Iqra University

(Gulshan Campus)

Analysis of Financial Statements (AFS)

Final Term Project On

Academic Year

2015

Summer Semester

BBA-H Program

Department of Business Administration

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 PROJECT DETAILS

Project Title:
Detail report on Analysis of financial statement of Philip Morris.

Course Title:
Analysis of Financial Statements (AFS)

Course Instructor:
Sir Ameenullah Shaikh

Program:
BBA-H

Performed Analysis:
Economic Position
Industry Analysis
Proforma Analysis
Common Size Analysis
Ratio Analysis
Comparison with Industry Analysis
DuPont Analysis
SWOT Analysis

GROUP MEMBERS

Mahnoor Farooqi 6019

Aemen Aqeel 6229
Rizwan Umer 6271
Komal Sarwar Malik 6724
Mohammad Junaid 6767
Shoaib Ahmed 6924

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 Acknowledgement

We would like to offer our special thanks to our teacher, Sir Ameenullah Shaikh for his
support, assistance and direction that helped us to accomplish our objective of conducting this
research in the area of organizational Change. His willingness to give his time so generously
has been very much appreciated.

We would also like to thank our parents for their great support and never ending guidance.

Abstract

This research is about assessing about analysis of financial statement of Philip Morris. The
whole report is comprise of tobacco industry analysis , overall economic analysis , common
size analysis of Philip Morris including horizontal and vertical analysis , ratio analysis,
DuPont analysis and finally two year future forecasting of Philip Morris. We also did SWOT
analysis of this company to have better understanding of where the company stands in the
market. After this report we are able to analyze financial statements with the above mentioned
methods.

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 Table of contents

S.no Topics Page no.

1 Philip Morris Company Overview 5-8

2 Overall Economic Position 8

3 Financial Statements Of Philip Morris 9-10

4 Industry Analysis 10

5 Pro Forma Analysis 10-14

6 Common Size Analysis 14-15

7 Ratio analysis 16

8 DuPont analysis 16

9 Performance Graphs 17-18

10 SWOT Analysis 18

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 Philip Morris International Inc.
(An Overview)

Philip Morris International Inc. (PMI) is the leading international tobacco company, with six
of the world’s top 15 international brands, including Marlboro, the world’s best-selling
cigarette brand. They aim to provide high quality and innovative products to adult smokers,
generate superior returns for shareholders, and reduce the harm caused by smoking while
operating our business sustainably and with integrity.

Philip Morris International Inc. is a Virginia holding company incorporated in 1987. Their
subsidiaries and affiliates and their licensees are engaged in the manufacture and sale of
cigarettes and other tobacco products in markets outside of the United States of America.

Until March 28, 2008, PMI was a wholly owned subsidiary of Altria Group, Inc. “Altria”,
since that time the company has been independent and is listed on the New York Stock
Exchange (ticker symbol “PM”).

Brands
International and local brands of Philip Morris are sold in more than 180 markets. They have
the industry’s strongest and most diverse brand portfolio, led by Marlboro, the world’s
number one selling brand, and L&M, the third most popular brand. Overall, they have six of
the top 15 international brands in the world, with the exception of the People’s Republic of
China.

PMI’s other leading international brands include Bond Street, Parliament, Philip Morris,
Chesterfield and Lark. Their leading local cigarette brands include Sampoerna A in
Indonesia, Fortune in the Philippines, Optima in Russia and Delicados in Mexico.

Marlboro
Marlboro has been the world’s number one cigarette brand since 1972 and is one of the most
powerful trademarks among all consumer products. In 2013, Marlboro’s volume outside the
United States was 291.1 billion cigarettes, which makes it bigger than the next two largest
brands combined

In 2008, Philip Morris International (PMI) implemented new brand architecture for Marlboro
with three defined identities: Flavour, Gold, and Fresh. The Marlboro brand architecture is a
portfolio framework that allows us to unlock the potential of the brand’s equity and address
the preferences of adult smokers. The MarlboroFlavour family, representing quality and
tobacco expertise, leads the way in bringing adult smokers the most enjoyable tobacco
flavour satisfaction. The Marlboro Gold family delivers pleasurable smooth tastes and
refined smoking experiences that are progressive and contemporary. The Marlboro Fresh
family offers new experiences, innovations and differentiated refreshing tastes that go beyond
the ordinary.

