ANALYSIS OF FINANCIAL STATEMENTS

Program MBA- Professional (Sec-A) 4th Semester

Submitted To
Sir Noman Dar

Submitted By
Zeeshan Tufail (9656)
Zaman Arshad (9640)
M.Shahzad (9616)

Superior University Lahore

 STATEMENT OF SUBMISSION

I completed their task of Midterm PROJECT of Financial

Management TASK GIVEN: Ratios Analysis of Financial Statements
at Superior University Lahore; to fulfill the partial requirement of
the Semester of MBA 4th Semester.
 ACKNOWLEDGEMENT

We bow our head to Almighty Allah, the Omnipotent, the Merciful,

who endeavor our services towards his manuscript. All praises to
Almighty Allah who gave us the courage and patience for completion
of this work. All the respects are for Holy Prophet Muhammad
(Peace Be upon Him) who see moral and spiritual teachings
enlightened our hearts.
We feel how weak and deficit in vocabulary to find suitable words
that would fully convey the sense of immense indebtedness and
deep gratitude that we owe to our teacher, Sir Noman Dar for his
endless propitious guidance, illustration advice, keen interest, value
able comments and encouragement throughout the course of
studies and completion of this work.
DYNEA PAKISTAN LIMITED

ANNUAL REPORTS

FOR THE YEAR ENDED

30TH JUNE 2006

30TH JUNE 2007
30TH JUNE 2008
FINANCIAL ANALYSIS

Financial analysis is an aspect of the overall business finance function that involves
examining historical data to gain information about the current and future financial health
of a company. Financial analysis can be applied in a wide variety of situations to give
business managers the information they need to make critical decisions. "The inability to
understand and deal with financial data is a severe handicap in the corporate world," Alan
S. Donnahoe wrote in his book What Every Manager Should Know about Financial Analysis.
"In a very real sense, finance is the language of business. Goals are set and performance is
measured in financial terms. Plants are built, equipment ordered, and new projects
undertaken based on clear investment return criteria. Financial analysis is required in
every such case."

ROLE OF FINANCIAL ANALYSIS WITH THE HELP OF FINANCIAL MANAGEMENT

New business leaders and managers have to develop at least basic skills in financial
management. Expecting others in the organization to manage finances is clearly asking for
trouble. Basic skills in financial management start in the critical areas of cash management
and bookkeeping, which should be done according to certain financial controls to ensure
integrity in the bookkeeping process. New leaders and managers should soon go on to
learn how to generate financial statements (from bookkeeping journals) and financial
analysis of those statements to really understand the financial condition of the business.
Financial analysis shows the "reality" of the situation of a business -- seen as such; financial
management is one of the most important practices in management. This topic will help
you understand basic practices in financial management, and build the basic systems and
practices needed in a healthy business.

Financial analysis can tell you a lot about how your business is doing. Without this analysis,
you may end up staring at a bunch of numbers on budgets, cash flow projections and profit
and loss statements. You should set aside at least a few hours every month to do financial
analysis. Analysis includes cash flow analysis and budget deviation analysis mentioned
above. Analysis also includes balance sheet analysis and income statement analysis. There
are some techniques and tools to help in financial analysis, for example, profit analysis,
break-even analysis and ratios analysis that can substantially help to simplify and
streamline financial analysis. How you carry out the analysis depends on the nature and
needs of you and your business. The following links will help you get a sense for the
"territory" of financial analysis.

ROLE OF FINANCIAL ANALYSIS WITH THE HELP OF CORPORATE FINANCE

Corporate finance is a broad term that is used to collectively identify the various financial
dealings undertaken by a corporation. Generally, the term also applies to the various
methods, procedures, and configurations of the financial operations employed by a given
company. In most instances, corporations will have a specific financial division that is
charged with the task of managing corporate finance in all aspects of financial operation.
The primary goal of corporate finance is to maximize corporate value while managing the
firm's financial risks. Although it is in principle different from managerial finance which
studies the financial decisions of all firms, rather than corporations alone, the main
concepts in the study of corporate finance are applicable to the financial problems of all
kinds of firms.

