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FINAL REPORT

BUSINESS FINANCE

BUSINESS FINANCE REPORT

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SUBMITTED TO
MS ANNAM AHSAN

BUSINESS FINANCE REPORT

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BUSINESS FINANCE REPORT

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GROUP THE EXAGERATORS


ADEEL HABIB BHATTI
USMAN AZIZ
KHAWAR AZIZ
WAQAS AHMED
RABIA MANZOOR
ZAID AHMED KHAN JADOON
CLASS:

MBA 2(A)

SUBMITTED TO
MS ANNAM AHSAN
DATE:
BUSINESS FINANCE REPORT

17-12 -2012
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DEAR ALLAH, thank you for blessing us with the gift of knowledge
to celebrate your glory with love and devotion, perhaps this is the
modest way for us to thank.
MS ANNAM AHSAN our respectable teacher and well known
personality at Bahria University, thanks for being with us in all
difficult and hard times.

We really thank to her for help and

guidance. Due to her co-operation we are able to do this project in


more decent and quintessence way. We are also very much thankful
to our parents for their co-operation in all aspects of life. We are
here due to their pray, due to their co-operation and in all obstacle
time they are with us. Also thanks to our friends for encouraging us
in difficult time, and supporting us whenever we need them, Thank
You.
In last, we pray to Almighty that loves listening to our prayers, please
accept this humble thank from us with gratitude and devotion.

Thank You!

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The report under consideration outlines a detailed Ratio Analysis of


Abbott Pakistan, one of the renowned Pharmaceutical Companies of
Pakistan. Later in this report, different financial ratios for the year
2009 and 2010 will be calculated. Moreover, a brief comparison of
the current and previous year ratios will be given so as to give the
in-depth knowledge about the companys performance over the past
year.

RATIO ANALYSIS

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Ratios Comparisons
7
Internal Comparison
7
External Comparison
ABOUT ABBOTT PAKISTAN

8
8

Companys Vision
9
Companys Mission
9
CORE VALUES
Pioneering
Caring
Achieving
Enduring

10
10
10
10
10

PHILOSOPHY

11

ABBOTTS PRODUCTS

11

Pharmaceutical Products
11
General Health Care Products
12
Diagnostic Products
12
Nutritional Products
12
Diabetes Care Products
12
BOARD OF DIRECTORS

12

TOTAL SHARES AND SHAREHOLDERS (AS AT DEC. 31, 2010)


13
CONTACTS

13

RATIO ANALYSIS OF ABBOTT PAKISTAN

13

LIQUIDITY RATIOS

13

Current Ratios
Analysis.
Quick Ratio
15

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Analysis:

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ASSET MANAGEMENT RATIOS


16
Inventory Turnover in Days
16
Analysis
Fixed Asset Turnover
Analysis
Total Assets Turnover
Analysis

17
18
18
19
19

PROFITABILITY RATIOS:
20
Net Profit Margin on Sales
20
Analysis
Gross Profit Margin
21
Analysis
Return on Investment
Analysis
Return on Equity
23
Analysis

21
22
22
23
24

DEBT MANAGEMENT (FINANCIAL LEVERAGE) RATIOS


24
Debt to Equity Ratio
25
Analysis
Debt to Total Asset Ratio
26
Analysis
Gearing Ratio
Analysis

25
27
27
28

MARKET VALUE RATIOS


28
Earnings per Share
28
Analysis
Book Value per Share
Analysis
Coverage Ratio

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29
30
30

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Analysis

31

RECOMMENDATIONS

31

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IMPORTANCE OF RATIO ANALYSIS


To evaluate companys financial condition and performance, the
financial analyst needs to perform checkups on various aspects of a companys
financial health. A tool frequently used during these checkups is Financial Ratio
Analysis which relates two pieces of financial data by dividing one quantity by the
other.
Various ratios are calculated which gives a comparison that may prove more useful
than the raw numbers of themselves.

