fsa analysis

8/10/2019 FSA Analysis

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Pakistan Synthetic Limited

Financial Statement Analysis 2009-13

Ahmad Mukhtar 11U0050

3/27/2014


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Table of ContentsExecutive Summary ....................................................................................................................................... 2

Income Statement ........................................................................................................................................ 3

Balance Sheet ................................................................................................................................................ 4

Cash Flow Statement .................................................................................................................................... 6

Common Sized Income Statement................................................................................................................ 8

Common Sized Balance Sheet ....................................................................................................................... 9

Trend Index ................................................................................................................................................. 11

Per Share Results ........................................................................................................................................ 12

Cash Flow Ratios ......................................................................................................................................... 13Short term Liquidity Analysis ...................................................................................................................... 14

Common Size Analysis of CA & CL ............................................................................................................... 16

Capital Structures and Solvency Ratios ....................................................................................................... 18

Return on Invested Capital Ratios............................................................................................................... 20

Asset Utilization Ratios ............................................................................................................................... 21

Analysis of Profit Margin Ratios .................................................................................................................. 22

Analysis of Depreciation ............................................................................................................................. 23

Analysis of Discretionary Expenditures ....................................................................................................... 24

Market Measures ........................................................................................................................................ 25

Conclusion ................................................................................................................................................... 26


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Executive Summary

In this project the financial statement analysis of the company Pakistan Synthetic Limited has been

carried out for the fiscal years 2009-2013. PSL is a quality manufacturer of polyester staple fibre and

plastic and crown caps. It has the responsibility to treat all stakeholders equitably and transparently to be

true to their trust.

The solvency of the company has been analyzed in detail with the help of certain tables below.

Some of which are the liquidity, solvency and profitability tables of the company.

The performance of the company has generally been good over the years with its net sales constantly

increasing to meet demand. The aim of this project is to see how PSL has financed and operations and

how well it has done so in dealing with rising costs. The transition from being an equity based to a debt

financed company will be analyzed in detail during the course of this project.


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Income Statement

PSLs income statement shows that from 2009 to 2011 the growth in sales has led to higher net

income. Net income however falls significantly after 2011 even though sales continue to rise.

The main reason for this is the rise in cost of sales leading to lower gross profit and higher

operating expenses and finance costs leading to low levels of EBT. The income statement clearly

shows that the company was performing at its best in 2011 with the highest net income of

286,304,000 and an EPS of 5.11

(Rupees in '000) 2013 2012 2011 2010 2009

Net sales 5,123,546 4,397,083 4,154,303 3,280,755 2,452,646

Cost of sales (4,812,637) (4,174,499) (3,567,817) (3,133,503) (2,310,990)

Gross profit 310,909 222,584 586,486 147,252 141,656

Other income 13,948 19,864 21,097 9,870 9,120

324,857 242,448 607,583 157,122 150,776

Distribution and selling costs (45,060) (25,884) (17,048) (11,809) (10,890)Administration and general expenses (36,330) (30,443) (70,237) (51,089) (39,875)

Other operating expenses (60,030) (53,797) (70,302) (10,611) (17,933)

(141,420) (110,124) (157,587) (73,509) 68,698

Profit from operations 183,437 132,324 449,996 83,613 82,078

Finance costs (116,394) (91,887) (9,417) (7,033) (19,255)

Profit before taxation 67,043 40,437 440,579 76,850 62,823

Taxation (23,147) (21,890) (154,275) (24,759) (20,492)

Profit for the year 43,896 18,547 286,304 51,821 42,331

Earnings per share - basic and diluted 0.78 0.33 5.11 0.92 0.76


Profit and Loss Accounts

For years ended June 2009 through 2013


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Balance Sheet

(Rupees in '000) 2013 2012 2011 2010 2009

Equity and liabilities

Shareholder's Equity

Authorised capital of 70,000,000 ordinary

shares of Rs. 10 each

700,000 700,000 700,000 700,000 700,000

Issued, subscribed and paid-up capital 560,400 560,400 560,400 560,400 560,400

General reserve 292,450 292,450 292,450 292,450 362.500

Unappropriated profit 264,399 220,503 314,036 27,732 (24,089)Total shareholders' equity 1,117,249 1,073,353 1,166,886 880,582 898,611