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Their new introductions generated a combined volume of 35.9 billion units in 2013,
accounting for more than 12% of Marlboro’s total volume. Below are a few examples:

 Marlboro Touch: An innovative line of slimmer Marlboro cigarettes with different

product characteristics to address a range of adult consumer preferences.
 Marlboro Advance: Launched in Malaysia. The first Marlboro cigarette with a
Recessed Filter for a smooth and satisfying taste, packaged in a vibrant blue foil box.
 Marlboro W-Burst: Launched in Japan. The first cigarette in the world with two
capsules in the filter to offer more choice in high cooling taste sensations.
 Marlboro Kretek Mint: Launched in Mexico. The first Marlboro tobacco blend
combining the typical character of Indonesian clove with menthol to deliver a
uniquely refreshing taste sensation.
 Marlboro Premium Black. Launched in the Gulf Cooperation Council countries. An
above premium price Marlboro cigarette with a convenient automatic seal to preserve
product freshness.

L&M
L&M originated in the United States in 1953. In 2013, L&M was ranked as the third best-
selling international cigarette brand outside the United States and China, with a 2013
shipment volume of 95.0 billion units.

Other International Brands

 Bond Street, Parliament, Philip Morris, Chesterfield and Lark are among their most
well-known and best-selling international brands.
 Bond Street is PMI’s third largest international brand with a volume of 44.9 billion
units in 2013.
 Parliament is sold in approximately 40 markets. It is the tenth largest cigarette brand
in the world and the fourth largest international PMI brand. In 2013, Parliament
volume was 44.7 billion units with a strong presence in Korea, Japan, Russia, Turkey,
and Ukraine.
 The Philip Morris brand is PMI’s fifth largest international brand with a volume of
35.0 billion units in 2013 and sold in more than 40 countries.
 Chesterfield is the sixth largest international PMI brand with a volume of 34.4 billion
units in 2013.

Value Segment
The combined volume of three of their value brands—Bond Street, Red & White, and Next—
was 69.8 billion units in 2013, reinforcing their position in profitable low-price segments in
Eastern Europe (BondStreet), Central Europe (Red & White), and globally (Next).

Local Brands
We also own a number of important local brands, such as Sampoerna A, Dji Sam Soe and U
Mild in Indonesia, Fortune, Champion and Hope in the Philippines, Diana in Italy, Optima
and Apollo-Soyuz in Russia, Morven Gold in Pakistan, Boston in Colombia, Belmont,
Canadian Classics and Number 7 in Canada, Best and Classic in Serbia, f6 in
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Germany,Delicados in Mexico, Assos in Greece and Petra in the Czech Republic and
Slovakia.

The Top 10 PMI Brands

Marlboro, L&M, Bond Street, Sampoerna A, Parliament, Philip Morris, Chesterfield, Lark,
Fortune, DjiSam Soe

Other Tobacco Products

While PMI focuses primarily on cigarettes, their business development interests also extend
to other tobacco products (OTP). We have successfully grown their OTP business organically
and have complemented this growth with acquisitions of a cigar business in Australia and
New Zealand, the company Swedish Match in South Africa and the fine cut brands Interval
and Petterøes in Europe.

Smokeless
Since 2009, Philip Morris International and Swedish Match AB have operated a joint venture
company that has commercialized smokeless tobacco products, outside of Scandinavia and
the United States. Through this joint venture company, PMI sells smokeless tobacco
products, including Swedish snus.

Philip Morris Pakistan

Philip Morris (Pakistan) Limited is an affiliate of Philip Morris International Inc.
(PMI), is a public limited company listed on the Karachi and Lahore Stock Exchanges.
Philip Morris International acquired a majority stake in a local business in 2007. Currently,
PMPKL has a tobacco-leaf threshing plant, three cigarette manufacturing factories, sales
offices across the country, and employs around 2,500 people

Products
 Morven gold

 Marlboro

 Diplomat

 K2

 Red & white.

