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PROJECT

OF

“FINANCIAL DECISION MAKING”

TOPIC:

FINANCIAL STATEMENT ANALYSIS

Submitted To:

SIR.AHMED HASSAN

Submitted By:

KHURAM JAVAID CIIT/SP10-MBA1/LHR

COMSATS INSTITUTE OF INFORMATION

TECHNOLOGY LAHORE

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Networks of PIA ( Domestic Network)

International Network

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Vision

Mission Statement

PIA to be a world class profitable air line exceeding customer

expectations through dedicated employees committed to excellence.

Offering quality customer services and innovative products.

Participating in global alliances.

Using state of the art technologies.

Ensuring cost effective measures in procurement and operations

Achieving adequate returns for all stake holders.

Being an equal opportunity employer.

Providing competitive compensation and a congenial work environment.

MISSION STATEMENT

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Mission statement is an overriding statement inline with business and

aspirations of stakeholder’s expectations.

Generally a mission statement covers following four areas.

Key success factors

Organizational value

Organization philosophy

Target market

Mission of PIACAs a symbol of National pride, Pakistan International must strive to be an airline of choice

operating profitably on modern commercial concepts, capable of competing with the best in its

entire International and Domestic markets consistently exceeding customer expectations. It

should be a choice employer deploying modern technology in all spheres of its activities.

Key success factors

Modernization: In airline industry modernization is the key success factor. The airline

should be responsive to the changes that are taking place in the environment. Modernization

of the communication system and the fleet replacement & and up-gradation is of massive

importance in this regard. As far as PIA is concerned modernization has been the hallmark of

it. From communication side PIA has recently upgraded its previous communication system

REPAK by the new and state of the art SABRE system which is directly connected to

Singapore. PIA also maintains very close interaction with its agents and provides them with

the latest information including fare lists etc.

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Values

PIA has been upgrading its fleet periodically keeping in view the changing customer needs. Recently it has signed a contract with Boeing company to purchase eight Boeing 777 aircrafts, which fall in the category of wide body aircraft and will fulfill the requirements of class one passengers Organizational value

Customer responsiveness:

PIA is very responsive towards its valued customers and customer responsiveness is

embedded in the organization culture. It believes on the slogan that “Customers are the

king”. It has continuously been offering special incentives and schemes for its customers like

AWARD PLUS and many others. Initiation of telephonic reservation is also worth

mentioning in this regard. Moreover the customers place suggestion boxes at its domestic and

international counters to obtain helpful comments and constructive criticism.

Organization philosophy PIA believes in competition. It believes that if an

organization is capable of competing with the best in the industry, nothing can hinder its

growth and success.

Target market: PIA has always kept its market broad. If we compare its domestic and

international route map over the period of time will come across that it has expanded its

operations drastically to meet the needs of its customers.

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FINANCE DEPARTMENT

The major function of the finance department is the reporting of all the financial events of all

departments. All the departments in the organization give their reports to the finance

department and it makes and presents the final report for the decision making purpose. The

finance department gets all the documents and then compiles them in the form of a report.

Collections are of different types.

Collections from PIA’s counters

Collections from Agents

Collections from Cargo counter

Collections from cargo agents

Collections from excess baggage

DISBURSEMENT Refunds of tickets

Salaries

Utilities bills

Works

Others…………………….

AUTOMATION

The Finance section is totally computerized and linked with Head Office. The COSSAP is

using through out the department.

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REPORTING SYSTEM

There 11 types of reports maintained by the Finance Department and in evening the whole

closing must be done in order to avoid errors.

R1- Passenger sales report on counter & Agents (SAR & ASR)

R2- Cargo sales report

R3- Cargo receipt on the behalf of the other station

R4- Miscellaneous collection except credit

R5- Credit receipt reports

R6- Refund to passengers

R7- Except cargo other collections on the behalf of other stations

R8- Invoicing

R9- All sorts of collections/passenger/cargo/others

R10- Sales reports from agents/receivable generation

R11- Cargo sales receivables from agents

CREDIT ALLOWANCEThe credit sales either for the tickets or for the cargo is also recorded into computer system and

relevant reports are generated and the whole record of these sales is also maintained.

Introduction Of Communication & It Department

IT department is one of those departments that is considered to be the backbone o the whole

organization. IT department in PIA RWP Station is not only responsible for maintaining network

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among different stations but it deals with different operations like Telephone Billing, E-

ticketing ,managing Inventory and the whole Communication structure. Following are the

Subsections that work under IT department.

Data Communication.

Telephone Exchange.

Network.

