The Holy Prophet [s] said:

"Verily, what will continue to reach a believer, after his death, from amongst his
actions and good deeds are: the knowledge which he taught and spread, the
righteous child whom he left behind, and the Holy script which he delivered as
heritage (transcribed, and made available)
" SUNAN-I-IBN-MAJEH, VOL. 1, P. 88.

GROUP MEMBERS
KHAWAR AZIZ(GL)
USMAN AZIZ
ADEEL HABIB BHATTI
WAQAS AHMED
RABIA MANZOOR
ZAID AHMED KHAN JADOON

RATIOS AND IMPORTANCE

RATIOS ARE USED TO CALCULATE THE RATES OR

PERCENTAGE OF THE REQUIRED ITEMS IN FINANCIAL
STATEMENTS OR TRANSACTIONS. VARIOUS RATIOS
ARE CALCULATED WHICH GIVES A COMPARISON
THAT MAY PROVE MORE USEFUL THAN THE RAW
NUMBERS OF THEMSELVES

RATIOS COMPARISON

Two types of ratio comparison

INTERNAL COMPARISON
EXTERNAL COMPARISON

WE ARE TAKING ABBOTT PAKISTAN AS AN

EXAMPLE IN OUR RATIO ANALYSIS

INTRODUCTION

Abbott Pakistan is part of the global healthcare

corporation of Abbott Laboratories, Chicago,
USA

Abbott Pakistan has leadership in the field of Pain

Management, Anesthesia, Medical Nutrition and
Anti-Infectives

SHARES AND SHAREHOLDERS

TOTAL SHARES AND SHAREHOLDERS

(AS AT DECEMBER 31, 2010)
TOTAL SHAREHOLDERS
TOTAL SHARES

2,844
97,900,300

RATIO ANALYSIS
The ratios which are use to analyzed the financial
position of Abbott are as follows
LIQUDITY RATIO
ASSET MANAGEMENT RATIO
PROFITABILITY RATIOS
DEBT MANAGEMENT ( FINANCIAL
LEVERAGE) RATIO
MARKET VALUE RATIO

LIQUDITY RATIO
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
CURRENT RATIO
QUICK RATIO

CURRENT RATIO
CURRENT ASSETS
CURRENT LIABILITIES
Year 2010
3,856,673,000
1,762,700,000

Year 2009
2.18

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

2.02

QUICK RATIO
CURRENT ASSETS INVENTORY
CURRENT LIABILITIES
Year 2010

Year 2009

3,856,673,000
(72,430,000+2,069,633,000)
1,762,700,000

3,259,185,000
0.97

(69,097,000+1,675,000,000
1,606,489,000

0.94

ASSET MANAGEMENT RATIO

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

INVENTORY TURNOVER
FIXED ASSET TURNOVER
TOTAL ASSET TURNOVER

INVENTORY TURNOVER
INVENTORY X DAYS IN YEAR
CGS
Year 2010
(72,430,000+2,069,633,000) x 365
7,308,663,000

Year 2009
(69,097,000+1,675,000,000)
106.97

x 365
6,128,987,000

103.86

FIXED ASSET TURNOVER

SALES
NET FIXED ASSETS
Year 2010

Year 2009

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

8,431,080,000

5.8

1,662,785,000

5.07

TOTAL ASSET TURNOVER

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

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

NET PROFIT MARGIN ON SALES

GROSS PROFIT MARGIN
RETURN ON INVESTMENT
RETURN ON EQUITY

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

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

RETURN ON INVESTMENT
NET INCOME
TOTAL ASSETS
Year 2010
1,176,944,000
5,790,421,000

Year 2009
0.203

609,072,000
4,964,576,000

0.122

RETURN ON EQUITY
NET PROFIT AFTER TAX PREFERRED DIVIDEND
COMMON EQUITY
Year 2010
1,176,944,000 - 0
3912539

Year 2009
0.3008

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

0.188

DEBT MANAGEMENT
( FINANCIAL LEVERAGE) RATIO
These Ratios show the extent to which the assets
of the company are being financed by debt in
respect to equity
DEBT EQUITY RATIO
DEBT TO TOTAL ASSET RATIO
GEARING RATIO

DEBT EQUITY RATIO

TOTAL DEBT
SHAREHOLDERS EQUITY
Year 2010
0
3,912,539,000

Year 2009
0/100

0
3,238,460,000

0/100

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

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

MARKET VALUE RATIO

The market value ratios represent those ratios which are
related to the earning per share, market price and book
value of the shares
EARNING PER SHARE
BOOK VALUE PER SHARE
COVERAGE RATIO

EARNING 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

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

COVERAGE RATIO
EBIT
INTEREST CHARGES
Year 2010
1,744,787,000
3,530

Year 2009
494.27

878,503,000
2,525

347.92

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 indicates that the
companys financial position and performance was
good during the year 2010.

RECOMMENDATIONS

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

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 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

RECOMMENDATIONS
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

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