Let us consider an example that a company had a net profit figure this
year $1 billion. That looks pretty profitable. But what if the company has $200
million invested in total assets. The companys return on total assets is 0.005. This
means that each dollar of assets invested in the company earns one-half percent
return. In a nutshell, the ratio has given more detailed information than the single
figure of net profit alone.
There are different kinds of ratios that are frequently used by different
stakeholders of the company to decide upon the performance and financial position of
the company and subsequent decision whether to invest the money in the company or
not.

RATIOS COMPARISONS
There are two types of comparisons involved in the Ratio Analysis. These are as
follows:
INTERNAL COMPARISON
The internal comparisons of financial ratios involve the comparison of
current year ratios with the ratios of the previous year to judge the performance of the
company over a period of time.

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EXTERNAL COMPARISON
In contrast to internal comparison, ratios of one company can be
compared with the ratios of the other companies in the same industry to judge its
performance with respect to other companies operating in the same industry.
Moreover, the ratios can also be compared with the industry average to
determine its deviation from any applicable industry average. Such a comparison
gives tremendous insight into the financial condition and performance of the
company.

WE ARE TAKING ABBOTT PAKISTAN AS AN EXAMPLE IN


OUR RATIO ANALYSIS

ABBOTT PAKISTAN
Abbott is a global, broad-based health care company devoted to
discovering new medicines, new technologies and new ways to manage health. Its
products span the continuum of care, from nutritional products and laboratory
diagnostics through medical devices and pharmaceutical therapies. Abbotts
comprehensive line of products encircles life itself addressing important health
needs from infancy to the golden years.
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.

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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.
Currently two manufacturing facilities located at Landhi and Korangi in Karachi
continue to use innovative technology to produce top quality pharmaceutical products.
Abbott Pakistan has leadership in the field of Pain Management,
Anesthesia, Medical Nutrition and Anti-Infectives. Our wide range of products is
managed and marketed through three marketing arms.
On June 29, 2005 Abbott Pakistan Achieved Class 'A' accreditation
against the Oliver Wight ABCD Check list. This was an outstanding achievement,
which puts Abbott Pakistan amongst some of the best global companies in terms of
operational excellence.
A continuous process of innovation, research and development at
Abbott's worldwide facilities enables Abbott Pakistan to offer effective solutions for
various healthcare challenges, with products and services that are well focused, within
the customer's reach and contribute to improved health care of the people of Pakistan.
Abbott believes that Corporate Social Responsibility is fundamental to
earning and deepening the trust of the people it serves, an integral part of its
commitment to improve lives has contributed to a number of humanitarian causes and
supported various institutions in various fields including health and education.
The promise of this company is in the promise that our work holds for health and for
life.

COMPANYS VISION
To be a premier healthcare company in Pakistan

COMPANYS MISSION
To deliver consistently superior products and services which contribute significantly
to improve the quality of the consumers?

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CORE VALUES
PIONEERING
Leading-edge science and commercialization
We lead with solutions that address human needs by pioneering
innovative treatments and products, lifesaving medical devices, and new approaches
to managing health. At Abbott, pioneering means leading-edge science and innovative
execution.

CARING
Making a difference in peoples lives
Caring is central to the work that we do to help people live healthier
lives. We have tremendous respect for the lives of everyone touched by our company.
Our respect for people is demonstrated in what we do and how we act.

ACHIEVING
Customer-focused outcomes and world-class execution
We drive for meaningful results-demanding of ourselves and each
other because our work impacts peoples lives. We are committed to working together
to deliver solutions that are effective and profitable. Our focus on execution and
collaboration ensures that we keep our promises to each other and to those we serve.

ENDURING
Commitment and purpose
Enduring means both honoring our history and maintaining our
commitment to the future. We will always be here to help keep people healthy. We
keep our promises, acting in accordance with all of our values. We grow through our
intellectual curiosity and a desire to continuously lean and improve.

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PHILOSOPHY
All precautions of Abbott are derived from the culmination of
experiences any one person has with our company. It is through our Promise and
Values that these experiences are shaped. Every employee strives to deliver on all the
values in their day-to-day work.
Our commitment to patient and consumer protection is shared by all
Abbott Pakistan employees and by the even greater number of people working on
behalf of our partners and suppliers. We hold all of them to high ethical and
performance standards and maintain effective management systems to review and
audit them.
Our quality management system is supported by policies, processes,
procedures and resources that ensure our products are designed and manufactured to
be safe and effective. All our processes are regularly monitored, and our products are
assessed against approved specifications before distribution.
We are redefining the concept of responsibility. Beyond Philanthropy,
we apply our sciences, expertise and technology to address critical health care needs
through innovative collaborations and partnerships.

