Financial Silverstone

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Financial Analysis

Silverstone

Chapter 6 FINANCIAL ANALYSIS

This chapter is based on the financial analysis of the company. First the

accounting polices of the company is given, and then the financial analysis of

the company is explained by using different financial ratios.

6.1 Significant Accounting Policies

The company follows the following accounting policies.

6.1.1 Accounting Convention

These accounts have been prepared under the historical cost convention in

accordance with the schedule v of the companies ordinance, 1984.

6.1.2 Fixed Operating Assets

These are stated at cost less accumulated depreciation, except land leasehold

which is stated at cost. Depreciation has been charged by applying reducing

balance method at the normal rates. Full depreciation will be provided on

additions, irrespective of the date of additions.

6.1.3 Stock and Stores

These are valued as under:

a. Raw material: At annual average cost.

b. Finished goods: At lower of cost or net realizablevalue.

c. Stores and spares: At moving average cost.


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Financial Analysis

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6.1.4 Turn Over Tax

In the light of the decision of supreme court dated 04-06-1997, the units

enjoying the tax holiday period under clause 118-C are exempted from the

payment of turn over lax u/s 80-D, hence the provision for turn over tax has

not bee made in these accounts.

6.1.5 Figures

Have been rounded off to the nearest rupee.

Of the previous year have been re-arranged and regrouped.

6.2 Ratios Analysis

The financial analysis Silverstone (Pvt) limited is based upon the companys

annual audited report. There are different financial analysis procedures thatcan be adopted to measure the financial strength of a company. A couple of

these procedures are financial ratios calculated from the annual balance sheet

and statement or cost of goods sold statement, to measure and locate the exact

causes of variation in income in two successive years.

The financial ratios upon which the for-going analysis is going to be based can

be categorized in three broad categories.

a. Profitability Ratios

b. Asset Utilization Ratios

c. Liquidity Ratios


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Financial Analysis

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BALANCE SHEET (Rs.)

Share Capital 2001 20001. Authorized 4000000 ordinary

Shares of RS: 100 / each 40,000,000 40,000,000

2. Issued subscribed and paid up 3,116,000 31,160,000

3. Unappropriated profit 16,196,038 12,337,078

4. Log term loans 457,667 690,667

5. Log term deposits 1,290,000 4,031,911

6. Lease many payable 60,000 900,000

CURRENT LIABILITY

1. Current portion of long term

loans 2,323,000 6,332,668

2. Current portion of lease money

payable 30,000 30,000

3. Short term borrowings 18,606,962 429,556

4. Accruals and other liabilities 7,675,895 5,591,812

PROPERTY AND ASSETS

1. Fixed operating Assets 48,499,991 42,749,333

2. Intangible Assets 4,500 4,500

3. Long term deposits 1,153,425 666,645

CURRENT ASSETS

1. Store and spares 19,509 98,148

2. Stock in trade 1,129,296 13,419,871

3. Trade debtors 13,624,107 6,672,698

4. Advances deposits, prepayments


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and other accruals 63,337,773 5,887,1333


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Financial Analysis

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INCOME STATEMENT (Rs.)

2001 2000

Sale 103,967,467 8,748,227

COGS (87,666,934) (72,895,970)

Gross profit 16,900 14,584,317

OPERATING EXPENSES

Administrative (8,704,462) (8,035,515)

Selling & distribution (1,473,124) (1,442,475)

Financial (2,998,884) (2,526,870)

OPERATING PROFIT 37224064 2579,457

Other income 1975,38 280,954

Profit before taxation 3,921,642 2608411

Taxation 62,882 379,628

Profit After Taxation 3,858,960 2,928,039

Unappropriated brought

toward profit 12,337,078 9,409,039

Unappropriated carried

forward 16,196,038 12,337,078


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0

3.34%

3.71%

0

0.005

0.01

0.015

0.02

0.025

0.03

0.035

0.04

1 22000 2001

PROFIT MARGIN

Series2

Series1

Financial Analysis

Silverstone

6.2.1 Profitability Ratios

1. Profit Margin =SalesIncomeNet

2000 = %34.3227,480,87

039,928,2=

2001 = %71.3467,967,103

960,858,3=

Source: Silverstone Annual Report, 2001.

As obvious the profit margin has increased from 3.34% to 3.71. This is

due to the increased income in 2001.


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2. Return on Asset =AssetsTotal

IncomeNet

2000 = %67.10219,428,27

039,328,2=

2001 = %939.11651,341,32

960,858,3=


RETURN ON ASSETS

10.67%

11.94%

10.00%

10.50%

11.00%

11.50%

12.00%

12.50%

2000 2001


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Financial Analysis

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3. Return on equity =Equaity

IncomeNet

2000 = %0673.0078,497,43

8039,292=

2001 = %081.0038,356,42

960,3858=

RETURN ON EQUITY

0

0.081%

0.0673%

0

0.01

0.02

0.030.04

0.05

0.06

0.07

0.08

0.09

2000 2001


Return on Equity has increased from 0.067% to 0.08%. this is due to the

more income in 2001 as compared to 2000.


