ANALYSIS OF FINANCIAL REPORT

LETTER OF TRANSMITTAL

May 26, 2008 Mrs. Shumaila Israr Teacher, Financial Management Bahria University Karachi. Madam: We herewith present our “Term Report” authorized by you as a requirement for this course. In this report, we have tried to provide analysis of financial statements of Atlas Batteries Ltd. We hope we have covered all that was required for the report. If there be any clarification demanded, we would appreciate a call from you to our group members. Sincerely, Bilal Razzak Faris Hafeez Maaz Khalid Umair Zafar

BAHRIA UNIVERSITY KARACHI

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ANALYSIS OF FINANCIAL REPORT

ACKNOWLEDGEMENT

In the name of “Allah”, the most beneficent and merciful who gave us strength and knowledge to complete this report. This report is a part of our course “Financial Management”. This has proved to be a great experience. This report is a combine effort of Bilal Razzak, Maaz Khalid and Umair Zafar. We would like to express our gratitude to our Finance teacher Ms. Shumaila Israr; who gave us this opportunity to fulfill this report. We would also like to thank our colleagues who participated in a focus group session. They gave us many helpful comments which helped us a lot in preparing our report.

BAHRIA UNIVERSITY KARACHI

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ANALYSIS OF FINANCIAL REPORT

VISION STATEMENT AND MISSION STATEMENT OF ATLAS BATTERIES LTD.
VISION STATEMENT
A manufacturer and supplier of high quality lead acid automotive and motorcycle batteries in domestic and international market.

MISSION STATEMENT
To achieve market leadership through technological edge, distinguished by quality service and customers’ satisfaction, emphasis on employees’ long term welfare and ensure adequate return to shareholders. Be a good corporate citizen of the society and country through harmonized endeavor.

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ANALYSIS OF FINANCIAL REPORT

COMPANY PROFILE
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 fields of 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 entire process is overseen by a Technical Advisor from Japan Storage Battery Company Limited stationed at Karachi. He is attached to the factory and monitors and guides the technical Division in ensuring and meeting the international standards of quality. 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.

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ANALYSIS OF FINANCIAL REPORT

COMPANY’S PRODUCTS
• • Automotive Batteries Motorcycle Batteries

AUTOMOTIVE BATTERIES
There are three types of batteries produced by Atlas Batteries Ltd. • • • Light Batteries Medium Batteries Heavy Batteries

CUSTOMERS FOR MEDIUM AND HEAVY BATTERIES
1. Honda Atlas Cars (Pakistan) Ltd. 2. Pak Suzuki Motor Company Ltd. 3. Indus Motor Company Ltd. 4. Dewan Farooque Motors Ltd. 5. Sigma Motors (Pvt.) Ltd. 6. Ghandhara Nissan Ltd. 7. Master Motor Corporation Ltd.

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ANALYSIS OF FINANCIAL REPORT

CUSTOMERS FOR LIGHT BATTERIES
1. Atlas Honda Ltd. 2. Dawood Yamaha Ltd. 3. Delta Innovations Ltd. 4. Fateh Motors Ltd. 5. Sindh Engineering (Pvt.) Ltd. 6. Super Asia Motors Ltd. 7. D.S. Motors 8. N.J. Auto Industries (Pvt.) Ltd.

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ANALYSIS OF FINANCIAL REPORT

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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ANALYSIS OF FINANCIAL REPORT

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.

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ANALYSIS OF FINANCIAL REPORT

LIQUIDITY RATIOS

Current Ratio:
Current Ratio shows a firm’s ability to meet current liabilities with its current assets. Formula:

2006

Current Ratio
2

.

.

1.5 1

2007
0.5 0

Current Ratio

.

.

2006

2007

Analysis:
The current ratio is lower in 2007 as compared to 2006.There is an increase in all the current assets except other receivables which decreased in 2007. The net current assets increased by 121 million in 2007 and at the same time the net current liabilities increased by 148 million in 2007.

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ANALYSIS OF FINANCIAL REPORT

Acid Test Ratio:
Acid Test Ratio or Quick Ratio shows a firm’s ability to meet current liabilities with its most liquid assets. Formula:

2006

Quick Ratio
. .
6 4

2007
2 0 Quick Ratio

.

.

2006

2007

Analysis:
We have seen that the company had a lower current ratio in 2007 and was unable to meet its short term obligations as compared to 2006. Where as the quick ratio identifies the role played by the inventories in this context. Therefore the ratio shows that in year 2007 it has decreased as compared to 2006 due to the fact that the investment in inventories is increased by 88 million only and current liabilities have increased by 148 million. The company is still not able to meet its short term obligations.

