Financial Statement Analysis (2013-2017)

Submitted by:

Farhan Siddiq Tahir

Section A

16U00535

Submitted to:

Ma’am Seeham Yousaf

LAHORE SCHOOL OF ECONOMICS

Abstract

The following documents contains financial statement analysis of Ferozsons Laboratories

Limited. The purpose of doing this financial statement analysis was to see the
performance of the company in terms of liquidity, risks and intrinsic value of firm. It also
contains comparative analysis, common size analysis, trend analysis and competitor
analysis. The industrial analysis was also done in order to observe the performance of
Ferozsons in related to industry.
Contents
Introduction .................................................................................................................................................. 4
Mission Statement .................................................................................................................................... 5
Vision Statement ....................................................................................................................................... 5
Shareholding ................................................................................................................................................. 5
Comparative Analysis .................................................................................................................................... 6
Balance Sheet............................................................................................................................................ 6
Income Statement .................................................................................................................................... 8
Cash Flow Statement ................................................................................................................................ 8
Common Size Analysis .................................................................................................................................. 9
Balance Sheet............................................................................................................................................ 9
Income Statement .................................................................................................................................. 10
Cash flow statement ............................................................................................................................... 10
Ratio Analysis: ............................................................................................................................................. 11
Liquidity Ratios ........................................................................................................................................ 11
Profitability Ratios................................................................................................................................... 17
Solvency Ratio ......................................................................................................................................... 22
 Asset Utilization & Efficiency Ratio ......................................................................................................... 23
Market Value Ratios................................................................................................................................ 26
Additional Ratios ..................................................................................................................................... 28
Industrial Analysis ....................................................................................................................................... 33
Trend Analysis ............................................................................................................................................. 36
Competitor Analysis .................................................................................................................................... 37
Asset Utilization & Efficiency Ratio ............................................................................................................. 44
Discussion.................................................................................................................................................... 47
Recommendations ...................................................................................................................................... 48
Conclusion ................................................................................................................................................... 48
References .................................................................................................................................................. 49
Appendix ..................................................................................................................................................... 49

Introduction

Ferozsons Laboratories Limited was founded by Maulvi Ferozuddin Khan in 1956. It is

Pakistan’s one of the most trusted and first Medicine manufacturing firm in Pakistan. In
1960 it also got listed in Karachi Stock Exchange. Ferozsons has also won multiple
awards for being in top 25 in KSE 100. It has also subsidiaries with Biosciences and
Farmacia. It has diverse product lines which contains branded generics and in-licensed
products as well.
It is also one of the leading exporter not only in Asia but also in Africa and are also looking
for opportunities to enter in other markets. They have also partnered with international
firms such as Boston Scientific Corporation. This partnership has helped Ferozsons in
gaining strength in other channels such as oncology, cardiology and other fields. They
are the only firm to have biotech manufacturing Technology Company in Pakistan.

Mission Statement
“We aim to improve the quality of life by providing innovative healthcare solutions,
ensuring patient access to treatments & cures. In doing so we will, enhance shareholder
value, Lead in employee development, Collaborate for excellence be ethical &
transparent.”

Vision Statement
“We will strive to attain Market leadership by putting patients first and seeing every day
as a new opportunity to earn trust and credibility.”

Shareholding
The shareholding pattern for Ferzosons Laboratories Limited is diverse. It has 27.45%
shareholders from there associated companies such as KFW Factors Pvt. Ltd. They also
have shares from 1.20%. About 9.6% of shareholders are Directors themselves and their
minor and spouses. 3.0% of shareholders are executives themselves. Public sectors are
also hold share which constitutes about 6.06%. Banks and insurance companies also
constitutes for 19.95%. The major chunk of shareholding is from General public is
32.58%.
Comparative Analysis
Balance Sheet
The comparative balance sheet tells the percentage of component from year to year. The
comparative statement of the balance sheet says many things about society. First, non-
current assets increased from 0.14% to 9.62% due to a net increase in property, plant
and equipment. This means that Ferozsons has spent a lot of money buying new
machines and other fixed assets. This increase was higher in 2013-2014. Due to
expansion, there would be greater productivity. However, the value of intangible assets
decreased starting in 2015 due to the fact that the value of fixed assets is depreciated
over the years for which they were purchased. Current assets increased from 6.53% to
8.32%. Although there is an increase in current assets, but the change is very small. This
is because the value of the Bank's cash and balance has deteriorated over the years from
7.28% to -12.04%. Cash and bank balances increased from 2012 to 2016 due to higher
short-term payments and cash sales. Cash and the bank balance then dropped to
12.04%. Ferozsons Company can start to face cash flow problems and its commercial
debts have also increased. The company's inventories increased over the years, which
may partly explain the decrease in current assets and is a bad sign for the company,
since it does not have its inventory and uses it ineffectively. Increase in trade debts may
be considered as a reason to increase current assets. Loans and advances have
decreased from 41.48% to -8.77%, which is a negative sign for the company as interest
income will be reduced and liquidity problems will arise. This resulted in an increase in
total assets from 5.35% to 8.60%.

Total Equity

The total equity of Ferozsons consists of reserves and capital issued, subscribed and
paid. Ferozsons Company reserves decreased from 28.07% to 15.62%. This may be due
to the purchase of fixed assets, the payment of repairs and maintenance. This is the
reason why total equity has also decreased. While the paid capital remained unchanged
in 2013-2017, that is, 94,362,065 rupees.

