financial analysis project new 00

8/8/2019 Financial Analysis Project New 00

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Company Introduction:

Siemens overall involvement in the region dates back nearly 140 years. The

companys name first became known in the region through the construction

of the Indo-European telegraph line from London to Calcutta in 1870.

Siemens first office in what is now Pakistan opened in 1922. The Siemens

Pakistan Engineering Company Ltd. was founded in 1953 as a private

company, and in 1963 the company was reorganized as a public limited

company.

For 87 years, Siemens has been active in Pakistan, where it holds leading

positions in the three application fields: Energy and Environmental Care,

Industry & Public Infrastructures and Healthcare. The Siemens IT Solutionsand Services Group functions across all three fields. Siemens is the countrys

No. 1 supplier of high-voltage grid stations, switchgear products and

systems, power distribution and power transformers, and network

consultancy. The company has also built a new 220kV Power Transformer

factory, and is poised to meet the demand in this sector nationally and in the

region

There Top rankings in Karachi Stock Exchange is the true testament of their

leading position and also a living example of their vision which is To remain

market leader and technology pace setter in the engineering and electronicsindustry by utilizing the high-tech engineering expertise of the Siemens

Group worldwide. To maintain their strong and prominent local presence. In

fiscal 2010 (October 1, 2009 September 30, 2010), sales to customers in

Pakistan amounted to EUR 160 million, while new orders totaled nearly EUR

175 million. With a workforce of 1,400 employees, Siemens is one of the

most important employers in the country and the largest employer of

engineering graduates including women.

Globally, the company has 475,000 employees working to develop and

manufacture products, design and install complex systems and projects, andtailor a wide range of services for individual requirements.

Siemens further strengthened its competitive market position by contributing

to the countrys major infrastructure development projects. It secured an

extensive contract to provide power and telecommunication systems for

Benazir Bhutto International Airport in Islamabad, Pakistans premier airport.


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Financial Analysis

Financial analysis refers to an assessment of the viability, stability and

profitability of a business, sub-business or project. It is also known as thecomparison of the financial reports; which includes;

1. Balance Sheets

2. Income Statements

3. Cash Flow Statements

With the help of these three reports financial analysis is done, which is again

classified into three analyses;

1. Vertical Analysis

2. Horizontal Analysis

3. Ratios.

On the basis of these three analyses company can determine its Profitability,

Solvency, Liquidity and Stability.

In the next sections of my report you will find all the above mentioned

things.


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Consolidated Balance Sheet withVertical and Horizontal Analysis.

Five fiscal years data

(2006- 2010)


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Consolidated Income Statement


(2006- 2010)


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Vertical Analysis:


(2006- 2010)


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Ratio Analysis:


(2006- 2010)


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Current Ratio:2006 2007 2008 2009 2010

1.059396145

1.195499819

1.150552194

1.188395451

1.206134573

Current ratio is widely used for evaluating the companys liquidity and short term

debt paying ability. If we see the current ratio trend in the 5years of Siemens

Pakistan we see that in the first 2 years the trend is increasing and then in the 3rd

year it is decreased whereas in the 4th and 5th year it was again increased.

The total current assets in the year 2006 were PKR 9,795,948 and the current

liabilities were PKR 9,246,728. But in the year 2007 the short term financing has

been increased by 22% and provision for taxation by 10% which increases thecurrent liabilities to PKR 12,229,594, on the other hand the cash and current bank

balances are increased by 23% which overall increases the current assets by 1% to

PKR 14,484,573. This increases the current ratio and shows liquidity of the

company. In the year 2008 the trade and other payable are increased to 76% and

short term borrowing and provisions for taxation has been decreased to 5% and 8%

respectively. But the overall effect increased the current liabilities to PKR

18,487,125. But the Cash and Bank balances are reduced to 16% but the overall

effect has increased the current assets to 85% of the total assets. In the next two

years 2009 and 2010 the short term financing and provision for taxation has been

increased which also increases the current liabilities. We have seen the changes inthese two years in the assets section of balance sheet, in which trade receivables

are increased while the cash account has been decreased. Due to this overall the

current asset amount has been decreased as compared to 2008 which increases the

current ratio. In these two years the amount of current liabilities were also

decreased. The average of the current ratio is 1.156: 1. This means that for every

rupee of liability there is present current asset equivalent to 1.156 rupees which is a


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good amount. Considering the current economic conditions of Pakistan, and it is

also above the industry average. This shows that company is reasonably liquid.

