STRATEGIC FINANCE

“PAK SUZUKI MOTORS: FINANCIAL ANALYSIS”

(2013 – 2017)

Presented to the Faculty of the Department of Management Sciences

SZABIST UNIVERSITY
Karachi Campus

{MBA (36-E) 1E}

Group Members
Muhammad Nazir Ansari (1935265)
Muhammad Bilal Memon (1935260)

Hassan Saleem ()
Hammad Muhammad
Farooq (1935255)

Submitted to:

Dr. Salman Ahmed Shaikh

Table of Contents
RATIO ANALYSIS ............................................................................................................................................. 1
Liquidity Ratios .......................................................................................................................................... 1
Cash Ratio .............................................................................................................................................. 1
Current Ratio ......................................................................................................................................... 1
Quick Ratio............................................................................................................................................. 1
Leverage Ratio ........................................................................................................................................... 1
Debt to Equity Ratio............................................................................................................................... 1
Debt to Assets Ratio .............................................................................................................................. 1
Times Interest Earned Ratio .................................................................................................................. 1
EBITDA to Interest Ratio ........................................................................................................................ 1
Profitability Ratios ..................................................................................................................................... 2
Gross Profit Margin................................................................................................................................ 2
Operating Profit Margin......................................................................................................................... 2
Net Profit Margin ................................................................................................................................... 2
Return on Assets .................................................................................................................................... 2
Return on Equity .................................................................................................................................... 2
Return on Capital Employed .................................................................................................................. 2
Asset Turnover Ratios ................................................................................................................................ 2
Fixed Asset Turnover ............................................................................................................................. 2
Total Asset Turnover.............................................................................................................................. 3
Du-Pont 3-Point ROE.................................................................................................................................. 3
Equity Multiplier .................................................................................................................................... 3
Total Asset Turnover.............................................................................................................................. 3
Net Profit Margin ................................................................................................................................... 3
Return on Equity .................................................................................................................................... 3
Activity Ratios/Efficiency Ratios .................................................................................................................... 4
Inventory Turnover Ratio........................................................................................................................... 4
Inventory Turnover Ratio (in Days)............................................................................................................ 4
Receivable Turnover Ratio ......................................................................................................................... 4
Receivable Turnover Ratio (in Days) .......................................................................................................... 4
Cash Conversion Cycle ................................................................................................................................... 4
 Days Inventory Outstanding ...................................................................................................................... 4
Days Sales Outstanding.............................................................................................................................. 4
Days Payables Outstanding ....................................................................................................................... 5
Cash Conversion Cycle in Days .................................................................................................................. 5
PRICE MULTIPLES ........................................................................................................................................... 6
WACC ......................................................................................................................................................... 6
Market value added................................................................................................................................... 6
Economic Value Added .............................................................................................................................. 7
Enterprise Value ........................................................................................................................................ 7
COMMON SIZE ANALYSIS (Balance Sheet) .................................................................................................... 8
Total Current.............................................................................................................................................. 8
Total Fixed Assets ...................................................................................................................................... 8
Total Current Liabilities.............................................................................................................................. 8
Total Fixed Liabilities ................................................................................................................................. 8
Total Equity ................................................................................................................................................ 8
INDEX ANALYSIS (Balance Sheet) ................................................................................................................... 9
Total Current Assets .................................................................................................................................. 9
Total Fixed Assets ...................................................................................................................................... 9
Total Current Liabilities.............................................................................................................................. 9
Total Fixed Liabilities ................................................................................................................................. 9
Total Equity ................................................................................................................................................ 9
COMMON SIZE ANALYSIS (Income Statement) ........................................................................................... 10
Gross Profit .............................................................................................................................................. 10
Total Operating Expense.......................................................................................................................... 10
Other Income ........................................................................................................................................... 10
Profit Before Tax ...................................................................................................................................... 10
Profit After Tax......................................................................................................................................... 11
INDEX ANALYSIS (Income Statement).......................................................................................................... 11
Gross Profit .............................................................................................................................................. 11
Total Operating Expense.......................................................................................................................... 11
Other Income ........................................................................................................................................... 11
Profit Before Tax ...................................................................................................................................... 11
 Profit After Tax......................................................................................................................................... 12
STOCK BETA ................................................................................................................................................. 12
CAPM ....................................................................................................................................................... 12
ANNUAL RETURN ON MARKET .................................................................................................................... 12
EXPANSION PROJECT VALUATION ............................................................................................................... 13
Net Present Value (NPV) .......................................................................................................................... 13
Internal Rate of Return (IRR) ................................................................................................................... 13
Modified Internal Rate of Return (MIRR) ................................................................................................ 13
Profitability Index (PI) .............................................................................................................................. 13
LOAN AMORTIZATION SCHEDULE ............................................................................................................... 14
TARGET PRICE .............................................................................................................................................. 14
 Pal Suzuki Motor’s FINANCIAL ANALYSIS | 1

RATIO ANALYSIS

Liquidity Ratios

Cash Ratio
Pak Suzuki Motors have a cash ratio of 0.55, which means that company will be requiring more
than just its cash reserves to pay off its debt.

