PAKGEN POWER

LIMITED

ANALYSIS OF
FINANCIAL POSITION
AND PERFORMANCE
EVALUATION
Group Members: Muzammil Sultan (13997), Kashan Baig(12774), Sa’adat
Sheikh(14643)
Table of Contents
Balance Sheet Trend analysis......................................................................................................................2
Non-Current Assets.....................................................................................................................................2
Current Assets:............................................................................................................................................3
Total Assets:................................................................................................................................................4
Equity:.........................................................................................................................................................5
Non-Current Liabilities:................................................................................................................................6
Current Liability:..........................................................................................................................................7
Income Statement Trend Analysis...............................................................................................................8
Gross Profit:.................................................................................................................................................8
Net Income:.................................................................................................................................................9
Ratio Analysis............................................................................................................................................10
Current Assets vs Current liabilities:..........................................................................................................10
Evaluation: Long Term Solvency................................................................................................................11
Asset Management Analysis:.....................................................................................................................12
1. Days sales in Receivables vs Payables:...........................................................................................12
2. Networking Capital:.......................................................................................................................12
3. Utilization of fixed assets:..............................................................................................................12
Profitability Evaluation:.............................................................................................................................13
1. Return on Assets:...........................................................................................................................13
2. Return on Equity:...........................................................................................................................13
3. Net Profit Margin:..........................................................................................................................13
Market Value Analysis:..............................................................................................................................14
1. Earnings Per Share:........................................................................................................................14
 Balance Sheet Trend analysis
Non-Current Assets
Balance sheet trend analysis for Pak Gen shows that non-current assets have increased by 4%
over the five-year period. Moreover, the graph of non-current assets depicts significant
increase during first three years; especially between second and third year, there was a
spectacular increase as a result the amount of assets, in the year 2014-15, was at its peak with
$10,020,251 worth which is the 22% change from the base year. However, after the third year,
the assets start declining until the amount of assets reaches to $8,525,337 in the end year.
Hence, the overall change was of 4% during the five years.

Non-Current Assets
12,000,000
10,020,251
10,000,000 9,370,960
8,203,680 8,465,608 8,525,337
8,000,000

6,000,000

4,000,000

2,000,000

0
2012-2013 2013-2014 2014-2015 2015-2016 2016-2017
(Year) (Year) (Year) (Year) (Year)
Current Assets:
Moving to current assets, the trend analysis shows the overall increase of 40% over the five-
years period. If we further look at the graph carefully, we notice an increasing trend
throughout–except for the year 2013-14 which suggests an aberration. One of the predominant
reasons of this aberration is the decline in the amount of trade debts which can be observed in
the Balance sheets of Pak Gen. From the balance sheets, we can look at the trade debts in year
2013-14 were $8,009,782 that is 20% less than the year 2012-13 which was about $ 10,046,693,
which indicates that the other companies may have paid off most of their debt to Pak Gen for
goods and service supplied. Due to the decreasing trade debt, which accounted for the 47% of
the total assets in 2012-13, the company realized 5% decrease during 2013-14 in its total
current assets. However, later the year 2013-14, there was a massive improvement in the
current assets in the year 2014-15. As the balance sheet represents, the reason behind this
improvement was due to the increase in the trade debt along with a dramatic increase in
other receivables, which was just $187,167 in 2013-14 but rocketed up to $2,286,015 in
2014-15. Hence, from the year 2013-14, there has been a positive percent change in the total
current assets of the company with $13,108,105 in first/base year to $18,336,319 in end year
which accounts for overall 40% change over the five-year period.

Current assets
20,000,000 18,336,319
18,000,000
15,529,189 15,747,801
16,000,000
13,108,105
14,000,000 12,491,663
12,000,000
10,000,000
8,000,000
6,000,000
4,000,000
2,000,000
0
2012-2013 2013-2014 2014-2015 2015-2016 2016-2017
(Year) (Year) (Year) (Year) (Year)
Total Assets:
Looking at the general image of all assets, trend analysis shows that the total assets have
increased by a significant 26% over the five-year period. The remarkable thing about this graph
is that it is full of fluctuations: in the year 2012-13, the total assets were $21,311,785, but in
year 2013-14, we see a gentle decline in total assets. The reason behind this decline was
discussed earlier in the non-current asset part which was due to the low trade debt in the
2013-14. But in the year 2014-15, we observe a massive rise in the current assets. And, the
reason behind this increase was also mentioned in the non-current asset part which was due to
the increase in both trade debt and other receivables. In 2015-16, we witness a decline for once
more time in the five-year period. Although the decline is very slight, it is due to the decrease in
both current and non-current assets of the company. But in the year 2016-17, there is a rise in
the current assets. Hence, despite too many fluctuations, the graph has moved upward with an
overall increase of 26% over the five-year period.

