Professional Documents
Culture Documents
Submitted to:
Sir Wasim Ullah
Group Members:
Muhammad Younus Baltistani
Muhammad Yasir Naran
Muhammad Zubair Jehlami
Sajjad Iqbal
RizwanBisharat
◦ MBA 19 b
Liquidity Ratios
Current Ratio:
PSO has positive trend in current ratio. FY06 and FY08 current ratios are same as FY07
current ratio is comparatively low. As horizontal analysis shows that current assets of
FY08 are 200% and FY07 108 % while keeping FY06 100% as base year. While current
liabilities of FY08 199% and FY07 109%, FY06 100% as base year. This shows that both
current assets and current liabilities for consecutive three years are increasing. Vertical
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analysis shows that current asset is increasing FY06 83%, FY07 84% and FY08 94% as
compare to total assets 100% for consecutive three years. While current liabilities for
FY06, FY07, FY08 are 67%, 68%, 74% consecutively. This shows that company is
encouraging the level of current assets as well as current liabilities.(See Graph 1 ,table 1)
As compare to industry average current ratio of PSO is low. In 2008 PSO current ratio is
1.236 while industry average is 1.4. PSO has liquidity problem as compare to industry
average. The company has less capacity to pay its short term finance / debt.
In 2008 current ratio 1.236, as compare to 2006 and 2007 it is increased .current ratio is
increased due to huge increase 110%, 100% in inventory level and cash and bank balance
consecutively as compare to 2007. Trade and other payable and short term borrowing are
increased by 100% and 12% comparatively. Now in 2008 company is improving its
liquidity. As current financial cries in the world as well as in Pakistan almost every
company has a liquidity problem. So that PSO is improving its liquidity position.
Quick Ratio and cash ratio
Quick ratio is .571, .641, and .636 respectively in 2008, 2007 and 2006. In 2008 quick
ratio is comparatively low. It is decreased 10% in 2008 as compare to 2006, while 1%
increased in 2007. In 2006 Quick ratio is 0.636, as compare to 2005 it was 0.615. As it is
improved while current ratio is decreasing. As stock in trade is the major portion of
current assets, when if is reduced as 40% of total assets. Cash ratio in 2006 is .040 as
compare to 2005 which was .059. Cash ratio are .032, .030, .040 in 2008, 2007and 2006
respectively. While keeping 2006 as base year cash ratio is decreased 25% and 20% in
2007 and 2008 respectively. .(See Graph 1 ,table 1)
With the comparison of current ratios in 2006, 2007 and 2007 PSO can pay off its short
term liabilities. But when we examine the quick ratio that is less than current liabilities.
Quick assets are not enough for the payment of current liabilities. Because the major
inventory level of the company is 40%, 39% and 49% of total assets in 2006, 2007, and
2009 respectively. The company is improving its inventory level because it is a public
company and it has a lot of branches and stations all over the county.
PSO has a low cash and equality as compare to its industry average. Pso has cash ratio of
.032 in 2008 as compare to industry average which is very low. .(See Graph 1 ,table 1)
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Profitability ratio:
Executive summary:
The profitability overall measures the effectiveness of the firm’s management. It is a
necessity over the longer run for a company.
FY08 has seen a marginal increase in the profit margins for the company. The Net profit
of the company showed a negative trend from 2006 to 2007 However in the year 2008 the
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whole company went into the inclining trend The Net Profit was increased in 2008 by
13% as it compared to 2007 when it was decreased by 46%..(See Graph 3 ,table 3)
Overall profitability ratio is comparatively high than the industry average.
Analysis of profitability ratios:
In 2006 the net Gross margin was increased by 5% whereas net profit margin was
increased by 2%. ROA was 17% due to 31% percent increase in the EBIT and ROE was
36% 2006 was increase in the trend.
The year 2007 was a year of decrease in profitability ratios in this GP was 3% and net
profit margin was just 1.14% and ROA and ROE were less than from the previous yea
The year 2008 was a good for the PSO there was an increase in the profitability as there
was GP margin was 5.15% and net profit margin was 2.41% that was increased 112%
from previous year and was ROA as were ROE were increased from year 2007.
In 2008 the gross margin, net profit margin and return on asset of PSO is comparatively
low than the industry average .Whereas the operating profit is comparatively high than
the industry average. (See Graph 3, table 3)
Long term debt paying ability:
For the year 2006 the assets of the companies were increased by 34% and the debt ratio
the liabilities were also increased by 41% to 70% from 60% and the time interest expense
also decreased to 14.18 times from 25.79 where the owner equity increased from 1.98 to
2.37 .In the next year debt ratio increased while time interest decreased because this was
a year of overall a slight decrease in the profitability. In 2008 debt ratio increases to 76%
from 71% and time interest expense almost doubled and the owner 3.1 from 2.57 that was
a good sign for the company. (See Graph 4, table 4)
IN 2008 industry average is comparatively low than PSO this shows that PSO has more
leverage .The PSO has more capacity to pay interest expenses from EBIT that is 150%
more than industry average. The debt equity ratio of PSO is more than the industry
average. (See Graph 4, table 4)
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Z- SCORE
Z = .012x1 +.014x2 +.033x3 +.006x4 +.999 x5
z- Score is used for analysis of likelihood that a firm will fail or become bankrupt. Its
combination of some ratios. It is also called multiple discriminant analysis.
PSO has Z=4.6 in 2008 where as industry average is 4.24. Which means company has a
very low chance of bankruptcy? Z value in increasing from FY06 to FT08.
1.4
current ratio=current
1.2 Assets/current liabilities
1
ratios
0.6
0.4
Cash ratio=cash
+marketable
securities/current liabilities
0.2
0
0 2008 2007 2006 2005 2008
years Ind. ave
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70
inventory turnover in
days=365/inventory
turnover
60
A/R turnover in
days=365/average
50 A/R
days
A/P turnover in
40 days=365/A/P
turnover ratio
30 fixed Asset
turnover=net sale /
Average capital Asset
20
total Asset
turnover=net sale/
average total Asset
10
0
0 2008 2007 2006 2005 2008
years Ind. Ave
0.45
Gross
margin=GP/n
et sales
0.4
operating
0.35 profit
margin=oprati
ng
income/sales
0.3
net profit
% age
margin=net
profit /net
0.25 sales
Return on
0.2 Asset=EBIT/a
verage total
Assets
0.15
ROE= net
income/ total
eguity
0.1
0.05
0
0 2008 2007 2006 2005 208
years Ind.Ave
25
Debt Ratio=Total
liabilities/ Total Assets
20
ratios
Time interest
earned=EBIT/interest
15
expense
10
Debt Equity ratio=tatal
liabilities/total equity
0
0 2008 2007 2006 2005 2008
years Ind. Ave
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0.5
DuPont Ratio (three Step)
0.45
0.4
0.35
0.3
ROE
0.25
0.2
0.15
0.1
0.05
0
0 2008 2007 2006 2005 2008
years Ind. Ave
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Table 6 (Z-Score model)
4.7
4.6
4.5
4.4
score
4.3
4.2
4.1
3.9
3.8
3.7
0 2008 2007 2006 2005 2008
years Ind. Ave