FINANCIAL AND STRATEGIC ANALYSIS OF

FIRST UDL MODARABA

Financial Reporting & Analysis – Project (Phase 2)

Submitted To:

Shakeel Ahmad

Submitted By:

Faria Mehboob

19L-1634

MBA Section B

Date: 30th April 2020

National University of Computer & Emerging Sciences

 Profitability Ratios

Net Profit Margin

400.00% 314.85%
300.00%
200.00%
68.53%
100.00% 20.32% 15.53% -3.22% 24.16% 7.93% 8.61% 2.63%
0.00%
2015A 2016A 2017A 2018A 2019A 2018-Q1 2018-Q2 2018-Q3 2019-Q1 2019-Q2 2019-Q3
-100.00%
-211.47%
-200.00%
-300.00%
-413.68%
-400.00%
-500.00%

Net Profit Margin:

Net profit margin of First UDL Modaraba was fairly high in the base year followed by progressive decline
over the years. The company’s net profit margin decreased to negative in 2018 and 2019 due to higher
expenses (fee & subscription, depreciation and other expenses) as compared to the other years.
Furthermore, in 2018 the company’s sales increased but the expenses increased far more resulting in a
net loss, In 2019, the company went through major loss and increased expenses leading led to an large
decrease in net profit margin.

In the quarters of 2018 and 2019, the net profit margin stayed positive since the company generated
fair amount of sales with lower expenses, until 3 rd quarter of 2019 when the company faced huge loss
and net profit margin fell to -211.47%.
 Operating Margin
1000.00% 879.17%
800.00%
563.40%
600.00%
400.00% 241.32%
200.00% 142.15% 140.01% 86.72% 21.69% 41.84%
0.00% -38.54%
2015A 2016A 2017A 2018A 2019A 2018-Q1 2018-Q2 2018-Q3 2019-Q1 2019-Q2 2019-Q3
-200.00%
-402.76%
-400.00%
-624.80%
-600.00%
-800.00%

Operating Profit Margin:

Operating profit margins showed an unstable trend, the margin was highest in the base year 563.20%
but in the following years fell by large percentages. The margins fell afterwards; this downfall in the
margin of 2016 and 2017 as compared to base year can be explained by the overall increase in expense
as compared to the case year. The margins fell further down in 2018, due to net loss incurred as a result
of higher expenses (fee and subscription, annual fee and other expenses). In the quarters of 2018,
company made net profits in all three quarters, but the margin fell in 2 nd quarter due to higher expenses
although its sales were higher than the previous quarter. In 2019, all three quarters showed extreme
trends, the first quarter showed positive margin, followed by a large spike of margin increase in 2 nd
quarter because the expenses were minimum as compared to sales. The 3 rd quarter showed extreme
decline in margin, again the reason being lower revenue and very high expenses.
 Pre-Tax Margin
1000.00% 879.17%
800.00%
563.40%
600.00%
400.00%
241.32%
200.00% 142.15% 140.01% 86.72%
-38.54% 21.69% 41.84%
0.00%
2015A 2016A 2017A 2018A 2019A 2018-Q1 2018-Q2 2018-Q3 2019-Q1 2019-Q2 2019-Q3
-200.00%
-402.76%
-400.00%
-624.80%
-600.00%
-800.00%

Operating Margin and Pre-Tax Margin

Operating Margin and Pre-Tax Margin were the same because of no finance cost. These both ratios also
decreased from 563.40%% in 2015 to 142.15% in 2016. The overall trend also remained the same in
both the annual and quarterly data.

Profitability Ratios
20.00%
17.26%
15.00%

10.00%

5.00% 3.90% 3.79% 3.99%

1.51% 0.63% 0.85% 0.15%
0.00% -0.92%
2015A 2016A 2017A 2018A -2.81%
2019A 2018-Q1 2018-Q2 2018-Q3 2019-Q1 2019-Q2 2019-Q3
-5.00%
-8.01%
-10.00%

Return on Assets

Return on assets shows an unstable trend throughout the years. The base of year showed highest ROA.
This was again due to very high net income of the company as compared to the assets. The following
year the ROA fell by a difference of 13.36%., because as compared to 2015, the Net income in 2016 was
lower to its assets. ROA further reduced by 0.11% in 2015 followed by a very negative value in 2018. This
can be explained by the low revenue generated that year as compared to its assets. The quarters also
showed lower values but remain positive, because the company was able to generate reasonable
amount of revenue above its sales. The low values however indicated how unprofitable the company’s
assets were in generating revenue. Such low ROAs also indicate that the amount of assets was not
sufficient enough to generate income for the company. In quarters of 2019, variants were observed, the
value was only fairly positive in 1 st quarter 0.15% but then spiked up to 3.99% and followed by -2.81% in
the 3rd quarter.

