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FINANCIAL MANAGEMENT

FINANSIAL STATEMENT ANALYSIS

GROUP MEMBERS
HAMMAD KHAN
EMRAN ULLAH NIAZI
JAVED Ali KHAN
DATE: 14TH MAY 2014

INTRODUCTION:

FINANCIAL ANALYSIS: It is the process through which me analyze and


assess the financial condition and performance of the firm using different tools
and ratios.
1.

LIQUIDITY RATIO

Liquidity ratio measures that how quickly companys assets can be converted into
cash.
It includes current ratio and quick ratio

CURRENT RATIO

It gives us the company short-term obligation with respect


to short term assets.
QUICK RATIO
Is the ability of the firm to meet its short-term obligations with
short term
assets after least liquid assets are being removed.

RATIOS
CURRENT
RATIO
QUICK
RATION

FORMULA
Current
assets/current
liabilities
Current assets
inventories/curr
ent liabilities

2007
1.87

2008
2.557

2009
1.691

2010
1.673

2011
1.842

2012
2.317

1.796

2.496

1.678

1.665

1.827

2.300

INTERPRETATION:
For every Rs. 1 of current liability, the company has Rs. 2.377 of current
assets.
For every Rs. 1 of current liability, the company has Rs. 2.300 of highly liquid
current assets.
GRAPH

INDUSTRY COMPARISON
CURRENT RATIO
YEAR

INDUS MOTORS

SUZUKI
MOTORS

INDUSTRY
EVERAGE

2008

2.557

2009

1.691

3.71

2.705

2010

1.673

3.05

2.34

2011

1.842

2.32

2.08

2012

2.317

3.01

2.68

It shows that the company can meet its short term obligations with
short term assets in slower proportion than the industry and
competitors

QUICK RATIO
YEAR

INDUS MOTORS

Suzuki motors

2008
2009
2010
2011
2012

2.496
1.678
1.665
1.827
2.300

1.67
1.17
0.711
1.171

INDUSTRY
AVERAGE
1.67
1.421
1.269
1.73

It shows that the company can meet its short term obligations with short
term assets in higher proportion than the industry and competitors after
inventory is being removed.

2. ACTIVITY RATIO

It measure that how efficiently the firm is managing its assets. It includes receivable
turnover ratio, average payment period, total assets turnover ratio, inventory
turnover ratio.

RECIEVABLE TURNOVER RATIO: This provides us the insight of the quality


of firms receivables and how successful the firm is in its collection.
AVERAGE PAYMENT PERIOD: It tells us the promptness of firm is in its
payment.
TOTAL ASSETS TURNOVER RATIO: It tells that how efficiently the firms
assets are being managed to generate sales.
INVENTORY TURNOVER RATIO: It tells us how many times inventory is
turned over into receivables through sales during the year.

RATIOS

FORMULA

2008

2009

2010

2011

2012

AVERAGE
COLLECTIO
N PERIOD

Credit
sales/accou
nt
receivable
365/
RECIEVABLE
IN DAYS

31

22

68

45

52 times

1 2DAYS

16 DAYS

5 DAYS

8 DAYS

7 DAYS

C.G.S/invent
ory

161.86

276.72

496.40

303.62

395.09 tim

365/invento
ry turnover
ratio

2.25

1.32

0.74

1.20

0.92 days

Sales/total
assets

3.01

1.83

2.21

2.30

2.79 times

AVERAGE
COLLECTIO
N
IN DAYS
INVENTOR
Y TURNR
OVER
INVENTOR
Y
TURNOVER
IN DAYS
TOTAL
ASSETS
TURNOVER

In the year of 2012 52 times the companys account receivables converted


into cash.
In the year of 2012 395.09 times the companys inventory turned into cash.

In the year of 2012 2.79 time the companys total assets converted into
cash.

INDUSTRY COMPARISON
AVERAGE COLLECTION PERIOD
Year
INDUS
2008
2009
22
2010
68
2011
45
2012
52

Suzuki motors
69.67

INDUSTRY
AVERAGE
45.83

17.71

42.85

163.61

104.305

99.5

75.52

It shows that the company is slower in its collections than industry and
competitors except in 2009.

