PHILLIP Morris International

ECONOMICAL ANALYSIS:-

According to the economic survey of Pakistan GDP increase 7% in last five years. And inflation
rate is 17%.Pakistan is second largest cigarette consumer in south Asia. Tobacco possesses
great source of revenue, employment and foreign exchange earnings to the country. It gives the
highest revenue to government in terms of taxes. Tobacco industry currently employs about
80,000 workers in cultivation, 50,000 are employed in 21 factories of the tobacco industry and
it also provides 1 million indirect employments. It is also an important source of foreign
exchange earnings for the country approximately US$ 61.349 million during the fiscal year of
2011-2017. Pakistan Tobacco board have played an important role in developing the production
of tobacco crop on scientific methods, if it had not been developed the country would have
been importing raw material worth Rs.8-10 billion per annum .

Company Analysis
Liquidity ratio
The analysis of Philip Morris international financial statement shows that it has a high tendency
to pay its debts and to convert assets into liquid form within short intervals of time.

Current ratio:

The current ratio of PMI remained between 0.81 – 0.96 in the last five years and it shows its
ability to pay short term liabilities.
Quick ratio:

The quick ratio of PMI ranged between 0.07– 0.11 from 2011 to 2016. It shows the company’s
ability to convert its current assets into liquid form (cash form) in order to meet current
liabilities.

Inventory Turnover

On yearly basis from the year 2011 – 2016, we observed that the number of times the total
inventory or stock of the company was sold on the average of 2.59 times/year. It shows the
sales of the company are on a very large scale and also gives rise to the company opportunity to
generate huge profits in the long run.

Account receivable turnover

Average Account Receivables Turnover shows that how many times a company is able to
recover the amount of credit sales to people. PMI has shown a high Accounts Receivables
turnover rate which shows its high liquidity transformation rate.

Profitability Ratios

Phillip Morris international Profitability ratios clearly reflect it’s great ability to generate huge
profits and of generating dividends for its shareholders

Asset turnover

Average Assets turnover of the company ranges between 1.54 - 1.80 times per year. It shows
the generation of huge sales from the worth of assets of the company and in the case of Phillip
morris internation, it shows the firm's efficiency at using its assets in generating sales or
revenue - the higher the number the better.

Profit margin

The profit margin of PMI lies between 35.27% - 42.51% in previous five years. It measures the
percentage of each dollars of sales that results in net income. A higher profit margin indicates a
more profitable company that has better control over its costs compared to its competitors.

Return on common stock equity

Return on common stockholder’s equity of PMI varies between 0.38 – 0.82 between the years
2011to 2016. Another widely used profitability ratio is return on common stockholder’s equity.
It measures profitability from common stockholder’s point of view. Return on equity measures
a corporation's profitability by revealing how much profit a company generates with the money
shareholders have invested. Averaging ROE over the past 5-10 years can give you a better idea
of the historical growth.

Earning per share

Earnings per share are a measure of net income earned on each share of common stock. PMI
earning per share of last five years lies among 6.83 - 12.87. The EPS formula does not include
preferred dividends for categories outside of continued operations and net income. Earnings
per share serve as an indicator of a company's profitability.

Payout ratio
Payout ratio of this company ranges from 0.7 - 1.76. It measures the percentage of earnings
distributed in the form of cash dividends. The amount of earnings paid out in dividends to
shareholders. Investors can use the payout ratio to determine what companies are doing with
their earnings

Solvency ratio
Solvency ratios measure the ability of a company to survive over a long period of time. It
provides a measurement of how likely a company will be to continue meeting its debt
obligations. Different countries use different methodologies to calculate the solvency ratio, and
have different requirements.

Times interest earned

The average value of Times interest earned of PMI is approximately 3.1 for previous five years.
IT PROVIDES COMPANY’S ABILITY TO MEET interest payments as they come due. Times interest
earned (TIE) or interest coverage ratio is a measure of a company's ability to honour its debt
payments. The times interest earned lets the creditor understand whether or not a company
has sufficient income to cover its interest payments requirements. It is calculated by taking a
company's earnings before interest and taxes (EBIT) and dividing it by the total interest payable
on bonds and other contractual debt.

INDUSTRY ANAYALSIS:
The country's cigarette market is the 18th largest in the world. There are 57 tobacco
manufacturers currently operating and around 78% of the market share belongs to two corporate
giants: Pakistan Tobacco Company, a subsidiary of British American Tobacco, and Phillip
Morris International (PMI), which acquired Lakson Tobacco Pakistan, in February 2015.
Pakistan Tobacco Company Limited (PTC) is part of British American Tobacco; the world's
most international tobacco group, with brands sold in 180 markets around the world.

The company produces high quality tobacco products to meet the diverse preferences of millions
of consumers, and it works in all areas of the business - from seed to smoke. Pakistan Tobacco's
operations in Pakistan began in 1947, making it one of Pakistan's first foreign investments.
Pakistan Tobacco provides a number of reputed brands of cigarettes to consumers in Pakistan,
including Benson and Hedges, Embassy, Gold Flake, Capstan and Gold Leaf. Over the years,
Pakistan Tobacco has shown a rising trend as evident from the impressive growth in gross, net
and operating profits, with the operating profits growing by 28% and net profit growing by 44%
in 2010 as compared to previous year. The tobacco crop is of great economic significance for
Pakistan although it occupies a relatively small area of 0.27% of the total irrigated land in the
country, and about 3% in the NWFP. With suitable crop treatment, it is capable of yielding very
high income to the growers as compared to any other cash crop. Its greatest attribute is its link
with the viable and efficient cigarette industry. It is a highly labor intensive crop and provides
employment both in the fields and in the factories.
The tobacco industry contributes over Rs. 14 billion annually through Central Excise Duty and
sales tax to the Federal Exchequer. Apart from this a formidable foreign exchange is earned from
the export of tobacco and its products. Almost all tobacco produced in the country except for
nominal quantity, which is imported for superior brands of cigarettes. If the per annum demand
had to be met only by exports it would cost imports of Rs. 3.7 billion per year.After the merger
of Lakson Tobacco Company and Premier Tobacco in 1997 the Lakson Tobacco Company has
taken over the market leadership from Pakistan Tobacco Company. Now PTC holds 45% of the
market share as compared to 55% of LTC. However LTC believes that it holds 42% of the
market share and PTC holds 40.8% while the rest 17% belongs to the emerging unorganized
sector.

The following are the major constituents of the tobacco industry of Pakistan:-

 Khyber Tobacco Company Ltd. (Year of Listing: 1988)

Khyber Tobacco Company manufactures and sells cigarettes. Its brands include Players,
Red Lamp, Richmond and Sports.
 Lakson Tobacco Company Ltd. (Year of Listing: 1979)
The company manufactures and markets cigarettes under the brand names Buckingham,
Morven Gold, Panama, Princeton and Royals.
 Pakistan Tobacco Company Ltd. (Year of Listing: 1956)
The company manufactures and markets cigarettes. Brands include Gold Leaf King Size,
Capstan Filter and Wills King. As of December 1997, B.A.T Industries (UK) owned 63%
of Pakistan Tobacco.