FINANCIAL ANALYSIS

“FEROZSONS LABORATORIES”
Annual Report 2009

Presented To:
Prof. Ather Azim Khan
Presented By:
Muhammad Umar (5314)
Fahhad Rasheed (5312)
University of Central Punjab
(Faculty of Commerce)
 FINANCIAL ANALYSIS

Contents of Presentation
i. Introduction
ii. Mission Statement
iii. Financial Ratio Analysis
iv. CASH Model
v. Conclusion
 Introduction
Mission Statement
of Company
a We
Ferozsons
Today,
With aim toprescription
Ferozsons
consistent improve
Laboratories
core the
strength
Limited Quality
growth
lies
was
in
rate ofover
their Lifeinrange
created
of own 20%1956.
per
of
through
Commencing
branded
annum
the
in generics,
ethical
their production
promoted
promotion
whichproducts,
in
cover
1956,
and
products
company
Ferozsons
sales
inprovides
the
of
made
following
a solid
their
world class medicines at locally relevant
beginnings
segments:
platform for primarily
creating and
as manufacturers
establishing brands
of fineinchemicals
the Pakistani
and
prices. In doing so we will Strive to provide
market. Anti-Infectives
galenicals, and as toll-manufacturers for multinational
best-in-industry returns to our shareholders.
FerozsonsGastrointestinal
pharmaceutical
take corporations
pride in theirlike:
track record of manufacturing
 Boots Lakeside Laboratories Inc. USA;
Be thetoCardiovascular
products Second to None
high levels in Employee
of excellence, Training,
building brands, and
 Chemie Grunenthal of Germany;
providing Reward
Dermatology
 among the highand Motivation.
shareholder returns in Pakistan's
Procter & Gamble of the United States;
Maintain
pharmaceutical the
sector.
 Curatis
Highest Levels
Pharma, Germany; and
of Ethics
while focusing
 Bago Group, on building our portfolio
of Prescription Brands.
Financial
Ratio
Analysis
 Liquidity Analysis
Cash+Cash
Current
Quick Ratio
Ratio Current Assets
equivalents+Receivables= 2.54
Current
Cuttent Liabilities
Liabilities
= 0.52

i.
i. It compares
Related to the
quick
liquidity
assetsanalysis
with current
of theliabilities
company
ii.
ii. Can be find it by by dividing
dividing Cash,
currentcashassets
equivalents
with current
and
liabilities. with current liabilities
receivables
iii.
iii. Share holders and the lenders are interested
iv.
iv. Value
If valueof ofcurrent
quick ratio
ratio isis high,
high, itit considered to be good
and vice versa.
 Liquidity Analysis
Cash
CashtoRatio
C.A. Cash+Cash
Cashequivalents ==0.04
0.11
Current
CurrentLiabilities
Assets

i.
i. It tells the ready cash available to the company to pay its
i.
i. It tells the proportion of cash in the current assets.
obligations
ii.
ii. share holders and the lenders are interested
ii.
ii. Share holders and the lenders are interested
iii.
iii. A high value of this ratio is considered to be good and
iii.
iii. A
vicehigh value of cash ratio is considered to be good and
versa.
vice versa.
 Liquidity Analysis
Days
Receivable
sales in
Receivables
Turnover Receivables
Annual Credit Sales = 17
=29.33
Credit
Avg. Sales/360
Receivables

i.
i. It
It tells
tells about
aboutthe
thenumber of times
days needed toour cash is
receive thecirculated.
cash from
ii.
ii. debtors.
Normally share holders and creditors are interested.
ii.
iii.
ii.
iii. Normally
A high value share
of holders
this ratioand managers are
is considered interested
to be good andin
this
vice ratio
versa.
iii.
iii. When the value of days sales in receivable is low then it
considered to be good and vice versa.
 Liquidity Analysis
Days
Inventory
sales in
Receivables
Turnover CostReceivables
of Goods Sold ==2.21
17
Credit
Avg. Sales/360
Inventory