Current Ratio
Pak Suzuki Motors have current ratio of 2.45, which indicates that company may not have
difficulty in paying its current obligations.

Quick Ratio
Pak Suzuki Motors have a quick ratio of 1.02, which indicates that company will not have trouble
paying current liabilities.

Leverage Ratio

Debt to Equity Ratio

The debt to equity ratio of Pak Suzuki Motors Company is 0.72, indicating that company is relying
more on their equities rather on their debt to finance their operations.

Debt to Assets Ratio

The debt to assets ratio of Pak Suzuki Motors is 0.42, which means that company have more assets
than its liabilities and they financed their operations 42% by their debts.

Times Interest Earned Ratio

Times interest earned ratio of Pak Suzuki Motors is 472.65, which means that company income is
472.65 times greater than its annual interest expense/finance cost. This also indicates that the
business is less risky, and investors shouldn’t have any problem investing in the company.

EBITDA to Interest Ratio

The EBITDA to interest ratio of Pak Suzuki Motors is 472.65, which means that company is
profitable enough to pay off its interest expenses.
 Pal Suzuki Motor’s FINANCIAL ANALYSIS | 2

Profitability Ratios

Gross Profit Margin

The gross profit margin of Pak Suzuki Motors is 0.09, which means that company gross margin
equals 09% of its sales.

Operating Profit Margin

The operating profit margin of Pak Suzuki Motors is 0.06, which means that 06% of the net sales
are available for company to cover all of its non-operating expenses or fixed cost.

Net Profit Margin

The Net profit margin of Pak Suzuki Motors is 0.04, which means that net profit of the company
is 4% of its net sales.

Return on Assets
Pak Suzuki Motors have return on asset of 0.08, which indicates that company Rs0.08 of net
income for every Rs of asset invested.

Return on Equity
ROE is a measure of how well a company uses investments to generate earnings growth. Pak
Suzuki Motors has ROE of 0.13, which means that company has generated Rs0.13 for every Rs1
of shareholders’ equity.

Return on Capital Employed

The return on capital employed of Pak Suzuki Motors is 0.16, indicating that on every rupee
invested in employed capital company earns Rs0.16.

Asset Turnover Ratios

Fixed Asset Turnover

Fixed-asset turnover is the ratio of sales to the value of fixed assets. It indicates how well the
business is using its fixed assets to generate sales. Pak Suzuki Motors has the fixed asset turnover
ratio of 10.84, which means that for every rupee spent on fixed assets company has generated Rs
10.84.
 Pal Suzuki Motor’s FINANCIAL ANALYSIS | 3

Total Asset Turnover

Pak Suzuki Motors has the total asset turnover ratio of 2.00, therefore it shows that company has
able to generate twice sales of their total assets.

Du-Pont 3-Point ROE

Equity Multiplier
Pak Suzuki Motors have the equity multiplier of 1.72, which means that in overall asset
financing of the company 1 part is of equity and are 0.72 debt. This indicates that the major part
of company total assets are financing with company’s equity, and there is less dependability on
debt.

Total Asset Turnover

The total asset turnover ratio compares the sales of a company to its asset base. A higher ratio is
favorable, as it indicates a more efficient use of assets. Conversely, a lower ratio indicates the
company is not using assets as efficiently.

The total asset turnover ratio of Pak Suzuki Motors is 2.00, which indicates that for every
1Rs worth of assets company has only manages to generate Rs 2.00 worth of revenues. This
indicates that company is utilizing its assets efficiently.

Net Profit Margin

Net profit margin is the percentage of revenue left after all expenses have been deducted from
sales. The measurement reveals the amount of profit that a business can extract from its total sales.
As per the standard rule 10% net profit margin is considered average, a 20% margin is considered
high (or “good”), and a 5% margin is low.

