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Financial Management Term Report Pak Suzuki Ltd Indus Motors Ltd

Presented to : Sir Amyn Wahid

Presented by: Sana Taqi 9843 Asadullah-9897 Babar Ansari-10055 Shafiq-10713

Acknowledgement:
We are thankful to Allah, the gracious, the merciful for Helping us at every step and giving us the strength to complete this report on time. We are really grateful to our course facilitator Sir Amyn Wahid who guided us and provided with all his possible assistance during the obstacles faced in the creation of this report, which would not have been possible without his guidance and support. We would like to thank our family who supported us and gave us time to complete our report.

Table of Contents

INTRODUCTION OF COMPANIES ...................................................................4 PAK SUZUKI MOTOR COMPANY LIMITED ..............................................4 INDUS MOTORS ................................................................................................6 LIQUIDITY RATIO: ..............................................................................................8 FINANCIAL LEVERAGE RATIOS ...................................................................12 EFFICIENCY RATIOS ........................................................................................17 PROFITABILITY RATIOS .................................................................................25 COMMON SIZE ANALYSIS...............................................................................34 INDEXED ANALYSIS ..........................................................................................42 REFERENCES: .....................................................................................................52 APPENDICES ........................................................................................................53

INTRODUCTION OF COMPANIES
Pak Suzuki Motor Company Limited

Pak Suzuki Motor Company was formed in August 1983 as a joint venture between Pakistan Automobile Corporation Limited (representing government of Pakistan) and Suzuki Motors Corporation Japan for the manufacturing, assembling and marketing of Suzuki vehicles in Pakistan.

PSMCL started production in 1984. In 1989 the foundation stone of the new Bin Qasim plant was laid. Over the years PSMCL has expanded its capacity to 150,000 vehicles per annum. On 25th April 2007 the board of directors of Pak Suzuki Motor Corporation Limited and Suzuki Motorcycles Pakistan (SMPL) Limited decided to amalgamate SMPL into PSMCL.

It has the largest dealership network in Pakistan. PSMCL also has the highest market share and has become a household name in Pakistan. It is manufacturing eight car models; this is the highest number of models manufactured by any automobile manufacturer in Pakistan.

OUR VISION
To be Excellent All Around.

OUR MISSION
To provide vehicles of international quality at competitive price.

To iprove skills of employees by imparting training and inculcating in them sense of participation. To achieve maximum indigenization and promote the automobile vending industry. To contribute to Pakistani society through development of industry in general and automobile industry in particular.

Product range
Automobile Motorcycles

Cultus:

Swift:

GS 150

Alto

Jimmy

Sprinter

Liana

Cargo van

Sprinter Eco

Mehran

Ravi pickup

Shogun

Bolan van

APV and Jimny

INTRODUCTION OF INDUS MOTORS


Indus Motor Company Limited is an assembler, manufacturer and marketer of Toyota vehicles in Pakistan since July 01, 1990. The company is engaged in sole distributorship of Toyota and Daihatsu Motor Company Ltd. vehicles in Pakistan through its dealership network. IMC is a joint venture between the House of Habib, Toyota Motor Corporation Japan (TMC), and Toyota Tsusho Corporation Japan (TTC). Indus Motor Company was incorporated in 1989 and is listed on all the three stock exchanges of Pakistan. It has a market share of 41%, slightly behind Pak Suzuki Motors (market share: 46%). Thus Indus Motor Company is one of the two leading car manufacturers in Pakistan. The market share of Pak Suzuki declined to 46% in YEAR 2010 from 48% in YEAR 2009. Dewan Motor's market share also decreased from 0.38% in YEAR 2009 to 0% in YEAR 2010. However, Indus Motor and Honda Atlas gained in terms of market share. Honda Atlas' market share increased from 12.22% in YEAR 2009 to 12.49% in YEAR 2010. Indus Motor Company performed better than the other companies in the auto sector during YEAR 2010.The market share of Indus Motors surged from 39% in YEAR 2009 to 41% in YEAR 2010.

Vision
IMCs Vision is to be the most respected and successful enterprise, delighting customers with a wide range of products and solutions in the automobile industry with the best people and the best technology". The most respected. The most successful. Delighting customers. Wide range of products. The best people. The best technology.

Mission
Mission of Toyota is to provide safe & sound journey.

Automobiles Camry Hilux

Corolla

Imported vehicles

Cuore

Liquidity Ratio:
a. Current Ratio = Current Assets Current Liabilities
Rs Indus Motors Ltd 2009 16,715,319.00/ 9,884,850.00 Indus Motors Ltd 2010 23,791,253.00 /14,224,866.00 Pak Suzuki Co Ltd 2009 12,427,633,000/ 3,325,134,000 Pak Suzuki Co Ltd 2010 14,313,132,000/ 4,752,499,000 Current Ratio 2009 2010 Indus Motors Ltd
1.69 1.67

1.69

1.67

3.74

3.01

Pak Suzuki Co Ltd 3.74 3.01

4 3.5 3 2.5 2 1.5 1 0.5 0

3.74 3.01

1.69

1.67

2009 Indus Motors Ltd

2010 Pak Suzuki Co Ltd

Internal analysis of Indus Motors


Since the company has increased its current assets has increased by 7075934, and our liabilities has increased by 4340016,therefore our current ratio has increased because current assets grew less in comparison to current liabilities. The ratio is mainly used to give an idea of the company to pay back its short tern liabilities with its short term assets.

Internal analysis of Pak Suzuki


Current ratio shows firm`s ability to cover its current liabilities over its current assets. As the current ratio decreased by 0.73 in 2010 due to increase in current liabilities by 1427365000, which causes decrease in the liquidity position of Pak Suzuki in 2010 in comparison of 2009 CR.