Head Quarter
9th Floor, TheHarbour Front, Dolmen City, HC-3, Block 4, Clifton,
Karachi - 75600, Pakistan Tel: + 92 21-3520 9600-01

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Key People
 Arpad Konye
(Managing Director)
 Nicolas Floros
(Vice President, Operations Asia)
 Andreas Kurali
Vice President, Finance Asia
 Joseph Ziomek
Finance Director, Philip Morris (Pakistan) Limited
 Charles Bendotti
Vice President, Human Resource Asia
 MujtabaHussain
Company Secretary (Finance Controller), Philip Morris (Pakistan) Limited
 AsmerNaim
Director Government Relations, Philip Morris (Pakistan) Limited

MISSION:
Meet the expectations of adult smokers by offering innovative tobacco products of the
highest quality available in their preferred price category; generate superior returns to our
stockholders.

VISION:
Be a responsible corporate citizen and to conduct our business with the highest degree of
integrity.

Overall Economic Position

Since last five years Pakistani tobacco industry is facing multiple issues related to illicit
cigarette trade. Even though the government undertook some significant crackdown drives on
illicit cigarette trade, but that did not see any drastic change in the enforcement environment
as the consumers continued to buy the cheaper, duty evaded brands. In 2014 illicit trade in
cigarettes accounted for almost 23 percent of the total market in Pakistan, this translated into
around 18.6 billion cigarettes. During 2014, the legitimate industry declined by 1.6 percent.
Due, to the alarming growth in duty evaded segment leading to further widening of the price
gap between the products of the legitimate and the non-duty paid sectors. However, unlike
Philip Morris, Pakistan Tobacco Company, the biggest player in the industry, played its cards
wisely through various marketing initiatives, strengthened brand availability across different
territories and our investment to enhance consumer value. A report on illicit trade in tobacco
products in Pakistan shared by Phillip Morris with the FBR revealed that two manufacturers
contribute over 99 percent or Rs 85 billion ($850 million) of excise and sales taxes collected
from this sector, based on the legal volume of 62.7 billion sticks. The tobacco industry is the
largest contributor to Pakistan's Excise tax base.
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 Financial Statements of Philip Morris
BALANCE SHEET
2010 2011 2012 2013 2014
Rupees in Thousand
Non-Current asset
FA
Property, plant and equipment 3847679 3941452 5356534 6876731 7393065
Intangible 0 1750 33146 26195 23447
3847679 3943202 5389680 6902926 7416512
Investment in a subsidiary company 1 1 1 1 1
Long term loans 421 17 0 0 0
Long term deposits and prepayments 51678 57354 41347 41101 36760
Deferred taxation 0 0 6887 379978 527615
Total FA 3899779 4000574 5437915 7324006 7980888
Current Assets
Stores and spares 359922 361615 520089 588330 593690
Stock in trade 7706696 6776689 6841159 7431233 7960101
Trade debts 164240 210781 195376 996 225182
Loans and advances 10405 70280 75970 69434 49280
Prepayments 161579 148218 172205 256141 315792
Profit accrued 556 0 0 0 0
Other receivables 90018 116109 54356 215022 598446
Income tax-net 398964 533810 441844 670942 747423
Cash and bank balances 15104 28088 17373 12753 36763
Total Current Assets 8907484 8245590 8318372 9244851 10526677
Total Assets 12807263 12246164 13756287 16568857 18507565
Equity and Liabilities
Share capital and reserve
Authorised capital 1000000 1000000 1000000 1000000 1000000
Issued, subscribed and paid-up capital 615803 615803 615803 615803 615803
Reserves 5972124 6399238 6266689 6248641 6226367
Inappropriate (loss)/profit 576894 -451863 -929407 -1370865 -2853320
Total Equity 7164821 6563178 5953085 5493579 3988850
Non-Current Liabilities
Deferred taxation 472000 221000 0 0 0
Current Liabilities
Short term borrowings 2471772 2810170 4923921 8776634 11090651
Trade and other payables 1187234 1117395 2090449 2027811 2388492
Accrued mark-up on short term
Borrowings 61564 82586 70231 78072 65760
Sales tax and excise duty payable 1449872 1451835 718601 192761 973812
Total Current Liabilities 5170442 5461986 7803202 11075278 14518715
Total Liabilities 5642442 5682986 7803202 11075278 14518715
Total Liabilities and equities 12807263 12246164 13756287 16568857 18507565

