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Pak Electron Ltd

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UNEEB ALI REG:4151 FINANCIAL ACCOUNTING PROJECT: RATIO ANALYSIS TEACHER: MOONA SHAMIM KHAN

Pak Electron Ltd

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PEL Products
The PEL Group comprises two divisions of products: 1. Appliances Division 2. Power Division PRODUCTS OF APPLIANCES DIVISION Appliances Division has the following products; Refrigerators PELs refrigerators are available in 6 series of different colors, models, prices and Capacities. The series are as follow, Xpression Series Premier Series 6-Series Delux Series Smart Series Mini Series

PEL has 28 different models in the above 6 series in different prices, which gives customers a wide range to select PEL refrigerator according to their needs. PEL uses Danfoss compressors and Galaxy doors in all its series except Mini series in which Reciprocating compressors and PCM doors are used. PEL offers warranty of 5 years compressor & 1 year parts & service to the customers except Miniseries where PEL offers warranty of 3 years compressor & 1 year parts & service to the customers. The refrigerators are available from the capacity of 60 to 420 liters. PELs refrigerators are environment friendly and are CFC (chlorofluorocarbons) free; CFCs are a family of chemicals that contain chlorine, fluorine and carbon. The chlorine content in these compounds causes the depletion of the ozone layer. The refrigerators are with the direct cool properties and PEL is using energy saving technology in its products to save energy and giving benefits to the customers.

Pak Electron Ltd

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Pak Electron Ltd

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Air Conditioners
The air conditioners are available in three types: Split Air Conditioners Window Air Conditioners Floor Standing Air Conditioners

Split Air Conditioners: PEL presents Cool life Split AC which is a technologically advanced model especially designed for Pakistani market. This masterpiece from PEL provides maximum cooling even at very high temperatures while minimizing electricity consumption. The wide range of models and prices gives customers more choices to select PELs product. The air conditioners are available in the different prices, capacities and models. Split air conditioners are available in three capacities: 1 ton 1.5 ton 2 ton

Features of PEL Split AC: The key features of PELs split air conditioners areas follow: Free Installation Kit Compressor Warranty Auto restart function Environment friendly refrigerant R22 Anti-trust outdoor unit Easy-cleaned panel Self diagnosis and auto-protection Two-direction air flow (SLR) Independent dehumidification Trapeziform Inner groove tube Hydrophilic aluminum fin 4

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Window Air Conditioner: PEL presents Cool life Split AC which is a technologically advanced model especially designed for Pakistani market. This masterpiece from PEL provides maximum cooling even at very high temperatures while minimizing electricity consumption. The Window ACs is available in capacity of 1.5 and 2 ton, and with manual and remote control function. Features of PEL Window Ac: The following are the key features of PEL window air conditioners: Super quiet operation Maximum dehumidification Best after-sales service Anti-trust cabinet Environment friendly refrigerant

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Floor Standing Air Conditioners PEL presents Cool life Split AC which is a technologically advanced model especially designed for Pakistani market. This masterpiece from PEL provides maximum cooling even at very high temperatures while minimizing electricity consumption. The floor standing air conditioners are available in the three models and capacities: FS 600 - 5 Ton FS 480 - 4 Ton FS 300 - 2.5 Ton

Features of Floor Standing Air Conditioners: The key features of PEL Floor Standing Air Conditioners are as follow, Free Installation Kit Compressor Warranty Auto restart function Environment friendly refrigerant R22 Anti-trust outdoor unit Easy-cleaned panel Self diagnosis and auto-protection Two-direction air flow (SLR) Independent dehumidification Trapeziform Inner groove tube Hydrophilic aluminum fin

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Floor Standing Air Conditioners

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Microwave Oven
PEL the trustful company name in home appliances all over the country, now introduced all new models of "PEL Silver line" Microwave Ovens. Now PEL customers can have different models of PEL Microwave Ovens in which they can enjoy the grilling feature as well. PEL Microwave Ovens are available in different sizes and inner cavities (steel & painted). Cook, Bake, Roast or Grill with the all new PEL Microwave. With cutting edge technology and advanced features. PEL presents 26 different models of ovens with different prices, models and capacities.

