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ABSTRACT
I did ratio analysis of
Pakistan oxygen Limited
from the data of last three
years i.e 2017,2018,2019 to
know about its financial
position.
FINANCIAL ANALYSIS Arslan Qadir
OF PAKISTAN OXYGEN Financial Management
MAC3833
LIMITED Registration No:
L1F19BSAF0054

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Pakistan Oxygen Limited

Vision
“Oxygen for Life & Sustainable Growth”

Mission
“Sustained fast growth to lead the market in safe, reliable and innovative
solutions for industrial and medical gases, products and engineering services”
Code of Ethics
At Pakistan Oxygen, we live and work by a set of principles and values which
encompass our foundational principles of safety, integrity, sustainability and respect
and core values of Commit to Achieve, Collaborate to Succeed, Innovate to Grow,
Passion to Excel and People to Perform.
we have developed a Code of Ethics which provides guidance to all employees on:
 Dealings with our customers, suppliers and markets encompassing competition
and international trade
 Dealing with governments, our product development, ethical purchasing and
 Advertising.
 Dealings with stakeholders, financial reporting and communication, insider
dealing, protecting company secrets and protecting company assets.
 Dealings with our employees, conflicts of interest, avoidance of bribery, gifts
and
 entertainment, data protection, human rights and on dealings with each other.
 Dealings with communities and the public with regard to our corporate
responsibilities and on restrictions to provide support for political activities.
All employees of Pakistan Oxygen undergo training on the Code of Ethics and are
expected to comply with the standards laid out in the Code.
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Income statement of Pakistan Oxygen Limited for past 3 Years

(2019, 2018, 2017)
Rupees in Thousands
Income Statement
For three years 2017,2018,2019
(Rupees in Thousand)
2017 2018 2019
Gross Sales 4995079 5483981 5255189
Trade discount and Sales tax -582427 -623922 -588599
Net Sales 4412652 4860059 4666590

Cost of sales -3420925 -3750528 -3600834

Gross Profit 991727 1109531 1065756

Distribution and marketing expenses -285079 -207554 -253805

Administrative expenses -235669 -207487 -223943
Other Operating Expenses -63813 -55429 -45454
-583561 -470470 -523202
Operating Profit before other income 408166 639061 542554
Other Income 27232 15789 27375
Operating profit 435398 654850 569929

Financing Costs -95377 -116319 -173050

Profit before taxation 340021 538531 396879

Taxation -99988 -139836 -96294

Profit fot the year 240033 398695 300585
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Balance Sheet of Pakistan Oxygen for Past 3 Year (2017,

2018, 2019)
Rupees in Thousands
Balance Sheet (rupees in 000)
2019 2018 2017
Non - current assets
Property, plant and equipment 4486584 4558190 2948292
Intangible assets 52326 33701 12471
Investment in subsidiary 10 10 10
Long term loans 72031 28396 97631
Long term deposits 49876 69853 89853
4575999 4661754 3030626
Current assets
Stores and spares 205913 161393 117768
Stock-in-trade 604481 406146 264728
Trade debts 838909 674550 666736
Loans and advances 27488 18543 22159
Deposits and prepayments 201223 130279 93887
Other receivables 196172 136443 139863
Taxation - net 393785 363350 317276
Cash and bank balances 19099 144780 434239
2407070 2035484 2056656
Total assets 7063069 6697230 5087282

Equity and liabilities 39834 23459 13298

Share capital and reserves 322348 260783 250,387

40,000,000 (2018: 40,000,000) Ordinary shares of Rs. 10 each 400000 400000 400000
Issued, subscribed and paid-up capital
32,550,336 (2018: 25,038,720) Ordinary shares of Rs. 10 each 325503 250387 132933

General reserves 1725250 1579262 1,475,338

Unappropriated profit 294836 271181 241,637
Capital reserves 192356 174247 167,362
Surplus on revaluation of property, plant and equipment 1, 798,150 1668150 1636430

