ratio analysis
TRANSCRIPT
Atlas Battery
Executive Summary
FINANCIAL MANAGEMENT Page 6
Atlas Battery
Introduction
Company information:
Atlas Battery Limited pioneered the manufacture of dry charged Hard Rubber batteries in
Pakistan. Now the company manufactures a complete range of Polypropylene and hard rubber
batteries which caters to the needs of passenger cars of varied capacities, trucks, tractors, heavy
vehicles, construction and road building equipment, as well as host of stationary and industrial
applications. Motorcycle batteries have also been added to this range. The company has always
been at the vanguard of development in the automotive industry in Pakistan making great strides
in the field’s research and development. The brand has, over the years, earned a solid reputation
as a product of latest Japanese technology with consistently high levels of performance and
reliability.
The sustained and continued high level of quality is ensured by ABL’s Quality Department with
its exacting standards and state-of-the-art lab facilities manned by highly trained professionals
monitoring the quality of batteries being produced.
The focal point of the company’s philosophy is customer satisfaction through continued product
excellence. Atlas Battery Limited aims at maintaining its lead in technology with the help of its
in-house research and development program, interfacing with Japan Storage Battery Company
Limited.
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Atlas Battery
ABL’s technological superiority is matched by its vast national network of over 600 dealers and
retail outlets ensuring availability and prompt delivery of its products. All our regional and zonal
offices are equipped with service center and are staffed with trained to provide technical
personnel to provide an efficient service backup. The technical personnel also regularly tour their
sales and territories monitoring service needs, problem and trouble-shooting. Our associates are
ably supported by a steady supply of instruments and equipment imported and supplied by us, to
enable them to carry out testing and repairing services with prompt attention and efficient
resolution of operational complaints.
Project information:
This is the project of my course “Financial Management” in this project I have required
to analysis the financial position of atlas battery to analysis the position I need to calculate the
following requirement.
Comparison of book value and market value of share price
Trend change in net income of the firm in last 3 year
Firms tax bracket and average tax that firm pays
Analyzing ratio analysis
Analyzing firm Dividend policy, Retention rate, Growth rate, Market share, industry
position.
Firms capital structure
Required rate of return
FINANCIAL MANAGEMENT Page 8
Atlas Battery
Last year yield
Suggest whether to invest in stock or not
Comparison of book value and market value of share price:
Annexure 1
Annexure 4 (xvi)
The market value of 2008 (154.88) is greater than the book value of 2008(58.11) it shows that
the company position is better in 2008.
The market value of 2007 (167.8) which is also greater than the book value of 2007 (55.26) it
shows that the company position is also better in 2007 and its shows that company maintaining
its position in the market.
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2008 2007
Market value per
share /June 31 154.88 167.8
Book value per share
58.11 55.26
Atlas Battery
Trend change in net income of the firm in the last 3 years:
Trend change in 2008 from 2007 = 22.04%
Annexure 2Trend change in 2008 from 2006 = 158.44%
Trend change in 2007 from 2006 = 111.77%
The net income of 2006 which is 41,323 is lower than the net income of 2007 and 2008 but from
2006 to 2007 the net income increased by 111.77% which clearly shows that company double his
profit but from 2007 to 2008 it will increased by 22.04% only which lower than 2007 but still
company getting profit which is good sign for stockholders.
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2008 2007 2006 RUPEES IN '000' Net income for the year 106,797 87,510 41,323
Atlas Battery
Firms tax bracket and average tax that firm pays:
2008 2007 2006Rupees in '000'
Profit before taxation 164,131 122,257 66,224
Taxation -57,334 -34,747 -24,901Profit after taxation 106,797 87,510 41,323
Tax Bracket = 35.00%
Average tax in 2008 = 34.93%
Annexure 3Average tax in 2007 = 28.42%Average tax in 2006 = 37.60%
Tax bracket for the firm is 35% but in 2006 the firm actually pays 37.60% of its net income for
tax. In 2007 it pays 28.42% and in 2008 it pays 34.93% of its net income for tax.