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 PROFIT AND LOSS ACCOUNT
2010 2011 2012 2013 2014
Rupees in Thousand
Gross turnover 33910750 32296490 35552536 35984891 38045693
Less: sales tax -4925476 -4568921 -5036626 -5182547 -5804569
Excise duty -15662922 -15140587 -16964741 -17073917 -18447700
Turnover-net of sales tax
and excise duty 13322352 12586982 13551169 13728427 13763743
Cost of sale 8956591 -9460827 9738064 -10060128 13763743
Gross profit 4365761 3126155 3813105 3668299 3911044
Less: operating expense
Distribution and marketing
expense -2560141 -2254522 -2804168 -3035215 -3536256
Administration Expense -813395 -963612 -1168525 -1162584 -1235294
Operating loss 992225 -91979 -159588 -529500 -860506
Other expense -71934 -15247 -164945 -46990 -220125
920291 -244226 -324533 -576490 -1080631
Other income 93663 22167 32334 395055 171548
Earnings before interest & tax 1013954 -222059 -292199 -181435 -909083
Finance cost -137275 -308690 -329843 -527425 -604188
Loss before taxation 876679 -530749 -622042 -708860 -1513269
Taxation -304117 -75943 -47658 -267402 -30814
Loss after taxation 572562 -454806 -574384 -441458 -1482455

Industry Analysis

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 Industry Analysis (Balance Sheet)

Pro Forma Statements

Balance Sheet:
2014 2015 2016
Non-Current asset
Fixed Assets
property, plant and equipment 7393065 7762718.25 8150854
intangible 23447 24619.35 25850.32
7416512 7787337.6 8176704
investment in a subsidiary company 1 1.05 1.1025
long term loans 0 0 0
long term deposits and prepayments 36760 38598 40527.9
deferred taxation 527615 553995.75 581695.5
Total FA 7980888 8379932.4 8798929
Current Assets
Stores and spares 593690 623374.5 654543.2
Stock in trade 7960101 8358106.05 8776011
trade debts 225182 236441.1 248263.2
loans and advances 49280 51744 54331.2

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prepayments 315792 331581.6 348160.7
profit accrued 0 0 0
other receivables 598446 628368.3 659786.7
income tax-net 747423 784794.15 824033.9
cash and bank balances 36763 38601.15 40531.21
Total Current Assets 10526677 11053010.85 11605661
Total Assets 18507565 19432943.25 20404590
Equity and Liabilities
share capital and reserve
Authorized capital 1000000 1000000 1000000
issued, subscribed and paid-up capital 615803 615803 615803
reserves 6226367 6537685.35 6864570
unappropriated (loss)/profit -2853320 -2995986 -3145785
Total Equity 3988850 4188292.5 4397707
Non-Current Liabilities
Deferred taxation 0 0
Current Liabilities
Short term borrowings 11090651 11645183.55 12227443
Trade and other payables 2388492 2507916.6 2633312
accrued mark-up on short term borrowings 65760 69048 72500.4
Sales tax and excise duty payable 973812 1022502.6 1073628
Total Current Liabilities 14518715 15244650.75 16006883
Total Liabilities 14518715 15244650.75 16006883
Total Equities 18507565 19432943.25 20404590

Profit And Loss Account:

2014 2015 2016
Gross turnover 38045693 39947977.65 41945376.53
Less: sales tax -5804569 -5992196.648 -6291806.48
Excise duty -18447700 -19175029.27 -20133780.74
Turnover-net of sales tax and excise duty 13763743 14780751.73 15519789.32
Cost of sale 13763743 -10386474.19 -10905797.90
Gross profit 3911044 4106596.2 4311926.01
Less: operating expense 0.00
Distribution and marketing expense -3536256 -3713068.8 -3898722.24
Administration Expense -1235294 -1297058.7 -1361911.64
Operating loss -860506 -903531.3 -1361911.64
Other expense -220125 -231131.25 -242687.81
-1080631 -1134662.55 -1191395.68
Other income 171548 180125.4 189131.67
Earnings before interest & tax -909083 -954537.15 -1002264.01
Finance cost -604188 -634397.4 -666117.27

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 Loss before taxation -1513269 -1588932.45 -1668379.07
Taxation -30814 -32354.7 -33972.44
Loss after taxation -1482455 -1621287.15 -1702351.51

Common Size Analysis

Balance Sheet Analysis: The common figure for a common-size balance sheet
analysis is total assets. Based on the accounting equation, this also equals total liabilities and
shareholders’ equity, making either term interchangeable in the analysis. It is also possible to
use total liabilities when focusing on liabilities to indicate where a company’s obligations lie
and whether it is being conservative or risky in managing its debts.