Liabilities

Non-current liabilities

Staff retirement benefits 29,891 28,746 25,617 26,0931 30,602

Deferred taxation 88,663 111,074 89,184 7,296

Long term finance 281,250 406,250

Total non-current liabilities 399,804 546,070 114,801 26,091 37,898

Current liabilities

Trade and other payables 876,376 553,712 271,979 369,250 307,009

Short-term borrowings 565,361 735,310 1,088,371 41,215

Accrued markup 17,302 7,350 2,382 47,942 11,233

Current portion of long term finance 125,000 93,750

Total current liabilities 1,584,039 1,390,122 1,362,732 917,192 365,457

Contingency and Commitments

Total equity and liabilities 3,101,092 3,009,545 2,644,419 1,323,867 1,302,166


Balance Sheet

For year 2009 through 2013


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PSLs balance sheet shows an increase in owners equity from 2009 to 2011 after which it

remains about the same till 2013. The rise in equity was mainly due to the increase in

unappropriated profit during these years.

The non-current liabilities portion has grown till 2012 where it is at its highest of 546,070

compared to the initial 37,898. The main contributor to this increase was the introduction of long

term finance in 2012 which was also present in 2013 but by a smaller amount. Current liabilities

show an increasing trend throughout the period being highest in 2013 and lowest in 2009.

Total Assets tend to be rising throughout the 5 year period which shows PSLs growth as a

company. Both current and non-current assets have risen to contribute to this growth. In the non-

current assets portion Property plant and equipment has grown by over 280% over the 5 years. In

current assets there has been a significant rise in stores and spares and inventory throughout, with

cash and bank balances only increasing till 2011 and then falling from 2012 to 2013.

Assets

Non-current Assets

Property, plant and equipment 1,035,139 1,186,323 1,154,708 293,070 360,693

Long term loan to employees 375 738 186 901 1,460

Long term deposits 924 924 924 262 262

Deferred Taxation 21,279

Total non-current assets 1,036,438 1,187,985 1,155,818 315,552 362,415

Current assets

Stores and spares 205,989 151,628 154,554 125,833 113,725

Stock-in-trade 993,620 836,101 526,186 308,111 326,747

Trade debts 709,049 578,112 337,851 370,896 332,029

Loans and advances 3,686 5,182 3,613 3,820 713Short term deposits and prepayments 1,470 1,527 17 1,145

Other receivables 14,700 48,354 75,932 28,272 44,377

Taxation - net 48,743 39,201 1,521

Cash and bank balances 87,397 161,455 388,927 173,384 121,015

Total current ass ets 2,064,654 1,821,560 1,488,601 1,008,315 939,751

Total asse ts 3,101,092 3,009,545 2,644,419 1,323,867 1,302,166


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Cash Flow Statement

(Rupees in '000) 2013 2012 2011 2010 2009

CASH FLOWS FROM OPERATING ACTIVITIES

Profit before taxation 67,043 40,437 440,579 76,580 62,823

Adjustments for:

Depreciation 158,116 150,300 129,350 108,199 103,427

Charge for staff gratuity 7,712 7,706 5,733 7,201 6,156

Profit on disposal of property, plant and equipment (63) (3,335) (200) (167) (96)

Profit on saving and deposit accounts (2,242) (6,457) (20,554) (9,538) (6,076)

Finance costs 116,394 91,887 9,417 7,033 19,255

Advances written off 364 3,503

Provision for doubtful debts and deposits 1,300 436 39,355 23,998 6,993

348,624 280,974 603,680 216,809 192,480

Movement in:

Working capital 13,399 (242,100) (421,061) 18,241 187,266

Long term deposits (622) 8,309

Long term loan to employees 363 (552) 755 519 4

Net cash from operations 362,386 38,322 182,712 235,569 388,059

Staff gratuity paid (6,567) (4,577) (6,209) (11,710) (3,131)

Financial charges paid (106,442) (86,919) (7,035) (7,128) (24,916)

Taxes paid (55,100) (37,680) (97,550) (22,625) (11,719)

Net cash from / (use d in) operating activities 194,277 (90,854) 71,918 194,106 348,293

CASH FLOWS FROM INVESTING ACTIVMESCapital expenditures paid (6,932) (185,042) (965,451) (41,081) (39,405)