Total Liabilities

Total liabilities include current and non-current liabilities. Non-current liabilities were 0 in
2017 because, during the year, the Company paid all its non-current liabilities. However,
non-current liabilities decreased from -86% to -100% between 2013 and 2016, since
deferred taxes decreased from -35% to -100%. This means that the company paid all the
taxes owed and not yet paid. In addition, liabilities for assets under a finance lease
became -100% in 2014 due to the expiration of the lease agreements and the transfer of
title to the property. of the society. Current liabilities decreased from -8.66 to -10.38% due
to lower short-term loans and the current portion of non-current liabilities. However,
suppliers and other accounts payable increased from 15.6% to 19.2%, which means that
companies do not pay their debts effectively. Due to current and non-current liabilities,
total liabilities increased from -20.5% to -10.38%.

Income Statement
Ferozson’s net income has declined over the years from 51.9% to 30.7%. This is due to
several reasons. First, net sales were reduced from 11.1% to 3% due to higher sales
tax, trade discounts and sales returns. However, the cost of goods sold has declined
over the years, from 8.59% to 1.9%, which is a good sign, as the company has been
able to control its manufacturing expenses to some extent. Nevertheless, gross profit
decreased from 23.9% to 12.9%. Second, distribution costs increased from -6% to
8.3%, which reduced net income. Distribution costs were high due to higher expenses in
salaries, transportation and freight, rentals and repairs. A positive element is that the
company was able to control its administrative expenses, which decreased from 24% to
-6%. The company spends less on advertising, advertising, charities and donations. In
addition, the company's other revenues improved from 2013 to 2017. The company
obtained these revenues from other sources, such as profits on bank deposits, gains on
the sale of assets. Third, interest and operating expenses increased, with pre-tax
income going from 49.6% to 29.9%. However, taxes were reduced from 45.6% to 22.6%
as they were effective in paying current and deferred taxes. In general, this has resulted
in a decrease in net income over these five years.

Cash Flow Statement

The cash flow statement consists of net cash generated from operating activities, net
cash used in investing and financing activities. Net cash generated by operating activities
declined very quickly, from 137.5% to 50.8%. This happened because the company did
not gain much with the sale of assets. In addition, the financial, administrative and
distribution costs have increased but declined in 2017. In addition, income taxes paid also
increased, which generally resulted in a reduction in the net cash flows generated by
operating activities. Net cash used for investing activities increased abnormally, from -
4.58% to 1610%. This is because fixed capital expenditures increased by 3% to 1195%,
representing an expense for the company, which spent a lot to acquire new assets, new
properties and to repair an existing asset. In addition, the source of revenue from the sale
of property, plant and equipment decreased from 151% to -57% due to a loss on sale of
assets. Net cash used for investing activities decreased from 479% to -53%. This is a
good sign for Ferozsons because it has reduced its fundraising expenses. This is because
dividend payments have declined over the years from 50% to 0.001%. All lease payments
were made in 2014. And the repayment of long-term finance has also declined over the
years.

Common Size Analysis

Balance Sheet
Non-current assets represent about 21% of total assets and current assets, about 78%
of total assets. Of the non-current assets, property, plant and equipment represent the
largest share, accounting for 20% of total assets in 2017. The share rose from 17.6% to
20% in 2012-2017, as Ferozsons bought new assets. As a result, non-current assets
increased in 2013-17 from 17.5% to 21%. In current assets, commercial debts represent
36% of the quota. This means that the company has sold products on credit and that
the company cannot collect the customer's money and that the credit control is
considered weak or that the company exaggerates. Inventories represent 28% of total
assets. Inventories fell by more than 47% to 28% because the company started using
its inventory effectively. Cash and bank balances represent 11% of total assets. It
increased from 6.8% to 11% because after 2015, the company sold a portion of its
assets. This is why current assets of 82% to 78% are due to a decrease in inventories.

Current liabilities represent 19% of total assets. As current assets are higher than
current liabilities, the company therefore has good liquidity. Most of this is due to
accounts payable and other payables, which represents 18%, which means that the
Company is in good standing for the payment of its accounts payable, as its value has
decreased from 26% to 18%. The non-current liability is 0% in 2017. This is explained
by the fact that the company settled all of its liabilities during the year. As a result, total
liabilities decreased from 30% to 19%. Total equity represents 81.6% of total assets.
This is due to the contribution of 74% of reserves and 7.3% of paid-up capital. It also
implies that the debt-to-equity ratio is extremely low and that the company is highly
dependent on capital funding.
Income Statement
Ferozsons achieved 7% of total sales in 2017, up from 6.5% in 2013. However, net
profit rose but with fewer points. Most sales disappeared from the cost of goods sold,
81%. The cost of the products sold was high due to the increased costs of
manufacturing and purchasing raw materials and packaging. As a result, the gross profit
is 18.6%, which is much lower. Administration and distribution costs are low, 2.7% and
4.7%. The company was able to control its administration and distribution costs. That's
why the advantage of operations is 11.3%. The financial cost and other operating
expenses were also very low. As a result, the pre-tax profit is 10.37 and the tax is 3%,
so the net profit is 7%.

