Financial Analysis on

By

Faizan Ahmed (13378)

Analysis of Financial Statement (BBA-H)

To

Sir Faisal Sarwar

July 22, 2013

1

Table of Contents

1 OVERVIEW………………………………

2 SWOT ANALYSIS……………………….

3 HORIZONTAL ANALYSIS…………….

4 VERTICAL ANALYSIS…………………

5 RATIO ANALYSIS……………………….

6 INTRA COMPANY ANALYSIS………

7 INTERPRETATION……………………

8 CONCLUSION…………………………….

2

REASON FOR CHOOSEN PAKISTAN TOBACCO COMPANY:

I selected Pakistan Tobacco Company for analysis because it is market leader of Tobacco

industry in Pakistan and all the famous brands of cigarettes available in Pakistan are produced by

PTC.

TOBACCO INDUSTRY IN PAKISTAN:

The tobacco industry in Pakistan operates in an oligopolistic market, with only two major

players, Pakistan Tobacco Company (PTC) having 50% market share and Philip Morris Pakistan

(formerly Lakson Tobacco Company) having a market share of 32%. The remaining 18% of the

market consists of small fragmented players (usually out of tax bracket sold in interiors) and

hence their prices are very much lower than the regulated segment. Both the big companies have

expanded their capacities in Pakistan and hence have their own manufacturing facilities in the

country enough to cater to the country’s current demand for cigarettes. Pakistan Tobacco

Company operates with two manufacturing plants, one in Khyber Pakhtunkhwa and the other in

Punjab having a combined annual capacity of ~45bn sticks. and in the market.

ECONOMIC IMPORTANCE OF TOBACCO

Tobacco is a crop with myriad aspects. Not only does it involves scientific treatment, but special

attention by the producers during the growth, curing and marketing stages. This crop possesses

considerable economic significance and its impact on the fiscal and monetary policies of major

producing, exporting/importing countries is quite pronounced. In Pakistan, although tobacco

cultivation occupies a relatively small area of 0.27% of the total irrigated land in the country, it is

of great economic value as a source of revenue, employment and foreign exchange earnings to

the country. During 2011-2012, above Rs.65.6985 billions were contributed to the Federal

Exchequer as Central Excise Duty and Sales Tax. Being a highly labor -intensive crop, about

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eighty thousand persons are involved in its cultivation, fifty thousands are engaged

in 21 factories of the Tobacco Industry and another one million find indirect

employment. It is also an important source of foreign exchange earnings for the

country (US$ 30.58 million during 2011-2012). Had the production of tobacco crop

not been developed by the Pakistan Tobacco Board on scientific lines, the country would have

been importing raw material worth Rs.8-10 billion per annum (2011-2012).

PAKISTAN TOBACCO COMPANY:

Pakistan Tobacco Company is an associate of leading global tobacco group, British American

Tobacco Company, which has a legacy spreading over more than 100 years. The BATC has its

presence in more than 180 countries and is known for its high quality tobacco brands. From

crops to commercialization, the company is involved in every aspect of the cigarette

manufacturing. The product portfolio of PTC is well diversified it has different varieties to offer

a wide range of smokers from low price to premium quality high priced cigarettes. 

British American Tobacco Company started its operations back in 1947 and is the first

multinational to lay its foot on Pakistan. In 65 years, it has grown from a company operating

with a warehouse near Karachi port to having two state of the art facilities employing more than

1,700 employees today. PTC has products that cater to all markets and all consumer choices

from low income to prestige brands. It has six different brands to offer its consumers, Dunhill

and Benson and Hedges are the premium quality brands. They were re-launched in Pakistan in

2007 and 2003. Both the brands have been performing well since then. John Player Gold Leaf,

the largest urban brand in Pakistan, is the most familiar brand. In the low range segment PTC

offers Capstan by Pall Mall (CbPMO), Embassy and Gold flake. Embassy is the leading volume

brand, and the most popular brand in Punjab. It's locally tailor-made taste has enabled it to

achieve high brand loyalty. 

4

ANNUAL HIGHLIGHTS  

Even though the government then undertook some significant crackdown drives during 2012, the

year did not see any drastic change in the enforcement environment as the consumers continued

to be attracted towards the cheaper, duty evaded brands. Also, 2012 was a year of sustainability

for PTC after 2011 - a year when workforce was rationalized and the technology was upgraded.