Proceeds from disposal of property, plant and equipment 63 6,462 200 673 1,116

Profit on saving accounts received 2,242 6,457 20,554 9,538 6,076

Net cash used in investing activities (4,627) (172,123) (944,697) (30,870) (32,213)

CASH FLOWS FROM FINANCING ACTIVITIES

Long term diminishing musharka (paid) / obtained (93,750) 500,000 (67,213)

Short term foreign currency loan and money market loan

paid-net of loans obtained

(269,733) (353,061)

Dividend paid (9) (111,434) (49) (69,652)

Net cash (used in) / from financing activities (363,492) 35,505 (49) (69,652) 67,213

Net decrease in cash and cash equivalents (173,842) (227,472) (872,828) 93,584 248,867

Cash and cash equivalents at beginning of the year 161,455 388,927 173,384 79,800 (169,067)

Cash and cash equivalents at end of the year (12,387) 161,455 (699,444) 173,384 79,800

CASH AND CASH EQUIVALENTS COMPRISE

Cash and bank balances 87,397 161,455 388,927 173,384 121,015

Short term borrowings (1,088,371) (41,215)

Running finance under mark-up arrangement (99,784)

(12,387) 161,455 699,444 173,384 79,800


Statement of Cash Flows

For year 2009 through 2013


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The cash flow from operating activities shows a decreasing trend form 2009 to 2012 when it

reaches an all time low of -90,845 (outflow of cash). However in 2013 the downward trend ends

as the cash flow from operating activities goes back up to 194,277 increasing by 285,122 in 1

year.

Investing activities show cash outflow throughout the 5 years with the highest amount of cash

being used up in 2011 and lowest in 2013. The high amount being paid out in 2011 was due to

the high capital expenditures during this time period.

Financing activities show inflow of cash only during 2009 and 2012. The highest amount of cash

used up was in 2013 when 363,492 were used up for financing activities.


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Common Sized Income Statement

Looking at the common-sized income statements we can see that cost of sales remain the highest

proportion of net income in all years, being the highest (95%) in 2010 and lowest (85%) in 2011

and fluctuating between these values in the remaining years. Cost of sales being the lowest in

2011 as a percentage of sales is what contributes to the high net income of this year. EBT and

Tax expense is also highest for 2011 due to the same reason, with EBT being 10% of sales and

tax 3.7%. Finance costs increased over the years as a percentage of sales and so did the operating

expenses, being highest in 2013.


Common-size Income Statements


2013 2012 2011 2010 2009

% % % % %

Net s ales 100 100 100 100 100

Cost of sales -93.9318 -94.9379 -85.8824 -95.5116 -94.2244

Gross profit 6.068239 5.062083 14.11755 4.488357 5.77564

Other income 0.272233 0.451754 0.507835 0.300845 0.371843

6.340472 5.513837 14.62539 4.789202 6.147483

Distribution and s e lling

costs -0.87947 -0.58866 -0.41037 -0.35995 -0.44401

Administration and general

expenses -0.70908 -0.69235 -1.6907 -1.55723 -1.6258

Other operating expenses -1.17165 -1.22347 -1.69227 -0.32343 -0.73117

-2.7602 -2.50448 -3.79334 -2.24061 2.800975

Profit from ope rations 3.580274 3.009359 10.83205 2.54859 3.346508

Finance cos ts -2.27175 -2.08973 -0.22668 -0.21437 -0.78507

Profit before taxation 1.308527 0.919632 10.60537 2.342449 2.561438

Taxation -0.45178 -0.49783 -3.71362 -0.75467 -0.83551

Profit for the year 0.85675 0.421802 6.891746 1.579545 1.725932


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Common Sized Balance Sheet

2013 2012 2011 2010 2009

Equity and liabilities

% % % % %

Shareholder's Equity

Authorised capital of 70,000,000

ordinary shares of Rs. 10 each 22.57269 23.25933 26.47084 52.875402 53.75659

Issued, subscribed and paid-up

capital 18.07105 18.62075 21.1918 42.330536 43.03599

General reserve 9.430549 9.717416 11.05914 22.090588 0.027838

Unappropriated profit 8.525997 7.326789 11.87543 2.0947724 -1.84992

Total shareholders' equity 36.0276 35.66496 44.12637 66.515896 69.00894

Liabilities

Non-current liabilities

Staff retirement benefits 0.963886 0.955161 0.968719 19.709759 2.350084

Deferred taxation 2.85909 3.690724 3.372537 1.6073367 0.560297

Long term finance 9.069386 13.49872 0 0 0

Total non-current liabilities 12.89236 18.1446 4.341256 1.9708173 2.910382

Current liabilities

Trade and other payables 28.26024 18.39853 10.28502 27.891775 23.57679

Short-term borrowings 18.23103 24.4326 41.15728 0 3.165111Accrued markup 0.557932 0.244223 0.090076 3.6213608 0.86264

