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Financial Statement Analysis

of
Packages Ltd

Qaiser Mehmood
Session (Jan 2007–Dec 2008)

Submitted in Partial fulfillment of the requirements


For the degree of Master of Business
Administration

at

National University of Modern Languages


Islamabad, Pakistan
May 2009
© Copyright by Qaiser Mehmood, 2009

National University of Modern Languages

Faculty of Information Technology and Management Sciences

It is hereby certified that the report has been thoroughly and carefully read and

recommended to the faculty of Management Sciences for acceptance of Final Project

Report by Qaiser mehmood, Roll 7241, Session (Jan 2007 to Dec 2008) Evening, in

partial fulfillment of the requirements for the degree of Master in Business

Administration of National University of Modern Languages, Islamabad.

Date: June20, 2009

Supervisor: _________________________

Observer: __________________________
Head of Department: _______________

ACKNOWLEDGEMENT

By the Grace of Almighty Allah, the most Merciful, the most


Beneficial, I'm today submitting my internship report; I have the pearls of my eyes
to admire the blessings of the compassionate, omnipotent, the Merciful and the
beneficent Allah who is the entire source of knowledge and wisdom

Due to his bounteous blessings, I become able to contribute this comprehensive


assignment toward the deep ocean of knowledge already exists. Heart is warm
with love and thoughts have turned to the city of knowledge – The Holy Profit
(P.B.U.H) His saying “Learn from to Cradle to Grave” inspired the strong desire
in me to under take this course of valuable studies.

It would obviously be injustice not to mention the name of the people involved to
make this assignment possible and helped their utmost to make me understand the
overall operation of the company as of their best knowledge.

Despite of the most hectic schedule, Maa'm saher helped me so much. I'm really
grateful to maa'm for clarifying my concepts and making me learn from her
experience. Whatever I learnt from you will definitely help me in my upcoming
study and the professional life ahead. Thank you so much for being so co-
operative and so helpful every time. I hope maa'm I have been up to your
expectations.
In the end, I'll like to thank all my other colleagues, Mr. Ishtiq, Mr. Qaiser, and all
my other fellow internees, here and in branch, for their unconditional support and
help in making I learn in a good environment.
Dedication

I want to dadicate my this project to following persons

• Hazrat Muhammad (PBUH)

• Qauid-E-Azam Muhammad Ali Janah

• My Teachers

• My Parents

• My Best Friend Qaiser Mehmood Khan

And All Those Who Are Struggling And Fighting For Islam In Right Directions
Financial Statement Analysis
of
Packages Ltd
 
 
 

 
 

COMPANY PROFILE

Established in 1956 as a joint venture between the Ali Group of Pakistan and Akerlund
and Rausing of Sweden, Packages Limited provides premium-packaging solutions for
exceptional value to individuals and businesses. We are the only packaging facility in
Pakistan offering a complete range of packaging solutions including offset printed
cartons, shipping containers and flexible packaging materials to individuals and
businesses world-wide. Our clientele includes illustrious names such as Unilever and
Pakistan Tobacco Company, who have been our customers for over 50 years. We employ
over 3000 people and had sales of over US $ 100 million in 2004.

Listed on all three stock exchanges in Pakistan, Packages Limited has maintained a long-
time credit rating of AA. Our joint ventures and business alliances with some of the
world's biggest names reflect our forward-looking strategy of continuously improving
customer value through improvements in productivity.

Packages have always been at the forefront of new developments in packaging research
and have pioneered several innovations, including the use of wheat straw as a raw
material for paper and board manufacture. Our on-site paper and board mill, established
in 1968, has constantly increased its production capacity. A new plant with even greater
capabilities is planned for the near future.

Products

PAPER & BOARD

We are producing high quality paper and board since 1965 using environment friendly
manufacturing processes. We specialize in making a variety of duplex boards and paper.
Our products are tested for high performance in terms of strength, stiffness and gloss.

From coffee cups to the books we read, from Tetra Pak juice containers to huge shipping
containers, paper and board products touch our lives in a thousand ways every day.

PAPER

we produce:
• High gloss writing paper

• Machine glazed / special poster paper

• Fluting paper

• Liner for shipping cartons

• Corrugating medium paper

• Wood-free writing/printing paper

The client’s determines paper quality and weight specific requirements and Packages
ensures this is carried out to the exact specifications provided.