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Atlas Battery
RATIO ANALYSIS
A statistic has little value in isolation. Hence, a profit figure of Rs.100 million is meaningless
unless it is related to either the firm’s turnover (sales revenue) or the value of its assets.
Accounting ratios attempt to highlight the relationships between significant items in the accounts
of a firm.
Financial ratios are the analyst’s microscope; they allow them to get a better view of the firm’s
financial health than just looking at the raw financial statements Ratios are used by both internal
and external analysts
Internal uses
Planning
Evaluation of management
External uses
Credit granting
Performance monitoring
Investment decisions
Making of policies
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Atlas Battery
CATEGORIES OF FINANCIAL RATIOS
The accounting ratios can be grouped in to five categories:
1. Liquidity Ratios shows the extent to which the firm can meet its financial obligations.
2. Asset Management Ratios shows that how effectively the firm is managing its assets.
3. Debt Management Ratios shows the extent to which a firm uses debt financing or financial
leverages.
4. Profitability Ratios relates profits to sales and assets.
5. Market Value Ratios are a measure of the return on investment.
LIQUIDITY RATIOS
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Atlas Battery
1. Current Ratio:
2007 20081.19
1.2
1.21
1.22
1.23
1.24
1.25
current ratio
The current ratio is lower in 2008 as compared to 2007 it indicate that company current liability
is more than as compare to 2007 so the company liquidity position in 2008 is week as compare to
2007.
2. Quick ratio
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Current ratio =
Current Assets current
Liabilities
2008
= 1.212542 Annexure
4 (i)
2007
= 1.235356
Atlas Battery
2007 20080
0.10.20.30.40.50.6
0.38
0.49
Quick ratio
If we compare quick ratio to current ratio its clearly indicate that company holding lot of
inventory which is not good sign but if we compare the quick ratio of 2007 which is 0.38 to 2008
which is 0.49 that shows in 2008 the company manage its inventory which is good indication .
But my evaluation suggests that Atlas battery’s liquidity position currently is fairly poor.
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Quick ratio =Current Assets -
Inventories Current liabilities
2008
=0.48545
1 Annexure 4 (ii)
2007 =
0.376201
Atlas Battery
ASSET MANAGEMENT RATIOS
3. Inventory turnover ratio
2007 20080
2
4
6
8
Inventory turnover
Each item of Atlas battery’s inventory is sold out and re-stocked turned over ratio in 2008 is 7.08
times per year which is higher than the 2007 turned over ratio which is 5.28 which indicate that
Atlas battery very effectively control its inventory as compare to previous year.
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Inventory turnover ratio
=
NET SALE Avg
Inventory
2008 = 7.082809 Annexure
4 (iii) 2007
= 5.28243
Atlas Battery
4. Days sales Outstanding
2007 200810.5
11
11.5
12
12.5
Days sale outstanding
DSO in year 2007 was 12 days which has now decreased to 11 days in 2008 which shows that
the company is more effective in collecting receivables now in comparison of previous year. It
also shows that the credit policy of Atlas battery is very effectively working.
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Days sale outstanding =
Receivables Average
sales
2008 = 11 days Annexure 4 (iv)
2007 = 12 days
Atlas Battery
5. Fixed Assets turnover Ratios
2007 20085.25.45.65.8
66.26.4
Fixed assets turnover
The fixed assets turnover ratio clearly shows that the company using its fixed assets very
efficiently as compare to previous year. According to the calculations above the productivity of
fixed assets in year 2008 is better than it was in previous years. In 2007, it was 5.68 times and
now it has been increased to 6.28 times.
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Fixed Assets turnover ratio
=
Net Sale Avg net fixed assets
2008 =6.2
8 Times Annexure 4 (v)
2007 =5.6
8 Times
Atlas Battery
6. Total Asset Turnover Ratios
2007 20082.22.32.42.52.62.72.8
Toatal asstes turnover
If we compare the total assets turnovers 2007 to 2008 it increased 2.41 times to 2.68 times which
is slightly increased .but the company is not generating sufficient volume of business given its
investment in total assets company need to increase its sale to get more benefit from its total
assets.
