2011

Al-Ghazi Tractors Report

Created By: M. Hamza Ali Gillani

12/12/2011

Contents
INTRODUCTION .......................................................................................................................... 2 Principal products .................................................................................................................... 3 Auditors Report.......................................................................................................................... 3 Future plans ................................................................................................................................. 4 Financial Performance Result ......................................................................................................... 4 Basic Accounting Equation ......................................................................................................... 4 Analysis of Financial Statement ..................................................................................................... 5 Liquidity Ratio ......................................................................................................................... 5 Profitability Ratio .................................................................................................................... 6 Performance Ratios for shareholders ....................................................................................... 6 Accounting Policies ........................................................................................................................ 7 Revenue Recognition .................................................................................................................. 7 Cash ............................................................................................................................................. 7 Merchandise Inventory................................................................................................................ 7 Property and Equipment .............................................................................................................. 7 How the Financial Statement Relate to Each Other........................................................................ 9 Balance Sheet ................................................................................................................................ 10

INTRODUCTION
Al-ghazi tractors incorporated in 1983, it was the under the government control but later in December 1991 it was privatized. It is the subsidiary company of AL-FUTTAIM group of Dubai. With consistent corporate achievements the company is recognized for corporate excellence and Best corporate performance. Success has developed naturally as the cultural personality of the Company; continuous improvement has become the Company's primary motivator. With sustained justified pride in its achievements since privatization and take over by AI- Futtaim in December 1991, the Company benchmark itself for competition. As the first automobile manufacturing company in Pakistan to be certified for ISO-9002 and with the highest local content in the automobile industry of Pakistan, product containment, process control, quality assurance and quality leadership are the Company's most enduring competitive edge. Using the collective knowledge of its ordinary worker combined with the quality of its management, the key factors that have influenced the Company's growth this year, once again, were sales, costs, and effectiveness.

Chief Executive Officer and Managing Director

Mr. Pervez Ali An engineer by profession, Mr. Pervez, Ali did his Master In Engineering Administration from the George Washington University U.S.A. He has been appointed as CEO of Al-Ghazi Tractors in January 20, 1992.

Location of Head Office

The head office of Al-Ghazi Tractor is located in 11th floor NICL building Abbasi Shaheed Road, Karachi, Pakistan.

Ending date of latest fiscal Year

Dec 31st, 2010.

Principal products
It manufactures new Holland fiat tractors in technical collaboration with CNH-case new Holland, the number one manufacturers of agricultural tractors in the world.
Auditors

A. F. Ferguson & Co. Chartered Accountants. Karachi

Auditors Report
The auditors audit the annexed financial statement of the company as at December, 31, 2010.and they obtained all the important information that was necessary for the purpose of audit. The auditors issued the following report in regards to the financial statement. The auditors conducted audit in accordance with the auditing standard applicable in Pakistan. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the above said statements. An audit also includes assessing the accounting policies and significant estimates made by management as well as, evaluating the overall presentation of the statement. In report the auditors said that: 1. Proper books of accounts have been kept by the company as required by the companys ordinance; 2. The balance sheet and Income statement together with the notes thereon been drawn up in the conformity and are in agreement with books of account and are further in accordance with accounting policies consistently applied. The expenditure incurred during the year was for the purpose of the companys business and the business conducted, investments made and the expenditure incurred during the year were in accordance with the objects of the company. The financial statements together with the notes forming part thereof conform with approved accounting standards as applicable in Pakistan. So this give a true and fair view of the stamen of the companys affairs as at December 31, 2010 and off the profit, its cash flows and changes in the equity for the year Zakat deductible at source under the zakat and usher ordinance, 1980 was deducted by the company and deposited in the central zakat fund established under section 7 of that ordinance.

Future plans
The companys management plans some additional points in order to increase the production as well as for the quality of the management. They ensure the future extension of engine testing facility with latest dynometers coupled with digital electronic panels to enhance the production of engines. They also plan the fabrication of new paint shop to further improve the quality of paint to sheet metal parts. Keeping in view the customer preferences the plant has upgraded its product by converting the higher HP models to disc brakes replacing the band type brakes. Power steering system has been introduced on the lower HP tractors.

Financial Performance Result

2010(Rupees 000) Gross Profit Operating Income Net income 2,948.5 2009(Rupees 000) 2.645.8

2,548.8 1,908.9

2,264.2 1,743.5

From 2009 to 2010, gross profit increased by 12.7%. From 2009 to 2010, income from operating activities increased by 11.2%. From 2009 to 2010, net income increased by 9.4 %.