Pak Suzuki Motors net profit margin is 0.04, which indicates that company is not efficient in
converting its sales into actual profit.

Return on Equity
ROE is a measure of how well a company uses investments to generate earnings growth. ROEs of
15-20% are generally considered good. Pak Suzuki Motors have 0.13 return on equity, which
means that company is not utilizing investments effectively to generate earnings growth.
 Pal Suzuki Motor’s FINANCIAL ANALYSIS | 4

Activity Ratios/Efficiency Ratios

Inventory Turnover Ratio

Inventory turnover is a ratio showing how many times a company has sold and replaced
inventory during a given period. The inventory turnover ratio of Pak Suzuki Motors is 3.85,
which is indicating the number of times company has sole its inventories.

Inventory Turnover Ratio (in Days)

After calculating inventory turnover, then we use inventory rate to calculate the the days in
inventory by dividing the number of days in the period by the previously calculated turnover rate.
As per the results, it takes Pak Suzuki Motors 94.84 days to sell its average inventory.

Receivable Turnover Ratio

Receivable Turnover Ratio is an accounting measure used to measure how effective a company is
in extending credit as well as collecting debts. Pak Suzuki Motors has the receivable turnover ratio
of 317.17, which means that company collects their receivables about 317.17 times a year.

Receivable Turnover Ratio (in Days)

Dividing 365 by the accounts receivable turnover ratio yields the accounts receivable turnover in
days, which gives the average number of days it takes customers to pay their debts. Pak Suzuki
Motors has the receivable turnover ratio (in days) of 1.15, which is the average number of days’
customer takes to pay their debts.

Cash Conversion Cycle

Days Inventory Outstanding

Days inventory outstanding is an efficiency metric used to measure the average number of days a
company holds inventory before selling it. Pak Suzuki Motors has the DIO of 94.84 days.

Days Sales Outstanding

Days sales outstanding (DSO) is the average number of days that receivables remain outstanding
before they are collected. Pak Suzuki Motors has the days sales outstanding of 1.15 days, which
means that it takes the company an average of 1.15 days to turn their receivables into cash
 Pal Suzuki Motor’s FINANCIAL ANALYSIS | 5

Days Payables Outstanding

Days payable outstanding (DPO) is a financial ratio that indicates the average time (in days) that
a company takes to pay its bills and invoices to its trade creditors, which include suppliers, vendors
or other companies. Pak Suzuki Motors has the DPO of 21.12 days, which means that in the 2017
it took the company 21.12 days to payback its suppliers.

Cash Conversion Cycle in Days

Pak Suzuki Motors has the Cash Conversion Cycle in Days of (74.87). A negative cash conversion
cycle is simply an interest free way to finance operations through borrowing from suppliers.
 Pal Suzuki Motor’s FINANCIAL ANALYSIS | 6

PRICE MULTIPLES
In order to calculate different price multiple ratios, some of the important figures of Pak Suzuki
Motors Company has been identified, which are presented below:

Price Per Share at Period End - 498

Number of Shares Outstanding – 150,000,000

Dividend Per Share - 3.5

In 2017, the company earning per share was 25.47, which describes the company's profit per
outstanding share of stock. On the other hand, company book value per share was 197.00, which
represents the company’s worth and the net asset value. Moreover, Pak Suzuki Motors has net
sales per year of 678.74 indicating the portion of company revenue that is allocated to each share
of common stock.

The operating cash flow per share of Pak Suzuki Motors was 0.00, which represents the value the
operating cash flows attributable to each share of common stock. The EBITDA per share of 37.54,
which represents the per share amount obtained by Pak Suzuki Motors by dividing EBITDA by
Fully Diluted Shares.

The P/EPS value of Pak Suzuki Motors is 0.39, which implies that investors has to invest Rs
6.39 to earn Rs 1.

WACC
As per the approach of CAPM model, Pak Suzuki Motors has the WACC of 0.2338. This implies
that projects undertaken by the firm should at least produce the 23.3% return. Because, this is
weighted average return that would be paid to all financial stakeholders of the company, and this
is also an appropriate discount rate at which must be considered through valuation of the company.
On the other hand, the with DDM approach the company WACC is 0.4038.