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Financial Analysis

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6.2.2 Asset Utilization Ratios

1. Receivable Turnover =ceivablesCreditSale

Re)(

2000 = Times1.13692,6672

227,480,87=

2001 = Times63.7102,624,13

462,967,103=

0

13.10

7.63

0

0.02

0.04

0.06

0.08

0.1

0.12

0.14

1 2 3

2000 2001

RECEIVABLES TURNOVER


The Receivable Turnover ratio has been decreased during the financial

year 2001 as compared to that of financial year 2000. The net change

observed is 5 times, which shows that the conversion of receivables into

cash has been decreased for the year.


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Average Collection Period =SaleCreditdailyAverage

RA /

2000 = Days27239672

2692,667=

2001 = Days47284892

107,624,13=

27

47

0

10

20

30

40

50

1 2

2000 2001

AVERAGE COLLECTION PERIOD


The average collection period has been prolonged by 20 days in the

financial year 2001 as compared to that in 2000. This is due to the

decreased in receivables turnover.


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Financial Analysis

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3. Inventory turnover =Inventory

Sale

2000 = Times51.6871,419,13

227,480,87=

2001 = Times63.7107,624,13

467,967,103=

INVENTORY TURNOVER

6.51

7.63

5.8

6

6.2

6.4

6.6

6.8

7

7.2

7.47.6

7.8

2000 2001


The inventory turnover ratio has been increased during the year 2001.

Net change is 1 times, which shows the greater efficiency of the

organization.


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Financial Analysis

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4. Fixed Asset Turnover =AssetFixed

Sale

2000 = Times046.2333,749,42

227,87480=

2001 = Times14.2991,499,48

103967467=

FIXED ASSET TURNOVER

0

2.142.05

0

0.005

0.01

0.015

0.02

0.025

2000 2001

Series2

Series1


The fixed assets turnover has been increased slightly during the year

2001 as compared to that in 2000, which is a good sign for the

organization.


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5. Total Asset Turnover =AssetTotal

Sale

2000 = Times23.1692,848,20

227,480,87=

2001 = Times26.1567,999,81

467,967,103=

TOTAL ASSETS TURNOVER

1.23 1.26

0

0.002

0.004

0.006

0.008

0.01

0.012

0.014

2000 2001


The total assets turnover of the organization has also been slightly

increased during the financial year 2001 as compared to that in financial

year 2000. The total assets turnover ratio for the period is 1.26 times,

which was 1.23 times in 2000, which shows the better performance for

the year.


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Financial Analysis

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6.2.3 Liquidity Ratios

1. Current ratios =sLiabilitieCurrent

AssetsCurrent

2000 = Times68.1041,249,16

219,428,27=

2001 = Times12.1862,635,28

651,341,321=

2. Quick Ratio =LialitiesCurrent

InventoryAssetCurrent

2000 = Times86.00041,249,16

871,13419,219,29428=

2001 =

Times65.0862,28635

102,624,13,651,32341=

QUICK RATIO

0

0.65

0.86

0

0.002

0.004

0.006

0.008

0.01

2000 2001

Series1

Series2



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Financial Analysis

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The quick ratio of the organization has been decreased for the year

2001. The net change is 0.21 times, which shows that the most liquid

assets of the organization has been decreased for the year.

6.3 Explanations to the Ratios Determined

In the coming paras explanation has been given to the all above determined

ratios.

6.3.1 Asset Utilization Ratio

Analyzing the Income Statement and Balance Sheet of the company for the

year 2000 and 2001. We see a drop on the receivable turnover ratio from 13.1

to 7.63. The sale and receivables to increased but not in that proportion as in

2000. This is due to the increases rate on credit , which has caused the

receivables to increase.

The same thing is pronounced by the average collection periods, which is 27

days in 2000 but has increased to 47 days in 2001, which means that the

company should improve its receivables channels.

The inventory turnover, has increased from 0.51 763 the figures shows that the

sale has been increased but at the same time the inventory has increased and is

not maintained in that efficient manner as were in the year 2000.

Fixed asset turnover has increased from 2.01 to 214, which shows in forced

asset evolution. This is because of the fact total asset turnover has also

increased from 1.23 to 1.26 again the fact in the increase in the sale in 2001.

6.3.2 Profitability Ratio

Profit margin shows increase from 3.34% to 3.71. The figure shows a high

increase in the sale, but at the same tine the company has increases its profit


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Financial Analysis

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margin this is because that sale has increases and increased sale means high

production and high promotion means, low manufacturing cost, and low

manufacturing cost means high net income and high net income means high

profit margin. The same thing is pronounced by the ratios of return on asset,

and return on equity. In both the cases at has increased in 2001 as compared to

2000, which is as stated above is because of the improvement net income.

6.3.3 Liquidity Ratios

As the Calculations shows that current and quick ratio has been decreased.

The current ratio is decreased from 1.68 to 1.12 and which ratio has been

decreased from 0.86 to 0.65. This is because that current liabilities has

increased and the reason for increase in current liabilities is due to the use of

increased raw materials on credit, which was required for the high production

as needed for increased sale in the year 2001.

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Financial Silverstone