Financial Analysis FINANCIAL ANALYSIS FINANCIAL STRUCTURE RATIOS These are calculated to analyze the firm’s performance. These are of following types: PROFITABILITY RATIOS Gross profit margin Operating profit margin Net profit margin Earnings per share Return on equity Return on investment Return on assets LIQUIDITY/CREDITORS RATIOS Current ratio Quick(Acid-test) ratio ACTIVITY RATIOS Inventory turnover Average collection period Average payment period Total asset turnover 1 | Page
Transcript
Financial Analysis
FINANCIAL ANALYSIS
FINANCIAL STRUCTURE
RATIOS These are calculated to analyze the firm’s performance. These are of following types:
PROFITABILITY RATIOS Gross profit margin Operating profit margin Net profit margin Earnings per share Return on equity Return on investment Return on assets
LIQUIDITY/CREDITORS RATIOS Current ratio Quick(Acid-test) ratio
ACTIVITY RATIOS Inventory turnover Average collection period Average payment period Total asset turnover
DEBT RATIOS Debt to asset ratio
1 | P a g e
Financial Analysis
Times interest earned ratio Debt to equity ratio
TIME SERIES ANALYSIS It evaluates performance over time. It is the comparison of past and current performance using the ratios. It enables analysts to assess the firm’s progress.
CROSS SECTIONAL ANALYSIS It is the comparison of different firms’ financial ratios at the same point in time, in the same industry.
2 | P a g e
Financial Analysis
3 | P a g e
Abbot Pakistan
A Promise for Life
Financial Analysis
INTRODUCTION Abbott Laboratories is a highly diversified global health care company devoted to the discovery, development, manufacture and marketing of pharmaceutical, nutritional and medical products, including devices and diagnostics.
The company is principally engaged in the manufacturing, import and marketing of research-based pharmaceutical, nutritional, diagnostic, hospital and consumer products and in providing toll manufacturing services.
With over 70,000 employees worldwide and a global presence in more than 130 countries, Abbott is committed to improving people’s lives by providing cost-effective health care products and services that consistently meet the needs of its customers. Abbott Pakistan is part of the global healthcare corporation of Abbott Laboratories, Chicago, USA.
Abbott started operations in Pakistan as a marketing affiliate in 1948; the company has steadily expanded to comprise a work force of over 1500 employees. Its shares are now quoted at all exchanges of Pakistan. It has the honor of being the first pharmaceutical company in Pakistan to achieve Class-A certification by a world renowned organization, Messer’s Oliver Wight. The company has also pioneered the concept of disease specific nutrition in Pakistan through introduction of specific products.
Abbott Pakistan has leadership in the field of pain management, anesthesia, medical nutrition, anti-infective and diagnostics. Their wide-range of products is managed and marketed through four marketing arms. The diagnostic division operates from its office located at Korangi, Karachi. With the leading products in several key segments of the diagnostic market, sales and support staff are available in all major cities of the country.
Pakistan has a very vibrant and forward-looking pharma industry. At the time of independence in 1947, there was hardly any pharma industry in the country. Today Pakistan has about 370 pharmaceutical manufacturing units including those operated by 30 multinationals present in the country. The local companies can be classified into three categories:
4 | P a g e
Financial Analysis
Manufacturing Units Importers that import drugs in finished form Franchisors
The prevailing market size of the industry is worth Rs 80. 11 billion, of this total the market share of local pharma companies is 59%.
The Pakistan Pharmaceutical Industry meets around 70% of country s demand of Finished Medicine. The domestic pharma market, in term of share market is almost evenly divided between the nationals and the multinationals.
Pakistan is a developing pharmaceutical market, with a large population and economic progress evident. Private spending accounts for 65% of total healthcare expenditure sourced through out-of pocket payments, international aid and religious or charitable institutions.Public spending on the other hand accounts only 1% of total GDP.
Pakistan pharma industry is relatively young in the international markets. Pakistan pharma industry boasts of quality producers and many units are approved by regulatory authorities all over the world. Like domestic market the sales in international market have gone almost double during last five years. Pharma industry is focusing to an export vision of USD 500 million by 2013. In the meantime, exports are also likely to be boosted by new regional and global opportunities.