Total Assets
30,000,000
26,861,956
25,549,440 25,118,761
25,000,000
21,311,785 20,957,271
20,000,000

15,000,000

10,000,000

5,000,000

0
1 2 3 4 5
Equity:
Moving towards Equity part, the balance sheet trend analysis for Pak Gen shows that equity has
increased by 9% over the period of five years. If we look at the graph, we find that equity, in the
year 2013-14, has increased with a very negligible amount as compared to that of the year
2012-13–which still is a favorable thing for Pak Gen as long as the equity has not decreased at
least. But in year 2014-15, there is a spectacular increase in equity which is about 6% increase
from the base year, which is due to increase in revenue reserve. However, in the year 2015-16,
there is some irregularity because this year, the equity, for some reasons, has decreased
instead of increasing. But in the year 2016-17, Pak Gen has successfully increased its equity up
to $15,604,190. In short, in each year except 2015-16, Pak Gen has kept on growing its equity.
Hence, the overall change from the base year to last year has been 9% increase.

Total Equity
16,000,000

15,604,190
15,500,000
15,261,651
15,034,377
15,000,000

14,500,000
14,354,101 14,408,089

14,000,000

13,500,000
2012-2013 2013-2014 2014-2015 2015-2016 2016-2017
(Year) (Year) (Year) (Year) (Year)
Non-Current Liabilities:
Coming towards liabilities, the balance sheet trend analysis shows that the non-current liabilities, also
known as long-term liabilities, of Pak Gen has decreased for last three years. Moreover, it has been just
three year since Pak Gen has decided to take loans which they are not obligated to pay within 12
months; therefore, we cannot know the overall change through the five-year period because the total
non-current liabilities are zero in the base year. Besides, there is a decreasing trend in the non-current
liabilities of Pak gen which suggests a positive thing for the company–it means company has been
consistently paying off its long-term liabilities for past three years.

Non-Current Liability
1400000
1226019
1200000

1000000

780194
800000

600000

400000 334369

200000

0
2012-2013 2013-2014 2014-2015 2015-2016 2016-2017
(Year) (Year) (Year) (Year) (Year)
Current Liability:
The current liability trend has increased by 57% throughout the course of 5 years. It can be seen through
the graph that the sum of current liability has decreased by not a very significant measure from the year
2013 to 2014, which later seems to have increased by a significant measure by the year 2015. The trend
can be seen declining through the year 2016 where it again lifted by a noticeable measure by the year
2017. Throughout this course of five years, the current liability of the company has increased as
compared to the base year. The reason for this can be that the company has taken more loans to
finance its purchases, which in a broader term is not a very favorable choice.

Current Liability
12,000,000
10,923,927
10,287,789 10,084,384
10,000,000

8,000,000
6,957,684
6,589,182

6,000,000

4,000,000

2,000,000

0
2012-2013 2013-2014 2014-2015 2015-2016 2016-2017
(Year) (Year) (Year) (Year) (Year)
 Income Statement Trend Analysis
Gross Profit:
Gross profit account is composed of two independent accounts viz. ‘Revenue’ and ‘Cost of sales’. The
income statement analysis for PAKGEN shows that gross profit of the company has had a very flexible
trend which kept fluctuating throughout the course of last five years.

