Final Project

Portfolio Management

Submitted To:

Sir Syed Waqar Akbar

Submitted By:

Irfan Rafiq 2476

Mohammad Nabeel 2467
Umer Saddam 2484
M. Shoaib Sheikh 2381
Aseeqa Butt 2345
 Acknowledgement

First of all, we thank Allah Almighty for the successful completion of the project. Then
we would like to thank Sir Syed Waqar Akbar from whom we learned various skills
relating to Portfolio Management. We would also thank Mr. Sajid Malik, G.M. Operations
at General Investments and Securities for taking his time out and helping us developing
the portfolio.
Economic Analysis
GDP/GNP

Growth rates

FY 2005-2006 2006-2007 2007-2008

GDP 5.8 6.8 5.8

GNP 5.6 6.7 6.1

The government has envisaged 5.5 percent GDP growth for next fiscal year that would be
contributed by 3.5 percent growth in agriculture, 6.1 percent manufacturing and 6.1
percent growth in services. Total investment of Rs 2638.8 billion would be required to
achieve the projected growth target, which 17 percent higher to investment in 2007-08. As
a ratio to GDP, total investment is expected to stay around outgoing year's level of 21.5
percent of the GDP. For financing the required investment, national saving as a ratio to
GDP is projected to increase to 14.3 percent in 2008-09.

Inflation

Inflation rates

Items 2005-06 2006-07 2006-07 2007-08

CPI general 7.9 7.8 7.9 10.3

Food group 6.9 10.4 10.3 15.0

Non-food 8.6 6.0 6.2 6.8

group
Core inflation 7.5 5.9 6.1 7.5

Inflation is getting bigger and uglier by the minute as the Consumer Price Index (CPI)
inflation soared to peak level of 25.3 percent during August 2008, as compared to 6.5
percent in the same period last year. While food inflation year-on-year basis (YoY) is also
soaring persistently high and depicting increased trend during August by breaching all
previous record to an historical level of 34.1 percent, as compared to 8.6 percent in the
same period last year. The central bank on Monday has issued Inflation Monitor for
August, in which the State Bank of Pakistan (SBP) said that both food and non-food
groups of CPI contributed to this upsurge in headline inflation. As non-food inflation
(YoY) also increased significantly reaching 18.7 percent in August 2008, as compared to
4.9 percent during the same period last year.

Interest rate

SBP rate at present is 13 percent, while six months KIBOR is at 15.75 percent). Therefore,
SBP wants banks to freeze KIBOR at this level, and not raise it further when the discount
rate goes to 15 percent.

Unemployment rate

The unemployment rate in Pakistan is around 7.5% in 2008 whereas it was 6.5% in 2007.
The population below poverty line is about 24% which means a quarter of the whole
population.

Balance of trade/payment

Pakistan's balance of payments position is precarious, and the depleting reserves and
depreciating rupee reflect this, says the State Bank of Pakistan. An interim report on
monetary conditions, issued by SBP says. "Despite strong inflow of workers' remittances
and a robust export performance (14.2 percent in July-October, FY09) the external current
account deficit continues to remain on an unsustainable trajectory in FY09 after
registering a deficit at 8.4 percent of GDP in FY08. This is largely due to rise in the
import bill by 35.2 percent during July-October, FY09 compared to a negligible 4.4
percent growth in the corresponding period of last year.

"Strong import demand in the country and the rising international commodity prices have
widened the external current account deficit to $5.9 billion ($3.0 billion during the
comparable period of last year). While the decline in quantum is quite visible in many of
the importable commodities, its impact has been dampened due to higher prices relative to
last year. More importantly, the oil demand has not declined, and the oil import bill is still
a major source of growth in the overall import bill."

Consequently, the SBP's foreign exchange reserves have depleted by $5.0 billion with a
cumulative depletion of $10.7 billion up to November 10, 2008 since end-October 2007
when SBP's reserves were at their peak of $14.3 billion. The dollar-rupee exchange rate
has depreciated by 15.3 percent since the beginning of FY09.

Trade defecit

Trade 2006-07 2006-07 (July-April) 2007-08 (July-April)

Exports 17119 13903 15991

Imports -26614 -22020 28586

Net -9495 -8117 12595

Fiscal policy

Fiscal year 2007-08 proved to be a difficult year for Pakistan, with several political and
economic events transpiring unexpectedly. These events include heightened political
tensions, soaring global oil prices, the international and domestic food inflation
phenomena, a slowdown in global economic activity, and the troubled law and order
situation prevalent in the country. However, the most important aspect was the non-
responsive stance on account of political expediency, that is, not responding to the policy
challenges emerging on Pakistan’s economic scene during most part of the fiscal year
2007-08. All these events have had adverse consequences for fiscal discipline. Because of
the instability experienced at the onset of 2007- 08, the fiscal deficit is expected to miss
the target of 4.0 percent of GDP this year by a wide margin.