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BALANCE SHEETAS AT DECEMBER 31ST

, 2009

2009 2008

NON CURRENT ASSETS Rupees in Thousand

Fixed Assets

Property-plant and equipment 132,470,820 51,263,914

Intangibles 2067,117 112,421

134,537,937 51,376,335

Long Term Investment 188,465 323,705

Long term advances and other receivables 1,755,298 6,635,933

Long term deposits and prepayments 4,242,703 1,804,977

140,724,403 60,140,950

CURRENT ASSETS  

Stores and spares 3,286,170 2,790,137

Trade Debts 5,395,745 5,222,534

Advances 549,900 513,917

Trade deposits and prepayments 1,257,980 581,175

Accrued interest 32,789 39,708

Other receivables 1,170,866 481,449

Short term investment 182,771 363,855

Taxation-advance tax net of provision 310,239 149,087

Cash and bank balance 4,233,180 2,614,691

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16,419,640 12,756,553

157,144,043 72,897,503

SHARE CAPITAL AND RESERVES  

Share capital 20,878,074 17,980,659

Reserves 4,280,712 4,280,712

Unrealized(loss)/gain on remeasurement of

investment-net

Foreign Exchange Reserve

97,366

2,116,441 -15,107

Accumulated Loss -36,029,644 -11,799,966

2,060,866 10,446,298

NON CURRENT LIABILITIES  

Long Term Finance under mark-up arrangements 28,994,934 1,621,099

Term Finance Certificate 10,723,738 14,003,940

Liabilities against assets subjects to finance lease 46,524,024 21,706,064

Long Term Murabaha finance -------------- 768,075

Long Term Deposits 321,679 290,236

Deferred Liabilities 14,669,765 2,824,690

161.234,140 41,214,104

CURRENT LIABILITIES  

Trade and other payables 21,652,372 14,983,921

Accrued Interest/mark-up 978,317 607,769

Short Term Borrowing 18,105,884 362,075

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Taxes 19,388

Current portion of :  

Long Term Finance under mark-up arrangement 5,845,349 1,621,103

Term Finance Certificate 2,523,232 756,970

Liabilities against assets subject to finance lease 4,724,495 2,067,363

Long term Murabaha finance -------------- 837,900

Total Current Liabilities 53,849,037 21,237,101

 

CONTIGENCIES AND COMMITMENTS  

Total Equity & Total Liabilities 157,144,043 72,897,503

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Profit and Loss Account Statement

Profit and Loss Account

For the year ended December 31,2009

2009 2008

Turnover-Net 78,554,483 64,047,470

Cost of service  

Aircraft Fuel 30,315,159 -26,462,721

Others 42,194,738 -32,478,115

72,509,897 -58,940,836

 

Gross Profit 6,044,586 5,133,634

 

Other Operating Income 4,448,674 1,241,669

Marketing and distribution costs 1,487,893 -3,809,169

Administrative expenses 5,293,654 -4,325,576

Other Income

11,230,221

614,523

-6,893,076

------------

(Loss)/Profit from operations -4,571,112 -1,759,442

 

Finance cost 7,938,364 -2,787,399

Other provisions and adjustments- net -20,211 33,605

7,918,753 -2,753,794

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(Loss)/Profit before tax -12,489,265 -4,513,236

 

Taxation 726,346 101,579

 

(Loss)/Profit for the Year -13,215,655 -4,411,657

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RATIO ANALYSIS

CURRENT RATIO

Current Ratio is obtained by dividing current assets by current liabilities. It shows a firm’s ability

to cover its current liabilities with its current assets.

= Current Assets

Current Liabilities

Year Calculations Current Ratio

2009 =1641964000

53849037000

0.30

2008 =12756553000

21237101000

0.60

ANALYSIS

Result of this ratio is that during the year the ratio is declining rapidly. PIA could face problem if

the current ratio will decline.

QUICK RATIO

Current assets less inventory divided by current liabilities. It shows a firm’s ability to meet its

current liabilities with its most liquid (quick) assets.

= Current Assets – Inventory

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Current Liabilities

Year Calculations Acid-Test Ratio

2009 =16419640000-3286170000

53849037000

0.243

2008 =1275655000-279013000

21237101000

0.46

ANALYSIS

Here, the same case with acid test ratio. Ratio is decreasing continuously. Result shows that more

proportion if asset as inventory in current asset with comparison to other assets.

Debt Ratio

Dividing the firm’s total liabilities by its total assets derives the Debt Ratio.

= Total Liabilities

Total Assets

Year Calculations Debt Ratio

2009 = 215083177000

157144043000

1.37

2008 = 62451265000

72897563000

0.86

ANALYSIS

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Debt ratio in the year 2006 was not so much efficient but it is going to efficient in the coming

years.