Features of Microwave Oven Smart Intel-menu - Preset cooking menu's 360 degree cooking system - Cook-Bake-Roast-Grill Engrave features - Energy Savings 5 years Magnetron Warranty - Peace of Mind

Microwave oven

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Washing Machines
Magic Clean PWM7700 The PEL Semi Automatic Luxury Wash - 7700-N equipped with Japanese technology has a 100% rust proof plastic body with a big multi pilaster. It can handle heavy loads and has a quick dry spin. In addition, it supplements a drain switch that quickly drains out all the excess water. So treat yourself with the Luxury Wash - washes away heavy loads and dries them up quickly. Magic Clean PWM512 The PEL Economy Wash 512 is made from Japanese Technology with 100% rust and shock proof unbreakable plastic body with the capacity of 10 Kg. It's a top load with a powerful motor that provides a brighter wash and has a build in energy saver that gives you excellent energy efficiency. So save the energy with this Economy Wash consumes less electricity as it gives more output. Features of PEL Washing Machines The key features of PEL washing machines are as follow; One year parts & service warranty Japanese technology Super large multi pulsate Quick dry spin Drain switch to drain all excess water Semi automatic Ability to wash extremely heavy loads Low noise & easy operations 100% rust & shock proof unbreakable plastic body

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Magic Clean

Magic Clean

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Pak Electron Ltd Water Dispensers

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Water dispensers are a welcome addition to PEL range of home appliances. PELs Silver line and Life-Stream water dispensers make life a little easier and fridge space a bit more plentiful. While Cold water refreshes your mood in burning summer, Hot water on demand is great in the office for packets of soup, instant coffee and tea. Features Hot & cold water Refrigerator Separate Freezer Compressor Cooling Stainless Steel Water Tanks Super Quiet Design Energy Saving CFC Free 1 Year Warranty

Water Dispensers
Silver line Life stream

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Generators PEL presents generators for domestic and commercial use. PELs generators are available in diesel and petrol in four capacities:

KVA Generators 2.5 KVA Generators 3.3 KVA Generators 5.2 KVA Generators

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POWER DIVISION
PEL was founded in 1956 and has since been serving the Power utilities, industries, individual customers, housing and commercial projects by providing reliable, customized and cost effective solutions. Backed by the innovative genius of Saigon Group, PEL is now technology forerunner and market leader in providing new products and services to meet ever changing and technology intensive needs of its customers. PELs EPC contracting division delivers custom designed and built HV and EHV grid stations, electrification of housing projects, industrial parks and optimum solutions for power utilization to all kinds of industries and commercial customers. PEL aims to maintain this competitive edge and at the same time keep striving to improve it further by continuous R&D, creating new knowledge and adapting to global developments in technology and product design. Ever increasing local market share, growing export orders, numerous successful power projects and greater than ever base of satisfied customers are evidence to these aspirations. PEL Power Division is one of the major electrical equipment suppliers to WAPDA & KESC. Since 1956 the company manufactures transformers, energy meters, switchgears, kiosks, compact stations and shunt capacitor banks. PEL also has had the privilege of getting its equipment approved and certified from well-reputed international consultants such as: Preece, Cardew and Rider, England Harza Engineering Company, USA Snam Progeti, Italy Societe Dumezm, France Miner & Miner International Inc. USA Ensa, France

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PRODUCTS OF POWER DIVISION

The Power Division of PEL has the following products:

EPC Contracting Power Transformer Distribution Transformer Dry type Transformer Energy Meter Switchgear Transformer Services

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PRODUCTS OF POWER DIVISION

Transformers

Energy Meter

Switch Gears

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PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED JUNE 30, 2008 2008 2007 (Rupees in thousands) 13,926,52 1,274,579 12,651,99 3 9,814,594 2,837,399 29 18,247 2,855,646 Distribution cost Administrative expenses Other operating expenses Finance cost Share of profit of associate Profit before taxation Provision for taxation Profit for the year 30 31 32 33 676,452 514,122 46,697 993,565 5,585 630,395 177,970 452,425 13,077,67 1,264,183 0 11,813,48 7 9,223,623 2,589,864 100,458 2,690,322 618,981 386,556 52,429 937,109 12,162 707,409 125,165 582,244

Note Revenue Less: sales tax and discount Revenue - net Cost of sales Gross profit Other operating income 27

28

34

Earnings per share Basic 37

Rupees 4.14

Rupees 5.50

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RATIO ANALYSIS

LIQUIDITY RATIO ANALYSIS It is the companys ability to pay its short-term obligations by using its assets. It must be greater than 1 for the company to minimize its credit risks.