The tobacco firms market share during 2012 stood at 50.4 percent compared to 48.6 percent in

2011 primarily on account of the re launching of Capstan by Paul Mall original a amongst its

other initiatives of marketing its brands. 

5

SWOT ANALYSIS OF PAKISTAN TOBACCO COMPANY

STRENGTHS:

Large portfolio of brands Market leader in with 50% share captured Manufacturing plants in Attock and Jehlum PTC employees are loyal with their organization They have strong supplier chain system and their products are available in every place

and with every retailer PTC have their own farms in KPK region (Mardan , Swabi , Bonaire)

WEAKNESS:

Their production system is not cost effective

OPPORTUNITIES:

Because of their good will potential customers are switching to other brands of PTC Lakson Tobacco Company is diversifying some of its Brands .This is great opportunity

for Pakistan Tobacco Company that customers of Lakson Tobacco are switching to PTC Brands

THREAT:

In KPK region PTC has facing security problem from Talibans Millions and extra money is spent to give security to employee of PTC

Price of Tobacco are increasing due to Government duty PTC is not allowed to advertise its products Counter fit has a 20% market share Rising taxes Increasing regulation Stiff competition from the growing illicit/illegal trade in the wake of weak enforcement.

6

About Analysis:

I did the analysis of Pakistan tobacco’s financial statement and subsequently found out

the financial performance and the position of the company, along with the comparative

analysis on the basis of intercompany and industry average. The analysis involves

horizontal, vertical, trend and ratio analysis. For the investor considering the purchase of

shares in the company, the return they will earn is the key financial factor but an overall

evaluation of the company’s performance and position is also important to get a better

picture of how well the company is actually doing. This report will assist them making

decision.

PTC is using IFRS and GAAP; IFRs for report and GAAP for Accounting standard

Inventory Valuation Method:

Stock-in-trade is stated at the lower of cost and net realizable value. Cost is determined using

the weighted average method. The cost of finished goods and work in process comprises design

costs, raw materials, direct labour , other direct costs and related production overheads.

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HORIZONTAL ANALYSIS OF PROFIT AND LOSS :

PROFIT & LOSS ACCOUNT 2007 2008 2009 2010 2011 2012

             Gross turnover base year 19.97 40.73 47.22 65.06 84.72Excise duties base year 20.92 43.20 57.81 79.78 101.20Sales tax base year 23.40 48.59 58.40 77.47 95.07Net turnover base year 17.64 35.05 30.60 43.05 61.32Cost of sales base year 21.71 41.09 54.79 75.38 83.00Gross Profit base year 11.68 26.23 -4.77 -4.22 29.62Selling and distribution expenses base year 7.66 25.07 82.62 74.29 95.82Administration expenses base year 26.11 49.54 67.52 79.54 87.72Other operating income base year -15.62 215.65 -35.04 -24.79 25.98Other operating expenses base year 83.30 53.28 -37.99 252.14 170.69Operating profit base year 3.78 23.39 -58.85 -82.24 -26.65Finance income base year 93.02 233.01 19.61 26.82 110.69Finance cost base year 0.33 68.94 477.29 442.04 434.30Profit before taxation base year 4.54 24.81 -61.93 -84.98 -28.72Taxation base year 4.37 24.66 -62.21 -85.01 -28.96Profit for the year base year 4.63 24.88 -61.78 -84.97 -28.58

2007 2008 2009 2010 2011 2012

-300

-250

-200

-150

-100

-50

0

50

100

150

Profit for the yearProfit before taxationOperating profitGross Profit

 

8

Interpretation of Horizontal Analysis of P &L:

Keeping 2007 as a base year, one can easily notice that PTC managed to show growth in

sales in 2012 in spite of the adverse economic situation prevalent in the country during

the time. A similarity can be noticed in cost of goods sold. The main factor behind

increase in cost of sales is continuous increasing prices of tobacco and other input costs.

Gross profit shows highest increase in 2012 which is also a positive sign.

An increasing trend can be seen in overall expenses,

Operating profit has a decreasing trend overall, but in 2012 the situation is far better as

compared to 2010 and 2011.

Finance cost and Finance income also increased rapidly which was a result of high

interest rates prevailing in the economy.