i.i.
i.i. ItIt tells
tells about
us about
the the
daystimes thattoinventory
needed is turned
receive the into
cash from
finished goods then again raw material conversion into
debtors.
finished goods.
ii.
ii. Normally share holders and managers are interested in
ii.
ii. Thisratio
this ratio shows about the efficiency of management.
iii.
iii.
iii. Important
When for management
the value and
of days sales insome how for
receivable creditors.
is low then it
iii.
iv.
iv. A high ratiotoisbeconsidered
considered to beversa.
good and vice good and vice versa.
 Liquidity Analysis
Inventory
Days sell to
Turnover
Inventory Cost
Ending
of Goods
Inventory
Sold
==2.21
196
Avg.COGS/360
Inventory

i.
i.
i.
It tells
This us tells
ratio about
us the times
about that inventory
the days is turned
that is needed to sellinto
the
finished
inventorygoods and then again
shows therawshows
material
theconversion
efficiency into
of
finished goods.
management.
ii.
ii.
ii.
This ratio shows
Important about the efficiency
for management and some howof management.
for creditors.
iii.
iii.
iii.
Important
If the value forof
management and some then
this ratio decreases how for
it iscreditors.
good and
iv.
iv. A high
vice ratio is considered to be good and vice versa.
versa.
 Liquidity Analysis
Payableof
Duration
Turnover
Payables Credit
Accounts
Purchases
Payables__ = 32
=3.11
Credit
Accounts
Purchases/360
Payables

i.
i.
i.
It
It tells
tells about
aboutthethenumber of times
days needed to we
payhave
cashtotopay cash to
creditors.
suppliers
Normally creditors and financial managers are interested
ii.
ii. Creditors and the managers are interested in this ratio
in this ratio
iii.
ii.
iii.
ii. The value
When the of accounts
value payable
of days sales turnover should
in receivable is be
lowhigher
then
thenratio,
this the receivable turn over
it is considered to beon then it is considered to
good.
be good.
 Cash Flow Analysis
Cash
Cash Flow
Flow to to
Total Liabilities
Long-term Liabilities Cash
Cash flow
flow (EBITD)
(EBITD) = 1.33
=0.56
Long-term Liabilities
Total Liabilities

i.
i. It tells
tells ususabout
aboutthethe
cash
cash
flow
flow
according
according
to itstolong
its term
total
liabilities that in how much time company will be able to
meet its long
total term
obligations.
obligations.
ii.
ii. Important
This ratioforislenders
important
and financial
for lenders
managers
and financial
iii.
iii. managers
When its valueof theiscompany.
high it is good for the company
iii.
iii. The company has got the value of 1.33 which is higher
then the previous year and showing better performance
of the company.
 Cash Flow Analysis
Cash Flow to
Investment
Current
CashLiabilities
Flow Total
CashBorrowing + Equity
flow (EBITD) = 7.73
Cash flow (EBITD) =0.98
Current Liabilities

i.
i. It tells
tells usus about
aboutthe theinvestment
cash flow toaccording
cash flowtorelation
its current
that
liabilities
how muchthat timesin how
investment
much time
is ofcompany
the earnings.
will be able to
ii.
ii. meet
This its current
ratio obligations.for investors and financial
is important
ii.
ii. This ratioof the
managers is company
important for lenders and financial
iii.
iii. managers
When its valueof theiscompany.
low it is good for the company.
iii.
iii.
iv.
iv. When its value has
The company is high
got itvalue
is good for which
7.73, the company.
means within
seven to eight years the company can generate the total
investment.
 Cash Flow Analysis
Cash Flow to
Cash flow (EBITD)
Total Investment Total Borrowing+Equity
=0.13