DEBT MANAGEMENT RATIOS
7. Debt Ratio
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Total assets turnover
ratio=
Net sale Avg total
assets
2008 = 2.68 Times Annexure 4 (vi)
2007 = 2.41 Times
Atlas Battery
2007 200850.00%51.00%52.00%53.00%54.00%55.00%56.00%
Debt ratio
The debt ratio in 2007 was 0.55 which shows that 55.51% of the firm’s assets are debt financed
and 44.49% are by equity finance. In 2008 the debt ratio decreased to 0.5193 which means that
51.93% of the firm’s assets are debt financed and 48.07% are equity financed. It shows clearly
that the company managing it debt against its assets .
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Debt ratio =
Total debt Total assets
2008
= 0.52Annexure 4 (vii)
51.93%
2007 = 0.56
55.51
%
Atlas Battery
8. Times interest earned Ratio
2007 200801234567
Time -interest-earned ratio
The time interest ratio in 2008 is 4.95 which is decreased as compare to 2007 which is 6.55 it
shows that in 2007 company covering its interest expense by relevant high margin of safety. But
In 2008 the company is covering its interest expense by relatively low margin of safety.
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Time -interest-earned ratio=
EBIT interest charge
2008 = 4.95 Times Annexure 4 (viii)
2007 = 6.55 Times
Atlas Battery
9. EBITDA coverage ratio
2007 20080123456789
EBIT
DA C
Ove
rage
In 2007 EBITDA is 8.08 times, the reason for this is the repayment of principal leaving zero long
term debts in 2007.However, in 2008 the fixed financial charge by 5.81 which is decreased as
compare to previous year and there is also no repayment and principal. It decreased because this
year net income is decline as compare to previous year.
PROFITABILITY RATION
10. Profit margin on sale
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EBITDA coverage ratio
=
EBITDA+lease payments
intrest+principal+leas payments
2008 = 5.81 Times Annexure 4 (ix)
2007 = 8.08 Times
Atlas Battery
2007 20080.00%1.00%2.00%3.00%4.00%5.00%6.00%
Profi
t mar
gen
on
sale
The profit margin has decreased from 5.52% in 2007, to 4.06% in 2008. According to the
figures, company’s sale in 2008 is low as compare in 2007 because costs are high and the
company is using heavy debt.
11. Basic earning power
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Profit margin on sale =
Net income Net sale
2008 = 4.06% Annexure 4 (x)
2007 = 5.52%
Atlas Battery
2007 200820.40%
20.80%
21.20%
21.60%
22.00%
Basic earning power
The BEP has decreased from 21.89% in 2007, to 20.97% in 2008. This decrease was due to
decrease in EBIT as compare to last year net income.
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Basic earning power =
EBIT Avg total assets
2008
=20.97
%Annexure
4 (xi) 2007
=21.89
%
Atlas Battery
12. Return on total assets
2007 20080.00%2.00%4.00%6.00%8.00%
10.00%12.00%14.00%
Return on total assets
The Return on Assets gradually decreased in year 2008, to 10.89% from 13.28%, in year 2007.
This was due to the fact as the Net income which is increased only 22.04 %( explains in
annexure 2) as compare to 2007.
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Return on total assets =
Net income Avg total assets
2008
= 10.89%Annexure
4 (xii) 2007
= 13.28%
Atlas Battery
13. Return on common equity
2007 200825.90%25.95%26.00%26.05%26.10%26.15%26.20%26.25%26.30%
Return on common equity
According to the figures, Atlas Batteries shows a favorable trend to the shareholders, initially
being at 26.04% and then rising by 0.24% to 26.28%. This has been due to 22% increase in Net
income. Though shareholders equity has also increased as the company is increase debt
financing, but the increase in shareholders’ equity is lower relative to the increase in net profit.