The overall net profit in 2012 is 28.58% lower than base year but even company is in

better position as compared to 2010 and 2011. One of the factors contributing to decrease

in profit is the increased government levies for all tobacco product and producers in the

form of custom duties, government sales tax and especially Federal Excise Duty (FED)

9

HORIZONTAL ANALYSIS OF BALANCE SHEET :

Balance Sheet 2007 2008 2009 2010 2011 2012NON CURRENT ASSETProperty, Plant and Equipment base year 9% 15% 13% 18% 10%Investment in Subsidiary Company at Cost base year 0% 0% 0% 0% 0%Long Term Loans base year -26% -42% -73% -90% -96%Long Term Deposits and Prepayments base year 216% 53% 18% 74% 56%Total Non Current Assets base year 9% 15% 13% 18% 10%Current Assets base year          Stocks in trade base year 2% 44% 50% 62% 81%Stores and spares base year 35% 55% 42% 35% 143%Trade debts base year 12% -29% -33% -50% -55%Loans and advances base year 71% 26% 25% 67% 78%Short term prepayments base year 63% 12% 82% 45% 53%Other receivables base year 7% -62% -59% -15% 25%Cash and bank balances base year -58% -71% -69% -34% -17%Total Current Asset base year 2% 34% 40% 53% 76%Total Assets base year 6% 24% 26% 35% 41%Share Capital & Reserves base year          Share Capital base year 0% 0% 0% 0% 0%Revenue Reserves base year -8% 48% -9% -32% 35%Total Capital base year -3% 15% -3% -10% 11%Non Current Liabilities base year          Retirement Benefits base year 51% -100% -100% -100% -100%Deferred Taxation base year 3% 37% 33% 34% 35%Lease liability base year 0% 0% 0% 0% 0%Total Non Current Liabilities base year 21% -15% 776% -17% -9%Current Liabilities base year          Trade and other payables base year 22% 42% 50% 99% 97%Accrued interest / mark-up accrued base year 23% 229% 457% 509% 387%Short term finance base year -45% 25% 117% 72% 19%Lease liability base year 0% 0% 0% 0% 0%Income tax payable base year 33% 116% -107% -135% 18%Total Current Liabilities base year 8% 42% 58% 83% 78%Net Equity + Net Liabilities base year 6% 24% 26% 35% 41%

10

2,008 2,009 2,010 2,011 2,0120%

10%20%30%40%50%60%70%80%90%

Net Equity + Net LiabilitiesTotal Assets

Interpretation of Horizontal Analysis of B/S:

Total assets have positive trend in the year 2008 and 2012. The increase in current assets

can be attributed mainly to increased stocks-in-trade and stores and spares which rose by

81% and 143% respectively as compared to 2007. The flattening of sales and higher raw

material costs due to inflation and rupee devaluation led to this sharp increase.

The growth driver of current liabilities was trade and other payable and accrued interest

which grew at a rate of 97%. Something similar was witnessed in the sub-heading of

sales tax payable to the government. Thus, we find that a large part of the current

liabilities grew because of the presence of payables to the government in the form of tax.

The sharp increase in current liabilities is also attributed to a significant rise in short term

running finance, available to the company.

Shareholder’s equity increased in 2012 by 11% without any increase in share capital

which is a positive sign and shows that company is generated good revenue reserves.

11

VERTICAL ANALYSIS OF PROFIT AND LOSS:

PROFIT & LOSS ACCOUNT 2007 2008 2009 2010 2011 2012

Sales 254.87 259.92 265.59 287.29 294.08 291.85Excise duties -120.38 -123.73 -127.64 -145.45 -151.28 -150.13Sales tax -34.50 -36.19 -37.95 -41.84 -42.80 -41.72

Net Sales 100%

16,042,877

18,872,495

21,666,525

20,952,629

22,949,974

25,880,309

Cos Of Goods Sold -59.39 -61.44 -62.04 -70.39 -72.81 -67.37Gross Profit 40.61 38.56 37.96 29.61 27.19 32.63