i.
i. It tells us about the cash flow according to its total
investment
ii.
ii. This ratio is important for investors and financial
managers of the company.
iii.
iii. When its value is high it is good for the company.
 Leverage Analysis
Total
Total Debt
Debt to
to
Total Equity
Equity Capital Current Liab. + Long-term Liab.
Equity Capital + Total Liab.
Equity Capital =37.5%
= 22.93%

i.
i. It tells
tells us
usabout
aboutthetheamount
amountof of
debtdebt
according
according
to equity.
to total
ii.
ii. capital.
This ratio is important for investors and financial
ii.
ii. managers
This ratioof istheimportant
company and for itinvestors
is also important
and financial
for the
bankers some
managers of the
times.
company and it is also important for the
iii.
iii. bankers
When itssome valuetimes.
is high it is good for the company and
iii.
iii. low value
When its value
good foris high
lenders.
it is good for the company and
low value good for lenders.
 Leverage Analysis
Total
Fixed
Investment
Assets
totoTotal
Equity
Debt Fixed
Eq. Assets
Capital + Total Liab.
= 0.75
Total Equity
Total Liabilities =3.68

i.
i. It tells
tellsususabout
aboutassets
the amount
financed ofby debt according
the owner’s to total
capital.
ii. investment.
ii. This ratio is important for investors and financial
ii. managers
ii. This ratioof the company for investors and financial
is important
iii. managers
iii. When its valueof theiscompany
low it is and
goodit for
is also important for
the company’s the
owner
bankers
and whenasits well.
value is higher it is good for the lenders
Whencompany
iii. The
iii.
iv.
iv. its valuehasis got
hightheit value
is good of for
0.75the company
means more and
the
low value
assets good for
(75.83%) arelenders.
financed by the equity, not from the
long-term debt.
 Leverage Analysis
Short-term Liab.
Time Interest
To Earned
total Debt Income beforeLiab.
Short-term Interest &=0.57
Taxes
Interest
Total Debt
= 67.85

i.
i. It tells
showsus the
about the amount
interest of short
covering term of
position debts
the according
company
to
thattotal
howdebt
much andtimes
shows ofthe
thelong termcompany
interest solvencyearn
ii.
ii. is importantonfor
This ratio dependent thefinancial managersand
capital structure of the
companyrate
interest and it is also important for the bankers
iii.
iii. When
Importantthe for
short term and
lenders liabilities
for the are less then as
management it well.
is good
iv.
iv. because it shows
A high value no current
is good obligation
for every one on the company
 Leverage Analysis
Pre-tax Earning
After-tax to
Earning
toInterest
Interest Income After
beforeTaxes
Taxes =66.85
= 49.72
Interest
Interest

i.
i.
i. It shows the
It shows theinterest
interestcovering
covering position
position of company
of the the companyafter
after
payingpaying the and
the interest interest that
tax that howhow
muchmuch
times times of the
of the interest
companycompany
interest earn evenearn
aftereven after
paying thepaying
interestthe interest
ii.
ii. This ratio dependent
Dependent on the
on the capital capital structure
structure and therate.
and the interest interest
iii. rate
Important for lenders and for the management as well.
iii.
iii.
iii. Important for lenders and for the management as well.
iv.
iv. A high value is considered to be good
iv.
iv. A high value is good for every one
v.
v. Here it shows that after paying interest the company has
v.
v. Here
sixty this ratio shows
six times that after paying interest and taxes the
of the interest.
company has forty nine times of the interest
 Return on I nvestment
Return
Return on
on Analysis
Total Assets
Equity Capital Net Income After Taxes
Income+Interest (1-Tax rate)
= 20.35%
Avg. Equity Capital
Avg. Total Assets
=12.10%

i.
i. It shows the
It shows the return
returnofonshare
totalholders
assets ifif the
thecompany
companyhas
is
utilizing its assets
high leverage very
then the goodonthen
return thewill
equity return on assets
be higher.
ii.
ii.
will
Thisbe higher.
ratio is particularly important for the share holders.
ii.
ii.
iii.
iii.
This ratio isis particularly
If its value importanttofor
high it is considered be the
goodshare holders
and also the management.
iii.
iii. A high value is considered to be good
 Return on I nvestment
Assets
Net Turnover
Profit Analysis
Rate Ratio
of Return Income before Interest & Taxes
Net Sales
Total
Avg. Total Assets =70.91%
Assets
= 16%