Abbott Pakistan has a market share of 5. 2% of Pakistan pharmaceutical market (2009). Abbott has been doing better than the average pharmaceutical company over the 8 years under observation.
5 | P a g e
Financial Analysis
FINANCIAL STRUCTURE
6 | P a g e
Financial Analysis
FINANCIAL OVERVIEW OF ABBOT Net sales increased by 30.4% from Rs. 8.43 billion in FY09 to Rs. 11.0
billion in FY10, mainly attributable to increased sales volume and limited price adjustments. Thus Abbot Laboratories crossed its Rs. 10 billion sales benchmark, highlighting the excellent performance of the company.
Abbott Pakistan achieved a market share of 6.1% in the pharmaceutical and nutrition market. In 2009 market share was 5.8%.
Cost of goods sold increased by 19.24% compared to FY09 on account of inflationary pressures, increased energy tariffs, and increase in the cost of imported pharmaceutical constituents due to depreciation of rupee in FY10. As a result, gross profit posted a growth of 49.74% from Rs. 2.46 billion in FY09 to Rs. 3.69 billion in FY10.
Selling, distribution and administrative expenses increased significantly in the restrictive economic environment, leading to increase in operating profit. Coupled with a 23.12% decrease in other income and a 37% increase in other charges, this led to an overall 98% increase in EBIT in FY10.
Finance cost increased by 39.80% due to increase in bank charges on short-term financing needs.
Taxation increased by 65.77% over FY09-10. This led to increase in profit after taxation from Rs. 609 million in FY09 to Rs. 1177 million in FY10. This strong performance was reflected in the EPS, which increased by 93% from Rs. 6.22 per share in FY09 to Rs. 12.02 per share in FY10.
7 | P a g e
Financial Analysis
Profitability Ratios 2010 2009
Gross profit margin 33% 27%Operating profit margin 16.5% 10.2%Net profit margin 10% 7%Earnings per share 12.02 6.22Return on equity 31.67% 19.87%Return on investment - -Return on assets 20.33% 12.28%
Reasons for increase/decrease Gross profit margin
Gross profit margin has increased from 27% to 33% giving proof of the well managed cost of goods sold at Abbott Laboratories, despite the negative economic outlook of the pharmaceutical sector. The sales of the pharmaceutical products increased by 4%, while the sale of nutritional and other segments increased by 22%. The sales overall increased by 28% with major contribution coming from local sales. Recent floods in the country are likely to lead to an increase in demand for pharmaceutical products due to the spread of diseases and lack of hygiene in the region.
Operating profit margin
Operating profit margin has increased from 10.2% to 16.5% due to increase in operating profit in 2010 as compare to 2009.
Net profit margin
It also showed an increasing trend from 7% to 10% due to increase in net profit after tax. Although finance cost and taxation has increased but still net profit
8 | P a g e
Ratios
Financial Analysis
increased because of efficient performance of the company and increase in sales.
Earnings per share
The earnings per share increased from Rs. 6.22 per share in FY09 to Rs. 12.02 per share in FY10, a strong growth of 93% resulting from the improved profitability position of the company.
Return on equity
ROE trend show that it increased 31.67% from 19.87% due to 93% increase in net profit after tax. It may be attributed by a devaluation of the rupee. The increase in equity was driven by 31.20% increase in revenue reserves.
Return on investment
It cannot be calculated because company doesn’t have long term debts.
Return on assets
Return on assets increased from 12.28% in FY09 to 20.33% in FY10 due to the increase in net profits. The increase in assets was driven by increase in stock in trade, short and long-term advances, deposits and prepayments.
Liquidity Ratios 2010 2009
Current ratio 2.19:1 2.02:1Quick ratio 1.01:1 0.94:1
Reasons for increase/decrease Current ratio
The liquidity position of the company improved over FY09-10 since the current ratio increased from 2.03 in FY09 to 2.19 in FY10 due to 16.63% increase in current assets compared to a 9.72% increase in current liabilities over FY09-10. The increase in current assets was mainly due to 23.56% increase in stock in trade, 217.05% increase in loans and advances and 48.03% increase in deposits and prepayments, whereas the current liabilities increased solely due to increase in trade payables.