Current Ratio Current Assets Current Liabilities Formula & Computation Rs 9,401,294,000 Rs 6,605,430,000 1.42 : 1 Interpretation It means that how efficiently the current assets are being used in order to meet short term loans. In the current year 1.42 is a satisfactory figure for the company. It is because the current assets have been increased as compared to the previous year because of increase in credit sales.

Quick Ratio Quick Assets Current Liabilities Formula & Computation Rs 5,748,136,000 Rs 6,605,430,000 0.87 : 1

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Interpretation It shows that how much a company is able to make the payments as cash in order to meet its obligations. In this year the company has increased its cash purchases and on the other hand sales are all credit except exports. So 0.87 is less which is risk for the company.

Net Working Capital = Current Assets Current liabilities Formula & Computation =Rs9,401,294,000 Rs6,605,430,000 = Interpretation To run all the operations of the business, how much assets it has after paying all of its liabilities. So it must be positive. In 2008 it shows a comprehensive amount which is greater than the previous years. Rs. 2,795,864,000

TURNOVER RATIOS Turnover ratio shows that how quickly the accounts are converted into cash or sales. It is used to interpret the liquidity of various current accounts. It includes the ratio of inventory, account receivables and fixed assets.

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Inventory Turnover Cost of Goods Sold Formula & Computation Average Stock at Cost Rs 9,814,594,000 Rs 3,571,168,000 2.75 times

Interpretation It shows the no. of times the inventory completes the circle of consumption in a year. Companys inventory turnover is quite satisfactory. It shows that the inventory is consumed 2.75 times in a year.

Average Payment Period Accounts Payables Formula & Computation Average Purchase per day Rs 580,615,000 Rs 2213100 per day 26 days

Interpretation Average Payment Period shows that after how much time the creditors are being paid by the company. Companys position in this respect is just below the average. It means as much the payment period is high, it is better for the company.

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Average Collection Period Accounts Receivables Formula & Computation Net Sales / (# of days in a year) Rs 4,207,741,000 (Rs 12,651,993)/(365) 122 days

Interpretation It means that in how much time the company receives the cash against its all credit sales. So in the current year the figures of collection period for the company are highly unpredictable.

Total Assets Turnover Net Sales Total Assets Formula & Computation Rs 12,651,993,000 Rs 16,394,779,000 0.77 times Interpretation This ratio indicate that how the assets are being used to generate the sales. Turnover in respect of assets is not up to the mark in the current year for the company.

DEBT RATIOS
The debt ratio compares the total liabilities to the total assets.

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Debt Ratio Total Liabilities x 100 Total Assets Formula & Computation Rs 10,777,023,000 x 100 Rs 16,394,779,000 = 66 % Interpretation It indicates that whether the company is in the position to pay its short-term liabilities by using its assets or not. So, companys debt ratio 66% in very low it must be less than 50% of the total assets.

Time Interest Earned Ratio Earnings before Interest & Tax Formula & Computation Interest Rs 1,618,357,000 Rs 993,565,000 1.63 times Interpretation It indicates the ability of the company that whether it is earning the sufficient amount to pay the interest on its debts. It must be between 3 to 5 times but the ratio of 1.63 is very low.

PROFITABILITY RATIOS
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These ratios indicate the companys profits at different stages that are generated against the sales.

Gross Profit Margin Ratio Gross Profit x 100 Formula & Computation Net Sales Rs 2,837,399,000 x 100 Rs 12,651,993,000 22.43 % Interpretation Gross profit margin indicates the percentage of profit included in the net revenue, before all the indirect expenses. In current year, 22.43 % is a minor portion of the net sales.

Operating Profit Margin Ratio Operating Profit x 100 Formula & Computation Net Sales Rs 1,618,375,000 x 100 Rs 12,651,993,000 12.79 % Interpretation It indicates the portion of the profit over net sales after incurring all the indirect expenses to run all the operations of the business. However current years operating profit ratio is very low.