Population

Pakistan, with a population of 160.9 million in mid 2008 is the 6th most populous country
in the world. The population of the area now constituting Pakistan has increased ten-fold
since 1901; half added during the post independence period. In absolute numbers; almost
128 million persons have been added to the population during the last 58 years (1951-
2008). Annual growth rates have risen from 1 percent in the first three decades of the
country to around 2 percent in the next three decades after peaking over 3 percent in the
1960s and 1970s and then below 3 percent in the 1990s. The country’s population is
estimated to double in the year 2045 if it continues to grow at 1.8 percent. The population
density has increased to 203 persons per square kilometer today from 42.5 persons per
square kilometer in 1951 which is almost a four time increase. Movement of population to
urban areas, attributed to well known “pull” and “push” factors continues and as a result
the urban population has increased from 6 million in 1951 to today’s 57 million. Thus,
putting an enormous pressure on the available infrastructure like housing, transportation,
electricity, water, sewerage, sanitation, health and educational facilities.

Indicators Latest Available

Total Fertility Rate (TFR) 3.8

Crude Birth Rate (CBR) 26.1

Crude Death Rate (CDR) 7.1

Population Growth Rate 1.8

Infant Mortality Rate 76.7

Maternal Mortality Rate 350-400

Life Expectancy at Birth Male: 64 Years

Female: 66 Years

Debt rating

Standard & Poor's Ratings Services said on Monday its lowered its long-term foreign
currency sovereign credit rating on the Islamic Republic of Pakistan to 'CCC+' from 'B'
and its long-term local currency rating to 'B-' from 'BB-'. At the same time, we lowered
our short-term rating on the sovereign to 'C' from 'B'.
Industrial Analysis
In industrial analysis we will discuss about industrial life cycle, competition in industry,
and government and structural effect, on that particular industry.

Banking Sector Analysis

Sector in Pakistan

Banking sector plays very important role in economy of Pakistan. Pakistan has a well-
developed banking system, which consists of a wide variety of institutions ranging from a
central bank to commercial banks and to specialized agencies to cater for special
requirements of specific sectors. The country started without any worthwhile banking
network in 1947 but witnessed phenomenal growth in the first two decades. By 1970, it
had acquired a flourishing banking sector.

Growth potential

As Quality of the loan portfolio in recent years has been influenced by several positive
economic developments, the foremost among which is real GDP growth which has
averaged at 7.0 percent over the last 5 years. That means banking system has expanded
recently and still has a potential to grow.
Competition:

As the competition in domestic banking system has become fierce (perfect competition)
and the profit margins on traditional modes of Corporate and trade financing are under
pressure the banks are moving into new business areas – Consumer loans, mortgage
financing, SME finances and agriculture lending. But creating awareness, educating the
counter parties, building up local expertise, introducing proper controls and disclosures
standards are some of the pre-requisites that have to be put in place.
At the national level the biggest opportunity is to integrate into international financial
market.

Future in Pakistan

Foreign investors in the banking industry are welcome in Pakistan as they bring not only
the precious foreign exchange but also the skills and techniques which means that banking
sector has a growth hidden in it but it is an interest sensitive industry because government
can restrict the lending or borrowing ability of banks by applying monetary or fiscal
policies. Structural changes do occur in banking industry as internet business mobile
business terms introduced because of fierce completion. These terms created space for
professionals to enter in this industry.

Tobacco industry

Sector in Pakistan:

Tobacco industry growing, manufacturing, distribution and retailing contributed 4.4 per
cent or over Rs 27.5 billion to the total GDP of Pakistan including Rs 15.17 billion,
including Rs 14.54 billion in excise duty and sales tax, in 1997. It is the single biggest
contributor of excise duty, six-times than that from cotton yarn. Over 5 per cent of all
taxes collected in the country come from the tobacco industry. It employs over one million
people directly or indirectly which in terms of full-time equivalent jobs means 312,500
jobs supporting some 1.2 million persons

Growth potential:
Tobacco industry growing, manufacturing, distribution and retailing employ over one
million persons directly or otherwise. This translates in the full time equivalent of 312,500
jobs supporting approximately 1.2 million persons. Manufacturing employs the highest
number of persons 35 per cent followed by 33 per cent by growing and 32 percent.

Competition:

Tobacco is the only crop grown in Pakistan whose yield is well above the world average
and matches the per hectare yield in the US and other developed countries. That means the
competition that company is facing is not fierce. Perhaps it is the type of monopolistic
competition still now.

Future:

Growth potential in it and seems bright future in Pakistan because of social services that
they are providing are also countable along with their contribution in GDP.

Engineering Sector Analysis:

Sector in Pakistan:

Pakistan Engineering Company Ltd. reported earnings results for the fiscal year ended on
June 30, 2007. For the period, the company reported sales of PKR 983 million with profit
before tax of PKR 202 million. The company declared a cash dividend of PKR 9 per share
for the year as recommended by the company board.