External Analysis
Paki Suzuki is in a better position than Indus motors to pay off its current liabilities with its current assets. Pak Suzuki both current assets and current liabilities are much higher than Indus motors. However both firms have shown improvement in 2010 in terms of current ratio.

b. Quick Ratio =

Current Assets Inventories Current Liabilities Rs

Indus Motors Ltd Indus Motors Ltd

2009 2010

(16,715,319.00-4,217,341.00)/9,884,850.00 (23,791,253.00 -5,309,934.00)/14,224,866.00 (12,427,633,000 6,879,729,000) /3,325,134,000 (14,313,132,000 8,748,031,000) /4,752,499,000

1.26 1.30 1.67 1.147

Pak Suzuki Co Ltd 2009 Pak Suzuki Co Ltd 2010

Quick Ratio 2009 2010

Indus Motors Ltd 1.26 1.30

Pak Suzuki Co Ltd 1.67 1.14

2 1.5 1 0.5 0 Indus Motors Ltd 2009 1.26 1.3

1.67 1.14

Pak Suzuki Co Ltd 2010

Internal analysis of Indus Motors


The company is able to pay off its short term obligations with its current assets other than inventories, which denotes that company is managing its inventories efficiently inventories.

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Internal analysis of Pak Suzuki


Quick ratio of Pak Suzuki decreased by 0.523 which show Pak Suzuki is in not position to cover its current liabilities with most liquidating of its assets. This decrease in Quick ratio shows increase in obsolete inventory which shows inefficient inventory management and have got less liquidate items to pay off its debts

External Analysis
Indus motors are not having any inventory issues, which is evident by quick ratio which is increasing in 2010. But Pak Suzuki quick ratio declined which means that its not managing its inventory well in 2010.

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Financial Leverage Ratios


a. Debt to Asset ratio: Total Debt Total Assets Rs Indus Motors Ltd Indus Motors Ltd Pak Suzuki Co Ltd Pak Suzuki Co Ltd 2009 2010 2009 2010 10,388,550.000/ 20,685,523.00 14,550,663.00/ 27,138,278.00 3,330,134,000 / 17,655,734,000 4,752,449,000 / 19,250,364,000 50.22% 53.62% 19% 25%

Indus Motors Ltd 2009 2010 50.22% 53.62%

Pak Suzuki Co Ltd 19% 25%

60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00%

50.22%

53.62%

25% 19%

Indus Motors Ltd 2009

Pak Suzuki Co Ltd 2010

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Internal analysis of Indus Motors


This ratio indicates that the proportion of total debt relative to its total assets. This shows in year 2009 we had debt financing of 50.22% and equity financing was 49.78%, however in 2010, our debt financing was increased to 53.62 and equity financing is 46.38%.

Internal analysis of Pak Suzuki


Debt to total assets shows the percentage of the firm`s assets supported by the debt financing. As in 2009 23.2% debts were of assets to 2010 33% of the total assets. This shows that 23.2% of the assets are being financed by liabilities and rest 76.8% are being financed by equity. This variation of 9.8% occurs because of increase in total debts by 1422315 and also increases in total assets by 172315.

External Analysis
Both the companies has shown that total debt to total assets ratio have increased in 2010.however Indus motors finance almost half of its assets by debt financing, which is very risky, while Pak Suzuki is financing very less with debt and more with equity financing, which makes the company less risky and leading to less interest expense.

b. Debt to Equity Ratio =

Total Debt Shareholders Equity Rs

Indus Motors Ltd Indus Motors Ltd Pak Suzuki Co Ltd Pak Suzuki Co Ltd

2009 2010 2009 2010

10,388,550.00/10,296,973.00 14,550,663.00/12,587,615.00 3,330,134,000 / 14,325,600,000 4,752,449,000 / 14,497,915,000

1.01 1.16 0.23 0.33

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Debt to Equity Ratio 2009 2010

Indus Motors Ltd 1.01 1.16

Pak Suzuki Co Ltd 0.23 0.33

1.16 1.2 1 0.8 0.6 0.4 0.2 0 Indus Motors Ltd 2009 Pak Suzuki Co Ltd 2010 0.23 0.33 1.01

Internal analysis of Indus Motors


This ratio indicates the proportion of liquidity and debt the company uses to finance its assets. As the ratio is more than 1 in both years, therefore its prone to risk as its doing more of debt financing in both years as compares to equity financing. This has happened because debt has increased four times in year from 2009 to 2010, while equity rose only twice the time.

Internal analysis of Pak Suzuki


Debt to equity ratio shows the extent by which the firm is financed by its debt. In 2009 company`s liability were 0.19 times the equity of the company and in 2010 liability of Pak Suzuki was 0.25 times the company`s equity. As increase by 0.6 shows increase in debt finance. As the company increases its debt finance which causes more risk to them.

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External Analysis
As mentioned earlier in the above ratio. Pak Suzuki is using more of equity financing to play on the safe side, which is indicated through ratio 0f 0.23 and 0.33 which is less than 1 , means more equity financing, while Indus motor is using more of debt financing.

c. Interest Coverage Ratio = ___EBIT_______ Interest Charges Rs Pak Suzuki Co Ltd Indus Motors Ltd Indus Motors Ltd Pak Suzuki Co Ltd 2009 2010 2009 2010 14,02500/62,000 36,47600/15,33900 427,843/ 20,607 668,015/ 20,278 22.62 2.38 20.762 32.942

Interest Coverage Ratio 2009 2010

Indus Motors Ltd 22.62 2.38

Pak Suzuki Co Ltd 20.762 32.942

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32.942 35 30 25 20 15 10 5 0 Indus Motors Ltd 2009 2010 2010 2.38 22.62 20.762

Internal analysis of Indus Motors


There is a massive decline in interest coverage ratio in 2010, because our interest expense has increased with a huge amount. Hence its proved through that increased debt financing in 2010 lead to increased interest expense.

Internal analysis of Pak Suzuki


Interest coverage ratio of Pak Suzuki shows its ability to cover its interest charges from its profits. As there is increase in ICR by 12.18% which shows that firm`s ability has increased to covers its interest charges because they have increased their profitability in 2010 by 240172 and there is less increase in interest charges in 2010 as comparison of 2009.

External Analysis
In 2010,Indus motors interest charges increased drastically more than double, which lead to decreased coverage ratio, while for Pak Suzuki, interest charges had decreased almost same for two years but its EBIT has increased , due to decreased expenses. Therefore Pak Suzuki is in a better position to cover its interest charges with its EBIT.