Quick Ratio:2006 2007 2008 2009 2010

0.81 0.93 0.9 0.93 0.99

It is also known as acid- test ratio. It is a measure of companys immediate short

term liquidity. It includes the cash, short term investments and net receivables of

the company which are divided y the current liabilities.

The graph doesnt shows any major changes or diversion except a decrease in 2006

and after it there is increase in 2007, a slight decrease in 2008 and then in 2009

and 2010 there is a continuous increase.

The basic reason for the decrease in the quick ratio in 2006 was that, there was a

decrease in cash balance account which decreases the amount of quick assets. And

hence decreases the whole quick ratio. In 2007 the figures shows that cash balance

was 23% of the total current assets. And in the liability section trade and other

payable has also been reduced to 58% of the total current liabilities. And there

overall affect as increased the quick ratio. In year 2008 the trade payable was

increased to 76% of the total current liabilities and the cash balance was reduced to

16% of the current assets and there has been a decrease in the quick ratio. In the

year 2009 and 2010 the trades payable are reduced to 67% and 51%

respectively .but the cash balance has also decreased to 7% in both years and the

overall affect has increased the quick ratio. The average quick ratio for the 5 years

is 0.92:1, this means that 0.91 amount is present to pay off every rupee of current

liability but this amount is very low and The rate of mark-up on these accounts


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ranges between 9.00% and 10.05% (2009: 9.00% and 11.20% ) per annum. This

also has affects on the cash and bank balance account of the company.

Working Capital:2006 2007 2008 2009 2010

PKR549,220.00

PKR2,368,659.00

PKR2,767,305.00

PKR1,999,229.00

PKR3,545,728.00

It is the amount which is excess of current assets over current liabilities. It is also

one of the indicator of companys liquidity. (All the above mentioned amounts are in

000.)

In 2006 the working capital is very low due to the huge increase in the short term

liabilities which were 90% of the total current liabilities. The cash balance was also

low because the amount in the deposits of bank balance was low which in return

produces less markup interest. Due to which overall current assets balance has

been decreased. In 2007 was comparatively high due to the 32% decrease in the

short term liabilities and 5% increase in the cash balances. This increased the

working capital. In 2008 working capital was reasonably high which shows that

company is fair enough liquid. In this year the short term liabilities were 76% of the

total current liabilities which was actually a high amount. But the inventory and

trade receivable accounts were increased to 22% and 53% respectively. This

increases the current assets accounts which in return increased the working capital


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for the year 2008. In the year 2009 the major increase was in provisions for taxation

of 11% which increases the current liabilities. The other receivable account was

decreased to 5% and cash balance was only 7% of the current assets, this

decreases the amount of working capital. The cash amount was decreased due to

the low amount of cheques in hand and cash in hand. In the year 2010 the working

capital is the highest amount in comparison of 5years. Short term liabilities wereincreased by 5% and short term running financing was increased by 753% and

provisions for taxation has been increased by 345% which overall increased the

current liability to 86%. Inventories are increased by the 63%, trade receivable was

increased by 188% but cash decreased by 21%, this overall increase the current

assets to 112% and thus increased the working capital. After viewing the amounts

of working capital we can say that company is very liquid and it can easily perform

its business after paying off its all current liabilities.