According to the information available on the website of the Privatization Commission of

Pakistan, the state has updated its schedule for the privatization of state owned companies.
According to the list, the sale of Hazara Phosphate Fertilizer Limited will take place in the
first quarter of financial year 2007-2008.
Growth potential:
This sector always has growth potential in it. Because every country always needs service
sector for its growth. So importance of this sector cannot neglect in Pakistan.

Competition:

Competition is fierce because of lot of competition in that sector and privatization trend in
Pakistan.

Future:

As service sector is having very potential in it therefore its importance cannot be

neglected in the history of Pakistan.

Automobile Sector analysis:

Sector in Pakistan:

The industry is coming out of slump and during the year 1998-99, the production of all
kinds of vehicles increased 9 per cent due to abolition of Capital Value Tax (CVT)
rationalization of duty structure and sufficient liquidity which led to increase in the
production of Cars (11.3%), Buses (198.5%) and Tractors (68.1%), while the decline was
recorded in production of Jeeps (8.8%), Light Commercial Vehicles LCVs (19.3 per cent),
Motorcycles (3.5%) and Trucks (48.5%).

Growth potential:

There are early indications that Pakistan’s automotive industry is in decline compared
with the previous financial year, according to BMI’s recently published Pakistan
Automotives Report. Data for the first three months of FY2008/09 (July-September)
shows production is down by 31.2% year-on-year (y-o-y), while sales are currently 34%
lower than the same period of the previous year. Although a proportion of the downturn,
particularly in production, can be attributed to the phasing out of the old Toyota Corolla
before production of the new version began in August 2008, the overall performance of
the market has prompted BMI to lower its forecasts for the current financial year.

Competition:
Toyota's guiding principles, thereby producing quality cars. When comparing the Corolla
production standards with those of 11 manufacturers of Corolla in the world, Toyota Japan
rated Pakistan quite high. Marketing professionals at the IMC, beside their strategy of cost
leadership were still able to introduce new developments/products and were successful in
maintaining volumes and retaining the confidence of the market.

Future:
Pakistan's Economic Co-ordination Committee (ECC) is to consider a tax cut of 10% for
domestic carmakers, suggested by the Ministry of Industries and Production. Following a
51% drop in vehicle sales for the first quarter of FY2008/09 (July to September), the
ministry is looking for a way to support the flagging automotive sector, which has
suffered a subsequent slowdown in production. In the three-month period to September,
most of the major manufacturers recorded a drop in sales, according to the local Business
Recorder, led by a 64% decline in sales for Indus Motor.

Oil Sector Analysis

Industry in Pakistan:

The latest Pakistan Oil & Gas Report from BMI forecasts that the country will account for
just 1.55% of Asia Pacific regional oil demand by 2011, while providing 0.77% of supply.
Asia Pacific regional oil use of 21.4mn barrels per day (b/d) in 2001 reached 24.87mn b/d
in 2006. It should average 25.52mn b/d in 2007 and then rise to around 28.99mn b/d by
2011. In terms of natural gas, the region in 2006 consumed 409bcm, with demand of
618bcm targeted for 2011, representing growth of 50.9% between 2006 and 2011.
Production of 329bcm in 2006 should reach 479bcm in 2011 (+45.4%), but implies net
imports rising from 80bcm per annum to 139bcm. Pakistan's share of gas consumption in
2006 was 7.50%, while its share of production was 9.32%. By 2011, its share of gas
consumption is forecast to remain around 7.50%, with the country accounting for 9.67%
of supply.

Growth potential:

Global oil demand growth is now expected to be 1.9% in 2007, down from our June
forecast, but with Asia Pacific and the CEE regions dominating. While oil demand growth
assumptions remain robust, there are early signs that future revisions will be on the
downside as factors such as the credit crunch kick in. The overall demand outlook for the
period to 2011 remains healthy, but subject to review if the macroeconomic outlook
deteriorates. Our projections for 2007 as a whole are revised upwards from the last
quarterly report. We are now assuming an OPEC basket price average of US$64 per
barrel, compared with the US$59 estimate provided by our last quarterly report. Based on
recent price differentials, this implies Brent at US$67.81, WTI averaging US$66.18/bbl,
and Urals at US$64.43/bbl.

Competition:
But from an investment standpoint, the actual timing of peak oil isn't all that important.
The simple fact is that growing production will require tapping more-complex reserves;
producing these reserves will require enormous investment and the use of the most
advanced oilfield technologies. It shows that competitors need to face a fierce situation to
enter into that sector.

Future in Pakistan:

Management in oil sector believes that this new exploration cycle will accelerate in the
2008–09 time frame as a number of new deepwater rigs are scheduled to be launched out
of global shipyards. The only reason that the exploration cycle isn't already at full steam is
that there just aren't enough rigs out there to handle all the work..
Company Analysis
 Pakistan Tobacco Company

Table 1.1 and 1.2 from the annexure give the overview of balance sheets of Pakistan
Tobacco Company. Paid up capital remains unchanged from 2002 to 2007, while share
holders wealth increases by 2,788 million Rs. to 4,023 million. Reserves also show an
increasing trend which means that company’s future expectations are good. Property plant
and equipment show the increasing trend as per the need of business. In 2007 current
liabilities are more than current assets. Long term differed liabilities are also showing an
increasing trend which will affect the current ratio or debt ratio. This will be discussed on
the ratio analysis.