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Efficiency Ratios
a. Receivable Turnover = _Annual Credit Sales_ Receivables Rs Indus Motors Ltd Indus Motors Ltd Pak Suzuki Co Ltd Pak Suzuki Co Ltd 2009 2010 2009 2010 37,864,604/1,845,900 60,093,139.00/1,737,600.00 26,234,061,000/376,508,000 42,642,762,000/240,719,000 20.51 34.58 69.68 177.15

Receivable Turnover 2009 2010

Indus Motors Ltd 20.51 34.58

Pak Suzuki Co Ltd 69.68 177.15

200 150 100 50 0 Indus Motors Ltd 2009 20.51 34.58 69.68

177.15

Pak Suzuki Co Ltd 2010

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Internal analysis of Indus Motors


This ratio indicates the quality of receivables and how successful the firm is in its collection Receivable turnover has increased in year 2010 to 34.58 from 20 because receivables have declined in 2010 by 6% while have sales Increased drastically. This means that the company is much more effective in collection of its receivables.

Internal analysis of Pak Suzuki


Receivable turnover ratio shows the quality of receivables and how Pak Suzuki efficiently collects its receivables. As the ratio increased by 107.447 in 2010 which shows credit sales have been increased by 16408701 and also shows a decrease in account receivable of 56%

External Analysis
Both the companies are doing well in collection of its receivables and are managing its receivables well. However in 2010, receivables for Pak Suzuki declined by 56%, while its sales have almost doubled, means that more sales were made on cars and company was providing some incentive to creditors that they were paying quickly so less receivables.

b. Average Collection Period = Days in the Year Receivable Turnover

Indus Motors Ltd Indus Motors Ltd Pak Suzuki Co Ltd Pak Suzuki Co Ltd

2009 2010 2009 2010

360/20.51 360/34.58 360/69.68 360/177.15

17.55 days 10.40 days 5.17 days 2.03 days

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Average Collection Period 2009 2010

Indus Motors Ltd 17.55Days 10.40 days

Pak Suzuki Co Ltd 5.17 days 2.03 days

20 15 10 5 0

17.55

10.4 5.17 2.03

Indus Motors Ltd 2009

Pak Suzuki Co Ltd 2010

Internal analysis of Indus Motors


This indicates that in how many days the firm collects its receivables. Average collection period for Indus motors in 2010 have decreased to 10 days from 17 days, which means that the company is giving some kind of discounts to creditors, so that they are paying early. As the receivable turnover ratio has increased for Indus motor for 2010, Average collection period has decreased in 2010.

Internal analysis of Pak Suzuki


As the Average collection period ratio shows a drastic decrease in average collection period which shows very weaker receivable turnover. As in 2009 Pak Suzuki takes 6 days in collecting receivables where as in 2010 it takes 2 days. It takes 3 less days for collecting receivables in 2010 in comparison of 2009.

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External Analysis
As evident from average collection ratio for Pak Suzuki, it has decreased the days that it was taking to convert account receivables to cash to only 2 days. While Indus motor is taking 10 days in 2010, therefore Pak Suzuki is doing well in 2010 as compared to Indus motors.

c. Inventory Turnover

= Cost Of Goods Sold or Net Sales Inventory Rs

Indus Motors Ltd Indus Motors Ltd Pak Suzuki Co Ltd Pak Suzuki Co Ltd

2009 2010 2009 2010

35,540,418.00/4,217,341.00 55,382,306.00/5,309,934.00 25,664,762,000/ 6,879,729,000 41,638,975,000/ 8,748,031,000

8.43 10.43 3.73 4.46

Inventory Turnover 2009 2010

Indus Motors Ltd 8.43 10.43

Pak Suzuki Co Ltd 3.73 4.46

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12 10 8 6 4 2 0 8.43

10.43

3.73

4.46

Indus Motors Ltd 2009

Pak Suzuki Co Ltd 2010

Internal analysis of Indus Motors


This ratio indicates how effective is the company in converting its inventory to cash and generate sales. As the ratio of inventory turnover has increased from 8.43 to 10.43, this shows that inventory are now pulled out two times faster and Indus motor inventory is improving. This may be due increased quality good products, or some relaxation in credit policies of the company.

Internal analysis of Pak Suzuki


Inventory turnover ratio indicates the effectiveness of the inventory management practice of the company. The inventory turnover ratio of Pak Suzuki has increased by 0.73. This shows Pak Suzuki efficiently converts cash better than previous year. And the cost of goods sold also increased in 2010.

External Analysis
Indus motors are taking around 10 times to covert its inventory to sale, while Pak Suzuki is taking 4 times in 2010 to convert inventory to cash. This may be due to the fact that Indus motor produce cars that are luxurious and expensive, so upper class buys it and few units are sold but which give increase amount of revenue but Pak Suzuki cater to masses and produce comparatively low price cars, which are purchased regularly by masses.

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d. Inventory Turnover in Days

Days in the Year Inventory Turnover

Indus Motors Ltd Indus Motors Ltd Pak Suzuki Co Ltd Pak Suzuki Co Ltd

2009 2010 2009 2010

360/8.43 360/10/43 360/3.73 360/4.46

42.72 days 34.52 days 96.50 days 75.63 days

Inventory Turnover in Days 2009 2010

Indus Motors Ltd 42.72 days 34.52 days

Pak Suzuki Co Ltd 96.50 days 75.63 days

120 100 80 60 42.72 40 20 0 Indus Motors Ltd 2009 2010 Pak Suzuki Co Ltd 34.52 96.5 75.63

Internal analysis of Indus Motors


This ratio indicates the days taken by the company to convert its inventory to account receivables. Indus motors have decreased its inventory turnover days by 8 days in 2010. This may be due increased quality good products, or some relaxation in credit policies of the company. 22

Internal analysis of Pak Suzuki


From this analysis, we came to know that Pak Suzuki is taking more time in converting its inventory. This shows company is taking 15 days more in 2010 than in 2009 for inventory conversion which shows a weaker inventory management system than as was in 2009.