Selling and distribution expenses 11.19 10.24 10.37 15.65 13.64 13.59Administration expenses -4.59 -4.92 -5.08 -5.89 -5.76 -5.34Other operating income 0.45 0.32 1.05 0.22 0.24 0.35Other operating expenses -2.09 -3.26 -2.38 -0.99 -5.15 -3.51Operating profit 23.19 20.45 21.18 7.31 2.88 10.54Finance income 0.19 0.32 0.47 0.18 0.17 0.25Interest Expense -0.16 -0.14 -0.20 -0.71 -0.61 -0.54Profit before taxation 23.22 20.63 21.45 6.77 2.44 10.26Taxation -8.13 -7.21 -7.51 -2.35 -0.85 -3.58Profit for the year 15.09 13.42 13.95 4.42 1.59 6.68

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2007 2008 2009 2010 2011 20120

20

40

60

80

100

120

Profit for the yearProfit before taxationOperating profit Gross Profit

Interpretation of Vertical Analysis of P&L:

Gross profit rate is declining from 2007 but in 2012 it was 32.6% which is better as compared

to 27.1% in 2011.

Operating profit rate is also showing similar trend and in 2012 PTC showed better operating

profit as compared to 2010 and 2011.

Secondly if we observe the profit trend it is seen that gross profit is decreasing from 2007 till

2011 but in 2012 they are growing by 2 % slowly and gradually but not up to the mark as

they were in the 2007.

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But after expenses and all deduction of taxes net profit is not earning up to the

mark from 5% in year 2007 it is declining to 1 and even in 2010 profit was not

to the mark and in 2012 they try to boost their profits but still not like 2007 or

base year.

VERTICAL ANALYSIS OF BALANCE SHEET:

BALANCE SHEET  2007 2008 2009 2010 2011 2012   ----------------------- Percentage (%) ------------------------  NON CURRENT ASSET            Property, Plant and Equipment 52.5 53.9 48.7 47.1 46.0 41.0Investment in Subsidiary Company at Cost 0.1 0.0 0.0 0.0 0.0 0.0Long Term Loans 0.1 0.1 0.1 0.0 0.0 0.0Long Term Deposits and Prepayments 0.1 0.4 0.2 0.1 0.2 0.1total non-current assets 52.8 54.4 48.9 47.3 46.2 41.2Current Assets            Stocks in trade 40.7 39.0 47.2 48.6 48.8 52.0Stores and spares 1.4 1.8 1.8 1.6 1.4 2.5

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Trade debts 0.0 0.0 0.0 0.0 0.0 0.0Loans and advances 0.4 0.6 0.4 0.4 0.5 0.5Short term prepayments 0.7 1.0 0.6 1.0 0.7 0.7Other receivables 2.3 2.4 0.7 0.8 1.5 2.1Cash and bank balances 1.7 0.7 0.4 0.4 0.8 1.0total current assets 47 46 51 53 54 59

Total Assets

9,826,232

10,395,041

12,226,861

12,363,196

13,239,068 13,883,800

Share Capital & Reserves 0.0 0.0 0.0 0.0 0.0 0.0Share Capital 26.0 24.6 20.9 20.7 19.3 18.4Revenue Reserves 11.7 10.1 13.9 8.5 5.9 11.2total capital 38 35 35 29 25 30Non Current Liabilities            Retirement Benefits 5.0 7.1 0.0 0.0 0.0 0.0Deferred Taxation 8.2 8.1 9.1   8.2 7.9Lease liability 0.0 0.0 0.0 0.0 0.0 0.7total non-current liabilities 13 15 9 92 8 9Current Liabilities Trade and other payables 36.1 41.6 41.2 43.2 53.4 50.4Accrued interest / mark-up accrued 0.1 0.1 0.2 0.4 0.4 0.3Short term finance 10.6 5.5 10.6 18.2 13.5 8.9Lease liability 0.0 0.0 0.0 0.0 0.0 0.4Income tax payable 2.3 2.9 4.0 -0.1 -0.6 1.9total current liabilities 49 50 56 62 67 62

Net Equity + Liability

9,826,232

10,395,041

12,226,861

12,363,196

13,239,068 13,883,800

15

2007 2008 2009 2010 2011 20120.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

total non-current assetstotal current assetstotal non-current liabilitiestotal current liabilities

Interpretation of vertical analysis of B/S :

Cash balances is also increasing as we seen they are selling the fixed assets in the years

therefore ultimately current assets are boost up.