Net Cash Provided by theOperating Activities

2006 2007 2008 2009 2010

PKR726,384.00

PKR(2,247,614.00)

PKR2,725,707.00

PKR(1,871,088.00)

PKR(1,689,177.00)

This tells the investors that how much cash has been generated from the operating

activities during the whole year.


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In the year 2006 graph shows that cash generated from the operation was greater

than the expenses which includes the installments of long term payments, income

tax and payments to employees. In the year 2007 the cash generation shows a

negative amount which shows that company has not generated in positive cash

amount. In the year 2008 cash generated was very high then the expenses that is

why the net cash amount is in positive figure. In the year 2009 and 2010 the cashgeneration was in negative and as a result the net cash was also in negative. This

shows that operating expenses of the company are far more than its operating cash

generation.

Cash Flow from Operations toCurrent liabilities

2006 2007 2008 2009 2010

0.08 -0.19 0.15 -0.11 -0.10

It indicates ability to cover currently maturing obligations from recurring operations.

The year 2006 shows that current liabilities are greater and cash generated from

the operating activities was also positive. In the year 2007 the current liabilities


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were increased by 31% but the cash generated from the operating activities was in

negative. In the year 2008 cash generated from the operating activities was very

high and the current liabilities were increased by 98% which increases the above

ratio. In the year 2009 the cash generation form the operating activity was again

negative due to the increase in the operating expenses and the current liabilities

were increased by 86% which decrease the value of the given ratio. In the year2010 the trend was similar like the 2009.

These balances may not represent the companys current position so commenting

on companies current liquidity is not possible.

Receivable Turnover rate:2006 2007 2008 2009 2010

5.86 3.66 3.03 2.93 1.86

It measures the number of times, on average receivables are collected during the

period. It measures how certain assets can be converted into cash quickly.


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In this trend analysis the graph shows that the highest receivable turnover rate was

in 2006. And then gradually it starts decreasing. Reason behind this decrease is that

in the year 2007 the net credit ere increased by 5% and the trade receivables were

increased by 30% which increases the average trade receivables account which

overall decreases the turnover rate. Trade receivables increased due to the increase

in receivables from related parties with amount of PKR 4,017,319. In the year 2008the net sales increased by 29% and the trade receivables increased by 118% which

lower the turnover ratio. In the year 2009 and 2010 same trend has been followed

the net sales are increased by 74% and 26% respectively and the trade receivables

are increased by 166% and 188% which shows that a lot of sales have been done

on credit. This decreases the turnover ratio. Liquidity may be measured from this.

The average of the 5 years is 3.46 which show that the current receivables can take

some time to convert into cash.

Days to Collect Average AccountReceivable.

2006 2007 2008 2009 2010

62 100 121 125 196

It tells about that on average how much days are required to collect average

account receivables.


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This graph is basically based on the data of the above turnover rate. To find the

days we have to divide the 365days by turnover rate.

As we have seen that the turnover rate was very high in the year 2006 for this the

days are very less and only 62days were required to collect the receivables. In the

next 4 years the turnover rate was very low which has increased the number of

days to collect the receivables.

It is very important for the banks and other companies which are going to give loan

to this company to see this ratio. Because this will tell them in how much time

Siemens is going to collect its receivables and as a result according to these days

they can predict that in how much period of time Siemens will pay off its loan.

Inventory Turnover Rate2006 2007 2008 2009 2010

9.69 6.68 5.89 7.18 5.52

It measures the number of times on average the inventory is sold during the period.

The purpose is to measure the liquidity of the inventory.


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In the year 2006 the inventory turnover rate is very high because the inventory inthis year was 23% of its current assets and the cost of goods sold was also not very

much high and there result increases the turnover rate. It means that this year

inventory was sold in heavy quantity. In the year 2007 the cost of goods sold

increased by 2% and the inventory in this year increased by 37% which decreases

the turnover rate due to low sales of inventory the turnover rate decreases. In the

year 2008 the COGS increased by 29% and the inventory increased by 101% which

is showing that the inventory was pilling up and the sales are not up to the level.

