FM Report Ratio analysis

ANALYSIS OF FINANCIAL REPORT

BAHRIA UNIVERSITY KARACHI 1

LETTER OF TRANSMITTAL

May 26, 2008

Mrs. Shumaila Israr

Teacher, Financial Management

Bahria University

Karachi.

Madam:

We herewith present our “Term Report” authorized by you as a requirement for this course.

In this report, we have tried to provide analysis of financial statements of Atlas Batteries Ltd.

We hope we have covered all that was required for the report.

If there be any clarification demanded, we would appreciate a call from you to our group

members.

Sincerely,

Bilal Razzak

Faris Hafeez

Maaz Khalid

Umair Zafar



ACKNOWLEDGEMENT

In the name of “Allah”, the most beneficent and merciful who gave us strength and knowledge

to complete this report. This report is a part of our course “Financial Management”. This has

proved to be a great experience. This report is a combine effort of Bilal Razzak, Maaz Khalid and

Umair Zafar.

We would like to express our gratitude to our Finance teacher Ms. Shumaila Israr; who gave us

this opportunity to fulfill this report. We would also like to thank our colleagues who

participated in a focus group session. They gave us many helpful comments which helped us a

lot in preparing our report.



VISION STATEMENT AND MISSION STATEMENT OF

ATLAS BATTERIES LTD.

VISION STATEMENT

A manufacturer and supplier of

high quality lead acid automotive

and motorcycle batteries in

domestic and international

market.

MISSION STATEMENT

To achieve market leadership

through technological edge,

distinguished by quality service

and customers’ satisfaction,

emphasis on employees’ long

term welfare and ensure

adequate return to shareholders.

Be a good corporate citizen of the

society and country through

harmonized endeavor.



COMPANY PROFILE

Atlas Battery Limited pioneered the manufacture of dry charged Hard Rubber batteries in

Pakistan. Now the company manufactures a complete range of Polypropylene and hard rubber

batteries which caters to the needs of passenger cars of varied capacities, trucks, tractors,

heavy vehicles, construction and road building equipment, as well as host of stationary and

industrial applications. Motorcycle batteries have also been added to this range. The company

has always been at the vanguard of development in the automotive industry in Pakistan making

great strides in the fields of research and development. The brand has, over the years,

earned a solid reputation as a product of latest Japanese technology with consistently high

levels of performance and reliability.

The sustained and continued high level of quality is ensured by ABL’s Quality Department with

its exacting standards and state-of-the-art lab facilities manned by highly trained professionals

monitoring the quality of batteries being produced .The entire process is overseen by a

Technical Advisor from Japan Storage Battery Company Limited stationed at Karachi. He is

attached to the factory and monitors and guides the technical Division in ensuring and meeting

the international standards of quality.

The focal point of the company’s philosophy is customer satisfaction through continued

product excellence. Atlas Battery Limited aims at maintaining its lead in technology with the

help of its in-house research and development program, interfacing with Japan Storage Battery

Company Limited.

ABL’s technological superiority is matched by its vast national network of over 600 dealers and

retail outlets ensuring availability and prompt delivery of its products. All our regional and zonal

offices are equipped with service center and are staffed with trained to provide technical

personnel to provide an efficient service backup. The technical personnel also regularly tour

their sales and territories monitoring service needs, problem and trouble-shooting. Our

associates are ably supported by a steady supply of instruments and equipment imported and

supplied by us, to enable them to carry out testing and repairing services with prompt attention

and efficient resolution of operational complaints.



COMPANY’S PRODUCTS

• Automotive Batteries

• Motorcycle Batteries

AUTOMOTIVE BATTERIES

There are three types of batteries produced by Atlas Batteries Ltd.

• Light Batteries

• Medium Batteries

• Heavy Batteries

CUSTOMERS FOR MEDIUM AND HEAVY BATTERIES

1. Honda Atlas Cars (Pakistan) Ltd.

2. Pak Suzuki Motor Company Ltd.

3. Indus Motor Company Ltd.

4. Dewan Farooque Motors Ltd.

5. Sigma Motors (Pvt.) Ltd.

6. Ghandhara Nissan Ltd.

7. Master Motor Corporation Ltd.



CUSTOMERS FOR LIGHT BATTERIES

1. Atlas Honda Ltd.

2. Dawood Yamaha Ltd.

3. Delta Innovations Ltd.

4. Fateh Motors Ltd.

5. Sindh Engineering (Pvt.) Ltd.

6. Super Asia Motors Ltd.

7. D.S. Motors

8. N.J. Auto Industries (Pvt.) Ltd.



RATIO ANALYSIS

A statistic has little value in isolation. Hence, a profit figure of Rs.100 million is meaningless

unless it is related to either the firm’s turnover (sales revenue) or the value of its assets.