Return On Equity
30
23.74%
25
20
15
10
5.34% 4.51% 4.60%
5 1.74% 0.98%
0.75% 0.18%
0 -1.17%
-3.23%
2 2 2 2 2 201 201 201 201 201 201
-5
-9.32%
-10
-15

Return on Equity

Return on equity has quite an unstable trend throughout the 5 years, the trend remained same as that
of ROA, except the values of ROE were slightly higher. The return was highest in the base year of 2015
23.74% due to occurrence of huge net profit in the year. The ROE declined in the following two years to
5.345 and 4.51% due to lower net profits. Lower asset turnover ratio in these two years was another
reason for a decline in ROE. However, the ROE declined drastically in 2018( -1.17%) again due to heavy
losses incurred during the year on account of increased reliance on debt financing and decreased sales
followed by further drastic value of -9.32% in 2019 due to the same reason. Such low returns on equity
indicate poor profitability position of the company. Also, it depicts that company was unable to use its
investments effectively to generate growth.
 Administrative Expenses To PBT
400 333.75%
300
200
100 66.43%
14.74% -13.62% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
0
2 2 2 2 2 201 201 201 201 201 201
-100...
-200... -237.51%
-300...

Administrative Expenses to PBT

There was a drastic increase in this ratio from 14.74% % in 2015 to 333.75% in 2016. One of the reasons
is that the profit before tax was lower as compared to administrative expenses, the expense of
advertising and sales, rent and utilities increased from 2015 to 2016. The value fell sharply in 2017 and
2018, because administrative expenses fell progressively and was negative since the company incurred a
net loss that year, the value rose in 2019, as the company incurred a huge loss, and had lesser
administrative expense to bear as compared to 2018. The quarters showed zero values since the
administrative expense portion was not catered in the quarterly reports.

ROCE
25.00%
19.27%
20.00%
15.00%
10.00%
4.40% 4.40% 4.52%
5.00% 1.70% 0.73% 0.96% 0.18%
0.00% -1.05%
2015A 2016A 2017A 2018A -3.18%
2019A 2018-Q1 2018-Q2 2018-Q3 2019-Q1 2019-Q2 2019-Q3
-5.00%
-9.08%
-10.00%
-15.00%

ROCE
Return on capital employed decreased in 2016, since a net loss incurred with respect to the base year. It
means that more money is being injected by the company in the form of additional equity and long term
liabilities are not generating much return like in the past year 2015. The value further keeps on
decreasing since the profits decreased and eventually company faces net loss in 2018 and 2019. This
means that First UDL Modaraba is doing a bad job of deploying its capital. It will automatically become
favorable by investors to invest in the company as ROCE is unstable and declining on a yearly basis.

Operating Expense Ratio

350 304.46%
300 254.53%
250
200
150
100 80.40% 85.55% 103.10% 76.84% 92.41% 91.42% 97.60%
34.61%
50
0
2 2 2 2 2 201 201 201 201 201 201
-50
-100... -124.93%
-150...

Operating Expense Ratio

The operating expense ratio was almost increased every year progressively and showed a spike increase
reaching 254.53% in 2019 due to a drastic rise in admin expenses while total revenue kept on
decreasing. It is showing whether investing in First UDL Modaraba is profitable for an investor or not. A
higher OER is not preferred as it shows that expenses are maximized relative to total revenue.

DUPONT ANALYSIS

2018
2015A 2016A 2017A A 2019A
-
Net Profit Margin 68.53% 20.32% 15.53% 3.22% -413.68%
Asset Turnover ratio 0.26 0.20 0.26 0.34 0.07
Equity multiplier 1.38 1.37 1.19 1.18 1.12
2018- 2018-
Q1 Q2 2018-Q3 2019-Q1 2019-Q2 2019-Q3
Net Profit Margin 24.16% 7.93% 8.61% 2.63% 314.85% -211.47%
Asset Turnover ratio 0.06 0.07 0.10 0.07 0.02 0.02
Equity multiplier 1.13 1.23 1.17 1.16 1.13 1.13
Based on these values it shows that the ROE decreased throughout years and quarters since the net
profit margin decreased because there was an increase in expenses particularly remuneration for
management company and fees and subscription. Asset turnover kept fluctuating as the total assets
increased as compared to total revenue throughout the years and quarters. Equity multiplier has
decreased through the years and quarters, since as the overall equity increased as compared to total
assets, which is due to increase in equity items such as unappropriated profit and reserves. All these 3
ratios decline which lead to decline in ROE.