The cost of raw materials in this year reaches to PKR 1,537,010, the value of goods

in transit reached to PKR 972,811 and the value of work in process reached to PKR

1,549,276. This increased the overall amount of the inventory. In the year 2009 the

COGS increased by 74% which indicates the high amount of sale in this year, andthe value of inventories increased by 91% which overall increases the turnover rate.

In the year 2010 the COGS were increased to 26% and inventories increased to 63%

which somehow lowers the turnover rate. Generally, the faster the inventory

turnover, the less cash that is tied up in inventory and the less the chance of

inventory obsolescence.

Days to Sell Average Inventory2006 2007 2008 2009 2010

38 55 62 51 66


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It is a variant of inventory turnover rate. It determines the number of days in which

the inventory will be sold. It can be calculated by dividing the inventory turnover

into 365.

This graph is based upon the data of the inventory turnover rate. As we already

know that the inventory turnover rate was high in the year 2006 so that is why the

days required to sell the average inventory is less. In the year 2007 the days

required to sell average inventory is 55 because the inventory turnover rate was

low. Same reason is based in the next three years.

It means that the company is generating inventory but the sale of inventory is very

low and the average for years shows that Siemens need almost 55 days to sell its

inventory. This is reasonable number of days and the company is doing a profitable

business.

Operating Cycle2006 2007 2008 2009 2010


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100 154 183 176 262

It indicates the number of days that how quickly cash invested in inventory converts

back into cash. it can be calculated by adding the average no of days required to

sell inventory plus the days required to collect the average account receivables.

In the year 2006 due to the less no of days required to sell average inventory and

less no of days required to collect average account receivables, that is why the

operating cycle indicates the less number of days. As we are moving further in the

next 4 years the trend is that the operating cycle is increasing due to the increase

in the number of days required to sell inventory increases and as well as no of days

required to collect average account receivables increases.

But from the view point of short term creditors the shorter the operating cycle, the

higher the quality of the borrowers working capital. The increase in the trend of

operating cycle is an unfavorable trend for the company. It will also cause a very

strong impact on the companys loan borrowing strategies.

Free Cash Flow


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2006 2007 2008 2009 2010

PKR(447,734.00)

PKR(568,787.00)

PKR1,875,248.00

PKR(899,844.00)

PKR(2,629,363)

Free cash flow tells about the excess of operating cash flow over the basic needs.

The graph of 5years shows great fluctuations in different years. In the year 2007

there is a negative free cash flow which means that company should invest more

cash inflow so that they can meet there basic requirements. In this year the cash

generated from the operating activities was PKR 795,861 but the cash flows fromthe investing and financing activities were negative which decreases the cash flow

and all the cash from the operating activities was used by the investing and

financing activities and hence there was a negative cash flow in return. In the year

2007 the Operating cash was negative and the cash flow from the investing

activities was positive but after the subtraction of cash flow from the financing

activities again decreases the free cash flow and makes it a negative cash flow. In

the year 2008 the cash generated from the operation was PKR 4,113,256 and

operating expenses was very low which at the end shows a positive cash flow of

PKR 2,725,707. In the investing activities capital expenditure was low as compare to

the other years and although the amount of dividend paid was very much high but

the overall results shows a positive free cash flow in the year 2008. In the year 2009and 2010 same trend has been followed and in these both years the amount of free

cash flow shows the negative value. It means that company has to invest some cash

from the retained earnings to meet the basic needs.


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Debt Ratio2006 2007 2008 2009 2010

0.77 0.70 0.75 0.72 0.71

It comes under the solvency ratios which determine the ability of a company to

survive over a long period of time. This ratio indicates the companys degree of

leverage. It also provides s some indication of the companys ability to withstand

losses without impairing the interests of creditors

.

It is said that the higher the value of the ratio is considered as a risk for the

company that it might not be able to meet its maturity obligations.