Cash flow statement

Most of the cash flow came from cash generated by operations, which is 99.75%.
However, in 2014 this represented 22% of total cash inflows. This is due to the fact that
in 2014, the company settled its commercial accounts and other accounts payable
accounts receivable and that its trade debts also increased. The rent taxes were -37%,
which means that the taxes paid were very high. This is why the net cash generated by
operating activities is 61.22%. The Company used a large amount of cash in fixed
costs, so net cash used in investing activities represents 30.2% of total cash inflows in
2017. Net cash used in financing activities nearly - 38% of cash inflows are due to 19%
of dividend payments and 19% of long-term finance repayments. As a result, cash and
cash equivalents at the end of the year contributed 58.57% to cash inflows.
Ratio Analysis:
Liquidity Ratios
Current Ratio
 Current Ratio
4.5

3.5

2.5

1.5

0.5

0
2017 Average Engro Polymer & Dewan Salman Sitara Textile Fauji Fertilizer
Chemicals Fibers

Current ratio of Ferozsons has decreased in 2017 (4.27) as compared to 2013 (4.49). It
shows that the ability of Ferozsons to meet its short term obligation have declined slightly.
It was basically due to increase in current liabilities and decrease in current assets.
Ferozsons also faced management issues of inventory as there sales declined in 2015
(2.20) drastically due to the policy changes in government regarding medicine for
Hepatitis which resulted in huge loss for firm. Moreover, local competitors also came in
for selling of same medicine “Sovaldi” at low cost because raw material was available
locally and there CGS decreased as well. Due to which there inventory started piling up
and is also shown by declining inventory turnover. Their account receivables were also
increasing at alarming rate which should be collected by time, therefore, they should also
tighten up there credit policy.

Quick Ratio
 Quick Ratio
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
2017 Average Engro Polymer & Dewan Salman Sitara Textile Fauji Fertilizer
Chemicals Fibers

Quick ratio as depicts liquidity position excludes inventory. It increased in 2017 upto 4.42
which shows that Ferozsons was more able to meet its short term obligations with most
liquefiable asset which is certainly cash. Here also there is sudden drastic decline 2015
upto 2.20 which is due to slow growth rate, means less sale and also due to increasing
leverages and A/R increasing.

Inventory Turnover

Inventory Turnover
12

10

0
2017 Average Engro Polymer & Dewan Salman Sitara Textile Fauji Fertilizer
Chemicals Fibers

The inventory turnover of Ferozsons declined overtime from 2.32x to 1.29x which depicts
that their efficiency to manage inventory declined overtime. Ferozsons is holding more
inventory for longer period of time this is due to the decline in there sales due to the
medicine issue as discussed earlier. As a result of decline in sales the inventory turnover
is declining overtime.
Days Sales in inventory

Days Sales in Inventory

160
140
120
100
80
60
40
20
0
2017 Average Engro Polymer & Dewan Salman Sitara Textile Fauji Fertilizer
Chemicals Fibers

The days sales in inventory ratio for Ferozsons is increasing drastically overtime from
108.35 days to 151.32 in 2017 which is a negative sign for firm. As it shows that
Ferozsons is holding its inventory for large number days. It is due to declining sales of
Ferozsons as a result of which there inventory turnover also declined and as a result days
sales in inventory raised. It shows that Ferozsons wasn’t handling its inventory
management efficiently.

Receivables Turn Over

Receivables TO
60
50
40
30
20
10
0
2017 Average Engro Polymer & Dewan Salman Sitara Textile Fauji Fertilizer
Chemicals Fibers

The receivables turnover of Ferzsons has declined from 18.42x to 9.83x which was a
drastic fall and is not good. It shows that Ferozsons wasn’t taking its account receivables
rapidly as a result of which they were also liquidity issues. It indicates that they might
have poor collection process or bad credit policies. It might be also due to the customers
that aren’t creditworthy. Thus, Ferozsons should immediately revise their credit policy ans
speed up their collection process.

Days sales in receivables

Days sales in receivables

50
45
40
35
30
25
20
15
10
5
0
2017 Average Engro Polymer & Dewan Salman Sitara Textile Fauji Fertilizer
Chemicals Fibers

The days sales in receivables of firm is increasing at alarming rate from 25.790 in 2013
to 35.88 days in 2017. Which is not a good sign it shows that Ferozsons is taking more
number of days to collect its receivables from customers. If Ferozsons doesn’t revises its
credit policy immediately they can face cash flow problems in near future which to some
extent they are already facing which was previously discussed as well. It would be much
better for Ferozsons if they do less credit sales.

Receivables collection period

 Receivables collection period
50
45
40
35
30
25
20
15
10
5
0
2017 Average Engro Polymer & Dewan Salman Sitara Textile Fauji Fertilizer
Chemicals Fibers

The Days sales in receivables of Ferozsons has increased from 25.790 in 2013 to 35.88
days in 2017 which is certainly alarming. It indicates that Ferozsons is taking more
number of days to collect receivables. They should decrease the length of credit term and
try to speed up there collection process to avoid any sort of severe liquidity issue.

Days purchases in account payable

Days purchases in A/P

140
120
100
80
60
40
20
0
2017 Average Engro Polymer & Dewan Salman Sitara Textile Fauji Fertilizer
Chemicals Fibers

The days purchases in Account payable of Ferozsons has increased from 92.62 in 2013
to 120.7 days in 2017 which seems to be right as long as it doesn’t affect their credit
worthiness. They can use that money for short term investment or they can try to enhance
their working capital and FCF. But if it is too high then it is affecting its credit worthiness
which might destroy relation with suppliers and they might be giving up some discount
offers by suppliers. Ferozson should pay their creditors immediately rather than using that
money for any other purpose as it has affected its account payable turnover drastically
which gives them a negative image in market.

Account Payable turnover

A/P Turnover
18

16

14

12

10

0
2017 Average Engro Polymer Dewan Salman Sitara Textile Fauji Fertilizer
& Chemicals Fibers

The A/P turnover is decreasing from 14.5x in 2013 to 3.11x in 2017 which is a big negative
change. It indicates worsening financial condition. It may terminate relationship with
suppliers or decrease their credit worthiness. It is due to the liquidity problem they are
facing due to changes of policy by government.

