7

PRESENTED BY:
Sarah Shah, BBA H (11005)

FINANCIAL Course Title

Analysis of Financial Statements – ()

STATEMENT
ANALYSIS
A Report On General Tires and Rubber Co.
Pakistan

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Table of Contents
1 LETTER OF ACKNOWLEDGEMENT................................................................................... 4

2 ABSTRACT ..................................................................................................................... 5

3 ANALYSIS OF FINANCIAL STATEMENTS ........................................................................... 6

3.1 WHAT ARE FINANCIAL STATEMENTS? ............................................................................................................... 6

3.2 STATEMENT OF FINANCIAL POSITION: ............................................................................................................. 6

3.2.1 INCOME STATEMENT: ........................................................................................................................................................6
3.2.2 CASH FLOW STATEMENT: ................................................................................................................................................7
3.2.3 STATEMENT OF CHANGES IN EQUITY: ......................................................................................................................7

3.3 WHY WE ANALYZE FINANCIAL STATEMENTS? ................................................................................................ 7

4 INTRODUCTION TO COMPANY ....................................................................................... 8

4.1.1 Vision .........................................................................................................................................................................................9
4.1.2 Mission ......................................................................................................................................................................................9

5 TYPES OF ANALYSIS ..................................................................................................... 10

5.1 FINANCIAL ANALYSIS ............................................................................................................................................ 10

5.2 Income statement .................................................................................................................................................. 10

5.2.1 Vertical analysis of income statement ..................................................................................................................... 11
5.2.2 Horizontal analysis of income statement ............................................................................................................... 11

5.3 Balance sheet: ......................................................................................................................................................... 13

5.3.1 Vertical analysis ................................................................................................................................................................. 13
5.3.2 Horizontal analysis ........................................................................................................................................................... 13

6 RATIO ANALYSIS .......................................................................................................... 18

6.1 LIQUIDITY ANALYSIS ............................................................................................................................................ 18

6.1.1 CURRENT RATIO ............................................................................................................................................................... 18
6.1.2 CASH RATIO ......................................................................................................................................................................... 18

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 6.1.3 QUICK RATIO....................................................................................................................................................................... 19

6.2 EFFICENCY RATIO .................................................................................................................................................. 22

6.3 LEVEREAGE RATIO: ............................................................................................................................................... 26

6.4 PROFITABLITY RATIO: ......................................................................................................................................... 30

7 CONDITIONAL FORMATTING ....................................................................................... 35

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1 Letter of Acknowledgement
Foremost, I would like to express my sincere gratitude to my advisor Mr. Sohaib Jamal for the continuous support
of this course, for his patience, motivation, enthusiasm, and immense knowledge of the subject. His guidance
helped me in all the time of the research and writing of this report. I could not have imagined having a better
mentor for my study.

Besides my mentor, I would like to thank the rest of my class mates and lab and administration staff of Iqra
University, Gulshan Campus for letting me complete my report using the university resources.

Sarah Shah
BBA-H (11005)
August 4, 2017

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2 Abstract
Financial statement analysis (or financial analysis) is the process of reviewing and analyzing a company's financial
statements thereby gaining an understanding of the financial health of the company and enabling more effective
decision making. Financial statements record financial data; however, this information must be evaluated through
financial statement analysis to become more useful to investors, shareholders, managers and other interested
parties.

This report deals with the financial statement analysis of "General Tires and Rubber Co, Pakistan". The purpose of
this study is to explain the actual accounting information and make analysis through different accounting
techniques to determine the current situation of the organization, its strengths and weaknesses which could be
improved. A five year historic data obtained from the publically disclosed financial statements was used to analyze
the company performance. The various tools used for the analysis are Horizontal and Vertical Analysis and Ratio
Analysis. The data was presented through various tables and charts for better understanding.

Through ratio analysis of the company, one could understand the Profitability, Liquidity, Leverage, Turnover
positions of the company.

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3 Analysis of Financial Statements
3.1 WHAT ARE FINANCIAL STATEMENTS?
A financial statement (or financial report) is a formal record of the financial activities of a business, person, or
other entity. Relevant financial information is presented in a structured manner and in a form easy to
understand.

Financial Statements represent a formal record of the financial activities of an entity. These are written reports
that quantify the financial strength, performance and liquidity of a company. Financial Statements reflect the
financial effects of business transactions and events on the entity.

There are four types of Financial Statements, namely;

 statements of financial position

 income statement

 cash-flow statement

 statement of owners’ equity

3.2 STATEMENT OF FINANCIAL POSITION:

Statement of Financial Position, also known as the Balance Sheet, presents the financial position of an entity
at a given date. It is comprised of the following three elements:

Assets: Something a business owns or controls (e.g. cash, inventory, plant and machinery, etc.)

Liabilities: Something a business owes to someone (e.g. creditors, bank loans, etc.)

Equity: What the business owes to its owners. This represents the amount of capital that remains in the
business after its assets are used to pay off its outstanding liabilities. Equity therefore represents the difference
between the assets and liabilities.

3.2.1 INCOME STATEMENT:

Income Statement, also known as the Profit and Loss Statement, reports the company's financial performance in
terms of net profit or loss over a specified period. Income Statement is composed of the following two elements:

 Income: What the business has earned over a period (e.g. sales revenue, dividend income, etc.)

 Expense: The cost incurred by the business over a period (e.g. salaries and wages, depreciation, rental
charges, etc.)

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  Net profit or loss is arrived by deducting expenses from income.

3.2.2 CASH FLOW STATEMENT:

Cash Flow Statement, presents the movement in cash and bank balances over a period. The movement in cash
flows is classified into the following segments:

 Operating Activities: Represents the cash flow from primary activities of a business.
 Investing Activities: Represents cash flow from the purchase and sale of assets other than inventories (e.g.
purchase of a factory plant)
 Financing Activities: Represents cash flow generated or spent on raising and repaying share capital and
debt together with the payments of interest and dividends.