INVENTORY TURNOVER
YEAR
INDUS
2008
161.86
2009
276.72
2010
496.40
2011
303.62
2012

Suzuki motors
-

INDUSTRY
AVERAGE
-

3.73

140.225

4.76

250.52

3.93

250.165

5.31

200.2

395.09
It means that the companys inventory has been converted into sales more
times than the competitors and industry.

TOTAL ASSET TURNOVER


YEAR
Suzuki motors
INDUSTRY
INDUS
AVERAGE
2008
3.01 2009
1.83 1.49
1.66
2010
2.21 0.221
1.21
2011
2.30 2.262
2.281
2012
2.79 2.74
2.76
It means that the companys assets are converted into sales in higher pace
than the competitors and industry.

GRAPH

3. LEVERAGE / DEBT RATIO


It tells us the extent to which the firm is using borrowed money. It includes debt-toequity ratio, debt-to-total assets-ratio and capitalization ratio.

DEBT-TO-EQUITY RATIO: It tells us that how much of equity is raised by debt.


DEBT-TO-TOTAL ASSETS RATIO: It tells us that how much of assets of firm are
financed by debt.
CAPITALIZATION RATIO: It tells us about the firm that how much of capital
structure is raised by debt.
COVERAGE RATIO: It tells the ability of the firm to meet its interest expense
and thus avoid bankruptcy.

DEBT TO
EQUITY
DEBT TO
ASSET
TOTAL
CAPITALIZATIO
N

FORMULA

2008

2009

2010

2011

2012

TOTAL
DEBT/TOTAL
EQUITY
TOTAL
DEBT/TOTAL
ASSETS
LONG TERM
DEBT/TOTAL
CAPITALIZATIO
N

0.457

1.009

1.156

0.901

0.621

0.3136

0.5022

0.5362

0.4738

0.3830

0.0534

0.0466

0.0252

0.0312

0.0097

For every Rs 1 of equity, the company has acquired 0.621 of debt.


In the year of 2012 38% of companys assets are financed by debt.
In the year of 2012 0.97% of total capital is raised by debt.

GRAPH:

INDUSTRY COMPARISON
DEBT TO EQUITY RATIO
YEAR
INDUS
2008
0.457
2009
1.009
2010
1.156
2011
0.901
2012
0.621
The firm has raised
industry average.

DEBT TO ASSETS:

Suzuki motors

INDUSTRY
AVERAGE
0.23
0.619
0.23
0.693
0.523
0.712
0.351
0.486
more of its equity from debt than competitors and

YEAR
INDUS
2008
0.313
2009
0.5022
2010
0.536
2011
0.473
2012
0.3830

Suzuki motors

INDUSTRIAL AVERAGE

0.188

0.345

0.246

0.391

0.343

0.408

0.259

0.315

It shows that the company has financed more of its assets from debt as
compared to competitors and industry.

TOTAL CAPITALIZATION RATIO


YEAR

INDUS

Suzuki motors

INDUSTRY
AVERAGE
0.038
0.0125
0.156
0.00048

2008
0.0534 2009
0.0466 0.003
2010
0.0252 0
2011
0.312
0
2012
0
0.00097
This comparison shows that the firm has raised more of its capital structure
from debt

4. PROFITABILITY RATIO
Profitability ratios are used to measure the ability of the firm to generate profits. It
includes gross profit margin, net profit margin, return on investment and return on
equity.

GROSS PROFIT MARGIN: It tells us the profit of the firm after the cost of
producing goods is being deducted.
NET POFIT MARGIN: It tells us the profit of the firm after taking account of
all expenses and income taxes.
RETURN OF INVESTMENT: It is used to measure the efficiency of firms
investment.
RETURN ON EQUITY: It is used to measure the overall performance of the
firm.

