Financial Analysis: Frame Work For Financial Analysis of Packages Ltd.

FINANCIAL ANALYSIS
Frame work for financial analysis of Packages Ltd. :

Following figure summarizes the whole frame work for financial analysis of Packages Ltd.
Framework for Financial Analysis of Packages Ltd.
Common Size
Analysis
Ratio Analysis
Index Analysis
Liquidity Ratios
Profitability Ratios
Market Ratios
Solvency Ratios
Financial Analysis
Most practiced types of financial analysis include the following:
Common Size Analysis (Vertical Analysis)

Index Analysis (Horizontal Analysis)
Ratio Analysis
1- Common Size Analysis (Vertical Analysis)
Vertical analysis is also called common size analysis. It is a technique for evaluating financial
statement data that expresses each item within a financial statement as a percent of a base
amount.
Vertical analysis includes the analysis of the:
Balance sheet
Income statement
In balance sheet the base amount is the total assets, while in income statement the base amount
is the net sales.
2- Index Analysis (Horizontal Analysis)
Horizontal analysis is also called index analysis. It is a technique for evaluating a series of
financial statement data over a period of time. Its purpose is to determine the increase or
decrease that has taken place. This change may be expressed as either an amount or percentage.
Horizontal analysis includes the analysis of the:

Balance sheet
Income statement
3- Ratio Analysis
"A ratio-is an index that relates two accounting numbers and is obtained by dividing one number
by another."
Use of ratio analysis

The use of ratios allows us to scale the figures in the accounts. By expressing the performance of
a firm as a ratio, the size of the firm is taken out of the analysis.
From an investors standpoint

Predicting the future is the purpose of financial statements analysis
From the managements standpoint

Financial statement analysis is useful both as a way to anticipate future conditions and, more
important, as a starting point for planning actions that will influence the future course of events.
The first step in a financial statement analysis typically includes an evaluation of the firms
ratios. The ratios are designed to show relationships between financial statement accounts within
firms and between firms. Translating accounting numbers into relative values or ratios allow us
to compare the financial position of one firm with the financial position of another firm, even if
their sizes are significantly different.
Ratio analysis includes:

1. Liquidity Ratios
2. Profitability Ratios
3. Solvency Ratios
4. Activity Ratios
5. Market Ratios
SIX YEARS FINANCIAL STATEMENTS OF PACKAGES LTD

In my internship report I am going to analyze financial statements for last six years. Before
getting into the analysis here are the statements of Packages Ltd. which I will be analyzing.
Packages Ltd.
Balance Sheet
As at December 31st, 2003 2008
2003
2004
2005
2006
2008
2007
2,782,007
2937656
2996821
3,071,115
11,285,293
10,361,253
Fixed Capital Assets

Property, Plant & equipment
Intangible
28,071
6385
5300
2,532
241
363
Investment property
14,842
14865
15381
14,423
25,294
26,055
Assets subject to finance
129,082
12,155
8,581
1,901
344,747
329,867
3,265,517
10,143,195
8,155,239
7,800,683
3,298,749
3,300,928
6,291,600
13,233,166
19,466,067
18,188,354
643,461
691,176
693,576
5,775,665
8,362,485
10,080,259
3,981
5,840
16,200
180,618
155,102
244,166
37,336
51,725
60,291
69,805
127,518
88,262
684,778
748,741
770,067
6,026,088
8,645,105
10,412,687
Stores and spares
318,880
380,556
407,439
485,665
841,487
715,840
Stock-in-trade
844,120
1,094,329
1,144,043
1,647,173
3,652,261
2,206,191
Trade debts
577,548
640,537
784,638
821,160
1,523,049
1,288,928
Investment
9,067
15,400
332,043
155,442
202,667
353,521
692,076
525,421
98,166
144,886
2,019,950
106,703
199,188
101,022
2,170,757
2,424,817
4,558,737
3,414,222
6,908,061
4,837,402
6,154,284
6,474,486
11,620,404
22,673,476
35,034,633
33,438,443
Authorized capital
600,000
600,000
1,000,000
1,000,000
1,500,000
1,500,000
Issued, subscribed and paid
475,371
475,371
698,795
698,795
843,795
733,735
2,752,625
3,311,625
6,021,297
6,872,336
15,624,602
13,110,240
404727
404864
1016163
6,101,666
(195,825)
4,326,797
3,632,723
4,191,860
7,736,255
13,672,797
16,272,572
18,170,772
1,000,000
6,000,000
12,304,400
12,346,500
lease
Capital work-in-progress
Other Long-Term Assets

Long-term investments
Long-term loans, deposits
&receivables
Retirement benefits
Current Assets
Loans, advances, deposits,

prepayments and other
receivables
Cash and bank balances
Total Assets
Share Capital and Reserves
up capital
Reserves
Un appropriated loss/ profit
Non Current Liabilities

Long-Term Finances
Liabilities against assets
854870
1,702
6,351
851
566,681
527,390
547468
688,455
840,788
955,790
1,423,253
533,741
1,548,319
6,688,455
13,145,188
13,302,290
subject to finance lease