Table 1.3 and 1.4 present the analysis of profit and loss accounts which also seem to
prosper as the business has market growth potential in it. In profit and loss analysis we
can see that it shows volume and net turnover shows increasing trend from year to year.
Same is the case with EAT and dividends. It portraits the positive snapshot of business.

Table 1.5 shows the cash flows of the business through operating, investing and financing
activities. Cash flows from operating activities is positive because of customer revenue
and in financing and investing activities which shows business is normal but overall flows
are negative which is a bad sign.

Table 1.6 reflects different ratios useful to investors for analysis purpose.
Graphical Representation of Some Analysis:
 Analysis of Financial Statements

Gross Profit Ratio (GP/Sales):

Gross profit ratio improved from 2002 to 2007 as shown in above table. Business is
earning better gross profit on each sales dollar. It may be because of economic production
cost of merchandise sold.

Earnings Per Share (NI/Shares Outstanding):

EPS deteriorated from 2002 to 2003 and than improved from 2004 to 2007 as shown in
table. It is very useful indicator of the operating performance of the company.

Inventory Turnover Ratio (COGS/AVG.INV.):

Inventory turnover ratio improved from 2002 to 2004 than deteriorated to 2006 and than
remain constant to 2007. It depicts stocking goods that means goods are selling well.

Asset Turnover Ratio (Net Sales/ Total Assets):

Improved from 2002-2007. It is helpful in evaluating a company’s ability to use its asset
base efficiently to generate revenue. This sounds good.

Price to Earnings Ratio:

Improved from 2002 to 2004, than deteriorated to 2006 and than improved. It checks the
level of confidence.

Dividend Per Share (Dividend Paid/Net income):

It improved from 2002 to 2007. Which shows company is paying reasonable dividend
every year.

Dividend Yield Ratio (Dividend Per Share/ Mkt. Price Per Share):
Improved to 2006 and then deteriorated. It also reflects the value of dividends and would
cause concern on the part of stockholders.

Dividend Payout Ratio (Dividend Per Share/Earnings Per Share):

It improved from 2002 to 2007. It attracts the stockholders because dividend concerns on
the part of stockholders.

Return on Equity (Net Income/Common Equity):

Improved through out the year. It measures the rate of return earned on the common
stockholders’ investment. Though there is a favorable use of leverage so the ratio
company was able to increase the stockholders’ return significantly. In this case it looks
good for investor.

Debt To Equity Ratio (T. Liabilities/Stockholders Equity):

Deteriorated from 2002 to 2004 and than remain constant to 2007. It is significant
measure of solvency since a high degree of debt in the capital structure. It depends on
many variables, including the rates of other companies in the industry.

Current Ratio (Current Assets/Current Liabilities):

It remains constant in most of the cases except in 2004 where it improved. It is ability of
that company to meet its current liabilities out of current assists although this ratio is
subject to many seasonal fluctuations. While we think that in 2004 high ratio is needed
because PTC has difficulty borrowing on short notice at that time.
Interest Coverage Ratio (EBIT/Interest Exp.):

It improved from 2002 to 2006 but gave bad impact on 2007 since less earnings are
available to meet interest charges.

These financial statements have been prepared in accordance with approved accounting
standards as applicable in Pakistan. Approved accounting standards comprise of such
International Financial Reporting Standards (IFRS) issued by the International Accounting
Standard Board as are notified under the Companies Ordinance, 1984, provisions of and
directives issued under the Companies Ordinance, 1984. In case requirements differ, the
provisions or directives of the Companies Ordinance, 1984 shall prevail.

C) Sustainable Growth Rate

It is the rate at which company can grow from internal sources with out the issuance of
additional securities.

= D1/Ke-g
 D1 dividend per share

 Ke cost of financing
 G growth rate

G = ROE (1-dividend payout ratio)

In 2007:
= .135 (1-.485)
= .069525 or 6.95 %
In

P0= 7.9/.10-.069525
 Askari Bank

Table 2.1 and 2.2 in the annexure shows the balance sheet overview of Askari Bank.

This graph represent the balance sheet growth from 2000 to 2005 we can see the graph is
showing the increasing trend from year to year and same trend is being followed in the
statements of 2006 and 2007. This gives a positive sign of Askari bank. In balance sheet
deposits and short term statutory deposits with SBP are also giving increasing trend from
year to year means business have growth potential and is growing day to day.

Table 2.3 gives the profit and loss overview of Askari bank. We can predict from the
income statement of the company that EPS and EAT both are showing increasing trend
from year to year. Which means business is going in profit and still in the condition to
utilize its resources and can generate more profit in future years.
Table 2.4 shows the cash flow overview of Askari Bank through operating, investing and
financing activities. It shows the positive cash flows for operating activities and than
negative flows in investing and financing activities but overall flows is positive. It leads a
good image of Askari bank.