Current portion of long term finance

4.030838 3.115089 0 0 0

Total current liabilities 51.08004 46.19044 51.53238 69.28128 28.06532

Contingency and Commitments

Total equity and liabilities 100 100 100 100 100


Common-size Balance Sheets



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The equity and liabilities portion of this common-size analysis shows us that that over the 5 years

shareholders equity keeps decreasing as a percentage of total liabilities and equity, being 69% in

2009 and just 36% in 2013. The non-current liabilities, though a much smaller percentage of

total equity and liabilities, has shown significant increase over the years being as much as 18% in

2012.The increase in the percentage of current liabilities shows us that PSL has chosen to replace

equity with current liabilities as it makes for the majority proportion of the total liabilities and

equity in recent years, and this is due to the significant increase in short term borrowings over the

years.

Common size analysis of the assets section of the balance sheet shows us that current assets

make up for a larger percentage of total assets in all years. However, there has been significant

increase in the percentage of non-current assets till 2011 where it is as high as 43.7% of total

assets, (due to a drastic increase in property, plant and equipment) after which it falls again

slightly for the next 2 years.

Assets

Non-current Assets

Property, plant and equipment 33.37982 39.41868 43.66585 22.13742 27.69946

Long term loan to employees 0.012093 0.024522 0.007034 0.0680582 0.112121

Long term deposits 0.029796 0.030702 0.034942 0.0197905 0.02012

Total non-current assets 33.42171 39.47391 43.70782 23.835627 27.83171

Current assets

Stores and spares 6.642467 5.038237 5.844535 9.5049578 8.733526

Stock-in-trade 32.04097 27.78164 19.89798 23.273561 25.09258

Trade debts 22.86449 19.20928 12.776 28.016107 25.49821

Loans and advances 0.118861 0.172185 0.136627 0.2885486 0.054755

Short term deposits and

prepayments 0.047403 0.050739 0.000643 0 0.08793

Other receivables 0.474027 1.606688 2.871406 2.135562 3.407937

Taxation - net 1.571801 1.302556 0.057517 0 0

Cash and bank balances 2.818265 5.364764 14.70747 13.096784 9.293362

Total current ass ets 66.57829 60.52609 56.29218 76.164373 72.16829

Total assets 100 100 100 100 100


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Trend Index

In the trend index we take 2009 as the base year to keep its values as benchmark for PSLs

performance in later years. The most significant increase over the years has been in the non-

current liabilities which have increased by over a 1000% in 2012 and 2013 as compared to 2009.

Trade debts have significantly increased and so have the total liabilities and stock in trade.

Positive signs for PSL are the increase in current assets and net sales and the decrease in

administrative and general expenses. Working capital shows an increasing trend since 2010 but

in comparison to 2009 base year value it is still lower than the starting point. Negative signs

include drastically rising finance costs and cost of sales is also increasing over the years.

2013 2012 2011 2010 2009

Cash and bank balances 72% 133% 321% 143% 121,015

Trade debts 214% 174% 102% 112% 332,029

Stock-in-trade 304% 256% 161% 94% 326,747

Total current assets 220% 194% 158% 107% 939,751

Total current liabilities 433% 380% 373% 251% 365,457

Working Capital 84% 75% 22% 16% 5,875.00

Property, plant and equipment 287% 329% 320% 81% 360,693

Total non-current liabilities 1055% 1441% 303% 69% 37,898Total liabilities 492% 480% 366% 234% 403,355

Total shareholders' equity 124% 119% 130% 98% 898,611

Net sales 209% 179% 169% 134% 2,452,646

Cost of sales 208% 181% 154% 136% 2,310,990

Administration and general expenses 91% 76% 176% 128% (39,875)