ABBOTTS PRODUCTS
Abbott is currently manufacturing a broad array of products in the
following categories:

PHARMACEUTICAL PRODUCTS
Abbott Pakistan manufactures over 150 different pharmaceutical and
general health care products for the local and export markets. Abbott medicines are
used to treat some of the worlds most serious and prevalent diseases. It also continues

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to pursue new therapeutic indications for existing medications that offer patients and
physicians important treatment options.

GENERAL HEALTH CARE PRODUCTS


Like pharmaceutical products, Abbott Pakistan is also manufacturing
General Health Care products by using its state of the art manufacturing technology.

DIAGNOSTIC PRODUCTS
Abbott Pakistan drives innovation in the fast-paced medical technology
market. Its Diagnostic Products are addressing disease diagnosis, management and
treatment monitoring.

NUTRITIONAL PRODUCTS
Abbott Pakistan has pioneered the nutritional care with its pediatric and medical
nutrition ranges. It is delivering the promise for life by providing nutritional support,
with its wide range of products for infants, children, mothers and adults.

DIABETES CARE PRODUCTS


Abbott Pakistan is committed to improve the lives of people with diabetes through its
research and innovation.

BOARD OF DIRECTORS
Mr. Syed Anis Ahmed
Mr. Shamim Ahmad Khan
Mr. Munir A. Shaikh
Mr. Asif Jooma

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Mr. Angelo Kondes


Mr. Kamran Y. Mirza
Mr. Sadi Syed
TOTAL SHARES AND SHAREHOLDERS (AS AT DECEMBER 31, 2010)
Total Shareholders:

2,844

Total Shares:

97,900,300

CONTACTS
8th Floor, Faysal House, Street # 02, Shahrah-e-faisal, Karachi

KARACHI:

Opposite Radio Pakistan, Transmission Centre, Landhi,


Karachi
ISLAMABAD:

Plot # 136, Street # 9, I-10/3, Industrial Area, Islamabad

WEBSITE:

www.abbott.com.pk

RATIO ANALYSIS OF ABBOTT PAKISTAN

LIQUIDITY RATIOS
Liquidity Ratios are used to measure a companys ability meet its
short-term obligations. They compare short-term obligations with short-term
resources available to meet these obligations. From these ratios, much insight can be
obtained into the present cash solvency of the company and the companys ability to
remain solvent in the event of adversity.
Abbott Pakistans Liquidity Ratios are being calculated as follows:

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CURRENT RATIOS:
CURRENT ASSETS
CURRENT LIABILITIES

Year 2010
3,856,673,000
1,762,700,000

2.18

Year 2009
3,259,185,000
1,606,489,000

2.02

ANALYSIS
Current Ratio shows the ability of the company to pay its short term
bills etc. The higher the current ratio, the greater the ability of the company to pay its
bills. The liquidity ratio of the company is higher than the previous year which shows
that the companys liquidity condition has been improved over the last year. Currently,
it is in a better position to pay its short term liabilities than it was in year 2009.
Current Ratio of Abbott Pakistan reveals that its cash and cashequivalents are 2.18 times its current liabilities, seems quite good.

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However, the current ratio does not give the exact liquidity information
of the company as it is considering Inventories as current asset while it may take long
to convert Inventories to cash or cash-equivalents. Therefore, in order to take a more
in-depth look of the liquidity condition, we have to calculate Quick Ratio.

QUICK RATIO:
CURRENT ASSETS INVENTORY
CURRENT LIABILITIES

Year 2010
3,856,673,000
(72,430,000+2,069,633,000)

Year 2009
3,259,185,000
0.97

(69,097,000+1,675,000,000

1,762,700,000

0.94

1,606,489,000

ANALYSIS
Quick ratio of the year 2010 is 0.97 while in year 2009, it was 0.94.
This means that the company has been improving its liquidity conditions since 2009.