Profitability Ratios
Return on Sales
 Return on Sales
25.0%

20.0%

15.0%

10.0%

5.0%

0.0%
2017 Average Engro Polymer Dewan Salman Sitara Textile Fauji Fertilizer
& Chemicals Fibers

The Return on sales of Ferozsons is declining from 16.2% in 2013 to 9.1% in 2017
which is not good and indicates that their proportion of profits which is generated from
sales is declining. It due to the financial troubles they are facing such as drastic decline
in sales and Government also forced Ferozsons to reduce their medicine price which
decreased their margin a lot and resulted in decline of profits.

Gross Profit Margin

Gross Profit Margin

50.0%
45.0%
40.0%
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
2017 Average Engro Polymer & Dewan Salman Sitara Textile Fauji Fertilizer
Chemicals Fibers

The gross profit of Ferozsons has declined from 48% in 2013 to 41.2% in 2017 which is
a bad indicator as it shows decline in profits. It is due to the Medical device registration
rules by government and is discussed previous as well. They had to lower price below
their profit margins to get medicine registrated in Pakistan but still price was high which
resulted in decline in sales, low margin.

Operating Profit Margin

Opt. Profit Margin

30.0%

25.0%

20.0%

15.0%

10.0%

5.0%

0.0%
2017 Average Engro Polymer & Dewan Salman Sitara Textile Fauji Fertilizer
Chemicals Fibers

The operating profit margin of Ferozsons has declined drastically over time from 18.2%
in 2013 to 14% in 2017. Basically it indicates a drastic decline in sales and high sales of
low margin items while decline for high margin products. This decline was also due to
increase in fixed cost while more increase in cost of goods sold therefore the operating
profit margin of Ferozsons declined over time.

EBTIDA to Sales
 EBTIDA TO SALES
30.0%

25.0%

20.0%

15.0%

10.0%

5.0%

0.0%
2017 Average Engro Polymer & Dewan Salman Sitara Textile Fauji Fertilizer
Chemicals Fibers

The EBTIDA to sales of Ferozsons has declined from 23.9% in 2013 to 19.3% in 2017
which is a negative indicator. This decline was is to increasing inflation rate, reduced sales
and changes in regulation devices, high distribution expense with input prices therefore
a negative trend is observed. To increase it Ferozsons should decline its distribution
expenses.

Return on Assets

ROA
25.00%

20.00%

15.00%

10.00%

5.00%

0.00%
2017 Average Engro Polymer Dewan Sitara Textile Fauji Fertilizer
& Chemicals Salman Fibers

The ROA of Ferozsons has declined from 16.34% to 9.93% which is negative change
and indicates that they are not using their assets efficiently to generate revenues. It is
also due to declining profit margins as a result of which ROA also declined. The overall
assets of Ferozsons is declining which can reduce ROA as well. They should increase
their sales, reduce expenses and also reduce their assets costs.

Return on Equity

ROE
70.0%

60.0%

50.0%

40.0%

30.0%

20.0%

10.0%

0.0%
2017 Average Engro Polymer & Dewan Salman Sitara Textile Fauji Fertilizer
Chemicals Fibers

The Return on Equity for Ferozsons has declined from 21.7% in 2013 to 6.9% in 2017
which is a bad indicator. It shows that they are not using equity financing efficiently to
fund operations. It also shows inefficiency of management that they are not using capital
invested by shareholders efficiently. It is also due to decreasing asset turnover and
decreasing profit margins as well.

Return on Net operating assets

 RNOA
160%
140%
120%
100%
80%
60%
40%
20%
0%
2017 Average Engro Polymer Dewan Salman Sitara Textile Fauji Fertilizer
& Chemicals Fibers

The RNOA of Ferozsons is also declining from 112% in 2013 to 71% in 2017. It depicts
bad image of firm as it indicates that company is not using there operating assets
efficiently in order to generate profits. It also shows that their NOA is high as compared
to NOPAT. Ferozsons should lower their operating cost also in order to improve their
RNOA.

Solvency Ratio
Liquidity to Equity Ratio

L/E Ratio
3.5
3
2.5
2
1.5
1
0.5
0
2017 Average Engro Dewan Sitara Fauji
Polymer & Salman Textile Fertilizer
Chemicals Fibers

The liquidity ratio of Ferozsons is increasing from 0.191 in 2013 to 0.196 in 2017 which
shows that they are relying more on debt as compared to equity and it is concerned with
high risks. This means that they have less creditor cushion. Ferozsons should go for
equity financing to have less risk.
Times Interest Earned Ratio

TIE
100
90
80
70
60
50
40
30
20
10
0
2017 Average Engro Polymer & Dewan Salman Sitara Textile Fauji Fertilizer
Chemicals Fibers

The Times Interest Earned Ratio has increased from 34.8% in 2013 to 37.96% in 2017
which is a good sign for creditors. It indicates that Ferozsons has enough earning before
tax to pay interest expense. It also depicts Ferozson’s creditworthiness to creditors. It also
shows that they have more earnings as compared to their interest obligations.

Asset Utilization & Efficiency Ratio

Sales to Asset Turnover
 Sales to Asset (Turnover)
1.4

1.2

0.8

0.6

0.4

0.2

0
2017 Average Engro Polymer & Dewan Salman Sitara Textile Fauji Fertilizer
Chemicals Fibers

The sales to asset turnover has declined from 0.88x in 2013 to 0.63x in 2017 which is not
favorable and also not a good sign. It indicates that Ferozsons is not managing its assets
efficiently as compared to the revenue they are generating. It also shows that they need
to put in high investment to generate sales as a result lower profitability. It can also be
due to decline in their sales and they might be facing any production problems.