Liquidity Ratios

Liquidity Ratios

3.00
2.65 2.58
2.50
2.11 2.06 2.04
2.00 1.92 1.88 1.92
1.73 1.69
1.50 1.37
1.61
1.00
1.08 1.05 1.05
0.87 0.83 0.86 0.88 0.75 0.84
0.50
0.36
0.00
2015A 2016A 2017A 2018A 2019A 2018-Q1 2018-Q2 2018-Q3 2019-Q1 2019-Q2 2019-Q3

Current Ratio:

Company’s current ratio has an unstable trend over the 5 years as compared to the base year. The ratio
decreased throughout, mainly because the current liabilities exceeded the current assets specifically
because of decrease in short term musharaka investments ad decrease in trade debts by 2017. Later the
ratio grew to 2.11 in 2018 followed by a dip to 1.88 in 2019. Although, the current ratio increased in
2018 and decreased in 2019, but it still remained more than 1 indicating company was capable to pay
back its short term obligations throughout.

During the quarters of 2018 and 2019, the current ratio was the highest in 1st quarter and 3 rd quarter of
2018 respectively. This is because the company’s trade debts and short term musharaka investment
increased in these quarters. In 2019, the 2 nd and 3rd quarters experienced a decline in current ratio due
to reduction in trade debts and the company’s unclaimed dividend increased. The company started
relying on debt financing in 2019, hence, its ability to meet its short term obligations reduced.

Quick Ratio:

The company’s ability to pay back its short term liabilities using liquid assets was lesser due to the ratios
being less than 1 but even lesser than current ratios. Current liabilities greater than most liquid assets
caused the ratios to decrease. The ratio showed little progress from 2015 to 2016 followed by a
consistent fall over the years with little the increment in 2019 which was almost negligible, indicating
that the company relies more on inventory or other less liquid assets to pay its short term liabilities. The
quick ratios of quarters were also less than 1 which means the company had limited ability to pay off its
short term liabilities even during quarters, excerpt 3 rd quarter of 2019, where the companys’ ratio
slightly grew over 1.

Debt To Asset Ratio

18.00%
16.87%
15.64%
16.00%
14.00%
12.00%
10.00%
8.00%
6.00%
4.00% 2.24% 2.25% 2.30%
1.48% 1.28% 1.57% 1.46% 1.69% 1.57%
2.00%
0.00%
2015A 2016A 2017A 2018A 2019A 2018-Q1 2018-Q2 2018-Q3 2019-Q1 2019-Q2 2019-Q3

Debt to Asset Ratio

Debt to asset declined a little in 2016, followed by sharp decrease in 2017, valuing at 2.24%, this huge
difference of 13.4% can be explained as debt to asset ratio decreased when there was a tremendous
decrease in debt. A higher ratio indicates higher leverage meaning more financial risk therefore this
ratio chart shows the creditor that how little the company’s assets are financed by debt, the company
can repay its current debt and can take up additional loans because of their credible results.
Such low ratios are an indication of company’s ability to meet its obligations by selling its assets if
required because its assets exceed the liabilities. Lower debt to asset ratios are considered better ratios
in terms of riskiness, hence, the company has low financial leverage as compared to its assets. During
the quarters, the ratio remained stable and low in all 6 quarters which depicts the company’s
commitment to maintaining a good solvency position.

Debt To Capital Ratio

18.83%
20.00%
17.64%
18.00%
16.00%
14.00%
12.00%
10.00%
8.00%
6.00%
4.00% 2.60% 2.46% 2.53%
1.72% 1.55% 1.81% 1.66% 1.88% 1.74%
2.00%
0.00%
2015A 2016A 2017A 2018A 2019A 2018-Q1 2018-Q2 2018-Q3 2019-Q1 2019-Q2 2019-Q3

Debt to Capital Ratio

Debt to capital ratio also shows same trend as debt to capital ratios. Company faces a sharp dip in the
value in 2017 from a higher value of 18.83% in the base year. In the following years the ratio remains
low and with very little increments. Analysts are more anxious about the company’s long-term debt than
the short-term one as the short-term debt change continually. The results show that company
eventually relied less on its capital to finance its debts and therefore maintains a good solvency position.
The value in quarters remained low and more or less of the same value with only slight increments,
showing company’s good positioning in maintaining its position and relying less on its capital to finance
its debts.
 Investors Ratios
30.00 27.32
23.90 24.37 25.29Share
Breakup Value Per 23.95
25.00 22.29 23.26
20.18
20.00 16.90
15.16 16.13
15.00
10.00
5.00
0.00
2015A 2016A 2017A 2018A 2019A 2018-Q1 2018-Q2 2018-Q3 2019-Q1 2019-Q2 2019-Q3

