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Ratio Analysis

Ratio Analysis

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Atlas Battery

FINANCIAL MANAGEMENT Page 1

Atlas Battery
Preface

FINANCIAL MANAGEMENT Page 2

Atlas Battery

Acknowledgement

FINANCIAL MANAGEMENT Page 3

Atlas Battery

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Atlas Battery

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Atlas Battery

Executive Summary

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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 FINANCIAL MANAGEMENT Page 7

Atlas Battery
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.

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.

FINANCIAL MANAGEMENT Page 8

Atlas Battery
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 Last year yield Suggest whether to invest in stock or not

Comparison of book value and market value of share price:

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Atlas Battery
2008 Market value per 154.88 58.11 167.8 55.26 Annexure 4 (xvi) 2007 Annexure 1

share /June 31 Book value per share

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.

Trend change in net income of the firm in the last 3 years:
2008 2007 2006 RUPEES IN '000' Net income for the year 106,7 97 87,51 0 41,32 3

FINANCIAL MANAGEMENT Page 10

Atlas Battery

Trend change in 2008 from 2007 = Trend change in 2008 from 2006 = Trend change in 2007 from 2006 =

22.04% 158.44 % 111.77 % Annexure 2

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.

Firms tax bracket and average tax that firm pays:

FINANCIAL MANAGEMENT Page 11

Atlas Battery

2008 2007 2006 Rupees in '000' 122,2 57 34,74 7 87,51 0 66,22 4 24,90 1 41,32 3

Profit before taxation

164,131

Taxati on Profit after taxation Tax Bracket =

-57,334 106,79 7 35.00%

Average tax in 2008 Average tax in 2007 Average tax in 2006

= = =

34.93% 28.42% 37.60% Annexure 3

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

1. Current Ratio:

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Atlas Battery
Current ratio = Current Assets current Liabilities 1.21254 2 Annexur e 4 (i) 2007 = 1.23535 6

2008 =

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
Quick ratio = 2008 = 2007 = Current Assets Inventories Current liabilities 0.4854 51 0.3762 01

Annexur e 4 (ii)

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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Atlas Battery

ASSET MANAGEMENT RATIOS

3. Inventory turnover ratio
Inventory turnover ratio = 2008 = 2007 = NET SALE Avg Inventory 7.08280 9

Each item of Atlas battery’s inventory is
Annexur e 4 (iii)

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

5.28243

5.28 which indicate that Atlas battery very effectively control its inventory as compare to previous year. 4. Days sales Outstanding FINANCIAL MANAGEMENT Page 16

Atlas Battery
Days sale outstandin g= Receivab les Average sales 1 1 days 1 2 days

2008 = 2007 =

Annexur e 4 (iv)

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. 5. Fixed Assets turnover Ratios
Fixed Assets turnover ratio = 2008 = 2007 = Net Sale Avg net fixed assets 6.2 Tim 8 es 5.6 Tim 8 es

The fixed assets turnover ratio clearly shows that the company using its fixed
Annexur e 4 (v)

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. 6. Total Asset Turnover Ratios

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Atlas Battery
Total assets turnover ratio= 2008 = 2007 = Net sale Avg total assets 2.6 8 2.4 1 Times

If we compare the total assets turnovers 2007 to 2008 it increased 2.41 times to
Annexur e 4 (vi)

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
Debt ratio = 200 = 200 = Total debt Total assets

8

0.52 51.93 % 0.56 55.51 %

Annexu re 4 (vii)

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

7

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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Atlas Battery

8. Times interest earned Ratio
Time -interestearned ratio= 2008 = 2007 = EBIT interest charge 4.9 5 6.5 5 Times

The time interest ratio in 2008 is 4.95 which is decreased as compare to 2007
Annexur e 4 (viii)

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. 9. EBITDA coverage ratio
EBITDA coverage ratio = 2008 = 2007 = EBITDA+lease payments intrest+principal+ leas payments 5.8 1 8.0 8 Times

In 2007 EBITDA is 8.08 times, the reason for this is the repayment of principal
Annexur e 4 (ix)

leaving

zero

long

term

debts

in

2007.However, in 2008 the fixed financial charge by 5.81 which is decreased as

FINANCIAL MANAGEMENT Page 19

Atlas Battery
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
Profit margin on sale = 2008 = 2007 = Net income Net sale 4.06 % 5.52 %

Annexur e 4 (x)

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
Basic earning power = 2008 = 2007 = EBIT Avg total assets 20.97 % 21.89 %

Annexu re 4 (xi)

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Atlas Battery
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. 12. Return on total assets
Return on total assets = 2008 = 2007 = Net income Avg total assets 10.89 % 13.28 %

The Return on Assets gradually decreased
Annexur e 4 (xii)

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. 13. Return on common equity
Return on common equity= 8 7 200 = 200 = Net income common equit 26.28 % 26.04 %

According to the figures, Atlas Batteries shows a favorable trend to the shareholders,
Annexu re 4 (xiii)

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.

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Atlas Battery
MARKET VALUE RATION
14. Price earnings ratio
Price earning s ratio = 200 = 200 = Price per share Earnings per share 10. Tim 14 es 11. Tim 66 es Annexu re 4 (xiv)

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

8 7

share over the year are increased with great difference but in 2008 this will not increased much. 15. Price cash flow
Price cash flow = 2008 = 2007 = price per share cash flow per share 7.6 0 8.4 time 0 s Annexu re 4 (xv)

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 .

FINANCIAL MANAGEMENT Page 22

Atlas Battery
16. Market price ratio
Market price ratio = Market price Book value per share 3.1 4 3.3 Time 1 s

The market price ratio is decrease in 2008 from 3.31 to 3.14. it decrease because

2008 = 2007 =

Annexur e4 (xvii)

book value per share is increased in 2008 and the market value is decrease as compare to 2007 .

FINANCIAL MANAGEMENT Page 23

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 9,121 45,604 42.70% 6.52 2007 RUPEES IN '000' Anexure 5 (i)

Bonus share @ of 15% Total Dividend in percentage Total dividend per share

Final Dividend in respect of financial year @ Rs.3/- per share

15,862 7931 23,793 27.19% 3.91 2006 RUPEES IN '000' 11,494 6,897 18,391 Anexure 5 (ii)

Bonus share @ of 15% Total Dividend in percentage Total dividend per share

Final Dividend in respect of financial year 2006

Bonus share @ of 15% Total

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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 = Retained earnings for 2007 = Retained earnings for 2006 = 2008 Retention rate = 0.57 57.30%

61,193 Anexure 5 (iii) 63,717 22,932 2007 0.73 72.81% 2006 0.55 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. FINANCIAL MANAGEMENT Page 25

Atlas Battery

Growth Rate:

Growth Rate =

Retention rate * ROE 2008 2007 0.19 18.96 % 2006 0.09 8.67% Annexure 5 (v)

Growth Rate =

0.15 15.06 %

Avg Growth Rate =

0.119 11.87 % Annexure 5 (vi)

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Atlas Battery
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.

Market Share

Industry Position

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Atlas Battery

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Atlas Battery

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Atlas Battery

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