Sales to average NWC

Sales to Avg NWC

30

20

10

0
2017 Average Engro Polymer Dewan Salman Sitara Textile Fauji Fertilizer
-10 & Chemicals Fibers

-20

Sales to average NWC has declined from 3.38 in 2013 to 1.87 in 2017 which is a poor
indicator as it indicates that Ferozsons is not using its working capital effectively and as
a result their working capital is not supporting their sales. It is due to that they are investing
too much in inventory and their account receivables are also increasing as well due to
which their inventory is getting obsolete and bad debts increasing.

Sales to Fixed Assets turnover

Sales to FA turnover
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
2017 Average Engro Polymer & Dewan Salman Sitara Textile Fauji Fertilizer
Chemicals Fibers

The sales to Fixed Assets turnover of Ferozsons has declined from 1.89x in 2013 to 1.39x
in 2017 which is not a good indicator. As it indicates that they are not using there fixed
assets effectively to generate sales. It is due to that they have less investment in fixed
assets investment. It is also due to drastic fall in their sales.
Market Value Ratios
Earnings per Share

EPS
50
45
40
35
30
25
20
15
10
5
0
2017 Average Engro Polymer Dewan Salman Sitara Textile Fauji Fertilizer
& Chemicals Fibers

The EPS of Ferozsons is decreasing from Rs.15.44 in 2013 to Rs.13.04 in 2017 which is
not a good result. As it depicts that Investors are willing less to pay for your shares and
Ferozson’s share worth has decreased. It also tells that they are less profitable now. It
declined drastically from 2016 to 2017 due to the issue they had for price for medicine
with government as a result of which their sales and profits were effected heavily.

Price to Earnings Ratio

P/E
25

20

15

10

0
2017 Average Engro Polymer & Dewan Salman Sitara Textile Fauji Fertilizer
Chemicals Fibers
The P/E ratio of Ferzosons has increased from Rs.10.62 in 2013 to Rs.15.62 which is a
good sign and shows that the expectations of investor is also increasing as investors
would be expecting higher growth in future.

Dividend Yield

Dividend Yield
12.00%

10.00%

8.00%

6.00%

4.00%

2.00%

0.00%
2017 Average Engro Polymer Dewan Salman Sitara Textile Fauji Fertilizer
& Chemicals Fibers

The Dividend yield of Ferozsons is increasing with positive trend from 1.81% in 2013 to
6.31% in 2017 which is a positive sign. It depicts that company is paying its profit more in
dividend form. The DPS has increased basically due to the prevailing market conditions
which is positive.
Market to Book Value

Market to Book Value

60

50

40

30

20

10

0
2017 Average Engro Polymer Dewan Salman Sitara Textile Fauji Fertilizer
& Chemicals Fibers

The Ferozson’s Market to Book Value has increased from Rs.15.855 in 2013 to Rs.20.381
in 2017 which is a good sign. It shows that market price of company has improved from
its book value.

Additional Ratios
Cash to Current Assets ratio

Cash to CA
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
2017 2016 2015 2014 2013

The Cash to Current asset ratio of Ferozsons has improved from 6% in 2013 to 7% in
2017 which is a good sign. As it depicts that liquidity of Ferozsons has improved overtime
by comparing its readily available cash to current assets. It shows that cash shows larger
portion of total current assets.

Cash to Current Liabilities Ratio

Cash to Cl
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
2017 2016 2015 2014 2013

The Cash to current liabilities ratio of Ferozsons has increased with positive trend from
2013 to 2016 but there was a sharp decline from 2016 (47%) to 2017(28%). It is due to
the same issue which is discussed earlier (Medicine Regulation Device by Government).
It shows that liquidity of Ferozsons is 28% which was same in 2013. So the ability of
Ferozsons to meet its short time obligation from 2016 to 2017 has decreased but same if
we compare 2017 and 2013. It also indicates that the perception of creditor would be
same as that in 2013. It is because Ferozsons had more current liabilities than cash on
hand.
Free Cash Flow

FCF
7,000,000,000

6,000,000,000

5,000,000,000

4,000,000,000

3,000,000,000

2,000,000,000

1,000,000,000

0
2017 2016 2015 2014 2013

The FCF of Ferozsons has increased with positive trend from 2013 to 2016 but there was
a sudden decline from 2016 to 2017 due to the regulation issue. But if we compare 2013
and 2017 there is a drastic change which is a good indication and shows that they have
excess of cash after paying operating expenses and liabilities. Thus, Ferozsons can use
it for expansions, reducing debt or dividends. But when it declined from 2016 to 2017 it
could be due to increasing inventory turnover, working capital increased, Account
payables increased and also current liabilities increased as a result of which FCF
declined.

Cash flow Adequacy Ratio

Cash Flow Adequacy Ratio

10
9
8
7
6
5
4
3
2
1
0
2017 2016 2015 2014 2013
The cash flow adequacy ratio of Ferozsons has declined from 9.10% (2013) to 5.56%
(2017) which is not a good indication. As it shows cash generated by Ferozsons isn’t
enough to pay other ongoing expenses. It was due to decline in sales, decline in inventory
and decline in account receivables. Which shows that they weren’t able to generate
enough cash through which they could pay their expenses as a result they had to go for
borrowing and there L/E ratio increased too.