Analysis of Financial Statements

Profitability

G.P. Margin 2006 = G.P./Sales:

= 5,619,608/12,596,921 = 0.0446

G.P. Margin 2007 = G.P./Sales:

= 6,457,617/15,143,241 = 0.0426

(Deteriorated)

Profit Margin 2006 = NI/Sales:

= 3,867,571/12,596,921 = 0.307

Profit Margin 2007 = NI/Sales:

= 4,480,911/15,143,241 = 0.295

(Deteriorated)

ROA 2006 = NI/Total Assets:

= 3,867,571/166,033,588 = 0.023

ROA 2007 = NI/Total Assets:

= 4,480,911/182,171,885 = 0.024

(Constant)
ROE 2006 = NI/Common Equity:

= 3,867,571/9619066 = 0.302

ROE 2007 = NI/Common Equity:

= 4,480,911/12,099,645 = 0.470

(Improved)

Market Value

EPS (2006) = (NI-PD)/Shares Outstanding:

=7.44

EPS (2007) = (NI-PD)/Shares Outstanding:

= 9.05

(Improved)

PE Ratio 2006= MPS/EPS:

= 99.75/7.44 = 13.40

PE Ratio 2007= MPS/EPS:

= 97.475/9.05 =10.75

(Deteriorated)

Dividend Yield (2006):

=DPS/MPS =1,027,491/351,022
=2.93/99.75 =.0293 or 2.9%

Dividend Yield (2007):

= DPS/MPS = 1,217,841/514,890
=2.37/97.475 =.024 or 2.4%

(Deteriorated)

Dividend Payout 2006:

= DPS/EPS
=2.93/7.44 =.3938 or 39.38%

Dividend Payout 2006:

= 2.37/9.05 =.2618 or 26.18%

(Deteriorated)

We can see from our analysis that most of the ratios are deteriorated through out the year
but ROE which is most important for the investment point of the view attracts the
customers in investment perspective. Similarly EPS ratio also gives positive sign for the
customers. While other ratios like dividend payout ratio, dividend yield and profit margin
gives negative signs to investors.
 Pak Engineering

Table 3.1 shows the overview of balance sheet of Pak Engineering in annexure. The
balance sheet displays a growth trend from 2006 to 2007. But in 2007 they entered a new
account on Capital Work on Progress. I think that account is only to show growth in
balance sheet if we ignore that account than Balance sheet also grows but not to that
extent which is being shown with the presence of work on progress account. Any how it
shows the positive sign.

Table 3.2 and 3.5 shows the profit and loss account of Pak Engineering. We can see the
significant growth in EAT and EPS which is again a positive sign.

Table 3.3 shows the cash flow statement through operating, investing and financing
activities. We can see a difference from year to year. In 2007 net cash flows are positive
which really adds the value of Pak Engineering.

Table 3.4 shows the change in owner’s equity.

Analysis of Financial Statements

Profitability

G.P. Margin 2006 = G.P./Sales:

= 217,442/834,706 = 0.2605

G.P. Margin 2007 = G.P./Sales:

= 223,163/983,499 = 0.2269

(Deteriorated)
Profit Margin 2006 = NI/Sales

= 109,494/834,706 = 0.1312

Profit Margin 2007 = NI/Sales:

= 312,042/983,499 = 0.3173

(Deteriorated)

ROA 2006 = NI/Total Assets:

= 3,867,571/166,033,588 = 0.023

ROA 2007 = NI/Total Assets:

= 109,494/2473219 = 0.044

(Improved)

ROE 2006 = NI/Common Equity

= 109,494/56902 = 1.92

ROE 2007 = NI/Common Equity:

=312,042 /56902 = 5.48

(Improved)

Market value

EPS (2006) = (NI-PD)/Shares Outstanding:

=19.24

EPS (2007) = (NI-PD)/Shares Outstanding:

= 54.84

(Improved)
PE Ratio 2006= MPS/EPS:

= 100.73/19.24
= 5.23

PE Ratio 2006= MPS/EPS:

= 197.925/54.84
=3.60

(Deteriorated)

Dividend Yield 2006:

= DPS/MPS
=1,027,491/351,022
=2.93/99.75
=.0293 or 2.9%

Dividend Yield 2007:

1,217,841/514,890
=2.37/97.475
=.024 or 2.4%

(Deteriorated)

Dividend Payout 2006:

DPS/EPS
=2.93/19.24
=.3938 or 39.38%

Dividend Payout 2007:

=2.37/54.84
=.2618 or 26.18%

(Deteriorated)

Many ratios are in the favor of investors. E.g. ROE, ROA, EPS while else ratio accounts
show the negative sign.
 Indus Motors

Table 4.1 and first part of 4.4 shows the data of balance sheet for Indus motors. Share
capital remains unchanged while reserves net fixed and current assets shows increasing
trend. Long term liabilities changed from year to year. Anyhow it shows the positive sign.