Market value added

Market value added (MVA) is a calculation that shows the difference between the market value
of a company and the capital contributed by all investors, both bondholders and shareholders. Pak
Suzuki Motors has the market capitalization of 29,549,716,000, which is the total value of all a
 Pal Suzuki Motor’s FINANCIAL ANALYSIS | 7

company's shares of stock. On the other hand, book value represents the total amount a company
is worth if all its assets are sold and all the liabilities are paid back. The book value of Pak Suzuki
Motors in 2017 was 15,000,000,000, which explains the value of company assets. Lastly, market
value added is a calculation that shows the difference between the market value of a company and
the capital contributed by all investors, both bondholders and shareholders. Pak Suzuki Motors has
the Market value added of 28,049,716,000.

Economic Value Added

Economic value added is the incremental difference in the rate of return over a company's cost of
capital. In essence, it is the value generated from funds invested in a business. The economic value
added of Pak Suzuki Motors is 3,628,609,016.

Enterprise Value
Pak Suzuki Motors has the Enterprise value of 28,049,716,000. Enterprise value (EV) is a measure
of a company's total value, often used as a more comprehensive alternative to equity market
capitalization. EV includes in its calculation the market capitalization of a company but also short-
term and long-term debt as well as any cash on the company's balance sheet.
 Pak Suzuki Motor’s FINANCIAL ANALYSIS | 8

COMMON SIZE ANALYSIS (Balance Sheet)

Total Current
Store, spares and loose tools are gradually increasing with the ratio of its total current assets.
There is a fluctuation in stock in trade with respect to total current assets. Trade debt considered
goods are decreasing gradually with the ratio of total current assets.

Total Fixed Assets

Plant and equipment is gradually increasing with respect to its total fixed assets in 2013, 2014,
2015 and 2016 and then drastically increases in 2017 with respect to its total fixed assets. Long
term loans are increasing in 2013, 201 and 2015 with respect to total fixed assets and in 2016
and 2017 it is decreasing.

Total Current Liabilities

There is a fluctuation is observed in percentages of trade and other payables with respect to
total current liability. Short term borrowing is decreasing with respect to its current liability
percentages.

Total Fixed Liabilities

Deferred taxation and retirement is decreasing with respect to its total fixed liability.

Total Equity
Unappropriated profit is gradually decreasing with respect its total equity. So there is
decreasing trend has been in unappropriated profit.
 Pak Suzuki Motor’s FINANCIAL ANALYSIS | 9

INDEX ANALYSIS (Balance Sheet)

Total Current Assets

In index analysis the base year is 2013 so as compare to the base year the percentage of total
current assets of 2014, 2015 and 2016 are increasing because of the increase in store, spare,
tools and stock in trade but in 2017 the total current assets are decreasing because of decrease
in the percentage of trade, tools and stock in trade.

Total Fixed Assets

As compare to the base year’s total fixed assets of 2014’ total fixed assets are increasing
because the percentage of plant and equipment is increasing in 2014 than in 2015 it decreases
due to decrease in plant and equipment in 2015.In 2016 it increase gradually but in 2017 it
increases with a high rate because plant and equipment are also increases with high rate.

Total Current Liabilities

Now in case of total current liabilities as compare to base yea which is 2013 total current
liabilities in 2014, 2015 and 2016 increase because the trade and other payables are increasing
in these four years but if we talk about 2017 in drastically decreases because the trade and
other payable are decreasing.

Total Fixed Liabilities

In total fixed liabilities as compare to the base year’s total fixed liabilities are decreasing in
2014, 2015 and 2016 because liability against asset subject to finance lease is decreasing and
in 2017 it is increasing drastically because of increase in liability against asset subject to
finance lease.

Total Equity
As compare to base year 2013’s total equity the total equity decrease in 2014 as compare to
2013 because unappropriated profit is decreasing in 2014, then in 2015 it is increasing because
 Pak Suzuki Motor’s FINANCIAL ANALYSIS | 10

unappropriated profit is increasing in this year, in 2016 it is decreasing because of same issue
but in 2017 as we can see that it is decreasing with a very high rate because of decrease drastic
decrease in unappropriated profit.

COMMON SIZE ANALYSIS (Income Statement)

Gross Profit
Gross profit percentage of sale in 2014 decreases due to increase in cost of Goods sold
percentage and in 2015 increases because cost of goods sold is decreasing , then in 2016 it
again increases because of decrease in cost of goods sold and finally it decreases because in
2016 it increases.

Total Operating Expense

Total operating expenses the percentage of sales are increasing 2014, 2015, 2016 because
administrative expenses are increasing and in 2017 it decreases because distribution cost is
decreasing.

Other Income
Other income the percentage of sales is increasing in 2014. 2015 and 2016 but in 2017 it is
decreasing.