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Net Profit Ratio Net Profit x 100 Formula & Computation Net Sales Rs 452,425,000 x 100 Rs 12,651,993,000 3. 58 % Interpretation It represents the percentage of profit after excluding all the expenses and including all the other incomes. Companys net profit margin in the current is just 3.58% which is very low.

Return on Equity Net Profit x 100 Formula & Computation Stock Holder Equity Rs 452,425,000 x 100 Rs 3,677,391,000 12. 3 % Interpretation It shows that how much a company is gaining against the investments of the ordinary share holders. Companys return on equity in is 12.3 % which is showing a very little rate of return. 23

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Return on Assets Net Profit x 100 Formula & Computation Total Assets Rs 452,425,000 x 100 Rs 16,394,779,000 2.76 % Interpretation Return on assets ratio represents the profit earned by the utilization of companys all the assets. In 2008 it is only 2.76 % which represents a very low margin.

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MARKET RATIOS
These are the ratios that represent companys worth in the market. For an investor these ratios are considered, it shows the share of profits that are distributed among the share holders.

Price Earnings Ratio Market Price per Share Formula & Computation Earnings per Share Rs 21.91per share Rs 4.14per share 5.29 times Interpretation It shows that how much amount an investor invests to get a rupee profit from the company. 5.29 times means that the investor is investing 5.29 rupees to earn 1 rupee which is not a bad option for the investor.

Dividend Yield Dividend per Share Formula & Computation Market Price per Share zero (no dividend declared in 2008)

Interpretation In this year, company declared neither cash nor stock dividend.

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Book Value Common Stock Equity Formula & Computation No. of Shares Outstanding Rs 1,496,677,000 97,042,687 shares Rs 15.42 per share Interpretation Book value is the value of each share issued in the market; either is issued at par or discount. Companys book value is favorable in the current period.

Market / Book Ratio Market Price per Share Formula & Computation Book Value Rs 21.91per share Rs 15.42per share 1.42 Interpretation It shows the credit standing of the companys share. Here 1.42 is positive which shows that its market price is more than the book value. So it is favorable.

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Dividend Payout Ratio Dividend per Share Formula & Computation Earnings per Share zero (no dividend declared in 2008)

Interpretation In this year, company declared neither cash nor stock dividend.

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VERTICAL ANALYSIS
Vertical analysis is used to indicate the companys internal structure. It tells us about the relationship between sales to income and expenditures. In it net revenues of the year are taken as base and all the items fluctuations are determined on the basis of it. Profit & Loss Account ( Vertical Analysis) 2006 Description % age Revenue net Cost of sales Gross profit Other operative income Distribution cost Administration Other operative expense Finance cost Profit before taxation Provision for taxation Profit for the year 100.00 78.23 21.77 1.20 6.28 2.79 0.27 8.31 5.49 0.79 4.70 % age 100.00 78.58 21.42 0.85 4.99 3.02 0.44 7.93 5.99 1.06 4.93 % age 100.00 77.57 22.43 0.14 5.35 4.06 0.37 7.85 4.98 1.41 3.58 2007 2008

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Pak Electron Ltd Interpretations

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In the Common Size analysis of the Profit and Loss Account of Pak Electron Limited, it is shown that there is a very minor difference in the cost of sales and gross profit. There is also a little bit change in the Operating Income and Distribution Cost. The plus point of the company is that distribution cost is cutting down as compared to the last 3 years. It is 5.35% in 2008 as compared to, 4.99% in 2008 because of increase in operations. Administration cost increases to 4.06% of revenue as compared to 3.02% in 2008.This cost is increasing from last 3 years whish must be taken under consideration. Other operative expenses are showing minor fluctuations. Only in 2007 they were decreased but before it, there were at increasing trend. The firm finance also shows minor changes as compared to previous years. It is because the interest on short term borrowings is increased and on long term borrowings, it decreased. The firms profit before tax increases to 5.99% in 2008 but in 2008, it is decreased to 4.98%. The company has increased its provisions for taxation in relation to revenues. At the end, the net profit is decreased in 2009, however it was improved in 2008 but due to increase in expenditure in 2009, it has been decreased.

