisfactory cushion to the current liabilities

and company needs to further improve these ratios for debt security. Ratio of fixed

assets to long term liabilities has fallen in 2014. However as it are greater than 2 it

is quite satisfactory and company seems in a good position to borrow from long

term creditors and has leverage. Ratio of total liabilities to total Stock holders'

equity has increased in 2014 from 0.237 to 0.367. This shows that the control of

the stockholders over the company has slightly increased over claims of creditors.

Number of times Interest Charges Earned have declined in 2014 from 6.83 to 3.75.

This is not good for the company as it shows that the guarantee of interest

payments being made on continuing basis has declined if earnings decrease. Hence

it decreases creditor’s confidence making it difficult to get loans. Accounts

receivable turnover has increased from 212 to 238 in 2014, while number of days

sales' in receivables have decreased to 2.2 from 2.6. This indicates that account

receivables collection has improved, as has the time receivables, are left

outstanding. Inventory turnover decreased from 5.04 to 4.09 for National Foods in

2014 while, number of days' sales in inventory on the other hand increased. This

shows that company's inventory management has become inferior since 2013 as

inventory stock has increased as have cost of goods sold and it takes more days to

buy and sell inventory in 2014. Overall, in terms of solvency the company's

position has declined from 2013, though there is room for improvement.


Profitability analysis shows the ability of the business to earn profits. This depends

to a large extent on how effectively and efficiently resources are utilized. Ratio of

net sales to assets is a measure of utilization of assets. It can be seen that ratio of

net sales to assets of National Foods Company has increased in 2014 from 2.29 to

3.29. However the rate earned on total assets has decreased from 25% to 16.20%.

Hence showing that the company is now not better at utilizing its assets in 2014

than in 2013. Rate earned on stockholders' equity decreased from 51.30% to

19.30% as well in 2014, giving the company less leverage. Hence, the company is

now earning lower amounts on assets acquired with creditors' funds than the

interest paid to the creditors. Rate earned on common stockholders' equity has also

fallen from 2013, as have the earnings per share on common stock. Hence,

showing that the company's common stock holders have less leverage now than in

2013 shedding a negative light on the company. National Foods Company's price

earnings ratio has increased in 2014 mainly due to decrease in market price per

share. Dividends have been given to common stock has also fallen. This does not

look good for the company as it decreases investors’ confidence as they would not

be getting reduced. Hence, it would be good for the company to declare more

dividends. Overall, however the company's profitability has decreased in 2014 and

its looks in a worse position than in 2013.

financial statements dm (8)

Documents