BAHRIA UNIVERSITY KARACHI

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ANALYSIS OF FINANCIAL REPORT

ASSET MANAGEMENT RATIO
Inventory Turnover Ratio:
Formula:

2006

1209033000 218012000 5.55
5.6 5.4

Inventory Turnover Ratio
Inventory Turnover Ratio 2006 2007

2007

1585648000 306171000 5.2

5.2 5

Analysis:
The inventory turnover ratio in the year 2006 was 5.55 which indicate that 5.55 times in a year the inventory of the firm is converted into receivables or cash. However, in 2007, the inventory turnover ratio slightly decreased to 5.2. This was due to the fact that the company, in 2007, invested more then 1.4 times the inventory in 2006.

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ANALYSIS OF FINANCIAL REPORT

Days Sales Outstanding:
Formula: 365 2006 45864000 365000 1209033000 13.96 2007 51834000 26000 1585648000 11.9
15 14 13 12 11 10 2006 2007

365

365

DSO

DSO

Analysis: DSO in year 2006 was 13.96 days which has now decreased to 11.9 days which shows that the company is more effective in collecting receivables now in comparison of previous year, even the sales has increased by 376 million on the other hand receivables decreased which resulted Lower DSO.

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ANALYSIS OF FINANCIAL REPORT

Fixed Asset Turnover:
Formula:

2006

1209033000 239712000 5.04

Fixed Asset Turnover
5.12 5.1 5.08 5.06 5.04 5.02 5 2006 2007

2007

1585648000 310995000 5.1

Fixed Asset Turnover

Analysis:
According to the calculations above the productivity of fixed assets in year 2007 is better than it was in previous years. In 2006, it was 5.04 times and now it has been slightly increased to 5.1 times. This change was brought about by increase in total sales by 31%, where as the fixed assets increased only by 29.7%.

BAHRIA UNIVERSITY KARACHI

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ANALYSIS OF FINANCIAL REPORT

Total Asset Turnover:
Formula:

2006

1209033000 562887000 2.15

2007

1585648000 755242000 2.1

Total Asset Turnover
2.16 2.14 2.12 2.1 2.08 2.06 2006 2007

Total Asset Turnover

Analysis:
According to the calculations above the productivity of assets in year 2007 is not as good as it was in previous years. In 2006, it was 2.15 times and now it has been decreased to 2.1 times. This change was brought about by increase of 34% in the total assets, where as the total sales only increased by 31%.

BAHRIA UNIVERSITY KARACHI

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ANALYSIS OF FINANCIAL REPORT

DEBT MANAGEMENT RATIO
Debt Ratio:
Formula:

2006

208020000 53%

50517000 562887000

40000000

2007

Debt Ratio
0.555 0.55 0.545 0.54 0.535 0.53 0.525 0.52 2006 2007

62881000 356363000 755242000 55%

Debt Ratio

Analysis:
The debt ratio in 2006 was 0.53 which shows that 53% of the firms assets are debt financed and 47% are by equity finance. In 2007 the debt ratio increased to 0.55 which means that 55% of the firms assets are debt financed and 45% are equity financed. The company assets are already in more debt finance however the ratio of debt financing has increased in 2007.

BAHRIA UNIVERSITY KARACHI

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ANALYSIS OF FINANCIAL REPORT

Times Interest Earned Ratio:
Formula:

2006

84101000 17877000 4.70

2007

144299000 22042000 6.5
7 6 5 4 3 2 1 0

TIE Ratio

TIE Ratio

Analysis:

2006

2007

Times Interest Earned ratio was 4.7 in 2006 which have increased to 6.5 in 2007 therefore the company is able to cover the interest expense at a higher margin of safety. This was due to the fact the company increased the short term borrowing and decreased its long term borrowing from 40 million to zero. As a result the net profit increased by 46 million whereas the interest charges only increased by 4.2 million. Thus it shows an intelligent move made by the company to borrow less and depend more on the investment through other financing techniques.

BAHRIA UNIVERSITY KARACHI

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ANALYSIS OF FINANCIAL REPORT

EBITDA Ratio:
Formula: .

2006

84101000 25250000 0 0 17877000 56000000 0 1.48

2007

144299000 33896000 0 22042000 0 0 8.1
10 8 6 4 2 0

0

EBITDA Ratio

EBITDA Ratio

2006

2007

Analysis: In 2006 EBITDA ratio was 1.48 times. In 2007 EBITDA increased drastically to 8.1 times, the reason for this is the repayment of principal leaving zero long term debts in 2007.