Finance costs 604% 477% 49% 37% (19,255)

Total cost and expenses 206% 160% 229% 107% 68,698

Profit before taxation 107% 64% 701% 122% 62,823

Profit for the year 104% 44% 676% 122% 42,331


Trend Index of Selected Accounts (2009=100%)


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Per Share Results

Per share results can help us analyze the financial health of PSL from the investors point of

view. Average shares outstanding are the same for each year which helps make comparisons

simpler. Sales per share shows a significant increase throughout the year being the highest (91.43

rupees per share) in 2013 as compared to 43.77 in 2009. The Net income per share (EPS)

fluctuates massively in 2011 when it goes to a record high of 5.11 per share. In the last 2 years

however it has come back to its average value of around 0.7 per share. The per share dividends

only have significant values in 2010 and 2012. In the other years dividends were either not paid

out or too low to give a significant DPS value. This is not necessarily a bad sign for investors as

PSL probably retains its earnings for growth prospects in these years. The book value per share

increases from 2009 to 2011 after which it falls but not too significantly.

2013 2012 2011 2010 2009

Sales 91.43 78.46 74.13 58.54 43.77

Net income 0.78 0.33 5.11 0.92 0.76

Dividends 0.00 1.99 0.00 1.24 0.00

Book value 19.94 19.15 20.82 15.71 16.04

Average shares outstanding 56,040,000 56,040,000 56,040,000 56,040,000 56,040,000


Per share results


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Cash Flow Ratios

The company has a cash flow adequacy ratio of 0.35 and is much below the industry average.

This means that companys operations do not produce sufficient cash to meet necessary business

obligations. This also shows how the company cannot cover the annual payments of all the long-

term annual debt with the cash flow from its operating activities.

Cash reinvestment ratio shows a decreasing trend till 2012 after which it picks up and goes to

5.2% in 2013 after being negative in 2012. This means that the company should be reinvesting

more and should not hold back earnings. 2012 has however been the worst year with a negative

ratio contrary to a higher net income comparatively. By reinvesting profits the company will get

to compound your investment and over time create substantially higher returns.

Industry avg.

Cash Flow Adequacy Ratio(5 years) 0.35 8.262

2013 2012 2011 2010 2009

Cash Reinvestment Ratio 5.20% -0.56% 3.10% 4.70% 13.57% 2.338


Analysis of Cash Flow Ratios (Rupees in '000)


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Short term Liquidity Analysis

Short term liquidity analysis shows us that current ratio is highest in 2009 and then is lower inthe coming years. This is due to the current liabilities increasing at a greater rate than current

assets for PSL. Even though the current ratio falls it remains above the industry average in most

years and almost equal to the industry average in 2010 and 2011. This is a good sign as it shows

that PSL is more liquid and has its current liabilities covered better than other firms in the

industry.

The acid test ratio also falls over the years but still remains above the industry average of 0.53

for all years signifying that PSL has a better proportion of quick assets than other firms.

PSL also has a lower accounts receivable turnover than the industry average for all years exceptfor 2011. This is not a healthy sign as it shows that PSLs accounts are cleared slower than the

other firms in the industry. Inventory turnover however shows positivity as it is higher than the

industry average for most years. This shows that PSLs sales are rising by more than its

inventories compared with other firms.

Approximate conversion period is the sum of the days sales in receivables and days sales in

inventories. PSL has a lower conversion period than the industry average in all years showing

2013 2012 2011 2010 2009 Industry avg.

Current Ratio 1.30 1.31 1.09 1.10 2.57 1.110892414

Acid-test Ratio 0.68 0.71 0.71 0.76 1.67 0.529191957

Accounts Rec. Turnover 7.96 6.46 11.72 9.33 7.12 9.895856531

Inventory Turnover 5.26 3.80 8.57 9.90 4.58 4.534805139

Days Sales in Receivables 45.22 55.77 30.71 38.57 50.53 88.73730311

Days Sales in Inventory 68.43 94.79 41.99 36.35 78.66 80.4192092

Approx Conversion Period 113.65 150.56 72.70 74.92 129.20 169.1565123

Cash to Current Assets 4.23% 8.86% 26.13% 17.20% 12.88% 11.05%

Cash to Current Liabilities 5.52% 11.61% 28.54% 18.90% 33.11% 12.23%

Working Capital 480,615 431,438 125,869 91,123 574,294 -1080773974

Days Purchases in Accounts P 78.12 51.81 30.71 50.01 70.99 42.74891431

Average Net Trade Cycle 35.54 98.75 41.98 24.91 58.20 126.407598

Cash provided by operations 13.06% -6.60% 6.31% 30.27% 61.88% 19.61%


Short-term Liquidity Analysis


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that it is more efficient in its sales and collection of receivable process than other firms in the

industry.