3.2.3 STATEMENT OF CHANGES IN EQUITY:

Statement of Changes in Equity, also known as the Statement of Retained Earnings, details the movement in
owners' equity over a period. The movement in owners' equity is derived from the following components:

 Net Profit or loss during the period as reported in the income statement
 Share capital issued or repaid during the period
 Dividend payments
 Gains or losses recognized directly in equity (e.g. revaluation surpluses)
 Effects of a change in accounting policy or correction of accounting error

3.3 WHY WE ANALYZE FINANCIAL STATEMENTS?

Financial statement analysis is used to identify the trends and relationships between financial statement items.
Both internal management and external users (such as analysts, creditors, and investors) of the financial statements
need to evaluate a company's profitability, liquidity, and solvency. The most common methods used for financial
statement analysis are trend analysis, common-size statements, and ratio analysis. These methods include
calculations and comparisons of the results to historical company data, competitors, or industry averages to
determine the relative strength and performance of the company being analyzed.

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4 Introduction to Company
The General Tire and Rubber Company of Pakistan Limited (GTR) came into existence in 1963, at Landhi Karachi
on a 25 acre plot and commenced its production in 1964.

The Company was then established by General Tire International Corporation (GTIC) of USA, with a total capacity
of only 120,000 tires per annum.

GTIC sold 90% of their shares to the present owners M/s Bibojee Services Ltd. in 1977 and retained 10% of the
ownership. In 1985, the Company completed a major expansion, which took the capacity to 600,000 tires annually.

Continental AG, Germany’s number one tire manufacturer purchased GTIC in 1987 and thus became 10% owners
in GTR. Continental provides Technical Assistance to GTR under a program, which includes training of our people,
formulations, recipe, and selection of equipment and approved suppliers. GTR under this agreement with
Continental is bound to follow all rules and regulations provided by Continental including the given quality
standards. The brand name “GENERAL” used by GTR also belongs to Continental AG. Now this brand name is
synonymous with quality and experience in the art of making tires since being in this market for more than 50
years.

The name ‘GENERAL’ carries the highest top of the mind brand name recall in Pakistan when it comes to tires. The
capacity of the Company stands at 2.5 million tires approximately meeting one third of the country’s demand.
General is producing tire sizes and patterns that cover almost 85% of the sizes in demand in Pakistan. GTR is the
first & largest automotive tire manufacturer in the country producing tires for cars, light commercial vehicles,
trucks/buses, tractors, CNG Rickshaw. While motorcycle tire plant has been added with the capacity of one million
tires per annum.

Being a Public Listed Company, the current main sponsors of the Company are: (i) Bibojee Services (Private) Ltd.
and (ii) Pak Kuwait Investment Company (PKIC) and the remaining shares are held by the general public and several
institutional investors.

GTR has four market segments to cater to. These are:

 The Original Equipment Manufacturers – Vehicle assemblers

 The Replacement or the After market
 Government Departments/Institutions
 The Export Market

GTR sells its Tires in replacement market through more than 150 nationwide authorized dealers/distributors most
of whom have been working with GTR for more than three generations setting a milestone on customer loyalty and
satisfaction.

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It has offices / warehouses in four major cities of Pakistan and intends to add another new office soon. All
automotive tires produced by us are covered with warranty.

4.1.1 Vision
To be the leader in tire technology by building the Company’s image through quality improvement, competitive
prices, customers’ satisfaction and meeting social obligations.

4.1.2 Mission
 To offer quality products at competitive prices to our customers.
 To endeavor to be the market leader by enhancing market share, consistently improving efficiency and the
quality of our products.
 To improve performance in all operating areas, so that profitability increases thereby ensuring growth for
the company and increasing return to the stakeholders.
 To create a conducive working environment leading to enhanced productivity, job satisfaction and
personal development of our employees.
 To discharge its obligation to society and environment by contributing to social welfare and adopting
environmental friendly practices and processes.

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 5 Types of Analysis
5.1 FINANCIAL ANALYSIS
There are three types of analysis including

 Vertical analysis
 Horizontal analysis
 Ratio analysis

5.2 INCOME STATEMENT

The income statement is one of the major financial statements used by accountants and business owners. (The
other major financial statements are the balance sheet statement of cash flows and the statement of
stockholders' equity.) The income statement is sometimes referred to as the profit and loss statement (P&L),
statement of operations, or statement of income. We will use income statement and profit and loss statement
throughout this explanation.

5 Year Income Statement - (Millions)

2012 2013 2014 2015 2016
Total Revenue 7,806 8,167 8,607 9,492 9,479
Sales 7,806 8,167 8,607 9,492 9,479
Other Revenue - - - - -
Cost of Sales (6,808) (6,838) (7,012) (7,553) (7,157)
Gross Profit 998 1,329 1,595 1,938 2,322
Total Operating Expenses (7,177) (7,299) (7,533) (8,137) (7,851)
Administrative expenses (116) (138) (188) (200) (211)
Distribution Cost (231) (307) (358) (332) (399)
Other Income 49 68 118 66 65
Other Expenses (71) (84) (94) (117) (150)
Operating Profit 629 868 1,073 1,355 1,628
Finance Cost (382) (289) (326) (258) (136)
Share of Profit/loss from Asst Co (0) 1 1 0 3
Profit before Taxes 247 580 748 1,097 1,495
Taxes (45) (184) (234) (364) (462)
Profit After Taxes 203 396 514 733 1,032

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 5.2.1 Vertical analysis of income statement
Vertical analysis is the proportional analysis of a financial statement, where each line item on a financial
statement is listed as a percentage of another item. Typically, this means that every line item on an income
statement is stated as a percentage of gross sales, while every line item on a balance sheet is stated as a
percentage of total assets.