FORMULA

2008

2009

2010

2011

2012

GROSS
PROFIT
MARGIN

Gross
profit/net
sales

9.29

6.14

7.84

6.63

8.53

NET PROFIT
MARGIN

Net
profit/net
sales
Net
profit/total
assets
Net
profit/shareh
olders equity

5.53

3.66

5.73

4.45

5.59

16.66

6.70

12.69

10.22

150.6

24.28

13.45

27.36

19.43

25.29

RETURN ON
INVESTMEN
T
RETURN ON
EQUITY

For every Rs.1 of sales, company has 0.83 of gross profit.


For ever Rs. 1 of sales, company earns net profit of 0.59
For every Rs. 100 of assets, company GENERATE Rs. 1.56 OF PROFIT
The capital we raised from common stock generated 25.29% of
earnings.

INDUSTRY COMPARISON
GROSS PROFIT MARGIN
YEAR

INDUS MOTORS

SUZUKI MOTORS

2008
2009
2010
2011
2012

9.29
6.14
7.84
6.63
8.53

0.021
0.023
0.0354
0.04

INDUSTRY
AVERAGE
3.08
3.93
3.33
4.28

The company is performing better and is earning more profit than the
industry average and from the competitors.

NET PROFIT MARGIN


YEAR

INDUS MOTORS

SUZUKI MOTORS

INDUSTRY
AVERAGE
2008
5.53
2009
3.66
0.0097
1.87
2010
5.73
0.0049
2.86
2011
4.45
0.015
2.23
2012
5.59
0.017
2.8
The company is performing better and is earning more profit than the
industry average and from the competitors.

RETURN ON INVESTMENT
YEAR

INDUS MOTORS

2008

0.16

SUZUKI
MOTORS
-

INDUSTRY
AVERAGE
-

2009
2010
2011
2012

0.06
0.12
0.10
0.15

0.014
0.01096
0.03
0.046

0.037
0.065
0.06
0.091

The company is performing better and is earning more profit than the
industry average and from the competitors.

RETURN ON EQUITY
YEAR

INDUS MOTORS

SUZUKI MOTORS

INDUSTRY
AVERAGE
2008
0.24
2009
0.13
0.017
0.07
2010
0.27
0.0146
0.14
2011
0.19
0.0519
0.12
2012
0.25
0.062
0.156
The company is performing better and is earning more profit than the
industry average and from the competitors.

5. MARKET POSITION
This ratio tells us that how the company is perceived by the investors. It includes
market price/share to earnings per share and market value to book value.

MARKET PRICE PER SHARE TO EARNINGS PER SHARE: It is a valuation


ratio in which the current price of the share is compared to the earnings per
share.
MARKET VALUE TO BOOK VALUE: In this ratio, market price per share is
compared to book value per share to find the value of the company.

FORMULA

2008

2009

2010

2011

2012

PRICE TO
EARNINGS

MARKET PRICE
PER SHARE/EPS

6.87

6.11

5.99

6.30

4.48

MARKET TO
BOOK VALUE

MARKET PRICE
PER
SHARE/ BOOK
VALUE

200.1

107.1

262.2

220

245.1

For every Rs.1 of the companys earnings, the investor is willing to pay Rs
4.48 for income
If the book value of share is Rs.1, the investor is willing to pay Rs. 4.48

GRAPH

INDUSTRY COMPARISON
PRICE TO EARNINGS RATIO
YEAR

Indus motors

SUZUKI MOTORS

2008
2009
2010
2011
2012

6.87
6.11
5.99
6.30
4.48

34.91
40.11
7.96
9.74

INDUSTRY
AVERAGE
20.51
23.05
7.13
7.11

The company is performing below than the competitors as well as


industry average.

MARKET TO BOOK VALUE RATIO


YEAR

Indus motors

SUZUKI MOT0RS

2008
2009
2010
2011
2012

1.67
0.82
1.75
1.30
1.13

0.62
0.58
0.41
0.61

INDUSTRY
AVERAGE
0.72
1.16
0.855
0.87

The company is performing relatively better than competitors as well


as from the industry average so the investor is willing to pay more.