External Analysis
Inventory turnover in days have decreased for both companies in 2010, which shows that both companies are selling cars fast in 2010, as compared to 2009, this may be due to increased car financing and increased disposable income of consumers.

e. Total Asset Turnover =

Net Sales Total Assets Rs

Indus Motors Ltd Indus Motors Ltd Pak Suzuki Co Ltd Pak Suzuki Co Ltd

2009 2010 2009 2010

37,864,604.00/20,685,523.00 60,093,139.00/27,138,278.00 26,234,061,000/ 17,655,734,000 42,642,762,000/ 19,250,364,000

1.83 2.21 1.49 2.22

Total Asset Turnover 2009 2010

Indus Motors Ltd 1.83 2.21

Pak Suzuki Co Ltd 1.49 2.22

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2.5 2 1.5 1 0.5 0

2.21 1.83 1.49

2.22

Indus Motors Ltd 2009

Pak Suzuki Co Ltd 2010

Internal analysis of Indus Motors


This ratio indicates how effective the firm is utilizing it total assets to generate sales. Total assets have increased by 31% in 2010, while sales have increased by 58%. This shows that Indus motors have utilized its total assets very effectively to generate sales. And it has doubled its sales over time. This all is evident in the profit and loss account and by inventory turnover ratio, that inventory is selling fast, leading to increased sales.

Internal analysis of Pak Suzuki


Total assets turnover of any company shows how a firm is performing in terms of economic utilization of its assets; from the use of these assets they generate revenues. As the ratio shows that Pak Suzuki is efficiently utilizing its assets as there is increase in net sales by 61.52%. This shows Pak Suzuki is efficiently using its assets for revenue generation. Total sales and assets both decreased in 2010.

External Analysis
Indus motors and Pak Suzuki total asset turnover is almost the same in 2010, which indicates both companies are using its assets well to generate sales. Total assets and sales have increased for both the companies in 2009 and 2010.

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Profitability Ratios
: a) Gross Profit Margin = Gross profit Sales Rs Indus Motors Ltd Indus Motors Ltd Pak Suzuki Co Ltd Pak Suzuki Co Ltd 2009 2010 2009 2010 2,324,186.00/37,864,604.00 4,710,833.00/60,093,139.00 569,299,000/26,234,061,000 1,003,787,000/42,642,762,000 6.14 7.84 2.17% 2.35%

Gross Profit Margin 2009 2010

Indus Motors Ltd 6.14% 7.84%

Pak Suzuki Co Ltd 2.17% 2.35%

9.00% 8.00% 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% 2009 Indus Motors Ltd Pak Suzuki Co Ltd 2010 2.17% 2.35% 6.14% 7.84%

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Internal analysis of Indus Motors


The gross ratio for Indus has increased in 2010 from 2009 as Sales have increased by 59% and Cost of goods sold by 55% in 2010 from 2009 year.

Internal analysis of Pak Suzuki


After analyzing the income statement we got increase in sales by 56.71% which shows an efficient profitability of Pak Suzuki in 2010.in 2010 gross profit of the company has increased due to increased sales in 2010 and reduction in cost of goods sold cost.

External Analysis
Indus motors have much better gross margins than Pak Suzuki, which means that its operations are much better than Pak Suzuki and is producing goods in cost efficient manner.

b. Net Profit Margin =

Net Profit After Taxes Net Sales Rs

Indus Motors Ltd Indus Motors Ltd Pak Suzuki Co Ltd Pak Suzuki Co Ltd

2009 2010 2009 2010

1,385,102.00/37,864,604.00 3,443,403.00/60,093,139.00 255,219,000/26,234,061,000 211,143,000/42,642,762,000

3.66 5.73 0.97% 0.50%

Net Profit Margin 2009 2010

Indus Motors Ltd 3.66% 5.73%

Pak Suzuki Co Ltd 0.97% 0.50%

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5.73% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% Indus Motors Ltd 2009 Pak Suzuki Co Ltd 2010 0.97% 0.50% 3.66%

Internal analysis of Indus Motors


From 2009, NOPAT increased by 148% in 2010, as the operating income tremendously increased from 727080 to 1801459. Financing cost has also decreased from 26450 to 23576.

Internal analysis of Pak Suzuki


Net profit margin of Pak Suzuki has declined drastically in 2010 by 47.2% because of higher operating cost, and of other expenses also.

External Analysis
Net profit for Indus motors have decreased in 2010 due to increased expenses due to which its Net profit margin ratio declined. Indus motor had better profitability in 2010, while Pak Suzuki profitability declined in 2010. Therefore an Indus motor was in a better position in 2010.

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c. Return on assets: Net Profit After Taxes Total Assets Rs Indus Motors Ltd Indus Motors Ltd Pak Suzuki Co Ltd Pak Suzuki Co Ltd 2009 2010 2009 2010 1,385,102.00/20,685,523.00 3,443,403.00/27,138,278.00 255,219,000/17,655,734,000 211,143,000/19,250,364,000 6.70% 12.69% 1.45% 1.10%

Return on assets: 2009 2010

Indus Motors Ltd 6.70% 12.69%

Pak Suzuki Co Ltd 1.45% 1.10%

12.69% 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% Indus Motors Ltd 2009 2010 Pak Suzuki Co Ltd 1.45% 1.10% 6.70%

Internal analysis of Indus Motors


Return on assets form Indus motors have doubled in 2010 over 2009, as our total assets have increased by31.19%.

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Internal analysis of Pak Suzuki


The ROI ratio has declined in 2010 by 35%, as the sales decreased in 2010 as compared to 2009 by 44,076 and also investments in total assets also increased which causes a gap in ROI.

External Analysis
Indus motors have increased ROI as compared to Pak Suzuki declining ROI in 2010. As evident from Pak Suzuki declining net income in 2010, it was obvious that its ROI willed cline too, While Indus motors had increased net income and increased assets in 201, making the company better off.

d. Return on Equity= Net Profit After Taxes Shareholders Equity Rs Indus Motors Ltd Indus Motors Ltd Pak Suzuki Co Ltd Pak Suzuki Co Ltd 2009 2010 2009 2010 1,385,102.00/10,396,973.00 3,443,403.00/13,587,615.00 255,219,000/14,325,600,000 211,143,000/14,497,915,000 13.32% 25.34% 1.78% 1.46%

Return on Equity 2009 2010

Indus Motors Ltd 13.32% 25.34%

Pak Suzuki Co Ltd 1.78% 1.46%

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30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% 13.32%

25.34%

1.78%

1.46%

Indus Motors Ltd 2009

Pak Suzuki Co Ltd 2010

Internal analysis of Indus Motors


Return on equity for Indus motors have increased in 2010 , as our reserves have increased by 22.4% in 2010 from 2009.