9 | P a g e
Financial Analysis
Quick(Acid-test) ratio
The quick ratio increased by a smaller amount from 0.94 in FY09 to 1.01 in FY10. This shows that the major proportion of increase in current assets, which contributed to the improvement in liquidity position, was the stock in trade of the company. Since, stock in trade is not considered an easily liquidated asset; hence the liquidity position of Abbott Laboratories remained almost stable over FY09-10. However, the current and quick ratios are both above the 1.00 benchmark, indicating the well managed liquidity position of the company.
Activity Ratios 2010 2009
Inventory turnover period (days)
101.19 98.38
Average collection period (days)
8.61 9.99
Average payment period(days)Total asset turnover 1.89 1.69
Reasons for increase/decrease Inventory turnover
The inventory turnover ratio increased from 98.38 days in FY09 to 101.19 days in FY10. This doesn’t indicate better inventory management at Abbott Laboratories. Although the inventory holding increased in FY09-10 but the 30.4% growth in sales was sufficient to justify this inventory buildup.
Average collection period
However, day sales outstanding increased from 36.00 days in FY09 to 41.77 days in FY10 which is a sign of declining efficiency in settlement of the receivables of the company. Trade debts increased by 12.42% over FY09-10. Thus the operating cycle increased marginally from 107.52 days in FY09 to
10 | P a g e
Financial Analysis
109.53 days in FY10. The inventory/receivables management efficiency of the company thus remained almost the same in FY10.
Average payment period Total asset turnover
Total asset turnover increased from 1.69 in FY09 to 1.89 in FY10 due to the 30.4% increase in sales compared to 16.63% increase in total assets over FY09-10. This indicates that the high sales level justifies the investment into the assets of Abbott Laboratories.
Debt Ratios 2010 2009
Debt to asset ratio 0.32 0.34Times interest earned ratio 494.27 347.92Debt to Equity ratio No long term debt No long term debt
Reasons for increase/decrease Debt to asset ratio
Debt to assets decreased from 0.34 in FY09 to 0.32 in FY10 due to 8.79% increase in total liabilities compared to 16.63% increase in total assets. The increase in liabilities was driven by a 9.72% increase in trade payables.
Times interest earned/ interest cover ratio
Times interest earned increased from 347.92 in FY09 to 494.27 in FY10 due to the 39.80% increase in finance cost (bank charges) and 93% increase in net profit after tax over FY09-10. The times interest indicates the strong credit rating of the company in terms of meeting its interest obligations.
11 | P a g e
Financial Analysis
Other ratios 2010 2009
Breakup value per share 39.96 33.08Market value per share 109.74 96.49Price earnings ratio (times)
Reasons for increase/decrease Break-up value per share
It has increased from Rs. 33.08 per share in FY09 to Rs. 39.96 per share in FY10 resulting from the 20.81% increase in total shareholder’s equity. Since no further issue of shares took place, this increase in book value per share was solely due the buildup of reserves, i.e. 13.41% growth in capital reserves and 31.20% increase in revenue reserves over FY09-10.
Market value
Abbott’s stock price increased from Rs. 96.49 per share in FY09 to Rs. 109.74 per share in FY10. This shows that the improved financial position of the company was reflected in investors’ perceptions about the company’s stock. The increase in market price of shares may also because of increase in profits and the company’s policy of reserving a larger proportion of its profits for further investment into fixed assets.
Price earnings ratio
12 | P a g e
Financial Analysis
P/E ratio fell from 15.51 in FY09 to 9.13 in FY10, since the EPS grew from 6.22 to 12.02. Increase in the market price per share was witnessed from 96.49 in 2009 to 109.74 in 2010.
Dividend per share
Dividend per share decreased from Rs. 12.00 per share in FY09 to Rs. 5.00 per share in FY10, due to the company’s policy of reserving a larger proportion of its profits for investment into fixed assets.