Accounting ratios attempt to highlight the relationships between significant items in the

accounts of a firm.

Financial ratios are the analyst’s microscope; they allow them to get a better view of the firm’s

financial health than just looking at the raw financial statements

Ratios are used by both internal and external analysts

Internal uses

• Planning

• Evaluation of management

External uses

• Credit granting

• Performance monitoring

• Investment decisions

• Making of policies



CATEGORIES OF FINANCIAL RATIOS

The accounting ratios can be grouped in to five categories:

1. Liquidity Ratios shows the extent to which the firm can meet its financial obligations.

2. Asset Management Ratios shows that how effectively the firm is managing its assets.

3. Debt Management Ratios shows the extent to which a firm uses debt financing or

financial leverages.

4. Profitability Ratios relates profits to sales and assets.

5. Market Value Ratios are a measure of the return on investment.



0

0.5

1

1.5

2

2006 2007

Current Ratio

Current Ratio

LIQUIDITY RATIOS

Current Ratio: Current Ratio shows a firm’s ability to meet current liabilities with its current assets.

Formula:

��

2006

��

�� .�� .

2007

��

�� .� ��.

Analysis:

The current ratio is lower in 2007 as compared to 2006.There is an increase in all the current assets

except other receivables which decreased in 2007. The net current assets increased by 121 million in

2007 and at the same time the net current liabilities increased by 148 million in 2007.



0

2

4

6

2006 2007

Quick Ratio

Quick Ratio

Acid Test Ratio: Acid Test Ratio or Quick Ratio shows a firm’s ability to meet current liabilities with its most

liquid assets.

Formula:

�� !�"��

2006

�� #$%$&#'''()$*'$)''' )'*')'''

�� .�� . 2007

�� +��

�� .�� .

Analysis:

We have seen that the company had a lower current ratio in 2007 and was unable to meet its short term

obligations as compared to 2006. Where as the quick ratio identifies the role played by the inventories

in this context. Therefore the ratio shows that in year 2007 it has decreased as compared to 2006 due to

the fact that the investment in inventories is increased by 88 million only and current liabilities have

increased by 148 million. The company is still not able to meet its short term obligations.



5

5.2

5.4

5.6

2006 2007

Inventory Turnover

Ratio

Inventory

Turnover

Ratio

ASSET MANAGEMENT RATIO

Inventory Turnover Ratio:

Formula:

,-./-0123 452-1./2 67081 9 :7;/<,-./-0123

2006

,-./-0123 452-1./2 67081 9 1209033000218012000

,-./-0123 452-1./2 67081 9 5.55

2007

,-./-0123 452-1./2 67081 9 1585648000306171000

,-./-0123 452-1./2 67081 9 5.2

Analysis:

The inventory turnover ratio in the year 2006 was 5.55 which indicate that 5.55 times in a year the

inventory of the firm is converted into receivables or cash. However, in 2007, the inventory turnover

ratio slightly decreased to 5.2. This was due to the fact that the company, in 2007, invested more then

1.4 times the inventory in 2006.



10

11

12

13

14

15

2006 2007

DSO

DSO

Days Sales Outstanding:

Formula:

G73< :7;/< H50<07-I8-J 9 6/K8/.7L;/<:7;/< M 365

2006

G73< :7;/< H50<07-I8-J 9 45864000 N 3650001209033000 M 365

G73< :7;/< H50<07-I8-J 9 13.96 I73<

2007

G73< :7;/< H50<07-I8-J 9 51834000 N 260001585648000 M 365

G73< :7;/< H50<07-I8-J 9 11.9

Analysis:

DSO in year 2006 was 13.96 days which has now decreased to 11.9 days which shows that the

company is more effective in collecting receivables now in comparison of previous year, even

the sales has increased by 376 million on the other hand receivables decreased which resulted

Lower DSO.



5

5.02

5.04

5.06

5.08

5.1

5.12

2006 2007

Fixed Asset Turnover

Fixed Asset

Turnover

Fixed Asset Turnover:

Formula:

O8P/I Q<</0 452-1./2 9 :7;/<O8P/I Q<</0

2006

O8P/I Q<</0 452-1./2 9 1209033000239712000

O8P/I Q<</0 452-1./2 9 5.04

2007

O8P/I Q<</0 452-1./2 9 1585648000310995000

O8P/I Q<</0 452-1./2 9 5.1

Analysis:

According to the calculations above the productivity of fixed assets in year 2007 is better than it was in

previous years. In 2006, it was 5.04 times and now it has been slightly increased to 5.1 times. This

change was brought about by increase in total sales by 31%, where as the fixed assets increased only by

29.7%.