The discipline can be divided into long-term and short-term decisions and techniques.
Capital investment decisions are long-term choices about which projects receive
investment, whether to finance that investment with equity or debt, and when or whether
to pay dividends to shareholders. On the other hand, the short term decisions can be
grouped under the heading "Working capital management". This subject deals with the
short-term balance of current assets and current liabilities; the focus here is on managing
cash, inventories, and short-term borrowing and lending (such as the terms on credit
extended to customers).

The terms corporate finance and corporate financier are also associated with investment
banking. The typical role of an investment bank is to evaluate the company's financial
needs and raise the appropriate type of capital that best fits those needs.
ROLE OF FINANCIAL ANALYSIS WITH THE HELP OF WORKING CAPITAL
MANAGEMENT

Working capital refers to that part of firm’s capital which is required for financing short
term or current assets such as cash, marketable securities, debtors, and inventories. In
other words working capital is the amount of funds necessary to cover the cost of operating
the enterprise.

Financial management decisions are divided into the management of assets (investments)
and liabilities (sources of financing), in the long-term and the short-term. It is common
knowledge that a firm's value cannot be maximized in the long run unless it survives the
short run. Firms fail most often because they are unable to meet their working capital
needs; consequently, sound working capital management is a requisite for firm survival.

About 60 percent of a financial manager's time is devoted to working capital management,

and many of the potential employees in finance-related fields will find out that their first
assignment on the job will involve working capital. For these reasons, working capital
policy and management is an essential topic for financial analysis. Working capital refers to
current assets, and net working capital is defined as current assets minus current liabilities.
Working capital policy refers to decisions relating to the level of current assets and the way
they are financed, while working capital management refers to all those decisions and
activities a firm undertakes in order to manage efficiently the elements of current assets.

Working capital, sometimes called gross working capital, simply refers to the firm's total
current assets (the short-term ones), cash, marketable securities, accounts receivable, and
inventory. While long-term financial analysis primarily concerns strategic planning,
working capital management deals with day-to-day operations.
 RATIOS ANALYSIS

Liquidity Ratios
1. Current Ratio

FORMULA = current assets / current liabilities

Name Year 2006 Year 2007 Year 2008

Current Assets 418,961,027 395,702,747 518,597,390
Current Liabilities 282,390,563 240,205,345 307,703,547
Calculation 1.483:1 1.647:1 1.685:1

600,000,000

500,000,000

400,000,000

Year 2006
300,000,000
Year 2007
Year 2008
200,000,000

100,000,000

0
Current Assets Current Liabilities

Interpretation

This ratio shows the “Short Term Liquidity” of the company. If the ratio is greater than
unity it is satisfactory, if less than unity it shows that the company face “Working Capital Or
Short Term Liquidity Problem”. The above result shows that we have current assets
Rs.1.647 and Rs.1.685 to pay Rs.1 liability that is satisfactory condition in 2008 as
compared to year 2007.

2. Quick Ratio

FORMULA = current assets - inventory

Current liabilities
Name Year 2006 Year 2007 Year 2008
Current Assets 418,961,027 395,702,747 518,597,390
Current Liabilities 282,390,563 163,818,967 233,112,330

Inventory 147,567,854 163,818,967 233,112,330

Calculation 0.961:1 0.965:1 0.927:1

600,000,000

500,000,000

400,000,000

Year 2006
300,000,000
Year 2007
Year 2008
200,000,000

100,000,000

0
Current Assets Current Liabilities Inventory

INTERPRETATION

This ratio reflects the “Immediate Liquidity Position” of the company. If the percentage of
inventory in current assets is higher than acid-test ratio will be lower. The above result
shows that the acid test ratio in year 2007 & year 2008 are 41% and 44%, therefore in year
2008 the “Immediate Liquidity Position” is high so it is unsatisfactory while 2007 is
satisfactory.

3. Working Capital Ratio

FORMULA = current assets - inventory

Name Year 2006 Year 2007 Year 2008

Current Assets 418,961,027 395,702,74 518,597,390
7
Current Liabilities 282,390,563 240,205,34 307,703,547
5
Calculation 136,570,464 155,497,4 210,893,84
 02 3

600,000,000

500,000,000

400,000,000

Year 2006
300,000,000
Year 2007
Year 2008
200,000,000

100,000,000

0
Current Assets Current Liabilities Calculation

INTERPRETATION

This ratio reflects the ability of the company to work. As per the above result shows
that the working capital of 2008 is more favorable for the company as compare to the 2006,
and 2007.