The ratios for cash show a worrying sign in the recent years as they fall below industry average

even after doing well in earlier years. This shows that PSL has a lower cash to current

assets/liabilities ratio than other firms in the industry.


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Common Size Analysis of CA & CL

This analysis takes into consideration current assets and current liabilities separately in a

common-sized statement to study the impact of their individual components. Looking at current

assets first we can see that the major chunk comes from stock in trade (inventories), which make

up for about 48% of total current assets in 2013 which is a significant increase from the 34% in

2009. Second largest component is trade debts (accounts receivable) which is 34% similar to its

value in 2009 with some fluctuations in between. Cash and bank balances shows an interesting

trend as its percentage to total current assets increases till 2011 (26.13% highest) and then falls

sharply in the next two years to just 4.23% of current assets which means PSL has less cash

available.

2013 2012 2011 2010 2009

Current assets

Stores and spares 9.98% 8.32% 10.38% 12.48% 12.10%

Stock-in-trade 48.13% 45.90% 35.35% 30.56% 34.77%

Trade debts 34.34% 31.74% 22.70% 36.78% 35.33%

Loans and advances 0.18% 0.28% 0.24% 0.38% 0.08%

Short term deposits and prepayments 0.07% 0.08% 0.00% 0.00% 0.12%

Other receivables 0.71% 2.65% 5.10% 2.80% 4.72%

Taxation - net 2.36% 2.15% 0.10% 0.00% 0.00%

Cash and bank balances 4.23% 8.86% 26.13% 17.20% 12.88%Total current assets 100.00% 100.00% 100.00% 100.00% 100.00%

Current liabilities

Trade and other payables 55.33% 39.83% 19.96% 40.26% 84.01%

Short-term borrowings 35.69% 52.90% 79.87% 0.00% 11.28%

Accrued markup 1.09% 0.53% 0.17% 5.23% 3.07%

Current portion of long term finance 7.89% 6.74% 0.00% 0.00% 0.00%

Total current liabilities 100.00% 100.00% 100.00% 100.00% 100.00%


Common-size Analysis of Current Assets and Current Liabilities


18/27

Looking at current liabilities we see that starting off in 2009 the liabilities are dominated by trade

and other payables which make up for 84% but in later years this percentage drops mainly due to

the introduction of short term borrowings which are highest in 2011 and go down in the next 2

years. Current portion of long term finance also increases making up for 7.9% of the total current

liabilities in 2013.


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Capital Structures and Solvency Ratios

Total debt to equity ratio for PSL shows an increasing trend throughout the year being highest in

the last 2 years at around 1.79. This value shows that PSLs operations are majorly debt financed

but still this value is a lot lower than the industry average of 5.64 showing that other firms in the

industry have used a greater degree of debt financing than PSL.

Total debt ratio for PSL increases initially before becoming constant at 0.64 in the last 2 years,

showing that the total debt can be financed by 64% of the total assets. This value is less than the

industry which is a good thing because it means that the other firms need more assets to finance

their debts than PSL.

Long term debt ratio is also lower than the industry average for all years even though it increases

over the years. Equity to total debt ratio decreased over the years showing that PSL is moving

towards a higher degree of debt financing.

Fixed assets to equity is below 1 for all years showing that all of the fixed assets can be financed

by the equity. This is much lower than the industry average of 4.3 showing that other firms in the

industry have 4 times as much fixed asset as their equity.