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Currently, the company can pay its 97% of current liabilities with the help of its cash
or cash-equivalents. In the year 2009, it was in a position to pay only 94% of its short
term liabilities.
Currently, even after the removal of inventories on hand, the company
has satisfactory cash or cash-equivalents that it can use to pay its short term liabilities.
If we compare current and quick ratios of Abbott Pakistan, we can
conclude that it keeps a large amount of inventory in hand before converting it into
accounts receivable through sales. This is the reason why current ratio is 2.18 while
the quick ratio is quite low i.e. 0.97.

ASSET MANAGEMENT RATIOS


Asset Management Ratios are also called Activity Ratios. They
measure how effectively a company is using its assets. Normally, it focuses primarily
on how effectively the company is managing two specific asset groups receivables
and inventories and its total assets in general.
Abbott Pakistans Asset Management Ratios are being calculated as follows:

INVENTORY TURNOVER IN DAYS:


INVENTORY X DAYS IN YEAR
CGS

Year 2010
(72,430,000+2,069,633,000)

106.97

x 365

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Year 2009
(69,097,000+1,675,000,000)

103.86

x 365

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7,308,663,000

6,128,987,000

ANALYSIS
Inventory Turnover Ratio shows how quickly the inventories of the
companies are turned into accounts receivable through sales. In the year 2009, Abbott
Pakistan was taking 103.86 days to convert its inventory into accounts receivable
through sales. In contrast, currently i.e. in 2010, number of days to convert inventory
to accounts receivable though sales have increased to 106.97 days. This means that
the sales department of the company is not as efficient as it was in 2009.
Recommendation to improve this ratio is given under the title of Recommendations.

FIXED ASSET TURNOVER:


SALES
NET FIXED ASSETS

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Year 2010
10,995,701,000
1,877,596,000

Year 2009
5.8

8,431,080,000
1,662,785,000

5.07

ANALYSIS
Fixed Asset Turnover Ratio in 2009 was 5.07 which means that Abbott
Pakistan was generating a revenue of Rs.5.07 per Re. of the Fixed Asset. In the year
2010, this ratio has increased to 5.8 which mean that the company is now generating a
sales revenue of Rs.5.8 per Re. of the fixed asset investment. This is the indication of
the fact that the company is efficiently using its Property, Plant and Equipment to
generate sales revenues. Moreover, this ability has improved over the last year. To
further improve this ratio, company must improve its operations and make the use of
plant and equipment efficient.

TOTAL ASSETS TURNOVER:

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ANNUAL SALES
TOTAL ASSETS

Year 2010
10,995,701,000
5,790,421,000

Year 2009
1.89

8,431,080,000
4,964,576,000

1.69

ANALYSIS
Total Asset Turnover Ratio shows how efficiently the company is using
its overall assets to generate sales revenue. The ratio of the year 2010 is higher than
2009 which shows that Abbott Pakistan has improved its processes and is more
efficiently using its overall assets to generate sales revues. In simple words, it is
generating Rs.1.89 Sales revenue per Re. of the total assets investment.

PROFITABILITY RATIOS
Profitability Ratios are of two types those showing profitability in
relation to sales and those showing profitability in relation to investment.

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The Profitability Ratios of Abbott Pakistan are being calculated as follows:

NET PROFIT MARGIN ON SALES:


NET INCOME (PROFIT AFTER TAX)
SALES

Year 2010
1,176,944,000
10,995,701,000

Year 2009
0.10

609,072,000
8,431,080,000

0.07

ANALYSIS
Net Profit Margin of the company in 2009 was 0.07 which means that
its net income was only 7% of its sales. This ratio has increased in the year 2010 to
0.10 which means that the company must have adopted measures to reduce its
general, administrative and selling expenses. The increase in Net profit margin can
also be attributed to the decrease in tax, in there is/was any. If we translate this to

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simple words, it means that currently the company has a net profit of Rs.10 per
Rs.100 of the sales.