Leverage/Capital Ratios
4. Debt Ratio

FORMULA = Total Debt / Total Assets

Name Year 2006 Year 2007 Year 2008

Total Debt 17,011,538 7,163,025 8,219,846
Total Assets 592,369,210 303,685,825 344,587,457
Calculation 0.028 0.023 0.023
 700,000,000

600,000,000

500,000,000

400,000,000
Year 2006
Year 2007
300,000,000 Year 2008

200,000,000

100,000,000

0
Total Debt Total Assets

INTERPRETATION

This ratio indicates the Capital Structure of the company. The capital structure of the
Company in the year 2007 was composed of 2% debt and 98% of equity. It remain same
in the year 2008.

5. Interest Coverage Ratio

FORMULA = EBIT / Interest

Name Year 2006 Year 2007 Year 2008

EBIT 60,195,217 27,118,753 44,780,000
Interest 18,429,195 15,647,972 11,075,034
Calculation 3.266 1.733 4.043
 70,000,000

60,000,000

50,000,000

40,000,000
Year 2006
Year 2007
30,000,000 Year 2008

20,000,000

10,000,000

0
EBIT Interest

INTERPRETATION

This ratio reflects the companies’ ability to cover its interest. As per the above result shows
that the result of 2008 shows that the company is working at its full capacity as compare to
2006 and 2007.

6. Debt equity Ratio

FORMULA = Debt / Equity

Name Year 2006 Year 2007 Year 2008

Debt 17,011,538 7,163,025 8,219,846
Equity 292,967,109 296,522,800 336,367,611
Calculation 0.05 0.24 0.02
 400,000,000

350,000,000

300,000,000

250,000,000

Year 2006
200,000,000
Year 2007
Year 2008
150,000,000

100,000,000

50,000,000

0
Debt Equity

INTERPRETATION

This ratio reflects the capital structure of the company is how efficient as per the above the
result shows that the debt 5% and 95% equity in 2006 and debt 24% and equity 76% in
2007. In 2008 the debt is 2% and equity is 98%. So 2008 is more favorable for the
company.

Profitability Ratios
7. Gross Profit Ratio

FORMULA = (Gross Profit / Sale) 100

Name Year 2006 Year 2007 Year 2008

Gross Profit 180,896,845 132,162,723 187,990,553
Sale 1,114,079,977 1,174,891,399 1,261,973,380
Calculation 16.273% 11.248% 14.896%
 1,400,000,000

1,200,000,000

1,000,000,000

800,000,000
Year 2006
Year 2007
600,000,000 Year 2008

400,000,000

200,000,000

0
Gross Profit Sale

INTERPRETATION

This ratio reflects the gross profit of the company. The above result shows that in year
2007 & year 2008 the gross profit is 11.248% and 14.896%.

8. Net Profit Ratio

FORMULA = (Net Profit / Sale) 100

Name Year 2006 Year 2007 Year 2008

Net Profit 36,524,226 17,710,004 39,844,811
Sale 1,114,079,977 1,174,891,399 1,261,973,380
Calculation 3.278 1.507 3.157
 1,400,000,000

1,200,000,000

1,000,000,000

800,000,000
Year 2006
Year 2007
600,000,000 Year 2008

400,000,000

200,000,000

0
Net Profit Sale

INTERPRETATION

This ratio reflects the profit generating ability of the company. As per the above result
shows 2006 is generating more profit as compare 2007 and2008.

9. Operating Profit Ratio

FORMULA = (Operating Profit / Sale) 100

Name Year 2006 Year 2007 Year 2008

Operating Profit 85,936,554 45,466,175 87,482,885
Sale 1,114,079,977 1,174,891,399 1,261,973,380
Calculation 7.713% 3.869% 6.932%
 1,400,000,000

1,200,000,000

1,000,000,000

800,000,000
Year 2006
Year 2007
600,000,000 Year 2008

400,000,000

200,000,000

0
Operating Profit Sale

INTERPRETATION

This ratio shows that in year2007 and 2008 the operating profit ratio is 3.869% and
6.932% while increment is 3.063% that is good for the company. The above result shows
that operating profit and net sale both are increased.