2013 2012 2011 2010 2009 Industry a

Total debt to equity 1.78 1.80 1.27 1.07 0.45 5.638641

Total debt rato 0.64 0.64 0.56 0.71 0.31 0.79443

Long term debt to equity 0.36 0.51 0.10 0.03 0.04 0.83287

Equity to total debt 0.56 0.55 0.79 0.93 2.23 8.029504

Fixed assets to equity 0.52 0.61 0.78 0.31 0.89 4.310872

Current liabities to total liabilities 0.80 0.72 0.92 0.97 0.91 1.170682

Earnings to fixed charges 1.58 1.44 47.79 11.89 4.26 -6.80432

Cash flow to fixed charges 1.67 0.99 7.64 27.60 18.09 3.203375


Capital Structures and Solvency Ratios


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Current liabilities to total liabilities ratio is also less than 1 for all years showing that non-current

liabilities are greater than current liabilities in all years for PSL unlike the industry.


21/27

Return on Invested Capital Ratios

RNOA shows an increasing trend for the first three years after which it falls, being highest in

2011 at 12.95%. This was because NOPAT was highest for PSL during this time period. ROCE

shows a very similar trend as net income followed the same trend as NOPAT during the years.

Compared to industry averages both returns are much low signifying that PSL is getting less

return on operating assets and common equity than other firms in the same industry.

2013 2012 2011 2010 2009 Industry a

Return on net operating assets 5.68% 2.63% 12.95% 8.42% 5.77% 0.499669

Return on common equity 3.93% 1.73% 24.54% 5.88% 4.71% 2.734701

Return on long term debt and equity 7.88% 3.76% 22.82% 6.24% 5.90% 3.921258

Equity growth rate 3.93% -8.65% 24.53% -2.02% 4.71% -6.03136

Disaggregation of ROCE 0.28% -2.89% 24.25% 8.08% 3.96% 1.528344

Disaggregation of RNOA 5.68% 2.63% 12.95% 8.42% 5.77% 0.257551


Return on Invested Capital Ratios


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Asset Utilization Ratios

Sales to cash equivalents shows an overall upward trend throughout the years. However, the ratio

is very low as compared to the industry average. This means that the cash and equivalents were

not translated into enough sales in that year. Sales to receivables is also low compared to the

industry average in all years, meaning that receivables are a bigger proportion of sales for PSL

compared to other firms which is not a good sign.

Sales to inventories ratio shows a good sign till 2011 when it is above the industry average which

meant that more inventories were being converted into sales however the value drops in the last 2

years and comes close to the industry average which means that PSL is not doing any better than

other firms in its inventory management.

In the rest of the ratios PSL is not drastically different from other firms in the industry as its

average value revolves around the industry average showing that it is doing well. Sales however

do tend to be more than the assets as compared to other firms.

2013 2012 2011 2010 2009 Industry a

Sales to cash equivalents 58.62 27.23 10.68 18.92 20.27 744.6546

Sales to receivables 7.23 7.61 12.30 8.85 7.39 34.14936

Sales to inventories 5.16 5.26 7.90 10.65 7.51 5.571425

Sales to working capital 10.66 10.19 33.00 36.00 4.27 13.96539

Sales to fixed assets 4.95 3.71 3.60 11.19 6.80 3.228689

Sales to total assets 1.65 1.46 1.57 2.48 1.88 1.284799

Sales to short term liabilities 3.23 3.16 3.05 3.58 6.71 3.056425


Asset Utilization Ratios


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Analysis of Profit Margin Ratios

The gross profit margin shows ups and downs throughout the 5 years that we have analyzed. Its

highest point was 14.12% in 2011 due to the high sales and profit during this year. The valuesare however hard to compare to the industry average because of the abnormally high average

value of 241% showing that other firms have a much higher gross profit margin. This could be

due to the sample of firms that we have taken for our analysis.

Operating profit margin remains below industry average for all years except in 2011 when the

profit was highest. Net profit margin also shows a drastic drop after 2011 and all values are much

below industry average showing that PSLs profit margins are much lower compared to other

firms in the industry.

2013 2012 2011 2010 2009 Ind avg

Gross Profit Margin 6.07% 5.06% 14.12% 4.49% 5.78% 241.12%

Operating Profit Margin 3.58% 3.01% 10.83% 2.55% 3.35% 10.08%

Net Profit Margin 0.86% 0.42% 6.89% 1.58% 1.73% 13.32%

Analysis of profit margin ratios



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Analysis of Depreciation

All three ratios of depreciation generally show a downward trend showing that both accumulated

and annual depreciation has significantly gone down since 2009. As a percentage of gross plant

the accumulated depreciation was 81.8% in 2009, increased a little the next year but since then

has constantly fell. Annual depreciation shows the exact same trend. Annual depreciation as a

percentage of sales was 4.22% in 2009 and this also falls till it reaches 3.09% in 2013.