Basic Accounting Equation

The basic accounting equation is as follows: Assets = Liabilities + Owners Equity (in million dollars) Assets Liabilities Owners Equity 2010 7,666,154 1,303,433 6,362,721 2009 7,380,671 1,960,752 5,419,919

The data on assets, liabilities and owners equity, for 2009 and 2010, is given below in the table. For 2009, the basic accounting equation is as follows: 7,666,154= 1,303,433+ 6,362,721

7,666,154= 7,666,154 It can be seen that the equation holds true for the year 2009. For 2010, the basic accounting equation is as follows: 7,380,671=1,960,752+5,419,919 7,380,671=7,380,671

Gross Profit margin increases from 16.6% In 2009 to 19.7% in 2010 it is because the gross profit rises from 2645814 to 2948515. It is due to decrease in the cost of goods sold between these two years so thats the reasons for the companys increased gross profit ratio. Operating income decreased from 2264.2 million to 2548.8 million, this reduction in net income is due to the increase in companys operating expenses.

The total net income of the business has increased from 174305 to 1908.9. This might be due to fall in total expenses of the business.

Analysis of Financial Statement

Liquidity Ratio Times Current Ratio 2010 5.85 2009 3.74

Quick Ratio

4.96

3.08

The current ratio has been significantly increased in last year which means company has become more liquid in order to compete with Millat tractors The quick ratio shows that company have increased its liquidity because of less inventories in size or have high inventories of high moving merchandise.
Profitability Ratio % Gross profit margin Net Profit margin

2010 19.74 12.78

2009 16.78 11.06

Gross Profit margin increases from 16.6% In 2009 to 19.7% in 2010 it is because the gross profit rises from 2,645,814 to 2,948,515. It is due to decrease in the cost of goods sold between these two years so thats the reasons for the companys increased gross profit ratio. Net Profit margin has also increased from 12.78% to 11.06%.The reason is that the Al Ghazi wants to be lowest cost producer of the highest quality tractor.

Performance Ratios for shareholders 2010 Earnings per Share(Rs) Price Earnings Ratio 44.6 5.12

2009 40.61 5.86

Earnings per share have increased which might raise the stock price as it affects the market value of companys share. The price earnings ratio has been decreased due to fall in market value of share in market. This might be due to optimistic investors expectation concerning the company future.

Accounting Policies
Revenue Recognition
Al-ghazi Tractors recognizes revenue when persuasive evidence of an arrangement exists, delivery of products has occurred, the sales price charged is fixed or determinable, and collectability is reasonably assured. For the Company, this generally means that they recognize revenue when title to their products is transferred to their retailers and wholesaler. In particular, title usually transfers upon shipment to or receipt at their customers locations, as determined by the specific sales terms of the transactions. Their sales terms do not allow for a right of return except for matters related to any manufacturing defects on their part.

Cash
The company classifies time deposits and other investments that are highly liquid and have maturities of three months or less at the date of purchase as cash equivalents. They manage their exposure to counterparty credit risk through specific minimum credit standards, diversification of counterparties and procedures to monitor their credit risk concentrations.

Merchandise Inventory
Inventories are valued at the lower of cost or net realizable market. Cost is determined on moving average method except for the stock transit. Cost of finished goods include prime cost and appropriate portion of manufacturing expenses.Net realizable value signifies the estimated selling price in the ordinary course of business less the estimated cost of completion and the estimated cost necessary to make the sale.

Property and Equipment

Fixed assets are stated at cost less accumulated depreciation/amortization expect free hold land and capital work in progress which are stated at cost. The cost of leasehold land is amortized over the period of lease. Depreciation of all other assists are charged to profit and loss account applying straight line method where as the cost of an assets less residual value is written of over its estimated life thought the useful life if the asset as estimated by the management is as follow Leasehold land Building 99 years 40 years

 Plant and machinery Furniture and Fixtures Office Equipment Computer Hardware Vehicles Factory equipments and tools

10 years 4-10 years 10 years 3 years 4 years 10 years

The assets residual values and useful life are reviewed, adjusted if the appropriate, at each balance sheet date. Maintenance and normal repairs are charged profit and loss account as and when incurred .Majors renewal and improvement are capitalized and the assets so replaced, if any, are retired. Gains and losses on disposal/retirement of fixed assets are included in profit and loss account Certain events or changes in circumstances may indicate that the recoverability of the carrying amount of property, plant and equipment should be assessed, including, among others, a significant decrease in market value, a significant change in the business climate in a particular market, or a current period operating or cash flow loss combined with historical losses or projected future losses. When such events or changes in circumstances are present, we estimate the future cash flows expected to result from the use of the asset (or asset group) and its eventual disposition. These estimated future cash flows are consistent with those they use in their internal planning. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount, they recognize an impairment loss. The impairment loss recognized is the amount by which the carrying amount exceeds the fair value. They use a variety of methodologies to determine the fair value of property, plant and equipment, including appraisals and discounted cash flow models, which are consistent with the assumptions they believe hypothetical marketplace participants would use.