10.Return On Assets

FORMULA = (Net Profit /Assets)

Name Year 2006 Year 2007 Year 2008

Net Profit 36,524,226 17,710,004 39,844,811
Assets 592,369,210 303,685,825 344,587,457
Calculation 0.061 Times 0.05 Times 0.11 Times
 700,000,000

600,000,000

500,000,000

400,000,000
Year 2006
Year 2007
300,000,000 Year 2008

200,000,000

100,000,000

0
Net Profit Assets

INTERPRETATION

This ratio indicates the profitability of the assets of the company. The above result shows
that if we invest Rs.1 in the Dynea Pakistan Ltd. Generating profit Rs. 0.05 in year 2007 and
Rs.0.11 in 2008.

11.Return On Equity

FORMULA = (Net Profit /Equity) 100

Name Year 2006 Year 2007 Year 2008

Net Profit 36,524,226 17,710,004 39,844,811
Equity 292,967,109 296,522,800 336,367,611
Calculation 12.47 5.97 11.85
 400,000,000

350,000,000

300,000,000

250,000,000

Year 2006
200,000,000
Year 2007
Year 2008
150,000,000

100,000,000

50,000,000

0
Net Profit Equity

Interpretation

This ratio reflects the ability of the company to generate profit. As per the above result
shows that if we invest 1 rupee in 2006 and get return on it 12.47 which is more
favorable for the company and also shows that company was working at its full capacity
in 2006.

Market/Shareholder Ratio
12.EPS Ratio

FORMULA = (Net Income /No. of Common Share)

Name Year 2006 Year 2007 Year 2008

Net Profit 36,524,226 17,710,004 39,844,811
Common Shares 592,369,210 303,685,825 344,587,457
Calculation 0.183 0.089 0.199
 700,000,000

600,000,000

500,000,000

400,000,000
Year 2006
Year 2007
300,000,000 Year 2008

200,000,000

100,000,000

0
Net Profit Common Shares

Interpretation
This ratio reflects earning of the company on its shares. As per the above
result shows that if we invest 1 rupee in 2008 and get profit of 0.199 as
compare to 2006 and 2007.

13.Per Earning Ratio

FORMULA = (Market Price Per Share /Earning Per Share)

Name Year 2006 Year 2007 Year 2008

MP Share 5 5 5
EP Share 1.94 0.94 1.46
Calculation 2.577 5.319 3.424

Interpretation
this ratio reflects the ability of the company that how much worth of the company’s share in the market.
As per the above result shows that the market worth of company share in 2007 was 5.319 which is
more favorable for the company as compare to 2006 and 2008.
 6

Year 2006
3
Year 2007
Year 2008
2

0
MP Share EP Share

Activity/Operating Ratios

14.Account Receivable Turnover

FORMULA = (Net Credit Sale/Avg. Account Receivable)

Name Year 2006 Year 2007 Year 2008

Net Credit Sale 1,114,079,977 1,174,891,399 1,261,973,380
Avg.Account Receivable 19,683,288 8,626,949 53,469,215
Calculation 56.60 136.18 23.60

Interpretation

This ratio reflects the company how quickly they collect its receivable. As per the above the
result shows that the company has the minimum duration to collect its receivable in 2008
which is more favorable than remaining years.
 1,400,000,000

1,200,000,000

1,000,000,000

800,000,000
Year 2006
Year 2007
600,000,000 Year 2008

400,000,000

200,000,000

0
Net Credit Sale Avg.Account Receivable

15.Avg. Collection Period

FORMULA = (No. of days in a Year /Account Receivable TurnOver )

Name Year 2006 Year 2007 Year 2008

No.of Days in a Year 365 365 365
AccountReceivable TurnOver 56.60 136.18 23.60
Calculation 7.21 2.68 15.46

400
350
300
250
200
150
100 Year 2006
50 Year 2007
Year 2008
0

Interpretation
This ratio reflects how quickly the company is collecting its receivable according to the
above result shows that in 2007 company has minimum duration for collecting its
receivable which shows the management ability.