The most common use of vertical analysis is within a financial statement for a single time period, so that one can
see the relative proportions of account balances. Vertical analysis is also useful for timeline analysis, to see
relative changes in accounts over time, such as on a comparative basis over a five-year period. For example, if
the cost of goods sold has a history of being 40% of sales in each of the past four years, then a new percentage
of 48% would be a cause for alarm

Vertical Analysis (Total Revenue as Base)

2012 2013 2014 2015 2016
Total Revenue 100% 100% 100% 100% 100%
Sales 100% 100% 100% 100% 100%
Other Revenue 0% 0% 0% 0% 0%
Cost of Sales -87% -84% -81% -80% -76%
Gross Profit 13% 16% 19% 20% 24%
Total Operating Expenses -92% -89% -88% -86% -83%
Administrative expenses -1% -2% -2% -2% -2%
Distribution Cost -3% -4% -4% -3% -4%
Other Income 1% 1% 1% 1% 1%
Other Expenses -1% -1% -1% -1% -2%
Operating Profit 8% 11% 12% 14% 17%
Finance Cost -5% -4% -4% -3% -1%
Share of Profit/loss from Associated Company 0% 0% 0% 0% 0%
Profit before Taxes 3% 7% 9% 12% 16%
Taxes -1% -2% -3% -4% -5%
Profit After Taxes 3% 5% 6% 8% 11%

5.2.2 Horizontal analysis of income statement

Horizontal analysis is the comparison of historical financial information over a series of reporting periods, or
of the ratios derived from this financial information. The intent is to see if any numbers are unusually high or low
in comparison to the information for bracketing periods, which may then trigger a detailed investigation of the
reason for the difference. The analysis is most commonly a simple grouping of information that is sorted by
period, but the numbers in each succeeding period can also be expressed as a percentage of the amount in the
baseline year, with the baseline amount being listed as 100%.

Amount change (formula)

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 Dollar Change = Amount of item in comparison year – Amount of item in base year

5 Year Income Statement - Amounts are represented as Millions of PKR

2012 2013 2014 2015 2016
Total Revenue 360.6 439.6 885.0 (12.6)
Sales 360.6 439.6 885.0 (12.6)
Other Revenue 0.0 0.0 0.0 0.0
Cost of Sales (30.2) (173.3) (541.6) 396.2
Gross Profit 330.4 266.3 343.4 383.6
Total Operating Expenses (121.8) (234.2) (603.5) 285.4
Administrative expenses (21.6) (50.3) (11.9) (10.4)
Distribution Cost (76.3) (51.0) 26.4 (67.7)
Other Income 19.0 49.9 (52.7) (0.4)
Other Expenses (12.7) (9.5) (23.6) (32.3)
Operating Profit 238.8 205.4 281.6 272.8
Finance Cost 92.5 (37.0) 68.0 122.1
Share of Profit/loss from Asst Co 1.4 (0.1) (0.7) 2.8
Profit before Taxes 332.7 168.2 348.8 397.7
Taxes (139.8) (50.1) (129.7) (98.3)
Profit After Taxes 192.9 118.1 219.1 299.4

Percentage change:

%change= dollar change *100 amount in base year

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 Horizontal Analysis (2012 as Base Year)
2012 2013 2014 2015 2016
Total Revenue 5% 10% 22% 21%
Sales 5% 10% 22% 21%
Other Revenue
Cost of Sales 0% 3% 11% 5%
Gross Profit 33% 60% 94% 133%
Total Operating Expenses 2% 5% 13% 9%
Administrative expenses 19% 62% 72% 81%
Distribution Cost 33% 55% 44% 73%
Other Income 39% 140% 33% 32%
Other Expenses 18% 31% 64% 109%
Operating Profit 38% 71% 115% 159%
Finance Cost -24% -15% -32% -64%
Share of Profit/loss from Associated Company 119% 108% 40% 315%
Profit before Taxes 135% 203% 344% 504%
Taxes 314% 426% 717% 937%
Profit After Taxes 95% 153% 261% 409%

5.3 BALANCE SHEET:

A Balance Sheet is a statement of the financial position of a business which states the assets,
liabilities, and owners' equity at a particular point in time. In other words, the balance sheet
illustrates your business's net worth
The balance sheet is the most important of the three main financial statements used to
illustrate the financial health of a business (the others being the Income Statement and the Cash
Flow Statement).
An up-to-date and accurate balance sheet is essential for a business owner that is looking for
additional debt or equity financing or wishes to sell the business and needs to determine how much it is
worth.
All accounts in your General Ledger are categorized as an asset, a liability or equity. The
relationship between them is expressed in this equation:
5.3.1 Vertical analysis
Percentage of Base = Amount of Individual Item x 100 Amount of Base
5.3.2 Horizontal analysis
Amount change = Amount of item in comparison year – Amount of item in base year
Percentage Change = Dollar Change X 100 Amount of item in base year