In the year 2006 the debt ratio is the highest ratio among the 5 year trend because

in this year total liabilities was very high and total assets was low. In the year 2007

the total liabilities were increased by 31% but the assets also increased by 46% due

to the increase in the cash and bank balance account by 37% and other receivable

account increased by 113%, and there overall effect increases the total asset

account which in return decreases the debt ratio. In the year 2008 the total

liabilities were increased by 99% and the total assets by 106%, but due to high

amount of total liabilities the debt ratio increased. In the year 2009 and 2010 the

total liabilities increased by 85% and 86% respectively. The total assets account

increased by 101% and 104% respectively. Due to the very high increase in thecurrent assets account the overall asset account increased and as result the debt

ratio decreases.

The average if the debt ratio for 5 years is 0.73 or 73% which is a very high ratio.

But know we have to compare it with the average of its competitors if the average

is below the industry average then it is well and good because creditors look for the

low debt ratio.


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Interest Coverage Ratio2006 2007 2008 2009 2010

14.74 25.04 23.94 28.29 18.56

PKR68,337.45

PKR62,608.87

PKR97,977.28

PKR75,802.01

PKR85,035.18

It provides an indication of the companys ability to meet interest payments as they

come due.

In the year 2006 the amount of interest was PKR 68,337.45 which is considering

being a very high amount and as result of this the interest coverage ratio was low.

In the year 2007 the income before tax and interest was increased to 30% which

increases the interest coverage ratio. In the year 2008 the in interest was very high

and the income before the tax and interest increased to 70% and their overall effect

decreases the interest coverage ratio. Moving in the next year 2009 the interest

expense was a little bit less than the previous year and the income before interest

and tax was increased to 42%. This increase is lower than the previous year and as

a result the ratio goes high. In the last year 2010 the interest rate was high but the

income before the interest and tax was only increased to 5% which reduces theratio.


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It is consider that if the ratio is more than 2 1it is consider as very strong. So

according to this view all these ratios are very high and they are very strong. So it

means that the company can easily meet its interest payments as they come due.

Gross Profit Rate2006 2007 2008 2009 2010

12% 14% 15% 11% 15%

Gross profit rate comes under the profitability ratios which measures the income or

operating success for the given period of time. Profitability is frequently used as the

ultimate test of managements operating effectiveness.

In the year 2006 gross profit was low because of the sale of the huge quantity of

inventory. This reduces the gross profit rate. In year 2007 the rate was slightly

higher due to the increase of 5% in net sales and 27% in the gross profit. In 2008

the net sales increased by 29% and gross profit by 64% which increases the rate. In

the year 2009 the net sales was increased by 73% and the gross profit by 63%

which reduces the rate because of the good quantity sale of inventory the gross

profit value drops. In the year 2010 the net sales increased by 26% whereas the

gross profit increased by 58% which increased the gross profit rate.

1 Mentioned in Financial Accounting chapter no 14 page# 656


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In these 5 years the gross profit rate was lying in 11% to 15% which was

reasonably normal. So it clearly shows that income and operating success of the

company in the given period of 5 years.

Operating Expense Ratio2006 2007 2008 2009 2010

7% 7% 6% 5% 8%

It is a measure of the management ability to control expenses. It is calculated by

dividing operating expenses by net sales.

In the year 2006 only 7% of the net sales were required to meet all the operatingexpenses. In 2006 the operating expenses were PKR 1444463 and the net sales

were PKR 20795847. So Siemens was able to ay off all its operating expenses. In

the year 2007 the operating expenses decreased by 2% and net sales increased by

5% which again maintain the same ratio. In the year 2008 the net sales increased

by 29% and operating expenses also increased but due to the higher value of the

net sales the ratio drops. In the year 2009 same thing was happened and that is


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why the ratio decreased. In the year 2010 the net sales increased by 26% but one

operating expense increased by 42% and the other by 48% which makes the ratio

highest among the five years.