Cash Reinvestment Ratio

Cash Reinvestment Ratio

250%

200%

150%

100%

50%

0%
2017 2016 2015 2014 2013

The cash reinvestment ratio increased with positive trend from 2013 to 2016 which is a
good sign. As it shows that Ferozsons is reinvesting larger portion of cash generated back
into the business for investing in its fixed assets and for improving business. But it
suddenly declined from 2016 to 2017 due to the sudden declines in sales which also
reduced growth and declined cash generated.
ROCE

ROCE
120%

100%

80%

60%

40%

20%

0%
2017 2016 2015 2014 2013

The ROCE of Ferozsons increased with positive trend from 2013 to 2016. Which is
certainly a good sign as it shows that Ferozsons is effectively generating profits from its
capital. Due to which profit’s larger chunk can be reinvested back into the business to
gain more benefit of shareholder and use its capital efficiently. But sudden decline was
observed from 2016 to 2017 because Ferozsons wasn’t able to employ its capital
effectively.

Dividend per Share

DPS
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
2017 2016 2015 2014 2013
The DPS is increasing with positive trend from 0.40 in 2013 till 1.26 in 2015 which is a
good indication but in 2016 there was a sharp decline which was lowest and was due to
poor earnings and company was trying to do debt reduction so they decreased dividends
to reduce dps in long term. In 2017 it increased with positive trend showing that they were
paying more dividend per share.

Industrial Analysis
Industrial Analysis
35.00%

30.00%

25.00%

20.00%

15.00%

10.00%

5.00%

0.00%
Net Profit Margin ROA ROE
2013 2014 2015 2013i 2014i 2015i

Net Profit Margin

The Net profit margin of Ferozsons in 2013 was 16.20% while that of industry was 13.28%
which is certainly a good sign and shows that Ferozsons has highest profitability after
deducting all expenses as compared to other firms in industry. Same is the case in 2014
(14.40%) and 2015 (16.90%) while industry percentage was (8.13%) in 2014 and in 2015
was 14.98%. Ferozsons was managed to have highest Net Profit margin in them also as
compared to its industry. It indicates that Ferozsons was managed to have less expenses
so it managed to have highest Net Profit Margin.
Return on Assets

The Return on Assets was highest in 2013 (16.34%), 2014 (9.63%) and 2015 (21.60%).
While that of industry was 11.11% (2013), 6.90% (2014) and 11.63% (2015). Ferozsons
managed to get highest ratio highest in all 3 years because its net income was increasing,
profit increased, sales increased with more percentage change. As a result, its ROA
boosted up.

Return on Equity
The Return on Equity was low 21.70% in 2013 as compared to industrial average in 2013
which was 30.57%. Same is the case in 2014 8.4% while in industry it was 18.12% and
in 2015 it was 28.3% which was almost same for both. It shows that they are not using
equity financing efficiently to fund operations. It also shows inefficiency of management
that they are not using capital invested by shareholders efficiently. It is also due to
decreasing asset turnover and decreasing profit margins as well.

Industrial Analysis
3.00

2.50

2.00

1.50

1.00

0.50

0.00
L/E Ratio Asset Turnover
2013 2014 2015 2013i 2014i 2015i

L/E Ratio

The Liability to Equity ratio in 2013 ratio increased from 2013 to 2015 from 0.19 to 0.48
which is a bad indication as it increases risk for them but as compared to industry they
are less risky as industrial average is 2.63 and 2.43. It shows that Ferozsons is less risker
as compared to industry and have cushion for creditors as well which indicates less
chances of bankruptcy.

Asset Turnover

The Asset turnover is increasing from 2013 to 2015 from 0.88% to 1.01% which is good
sign as they are above the benchmark which shows that Ferozsons is using its asset
efficiently as compared to the industry in generating sales revenue.

Industrial Analysis
30.00

25.00

20.00

15.00

10.00

5.00

0.00
EPS
2013 2014 2015 2013i 2014i 2015i

EPS

The EPS of Ferozsons is highest in 2013, 2014 and 2015 as compared to industry
average. It shows that Ferozsons was more profitable as compared to industry and
investors were also willing to pay high to earn $1 off profit from business. Ferozsons was
above industrial benchmark.
Trend Analysis

The total assets of Ferozsons increased from 2013 to 2017 with positive trend. The total
assets of Ferozsons increased with 109% because they were expanding as increase in
account receivables and property plant and equipment was observed indicating that they
were expanding. The trade debts are increasing from 2013 to 2017 indicating that
Ferozsons increased their sales on credit and also that they were lagging on collection
process. There was a decline in 2014 indicating that they cleared account receivables
more as compared to 2013. The stock in trade increased enormously with 109%
indicating that they were holding inventories for long and also indicates declines in sales.
Property, plant and equipment increased tremendously from 2013 to 2017 with 202%
indicating that they were growing rapidly and that they were reinvesting a lot in there fixed
assets to improve their business. Ferozsons had short term investment only in 2014 and
no long term investments. Total liabilities increased with positive trends from 2013 to 2017
with 149% indicating that there account payables were increasing. Ferozsons had no long
term financing but their short term financing increased by 267% indicating that they were
investing a lot for short term. The equity increased by 142% indicating that there capital
reserves were increasing as they were relying more on equity financing. There sales
declined drastically from 2016to 2017 due to the medicine device regulation issue by
government. The cost of goods sold increased from 306 % till 2016 because of the sales
decline and increase in inventory, they were investing more in inventory which resulted in
increased cost of goods sold. But in 2017 it declined to 69% because the issue of
medicine regulation was resolved and their sales started to get back normal. The total
operating expense increased till 2016 with 75% but then declined to -16% because of that
medicine regulation issue and when it got resolved the expenses declined as there CGS
decreased. Net income increased from 2013 to 2016 rapidly because of increase in sales
but after 2016 it declined as mentioned earlier.