Income Statement Analysis:

An income statement is one in which each account is expressed as a percentage of the
value of sales. This type of financial statement can be used to allow for easy analysis between
companies or between time periods of a company. Common size income statement analysis
allows an analyst to determine how the various components of the income statement affect a
company’s profit.

Vertical Analysis (Balance Sheet)

2010 2011 2012 2013 2014
Non-Current asset
FA
Property, plant and equipment 0.30 0.32 0.39 0.42 0.40
Intangible - 0.00 0.00 0.00 0.00
0.30 0.32 0.39 0.42 0.40
Investment in a subsidiary company 0.00 0.00 0.00 0.00 0.00
Long term loans 0.00 0.00 - - -
Long term deposits and prepayments 0.00 0.00 0.00 0.00 0.00
Deferred taxation - - 0.00 0.02 0.03
Total FA 0.30 0.33 0.40 0.44 0.43
Current Assets
Stores and spares 0.03 0.03 0.04 0.04 0.03
Stock in trade 0.60 0.55 0.50 0.45 0.43
Trade debts 0.01 0.02 0.01 0.00 0.01
Loans and advances 0.00 0.01 0.01 0.00 0.00
Prepayments 0.01 0.01 0.01 0.02 0.02
Profit accrued 0.00 - - - -
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 Other receivables 0.01 0.01 0.00 0.01 0.03
Income tax-net 0.03 0.04 0.03 0.04 0.04
Cash and bank balances 0.00 0.00 0.00 0.00 0.00
Total Current Assets 0.70 0.67 0.60 0.56 0.57
Total Assets 1.00 1.00 1.00 1.00 1.00
Equity and Liabilities
Share capital and reserve
Authorised capital
Issued, subscribed and paid-up capital 0.05 0.05 0.04 0.04 0.03
Reserves 0.47 0.52 0.46 0.38 0.34
Inappropriate (loss)/profit 0.05 (0.04) (0.07) (0.08) (0.15)
Total Equity 0.56 0.54 0.43 0.33 0.22
Non-Current Liabilities
Deferred taxation 0.04 0.02 - - -
Current Liabilities
Short term borrowings 0.19 0.23 0.36 0.53 0.60
Trade and other payables 0.09 0.09 0.15 0.12 0.13
Accrued mark-up on short term Borrowings 0.00 0.01 0.01 0.00 0.00
Sales tax and excise duty payable 0.11 0.12 0.05 0.01 0.05
Total Current Liabilities 0.40 0.45 0.57 0.67 0.78
Total Liabilities 0.44 0.46 0.57 0.67 0.78
Total Liabilities and equities 1.00 1.00 1.00 1.00 1.00

Vertical Analysis

PROFIT AND LOSS ACCOUNT

2010 2011 2012 2013 2014
Gross turnover 1.00 1.00 1.00 1.00 1.00
Less: sales tax (0.15) (0.14) (0.14) (0.14) (0.15)
Excise duty (0.46) (0.47) (0.48) (0.47) (0.48)
Turnover-net of sales tax
0.39 0.39 0.38 0.38 0.36
and excise duty
Cost of sale (0.26) (0.29) (0.27) (0.28) (0.26)
Gross profit 0.13 0.10 0.11 0.10 0.10
Less: operating expense
Distribution and marketing expense (0.08) (0.07) (0.08) (0.08) (0.09)
Administration Expense (0.02) (0.03) (0.03) (0.03) (0.03)
Operating loss 0.03 (0.00) (0.00) (0.01) (0.02)
Other expense (0.00) (0.00) (0.00) (0.00) (0.01)
0.03 (0.01) (0.01) (0.02) (0.03)
Other income 0.00 0.00 0.00 0.01 0.00
Earnings before interest & tax 0.03 (0.01) (0.01) (0.01) (0.02)

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Finance cost (0.00) (0.01) (0.01) (0.01) (0.02)
Loss before taxation 0.03 (0.02) (0.02) (0.02) (0.04)
Taxation (0.01) (0.00) (0.00) (0.01) (0.00)
Loss after taxation 0.02 (0.01) (0.02) (0.01) (0.04)

Horizontal Analysis (Balance Sheet)