Internal analysis of Pak Suzuki


RoE indicates the profitability to the shareholders of the firm. As RoE has also decreased by 32%, this cause because of decrease in net income as well as increase in shareholders equity

External Analysis
Indus motors look more interesting to investors in 2010 because its ROE has increased to 25% which is beneficial for shareholders while Pak Suzuki ROE declined, which causes decrease in RoE, Which is obviously due to decreased net income in 2010?

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e. Earning per share=

Net income

Number of shares Rs/ No of Shares Indus Motors Ltd Indus Motors Ltd Pak Suzuki Co Ltd Pak Suzuki Co Ltd 2009 1,385,102.00/78,600.00 2010 3,443,403.00/78,600.00 2009 255,219,000/82,329,000 2010 211,143,000/82,157,000 17.62 43.81 3.10 2.57

Earning per share 2009 2010

Indus Motors Ltd 17.62 43.81

Pak Suzuki Co Ltd 3.10 2.57

50 40 30 20 10 0 17.62

43.81

3.1

2.57

Indus Motors Ltd 2009

Pak Suzuki Co Ltd 2010

Internal analysis of Indus Motors


Earning per share has increased to 43rs from 17 rs, because our net income has increased for 2010, as described above, however the company has not issued extra shares in 2010, and the number of shares had remained to 78600 in 2010 and 2009. This means more wealth maximization for share holder has increased. 31

Internal analysis of Pak Suzuki


Earnings per share of Pak Suzuki has also fallen because of decrease in profit as the number of share as same in both years but the profit earned has difference of 44076, that causes decrease in earning per share by 0.535.

External Analysis
Indus motors earning per share ratio has increased drastically to 43.81 in 2010 from 17 in 2009, which making the firm more desirable to investors as they would earn more wealth, while Pak Suzuki ratio has declined leading to decreased shareholder value and which is a cause of decreased net income in 2010.

f. Price to Earnings Ratio =

Price (Market Price)

Earnings per Share Rs Indus Motors Ltd Indus Motors Ltd Pak Suzuki Co Ltd Pak Suzuki Co Ltd 2009 2010 2009 2010 107.65/17.62 262.42/43.81 NA NA 6.11 5.99 23.9 31.7

Price to Earnings Ratio 2009 2010

Indus Motors Ltd 6.11 5.99

Pak Suzuki Co Ltd 23.9 31.7

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35 30 25 20 15 10 5 0 Indus Motors Ltd 2009 Pak Suzuki Co Ltd 2010 6.11 5.99 23.9

31.7

Internal analysis of Indus Motors


Its a valuation ratio of a company's current share price compared to its per-share earnings Price to earning ratio has decreased in 2010, because earning per share have increased much more heavily in 2010 than the market price of shares, which have also increased in 2010.

Internal analysis of Pak Suzuki


Pak Suzuki P/E ratio has increased in 2010,

External Analysis
As price to earning ratio was Pak Suzuki is not avail

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Common size analysis


Profit and Loss account for Indus motors
Profit an Loss account Regular Common size As at June 30, 2010 2010 (Rupees in '000) 2009 2010 2009

Net sales Cost of sales Gross profit Distribution expenses Administrative expenses

60,093,139 55,382,306 4,710,833 468,496 381,575 850071 3,860,762

37,864,604 35,540,418 2,324,186 469,985 352,249 822,234 1,501,952 156,479 1,345,473 727,080 2,072,553 26,540 2,046,013 660,911 1,385,102

100.00% 100.00% 92.16% 7.84% 0.78% 0.63% 1.41% 6.42% 0.69% 5.73% 3.00% 8.73% 0.01% 8.72% 2.99% 5.73% 93.86% 6.14% 1.24% 0.93% 2.17% 3.97% 0.41% 3.55% 1.92% 5.47% 0.07% 5.40% 1.75% 3.66%

Other operating expenses

416,106 3,444,656

Other operating income

1,801,459 5246115

Finance costs Profit before taxation Taxation Profit after taxation (Rupees) Earnings per share

3,576 5,242,539 1,799,136 3,443,403

44

17.62

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Analysis:
In this common size analysis of profit and loss account we have seen that cost of goods sold have decreased in 2010 as a percentage of sales, while gross profit has also increased in 2010 to 7.84% as a percentage of sales, however distribution expenses have declined to 0.78% in 2010 along with administrative expenses while other operating expenses have increased to 0.69% as a percentage of sales.net income of Indus motors have increased to 5.73% as a percentage of sales, which shows that company has good income available with itself to distribute to shareholders in 2010.

Balance sheet for Indus motors


Balance Sheet As at June 30, 2010 Regular 2010 (Rupees in '000) ASSETS Non-current assets Fixed Assets Long-term loans and advances Long-term deposits Total Non current Assets 3,324,333 15,570 7,122 3,347,025 3,934,473 28,509 7,222 3,970,204 19.02% 0.14% 0.03% 19.19% 12.25% 0.06% 0.03% 12.33% 2009 Common size 2010 2009

Current assets Stores and spares Stock-in-trade Trade debts Loans and advances Short-term prepayments 111,567 5,198,367 1,613,247 839,819 18,778 128,483 4,088,858 1,736,631 894,459 16,876 0.62% 19.77% 8.40% 4.32% 0.08% 0.41% 19.16% 5.94% 3.09% 0.07% 35

Accrued return on bank deposits Other receivables Cash and bank balances Total Current Assets

57,254 196,241 15,755,980

50,944 67,902 9,731,166

0.25% 0.33% 47.04% 80.81%

0.21% 0.72% 58.06% 87.67%

23,791,253 16,715,319

100.00 TOTAL ASSETS 27,138,278 20,685,523 %

100.00 %

EQUITY Share capital Authorized capital 100,000,000 (2009: 100,000,000) Ordinary shares of Rs 10 each Issued, subscribed and paid-up capital Reserves Total Equity 1,000,000 786,000 11,801,615 1,000,000 786,000 9,510,973 4.83% 3.80% 45.98% 49.78% 3.68% 2.90% 43.49% 46.38%

12,587,615 10,296,973

LIABILITIES Non-current liabilities Deferred taxation Total non current liabilties 325,797 325,797 503,700 503,700 2.44% 2.44% 1.20% 1.20%

Current liabilities Trade, other payables and provisions Advances from customers and dealers Accrued mark-up Short-term running finance Taxation net 242,579 14,224,866 5,905,062 8,076,281 944 14,660 9,884,850 0.07% 47.79% 0.89% 52.42% 3,942,988 5,926,529 673 19.06% 28.65% 0.00% 21.76% 29.76% 0.00%

36

100.00 TOTAL EQUITY AND LIABILITIES 27,138,278 20,685,523 %

100.00 %

Analysis:
For Indus motors the total current assets have increased to 19 % in 2010 as a percentage of total assets. However total current assets declined in 2010 to 80% from 87% in 2009, due to decline in receivables and cash Total equity also increased to 48% in 2010 from 46% in 2009 due to increased reserves in the company which improved the equity percentage increased. Total current liabilities decreased to 47% in 2010 from 52% in 2009, due to decreases in payables in 2010.