Competitor Analysis
Liquidity Ratio

Current Ratio
Current ratio depicts that Ferozsons have highest current ratio which is 3.94. Dynea
Company has the second peak current ratio of 3.237. Dawood Hercules chemicals ltd
comes on third highest ratio of 1.38. All firms have ratios greater than 1 means that all
firms have sufficient assets to meet their short term obligations. Dewan Salman Fiber,
Engro Polymers, Sitara Chemicals, and Fauji fertilizers have ratio lower than 1 which
shows that liquidity position is not good and also they may face difficulty in covering
their current liabilities from current assets. Dewan Salman shows the lowest ratio 0.16
which is not good.

Quick Ratio
Quick ratio shows that ferozesons Laboratories has the highest quick ratio which is
3.896. Dynea Company has the second highest quick ratio that is 1.91. Dawood
Hercules chemicals ltd comes on third that is 1.17..All these companies have ratios
greater than 1 means that company have sufficient short term assets to meet its short
term obligations which excludes inventory. Dewan Salman Fiber, Sitara Chemicals,
Engro Polymers and Fauji fertilizers have less than 1 showing that their liquidity position
is not good.

Inventory Turnover
Fauji fertilizers has inventory turnover of 2.43x, Sitara chemicals had 5.17x and Dynea
Pakistan Ltd 5.06x. All companies have ratio higher than 1 except for Dewan Salman
which is 0.64. It shows that dewan Salman is not efficient is making and selling its
inventory.

Days Sales in Inventory

This ratio is highest for Dewan Salman which is 88 days, then Ferozesons laboratories
(103). Dynea Company has the 71 days day sales in inventory and Fauji fertilizers have
the lowest of 37.4 days. This is a bad sign for Ferozsons because they are not able to
sell their inventory in fewer days as compared to all firms except for Fauji fertilizers.
Receivables Turnover

Receivables Turnover is maximum for Fauji fertilizers which is 50 and lowermost for
Dewan Salman which has 20x because they had decline in net sales. Moreover,
Ferozsons is on third number which is not good and should revise their policy it is because
of their sales declined and their account receivable increased.

Days Sales in receivables

Days Sales in receivables is uppermost for Dynea Company our competitor which is
49.15 and bottommost for Fauji Fertilizer which is 10 days. Dynea has highest which
shows that they have poor credit policies. Other companies have acceptable ratio except
Sitara chemicals which is 45.

Receivables collection period

Ferozsons have 4th highest receivables collection period. While, highest for Dynea
Company which is 72. Fauji Fertilizer has least which is of 10. Thus, it shows that we are
slightly up to the mark as compare to our competitors but still need to focus on our credit
policies.

Days to sell inventory

The days to sell inventory ratio is highest for Ferozsons of160 days which is not good.
While Dynea has lowest days to sell inventory which is 40 days which is good but it shows
that we need to sell our inventory at faster rate as compared to our competitors.

Days purchases in A/P

Days purchases in A/P is highest for Engro Polymer & Chemicals which is 120 days while
Ferozsons have 2nd highest of 110 days. The least is for Fauji Fertilizers which is of 10
days. It shows that we are paying our account payables late (more number of days) as
compared to our competitors except for Engro and Sitara textile. Which means Ferozsons
can use that cash for reinvestment purposes but as long as it is not effecting its credibility.

A/P Turnover
The A/P turnover is highest for Dynea which is of 45x while Ferozsons have just 0x and
the least is for Sitara Textile which is5x. It shows that Ferozsons need to improve our A/P
turnover as our competitors are performing well in it except for Sitara Textile.

Profitability Ratios
Return on Sales

Return on Sales is highest for Fauji Fertilizer which is 19% while 2nd highest for 16% and
least for Engro Polymer. Thus, it means that Ferozsons need to have to decrease their
expenses so they could have more profitability after deducting costs from their sales.
Thus, there’s still improvement needed.

Gross Profit Margin

Gross Profit Margin is highest for Ferozsons of 43% which means that there COGS is
least as compared to their competitors while second highest is for Dewan Salman Fibers.
While, least for Engro Polymer & Chemicals.
Operating Profit Margin

Operating profit margin is highest for Fauji Fertilizer which is 28% while Ferozsons have
second highest operating profit margin of 34%. So it shows that Ferozsons is generating
less profits from their operations after deducting costs. So, Ferozsons is performing better
than all except for Fauji Fertilizer.

EBTIDA to Sales

EBTIDA to sales highest for Ferozsons which is 24.5% while least for Engro Polymer
which is 4.5%. It shows that Ferozsons is generating higher earnings after deducting their
operating expenses which also means that they’re performing better than their
competitors.

ROA

The ROA of Fauji Fertilizer is highest which is of 22% while least if for Engro Polymer &
Chemicals is 3%. Ferozsons has 2nd highest ROA of 17% which shows that Ferozsons
they are using their assets efficiently to generate revenues as compared to their
competitors except for Fauji Fertilizer.

ROE

The ROE of Fauji Fertilizer is highest which is 59% while Ferozsons is 2 nd highest of 21%
which shows that Ferozsons is using its shareholders effectively as compared to its
competitors except for Fauji Fertilizer. Engro Polymer & Chemical has lowest ROE of 6%.

RNOA

RNOA is highest for Ferozsons limited which is 149% while Dynea has lowest for 31%. It
shows that Ferozsons is using its operating assets effectively as compared to its
competitors to generate operating profits.

Solvency Ratio

The Liquidity to Equity

The L/E ratio is highest for Engro Polymer & Chemicals 2.8 while lowest for Ferozsons of
0.3, Fauji Fertilizer has 2nd highest of 2.3. it shows that Ferozsons is less risky as
compared to our competitors as they are lying less on debts and more on equity financing.