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 - 2012 2013 2014 2015 2016
Assets
Current Assets
Cash and Short Term Investments 148.42 187.68 220.16 241.77 116.85
Cash 143.41 181.86 214.09 236.92 109.38
Short Term Investments 5.01 5.82 6.07 4.84 7.47
Total Receivables 1269.09 1618.73 1675.5 1047.32 1307.89
Accounts Receivables - Trade 949.82 1186.98 1390.55 851.27 1024.67
Other Receivables 319.27 431.75 284.95 196.05 283.22
Total Inventory 2267.21 2196.39 2461.32 1948.25 2067.15
Prepaid Expenses 6.24 7.55 14.83 10.32 11.77
Other Current Assets 20.21 25.58 231.42 115.13 54.36
Total Current Assets 3711.17 4035.93 4603.23 3362.78 3558.02
Non Current Assets
Property/Plant/Equipment, Total - Net 1746.82 1938.49 1913.57 1935.86 3168.7
Property/Plant/Equipment, Total - Gross 3643.16 3960.89 4063.68 4245.74 5636.07
Accumulated Depreciation, Total (1,896.34) (2,022.40) (2,150.11) (2,309.88) (2,467.38)
Intangibles, Net 0.48 1.34 2.42 2.05 36.22
Long Term Investments 7.77 24.14 33.94 36.89 38.69
Note Receivable - Long Term 6.67 5.84 10.01 10.49 10.89
Total Non Current Assets 1761.74 1969.81 1959.94 1985.29 3254.5
Total Assets 5472.91 6005.74 6563.16 5348.06 6812.51
Liabilities
Current Liabilities
Accounts Payable 985.99 747.37 193.63 490.35 400.47
Accrued Expenses 464.13 529.91 518.01 644.98
Notes Payable/Short Term Debt 1899.46 2102.81 2894.54 752.42 764.91
Current Port. of LT Debt/Capital Leases 86.64 33.33 66.67 116.67 224.06
Other Current liabilities, Total 584.96 205.93 296.56 268.12 389.79
Total Current Liabilities 3557.05 3553.58 3981.31 2145.57 2424.21
Non Current Liabilities
Long Term Debt 166.67 100 383.33 920.28
Deferred Income Tax 185.06 281.25 242.02 210.87 232.28
Other Liabilities, Total 206.28 210.73 208.84 250.15 286.22
Total Debt 1986.1 2302.81 3061.21 1252.42 1909.24
Total Non Current Liabilities 391.34 658.65 550.86 844.35 1438.78
Total Liabilities 3948.39 4212.23 4532.17 2989.92 3862.99
Equity
Common Stock, Total 597.71 597.71 597.71 597.71 597.71
Retained Earnings 926.81 1195.8 1433.28 1760.43 2351.81
Total Equity 1524.52 1793.51 2030.99 2358.15 2949.52
Total Liabilities & Shareholders' Equity 5472.91 6005.74 6563.16 5348.06 6812.51
Total Common Shares Outstanding 59.77 59.77 59.77 59.77 59.77

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 Horizontal Analysis (Amounts) - 2012 as base year
- 2012 2013 2014 2015 2016 Trend
Assets
Current Assets
Cash and Short Term Investments 39.26 71.74 93.35 (31.57)
Cash 38.45 70.68 93.51 (34.03)
Short Term Investments 0.81 1.06 (0.17) 2.46
Total Receivables 349.64 406.41 (221.77) 38.80
Accounts Receivables - Trade 237.16 440.73 (98.55) 74.85
Other Receivables 112.48 (34.32) (123.22) (36.05)
Total Inventory (70.82) 194.11 (318.96) (200.06)
Prepaid Expenses 1.31 8.59 4.08 5.53
Other Current Assets 5.37 211.21 94.92 34.15
Total Current Assets 324.76 892.06 (348.39) (153.15)
Non Current Assets 0.00 0.00 0.00 0.00
Property/Plant/Equipment, Total - Net 191.67 166.75 189.04 1,421.88
Property/Plant/Equipment, Total - Gross 317.73 420.52 602.58 1,992.91
Accumulated Depreciation, Total (126.06) (253.77) (413.54) (571.04)
Intangibles, Net 0.86 1.94 1.57 35.74
Long Term Investments 16.37 26.17 29.12 30.92
Note Receivable - Long Term (0.83) 3.34 3.82 4.22
Total Non Current Assets 208.07 198.20 223.55 1,492.76
Total Assets 532.83 1,090.25 (124.85) 1,339.60
Liabilities 0.00 0.00 0.00 0.00
Current Liabilities 0.00 0.00 0.00 0.00
Accounts Payable (238.62) (792.36) (495.64) (585.52)
Accrued Expenses 464.13 529.91 518.01 644.98
Notes Payable/Short Term Debt 203.35 995.08 (1,147.04) (1,134.55)
Current Port. of LT Debt/Capital Leases (53.31) (19.97) 30.03 137.42
Other Current liabilities, Total (379.03) (288.40) (316.84) (195.17)
Total Current Liabilities (3.47) 424.26 (1,411.48) (1,132.84)
Non Current Liabilities 0.00 0.00 0.00 0.00
Long Term Debt 166.67 100.00 383.33 920.28
Deferred Income Tax 96.19 56.96 25.81 47.22
Other Liabilities, Total 4.45 2.56 43.87 79.94
Total Debt 316.71 1,075.11 (733.68) (76.86)
Total Non Current Liabilities 267.31 159.52 453.01 1,047.44
Total Liabilities 263.84 583.78 (958.47) (85.40)
Equity 0.00 0.00 0.00 0.00
Common Stock, Total 0.00 0.00 0.00 0.00
Retained Earnings 268.99 506.47 833.62 1,425.00
Total Equity 268.99 506.47 833.63 1,425.00
Total Liabilities & Shareholders' Equity 532.83 1,090.25 (124.85) 1,339.60
Total Common Shares Outstanding 0.00 0.00 0.00 0.00