Chart Title
40,000,000

1; 37,743,681
35,000,000
1; 35,587,989 2; 34,922,901
2; 33,697,721
30,000,000

25,000,000

20,000,000
5; 19,754,785
15,000,000 5; 17,771,748
4; 16,044,135
4; 14,728,099
10,000,000

5,000,000 3; 6,523,043
3; 4,543,926
1; 2,155,692
0 2; 1,315,180 3; 1,979,117 4; 1,316,036 5; 1,983,037
1 2 3 4 5

Revenue Costs of Sales Gross Profit

Net Income:
Income statement trend analysis tells that net income of Pak Gen has really fluctuated for the
past five years, yet despite many fluctuations–the overall change has been in the form of
decreasing percent which is about 18 percent. If we look at the graph carefully, Pak gen has
earned the profit in alternate year; that is, one year they earn more profit, the other year they
earn less profit. In terms of profit, the year 2014-15 has really been a successful year for
Pak gen because in this particular year the company earned about $1,597,726 which is the most
in the course of past five years. If we specifically talk about sales, it decreased 58% over the
five-year course, whereas the cost of goods sold also decreased by 50%. On the other hand, the
administrative increased by 12% and other expenses decreased by a huge percent change of
79%. In the nutshell, the overall net income over the period of five-year increased by 18
percent.

Net Income
1,800,000
1,597,726
1,600,000

1,400,000 1,313,977

1,109,735
1,200,000

1,000,000

800,000
612,110
600,000 516,890

400,000

200,000

0
2012-2013 2013-2014 2014-2015 2015-2016 2016-2017
(Year) (Year) (Year) (Year) (Year)
 Ratio Analysis
Current Assets vs Current liabilities:
The current ratio clearly tells us that that current assets of the company exceed the current liabilities of
the company. First thing to consider: they are financially not in a danger in 2016-17. The current ratio is
more than that of previous years as well, which means that the company has either paid off some of its
liabilities or it has increased its current assets, particularly its Fuel stocks, whose worth in the balance
sheet records an amount of Rs. 420,331,000. The firm has also borrowed more trade debts which
account for the increase in the current ratio.

Comment: The firm’s current ratio is nearly equal to that of industrial average. However, PakGen Power
Ltd. Should keep more cash in order to rise a little above the industrial average. There is an
improvement from previous years which is very good.

The quick ratio however, is below than the industry. This is not good because not only their inventory is
higher than their competitor but also the inventory turnover is higher than previous years. This indicates
that the inventory is not being handled properly. This may indicate problems in the machinery that
converts fuel stocks into electricity or on the factors that directly influence the turnover ratios of assets
and inventory.

As for the cash ratio, it looks horrible when you look at the figure first. However, when compared to the
industry average and after observing the industry itself, the whole industry is well below 0.5. Even then,
PakGen is not keeping enough cash to support its current liabilities. They should hold more cash and
spend less on current assets, particularly on Fuel stocks, which we have discuss earlier on.

PakGen is keeping enough working capital to support its business model. The industrial average is 0.23
where as Pakgen stands on 0.276 which is not only better than its competitors but also is an
improvement over previous years’ performance of PakGen. The current assets are quite satisfactorily
more than the liabilities of the firm. That means if today PakGen decides to go out of business, it can pay
all of its current liabilities and still have some of its assets left.
Evaluation: Long Term Solvency
The total debt ratio of PakGen is 0.419 compared to the industrial average of 0.489. PakGen have used
less debt and and more equity to finance their assets. Although it can be interpreted positively by saying
that they have low risk but the low risk yields low returns, when compared to the competitors.
Therefore, PakGen Power Ltd. can borrow more funds to finance more plant and equipment. That will
yield more sales and eventually, will help increase the profit margins. This is being followed by Hub
Energy Ltd. And KAPCO. Moreover, if PakGen power spends money on a better technology using the
borrowed money in the coming years, it may get better economies of scale, which will further boost the
profit margins.

Debt-Equity ratio of PakGen is slightly higher than that of its competitors. The equity is less here than its
competitors which means that more of its assets were financed by retained earnings instead of selling
stocks. The previous sentence might be tricky but it can be confirmed from the ratio analysis in the excel
sheet where the total debt ratio is lower than that of industry average, but the debt-equity ratio is
higher than the industry average.

The equity multiplier of PakGen indicates that the assets in total are substantially greater than the
equity. The assets have been financed by debt as well. However, the use of debt is not as much as the
average in the industry or the competitors. This further reinstates my earlier recommendation that
PakGen does have an opportunity to buy more debt and use it for getting a better profit margin. Too
much debt is not good, obviously. However, there is no issue in borrowing as per the market trends and
as per the competitors’ policy.

The long-term debt ratio of Pakgen is lower than the market average which is a not good considering
their policies in short-term debt and the on-going decrease in debts as compared to the previous years.
In 2016-17 alone, PakGen has decreased the Long term secured finances by more than half! However, if
we take a look at the interest coverage of the firm, we find that these steps have been taken to
normalize the interest coverage trend from the previous year and bring it closer to the industrial trend.
Low Times Interest Earned ratio in previous years reflected weak Profit and loss accounts which may
upset the EPS and thus cost the loss of interest of the investors.