BOARD

we manufacture several types of board. Food Board, a basic raw material in liquid food
packaging, is being manufactured since 1979 for Tetra Pak Pakistan Limited. This
material is used in making aseptic packaging for milk, cream, oil, fruit juices and other
perishable food items.

Some of our board products are:

• Liquid packaging board

• Food grade board

• Duplex board / chipboard

• Bleached board

• Tobacco board and cardboard

• Liner board

CARTON BUSINESS UNIT


The carton business unit is an integral part of the manufacturing facilities at Packages.
Constant improvements in technology help our customers exert exact control over each
stage of the manufacturing process. Our customized packaging and consistent quality
give all our cartons superior shelf visibility.

The foundations of this business line were laid about 50 years ago with the formation of
the offset printing department. Carton Business Unit production experts work closely
with pre-press and technical staff to deliver a durable, aesthetically pleasing and
technically sound package to the customer.

The total board consumption

of the carton line is around 18 - 20 thousand tones per annum. The strong backward
integration within the Packages value chain has given the carton line a competitive edge
in terms of backend material availability. Prompt material availability reduces turn
around time and ensures timely delivery.

INDUSTRIES

• Food and Beverages

• Soap /

Ddetergent

• Pharmaceuticals

• Electronics

CORRUWAL BUSINESS UNIT

Packages have been manufacturing corrugated cartons since 1974. Produced in


a variety of sizes, these cartons are of great value for in-country goods
distribution and export. Capacity increase and product development continue to
be of high priority.
Corrugated cartons are of great value to our diverse portfolio of customers for
secure transportation of their products to local and international markets. With
the commissioning of our corrugated plant in Karachi, we have the capability
of producing seven million corrugated cartons to cater to the ever-increasing
demand of high quality shipping cartons.

INDUSTRIES

• Textile

• Food

• Tobacco

• Soap

• Detergent

FLEXIBLE BUSINESS UNIT

With improved barrier properties and lower cost compared to rigid packaging,
flexible packaging is steadily gaining importance in the packaging industry.
Our flexible line makes high quality packaging films and laminates, and offers
other specialized services such as rotogravure printing and sleeve-making.

Flexible packaging combines different plastic films, aluminium foil and paper
to produce laminates of two or more layers for providing layered protection
against moisture, gases and odours. Used where colourful package design and
preserving product quality are important, such as in the food and
pharmaceutical industries, flexographic printing offers economy with quality.

 
 

INDUSTRIES

• Textile

• Food

• Tobacco

• Soap

• Shampoo

• Pesticide

• Milk powder

CONSUMER PRODUCTS

A range of products for those annoying problems in life: our consumer products
feature great ideas for making everyday living easier and more comfortable,
both
indoor and out.

Tissue Products
Personal Hygiene
Paper Products

Reflecting our core values of exceeding customer expectations through


innovation, leadership and teamwork, the Rose Petal and Tulip brands continue
to hold over 80% of the domestic market share of the tissue paper market in
Pakistan. We also have a leading market share in the away-from-home
business: we supply custom-printed boxes, table napkins, coasters and paper
cups to institutions such as hotels, fast food chains, restaurants, businesses and
the airline industry.
 

Packages Limited
Common Size Analysis (Vertical and Horizontal)

Horizontal
Vertical Analysis
Analysis

Liabilities and Owner Equity

  2005 2004 2005/2004

Issued, Subscribed and paid-up


6% 7.3% 150%
capital

Capital reserves 51.8 42.5 220

Unappropriate profit 8.7 14.9 110

  66.5 64.7  

Non-Current Liabilities      

Long-term finance
8.6 0 0
Deferred Liabilities
4.7 8.1 100
Liabilities against subject to
.0073 .09 10
finance lease

Current Liabilities: .044 13.3 0.6

Current portion of long-term 13.8 3.8 680


liabilities
0.8 0 0
Finance under mark up
agreement 5.3 9.3 103

0.2 0.8 32
Derivatives

Credit and other liabilities

Provision for taxation

  33.5 35.3  

  100 100.  

Assets

  2005 2004 2005/2004

Property, Plant and Equipment 25.8% 45.4% 102%

Intangible Assets 0.05 0.01 80

Investment property 0.1 0.2 103

Asset subject to finance lease 0.1 0.2 70

Capital work in process 28.1 5.1 990

Investment 6 10.7 100

Long Term loans 0.1 0.1 280

Retirement benefits 0.5 0.8 120

Current Assets 3.5 5.9 110

Store and Spaces. 9.8 16.9 100

Stock in trade. 6.8 9.9 120

Trade Debt. 0 0.1 0

Investments 1.7 2.4 130

Loans advances and 17.4 2.2 1390


receivables
Cash and Bank Balance.