Non-current liabilities
Long term deposits 193516 184818 270000
Lease liabilities 29530 186384
Deferred liabilities 282803 317812 356990
505049 502630 813374
Current liabilities
Trade and other payables 1059883 1024246 1181846
Short term borrowings 1330865 978568 739700
Un-claimed dividend 20145 22814 12438
Current portion of lease liabilities 2588 3499 12688
Current maturity of long term financing 220971 270000 385000
2413481 2295620 2306546
Total equity and liabilities 7063069 6697230 5,087,282
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Balance Sheet Ratios

Liquidity Ratios:
Liquidity ratios are an important class of financial metrics used to determine a debtor's ability
to pay off current debt obligations without raising external capital. Liquidity ratios measure a
company's ability to pay debt obligations and its margin of safety through the calculation of
metrics including the current ratio, quick ratio, and operating cash flow ratio.

Types of Liquidity Ratio:

Current Ratio:
Definition:
The current ratio is a liquidity ratio that measures a company's ability to pay short-term
obligations or those due within one year.
Usage:
It tells investors and analysts how a company can maximize the current assets on its balance
sheet to satisfy its current debt and other payables.

Formula: Current Ratio = Current Assets/ Current Liabilities

Year Current Assets Current Liabilities Current Ratio
2017 2056656 2306546 89.17%
2018 2035484 2295620 88.67%
2019 2407070 2413481 99.73%
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Interpretation:
The current ratio is a liquidity ratio that measures a company’s ability to pay its short term
obligations. It shows how much assets are able to pay how much liabilities. Current ratio
decreases between two years 2017-2018. This decline can be attributable to an increase in
short term debt, a decrease in current assets of combination of bath. Regardless, of these
reasons, Pakistan Oxygen Limited might be facing difficulty in generating cash.

Acid-Test (quick) Ratio:

Definition:
The acid-test ratio uses a firm's balance sheet data as an indicator of whether it has sufficient
short-term assets to cover its short-term liabilities. This metric is more useful in certain
situations than the current ratio, also known as the working capital ratio, since it ignores
assets such as inventory, which may be difficult to quickly liquidate.

The acid-test ratio is also commonly known as the quick ratio.

Usage:
The acid-test, or quick ratio, compares a company's most short-term assets to its most short-
term liabilities to see if a company has enough cash to pay its immediate liabilities, such as
short-term debt. The acid-test ratio disregards current assets that are difficult to liquidate
quickly such as inventory.
Formula: Acid-Test (Quick) Ratio= Current assets less inventory/ current liabilities
Year Current Assets Current Liabilities Invenories. Current Assets -Inventories Quick Ratio
2017 2056656 2306546 264728 1791928 78%
2018 2035484 2295620 406146 1629338 71%
2019 2407070 2413481 604481 1802589 75%
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Interpretation:
Acid test ratio also called quick ratio, it measures the ability of a company to use its near cash
or quick assets to extinguish its current liabilities.. Acid-test ratio decreases continuously
between three years. This means that the liquidity position of Pakistan Oxygen Limited is not
good which means Pakistan Oxygen Limited do not have enough liquid assets to pay their
current liabilities and should be treated with caution.

Financial leverage Ratio:

A ratio that provides an indication of how the company’s assets and business operations are
financed (using debt or equity). There are three common leverage ratios.

Types of financial leverage ratio:

DEBT-TO-EQUITY RATIO:
Definition:
The debt-to-equity (D/E) ratio is calculated by dividing a company’s total liabilities by its
shareholder equity. These numbers are available on the balance sheet of a company’s
financial statements.
Usage:
The ratio is used to evaluate a company's financial leverage. The D/E ratio is an important
metric used in corporate finance. It is a measure of the degree to which a company is
financing its operations through debt versus wholly-owned funds. More specifically, it
reflects the ability of shareholder equity to cover all outstanding debts in the event of a
business downturn.
Formula: Debt-to-Equity = Total debt/ Shareholder’s Equity

Year Total Debt Share Holder Equity Debt To Equity Ratio

2017 3119920 1967362 158.58%
2018 2798250 3898980 71.77%
2019 2918530 4144539 70.42%
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DEBT-TO-TOTAL-ASSETS Ratio:
Definition:

Total-debt-to-total-assets is a measure of the company's assets that are financed by debt rather

than equity. When calculated over a number of years, this leverage ratio shows how a
company has grown and acquired its assets as a function of time. Investors use the ratio to
evaluate whether the company has enough funds to meet its current debt obligations and to
assess whether the company can pay a return on its investment.
Usage:
The total-debt-to-total-assets ratio shows the degree to which a company has used debt to
finance its assets. The calculation considers all of the company's debt, not just loans and
bonds payable, and considers all assets, including intangibles.
Formula: DEBT-TO-TOTAL ASSETS= TOTAL DEBT/ TOTAL ASSETS
Year Total Debt Total Assets Debt to total Assets.
2017 3119920 5087282 61%
2018 2798250 6697230 42%
2019 2918530 7063069 41%

Interpretation:
The debt to total assets ratio is an indicator of a company’s financial leverage.
Debt to total assets ratio continue to increase which is very unfavorable for a company, as it indicates
that a higher percentage of assets are financed through debt. This means that the creditors have more
claims on the company’s assets. This would also increase the insolvency risk.
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Debt to Total capitalization Ratio:

Definition:

The total debt to capitalization ratio is a solvency measure that shows the proportion of debt a
company uses to finance its assets, relative to the amount of equity used for the same
purpose. A higher ratio result means that a company is more highly leveraged, which carries
a higher risk of insolvency.
Usage:
The total debt-to-capitalization ratio is a tool that measures the total amount of outstanding
company debt as a percentage of the firm’s total capitalization. 
Formula: Debt to Total capitalization = Total Debt/ Total capitalization
Year Total Debt Share Holder Equity Total Debt + Share Holder Equity Dept to Total Capitalization.
2017 3119920 1967362 5087282 61%
2018 2798250 3898980 6697230 42%
2019 2918530 4144539 7063069 41%

Interpretation:
This ratio shows the proportion of debt a company uses to finance its assets, relative to the
amount of equity used for the same purpose. This ratio also increases which is not a good
sign. The debt to total capitalization ratio is a solvency measure that shows proportion of debt
a company uses to finance its assets, relative to the amount of equity used for the same
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purpose. A high ratio means that a company is more leveraged which carries a higher risk of
insolvency.

Income Statement Ratios:

Coverage Ratio:
A coverage ratio, broadly is a metric intended to measure a company's ability to service its debt and
meet its financial obligations, such as interest payment.

Interest Coverage Ratio:

Definition:
The interest coverage ratio is a debt ratio and profitability ratio used to determine how easily
a company can pay interest on its outstanding debt. The interest coverage ratio may be
calculated by dividing a company's earnings before interest and taxes (EBIT) by its interest
expense during a given period by the company's interest payments due within the same
period.
Usage:
The interest coverage ratio is used to determine how easily a company can pay
its interest expenses on outstanding debt. The ratio is calculated by dividing a company's
earnings before interest and taxes (EBIT) by the company's interest expenses for the same
period.
Formula: Interest coverage = EBIT/ Interest expense
Year EBT Interest Expense Interest Coverage ratio
2017 396,879 926843 43%
2018 538,531 828593 65%
2019 340,021 762013 45%
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Interpretation:
The interest coverage ratio measures how many times a company can covers its current interest
payments with its available earnings. Interest coverage ratio of Pakistan Oxygen Limited fluctuates
between the three years. It has increased by large percentage in 2017 which is a good sign . The ratio
decreases in 2019 which indicate that less operating profits are available to meet interest payments
and that the company is more vulnerable to volatile interest ratio. However, this ratio improves in
2018 by a higher percentage which indicates stronger financial health of Pakistan Oxygen Limited in
2018, the company is more capable of meeting interest obligations.

Income Statement/ Balance Sheet Ratios:

Activity Ratio:
An activity ratio is a type of financial metric that indicates how efficiently a company is
leveraging the assets on its balance sheet, to generate revenues and cash.
Receivable Turnover:
Definition:
The receivables turnover ratio is an accounting measure used to quantify a company's
effectiveness in collecting its receivables or money owed by clients.
Usage:
The ratio shows how well a company uses and manages the credit it extends to customers and
how quickly that short-term debt is collected or is paid.
Formula: Receivable Turnover = Annual Net Credit Sales/ Receivables
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Year Net Credit Sales Receiveables Receiveable Turnover Ratio.