BAHRIA UNIVERSITY KARACHI

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ANALYSIS OF FINANCIAL REPORT

PROFITABILITY RATIO

Profit Margin:
Formula:

2006

41323000 1209033000 3.42%

2007

Profit Margin
0.6 0.5 0.4 0.3 0.2 0.1 0 2006 2007 Profit Margin

87510000 1585648000 5.5

Analysis:
The profit margin has increased from 3.42% in 2006, to 5.5% in 2007. According to the figures, company has been successful in raising their Sales by 31% in 2007 but the increases in net income available common stock holders was 111% which leaded to a increase in the profit margin.

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ANALYSIS OF FINANCIAL REPORT

Basic Earning Power:
Formula:

2006

84101000 562887000 14.94%

2007

BEP
0.25 0.2 0.15 0.1 0.05 0 2006 2007 BEP

144299000 755242000 19.1%

Analysis:
The BEP has increased from 14.94% in 2006, to 19.1% in 2007. This increase was due to increase in EBIT by 71.6% and the total assets increased by just 34.17% which leaded to increase in the BEP.

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ANALYSIS OF FINANCIAL REPORT

Return on Asset:
Formula:

2006

41323000 562887000 7.34%

ROA
0.8 0.6 0.4 ROA 0.2 0 2006 2007

2007

87510000 755242000 11.5%

Analysis:
The Return on Assets gradually rose in year 2007, to 11.5% from 7.34%, in year 2006. This was due to the fact as the Net income by 111.7% whereas total asset only increased by 34.17%. Atlas Batteries has been able to use its total assets more efficiently over these years and have been successful in raising net profit as well.

BAHRIA UNIVERSITY KARACHI

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ANALYSIS OF FINANCIAL REPORT

Return on Equity:
Formula:

2006

15.62% 2007
0.3

ROE
0.25 0.2 0.15 0.1 0.05 0 2006 2007 ROE

87510000 339858900 26%

Analysis:
According to the figures, Atlas Batteries shows a favorable trend to the shareholders, initially being at 15.62% and then rising by 10.38% to 26%. This again has been due to 111.7% 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.

BAHRIA UNIVERSITY KARACHI

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ANALYSIS OF FINANCIAL REPORT

MARKET VALUE RATIO
Price Earning Ratio:
Formula:

2006

73.9 7.8 9.5

Price Earning Ratio
14 12 10 8 6 4 2 0 2006 2007

2007

167.8 14.4 11.7

Price Earning Ratio

Analysis:
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 2007 the ratio has increased from 9.5 to 11.7. This was due to the fact that the earnings per share over the year is increased with great difference due to which the market price increased as a result of demand of shares. However a higher Price Earning ratio shows high growth prospects due to which the income has therefore increased in the year 2007.

BAHRIA UNIVERSITY KARACHI

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ANALYSIS OF FINANCIAL REPORT

Price Cash Flow Ratio:
Formula:

2006

73.9 29.93 2.46

Price per Cash Flow
6 5 4 3 2 1 0 2006 2007 Price per Cash Flow

2007

167.8 34.8 4.82

Analysis:
It can be seen from calculations that in year 2007 the ratio is increased from 2.46 to 4.82. This was due to the fact that the price per share over the year has increased with great difference of 93.9 per share where as cash flow per share increased by just 16.3%.

BAHRIA UNIVERSITY KARACHI

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ANALYSIS OF FINANCIAL REPORT

Market per Book Ratio:
Formula:

2006

73.9 102.76 0.72

2007

167.8 114.8 1.46

Market per Book Ratio
2 1.5 1 0.5 0 2006 2007 Market per Book Ratio

Analysis:
It can be seen from calculations that in year 2007 the ratio is more than doubled from 0.72 to 1.46. This was due to the fact that the price per share over the year has increased with great difference of 93.9 per share where as book value per share increased by just 11.7%.

BAHRIA UNIVERSITY KARACHI

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ANALYSIS OF FINANCIAL REPORT

ADDITIONAL FUNDS NEEDED
Company is working on the capacity of 76% and its sales are having growth rate of 31%. Formula for AFN: ∆ Where A*= Spontaneous Assets L*= Spontaneous Liabilities So= Sales of previous year S1= Sales of Current Year ∆S= Change in sales M= Profit margin DPO= Dividend payout ratio 440235 1585648 868000 For Fixed Assets @ 100% @ 100% @ 100% Analysis: By the information from above calculation it can be said that the company only required Rs. 868000 as an additional funds to fulfill its growth of sale. The company do not require additional funds for its fixed assets because its expected sales is less than the sales @ 100% capacity 1585648 0.76 2086379 376615 156154 1585648 376615 0.055 2077199 1 0.417 1000 ∆ 1

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ANALYSIS OF FINANCIAL REPORT

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ANALYSIS OF FINANCIAL REPORT

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ANALYSIS OF FINANCIAL REPORT

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