  44.10 51.62  

  100.0 100.00  

It is clear from the horizontal analysis that there is an increase


in overall assets and liabilities and owner equity figure. The
retained earning and long-term liabilities has increased and the
capital reserves and issued shares remained the same. The
increase in retained earning and long-term debt shows that the
company wants to invest more in the business this year. He
inventory has decreased and the receivables have also
decreased that shows company’s efficiency in covering the
receivables and selling the stock.

Profit and Loss Accounts:

Horizontal
Vertical Analysis
Analysis

  2005 2004 2005/2004

Turnover 100.0% 100.0% 100%

Net Sales and Commission


100 100 130.6
Income

Cost of Sales 80.9 78.1 135.4

Gross Profit 19.1 21.9 113.3

Selling and Distribution


2.8 2.9 117.9
Expenses

Administration and General


4.9 5.8 100.7
Expenses

Financial cost 2.6 2.3 122.6

Other Operation Charges 1.3 1.4 133.1


Other Operating Income 2.6 1.4 176.7

Investment income 8.6 9 130.5

Profit before Taxation 18.7 19.9 128.3

Taxation 4.4 3.8 140.8

Profit after Taxation 14.3 16.1 124.8

       

It is clear that the sales of the company have increased than


the previous year that may be due to decrease in sales
discounts and commission. Operating income has also
increased showing increased efficiency in operations and
reduced operation costs. The other income has played a
significant role in 2004. It may be due to gain on sale of some
asset or unexpected gain. The amount of tax has increased in
2005. All these factors have reduced the increased operating
income effect on net sales and net sales have reduced.
Ratio analysis:

Operating ratios:

Days Sales in Receivables = Gross Receivables/(NetSales/365)

2005=39

2004=40

The days receivable indicate the length of the time that has
been outstanding at the end of the year. Packages ltd have
days sale of receivable of 39 days in 2005 and 40 Days in 2004
which indicates that packages ltd converted its sale into net
income quickly in 2005 then in 2004. This may be changed due
to seasonal sale or change in sale for any other reason. To
remove this fact we take the gross receivables.

Account Receivable Turnover = Net Sales/ Average Gross


Receivables

2005=9

2004=9.33

Account receivable turnover indicate the liquidity of the


receivables. This shows how easily company can liquidate its
receivables. Packages ltd has liquidity of 9 times in 2005 and
9.33 Times in 2004. Account receivable also change due to the
change in sale for different reason like seasonal fact.
Companies can use the sale for different moths to overstate or
understate the liquidity of receivable, but account receivable
turnover use the average of gross sale. Liquidity of receivable
for the companies varies according to nature of the business of
that company.

A/C Receivable Turnover in Days = Average Gross Receivables/(Net


Sales/365)

2005=73

Days Sales in Inventory = Ending Inventory / (Cost of Goods


Sold/365)

2005=73 days

2004=85 days
The day’s sales in inventory estimate the number of days that
it will take to sell the current inventory. Due to different reason
estimate may be vary. The cost of goods sold figure is based
last year’s sales, same divided by the number of days in a
year. Ending inventory may also differ due to the by using
different methods for inventory. The packages ltd has day’s
sales in inventory 73 days in 2005 and 85 days in 2004.

Inventory Turnover = Cost of Goods Sold / Average Inventory

2005=5.13

2004=4.83

In inventory turnover show the time, in which it will convert,


the current inventory into sales. For inventory turnover in days
we use average inventory to eliminate the change variation
due to the change of sale. Packages have suitable inventory
turnover.

Inventory Turnover in Days = Average Inventory / (Cost of Good


Sold/365)

2005=71 days

2004=76 days

Inventory turnover in days is for the estimation of the number


of days that it will take to sell the current inventory. Formula is
same as of day’s sales in inventory. But in inventory turnover
in days we use average inventory.

 
 

Operating Cycle = Accounts Receivable Turn Over in Days+ Inventory


Turn-over In days.

2005 2004

73 Days 88 Days

Solution:
Operating cycle represent the period of acquisition of goods
and conversion of the good into cash. It is higher for the
companies like Packages ltd. Because the company purchase
raw material converts it in to product then it sells it to whole
seller. All process increase the operating cycle.