16.Account Payable Turnover

FORMULA = (Net Credit Purchase/Avg. Account Payable)

Name Year 2006 Year 2007 Year 2008

Net Credit Purchase 763,214,633 856,156,694 953,876,338
Avg.Account Payable 75,751,429 71,994,948 132,744,359
Calculation 10.075 11.89 7.185

1,200,000,000

1,000,000,000

800,000,000

600,000,000 Year 2006

Year 2007
Year 2008
400,000,000

200,000,000

Interpretation

This ratio shows the goodwill of the company. According to the above result in 2008 its
payable duration is minimum as compare 2006 and 2007.

17.Avg. payment Period

FORMULA = (No. of Days in a Year/Account Payable TurnOver)

Name Year 2006 Year 2007 Year 2008

No.of Days in a Year 365 365 365
AccountRavable TurnOver 10.075 11.89 7.185
Calculation 36.228 30.698 50.800
 400
350
300
250
200
150
100 Year 2006
Year 2007
50 Year 2008
0

Interpretation

The above ratio shows the strength of the company. If company pays its debt in minimum
time than the company is working good above result shows that in 2007 its debt paying
capacity is minimum as compare to 2006 and 2008.

18.Inventory TurnOver

FORMULA = (CGS/Avg. Inventory)

Name Year 2006 Year 2007 Year 2008

CGS 933,183,132 1,174,891,399 765,596,765
Avg. Inventory 147,567,864 163,818,967 233,112,330
Calculation 6.323 7.172 3.284
 1,400,000,000

1,200,000,000

1,000,000,000

800,000,000
Year 2006
Year 2007
600,000,000 Year 2008

400,000,000

200,000,000

0
CGS Avg. Inventory

Interpretation

This ratio shows that the if we 1 rupee in 2008 and get return of 3.284 as compare to 2006
and 2007 which shows that in 2008 company was getting maximum return on its
inventory.

19.Avg. age Of Inventory

FORMULA = (No. of Days in a Year/Inventory turn Over)

Name Year 2006 Year 2007 Year 2008

No.of Days in a Year 365 365 365
Inventory TurnOver 6.323 7.172 3.284
Calculation 57.72 50.89 111.14
 400

350

300

250

Year 2006
200
Year 2007
Year 2008
150

100

50

0
No.of Days in a Year Inventory TurnOver

Inventory

This above ratio shows the average age of inventory of the company as the above result
shows that in 2007 average age of inventory of the company is 50.89 that is most favorable
as compare to other years.

20.Operating Cycle

FORMULA = (Avg. Collection Period + Avg. Age of Inventory)

Name Year 2006 Year 2007 Year 2008

ACP 7.21 2.68 15.46
Avg. Age of Inventory 57.2 50.89 111.14
Calculation 64.93 53.57 126.6
 120

100

80

Year 2006
60
Year 2007
Year 2008
40

20

0
ACP Avg. Age of Inventory

Interpretation

This ratio shows that the working condition of the company as above result shows in 2007
the operating cycle of the company is 53.57 which is good as compare to other years.

21.Assets Turnover

FORMULA = (Sale/Total Assets)

Name Year 2006 Year 2007 Year 2008

Total Assets 592,369,210 543,891,170 652,291,004
Sale 1,114,079,977 1,174,891,399 1,261,973,380
Calculation 1.88 2.16 2.28
 1,400,000,000

1,200,000,000

1,000,000,000

800,000,000
Year 2006
Year 2007
600,000,000 Year 2008

400,000,000

200,000,000

0
Total Assets Sale

Interpretation

This ratio shows that the how much return a company gets on its assets. If we invest 1
rupee in 2008 and get return of 2.28 which show the maximum the return on its assets as
compare to other years.

ANALYSIS
Dynea Pakistan Ltd. Company

Historical and Industry Average Ratio

RATIO ACUAL ACTUAL ACTUAL INDUSTRY

2006 2007 2008 AVERAGE
Current Ratio 1.4831 1.647 1.685 1.605
Quick Ratio 0.961 0.965 0.927 0.951
Operating Profit Ratio 7.713% 3.869% 6.932% 6.171

Working Capital Ratio 136,570,464 155,497,402 210,893,843 167,653,903

Account Receivable Turnover 56.60 136.18 23.60 72.126
Inventory Turnover(times) 6.323 7.172 3.284 5.593

Average Collection Period 7.21 days 2.68 days 15.46 days 8.45
Total assets Turnover (times) 1.88 2.16 2.28 2.106
Account Payable Turnover 10.075 11.89 7.185 9.716

