Financial Analysis of ORIX Leasing Pakistan 201 0

ASSIGNMENT
FINANCIAL ANALYSIS OF ORIX LEASING COMPANY 2010
GROUP MEMBERS: Muntazir Hussain Nasab Hussain Mohammad Siddique Asfandiyar Jan

SUBMITTED TO: Sir. Adnan Javed

SUBJECT: Financial Management

DATE: 10th May, 2011

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Financial Analysis of ORIX Leasing Pakistan 201 0

INTRODUCTION: We take the annual report of ORIX Leasing Company which is Japanese Company and tried to analyze its Balance sheet and Income Statement. But for best analyzation industry average ratio as in this case leasing companies average ratio are extremely important but as we do not have their industry average ratio, so for this purpose we make the internal analyzation or comparison by finding the financial ratios of 2009 and 2010 and then we compare them.
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Financial Analysis of ORIX Leasing Pakistan 201 0

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Financial Analysis of ORIX Leasing Pakistan 201 0

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Financial Analysis of ORIX Leasing Pakistan 201 0

ANALYSIS:

LIQUIDITY RATIO:

Current Ratio: For 2009:

Current assets /current liabilities 13,857,574,419 / 7,438,066,058 = 1.863

For 2010:

11,860,530,827 / 8,799,426,084 = 1.348

In 2009 the Current Ratio of ORIX Leasing Company was 1.86 which means that if company have 1 Rupee of current liabilities then it have 1.86 Rupees of current assets to fulfill or cover those liabilities. Where as in 2010 it become 1.348, a slight decrease in companys current ratio. Which is not a good sign for the company.

ACID TEST OR QUICK RATIO:

Quick ratio: For 2010:

Current assets - Inventory / Current liabilities 11,860,530,827 - 24,574,888 / 8,799,426,084 = 1.345

For 2009:
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13,857,574,419 - 59,506,055 / 7,438,066,058 = 1.855

It have the same meanings and tells the same thing as the current ratio but it is a more conservative approach. In 2009 the companys Quick ratio was 1.85, similar to current

Financial Analysis of ORIX Leasing Pakistan 201 0

ratio whish was 1.86 because it is a leasing company which do not have most or huge inventory on the stock, they mainly deals in Just in Time inventory. In 2010 the Quick Ratio of ORIX was 1.244 (Similar to Current Ration in 2010) which means that if Company have 1 Rupee of current liabilities then it have 1.344 Rupees of current assets to cover those liabilities. It is more conservative approach because the current asset do not contain inventories.

FINANCIAL LEVERAGE OR DEBT RATIOS:

Debt to equity ratio : For 2009:

Total Debt / shareholders equity 2.524529629 x 1010 / 2,077,910,485 = 12.15

For 2010:

2.176267042 x 1010 / 2,016,356,433 = 10.79

In 2009 the company Debt-to-Equity was 12.15 which tells us that creditors are providing 12.15 Paisa of Financing for each 1 Rupee being provided by the shareholders. In 2010 the companys Debt-to-Equity ratio was 10.79 which tells that the creditors are providing 10.79 Paisa of Financing for each 1 Rupee being provided by the shareholders. In 2009 Debt-to-Equity ratio was 12.15 which decrease to 10.79 in 2010 which is a good sign for the company.

DEBT TO TOTAL ASSETS RATIO :

Debt to total assets ratio: Total debt / Total assets For 2009: 2.524529629 x 1010 / 27,323,206,780 = 0.924

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For 2010:

2.176267042 x 1010 / 23,779,026,866 = 0.915

Financial Analysis of ORIX Leasing Pakistan 201 0

In 2009 the companys Debt to total assets ratio was 0.92 which means that 92% of companys assets were financed with debt and the remaining 8% were equity which is share holders equity which is very bad sign and contains a huge risk for the companys investors that why the ORIX Leasing Company bears a huge loss in 2009. While in 2010 the company Debt-to-Total Assets Ratio becomes 0.91 which is a slight decrease from 2009 but again is a bad sign for the companys investors and shareholders.