2017 40516525 2256250 17.96
2018 30668428 2825968 10.85
2019 30136165 2208031 13.65

Interpretation:
Receivable turnover ratio is an accounting measure used to measure the effectiveness of a
company in extending credit as well as collecting debts. Receivable turnover ratio decrease
from 13.65% to 17.96%between 2017 and 2018. This might be due to company having poor
collection process, bad credit policies or customers that are not financially viable or
creditworthy. However, this ratio increases in 2019 by 13.65% which means company’s
successful in collecting cash from its customers. Company might have conservative credit
policy. This policy can be beneficial since it could help the company avoid extending credit
to customers who may not be able to pay on time.

Average collection period:

Definition:
The average collection period is the amount of time it takes for a business to receive
payments owed by its clients in terms of accounts receivable. 
Usage:
Companies calculate the average collection period to ensure they have enough cash on hand
to meet their financial obligations.
Formula: Average Collection Period in Days = Days in The Year/ Receivable Turnover

Year 365 Days Receivable Turnover Average Collection Period.

2017 365 17.96 20.33
2018 365 10.85 33.63
2019 365 13.65 26.74
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Interpretation:
The average collection period is amount of time it takes for a business to receive payments
owed by customers in terms of account receivable. This means company is not collecting
cash from credit customers at fast rate. However, it decreases in 2018 by 13.65 i.e. 26.74 days
which generally more favorable. It indicates that the organization collects payments faster.
Customers may seek suppliers on service providers with more lenient payment terms.

Payable Turnover Ratio:

Definition:
The accounts payable turnover ratio is a short-term liquidity measure used to quantify the rate
at which a company pays off its suppliers.
Usage:
With the help of this ratio, an investor can see how a company is at paying its supplier and
short-term debts.
Formula: Payable Turnover = Annual Credit purchases/ Account payable

Year Annual Net Credit Purchases Accounts Payable Payable turn over ratio
2017 35143197 3351230 10.49
2018 22837318 2549428 8.96
2019 17282711 1437417 12.02
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Interpretation:
The account payable turnover ratio measures how quickly a business make payments to
creditors and suppliers that extend lines of credit. The payable turnover ratio of Pakistan
Oxygen Limited decreases by 8.96% percent in 2018 which means that company do not have
plenty of cash available to pay off its short term debts in a timely manner. By 2019, this ratio
increase, This increases accounts payable turnover ratio could be an indication that the
company is managing its debts and cash flow effectively.

Payable Turnover in Days:

Definition:
The accounts payable turnover in days shows the average number of days that a payable
remains unpaid.
Usage:
Accounts payable turnover shows how many times a company pays off its accounts payable
during a period.
Formula: Payable Turnover in days = Days in the Year/ Payable Turnover
Year 365 Days Payable Turnover Ratio Payable turn over in days
2017 365 10.49 34.81
2018 365 8.96 40.75
2019 365 12.02 30.36
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Interpretation:
This shows the average number of days that a payable remains unpaid. The number of
days increases between 2017 and 2018 by 8.96 i.e. 40.75 days which indicates that Pakistan
Oxygen is paying its suppliers more slowly and may be an indicator of worsening financing
condition .

Inventory Turnover Ratio:

Definition:
Inventory turnover is a ratio showing how many times a company has sold and
replaced inventory during a given period. A company can then divide the days in the period
by the inventory turnover formula to calculate the days it takes to sell the inventory on hand.
Usage:
Calculating inventory turnover can help businesses make better decisions on pricing,
manufacturing, marketing and purchasing new inventory.
Formula: Inventory Turnover = Cost of Goods Sold/ Inventory
Year Cost of Goods Sold Inventory Inventory Turn Over Ratio.
2017 3420925 264728 12.92
2018 3750528 406146 9.23
2019 3600834 604481 5.96
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Interpretation:
This ratio shows the number of times inventory is sold or used in a specific time period. Inventory
turnover ratio is high in 2017 but decreases gradually in 2018 and 2019. The higher inventory
turnover ratio i.e in 2017 is a good indicator for Pakistan Oxygen Limited. It is better for company’s
future. This means company is having high sales and company have good liquidity of its inventory.
However, Inventory turn over ratio decreases gradually in 2018 and 2019.Low inventory turnover
means low sales, too much inventory or overstocking and poor liquidity of its inventory.