2.06

2.08

2.1

2.12

2.14

2.16

2006 2007

Total Asset Turnover

Total Asset

Turnover

Total Asset Turnover:

Formula:

4107; Q<</0 452-1./2 9 :7;/<4107; Q<</0

2006

4107; Q<</0 452-1./2 9 1209033000562887000

4107; Q<</0 452-1./2 9 2.15

2007

4107; Q<</0 452-1./2 9 1585648000755242000

4107; Q<</0 452-1./2 9 2.1

Analysis:

According to the calculations above the productivity of assets in year 2007 is not as good as it was in

previous years. In 2006, it was 2.15 times and now it has been decreased to 2.1 times. This change was

brought about by increase of 34% in the total assets, where as the total sales only increased by 31%.



0.52

0.525

0.53

0.535

0.54

0.545

0.55

0.555

2006 2007

Debt Ratio

Debt Ratio

DEBT MANAGEMENT RATIO

Debt Ratio:

Formula:

G/L0 67081 9 4107; G/L0<4107; Q<</0<

2006

G/L0 67081 9 208020000 N 50517000 N 40000000562887000

G/L0 67081 9 53%

2007

G/L0 67081 9 62881000 N 356363000755242000

G/L0 67081 9 55%

Analysis:

The debt ratio in 2006 was 0.53 which shows that 53% of the firms assets are debt financed and 47% are

by equity finance. In 2007 the debt ratio increased to 0.55 which means that 55% of the firms assets are

debt financed and 45% are equity financed. The company assets are already in more debt finance

however the ratio of debt financing has increased in 2007.



0

1

2

3

4

5

6

7

2006 2007

TIE Ratio

TIE Ratio

Times Interest Earned Ratio:

Formula:

48S/< ,-0/2/<0 T72-/I 67081 9 TU,4,-0/2/<0 VW72J/<

2006

48S/< ,-0/2/<0 T72-/I 67081 9 8410100017877000

48S/< ,-0/2/<0 T72-/I 67081 9 4.70

2007

48S/< ,-0/2/<0 T72-/I 67081 9 14429900022042000

48S/< ,-0/2/<0 T72-/I 67081 9 6.5

Analysis:

Times Interest Earned ratio was 4.7 in 2006 which have increased to 6.5 in 2007 therefore the company

is able to cover the interest expense at a higher margin of safety. This was due to the fact the company

increased the short term borrowing and decreased its long term borrowing from 40 million to zero. As a

result the net profit increased by 46 million whereas the interest charges only increased by 4.2 million.

Thus it shows an intelligent move made by the company to borrow less and depend more on the

investment through other financing techniques.



0

2

4

6

8

10

2006 2007

EBITDA Ratio

EBITDA Ratio

EBITDA Ratio:

Formula:

TU,4GQ 67081 9 TU,4 N G/X. NQSS1208Y7081- N Z/7</ [73S/-0,-0/2/<0 VW72J/< N [28-K8X7; [73S/-0 N Z/7</ [73S/-0

2006

TU,4GQ 67081 9 84101000 N 25250000 N 0 N 017877000 N 56000000 N 0

TU,4GQ 67081 9 1.48

2007

TU,4GQ 67081 9 144299000 N 33896000 N 0 N 022042000 N 0 N 0

TU,4GQ 67081 9 8.1

Analysis:

In 2006 EBITDA ratio was 1.48 times. In 2007 EBITDA increased drastically to 8.1 times, the

reason for this is the repayment of principal leaving zero long term debts in 2007.



0

0.1

0.2

0.3

0.4

0.5

0.6

2006 2007

Profit Margin

Profit Margin

PROFITABILITY RATIO

Profit Margin:

Formula:

[21\80 ]72J8- 9 ^/0 ,-K1S/ Q.78;7L;/ 01 V1SS1- :01K_ `1;I/2:7;/<

2006

[21\80 ]72J8- 9 413230001209033000

[21\80 ]72J8- 9 3.42%

2007

[21\80 ]72J8- 9 875100001585648000

[21\80 ]72J8- 9 5.5

Analysis:

The profit margin has increased from 3.42% in 2006, to 5.5% in 2007. According to the figures, company

has been successful in raising their Sales by 31% in 2007 but the increases in net income available

common stock holders was 111% which leaded to a increase in the profit margin.



0

0.05

0.1

0.15

0.2

0.25

2006 2007

BEP

BEP

Basic Earning Power:

Formula:

UT[ 9 TU,44107; Q<</0<

2006

UT[ 9 84101000562887000

UT[ 9 14.94%

2007

UT[ 9 144299000755242000

UT[ 9 19.1%

Analysis:

The BEP has increased from 14.94% in 2006, to 19.1% in 2007. This increase was due to increase

in EBIT by 71.6% and the total assets increased by just 34.17% which leaded to increase in the

BEP.