37

Balance sheet (common) for Pak Suzuki


Pak Suzuki Motor Company Limited Common Size Balance Sheet As at December 31, 20__ 2010 (Rs. 000) ASSETS Non-current assets Fixed Assets Property, plant & equipment Intangible leases 4,226,582 505,760 4,732,342 Long-term investments Long-term loans Long-term deposits & prepayments Long-term installment sales receivables 5,413 1,114 28,499 169,864 4,937,232 Current assets Stores, spares and loose tools Stock-in-trade Trade debts Current portion of long-term installments Sales receivables Loans, advances and advances Trade deposits & short-term prepayments Accrued markup income Other receivables Sales tax & excise duty adjustable 251,254 134,963 43,466 8,652 107,779 389,453 1.31 0.70 0.23 0.04 0.56 2.02 205,680 226,388 31,738 7,837 76,685 255,609 1.16 1.28 0.18 0.04 0.43 1.45 63,916 8,748,031 240,719 0.33 45.44 1.25 41,749 6,879,729 376,508 0.24 38.97 2.13 21.96 2.63 24.58 0.03 0.01 0.15 0.88 25.65 4,684,671 347,732 5,032,403 4,449 3,162 34,609 153,478 5,228,101 26.53 1.97 28.50 0.03 0.02 0.20 0.87 29.61 % 2009 (Rs. 000) %

38

Income tax refundable - net Cash and bank balances

1,407,713 2,917,186 14,313,132

7.31 15.15 74.35 100.00

780,089 3,545,621 12,427,633 17,655,734

4.42 20.08 70.39 100.00

TOTAL ASSETS

19,250,364

EQUITY & LIABILITIES

Authorised share capital 150,000,000 (2009: 150,000,000) Ordinary shares of Rs 10 each Issued, subscribed and paid-up capital Reserves

1,500,000

1,500,000

822,999 13,674,916 14,497,915

4.28 71.04 75.31

822,999 13,502,601 14,325,600

4.66 76.48 81.14

Non-current liabilities Deferred taxation 0 0.00 5,000 0.03

Current liabilities Trade, other payables Advances from customers Accrued mark-up Short-term borrowing Deposits against display of vehicles Security deposits Provision for custom duties and sales tax 3,080,351 327,031 0 50,000 1,067,839 88,753 138,475 4,752,449 TOTAL EQUITY AND LIABILITIES 19,250,364 16.00 1.70 0.00 0.26 5.55 0.46 0.72 24.69 100.00 1,853,034 441,781 1,512 80,000 723,554 86,778 138,475 3,325,134 17,655,734 10.50 2.50 0.01 0.45 4.10 0.49 0.78 18.83 100.00

39

Analysis:
In year 2010, total assets of Pak Suzuki consists of 74.35% of current assets and 25.65% of noncurrent assets as compared to 70.39% and 29.61% respectively in 2009. The increase in current assets was because of increase in stores, spares & loose tools by 0.09%, stock-in-trade by 6.47%, trade deposits & short-term prepayments by 5%, other receivables by 0.13%. The decrease in non-current assets was a result of decrease in fixed assets by 4.57%. The equity side of the balance sheet indicates the decline from 81.14% to 75.31% however the liabilities side of the balance sheet shows an increase from 18.83% to 24.69%

Income statement (common) for Pak Suzuki


Pak Suzuki Motor Company Limited Common Size Profit & Loss Account For the year ended December 31, 20__ 2010 (Rs. 000) % 2009 (Rs. 000) %

Turnover - net Cost of sales Gross profit Distribution costs Administrative expenses Other operating income

42,642,762 (41,638,975) 1,003,787 (197,361) (636,332) 575,078

100.00 97.65 2.35 0.46 1.49 1.35

26,234,061 (25,664,762) 569,299 (214,550) (495,200) 619,572

100.00 97.83 2.17 0.82 1.89 2.36

40

Finance costs Other operating expenses

(21,349) (55,808) (335,772)

0.05 0.13 0.79 3.14 1.07 2.07

(12,564) (38,714) (141,456) 710,755 (172,624) 538,131

0.05 0.15 0.54 2.71 0.66 2.05

Profit before taxation Taxation Profit after taxation

1,339,559 (456,872) 882,687

Analysis:
In the year 2010 the cost of goods sold was decrease which resulted in increase in gross profit from 2.17% to 2.37%. the overall cost structure was decreasing i.e. the administration cost & distribution cost by 0.40% & 0.36% respectively .the overall tax or the company increased from 0.66% to 1.07% but still the company profit after taxation

41

Indexed Analysis
Profit and Loss account for Indus motors
Profit an Loss account As at June 30, 2010 2010 Regular 2009 Indexed 2009 2010

(Rupees in '000)

Net sales Cost of sales Gross profit Distribution expenses Administrative expenses

60,093,139 55,382,306 4,710,833 468,496 381,575 850071 3,860,762

37,864,604 35,540,418 2,324,186 469,985 352,249 822,234 1,501,952 156,479 1,345,473 727,080 2,072,553 26,540 2,046,013 660,911 1,385,102

100% 158.71% 100% 155.83% 100% 202.69% 100% 99.68%

100% 108.33% 100% 103.39% 100% 257.05% 100% 265.92% 100% 256.02% 100% 247.77% 100% 253.12% 100% 13.47%

Other operating expenses

416,106 3,444,656

Other operating income

1,801,459 5246115

Finance costs Profit before taxation Taxation Profit after taxation (Rupees) Earnings per share

3,576 5,242,539 1,799,136 3,443,403

100% 256.23% 100% 272.22% 100% 248.60%

44

17.62

100% 248.64%

42

Analysis:
In indexed analysis for profit and loss account for Indus motors, we have seen that all items have increased drastically over the next year of 2010 from 2009. Net sales increased by 158% , with COGS being increased in the same proportion and gross profit getting doubled with 200% increase. However distribution expenses have declined and other expenses increased in 2010. One thing is to be notices that our finance cost has decreased to 13.47%, leading to almost double increase of 248% in net income in 2010, showing effectiveness of companies operations and how desirable the company for investors.