Breakup Value per Share

In 2015, breakup value per share slightly increased over the next two years. This value grew high after
deducting liabilities, preference share and liquidation costs, explaining that even if the assets were sold
and liabilities were paid, and company would still end up credible amount of assets. Value decreased till
2019 and became lowest 15.16. The quarters also showed unstable pattern with highest value in 1 st
quarter of 2018 followed by some dips till the 3 rd quarter of 2019, Breakup value is calculated by the
investors to calculate the stock’s potential floor and a buyer’s potential entry point. It is carried out for
investment and acquisition decisions by investors and analysts, and also assess financial worth of
companies whose share are not actively traded in stock exchange.
 Dividend Per Share
0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
0.00%
2015A 2016A 2017A 2018A 2019A 2018-Q1 2018-Q2 2018-Q3 2019-Q1 2019-Q2 2019-Q3
-50.00%
-100.00%-110.00%
-100.00%
-150.00%
-200.00%
-250.00%
-250.00%
-300.00%
-300.00%
-350.00%

Dividend per Share

Throughout the years, DPS was negative in value. The reason is that the weighted average number of
basic shares remained constant and slightly increased in 2019 and dividends became stayed negative
every year. In quarters the DPO remained 0 throughout since no information was provided. DPO is most
the important metric for an investor as it directly shows what an investor will return if buys or keeps the
stock. An decrease in DPS on a yearly basis shows that the management of the firm thinks that the
earnings growth of the company will be sustained.
 Dividend Payout Ratio
500.00% 401.34%
400.00%
300.00%
200.00%
100.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
-52.86%
0.00% -81.12%
2015A 2016A 2017A 2018A 2019A 2018-Q12018-Q22018-Q32019-Q12019-Q22019-Q3
-100.00% -192.13%
-200.00%
-300.00%

Retention Ratio
400
292.13%
300
152.86%
200 181.12%
100.00% 100.00%100.00%100.00%100.00%100.00%100.00%
100
0
2 2 2 2 2 201 201 201 201 201 201
-100...
-200...
-301.34%
-300...
-400...

Dividend Payout Ratio and Retention Ratio

DPO was negative up till 2017 and became highest 4.01 in 2018 followed by a sharp dip in 2019 where
value became 0. A DPO of less than 100% means that the company is giving less dividends than its net
income which is a relatively sustainable move as the net prfit of the company also decarsead
substanially ove rthe years. As DPO decreased, retention ratio decreased. The inverse relation can be
seen above.
 Growth Rate
36.29%
40.00%
30.00%
20.00% 15.60%
10.00% 8.17%
3.54% 4.60%
1.74% 0.75% 0.98% 0.18%
0.00% -3.23%
2015A 2016A 2017A 2018A 2019A 2018-Q1 2018-Q2 2018-Q3 2019-Q1 2019-Q2 2019-Q3
-9.32%
-10.00%
-20.00%

Growth Rate
The growth ratio constantly decreased and became in 2019; the reason of which is a negative retention
ratio meaning they were paying dividends more than net income although before 2019 the growth rate
was positive because company was paying less dividends than its income as explained the retention
ratio and DPO part above. This measure is used by FUDLM analysts, shareholders and its management to
evaluate its growth from time to time and make forecasts about the future performance
 Questions

Q. If you want to lend an amount equal to 40% of the asset of the company whether this amount should
be lend or not?

Operating ROA
20.00%
17.26%
15.00%
10.00%
5.00% 3.90% 3.79% 3.99%
0.00% 1.51% 0.63% 0.85% 0.15%
-0.92%
-2.81%
-5.00% -8.01%
-10.00%

Operating ROA shows a constant decline into the negative value by the end and shows company’s
operating income does not generate enough per dollar invested specifically in its assets that are used in its
everyday business operations.

Debt To Asset Ratio

20.00%
16.87% 15.64%
15.00%
10.00%
5.00%
2.24% 1.48% 2.25% 2.30% 1.28% 1.57% 1.46% 1.69% 1.57%
0.00%

The ratio shows is high which shows that the company has already leveraged all of its assets and can
barely meet its monthly payments as it is, therefore it is not a good decision to lend 40% of its assets.
Q. If you want to invest an amount equal to 40% of the asset of the company in equity share whether
this amount should be invested or not?

Capital Ratio
100.00%
80.00%
84.09% 84.46% 89.16% 88.49% 81.62% 85.31% 86.10% 88.33% 88.35%
60.00%
72.71% 73.04%
40.00%
20.00%
0.00%
2015A 2016A 2017A 2018A 2019A 2018-Q1 2018-Q2 2018-Q3 2019-Q1 2019-Q2 2019-Q3

The capital ratio has been increasing which shows that company's assets are financed by equity and
shareholders would still retain 89.16% of the company's financial resources if First UDL Modaraba
liquidates all of its assets to pay off its liabilities, therefore displaying an investment opportunity.

P/E Ratio
400.00
336.82
300.00
200.00
140.71
100.00 70.30 94.73
0.00 4.37 14.99 30.58 -3.35 12.11 -15.86
2015A 2016A 2017A 2018A 2019A 2018-Q12018-Q22018-Q32019-Q12019-Q22019-Q3
-68.04
-100.00

P/E ratio generally remains at low values during the annuals which suggest that the investing in the
company can be a good option.