TOPIC

Financial Statement Analysis of PTCL

PREPARED FOR

Mr. Qasim Raza

PREPARED BY

Ahmad Younas (FA16-BAF-012)

INTRODUCTION AND HISTORY OF PTCL

Pakistan Telecommunication Company Limited (PTCL) is the Information and Communication

Technology service provider and is considered as backbone in the telecommunication sector. It
has nearly 2000 exchanges.

In 1947, Pakistan Post and Telegraph (P&T) department used to perform telecommunication
and postal services and it continued to perform till 1962. In 1962, it was decided to split the P&T
department into two separate departments, Pakistan Post and Pakistan Telephone and Telegraph
(PT&T).

In 1990, government took the decision of Privatization and deregulation of many departments of
government in order to minimize the burden of government and to make effective and efficient
departments. Under this decision, Pakistan Telephone and Telegraph department was changed to
Pakistan Telecommunication Corporation (PTC), a separate entity from government.

After establishment of PTC, government announced to privatize PTC, but in 1994 government
decided to test the capital market of PTC and issued 6M vouchers exchangeable into 600M
Shares which were converted into shares later on and government owned 88% and 12% were
owned by private investors. https://www.scribd.com/document/54130237/History-of-PTCL

PTCL’S PLANS AND ROLE IN PAKISTAN’S ECONOMY

PTCL always plays an important role whenever there is a natural disaster in Pakistan. It has been
working for the welfare of people of Pakistan. It has been providing free medical services not
only to the employees but also to the underprivileged people.

PTCL has made a policy, known as Corporate Social Responsibility CSR. Under this policy
there are different programs for which PTCL provide its services for the welfare of people. One
of them is PTCL RAZAKAAR PROGRAM. There are volunteers who act as ambassador of
PTCL and conduct humanitarian activities in needed areas.

On 30th January 2014 in “The Express Tribune”, it was announced that PTCL is going to invest
in largest submarine cable system. It was beneficial decision for Pakistan as it can fulfill
information communication needs for the future of Pakistan.

On April 2016 while talking to journalists of DAWN newspaper, Executive Vice President said
that PTCL is going to invest in GAWADAR. PTCL will provide services to the companies who
have invested in this area. PTCL has been providing International Internet Connection Services
and now it has planned to provide services to neighboring countries including China.

Recently on July 2018, PTCL has signed an agreement with Pakistan Software Export Board
regarding Cloud Based Services. PTCL will be providing cloud based solutions to call centers
and software companies. https://fp.brecorder.com/2018/07/20180713390409/

FINANCIAL STATEMENT ANALYSIS

Financial Statement Analysis tells us about the financial and operational performance of the
organization. There are number of techniques which are used for such analysis, one of them is
Ratio Analysis.

The following ratios are used for the analysis of PTCL.

 Liquidity Ratio
 Solvency Ratio
 Profitability Ratio
 Activity Ratio

1. Liquidity Ratio

This ratio shows the relationship between current assets and current liabilities. It indicates that
how much firm has ability to meet its short term obligations with its current assets.

Current Ratio and Quick Ratio are the liquidity ratios.

Current Ratio

Current ratio shows the firm’s ability to meet its obligations with current assets. Any firm is
expected to have more current assets so that firm can pay off its current liabilities with current
assets. It is calculated as:

Current Ratio = Current Assets / Current Liabilities

The Pattern of PTCL’s Current Ratio is Given Below:

Particulars 2017 2016 2015

Current Ratio 0.93 0.95 1.05
The ideal current ratio is 2:1 which means firm’s current assets are twice of current liabilities and
firm is in good liquidity position. Analysis of PTCL’s current ratio shows that there is a
decreasing trend which is not good for the company. PTCL cannot meet its current obligations
easily and quickly so investors and creditors will not be interested.

Graphical representation of current ratio is given below:

1.1

1.05

1 2017
2016
0.95
2015
0.9

0.85
Current Ratio

Quick Ratio

Inventory is not more liquid asset as others are that’s why we subtract the inventory from current
assets so that we can know how quickly firm can meet its short term obligations. It is calculated
as:

Quick Ratio = Current Assets – Inventory / Current Liabilities

The Pattern of PTCL’s Quick Ratio is Given Below:

Particulars 2017 2016 2015

Quick Ratio 0.89 0.92 1.05

The ideal quick ratio is 1:1. The higher the quick ratio means the firm can pay off its current
liabilities easily and quickly. PTCL’s quick ratio shows that company is not in good liquidity
position. There is a decreasing trend in quick ratio of PTCL.