Average Payment Period 36.228 30.698 50.800 39.242

Average Age of Inventory 57.72 50.89 111.14 73.25

Operating Cycle 64.93 53.57 126.6 81.7

Debt Ratio 0.028 % 0.023 % 0.023 % 0.024
Interest Coverage Ratio 3.266 1.733 4.043 3.014
Debt equity Ratio 0.05 0.24 0.02 0.103
Gross profit Margin 16.273% 11.248% 14.896% 14.139
ROA 0.61 0.05 0.11 0.256
ROE 12.47 5.97 11.85 10.096
EPS 0.183 0.089 0.199 0.157
PE Ratio 2.577 5.319 3.424 3.773

TIME SERIES ANALYSIS

Current Ratio Analysis

The average of 2008 is more then as compare to 2007 and 2006. So the ratio of 2008 is
favorable.

Quick Ratio Analysis

The quick ratio of 2008 is more then as compare to 2007 and 2006. So the ratio of 2008 is
favorable.

Inventory Turnover Ratio

The Inventory Turnover ratio of 2007 is more then as compare to 2006 and 2008. So the
ratio of 2007 is favorable.

Average Collection Period

The Average Collection Period of 2007 is less then as compare to 2006 and 2008. So the
average collection period of 2007 is favorable and 2008 is unfavorable for average
collection period.

Total Assets Turnover (times)

The total assets turnover (times) of 2008 is more then as compare to 2006 and 2007. So
the total assets turnover (times) of 2008 is favorable

Debt Ratio

The debt ratio of 2006 is less then as compare to 2007 and 2008. So the debt ratio of 2006
is favorable and 2007-8 is unfavorable for debt ratio.

Interest Coverage Ratio

The Interest Coverage Ratio of 2008 is more then as compare to 2006 and 2007. So the
Interest coverage Ratio of 2008 is favorable.

Gross profit Margin

The Gross profit Margin of 2006 is more then as compare to 2007 and 2008. So the gross
profit margin of 2006 is favorable and 2007 is unfavorable for debt ratio.

Net Profit Margin

The Net Profit Margin of 2006 is more then as compare to 2007 and 2008. So the net profit
margin of 2006 is favorable and 2007 is unfavorable for debt ratio.

ROA

The ROA of 2007 is more then as compare to 2006 and 2008. So the ROA of 2007 is
favorable and 2006 is unfavorable for debt ratio.

ROE
The ROE of 2006 is more then as compare to 2007 and 2008. So the ROE of 2006 is
favorable and 2007 is unfavorable for debt ratio.

Market/Book Ratio

The Market/Book Ratio of 2005 is more then as compare to 2006 and 2004. So the
Market/Book Ratio of 2005 is favorable and 2006 is unfavorable for debt ratio.

Working Capital Ratio

The working Capital of Year 2008 is more than as compare to 2006 & 2007.So the 2008 is
favorable & 2006 is unfavorable.

Debt Equity Ratio

The debt equity ratio of year 2008 is less as compared to 2007 & 2006. So 2008 is favorable
& 2007 is unfavorable for company.

Earnings Per Share

EPS of 2008 is more than other years which shows company is growing as compared to
previous years. So 2008 is more favorable while 2007 is less favorable.

Per Earning Ratio

The PE ratio of 2007 is more favorable for co. as compared to 2006 & 2008. In 2007 co.
showing more profit, in 2006 co. indicate less profit due to recession & other factors.

Receivable Turn Over

Receivable turn Over of 2008 is less than as compared to 2006 as well 2007, which means
in 2008 co. showing better condition with respect to last three years. So this year is more
satisfactory.

Account Payable Turn Over

Account payable turn Over of 2008 is less as compared to 2006 & 2007.Which means that
co. is trying to maintain its goodwill.

Avg. Payment Period

 Avg. Payment period of 2007 is less as compared to 2006 & 2008. Main reason for
decrease the avg. Payment period of 2008 is recession & inflation.

Avg. age of Inventory

Avg. age of inventory of 2007 is more favorable as compared to 2006 & 2008. In this year
the co. activities were its peak. The reason for increase avg. age of inventory of 2008 was
recession, inflation as well as political conditions in Pakistan.

Operating cycle

Operating cycle of 2007 is more favorable as compared to 2006 & 2008.