Operating expenses are basically those expenses which are done in order to

produce revenue. They are subdivided into selling and administrative expenses. Theselling expenses rises and fall with the increase and decrease in the net sales. The

administrative expenses are more or often remain constant.

Operating Income2006 2007 2008 2009 2010

PKR1,007,294.00

PKR1,567,726.00

PKR2,345,576.00

PKR2,132,680.00

PKR1,763,986.00

It is the profitability of a companys basic business activities. It is calculated by

subtracting operating expenses from gross profit.

In 2006 the gross profit was very low and the selling expenses were high which

increases the operating expenses. This all was done due to the increase in the net

sales. In the 2007 the gross profit increased by 27% and the operating expenses


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also increased but the selling expense decreases by 2% due to the not enough sales

in the year. In 2008 the gross profit increases by 64% the operating expenses also

increased but due to the high increase in the gross profit the operating income for

2008 was the highest among these 5 years. In the next 2 years the gross profit also

increased and due to the increase in sales the operating expenses also increases

and there affect is visible in the graph.

This trend of the operating income shows that the company is doing the business

with profit and if this trend will be followed in next years the company will earn a

lot more profit.

Net Income as a Percentage of NetSales

2006 2007 2008 2009 2010

3% 11% 6% 4% 4%

It is a measure of the percentage of each dollar of sales that result s in net income.

It is computed by dividing net income by net sales.


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In 2006 the net income was low due to high amount of tax and operating expenses

and the net sales was high. This decreases the percentage of each dollar sales that

results in net income. In the year 2007 the percentage is the highest among these 5

years. In this year the net sales only increased by 5% but the net income increases

by 242%. This all is done due to the low net sales and which increases the gross

profit and lowers the operating expense which in return increases the net income. Inthe year 2008 the net sales increased by 29% and net income increased by 132%,

which as compare to the previous year was low. Due to this the net income as a

percentage of net sales decreased. In the next 2 years 2009 and 2010 the

percentage is same due to huge increase in the net sales as compare to the net

income, as a result the percentage of each dollar of sales that result in net income

decreases.

The average percentage for these 5years is 5.6%, which is considered as very

strong for the company like Siemens. This also indicates that the company business

is growing in the profitable way.

Earnings per Share (EPS)2006 2007 2008 2009 2010

PKR93.57

PKR300.87

PKR203.06

PKR165.53

PKR121.19

EPS is a measure of the net income earned on each share of common stock. Mostly

it is given in the annual reports. A measure of net income earned on a per share

basis provides a useful perspective for determining profitability. Basically the term

earning per share refers to the amount of net income applicable to each share of

common stock. In computing EPS, if there are preferred dividends declared for the

period, they must be deducted from net income to determine income available tothe common stockholders.2

2 Reference taken from the book Financial Accounting 4th edition by KIESO.


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.

Most of the companies have not mentioned there outstanding shares just like

Siemens. Then the only way to analyze the EPS is intracompany. It means that in

the year 2007 the EPS increased by 221% so it means that the Siemens has earned

221% net income on every share in 2007 as compared to 2006. In the year 2008

the EPS increased by 117%. In 2009 and 2010 the EPS increased by 77% and 30%

respectively as compared to 2006. So the trend shows that there is a decrease in

the EPS every share due to the less amount of net income due to the increase in the

sales which also increases the operating expenses and lowers the gross profit and

then reduces the net income.

Return on Assets2006 2007 2008 2009 2010

10% 10% 11% 9% 7%

It is a measure of the productivity of assets, regardless of how the assets are

financed. An overall measure of profitability is return on assets.


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It is calculated by dividing operating income by average total assets. As in the 2006

the operating income was PKR 1,007,294.00 and the assets were also very high

due to the increase in the inventory, trade receivable and cash and bank balance

account which lowers the return percentage. In the year 2007 the average total

assets increase by 73% which maintain the return rate. In the year 2008 the

average assets increased to 76% but the operating income also increased. This

increase the overall return on assets. In the next 2 years average total assets

increased by huge amounts that is why the return on assets decreases.