In 2015, PTCL had a good liquidity position. Since 2016, PTCL does not have enough current
assets to meet its short term obligations.
Graphical representation of Quick Ratio is given below:

1.1
1.05
1
2017
0.95
2016
0.9
2015
0.85
0.8
Quick Ratio

2. Solvency Ratio

Debt to Equity

This ratio shows the relationship between debt and equity. It is used to measure the ratio between
debt financing and equity financing. It tells that how much financing is done by debt.

It is calculated as:

Debt to Equity = Total Debt / Total Equity

The Pattern of PTCL’s Debt to Equity Ratio is Given Below:

Particulars 2017 2016 2015

Debt to Equity Ratio 2.40 2.43 2.02

Low Debt to Equity ratio is considered good for the company because proportion of debt should
be low. PTCL’s debt to equity ratio is high since 2015 which means PTCL has financed its
business more with debt. It’s a bad news for PTCL because it’s been tough for PTCL to arrange
additional capital.
Graphical representation is given below:

3
2.5
2
2017
1.5
1 2016
0.5 2015
0
Debt to
Equity Ratio

Debt to Total Assets

This ratio tells the relationship between debt and total assets of the firm. By debt to total assets
ratio, we measure the extent to which firm assets are supported by debt.

It is calculated as:

Debt to Total Assets = Total Debt / Total Assets

The Pattern of PTCL’s Debt to Total Assets Ratio is Given Below:

Particulars 2017 2016 2015

Debt to Total Assets 70.6% 70.8% 66.9%

PTCL’s debt to total assets ratio has been in the range of 70% TO 71% since 2016 which means
70% TO 71% of assets of PTCL are financed by debt and it’s also a bad news for PTCL.

Graphical representation is given below:

72.00%
70.00%
2017
68.00%
66.00% 2016
64.00% 2015
Debt to Assets
Ratio
Interest Coverage Ratio

This ratio is used to measure the firm ability to pay interest from EBIT and is calculated as:

Interest Coverage Ratio = EBIT / Interest Charges

The Pattern of PTCL’s Interest Coverage Ratio is Given Below:

Particulars 2017 2016 2015

Interest Coverage 0.994 1.17 0.76
Ratio

Generally 2 is minimum acceptable ratio. Interest Coverage Ratio less than 1 shows that
company cannot pay its interest payments. PTCL’s trend of Interest Coverage Ratio shows that it
is not in good financial position.

Graphical representation of Interest Coverage Ratio is Given Below:

1.5

1
2017
0.5 2016
2015
0
Interest Coverage
Ratio

3. Profitability Ratios

These ratios are used for measuring the profitability position. These ratios must have higher
value as compared to previous year’s ratio and competitor’s ratio. Higher ratios indicate that firm
is performing well in the market.

Gross Profit Ratio

This ratio shows that how much firm is earning after cost for production is deducted from
revenue. It is calculated as:

Gross Profit Margin = Gross Profit / Net Sales

The Pattern of PTCL’s Gross Profit Ratio is Given Below:

Particulars 2017 2016 2015

Gross Profit Ratio 22% 25% 25%

The higher Gross Profit Ratio indicates that company is making much profit before deduction of
other expenses. PTCL’s ratio analysis shows that there is a lack of control in production cost in
2017 as compared to 2016 and 2015 because PTCL’s gross profit has declined 3% as compared
to profit of 2016 and 2015.