Table 4.2 and second part of table 4.4 shows the summary of income statement or profit
and loss statement. Sales volume, net income, Gross profit and EAT and dividends show
the increasing trend from year to year. This is a positive sign by company.

Table 4.3 shows the cash flows of Indus motors through operating, investing and
financing activities. Operating and overall cash flows are positive. Show the positive sign
by company.

Table 4.5 shows the analysis of financial statements.

Analysis of Financial Statements

Gross Profit Ratio (GP/Sales):

Gross profit ratio improved from 2003 to 2004 and than deteriorated as shown in above
table. While in 2006 and 2007 it remains unchanged. Business is earning fair gross profit
on each sales dollar. It may be because of economic production cost of merchandise sold.

Earnings Per share (NI/shares outstanding):

EPS improved from 2002 to 2007as shown in table. It is very useful indicator of the
operating performance of the company.

Inventory Turnover ratio (COGS/AVG.INV.):

Inventory turnover ratio improved from 2003 to 2004 than deteriorated to 2006 and than
remain constant to 2007. It depicts stocking goods that means goods are selling well.
Asset Turnover ratio (net sales/ total assets):

Improved from 2003-2006 and than deteriorated in 2007. It is helpful in evaluating a

company’s ability to use its asset base efficiently to generate revenue. This sounds good.

Price to earnings ratio:

Improved from 2003 to 2004, than deteriorated to 2006 and than improved. It checks the
level of confidence.

Dividend per Share (Dividend paid/net income):

It improved from 2002 to 2007. Which shows company is paying reasonable dividend
every year.

Dividend Yield Ratio (dividend per share/ mkt. price per share):

Improved to 2006 and than deteriorated. It also reflects the value of dividends and would
cause concern on the part of stockholders.

Dividend payout ratio (dividend per share/earrings per share):

It improved from 2002 to 2006 and than deteriorated. It attracts the stockholders because
dividend concerns on the part of stockholders.

Return on Equity (net income/common equity):

Only deteriorated in 2005 and 2007. It measures the rate of return earned on the common
stockholders’ investment. Though there is a favorable use of leverage so the ratio
company was able to increase the stockholders’ return significantly. In this case it looks
good for investor.

Debt to equity ratio (T.liabilites/stockholders equity):

Remains unchanged during the year which is 0:1. It is significant measure of solvency
since a high degree of debt in the capital structure. It depends on many variables,
including the rates of other companies in the industry. This shows that business is very
solvent.

Current ratio (current assets/current liabilities):

Improved through out the years. This may affect the dividend policy of the company. It is
ability of that company to meet its current liabilities out of current assists although this
ratio is subject to many seasonal fluctuations.
 OGDCL

Table 5.1 shows the balance sheet overview of OGDCL. Overall trend of Balance Sheet is
improved. Capital and reserves and assets grow during the years backed by liabilities.

Table 5.2 shows the income statement overview of OGDCL. Sales Volume, gross profit,
profit after tax and earnings per share improved through out the year that means it shows
positive sign of a company.

Table 5.3 shows the cash flows of OGDCL through operating, investing and financing
activities. Cash flows through operating activities and overall cash flows are positive
which leads the positive image of OGDCL.
 Analysis Of Financial Statements

Analysis of financial statement/ratio statement:

Operating and net profit margins:

It only deteriorates in 2003 but overall it shows the positive effect on company.

Return on common equity:

Only deteriorated in 2003 and 2004. It measures the rate of return earned on the common
stockholders’ investment. Though there is a favorable use of leverage so the ratio
company was able to increase the stockholders’ return significantly. In this case it looks
good for investor

Sales Revenue:
Improved and shows the positive image of company.

Earnings per share:

EPS improved from 2002 to 2007as shown in table. It is very useful indicator of the
operating performance of the company.

Dividends per share:

Improved from 2002 to 2007. Which shows company is paying reasonable dividend every
year.

Return on assets

It improved through out the year. It shows that company’s assets are generating better
revenue.
Technical Analysis:
In technical analysis we get to know about behavior of securities with respect to time.
Trend of securities with respect to time. To explain technical analysis Dow has
represented a theory.

DOW Theory

A technique for determining the long term returns in aggregate stock markets. He also
explained that there are three different types of behaviors/moves for a security.

 Primary (Short term) from 5 years data.

 Secondary (medium term) from 1 years data
 Day to day move from day to day process

From these moves we get to know about the trend of securities whether

 Bullish trend: purchasing trend.

 Bear trend: selling trend.