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 Horizontal Analysis (Percentage) - 2012 as base year
- 2012 2013 2014 2015 2016
Assets
Current Assets
Cash and Short Term Investments 26% 48% 63% -21%
Cash 27% 49% 65% -24%
Short Term Investments 16% 21% -3% 49%
Total Receivables 28% 32% -17% 3%
Accounts Receivables - Trade 25% 46% -10% 8%
Other Receivables 35% -11% -39% -11%
Total Inventory -3% 9% -14% -9%
Prepaid Expenses 21% 138% 65% 89%
Other Current Assets 27% 1045% 470% 169%
Total Current Assets 9% 24% -9% -4%
Non Current Assets
Property/Plant/Equipment, Total - Net 11% 10% 11% 81%
Property/Plant/Equipment, Total - Gross 9% 12% 17% 55%
Accumulated Depreciation, Total 7% 13% 22% 30%
Intangibles, Net 179% 404% 327% 7446%
Long Term Investments 211% 337% 375% 398%
Note Receivable - Long Term -12% 50% 57% 63%
Total Non Current Assets 12% 11% 13% 85%
Total Assets 10% 20% -2% 24%
Liabilities
Current Liabilities
Accounts Payable -24% -80% -50% -59%
Accrued Expenses 46413% 52991% 51801% 64498%
Notes Payable/Short Term Debt 11% 52% -60% -60%
Current Port. of LT Debt/Capital Leases -62% -23% 35% 159%
Other Current liabilities, Total -65% -49% -54% -33%
Total Current Liabilities 0% 12% -40% -32%
Non Current Liabilities
Long Term Debt 16667% 10000% 38333% 92028%
Deferred Income Tax 52% 31% 14% 26%
Other Liabilities, Total 2% 1% 21% 39%
Total Debt 16% 54% -37% -4%
Total Non Current Liabilities 68% 41% 116% 268%
Total Liabilities 7% 15% -24% -2%
Equity
Common Stock, Total 0% 0% 0% 0%
Retained Earnings 29% 55% 90% 154%
Total Equity 18% 33% 55% 93%
Total Liabilities & Shareholders' Equity 10% 20% -2% 24%
Total Common Shares Outstanding 0% 0% 0% 0%

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 Vertical Analysis (Total Assets as Base Value)
4 2012 2013 2014 2015 2016
Assets
Current Assets
Cash and Short Term Investments 3% 3% 3% 5% 2%
Cash 3% 3% 3% 4% 2%
Short Term Investments 0% 0% 0% 0% 0%
Total Receivables 23% 27% 26% 20% 19%
Accounts Receivables - Trade 17% 20% 21% 16% 15%
Other Receivables 6% 7% 4% 4% 4%
Total Inventory 41% 37% 38% 36% 30%
Prepaid Expenses 0% 0% 0% 0% 0%
Other Current Assets 0% 0% 4% 2% 1%
Total Current Assets 68% 67% 70% 63% 52%
Non Current Assets 0% 0% 0% 0% 0%
Property/Plant/Equipment, Total - Net 32% 32% 29% 36% 47%
Property/Plant/Equipment, Total - Gross 67% 66% 62% 79% 83%
Accumulated Depreciation, Total -35% -34% -33% -43% -36%
Intangibles, Net 0% 0% 0% 0% 1%
Long Term Investments 0% 0% 1% 1% 1%
Note Receivable - Long Term 0% 0% 0% 0% 0%
Total Non Current Assets 32% 33% 30% 37% 48%
Total Assets 100% 100% 100% 100% 100%
Liabilities 0% 0% 0% 0% 0%
Current Liabilities 0% 0% 0% 0% 0%
Accounts Payable 18% 12% 3% 9% 6%
Accrued Expenses 0% 8% 8% 10% 9%
Notes Payable/Short Term Debt 35% 35% 44% 14% 11%
Current Port. of LT Debt/Capital Leases 2% 1% 1% 2% 3%
Other Current liabilities, Total 11% 3% 5% 5% 6%
Total Current Liabilities 65% 59% 61% 40% 36%
Non Current Liabilities 0% 0% 0% 0% 0%
Long Term Debt 0% 3% 2% 7% 14%
Deferred Income Tax 3% 5% 4% 4% 3%
Other Liabilities, Total 4% 4% 3% 5% 4%
Total Debt 36% 38% 47% 23% 28%
Total Non Current Liabilities 7% 11% 8% 16% 21%
Total Liabilities 72% 70% 69% 56% 57%
Equity 0% 0% 0% 0% 0%
Common Stock, Total 11% 10% 9% 11% 9%
Retained Earnings 17% 20% 22% 33% 35%
Total Equity 28% 30% 31% 44% 43%
Total Liabilities & Shareholders' Equity 100% 100% 100% 100% 100%
Total Common Shares Outstanding

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6 Ratio Analysis
Ratio analysis is a Quantitative analysis of information contained in a company’s financial statements. Ratio analysis
is based on line items in financial statements like the balance sheet, income statement and cash flow statement;
the ratios of one item – or a combination of items - to another item or combination are then calculated. Ratio
analysis is used to evaluate various aspects of a company’s operating and financial performance such as its
efficiency, liquidity, profitability and solvency. The trend of these ratios over time is studied to check whether they
are improving or deteriorating. Ratios are also compared across different companies in the same sector to see how
they stack up, and to get an idea of comparative valuations. Ratio analysis is a cornerstone of fundamental analysis.
A detail ratio analysis of Lucky Cement is carried out to have a clear picture of the company’s financial health.

6.1 LIQUIDITY ANALYSIS

Liquidity ratios are used to determine a company’s ability to meet its short-term debt obligations. Investors often
take a close look at liquidity ratios when performing fundamental analysis on a firm. Since a company that is
consistently having trouble meeting its short-term debt is at a higher risk of bankruptcy, liquidity ratios are a good
measure of whether a company will be able to comfortably continue as a going concern.

6.1.1 CURRENT RATIO

This ratio is mainly used to give an idea of the company's ability to pay back its short-term liabilities (debt and
payables) with its short-term assets (cash, inventory, receivables). The higher the current ratio, the more capable
the company is of paying its obligations. A ratio under 1 suggests that the company would be unable to pay off its
obligations if they came due at that point.

The current ratio can give a sense of the efficiency of a company's operating cycle or its ability to turn its product
into cash. Companies that have trouble getting paid on their receivables or have long inventory turnover can run
into liquidity problems because they are unable to alleviate their obligations. Because business operations differ in
each industry, it is always more useful to compare companies within the same industry.