Balance sheet for Indus motors


Balance Sheet As at June 30, 2010 Regular 2010 (Rupees in '000) ASSETS Non-current assets Fixed Assets Long-term loans and advances Long-term deposits Total Non current Assets 3,324,333 15,570 7,122 3,347,025 3,934,473 28,509 7,222 3,970,204 100.00% 100.00% 100.00% 100.00% 84.49% 54.61% 98.62% 84.30% 2009 Indexed 2009 2010

Current assets Stores and spares Stock-in-trade Trade debts Loans and advances Short-term prepayments Accrued return on bank deposits 111,567 5,198,367 1,613,247 839,819 18,778 57,254 128,483 4,088,858 1,736,631 894,459 16,876 50,944 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 86.83% 127.13% 92.90% 93.89% 111.27% 112.39%

43

Other receivables Cash and bank balances Total Current Assets

196,241 15,755,980 23,791,253

67,902 9,731,166 16,715,319

100.00% 100.00% 100.00%

289.01% 161.91% 142.33%

TOTAL ASSETS

27,138,278

20,685,523

100.00%

131.19%

EQUITY Share capital Authorized capital 100,000,000 (2009: 100,000,000) Ordinary shares of Rs 10 each Issued, subscribed and paid-up capital Reserves Total Equity 1,000,000 786,000 11,801,615 12,587,615 1,000,000 786,000 9,510,973 10,296,973 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 124.08% 122.25%

LIABILITIES Non-current liabilities Deferred taxation Total non current liabilities 325,797 325,797 503,700 503,700 100.00% 100.00% 64.68% 64.68%

Current liabilities Trade, other payables and provisions Advances from customers and dealers Accrued mark-up Short-term running finance Taxation - net 242,579 14,224,866 5,905,062 8,076,281 944 14,660 9,884,850 100.00% 1654.70% 100.00% 143.91% 3,942,988 5,926,529 673 100.00% 100.00% 100.00% 149.76% 136.27% 140.27%

TOTAL EQUITY AND LIABILITIES

27,138,278

20,685,523

100.00%

131.19%

44

Analysis
In balance sheet for indexed analysis, its observed that current assets have decreased to 84% in 2010 while current assets have increased to 142% in 2010, however trade debt and inventory decreased in 2010. Total equity increased to 122% in 2010, as our reserves increased to 124% in 2010.however our total liabilities have increased to 143% in 2010, with decreased in total non current liabilities of 64% in 2010. Total equity and liabilities have increased by 131% making the company in a good financial position.

45

Pak Suzuki Ltd Balance sheet Indexed


Pak Suzuki Motor Company Limited Indexed Balance Sheet As at December 31, 20__ 2010 (Rs. 000) ASSETS Non-current assets Fixed Assets Property, plant & equipment Intangible leases 4,226,582 505,760 4,732,342 Long-term investments Long-term loans Long-term deposits & prepayments Long-term installment sales receivables 5,413 1,114 28,499 169,864 4,937,232 Current assets Stores, spares and loose tools Stock-in-trade Trade debts Current portion of long-term installments Sales receivables Loans, advances and advances Trade deposits & short-term prepayments Accrued markup income Other receivables Sales tax & excise duty adjustable Income tax refundable - net Cash and bank balances 251,254 134,963 43,466 8,652 107,779 389,453 1,407,713 2,917,186 122.16 59.62 136.95 110.40 140.55 152.36 180.46 82.28 205,680 226,388 31,738 7,837 76,685 255,609 780,089 3,545,621 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 46 63,916 8,748,031 240,719 153.10 127.16 63.93 41,749 6,879,729 376,508 100.00 100.00 100.00 90.22 145.45 94.04 121.67 35.23 82.35 110.68 94.44 4,684,671 347,732 5,032,403 4,449 3,162 34,609 153,478 5,228,101 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 % 2009 (Rs. 000) %

14,313,132 TOTAL ASSETS 19,250,364

115.17 109.03

12,427,633 17,655,734

100.00 100.00

EQUITY & LIABILITIES

Authorized share capital 150,000,000 (2009: 150,000,000) Ordinary shares of Rs 10 each Issued, subscribed and paid-up capital Reserves

1,500,000

100.00

1,500,000

100.00

822,999 13,674,916 14,497,915

100.00 101.28 101.20

822,999 13,502,601 14,325,600

100.00 100.00 100.00

Non-current liabilities Deferred taxation 0 0.00 5,000 100.00

Current liabilities Trade, other payables Advances from customers Accrued mark-up Short-term borrowing Deposits against display of vehicles Security deposits Provision for custom duties and sales tax 3,080,351 327,031 0 50,000 1,067,839 88,753 138,475 4,752,449 TOTAL EQUITY AND LIABILITIES 19,250,364 166.23 74.03 0.00 62.50 147.58 102.28 100.00 142.93 109.03 1,853,034 441,781 1,512 80,000 723,554 86,778 138,475 3,325,134 17,655,734 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00

47

Analysis:
In the year 2010 the companies current assets increased by 15.17% however non current assets decreased by 5.56%. The equity of the company increased by 1.02% however noncurrent liabilities increased by 42.93% which resulted in 9.03% increased the overall assets and liabilities and equity in the balance sheet. Major increase was indicated in the deposits against displaying vehicles which was 47.58%

Pak Suzuki Income statement (indexed)


Pak Suzuki Motor Company Limited Indexed Profit & Loss Account For the year ended December 31, 20__ 2010 (Rs. 000) % 2009 (Rs. 000) %