The income statement of PakGen reflects a fairly remarkable earning as the Interest coverage is 5.8
times, which is not only impressive but also better than the industry average. This may have been
possible because Pakgen has reduced its short term and long-term borrowings, as discussed above.
Asset Management Analysis:

Inventory, as discussed earlier, is being turned over more than 46 times, which is much higher than the
industrial average. So long we are not running out of stock & forgoing sales, we are managing inventory
effectively. This means that inventory is being utilized in the best possible manner.

Moreover, the Day’s sales in inventory for Pakgen is lesser than its competitor. Looking at the industry
average for inventory turnover, and the other current assets–which are lesser than the industry
average–I would recommend that the company seriously consider increasing the current assets. This is
particularly important in cases of market anomalies like supplies issues, strikes, or government policies.
In this case, if the company is not keeping up with the market, it may lose its sales.

1. Days sales in Receivables vs Payables:

The Days’ sales in receivables does not show a very good picture. The company has to get rid of its
payables in less than 24 days. But at the same time, it gets its receivables after more than 41 days. This
creates a lack of funds for PakGen. Also, PakGen has not worked to get over this problematic policy for
last five years. The volume of receivables and payables has changed but the difference between days’
receivables and payables is same. PakGen should alter the agreements with its suppliers and customers
to reduce receivable turnover and increase payable turnover. The resulting accumulation of cash will be
used to pay off more current liabilities.

2. Networking Capital:
The turnover for the Net Working capital measures the effectiveness of the use of net working capital,
which is quite comparable to the competitors in case of PakGen Power Ltd. One exception however, is
Hub Power Company which had a much higher no. of sales than its competitors. A better current ratio
will give a better utilization of the net working capital.

3. Utilization of fixed assets:

Indicating further problems in operations and the utilization of assets, PakGen gets a lower fixed asset
turnover than its competitors. There must be on-field issues that PakGen needs to address and catch the
reason for lower turnover. Also, when compared from previous years, the fixed asset turnover for the
year 2016-17 indicates fault in the production equipment. This also indicates that in the year 2015-16,
the extremely low turnover for fixed assets was ignored, which may be a fraud or corruption on behalf
of the Finance and sales departments, and the managers.
Profitability Evaluation:
It all comes down to the profits that the company makes and returns that it can give back to its
stockholders.

1. Return on Assets:
Here, the return on assets is above the company competitors. This coupled with the analysis of fixed
assets, implies that current assets of the company are utilized in a much more effective manner than are
the non-current assets. Also, the profitability can be increased if the fixed assets and the operations are
managed more carefully and effectively. This will also take the Return on Equity far above than the
industry average. This will attract more investors and the stock prices will rise. The company has an
opportunity at hand.

2. Return on Equity:
In case of equity, the firm has not disappointed the stockholders, as the Return on Equity is higher than
that of its competitors. This shows that the company has made a good use of the cash that was invested
by the stockholders. A relatively better return on equity does not only let the investors gain confidence
in the company but also causes an increase in the stock prices. So, PakGen Power is in the good notes of
the stockholders. Moreover, PakGen Power has improved its return on equity in 2016-17 from previous
years. The is an indication of better management and operations of PakGen.

3. Net Profit Margin:

PakGen’s net profit margin is comparable to its competitors. In fact, slightly higher than the average of
the Power sector. This indicates that PakGen Power is profitable and is efficiently converting its sales
into its profits. If the issues in fixed asset turnover ratio (discussed above) are resolved, the profit margin
can be increased even further. Nevertheless, the current situation is overall good and attractive to the
investors.

Net Profit Margin - PakGen

0.30

0.25

0.20

0.15

0.10

0.05

0.00
2012-13 2013-14 2014-15 2015-16 2016-17

Series 1 Column2 Column1 Column12 Column13

Market Value Analysis:
1. Earnings Per Share:

Earnings Per Share - Basic

5
5
4
4
3
3
2
2
1
1
0
2012-2013 2013-2014 2014-2015 2015-2016 2016-2017
(Year) (Year) (Year) (Year) (Year)

The EPS of PakGen