Current Ratio is calculated using the following formula:

Current Ratio = Current Assets/ Current Liabilities

6.1.2 CASH RATIO

Cash Ratio is an indicator of company's short-term liquidity. It measures the ability to use its cash and cash
equivalents to pay its current financial obligations.

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Cash Ratio is calculated using the following formula:

Quick Ratio = (Cash and Cash Equivalent)/Current Liabilities

Cash ratio measures the immediate amount of cash available to satisfy short-term liabilities. A cash ratio of 0.5:1
or higher is preferred. Cash ratio is the most conservative look at a company's liquidity since is taking in the
consideration only the cash and cash equivalents. Cash ratio is used by creditors when deciding how much credit,
if any, they would be willing to extend to the company.

6.1.3 QUICK RATIO

Quick ratio shows the extent of cash and other current assets that are readily convertible into cash in comparison
to the short term obligations of an organization. A quick ratio of 0.5 would suggest that a company is able to settle
half of its current liabilities instantaneously.

Quick ratio differs from current ratio in that those current assets that are not readily convertible into cash are
excluded from the calculation such as inventory and deferred tax credits since conversion of such assets into cash
may take considerable time.

Quick ratio may therefore alternatively be calculated as follows:

Quick Ratio = (Current Assets - Inventory - Advances – Prepayments)/ Current Liabilities

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Liquidity Ratios for the past 5 years:

Source Formula 2012 2013 2014 2015 2016 Avg 5-yr

Liquidity Ratios
Current Ratio Balance Sheet Current Assets/Current Liabilities 1.04 1.14 1.16 1.57 1.47 1.27
Cash Ratio Balance Sheet Cash+Short Term Investment/Current Liability 0.04 0.05 0.06 0.11 0.05 0.06
Quick Ratio Balance Sheet Current Assets - Inventory/Current Liabilities 0.41 0.52 0.54 0.66 0.61 0.55

Current Ratio
1.80
1.60
1.40
1.20
1.00
Current Ratio
0.80
Linear ( Current Ratio)
0.60
0.40
0.20
0.00
2012 2013 2014 2015 2016

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 Cash Ratio
0.12

0.10

0.08

0.06 Cash Ratio

Linear (Cash Ratio)
0.04

0.02

0.00
2012 2013 2014 2015 2016

QUICK RATIO
0.70

0.60

0.50

0.40
Quick Ratio
0.30 Linear ( Quick Ratio)

0.20

0.10

0.00
2012 2013 2014 2015 2016

ANALYSIS OF LIQUIDITY RATIOS

The current ratio of the company has progressively risen over the course of 5 years and throughout this
period, the value has been above the benchmark value of 1.0 which indicates a positive sign for company’s
creditors. The company will be able to pay off all its current liabilities if it liquidates its current assets at the
time of financial crisis.
The cash ratio is more conservative in nature as it only considers most liquid types of assets (cash, short term
ivestments) to pay off current liabilities. Analyzing the cash ratios for the company, it has been revealed that

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 the cash ratio has almost remained flat throughout the 5 year period with the maximum amount of 11% in
2015. In other years, the amount has remained around 5% to 6%. It indicates that in the time of financial
crises, if the company tends to pay off its current liabilities using cash (or cash equivalents), then only 5 to 6%
of the current liabilities would be settled. The rest will need to be paid through other means. This indicates
that the cash hand accounts for a small portion of liability.
The Quick Ratio revolves around a range of 55%-60% for the given 5 year period which mayindicate that the
company may be able to pay off majority of its liabiities by utiizing the easiliy-liquid assets. This also indicates
that almost 40% of its current assets are comprised of inventories which may point towards an issue with
inventory turnover

6.2 EFFICENCY RATIO

The efficiency ratio is typically used to analyze how well a company uses its assets and liabilities internally. An
efficiency ratio can calculate the turnover of receivables, the repayment of liabilities, the quantity and usage of
equity, and the general use of inventory and machinery. This ratio can also be used to track and analyze the
performance of commercial and investment banks.

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Ratio Name 2012 2013 2014 2015 2016 Avg 5-yr

Inventory Turnover 3.0 3.1 2.8 3.9 3.5 3.3

Accts Rec. Turnover 6.2 5.0 5.1 9.1 7.2 6.5
Average Collection Period 59.3 72.3 71.1 40.3 50.4 58.7
Fixed Asset Turnover 4.5 4.2 4.5 4.9 3.0 4.2
Total Asset Turnover 1.4 1.4 1.3 1.8 1.4 1.5

Inventory Turnover
4.5
4.0
3.5
3.0
2.5 Inventory Turnover

2.0
Linear ( Inventory
1.5 Turnover)

1.0
0.5
0.0
1 2 3 4 5

Accts Rec. Turnover

10.0
9.0
8.0
7.0
6.0 Accts Rec.
5.0 Turnover
4.0 Linear ( Accts Rec.
3.0 Turnover)
2.0
1.0
0.0
2012 2013 2014 2015 2016

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 Average Collection Period
80.0

70.0

60.0

50.0
Average Collection
40.0 Period
Linear ( Average
30.0
Collection Period)
20.0

10.0

0.0
2012 2013 2014 2015 2016

Fixed Asset Turnover

6.0

5.0

4.0
Fixed Asset
3.0 Turnover
Linear ( Fixed Asset
2.0 Turnover)

1.0

0.0
2012 2013 2014 2015 2016

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 Total Asset Turnover
2.0
1.8
1.6
1.4
1.2 Total Asset
1.0 Turnover
0.8 Linear ( Total Asset
Turnover)
0.6
0.4
0.2
0.0
2012 2013 2014 2015 2016