i.
i.
i. It shows the
It shows the net
sales on before
profit total assets if and
interest the company is
tax on total
utilizing
assets. its assets very good then the turnover will be
ii. higher.
This ratio is important for the share holders, lenders and
ii.
ii.
ii. important for the share holders, lenders and also the
also the management
iii. management because
If its value is high it is they have toto utilize
considered be goodthe resources
iii.
of the company.
iii.
iii. Here this ratio shows is very high shows the effective
management of the resources by the management of the
company
 Operating P erformance Analysis
Gross
Net Income
Profit
Margin Income After
Net Sales Taxes
- COGS ==53.82%
16.84%
Net
Net Sales
Sales

i.
i.
i. It showsan
It gives theidea
gross profit
about the margins in margins
net profit the salesinwhich helps
the sales.
company to check should they invest to increase the sales or
ii.
ii. This ratio also shows performance of the company’s
not.
management and shows that the company is earning
ii.
ii. This ratio shows the effectiveness of management of the
from its financial assets
company.
iii.
iii. Management is interested in this ratio.
iii.
iii. All the stake holders are interested in this ratio and the tax
iv.
iv. If its valueespecially
authorities is high it is considered to be good
iv.
iv. Here this ratio shows is very high shows the effective
management of the resources by the management of the
company
 Operating P erformance Analysis
Operating
Pre-tax Income
Income
to Sales Pre-tax
Income Income
before interest =
&22.64%
Taxes
Net Sales
Net Sales
=22.98%

i.
i. It shows
Shows thethe
preoperating
tax profitprofit
marginsmargins
in theinsales.
the sales which
ii. help companyistointerested
Management check should they
in this decrease the expenses
ratio.
ii.
if they are high and if there is a drastic difference between
iii.
iii. If its value is high it is considered to be good
the gross and operating profit.
iv.
iv.
ii.
This
It also ratio
shows shows
how much thecompany
workingdo management
or performance of
working
ii.
company’s
good and shows management
that the howandmuchshows that has
company howa sound
much
company
check on itsis operating
earning from
cost.its financial assets. Calculation
shows company get 22.64% from its financial assets.
iii.
iii. Normally all the stake holders are interested in this ratio
and the tax authorities specially to check the truth of
accounts.
 Asset Utilization Analysis
Sales to Accounts
Sales to Cash
Receivables Sales
Cash = 21.94
=48.71
Accounts
Sales Receivables

i.
i. Shows
It showsthe the relation
relationshipshipbetween
betweensales sales
and and
cash accounts
and tells
receivable
how much sales are generated by the available cash.
ii.
ii. If
If this
this ratio
ratio isis high
highititisisgood
goodforforthethecompany
company andwhich
vice
versa
shows that more cash is generated from the available
iii.
iii. cash
If its value is high it is considered to be good
iii.
iv.
iii.
iv. This ratio also
Calculations showsshows
that performance
sales are moreofthat the 21.91
company’s
times
management
of the accounts andreceivable
calculation so shows that sales
the company are more
is collecting
thatrevenues
its 48.71 times of the available cash
in time.
 Asset Utilization Analysis
SalesSales to
to Working
Capital
Inventories Sales
Sales
=3.98= 3.39
Working
Inventories
Capital