Working Capital = Current Assets – Current Liabilities

2005=2222907

2004=675932

Working capital of a business indicates of the short run


solvency of the business. This show how easily firm can pay
the short-term loans.

Current Ratio = Current Assets / Current Liabilities


2005=2

2004=1.4

Current ratio also determines the short-term debt paying


ability of the firm. Its ability is increased in 2005 as compare to
2004 because ratio is increased.

Quick Ratio = (Cash + Account Receivables)

Current Liabilities.
2005=1.20

2004=0.45

Acid test ratio includes the only most liquid items of the
current assets. Acid test ratio may decrease from 1. Packages
ltd is manufacturing unit. For such like company acid test ratio
must be round about the 1. But Packages ltd has acid test ratio
1.20 in 2005 and 0.45 in 2004 although it increased in 2005
but enough. Means Packages can easily meet all its current
liability with its most liquid asset. It should manage through
the sale of inventories.

Cash Ratio = (Cash equivalents + Marketable Securities) / Current


Liabilities

2005=0.86
2004=0.08

Cash receivable indicates include the only the cash in hand. Packages ltd have

low cash ratio. Packages ltd has most of its current assets in inventory and Net

receivables. Packages ltd have very low amount in hand as compare to its current

liability.

Sales to Working Capital = Sales / Average Working Capital

2005=3.91

2004=8.86

Sales to working capital give an indication of the turnover in working

capital per year. A low working capital indicates an unprofitable use of

working capital.

Debt Ratio = Total Liabilities / Share Holder Equity

2005=1.50

2004=1.54

Debt to Tangible Net Worth = Total Liabilities / (Share Holder Equity – Intangible Assets)

2005=1.50
2004=1.55

Net Profit Margin = (Net Income Before Minority Share of Earnings and . Nonrecurring

Items) Net Sales

2005=0.14

2004=0.16

This ratio measures the profitability of the company. This measures of net income rupees,

generated by the each rupee. The Packages ltd have good profitability ratio.

Total Asset Turnover = Net Sales / Average Total Assets

2005=0.39

2004=0.36

Total assets turnover indicates the ability of the firm to generate sale using its assets. The

Packages ltd has total asset turnover 0.39 in 2005 and 0.36 in 2004.

Return on Assets = ( Net Income Before Minority Share of Earnings and Nonrecurring Items)

Average Total Assets

2005=0.11
Return on assets measure the firm’s ability to utilize its assets to create profits by

comparing with the assets that generate the profit. Packages ltd has return on assets 0.11

in 2005 .

Operating Income Margin = Operating Income / Net Sales

2005=0.13

2004=. 0134

Sales to Fixed Assets = Net Sales / (Average Net Fixed Assets “Exclude Construction in

Progress”)

2005=0.64

2004=0.60

2005 2004

2.242 2.618

Solution:

Sale to fixed assets measures the firm’s ability to make productive use of its property, plant,

and equipment by generating sales Rupees.

Gross Profit Margin = Gross Profit / Net Sales

2005=0.19

2004=0.22
Gross profit margin tells us about the control on the cost of goods sold. Packages ltd has

gross profit margin 19% in 2005 and 22% in 2004. It means company’s gross profit margin

is decreases as compare to last fiscal year. This shows the good control on the cost of goods

sold. Gross profit margin predict about the profitability of the company.

Degree of Financial Leverage = EBIT / EBT

2005=0.68

2004=0.66

Basic Earnings per Common Share = (Income – Preferred Dividend)/ . (Weighted Average
Number of Common Shares Outstanding)

2005=16.25

2004=19.68

------------------------------------------------------------------------------------------------------------

Book Value per Share = (Total Stock Holder Equity – Preferred Stock) / No. of Common

Shares

2005=0.11

2004=0.09

------------------------------------------------------------------------------------------------------------

Asset Turnover = Net Sales / Average Assets


2005=0.70

2004=1.06

Return on Assets = Operating Income / Average Assets

2005=.04

Cash flow Analysis

Operating cash floe to current maturity of long term debt and current notes

payable = (operating cash flow)/current maturity of LT debt and N/p

2005=174

2004=0.91

Operating cash flow to total debt=operating cash flow/total debt

2005=1.75

2004=1.23
Operating cash flow per share=operating cashflow-p.dividend/common share

2005=1.20

2004=0.45

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