Inventory Turnover ratio in days:

Definition:
You can calculate the inventory turnover ratio by dividing the inventory days ratio by 365
and flipping the ratio. 
Usage:
Inventory Turnover (Days) (Days Inventory Outstanding) – an activity ratio measuring the
efficiency of the company's inventories management.
Formula: Inventory turnover ratio in days= 365/Inventory turnover

Year 365 Days Inventory Turnover Ratio Inventory turn over in days
2017 365 12.92 28.2
2018 365 9.23 39.5
2019 365 5.96 61.3
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Interpretation:
Inventory turnover in days show the average time a company can turn its inventory
into sales. This ratio is high in 2017 and gradually decreases in 2018 and 2019. This means
Pakistan Oxygen Limited is efficient in 2017 but weak in 2018 and 2019 as it is taking
much more days to convert its inventory into sales which is not a good sign for the business.
This means sales are low.

Total Asset Turnover Ratio:

Definition:
Asset turnover is the ratio of total sales or revenue to average assets.
Usage:
This metric helps investors understand how effectively companies are using
their assets to generate sales. Investors use the asset turnover ratio to compare similar
companies in the same sector or group.
Formula: Total Assets Turnover = Net Sales/ Total Assets.

Year Net Sales Total Assets Total Asset Turn Over Rtaio.
2017 4412652 5087282 87%
2018 4860059 6697230 73%
2019 4666590 7063069 66%
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Interpretation:
The assets turnover ratio measures the value of a company’s sales or revenues relative
to the value of its assets. This ratio increases in 2017 by 87% which means Pakistan Oxygen
Limited is more efficient at generating revenue from assets.
However, Total assets turnover ratio of Pakistan Oxygen decreases gradually by 73%
in 2018 and 66% in 2019 which is not a good indicator, this means company is not efficient
at generating revenue from its assets.

Profitability Ratios:
Profitability ratios are metrics that assess a company's ability to generate income relative to its
revenue, operating costs, balance sheet assets, or shareholders' equity. Profitability ratios show how
efficiently a company generates profit and value for shareholders.

Types of Profitability Ratio:

Gross Profit Margin:

Definition:
Gross profit margin is a metric analysist use to assess a company's financial health by
calculating the amount of money left over from product sales after subtracting the cost of
goods sold (COGS). 
Usage:
Gross profit margin ratio is used by an analyst to assess a company's financial health
by calculating the amount of money left over from product sales after subtracting the cost of
goods sold. 
Formula: Gross Profit Margin = Gross Profit/ Net Sales*100
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Year Net Sales Gross Profit Gross Profit Margin Ratio

2017 4412652 991727 22.47
2018 4860059 1109531 22.83
2019 4666590 1065756 22.84

Interpretation:
Gross Profit margin is the difference between revenue and cost of goods sold divided by revenue.
Gross profit margin of Pakistan Oxygen is high in 2019 but slightly decreases between three years. It
had decreases by 22.83% by 2018 and by 22.47% by 2017 which means company is underpricing.
The company is losing competitiveness in the market. Pakistan Oxygen Limited needs to increase
sales without increasing cost of goods sold per unit.

Net Profit Margin:

Definition:
The net profit margin is equal to how much net income or profit is generated as a percentage
of revenue. Net profit margin is the ratio of net profits to revenues for a company or business
segment.
Usage:
Net profit margin helps investors assess if a company's management is generating
enough profit from its sales and whether operating costs and overhead costs are being
contained.
Formula: Net Profit Margin = Net Profit after Taxes/ Net Sales

Year Net Sales Net Profit After Taxes Net Profit Margin
2017 4412652 240033 5%
2018 4860059 398695 8%
2019 4666590 300585 6%
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Interpretation:
Net profit margin is a measure of profitability of the business. This ratio increases by
8% in 2018 which is a positive indicator. This means that company is more efficient at
converting sales into actual profit. However, this ratio decreases in 2019 by 6% and 5% in
2017 which is greater decrease. This is not a good indicator for Pakistan Oxygen Limited.
This means that a company uses an inefficient cost structure or poor pricing strategies. This is
as a result of poor or inefficient management or high costs.