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BALANCE SHEET
Vertical analysis of balance sheet is done to compute the %ages of the items under assets and liabilities. To calculate the % of the items of assets, total assets are taken as base; similarly the total liabilities are taken as base to calculate the % ages of liabilities.

Equity & Liabilities

Vertical analysis 2006 2007 % age 2008 % age

Description % age Share Capital & Reserves Share Capital Reserves Surplus on Revaluation Non Current Liabilities Liabilities Against Assets Subject to Finance Lease Long Term Financing Deferred Liabilities Deferred Income Current Liabilities Trade and Other Payables Interest on Loans and other Payable Short Term Borrowings Current Portion of Long Term Debts 15.83 2.24 37.55 4.22 13.62 1.85 26.36 3.02 12.71 1.34 23.60 2.63 30 1.81 2.48 4.05 0.69 1.62 11.38 6.38 0.57 1.04 15.13 8.77 0.51 12.03 14.52 4.59 11.85 16.22 7.13 9.13 0.80 11.84

Pak Electron Ltd Interpretations

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In the common size analysis of the Balance Sheet it is shows that in 2007 share capital is just 3.49% of total liabilities. Reserves have been decreased up to 0.80% from 16.22% in 2009. It is because the company has decreased its short term financing. Regarding the noncurrent liabilities, long term financing is decreasing till 2007 but it in 2009 it has an increasing trend. Deferred liabilities are also showing an increasing behavior in the last some years. However, the short term borrowing has been decreased because the company has paid its short term debts every year. Regarding current liabilities company paid 10% of its short term borrowing in 2008. However there is a little variation in trade payables and interest payables. Regarding the current portion of long term liabilities, it has a decreasing trend from 2007 to 2008, which is a positive factor.

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Assets ( Vertical analysis) 2006 Description Non-Current Assets Property Plant and Equipment Intangible Assets Long Term Investment Long Term Deposits Current Assets Stores Spares and Loose Tools Stock in Trade Trade Debt Loans and Advances Trade Deposit and Short Term Pre Payments Other Receivables Other Financial Assets Cash and Bank Balances Interpretations In the common size analysis of the Balance Sheet it is shows that in 2007 total noncurrent assets are almost 53% of total assets company invest huge investment in the property 32 0.58 25.49 25.87 2.23 2.84 0.09 0.90 4.44 0.56 21.72 25.53 2.73 2.66 0.25 1.41 4.65 0.50 21.78 25.67 3.31 1.96 0.20 0.44 2.65 31.11 5.96 0.11 0.38 35.04 5.04 0.11 0.31 38.63 3.50 0.32 0.21 % age 2007 % age 2008 % age

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plant and equipment. But in next years it is decreased up to a minimum of 40%. Moreover, we can analyze that there is an increase in long term investment instead

Of long term deposits. Company has very minor %age in long term investment and long term deposit. Regarding the current assets company has almost 66% investment in 2009. Investment in current assets shows that company has ability to earn more and more. It is shown that there is a continuous decrease in store spares and loose tools but there is also a continuous increase in stock in trade which is a good sign for companys growth. There is a little change in advances, trade debts and other pre-payments till 2009. Other receivables are decreasing rapidly as compared to the previous years. Companys cash and bank balance situation in the last four years is just above 4% of the total assets except in 2009. It is decreased very sharply is this year because company made the purchase payments from this.

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Profit & Loss Account ( Horizontal Analysis) Description 2006 % age Net Revenue Cost of Sales Gross Profit Other Operative Income Distribution Cost Administration Other Operative Expense Finance Cost Profit Before Taxation Provision for Taxation Profit for the Year Interpretations The above analysis has been made by taking 2007 as a base year. There is incensement in revenue at really greater rate as compared to 2007, which is showing a good sign for the company. Rapid increase in Cost of Sales is not a good sign for the company; it must be reduced in order to make good profit although Cost of sales is increasing but G.P is also increasing rapidly. We can analyze that that as the sale is increasing; all kind of expenses are increasing which means company is not becoming 34 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 2006-2007 % age 18.43 (22.64) 26.48 (10.75) 4.84 47.27 108.81 26.27 36.90 67.76 31.69 2006-2008 % age 26.12 (22.00) 34.48 33.34 14.57 95.87 85.98 33.88 21.99 138.53 2.33

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Able to meet its all kind of expenses in a less ratio. Finance cost is increasing which is showing that the firms long term borrowings are increasing. The firm has to reduce this cost. A huge incensement in the provisions for taxation is due to the very low provisions in base year2007.It is also a need for the company to make huge provisions as profit is increasing. Profits of the company are also increasing as compared to 2007 which is a good sign.