How the Financial Statement Relate to Each Other

If the revenues and expenses are incorrectly recorded in the income statement, then as a result of the wrong figure it might lead to overstate or understate the net income. The value of net income that is transferred to statement of change in owner equity as a result would lead to have wrong value of retained earnings. The wrong value of retained earning that is to be appeared in section of owner equity would not fulfill the basic accounting equation which is Assets=Liabilities + Owners equity. Hence this wont be satisfying our balance sheet. Therefore all the financial statement is interrelated and together gives the correct financial position of the company.

Balance Sheet
Currency in Millions of Pakistan Rupees As of: Dec 31 2007 Reclassified PKR Dec 31 2008 Reclassified PKR Dec 31 Dec 31 2009 2010 Reclassified PKR PKR

Assets

Cash and Equivalents Short-Term Investments Trading Asset Securities

4,384.6 500.0 518.8

3,349.0 200.0 246.8

3,522.5 145.0 --

3,112.8 60.0 1,271.5

TOTAL CASH AND SHORT TERM5,403.4 INVESTMENTS Accounts Receivable Notes Receivable Other Receivables 24.3 1.2 413.5 438.9 719.2 0.4 19.2 6,581.0 448.6 -203.7 AND 244.9 -1.0 0.0 0.4 6,827.3

3,795.8

3,667.5

4,444.3

7.1 8.5 1,029.7 1,045.3 1,946.1 6.6 46.2 6,840.1 457.8 -222.3 235.5 -10.1 0.0 0.4 7,086.0

20.3 8.0 2,119.3 2,147.6 1,265.4 0.4 43.9 7,124.8 499.3 -246.6 252.7 -2.9 0.0 0.4 7,380.7

264.1 3.4 1,417.6 1,685.0 1,082.9 6.9 37.5 7,256.6 614.4 -245.8 368.7 40.0 0.5 0.0 0.4 7,666.2

TOTAL RECEIVABLES Inventory Prepaid Expenses Other Current Assets TOTAL CURRENT ASSETS Gross Property Plant and Equipment Accumulated Depreciation NET PROPERTY EQUIPMENT PLANT

Long-Term Investments Loans Receivable, Long Term Other Intangibles Other Long-Term Assets TOTAL ASSETS

LIABILITIES & EQUITY Accounts Payable Accrued Expenses Current Income Taxes Payable Other Current Liabilities, Total Unearned Revenue, Current TOTAL CURRENT LIABILITIES Deferred Tax Liability Non-Current Other Non-Current Liabilities 5.8 430.2 26.1 256.1 2,220.0 2,938.2 19.5 18.4 2,976.1 214.7 3,636.5 3,851.2 3,851.2 6,827.3 868.5 185.9 -44.0 1,513.3 2,611.7 27.2 19.4 2,658.2 214.7 4,213.1 4,427.8 4,427.8 7,086.0 1,364.1 366.8 -51.2 125.4 1,907.4 31.5 21.9 1,960.8 214.7 5,205.2 5,419.9 5,419.9 7,380.7 813.7 249.4 -57.4 120.8 1,241.3 37.7 24.4 1,303.4 214.7 6,148.0 6,362.7 6,362.7 7,666.2

TOTAL LIABILITIES Common Stock Retained Earnings TOTAL COMMON EQUITY TOTAL EQUITY TOTAL LIABILITIES AND EQUITY

Income Statement
Currency inAs of: Dec Millions of Pakistan Rupees 2007 9,081.3 9,081.3 7,427.8 1,653.5 31 Dec 2008 10,107.9 10,107.9 8,530.8 1,577.1 31 Dec 2009 15,764.8 15,764.8 13,120.1 2,644.7 31 Dec 31 2010 14,936.0 14,936.0 11,988.2 2,947.8

Revenues TOTAL REVENUES Cost of Goods Sold

GROSS PROFIT

Selling General & Admin Expenses,153.0 Total Other Operating Expenses 127.3

166.2 109.5

394.8 -14.3

428.0 -29.0

OTHER OPERATING EXPENSES280.2 TOTAL

275.7

380.4

399.0

OPERATING INCOME Interest Expense Interest and Investment Income

1,373.2 -0.1 525.8

1,301.4 -0.5 344.0

2,264.2 -349.2

2,548.8 -225.1

NET INTEREST EXPENSE

525.6

343.5

349.2

225.1

Other Non-Operating Income (Expenses)

-2.9 1,896.0

-2.3 1,642.7

-2.2 2,611.3

-1.3 2,772.6

EBT, EXCLUDING ITEMS

UNUSUAL

Gain (Loss) on Sale of Investments Gain (Loss) on Sale of Assets Other Unusual Items, Total Insurance Settlements

17.0 1.4 ---

37.5 2.7 ---

45.2 2.4 ---

75.6 4.1 47.8 47.8

EBT, INCLUDING ITEMS Income Tax Expense

UNUSUAL1,914.5

1,682.9

2,658.8

2,900.1

647.0 1,267.4 1,267.4

569.7 1,113.3 1,113.3

915.3 1,743.5 1,743.5

991.2 1,908.9 1,908.9

Earnings from Continuing Operations NET INCOME