Total Debt Ratio= Total Liabilities

Total Equity

Year Calculations Debt Ratio

2009 = 215083177

2,060,8660

10.4

2008 = 62451265

10,446,298

5.97

Total Asset Turnover

= ____Sale

Total Asset

Year Calculations Debt Ratio

2009 =78,554,483

157,144,043

0.49

2008 = 64,047,470

72,897,503

0.88

NET PROFIT MARGINA more specific measure of the sales profitability is the net profit margin:

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=Net Profit(loss) after Taxes

Net Sales

Year Calculations Net Profit Margin

2009 =(1321565000)

78554483000

(16.8%)

2008 =(4411657000)

64074470000

(6.88%)

ANALYSIS

PIA profit margin is decreasing in negative so PIA is going in so much losses

RETURN ON EQUITY (ROE)ROE compares net profit after taxes (minus preferred stock dividends, if any) to the equity that

shareholders have invested in the firm:

=Net Profit After Taxes

Shareholder’s Equity

Year Calculations Return On Equity

2009 =(13215655000)

2060866000

(64.12%)

2008 =(4411657000)

10446298000

(42.23%)

ANALYSIS

PIA return on equity is also in negative, it’s completely in losses.

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Net Working Capital Turnover =Current Asset – Current liabilities

Total assets

Year Calculations

2009 =16,419,640 - 53,849,037

157,144,043

-0.8

2008 = 12,756,553 - 21,237,101

72,897,503

-0.11

Return on Earning Asset =Net profit after tax

assets

Year Calculations Return On Equity

2009 = -13,215,655

157,144,043

-0.08

2008 = -4,411,657

72,897,503

-0.06

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Pakistan International Airlines Corporation (PIAC) is a giant organization and enjoys complete

monopoly at national level. Being a semi government organization, PIA is highly affected by any

change in political or economic frontier. Airline industry due to heavy capital requirement poses

great barrier to entry. So PIA has no literal threat of any potential competitor. As far as core

competences of PIAC are concerned, even its single activities are not less than its competences,

CONCLUSION

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e.g. huge infrastructure, technologically advanced operational system and a well established

centre to train its workforce. Any a few linkages can be created like between technology

development-operations and human resources-operations. PIA’s generic competitive strategy can

be categorized as differentiation, as it provides top quality services but at comparatively higher

prices. PIA’s management style is centralized and the direction of strategy development can be

viewed as market development. Its financial position has also been improved over the year due to

sound management policies (cost controlling measures are the important ones).

SUGGESTION & RECOMMENDATIONS FOR PAKISTAN

INTERNATIONAL AIRLINES

Decentralization

PIA should decentralize its structure that would lead to the easy management, increased

motivation, easy access to information and resolution of the conflicts (as they would be resolved

by the immediate manger time span would then reduced). Since employees issues regarding their

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behavior would lessen, so it would ultimately lead to more satisfied employees that would result

in enhanced productivity of the organization.

Strategic Business Unit

PIA should make its different departments into Strategic Business Unit. Every SBU should have

a defined business strategy and a manager with sales and profit responsibility. As PIA is a large

organization, so it must be convert into SBUs.

Different factors should be determined for the success of SBUs which as follows:

The degree of autonomy given to each SBU manager

The degree to which an SBU shares functional programs and facilities with other SBU's

The manner in which the corporation evaluates and rewards the performance of its SBU

managers

Employee Empowerment

PIA should make efforts towards empowering the employees that is going to lead to more

employee participation in the decision making process and also result in more employee

satisfaction and enhanced motivation. Apart from this, employees would feel more independent

to discuss the issues explicitly without hesitation. This would also enhance team work process at

PIA as quality team and cross-functional teams. The employees will work with more

commitment and dedication and every employee would work to his/her fullest due to increased

motivation. However, with empowerment comes accountability, so it is suggested that while they

empower their employees, there should also be a “controlled check’’ on them to ensue the

correct usage of power delegated to every employees within their circumscribed limits.

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Overhead Costs

PIA should also reduce its overhead costs that are it should mange its resources: labor more

effectively, so that with less input, more out put can be achieved and the saved resources can be

utilized in other areas such as introducing more training courses for the employees so that the

quality of the workforce could be increased. Hiring the services of expertise can improve the

efficiency of their services, so by saving the overhead costs, they can utilize that money for the

expertise services. So by analyzing the various segments of the organization and making the

right corrections, it can substantially improve the standards of Organizational behavior.

Two-Way Communication

The suggestions of the employees can prove to be very effective in improving the operations as

they are the ones who manage them. Therefore, a top-down approach should be replaced with

two-way communications. In this way, the employees would feel motivated and valued as they

would be included in decision-making.

Total Quality Management

Total quality management should be catered to within the work groups and implementation of

various skill enhancement programs for quality and productivity improvements such as Six

Sigma should be provided to its executive employees.