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BALANCE SHEET
In the horizontal analysis of the balance sheet, we take 2007 as a base year on and on the basis of which the changes in each item is calculated. In it we calculate the fluctuations in share capital, current and noncurrent liabilities and on the assets side, fixed assets and current assets are being analyzed.

Equity & Liabilities ( Horizontal analysis) 2006 % age Share Capital & Reserves Share Capital Reserves Surplus on Revaluation Non Current Liabilities Liabilities Against Assets Subject to Finance Lease Long Term Financing Deferred Liabilities Deferred Income Current Liabilities 36 100.00 100.00 100.00 100.00 250.55 186.70 284.31 85.74 224.35 352.35 555.41 85.74 100.00 100.00 100.00 577.77 2409.37 52.23 631.90 169.74 123.09 2007 % age 2008 % age

Description

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Trade and Other Payables Interest/Markup Occurred on Loans and other Payable Short Term Borrowings Current Portion of Long Term Liabilities Interpretations

100.00 100.00 100.00 100.00

192.53 188.42 160.40 86.12

224.11 194.43 203.89 106.72

In horizontal analysis trends are computed by taking 2007 as a base year. Company has more and more reserves because by taking 2007 as base year reserves are almost 200% more in 2009 than 2008. There is also handsome increase in long term financing. Management should decide to reduce long term financing because it creates negative effect on the net income of the company. Regarding the current liabilities, companys current liabilities are increasing rapidly from 2007 to 2008 but in 2009 it is slightly decrease. Short term borrowing has also same situation like trade payables.

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Assets ( Horizontal Analysis) 2006 Description % age Non-Current Assets Plant and Equipment Intangible Assets Long Term Investment Long Term Deposits Current Assets Stores and Loose Tools Stock in Trade Trade Debt Loans and Advances Trade Deposit and Short Term Pre Payments Other Receivables Other Financial Assets Cash and Bank Balances Interpretations There is an increasing trend almost in the items of the Balance sheet such as property and plant equipment, Trade debt, Loans and advances trade deposits and short term pre payments other financial assets. A huge increase in Cash and Bank Balances. There is a decreasing trend in receivables which is a good sign for the company. 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 130.96 191.55 324.46 161.80 240.96 10.12 928.84 455.05 166.79 272.79 429.15 278.18 252.58 11.17 412.41 368.47 100.00 100.00 100.00 100.00 121.36 219.86 12.90 270.27 176.19 216.80 54.75 405.00 % age % age 2007 2008

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Summary Ratio Analysis


Liquidity ratio Ratio Current ratio Quick ratio Net working capital 2008 1.42 0.87 2007 1.32 0.84 2006 1.04 0.62

Rs2,795,864,000 Rs1,692,604,000 Rs262,077,000 Activity ratio

Ratio Inventory turnover Average collection period Average payment period Total asset turnover

2008 2.75 times 122days 26days 0.77 Profitability ratio

2007 3.68 times 92days 20days 1.02

2006 2.85times 101days 27days 0.93

Ratio Gross profit margin Net operating profit Net profit Return on asset Return on equity

2008 22.43% 12.79% 3.58% 2.76% 12.3% Debt ratios

2007 21.92% 13.82% 4.93% 5.04% 17.96%

2006 21.77% 13.63% 4.70% 4.37% 16.48%

Ratio Debt ratio Time interest earned ratio

2008 60% 1.63 times Market ratios

2007 64% 1.74 times

2006 68% 1.73 times

Ratio Price Earnings ratio Dividend Payout ratio

2008 5.29 --------

2007 6.58 --------

2006 5.66 -------39

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