Paid-up capital is almost stable to fluctuating so much but total equity was good enough

in 2007 and 2009 but now company is declining with respect to share holders.

In a summarize way, company is not good enough from 2007 till 2011 but in 2012 there

are on increasing trend if we observe from 2007 till 2012.

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Ratio Analysis

Profitability Ratios  2007 2008 2009 2010 2011 2012Gross Profit Margin (%) 41 39 38 30 27 33Operating Profit Margin (%) 23 20 21 7 3 11Pretax Profit Margin (%) 23 21 21 7 2 10Net Profit Margin (%) 15.09 13.42 13.95 4.42 1.59 6.68Return On Assets (%) 26.08 25.05 26.72 7.52 2.84 12.75Return On Equity (%) 65.33 70.18 70.94 25.68 10.91 42.08Return On Capital Employed (%) 48.37 48.84 56.28 19.52 8.24 32.65

Formulae.. 

Gross Profit Margin = Gross Profit / Net Sales

Operating Profit Margin = Operating profit / net sales

Pretax Profit Margin = Pr tax Profit / Net Sales

Net Profit Margin = Net Profit / Net Sales

Return On Assets = Net Income / Average total assets

Return On Equity = Net Income / Average share holders' equity

Return On Capital Employed = EBIT /Capital Employed

17

 

Gross Profit Margin (%)

Operating Profit 

Margin (%)

Pretax Profit Margin (%)

Net Profit Margin (%)

Return On Assets (%)

Return On Equity (%)

Return On Capital 

Employed (%)

0

10

20

30

40

50

60

70

80

200720082009201020112012

Profitability Ratios:

It is observed that in 2007 gross profit margin was tremendous but form 2008 till 2009

gross profit and almost stable not so much fluctuation takes and decline from 2010 but in

2012 , it is slowly and gradually increasing their profitability.

In 2011 net profit was 3 percent which was the lowest among all but still they have tried

to cover their all expenses and overall position of the company by getting returns on

assets and equity.

In 2010 & 2011 there is declining trend on the side of returns but in 2012 they are getting

better returns.

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  Liquidity Measurement Ratios    

  2007 2008 2009 2010 2011 2012Working Capital (Rupees) [Not Ratio] -181572.00 -470771.00 -614252.00 -1107810.00 -1705211.0 -426388.00

Current Ratio 0.96 0.91 0.91 0.85 0.81 0.95

Quick Ratio 0.13 0.13 0.07 0.07 0.07 0.11

Cash Ratio 171776.00 74311.00 52874.00 56945.00 114631.00 144030.00

Formulas 

Working Capital = Current Assets - Current Liabilities

Current Ratio = Current Assets / Current Liabilities

Quick Ratio = (Current Assets-Inventory)/Current Liabilities

Cash Ratio = cash + cash equivalents + investments

19

Liquidity Measurement Ratios:

The company has not been maintaining consistent working capital which is a serious

issue for its day to day operations. However detailed analysis of working capital revealed

that although the net working capital has increased by Rs. 1.2 million in 2012 but

company has blocked its funds by increasing its stock in trade of Rs 7.2 million and

which shows ineffective cash management on part of the concerned division.

Current ratio, quick ratio and cash ratio are also showing fluctuation trend since 2008-

2012 due to the same reason that company has been losing its operating cash flows

because of lack of profitability and this is the reason that why trades and other payables

(part of current liabilities) is on the increasing trend and the company takes more time to

discharge all its current liabilities because of reducing liquidity.

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  Solvency Ratio        

  2007 2008 2009 2010 2011 2012

Debt Ratio 0.28 0.16 0.31 0.63 0.53 0.30

Debt-Equity Ratio 1.65 1.88 1.87 2.50 2.97 2.38

Interest Coverage Ratio 144.65 150.68 107.13 10.47 4.98 20.17

  Formulas

Debt Ratio = Total Liabilities / Total Assets

Debt-Equity Ratio = Total Liabilities / Shareholder's Equity

Interest Coverage Ratio = EBIT (operating profit) / Interest Expenses

21

 

2007 2008 2009 2010 2011 20120

20

40

60

80

100

120

140

160

Debt RatioDebt-Equity RatioInterest Coverage Ratio

Solvency Ratios Analysis:

The lower the Debt ratios, the less leverage a company is using and the stronger its equity

position. In general, the higher the ratio, the more risk that company is considered to have taken

on. So Pak Tobacco is not highly leveraged company. Share holders of the company face

very low financial risk because the long term debt is a minimal portion of its total assets.