ANALYSIS OF EFFICIENCY RATIO

The Inventory turnover has not experienced unusual rise or decline, which means that the company is
operating optimally by keeping a close look at its sales figures. The cost of sales is kept at check against the
inventories in hand in company’s plants and wareouses.
The healthy values of more than 5 in the Account Receivables turnover indicate that the company is
effectively managinging the credit it extends to its dealers. And it also means that the dealers are mostly
reliable who tend to pay off the debts quickly. The average collection period has seen some ups and downs
over the past 5 years which signify that there had been some irregularities in collection in the past, but in
recent years, the policies of company about credit may have changed which has squeezed the average
collection period as well.
Fixed Assets of the company have remained somewhat uniform in the earlier years and have sharply risen in
the last year. However the same sharp rise has not been observed in the sales revenue of the company which
may indicate that the fixed assets (plant etc) has not yet been made operational to generate significant
income. Hence, due to this rise in asset and no rise in sales, the Fixed Asset Turnoever ratio has decline in the
past year. When it comes to total assets turnover, the ratio has not much changed over the years which
means that despite a significant rise in fixed assets, the net asset size has remained proportional and so have
the sales.

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6.3 LEVEREAGE RATIO:
Companies rely on a mixture of owners and debt to finance their operations. A leverage ratio is any one of several
financial measurements that look at how much capital comes in the form of debt (loans), or assesses the ability of
a company to meet financial obligations.

2012 2013 2014 2015 2016 Avg 5-yr

Total Liabilities to Assets 72.1% 70.1% 69.1% 55.9% 56.7% 64.8%

Debt to Asset Ratio 36.3% 38.3% 46.6% 23.4% 28.0% 34.5%
Debt to Equity Ratio 130.3% 128.4% 150.7% 53.1% 64.7% 105.4%
Long-term Debt Ratio 0.0% 2.8% 1.5% 7.2% 13.5% 5.0%
Liability to Equity 259.0% 234.9% 223.2% 126.8% 131.0% 195.0%
LTD to Equity 0.0% 9.3% 4.9% 16.3% 31.2% 12.3%
Equity Multiplier/Fin Leverage 359.0% 334.9% 323.2% 226.8% 231.0% 295.0%

TOTAL LIABILITIES TO ASSETS

80.0%

70.0%

60.0%

50.0%
Total Liabilities to
40.0% Assets
Linear ( Total
30.0%
Liabilities to Assets)
20.0%

10.0%

0.0%
2012 2013 2014 2015 2016

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 DEBT TO ASSET RATIO
50.0%
45.0%
40.0%
35.0%
30.0% Debt to Asset Ratio
25.0%
20.0% Linear (Debt to Asset
15.0% Ratio)
10.0%
5.0%
0.0%
2012 2013 2014 2015 2016

DEBT TO EQUITY RATIO

160.0%
140.0%
120.0%
100.0%
Debt to Equity Ratio
80.0%
60.0% Linear (Debt to Equity
Ratio)
40.0%
20.0%
0.0%
2012 2013 2014 2015 2016

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 LONG-TERM DEBT RATIO
16.0%
14.0%
12.0%
10.0%
8.0% Long-term Debt
Ratio
6.0%
Linear ( Long-term
4.0% Debt Ratio)
2.0%
0.0%
-2.0% 2012 2013 2014 2015 2016

-4.0%

LIABILITY TO EQUITY
300.0%

250.0%

200.0%
Liability to Equity
150.0%
Linear ( Liability to
100.0% Equity)

50.0%

0.0%
2012 2013 2014 2015 2016

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 LTD TO EQUITY
35.0%

30.0%

25.0%

20.0%
LTD to Equity
15.0%
Linear ( LTD to Equity)
10.0%

5.0%

0.0%
2012 2013 2014 2015 2016
-5.0%

EQUITY MULTIPLIER/FIN
LEVERAGE
400.0%
350.0%
300.0%
Equity Multiplier/Fin
250.0%
Leverage
200.0%
150.0% Linear ( Equity
Multiplier/Fin
100.0% Leverage)
50.0%
0.0%
2012 2013 2014 2015 2016

ANALYSIS OF LEVERAGE RATIOS

Total Liabilities to Total Assets ratio has remained controlled as it is evident that liabilities have been a lot
lesser than assets which can help the company in the times of financial crisis. This value has gradually

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 decreased which indicates that the company is committed towards paying off its debts to attain a healthy
balance sheet.
The debit-to-asset ratio has risen in the first three years which may point to the fact that the company might
not have been financially well performing earlier or incurring extra debt for any upcoming projects. However,
the same value observed a sharp decline which means that the debt incurred has finally been paid off .
The debt to equity ratio has been very high in first three years,(similar trend was observed in debt to asset
ratio), which indicates that the company is taking risks to finance its projects using debts, while the total
stockholder value remains the same. However this value has seen a sharp fall for the latter two years as debt
seems to have been paid off.
The long term debt ratio also follows a similar trend, it has continuously increased which reinforces the
company’s debt-taking practice.
Liability to Equity ratio has experienced a declining trend, hence it is an indicator that the company has been
paying off increasing the stockholder’s equity in a higher rate as it is increasing its liability to other parties.
The company’s equity multiplier is in excess of 100% which indicates a risky approach as most of its assets are
funded by the debt rather than its equity. Hence external creditors own more of the company than actual
shareholders.

6.4 PROFITABLITY RATIO:

Profitability ratios are a class of financial metrics that are used to assess a business's ability to generate earnings
compared to its expenses and other relevant cost incurred during a specific period of time. For most of these ratios,
having a higher value relative to a competitor's ratio or relative to the same ratio from a previous period indicates
that the company is doing well.