GROSS PROFIT MARGIN:


NET SALES CGS
NET SALES

Year 2010
3,687,038,000
10,995,701,000

Year 2009
0.335

2,321,131,000
8,431,080,000

0.275

ANALYSIS
Gross Profit Margin of the company in 2009 was 0.275 while in 2010,
it has increased to 0.335. This means that the companys gross profit is 33.5% of its
sales for 2010. In other words, Abbott Pakistan is earning a Gross Profit of Rs.33.5
per Rs.100 of the sales. This is a positive indication since Abbott Pakistan has
drastically decreased its cost of goods sold. Furthermore, it can also be because of the
decrease in scrap and an effective price determination system.

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When we compare the Net and Gross Profit ratios of the company for
years 2010 and 2009, we can see that both of the said ratios have increased over the
last year. This means that the operations of the company are efficient. Moreover, the
pricing strategy of the company is also satisfactory as gross profit of 33.5% speaks
loudly about it.
In order to further analyze gross and net profit margins, we see that
there is a change of 21% in the gross profit while the change in net profit is 42%
during the year 2010. From this information, we can conclude that the company has
efficiently controlled and decreased its selling, general and administrative expenses
which have led to the net income change by 42%.

RETURN ON INVESTMENT:
NET INCOME
TOTAL ASSETS

Year 2010
1,176,944,000
5,790,421,000

0.203

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Year 2009
609,072,000
4,964,576,000

0.122

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ANALYSIS
The Return on Investment for the year 2009 was 0.122 which means
that the company was generating a net income of, in simple words, Rs.12.2 per
Rs.100 of the total assets. This ratio has increased to 0.203 in 2010. This a clear
indicator of the fact the ROI has almost doubled during the last year. Currently,
Abbott Pakistan is more efficiently using its assets to generate net income. For the
sake of simplicity, we can say that it is earning a net income of Rs.20.3 per Rs.100 of
the total asset investment.

RETURN ON EQUITY:
NET PROFIT AFTER TAX PREFERRED DIVIDEND
COMMON EQUITY

Year 2010
1,176,944,000 - 0
3912539

Year 2009
0.3008

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609,072,000 0
3,238,460,000

0.188

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ANALYSIS
Return on Equity of Abbott Pakistan was 0.188 in the year 2009 which
means that it was generating net income of Rs.18.8 per Rs.100 of the common
shareholders equity. This ratio has increased to 0.3008 which indicates that the
company is efficiently managing its expenses. Moreover, it also attracts strong
investment opportunities as the return to common shareholders is quite high compared
to previous year. Currently, the company is generating net income of Rs.30.08 per
Rs.100 of common equity.
All the profitability ratios of the company i.e. Net Profit Margin, Gross
Profit Margin, ROI and ROE are indicating that the company is operating very
efficiently and is earning more profit for its shareholders. This means that the
investment opportunities in this company are far more than they were in the past year.

DEBT MANAGEMENT (FINANCIAL LEVERAGE) RATIOS


These Ratios show the extent to which the assets of the company are
being financed by debt in respect to equity.
The Debt Management Ratios of Abbott Pakistan is as follows:

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DEBT TO EQUITY RATIO:


TOTAL DEBT
SHAREHOLDERS EQUITY

Year 2010
0
3,912,539,000

Year 2009
0/100

0
3,238,460,000

0/100

ANALYSIS
Analysis of the Debt to Equity Ratio reveals astonishing insights; the
company is being totally operated on Shareholders Equity and no debt is being used
to finance the company. This situation prevailed in 2009 as well as it is prevailing
currently. This in a nutshell means that the company is being 100% financed by
shareholders equity.

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If in case the company needs debt, the creditors will be more than
happy to finance such a company. This can be one of the reasons why the companys
profitability ratios are so high.

DEBT TO TOTAL ASSET RATIO:


TOTAL DEBT
TOTAL ASSETS

Year 2010
0
5,790,421,000

Year 2009
0/100

0
4,964,576,000

0/100

ANALYSIS
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Debt to Total Asset also reveals the same facts i.e. the companys all
the assets are fully being financed by shareholders equity and the share of debt
financing is 0%

GEARING RATIO:
LONG TERM DEBT
TOTAL CAPITALIZATION

Year 2010
0
0 + 3,912,539,000

Year 2009
0/100

0
0 + 3,238,460,000

0/100

ANALYSIS

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The above mentioned analysis is also applicable in case of this ratio as


well i.e. the companys all the assets are fully being financed by shareholders equity
and the share of debt financing is 0%.