Deferred Liabilities
Current Liabilities
Current portion of long term
96224
859330
5159
851
550,000
499,115
234,197
1,602,720
1,280,857
2,587,819
401,019
90,959
1,017,150
498,108
595,213
619,215
1,030,516
1,461,904
1,564,362
54,185
17,777
4,861
5,960
1,098,308
1,748,885
2,335,830
2,312,224
5,616,873
1,965,381
22,673,476
35,034,633
33,438,443
liabilities
Finances under mark up
arrangementssecured
Derivatives foreign currency
forward option
Creditors, accrued and other
liabilities
Provision for tax
Proposed dividend
Contingencies and
Commitments
Total Equity and Liabilities
6,154,284
6,474,486
11,620,404
Packages Ltd.
Profit and Loss Account
For the period ended December 31st, 2003 2008
2003
2004
2005
2006
2007
2008
Local sales
6,243,603
6,804,861
8,061,945 8,869,087
10,365,224 13,697,837
Export Sales
49,616
88,124
101,139
174,771
6,293,219
6,892,985
8,163,084 9,027,907
10,539,995 14,300,923
Less: Sales tax and excise duty
848,992
898,166
1,054,748 1,172,430
1,501,230
2,056,475
Commission
8,038
7,842
9,571
10,130
19,669
857,030
906,008
1,064,319 1,181,308
1,511,360
2,076,144
5,436,189
5,986,977
7,098,765 7,846,599
9,028,635
12,224,779
Less: Cost of goods sold
4,242,476
4,678,375
5,745,786 6,551,995
7,829,362
11,281,480
Gross profit
1,193,713
1,308,602
1,352,979 1,294,604
1,199,273
943,299
admin Expense
344,155
347,030
346,565
349,934
348,064
512,189
Distribution & Mkt Expenses
165,629
172,561
195,313
225,587
240,357
362,425
Other operating expenses
70,164
84,699
93,375
213,475
145,439
324
Other income
104,541
84,398
184,681
252,005
122,185
336,965
EBIT
718,306
788,710
902,407
757,613
587,598
405,326
Financial Cost
151,308
139,008
185,529
78,909
367,378
1,662,094
Investment Income
469,907
542,619
613,047
5,669,136
4,412,728
948,879
Profit before taxation
1,036,905
1,192,321
1,329,925 6,347,840
4,632,948
307,889
Provision for taxation
223,392
229,119
314,561
307,000
112,064
Net Profit
813,513
963,202
1,015,364 6,100,780
4,325,948
195,825
Sales
158,820
8,878
247,060
603,086
HORIZONTAL ANALYSIS
Horizontal analysis is a technique for evaluating a series of financial data over a period of time to
determine the amount and percentage increase OR decrease that has taken place. Actually this analysis
shows the trend in performance and position of the company over the number of years which makes it
easy to understand and compare the performance of the concern.
I have used the Six years financial statement data years ending 2003-2008 and compared the each item of
the financial statements and showed the Banks trend from one year to another.
Six Years Horizontal Analysis of Packages Ltd

Packages Ltd.
Indexed Balance Sheet
2003 2008
2003
2004
2005
2006
2008
2007
Indexed (%)
100
105.5948
102.014
102.48
405.6529
372.4380
Intangible
100
22.74589 83.00705
47.78
0.8585
1.2931
Investment property
100
100.155 103.4712
93.78
170.4217
175.5491
Assets subject to finance lease
100
9.416495 70.59646
22.15
100
95.68379 989.9496
310.62 2365.5721 2262.7268
100
100.0661 190.6009
210.33
100
107.4154 100.3472
832.74 1299.6102 1566.5687
590.1045
551.3712
Long-term
&receivables
loans,
deposits 100
146.6968 277.3973 1114.93 3896.0562 6133.2830
Retirement benefits
100
138.5392 116.5607
115.78
100
109.3407 102.8482
782.54 1262.4682 1520.5930
Stores and spares
100
119.3414 107.0641
119.20
263.8882
224.4856
Stock-in-trade
100
129.6414 104.5429
143.98
432.6708
261.3598
Trade debts
100
110.9063 122.4969
104.65
263.7095
223.1724
Investment
46.81382 130.3811
174.43
208.4296
158.2388
100
147.5929 1394.165
5.28
202.9093
102.9093
100
111.7038 188.0033
74.89
318.2328
222.8440
100
105.2029 179.4799
195.12
569.2722
543.3360
100
100 166.6667
100
250
250
Issued, subscribed and paid 100
100 146.9999
100
177.5024
154.3499
567.6255
476.2813
341.5416
236.3991
Current Assets
Loans,
advances,
prepayments
deposits, 100
and
other
receivables
Total Assets
Authorized capital
up capital
Reserves
100
120.3079
181.823
114.13
Un appropriated profit
100
100.0338 250.9887
600.46
100
115.3917 184.5542
176.74
100
subject to finance lease
100
373.1492 13.39946
100
93.06647
100
48.3844 1069.0655
447.9442
500.1970

Long-Term Finances
Liabilities
against
600
1439.3299 1444.2546
assets
103.807
125.75
148.3706
168.6645
37.50148 290.0881
431.98
923.6016
934.6398
Current Liabilities
893.0516 0.600351
16.50
571.5829
up 100
46.92245 684.3469
79.92
518.4815
liabilities
Finances
under
mark
80.3460
forward option
100
liabilities
100
104.0325
166.42
293.4913
314.0608
Provision for tax
100
32.80797
Proposed dividend
100
122.6085
100
159.2345 133.5611
511.4114
178.9462
Contingencies
&
98.99
Commitments
100
105.2029 179.4799
195.12
569.2722 543.3360
Packages Ltd.
Indexed Profit and Loss Account
2003 2008
2003
2004
Sales
2005
2006
2007
2008
Percentage
Local sales
100
108.9893 118.4733
110.01 166.0135
Export Sales
100
177.6121
114.769
157.03 352.2472 1215.5070
100
109.5304
118.426
110.59 167.4817
227.2433
105.792 117.4335
111.16 176.8249
242.2254
Less: Sales tax and excise 100