2010 2011 2012 2013 2014

Non-Current asset
Fixed Assets
property, plant and equipment 100% 2% 36% 28% 8%
Intangible 0% 100% 1794% -21% -10%
100% 2% 37% 28% 7%
investment in a subsidiary company 100% 0% 0% 0% 0%
long term loans 100% -96% -100% 0% 0%
long term deposits and prepayments 100% 11% -28% -1% -11%
deferred taxation 100% 0% - 5417% 39%
Total FA 100% 3% 36% 35% 9%
Current Assets
Stores and spares 100% 0% 44% 13% 1%
Stock in trade 100% -12% 1% 9% 7%
trade debts 100% 28% -7% -99% 22509%
loans and advances 100% 575% 8% -9% -29%

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Prepayments 100% -8% 16% 49% 23%
profit accrued 100% -100% - - -
other receivables 100% 29% -53% 296% 178%
income tax-net 100% 34% -17% 52% 11%
cash and bank balances 100% 86% -38% -27% 188%
Total Current Assets 100% -7% 1% 11% 14%
Total Assets 100% -4% 12% 20% 12%
Authorized capital 100% 0% 0% 0% 0%
issued, subscribed and paid-up capital 100% 0% 0% 0% 0%
Reserves 100% 7% -2% 0% 0%
inappropriate (loss)/profit 100% -178% 106% 47% 108%
Total Equity 100% -8% -9% -8% -27%
Non-Current Liabilities
Deferred taxation 100% -53% -100% - -
Current Liabilities
Short term borrowings 100% 14% 75% 78% 26%
Trade and other payables 100% -6% 87% -3% 18%
accrued mark-up on short term borrowings 100% 34% -15% 11% -16%
Sales tax and excise duty payable 100% 0% -51% -73% 405%
Total Current Liabilities 100% 6% 43% 42% 31%
Total Liabilities 100% 1% 37% 42% 31%
Total Equities 100% -4% 12% 20% 12%

Vertical Analysis (Profit and Loss Account)

2010 2011 2012 2013 2014

Non-Current asset
FA
Property, plant and equipment 0.30 0.32 0.39 0.42 0.40
Intangible - 0.00 0.00 0.00 0.00
0.30 0.32 0.39 0.42 0.40
Investment in a subsidiary company 0.00 0.00 0.00 0.00 0.00
Long term loans 0.00 0.00 - - -
Long term deposits and prepayments 0.00 0.00 0.00 0.00 0.00
Deferred taxation - - 0.00 0.02 0.03
Total FA 0.30 0.33 0.40 0.44 0.43
Current Assets
Stores and spares 0.03 0.03 0.04 0.04 0.03
Stock in trade 0.60 0.55 0.50 0.45 0.43
Trade debts 0.01 0.02 0.01 0.00 0.01

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 Loans and advances 0.00 0.01 0.01 0.00 0.00
Prepayments 0.01 0.01 0.01 0.02 0.02
Profit accrued 0.00 - - - -
Other receivables 0.01 0.01 0.00 0.01 0.03
Income tax-net 0.03 0.04 0.03 0.04 0.04
Cash and bank balances 0.00 0.00 0.00 0.00 0.00
Total Current Assets 0.70 0.67 0.60 0.56 0.57
Total Assets 1.00 1.00 1.00 1.00 1.00
Equity and Liabilities
Share capital and reserve
Authorised capital
Issued, subscribed and paid-up capital 0.05 0.05 0.04 0.04 0.03
Reserves 0.47 0.52 0.46 0.38 0.34
Inappropriate (loss)/profit 0.05 (0.04) (0.07) (0.08) (0.15)
Total Equity 0.56 0.54 0.43 0.33 0.22
Non-Current Liabilities
Deferred taxation 0.04 0.02 - - -
Current Liabilities
Short term borrowings 0.19 0.23 0.36 0.53 0.60
Trade and other payables 0.09 0.09 0.15 0.12 0.13
Accrued mark-up on short term Borrowings 0.00 0.01 0.01 0.00 0.00
Sales tax and excise duty payable 0.11 0.12 0.05 0.01 0.05
Total Current Liabilities 0.40 0.45 0.57 0.67 0.78
Total Liabilities 0.44 0.46 0.57 0.67 0.78
Total Liabilities and equities 1.00 1.00 1.00 1.00 1.00

Interpretations (Horizontal Analysis)

• Trade debt is increasing every year, because company is investing internationally in

many countries.
• Loans and advances is increasing every year, because company is giving loans to their
employees and suppliers.
• Original; price share is 124.0/=, therefore price of shares are increasing, since
company is going in loss, Market Price Ratio is Increasing because company is
investing and showing growth and expansion every year.
• Taking short-term loans and giving interest on that.