MARKET VALUE RATION
14. Price earnings ratio
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Return on common equity=
Net income
common equit
2008 =
26.28%
Annexure 4 (xiii)
2007 =
26.04%
Atlas Battery
2007 20089
9.5
10
10.5
11
11.5
12
Price earnings ratio
The ratio shows how much the investors are willing to pay per Rupee of reported profits. It can
be seen from calculations that in year 2008 the ratio has decreased from 11.66 to 10.14. This was
due to the fact that the earnings per share over the year are increased with great difference but in
2008 this will not increased much.
15. Price cash flow
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Price earnings ratio =
Price per share
Earnings per share
2008
=10.1
4Times
Annexure 4 (xiv)
2007 =
11.66
Times
Atlas Battery
2007 20087
7.27.47.67.8
88.28.48.6
Price cash flow
In year 2008 the ratio is decreased from 8.40 times to 7.60 times. This was due to the fact that
the price per share in 2007 better than 2008 price per share .
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Price cash flow =
price per share
cash flow per share
2008 =7.6
0 timesAnnexure 4 (xv)
2007 =8.4
0 times
Atlas Battery
16. Market price ratio
2007 20083.05
3.13.15
3.23.25
3.33.35
Market price ratio
The market price ratio is decrease in 2008 from 3.31 to 3.14. it decrease because book value per
share is increased in 2008 and the market value is decrease as compare to 2007 .
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Market price ratio =
Market price Book value per share
2008 = 3.14 Times Annexure 4 (xvii)
2007 = 3.31 Times
Atlas Battery
Analyzing firm Dividend policy, Retention rate, Growth rate, Market share, industry position
Dividend Policy:
2008 RUPEES IN '000'
Final Dividend in respect of financial year @ Rs.6/- per share 36,483
Bonus share @ of 15% 9,121Total 45,604
Dividend in percentage 42.70% Anexure 5 (i)
Total dividend per share 6.52
2007RUPEES IN '000'
Final Dividend in respect of financial year @ Rs.3/- per share 15,862
Bonus share @ of 15% 7931Total 23,793
Dividend in percentage 27.19% Anexure 5 (ii)
Total dividend per share 3.91
2006RUPEES IN '000'
Final Dividend in respect of financial year 2006 11,494Bonus share @ of 15% 6,897Total 18,391
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Atlas Battery
From last 10 year company pays annually dividends to its shareholders but my analysis is just
based on last three years. In 2006 company pays 18,391 Rs. in thousands. In 2007 it pays 23,793
Rs. In thousand at the rate of 3.91 Rs/- per share and in 2008 it pays 42,604 Rs In thousands at
the rate of 6.52 Rs. /- per share. It shows that company has constantly growing in the market.
Retention Rate:
Retention rate =Retained Earning
Total proft
Retained earnings for 2008 = 61,193
Anexure 5 (iii)
Retained earnings for 2007 = 63,717
Retained earnings for 2006 = 22,932
2008 2007 2006
Retention rate = 0.57 0.73 0.55
57.30% 72.81% 55.49% Anexure 5 (iv)
After paying the dividend the company still have 57.30% of its net income to retained in 2008
this rate is less than as compare to 2007 rate which is 72.81% .However, most important thing is
company is retaining half of its net income every year based on last year.
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Atlas Battery
Growth Rate:
Growth Rate = Retention rate * ROE
2008 2007 2006
Growth Rate = 0.15 0.19 0.09
15.06% 18.96% 8.67%Annexure 5 (v)
Avg Growth Rate =
0.119
11.87%Annexure 5 (vi)
The growth rate in 2008 which is 15.06% and 2007 which is 18.96% if we compare them we can
say that the growth rate of 2008 is normal growth but if we compare 2007 growth which is
18.96% to 2006 growth which is 8.67% the 2007 growth is super normal growth.
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Atlas Battery
Market Share
Industry Position
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