Profit Before Tax

Profit cost before tax the percentage of sales is decreasing in 2014 because of increase in
finance cost, in 2015 it increases because of decrease in finance cost, then in 2016 and 2017
profit before tax is increasing due to decrease in finance cost of 2016 and 2017.
 Pak Suzuki Motor’s FINANCIAL ANALYSIS | 11

Profit After Tax

Profit after tax the percentage of sales is decreasing because of tax increase in 2014 and 2015
and in 2016 and 2017 profit after tax increases because of decrease in tax.

INDEX ANALYSIS (Income Statement)

Gross Profit
As compare to the base year’s gross profit the gross profit of 2014, 2015, 2016 and 2017 is
increasing because of increase in net sale.

Total Operating Expense

Total operating expense in 2014 as compare to 2013 is increasing because of increase in
administrative and distribution expense in 2014 but in 2015 it decreases due to decrease in
distribution and administrative expense and in 2016 again it increases and then finally in 2017
it decreases because drastic decrease in distribution and administrative cost.

Other Income
Other income increasing in 2014 and 2015 and in 2016 it is decreasing but in 2017 it decreasing
drastically.

Profit Before Tax

As compare to 2013 the profit before tax of 2014 in decreasing then in 2015, 2016 and 2017 it
is increasing drastically.
 Pak Suzuki Motor’s FINANCIAL ANALYSIS | 12

Profit After Tax

As compare to 2013 the profit after tax is decreasing in 2014 then gradually increases in 2015,
2016 and 2017.

STOCK BETA
Beta in CAPM (capital asset pricing model) is the index measure of risk of risky assets.

There are three measures upon which risk is decapitated and these indicators are; β > 1 represents

stock is riskier than market β < 1 shows stock is less risky than market β = 1 means stock is as

risky as the market

In the case of Pak Suzuki Motors, stock Beta is 1.32 which is greater than 1, meaning its
stocks were risky than market from 2013 - 2017 and were beneficial to hold and worth invest in.

CAPM
Given the market return and risk free return its CAPM - RRR is , 31.09% showing Pak
Suzuki Motors has had 31.09% less than the expected return in last years.

ANNUAL RETURN ON MARKET

Usually the average stock market return is 10% but Pak Suzuki Motors has attained 26.73%
in last 10 years which is healthy for its capital.
 Pak Suzuki Motor’s FINANCIAL ANALYSIS | 13

EXPANSION PROJECT VALUATION

Net Present Value (NPV)

NPV is the benefit in expected value. It is the difference between present cash inflows and
cash outflows. Positive NPV refers to healthy projects where colorful profits can be predicted while
negative NPV indicates the disregard for the project especially in the case of independent projects.

Pak Suzuki Motors’s NPV is 18,678,288,017 which is positive, showing it has had the
potential to carry out the projects profitable in given dated years.

Internal Rate of Return (IRR)

IRR is used to analyze the potential of the project and whenever it is higher than expected return,
project is accepted.

While Pak Suzuki Motors’s IRR is 21.67%, which is much higher. Thus, assuring the acceptance
of Pak suzuki’s 2013 – 2017 projects.

Modified Internal Rate of Return (MIRR)

MIRR is the financial measure of investments. In capital budgeting, it helps to rank alternative
investments of equal size.

The MIRR of Pak Suzuki Motors is 17.83%, representing the handsome financial investment and
reinvestment growth in between 2013 – 2017.

Profitability Index (PI)

Projects are usually ranked on the basis of the profitability index to quantify the profit generated
on each investment made.

Whenever PI is lower than 1 for any project, it is rejected. That’s why it should always be greater
than 1 to be accepted and Pak Suzuki Motors’s PI is 1.61, higher than 1, representing it offered
profitable projects in given years of the data.
 Pak Suzuki Motor’s FINANCIAL ANALYSIS | 14

LOAN AMORTIZATION SCHEDULE

The total loan balance to be paid by Pak Suzuki Motors over past 10 years was Rs. 1,500,000 at
the interest rate of 11.71% and the installment it paid throughout each year was Rs. 459,696 along
with principal repayment which varied each year. At the end of last year, it was all paid off.
Concluding that Pak Suzuki Motors holds a great positive reputation in the market; liability wise.

TARGET PRICE
DDM & CAPM show its current price in 2013 – 2017 was higher than its PO, and P/E Multiple
and Benjamin Garaham Formula results higher intrinsic value, concluding all state that Pak Suzuki
Motors’s stocks were overvalued in those years and would have sold the most.