duty
219.3899
Commission
100
97.56158 122.0479
92.76 126.0263
244.7001
100
105.7149 117.4735
110.99 176.3485
242.2486
100
110.1319 118.5701
110.54 166.0839
224.8777
100
110.2746 122.8158
114.03 184.5469
265.9173
Gross profit
100
109.6245 103.3912
95.69 100.4657
79.0222
Admin Expense
100
100.8354 99.86601
100.97 101.1358
148.8250
Distribution & Market
100
104.1853 113.1849
115.50 145.1177
218.8173
100
120.7158 110.2433
228.62 207.2843
0.4617
Other income
100
80.73196 218.8215
136.45 116.8775
322.3280
EBIT
100
109.8014 114.4156
83.95
Financial Cost
100
91.87089 133.4664
42.53 242.8014 1098.4838
Investment Income
100
115.4737 112.9793
924.75 939.0641
201.9291
100
114.9885 111.5409
477.31 446.8054
29.6930
100
102.5637 137.2915
78.54 137.4265
50.1647
Net Profit
100
117.6996 124.8122
Expenses
749.9302
81.8032
53.1703
56.4280
24.0715
Interpretation
Total Assets over the year 2008 have increased by 543% whereas the current assets have
increased by 223%.
Total Sales have increased by 227% over the year 2008 but the CGS has increased by 266%.
The Gross profit increased by 79% while the Net Profit has increased by 24% which is mainly
due to the gain from the company investments.
VERTICAL ANALYSIS
Vertical analysis is that analysis in which each items within the financial statement is expressed in terms
of a percentage of a base amount. This helps in analyzing whether each of those particular items of the
company has how much percentage of their total value in continuous years.
For the purpose of analysis and comparison current year data shown in percentage is compared with the
data in percentage of the last year. One can easily judge the favorable and unfavorable changes in two
years financial statements.
I have used the six years financial statement data, i.e. years ending 2004-2008 and compared the each
item of the financial statements and showed the Banks trend from one year to another.
Five Year Vertical Analysis of Packages Ltd

Packages Ltd.
Common Size Balance Sheet
2004 2008
Common Size Analysis
2004
2005
2006
2004
2005
2006
Proprietory, Plant & equipment
2937656
2996821
3,071,115
45.37280643
25.7893013
13.544968
Intangible
6385
5300
2,532
0.098617867
0.04560943
0.0111672
Investment property
14865
15381
14,423
0.229593515
0.132362007
0.0636118
12,155
8,581
1,901
0.187736911
0.073844248
0.0083842
329,867
3,265,517
10,143,195
5.094875485
28.10157891
44.735951
3,300,928
6,291,600
13,233,166
50.98363021
54.1426959
58.364081
691,176
693,576
5,775,665
10.67538025
5.968604878
25.473223
&receivables
5,840
16,200
180,618
0.09020021
0.139409955
0.7966048
Retirement benefits
51,725
60,291
69,805
0.798905118
0.518837383
0.3078707
748,741
770,067
6,026,088
11.56448558
6.626852216
26.577698

Long-term loans, deposits
Current Assets
Stores and spares
380,556
407,439
485,665
5.877779333
3.506237821
2.1419962
Stock-in-trade
1,094,329
1,144,043
1,647,173
16.90217571
9.845122424
7.2647573
Trade debts
640,537
784,638
821,160
9.893248669
6.752243726
3.6216767
Investment
9,067
0.140042005
Loans, advances, deposits,
155,442
202,667
353,521
2.400839233
1.744061566
1.5591831
144,886
2,019,950
106,703
2.237799263
17.38278635
0.4706072
2,424,817
4,558,737
3,414,222
37.45188421
39.23045188
15.05822
6,474,486
11,620,404
22,673,476
100
100
100
600,000
1,000,000
1,000,000
9.267144913
8.605552785
4.4104398
475,371
698,795
698,795
7.342219907
6.013517258
3.0819933
Reserves
3,311,625
6,021,297
6,872,336
51.14884795
51.81658917
30.310024
Un appropriated profit
404864
1016163
6,101,666
6.253222264
8.744644334
26.91103
4,191,860
7,736,255
13,672,797
64.74429013
66.57475076
60.303047
1,000,000
6,000,000
8.605552785
26.462639
to finance lease
6,351
851
0.098092729
0.007323325
527,390
547468
688,455
8.145665926
4.711264772
3.0363893
533,741
1,548,319
6,688,455
8.243758655
13.32414088
29.499028
859330
5159
851
13.2725594
0.044396047
0.0037533
234,197
1,602,720
1,280,857
3.617229229
13.79229156
5.6491426
90,959
0.782752476
liabilities
595,213
619,215
1,030,516
9.193208542
5.328687367
4.5450287
Provision for tax
54,185
17,777
0.836900412
0.152980912
Proposed dividend
5,960
0.092053639
Prepayments and other

receivables
Total Assets
Authorized capital
Issued, subscribed and paid up
capital

Long-Term Finances
Liabilities against assets subject
Current Liabilities
liabilities
Finances under mark up
forward option
1,748,885
2,335,830
2,312,224
27.01195122
20.10110836
10.197925
Contingencies and Commitments
6,474,486
11,620,404
22,673,476
100
100
100
2008
2007
2008
2007
11,285,293
10,361,253
32.2118
30.9860
241
363
0.0006879
0.1085
25,294
26,055
0.0721
0.0779
8,155,239
7,800,683
23.2776
23.3284
19,466,067
18,188,354
55.5623
54.3935
8,362,485
10,080,259
23.8691
30.1457
155,102
244,166
0.4427
0.7301
127,518
88,262
0.3639
0.2639
8,645,105
10,412,687
24.6758
31.1398
841,487
715,840
2.4018
2.1407
Stock-in-trade
3,652,261
2,206,191
10.4247
6.5977
Trade debts
1,523,049
1,288,928
4.3472
3.8546
Investment
15,400
0.043
and other receivables
692,076
525,421
1.9754
1.5713
199,188
101,022
0.5685
0.3021
6,908,061
4,837,402
19.7178
14.4665
Total Assets
35,034,633
33,438,443
100
100
Authorized capital
1,500,000
1,500,000
4.2814
4.4858
843,795
733,735
2.4084
2.1942
15,624,602
13,110,240
44.5975
39.2070
Intangible
Investment property
Long-term loans, deposits &receivables
Retirement benefits
Stores and spares
Loans, advances, deposits, prepayments
Issued, subscribed and paid up capital