Total Leverage

Total leverage is highest for Fauji Fertilizer and Sitara textile which is 4 while least for
Dewan which is 0. Ferozsons have total leverage of about 0.9 which indicates that it is
not upto the mark as compared to its competitor. Engro polymer has negative value which
indicates that they don’t have enough cash to pay their debts.

Times Interest Earned

TIE is highest for Ferozsons which is 90 while lowest for Sitara and Engro which is 0.1. It
shows that we are performing better as compared to our competitors as we have enough
cash to cover our interest expense.

Asset Utilization & Efficiency Ratio

Sales to Asset
Sales to Asset ratio is highest for Dynea Pakistan which is 2x while, lowest for Sitara
textile of 0.6x. Ferozsons and Engro Polymer has same sales to asset ratio of 0.9. it
indicates that company is efficiently using its asset to generate sales as compared to its
competitor except for Dynea and Dewan Salman Fiber.

Sales to Average NWC

Sales to average NWC is highest for Dynea Pakistan which is 26 while lowest for Sitara
and Fauji Fertilizer which are in negative. Ferozsons have ratio of 0.4 which is lower than
Dewan Salman. It shows that Ferozsons is not using its working capital efficiently to
support their given level of sales.

Sales to FA turnover

Sales to FA turnover is highest for Dynea Pakistan which is which is 9x, Ferozsons have
second highest of 4x which is while 4th highest is Engro Polymer & Chemicals which
shows that Ferozsons is not using its fixed assets efficiently to generate their sales as
compared to its competitors.
Market Value Ratios

EPS

The EPS of Sitara Textile is highest which is 44$ while Ferozsons have second highest
29$ while Engro Polymer & Chemicals have lowest EPS of $4. It shows that investors are
willing to pay more for Ferozsons share as compared to its competitors except for Sitara
Textile.

P/E

The P/E Ratio is highest for Ferozsons wwhich is 23 while lowest P/E is of 6. It shows
that investors have more expectations for Ferozsons as compared to its competitors and
they are willing to invest their $1 in Ferozosons as compared to its investors.

Dividend Yield

The Dividend yield of Fauji Fertilizer is highest which is of 11% while Ferozsons has 3 rd
highest Dividend yield which is 3.8%. It shows that Ferozsons is paying less company
returns in form of dividends as compared to its competitors except for Fauji fertilizer and
Dynea.
Market to Book Value

Market to book value of Ferozsons is highest which is 58$ while lowest Market to book
value is of Dynea and Dewan Salman. It shows that Ferozsons has highest stock price
and also its book value per share has decreased.

Discussion
After analyzing all aspects such as ratios, competitive, competitor analysis, common and
comparative size it is known that Ferozsons is investing a lot in its inventory due to which
their CGS is increasing and moreover, their inventory turnover is low as a result of which
their days to sale inventory as well. It shows that they have low inventory management
too. It is also seen that their sales are also declining due to the Medicine regulatory law
on Hepatitis medicine by Government. Secondly, there Account receivables have also
increased rapidly over years which shows that they are receiving their receivables less
so they should also revise their credit policy as well. Moreover, Ferozsons is also not
using their assets efficiently to generate revenues which should be taken in consideration
by them. The solvency position of Ferozsons is better as they have adequate short term
asset to deal with their short term obligations, they have good TIE and also L/E ratio which
increases their credit worthiness. Ferozsons is also not using its working capital
effectively and as a result their working capital is not supporting their sales. It is due to
that they are investing too much in inventory and their account receivables are also
increasing as well due to which their inventory is getting obsolete and bad debts
increasing. Ferozsons is not using equity financing efficiently to fund operations. It also
shows inefficiency of management that they are not using capital invested by
shareholders efficiently. It is also due to decreasing asset turnover and decreasing profit
margins as well. The EPS of Ferozsons is decreasing from Rs.15.44 in 2013 to Rs.13.04
in 2017 which is not a good result. As it depicts that Investors are willing less to pay for
your shares and Ferozson’s share worth has decreased. It also tells that they are less
profitable now. But as compared to its competitor they are still more profitable as
compared to its competitor. Due to increasing inventory turnover, working capital
increased, Account payables increased and also current liabilities increased as a result
of which FCF declined which means that they are left with less cash after paying all
expenses and capital expenditure.

Recommendations
 Increase Inventory turnover
 Increase sales to gain more gross profit margins
 Decrease current liabilities and account payables to have for Free Cash Flow
 Increase account receivable turnover through revising credit policies and to avoid
bad debts
 Ferozsons have number of inventories so there are chances that it might get
obsolete.
 They should use their assets and working capital efficiently to generate sales.

Conclusion
Ferozons is no doubt Pakistan’s one of the most trusted and first Medicine manufacturing
firm in Pakistan. It is also of great interests for investors due to their high P/E and EPS
ratio as compared to competitors. Moreover, their leverage ratio and TIE is also much
better which enhances their creditability. There’s no problem in their performance from
2013 to 2016 but due to the unexpected issue of Solvadi medicine for Hepatitis and
government regulation for Medicine they faced decline in their sales and lower gross profit
margins. But currently they have improved their performance and investors have good
perception about them.
References
https://ferozsons-labs.com/history-3/

https://ferozsons-labs.com/financial-reports/

https://markets.ft.com/data/equities/tearsheet/profile?s=FEROZ:KAR

https://www. Investorsguide.com/index.php?topic=734.300’

https://www.businessrecorder.com/2017/05/2332939230

https://www.businessrecorder.com/2017/04/ferozsons-not-as-bad-as-it-looks

https://www. Dunyalahore.pk

Appendix