MARKET VALUE RATIOS


The market value ratios represent those ratios which are related to the earning per
share, market price and book value of the shares.

EARNINGS PER SHARE:


NET INCOME
NUMBER OF COMMON SHARES OUTSTANDING

Year 2010
1,176,944,000
97,900,302,000

Year 2009
12.02

609,072,000
97,900,302,000

6.22

ANALYSIS

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Earnings per Share of the company in the year 2009 were Rs.6.22 per
share. In the year 2010, it has increased to Rs, 12.02. This means that currently, the
company is giving more earnings per share as compared to the last year. In 2010, the
company is giving Rs.12.02 per share to all its shareholders. This can be attributed to
the efficient processes, efficient sales, effective pricing, decrease in cost of goods,
decrease in selling, general and administrative expense, effective use of assets etc.
High Earning per share tends to attract investors.

BOOK VALUE PER SHARE:


COMMON EQUITY
NUMBER OF COMMON SHARES OUTSTANDING

Year 2010
979,003,000
97,900,300

Year 2009
10

979,003,000
97,900,300

10

ANALYSIS

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As per the rules, the par value or Book value of the shares of Abbott
Pakistan is Rs. 10 like any other company in Pakistan. This means that all the shares
were issued at a price of Rs. 10 per share.

COVERAGE RATIO:
EBIT
INTEREST CHARGES

Year 2010
1,744,787,000
3,530

Year 2009
494.27

878,503,000
2,525

347.92

ANALYSIS

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Interest charges of the company in comparison to Earnings before


Interest and Tax for Abbott Pakistan are very low. EBIT is 494.27 times more than its
interest charges. This ratio is even more than the year 2009. As we analyzed
previously, the company is solely being financed by owners equity and no debts have
been taken from anywhere. Due to this, there is no high interest charges payable by
the company.
Ratio for 2010 reveals that the company can pay its interest charges
494 times. Hence, there are no visible chances of the company being bankrupt.

RECOMMENDATIONS
From the ratio analysis, we can see the Abbott Pakistan has been
improving its operations, controlling its expenses and efficiently using its fixed and
overall assets to generate income. This has led to the increase in almost all the ratios,
with the exception of only few. This indicates that the companys financial position
and performance was good during the year 2010.
However, from the analysis we have done, we conclude that despite the
good performance, there are some loop-holes that the company may focus on to avoid
future problems. They are as follows:
One such area is the liquidity condition of the company in light of Quick
Ratio. Quick ratio reveals that the company can pay its 97% of current
liabilities with the help of its cash and cash-equivalent assets. This seems to be
satisfactory but if the company could make it 100%, it would be ideal. This
can be improved by making the sales department more efficient in converting
its inventory in accounts receivables through sales.
The current ratio of the company is 2.18 while the quick ratio is 0.97 which
means that there are a lot of inventories on hand before they are converted into
receivables through sale. It is recommended that Abbott Pakistan should work

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to make its sales department more efficient so as to increase the sales of


inventories in a shorter time period. This can be done through motivating sales
personnel and pointing out weak areas in the sales department. Moreover, the
remuneration of the sales personnel can be increased to achieve the same goal.
Also, it is advisable to spend more on advertisements and promotion activities
to increase the sales. However, these activities may increase the cost as well
but if the increase in sales to increase in cost is disproportionate, it will serve
the purpose.
Another weak area that is pointed out in Ratio Analysis is the Inventory
Turnover ratio. The inventory turnover in days has increased from 104 to 107
during the last year. This means the time to convert inventories into accounts
receivables has increased. This problem can be attributed to the sales
department of the company. For Abbott Pakistan, it is advisable to improve the
efficiency of its sales department because this is not only affecting inventory
turnover but the quick ratio as well.

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