Reserves
Un appropriated loss/ profit
Long-Term Finances
Liabilities against assets subject to finance
(195,825)
4,326,797
0.5589
12.9395
16,272,572
18,170,772
46.4471
54.3409
12,304,400
12,346,500
35.1206
36.9230
840,788
955,790
2.3998
2.8583
13,145,188
13,302,290
37.5205
39.7814
550,000
1.5698
2,587,819
401,019
7.3864
1.1992
lease
Current portion of long term liabilities
Finances under mark up arrangementssecured

Derivatives foreign currency forward
option
_
1,017,150
2.9032
1,461,904
1,564,362
4.1727
4.6783
Provision for tax
Proposed dividend
5,616,873
1,965,381
16.0323
5.8776
35,034,633
33,438,443
100
100
Creditors, accrued and other liabilities
Total Equity & Liabilities
Packages Ltd.
Common Size Profit and Loss Account
2004- 2008
Common Size Analysis
2004
2005
2006
2004
2005
2006
6,804,861
8,061,945
8,869,087 98.72154081 98.76101973 98.24079
88,124
101,139
158,820 1.278459187 1.238980268 1.759212
6,892,985
8,163,084
Sales
Local sales
Export Sales
9,027,907
100
100
100
Less: Sales tax and

excise duty
898,166
1,054,748
7,842
9,571
906,008
1,064,319
1,181,308
13.1439137 13.03819733 13.08507
5,986,977
7,098,765
7,846,599
86.8560863 86.96180267 86.91493
4,678,375
5,745,786
6,551,995 67.87153896 70.38744181 72.57491
Gross profit
1,308,602
1,352,979
1,294,604 18.98454733 16.57436087 14.34002
347,030
346,565
349,934 5.034538738 4.245515543 3.876137
172,561
195,313
225,587 2.503429211
84,699
93,375
Other income
84,398
184,681
252,005 1.224404231 2.262392498
EBIT
788,710
902,407
757,613 11.44221263 11.05473128 8.391901
Financial Cost
139,008
185,529
78,909 2.016658966 2.272780728 0.874056
Investment Income
542,619
613,047
5,669,136 7.872046726 7.509992547 62.79568
1,192,321
1,329,925
6,347,840 17.29760039 16.29194309 70.31353
229,119
314,561
247,060 3.323944561 3.853457835 2.736625
Net Profit
963,202
1,015,364
Commission
Admin Expense
1,172,430 13.03014587 12.92094997 12.98673

8,878 0.113767838 0.117247354
0.09834

Expenses
213,475
2.39263739 2.498774
1.22877099 1.143869155 2.364612
6,100,780 13.97365583 12.43848526
2007
2008
2007
2008
Local sales
10,365,224
13,697,837
98.3418
95.7828
Export Sales
174,771
603,086
1.6581
4.2171
10,539,995
14,300,923
100
100
2,056,475
14.243
14.3800
10,130
19,669
0.0961
0.1375
1,511,360
2,076,144
14.3392
14.5175
9,028,635
12,224,779
85.6607
85.4824
7,829,362
11,281,480
74.2824
78.8863
Less: Sales tax and excise 1,501,230

duty
Commission
2.7914
67.5769
Gross profit
1,199,273
943,299
11.3783
6.5960
admin Expense
348,064
512,189
3.3023
3.5815
240,357
362,425
2.2804
2.5342
145,439
324
1.3798
0.002265
Other income
122,185
336,965
1.1592
2.3562
EBIT
587,598
405,326
5.5749
2.8342
Financial Cost
367,378
1,662,094
3.4855
11.6222
Investment Income
4,412,728
948,879
41.8665
6.6350
4,632,948
307,889
43.9558
2.1529
307,000
112,064
2.9127
0.7836
Net Profit
4,325,948
195,825
41.0431
1.3693
Expenses
RATIO ANALYSIS
Ratio analysis is a widely used tool of financial analysis. It is defined as the systematic use of ratios to
interpret the financial statements so that the strengths and weaknesses of a firm, as well as its historical
performance and current financial condition, can be determined.
A single ratio in itself is meaningless because it does not furnish a complete picture. A ratio becomes
meaningful when compared with other standard and the ratio of the other years. So the ratios of Packages
limited have been calculated by me and I compared it with the standards and the ratio of other years.
Purpose
The purpose of ratio analysis depends upon the event for which the analysis is made. The following
paragraph briefly explains the purpose of ratio analysis:
Management would like to know the operational efficiency and would think of such ratios as return on
investment, turnover of fixed assets, net profit to sales etc. While Creditors would like to know the
ability of the company to meet it current obligations and, therefore, would think of current and liquid
ratios, turnover of receivables, coverage of interest by the level of earnings, etc. and on the other side,
Investors will be interested in such ratios as earnings per share, book value per share and dividends per
share etc.
CLASSIFICATION OF RATIOS:
Ratios may be classified in a number of ways keeping in view the particular purpose. To achieve the
above purposes effectively, ratios may be classified as;
Liquidity ratio.
Solvency ratio
Activity ratio.
Profitability ratio.
Liquidity Ratios
Current Ratio:
The current ratio is the ratio of total current assets to total current liabilities. The current ratio of a firm
measures its short-term solvency, i.e. its ability to meet short-term obligations. As a measure of short
term/current financial liquidity, it indicates the rupees of current assets available for each rupee of current
liability / obligation. Higher the current ratio, larger will be the amount of rupees available per rupee of
current liability, the more the firms ability to meet current obligations and the greater the safety of funds
of short term creditors. Thus, current ratio, in a way, is a measure of margin of safety to the creditors.
Current Ratio = Current Assets / Current Liabilities
2002
2003
2004
2005
2006
2007
2008
Current Assets
2,187,037
2,170,757
2,424,817
4,558,737
3,414,222
4,837,402 6,923,461
1,367,151
1,098,308
1,748,885
2,335,830
2,312,224
1,965,381 5,616,873
1.39
1.95
Current Liabilities
Current Ratio
1.60
1.98
1.48
2.46
1.23
2.5
2
1.5
Current Ratio
1
0.5
0
2002
2003
2004
2005
2006
2007
2008
Interpretation
Current ratio is general and quick measure of liquidity of a firm. It represents a margin of safety or
cushion available to the creditors. It is an index of the firms financial stability. It is also an index of
technical solvency and an index of the strength of working capital. The current ratio in the year 2008 is
1.23 which is less than the previous years ratio. This tells us that the liquidity of the firm is less in the
current year than the previous year.
Liquid / Acid Test / Quick Ratio:

The acid - test ratio is the ratio between quick current assets and current liabilities. The term quick assets
refers to current assets which can be converted into cash immediately or at a short notice without
dimension of value and will include cash balances, bills receivable, sundry debtors and short-term
investments. Thus, the current assets that are excluded are: prepaid expenses and inventory.
Quick Ratio = Quick Assets/ Current Liabilities
2002
Quick Assets
2003
1,326,637
1,310,830
Current Liabilities
Quick Ratio
1,367,151
0.96
1,098,308
1.21
2004
2005
2006
2007
2008
1,330,488
3,414,694
1,767,049
2,631,211
3,271,200
2,312,224
1,965,381
5,616,873
0.76
1.34
0.58
1,748,885
0.76
2,335,830
1.46
1.6
1.4
1.2
1
0.8
Quick Ratio
0.6
0.4
0.2
0
2002 2003 2004 2005 2006 2007 2008
Interpretation:
Quick ratio is very useful in measuring the liquidity position of the firm. It measures the capacity
of the firm to pay off current obligation immediately and is a more rigorous test of liquidity than
current ratio. The quick ratio has also decreased in the year 2008 to reach at 0.58 (it was 0.96 in
the year 2002). This tells us that the firms ability to meet its current liabilities with its most
liquid assets is decreasing.
Net working capital Ratio

The net working capital ratio is used to find out that whether company has surplus or deficit of funds. The
net working capital ratio can be obtained by deducting the firm current liabilities from the current assets.
Net Working Capital Ratio = Net Working Capital /Total Assets
Net Working Capital = Current Assets _ Current Liabilities

2002
2003
2004
2005
2006
Capital
819,886
1,072,449
675,932
2,222,907
Total Assets
2,187,037
6,154,284
6,474,486
11,620,404
0.37
0.17
0.10
0.19
2007
2008
2,872,021
1,306,588
22,673,476
33,438,443
35,034,633
0.048
0.085
0.037
Net Working
Net Working
Capital Ratio
1101998
0.4
0.35
0.3
0.25
0.2
Net Working Capital

Ratio
0.15
0.1
0.05
0
2002200320042005200620072008
Interpretation
If we can see the above table the net working capital ratio of the years 2002 to 2003 and in 2005 is
positive. The ratio is satisfactory in these years. But that is not encouraging in 2004 and 2006-2008
(especially).
Profitability Ratios
Gross Profit Ratio
The gross profit margin indicates the percentage of each sales dollar remaining after the firm has paid for
its goods. Higher the ratio, the better it is, and the lower the relative cost of merchandise sold. A low ratio
indicates unfavorable trends in the form of reduction in selling prices or increase in cost of production.
Gross Profit Margin = Gross Profit / Net Sales * 100
2002
2003
2004
2005
2006
2007
2008
949,559
1,193,713
1,308,602
1,352,979
1,294,604
1,199,273
5,360,884
6,293,219
6,892,985
8,163,084
9,027,907
10,539,995 14,300,923
17.71
18.97
18.98
Gross Profit
943,299
Sales
Gross Profit
16.57
14.34
11.38
6.59
Margin
20
18
16
14
12
10
8
6
4
2
0
Gross Profit Margin
2002 2003 2004 2005 2006 2007 2008

Interpretation
Gross profit ratio is the ratio of gross profit to net sales expressed as percentage, in 2002 it was
17.71%, in 2003 it increased to 18.97%, in 2005 it decreased to 16.57% and then further
decreased to 6.59% in 2008. The reason why the gross profit decreased in 2005-2008 is that sale
cost of goods sold increased faster rate as compare with sale. The trend of continues decreased in
gross profit ratio is not a good sign for the company.
Net Profit Ratio
This ratio is also known as net margin. This measures the relationship between net profits and sales of a
firm. This ratio is calculated after deducting non-operating expenses, such as loss on sale of fixed assets
etc., from operating profit and adding non-operating income like interest or dividends on investment,
profit on sale of investments or fixed assets, etc., to profit.
Net Profit Margin =
Net profit / Net Sales * 100
2002
2003
2004
2005
2006
2007
2008
Net Profit
655,372
813,513
957,502
1,015,364
6,100,780
4,325,948
(195,825)
Sales
5,360,884
6,293,219
6,892,985
8,163,084
9,027,907
10,539,995
14,300,923
Net Profit Margin
12.23
12.93
13.89
12.44
67.58
41.04
(1.36)
70
60
50
40
Net Profit Margin
30
20
10
0
2002
2004
2006
2008
Interpretation
The net profit ratio of company remained at around 12-13% from years 2002 to 2005. But it increased
extensively in 2006 and 2007. The increase is due to gain from company investments. But it is negative in
2008 and decrease is due to loss from company investments.
Return on Total Assets/ Return on Investment (ROI)
Return on Total Assets = Net Profit after tax/ Total Asset*100
2002
2003
2004
Net Income
655,372
813,513
Total Assets
2,187,037
6,154,284
ROA
29.97
13.22
2005
1,015,364
957,502
6,474,486
14.79
11,620,404
8.74
90
80
70
60
50
40
30
20
10
0
2006
2007
2008
6,100,780
4,325,948
(195,825)
4,837,402
6,923,461
89.43
(2.83)
22,673,476
26.91
Return on Investment
2002
2004
2006
2008
Interpretation
This ratio shows the management effectiveness in generating profits with its available assets. The
companys last year ROA was 89.43% against (2.83) % of the year 2008. This shows that the company
has generated less profit this year with its available assets.
Operating Profit Ratio:

The operating profit margin represents what are often called the pure profits earned on each sales
rupee.
Operating Profit Margin = Operating Profit / Net Sales *100
Operatin
g Profit
Net Sales
2002
2003
2004
2005
2006
2007
2008
456,748
718,306
788,710
902,407
757,613
587,598
405,326
5,360,88
6,293.21
6,892,98
8,163,08
9,027,90
10,539,99
14,300,92
8.52
11.41
11.44
11.05
8.39
5.57
2.83
Operating
Profit
Margin
25
20
15
Operating Profit
Margin
10
5
0
2002 2003 2004 2005 2006 2007 2008
Interpretation:
The operating profit ratio of the company increased from 8.52% to 11.44% in 2004 But it
decreased from 11.05% in 2005 to 2.83% in 2008.
Return on Equity:
The return on equity (ROE) measures the return earned on the owner's investment. This ratio is a
measure of the percentage of net profit to shareholder's funds.
Return on Equity = Net Profit/Total Equity
Net
Profit
Total
Equity
2002
2003
2004
2005
2006
2007
2008
655,372
813,513
963.202
1,015,364
6,100,780
4,325,948 (195,825)
475,371
475,371
475,371
698,795
698,795
733,735
843,795
171.13
202.62
1.45
8.73
5.89
(0.23)
Return
on
137.87
Equity
250
200
150
Return in Equity
100
50
0
2002200320042005200620072008
Interpretation:
This ratio means a lot to the equity shareholders who are interested to know the profit earned by
.the company and that profit which can be sufficient to pay dividend to them, higher the ratio
better it is. In 2002 it was 137.9%, and it decreased to 0.23% in 2008.
Operating Expense Ratio

Operating Expense Ratio= (Operating Expenses Total Revenue)
2002
2003
2004
2005
2006
2007
2008
84,699
93,375
213,475
145,439
324
489,885
509,784
Sales
5,360,884
6,293,219
6,892,985
8,163,084
9,027,907
10,539,995
14,300,923
Operating Expenses Ratio
9.14%
8.10%
1.23%
1.14%
2.36%
1.37%
0.002%
Operating Expenses
10
8
6
Operating
Expense Ratio
4
2
0
2002
2004
2006
2008
Interpretation:
In the year 2002 the operating expenses ratio was 9.14% and in the year 2008 shows the success
of management in cutting down the operating expenses i.e. the ratio was approximately equal to
0%.
This indicates that the company has reduced a significant portion of its operating expenses and
non-operating expenses which is a positive sign.
Return on Capital Employed

Return on Capital Employed= (Earning before interest and tax Net assets)
2002
2003
2004
2005
2006
2007
2008
1,037,954
1,258,377
788,710
902,407
757,613
587,598
405,326
4,250,566
4,651,911
6,474,486
11,620,404
22,673,476
4,837,402
6,923,461
24.42%
27.05%
12.18%
7.76%
3.34%
12.15%
5.85%
30
25
20
15
Return on Capital
Employed
10
5
0
2002
2004
2006
2008
Interpretation:
The return on capital employed for Packages Limited is decreasing which is not an encouraging
sign, a very low pre tax profit and an infected inherited portfolio kept this return to low.
Moreover the interest expenses are not under control and increasing which is an indication of
non repayment of the debt so the company is following a bad policy in respect of its debt
structuring repayment thereof..
Market Ratios
Earning per share

Earning per share means earning on one share of the company . The earning per share is calculated the by
following formula:
Earning per Share =
Net profit / No. of Common Share Outstanding
2002
2003
2004
2005
2006
2007
2008
655372000
813,513,000
957,502,000
1,015,364,000
6,100,780,000
4,325,948,000
(195,825,000)
O/S
47,537,080
47,537,080
48,654,730
62,503,899
69,879,507
73,373482
84,379,504
EPS
13.79
17.11
19.68
16.24
87.30
58.96
(2.32)
Net Income
No. of C.S
90
80
70
60
50
40
30
20
10
0
-10
Earning per Share
2002 2003 2004 2005 2006 2007 2008
Interpretation
Earning per share calculated for a number of years indicate whether or not the earning power of
the company has increased. The earning per share simply show the profitability of the firm on a
per share basis .It does not reflect how much is paid as dividend and how much is retained in the
business. But as a profitability index, it is a valuable and widely used ratio. In 2002 earning per
share was Rs. 13.79, in 2008, it decreased to 2.32.
Which is very remarkable decrease in the last six years, this is discouraging the investors.
Price Earning Ratio
Price Earning Ratio = Price per Share/ EPS