2012 2013 2014 2015 2016 Avg 5-yr

Gross Profit Margin 12.8% 16.3% 18.5% 20.4% 24.5% 18.5%

Operating Profit Margin 8.1% 10.6% 12.5% 14.3% 17.2% 12.5%
Net Profit Margin 2.6% 4.8% 6.0% 7.7% 10.9% 6.4%
Pre-Tax Profit Margin 3.2% 7.1% 8.7% 11.6% 15.8% 9.3%
Operating Return on Assets 11.5% 14.5% 16.4% 25.3% 23.9% 18.3%
Return on Assets 3.7% 6.6% 7.8% 13.7% 15.2% 9.4%
Return on Equity 13.3% 22.1% 25.3% 31.1% 35.0% 25.3%

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 Gross Profit Margin
30.0%

25.0%

20.0%
Gross Profit Margin
15.0%
Linear ( Gross Profit
10.0% Margin)

5.0%

0.0%
2012 2013 2014 2015 2016

Operating Profit Margin

20.0%
18.0%
16.0%
14.0%
12.0% Operating Profit
10.0% Margin
8.0% Linear ( Operating
Profit Margin)
6.0%
4.0%
2.0%
0.0%
2012 2013 2014 2015 2016

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 Net Profit Margin
12.0%

10.0%

8.0%
Net Profit Margin
6.0%
Linear ( Net Profit
4.0% Margin)

2.0%

0.0%
2012 2013 2014 2015 2016

Pre-Tax Profit Margin

18.0%
16.0%
14.0%
12.0%
10.0% Pre-Tax Profit Margin

8.0%
Linear (Pre-Tax Profit
6.0% Margin)

4.0%
2.0%
0.0%
2012 2013 2014 2015 2016

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 Operating Return on Assets
30.0%

25.0%

20.0%
Operating Return on
15.0% Assets
Linear (Operating
10.0% Return on Assets)

5.0%

0.0%
2012 2013 2014 2015 2016

Return on Assets
30.0%

25.0%

20.0%
Return on Assets
15.0%
Linear ( Return on
10.0% Assets)

5.0%

0.0%
2012 2013 2014 2015 2016

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 Return on Equity
40.0%

35.0%

30.0%

25.0%
Return on Equity
20.0%
Linear ( Return on
15.0%
Equity)
10.0%

5.0%

0.0%
2012 2013 2014 2015 2016

ANALYSIS OF PROFITABILITY RATIOS

Gross profit margin of the company is improving over the last 5 years. Especially after
2013 this ratio has increased to 16.3 to 24.5 in recent year i.e. 2016. The reason behind
this change can be increment in the gross profit of the company.
Operating profit margin of the company is growing with passage of time. And there is
continuous increase by 2 percent every year and the reason behind this change could be
increase in gross profit or decrease in operating expenses of the company.
Net income to sales ratio of company is greatly increasing since 2012. In 2015 the ratio
is 7.7 which is drastically increased to 10.9 in 2016. The main reason for this increase is
good management of the company. Secondly the company has gained advantage due to
the increasing prices in the market.
Return on asset of general tire showing an abrupt change in these 5 years specially from
2014 to 2015 (by 6%) one reason can be increase in net income but on the other hand in
2015 total assets of the company has been reduced which itself is a drawback.

Return on Equity ratio of general tire is improving with passing time. Especially after
2014 this ratio shows a very health trend. According to ROE ratio in FY15 every 1 rupee
generates 0.31 rupee of net income. This ratio has improved in FY16, where now 1-
rupee equity helps in generating 0.35 rupees of net income. This improved is because of
company’s right utilization of its resources and because of continuous increase profits
and gross margins.

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7 CONDITIONAL FORMATTING

5 Year Income Statement - Amounts are represented as Millions of PKR

2012 2013 2014 2015 2016
Total Revenue 360.6 439.6 885.0 (12.6)
Sales 360.6 439.6 885.0 (12.6)
Other Revenue 0.0 0.0 0.0 0.0
Cost of Sales (30.2) (173.3) (541.6) 396.2
Gross Profit 330.4 266.3 343.4 383.6
Total Operating Expenses (121.8) (234.2) (603.5) 285.4
Administrative expenses (21.6) (50.3) (11.9) (10.4)
Distribution Cost (76.3) (51.0) 26.4 (67.7)
Other Income 19.0 49.9 (52.7) (0.4)
Other Expenses (12.7) (9.5) (23.6) (32.3)
Operating Profit 238.8 205.4 281.6 272.8
Finance Cost 92.5 (37.0) 68.0 122.1
Share of Profit/loss from Asst Co 1.4 (0.1) (0.7) 2.8
Profit before Taxes 332.7 168.2 348.8 397.7
Taxes (139.8) (50.1) (129.7) (98.3)
Profit After Taxes 192.9 118.1 219.1 299.4

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5 Year Income Statement - Amounts are represented as Millions of PKR
2012 2013 2014 2015 2016
Total Revenue 360.6 439.6 885.0 (12.6)
Sales 360.6 439.6 885.0 (12.6)
Other Revenue - - - -
Cost of Sales (30.2) (173.3) (541.6) 396.2
Gross Profit 330.4 266.3 343.4 383.6
Total Operating Expenses (121.8) (234.2) (603.5) 285.4
Administrative expenses (21.6) (50.3) (11.9) (10.4)
Distribution Cost (76.3) (51.0) 26.4 (67.7)
Other Income 19.0 49.9 (52.7) (0.4)
Other Expenses (12.7) (9.5) (23.6) (32.3)
Operating Profit 238.8 205.4 281.6 272.8
Finance Cost 92.5 (37.0) 68.0 122.1
Share of Profit/loss from Asst Co 1.4 (0.1) (0.7) 2.8
Profit before Taxes 332.7 168.2 348.8 397.7
Taxes (139.8) (50.1) (129.7) (98.3)
Profit After Taxes 192.9 118.1 219.1 299.4

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