Turnover - net Cost of sales Gross profit Distribution costs Administrative expenses Other operating income Finance costs Other operating expenses

42,642,762 (41,638,975) 1,003,787 (197,361) (636,332) 575,078 (21,349) (55,808) (335,772)

162.55 162.24 176.32 91.99 128.50 92.82 169.92 144.15 237.37 156.14 264.66 82.73

26,234,061

100.00

(25,664,762) 100.00 569,299 (214,550) (495,200) 619,572 (12,564) (38,714) (141,456) 427,843 (172,624) 255,219 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00

Profit before taxation Taxation Profit after taxation

668,015 (456,872) 211,143

48

Analysis:
Net turnover and cost of sales both increased by 62.55% and 62.24% respectively in year 2010 resulting in an increase in gross profit by 76.32%. Distribution costs decreased by 8.01%, administrative expenses increased by 28.50%, other operating income decreased by 7.18%, finance costs increased by 69.92% and other operating expenses increased by 44.15% in year 2010 resulting in an enormous increase in profit before taxation by 137.37%. The decrease in net profit after taxation by 17.27% in year 2010 was because of increase in taxation by 164.66% causing a declining net profit margin.

49

Conclusion and Recommendations;


In terms of liquidity Pak Suzuki is doing better in comparison to Indus motors , as Pak Suzuki enjoy higher liquidity and ability to meet its short term obligation with its current assets, however Pak Suzuki is having inventory issues and its inventory is stuck up in 2010,where Indus motors having improving inventory management. Pak Suzuki is in a good position in 2010 to cover its interest charges with its profit, however Indus motors had huge amount of interest charges to incur in 2010, that why its interest charges declined. When it comes tor receivables, Pak Suzuki is doing in terms of converting its receivables to cash with comparatively less days in 2010, where as Indus motors has increased the number of days in 2010. Pak Suzuki is managing its inventory well as told above and its taking less days to convert its inventory to cash than Indus motors. Both the companies are using their assets well to produce sales. Gross profit margin has increased for both the companies in 2010, but net profit margin decreased for Pak Suzuki in 2010 as compared to Indus motors, due to increased expenses of Pak Suzuki. This is because of a substantial increase in assets for Indus motors, especially the stockin-trade and cash balance. However in terms of profitability, Indus motor is providing good shareholder wealth for its shareholders in 2010 as compared to Pak Suzuki. Earning per share has improved for Indus motors as compared to Pak Suzuki in year 2010.

50

From the analysis, we have concluded that Indus motor is doing well in terms of profitability and efficiently therefore it looks more desirable to investors. However Pak Suzuki should reduce its expenses, so that its net income can be increased and can provide to wealth to shareholders.

51

References:
Annual report of Pak Suzuki Ltd for Year 2010-2009 Annual report of Pak Suzuki Ltd for Year 2010-2009

52

Appendices
Detailed Financial statement of Indus motors Ltd
2009 Profit and Loss account 2010

60,093.1 TOTAL REVENUES


Cost of Goods Sold GROSS PROFIT Selling General & Admin Expenses, Total Other Operating Expenses OTHER OPERATING EXPENSES, TOTAL OPERATING INCOME Interest Expense Interest and Investment Income

37,864.60
35,566.60 2,298.00 915.5 -20.1 895.5 1,402.50 -8.8 628.9

0
55,266.60 4,826.50 1,214.20 -35.4 1,178.90 3,647.60 -77.7 1,611.60

NET INTEREST EXPENSE


Currency Exchange Gains (Loss) Other Non-Operating Income (Expenses)

620
8.1 -14

1,533.90
-42.1 -22.5

EBT, EXCLUDING UNUSUAL ITEMS


Gain (Loss) on Sale of Investments Gain (Loss) on Sale of Assets Other Unusual Items, Total Other Unusual Items

2,016.70
1.8 10.7 16.9 16.9

5,116.90
25.2 3.2 97.3 97.3

EBT, INCLUDING UNUSUAL ITEMS


Income Tax Expense Earnings from Continuing Operations

2,046.00
660.9 1,385.10

5,242.50
1,799.10 3,443.40

NET INCOME NET INCOME TO COMMON INCLUDING

1,385.10 1,385.10

3,443.40 3,443.40
53

EXTRA ITEMS NET INCOME TO COMMON EXCLUDING EXTRA ITEMS 1,385.10 3,443.40

Balance sheet for Indus motors Ltd

2010 Assets Cash and Equivalents Short-Term Investments Trading Asset Securities --9,731.20 ---

2010

15,756.00

TOTAL CASH AND SHORT TERM INVESTMENTS


Accounts Receivable Notes Receivable Other Receivables

9,731.20
1,736.60 10.2 99.1

15,756.00
1,613.20 8.4 116.1

TOTAL RECEIVABLES
Inventory Prepaid Expenses Other Current Assets

1,845.90
4,217.30 16.9 904.1

1,737.60
5,309.90 18.8 968.9

TOTAL CURRENT ASSETS


Gross Property Plant and Equipment Accumulated Depreciation

16,715.30
7,629.60 -3,699.10

23,791.30
7,834.50 -4,513.60

NET PROPERTY PLANT AND EQUIPMENT


Loans Receivable, Long Term

3,930.50
9.3

3,320.90
5.2

54

Other Intangibles Other Long-Term Assets

4 26.4

3.5 17.5

TOTAL ASSETS LIABILITIES & EQUITY


Accounts Payable Accrued Expenses Current Income Taxes Payable Other Current Liabilities, Total Unearned Revenue, Current TOTAL CURRENT LIABILITIES Deferred Tax Liability Non-Current

20,685.50

27,138.30

635.5 2,019.60 14.7 1,288.50 5,926.50 9,884.90 503.7

1,384.20 2,206.60 242.6 2,315.20 8,076.30 14,224.90 325.8

TOTAL LIABILITIES
Common Stock Additional Paid in Capital Retained Earnings Comprehensive Income and Other

10,388.60
786 196.5 9,308.40 6.1

14,550.70
786 196.5 11,572.80 32.4

TOTAL COMMON EQUITY TOTAL EQUITY


TOTAL LIABILITIES AND EQUITY

10,297.00 10,297.00
20,685.50

12,587.60 12,587.60
27,138.30

55