Interpretations (Vertical Analysis)

 In 2010 property plant and equipment was 30% of the total assets and till 2014 it
increased to 40%.
 In 2010 stock and trade was 60% of total assets and it decreased to 43% in 2014.
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 In 2010, Short-term borrowings were 19%, of the total current liabilities but it
increased to 60% in 2014.
 It shows in 2010, the Total equity was 56% compare to 44% of the liabilities but in
2014 the total equity was 22% compare to 78% liabilities.
 In 2010, net sales after tax and excise duty amounted to 39% of the Gross turnover,
and operating profit amounted to 3% of Gross turnover.
 Whereas, in 2014 net sales after tax and excise duty amounted to 36% of the Gross
turnover, and operating loss amounted to -2% of Gross turnover.
 Loss after taxation was 2% of the Gross turnover and in 2014 it was -4% of the Gross
turnover.

Ratio analysis
Philip Morris Pakistan (Ratio Analysis)

2010 2011 2012 2013 2014

Profitability Ratios
Gross Profit Margin 33% 25% 28% 27% 28%
Operating Profit Margin 8% -2% -2% -1% -7%
Net Profit Margin 4% -4% -4% -3% -11%
Return on Assets 4% -4% -4% -3% -8%
Return on Equity 8% -7% -10% -8% -37%

Liquidity Ratios
Current Ratios 1.72277 1.509632 1.06602 0.834729 0.725042
Acid-test Ratio 0.034686 0.043733 0.027264 0.001241 0.018042
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 Debt Ratios
Debt Ratios 0.440566 0.464063 0.567246 0.668439 0.784475
Debt to Equity Ratios 0.78752 0.865889 1.310783 2.016041 3.639825
Time Interest Earned Ratio 7.386298 -0.71936 -0.88587 -0.344 -6.29929

Assets Activity Ratios

Average Collection Period 2.466274 3.366954 1.464076 5.716826 15.87016
Inventory Turnover Ratio 1.728672 1.857394 1.980829 1.847396 1.729092
Fixed Asset Turnover Ratio 3.416181 3.146294 2.491979 1.874442 1.724588
Total Asset turnover Ratio 1.040219 1.027831 0.985089 0.828568 0.743682

Interpretations:
 According to the profitability Ratios Company is not good at keeping operating cost
down, return on assets and return on equity are decreasing each year due to low sales,
productivity and assets management problems.
 Looking at the Liquidity Ratios the current ratios are decreasing each year, the
company was more liquid in 2010 compare to 2014.
 In 2014, company owes 0.7% to the creditors and company can go to the tobacco.

DuPont analysis:
DuPont analysis is a financial ratio which is based on return on equity of a company. A
company’s ability can be analyzed in increase in its return on equity which is calculated
through net income and common equity. Return on equity shows that how well the firm will
return its income to its owners.

The DuPont analysis of Phillip Morris shows that in 2013, their ROE was -0.08036 which was
lesser than the 2014 that was -0.37165.

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 Performance Graphs

Sales
50%

40%

30%

20%

10%

0%

-10%
2010 2011 2012 2013
industry sales 9% 19% 41%
philip morris -6% 2% 3%

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 Cost
120%
100%
80%
60%
40%
20%
0%
-20%
-40%
2010 2011 2012 2013
Industry 100% 1% 3% 29%
Philip Morris 100% -28% -13% -16%

Gross Profit
120%
100%
80%
60%
Axis Title

40%
20%
0%
-20%
-40%
2010 2011 2012 2013
Industry 100% 1% 3% 29%
Philip Morris 100% -28% -13% -16%

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 SWOT Analysis:
 Strengths:
-barriers of market entry
-domestic market
-existing distribution and sales networks
-experienced business units
-reduced labour costs

 Weaknesses:
-high loan rates are possible
-tax structure
-future profitability
-competitive market
-cost structure
-brand portfolio

• Opportunities:
-income level is at a constant increase

• Threats:
-increase in labour costs
-increasing rates of interest
-technological problems
-growing competition and lower profitability
-external business risks
-cash flow
-financial capacity

THE END

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