RATIO OF LONG TERM CAPITALIZATION:

Ratio of long term capitalization: Long term debt / Total capitalization For 2009: 17,807,230,237 / 1.988514072 x 1010 = 0.895

For 2010:

12,963,244,349 / 1.497960077 x 1010 = 0.865

COVERAGE RATIO:

Interest coverage ratio : For 2009:

Earning before interest and taxes / Interest Expense 2,998,725,229 / 2,064,426,443 = 1.45

For 2010:

2,190,382,623 / 2,064,426,443 = 1.06

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In 2009 the ORIX Leasing Company interest coverage ratio was 1.45 which means that if the company have 1 Rupee of interest expense then it have 1.45 Rupees of EBIT to cover those interest expenses. It is a lower ratio and is a threat for company ability to cover its interest payments. In 2010 the interest ratio becomes 1.06 which is again much

Financial Analysis of ORIX Leasing Pakistan 201 0

lower value and a bad sign for company ability to cover the interest payments.

ACTIVITY RATIO :

Receivable Turnover (RT) ratio: For 2009:

Annual credit sales / receivables 3,523,510,173 / 1,217,527,948 = 2.89

For 2010:

3,757,299,316 /1,072,159,951 = 3.50

In 2009 the companys Receivable Turnover ratio was 2.89 which tells that 2.89 times account receivable have been turnover (In Cash) during 2009. In 2010 the company RT Ratio Increase to 3.50 (Good Sign) which tells that 3.50 time account receivable have been turnover during 2010. The Increase RT ratio from 2009 to 2010 is a good sign for Company.

Activity Ratio in Days: For 2009:

Days in the year / Receivable Turnover 365 /2.90 = 125 Days

For 2010:

365 /3.50 = 104 Days

If we convert this ratio in days then in 2009 the company takes 125 days to convert account receivables to cash. According to the companys annual report the company collection policy was Net 90 which means that company should have to strict its policies for account receivables and in 2010 the company takes 104 days to convert the account receivable into the cash which is a improvement toward companies collections policy and a good achievements from 2009 to 2010.

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PROFITABILITY IN RELATION TO INVESTMENT:

Financial Analysis of ORIX Leasing Pakistan 201 0

Return on Investment (ROI) or Return on Assets: Assets For 2009: Net Profit after Tax / Total

467,096,343 /27,323,206,780 = (0.017)*

*In 2009 there was no Profit, the Company bears a loss of 467,096,343

For 2010:

104,483,833 /23,779,026,866 = 4.4 x 10-3

In 2009 the companys ROI ratio was -0.017 which tells that ORIX employs 1 Rupee of Assets and it generate -0.017 Paisa of loss, then -ive sign shows the loss, then why the ORIX bears a huge loss in 2009. While in 2010 the ROI Ratio was 0.44 which tells that the company generates Net Profit of 0.44 Paisa when 1 Rupee total assets are employed. As it is a profit but it seems to be very less and also we do not know the industry average ratios.

RETURN ON EQUITY (ROE) RATIO: ROE Ratio: For 2009: Net Profit after Taxes / Share holders Equity 467,096,343 /2,077,910,485 = (0.2247)*

*In 2009 Company bears a loss of 467,096,343

For 2010:

104,483,833 /2016356433 = 0.0518

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In 2009 the companys ROE Ratio was -0.224 which shows a loss. It tells that the shareholders have interested 100 Rupees at it generate 22.4 Rupees of loss. Which was a huge loss for the company in 2009. While in 2010 the ROE ratio was 0.0518 or 51.8%

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and which shows the Profit and it tells that the Company generate 51 Rupees of Profit upon 100 Rupees of shareholders Investments. SUMMARY Ratios Current Ratio Acid Test or Quick ratio Debt to Equity Ratio Debt to Total Assets Ratio of Long Term Capitalization Interest Coverage Ratio Receivable Turnover Ratio (RT) Receivable Turnover Ratio (RT) In Days Return on Investments (ROI) Return on Equity (ROE) 2009 1.863 1.855 12.15 0.924 0.895 1.45 2.89 125 Days -0.017 -0.2247 2010 1.348 1.345 10.79 0.915 0.865 1.06 3.5 104 Days 0.44 0.0518

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