Graphical representation is given below:

26%
25%
24%
2017
23%
22% 2016
21% 2015
20%
Gross Profit
Ratio

Operating Profit Ratio

Operating profit ratio is used to find out the profit of the firm as relative to sales after all the
expenses are paid except interest and tax. It is calculated as:

Operating Profit Ratio = Operating Profit / Sales

The Pattern of PTCL’s Operating Profit Ratio is Given Below:

Particulars 2017 2016 2015

Operating Profit 2.6% 5.2% 3.3%
Ratio

In 2016, PTCL had good operational efficiency as compared to 2015. But in 2017, PTCL did not
earn operating profit as good as it earned in 2016 and even in 2015.
Graphical representation of Operating Profit Ratio is given below:

6.00%
5.00%
4.00%
2017
3.00%
2.00% 2016
1.00%
2015
0.00%
Opearting
Profit Ratio

Net Profit Ratio

It shows the relationship between firm’s net profit and sales. It tells the percentage of the profit
earned by the firm after paying all the taxes including interest and tax. It is calculated as:

Net Profit Ratio = Net Profit / Sales

The Pattern of PTCL’s Net Profit Ratio is Given Below:

Particulars 2017 2016 2015

Net Profit Ratio 3.7% 1.3% 1.5%

Analysis of PTCL’s income statement indicates that PTCL had earned more net profit in 2017 as
compared to 2016 and 2015. There is a sharp increase in net profit.

Graphical representation of net profit ratio is given below:

4.00%

3.00%
2017
2.00%
2016
1.00% 2015

0.00%
Net Profit Ratio
Return on Assets

It shows that how much firm is good in using its assets to generate earnings. It is calculated as:

Return on Assets = Net Income / Total Assets

The Pattern of PTCL’s ROA is Given Below:

Particulars 2017 2016 2015

Return on 1.4% 0.5% 0.6%
Investment

The higher the ROA means that company has used its assets efficiently to earn profit. There is an
increase of 0.9% (1.4% - 0.5%) in 2017 as compared to 2016 which shows PTCL has used assets
efficiently in 2017.

Graphical representation is given below:

1.50%

1.00%
2017

0.50% 2016
2015
0.00%
Return on
Assets

Return on Equity

It shows that how much firm generates profit against investor’s investment and is calculated as:

Return on Equity = Net Income / Shareholder’s equity

The Pattern of PTCL’s ROE is Given Below:

Particulars 2017 2016 2015

Return on Equity 5% 1.8% 1.9%

Investors will be interested in ROE as they want to know that how much firm has earned against
their investments. The higher ROE satisfies the investors. In 2017, PTCL’s ROE was 5% which
was 3.2% greater than ROE of 2016 which is good for PTCL.

Graphical representation is given below:

6%
5%
4%
2017
3%
2016
2%
2015
1%
0%
ROE

4. Activity Ratios

Total Assets Turnover

This ratio is used to know the efficiency of company for utilizing its assets to generate revenue
and is calculated as:

Total Assets Turnover = Net Sales / Total Assets

The Pattern of PTCL’s Total Assets Turnover is Given Below:

Particulars 2017 2016 2015

Total Assets 0.39 0.38 0.40
Turnover
This ratio should be high which means company is using assets efficiently. PTCL’s ratios
indicates that it is not using its assets efficiently as for every 1 Rupees in Assets, there is 0.39,
0.38, 0.40 sales in 2017, 2016 and 2015 respectively.

Graphical Representation is given below:

0.41

0.4
2017
0.39
2016
0.38
2015
0.37
Total Assets
Turnover

Fixed Assets Turnover

It is used to know that how well company is using its fixes assets to generate revenue and is
calculated as:

Fixed Assets Turnover = Sales / Fixed Assets

The Pattern of PTCL’s Fixed Assets Turnover is Given Below:

Particulars 2017 2016 2015

Fixed Assets 0.57 0.56 0.55
Turnover

Analysis of Financial Statements of PTCL shows that there is a “0.01” increase in fixed assets
turnover since 2015. These ratios can be compared to competitor’s ratios of fixed assets to know
how efficiently PTCL is good in using its fixed assets as compared to competitors. Higher ratio
shows company has been using its fixed assets efficiently.
Graphical representation is given below:

0.575
0.57
0.565
0.56
0.555 2017
0.55 2016
0.545
0.54 2015
Fixed
Assets
Turnover

Summary of Analysis of Financial Statements

As concerned with the liquidity position of PTCL, it is found that PTCL is not in good liquidity
position. PTCL cannot pay its short term obligations quickly with the current assets. Profitability
ratios indicate that gross and operating profit of PTCL declined in 2017 and it shows that PTCL
need to control on production cost and expenses; but there is an increase in net profit. Solvency
Ratios shows that PTCL is more financed by debt than equity and interest coverage ratio shows
that it is not in good financial position.