Return on Investment:
Definition:
Return on Investment (ROI) is a performance measure used to evaluate the efficiency
of an investment or compare the efficiency of a number of different investments. ROI tries to
directly measure the amount of return on a particular investment, relative to the investment’s
cost. 
Usage:
As a performance measure, ROI is used to evaluate the efficiency of an investment or
to compare the efficiencies of several different investments.
Formula: Return on Investment = Net Profit After Taxes/ Total Assets

Year Total Assets Net Profit After Taxes Return On investment

2017 5087282 240033 5%
2018 6697230 398695 6%
2019 7063069 300585 4%
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Interpretation:
Return on investment is a performance measure used to evaluate the efficiency of an
investment or compare the efficiency of a number of different investments. Return on
investment of Pakistan Oxygen Limited is 5 % in 2017 and there is a increase in 2018 i.e 6%
but it reduces in 2019 by 4%. This means a company is ineffectively utilizing an investment
and produces losses. Investors would be reluctant to invest in Pakistan Oxygen Limited.

Return on Equity:
Definition:
Return on equity (ROE) is a measure of financial performance calculated by
dividing net income by shareholders' equity. Because shareholders' equity is equal to a
company’s assets minus its debt, ROE is considered the return on net assets. ROE is
considered a measure of the profitability of a corporation in relation to stockholders’ equity.
Usage:
Return on Equity is an important measure for a company because it compares it
against its peers.
Formula: Return on Equity = Net Profit After Taxes/ shareholder Equity

Year Share Holder Equity Net Profit After Taxes Return on Equity
2017 1967362 240033 12%
2018 3898980 398695 10%
2019 4144539 300585 7%
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Interpretation:
This is the measure of the profitability of a business in relation to the equity. This
ratio increases by 12% in 2017 which means Pakistan Oxygen Limited is increasing its profit
generation without needing as much capital, but profit is increasing at lower rate as return on
equity only increases by 12%. However, this ratio decreases by 7% by 2019 which is a matter
of concern. This means Pakistan Oxygen Limited is becoming less efficient at creating
profits and increasing shareholder value.

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Balance Sheet Horizontal And Vertical Analysis With Interpretation.

Horizontal Analysis
2017 2018 2019
Non - current assets
Property, plant and equipment 54.60% -1.57%
Intangible assets 170.23% 55.27%
Investment in subsidiary 0.00% 0.00%
Long term loans -70.91% 153.67%
Long term deposits -22.26% -28.60%
53.82% -1.84%
Current assets
Stores and spares 37.04% 27.58%
Stock-in-trade 53.42% 48.83%
Trade debts 1.17% 24.37%
Loans and advances -16.32% 48.24%
Deposits and prepayments 38.76% 54.46%
Other receivables -2.45% 43.78%
Taxation - net 14.52% 8.38%
Cash and bank balances -66.66% -86.81%
-1.03% 18.26%
Total assets 31.65% 5.46%
B
Equity and liabilities a 76.41% 69.80%
Share capital and reserves s 4.15% 23.61%
e
40,000,000 (2018: 40,000,000) Ordinary shares of Rs. 10 each 0.00% 0.00%
Issued, subscribed and paid-up capital Y
32,550,336 (2018: 25,038,720) Ordinary shares of Rs. 10 each e 88.36% 30.00%
a
General reserves r 7.04% 9.24%
Unappropriated profit 12.23% 8.72%
Capital reserves 4.11% 10%
Surplus on revaluation of property, plant and equipment 1.94% 0.08%