Debt ratio and debt equity ratio has been increasing from 2007-2010 because of

increasing balance of trade and other payables each year which is due to delayed

payments owing to reducing cash surplus. However debt ratios are slowly and gradually

showing decreasing trend from 2010 onwards that show a healthy as well as risky

position as far as financing of the company is concerned.

22

Interest coverage ratio of Pak tobacco is very unhealthy due to the sharp increase in finance

cost which was a result of high interest rates prevailing in the economy.

Although the company is still maintaining good debt ratios but its liquidity issues are

deterrent to its growth and overall outlook of its financial performance and position.

Asset Management /Activity Ratio      

2007 2008 2009 2010 2011 2012

Inventory Turnover (times) 2.38 2.86 2.33 2.46 2.59 2.41

Inventory Turnover (days) 129 127 157 148 141 151

Account Payable Turnover 7.98 7.83 8.03 8.42 4.65 6.97

Asset Turnover (times) 4.16 4.72 4.71 4.87 5.10 5.44

Fixed Asset Turnover Ratio (times) 7.93 8.76 9.67 10.34 11.08 13.26

Formulas

Inventory Turnover = Cost Of Goods Sold / Average Inventory

Inventory Turnover Days = 365 / Inventory turnover

Asset Turnover = Net Sales / Total Assets

Payable Turnover = Purchases / Average Payable

Fixed Asset Turnover Ratio = Revenue / Property, Plant and Equipment

23

2007 2008 2009 2010 2011 20120

20

40

60

80

100

120

140

160

180

Inventory Turnover (times)Inventory Turnover (days)Account Payable TurnoverAsset Turnover (times)Fixed Asset Turnover Ratio (times)

Assets Management And Activity Ratios Analysis:

Assets management ratios reveal that how company manage their assets and liquidity.

The ratio’s of turnover either times or days are fluctuating so much therefore this clearly

shows that the company has extended flexible terms to its customer and because of that

company is losing its profitability as well as it is seen that there is an increasing trend

going on in almost each turnovers so company need to improve on policies and has to

applied strict policies and ultimately the turnover days goes down and cash goes up and

profit will be increase.

Stock should not move to be on increasing trend as company is going down so they need

to work in investments rather than stock. Company need to work on maintain cash flows

as well as debt they are almost on debt financing and there cash flows are on declining

trend therefore they need to work on it.

24

As far as the fixed assets are concerned, the company has been seen to

regularly invest in latest machinery to cater for increased demand and to facilitate up

gradation in the technology footprint.

With the phenomenal growth in sales over the past couple of years and efficient

utilization of property plant and assets, the overall total asset turnover ratio has also

shown a rising trend over the years.

  Valuation Ratios      

  2007 2008 2009 2010 2011 2012

Earning Per Share 9.47 9.91 11.83 3.62 1.42 6.77

Price - Earning Ratio 16.42 10.37 8.88 30.44 38.98 9.99

Dividend Payout Ratio (%) 104.5 97.38 80.73 165.71 147.61 59.88

Formulas

Earning Per Share= (Net income -Preferred dividend) / Weighted Average No of Ordinary Share

P/E Ratio = Current Share Price / Earnings per Share

Dividend Payout = Common Share Dividend/ Net income Attribute to common share

25

 

2007 2008 2009 2010 2011 20120

20

40

60

80

100

120

140

160

180

Earning Per SharePrice -Earning RatioDividen Payout Ratio (%)

Valuation ratio Analysis:

EPS of PTC has declining trend from 2010 but 2012 shows better result due to which

EPS increased up to Rs. 6.77 per share.

Dividend Payout Ratio has declined in 2012 upto Rs. 59.88. Previously the excellent

performance of the company over the past couple of years allowed it to disburse dividends to its

share holders.