Dividend payout
Dividend yield has declined in year 2010 as compare to 2009 because dividend per share has declined from Rs. 12 to Rs.5 whereas earning per share has increased from 6.22 to 12.02.
Dividend yield
In the same way dividend yield also showed a decreasing trend in FY2010 from 0.12 to 0.04 as dividend per share was declined and market value was increased.
Dividend Rate
Dividend rate was 120% in FY2009 whereas it was 50% in FY2010. The reason is the same that is decrease in dividend per share from Rs. 12 to Rs. 5.
13 | P a g e
Financial Analysis
14 | P a g e
Highnoon Laboratorie
Financial Analysis
INTRODUCTION
15 | P a g e
Highnoon Laboratorie
Financial Analysis
FINANCIAL STRUCTURE
16 | P a g e
Financial Analysis
Profitability Ratios 2009 2010
Gross profit marginOperating profit marginNet profit marginEarnings per shareReturn on equityReturn on investmentReturn on asset
Reasons for increase/decrease Gross profit margin Operating profit margin Net profit margin Earnings per share Return on equity Return on investment Return on asset
Liquidity Ratios 2010 2009
Current ratioQuick ratio
Reasons for increase/decrease Current ratio Quick(Acid-test) ratio
Reasons for increase/decrease Inventory turnover Average collection period Average payment period Total asset turnover
Debt Ratios 2010 2009
Debt to asset ratioTimes interest earned ratioDebt to equity ratio
Reasons for increase/decrease Debt to asset ratio Times interest earned ratio Debt to Equity Ratio
Other ratios 2010 2009
Breakup value per shareMarket value per sharePrice earnings ratio (times)Dividend per shareDividend payout (times)Dividend yield (times)
18 | P a g e
Financial Analysis
Dividend rate
Reasons for increase/decrease Break-up value per share
Market value
Price earnings ratio
Dividend per share
Dividend payout
Dividend yield
Dividend Rate
19 | P a g e
Financial Analysis
20 | P a g e
Glaxosmithkline Pakistan Ltd
GSK
Financial Analysis
INTRODUCTION
21 | P a g e
Financial Analysis
FINANCIAL STRUCTURE
22 | P a g e
Financial Analysis
Profitability Ratios 2010 2009
Gross profit marginOperating profit marginNet profit marginEarnings per shareReturn on equityReturn on investmentReturn on asset
Reasons for increase/decrease Gross profit margin Operating profit margin Net profit margin Earnings per share Return on equity Return on investment Return on asset
Liquidity Ratios 2010 2009
Current ratioQuick ratio
Reasons for increase/decrease Current ratio Quick(Acid-test) ratio
Reasons for increase/decrease Inventory turnover Average collection period Average payment period Total asset turnover
Debt Ratios 2010 2009
Debt to asset ratioTimes interest earned ratioDebt to equity ratio
Reasons for increase/decrease Debt to asset ratio Times interest earned ratio Debt to Equity Ratio
24 | P a g e
Financial Analysis
Other ratios 2010 2009
Breakup value per shareMarket value per sharePrice earnings ratio (times)Dividend per shareDividend payout (times)Dividend yield (times)Dividend rate
Reasons for increase/decrease Break-up value per share
Market value
Price earnings ratio
Dividend per share
Dividend payout
Dividend yield
Dividend Rate
25 | P a g e
Financial Analysis
26 | P a g e
Wyeth
Pakistan Ltd
Financial Analysis
INTRODUCTION
27 | P a g e
Financial Analysis
FINANCIAL STRUCTURE
28 | P a g e
Financial Analysis
Profitability Ratios 2009 2010
Gross profit marginOperating profit marginNet profit marginEarnings per shareReturn on equityReturn on investmentReturn on asset
Reasons for increase/decrease Gross profit margin Operating profit margin Net profit margin Earnings per share Return on equity Return on investment Return on asset
Liquidity Ratios 2009 2010
Current ratioQuick ratio
Reasons for increase/decrease Current ratio Quick(Acid-test) ratio