2013 2012 2011 2010 2009

Accumulated depreciation as a percent of gross plant assets 67.99% 63.25% 70.24% 85.57% 81.88%

Annual depreciation expense as a percent of gross plant 4.89% 4.66% 4.87% 5.33% 5.19%

Annual depreciation expense as a percent of sales 3.09% 3.42% 3.11% 3.30% 4.22%


Analysis of Depreciation


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Analysis of Discretionary Expenditures

Only the analysis of maintenance and repairs can be done for PSL as it does not have R&D and

advertising expenses. Maintenance and repairs increase in 2010, fall again in 2011, after which it

goes to its highest of 16,551 in 2012 and then falls to 13,356. Maintenance and repairs to sales

ratio follows the same trend being the highest in 2012. As a ratio of Plant assets however it rises

in the first two years and then starts to fall reaching a value of 0.012 or 1.2% in 2013.

2013 2012 2011 2010 2009

Net sales 5123546 4397083 4154303 3280755 2452646

Plan assets (net) 1,035,139 1,186,323 1,154,708 293,070 360,693

Maintenance and repairs 13356 16551 8109 10135 8383

Advertising 0 0 0 0 0

R&D 0 0 0 0 0

Maintenance and repairs/Sales 0.26% 0.38% 0.20% 0.31% 0.34%

Maintenance and repairs/Plant 0.012903 0.013952 0.007023 0.034582 0.023241

Advertising/Sales 0 0 0 0 0R&D/Sales 0 0 0 0 0


Analysis of Discretionary Expenditures


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Market Measures

Price to earnings ratio shows a highly fluctuating trend with its values being highest in 2012 and

2013 due to high share prices and a fall in EPS. 2011 has the greatest EPS and hence the lowest

price to earnings ratio.

Book value rises from 2009 to 2013 but not by as much as the price of the shares hence the price

to book ratio rises throughout however it is still well below the industry average of 6.96.

Dividend payout is close to zero for 2009, 2011 and 2013 but in the remaining two years it is

over the industry average due to high dividends being paid during these years. The dividend

yield shows a similar pattern to the dividend payout ratio. Earnings yield increases for the first

three years after which it falls but remains positive and above industry average throughout the

five years

2013 2012 2011 2010 2009 Ind Avg

Price to earnings 23.6819 57.3634 2.6385 9.4083 7.5129 0.818396

Price to book 0.9304 0.9912 0.6474 0.5537 0.3539 6.962469

Earnings yield 0.0422 0.0174 0.3790 0.1063 0.1331 -1.42194

Dividend Yield 0.0000 0.1047 0.0001 0.1429 0.0000 0.030557

Dividend payout ratio 0.0002 6.0082 0.0002 1.3441 0.0000 0.405149


Market Measures


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Conclusion

Bankers perspective:

Before giving out the loans the bankers would check the credit history of a company and itsability to meet its short term and long term obligations. CC12 shows the liquidity of the

company. The current ratio is above the industry average because of the increase in the current

assets over the current liabilities. The acid test ratio is higher than the industry average. This

implies that the company has enough assets to pay off its liabilities and is not at any risk.

Company also has higher cash flow generated from operations to cover its finance cost however

it is still below the industry average.

So as a banker I would give loan to this company on the basis of its increase in short term

liquidity.

Investors perspective:

In order to decide whether to invest in a company, the ideal ratios to analyze are the Market

measures. The first ratio is the Price to earnings ratio which shows an increasing trend. This

shows that the company has enough earnings to attract shareholders or the price of the share is

high. High dividends were paid in 2010 and 2012 even though these were not periods of high net

income and dividend yield and payout ratio is high for these two years. In the other years,

especially in 2011 when the net income was highest, dividends were not paid. This however,

should not be taken as a bad sign for investors. The earnings that were retained during the years

that dividends were not paid contributed to growth and in turn led to higher share prices in the

last two years which the investors can look to benefit from in the form of capital gain.

fsa analysis

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