For that purpose we draw charts to know about trend of securities because every security
has a trend called

 Trend line
 Support line
 Resistance level
 Momentum
 PTC

BAR CHART

180

160

140

120

100
Series1
Series2
80

60

40

20

0
O 1

O 3

O 4

O 6
O 2

O 5

O 7
Ap 2

Ap 3

Ap 5

Ap 6

Ap 7
Ap 1

Ap 4
1

Ja 1

Ja 3

Ja 5

Ja 6

7
2

Ja 2

Ja 4

7
l-0

l-0
l-0

l-0
l-0

l-0

l-0
r-0

r-0

0
-0

-0

r-0

0
r-0

-0

r-0
-0
0

r-0

-0

-0

r-0

-0
n-

n-

n-
n-

n-

n-

n-
ct

ct
ct

ct

ct

ct
ct
Ju

Ju

Ju

Ju

Ju
Ju

Ju
Ja

On January 2002 this security has had support level which forces buyers to buy the
security (Bullish trend). While at July trend was bear which forces the holders to sell the
securities (bear trend) and that level is called momentum level. This momentum
completed at January 2003. And than new momentum started. In the same way again in
2004 bullish trend. This shows momentum trend of security in the whole trend line which
gives the same sense every year.
 Trend/point and figure chart

180

160

140

120

100
Series1
Series2
80

60

40

20

0
O 3
O 1

O 2

O 5

O 6

O 7
O 4
Ap 4

Ju 4

Ap 5

Ap 6

Ap 7
Ap 1

Ap 2

Ap 3

7
1

Ju 3
Ja 1

Ja 2

Ja 3

Ja 4

Ja 5

Ja 6

7
l-0
l-0

l-0

l-0

l-0

l-0
l-0

0
r-0
0

0
r-0

r-0

r-0
r-0

r-0

r-0
-0

-0

-0

-0

-0

-0

-0
n-
n-

n-

n-

n-

n-

n-
ct

ct

ct

ct

ct

ct

ct
Ju

Ju

Ju

Ju

Ju
Ja

We can see from January to July its prices are tends to increase that means Bullish trend
on that security and that trend repeated every year. Which means it is the best time to sell
the security because we can predict that after that extent security prices will becomes to
fall down as we can see that trend from July to December. Which means that time is best
for buying security.
 Relative Strength Calculation

year price stock index Relative strength

2001 10.67917 1366.44 0.007815323
2002 23.29167 1770.12 0.013158244
2003 26.52917 3402.48 0.00779701
2004 46.36667 5279.18 0.00878293
2005 62.70417 7450.12 0.008416532
2006 68.94583 9989.41 0.006901892
2007 131.1208 13772.46 0.009520507

We can see the relative strength is not increasing in most of the cases because of increase
in stock prices this may be giving other indicators presence.

Best time to sell that security: January to July because of bullish trend.
Best time to buy the security: July to December because of bearish trend.
 Bar Chart of Askari Bank

Series1
Mar-23
Series2
Jul-09 Series3

Oct-95 Series4
Series5
Feb-82
Series6
Jun-68 Series7
Series8
Oct-54
Series9
Jan-41 Series10
May-27 Series11
Series12
Sep-13
Series13
Jan-00 Series14
1 2 3 4 5 6 7 8 9 10 11 12 Series15
Series16
Series17
Trend the prices are giving in this case is a constant E.g. prices are increasing from
October to July and than declines and than same happened in next year.

Trend chart

Series1
Mar-23
Series2
Jul-09 Series3

Oct-95 Series4
Series5
Feb-82
Series6
Jun-68 Series7
Series8
Oct-54
Series9
Jan-41 Series10
May-27 Series11
Series12
Sep-13
Series13
Jan-00 Series14
1 2 3 4 5 6 7 8 9 10 11 12 Series15
Series16
Series17
Trend Chart shows the constant trend in the prices of securities.

Relative strength:

Relative Strength is increasing in most of the cases but in some cases it may be
indication of other indicators
 Bar Chart (pak. Engg)

In this case prices are showing very interesting trend. Prices remain constant from January
2001 to 2004 but from January 2004 prices showed an increasing trend (Bullish) to July
2004 and than rapidly increased until January 2005. After that bearish trend falls until
January 2006 and than bullish until July 2007 but after that security showed an increasing
trend

Best time to buy security: January to July

Best time to sell security: July to January

Trend Bar Chart

It showed constant trend from January 2004 to January 2004.

Bullish trend until July 2004.

Bearish trend until January 2005.

In 2007 it showed and increasing trend.
 Bar chart Indus motors

450
400 10.9
350 11.25
300 10.4
250 9.7
200 10.3
150 11.3
100 11.2
50
11.3
0
11.5

Trend Bar Chart

450 10.9
400
11.2
350 5
10.4
300
9.7
250
10.3
200
11.3
150
11.2
100

50 11.3

0 11.5

10.5
5
11.8

10.0
5
13.6

13.6

17.4

19

16.4
 Calculating Relative Strength
year p stock index Relative strength
rice
2001 10.95 1366.44 0.008010475
2002 24.08 1770.12 0.013605481
2003 77.66 3402.48 0.022825263
2004 100.99 5279.18 0.019129391
2005 119.54 7450.12 0.016045044
2006 200.30 9989.41 0.020051651
2007 200.30 13772.46 0.014543819
 Bar Chart OGDCL