Non-current liabilities
Long term deposits -31.55% 4.71%
Lease liabilities -89.58% 52.05%
Deferred liabilities -10.97% -11.02%
-38.20% 0.48%
Current liabilities
Trade and other payables -13.34% 3.48%
Short term borrowings 32.29% 36.00%
Un-claimed dividend 83.42% -11.70%
Current portion of lease liabilities -72.42% -26.04%
Current maturity of long term financing -29.87% -18.16%
-0.47% 5.13%
Total equity and liabilities 31.65% 5.46%

Interpretation
With a Horizontal Analysis, also, known as a “trend analysis,” you can spot trends in your
financial data over time. In Horizontal Financial Analysis of Pakistan Oxygen Limited,
the comparison is made between an item of financial statement, with that of the base
year's corresponding item. Further, it is also noticed that the operating income moves in
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tandem with the revenue growth which is a good sign. A horizontal balance sheet uses
extra columns to present more detail about the assets, liabilities, and equity of a business.

Interpretation:
A vertical analysis is used to show the relative sizes of the different accounts on a financial
statement. Vertical analysis of Pakistan Oxygen limited is the comparison of various line
items within a single period. It compares each line item to the total and calculates what the
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percentage the line item is of the total. A vertical balance sheet is prepared in case when only
one balance sheet is required as in the case of a small entity which operates at lower scales,
whereas horizontal balance sheet is an additional balance sheet prepared by organizations that
work on a bigger scale having different departments, branches etc.

Income Statement Horizontal And Vertical Analysis With

Interpretation.

Horizontal Analysis
2017 2018 2019
Gross Sales 9.79% -4.17%
Trade discount and Sales tax -0.83% 0.64%
Net Sales 8.96% -3.53%

Cost of sales -6.60% 2.73%

Gross Profit B 2.36% -0.80%
a
Distribution and marketing expenses s 1.55% -0.84%
Administrative expenses 0.56% -0.30%
e
Other Operating Expenses 0.17% 0.18%
2.26% -0.96%
Operating Profit before other income Y 4.62% -1.76%
Other Income e -0.23% 0.21%
Operating profit a 4.39% -1.55%
r
Financing Costs -0.42% -1.03%
Profit before taxation 3.97% -2.58%

Taxation -0.80% 0.79%

Profit fot the year 3.18% -1.79%

Interpretation:
With a Horizontal Analysis, also, known as a “trend analysis,” you can spot trends in
your financial data over time. Horizontal analysis compares account balances and ratios over
different time periods.  The analysis of Pakistan Oxygen Limited computes the percentage
change in each income statement account at the far right. The first number you might
consider is the change in profit.
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Vertical Analysis
2017 2018 2019
Gross Sales 100.00% 100.00% 100.00%
Trade discount and Sales tax -11.66% -11.38% -11.20%
Net Sales 88.34% 88.62% 88.80%

Cost of sales -68.49% -68.39% -68.52%

Gross Profit 19.85% 20.23% 20.28%

Distribution and marketing expenses -5.71% -3.78% -4.83%

Administrative expenses -4.72% -3.78% -4.26%
Other Operating Expenses -1.28% -1.01% -0.86%
-11.68% -8.58% -9.96%
Operating Profit before other income 8.17% 11.65% 10.32%
Other Income 0.55% 0.29% 0.52%
Operating profit 8.72% 11.94% 10.85%

Financing Costs -1.91% -2.12% -3.29%

Profit before taxation 6.81% 9.82% 7.55%

Taxation -2.00% -2.55% -1.83%

Profit fot the year 4.81% 7.27% 5.72%

Interpretation:
 Vertical analysis is used to show the relative sizes of the different accounts on a financial
statement.  vertical analysis of Pakistan Oxygen Limited is done on an income statement, it
will show the top line sales number as 100%, and every other account will show as a
percentage of the total sales number.
Vertical analysis makes it easier to understand the correlation between single items on
a balance sheet and the bottom line, expressed in a percentage. Vertical analysis can become
a more potent tool when used in conjunction with horizontal analysis, which considers the
finances of a certain period of time. Vertical Analysis refers to the analysis of the Income
Statement where all the line item which are present in company's income statement are listed
as a percentage of the sales within such statement and thus helps in analyzing the company's
performance by highlighting that whether it is showing upward or downward trend.
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