26

Intra Company: Pak Tobacco vs. Philip Morris:

Profitability Ratios    

 PTC PMC Difference

  2012 2012 2012Gross Profit Margin (%) 33 27.83 5.17Operating Profit Margin (%) 11 -1.01 12.01Net Profit Margin (%) 6.68 -3.37 10.05Return On Assets (%) 12.75 -4.08 16.8Return On Equity (%) 42.08 -8.12 50.2

Liquidity Measurement Ratios

 PTC PMC Difference

2012 2012 2012Current Ratio 0.95 1.05 -0.1Quick Ratio 0.11 0.1428 -0.0328

Debt Ratios

 PTC PMC Difference

  2012 2012 2012Debt Ratio 0.3 0.729 -0.429

Activity Ratios    

 PTC PMC Difference

  2012 2012 2012Inventory Turnover (times) 2.41 1.32 1.09Asset Turnover (times) 5.44 0.985 4.45Fixed Asset Turnover Ratio (times) 13.26 2.53 10.73

27

Intra company Analysis:

If we see the competitors that is Philip Morris and Pakistan tobacco has better

position in all aspects which can be summarize as follows:

Gross Profit Margin (%):

Pak tobacco

Philip Morris

Operating Profit Margin (%) :

Pak tobacco

Philip Morris

Net Profit Margin (%):

Pak tobacco

Philip Morris

28

Return on Assets (%) :

Pak tobacco

Philip Morris

Return On Equity (%):

Pak tobacco

Philip Morris

Current Ratio:

Pak tobacco

Philip Morris

Quick Ratio:

Pak tobacco

Philip Morris29

Debt Ratio:

Pak tobacco

Philip Morris

Inventory Turnover (times):

Pak tobacco

Philip Morris

Asset Turnover (times):

Pak tobacco

Philip Morris

Fixed Asset Turnover Ratio (times):

Pak tobacco

Philip Morris30

Interpretation:

Since we have observed that Pakistan tobacco’s profitability position is better than

industry. But Pakistan tobacco has to work on liquidity and need to match at least

minimum level of the industry as we see from calculations, company has not so much

liquidity as there cash flows are negative as well as they are not generating cash and we

all know “Cash is the blood of every organization”. Company need to work on

maintaining cash flows and generate cash rather than building inventory.

Company is on low debt ratios compare to industry it shows the financial risk for their

shareholders and Pakistan tobacco needs to work on cash flows and on their debts.

Their interest coverage ratio is very high because of taxes which is not a good sign for the

Pakistan tobacco.

Pakistan tobacco have more times and days in order for recovery of cash this clearly

shows that the company has extended flexible terms to its customer and because of that

company is losing its profitability and having negative cash flows which ultimately

destroying the company position and performance.

31

Trend Analysis

PROFIT & LOSS ACCOUNT 2007 2008 2009 2010 2011 2012

2,420,207 2,532,295 3,022,406 925,100 363,785 1,728,458

0 2 4 6 8 10 120

2

4

6

8

10

12

Series1

Net Sales 16,042,877 18,872,495 21,666,525 20,952,629 22,949,974 25,880,309

0 2 4 6 8 10 120

2

4

6

8

10

12

Series1

32

Net Equity + Net Liabilities 9,826,232 10,395,041 12,226,861 12,363,196 13,239,068 13,883,800

0 2 4 6 8 10 120

2

4

6

8

10

12

Series1

33

Conclusion:

PTC’s remained market leader and its brands performed well against the competition and

challenging illicit cigarettes market. Despite bad performance in 2010 and 2011, 2012 is

a good year for PTC and company is on its way to earn profits as in previous years.

Since the company is on negative cash flows they need to impose strict rules and

regulations for their turnover days so that not so much negotiation takes place in order to

recover cash.

Pak tobacco need to maintain their liquidity because no one knows what happens in

future.

Pak tobacco need to maintain proper assets management in order to foresee the future as

we all know Pak tobacco doesn’t have so much cash as well as liquidity and “Cash is the

blood of every organizations” so they need to improve their cash management in order to

stand as the market leader.

Overall the performance during 2012 improved. However, where the growth in top line

was 12 percent year-on-year and the bottom line also leaped by more than profits, the

margins still remained a small proportion of the gross revenues. Sales to net turnover

stood at almost seven percent, but in terms of gross revenues, margins were a trivial 2.3

percent in 2012. 

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References

www.businessrecorder.com

http://www.ptc.com.pk/group/sites/pak_7shbxn.nsf/vwPagesWebLive/DO7T5LP7/$FILE/

medMD96DELP.pdf?openelement

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