2002
2003
2004
2005
2006
2007
2008
2002
2003
2004
2005
2006
2007
2008
Price Per Share
88.50
167.90
198.85
202.00
210
363.78
81.15
EPS
13.79
17.11
19.68
16.24
87.30
58.96
(2.32)
P/E Ratio
6.42
9.81
10.10
12.44
2.41
6.17
(34.98)
20
10
0
-10
P/E Ratio
-20
-30
-40
2002
2003
2004
2005
2006
2007
2008
Interpretation
This ratio shows that what the amount investors are willing to pay for each dollar of a firms earnings.
The price earning ratio for this year is less than the previous year which tells us that the investors are
reluctant to invest in the company.
Dividend per Share

Dividend per Share = Dividend/ No. of C.S O/S
Dividend
332760000 404065000 404065000 419,277,000 419,277,000 110,060,000 _
No. of
C.S O/S
47,537,080 47,537,080 48,654,730 62,503,899
DPS
7.00
8.50
8.30
69,879,507
6.71
73,373,482
5.99
9
8
7
6
5
4
3
2
1
0
84,379,504
1.50
DPS
2002
2003
2004
2005
2006
2007
2008
Interpretation
This ratio shows the dividend paid to the shareholders against a share. Due to Loss Company did
not pay any dividend to the shareholders this year as compared to the last years dividend 1.50
per share.
Dividend Payout Ratio
Dividend payout Ratio= (Dividend per share Earning per share)
2002
2003
2004
2005
2006
2007
2008
Dividend per share
7.00
8.50
8.30
6.71
5.99
1.50
Earning per share
13.79
17.11
19.68
16.24
87.30
61.90
(2.67)
Dividend payout
50.77
49.67
42.17
41.32
6.86
0.02
60
50
40
30
Dividend Payout
20
10
0
2002 2003 2004 2005 2006 2007 2008
Interpretation:
Putting it in simple words this ratio is about the dividend that a company declared during a
particular period. This ratio is of particular interest to both shareholders and investors for the
reason that they are primarily concerned with the amount they will be expected to receive at the
end of the year. Moreover the potential investors will try to satisfy themselves that the company
was in a profitable position and was paying dividend out of profits to its shareholders.
The increased sales accompanied with the controlled manufacturing and operating expenses
contributed to an elevated level of profitability and the company was able to spare a bigger sum
out of its operations and pay its shareholders as dividend every year.
Solvency Ratios
Debt ratio:
Debit ratio is calculated to see the total asset financed by the firm creditors. Debt ratio is
calculated by dividing the firm total liabilities over firm total assets.
Debt Ratios = Total Liabilities / Total Assets
2002
Total
2003
2004
2005
2798507 2521561 2282626 3,884,149
2006
2007
2008
9,000,679
15,267,671 18762 061
Liabilities
Total
5950477 6154284 6474486 11,620404 22,673,476 33,438,443 35,034,633
Assets
Debt Ratio
47
41
35
33
40
46
53
60
50
40
30
Debt Ratio
20
10
0
2002 2003 2004 2005 2006 2007 2008
Interpretation:
The debt ratio shows that more liabilities are against of the total assets of the company. In the
years 2002 to 2005 there is a decreasing trend in the debt ratio of the company and than from
2006-2008 there is an increasing trend.
Debt equity ratio:

The debt equity ratio indicates the relationship between the long-term funds provided by
creditors and those provided by the firm's owners. The standard debt equity ratio is 60:40. The
lower debt equity ratio is preferable.
Debit Equity Ratio = Total Liabilities / shareholders equity *100
2002
Total
2003
2004
2005
2006
2007
2008
1,431,356 1,423,253 2,282,626 3,884,149 9,000,679 18,762,061 15,267,671
Liabilities
Shareholder's 1,906,727 1,898,624 1,009,112 698,795
698,795
733,735
843,795
30:70
40:60
44:56
Equity
Debt Equity
25:75
19:81
00:100
11:89
Ratio
50
40
30
Debt Equity Ratio
20
10
0
2002 2003 2004 2005 2006 2007 2008
Interpretation:
If we analyze the debt equity ratio of the Packages is less than 60:40 in all the seven years so
the performance efficiency of the company is remarkable .Because the debt equity ratio is less
than 60:40 so the company changes their policy of taking loan. And in order to improve their
current ratio they are trying to get loan in the form of long-term loan.
Time Interest earned ratio

This ratio measures the firm's ability to make contractual payments.
Time Interest Earned Ratios = EB1T / Interest Expense
2002
2003
2004
2005
2006
2007
2008
EBIT
456,748
788,710
788,710
902,407
757,613
587,598
405,326
Interest
176,800
151,308
139,008
185,529
78,909
367,378
1,662,094
2.58
5.21
5.17
4.86
9.60
1.60
0.24
Expense
Time Interest
Ratio
10
8
6
Time Interest Ratio
4
2
0
2002 2003 2004 2005 2006 2007 2008
Interpretation:
This ratio is very good for the company. This depicts a strong position of paying its interest
expenses within due time. Packages can obtain more loans very easily.
Activity Ratios
Inventory turnover and age of inventory
This ratio creates relationship between cost of goods sold during a given period and the
average amount of inventory held during that period. This ratio shows the number of times
finished stock is turned over during a given accounting period. In general, a high inventoryturnover ratio is better than a low ratio. A high ratio shows good inventory management.
Inventory Turnover = C.G.S / Average Closing Inventory
Cost of
2002
2003
2004
2005
2006
2007
2008
3,672,114
4,242,476
4,678,357
5,745,786
6,551,995
7,829,362
11,281,480
876,207
844,120
1,094,329
1,144,043
1,647,173
2,206,191
3,652,261
4.19
5.03
4.28
5.02
3.98
3.55
3.09
good sold
Average
closing
inventory
Inventory
Turnover
6
5
4
3
Inventory Turnover
2
1
0
2002 2003 2004 2005 2006 2007 2008
Interpretation:
This ratio shows red alert for the company .Inventory turnover was 4.19 in the year 2002 which
has decreased from 4.19 to 3.09 in the year 2008. The sale of inventory is very low. The
company should analyze to improve its inventory management. Age of Inventory:
Age of Inventory
Age of Inventory = 360 / Inventory Turnover
2002
2003
2004
2005
2006
2007
2008
Days
360
360
360
360
360
360
360
Inventory
4.19
5.03
4.28
5.02
3.98
3.55
3.90
85.92
71.57
84.11
71.71
90.45
101.41
92.31
Turnover
Age of
Inventory
120
100
80
60
Age of Inventory
40
20
0
2002 2003 2004 2005 2006 2007 2008
Interpretation:
Age of inventory is 92 days in the year 2008 which has increased from 85 days in the year
2002. The sale of inventory is very low. The company should examine its strategies to improve
its inventory management.
Account receivable turnover and age of A/R:

This ratio measures the accounts receivables (trade debtors and bills receivables) in terms of
number of days of credit sales during a particular period. Briefly we can say that it shows how
quickly receivables or debtors are converted into cash.
Age Of account Receivable = 360/A/R Turn Over
2002
2003
2004
2005
2006
2007
2008
Days
360
360
360
360
360
360
360
A/R Turnover
9.87
10.9
10.76
10.40
10.99
8.17
9.39
Age of A/R
36.47
33.03
33.46
34.61
32.76
44.06
38.34
50
40
30
Age of A/R
20
10
0
2002 2003 2004 2005 2006 2007 2008
A/R Turnover = Sales/A/R
Sales
Account
2002
2003
2004
2005
2006
2007
2008
5,360,88
6,293,21
6,892,98
8,163,08
9,027,90
10,539,99
14,300,92
543,218
577,548
640,537
784,638
821,160
1,288,928
1,523,049
9.87
10.90
10.76
10.40
10.99
8.17
9.39
Receivabl
e
A/R
Turnover
12
10
8
6
A/R Turnover
4
2
0
2002 2003 2004 2005 2006 2007 2008
Interpretation:
If the account receivable turnover ratio is increasing and the average collection period is
decreasing this is-in favor of the company. In the case of Packages there is a increasing trend in
the average collection period ratio and decreasing trend in the account receivable inventory
turnover ratio .The above table shows that the company is efficient for collecting their account
receivable Packages average collection period is also less than average payment period. It means
that the company performance is excellent.
Account payable turnover and Age of A/P:

It is calculated to indicate the speed with which payments for credit purchases are made to
creditors.
Accounts Payable Turn Over = Purchase / Account Payable
2002
2003
2004
2005
2006
2007
2008
Purchase
1,925,656
2,263,462
2,710,306
3,520,643
4,246,956
5,108,396
7,639,296
Average
545,910
499,443
546,660
619,215
1,030,516
1,564,362
1,461,904
3.53
4.53
4.96
5.68
4.12
3.26
5.22
Account
Payable
A/P
Turnover
6
5
4
3
A/P Turnover
2
1
0
2002 2003 2004 2005 2006 2007 2008
AGE of
Accounts payable = 360 / Accounts Payable Turn Over
2002
2003
2004
2005
2006
2007
2008
Days
360
360
360
360
360
360
360
Account
3.53
4.53
4.96
5.68
4.12
3.26
5.22
101.98
79.47
72.58
63.38
87.38
110.43
68.96
Payable
Turnover
Age of A/P
120
100
80
60
Age of Accounts
Payable
40
20
0
2002 2003 2004 2005 2006 2007 2008
Interpretation:
The average payment ratio of the Packages is greater than average collection period. It means
that
The Packages firstly receives it accounts receivable and after that it pay to its creditors. So the
average
Payment period and account payable turnover ratio of the Packages is marvelous.

Financial Analysis: Frame Work For Financial Analysis of Packages Ltd.

Uploaded by

Copyright:

Available Formats

You might also like

Financial Analysis: Frame Work For Financial Analysis of Packages Ltd.

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Financial Analysis: Frame Work For Financial Analysis of Packages Ltd.

Uploaded by

Copyright:

Available Formats

FINANCIAL ANALYSIS

Frame work for financial analysis of Packages Ltd. :

Framework for Financial Analysis of Packages Ltd.

Common Size Analysis (Vertical Analysis)

Vertical analysis includes the analysis of the:

Horizontal analysis includes the analysis of the:

Use of ratio analysis

From an investors standpoint

From the managements standpoint

Ratio analysis includes:

SIX YEARS FINANCIAL STATEMENTS OF PACKAGES LTD

Fixed Capital Assets

Assets subject to finance

Stores and spares

Issued, subscribed and paid

Other Long-Term Assets

Loans, advances, deposits,

Non Current Liabilities

subject to finance lease

Less: Sales tax and excise duty

Less: Cost of goods sold

Distribution & Mkt Expenses

Other operating expenses

Profit before taxation

Provision for taxation

Six Years Horizontal Analysis of Packages Ltd

Assets subject to finance lease

310.62 2365.5721 2262.7268

832.74 1299.6102 1566.5687

Other Long-Term Assets

146.6968 277.3973 1114.93 3896.0562 6133.2830

782.54 1262.4682 1520.5930

Stores and spares

Issued, subscribed and paid 100

Cash and bank balances

subject to finance lease

Non Current Liabilities

Provision for tax

Creditors, accrued and other

157.03 352.2472 1215.5070

Less: Sales tax and excise 100

Less: Cost of goods sold

Distribution & Market

Other operating expenses

42.53 242.8014 1098.4838

Profit before taxation

Provision for taxation

Five Year Vertical Analysis of Packages Ltd

Proprietory, Plant & equipment

Assets subject to finance lease

Fixed Capital Assets

Other Long-Term Assets

Stores and spares

Loans, advances, deposits,

Provision for tax

Prepayments and other

Non Current Liabilities