0

0.2

0.4

0.6

0.8

2006 2007

ROA

ROA

Return on Asset:

Formula:

6HQ 9 ^/0 ,-K1S/4107; Q<</0<

2006

6HQ 9 41323000562887000

6HQ 9 7.34%

2007

6HQ 9 87510000755242000

6HQ 9 11.5%

Analysis:

The Return on Assets gradually rose in year 2007, to 11.5% from 7.34%, in year 2006. This was due to

the fact as the Net income by 111.7% whereas total asset only increased by 34.17%. Atlas Batteries has

been able to use its total assets more efficiently over these years and have been successful in raising net

profit as well.



0

0.05

0.1

0.15

0.2

0.25

0.3

2006 2007

ROE

ROE

Return on Equity:

Formula:

6HT 9 ^/0 ,-K1S/V1SS1- Ta5803

2006

6HT 9 ��

6HT 9 15.62%

2007

6HT 9 87510000339858900

6HT 9 26%

Analysis:

According to the figures, Atlas Batteries shows a favorable trend to the shareholders, initially being at

15.62% and then rising by 10.38% to 26%. This again has been due to 111.7% increase in Net income.

Though shareholders equity has also increased as the company is increase debt financing, but the

increase in shareholders equity is lower relative to the increase in net profit.



0

2

4

6

8

10

12

14

2006 2007

Price Earning Ratio

Price Earning

Ratio

MARKET VALUE RATIO

Price Earning Ratio:

Formula:

[28K/ T72-8-J 67081 9 [28K/ [/2 :W72/T72-8-J [/2 :W72/

2006

[28K/ T72-8-J 67081 9 73.97.8

[28K/ T72-8-J 67081 9 9.5

2007

[28K/ T72-8-J 67081 9 167.814.4

[28K/ T72-8-J 67081 9 11.7

Analysis:

The ratio shows how much the investors are willing to pay per Rupee of reported profits. It can be seen

from calculations that in year 2007 the ratio has increased from 9.5 to 11.7. This was due to the fact that

the earnings per share over the year is increased with great difference due to which the market price

increased as a result of demand of shares. However a higher Price Earning ratio shows high growth

prospects due to which the income has therefore increased in the year 2007.



0

1

2

3

4

5

6

2006 2007

Price per Cash Flow

Price per Cash

Flow

Price Cash Flow Ratio:

Formula:

[28K/ V7<W O;1b 67081 9 [28K/ [/2 :W72/V7<W O;1b [/2 :W72/

2006

[28K/ V7<W O;1b 67081 9 73.929.93

[28K/ V7<W O;1b 67081 9 2.46

2007

[28K/ V7<W O;1b 67081 9 167.834.8

[28K/ V7<W O;1b 67081 9 4.82

Analysis:

It can be seen from calculations that in year 2007 the ratio is increased from 2.46 to 4.82. This was due

to the fact that the price per share over the year has increased with great difference of 93.9 per share

where as cash flow per share increased by just 16.3%.



0

0.5

1

1.5

2

2006 2007

Market per Book Ratio

Market per

Book Ratio

Market per Book Ratio:

Formula:

[28K/ U11_ 67081 9 [28K/ [/2 :W72/U11_ c7;5/ [/2 :W72/

2006

[28K/ U11_ 67081 9 73.9102.76

[28K/ U11_ 67081 9 0.72

2007

[28K/ U11_ 67081 9 167.8114.8

[28K/ U11_ 67081 9 1.46

Analysis:

It can be seen from calculations that in year 2007 the ratio is more than doubled from 0.72 to 1.46. This

was due to the fact that the price per share over the year has increased with great difference of 93.9 per

share where as book value per share increased by just 11.7%.



ADDITIONAL FUNDS NEEDED

Company is working on the capacity of 76% and its sales are having growth rate of 31%.

Formula for AFN:

QO^ 9 Qd

:�M ∆: f Zd

:�M ∆: f ] M :�g1 f G[Hh

Where

A*= Spontaneous Assets

L*= Spontaneous Liabilities

So= Sales of previous year

S1= Sales of Current Year

∆S= Change in sales

M= Profit margin

DPO= Dividend payout ratio

QO^ 9 i 4402351585648 M 376615 f 156154

1585648 M 376615 f 0.055 M 2077199g1 f 0.417hj M 1000

QO^ 9 868000

For Fixed Assets

:7;/< @ 100% K7X7K803 9 V522/-0 :7;/<V7X7K803 l</I

:7;/< @ 100% K7X7K803 9 15856480.76

:7;/< @ 100% K7X7K803 9 2086379

Analysis:

By the information from above calculation it can be said that the company only required Rs.

868000 as an additional funds to fulfill its growth of sale. The company do not require

additional funds for its fixed assets because its expected sales is less than the sales @ 100%

capacity







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FM Report Ratio analysis