i.
i.
i.
It
It shows
shows the
the relation
relation ship
ship between
between sales
sales and
andinventory
working
i.
and tellsand
capital howtells
muchhowsales are generated
much sales are by the inventory.
generated by the
ii.
ii. If this ratio
working is high
capital it is good for the company
utilized.
iii.
iii.
ii.
ii.
Management is interested
Normally management in this ratio.
is interested in this ratio.
iv.
iv.
iii.
iii.
This
If thisratio
ratio also shows
is high performance
it is good of the company’s
for the company
management and calculation shows that sales are more
that 3.98 times of the inventory.
 Asset Utilization Analysis
Sales to
Sales to
Total Assets
Fixed Assets Sales
Sales = 0.69
=1.48
Fixed
Total Assets

i.
i. Shows the relation ship ship between
between sales
sales and
and fixed
total assets
and tells how much sales are generated by the utilization
of total
fixedassets.
assets.
ii.
ii. If this ratiomanagement
Normally is high it is good
is interested
for the in
company
this ratio.
iii.
iii. Management
If this ratio is is
high
interested
it is goodin this
for the
ratio.
company
 Market Measures Analysis
Dividend
Earning per
per Share
Share Earning After
Dividend Taxes
Declared
No.
No. of
of Shares
Shares Outstanding
Outstanding
=10.53
= 1.0

i.
i. This
It ratio
tells is related
about to the of
the dividend market measures
one share and itit also
tells shows
about
the
the earning against
availability one with
of cash share.the company
ii.
ii. If
If this
this ratio
ratio is
is high
high it
it is
is good
good for
for the
the company
company
iii.
iii. ratioshows
High ratio showsgoodgood working of
performance ofthe
thecompany
company’sand
management.
also showing that company has no cash flows problems.
 Market Measures Analysis
Average
Price Earning
Market
Ratio
Price Market
Market
PricePrice
(High+Low)
= 11.59%
=121.99
Earning per
2 Share

i.
i. about
It tells that the the
what market value
return of the
of your share if the
investment is. market
ii.
ii.
price of the
This ratio share helps
exactly is higher than the to
the investor book
takevalue so it is
the decision
good
of investment in company .
ii.
ii.
iii.
iii.
It also ratio
A High shows how muchgood
is considered company is reputed in its
commitments.
iii.
iii. If this ratio is high it is good for the company
iv.
iv. The average market price of the shares of the companies
in this industry is not sure because it fluctuate all the
times.
 Market Measures Analysis
Dividend
Earning Yield
Yield DividendPer
Earning PerShare
Share =7%
= 0.82%
Avg.
Avg.Market
MarketPrice
Price

i.
i.
i.
It
It tells
tells about
about the
the earning
earning of of one
one share
share in
in comparison
comparison with
with
the
the price
price paid
paid for
for it
it.
ii.
ii.
ii.
If this ratio
A High ratioisishigh it is good
considered for the company
good
iii.
iii.
iii.
If
If itit is
is higher
higher thanthan thethe industry
industry,it shows
show very
very good
good
performance
performance of of the
thecompany
companyand andalso
alsoshows company
shows company is
paying
have no acash very good
flows return for the price paid by the
problems.
owners.
 CASH Model
Target 1
Cash collected from sales 1,060,302,072
Target 2
Cash paid for production (559,380,344)
Cash from trading activities 500,921,728
Target 3
Cash paid for operating cost (323,756,305)
Cash after operations 177,165,423
Target 4
Tax paid and other income (expense) 196,163,249
Net cash after operations 373,328,672
 CASH Model
Target 5
Note:
Cash
In ourpaid
cashfor dividends
model there and
is ainterest
difference (68,930,476)
of cash out flow of
Cash6,351,742.
Rs. after financing
The cost
actual cash out 304,398,196
flow according to
company’s
Target 6 cash flow statement is Rs. 13,524,454 where as
according to our calculations
CPLD & Finance lease cash (57,733,653)
outflow is Rs. 19,867,196
Cash after Debt & Amortization (CADA) 246,664,543
Target 7
Change in FA & Investment after adjustment (295,479,306)
Financing requirement (Surplus) (48,814,763)
Target 8
Total external financing 28,938,567
Change in cash (19876196)
CONCLUSIO
N
TH
E EN
D