Trend chart OGDCL

Series1
Mar-23
Series2
Jul-09 Series3
Series4
Oct-95
Series5
Feb-82 Series6

Jun-68 Series7
Series8
Oct-54
Series9
Jan-41 Series10
Series11
May-27
Series12
Sep-13 Series13
Series14
Jan-00
Series15
1 2 3 4 5 6 7 8 9 10 11 12
Series16
Series17
 Calculating Relative Strength
year pric stock index Relative strength
e
2004 64.02 5279.18 0.012126252
2005 105.56 7450.12 0.014168228
2006 137.16 9989.41 0.013730791
2007 119.95 13772.46 0.00870941
Annexure
 (1.1)
PAKISTAN TOBACCO COMPNY Ltd.

BALANCE SHEET
AS AT 2006.

(1.2)
 Balance Sheet Overview

2007 2006 2005 2004 2003 2002

1.3) Income Statement
1.4) Income Statement Overview
1.5) Cash Flow Statement
 1.6) Financial Statement Analysis/Ratio Analysis

2007 2006 2005 2004 2003 2002

 Askari Bank

a) Financial statements overview

(2.1)
(2.2)
(2.3)
 (2.4)

3.1) Pak Engineering.

(3.2)
3.3
3.4
3.5
4.1) Indus motors
(4.2)
4.3
(4.4)
 2007 2006 2005 2004 2003
(5.4) Financial analysis/ ratio analysis:
5.1) OGDCL
(5.2)
(5.3)
(5.4)
 Price Valuation Model

K% G% D0 D1 P=D1/K-G
PTC 15.85 6.95 7.9 8.96 141.25
Askari 15.85 13.8 1 1.14 61.62
Pak 15.85 15.1 9 10.08 261.8
Eng
Indus 15.85 8.5 13 14.1 191.8
Expected & Actual Risk &
Return
PTC Ltd:
Askari Bank:
Pakistan Engineering:
Indus Motors:
OGDCL:
Portfolio Risk & Return
 Portfolio
Security w Return Risk
PTCL 40%
Askari Bank 8%
Pak Engg 20%
Indus Motors 18%
OGDCL 14% 0.086912 9% 0.000528 0%

r
PTCL and Askari Bank -0.99805
PTCL and Pak Engg -0.92857
PTCL and Indus motors -0.5
PTCL and OGDCL -0.06555
Askari Bank and Pak Engg 0.949947
Askari Bank and Indus Motors 0.553134
Askari Bank and OGDCL 0.127765
Pak Engg and Indus Motors 0.785714
Pak Engg and OGDCL 0.431219
Indus Motors and OGDCL 0.896936
 ASKARI BANK
Yea CAPM
r Market Return (x) R (y) xy x2 Beta (R)
2001 0.112 0.226209548 0.025335 0.012544
2002 0.087 0.181458333 0.015787 0.007569
2003 0.057 0.15302132 0.008722 0.003249
2004 0.05 0.079995188 0.004 0.0025
2005 0.075 0.045591614 0.003419 0.005625
2006 0.091 -0.00886263 -0.00081 0.008281
2007 0.0934 0.006601644 0.000617 0.008724 -1.4318
2008 0.1279 -0.11205537 -0.01433 0.016358 8 0.087951
0.6933 0.571959651 0.042742 0.06485 9%
 PAKISTAN ENGINEERING
Yea CAPM
r Market Return (x) R (y) xy x2 Beta (R)
2001 0.112 0.461329715 0.051669 0.012544
2002 0.087 0.585321101 0.050923 0.007569
2003 0.057 0.747217806 0.042591 0.003249
2004 0.05 0.172924998 0.008646 0.0025
2005 0.075 0.089410125 0.006706 0.005625
2006 0.091 0.030634211 0.002788 0.008281
2007 0.0934 0.164626425 0.015376 0.008724 -3.1921
2008 0.1279 0.029142933 0.003727 0.016358 7 0.038838
0.6933 2.280607313 0.182426 0.06485 4%

INDUS MOTORS
Yea CAPM
r Market Return (x) R (y) xy x2 Beta (R)
2001 0.112 0.102496218 0.01148 0.012544
2002 0.087 0.246763593 0.021468 0.007569
2003 0.057 0.174508671 0.009947 0.003249
2004 0.05 0.077604507 0.00388 0.0025
2005 0.075 0.141760623 0.010632 0.005625
2006 0.091 0.069228187 0.0063 0.008281
2007 0.0934 0.069228187 0.006466 0.008724 -1.6707
2008 0.1279 -0.04210859 -0.00539 0.016358 6 0.081286
0.6933 0.839481398 0.064787 0.06485 8%
 References:

http://www.marketoracle.co.uk/Article319.html

http//www.wikipedia.com/economic analysis.html

http//www.investopedia.com

http//www.paksearch.com

http//