The average return on the assets is 9.4% which high then the industry average of

7.42%3. This shows that the company is doing a profitable business and return on

assets is fair enough high.

Return on Equity

2006 2007 2008 2009 201028% 61% 29% 21% 14%

It is the rate of return earned on the stockholders equity in the business. It is

calculated by dividing the net income by average total equity.

3 Industry average mentioned in INTERMIDIATE ACCOUNTING 13th EDITION Volume 2 BYKIESO.


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It is only the returned earned by the management on the stockholders equity. In the

year 2006 the average total equity increased but the net income decrease which

reduces the return on equity. In the year 2007 the net income increased by 242%

and the average equity increases by 98% which increases the return rate. In the

next three years the net income increased but not as much as in the 2007 due to

the high sales and operating expenses the net income was considerably lower than

in 2007. On the other hand in these 3 years the total equity increases due to the

increase in the retained earnings and the reserves.

Annual return of more than 12%4 or more from equity investments in large,

financially strong companies is very common. So Siemens is giving more than the

industry requirements so its shows that the management is earning good profit.

Market value2006 2007 2008 2009 2010

PKR980.00

PKR1,689.00

PKR1,210.00

PKR1,415.00

PKR1,160.00

It reflects the both investors expectation and the current market conditions.

4 Financial Accounting 14th editions, Chapter 14 page no 649.


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As in the above part I have mentioned that the market value of the financial

instrument is dependable upon the both investors expectation and the currentmarket conditions. Siemens is registered in Karachi Stock Exchange and due to the

sole company which is doing so many electronic projects its share price increases.

There is a minor decrease in the 2008 which is due to the current situation of the

Pakistani market and its declining economy. Same is the reason for the decline in

2010. Pakistan being a developing country is facing so many problems in which

terrorism is one of the most serious problem which seriously effects the market

conditions.

Price Earnings Ratio2006 2007 2008 2009 2010

10.47 5.61 5.96 8.55 9.57PKR

979.68PKR

1,687.88PKR

1,210.24PKR

1,415.28PKR

1,159.79


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It is an oft-quoted measure of the ratio of the market price of each share of common

stock to the earnings per share. The price earnings ratio reflects the investors

assessments of companys future earnings. It is computed by dividing the market

price by EPS.

In the year 2006 the market price was PKR 980 and the EPS was PKR 93.57 which

increases the ratio. In the next 2 years 2007 and 2008 the market value was high

but the EPS was also increased which decrease the ratio and due to the increase in

the market value in next 2 years 2009 and 2010 the ratio also increased.

Companies with track records of rapid growth may sell P/E ratios of perhaps 30 to 1

or even higher5. Siemens has record of rapid growth and its P/E ratios lies in the

range so its market price will grow due to its profitable business.

Dividend yield2006 2007 2008 2009 2010

0.07 0.05 0.07 0.06 0.08

Dividends expressed as a rate of return on the market value of the stock. It is

calculated by dividing the annual dividend by the current stock price. Dividend yield

5 Financial Accounting 14th edition chapter no 14 page no 652.


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is especially important to those investors whose objective is to maximize the

dividend revenue from their investments.

In 2006 the company declared the annual dividend at PKR 66 and the stock price

was also high which makes the yield to 7% only. In the next year the company

declared the dividend at 90 and the stock price was very high which reduces the

yield to 5% only. In the next three years the annual dividend remains the same at

PKR 90 and due to the increase and decrease in the market value there is minor

fluctuation in the yield. If a corporation is profitable and retains its earnings for

expansion of the business the expanded operations should produce an increase in

the net income of the company and thus tend to make each share of the stock more

valuable.

So net income of the Siemens increased gradually in every year which makes theeach share of the stock more valuable.

financial analysis project new 00

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